CITY OF HOLYOKE, MASSACHUSETTS. Annual Financial Statements. For the Year Ended June 30, 2011

Transcription

1 CITY OF HOLYOKE, MASSACHUSETTS Annual Financial Statements For the Year Ended June 30, 2011

2 TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT 1 MANAGEMENT S DISCUSSION AND ANALYSIS 3 BASIC FINANCIAL STATEMENTS: Government-wide Financial Statements: Statement of Net Assets 12 Statement of Activities 13 Fund Financial Statements: Governmental Funds: PAGE Balance Sheet 14 Reconciliation of Total Governmental Fund Balances to Net Assets of Governmental Activities in the Statement of Net Assets 15 Statement of Revenues, Expenditures, and Changes in Fund Balances 16 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 17 Statement of Revenues and Other Sources, and Expenditures and Other Uses - Budget and Actual - General Fund 18 Proprietary Funds: Statement of Net Assets 19 Statement of Revenues, Expenses, and Changes in Fund Net Assets 20 Statement of Cash Flows 21 Fiduciary Funds: Statement of Fiduciary Net Assets 22 Statement of Changes in Fiduciary Net Assets 23 Notes to Financial Statements 24 REQUIRED SUPPLEMENTARY INFORMATION: Schedule of Funding Progress 53

3 MH & Co Melanson Heath & Company, PC Certified Public Accountants Management Advisors 51 Davis Street Greenfield, MA Tel (413) Fax (413) INDEPENDENT AUDITORS REPORT To the Honorable Mayor and City Council City of Holyoke, Massachusetts We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Holyoke, Massachusetts, as of and for the year ended June 30, 2011, (except for the Holyoke Contributory Retirement System which is as of and for the year ended December 31, 2010) which collectively comprise the City s basic financial statements as listed in the Table of Contents. These financial statements are the responsibility of the City s management. Our responsibility is to express an opinion on these financial statements based on our audit. Except as discussed in the following two paragraphs, we conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. The financial statements referred to above include only the primary government of the City of Holyoke, Massachusetts, which consists of all funds, organizations, institutions, agencies, departments and offices that comprise the City s legal entity. The financial statements do not include financial data for certain of the City s legally separate component units, including the City of Holyoke Board of Water Commissioners, City of Holyoke Geriatric Authority and the City of Holyoke Gas and Additional Offices: Andover, MA Manchester, NH Nashua, NH Ellsworth, ME

4 Electric Department Enterprise Fund, which accounting principles generally accepted in the United States of America require to be reported with the financial data of the City s primary government. As a result, the primary government financial statements do not purport to, and do not present fairly, the financial position of the reporting entity of the City of Holyoke, Massachusetts as of June 30, 2011 and the changes in its financial position and its cash flows, where applicable, for the year then ended in conformity with accounting principles generally accepted in the United States of America. Due to the lack of adequate detail to support the City s tax lien, tax foreclosure and demolition liens account receivable balances, we were unable to form an opinion as to the accuracy of these balances. The balances in these accounts are stated at $ 4,363,033, $ 2,607,476, and $ 421,428 respectively in the accompanying balance sheet, and $ 654,455, $ 130,374 and $ 42,143 (net of allowances) in the statement of net assets, as of June 30, In our opinion, except for the effects of excluding the Holyoke Gas and Electric Department Enterprise Fund as part of the business-type activities, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of the City of Holyoke, Massachusetts as of June 30, 2011, and the changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, except for the effects of adjustment to the General Fund and Governmental Activities, if any, referred to in the fourth paragraph of this report, the financial statements referred to above present fairly, in all material respects, the respective financial position of the general fund, and the governmental activities of the City of Holyoke, Massachusetts, as of June 30, 2011, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. Finally, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Sewer major fund, the High School Renovation major fund, and the aggregate remaining fund information of the City of Holyoke, Massachusetts, as of June 30, 2011 and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. The Management s Discussion and Analysis appearing on the following pages and the supplementary information appearing on page 53 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. 2

5 In accordance with Government Auditing Standards, we have also issued a report dated May 3, 2012, on our consideration of the City s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Andover, Massachusetts May 3,

6 MANAGEMENT S DISCUSSION AND ANALYSIS As management of the City of Holyoke, we offer readers this narrative overview and analysis of the financial activities of the City of Holyoke for the fiscal year ended June 30, A. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the basic financial statements. The basic financial statements are comprised of three components: (1) government-wide financial statements, (2) fund financial statements, and (3) notes to financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of our finances in a manner similar to a private-sector business. The Statement of Net Assets presents information on all assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position is improving or deteriorating. The Statement of Activities presents information showing how the government s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities include general government, public safety, education, public works, health and human services, culture and recreation, employee benefits, interest, and intergovernmental. The business-type activities include sewer enterprise fund activities. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Fund accounting is used to ensure and demonstrate compliance with finance-related legal requirements. All of the funds can be 4

7 divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near-term financing requirements. Because the focus of governmental funds is narrower than that of the governmentwide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. An annual appropriated budget is adopted for the general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget. Proprietary funds. Proprietary funds are maintained as follows: Enterprise funds are used to report the same functions presented as businesstype activities in the government-wide financial statements. Specifically, enterprise funds are used to account for sewer operations. Internal service funds are an accounting device used to accumulate and allocate costs internally among various functions. Specifically, internal service funds are used to account for the residual activity of the discontinued self-insured employee health program, and fuel depot operations. Because these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. Proprietary funds provide the same type of information as the business-type activities reported in the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the sewer enterprise and internal service fund operations. 5

8 Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. Notes to financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information which is required to be disclosed by accounting principles generally accepted in the United States of America. B. FINANCIAL HIGHLIGHTS As of the close of the current fiscal year, the total of assets exceeded liabilities by $ 54,731,771 (i.e., net assets), a change of $ (3,021,844) in comparison to the prior year. As of the close of the current fiscal year, governmental funds reported combined ending fund balances of $ 31,218,481, a change of $ 5,122,746 in comparison to the prior year. At the end of the current fiscal year, unassigned fund balance for the general fund was $ 10,906,634, a change of $ 4,545,379 in comparison to the prior year. Total long-term debt (i.e., bonds payable) at the close of the current fiscal year was $ 40,391,661, a change of $ 857,225 in comparison to the prior year. C. GOVERNMENT-WIDE FINANCIAL ANALYSIS The following is a summary of condensed government-wide financial data for the current and prior fiscal years: 6

9 Governmental Activities Business-Type Activities Current and other assets $ 55,267 $ 52,435 $ 5,100 $ 4,445 $ 60,367 $ 56,880 Capital assets 82,302 77,131 31,796 32, , ,710 Total Assets 137, ,566 36,896 37, , ,590 Long-term liabilities outstanding 73,327 57,955 24,151 24,152 97,478 82,107 Other liabilities 20,280 24,196 1,975 2,533 22,255 26,729 Total Liabilities 93,607 82,151 26,126 26, , ,836 Net assets: Invested in capital assets, net 62,397 55,061 6,036 6,764 68,433 61,825 Restricted 12,443 8, ,443 8,610 Unrestricted (30,878) (16,256) 4,734 3,575 (26,144) (12,681) Total Net Assets $ 43,962 $ 47,415 $ 10,770 $ 10,339 $ 54,732 $ 57,754 Total CHANGES IN NET ASSETS Governmental Business-Type Activities Activities Total Revenues: Program revenues: Charges for services $ 6,416 $ 5,863 $ 8,899 $ 7,459 $ 15,315 $ 13,322 Operating grants and contributions 108, , , ,310 Capital grants and contributions 9,117 9, ,227 9,234 General revenues: Property taxes 47,408 45, ,408 45,778 Excises 1,925 2, ,925 2,191 Penalties, interest and other taxes 1,937 2, ,937 2,058 Investment income Grants and contributions not restricted 8,619 9, ,619 9,017 Miscellaneous Total Revenues 185, ,421 9,013 7, , ,900 Expenses: General government 7,892 8, ,892 8,232 Public safety 22,366 22, ,366 22,769 Education 100,980 96, ,980 96,637 Public works 7,774 6, ,774 6,448 Health and human services 2,714 1, ,714 1,503 Culture and recreation 954 2, ,270 Employee benefits 32,870 31, ,870 31,243 Interest on long-term debt Intergovernmental 12,655 12, ,655 12,122 Sewer operations - - 8,582 8,379 8,582 8,379 Total expenses 188, ,012 8,582 8, , ,391 Change in net assets (3,453) (591) 431 (900) (3,022) (1,491) Net assets - beginning of year 47,415 48,006 10,339 11,239 57,754 59,245 Net assets - end of year $ 43,962 $ 47,415 $ 10,770 $ 10,339 $ 54,732 $ 57,754 7

10 As noted earlier, net assets may serve over time as a useful indicator of a government s financial position. At the close of the most recent fiscal year, total net assets were $ 54,731,771, a change of $ (3,021,844) from the prior year. The largest portion of net assets $ 68,433,291 reflects our investment in capital assets (e.g., land, buildings, machinery, equipment, and infrastructure), less any related debt used to acquire those assets that is still outstanding. These capital assets are used to provide services to citizens; consequently, these assets are not available for future spending. Although the investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of net assets $ 12,442,666 represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets $ (26,144,186), results in a deficit, which was caused by unfunded Other Post Employment Benefit (OPEB) accrued liabilities (see footnote 18). Governmental activities. Governmental activities for the year resulted in a change in net assets of $ (3,452,886). Key elements of this change are as follows (in thousands): General fund operations $ (1,453) Major fund - High school renovation revenues over expenditures 2,678 Non-major fund revenues and transfers in over expenditures and transfers out 3,898 Depreciation expense in excess of principal debt service (3,116) Capital assets purchased with tax levy and grant funds 10,303 Bond proceeds (3,831) Internal service fund operations 2 Change in compensated absence liability (71) Change in other post-employment benefits liability (11,471) Other GAAP accruals (392) Total $ (3,453) Business-type activities. Business-type activities for the year resulted in a change in net assets of $ 431,042. This change resulted primarily from user fees collected being greater than operating costs. D. FINANCIAL ANALYSIS OF THE GOVERNMENT S FUNDS As noted earlier, fund accounting is used to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. 8

11 Such information is useful in assessing financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, governmental funds reported combined ending fund balances of $ 31,218,481, a change of $ 5,122,746 in comparison to the prior year. Key elements of this change are as follows (in thousands): General fund expenditures and transfers out in excess of revenues and transfers in $ (1,453) Major fund - High school renovation revenues over expenditures 2,678 Special revenue fund revenues over expenditures 1,983 Trust fund revenues over expenditures 47 Excess of current year bond proceeds over current year capital expenditures 1,868 Total $ 5,123 In fiscal year 2011, the City implemented Governmental Accounting Standards Board Statement #54 Fund Balance Reporting and Governmental Fund Type Definitions. In general, amounts previously reported as undesignated fund balance, are now reported as unassigned fund balance. Full definitions of all fund balance classifications can be found in the notes to the financial statements. Additionally, amounts previously reported in stabilization funds, are now required to be presented as committed fund balance in the general fund. The general fund is the chief operating fund. At the end of the current fiscal year, unassigned fund balance of the general fund was $ 10,906,634, while total fund balance was $ 23,709,936. As a measure of the general fund s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total general fund expenditures. Refer to the table below (in thousands). General Fund Change % of Total 2011 General Fund Expenditures Unassigned fund balance $ 10,907 $ 6,361 $ 4, % Total fund balance 1 23,710 25,163 (1,453) 16.2% 1 Now includes stabilization reserve fund. Prior period balances have been revised to conform to current presentation. The total fund balance of the general fund changed by $ (1,453,298) during the current fiscal year. Key factors in this change are as follows (in thousands): 9

12 Use of free cash and overlay surplus as a funding source $ (4,626) Revenues in excess of budget 2,211 Expenditures less than budget 1,817 Expenditures of prior year encumbrances (1,751) Change in stabilization/capital reserve 714 Other 182 Total $ (1,453) Included in the total general fund balance is the City s stabilization reserve account with the following balances: 06/30/11 06/30/10 Change General stabilization $ 10,716,342 $ 10,002,703 $ 713,639 Total $ 10,716,342 $ 10,002,703 $ 713,639 Proprietary funds. Proprietary funds provide the same type of information found in the business-type activities reported in the government-wide financial statements, but in more detail. Unrestricted net assets of the enterprise funds at the end of the year amounted to $ 4,733,779, a change of $ 1,159,203 in comparison to the prior year. Other factors concerning the finances of proprietary funds have already been addressed in the entity-wide discussion of business-type activities. E. GENERAL FUND BUDGETARY HIGHLIGHTS Differences between the original budget and the final amended budget resulted in an overall change in appropriations of $ 2,286,575. The primary reason for the increase was the appropriation of surplus funds (free cash) for various operating and capital expenditures. F. CAPITAL ASSET AND DEBT ADMINISTRATION Capital assets. Total investment in capital assets for governmental and businesstype activities at year-end amounted to $ 114,097,783 (net of accumulated depreciation), a change of $ 4,387,846 from the prior year. This investment in capital assets includes land, buildings and system improvements, and machinery and equipment. Major capital asset events during the current fiscal year included the following (in thousands): 10

13 Depreciation expense $ (6,557) Infrastructure Sewer infrastructure 675 Roadway and sidewalk improvements 1,584 Building and improvements Museum renovations 28 Other 271 Departmental vehicle purchase Departmental vehicle replacements 228 Departmental equipment purchases Governmental 53 School Department equipment 532 Construction in progress Governmental 7,696 Governmental placed in service (123) Additional information on capital assets can be found in the notes to the financial statements. Long-term debt. At the end of the current fiscal year, total bonded debt outstanding was $ 40,391,661, all of which was backed by the full faith and credit of the government. Additional information on long-term debt can be found in the Notes to the Financial Statements. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City s finances for all those with an interest in the government s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to: Mr. Brian G. Smith, City Auditor City of Holyoke 20 Korean Veterans Plaza City Hall Annex Holyoke, MA

14 ASSETS Current: Cash and short-term investments $ 37,281,142 $ 2,270,017 $ 39,551,159 Investments 12,070,821-12,070,821 Receivables, net of allowance for uncollectibles: Property taxes 2,942,282-2,942,282 Excises 533, ,302 User fees 43,717 2,830,202 2,873,919 Departmental and other 100, ,771 Intergovernmental 1,350,602-1,350,602 Due from other funds 225, ,090 Other assets 130, ,286 Noncurrent: Receivables, net of allowance for uncollectibles: Tax liens and foreclosures 589, ,454 Capital Assets: Land and construction in progress 34,793, ,000 35,143,005 Other assets, net of accumulated depreciation 47,508,812 31,445,966 78,954,778 TOTAL ASSETS 137,569,284 36,896, ,465,469 LIABILITIES Current: Warrants payable 3,539,864 26,315 3,566,179 Accounts payable 1,324,338-1,324,338 Accrued payroll 3,418,864-3,418,864 Accrued liabilities 355, , ,090 Notes payable 11,551,500 1,608,600 13,160,100 Other current liabilities 89,548-89,548 Current portion of long-term liabilities: Bonds payable 2,270,465 1,005,348 3,275,813 Other liabilities 840, ,152 Noncurrent: Bonds payable, net of current portion 13,969,675 23,146,173 37,115,848 Net OPEB obligation 48,685,396-48,685,396 Other liabilities, net of current portion 7,561,370-7,561,370 TOTAL LIABILITIES 93,607,137 26,126, ,733,698 NET ASSETS Invested in capital assets, net of related debt 62,397,446 6,035,845 68,433,291 Restricted for: Grants and other statutory restrictions 8,022,468-8,022,468 Debt service funds 3,941,919-3,941,919 Permanent funds: Expendable 478, ,279 Unrestricted (30,877,965) 4,733,779 (26,144,186) TOTAL NET ASSETS $ 43,962,147 $ 10,769,624 $ 54,731,771 See notes to financial statements. CITY OF HOLYOKE, MASSACHUSETTS STATEMENT OF NET ASSETS JUNE 30, 2011 Governmental Activities Business-Type Activities Total 12

15 CITY OF HOLYOKE, MASSACHUSETTS STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 Program Revenues Net(Expenses) Revenues and Changes in Net Assets Operating Capital Business- Charges for Grants and Grants and Governmental Type Expenses Services Contributions Contributions Activities Activities Total Governmental Activities: General government $ 7,891,874 $ 1,471,588 $ 3,586,110 $ - $ (2,834,176) $ - $ (2,834,176) Public safety 22,365, , ,634 - (20,674,482) - (20,674,482) Education 100,979,891 3,437, ,708,167 7,011,776 13,177,066-13,177,066 Public works 7,773, ,362 23, ,855 (6,410,484) - (6,410,484) Health and human services 2,714,427 69, ,315 - (2,309,312) - (2,309,312) Culture and recreation 954, , ,950 1,310, , ,404 Employee benefits 32,869, (32,869,740) - (32,869,740) Interest 687, (687,178) - (687,178) Intergovernmental 12,655, (12,655,573) - (12,655,573) Total Governmental Activities 188,892,580 6,415, ,883,232 9,116,909 (64,476,475) - (64,476,475) Business-Type Activities: Sewer services 8,581,841 8,898, , , ,542 Total Business-Type Activities 8,581,841 8,898, , , ,542 Total $ 197,474,421 $ 15,314,790 $ 108,883,232 $ 9,226,466 (64,476,475) 426,542 (64,049,933) General Revenues: Property taxes 47,408,402-47,408,402 Excises 1,925,244-1,925,244 Penalties, interest and other taxes 1,936,499-1,936,499 Grants and contributions not restricted to specific programs 8,619,199-8,619,199 Investment income 989,866 4, ,366 Miscellaneous 144, ,379 Total general revenues, transfers, and contributions 61,023,589 4,500 61,028,089 Change in Net Assets (3,452,886) 431,042 (3,021,844) Net Assets: Beginning of year 47,415,033 10,338,582 57,753,615 End of year $ 43,962,147 $ 10,769,624 $ 54,731,771 See notes to financial statements. 13

16 CITY OF HOLYOKE, MASSACHUSETTS GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2011 ASSETS Cash and short-term investments $ 16,668,496 $ 4,540,997 $ 16,071,649 $ 37,281,142 Investments 12,070, ,070,821 Receivables: Property taxes 3,209, ,209,665 Tax liens and foreclosures 7,391, ,391,937 Excises 1,190, ,190,184 Departmental and other 741, ,048 Intergovernmental - - 1,350,602 1,350,602 Due from other funds 252, ,554 Other assets , ,286 TOTAL ASSETS $ 41,524,705 $ 4,540,997 $ 17,552,537 $ 63,618,239 LIABILITIES AND FUND BALANCES General High School Renovation Fund Nonmajor Governmental Funds Total Governmental Funds Liabilities: Warrants payable $ 1,961,643 $ 64,496 $ 1,513,694 $ 3,539,833 Accounts payable 448, , ,328 1,324,338 Accrued payroll and withholdings 2,948, ,284 3,418,864 Accrued claims payable 196, ,674 Deferred revenues 12,170, ,700 12,279,001 Notes payable - 5,765,000 5,786,500 11,551,500 Other liabilities 89, ,548 TOTAL LIABILITIES 17,814,769 6,346,437 8,238,552 32,399,758 Fund Balances: Restricted ,442,666 12,442,666 Committed 10,716, ,716,342 Assigned 2,086, ,086,960 Unassigned 10,906,634 (1,805,440) (3,128,681) 5,972,513 TOTAL FUND BALANCES 23,709,936 (1,805,440) 9,313,985 31,218,481 TOTAL LIABILITIES AND FUND BALANCES $ 41,524,705 $ 4,540,997 $ 17,552,537 $ 63,618,239 See notes to financial statements. 14

17 CITY OF HOLYOKE, MASSACHUSETTS RECONCILIATION OF TOTAL GOVERNMENTAL FUND BALANCES TO NET ASSETS OF GOVERNMENTAL ACTIVITIES IN THE STATEMENT OF NET ASSETS JUNE 30, 2011 Total Governmental Fund Balances $ 31,218,481 Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. 82,301,817 Revenues are reported on the accrual basis of accounting and are not deferred until collection. 3,911,976 Internal service funds are used by management to account for fuel depot activities. The assets and liabilities of the internal service funds are included in the governmental activities in the Statement of Net Assets. 16,222 In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until due. (159,291) Future expenses related to providing other post employment benefits (OPEB's) are not due and payable in the current period and, therefore, are not reported in the governmental funds. (48,685,396) Long-term liabilities, including bonds payable and compensated absences are not due and payable in the current period and, therefore, are not reported in the governmental funds. (24,641,662) Net Assets of Governmental Activities $ 43,962,147 See notes to financial statements. 15

18 CITY OF HOLYOKE, MASSACHUSETTS GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2011 High School Nonmajor Total Renovation Governmental Governmental General Fund Funds Funds Revenues: Property taxes $ 47,538,960 $ - $ - $ 47,538,960 Excises 2,147, ,147,757 Penalties, interest, and other taxes 1,936, ,936,499 Charges for services 1,357,353-4,082,038 5,439,391 Intergovernmental 90,390,395 6,734,576 29,089, ,214,373 Licenses and permits 442, ,199 Fines and forfeitures 346, ,565 Contributions and donations , ,967 Investment income 950,872-38, ,866 Miscellaneous 2, , ,376 Total Revenues 145,112,668 6,734,576 33,757, ,604,953 Expenditures: Current: General government 3,715,820-4,134,690 7,850,510 Public safety 20,719,207-1,064,382 21,783,589 Education 76,444,526 5,726,703 23,457, ,628,451 Public works 6,136, ,121 7,021,635 Health and human services 1,350,523-1,370,819 2,721,342 Culture and recreation 1,523,020-1,058,710 2,581,730 Employee benefits 21,398, ,398,895 Debt service 2,671, ,671,482 Intergovernmental 12,655, ,655,573 Total Expenditures 146,615,560 5,726,703 31,970, ,313,207 Excess (deficiency) of revenues over expenditures (1,502,892) 1,007,873 1,786,765 1,291,746 Other Financing Sources (Uses): Proceeds of bonds - 1,670,000 2,161,000 3,831,000 Transfers in 104, , ,187 Transfers out (55,117) - (345,070) (400,187) Total Other Financing Sources (Uses) 49,594 1,670,000 2,111,406 3,831,000 Change in fund balance (1,453,298) 2,677,873 3,898,171 5,122,746 Fund Equity, at Beginning of Year, as restated 25,163,234 (4,483,313) 5,415,814 26,095,735 Fund Equity, at End of Year $ 23,709,936 $ (1,805,440) $ 9,313,985 $ 31,218,481 See notes to financial statements. 16

19 CITY OF HOLYOKE, MASSACHUSETTS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 Net Changes In Fund Balances - Total Governmental Funds $ 5,122,746 Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense: Capital outlay purchases 10,269,410 Depreciation (5,098,801) Revenues in the Statement of Activities that do not provide current financial resources are fully deferred in the Statement of Revenues, Expenditures, and Changes in Fund Balances. Therefore, the recognition of revenue for various types of accounts receivable (e.g., property taxes) differ between the two statements. This amount represents the net change in deferred revenue. (360,080) The issuance of long-term debt (e.g., bonds and leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the financial resources of governmental funds. Neither transaction, however, has any effect on net assets: Issuance of debt (3,831,000) Repayments of debt 1,983,173 In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until due. 1,131 Some expenses reported in the Statement of Activities, such as compensated absences, do not require the use of current financial resources and therefore, are not reported as expenditures in the governmental funds. Compensated absences (70,688) Other post-employment benefits (11,470,845) Internal service funds are used by management to account for fuel depot activities. The net activity of internal service funds is reported with Governmental Activities. 2,068 Change In Net Assets of Governmental Activities $ (3,452,886) See notes to financial statements. 17

20 Actual Variance with Amounts Final Budget Original Final (Budgetary Positive Budget Budget Basis) (Negative) Revenues and other sources: Property taxes $ 47,357,364 $ 47,357,364 $ 47,357,364 $ - Excise taxes 1,750,000 1,750,000 2,147, ,757 Interest, penalties, and other taxes 1,550,000 1,550,000 1,936, ,499 Licenses and permits 342, , ,199 99,649 Intergovernmental 74,617,836 74,617,836 76,041,731 1,423,895 Charges for services 1,549,600 1,549,600 1,357,353 (192,247) Investment income 200, , ,233 37,233 Fines and Forfeitures 360, , ,565 (13,435) Miscellaneous 34,860 34,860 2,068 (32,792) Other financing sources: Transfers in , ,711 Use of fund balance 2,339,943 4,626,518 4,626,518 - Total Revenues 130,102, ,388, ,599,998 2,211,270 Expenditures and other uses: Current: General government 4,293,585 4,315,971 3,845, ,665 Public safety 20,373,968 21,022,164 20,715, ,238 Education 60,522,891 60,522,891 60,438,221 84,670 Public works 4,914,167 5,712,667 5,386, ,910 Health and human services 1,296,552 1,378,776 1,346,291 32,485 Culture and recreation 1,617,647 1,716,552 1,613, ,138 Employee benefits 21,911,803 22,512,313 21,843, ,166 Debt service 2,655,041 2,690,895 2,671,482 19,413 Intergovernmental 12,451,855 12,451,855 12,655,573 (203,718) Other financing uses: Transfers out 64,644 64,644 55,117 9,527 Total Expenditures 130,102, ,388, ,571,234 1,817,494 Excess of revenues and other sources over expenditures and other uses $ - $ - $ 4,028,764 $ 4,028,764 See notes to financial statements. CITY OF HOLYOKE, MASSACHUSETTS GENERAL FUND STATEMENT OF REVENUES AND OTHER SOURCES, AND EXPENDITURES AND OTHER USES - BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30,

21 CITY OF HOLYOKE, MASSACHUSETTS PROPRIETARY FUNDS STATEMENT OF NET ASSETS JUNE 30, 2011 ASSETS Business-Type Activities Enterprise Funds Sewer Fund Governmental Activities Internal Service Funds Current: Cash and short-term investments $ 2,270,017 $ - User fees, net of allowance for uncollectibles 2,830,202 - Intergovernmental receivables - 43,717 Total current assets 5,100,219 43,717 Noncurrent: Capital assets, net of accumulated depreciation 31,795,966 - Total noncurrent assets 31,795,966 - TOTAL ASSETS 36,896,185 43,717 LIABILITIES Current: Warrants payable 26, Accrued liabilities 340,125 - Notes payable 1,608,600 - Due to other funds - 27,464 Current portion of long-term liabilities: Bonds payable 1,005,348 - Total current liabilities 2,980,388 27,495 Noncurrent: Bonds payable, net of current portion 23,146,173 - Total noncurrent liabilities 23,146,173 - TOTAL LIABILITIES 26,126,561 27,495 NET ASSETS Invested in capital assets, net of related debt 6,035,845 Unrestricted 4,733,779 16,222 TOTAL NET ASSETS $ 10,769,624 $ 16,222 See notes to financial statements. 19

22 CITY OF HOLYOKE, MASSACHUSETTS PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS FOR THE YEAR ENDED JUNE 30, 2011 Business-Type Activities Governmental Enterprise Funds Activities Internal Sewer Service Fund Fund Operating Revenues: Charges for services $ 8,880,478 $ 661,624 Other 18,348 - Total Operating Revenues 8,898, ,624 Operating Expenses: Salaries and wages 146,748 - Operating expenses 6,237, ,556 Depreciation 1,457,451 - Total Operating Expenses 7,842, ,556 Operating Income (Loss) 1,056,701 2,068 Nonoperating Revenues (Expenses): Intergovernmental revenue 109,557 - Investment income 4,500 - Interest expense (739,716) - Total Nonoperating Revenues (Expenses), Net (625,659) - Change in Net Assets 431,042 2,068 Net Assets at Beginning of Year 10,338,582 14,154 Net Assets at End of Year $ 10,769,624 $ 16,222 See notes to financial statements. 20

23 CITY OF HOLYOKE, MASSACHUSETTS PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2011 Business-Type Activities Enterprise Funds Governmental Activities Internal Sewer Service Fund Fund Cash Flows From Operating Activities: Receipts from customers and users $ 8,421,351 $ - Receipts from interfund service provided - 646,375 Payments to vendors and employees (6,888,447) (649,798) Net Cash Provided By (Used For) Operating Activities 1,532,904 (3,423) Cash Flows From Capital and Related Financing Activities: Proceeds from issuance of bonds and notes 936,000 - Acquisition and construction of capital assets (674,688) - Principal payments on bonds and notes (990,602) - Interest expense (739,716) - Intergovernmental revenue 109,557 - Net Cash (Used For) Capital and Related Financing Activities (1,359,449) - Cash Flows From Investing Activities: Investment income 4,500 - Net Cash Provided by Investing Activities 4,500 - Net Change in Cash and Short-Term Investments 177,955 (3,423) Cash and Short-Term Investments, Beginning of Year 2,092,062 3,423 Cash and Short-Term Investments, End of Year $ 2,270,017 $ - Reconciliation of Operating Income to Net Cash Provided by (Used For) Operating Activities: Operating income (loss) $ 1,056,701 $ 2,068 Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities: Depreciation 1,457,451 - Changes in assets and liabilities: User fees (477,475) - Intergovernmental receivables - (15,249) Warrants and accounts payable (486,652) (17,706) Due to other funds - 27,464 Accrued liabilities (17,121) - Net Cash Provided By (Used For) Operating Activities $ 1,532,904 $ (3,423) See notes to financial statements. 21

24 CITY OF HOLYOKE, MASSACHUSETTS FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2011 ASSETS Agency Funds Private Purpose Trust Funds Pension Trust Fund (December 31, 2010) Cash and short-term investments $ 918,934 $ 148,104 $ 3,024,301 Investments ,463,416 Accounts receivable 225, ,741 Total Assets 1,144, , ,878,458 LIABILITIES AND NET ASSETS Accounts payable ,393 Deferred revenue - - 4,762,582 Payroll withholdings 763, Due to other funds 225, Other liabilities 155, Total Liabilities 1,144,024-4,852,975 NET ASSETS Net assets $ - $ 148,104 $ 167,025,483 See notes to financial statements. 22

25 CITY OF HOLYOKE, MASSACHUSETTS FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FOR THE YEAR ENDED JUNE 30, 2011 Private Purpose Trust Funds Pension Trust Fund (For the Year Ended December 31, 2010) Additions: Contributions: Employers $ - $ 12,818,802 Other systems and Commonwealth of Massachusetts - 637,137 Plan members - 5,053,013 Total contributions - 18,508,952 Investment Income: Interest and dividends 9,734 1,446,875 Realized loss on sale of investments - (855,334) Increase in fair value of investments - 24,408,559 Less: management fees - (971,249) Net investment income 9,734 24,028,851 Total additions 9,734 42,537,803 Deductions: Scholarships 2,901 - Benefit payments to plan members and beneficiaries - 19,529,836 Reimbursements to other systems - 535,387 Refunds to plan members - 1,077,756 Administrative expenses - 403,799 Total deductions 2,901 21,546,778 Net increase (decrease) 6,833 20,991,025 Net assets: Beginning of year, as restated 141, ,034,458 End of year $ 148,104 $ 167,025,483 See notes to financial statements. 23

26 CITY OF HOLYOKE, MASSACHUSETTS Notes to Financial Statements 1. Summary of Significant Accounting Policies The accounting policies of the City of Holyoke (the City) conform to generally accepted accounting principles (GAAP) as applicable to governmental units. The following is a summary of the more significant policies: A. Reporting Entity The government is a municipal corporation governed by an elected City Council. These financial statements include only the primary government of the City of Holyoke. They do not include the component units for which the government is considered to be financially accountable. In fiscal year 2011, it was determined that the City of Holyoke Board of Water Commissioners, City of Holyoke Geriatric Authority, and the City of Holyoke Gas and Electric Company enterprise fund met the required GASB 39 criteria of component units. Blended Component Units - Blended component units are entities that are legally separate, but are so related that they are, in substance, the same as the primary government, providing services entirely or almost entirely for the benefit of the primary government. The following component unit is blended within the primary government: In the Fiduciary Funds: The Holyoke Contributory Retirement System was established to provide retirement benefits primarily to employees and their beneficiaries. The System is presented using the accrual basis of accounting and is reported as a pension trust fund in the fiduciary fund financial statements. Additional financial information of the System can be obtained by contacting the System located at 20 Korean Veterans Plaza, City Hall Annex, Holyoke, MA B. Government-wide and Fund Financial Statements Government-wide Financial Statements The government-wide financial statements (i.e., the Statement of Net Assets and the Statement of Changes in Net Assets) report information on all of the nonfiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from 24

27 business-type activities, which rely to a significant extent on fees and charges for support. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include (1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation Government-wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as is the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Amounts reported as program revenues include (1) charges to customers or applicants for goods, services, or privileges provided, (2) operating grants and contributions, and (3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes and excises. Fund Financial Statements Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of 25

28 accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers property tax revenues to be available if they are collected within 60 days of the end of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. The government reports the following major governmental funds: The general fund is the government s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The high school renovation fund, which accounts for the resources obtained and used in the renovating of the Holyoke High School. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the enterprise fund are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The government has elected not to follow subsequent private-sector guidance. The government reports the following major proprietary funds: The sewer enterprise fund, which accounts for the operations of the City s wastewater treatment facility and supporting infrastructure. The City s fuel depot operation is reported as an internal service fund in the accompanying financial statements. 26

29 The pension trust fund accounts for the activities of the Employees Contributory Retirement System, which accumulates resources for pension benefit payments to qualified employees. The private-purpose trust fund is used to account for trust arrangements, other than those properly reported in the pension trust fund or permanent fund, under which principal and investment income exclusively benefit individuals, private organizations, or other governments. D. Cash and Short-Term Investments Cash balances from all funds, except those required to be segregated by law, are combined to form a consolidation of cash. Cash balances are invested to the extent available, and interest earnings are recognized in the general fund. Certain special revenue, proprietary, and fiduciary funds segregate cash, and investment earnings become a part of those funds. Deposits with financial institutions consist primarily of demand deposits, certificates of deposits, and savings accounts. A cash and investment pool is maintained that is available for use by all funds. Each fund s portion of this pool is reflected on the combined financial statements under the caption cash and short-term investments. The interest earnings attributable to each fund type are included under investment income. For the purpose of the statement of cash flows, the proprietary funds consider investments with original maturities of three months or less to be short-term investments. E. Investments State and local statutes place certain limitations on the nature of deposits and investments available. Deposits in any financial institution may not exceed certain levels within the financial institution. Non-fiduciary fund investments can be made in securities issued by or unconditionally guaranteed by the U.S. Government or agencies that have a maturity of one year or less from the date of purchase and repurchase agreements guaranteed by such securities with maturity dates of no more than 90 days from the date of purchase. Investments for the Contributory Retirement System and Trust Funds consist of marketable securities, bonds, and short-term money market investments. Investments are carried at market value. 27