Annual Comprehensive Financial Reports ACFR-2012

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City of Muskegon,
Michigan



Comprehensive Annual
Financial Report




For The Fiscal Year Ended June 30, 2012

                    www.shorelinecity.com
                                               CITY OF MUSKEGON,
                                                    MICHIGAN




                                             COMPREHENSIVE
                                         ANNUAL FINANCIAL REPORT
                                           FOR THE YEAR ENDED
                                              JUNE 30, 2012




                                                      Prepared By

                                        FINANCIAL SERVICES DIVISION



         Timothy Paul                                                Derrick Smith
         Director of Finance                                         City Treasurer

         Elizabeth Lewis                                             James Maurer
         Assistant Finance Director                                  Information Systems Director

         Kenneth Grant                                               Kathy Coleman
         Income Tax Administrator                                    Finance & Payroll Coordinator




Cover Photo: September rainbow at Muskegon’s Pere Marquette Beach.




                                                 www.shorelinecity.com
                                                                City of Muskegon

                                                          TABLE OF CONTENTS


INTRODUCTORY SECTION

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


FINANCIAL SECTION

Independent Auditors’ Report.................................................................................................................. 17
Management’s Discussion and Analysis.................................................................................................. 19
Basic Financial Statements
 Government-wide Financial Statements
   Statement of Net Assets (Deficits) .................................................................................................... 32
   Statement of Activities ...................................................................................................................... 33
 Fund Financial Statements
   Governmental Funds
      Balance Sheet ................................................................................................................................. 34
      Reconciliation of the Governmental Funds Balance Sheet
        to the Statement of Net Assets .................................................................................................... 35
      Statement of Revenues, Expenditures and Changes
        in Fund Balances ......................................................................................................................... 36
      Reconciliation of the Governmental Funds Statement of Revenues,
        Expenditures and Changes in Fund Balances to the Statement of
        Activities ..................................................................................................................................... 37
   Proprietary Funds
      Statement of Net Assets ................................................................................................................. 38
      Statement of Revenues, Expenses and Changes in Fund Net Assets ............................................. 39
      Statement of Cash Flows ................................................................................................................ 40
   Fiduciary Funds
      Statement of Fiduciary Assets and Liabilities ................................................................................ 41
 Component Units
   Statement of Net Assets (Deficits) .................................................................................................... 42
   Statement of Activities ...................................................................................................................... 43
   Notes to Financial Statements .............................................................................................................. 44
Required Supplementary Information
 Budgetary Comparison Schedule—General Fund ................................................................................ 70
 Budgetary Comparison Schedule—Major Street and Trunkline Fund ................................................. 76
 Schedule of Funding Progress .............................................................................................................. 77




                                                                              1
                                                               City of Muskegon

                                                          TABLE OF CONTENTS


Other Supplemental Information
 Other Governmental Funds
   Description of Other Governmental Funds ....................................................................................... 80
   Combining Balance Sheet ................................................................................................................. 82
   Combining Statement of Revenues, Expenditures and Changes in
      Fund Balances ................................................................................................................................ 83
   Other Special Revenue Funds
      Combining Balance Sheet .............................................................................................................. 84
      Combining Statement of Revenues, Expenditures and Changes in
        Fund Balances ............................................................................................................................. 85
      Budgetary Comparison Schedule—Other Special Revenue Funds ............................................... 86
   Other Capital Projects Funds
      Combining Balance Sheet .............................................................................................................. 88
      Combining Statement of Revenues, Expenditures and Changes in
        Fund Balances (Deficits)............................................................................................................. 89
 Internal Service Funds
   Description of Internal Service Funds ............................................................................................... 91
   Combining Statement of Net Assets.................................................................................................. 92
   Combining Statement of Revenues, Expenses and
      Changes in Fund Net Assets (Deficit) ............................................................................................ 93
   Combining Statement of Cash Flows ................................................................................................ 94
 Fiduciary Funds
   Description of Fiduciary Funds ......................................................................................................... 95
   Agency Funds
      Combining Statement of Assets and Liabilities ............................................................................. 96
      Statement of Changes in Assets and Liabilities ............................................................................. 97
 Component Units
   Description of Component Units ....................................................................................................... 99
   Combining Balance Sheet ............................................................................................................... 100
   Reconciliation of the Governmental Funds Balance Sheet
      to the Statement of Net Assets (Deficits) ..................................................................................... 101
   Combining Statement of Revenues, Expenditures and Changes
      in Fund Balances (Deficit) ........................................................................................................... 102
   Reconciliation of the Governmental Funds Statement of Revenues,
      Expenditures and Changes in Fund Balances (Deficit) to the Statement
      of Activities .................................................................................................................................. 103
 Schedule of Indebtedness ................................................................................................................... 105




                                                                             2
                                                             City of Muskegon

                                                        TABLE OF CONTENTS


STATISTICAL SECTION

Financial Trends
  Net Assets by Component .................................................................................................................. 110
  Changes in Net Assets ........................................................................................................................ 111
  Fund Balances of Governmental Funds .............................................................................................. 113
  Changes in Fund Balances of Governmental Funds ........................................................................... 114
Revenue Capacity
  Governmental Activities Revenues by Source ................................................................................... 115
  Taxable, Assessed and Equalized and Estimated Actual Valuation of Property ................................ 116
  Principal Property Taxpayers ............................................................................................................. 117
  Property Tax Rates – Direct and Overlapping Government Units ..................................................... 118
  Property Tax Levies and Collections .................................................................................................. 119
  Segmented Data on Income Tax Filers, Rates and Liability .............................................................. 120
Debt Capacity
  Ratio of Outstanding Debt by Type .................................................................................................... 121
  Direct and Overlapping Debt .............................................................................................................. 122
  Legal Debt Margin Information.......................................................................................................... 123
  Revenue Bond Coverage .................................................................................................................... 124
Demographic and Economic Information
  Demographic and Economic Statistics ............................................................................................... 125
  Principal Employers............................................................................................................................ 126
Operation Information
  Full-time Equivalent Government Employees ................................................................................... 127
  Operating Indicators by Function/Program ........................................................................................ 128
  Capital Asset Statistics by Function/Program .................................................................................... 129

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 ..................................................................................................... 132
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 .......................................................................................... 134
Schedule of Expenditures of Federal Awards ...................................................................................... 136
Notes to Schedule of Expenditures of Federal Awards ....................................................................... 138
Schedule of Findings and Responses ................................................................................................... 139
Client Documents
   Summary Schedule of Prior Audit Findings ................................................................................... 142
   Corrective Action Plan .................................................................................................................... 143




                                                                           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 23, 2012
Civil Service
(231)724-6716
FAX (231)724-
4405

Clerk
(231)724-6705      Honorable Mayor and Members of the
FAX (231)724-      City Commission
4178
                   City of Muskegon
Comm. &
Neigh. Services
                   Muskegon, Michigan 49443
(231)724-6717
FAX (231)726-
2501

Finance
(231)724-6713      Ladies and Gentlemen:
FAX (231)724-
6768

Fire Department    We are pleased to present to you the Comprehensive Annual Financial Report (CAFR) for
(231)724-6792
FAX (231)724-      the City of Muskegon, Michigan, for the fiscal year ended June 30, 2012. This report
6985
                   includes the City’s audited financial statements in accordance with the requirements of
Income Tax         state law. The financial statements are presented in conformity with accounting principles
(231)724-6770
FAX (231)724-      generally accepted in the United States of America (GAAP), and audited in accordance
6768               with generally accepted auditing standards by a firm of licensed certified public
Inspection         accountants. This annual report is formatted to comply with the financial reporting model
Services           developed by the Government Accounting Standards Board (GASB) Statement 34.
(231)724-6715
FAX (231)728-
4371
                   GAAP requires that management provide a narrative introduction, overview, and analysis
Leisure Services   to accompany the basic financial statements in the form of Management’s Discussion and
(231)724-6704
FAX (231)724-      Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and
1196               should be read in conjunction with the financial statements. The City of Muskegon’s
Mayor’s Office     MD&A can be found immediately following the independent auditor’s report.
(231)724-6701
FAX (231)722-
1214
                   The Comprehensive Annual Financial Report is prepared by the City’s Finance
Planning/Zoning
(231)724-6702
                   Department and responsibility for both the accuracy of the data presented and the
FAX (231)724-      completeness and fairness of the presentation, including all disclosures, rests with the
6790
                   City. We believe the data as presented is accurate in all material respects; that it is
Police             presented in a manner designed to set forth fairly the financial position and results of
Department
(231)724-6750      operation of the City as measured by the financial activity of its various funds and
FAX (231)722-      component units; and that all disclosures necessary to enable the reader to gain the
5140
                   maximum understanding of the City’s finances have been included. Brickley DeLong,
Public Works       P.C., Certified Public Accountants, performed the independent audit of all accounts of the
(231)724-4100
FAX (231)722-      City as required by state law and their report and unqualified opinion is presented as the
4188
                   first component of the financial section of this report.
Treasurer
(231)724-6720
FAX (231)724-
6768
                          City of Muskegon, 933 Terrace Street, P.O. Box 536, Muskegon, MI 49443-0536
                                                 http://www.shorelinecity.com

                                                             5
THE CITY AND THE REGION
The City of Muskegon is located in Western Michigan on the shores of Lake Michigan. The City covers
eighteen square miles and, with a 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. 2012 marks the ferry service’s ninth 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 the Bike Time festival which attracts motorcycle enthusiasts to the City
   each July, the Unity Christian Music Festival and Irish Fest.
    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
          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.



                                                    6
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.


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. Even though these institutions are exempt from paying property taxes, local income tax
withholdings remitted by these employers provide stability to City finances in times of economic
weakness.
In December 2011 Consumers Energy, the City’s largest property taxpayer, announced plans to close
its sixty-four year-old B.C. Cobb electric generating facility in January 2015 due to age, stricter pollution
regulations and slowing electric demand. The facility accounts for about 10% of total City property tax
revenues so the closure will have a significant impact on municipal operations. During the fiscal year
the City also settled a major tax appeal on the B.C. Cobb plant resulting in a tax refund payment of
more than $900,000. The City has reforecast its FY 2012-13 budgets to account for the short-term loss
of property tax revenue and is actively planning longer-term strategies to deal with the ultimate closure
of the plant.

                                                     7
On a more positive note, the local economy saw measurable improvement in FY2012 as reflected in the
growth of city income tax revenues which were up more than twelve percent from the prior fiscal year.
Most recently, the State of Michigan reopened the West Shore Correctional Facility bringing 250 state
jobs back to the City. This facility is also a major user of water and sewer services.
The City fully recognizes the magnitude of financial challenges it faces due to the pending loss of its
largest property tax payer. We have worked to position ourselves to be in as strong position as possible
to face this challenge: the City’s General Fund balance has never been healthier, pension and retiree
healthcare costs are under control and debt levels are manageable.


MAJOR INITIATIVES AND ACCOMPLISHMENTS
Among the City's major initiatives and accomplishments in fiscal year 2011-12 were the following:

      Economic development activity picked up dramatically from recent years as evidenced by
       several new projects:

             A new Social Security Office center was constructed in the downtown;
             A $20 million, 70,000 square foot manufacturing addition at ADAC Automotive was started
              that will create 130 new jobs;
             A $15 million expansion of the Betten Auto dealerships was completed;
             65 new jobs were created through expansion of the Port City Group’s manufacturing
              facilities;
             The State of Michigan announced reopening of the West Shore Correctional Facility
              bringing back 250 jobs.

      Major steps were taken to ensure the future stability and viability of the City’s critical water
       treatment operation:

             The City reached a new 40-year water supply agreement with its current municipal
              customers. The agreement calls for the City to provide water to these customers at a rate
              equal to 1.25 times the rate charged to in-City customers;
             The City also concluded a water supply agreement with two new large municipal
              customers it previously had not served – the City of Norton Shores and Fruitport Charter
              Township. Service to these two municipal customers will start in 2015 and their addition
              will allow the spreading of water treatment costs over a larger customer base while
              remaining well within the plant’s rated treatment capacity.

      The City successfully replaced its sixteen year-old financial management systems with newer,
       more cost effective software. Implementation of the new software systems was accomplished on
       schedule and well within budget.



                                                   8
      The City replaced its aging phone systems with state-of-the-art voice over internet protocol
       (VOIP) technology that will dramatically reduce future telecommunications costs.

      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.


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, 2012, the total of City bonds and contractual debt outstanding (including discretely
presented component unit debt) was $31,795,140. Presently there are no plans to issue new debt.
Standard & Poor’s rates the City’s general obligation debt A+. The City’s water revenue bonds carry
the AA- rating.




                                                    9
PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS
The City’s defined benefit retirement benefits are administered by the statewide Municipal Employees
Retirement System (MERS) of Michigan. The defined benefit program is closed to new employees and
all hires since 2007 are covered by a defined contribution retirement program. As of the most recent
actuarial report (December 31, 2011), the City’s defined benefit retirement program is 97% funded.
The City also provides post-employment 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. The City has 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, 2011), the City’s retiree healthcare program is 76% 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 year ended June 30, 2011. This marked the twenty-
sixth 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, CATV




                                                                                                         Sanitation




                                                                                                        Streetlights




                                                                                                   Marina & Launch Ramps




                                                                                                      Farmers' Market




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

                                                June 30, 2012




                                          ELECTED OFFICIALS


Mayor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stephen J. Gawron
At Large

Vice Mayor-Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lawrence O. Spataro
Ward 3

Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eric Hood
Ward 1

Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Willie German
Ward 2

Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Byron Turnquist
Ward 4

Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lea Markowski
At Large

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 23, 2012


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, 2012, 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, 2012, 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 19 - 30 and 70 - 77 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.


678 Front Ave., NW Suite 230               316 Morris Ave., Suite 500, P.O. Box 999             907 S. State St., P.O. Box 331
Grand Rapids, MI 49504                              Muskegon, MI 49443                                        Hart, MI 49420
PHONE (616) 742-1300                              PHONE (231) 726-5800                               PHONE (231) 873-1040
FAX (616) 742-1318                                  FAX (231) 722-0260                                   FAX (231) 873-0602
                                                 www.brickleydelong.com
                                                       17
BRICKLEY DELONG

  City Commission
  October 23, 2012
  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,
2012. Please read it in conjunction with the City’s financial statements, which follow this
section.

FINANCIAL HIGHLIGHTS

     The assets of the City of Muskegon exceeded its liabilities by $133,007,035 as of
      June 30, 2012. Of the total net assets, $21,798,286 (16.4%) was unrestricted and
      may be used to meet the City’s ongoing obligations to citizens and creditors.

     The City’s total combined net assets decreased by $1,495,867 during the year
      ended June 30, 2012 mostly due to normal depreciation of capital assets.

     The City’s governmental funds reported combined ending fund balance of
      $13,438,058, an increase of $2,511,718 (23%) from the prior year. The increase
      is attributable to the receipt of proceeds from a $2.0 million bond issue for street
      projects and to favorable General Fund operating results.

     The City’s General Fund reported a total fund balance of $6,520,045, an increase
      of $508,663 from the prior year balance of $6,011,382. The favorable increase is
      the result of higher than anticipated local income tax and state-shared revenues
      combined with tight budget controls.

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.




                                            19
        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
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,




                                           20
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.

     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




                                             21
          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 $133,007,035 as of June 30, 2012. This is
a decrease of $1,495,867 from reported net assets for the prior year. An overview of
the City’s net assets follows:
                                              City's Net Assets
                                              (In Thousands of Dollars)
                                     Governmental                   Business-Type
                                       Activities                         Activities                 Total             Percentage
                                  6/30/2012    6/30/2011       6/30/2012      6/30/2011      6/30/2012   6/30/2011      Change


Current and other assets           $22,690       $20,011        $10,581         $10,904       $33,271        $30,915        7.62%
Capital assets                      72,726          74,097        55,407          56,942      128,133        131,038       -2.22%
Total Assets                        95,416          94,108        65,988          67,846      161,404        161,954       -0.34%


Long-term liabilities                8,452           6,919        14,115          15,423       22,567         22,342        1.01%
Other liabilities                    3,738           2,990         2,092           2,120        5,830          5,110      14.09%
Total Liabilities                   12,190           9,909        16,207          17,543       28,397         27,452        3.44%


Net Assets
Invested in capital assets,
  net of related debt               66,863          67,945        40,148          40,420      107,011        108,365       -1.25%
Restricted                           3,526           3,656           672               672      4,198          4,328       -3.00%
Unrestricted                        12,837          12,598         8,961           9,211       21,798         21,809       -0.05%
Total Net Assets                   $83,226       $84,199        $49,781         $50,303      $133,007    $134,502          -1.11%




The bulk of the City’s net assets ($107,010,406 or 80%) represent investments in
capital infrastructure assets, less the remaining balance of debt issued to acquire those
assets. These infrastructure assets are used to provide public services to citizens and
are not available for spending.

Another 3.2% ($4,198,343) of the City’s net assets are legally restricted as to use.
Remaining net assets ($21,798,286) are unrestricted and may be used to meet the
City’s operating needs and ongoing obligations. The City’s unrestricted net assets
decreased slightly ($11,521) during the year.




                                                         22
Changes in net assets. The City’s total revenues were $42,686,094 for the year ended
June 30, 2012. This represents a 5.2% decrease from total revenues collected during
the prior fiscal year. About 38% of the City’s revenue stream came from charges to
users of specific services such as water or sewer. Another 15% came from grants from
the state and federal governments and 38% 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, 2012 was
$44,181,961. This represents a 1% decrease from reported expenses for the last fiscal
year ended June 30, 2011. 72% of the City’s expenses were for governmental activities
such as police and fire protection, streets, parks, and general administration. The
remaining 28% represents the costs of the City’s business-type activities, specifically,
water, sewer and marina operations.

The table on the following page (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.

As can be seen, net assets for governmental activities decreased $973,842 while net
assets for business-type activities decreased by $522,025. These changes represent
the downsizing of municipal operations in response to demographic and fiscal realities
faced by the City.




                                          23
                                          Changes in City’s Net Assets
                                                    (In thousands of dollars)
                                            Governmental                 Business-Type
                                               Activities                   Activities                   Total             Percentage
                                        6/30/2012   6/30/2011        6/30/2012      6/30/2011    6/30/2012   6/30/2011      Change

Program revenues
 Charges for services                     $4,246        $4,418         $11,918       $12,302      $16,164        $16,720       -3.33%
 Operating grants and contributions        4,652            5,425               -            -      4,652          5,425      -14.25%
 Capital grants and contributions          1,568            2,257               -          20       1,568          2,277      -31.14%
General revenues
 Property taxes                            8,383            8,844               -            -      8,383          8,844       -5.21%
 Income taxes                              7,664            6,867               -            -      7,664          6,867      11.61%
 State shared revenues                     3,578            3,847               -            -      3,578          3,847       -6.99%
 All other                                   631            1,014           46             24         677          1,038      -34.78%
Total revenues                            30,722        32,672          11,964        12,346       42,686         45,018       -5.18%


Governmental activities expenses
 Public representation                       867             854                -            -        867           854         1.52%
 Administrative services                     566             646                -            -        566           646       -12.38%
 Financial services                        2,399            2,373               -            -      2,399          2,373        1.10%
 Public safety                            13,213        13,391                  -            -     13,213         13,391       -1.33%
 Public w orks                             2,958            3,471               -            -      2,958          3,471      -14.78%
 Highw ays, streets and bridges            6,569            7,013               -            -      6,569          7,013       -6.33%
 Community and economic development        2,447            2,831               -            -      2,447          2,831      -13.56%
 Culture and recreation                    1,601            1,524               -            -      1,601          1,524        5.05%
 General administration                      792             794                -            -        792           794        -0.25%
 Interest on long-term debt                  283             273                -            -        283           273         3.66%
Business-type activities expenses
 Water                                          -               -        5,974           5,869      5,974          5,869        1.79%
 Sew er                                         -               -        6,202           5,289      6,202          5,289      17.26%
 Marina and Launch Ramp                         -               -          310            293         310           293         5.80%
Total expenses                            31,695        33,170          12,486        11,451       44,181         44,621       -0.99%


Change in net assets before transfers       (973)           (498)        (522)            895      (1,495)          397      -476.57%
Transfers                                       -               -               -            -           -             -                -
Change in net assets                        (973)           (498)        (522)            895      (1,495)          397      -476.57%


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

Net assets at end of year                $83,226      $84,199          $49,781       $50,303     $133,007    $134,502          -1.11%




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,
          2012 was $31,695,255.
         The net cost that City taxpayers paid for these activities through local property
          taxes and income taxes was $16,046,758, or 51% of the total.




                                                                24
       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
                                      6/30/2012    6/30/2011     % Change        6/30/2012    6/30/2011    % Change
Governmental activities
 Public safety                          $13,213      $13,391         -1.33%        $11,910      $12,046       -1.13%
 Community and economic development        2,447        2,831       -13.56%             388         106     266.04%
 Culture and recreation                    1,601        1,524            5.05%        1,280        1,147     11.60%
 Highw ays, streets and bridges            6,569        7,013        -6.33%           1,826        1,770      3.16%
 Public w orks                             2,958        3,471       -14.78%           2,468        2,817     -12.39%
 All other                                 4,907        4,940        -0.67%           3,358        3,184      5.46%
Total governmental activities           $31,695      $33,170         -4.45%        $21,230      $21,070       0.76%




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,
2012, the City’s total business-type activities realized an overall decrease in net assets
of $522,025.

Sewer Fund net assets increased $319,140 primarily as result of lower and more stable
wholesale sewage treatment costs paid to Muskegon County. The Water Fund saw net
assets decrease $677,279. This falloff is attributable to lower consumption levels.
Water rates were increased by 10% effective July 1, 2012 to offset this impact of this
trend. Marina and Launch Ramp Fund net assets decreased $98,293 due to lower
operating revenues resulting from the impact of the economic downturn on recreational
boating.

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, 2012
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.




                                                         25
                                                                         Fund Balance as a %
                                                           Prior Year’s
        Year           Year-End Fund     Year‐to‐Year %                      of Prior Year
        Ended            Balance                        Expenditures and Expenditures (Policy
                                            Change
                                                           Other Uses       Target=13%)
         6/30/2012          $6,520,045       8.46%            $25,556,758       25.51%
         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%

         * 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 large one-time increase to the General Fund fund
balance due to the fact that annual property taxes are collected in full during this period.

For the year ended June 30, General Fund revenues 2012 were $353,135 higher than
the final amended budget estimate. This positive revenue variance is due to higher than
expected local income tax and state shared revenues.

General Fund expenditures were $297,286 less than projected in the amended budget.
Most 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, 2012, the fund balance of the Major
Street and Trunkline Fund increased $1,966,337 which is attributable to the receipt of
proceeds from a $2.0 million bond issue for street projects.


CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets

As of June 30, 2012, the City and its component units had invested $130,849,479 in a
variety of capital assets, including land, streets, equipment, buildings, water and sewer
lines, and vehicles. This is a decrease of $3,078,029 from capital assets reported as of
June 30, 2011. 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.




                                                      26
Long-Term Debt
                                                                                                           Bond Ratings
At June 30, 2012, the City had $24,430,208 in bonds and
                                                                                                           The City’s limited full faith and
other long-term obligations outstanding. This represents a                                                 credit bonds (bonds guaranteed
1.7% increase from the prior year. During the year the City                                                by the City’s taxing powers) are
issued $2.0 million in street improvement bonds to provide                                                 rated “A+” by Standard & Poor’s.
                                                                                                           The City’s Water System
local matching funds for state and federal highway grants.                                                 revenue bonds carry the “AA-“
                                                                                                           S&P 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
                                      6/30/2012     6/30/2011             6/30/2012       6/30/2011      6/30/2012      6/30/2011       Change
Due w ithin one year                       $592             $421             $1,271          $1,256        $1,863             $1,677      11.09%

Due in more than one year                 8,452             6,919            14,115          15,423        22,567             22,342       1.01%

Total bonds & other obligations          $9,044         $7,340              $15,386         $16,679       $24,430            $24,019       1.71%



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 $7,364,932 at year-end as shown in the table below. This represents a
decrease of 1.5% from the prior year.

Debt issued by component units typically is secured by the limited full faith and credit of
the City and so is an important consideration in assessing the City’s overall fiscal health.
Additional information concerning component units’ long-term debt is presented in Note
H to the basic financial statements and is summarized as follows:

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

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

                                   6/30/2012     6/30/2011            6/30/2012    6/30/2011          6/30/2012      6/30/2011            Change
Due w ithin one year                    $275          $265                 $180             $80           $455           $345             31.88%
Due in more than one year              2,534         2,813                4,376            4,321         6,910           7,134            -3.14%
Total bonds & other obligations       $2,809        $3,078               $4,556           $4,401        $7,365         $7,479             -1.52%


During the year, Local Development Finance Authority (LDFA) bonds were refunded
resulting in net present value savings of $405,546 or about 10% of the total bonds
refunded.




                                                                        27
ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES

The City’s fiscal year 2012-13 capital budget anticipates spending $7,593,000 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 2012-13 budget will entail continued program
downsizing to better balance the City’s operating expenses with recurring revenue
streams:

      Through attrition the full-time personnel complement will be reduced from 241
       positions to 233 positions.
      The Senior Transit program will be eliminated or a new funding source found to
       make it self-sufficient.
      New contracts for streetlighting and sanitation services will reduce costs by
       $150,000.

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


Local Income Tax

The City income tax was approved by voters in 1993 and now is the primary source of
funding for police, fire, parks and other general operations. The income tax rate is 1%
on City residents and ½ of 1% on non-residents working in the City. The income tax
provides key advantages for core cities such as Muskegon. First, it allows the City to
regionalize its tax structure by taxing non-residents who work here and use City
services. Second, it allows the City to benefit from development occurring outside City
limits because City residents employed by non-City employers pay income taxes.
Finally, the income tax generates revenue from workers at not-for-profit hospitals,
churches, government agencies, colleges and other institutions that are traditionally
exempt from paying local property taxes. This is particularly important for Muskegon
since it is the regional center for many such institutions.

Income tax revenues increased from $6,599,753 for the year ended June 30, 2011 to
$7,412,804 for the year ended June 30, 2012 – a healthy 12.3% increase. For 2012-13,
the City has conservatively estimated income tax revenue to be $7,100,000.




                                           28
                                               City Income       Percent
                                 Year
                                              Tax Revenues       Change
                              6/30/2012          $7,412,804      12.3%
                              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%

                            * 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 2012-13, the City tax levy remains at 9.5 mills for general operations and 2.5 mills
for sanitation service. We project that $7,006,440 in total property tax revenue will be
collected during fiscal year 2012-13.

It should be noted that several significant property tax appeals are pending. The impact
of these appeals on City finances is being monitored closely.

State Shared Revenues

State shared sales tax revenues represent about 15% of total General Fund revenue.
The City’s state shared revenue allocation is made up of two parts. The constitutional
component is a fixed percentage of total state sales tax collections that is allocated to
cities on a per capita basis and that cannot be reduced by the legislature. The non-
constitutional component is determined by a complex formula and is subject to
adjustment through the State’s annual budget process. Both 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
                           6/30/2012            $3,577,848        -7.0%
                           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%

                         * 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.




                                                     29
For the 2012-13 fiscal year, the City has projected $3,592,422 in state shared revenues.


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 been more stable than general state sales tax state-shared revenues
have been:

                                         Street Revenues
                                            from State       Percent
                              Year
                                                             Change
                           6/30/2012            $3,176,984   -2.4%
                           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%

                          * Six‐month fiscal period


For 2012-13, the City is projecting no material change in street revenues from the State
of Michigan.

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 $11,709,729 during the year ended
June 30, 2012. 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 2012-13.


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




                                                  30
FINANCIAL STATEMENTS




         31
                                                                                 City of Muskegon
                                                                       STATEMENT OF NET ASSETS (DEFICITS)
                                                                                  June 30, 2012


                                                                                                Governmental           Business-type                               Component
                                                                                                  activities             activities          Total                   units
     CURRENT ASSETS
       Cash and investments                                                                 $        15,993,001    $         6,075,414   $     22,068,415      $        457,790
       Receivables                                                                                    2,502,230              2,080,362          4,582,592                     -
       Due from other governmental units                                                              1,779,946                 49,635          1,829,581                     -
       Internal balances                                                                             (1,361,094)             1,361,094                  -                     -
       Inventories                                                                                       39,587                149,259            188,846                     -
       Prepaid items                                                                                    427,862                107,367            535,229                61,149
                  Total current assets                                                              19,381,532               9,823,131         29,204,663               518,939

     NONCURRENT ASSETS
       Restricted assets                                                                                       -              672,000                672,000                   -
       Capital assets, net
          Nondepreciable                                                                            18,980,797               1,801,129         20,781,926               400,000
          Depreciable                                                                               53,744,956              53,606,235        107,351,191             2,316,362
       Due from component units                                                                      1,660,000                       -          1,660,000                     -
       Bond issuance costs, net                                                                        105,889                  85,467            191,356               158,843
       Special assessments receivable                                                                  388,403                       -            388,403                     -
       Net pension asset                                                                               996,641                       -            996,641                     -
       Notes receivable                                                                                158,114                       -            158,114                     -
                  Total noncurrent assets                                                           76,034,800              56,164,831        132,199,631             2,875,205
                  Total assets                                                                      95,416,332              65,987,962        161,404,294             3,394,144

                                                                           LIABILITIES AND NET ASSETS (DEFICITS)




32
     CURRENT LIABILITIES
       Accounts payable and accrued liabilities                                                       1,696,539                381,012          2,077,551               100,815
       Due to other governmental units                                                                1,037,810                439,401          1,477,211                     -
       Unearned revenue                                                                                 412,289                      -            412,289                     -
       Bonds and other obligations, due within one year                                                 591,800              1,271,100          1,862,900               455,000
                  Total current liabilities                                                           3,738,438              2,091,513          5,829,951               555,815

     NONCURRENT LIABILITIES
       Due to primary government                                                                              -                      -                  -             1,660,000
       Bonds and other obligations, less amounts due within one year                                  8,452,172             14,115,136         22,567,308             6,909,932
                  Total noncurrent liabilities                                                        8,452,172             14,115,136         22,567,308             8,569,932
                  Total liabilities                                                                 12,190,610              16,206,649         28,397,259             9,125,747

     NET ASSETS (DEFICITS)
       Invested in capital assets, net of related debt                                              66,862,806              40,147,600        107,010,406             (1,839,834)
       Restricted for:
          Streets and highways                                                                        1,974,304                     -           1,974,304                      -
          Debt service                                                                                        -               672,000             672,000                      -
          Law enforcement                                                                               149,174                     -             149,174                      -
          Perpetual care
             Expendable                                                                                 25,466                       -             25,466                      -
             Non-expendable                                                                          1,372,400                       -          1,372,400                      -
          Other purposes                                                                                 4,999                       -              4,999                      -
       Unrestricted                                                                                 12,836,573               8,961,713         21,798,286             (3,891,769)
                  Total net assets (deficits)                                               $       83,225,722     $        49,781,313   $    133,007,035      $      (5,731,603)

     The accompanying notes are an integral part of this statement.
                                                                                                        City of Muskegon
                                                                                             STATEMENT OF ACTIVITIES
                                                                                              For the year ended June 30, 2012


                                                                                                                                                               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                             $      866,809   $      196,886         $           -      $           -     $      (669,923)   $            -    $      (669,923)   $            -
           Administrative services                                           566,161          270,886                10,000                  -            (285,275)                -           (285,275)                -
           Financial services                                              2,399,147          881,229                50,000             23,400          (1,444,518)                -         (1,444,518)                -
           Public safety                                                  13,213,251        1,136,942               166,595                  -         (11,909,714)                -        (11,909,714)                -
           Public works                                                    2,958,367          480,487                     -              9,478          (2,468,402)                -         (2,468,402)                -
           Highways, streets and bridges                                   6,568,448          230,241             3,133,453          1,378,999          (1,825,755)                -         (1,825,755)                -
           Community and economic development                              2,447,373          617,379             1,285,652            156,128            (388,214)                -           (388,214)                -
           Culture and recreation                                          1,601,316          315,010                 5,876                  -          (1,280,430)                -         (1,280,430)                -
           General administration                                            791,197          116,690                     -                  -            (674,507)                -           (674,507)                -
           Interest on long-term debt                                        283,186                -                     -                  -            (283,186)                -           (283,186)                -
               Total governmental activities                              31,695,255        4,245,750             4,651,576          1,568,005         (21,229,924)                -        (21,229,924)                -

        Business-type activities
          Sewer                                                            6,202,359        6,455,634                     -                  -                   -           253,275            253,275                 -
          Water                                                            5,974,173        5,254,095                     -                  -                   -          (720,078)          (720,078)                -
          Marina and Launch Ramp                                             310,174          208,370                     -                  -                   -          (101,804)          (101,804)                -
               Total business-type activities                             12,486,706       11,918,099                     -                  -                   -          (568,607)          (568,607)                -
                     Total primary government                         $ 44,181,961     $ 16,163,849           $ 4,651,576        $ 1,568,005           (21,229,924)         (568,607)       (21,798,531)                -




33
     Component units
       Local Development Finance Authority III                        $      493,903   $            -         $           -      $    175,000                    -                 -                  -          (318,903)
       Downtown Development Authority                                        130,462                -                     -                 -                    -                 -                  -          (130,462)
       Tax Increment Finance Authority                                        50,000                -                     -                 -                    -                 -                  -           (50,000)
       Brownfield Redevelopment Authority                                  1,711,849                -                     -                 -                    -                 -                  -        (1,711,849)
                      Total component units                           $    2,386,214   $            -         $           -      $    175,000                    -                 -                  -        (2,211,214)

     General revenues
       Property taxes                                                                                                                                   8,383,224                 -           8,383,224          584,703
       Income taxes                                                                                                                                     7,663,534                 -           7,663,534                -
       Cable franchises                                                                                                                                   342,376                 -             342,376                -
       Grants and contributions not restricted to specific programs                                                                                     3,577,848                 -           3,577,848                -
       Unrestricted investment earnings                                                                                                                   100,073            46,582             146,655            6,853
       Miscellaneous                                                                                                                                      154,531                 -             154,531                -
       Gain on sale of capital asset                                                                                                                       34,496                 -              34,496                -
               Total general revenues                                                                                                                  20,256,082            46,582          20,302,664          591,556

                  Change in net assets                                                                                                                   (973,842)          (522,025)        (1,495,867)       (1,619,658)

     Net assets (deficit) at July 1, 2011                                                                                                              84,199,564         50,303,338        134,502,902        (4,111,945)

     Net assets (deficit) at June 30, 2012                                                                                                         $ 83,225,722       $ 49,781,313      $ 133,007,035      $ (5,731,603)




     The accompanying notes are an integral part of this statement.
                                                                      City of Muskegon
                                                                      BALANCE SHEET
                                                                      Governmental Funds
                                                                        June 30, 2012


                                                                                               Major Street      Other             Total
                                                                                General       and Trunkline   governmental     governmental
                                                                                 Fund             Fund            funds            funds
     ASSETS
       Cash and investments                                                 $ 5,811,348       $ 2,185,590     $ 3,805,840      $ 11,802,778
       Receivables
          Accounts and loans                                                      184,033            6,053         567,920            758,006
          Property taxes                                                          103,595                -               -            103,595
          Income taxes                                                            739,865                -               -            739,865
          Special assessments                                                           -          379,120         341,283            720,403
       Due from other governmental units                                          653,339          432,531         694,076          1,779,946
       Due from other funds                                                       782,150                -               -            782,150
       Advances to component units                                                      -                -         553,334            553,334
       Prepaid items                                                              168,468           22,792           5,633            196,893
               Total assets                                                 $ 8,442,798       $ 3,026,086     $ 5,968,086      $ 17,436,970

     LIABILITIES AND FUND BALANCES
       Liabilities
          Accounts payable                                                  $     718,223     $     55,526    $     66,843     $      840,592
          Accrued liabilities                                                     188,462            3,757          10,341            202,560
          Due to other governmental units                                         945,139           80,675               -          1,025,814




34
          Due to other funds                                                            -                -         782,150            782,150
          Deferred revenue                                                         70,929          379,120         697,747          1,147,796
               Total liabilities                                                1,922,753          519,078        1,557,081         3,998,912

        Fund balances
          Nonspendable:
              Prepaid items                                                       168,468           22,792            5,633           196,893
              Long-term loans receivable                                                -                -          177,493           177,493
              Perpetual care                                                       10,000                -        1,362,400         1,372,400
          Restricted for:
              Streets and highways                                                        -       2,484,216        821,218          3,305,434
              Law enforcement                                                             -               -        149,174            149,174
              Perpetual care                                                              -               -         25,466             25,466
              Other purposes                                                              -               -          4,999              4,999
          Assigned for:
              Capital projects and public improvements                          1,500,000                 -       2,055,904         3,555,904
              Fiscal year 2013 budget                                             575,738                 -               -           575,738
          Unassigned                                                            4,265,839                 -        (191,282)        4,074,557
               Total fund balances                                              6,520,045         2,507,008       4,411,005        13,438,058
               Total liabilities and fund balances                          $ 8,442,798       $ 3,026,086     $ 5,968,086      $ 17,436,970


     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, 2012


     Total fund balance—governmental funds                                                                            $ 13,438,058

     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                                                                    $ 130,509,598
           Accumulated depreciation                                                                    (59,543,443)     70,966,155

        Bond issuance costs are not capitalized and amortized in the governmental funds.
          Bond issuance costs                                                                             160,106
          Accumulated amortization                                                                        (54,217)         105,889

        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.                                    996,641

        Other receivables in governmental activities are not reported in the




35
        governmental funds.                                                                                                640,000

        Accrued interest in governmental activities is not reported in the
        governmental funds.                                                                                                (63,000)

        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.                                       720,506

        Long-term liabilities in governmental activities are not due and payable in the
        current period and are not reported in the governmental funds.
           Bonds and notes payable                                                                      (7,862,947)
           Compensated absences                                                                         (1,092,533)      (8,955,480)

        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.                                                     5,376,953
           Net assets of governmental activities in the Statement of Net Assets                                       $ 83,225,722



     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, 2012

                                                                                                  Major Street       Other            Total
                                                                                   General       and Trunkline    governmental    governmental
                                                                                    Fund             Fund             funds           funds
     REVENUES
       Taxes                                                                   $ 15,506,668      $           -    $           -   $ 15,506,668
       Licenses and permits                                                       1,223,034                  -                -      1,223,034
       Intergovernmental revenues
          Federal                                                                     152,300        1,020,000        1,285,652      2,457,952
          State                                                                     3,592,143        2,895,328          903,956      7,391,427
          Local                                                                        50,000                -                -         50,000
       Charges for services                                                         2,407,792           97,842           90,694      2,596,328
       Fines and forfeitures                                                          447,979                -           11,422        459,401
       Interest and rental income                                                     202,300           34,829           70,762        307,891
       Other                                                                          540,544          168,897          537,422      1,246,863
              Total revenues                                                       24,122,760        4,216,896        2,899,908     31,239,564

     EXPENDITURES
       Current
         Public representation services                                               867,762                -                -        867,762
         Administrative services                                                      470,489                -                -        470,489
         Financial services                                                         2,407,131                -                -      2,407,131
         Public safety                                                             12,958,910                -            4,212     12,963,122
         Public works                                                               2,835,000                -                -      2,835,000
         Highways, streets and bridges                                                      -        4,250,559        1,235,481      5,486,040




36
         Community and economic development                                           934,580                -                -        934,580
         Culture and recreation                                                     1,263,386                -            2,357      1,265,743
         Other governmental functions                                                 770,910                -                -        770,910
       Debt service
         Principal                                                                    70,000                -           219,597        289,597
         Interest and fees                                                           211,954           25,330            31,031        268,315
       Capital outlay                                                                244,280                -         1,935,812      2,180,092
              Total expenditures                                                   23,034,402        4,275,889        3,428,490     30,738,781

     Excess of revenues over (under) expenditures                                   1,088,358          (58,993)       (528,582)        500,783

     OTHER FINANCING SOURCES (USES)
       Proceeds from sale of capital assets                                                 -                -         113,981         113,981
       Long-term debt issued                                                                -        2,000,000               -       2,000,000
       Transfers in                                                                     3,351                -         507,556         510,907
       Transfers out                                                                 (583,046)               -         (30,907)       (613,953)
              Total other financing sources (uses)                                   (579,695)       2,000,000         590,630       2,010,935

     Net change in fund balances                                                     508,663         1,941,007          62,048       2,511,718
     Fund balances at July 1, 2011                                                  6,011,382         566,001         4,348,957     10,926,340
     Fund balances at June 30, 2012                                            $    6,520,045    $ 2,507,008      $ 4,411,005     $ 13,438,058




     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, 2012


     Net change in fund balances—total governmental funds                                                                    $ 2,511,718

     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                                                            $ (4,403,141)
            Capital outlay                                                                                      2,948,610        (1,454,531)
        Governmental funds report the entire proceeds from the sale of capital assets as revenue,
        but the Statement of Activities reports only the gain or loss on the sale of the capital assets.                           (15,557)
        Debt proceeds are other financing source in the governmental funds, but the proceeds
        increase long-term debt in the Statement of Net Assets.                                                                  (2,000,000)
        Revenue reported in the Statement of Activities that does not provide current




37
        financial resources are not reported as revenue in the governmental funds.                                                 (35,621)
        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.                                                288,658
        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.                                                     (6,300)
        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.
           Decrease in net pension asset                                                                           (3,359)
           Decrease in compensated absences                                                                         1,167            (2,192)
        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.                                           (328,023)
        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.                                                                                                                 68,006
              Change in net assets of governmental activities                                                                $    (973,842)

     The accompanying notes are an integral part of this statement.
                                                                                                 City of Muskegon
                                                                                          STATEMENT OF NET ASSETS
                                                                                               Proprietary Funds
                                                                                                 June 30, 2012


                                                                                                 ASSETS
                                                                                                                                                                           Governmental
                                                                                                                                                                            Activities -
                                                                                                          Business-type Activities - Enterprise Funds                        Internal
                                                                                                                                      Marina and                              Service
                                                                                         Sewer                  Water                    Ramp                 Total            Funds
      CURRENT ASSETS
        Cash and investments                                                         $    3,701,462          $    2,110,590          $     263,362      $    6,075,414     $ 4,190,223
        Accounts receivable                                                               1,021,398               1,055,347                  3,617           2,080,362         101,879
        Due from other governmental units                                                         -                  48,790                    845              49,635               -
        Inventories                                                                          42,173                 107,086                      -             149,259          39,587
        Prepaid items                                                                        43,720                  61,443                  2,204             107,367         230,969
                   Total current assets                                                   4,808,753               3,383,256                270,028           8,462,037        4,562,658
      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                                            20,580,862               64,458,393              2,322,488          87,361,743       1,559,334
          Machinery and equipment                                                            39,722                2,800,566                      -           2,840,288       7,381,412
          Construction in progress                                                          356,994                1,301,885                      -           1,658,879               -
              Less accumulated depreciation                                              (7,990,463)             (28,033,209)            (2,461,089)        (38,484,761)     (7,437,020)
                   Net capital assets                                                    13,003,303              40,631,135              1,772,926          55,407,364        1,759,598
         Advances to component units                                                              -                       -                       -                  -        1,106,666




38
         Bond issuance costs, net                                                                 -                  85,467                       -             85,467                -
                   Total noncurrent assets                                               13,003,303              41,388,602              1,772,926          56,164,831        2,866,264
                      Total assets                                                       17,812,056              44,771,858              2,042,954          64,626,868        7,428,922

                                                                                    LIABILITIES AND NET ASSETS
      CURRENT LIABILITIES
        Accounts payable                                                                     9,396                  241,938                 15,762             267,096          574,332
        Accrued liabilities                                                                  9,742                  103,903                    271             113,916           16,055
        Due to other governmental units                                                    439,401                        -                      -             439,401           11,996
        Bonds and other obligations, due within one year                                     7,300                1,263,600                    200           1,271,100           14,800
                   Total current liabilities                                               465,839                1,609,441                 16,233           2,091,513          617,183

      NONCURRENT LIABILITIES
        Bonds and other obligations, less amounts due within one year                        36,465              14,077,650                  1,021          14,115,136           73,692
                      Total liabilities                                                    502,304               15,687,091                 17,254          16,206,649          690,875
      NET ASSETS
        Invested in capital assets, net of related debt                                  13,003,303              25,371,371              1,772,926          40,147,600        1,759,598
        Restricted for debt service                                                               -                 672,000                      -             672,000                -
        Unrestricted                                                                      4,306,449               3,041,396                252,774           7,600,619        4,978,449
                      Total net assets                                               $ 17,309,752            $ 29,084,767            $ 2,025,700            48,420,219     $ 6,738,047
      Adjustment to reflect the consolidation of internal service fund activities
        related to enterprise funds                                                                                                                          1,361,094
      Net assets of business-type activities                                                                                                            $ 49,781,313

     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, 2012


                                                                                                                                                                     Governmental
                                                                                                                                                                      Activities -
                                                                                                     Business-type Activities - Enterprise Funds                       Internal
                                                                                                                                 Marina and                             Service
                                                                                         Sewer               Water                 Ramp                 Total            Funds
     OPERATING REVENUES
       Charges for services                                                         $    6,308,525       $    5,010,924        $    198,418        $ 11,517,867      $ 7,943,478
       Other                                                                               147,109              243,171               9,952             400,232           89,599
                Total operating revenues                                                 6,455,634            5,254,095             208,370            11,918,099       8,033,077

     OPERATING EXPENSES
       Administration                                                                      333,857              537,845              17,376               889,078         360,000
       Insurance premiums and claims                                                             -                    -                   -                     -       4,277,725
       Wastewater treatment                                                              5,405,696                    -                   -             5,405,696               -
       Filtration plant operations                                                               -            1,385,191                   -             1,385,191               -
       Water distribution                                                                        -            1,518,042                   -             1,518,042               -
       Other operations                                                                          -                    -             177,038               177,038       3,064,260
       Depreciation and amortization                                                       421,949            2,137,578             114,198             2,673,725         494,365
                Total operating expenses                                                 6,161,502            5,578,656             308,612            12,048,770       8,196,350




39
                Operating income (loss)                                                   294,132              (324,561)           (100,242)             (130,671)       (163,273)

     NONOPERATING REVENUES (EXPENSES)
       Investment earnings                                                                 25,008                19,625               1,949                46,582          33,677
       Gain on sale of capital assets                                                           -                     -                   -                     -          28,963
       Interest expense                                                                         -              (372,343)                  -              (372,343)              -
                Total nonoperating revenue (expenses)                                      25,008              (352,718)              1,949              (325,761)         62,640

                Income (loss) before contributions and transfers                          319,140              (677,279)             (98,293)            (456,432)       (100,633)

     Transfers in                                                                                -                    -                    -                    -         103,046
                Change in net assets                                                      319,140              (677,279)             (98,293)            (456,432)          2,413

     Net assets at July 1, 2011                                                         16,990,612           29,762,046            2,123,993                            6,735,634

     Net assets at June 30, 2012                                                    $ 17,309,752         $ 29,084,767          $ 2,025,700                           $ 6,738,047

     Adjustments to reflect the consolidation of internal service fund activities
       related to enterprise funds                                                                                                                        (65,593)
     Change in net assets of business-type activities                                                                                              $     (522,025)

     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, 2012


                                                                                                                                                                             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                                                             $    6,431,827        $ 5,024,918          $     209,808        $ 11,666,553      $      161,099
       Receipts from interfund services provided                                                   13,814              93,679                     -             107,493           7,943,478
       Payments to suppliers                                                                   (4,855,616)         (1,517,384)             (166,482)         (6,539,482)         (4,607,163)
       Payments to employees                                                                     (420,403)         (1,278,702)              (14,225)         (1,713,330)         (1,490,276)
       Payments for interfund services used                                                      (468,796)           (733,118)              (11,540)         (1,213,454)           (858,405)
              Net cash provided by operating activities                                          700,826             1,589,393               17,561            2,307,780         1,148,733
     CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
       Transfers in                                                                                     -                     -                    -                    -           103,046
       Advances to component units                                                                      -                     -                    -                    -        (1,106,666)
              Net cash used for noncapital financing activities                                         -                     -                    -                    -        (1,003,620)
     CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
       Purchases of capital assets                                                              (344,591)              (771,410)                   -           (1,116,001)        (589,536)
       Principal paid on capital debt                                                                  -             (1,230,000)                   -           (1,230,000)               -
       Interest paid on capital debt                                                                   -               (410,187)                   -             (410,187)               -
       Proceeds from sale of capital assets                                                            -                      -                    -                    -           32,486
              Net cash used for capital and related financing activities                        (344,591)            (2,411,597)                   -           (2,756,188)        (557,050)




40
     CASH FLOW FROM INVESTING ACTIVITIES
       Investment earnings                                                                        25,008                19,625                1,949               46,582            33,677
              Net increase (decrease) in cash and investments                                    381,243              (802,579)              19,510             (401,826)         (378,260)
     Cash and investments July 1, 2011                                                         3,320,219             3,585,169              243,852            7,149,240         4,568,483
     Cash and investments at June 30, 2012                                                 $   3,701,462         $ 2,782,590          $     263,362        $ 6,747,414       $   4,190,223
     Reconciliation of cash and investments to the statement of net assets
       Cash and investments                                                                $   3,701,462         $ 2,110,590          $     263,362        $ 6,075,414       $   4,190,223
       Restricted cash and investments                                                                 -             672,000                      -            672,000                   -
                                                                                           $   3,701,462         $ 2,782,590          $     263,362        $ 6,747,414       $   4,190,223
     Reconciliation of operating income (loss) to net cash provided by
       operating activities
          Operating income (loss)                                                          $     294,132         $    (324,561)       $    (100,242)       $    (130,671)    $    (163,273)
          Adjustments to reconcile operating income (loss) to net cash provided by
              (used for) operating activities
                  Depreciation and amortization expense                                          421,949             2,137,578              114,198            2,673,725           494,365
                  Bad debt expense                                                                19,221                17,683                    -               36,904                 -
              Change in assets and liabilities
                  Receivables, net                                                               (29,214)             (153,181)               1,438             (180,957)           71,500
                  Inventories                                                                     (9,787)               (9,585)                   -              (19,372)           (9,751)
                  Prepaid items                                                                     (987)               (2,933)                 413               (3,507)          517,353
                  Accounts payable                                                                23,487               (23,550)                 901                  838           372,496
                  Accrued liabilities                                                            (17,975)              (52,058)                 853              (69,180)          (40,537)
                  Due to other funds                                                                   -                     -                    -                    -           (93,420)
                     Net cash provided by operating activities                             $     700,826         $ 1,589,393          $      17,561        $ 2,307,780       $   1,148,733

     The accompanying notes are an integral part of this statement.
                                                        City of Muskegon
                                   STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES
                                                   Fiduciary Funds
                                                    June 30, 2012


                                                                                       Agency
                                                                                       Funds
     ASSETS
       Cash and investments                                                        $    705,640
       Accounts receivable                                                                1,867
               Total assets                                                        $    707,507

     LIABILITIES
       Accounts payable                                                            $    228,052
       Due to other governmental units                                                  390,092
       Deposits held for others                                                          89,363
               Total liabilities                                                   $    707,507




41
     The accompanying notes are an integral part of this statement.
                                                                            City of Muskegon
                                                                STATEMENT OF NET ASSETS (DEFICITS)
                                                                   Discretely Presented Component Units
                                                                               June 30, 2012


                                                                              ASSETS

                                                                               Local                                 Tax
                                                                            Development         Downtown         Increment     Brownfield
                                                                              Finance          Development         Finance    Redevelopment
                                                                            Authority III       Authority         Authority     Authority              Total
     CURRENT ASSETS
       Cash and investments                                                  $      35,595     $     245,957     $ 19,638      $     156,600      $     457,790
       Prepaid items                                                                61,149               -            -                  -               61,149
                  Total current assets                                              96,744           245,957        19,638           156,600            518,939

     NONCURRENT ASSETS
       Capital assets, net
         Nondepreciable                                                            400,000                  -             -                   -         400,000
         Depreciable                                                             2,316,362                  -             -                   -       2,316,362
                  Net capital assets                                             2,716,362                  -             -                   -       2,716,362

        Bond issuance costs, net                                                   114,766            44,077              -                   -         158,843
                  Total noncurrent assets                                        2,831,128            44,077              -                   -       2,875,205




42
                     Total assets                                                2,927,872           290,034        19,638           156,600          3,394,144

                                                               LIABILITIES AND NET ASSETS (DEFICITS)
     CURRENT LIABILITIES
       Accounts payable                                                                -              59,185                              -              59,185
       Accrued liabilities                                                          36,700             4,930              -                   -          41,630
       Bonds and other obligations, due within one year                            180,000           275,000              -                   -         455,000
                  Total current liabilities                                        216,700           339,115              -                   -         555,815

     NONCURRENT LIABILITIES
       Advances from primary government                                                   -                 -             -        1,660,000          1,660,000
       Bonds and other obligations, less amounts due
         within one year                                                         4,376,196         2,533,736              -                   -       6,909,932
                  Total noncurrent liabilities                                   4,376,196         2,533,736              -        1,660,000          8,569,932
                     Total liabilities                                           4,592,896         2,872,851              -        1,660,000          9,125,747

     NET ASSETS (DEFICITS)
       Invested in capital assets, net of related debt                           (1,839,834)                -            -                  -         (1,839,834)
       Unrestricted                                                                 174,810        (2,582,817)      19,638         (1,503,400)        (3,891,769)
                     Total net assets (deficits)                             $ (1,665,024)     $ (2,582,817)     $ 19,638      $ (1,503,400)      $ (5,731,603)

     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, 2012


                                                                                     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                                      $     266,731      $          -    $    (266,731)    $            -    $         -    $            -    $    (266,731)
       Interest on long-term debt                                      227,172           175,000          (52,172)                 -              -                 -          (52,172)
           Total Local Development Finance Authority III               493,903           175,000         (318,903)                 -              -                 -         (318,903)

     Downtown Development Authority
       Economic development                                              6,562                 -                 -           (6,562)              -                 -           (6,562)
       Distributions to other taxing authorities                        59,185                 -                 -          (59,185)              -                 -          (59,185)
       Interest on long-term debt                                       64,715                 -                 -          (64,715)              -                 -          (64,715)
           Total Downtown Development Authority                        130,462                 -                 -         (130,462)              -                 -         (130,462)

     Tax Increment Finance Authority




43
       Economic development                                             50,000                 -                 -                 -        (50,000)                -          (50,000)

     Brownfield Redevelopment Authority
        Economic development                                          1,711,849                -                 -                 -              -        (1,711,849)       (1,711,849)
           Total discretely presented component units            $ 2,386,214        $ 175,000            (318,903)         (130,462)        (50,000)       (1,711,849)       (2,211,214)

     General revenues
       Property taxes                                                                                      83,420           305,797         53,057           142,429           584,703
       Unrestricted investment income                                                                       3,568             2,478            136               671             6,853
           Total general revenues                                                                          86,988           308,275         53,193           143,100           591,556

                  Change in net assets                                                                   (231,915)          177,813          3,193         (1,568,749)       (1,619,658)

     Net assets (deficits) at July 1, 2011                                                              (1,433,109)       (2,760,630)       16,445            65,349         (4,111,945)

     Net assets (deficits) at June 30, 2012                                                         $ (1,665,024)     $ (2,582,817)     $   19,638     $ (1,503,400)     $ (5,731,603)




     The accompanying notes are an integral part of this statement.
                                             City of Muskegon
                                NOTES TO FINANCIAL STATEMENTS
                                           June 30, 2012


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.




                                                      44
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2012


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, 2012, 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, 2011, the date
  of its latest audited financial statements is as follows:

      Total assets                                                                     $     5,646,184
      Total liabilities                                                                       (212,771)
      Total net assets                                                                 $     5,433,413

      Total operating income                                                           $     1,750,345
      Total operating expenses                                                              (1,962,016)
      Total nonoperating revenues                                                               39,989
      Capital contributions                                                                    231,934
      Change in net assets                                                             $        60,252




                                                       45
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2012


NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued

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

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

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

  Measurement Focus, Basis of Accounting and Financial Statement Presentation
  The government-wide financial statements are reported using the economic resources measurement focus and
  the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements excepting
  agency funds which have no measurement focus. Revenues are recorded when earned and expenses are
  recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are
  recognized as revenues in the year for which they are levied. Grants and similar items are recognized as
  revenue as soon as all eligibility requirements imposed by the provider have been met.

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

  Income taxes, property taxes, franchise taxes, licenses and interest associated with the current fiscal period are
  all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal
  period. Only the portion of special assessments receivable due within 60 days of the end of the current fiscal
  period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are
  considered to be measurable and available only when cash is received by the government.




                                                       46
                                             City of Muskegon
                                NOTES TO FINANCIAL STATEMENTS
                                           June 30, 2012


NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued

  Measurement Focus, Basis of Accounting and Financial Statement Presentation—Continued
  The City reports the following major governmental funds:

      The General Fund is the government's primary operating fund. It accounts for all financial
      resources of the general government, except those required to be accounted for in another fund.

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

  The City reports the following three major proprietary funds:

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

  Additionally, the City reports the following fund types:

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

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

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

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




                                                      47
                                               City of Muskegon
                                  NOTES TO FINANCIAL STATEMENTS
                                             June 30, 2012


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.




                                                         48
                                               City of Muskegon
                                  NOTES TO FINANCIAL STATEMENTS
                                             June 30, 2012


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.

  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 2011 state taxable value for real/personal property of the City totaled approximately $667,015,000 of
  which approximately $8,200,000 was captured by the component units. The ad valorem taxes levied
  consisted of 9.5, 2.5, and .0749 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.




                                                        49
                                               City of Muskegon
                                  NOTES TO FINANCIAL STATEMENTS
                                             June 30, 2012


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.




                                                        50
                                             City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2012


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.




                                                      51
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2012


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 2011 financial statements have been reclassified to conform to
  the 2012 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.




                                                       52
                                             City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2012


NOTE B—STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY—Continued

  Excess of Expenditures Over Appropriations
  During the year ended June 30, 2012, actual expenditures exceeded appropriations for:

                                                                       Amended
                                                                        budget                   Actual
  General Fund
     Public safety
        Police department                                            $ 8,630,989             $ 8,680,770
        Fire department                                                3,564,399               3,674,677

  These over-expenditures were funded with available fund balance.

  Fund Deficits
  As of June 30, 2012, the HOME Fund had an unassigned fund deficit of $182,501, and the State Grants Fund
  had an unassigned fund deficit of $8,781. The deficits will be eliminated through future operations.


NOTE C—DEPOSITS AND INVESTMENTS

  As of June 30, 2012, the City had the following investments:
                                                                   Weighted
                                                                    average
                                                                   maturity
                                                   Fair value      (Months)          Moody's         Percent
      Investment Type
      Money market funds                       $     2,491,269               1         AAA                 16.5%
      US Agency obligations                          4,465,116             227         AA+                 22.3%
      Certificate of Deposit Account
         Registry Service (CDARS)                    8,002,533                2      not rated             61.2%
             Total fair value                 $ 14,958,918                                                100.0%
          Portfolio weighted average maturity                               52

  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.




                                                       53
                                                   City of Muskegon
                                   NOTES TO FINANCIAL STATEMENTS
                                              June 30, 2012


NOTE C—DEPOSITS AND INVESTMENTS—Continued

  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 22.37 percent of the City’s
  investments.

  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, 2012, $8,168,427 of the City’s bank balance of
  $8,676,713 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, 2012, 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, 2012 was as follows:

                                                     Balance                                             Balance
                                                     July 1,                                             June 30,
                                                      2011             Additions      Deductions           2012
  Governmental activities:
    Capital assets, no being depreciated:
       Land                                        $ 12,396,713    $            -    $      15,557     $ 12,381,156
       Construction in progress                       7,893,371         2,730,030        4,023,760        6,599,641

     Total capital assets, not being depreciated     20,290,084         2,730,030        4,039,317       18,980,797

     Capital assets, being depreciated:
       Land improvements                              4,215,004                 -               -         4,215,004
       Leasehold improvements                           473,114            43,491               -           516,605
       Buildings and improvements                    21,332,236            13,458               -        21,345,694
       Furniture, vehicle and equipement             12,066,485           751,167         394,278        12,423,374
       Infrastructure                                72,624,081         4,023,760               -        76,647,841
       Shared improvements                            5,576,901                 -               -         5,576,901

     Total capital assets, being depreciated        116,287,821         4,831,876         394,278       120,725,419




                                                          54
                                                    City of Muskegon
                                    NOTES TO FINANCIAL STATEMENTS
                                               June 30, 2012



NOTE D—CAPITAL ASSETS—Continued

                                                        Balance                                           Balance
                                                        July 1,                                           June 30,
                                                         2011            Additions      Deductions          2012
   Governmental activities─ Continued
     Less accumulated depreciation:
        Land improvements                           $      866,673   $      142,250     $         -   $    1,008,923
        Leasehold improvements                             195,741           53,535               -          249,276
        Buildings and improvements                      14,017,054          470,170               -       14,487,224
        Furniture, vehicle and equipement                9,809,836          582,346         390,755       10,001,427
        Infrastructure                                  35,255,799        3,362,729               -       38,618,528
        Shared improvements                              2,336,240          278,845               -        2,615,085
      Total accumulated depreciation                    62,481,343        4,889,875         390,755       66,980,463
      Total capital assets, being
         depreciated, net                               53,806,478          (57,999)          3,523       53,744,956
      Capital assets, net                           $ 74,096,562     $    2,672,031     $ 4,042,840   $ 72,725,753

   Business-type activities:
     Capital assets, not being depreciated:
         Land                                       $      142,250   $            -     $         -   $      142,250
         Construction in progress                        1,509,732        1,103,591         954,444        1,658,879
      Total capital assets, not being depreciated        1,651,982        1,103,591         954,444        1,801,129

      Capital assets, being depreciated:
        Land improvements                                1,888,965                -               -        1,888,965
        Buildings and improvements                      86,407,299          954,444               -       87,361,743
        Machinery and equipment                          2,827,878           12,410               -        2,840,288
      Total capital assets, being depreciated           91,124,142          966,854               -       92,090,996

      Less accumulated depreciation:
         Land improvements                               1,697,265           21,225               -        1,718,490
         Buildings and improvements                     32,686,384        2,309,864               -       34,996,248
         Machinery and equipment                         1,450,539          319,484               -        1,770,023
      Total accumulated depreciation                    35,834,188        2,650,573               -       38,484,761
      Total capital assets, being
         depreciated, net                               55,289,954        (1,683,719)             -       53,606,235
      Capital assets, net                           $ 56,941,936     $     (580,128)    $   954,444   $ 55,407,364




                                                             55
                                              City of Muskegon
                                    NOTES TO FINANCIAL STATEMENTS
                                               June 30, 2012


NOTE D—CAPITAL ASSETS—Continued

  Depreciation
  Depreciation expense was charged to functions as follows:

   Governmental activities:
     Adminstrative services                                                                    $       52,454
     Public safety                                                                                    146,956
     Public works                                                                                      75,449
     Highways, streets and bridges                                                                  3,722,474
     Community and economic development                                                                75,717
     Culture and recreation                                                                           302,174
     General administration                                                                            20,286
     Internal Service Fund depreciation                                                               494,365
                                                                                               $    4,889,875
   Business-type activities:
     Sewer                                                                                     $      421,949
     Water                                                                                          2,114,426
     Marina and Launch Ramp                                                                           114,198
                                                                                               $    2,650,573

                                                  Balance                                          Balance
                                                  July 1,                                          June 30,
                                                   2011           Additions       Deductions         2012
   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                1,309,248          172,648               -        1,481,896
      Total capital assets, being
         depreciated, net                         2,489,010         (172,648)              -        2,316,362
      Capital assets, net                     $   2,889,010   $     (172,648)     $        -   $    2,716,362

  Depreciation
  Depreciation expense was charged to economic development.




                                                      56
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2012


NOTE E—BOND ISSUANCE COSTS

  Bond issuance cost activity for the year ended June 30, 2012 was as follows:

                                              Balance                                                 Balance
                                              July 1,                                                 June 30,
                                               2011              Additions       Deductions            2012
     Governmental activities:
       Bond issuance costs                $      160,106     $            -      $        -       $      160,106
       Less accumulated amortization              46,586              7,631               -               54,217

     Bond issuance costs, net             $      113,520     $       (7,631)     $        -       $      105,889

     Business-type activities:
       Bond issuance costs                $      134,250     $            -      $        -       $      134,250
       Less accumulated amortization              25,631             23,152               -               48,783

     Bond issuance costs, net             $      108,619     $      (23,152)     $        -       $       85,467

  Amortization
  Amortization expense was charge to functions as follows:

     Governmental Activities:
       Interest on long-term debt                                                                 $        7,631

     Business-type Activities:
       Water                                                                                      $       23,152


NOTE F—INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS

  The composition of interfund balances as of June 30, 2012 is as follows:

    Due to/from other funds:
           Receivable Fund                    Payable Fund                                        Amount
           General Fund                       Community Development Block Grant Fund          $       506,163
           General Fund                       HOME Rehabilitiation Fund                               195,829
           General Fund                       Neighborhood Stabilization Fund                          80,158
                                                                                              $       782,150

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




                                                        57
                                          City of Muskegon
                               NOTES TO FINANCIAL STATEMENTS
                                          June 30, 2012


NOTE F—INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS—Continued

  Component unit advance:
  The Cemetery Perpetual Care Fund, Equipment Fund, and General Insurance Fund advanced the BRA
  $1,660,000 to enable the BRA to retire a redevelopment commitment early. The advance will be repaid
  with future tax captures.

   Interfund transfers:

      Transfers in                       Amount          Transfers out                       Amount

      General Fund                   $      3,351        Nonmajor Governmental Funds
                                                           State Grant Fund              $      1,125
                                                           Cemetery Fund                        2,226
                                            3,351                                               3,351
      Nonmajor Governmental Funds
        Local Street Fund                 480,000        General Fund                         480,000
      Nonmajor Governmental Funds                        Nonmajor Governmental Funds
        HOME Rehabilitation Fund           27,556          Community Development
                                                             Block Grant Fund                  27,556
      Internal Service Funds
          Engineering Fund                 75,000        General Fund                         103,046
          General Insurance Fund           28,046
                                          103,046                                             103,046
                                     $    613,953                                        $    613,953

  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.




                                                    58
                                                    City of Muskegon
                                     NOTES TO FINANCIAL STATEMENTS
                                                June 30, 2012


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                                                         $        17,240         $      410,049
      Special assessments                                                         720,507                      -
          Total deferred revenue for governmental funds                   $       737,747         $      410,049


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, 2012.

                                          Balance                                                 Balance
                                          July 1,                                                 June 30,         Due within
                                           2011              Additions        Deductions            2012            one year
  Governmental activities:
    General obligation debt           $   5,221,755      $ 2,000,000          $      69,061   $       7,152,694    $    245,000
    Intergovernmental
        contractual obligations             244,850                   -              94,597             150,253          20,000
    Special assessment obligations          685,000                   -             125,000             560,000         130,000
    Compensated absences                  1,188,476           1,397,420           1,404,871           1,181,025         196,800
        Governmental activity
          long-term liabilities       $   7,340,081      $    3,397,420       $   1,693,529   $       9,043,972    $    591,800

  Business-type activities:
    Revenue obligations               $ 16,522,208       $            -       $ 1,262,444     $ 15,259,764         $   1,250,000
    Compensated absences                   157,153              108,409           139,090          126,472                21,100
        Business-type activity
           long-term liabilities      $ 16,679,361       $      108,409       $   1,401,534   $ 15,386,236         $   1,271,100

  Component units:
    Revenue obligations               $   1,000,000      $            -       $           -   $       1,000,000    $          -
    General obligation debt               6,478,681           4,376,196           4,489,945           6,364,932         455,000
        Component unit long-
          term liabilities            $   7,478,681      $    4,376,196       $   4,489,945   $       7,364,932    $    455,000




                                                             59
                                                   City of Muskegon
                                    NOTES TO FINANCIAL STATEMENTS
                                               June 30, 2012


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%        $    5,165,000
        Less bond discount                                                    (12,306)

        $2,000,000 Capital Improvement Bonds of 2011
           payable in annual installments of $175,000 to
           $230,000 through September 2021; interest at 2.98%               2,000,000

     Intergovernmental contractual obligations:
        $500,000 State of Michigan Brownfield Redevelopment loan
           of 2008 payable in annual installments of $23,216 through
           March 2019; including interest at 2%                              150,253

     Special assessment obligations:
        $1,575,000 Capital improvement bonds of 2003 payable
           in annual installments of $130,000 to $150,000
           through June 2016; interest at 3.8% to 4.05%                       560,000
                                                                            7,862,947
     Compensated absences                                                   1,181,025
                                                                       $    9,043,972

  Business-type activities:
    Revenue obligations:
        $5,995,000 Water supply system refunding bonds of 2010
           payable in annual installments of $610,000 to $770,000
           through May 2019; interest at 3.00% to 4.25%                $    4,815,000
        Add bond premium                                                     119,764

        $13,900,000 Drinking Water State Revolving Fund loan
           of 2004 payable in annual installments of $640,000 to
           $840,000 through October 2025; interest at 2.13%                10,325,000
                                                                           15,259,764
        Compensated absences                                                  126,472
                                                                       $ 15,386,236




                                                              60
                                                City of Muskegon
                                  NOTES TO FINANCIAL STATEMENTS
                                             June 30, 2012


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
          $275,000 to $330,000 through June 2018; interest at 2% to 4%                                        1,780,000
        Add bond premium                                                                                        28,736
        $4,725,000 Local Development Finance Authority tax
           increment bonds of 2002; final payment of $180,000 due
           November 2012; interest at 4%                                                                       180,000
        $4,100,000 Local Development Finance Authority tax increment
           refunding bonds of 2012 payable in annual installments of
           $260,000 to $396,000 through June 2025; interest at 2% to 4%                                       4,100,000
        Add bond premium                                                                                       276,196
                                                                                                          $   7,364,932

  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 20, 2012, the City issued $4,100,000 of Local Development Finance Authority Refunding Bonds
  of 2012 to refund the outstanding balance of the Local Development Finance Authority Refunding Bonds
  2002. The City refunded the Local Development Finance Authority Refunding Bonds 2002 to reduce its total
  debt service payments over the next 13 years by $479,145 and to obtain an economic gain (difference
  between the present values of the debt service payments on the old and new debt) of $405,546.

  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, 2012 was approximately $5,032,000. The City is unaware of any
  circumstances that would cause a shortfall in the near future.

  The Local Development Finance Authority (LDFA) tax increment bonds 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, 2012.




                                                         61
                                                  City of Muskegon
                                   NOTES TO FINANCIAL STATEMENTS
                                              June 30, 2012


NOTE H—LONG-TERM DEBT—Continued

  Annual debt service requirements to maturity for debt outstanding as of June 30, 2012 follow:

   Year ending        Governmental activites                  Business-type activities                     Component units
    June 30,         Principal      Interest                 Principal         Interest                Principal      Interest
     2013        $     395,211     $   290,423           $    1,250,000      $   384,694           $     455,000     $   205,228
     2014              405,615         276,989                1,295,000          352,635                 540,000         177,588
     2015              421,027         263,073                1,330,000          320,857                 605,000         164,088
     2016              431,448         248,465                1,370,000          283,360                 635,000         148,276
     2017              286,877         233,425                1,405,000          246,434                 655,000         129,251
   2018-2022         2,175,075         985,756                5,225,000          642,822               3,090,000         341,425
   2023-2027         1,665,000         604,628                3,265,000          140,514               1,080,000          66,300
   2028-2032         1,745,000         255,573                        -                -                       -               -
     2033              350,000           7,350                        -                -                       -               -
                 $ 7,875,253       $ 3,165,682           $ 15,140,000        $ 2,371,316           $ 7,060,000       $ 1,232,156

  Annual debt service requirements to maturity by type of debt as of June 30, 2012 follow:

                          General Obligation Debt                    Revenue Obligations
   Year ending         Governmental     Component               Business-type    Component
    June 30,             activities         units                 activities         units
     2013              $     510,338    $     660,228           $   1,634,694      $           -
     2014                    507,248          717,588               1,647,635                  -
     2015                    504,010          769,088               1,650,857                  -
     2016                    500,622          783,276               1,653,360                  -
     2017                    497,086          784,251               1,651,434                  -
   2018-2022               3,114,399        2,431,425               5,867,822          1,000,000
   2023-2027               2,269,625        1,146,300               3,405,517                  -
   2028-2032               2,000,572                -                       -                  -
     2033                    357,350                -                       -                  -
                       $ 10,261,250     $ 7,292,156             $ 17,511,319       $ 1,000,000

                                         Special
                     Intergovernmental Assessment
   Year ending         Governmental   Governmental
    June 30,              activities    activities
     2013              $     23,216     $      152,080
     2014                    23,216            152,140
     2015                    23,216            156,875
     2016                    23,216            156,075
     2017                    23,216                  -
   2018-2022                 46,432                  -
   2023-2027                      -                  -
   2028-2032                      -                  -
     2033                         -                  -
                       $    162,512     $      617,170




                                                               62
                                              City of Muskegon
                                   NOTES TO FINANCIAL STATEMENTS
                                              June 30, 2012


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 2012 and 2011 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, 2012            $     83,745        $    113,079        $    72,103        $ 124,721
      June 30, 2011                 178,552              61,897            156,704           83,745

  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, 2012, the claims liability including incurred but
  not reported claims was $81,702. 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 2012 and 2011
  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, 2012            $     15,462        $ 1,199,682         $ 1,133,442        $ 81,702
      June 30, 2011                   7,040            970,245             961,823          15,462




                                                       63
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2012


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.

  Commitments
  The City has various contract agreements for street projects as of June 30, 2012 of approximately
  $1,111,000. Approximately $481,000 of these costs are being financed by grants with the remainder
  coming from the Major Street and Trunkline Fund. The City also has contract agreements for water and
  sewer improvements for approximately $836,000 with $193,000 of the costs being paid by the Sewer
  Fund and $643,000 of the costs being paid by the Water Fund.

  Leases
  The City leases an office facility under a noncancelable operating lease that expires June 2017 with the
  option by the tenant to renew the term of the lease for four successive periods of five years each. The
  City received rental income (including pro-rata utility usage) of $43,526 for the year ended June 30, 2012.
  The future minimum rental income for this lease is as follows:

             Year ending
              June 30,                                                            Amount
                 2013                                                         $     35,192
                 2014                                                               34,854
                 2015                                                               34,202
                 2016                                                               33,864
                 2017                                                               33,841
                                                                              $ 171,953


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




                                                       64
                                                        City of Muskegon
                                           NOTES TO FINANCIAL STATEMENTS
                                                      June 30, 2012


NOTE J—PENSION PLANS—Continued

  Defined Benefit Pension Plan—Continued
  Funding Policy. City employees are required to contribute 5 to 6 percent to the Plan depending on
  employee contract. The City is required to contribute at an actuarially-determined rate depending upon
  employee group from 5.11 to 16.09 percent of annual covered payroll depending on the plan. The
  contributions requirements of plan members and the City are established and may be amended by MERS.

  Annual Pension Cost. For the year ended June 30, 2012, the City’s annual pension cost of approximately
  $1,159,000 was equal to the City’s required and actual contribution.

                                                        Trend Information

                                       Approximate          Percentage
                                      Annual Pension          of APC              Net Pension
         Year ended                     Cost (APC)          Contributed           Obligation
        June 30, 2010*                 $      605,000                100 %        $           -
        June 30, 2011                       1,228,000                181                      -
        June 30, 2012                       1,159,000                100                      -
    * Six month fiscal period


  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) 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, 2011 was 17 years.

  The net pension asset is calculated as follows:

                                Annual required contribution                 $ 1,158,637
                                Interest on net pension asset                    (80,000)
                                Adjustment to annual required contribution        83,359

                                Net pension cost                                 1,161,996
                                Contributions made                               1,158,637

                                Decrease in net pension asset                       (3,359)
                                Net pension asset at beginning of year           1,000,000

                                Net pension asset at end of year             $    996,641




                                                               65
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2012


NOTE J—PENSION PLANS—Continued

  Defined Benefit Pension Plan—Continued
  Funding Status and Funding Progress. As of December 31, 2011, the most recent actuarial valuation
  date, the plan was 97 percent funded. The actuarial accrued liability for benefits was approximately
  $92,614,000, and the actuarial value of assets was approximately $89,501,000, resulting in an unfunded
  actuarial accrued liability (UAAL) of approximately $3,113,000. The covered payroll (annual payroll of
  active employees covered by the plan) was approximately $10,651,000, and the ratio of the UAAL to the
  covered payroll was 29 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.

  Defined Contribution Pension Plan
  The City also maintains a defined contribution plan offered by MERS. 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, 2012, City and employee contributions were
  approximately $157,000 and $88,000, 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. Payments from the deferred compensation plan are not available to
  participants until termination, retirement, death, or unforeseeable emergency. Active participants are allowed
  to borrow from their accumulated assets for limited purposes such as family education costs, medical costs, or
  down payment for a new home. The City must approve program loans.

  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




                                                       66
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2012


NOTE K—OTHER POST-EMPLOYMENT BENEFITS—Continued

  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 3.35 to 6.84 percent of covered wages. The ARC represents a
  level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize
  any unfunded liabilities (or funding excess) over a period not to exceed thirty years. The contribution
  requirements of plan members and the City are established and may be amended by MERS.

  Annual OPEB Cost. For the year ended June 30, 2012, the City’s OPEB cost (expense) of approximately
  $833,000 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
      June 30, 2010*                $     530,000                         100 %            $               -
      June 30, 2011                     1,079,000                         100                              -
      June 30, 2012                       833,000                         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, 2011 is 26 years.

  Funded Status and Progress. As of December 31, 2011, the most recent actuarial valuation date, the plan was
  76 percent funded. The actuarial accrued liability for benefits was approximately $20,168,000, and the
  actuarial value of assets was approximately $15,331,000, resulting in an unfunded actuarial liability (UAAL)
  of approximately $4,837,000. The covered payroll (annual payroll of active employees covered by the plan)
  was approximately $12,365,000, and the ratio of the UAAL to the covered payroll was 39 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.




                                                       67
68
REQUIRED SUPPLEMENTARY INFORMATION




                69
                                                                                    City of Muskegon
                                                                      BUDGETARY COMPARISON SCHEDULE
                                                                                       General Fund
                                                                             For the year ended June 30, 2012
                                                             (with comparative actual amounts for the year ended June 30, 2011)


                                                                                                                     2012                                      2011
                                                                                                                                            Variance with
                                                                                                                                            final budget-
                                                                                        Budgeted amounts                                       positive
                                                                                   Original           Final                   Actual          (negative)      Actual
     REVENUES
       Taxes
         City income tax                                                         $ 6,500,000          $ 7,000,000           $ 7,412,804     $    412,804    $ 6,599,753
         Property taxes                                                            7,968,182            7,968,182             7,913,724          (54,458)     8,357,640
         Industrial facilities taxes                                                  93,463               93,463                84,332           (9,131)        93,618
         Payments in lieu of taxes                                                    91,000               95,000                95,805              805         95,402
         Delinquent chargeback collected                                               5,000                1,000                     3             (997)            17
                  Total taxes                                                      14,657,645           15,157,645           15,506,668          349,023     15,146,430

       Licenses and permits
          Business licenses                                                            28,000               28,000                 30,642          2,642        31,110
          Liquor licenses                                                              61,000               57,000                 56,039           (961)       61,955




70
          Cable TV fees                                                               340,000              340,000                342,376          2,376       362,103
          Rental property registration                                                120,000              130,000                162,990         32,990       115,598
          Burial permits                                                              110,000              110,000                 87,768        (22,232)       93,483
          Building permits                                                            200,000              250,000                264,201         14,201       255,906
          Electrical permits                                                           75,000               80,000                 84,907          4,907        78,852
          Plumbing permits                                                             30,000               30,000                 26,884         (3,116)       29,961
          Mechanical permits                                                           60,000               60,000                 55,169         (4,831)       61,611
          Vacant building fees                                                         75,000              100,000                112,058         12,058        89,060
                  Total licenses and permits                                        1,099,000            1,185,000            1,223,034           38,034      1,179,639

       Intergovernmental revenues
          Federal grants                                                              169,889             159,405                 152,300         (7,105)      192,842

          State
             Grants                                                                    20,000               20,000               14,295           (5,705)        42,458
             State shared revenue                                                   3,050,000            3,540,888            3,577,848           36,960      3,846,859
                  Total intergovernmental revenues - State                          3,070,000            3,560,888            3,592,143           31,255      3,889,317

          Local                                                                        50,000               50,000                 50,000              -         75,000
                                                                             City of Muskegon
                                                      BUDGETARY COMPARISON SCHEDULE—CONTINUED
                                                                               General Fund
                                                                     For the year ended June 30, 2012
                                                     (with comparative actual amounts for the year ended June 30, 2011)


                                                                                                              2012                                        2011
                                                                                                                                     Variance with
                                                                                                                                     final budget-
                                                                                  Budgeted amounts                                      positive
                                                                             Original           Final                    Actual        (negative)        Actual
     Charges for services
       Tax administration fees                                           $     289,500        $     289,500          $     289,361   $       (139)   $     297,326
       Utility administration fees                                             225,000              225,000                225,000              -          225,000
       Reimbursement for elections                                              15,500               13,000                 13,640            640           12,672
       Brownfield authority admin fee                                                -               13,828                 13,828              -                -
       Indirect cost reimbursements                                          1,144,018            1,144,018              1,144,020              2        1,144,020
       Site plan review fee                                                      3,000                3,000                  3,400            400            2,800
       Sale of cemetery lots                                                    25,500               25,500                 24,671           (829)          32,290
       Police miscellaneous                                                     59,000               59,000                 57,893         (1,107)          84,553
       Police impound fees                                                      40,000               42,000                 40,920         (1,080)          39,100
       Landlord's alert fee                                                         40                   40                     40              -               40
       Fire protection-state property                                           80,000              108,094                137,127         29,033          120,210




71
       Zoning fees                                                               8,000               10,500                 12,055          1,555            6,158
       Clerk fees                                                                3,500                1,500                  1,365           (135)           2,039
       Clerk fees - passport fees                                                5,000                3,500                  3,790            290            4,115
       Tax abatement application fees                                            2,000                4,000                  3,439           (561)             810
       Treasurer fees                                                           65,000               65,000                 61,682         (3,318)          60,358
       False alarm fees                                                         13,000               13,000                 10,680         (2,320)          12,960
       Miscellaneous cemetery income                                            18,000               63,000                 61,645         (1,355)          20,398
       Senior transit program fees                                               9,000               11,000                 11,123            123           10,401
       Fire miscellaneous                                                        2,000                2,000                    703         (1,297)           4,985
       Sanitation stickers                                                      80,000               80,000                 87,303          7,303           79,762
       Lot cleanup fees                                                         50,000               35,000                 43,028          8,028           29,493
       Reimbursements - lot mowing and demolitions                              50,000               50,000                 58,740          8,740           49,760
       Special events reimbursements                                           100,000              100,000                 95,788         (4,212)         104,937
       Recreation program fees                                                       -                6,000                  6,551            551           20,831
             Total charges for services                                      2,287,058            2,367,480              2,407,792         40,312        2,365,018
                                                                            City of Muskegon
                                                     BUDGETARY COMPARISON SCHEDULE—CONTINUED
                                                                              General Fund
                                                                    For the year ended June 30, 2012
                                                    (with comparative actual amounts for the year ended June 30, 2011)



                                                                                                             2012                                           2011
                                                                                                                                      Variance with
                                                                                                                                      final budget-
                                                                                 Budgeted amounts                                        positive
                                                                            Original           Final                    Actual          (negative)         Actual
     Fines and forfeitures
        Income tax - penalty and interest                               $     180,000       $     180,000           $     191,679     $     11,679    $     156,339
        Late fees on current taxes                                             40,000              40,000                  24,051          (15,949)          30,875
        Interest on late invoices                                               2,000               3,500                   2,328           (1,172)           2,011
        Parking fines                                                         125,000             110,000                 105,995           (4,005)         100,885
        Court fines                                                           170,000             140,000                 123,926          (16,074)         142,764
              Total fines and forfeitures                                     517,000             473,500                 447,979          (25,521)         432,874

     Interest and rental income
        Investment earnings                                                    50,000              75,000                  (25,284)       (100,284)          85,120
        Flea market                                                            29,000              35,000                   28,664          (6,336)          27,233




72
        Farmers' market                                                        35,000              40,000                   47,805           7,805           43,471
        City right of way rental                                                8,561               8,561                    6,800          (1,761)           6,800
        Fire station lease - Central Dispatch                                  42,000              45,000                   43,526          (1,474)          47,895
        Great Lakes Naval Memorial lease                                        5,000              10,000                   15,000           5,000            2,500
        McGraft park rentals                                                   45,000              47,000                   48,213           1,213           52,475
        Other park rentals                                                     45,200              52,200                   37,576         (14,624)          49,525
              Total interest and rental income                                259,761             312,761                 202,300         (110,461)         315,019
     Other
        Sale of land and assets                                                 1,000               1,000                       -           (1,000)               -
        Police sale and auction proceeds                                            -               4,010                  10,598            6,588                -
        CDBG program reimbursements                                           382,870             386,470                 424,549           38,079          324,393
        Fisherman's Landing reimbursement                                      14,500              16,775                  16,775                -           16,106
        Contributions                                                          11,000              11,000                   3,876           (7,124)          12,455
        Contribution - Veteran's Park maintenance                              19,500              18,502                  18,502                -           19,402
        Community Foundation for Muskegon County                                1,500               1,500                  10,000            8,500           12,005
        Miscellaneous reimbursements                                            1,000               1,000                       -           (1,000)               -
        Miscellaneous and sundry                                               70,000              62,689                  56,244           (6,445)          46,829
              Total other                                                     501,370             502,946                 540,544           37,598          431,190
              Total revenues                                                22,611,723          23,769,625              24,122,760         353,135        24,027,329
                                                                                City of Muskegon
                                                         BUDGETARY COMPARISON SCHEDULE—CONTINUED
                                                                                  General Fund
                                                                        For the year ended June 30, 2012
                                                        (with comparative actual amounts for the year ended June 30, 2011)


                                                                                                                  2012                                          2011
                                                                                                                                          Variance with
                                                                                                                                          final budget-
                                                                                     Budgeted amounts                                        positive
                                                                                Original           Final                     Actual         (negative)         Actual
     EXPENDITURES
       Current
         Public representation services
             City commission                                                $      84,952        $      89,952           $      82,906    $      7,046    $      84,146
             City promotions and public relations                                  11,350               11,350                   7,214           4,136            4,191
             City manager                                                         270,116              270,316                 273,309          (2,993)         264,410
             Contributions to outside agencies                                    161,824              160,824                 149,468          11,356          167,296
             City attorney                                                        322,508              322,508                 354,865         (32,357)         331,875
                 Total public representation services                             850,750              854,950                 867,762         (12,812)         851,918

           Administrative services
             City clerk                                                           290,181              290,981                 288,959           2,022          286,050




73
             Civil service                                                         90,000              102,600                  98,543           4,057          126,050
             Affirmative action                                                    84,812               84,812                  82,987           1,825           80,231
                 Total administrative services                                    464,993              478,393                 470,489           7,904          492,331

           Financial services
              Finance administration                                              417,677              429,867                 421,130           8,737          412,551
              Assessing                                                           351,675              401,675                 425,160         (23,485)         420,148
              Arena administration                                                235,000              236,599                 240,091          (3,492)         242,923
              Income tax administration                                           424,488              424,488                 432,397          (7,909)         407,907
              Information systems                                                 391,716              391,346                 371,201          20,145          376,995
              City treasurer                                                      463,128              504,707                 517,152         (12,445)         492,185
                 Total financial services                                        2,283,684            2,388,682               2,407,131        (18,449)        2,352,709

           Public safety
             Police department                                                   8,777,989            8,630,989               8,680,770        (49,781)        8,711,831
             Fire department                                                     3,522,260            3,564,399               3,674,677       (110,278)        3,711,381
             Fire safety inspections                                               594,720              576,680                 603,463        (26,783)          656,408
                 Total public safety                                            12,894,969           12,772,068              12,958,910       (186,842)       13,079,620
                                                                            City of Muskegon
                                                     BUDGETARY COMPARISON SCHEDULE—CONTINUED
                                                                              General Fund
                                                                    For the year ended June 30, 2012
                                                    (with comparative actual amounts for the year ended June 30, 2011)


                                                                                                             2012                                        2011
                                                                                                                                    Variance with
                                                                                                                                    final budget-
                                                                                 Budgeted amounts                                      positive
                                                                            Original           Final                    Actual        (negative)        Actual
     Public works
       Street lighting                                                  $     760,000        $     705,000          $     560,199   $    144,801    $     784,399
       Community event support                                                 23,600               23,600                 20,212          3,388           20,205
       Senior citizen transit                                                  69,078               77,100                 76,309            791           68,341
       General sanitation                                                   1,680,000            1,580,050              1,561,378         18,672        1,609,780
       Storm water management                                                  17,786               18,086                 13,270          4,816           17,029
       City hall maintenance                                                  276,892              279,602                235,086         44,516          243,582
       Cemeteries maintenance                                                 360,522              369,022                368,546            476          336,006
           Total public works                                               3,187,878            3,052,460              2,835,000        217,460        3,079,342

     Community and economic development
       Planning, zoning and economic development                              299,261             299,661                292,915           6,746         333,610




74
       Environmental services                                                 532,266             547,966                541,665           6,301         411,784
       Edison Landing subsidy                                                 100,000             100,000                100,000               -         100,000
           Total community and economic development                           931,527             947,627                934,580          13,047         845,394

     Culture and recreation
       Parks maintenance                                                    1,138,857            1,100,207              1,050,464         49,743         979,028
       McGraft park maintenance                                                43,651               44,951                 39,876          5,075          47,132
       General and inner city recreation programs                              96,000               96,600                109,065        (12,465)         90,962
       Graffiti removal                                                         4,861                9,461                  5,090          4,371           3,247
       Parking operations                                                       3,000                4,000                  4,484           (484)          7,204
       Farmers' market and flea market                                         60,090               58,590                 54,407          4,183          51,209
           Total culture and recreation                                     1,346,459            1,313,809              1,263,386         50,423        1,178,782

     Other governmental functions
        Insurance premiums                                                    275,000             224,982                257,320         (32,338)         259,907
        Other                                                                 250,000             550,000                513,590          36,410          515,221
        Contribution to MERS pension plan                                           -                   -                      -               -        1,000,000
           Total other governmental functions                                 525,000             774,982                770,910           4,072        1,775,128
                                                                                     City of Muskegon
                                                             BUDGETARY COMPARISON SCHEDULE—CONTINUED
                                                                                      General Fund
                                                                            For the year ended June 30, 2012
                                                            (with comparative actual amounts for the year ended June 30, 2011)



                                                                                                                         2012                                        2011
                                                                                                                                                  Variance with
                                                                                                                                                  final budget-
                                                                                          Budgeted amounts                                           positive
                                                                                     Original           Final                       Actual          (negative)      Actual
        Debt service
          Principal                                                              $      70,000         $      70,000            $      70,000     $          -    $ 1,024,605
          Interest and fees                                                            211,145               211,954                  211,954                -        228,190
              Total debt service                                                       281,145               281,954                  281,954                -      1,252,795

        Capital outlay                                                                 273,000               266,763                  244,280           22,483               -
                 Total expenditures                                                  23,039,405            23,131,688               23,034,402          97,286     24,908,019

     Excess of revenues over (under) expenditures                                      (427,682)             637,937                 1,088,358         450,421       (880,690)

     OTHER FINANCING SOURCES (USES)




75
       Transfers in                                                                      50,000                10,000                    3,351          (6,649)         2,357
       Transfers out                                                                   (508,046)             (583,046)                (583,046)              -       (648,739)
                 Total other financing sources (uses)                                  (458,046)             (573,046)                (579,695)         (6,649)      (646,382)

     Net change in fund balance                                                  $     (885,728)       $      64,891                  508,663     $    443,772     (1,527,072)

     Fund balance at beginning of year                                                                                               6,011,382                      7,538,454

     Fund balance at end of year                                                                                                $ 6,520,045                       $ 6,011,382



     Note: Both budgets and actual figures are prepared in accordance with generally accepted accounting principles.
                                                                              City of Muskegon
                                                               BUDGETARY COMPARISON SCHEDULE
                                                                   Major Street and Trunkline Fund
                                                                   For the year ended June 30, 2012


                                                                                                                                                   Variance with
                                                                                                                                                   final budget-
                                                                                                   Budgeted amounts                                   positive
                                                                                             Original              Final              Actual         (negative)
     REVENUES
       Intergovernmental revenues
          Federal                                                                        $ 1,756,000             $ 1,561,000        $ 1,020,000    $   (541,000)
          State                                                                            2,856,364               3,020,444          2,895,328        (125,116)
       Charges for services                                                                        -                       -             97,842          97,842
       Investment earnings                                                                    25,000                  25,000             34,829           9,829
       Other                                                                                 175,000                 150,000            168,897          18,897
              Total revenues                                                                 4,812,364                 4,756,444      4,216,896        (539,548)

     EXPENDITURES
       Current
         Highways, streets and bridges                                                       6,036,482                 4,878,600      4,250,559         628,041




76
     Excess of revenues over (under) expenditures                                            (1,224,118)               (122,156)        (33,663)         88,493

     OTHER FINANCING SOURCES (USES)
       Long-term debt issued                                                                 2,040,000                 2,020,000      2,000,000         (20,000)
       Transfers out                                                                           (40,000)                  (25,000)             -          25,000
              Total other financing sources (uses)                                           2,000,000                 1,995,000      2,000,000           5,000
     Net change in fund balance                                                          $     775,882           $ 1,872,844          1,966,337    $     93,493
     Fund balance at July 1, 2011                                                                                                      566,001
     Fund balance at June 30, 2012                                                                                                  $ 2,532,338




     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, 2012


                               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

      12/31/09            $ 86,682      $ 87,395       $       713            99 %   $ 12,614            6 %
      12/31/10              88,810        88,391              (419)          100       11,533           (4)
      12/31/11              89,501        92,614             3,113            97       10,651           29




77
            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            47 %   $ 13,290          120 %
      12/31/09              13,260        24,024            10,764            55       13,293           81
      12/31/11              15,331        20,168             4,837            76       12,365           39
78
OTHER SUPPLEMENTAL INFORMATION




              79
                                     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.

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 assets 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.

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.




                                                    80
                                 DESCRIPTION OF
                      OTHER GOVERNMENTAL FUNDS—CONTINUED


                                   Capital Projects Funds—Continued

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

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.




                                                     81
                                                                          City of Muskegon
                                                                     COMBINING BALANCE SHEET
                                                                       Other Governmental Funds
                                                                             June 30, 2012


                                                                                                                                     Permanent
                                                                                 Total other          Special         Capital          Fund -
                                                                                governmental          Revenue         Projects       Cemetery
                                                                                    funds              Funds           Funds       Perpetual Care
     ASSETS
       Cash and investments                                                     $ 3,805,840       $     900,110   $ 2,076,276       $    829,454
       Receivables
          Accounts and loans (net of allowance for uncollectibles)                   567,920                852         561,990            5,078
          Special assessments                                                        341,283            261,325          79,958                -
       Due from other governmental units                                             694,076            105,480         588,596                -
       Advances to component units                                                   553,334                  -               -          553,334
       Prepaid items                                                                   5,633              5,633               -                -
                 Total assets                                                   $ 5,968,086       $ 1,273,400     $ 3,306,820       $ 1,387,866

     LIABILITIES AND FUND BALANCES
       Liabilities
          Accounts payable                                                      $     66,843      $      25,362   $      41,481     $           -
          Accrued liabilities                                                         10,341              5,689           4,652                 -




82
          Due to other funds                                                         782,150                  -         782,150                 -
          Deferred revenue                                                           697,747            261,325         436,422                 -
                 Total liabilities                                                  1,557,081           292,376       1,264,705                 -

        Fund balances
          Nonspendable
              Prepaid items                                                             5,633             5,633               -                 -
              Long-term loans receivable                                              177,493                 -         177,493                 -
              Perpetual care                                                        1,362,400                 -               -         1,362,400
          Restricted for:
              Streets and highways                                                    821,218           821,218               -                -
              Law enforcement                                                         149,174           149,174               -                -
              Perpetual care                                                           25,466                 -               -           25,466
              Other purposes                                                            4,999             4,999               -                -
          Assigned for capital projects                                             2,055,904                 -       2,055,904                -
          Unassigned                                                                 (191,282)                -        (191,282)               -
                 Total fund balances                                                4,411,005           981,024       2,042,115         1,387,866
                 Total liabilities and fund balances                            $ 5,968,086      $ 1,273,400      $ 3,306,820       $ 1,387,866
                                                         City of Muskegon
                           COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
                                                       Other Governmental Funds
                                                     For the year ended June 30, 2012


                                                                                                                     Permanent
                                                                  Total other        Special        Capital            Fund -
                                                                 governmental        Revenue        Projects         Cemetery
                                                                     funds            Funds          Funds         Perpetual Care
     REVENUES
       Intergovernmental revenues
          Federal                                                 $ 1,285,652    $           -     $ 1,285,652      $          -
          State                                                       903,956          782,326         121,630                 -
       Charges for services                                            90,694            1,279          63,300            26,115
       Fines and forfeitures                                           11,422           11,422               -                 -
       Investment earnings                                             70,762           28,264          33,868             8,630
       Other                                                          537,422          110,496         426,926                 -
              Total revenues                                        2,899,908          933,787       1,931,376            34,745

     EXPENDITURES
       Current
         Public safety                                                  4,212            4,212                 -                -
         Highways, streets and bridges                              1,235,481        1,235,481                 -                -




83
         Culture and recreation                                         2,357            2,357                 -                -
       Debt service
         Principal                                                    219,597                  -       219,597                  -
         Interest and fees                                             31,031                  -        31,031                  -
       Capital outlay                                               1,935,812                  -     1,935,812                  -
              Total expenditures                                    3,428,490        1,242,050       2,186,440                  -
     Excess of revenues over (under) expenditures                    (528,582)        (308,263)       (255,064)           34,745

     OTHER FINANCING SOURCES (USES)
       Proceeds from sale of capital assets                           113,981                -         113,981                  -
       Transfers in                                                   507,556          480,000          27,556                  -
       Transfers out                                                  (30,907)               -         (28,681)            (2,226)
              Total other financing sources (uses)                    590,630          480,000         112,856             (2,226)
     Net change in fund balances                                       62,048          171,737        (142,208)           32,519
     Fund balances at July 1, 2011                                  4,348,957          809,287       2,184,323          1,355,347
     Fund balances at June 30, 2012                               $ 4,411,005    $     981,024     $ 2,042,115      $ 1,387,866
                                                                   City of Muskegon
                                                           COMBINING BALANCE SHEET
                                                             Other Special Revenue Funds
                                                                    June 30, 2012


                                                                Total other
                                                              special revenue             Local        Criminal        Tree
                                                                   funds                  Street      Forfeitures   Replacement
     ASSETS
       Cash and investments                                    $      900,110         $    745,937    $   149,174   $     4,999
       Receivables
          Accounts (net of allowance for uncollectibles)                  852                  852              -             -
          Special assessments                                         261,325              261,325              -             -
       Due from other governmental units                              105,480              105,480              -             -
       Prepaid items                                                    5,633                5,633              -             -
              Total assets                                     $    1,273,400         $   1,119,227   $   149,174   $     4,999

     LIABILITIES AND FUND BALANCES
       Liabilities




84
          Accounts payable                                     $       25,362         $     25,362    $         -   $         -
          Accrued liabilities                                           5,689                5,689              -             -
          Deferred revenue                                            261,325              261,325              -             -
              Total liabilities                                       292,376              292,376              -             -

        Fund balances
          Nonspendable - prepaid items                                  5,633                 5,633             -             -
          Restricted for:
              Streets and highways                                    821,218              821,218              -             -
              Law enforcement                                         149,174                    -        149,174             -
              Other purposes                                            4,999                    -              -         4,999
              Total fund balances                                     981,024              826,851        149,174         4,999
              Total liabilities and fund balances              $    1,273,400         $   1,119,227   $   149,174   $     4,999
                                                        City of Muskegon
                        COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
                                                   Other Special Revenue Funds
                                                  For the year ended June 30, 2012


                                                      Total other
                                                    special revenue            Local         Criminal        Tree
                                                         funds                 Street       Forfeitures   Replacement
     REVENUES
       Intergovernmental revenues - State           $     782,326          $     780,326    $         -   $    2,000
       Charges for services                                 1,279                  1,079              -          200
       Fines and forfeitures                               11,422                      -         11,422            -
       Investment earnings                                 28,264                 27,091          1,136           37
       Other                                              110,496                110,496              -            -
              Total revenues                              933,787                918,992         12,558        2,237

     EXPENDITURES
       Current
         Public safety                                      4,212                      -          4,212            -




85
         Highways, streets and bridges                  1,235,481              1,235,481              -            -
         Culture and recreation                             2,357                      -              -        2,357
              Total expenditures                        1,242,050              1,235,481          4,212        2,357

     Excess of revenues over (under) expenditures        (308,263)              (316,489)         8,346         (120)

     OTHER FINANCING SOURCES
       Transfers in                                       480,000                480,000              -            -
     Net change in fund balances                          171,737                163,511          8,346         (120)

     Fund balances at July 1, 2011                        809,287                663,340        140,828        5,119
     Fund balances at June 30, 2012                 $     981,024          $     826,851    $   149,174   $    4,999
                                                                    City of Muskegon
                                                        BUDGETARY COMPARISON SCHEDULE
                                                             Other Special Revenue Funds
                                                            For the year ended June 30, 2012


                                                                      Local Street                                     Criminal Forfeitures
                                                                                       Variance -                                             Variance -
                                                         Final                          positive           Final                               positive
                                                        budget             Actual      (negative)         budget               Actual         (negative)
     REVENUES
       Intergovernmental revenues
          Federal                                   $     20,000       $          -    $   (20,000)   $          -         $          -       $        -
          State                                          770,988            780,326          9,338               -                    -                -
       Charges for services                                    -              1,079          1,079               -                    -                -
       Fines and forfeitures                                   -                  -              -          12,000               11,422             (578)
       Investment earnings                                20,000             27,091          7,091           1,000                1,136              136
       Other                                              90,000            110,496         20,496               -                    -                -
              Total revenues                             900,988            918,992        18,004           13,000               12,558             (442)

     EXPENDITURES
       Current
         Public safety                                          -                  -            -            5,000                4,212             788




86
         Highways, streets and bridges                  1,309,890          1,235,481       74,409                -                    -               -
              Total expenditures                        1,309,890          1,235,481       74,409            5,000                4,212             788

     Excess of revenues over (under) expenditures       (408,902)          (316,489)       92,413            8,000                8,346             346

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

     Net change in fund balances                    $     71,098            163,511    $   92,413     $      8,000                8,346       $     346

     Fund balances at July 1, 2011                                          663,340                                             140,828

     Fund balances at June 30, 2012                                    $    826,851                                        $    149,174
                                                          City of Muskegon
                                            BUDGETARY COMPARISON SCHEDULE─CONTINUED
                                                       Other Special Revenue Funds
                                                     For the year ended June 30, 2012


                                                                                     Tree Replacement
                                                                                                        Variance -
                                                                           Final                         positive
                                                                          budget           Actual       (negative)
     REVENUES
       Intergovernmental revenues - State                             $      2,000     $      2,000     $       -
       Charges for services                                                      -              200           200
       Investment earnings                                                      50               37           (13)
              Total revenues                                                 2,050            2,237           187

     EXPENDITURES
       Current
         Culture and recreation                                              2,500            2,357           143




87
     Net change in fund balances                                      $      (450)             (120)    $     330

     Fund balances at July 1, 2011                                                            5,119

     Fund balances at June 30, 2012                                                    $      4,999
                                                                                                                  City of Muskegon
                                                                                                          COMBINING BALANCE SHEET
                                                                                                            Other Capital Projects Funds
                                                                                                                   June 30, 2012


                                                                 Total other                                                  EDC         Community                                         Arena                         Economic
                                                               capital projects     Public       Sidewalk      Michcon      Revolving     Development        State         HOME             Capital     Neighborhood    Development -
                                                                    funds         Improvement   Replacement   Remediation     Loan        Block Grant       Grants      Rehabilitation   Improvements   Stabilization       Sappi
     ASSETS
       Cash and investments                                    $    2,076,276     $   557,159   $   575,878   $ 217,452     $ 166,084     $         -   $     29,331    $           -    $    23,779    $          -    $    506,593
       Receivables
         Accounts and loans (net of
             allowance for uncollectibles)                            561,990          18,478             -             -        20,946       362,101        156,547               -               -           3,918               -
         Special assessments                                           79,958               -        79,958             -             -             -              -               -               -               -               -
       Due from other governmental units                              588,596               -             -             -             -       452,380         31,359          19,254               -          85,603               -
              Total assets                                     $    3,306,820     $   575,637   $   655,836   $ 217,452     $ 187,030     $ 814,481     $ 217,237       $     19,254     $    23,779    $     89,521    $    506,593

     LIABILITIES AND FUND BALANCES (DEFICITS)
       Liabilities
          Accounts payable                                     $       41,481     $         -   $         -   $         -   $         -   $    29,206   $      5,728    $      4,742     $         -    $      1,805    $          -
          Accrued liabilities                                           4,652               -             -             -             -         2,495              -           1,184               -             973               -
          Due to other funds                                          782,150               -             -             -             -       506,163              -         195,829               -          80,158               -
          Deferred revenue                                            436,422          16,000        80,062             -             -       276,617         63,743               -               -               -               -
              Total liabilities                                     1,264,705          16,000        80,062             -             -       814,481         69,471         201,755               -          82,936               -

        Fund balances (deficits)
          Nonspendable - long-term loans receivable                   177,493               -             -             -        20,946             -        156,547                -              -               -               -
          Assigned for capital projects                             2,055,904         559,637       575,774       217,452       166,084             -              -                -         23,779           6,585         506,593
          Unassigned                                                 (191,282)              -             -             -             -             -         (8,781)        (182,501)             -               -               -
              Total fund balances (deficits)                        2,042,115         559,637       575,774       217,452       187,030             -        147,766         (182,501)        23,779           6,585         506,593




88
              Total liabilities and fund balances (deficits)   $    3,306,820     $   575,637   $   655,836   $ 217,452     $ 187,030     $ 814,481     $ 217,237       $     19,254     $    23,779    $     89,521    $    506,593
                                                                                                             City of Muskegon
                                                           COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICITS)
                                                                                           Other Capital Projects Funds
                                                                                         For the year ended June 30, 2012


                                                       Total other                                                    EDC         Community                                            Arena                          Economic
                                                     capital projects     Public        Sidewalk       Michcon      Revolving     Development           State         HOME             Capital     Neighborhood     Development -
                                                          funds         Improvement    Replacement    Remediation     Loan        Block Grant          Grants      Rehabilitation   Improvements    Stabilization       Sappi
     REVENUES
       Intergovernmental revenues
          Federal                                     $   1,285,652     $         -    $         -    $         -   $         -   $   1,010,777    $          -    $    274,875     $         -    $          -      $         -
          State                                             121,630               -              -              -             -               -         121,630               -               -               -                -
       Charges for services                                  63,300          40,416              -              -             -               -               -               -          22,884               -                -
       Investment earnings                                   33,868           5,700         11,581          1,711         1,473              53           9,250               -             116               -            3,984
       Other                                                426,926          37,659         55,668              -        34,498           2,682               -               -          23,400         273,019                -
              Total revenues                              1,931,376          83,775         67,249          1,711        35,971       1,013,512         130,880         274,875          46,400         273,019            3,984

     EXPENDITURES
       Debt service
         Principal                                          219,597               -        125,000             -              -               -          94,597               -               -               -                -
         Interest and fees                                   31,031               -         26,705             -              -               -           4,326               -               -               -                -
       Capital outlay                                     1,935,812          96,734          5,311           240         25,583       1,026,759         120,505         370,846          23,400         266,434                -
              Total expenditures                          2,186,440          96,734        157,016           240         25,583       1,026,759         219,428         370,846          23,400         266,434                -
     Excess of revenues over (under) expenditures         (255,064)         (12,959)       (89,767)         1,471        10,388         (13,247)        (88,548)        (95,971)         23,000           6,585            3,984

     OTHER FINANCING SOURCES (USES)
       Proceeds from sale of capital assets                113,981           21,090              -              -             -          40,803               -          52,088               -                -               -
       Transfers in                                         27,556                -              -              -             -               -               -          27,556               -                -               -
       Transfers out                                       (28,681)               -              -              -             -         (27,556)         (1,125)              -               -                -               -




89
              Total other financing sources (uses)         112,856           21,090              -              -             -         13,247           (1,125)         79,644               -                -               -
     Net change in fund balances                          (142,208)           8,131        (89,767)         1,471        10,388               -         (89,673)        (16,327)         23,000           6,585            3,984

     Fund balances (deficits) at July 1, 2011             2,184,323         551,506        665,541        215,981       176,642               -         237,439        (166,174)            779                -         502,609
     Fund balances (deficits) at June 30, 2012        $   2,042,115     $   559,637    $   575,774    $   217,452   $   187,030   $           -    $    147,766    $   (182,501)    $    23,779    $      6,585      $   506,593
90
                                       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.




                                                     91
                                                                             City of Muskegon
                                                                  COMBINING STATEMENT OF NET ASSETS
                                                                           Internal Service Funds
                                                                                June 30, 2012


                                                                                  ASSETS

                                                                          Total internal   Engineering                     General        Public Service
                                                                          service funds     Services       Equipment      Insurance         Building
     CURRENT ASSETS
       Cash and investments                                               $ 4,190,223      $    53,417     $ 1,819,863    $ 1,933,642     $     383,301
       Accounts receivable                                                    101,879           13,593           8,172         80,114                 -
       Inventories                                                             39,587                -          39,587              -                 -
       Prepaid items                                                          230,969            2,695          54,501        169,097             4,676
                 Total current assets                                        4,562,658          69,705       1,922,123      2,182,853           387,977

     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                                              7,381,412          26,355      7,308,408                -           46,649
             Less accumulated depreciation                                   (7,437,020)        (26,355)    (6,139,025)               -       (1,271,640)




92
                 Net capital assets                                          1,759,598                -      1,169,383                -         590,215
        Advances to component units                                          1,106,666                -        553,333        553,333                  -
                 Total noncurrent assets                                     2,866,264                -      1,722,716        553,333           590,215
                     Total assets                                            7,428,922          69,705       3,644,839      2,736,186           978,192

                                                                       LIABILITIES AND NET ASSETS
     CURRENT LIABILITIES
       Accounts payable                                                        574,332           1,018          48,737        509,680            14,897
       Accrued liabilities                                                      16,055           3,783           4,944            472             6,856
       Due to other governmental units                                          11,996          11,996               -              -                 -
       Bonds and other obligations, due within one year                         14,800           2,700           4,600            300             7,200
                 Total current liabilities                                     617,183          19,497          58,281        510,452            28,953

     NONCURRENT LIABILITIES
       Bonds and other obligations, less amounts due within one year            73,692          13,481          22,920          1,411            35,880
                     Total liabilities                                         690,875          32,978          81,201        511,863            64,833

     NET ASSETS
       Invested in capital assets                                            1,759,598               -       1,169,383              -           590,215
       Unrestricted                                                          4,978,449          36,727       2,394,255      2,224,323           323,144
                     Total net assets                                     $ 6,738,047      $    36,727     $ 3,563,638    $ 2,224,323     $     913,359
                                                                          City of Muskegon
                                       COMBINING STATEMENT OF REVENUE, EXPENSES AND CHANGES IN FUND NET ASSETS (DEFICIT)
                                                                       Internal Service Funds
                                                                  For the year ended June 30, 2012


                                                                  Total internal      Engineering                            General     Public Service
                                                                  service funds        Services         Equipment           Insurance      Building
     OPERATING REVENUES
       Charges for services                                        $   7,943,478     $       428,481    $   2,033,929   $    4,511,726   $    969,342
       Other                                                              89,599              30,783           53,417            5,399              -
           Total operating revenues                                    8,033,077             459,264        2,087,346        4,517,125        969,342

     OPERATING EXPENSES
       Administration                                                    360,000              96,000          126,108           81,096         56,796
       Insurance premiums and claims                                   4,277,725                   -                -        4,277,725              -
       Other operations                                                3,064,260             366,409        1,903,553           32,969        761,329
       Depreciation                                                      494,365                   -          424,394                -         69,971
           Total operating expenses                                    8,196,350             462,409        2,454,055        4,391,790        888,096
           Operating income (loss)                                     (163,273)              (3,145)       (366,709)          125,335         81,246

     NONOPERATING REVENUES




93
       Investment earnings                                               33,677                    4          20,707            10,395           2,571
       Gain on sale of capital assets                                    28,963                    -          28,963                 -               -
           Total nonoperating revenues                                   62,640                    4          49,670            10,395           2,571

           Income (loss) before transfers                              (100,633)              (3,141)       (317,039)          135,730         83,817

     Transfers in                                                       103,046               75,000                -           28,046               -
           Change in net assets                                           2,413               71,859        (317,039)          163,776         83,817

     Net assets (deficit) at July 1, 2011                              6,735,634             (35,132)       3,880,677        2,060,547        829,542
     Net assets at June 30, 2012                                   $   6,738,047     $        36,727    $   3,563,638   $    2,224,323   $    913,359
                                                                                           City of Muskegon
                                                                                COMBINING STATEMENT OF CASH FLOWS
                                                                                           Internal Service Funds
                                                                                      For the year ended June 30, 2012


                                                                                                 Total internal    Engineering                           General         Public Service
                                                                                                 service funds       Services      Equipment             Insurance         Building
     CASH FLOWS FROM OPERATING ACTIVITIES
       Receipts from customers                                                                   $      161,099    $    108,215    $       51,375    $        1,509      $          -
       Receipts from interfund services provided                                                      7,943,478         428,481         2,033,929         4,511,726           969,342
       Payments to suppliers                                                                         (4,607,163)       (124,249)       (1,155,952)       (3,083,748)         (243,214)
       Payments to employees                                                                         (1,490,276)       (248,310)         (339,863)         (397,355)         (504,748)
       Payments for interfund services used                                                            (858,405)       (185,724)         (572,161)           (3,772)          (96,748)
              Net cash provided by (used for) operating activities                                   1,148,733          (21,587)          17,328          1,028,360           124,632

     CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
       Transfers in                                                                                     103,046         75,000                 -             28,046                  -
       Advances to component units                                                                   (1,106,666)             -          (553,333)          (553,333)                 -
              Net cash provided by (used for) noncapital financing activities                        (1,003,620)        75,000          (553,333)          (525,287)                 -

     CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
       Purchases of capital assets                                                                    (589,536)               -         (577,576)                    -        (11,960)
       Proceeds from sale of capital assets                                                             32,486                -           32,486                     -              -
              Net cash used for capital and related financing activities                              (557,050)               -         (545,090)                    -        (11,960)




94
     CASH FLOW FROM INVESTING ACTIVITIES
       Investment earnings                                                                              33,677                4           20,707            10,395              2,571

              Net increase (decrease) in cash and investments                                         (378,260)         53,417         (1,060,388)         513,468            115,243

     Cash and investments at July 1, 2011                                                            4,568,483                -        2,880,251          1,420,174           268,058
     Cash and investments at June 30, 2012                                                       $   4,190,223     $    53,417     $ 1,819,863       $ 1,933,642         $    383,301

     Reconciliation of operating income (loss) to net cash provided by (used for)
       operating activities
          Operating income (loss)                                                                $    (163,273)    $     (3,145)   $    (366,709)    $     125,335       $     81,246
          Adjustments to reconcile operating income (loss) to net cash provided by
              (used for) operating activities
                  Depreciation expense                                                                 494,365                -          424,394                     -         69,971
              Change in assets and liabilities
                  Receivables, net                                                                      71,500           77,432           (2,042)           (3,890)                 -
                  Inventories                                                                           (9,751)               -           (9,751)                -                  -
                  Prepaid items                                                                        517,353             (966)           7,234           510,313                772
                  Accounts payable                                                                     372,496           12,168          (31,145)          397,305             (5,832)
                  Accrued liabilities                                                                  (40,537)         (13,656)          (4,653)             (703)           (21,525)
                  Due to other funds                                                                   (93,420)         (93,420)               -                 -                  -
                    Net cash provided by (used for) operating activities                         $   1,148,733     $    (21,587)   $      17,328     $ 1,028,360         $    124,632
                                          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.




                                                    95
                                                      City of Muskegon
                                     COMBINING STATEMENT OF ASSETS AND LIABILITIES
                                                     Agency Funds
                                                     June 30, 2012


                                                     Total                             Current    Rehab Loan
                                                     funds             Collector         tax        Escrow
     ASSETS
       Cash and investments                      $   705,640       $     705,475   $        165   $        -
       Accounts receivable                             1,867               1,867              -            -
             Total assets                        $   707,507       $     707,342   $        165   $        -

     LIABILITIES
       Accounts payable                          $   228,052       $     228,052   $          -   $        -
       Due to other governmental units               390,092             389,927            165            -
       Deposits held for others                       89,363              89,363              -            -
             Total liabilities                   $   707,507       $     707,342   $        165   $        -




96
                                                         City of Muskegon
                                         STATEMENT OF CHANGES IN ASSETS AND LIABILITIES
                                                             Agency Funds
                                                    For the year ended June 30, 2012


                                                             Balance                                                 Balance
                                                             July 1,                                                 June 30,
     COLLECTOR FUND                                           2011                Additions        Deductions         2012
     ASSETS
       Cash and investments                              $     742,906        $ 15,110,400     $ 15,147,831      $     705,475
       Accounts receivable                                       1,867             152,217          152,217              1,867
           Total assets                                  $     744,773        $ 15,262,617     $ 15,300,048      $     707,342

     LIABILITIES
       Accounts payable                                  $     213,981        $    9,877,066   $     9,862,995   $     228,052
       Due to other governmental units                         462,345             2,162,382         2,234,800         389,927
       Deposits held for others                                 68,447             2,536,100         2,515,184          89,363
           Total liabilities                             $     744,773        $ 14,575,548     $ 14,612,979      $     707,342

     CURRENT TAX FUND
     ASSETS
       Cash and investments                              $             -      $ 30,962,144     $ 30,961,979      $         165

     LIABILITIES
       Due to other governmental units                   $             -      $ 21,917,176     $ 21,917,011      $         165
       Due to other funds                                              -         8,285,061        8,285,061                  -




97
       Due to component units                                          -           584,703          584,703                  -
       Deposits held for others                                        -           175,204          175,204                  -
           Total liabilities                             $             -      $ 30,962,144     $ 30,961,979      $         165

     REHAB LOAN ESCROW FUND
     ASSETS
       Cash and investments                              $             -      $        1,686   $         1,686   $              -

     LIABILITIES
       Accounts payable                                  $             -      $        1,686   $         1,686   $              -

     ALL AGENCY FUNDS
     ASSETS
       Cash and investments                              $     742,906        $ 46,074,230     $ 46,111,496      $     705,640
       Accounts receivable                                       1,867             152,217          152,217              1,867
           Total assets                                  $     744,773        $ 46,226,447     $ 46,263,713      $     707,507

     LIABILITIES
       Accounts payable                                  $     213,981        $    9,878,752   $     9,864,681   $     228,052
       Due to other governmental units                         462,345            24,079,558        24,151,811         390,092
       Due to other funds                                            -             8,285,061         8,285,061               -
       Due to component units                                        -               584,703           584,703               -
       Deposits held for others                                 68,447             2,711,304         2,690,388          89,363
           Total liabilities                             $     744,773        $ 45,539,378     $ 45,576,644      $     707,507
98
                                  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.




                                                    99
                                                                       City of Muskegon
                                                             COMBINING BALANCE SHEET
                                                            Discretely Presented Component Units
                                                                        June 30, 2012


                                                    Total discretely         Local
                                                       presented          Development        Downtown        Tax Increment     Brownfield
                                                      component             Finance         Development         Finance       Redevelopment
                                                         units            Authority III      Authority         Authority        Authority
      ASSETS
        Cash and investments                        $      457,790         $    35,595      $      245,957   $     19,638     $     156,600
        Prepaid items                                       61,149              61,149                 -              -                 -
              Total assets                          $      518,939         $    96,744      $      245,957   $     19,638     $     156,600

      LIABILITIES AND FUND BALANCES
        Liabilities
           Accounts payable                         $       59,185         $           -    $       59,185   $            -   $           -
           Advances from primary government              1,660,000                 -                     -                -       1,660,000
              Total liabilities                          1,719,185                 -                59,185            -           1,660,000




100
        Fund balances
          Nonspendable - prepaid items                      61,149              61,149                   -              -                  -
          Unassigned                                    (1,261,395)             35,595             186,772         19,638         (1,503,400)
              Total fund balances                       (1,200,246)             96,744             186,772         19,638         (1,503,400)
              Total liabilities and fund balances   $      518,939        $     96,744      $      245,957   $     19,638     $     156,600
                                                               City of Muskegon
                                     RECONCILIATION OF THE GOVERNMENTAL FUNDS
                                BALANCE SHEET TO THE STATEMENT OF NET ASSETS (DEFICITS)
                                             Discretely Presented Component Units
                                                         June 30, 2012


      Total fund balance—governmental funds                                                                   $ (1,200,246)

      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                                                            (1,481,896)      2,716,362

         Bond issuance costs are not capitalized and amortized in the
         governmental funds.
            Bond issuance costs                                                                   165,405




101
            Accumulated amortization                                                                (6,562)       158,843

         Accrued interest in governmental activities is not reported in the
         governmental funds.                                                                                       (41,630)

         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.                                                              (7,364,932)

            Net assets of governmental activities in the Statement of Net Assets (Deficits)                   $ (5,731,603)
                                                                City of Muskegon
                       COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICIT)
                                                   Discretely Presented Component Units
                                                     For the year ended June 30, 2012


                                                      Total discretely      Local
                                                         presented       Development        Downtown      Tax Increment    Brownfield
                                                        component          Finance         Development       Finance      Redevelopment
                                                           units         Authority III      Authority       Authority       Authority
      REVENUES
        Property taxes                                $      584,703     $      83,420     $   305,797     $    53,057    $     142,429
        Intergovernmental revenues - Local                   100,000           100,000               -               -                -
        Investment earnings                                    6,853             3,568           2,478             136              671
        Other                                                 75,000            75,000               -               -                -
               Total revenues                                766,556           261,988         308,275          53,193          143,100

      EXPENDITURES
        Current
          Community and economic development               1,821,284               250          59,185          50,000        1,711,849
        Debt service
          Principal                                          345,000            80,000         265,000               -                 -




102
          Interest and fees                                  292,235           222,772          69,463               -                 -
          Bond issuance costs                                114,766           114,766               -               -                 -
               Total expenditures                          2,573,285           417,788         393,648          50,000        1,711,849

      Excess of revenues over (under) expenditures        (1,806,729)         (155,800)        (85,373)          3,193        (1,568,749)

      OTHER FINANCING SOURCES (USES)
        Refunding long-term debt issued                    4,100,000          4,100,000              -               -                 -
        Premium on refunding long-term debt issued           276,196            276,196              -               -                 -
        Payment on refunding of long-term debt            (4,145,000)        (4,145,000)             -               -                 -
               Total other financing sources (uses)          231,196           231,196               -               -                 -

      Net change in fund balances                         (1,575,533)           75,396         (85,373)          3,193        (1,568,749)

      Fund balances at July 1, 2011                          375,287            21,348         272,145          16,445           65,349

      Fund balances (deficit) at June 30, 2012        $   (1,200,246)    $      96,744     $   186,772     $    19,638    $   (1,503,400)
                                                             City of Muskegon
            RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES
                 AND CHANGE IN FUND BALANCES (DEFICIT) TO THE STATEMENT OF ACTIVITIES
                                      Discretely Presented Component Units
                                        For the year ended June 30, 2012


      Net change in fund balances—total governmental funds                                                       $ (1,575,533)

      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                                                $   (268,710)
            Bond issuance costs                                                                       114,766        (153,944)

         Debt proceeds are other financing sources in the governmental funds, but the proceeds
         increase long-term debt in the Statement of Net Assets                                                    (4,376,196)




103
         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.                            4,489,945

         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.                                           (3,930)
               Change in net assets of governmental activities                                                   $ (1,619,658)
104
SCHEDULE OF INDEBTEDNESS




           105
                                                                  City of Muskegon

                                                          SCHEDULE OF INDEBTEDNESS

                                                                      June 30, 2012

                                                                                                                                                 Annual
                                            Date           Amount           Interest    Date of                                                  Interest
                                          of Issue         of Issue           Rate      Maturity         6/30/2011           6/30/2012           Payable

Business-Type Activities Bonds and Loans Payable:



Water supply system bonds                    4/1/2010 $       5,995,000         2.00%     05/01/12 $           600,000   $               -   $              -
 ($119,764 unamortized premium)                                                 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
                                                                                                             5,415,000           4,815,000            760,725


Drinking Water State Revolving               3/2/2004 $      13,900,000         2.13%     10/01/11             630,000                   -                  -
 Fund (DWSRF)                                                                   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
                                                                                                            10,955,000          10,325,000          1,610,591




TOTAL BUSINESS-TYPE ACTIVITIES BONDS AND LOANS PAYABLE                                               $      16,370,000   $      15,140,000   $      2,371,316




                                                                          106
                                                                 City of Muskegon

                                                   SCHEDULE OF INDEBTEDNESS - CONTINUED

                                                                     June 30, 2012

                                                                                                                                                Annual
                                            Date          Amount           Interest    Date of                                                  Interest
                                          of Issue        of Issue           Rate      Maturity         6/30/2011           6/30/2012           Payable

Governmental Activities Bonds and Loans Payable:


Capital improvement bonds                    3/1/2003 $      1,575,000         3.70%     06/01/12             125,000                   -                  -
 of 2003 (sidewalks)                                                           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
                                                                                                              685,000             560,000             57,170


Capital improvement bonds                  10/24/2006 $      5,400,000         4.00%     10/01/11              70,000                   -                  -
 of 2006 (fire station, recreation)                                            4.00%     10/01/12              70,000              70,000            208,345
  ($12,306 unamortized discount)                                               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
                                                                                                            5,235,000           5,165,000          2,783,498

Capital improvement bonds                   9/30/2011 $      2,000,000         2.98%     09/01/12                   -             175,000             56,993
 of 2011 (streets)                                                             2.98%     09/01/13                   -             180,000             51,703
                                                                               2.98%     09/01/14                   -             185,000             46,265
                                                                               2.98%     09/01/15                   -             190,000             40,677
                                                                               2.98%     09/01/16                   -             195,000             34,941
                                                                               2.98%     09/01/17                   -             200,000             29,056
                                                                               2.98%     09/01/18                   -             210,000             22,947
                                                                               2.98%     09/01/19                   -             215,000             16,614
                                                                               2.98%     09/01/20                   -             220,000             10,132
                                                                               2.98%     09/01/21                   -             230,000              3,427
                                                                                                                    -           2,000,000            312,755

State of Michigan                           6/18/2010 $        500,000         2.00%     03/18/12              28,527                   -                  -
 environmental assessment loan                                                 2.00%     03/18/13              29,098              20,211              3,005
                                                                               2.00%     03/18/14              29,680              20,615              2,601
                                                                               2.00%     03/18/15              30,274              21,027              2,189
                                                                               2.00%     03/18/16              30,879              21,448              1,768
                                                                               2.00%     03/18/17              31,497              21,877              1,339
                                                                               2.00%     03/18/18              32,126              22,314                902
                                                                               2.00%     03/18/19              32,769              22,761                455
                                                                                                              244,850             150,253             12,259



TOTAL GOVERNMENTAL ACTIVITIES BONDS AND LOANS PAYABLE                                               $       6,164,850   $       7,875,253   $      3,165,682


TOTAL PRIMARY GOVERNMENT BONDS AND LOANS PAYABLE                                                    $      22,534,850   $      23,015,253   $      5,536,997




                                                                         107
                                                                City of Muskegon

                                                 SCHEDULE OF INDEBTEDNESS - CONTINUED

                                                                    June 30, 2012

                                                                                                                                               Annual
                                            Date         Amount           Interest    Date of                                                  Interest
                                          of Issue       of Issue           Rate      Maturity         6/30/2011           6/30/2012           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             3/22/2011 $      2,045,000         2.00%     06/01/12             265,000                   -                  -
 refunding bonds                                                              2.50%     06/01/13             275,000             275,000             59,162
($28,736 unamortized premium)                                                 2.75%     06/01/14             280,000             280,000             52,288
                                                                              3.25%     06/01/15             285,000             285,000             44,588
                                                                              3.50%     06/01/16             300,000             300,000             35,326
                                                                              3.75%     06/01/17             310,000             310,000             24,826
                                                                              4.00%     06/01/18             330,000             330,000             13,200
                                                                                                           2,045,000           1,780,000            229,390

Local Development Finance Authority        11/1/2002 $      4,725,000         3.88%     11/01/11              80,000                   -                  -
Smartzone Bonds                                                               4.00%     11/01/12             180,000             180,000              3,600
                                                                              3.90%     11/01/13             240,000                   -                  -
                                                                              4.05%     11/01/14             305,000                   -                  -
                                                                              4.05%     11/01/15             325,000                   -                  -
                                                                              4.15%     11/01/16             340,000                   -                  -
                                                                              4.25%     11/01/17             355,000                   -                  -
                                                                              4.35%     11/01/18             375,000                   -                  -
                                                                              4.45%     11/01/19             395,000                   -                  -
                                                                              4.60%     11/01/20             400,000                   -                  -
                                                                              4.60%     11/01/21             255,000                   -                  -
                                                                              4.60%     11/01/22             265,000                   -                  -
                                                                              4.85%     11/01/23             280,000                   -                  -
                                                                              4.85%     11/01/24             295,000                   -                  -
                                                                              4.85%     11/01/25             315,000                   -                  -
                                                                                                           4,405,000             180,000              3,600

Local Development Finance Authority        3/20/2012 $      4,100,000         0.00%     11/01/12                   -                   -            142,466
Smartzone Refunding Bonds                                                     0.00%     11/01/13                   -             260,000            125,300
($276,196 unamortized premium)                                                2.00%     11/01/14                   -             320,000            119,500
                                                                              2.00%     11/01/15                   -             335,000            112,950
                                                                              2.00%     11/01/16                   -             345,000            104,425
                                                                              3.00%     11/01/17                   -             355,000             93,925
                                                                              3.00%     11/01/18                   -             375,000             81,100
                                                                              4.00%     11/01/19                   -             390,000             65,800
                                                                              4.00%     11/01/20                   -             395,000             50,100
                                                                              4.00%     11/01/21                   -             245,000             37,300
                                                                              4.00%     11/01/22                   -             255,000             28,575
                                                                              3.00%     11/01/23                   -             265,000             20,775
                                                                              3.00%     11/01/24                   -             275,000             12,675
                                                                              3.00%     11/01/25                   -             285,000              4,275
                                                                                                                   -           4,100,000            999,166
TOTAL DISCRETELY PRESENTED COMPONENT UNIT BONDS AND LOANS PAYABLE                                  $       7,450,000   $       7,060,000   $      1,232,156


TOTAL REPORTING ENTITY BONDS AND LOANS PAYABLE                                                     $      29,984,850   $      30,075,253   $      6,769,153




                                                                        108
                                       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.                                  110


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.                                         115


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.                                                                                  121


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.                                   125


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.                                          127



Sources: Unless otherwise noted, the information in these schedules is derived form the Comprehensive Annual
Financial Reports for the relevant year.




                                                    109
                                                                                                              City of Muskegon

                                                                                                     NET ASSETS BY COMPONENT

                                                                                                             Last Ten Fiscal Years




                                                                                                                 December 31                                                                           June 30
                                                                2003            2004            2005 (a)          2006               2007            2008             2009             2010             2011             2012

      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   $   66,862,806
      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        3,526,343
      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       12,836,573
      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   $   83,225,722



      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   $   40,147,600
      Restricted                                                 822,559         822,559           822,559          822,559           822,559          822,559          672,000          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        8,961,713
      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   $   49,781,313



      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    $ 107,010,406
      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        4,198,343
      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       21,798,286
      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    $ 133,007,035




110
      (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.
                                                                                                City of Muskegon

                                                                                        CHANGES IN NET ASSETS

                                                                                           Last Ten Fiscal Years




                                                                                                                                                                                    Period Ended
                                                                                                     Year Ended December 31                                                           June 30               Year Ended June 30
                                                      2003             2004              2005                 2006             2007             2008             2009                   2010               2011            2012

      EXPENSES
      Governmental Activities
      Public representation                       $      887,496 $        866,669 $         885,365 $             904,109 $       925,124 $        986,696 $        923,911     $         445,251     $      854,249 $        866,809
      Administrative services                          1,227,407        1,132,229           803,783               732,715         783,713          782,362          698,022               317,873            645,585          566,161
      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        2,399,147
      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       13,213,251
      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        2,958,367
      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        6,568,448
      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        2,447,373
      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        1,601,316
      General administration                           1,601,112        1,725,225         1,608,108             1,143,963         358,225          574,955          451,651               210,117            794,115          791,197
      Interest on long-term debt                         223,717          193,021           170,814               206,768         343,106          324,076          288,073               139,006            272,940          283,186
      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       31,695,255

      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        5,974,173
      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        6,202,359
      Marina and launch ramp                             325,401          351,705           343,599               332,826         392,994          347,642          310,773               150,055            292,889          310,174
      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       12,486,706
      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 $     44,181,961


      PROGRAM REVENUES




111
      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 $        196,886
         Administrative services                         292,665          314,028           311,529               306,964         287,011          257,850          271,117               129,630            263,473          270,886
         Financial services                              591,174          645,166           537,445               728,332         744,109          726,572          818,845               475,031            879,905          881,229
         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        1,136,942
         Public works                                    266,045          452,606           467,849               588,566         407,569          382,072          383,733               209,203            642,082          480,487
         Highways, streets and bridges                   273,893          555,018           267,689               263,423         372,133          301,955          251,840               139,009            451,473          230,241
         Community and economic development              977,448          414,543           815,980               762,220         356,051          297,854          249,241               186,572            457,952          617,379
         Culture and recreation                        1,026,822        1,151,687         1,141,865               809,228         454,154          405,520          445,891               129,025            300,367          315,010
         General administration                          122,447          200,434           314,658               170,240          64,366           99,494          123,426                59,373            116,690          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        4,651,576
      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        1,568,005
      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       10,465,331

      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        5,254,095
      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        6,455,634
      Marina and launch ramp                             274,258          266,981           248,460               267,412         281,679          250,266          242,055               156,767            194,311          208,370
      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       11,918,099
      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 $     22,383,430

      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)     (21,229,924)
      Business-type Activities                            439,780        1,765,730         2,931,447            2,283,867          775,036          165,350           33,911               855,943            871,244         (568,607)
      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) $   (21,798,531)
                                                                                                                                             City of Muskegon

                                                                                                                            CHANGES IN NET ASSETS - CONTINUED

                                                                                                                                          Last Ten Fiscal Years




                                                                                                                                                                                                                                 Period Ended
                                                                                                                                                   Year Ended December 31                                                          June 30             Year Ended June 30
      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 $    8,383,224
      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      7,663,534
      Franchise fees                                                                           265,532                     -               286,265               285,124         297,200          304,812         321,852              178,239           362,103        342,376
      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      3,577,848
      Unrestricted investment earnings                                                         281,492               170,094               420,595               832,300       1,247,520          730,142         185,436              104,086           193,435        100,073
      Miscellaneous                                                                            109,620                68,405                70,402                64,645          88,035          160,460         226,124               51,638           432,880        154,531
      Gain on sale of capital asset                                                             62,992                70,886               300,037                81,372           1,604          323,048         123,258               65,155            25,815         34,496
      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     20,256,082

      Business-type Activities
      Unrestricted investment earnings                                                          71,628                51,768               138,053               122,060         170,594          108,990          23,843               15,990            23,959         46,582
      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         46,582
      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 $   20,302,664

      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)       (973,842)
      Business-type Activities                                                                 422,641             1,959,918             3,149,500              2,945,927        985,630         314,340           57,754              875,693          895,203        (522,025)
      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 $    (1,495,867)




112
      SOURCE: The information in these schedules (unless otherwise noted) is derived from the comprehensive annual financial reports for the relevant year.
                                                                                                         City of Muskegon

                                                                                    FUND BALANCE OF GOVERNMENTAL FUNDS

                                                                                                        Last Ten Fiscal Years




                                                                                                             December 31                                                                         June 30
                                                               2003            2004              2005           2006             2007            2008            2009            2010            2011 (a)        2012

      General fund
      Reserved                                            $     110,642   $      74,349   $         79,356   $     177,076   $     180,410   $     214,819   $     187,633   $     300,969   $           -   $           -
      Nonspendable                                                    -               -                  -               -               -               -               -               -         251,173         178,468
      Restricted                                                      -               -                  -               -               -               -               -               -               -               -
      Assigned                                                        -               -                  -               -               -               -               -               -       2,385,728       2,075,738
      Unassigned                                                      -               -                  -               -               -               -               -               -       3,374,481       4,265,839
      Unreserved                                              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                                  $   2,431,418   $   2,445,191   $      2,519,605   $   2,690,039   $   2,920,632   $   2,383,725   $   1,638,662   $   6,038,454   $   6,011,382   $   6,520,045

      All other governmental funds
      Reserved                                            $   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       1,568,318
      Restricted                                                                                                                                                                                 1,375,779       3,485,073
      Assigned                                                                                                                                                                                   2,073,027       2,055,904
      Unassigned                                                                                                                                                                                  (238,104)       (191,282)
      Unreserved, reported in:
       Special revenue funds                                  3,254,746       2,692,431          2,910,285      3,030,096        4,462,015       2,768,886       2,060,117       2,163,041               -               -




113
       Debt service                                             153,955               -                  -              -                -               -               -               -               -               -
       Capital project funds                                  3,849,868       2,187,667          1,239,763        390,282          635,676         675,898         554,273           6,035               -               -
       Permanent funds                                           63,798          22,896             22,890         77,300           84,413          60,813          15,613          16,979               -               -
      Total all other governmental funds                  $   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   $   6,918,013

      (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.
                                                                                                      City of Muskegon

                                                                           CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS

                                                                                                    Last Ten Fiscal Years


                                                                                                                                                                                Period Ended      Year Ended      Year Ended
                                                                                                     Year Ended December 31                                                       June 30          June 30         June 30
                                                              2003            2004              2005          2006          2007                   2008            2009             2010             2011            2012

      Revenues
      Taxes                                              $ 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    $ 15,506,668
      Intergovernmental                                    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       9,899,379
      Charges for services                                  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       2,596,328
      Other                                                 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       3,237,189
      Total revenues                                       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      31,239,564

      Expenditures
      Public representation                                     889,188         869,342         886,717            903,895           927,320         987,229         923,923           448,703         851,918         867,762
      Administrative services                                   785,966         704,667         748,588            669,789           644,913         632,513         645,704           303,555         586,328         515,988
      Financial services                                      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       2,407,131
      Public safety                                          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      12,963,122
      Public works                                            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       2,835,000
      Highways, streets and bridges                          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       2,756,010
      Community and economic development                        987,097         797,072         784,396            763,211           894,879       1,077,312       4,440,687         1,330,794       3,109,693       2,850,593
      Culture and recreation                                  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       1,265,743
      Other governmental functions                            1,589,572       1,708,868       1,603,292          1,139,148           350,385         562,341         438,292           200,623       1,775,128         770,910




114
      Debt service
       Principal                                              1,270,000       1,335,000       1,115,000          1,189,785         1,241,921         999,148         663,371           303,466       1,345,183         289,597
       Interest and issuance costs                              230,907         201,447         166,071            271,233           324,577         310,432         282,174           136,013         267,258         268,315
      Capital outlay                                          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       2,948,610
      Total expenditure                                      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      30,738,781

      Excess of revenues over (under) expenditures           (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)       500,783

      Other financing sources (uses)
      Transfers in                                            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         510,907
      Transfers out                                          (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)       (613,953)
      Bonds issued                                            1,578,009               -       1,061,900          5,626,331                 -         500,000               -                 -               -       2,000,000
      Sale of capital assets                                    282,080         483,544         827,141          1,120,341           286,152         375,723          68,452            75,465         120,118         113,981
      Total other financing sources (uses)                    1,860,089         592,787       1,780,995          6,178,627           218,106         943,949         118,150            57,682          92,072       2,010,935

      Net change in fund balances                        $     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) $    2,511,718

      Debt service as a percentage of noncapital
      expenditures                                                4.15%           4.63%            3.74%             4.44%             5.05%           4.06%           2.97%             3.01%           5.22%           2.01%




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

      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%
      2012       8,093,864    25.9%       7,412,804    23.7%    9,899,379      31.7%       2,596,328     8.3%   1,223,034      3.9%       459,401     1.5%     307,891     1.0%     1,246,863    4.0%     31,239,564    -5.1%


      * 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.




115
                                                                                                                                            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

         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%
         2011        331,901,631                 -        144,675,509        87,261,346        563,838,486        93,465,537         657,304,023               3,071,654          9,129,000                     -          12,200,654          669,504,677        12.0749              94.95%


                                                                                                                    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
         Year        Residential      Agriculture        Commercial         Industrial         Property          Property           Ad Valorem               Property           Property            Property            IFT and CFT           Valuation            Value




116
         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
         2011        354,307,945                 -        154,700,200        90,467,700        599,475,845        93,456,700         692,932,545               3,080,900          9,129,000                     -          12,209,900         705,142,445      1,410,284,890




      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, 2012


                                                            6/30/2012                                          12/31/2002
                                                                             Percent of                                       Percent of
                                              Taxable                     Total Taxable           Taxable                   Total Taxable
                  Taxpayer                   Valuation         Rank          Valuation           Valuation        Rank         Valuation

      Consumers Energy                  $     53,088,067        1                     7.9%   $    66,317,118       1                  9.3%
      ESCO Company                             6,793,300        2                     1.0%         6,034,949       10                 0.8%
      GE Aviation                              6,695,200        3                     1.0%         8,454,728       4                  1.2%
      ADAC Plastics Inc                        5,648,200        4                     0.8%         9,395,760       3                  1.3%
      DTE Energy (formerly MichCon)            5,026,600        5                     0.8%         7,577,700       7                  1.1%
      Muskegon SC Holdings LLC                 4,503,400        6                     0.7%                                            0.0%
      Michigan Electric Transmission           4,381,900        7                     0.7%                 -                          0.0%




117
      Glen Oaks Apartments LLC                 4,280,600        8                     0.6%                 -                          0.0%
      Melching Inc (formerly Sappi)            3,943,179        9                     0.6%        62,260,158        2                 8.7%
      Lorin Industries                         3,825,278        10                    0.6%         7,233,210        9                 1.0%
      Terrace Partners LLC                              -                             0.0%         7,754,826        5                 1.1%
      Brunswick Corp                                    -                             0.0%         7,584,890        6                 1.1%
      Neway Anchorlok International                     -                             0.0%         7,509,500        8                 1.1%

      Total - 10 Largest                      98,185,724                            14.7%        190,122,839                        26.6%
      Total - All Other                      571,318,953                            85.3%        523,441,136                        73.4%
                                         $   669,504,677                           100.0%    $   713,563,975                       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

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
2011       9.5000        0.0749            2.5000        12.0749        2.4000

                        Overlapping - County-Wide Rates

       Muskegon     Intermediate      Special         Vocational    Community
Year    County         School        Education        Education      College

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
2011       6.6957        0.4597            2.2987          0.9996       2.2037


           Overlapping - School District                                              Grand Total

                                                        State                                   Non-
Year   Operating       Debt             Total         Education                  Homestead    Homestead

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
2011      18.0000        6.2500          24.2500           6.0000                   39.3823         57.3823




                                                118
                                                                             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

       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%
       2011        8,583,284       7,457,610       86.9%     1,030,902        8,488,512          98.9%           54,707        80,068        12,935          1.72%




119
      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, 2012                                                                     Year Ended December 31, 2002
      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                                1,124                 6% $       1,037,000    $        10,370                  0%                  1,036                 4% $       1,131,500    $        11,315                  0%
      $2,501-$7,500                                   617                 3%         5,420,800             54,208                  1%                  1,013                 4%         6,299,800             62,998                  1%
      $7,501-$25,000                                1,606                 9%        43,916,400            439,164                  6%                  2,631                11%        54,334,100            543,341                  8%
      $25,001-$50,000                               1,364                 7%        85,936,300            859,363                 12%                  2,281                 9%       102,797,600          1,027,976                 15%
      $50,001-$100,000                                825                 4%        96,252,900            962,529                 13%                    956                 4%        79,918,900            799,189                 12%
      More than $100,000                              154                 1%        42,944,500            429,445                  6%                    127                 1%        25,941,500            259,415                  4%

      Subtotal                                      5,690                30% $     275,507,900    $     2,755,079                 37%                  8,044                32% $     270,423,400    $     2,704,234                 40%



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




120
      $2,500 or less                                1,684                 9% $         998,400    $         7,722                  0%                  2,111                 9% $       1,410,000    $         9,553                  0%
      $2,501-$7,500                                 1,120                 6%         5,345,200             41,342                  1%                  1,566                 6%         7,466,400             49,014                  1%
      $7,501-$25,000                                2,603                14%        42,342,800            327,494                  4%                  3,957                16%        65,716,900            441,234                  7%
      $25,001-$50,000                               3,061                16%       111,985,400            866,134                 12%                  4,707                19%       171,193,410          1,145,516                 17%
      $50,001-$100,000                              2,169                12%       144,811,000          1,120,019                 15%                  2,055                 8%       135,855,800            897,073                 13%
      More than $100,000                              622                 3%       129,889,000          1,004,607                 14%                    533                 2%       113,504,946            762,783                 11%

      Subtotal                                     11,259                60% $     435,371,800    $     3,367,318                 45%                 14,929                60% $     495,147,456    $     3,305,173                 49%

      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%                      $     1,290,407                 17%                  1,850                 7%                      $       683,202                 10%

      Total                                         18,699              100%                      $     7,412,804               100%                   24,823              100%                      $     6,692,609               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.
                                                                                       City of Muskegon

                                                                     RATIO OF OUTSTANDING DEBT BY TYPE

                                                                                      Last Ten Fiscal Years




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



      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   $   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       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       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       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       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       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       659
      2010*              6,444,605               -       1,065,428        7,510,033            5,995,000                  -        11,570,000     17,565,000              25,075,033       639




121
      2011               5,920,000               -         244,850        6,164,850            5,415,000                  -        10,955,000     16,370,000              22,534,850       587
      2012               7,725,000               -         150,253        7,875,253            4,815,000                  -        10,325,000     15,140,000              23,015,253       599


      * 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.
                                                    City of Muskegon

                                       DIRECT AND OVERLAPPING DEBT

                                                      June 30, 2012




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

Direct Debt
 City of Muskegon:
   Revenue Bonds                                               $        15,140,000 $      15,140,000 $                  -
   Capital Improvement Bonds                                             7,725,000                 -            7,725,000
   Intergovernmental Bonds                                                 150,253                 -              150,253
 Component Unit Debt:
   Downtown Development Authority                                        2,780,000          2,780,000                    -
   Local Development Finance Authority                                   4,280,000          4,280,000                    -

Total City Direct Debt                                         $        30,075,253 $      22,200,000 $          7,875,253




                                                                                      City Share as
                                                                      Gross          Percent of Gross          Net
Overlapping Debt
 Muskegon School Distict                                       $        28,895,000             95.04% $       27,461,808
 Orchard View School Distict                                            43,357,548             25.85%         11,207,926
 Reeths Puffer School Distict                                           75,857,061              6.20%          4,703,138
 Muskegon Intermediate School District                                           -                                     -
 Muskegon County                                                        35,005,000             14.12%          4,942,706
 Muskegon Community College                                             13,230,000             14.12%          1,868,076

Total Overlapping Debt                                         $       196,344,609                            50,183,654

Total City Direct and Overlapping Debt                                                                  $     58,058,907


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

The percentage of overlapping debt is estimated using taxable property values. Applicable percentages were estimated
by detrmining the portion of the City's taxable value that is within each overalapping governemnt unit's boundaries. 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.




                                                         122
                                                                                                                        City of Muskegon

                                                                                                         LEGAL DEBT MARGIN INFORMATION

                                                                                                                      Last Ten Fiscal Years




                                                               2003            2004              2005                 2006              2007               2008               2009              2010*            2011             2012


      Debt Limit                                          $ 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   $   73,585,150

      Total net debt applicable to limit                      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       14,375,253

      Legal debt margin                                   $ 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   $   59,209,897




      Total net debt applicable to the limit as                  12.74%            12.15%           13.01%               20.49%               18.52%           18.02%             17.98%            17.56%          16.51%           19.54%
      a percentage of debt limit

                                                                                            Legal Debt Margin Calculation for 2012:

                                                                                            Assessed Valuation:                                                           $   735,851,500
                                                                                            Legal Debt Limit (10% )                                                            73,585,150

                                                                                            Total Indebtedness:
                                                                                            Debt not Subject to Limitation:                            $    30,075,253
                                                                                               Paid by Special Assessment                                     (560,000)
                                                                                               Revenue Bonds                                               (15,140,000)




123
                                                                                            Debt Subject to Limitation                                                         14,375,253

                                                                                            Legal Debt Margin                                                             $    59,209,897



      * 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.
                                                        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


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
2012                5,273,720        3,441,078           1,832,642         1,230,000           410,187          1,640,187           1.12



                                                 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


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
2012                                                          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.




                                                              124
                                                                          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


      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%
      2012           38,225             752,622,470         19,689       34.1                5,428                891                  21,932,738         8.5%




125
      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



                                                                          2012                                          2003
                                                                                      Percentage                                    Percentage
                                                                                        of total                                      of total
                                                                                         City                                          City
      Employer                                         Employees         Rank         employment          Employees     Rank        employment


      Mercy General Health Partners                           3,657               1           24.7%             2,400          1          14.1%
      Muskegon Public Schools                                 1,570               2           10.6%               940          4           5.5%
      County of Muskegon                                        980               3            6.6%             1,300          2           7.6%
      State of Michigan                                         772               4            5.2%                                        0.0%
      ADAC Plastics                                             592               5            4.0%              210           10          1.2%
      Knoll Group                                               450               6            3.0%                             -          0.0%
      Muskegon Community College                                446               7            3.0%                             -          0.0%




126
      Baker College                                             400               8            2.7%                             -          0.0%
      SAF Holland USA                                           335               9            2.3%               400           7          2.3%
      GE Aviation formerly Johnson Technology                   327              10            2.2%               490           6          2.9%
      Verizon                                                     -               -            0.0%               350           9          2.1%
      Brunswick                                                   -               -            0.0%               400           7          2.3%
      Sappi/S.D. Warren Company                                   -               -            0.0%               610           5          3.6%
      Hackley Hospital                                                            -            0.0%             1,300           2          7.6%

      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                                                  2003            2004            2005          2006        2007     2008     2009    2010*     2011     2012
      Administration                                              1.50            1.50            1.50          1.50        1.50     1.50      -        -       0.40     0.40
      Affirmative Action                                          1.50            1.50            1.50          1.50        1.50     1.50     1.50     1.50     1.10     1.10
      Cemetaries                                                  3.52            3.52            3.25          3.00        3.25     3.25     3.25     2.50     2.20     1.75
      City Assessors Office                                        -               -               -             -           -        -        -        -        -        -
      City Clerk & Elections                                      4.00            4.00            4.00          4.00        4.00     4.00     4.00     3.00     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                                       1.20            1.00            1.00          1.00        1.00     1.00     1.00     1.00     0.55     0.55
      City Manager's Office                                       1.75            1.75            1.75          1.75        1.75     1.75     3.25     2.25     2.25     2.25
      City Treasurer's Office                                     6.00            5.00            5.00          5.00        4.00     5.00     5.00     5.00     5.00     5.00
      Civil Service                                               3.00            2.00            2.00          2.00        2.00     2.00     2.00     2.00     1.00      -
      Community Event Support                                     0.20             -               -             -           -        -        -        -        -        -
      Environmental Services                                      4.00            3.50            2.00          2.00        2.00     2.00     2.00     2.00     2.00     5.00
      Farmers Market                                              0.12            0.12             -             -           -        -       0.05     0.05     0.05     0.05
      Finance Administration                                      4.00            4.00            4.00          4.00        4.00     4.00     4.00     3.00     3.00     3.00
      Fire                                                       43.00           41.00           40.00         38.00       38.00    38.00    38.00    36.00    33.00    35.00
      Fire Safety Inspections                                    13.00           12.00           10.00         12.00       12.00    12.00    12.00     9.00     8.00     6.00
      Forestry                                                    1.93            0.93             -             -           -        -        -        -        -        -
      General Recreation                                          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




127
      Information Systems                                         4.00            4.00            3.00          3.00        3.00     3.00     3.00     3.00     3.00     3.00
      Parking                                                     0.30             -               -             -           -        -        -        -        -        -
      Parks                                                      10.53            9.68            8.48          8.25        8.15     8.15     7.99     7.15     6.00     6.05
      Planning, Zoning & Economic Development                     7.50            6.50            6.00          6.00        6.00     6.00     6.00     5.00     4.00     3.00
      Police                                                     96.00           94.00           94.00         94.00       94.00    94.00    94.00    88.00    88.00    88.00
      Sanitation                                                  1.25            1.10            1.10          1.00        1.00     1.00     1.00      -       0.30     0.20
      Senior Transit                                               -               -               -             -           -        -        -        -        -       0.05
      MVH-Major Streets                                          15.30           15.45           15.25         16.00       17.75    15.75    13.75    12.00    12.00    11.70
      MVH-Local Streets                                           7.20            7.00            7.00          7.00        7.00     6.00     8.00     7.00     7.00     6.70
      MVH-State Trunklines                                        1.60            2.00            2.00          2.00         -        -        -        -        -        -
      Walker Arena                                                0.12            0.12             -             -           -        -        -        -        -        -
      Community Development                                       5.00            5.00            4.00          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     0.25     0.25      -
      Lead Program                                                 -               -               -             -           -        -        -       0.75     0.75      -
      Sewer Maintenance                                          15.15           14.55           15.05         16.00       16.20    15.20    13.20    10.20    10.20     9.75
      Water Filtration                                           10.00           10.00           10.00         10.00       10.00    10.00    10.00    10.00    10.00     9.00
      Water Maintenance                                          15.65           15.15           14.65         13.00       12.50    13.50    15.40    12.40    12.40    11.75
      Hartshorn Marina Fund                                       0.79            0.79            0.67          0.73        0.67     0.34     0.05     0.05     0.05     0.30
      Public Service Building                                     3.30            3.65            3.85          3.45        3.45     3.45     3.70     8.95     8.05     7.95
      Engineering                                                 9.40            7.70            7.70          7.45        7.45     7.45     7.45     5.45     4.95     4.95
      Equipment                                                   7.70            8.00            8.00          8.95        8.25     8.25     8.50     7.25     6.25     6.25
                                                                308.00          294.00          284.00        284.00      282.00   280.00   280.00   256.00   244.00   241.00



      * 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                                        2003          2004         2005          2006          2007         2008         2009         2010*       2011         2012



      Administrative Services
      Elections
      Number of registered voters                               23,904        25,261       25,918        26,028        26,345       27,678       26,136       26,136      26,330       26,324
      Number of votes cast:
       Last general election                                     8,916        14,169       14,169        10,410        10,410       15,271       15,271       15,271       8,106        1,933
       Last city election                                        4,325         4,325        4,022         4,022         1,101        1,101        2,254        2,254       8,106        1,933
      Percentage of registered voters voting:
       Last general election                                         37%           56%          55%           40%           40%          55%          58%        58%           31%          7%
       Last city election                                            18%           17%          16%           15%            4%           4%           9%         9%           31%          7%



      Financial Services
      Property Tax Bills                                        15,428        15,403       15,404        15,354        15,376       15,350       15,435            -      15,351       15,261
      Income Tax Returns                                        25,043        24,378       23,884        23,493        23,141       22,598       21,071       19,963      19,688       18,699
      Paper Check Issued to Vendors                              3,784         3,405        3,205         3,248         3,347        3,346        3,113        1,486       2,986        3,746
      Electronic Payments to Vendors                               746           752          828           800           772          763          963          450         884        1,334




128
      Public Safety
      Fire Protection
       Number of firefighter and officer positions                  42            41           41            41            41           41           37           37          37           36
       Number of emergency calls                                 3,656         4,116        4,206         4,092         4,171        4,298        4,220        2,062       4,402        4,676
      Police Protection
       Number of sworn officer positions                            83            83           83            84            84           84           79           79          79           79
       Part I (Major) Crimes                                     2,971         3,360        3,303         3,495         2,997        3,107        3,071        1,305       2,859        2,772



      Public Works
       Refuse Collected (Tons per Year)                         11,780        11,925       11,074        11,192        10,375       10,401       10,526        6,042      12,703       10,153
       Recyclables Collected (Tons per Year)                       775           779          588           559           629          626          309            -           -            -



      Water & Sewer
      Number of consumers                                       14,917         14,917       14,455        14,412        14,364       13,131       12,987       12,966      13,037       13,109
      Average daily water consumption (GPD)                  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    7,700,000
      Water main breaks repaired                                    19             10            5            13            21           34           17            6          12            5
      Sewer flows (Millions Gallons per Year)                    1,387          1,475        1,700         2,040         1,945        2,181        1,979          965       1,625        1,695
      Sewer Service Calls                                          624            568          638           605           598          533          508          263         591          522


      * 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                                    2003             2004             2005               2006              2007         2008         2009         2010*         2011         2012


      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                                       197.96           196.95           196.95             197.48           197.79       197.79       196.95       196.95        196.95       196.95
      Number of streetlights                                  3,123            3,111            3,159              3,159            3,134        3,134        3,192        3,125         3,065        2,838

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




129
      Storm sewers (miles)                                   178.57           178.61           179.23             180.48           183.25       183.60       184.35       184.35        184.35       184.35

      Water
      Water mains (miles)                                    193.66           194.14           194.14             194.15           195.63       195.58       195.69       195.69        195.69       195.40


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

      SOURCE: City of Muskegon Departments
130
SINGLE AUDIT OF FEDERAL FINANCIAL ASSISTANCE PROGRAMS




                         131
                                 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 23, 2012


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, 2012 and
have issued our report thereon dated October 23, 2012. 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
Management of the City of Muskegon is responsible for establishing and maintaining effective 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 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
2012-1.




678 Front Ave., NW Suite 230               316 Morris Ave., Suite 500, P.O. Box 999            907 S. State St., P.O. Box 331
Grand Rapids, MI 49504                              Muskegon, MI 49443                                       Hart, MI 49420
PHONE (616) 742-1300                              PHONE (231) 726-5800                              PHONE (231) 873-1040
FAX (616) 742-1318                                  FAX (231) 722-0260                                  FAX (231) 873-0602
                                                 www.brickleydelong.com

                                                            132
BRICKLEY DELONG

City Commission
October 23, 2012
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.




                                                       133
                                 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 23, 2012


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, 2012. 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, 2012.




678 Front Ave., NW Suite 230               316 Morris Ave., Suite 500, P.O. Box 999           907 S. State St., P.O. Box 331
Grand Rapids, MI 49504                              Muskegon, MI 49443                                      Hart, MI 49420
PHONE (616) 742-1300                              PHONE (231) 726-5800                             PHONE (231) 873-1040
FAX (616) 742-1318                                  FAX (231) 722-0260                                 FAX (231) 873-0602
                                                 www.brickleydelong.com


                                                            134
BRICKLEY DELONG

City Commission
October 23, 2012
Page 2


Internal Control Over Compliance
Management of the City of Muskegon is responsible for establishing and maintaining effective internal control
over compliance with the 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 the 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.

Schedule of Expenditures of Federal Awards
We have audited the financial statements of the City of Muskegon as of and for the year ended June 30, 2012, and
have issued our report thereon dated October 23, 2012, which contained an unqualified opinion on those financial
statements. Our audit was conducted for the purpose of forming an opinion on the financial statements. The
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 not a required part of the financial statements. Such information is the responsibility of
management and was derived from and relates directly to the underlying accounting and other records 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 records 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 States of America. In our opinion, the information is fairly stated in all material
respects in relation to the financial statements as a whole.

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




                                                        135
                                                                           City of Muskegon
                                                         SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
                                                                   For the year ended June 30, 2012

                                                                                               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         2011        (cash basis)   expenditures       2012       Notes

      U.S. Department of Housing and Urban Development
      Direct programs
         Community Development Block Grant                            14.218
             B-10-MC-26-0026                                                    $ 1,086,413   $   171,102   $    293,025    $     121,923   $         -
             B-11-MC-26-0026                                                        911,340             -        436,474          888,854       452,380
             Program Income                                                          43,538             -         43,538           43,538             -
                   Total Community Development Block Grant                        2,041,291       171,102        773,037        1,054,315       452,380    4

         Home Investment Partnership Program                          14.239
           M-10-MC-26-0215                                                          320,710        16,619         98,994          82,375              -
           M-11-MC-26-0216                                                          284,337             -        173,246         192,500         19,254
           Program Income                                                            52,088             -         52,088          52,088              -




136
                 Total Home Investment Partnership Program                          657,135        16,619        324,328         326,963         19,254

                      Total direct programs                                       2,698,426       187,721       1,097,365       1,381,278       471,634

      Passed through Michigan State Housing Development Authority
         Community Development Block Grant                            14.218
            Neighborhood Stabilization Program
                NSP-2008-0280-ENT                                                 1,450,000       353,938        268,335               -         85,603
                Program Income                                                            -         3,918        273,019         273,019          3,918
                   Total Neighborhood Stabilization Program                       1,450,000       357,856        541,354         273,019         89,521    4

                      Total U.S. Department of Housing and
                       Urban Development                                          4,148,426       545,577       1,638,719       1,654,297       561,155
                                                                          City of Muskegon
                                                   SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS—Continued
                                                                  For the year ended June 30, 2012

                                                                                           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           2011           (cash basis)   expenditures           2012          Notes
      U.S. Department of Justice
      Direct programs
         Bulletproof Vest Partnership Grant                      16.607
             2010 Grant                                                   $      1,110    $            -   $           -   $      1,110    $         1,110

         Justice Assistance Grant                                16.738
            2010-DJ-BX-0887                                                     72,886                 -         26,127          26,127                     -
            2011-DJ-BX-2380                                                     55,831                 -         34,698          34,698                     -
                                                                               128,717                 -         60,825          60,825                     -

                  Total direct programs                                        129,827                 -         60,825          61,935              1,110

      Passed through Ottawa County




137
         WEMET Multi-Jurisdictional Drug Enforcement CO-OP       16.738
            70834-311B                                                          34,911          6,273             6,273               -                     -
            70834-412B                                                          29,923              -            29,923          29,923                     -
                                                                                64,834          6,273            36,196          29,923                     -

      Passed through Muskegon County
         ARRA - Justice Assistance Grant                         16.804
            2009-SB-B9-1824                                                    218,169         14,436            67,929          60,442              6,949

                      Total U.S. Department of Justice                         412,830         20,709           164,950         152,300              8,059

                      TOTAL FEDERAL ASSISTANCE                            $   4,561,256   $   566,286      $   1,803,669   $   1,806,597   $      569,214




      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, 2012

      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, 2012 and federal expenditures per the Schedule of Expenditures of Federal Awards.

              Federal revenues per City of Muskegon financial statements
                 General Fund                                                                                                                  $     152,300
                 Major Street and Trunkline Fund                                                                                                   1,020,000
                 Other governmental funds                                                                                                          1,285,652
                                                                                                                                                   2,457,952

              Plus program income                                                                                                                     368,645
              Less MDOT contracted projects as shown below                                                                                         (1,020,000)

              Federal expenditures per the Schedule of Expenditures of Federal Awards                                                          $   1,806,597




138
      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, 2012
           the federal aid received and expended by the City of Muskegon was $1,020,000 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
           of Muskegon administers the grant and either performs the work or contracts it out.

                                                                                                                               Federal
                                                                                                                                CFDA             Revenue             Federal
                                                                                                                               number           Recognized         Expenditures
           U.S Department of Transportation, Federal Highway Administration (contracted projects)
           Passed through the Michigan Department of Transportation
              Highway Planning and Construction Program                                                                         20.205
                 Proj STP 1161(015) Fed Item HH7267 Contract 11-5251                                                                           $     560,000       $      560,000
                 Proj STP 1161(011) Fed Item HH7221 Contract 11-5164                                                                                 300,000              300,000
                 Proj HPSL 1161(023) Fed Item RR 7806 Contract 11-5527                                                                               160,000              160,000
                     Total U.S. Department of Transportation,
                        Federal Highway Administration (contracted projects)                                                                   $   1,020,000       $    1,020,000

      4.   Community Development Block Grant
                                               City of Muskegon
                               SCHEDULE OF FINDINGS AND RESPONSES
                                      Year ended June 30, 2012

SECTION I—SUMMARY OF AUDITORS’ RESULTS
A. Financial Statements
     1.   Type of auditors' report issued: Unqualified
     2.   Internal control over financial reporting:
          •   Material weakness(es) identified?                                   X yes            no
          •   Significant deficiency(ies) identified that are not considered to
              be material weaknesses?                                                    yes   X none reported
     3.   Noncompliance material to financial statements noted?                          yes   X no
B.   Federal Awards
     1.   Internal control over major programs:
          •   Material weakness(es) identified?                                          yes   X no
          •   Significant deficiency(ies) identified that are not considered to
              be material weaknesses?                                                    yes   X   none reported
     2.   Type of auditors' report issued on compliance for major programs: Unqualified
     3.   Any audit findings disclosed that are required to be reported in
          accordance with section 510(a) of OMB Circular A-133?                          yes   X no
     4.   Identification of major programs:
              CFDA Number(s)                           Name of Federal Program/Cluster
                                                       U.S. Department of Housing and Urban Development
              14.218                                   • Community Development Block Grant
              14.239                                   • Home Investment Partnership Program
     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




                                                         139
                                            City of Muskegon
                             SCHEDULE OF FINDINGS AND RESPONSES
                                    Year ended June 30, 2012


SECTION II – FINANCIAL STATEMENT FINDINGS

  Finding 2012-1: 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: Three material audit adjustments were required to correct general ledger balances at year-end.

  Context: These were the only three material adjustments noted during the audit of the City for the year ended
  June 30, 2012

  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 the finding and
  continues to work toward improving its year-end review process as it adjusts its procedures to cope with staff
  reductions/turnover. The City notes that the number of material audit adjustments that arose from the audit
  was significantly less than in the prior audit.


SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

  There were no findings in relation to major federal award programs.




                                                     140
CLIENT DOCUMENTS




      141
City of Muskegon
                                                                                           933 Terrace Street
                                                                                        Muskegon, MI 49440
                                                                                        Phone: 231-724-6709

                          SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS

  October 23, 2012


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

  The City of Muskegon respectfully submits the following summary of the current status of prior audit
  findings contained in the single audit report for the year ended June 30, 2011 dated October 21, 2011.

  SECTION II – FINANCIAL STATEMENT FINDINGS

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

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

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

      Current Status: See Finding 2012-1 for similar finding reported during the single audit for the fiscal year
      ended June 30, 2012.

  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

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

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

      Current Status: Recommendation was implemented during the fiscal year ended June 30, 2012. No
      similar finding was reported during the single audit for the fiscal year ended June 30, 2012.

  Sincerely,




  Timothy J. Paul
  Finance Director




                                                     142
City of Muskegon
                                                                                          933 Terrace Street
                                                                                       Muskegon, MI 49440
                                                                                       Phone: 231-724-6709

                                     CORRECTIVE ACTION PLAN


  October 23, 2012


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

  The City of Muskegon respectfully submits the following Corrective Action Plan for the year ended June 30,
  2012.

  Name and address of independent public accounting firm:
                  Brickley DeLong, P.C.
                  P.O. Box 999
                  Muskegon, Michigan 49443
  Audit period:   June 30, 2012

  The findings from the Schedule of Findings and Responses for the year ended June 30, 2012 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 continues to make changes to its closing procedures to better ensure that
      accounts are properly adjusted in future year-end closings.

  SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

      There were no findings in relation to major federal award programs.

  If the U.S. Department of Housing and Urban Development has questions regarding this plan, please call
  Timothy J. Paul at (231) 724-6709.

  Sincerely,




  Timothy J. Paul
  Finance Director




                                                    143

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