ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT CENTREVILLE, MICHIGAN FINANCIAL REPORT WITH SUPPLEMENTAL INFORMATION FOR THE YEAR ENDED JUNE 30, 2015

Transcription

1 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT CENTREVILLE, MICHIGAN FINANCIAL REPORT WITH SUPPLEMENTAL INFORMATION FOR THE YEAR ENDED JUNE 30, 2015

2 CONTENTS Page Independent Auditor's Report 1 Management's Discussion and Analysis 3 Financial Statements Government-Wide Financial Statements Statement of Net Position 15 Statement of Activities 16 Fund Financial Statements Balance Sheet - Governmental Funds 17 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 18 Statement of Revenues, Expenditures and Changes in Fund Balance - Governmental Funds 19 Reconciliation of the Statement of Revenue, Expenditure, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 20 Statement of Fiduciary Net Position 21 Notes to Financial Statements 22 Required Supplementary Information Budgetary Comparison Schedule - General Fund 44 Budgetary Comparison Schedule - Special Education Fund 45 Budgetary Comparison Schedule - Career Technical Education (CTE) Fund 46 MPSERS Cost-Sharing Multiple-Employer Plan Schedule of the District's Proportionate Share of the Net Pension Liability 47 Schedule of the District's Contributions 48 Schedule of Federal Financial Assistance 49 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 51 Indepentent Audior's Report on Compliance with Requirements Applicable to Each Major Federal Program and Internal Control over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs 55

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5 St. Joseph County ISD Management Discussion and Analysis For the Fiscal Year Ending June 30, 2015 The Administration s Management Discussion and Analysis (MD&A), a requirement of GASB 34, is intended to be the St. Joseph County ISD Administration s MD&A of the financial results for the year ended June 30, The MD&A is provided at the beginning of the audit to provide the past and current position of the school district s financial condition. This summary should not be taken as a replacement for the audit which consists of the financial statements and other supplemental information that presents all the school district s revenues and expenditures by program for the General Fund, Special Education Fund, and Career Technical Education. Generally accepted accounting principles (GAAP) according to GASB 34 require the reporting of two types of financial statements: District Wide Financial Statements and Fund Financial Statements. BACKGROUND Our Mission: To enable all students to become contributing members of society by equalizing and improving educational opportunities cooperatively with students, educators, parents, and the community. Our Purpose and Priorities: To work collaboratively with our resident districts and partner agencies to improve student performance throughout the county. The ISD services 8 K-12 local school districts, 1 K-8 school district, and 8 private and non-public schools in the county. The ISD is the Regional School District that serves as both a service unit to the Michigan Department of Education as well as its constituent school districts. The ISD also carries out a large number of administrative functions for the State Department of Education. Some of this may include enforcing various sections of the school code, seeing that various directives and polices of the Department of Education are carried out, offering professional development service and special education services. The ISD works with the local school districts in a cooperative effort to equalize and improve the quality of education for children in St. Joseph County

6 St. Joseph County Intermediate School District Management Discussion & Analysis FINANCIAL HIGHLIGHTS The overall condition of the governmental activities remains stable for the district. All goals related to financial activities have been met and if revenue and expenditures patterns can be maintained, the resources for next year will be available. The overall revenues were $19,512,740. Expenses totaled $17,189,355, resulting in an increase for the fiscal year of $2,323,385. Included in expenses was a $1,265,130 transfer to the local school districts of excess Special Education fund balance related to prior years. The total cost of basic programs was $2,464,987, a decrease of 16.1 percent from the prior year. Revenues increased from the prior year by 26.1 percent to $19,512,740 while expenses decreased 6.4 percent to $17,189,355. Enrollment decreased for the school year. The District decreased its outstanding long-term debt to $3,910,000, related to energy bonds used to make energy efficiency improvements to the buildings. USING THIS ANNUAL REPORT This annual report consists of financial statements that show information for the school district as a whole: the funds and fiduciary responsibilities. This report consists of three parts: (1) management s discussion and analysis (this section), (2) the basic financial statement and (3) required supplementary information. (The basic financial statements include two kinds of statements that present different views of the district). The first two statements are district-wide financial statements that provide both short-term and longterm information about the district s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the district, reporting the districts operations in more detail than the district-wide statements. The governmental funds statements tell how basic services like regular and special education were financed in the short-term as well as what remains for future spending. Fiduciary funds statements provide information about the financial relationships in which the district acts solely as a trustee or agent for the benefit of others. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements with a comparison of the district s budget for the year

7 St. Joseph County Intermediate School District Management Discussion & Analysis Our auditor has provided assurance in the independent auditor s report, located immediately preceding this Management s Discussion and Analysis, that the Basic Financial Statements are fairly stated. Varying degrees of assurance are being provided by the auditor regarding the Required Supplemental Information and the Supplemental Information identified above. A user of this report should read the independent auditor s report carefully to ascertain the level of assurance being provided for each of the other parts in the Financial Section. Figure A-1 summarizes the major features of the district s financial statements, including the portion of the district s activities they cover and the types of information they contain. The remainder of this overview section of Management s Discussion and Analysis highlights the structure and contents of each of the statements. Figure A-1 Major Features of District-Wide and Fund Financial Statements Fund Financial Statements District-wide Statements Governmental Funds Fiduciary Funds The district administers The activities of the district that are not resources on behalf of someone Entire District proprietary or fiduciary, such as special else, such as, scholarship programs Scope (except fiduciary funds) education and building maintenance and student activities monies Required financial *Statement of net position *Balance sheet *Statement of fiduciary net position statements *Statement of activities *Statement of revenues, expenditure and changes in fund balances Accounting basis Accrual accounting and Modified accrual accounting and current Accrual accounting and economic and measurement economic resources focus financial resources focus resources focus focus Type of assets/ All assets and liabilities, both Generally assets expected to be used up All assets and liabilities, both shortliability information financial and capital, short- and liabilities that come due during the term and long-term, funds do not term and long-term year or soon thereafter; no capital assets currently contain capital assets, or long-term liabilities included although they can. Type of inflow/ All revenues and expenses Revenues for which cash is received All additions and deductions during outflow information during year, regardless of during or soon after the end of the year, the year, regardless of when when cash is received or expenditures when goods or services cash is received or paid. paid have been received and the related liability is due and payable - 5 -

8 St. Joseph County Intermediate School District Management Discussion & Analysis District-Wide Statements The district-wide statements provide information about the district as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the district s assets and liabilities. 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 district-wide statements indicate the district s net position and how they have changed. The difference between the district s assets and liabilities is called net position and is one way to measure the district s financial position. However, the district s goal is to provide services to our students, not to generate profits as commercial entities. One must consider many other non-financial factors, such as, the quality of the education provided and the safety of the schools to assess the overall quality of the district. The Statement of Net Position and Statement of Activities report the following activity: Governmental Activities: Most of the district s services are reported here, including instruction, support, and administration. Property taxes, state foundation and categorical grants, and state and federal grants finance most of these activities. Figure A-2 outlines a comparative analysis of the net position at June 30, 2015 and 2014, respectively. Figure A-3 below outlines the changes in net position for the fiscal years ended June 30, 2015 and 2014, respectively

9 St. Joseph County Intermediate School District Management Discussion & Analysis Figure A-2 NET POSITION Governmental Activities Governmental Activities June 30, 2015 June 30, 2014* Assets Current Assets $ 5,282,454 $ 3,887,538 Capital Assets 5,620,250 5,483,479 Total Assets 10,902,704 9,371,017 Deferred outflows of resources 632,041 - Total Assets and Deferred outflows of resources $ 11,534,745 $ 9,371,017 Liabilities Current Liabilities $ 1,068,292 $ 834,292 Unearned Revenues 640, ,767 Noncurrent Liabilities 18,370,794 4,030,317 Total Liabilities 20,079,496 5,316,376 Deferred inflows of resources 2,202,104 - Total Liabilities and Deferred inflows of resources $ 22,281,600 $ 5,316,376 Net Position Invested in Capital Assets, Net of Debt $ 1,710,250 $ 1,428,479 Restricted 3,091,720 2,107,731 Unrestricted (1,072,273) 518,431 Unrestricted net pension liability (14,476,552) - Total Net Position $ (10,746,855) $ 4,054,

10 St. Joseph County Intermediate School District Management Discussion & Analysis Figure A-3 CHANGES IN NET POSITION FOR THE YEARS ENDED JUNE 30, 2015 AND 2014 Governmental Activities Governmental Activities June 30, 2015 June 30, 2014* Revenues Program Revenues Charges for Services $ 3,117,981 $ 2,391,316 Federal and State Categorical Grants 7,372,359 5,560,357 General Revenues Property Taxes 6,471,764 5,772,801 State Aid Unrestricted 2,245,324 1,539,281 Other 305, ,094 Total Revenues 19,512,740 15,477,850 Expenses Instruction 2,464,987 2,937,652 Support Services 12,411,429 11,030,255 Transfers to Local Schools 1,932,799 3,891,148 Interest on Long-Term Debt 95, ,597 Changes in accruals 13,816 - Unallocated Depreciation 270, ,111 Total Expenses 17,189,355 18,374,763 Increase (Decrease) in Net Position $ 2,323,385 $ (2,896,913) *The School District implemented GASB 68 during the year ended June 30, The impact on the statement of net position and expenses for the year ended June 30, 2014 is unknown and, therefore, balances for 2014 and 2015 are not comparable

11 St. Joseph County Intermediate School District Management Discussion & Analysis Fund Financial Statements The fund financial statements provide more detailed information about the district s funds, focusing on its most significant or major funds not the district as a whole. Some funds are required to be established by state law and by bond covenants. However, the district establishes many other funds to help it control and manage money for particular purposes (like repaying its long-term debts) or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money (like grants the district receives from the U.S. Department of Education). The district s major governmental funds are 1. General Fund 2. Special Education Fund 3. Career Technical Education (CTE) Fund 4. Capital Projects Fund The district s governmental funds use the following accounting approach: 1. Governmental Funds Most of the district s basic services are included in governmental funds, which generally 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 funds statements provide a detailed short-term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the district s programs. This information does not encompass the additional long-term focus of the district-wide statements; we provide additional information with the governmental fund statements that explains the relationship or difference between them. 2. Fiduciary Funds The district is the fiduciary for various student group activities. FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE The district s combined net position was less on June 30, 2015 than they were the prior year. There was a $14,801,496 decrease to $(10,746,855. The statement of net position has been affected by the following: Net pension Liability New for the year ended June 30, 2015 is the requirement for Accounting and Financial Reporting of Pensions, GASB 68 and 71. These new statements require the district to report their proportionate share of the net pension liability and pension expense, amounts previously unrecorded on the School District s statements

12 St. Joseph County Intermediate School District Management Discussion & Analysis District Governmental Activities The recent status of the district s finances can be credited to but not limited to: 1. The District transferred 20% of prior years Special Education unassigned fund balance to the local school districts 2. Added expense with the piloting of the Special Education Transportation for the Pathfinder Educational Center and offsite locations FINANCIAL ANALYSIS OF THE DISTRICT S FUNDS The financial performance of the district as a whole is reflected in its governmental funds as well. As the district completed the year, its governmental funds reported $3,739,667 of combined fund balances, an increase of $977,164 from last year s ending fund balances of $2,762,503. General Fund Budgetary Highlights During the fiscal year ended June 30, 2015, the district amended the budgets of this major governmental fund three times. These budget amendments were: REVENUE: 1. Increase in taxes 2. Increase in Great Start Readiness Program Grants 3. Awarded Early Headstart Grant EXPENDITURES: 1. Increase and award of various grants, including flow through of dollars to Locals for Great Start Readiness Program funding 2. Increase in staff and services for the Early Headstart Grant While the district s final budget for the General Fund anticipated that expenditures would exceed revenues by $1,157,488, the actual results for the year indicate a $6,825 decrease in fund balance. The final budget is included on page 44 of the financial statements. Actual revenues were $1,160,857 less than expected, due to decrease in state source and not spending all the 32P Block and Great Start readiness Program dollars. The actual expenditures were $2,361,920 less than budgeted with approximately $1,298,000 of that related to instructional expenditures coming in at less than expected costs. Special Education Fund Budgetary Highlights During the fiscal year ended June 30, 2015, the district amended the budgets of this major governmental fund three times. These budget amendments were: REVENUE: 1. Increase in local property taxes 2. Increase in state sources of revenue

13 St. Joseph County Intermediate School District Management Discussion & Analysis EXPENDITURES: 1. Several instructional positions not able to fill (speech, pych) 2. Decrease in nursing services, physical therapy and extended year services 3. Decrease in purchased services Medicaid and communication agreements 4. Decrease in administration, supervisor, principal, fiscal, maintenance and transportation While the district s final budget for the special education fund anticipated that revenues would exceed expenditures by $866,296 the actual results for the year indicates revenues exceeded expenditures by $1,108,186. Actual revenues were $127,578 less than expected; due in part to property taxes collected being approximately $63,500 less than budgeted and state revenues being $61,500 less than budgeted. Actual expenditures were $492,498 less than budgeted. Major differences were as follows: Instructional program expenditures less than budgeted by approximately $121,000 Instructional support expenditures less than budget by 193,000 General administration expenditures were less than budget by approximately 40,000 Maintenance costs were less than budget by approximately 179,000 Career Technical Education (CTE) Fund Budgetary Highlights During the fiscal year ended June 30, 2015, the district amended the budget of this major fund three times. These budget amendments were: REVENUE: 1. Increase in added cost funding 2. Decrease in Sturgis building trades home 3. Increase in White Pigeon building trades home EXPENDITURES: 1. Realigned budget to local districts budgets for CTE shared programs 2. Decrease in Sturgis building trades home and increase in White Pigeon building trades home While the district s final budget for the Career Technical Education (CTE) fund anticipated that expenditures would exceed revenues by $113,458, the actual results for the year indicates $34,197 excess expenditures over revenues. Actual revenues were $1,371 less than expected. Actual expenditures were $81,181 less than budgeted. Major differences are as follows: Building Trades programs under budget by $8,594 Welding program under budget by 25,627 CAD program under budget by 6,334 Computer Tech over budget by 7,

14 St. Joseph County Intermediate School District Management Discussion & Analysis TOTAL DISTRICT REVENUE The total revenues of the district were $19,512,740, all of which were generated by governmental activities. Program specific revenues in the form of charges for services and operating grants accounted for $10,490,340 or 53.7 percent of total revenues. GOVERNMENTAL FUND EXPENDITURES In reviewing the chart below, you will see that Special Education comprises and percent of all the expenditures within the governmental funds of the district for the years ended June 30, 2015, and 2014, respectively. JUNE 30, 2015 % of TOTAL JUNE 30, 2014 % of TOTAL General Fund $ 5,540, $ 4,472, Special Education Fund 11,437, ,413, Career Technical Ed 1,557, ,193, Capital projects ,017, Debt Service Fund TOTAL $ 18,535, $ 21,097, CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets By the end of fiscal year 2015, the district had invested an additional $407,279 in a broad range of capital assets; including equipment. This amount represents a net decrease of $2,610,465 or 86.5 percent, from last year. The District added mostly technology related capital and building and site improvements. Total depreciation expense for the year was $270,508. More detailed information about capital assets can be found in Note 5 to the financial statements

15 St. Joseph County Intermediate School District Management Discussion & Analysis CAPITAL ASSETS AT YEAR END Governmental Activities Buildings and Improvements $6,653,950 $6,891,269 Equipment and Furniture 683, ,517 Less accumulated depreciation (1,854,028) (2,124,536) TOTAL $5,483,479 $5,620,250 LONG-TERM DEBT At June 30, 2015, the district had $4,175,317 in bonds and other long-term obligations outstanding. This is a $108,432 decrease or 2.5 percentage reduction from last year. The debt reduction includes the District s $110,000 principal reduction of bond debt. (More detailed information about the district s long-term liabilities is presented in Note 7 to the financial statement.) The District s compensated absences liability increased by $1,568. OUTSTANDING DEBT AT YEAR END Governmental Activities Energy Bonds $4,055,000 $3,910,000 Compensated absences 120, ,242 TOTAL $4,175,317 $4,044,

16 St. Joseph County Intermediate School District Management Discussion & Analysis FACTORS BEARING ON THE DISTRICT S FUTURE At the time the financial statements were prepared and audited, the district was aware of the following existing circumstances that could significantly affect its financial health in the future. 1. The amount from State Aid and Office of Retirement System can always change, therefore conservative budgeting is always necessary. 2. The ISD is currently in the final stages of the Energy Project and will end prior to the beginning of the calendar year. 3. The ISD is piloting Special Education Transportation for the Pathfinder Educational Center and the offsite locations. 4. The ISD is piloting a new grant for Early Headstart Program CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide an overview of the financial condition of the St. Joseph County ISD. If you have questions about this report or need additional information please contact: St. Joseph County ISD Phone: Shimmel Road Fax: Centreville, MI Kelli R. Dechnik, Business Manager Barbara Marshall, Superintendent

17 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2015 Governmental Activities ASSETS Cash and cash equivalents $ 3,297,933 Receivables (net) 1,960,773 Prepaid insurance - Restricted cash 19,458 Capital assets - net 5,624,540 Total Assets 10,902,704 Deferred outflows of resources Deferred pension amounts 632,041 Total Assets and Deferred outflows of resources $ 11,534,745 LIABILITIES Accounts payable $ 421,283 Accrued interest 15,915 Accrued payroll and other liabilities 481,094 Unearned revenue 640,410 Noncurrent liabilities Due within one year 150,000 Due in more than one year 18,370,794 Total Liabilities 20,079,496 Deferred inflows of resources Deferred pension amounts 2,202,104 Total Liabilities and Deferred inflows of resources $ 22,281,600 NET POSITION Invested in capital assets Net of related debt $ 1,714,540 Restricted Special Education 2,834,172 Career Technical Education 253,258 Capital projects - Unrestricted (1,072,273) Unrestricted net pension liability (14,476,552) Total Net Position $ (10,746,855) See accompanying notes to financial statements

18 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 Governmental Program Revenues Activities Net (expenses) Operating Revenue and Charges for Grants and Changes in Functions/Programs Expenses Services Contributions Net Position Governmental activities Instruction $ 2,464,987 $ - $ 3,999,316 $ 1,534,329 Support services 12,425, ,289 3,064,890 (8,569,175) Transfers to local districts 1,932,799 2,305, , ,076 Interest on long-term debt 95, (95,707) 270, (270,508) Depreciation (unallocated) Total Governmental Activities 17,189,355 3,096,770 7,357,600 (6,734,985) General Revenues Property taxes, levied for general operations 6,471,764 State of Michigan aid, not restricted to specific purpose 2,261,535 Interest 668 Other 324,403 Total General Revenues 9,058,370 Change in Net Assets 2,323,385 Net Position - Beginning of Year 4,054,641 Implementation of GASB 68 (17,124,881) Adjusted net position, beginning of year (13,070,240) Net Position - End of Year $ (10,746,855) See accompanying notes to financial statements

19 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2015 Career Special Technical Capital General Education Education (CTE) Projects Fund Fund Fund Fund ASSETS Cash and Cash Equivalents $ 432,547 $ 2,805,248 $ 60,138 $ - Receivables from Other Governments 606,273 1,083, ,857 - Other receivables 44,291 17, Prepaid insurance Restricted cash-flexible spending plan 2,406 17, Total Assets $ 1,085,517 $ 3,923,652 $ 268,995 $ - LIABILITIES Accounts payable - current $ 238,363 $ 167,183 $ 15,737 $ - Other accrued liabilities 2, , Unearned revenues 197, , Total Liabilities $ 437,570 $ 1,089,480 $ 15,737 $ - FUND BALANCES Nonspendable Prepaid insurance $ - $ - $ - $ - Restricted-flexible spending plan 2,406 17, Restricted - Special Education - 2,544,604 Career Technical Education - 253,258 Capital Projects - - Committed Capital improvements 263, , Unrestricted 381, Total Fund Balances $ 647,947 $ 2,834,172 $ 253,258 $ - Total Liabilities and Fund Balances $ 1,085,517 $ 3,923,652 $ 268,995 $ - See accompanying notes to financial statements

20 Total Nonmajor Funds Total Governmental Funds $ - $ 3,297,933-1,898,742-62, ,458 $ - $ 5,278, , , ,410 $ - $ 1,542,787 $ - $ ,458 2,544, , , ,758 $ - $ 3,735,377 $ - $ 5,278,

21 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION June 30, 2015 Total Fund Balances of Governmental Activities $ 3,735,377 Amounts reported for governmental activities in the statement of net position are different because: Deferred outflows (inflows) of resources Pension expense/retirement contribution 1,078,266 Capital assets used in governmental activities are not financial resources and are not reported in the funds. Cost of capital assets 7,749,076 Accumulated depreciation (2,124,536) 5,624,540 Long-term liabilities are not due and payable in the current period and are not reported in the funds. Energy bonds payable (3,910,000) Net pension liability (17,124,881) Compensated absences (134,242) (21,169,123) Accrued interest payable is not included as a liability in the governmental funds. (15,915) Net Position of Governmental Activities $ (10,746,855) See accompanying note to financial statements -18-

22 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2015 Career Special Technical Capital General Education Education (CTE) Projects Fund Fund Fund Fund Revenues Local sources $ 566,326 $ 6,051,167 $ 374,843 $ - State sources 3,254,630 3,705, ,195 - Federal sources 84,828 2,759, ,423 - Interdistrict sources 1,414, , ,786 - Total Revenues 5,320,483 12,669,010 1,523,247 - Expenditures Current Instruction - 2,631, Support services 5,089,712 7,941, ,314 - Transfers to other districts - 667,669 1,265,130 - Debt service principal 26, , Debt service interest 17,247 78, Capital outlay 407, ,290 5,540,338 11,437,794 1,557,444 4,290 Excess (deficiency) of Revenues Over Expenditures (219,855) 1,231,216 (34,197) (4,290) Other Financing Sources (Uses) Transfers in 213, Transfers (Out) - (213,030) - - Total Other Financing Sources (Uses) 213,030 (213,030) - - Net change in Fund Balance (6,825) 1,018,186 (34,197) (4,290) Fund Balance - Beginning of Year 654,772 1,815, ,455 4,290 Fund Balance - End of Year $ 647,947 $ 2,834,172 $ 253,258 $ - See accompanying notes to financial statements

23 Total Nonmajor Funds Total Governmental Funds $ - $ 6,992,336-7,131,662-2,987,090-2,401,652-19,512,740-2,631,613-13,323,069-1,932, ,000-95, ,569-18,539, , ,030 - (213,030) ,874-2,762,503 $ - $ 3,735,

24 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT RECONCILITATION OF THE STATEMENT OF REVENUE, EXPENDITURE, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2015 Net Changes in Fund Balances - Total Governmental Funds $ 972,874 Amounts reported for governmental activities in the statement of activities are different because: The statement of net position reports the net pension liability and deferred outflows of resources and deferred inflows related to the net pension liability and pension expense. However, the amount recorded on the governmental funds equals actual pension contributions. Pension expense/retirement contribution 1,078,266 Governmental funds report capital outlays as expenditures. However, in the statement of activities, these costs are allocated over their estimated useful lives as depreciation: Capital outlays 411,569 Depreciation expense (270,508) 141,061 Interest is recorded in the statement of activities when incurred; it is not reported in governmental funds until paid. 109 Repayment of long-term debt is shown as an expenditure in the governmental funds, whereas in the statement of activities it is shown as a reduction of long-term debt. 145,000 Increases in compensated absences are reported as expenditures when financial resources are used in the governmental funds. Change in accrued compensated absences from the prior year. (13,925) Changes in Net Position of Governmental Activities $ 2,323,

25 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2015 Agency Fund Student Activities ASSETS Cash and cash equivalents $ 45,339 Total Assets $ 45,339 LIABILITIES Due to student groups $ 45,339 Total Liabilities $ 45,339 See accompanying notes to financial statements

26 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES The Intermediate School District (ISD) was founded in 1962 as a service-oriented extension of the Michigan Department of Education and the nine local school districts and community college located within St. Joseph County. The citizens of St. Joseph County elect our constituent local school district s board of education members. These members then in turn, every other year, elect the ISD s five-member Board. The ISD provides educational and supportive services as mandated by the State of Michigan and/or federal agencies. This Board of Education controls the District s instructional and support facilities that provides special education services and support services to the students of the local educational agencies. Reporting Entity The accompanying financial statements have been prepared in accordance with criteria established by the Governmental Accounting Standards Board (GASB) for determining the various governmental organizations to be included in the reporting entity. These criteria include oversight responsibility, scope of public service, and special financing relationships that determine which of the governmental organizations are a part of the District s reporting entity and which organizations are legally separate component units of the District. Based on application of the criteria, the entity does not contain component units. The primary government of the District includes general operations, special education services, career technical education services, student and supportive service activities of the District. The financial statements of the St. Joseph Intermediate School District have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units. A. District-Wide and Fund Financial Statements The district-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 District. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, normally supported by taxes and intergovernmental revenues, are reported separately from business-type activities that rely to a significant extent on fees and charges for support. All of the District s district-wide activities are considered governmental activities. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include: (1) fees collected for providing services to the local school districts, and (2) grants received for providing services to special education students and career technical education classes for local school districts. Taxes, intergovernmental payments and other items not properly included among program revenues are reported instead as general revenue. Separate financial statements are provided for governmental funds and fiduciary funds, even though the later are excluded from the district-wide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements. B. Measurement Focus, Basis of Accounting and Financial Statement Presentation District-wide Financial Statements - The district-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenue is 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 revenue in the year for which they are levied. Grants, categorical

27 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) aid, and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Fund-based Statements - Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized as soon as it is both measurable and available. Revenue is considered to be available if it is collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government 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, expenditures relating to compensated absences, and claims and judgments are recorded only when payment is due. Property taxes, unrestricted State aid, intergovernmental grants, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenue of the current fiscal period. All other revenue items are considered to be available only when the District receives cash. When both restricted and unrestricted resources are available for use, it the District s policy to use restricted resources first, and then unrestricted resources as they are needed. The District reports deferred revenue on its governmental funds balance sheets. Deferred revenues arise when potential revenue does not meet both the measurable and available criteria for recognition in the current period. Deferred revenues also arise when the District receives resources before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the district has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. For St. Joseph County Intermediate School District taxpayers, properties are assessed as of December 31 and the related property taxes are levied and become a lien on the following December 1 for 100% of the taxes which are due on or by March 1 st. Property taxes become available for expenditure and are thus recognized as revenue in the fiscal year they are levied. The District has adopted a policy of writing off uncollected delinquent taxes after three years. The state taxable value of all real and personal property for the fiscal year ended June 30, 2015 was $2,165,946,800. The millage rate for general operations was.2283 mills and mills for special education generating revenues of $518,079 and $5,238,356, respectively. The State of Michigan utilizes a foundation allowance approach that provides for a specific annual amount of revenue per student based on a statewide formula. The foundation allowance is funded from a combination of state and local sources. The School Aid Act and School Code of Michigan primarily govern revenues from state sources. The state portion of the foundation is provided from the State s School Aid Fund and is recognized as revenue in accordance with state law and accounting principles generally accepted in the United States of America. The District also receives revenue from the State to administer certain categorical education programs. State rules require that revenue earmarked for these programs be used for its specific purpose. Certain categorical funds require an accounting to the State of the expenditures incurred. For categorical funds meeting this requirement, funds received, which are not expended by the close of the fiscal year are recorded as deferred revenues. Other categorical funding is recognized when the appropriation is received. The District reports the following major governmental funds:

28 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) General Fund - The General Fund is the District s primary operating fund. It accounts for all financial resources of the District, except those required to be accounted for in another fund. Special Education Fund The District s Special Education Fund accounts for the financial resources restricted to providing special education services to students within the District. Career Technical Education (CTE) Fund The ISD coordinates career technical education for Glen Oaks Community College and the seven K-12 districts within St. Joseph County. This fund accounts for the financial resources restricted to career technical education services to consortium constituents. Fiduciary Funds The District s only fiduciary fund is the Student Activities Agency Fund. This fund accounts for assets held by the District in a trustee capacity or as an agent, is custodial in nature (assets equal liabilities), and does not involve the measurement of results of operations. The Student Activities Agency Fund currently maintained by the District records the transactions of student groups for school and school-related purposes. The funds are segregated and held in a trust for the students. As a general rule the effect of interfund activity has been eliminated from the District-wide financial statements. C. Assets, Liabilities, and Net Position or Equity Cash and cash equivalents For financial statement presentation, cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with an original maturity of three months or less. Investments with an initial maturity of more than three months are reported as investments. The District has no long-term investments to report at June 30, During the fiscal year ended June 30, 2015, short-term investments were limited to the Michigan Liquid Asset Fund (MILAF). MILAF, an investment pool created in 1987 by the Michigan Association of School Boards, allows school districts within the State of Michigan to pool funds for investment purposes. This fund has an AAAm rating by Standard and Poor s and invests only in funds approved by Michigan Statute. Pooled investment income from MILAF is allocated between the general and special education funds using a weighted average balance for the principal. Receivables and Payables - In general, outstanding balances between funds are reported as due to/from other funds. Activity between funds that is representative of lending/borrowing arrangements outstanding at the end of the fiscal year is referred to as advances to/from other funds. Any residual balances outstanding between the governmental activities are reported in the district-wide financial statement as internal balances. No allowance for uncollectible accounts has been provided. Management has evaluated the accounts and believes they are all collectible. Property taxes are levied on each December 1 st on the taxable valuation of property as of the preceding December 31 st. Taxes are considered delinquent on March 1 st of the following year, at which time penalties and interest are assessed and the total obligation is added to the county tax rolls. Inventories - Inventories are valued at cost and recorded as expenditures when consumed rather than when purchased. There were no career technical education home building materials and work in process at June 30, Restricted Assets Restricted cash reflects the cash balance in the checking account holding employee monies withheld for the flexible spending plan

29 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Capital Assets - Capital assets that include buildings, furniture and equipment are reported in the applicable governmental column in the district-wide financial statements but not in the fund financial statements. The District defines capital assets as assets with an initial individual cost of more than $5,000 and an estimated useful life in excess of 5 years. Such assets are recorded at historical cost or estimated historical cost. Donated capital assets are recorded at estimated fair market value at the date of donation. Costs of normal repair and maintenance that do not add to the value or materially extend asset life are expensed in the current period. The District does not have infrastructure-type assets. Property, plant and equipment are depreciated using the straight-line method over the following useful lives: Buildings and improvements Furniture and other equipment years 5-10 years Compensated Absences The District reports compensated absences in accordance with the provisions of GASB Statement No. 16, Accounting for Compensated Absences. Sick leave benefits are accrued as a liability using the termination payment method. An accrual for earned sick leave is made to the extent that it is probable that the benefits will result in termination payments. The liability is based on the District s past experience of making termination payments. The entire compensated absence liability is reported on the district-wide financial statements. For governmental fund financial statements the current portion of unpaid compensated absences is the amount expected to be paid using expendable available resources. These amounts, if any, are recorded in the account compensated absences payable in the fund from which the employees who have accumulated unpaid leave are paid. The noncurrent portion of the liability is not reported. Accrued liabilities All payables and accrued liabilities are reported in the district-wide financial statements. In general, payables and accrued liabilities that will be paid from governmental funds are reported on the governmental fund financial statements regardless of whether they will be liquidated with current resources. However, claims and judgments, the noncurrent portion of compensated absences, contractually required pension contributions and special termination benefits that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they will be paid with current, expendable, available financial resources. In general, payments made within sixty days after year-end are considered to have been made with current available financial resources. Long-Term Obligations - In the government-wide financial statements long-term debt and other long-term obligations are reported as liabilities in the statement of net position. Bond premiums and discounts are deferred and amortized over the useful life of the bonds using the straight line method which approximates the effective interest method over the term of the related debt. Bonds payable are reported net of applicable bond premium or discount. Bond issuance costs are reported as debt service expenditures in the year in which they are incurred. In the fund financial statements, governmental fund types recognize bond premium and discounts, as well as bond issuance costs, during the current period. The face amount of the debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Deferred Outflows 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. The District reports

30 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) deferred outflows of resources for certain pension-related amounts, such as change in expected and actual experience, changes in assumptions, and certain contributions made to the plan subsequent to the measurement date. More detailed information can be found in Note 8. Deferred Inflows of Resources 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. The District reports deferred inflows of resources for certain pension-related amounts, such as the difference between projected and actual earnings of the pension plan s investments. More detailed information can be found in Note 8. Net Pension Liability For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the plan fiduciary net position have been determined on the same basis as they are reported by the 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. Fund Equity The District has adopted Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This statement provides more clearly defined fund balance categories to make the nature and extent of constraints placed on a government s fund balances more transparent. The following five categories describe the relative strength of the spending constraints: 1) Nonspendable fund balance reflects amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact, e.g., inventories, prepaid expenses. 2) Restricted fund balance is reported when externally imposed constraints are placed on the use of resources by grantors, contributors, or laws or regulations of other governments, e.g., special education and career technical education monies. 3) Committed fund balance is reported for amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government s highest level of decision-making authority, the Board of Education. A formal resolution of the Board of Education is required to establish, modify or rescind a fund balance commitment. The Board has committed general fund and special education fund balances of $279,083 and 362,016, respectfully, for capital improvements, as well as a special education fund balance of $100,000 for bus replacement. 4) Assigned fund balance reflects those amounts constrained by the Board s intent to use them for a specific purpose and are neither restricted nor committed. Intent is permitted to be made by the Board itself or an official to whom the Board has delegated the authority to assign amounts to be used for specific purposes. 5) Unassigned fund balance is reserved for the residual classification for the general fund. It represents fund balance that has not been assigned to other funds, nor restricted, committed or assigned to specific purposes within the general fund

31 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fund Equity - continued When the District incurs an expenditure for purposes for which various fund balance classifications can be used, it is the government s policy to use restricted fund balance first, then committed fund balance, assigned fund balance, and finally unassigned fund balance. Net Position Net position represents the difference between assets and liabilities. Net position invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net positions are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, laws or regulations of other governments. Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Adoption of new accounting standards The Governmental Accounting Standards Board ( the GASB ) has issued Statement No. 68 Accounting and Financial Reporting for Pensions, and Statement 71 Pension Transition for Contributions Made Subsequent to the Measurement Date. Statement 68 requires governments participating in public employee pension plans to recognize their portion of the long-term obligation for the pension benefits as a liability and to measure the annual costs of the pension benefits. The net pension liability is recorded on the government-wide statements. Statement 71 amends Statement 68 to address an issue concerning transition provisions related to certain pension contributions made to defined benefit pension plans prior to implementation of Statement 68 by employers and non-employer contributing entities. Statements 68 and 71 are effective for the year ending June 30, NOTE 2 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Capital Project Fund Compliance - The Capital Projects Fund includes capital projects funded with bonds issued after May 1, For these capital projects, the District has complied with the applicable provisions of 1351a of the State of Michigan s School Code. Budgetary Information The budgetary process is prescribed by provisions of the State of Michigan Budget Act and entails the preparation of budgetary documents within an established timetable. All funds, other than agency funds, are legally required to be budgeted and appropriated. The legal level of budgetary control has been established by the Board of Education at the function level. Any budgetary modifications may only be made by resolution of the Board of Education. The District follows these procedures in establishing the budgets for individual funds as reflected in the financial statements

32 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 2 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (CONTINUED) 1) Prior to June 30, the Superintendent submits to the School Board a proposed operating budget for the fiscal year commencing July 1. 2) A public hearing is conducted during June to obtain taxpayer comments. 3) Prior to June 30, the budget is legally enacted through passage of a resolution. 4) For purposes of meeting emergency needs of the District, transfer of appropriations may be made by the authorization of the Superintendent. Such transfers of appropriations must be approved by the Board of Education at its next regularly scheduled meeting. 5) The School Superintendent is charged with general supervision of the budget and shall hold the department heads responsible for performance of their responsibilities. 6) During the year the budget is monitored and amendments to the budget resolution are made when deemed necessary. At the close of the year all unspent appropriations revert to the respective funds from which they were appropriated and become subject to future appropriations. Excess of Expenditures Over Appropriations in Budgeted Funds - During the year, the District did not incur significant expenditure budget variances. Capital Projects Fund Compliance - The 2013 Capital Projects Fund include capital project activities funded with bonds issued after May 1, For these capital projects, the School District has complied with the applicable provisions of the Section 1351a of the State of Michigan School Code. NOTE 3 CASH State statutes and the District s investment policy, authorize the District to make deposits in the accounts of federally insured banks, credit unions, and savings and loan associations that have an office in Michigan. The District is authorized to invest in bonds, securities and other direct obligations of the United States or any agency or instrumentality of the United States; United States government or federal agency obligations; repurchase agreements; banker s acceptance of United States banks; commercial paper rated within the two highest classifications which mature not more than 270 days after the date of purchase; obligations of the State of Michigan or its political subdivisions which are rated as investment grade; and mutual funds composed of investment vehicles that are legal for direct investment by local units of government in Michigan. The District has authorized all banks and savings and loans in the County as depositories but maintained accounts in one bank for the fiscal year. The District s cash and investments are subject to several types of risk, which are examined in more detail below. Custodial Credit Risk of Bank Deposits - The District s cash and cash equivalents are subject to custodial credit risk which is the risk that in the event of a bank failure, the government s deposits may not be returned to it. The District does not have a deposit policy for custodial credit risk. At year end, the District s deposit balance of $1,332,449 had $522,501 of bank deposits that were uninsured and uncollateralized. The District believes that due to the dollar amounts of cash deposits and the limits of FDIC insurance, it is impractical to insure all deposits. As a result, the District evaluates each financial institution with which it

33 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 CASH (CONTINUED) deposits funds and assesses the level of risk of each institution; only those institutions with an acceptable estimated risk level are used as depositories. Restricted cash of $19,458 relates to monies held at year end for employee flexible spending accounts. Custodial Credit Risk of Investments Custodial credit risk is the risk that, in the event of the failure of the counterparty, the District will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The District s policy for custodial risk states custodial risk will be minimized by limiting investments to the type of securities allowed by state law. The District does not have investments with custodial credit risk. Credit Risk State law limits investments in commercial paper to the top two credit ratings issued by nationally recognized statistical rating organizations At year end, the maturities of investments and the credit quality ratings of debt securities are as follows: Michigan Liquid Asset Funds has an AAAm rating by the Standard and Poor s, at year end, the District held funds with a fair value of $3,070,550 with no maturities. Interest Rate Risk Interest rate risk is the risk that the fair value of an investment will decrease as a result of a rise in interest rates. The District s investment policy does not restrict investment maturities, other than commercial paper which can only be purchased with a 270-day maturity. The District minimizes interest rate risk by structuring the investment portfolio so that securities mature to meet the cash requirements for ongoing operations, thereby avoiding the need to sell securities in the open market. Foreign Currency Risk Foreign currency risk is the risk that an investment denominated in the currency of a foreign county could reduce its U.S. dollar value as a result of changes in foreign currency exchange rates. State law and the District s policy prohibit investments in foreign currency. NOTE 4 RECEIVABLES AND UNEARNED REVENUES A summary of the principal items of receivables at June 30, 2015 follows: Special General Education CTE Fund Fund Fund Total State Aid $ 542,850 $ 477,973 $ 31,115 $ 1,051,938 Grants receivable 63, , ,814 Due from other governmental units 44,246 10,696 28,085 83,027 Accounts and other 66 7, , ,994 Total receivables $ 650,564 $ 1,101,352 $ 208,857 $ 1,960,773 Governmental funds defer revenue recognition in connection with resources that have been received but not yet earned. At the end of the current year unearned revenues totaled $584,112 which included $140,711 related to three grant payments received prior to meeting all eligibility requirements and considered unearned

34 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 5 CAPITAL ASSETS The following summarizes the changes in capital assets for the fiscal year ended June 30, 2015: Capital assets being depreciated: Buildings and Balance Balance July 1, June 30, 2014 Increases Decreases 2015 improvements $ 6,653,950 $ 237,319 $ - $ 6,891,269 Furniture and Equipment 683, , ,517 Subtotal 7,337, ,279-7,744,786 Less Accumulated depreciation for: Buildings and additions 1,499, ,029-1,722,527 Furniture and equipment 354,530 47, ,009 Subtotal 1,854, ,508-2,124,536 Total capital assets net of depreciation: $ 5,483,479 $ 136,771 $ - $ 5,620,250 Depreciation expense for fiscal year ended June 30, 2015 was $270,508. Depreciation expense was not allocated as the District considers its assets to impact multiple activities and allocation is not practical. NOTE 6 LONG-TERM DEBT $4,165,000 Energy Conservation Improvement Bonds, Series 2013, issued February 25, 2013, principal annual installments of $110,000 to $560,000 through November 2032; interest at.35% to 3.10% The District s governmental long-term obligations for the year ended June 30, 2015 is shown below: Due Within Beginning Ending One Balance Additions (Reductions) Balance Year Energy Bonds $4,055,000 $ - $(145,000) $3,910,000 $150,000 Compensated absences 120,317 13, ,242 - Total $ 4,175,317 $ 13,925 $(145,000) $4,044,242 $150,

35 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 6 LONG-TERM DEBT - continued The District paid $95,816 of bond interest in fiscal year ended June 30, Annual debt service requirements to maturity for the above obligations are as follows: 2013 Energy Bonds Principal Interest Total Years End June 30, ,000 95, , ,000 93, , ,000 89, , ,000 86, , ,000 82, , ,085, ,495 3,704,495 Totals $ 3,910,000 $1,066,883 $ 4,976,883 NOTE 7 INTERFUND TRANSFERS The Special Education Fund transferred $213,030 to the General Fund during fiscal year ended June 30, This represents reimbursement to the General Fund for technical and administrative services provided to the Special Education Fund s programs. NOTE 8 EMPLOYEE RETIREMENT AND BENEFIT SYSTEMS A. Plan Description The Michigan Public School Employees' Retirement System (MPSERS) is a cost-sharing, multiple employer, state-wide, defined benefit public employee retirement plan governed by the State of Michigan (State) originally created under Public Act 136 of 1945, recodified and currently operating under the provisions of Public Act 300 of 1980, as amended. Section 25 of this act establishes the board's authority to promulgate or amend the provisions of the System. The board consists of twelve members - eleven appointed by the Governor and the State Superintendent of Instruction, who serves as an ex-officio member. The Governor appointed board members consist of: Two active classroom teachers or other certified school personnel. One active member or retirant from a non-certified support position. One active school system superintendent. One active finance or operations (non-superintendent) member. One retirant from a classroom teaching position. One retirant from a finance or operations management position. One administrator or trustee of a community college that is a District of the System. Two from the general public, one with health insurance or actuarial science experience and one with institutional investment experience. One elected member of a District s board of control. The System s pension plan was established by the State to provide retirement, survivor and disability benefits to public school employees. In addition, the System s health plan provides all retirees with the option of receiving health, dental and vision coverage under the Michigan Public School Employees

36 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 8 EMPLOYEE RETIREMENT AND BENEFIT SYSTEMS (CONTINUED) Retirement Act. There are 685 participating employers. A list of employers is provided in the Statistical Section. The System is a qualified pension trust fund under section 401(a) of the Internal Revenue Code. By statute, employees of K-12 public school districts, public school academies, district libraries, taxsupported community colleges and seven universities may be members. The seven universities are: Eastern Michigan, Central Michigan, Northern Michigan, Western Michigan, Ferris State, Michigan Technological and Lake Superior State. Employees, who first become employed by one of the seven universities on or after January 1, 1996, become members of an alternative plan. The System s financial statements are included as a pension and other employee benefit trust fund in the State of Michigan Comprehensive Annual Financial Report. The System is administered by the Office of Retirement Services within the Michigan Department of Technology, Management & Budget. The Department Director appoints the Office Director, with whom the general oversight of the System resides. The State Treasurer serves as the investment officer and custodian for the System. MPSERS issues a publicly-available Comprehensive Annual Financial Report. That report may be obtained by writing to ORS at PO Box 30171, Lansing, MI , or on the Internet at Membership At September 30, 2014, the System's membership consisted of the following: Inactive plan members or their beneficiaries currently receiving benefits: Regular benefits 181,489 Survivor benefits 16,855 Disability benefits 6,168 Total 204,512 Inactive plan members entitled to but not yet receiving benefits: 16,979 Active plan members: Vested 108,934 Non-vested 101,843 Total 210,777 Benefits Provided Total plan members 432,268 Benefit provisions of the defined benefit pension plan are established by State statute, which may be amended. Public Act 300 of 1980, as amended, establishes eligibility and benefit provisions for the defined benefit (DB) pension plan. Retirement benefits for DB plan members are determined by final average

37 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 8 EMPLOYEE RETIREMENT AND BENEFIT SYSTEMS (CONTINUED) compensation and years of service. DB members are eligible to receive a monthly benefit when they meet certain age and service requirements. The System also provides disability and survivor benefits to DB plan members. A DB member or Pension Plus plan member who leaves Michigan public school employment may request a refund of his or her member contributions to the retirement system account. A refund cancels a former member's rights to future benefits. However, returning members who previously received a refund of their contributions may reinstate their service through repayment of the refund upon satisfaction of certain requirements. Member Contributions Mandatory member contributions were phased out between 1974 and 1977, with the plan remaining noncontributory until January 1, 1987, when the Member Investment Plan (MIP) was enacted. MIP members enrolled prior to January 1, 1990, contribute at a permanently fixed rate of 3.9% of gross wages. The MIP contribution rate was 4.0% from January 1, 1987, the effective date of the MIP, until January 1, 1990, when it was reduced to 3.9%. Members first hired between January 1, 1990 and June 30, 2008, and returning members who did not work between January 1, 1987 through December 31, 1989, contribute at the following graduated permanently fixed contribution rates: 3% of the first $5,000; 3.6% of $5,001 through $15,000; 4.3% of all wages over $15,000. Members first hired July 1, 2008, or later including Pension Plus Plan members, contribute at the following graduated permanently fixed contribution rates: 3% of the first $5,000; 3.6% of $5,001 through $15,000; 6.4% of all wages over $15,000. Basic Plan members make no contributions. For a limited period ending December 31, 1992, an active Basic Plan member could enroll in the MIP by paying the contributions that would have been made had enrollment occurred initially on January 1, 1987, or on the date of hire, plus interest. MIP contributions at the rate of 3.9% of gross wages begin at enrollment. Actuarial rate of interest is posted to member accounts on July 1st on all MIP monies on deposit for 12 months. If a member leaves public school service and no pension is payable, the member s accumulated contributions plus interest, if any, are refundable. Under Public Act 300 of 2012, eligible members voluntarily chose between increasing, maintaining, or stopping their contributions to the pension fund as of the transition date. Their options are described in detail under Pension Reform 2012 beginning on page 23. Members who elected to increase their level of contribution contribute 4% (Basic Plan) or 7% (MIP); by doing so they maintain a 1.5% pension factor in their pension formula. Members who elected to maintain their level of contribution will receive a 1.25% pension factor in their pension formula for their years of service as of their transition date. Their contribution rates are described above. Members who elected to stop their contributions became participants in the Defined Contribution plan as of their transition date. Employer Contributions Each school district or reporting entity is required to contribute the full actuarial funding contribution amount to fund pension benefits. B. Summary of Significant Accounting Policies Basis of Accounting and Presentation The System s financial statements are prepared using the accrual basis of accounting. Contributions from the employers are recognized as revenue when due and payable. Benefits and refunds are recognized when due and payable in accordance with the terms of the System. The reserves are described below and details are provided in the supporting schedules

38 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 8 EMPLOYEE RETIREMENT AND BENEFIT SYSTEMS (CONTINUED) GASB Statement No. 67, which was adopted during the year ended September 30, 2014, addresses accounting and financial reporting requirements for pension plans. The requirements for GASB Statement No. 67 require changes in presentation of the financial statements, notes to the financial statements, and required supplementary information. Significant changes include an actuarial calculation of total and net pension liability. It also includes comprehensive footnote disclosure regarding the pension liability, the sensitivity of the net pension liability to the discount rate, and increased investment activity disclosures. The implementation of GASB Statement No. 67 did not significantly impact the accounting for accounts receivable and investment balances. Reserves Reserve for Employee Contributions - This reserve represents active member contributions and interest less amounts transferred to the Reserve for Retired Benefit Payments for regular and disability retirement, amounts refunded to terminated members, and amounts transferred to the Reserve for Employer Contributions representing unclaimed funds. Members no longer contribute to this reserve except to purchase eligible service credit or repay previously refunded contributions. At September 30, 2014, the balance in this reserve was $1.5 billion. Reserve for Pension Plus Employee Contributions - This reserve represents active member contributions and interest less amounts transferred to the Reserve for Pension Plus Retired Benefit Payments for regular retirement, amounts refunded to terminated members, and amounts transferred to the Reserve for Pension Plus Employer Contributions representing unclaimed funds. This reserve was established under the provisions of Public Act 75 of At September 30, 2014, the balance in this reserve was $59.5 million. Reserve for Member Investment Plan - This reserve represents MIP contributions and interest less refunds and transfers to the Reserve for Retired Benefit Payments. At September 30, 2014, the balance in this reserve was $4.7 billion. Reserve for Employer Contributions - This reserve represents all District contributions, except payments for health benefits. Interest from the Reserve for Undistributed Investment Income reserve is credited annually. Amounts are transferred annually to the Reserve for Retired Benefit Payments to bring the balance of that reserve into balance with the actuarial present value of retirement allowances. At September 30, 2014, the balance in this reserve was ($25.8) billion. Reserve for Pension Plus Employer Contributions - This reserve represents all District contributions for Pension Plus members, except payments for health benefits. Interest from the Reserve for Undistributed Investment Income reserve is credited annually at a rate of 7%. Amounts are transferred annually to the Reserve for Retired Pension Plus Benefit Payments to bring the balance of that reserve into balance with the actuarial present value of retirement allowances. This reserve was established under the provisions of Public Act 75 of At September 30, 2014, the balance in this reserve was $55.5 million. Reserve for Retired Benefit Payments - This reserve represents payments of future retirement benefits to current retirees. At retirement, a member s accumulated contributions plus interest are transferred into this reserve. Monthly benefits, which are paid to the retiree, reduce this reserve. At the end of each fiscal year, an amount, determined by an annual actuarial valuation, is transferred from the Reserve for Employer Contributions to bring the balance of this reserve into balance with the actuarial present value of retirement allowances. At September 30, 2014, the balance in this reserve was $44.6 billion. Reserve for Retired Pension Plus Benefit Payments - This reserve represents payments of future retirement benefits to current Pension Plus retirees. At retirement, a member s accumulated contributions plus interest are transferred into this reserve. Monthly benefits, which are paid to the retiree, reduce this reserve. At the end of each fiscal year, an amount, determined by an annual actuarial valuation, is transferred from the

39 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 8 EMPLOYEE RETIREMENT AND BENEFIT SYSTEMS (CONTINUED) Reserve for Pension Plus Employer Contributions to bring the balance of this reserve into balance with the actuarial present value of retirement allowances. This reserve was established under the provisions of Public Act 75 of Currently, there are no participants qualified to retire under this program. At September 30, 2014, the balance in this reserve was $0. Reserve for Undistributed Investment Income - This reserve represents all investment earnings. Interest is transferred annually to the other reserves. Administrative expenses of the System are paid from the Reserve for Administrative Expenses, which is credited with amounts from the Reserve for Undistributed Investment Income to cover the expenses. For ease of reporting and understanding, the two reserves are presented as one reserve in the supporting schedules. Public Act 143 of 1997 established a stabilization subaccount within the Reserve for Undistributed Investment Income to which any over funding is credited. As of September 30, 2014, the balance in the subaccount was zero. At September 30, 2014, the balance in this reserve was $18.6 billion. Reserve for Health (OPEB) Related Benefits - This reserve is credited with employee and employer contributions for retirees health, dental, and vision benefits. Starting in fiscal year 2013, the employer contribution is based on a prefunded basis and represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liability (or funding excess) over a period not to exceed thirty years. In addition, in fiscal year 2014, federal funding for Medicare Part D and Employer Group Waiver Plan (EGWP) was paid directly to a third party vendor. The third party vendor uses the EGWP funding for any claims submitted and bills the system for any remaining claims outstanding. Premiums for health, dental and vision benefits are paid from this reserve. At September 30, 2014, the balance in this reserve was $3.5 billion. Reporting Entity The System is a pension and other employee benefit trust fund of the State. As such, the System is considered part of the State and is included in the State s Comprehensive Annual Financial Report as a pension and other employee benefit trust fund. The System and its Board are not financially accountable for any other entities or other organizations. Accordingly, the System is the only entity included in this financial report. Benefit Protection Public Act 100 of 2002 was passed by the Michigan Legislature to protect pension benefits of public employees from alienation (being transferred). Alienation is attachment, garnishment, levy, execution, bankruptcy or other legal process except for divorce orders or eligible domestic relation orders. The statutes governing the System contained an antialienation clause to provide for this protection; however, many smaller public pension systems did not have the benefit of this protection. Therefore, Public Act 100 of 2002 was passed to establish legal protection of pension assets that encompasses all public employees. Fair Value of Investments Plan investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. Corporate bonds not traded on a national or international exchange are based on equivalent values of comparable securities with similar yield and risk. The fair value of private investments is based on the net asset value reported in the financial statements of the respective investment entity. The net asset value is determined in accordance with governing documents of the investment entity, and is subject to an independent annual audit. Securities purchased with cash collateral under securities lending activities are recorded at estimated fair value. Other investments not having an established market are recorded at estimated fair value. Investment Income Dividend and interest income is recognized on the accrual basis. Fair value changes are recorded as

40 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 8 EMPLOYEE RETIREMENT AND BENEFIT SYSTEMS (CONTINUED) investment income or loss. Purchases and sales of investments are recorded as of the trade date (the date upon which the transaction is initiated), except for purchase and sale of mortgages, real estate, and alternative investments which are recorded as of the settlement date (the date upon which the transaction is ultimately completed). The effect of recording such transactions as of the settlement date does not materially affect the financial statements. Costs of Administering the System Each year a restricted general fund appropriation is requested to fund the on-going business operations of the System. These administrative costs are ultimately funded by the System through the regular transfer of funds from the System to the State s general fund based on either a direct cost or allocation basis depending on the nature of the expense. Costs of administering the System are financed by undistributed investment income of the System. Property and Equipment Office space is leased from the State on a year to year basis. Office equipment is capitalized if the value exceeds $5,000. These assets are recorded at cost and are reported net of depreciation in the Statement of Pension Plan and Other Postemployment Benefit Plan Fiduciary Net Position. Such assets are depreciated on a straight-line basis over 10 years. As of September 30, 1998, all capitalized equipment was fully depreciated. No additional equipment has been capitalized for the System since that date. Related Party Transactions Leases and Services - The System leases operating space and purchases certain administrative, data processing, legal and investment services from the State. The space and services are not otherwise available by competitive bid. The schedule below summarizes costs incurred by the System for such services. Building rentals $ 789,000 Technological support 10,420,000 Attorney General 417,000 Investment services 12,846,000 Personnel services 9,922,000 Cash - At September 30, 2014, the System had $246.7 million in a common cash investment pool maintained for various State operating funds. The participating funds in the common cash pool earn interest at various rates depending upon prevailing short-term interest rates. Earnings from these activities amounted to ($0.6) thousand for the year ended September 30, C. Contributions and Funding Status The majority of the members currently participate on a contributory basis, as described above under "Benefits Provided." Districts are required by Public Act 300 of 1980, as amended, to contribute amounts necessary to finance the coverage of members and retiree Other Post-Employment Benefits (OPEB). Contribution provisions are specified by State statute and may be amended only by action of the State Legislature. Employer contributions to the System are determined on an actuarial basis using the entry age normal actuarial cost method. Under this method, the actuarial present value of the projected benefits of each individual included in the actuarial valuation is allocated on a level basis over the service of the individual between entry age and assumed exit age. The portion of this cost allocated to the current valuation year is

41 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 8 EMPLOYEE RETIREMENT AND BENEFIT SYSTEMS (CONTINUED) called the normal cost. The remainder is called the actuarial accrued liability. Normal cost is funded on a current basis. For retirement and OPEB benefits, the unfunded (overfunded) actuarial accrued liability as of the September 30, 2014 valuation will be amortized over a 22 year period for the 2014 fiscal year. The schedule below summarizes pension contribution rates in effect for fiscal year Pension Contribution Rates Benefit Structure Member Employer Basic % % Member Investment Plan Pension Plus Defined Contribution The System may reconcile with actuarial requirements annually. If the system reconciles in a year, any funding excess or deficiency for pension benefits is smoothed over a maximum of 5 years, with at least one-fifth (20%) of the funding excess or deficiency included in the subsequent year s contribution. This payment is not recognized as a payable or receivable in the accounting records. If the System does not reconcile in a year, any funding excess or deficiency for pension benefits is accounted for in subsequent required contributions over the remaining amortization period. For fiscal year 2014, the System did not reconcile. In May 1996, the Internal Revenue Service issued a private letter ruling allowing the System s members to purchase service credit and repay refunds using tax-deferred (pre-tax) dollars. The program was implemented in fiscal year 1998, and payments began in fiscal year The program allows members to purchase service credit and repay refunds on a tax-deferred basis. Members sign an irrevocable agreement that identifies the contract duration, monthly payment, total contract amount and years of service credit being purchased. The duration of the contract can range from 1 to 20 years. The amounts are withheld from members paychecks and are treated as employer pick-up contributions pursuant to Internal Revenue Code Section 414(h). At September 30, 2014, there were 16,503 agreements. The agreements were discounted using the assumed actuarial rate of return of 8% for September 30, The average remaining length of a contract was approximately 6.0 years for The short-term receivable was $29.7 million and the discounted long-term receivable was $83.6 million at September 30, D. Net Pension Liability Measurement of the MPSERS Net Pension Liability The plan s net pension liability is to be measured as the total pension liability, less the amount of the pension plan s fiduciary net position. In actuarial terms, this will be the accrued liability less the market value of assets (not the smoothed actuarial value of assets that is often encountered in actuarial valuations performed to determine the employer s contribution requirement)

42 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 8 EMPLOYEE RETIREMENT AND BENEFIT SYSTEMS (CONTINUED) MPSERS (Plan) Net Pension Liability Non-University As of September 30, 2014 Total Pension Liability $ 65,160,887,182 Plan Fiduciary Net Position $ 43,134,384,072 Net Pension Liability $ 22,026,503,110 Plan Fiduciary Net Position as a Percentage of Total Pension Liability 66.20% Net Pension Liability as a Percentage of Covered-Employee Payroll % Year 1 MPSERS GASB 68 implementation recognizes a 0.00% change in the District's proportionate share between beginning net pension liability and ending net pension liability. MPSERS (Plan) Net Pension Liability Non- University As of October 1, 2013 Total Pension Liability $ 62,859,499,994 Plan Fiduciary Net Position $ 39,427,686,072 Net Pension Liability $ 23,431,813,922 Proportionate Share of District s Net Pension Liability At September 30, 2014, the District reported a liability of $17,124,881 for its proportionate share of the net pension liability. The net pension liability was measured as of September 30, 2014, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation rolled forward from September 30, The District's proportionate share of the net pension liability was based on statutorily required contributions in relation to all Districts' statutorily required contributions for the measurement period. At September 30, 2014, the District's proportionate share percent was percent. Long-Term Expected Return on Plan Assets The long-term expected rate of return on pension 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 pension plan investment 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 pension plan s target asset allocation as of September 30, 2014, are summarized in the following table:

43 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 8 EMPLOYEE RETIREMENT AND BENEFIT SYSTEMS (CONTINUED) Asset Class Target Allocation Long Term Expected Real Rate of Return* Domestic Equity Pools 28.0 % 4.8 % % Alternative Investment Pools International Equity Fixed Income Pools Real Estate and Infrastructure Pools Absolute Return Pools Short Term Investment Pools 2.0 (0.2) TOTAL % *Long term rate of return does not include 2.5% inflation Rate of Return For the fiscal year ended September 30, 2014, the annual money-weighted rate of return on pension plan investment, net of pension plan investment expense, was 12.58%. The money weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Discount Rate A discount rate of 8.0% was used to measure the total pension liability (7.0% for the Pension Plus plan, a hybrid plan). This discount rate was based on the long term expected rate of return on pension plan investments of 8.0% (7.0% for the Pension Plus plan). The projection of cash flows used to determine this discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on these assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. 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. Sensitivity of the Net Pension Liability to Changes in the Discount Rate As required by GASB Statement No. 68, the following presents the District s proportionate share of the net pension liability, calculated using a discount rate of 8.0% (7.0% for the Pension Plus Plan), as well as what the District s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower or 1-percentage-point higher: 1% Decrease (Non-Hybrid/Hybrid)* 7.0% / 6.0% Current Single Discount Rate Assumption (Non-Hybrid/Hybrid)* 8.0% / 7.0% 1% Increase (Non-Hybrid/Hybrid)* 9.0% / 8.0% $22,577,665 $17,124,881 $12,530,831 Timing of the Valuation An actuarial valuation to determine the total pension liability is required to be performed every year. If the actuarial valuation is not calculated as of the plan s fiscal year end, the total pension liability is required to be rolled forward from the actuarial valuation date to the pension plan s fiscal year end

44 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 8 EMPLOYEE RETIREMENT AND BENEFIT SYSTEMS (CONTINUED) The total pension liability as of September 30, 2014, is based on the results of an actuarial valuation date of September 30, 2013, and rolled forward using generally accepted actuarial procedures. Actuarial Valuations and Assumptions Actuarial valuations for the pension plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions (ARC) are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. Additional information as of the latest actuarial valuation follows: Summary of Actuarial Assumptions Actuarial Assumptions Wage Inflation Rate: 3.5% Investment Rate of Return - MIP and Basic Plans (Non-Hybrid): 8.0% - Pension Plus Plan (Hybrid): 7.0% Projected Salary Increases: %, including wage inflation at 3.5% Cost-of-Living Pension Adjustments: 3% Annual Non-Compounded for MIP Members Healthcare Cost Trend Rate: 8.5% Year 1 graded to 3.5% Year 12 RP-2000 Male and Female Combined Healthy Life Mortality Tables, adjusted for mortality improvements to 2025 using projection scale BB. For Mortality: retirees, 100% of the table rates were used. For active members, 80% of the table rates were used for males and 70% of the table rates were used for females

45 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 8 EMPLOYEE RETIREMENT AND BENEFIT SYSTEMS (CONTINUED) Notes: Assumption changes as a result of an experience study for the periods 2007 through 2012 have been adopted by the System for use in the annual pension valuations beginning with the September 30, 2014 valuation. The total pension liability as of September 30, 2014, is based on the results of an actuarial valuation date of September 30, 2013, and rolled forward using generally accepted actuarial procedures, including the experience study. Recognition period for liabilities is the average of the expected remaining service lives of all employees in years: Recognition period for assets in years is Full actuarial assumptions are available in the 2014 MPSERS Comprehensive Annual Financial Report. E. Pension expense, Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended June 30, 2015, the District recognized total pension expense of $1,387,207. At June 30, 2015, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual $ experience - $ - Changes of assumptions 631,871 - Net difference between projected and actual earnings on pension plan - 1,893,163 investments Changes in proportion and differences between District contributions and proportionate share of contributions District contributions subsequent to the measurement date -* - Total $ 632,041 $ 1,893,163 *This amount, reported as deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date, will be recognized as a reduction of the net pension liability in the year ended June 30, Each District will provide this information. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

46 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 8 EMPLOYEE RETIREMENT AND BENEFIT SYSTEMS (CONTINUED) Deferred (Inflows) and Deferred Outflows of Resources by Year (to Be Recognized in Future Pension Expenses) Plan Year Ended September 30 Amount: 2015 (308,941) 2016 (308,941) 2017 (308,941) 2018 (334,299) NOTE 9 COMMITMENTS AND CONTINGENT LIABILITIES Grant programs - The District participates in a number of federally assisted grant programs. These programs are subject to program compliance audits by the grantors or their representatives. The audits of these programs for or including the year ended June 30, 2014, have not yet been completed. Accordingly, the District s compliance with applicable grant requirements will be established at some future date. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time although the District expects such amounts, if any, to be immaterial. NOTE 11 PRIOR PERIOD ADJUSTMENT As indicated in Note 1, the School District has adopted Government Accounting Standards Board Statements 68 and 71. These statements require the School District to record their proportionate share of the net pension liability and pension expense. Previously these amounts were not recorded on the School District s statements. The standards require this change be applied retroactively. The impact of this change is to reduce beginning net position in the statement of activities as of July 1, 2014, by $1,490,470, restating it from $331,792 to $(1,158,678). NOTE 12 RISK MANAGEMENT The District is exposed to various risks of loss related to property loss, torts, errors and omissions, employee injuries (workers compensation), as well as medical benefits provided to employees. The District has purchased commercial insurance for health claims and participates in the SET/SEG (risk pool) for claims relating to workers compensation and property/casualty claims. Settled claims relating to workers compensation and commercial insurance have not exceeded the amount of insurance coverage in any of the past three fiscal years. NOTE 13 UPCOMING ACCOUNTING PRONOUNCEMENTS The GASB has issued Statement No. 72 Fair Value Measurements and Applications. Statement 72 provides guidance for accounting and financial reporting issues related to fair value measurement. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The guidance establishes a three level hierarchy of inputs for valuation of fair value. Statement 72 is effective for the year ending June 30,

47 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 13 UPCOMING ACCOUNTING PRONOUNCEMENTS (CONTINUED) Statement No. 73 Accounting and Financial Reporting for Pensions and Related Assets that are not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statement 67 and 68. The first objective of this Statement is to provide the readers of the financial statements information about the effects of the pension-related transactions on the financial statements of state and local government employers. It will assist in assessing the relationship between a government s inflows of resources and its total cost (including pension expense) of providing information about the government s pension obligation. The second objective of this Statement is to improve the information about financial support provided by certain nonemployer entities for pensions that are provided to the employees of other entities that are not within the scope of Statement No. 68. These requirements are effective for the fiscal year ending June 30, The third objective is to improve the quality of information associated with governments that hold assets accumulated for purposes of providing defined benefit pensions that are not within the scope of Statement 68 and to clarify the application of certain provisions of Statement No. 67 and 68. These requirements are effective for the fiscal year ending June 30, Statement No. 74 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans addresses the other postemployment benefit plans (OPEB) defined benefit and defined contribution administered through trusts. This Statement will improve the financial reporting primarily through enhanced note disclosures and schedules of required supplementary information that will be presented by OPEB plans that are administered through trusts. This information will enhance the transparency by providing information about measures of net OPEB liabilities and explanations of how and why those liabilities changed from year to year. Statement No. 74 is effective for the fiscal year ending June 30, Statement No. 75 Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. For defined OPEB plans, this Statement identifies the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee services. It also requires additional note disclosures and required supplementary information. Statement No. 75 is effective for the fiscal year ending June 30, The School District is evaluating the impact GASB 72 through 75 will have on its financial reporting

48 REQUIRED SUPPLEMENTARY INFORMATION

49 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT BUDGETARY COMPARISON SCHEDULE GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 Favorable (Unfavorable) Original Amended Variance with Budget Budget Actual Amended budget REVENUES Local sources $ 558,773 $ 599,511 $ 566,326 $ (33,185) State sources 4,599,209 4,159,265 3,254,630 (904,635) Federal sources 40, ,021 84,828 (164,193) Interdistrict sources 1,381,091 1,260,513 1,414, ,186 Total revenue 6,579,671 6,268,310 5,320,483 (947,827) EXPENDITURES Instructional support 3,608,664 3,535,816 2,922, ,074 General administration 397, , ,427 (1,308) Fiscal 114, , ,908 8,905 Technology 1,217,432 1,287,548 1,242,254 45,294 Operation/plant maintenance 100, , ,752 (2,000) Other business services - 678, ,255 (4,713) Total expenditures 5,438,348 6,199,590 5,540, ,252 Excess of Revenues over Expenditure 1,141,323 68,720 (219,855) (288,575) OTHER FINANCING SOURCES (USES) Transfers in from Other Funds 232, , ,030 - Total Other Financing Sources(Uses) 232, , ,030 - Net Change in Fund Balance 1,373, ,750 (6,825) (288,575) Fund Balance - Beginning of Year 654, , ,772 Fund Balance - End of Year $ 2,028,345 $ 936,522 $ 647,947 $ (288,575)

50 ST. JOSEPH COUNTY INTERMEDIATE SCHOOL DISTRICT BUDGETARY COMPARISON SCHEDULE SPECIAL EDUCATION FUND FOR THE YEAR ENDED JUNE 30, 2015 Favorable (Unfavorable) Original Amended Variance with Budget Budget Actual Amended budget REVENUES Local sources $ 5,281,296 $ 6,114,765 $ 6,051,167 $ (63,598) State sources 3,216,156 3,806,856 3,705,837 (101,019) Federal sources 2,718,248 2,731,544 2,759,839 28,295 Interdistrict sources 246, , ,167 8,744 Total revenue 11,462,658 12,796,588 12,669,010 (127,578) EXPENDITURES Instruction 2,042,698 2,753,034 2,631, ,421 Student services 5,634,096 5,117,280 4,923, ,434 Supervisors/compliance 436, , ,767 23,414 General administration 455, , ,602 40,268 School administration: princ 178, , ,346 10,784 Business administration 865, , ,469 30,044 Operation/plant maintenanc 1,327,851 1,708,441 1,549, ,428 Support services - other - 180,000 86,295 93,705 Debt service - 197, ,469 - Transfer/Local districts 200, , ,374 - Total expenditures 11,141,358 12,110,292 11,437, ,498 Excess of Revenues over Expenditure 321, ,296 1,231, ,920 OTHER FINANCING SOURCES (USES) Transfers to Other Funds - 213,030 (213,030) 426,060 Net Change in Fund Balance 321, ,326 1,018, ,980 Fund Balance - Beginning of Yea 1,815,986 1,815,986 1,815,986 Fund Balance - End of Year $ 2,137,286 $ 2,715,312 $ 2,834,172 $ 970,

51 ST. JOSEPH COUNTY ISD BUDGETARY COMPARISON SCHEDULE CAREER TECHNICAL EDUCATION (CTE) FUND FOR THE YEAR ENDED JUNE 30, 2015 Favorable (Unfavorable) Original Amended Variance with Budget Budget Actual Amended budget REVENUES Local sources $ 159,510 $ 401,158 $ 374,843 $ (26,315) State sources 142, , ,195 25,460 Federal sources 142, , ,423 - Interdistrict sources 830, , ,786 (516) Total revenue 1,274,802 1,524,618 1,523,247 (1,371) EXPENDITURES Perkins consortium 142, , ,423 - CTE shared programs 1,218,557 1,495,653 1,415,021 82,181 Total expenditures 1,360,980 1,638,076 1,557,444 82,181 Net Change in Fund Balance (86,178) (113,458) (34,197) 80,810 Fund Balance - Beginning of Year 287, , ,455 Fund Balance - End of Year $ 201,277 $ 173,997 $ 253,258 $ 80,

52 St. Joseph County ISD Required Supplemental Information Schedule of the District's Proportionate Share of the Net Pension Liability Michigan Public School Employees Retirement Plan Last 10 Fiscal Years (determined as of 9/30 of each fiscal year) 2014 Reporting unit's proportion of net pension liability (%) % Reporting unit's proportionate share of net pension liability $ 17,124,881 Reporting unit's coveredemployee payroll $ 6,894,272 Reporting unit's proportionate share of net pension liability as a percentage of its coveredemployee payroll (%) % Plan Fiduciary net position as a percentage of total pension liability 66.20% 47

53 St. Joseph County Intermediate School District Required Supplemental Information Schedule of the District's Contributions Michigan Public School Employees Retirement Plan Last 10 Reporting Unit Fiscal Years (determined as of 6/30 of each year) 2015 Statutorily required contributions $1,207,453 Contributions in relation to statutorily required contributions* $1,657,148 Contribution deficiency (excess) $ (449,695) Reporting unit's coveredemployee payroll $6,793,741 Contributions as a percentage of covered employee payroll 24.39% *Contributions in relation to statutorily required contributions are the contributions a reporting unit actually made to MPSERS, which may differ from the statutorily required contributions. 48

54 OTHER SUPPLEMENTARY INFORMATION

55 ST. JOSEPH COUNTY ISD SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE FOR THE YEAR ENDED JUNE 30, 2015 Accrued Federal Approved (or Deferred) CFDA Award Revenue at Federal Grantor/Pass-through Grantor/Program Title Number Amount June 30, 2013 U.S. DEPARTMENT OF EDUCATION Passed through the Michigan Department of Education SPECIAL EDUCATION CLUSTER: Enhancing Opportunities *84.027A Project number EOSD 50,000 1,920 Project number EOSD 50,000 - Total Enhancing Opportunities EOSD 100,000 1,920 Special Education Flowthrough *84.027A Project number ,400, ,971 Project number ,424,867 - Project number TC 50,000 5,805 Project number TC 50,000 - Total Special Education Flowthrough 4,925, ,776 Special Education: Preschool * A Project number ,998 19,194 Project number ,918 - Total Special Education: Preschool 185,916 19,194 TOTAL SPECIAL EDUCATION CLUSTER 5,211, ,890 EARLY INTERVENTION SERVICES Infants and Toddlers: Early on Michigan A Project number ,383 15,709 Project number ,500 - Total Infants and Toddlers: Early On Michigan 202,883 15,709 Education for Homeless Children and Youth A McKinney-Vento Homeless Students Assistance Project number ,608 9,943 Title I Regional Assistance Project number

56 Current Accrued (Memo only) Current Year (or Deferred) Adjustments Prior Year Year Receipts Revenue at (monies Expenditures Expenditures Cash Basis June 30, 2014 returned) 50,000-1, ,000 50, ,000 50,000 51, ,400, , ,424,867 2,187, ,376 50,000-5, ,000 50, ,450,292 2,474,867 2,764, ,376-92,988-19, ,918 86,906 6,012-92,988 92, ,100 6,012-2,593,280 2,617,785 2,922, , ,383-15, , , , , , ,971 1,637 11, ,584 2,

57 ST. JOSEPH COUNTY ISD SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE (CONTINUED) YEAR ENDED JUNE 30, 2014 Accrued Federal Approved (or Deferred) CFDA Award Revenue at Federal Grantor/Pass-through Grantor/Program Title Number Amount June 30, 2013 Improving Teacher Quality A Title II Part A Regular-Teacher/Principal Training & Recruiting Project number TOTAL PASSED THROUGH MICHIGAN DEPARTMENT OF EDUCATION 5,434, ,542 Passed through Intermediate School District Kalamazoo RESA Vocational Education - Basic Grants to States A Project number ,423 - TOTAL PASSED THROUGH INTERMEDIATE SCHOOL DISTRICTS 142,423 - Passed Through Michigan Department of Community Health Early Childhood Comprehension Project number ,100 - Medicare Outreach Project number ,554 - Passed Through Department of Health & Human Services Early Head Start - Child Care Partnership Project number 05HP0013/01 743,707 - Passed directly from the U.S. Department of Education Small, Rural School Achievement Program A Project number S358A ,438 - TOTAL FEDERAL FINANCIAL ASSISTANCE $ 6,383,230 $ 573,542 * Designates a major program 1 Generally accepted accounting principles were used to prepare this report. 2 $300,000 was used as a threshold for Type A programs. 3 Expenditures in this schedule are in agreement with amounts reported in the Financial Statements. 4 The amounts reported on the Grant Auditors Report reconcile with this schedule.

58 Current Accrued (Memo only) Current Year (or Deferred) Adjustments Prior Year Year Receipts Revenue at (monies Expenditures Expenditures Cash Basis June 30, 2014 returned) ,711,634 2,724,948 3,054, , , ,923 3, , ,923 3, ,400 2, ,554 39, ,327-59, ,438 18, $ 2,711,634 $ 2,987,090 $ 3,254,173 $ 306,459 $

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