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Comprehensive Annual Financial Report City of Muskegon Fiscal Year Ended June 30, 2019 [This page was intentionally left blank.] CITY OF MUSKEGON, MICHIGAN COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2019 Prepared By FINANCIAL SERVICES DIVISION Elizabeth Lewis James Maurer Finance Director Information Systems Director Kenneth Grant Mike VanderMolen Assistant Finance Director Management Assistant Sarah Petersen City Treasurer [This page was intentionally left blank.] City of Muskegon TABLE OF CONTENTS INTRODUCTORY SECTION Letter of Transmittal .................................................................................................................................. 5 Certificate of Achievement for Excellence in Financial Reporting......................................................... 11 Organization Chart .................................................................................................................................. 12 List of Principal Officials ........................................................................................................................ 13 FINANCIAL SECTION Independent Auditor’s Report ................................................................................................................. 17 Management’s Discussion and Analysis ................................................................................................. 21 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 Discretely Presented Component Units Statement of Net Position ................................................................................................................. 44 Statement of Activities ...................................................................................................................... 45 Notes to Financial Statements .............................................................................................................. 46 Required Supplementary Information Budgetary Comparison Schedule—General Fund ............................................................................... 84 Budgetary Comparison Schedule—Major Street and Trunkline Fund ................................................ 89 Schedule of Changes in Net Pension Liability and Related Ratios ...................................................... 90 Pension System Schedule of Contributions ......................................................................................... 91 Retiree Healthcare System Schedule of Changes in the Net OPEB Liability and Related Ratios ............................................................................................. 92 Retiree Healthcare System Schedule of Contributions ........................................................................ 93 1 City of Muskegon TABLE OF CONTENTS Other Supplemental Information Other Governmental Funds Description of Other Governmental Funds ....................................................................................... 96 Combining Balance Sheet ................................................................................................................. 98 Combining Statement of Revenues, Expenditures and Changes in Fund Balances................................................................................................................................ 99 Other Special Revenue Funds Combining Balance Sheet............................................................................................................ 100 Combining Statement of Revenues, Expenditures and Changes in Fund Balances .......................................................................................................................... 101 Budgetary Comparison Schedule—Other Special Revenue Funds ............................................. 102 Other Capital Projects Funds Combining Balance Sheet............................................................................................................ 105 Combining Statement of Revenues, Expenditures and Changes in Fund Balances .......................................................................................................................... 106 Internal Service Funds Description of Internal Service Funds ............................................................................................ 107 Combining Statement of Net Position ............................................................................................ 108 Combining Statement of Revenues, Expenses and Changes in Fund Net Position ..................................................................................................... 109 Combining Statement of Cash Flows.............................................................................................. 110 Fiduciary Funds Description of Fiduciary Funds....................................................................................................... 111 Agency Funds Combining Statement of Assets and Liabilities ........................................................................... 112 Statement of Changes in Assets and Liabilities ........................................................................... 113 Discretely Presented Component Units Description of Discretely Presented Component Units .................................................................. 115 Combining Balance Sheet ............................................................................................................... 116 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position .................................................................................................. 117 Combining Statement of Revenues, Expenditures and Changes in Fund Balances (Deficits) ......................................................................................................... 118 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances (Deficits) to the Statement of Activities ................................................................................................................................. 119 Schedule of Indebtedness ................................................................................................................... 121 2 City of Muskegon TABLE OF CONTENTS STATISTICAL SECTION Financial Trends Net Assets/Net Position by Component ............................................................................................. 126 Changes in Net Assets/Net Position ................................................................................................... 127 Fund Balances of Governmental Funds ............................................................................................. 129 Changes in Fund Balances of Governmental Funds .......................................................................... 130 Revenue Capacity Governmental Activities Revenues by Source ................................................................................... 131 Taxable, Assessed and Equalized and Estimated Actual Valuation of Property................................ 132 Principal Property Taxpayers ............................................................................................................. 133 Property Tax Rates – Direct and Overlapping Government Units ..................................................... 134 Property Tax Levies and Collections ................................................................................................. 135 Total Income Tax Collected and Number of Returns Filed ............................................................... 136 Debt Capacity Ratio of Outstanding Debt by Type ................................................................................................... 138 Direct and Overlapping Debt ............................................................................................................. 139 Legal Debt Margin Information ......................................................................................................... 140 Revenue Bond Coverage .................................................................................................................... 141 Demographic and Economic Information Demographic and Economic Statistics ............................................................................................... 142 Principal Employers ........................................................................................................................... 143 Operation Information Full-time Equivalent Government Employees ................................................................................... 144 Operating Indicators by Function/Program ........................................................................................ 145 Capital Asset Statistics by Function/Program .................................................................................... 146 SINGLE AUDIT OF FEDERAL FINANCIAL ASSISTANCE PROGRAMS 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 .................................................................................................... 148 Independent Auditor’s Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance .................................................................................................................... 150 Schedule of Expenditures of Federal Awards ..................................................................................... 152 Notes to Schedule of Expenditures of Federal Awards ....................................................................... 154 Schedule of Findings and Responses................................................................................................... 155 Client Documents Summary Schedule of Prior Audit Findings ................................................................................... 158 Corrective Action Plan ................................................................................................................... 159 3 [This page was intentionally left blank.] 4 Affirmative Action (231)724-6703 FAX (231)722-1214 Assessor/ Equalization Co. (231)724-6386 FAX (231)724-1129 Cemetery/Forestry (231)724-6783 FAX (231)724-4188 City Manager (231)724-6724 FAX (231)722-1214 December 2, 2019 Clerk (231)724-6705 FAX (231)724-4178 To the Honorable Mayor, Members of the City Commission and Citizens of the City of Comm. & Neigh. Services Muskegon: (231)724-6717 FAX (231)726-2501 State law requires that every general purpose local government publish, within six Computer Info. months of the close of each fiscal year, a complete set of audited financial Technology (231)724-4126 statements. This report is published to fulfill that requirement for the fiscal year ended FAX (231)722-4301 June 30, 2019. Engineering (231)724-6707 FAX (231)727-6904 Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of Finance (231)724-6713 internal control that it has established for this purpose. Because the cost of internal FAX (231)726-2325 control should not exceed anticipated benefits, the objective is to provide reasonable, Fire Department rather than absolute, assurance that the financial statements are free of any material (231)724-6795 FAX (231)724-6985 misstatements. Human Resources Co. (Civil Service) Brickley Delong, PC, Certified Public Accountants, have issued an unmodified (231)724-6442 (“clean”) opinion on the City of Muskegon’s financial statements for the year ended FAX (231)724-6840 June 30, 2019. The independent auditor’s report is located at the front of the financial Income Tax (231)724-6770 section of this report. FAX (231)724-6768 Mayor’s Office Management’s discussion and analysis (MD&A) immediately follows the independent (231)724-6701 auditor’s report and provides a narrative introduction, overview, and analysis of the FAX (231)722-1214 basic financial statements. MD&A complements this letter of transmittal and should Planning/Zoning be read in conjunction with it. (231)724-6702 FAX (231)724-6790 Police Department (231)724-6750 Profile of the government FAX (231)722-5140 The City of Muskegon operates under a commission-manager form of government Public Works (231)724-4100 and provides a full range of traditional municipal services. Policy-making and FAX (231)722-4188 legislative authority are vested in the governing board (Commission) consisting of the SafeBuilt mayor and six commissioners. Two commissioners are elected at large and each of (Inspections) the four ward commissioners is elected by the voters of their respective wards. (231)724-6715 FAX (231)728-4371 Commission members serve four-year terms, with the two at large members elected Treasurer every four years in odd years and the four ward commissioners elected every four (231)724-6720 years in even years. The Mayor is also elected at-large for a four-year term. The FAX (231)724-6768 Mayor and Commission appoint the City of Muskegon’s manager. Water Billing (231)724-6718 FAX (231)724-6768 Water Filtration (231)724-4106 FAX (231)755-5290 5 The City of Muskegon provides a full range of services, including police and fire protection; solid waste collection; parks and recreation activities; the construction and maintenance of streets and roadways; street snowplowing; traffic control; building inspections; licenses and permits; water distribution and sewer disposal services; community and economic development; and general administrative support services. The City also provides treated drinking 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 18 square miles (including 4 miles of water) 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: • 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. 2019 marks the ferry service’s sixteenth 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 Taste of Muskegon, which attracts thousands of visitors to Muskegon each June, Bike Time and Rebel Road, which attract motorcycle enthusiasts to the City in July, the Unity Christian Music Festival, Shoreline Jazz Festival, Great Lakes Surf Festival, and the Burning Foot Beer Fest in August, and the Muskegon Polish Festival and Michigan Irish Music Festival in September. 6 • Muskegon is the cultural hub for west Michigan with numerous museums and live performances. The Muskegon Museum of Art has one of the largest and premier 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. The Heritage Museum provides historic perspective on the city’s industrial roots. • Muskegon’s port welcomed 15 Great Lakes cruise ships in 2019 and expects nearly 30 ships to visit in 2020. • 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 is docked at the Muskegon Lake Channel; • LST-393, a landing craft used in the D-day invasion and one of only two such vessels remaining in existence is docked downtown Muskegon at the West Michigan Dock and Market; 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 is docked in the Lakeside Business District. Muskegon has a diverse local economy. The manufacturing sector is strong in the areas of aerospace, 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. The local economy has seen slight decrease in the unemployment rate which stood at 4.8 percent at the end of the fourth quarter of 2018 compared with 4.2 percent at the end of the second quarter of 2019. The City fully recognizes the difficulties it faces as an older urban rust-belt community. Thus, we have attempted to position ourselves as a leader in fiscal stability and sustainability. 7 Long-term financial planning and major initiatives Unassigned fund balance in the General Fund at year end was 23.0% 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 City recently purchased a new web-based information source providing financial information and forecasting for municipal governments and schools. This new system should provide staff with enhanced information to improve forecasting. Among the City's major initiatives and accomplishments in fiscal year 2018-19 were the following: • Downtown Muskegon experienced the commencement of a number of mixed use development projects. Two adaptive reuse projects were undertaken in the, with a total investment in excess of $5 million. Three major new construction projects have been announced with the Lakeview Lofts Phase 2 project, The Leonard project, and the Foundry Square Project, with a total investment in excess of $25 million. Other downtown projects of note include a $6 million investment from Platinum Construction in the Western Place Townhomes, an $8 million investment to upgrade the former Holiday Inn to a Delta Marriott Hotel, and the construction of Pigeon Hill Brewing’s new 20,000 square foot brewing facility. • After several years of perseverance, a plan was put forth to redevelop the former Sappi Paper Mill site in Lakeside. The 120-acre site has already experienced the demolition of more than 1-million square feet of industrial buildings, and the owners have completed a multi-phased visioning process with Miami, Florida-based DPZ Co-Design – a world-renown master-planning group that focuses on high-value developments that embrace the design philosophies of New Urbanism. • The City broke ground on a new $19.5 Million convention center that will be attached to the both the Delta Marriott hotel and the L.C. Walker Arena. • Construction of Midtown Square Phase 2, which consists of 10 townhouses and 6 single family homes in the Nelson neighborhood, was started in 2019. • KL Outdoor, the world’s largest manufacturer of kayaks, opened its new 500,000 square foot distribution center in the Port City Industrial Park in early 2019. 8 • Mercy Health Partners, Muskegon’s largest employer completed a $280 million expansion to its existing hospital. The hospital organization is currently exploring opportunities for redevelopment of its other underutilized facilities. 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, 2018. This was the 32nd 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. 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. 9 The preparation of this report would not have been possible without the skill, effort, and dedication of the Finance Division 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 Elizabeth Lewis City Manager Finance Director 10 Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Muskegon Text38: Michigan For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2018 Executive Director/CEO 11 Organizational Structure 2019-20 Mayor and City Commission City Manager External Auditors City Attorney Planning Commission Finance and Public Works Public Safety Development Services Zoning Board of Appeals Administrative Services Historic District Commission Housing Code Board of Appeals Board of Review Finance Administration Income Tax Board of Review Treasury/Income Tax Community Civil Service Commission City Clerk Streets/Highways Development DDA/BRA Police Information Systems Utilities Neighborhood Services LDFA Fire Public Relations Parks and Recreation Planning/Zoning BID Board 12 Code Enforcement Elections Cemeteries Sanitation Economic Development Equal Opportunities Committee Risk Management Streetlights Strategic Planning Local Officers Compensation Employee Relations Special Events Committee Farmers Market Citizen's Police Review Board CDBG District Council Election Commission Environmental Code Construction Board of Appeals (SAFEbuilt) Human Resources (County) Consumers Energy Inspections (SAFEbuilt) Assessing (County) Republic Waste Services Muskegon Area First Housing Commission Prosecutions (Parmenter LC Walker Arena (Two T's LLC) County Wastewater O'Toole) Elected Officials Independent Bodies Municipal Executive Division Heads Frontline Staff Contractual COMPREHENSIVE ANNUAL FINANCIAL REPORT CITY OF MUSKEGON, MICHIGAN LIST OF PRINCIPAL OFFICIALS June 30, 2019 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Elizabeth Lewis 13 [This page was intentionally left blank.] 14 FINANCIAL SECTION 15 [This page was intentionally left blank.] 16 INDEPENDENT AUDITOR’S REPORT 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, 2019, 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. Auditor’s 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. Grand Haven | Grand Rapids | Hart | Muskegon www.brickleydelong.com 17 BRICKLEY DELONG City Commission City of Muskegon 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, 2019, 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, and pension and other post-employment benefit information on pages 21 through 32 and 84 through 93 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, Michigan'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 City of Muskegon 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 December 2, 2019 19 [This page was intentionally left blank.] 20 2019 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, 2019. 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 $102,663,852 as of June 30, 2019. The City has a deficit in unrestricted net position of $11,930,527. The deficit in unrestricted net position is caused by the City’s long-term pension and other postemployment benefits liabilities. • The City’s total combined net position decreased by $1,581,766 during the year ended June 30, 2019. • The City’s governmental funds reported combined ending fund balance of $16,575,017, a decrease of $1,155,778 (7%) from the prior year. • The City’s General Fund reported a total fund balance of $8,505,195, an increase of $113,629 from the prior year balance of $8,391,566. 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. 21 ° 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 22 representation services, administrative services, financial services, public safety, public 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. 23 • Component units – Finally, the City of Muskegon’s Comprehensive Annual Financial report includes six 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, BRA 2 and BRA 3). 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 $102,663,852 as of June 30, 2019. This is a decrease of $1,581,766 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 6/30/2019 6/30/2018 6/30/2019 6/30/2018 6/30/2019 6/30/2018 Change Current and other assets $23,349 $23,800 $6,718 $9,781 $30,067 $33,581 -10.46% Capital assets 73,229 66,940 47,886 45,594 121,115 112,534 7.63% Total Assets 96,578 90,740 54,604 55,375 151,182 146,115 3.47% Deferred outflow s of resources 10,997 2,282 764 159 11,761 2,441 381.81% Total Assets and Deferred Outflow s of Resources 107,575 93,022 55,368 55,534 162,943 148,556 9.68% Long-term liabilities 42,851 27,960 7,517 7,200 50,368 35,160 43.25% Other liabilities 6,482 3,876 3,061 2,995 9,543 6,871 38.89% Total Liabilities 49,333 31,836 10,578 10,195 59,911 42,031 42.54% Deferred inflow s of resources 344 2,131 24 148 368 2,279 -83.85% Total Liabilities and Deferred Outflow s of Resources 49,677 33,967 10,602 10,343 60,279 44,310 36.04% Net Position Net investment in capital assets 66,734 61,268 41,742 38,550 108,476 99,818 8.67% Restricted 5,519 6,138 599 599 6,118 6,737 -9.19% Unrestricted -14,355 -8,351 2,425 6,041 -11,930 -2,310 416.45% Total Net Position $57,898 $59,055 $44,766 $45,190 $102,664 $104,245 -1.52% The bulk of the City’s net position of $108,475,672 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. 24 Another $6,118,707 of the City’s net position are legally restricted as to use. The City has a deficit in unrestricted net position of $11,930,527. The deficit in unrestricted net position is caused by the City’s long-term pension and other postemployment benefits liabilities. The City’s unrestricted net position decreased $9,620,984 during the year. Changes in net position. The City’s total revenues were $60,502,468 for the year ended June 30, 2019. This represents a 7.27% increase over total revenues collected during the prior fiscal year. Approximately 39.6% of the City’s revenue stream came from charges to users of specific services such as water or sewer. Another 18.9% came from grants from the state and federal governments and 28.4% 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, 2019 was $62,084,234. This represents a 20.0% increase from reported expenses for the last fiscal year ended June 30, 2018. 72.1% of the City’s expenses were for governmental activities such as police and fire protection, streets, parks, and general administration. The remaining 28.9% 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 $1,157,410 and the net position for business-type activities decreased by $424,356. For governmental activities, most of these changes are related to the increased net pension liability and net other postemployment benefits liability. For business-type activities, the changes similarly represent the impact of the increased net pension liability and other postemployment benefits liability. 25 Changes in City’s Net Position (In thousands of dollars) Governmental Business-Type Activities Activities Total Percentage 6/30/2019 6/30/2018 6/30/2019 6/30/2018 6/30/2019 6/30/2018 Change Program revenues Charges for services $7,632 $7,440 $16,344 $15,989 $23,976 $23,429 2.33% Operating grants and contributions 6,893 6,479 511 43 7,404 6,522 13.52% Capital grants and contributions 4,015 2,306 - - 4,015 2,306 74.11% General revenues Property taxes 8,230 8,450 - - 8,230 8,450 -2.60% Income taxes 8,940 8,995 - - 8,940 8,995 -0.61% State shared revenues 5,102 4,955 - - 5,102 4,955 2.97% All other 2,811 1,719 24 28 2,835 1,747 62.28% Total revenues 43,623 40,344 16,879 16,060 60,502 56,404 7.27% Governmental activities expenses Public representation 1,336 1,348 - - 1,336 1,348 -0.89% Administrative services 801 507 - - 801 507 57.99% Financial services 2,701 1,995 - - 2,701 1,995 35.39% Public safety 20,433 12,404 - - 20,433 12,404 64.73% Public w orks 4,438 3,472 - - 4,438 3,472 27.82% Highw ays, streets and bridges 7,186 6,917 - - 7,186 6,917 3.89% Community and economic development 2,890 5,015 - - 2,890 5,015 -42.37% Culture and recreation 4,542 3,995 - - 4,542 3,995 13.69% General administration 302 376 - - 302 376 -19.68% Interest on long-term debt 151 165 - - 151 165 -8.48% Business-type activities expenses Sew er - - 9,120 8,094 9,120 8,094 12.68% Water - - 7,753 7,091 7,753 7,091 9.34% Marina and launch ramp - - 430 377 430 377 14.06% Total expenses 44,780 36,194 17,303 15,562 62,083 51,756 19.95% Change in net position (1,157) 4,150 (424) 498 (1,581) 4,648 -134.01% Net position at beginning of year 59,055 54,906 45,190 44,692 104,245 99,598 4.67% Net position at end of year $57,898 $59,056 $44,766 $45,190 $102,664 $104,246 -1.52% 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, 2019 was $44,781,159. • The net cost that City taxpayers paid for these activities through local property taxes and income taxes was $17,170,460, or about 39% 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. 26 Net Cost of Selected City Functions (in thousands of dollars) Total Cost of Services Net Cost of Services 6/30/2019 6/30/2018 % Change 6/30/2019 6/30/2018 % Change Governmental activities Public safety $20,433 $12,404 64.73% $18,049 $9,550 88.99% Public w orks 4,438 3,472 27.82% 3,747 2,726 37.45% Highw ays, streets and bridges 7,186 6,917 3.89% 544 721 -24.55% Community and economic development 2,890 5,015 -42.37% (1,118) 2,174 -151.43% Culture and recreation 4,542 3,995 13.69% 1,600 2,162 -25.99% All other 5,291 4,391 20.50% 3,419 2,637 29.65% Total governmental activities $44,780 $36,194 23.72% $26,241 $19,970 31.40% 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, 2019, the City’s total business-type activities realized an overall decrease in net position of $424,356. Sewer Fund net position decreased $979,425 primarily as result of an increased wastewater treatment costs. The Water Fund saw a net position increase of $798,122. 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 $128,974 due to lower revenues. 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, 2019 were the General Fund, the Major Street and Trunkline Fund, and the State Grants 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. 27 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 Target=13%) 6/30/2019 $6,563,511 1.46% $28,729,919 22.85% 6/30/2018 6,469,108 5.22% 27,051,766 23.91% 6/30/2017 6,148,292 0.81% 25,821,114 23.81% 6/30/2016 6,098,977 3.67% 24,890,399 24.50% 6/30/2015 5,883,318 19.10% 23,960,758 24.55% For the year ended June 30, 2019, General Fund revenues were $67,827 higher than the final amended budget estimate. This variance is primarily due to higher than expected property tax income. General Fund expenditures were $164,907 higher than projected in the final amended budget. This was mostly due to salary and wages in Police and Fire coming in higher than expectations. Major Street and Trunkline and State Grant 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, 2019, the fund balance of the Major Street and Trunkline Fund decreased $533,616 which is attributable to an increase in construction projects including Lakeshore Drive from Laketon to McCracken. The State Grants Fund received an upfront payment of $4,000,000 on a Michigan Enhancement Grant at the former prison site. The project is expected to be complete in FY2019-20. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets As of June 30, 2019, the City had invested $119,363,274 in a variety of capital assets, including land, streets, equipment, buildings, water and sewer lines, and vehicles. This is an increase of $6,828,680 from capital assets reported as of June 30, 2018. The increase is due to current year additions exceeding normal depreciation of assets. Note F of the notes to the basic financial statements provides detailed information on the City’s capital asset investment. Bond Ratings Long-Term Debt The City’s limited full faith and credit bonds (bonds guaranteed At June 30, 2019, the City had $12,855,959 in bonds and by the City’s taxing powers) other long-term obligations outstanding. This represents were upgraded by Standard & Poor’s from a rating of “A+” to “AA-“ in early 2016. The City’s rating remained at ”AA-“ in 2019 The City’s Water System revenue bonds carry the “AA-“ 28 S&P rating. an 11.0% decrease from the prior year. The City did not issue any new debt during the fiscal year. Additional information concerning the City’s long-term debt is presented in Note H to the basic financial statements. City’s Long Term Debt – Bonds and Other Obligations (In thousands of dollars) Governmental Business-Type Activities Activities Total Percentage 6/30/2019 6/30/2018 6/30/2019 6/30/2018 6/30/2019 6/30/2018 Change Due w ithin one year $818 $550 $780 $1,529 $1,598 $2,079 -23.14% Due in more than one year 6,283 6,655 4,975 5,719 11,258 12,374 -9.02% Total bonds & other obligations $7,101 $7,205 $5,755 $7,248 $12,856 $14,453 -11.05% 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 $3,167,419 at year-end as shown in the table below. This represents a decrease of 11.1% from the prior year. Debt issued by component units typically is secured by the limited full faith and credit of the City and so is an important consideration in assessing the City’s overall fiscal health. Additional information concerning component units’ long-term debt is presented in Note H to the basic financial statements and is summarized as follows: Component Unit Long Term Debt – Bonds and Other Obligations (In thousands of dollars) Dow ntow n Development Local Development Total Percentage Authority Finance Authority 6/30/2019 6/30/2018 6/30/2019 6/30/2018 6/30/2019 6/30/2018 Change Due w ithin one year $1,000 $0 $390 $375 $1,390 $375 270.67% Due in more than one year 0 1,000 1,777 2,188 1,777 3,188 -44.26% Total bonds & other obligations $1,000 $1,000 $2,167 $2,563 $3,167 $3,563 -11.11% ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The City’s fiscal year 2019-20 capital budget anticipates spending $24,906,226 for capital projects, consisting of street improvements, water and sewer system improvements, scheduled equipment replacements, improvements to the L. C. Walker Arena, the rehab of houses in a city neighborhood and the replacement of fire department rescue equipment. These improvements will be funded by anticipated 29 grants ($4,650,000), State Revolving Loan revenue ($13,500,000) revenues generated from operations and fund balance. From an operating standpoint, the City’s 2019-20 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 232 positions to 245 positions for a net gain of 13. • 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 0.8% from $8,758,674 for the year ended June 30, 2019 to $8,691,673 for the year ended June 30, 2019. For 2019-20, the City has estimated income tax revenue to be $8,700,000. City Income Percent Year Tax Revenues Change 6/30/2019 $8,691,673 -0.8% 6/30/2018 8,758,674 1.7% 6/30/2017 8,610,812 5.6% 6/30/2016 8,151,902 -1.5% 6/30/2015 8,274,666 5.7% 30 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 2019-20, the City tax levy will be at 10 mills for general operations and 3 mills for sanitation service. We project that $7,040,000 in total property tax revenue will be collected during fiscal year 2019-20. 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 14% 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: State Shared Percent Revenues Change Year 6/30/2019 $4,271,438 2.8% 6/30/2018 4,153,072 2.8% 6/30/2017 4,046,147 4.1% 6/30/2016 3,886,514 -0.1% 6/30/2015 3,889,178 2.0% For 2019-20, the City projects $4,376,711 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: 31 Street Revenues Percent Year from State Change 6/30/2019 $5,134,277 1.4% 6/30/2018 5,060,936 25.9% 6/30/2017 4,020,630 10.8% 6/30/2016 3,981,345 1.0% 6/30/2015 3,592,756 10.8% Based on recent legislative changes, the City began seeing increases in street funding that will carry into future years. At this time, the City is projecting an increase in street revenues for fiscal year 2019-20 up to $5,507,650. 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 $15,616,060 during the year ended June 30, 2019. Charges to customers are based on the amount of metered services used times rates periodically set by the City Commission. During the year ended June 30, 2019 water rates increased by 4%. Water rates will increase by 4% in each of the next four fiscal years to pay for improvements being made at the Water Filtration Plant. 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, 2019 Governmental Business-type Component Activities Activities Total Units ASSETS Current assets Cash and investments $ 16,619,698 $ 2,312,963 $ 18,932,661 $ 167,080 Assets managed by others 1,234,689 - 1,234,689 - Receivables 3,868,011 2,767,193 6,635,204 - Due from other governmental units 1,982,232 471,664 2,453,896 - Internal balances (926,936) 926,936 - - Inventories 9,325 125,717 135,042 - Prepaid items 562,101 113,029 675,130 - Total current assets 23,349,120 6,717,502 30,066,622 167,080 Noncurrent assets Restricted cash and investments - 599,500 599,500 - Advances to component units 852,752 - 852,752 - Notes receivable, less amounts due within one year 299,250 - 299,250 - Capital assets, net Nondepreciable 18,855,320 3,866,864 22,722,184 400,000 Depreciable 53,221,288 43,419,802 96,641,090 1,107,825 Total noncurrent assets 73,228,610 47,886,166 121,114,776 1,507,825 Total assets 96,577,730 54,603,668 151,181,398 1,674,905 DEFERRED OUTFLOWS OF RESOURCES Related to pension 8,431,476 586,145 9,017,621 - Related to other postemployment benefits 2,565,944 178,381 2,744,325 - Total deferred outflows of resources 10,997,420 764,526 11,761,946 - Total assets and deferred outflows of resources 107,575,150 55,368,194 162,943,344 1,674,905 LIABILITIES Current liabilities Accounts payable and accrued liabilities 2,837,431 780,413 3,617,844 12,250 Due to other governmental units 115,294 1,501,360 1,616,654 - Unearned revenues - unused Farmers Market tokens 106,366 - 106,366 - Unearned revenues - expenditure-driven grants 2,604,645 - 2,604,645 - Bonds and other obligations, due within one year 817,899 779,900 1,597,799 1,390,000 Total current liabilities 6,481,635 3,061,673 9,543,308 1,402,250 Noncurrent liabilities Advances from primary government - - - 852,752 Bonds and other obligations, less amounts due within one year 6,283,492 4,974,668 11,258,160 1,777,419 Net pension liability 27,664,870 1,923,226 29,588,096 - Net other postemployment benefits liability 8,902,759 618,908 9,521,667 - Total noncurrent liabilities 42,851,121 7,516,802 50,367,923 2,630,171 Total liabilities 49,332,756 10,578,475 59,911,231 4,032,421 DEFERRED INFLOWS OF RESOURCES Related to other postemployment benefits 344,324 23,937 368,261 - Total liabilities and deferred inflows of resources 49,677,080 10,602,412 60,279,492 4,032,421 NET POSITION Net investment in capital assets 66,734,006 41,741,666 108,475,672 (659,594) Restricted Highways, streets and bridges 3,397,011 - 3,397,011 - Debt service - 599,500 599,500 - L.C. Walker Arena 26,636 - 26,636 - Law enforcement 36,337 - 36,337 - Downtown BID 137,794 - 137,794 - Perpetual care Expendable 336,104 - 336,104 - Non-expendable 1,577,180 - 1,577,180 - Other purposes 8,145 - 8,145 - Unrestricted (14,355,143) 2,424,616 (11,930,527) (1,697,922) Total net position $ 57,898,070 $ 44,765,782 $ 102,663,852 $ (2,357,516) The accompanying notes are an integral part of this statement. 34 City of Muskegon STATEMENT OF ACTIVITIES For the year ended June 30, 2019 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 $ 1,336,014 $ 250,931 $ - $ - $ (1,085,083) $ - $ (1,085,083) $ - Administrative services 800,887 604,290 15,000 - (181,597) - (181,597) - Financial services 2,700,775 921,748 40,000 - (1,739,027) - (1,739,027) - Public safety 20,433,642 2,292,158 92,989 - (18,048,495) - (18,048,495) - Public works 4,438,358 691,312 - - (3,747,046) - (3,747,046) - Highways, streets and bridges 7,185,642 191,883 5,620,645 828,688 (544,426) - (544,426) - Community and economic development 2,890,216 786,120 1,035,805 2,186,409 1,118,118 - 1,118,118 - Culture and recreation 4,541,739 1,853,547 88,091 1,000,000 (1,600,101) - (1,600,101) - General administration 302,582 40,400 - - (262,182) - (262,182) - Interest on long-term debt 151,304 - - - (151,304) - (151,304) - Total governmental activities 44,781,159 7,632,389 6,892,530 4,015,097 (26,241,143) - (26,241,143) - Business-type activities Sewer 9,119,941 8,098,828 - - - (1,021,113) (1,021,113) - Water 7,752,703 7,946,983 510,533 - - 704,813 704,813 - Marina and launch ramp 430,431 298,312 - - - (132,119) (132,119) - Total business-type activities 17,303,075 16,344,123 510,533 - - (448,419) (448,419) - 35 Total primary government $ 62,084,234 $ 23,976,512 $ 7,403,063 $ 4,015,097 (26,241,143) (448,419) (26,689,562) - Component units Local Development Finance Authority - SmartZone $ 230,341 $ - $ - $ 360,000 - - - 129,659 Downtown Development Authority 1,010,930 - - - - - - (1,010,930) Tax Increment Finance Authority 40,000 - - - - - - (40,000) Brownfield Redevelopment Authority I 30,813 - - - - - - (30,813) Brownfield Redevelopment Authority II 162,000 - - - - - - (162,000) Brownfield Redevelopment Authority III 205,552 - - - - - - (205,552) Total component units $ 1,679,636 $ - $ - $ 360,000 - - - (1,319,636) General revenues Property taxes 8,230,573 - 8,230,573 1,728,439 Income taxes 8,939,887 - 8,939,887 - Cable franchise agreement 380,343 - 380,343 - Grants and contributions not restricted to specific programs 5,102,602 - 5,102,602 19,425 Unrestricted investment earnings 546,533 24,063 570,596 1,476 Miscellaneous 550,381 - 550,381 - Gain on sale of capital asset 1,333,414 - 1,333,414 - Total general revenues 25,083,733 24,063 25,107,796 1,749,340 Change in net position (1,157,410) (424,356) (1,581,766) 429,704 Net position at July 1, 2018 59,055,480 45,190,138 104,245,618 (2,787,220) Net position at June 30, 2019 $ 57,898,070 $ 44,765,782 $ 102,663,852 $ (2,357,516) The accompanying notes are an integral part of this statement. City of Muskegon BALANCE SHEET Governmental Funds June 30, 2019 Major Street Other Total General and Trunkline State Grants Governmental Governmental Fund Fund Fund Funds Funds ASSETS Cash and investments $ 7,302,304 $ 2,675,521 $ 2,265,863 $ 2,967,912 $ 15,211,600 Assets managed by others - - - 1,234,689 1,234,689 Receivables Accounts and loans (net of allowance for uncollectibles) 199,254 37,098 18,555 1,032,316 1,287,223 Property taxes 17,778 - - - 17,778 Income taxes 1,576,085 - - - 1,576,085 Special assessments - 5,448 - 2,072 7,520 Due from other governmental units 763,628 680,166 77,741 460,697 1,982,232 Due from other funds 814,694 - - - 814,694 Advances to component units - - - 284,251 284,251 Prepaid items 231,684 24,033 - 33,524 289,241 Total assets $ 10,905,427 $ 3,422,266 $ 2,362,159 $ 6,015,461 $ 22,705,313 LIABILITIES Accounts payable $ 1,436,433 $ 126,967 $ 64,456 $ 306,754 $ 1,934,610 Accrued liabilities 414,048 8,866 - 28,461 451,375 Due to other governmental units 28,897 86,262 - 135 115,294 Due to other funds - - - 390,487 390,487 Unearned revenues - unused Farmers Market tokens - - - 106,366 106,366 Unearned revenues - expenditure-driven grants 854 - 2,286,435 317,356 2,604,645 Total liabilities 1,880,232 222,095 2,350,891 1,149,559 5,602,777 DEFERRED INFLOWS OF RESOURCES Unavailable revenues - income taxes 520,000 - - - 520,000 Unavailable revenues - special assessments - 5,447 - 2,072 7,519 Total deferred inflows of resources 520,000 5,447 - 2,072 527,519 FUND BALANCES Nonspendable Prepaid items 231,684 24,033 - 33,524 289,241 Perpetual care 10,000 - - 1,567,180 1,577,180 Restricted Highways, streets and bridges - 3,170,691 - 932,055 4,102,746 Law enforcement - - - 36,337 36,337 Downtown BID - - - 137,794 137,794 Perpetual care - - - 336,104 336,104 Other purposes - - - 8,145 8,145 Assigned for capital projects and public improvements 1,700,000 - 11,268 1,812,691 3,523,959 Unassigned 6,563,511 - - - 6,563,511 Total fund balances 8,505,195 3,194,724 11,268 4,863,830 16,575,017 Total liabilities, deferred inflows of resources and fund balances $ 10,905,427 $ 3,422,266 $ 2,362,159 $ 6,015,461 $ 22,705,313 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, 2019 Total fund balance—governmental funds $ 16,575,017 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 $ 136,662,003 Accumulated depreciation (67,529,371) 69,132,632 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 520,000 Special assessments 7,520 527,520 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 (47,700) Bonds and notes payable (5,342,602) Compensated absences (1,643,495) Net pension liability and related deferred outflows/inflows of resources (18,410,575) Net other post employment benefits liability and related outflows/inflows of resources (6,395,314) (31,839,686) 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 4,500,167 Internal balances representing the cumulative difference between actual costs and amounts charged to business-type activities (997,580) 3,502,587 Net position of governmental activities $ 57,898,070 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, 2019 Major Street Other Total General and Trunkline State Grants Governmental Governmental Fund Fund Fund Funds Funds REVENUES Taxes $ 16,582,030 $ - $ - $ - $ 16,582,030 Licenses and permits 2,452,807 - - - 2,452,807 Intergovernmental revenues Federal 57,894 627,218 77,287 1,035,785 1,798,184 State 5,134,277 4,544,248 2,032,776 1,212,348 12,923,649 Local 40,000 - - 1,014,500 1,054,500 Charges for services 2,841,826 21,582 - 1,567,011 4,430,419 Fines and forfeitures 462,120 - - 26,458 488,578 Investment earnings and rental income 716,917 15,628 - 25,366 757,911 Income from assets managed by others - - - 38,668 38,668 Other 459,901 92,669 - 1,022,239 1,574,809 Total revenues 28,747,772 5,301,345 2,110,063 5,942,375 42,101,555 EXPENDITURES Current Public representation services 1,281,107 - - - 1,281,107 Administrative services 739,301 - - - 739,301 Financial services 2,394,866 - - - 2,394,866 Public safety 16,094,531 - - 36,665 16,131,196 Public works 3,493,577 - - 169,238 3,662,815 Highways, streets and bridges - 5,601,688 - 1,691,544 7,293,232 Community and economic development 736,679 - - - 736,679 Culture and recreation 1,824,540 - - 2,080,437 3,904,977 Other governmental functions 281,711 - - - 281,711 Debt service Principal 65,000 210,000 19,313 - 294,313 Interest and fees 165,851 23,273 781 - 189,905 Capital outlay 801,483 - 2,104,074 4,982,715 7,888,272 Total expenditures 27,878,646 5,834,961 2,124,168 8,960,599 44,798,374 Excess of revenues over (under) expenditures 869,126 (533,616) (14,105) (3,018,224) (2,696,819) OTHER FINANCING SOURCES (USES) Proceeds from sale of capital assets - - - 1,541,041 1,541,041 Transfers in 5,989 - - 1,204,247 1,210,236 Transfers out (761,486) - (5,989) (442,761) (1,210,236) Total other financing sources (uses) (755,497) - (5,989) 2,302,527 1,541,041 Net change in fund balances 113,629 (533,616) (20,094) (715,697) (1,155,778) Fund balances at July 1, 2018 8,391,566 3,728,340 31,362 5,579,527 17,730,795 Fund balances at June 30, 2019 $ 8,505,195 $ 3,194,724 $ 11,268 $ 4,863,830 $ 16,575,017 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, 2019 Net change in fund balances—total governmental funds $ (1,155,778) 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 $ (4,683,977) Capital outlay 9,363,862 4,679,885 Revenues reported in the Statement of Activities that do not provide current financial resources are not reported as revenues in the governmental funds. 15,347 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 294,313 Changes in accrual of interest and amortization of premiums and discounts Change in accrued interest payable 2,600 Amortization of premiums and discounts 36,000 38,600 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 (227,454) Change in net pension liability and related deferred outflows/inflows of resources (3,561,112) Change in net other post employment benefits liability and related deferred outflows/inflows of resources (995,975) (4,784,541) 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 (359,315) Change in internal balances representing the current year difference between actual costs and amounts charged to business-type activities 114,079 (245,236) Change in net position of governmental activities $ (1,157,410) The accompanying notes are an integral part of this statement. 39 City of Muskegon STATEMENT OF NET POSITION Proprietary Funds June 30, 2019 Governmental Activities - Business-type Activities - Enterprise Funds Internal Marina and Service Sewer Water Launch Ramp Total Funds ASSETS Current assets Cash and investments $ - $ 1,864,757 $ 448,206 $ 2,312,963 $ 1,408,098 Receivables 1,349,103 1,400,782 17,308 2,767,193 1,278,655 Due from other governmental units - 471,664 - 471,664 - Inventories 16,952 108,765 - 125,717 9,325 Prepaid items 48,658 61,835 2,536 113,029 272,860 Total current assets 1,414,713 3,907,803 468,050 5,790,566 2,968,938 Noncurrent assets Restricted cash and investments - 599,500 - 599,500 - Advances to component units - - - - 568,502 Capital assets Land 16,188 103,500 22,562 142,250 65,000 Land improvements - 62,948 1,888,965 1,951,913 301,715 Buildings, improvements and systems 21,969,809 70,358,328 2,322,488 94,650,625 1,559,334 Machinery and equipment 113,289 3,073,170 60,620 3,247,079 9,650,051 Construction in progress 624,436 3,045,178 55,000 3,724,614 - Less accumulated depreciation (11,136,687) (42,052,427) (3,240,701) (56,429,815) (8,632,124) Net capital assets 11,587,035 34,590,697 1,108,934 47,286,666 2,943,976 Total noncurrent assets 11,587,035 35,190,197 1,108,934 47,886,166 3,512,478 Total assets 13,001,748 39,098,000 1,576,984 53,676,732 6,481,416 DEFERRED OUTFLOWS OF RESOURCES Related to pension 135,264 450,881 - 586,145 360,705 Related to other postemployment benefits 41,165 137,216 - 178,381 109,773 Total deferred outflows of resources 176,429 588,097 - 764,526 470,478 Total assets and deferred outflows of resources 13,178,177 39,686,097 1,576,984 54,441,258 6,951,894 LIABILITIES Current liabilities Accounts payable 118,653 503,621 38,456 660,730 367,339 Accrued liabilities 19,782 98,249 1,652 119,683 36,409 Due to other governmental units 630,357 871,003 - 1,501,360 - Due to other funds 70,644 - - 70,644 353,563 Bonds and other obligations, due within one year 8,500 771,400 - 779,900 19,300 Total current liabilities 847,936 2,244,273 40,108 3,132,317 776,611 Noncurrent liabilities Bonds and other obligations, less amounts due within one year 42,400 4,932,268 - 4,974,668 95,994 Net pension liability 443,821 1,479,405 - 1,923,226 1,183,524 Net other postemployment benefits liability 142,825 476,083 - 618,908 380,867 Total noncurrent liabilities 629,046 6,887,756 - 7,516,802 1,660,385 Total liabilities 1,476,982 9,132,029 40,108 10,649,119 2,436,996 DEFERRED INFLOWS OF RESOURCES Related to other postemployment benefits 5,524 18,413 - 23,937 14,731 Total liabilities and deferred inflows of resources 1,482,506 9,150,442 40,108 10,673,056 2,451,727 NET POSITION Net investment in capital assets 11,587,035 29,045,697 1,108,934 41,741,666 2,943,976 Restricted for debt service - 599,500 - 599,500 - Unrestricted 108,636 890,458 427,942 1,427,036 1,556,191 Total net position $ 11,695,671 $ 30,535,655 $ 1,536,876 43,768,202 $ 4,500,167 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 997,580 Net position of business-type activities $ 44,765,782 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, 2019 Governmental Activities - Business-type Activities - Enterprise Funds Internal Marina and Service Sewer Water Launch Ramp Total Funds OPERATING REVENUES Charges for services $ 7,936,080 $ 7,679,980 $ 294,969 $ 15,911,029 $ 9,056,117 Other 162,748 777,536 3,343 943,627 83,569 Total operating revenues 8,098,828 8,457,516 298,312 16,854,656 9,139,686 OPERATING EXPENSES Administration 495,523 1,007,771 5,354 1,508,648 333,374 Insurance premiums and claims - - - - 5,166,291 Wastewater treatment 6,587,735 - - 6,587,735 - Wastewater maintenance 1,542,751 - - 1,542,751 - Filtration plant operations - 2,349,699 - 2,349,699 - Water distribution - 2,315,052 - 2,315,052 - Other operations - - 318,193 318,193 3,707,321 Depreciation 459,109 1,857,523 106,040 2,422,672 449,622 Total operating expenses 9,085,118 7,530,045 429,587 17,044,750 9,656,608 Operating income (loss) (986,290) 927,471 (131,275) (190,094) (516,922) NONOPERATING REVENUES (EXPENSES) Investment earnings 6,865 14,897 2,301 24,063 30,081 Gain on sale of capital assets - - - - 127,526 Interest expense - (144,246) - (144,246) - Total nonoperating revenue (expenses) 6,865 (129,349) 2,301 (120,183) 157,607 Change in net position (979,425) 798,122 (128,974) (310,277) (359,315) Net position at July 1, 2018 12,675,096 29,737,533 1,665,850 4,859,482 Net position at June 30, 2019 $ 11,695,671 $ 30,535,655 $ 1,536,876 $ 4,500,167 Adjustment for the net effect of the current year activity between the internal service funds and the enterprise funds (114,079) Change in net position of business-type activities $ (424,356) 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, 2019 Governmental Activities - Business-type Activities - Enterprise Funds Internal Marina and Service Sewer Water Launch Ramp Total Funds CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 7,988,174 $ 7,571,644 $ 302,122 $ 15,861,940 $ 83,823 Receipts from interfund services provided 35,637 158,243 - 193,880 7,741,332 Other receipts - - - - 657,986 Payments to suppliers (7,642,117) (2,322,817) (203,936) (10,168,870) (6,646,662) Payments to employees (634,222) (1,863,317) (29,091) (2,526,630) (1,420,335) Payments for interfund services used (663,210) (923,190) (66,447) (1,652,847) (815,458) Net cash provided by (used for) operating activities (915,738) 2,620,563 2,648 1,707,473 (399,314) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Interfund borrowing 70,644 - - 70,644 353,563 Advances to component units - - - - 84,512 Net cash provided by (used for) noncapital financing activities 70,644 - - 70,644 438,075 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of capital assets (919,685) (2,290,586) (33,904) (3,244,175) (941,398) Principal paid on capital debt - (1,495,000) - (1,495,000) - Interest paid on capital debt - (158,260) - (158,260) - Proceeds from sale of capital assets - - - - 163,012 Net cash provided by (used for) capital and related financing activities (919,685) (3,943,846) (33,904) (4,897,435) (778,386) CASH FLOW FROM INVESTING ACTIVITIES Investment earnings 6,865 14,897 2,301 24,063 30,081 Net increase (decrease) in cash and investments (1,757,914) (1,308,386) (28,955) (3,095,255) (709,544) Cash and investments July 1, 2018 1,757,914 3,772,643 477,161 6,007,718 2,117,642 Cash and investments at June 30, 2019 $ - $ 2,464,257 $ 448,206 $ 2,912,463 $ 1,408,098 Reconciliation of cash and investments to the Statement of Net Position Cash and investments $ - $ 1,864,757 $ 448,206 $ 2,312,963 $ 1,408,098 Restricted cash and investments - 599,500 - 599,500 - $ - $ 2,464,257 $ 448,206 $ 2,912,463 $ 1,408,098 Reconciliation of operating income (loss) to net cash provided by (used for) operating activities Operating income (loss) $ (986,290) $ 927,471 $ (131,275) $ (190,094) $ (516,922) Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities Depreciation expense 459,109 1,857,523 106,040 2,422,672 449,622 Change in assets and liabilities Receivables (75,017) (727,629) 3,810 (798,836) (656,545) Inventories (150) (20,781) - (20,931) (552) Prepaid items 913 3,134 (102) 3,945 (8,650) Accounts payable (398,567) 311,525 23,203 (63,839) 137,588 Accrued liabilities 84,264 269,320 972 354,556 196,145 Net cash provided by (used for) operating activities $ (915,738) $ 2,620,563 $ 2,648 $ 1,707,473 $ (399,314) The accompanying notes are an integral part of this statement. 42 City of Muskegon STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES Fiduciary Funds June 30, 2019 Agency Funds ASSETS Cash and investments $ 944,538 Accounts receivable 30,521 Total assets $ 975,059 LIABILITIES Accounts payable $ 333,678 Due to other governmental units 446,320 Deposits held for others 195,061 Total liabilities $ 975,059 The accompanying notes are an integral part of this statement. 43 City of Muskegon STATEMENT OF NET POSITION Discretely Presented Component Units June 30, 2019 Local Development Tax Finance Downtown Increment Brownfield Brownfield Brownfield Authority - Development Finance Redevelopment Redevelopment Redevelopment SmartZone Authority Authority Authority I Authority II Authority III Total ASSETS Current assets Cash and investments $ 25,897 $ 80,457 $ 13,181 $ 15,763 $ 16,067 $ 15,715 $ 167,080 Noncurrent assets Capital assets, net Nondepreciable 400,000 - - - - - 400,000 Depreciable 1,107,825 - - - - - 1,107,825 Total noncurrent assets 1,507,825 - - - - - 1,507,825 Total assets 1,533,722 80,457 13,181 15,763 16,067 15,715 1,674,905 LIABILITIES 44 Current liabilities Accrued liabilities 12,250 - - - - - 12,250 Bonds and other obligations, due within one year 390,000 1,000,000 - - - - 1,390,000 Total current liabilities 402,250 1,000,000 - - - - 1,402,250 Noncurrent liabilities Advances from primary government - - - 852,752 - - 852,752 Bonds and other obligations, less amounts due within one year 1,777,419 - - - - - 1,777,419 Total noncurrent liabilities 1,777,419 - - 852,752 - - 2,630,171 Total liabilities 2,179,669 1,000,000 - 852,752 - - 4,032,421 NET POSITION Net investment in capital assets (659,594) - - - - - (659,594) Unrestricted 13,647 (919,543) 13,181 (836,989) 16,067 15,715 (1,697,922) Total net position $ (645,947) $ (919,543) $ 13,181 $ (836,989) $ 16,067 $ 15,715 $ (2,357,516) The accompanying notes are an integral part of this statement. City of Muskegon STATEMENT OF ACTIVITIES Discretely Presented Component Units For the year ended June 30, 2019 Program Revenue Net (Expense) Revenue and Changes in Net Position Local Development Tax Capital Finance Downtown Increment Brownfield Brownfield Brownfield Grants and Authority - Development Finance Redevelopment Redevelopment Redevelopment Functions/Programs Expenses Contributions SmartZone Authority Authority Authority I Authority II Authority III Total Local Development Finance Authority - SmartZone Community and economic development $ 172,648 $ - $ (172,648) $ - $ - $ - $ - $ - $ (172,648) Interest on long-term debt 57,693 360,000 302,307 - - - - - 302,307 Total Local Development Finance Authority - SmartZone 230,341 360,000 129,659 - - - - - 129,659 Downtown Development Authority Economic development 1,010,930 - - (1,010,930) - - - - (1,010,930) Tax Increment Finance Authority Community and economic development 40,000 - - - (40,000) - - - (40,000) Brownfield Redevelopment Authority I Interest on long-term debt 30,813 - - - - (30,813) - - (30,813) 45 Brownfield Redevelopment Authority II Community and economic development 162,000 - - - - - (162,000) - (162,000) Brownfield Redevelopment Authority III Community and economic development 205,552 - - - - - - (205,552) (205,552) Total discretely presented component units $ 1,679,636 $ 360,000 129,659 (1,010,930) (40,000) (30,813) (162,000) (205,552) (1,319,636) General revenues Property taxes 97,583 1,085,354 37,658 134,828 163,340 209,676 1,728,439 Grants and contributions not restricted to specific programs 2,871 - 7,170 4,362 5,022 - 19,425 Unrestricted investment income 55 549 40 30 261 541 1,476 Total general revenues 100,509 1,085,903 44,868 139,220 168,623 210,217 1,749,340 Change in net position 230,168 74,973 4,868 108,407 6,623 4,665 429,704 Net position at July 1, 2018 (876,115) (994,516) 8,313 (945,396) 9,444 11,050 (2,787,220) Net position at June 30, 2019 $ (645,947) $ (919,543) $ 13,181 $ (836,989) $ 16,067 $ 15,715 $ (2,357,516) The accompanying notes are an integral part of this statement. City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 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 three separate designated areas under the aegis of the BRA – the Betten-Henry Street site, the former downtown mall site, and the Terrace Point 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, 2019 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, 2019, 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, 2018, the date of its latest audited financial statements is as follows: Total assets and deferred outflows of resources $ 3,767,019 Total liabilities and deferred inflows of resources (484,398) Total net position $ 3,282,621 Total operating income $ 1,909,539 Total operating expenses (2,304,825) Total nonoperating revenues 565 Capital contributions 32,686 Change in net position $ (362,035) 47 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 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. The State Grants Fund accounts for grant revenues received from the State of Michigan for the purpose of improvements and/or rehabilitation of City property, environmental remediation at lakeshore sites or new infrastructure in the City’s downtown. 48 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 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, 2019 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, 2019 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, 2019 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 The City offers a defined benefit pension plan to its employees through Municipal Employees Retirement System (MERS). The City records a net pension liability for the difference between the total pension liability calculated by the actuary and the Plan’s fiduciary net position. 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’s fiduciary net position have been determined on the same basis as they are reported by MERS. 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. Other Postemployment Benefit Costs The City offers a defined benefit retiree healthcare benefits to retirees. The City records a net other postemployment benefit (OPEB) liability for the difference between the total OPEB liability calculated by the actuary and the OPEB Plan’s fiduciary net position. For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the OPEB Plan and additions to/deductions from the OPEB Plan’s fiduciary net position have been determined on the same basis as they are reported by the OPEB Plan. 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. 52 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance—Continued Net Position Flow Assumption Sometimes the government will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts of net position to report as restricted and unrestricted in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted net position to have been depleted before unrestricted net position is applied. Fund Balance Flow Assumptions Sometimes the City will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. Fund Balance Policies Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The City itself can establish limitation on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance). The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the City’s highest level of decision-making authority. The City Commission is the highest level of decision-making authority for the City that can, by 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. 53 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued Revenues and Expenditures/Expenses—Continued 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 2018 state taxable value for real/personal property of the City totaled approximately $555,616,000 of which approximately $33,373,000 was captured by the component units. The ad valorem taxes levied consisted of 10.0, 3.0 and .0899 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, BRA II, and BRA III component units. 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 2018 financial statements have been reclassified to conform to the 2019 presentation. 54 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 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. Excess of Expenditures Over Appropriations During the year ended June 30, 2019, actual expenditures exceeded appropriations for: Final Budget Actual General Fund Administrative Services Clerk $ 460,548 $ 542,248 Public safety Police department 9,678,626 9,880,736 Fire department 3,925,000 3,989,048 Public sworks Street lighting 490,000 551,818 General sanitation 1,932,345 2,107,545 L.C. Walker Arena Fund Culture and recreation 1,582,871 1,805,697 These overexpenditures were funded with available fund balance. Fund Deficit As of June 30, 2019, the City’s Public Service Building Fund had an unrestricted net position deficit of $154,992. This deficit will be eliminated through future operations and an interfund transfer. 55 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE C—DEPOSITS AND INVESTMENTS As of June 30, 2019, the City had the following investments: Weighted Average Maturity Fair Value (Months) S&P Percent Investment Type Money market funds $ 10,378 1 AAA 0.2 % Negotiable certificates of deposit 1,702,078 31 not rated 10.7 US agency obligations 3,301,972 198 AA+ 20.7 Local units of government obligations 503,280 10 AAA 3.2 Local units of government obligations 295,056 3 A+ 1.9 Local units of government obligations 610,127 32 AA- 3.8 External investment pool 2,009,569 2 AAA 12.6 Commercial paper 6,117,413 2 A2/P2 38.4 Commercial paper 1,383,200 6 A1/P1 8.5 Total fair value $ 15,933,073 100.0 % Portfolio weighted average maturity 47 The City voluntarily invests certain excess funds in an external investment pool (Pool). The Pool is an external investment pool of "qualified" investments for Michigan municipalities. The Pool is not regulated nor registered with the SEC. The fair value of the City's investments is the same as the value of the Pool’s shares. 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. The City has more than 5 percent of its investments in the following securities: Percent of Security Total Investments Federal Home Loan Mortgage Corporation obligations 15.9% General Electric Co commercial paper 10.6% Intesa Funding LLC commercial paper 15.3% Catholic Health Initiatives commercial paper 18.1% Bank of China LTD commercial paper 9.9% 56 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE C—DEPOSITS AND INVESTMENTS—Continued Deposit and Investment Risks—Continued 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, 2019, $5,439,391 of the City’s bank balance of $5,939,391 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, 2019, restricted cash and investments in the Water Fund of $599,500 were restricted by bond ordinance. 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 four 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. Pere Marquette and Margaret Drake Elliot Park Fund The Pere Marquette and Margaret Drake Elliot Park Fund (Marquette and Elliot Park Fund) was established by the City to be used for capital improvements at Pere Marquette and Margaret Drake Elliot Parks. 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. Darl and Kathleen Staley Charity Fund The Darl and Kathleen Staley Charity Fund (Staley Charity Fund) was established after the City received monies from the Staley’s estate. The Fund is to be used for capital improvements needs at City parks. 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. 57 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE D—ASSETS MANAGED BY OTHERS—Continued The Funds—Continued 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. 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, 2019 follows: Lakeshore Trails Cemetery Marquette Staley Improvement Perpetual and Elliot Charity Fund Care Fund Park Fund Fund Totals Revenues Contributions $ 3,132 $ - $ - $ - $ 3,132 Dividends and interest 1,391 18,021 2,840 9,797 32,049 Realized and unrealized loss on investments 1,871 23,158 3,636 12,577 41,242 6,394 41,179 6,476 22,374 76,423 Expenses Administration fees 264 5,725 1,610 3,703 11,302 Revenues over expenses 6,130 35,454 4,866 18,671 65,121 Total assets at beginning of year 51,035 1,181,335 107,622 370,573 1,710,565 Total assets at end of year 57,165 1,216,789 112,488 389,244 1,775,686 Less assets recorded as those of the Foundation (39,265) - (112,488) (389,244) (540,997) Assets reported on the Balance Sheet/ Statement of Net Position $ 17,900 $ 1,216,789 $ - $ - $ 1,234,689 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, 2019 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, 2019. Money market funds: Valued at amortized cost, which approximates fair value. Negotiable certificates of deposit, US agency obligations, local units of government obligations, commercial paper: 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, 2019 NOTE E—FAIR VALUE MEASUREMENTS—Continued External investment pools and assets managed by others: The assets are valued based upon the City’s allocable share of the Michigan CLASS and Community Foundation of Muskegon County (Pools) pooled investment portfolios. The allocable shares are based on the value of the underlying assets owned by the Pools, minus their liabilities. The assets managed by others are valued monthly by the Pools and are allocated based upon each organization’s calculated share of the Pools’ pooled investment portfolios. Each entity with an interest within the pooled investments receives statements from the Pools indicating the additions to the investments (via contributions), withdrawals from the investments (via grants), and the investment returns allocated via a unitization process. The City calculates the fair value of its share of the pooled investment assets held by the Pools based on the estimated fair value of the underlying assets. The Pools control the investments and make 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, 2019: Assets at Fair Value as of June 30, 2019 Level 1 Level 2 Level 3 Total Money market funds $ - $ 10,378 $ - $ 10,378 Negotiable certificates of deposit 1,702,078 - - 1,702,078 US agency obligations 3,301,972 - - 3,301,972 Local units of government obligations 1,408,463 - - 1,408,463 External investment pools - 2,009,569 - 2,009,569 Commercial paper 7,500,613 - - 7,500,613 Assets managed by others - 1,234,689 - 1,234,689 Total assets at fair value $ 13,913,126 $ 3,254,636 $ - $ 17,167,762 60 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE F—CAPITAL ASSETS Capital asset activity for the year ended June 30, 2019 was as follows: Balance Balance July 1, 2018 Additions Deductions June 30, 2019 Governmental activities: Capital assets, not being depreciated: Land $ 12,649,465 $ 2,002,863 $ - $ 14,652,328 Construction in progress 1,640,959 7,258,894 4,696,861 4,202,992 Total capital assets, not being depreciated 14,290,424 9,261,757 4,696,861 18,855,320 Capital assets, being depreciated: Land improvements 4,685,117 624,913 - 5,310,030 Leasehold improvements 534,821 - - 534,821 Buildings and improvements 24,212,249 782,393 - 24,994,642 Furniture, vehicles and equipment 15,158,636 1,078,798 235,691 16,001,743 Infrastructure 74,424,280 3,254,260 2,042,286 75,636,254 Shared improvements 6,905,293 - - 6,905,293 Total capital assets, being depreciated 125,920,396 5,740,364 2,277,977 129,382,783 Less accumulated depreciation: Land improvements 1,930,968 160,495 - 2,091,463 Leasehold improvements 476,110 9,598 - 485,708 Buildings and improvements 17,337,487 445,794 - 17,783,281 Furniture, vehicles and equipment 11,799,624 614,761 200,205 12,214,180 Infrastructure 37,269,412 3,557,687 2,042,286 38,784,813 Shared improvements 4,456,786 345,264 - 4,802,050 Total accumulated depreciation 73,270,387 5,133,599 2,242,491 76,161,495 Total capital assets, being depreciated, net 52,650,009 606,765 35,486 53,221,288 Capital assets, net $ 66,940,433 $ 9,868,522 $ 4,732,347 $ 72,076,608 Business-type activities: Capital assets, not being depreciated: Land $ 142,250 $ - $ - $ 142,250 Construction in progress 699,869 4,056,558 1,031,813 3,724,614 Total capital assets, not being depreciated 842,119 4,056,558 1,031,813 3,866,864 Capital assets, being depreciated: Land improvements 1,888,965 62,948 - 1,951,913 Buildings, improvements and systems 93,652,787 997,838 - 94,650,625 Machinery and equipment 3,217,433 29,646 - 3,247,079 Total capital assets, being depreciated 98,759,185 1,090,432 - 99,849,617 Less accumulated depreciation: Land improvements 1,824,072 7,004 - 1,831,076 Buildings, improvements and systems 49,458,687 2,359,163 - 51,817,850 Machinery and equipment 2,724,384 56,505 - 2,780,889 Total accumulated depreciation 54,007,143 2,422,672 - 56,429,815 Total capital assets, being depreciated, net 44,752,042 (1,332,240) - 43,419,802 Capital assets, net $ 45,594,161 $ 2,724,318 $ 1,031,813 $ 47,286,666 61 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE F—CAPITAL ASSETS—Continued Depreciation Depreciation expense was charged to functions as follows: Governmental activities: Adminstrative services $ 2,485 Financial services 806 Public safety 157,792 Public works 2,126 Highways, streets and bridges 4,029,931 Community and economic development 75,717 Culture and recreation 394,249 General administration 20,871 Internal Service Fund depreciation 449,622 $ 5,133,599 Business-type activities: Sewer $ 459,109 Water 1,857,523 Marina and Launch Ramp 106,040 $ 2,422,672 Balance Balance July 1, 2018 Additions Deductions June 30, 2019 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 2,517,785 172,648 - 2,690,433 Total capital assets, being depreciated, net 1,280,473 (172,648) - 1,107,825 Capital assets, net $ 1,680,473 $ (172,648) $ - $ 1,507,825 Depreciation Depreciation expense was charged to economic development. 62 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE G—INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The composition of interfund balances as of June 30, 2019 is as follows: Due To/From Other Funds: Receivable Fund Payable Fund Amount General Fund L.C. Walker Arena Fund $ 229,130 General Fund Senior Millage Fund 2,346 General Fund Lead Abatement Fund 32,146 General Fund Community Development Block Grant Fund 126,865 General Fund Sewer Fund 70,644 General Fund General Insurance Fund 353,563 $ 814,694 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 $852,752 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 $ 5,989 State Grants Fund $ 5,989 Nonmajor Governmental Funds Local Streets Fund 250,000 General Fund 761,486 L.C. Walker Arena Fund 476,486 Farmers Market and Kitchen 242 Fund 35,000 761,486 761,486 Nonmajor Governmental Funds Nonmajor Governmental Funds Economic Development - EDC Revolving Loan Fund 442,761 Sappi Fund 442,761 $ 1,210,236 $ 1,210,236 The General Fund transferred funds to the Major Streets and Trunkline Fund for future capital improvements and to the L.C. Walker Arena Fund and other funds for operation subsidies. The Economic Development – Sappi Fund was closed into the EDC Revolving Loan Fund. 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, 2019 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, 2019. Balance Balance Due Within July 1, 2018 Additions Deductions June 30, 2019 One Year Governmental activities: Public placement debt General obligation debt $ 5,340,000 $ - $ 275,000 $ 5,065,000 $ 505,000 Premium 293,903 - 36,000 257,903 - Direct borrowings and direct placements Intergovernmental obligations 39,012 - 19,313 19,699 19,699 Compensated absences 1,531,745 1,596,272 1,369,228 1,758,789 293,200 Governmental activities long-term liabilities $ 7,204,660 $ 1,596,272 $ 1,699,541 $ 7,101,391 $ 817,899 Business-type activities: Public placement debt Revenue obligations $ 7,040,000 $ - $ 1,495,000 $ 5,545,000 $ 745,000 Premium 4,614 - 4,614 - - Compensated absences 203,558 192,728 186,718 209,568 34,900 Business-type activities long-term liabilities $ 7,248,172 $ 192,728 $ 1,686,332 $ 5,754,568 $ 779,900 Component units: Public placement debt General obligation debt $ 2,485,000 $ - $ 375,000 $ 2,110,000 $ 390,000 Premium 78,326 - 20,907 57,419 - Direct borrowings and direct placements Intergovernmental obligations 1,000,000 - - 1,000,000 1,000,000 Component unit long- term liabilities $ 3,563,326 $ - $ 395,907 $ 3,167,419 $ 1,390,000 64 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE H—LONG-TERM DEBT—Continued Public Placement Debt 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, 2019 is as follows: Original Date of Borrowing Interest Rate Maturity Balance General obligation debt: Governmental activities: 2011 Capital Improvement Bonds $ 2,000,000 2.98% September 2021 $ 665,000 2016 Limited Tax General Obligation Refunding Bonds 4,535,000 2% - 4% October 2032 4,400,000 $ 5,065,000 Component units: 2012 LDFA Tax Increment Refunding Bonds $ 4,100,000 3% - 4% November 2025 $ 2,110,000 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, 2019 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 $ 5,545,000 The City has pledged future water customer revenues, net of specified operating expenses, to repay the 2004 Drinking Water State Revolving Fund Loan. Proceeds from the issuance were used to make improvements to the City’s water supply system. The bond is payable solely from water customer net revenues and is payable through 2025. Annual principal and interest payments on the bond are expected to require less than 35 percent of net revenues through 2025. The total principal and interest remaining to be paid on the bond is $5,966,974. Principal and interest paid for the year ended June 30, 2019 and total customer net revenues were $1,653,259 and $2,799,891, respectively. The City was in compliance in all material respects with all the revenue bond ordinances at June 30, 2019. 65 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE H—LONG-TERM DEBT—Continued Direct Borrowings and Direct Placements Intergovernmental Obligations The City has long-term contractual obligations with other governmental entities for program purposes. Intergovernmental contractual obligations outstanding as of June 30, 2019 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 $ 19,699 Component units: 1989 DDA Promissory Note to Muskegon County $ 1,000,000 0% August 2019 $ 1,000,000 For governmental activities, claims and judgments and compensated absences are generally liquidated by the General Fund. 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, 2019 was approximately $2,832,000. The City is unaware of any circumstances that would cause a shortfall in the near future. Annual debt service requirements to maturity for public placement debt and for direct borrowings and direct placements outstanding as of June 30, 2019 follow: Governmental Activites Direct Borrowings and Business-type Activities Year Ending Public Placement Debt Direct Placements Public Placement Debt June 30, Principal Interest Principal Interest Principal Interest 2020 $ 505,000 $ 176,364 $ 19,699 $ 394 $ 745,000 $ 109,916 2021 515,000 161,107 - - 760,000 93,925 2022 535,000 145,402 - - 775,000 77,616 2023 300,000 132,900 - - 790,000 60,988 2024 300,000 122,400 - - 810,000 43,988 2025-2029 1,620,000 420,400 - - 1,665,000 35,541 2030-2033 1,290,000 102,800 - - - - $ 5,065,000 $ 1,261,373 $ 19,699 $ 394 $ 5,545,000 $ 421,974 66 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE H—LONG-TERM DEBT—Continued Component Units Direct Borrowings and Year Ending Public Placement Debt Direct Placements June 30, Principal Interest Principal Interest 2020 $ 390,000 $ 65,800 $ 1,000,000 $ - 2021 395,000 50,100 - - 2022 245,000 37,300 - - 2023 255,000 28,575 - - 2024 265,000 20,775 - - 2025-2029 560,000 16,950 - - 2030-2033 - - - - $ 2,110,000 $ 219,500 $ 1,000,000 $ - Annual debt service requirements to maturity by type of debt as of June 30, 2019 follow: Revenue General Obligation Debt Obligations Intergovernmental Year Ending Governmental Component Business-type Governmental Component June 30, Activities Units Activities Activities Units 2020 $ 681,364 $ 455,800 $ 854,916 $ 20,093 $ 1,000,000 2021 676,107 445,100 853,925 - - 2022 680,402 282,300 852,616 - - 2023 432,900 283,575 850,988 - - 2024 422,400 285,775 853,988 - - 2025-2029 2,040,400 576,950 1,700,541 - - 2030-2033 1,392,800 - - - - $ 6,326,373 $ 2,329,500 $ 5,966,974 $ 20,093 $ 1,000,000 67 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 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 2019 and 2018 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, 2019 $ 78,289 $ 227,646 $ 81,355 $ 224,580 June 30, 2018 110,132 94,450 126,293 78,289 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, 2019, the claims liability including incurred but not reported claims was $51,401. 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 2019 and 2018 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, 2019 $ 33,784 $ 1,643,632 $ 1,626,015 $ 51,401 June 30, 2018 53,504 1,267,269 1,286,989 33,784 68 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 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. Commitment The City has a contract for street projects including water system improvements as of June 30, 2019 with a remaining amount of approximately $4,694,000. Approximately $800,000 of these costs is being financed by a grant with the remainder coming from the Major Street and Trunkline and Water funds. Leases The City leases an office facility under a noncancelable operating lease that expires June 2022 with the option by the tenant to renew the term of the lease for two successive periods of five years each. The City received rental income (including pro-rata utility usage) of $45,292 for the year ended June 30, 2019. The future minimum rental income for this lease is as follows: Year Ending June 30, Amount 2020 $ 55,919 2021 55,463 2022 55,584 $ 166,966 NOTE J—TAX ABATEMENTS Industrial Facilities Exemption The City entered into property tax abatement agreements with local businesses under the Plant Rehabilitation and Industrial Developments Act, (known as the Industrial Facilities Exemptions or IFTs) PA 198 of 1974, as amended. The IFTs provides a tax incentive to manufacturers to enable renovation and expansion of aging facilities, assist in the building of new facilities, and to promote the establishment of high tech facilities. Properties qualifying for IFT status are taxed at half the local property tax millage rate applicable to other real and personal property in the City for a term of one to twelve years as determined by the City. For the year ended June 30, 2019, the City abated property taxes revenues totaling $48,914 under this program. 69 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE J—TAX ABATEMENTS—Continued Brownfield Redevelopment Authority The City entered into property tax abatement agreements with local businesses under the Brownfield Redevelopment Act, PA 381 of 1996, as amended. Brownfield properties are those in which the redevelopment or reuse of property may be complicated by the presence or perception of contamination. Brownfields use tax increment financing where growth in taxable value above the initial value of the Brownfield is captured and used to repay the developer for remediation costs. For the year ended June 30, 2019, the City abated property taxes revenues totaling $134,118 under this program. Payment in Lieu of Taxes (PILOT) The City uses the State Housing Development Authority Act, PA 346 of 1966, as amended, to enter into agreements that provide for a service charge in lieu of taxes to encourage the development of housing of its elderly citizens of low and moderate income. For the year ended June 30, 2019, the City abated property taxes revenues totaling $190,106 under this program. NOTE K—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. 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. 70 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE K—EMPLOYEE RETIREMENT SYSTEM AND PENSION PLAN—Continued Defined Benefit Pension Plan—Continued Benefits Provided—Continued 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 55/25 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 *Effective January 2017, the multiplier for Non-Union General and Department of Public Works was changed to 2.00% and the multiplier for Police Patrol was changed to 2.675%. Effective December 2018, the multiplier for Clerical was changed to 2.00%. Final average compensation is calculated based on 3 years. Employees Covered by Benefit Terms At December 31, 2018 valuation date, the following employees were covered by the benefit terms: Inactive employees or beneficiaries currently receiving benefits 325 Inactive employees entitled to but not yet receiving benefits 39 Active employees 98 Total employees covered by MERS 462 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, 2019, the City had a flat-dollar employer contribution to the Plan of $1,902,696 in lieu of a percentage of covered employee payroll, as the Plan is closed to new employees. Member contributions range from 4 percent to 6.5 percent. Net Pension Liability The City’s net pension liability was measured as of December 31, 2018, and the total pension liability used to calculate the net pension liability was determined by an annual actuarial valuation as of that date. 71 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE K—EMPLOYEE RETIREMENT SYSTEM AND PENSION PLAN—Continued Defined Benefit Pension Plan—Continued Actuarial Assumptions The total pension liability in the December 31, 2018 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: Target Long-Term Long-Term Allocation Expected Expected Target Gross Rate of Gross Rate Inflation Real Rate Asset Class Allocation Return of Return Assumption of Return Global equity 55.5% 8.65% 4.80% 2.50% 3.42% Global fixed income 18.5% 3.76% 0.70% 2.50% 0.23% Real assets 13.5% 9.72% 1.31% 2.50% 0.97% Diversifying strategies 12.5% 7.50% 0.94% 2.50% 0.63% Total 100.0% 7.75% 5.25% Discount Rate The discount rate used to measure the total pension liability was 8.00 percent for 2018. 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. 72 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE K—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 January 1, 2018 $ 107,675,977 $ 90,759,017 $ 16,916,960 Changes for the year Service cost 806,565 - 806,565 Interest 8,345,836 - 8,345,836 Difference between expected and actual experience 3,642,392 - 3,642,392 Contributions - employer - 2,671,175 (2,671,175) Contributions - employee - 848,562 (848,562) Net investment income - (3,452,538) 3,452,538 Administrative expenses - (173,509) 173,509 Benefit payments including refund of employee contributions (7,512,608) (7,512,608) - Other changes (229,967) - (229,967) Net changes 5,052,218 (7,618,918) 12,671,136 Balance at December 31, 2018 $ 112,728,195 $ 83,140,099 $ 29,588,096 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 8.00 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 (7.00 percent) or 1-percentage-point higher (9.00 percent) than the current rate: Current Discount 1% Decrease (7%) Rate (8%) 1% Increase (9%) City's net pension liability $ 41,105,878 $ 29,588,096 $ 19,768,942 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. 73 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE K—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, 2019, the City recognized pension expense of $6,178,991. At June 30, 2019, 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 $ 1,821,196 $ - Net differences between projected and actual net investment income 6,244,567 - Contributions subsequent to the measurement date* 951,858 - Total $ 9,017,621 $ - *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, 2020. 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 2020 $ 4,069,409 2021 675,908 2022 1,217,912 2023 2,102,534 Payables to the Pension Plan At June 30, 2019, the City reported a payable of $185,266 for the outstanding amount of contributions to the pension plan required for the year ended June 30, 2019. 74 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE K—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 12.5 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, 2019, City and employee contributions were $628,802 and $307,981, 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, 2019, forfeitures reduced the City’s pension expense by $54,132. Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The Plan, available to all full-time employees at their option, permits participants to defer a portion of their salary until future years. Payments from the deferred compensation plan are not available to participants until termination, retirement, death, or unforeseeable emergency. Active participants are allowed to borrow from their accumulated assets for limited purposes such as family education costs, medical costs, or down payment for a new home. The City must approve program loans. The Plan has created a trust for the exclusive benefit of the Plan’s participants and beneficiaries under rules provided by Internal Revenue Code Section 401(f). NOTE L—OTHER POSTEMPLOYMENT BENEFITS Retiree Healthcare Plan Plan Description The City’s defined benefit OPEB Plan, the City of Muskegon Retiree Healthcare Plan (OPEB Plan), provides healthcare benefits to certain employees and their spouses upon retirement. The Plan is a defined benefit plan administered by the City Commission. The benefits are provided under collective bargaining agreements and at the discretion of the City Commission. The OPEB Plan does not issue a publicly available report. 75 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE L—OTHER POSTEMPLOYMENT BENEFITS—CONTINUED Retiree Healthcare Plan—Continued Benefits Provided The OPEB Plan provides medical and dental insurances for eligible retirees and spouses who meet the following criteria: Normal Vesting Retirement Early Eligibility Period Age Retirement Non-Union General Hired before January 1, 2011 5 years 60 55/25 Non-Union Police Hired before January 1, 2011 10 years 55 53/25 Clerical Hired before January 1, 2009 10 years 60 55/30 Department of Public Works Hired before January 1, 2011 10 years 60 55/30 Police Patrol Hired before January 1, 2012 10 years 55 50/25 Police Command Hired before January 1, 2010 10 years 55 50/25 Fire Hired before January 1, 2010 10 years 55 53/25 Benefits are provided through a third party insurer. Employees Covered by Benefit Terms At the December 31, 2017 valuation, the following employees were covered the benefit terms: Inactive employees or beneficiaries currently receiving benefits 283 Inactive employees entitled to but not yet receiving benefits 44 Covered spouses/dependents 124 Active employees 140 Total employees covered by OPEB Plan 591 Contributions The OPEB Plan’s funding policy is that the City will make contributions equal to the recommended annual contribution. There are no long-term contracts for contributions to the OPEB Plan. The OPEB Plan has no legally required reserves. For the year ended June 30, 2019, the City made payments for postemployment healthcare benefits of $1,260,887. Net OPEB Liability The City’s net OPEB liability was measured as of December 31, 2018, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as December 31, 2017, which was rolled forward to December 31, 2018. 76 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE L—OTHER POSTEMPLOYMENT BENEFITS—Continued Retiree Healthcare Plan—Continued Actuarial Assumptions The total OPEB liability in the December 31, 2017 actuarial valuation, rolled forward to the measurement date, was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.5 percent Salary increases 2.0 percent Investment rate of return 7.75 percent (including inflation), net of administrative and investment expenses Healthcare cost trend rates Pre-65: 8.5 percent graded down to 4.5 percent by .25 percent per year Post-65: 7.5 percent graded down to 4.5 percent by .25 percent per year Mortality Mortality rates for police and fire were as set forth in the Public Safety 2010 Employee and Healthy Retiree, headcount weighted, MP-2018 improvement scale. Mortality rates for others were as set forth in the Public General 2010 Employee and Healthy Retiree, headcount weighted, MP-2018 improvement scale. Investment Rate of Return The long-term rate of return on retirement plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB Plan expense 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. Best estimates of arithmetic real rates of return for each major asset class included in the OPEB Plan’s target asset allocation as of December 31, 2017 actuarial valuation, rolled forward to the measurement date, are summarized in the following table: Target Long-Term Long-Term Allocation Expected Expected Target Gross Rate of Gross Rate Inflation Real Rate Asset Class Allocation Return of Return Assumption of Return Global equity 55.5% 8.65% 4.80% 2.50% 3.42% Global fixed income 18.5% 3.76% 0.70% 2.50% 0.23% Real assets 13.5% 9.72% 1.31% 2.50% 0.97% Diversifying strategies 12.5% 7.50% 0.94% 2.50% 0.63% Total 100.0% 7.75% 5.25% Discount Rate The discount rate used to measure the total OPEB liability was 7.75%. The employer is assumed to make annual contributions to the trust contributions equal to the actuarially determined contribution in future years. Given this assumption, the assets are projected to be sufficient to make projected future benefit payments of current plan members. For projected benefits that are covered by projected assets, the long-term expected rate was used to discount the projected benefits. From the year that benefit payments were not projected to be covered by the projected assets (the “depletion/crossover date”), projected benefits were discounted at a discount rate reflecting a 20-year AA/Aa tax-exempt municipal bond yield. A single equivalent discount rate that yields the same present value of benefits is calculated. This discount rate is used to determine the total OPEB liability. The discount rate used for December 31, 2017 was 7.75%. 77 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE L—OTHER POSTEMPLOYMENT BENEFITS—Continued Retiree Healthcare Plan—Continued Changes in the Net OPEB Liability Increase (Decrease) Plan Net OPEB Total OPEB Fiduciary Liability Liability (a) Position (b) (a)-(b) Balance at January 1, 2018 $ 26,648,337 $ 20,779,578 $ 5,868,759 Changes for the year Service cost 178,243 - 178,243 Interest 2,035,720 - 2,035,720 Difference between expected and actual experience (992,432) - (992,432) Changes of assumptions 2,349,210 - 2,349,210 Contributions - employer - 671,363 (671,363) Net investment income - (699,603) 699,603 Administrative expenses - (53,927) 53,927 Benefit payments including refund of employee contributions (1,118,442) (1,118,442) - Net changes 2,452,299 (1,200,609) 3,652,908 Balance at December 31, 2018 $ 29,100,636 $ 19,578,969 $ 9,521,667 Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following presents the net OPEB liability of the City, calculated using the discount rate of 7.75 percent, as well as what the City's net OPEB liability would be if it were calculated using a discount rate that is 1- percentage-point lower (6.75 percent) or 1-percentage-point higher (8.75 percent) than the current rate: 1% Decrease Current Discount 1% Increase (6.75%) Rate (7.75%) (8.75%) City's net OPEB liability $ 12,438,007 $ 9,521,667 $ 7,056,199 78 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE L—OTHER POSTEMPLOYMENT BENEFITS—Continued Retiree Healthcare Plan—Continued Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rate The following presents the net OPEB liability of the City, calculated using the healthcare cost trend rate for pre-65 of 8 percent, decreasing to 4.5 percent and post-65 of 7.5 percent decreasing to 4.5 percent, as well as what the City’s net OPEB liability would be if it were calculated using healthcare cost trend rates that are 1- percentage-point lower (7 percent decreasing to 3.5 percent or 6.5 percent decreasing to 3.5 percent) or 1- percentage-point higher (9 percent decreasing to 5.5 percent or 8.5 percent decreasing to 5.5 percent) than the current rate: Current Healthcare 1% Decrease Cost Trend Rate 1% Increase City's net OPEB liability $ 6,751,322 $ 9,521,667 $ 12,803,283 OPEB Plan Fiduciary Net Position Detailed information about the OPEB Plan’s fiduciary net position is not available in a separately issued financial report. For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expenses, information about the fiduciary net position of the OPEB Plan and additions to/deductions from the City’s fiduciary net position have been determined on the same basis as they are reported by the City. For these purposes, 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. OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB For the year ended June 30, 2019, the City recognized OPEB expense of $1,858,653. At June 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred Outflows of Deferred Inflows of Resources Resources Differences in experience $ - $ 368,261 Changes in assumptions 871,719 - Net difference between projected and actual net investment income 1,443,458 - Contributions subsequent to the measurement date* 429,148 - Total $ 2,744,325 $ 368,261 *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, 2020. 79 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE L—OTHER POSTEMPLOYMENT BENEFITS—Continued Retiree Healthcare Plan—Continued OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB—Continued Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: Year Ending June 30, Amount 2020 $ 831,904 2021 328,447 2022 328,447 2023 458,118 Payables to the OPEB Plan At June 30, 2019, the City did not have a payable to the OPEB Plan. Healthcare Savings Plan The City also maintains a defined contribution OPEB Plan (Health Care Savings Plan or HCSP) which provides certain health care benefits to plan member and legal dependents upon termination of employment. The HCSP covers all City employees hired after July 1, 2012 in lieu of the traditional retiree healthcare plan. The City participates in the Municipal Employees Retirement System (MERS) of Michigan. MERS is an agent multiple employer, statewide public employee defined contribution OPEB Plan established by the Michigan Legislature under Public Act 135 of 1945 and administered by a nine-member Retirement Board. Public Act 427 of 1984, as amended, establishes and amends the benefit provisions of the participants in MERS. 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. Depending on employee group, the Plan covers all qualified City employees hired after January 2009 to December 2012 in lieu of the traditional retiree healthcare plan. 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. 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. Employees are immediately vested in all contributions and earnings of those contributions. For the year ended June 30, 2019, City and employee contributions were $118,996 and $162,069, respectively. 80 City of Muskegon NOTES TO FINANCIAL STATEMENTS June 30, 2019 NOTE M—UPCOMING ACCOUNTING PRONOUNCEMENTS GASB Statement 84—Fiduciary Activities was issued by the GASB in January 2017 and will be effective for the City’s 2020 fiscal year. The objective of this Statement is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. This Statement establishes criteria for identifying fiduciary activities for all state and local governments. The focus on the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. An activity meeting the criteria should be reported in a fiduciary fund in the basic financial statements. GASB Statement 87—Leases was issued by the GASB in June 2017 and will be effective for the City’s 2021 fiscal year. The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments' financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments' leasing activities. NOTE N—SUBSEQUENT EVENTS On August 30, 2019, the City obtained a State Revolving Fund (SRF) Loan for the Sewer Fund of $11,500,000 and a Drinking Water Revolving Fund (DWRF) Loan for the Water Fund of $2,000,000. On October 29, 2019, the City issued Capital Improvement Bonds of $19,420,000 for the construction of a convention center and a Capital Improvement Note of $3,000,000 for various housing projects in the Nelson neighborhood. 81 [This page was intentionally left blank.] 82 REQUIRED SUPPLEMENTARY INFORMATION 83 City of Muskegon BUDGETARY COMPARISON SCHEDULE General Fund For the year ended June 30, 2019 (with comparative actual amounts for the year ended June 30, 2018) 2019 2018 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual REVENUES Taxes City income taxes $ 8,600,000 $ 8,700,000 $ 8,691,673 $ (8,327) $ 8,758,674 Property taxes 7,462,325 7,110,078 7,168,126 58,048 7,439,738 Industrial facilities taxes 76,468 76,468 106,297 29,829 95,774 Payments in lieu of taxes 580,877 580,877 615,934 35,057 582,869 Total taxes 16,719,670 16,467,423 16,582,030 114,607 16,877,055 Licenses and permits Business licenses 75,000 75,000 52,345 (22,655) 81,650 Liquor licenses 50,043 55,000 55,467 467 53,487 Marihuana facilities licenses 25,000 100,000 115,700 15,700 - Cable TV fees 370,000 380,000 380,343 343 368,495 Rental property registration 353,500 367,500 363,915 (3,585) 369,509 Burial permits 80,000 80,000 68,275 (11,725) 82,645 Building permits 1,800,000 1,100,000 933,745 (166,255) 1,458,084 Electrical permits 220,000 180,000 169,690 (10,310) 225,271 Plumbing permits 80,000 80,000 102,101 22,101 85,789 Mechanical permits 130,000 130,000 137,826 7,826 146,354 Vacant building fees 75,000 40,000 72,665 32,665 94,315 Other inspections - 2,000 735 (1,265) - Total licenses and permits 3,258,543 2,589,500 2,452,807 (136,693) 2,965,599 Intergovernmental revenues Federal grants 40,000 40,000 57,894 17,894 23,988 State Grants 715,000 826,000 862,839 36,839 837,603 State shared revenue 4,180,392 4,268,904 4,271,438 2,534 4,153,072 Total intergovernmental revenues - State 4,895,392 5,094,904 5,134,277 39,373 4,990,675 84 City of Muskegon BUDGETARY COMPARISON SCHEDULE—CONTINUED General Fund For the year ended June 30, 2019 (with comparative actual amounts for the year ended June 30, 2018) 2019 2018 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual Charges for services Tax administration fees $ 327,000 $ 327,000 $ 340,217 $ 13,217 $ 331,723 Utility administration fees 310,000 310,000 310,000 - 310,000 Reimbursement for elections - - 13,455 13,455 100 Brownfield authority admin fee 162,000 162,000 162,000 - 154,800 Indirect cost reimbursements 1,119,973 1,119,973 1,114,735 (5,238) 1,027,986 Site plan review fee 6,000 6,000 6,900 900 6,800 Sale of cemetery lots 25,000 25,000 31,159 6,159 39,103 Police miscellaneous 136,638 141,638 143,322 1,684 140,223 Police impound fees 35,000 35,000 39,470 4,470 39,935 Landlord's alert fee 30,000 30,000 30,323 323 35,627 Fire protection - state property 74,000 81,750 81,766 16 74,342 Zoning fees 15,000 15,000 19,070 4,070 18,430 Muskegon Heights zoning 6,000 6,000 10,465 4,465 8,190 Clerk fees - 5,000 5,432 432 7,851 Clerk fees - passport fees 80,000 80,000 82,662 2,662 71,672 Tax abatement application fees 3,000 3,000 3,802 802 4,970 Treasurer fees 67,000 67,000 84,289 17,289 68,022 False alarm fees 3,500 9,000 10,365 1,365 9,540 Miscellaneous cemetery income 16,000 16,000 14,547 (1,453) 17,902 Fire miscellaneous 9,500 15,500 14,506 (994) 17,755 Sanitation stickers 271,100 276,100 249,043 (27,057) 238,312 Lot cleanup fees 48,000 39,500 35,697 (3,803) 59,452 Reimbursements - lot mowing and demolitions 5,000 5,000 1,067 (3,933) 7,376 Special events reimbursements 55,000 55,000 26,505 (28,495) 55,671 Recreation program fees 4,500 4,500 11,029 6,529 9,066 Total charges for services 2,812,211 2,834,961 2,841,826 6,865 2,754,848 Fines and forfeitures Income tax - penalty and interest 200,000 200,000 207,424 7,424 229,678 Late fees on current taxes 20,000 20,000 16,790 (3,210) 15,942 Interest on late invoices 11,000 11,000 11,516 516 14,534 Parking fines 55,000 55,000 57,782 2,782 53,336 Court fines 115,000 130,000 137,732 7,732 120,989 Civil infractions 17,000 15,500 30,876 15,376 21,785 Total fines and forfeitures 418,000 431,500 462,120 30,620 456,264 Investment earnings and rental income Interest income - 100,000 108,155 8,155 95,057 Net increase (decrease) in the fair value of investments - 300,000 344,122 44,122 (122,586) City right of way rental 6,800 6,800 6,800 - 6,800 Fire station lease - Central Dispatch 30,000 50,000 45,292 (4,708) 30,528 Parking rentals 48,750 68,750 68,500 (250) 48,750 Great Lakes Naval Memorial lease 15,000 - - - - McGraft Park rentals 70,000 97,000 96,084 (916) 63,510 Other park rentals 44,800 55,000 47,964 (7,036) 45,631 Total investment earnings and rental income 215,350 677,550 716,917 39,367 167,690 85 City of Muskegon BUDGETARY COMPARISON SCHEDULE—CONTINUED General Fund For the year ended June 30, 2019 (with comparative actual amounts for the year ended June 30, 2018) 2019 2018 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual Other Police sale and auction proceeds $ 1,000 $ 1,000 $ - $ (1,000) $ - CDBG program reimbursements 325,000 351,726 332,857 (18,869) 346,481 Fisherman's Landing reimbursement 17,500 17,500 - (17,500) - Contributions 20,000 20,000 2,046 (17,954) 11,871 Contributions - Veteran's Park maintenance 18,500 18,500 - (18,500) - Community Foundation for Muskegon County 10,000 10,000 24,892 14,892 9,772 Miscellaneous and sundry 83,000 85,381 100,106 14,725 85,676 Total other 475,000 504,107 459,901 (44,206) 453,800 Total revenues 28,874,166 28,679,945 28,747,772 67,827 28,729,919 EXPENDITURES Current Public representation services City commission 91,290 91,290 88,892 2,398 77,876 City promotions and public relations 55,000 80,000 81,890 (1,890) 65,353 City manager 429,299 399,299 379,819 19,480 409,564 Contributions to outside agencies 430,173 430,173 384,968 45,205 489,687 City attorney 350,000 360,000 345,538 14,462 341,093 Total public representation services 1,355,762 1,360,762 1,281,107 79,655 1,383,573 Administrative services City clerk 455,048 460,548 542,248 (81,700) 424,224 Civil service 198,440 206,990 195,275 11,715 113,554 Affirmative action - - 1,778 (1,778) 135 Total administrative services 653,488 667,538 739,301 (71,763) 537,913 Financial services Finance administration 578,651 561,000 570,805 (9,805) 576,620 Assessing 332,000 332,000 335,977 (3,977) 329,708 Arena administration - - 13,510 (13,510) 15,487 Income tax administration 349,936 353,936 362,595 (8,659) 328,809 Information systems 489,914 579,914 550,516 29,398 444,386 City treasurer 567,034 567,734 561,463 6,271 496,235 Total financial services 2,317,535 2,394,584 2,394,866 (282) 2,191,245 Public safety Police department 10,439,994 9,678,626 9,880,736 (202,110) 9,538,680 Fire department 3,431,866 3,925,000 3,989,048 (64,048) 3,930,210 Fire safety inspections 3,215,780 2,415,100 2,224,747 190,353 1,611,103 Total public safety 17,087,640 16,018,726 16,094,531 (75,805) 15,079,993 86 City of Muskegon BUDGETARY COMPARISON SCHEDULE—CONTINUED General Fund For the year ended June 30, 2019 (with comparative actual amounts for the year ended June 30, 2018) 2019 2018 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual Public works Street lighting $ 490,000 $ 490,000 $ 551,818 $ (61,818) $ 529,471 Community event support 103,159 103,159 73,216 29,943 100,611 General sanitation 1,849,345 1,932,345 2,107,545 (175,200) 1,924,434 Storm water management 10,000 4,000 4,000 - 13,365 City hall maintenance 329,502 337,253 316,868 20,385 242,222 Cemeteries maintenance 428,582 428,582 440,130 (11,548) 420,155 Total public works 3,210,588 3,295,339 3,493,577 (198,238) 3,230,258 Community and economic development Planning, zoning and economic development 574,189 417,648 376,679 40,969 434,867 Environmental services - - - - 1,094,602 Edison Landing subsidy 360,000 360,000 360,000 - 350,000 Downtown Development Authority subsidy - - - - 315,000 Total community and economic development 934,189 777,648 736,679 40,969 2,194,469 Culture and recreation Parks maintenance 1,756,158 1,671,228 1,676,222 (4,994) 1,569,234 McGraft Park maintenance 87,576 87,576 133,573 (45,997) 96,916 General and inner city recreation programs - - 12,050 (12,050) 2,551 Forestry - - 92 (92) - Graffiti removal - - - - 153 Parking operations - - 2,393 (2,393) 1,988 Farmers market and flea market - - 210 (210) 8 Total culture and recreation 1,843,734 1,758,804 1,824,540 (65,736) 1,670,850 Other governmental functions Insurance premiums 268,695 287,041 292,037 (4,996) 294,675 Other 100,000 100,000 (10,326) 110,326 60,566 Total other governmental functions 368,695 387,041 281,711 105,330 355,241 Debt service Principal 65,000 65,000 65,000 - 70,000 Interest and fees 164,750 164,750 165,851 (1,101) 167,081 Total debt service 229,750 229,750 230,851 (1,101) 237,081 Capital outlay 555,000 823,547 801,483 22,064 130,375 Total expenditures 28,556,381 27,713,739 27,878,646 (164,907) 27,010,998 Excess of revenues over (under) expenditures 317,785 966,206 869,126 (97,080) 1,718,921 87 City of Muskegon BUDGETARY COMPARISON SCHEDULE—CONTINUED General Fund For the year ended June 30, 2019 (with comparative actual amounts for the year ended June 30, 2018) 2019 2018 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) Actual OTHER FINANCING SOURCES (USES) Transfers in $ - $ - $ 5,989 $ 5,989 $ - Transfers out (460,000) (695,000) (761,486) (66,486) (1,385,000) Total other financing sources (uses) (460,000) (695,000) (755,497) (60,497) (1,385,000) Net change in fund balance $ (142,215) $ 271,206 113,629 $ (157,577) 333,921 Fund balance at beginning of year 8,391,566 8,057,645 Fund balance at end of year $ 8,505,195 $ 8,391,566 Note: Both budgets and actual figures are prepared in accordance with generally accepted accounting principles. 88 City of Muskegon BUDGETARY COMPARISON SCHEDULE Major Street and Trunkline Fund For the year ended June 30, 2019 Variance with Final Budget- Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Intergovernmental revenues Federal $ 880,000 $ - $ 627,218 $ 627,218 State 4,196,906 4,762,671 4,544,248 (218,423) Charges for services - - 21,582 21,582 Investment earnings 10,000 10,000 15,628 5,628 Other 71,000 100,000 92,669 (7,331) Total revenues 5,157,906 4,872,671 5,301,345 428,674 EXPENDITURES Current Highways, streets and bridges 6,989,695 7,079,923 5,601,688 1,478,235 Debt service Principal 210,000 210,000 210,000 - Interest and fees 25,000 25,000 23,273 1,727 Total expenditures 7,224,695 7,314,923 5,834,961 1,479,962 Net change in fund balance $ (2,066,789) $ (2,442,252) (533,616) $ 1,908,636 Fund balance at July 1, 2018 3,728,340 Fund balance at June 30, 2019 $ 3,194,724 Note: Both budgets and actual figures are prepared in accordance with generally accepted accounting principles. 89 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) 2018 2017 2016 2015 2014 TOTAL PENSION LIABILITY Service cost $ 806,565 $ 1,018,541 $ 1,130,408 $ 1,194,909 $ 1,190,507 Interest 8,345,836 8,429,233 8,345,661 8,034,035 7,817,503 Differences between expected and actual experience 3,642,392 1,326,122 (1,697,797) (647,017) - Changes in assumptions - - - 4,779,382 - Benefit payments, including refunds of employee contributions (7,512,608) (6,937,544) (6,417,825) (6,363,249) (6,407,932) Other changes (229,967) (4,485,289) - - - Net change in total pension liability 5,052,218 (648,937) 1,360,447 6,998,060 2,600,078 Total pension liability at beginning of year 107,675,977 108,324,914 106,964,467 99,966,407 97,366,329 Total pension liability at end of year (a) $ 112,728,195 $ 107,675,977 $ 108,324,914 $ 106,964,467 $ 99,966,407 PLAN FIDUCIARY NET POSITION Contributions-employer $ 2,671,175 $ 1,801,016 $ 1,996,512 $ 1,420,218 $ 1,166,652 90 Contributions-employee 848,562 687,391 563,898 566,045 564,409 Net investment income (3,452,538) 10,964,115 8,890,951 (1,237,895) 5,282,031 Benefit payments, including refunds or employee contributions (7,512,608) (6,937,544) (6,417,825) (6,363,249) (6,407,932) Administrative expense (173,509) (173,921) (175,718) (183,599) (193,139) Net change in plan fiduciary net position (7,618,918) 6,341,057 4,857,818 (5,798,480) 412,021 Plan fiduciary net position at beginning of year 90,759,017 84,417,960 79,560,142 85,358,622 84,946,601 Plan fiduciary net position at end of year (b) $ 83,140,099 $ 90,759,017 $ 84,417,960 $ 79,560,142 $ 85,358,622 City's net pension liability at end of year (a)-(b) $ 29,588,096 $ 16,916,960 $ 23,906,954 $ 27,404,325 $ 14,607,785 Plan fiduciary net position as a percentage of the total pension liability 73.75% 84.29% 77.93% 74.38% 85.39% Covered payroll $ 6,565,169 $ 7,645,789 $ 8,460,078 $ 9,108,948 $ 9,171,511 City's net pension liability as a percentage of covered payroll 450.68% 221.26% 282.59% 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* 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 Actuarially determined contribution $ 1,902,696 $ 1,798,140 $ 1,897,158 $ 1,546,440 $ 1,293,996 $ 1,043,040 $ 1,035,772 $ 1,160,870 $ 1,211,612 $ 688,832 Contributions in relation to the actuarially determined contribution 2,218,663 1,964,214 2,276,200 1,753,272 1,293,996 1,543,040 1,035,772 1,160,870 2,211,612 688,832 Contribution deficiency (excess) $ (315,967) $ (166,074) $ (379,042) $ (206,832) $ - $ (500,000) $ - $ - $ (1,000,000) $ - Covered payroll $ 6,561,169 $ 7,645,789 $ 8,460,078 $ 9,108,948 $ 9,171,511 $ 9,198,938 $10,185,425 $10,650,990 $ 11,533,186 $12,613,654 Contributions as percentage of covered payroll 33.8% 25.7% 26.9% 19.2% 14.1% 16.8% 10.2% 10.9% 19.2% 5.5% 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: Actuarial cost method Entry age 91 Amortization method Level percentage of payroll, Closed Remaining amortization period 5 to 14 years depending on division 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 * The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months. City of Muskegon REQUIRED SUPPLEMENTARY INFORMATION RETIREE HEALTHCARE SYSTEM SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY AND RELATED RATIOS Last Ten Fiscal Years (Amounts were determined as of December 31 of each fiscal year) 2018 2017 TOTAL OPEB LIABILITY Service cost $ 178,243 $ 165,423 Interest 2,035,720 1,954,979 Differences between expected and actual experience (992,432) - Changes of assumptions 2,349,210 - Benefit payments, including refunds of employee contributions (1,118,442) (1,064,376) Net change in total OPEB liability 2,452,299 1,056,026 Total OPEB liability at beginning of year 26,648,337 25,592,311 Total OPEB liability at end of year (a) $ 29,100,636 $ 26,648,337 PLAN FIDUCIARY NET POSITION 92 Contributions-employer $ 671,363 $ 736,039 Net investment income (699,603) 2,110,019 Benefit payments, including refunds or employee contributions (1,118,442) (1,064,376) Administrative expense (53,927) (52,313) Net change in plan fiduciary net position (1,200,609) 1,729,369 Plan fiduciary net position at beginning of year 20,779,578 19,050,209 Plan fiduciary net position at end of year (b) $ 19,578,969 $ 20,779,578 City's net OPEB liability at end of year (a)-(b) $ 9,521,667 $ 5,868,759 Plan fiduciary net position as a percentage of the total OPEB liability 67.28% 77.98% Covered payroll Not Available $ 8,095,840 City's net OPEB liability as a percentage of covered payroll Not Available 72.49% Notes to Schedule Additional actuarial data is not available and will be provided in subsequent years. City of Muskegon REQUIRED SUPPLEMENTARY INFORMATION RETIREE HEALTHCARE SYSTEM SCHEDULE OF CONTRIBUTIONS Last Ten Fiscal Years (Amounts were determined as of June 30 of each fiscal year) Period Ended Year Ended June 30 June 30* 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 Actuarially determined contribution $ 1,470,562 $ 956,532 $ 606,506 $ 639,428 $ 659,451 $ 696,634 $ 728,863 $ 832,891 $ 1,079,000 $ 530,000 Contributions in relation to the actuarially determined contribution 1,260,887 687,642 606,506 639,428 659,451 696,634 728,863 832,891 1,079,000 530,000 Contribution deficiency (excess) $ 209,675 $ 268,890 $ - $ - $ - $ - $ - $ - $ - $ - Covered payroll Not Available $ 8,095,840 $10,830,000 $10,830,000 $10,005,000 $10,005,000 $12,365,000 $12,365,000 $13,293,000 $13,293,000 Contributions as percentage of covered payroll Not Available 8.5% 5.6% 5.9% 6.6% 7.0% 5.9% 6.7% 8.1% 4.0% Notes to Schedule Valuation Date: Actuarially determined contribution rates are calculated as of December 31, 2017 and rolled forward to December 31, 2018. Methods and assumptions used to determine contribution rates: Actuarial cost method Entry age normal (level percentage of compensation) 93 Amortization method Level percentage of payroll, Closed Remaining amortization period 8 years Asset valuation method Equal to market value of assets Inflation 2.5 percent Salary increases 3.5 percent Investment rate of return 7.75 percent (including inflation), net of administrative and investment expenses Retirement age 55 - 60 years of age Mortality Mortality rates for police and fire were as set forth in the Public safety 2010 Employee and Healthy Retiree, headcount weighted, MP 2018 improvement scale. Morality rates for others were as set forth in the Public General 2010 Employee and Healthy Retiree, headcount weighted, MP-2018 improvement scale. * The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months. [This page was intentionally left blank.] 94 OTHER SUPPLEMENTAL INFORMATION 95 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. Farmers Market and Kitchen 242 – to account for revenues received for the City’s Farmers Market and Kitchen 242. 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. 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. 96 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. Lead Abatement – to account for grant revenues received from the U. S. Department of Health and Human Services for the purpose of abatement of lead from homes in the City. Senior Millage – to account for proceeds from the County millage for senior services that were distributed to the City for specific projects. 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. 97 City of Muskegon COMBINING BALANCE SHEET Other Governmental Funds June 30, 2019 Other Other Permanent Total Other Special Capital Fund - Governmental Revenue Projects Cemetery Funds Funds Funds Perpetual Care ASSETS Cash and investments $ 2,967,912 $ 1,172,856 $ 1,394,313 $ 400,743 Assets managed by others 1,234,689 - 17,900 1,216,789 Receivables Accounts and loans (net of allowance for uncollectibles) 1,032,316 356,959 673,856 1,501 Special assessments 2,072 2,072 - - Due from other governmental units 460,697 182,913 277,784 - Advances to component units 284,251 - - 284,251 Prepaid items 33,524 33,524 - - Total assets $ 6,015,461 $ 1,748,324 $ 2,363,853 $ 1,903,284 LIABILITIES Accounts payable $ 306,754 $ 243,099 $ 63,655 $ - Accrued liabilities 28,461 19,802 8,659 - Due to other governmental units 135 - 135 - Due to other funds 390,487 229,130 161,357 - Unearned revenues - unused Farmers Market tokens 106,366 106,366 - - Unearned revenues - expenditure-driven grants 317,356 - 317,356 - Total liabilities 1,149,559 598,397 551,162 - DEFERRED INFLOWS OF RESOURCES Unavailable revenues - special assessments 2,072 2,072 - - FUND BALANCES Nonspendable Prepaid items 33,524 33,524 - - Perpetual care 1,567,180 - - 1,567,180 Restricted Highways, streets and bridges 932,055 932,055 - - Law enforcement 36,337 36,337 - - Downtown BID 137,794 137,794 - - Perpetual care 336,104 - - 336,104 Other purposes 8,145 8,145 - - Assigned for capital projects and public improvements 1,812,691 - 1,812,691 - Total fund balances 4,863,830 1,147,855 1,812,691 1,903,284 Total liabilities, deferred inflows of resources and fund balances $ 6,015,461 $ 1,748,324 $ 2,363,853 $ 1,903,284 98 City of Muskegon COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Other Governmental Funds For the year ended June 30, 2019 Other Other Permanent Total Other Special Capital Fund - Governmental Revenue Projects Cemetery Funds Funds Funds Perpetual Care REVENUES Intergovernmental revenues Federal $ 1,035,785 $ - $ 1,035,785 $ - State 1,212,348 1,212,348 - - Local 1,014,500 - 1,014,500 - Charges for services 1,567,011 1,497,098 39,654 30,259 Fines and forfeitures 26,458 26,458 - - Investment earnings 25,366 5,231 8,097 12,038 Income from assets managed by others 38,668 - 3,213 35,455 Other 1,022,239 458,219 564,020 - Total revenues 5,942,375 3,199,354 2,665,269 77,752 EXPENDITURES Current Public safety 36,665 36,665 - - Public works 169,238 169,238 - - Highways, streets and bridges 1,691,544 1,691,544 - - Culture and recreation 2,080,437 2,080,437 - - Capital outlay 4,982,715 1,116 4,981,599 - Total expenditures 8,960,599 3,979,000 4,981,599 - Excess of revenues over (under) expenditures (3,018,224) (779,646) (2,316,330) 77,752 OTHER FINANCING SOURCES (USES) Proceeds from sale of capital assets 1,541,041 - 1,541,041 - Transfers in 1,204,247 761,486 442,761 - Transfers out (442,761) - (442,761) - Total other financing sources (uses) 2,302,527 761,486 1,541,041 - Net change in fund balances (715,697) (18,160) (775,289) 77,752 Fund balances at July 1, 2018 5,579,527 1,166,015 2,587,980 1,825,532 Fund balances at June 30, 2019 $ 4,863,830 $ 1,147,855 $ 1,812,691 $ 1,903,284 99 City of Muskegon COMBINING BALANCE SHEET Other Special Revenue Funds June 30, 2019 Total Other Farmers Special Revenue Local L.C. Walker Criminal Downtown Tree Market and Funds Street Arena Forfeitures BID Replacement Kitchen 242 ASSETS Cash and investments $ 1,172,856 $ 927,310 $ - $ 36,337 $ 155,839 $ 1,921 $ 51,449 Receivables Accounts 356,959 7,550 273,223 - - - 76,186 Special assessments 2,072 2,072 - - - - - Due from other governmental units 182,913 182,913 - - - - - Prepaid items 33,524 6,888 26,636 - - - - Total assets $ 1,748,324 $ 1,126,733 $ 299,859 $ 36,337 $ 155,839 $ 1,921 $ 127,635 LIABILITIES Accounts payable $ 243,099 $ 171,758 $ 39,802 $ - $ 18,045 $ - $ 13,494 Accrued liabilities 19,802 13,960 4,291 - - - 1,551 Due to other funds 229,130 - 229,130 - - - - 100 Unearned revenues - unused Farmers Market tokens 106,366 - - - - - 106,366 Total liabilities 598,397 185,718 273,223 - 18,045 - 121,411 DEFERRED INFLOWS OF RESOURCES Unavailable revenues - special assessments 2,072 2,072 - - - - - FUND BALANCES Nonspendable - prepaid items 33,524 6,888 26,636 - - - - Restricted Highways, streets and bridges 932,055 932,055 - - - - - Law enforcement 36,337 - - 36,337 - - - Downtown BID 137,794 - - - 137,794 - - Other purposes 8,145 - - - - 1,921 6,224 Total fund balances 1,147,855 938,943 26,636 36,337 137,794 1,921 6,224 Total liabilities, deferred inflows of resources and fund balances $ 1,748,324 $ 1,126,733 $ 299,859 $ 36,337 $ 155,839 $ 1,921 $ 127,635 City of Muskegon COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Other Special Revenue Funds For the year ended June 30, 2019 Total Other Farmers Special Revenue Local L.C. Walker Criminal Downtown Tree Market and Funds Street Arena Forfeitures BID Replacement Kitchen 242 REVENUES Intergovernmental revenues - State $ 1,212,348 $ 1,212,348 $ - $ - $ - $ - $ - Charges for services 1,497,098 41,330 1,306,297 - - - 149,471 Fines and forfeitures 26,458 - - 26,458 - - - Investment earnings 5,231 4,215 - 206 598 5 207 Other 458,219 208,109 7,413 - 170,645 10,000 62,052 Total revenues 3,199,354 1,466,002 1,313,710 26,664 171,243 10,005 211,730 EXPENDITURES Current Public safety 36,665 - - 36,665 - - - Public works 169,238 - - - 169,238 - - Highways, streets and bridges 1,691,544 1,691,544 - - - - - 101 Culture and recreation 2,080,437 - 1,805,697 - - 9,437 265,303 Capital outlay 1,116 - 1,116 - - - - Total expenditures 3,979,000 1,691,544 1,806,813 36,665 169,238 9,437 265,303 Excess of revenues over (under) expenditures (779,646) (225,542) (493,103) (10,001) 2,005 568 (53,573) OTHER FINANCING SOURCES Transfers in 761,486 250,000 476,486 - - - 35,000 Net change in fund balances (18,160) 24,458 (16,617) (10,001) 2,005 568 (18,573) Fund balances at July 1, 2018 1,166,015 914,485 43,253 46,338 135,789 1,353 24,797 Fund balances at June 30, 2019 $ 1,147,855 $ 938,943 $ 26,636 $ 36,337 $ 137,794 $ 1,921 $ 6,224 City of Muskegon BUDGETARY COMPARISON SCHEDULE Other Special Revenue Funds For the year ended June 30, 2019 Local Street L.C. Walker Arena Variance - Variance - Final Positive Final Positive Budget Actual (Negative) Budget Actual (Negative) REVENUES Intergovernmental revenues - State $ 1,194,979 $ 1,212,348 $ 17,369 $ - $ - $ - Charges for services 20,000 41,330 21,330 1,195,000 1,306,297 111,297 Investment earnings 3,500 4,215 715 - - - Other 2,000 208,109 206,109 5,000 7,413 2,413 Total revenues 1,220,479 1,466,002 245,523 1,200,000 1,313,710 113,710 EXPENDITURES Current Highways, streets and bridges 1,795,119 1,691,544 103,575 - - - 102 Culture and recreation - - - 1,582,871 1,805,697 (222,826) Capital outlay - - - 70,000 1,116 68,884 Total expenditures 1,795,119 1,691,544 103,575 1,652,871 1,806,813 (153,942) Excess of revenues over (under) expenditures (574,640) (225,542) 349,098 (452,871) (493,103) (40,232) OTHER FINANCING SOURCES Transfers in 250,000 250,000 - 400,000 476,486 76,486 Net change in fund balances $ (324,640) 24,458 $ 349,098 $ (52,871) (16,617) $ 36,254 Fund balances at July 1, 2018 914,485 43,253 Fund balances at June 30, 2019 $ 938,943 $ 26,636 City of Muskegon BUDGETARY COMPARISON SCHEDULE─CONTINUED Other Special Revenue Funds For the year ended June 30, 2019 Criminal Forfeitures Downtown BID Variance - Variance - Final Positive Final Positive budget Actual (Negative) Budget Actual (Negative) REVENUES Fines and forfeitures $ 1,000 $ 26,458 $ 25,458 $ - $ - $ - Investment earnings 400 206 (194) - 598 598 Other - - - 161,647 170,645 8,998 Total revenues 1,400 26,664 25,264 161,647 171,243 9,596 EXPENDITURES Current Public safety 50,000 36,665 13,335 - - - Public works - - - 161,647 169,238 (7,591) 103 Total expenditures 50,000 36,665 13,335 161,647 169,238 (7,591) Net change in fund balances $ (48,600) (10,001) $ 38,599 $ - 2,005 $ 2,005 Fund balance at July 1, 2018 46,338 135,789 Fund balance at June 30, 2019 $ 36,337 $ 137,794 City of Muskegon BUDGETARY COMPARISON SCHEDULE─CONTINUED Other Special Revenue Funds For the year ended June 30, 2019 Tree Replacement Farmers Market and Kitchen 242 Variance - Variance - Final Positive Final Positive Budget Actual (Negative) Budget Actual (Negative) REVENUES Charges for services $ 5,000 $ - $ (5,000) $ 175,483 $ 149,471 $ (26,012) Investment earnings - 5 5 200 207 7 Other - 10,000 10,000 75,021 62,052 (12,969) Total revenues 5,000 10,005 5,005 250,704 211,730 (38,974) EXPENDITURES Current Culture and recreation 5,000 9,437 (4,437) 252,614 265,303 (12,689) 104 Excess of revenues over (under) expenditures - 568 568 (1,910) (53,573) (51,663) OTHER FINANCING SOURCES Transfers in - - - 35,000 35,000 - Net change in fund balances $ - 568 $ 568 $ 33,090 (18,573) $ (51,663) Fund balance at July 1, 2018 1,353 24,797 Fund balance at June 30, 2019 $ 1,921 $ 6,224 City of Muskegon COMBINING BALANCE SHEET Other Capital Projects Funds June 30, 2019 Total Other EDC Community Economic Capital Projects Public Michcon Revolving Development HOME Lead Senior Development - Funds Improvement Remediation Loan Block Grant Rehabilitation Abatement Millage Sappi ASSETS Cash and investments $ 1,394,313 $ 214,693 $ 225,282 $ 907,610 $ - $ 46,728 $ - $ - $ - Assets managed by others 17,900 17,900 - - - - - - - Receivables Accounts and loans (net of allowance for uncollectibles) 673,856 287,784 - 288,627 5,500 91,945 - - - Due from other governmental units 277,784 - - - 143,107 94,940 36,712 3,025 - Total assets $ 2,363,853 $ 520,377 $ 225,282 $ 1,196,237 $ 148,607 $ 233,613 $ 36,712 $ 3,025 $ - LIABILITIES Accounts payable $ 63,655 $ 44,429 $ - $ - $ 16,047 $ 295 $ 2,884 $ - $ - Accrued liabilities 8,659 - - - 5,695 603 1,682 679 - Due to other governmental units 135 - - - - 135 - - - Due to other funds 161,357 - - - 126,865 - 32,146 2,346 - Unearned revenues - expenditure-driven grants 317,356 317,356 - - - - - - - Total liabilities 551,162 361,785 - - 148,607 1,033 36,712 3,025 - FUND BALANCES 105 Assigned for capital projects and public improvements 1,812,691 158,592 225,282 1,196,237 - 232,580 - - - Total liabilities, deferred inflows of resources and fund balances $ 2,363,853 $ 520,377 $ 225,282 $ 1,196,237 $ 148,607 $ 233,613 $ 36,712 $ 3,025 $ - City of Muskegon COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Other Capital Projects Funds For the year ended June 30, 2019 Total Other EDC Community Economic Capital Projects Public Michcon Revolving Development HOME Lead Senior Development - Funds Improvement Remediation Loan Block Grant Rehabilitation Abatement Millage Sappi REVENUES Intergovernmental revenues Federal $ 1,035,785 $ - $ - $ - $ 757,982 $ 184,979 $ 92,824 $ - $ - Local 1,014,500 1,014,500 - - - - - - - Charges for services 39,654 33,154 - 6,500 - - - - - Investment earnings 8,097 2,776 1,123 4,198 - - - - - Income from assets managed by others 3,213 3,213 - - - - - - - Other 564,020 473,286 - 61,846 25,863 - - 3,025 - Total revenues 2,665,269 1,526,929 1,123 72,544 783,845 184,979 92,824 3,025 - EXPENDITURES Capital outlay 4,981,599 3,672,248 - 51,992 818,988 342,522 92,824 3,025 - Excess of revenues over (under) expenditures (2,316,330) (2,145,319) 1,123 20,552 (35,143) (157,543) - - - OTHER FINANCING SOURCES (USES) Proceeds from sale of capital assets 1,541,041 1,205,888 - - 35,143 300,010 - - - 106 Transfers in 442,761 - - 442,761 - - - - - Transfers out (442,761) - - - - - - - (442,761) Total other financing sources (uses) 1,541,041 1,205,888 - 442,761 35,143 300,010 - - (442,761) Net change in fund balances (775,289) (939,431) 1,123 463,313 - 142,467 - - (442,761) Fund balances at July 1, 2018 2,587,980 1,098,023 224,159 732,924 - 90,113 - - 442,761 Fund balances at June 30, 2019 $ 1,812,691 $ 158,592 $ 225,282 $ 1,196,237 $ - $ 232,580 $ - $ - $ - 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. 107 City of Muskegon COMBINING STATEMENT OF NET POSITION Internal Service Funds June 30, 2019 Total Internal Engineering General Public Service Service Funds Services Equipment Insurance Building ASSETS Current assets Cash and investments $ 1,408,098 $ 106,203 $ 680,873 $ - $ 621,022 Accounts receivable 1,278,655 410 682 1,277,563 - Inventories 9,325 - 9,325 - - Prepaid items 272,860 1,564 61,744 204,130 5,422 Total current assets 2,968,938 108,177 752,624 1,481,693 626,444 Noncurrent assets Advances to component units 568,502 - 284,251 284,251 - 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 9,650,051 26,355 9,529,332 - 94,364 Less accumulated depreciation (8,632,124) (26,355) (6,893,427) - (1,712,342) Net capital assets 2,943,976 - 2,635,905 - 308,071 Total noncurrent assets 3,512,478 - 2,920,156 284,251 308,071 Total assets 6,481,416 108,177 3,672,780 1,765,944 934,515 DEFERRED OUTFLOWS OF RESOURCES Related to pension 360,705 - 135,264 - 225,441 Related to other postemployment benefits 109,773 - 41,165 - 68,608 Total deferred outflows of resources 470,478 - 176,429 - 294,049 Total assets and deferred outflows of resources 6,951,894 108,177 3,849,209 1,765,944 1,228,564 LIABILITIES Current liabilities Accounts payable 367,339 1,030 66,691 283,849 15,769 Accrued liabilities 36,409 5,466 12,282 1,211 17,450 Due to other funds 353,563 - - 353,563 - Bonds and other obligations, due within one year 19,300 1,900 7,400 800 9,200 Total current liabilities 776,611 8,396 86,373 639,423 42,419 Noncurrent liabilities Bonds and other obligations, less amounts due within one year 95,994 9,311 36,765 3,803 46,115 Net pension liability 1,183,524 - 443,822 - 739,702 Net other postemployment benefits liability 380,867 - 142,825 - 238,042 Total noncurrent liabilities 1,660,385 9,311 623,412 3,803 1,023,859 Total liabilities 2,436,996 17,707 709,785 643,226 1,066,278 DEFERRED INFLOWS OF RESOURCES Related to other postemployment benefits 14,731 - 5,524 - 9,207 Total liabilities and deferred inflows of resources 2,451,727 17,707 715,309 643,226 1,075,485 NET POSITION Net investment in capital assets 2,943,976 - 2,635,905 - 308,071 Unrestricted 1,556,191 90,470 497,995 1,122,718 (154,992) Total net position $ 4,500,167 $ 90,470 $ 3,133,900 $ 1,122,718 $ 153,079 108 City of Muskegon COMBINING STATEMENT OF REVENUE, EXPENSES AND CHANGES IN NET POSITION Internal Service Funds For the year ended June 30, 2019 Total Internal Engineering General Public Service Service Funds Services Equipment Insurance Building OPERATING REVENUES Charges for services $ 9,056,117 $ 403,437 $ 2,665,596 $ 4,937,950 $ 1,049,134 Other 83,569 29,006 51,151 2,892 520 Total operating revenues 9,139,686 432,443 2,716,747 4,940,842 1,049,654 OPERATING EXPENSES Administration 333,374 33,594 107,283 39,384 153,113 Insurance premiums and claims 5,166,291 - - 5,166,291 - Other operations 3,707,321 358,627 2,266,018 73,342 1,009,334 Depreciation 449,622 - 404,484 - 45,138 Total operating expenses 9,656,608 392,221 2,777,785 5,279,017 1,207,585 Operating income (loss) (516,922) 40,222 (61,038) (338,175) (157,931) NONOPERATING REVENUES Investment earnings 30,081 212 14,793 12,030 3,046 Gain on sale of capital assets 127,526 - 127,526 - - Total nonoperating revenues 157,607 212 142,319 12,030 3,046 Change in net position (359,315) 40,434 81,281 (326,145) (154,885) Net position at July 1, 2018 4,859,482 50,036 3,052,619 1,448,863 307,964 Net position at June 30, 2019 $ 4,500,167 $ 90,470 $ 3,133,900 $ 1,122,718 $ 153,079 109 City of Muskegon COMBINING STATEMENT OF CASH FLOWS Internal Service Funds For the year ended June 30, 2019 Total Internal Engineering General Public Service Service Funds Services Equipment Insurance Building CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 83,823 $ 30,310 $ 50,621 $ 2,892 $ - Receipts from interfund services provided 7,741,332 403,437 2,665,596 3,623,165 1,049,134 Other receipts 657,986 - - 657,466 520 Payments to suppliers (6,646,662) (75,945) (1,344,629) (4,872,611) (353,477) Payments to employees (1,420,335) (231,025) (390,347) (230,141) (568,822) Payments for interfund services used (815,458) (91,862) (613,103) (3,801) (106,692) Net cash provided by (used for) operating activities (399,314) 34,915 368,138 (823,030) 20,663 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Interfund borrowing 353,563 - - 353,563 - Collections on advances to component units 84,512 - 42,256 42,256 - Net cash provided by (used for) noncapital financing activities 438,075 - 42,256 395,819 - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of capital assets (941,398) - (941,398) - - Proceeds from sale of capital assets 163,012 - 163,012 - - 110 Net cash provided by (used for) capital and related financing activities (778,386) - (778,386) - - CASH FLOW FROM INVESTING ACTIVITIES Investment earnings 30,081 212 14,793 12,030 3,046 Net increase (decrease) in cash and investments (709,544) 35,127 (353,199) (415,181) 23,709 Cash and investments at July 1, 2018 2,117,642 71,076 1,034,072 415,181 597,313 Cash and investments at June 30, 2019 $ 1,408,098 $ 106,203 $ 680,873 $ - $ 621,022 Reconciliation of operating income (loss) to net cash provided by (used for) operating activities Operating income (loss) $ (516,922) $ 40,222 $ (61,038) $ (338,175) $ (157,931) Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities Depreciation expense 449,622 - 404,484 - 45,138 Change in assets and liabilities Receivables (656,545) 1,304 (530) (657,319) - Inventories (552) - (552) - - Prepaid items (8,650) 114 (5,415) (3,893) 544 Accounts payable 137,588 391 (46,811) 171,691 12,317 Accrued liabilities 196,145 (7,116) 78,000 4,666 120,595 Net cash provided by (used for) operating activities $ (399,314) $ 34,915 $ 368,138 $ (823,030) $ 20,663 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. 111 City of Muskegon COMBINING STATEMENT OF ASSETS AND LIABILITIES Agency Funds June 30, 2019 Total Current Rehab Loan Agency Funds Collector Tax Escrow ASSETS Cash and investments $ 944,538 $ 944,157 $ - $ 381 Accounts receivable 30,521 30,521 - - Total assets $ 975,059 $ 974,678 $ - $ 381 LIABILITIES Accounts payable $ 333,678 $ 333,297 $ - $ 381 Due to other governmental units 446,320 446,320 - - Deposits held for others 195,061 195,061 - - Total liabilities $ 975,059 $ 974,678 $ - $ 381 112 City of Muskegon STATEMENT OF CHANGES IN ASSETS AND LIABILITIES Agency Funds For the year ended June 30, 2019 Balance Balance July 1, June 30, COLLECTOR FUND 2018 Additions Deductions 2019 ASSETS Cash and investments $ 946,219 $ 9,512,447 $ 9,514,509 $ 944,157 Accounts receivable 17,482 388,662 375,623 30,521 Total assets $ 963,701 $ 9,901,109 $ 9,890,132 $ 974,678 LIABILITIES Accounts payable $ 663,816 $ 4,986,228 $ 5,316,747 $ 333,297 Due to other governmental units 90,460 2,637,303 2,281,443 446,320 Deposits held for others 209,425 2,842,514 2,856,878 195,061 Total liabilities $ 963,701 $ 10,466,045 $ 10,455,068 $ 974,678 CURRENT TAX FUND ASSETS Cash and investments $ - $ 22,353,959 $ 22,353,959 $ - LIABILITIES Due to other governmental units $ - $ 22,945,162 $ 22,945,162 $ - Due to component units - 1,728,439 1,728,439 - Deposits held for others - 141,759 141,759 - Total liabilities $ - $ 24,815,360 $ 24,815,360 $ - REHAB LOAN ESCROW FUND ASSETS Cash and investments $ 381 $ - $ - $ 381 LIABILITIES Accounts payable $ 381 $ - $ - $ 381 ALL AGENCY FUNDS ASSETS Cash and investments $ 946,600 $ 31,866,406 $ 31,868,468 $ 944,538 Accounts receivable 17,482 388,662 375,623 30,521 Total assets $ 964,082 $ 32,255,068 $ 32,244,091 $ 975,059 LIABILITIES Accounts payable $ 664,197 $ 4,986,228 $ 5,316,747 $ 333,678 Due to other governmental units 90,460 25,582,465 25,226,605 446,320 Due to component units - 1,728,439 1,728,439 - Deposits held for others 209,425 2,984,273 2,998,637 195,061 Total liabilities $ 964,082 $ 35,281,405 $ 35,270,428 $ 975,059 113 [This page was intentionally left blank.] 114 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. Area III – Terrace Point brownfield site. 115 City of Muskegon COMBINING BALANCE SHEET Discretely Presented Component Units June 30, 2019 Local Total Discretely Development Presented Finance Downtown Tax Increment Brownfield Brownfield Brownfield Component Authority - Development Finance Redevelopment Redevelopment Redevelopment Units SmartZone Authority Authority Authority I Authority II Authority III ASSETS Cash and investments $ 167,080 $ 25,897 $ 80,457 $ 13,181 $ 15,763 $ 16,067 $ 15,715 LIABILITIES Advances from primary government $ 852,752 $ - $ - $ - $ 852,752 $ - $ - FUND BALANCES (DEFICITS) Unassigned (685,672) 25,897 80,457 13,181 (836,989) 16,067 15,715 Total liabilities and fund balances (deficits) $ 167,080 $ 25,897 $ 80,457 $ 13,181 $ 15,763 $ 16,067 $ 15,715 116 City of Muskegon RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION Discretely Presented Component Units June 30, 2019 Total fund balances (deficits)—governmental funds $ (685,672) 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 (2,690,433) 1,507,825 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 (12,250) Bonds and notes payable (3,167,419) (3,179,669) Net position of governmental activities $ (2,357,516) 117 City of Muskegon COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICITS) Discretely Presented Component Units For the year ended June 30, 2019 Local Total Discretely Development Presented Finance Downtown Tax Increment Brownfield Brownfield Brownfield Component Authority - Development Finance Redevelopment Redevelopment Redevelopment Units SmartZone Authority Authority Authority I Authority II Authority III REVENUES Property taxes $ 1,728,439 $ 97,583 $ 1,085,354 $ 37,658 $ 134,828 $ 163,340 $ 209,676 Intergovernmental revenues State 19,425 2,871 - 7,170 4,362 5,022 - Local 360,000 360,000 - - - - - Investment earnings 1,476 55 549 40 30 261 541 Total revenues 2,109,340 460,509 1,085,903 44,868 139,220 168,623 210,217 EXPENDITURES Current Community and economic development 1,418,482 - 1,010,930 40,000 - 162,000 205,552 118 Debt service Principal 375,000 375,000 - - - - - Interest and fees 111,913 81,100 - - 30,813 - - Total expenditures 1,905,395 456,100 1,010,930 40,000 30,813 162,000 205,552 Net change in fund balances (deficits) 203,945 4,409 74,973 4,868 108,407 6,623 4,665 Fund balances (deficits) at July 1, 2018 (889,617) 21,488 5,484 8,313 (945,396) 9,444 11,050 Fund balances (deficits) at June 30, 2019 $ (685,672) $ 25,897 $ 80,457 $ 13,181 $ (836,989) $ 16,067 $ 15,715 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, 2019 Net change in fund balances—total governmental funds $ 203,945 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 375,000 Changes in accrual of interest and amortization of premiums and discounts Change in accrued interest payable $ 2,500 Amortization of premiums 20,907 23,407 Change in net position of governmental activities $ 429,704 119 [This page was intentionally left blank.] 120 SCHEDULE OF INDEBTEDNESS 121 City of Muskegon SCHEDULE OF INDEBTEDNESS June 30, 2019 Annual Date Amount Interest Date of Interest of Issue of Issue Rate Maturity 6/30/2018 6/30/2019 Payable Business-Type Activities Bonds and Loans Payable: Water supply system bonds 4/1/2010 $ 5,995,000 4.25% 05/01/19 $ 770,000 $ - $ - 770,000 - - Type of debt: revenue bond Revenue pledged: water system net revenues Drinking Water State Revolving 3/2/2004 $ 13,900,000 2.13% 10/01/18 725,000 - - Fund 2.13% 10/01/19 745,000 745,000 109,916 2.13% 10/01/20 760,000 760,000 93,925 Type of debt: state loan 2.13% 10/01/21 775,000 775,000 77,616 Revenue pledged: water system net revenues 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 6,270,000 5,545,000 421,974 TOTAL BUSINESS-TYPE ACTIVITIES BONDS AND LOANS PAYABLE $ 7,040,000 $ 5,545,000 $ 421,974 Governmental Activities Bonds and Loans Payable: Capital Improvement refunding bonds 3/8/2016 $ 4,815,000 2.00% 10/01/18 $ 65,000 $ - $ - of 2016 2.00% 10/01/19 290,000 290,000 159,750 ($257,903 unamortized premium) 3.00% 10/01/20 295,000 295,000 150,975 3.00% 10/01/21 305,000 305,000 141,975 Type of debt: limited G.O. bonds 3.00% 10/01/22 300,000 300,000 132,900 Revenue pledged: general revenue 3.00% 10/01/23 300,000 300,000 122,400 4.00% 10/01/24 320,000 320,000 110,000 4.00% 10/01/25 325,000 325,000 97,100 4.00% 10/01/26 325,000 325,000 84,100 4.00% 10/01/27 325,000 325,000 71,100 4.00% 10/01/28 325,000 325,000 58,100 4.00% 10/01/29 325,000 325,000 45,100 4.00% 10/01/30 325,000 325,000 32,100 4.00% 10/01/31 320,000 320,000 19,200 4.00% 10/01/32 320,000 320,000 6,400 4,465,000 4,400,000 1,231,200 Capital improvement bonds 9/30/2011 $ 2,000,000 2.98% 09/01/18 210,000 - - of 2011 (streets) 2.98% 09/01/19 215,000 215,000 16,614 2.98% 09/01/20 220,000 220,000 10,132 Type of debt: limited G.O. bond 2.98% 09/01/21 230,000 230,000 3,427 Revenue pledged: gas tax, general revenues 875,000 665,000 30,173 State of Michigan 6/18/2010 $ 500,000 2.00% 03/18/19 19,313 - - environmental assessment loan 2.00% 03/18/20 19,699 19,699 394 39,012 19,699 394 Type of debt: state loan Revenue pledged: general revenues TOTAL GOVERNMENTAL ACTIVITIES BONDS AND LOANS PAYABLE $ 5,379,012 $ 5,084,699 $ 1,261,767 TOTAL PRIMARY GOVERNMENT BONDS AND LOANS PAYABLE $ 12,419,012 $ 10,629,699 $ 1,683,741 122 City of Muskegon SCHEDULE OF INDEBTEDNESS June 30, 2019 Annual Date Amount Interest Date of Interest of Issue of Issue Rate Maturity 6/30/2018 6/30/2019 Payable Discretely Presented Component Unit Bonds and Loans Payable: Downtown Development Authority 8/10/1989 $ 1,000,000 0.00% 08/30/19 $ 1,000,000 $ 1,000,000 $ - promissory note to Muskegon County 1,000,000 1,000,000 - Type of debt: intergovernmental note Revenue pledged: DDA tax increments Local Development Finance Authority 3/20/2012 $ 4,100,000 4.00% 11/01/18 375,000 - - Smartzone Refunding Bonds 4.00% 11/01/19 390,000 390,000 65,800 ($57,419 unamortized premium) 4.00% 11/01/20 395,000 395,000 50,100 4.00% 11/01/21 245,000 245,000 37,300 Type of debt: limited G.O. bond 3.00% 11/01/22 255,000 255,000 28,575 Revenue pledged: LDFA tax increments, general revenues 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 2,485,000 2,110,000 219,500 TOTAL DISCRETELY PRESENTED COMPONENT UNIT BONDS AND LOANS PAYABLE $ 3,485,000 $ 3,110,000 $ 219,500 TOTAL REPORTING ENTITY BONDS AND LOANS PAYABLE $ 15,904,012 $ 13,739,699 $ 1,903,241 123 [This page was intentionally left blank.] 124 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. 126 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. 131 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. 138 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. 142 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. 144 Sources: Unless otherwise noted, the information in these schedules is derived form the Comprehensive Annual Financial Reports for the relevant year. 125 City of Muskegon NET ASSETS/NET POSITION BY COMPONENT Last Ten Fiscal Years 2010 2011 2012 2013 (a) 2014 2015 (b) 2016 2017 2018 (c) 2019 Governmental Activities Net Investment in Capital Assets $ 67,809,630 $ 67,944,957 $ 66,862,806 $ 63,842,092 $ 63,731,255 $ 63,514,691 $ 64,326,891 $ 62,520,466 $ 61,267,518 $ 66,734,006 Restricted 3,059,208 3,656,410 3,526,343 4,572,848 4,023,895 4,807,531 4,140,342 3,777,410 6,138,596 5,519,207 Unrestricted 13,828,231 12,598,197 12,836,573 13,299,523 12,811,852 491,914 (4,142,119) (5,566,349) (8,350,634) (14,355,143) Total Governmental Net Assets/Net Position $ 84,697,069 $ 84,199,564 $ 83,225,722 $ 81,714,463 $ 80,567,002 $ 68,814,136 $ 64,325,114 $ 60,731,527 $ 59,055,480 $ 57,898,070 Business-type Activities Net Investment in Capital Assets $ 41,105,739 $ 40,419,728 $ 40,147,600 $ 40,032,858 $ 39,365,043 $ 39,231,223 $ 39,013,529 $ 38,114,686 $ 38,549,547 $ 41,741,666 Restricted 672,000 672,000 672,000 599,500 599,500 599,500 599,500 599,500 599,500 599,500 Unrestricted 7,630,396 9,211,610 8,961,713 8,491,848 8,377,093 6,423,540 5,762,272 6,382,906 6,041,091 2,424,616 Total Business-type Activities Net Assets/Net Position $ 49,408,135 $ 50,303,338 $ 49,781,313 $ 49,124,206 $ 48,341,636 $ 46,254,263 $ 45,375,301 $ 45,097,092 $ 45,190,138 $ 44,765,782 Primary Government Net Investment in Capital Assets $ 108,915,369 $ 108,364,685 $ 107,010,406 $ 103,874,950 $ 103,096,298 $ 102,745,914 $ 103,340,420 $ 100,635,152 $ 99,817,065 $ 108,475,672 Restricted 3,731,208 4,328,410 4,198,343 5,172,348 4,623,395 5,407,031 4,739,842 4,376,910 6,738,096 6,118,707 Unrestricted 21,458,627 21,809,807 21,798,286 21,791,371 21,188,945 6,915,454 1,620,153 816,557 (2,309,543) (11,930,527) Total Primary Government Net Assets/Net Position $ 134,105,204 $ 134,502,902 $ 133,007,035 $ 130,838,669 $ 128,908,638 $ 115,068,399 $ 109,700,415 $ 105,828,619 $ 104,245,618 $ 102,663,852 126 (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. (c) In 2018, the City implemented GASB 75 which changed how governments measure and report other postemployment benefit 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 June 30 Year Ended June 30 2010 2011 2012 2013 (a) 2014 2015 (b) 2016 2017 2018 (c) 2019 EXPENSES Governmental Activities Public representation $ 445,251 $ 854,249 $ 866,809 $ 893,981 $ 1,030,006 $ 939,907 $ 1,107,551 $ 1,113,897 $ 1,347,618 $ 1,336,014 Administrative services 317,873 645,585 566,161 565,307 543,425 614,757 663,077 679,139 507,275 800,887 Financial services 1,209,694 2,373,141 2,399,147 2,241,061 2,171,958 2,547,766 2,331,236 2,483,519 1,995,426 2,700,775 Public safety 6,332,728 13,390,888 13,213,251 12,987,842 12,946,466 14,243,233 17,118,742 16,910,473 12,404,126 20,433,642 Public works 1,640,946 3,471,051 2,958,367 3,201,806 3,361,422 3,183,627 3,109,454 3,551,230 3,471,618 4,438,358 Highways, streets and bridges 3,680,196 7,013,216 6,568,448 6,672,374 7,053,326 7,165,703 7,251,882 6,996,540 6,917,260 7,185,642 Community and economic development 1,275,026 2,830,867 2,447,373 2,499,404 2,417,518 2,712,131 5,223,431 3,738,566 5,015,160 2,890,216 Culture and recreation 759,392 1,524,331 1,601,316 1,592,358 1,671,185 1,806,790 3,551,692 3,918,814 3,994,582 4,541,739 General administration 210,117 794,115 791,197 322,348 366,634 389,248 326,452 301,287 376,112 302,582 Interest on long-term debt 139,006 272,940 283,186 291,535 277,345 271,607 248,223 172,591 165,023 151,304 Total Governmental Activities Expenses 16,010,229 33,170,383 31,695,255 31,268,016 31,839,285 33,874,769 40,931,740 39,866,056 36,194,200 44,781,159 Business-type Activities Water 2,958,795 5,869,241 5,974,173 6,228,788 6,016,192 6,047,244 6,750,826 7,206,564 7,090,770 7,752,703 Sewer 2,525,067 5,288,622 6,202,359 7,226,839 7,582,602 8,460,509 8,669,469 8,876,690 8,093,752 9,119,941 Marina and launch ramp 150,055 292,889 310,174 426,553 503,997 305,990 327,832 336,912 377,614 430,431 Total Business-type Activities Expenses 5,633,917 11,450,752 12,486,706 13,882,180 14,102,791 14,813,743 15,748,127 16,420,166 15,562,136 17,303,075 Total Primary Government Expenses $ 21,644,146 $ 44,621,135 $ 44,181,961 $ 45,150,196 $ 45,942,076 $ 48,688,512 $ 56,679,867 $ 56,286,222 $ 51,756,336 $ 62,084,234 127 PROGRAM REVENUES Governmental Activities Charges for Services Public representation $ 100,177 $ 196,886 $ 196,886 $ 173,739 $ 189,444 $ 188,638 $ 226,559 $ 228,767 $ 232,736 $ 250,931 Administrative services 129,630 263,473 270,886 268,535 325,937 415,308 474,737 572,739 539,178 604,290 Financial services 475,031 879,905 881,229 830,919 871,632 823,547 925,474 895,924 903,322 921,748 Public safety 536,419 1,109,659 1,136,942 1,133,666 1,407,722 1,218,644 1,248,911 1,824,114 2,794,347 2,292,158 Public works 209,203 642,082 480,487 671,494 796,739 571,426 379,877 646,876 743,110 691,312 Highways, streets and bridges 139,009 451,473 230,241 245,609 351,962 258,475 234,861 256,190 188,248 191,883 Community and economic development 186,572 457,952 617,379 432,240 477,486 576,863 444,632 706,195 348,933 786,120 Culture and recreation 129,025 300,367 315,010 606,818 535,211 368,168 1,229,067 1,463,839 1,651,304 1,853,547 General administration 59,373 116,690 116,690 287,729 50,728 48,764 52,512 37,892 38,549 40,400 Operating grants and contributions 3,131,811 5,425,165 4,651,576 4,681,345 4,664,098 5,071,239 5,330,825 5,208,818 6,478,526 6,892,530 Capital grants and contributions 255,234 2,257,163 1,568,005 886,108 1,408,424 3,496,623 3,804,656 862,074 2,305,620 4,015,097 Total Governmental Program Revenues 5,351,484 12,100,815 10,465,331 10,218,202 11,079,383 13,037,695 14,352,111 12,703,428 16,223,873 18,540,016 Business-type Activities Water 2,891,169 5,454,760 5,254,095 5,890,614 6,099,480 6,375,869 7,485,013 7,430,314 7,445,669 7,946,983 Sewer 3,441,924 6,652,851 6,455,634 7,058,315 6,633,911 6,363,808 6,305,554 7,620,208 8,217,497 8,098,828 Marina and launch ramp 156,767 194,311 208,370 234,229 228,339 255,638 287,547 278,753 325,917 298,312 Operating grants and contributions - - - 6,188 - - - 2,436 42,531 510,533 Capital grants and contributions - 20,074 - 88,046 327,240 474,681 765,363 784,969 - - Total Business-type program revenues 6,489,860 12,321,996 11,918,099 13,277,392 13,288,970 13,469,996 14,843,477 16,116,680 16,031,614 16,854,656 Total Primary Government program revenues $ 11,841,344 $ 24,422,811 $ 22,383,430 $ 23,495,594 $ 24,368,353 $ 26,507,691 $ 29,195,588 $ 28,820,108 $ 32,255,487 $ 35,394,672 NET (EXPENSE) REVENUE Governmental Activities $ (10,658,745) $ (21,069,568) $ (21,229,924) $ (21,049,814) $ (20,759,902) $ (20,837,074) $ (26,579,629) $ (27,162,628) $ (19,970,327) $ (26,241,143) Business-type Activities 855,943 871,244 (568,607) (604,788) (813,821) (1,343,747) (904,650) (303,486) 469,478 (448,419) Total Primary Government net expense $ (9,802,802) $ (20,198,324) $ (21,798,531) $ (21,654,602) $ (21,573,723) $ (22,180,821) $ (27,484,279) $ (27,466,114) $ (19,500,849) $ (26,689,562) City of Muskegon CHANGES IN NET ASSETS/NET POSITION Last Ten Fiscal Years Period Ended June 30 Year Ended June 30 2010 2011 2012 2013 (a) 2014 2015 (b) 2016 2017 2018 (c) 2019 GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS/NET POSITION Governmental Activities Property taxes $ 8,681,256 $ 8,844,004 $ 8,383,224 $ 7,592,847 $ 7,383,236 $ 7,894,189 $ 8,366,212 $ 8,389,243 $ 8,450,103 $ 8,230,573 Income taxes 3,505,264 6,866,967 7,663,534 8,057,145 7,762,719 8,478,231 8,386,775 8,707,279 8,995,294 8,939,887 Franchise fees 178,239 362,103 342,376 358,785 358,754 369,965 372,117 378,955 368,495 380,343 Grants and contributions not restricted for specific programs 1,832,066 3,846,859 3,577,848 3,700,871 3,813,221 3,989,178 4,051,050 4,630,111 4,955,168 5,102,602 Unrestricted investment earnings 104,086 193,435 100,073 73,157 146,590 99,733 189,408 106,653 92,771 546,533 Miscellaneous 51,638 432,880 154,531 102,388 124,085 805,432 626,014 512,738 545,536 550,381 Gain on sale of capital asset 65,155 25,815 34,496 44,899 23,836 20,302 99,031 844,062 712,415 1,333,414 Transfers (3,760) - - - - - - - - - Total Governmental Program Revenues 14,413,944 20,572,063 20,256,082 19,930,092 19,612,441 21,657,030 22,090,607 23,569,041 24,119,782 25,083,733 Business-type Activities Unrestricted investment earnings 15,990 23,959 46,582 33,148 31,251 29,879 25,688 25,277 28,550 24,063 Gain on sale of capital asset - - - - - - - - - - Transfers 3,760 - - - - - - - - - Total Business-type program revenues 19,750 23,959 46,582 33,148 31,251 29,879 25,688 25,277 28,550 24,063 Total Primary Government program revenues $ 14,433,694 $ 20,596,022 $ 20,302,664 $ 19,963,240 $ 19,643,692 $ 21,686,909 $ 22,116,295 $ 23,594,318 $ 24,148,332 $ 25,107,796 CHANGE IN NET ASSETS/NET POSITION Governmental Activities $ 3,755,199 $ (497,505) $ (973,842) $ (1,119,722) $ (1,147,461) $ 819,956 $ (4,489,022) $ (3,593,587) $ 4,149,455 $ (1,157,410) 128 Business-type Activities 875,693 895,203 (522,025) (571,640) (782,570) (1,313,868) (878,962) (278,209) 498,028 (424,356) Total Primary Government $ 4,630,892 $ 397,698 $ (1,495,867) $ (1,691,362) $ (1,930,031) $ (493,912) $ (5,367,984) $ (3,871,796) $ 4,647,483 $ (1,581,766) (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. (c) In 2018, the City implemented GASB 75 which changed how governments measure and report other postemployment benefit 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 2010 2011 (a) 2012 2013 2014 2015 2016 2017 2018 2019 General fund Reserved $ 300,969 $ - $ - $ - $ - $ - $ - $ - $ - $ - Nonspendable - 251,173 178,468 447,341 300,952 220,178 232,332 209,353 222,458 241,684 Restricted - - - - - - - - - - Assigned - 2,385,728 2,075,738 2,292,495 1,700,000 1,700,000 1,700,000 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 6,148,292 6,469,108 6,563,511 Unreserved 5,737,485 - - - - - - - - - Total general fund $ 6,038,454 $ 6,011,382 $ 6,520,045 $ 7,353,558 $ 7,496,097 $ 7,803,496 $ 8,031,309 $ 8,057,645 $ 8,391,566 $ 8,505,195 All other governmental funds Reserved $ 3,887,289 $ - $ - $ - $ - $ - $ - $ - $ - $ - Nonspendable - 1,704,256 1,568,318 1,547,793 1,556,347 2,073,747 1,597,371 1,716,825 1,589,699 1,624,737 Restricted - 1,375,779 3,485,073 2,749,396 2,305,385 3,159,130 2,995,610 2,726,754 5,130,188 4,621,126 Assigned - 2,073,027 2,055,904 2,087,359 1,729,457 2,146,050 1,373,669 3,510,747 2,619,342 1,823,959 Unassigned - (238,104) (191,282) (82,048) (100,054) - - - - - Unreserved, reported in: 129 Special revenue funds 2,163,041 - - - - - - - - - Capital project funds 6,035 - - - - - - - - - Permanent funds 16,979 - - - - - - - - - Total all other governmental funds $ 6,073,344 $ 4,914,958 $ 6,918,013 $ 6,302,500 $ 5,491,135 $ 7,378,927 $ 5,966,650 $ 7,954,326 $ 9,339,229 $ 8,069,822 (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 June 30 Year Ended June 30 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Revenues Taxes $ 11,855,182 $ 15,146,430 $ 15,506,668 $ 14,832,027 $ 14,954,904 $ 15,830,137 $ 16,178,761 $ 16,667,272 $ 16,877,055 $ 16,582,030 Intergovernmental 4,785,494 11,525,749 9,899,379 9,403,554 9,945,065 12,301,594 11,711,788 10,743,434 13,488,014 15,776,333 Charges for services 1,338,194 2,769,204 2,596,328 2,769,227 2,569,335 2,468,889 3,468,938 3,918,217 4,229,797 4,430,419 Other 1,768,895 3,461,292 3,237,189 2,795,952 3,256,324 4,003,105 3,868,958 4,005,126 5,251,208 5,312,773 Total revenues 19,747,765 32,902,675 31,239,564 29,800,760 30,725,628 34,603,725 35,228,445 35,334,049 39,846,074 42,101,555 Expenditures Public representation 448,703 851,918 867,762 892,113 1,031,984 930,788 1,064,503 1,080,032 1,383,573 1,281,107 Administrative services 303,555 586,328 515,988 508,130 497,025 554,330 577,454 624,284 537,913 739,301 Financial services 1,241,430 2,352,709 2,407,131 2,196,917 2,197,651 2,476,740 2,068,208 2,236,941 2,191,245 2,394,866 Public safety 6,578,735 13,087,976 12,963,122 12,724,094 12,987,898 13,285,004 13,476,557 14,086,619 15,156,977 16,131,196 Public works 1,589,090 3,079,342 2,835,000 2,878,328 2,918,305 2,876,576 2,864,878 3,206,050 3,377,174 4,176,904 Highways, streets and bridges 1,823,089 3,226,377 2,756,010 2,815,337 3,011,611 2,986,909 3,102,391 3,096,875 4,554,968 2,963,498 Community and economic development 1,330,794 3,109,693 2,850,593 2,578,073 2,687,933 2,957,071 5,415,436 3,878,547 3,962,759 2,930,725 Culture and recreation 639,852 1,197,020 1,265,743 1,248,174 1,308,481 1,444,471 3,100,338 3,523,178 3,713,177 4,050,986 Other governmental functions 200,623 1,775,128 770,910 299,812 643,666 369,408 305,807 280,416 355,241 281,711 130 Debt service Principal 303,466 1,345,183 289,597 395,211 402,492 417,842 428,199 283,563 288,934 294,313 Interest 136,013 267,258 268,315 292,554 278,412 272,946 257,516 211,242 197,723 189,905 Issuance costs - - - - - - 97,578 - - - Capital outlay 980,822 3,301,273 2,948,610 3,230,586 3,577,837 3,992,111 3,867,579 2,328,615 3,134,369 9,363,862 Total expenditure 15,576,172 34,180,205 30,738,781 30,059,329 31,543,295 32,564,196 36,626,444 34,836,362 38,854,053 44,798,374 Excess of revenues over (under) expenditures 4,171,593 (1,277,530) 500,783 (258,569) (817,667) 2,039,529 (1,397,999) 497,687 992,021 (2,696,819) Other financing sources (uses) Transfers in 342,188 1,348,694 510,907 1,356,229 743,035 853,910 1,563,094 1,805,000 1,370,000 1,210,236 Transfers out (359,971) (1,376,740) (613,953) (784,275) (771,081) (942,933) (1,638,094) (1,818,000) (1,385,000) (1,210,236) Bonds issued - - 2,000,000 - - - 97,578 - - - Sale of capital assets 75,465 120,118 113,981 190,263 176,887 244,685 190,957 1,529,325 741,803 1,541,041 Total other financing sources (uses) 57,682 92,072 2,010,935 762,217 148,841 155,662 213,535 1,516,325 726,803 1,541,041 Net change in fund balances $ 4,229,275 $ (1,185,458) $ 2,511,718 $ 503,648 $ (668,826) $ 2,195,191 $ (1,184,464) $ 2,014,012 $ 1,718,824 $ (1,155,778) Debt service as a percentage of noncapital expenditures 3.01% 5.22% 2.01% 2.56% 2.43% 2.42% 2.09% 1.52% 1.36% 1.37% 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 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% 2017 8,056,460 22.8% 8,610,812 24.4% 10,743,434 30.4% 3,918,217 11.1% 1,884,341 5.3% 494,369 1.4% 290,578 0.8% 1,335,838 3.8% 35,334,049 0.3% 2018 8,118,381 20.4% 8,758,674 22.0% 13,488,014 33.9% 4,229,797 10.6% 2,965,599 7.4% 457,172 1.1% 212,069 0.5% 1,616,368 4.1% 39,846,074 12.8% 2019 7,890,357 18.7% 8,691,673 20.6% 15,776,333 37.5% 4,430,419 10.5% 2,452,807 5.8% 488,578 1.2% 757,911 1.8% 1,613,477 3.8% 42,101,555 5.7% * 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. 131 City of Muskegon Taxable, Assessed and Equalized and Estimated Actual Valuation of Property Last Ten Fiscal Years Taxable Valuation of Property Ad Valorem Assessment Roll Industrial and Commercial Facilities Assessment Roll Total Industrial Industrial Commercial Total Taxable Value Real Personal Total Real Personal Real Total Taxable Total As a Percent Year Residential Agriculture Commercial Industrial Property Property Ad Valorem Property Property Property IFT and CFT Valuation City Actual 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% 2016 314,299,363 - 114,855,236 50,232,295 479,386,894 74,155,243 553,542,137 3,628,098 5,690,600 - 9,318,698 562,860,835 13.0905 93.60% 2017 319,768,625 - 113,497,599 50,381,292 483,647,516 67,760,237 551,407,753 3,692,357 4,627,400 - 8,319,757 559,727,510 13.0908 91.38% 2018 331,347,976 - 113,370,852 48,272,032 492,990,860 65,728,440 558,719,300 3,990,263 3,739,800 - 7,730,063 566,449,363 13.0899 89.69% Assessed and Equalized Valuation of Property Ad Valorem Assessment Roll Industrial and Commercial Facilities Assessment Roll Total Industrial Industrial Commercial Total Estimated Real Personal Total Real Personal Real Total Assessed Actual 132 Year Residential Agriculture Commercial Industrial Property Property Ad Valorem Property Property Property IFT and CFT Valuation Value 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 2016 342,767,600 - 122,574,300 52,323,600 517,665,500 74,140,100 591,805,600 3,851,200 5,690,600 - 9,541,800 601,347,400 1,202,694,800 2017 363,318,800 - 120,587,210 52,278,900 536,184,910 67,745,200 603,930,110 3,957,900 4,639,600 - 8,597,500 612,527,610 1,225,055,220 2018 382,994,200 - 124,938,600 50,130,470 558,063,270 65,713,100 623,776,370 4,017,100 3,739,800 - 7,756,900 631,533,270 1,263,066,540 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, 2019 6/30/2019 6/30/2009 Percent of Percent of Taxable Total Taxable Taxable Total Taxable Taxpayer Valuation Rank Valuation Valuation Rank Valuation Consumers Energy $ 21,607,450 1 3.8% $ 78,615,856 1 10.1% DTE Gas Company 8,875,500 2 1.5% 5,852,200 6 0.7% Melching 5,703,429 3 1.0% Michigan Electric Transmission 5,251,200 4 0.9% Muskegon SC Holdings LLC 4,256,304 5 0.7% Mercy Health 4,160,820 6 0.7% Muskegon Investments I LLC 3,600,000 7 0.6% 133 Glen Oaks Apartments LLC 3,422,070 8 0.6% 4,776,500 7 0.6% Adac Plastics 2,907,135 9 0.5% RCG Muskegon LLC 2,654,600 10 0.5% Sappi (S.D. Warren Co.) 31,205,687 2 4.0% Johnson Technology 7,679,263 3 1.0% Adac Plastics 7,379,563 4 0.9% Esco Company 6,578,855 5 0.8% Honeywell Inc 4,738,900 8 0.6% Faram Muskegon LLC 4,570,300 9 0.6% Lorin Industries 4,318,889 10 0.6% Total - 10 Largest 62,438,508 10.9% 155,716,013 19.9% Total - All Other 510,872,320 89.1% 624,819,939 80.1% $ 573,310,828 100.0% $ 780,535,952 100.0% 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 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 2016 10.0000 0.0905 3.0000 13.0905 2.4000 0.4962 2017 10.0000 0.0908 3.0000 13.0908 2.4000 0.4999 2018 10.0000 0.0899 3.0000 13.0899 2.4000 0.4866 Overlapping - County-Wide Rates Muskegon Intermediate Special Vocational Community MAISD Community Year County School Education Education College Gen Ed College Debt 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 2016 6.8957 0.4597 2.2987 0.9996 2.2037 1.0000 0.3400 2017 6.8957 0.4597 2.2987 0.9996 2.2037 1.0000 0.3400 2018 6.8957 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 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 2016 18.0000 6.3500 24.3500 6.0000 42.5341 60.5341 2017 18.0000 7.6800 25.6800 6.0000 43.8681 61.8681 2018 18.0000 8.3600 26.3600 6.0000 44.5339 62.5339 134 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 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% 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% 2016 7,719,829 6,828,816 88.5% 853,639 7,682,455 99.5% 42,063 23,671 1,365 0.87% 2017 7,633,290 6,776,856 88.8% 795,164 7,572,020 99.2% 51,584 43,665 11,728 1.40% 2018 9,545,232 8,631,502 90.4% 839,208 9,470,710 99.2% - 53,873 13,529 0.71% 135 SOURCE: City of Muskegon Treasurer' Office City of Muskegon Total Income Tax Collect and Number of Returns Filed - Graphical Last Ten Fiscal Years Income Tax 2009 - 2019 $4,500,000 $4,000,000 $3,500,000 $3,000,000 INCOME TAX $ $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- 2009 2010 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016 2016 - 2017 2017 - 2018 2018 - 2019 Resident $2,541,951 $1,276,521 $2,566,198 $2,755,079 $2,692,211 $2,849,530 $3,070,581 $2,925,036 $3,284,777 $3,278,759 $3,457,902 Non-Resident 3,106,829 1,560,193 3,136,464 3,367,318 3,290,480 3,482,760 3,752,932 3,575,045 4,014,691 4,007,372 4,226,325 Other 833,510 530,956 897,091 1,290,407 1,523,781 1,499,133 1,451,153 1,651,821 1,311,374 1,472,517 1,007,446 FISCAL YEAR 136 NUMBER OF RETURNS 2009 - 2019 25,000 20,000 1,850 1,800 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,650 1,650 15,000 RETURNS 12,433 11,797 11,612 Other 11,259 11,009 10,997 10,631 10,713 10,578 10,278 10,256 Non-Resident 10,000 Resident 5,000 6,788 6,366 6,326 5,690 5,110 5,463 5,458 5,337 5,464 5,352 5,493 - 2009 2010 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016 2016 - 2017 2017 - 2018 2018 - 2019 FISCAL YEAR * The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months. City of Muskegon Total Income Tax Collect and Number of Returns Filed - Data Last Ten Fiscal Years Income Tax 2009 - 2019 Year 2009 2010 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016 2016 - 2017 2017 - 2018 2018 - 2019 Resident $ 2,541,951 $ 1,276,521 $ 2,566,198 $ 2,755,079 $ 2,692,211 $ 2,849,530 $ 3,070,581 $ 2,925,036 $ 3,284,777 $ 3,278,759 $ 3,457,902 Non-Resident 3,106,829 1,560,193 3,136,464 3,367,318 3,290,480 3,482,760 3,752,932 3,575,045 4,014,691 4,007,372 4,226,325 Other 833,510 530,956 897,091 1,290,407 1,523,781 1,499,133 1,451,153 1,651,821 1,311,374 1,472,517 1,007,446 Total Income Tax $ 6,482,290 $ 3,367,670 $ 6,599,753 $ 7,412,804 $ 7,506,472 $ 7,831,423 $ 8,274,666 $ 8,151,902 $ 8,610,842 $ 8,758,648 $ 8,691,673 Number of Returns 2009 - 2019 Year 2009 2010 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016 2016 - 2017 2017 - 2018 2018 - 2019 Resident 6,788 6,366 6,326 5,690 5,110 5,463 5,458 5,337 5,464 5,352 5,493 Non-Resident 12,433 11,797 11,612 11,259 10,997 11,009 10,631 10,713 10,578 10,278 10,256 Other 1,850 1,800 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,650 1,650 Total Returns 21,071 19,963 19,688 18,699 17,857 18,222 17,839 17,800 17,792 17,280 17,399 137 * The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months. 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 Total Business- Total Primary Per Year Bonds Bonds State Loans Activities Bonds State Loans Type Activities Government Capita 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 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 19,727,813 533 138 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 2017 5,940,903 - 57,946 5,998,849 1,523,661 6,980,000 8,503,661 14,502,510 378 2018 5,633,903 - 39,012 5,672,915 774,614 6,270,000 7,044,614 12,717,529 331 2019 5,322,903 - 19,699 5,342,602 - 5,545,000 5,545,000 10,887,602 284 * 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, 2019 Total Debt Debt Supported by City Name of Governmental Unit Outstanding Self Supporting General Revenues Direct Debt City of Muskegon: Revenue Bonds $ 5,545,000 $ 5,545,000 $ - Capital Improvement Bonds 5,322,903 - 5,322,903 Intergovernmental Bonds 19,699 - 19,699 Component Unit Debt: Downtown Development Authority 1,000,000 1,000,000 - Local Development Finance Authority 2,167,419 2,167,419 - Total City Direct Debt $ 14,055,021 $ 8,712,419 $ 5,342,602 City Share as Gross Percent of Gross Net Overlapping Debt Muskegon School District $ 7,470,000 95.40% $ 7,126,380 Orchard View School District 39,635,467 18.05% 7,154,202 Reith's Puffer School District 64,727,524 0.73% 472,511 Hackley Public Library 2,305,000 95.40% 2,198,970 Muskegon County 113,057,178 12.49% 14,120,842 Muskegon Community College 33,835,000 12.49% 4,225,992 Total Overlapping Debt $ 261,030,169 35,298,896 Total City Direct and Overlapping Debt $ 40,641,498 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 overalapping 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. 139 City of Muskegon LEGAL DEBT MARGIN INFORMATION Last Ten Fiscal Years 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Debt Limit $ 82,198,965 $ 78,308,925 $ 73,585,150 $ 68,555,700 $ 61,706,477 $ 61,510,980 $ 60,962,090 $ 61,333,841 $ 64,124,907 $ 101,083,635 Total net debt applicable to limit 14,435,033 12,929,850 14,375,253 13,655,042 12,847,550 11,969,708 11,313,794 10,290,785 9,240,855 8,510,021 Legal debt margin $ 67,763,932 $ 65,379,075 $ 59,209,897 $ 54,900,658 $ 48,858,927 $ 49,541,272 $ 49,648,296 $ 51,043,056 $ 54,884,052 $ 92,573,614 Total net debt applicable to the limit as 17.56% 16.51% 19.54% 19.92% 20.82% 19.46% 18.56% 16.78% 14.41% 8.42% a percentage of debt limit Legal Debt Margin Calculation for 2019: Assessed Valuation: $ 1,010,836,357 Legal Debt Limit (10% ) 101,083,635 Total Indebtedness: $ 14,055,021 Debt not Subject to Limitation: Paid by Special Assessment - Revenue Bonds (5,545,000) 140 Debt Subject to Limitation 8,510,021 Legal Debt Margin $ 92,573,614 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 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 2017 7,449,646 4,997,912 2,451,734 1,405,000 246,434 1,651,434 1.48 2018 7,507,323 4,949,807 2,557,516 1,450,000 203,106 1,653,106 1.55 2019 8,472,413 5,672,522 2,799,891 1,495,000 158,260 1,653,260 1.69 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 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 2017 No Direct System Indebtedness 2018 No Direct System Indebtedness 2019 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. 141 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 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% 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% 2017 38,349 854,285,543 22,277 35.8 3,985 1,075 78,271,395 4.8% 2018 38,401 876,830,025 22,834 35.4 3,732 1,202 171,523,877 4.1% 142 2019 38,401 898,750,775 23,404 35.4 3,589 1,295 94,667,004 4.2% 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 2019 2009 Percentage Percentage of total of total City City Employer Employees Rank employment Employees Rank employment Mercy General Health Partners* 4,709 1 31.3% 3,227 1 19.3% County of Muskegon 1,056 2 7.0% 980 2 5.9% ADAC Automotive 901 3 6.0% 400 8 2.4% G.E. Aviation (formerly Johnson Technology Inc.) 454 4 3.0% 474 5 2.8% Port City Group 430 5 2.9% Muskegon Area Intermediate 415 6 2.8% Muskegon Public Schools 403 7 2.7% 697 4 4.2% Muskegon Community College 355 8 2.4% 143 Betten 255 9 1.7% SAF Holland USA 175 10 1.2% State of Michigan 772 3 4.6% Verizon 325 9 1.9% City of Muskegon 281 10 1.7% Knoll Group 450 6 2.7% Baker College 430 7 2.6% * 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 2010* 2011 2012 2013 2014 2015 2016 2017 2018 2019 Administration - 0.40 0.40 0.40 0.40 - - - - - Affirmative Action 1.50 1.10 1.10 1.10 1.10 1.30 1.30 1.46 0.40 1.00 Cemetaries 2.50 2.20 1.75 1.25 1.25 1.25 1.25 1.25 1.25 1.25 City Clerk & Elections 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.54 3.80 3.80 City Commission 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 City Hall Maintenance 1.00 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 City Manager's Office 2.25 2.25 2.25 2.25 2.25 2.05 2.05 1.75 2.75 2.75 City Treasurer's Office 5.00 5.00 5.00 5.00 4.50 5.50 5.50 5.50 5.50 5.50 Civil Service 2.00 1.00 - - - - - - - - Environmental Services 2.00 2.00 5.00 5.00 5.00 2.00 2.00 2.00 2.00 - Farmers Market 0.05 0.05 0.05 0.05 0.05 0.05 0.05 - 0.20 1.20 Finance Administration 3.00 3.00 3.00 2.00 2.00 3.00 3.00 3.00 3.60 3.00 Fire 36.00 33.00 35.00 28.00 28.83 32.00 35.00 35.00 35.00 26.00 Fire Safety Inspections 9.00 8.00 6.00 6.00 0.83 - - - - - General Recreation 2.00 - - - - - - - - - Income Tax Administration 5.00 5.00 5.00 5.00 4.50 3.50 3.50 3.50 3.50 3.50 Information Systems 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.50 3.50 Parks 7.15 6.00 6.05 6.05 6.00 6.00 6.00 7.05 7.05 10.05 144 Planning, Zoning & Economic Development 5.00 4.00 3.00 3.00 3.00 3.40 3.40 3.45 3.45 5.45 Police 88.00 88.00 88.00 88.00 87.34 88.00 88.00 88.00 88.00 89.00 Sanitation - 0.30 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 Senior Transit - - 0.05 0.05 0.05 - - - - - MVH-Major Streets 12.00 12.00 11.70 10.70 10.70 10.70 10.70 10.70 10.70 12.20 MVH-Local Streets 7.00 7.00 6.70 6.70 6.70 6.70 6.70 6.70 6.70 7.20 Community Development 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 3.55 3.55 Home Program 0.25 0.25 - - - - - - - - Lead Program 0.75 0.75 - - - - - - - - Sewer Maintenance 10.20 10.20 9.75 9.75 9.80 9.80 9.80 9.80 9.80 9.80 Water Filtration 10.00 10.00 9.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 Water Maintenance 12.40 12.40 11.75 11.75 11.75 11.75 11.75 11.75 11.75 11.75 Hartshorn Marina Fund 0.05 0.05 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 Public Service Building 8.95 8.05 7.95 8.45 8.45 8.50 8.50 8.50 8.50 8.50 Engineering 5.45 4.95 4.95 4.95 4.95 4.95 4.95 4.95 4.95 5.95 Equipment 7.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 256.00 244.00 241.00 233.00 227.00 228.00 231.00 232.45 233.50 232.50 * 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 2010* 2011 2012 2013 2014 2015 2016 2017 2018 2019 Administrative Services Elections Number of registered voters 26,136 26,330 26,324 26,098 26,025 24,014 24,005 24,612 26,136 25,182 Number of votes cast: Last general election 15,271 8,106 1,933 13,487 3,029 7,763 2,547 13,179 15,271 11,407 Last city election 2,254 8,106 1,933 2,131 3,029 7,763 2,547 13,179 2,254 1,938 Percentage of registered voters voting: Last general election 58% 31% 7% 52% 12% 32% 11% 54% 58% 45% Last city election 9% 31% 7% 8% 12% 32% 11% 54% 9% 8% Financial Services Property Tax Bills - 15,351 15,261 15,291 15,211 14,528 14,611 14,243 14,229 14,180 Income Tax Returns 19,963 19,688 18,699 17,857 18,222 17,839 17,800 17,792 17,280 17,399 Paper Check Issued to Vendors 1,486 2,986 3,746 1,677 1,404 1,527 1,608 1,675 1,782 1,863 Electronic Payments to Vendors 450 884 1,334 1,251 1,579 1,471 1,849 1,998 2,104 2,307 145 Public Safety Fire Protection Number of firefighter and officer positions 37 37 36 41 38 35 35 35 23 29 Number of emergency calls 2,062 4,402 4,676 4,563 4,354 4,881 4,938 4,895 4,948 5,106 Police Protection Number of sworn officer positions 79 79 79 79 76 76 76 75 79 80 Part I (Major) Crimes 1,305 2,859 2,772 2,647 2,240 2,107 1,989 2,816 2,357 1,728 Public Works Refuse Collected (Tons per Year) 6,042 12,703 10,153 9,958 10,217 10,512 10,994 11,009 10,801 10,753 Recyclables Collected (Tons per Year) - - - - - - - - - - Water & Sewer Number of consumers 12,966 13,037 13,109 13,144 13,086 13,223 13,307 13,248 13,104 13,343 Average daily water consumption (GPD) 7,163,000 8,417,000 7,700,000 7,651,000 7,666,000 8,293,570 11,027,945 10,947,233 9,559,304 10,867,590 Water main breaks repaired 6 12 5 11 30 15 16 12 15 11 Sewer flows (Millions Gallons per Year) 965 1,625 1,695 1,777 1,833 2,013 1,794 1,815 1,832 2,048 Sewer Service Calls 263 591 522 508 532 501 521 462 451 443 * 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 2010* 2011 2012 2013 2014 2015 2016 2017 2018 2019 Public Safety Fire Protection Number of stations 3 3 3 3 3 3 3 3 3 3 Police Protection Number of stations 1 1 1 1 1 1 1 1 1 1 Highways, Streets and Bridges Miles of Streets 196.95 196.95 196.95 196.95 196.95 196.95 196.95 196.95 196.95 197.19 Number of streetlights 3,125 3,065 2,838 2,838 2,838 2,838 2,900 2,984 2,967 2,930 Culture and Recreation Number of parks (acres) 701 701 701 701 701 701 701 701 701 701 Lake Michigan beaches (acres) 119 119 119 119 119 119 119 119 119 119 Hockey/Entertainment Arena 1 1 1 1 1 1 1 1 1 1 Sewer 146 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) 184.35 184.35 184.35 184.35 184.25 184.35 184.35 184.35 184.35 184.35 Water Water mains (miles) 195.69 195.69 195.40 195.95 195.95 195.95 195.95 195.95 195.95 195.27 * The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months. SOURCE: City of Muskegon Departments SINGLE AUDIT OF FEDERAL FINANCIAL ASSISTANCE PROGRAMS 147 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 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 City of Muskegon, as of and for the year ended June 30, 2019, and the related notes to the financial statements, which collectively comprise City of Muskegon’s basic financial statements, and have issued our report thereon dated December 2, 2019. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered 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 City of Muskegon’s internal control. Accordingly, we do not express an opinion on the effectiveness of City of Muskegon’s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. However, as described in the accompanying Schedule of Findings and Responses, we identified a certain deficiency in internal control that we consider to be a material weakness. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency described in the accompanying Schedule of Findings and Responses to be a material weakness, as Finding 2019-001. Compliance or Other Matters As part of obtaining reasonable assurance about whether 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. Grand Haven | Grand Rapids | Hart | Muskegon www.brickleydelong.com 148 BRICKLEY DELONG City Commission City of Muskegon Page 2 City of Muskegon’s Response to Finding City of Muskegon’s response to the finding identified in our audit is described in the accompanying Schedule of Findings and Responses. City of Muskegon’s response was not subjected to auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. 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 December 2, 2019 149 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 City Commission City of Muskegon Muskegon, Michigan Report on Compliance for Each Major Federal Program We have audited 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 City of Muskegon’s major federal programs for the year ended June 30, 2019. City of Muskegon’s major federal programs are identified in the Summary of Auditor’s 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 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 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 City of Muskegon’s compliance. Opinion on Each Major Federal Program In our opinion, 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, 2019. Grand Haven | Grand Rapids | Hart | Muskegon www.brickleydelong.com 150 BRICKLEY DELONG City Commission City of Muskegon Page 2 Report on Internal Control Over Compliance Management of 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 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 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 a 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 December 2, 2019 151 City of Muskegon SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the year ended June 30, 2019 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, 2018 Transfers (Cash Basis) Expenditures June 30, 2019 Subrecipents 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 $ 106,372 $ (18,111) $ 88,261 $ - $ - $ - B-15-MC-26-0026 895,410 6,544 (286) 6,258 - - - B-16-MC-26-0026 886,662 166,991 (128,469) 38,147 - 375 - B-17-MC-26-0026 871,542 211,843 146,866 589,758 258,702 27,653 - B-18-MC-26-0026 937,658 - - 384,201 499,280 115,079 - Program Income 61,006 - - 61,006 61,006 - - Total Community Development Block Grants/ Entitlement Grants 4,549,303 491,750 - 1,167,631 818,988 143,107 - HOME Investment Partnerships Program 14.239 M-15-MC-26-0215 268,639 17,527 (3,075) 14,452 - - - M-16-MC-26-0215 264,277 146,173 32,388 149,195 2,093 31,459 - 152 M-17-MC-26-0215 249,537 174,316 (29,313) 145,003 - - - M-18-MC-26-0215 327,681 - - 119,405 182,886 63,481 - Program Income 300,010 - - 300,010 300,010 - - Total HOME Investment Partnerships Program 1,410,144 338,016 - 728,065 484,989 94,940 - Total U.S. Department of Housing and Urban Development 5,959,447 829,766 - 1,895,696 1,303,977 238,047 - City of Muskegon SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS—CONTINUED For the year ended June 30, 2019 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, 2018 Transfers (Cash Basis) Expenditures June 30, 2019 Subrecipents U.S. Department of Justice Direct programs Bulletproof Vest Partnership Grant 16.607 2017 Grant $ 5,570 $ - $ - $ 4,739 $ 4,739 $ - $ - Edward Byrne Memorial Justice Assistance Grant 16.738 Program 2017-DJ-BX-0961 39,155 - - 39,155 39,155 - - Total direct programs 44,725 - - 43,894 43,894 - - Passed through Ottawa County Edward Byrne Memorial Justice Assistance Grant 16.738 Program 153 2017-MU-BX-0191 14,000 - - - 14,000 14,000 - Total U.S. Department of Justice 58,725 - - 43,894 57,894 14,000 - U.S. Environmental Protection Agency Direct programs Brownfields Assessment and Cleanup 66.818 Cooperative Agreements 00E01538 400,000 71,753 - 149,040 77,287 - - U.S. Department of Health and Human Services Passed through Michigan Department of Health and Human Services Children's Health Insurance Program 93.767 E20192797-001 880,005 - - 56,112 92,824 36,712 - TOTAL FEDERAL ASSISTANCE $ 7,298,177 $ 901,519 $ - $ 2,144,742 $ 1,531,982 $ 288,759 $ - 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, 2019 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, 2019. 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, 2019 and federal expenditures per the Schedule of Expenditures of Federal Awards. Federal revenues per City of Muskegon financial statements General Fund $ 57,894 Major Street and Trunkline Fund 627,218 Other governmental funds 1,113,072 154 1,798,184 Plus program income 361,016 Less MDOT contracted projects as shown below (627,218) Federal expenditures per the Schedule of Expenditures of Federal Awards $ 1,531,982 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, 2019 the federal aid received and expended by the City of Muskegon was $627,218 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 EMRP 1761(016) Fed Item HK 1620 Contract 17-5353 $ 287,218 $ 287,218 Proj 1800(854)(853) Contract 18-5340 340,000 340,000 Total U.S. Department of Transportation, Federal Highway Administration (contracted projects) $ 627,218 $ 627,218 City of Muskegon SCHEDULE OF FINDINGS AND RESPONSES June 30, 2019 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? X yes 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 auditor’s 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? yes X no 155 City of Muskegon SCHEDULE OF FINDINGS AND RESPONSES June 30, 2019 SECTION II – FINANCIAL STATEMENT FINDINGS Finding 2019-001: MATERIAL WEAKNESS—Year-End Closing Procedures for Accounts Payable Criteria: Costs should be recognized as an expenditure in the appropriate accounting period. Condition: Certain costs paid after the end of the year were not recorded as payables at year-end. Cause: The City properly recorded payables for expenditures incurred during the year under audit and paid after year-end in July, but did not record payables for expenditures incurred during the year under audit and paid in August or later. Effect: The City’s expenditures and payables were understated and required adjustment. Context: We tested disbursements after year-end and identified $307,558 in unrecorded payables. Repeat Finding: This is not a repeat finding. Recommendation: The City should review its policies and procedures surrounding year-end payables and improve them to insure that expenditures are recorded in the correct accounting period. Views of Responsible Officials: The City agrees with the finding. SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS There were no findings reported in relation to major federal awards during the single audit for the year ended June 30, 2019 156 CLIENT DOCUMENTS 157 Affirmative Action (231)724-6703 FAX (231)722-1214 Assessor/ Equalization Co. (231)724-6386 FAX (231)724-1129 Cemetery/Forestry (231)724-6783 FAX (231)724-4188 City Manager (231)724-6724 FAX (231)722-1214 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS Clerk (231)724-6705 FAX (231)724-4178 Comm. & Neigh. December 2, 2019 Services (231)724-6717 U.S. Department of Housing and Urban Development FAX (231)726-2501 Washington, D.C. Computer Info. Technology (231)724-4126 FAX (231)722-4301 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, 2018 dated December 21, Engineering 2018. (231)724-6707 FAX (231)727-6904 SECTION II – FINANCIAL STATEMENT FINDINGS Finance (231)724-6713 FAX (231)726-2325 There were no findings reported in relation to the financial statement audit. Fire Department (231)724-6795 FAX (231)724-6985 SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Human Resources Co. (Civil Service) Finding 2018-001: Time and Effort Documentation Procedures (231)724-6442 FAX (231)724-6840 U.S. Department of Housing and Urban Development Income Tax Community Development Block Grant/Entitlement Grants (CDBG) (231)724-6770 CFDA: 14.218 FAX (231)724-6768 Award Numbers: B-14-MC-26-0026 Mayor’s Office B-15-MC-26-0026 (231)724-6701 B-16-MC-26-0026 FAX (231)722-1214 B-17-MC-26-0026 Planning/Zoning Award Year Ends: No expiration (231)724-6702 FAX (231)724-6790 Specific Requirement: Allowable Costs/Cost Principles Police Department (231)724-6750 FAX (231)722-5140 Recommendation: The City should require all employees who fall under Uniform Guidance requirements for documenting time charged to federal award programs to properly prepare the Public Works appropriate after-the-fact time and effort documentation. (231)724-4100 FAX (231)722-4188 Current Status: The recommendation was implemented during the year ended June 30, 2019. No SafeBuilt (Inspections) findings were noted during the single audit for the year ended June 30, 2019. (231)724-6715 FAX (231)728-4371 Sincerely, Treasurer (231)724-6720 FAX (231)724-6768 Elizabeth Lewis Water Billing Finance Director (231)724-6718 FAX (231)724-6768 Water Filtration (231)724-4106 FAX (231)755-5290 158 Affirmative Action (231)724-6703 FAX (231)722-1214 Assessor/ Equalization Co. (231)724-6386 FAX (231)724-1129 Cemetery/Forestry (231)724-6783 FAX (231)724-4188 City Manager (231)724-6724 FAX (231)722-1214 Clerk CORRECTIVE ACTION PLAN (231)724-6705 FAX (231)724-4178 December 2, 2019 Comm. & Neigh. Services U.S. Department of Housing and Urban Development (231)724-6717 FAX (231)726-2501 Washington, D.C. Computer Info. Technology (231)724-4126 City of Muskegon respectfully submits the following Corrective Action Plan for the year ended June FAX (231)722-4301 30, 2019. Engineering (231)724-6707 Name and address of independent public accounting firm: FAX (231)727-6904 Finance Brickley DeLong, P.C. (231)724-6713 P.O. Box 999 FAX (231)726-2325 Muskegon, Michigan 49443 Fire Department Audit period: June 30, 2019 (231)724-6795 FAX (231)724-6985 The findings from the Schedule of Findings and Responses for the year ended June 30, 2019 are Human Resources Co. (Civil Service) discussed below. The findings are numbered consistently with the numbers assigned in the schedule. (231)724-6442 FAX (231)724-6840 SECTION II – FINANCIAL STATEMENT FINDINGS Income Tax (231)724-6770 FAX (231)724-6768 Finding 2019-001: MATERIAL WEAKNESS – Year-End Closing Procedures for Accounts Payable Mayor’s Office (231)724-6701 FAX (231)722-1214 Recommendation: The City should review its policies and procedures surrounding year-end payables and improve them to insure that expenditures are recorded in the correct accounting period. Planning/Zoning (231)724-6702 FAX (231)724-6790 Action Taken: The Assistant Finance Director will review all payables entered from June 30th until the Police Department beginning of the audit each year to ensure that payables are posted to the correct fiscal year. (231)724-6750 FAX (231)722-5140 Responsible Person and Anticipated Completion Date: Assistant Finance Director – September 1, Public Works 2020. (231)724-4100 FAX (231)722-4188 SafeBuilt (Inspections) (231)724-6715 FAX (231)728-4371 Treasurer (231)724-6720 FAX (231)724-6768 Water Billing (231)724-6718 FAX (231)724-6768 Water Filtration (231)724-4106 FAX (231)755-5290 159 U.S. Department of Housing and Urban Development December 2, 2019 Page 2 SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS There were no findings reported in relation to major federal awards during the single audit for the year ended June 30, 2019 If the U.S. Department of Housing and Urban Development has questions regarding this plan, please call Elizabeth Lewis at (231) 724-6917. Sincerely, Elizabeth Lewis Finance Director 160
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