Annual Comprehensive Financial Reports ACFR-2013

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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




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

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

City Manager
(231)724-6724
FAX (231)722-
1214
                   October 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
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                                 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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