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City of Muskegon, Michigan Comprehensive Annual Financial Report For The Fiscal Year Ended June 30, 2013 www.shorelinecity.com CITY OF MUSKEGON, MICHIGAN COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2013 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: Downtown wall mural located on the Russell Block building. 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.................................................................................................. 20 Basic Financial Statements Government-wide Financial Statements Statement of Net Position .................................................................................................................. 34 Statement of Activities ...................................................................................................................... 35 Fund Financial Statements Governmental Funds Balance Sheet ................................................................................................................................. 36 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position ................................................................................................. 37 Statement of Revenues, Expenditures and Changes in Fund Balances ......................................................................................................................... 38 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities ..................................................................................................................................... 39 Proprietary Funds Statement of Net Position............................................................................................................... 40 Statement of Revenues, Expenses and Changes in Net Position ................................................... 41 Statement of Cash Flows ................................................................................................................ 42 Fiduciary Funds Statement of Fiduciary Assets and Liabilities ................................................................................ 43 Component Units Statement of Net Position .................................................................................................................. 44 Statement of Activities ...................................................................................................................... 45 Notes to Financial Statements .............................................................................................................. 46 Required Supplementary Information Budgetary Comparison Schedule—General Fund ................................................................................ 72 Budgetary Comparison Schedule—Major Street and Trunkline Fund ................................................. 77 Schedule of Funding Progress .............................................................................................................. 78 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 Position ............................................................................................... 92 Combining Statement of Revenues, Expenses and Changes in Fund Net Position ........................................................................................................ 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 Position ................................................................................................... 101 Combining Statement of Revenues, Expenditures and Changes in Fund Balances (Deficits) .......................................................................................................... 102 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances (Deficits) to the Statement of Activities .................................................................................................................................. 103 Schedule of Indebtedness ................................................................................................................... 105 2 City of Muskegon TABLE OF CONTENTS STATISTICAL SECTION Financial Trends Net Assets/Net Position by Component.............................................................................................. 110 Changes in Net Assets/Net Position ................................................................................................... 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 for Each Major Program and on Internal Control over Compliance Required by 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 25, 2013 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, 2013. 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. Services (231)724-6715 FAX (231)728- GAAP requires that management provide a narrative introduction, overview, and analysis 4371 to accompany the basic financial statements in the form of Management’s Discussion and Leisure Services Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and (231)724-6704 FAX (231)724- should be read in conjunction with the financial statements. The City of Muskegon’s 1196 MD&A can be found immediately following the independent auditor’s report. Mayor’s Office (231)724-6701 FAX (231)722- The Comprehensive Annual Financial Report is prepared by the City’s Finance 1214 Department and responsibility for both the accuracy of the data presented and the Planning/Zoning (231)724-6702 completeness and fairness of the presentation, including all disclosures, rests with the FAX (231)724- City. We believe the data as presented is accurate in all material respects; that it is 6790 presented in a manner designed to set forth fairly the financial position and results of Police operation of the City as measured by the financial activity of its various funds and Department (231)724-6750 component units; and that all disclosures necessary to enable the reader to gain the FAX (231)722- maximum understanding of the City’s finances have been included. Brickley DeLong, 5140 P.C., Certified Public Accountants, performed the independent audit of all accounts of the Public Works City as required by state law and their report and unqualified opinion is presented as the (231)724-4100 FAX (231)722- first component of the financial section of this report. 4188 Treasurer (231)724-6720 FAX (231)724- 6768 City of Muskegon, 933 Terrace Street, P.O. Box 536, Muskegon, MI 49443-0536 http://www.shorelinecity.com 5 THE CITY AND THE REGION The City of Muskegon is located in Western Michigan on the shores of Lake Michigan. The City covers eighteen square miles and, with a 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. 2013 marks the ferry service’s tenth 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. Consumers Energy, the City’s largest property taxpayer, has announced it plans to close its sixty-four year-old B.C. Cobb electric generating facility in spring 2016 due to age, federal pollution regulations and slowing electric demand. The closure will have a significant impact on City revenues and municipal operations. The City is actively planning longer-term strategies to deal with the ultimate closure of the plant. On a more positive note, the local economy has seen improvement as reflected in higher employment levels. According to the September 2013 Business Outlook prepared by the W.E. Upjohn Institute for Employment Research: 7 “Total employment in Muskegon County increased by a robust 4.1 percent during the second quarter because of a huge 26.1 percent employment gain in its leisure and hospitality sector. The quarter’s gain of nearly 2,500 jobs pushed the county’s unemployment rate down to 8.6 percent. Moreover, both of the county’s economic indicators were strongly positive during the quarter, which suggests that employment conditions could continue to improve during the fall.” The City fully recognizes the magnitude of financial challenges it faces due to the pending loss of its largest property tax payer. We have 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 moderate. MAJOR INITIATIVES AND ACCOMPLISHMENTS Among the City's major initiatives and accomplishments in fiscal year 2012-13 were the following: Construction started on a new $4 million Farmers’ Market facility in downtown Muskegon. The new market will be open for business in spring 2014, anchoring a key entrance into the downtown area. The facility is financed through private donations and grants and has been deeded to the City, who will be responsible for its operation; The City entered into a development agreement with Harris Hospitality Group for construction of a $1.5 million food and entertainment facility at Pere Marquette beach. The venue, which will open May 2014, will include a beach restaurant and bar, a banquet center, a self-serve ice cream outlet, a corn-dog stand and beach rental business; Ground was broken for new waterfront development featuring seventy-five single family homes in downtown Muskegon. The 10.75 acre site is a former industrial site. The City’s Brownfield Redevelopment Authority assisted this project; The City’s former central fire station was sold to a private developer for reuse as a historically preserved office suite. The architecturally unique building dates to 1927 and had been vacant since the new central fire station opened in 2006; Work was completed on a $20 million, 70,000 square-foot manufacturing addition at ADAC Automotive. 130 new jobs are expected to be created. The Michigan Energy + Technology Center consortium of companies was formed to focus on developing Muskegon’s deep water port facilities. The consortium includes Consumers Energy, Michigan State University, Verplank Dock Co., and Rockford Berge Co. Muskegon is widely recognized as having the best deep water port facilities along the Lake Michigan’s eastern shore. 8 OTHER INFORMATION INTERNAL ACCOUNTING CONTROLS The City’s management is responsible for establishing and maintaining an internal control structure that is designed to ensure adequate protection of the City’s assets from loss, theft, or misuse, and adequate accounting data to allow for preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the costs of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. All internal control evaluations occur within the above framework. We believe that the City’s internal accounting controls adequately safeguard assets and provide reasonable assurances of proper recording of financial transactions. BUDGETARY CONTROL Budgetary control is maintained through an annual budget resolution passed by the City Commission. Budgetary control at the functional level is maintained by review of estimated expenditures prior to making purchases. Encumbrances are not recorded in the City’s funds. The City does, however, utilize an informal monitoring system to facilitate budgetary control over proposed purchases. Essentially, this system entails the use of on-line budgetary information that details year-to-date “actual versus budgeted” expenditure comparisons by budget category. This information is accessible to appropriate personnel to enable them to ascertain the budget status of an expenditure category prior to authorizing additional purchases. LONG TERM FINANCIAL PLANNING The City incorporates a five-year fiscal forecast into its yearly budget process. The forecast is a macro- level projection of major revenue sources, expenses and fund balances, taking into account identifiable factors, recent trends and management’s judgment as to future developments. The current five-year forecast is focused on the projected financial impact from the announced closure of the B.C Cobb electric generation facility. As noted earlier, this facility is the City’s single largest taxpayer and is scheduled to close spring 2016. The City is actively planning for the revenue loss that will accompany this closure and has already made numerous budget adjustments to ensure that high- quality municipal services will continue to be provided. 9 DEBT ADMINISTRATION At June 30, 2013, the total of City bonds and contractual debt outstanding (including discretely presented component unit debt) was $29,492,003. Presently there are no plans to issue new debt in the next two years. Standard & Poor’s rates the City’s general obligation debt A+. The City’s water revenue bonds carry the AA- rating. 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, 2012), the City’s defined benefit retirement program is 94% funded. The City also provides post-employment healthcare benefits for retirees and their dependents. Since 1986, 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-143, “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, 2012. This marked the twenty- seventh 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. 10 A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to conform to the Certificate of Achievement Program requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate. ACKNOWLEDGEMENTS We would like to thank the members of the City Commission for their continued interest and support in conducting the financial affairs of the City in a responsible and progressive manner and for their efforts in working for the betterment of the Muskegon community. We would also like to thank the many City employees who participate in the preparation of this report. Respectfully submitted, Frank Peterson 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, 2013 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Frank Peterson 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 25, 2013 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, Michigan as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America. This includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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 25, 2013 Page 2 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, Michigan, as of June 30, 2013, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, budgetary comparison information, and schedule of funding progress on pages 20 through 31 and 72 through 78 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. Other Supplemental Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Muskegon's basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, 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 basic 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 also not a required part of the basic financial statements. 18 BRICKLEY DELONG City Commission October 25, 2013 Page 3 Other Matters—Continued Other Supplemental Information—Continued 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 records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, 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 fairly stated in all material respects in relation to the basic 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. Muskegon, Michigan 19 2013 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, 2013. 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 $130,838,669 as of June 30, 2013. Of the City’s total net position, $21,791,371 (16.7%) was unrestricted and may be used to meet the City’s ongoing obligations to citizens and creditors. The City’s total combined net position decreased by $1,691,362 during the year ended June 30, 2013 mostly due to normal depreciation of capital assets. The City’s governmental funds reported combined ending fund balance of $13,656,058, an increase of $503,648 (3.8%) from the prior year. The City’s General Fund reported a total fund balance of $7,353,558, an increase of $1,119,161 from the restated prior year balance of $6,234,397. The favorable increase is the result of sharply reduced costs due to position eliminations, tight budget controls and lower required contributions to fund legacy costs. 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. 20 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 position includes all of the government’s assets/deferred outflows of resources and liabilities/deferred inflows of resources. 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 position and how they have changed. Net position—the difference between the City’s assets/deferred outflows of resources and liabilities/deferred inflow of resources—is one way to measure the City’s overall financial health or position. Over time, increases or decreases in the City’s net position 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, streets and bridges, public works, community and 21 economic development, culture 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 and launch ramp 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. The City uses 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 position and a statement of changes in fiduciary net position. 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 five component units: the Downtown Development Authority (DDA), the Tax Increment Finance Authority (TIFA), the Local Development Finance Authority (LDFA) and, the Brownfield Redevelopment 22 Authority (BRA 1 and BRA 2). Component units are separate legal entities for which the City of Muskegon has some level of financial accountability. The component units of the City exist primarily for the issuance and repayment of debt to finance projects in specific areas of the City. Accordingly, they are discussed below under the Capital Assets and Debt Administration heading. FINANCIAL ANALYSIS OF THE CITY AS A WHOLE Net position. The Statement of Net Position provides an overview of the City’s assets/deferred outflows of resources, liabilities/deferred inflow of resources and net position. Over time this can provide a good indicator of the City’s fiscal health. The total net position of the City was $130,838,669 as of June 30, 2013. This is a decrease of $1,691,362 from reported net position for the prior year. An overview of the City’s net position follows: City's Net Position/Net Assets (In Thousands of Dollars) Governmental Business-Type Activities Activities Total Percentage 6/30/2013 6/30/2012 6/30/2013 6/30/2012 6/30/2013 6/30/2012 Change Current and other assets $21,670 $22,690 $10,227 $10,581 $31,897 $33,271 -4.13% Capital assets 71,311 72,726 54,014 55,407 125,325 128,133 -2.19% Total Assets 92,981 95,416 64,241 65,988 157,222 161,405 -2.59% Long-term liabilities 7,940 8,452 12,790 14,115 20,730 22,567 -8.14% Other liabilities 3,326 3,738 2,327 2,092 5,653 5,830 -3.04% Total Liabilities 11,266 12,190 15,117 16,207 26,383 28,397 -7.09% Net Position/Net assets Net investment in capital assets 63,842 66,863 40,033 40,148 103,875 107,011 -2.93% Restricted 4,573 3,526 599 672 5,172 4,198 23.19% Unrestricted 13,300 12,837 8,492 8,961 21,792 21,798 -0.03% Total Net Position/Net Assets $81,715 $83,226 $49,124 $49,781 $130,839 $133,007 -1.63% The bulk of the City’s net position ($103,874,950 or 79%) represents investments in capital infrastructure assets (net of depreciation), 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 4.0% ($5,172,348) of the City’s net position are legally restricted as to use. Unrestricted net position ($21,791,371) represents assets that may be used to meet the City’s operating needs and ongoing obligations. The City’s unrestricted net position/net assets decreased very slightly ($6,915) during the year. Changes in net position/net assets. The City’s total revenues were $43,458,834 for the year ended June 30, 2013. This represents a 1.8% increase over total revenues 23 collected during the prior fiscal year. About 41% of the City’s revenue stream came from charges to users of specific services such as water or sewer. Another 11% came from grants from the state and federal governments and 36% 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, 2013 was $45,150,196. This represents a 2% increase from reported expenses for the last fiscal year ended June 30, 2012. 69% of the City’s expenses were for governmental activities such as police and fire protection, streets, parks, and general administration. The remaining 31% 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 Position/Net Assets) further breaks down the change in total net position into period-to-period changes in individual revenue and expense categories. As can be seen, net position for governmental activities decreased $1,119,722 while net position for business-type activities decreased by $571,640. These changes represent the downsizing of municipal operations in response to demographic and fiscal realities faced by the City. See Note J of the Notes to the Basic Financial Statements of this report for additional information on the restatement of beginning net position for the governmental and business type activities. 24 Changes in City’s Net Position/Net Assets (In thousands of dollars) Governmental Business-Type Activities Activities Total Percentage 6/30/2013 6/30/2012 6/30/2013 6/30/2012 6/30/2013 6/30/2012 Change Program revenues Charges for services $4,651 $4,246 $13,183 $11,918 $17,834 $16,164 10.33% Operating grants and contributions 4,681 4,652 6 - 4,687 4,652 0.75% Capital grants and contributions 886 1,568 88 - 974 1,568 -37.88% General revenues Property taxes 7,593 8,383 - - 7,593 8,383 -9.42% Income taxes 8,057 7,664 - - 8,057 7,664 5.13% State shared revenues 3,701 3,578 - - 3,701 3,578 3.44% All other 580 631 33 46 613 677 -9.45% Total revenues 30,149 30,722 13,310 11,964 43,459 42,686 1.81% Governmental activities expenses Public representation 894 867 - - 894 867 3.11% Administrative services 565 566 - - 565 566 -0.18% Financial services 2,241 2,399 - - 2,241 2,399 -6.59% Public safety 12,988 13,213 - - 12,988 13,213 -1.70% Public w orks 3,202 2,958 - - 3,202 2,958 8.25% Highw ays, streets and bridges 6,672 6,569 - - 6,672 6,569 1.57% Community and economic development 2,499 2,447 - - 2,499 2,447 2.13% Culture and recreation 1,593 1,601 - - 1,593 1,601 -0.50% General administration 322 792 - - 322 792 -59.34% Interest on long-term debt 292 283 - - 292 283 3.18% Business-type activities expenses Water - - 7,227 5,974 7,227 5,974 20.97% Sew er - - 6,229 6,202 6,229 6,202 0.44% Marina and Launch Ramp - - 426 310 426 310 37.42% Total expenses 31,268 31,695 13,882 12,486 45,150 44,181 2.19% Change in net position/assets (1,119) (973) (572) (522) (1,691) (1,495) 13.11% Net position/assets at beginning of year, as restated 82,834 84,199 49,696 50,303 132,530 134,502 -1.47% Net position/assets at end of year $81,715 $83,226 $49,124 $49,781 $130,839 $133,007 -1.63% 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, 2013 was $31,268,016. The net cost that City taxpayers paid for these activities through local property taxes and income taxes was $15,649,992, or 50% of the total. The remaining cost was paid by user charges to those directly benefitting from the programs or by state and federal grants and contributions. 25 Net Cost of Selected City Functions (in thousands of dollars) Total Cost of Services Net Cost of Services 6/30/2013 6/30/2012 % Change 6/30/2013 6/30/2012 % Change Governmental activities Public safety $12,988 $13,213 -1.70% $11,723 $11,910 -1.57% Community and economic development 2,499 2,447 2.13% 655 388 68.81% Culture and recreation 1,592 1,601 -0.56% 968 1,280 -24.38% Highw ays, streets and bridges 6,672 6,569 1.57% 2,484 1,826 36.04% Public w orks 3,202 2,958 8.25% 2,527 2,468 2.39% All other 4,315 4,907 -12.06% 2,693 3,358 -19.80% Total governmental activities $31,268 $31,695 -1.35% $21,050 $21,230 -0.85% 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, 2013, the City’s total business-type activities realized an overall decrease in net position of $571,640. Sewer Fund net position decreased $124,124 primarily as result of higher treatment costs caused by extremely heavy rainfalls in the last three months of the fiscal year. The Water Fund saw net position decrease $303,170. This falloff is attributable to lower consumption levels. Water rates will increase 10% effective October 1, 2013. Marina and Launch Ramp Fund net position decreased $100,829 due to emergency dredging costs needed to keep launch ramps accessible in light of record low lake levels during 2012-13. 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, 2013 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. 26 Fund Balance as a % Prior Year’s Year-End Fund Year‐to‐Year % of Prior Year Year Ended Balance Expenditures and Expenditures (Policy Change Other Uses Target=13%) 6/30/2013 $7,353,558 17.95% $23,617,448 31.14% 6/30/2012* 6,234,397 3.71% 25,556,758 24.39% 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% *As restated ** 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 were collected in full during this period. For the year ended June 30, General Fund revenues 2013 were $201,735 lower than the final amended budget estimate. This variance is due to lower than expected local income tax and interest revenues. General Fund expenditures were $590,784 lower than projected in the final 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, 2013, the fund balance of the Major Street and Trunkline Fund decreased $353,324 which is attributable to the scheduled use of fund balance reserves for street projects. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets As of June 30, 2013, the City had invested $125,324,535 in a variety of capital assets, including land, streets, equipment, buildings, water and sewer lines, and vehicles. This is a decrease of $2,808,582 from capital assets reported as of June 30, 2012. The decrease is due to normal depreciation of assets. Additionally, component units have $2,543,714 invested in capital assets. Note D of the notes to the basic financial statements provides detailed information on capital asset investments. 27 Long-Term Debt Bond Ratings At June 30, 2013, the City had $22,627,134 in bonds and The City’s limited full faith and other long-term obligations outstanding. This represents a credit bonds (bonds guaranteed 7.4% decrease from the prior year. The City did not issue by the City’s taxing powers) are any new debt during the fiscal year. rated “A+” by Standard & Poor’s. The City’s Water System revenue bonds carry the “AA-“ Additional information concerning the City’s long-term debt S&P rating. is presented in Note F 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 6/30/2013 6/30/2012 6/30/2013 6/30/2012 6/30/2013 6/30/2012 Change Due w ithin one year $582 $592 $1,316 $1,271 $1,898 $1,863 1.88% Due in more than one year 7,940 8,452 12,789 14,115 20,729 22,567 -8.14% Total bonds & other obligations $8,522 $9,044 $14,105 $15,386 $22,627 $24,430 -7.38% 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 $6,864,869 at year-end as shown in the table below. This represents a decrease of 6.8% 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 F 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 6/30/2013 6/30/2012 6/30/2013 6/30/2012 6/30/2013 6/30/2012 Change Due w ithin one year $280 $275 $260 $180 $540 $455 18.68% Due in more than one year 2,249 2,534 4,076 4,376 6,325 6,910 -8.47% Total bonds & other obligations $2,529 $2,809 $4,336 $4,556 $6,865 $7,365 -6.79% ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The City’s fiscal year 2013-14 capital budget anticipates spending $6,491,000 for capital projects, consisting of street improvements, water and sewer system improvements, 28 and scheduled equipment replacements. These improvements will be funded by anticipated grants ($2,187,000) and revenues generated from operations. No new debt issuance is anticipated. From an operating standpoint, the City’s 2013-14 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 233 positions to 227 positions. Staff will explore possible outsourcing of the code enforcement inspections function to SafeBuilt, Inc. In 2012, building and trade inspection functions were outsourced to Safebuilt and this has proven to be a successful venture. 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. 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 1.3% from $7,412,804 for the year ended June 30, 2012 to $7,506,472 for the year ended June 30, 2013. For 2013-14, the City has estimated income tax revenue to be $7,600,000. 29 City Income Percent Year Tax Revenues Change 6/30/2013 $7,506,472 1.3% 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% * 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 2013-14, the City tax levy remains at 9.5 mills for general operations and 2.5 mills for sanitation service. We project that $6,859,131 in total property tax revenue will be collected during fiscal year 2013-14. 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 6/30/2013 $3,700,871 3.4% 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% * 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. 30 For 2013-14, the City projects $3,776,201 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 6/30/2013 $3,208,769 1.0% 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% * Six‐month fiscal period The state is presently considering a major overhaul of the transportation funding system. However, at this time, the City is not projecting any significant change in street revenues for fiscal year 2013-14. Water and Sewer Fees From a government-wide entity perspective, combined water and sewer fees represent one of the City’s largest income streams, totaling $12,100,914 during the year ended June 30, 2013. Charges to customers are based on the amount of metered services used times rates periodically set by the City Commission. Water rates will be increased 10% effective October 1, 2013. Sewer rates may need to be increased during the year as well, depending on whether Muskegon County increases its wastewater treatment charges. CONTACTING THE CITY’S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City’s finances and to demonstrate the City’s accountability for the money it receives. If you have questions about this report, need additional financial information, or wish to obtain separate financial statements for the City’s component units, contact the City’s Finance Department at (231) 724-6713 or by e-mail (finance@shorelinecity.com). 31 32 FINANCIAL STATEMENTS 33 City of Muskegon STATEMENT OF NET POSITION June 30, 2013 Governmental Business-type Component Activities Activities Total Units ASSETS Current assets Cash and investments $ 15,277,164 $ 6,068,650 $ 21,345,814 $ 358,407 Receivables 2,448,800 1,898,116 4,346,916 - Due from other governmental units 1,567,449 109,745 1,677,194 - Internal balances (1,317,577) 1,317,577 - - Inventories 20,577 134,532 155,109 - Prepaid items 850,476 98,842 949,318 - Total current assets 18,846,889 9,627,462 28,474,351 358,407 Noncurrent assets Restricted cash and investments - 599,500 599,500 - Advances to component units 1,555,528 - 1,555,528 - Special assessments receivable, less amounts due within one year 136,870 - 136,870 - Notes receivable, less amounts due within one year 137,431 - 137,431 - Net pension asset 993,293 - 993,293 - Capital assets, net Nondepreciable 18,425,840 1,350,788 19,776,628 400,000 Depreciable 52,884,915 52,662,992 105,547,907 2,143,714 Total noncurrent assets 74,133,877 54,613,280 128,747,157 2,543,714 Total assets 92,980,766 64,240,742 157,221,508 2,902,121 LIABILITIES Current liabilities Accounts payable and accrued liabilities 2,163,988 273,287 2,437,275 25,674 Due to other governmental units 476,324 738,167 1,214,491 - Unearned revenues - unused Farmers Market tokens 60,196 - 60,196 - Unearned revenues - expenditure-driven grants 43,743 - 43,743 - Bonds and other obligations, due within one year 581,600 1,315,700 1,897,300 540,000 Total current liabilities 3,325,851 2,327,154 5,653,005 565,674 Noncurrent liabilities Advances from primary government - - - 1,555,528 Bonds and other obligations, less amounts due within one year 7,940,452 12,789,382 20,729,834 6,324,869 Total noncurrent liabilities 7,940,452 12,789,382 20,729,834 7,880,397 Total liabilities 11,266,303 15,116,536 26,382,839 8,446,071 NET POSITION Net investment in capital assets 63,842,092 40,032,858 103,874,950 (1,791,858) Restricted Highways, streets and bridges 2,964,094 - 2,964,094 - Debt service - 599,500 599,500 - Law enforcement 172,578 - 172,578 - Perpetual care Expendable 25,816 - 25,816 - Non-expendable 1,408,881 - 1,408,881 - Other purposes 1,479 - 1,479 - Unrestricted 13,299,523 8,491,848 21,791,371 (3,752,092) Total net position $ 81,714,463 $ 49,124,206 $ 130,838,669 $ (5,543,950) The accompanying notes are an integral part of this statement. 34 City of Muskegon STATEMENT OF ACTIVITIES For the year ended June 30, 2013 Net (Expense) Revenue and Changes in Net Position 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 $ 893,981 $ 173,739 $ - $ - $ (720,242) $ - $ (720,242) $ - Administrative services 565,307 268,535 10,000 - (286,772) - (286,772) - Financial services 2,241,061 830,919 50,000 - (1,360,142) - (1,360,142) - Public safety 12,987,842 1,133,666 131,143 - (11,723,033) - (11,723,033) - Public works 3,201,806 671,494 - 3,624 (2,526,688) - (2,526,688) - Highways, streets and bridges 6,672,374 245,609 3,145,344 797,320 (2,484,101) - (2,484,101) - Community and economic development 2,499,404 432,240 1,326,823 85,164 (655,177) - (655,177) - Culture and recreation 1,592,358 606,818 18,035 - (967,505) - (967,505) - General administration 322,348 287,729 - - (34,619) - (34,619) - Interest on long-term debt 291,535 - - - (291,535) - (291,535) - Total governmental activities 31,268,016 4,650,749 4,681,345 886,108 (21,049,814) - (21,049,814) - Business-type activities Sewer 7,226,839 7,058,315 - - - (168,524) (168,524) - Water 6,228,788 5,890,614 6,188 - - (331,986) (331,986) - Marina and Launch Ramp 426,553 234,229 - 88,046 - (104,278) (104,278) - Total business-type activities 13,882,180 13,183,158 6,188 88,046 - (604,788) (604,788) - 35 Total primary government $ 45,150,196 $ 17,833,907 $ 4,687,533 $ 974,154 (21,049,814) (604,788) (21,654,602) - Component units Local Development Finance Authority - SmartZone $ 323,896 $ - $ - $ 235,000 - - - (88,896) Downtown Development Authority 54,150 - - - - - - (54,150) Tax Increment Finance Authority 50,000 - - - - - - (50,000) Brownfield Redevelopment Authority I 63,108 - - - - - - (63,108) Brownfield Redevelopment Authority II 42,995 - - - - - - (42,995) Total component units $ 534,149 $ - $ - $ 235,000 - - - (299,149) General revenues Property taxes 7,592,847 - 7,592,847 643,258 Income taxes 8,057,145 - 8,057,145 - Cable franchise agreement 358,785 - 358,785 - Grants and contributions not restricted to specific programs 3,700,871 - 3,700,871 - Unrestricted investment earnings 73,157 33,148 106,305 2,387 Miscellaneous 102,388 - 102,388 - Gain on sale of capital asset 44,899 - 44,899 - Total general revenues 19,930,092 33,148 19,963,240 645,645 Change in net position (1,119,722) (571,640) (1,691,362) 346,496 Net position at July 1, 2012, as restated 82,834,185 49,695,846 132,530,031 (5,890,446) Net position at June 30, 2013 $ 81,714,463 $ 49,124,206 $ 130,838,669 $ (5,543,950) The accompanying notes are an integral part of this statement. City of Muskegon BALANCE SHEET Governmental Funds June 30, 2013 Major Street Other Total General and Trunkline Governmental Governmental Fund Fund Funds Funds ASSETS Cash and investments $ 6,102,486 $ 2,213,220 $ 3,700,323 $ 12,016,029 Receivables Accounts and loans 163,650 2,693 240,133 406,476 Property taxes 85,565 - - 85,565 Income taxes 1,716,009 - - 1,716,009 Special assessments - 254,328 174,542 428,870 Due from other governmental units 635,303 424,189 507,957 1,567,449 Due from other funds 488,857 - - 488,857 Advances to component units - - 518,510 518,510 Prepaid items 437,341 21,610 4,710 463,661 Total assets $ 9,629,211 $ 2,916,040 $ 5,146,175 $ 17,691,426 LIABILITIES Accounts payable 1,046,516 $ 69,409 $ 223,069 $ 1,338,994 Accrued liabilities 186,094 5,451 7,986 199,531 Due to other governmental units 12,847 433,168 30,309 476,324 Due to other funds - - 488,857 488,857 Unearned revenues - unused Farmers Market tokens 60,196 - - 60,196 Unearned revenues - expenditure-driven grants - - 43,743 43,743 Total liabilities 1,305,653 508,028 793,964 2,607,645 DEFERRED INFLOWS OF RESOURCES Unavailable revenues - income taxes 970,000 - - 970,000 Unavailable revenues - special assessments - 254,328 174,645 428,973 Unavailable revenues - other long-term receivables - - 28,750 28,750 Total deferred inflows of resources 970,000 254,328 203,395 1,427,723 FUND BALANCES Nonspendable Prepaid items 437,341 21,610 4,710 463,661 Long-term loans receivable - - 122,592 122,592 Perpetual care 10,000 - 1,398,881 1,408,881 Restricted Highways, streets and bridges - 2,132,074 417,449 2,549,523 Law enforcement - - 172,578 172,578 Perpetual care - - 25,816 25,816 Other purposes - - 1,479 1,479 Assigned Capital projects and public improvements 1,700,000 - 2,087,359 3,787,359 Subsequent year's budget appropriation of fund balance 592,495 - - 592,495 Unassigned 4,613,722 - (82,048) 4,531,674 Total fund balances 7,353,558 2,153,684 4,148,816 13,656,058 Total liabilities, deferred inflows of resources and fund balances $ 9,629,211 $ 2,916,040 $ 5,146,175 $ 17,691,426 The accompanying notes are an integral part of this statement. 36 City of Muskegon RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION June 30, 2013 Total fund balance—governmental funds $ 13,656,058 Amounts reported for governmental activities in the Statement of Net Position are different because: The net pension asset is not an available resource and, therefore, is not reported in the governmental funds. 993,293 Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental funds. Cost of capital assets $ 130,393,096 Accumulated depreciation (60,914,278) 69,478,818 Other long-term assets are not available to pay for current period expenditures and, therefore, are reported as unavailable revenues in the governmental funds. Income taxes 970,000 Special assessments 428,973 Other long-term receivables 28,750 1,427,723 Long-term liabilities in governmental activities are not due and payable in the current period and, therefore, are not reported in the governmental funds. Accrued interest payable (61,054) Bonds and notes payable (7,468,663) Compensated absences (970,809) (8,500,526) 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 Position. Net position of the internal service funds 5,976,674 Internal balances representing the cumulative difference between actual costs and amounts charged to business-type activities (1,317,577) 4,659,097 Net position of governmental activities $ 81,714,463 The accompanying notes are an integral part of this statement. 37 City of Muskegon STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Governmental Funds For the year ended June 30, 2013 Major Street Other Total General and Trunkline Governmental Governmental Fund Fund Funds Funds REVENUES Taxes $ 14,832,027 $ - $ - $ 14,832,027 Licenses and permits 1,238,285 - - 1,238,285 Intergovernmental revenues Federal 117,324 794,000 1,317,788 2,229,112 State 3,714,690 2,566,615 843,137 7,124,442 Local 50,000 - - 50,000 Charges for services 2,375,255 27,885 366,087 2,769,227 Fines and forfeitures 410,978 - 24,915 435,893 Interest and rental income 185,974 24,246 57,177 267,397 Other 482,876 133,583 237,918 854,377 Total revenues 23,407,409 3,546,329 2,847,022 29,800,760 EXPENDITURES Current Public representation services 892,113 - - 892,113 Administrative services 508,130 - - 508,130 Financial services 2,196,917 - - 2,196,917 Public safety 12,587,265 - 2,351 12,589,616 Public works 2,878,328 - - 2,878,328 Highways, streets and bridges - 3,916,862 2,024,312 5,941,174 Community and economic development 1,001,715 - - 1,001,715 Culture and recreation 1,201,246 - 11,030 1,212,276 Other governmental functions 299,812 - - 299,812 Debt service Principal 70,000 175,000 150,211 395,211 Interest and fees 209,678 57,791 25,085 292,554 Capital outlay 105,651 - 1,745,832 1,851,483 Total expenditures 21,950,855 4,149,653 3,958,821 30,059,329 Excess of revenues over (under) expenditures 1,456,554 (603,324) (1,111,799) (258,569) OTHER FINANCING SOURCES (USES) Proceeds from sale of capital assets - - 190,263 190,263 Transfers in 420,653 250,000 685,576 1,356,229 Transfers out (758,046) - (26,229) (784,275) Total other financing sources (uses) (337,393) 250,000 849,610 762,217 Net change in fund balances 1,119,161 (353,324) (262,189) 503,648 Fund balances at July 1, 2012, as restated 6,234,397 2,507,008 4,411,005 13,152,410 Fund balances at June 30, 2013 $ 7,353,558 $ 2,153,684 $ 4,148,816 $ 13,656,058 The accompanying notes are an integral part of this statement. 38 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, 2013 Net change in fund balances—total governmental funds $ 503,648 Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report outlays for capital assets as expenditures. However, in the Statement of Activities, the cost of these assets is allocated over their estimated useful lives and reported as depreciation expense. Depreciation expense $ (4,542,411) Capital outlay 3,230,586 (1,311,825) In the Statement of Activities, only the gain or loss on the sale of capital assets is reported. However, in the governmental funds, the proceeds from the sale increase financial resources. Thus, the change in net position differs from the change in fund balance by the remaining undepreciated cost of the capital assets sold. (175,512) Revenue reported in the Statement of Activities that does not provide current financial resources are not reported as revenue in the governmental funds. 67,217 The issuance of long-term debt provides current financial resources to governmental funds, but increases liabilities in the Statement of Net Position. Repayment of debt is an expenditure in the governmental funds, but reduces long-term liabilities in the Statement of Net Position. Repayment of principal on long-term debt 395,211 Changes in accrual of interest and amortization of premiums and discounts Change in accrued interest payable 1,946 Amortization of premiums and discounts (927) 1,019 Some expenses are reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds. Change in net pension asset (3,348) Change in compensated absences 121,724 118,376 The internal service funds are used by management to charge the costs of certain activities used to individual funds. The net revenue of certain activities of the internal service fund is reported with governmental activities. Change in net position of the internal service funds (761,373) Change in internal balances representing the current year difference between actual costs and amounts charged to business-type activities 43,517 (717,856) Change in net position of governmental activities $ (1,119,722) The accompanying notes are an integral part of this statement. 39 City of Muskegon STATEMENT OF NET POSITION Proprietary Funds June 30, 2013 Governmental Activities - Business-type Activities - Enterprise Funds Internal Marina and Service Sewer Water Ramp Total Funds ASSETS Current assets Cash and investments $ 4,158,969 $ 1,703,674 $ 206,007 $ 6,068,650 $ 3,261,135 Accounts receivable 975,036 907,066 16,014 1,898,116 86,181 Due from other governmental units - 42,842 66,903 109,745 - Inventories 35,391 99,141 - 134,532 20,577 Prepaid items 41,848 54,739 2,255 98,842 386,815 Total current assets 5,211,244 2,807,462 291,179 8,309,885 3,754,708 Noncurrent assets Restricted cash and investments - 599,500 - 599,500 - Advances to component units - - - - 1,037,018 Capital assets Land 16,188 103,500 22,562 142,250 65,000 Land improvements - - 1,888,965 1,888,965 301,715 Buildings, improvements and systems 20,787,414 65,932,429 2,322,488 89,042,331 1,559,334 Machinery and equipment 50,082 2,842,951 - 2,893,033 7,540,942 Construction in progress 168,019 1,040,519 - 1,208,538 - Less accumulated depreciation (8,420,733) (30,165,452) (2,575,152) (41,161,337) (7,635,054) Net capital assets 12,600,970 39,753,947 1,658,863 54,013,780 1,831,937 Total noncurrent assets 12,600,970 40,353,447 1,658,863 54,613,280 2,868,955 Total assets 17,812,214 43,160,909 1,950,042 62,923,165 6,623,663 LIABILITIES Current liabilities Accounts payable 12,911 132,330 23,667 168,908 545,036 Accrued liabilities 7,250 96,898 231 104,379 19,373 Due to other governmental units 562,732 175,435 - 738,167 - Bonds and other obligations, due within one year 7,300 1,308,200 200 1,315,700 13,800 Total current liabilities 590,193 1,712,863 24,098 2,327,154 578,209 Noncurrent liabilities Bonds and other obligations, less amounts due within one year 36,393 12,751,916 1,073 12,789,382 68,780 Total liabilities 626,586 14,464,779 25,171 15,116,536 646,989 NET POSITION Net investment in capital assets 12,600,970 25,773,025 1,658,863 40,032,858 1,831,937 Restricted for debt service - 599,500 - 599,500 - Unrestricted 4,584,658 2,323,605 266,008 7,174,271 4,144,737 Total net position $ 17,185,628 $ 28,696,130 $ 1,924,871 47,806,629 $ 5,976,674 Adjustment to report the cumulative internal balance for the net effect of the activity between the internal service funds and the enterprise funds over time 1,317,577 Net position of business-type activities $ 49,124,206 The accompanying notes are an integral part of this statement. 40 City of Muskegon STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Proprietary Funds For the year ended June 30, 2013 Governmental Activities - Business-type Activities - Enterprise Funds Internal Marina and Service Sewer Water Ramp Total Funds OPERATING REVENUES Charges for services $ 6,502,293 $ 5,598,621 $ 219,341 $ 12,320,255 $ 7,308,020 Other 556,022 298,181 14,888 869,091 330,758 Total operating revenues 7,058,315 5,896,802 234,229 13,189,346 7,638,778 OPERATING EXPENSES Administration 304,916 555,273 11,160 871,349 429,264 Insurance premiums and claims - - - - 3,925,426 Wastewater treatment 5,286,893 - - 5,286,893 - Wastewater maintenance 1,181,143 - - 1,181,143 - Filtration plant operations - 1,499,233 - 1,499,233 - Water distribution - 1,674,770 - 1,674,770 - Other operations - - 299,264 299,264 3,142,838 Depreciation 430,270 2,132,243 114,063 2,676,576 434,997 Total operating expenses 7,203,222 5,861,519 424,487 13,489,228 7,932,525 Operating income (loss) (144,907) 35,283 (190,258) (299,882) (293,747) NONOPERATING REVENUES (EXPENSES) Investment earnings 20,783 10,982 1,383 33,148 54,339 Gain on sale of capital assets - - - - 49,989 Interest expense - (349,435) - (349,435) - Total nonoperating revenue (expenses) 20,783 (338,453) 1,383 (316,287) 104,328 Income (loss) before contributions and transfers (124,124) (303,170) (188,875) (616,169) (189,419) CAPITAL CONTRIBUTIONS AND TRANSFERS Capital contributions - - 88,046 88,046 - Transfers in - - - - 28,046 Transfers out - - - - (600,000) Total capital contributions and transfers - - 88,046 88,046 (571,954) Change in net position (124,124) (303,170) (100,829) (528,123) (761,373) Net position at July 1, 2012, as restated 17,309,752 28,999,300 2,025,700 6,738,047 Net position at June 30, 2013 $ 17,185,628 $ 28,696,130 $ 1,924,871 $ 5,976,674 Adjustment for the net effect of the current year activity between the internal service funds and the enterprise funds. (43,517) Change in net position of business-type activities $ (571,640) The accompanying notes are an integral part of this statement. 41 City of Muskegon STATEMENT OF CASH FLOWS Proprietary Funds For the year ended June 30, 2013 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 $ 7,090,991 $ 5,929,616 $ 155,774 $ 13,176,381 $ 346,456 Receipts from interfund services provided 13,686 121,415 - 135,101 7,308,020 Payments to suppliers (5,743,350) (1,650,384) (258,859) (7,652,593) (5,567,039) Payments to employees (430,126) (1,286,556) (23,650) (1,740,332) (1,275,567) Payments for interfund services used (466,540) (714,740) (20,049) (1,201,329) (835,644) Net cash provided by (used for) operating activities 464,661 2,399,351 (146,784) 2,717,228 (23,774) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers in - - - - 28,046 Transfers out - - - - (600,000) Advances to component units - - - - 69,648 Net cash used for noncapital financing activities - - - - (502,306) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital contributions - - 88,046 88,046 - Purchases of capital assets (27,937) (1,255,055) - (1,282,992) (512,549) Principal paid on capital debt - (1,250,000) - (1,250,000) - Interest paid on capital debt - (384,694) - (384,694) - Proceeds from sale of capital assets - - - - 55,202 Net cash provided by (used for) capital and related financing activities (27,937) (2,889,749) 88,046 (2,829,640) (457,347) CASH FLOW FROM INVESTING ACTIVITIES Investment earnings 20,783 10,982 1,383 33,148 54,339 Net increase (decrease) in cash and investments 457,507 (479,416) (57,355) (79,264) (929,088) Cash and investments July 1, 2012 3,701,462 2,782,590 263,362 6,747,414 4,190,223 Cash and investments at June 30, 2013 $ 4,158,969 $ 2,303,174 $ 206,007 $ 6,668,150 $ 3,261,135 Reconciliation of cash and investments to the Statement of Net Position Cash and investments $ 4,158,969 $ 1,703,674 $ 206,007 $ 6,068,650 $ 3,261,135 Restricted cash and investments - 599,500 - 599,500 - $ 4,158,969 $ 2,303,174 $ 206,007 $ 6,668,150 $ 3,261,135 Reconciliation of operating income (loss) to net cash provided by (used for) operating activities Operating income (loss) $ (144,907) $ 35,283 $ (190,258) $ (299,882) $ (293,747) Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities Depreciation expense 430,270 2,132,243 114,063 2,676,576 434,997 Bad debt expense 13,278 18,707 - 31,985 - Change in assets and liabilities Receivables 33,084 135,522 (78,455) 90,151 15,698 Inventories 6,782 7,945 - 14,727 19,010 Prepaid items 1,872 6,704 (51) 8,525 (155,846) Accounts payable 126,846 65,827 7,905 200,578 (41,292) Accrued liabilities (2,564) (2,880) 12 (5,432) (2,594) Net cash provided by (used for) operating activities $ 464,661 $ 2,399,351 $ (146,784) $ 2,717,228 $ (23,774) The accompanying notes are an integral part of this statement. 42 City of Muskegon STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES Fiduciary Funds June 30, 2013 Agency Funds ASSETS Cash and investments $ 799,080 Accounts receivable 1,867 Total assets $ 800,947 LIABILITIES Accounts payable $ 352,700 Due to other governmental units 316,760 Deposits held for others 131,487 Total liabilities $ 800,947 The accompanying notes are an integral part of this statement. 43 City of Muskegon STATEMENT OF NET POSITION Discretely Presented Component Units June 30, 2013 Local Development Tax Finance Downtown Increment Brownfield Brownfield Authority - Development Finance Redevelopment Redevelopment SmartZone Authority Authority Authority I Authority II Total ASSETS Current assets Cash and investments $ 30,266 $ 167,477 $ 14,163 $ 146,501 $ - $ 358,407 Noncurrent assets Capital assets, net Nondepreciable 400,000 - - - - 400,000 Depreciable 2,143,714 - - - - 2,143,714 Total noncurrent assets 2,543,714 - - - - 2,543,714 Total assets 2,573,980 167,477 14,163 146,501 - 2,902,121 LIABILITIES Current liabilities Accrued liabilities 21,317 4,357 - - - 25,674 Bonds and other obligations, due within one year 260,000 280,000 - - - 540,000 Total current liabilities 281,317 284,357 - - - 565,674 Noncurrent liabilities Advances from primary government - - - 1,555,528 - 1,555,528 Bonds and other obligations, less amounts due within one year 4,075,572 2,249,297 - - - 6,324,869 Total noncurrent liabilities 4,075,572 2,249,297 - 1,555,528 - 7,880,397 Total liabilities 4,356,889 2,533,654 - 1,555,528 - 8,446,071 NET POSITION Net investment in capital assets (1,791,858) - - - - (1,791,858) Unrestricted 8,949 (2,366,177) 14,163 (1,409,027) - (3,752,092) Total net position $ (1,782,909) $ (2,366,177) $ 14,163 $ (1,409,027) $ - $ (5,543,950) The accompanying notes are an integral part of this statement. 44 City of Muskegon STATEMENT OF ACTIVITIES Discretely Presented Component Units For the year ended June 30, 2013 Program Revenue Net (Expense) Revenue and Changes in Net Position Local Development Tax Capital Finance Downtown Increment Brownfield Brownfield Grants and Authority - Development Finance Redevelopment Redevelopment Functions/Programs Expenses Contributions SmartZone Authority Authority Authority I Authority II Total Local Development Finance Authority - SmartZone Economic development $ 172,648 $ - $ (172,648) $ - $ - $ - $ - $ (172,648) Interest on long-term debt 151,248 235,000 83,752 - - - - 83,752 Total Local Development Finance Authority - SmartZone 323,896 235,000 (88,896) - - - - (88,896) Downtown Development Authority Interest on long-term debt 54,150 - - (54,150) - - - (54,150) Tax Increment Finance Authority Economic development 50,000 - - - (50,000) - - (50,000) Brownfield Redevelopment Authority I Economic development 10,000 - - - - (10,000) - (10,000) 45 Interest on long-term debt 53,108 - - - - (53,108) - (53,108) Total Brownfield Redevelopment Authority I 63,108 - - - - (63,108) - (63,108) Brownfield Redevelopment Authority II Economic development 42,995 - - - - - (42,995) (42,995) Total discretely presented component units $ 534,149 $ 235,000 (88,896) (54,150) (50,000) (63,108) (42,995) (299,149) General revenues Property taxes 85,627 313,432 44,439 156,765 42,995 643,258 Unrestricted investment income 150 1,435 86 716 - 2,387 Total general revenues 85,777 314,867 44,525 157,481 42,995 645,645 Change in net position (3,119) 260,717 (5,475) 94,373 - 346,496 Net position at July 1, 2012, as restated (1,779,790) (2,626,894) 19,638 (1,503,400) - (5,890,446) Net position at June 30, 2013 $ (1,782,909) $ (2,366,177) $ 14,163 $ (1,409,027) $ - $ (5,543,950) The accompanying notes are an integral part of this statement. City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 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 City and its component units, entities for which the government is considered to be financially accountable. Blended component units, are, in substance, part of the primary government's operations, even though they are legally separate entities. Thus, blended component units are appropriately presented as funds of the primary government. 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 City. 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. Brownfield Redevelopment Authority (BRA). There are two separate designated areas under the aegis of the BRA – the Betten-Henry Street site and former downtown mall site. 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 areas are presented as governmental fund types. 46 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued Reporting Entity—Continued Discretely Presented Component Units—Continued 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, 2013, 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 47 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued Basis of Presentation—Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information on all of the nonfiduciary activities of the primary government and its component units. All fiduciary activities are reported only in the fund financial statements. Governmental activities, which normally are supported by taxes, intergovernmental revenues, and other nonexchange transactions, are reported separately from business-type activities, which rely to a significant extent on fees and charges to external customers for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. While separate government-wide and fund financial statements are presented, they are interrelated. The governmental activities column incorporates data from governmental funds and internal service funds, while business-type activities incorporate data from the City’s enterprise funds. 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. As discussed earlier, the City’s discretely presented component units are reported in a separate column in the government-wide financial statements. 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 where the amounts are reasonably equivalent in value to the interfund services provided and other charges between the City's water and sewer functions 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. The fund financial statements provide information about the City’s funds, including its fiduciary funds and blended component units. Separate statements for each fund category – governmental, proprietary, and fiduciary – are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. 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. 48 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued Basis of Presentation—Government-wide and Fund Financial Statements—Continued 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. During the course of operations the City has activity between funds for various purposes. Any residual balances outstanding at year-end are reported as due from/to other funds and advances to/from other funds. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Balances between funds included in governmental activities (i.e., the governmental and internal service funds) are eliminated so that only the net amount is included as internal balances in the governmental activities column. Similarly, balances between the funds included in business-type activities (i.e., enterprise funds) are eliminated so that only the net amount is included as internal balances in the business-type activities column. Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements these amounts are reported at gross amounts as transfers in/out. While reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in the governmental activities column. Similarly, balances between funds included in business-type activities are eliminated so that only the net amount is included as transfers in the business-type activities column. Measurement Focus and Basis of Accounting The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. 49 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued Measurement Focus and Basis of Accounting—Continued The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. 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. The 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 City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. 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. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long-term debt and acquisitions under capital leases are reported as other financing sources. 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. Entitlements are recorded as revenues when all eligibility requirements are met, including any time requirements, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year-end). Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met. Only the portion of special assessments receivable 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. The proprietary funds are reported using the economic resources measurement focus and the accrual basis of accounting. The agency fund has no measurement focus but utilizes the accrual basis of accounting for reporting its assets and liabilities. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance Cash 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. Investments for the City are reported at fair value (generally based on quoted market prices). 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 component unit’s cash and investments are maintained within the City’s investment pool. 50 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance—Continued Cash 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. Inventories and Prepaid Items All inventories are valued at cost using the first-in/first-out (FIFO) method. The cost of such inventories is recorded as expenses when consumed rather than when purchased in the business-type activities. 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. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. 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 column in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $10,000 and an estimated useful life in excess of two years. In the case of 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. As the City constructs or acquires additional capital assets each period, including infrastructure assets, they are capitalized and reported at historical cost. The reported value excludes normal maintenance and repairs which are essentially amounts spent in relation to capital assets that do not increase the capacity or efficiency of the item or increase its estimated useful life. Donated capital assets are recorded at their estimated fair value at the date of donation. Interest incurred during the construction phase of capital assets of enterprise funds is included as part of the capitalized value of the assets constructed. The amount of interest capitalized depends on the specific circumstances. Land and construction in progress are not depreciated. The other property, plant, equipment, and infrastructure of the City are depreciated using the straight-line method over the following estimated useful lives: Capital Asset Classes Years Land improvements 5-25 Leasehold improvements 10-25 Buildings and improvements 25-50 Water and sewage buildings, improvements and systems 40-100 Furniture, vehicles and equipment 5-20 Infrastructure 15-50 Shared improvements 20 51 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance—Continued Deferred Outflows/Inflows of Resources In addition to assets, the Statement of Net Position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditures) until then. In addition to liabilities, the Statement of Net Position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. Net Position Flow Assumption Sometimes the government will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts of net position to report as restricted and unrestricted in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted net position to have been depleted before unrestricted net position is applied. Fund Balance Flow Assumptions Sometimes the City will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. Fund Balance Policies Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The City itself can establish limitation on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance). The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the City’s highest level of decision-making authority. The City Commission is the highest level of decision-making authority for the City that can, by formal action prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by formal action remains in place until a similar action is taken (another formal action) to remove or revise the limitation. 52 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance—Continued Fund Balance Policies—Continued Amounts in the assigned fund balance classification are intended to be used by the City for specific purposes but do not meet the criteria to be classified as committed. The City Commission has by resolution authorized the city manager to assign fund balance. The City Commission may also assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year’s appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment. The City has a minimum fund balance policy requiring unassigned fund balance be at least 13% of prior year actual revenues. Revenues and Expenditures/Expenses Program Revenues Amounts reported as 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 (including special assessments) that are restricted to meeting the operational or capital requirements of a particular function or segment. All taxes, including those dedicated for specific purposes, and other internally dedicated resources are reported as general revenues rather than as program revenues. Property Taxes 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 and liened on 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. Uncollected 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 of 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 2012 state taxable value for real/personal property of the City totaled approximately $606,327,000 of which approximately $8,191,000 was captured by the component units. The ad valorem taxes levied consisted of 9.5, 2.5 and .0789 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 SmartZone, DDA, BRA I, and BRA II component units. 53 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued Revenues and Expenditures/Expenses—Continued Compensated Absences City employees are granted vacation and sick leave in varying amounts based on length of service and employee group. Unused vacation and sick leave days are paid to employees upon termination under limits that vary by employee group. The liability for these compensated absences is accrued when incurred in the government-wide and proprietary fund financial statements. The current portion of this debt is estimated based on historical trends. A liability for these amounts is reported in the governmental funds only if they have matured, for example, as a result of employee resignations and retirements. Proprietary Funds Operating and Nonoperating Revenues and Expenses 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 enterprise funds and internal service 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. 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 2012 financial statements have been reclassified to conform to the 2013 presentation. NOTE B—STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Information Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds. The appropriated budget is prepared by fund, function and department. The City Manager may make transfers of appropriations within a department. 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. Appropriations in all budgeted funds lapse at the end of the fiscal year. 54 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE B—STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY—Continued Excess of Expenditures Over Appropriations During the year ended June 30, 2013, actual expenditures exceeded appropriations for: Amended Budget Actual General Fund Public safety City clerk $ 316,769 $ 337,252 Fire department 3,441,651 3,472,038 These overexpenditures were funded with available fund balance. Fund Deficits As of June 30, 2013, the HOME Fund had an unassigned fund deficit of $43,281 and the Neighborhood Stabilization Fund had an unassigned fund deficit of $38,767. The deficits will be eliminated through future operations. NOTE C—DEPOSITS AND INVESTMENTS As of June 30, 2013, the City had the following investments: Weighted Average Maturity Fair value (Months) Moody's Percent Investment Type Money market funds $ 753,060 1 AAA 8.8% Negotiable certificates of deposit 996,623 4 not rated 11.6% US Agency obligations 4,231,132 184 AA+ 49.1% Certificate of Deposit Account Registry Service (CDARS) 2,619,444 3 not rated 30.5% Total fair value $ 8,600,259 100.0% Portfolio weighted average maturity 92 55 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE C—DEPOSITS AND INVESTMENTS—Continued Deposit and Investment Risks Interest rate risk The City has a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. At least 10% of the City’s total portfolio must be in instruments maturing in 30 days. Credit risk State law limits investments in commercial paper and corporate bonds to the two highest classifications issued by nationally recognized statistical rating organizations. The City has no investment policy that would further limit its investment choices. Concentration of credit risk Concentration of credit risk is the risk of loss attributed to the magnitude of the City investment in a single issuer, by diversifying the investment portfolio so that the impact of potential losses from any one type of security or issuer will be minimized. The City has a concentration of credit risk policy that limits investment in commercial paper, eligible bankers’ acceptances and time certificates of deposit to 25% each of the total portfolio. More than 5 percent of the City’s investments are in various U.S. Agency obligations including Federal National Mortgage Association, Federal Home Loan Bank System and Government National Mortgage Association. These investments are 21 percent, 17 percent and 11 percent, respectively 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, 2013, $14,031,893 of the City’s bank balance of $14,531,893 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, 2013, restricted cash and investments in the Water Fund of $599,500 were restricted by bond ordinance. 56 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE D—CAPITAL ASSETS Capital asset activity for the year ended June 30, 2013 was as follows: Balance Balance July 1, 2012 Additions Deductions June 30, 2013 Governmental activities: Capital assets, no being depreciated: Land $ 12,381,156 $ - $ 164,621 $ 12,216,535 Construction in progress 6,599,641 3,125,837 3,516,173 6,209,305 Total capital assets, not being depreciated 18,980,797 3,125,837 3,680,794 18,425,840 Capital assets, being depreciated: Land improvements 4,215,004 141,864 - 4,356,868 Leasehold improvements 516,605 18,216 - 534,821 Buildings and improvements 21,345,694 840,386 16,755 22,169,325 Furniture, vehicle and equipment 12,423,374 401,706 242,176 12,582,904 Infrastructure 76,647,841 2,731,299 3,165,712 76,213,428 Shared improvements 5,576,901 - - 5,576,901 Total capital assets, being depreciated 120,725,419 4,133,471 3,424,643 121,434,247 Less accumulated depreciation: Land improvements 1,008,923 145,086 - 1,154,009 Leasehold improvements 249,276 54,628 - 303,904 Buildings and improvements 14,487,224 491,242 5,864 14,972,602 Furniture, vehicle and equipment 10,001,427 544,323 236,963 10,308,787 Infrastructure 38,618,528 3,463,284 3,165,712 38,916,100 Shared improvements 2,615,085 278,845 - 2,893,930 Total accumulated depreciation 66,980,463 4,977,408 3,408,539 68,549,332 Total capital assets, being depreciated, net 53,744,956 (843,937) 16,104 52,884,915 Capital assets, net $ 72,725,753 $ 2,281,900 $ 3,696,898 $ 71,310,755 Business-type activities: Capital assets, not being depreciated: Land $ 142,250 $ - $ - $ 142,250 Construction in progress 1,658,879 1,230,247 1,680,588 1,208,538 Total capital assets, not being depreciated 1,801,129 1,230,247 1,680,588 1,350,788 Capital assets, being depreciated: Land improvements 1,888,965 - - 1,888,965 Buildings, improvements and systems 87,361,743 1,680,588 - 89,042,331 Machinery and equipment 2,840,288 52,745 - 2,893,033 Total capital assets, being depreciated 92,090,996 1,733,333 - 93,824,329 Less accumulated depreciation: Land improvements 1,718,490 21,089 - 1,739,579 Buildings, improvements and systems 34,996,248 2,332,962 - 37,329,210 Machinery and equipment 1,770,023 322,525 - 2,092,548 Total accumulated depreciation 38,484,761 2,676,576 - 41,161,337 Total capital assets, being depreciated, net 53,606,235 (943,243) - 52,662,992 Capital assets, net $ 55,407,364 $ 287,004 $ 1,680,588 $ 54,013,780 57 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE D—CAPITAL ASSETS—Continued Depreciation Depreciation expense was charged to functions as follows: Governmental activities: Adminstrative services $ 52,455 Financial services 29,855 Public safety 146,086 Public works 64,818 Highways, streets and bridges 3,828,597 Community and economic development 75,717 Culture and recreation 322,347 General administration 22,536 Internal Service Fund depreciation 434,997 $ 4,977,408 Business-type activities: Sewer $ 430,270 Water 2,132,243 Marina and Launch Ramp 114,063 $ 2,676,576 Balance Balance July 1, 2012 Additions Deductions June 30, 2013 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 1,481,896 172,648 - 1,654,544 Total capital assets, being depreciated, net 2,316,362 (172,648) - 2,143,714 Capital assets, net $ 2,716,362 $ (172,648) $ - $ 2,543,714 Depreciation Depreciation expense was charged to economic development. 58 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE E—INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The composition of interfund balances as of June 30, 2013 is as follows: Due to/from other funds: Receivable Fund Payable Fund Amount General Fund Community Development Block Grant Fund $ 268,432 General Fund HOME Rehabilitiation Fund 52,011 General Fund Neighborhood Stabilization Fund 168,414 $ 488,857 The outstanding balances between funds result from the payable funds having negative positions in the City’s cash and investment pool. Component unit advance: The Cemetery Perpetual Care Fund, Equipment Fund, and General Insurance Fund advanced the BRA I $1,555,528 to enable the BRA I 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 $ 420,653 Nonmajor Governmental Funds Cemetery Fund $ 20,653 Internal Service Funds General Insurance Fund 400,000 420,653 420,653 Major Street and Trunkline Fund 250,000 General Fund 250,000 Nonmajor Governmental Funds Local Street Fund 680,000 General Fund 480,000 Internal Service Funds General Insurance Fund 200,000 680,000 680,000 Nonmajor Governmental Funds Nonmajor Governmental Funds Community Development HOME Rehabilitation Fund 5,576 Block Grant Fund 5,576 Internal Service Funds General Insurance Fund 28,046 General Fund 28,046 $ 1,384,275 $ 1,384,275 The General Fund transferred funds to the Local Street Fund to finance capital improvements. Other transfers between funds were made to meet grant matching requirements or other operational needs. 59 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE F—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, 2013. Balance Balance Due Within July 1, 2012 Additions Deductions June 30, 2013 One Year Governmental activities: General obligation debt $ 7,152,694 $ - $ 244,073 $ 6,908,621 $ 250,000 Intergovernmental contractual obligations 150,253 - 20,211 130,042 21,000 Special assessment obligations 560,000 - 130,000 430,000 135,000 Compensated absences 1,181,025 1,092,684 1,220,320 1,053,389 175,600 Governmental activities long-term liabilities $ 9,043,972 $ 1,092,684 $ 1,614,604 $ 8,522,052 $ 581,600 Business-type activities: Revenue obligations $ 15,259,764 $ - $ 1,278,842 $ 13,980,922 $ 1,295,000 Compensated absences 126,472 156,043 158,355 124,160 20,700 Business-type activities long-term liabilities $ 15,386,236 $ 156,043 $ 1,437,197 $ 14,105,082 $ 1,315,700 Component units: Intergovernmental obligations $ 1,000,000 $ - $ - $ 1,000,000 $ - General obligation debt 6,364,932 - 500,063 5,864,869 540,000 Component unit long- term liabilities $ 7,364,932 $ - $ 500,063 $ 6,864,869 $ 540,000 Governmental activities: General obligation debt: $5,400,000 Limited Tax General Obligation Bonds of 2006 payable in annual installments of $70,000 to $350,000 through October 2032; interest at 4% to 4.2% $ 5,095,000 Less bond discount (11,379) $2,000,000 Capital Improvement Bonds of 2011 payable in annual installments of $180,000 to $230,000 through September 2021; interest at 2.98% 1,825,000 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% 130,042 Special assessment obligations: $1,575,000 Capital improvement bonds of 2003 payable in annual installments of $135,000 to $150,000 through June 2016; interest at 3.9% to 4.05% 430,000 Compensated absences 1,053,389 $ 8,522,052 60 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE F—LONG-TERM DEBT—Continued Summary of Changes in Long-Term Liabilities—Continued Business-type activities: Revenue obligations: $5,995,000 Water supply system refunding bonds of 2010 payable in annual installments of $640,000 to $770,000 through May 2019; interest at 2.77% to 4.25% $ 4,205,000 Add bond premium 90,922 $13,900,000 Drinking Water State Revolving Fund loan of 2004 payable in annual installments of $655,000 to $840,000 through October 2025; interest at 2.13% 9,685,000 Compensated absences 124,160 $ 14,105,082 Component units: Intergovernmental 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 $280,000 to $330,000 through June 2018; interest at 2.75% to 4% 1,505,000 Add bond premium 24,297 $4,100,000 Local Development Finance Authority tax increment refunding bonds of 2012 payable in annual installments of $320,000 to $396,000 through June 2025; interest at 2% to 4% 4,100,000 Add bond premium 235,572 $ 6,864,869 For governmental activities, claims and judgments and compensated absences are generally liquidated by the General Fund. The special assessment obligations are backed by the limited full faith and credit of the City. In 2005, the County of Muskegon began making improvements to the regional sewer treatment facilities. The project was funded with $17,500,000 bonds issued through the State of Michigan Clean Water Revolving Fund Loan Program. The County operates the system and makes payments on the bonds with user charges to the local units. The City has pledged its limited tax full faith and credit for the payment of its portion of the debt should user charges collected by the County be insufficient to make the debt payments. The City’s portion of the debt on June 30, 2013 was approximately $4,733,000. The City is unaware of any circumstances that would cause a shortfall in the near future. 61 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE F—LONG-TERM DEBT—Continued Summary of Changes in Long-Term Liabilities—Continued 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, 2013. Annual debt service requirements to maturity for debt outstanding as of June 30, 2013 follow: Year Ending Governmental Activites Business-type Activities Component Units June 30, Principal Interest Principal Interest Principal Interest 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 292,314 224,302 1,450,000 203,106 685,000 107,125 2019-2023 2,197,761 908,699 4,565,000 500,704 2,660,000 262,875 2024-2028 1,695,000 537,256 2,475,000 79,526 825,000 37,725 2029-2033 1,750,000 183,050 - - - - $ 7,480,042 $ 2,875,259 $ 13,890,000 $ 1,986,622 $ 6,605,000 $ 1,026,928 Annual debt service requirements to maturity by type of debt as of June 30, 2013 follow: Revenue Special General Obligation Debt Obligations Intergovernmental Assessment Year Ending Governmental Component Business-type Governmental Component Governmental June 30, Activities Units Activities Activities Units Activities 2014 $ 507,248 $ 717,588 $ 1,647,635 $ 23,216 $ - $ 152,140 2015 504,010 769,088 1,650,857 23,215 - 156,875 2016 500,622 783,276 1,653,360 23,216 - 156,075 2017 497,086 784,251 1,651,434 23,216 - - 2018 493,400 792,125 1,653,106 23,216 - - 2019-2023 3,083,244 1,922,875 5,065,704 23,216 1,000,000 - 2024-2028 2,232,253 862,725 2,554,529 - - - 2029-2033 1,933,050 - - - - - $ 9,750,913 $ 6,631,928 $ 15,876,625 $ 139,295 $ 1,000,000 $ 465,090 62 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE G—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 2013 and 2012 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, 2013 $ 124,721 $ 70,391 $ 129,140 $ 65,972 June 30, 2012 83,745 113,079 72,103 124,721 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 up to $500,000 per covered individual’s lifetime. As of June 30, 2013, the claims liability including incurred but not reported claims was $12,005. 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 2013 and 2012 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, 2013 $ 81,702 $ 844,407 $ 914,104 $ 12,005 June 30, 2012 15,462 1,199,682 1,133,442 81,702 63 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE G—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, 2013 of approximately $1,584,000. The cost of the projects will be paid with available fund balance in the Major Street and Trunkline 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 $44,938 for the year ended June 30, 2013. The future minimum rental income for this lease is as follows: Year Ending June 30, Amount 2014 $ 34,854 2015 34,202 2016 33,864 2017 33,841 $ 136,761 NOTE H—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, 2013 NOTE H—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 5.80 to 19.80 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 the City depending on the MERS contribution program adopted by the City. Annual Pension Cost and Net Pension Asset For the year ended June 30, 2013, the City’s annual pension cost of approximately $1,159,000 was equal to the City’s required and actual contribution. The following table shows the components of the City’s annual pension cost for the year, the amount actually contributed, and changes in the City’s net pension asset: Annual required contribution $ 1,188,934 Interest on net pension asset (79,731) Adjustment to annual required contribution 83,079 Annual pension cost 1,192,282 Contributions made 1,188,934 Decrease in net pension asset (3,348) Net pension asset at beginning of year 996,641 Net pension asset at end of year $ 993,293 Trend Information Approximate Percentage Net Pension Annual Pension of APC Obligation Year Ended Cost (APC) Contributed (Asset) June 30, 2011 $ 1,228,000 181 % $ (1,000,000) June 30, 2012 1,159,000 100 (996,641) June 30, 2013 1,189,000 100 (993,293) The required contribution was determined as part of the December 31, 2010 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. 65 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE H—PENSION PLANS—Continued Defined Benefit Pension Plan—Continued Funding Status and Funding Progress As of December 31, 2012, the most recent actuarial valuation date, the plan was 94 percent funded. The actuarial accrued liability for benefits was approximately $95,220,000, and the actuarial value of assets was approximately $89,199,000, resulting in an unfunded actuarial accrued liability (UAAL) of approximately $6,021,000. The covered payroll (annual payroll of active employees covered by the plan) was approximately $10,185,000, and the ratio of the UAAL to the covered payroll was 59 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 investment earnings. 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, 2013, City and employee contributions were approximately $179,000 and $100,000, 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). 66 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE I—OTHER POST-EMPLOYMENT BENEFITS Retiree Healthcare Plan Plan Description The City has a retiree healthcare funding vehicle administered Municipal Employees Retirement System (MERS), an agent multiple-employer postemployment healthcare plan (OPEB). The retiree healthcare funding vehicle is established under the authority of section 115 of the IRS code and is exempt from taxation. The Plan provides health insurance to eligible retirees and their spouses. Act No. 149 of the Public Acts of 1999 of the State of Michigan assigns the authority to establish and amend the benefit provisions of the plans that participate in MERS to the respective employer entities; that authority rests with the City. A copy of the complete financial report and required supplemental information can be obtained by writing to: City of Muskegon 933 Terrace Street Muskegon, MI 49443 Funding Policy Plan members are not required to contribute to the Plan. The City is required to contribute the annual required contribution of the employer (ARC) at an actuarially-determined rate which varies upon employee group from 3.35 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 depending on the benefits program adopted by the City. Annual OPEB Cost For the year ended June 30, 2013, the City’s OPEB cost (expense) of approximately $739,000 was equal to the City’s ARC and actual contribution. Trend Information Percentage of Annual Annual OPEB OPEB Cost Net OPEB Year Ended Cost Contributed Obligation June 30, 2011 $ 1,079,000 100 % $ - June 30, 2012 833,000 100 - June 30, 2013 739,000 100 - 67 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE I—OTHER POST-EMPLOYMENT BENEFITS—Continued Retiree Healthcare Plan—Continued Actuarial Methods and Assumptions Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Actuarially determined amounts are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and Plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of Plan members not contributing to the Plan. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The required contribution was determined as part of the December 31, 2011 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. Healthcare Saving Plan The City also maintains a defined contribution Health Care Savings Plan offered by MERS. In this plan, post-employment healthcare benefits depend solely on amounts contributed to the plan plus investment earnings. Depending on employee group, the Plan covers all City employees hired after January 2009 to December 2012 in lieu of the traditional retiree healthcare 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 1 or 2 percent of a qualified employees’ annual compensation each year depending on employee group. Qualified employees are also required to contribute 1 or 2 percent of annual compensation. Additionally, some employees, regardless of hire date, may make voluntary contributions to the HCSP. For the year ended June 30, 2013, City and employee contributions were approximately $11,000 and $135,000, respectively. 68 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE J—PRIOR PERIOD ADJUSTMENTS The net position of the governmental activities, business-type activities (Water Fund), and component units were restated to reflect the implementation of GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position and GASB Statement No. 65, Items Previously Reported as Assets and Liabilities which require that bond issuance costs be recognized as an expense in the period incurred. The net position of the governmental activities and fund balance of the General Fund were also restated to reflect previously unrecorded income tax credits owed to taxpayers. The restatement of the beginning of the year net position/fund balance is as follows: Governmental Business-type Component Activities Activities Units Net position at July 1, 2012 $ 83,225,722 $ 49,781,313 $ (5,731,603) Removal of bond issuance costs (105,889) (85,467) (158,843) Income tax credits liability (285,648) - - Net position at July 1, 2012, as restated $ 82,834,185 $ 49,695,846 $ (5,890,446) LDFA - General Fund Water Fund SmartZone DDA Net position/fund balance at July 1, 2012 $ 6,520,045 $ 29,084,767 $ (1,665,024) $ (2,582,817) Removal of bond issuance costs - (85,467) (114,766) (44,077) Income tax credits liability (285,648) - - - Net position/fund balance at July 1, 2012, as restated $ 6,234,397 $ 28,999,300 $ (1,779,790) $ (2,626,894) The effect on the change in net position of the prior year is as follows: Governmental Business-type Component Activities Activities Units Change in net position - June 30, 2012, as previously reported $ (973,842) $ (522,025) $ (1,619,658) Amortization of bond issuance costs 7,631 23,152 96,062 New issuance costs - - (114,766) Change in net position - June 30, 2012, as restated $ (966,211) $ (498,873) $ (1,638,362) LDFA - Water Fund SmartZone DDA Change in net position - June 30, 2012, as previously reported $ (677,279) $ (231,915) $ 177,813 Amortization of bond issuance costs 23,152 89,500 6,562 New issuance costs - (114,766) - Change in net position - June 30, 2012, as restated $ (654,127) $ (257,181) $ 184,375 69 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2013 NOTE K—SUBSEQUENT EVENTS Subsequent to year-end, the City entered into contracts for street improvements of approximately $1,366,000. The projects will be paid with available fund balance in the Major Street and Trunkline and Local Street funds and approximately $705,000 in grants from the Michigan Department of Transportation. NOTE L—UPCOMING ACCOUNTING PRONOUNCEMENT GASB Statement 68—Accounting and Financial Reporting for Pensions was issued by the GASB in June 2012 and will be effective for the City’s 2015 fiscal year. The statement requires governments that participate in defined benefit pension plans to report in their Statement of Net Position a net pension liability. The net pension liability is the difference between the total pension liability (the present value of projected benefit payments to employees based on their past service) and the assets (mostly investments reported at fair value) set aside in a trust and restricted to paying benefits to current employees, retirees, and their beneficiaries. 70 REQUIRED SUPPLEMENTARY INFORMATION 71 City of Muskegon BUDGETARY COMPARISON SCHEDULE General Fund For the year ended June 30, 2013 (with comparative actual amounts for the year ended June 30, 2012) 2013 2012 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual REVENUES Taxes City income taxes $ 7,100,000 $ 7,600,000 $ 7,506,472 $ (93,528) $ 7,412,804 Property taxes 7,463,567 7,170,289 7,171,122 833 7,913,724 Industrial facilities taxes 93,463 57,614 58,087 473 84,332 Payments in lieu of taxes 95,000 95,000 96,346 1,346 95,805 Delinquent chargeback collected 1,000 200 - (200) 3 Total taxes 14,753,030 14,923,103 14,832,027 (91,076) 15,506,668 Licenses and permits Business licenses 28,000 29,500 31,623 2,123 30,642 Liquor licenses 61,000 60,000 53,005 (6,995) 56,039 Cable TV fees 340,000 350,000 358,785 8,785 342,376 Rental property registration 130,000 168,030 163,300 (4,730) 162,990 Burial permits 110,000 110,000 89,170 (20,830) 87,768 Building permits 250,000 229,000 278,166 49,166 264,201 Electrical permits 80,000 81,000 67,128 (13,872) 84,907 Plumbing permits 30,000 26,000 26,519 519 26,884 Mechanical permits 60,000 60,000 62,305 2,305 55,169 Vacant building fees 100,000 100,000 108,284 8,284 112,058 Total licenses and permits 1,189,000 1,213,530 1,238,285 24,755 1,223,034 Intergovernmental revenues Federal grants 155,524 134,885 117,324 (17,561) 152,300 State Grants 20,000 55,000 13,819 (41,181) 14,295 State shared revenue 3,592,422 3,667,621 3,700,871 33,250 3,577,848 Total intergovernmental revenues - State 3,612,422 3,722,621 3,714,690 (7,931) 3,592,143 Local 50,000 50,000 50,000 - 50,000 72 City of Muskegon BUDGETARY COMPARISON SCHEDULE—CONTINUED General Fund For the year ended June 30, 2013 (with comparative actual amounts for the year ended June 30, 2012) 2013 2012 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual Charges for services Tax administration fees $ 272,700 $ 267,175 $ 267,293 $ 118 $ 289,361 Utility administration fees 250,000 250,000 250,000 - 225,000 Reimbursement for elections - 250 329 79 13,640 Brownfield authority admin fee - 52,000 52,995 995 13,828 Indirect cost reimbursements 1,171,531 1,171,531 1,171,536 5 1,144,020 Site plan review fee 3,500 3,500 3,600 100 3,400 Sale of cemetery lots 25,500 29,300 33,207 3,907 24,671 Police miscellaneous 59,000 74,525 92,624 18,099 57,893 Police impound fees 42,000 42,000 38,844 (3,156) 40,920 Landlord's alert fee 40 70 - (70) 40 Fire protection-state property 84,970 84,970 117,776 32,806 137,127 Zoning fees 11,000 11,000 11,164 164 12,055 Clerk fees 1,500 2,800 2,827 27 1,365 Clerk fees - passport fees 3,500 4,000 4,160 160 3,790 Tax abatement application fees 5,000 6,000 5,904 (96) 3,439 Treasurer fees 65,000 65,000 58,648 (6,352) 61,682 False alarm fees 13,000 13,000 5,265 (7,735) 10,680 Miscellaneous cemetery income 20,000 20,000 17,369 (2,631) 61,645 Senior transit program fees - 8,382 8,382 - 11,123 Fire miscellaneous 2,000 2,000 2,843 843 703 Sanitation stickers 80,000 81,300 81,116 (184) 87,303 Lot cleanup fees 30,000 35,000 32,462 (2,538) 43,028 Reimbursements - lot mowing and demolitions 50,000 50,000 43,648 (6,352) 58,740 Special events reimbursements 50,000 75,000 66,596 (8,404) 95,788 Recreation program fees 5,000 6,500 6,667 167 6,551 Total charges for services 2,245,241 2,355,303 2,375,255 19,952 2,407,792 Fines and forfeitures Income tax - penalty and interest 180,000 170,000 174,801 4,801 191,679 Late fees on current taxes 40,000 40,000 30,872 (9,128) 24,051 Interest on late invoices - - 2,318 2,318 2,328 Parking fines 125,000 90,000 77,803 (12,197) 105,995 Court fines 140,000 130,000 125,184 (4,816) 123,926 Total fines and forfeitures 485,000 430,000 410,978 (19,022) 447,979 Interest and rental income Interest income 77,000 52,000 69,568 17,568 9,378 Net increase (decrease) in the fair value of investments - - (123,263) (123,263) (34,662) Flea market 35,000 35,000 30,935 (4,065) 28,664 Farmers' market 40,000 40,000 42,599 2,599 47,805 City right of way rental 8,561 6,800 6,800 - 6,800 Fire station lease - Central Dispatch 45,000 45,000 44,938 (62) 43,526 Great Lakes Naval Memorial lease 5,000 15,000 15,000 - 15,000 McGraft park rentals 46,000 60,000 61,053 1,053 48,213 Other park rentals 52,200 60,200 38,344 (21,856) 37,576 Total interest and rental income 308,761 314,000 185,974 (128,026) 202,300 73 City of Muskegon BUDGETARY COMPARISON SCHEDULE—CONTINUED General Fund For the year ended June 30, 2013 (with comparative actual amounts for the year ended June 30, 2012) 2013 2012 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual Other Sale of land and assets $ 1,000 $ 1,000 $ - $ (1,000) $ - Police sale and auction proceeds 2,000 2,000 6,058 4,058 10,598 CDBG program reimbursements 337,870 337,870 344,568 6,698 424,549 Fisherman's Landing reimbursement 16,775 17,471 17,471 - 16,775 Contributions 11,000 16,850 10,485 (6,365) 3,876 Contributions - Veteran's Park maintenance 18,500 16,155 16,155 - 18,502 Community Foundation for Muskegon County 1,500 4,800 14,800 10,000 10,000 Miscellaneous and sundry 71,000 69,556 73,339 3,783 56,244 Total other 459,645 465,702 482,876 17,174 540,544 Total revenues 23,258,623 23,609,144 23,407,409 (201,735) 24,122,760 EXPENDITURES Current Public representation services City commission 85,216 98,675 93,509 5,166 82,906 City promotions and public relations 9,350 9,800 9,832 (32) 7,214 City manager 282,961 273,259 269,910 3,349 273,309 Contributions to outside agencies 202,824 203,819 197,926 5,893 149,468 City attorney 332,000 342,000 320,936 21,064 354,865 Total public representation services 912,351 927,553 892,113 35,440 867,762 Administrative services City clerk 312,269 316,769 337,252 (20,483) 288,959 Civil service 91,270 87,505 88,439 (934) 98,543 Affirmative action 85,439 84,378 82,439 1,939 82,987 Total administrative services 488,978 488,652 508,130 (19,478) 470,489 Financial services Finance administration 362,253 360,228 364,146 (3,918) 421,130 Assessing 367,610 345,000 330,190 14,810 425,160 Arena administration 235,000 239,538 238,961 577 240,091 Income tax administration 459,888 442,385 388,767 53,618 432,397 Information systems 394,458 394,025 391,345 2,680 371,201 City treasurer 501,307 493,918 483,508 10,410 517,152 Total financial services 2,320,516 2,275,094 2,196,917 78,177 2,407,131 Public safety Police department 9,450,146 8,816,000 8,642,294 173,706 8,680,770 Fire department 3,412,375 3,441,651 3,472,038 (30,387) 3,674,677 Fire safety inspections 597,301 459,000 472,933 (13,933) 603,463 Total public safety 13,459,822 12,716,651 12,587,265 129,386 12,958,910 74 City of Muskegon BUDGETARY COMPARISON SCHEDULE—CONTINUED General Fund For the year ended June 30, 2013 (with comparative actual amounts for the year ended June 30, 2012) 2013 2012 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual Public works Street lighting $ 745,000 $ 655,000 $ 655,118 $ (118) $ 560,199 Community event support 20,600 16,800 19,270 (2,470) 20,212 Senior citizen transit - 38,256 41,816 (3,560) 76,309 General sanitation 1,577,048 1,553,605 1,541,931 11,674 1,561,378 Storm water management 17,786 15,000 12,994 2,006 13,270 City hall maintenance 288,983 268,131 244,296 23,835 235,086 Cemeteries maintenance 339,312 367,931 362,903 5,028 368,546 Total public works 2,988,729 2,914,723 2,878,328 36,395 2,835,000 Community and economic development Planning, zoning and economic development 313,973 293,070 300,222 (7,152) 292,915 Environmental services 558,304 574,781 541,493 33,288 541,665 Edison Landing subsidy 160,000 160,000 160,000 - 100,000 Total community and economic development 1,032,277 1,027,851 1,001,715 26,136 934,580 Culture and recreation Parks maintenance 1,144,761 1,117,441 1,009,455 107,986 1,050,464 McGraft park maintenance 44,600 45,200 23,461 21,739 39,876 General and inner city recreation programs 96,000 98,900 95,944 2,956 109,065 Graffiti removal 9,861 7,861 3,854 4,007 5,090 Parking operations 3,000 4,700 5,266 (566) 4,484 Farmers' market and flea market 77,093 58,013 63,266 (5,253) 54,407 Total culture and recreation 1,375,315 1,332,115 1,201,246 130,869 1,263,386 Other governmental functions Insurance premiums 224,982 252,000 233,873 18,127 257,320 Other 250,000 200,000 65,939 134,061 513,590 Total other governmental functions 474,982 452,000 299,812 152,188 770,910 Debt service Principal 70,000 70,000 70,000 - 70,000 Interest and fees 208,345 210,000 209,678 322 211,954 Total debt service 278,345 280,000 279,678 322 281,954 Capital outlay 257,000 127,000 105,651 21,349 244,280 Total expenditures 23,588,315 22,541,639 21,950,855 590,784 23,034,402 Excess of revenues over (under) expenditures (329,692) 1,067,505 1,456,554 389,049 1,088,358 75 City of Muskegon BUDGETARY COMPARISON SCHEDULE—CONTINUED General Fund For the year ended June 30, 2013 (with comparative actual amounts for the year ended June 30, 2012) 2013 2012 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual OTHER FINANCING SOURCES (USES) Transfers in $ 262,000 $ 223,000 $ 420,653 $ 197,653 $ 3,351 Transfers out (508,046) (758,046) (758,046) - (583,046) Total other financing sources (uses) (246,046) (535,046) (337,393) 197,653 (579,695) Net change in fund balance $ (575,738) $ 532,459 1,119,161 $ 586,702 508,663 Fund balance at beginning of year, as restated 6,234,397 5,725,734 Fund balance at end of year $ 7,353,558 $ 6,234,397 Note: Both budgets and actual figures are prepared in accordance with generally accepted accounting principles. 76 City of Muskegon BUDGETARY COMPARISON SCHEDULE Major Street and Trunkline Fund For the year ended June 30, 2013 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Intergovernmental revenues Federal $ 1,095,000 $ 453,000 $ 794,000 $ 341,000 State 2,663,163 2,663,163 2,566,615 (96,548) Charges for services - - 27,885 27,885 Investment earnings 25,000 25,000 24,246 (754) Other 145,000 149,772 133,583 (16,189) Total revenues 3,928,163 3,290,935 3,546,329 255,394 EXPENDITURES Current Highways, streets and bridges 5,258,258 4,449,500 3,916,862 532,638 Debt service Principal 175,000 175,000 175,000 - Interest 56,993 57,791 57,791 - Total expenditures 5,490,251 4,682,291 4,149,653 532,638 Excess of revenues over (under) expenditures (1,562,088) (1,391,356) (603,324) 788,032 OTHER FINANCING SOURCES (USES) Transfers in - 250,000 250,000 - Transfers out (225,000) - - - Total other financing sources (uses) (225,000) 250,000 250,000 - Net change in fund balance $ (1,787,088) $ (1,141,356) (353,324) $ 788,032 Fund balance at July 1, 2012 2,507,008 Fund balance at June 30, 2013 $ 2,153,684 Note: Both budgets and actual figures are prepared in accordance with generally accepted accounting principles. 77 City of Muskegon Required Supplemental Information SCHEDULE OF FUNDING PROGRESS For the year ended June 30, 2013 MUNICIPAL EMPLOYEES RETIREMENT SYSTEM (MERS) PENSION PLAN SCHEDULE OF FUNDING PROGRESS (Dollar amounts in thousands) Actuarial Actuarial Actuarial Accrued Unfunded UAAL as a Valuation Value of Liability (AAL) AAL Funded Covered Percentage of Date Assets Entry Age (UAAL) Ratio Payroll Covered Payroll 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 12/31/12 89,199 95,220 6,021 94 10,185 59 78 MUNICIPAL EMPLOYEES RETIREMENT SYSTEM (MERS) OTHER POSTEMPLOYMENT BENEFITS PLAN SCHEDULE OF FUNDING PROGRESS (Dollar amounts in thousands) Actuarial Actuarial Actuarial Accrued Unfunded UAAL as a Valuation Value of Liability (AAL) AAL Funded Covered Percentage of Date Assets Entry Age (UAAL) Ratio Payroll Covered 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 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, 2013 Permanent Total Other Special Capital Fund - Governmental Revenue Projects Cemetery Funds Funds Funds Perpetual Care ASSETS Cash and investments $ 3,700,323 $ 652,775 $ 2,145,818 $ 901,730 Receivables Accounts and loans (net of allowance for uncollectibles) 240,133 4,577 231,099 4,457 Special assessments 174,542 133,923 40,619 - Due from other governmental units 507,957 106,728 401,229 - Advances to component units 518,510 - - 518,510 Prepaid items 4,710 4,710 - - Total assets $ 5,146,175 $ 902,713 $ 2,818,765 $ 1,424,697 LIABILITIES Accounts payable $ 223,069 $ 164,292 $ 58,777 $ - Accrued liabilities 7,986 4,625 3,361 - Due to other governmental units 30,309 3,657 26,652 - Due to other funds 488,857 - 488,857 - Unearned revenues - expenditure-driven grants 43,743 - 43,743 - Total liabilities 793,964 172,574 621,390 - DEFERRED INFLOWS OF RESOURCES Unavailable revenues - special assessments 174,645 133,923 40,722 - Unavailable revenues - other long-term receivables 28,750 - 28,750 - Total deferred inflows of resources 203,395 133,923 69,472 - FUND BALANCES Nonspendable Prepaid items 4,710 4,710 - - Long-term loans receivable 122,592 - 122,592 - Perpetual care 1,398,881 - - 1,398,881 Restricted Highways, streets and bridges 417,449 417,449 - - Law enforcement 172,578 172,578 - - Perpetual care 25,816 - - 25,816 Other purposes 1,479 1,479 - - Assigned for capital projects 2,087,359 - 2,087,359 - Unassigned (82,048) - (82,048) - Total fund balances 4,148,816 596,216 2,127,903 1,424,697 Total liabilities, deferred inflows of resources and fund balances $ 5,146,175 $ 902,713 $ 2,818,765 $ 1,424,697 82 City of Muskegon COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Other Governmental Funds For the year ended June 30, 2013 Permanent Total Other Special Capital Fund - Governmental Revenue Projects Cemetery Funds Funds Funds Perpetual Care REVENUES Intergovernmental revenues Federal $ 1,317,788 $ - $ 1,317,788 $ - State 843,137 793,262 49,875 - Charges for services 366,087 7,831 321,774 36,482 Fines and forfeitures 24,915 24,915 - - Investment earnings 57,177 18,911 17,264 21,002 Other 237,918 127,966 109,952 - Total revenues 2,847,022 972,885 1,816,653 57,484 EXPENDITURES Current Public safety 2,351 2,351 - - Highways, streets and bridges 2,024,312 2,024,312 - - Culture and recreation 11,030 11,030 - - Debt service Principal 150,211 - 150,211 - Interest and fees 25,085 - 25,085 - Capital outlay 1,745,832 - 1,745,832 - Total expenditures 3,958,821 2,037,693 1,921,128 - Excess of revenues over (under) expenditures (1,111,799) (1,064,808) (104,475) 57,484 OTHER FINANCING SOURCES (USES) Proceeds from sale of capital assets 190,263 - 190,263 - Transfers in 685,576 680,000 5,576 - Transfers out (26,229) - (5,576) (20,653) Total other financing sources (uses) 849,610 680,000 190,263 (20,653) Net change in fund balances (262,189) (384,808) 85,788 36,831 Fund balances at July 1, 2012 4,411,005 981,024 2,042,115 1,387,866 Fund balances at June 30, 2013 $ 4,148,816 $ 596,216 $ 2,127,903 $ 1,424,697 83 City of Muskegon COMBINING BALANCE SHEET Other Special Revenue Funds June 30, 2013 Total Other Special Revenue Local Criminal Tree Funds Street Forfeitures Replacement ASSETS Cash and investments $ 652,775 $ 478,682 $ 172,578 $ 1,515 Receivables Accounts 4,577 4,577 - - Special assessments 133,923 133,923 - - Due from other governmental units 106,728 106,728 - - Prepaid items 4,710 4,710 - - Total assets $ 902,713 $ 728,620 $ 172,578 $ 1,515 LIABILITIES Accounts payable $ 164,292 $ 164,256 $ - $ 36 Accrued liabilities 4,625 4,625 - - Due to other governmental units 3,657 3,657 - - Total liabilities 172,574 172,538 - 36 DEFERRED INFLOWS OF RESOURCES Unavailable revenues - special assessments 133,923 133,923 - - FUND BALANCES Nonspendable - prepaid items 4,710 4,710 - - Restricted Highways, streets and bridges 417,449 417,449 - - Law enforcement 172,578 - 172,578 - Other purposes 1,479 - - 1,479 Total fund balances 596,216 422,159 172,578 1,479 Total liabilities, deferred inflows of resources and fund balances $ 902,713 $ 728,620 $ 172,578 $ 1,515 84 City of Muskegon COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Other Special Revenue Funds For the year ended June 30, 2013 Total Other Special Revenue Local Criminal Tree Funds Street Forfeitures Replacement REVENUES Intergovernmental revenues - State $ 793,262 $ 788,262 $ - $ 5,000 Charges for services 7,831 5,335 - 2,496 Fines and forfeitures 24,915 - 24,915 - Investment earnings 18,911 18,057 840 14 Other 127,966 127,966 - - Total revenues 972,885 939,620 25,755 7,510 EXPENDITURES Current Public safety 2,351 - 2,351 - Highways, streets and bridges 2,024,312 2,024,312 - - Culture and recreation 11,030 - - 11,030 Total expenditures 2,037,693 2,024,312 2,351 11,030 Excess of revenues over (under) expenditures (1,064,808) (1,084,692) 23,404 (3,520) OTHER FINANCING SOURCES Transfers in 680,000 680,000 - - Net change in fund balances (384,808) (404,692) 23,404 (3,520) Fund balances at July 1, 2012 981,024 826,851 149,174 4,999 Fund balances at June 30, 2013 $ 596,216 $ 422,159 $ 172,578 $ 1,479 85 City of Muskegon BUDGETARY COMPARISON SCHEDULE Other Special Revenue Funds For the year ended June 30, 2013 Local Street Criminal Forfeitures Variance - Variance - Final Positive Final Positive Budget Actual (Negative) Budget Actual (Negative) REVENUES Intergovernmental revenues Federal $ 32,000 $ - $ (32,000) $ - $ - $ - State 775,482 788,262 12,780 - - - Charges for services - 5,335 5,335 - - - Fines and forfeitures - - - 18,000 24,915 6,915 Investment earnings 20,000 18,057 (1,943) 700 840 140 Other 131,616 127,966 (3,650) - - - Total revenues 959,098 939,620 (19,478) 18,700 25,755 7,055 EXPENDITURES Current Public safety - - - 3,155 2,351 804 Highways, streets and bridges 2,304,592 2,024,312 280,280 - - - Total expenditures 2,304,592 2,024,312 280,280 3,155 2,351 804 Excess of revenues over (under) expenditures (1,345,494) (1,084,692) 260,802 15,545 23,404 7,859 OTHER FINANCING SOURCES Transfers in 680,000 680,000 - - - - Net change in fund balances $ (665,494) (404,692) $ 260,802 $ 15,545 23,404 $ 7,859 Fund balances at July 1, 2012 826,851 149,174 Fund balances at June 30, 2013 $ 422,159 $ 172,578 86 City of Muskegon BUDGETARY COMPARISON SCHEDULE─CONTINUED Other Special Revenue Funds For the year ended June 30, 2013 Tree Replacement Variance - Final Positive Budget Actual (Negative) REVENUES Intergovernmental revenues - State $ 5,000 $ 5,000 $ - Charges for services 2,500 2,496 (4) Investment earnings 50 14 (36) Total revenues 7,550 7,510 (40) EXPENDITURES Current Culture and recreation 11,500 11,030 470 Net change in fund balances $ (3,950) (3,520) $ 430 Fund balance at July 1, 2012 4,999 Fund balance at June 30, 2013 $ 1,479 87 City of Muskegon COMBINING BALANCE SHEET Other Capital Projects Funds June 30, 2013 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 $ 2,145,818 $ 714,819 $ 469,591 $ 218,631 $ 183,510 $ - $ 45,059 $ - $ 4,867 $ - $ 509,341 Receivables Accounts and loans (net of allowance for uncollectibles) 231,099 15,740 - - 20,000 79,017 102,592 - 13,750 - - Special assessments 40,619 - 40,619 - - - - - - - - Due from other governmental units 401,229 - - - - 209,990 42,822 18,026 - 130,391 - Total assets $ 2,818,765 $ 730,559 $ 510,210 $ 218,631 $ 203,510 $ 289,007 $ 190,473 $ 18,026 $ 18,617 $ 130,391 $ 509,341 LIABILITIES Accounts payable $ 58,777 $ 34,941 $ - $ - $ - $ 14,019 $ 473 $ 8,733 $ - $ 611 $ - Accrued liabilities 3,361 - - - - 2,665 - 563 - 133 - Due to other governmental units 26,652 2,761 - - - 3,891 20,000 - - - - Due to other funds 488,857 - - - - 268,432 - 52,011 - 168,414 - Unearned revenues - expenditure-driven grants 43,743 - - - - - 43,743 - - - - Total liabilities 621,390 37,702 - - - 289,007 64,216 61,307 - 169,158 - DEFERRED INFLOWS OF RESOURCES Unavailable revenues - special assessments 40,722 - 40,722 - - - - - - - - Unavailable revenues - other long-term receivables 28,750 15,000 - - - - - - 13,750 - - Total deferred inflows of resources 69,472 15,000 40,722 - - - - - 13,750 - - 88 FUND BALANCES (DEFICITS) Nonspendable - long-term loans receivable 122,592 - - - 20,000 - 102,592 - - - - Assigned for capital projects 2,087,359 677,857 469,488 218,631 183,510 - 23,665 - 4,867 - 509,341 Unassigned (82,048) - - - - - - (43,281) - (38,767) - Total fund balances (deficits) 2,127,903 677,857 469,488 218,631 203,510 - 126,257 (43,281) 4,867 (38,767) 509,341 Total liabilities, deferred inflows of resources and fund balances (deficits) $ 2,818,765 $ 730,559 $ 510,210 $ 218,631 $ 203,510 $ 289,007 $ 190,473 $ 18,026 $ 18,617 $ 130,391 $ 509,341 City of Muskegon COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICITS) Other Capital Projects Funds For the year ended June 30, 2013 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 $ 1,317,788 $ - $ - $ - $ - $ 800,414 $ - $ 296,483 $ - $ 220,891 $ - State 49,875 - - - - - 49,875 - - - - Charges for services 321,774 313,609 - - - - - - 8,165 - - Investment earnings 17,264 3,555 6,681 1,179 944 352 1,708 - 97 - 2,748 Other 109,952 1,000 39,349 - 35,289 12,229 - - - 22,085 - Total revenues 1,816,653 318,164 46,030 1,179 36,233 812,995 51,583 296,483 8,262 242,976 2,748 EXPENDITURES Debt service Principal 150,211 - 130,000 - - - 20,211 - - - - Interest and fees 25,085 - 22,080 - - - 3,005 - - - - Capital outlay 1,745,832 205,745 236 - 19,753 833,034 49,876 321,686 27,174 288,328 - Total expenditures 1,921,128 205,745 152,316 - 19,753 833,034 73,092 321,686 27,174 288,328 - Excess of revenues over (under) expenditures (104,475) 112,419 (106,286) 1,179 16,480 (20,039) (21,509) (25,203) (18,912) (45,352) 2,748 OTHER FINANCING SOURCES (USES) Proceeds from sale of capital assets 190,263 5,801 - - - 25,615 - 158,847 - - - 89 Transfers in 5,576 - - - - - - 5,576 - - - Transfers out (5,576) - - - - (5,576) - - - - - Total other financing sources (uses) 190,263 5,801 - - - 20,039 - 164,423 - - - Net change in fund balances 85,788 118,220 (106,286) 1,179 16,480 - (21,509) 139,220 (18,912) (45,352) 2,748 Fund balances (deficits) at July 1, 2012 2,042,115 559,637 575,774 217,452 187,030 - 147,766 (182,501) 23,779 6,585 506,593 Fund balances (deficits) at June 30, 2013 $ 2,127,903 $ 677,857 $ 469,488 $ 218,631 $ 203,510 $ - $ 126,257 $ (43,281) $ 4,867 $ (38,767) $ 509,341 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 POSITION Internal Service Funds June 30, 2013 Total Internal Engineering General Public Service Service Funds Services Equipment Insurance Building ASSETS Current assets Cash and investments $ 3,261,135 $ 123,887 $ 1,821,689 $ 880,314 $ 435,245 Accounts receivable 86,181 15,434 8,292 62,455 - Inventories 20,577 - 20,577 - - Prepaid items 386,815 2,738 55,740 322,964 5,373 Total current assets 3,754,708 142,059 1,906,298 1,265,733 440,618 Noncurrent assets Advances to component units 1,037,018 - 518,509 518,509 - Capital assets Land 65,000 - - - 65,000 Land improvements 301,715 - - - 301,715 Buildings and improvements 1,559,334 - - - 1,559,334 Machinery and equipment 7,540,942 26,355 7,467,938 - 46,649 Less accumulated depreciation (7,635,054) (26,355) (6,262,679) - (1,346,020) Net capital assets 1,831,937 - 1,205,259 - 626,678 Total noncurrent assets 2,868,955 - 1,723,768 518,509 626,678 Total assets 6,623,663 142,059 3,630,066 1,784,242 1,067,296 LIABILITIES Current liabilities Accounts payable 545,036 869 183,864 351,496 8,807 Accrued liabilities 19,373 4,328 4,876 485 9,684 Bonds and other obligations, due within one year 13,800 2,700 3,400 300 7,400 Total current liabilities 578,209 7,897 192,140 352,281 25,891 Noncurrent liabilities Bonds and other obligations, less amounts due within one year 68,780 13,669 16,841 1,528 36,742 Total liabilities 646,989 21,566 208,981 353,809 62,633 NET POSITION Net investment in capital assets 1,831,937 - 1,205,259 - 626,678 Unrestricted 4,144,737 120,493 2,215,826 1,430,433 377,985 Total net position $ 5,976,674 $ 120,493 $ 3,421,085 $ 1,430,433 $ 1,004,663 92 City of Muskegon COMBINING STATEMENT OF REVENUE, EXPENSES AND CHANGES IN NET POSITION Internal Service Funds For the year ended June 30, 2013 Total Internal Engineering General Public Service Service Funds Services Equipment Insurance Building OPERATING REVENUES Charges for services $ 7,308,020 $ 267,209 $ 2,151,279 $ 3,804,243 $ 1,085,289 Other 330,758 257,075 57,817 15,656 210 Total operating revenues 7,638,778 524,284 2,209,096 3,819,899 1,085,499 OPERATING EXPENSES Administration 429,264 72,396 95,016 107,400 154,452 Insurance premiums and claims 3,925,426 - - 3,925,426 - Other operations 3,142,838 368,686 1,973,590 32,998 767,564 Depreciation 434,997 - 360,617 - 74,380 Total operating expenses 7,932,525 441,082 2,429,223 4,065,824 996,396 Operating income (loss) (293,747) 83,202 (220,127) (245,925) 89,103 NONOPERATING REVENUES Investment earnings 54,339 564 27,585 23,989 2,201 Gain on sale of capital assets 49,989 - 49,989 - - Total nonoperating revenues 104,328 564 77,574 23,989 2,201 Income (loss) before transfers (189,419) 83,766 (142,553) (221,936) 91,304 TRANSFERS Transfers in 28,046 - - 28,046 - Transfers out (600,000) - - (600,000) - Total transfers (571,954) - - (571,954) - Change in net position (761,373) 83,766 (142,553) (793,890) 91,304 Net position at July 1, 2012 6,738,047 36,727 3,563,638 2,224,323 913,359 Net position at June 30, 2013 $ 5,976,674 $ 120,493 $ 3,421,085 $ 1,430,433 $ 1,004,663 93 City of Muskegon COMBINING STATEMENT OF CASH FLOWS Internal Service Funds For the year ended June 30, 2013 Total Internal Engineering General Public Service Service Funds Services Equipment Insurance Building CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 346,456 $ 255,234 $ 57,697 $ 33,315 $ 210 Receipts from interfund services provided 7,308,020 267,209 2,151,279 3,804,243 1,085,289 Payments to suppliers (5,567,039) (116,500) (959,335) (4,154,592) (336,612) Payments to employees (1,275,567) (239,646) (325,277) (220,445) (490,199) Payments for interfund services used (835,644) (96,391) (638,443) (2,708) (98,102) Net cash provided by (used for) operating activities (23,774) 69,906 285,921 (540,187) 160,586 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers in 28,046 - - 28,046 - Transfers out (600,000) - - (600,000) - Collections on advances to component units 69,648 - 34,824 34,824 - Net cash provided by (used for) noncapital financing activities (502,306) - 34,824 (537,130) - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of capital assets (512,549) - (401,706) - (110,843) Proceeds from sale of capital assets 55,202 - 55,202 - - 94 Net cash used for capital and related financing activities (457,347) - (346,504) - (110,843) CASH FLOW FROM INVESTING ACTIVITIES Investment earnings 54,339 564 27,585 23,989 2,201 Net increase (decrease) in cash and investments (929,088) 70,470 1,826 (1,053,328) 51,944 Cash and investments at July 1, 2012 4,190,223 53,417 1,819,863 1,933,642 383,301 Cash and investments at June 30, 2013 $ 3,261,135 $ 123,887 $ 1,821,689 $ 880,314 $ 435,245 Reconciliation of operating income (loss) to net cash provided by (used for) operating activities Operating income (loss) $ (293,747) $ 83,202 $ (220,127) $ (245,925) $ 89,103 Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities Depreciation expense 434,997 - 360,617 - 74,380 Change in assets and liabilities Receivables 15,698 (1,841) (120) 17,659 - Inventories 19,010 - 19,010 - - Prepaid items (155,846) (43) (1,239) (153,867) (697) Accounts payable (41,292) (12,145) 135,127 (158,184) (6,090) Accrued liabilities (2,594) 733 (7,347) 130 3,890 Net cash provided by (used for) operating activities $ (23,774) $ 69,906 $ 285,921 $ (540,187) $ 160,586 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, 2013 Total Current Rehab Loan Agency Funds Collector Tax Escrow ASSETS Cash and investments $ 799,080 $ 799,080 $ - $ - Accounts receivable 1,867 1,867 - - Total assets $ 800,947 $ 800,947 $ - $ - LIABILITIES Accounts payable $ 352,700 $ 352,700 $ - $ - Due to other governmental units 316,760 316,760 - - Deposits held for others 131,487 131,487 - - Total liabilities $ 800,947 $ 800,947 $ - $ - 96 City of Muskegon STATEMENT OF CHANGES IN ASSETS AND LIABILITIES Agency Funds For the year ended June 30, 2013 Balance Balance July 1, June 30, COLLECTOR FUND 2012 Additions Deductions 2013 ASSETS Cash and investments $ 705,475 $ 7,245,370 $ 7,151,765 $ 799,080 Accounts receivable 1,867 270,362 270,362 1,867 Total assets $ 707,342 $ 7,515,732 $ 7,422,127 $ 800,947 LIABILITIES Accounts payable $ 228,052 $ 3,283,432 $ 3,158,784 $ 352,700 Due to other governmental units 389,927 2,057,841 2,131,008 316,760 Deposits held for others 89,363 2,411,090 2,368,966 131,487 Total liabilities $ 707,342 $ 7,752,363 $ 7,658,758 $ 800,947 CURRENT TAX FUND ASSETS Cash and investments $ 165 $ 28,976,744 $ 28,976,909 $ - LIABILITIES Due to other governmental units $ 165 $ 20,017,196 $ 20,017,361 $ - Due to other funds - 7,494,018 7,494,018 - Due to component units - 643,259 643,259 - Deposits held for others - 68,433 68,433 - Total liabilities $ 165 $ 28,222,906 $ 28,223,071 $ - REHAB LOAN ESCROW FUND ASSETS Cash and investments $ - $ 1,718 $ 1,718 $ - LIABILITIES Accounts payable $ - $ 1,718 $ 1,718 $ - ALL AGENCY FUNDS ASSETS Cash and investments $ 705,640 $ 36,223,832 $ 36,130,392 $ 799,080 Accounts receivable 1,867 270,362 270,362 1,867 Total assets $ 707,507 $ 36,494,194 $ 36,400,754 $ 800,947 LIABILITIES Accounts payable $ 228,052 $ 3,285,150 $ 3,160,502 $ 352,700 Due to other governmental units 390,092 22,075,037 22,148,369 316,760 Due to other funds - 7,494,018 7,494,018 - Due to component units - 643,259 643,259 - Deposits held for others 89,363 2,479,523 2,437,399 131,487 Total liabilities $ 707,507 $ 35,976,987 $ 35,883,547 $ 800,947 97 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 - SmartZone – 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. Currently there are two designated brownfield areas capturing tax increments. • Area I – Betten-Henry Street brownfield site. • Area II – Former downtown mall brownfield site. 99 City of Muskegon COMBINING BALANCE SHEET Discretely Presented Component Units June 30, 2013 Local Total Discretely Development Presented Finance Downtown Tax Increment Brownfield Brownfield Component Authority - Development Finance Redevelopment Redevelopment Units SmartZone Authority Authority Authority I Authority II ASSETS Cash and investments $ 358,407 $ 30,266 $ 167,477 $ 14,163 $ 146,501 $ - LIABILITIES Advances from primary government $ 1,555,528 $ - $ - $ - $ 1,555,528 $ - FUND BALANCES (DEFICITS) Unassigned (1,197,121) 30,266 167,477 14,163 (1,409,027) - Total liabilities and fund balances (deficits) $ 358,407 $ 30,266 $ 167,477 $ 14,163 $ 146,501 $ - 100 City of Muskegon RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION Discretely Presented Component Units June 30, 2013 Total fund balances—governmental funds $ (1,197,121) Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not current financial resources and, therefore, are not reported in the governmental funds. Cost of capital assets $4,198,258 Accumulated depreciation (1,654,544) 2,543,714 Long-term liabilities in governmental activities are not due and payable in the current period and, therefore, are not reported in the governmental funds. Accrued interest payable (25,674) Bonds and notes payable (6,864,869) (6,890,543) Net position of governmental activities $ (5,543,950) 101 City of Muskegon COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICITS) Discretely Presented Component Units For the year ended June 30, 2013 Local Total Discretely Development Presented Finance Downtown Tax Increment Brownfield Brownfield Component Authority - Development Finance Redevelopment Redevelopment Units SmartZone Authority Authority Authority I Authority II REVENUES Property taxes $ 643,258 $ 85,627 $ 313,432 $ 44,439 $ 156,765 $ 42,995 Intergovernmental revenues - Local 160,000 160,000 - - - - Investment earnings 2,387 150 1,435 86 716 - Other 75,000 75,000 - - - - Total revenues 880,645 320,777 314,867 44,525 157,481 42,995 EXPENDITURES Current Community and economic development 102,995 - - 50,000 10,000 42,995 Debt service 102 Principal 455,000 180,000 275,000 - - - Interest and fees 319,525 207,255 59,162 - 53,108 - Total expenditures 877,520 387,255 334,162 50,000 63,108 42,995 Net change in fund balances (deficits) 3,125 (66,478) (19,295) (5,475) 94,373 - Fund balances (deficits) at July 1, 2012 (1,200,246) 96,744 186,772 19,638 (1,503,400) - Fund balances (deficits) at June 30, 2013 $ (1,197,121) $ 30,266 $ 167,477 $ 14,163 $ (1,409,027) $ - City of Muskegon RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES (DEFICITS) TO THE STATEMENT OF ACTIVITIES Discretely Presented Component Units For the year ended June 30, 2013 Net change in fund balances—total governmental funds $ 3,125 Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report outlays for capital assets as expenditures. However in the Statement of Activities, the cost of these assets is allocated over their estimated useful lives and reported as depreciation expense. Depreciation expense (172,648) The issuance of long-term debt provides current financial resources to governmental funds, but increases liabilities in the Statement of Net Position. Repayment of debt is an expenditure in the governmental funds, but reduces long-term liabilities in the Statement of Net Position. Repayment of principal on long-term debt 455,000 Changes in accrual of interest and amortization of premiums and discounts Change in accrued interest payable $ 15,956 Amortization of premiums 45,063 61,019 Change in net position of governmental activities $ 346,496 103 104 SCHEDULE OF INDEBTEDNESS 105 City of Muskegon SCHEDULE OF INDEBTEDNESS June 30, 2013 Annual Date Amount Interest Date of Interest of Issue of Issue Rate Maturity 6/30/2012 6/30/2013 Payable Business-Type Activities Bonds and Loans Payable: Water supply system bonds 4/1/2010 $ 5,995,000 3.00% 05/01/13 $ 610,000 $ - $ - ($90,922 unamortized premium) 2.77% 05/01/14 640,000 640,000 153,788 3.50% 05/01/15 660,000 660,000 136,088 Type of debt: revenue bond 3.25% 05/01/16 685,000 685,000 112,988 Revenue pledged: water system net revenues 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 4,815,000 4,205,000 588,638 Drinking Water State Revolving 3/2/2004 $ 13,900,000 2.13% 10/01/12 640,000 - - Fund 2.13% 10/01/13 655,000 655,000 198,847 2.13% 10/01/14 670,000 670,000 184,769 Type of debt: state loan 2.13% 10/01/15 685,000 685,000 170,372 Revenue pledged: water system net revenues 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 10,325,000 9,685,000 1,397,984 TOTAL BUSINESS-TYPE ACTIVITIES BONDS AND LOANS PAYABLE $ 15,140,000 $ 13,890,000 $ 1,986,622 106 City of Muskegon SCHEDULE OF INDEBTEDNESS - CONTINUED June 30, 2013 Annual Date Amount Interest Date of Interest of Issue of Issue Rate Maturity 6/30/2012 6/30/2013 Payable Governmental Activities Bonds and Loans Payable: Capital improvement bonds 3/1/2003 $ 1,575,000 3.80% 06/01/13 $ 130,000 $ - $ - of 2003 (sidewalks) 3.90% 06/01/14 135,000 135,000 17,140 4.00% 06/01/15 145,000 145,000 11,875 Type of debt: limited G.O. bond 4.05% 06/01/16 150,000 150,000 6,075 Revenue pledged: special assessments, general revenues 560,000 430,000 35,090 Capital improvement bonds 10/24/2006 $ 5,400,000 4.00% 10/01/12 70,000 - - of 2006 (fire station, recreation) 4.00% 10/01/13 70,000 70,000 205,545 ($11,379 unamortized discount) 4.00% 10/01/14 70,000 70,000 202,745 4.00% 10/01/15 70,000 70,000 199,945 Type of debt: limited G.O. bond 4.00% 10/01/16 70,000 70,000 197,145 Revenue pledged: general revenues 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 5,165,000 5,095,000 2,575,153 Capital improvement bonds 9/30/2011 $ 2,000,000 2.98% 09/01/12 175,000 - - of 2011 (streets) 2.98% 09/01/13 180,000 180,000 51,703 2.98% 09/01/14 185,000 185,000 46,265 Type of debt: limited G.O. bond 2.98% 09/01/15 190,000 190,000 40,677 Revenue pledged: gas tax, general revenues 2.98% 09/01/16 195,000 195,000 34,941 2.98% 09/01/17 200,000 200,000 29,056 2.98% 09/01/18 210,000 210,000 22,947 2.98% 09/01/19 215,000 215,000 16,614 2.98% 09/01/20 220,000 220,000 10,132 2.98% 09/01/21 230,000 230,000 3,427 2,000,000 1,825,000 255,762 State of Michigan 6/18/2010 $ 500,000 2.00% 03/18/13 20,211 - - environmental assessment loan 2.00% 03/18/14 20,615 20,615 2,601 2.00% 03/18/15 21,027 21,027 2,189 Type of debt: state loan 2.00% 03/18/16 21,448 21,448 1,768 Revenue pledged: general revenues 2.00% 03/18/17 21,877 21,877 1,339 2.00% 03/18/18 22,314 22,314 902 2.00% 03/18/19 22,761 22,761 455 150,253 130,042 9,254 TOTAL GOVERNMENTAL ACTIVITIES BONDS AND LOANS PAYABLE $ 7,875,253 $ 7,480,042 $ 2,875,259 TOTAL PRIMARY GOVERNMENT BONDS AND LOANS PAYABLE $ 23,015,253 $ 21,370,042 $ 4,861,880 107 City of Muskegon SCHEDULE OF INDEBTEDNESS - CONTINUED June 30, 2013 Annual Date Amount Interest Date of Interest of Issue of Issue Rate Maturity 6/30/2012 6/30/2013 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 - Type of debt: intergovernmental note Revenue pledged: DDA tax increments Downtown Development Authority 3/22/2011 $ 2,045,000 2.50% 06/01/13 275,000 - - refunding bonds 2.75% 06/01/14 280,000 280,000 52,288 ($24,297 unamortized premium) 3.25% 06/01/15 285,000 285,000 44,588 3.50% 06/01/16 300,000 300,000 35,326 Type of debt: limited G.O. bond 3.75% 06/01/17 310,000 310,000 24,826 Revenue pledged: DDA tax increments, general revenues 4.00% 06/01/18 330,000 330,000 13,200 1,780,000 1,505,000 170,228 Local Development Finance Authority 11/1/2002 $ 4,725,000 4.00% 11/01/12 180,000 - - Smartzone Bonds 3.90% 11/01/13 - - - 4.05% 11/01/14 - - - Type of debt: limited G.O. bond 4.05% 11/01/15 - - - Revenue pledged: LDFA tax increments, general revenues 4.15% 11/01/16 - - - 4.25% 11/01/17 - - - 4.35% 11/01/18 - - - 4.45% 11/01/19 - - - 4.60% 11/01/20 - - - 4.60% 11/01/21 - - - 4.60% 11/01/22 - - - 4.85% 11/01/23 - - - 4.85% 11/01/24 - - - 4.85% 11/01/25 - - - 180,000 - - Local Development Finance Authority 3/20/2012 $ 4,100,000 2.00% 11/01/13 260,000 260,000 125,300 Smartzone Refunding Bonds 2.00% 11/01/14 320,000 320,000 119,500 ($235,572 unamortized premium) 2.00% 11/01/15 335,000 335,000 112,950 3.00% 11/01/16 345,000 345,000 104,425 Type of debt: limited G.O. bond 3.00% 11/01/17 355,000 355,000 93,925 Revenue pledged: LDFA tax increments, general revenues 4.00% 11/01/18 375,000 375,000 81,100 4.00% 11/01/19 390,000 390,000 65,800 4.00% 11/01/20 395,000 395,000 50,100 4.00% 11/01/21 245,000 245,000 37,300 3.00% 11/01/22 255,000 255,000 28,575 3.00% 11/01/23 265,000 265,000 20,775 3.00% 11/01/24 275,000 275,000 12,675 3.00% 11/01/25 285,000 285,000 4,275 4,100,000 4,100,000 856,700 TOTAL DISCRETELY PRESENTED COMPONENT UNIT BONDS AND LOANS PAYABLE $ 7,060,000 $ 6,605,000 $ 1,026,928 TOTAL REPORTING ENTITY BONDS AND LOANS PAYABLE $ 30,075,253 $ 27,975,042 $ 5,888,808 108 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/NET POSITION BY COMPONENT Last Ten Fiscal Years December 31 June 30 2004 2005 (a) 2006 2007 2008 2009 2010 2011 2012 2013 (b) Governmental Activities Net Investment in Capital Assets $ 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 $ 63,842,092 Restricted 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 4,572,848 Unrestricted 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 13,299,523 Total Governmental Net Assets/Net Position $ 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 $ 81,714,463 Business-type Activities Net Investment in Capital Assets $ 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 $ 40,032,858 Restricted 822,559 822,559 822,559 822,559 822,559 672,000 672,000 672,000 672,000 599,500 Unrestricted 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 8,491,848 Total Business-type Activities Net Assets/Net Position $ 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 $ 49,124,206 Primary Government Net Investment in Capital Assets $ 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 $ 103,874,950 Restricted 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 5,172,348 Unrestricted 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 21,791,371 Total Primary Government Net Assets/Net Position $ 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 $ 130,838,669 110 (a) In 2005, the City began reporting historic infrastructure assets as required by GASB 34. (b) In 2013, the City implemented GASB 63 and 65 which changed the elements of the financial statements. 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/NET POSITION Last Ten Fiscal Years Period Ended Year Ended December 31 June 30 Year Ended June 30 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (a) EXPENSES Governmental Activities Public representation $ 866,669 $ 885,365 $ 904,109 $ 925,124 $ 986,696 $ 923,911 $ 445,251 $ 854,249 $ 866,809 $ 893,981 Administrative services 1,132,229 803,783 732,715 783,713 782,362 698,022 317,873 645,585 566,161 565,307 Financial services 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 2,241,061 Public safety 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 12,987,842 Public works 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 3,201,806 Highways, streets and bridges 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 6,672,374 Community and economic development 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 2,499,404 Culture and recreation 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 1,592,358 General administration 1,725,225 1,608,108 1,143,963 358,225 574,955 451,651 210,117 794,115 791,197 322,348 Interest on long-term debt 193,021 170,814 206,768 343,106 324,076 288,073 139,006 272,940 283,186 291,535 Total Governmental Activities Expenses 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 31,268,016 Business-type Activities Water 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 6,228,788 Sewer 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 7,226,839 Marina and launch ramp 351,705 343,599 332,826 392,994 347,642 310,773 150,055 292,889 310,174 426,553 Total Business-type Activities Expenses 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 13,882,180 Total Primary Government Expenses $ 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 $ 45,150,196 PROGRAM REVENUES Governmental Activities 111 Charges for Services Public representation $ 210,238 $ 195,316 $ 202,939 $ 199,759 $ 188,467 $ 213,885 $ 100,177 $ 196,886 $ 196,886 $ 173,739 Administrative services 314,028 311,529 306,964 287,011 257,850 271,117 129,630 263,473 270,886 268,535 Financial services 645,166 537,445 728,332 744,109 726,572 818,845 475,031 879,905 881,229 830,919 Public safety 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 1,133,666 Public works 452,606 467,849 588,566 407,569 382,072 383,733 209,203 642,082 480,487 671,494 Highways, streets and bridges 555,018 267,689 263,423 372,133 301,955 251,840 139,009 451,473 230,241 245,609 Community and economic development 414,543 815,980 762,220 356,051 297,854 249,241 186,572 457,952 617,379 432,240 Culture and recreation 1,151,687 1,141,865 809,228 454,154 405,520 445,891 129,025 300,367 315,010 606,818 General administration 200,434 314,658 170,240 64,366 99,494 123,426 59,373 116,690 116,690 287,729 Operating grants and contributions 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 4,681,345 Capital grants and contributions 5,785,604 5,894,358 5,360,014 3,347,680 3,444,957 2,105,557 255,234 2,257,163 1,568,005 886,108 Total Governmental Program Revenues 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 10,218,202 Business-type Activities Water 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 5,890,614 Sewer 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 7,058,315 Marina and launch ramp 266,981 248,460 267,412 281,679 250,266 242,055 156,767 194,311 208,370 234,229 Operating grants and contributions - - - - - - - - - 6,188 Capital grants and contributions 657,521 100,373 710,641 - - 5,179 - 20,074 - 88,046 Total Business-type program revenues 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 13,277,392 Total Primary Government program revenues $ 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 $ 23,495,594 NET (EXPENSE) REVENUE Governmental Activities $ (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) $ (21,049,814) Business-type Activities 1,765,730 2,931,447 2,283,867 775,036 165,350 33,911 855,943 871,244 (568,607) (604,788) Total Primary Government net expense $ (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) $ (21,654,602) City of Muskegon CHANGES IN NET ASSETS/NET POSITION - CONTINUED Last Ten Fiscal Years Period Ended Year Ended December 31 June 30 Year Ended June 30 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (a) GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS/NET POSITION Governmental Activities Property taxes $ 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 $ 7,592,847 Income taxes 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 8,057,145 Franchise fees - 286,265 285,124 297,200 304,812 321,852 178,239 362,103 342,376 358,785 Grants and contributions not restricted for specific programs 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 3,700,871 Unrestricted investment earnings 170,094 420,595 832,300 1,247,520 730,142 185,436 104,086 193,435 100,073 73,157 Miscellaneous 68,405 70,402 64,645 88,035 160,460 226,124 51,638 432,880 154,531 102,388 Gain on sale of capital asset 70,886 300,037 81,372 1,604 323,048 123,258 65,155 25,815 34,496 44,899 Transfers (142,420) (80,000) (540,000) (40,000) (40,000) - (3,760) - - - Total Governmental Program Revenues 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 19,930,092 Business-type Activities Unrestricted investment earnings 51,768 138,053 122,060 170,594 108,990 23,843 15,990 23,959 46,582 33,148 Gain on sale of capital asset - - - - - - - - - - Transfers 142,420 80,000 540,000 40,000 40,000 - 3,760 - - - Total Business-type program revenues 194,188 218,053 662,060 210,594 148,990 23,843 19,750 23,959 46,582 33,148 Total Primary Government program revenues $ 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 $ 19,963,240 CHANGE IN NET ASSETS/NET POSITION Governmental Activities $ 6,200,230 $ 4,831,277 $ 3,619,383 $ 1,361,278 $ 123,388 $ (2,889,272) $ 3,755,199 $ (497,505) $ (973,842) $ (1,119,722) Business-type Activities 1,959,918 3,149,500 2,945,927 985,630 314,340 57,754 875,693 895,203 (522,025) (571,640) Total Primary Government $ 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) $ (1,691,362) 112 (a) In 2013, the City implemented GASB 63 and 65 which changed the elements of the financial statements. 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 2004 2005 2006 2007 2008 2009 2010 2011 (a) 2012 2013 General fund Reserved $ 74,349 $ 79,356 $ 177,076 $ 180,410 $ 214,819 $ 187,633 $ 300,969 $ - $ - $ - Nonspendable - - - - - - - 251,173 178,468 447,341 Restricted - - - - - - - - - - Assigned - - - - - - - 2,385,728 2,075,738 2,292,495 Unassigned - - - - - - - 3,374,481 4,265,839 4,613,722 Unreserved 2,370,842 2,440,249 2,512,963 2,740,222 2,168,906 1,451,029 5,737,485 - - - Total general fund $ 2,445,191 $ 2,519,605 $ 2,690,039 $ 2,920,632 $ 2,383,725 $ 1,638,662 $ 6,038,454 $ 6,011,382 $ 6,520,045 $ 7,353,558 All other governmental funds Reserved $ 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 1,547,793 Restricted 1,375,779 3,485,073 2,749,396 Assigned 2,073,027 2,055,904 2,087,359 Unassigned (238,104) (191,282) (82,048) Unreserved, reported in: Special revenue funds 2,692,431 2,910,285 3,030,096 4,462,015 2,768,886 2,060,117 2,163,041 - - - 113 Capital project funds 2,187,667 1,239,763 390,282 635,676 675,898 554,273 6,035 - - - Permanent funds 22,896 22,890 77,300 84,413 60,813 15,613 16,979 - - - Total all other governmental funds $ 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 $ 6,302,500 (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 December 31 June 30 Year Ended June 30 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues Taxes $ 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 $ 14,832,027 Intergovernmental 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 9,403,554 Charges for services 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 2,769,227 Other 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 2,795,952 Total revenues 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 29,800,760 Expenditures Public representation 869,342 886,717 903,895 927,320 987,229 923,923 448,703 851,918 867,762 892,113 Administrative services 704,667 748,588 669,789 644,913 632,513 645,704 303,555 586,328 515,988 508,130 Financial services 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 2,196,917 Public safety 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 12,724,094 Public works 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 2,878,328 Highways, streets and bridges 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 2,815,337 Community and economic development 797,072 784,396 763,211 894,879 1,077,312 4,440,687 1,330,794 3,109,693 2,850,593 2,578,073 Culture and recreation 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 1,248,174 Other governmental functions 1,708,868 1,603,292 1,139,148 350,385 562,341 438,292 200,623 1,775,128 770,910 299,812 114 Debt service Principal 1,335,000 1,115,000 1,189,785 1,241,921 999,148 663,371 303,466 1,345,183 289,597 395,211 Interest and issuance costs 201,447 166,071 271,233 324,577 310,432 282,174 136,013 267,258 268,315 292,554 Capital outlay 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 3,230,586 Total expenditure 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 30,059,329 Excess of revenues over (under) expenditures (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 (258,569) Other financing sources (uses) Transfers in 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 1,356,229 Transfers out (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) (784,275) Bonds issued - 1,061,900 5,626,331 - 500,000 - - - 2,000,000 - Sale of capital assets 483,544 827,141 1,120,341 286,152 375,723 68,452 75,465 120,118 113,981 190,263 Total other financing sources (uses) 592,787 1,780,995 6,178,627 218,106 943,949 118,150 57,682 92,072 2,010,935 762,217 Net change in fund balances $ (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 $ 503,648 Debt service as a percentage of noncapital expenditures 4.63% 3.74% 4.44% 5.05% 4.06% 2.97% 3.01% 5.22% 2.01% 2.56% 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 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% 2013 7,325,555 24.6% 7,506,472 25.2% 9,403,554 31.6% 2,769,227 9.3% 1,238,285 4.2% 435,893 1.5% 267,397 0.9% 854,377 2.9% 29,800,760 -4.6% * The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months. SOURCE: The information in these schedules (unless otherwise noted) is derived from the comprehensive annual financial reports for the relevant year. 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 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% 2012 312,930,252 - 134,635,427 81,575,476 529,141,155 91,750,891 620,892,046 3,587,223 6,161,900 - 9,749,123 630,641,169 12.0789 96.40% 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 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 2012 327,226,000 - 141,238,834 84,084,000 552,548,834 91,740,800 644,289,634 3,719,300 6,161,900 - 9,881,200 654,170,834 1,308,341,668 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, 2013 6/30/2013 12/31/2003 Percent of Percent of Taxable Total Taxable Taxable Total Taxable Taxpayer Valuation Rank Valuation Valuation Rank Valuation Consumers Energy $ 46,472,581 1 7.4% $ 67,742,451 1 9.4% DTE Energy (formerly MichCon) 6,918,200 2 1.1% 7,504,300 7 1.0% ESCO Company 6,798,181 3 1.1% 5,894,099 10 0.8% GE Aviation (Johnson Technology) 6,123,500 4 1.0% 8,318,424 4 1.2% ADAC Plastics Inc 6,079,926 5 1.0% 8,748,038 3 1.2% Muskegon SC Holdings LLC 4,240,100 6 0.7% - 0.0% Glen Oaks Apartments LLC 3,914,200 7 0.6% - 0.0% Lorin Industries 3,854,731 8 0.6% 7,016,999 9 1.0% 117 Coles Quality Foods 3,491,200 9 0.6% - 0.0% P&G Holdings NY LLC 3,462,180 10 0.5% - 0.0% Sappi (S.D. Warren Co.) - 0.0% 56,456,875 2 7.8% Terrace Partners LLC - 0.0% 7,776,200 5 1.1% Brunswick - 0.0% 7,358,099 6 1.0% Holland Neway International - 0.0% 6,322,100 8 0.9% Total - 10 Largest 91,354,799 14.5% 183,137,585 25.4% Total - All Other 539,286,370 85.5% 538,300,070 74.6% $ 630,641,169 100.0% $ 721,437,655 100.0% 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 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 2012 9.5000 0.0789 2.5000 12.0789 2.4000 Overlapping - County-Wide Rates Muskegon Intermediate Special Vocational Community Year County School Education Education College 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 2012 6.6957 0.4597 2.2987 0.9996 2.2037 Overlapping - School District Grand Total State Non- Year Operating Debt Total Education Homestead Homestead 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 2012 18.0000 7.1000 25.1000 6.0000 40.2363 58.2363 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 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% 2012 7,872,541 6,882,534 87.4% 915,950 7,798,484 99.1% 27,163 68,945 5,113 1.29% 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, 2013 Year Ended December 31, 2003 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 981 5% $ 802,331 $ 8,107 0% 1,166 5% $ 1,137,300 $ 11,373 0% $2,501-$7,500 562 3% 5,199,570 52,538 1% 942 4% 6,332,200 63,322 1% $7,501-$25,000 1,395 8% 41,298,132 417,286 6% 2,368 10% 54,614,300 546,143 8% $25,001-$50,000 1,276 7% 85,392,385 862,825 11% 2,046 9% 103,327,800 1,033,278 16% $50,001-$100,000 747 4% 92,624,938 935,905 12% 858 4% 80,331,000 803,310 12% More than $100,000 149 1% 41,126,244 415,550 6% 147 1% 26,075,200 260,752 4% Subtotal 5,110 29% $ 266,443,600 $ 2,692,211 36% 7,527 32% $ 271,817,800 $ 2,718,178 42% Non-Residents Taxpayers: (Non-residents are taxed at a rate of 0.5% on income earned within the City.) 120 $2,500 or less 1,732 10% $ 928,400 $ 7,112 0% 2,105 9% $ 1,421,600 $ 9,900 0% $2,501-$7,500 1,049 6% 4,987,000 38,199 1% 1,382 6% 6,643,600 46,246 1% $7,501-$25,000 2,469 14% 39,882,400 305,490 4% 3,593 15% 59,821,200 424,731 6% $25,001-$50,000 2,969 17% 108,340,800 829,865 11% 4,193 18% 153,858,400 1,092,195 17% $50,001-$100,000 2,169 12% 144,571,000 1,107,380 15% 2,209 9% 144,881,000 972,863 15% More than $100,000 609 3% 130,870,000 1,002,434 13% 549 2% 111,706,652 776,283 12% Subtotal 10,997 62% $ 429,579,600 $ 3,290,480 44% 14,031 60% $ 478,332,452 $ 3,322,218 51% 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 10% $ 1,523,781 20% 1,850 8% $ 501,959 8% Total 17,857 100% $ 7,506,472 100% 23,408 100% $ 6,542,355 100% 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 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 2011 5,920,000 - 244,850 6,164,850 5,415,000 - 10,955,000 16,370,000 22,534,850 587 121 2012 7,725,000 - 150,253 7,875,253 4,815,000 - 10,325,000 15,140,000 23,015,253 599 2013 7,350,000 - 130,042 7,480,042 4,205,000 - 9,685,000 13,890,000 21,370,042 577 * 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, 2013 Total Debt Debt Supported by City Name of Governmental Unit Outstanding Self Supporting General Revenues Direct Debt City of Muskegon: Revenue Bonds $ 13,890,000 $ 13,890,000 $ - Capital Improvement Bonds 7,350,000 - 7,350,000 Intergovernmental Bonds 130,042 - 130,042 Component Unit Debt: Downtown Development Authority 2,505,000 2,505,000 - Local Development Finance Authority 4,100,000 4,100,000 - Total City Direct Debt $ 27,975,042 $ 20,495,000 $ 7,480,042 City Share as Gross Percent of Gross Net Overlapping Debt Muskegon School Distict $ 40,610,000 95.04% $ 38,595,744 Orchard View School Distict 42,852,440 25.85% 11,077,356 Reeths Puffer School Distict 75,732,825 6.20% 4,695,435 Muskegon Intermediate School District - - Muskegon County 37,170,000 14.12% 5,248,404 Muskegon Community College 7,195,000 14.12% 1,015,934 Total Overlapping Debt $ 203,560,265 60,632,873 Total City Direct and Overlapping Debt $ 68,112,915 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 2004 2005 2006 2007 2008 2009 2010* 2011 2012 2013 Debt Limit $ 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 $ 68,555,700 Total net debt applicable to limit 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 13,655,042 Legal debt margin $ 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 $ 54,900,658 Total net debt applicable to the limit as 12.15% 13.01% 20.49% 18.52% 18.02% 17.98% 17.56% 16.51% 19.54% 19.92% a percentage of debt limit Legal Debt Margin Calculation for 2013: Assessed Valuation: $ 685,557,000 Legal Debt Limit (10% ) 68,555,700 Total Indebtedness: $ 27,975,042 Debt not Subject to Limitation: Paid by Special Assessment (430,000) Revenue Bonds (13,890,000) Debt Subject to Limitation 13,655,042 123 Legal Debt Margin $ 54,900,658 * 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 Fiscal Gross Operating Available For Debt Service Requirements Year Revenue (a) Expenses (b) Debt Service Principal Interest Total Coverage 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 2013 5,907,784 3,729,276 2,178,508 1,250,000 384,694 1,634,694 1.33 Sewage Disposal System Direct Net Revenue Fiscal Gross Operating Available For Debt Service Requirements Year Revenue (a) Expenses (b) Debt Service Principal Interest Total Coverage 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 Direct System Indebtedness 2010* No Direct System Indebtedness 2011 No Direct System Indebtedness 2012 No Direct System Indebtedness 2013 No Direct 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 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% 2013 37,046 747,644,037 20,182 34.1 4,367 826 24,613,938 12.0% 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 2013 2004 Percentage Percentage of total of total City City Employer Employees Rank employment Employees Rank employment Mercy General Health Partners* 3,657 1 24.7% 2,000 1 11.7% County of Muskegon 1,028 2 7.0% 1,200 3 7.0% Muskegon Public Schools 941 3 6.4% 1,100 4 6.5% State of Michigan 772 4 5.2% 900 5 5.3% ADAC Plastics 750 5 5.1% 470 7 2.8% GE Aviation formerly Johnson Technology 644 6 4.4% 425 8 2.5% Port City Group 419 7 2.8% - - 0.0% 126 Knoll Group 403 8 2.7% - - 0.0% SAF Holland USA 330 9 2.2% - - 0.0% Muskegon Community College 211 10 1.4% - - 0.0% Hackley Hospital* - - 0.0% 1,300 2 7.6% Sappi/S.D. Warren Company - - 0.0% 600 6 3.5% Verizon - - 0.0% 350 9 2.1% Brunswick - - 0.0% 330 10 1.9% * Hackley Hospital merged with the former Mercy Hospital. 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 2004 2005 2006 2007 2008 2009 2010* 2011 2012 2013 Administration 1.50 1.50 1.50 1.50 1.50 - - 0.40 0.40 0.40 Affirmative Action 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.10 1.10 1.10 Cemetaries 3.52 3.25 3.00 3.25 3.25 3.25 2.50 2.20 1.75 1.25 City Clerk & Elections 4.00 4.00 4.00 4.00 4.00 4.00 3.00 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 1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.55 0.55 0.55 City Manager's Office 1.75 1.75 1.75 1.75 1.75 3.25 2.25 2.25 2.25 2.25 City Treasurer's Office 5.00 5.00 5.00 4.00 5.00 5.00 5.00 5.00 5.00 5.00 Civil Service 2.00 2.00 2.00 2.00 2.00 2.00 2.00 1.00 - - Environmental Services 3.50 2.00 2.00 2.00 2.00 2.00 2.00 2.00 5.00 5.00 Farmers Market 0.12 - - - - 0.05 0.05 0.05 0.05 0.05 Finance Administration 4.00 4.00 4.00 4.00 4.00 4.00 3.00 3.00 3.00 2.00 Fire 41.00 40.00 38.00 38.00 38.00 38.00 36.00 33.00 35.00 28.00 Fire Safety Inspections 12.00 10.00 12.00 12.00 12.00 12.00 9.00 8.00 6.00 6.00 Forestry 0.93 - - - - - - - - - General Recreation 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 Information Systems 4.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 127 Parks 9.68 8.48 8.25 8.15 8.15 7.99 7.15 6.00 6.05 6.05 Planning, Zoning & Economic Development 6.50 6.00 6.00 6.00 6.00 6.00 5.00 4.00 3.00 3.00 Police 94.00 94.00 94.00 94.00 94.00 94.00 88.00 88.00 88.00 88.00 Sanitation 1.10 1.10 1.00 1.00 1.00 1.00 - 0.30 0.20 0.20 Senior Transit - - - - - - - - 0.05 0.05 MVH-Major Streets 15.45 15.25 16.00 17.75 15.75 13.75 12.00 12.00 11.70 10.70 MVH-Local Streets 7.00 7.00 7.00 7.00 6.00 8.00 7.00 7.00 6.70 6.70 MVH-State Trunklines 2.00 2.00 2.00 - - - - - - - Walker Arena 0.12 - - - - - - - - - Community Development 5.00 4.00 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 0.25 0.25 - - Lead Program - - - - - - 0.75 0.75 - - Sewer Maintenance 14.55 15.05 16.00 16.20 15.20 13.20 10.20 10.20 9.75 9.75 Water Filtration 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 9.00 10.00 Water Maintenance 15.15 14.65 13.00 12.50 13.50 15.40 12.40 12.40 11.75 11.75 Hartshorn Marina Fund 0.79 0.67 0.73 0.67 0.34 0.05 0.05 0.05 0.30 0.30 Public Service Building 3.65 3.85 3.45 3.45 3.45 3.70 8.95 8.05 7.95 8.45 Engineering 7.70 7.70 7.45 7.45 7.45 7.45 5.45 4.95 4.95 4.95 Equipment 8.00 8.00 8.95 8.25 8.25 8.50 7.25 6.25 6.25 6.25 294.00 284.00 284.00 282.00 280.00 280.00 256.00 244.00 241.00 233.00 * 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 2004 2005 2006 2007 2008 2009 2010* 2011 2012 2013 Administrative Services Elections Number of registered voters 25,261 25,918 26,028 26,345 27,678 26,136 26,136 26,330 26,324 26,098 Number of votes cast: Last general election 14,169 14,169 10,410 10,410 15,271 15,271 15,271 8,106 1,933 13,487 Last city election 4,325 4,022 4,022 1,101 1,101 2,254 2,254 8,106 1,933 2,131 Percentage of registered voters voting: Last general election 56% 55% 40% 40% 55% 58% 58% 31% 7% 52% Last city election 17% 16% 15% 4% 4% 9% 9% 31% 7% 8% Financial Services Property Tax Bills 15,403 15,404 15,354 15,376 15,350 15,435 - 15,351 15,261 15,291 Income Tax Returns 24,378 23,884 23,493 23,141 22,598 21,071 19,963 19,688 18,699 17,857 Paper Check Issued to Vendors 3,405 3,205 3,248 3,347 3,346 3,113 1,486 2,986 3,746 1,677 Electronic Payments to Vendors 752 828 800 772 763 963 450 884 1,334 1,251 128 Public Safety Fire Protection Number of firefighter and officer positions 41 41 41 41 41 37 37 37 36 41 Number of emergency calls 4,116 4,206 4,092 4,171 4,298 4,220 2,062 4,402 4,676 4,563 Police Protection Number of sworn officer positions 83 83 84 84 84 79 79 79 79 79 Part I (Major) Crimes 3,360 3,303 3,495 2,997 3,107 3,071 1,305 2,859 2,772 2,647 Public Works Refuse Collected (Tons per Year) 11,925 11,074 11,192 10,375 10,401 10,526 6,042 12,703 10,153 9,958 Recyclables Collected (Tons per Year) 779 588 559 629 626 309 - - - - Water & Sewer Number of consumers 14,917 14,455 14,412 14,364 13,131 12,987 12,966 13,037 13,109 13,144 Average daily water consumption (GPD) 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 7,651,000 Water main breaks repaired 10 5 13 21 34 17 6 12 5 11 Sewer flows (Millions Gallons per Year) 1,475 1,700 2,040 1,945 2,181 1,979 965 1,625 1,695 1,777 Sewer Service Calls 568 638 605 598 533 508 263 591 522 508 * 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 2004 2005 2006 2007 2008 2009 2010* 2011 2012 2013 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 196.95 196.95 197.48 197.79 197.79 196.95 196.95 196.95 196.95 196.95 Number of streetlights 3,111 3,159 3,159 3,134 3,134 3,192 3,125 3,065 2,838 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) 178.02 179.41 175.74 177.04 177.04 177.04 177.04 177.04 177.04 177.04 129 Storm sewers (miles) 178.61 179.23 180.48 183.25 183.60 184.35 184.35 184.35 184.35 184.35 Water Water mains (miles) 194.14 194.14 194.15 195.63 195.58 195.69 195.69 195.69 195.40 195.95 * 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 25, 2013 City Commission City of Muskegon Muskegon, Michigan We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in the Government Auditing Standards issued by the Comptroller General of the United States, the 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, 2013, and the related notes to the financial statements, which collectively comprise the City of Muskegon’s basic financial statements, and have issued our report thereon dated October 25, 2013. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City of Muskegon’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Muskegon’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City of Muskegon’s internal control. 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. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 678 Front Ave., NW Suite 230 316 Morris Ave., Suite 500, P.O. Box 999 907 S. State St. 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 25, 2013 Page 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Muskegon’s financial statements are free from 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. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Muskegon, Michigan 133 BRICKLEY DELONG CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 October 25, 2013 City Commission City of Muskegon Muskegon, Michigan Report on Compliance for Each Major Federal Program 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, 2013. 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. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the City of Muskegon’s major federal programs based on our audit of the types of compliance requirements referred to above. 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 on compliance for each major federal program. However, our audit does not provide a legal determination of the City of Muskegon’s compliance. Opinion on Each Major Federal Program In our opinion, the City of Muskegon complied, in all material respects, with the types of 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, 2013. 678 Front Ave., NW Suite 230 316 Morris Ave., Suite 500, P.O. Box 999 907 S. State St. 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 25, 2013 Page 2 Report on Internal Control Over Compliance Management of the City of Muskegon is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City of Muskegon’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program 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. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. 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 material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirement of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Muskegon, Michigan 135 City of Muskegon SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the year ended June 30, 2013 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 2012 (Cash Basis) Expenditures 2013 Notes U.S. Department of Housing and Urban Development Direct programs Community Development Block Grants/Entitlement Grants 14.218 B-11-MC-26-0026 $ 911,340 $ 452,380 $ 474,866 $ 22,486 $ - B-12-MC-26-0026 827,856 - 567,938 777,928 209,990 Program Income 38,196 - 38,196 38,196 - Total Community Development Block Grants/ Entitlement Grants 1,777,392 452,380 1,081,000 838,610 209,990 5 HOME Investment Partnerships Program 14.239 M-09-MC-26-0215 322,469 - 915 915 - M-10-MC-26-0215 320,710 - 98,811 98,811 - 136 M-11-MC-26-0215 284,337 19,254 111,091 91,837 - M-12-MC-26-0215 246,299 - 86,894 104,920 18,026 Program Income 158,847 - 158,847 158,847 - Total HOME Investment Partnerships Program 1,332,662 19,254 456,558 455,330 18,026 Total direct programs 3,110,054 471,634 1,537,558 1,293,940 228,016 Passed through Michigan State Housing Development Authority Community Development Block Grants/Entitlement Grants 14.218 Neighborhood Stabilization Program NSP-2008-0280-ENT 1,670,891 85,603 176,103 220,891 130,391 Program Income 22,085 3,918 26,003 22,085 - Total Neighborhood Stabilization Program 1,692,976 89,521 202,106 242,976 130,391 5 Total U.S. Department of Housing and Urban Development 4,803,030 561,155 1,739,664 1,536,916 358,407 City of Muskegon SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS—Continued For the year ended June 30, 2013 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 2012 (Cash Basis) Expenditures 2013 Notes U.S. Department of Justice Direct programs Bulletproof Vest Partnership Grant 16.607 2010 Grant $ 1,110 $ 1,110 $ 1,110 $ - $ - 2012 Grant 3,500 - 825 825 - 4,610 1,110 1,935 825 - Edward Byrne Memorial Justice Assistance Grant 16.738 Program 2011-DJ-BX-2380 55,831 - 21,133 21,133 - 2012-DJ-BX-0725 46,074 - 28,513 28,513 - 101,905 - 49,646 49,646 - 137 Total direct programs 106,515 1,110 51,581 50,471 - Passed through Ottawa County Edward Byrne Memorial Justice Assistance Grant 16.738 Program 70834-513B 21,585 - 21,585 21,585 - Passed through Muskegon County ARRA - Edward Byrne Memorial Justice Assistance 16.804 Grant (JAG) Program/Grants to Units of Local Government 2009-SB-B9-1824 218,169 6,949 52,217 45,268 - Total U.S. Department of Justice 346,269 8,059 125,383 117,324 - TOTAL FEDERAL ASSISTANCE $ 5,149,299 $ 569,214 $ 1,865,047 $ 1,654,240 $ 358,407 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, 2013 1. The accompanying Schedule of Expenditures of Federal Awards (the "schedule") includes the federal grant activity of the City under programs of the federal government for the year ended June 30, 2013. The information in this schedule is presented in accordance with the requirements of the Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Because the schedule presents only a selected portion of the operations of the City, it is not intended to and does not present the financial position or change in net position of the City. 2. Please see the financial statement footnotes for the significant accounting policies used in preparing this schedule. Expenditures are recognized following the cost principles contained in OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. Pass-through entity identifying numbers are presented where available. 3. 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, 2013 and federal expenditures per the Schedule of Expenditures of Federal Awards. Federal revenues per City of Muskegon financial statements General Fund $ 117,324 Major Street and Trunkline Fund 794,000 Other governmental funds 1,317,788 2,229,112 138 Plus program income 219,128 Less MDOT contracted projects as shown below (794,000) Federal expenditures per the Schedule of Expenditures of Federal Awards $ 1,654,240 4. 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, 2013 the federal aid received and expended by the City of Muskegon was $794,000 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 (Federal-Aid Highway Program) 20.205 Proj STP 1261(219) Fed Item HH7944 Contract 12-5241 $ 481,000 $ 481,000 Proj STP 1361(013) Fed Item HH8489 Contract 13-5050 313,000 313,000 Total U.S. Department of Transportation, Federal Highway Administration (contracted projects) $ 794,000 $ 794,000 City of Muskegon SCHEDULE OF FINDINGS AND RESPONSES Year ended June 30, 2013 SECTION I—SUMMARY OF AUDITORS’ RESULTS A. Financial Statements 1. Type of auditors' report issued: Unmodified 2. Internal control over financial reporting: • Material weakness(es) identified? yes X no • Significant deficiency(ies) identified that are not considered to be material weaknesses? yes X none reported 3. Noncompliance material to financial statements noted? yes X no B. Federal Awards 1. Internal control over major programs: • Material weakness(es) identified? 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: Unmodified 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 Grants/Entitlement Grants 14.239 HOME Investment Partnerships 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 SECTION II – FINANCIAL STATEMENT FINDINGS NONE SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS NONE 139 140 CLIENT DOCUMENTS 141 City of Muskegon 933 Terrace Street Muskegon, MI 49440 Phone: (231) 724-6709 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS October 25, 2013 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, 2012 dated October 23, 2012. SECTION II – FINANCIAL STATEMENT FINDINGS Finding 2012-1: MATERIAL WEAKNESS—Year-end Procedures Should Be Improved To Enhance Year-end Financial Reporting Condition: Three 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: The recommendation was implemented during the year ended June 30, 2013. No similar finding was reported during the year ended June 30, 2013. SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS COMPLIANCE There were no compliance findings reported in relation to major federal award programs. SIGNIFICANT DEFICIENCIES There were no reportable conditions reported in relation to major federal award programs. Sincerely, Timothy J. Paul Finance Director 142 City of Muskegon 933 Terrace Street Muskegon, MI 49440 Phone: (231) 724-6709 CORRECTIVE ACTION PLAN October 25, 2013 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, 2013. Name and address of independent public accounting firm: Brickley DeLong, P.C. P.O. Box 999 Muskegon, Michigan 49443 Audit period: June 30, 2013 The findings from the Schedule of Findings and Responses for the year ended June 30, 2013 provided no findings in either Section II or Section III. Accordingly, there are no matters requiring corrective action as shown below. SECTION II – FINANCIAL STATEMENT FINDINGS There were no compliance findings and no significant deficiencies in relation to the financial statement audit. SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS There were no compliance findings and no significant deficiencies in relation to the 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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