Annual Comprehensive Financial Reports ACFR-2016

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City of Muskegon,
Michigan



Comprehensive Annual
Financial Report




For The Fiscal Year Ended June 30, 2016


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                                                   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
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                                                                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




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                                                             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




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

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

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



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   • 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.




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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




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FINANCIAL SECTION




        15
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                   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
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                  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
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                  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




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                  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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