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City of Muskegon, Michigan Comprehensive Annual Financial Report For The Fiscal Year Ended June 30, 2016 www.shorelinecity.com [This page was intentionally left blank.] CITY OF MUSKEGON, MICHIGAN COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2016 Prepared By FINANCIAL SERVICES DIVISION Derrick Smith James Maurer Finance Director Information Systems Director Elizabeth Lewis Kathy Coleman Assistant Finance Director Management Assistant Kenneth Grant City Treasurer Cover Photo: “Sails Ablaze” courtesy of Derrick Smith www.shorelinecity.com [This page was intentionally left blank.] City of Muskegon TABLE OF CONTENTS INTRODUCTORY SECTION Letter of Transmittal .................................................................................................................................. 5 Certificate of Achievement for Excellence in Financial Reporting ......................................................... 11 Organization Chart ................................................................................................................................... 12 List of Principal Officials......................................................................................................................... 13 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 ................................................................................ 78 Budgetary Comparison Schedule—Major Street and Trunkline Fund ................................................. 83 Schedule of Changes in Net Pension Liability and Related Ratios ...................................................... 84 Pension System Schedule of Contributions .......................................................................................... 85 Schedule of Funding Progress – Retiree Healthcare Plan .................................................................... 86 1 City of Muskegon TABLE OF CONTENTS Other Supplemental Information Other Governmental Funds Description of Other Governmental Funds ....................................................................................... 88 Combining Balance Sheet ................................................................................................................. 90 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ................................................................................................................................ 91 Other Special Revenue Funds Combining Balance Sheet .............................................................................................................. 92 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ............................................................................................................................. 93 Budgetary Comparison Schedule—Other Special Revenue Funds ............................................... 94 Other Capital Projects Funds Combining Balance Sheet .............................................................................................................. 97 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ............................................................................................................................. 98 Internal Service Funds Description of Internal Service Funds ............................................................................................... 99 Combining Statement of Net Position ............................................................................................. 100 Combining Statement of Revenues, Expenses and Changes in Fund Net Position ...................................................................................................... 101 Combining Statement of Cash Flows .............................................................................................. 102 Fiduciary Funds Description of Fiduciary Funds ....................................................................................................... 103 Agency Funds Combining Statement of Assets and Liabilities ........................................................................... 104 Statement of Changes in Assets and Liabilities ........................................................................... 105 Component Units Description of Component Units ..................................................................................................... 107 Combining Balance Sheet ............................................................................................................... 108 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position ................................................................................................... 109 Combining Statement of Revenues, Expenditures and Changes in Fund Balances (Deficits) .......................................................................................................... 110 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances (Deficits) to the Statement of Activities .................................................................................................................................. 111 Schedule of Indebtedness ................................................................................................................... 113 2 City of Muskegon TABLE OF CONTENTS STATISTICAL SECTION Financial Trends Net Assets/Net Position by Component.............................................................................................. 118 Changes in Net Assets/Net Position ................................................................................................... 119 Fund Balances of Governmental Funds .............................................................................................. 121 Changes in Fund Balances of Governmental Funds ........................................................................... 122 Revenue Capacity Governmental Activities Revenues by Source ................................................................................... 123 Taxable, Assessed and Equalized and Estimated Actual Valuation of Property ................................ 124 Principal Property Taxpayers ............................................................................................................. 125 Property Tax Rates – Direct and Overlapping Government Units ..................................................... 126 Property Tax Levies and Collections .................................................................................................. 127 Segmented Data on Income Tax Filers, Rates and Liability .............................................................. 128 Debt Capacity Ratio of Outstanding Debt by Type .................................................................................................... 129 Direct and Overlapping Debt .............................................................................................................. 130 Legal Debt Margin Information.......................................................................................................... 131 Revenue Bond Coverage .................................................................................................................... 132 Demographic and Economic Information Demographic and Economic Statistics ............................................................................................... 133 Principal Employers............................................................................................................................ 134 Operation Information Full-time Equivalent Government Employees ................................................................................... 135 Operating Indicators by Function/Program ........................................................................................ 136 Capital Asset Statistics by Function/Program .................................................................................... 137 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 ..................................................................................................... 140 Independent Auditors’ Report on Compliance for Each Major Program and on Internal Control over Compliance Required by OMB Circular A-133 ...................................................................................................................... 142 Schedule of Expenditures of Federal Awards ...................................................................................... 144 Notes to Schedule of Expenditures of Federal Awards ....................................................................... 146 Schedule of Findings and Responses ................................................................................................... 147 Client Documents Summary Schedule of Prior Audit Findings ................................................................................... 150 Corrective Action Plan .................................................................................................................... 151 3 [This page was intentionally left blank.] 4 Affirmative Action (231)724-6703 FAX (231)722- 1214 Cemetery (231)724-6783 FAX (231)726- 5617 City Manager (231)724-6724 FAX (231)722- 1214 December 5, 2016 Civil Service (231)724-6716 FAX (231)724- 4405 To the Honorable Mayor, Members of the City Commission and Citizens of the City of Clerk (231)724-6705 Muskegon: FAX (231)724- 4178 Comm. & Neigh. Services State law requires that every general purpose local government publish, within six months (231)724-6717 of the close of each fiscal year, a complete set of audited financial statements. This report FAX (231)726- 2501 is published to fulfill that requirement for the fiscal year ended June 30, 2016. Finance (231)724-6713 Management assumes full responsibility for the completeness and reliability of the FAX (231)724- information contained in this report, based upon a comprehensive framework of internal 6768 control that it has established for this purpose. Because the cost of internal control should Fire Department (231)724-6792 not exceed anticipated benefits, the objective is to provide reasonable, rather than FAX (231)724- absolute, assurance that the financial statements are free of any material misstatements. 6985 Income Tax Brickley Delong, PC, Certified Public Accountants, have issued an unmodified (“clean”) (231)724-6770 FAX (231)724- opinion on the City of Muskegon’s financial statements for the year ended June 30, 2016. 6768 The independent auditor’s report is located at the front of the financial section of this Inspection report. Services (231)724-6715 FAX (231)728- 4371 Management’s discussion and analysis (MD&A) immediately follows the independent Leisure Services auditor’s report and provides a narrative introduction, overview, and analysis of the basic (231)724-6704 financial statements. MD&A complements this letter of transmittal and should be read in FAX (231)724- 1196 conjunction with it. Mayor’s Office (231)724-6701 FAX (231)722- 1214 Planning/Zoning Profile of the government (231)724-6702 FAX (231)724- The City of Muskegon operates under a commission-manager form of government and 6790 provides a full range of traditional municipal services. Policy-making and legislative Police authority are vested in the governing board (Commission) consisting of the mayor and six Department commissioners. Two commissioners are elected at large and each of the four ward (231)724-6750 FAX (231)722- commissioners is elected by the voters of their respective wards. Commission members 5140 serve four-year terms, with the two at large members elected every four years in odd Public Works years and the four ward commissioners elected every four years in even years. The (231)724-4100 FAX (231)722- Mayor is also elected for a four-year term. The Mayor and Commission appoint the City of 4188 Muskegon’s manager. 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 of Muskegon provides a full range of services, including police and fire protection; solid waste collection; parks and recreation activities; the construction and maintenance of streets and roadways; street snowplowing; traffic control; building inspections; licenses and permits; water distribution and sewer disposal services; community development; and general administrative support services. The City also provides treated water to several surrounding communities. The Commission is required to adopt an initial budget for the fiscal year no later than the last regular meeting in June preceding the beginning of the fiscal year on July 1. This annual budget serves as the foundation for the City of Muskegon’s financial planning and control. The budget is prepared by fund, function (e.g., public safety), and department (e.g., police). The City Manager and department heads may transfer resources within a department as they see fit. Transfers between departments, however, need special approval from the Commission. Local economy 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 Metropolitan Statistical Area (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. 2016 marks the ferry service’s thirteenth 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 Rebel Road, which attracts motorcycle enthusiasts to the City in July, the Unity Christian Music Festival in August, the Burning Foot Beer Fest and the Irish Fest in September. 6 • 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 age. The Fire Barn Museum takes visitors back to an 1890’s 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. 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, closed its sixty-seven year-old B.C. Cobb electric generating facility in April 2016 due to age, federal pollution regulations and slowing electric demand. Although this closure will have an important impact on City revenues and municipal operations, the taxable values of the property have been tapered over the last several years to help minimize the impact on the City’s finances. The local economy has seen a reduction in the unemployment rate which stood at 4.8 percent at the end of the second quarter of 2015 compared with 5.8 percent at the end of the second quarter of 2015. According to the September 2016 Business Outlook prepared by the W.E. Upjohn Institute for Employment Research: “Nonfarm employment in Muskegon increased by a modest 0.5 percent in the second quarter, driven by goods-producing employment. The unemployment rate held steady at 4.8 percent. The area’s economic indicators were mixed, suggesting flat employment conditions into the next quarter.” The City fully recognizes the magnitude of financial challenges it faces due to the pending loss of its largest property tax payer. Thus, we have attempted to position ourselves to be in as strong of a position as possible considering this impending challenge by maintaining a healthy fund balance in the General Fund. 7 Long-term financial planning and major initiatives Unrestricted fund balance (the total of the assigned and unassigned components of fund balance) in the general fund at year end was 30.2 percent of total general fund revenues. This amount was well above the policy guidelines set by the Commission for budgetary and planning purposes (i.e., 13% of total actual general fund revenue for the preceding year). Adequate fund balances are maintained to allow the City to continue providing services to the community in case of unexpected emergencies or requirements and/or economic downturns. 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 closure of the B.C Cobb electric generation facility. As noted earlier, this facility is the City’s single largest taxpayer and was closed in April 2016. The City continues actively planning for the revenue loss accompany this closure and has already made numerous budget adjustments to ensure that high-quality municipal services will continue to be provided. Among the City's major initiatives and accomplishments in fiscal year 2015-16 were the following: • Work was completed to reconstruct both Muskegon Avenue and Webster Avenue (from Ninth Street to Spring Street). The 10-block stretch of both streets was redone to narrow and add aesthetic improvements while enhancing the ride quality of the pavement. The road was removed and replaced and water service lines were also replaced. $3.1 million of the $4.4 million dollar project was paid for with a grant the City received from the state; • After several years of perseverance, an agreement was reached between various parties and deed restrictions were lifted by Sappi to allow for development on property formerly owned by Sappi. Members of Pure Muskegon LLC, a Muskegon investor group, purchased the 120-acre former Sappi site on Muskegon Lake and plan to redevelop it into residential, recreational and commercial uses; • The City created a Downtown Business Improvement District (BID) which aids downtown businesses with marketing and promotions as well as beautification, lawn maintenance and sidewalk snow plowing in the downtown; 8 • Construction of Midtown Square, which consists of nine new market rate homes in the Nelson neighborhood, was completed. It is anticipated that these new homes will help to revitalize the area and increase surrounding property values. One house has been sold and the new owners have moved in while the other eight houses are actively being marketed for sale; • Reconstruction of the county’s Muskegon Area Transit System station located in downtown Muskegon was completed with the official opening of the station in August 2015; • The City purchased the former Ameribank building in downtown Muskegon and issued a request for proposals to developers to purchase and redevelop the property for mixed-use. The City has accepted a proposal from a local developer who is finalizing plans for the project. Relevant financial policies The City of Muskegon has adopted a comprehensive set of financial policies used to ensure adequate protection of the City’s assets from loss, theft, or misuse, and provide adequate accounting data to allow for preparation of financial statements in conformity with generally accepted accounting principles. 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. Awards and Acknowledgements 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 (CAFR) for the fiscal year ended June 30, 2015. This was the 30th consecutive year that the City has received this award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized CAFR that satisfies both generally accepted accounting principles and applicable program requirements. 9 A Certificate of Achievement for Excellence in Financial Reporting is valid for a period of one year only. However, we believe our current CAFR continues to meet the Certificate of Achievement for Excellence in Financial Reporting Program’s requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate. The preparation of this report would not have been possible without the skill, effort, and dedication of the Finance Division, Assistant Finance Director Elizabeth Lewis and the entire city staff. We express appreciation to those staff members who assisted and contributed to the preparation of this report. Credit also must be given to the Mayor and Commissioners for their support for maintaining the highest standards of professionalism in the management of the City of Muskegon’s finances. Respectfully submitted, Frank Peterson Derrick Smith City Manager Finance Director 10 11 CITY OF MUSKEGON Organization Chart – June 30, 2016 Mayor & City Commission City Manager City Attorney Various Boards & Commissions Administrative Public Safety Public Works Community & Economic Finance Division Services Division Division Division Development Division City Clerk & Finance Planning, Zoning & Police Engineering Code Compliance Elections Administration Enforcement Community & Water & Sewer Civil Service City Treasurer Fire Neighborhood Maintenance Services Affirmatiave Action Income Tax Building Recreation Water Filtration & Risk Management Administration Inspections Services Information Streets & Technology Highways Contract Oversight: Parks & Assessing, Walker Cemeteries Arena, Fisherman's Landing, CATV Sanitation Streetlights Marina & Launch Ramps Farmers' Market Equipment 12 COMPREHENSIVE ANNUAL FINANCIAL REPORT CITY OF MUSKEGON, MICHIGAN LIST OF PRINCIPAL OFFICIALS June 30, 2016 ELECTED OFFICIALS Mayor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stephen J. Gawron At Large Vice Mayor-Commissioner. . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . Eric Hood Ward 1 Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Willie German Ward 2 Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Debra Warren Ward 3 Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Byron Turnquist Ward 4 Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ken Johnson At Large Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Dan Rinsema-Sybenga At Large APPOINTED OFFICIALS City Manager. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Frank Peterson City Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John C. Schrier Finance Director. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derrick Smith 13 [This page was intentionally left blank.] 14 FINANCIAL SECTION 15 [This page was intentionally left blank.] 16 BRICKLEY DELONG CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS’ REPORT December 5, 2016 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, 2016, 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 December 5, 2016 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, 2016, 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 schedules, schedule of changes in net pension liability and related ratios, pension system schedule of contributions, and schedule of funding progress – retiree healthcare plan on pages 20 through 32 and 76 through 84 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 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 Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. 18 BRICKLEY DELONG City Commission December 5, 2016 Page 3 Other Matters—Continued Other 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 2016 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, 2016. Please read it in conjunction with the City’s financial statements, which follow this section. FINANCIAL HIGHLIGHTS • The assets/deferred outflows of resources of the City of Muskegon exceeded its liabilities/deferred inflows of resources by $109,700,415 as of June 30, 2016. Of the City’s total net position, $1,620,153 (1.5%) 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 $5,367,984 during the year ended June 30, 2016. • The City’s governmental funds reported combined ending fund balance of $13,997,959, a decrease of $1,184,464 (7.8%) from the prior year. • The City’s General Fund reported a total fund balance of $8,031,309, an increase of $227,813 from the prior year balance of $7,803,496. The favorable increase is primarily the result of conservative budgeting. 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 public representation services, administrative services, financial services, public safety, public 21 works, highways, streets and bridges, community and economic development, culture and recreation, general administration, and interest on long-term debt. Income taxes, federal grants, property taxes and revenues from the State of Michigan finance most of these activities. Also included in the government-wide statements are the City’s business-type activities: water, sewer and marina operations. Fund Financial Statements The fund financial statements provide more detailed information about the City’s major funds—not the City as a whole. Funds are accounting devices that the City uses to keep track of specific sources of funding and spending for particular purposes. The City has the following kinds of funds: • Governmental funds—Most of the City’s basic services are included in governmental funds, which focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year- end that are available for spending. Consequently, the governmental fund statements provide a detailed short-term view that helps the user determine whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. Because this information does not encompass the additional long-term focus of the government-wide statements, we provide additional information on the subsequent page of the governmental funds statements that explain the relationship (or differences) between them. • Proprietary funds—Services for which the City charges customers a fee and are intended to be self-supporting are generally reported in proprietary funds. The City uses three proprietary funds: water, sewer, and marina and launch ramp. 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. 22 • 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 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 $109,700,415 as of June 30, 2016. This is a decrease of $5,367,984 from reported net position for the prior year. An overview of the City’s net position follows: City's Net Position (In Thousands of Dollars) Governmental Business-Type Activities Activities Total Percentage 6/30/2016 6/30/2015 6/30/2016 6/30/2015 6/30/2016 6/30/2015 Change Current and other assets $20,864 $24,046 $9,237 $9,160 $30,101 $33,206 -9.35% Capital assets 70,647 70,165 48,935 50,541 119,582 120,706 -0.93% Deferred outflow s of resources 9,758 1,575 678 109 10,436 1,684 519.71% Total Assets and Deferred Outflow s of Resources 101,269 95,786 58,850 59,810 160,119 155,596 2.91% Long-term liabilities 32,798 20,897 10,420 10,990 43,218 31,887 35.53% Other liabilities 3,844 6,075 3,034 2,566 6,878 8,641 -20.40% Deferred inflow s of resources 302 - 21 - 323 - 100.00% Total Liabilities and Deferred Outflow s of Resources 36,944 26,972 13,475 13,556 50,419 40,528 24.41% Net Position Net investment in capital assets 64,327 63,515 39,014 39,231 103,341 102,746 0.58% Restricted 4,140 4,807 599 600 4,739 5,407 -12.35% Unrestricted -4,142 492 5,762 6,423 1,620 6,915 -76.57% Total Net Position $64,325 $68,814 $45,375 $46,254 $109,700 $115,068 -4.67% The bulk of the City’s net position ($103,340,420 or 94%) represents investments in capital assets net of accumulated 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 4.3% ($4,739,842) of the City’s net position are legally restricted as to use. Unrestricted net position ($1,620,153) represents assets that may be used to meet the 23 City’s operating needs and ongoing obligations. The City’s unrestricted net position decreased ($5,295,301) during the year. Effective July 1, 2014, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 68 which is an accounting change that requires the recording of a net pension liability to be reported in the financial statements of state and local governmental employers. For the fiscal year ended June 30, 2016, the second year of the accounting change, the impact of GASB 68 on the City’s financial statements was an additional liability of $12,796,540 which was added to the liability of $14,607,785 that was recorded in the prior year for a total of $27,404,325 being recorded as a net pension liability. See Note J of the notes to the basic financial statements for additional information on the impact of this accounting change on the City’s financial statements. Changes in net position. The City’s total revenues were $51,311,883 for the year ended June 30, 2016. This represents a 6.5% increase over total revenues collected during the prior fiscal year. About 38% of the City’s revenue stream came from charges to users of specific services such as water or sewer. Another 10% came from grants from the state and federal governments and 33% 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, 2016 was $56,679,867. This represents a 16% increase from reported expenses for the last fiscal year ended June 30, 2015. 72% of the City’s expenses were for governmental activities such as police and fire protection, streets, parks, and general administration. The remaining 28% represents the costs of the City’s business-type activities, specifically, water, sewer and marina operations. The table on the following page (Changes in City’s Net Position) 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 $4,489,022 while net position for business-type activities decreased by $878,962. For governmental activities, most of these changes are related to the increased net pension liability. For business-type activities, the changes similarly represent the impact of the increased net pension liability. 24 Changes in City’s Net Position (In thousands of dollars) Governmental Business-Type Activities Activities Total Percentage 6/30/2016 6/30/2015 6/30/2016 6/30/2015 6/30/2016 6/30/2015 Change Program revenues Charges for services $5,217 $4,470 $14,078 $12,995 $19,295 $17,465 10.48% Operating grants and contributions 5,331 5,071 - - 5,331 5,071 5.13% Capital grants and contributions 3,805 3,497 765 475 4,570 3,972 15.06% General revenues Property taxes 8,366 7,894 - - 8,366 7,894 5.98% Income taxes 8,387 8,478 - - 8,387 8,478 -1.07% State shared revenues 4,051 3,989 - - 4,051 3,989 1.55% All other 1,286 1,296 26 30 1,312 1,326 -1.06% Total revenues 36,443 34,695 14,869 13,500 51,312 48,195 6.47% Governmental activities expenses Public representation 1,108 940 - - 1,108 940 17.87% Administrative services 663 615 - - 663 615 7.80% Financial services 2,331 2,548 - - 2,331 2,548 -8.52% Public safety 17,119 14,243 - - 17,119 14,243 20.19% Public w orks 3,109 3,184 - - 3,109 3,184 -2.36% Highw ays, streets and bridges 7,252 7,166 - - 7,252 7,166 1.20% Community and economic development 5,223 2,712 - - 5,223 2,712 92.59% Culture and recreation 3,552 1,807 - - 3,552 1,807 96.57% General administration 327 389 - - 327 389 -15.94% Interest on long-term debt 248 271 - - 248 271 -8.49% Business-type activities expenses Sew er - - 8,669 8,461 8,669 8,461 2.46% Water - - 6,751 6,047 6,751 6,047 11.64% Marina and launch ramp - - 328 306 328 306 7.19% Total expenses 40,932 33,875 15,748 14,814 56,680 48,689 16.41% Change in net position (4,489) 820 (879) (1,314) (5,368) (494) 986.64% Net position at beginning of year 68,814 67,994 46,254 47,568 115,068 115,562 -0.43% Net position at end of year $64,325 $68,814 $45,375 $46,254 $109,700 $115,068 -4.67% 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, 2016 was $40,931,740. • The net cost that City taxpayers paid for these activities through local property taxes and income taxes was $16,752,987, or about 41% 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 6/30/2016 6/30/2015 % Change 6/30/2016 6/30/2015 % Change Governmental activities Public safety $17,119 $14,243 20.19% $15,706 $12,926 21.51% Public w orks 3,109 3,184 -2.36% 2,720 2,612 4.13% Highw ays, streets and bridges 7,252 7,166 1.20% 887 (79) -1222.78% Community and economic development 5,223 2,712 92.59% 3,421 997 243.13% Culture and recreation 3,552 1,807 96.57% 911 1,424 -36.03% All other 4,677 4,763 -1.81% 2,935 2,957 -0.74% Total governmental activities $40,932 $33,875 20.83% $26,580 $20,837 27.56% Business-Type Activities The financial goal of the City’s business-type activities (i.e. water, sewer and marina and launch ramp operations) is to operate on a self-supporting basis without making significant profit or needing general tax subsidies. For the fiscal year ended June 30, 2016, the City’s total business-type activities realized an overall decrease in net position of $878,962. Sewer Fund net position decreased $1,534,681 primarily as result of increased County wastewater treatment costs. The Water Fund saw a net position increase of $792,377. This is primarily attributable to the managing costs and achieving economies of scale with the addition of Fruitport Township and the City of Norton Shores as wholesale customers. Marina and Launch Ramp Fund net position decreased $37,974 due to the higher costs of operations. 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, 2016 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 unassigned fund balance for the last five years. 26 Unassigned Fund Year-End Year-to-Year % Prior Year’s Balance as a % of Year Ended Unassigned Fund Balance Change Revenues Prior Year Revenues (Policy TargeP=13%) 6C30C2016 $6,098,977 3.67% $24,890,399 24.50% 6C30C2015 5,883,318 7.06% 23,960,758 24.55% 6C30C2014 5,495,145 19.10% 23,407,409 23.48% 6C30C2013 4,613,722 15.92% 24,122,760 19.13% 6C30C2012* 3,980,191 17.95% 24,027,329 16.57% *As restated For the year ended June 30, 2016, General Fund revenues were $186,388 lower than the final amended budget estimate. This variance is primarily due to lower than expected local income tax revenues. General Fund expenditures were $1,519,509 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) position turnover and the accompanying lag in replacement hiring time. 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, 2016, the fund balance of the Major Street and Trunkline Fund increased $38,978 which is attributable to a reduction in expenditures for street projects during the year. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets As of June 30, 2016, the City had invested $119,582,794 in a variety of capital assets, including land, streets, equipment, buildings, water and sewer lines, and vehicles. This is a decrease of $1,122,632 from capital assets reported as of June 30, 2015. The decrease is due to normal depreciation of assets offset by current year additions. Note F of the notes to the basic financial statements provides detailed information on the City’s capital asset investment. 27 Long-Term Debt Bond Ratings At June 30, 2016, the City had $17,753,461 in bonds and The City’s limited full faith and other long-term obligations outstanding. This represents credit bonds (bonds guaranteed an 8.0% decrease from the prior year. The City did not by the City’s taxing powers) issue any new debt during the fiscal year. were upgraded by Standard & Poor’s from a rating of “A+” to “AA-“ in early 2016. The City’s Additional information concerning the City’s long-term debt Water System revenue bonds is presented in Note H to the basic financial statements. carry the “AA-“ S&P rating. City’s Long Term Debt – Bonds and Other Obligations (In thousands of dollars) Governmental Business-Type Activities Activities Total Percentage 6/30/2016 6/30/2015 6/30/2016 6/30/2015 6/30/2016 6/30/2015 Change Due w ithin one year $511 $632 $1,429 $1,390 $1,940 $2,022 -4.06% Due in more than one year 7,175 7,239 8,638 10,041 15,813 17,280 -8.49% Total bonds & other obligations $7,686 $7,871 $10,067 $11,431 $17,753 $19,302 -8.03% 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 $4,966,420 at year-end as shown in the table below. This represents a decrease of 11.9% from the prior year. Debt issued by component units typically is secured by the limited full faith and credit of the City and so is an important consideration in assessing the City’s overall fiscal health. Additional information concerning component units’ long-term debt is presented in Note H to the basic financial statements and is summarized as follows: Component Unit Long Term Debt – Bonds and Other Obligations (In thousands of dollars) Downtown Development Local Development Total Percentage Authority Finance Authority 6/30/2016 6/30/2015 6/30/2016 6/30/2015 6/30/2016 6/30/2014 Change Due w ithin one year $310 $300 $345 $335 $655 $635 3.15% Due in more than one year 1,340 1,655 2,971 3,348 4,311 5,003 -13.83% Total bonds & other obligations $1,650 $1,955 $3,316 $3,683 $4,966 $5,638 -11.92% 28 ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The City’s fiscal year 2016-17 capital budget anticipates spending $12,041,050 for capital projects, consisting of street improvements, water and sewer system improvements, scheduled equipment replacements, improvements to the L. C. Walker Arena, the construction of additional market rate houses in a city neighborhood and the replacement of fire department rescue equipment. These improvements will be funded by anticipated grants ($3,999,070), revenues generated from operations, contemplated debt financing ($1,750,000), and fund balance. From an operating standpoint, the City’s 2016-17 budget will be relatively stable while the City attempts to maintain a healthy fund balance and allow time to plan for and address economic challenges with a long-term solution: • The full-time personnel complement will be increased from 231 positions to 232 positions for a net gain of 1. • Some user fees will be increased and new fees recommended during the course of the year. • The City will continue to look for opportunities to partner with other entities to deliver quality services in a cost effective manner (e.g. Farmers’ Market kitchen management, Marsh Field and recreation programs). 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 decreased 1.5% from $8,274,666 for the year ended June 30, 2015 to $8,151,902 for the year ended June 30, 2016. For 2016-17, the City has estimated income tax revenue to be $8,850,000. 29 City Income Percent Year Tax Revenues Change 6/30/2016 $8,151,902 -1.5% 6/30/2015 8,274,666 5.7% 6/30/2014 7,831,423 4.3% 6/30/2013 7,506,472 1.3% 6/30/2012 7,412,804 12.3% 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 2016-17, the City tax levy will be at 10 mills for general operations and 3 mills for sanitation service. We project that $7,092,000 in total property tax revenue will be collected during fiscal year 2016-17. Based on recent data from the County Equalization Department, there is a decrease of about 4% in taxable values for 2016. The B.C. Cobb Plant which was placed out of service in April 2016 is a component of the property tax decline along with the state’s phase out of personal property taxes. It should be noted that several property tax appeals are currently 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 as follows: 30 State Shared Percent Revenues Change Year 6/30/2016 $3,886,514 -0.1% 6/30/2015 3,889,178 2.0% 6/30/2014 3,813,221 3.0% 6/30/2013 3,700,971 3.4% 6/30/2012 3,577,848 -7.0% Erosion of state shared revenues (both from economic factors and from legislative action) constitutes a major on-going concern for City finances. For 2016-17, the City projects $4,022,925 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 Percent Year from State Change 6/30/2016 $3,981,345 10.8% 6/30/2015 3,592,756 1.0% 6/30/2014 3,556,507 10.8% 6/30/2013 3,208,769 1.0% 6/30/2012 3,176,984 -2.4% During the year, the state legislature considered an overhaul of the transportation funding system. Based on recent legislative changes, the City may expect to begin seeing changes that will increase street funding in future years. However, at this time, the City is not projecting any significant increase in street revenues for fiscal year 2016- 17. 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 $13,399,400 during the year ended 31 June 30, 2016. Charges to customers are based on the amount of metered services used times rates periodically set by the City Commission. Water rates are currently planned to remain unchanged. The City began providing treated water to the City of Norton Shores and Fruitport Charter Township in May 2015. The addition of these two new large municipal customers allows the spreading of water treatment costs over a larger customer base while remaining well within the plant’s rated treatment capacity. Due to the impact of continued increases in wastewater treatment charges from the Muskegon County Wastewater Treatment System, the City Commission passed a resolution effective July 1, 2016, which ties the sewer rate the City will charge to its customers to a multiplier of the rate that the county bills the City for wastewater treatment. This rate change is expected to help maintain the financial viability of the City’s sewer system. 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). 32 FINANCIAL STATEMENTS 33 City of Muskegon STATEMENT OF NET POSITION June 30, 2016 Governmental Business-type Component Activities Activities Total Units ASSETS Current assets Cash and investments $ 15,033,083 $ 4,611,411 $ 19,644,494 $ 228,990 Assets managed by others 1,035,781 - 1,035,781 - Receivables 2,145,329 2,427,460 4,572,789 - Due from other governmental units 1,918,051 319,602 2,237,653 - Internal balances (1,070,842) 1,070,842 - - Inventories 20,857 103,997 124,854 - Prepaid items 473,750 103,332 577,082 - Total current assets 19,556,009 8,636,644 28,192,653 228,990 Noncurrent assets Restricted cash and investments - 599,500 599,500 - Advances to component units 1,221,119 - 1,221,119 - Special assessments receivable, less amounts due within one year 1,804 - 1,804 - Notes receivable, less amounts due within one year 84,837 - 84,837 - Capital assets, net Nondepreciable 17,116,523 1,330,887 18,447,410 400,000 Depreciable 53,530,780 47,604,604 101,135,384 1,625,770 Total noncurrent assets 71,955,063 49,534,991 121,490,054 2,025,770 Total assets 91,511,072 58,171,635 149,682,707 2,254,760 DEFERRED OUTFLOWS OF RESOURCES Related to pension 9,758,362 678,389 10,436,751 - Total assets and deferred outflows of resources 101,269,434 58,850,024 160,119,458 2,254,760 LIABILITIES Current liabilities Accounts payable and accrued liabilities 3,154,483 534,785 3,689,268 20,336 Due to other governmental units 26,797 1,070,051 1,096,848 - Unearned revenues - unused Farmers Market tokens 107,310 - 107,310 - Unearned revenues - expenditure-driven grants 44,323 - 44,323 - Bonds and other obligations, due within one year 511,163 1,429,300 1,940,463 655,000 Total current liabilities 3,844,076 3,034,136 6,878,212 675,336 Noncurrent liabilities Advances from primary government - - - 1,221,119 Bonds and other obligations, less amounts due within one year 7,174,720 8,638,278 15,812,998 4,311,420 Net pension liability 25,623,044 1,781,281 27,404,325 - Total noncurrent liabilities 32,797,764 10,419,559 43,217,323 5,532,539 Total liabilities 36,641,840 13,453,695 50,095,535 6,207,875 DEFERRED INFLOWS OF RESOURCES Related to pension 302,480 21,028 323,508 - Total liabilities and deferred inflows of resources 36,944,320 13,474,723 50,419,043 6,207,875 NET POSITION Net investment in capital assets 64,326,891 39,013,529 103,340,420 (1,290,318) Restricted Highways, streets and bridges 2,146,769 - 2,146,769 - Debt service - 599,500 599,500 - L.C. Walker Arena 247,028 - 247,028 - Law enforcement 138,827 - 138,827 - Perpetual care Expendable 104,603 - 104,603 - Non-expendable 1,486,593 - 1,486,593 - Other purposes 16,522 - 16,522 - Unrestricted (4,142,119) 5,762,272 1,620,153 (2,662,797) Total net position $ 64,325,114 $ 45,375,301 $ 109,700,415 $ (3,953,115) The accompanying notes are an integral part of this statement. 34 City of Muskegon STATEMENT OF ACTIVITIES For the year ended June 30, 2016 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 $ 1,107,551 $ 226,559 $ - $ - $ (880,992) $ - $ (880,992) $ - Administrative services 663,077 474,737 26,500 - (161,840) - (161,840) - Financial services 2,331,236 925,474 36,000 - (1,369,762) - (1,369,762) - Public safety 17,118,742 1,248,911 163,936 - (15,705,895) - (15,705,895) - Public works 3,109,454 379,877 10,000 - (2,719,577) - (2,719,577) - Highways, streets and bridges 7,251,882 234,861 3,984,222 2,146,058 (886,741) - (886,741) - Community and economic development 5,223,431 444,632 1,095,831 261,717 (3,421,251) - (3,421,251) - Culture and recreation 3,551,692 1,229,067 14,336 1,396,881 (911,408) - (911,408) - General administration 326,452 52,512 - - (273,940) - (273,940) - Interest on long-term debt 248,223 - - - (248,223) - (248,223) - Total governmental activities 40,931,740 5,216,630 5,330,825 3,804,656 (26,579,629) - (26,579,629) - Business-type activities Sewer 8,669,469 6,305,554 - 765,363 - (1,598,552) (1,598,552) - Water 6,750,826 7,485,013 - - - 734,187 734,187 - Marina and launch ramp 327,832 287,547 - - - (40,285) (40,285) - Total business-type activities 15,748,127 14,078,114 - 765,363 - (904,650) (904,650) - 35 Total primary government $ 56,679,867 $ 19,294,744 $ 5,330,825 $ 4,570,019 (26,579,629) (904,650) (27,484,279) - Component units Local Development Finance Authority - SmartZone $ 252,924 $ - $ - $ 340,000 - - - 87,076 Downtown Development Authority 29,607 - - 175,000 - - - 145,393 Tax Increment Finance Authority 36,000 - - - - - - (36,000) Brownfield Redevelopment Authority I 34,696 - - - - - - (34,696) Brownfield Redevelopment Authority II 142,745 - - - - - - (142,745) Total component units $ 495,972 $ - $ - $ 515,000 - - - 19,028 General revenues Property taxes 8,366,212 - 8,366,212 653,974 Income taxes 8,386,775 - 8,386,775 - Cable franchise agreement 372,117 - 372,117 - Grants and contributions not restricted to specific programs 4,051,050 - 4,051,050 - Unrestricted investment earnings 189,408 25,688 215,096 1,042 Miscellaneous 626,014 - 626,014 - Gain on sale of capital asset 99,031 - 99,031 - Total general revenues 22,090,607 25,688 22,116,295 655,016 Change in net position (4,489,022) (878,962) (5,367,984) 674,044 Net position at July 1, 2015 68,814,136 46,254,263 115,068,399 (4,627,159) Net position at June 30, 2016 $ 64,325,114 $ 45,375,301 $ 109,700,415 $ (3,953,115) The accompanying notes are an integral part of this statement. City of Muskegon BALANCE SHEET Governmental Funds June 30, 2016 Major Street Other Total General and Trunkline Governmental Governmental Fund Fund Funds Funds ASSETS Cash and investments $ 7,738,415 $ 1,798,091 $ 2,444,498 $ 11,981,004 Assets managed by others - - 1,035,781 1,035,781 Receivables Accounts and loans (net of allowance for uncollectibles) 145,879 5,040 192,122 343,041 Property taxes 60,593 - - 60,593 Income taxes 1,533,533 - - 1,533,533 Special assessments - 48,824 32,981 81,805 Due from other governmental units 768,158 607,040 542,853 1,918,051 Due from other funds 263,951 - - 263,951 Advances to component units - - 407,041 407,041 Prepaid items 222,332 35,752 4,848 262,932 Total assets $ 10,732,861 $ 2,494,747 $ 4,660,124 $ 17,887,732 LIABILITIES Accounts payable $ 1,596,897 $ 145,306 $ 618,396 $ 2,360,599 Accrued liabilities 317,793 8,921 20,860 347,574 Due to other governmental units 14,552 - - 14,552 Due to other funds - - 263,951 263,951 Unearned revenues - unused Farmers Market tokens 107,310 - - 107,310 Unearned revenues - expenditure-driven grants - - 44,323 44,323 Total liabilities 2,036,552 154,227 947,530 3,138,309 DEFERRED INFLOWS OF RESOURCES Unavailable revenues - income taxes 665,000 - - 665,000 Unavailable revenues - special assessments - 48,824 32,981 81,805 Unavailable revenues - other long-term receivables - - 4,659 4,659 Total deferred inflows of resources 665,000 48,824 37,640 751,464 FUND BALANCES Nonspendable Prepaid items 222,332 35,752 4,848 262,932 Long-term loans receivable - - 80,178 80,178 Perpetual care 10,000 - 1,476,593 1,486,593 Restricted Highways, streets and bridges - 2,255,944 232,686 2,488,630 L.C. Walker Arena - - 247,028 247,028 Law enforcement - - 138,827 138,827 Perpetual care - - 104,603 104,603 Other purposes - - 16,522 16,522 Assigned for capital projects and public improvements 1,700,000 - 1,373,669 3,073,669 Unassigned 6,098,977 - - 6,098,977 Total fund balances 8,031,309 2,291,696 3,674,954 13,997,959 Total liabilities, deferred inflows of resources and fund balances $ 10,732,861 $ 2,494,747 $ 4,660,124 $ 17,887,732 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, 2016 Total fund balance—governmental funds $ 13,997,959 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 $ 128,455,817 Accumulated depreciation (59,942,137) 68,513,680 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 665,000 Special assessments 81,804 Other long-term receivables 4,659 751,463 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 (46,651) Bonds and notes payable (6,320,412) Compensated absences (1,263,543) Net pension liability and related deferred outflows/inflows of resources (15,475,518) (23,106,124) 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 5,238,978 Internal balances representing the cumulative difference between actual costs and amounts charged to business-type activities (1,070,842) 4,168,136 Net position of governmental activities $ 64,325,114 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, 2016 Major Street Other Total General and Trunkline Governmental Governmental Fund Fund Funds Funds REVENUES Taxes $ 16,178,761 $ - $ - $ 16,178,761 Licenses and permits 1,443,144 - - 1,443,144 Intergovernmental revenues Federal 72,521 239,952 1,111,421 1,423,894 State 4,042,465 5,165,137 1,044,292 10,251,894 Local 36,000 - - 36,000 Charges for services 2,533,448 47,127 888,363 3,468,938 Fines and forfeitures 459,181 - - 459,181 Interest and rental income 383,925 12,828 33,926 430,679 Income from assets managed by others - - 24,992 24,992 Other 671,669 83,086 756,207 1,510,962 Total revenues 25,821,114 5,548,130 3,859,201 35,228,445 EXPENDITURES Current Public representation services 1,064,503 - - 1,064,503 Administrative services 577,454 - - 577,454 Financial services 2,068,208 - - 2,068,208 Public safety 13,456,299 - 20,258 13,476,557 Public works 2,833,029 - 31,849 2,864,878 Highways, streets and bridges - 5,277,781 1,400,236 6,678,017 Community and economic development 1,878,328 - - 1,878,328 Culture and recreation 1,662,570 - 1,437,768 3,100,338 Other governmental functions 305,807 - - 305,807 Debt service Principal 70,000 190,000 168,199 428,199 Interest and fees 208,176 41,371 7,969 257,516 Bond issuance costs 97,578 - - 97,578 Capital outlay 185,895 - 3,643,166 3,829,061 Total expenditures 24,407,847 5,509,152 6,709,445 36,626,444 Excess of revenues over (under) expenditures 1,413,267 38,978 (2,850,244) (1,397,999) OTHER FINANCING SOURCES (USES) Proceeds from sale of capital assets - - 190,957 190,957 Refunding bonds issued 4,535,000 - - 4,535,000 Premium on refunding bonds issued 368,903 - - 368,903 Payment to refunded bond escrow agent (4,806,325) - - (4,806,325) Transfers in 35,132 - 1,527,962 1,563,094 Transfers out (1,318,164) - (319,930) (1,638,094) Total other financing sources (uses) (1,185,454) - 1,398,989 213,535 Net change in fund balances 227,813 38,978 (1,451,255) (1,184,464) Fund balances at July 1, 2015 7,803,496 2,252,718 5,126,209 15,182,423 Fund balances at June 30, 2016 $ 8,031,309 $ 2,291,696 $ 3,674,954 $ 13,997,959 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, 2016 Net change in fund balances—total governmental funds $ (1,184,464) 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 $ (4,593,912) Capital outlay 3,867,579 (726,333) Donations of capital assets increase net position in the Statement of Activities, but do not appear in the governmental funds because they are not financial resources. 1,396,881 Revenues reported in the Statement of Activities that do not provide current financial resources are not reported as revenues in the governmental funds. (95,716) 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. Issuance of long-term debt (4,535,000) Premium on long-term debt issued (368,903) Repayment of principal on long-term debt 5,243,199 339,296 Changes in accrual of interest and amortization of premiums and discounts Change in accrued interest payable 10,182 Amortization of premiums and discounts (9,564) 618 Some expenses 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 compensated absences (132,650) Change in net pension liability and related deferred outflows/inflows of resources (3,908,779) (4,041,429) 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 (276,559) Change in internal balances representing the current year difference between actual costs and amounts charged to business-type activities 98,684 (177,875) Change in net position of governmental activities $ (4,489,022) The accompanying notes are an integral part of this statement. 39 City of Muskegon STATEMENT OF NET POSITION Proprietary Funds June 30, 2016 Governmental Activities - Business-type Activities - Enterprise Funds Internal Marina and Service Sewer Water Launch Ramp Total Funds ASSETS Current assets Cash and investments $ 1,428,302 $ 2,780,192 $ 402,917 $ 4,611,411 $ 3,052,079 Accounts receivable 1,040,325 1,358,669 28,466 2,427,460 212,998 Due from other governmental units 277,420 42,182 - 319,602 - Inventories 17,751 86,246 - 103,997 20,857 Prepaid items 42,566 58,435 2,331 103,332 210,818 Total current assets 2,806,364 4,325,724 433,714 7,565,802 3,496,752 Noncurrent assets Restricted cash and investments - 599,500 - 599,500 - Advances to component units - - - - 814,078 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 21,524,875 67,795,895 2,322,488 91,643,258 1,559,334 Machinery and equipment 83,643 2,881,519 39,080 3,004,242 8,363,879 Construction in progress - 1,188,637 - 1,188,637 - Less accumulated depreciation (9,763,260) (36,256,735) (2,911,866) (48,931,861) (8,156,305) Net capital assets 11,861,446 35,712,816 1,361,229 48,935,491 2,133,623 Total noncurrent assets 11,861,446 36,312,316 1,361,229 49,534,991 2,947,701 Total assets 14,667,810 40,638,040 1,794,943 57,100,793 6,444,453 DEFERRED OUFLOWS OF RESOURCES Related to pension 156,551 521,838 - 678,389 417,470 Total assets and deferred outflows of resources 14,824,361 41,159,878 1,794,943 57,779,182 6,861,923 LIABILITIES Current liabilities Accounts payable 136,244 269,371 19,274 424,889 370,767 Accrued liabilities 12,885 96,455 556 109,896 28,892 Due to other governmental units 1,070,051 - - 1,070,051 12,244 Bonds and other obligations, due within one year 7,700 1,421,300 300 1,429,300 17,000 Total current liabilities 1,226,880 1,787,126 20,130 3,034,136 428,903 Noncurrent liabilities Bonds and other obligations, less amounts due within one year 38,274 8,598,287 1,717 8,638,278 84,928 Net pension liability 411,065 1,370,216 - 1,781,281 1,096,173 Total noncurrent liabilities 449,339 9,968,503 1,717 10,419,559 1,181,101 Total liabilities 1,676,219 11,755,629 21,847 13,453,695 1,610,004 DEFERRED INFLOWS OF RESOURCES Related to pension 4,853 16,175 - 21,028 12,941 Total liabilities and deferred inflows of resources 1,681,072 11,771,804 21,847 13,474,723 1,622,945 NET POSITION Net investment in capital assets 11,861,446 25,790,854 1,361,229 39,013,529 2,133,623 Restricted for debt service - 599,500 - 599,500 - Unrestricted 1,281,843 2,997,720 411,867 4,691,430 3,105,355 Total net position $ 13,143,289 $ 29,388,074 $ 1,773,096 44,304,459 $ 5,238,978 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 1,070,842 Net position of business-type activities $ 45,375,301 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, 2016 Governmental Activities - Business-type Activities - Enterprise Funds Internal Marina and Service Sewer Water Launch Ramp Total Funds OPERATING REVENUES Charges for services $ 6,183,805 $ 7,215,595 $ 273,635 $ 13,673,035 $ 8,194,396 Other 121,749 269,418 13,912 405,079 66,905 Total operating revenues 6,305,554 7,485,013 287,547 14,078,114 8,261,301 OPERATING EXPENSES Administration 438,534 897,399 4,959 1,340,892 367,517 Insurance premiums and claims - - - - 4,416,046 Wastewater treatment 5,749,839 - - 5,749,839 - Wastewater maintenance 1,972,093 - - 1,972,093 - Filtration plant operations - 1,731,553 - 1,731,553 - Water distribution - 1,831,124 - 1,831,124 - Other operations - - 211,303 211,303 3,500,037 Depreciation 455,546 1,987,319 111,170 2,554,035 380,993 Total operating expenses 8,616,012 6,447,395 327,432 15,390,839 8,664,593 Operating income (loss) (2,310,458) 1,037,618 (39,885) (1,312,725) (403,292) NONOPERATING REVENUES (EXPENSES) Investment earnings 10,414 13,363 1,911 25,688 43,109 Gain on sale of capital assets - - - - 8,624 Interest expense - (258,604) - (258,604) - Total nonoperating revenue (expenses) 10,414 (245,241) 1,911 (232,916) 51,733 Income (loss) before contributions and transfers (2,300,044) 792,377 (37,974) (1,545,641) (351,559) CAPITAL CONTRIBUTIONS AND TRANSFERS Capital contributions 765,363 - - 765,363 - Transfers in - - - - 75,000 Total capital contributions and transfers 765,363 - - 765,363 75,000 Change in net position (1,534,681) 792,377 (37,974) (780,278) (276,559) Net position at July 1, 2015 14,677,970 28,595,697 1,811,070 5,515,537 Net position at June 30, 2016 $ 13,143,289 $ 29,388,074 $ 1,773,096 $ 5,238,978 Adjustment for the net effect of the current year activity between the internal service funds and the enterprise funds (98,684) Change in net position of business-type activities $ (878,962) 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, 2016 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 $ 5,956,865 $ 6,806,070 $ 283,786 $ 13,046,721 $ 56,501 Receipts from interfund services provided 12,872 146,146 - 159,018 7,016,833 Other receipts - - - - 1,210,258 Payments to suppliers (6,549,469) (2,253,091) (173,042) (8,975,602) (6,119,862) Payments to employees (517,936) (1,358,685) (22,822) (1,899,443) (1,302,293) Payments for interfund services used (498,300) (648,665) (23,824) (1,170,789) (851,912) Net cash provided by (used for) operating activities (1,595,968) 2,691,775 64,098 1,159,905 9,525 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers in - - - - 75,000 Advances to component units - - - - 76,722 Net cash provided by noncapital financing activities - - - - 151,722 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital contributions 765,363 - - 765,363 - Purchases of capital assets (91,256) (818,599) (39,080) (948,935) (192,913) Principal paid on capital debt - (1,370,000) - (1,370,000) - Interest paid on capital debt - (283,360) - (283,360) - Proceeds from sale of capital assets - - - - 8,624 Net cash provided by (used for) capital and related financing activities 674,107 (2,471,959) (39,080) (1,836,932) (184,289) CASH FLOW FROM INVESTING ACTIVITIES Investment earnings 10,414 13,363 1,911 25,688 43,109 Net increase (decrease) in cash and investments (911,447) 233,179 26,929 (651,339) 20,067 Cash and investments July 1, 2015 2,339,749 3,146,513 375,988 5,862,250 3,032,012 Cash and investments at June 30, 2016 $ 1,428,302 $ 3,379,692 $ 402,917 $ 5,210,911 $ 3,052,079 Reconciliation of cash and investments to the Statement of Net Position Cash and investments $ 1,428,302 $ 2,780,192 $ 402,917 $ 4,611,411 $ 3,052,079 Restricted cash and investments - 599,500 - 599,500 - $ 1,428,302 $ 3,379,692 $ 402,917 $ 5,210,911 $ 3,052,079 Reconciliation of operating income (loss) to net cash provided by (used for) operating activities Operating income (loss) $ (2,310,458) $ 1,037,618 $ (39,885) $ (1,312,725) $ (403,292) Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities Depreciation expense 455,546 1,987,319 111,170 2,554,035 380,993 Bad debt expense 8,969 5,981 - 14,950 - Change in assets and liabilities Receivables (344,786) (538,778) (3,761) (887,325) 22,291 Inventories 19,648 28,810 - 48,458 3,303 Prepaid items 130 (1,972) (167) (2,009) 79,705 Accounts payable 507,390 (81,830) (3,846) 421,714 (265,539) Accrued liabilities 67,593 254,627 587 322,807 192,064 Net cash provided by (used for) operating activities $ (1,595,968) $ 2,691,775 $ 64,098 $ 1,159,905 $ 9,525 The accompanying notes are an integral part of this statement. 42 City of Muskegon STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES Fiduciary Funds June 30, 2016 Agency Funds ASSETS Cash and investments $ 913,108 Accounts receivable 10,675 Total assets $ 923,783 LIABILITIES Accounts payable $ 756,087 Due to other governmental units 87,995 Deposits held for others 79,701 Total liabilities $ 923,783 The accompanying notes are an integral part of this statement. 43 City of Muskegon STATEMENT OF NET POSITION Discretely Presented Component Units June 30, 2016 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 $ 21,030 $ 118,840 $ 454 $ 70,699 $ 17,967 $ 228,990 Noncurrent assets Capital assets, net Nondepreciable 400,000 - - - - 400,000 Depreciable 1,625,770 - - - - 1,625,770 Total noncurrent assets 2,025,770 - - - - 2,025,770 Total assets 2,046,800 118,840 454 70,699 17,967 2,254,760 LIABILITIES Current liabilities Accrued liabilities 18,267 2,069 - - - 20,336 Bonds and other obligations, due within one year 345,000 310,000 - - - 655,000 Total current liabilities 363,267 312,069 - - - 675,336 Noncurrent liabilities Advances from primary government - - - 1,221,119 - 1,221,119 Bonds and other obligations, less amounts due within one year 2,971,088 1,340,332 - - - 4,311,420 Total noncurrent liabilities 2,971,088 1,340,332 - 1,221,119 - 5,532,539 Total liabilities 3,334,355 1,652,401 - 1,221,119 - 6,207,875 NET POSITION Net investment in capital assets (1,290,318) - - - - (1,290,318) Unrestricted 2,763 (1,533,561) 454 (1,150,420) 17,967 (2,662,797) Total net position $ (1,287,555) $ (1,533,561) $ 454 $ (1,150,420) $ 17,967 $ (3,953,115) 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, 2016 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 Community and economic development $ 172,648 $ - $ (172,648) $ - $ - $ - $ - $ (172,648) Interest on long-term debt 80,276 340,000 259,724 - - - - 259,724 Total Local Development Finance Authority - SmartZone 252,924 340,000 87,076 - - - - 87,076 Downtown Development Authority Interest on long-term debt 29,607 175,000 - 145,393 - - - 145,393 Tax Increment Finance Authority Community and economic development 36,000 - - - (36,000) - - (36,000) Brownfield Redevelopment Authority I Interest on long-term debt 34,696 - - - - (34,696) - (34,696) 45 Brownfield Redevelopment Authority II Community and economic development 142,745 - - - - - (142,745) (142,745) Total discretely presented component units $ 495,972 $ 515,000 87,076 145,393 (36,000) (34,696) (142,745) 19,028 General revenues Property taxes 95,372 227,201 34,398 136,555 160,448 653,974 Unrestricted investment income 87 522 5 274 154 1,042 Total general revenues 95,459 227,723 34,403 136,829 160,602 655,016 Change in net position 182,535 373,116 (1,597) 102,133 17,857 674,044 Net position at July 1, 2015 (1,470,090) (1,906,677) 2,051 (1,252,553) 110 (4,627,159) Net position at June 30, 2016 $ (1,287,555) $ (1,533,561) $ 454 $ (1,150,420) $ 17,967 $ (3,953,115) The accompanying notes are an integral part of this statement. City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 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 DDA’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 TIFA’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 (SmartZone). Currently only the SmartZone is active. 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, 2016 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, 2016, 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, 2015, the date of its latest audited financial statements is as follows: Total assets and deferred outflows of resources $ 4,490,802 Total liabilities and deferred inflows of resources (432,206) Total net position $ 4,058,596 Total operating income $ 1,604,765 Total operating expenses (2,063,265) Total nonoperating revenues 596 Capital contributions 174,638 Change in net assets $ (283,266) 47 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 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, 2016 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, operating expenses and debt service of the City’s sewer system. The Water Fund accounts for user charges, 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 employee payroll withholdings, property taxes collected by the City on behalf of other governments, and deposits made by housing rehabilitation program participants. 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, 2016 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. Income taxes, property taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. 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. 50 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 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 The component unit’s cash and investments are maintained within the City’s investment pool. 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: 51 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance—Continued Capital Assets—Continued Capital Asset Classes Years Land improvements 5-25 Leasehold improvements 10-25 Buildings and improvements 25-50 Utility buildings, improvements and systems 40-100 Furniture, vehicles and equipment 5-20 Infrastructure 15-50 Shared improvements 20 Defined Benefit Plan For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the Plan fiduciary net position have been determined on the same basis as they are reported by the Municipal Employees Retirement System (MERS) of Michigan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. 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. 52 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance—Continued 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 adoption of a resolution prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the resolution remains in place until a similar action is taken (the adoption of another resolution) to remove or revise the limitation. 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 percent 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 2015 state taxable value for real/personal property of the City totaled approximately $576,498,000 of which approximately $11,689,000 was captured by the component units. The ad valorem taxes levied consisted of 10.0, 3.0 and .0869 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, 2016 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 2015 financial statements have been reclassified to conform to the 2016 presentation. NOTE B—STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Information Annual budgets are adopted on a basis consistent with generally accepted accounting principles for the General Fund and special revenue funds. The appropriated budget is prepared by fund, function and department. The City Manager and department heads 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, 2016 NOTE B—STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY—Continued Excess of Expenditures Over Appropriations During the year ended June 30, 2016, actual expenditures exceeded appropriations for: Final Budget Actual General Fund Public works Cemeteries maintenance $ 387,371 $ 406,444 Community and economic development Planning, zoing and economic development 399,495 422,267 Edison Landing subsidy 250,000 265,000 Culture and recreation Parks maintenance 1,187,215 1,284,097 General and inner city recreation programs 100,500 126,580 Farmers' market and flea market 170,375 188,214 Other financing uses Transfers out 25,000 1,318,164 L.C. Walker Arena Culture and recreation 1,305,000 1,435,878 These overexpenditures were funded with available fund balance. NOTE C—DEPOSITS AND INVESTMENTS As of June 30, 2016, the City had the following investments: Weighted Average Maturity Fair Value (Months) S&P Percent Investment Type Money market funds $ 337,320 1 AAA 4.6 % Negotiable certificates of deposit 1,513,313 47 not rated 20.7 US Agency obligations 4,919,636 221 AA+ 67.4 Local units of government obligations 533,045 46 AAA 7.3 Total fair value $ 7,303,314 100.0 % Portfolio weighted average maturity 162 55 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 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 percent 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 percent each of the total portfolio. More than 5 percent of the City’s investments are in various U.S. Agency obligations including Financial Home Loan Mortgage Corporation, Federal Home Loan Bank System, and Government National Mortgage Association obligations. These investments are 30 percent, 21 percent, and 6 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, 2016, $13,793,257 of the City’s bank balance of $14,293,257 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, 2016, 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, 2016 NOTE D—ASSETS MANAGED BY OTHERS As allowed by MCL 123.874 and MCL 128.4, the City is permitted to place monies in community foundations. The Funds The City has two funds with the Community Foundation of Muskegon County (Community Foundation). Lakeshore Trails Improvement Fund The Lakeshore Trails Improvement Fund was established by the City primarily to be used for the general support of the bike trails which are located in the City of Muskegon. The agreement with the Community Foundation allows the use of the Fund’s income in accordance with the Community Foundation’s spending policy and principal in certain circumstances. Cemetery Perpetual Care Fund The City of Muskegon Cemetery Perpetual Care Fund was established by the City primarily to be used for the care and maintenance of the cemeteries that are operated by the City. The agreement with the Community Foundation allows the use of the Fund’s income in accordance with the Community Foundation’s spending policy and principal in certain circumstances. The Community Foundation invests the contributions to the funds in various types of marketable equity and debt securities, U.S. Treasuries, commercial paper, and certificates of deposit. The majority of investments are uninsured and uncollateralized. Reporting of the Assets of the Funds The investments held at the Community Foundation, which were contributed by the City to the funds along with the earnings on these investments, are reported at fair value as assets of the City. The contributions to these funds made by third party donors directly to the Community Foundation have been excluded from the assets of the City. 57 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE D—ASSETS MANAGED BY OTHERS—Continued Summary of the Community Foundation Funds A summary of revenues, expenses, and changes in the assets at fair value of the funds for the year ended June 30, 2016 follows: Lakeshore Trails Cemetery Improvement Perpetual Fund Care Fund Totals Revenues Contributions $ 1,552 $ - $ 1,552 Dividends and interest 734 18,283 19,017 Realized and unrealized loss on investments 443 10,666 11,109 2,729 28,949 31,678 Expenses Administration fees 198 4,936 5,134 Revenues over expenses 2,531 24,013 26,544 Total assets at beginning of year 39,162 1,000,000 1,039,162 Total assets at end of year 41,693 1,024,013 1,065,706 Less assets recorded as those of the Foundation (29,925) - (29,925) Assets reported on the Balance Sheet/ Statement of Net Position $ 11,768 $ 1,024,013 $ 1,035,781 The Board of Trustees of the Community Foundation has the power to modify any restriction or condition on the distribution of funds for any specified charitable purpose or to a specified organization if, in the sole judgment of the Board, such restriction or condition becomes, in effect, unnecessary, incapable of fulfillment, or inconsistent with the charitable needs of the community served. The authority to modify restrictions is sometimes referred to as “variance power” and is a legal standard imposed on all community foundations. 58 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE E—FAIR VALUE MEASUREMENTS The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The three levels of the fair value hierarchy are described below: Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the City the ability to access. Level 2 Inputs to the valuation methodology include the following: - Quoted prices for similar assets or liabilities in active markets; - Quoted prices for identical or similar assets or liabilities in inactive markets; - Inputs other than quoted prices that are observable for the asset or liability; - Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at June 30, 2016. Money market funds: Valued at amortized cost which approximates fair value. Negotiable certificates of deposit, US agency obligations, Local units of government obligations: Valued at the closing price reported on the active market on which the individual securities are traded. 59 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE E—FAIR VALUE MEASUREMENTS—Continued Assets managed by others: The assets are valued based upon the City’s allocable share of the Community Foundation of Muskegon County (Community Foundation) pooled investment portfolio. The allocable share is based on the value of the underlying assets owned by the fund, minus its liabilities. The assets managed by others are valued monthly by the Community Foundation and are allocated based upon each organization’s calculated share of the Community Foundation’s pooled investment portfolio. Each entity with an interest within the pooled investments receives a statement from the Community Foundation indicating the additions to the investment (via contributions), withdrawals from the investment (via grants), and the investment returns allocated via a unitization process. The City calculates the fair value of its beneficial interest in the pooled investment assets held by the Community Foundation based on the estimated fair value of the underlying assets. The Community Foundation controls the investments and makes all management and investment decisions. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the City believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following table sets forth by level, within the fair value hierarchy, the City’s assets at fair value on a recurring basis as of June 30, 2016: Assets at Fair Value as of June 30, 2016 Level 1 Level 2 Level 3 Total Money market funds $ - $ 337,320 $ - $ 337,320 Negotiable certificates of deposit 1,513,313 - - 1,513,313 US Agency obligations 4,919,636 - - 4,919,636 Local units of government obligations 533,045 - - 533,045 Total assets at fair value $ 6,965,994 $ 337,320 $ - $ 7,303,314 60 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE F—CAPITAL ASSETS Capital asset activity for the year ended June 30, 2016 was as follows: Balance Balance July 1, 2015 Additions Deductions June 30, 2016 Governmental activities: Capital assets, not being depreciated: Land $ 12,179,985 $ 73,575 $ - $ 12,253,560 Construction in progress 3,986,271 3,575,626 2,698,934 4,862,963 Total capital assets, not being depreciated 16,166,256 3,649,201 2,698,934 17,116,523 Capital assets, being depreciated: Land improvements 4,503,686 181,431 - 4,685,117 Leasehold improvements 534,821 - - 534,821 Buildings and improvements 22,186,477 1,245,080 - 23,431,557 Furniture, vehicle and equipment 13,897,224 381,660 119,914 14,158,970 Infrastructure 78,398,523 1,728,451 8,213,509 71,913,465 Shared improvements 5,934,809 970,484 - 6,905,293 Total capital assets, being depreciated 125,455,540 4,507,106 8,333,423 121,629,223 Less accumulated depreciation: Land improvements 1,453,358 159,813 - 1,613,171 Leasehold improvements 401,954 30,403 - 432,357 Buildings and improvements 15,949,073 490,618 - 16,439,691 Furniture, vehicle and equipment 10,774,665 549,997 119,914 11,204,748 Infrastructure 39,408,395 3,447,334 8,213,509 34,642,220 Shared improvements 3,469,516 296,740 - 3,766,256 Total accumulated depreciation 71,456,961 4,974,905 8,333,423 68,098,443 Total capital assets, being depreciated, net 53,998,579 (467,799) - 53,530,780 Capital assets, net $ 70,164,835 $ 3,181,402 $ 2,698,934 $ 70,647,303 Business-type activities: Capital assets, not being depreciated: Land $ 142,250 $ - $ - $ 142,250 Construction in progress 463,110 909,855 184,328 1,188,637 Total capital assets, not being depreciated 605,360 909,855 184,328 1,330,887 Capital assets, being depreciated: Land improvements 1,888,965 - - 1,888,965 Buildings, improvements and systems 91,497,498 145,760 - 91,643,258 Machinery and equipment 2,926,594 77,648 - 3,004,242 Total capital assets, being depreciated 96,313,057 223,408 - 96,536,465 Less accumulated depreciation: Land improvements 1,779,177 18,196 - 1,797,373 Buildings, improvements and systems 42,103,769 2,439,612 - 44,543,381 Machinery and equipment 2,494,880 96,227 - 2,591,107 Total accumulated depreciation 46,377,826 2,554,035 - 48,931,861 Total capital assets, being depreciated, net 49,935,231 (2,330,627) - 47,604,604 Capital assets, net $ 50,540,591 $ (1,420,772) $ 184,328 $ 48,935,491 61 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE F—CAPITAL ASSETS—Continued Depreciation Depreciation expense was charged to functions as follows: Governmental activities: Adminstrative services $ 43,215 Financial services 33,106 Public safety 189,488 Public works 2,126 Highways, streets and bridges 3,867,856 Community and economic development 75,717 Culture and recreation 361,759 General administration 20,645 Internal Service Fund depreciation 380,993 $ 4,974,905 Business-type activities: Sewer $ 455,546 Water 1,987,319 Marina and Launch Ramp 111,170 $ 2,554,035 Balance Balance July 1, 2015 Additions Deductions June 30, 2016 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 1,999,840 172,648 - 2,172,488 Total capital assets, being depreciated, net 1,798,418 (172,648) - 1,625,770 Capital assets, net $ 2,198,418 $ (172,648) $ - $ 2,025,770 Depreciation Depreciation expense was charged to economic development. 62 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE G—INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The composition of interfund balances as of June 30, 2016 is as follows: Due To/From Other Funds: Receivable Fund Payable Fund Amount General Fund Community Development Block Grant Fund $ 127,220 General Fund State Grants Fund 135,949 General Fund HOME Rehabilitation 782 $ 263,951 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 $1,221,119 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 Nonmajor Governmental Funds General Fund $ 35,132 Sidewalk Replacement Fund $ 35,132 Nonmajor Governmental Funds L.C. Walker Arena Fund 485,000 General Fund 1,243,164 Public Improvement Fund 750,000 Community Development Fund 8,164 1,243,164 1,243,164 Nonmajor Governmental Funds Nonmajor Governmental Funds Home Rehabilitation Fund 4,966 Community Development Fund 4,966 Arena Capital L.C. Walker Arena Fund 279,832 Improvements Fund 279,832 284,798 284,798 Internal Service Funds Engineering Services Fund 75,000 General Fund 75,000 $ 1,638,094 $ 1,638,094 The General Fund transferred funds to the L.C. Walker Arena Fund and other funds for operation subsidies. Other transfers between funds were made to meet grant matching requirements or other operational needs. 63 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE H—LONG-TERM DEBT Summary of Changes in Long-Term Liabilities The following is a summary of long-term liabilities activity for the City for the year ended June 30, 2016. Balance Balance Due Within July 1, 2015 Additions Deductions June 30, 2016 One Year Governmental activities: General obligation debt $ 6,565,000 $ 4,535,000 $ 5,225,000 $ 5,875,000 $ 265,000 Discount (9,564) - (9,564) - - Premium - 368,903 - 368,903 - Intergovernmental obligations 94,708 - 18,199 76,509 18,563 Compensated absences 1,220,308 1,562,875 1,417,712 1,365,471 227,600 Governmental activities long-term liabilities $ 7,870,452 $ 6,466,778 $ 6,651,347 $ 7,685,883 $ 511,163 Business-type activities: Revenue obligations $ 11,265,000 $ - $ 1,370,000 $ 9,895,000 $ 1,405,000 Premium 44,368 - 17,406 26,962 - Compensated absences 121,806 182,574 158,764 145,616 24,300 Business-type activities long-term liabilities $ 11,431,174 $ 182,574 $ 1,546,170 $ 10,067,578 $ 1,429,300 Component units: Intergovernmental obligations $ 1,000,000 $ - $ - $ 1,000,000 $ - General obligation debt 4,460,000 - 635,000 3,825,000 655,000 Premium 177,821 - 36,401 141,420 - Component unit long- term liabilities $ 5,637,821 $ - $ 671,401 $ 4,966,420 $ 655,000 General Obligation Debt The City has issued general obligation debt to provide funds for the acquisition and construction of major capital facilities. General obligation debt is a direct obligation and pledges the full faith and credit of the City. This debt is generally issued as serial bonds with varying amounts of principal maturing each year. Certain debt issued by the City’s component units is also backed by the full faith and credit of the City if there is a shortfall in tax increment revenues. General obligation debt outstanding as of June 30, 2016 is as follows: Original Date of Borrowing Interest Rate Maturity Balance General obligation debt: Governmental activities: 2006 Limited Tax General Obligation Bonds $ 5,400,000 4% October 2016 $ 70,000 2011 Capital Improvement Bonds 2,000,000 2.98% September 2021 1,270,000 2016 Limited Tax General Obligation Refunding Bonds 4,535,000 2% - 4% October 2032 4,535,000 $ 5,875,000 Component units: 2011 DDA Tax Increment Refunding Bonds $ 2,045,000 3.75% - 4% June 2018 $ 640,000 2012 LDFA Tax Increment Refunding Bonds 4,100,000 3% - 4% November 2025 3,185,000 $ 3,825,000 64 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE H—LONG-TERM DEBT—Continued General Obligation Debt—Continued The LDFA Tax Increment Refunding 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 shortfalls, up to $75,000 annually. This commitment extends through December 31, 2016. Intergovernmental Obligations The City has long-term contractual obligations with other governmental entities for program purposes. Intergovernmental contractual obligations outstanding as of June 30, 2016 are as follows: Original Date of Borrowing Interest Rate Maturity Balance Intergovernmental Contractual Obligations: Governmental activities: 2008 State of Michigan Brownfield Redevelopment Loan $ 500,000 2% March 2020 $ 76,509 Component units: 1989 DDA Promissory Note to Muskegon County $ 1,000,000 0% August 2019 $ 1,000,000 Revenue Obligations The City has issued bonds where the income derived from the acquired or constructed assets is pledged to pay debt service. Revenue obligations outstanding as of June 30, 2016 are as follows: Original Date of Borrowing Interest Rate Maturity Balance Business-type activities: Revenue obligations: 2004 Drinking Water State Revolving Fund $ 13,900,000 2.13% October 2025 $ 7,675,000 2010 Water Supply System Refunding Bonds 5,995,000 4% - 4.25% May 2019 2,220,000 $ 9,895,000 The City has pledged future water customer revenues, net of specified operating expenses, to repay the 2004 Drinking Water State Revolving Fund Loan and 2010 Water Supply System Refunding Bonds. Proceeds from both issuances were used to make improvements to the City’s water supply system. The bonds are payable solely from water customer net revenues and are payable through 2025 and 2019, respectively. Annual principal and interest payments on the bonds are expected to require less than 54 percent of net revenues through 2019 and less than 28 percent after 2019 through 2025. The total principal and interest remaining to be paid on the bonds is $10,924,773. Principal and interest paid for the year ended June 30, 2016 and total customer net revenues were $1,653,360 and $3,038,300, respectively. The City was in compliance in all material respects with all the revenue bond ordinances at June 30, 2016. For governmental activities, claims and judgments and compensated absences are generally liquidated by the General Fund. 65 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE H—LONG-TERM DEBT—Continued 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, 2016 was approximately $3,793,000. The City is unaware of any circumstances that would cause a shortfall in the near future. On March 9, 2016, the City issued $4,535,000 of 2016 Limited Tax General Obligation Refunding Bonds with interest rates ranging from 2 to 4 percent. The proceeds were used to advance refund $4,815,000 of the outstanding 2006 Limited Tax General Obligation Bonds which had interest rates ranging from 4 to 4.2 percent. The net proceeds of $4,806,325 (including a $368,903 premium and after payment of $97,578 in underwriting fees and other issuance costs) were deposited in an irrevocable trust with an escrow agent to provide funds for the future debt service payments of the refunded bonds. As a result, the 2006 Limited Tax General Obligation Bonds are considered defeased and the liability for those bonds has been removed from long-term obligations with the exception of the October 2016 payment. The City advance refunded the 2006 Limited Tax General Obligation Bonds to reduce its total debt service payments over 16 years by $519,499 and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $409,941. Annual debt service requirements to maturity for debt outstanding as of June 30, 2016 follow: Year Ending Governmental Activites Business-type Activities Component Units June 30, Principal Interest Principal Interest Principal Interest 2017 $ 283,563 $ 202,818 $ 1,405,000 $ 246,434 $ 655,000 $ 129,251 2018 288,934 196,314 1,450,000 203,106 685,000 107,125 2019 294,313 188,476 1,495,000 158,259 375,000 81,100 2020 524,699 176,758 745,000 109,916 1,390,000 65,800 2021 515,000 161,107 760,000 93,925 395,000 50,100 2022-2026 1,780,000 607,802 4,040,000 218,133 1,325,000 103,600 2027-2031 1,625,000 290,500 - - - - 2032-2033 640,000 25,600 - - - - $ 5,951,509 $ 1,849,375 $ 9,895,000 $ 1,029,773 $ 4,825,000 $ 536,976 Annual debt service requirements to maturity by type of debt as of June 30, 2016 follow: Revenue General Obligation Debt Obligations Intergovernmental Year Ending Governmental Component Business-type Governmental Component June 30, Activities Units Activities Activities Units 2017 $ 466,288 $ 784,251 $ 1,651,434 $ 20,093 $ - 2018 465,155 792,125 1,653,106 20,093 - 2019 462,696 456,100 1,653,259 20,093 - 2020 681,364 455,800 854,916 20,093 1,000,000 2021 676,107 445,100 853,925 - - 2022-2026 2,387,802 1,428,600 4,258,133 - - 2027-2031 1,915,500 - - - - 2032-2033 665,600 - - - - $ 7,720,512 $ 4,361,976 $ 10,924,773 $ 80,372 $ 1,000,000 66 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE I—OTHER INFORMATION Risk Management The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees and natural disasters. The City manages its liability and property risk by participating in the Michigan Municipal Risk Management Authority (MMRMA), a public entity risk pool providing property and liability coverage to its participating members. The City pays an annual premium to MMRMA for its insurance coverage. The MMRMA is self-sustaining through member premiums and provides, subject to certain deductibles, occurrence-based casualty coverage for each incident and occurrence-based property coverage to its members by internally assuring certain risks and reinsuring risks through commercial companies. A $150,000 deductible is maintained to place the responsibility for small charges with the City. Settled claims resulting from these risks have not exceeded insurance coverage in any of the past three fiscal years. Changes in the fund’s claim liability amount in 2016 and 2015 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, 2016 $ 137,902 $ (6,455) $ 101,747 $ 29,700 June 30, 2015 104,900 158,000 124,998 137,902 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, 2016, the claims liability including incurred but not reported claims was $34,064. 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 2016 and 2015 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, 2016 $ 49,144 $ 1,267,781 $ 1,282,861 $ 34,064 June 30, 2015 47,960 1,186,633 1,185,449 49,144 67 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE I—OTHER INFORMATION—Continued Contingencies Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability to the applicable funds. The amount, if any, of expenditures that may be disallowed by the grantor cannot be determined at this time, although the City expects such amounts, if any, to be immaterial. The City is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of the City's counsel the resolution of these matters will not have a material adverse effect on the financial condition of the City. Commitments The City has a contract agreement for a street project as of June 30, 2016 of approximately $1,345,000. Approximately $400,000 of these costs is being financed by a grant, with the remainder being paid by 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 $44,695 for the year ended June 30, 2016. The future minimum rental income for this lease is as follows: Year Ending June 30, Amount 2017 $ 33,841 NOTE J—EMPLOYEE RETIREMENT SYSTEM AND PENSION PLAN Defined Benefit Pension Plan Plan Description The City participates in the Municipal Employees Retirement System (MERS) of Michigan. MERS is an agent multiple-employer, statewide public employee pension plan established by the Michigan Legislature under Public Act 135 of 1945 and administered by a nine member Retirement Board. MERS issues a publicly available financial report that includes financial statements and required supplementary information. This report may be obtained accessing the MERS website at www.mersofmich.com. 68 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE J—EMPLOYEE RETIREMENT SYSTEM AND PENSION PLAN—Continued Defined Benefit Pension Plan—Continued Benefits Provided The City’s defined benefit pension plan provides certain retirement, disability and death benefits to plan members and beneficiaries. Public Act 427 of 1984, as amended, established and amends the benefit provisions of the participants in MERS. The Plan covers all full-time employees hired prior to January 2005. Beginning in January 2005, the various employee divisions began to be closed. By July 2006, all employee divisions were closed. Benefits provided are based on the following by employee division: Normal Reduced Vesting Retirement Early Early Mulitplier Period Age Retirement Retirement Non-Union General 2.25% 5 years 60 55/25 50/25 or 55/15 Non-Union Police 3.00% 10 years 55 53/25 50/25 Clerical 2.25% 5 years 60 55/30 50/25 or 55/15 Department of Public Works 2.25% 10 years 60 55/30 50/25 or 55/15 Police Patrol 3.00% 10 years 55 50/25 Not applicable Police Command 3.00% 10 years 55 50/25 Not applicable Fire 2.75% 10 years 55 53/25 50/25 Final average compensation is calculated based on 3 years. Employees Covered by Benefit Terms At December 31, 2015 valuation date, the following employees were covered by the benefit terms: Inactive employees or beneficiaries currently receiving benefits 307 Inactive employees entitled to but not yet receiving benefits 29 Active employees 143 Total employees covered by MERS 479 Contributions The City is required to contribute amounts at least equal to the actuarially determined rate, as established by the MERS Retirement Board. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City may establish contribution rates to be paid by its covered employees. For the year ended June 30, 2016, the City had a flat-dollar employer contribution to the Plan of $1,546,440 in lieu of a percentage of covered employee payroll, as the Plan is closed to new employees. Member contributions range from 5 percent to 6.5 percent. Net Pension Liability The City’s net pension liability was measured as of December 31, 2015, and the total pension liability used to calculate the net pension liability was determined by an annual actuarial valuation as of that date. 69 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE J—EMPLOYEE RETIREMENT SYSTEM AND PENSION PLAN—Continued Defined Benefit Pension Plan—Continued Actuarial Assumptions The total pension liability in the December 31, 2015 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.5 percent Salary increases 3.75 percent, in the long-term Investment rate of return 7.75 percent, net of administrative and investment expenses Although no specific price inflation assumptions are needed for the valuation, the 2.5 percent long-term wage inflation assumption would be consistent with a price inflation of 3-4 percent. Mortality rates used were based on the RP-2014 Group Annuity Mortality Table of a 50 percent Male and 50 percent Female blend. The actuarial assumptions used in valuation were based on the results of the most recent actuarial experience study of 2009 through 2013. The long-term expected rate of return on pension plan investments was determined using a model method in which the best-estimate ranges of expected future real rates of return (expected returns, net of investment and administrative expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Long-Term Target Expected Real Asset Class Allocation Rate of Return Global equity 57.5% 5.02% Global fixed income 20.0% 2.18% Real assets 12.5% 4.23% Diversifying strategies 10.0% 6.56% Discount Rate The discount rate used to measure the total pension liability was 8.25 percent for 2015. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current contribution rate and that City contributions will be made at rates equal to the difference between actuarially determined contribution rates and the employee rate. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to pay all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 70 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE J—EMPLOYEE RETIREMENT SYSTEM AND PENSION PLAN—Continued Defined Benefit Pension Plan—Continued Changes in the Net Pension Liability Increase (Decrease) Plan Net Pension Total Pension Fiduciary Liability Liability (a) Position (b) (a)-(b) Balance at December 31, 2014 $ 99,966,407 $ 85,358,622 $ 14,607,785 Changes for the year Service cost 1,194,909 - 1,194,909 Interest 8,034,035 - 8,034,035 Difference between expected and actual experience (647,017) - (647,017) Changes in assumptions 4,779,382 - 4,779,382 Contributions - employer - 1,420,218 (1,420,218) Contributions - employee - 566,045 (566,045) Net investment income - (1,237,895) 1,237,895 Administrative expenses - (183,599) 183,599 Benefit payments including refund of employee contributions (6,363,249) (6,363,249) - Net changes 6,998,060 (5,798,480) 12,796,540 Balance at December 31, 2015 $ 106,964,467 $ 79,560,142 $ 27,404,325 Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the City, calculated using the discount rate of 8.25 percent, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1- percentage-point lower (7.25 percent) or 1-percentage-point higher (9.25 percent) than the current rate: Current 1% Decrease Discount Rate 1% Increase (7.25%) (8.25%) (9.25%) City's net pension liability $39,280,835 $ 27,404,325 $17,337,757 Note: The current discount rate shown for GASB 68 purposes is higher than the MERS assumed rate of return. This is because for GASB 68 purposes, the discount rate must be gross of administrative expenses, whereas for funding purposes, it is net of administrative expense. 71 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE J—EMPLOYEE RETIREMENT SYSTEM AND PENSION PLAN—Continued Defined Benefit Pension Plan—Continued Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended June 30, 2016, the City recognized pension expense of $6,120,623. At June 30, 2016, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Differences in experience $ - $ 323,508 Differences in assumptions 2,389,691 - Net differences between projected and actual net investment income 7,067,008 - Contributions subsequent to the measurement date* 980,052 - Total $ 10,436,751 $ 323,508 *The amount reported as deferred outflows of resources resulting from contributions subsequent to the measurement date will be recognized as a reduction in the net pension liability for the year ending June 30, 2017. Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending June 30, Amount 2017 $ 3,897,751 2018 1,831,568 2019 1,831,568 2020 1,572,304 Payables to the Pension Plan At June 30, 2016, the City reported a payable of $376,708 for the outstanding amount of contributions to the pension plan required for the year ended June 30, 2016 and an additional contribution approved by the City Commission. 72 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE J—EMPLOYEE RETIREMENT SYSTEM AND PENSION PLAN—Continued Defined Contribution Pension Plan The City also maintains a defined contribution plan offered by MERS for its full-time employees hired after the defined benefit plan was closed to new participants. Benefit terms, including contribution requirements, for the MERS defined contribution plan are established and may be amended by the City Commission as determined by negotiated labor contracts. The City is required to contribute 3 percent to 10.5 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, 2016, City and employee contributions were $291,513 and $156,449, respectively. Employees are immediately vested in their own contributions and earnings on those contributions and become vested in City contributions and earnings on City contributions by 20 percent for each full year of service, leaving employees fully vested after five years of service. Nonvested City contributions are forfeited upon termination of employment. Such forfeitures are used to cover a portion of the pension plan’s administrative expenses. For the year ended June 30, 2016, forfeitures reduced the City’s pension expense by $13,120. 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). 73 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE K—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 3.82 to 7.44 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, 2016, the City’s OPEB cost (expense) of $639,428 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, 2014 $ 696,634 100 % $ - June 30, 2015 659,451 100 - June 30, 2016 639,428 100 - 74 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE K—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, 2013 actuarial valuation using the entry age actuarial cost method. The actuarial assumptions included (a) 7.5 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 percent after 10 years. Both rates include a 4 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, 2013 is 24 years. Funded Status and Progress As of December 31, 2013, the most recent actuarial valuation date, the plan was 87 percent funded. The actuarial accrued liability for benefits was approximately $21,102,000, and the actuarial value of assets was approximately $18,261,000, resulting in an unfunded actuarial liability (UAAL) of approximately $2,841,000. The covered payroll (annual payroll of active employees covered by the plan) was approximately $10,005,000, and the ratio of the UAAL to the covered payroll was 28 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, 2016, City and employee contributions were $46,380 and $197,218, respectively. 75 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2016 NOTE L—UPCOMING ACCOUNTING PRONOUNCEMENTS GASB Statement 75—Accounting and Financial Reporting for Postemployment Benefits other than Pensions was issued by the GASB in June 2015 and will be effective for the City’s 2018 fiscal year. The statement requires governments that participate in postemployment benefits other than pensions (OPEB) to report in their Statement of Net Position a net OPEB liability. The net OPEB liability is the difference between the total OPEB 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. The net OPEB liability recorded in the Statement of Net Position on July 1, 2017 will be significant. GASB Statement 77—Tax Abatement Disclosures was issued by the GASB in August 2015 and will be effective for the City’s 2017 fiscal year. This Statement requires the City to disclose the following information about tax abatement agreements entered into to foster economic growth or otherwise benefit the City or its citizens: a brief description of the arrangement including the taxes being abated, the gross dollars of the taxes abated during the period, and any additional commitments made by the City as part of the agreement. 76 REQUIRED SUPPLEMENTARY INFORMATION 77 City of Muskegon BUDGETARY COMPARISON SCHEDULE General Fund For the year ended June 30, 2016 (with comparative actual amounts for the year ended June 30, 2015) 2016 2015 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual REVENUES Taxes City income taxes $ 7,830,000 $ 8,650,000 $ 8,151,902 $ (498,098) $ 8,274,666 Property taxes 7,739,000 7,389,000 7,381,555 (7,445) 7,357,107 Industrial facilities taxes 95,000 95,000 99,363 4,363 104,247 Payments in lieu of taxes 543,290 543,290 545,941 2,651 94,117 Total taxes 16,207,290 16,677,290 16,178,761 (498,529) 15,830,137 Licenses and permits Business licenses 50,000 55,000 63,182 8,182 62,495 Liquor licenses 58,000 48,000 48,790 790 63,136 Cable TV fees 350,000 350,000 372,117 22,117 369,965 Rental property registration 170,000 170,000 152,380 (17,620) 145,777 Burial permits 82,000 82,000 81,095 (905) 83,922 Building permits 373,000 383,000 371,692 (11,308) 333,370 Electrical permits 98,000 93,000 84,912 (8,088) 88,524 Plumbing permits 41,000 41,000 34,316 (6,684) 29,269 Mechanical permits 74,000 71,000 69,070 (1,930) 67,930 Vacant building fees 95,000 150,000 165,590 15,590 117,258 Police gun registration - - - - 75 Total licenses and permits 1,391,000 1,443,000 1,443,144 144 1,361,721 Intergovernmental revenues Federal grants 69,862 66,729 72,521 5,792 84,296 State Grants 15,000 114,000 155,951 41,951 14,546 State shared revenue 4,011,659 4,011,659 3,886,514 (125,145) 3,889,178 Total intergovernmental revenues - State 4,026,659 4,125,659 4,042,465 (83,194) 3,903,724 Local 25,000 25,000 36,000 11,000 38,000 78 City of Muskegon BUDGETARY COMPARISON SCHEDULE—CONTINUED General Fund For the year ended June 30, 2016 (with comparative actual amounts for the year ended June 30, 2015) 2016 2015 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual Charges for services Tax administration fees $ 298,800 $ 298,800 $ 339,353 $ 40,553 $ 338,718 Utility administration fees 310,000 310,000 310,000 - 250,000 Reimbursement for elections 33,000 42,182 26,702 (15,480) 14,796 Brownfield authority admin fee 120,000 120,000 153,000 33,000 121,925 Indirect cost reimbursements 1,025,618 1,025,618 1,025,618 - 958,040 Site plan review fee 2,000 2,000 8,300 6,300 4,600 Sale of cemetery lots 21,000 21,000 25,987 4,987 21,108 Police miscellaneous 110,000 142,900 142,854 (46) 127,981 Police impound fees 38,500 37,500 34,005 (3,495) 43,850 Fire protection-state property 81,000 80,000 81,249 1,249 80,227 Zoning fees 12,000 13,000 12,962 (38) 11,680 Muskegon Heights zoning 3,000 3,000 11,095 8,095 4,900 Clerk fees 2,800 17,000 16,789 (211) 4,219 Clerk fees - passport fees 8,000 25,000 27,199 2,199 12,025 Tax abatement application fees 3,000 3,000 600 (2,400) 3,822 Treasurer fees 92,000 92,000 69,743 (22,257) 54,289 False alarm fees 10,500 10,500 6,435 (4,065) 10,020 Miscellaneous cemetery income 15,000 15,000 17,128 2,128 15,462 Fire miscellaneous 7,300 9,300 11,413 2,113 8,610 Sanitation stickers 71,100 75,100 82,840 7,740 80,521 Lot cleanup fees 60,000 58,000 84,143 26,143 80,019 Reimbursements - lot mowing and demolitions 7,000 7,000 9,728 2,728 18,185 Special events reimbursements 25,000 25,000 30,877 5,877 69,791 Recreation program fees 3,500 3,500 5,201 1,701 4,844 Other charges for services - - 227 227 - Total charges for services 2,360,118 2,436,400 2,533,448 97,048 2,339,632 Fines and forfeitures Income tax - penalty and interest 170,000 170,000 204,792 34,792 198,995 Late fees on current taxes 25,000 25,000 35,081 10,081 14,570 Interest on late invoices 2,000 2,000 4,252 2,252 3,769 Parking fines 90,000 75,000 73,390 (1,610) 98,052 Court fines 100,000 105,000 129,764 24,764 126,913 Civil infractions 15,000 9,900 11,902 2,002 9,000 Total fines and forfeitures 402,000 386,900 459,181 72,281 451,299 Interest and rental income Interest income 12,000 12,000 92,890 80,890 19,477 Net increase (decrease) in the fair value of investments - - (7,428) (7,428) (12,892) Flea market 26,000 26,000 25,580 (420) 27,352 Farmers' market 60,300 60,300 74,754 14,454 77,197 City right of way rental 6,800 6,800 6,800 - 6,800 Fire station lease - Central Dispatch 45,000 45,000 44,695 (305) 46,666 Great Lakes Naval Memorial lease 15,000 15,000 7,500 (7,500) 15,000 McGraft park rentals 45,000 45,000 76,761 31,761 51,051 Other park rentals 45,000 45,000 62,373 17,373 55,540 Total interest and rental income 255,100 255,100 383,925 128,825 286,191 79 City of Muskegon BUDGETARY COMPARISON SCHEDULE—CONTINUED General Fund For the year ended June 30, 2016 (with comparative actual amounts for the year ended June 30, 2015) 2016 2015 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual Other Sale of land and assets $ - $ - $ 100 $ 100 $ - Police sale and auction proceeds 2,000 2,000 832 (1,168) 1,676 CDBG program reimbursements 453,124 368,124 422,840 54,716 352,332 Fisherman's Landing reimbursement 13,500 11,300 11,320 20 13,951 Contributions 117,000 117,000 111,650 (5,350) 119,400 Contributions - Veteran's Park maintenance 16,500 18,500 18,504 4 19,081 Community Foundation for Muskegon County 10,000 22,000 32,096 10,096 17,969 Miscellaneous and sundry 51,000 52,500 74,327 21,827 70,990 Total other 663,124 591,424 671,669 80,245 595,399 Total revenues 25,400,153 26,007,502 25,821,114 (186,388) 24,890,399 EXPENDITURES Current Public representation services City commission 100,270 100,270 95,107 5,163 72,039 City promotions and public relations 29,900 58,900 63,880 (4,980) 40,059 City manager 270,739 284,339 279,956 4,383 232,984 Contributions to outside agencies 271,260 280,260 273,572 6,688 270,749 City attorney 357,410 357,410 351,988 5,422 314,957 Total public representation services 1,029,579 1,081,179 1,064,503 16,676 930,788 Administrative services City clerk 385,113 385,113 365,993 19,120 378,948 Civil service 90,300 118,300 117,219 1,081 97,499 Affirmative action 89,735 97,865 94,242 3,623 77,883 Total administrative services 565,148 601,278 577,454 23,824 554,330 Financial services Finance administration 416,592 444,222 445,076 (854) 410,688 Assessing 303,500 303,500 294,656 8,844 298,290 Arena administration 239,600 239,600 944 238,656 373,613 Income tax administration 321,937 321,937 309,817 12,120 315,390 Information systems 426,217 492,776 459,375 33,401 414,218 City treasurer 583,279 583,279 558,340 24,939 557,627 Total financial services 2,291,125 2,385,314 2,068,208 317,106 2,369,826 Public safety Police department 9,600,286 9,621,886 8,980,698 641,188 8,942,447 Fire department 3,924,370 4,079,932 3,996,694 83,238 3,886,325 Fire safety inspections 485,000 485,000 478,907 6,093 454,852 Total public safety 14,009,656 14,186,818 13,456,299 730,519 13,283,624 80 City of Muskegon BUDGETARY COMPARISON SCHEDULE—CONTINUED General Fund For the year ended June 30, 2016 (with comparative actual amounts for the year ended June 30, 2015) 2016 2015 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual Public works Street lighting $ 710,000 $ 642,900 $ 566,743 $ 76,157 $ 623,463 Community event support 25,775 25,775 19,424 6,351 24,335 General sanitation 1,666,103 1,666,103 1,605,393 60,710 1,590,080 Storm water management 10,000 10,000 13,755 (3,755) 13,365 City hall maintenance 284,098 284,098 221,270 62,828 226,704 Cemeteries maintenance 387,371 387,371 406,444 (19,073) 398,629 Total public works 3,083,347 3,016,247 2,833,029 183,218 2,876,576 Community and economic development Planning, zoning and economic development 368,507 399,495 422,267 (22,772) 373,658 Environmental services 980,349 1,124,659 1,016,061 108,598 1,000,167 Edison Landing subsidy 250,000 250,000 265,000 (15,000) 227,000 Downtown Development Authority subsidy 175,000 175,000 175,000 - 70,000 Total community and economic development 1,773,856 1,949,154 1,878,328 70,826 1,670,825 Culture and recreation Parks maintenance 1,187,215 1,187,215 1,284,097 (96,882) 1,007,912 McGraft park maintenance 48,089 61,950 56,969 4,981 43,975 General and inner city recreation programs 100,500 100,500 126,580 (26,080) 97,212 Forestry - - - - 26 Graffiti removal 9,026 9,026 1,101 7,925 3,794 Parking operations 5,882 6,300 5,609 691 12,612 Farmers' market and flea market 145,775 170,375 188,214 (17,839) 147,185 Total culture and recreation 1,496,487 1,535,366 1,662,570 (127,204) 1,312,716 Other governmental functions Insurance premiums 256,811 287,000 261,419 25,581 289,370 Other 200,000 200,000 44,388 155,612 80,038 Total other governmental functions 456,811 487,000 305,807 181,193 369,408 Debt service Principal 70,000 70,000 70,000 - 70,000 Interest and fees 201,000 209,000 208,176 824 211,935 Bond issuance costs - 98,000 97,578 422 - Total debt service 271,000 377,000 375,754 1,246 281,935 Capital outlay 133,000 308,000 185,895 122,105 75,298 Total expenditures 25,110,009 25,927,356 24,407,847 1,519,509 23,725,326 Excess of revenues over (under) expenditures 290,144 80,146 1,413,267 1,333,121 1,165,073 81 City of Muskegon BUDGETARY COMPARISON SCHEDULE—CONTINUED General Fund For the year ended June 30, 2016 (with comparative actual amounts for the year ended June 30, 2015) 2016 2015 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual OTHER FINANCING SOURCES (USES) Refunding bonds issued $ - $ 4,535,000 $ 4,535,000 $ - $ - Premium on refunding bonds issued - 369,000 368,903 (97) - Payment to refunded bond escrow agent - (4,806,000) (4,806,325) (325) - Transfers in - - 35,132 35,132 31,349 Transfers out (208,046) (25,000) (1,318,164) (1,293,164) (889,023) Total other financing sources (uses) (208,046) 73,000 (1,185,454) (1,258,454) (857,674) Net change in fund balance $ 82,098 $ 153,146 227,813 $ 74,667 307,399 Fund balance at beginning of year 7,803,496 7,496,097 Fund balance at end of year $ 8,031,309 $ 7,803,496 Note: Both budgets and actual figures are prepared in accordance with generally accepted accounting principles. 82 City of Muskegon BUDGETARY COMPARISON SCHEDULE Major Street and Trunkline Fund For the year ended June 30, 2016 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Intergovernmental revenues Federal $ 240,000 $ 240,000 $ 239,952 $ (48) State 3,597,844 5,094,344 5,165,137 70,793 Charges for services - - 47,127 47,127 Investment earnings 9,100 9,100 12,828 3,728 Other 90,000 89,777 83,086 (6,691) Total revenues 3,936,944 5,433,221 5,548,130 114,909 EXPENDITURES Current Highways, streets and bridges 6,446,668 5,839,668 5,277,781 561,887 Debt service Principal 190,000 190,000 190,000 - Interest and fees 41,000 41,000 41,371 (371) Total expenditures 6,677,668 6,070,668 5,509,152 561,516 Net change in fund balance $ (2,740,724) $ (637,447) 38,978 $ 676,425 Fund balance at July 1, 2015 2,252,718 Fund balance at June 30, 2016 $ 2,291,696 Note: Both budgets and actual figures are prepared in accordance with generally accepted accounting principles. 83 City of Muskegon Required Supplemental Information SCHEDULE OF CHANGES IN NET PENSION LIAIBILITY AND RELATED RATIOS Last Ten Fiscal Years (Amounts were determined as of December 31 of each fiscal year) 2015 2014 TOTAL PENSION LIABILITY Service cost $ 1,194,909 $ 1,190,507 Interest 8,034,035 7,817,503 Differences between expected and actual experience (647,017) - Changes in assumptions 4,779,382 - Benefit payments, including refunds of employee contributions (6,363,249) (6,407,932) Net change in total pension liability 6,998,060 2,600,078 Total pension liability at beginning of year 99,966,407 97,366,329 Total pension liability at end of year (a) $ 106,964,467 $ 99,966,407 PLAN FIDUCIARY NET POSITION Contributions-employer $ 1,420,218 $ 1,166,652 Contributions-employee 566,045 564,409 Net investment income (1,237,895) 5,282,031 84 Benefit payments, including refunds or employee contributions (183,599) (6,407,932) Administrative expense (6,363,249) (193,139) Net change in plan fiduciary net position (5,798,480) 412,021 Plan fiduciary net position at beginning of year 85,358,622 84,946,601 Plan fiduciary net position at end of year (b) $ 79,560,142 $ 85,358,622 City's net pension liability at end of year (a)-(b) $ 27,404,325 $ 14,607,785 Plan fiduciary net position as a percentage of the total pension liability 74.38% 85.39% Covered employee payroll $ 9,108,948 $ 9,171,511 City's net pension liability as a percentage of covered employee payroll 300.85% 159.27% Notes to Schedule Additional actuarial data is not available and will be provided in subsequent years. City of Muskegon Required Supplemental Information PENSION SYSTEM SCHEDULE OF CONTRIBUTIONS Last Ten Fiscal Years Period Ended Year Ended June 30 June 30 Year Ended December 31 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Actuarially determined contribution $ 1,546,440 $ 1,293,996 $ 1,043,040 $ 1,035,772 $ 1,160,870 $ 1,211,612 $ 688,832 $ 801,898 $ 1,067,853 $ 819,258 Contributions in relation to the actuarially determined contribution 1,753,272 1,293,996 1,543,040 1,035,772 1,160,870 2,211,612 688,832 801,898 1,067,853 819,258 Contribution deficiency (excess) $ (206,832) $ - $ (500,000) $ - $ - $ (1,000,000) $ - $ - $ - $ - Covered employee payroll $ 9,108,948 $ 9,171,511 $ 9,198,938 $10,185,425 $10,650,990 $ 11,533,186 $12,613,654 $13,107,179 $12,684,083 $12,684,000 Contributions as percentage of covered employee payroll 19.2% 14.1% 16.8% 10.2% 10.9% 19.2% 5.5% 6.1% 8.4% 6.5% Notes to Schedule Valuation Date: Actuarially determined contribution rates are calculated as of December 31, two years prior to the end of the fiscal year in which contributions are reported. Methods and assumptions used to determine contribution rates: 85 Actuarial cost method Entry age Amortization method Level percentage of payroll, Closed Remaining amortization period 23 years Asset valuation method 5-year smoothed market Inflation 2.5 percent Salary increases 3.75 percent Investment rate of return 7.75 percent, net of investment and administrative expenses Retirement age Varies depending on plan adoption Mortality 50 percent Female/50 percent Male RP-2014 Group Annuity Mortality Table City of Muskegon Required Supplemental Information SCHEDULE OF FUNDING PROGRESS – RETIREE HEALTHCARE PLAN For the year ended June 30, 2016 (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 12/31/09 $ 13,260 $ 24,024 $ 10,764 55 % $ 13,293 81 % 12/31/11 15,331 20,168 4,837 76 12,365 39 12/31/13 18,261 21,102 2,841 87 10,005 28 Actuarial data for 12/31/15 is not available and will be provided in subsequent years. 86 OTHER SUPPLEMENTAL INFORMATION 87 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. L.C. Walker Arena – to account for revenues received for the operation and maintenance of L.C.Walker Arena. Criminal Forfeitures – to account for receipts generated through the sale of assets seized through criminal court proceedings. Downtown BID – to account for the collection of special assessment revenue in the downtown to be used for improvement and maintenance of downtown public infrastructure. 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. 88 DESCRIPTION OF OTHER GOVERNMENTAL FUNDS—CONTINUED Capital Projects Funds—Continued HOME Rehabilitation – to account for grant revenues received from the U. S. Department of Housing and Urban Development for the purpose of providing housing assistance to low and moderate income households in the City. Arena Capital Improvements – to account for ticket revenue collections earmarked for large capital improvements and repairs to the L.C. Walker Arena. Economic Development - Sappi – 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. 89 City of Muskegon COMBINING BALANCE SHEET Other Governmental Funds June 30, 2016 Other Other Permanent Total Other Special Capital Fund - Governmental Revenue Projects Cemetery Funds Funds Funds Perpetual Care ASSETS Cash and investments $ 2,444,498 $ 903,768 $ 1,393,552 $ 147,178 Assets managed by others 1,035,781 - 11,768 1,024,013 Receivables Accounts and loans (net of allowance for uncollectibles) 192,122 7,592 181,566 2,964 Special assessments 32,981 32,981 - - Due from other governmental units 542,853 280,856 261,997 - Advances to component units 407,041 - - 407,041 Prepaid items 4,848 4,848 - - Total assets $ 4,660,124 $ 1,230,045 $ 1,848,883 $ 1,581,196 LIABILITIES Accounts payable $ 618,396 $ 543,930 $ 74,466 $ - Accrued liabilities 20,860 11,920 8,940 - Due to other funds 263,951 - 263,951 - Unearned revenues - expenditure-driven grants 44,323 1,303 43,020 - Total liabilities 947,530 557,153 390,377 - DEFERRED INFLOWS OF RESOURCES Unavailable revenues - special assessments 32,981 32,981 - - Unavailable revenues - other long-term receivables 4,659 - 4,659 - Total deferred inflows of resources 37,640 32,981 4,659 - FUND BALANCES Nonspendable Prepaid items 4,848 4,848 - - Long-term loans receivable 80,178 - 80,178 - Perpetual care 1,476,593 - - 1,476,593 Restricted Highways, streets and bridges 232,686 232,686 - - L.C. Walker Arena 247,028 247,028 - - Law enforcement 138,827 138,827 - - Perpetual care 104,603 - - 104,603 Other purposes 16,522 16,522 - - Assigned for capital projects and public improvements 1,373,669 - 1,373,669 - Total fund balances 3,674,954 639,911 1,453,847 1,581,196 Total liabilities, deferred inflows of resources and fund balances $ 4,660,124 $ 1,230,045 $ 1,848,883 $ 1,581,196 90 City of Muskegon COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Other Governmental Funds For the year ended June 30, 2016 Other Other Permanent Total Other Special Capital Fund - Governmental Revenue Projects Cemetery Funds Funds Funds Perpetual Care REVENUES Intergovernmental revenues Federal $ 1,111,421 $ - $ 1,111,421 $ - State 1,044,292 879,502 164,790 - Charges for services 888,363 856,876 5,500 25,987 Investment earnings 33,926 8,674 10,608 14,644 Income from assets managed by others 24,992 - 979 24,013 Other 756,207 147,465 608,742 - Total revenues 3,859,201 1,892,517 1,902,040 64,644 EXPENDITURES Current Public safety 20,258 20,258 - - Public works 31,849 31,849 - - Highways, streets and bridges 1,400,236 1,400,236 - - Culture and recreation 1,437,768 1,437,768 - - Debt service Principal 168,199 - 168,199 - Interest and fees 7,969 - 7,969 - Capital outlay 3,643,166 - 3,643,166 - Total expenditures 6,709,445 2,890,111 3,819,334 - Excess of revenues over (under) expenditures (2,850,244) (997,594) (1,917,294) 64,644 OTHER FINANCING SOURCES (USES) Proceeds from sale of capital assets 190,957 6,313 184,644 - Transfers in 1,527,962 764,832 763,130 - Transfers out (319,930) - (319,930) - Total other financing sources (uses) 1,398,989 771,145 627,844 - Net change in fund balances (1,451,255) (226,449) (1,289,450) 64,644 Fund balances at July 1, 2015 5,126,209 866,360 2,743,297 1,516,552 Fund balances at June 30, 2016 $ 3,674,954 $ 639,911 $ 1,453,847 $ 1,581,196 91 City of Muskegon COMBINING BALANCE SHEET Other Special Revenue Funds June 30, 2016 Total Other Special Revenue Local L.C. Walker Criminal Downtown Tree Funds Street Arena Forfeitures BID Replacement ASSETS Cash and investments $ 903,768 $ 438,671 $ 304,699 $ 138,827 $ 19,151 $ 2,420 Receivables Accounts 7,592 7,592 - - - - Special assessments 32,981 32,981 - - - - Due from other governmental units 280,856 280,856 - - - - Prepaid items 4,848 4,848 - - - - Total assets $ 1,230,045 $ 764,948 $ 304,699 $ 138,827 $ 19,151 $ 2,420 LIABILITIES Accounts payable $ 543,930 $ 482,513 $ 57,671 $ - $ 3,700 $ 46 Accrued liabilities 11,920 11,920 - - - - 92 Unearned revenues - expenditure-driven grants 1,303 - - - - 1,303 Total liabilities 557,153 494,433 57,671 - 3,700 1,349 DEFERRED INFLOWS OF RESOURCES Unavailable revenues - special assessments 32,981 32,981 - - - - FUND BALANCES Nonspendable - prepaid items 4,848 4,848 - - - - Restricted Highways, streets and bridges 232,686 232,686 - - - - L.C. Walker Arena 247,028 - 247,028 - - - Law enforcement 138,827 - - 138,827 - - Other purposes 16,522 - - - 15,451 1,071 Total fund balances 639,911 237,534 247,028 138,827 15,451 1,071 Total liabilities, deferred inflows of resources and fund balances $ 1,230,045 $ 764,948 $ 304,699 $ 138,827 $ 19,151 $ 2,420 City of Muskegon COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Other Special Revenue Funds For the year ended June 30, 2016 Total Other Special Revenue Local L.C. Walker Criminal Downtown Tree Funds Street Arena Forfeitures BID Replacement REVENUES Intergovernmental revenues - State $ 879,502 $ 877,912 $ - $ - $ - $ 1,590 Charges for services 856,876 16,362 840,514 - - - Investment earnings 8,674 7,365 529 764 7 9 Other 147,465 29,454 70,718 - 47,293 - Total revenues 1,892,517 931,093 911,761 764 47,300 1,599 EXPENDITURES Current Public safety 20,258 - - 20,258 - - Public works 31,849 - - - 31,849 - Highways, streets and bridges 1,400,236 1,400,236 - - - - 93 Culture and recreation 1,437,768 - 1,435,878 - - 1,890 Total expenditures 2,890,111 1,400,236 1,435,878 20,258 31,849 1,890 Excess of revenues over (under) expenditures (997,594) (469,143) (524,117) (19,494) 15,451 (291) OTHER FINANCING SOURCES Proceeds from sale of capital assets 6,313 - 6,313 - - - Transfers in 764,832 - 764,832 - - - Total other financing sources 771,145 - 771,145 - - - Net change in fund balances (226,449) (469,143) 247,028 (19,494) 15,451 (291) Fund balances at July 1, 2015 866,360 706,677 - 158,321 - 1,362 Fund balances at June 30, 2016 $ 639,911 $ 237,534 $ 247,028 $ 138,827 $ 15,451 $ 1,071 City of Muskegon BUDGETARY COMPARISON SCHEDULE Other Special Revenue Funds For the year ended June 30, 2016 Local Street L.C. Walker Arena Variance - Variance - Final Positive Final Positive Budget Actual (Negative) Budget Actual (Negative) REVENUES Intergovernmental revenues - State $ 797,838 $ 877,912 $ 80,074 $ - $ - $ - Charges for services - 16,362 16,362 795,700 840,514 44,814 Investment earnings 2,900 7,365 4,465 - 529 529 Other 47,000 29,454 (17,546) - 70,718 70,718 Total revenues 847,738 931,093 83,355 795,700 911,761 116,061 EXPENDITURES Current Highways, streets and bridges 1,486,843 1,400,236 86,607 - - - 94 Culture and recreation - - - 1,305,000 1,435,878 (130,878) Total expenditures 1,486,843 1,400,236 86,607 1,305,000 1,435,878 (130,878) Excess of revenues over (under) expenditures (639,105) (469,143) 169,962 (509,300) (524,117) (14,817) OTHER FINANCING SOURCES Proceeds from sale of capital assets - - - - 6,313 6,313 Transfers in - - - 235,000 764,832 529,832 Total other financing sources - - - 235,000 771,145 536,145 Net change in fund balances $ (639,105) (469,143) $ 169,962 $ (274,300) 247,028 $ 521,328 Fund balances at July 1, 2015 706,677 - Fund balances at June 30, 2016 $ 237,534 $ 247,028 City of Muskegon BUDGETARY COMPARISON SCHEDULE─CONTINUED Other Special Revenue Funds For the year ended June 30, 2016 Criminal Forfeitures Downtown BID Variance - Variance - Final Positive Final Positive budget Actual (Negative) Budget Actual (Negative) REVENUES Fines and forfeitures $ 16,000 $ - $ (16,000) $ - $ - $ - Investment earnings 700 764 64 - 7 7 Other - - - 64,234 47,293 (16,941) Total revenues 16,700 764 (15,936) 64,234 47,300 (16,934) EXPENDITURES Current Public safety 21,000 20,258 742 - - - Public works - - - 64,234 31,849 32,385 95 Total expenditures 21,000 20,258 742 64,234 31,849 32,385 Net change in fund balances $ (4,300) (19,494) $ (15,194) $ - 15,451 $ 15,451 Fund balance at July 1, 2015 158,321 - Fund balance at June 30, 2016 $ 138,827 $ 15,451 City of Muskegon BUDGETARY COMPARISON SCHEDULE─CONTINUED Other Special Revenue Funds For the year ended June 30, 2016 Tree Replacement Variance - Final Positive Budget Actual (Negative) REVENUES Intergovernmental revenues - State $ 2,900 $ 1,590 $ (1,310) Investment earnings 5 9 4 Total revenues 2,905 1,599 (1,306) EXPENDITURES Current Culture and recreation 2,500 1,890 610 Net change in fund balances $ 405 (291) $ (696) 96 Fund balance at July 1, 2015 1,362 Fund balance at June 30, 2016 $ 1,071 City of Muskegon COMBINING BALANCE SHEET Other Capital Projects Funds June 30, 2016 Total Other EDC Community Arena Economic Capital Projects Public Sidewalk Michcon Revolving Development State HOME Capital Development - Funds Improvement Replacement Remediation Loan Block Grant Grants Rehabilitation Improvements Sappi ASSETS Cash and investments $ 1,393,552 $ 333,395 $ - $ 221,931 $ 323,543 $ - $ - $ - $ - $ 514,683 Assets managed by others 11,768 11,768 - - - - - - - - Receivables Accounts and loans (net of allowance for uncollectibles) 181,566 5,559 - - 28,735 85,129 51,443 10,700 - - Due from other governmental units 261,997 - - - - 50,991 206,731 4,275 - - Total assets $ 1,848,883 $ 350,722 $ - $ 221,931 $ 352,278 $ 136,120 $ 258,174 $ 14,975 $ - $ 514,683 LIABILITIES Accounts payable $ 74,466 $ 51,347 $ - $ - $ - $ 709 $ 8,712 $ 13,698 $ - $ - Accrued liabilities 8,940 317 - - - 8,191 - 432 - - Due to other funds 263,951 - - - - 127,220 135,949 782 - - Unearned revenues - expenditure-driven grants 43,020 - - - - - 43,020 - - - Total liabilities 390,377 51,664 - - - 136,120 187,681 14,912 - - DEFERRED INFLOWS OF RESOURCES Unavailable revenues - other long-term receivables 4,659 4,659 - - - - - - - - 97 FUND BALANCES Nonspendable - long-term loans receivable 80,178 - - - 28,735 - 51,443 - - - Assigned for capital projects and public improvements 1,373,669 294,399 - 221,931 323,543 - 19,050 63 - 514,683 Total fund balances 1,453,847 294,399 - 221,931 352,278 - 70,493 63 - 514,683 Total liabilities, deferred inflows of resources and fund balances $ 1,848,883 $ 350,722 $ - $ 221,931 $ 352,278 $ 136,120 $ 258,174 $ 14,975 $ - $ 514,683 City of Muskegon COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Other Capital Projects Funds For the year ended June 30, 2016 Total Other EDC Community Arena Economic Capital Projects Public Sidewalk Michcon Revolving Development State HOME Capital Development - Funds Improvement Replacement Remediation Loan Block Grant Grants Rehabilitation Improvements Sappi REVENUES Intergovernmental revenues Federal $ 1,111,421 $ - $ - $ - $ - $ 825,063 $ 32,733 $ 253,625 $ - $ - State 164,790 - - - - - 164,790 - - - Charges for services 5,500 - - - 5,500 - - - - - Investment earnings 10,608 4,146 889 1,105 1,560 762 1,228 - - 918 Income from assets managed by others 979 979 - - - - - - - - Other 608,742 510,736 - - 64,194 33,812 - - - - Total revenues 1,902,040 515,861 889 1,105 71,254 859,637 198,751 253,625 - 918 EXPENDITURES Debt service Principal 168,199 - 150,000 - - - 18,199 - - - Interest and fees 7,969 - 6,075 - - - 1,894 - - - Capital outlay 3,643,166 2,125,591 1,035 - 24,963 901,737 197,523 392,317 - - Total expenditures 3,819,334 2,125,591 157,110 - 24,963 901,737 217,616 392,317 - - Excess of revenues over (under) expenditures (1,917,294) (1,609,730) (156,221) 1,105 46,291 (42,100) (18,865) (138,692) - 918 98 OTHER FINANCING SOURCES (USES) Proceeds from sale of capital assets 184,644 87,751 - - - 38,902 - 57,991 - - Transfers in 763,130 750,000 - - - 8,164 - 4,966 - - Transfers out (319,930) - (35,132) - - (4,966) - - (279,832) - Total other financing sources (uses) 627,844 837,751 (35,132) - - 42,100 - 62,957 (279,832) - Net change in fund balances (1,289,450) (771,979) (191,353) 1,105 46,291 - (18,865) (75,735) (279,832) 918 Fund balances at July 1, 2015 2,743,297 1,066,378 191,353 220,826 305,987 - 89,358 75,798 279,832 513,765 Fund balances at June 30, 2016 $ 1,453,847 $ 294,399 $ - $ 221,931 $ 352,278 $ - $ 70,493 $ 63 $ - $ 514,683 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. 99 City of Muskegon COMBINING STATEMENT OF NET POSITION Internal Service Funds June 30, 2016 Total Internal Engineering General Public Service Service Funds Services Equipment Insurance Building ASSETS Current assets Cash and investments $ 3,052,079 $ 36,081 $ 699,089 $ 1,702,109 $ 614,800 Accounts receivable 212,998 - 18,462 194,536 - Inventories 20,857 - 20,857 - - Prepaid items 210,818 1,305 63,289 139,228 6,996 Total current assets 3,496,752 37,386 801,697 2,035,873 621,796 Noncurrent assets Advances to component units 814,078 - 407,039 407,039 - 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 8,363,879 26,355 8,243,160 - 94,364 Less accumulated depreciation (8,156,305) (26,355) (6,563,307) - (1,566,643) Net capital assets 2,133,623 - 1,679,853 - 453,770 Total noncurrent assets 2,947,701 - 2,086,892 407,039 453,770 Total assets 6,444,453 37,386 2,888,589 2,442,912 1,075,566 DEFERRED OUFLOWS OF RESOURCES Related to pension 417,470 - 156,551 - 260,919 Total assets and deferred outflows of resources 6,861,923 37,386 3,045,140 2,442,912 1,336,485 LIABILITIES Current liabilities Accounts payable 370,767 1,313 58,037 296,124 15,293 Accrued liabilities 28,892 4,058 9,445 955 14,434 Due to other governmental units 12,244 12,244 - - - Bonds and other obligations, due within one year 17,000 2,000 4,800 600 9,600 Total current liabilities 428,903 19,615 72,282 297,679 39,327 Noncurrent liabilities Bonds and other obligations, less amounts due within one year 84,928 10,271 24,003 2,852 47,802 Net pension liability 1,096,173 - 411,065 - 685,108 Total noncurrent liabilities 1,181,101 10,271 435,068 2,852 732,910 Total liabilities 1,610,004 29,886 507,350 300,531 772,237 DEFERRED INFLOWS OF RESOURCES Related to pension 12,941 - 4,853 - 8,088 Total liabilities and deferred inflows of resources 1,622,945 29,886 512,203 300,531 780,325 NET POSITION Net investment in capital assets 2,133,623 - 1,679,853 - 453,770 Unrestricted 3,105,355 7,500 853,084 2,142,381 102,390 Total net position $ 5,238,978 $ 7,500 $ 2,532,937 $ 2,142,381 $ 556,160 100 City of Muskegon COMBINING STATEMENT OF REVENUE, EXPENSES AND CHANGES IN NET POSITION Internal Service Funds For the year ended June 30, 2016 Total Internal Engineering General Public Service Service Funds Services Equipment Insurance Building OPERATING REVENUES Charges for services $ 8,194,396 $ 236,514 $ 2,359,699 $ 4,621,423 $ 976,760 Other 66,905 - 52,102 8,973 5,830 Total operating revenues 8,261,301 236,514 2,411,801 4,630,396 982,590 OPERATING EXPENSES Administration 367,517 69,192 89,488 81,144 127,693 Insurance premiums and claims 4,416,046 - - 4,416,046 - Other operations 3,500,037 265,364 2,166,199 53,006 1,015,468 Depreciation 380,993 - 316,276 - 64,717 Total operating expenses 8,664,593 334,556 2,571,963 4,550,196 1,207,878 Operating income (loss) (403,292) (98,042) (160,162) 80,200 (225,288) NONOPERATING REVENUES Investment earnings 43,109 29 17,343 22,402 3,335 Gain on sale of capital assets 8,624 - 8,624 - - Total nonoperating revenues 51,733 29 25,967 22,402 3,335 Income (loss) before transfers (351,559) (98,013) (134,195) 102,602 (221,953) TRANSFERS Transfers in 75,000 75,000 - - - Change in net position (276,559) (23,013) (134,195) 102,602 (221,953) Net position at July 1, 2015 5,515,537 30,513 2,667,132 2,039,779 778,113 Net position at June 30, 2016 $ 5,238,978 $ 7,500 $ 2,532,937 $ 2,142,381 $ 556,160 101 City of Muskegon COMBINING STATEMENT OF CASH FLOWS Internal Service Funds For the year ended June 30, 2016 Total Internal Engineering General Public Service Service Funds Services Equipment Insurance Building CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 56,501 $ 13,813 $ 33,715 $ 8,973 $ - Receipts from interfund services provided 7,016,833 236,514 2,359,699 3,443,860 976,760 Other receipts 1,210,258 - - 1,079,451 130,807 Payments to suppliers (6,119,862) (122,341) (1,224,409) (4,303,012) (470,100) Payments to employees (1,302,293) (122,792) (341,301) (279,203) (558,997) Payments for interfund services used (851,912) (72,004) (638,155) (3,667) (138,086) Net cash provided by (used for) operating activities 9,525 (66,810) 189,549 (53,598) (59,616) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers in 75,000 75,000 - - - Collections on advances to component units 76,722 - 38,361 38,361 - Net cash provided by noncapital financing activities 151,722 75,000 38,361 38,361 - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of capital assets (192,913) - (172,023) - (20,890) Proceeds from sale of capital assets 8,624 - 8,624 - - 102 Net cash used for capital and related financing activities (184,289) - (163,399) - (20,890) CASH FLOW FROM INVESTING ACTIVITIES Investment earnings 43,109 29 17,343 22,402 3,335 Net increase (decrease) in cash and investments 20,067 8,219 81,854 7,165 (77,171) Cash and investments at July 1, 2015 3,032,012 27,862 617,235 1,694,944 691,971 Cash and investments at June 30, 2016 $ 3,052,079 $ 36,081 $ 699,089 $ 1,702,109 $ 614,800 Reconciliation of operating income (loss) to net cash provided by (used for) operating activities Operating income (loss) $ (403,292) $ (98,042) $ (160,162) $ 80,200 $ (225,288) Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities Depreciation expense 380,993 - 316,276 - 64,717 Change in assets and liabilities Receivables 22,291 13,813 (18,387) (98,112) 124,977 Inventories 3,303 - 3,303 - - Prepaid items 79,705 1,017 (753) 80,416 (975) Accounts payable (265,539) 11,321 (22,469) (116,976) (137,415) Accrued liabilities 192,064 5,081 71,741 874 114,368 Net cash provided by (used for) operating activities $ 9,525 $ (66,810) $ 189,549 $ (53,598) $ (59,616) 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, public school districts, and other governmental entities. Rehab Loan Escrow – to account for deposits made by housing rehabilitation program participants and their expenditures for the intended purposes. 103 City of Muskegon COMBINING STATEMENT OF ASSETS AND LIABILITIES Agency Funds June 30, 2016 Total Current Rehab Loan Agency Funds Collector Tax Escrow ASSETS Cash and investments $ 913,108 $ 912,727 $ - $ 381 Accounts receivable 10,675 10,675 - - Total assets $ 923,783 $ 923,402 $ - $ 381 LIABILITIES Accounts payable $ 756,087 $ 755,706 $ - $ 381 Due to other governmental units 87,995 87,995 - - Deposits held for others 79,701 79,701 - - Total liabilities $ 923,783 $ 923,402 $ - $ 381 104 City of Muskegon STATEMENT OF CHANGES IN ASSETS AND LIABILITIES Agency Funds For the year ended June 30, 2016 Balance Balance July 1, June 30, COLLECTOR FUND 2015 Additions Deductions 2016 ASSETS Cash and investments $ 1,013,889 $ 8,204,773 $ 8,305,935 $ 912,727 Accounts receivable 1,867 307,500 298,692 10,675 Total assets $ 1,015,756 $ 8,512,273 $ 8,604,627 $ 923,402 LIABILITIES Accounts payable $ 221,862 $ 4,263,144 $ 3,729,300 $ 755,706 Due to other governmental units 713,717 1,059,718 1,685,440 87,995 Deposits held for others 80,177 2,480,019 2,480,495 79,701 Total liabilities $ 1,015,756 $ 7,802,881 $ 7,895,235 $ 923,402 CURRENT TAX FUND ASSETS Cash and investments $ - $ 20,714,913 $ 20,714,913 $ - LIABILITIES Due to other governmental units $ - $ 20,082,346 $ 20,082,346 $ - Due to component units - 648,370 648,370 - Deposits held for others - 65,522 65,522 - Total liabilities $ - $ 20,796,238 $ 20,796,238 $ - REHAB LOAN ESCROW FUND ASSETS Cash and investments $ 581 $ 200 $ 400 $ 381 LIABILITIES Accounts payable $ 581 $ 200 $ 400 $ 381 ALL AGENCY FUNDS ASSETS Cash and investments $ 1,014,470 $ 28,919,886 $ 29,021,248 $ 913,108 Accounts receivable 1,867 307,500 298,692 10,675 Total assets $ 1,016,337 $ 29,227,386 $ 29,319,940 $ 923,783 LIABILITIES Accounts payable $ 222,443 $ 4,263,344 $ 3,729,700 $ 756,087 Due to other governmental units 713,717 21,142,064 21,767,786 87,995 Due to component units - 648,370 648,370 - Deposits held for others 80,177 2,545,541 2,546,017 79,701 Total liabilities $ 1,016,337 $ 28,599,319 $ 28,691,873 $ 923,783 105 [This page was intentionally left blank.] 106 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. 107 City of Muskegon COMBINING BALANCE SHEET Discretely Presented Component Units June 30, 2016 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 $ 228,990 $ 21,030 $ 118,840 $ 454 $ 70,699 $ 17,967 LIABILITIES Advances from primary government $ 1,221,119 $ - $ - $ - $ 1,221,119 $ - FUND BALANCES (DEFICITS) Unassigned (992,129) 21,030 118,840 454 (1,150,420) 17,967 Total liabilities and fund balances (deficits) $ 228,990 $ 21,030 $ 118,840 $ 454 $ 70,699 $ 17,967 108 City of Muskegon RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION Discretely Presented Component Units June 30, 2016 Total fund balances (deficits)—governmental funds $ (992,129) 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 (2,172,488) 2,025,770 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 (20,336) Bonds and notes payable (4,966,420) (4,986,756) Net position of governmental activities $ (3,953,115) 109 City of Muskegon COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICITS) Discretely Presented Component Units For the year ended June 30, 2016 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 $ 653,974 $ 95,372 $ 227,201 $ 34,398 $ 136,555 $ 160,448 Intergovernmental revenues - Local 440,000 265,000 175,000 - - - Investment earnings 1,042 87 522 5 274 154 Other 75,000 75,000 - - - - Total revenues 1,170,016 435,459 402,723 34,403 136,829 160,602 EXPENDITURES Current Community and economic development 178,745 - - 36,000 - 142,745 110 Debt service Principal 635,000 335,000 300,000 - - - Interest and fees 182,971 112,950 35,325 - 34,696 - Total expenditures 996,716 447,950 335,325 36,000 34,696 142,745 Net change in fund balances (deficits) 173,300 (12,491) 67,398 (1,597) 102,133 17,857 Fund balances (deficits) at July 1, 2015 (1,165,429) 33,521 51,442 2,051 (1,252,553) 110 Fund balances (deficits) at June 30, 2016 $ (992,129) $ 21,030 $ 118,840 $ 454 $ (1,150,420) $ 17,967 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, 2016 Net change in fund balances—total governmental funds $ 173,300 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 635,000 Changes in accrual of interest and amortization of premiums and discounts Change in accrued interest payable $ 1,991 Amortization of premiums 36,401 38,392 Change in net position of governmental activities $ 674,044 111 [This page was intentionally left blank.] 112 SCHEDULE OF INDEBTEDNESS 113 City of Muskegon SCHEDULE OF INDEBTEDNESS June 30, 2016 Annual Date Amount Interest Date of Interest of Issue of Issue Rate Maturity 6/30/2015 6/30/2016 Payable Business-Type Activities Bonds and Loans Payable: Water supply system bonds 4/1/2010 $ 5,995,000 3.25% 05/01/16 $ 685,000 $ - $ - ($26,962 unamortized premium) 4.00% 05/01/17 710,000 710,000 90,725 4.00% 05/01/18 740,000 740,000 62,325 Type of debt: revenue bond 4.25% 05/01/19 770,000 770,000 32,725 Revenue pledged: water system net revenues 2,905,000 2,220,000 185,775 Drinking Water State Revolving 3/2/2004 $ 13,900,000 2.13% 10/01/15 $ 685,000 $ - $ - Fund 2.13% 10/01/16 695,000 695,000 155,709 2.13% 10/01/17 710,000 710,000 140,781 Type of debt: state loan 2.13% 10/01/18 725,000 725,000 125,534 Revenue pledged: water system net revenues 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 8,360,000 7,675,000 843,998 TOTAL BUSINESS-TYPE ACTIVITIES BONDS AND LOANS PAYABLE $ 11,265,000 $ 9,895,000 $ 1,029,773 114 City of Muskegon SCHEDULE OF INDEBTEDNESS - CONTINUED June 30, 2016 Annual Date Amount Interest Date of Interest of Issue of Issue Rate Maturity 6/30/2015 6/30/2016 Payable Governmental Activities Bonds and Loans Payable: Capital improvement bonds 3/1/2003 $ 1,575,000 4.05% 06/01/16 $ 150,000 $ - $ - of 2003 (sidewalks) 150,000 - - Type of debt: limited G.O. bond Revenue pledged: special assessments, general revenues Capital improvement bonds 10/24/2006 $ 5,400,000 4.00% 10/01/15 $ 70,000 $ - $ - of 2006 (fire station, recreation) 4.00% 10/01/16 70,000 70,000 1,400 4.00% 10/01/17 70,000 - - 4.00% 10/01/18 70,000 - - Type of debt: limited G.O. bond 4.00% 10/01/19 295,000 - - Revenue pledged: general revenues 4.00% 10/01/20 305,000 - - 4.00% 10/01/21 315,000 - - 4.00% 10/01/22 315,000 - - 4.00% 10/01/23 320,000 - - 4.00% 10/01/24 340,000 - - 4.00% 10/01/25 345,000 - - 4.00% 10/01/26 345,000 - - 4.10% 10/01/27 345,000 - - 4.10% 10/01/28 350,000 - - 4.10% 10/01/29 350,000 - - 4.20% 10/01/30 350,000 - - 4.20% 10/01/31 350,000 - - 4.20% 10/01/32 350,000 - - 4,955,000 70,000 1,400 Capital Improvement refunding bonds 3/8/2016 $ 4,815,000 4.00% 10/01/16 $ - $ - $ 164,947 of 2016 2.00% 10/01/17 - 70,000 166,100 2.00% 10/01/18 - 65,000 164,750 Type of debt: limited G.O. bonds 3.00% 10/01/19 - 290,000 159,750 Revenue pledged: general revenue 3.00% 10/01/20 - 295,000 150,975 3.00% 10/01/21 - 305,000 141,975 3.00% 10/01/22 - 300,000 132,900 4.00% 10/01/23 - 300,000 122,400 4.00% 10/01/24 - 320,000 110,000 4.00% 10/01/25 - 325,000 97,100 4.00% 10/01/26 - 325,000 84,100 4.00% 10/01/27 - 325,000 71,100 4.00% 10/01/28 - 325,000 58,100 4.00% 10/01/29 - 325,000 45,100 4.00% 10/01/30 - 325,000 32,100 4.00% 10/01/31 - 320,000 19,200 4.00% 10/01/32 - 320,000 6,400 - 4,535,000 1,726,997 Capital improvement bonds 9/30/2011 $ 2,000,000 of 2011 (streets) 2.98% 09/01/15 $ 190,000 $ - $ - 2.98% 09/01/16 195,000 195,000 34,941 Type of debt: limited G.O. bond 2.98% 09/01/17 200,000 200,000 29,055 Revenue pledged: gas tax, general revenues 2.98% 09/01/18 210,000 210,000 22,946 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 1,460,000 1,270,000 117,115 State of Michigan 6/18/2010 $ 500,000 environmental assessment loan 2.00% 03/18/16 $ 18,199 $ - $ - Type of debt: state loan 2.00% 03/18/17 18,563 18,563 1,530 Revenue pledged: general revenues 2.00% 03/18/18 18,934 18,934 1,159 2.00% 03/18/19 19,313 19,313 780 2.00% 03/18/20 19,699 19,699 394 94,708 76,509 3,863 TOTAL GOVERNMENTAL ACTIVITIES BONDS AND LOANS PAYABLE $ 6,659,708 $ 5,951,509 $ 1,849,375 TOTAL PRIMARY GOVERNMENT BONDS AND LOANS PAYABLE $ 17,924,708 $ 15,846,509 $ 2,879,148 115 City of Muskegon SCHEDULE OF INDEBTEDNESS - CONTINUED June 30, 2016 Annual Date Amount Interest Date of Interest of Issue of Issue Rate Maturity 6/30/2015 6/30/2016 Payable Discretely Presented Component Unit Bonds and Loans Payable: Downtown Development Authority 8/10/1989 $ 1,000,000 promissory note to Muskegon County 0.00% 08/30/19 $ 1,000,000 $ 1,000,000 $ - 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 refunding bonds ($10,332 unamortized premium) 3.50% 06/01/16 $ 300,000 $ - $ - 3.75% 06/01/17 310,000 310,000 24,826 Type of debt: limited G.O. bond 4.00% 06/01/18 330,000 330,000 13,200 Revenue pledged: DDA tax increments, general revenues 940,000 640,000 38,026 Local Development Finance Authority 3/20/2012 $ 4,100,000 Smartzone Refunding Bonds ($131,088 unamortized premium) 2.00% 11/01/15 $ 335,000 $ - $ - 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 TOTAL DISCRETELY PRESENTED COMPONENT UNIT BONDS AND LOANS PAYABLE 3,520,000 3,185,000 498,950 $ 5,460,000 $ 4,825,000 $ 536,976 TOTAL REPORTING ENTITY BONDS AND LOANS PAYABLE $ 23,384,708 $ 20,671,509 $ 3,416,124 116 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. 118 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. 123 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. 129 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. 133 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. 135 Sources: Unless otherwise noted, the information in these schedules is derived form the Comprehensive Annual Financial Reports for the relevant year. 117 City of Muskegon NET ASSETS/NET POSITION BY COMPONENT Last Ten Fiscal Years December 31 June 30 2007 2008 2009 2010 2011 2012 2013 (a) 2014 2015 (b) 2016 Governmental Activities Net Investment in Capital Assets $ 68,059,626 $ 69,564,935 $ 69,064,800 $ 67,809,630 $ 67,944,957 $ 66,862,806 $ 63,842,092 $ 63,731,255 $ 63,514,691 $ 64,326,891 Restricted 5,485,703 3,557,678 2,956,449 3,059,208 3,656,410 3,526,343 4,572,848 4,023,895 4,807,531 4,140,342 Unrestricted 10,162,425 10,708,529 8,920,621 13,828,231 12,598,197 12,836,573 13,299,523 12,811,852 491,914 (4,142,119) Total Governmental Net Assets/Net Position $ 83,707,754 $ 83,831,142 $ 80,941,870 $ 84,697,069 $ 84,199,564 $ 83,225,722 $ 81,714,463 $ 80,567,002 $ 68,814,136 $ 64,325,114 Business-type Activities Net Investment in Capital Assets $ 39,356,966 $ 40,876,621 $ 41,876,507 $ 41,105,739 $ 40,419,728 $ 40,147,600 $ 40,032,858 $ 39,365,043 $ 39,231,223 $ 39,013,529 Restricted 822,559 822,559 672,000 672,000 672,000 672,000 599,500 599,500 599,500 599,500 Unrestricted 7,980,823 6,775,508 5,983,935 7,630,396 9,211,610 8,961,713 8,491,848 8,377,093 6,423,540 5,762,272 Total Business-type Activities Net Assets/Net Position $ 48,160,348 $ 48,474,688 $ 48,532,442 $ 49,408,135 $ 50,303,338 $ 49,781,313 $ 49,124,206 $ 48,341,636 $ 46,254,263 $ 45,375,301 Primary Government Net Investment in Capital Assets $ 107,416,592 $ 110,441,556 $ 110,941,307 $ 108,915,369 $ 108,364,685 $ 107,010,406 $ 103,874,950 $ 103,096,298 $ 102,745,914 $ 103,340,420 Restricted 6,308,262 4,380,237 3,628,449 3,731,208 4,328,410 4,198,343 5,172,348 4,623,395 5,407,031 4,739,842 118 Unrestricted 18,143,248 17,484,037 14,904,556 21,458,627 21,809,807 21,798,286 21,791,371 21,188,945 6,915,454 1,620,153 Total Primary Government Net Assets/Net Position $ 131,868,102 $ 132,305,830 $ 129,474,312 $ 134,105,204 $ 134,502,902 $ 133,007,035 $ 130,838,669 $ 128,908,638 $ 115,068,399 $ 109,700,415 (a) In 2013, the City implemented GASB 63 and 65 which changed the elements of the financial statements. (b) In 2015, the City implemented GASB 68 and 71 which changed how governments measure and report pension liabilities. 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 2007 2008 2009 2010 2011 2012 2013 (a) 2014 2015 (b) 2016 EXPENSES Governmental Activities Public representation $ 925,124 $ 986,696 $ 923,911 $ 445,251 $ 854,249 $ 866,809 $ 893,981 $ 1,030,006 $ 939,907 $ 1,107,551 Administrative services 783,713 782,362 698,022 317,873 645,585 566,161 565,307 543,425 614,757 663,077 Financial services 2,205,041 2,292,430 2,406,517 1,209,694 2,373,141 2,399,147 2,241,061 2,171,958 2,547,766 2,331,236 Public safety 12,802,488 13,955,811 13,614,112 6,332,728 13,390,888 13,213,251 12,987,842 12,946,466 14,243,233 17,118,742 Public works 2,989,433 3,019,411 2,986,747 1,640,946 3,471,051 2,958,367 3,201,806 3,361,422 3,183,627 3,109,454 Highways, streets and bridges 7,272,288 7,265,438 7,160,797 3,680,196 7,013,216 6,568,448 6,672,374 7,053,326 7,165,703 7,251,882 Community and economic development 3,054,087 3,174,508 4,139,765 1,275,026 2,830,867 2,447,373 2,499,404 2,417,518 2,712,131 5,223,431 Culture and recreation 2,433,020 2,623,501 2,463,375 759,392 1,524,331 1,601,316 1,592,358 1,671,185 1,806,790 3,551,692 General administration 358,225 574,955 451,651 210,117 794,115 791,197 322,348 366,634 389,248 326,452 Interest on long-term debt 343,106 324,076 288,073 139,006 272,940 283,186 291,535 277,345 271,607 248,223 Total Governmental Activities Expenses 33,166,525 34,999,188 35,132,970 16,010,229 33,170,383 31,695,255 31,268,016 31,839,285 33,874,769 40,931,740 Business-type Activities Water 5,795,279 5,800,977 6,080,230 2,958,795 5,869,241 5,974,173 6,228,788 6,016,192 6,047,244 6,750,826 Sewer 5,066,693 5,503,144 5,426,321 2,525,067 5,288,622 6,202,359 7,226,839 7,582,602 8,460,509 8,669,469 Marina and launch ramp 392,994 347,642 310,773 150,055 292,889 310,174 426,553 503,997 305,990 327,832 Total Business-type Activities Expenses 11,254,966 11,651,763 11,817,324 5,633,917 11,450,752 12,486,706 13,882,180 14,102,791 14,813,743 15,748,127 Total Primary Government Expenses $ 44,421,491 $ 46,650,951 $ 46,950,294 $ 21,644,146 $ 44,621,135 $ 44,181,961 $ 45,150,196 $ 45,942,076 $ 48,688,512 $ 56,679,867 119 PROGRAM REVENUES Governmental Activities Charges for Services Public representation $ 199,759 $ 188,467 $ 213,885 $ 100,177 $ 196,886 $ 196,886 $ 173,739 $ 189,444 $ 188,638 $ 226,559 Administrative services 287,011 257,850 271,117 129,630 263,473 270,886 268,535 325,937 415,308 474,737 Financial services 744,109 726,572 818,845 475,031 879,905 881,229 830,919 871,632 823,547 925,474 Public safety 1,224,062 1,217,616 1,117,476 536,419 1,109,659 1,136,942 1,133,666 1,407,722 1,218,644 1,248,911 Public works 407,569 382,072 383,733 209,203 642,082 480,487 671,494 796,739 571,426 379,877 Highways, streets and bridges 372,133 301,955 251,840 139,009 451,473 230,241 245,609 351,962 258,475 234,861 Community and economic development 356,051 297,854 249,241 186,572 457,952 617,379 432,240 477,486 576,863 444,632 Culture and recreation 454,154 405,520 445,891 129,025 300,367 315,010 606,818 535,211 368,168 1,229,067 General administration 64,366 99,494 123,426 59,373 116,690 116,690 287,729 50,728 48,764 52,512 Operating grants and contributions 5,229,279 5,367,152 6,443,223 3,131,811 5,425,165 4,651,576 4,681,345 4,664,098 5,071,239 5,330,825 Capital grants and contributions 3,347,680 3,444,957 2,105,557 255,234 2,257,163 1,568,005 886,108 1,408,424 3,496,623 3,804,656 Total Governmental Program Revenues 12,686,173 12,689,509 12,424,234 5,351,484 12,100,815 10,465,331 10,218,202 11,079,383 13,037,695 14,352,111 Business-type Activities Water 6,569,228 6,240,060 5,883,830 2,891,169 5,454,760 5,254,095 5,890,614 6,099,480 6,375,869 7,485,013 Sewer 5,179,095 5,326,787 5,720,171 3,441,924 6,652,851 6,455,634 7,058,315 6,633,911 6,363,808 6,305,554 Marina and launch ramp 281,679 250,266 242,055 156,767 194,311 208,370 234,229 228,339 255,638 287,547 Operating grants and contributions - - - - - - 6,188 - - - Capital grants and contributions - - 5,179 - 20,074 - 88,046 327,240 474,681 765,363 Total Business-type program revenues 12,030,002 11,817,113 11,851,235 6,489,860 12,321,996 11,918,099 13,277,392 13,288,970 13,469,996 14,843,477 Total Primary Government program revenues $ 24,716,175 $ 24,506,622 $ 24,275,469 $ 11,841,344 $ 24,422,811 $ 22,383,430 $ 23,495,594 $ 24,368,353 $ 26,507,691 $ 29,195,588 NET (EXPENSE) REVENUE Governmental Activities $ (20,480,352) $ (22,309,679) $ (22,708,736) $ (10,658,745) $ (21,069,568) $ (21,229,924) $ (21,049,814) $ (20,759,902) $ (20,837,074) $ (26,579,629) Business-type Activities 775,036 165,350 33,911 855,943 871,244 (568,607) (604,788) (813,821) (1,343,747) (904,650) Total Primary Government net expense $ (19,705,316) $ (22,144,329) $ (22,674,825) $ (9,802,802) $ (20,198,324) $ (21,798,531) $ (21,654,602) $ (21,573,723) $ (22,180,821) $ (27,484,279) 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 2007 2008 2009 2010 2011 2012 2013 (a) 2014 2015 (b) 2016 GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS/NET POSITION Governmental Activities Property taxes $ 8,014,102 $ 8,349,341 $ 8,492,507 $ 8,681,256 $ 8,844,004 $ 8,383,224 $ 7,592,847 $ 7,383,236 $ 7,894,189 $ 8,366,212 Income taxes 7,757,707 8,117,566 6,628,365 3,505,264 6,866,967 7,663,534 8,057,145 7,762,719 8,478,231 8,386,775 Franchise fees 297,200 304,812 321,852 178,239 362,103 342,376 358,785 358,754 369,965 372,117 Grants and contributions not restricted for specific programs 4,475,462 4,487,698 3,841,922 1,832,066 3,846,859 3,577,848 3,700,871 3,813,221 3,989,178 4,051,050 Unrestricted investment earnings 1,247,520 730,142 185,436 104,086 193,435 100,073 73,157 146,590 99,733 189,408 Miscellaneous 88,035 160,460 226,124 51,638 432,880 154,531 102,388 124,085 805,432 626,014 Gain on sale of capital asset 1,604 323,048 123,258 65,155 25,815 34,496 44,899 23,836 20,302 99,031 Transfers (40,000) (40,000) - (3,760) - - - - - - Total Governmental Program Revenues 21,841,630 22,433,067 19,819,464 14,413,944 20,572,063 20,256,082 19,930,092 19,612,441 21,657,030 22,090,607 Business-type Activities Unrestricted investment earnings 170,594 108,990 23,843 15,990 23,959 46,582 33,148 31,251 29,879 25,688 Gain on sale of capital asset - - - - - - - - - - Transfers 40,000 40,000 - 3,760 - - - - - - Total Business-type program revenues 210,594 148,990 23,843 19,750 23,959 46,582 33,148 31,251 29,879 25,688 Total Primary Government program revenues $ 22,052,224 $ 22,582,057 $ 19,843,307 $ 14,433,694 $ 20,596,022 $ 20,302,664 $ 19,963,240 $ 19,643,692 $ 21,686,909 $ 22,116,295 CHANGE IN NET ASSETS/NET POSITION Governmental Activities $ 1,361,278 $ 123,388 $ (2,889,272) $ 3,755,199 $ (497,505) $ (973,842) $ (1,119,722) $ (1,147,461) $ 819,956 $ (4,489,022) Business-type Activities 985,630 314,340 57,754 875,693 895,203 (522,025) (571,640) (782,570) (1,313,868) (878,962) 120 Total Primary Government $ 2,346,908 $ 437,728 $ (2,831,518) $ 4,630,892 $ 397,698 $ (1,495,867) $ (1,691,362) $ (1,930,031) $ (493,912) $ (5,367,984) (a) In 2013, the City implemented GASB 63 and 65 which changed the elements of the financial statements. (b) In 2015, the City implemented GASB 68 and 71 which changed how governments measure and report pension liabilities. 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 2007 2008 2009 2010 2011 (a) 2012 2013 2014 2015 2016 General fund Reserved $ 180,410 $ 214,819 $ 187,633 $ 300,969 $ - $ - $ - $ - $ - $ - Nonspendable - - - - 251,173 178,468 447,341 300,952 220,178 232,332 Restricted - - - - - - - - - - Assigned - - - - 2,385,728 2,075,738 2,292,495 1,700,000 1,700,000 1,700,000 Unassigned - - - - 3,374,481 4,265,839 4,613,722 5,495,145 5,883,318 6,098,977 Unreserved 2,740,222 2,168,906 1,451,029 5,737,485 - - - - - - Total general fund $ 2,920,632 $ 2,383,725 $ 1,638,662 $ 6,038,454 $ 6,011,382 $ 6,520,045 $ 7,353,558 $ 7,496,097 $ 7,803,496 $ 8,031,309 All other governmental funds Reserved $ 4,130,995 $ 4,382,118 $ 3,613,858 $ 3,887,289 $ - $ - $ - $ - $ - $ - Nonspendable - - - - 1,704,256 1,568,318 1,547,793 1,556,347 2,073,747 1,597,371 Restricted - - - - 1,375,779 3,485,073 2,749,396 2,305,385 3,159,130 2,995,610 Assigned - - - - 2,073,027 2,055,904 2,087,359 1,729,457 2,146,050 1,373,669 Unassigned - - - - (238,104) (191,282) (82,048) (100,054) - - 121 Unreserved, reported in: Special revenue funds 4,462,015 2,768,886 2,060,117 2,163,041 - - - - - - Capital project funds 635,676 675,898 554,273 6,035 - - - - - - Permanent funds 84,413 60,813 15,613 16,979 - - - - - - Total all other governmental funds $ 9,313,099 $ 7,887,715 $ 6,243,861 $ 6,073,344 $ 4,914,958 $ 6,918,013 $ 6,302,500 $ 5,491,135 $ 7,378,927 $ 5,966,650 (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 BALANCES OF GOVERNMENTAL FUNDS Last Ten Fiscal Years Period Ended Year Ended December 31 June 30 Year Ended June 30 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Revenues Taxes $ 15,420,032 $ 15,728,859 $ 14,673,012 $ 11,855,182 $ 15,146,430 $ 15,506,668 $ 14,832,027 $ 14,954,904 $ 15,830,137 $ 16,178,761 Intergovernmental 12,752,363 13,012,035 12,400,408 4,785,494 11,525,749 9,899,379 9,403,554 9,945,065 12,301,594 11,711,788 Charges for services 2,722,894 2,463,975 2,620,372 1,338,194 2,769,204 2,596,328 2,769,227 2,569,335 2,468,889 3,468,938 Other 4,618,149 3,624,579 3,177,522 1,768,895 3,461,292 3,237,189 2,795,952 3,256,324 4,003,105 3,868,958 Total revenues 35,513,438 34,829,448 32,871,314 19,747,765 32,902,675 31,239,564 29,800,760 30,725,628 34,603,725 35,228,445 Expenditures Public representation 927,320 987,229 923,923 448,703 851,918 867,762 892,113 1,031,984 930,788 1,064,503 Administrative services 644,913 632,513 645,704 303,555 586,328 515,988 508,130 497,025 554,330 577,454 Financial services 2,231,519 2,298,830 2,406,623 1,241,430 2,352,709 2,407,131 2,196,917 2,197,651 2,476,740 2,068,208 Public safety 12,902,815 13,754,394 13,567,101 6,578,735 13,087,976 12,963,122 12,724,094 12,987,898 13,285,004 13,476,557 Public works 2,768,906 2,831,177 2,860,510 1,589,090 3,079,342 2,835,000 2,878,328 2,918,305 2,876,576 2,864,878 Highways, streets and bridges 6,504,915 6,414,453 3,436,069 1,823,089 3,226,377 2,756,010 2,815,337 3,011,611 2,986,909 3,102,391 Community and economic development 894,879 1,077,312 4,440,687 1,330,794 3,109,693 2,850,593 2,578,073 2,687,933 2,957,071 5,415,436 Culture and recreation 2,254,117 2,394,031 2,196,186 639,852 1,197,020 1,265,743 1,248,174 1,308,481 1,444,471 3,100,338 122 Other governmental functions 350,385 562,341 438,292 200,623 1,775,128 770,910 299,812 643,666 369,408 305,807 Debt service Principal 1,241,921 999,148 663,371 303,466 1,345,183 289,597 395,211 402,492 417,842 428,199 Interest and issuance costs 324,577 310,432 282,174 136,013 267,258 268,315 292,554 278,412 272,946 355,094 Capital outlay 5,683,657 5,473,828 3,517,741 980,822 3,301,273 2,948,610 3,230,586 3,577,837 3,992,111 3,867,579 Total expenditure 36,729,924 37,735,688 35,378,381 15,576,172 34,180,205 30,738,781 30,059,329 31,543,295 32,564,196 36,626,444 Excess of revenues over (under) expenditures (1,216,486) (2,906,240) (2,507,067) 4,171,593 (1,277,530) 500,783 (258,569) (817,667) 2,039,529 (1,397,999) Other financing sources (uses) Transfers in 1,926,538 1,477,717 1,359,608 342,188 1,348,694 510,907 1,356,229 743,035 853,910 1,563,094 Transfers out (1,994,584) (1,409,491) (1,309,910) (359,971) (1,376,740) (613,953) (784,275) (771,081) (942,933) (1,638,094) Bonds issued - 500,000 - - - 2,000,000 - - - 97,578 Sale of capital assets 286,152 375,723 68,452 75,465 120,118 113,981 190,263 176,887 244,685 190,957 Total other financing sources (uses) 218,106 943,949 118,150 57,682 92,072 2,010,935 762,217 148,841 155,662 213,535 Net change in fund balances $ (998,380) $ (1,962,291) $ (2,388,917) $ 4,229,275 $ (1,185,458) $ 2,511,718 $ 503,648 $ (668,826) $ 2,195,191 $ (1,184,464) Debt service as a percentage of noncapital expenditures 5.05% 4.06% 2.97% 3.01% 5.22% 2.01% 2.56% 2.43% 2.42% 2.39% 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 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% 2014 7,123,481 23.2% 7,831,423 25.5% 9,945,065 32.4% 2,569,335 8.4% 1,570,137 5.1% 418,691 1.4% 352,153 1.1% 915,343 3.0% 30,725,628 3.1% 2015 7,555,471 21.8% 8,274,666 23.9% 12,301,594 35.5% 2,468,889 7.1% 1,361,721 3.9% 452,004 1.3% 343,105 1.0% 1,846,275 5.3% 34,603,725 12.6% 2016 8,026,859 22.8% 8,151,902 23.1% 11,711,788 33.2% 3,468,938 9.8% 1,443,144 4.1% 459,181 1.3% 455,671 1.3% 1,510,962 4.3% 35,228,445 1.8% * The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months. 123 SOURCE: The information in these schedules (unless otherwise noted) is derived from the comprehensive annual financial reports for the relevant year. 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 Millage Rate Actual 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% 2013 310,252,865 - 118,856,014 76,331,458 505,440,337 91,730,093 597,170,430 6,677,737 7,472,900 - 14,150,637 611,321,067 12.0865 96.97% 2014 312,031,296 - 115,070,943 61,196,955 488,299,194 91,020,452 579,319,646 3,874,303 6,512,600 - 10,386,903 589,706,549 13.0875 96.26% 2015 314,055,244 - 116,448,947 54,898,389 485,402,580 95,098,912 580,501,492 3,149,352 7,772,000 - 10,921,352 591,422,844 13.0869 95.28% Assessed and Equalized Valuation of Property Ad Valorem Assessment Roll Industrial and Commercial Facilities Assessment Roll 124 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 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 2013 321,604,220 - 123,831,400 79,037,400 524,473,020 91,720,300 616,193,320 6,766,000 7,472,900 - 14,238,900 630,432,220 1,260,864,440 2014 326,690,900 - 120,803,800 63,704,200 511,198,900 91,004,400 602,203,300 3,877,300 6,512,600 - 10,389,900 612,593,200 1,225,186,400 2015 335,445,400 - 122,235,800 57,024,100 514,705,300 95,084,900 609,790,200 3,149,800 7,772,000 - 10,921,800 620,712,000 1,241,424,000 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, 2016 6/30/2016 12/31/2006 Percent of Percent of Taxable Total Taxable Taxable Total Taxable Taxpayer Valuation Rank Valuation Valuation Rank Valuation Consumers Energy $ 32,085,934 1 5.6% $ 73,427,881 1 10.8% DTE Gas Company 6,989,800 2 1.2% 9,049,818 3 1.3% ADAC Plastics 6,550,900 3 1.1% 0.0% Esco Company 6,240,000 4 1.1% 5,833,749 6 0.9% Fleet Engineers Inc 4,790,700 5 0.8% 0.0% GE Aviation (Johnson Technology) 4,595,700 6 0.8% 8,147,615 4 1.2% Ameriform Acquisition Co LLC 4,260,600 125 7 0.7% Muskegon SC Holdings LLC 3,942,791 8 0.7% 0.0% Lorin Industries 3,906,313 9 0.7% 5,107,151 9 0.7% Mercy General 3,665,660 10 0.6% Sappi (S.D. Warren Co.) 41,547,186 2 6.1% Honeywell Inc 5,306,979 8 0.8% Brunswick 7,100,200 5 1.0% Hinman Lake LLC 5,449,900 7 0.8% Coles Quality Foods 4,834,501 10 0.7% Total - 10 Largest 77,028,398 13.4% 165,804,980 24.3% Total - All Other 499,469,809 86.6% 515,932,015 75.7% $ 576,498,207 100.0% $ 681,736,995 100.0% 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 Library Year Operating Promotion Sanitation City District Debt 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 - 2013 9.5000 0.0865 2.5000 12.0865 2.4000 - 2014 10.0000 0.0875 3.0000 13.0875 2.4000 - 2015 10.0000 0.0869 3.0000 13.0869 2.4000 0.5611 Overlapping - County-Wide Rates Muskegon Intermediate Special Vocational Community MAISD Community Year County School Education Education College Gen Ed College Debt 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 - - 2013 6.6957 0.4597 2.2987 0.9996 2.2037 - - 2014 6.6557 0.4597 2.2987 0.9996 2.2037 1.0000 0.3400 2015 6.6357 0.4597 2.2987 0.9996 2.2037 1.0000 0.3400 Overlapping - School District Grand Total State Non- Year Operating Debt Total Education Homestead Homestead 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 2013 18.0000 7.1000 25.1000 6.0000 40.2439 58.2439 2014 18.0000 7.6000 25.6000 6.0000 43.0449 61.0449 2015 18.0000 6.8000 24.8000 6.0000 42.7854 60.7854 126 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 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% 2013 7,668,166 6,703,147 87.4% 912,362 7,615,509 99.3% 102,713 45,361 7,296 2.03% 127 2014 8,032,955 7,069,804 88.0% 917,806 7,987,610 99.4% 57,680 41,074 2,788 1.26% 2015 8,132,782 7,247,701 89.1% 848,266 8,095,967 99.5% 62,345 33,407 1,862 1.20% SOURCE: City of Muskegon Treasurer's Office City of Muskegon SEGMENTED DATA ON INCOME TAX FILERS, RATES AND LIABILITY Most recent Year and Ten Years Previous Year Ended June 30, 2016 Year Ended December 31, 2006 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 818 5% $ 679,600 $ 6,796 0% 1,060 5% $ 1,024,320 $ 10,244 0% $2,501-$7,500 575 3% 5,103,500 51,035 1% 958 4% 6,793,111 67,931 1% $7,501-$25,000 1,490 8% 42,418,800 424,188 5% 2,306 10% 52,164,415 521,644 7% $25,001-$50,000 1,433 8% 91,213,200 912,132 11% 1,975 8% 101,397,525 1,013,975 14% $50,001-$100,000 821 5% 98,858,900 988,589 12% 940 4% 88,123,511 881,235 12% More than $100,000 200 1% 54,229,600 542,296 7% 169 1% 40,051,819 400,518 5% Subtotal 5,337 30% $ 292,503,600 $ 2,925,036 36% 7,408 32% $ 289,554,701 $ 2,895,547 39% Non-Residents Taxpayers: 128 (Non-residents are taxed at a rate of 0.5% on income earned within the City.) $2,500 or less 1,588 9% $ 859,000 $ 6,817 0% 2,176 9% $ 1,356,400 $ 9,663 0% $2,501-$7,500 1,032 6% 4,935,400 39,167 0% 1,430 6% 6,776,800 48,280 1% $7,501-$25,000 2,292 13% 37,316,600 296,141 4% 3,515 15% 57,272,600 408,028 5% $25,001-$50,000 2,886 16% 105,492,400 837,178 10% 4,129 18% 151,385,000 1,078,514 15% $50,001-$100,000 2,220 12% 148,117,600 1,175,448 14% 2,407 10% 158,686,800 1,130,534 15% More than $100,000 695 4% 153,768,600 1,220,294 15% 578 2% 120,280,400 856,915 12% Subtotal 10,713 60% $ 450,489,600 $ 3,575,045 44% 14,235 61% $ 495,758,000 $ 3,531,934 48% All Other Returns (Mostly corporate returns which pay at a rate of 1% on income earned in City and partnerships which pay based on partners residence status.) Subtotal 1,750 10% $ 1,651,821 20% 1,850 8% $ 997,692 13% Total 17,800 100% $ 8,151,902 100% 23,493 100% $ 7,425,173 100% 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 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 2012 7,725,000 - 150,253 7,875,253 4,815,000 - 10,325,000 15,140,000 23,015,253 599 129 2013 7,350,000 - 130,042 7,480,042 4,205,000 - 9,685,000 13,890,000 21,370,042 577 2014 6,954,535 - 112,550 7,067,085 3,630,728 - 9,030,000 12,660,728 19,727,813 533 2015 6,555,436 - 94,708 6,650,144 2,949,368 - 8,360,000 11,309,368 17,959,512 483 2016 6,243,903 - 76,509 6,320,412 2,246,962 - 7,675,000 9,921,962 16,242,374 436 * 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, 2016 Total Debt Debt Supported by City Name of Governmental Unit Outstanding Self Supporting General Revenues Direct Debt City of Muskegon: Revenue Bonds $ 9,921,962 $ 9,921,962 $ - Capital Improvement Bonds 6,243,903 - 6,243,903 Intergovernmental Bonds 76,509 - 76,509 Component Unit Debt: Downtown Development Authority 1,650,332 1,650,332 - Local Development Finance Authority 3,316,088 3,316,088 - Total City Direct Debt $ 21,208,794 $ 14,888,382 $ 6,320,412 City Share as Gross Percent of Gross Net Overlapping Debt Muskegon School District $ 17,640,000 95.08% $ 16,772,112 Orchard View School District 43,496,963 24.95% 10,852,492 Reeths Puffer School District 71,693,222 2.89% 2,071,934 Muskegon Intermediate School District - - Hackley Public Library 2,998,728 95.08% 2,851,191 Muskegon County 72,485,000 13.36% 9,683,996 Muskegon Community College 28,350,000 13.36% 3,787,560 Total Overlapping Debt $ 236,663,913 46,019,285 Total City Direct and Overlapping Debt $ 52,339,697 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 determining the portion of the City's taxable value that is within each overlapping government 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. 130 City of Muskegon LEGAL DEBT MARGIN INFORMATION Last Ten Fiscal Years 2007 2008 2009 2010* 2011 2012 2013 2014 2015 2016 Debt Limit $ 84,174,359 $ 85,933,940 $ 82,198,965 $ 82,198,965 $ 78,308,925 $ 73,585,150 $ 68,555,700 $ 61,706,477 $ 61,510,980 $ 60,962,090 Total net debt applicable to limit 15,591,018 15,481,870 14,778,499 14,435,033 12,929,850 14,375,253 13,655,042 12,847,550 11,313,794 10,776,509 Legal debt margin $ 68,583,341 $ 70,452,070 $ 67,420,466 $ 67,763,932 $ 65,379,075 $ 59,209,897 $ 54,900,658 $ 48,858,927 $ 50,197,186 $ 50,185,581 Total net debt applicable to the limit as 18.52% 18.02% 17.98% 17.56% 16.51% 19.54% 19.92% 20.82% 18.39% 17.68% a percentage of debt limit Legal Debt Margin Calculation for 2016: Assessed Valuation: $ 609,620,900 Legal Debt Limit (10% ) 60,962,090 Total Indebtedness: $ 21,208,794 Debt not Subject to Limitation: 131 Paid by Special Assessment - Revenue Bonds (9,895,000) Debt Subject to Limitation 11,313,794 Legal Debt Margin $ 49,648,296 * 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 Last Ten Fiscal Years Water Supply System Direct Net Revenue Fiscal Gross Operating Available For Debt Service Requirements Year Revenue (a) Expenses (b) Debt Service Principal Interest Total Coverage 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 2014 6,109,144 3,511,477 2,597,667 1,295,000 352,634 1,647,634 1.58 2015 6,388,474 3,774,508 2,613,966 1,330,000 320,857 1,650,857 1.58 2016 7,498,376 4,460,076 3,038,300 1,370,000 283,360 1,653,360 1.84 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 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 2014 No Direct System Indebtedness 2015 No Direct System Indebtedness 2016 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 position 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. 132 City of Muskegon DEMOGRAPHIC AND ECONOMIC STATISTICS Last Ten Fiscal Years Fiscal Personal Per Capita Median Public School Building Permits Year Population Income Income Age Enrollment Number Value Unemployment 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% 2014 37,213 769,789,707 20,686 34.1 4,808 1,108 54,065,115 9.6% 133 2015 37,213 789,034,450 21,203 35.8 4,387 1,102 46,541,966 10.3% 2016 37,213 808,760,311 21,733 35.8 4,206 1,112 58,924,856 8.3% 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 2016 2006 Percentage Percentage of total of total City City Employer Employees Rank employment Employees Rank employment Mercy General Health Partners* 4,114 1 27.4% 2,000 1 11.9% ADAC Plastics 970 2 6.5% 500 6 3.0% County of Muskegon 755 3 5.0% 1,280 3 7.6% Port City Group 667 4 4.4% Muskegon Public Schools 565 5 3.8% 1,050 5 6.3% 134 SAF Holland USA 345 6 2.3% G.E. Aviation 341 7 2.3% Betten Automotive Group 232 8 1.5% Muskegon Community College 198 9 1.3% Cole's Quality Foods 180 10 1.2% 1,610 2 9.6% State of Michigan 1,175 4 7.0% Verizon 350 8 2.1% Johnson Technology Inc. 425 7 2.5% Sappi Fine Paper (formerly SD Warren) 250 10 1.5% City of Muskegon 270 9 1.6% * Hackley Hospital merged with the former Mercy Hospital to become Mercy General Health Partners. 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 2006 2007 2008 2009 2010* 2011 2012 2013 2014 2015 2016 Administration 1.50 1.50 1.50 - - 0.40 0.40 0.40 0.40 - - Affirmative Action 1.50 1.50 1.50 1.50 1.50 1.10 1.10 1.10 1.10 1.30 1.30 Cemetaries 3.00 3.25 3.25 3.25 2.50 2.20 1.75 1.25 1.25 1.25 1.25 City Clerk & Elections 4.00 4.00 4.00 4.00 3.00 3.00 3.00 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 0.25 City Hall Maintenance 1.00 1.00 1.00 1.00 1.00 0.55 0.55 0.55 0.55 0.55 0.55 City Manager's Office 1.75 1.75 1.75 3.25 2.25 2.25 2.25 2.25 2.25 2.05 2.05 City Treasurer's Office 5.00 4.00 5.00 5.00 5.00 5.00 5.00 5.00 4.50 5.50 5.50 Civil Service 2.00 2.00 2.00 2.00 2.00 1.00 - - - - - Environmental Services 2.00 2.00 2.00 2.00 2.00 2.00 5.00 5.00 5.00 2.00 2.00 Farmers Market - - - 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 Finance Administration 4.00 4.00 4.00 4.00 3.00 3.00 3.00 2.00 2.00 3.00 3.00 Fire 38.00 38.00 38.00 38.00 36.00 33.00 35.00 28.00 28.83 32.00 35.00 Fire Safety Inspections 12.00 12.00 12.00 12.00 9.00 8.00 6.00 6.00 0.83 - - Forestry - - - - - - - - - - - General Recreation 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 4.50 3.50 3.50 135 Information Systems 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 Parks 8.25 8.15 8.15 7.99 7.15 6.00 6.05 6.05 6.00 6.00 6.00 Planning, Zoning & Economic Development 6.00 6.00 6.00 6.00 5.00 4.00 3.00 3.00 3.00 3.40 3.40 Police 94.00 94.00 94.00 94.00 88.00 88.00 88.00 88.00 87.34 88.00 88.00 Sanitation 1.00 1.00 1.00 1.00 - 0.30 0.20 0.20 0.20 0.20 0.20 Senior Transit - - - - - - 0.05 0.05 0.05 - - MVH-Major Streets 16.00 17.75 15.75 13.75 12.00 12.00 11.70 10.70 10.70 10.70 10.70 MVH-Local Streets 7.00 7.00 6.00 8.00 7.00 7.00 6.70 6.70 6.70 6.70 6.70 MVH-State Trunklines 2.00 - - - - - - - - - - Walker Arena - - - - - - - - - - - Community Development 4.00 4.00 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 0.25 0.25 - - - - - Lead Program - - - - 0.75 0.75 - - - - - Sewer Maintenance 16.00 16.20 15.20 13.20 10.20 10.20 9.75 9.75 9.80 9.80 9.80 Water Filtration 10.00 10.00 10.00 10.00 10.00 10.00 9.00 10.00 10.00 10.00 10.00 Water Maintenance 13.00 12.50 13.50 15.40 12.40 12.40 11.75 11.75 11.75 11.75 11.75 Hartshorn Marina Fund 0.73 0.67 0.34 0.05 0.05 0.05 0.30 0.30 0.30 0.30 0.30 Public Service Building 3.45 3.45 3.45 3.70 8.95 8.05 7.95 8.45 8.45 8.50 8.50 Engineering 7.45 7.45 7.45 7.45 5.45 4.95 4.95 4.95 4.95 4.95 4.95 Equipment 8.95 8.25 8.25 8.50 7.25 6.25 6.25 6.25 6.25 6.25 6.25 284.00 282.00 280.00 280.00 256.00 244.00 241.00 233.00 227.00 228.00 231.00 * 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 2007 2008 2009 2010* 2011 2012 2013 2014 2015 2016 Administrative Services Elections Number of registered voters 26,345 27,678 26,136 26,136 26,330 26,324 26,098 26,025 24,014 24,005 Number of votes cast: Last general election 10,410 15,271 15,271 15,271 8,106 1,933 13,487 3,029 7,763 2,547 Last city election 1,101 1,101 2,254 2,254 8,106 1,933 2,131 3,029 7,763 2,547 Percentage of registered voters voting: Last general election 40% 55% 58% 58% 31% 7% 52% 12% 32% 11% Last city election 4% 4% 9% 9% 31% 7% 8% 12% 32% 11% Financial Services Property Tax Bills 15,376 15,350 15,435 - 15,351 15,261 15,291 15,211 14,528 14,611 Income Tax Returns 23,141 22,598 21,071 19,963 19,688 18,699 17,857 18,222 17,839 17,800 Paper Check Issued to Vendors 3,347 3,346 3,113 1,486 2,986 3,746 1,677 1,404 1,527 1,608 Electronic Payments to Vendors 772 763 963 450 884 1,334 1,251 1,579 1,471 1,849 136 Public Safety Fire Protection Number of firefighter and officer positions 41 41 37 37 37 36 41 38 35 35 Number of emergency calls 4,171 4,298 4,220 2,062 4,402 4,676 4,563 4,354 4,881 4,938 Police Protection Number of sworn officer positions 84 84 79 79 79 79 79 76 76 76 Part I (Major) Crimes 2,997 3,107 3,071 1,305 2,859 2,772 2,647 2,240 2,107 1,989 Public Works Refuse Collected (Tons per Year) 10,375 10,401 10,526 6,042 12,703 10,153 9,958 10,217 10,512 10,994 Recyclables Collected (Tons per Year) 629 626 309 - - - - - - - Water & Sewer Number of consumers 14,364 13,131 12,987 12,966 13,037 13,109 13,144 13,086 13,223 13,307 Average daily water consumption (GPD) 9,314,000 8,879,000 7,976,000 7,163,000 8,417,000 7,700,000 7,651,000 7,666,000 8,293,570 11,027,945 Water main breaks repaired 21 34 17 6 12 5 11 30 15 16 Sewer flows (Millions Gallons per Year) 1,945 2,181 1,979 965 1,625 1,695 1,777 1,833 2,013 1,794 Sewer Service Calls 598 533 508 263 591 522 508 532 501 521 * 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 2007 2008 2009 2010* 2011 2012 2013 2014 2015 2016 Public Safety Fire Protection Number of stations 3 3 3 3 3 3 3 3 3 3 Police Protection Number of stations 1 1 1 1 1 1 1 1 1 1 Highways, Streets and Bridges Miles of Streets 197.79 197.79 196.95 196.95 196.95 196.95 196.95 196.95 196.95 196.95 Number of streetlights 3,134 3,134 3,192 3,125 3,065 2,838 2,838 2,838 2,838 2,900 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 1 137 Sewer Sanitary sewers (miles) 177.04 177.04 177.04 177.04 177.04 177.04 177.04 177.04 177.04 177.04 Storm sewers (miles) 183.25 183.60 184.35 184.35 184.35 184.35 184.35 184.25 184.35 184.35 Water Water mains (miles) 195.63 195.58 195.69 195.69 195.69 195.40 195.95 195.95 195.95 195.95 * The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months. SOURCE: City of Muskegon Departments [This page was intentionally left blank.] 138 SINGLE AUDIT OF FEDERAL FINANCIAL ASSISTANCE PROGRAMS 139 BRICKLEY DELONG CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR’S 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 December 5, 2016 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, 2016, 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 December 5, 2016. 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) 608-8500 PHONE (231) 726-5800 PHONE (231) 873-1040 FAX (616) 608-8559 FAX (231) 722-0260 FAX (231) 873-0602 www.brickleydelong.com 140 BRICKLEY DELONG City Commission City of Muskegon December 5, 2016 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 141 BRICKLEY DELONG CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE December 5, 2016 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 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, 2016. 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 federal statutes, regulations, and the terms and conditions of its federal awards 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 the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance 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. 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) 608-8500 PHONE (231) 726-5800 PHONE (231) 873-1040 FAX (616) 608-8559 FAX (231) 722-0260 FAX (231) 873-0602 www.brickleydelong.com 142 BRICKLEY DELONG City Commission City of Muskegon December 5, 2016 Page 2 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, 2016. 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 the Uniform Guidance, 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 requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Muskegon, Michigan 143 City of Muskegon SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the year ended June 30, 2016 Accrued Cash or Accrued Federal Program or (Unearned) Adjustments Payments In- Amount of (Unearned) Passed Federal Grantor/Pass-Through Grantor/ CFDA Award Revenue and Kind Received Grant Revenue Through to Program or Cluster Title/Identifying Number Number Amount July 1, 2015 Transfers (Cash Basis) Expenditures June 30, 2016 Subrecipents U.S. Department of Agriculture Direct programs Farmers Market Promotion Program 10.168 15FMPPMI0088 $ 75,000 $ - $ - $ 3,094 $ 12,000 $ 8,906 $ - U.S. Department of Housing and Urban Development Direct programs Community Development Block Grants/Entitlement Grants 14.218 B-14-MC-26-0026 897,025 308,564 (70,347) 238,217 - - - B-15-MC-26-0026 895,410 - 70,347 844,419 825,063 50,991 3,339 Program Income 73,476 - - 73,476 73,476 - - Total Community Development Block Grants/ Entitlement Grants 1,865,911 308,564 - 1,156,112 898,539 50,991 3,339 HOME Investment Partnerships Program 14.239 M-13-MC-26-0215 282,526 - - 27,452 27,452 - - 144 M-14-MC-26-0215 275,421 - - 164,236 164,236 - - M-15-MC-26-0215 268,639 - - 57,662 61,937 4,275 - Program Income 133,726 (75,798) - 47,291 133,726 10,637 - Total HOME Investment Partnerships Program 960,312 (75,798) - - 296,641 387,351 14,912 - Total U.S. Department of Housing and Urban Development 2,826,223 232,766 - 1,452,753 1,285,890 65,903 3,339 City of Muskegon SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS—Continued For the year ended June 30, 2016 Accrued Cash or Accrued Federal Program or (Unearned) Adjustments Payments In- Amount of (Unearned) Passed Federal Grantor/Pass-Through Grantor/ CFDA Award Revenue and Kind Received Grant Revenue Through to Program or Cluster Title/Identifying Number Number Amount July 1, 2015 Transfers (Cash Basis) Expenditures June 30, 2016 Subrecipents U.S. Department of Justice Direct programs Bulletproof Vest Partnership Grant 16.607 2014 Grant $ 9,076 $ - $ - $ 1,264 $ 4,740 $ 3,476 $ - Edward Byrne Memorial Justice Assistance Grant 16.738 Program 2015-DJ-BX-0773 43,531 - - 43,531 43,531 - - Total direct programs 52,607 - - 44,795 48,271 3,476 - Passed through Ottawa County Edward Byrne Memorial Justice Assistance Grant 16.738 Program 2015-MU-BX-0964 12,250 - - 12,250 12,250 - - 145 Total U.S. Department of Justice 64,857 - - 57,045 60,521 3,476 - U.S. Environmental Protection Agency Direct programs Great Lakes Program 64.469 00E01414 110,449 - - - 2,616 2,616 - Brownfields Assessment and Cleanup 66.818 Cooperative Agreements 00E01538 400,000 - - - 30,117 30,117 - . Total U.S. Environmental Protection Agency 510,449 - - - 32,733 32,733 - TOTAL FEDERAL ASSISTANCE $ 3,476,529 $ 232,766 $ - $ 1,512,892 $ 1,391,144 $ 111,018 $ 3,339 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, 2016 1. The accompanying Schedule of Expenditures of Federal Awards (the “schedule”) includes the federal award activity of the City under programs of the federal government for the year ended June 30, 2016. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). 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 the Uniform Guidance, 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. The City is not using the ten-percent de minimis indirect cost rate as allowed under the Uniform Guidance. 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's financial statements for the year ended June 30, 2016 and federal expenditures per the Schedule of Expenditures of Federal Awards. Federal revenues per City of Muskegon financial statements General Fund $ 72,521 Major Street and Trunkline Fund 239,952 Other governmental funds 1,111,421 1,423,894 146 Plus program income 207,202 Less MDOT contracted projects as shown below (239,952) Federal expenditures per the Schedule of Expenditures of Federal Awards $ 1,391,144 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, 2016 the federal aid received and expended by the City of Muskegon was $239,952 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 1561(010) Fed Item HK 0325 Contract 15-5281 $ 239,532 $ 239,532 City of Muskegon SCHEDULE OF FINDINGS AND RESPONSES Year ended June 30, 2016 SECTION I—SUMMARY OF AUDITOR’S RESULTS A. Financial Statements 1. Type of report the auditor issued on whether the financial statements audited were prepared in accordance with GAAP: Unmodified 2. Internal control over financial reporting: Material weakness(es) identified? yes X no Significant deficiency(ies) identified? yes X none reported 3. Noncompliance material to financial statements noted? yes X no B. Federal Awards 1. Internal control over major federal programs: Material weakness(es) identified? yes X no Significant deficiency(ies) identified? yes X none reported 2. Type of auditors' report issued on compliance for major federal programs: Unmodified 3. Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? 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 5. Dollar threshold used to distinguish between type A and type B programs: $750,000 6. Auditee qualified as low-risk auditee? X yes no SECTION II – FINANCIAL STATEMENT FINDINGS NONE SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS NONE 147 [This page was intentionally left blank.] 148 CLIENT DOCUMENTS 149 City of Muskegon 933 Terrace Street Muskegon, MI 49440 Phone: (231) 724-6709 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS December 5, 2016 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, 2015 dated October 29, 2015. SECTION II – FINANCIAL STATEMENT FINDINGS There were no findings in relation to the financial statement audit. SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Finding 2015-001: Community Development Block Grants/Entitlement Grants – Time and Effort Documentation Procedures U.S. Department of Housing and Urban Development Community Development Block Grants/Entitlement Grants CFDA: 14.218 Award Numbers: B-13-MC-26-0026 and B-14-MC-26-0026 Award year ends: June 30, 2015 Specific Requirement: Allowable Costs/Cost Principles Condition: During our detailed testing of the Community Development Block Grants/Entitlement Grants time and effort documentation, we noted that adequate personnel activity reports were not prepared in accordance with the federal requirements for all employees whose wages and benefits were charged to the federal program. In addition, we noted that the City did not properly summarize personnel activity reports on their reconciliations for all personnel activity reports. Recommendation: The City should educate all employees working in federal programs of the requirements for documenting time and effort under OMB Circular A-87, and the City should require appropriate time and effort documentation and necessary reconciliations to be properly prepared and reviewed. Current Status: The recommendation was implemented during the year ended June 30, 2016. No findings were noted during the single audit for the year ended June 30, 2016. Sincerely, Derrick Smith Finance Director 150 City of Muskegon 933 Terrace Street Muskegon, MI 49440 Phone: (231) 724-6709 CORRECTIVE ACTION PLAN December 5, 2016 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, 2016. Name and address of independent public accounting firm: Brickley DeLong, P.C. P.O. Box 999 Muskegon, Michigan 49443 Audit period: June 30, 2016 The findings from the Schedule of Findings and Responses for the year ended June 30, 2016 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 findings in relation to the financial statement audit. SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS There were no findings 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 Derrick Smith at (231) 724-6709. Sincerely, Derrick Smith Finance Director 151
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