$3,971,000 TOWN OF MERRIMAC, MASSACHUSETTS General Obligation State Qualified Municipal Purpose Loan of 2013 Bonds Book-Entry-Only Bank-Qualified

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1 NEW ISSUE Rating: Moody s Investors Service State Qualified Bond Rating: Aa2 Stable Outlook Underlying Rating: A1 FINAL OFFICIAL STATEMENT DATED NOVEMBER 20, 2013 In the opinion of Edwards Wildman Palmer LLP, Bond Counsel, based upon an analysis of existing law and assuming, among other matters, compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under the Internal Revenue Code of 1986 (the Code ). Interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Under existing law, interest on the Bonds is exempt from Massachusetts personal income taxes, and the Bonds are exempt from Massachusetts personal property taxes. The Bonds will be designated as qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Code. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See Tax Exemption herein. $3,971,000 TOWN OF MERRIMAC, MASSACHUSETTS General Obligation State Qualified Municipal Purpose Loan of 2013 Bonds Book-Entry-Only Bank-Qualified Dated: Date of Delivery MATURITIES, AMOUNTS, RATES, YIELDS and CUSIP NUMBERS Due: As Shown Below Due: Principal Cusip Due: Principal Cusip September 1 Amount Rate Yield September 1 Amount Rate Yield $461, % 0.350% HR $410, % 1.600% HW , HS , HX , HT , HY , HU , HZ , HV , JA6 The provisions of the accompanying documents entitled NOTICE OF SALE AND PRELIMINARY OFFICIAL STATEMENT, DATED NOVEMBER 14, 2013 as supplemented and modified hereby, are incorporated in and made a part of this FINAL OFFICIAL STATEMENT. Principal of the Bonds will be payable on September 1 of the years in which the Bonds mature. Interest will be payable on March 1, 2014 and semi-annually thereafter on each September 1 and March 1 until maturity. The Bonds are not subject to redemption prior to their stated dates of maturity. The Bonds will be issued by means of a book-entry system, evidencing ownership of the Bonds in principal amounts of $5,000 or integral multiples thereof, with the exception of one $1,000 denominations maturing in 2014, with transfers of ownership effected on the records of The Depository Trust Company, New York, New York, ( DTC ), and its participants pursuant to rules and procedures adopted by DTC participants. No physical distribution of the bond certificates will be made to the public. One certificate for each maturity of the Bonds will be issued to DTC, and immobilized in its custody. The Bonds will be approved by Edwards Wildman Palmer LLP, Boston, Massachusetts, Bond Counsel to the Town. It is expected that the Bonds, in definitive form, will be delivered to DTC, or its custodial agent, on or about December 3, 2013 against payment to the Town in Federal Reserve Funds.

2 TABLE OF CONTENTS Page NOTICE OF SALE... i OFFICIAL STATEMENT... 1 INTRODUCTION... 1 THE BONDS... 1 State Qualified Bonds... 1 Description of the Bonds... 2 Record Date... 2 Book-Entry-Only System... 2 DTC Practices... 3 Optional Redemption... 4 Authorization and Use of Proceeds... 4 Combined Schedule of Maturities... 5 Tax Exemption... 5 Security and Remedies... 6 Continuing Disclosure... 8 Bank Eligibility... 8 Rating... 8 Plan of Refunding... 8 Sources and Uses of Funds... 9 Financial Advisor... 9 Opinion of Bond Counsel... 9 THE TOWN Services Governing Bodies and Officers Principal Executive Officers Principal Municipal Facilities Collective Bargaining Other Data Population Per Capita Income Family Income Household Income Median Age Median Value Owner-Occupied Housing Units Unemployment Building Permits Principal Employers Employment and Payrolls Public School Facilities Public School Enrollments Educational Attainment INDEBTEDNESS Debt Limits Authorization of General Obligation Bonds and Notes Types of Obligations Debt Summary Bonded Debt vs. Population, Valuations and Income Page Five Years Outstanding Debt...18 Revenue Anticipation Borrowing...18 Authorized Unissued Bonds and Prospective Financing...18 Principal Repayment Schedule...19 Overlapping Debt...19 Capital Improvements Program...20 PROPERTY TAXATION...21 Tax Levy Computation...21 Taxation to Meet Deficits...21 Property Tax Limitation...22 Analysis of Property Tax Levies and Levy Limits...23 Tax Rates and Valuations...23 Tax Levies and Collections...25 Taking and Sale...25 Taxes Outstanding...25 Abatements and Overlay...26 Largest Taxpayers...26 Community Preservation Act...26 ADDITIONAL INFORMATION...28 TOWN FINANCES...28 Budget and Appropriation Process...28 Operating Budget Trends...28 Water and Sewer Rates and Services...29 Municipal Light Department...29 Retirement Plan...29 Other Post-Employment Benefits...31 Contractual Obligations...31 Motor Vehicle Excise...32 Other Taxes...32 State Aid...32 State School Building Assistance Program...33 Investments...34 Undesignated General Fund Balance and Stabilization Fund Balance...34 Free Cash...35 Financial Statements...35 Litigation...35 Appendix A. Comparative Financial Statements Appendix B. Audited Financial Statements Appendix C. Proposed Form of Legal Opinion Appendix D. Proposed Form of Continuing Disclosure Certificate Appendix E. Bid Form The information and expressions of opinion in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds shall, under any circumstances, create any implication that there has been no material change in the affairs of the Town since the date of this Official Statement. The financial advisor to the Town has provided the following sentence for inclusion in this Official Statement. The financial advisor has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to the Town and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the financial advisor does not guarantee the accuracy or completeness of such information.

3 TOWN OF MERRIMAC, MASSACHUSETTS $3,934,000* GENERAL OBLIGATION STATE QUALIFIED MUNICIPAL PURPOSE LOAN OF 2013 BONDS Book-Entry-Only Bank-Qualified NOTICE OF SALE The Town of Merrimac, Massachusetts, will receive proposals until 11:00 A.M. (local time) on Wednesday, November 20, 2013, at Eastern Bank, Boston, Massachusetts, for the purchase of the following described Bonds: $3,934,000* General Obligation State Qualified Municipal Purpose Loan of 2013 Bonds payable as follows: Due: Principal Due: Principal September 1 Amount* September 1 Amount* 2014 $ 449, $410, , , , , , , , ,000 * Preliminary, subject to change. The Bonds will be dated December 3, Principal on the Bonds will be payable on September 1 of the years in which the Bonds mature. Interest will be payable on March 1, 2014 and semi-annually thereafter on each September 1 and March 1until maturity. The Bonds will not be subject to redemption prior to their stated dates of maturity. The Bonds will be issued by means of a book-entry system, evidencing ownership of the Bonds in principal amounts of $5,000 or integral multiples thereof, with the exception of four $1,000 denominations* maturing in 2014 with transfers of ownership effected on the records of The Depository Trust Company, New York, New York, ( DTC ), and its participants pursuant to rules and procedures adopted by DTC participants. No physical distribution of the bond certificates will be made to the public. One certificate for each maturity of the Bonds will be issued to DTC, and immobilized in its custody. The winning bidder, as a condition of delivery of the Bonds, shall be required to deposit the Bonds with DTC, registered in the name of Cede & Co. The original Bonds to be immobilized at DTC will be prepared and their legality approved by Edwards Wildman Palmer LLP, Boston, Massachusetts ( Bond Counsel ), whose opinion will be furnished to the purchaser without charge. No bid of less than par PLUS A PREMIUM OF NOT LESS THAN $47,000 will be considered. Bidder(s) shall state the rate or rates of interest per annum which the Bonds are to bear in a multiple of 1/8 th or 1/20 th of 1%, but shall not state: (a) more than one interest rate for any Bonds having a like maturity; (b) any interest rate which exceeds the interest rate stated for any other Bonds by more than 3%. As between proposals that comply with this Notice of Sale, the award will be to the bidder who offers to purchase all the Bonds at the lowest net effective interest rate to the Town. Such interest rate shall be determined on a true interest cost (TIC) basis, which shall mean that rate which, as of December 3, 2013, discounts semi-annually all future payments on account of principal and interest on the Bonds to the price bid, not including interest accrued to the date of delivery, if any, which accrued interest shall be paid by the successful bidder. * Preliminary, subject to change i

4 The Town reserves the right to change the aggregate principal amount of the Bonds and the maturity schedule after the determination of the winning bid by increasing or decreasing the aggregate principal amount and the principal amount of each maturity by such amounts as may be necessary after taking into account any premium to be received by the Town over and above the required $47,000 minimum, which will reduce the issue size by a like amount. THE SUCCESSFUL BIDDER MAY NOT WITHDRAW ITS BID OR CHANGE THE INTEREST RATES BID OR THE INITIAL REOFFERING PRICES AS A RESULT OF ANY CHANGES MADE TO THE ANNUAL PRINCIPAL AMOUNTS. The dollar amount bid by the successful bidder will be adjusted, if applicable, to reflect changes in the dollar amount of the amortization schedule. Any price that is adjusted will reflect changes in the dollar amount of the underwriter s discount and original issue premium, if any, but will not change the per-bond underwriter s discount (net of insurance premium, if any) provided in such bid. Nor will it change the interest rate specified for each maturity. Any such adjustments will be communicated to the winning bidder by 4 p.m. on the day of the sale. Electronic proposals will be submitted through PARITY/i-Deal. If any provisions in this Notice of Sale conflict with information provided by PARITY/i-Deal this Notice of Sale shall control. Further information about PARITY, including any fees charged, may be obtained from i-deal at (212) The Town assumes no responsibility or liability for bids submitted in this manner. An electronic bid made in accordance with this Notice of Sale shall be deemed an offer to purchase the Bonds in accordance with the terms provided in this Notice of Sale and shall be binding upon the bidder as if made by a signed and sealed written bid delivered to the Town. Other bids, including bids delivered by telegram, should be sealed, marked Proposal for Bonds and addressed to Carol A. McLeod, Treasurer, Town of Merrimac, Massachusetts, c/o Eastern Bank, Municipal Finance Department, Second Floor, 265 Franklin Street, Boston, Massachusetts Proposals delivered as specified will be accepted. Blank bid forms with signature may be faxed to Eastern Bank prior to submitting bids at (617) , with actual bids telephoned to (617) or (617) , at least one half hour prior to the 11:00 AM (local time) sale and after receipt of the faxed bid form by Eastern Bank which will act as agent for the bidder(s) in submitting the final sealed bids. Neither the Town nor Eastern Bank shall be responsible for bids submitted in this manner. Any bidder who submits a winning bid by telephone in accordance with this Notice of Sale shall be required to provide written confirmation of the terms of the bid by faxing or ing a completed, signed bid form to Eastern Bank by not later than 11:30 A.M. on the date of sale. A good faith deposit is not required. The award of the Bonds to the winning bidder will not be effective until the bid has been approved by the Treasurer and the Board of Selectmen. The Town has not contracted for the issuance of any policy of municipal bond insurance for the Bonds. If the Bonds qualify for issuance of any such policy or commitment therefore, any purchase of such insurance or commitment shall be at the sole option and expense of the bidder. Proposals shall not be conditioned upon the issuance of any such policy or commitment. Any failure of the Bonds to be so insured or of any such policy or commitment to be issued shall not in any way relieve the purchaser of their contractual obligations arising from the acceptance of their proposal for the purchase of the Bonds. Should the bidder purchase municipal bond insurance, all expenses associated with such policy or commitment will be borne by the bidder. On or prior to the date of delivery of the Bonds, the successful bidder shall furnish to the Town a certificate acceptable to Bond Counsel generally to the effect that (i) as of November 20, 2013 (the Sale Date ), the successful bidder had offered or reasonably expected to offer all of the Bonds to the general public (excluding bond houses, brokers, or similar persons acting in the capacity of underwriters or wholesalers) in a bona fide public offering at the prices set forth in such certificate, plus accrued interest, if any, (ii) such prices represent fair market prices of the Bonds as of the Sale Date, and (iii) as of the date of such certificate, all of the Bonds have been offered to the general public in a bona fide offering at the prices set forth in such certificate, and at least 10% of each maturity of the Bonds actually has been sold to the general public at such prices. To the extent the certifications described in the preceding sentence are not factually accurate with respect to the reoffering of the Bonds, Bond Counsel should be consulted by the bidder as to alternative certifications that will be suitable to establish the issue price of the Bonds for federal tax law purposes. If a municipal bond insurance policy or similar credit enhancement is obtained with respect to the Bonds by the successful bidder, such bidder will also be required to certify as to the net present value savings on the Bonds resulting from payment of insurance premiums or other credit enhancement fees. ii

5 It shall be a condition of the obligation of the successful bidder to accept delivery of and pay for the Bonds that it shall be furnished, without cost, with (a) the approving opinion of Bond Counsel, substantially in the form presented in Appendix C to the Preliminary Official Statement, (b) a certificate in form satisfactory to said firm dated as of the date of delivery of the Bonds and receipt of payment therefore to the effect that there is no litigation pending or, to the knowledge of the signers thereof, threatened affecting the validity of the Bonds or the power of the Town to levy and collect taxes to pay them, (c) a certificate of the Town Treasurer to the effect that to the best of the signer s knowledge and belief, both as of the date of sale and as of the date of delivery of the Bonds, the Official Statement does not contain any untrue statement of a material fact and does not omit to state a material fact necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading and (d) a Continuing Disclosure Certificate in the form presented in Appendix D to the Preliminary Official Statement. In order to assist bidders in complying with Rule 15c2-12(b)(5) promulgated by the Securities and Exchange Commission (the Rule ), the Town will undertake to provide annual reports and notices of certain significant events. A description of this undertaking is set forth in the Preliminary Official Statement. It is anticipated that CUSIP identification numbers will be printed on the Bonds. All expenses in relation to the printing of CUSIP numbers on the Bonds shall be paid for by the Town; provided, however, that the Town assumes no responsibility for any CUSIP Service Bureau or other charge that may be imposed for the assignment of such numbers. The Bonds will be designated as qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Code. The Bonds, in definitive form, will be delivered to the purchaser at DTC, or its custodial agent, on or about December 3, 2013 against payment to the Town in federal reserve funds. Additional information concerning the Town and the Bonds is contained in the Preliminary Official Statement dated November 14, 2013, to which prospective bidders are directed. The Preliminary Official Statement is provided for informational purposes only and is not deemed a part of this Notice of Sale. Copies of the Preliminary Official Statement and a suggested form of the proposal for the Bonds may be obtained from Eastern Bank, Municipal Finance Department, Second Floor, 265 Franklin Street, Boston, Massachusetts 02110, telephone: (617) The Preliminary Official Statement is deemed final by the Town as of its date for purposes of the Rule except for the omission of the reoffering prices, interest rates and any other terms of the Bonds depending on such matters and the identity of the purchasers. Within seven (7) business days following the award of the Bonds in accordance herewith, no more than 50 copies of the Final Official Statement will be furnished to the successful bidder. Additional copies may be obtained at the purchaser s expense. The right is reserved to reject all bids and to reject any bid not complying with this Notice of Sale and, so far as permitted by law, to waive any irregularity with respect to any proposal for the Bonds. Town of Merrimac, Massachusetts Dated: November 14, 2013 By: /s/ Carol A. McLeod, Finance Director iii

6 CONTACT INFORMATION: ISSUER Town of Merrimac, MA 4 School Street Merrimac, MA Carol McLeod, Finance Director Tel: Fax: cmcleod@townofmerrimac.com BOND COUNSEL Edwards Wildman Palmer LLP 111 Huntington Avenue Boston, MA Richard A. Manley, Jr. Tel: Fax: rmanley@edwardswildman.com FINANCIAL ADVISOR Eastern Bank Municipal Finance 2 nd Floor 265 Franklin Street Boston, MA Lori E. Lombard Tel: Fax: l.lombard@easternbank.com PAYING AGENT Massachusetts State Treasury One Ashburton Place - 12th Floor Boston, MA Susan McDonald Tel: Ext smcdonald@tre.state.ma.us iv

7 OFFICIAL STATEMENT TOWN OF MERRIMAC, MASSACHUSETTS $3,971,000 BANK QUALIFIED GENERAL OBLIGATION STATE QUALIFIED MUNICIPAL PURPOSE LOAN OF 2013 BONDS INTRODUCTION This Official Statement is provided for the purpose of presenting certain information relating to the Town of Merrimac, Massachusetts (the Town ) in connection with the sale of its $3,971,000 General Obligation State Qualified Municipal Purpose Loan of 2013 Bonds (the Bonds ). The Bonds will be general obligations of the Town for which its full faith and credit are pledged. They are not guaranteed by The Commonwealth of Massachusetts (the Commonwealth ) or any other entity. Principal and interest on the Bonds are payable from taxes which may be levied upon all taxable property in the Town without limit as to rate or amount, except as provided under Chapter 44, Section 20 of the General Laws, with respect to that portion of the principal and interest payments that the Town has voted to exempt from the limit imposed by Chapter 59, Section 21C of the General Laws and subject to the limit imposed by Chapter 59, Section 21C of the Massachusetts General Laws with respect to that portion of the principal and interest payments that the Town has not voted to exempt from that limit. See also Proposed Form of Legal Opinion in Appendix C. Questions regarding information contained in this Official Statement or other matters should be directed to the following: Carol A. McLeod, Finance Director, (978) or Lori E. Lombard, Vice President, Eastern Bank, (617) The information contained herein has been obtained from the sources indicated or from the Town. State Qualified Bonds THE BONDS The Bonds constitute qualified bonds pursuant to Chapter 44A of the General Laws. Pursuant to Chapter 44A the Town Treasurer shall at the delivery date of the Bonds certify to the State Treasurer the maturity schedule, interest rates, and dates of payment of debt service on qualified bonds. The State Treasurer shall pay the debt service on qualified bonds and after payment shall withhold from the distributable aid (as defined in Chapter 44A) payable to the Town an amount which will be sufficient to pay the debt service on the qualified bonds or, if the amount of such distributable aid in any year is insufficient for the purpose, from any other amounts payable by the Commonwealth to the Town under any provision of law. From the time withheld by the State Treasurer, all such distributable aid or amounts so withheld and paid shall be exempt from being levied upon, taken, sequestered, or applied toward paying the debts of the Town other than for payment of debt service on such qualified bonds. The Commonwealth covenants in Section 8 of Chapter 44A with the purchasers, holders and owners, from time to time, of qualified bonds that it will not repeal, revoke, rescind, modify, or amend the above described provisions so as to create any lien or charge on or pledge, assignment, diversion, withholding of payment, or other use of or deduction from any distributable aid or other amounts to be paid to any holder of qualified bonds which is prior in time or superior in right to the payment required by said provisions; provided, however, that nothing therein contained shall be deemed or construed to require the Commonwealth to continue to make payments of distributable aid or other amounts or to limit or prohibit the Commonwealth from repealing or amending any law heretofore or hereafter enacted for the payment of apportionment of such aid or other amounts, or of the manner, time or amount thereof. Chapter 44A also provides that the certification to the State Treasurer as to the amount payable in any year for debt service on qualified bonds shall be fully conclusive as to such qualified bonds from and after the time of issuance of such qualified bonds, notwithstanding any irregularity, omission, or failure as to compliance with any of the provisions of Chapter 44A with respect to such qualified bonds. Chapter 44A further provides that nothing therein shall be construed to relieve the Town of the obligation imposed on it by law to appropriate and to include in its annual tax levy amounts necessary to pay, in each year, the principal and interest maturing and becoming due on any qualified bonds issued by the Town; provided, however, that to the extent of the amounts of distributable aid or other amounts payable to the Town which have been or are to be applied to the payment of such qualified bonds, the State Treasurer shall certify to the Town Treasurer the amounts so withheld 1

8 and thereafter such amounts shall be credited to the appropriations of the Town for the current fiscal year; and provided, further that to the extent to which distributable aid is not appropriated by the Commonwealth in any fiscal year, such appropriated amounts of the Town shall be used to pay the debt service maturing and becoming due in such year on such qualified bonds of the Town. Nothing in Chapter 44A shall be construed to pledge the credit and assets of the Commonwealth to the support of any qualified bonds or to guarantee payment or stand as surety for the payment of any qualified bonds. Description of the Bonds The Bonds will be dated December 3, 2013, and will bear interest payable on March 1, 2014 and semi-annually thereafter on each September 1 and March 1. Interest will be calculated on the basis of a 30-day month and a 360-day year. Principal on the Bonds will be payable on September 1 of the years and in the amounts shown on the cover of this Official Statement. Principal and semi-annual interest on the Bonds will be paid by The Treasurer and Receiver-General of The Commonwealth of Massachusetts, Boston, Massachusetts, or its successor, as Paying Agent. So long as The Depository Trust Company, New York, New York, ( DTC ), or its nominee, Cede & Co., is the Bondowner, such payments will be made directly to such Bondowner. Disbursement of such payments to the DTC participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of the DTC Participants and Indirect Participants, as more fully described herein. The Bonds will be issued by means of a book-entry system, evidencing ownership of the Bonds in principal amounts of $5,000 or integral multiples thereof, with the exception of one $1,000 denominations maturing in 2014, with transfers of ownership effected on the records of DTC and its participants pursuant to rules and procedures adopted by DTC participants. No physical distribution of the bond certificates will be made to the public. One certificate for each maturity of the Bonds will be issued to DTC, and immobilized in its custody. Record Date The record date for each payment of interest on the Bonds is the fifteenth day of the month preceding the interest payment date provided that, with respect to overdue interest, the Paying Agent may establish a special record date. The special record date may not be more than twenty (20) days before the date set for payment. The Paying Agent will mail notice of a special record date to the Bondholders at least ten (10) days before the special record date. Book-Entry-Only System The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued in fully-registered form registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One-fully registered Bond certificate will be issued for each interest rate, each in the aggregate principal amount bearing such interest rate, and will be deposited with DTC. DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC, is the holding company for DTC National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's 2

9 credit rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of securities deposited with DTC must be made by or through Direct Participants, which will receive a credit for such securities on DTC's records. The ownership interest of each actual purchaser of each security deposited with ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Notes are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in securities deposited with DTC, except in the event that use of the book-entry system for the securities is discontinued. To facilitate subsequent transfers, all securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as requested by an authorized representative of DTC. The deposit of securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the securities deposited with it unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer of such securities or its paying agent as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the issuer of such securities or its paying agent, on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC (nor its nominee), the issuer of such securities or its paying agent, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Town or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the issuer of such securities or its paying agent. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered to Beneficial Owners. The Town may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, physical certificates will be printed and delivered to Beneficial Owners. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Town believes to be reliable, but the Town takes no responsibility for the accuracy thereof. DTC Practices The Town can make no assurances that DTC, Direct Participants, Indirect Participants or other nominees of the Beneficial Owners of the Bonds will act in a manner described in this Official Statement. DTC is required to act according to rules and procedures established by DTC and its participants which are on file with the Securities and Exchange Commission. 3

10 Optional Redemption The Bonds are not subject to redemption prior to their stated dates of maturity. Authorization and Use of Proceeds The $3,971,000 General Obligation State Qualified Municipal Purpose Loan of 2013 Bonds consists of the following amounts and purposes. $2,446,000 was authorized pursuant to Massachusetts General Laws, Chapter 44, Section 21A to currently refund a portion of the Town s $7,770,000 General Obligation Bonds dated October 15, 2002 (the 2002 Bonds ), maturing October 1 in the years 2014, 2017 and 2022, in the aggregate principal amount of $1,305,000 (the Refunded 2002 Bonds ) at a redemption price of 100.5% on January 2, 2014 and to currently refund a portion of the Town s $4,231,000 General Obligation Bonds dated November 15, 2003 (the 2003 Bonds ) allocable to the Library Project and maturing November 15 in the years 2014 through 2023, inclusive, in the aggregate principal amount of $1,150,000 (the Refunded 2003 Bonds (at a redemption price of 101% of January 2, 2014) and together with the Refunded 2002 Bonds, the Refunded Bonds ); and to pay a portion of the interest due on the redemption date, redemption premium and other costs associated therewith. A portion of the payments of principal and interest on the Refunded Bonds were exempt from the limitations of Proposition 2 1/2, so called. $375,000 was authorized pursuant to Chapter 44, Section 7(1) of the Massachusetts General Laws, as amended, and a vote of the Town passed May 14, 2012 (Article 12) for rehabilitation to the Attitash Wastewater Pump Station. These Bond proceeds will be used to retire $50,000 bond anticipation notes currently outstanding and the balance will be used to complete the project. Debt service on these Bonds will be paid through water rates. $270,000 was authorized pursuant to Chapter 44, Section 8(4) of the Massachusetts General Laws, as amended, and a vote of the Town passed October 17, 2011 (Article 3) for water treatment plant equipment. These Bond proceeds will be used to retire a like amount of bond anticipation notes currently outstanding. Debt service on these Bonds will be paid through water rates. $260,000 was authorized pursuant to Chapter 44, Section 8(7C) of the Massachusetts General Laws, as amended, and a vote of the Town passed October 17, 2011 (Article 4) for maintenance and repair of water filters at the Wallace Way Water Treatment Plant. These Bond proceeds will be used to retire a like amount of bond anticipation notes currently outstanding. Debt service on these Bonds will be paid through water rates. $235,000 was authorized pursuant to Chapter 44, Section 8(7C) of the Massachusetts General Laws, as amended, and a vote of the Town passed April 25, 2011 (Article 9) for rehabilitation of water storage tanks. These Bond proceeds will be used to retire $140,000 bond anticipation notes currently outstanding and the balance will be used to complete the project. Debt service on these Bonds will be paid through water rates. $145,000 was authorized pursuant to Chapter 44, Section 7(22) of the Massachusetts General Laws, as amended, and a vote of the Town passed April 25, 2011 (Article 10) for engineering and design phases of improvements to the water system. These Bond proceeds will be used to retire a like amount of bond anticipation notes currently outstanding. Debt service on these Bonds will be paid through water rates. $140,000 was authorized pursuant to Chapter 44, Section 7(3) of the Massachusetts General Laws, as amended, and a vote of the Town passed April 30, 2012 (Article 5) for land acquisition. These Bond proceeds will be used to retire a like amount of bond anticipation notes currently outstanding. $100,000 was authorized pursuant to Chapter 44, Section 8(4A) of the Massachusetts General Laws, as amended, and a vote of the Town passed May 14, 2012 (Article 13) for construction of three water booster pump stations and water main improvements. A total of $1,700,000 was authorized by said vote and the Town expects to finance $1,600,000 through the Massachusetts Water Pollution Abatement Trust. These Bond proceeds will be used to retire $30,000 bond anticipation notes currently outstanding and the balance will be used to complete the project. Debt service on these Bonds will be paid through water rates. 4

11 Combined Schedule of Maturities Water Water Water Maturity Storage System Treatment Pump Land Water Refunding Total Date Tanks Planning Plant Station Purchase Boosters Sewer Bonds Bonds 9/1/2014 $ 35,000 $ 15,000 $ 30,000 $ 35,000 $ 15,000 $ 10,000 $ 40,000 $ 281,000 $ 461,000 9/1/ ,000 15,000 30,000 35,000 15,000 10,000 40, , ,000 9/1/ ,000 15,000 30,000 35,000 15,000 10,000 40, , ,000 9/1/ ,000 15,000 30,000 35,000 15,000 10,000 40, , ,000 9/1/ ,000 15,000 25,000 30,000 15,000 10,000 40, , ,000 9/1/ ,000 15,000 25,000 30,000 15,000 10,000 35, , ,000 9/1/ ,000 15,000 25,000 30,000 15,000 10,000 35, , ,000 9/1/ ,000 15,000 25,000 30,000 15,000 10,000 35, , ,000 9/1/ ,000 15,000 25, ,000 10,000 35, , ,000 9/1/2023 5,000 10,000 25, ,000 10,000 35, , ,000 Total: $ 235,000 $ 145,000 $ 270,000 $ 260,000 $ 140,000 $ 100,000 $ 375,000 $ 2,446,000 $ 3,971,000 Tax Exemption In the opinion of Edwards Wildman Palmer LLP, Bond Counsel to the Town ( Bond Counsel ), based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, among other matters, compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the Code ). Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. In the opinion of Bond Counsel, the Bonds are qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Code. Bond Counsel expresses no opinion regarding any other federal tax consequences arising with respect to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. The Code imposes various requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. Failure to comply with these requirements may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The Town has covenanted to comply with such requirements to ensure that interest on the Bonds will not be included in federal gross income. The opinion of Bond Counsel assumes compliance with these requirements. Bond Counsel is also of the opinion that, under existing law, interest on the Bonds is exempt from Massachusetts personal income taxes, and the Bonds are exempt from Massachusetts personal property taxes. Bond Counsel has not opined as to other Massachusetts tax consequences arising with respect to the Bonds. Prospective Bondholders should be aware, however, that the Bonds are included in the measure of Massachusetts estate and inheritance taxes, and the Bonds and the interest thereon are included in the measure of certain Massachusetts corporate excise and franchise taxes. Bond Counsel expresses no opinion as to the taxability of the Bonds or the income therefrom or any other tax consequences arising with respect to the Bonds under the laws of any state other than Massachusetts. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix C hereto. To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes original issue discount, the accrual of which, to the extent properly allocable to each owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and is exempt from Massachusetts personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to 5

12 maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Bondholders should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. Bonds purchased, whether at original issuance or otherwise, for an amount greater than the stated principal amount to be paid at maturity of such Bonds, or, in some cases, at the earlier redemption date of such Bonds ( Premium Bonds ), will be treated as having amortizable bond premium for federal income tax purposes and Massachusetts personal income tax purposes. No deduction is allowable for the amortizable bond premium in the case of obligations, such as the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, a Bondholder s basis in a Premium Bond will be reduced by the amount of amortizable bond premium properly allocable to such Bondholder. Holders of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds may adversely affect the value and marketability of, or the tax status of interest on, the Bonds. Prospective Bondholders should be aware that from time to time legislation is or may be proposed which, if enacted into law, could result in interest on the Bonds being subject directly or indirectly to federal income taxation, or otherwise prevent Bondholders from realizing the full benefit provided under current federal tax law of the exclusion of interest on the Bonds from gross income. To date, no such legislation has been enacted into law. However, it is not possible to predict whether any such legislation will be enacted into law. Further, no assurance can be given that any pending or future legislation, including amendments to the Code, if enacted into law, or any proposed legislation, including amendments to the Code, or any future judicial, regulatory or administrative interpretation or development with respect to existing law, will not adversely affect the market value and marketability of, or the tax status of interest on, the Bonds. Prospective Bondholders are urged to consult their own tax advisors with respect to any such legislation, interpretation or development. Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from Massachusetts personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect the federal or state tax liability of a Bondholder. Among other possible consequences of ownership or disposition of, or the accrual or receipt of interest on, the Bonds, the Code requires recipients of certain social security and certain railroad retirement benefits to take into account receipts or accruals of interest on the Bonds in determining the portion of such benefits that are included in gross income. The nature and extent of all such other tax consequences will depend upon the particular tax status of the Bondholder or the Bondholder s other items of income, deduction or exclusion. Bond Counsel expresses no opinion regarding any such other tax consequences, and Bondholders should consult with their own tax advisors with respect to such consequences. Security and Remedies Full Faith and Credit. General obligation bonds and notes of a Massachusetts city or town constitute a pledge of its full faith and credit. Payment is not limited to a particular fund or revenue source. Except for qualified bonds as described above (see Serial Bonds and Notes under INDEBTEDNESS - TYPES OF OBLIGATIONS below) and setoffs of state distributions as described below (see State Distributions below), no provision is made by the Massachusetts statutes for priorities among bonds and notes and other general obligations, although the use of certain moneys may be restricted. Tax Levy. The Massachusetts statutes direct the municipal assessors to include annually in the tax levy for the next fiscal year all debt and interest charges matured and maturing during the next fiscal year and not otherwise provided for [and] all amounts necessary to satisfy final judgments. Specific provision is also made for including in the next tax levy payments of rebate amounts not otherwise provided for and payment of notes in anticipation of federal or state aid, if the aid is no longer forthcoming. 6

13 The total amount of a tax levy is limited by statute. However, the voters in each municipality may vote to exclude from the limitation any amounts required to pay debt service on indebtedness incurred before November 4, Local voters may also vote to exempt specific subsequent bond issues from the limitation. (See Property Tax Limitations under PROPERTY TAXATION below.) In addition, obligations incurred before November 4, 1980 may be constitutionally entitled to payment from taxes in excess of the statutory limit. Except for taxes on the increased value of certain property in designated development districts which may be pledged for the payment of debt service on bonds issued to finance economic development projects within such districts, no provision is made for a lien on any portion of the tax levy to secure particular bonds or notes or bonds and notes generally (or judgments on bonds or notes) in priority to other claims. Provision is made, however, for borrowing to pay judgments, subject to the General Debt Limit. (See INDEBTEDNESS - Debt Limit below.) Subject to the approval of the State Director of Accounts for judgments above $10,000, judgments may also be paid from available funds without appropriation and included in the next tax levy unless other provision is made. Court Proceedings. Massachusetts cities and towns are subject to suit on their general obligation bonds and notes and courts of competent jurisdiction have power in appropriate proceedings to order payment of a judgment on the bonds or notes from lawfully available funds or, if necessary, to order the city or town to take lawful action to obtain the required money, including the raising of it in the next annual tax levy, within the limits prescribed by law. (See Property Tax Limitations under PROPERTY TAXATION below.) In exercising their discretion as to whether to enter such an order, the courts could take into account all relevant factors including the current operating needs of the city or town and the availability and adequacy of other remedies. The Massachusetts Supreme Judicial Court has stated in the past that a judgment against a municipality can be enforced by the taking and sale of the property of any inhabitant. However, there has been no judicial determination as to whether this remedy is constitutional under current due process and equal protection standards. Restricted Funds. Massachusetts statutes also provide that certain water, gas and electric, community antenna television system, telecommunications, sewer, parking meter and passenger ferry fee, community preservation and affordable housing receipts may be used only for water, gas and electric, community antenna television system, telecommunications, sewer, parking, mitigation of ferry service impacts, community preservation and affordable housing purposes, respectively; accordingly, moneys derived from these sources may be unavailable to pay general obligation bonds and notes issued for other purposes. A city or town that accepts certain other statutory provisions may establish an enterprise fund for a utility, health care, solid waste, recreational or transportation facility and for police or fire services; under those provisions any surplus in the fund is restricted to use for capital expenditures or reduction of user charges. In addition, subject to certain limits, a city or town may annually authorize the establishment of one or more revolving funds in connection with use of certain revenues for programs that produce those revenues; interest earned on a revolving fund is treated as general fund revenue. A city or town may also establish an energy revolving loan fund to provide loans to owners of privately-held property in the city or town for certain energy conservation and renewable energy projects, and may borrow to establish such a fund. The loan repayments and interest earned on the investment of amounts in the fund shall be credited to the fund. Also, the annual allowance for depreciation of a gas and electric plant or a community antenna television and telecommunications system is restricted to use for plant or system renewals and improvements, for nuclear decommissioning costs, and costs of contractual commitments, or, with the approval of the State Department of Telecommunications and Energy, to pay debt incurred for plant or system reconstruction or renewals. Revenue bonds and notes issued in anticipation of them may be secured by a prior lien on specific revenues. Receipts from industrial users in connection with industrial revenue financings are also not available for general municipal purposes. State Distributions. State grants and distributions may in some circumstances be unavailable to pay general obligation bonds and notes of a city or town in that the State Treasurer is empowered to deduct from such grants and distributions the amount of any debt service paid on qualified bonds (See Serial Bonds and Notes under INDEBTEDNESS-TYPES OF OBLIGATIONS below) and any other sums due and payable by the city or town to the Commonwealth or certain other public entities, including any unpaid assessments for costs of any public transportation authority (such as the Massachusetts Bay Transportation Authority or a regional transit authority) of which it is a member, for costs of the Massachusetts Water Resources Authority if the city or town is within the territory served by the Authority, for any debt service due on obligations issued to the Massachusetts School Building Authority, or for charges necessary to meet obligations under the Commonwealth s Water Pollution Abatement or Drinking Water Revolving Loan Programs, including such charges imposed by another local governmental unit that provides wastewater collection or treatment services or drinking water services to the city or town. 7

14 If a city or town is (or is likely to be) unable to pay principal or interest on its bonds or notes when due, it is required to notify the State Commissioner of Revenue. The Commissioner shall in turn, after verifying the inability, certify the inability to the State Treasurer. The State Treasurer shall pay the due or overdue amount to the paying agent for the bonds or notes, in trust, within three days after the certification or one business day prior to the due date (whichever is later). This payment is limited, however, to the estimated amount otherwise distributable by the Commonwealth to the city or town during the remainder of the fiscal year (after the deductions mentioned in the foregoing paragraph). If for any reason any portion of the certified sum has not been paid at the end of the fiscal year, the State Treasurer shall pay it as soon as practicable in the next fiscal year to the extent of the estimated distributions for that fiscal year. The sums so paid shall be charged (with interest and administrative costs) against the distributions to the city or town. The foregoing does not constitute a pledge of the faith and credit of the Commonwealth. The Commonwealth has not agreed to maintain existing levels of state distributions, and the direction to use estimated distributions to pay debt service may be subject to repeal by future legislation. Moreover, adoption of the annual appropriation act has sometimes been delayed beyond the beginning of the fiscal year and estimated distributions which are subject to appropriation may be unavailable to pay local debt service until they are appropriated. Bankruptcy. Enforcement of a claim for payment of principal or interest on general obligation bonds or notes would be subject to the applicable provisions of Federal bankruptcy laws and to the provisions of other statutes, if any, hereafter enacted by the Congress or the State legislature extending the time for payment or imposing other constraints upon enforcement insofar as the same may be constitutionally applied. Massachusetts municipalities are not currently authorized by the Massachusetts General Laws to file a petition for bankruptcy under Federal Bankruptcy laws. In cases involving significant financial difficulties faced by a single city, town or regional school district, the Commonwealth has enacted special legislation to permit the appointment of a fiscal overseer, finance control board or, in the most extreme cases, a state receiver. In a limited number of these situations, such special legislation has also authorized the filing of federal bankruptcy proceedings, with the prior approval of the Commonwealth. In each case where such authority was granted, it expired at the termination of the Commonwealth s oversight of the financially distressed city, town or regional school district. To date, no such filings had been approved or made. Continuing Disclosure In order to assist the Underwriters in complying with Rule 15c2-12(b)(5) promulgated by the Securities and Exchange Commission (the Rule ), the Town will covenant for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the Town by not later than 270 days after the end of each fiscal year ending June 30 (the Annual Report ), and to provide notices of the occurrence of certain significant events. The covenants will be contained in a Continuing Disclosure Certificate, the proposed form of which is provided in Appendix D. The Certificate will be executed by the signers of the Bonds, and incorporated by reference in the Bonds. The Town has never failed to comply in all material respects with any previous undertakings to provide annual reports or notices of significant events in accordance with the Rule. Procedures are currently in place to assure compliance in the future. The Treasurer, or such official s designee from time to time, shall be the contact person on behalf of the Town from whom the foregoing information, data and notices may be obtained. The name, address and telephone number of the initial contact person is: Carol McLeod, Finance Director, Town of Merrimac, 4 School Street, Town Hall, Merrimac, MA 01860; Bank Eligibility Rating The Bonds will be designated as qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Code. Moody s Investors Service has assigned its Aa2 enhanced rating with a stable outlook and an A1 underlying rating on the Bonds. The ratings reflect only the rating agency s views and will be subject to revision or withdrawal, which could affect the market price of the Bonds. Plan of Refunding $2,446,000 of the Bonds will be used to currently refund a portion of the Town s $7,770,000 General Obligation Bonds dated October 15, 2002 (the 2002 Bonds ), maturing October 1 in the years 2014, 2017 and 2022, inclusive, in the aggregate principal amount of $1,305,000 (the Refunded 2002 Bonds ) and to currently refund a portion of the 8

15 Town s $4,231,000 General Obligation Bonds dated November 15, 2003 (the 2003 Bonds ) allocable to the Library Project, maturing November 15 in the years 2014 through 2023, inclusive, in the aggregate principal amount of $1,150,000 (the Refunded 2003 Bonds and together with the Refunded 2002 Bonds, the Refunded Bonds ); including payment of the underwriter s discount, principal, interest, redemption premium and other costs of issuance. The maturity dates, principal amounts, Cusip numbers and call prices and dates for the Refunded 2002 and 2003 Bonds are as follows: 2002 Bonds dated October 15, 2002 Principal Cusip Number Maturity Date Amount Call Price Call Date 10/1/2014 $145,000 FW % 1/2/ /1/ ,000 FX /2/ /1/ ,000 FY /2/ Bonds dated November 15, 2003 Principal Cusip Number Maturity Date Amount Call Price Call Date 11/15/2014 $115,000 GK7 101% 1/2/ /15/ ,000 GL /2/ /15/ ,000 GM /2/ /15/ ,000 GN /2/ /15/ ,000 GP /2/ /15/ ,000 GQ /2/ /15/ ,000 GR /2/ /15/ ,000 GS /2/ /15/ ,000 GT /2/ /15/ ,000 GU /2/2014 Sources and Uses of Funds The proceeds of the sale of the Bonds are expected to be applied as follows: Sources Uses Par Amount of Bonds $3,971, Deposit to Refund Outstanding Notes $1,075, Original Issue Premium 161, Bond Project Fund 450, Deposit to Refund the Refunded 2002 Bonds 1,325, Deposit to Refund the Refunded 2003 Bonds 1,167, Underwriter s Discount 35, Costs of Issuance 46, Additional Proceeds 31, Total Sources of Funds $4,132, Total Uses of Funds $4,132, Financial Advisor The services performed by Eastern Bank, Boston, Massachusetts and its affiliates with respect to the issuance of the Bonds cause Eastern Bank to be considered to have a Financial Advisory relationship with the Town under Rule G- 23 of the Municipal Securities Rulemaking Board. Opinion of Bond Counsel The unqualified approving opinion as to the validity of the Bonds will be rendered by Edwards Wildman Palmer LLP of Boston, Massachusetts, Bond Counsel. The opinion will be dated as of the date of original delivery of the Bonds and will speak only as of such date. The proposed form of legal opinion is set forth in Appendix C hereto. The scope of engagement of Bond Counsel does not extend to passing upon or assuming responsibility for the accuracy or adequacy of any statements made in this Official Statement other than matters expressly set forth as their opinion and they make no representation that they have independently verified the same. 9

16 THE TOWN The Town of Merrimac (the Town ) has a population of approximately 6,517 and is located 37 miles north of Boston in Essex County on the New Hampshire border. The Town covers an area of approximately 9.03 square miles and is bordered on the north by the Town of Newton, New Hampshire, on the west by the Town of Plaistow, New Hampshire, on the east by the City of Amesbury, Massachusetts, on the southeast by the Town of West Newbury and on the southwest by the City of Haverhill, Massachusetts. Principal highways serving Merrimac are Interstate Route 495 and State Route 110. Merrimac is a member of the Merrimack Valley Regional Transit Authority, which provides fixed route and paratransit services during July and August only. Services The Town provides general governmental services for the territory within its boundaries, including police and fire protection, disposal of garbage and rubbish, water and sewer services, sewage disposal, street maintenance, library, parks and recreational facilities. The Town s Water Department provides water to 80 percent of the Town and sewer services are provided to approximately 70 percent of the Town. The Merrimac Municipal Light Department provides electric power to the Town. The Town, along with the Towns of West Newbury and Groveland, is a participant in the Pentucket Regional School District which provides education to students in grades kindergarten through twelve. The District is governed by a District School Committee composed of the representatives of the three member towns. In addition, along with Haverhill, Newburyport, Amesbury, Georgetown, Ipswich, Groveland, West Newbury, Newbury, Rowley and Salisbury, Merrimac is a member of the Whittier Regional Vocational Technical High School providing education in grades seven through twelve. Governing Bodies and Officers Local legislative decisions in the Town are made by an open town meeting consisting of all registered voters in the Town. Subject to the legislative decisions made by the town meeting, the affairs of the Town are generally administered by a board of three selectmen, elected on an at-large basis for staggered three-year terms. Local school affairs are administered by a regional school committee with four local representatives while local taxes are assessed by a board of three assessors all elected on an at-large basis for staggered three-year terms. Principal Executive Officers The following is a list of the principal executive officers in the Town. Manner of Length Expiration Name Selection of Term of Term Chairman, Board of Selectmen Ricky J. Pinciaro Elected 3 Years 2014 Harold Lloyd Elected 3 Years 2016 Laura D. Mailman Elected 3 Years 2015 Finance Director, Treasurer Carol A. McLeod Appointed 3 Years 2016 Town Accountant Ann Jim Appointed 1 Year 2014 Tax Collector Geraldine Gozycki Appointed 1 Year 2014 Town Clerk Patricia E. True Elected 3 Years 2016 Assessor, Chairman Ed Davis Elected 3 Years 2015 Assessor Joyce Clohecy Elected 3 Years 2014 Assessor Luis Lingerman Elected 3 Years 2016 Public Works Director Robert Sinibaldi Appointed 3 Years 2015 Light Department General Manager Francisco Frias Appointed 3 Years 2016 Town Counsel Ash Amirion Appointed 1 Year

17 Principal Municipal Facilities The following is a list of the Town s principal facilities, date built or remodeled, and the most recent assessed valuation. Assessed Facility Date Built (Remodeled) Valuation Donahue School 1950(2000)(2012)(2013) $5,662,500 Sweetsir School 1966(1999)(2013) 3,233,200 Library ,018,100 Town Hall 1876(2003) 1,055,700 New Senior Center ,197,900 Police/Fire/Highway Building 1975(2000) 1,128,600 Collective Bargaining City and town employees (other than managerial employees) are entitled to join unions and to bargain collectively by representatives of their choice on questions of wages, hours and other terms and conditions of employment. The Town has approximately 49 full-time and 112 part-time employees of whom approximately 59 percent of full-time employees belong to unions or other collective bargaining groups. The following table sets forth the collective bargaining groups. Contract Department Members Expires Local 939, AFSCME Public Works, Highway 5 6/30/2014 Local 939, AFSCME Light 7 6/30/2014 Local 939, AFSCME Water 4 6/30/2014 Local 170, IBT Police 6 6/30/2014 Local 939, AFSCME Dispatchers 4 6/30/2014 Local 170, IBT Sewer 3 6/30/2014 Total: 29 Other Data The following tables set forth population trends, income levels, age characteristics, housing characteristics, and employment figures for the Town of Merrimac, Essex County, and the Commonwealth of Massachusetts. Population Merrimac Essex County Massachusetts Year Number % Change Number % Change Number % Change 2012 estimate 6, % 755, % 6,646, % , , ,547, , , ,349, , , ,016, , , ,737, Source: U.S. Department of Commerce for actuals and estimates, Massachusetts Institute for Social & Economic Research for projections. 11

18 Per Capita Income Merrimac Essex County Massachusetts Year Amount % Change Amount % Change Amount % Change year estimates $36, % $34, % $35, % , , , , , , ,866 7,673 7,457 % Below Poverty Level ( year estimates) 4.7% 10.6% 10.7% Source: U.S. Department of Commerce Family Income Merrimac Essex County Massachusetts Income for Families Families Percent Families Percent Families Percent Less than $10, % 6, % 57, % 10,000-24, , , ,000-49, , , ,000-74, , , ,000-99, , , , , , , ,000 or more , , Total 1, % 189, % 1,603, % Median Income $90,812 $83,047 $83,371 Source: U.S. Department of Commerce Household Income Merrimac Essex County Massachusetts Income for Households Households Percent Households Percent Households Percent Less than $10, % 18, % 164, % 10,000-24, , , ,000-49, , , ,000-74, , , ,000-99, , , , , , , ,000 or more , , Total 2, % 284, % 2,522, % Median Income $76,936 $65,785 $65,981 Source: U.S. Department of Commerce Median Age Merrimac Essex County Massachusetts Age Number Percent Number Percent Number Percent Under 5 Years % 43, % 367, % 5 Years to 19 Years 1, , ,262, Years to 64 Years 3, , ,991, Years and Over , , Total 6, % 739, % 6,512, % Median Age Median Age (2000) Source: U.S. Department of Commerce 12

19 Median Value Owner-Occupied Housing Units Merrimac Essex County Massachusetts Units Number Percent Number Percent Number Percent Less than $100, % 4, % 49, % 100, , , , , , , , , , , , , , , , ,000,000 or more , , Total 2, % 184, % 1,604, % Median Value $326,000 $362,300 $343,500 Source: U.S. Department of Commerce Unemployment Unemployment Rate Calendar Year(1) Labor Force Employment Town County State US 2013 (August) 3,619 3, % 7.2% 6.8% 7.3% ,568 3, ,516 3, ,640 3, ,601 3, Source: Massachusetts Department of Employment & Training (1) Full year averages except for 2013 which is for the month indicated. Building Permits Below is a list of the building permits issued and their estimated values for the following calendar years. For Calendar Year 2013(1) Residential: Number Value $ 4,827,606 $ 5,799,000 $ 7,625,900 $ 7,071,800 8,712,070 Non-Residential: Number Value $ 68,100 $ -0- (2) $ -0- (2) $ 400 $ 419,610 (1) As of September (2) Permits were for small items that did not add to the property value. Principal Employers Below is a list of the principal employers in the Town, exclusive of the Town. Current Nature of Business Employees Laidlaw, Inc. Busing 80 James F. Mullen Co., Inc. Manufacturing 65 Kenoza Vending Vending machine service 17 Merrimac Savings Banking 11 Manufactures Paper Supply Paper and supplies 8 13

20 Employment and Payrolls Calendar Year Average Employment by Industry Construction & Natural Resources Manufacturing Trade, Transportation & Utilities Financial Activities Professional & Business Services Education & Health Services Leisure & Hospitality Information & Other Services Public Administration Total Employment Number of Establishments Total Annual Wage (000) $27,536 $27,929 $26,761 $26,533 $22,820 Average Weekly Wage Source: Massachusetts Department of Employment & Training Public School Facilities The Town is a participant in the Pentucket Regional School District. The District was created to provide education to students in grades K through twelve, from the Towns of Merrimac, Groveland and West Newbury. The District is governed by a nine member school committee composed of three representatives from each of the member towns. The District leases from the Town its two existing elementary schools and grounds for the sum of one dollar each. Each lease is for a term not to exceed twenty years and authorizes the District to repair, improve, alter, remodel and maintain the buildings at the District s expense. The District owns the secondary school buildings consisting of the middle school which provides education in grades 7-8 and the high school which provides education in grades The following tables list the public school facilities, current and projected enrollment figures for the Town and District. Date Added to Current Name Grade Built (Remodeled) Capacity Enrollment(1) Sweetsir Elementary K , Donaghue Elementary , 1994, 2012, Pentucket Middle School Pentucket High School , , Whittier Regional Voc-Tech N/A 1,500 1,287 (1) As of September 1, ,600 Public School Enrollments Actual(1) Projected(1) Sweetsir Elementary Donaghue Elementary Pentucket Middle School Pentucket High School Whittier Regional Voc-Tech Total.. 1,264 1,275 1,250 1,193 1,074 1,029 (1) Merrimac students only. 14

21 Educational Attainment Merrimac Essex County Massachusetts Years of School Completed Number Percent Number Percent Number Percent Less than 9th Grade % 27, % 215, % 9th to 12th Grade, No Diploma , , High School Graduate , ,161, Some College, No Degree , , Associate's Degree , , Bachelor's Degree , , Graduate or Professional Degree , , Total 4, % 502, % 4,419, % High School Graduate or Higher 3, % 444, % 3,928, % Bachelor's Degree or Higher 1, , ,711, Source: U.S. Department of Commerce Debt Limits INDEBTEDNESS The general debt limit of the Town of Merrimac consists of a normal debt limit and a double debt limit. The normal debt limit is 5.0 percent of the valuation of taxable property as last equalized by the State Department of Revenue. The Town can authorize up to $34,828,740 without state approval and up to twice this amount ($69,657,480 double debt limit) with the approval of the Municipal Finance Oversight Board composed of the State Treasurer, the State Auditor, the Attorney General and the Director of Accounts. There are many categories of general obligation debt which are exempt from and do not count against the General Debt Limit. Among others, these exempt categories include revenue anticipation notes and grant anticipation notes; emergency loans; loans exempted by special laws; certain school bonds, sewer bonds, solid waste disposal facility bonds and economic development bonds supported by tax increment financing; and subject to special debt limits, bonds for water (limited to 10 percent of equalized valuation), housing, urban renewal and economic development (subject to various debt limits), and electric, gas, community antenna television systems, and telecommunications systems (subject to separate limits). Revenue bonds are not subject to these debt limits. The General Debt Limit and the special debt limit for water bonds apply at the time the debt is authorized. The other special debt limits generally apply at the time the debt is incurred. As of October 15, 2013 the Town of Merrimac had total outstanding and authorized unissued general obligation debt of $9,501,002 of which $4,989,273 was outside, and $4,511,729 was subject to its general debt limit. The additional debt which could be authorized within the normal 5.0 percent debt limit was $30,317,011. The additional debt which could be authorized within the double debt limit was $65,145,741. Authorization of General Obligation Bonds and Notes Serial bonds and notes are authorized by vote of two-thirds of the town meeting. Refunding bonds and notes are authorized by the selectmen. Borrowings for some purposes require State administrative approval. When serial bonds or notes have been authorized, bond anticipation notes may be issued by the officers authorized to issue the serial bonds or notes. Temporary debt in anticipation of the revenue of the fiscal year in which the debt is incurred or in anticipation of authorized federal and state aid generally may be incurred by the treasurer with the approval of the selectmen. Types of Obligations General Obligations. Massachusetts cities and towns are authorized to issue general obligation indebtedness of these types: 15

22 Serial Bonds and Notes These are generally required to be payable in equal or diminishing annual principal amounts beginning no later than the end of the next fiscal year commencing after the date of issue and ending within the terms permitted by law. A level debt service schedule or a schedule that provides for a more rapid amortization of principal than level debt service is permitted. The principal amounts of certain economic development bonds supported by tax increment financing may be payable in equal, diminishing or increasing amounts beginning within 5 years after the date of issue. The maximum terms of serial bonds and notes vary from one year to 40 years, depending on the purpose of the issue. The maximum terms permitted are set forth in the statutes. In addition, for many projects, the maximum term may be determined in accordance with useful life guidelines promulgated by the State Department of Revenue ( DOR ). Serial bonds and notes may be issued for the purposes set forth in the statutes. In addition, serial bonds and notes may be issued for any other public work improvement or asset not specifically listed in the Statutes that has a useful life of at least 5 years. Bonds or notes may be made callable and redeemed prior to their maturity, and a redemption premium may be paid. Refunding bonds or notes may be issued subject to the maximum applicable term measured from the date of the original bonds or notes and must produce present value savings over the debt service of the refunded bonds. Generally, the first principal payment of the refunding bonds cannot be later than the first principal payment of any of the bonds or notes being refunded thereby, however, principal payments made before the first principal payment of any bonds or notes being refunded thereby may be in any amount. Serial bonds may be issued as qualified bonds with the approval of the state Municipal Finance Oversight Board composed of the State Treasurer, the State Auditor, the Attorney General and the Director of Accounts, subject to such conditions and limitations (including restrictions on future indebtedness) as may be required by the Board. Qualified bonds may mature not less than 10 nor more than 30 years from their dates and are not subject to the amortization requirements described above. The State Treasurer is required to pay the debt service on qualified bonds and thereafter to withhold the amount of the debt service paid by the State from state aid or other state payments; administrative costs and any loss of interest income to the State are to be assessed upon the city or town. Tax Credit Bonds or Notes Subject to certain provisions and conditions, the officers authorized to issue bonds or notes may designate any duly authorized issue of bonds or notes as tax credit bonds to the extent such bonds and notes are otherwise permitted to be issued with federal tax credits or other similar subsidies for all or a portion of the borrowing costs. Tax credit bonds may be made payable without regard to the annual installments required by any other law, and a sinking fund may be established for the payment of such bonds. Any investment that is part of such a sinking fund may mature not later than the date fixed for payment or redemption of the applicable bonds. Bond Anticipation Notes These generally must mature within two years of their original dates of issuance but may be refunded from time to time for a period not to exceed five years from their original dates of issuance, provided that for each year that the notes are refunded beyond the second year they must be paid in part from revenue funds in an amount at least equal to the minimum annual payment that would have been required if the bonds had been issued at the end of the second year. For certain school projects, however, notes may be refunded from time to time for a period not to exceed seven years without having to pay any portion of the principal of the notes from revenue funds. The maximum term of bonds issued to refund bond anticipation notes is measured (except for certain school projects) from the date of the original issue of the notes. Revenue Anticipation Notes These are issued to meet current expenses in anticipation of taxes and other revenues. They must mature within one year but, if payable in less than one year, may be refunded from time to time up to one year from the original date of issue. Grant Anticipation Notes These are issued for temporary financing in anticipation of federal grants and state and county reimbursements. Generally, they must mature within two years but may be refunded from time to time as long as the municipality remains entitled to the grant or reimbursement. 16

23 Debt Summary Authorized Outstanding Authorized Unissued Bonds Unissued Outstanding Bonds After This Bonds After 10/15/ /15/2013 Issue This Issue Long-Term Indebtedness (1)(2)(3) Within the General Debt Limit: Sewers & Drains(4) $ 1,191,894 $ 375,000 $ 1,566,894 $ -0- Land Acquisition 202, , , Other Building 2,602, ,602, Total Within the General Debt Limit $ 3,996,729 $ 515,000 $ 4,511,728 $ -0- Outside the General Debt Limit: Sewers(4) $ 60,000 $ -0- $ 60,000 $ -0- Other Outside General.. 189, , Electric(4) 1,125, ,125, Water (4). 144,926 3,470,000 1,154,926 2,460,000(5) Total Outside the General Debt Limit.. $ 1,519,273 $ 3,470,000 $ 2,529,272 $ 2,460,000 Total Long-Term Indebtedness. $ 5,516,002 $ 3,985,000 $ 7,041,000 $ 2,460,000 Outstanding Outstanding After This 10/15/2013 Issue Short-Term Indebtedness Revenue Anticipation Notes.. $ -0- $ -0- Grant Anticipation Notes Bond Anticipation Notes 1,075, Total Short-Term Indebtedness. $ 1,075,000 $ -0- (1) Principal amount only. Excludes lease and installment purchase obligations, overlapping debt and unfunded pension liability and other post-employment benefit liability. (2) At the present time the normal General Debt Limit is $34,828,740 and the Double General Debt Limit is $69,657,480. (3) $2,574,402 has been exempted from the provisions of Proposition 2 1/2. (4) Self-supporting debt. (5) This amount is expected to be financed through the Massachusetts Water Pollution Abatement Trust in Bonded Debt vs. Population, Valuations and Income As of June Amount (1) $5,836,002 $6,798,702 $7,933,482 $9,039,103 $10,298,459 Per Capita (2) , , , , Percent of Assessed Valuation (3). 0.88% 1.04% 1.15% 1.25% 1.38% Percent of Equalized Valuation (4) Per Capita as a percent of Personal Income (2) per capita (1) Principal amount only. Excludes lease and installment purchase obligations, overlapping debt and unfunded pension liability. (2) Source: U.S. Department of Commerce, Bureau of the Census - Latest applicable actuals or estimates. (3) Source: Board of Assessors - Assessed valuation as of the prior January 1. (4) Source: Massachusetts Department of Revenue - Equalized valuation in effect for that fiscal year (equalized valuations are established for January 1 of each even-numbered year). 17

24 Five Years Outstanding Debt As of June Long-Term Indebtedness(1) Within the General Debt Limit: Sewers & Drains $ 1,211,894 $ 1,373,800 $ 1,602,785 $ 1,702,611 $ 1,934,455 Land Acquisition 202, , , , ,947 Schools ,000 45,000 70,000 Other Building 2,742,463 3,018,574 3,294,685 3,570,797 3,857,016 Departmental Equipment ,000 40,000 65,000 Total Within the General Debt Limit $ 4,156,729 $ 4,633,384 $ 5,217,120 $ 5,676,695 $ 6,283,417 Outside the General Debt Limit: Sewers $ 70,000 $ 80,000 $ 115,000 $ 155,000 $ 196,656 Schools.. 150, , ,000 1,270,000 1,665,000 Other Outside General.. 189, , , , ,604 Electric 1,125,000 1,200,000 1,275,000 1,350,000 1,425,000 Water. 144, , , , ,782 Total Outside the General Debt Limit.. $ 1,679,273 $ 2,165,318 $ 2,716,363 $ 3,362,407 $ 4,015,042 Total Long-Term Indebtedness.. $ 5,836,002 $ 6,798,702 $ 7,933,482 $ 9,039,103 $ 10,298,459 Short-Term Indebtedness Revenue Anticipation Notes.. $ -0- $ -0- $ -0- $ -0- $ -0- Grant Anticipation Notes Bond Anticipation Notes 1,075, , Total Short-Term Indebtedness.. $ 1,075,000 $ 855,000 $ -0- $ -0- $ -0- Total Outstanding Indebtedness.. $ 6,911,002 $ 7,653,702 $ 7,933,482 $ 9,039,103 $ 10,298,459 (1) Principal amount only. Excludes lease and installment purchase obligations, overlapping debt and unfunded pension liability and other post-employment benefit liabilities. Revenue Anticipation Borrowing Revenue anticipation notes are issued to meet current expenses in anticipation of taxes and other revenues. The amount borrowed in each fiscal year by the issue of revenue anticipation notes is limited to the tax levy of the prior fiscal year, together with the net receipts in the prior fiscal year from the motor vehicle excise and certain payments made by the Commonwealth in lieu of taxes. The fiscal year ends on June 30. Notes may mature in the following fiscal year, and notes may be refunded into the following fiscal year to the extent of the uncollected, unabated current tax levy and certain other items, including revenue deficits, overlay deficits, final judgments and lawful unappropriated expenditures, which are to be added to the next tax levy, but excluding deficits arising from a failure to collect taxes of earlier years. (See Taxation to Meet Deficits under Property Taxation below.) In any event, the period from an original borrowing to its final maturity cannot exceed one year. The Town has not issued revenue anticipation notes in the last five years. Authorized Unissued Bonds and Prospective Financing Following the delivery of these Bonds, the Town will have $2,460,000 authorized but unissued debt: $860,000 for engineering and water main replacement within the confines of the Town Center Project and $1,600,000 for the construction of three water booster pumps stations and associated water main improvements. The Town expects to borrow this amount from the Massachusetts Water Pollution Abatement Trust beginning in fiscal year

25 Principal Repayment Schedule General Town Debt Self-Supporting Debt General Town Debt Self-Supporting Debt Cumulative Fiscal as of 10/15/13(1)(2)(3) as of 10/15/13(1)(2)(3) Principal Interest Principal Interest Total Debt % Principal Year Principal Interest Principal Interest This Issue (3) This Issue (4) This Issue(3) This Issue (4) Service* Retired 2014 $183,529 $94,251 $249,171 $94, $1, $15,562 $638, % , , ,350 90,281 15,000 3, ,000 32, , ,750 98, ,350 81,558 15,000 3, ,000 28, , ,750 85, ,350 72,041 15,000 2, ,000 24, , ,000 72, ,000 61,791 15,000 2, ,000 21, , ,000 59, ,000 52,674 15,000 2, ,000 17, , ,000 46, ,000 43,893 15,000 1, ,000 13, , ,000 33, ,000 36,066 15,000 1, ,000 10, , ,000 22, ,000 28,941 15, ,000 6, , ,000 10, ,000 22,050 10, ,000 3, , ,000 2, ,000 15,319 10, , , ,000 10,500 85, ,000 7,500 82, ,000 4,500 79, ,000 1,500 76, Total $2,949,779 $636,761 $2,566,221 $622,629 $140,000 $18,375 $1,385,000 $175,125 $8,495,640 (1) Excludes revenue anticipation notes, grant anticipation notes, bond anticipation notes, lease and installment purchase obligations, overlapping debt and unfunded pension liability. (2) Principal totaling $2,574,402 and interest totaling $582,696 has been exempted from the provisions of Proposition 2 1/2. (3) Does not include the refunding bonds offered herein. (4) Interest for the current issue is estimated at 2.50%. * Preliminary, subject to change. Overlapping Debt In addition to direct debt, the Town is indirectly liable for a portion of the debt and other expenses incurred by various overlapping governmental authorities and agencies. Counties. County expenses including debt service on county bonds are assessed upon the cities and towns within the county in proportion to their taxable valuation as last equalized by the State Commissioner of Revenue. (The expenses of Suffolk County are borne by the City of Boston alone.) Legislation was enacted in 1997 abolishing the county governments of Franklin and Middlesex counties as of July 1, 1997, with their assets, functions, debts and other obligations being assumed by the Commonwealth. The abolishment of the Middlesex county government was in part in response to default by the county in the payment of general obligation notes of the county. The legislation also abolished the county governments of Hampden and Worcester counties as of July 1, Legislation enacted in 1998 abolishes the county governments of Hampshire, Essex and Berkshire counties as of January 1, 1999, July 1, 1999 and July 1, 2000, respectively. The legislation also requires the state secretary for administration and finance to establish a plan to recover the Commonwealth s expenditures for the liabilities and other debts assumed and paid by the Commonwealth on behalf of an abolished county. Unless these provisions are changed by further legislation, the state treasurer shall assess upon each city and town within the jurisdiction of an abolished county an amount not to exceed or equal to the county tax paid by each such city and town for the fiscal year immediately prior to the abolishment of the county until such expenditures by the Commonwealth are recovered. It is possible that similar legislation will be sought to provide for the abolishment of county government in all the remaining counties. Regional School Districts. Towns may organize regional school districts to carry out general or specialized educational functions. Pursuant to special laws a number of cities may also participate in regional school districts, primarily for vocational education. The operating expenses and debt service of regional school districts are apportioned among the member municipalities in accordance with the agreements establishing the districts subject to the provisions of the Education Reform Act of The Town is a member of the Pentucket Regional School District. The Pentucket Regional School District has $16,813,405 outstanding bonded debt as of October 15, 2013 of which the Town s share is approximately 11.5%, or 19

26 $1,938,000. The Town s assessment for fiscal year 2014 is $6,754,864, which represents approximately 34% of the District s operating budget. The other member towns in the District are Groveland and West Newbury. The Town is a member of the Whittier Regional Vocational Technical School District. The Whittier Regional Vocational Technical School District has no outstanding bonded debt as of October 15, The Town s assessment for fiscal year 2014 is $607,836, which represents approximately 4.8% of the District s operating budget. The other member towns in the District are Haverhill, Newburyport, Amesbury, Georgetown, Ipswich, Groveland, West Newbury, Newbury, Rowley and Salisbury. Regional Transit Authorities. These are transportation authorities which have been established outside the Boston area. It has been state practice in recent years to provide a portion of their net cost of service, including debt service on their bonds. In addition to the other sources of funds provided by Massachusetts General Laws Chapter 161B from which the regional transit authorities may obtain monies for the payment of the principal of and interest on their obligations, such payment will be further secured by the Commonwealth, which is required to pay to the regional transit authorities amounts duly certified by the administrator of the authority as necessary to pay any principal or interest due or about to come due for such purpose. The remainder of the net cost of service is assessed upon the member cities and towns in proportion to the amount of the net cost incurred on routes within each city or town. The aggregate amount of such assessments is generally not permitted to increase by more than 2.5 percent per year. The Town pays an annual assessment to the Merrimack Valley Regional Transit Authority. The budgeted amount for fiscal year 2014 is $47,138. The Town s.35% share is based on mileage incurred by the MVRTA buses operating in Merrimac versus the system s total mileage charged to the Town. Membership in the MVRTA includes the Town of Merrimac and fourteen other communities. Financing of $2,000,000 for the McGovern Transportation Center was obtained through the Massachusetts Development and Finance Agency in the form of a revenue bond dated July 1, 2004 payable through July The bond is secured by all net revenues generated by the parking garage. The MVRTA issued $12,000,000 Revenue Anticipation Notes dated June 21, 2013 maturing June 20, 2014 to meet operating expenses for the fiscal year beginning July 1, 2014 pending the receipt of revenues of the MRVTA including the payment of Federal Transit Administration operating subsidies and state net cost of service payments. Other Regional Districts. Regional districts that include cities and towns, or parts thereof, may be organized under the General Laws for certain other purposes, including water pollution abatement and solid waste disposal. Regional districts have also been established under special laws for sewer and water purposes. The apportionment of operating expenses and debt service of such districts is sometimes prescribed specifically by the laws under which they are organized; for other such districts the apportionment is determined in accordance with the agreements establishing the districts. Capital Improvements Program The Town has a capital improvements program providing for annual financing of capital requests. The following is a list of capital outlay projects anticipated over the following fiscal years. Fiscal Year Requested Requested Requested Department/Project 2014(1) Cemetery. $ 34,000 $ - $ - Elementary Schools. 280, ,000 - Fire 135, Highway.. 50, Parks and Recreation.. 28, Police.. 175,000 40, ,000 Selectmen - 325, ,000 Sewer.. 264,334 45,000 - Water 206, ,000 - All Others 478, Totals: $ 1,651,652 $ 1,265,000 $ 510,000 (1) For the amounts requested in fiscal year 2014, the Town anticipates the funding source will be bonding for $1,026,652, free cash appropriation for projects totaling $367,000, ambulance stabilization for $55,000, wastewater retained earnings for $35,000 and water retained earnings for $168,

27 PROPERTY TAXATION The principal revenue source of the Town is the tax on real and personal property. The amount to be levied in each year is the amount appropriated or required by law to be raised for municipal expenditures less estimated receipts from other sources and less appropriations voted from available funds. The total amount levied is subject to certain limits prescribed by law; for a description of those limits, see Property Tax Limitation below. As to the inclusion of debt service and judgments, see THE BONDS Securities and Remedies above. The estimated receipts for a fiscal year from other sources may not exceed the actual receipts during the preceding fiscal year from the same sources unless approved by the State Commissioner of Revenue. Excepting special funds, the use of which is otherwise provided for by law, the deducting for appropriations voted from available funds for a fiscal year cannot exceed the free cash as of the beginning of the prior fiscal year as certified by the State Director of Accounts plus up to nine months collections and receipts on account of earlier years taxes after the date. Subject to certain adjustments, free cash is surplus revenue less uncollected overdue property taxes from earlier years. Although an allowance is made in the tax levy for abatements (see Overlay below) no reserve is generally provided for uncollectible real property taxes. Since some of the levy is inevitably not collected, this creates a cash deficiency which may or may not be offset by other items (see Taxation to Meet Deficits ) below. Tax Levy Computation The following table reflects the calculation of tax levies for the following fiscal years. For Fiscal Year Gross Amount to be Raised: Appropriations.. $ 14,928,021 $ 15,135,071 $ 14,404,972 $ 14,109,048 $ 14,160,064 Other Local Expenditures.. 29,482 12,289 10,094 6,505 14,694 State & County Charges 166, , , , ,568 Overlay Reserve. 95, , , ,800 69,002 Total Gross Amount to be Raised 15,219,339 15,440,050 14,674,359 14,350,350 14,375,328 Less Estimated Receipts & Other Revenue: Estimated Receipts from State 1,210,711 1,160,037 1,190,520 1,258,656 1,427,148 Estimated Receipts - Local 3,437,524 3,733,157 3,433,694 3,361,895 3,552,508 Available Funds Appropriated: Free Cash. 308, ,225 68, , ,158 Revenue Sharing Other Available Funds. 15, , ,575 61, ,566 Free Cash & Other Revenue Used to Reduce the Tax Rate ,696 24,120 Total Estimated Receipts & Revenue 4,971,744 5,458,708 4,995,947 4,923,312 5,517,500 Net Amount to be Raised (Tax Levy) $ 10,247,595 $ 9,981,341 $ 9,678,412 $ 9,427,038 $ 8,857,828 Property Valuation.. $ 663,274,773 $ 654,943,662 $ 691,809,274 $ 720,721,568 $ 746,865,727 Source: Massachusetts Department of Revenue. Taxation to Meet Deficits Overlay deficits, i.e., tax abatements in excess of the overlay included in the tax levy to cover abatements, are required to be added to the next tax levy. It is generally understood that revenue deficits, i.e., those resulting from nonproperty tax revenues being less than anticipated, are also required to be added to the next tax levy (at least to the extent not covered by surplus revenue). Amounts lawfully expended since the prior tax levy and not included therein are also required to be included in the annual tax levy. The circumstances under which this can arise are limited since municipal departments are generally prohibited from incurring liabilities in excess of appropriations except for major disasters, mandated items, contracts in aid of housing and renewal projects and other long-term contracts. In addition, established utility rates and certain established salaries, e.g., civil service, must legally be paid, for work actually performed, whether or not covered by appropriations. 21

28 Cities and towns are authorized to appropriate sums, and thus to levy taxes, subject to any overall limits on tax levies, to cover deficits arising from other causes, such as free cash deficits arising from a failure to collect taxes. This is not generally understood, however, and it has not been the practice to levy taxes to cover free cash deficits. Except to the extent that such deficits have been reduced or eliminated by subsequent collections of uncollected taxes (including sales of tax titles and tax possessions), lapsed appropriations, non-property tax revenues in excess of estimates, other miscellaneous items or funding loans authorized by special act, they remain in existence. Property Tax Limitation Chapter 59, Section 21C of the General Laws, known as Proposition 2 ½, imposes two separate limits on the annual tax levy of a city or town. The primary limitation is that the tax levy cannot exceed 2½ percent of the full and fair cash value. If a city or town exceeds the primary limitation, it must reduce its tax levy by at least 15 percent annually until it is in compliance, provided that the reduction can be reduced in any year to not less than 7½ percent by majority vote of the voters, or to less than 7½ percent by two-thirds vote of the voters. For cities and towns at or below the primary limit, a secondary limitation is that the tax levy cannot exceed the maximum levy limit for the preceding fiscal year as determined by the State Commissioner of Revenue by more than 2½ percent, subject to exceptions for property added to the tax rolls or property which has had an increase, other than as part of a general revaluation, in its assessed valuation over the prior year s valuation. This growth limit on the tax levy may be exceeded in any year by a majority vote of the voters, but an increase in the secondary or growth limit under this procedure does not permit a tax levy in excess of the primary limitation, since the two limitations apply independently. In addition, if the voters vote to approve taxes in excess of the growth limit for the purpose of funding a stabilization fund, such increased amount may only be taken into account for purposes of calculating the maximum levy limit in each subsequent year if the board of selectmen of a town or the city council of a city votes by a two-thirds vote to appropriate such increased amount in such subsequent year to the stabilization fund. The applicable tax limits may also be reduced in any year by a majority vote of the voters. The State Commissioner of Revenue may adjust any tax limit to counterbalance the effects of extraordinary, non-recurring events which occurred during the base year. The statute further provides that the voters may exclude from the taxes subject to the tax limits and from the calculation of the maximum tax levy (a) the amount required to pay debt service on bonds and notes issued before November 4, 1980, if the exclusion is approved by a majority vote of the voters, and (b) the amount required to pay debt service on any specific subsequent issue for which similar approval is obtained. Even with voter approval, the holders of the obligations for which unlimited taxes may be assessed do not have a statutory priority or security interest in the portion of the tax levy attributable to such obligations. It should be noted that Massachusetts General Laws Chapter 44, Section 20 requires that the taxes excluded from the levy limit to pay debt service on any such bonds and notes be calculated based on the true interest cost of the issue. Accordingly, the Department of Revenue limits the amount of taxes which may be levied in each year to pay debt service on any such bonds and notes to the amount of such debt service, less a pro rata portion of any original issue premium received by the city or town that was not applied to pay costs of issuance. Voters may also exclude from the Proposition 2½ limits the amount required to pay specified capital outlay expenditures or for the city or town s apportioned share for certain capital outlay expenditures by a regional governmental unit. In addition, the city council of a city, with the approval of the mayor if required, or the board of selectmen or the town council of a town may vote to exclude from the Proposition 2½ limits taxes raised in lieu of sewer or water charges to pay debt service on bonds or notes issued by the municipality (or by an independent authority, commission or district) for water or sewer purposes, provided that the municipality s sewer or water charges are reduced accordingly. In addition, Proposition 2½ limits the annual increase in the total assessments on cities and towns by any county, district, authority, the Commonwealth or any other governmental entity (except regional school districts, the MWRA and certain districts for which special legislation provides otherwise) to the sum of (a) 2½ percent of the prior year s assessments and (b) any increases in costs, charges or fees for services customarily provided locally or for services subscribed to at local option. Regional water districts, regional sewerage districts and regional veterans districts may 22

29 exceed these limitations under statutory procedures requiring a two-thirds vote of the district s governing body and either approval of the local appropriating authorities (by two-thirds vote in districts with more than two members or by majority vote in two-member districts) or approval of the registered voters in a local election (in the case of two-member districts). Under Proposition 2½ any State law to take effect on or after January 1, 1981 imposing a direct service or cost obligation on a city or town will become effective only if accepted or voluntarily funded by the city or town or if State funding is provided. Similarly, State rules or regulations imposing additional costs on a city or town or laws granting or increasing local tax exemptions are to take effect only if adequate State appropriations are provided. These statutory provisions do not apply to costs resulting from judicial decisions. Analysis of Property Tax Levies and Levy Limits The following table reflects the calculation of levy limits for the following fiscal years. For Fiscal Year Primary Levy Limit (1) $ 16,581,869 $ 16,373,592 $ 17,295,232 $ 18,018,039 $ 18,671,643 Prior Fiscal Year Levy Limit $ 9,708,455 $ 9,380,888 $ 9,031,627 $ 8,416,284 $ 8,046, % Levy Growth. 242, , , , ,167 New Growth (2).. 98,312 93, ,470 89, ,424 Overrides ,000 50,000 Growth Levy Limit. 10,049,478 9,708,455 9,380,888 9,031,627 8,416,284 Debt Exclusions 247, , , , ,956 Capital Expenditure Exclusions Other Adjustments Tax Levy Limit $ 10,296,710 $ 10,033,708 $ 9,747,611 $ 9,439,035 $ 8,864,240 Tax Levy.. 10,247,595 9,981,341 9,678,412 9,427,038 8,857,828 Unused Levy Capacity (3).. $ 49,115 $ 52,367 $ 69,199 $ 11,997 $ 6,412 Unused Primary Levy Capacity (4) $ 6,532,391 $ 6,665,137 $ 7,914,344 $ 8,986,412 $ 10,255,359 Source: Massachusetts Department of Revenue. (1) 2.5% of assessed valuation. (2) Allowed increase for new valuations (or required reduction) - certified by the Department of Revenue. (3) Tax Levy Limit less Tax Levy. (4) Primary Levy Limit less Growth Levy Limit. Pledged Taxes. Taxes on certain property in designated development districts may be pledged for the payment of costs of economic development projects within such districts and may therefore be unavailable for other municipal purposes (see TAX INCREMENT FINANCING FOR DEVELOPMENT DISTRICTS below). Initiative Petitions. Various proposals have been made in recent years for legislative amendments to the Massachusetts Constitution to impose limits on state and local taxes. To be adopted such amendments must be approved by two successive legislatures and then by the voters at a state election. Tax Rates and Valuations Property is classified for the purpose of taxation according to its use. The legislature has in substance created three classes of taxable property: (1) residential real property, (2) open space land, and (3) all other (commercial, industrial and personal property). Within limits, cities and towns are given the option of determining the share of the annual levy to be borne by each of the three categories. The share required to be borne by residential real property is at least 50 per cent of its share of the total taxable valuation. The effective rate for open space must be at least 75 per cent of the effective rate for residential real property and the share of commercial, industrial and personal property was limited to not more than 175 per cent of their share of the total valuation. A city or town may also exempt up to 20 percent of the valuation of residential real property (where used as the taxpayer s principal residence) and up to 10 percent of the valuation of commercial real property (where occupied by certain small businesses). Property may not be classified in a city or town until the State 23

30 Commissioner of Revenue certifies that all property in the city or town has been assessed at its fair cash value. Such certification must take place every three years or pursuant to a revised schedule as may be issued by the Commissioner. Related statutes provide that certain forest land, agricultural or horticultural land (assessed at the value it has for these purposes) and recreational land (assessed on the basis of its use at a maximum of 25 percent of its fair cash value) are all to be taxed at the rate applicable to commercial property. Land classified as forest land is valued for this purpose at five percent of fair cash value but not less than ten dollars per acre. The following table reflects the breakdown of assessed valuation by classification for the following fiscal years. Fiscal 2013 % of Total Fiscal 2012 % of Total Fiscal 2011 % of Total Assessed Assessed Assessed Assessed Assessed Assessed Type of Property Valuation Valuation Valuation Valuation Valuation Valuation Residential. $627,689, % $619,590, % $656,479, % Open Space Commercial 19,674, ,698, ,386, Industrial 7,426, ,854, ,882, Personal. 8,483, ,801, ,060, Total $663,274, % $654,943, % $691,809, % Source: Massachusetts Department of Revenue. In order to determine appropriate relative values for the purposes of certain distributions to and assessments upon cities and towns, the Commissioner of Revenue biennially makes a redetermination of the fair cash value of the taxable property in each municipality. This is known as the equalized value. The following table reflects the trend in assessed valuations, equalized valuations and percentage of total assessed valuation to equalized for the following fiscal years. For Fiscal Year Real Property(1). $ 654,790,813 $ 647,142,655 $ 683,748,455 $ 714,001,663 $ 739,874,009 Personal Property(1) 8,483,960 7,801,007 8,060,819 6,719,905 6,991,718 Total.. $ 663,274,773 $ 654,943,662 $ 691,809,274 $ 720,721,568 $ 746,865,727 Equalized Value(2).. $ 696,574,800 $ 759,471,100 $ 759,471,100 $ 824,934,700 $ 824,934,700 Percent of Total Assessed to Equalized Valuation % 86.2% 91.1% 87.4% 90.5% Source: Massachusetts Department of Revenue. (1) As of the prior January 1st. (2) Based on the equalized valuation in effect for each year. The following shows the actual rates per $1,000 of assessed valuation, and the full value rate as follows: For Fiscal Year Type of Property Residential $15.45 $15.24 $13.99 $13.08 $11.86 Open Space Commercial and Industrial Personal Average Tax Rate.. $15.45 $15.24 $13.99 $13.08 $11.86 Full Value Tax Rate(1). $14.71 $13.14 $12.74 $11.43 $10.74 Source: Massachusetts Department of Revenue. (1) Based on the equalized valuation in effect for each year. 24

31 Tax Levies and Collections The taxes for each fiscal year generally are due in two installments on November 1 (subject to deferral if tax bills are sent out late) and May 1. The Town has accepted a statute, providing for quarterly tax payments; under that statute, preliminary tax payments are to be due on August 1, and November 1, with payment of the actual tax bill (after credit is given for the preliminary payments) in installments on February 1 and May 1 if actual tax bills are mailed by December 31. Interest accrues on delinquent taxes currently at the rate of 14 percent per annum from the due date. Real property (land and buildings) is subject to a lien for the taxes assessed upon it (subject to any paramount federal lien and subject to bankruptcy and insolvency laws). If the property has been transferred an unenforced lien expires on the fourth December 31, after the end of the fiscal year to which the tax relates. If the property has not been transferred by the fourth December 31, an unenforced lien expires upon a later transfer of the property. Provision is made, however, for continuation of the lien where it could not be enforced because of legal impediment. The persons against whom real or personal property taxes are assessed are personally liable for the tax (subject to bankruptcy and insolvency laws). In the case of real property, this personal liability is effectively extinguished by sale or taking of the property as described below. The following table reflects the total tax levy, the reserve for abatements, the net tax levy, and the amount of levy collected during the fiscal year payable. For Fiscal Year Total Tax Levy. $ 10,247,595 $ 9,981,341 $ 9,678,412 $ 9,427,038 $ 8,857,828 Overlay Reserve for Abatements. 95, , , ,800 69,002 Net Tax Levy(1). $ 10,151,813 $ 9,864,454 $ 9,577,801 $ 9,313,238 $ 8,788,826 Amount Collected During Fiscal Year Payable(2) $ 9,998,315 $ 9,774,493 $ 9,422,176 $ 9,152,571 $ 8,716,849 Percent of Net Tax Levy % 99.1% 98.4% 98.3% 99.2% Amount Collected Through 10/1/13.. $ 10,111,373 $ 9,774,633 $ 9,529,409 $ 9,161,308 $ 8,720,747 Percent of Net Tax Levy % 99.1% 99.5% 98.4% 99.2% (1) Net after deductions of overlay reserve for abatements. (2) Actual collections of levy less refunds and amounts refundable but including proceeds of tax titles and tax possessions attributed to such levy but not including abatements or other credits. Taking and Sale Massachusetts law permits a municipality either to sell by public sale (at which the municipality may become the purchaser) or to take real property for non-payment of taxes thereon. In either case the property owner can redeem the property by paying the unpaid taxes, with interest and other charges, but if the right of redemption is not exercised within six months (which may be extended an additional year in the case of certain installment payments) it can be foreclosed by petition to the land court. Upon foreclosure, a tax title purchased or taken by the municipality becomes a tax possession and may be held and disposed of like any land held for municipal purposes. Cities and towns are authorized to sell delinquent property tax receivables by public sale or auction, either individually or in bulk. Taxes Outstanding The following table sets forth the amount of overdue property taxes, tax titles and possessions outstanding at the end of the last five fiscal years. For Fiscal Year Aggregate(1). $148,631 $152,823 $182,209 $140,085 $150,879 For Current Year(1). 148, , , , ,879 Tax Titles. 270, , , , ,479 Tax Possessions (1) Excludes tax titles, tax possessions and abated taxes. Includes taxes in litigation, if any. 25

32 Abatements and Overlay The Town is authorized by law to increase each tax levy by an amount approved as reasonable by the State Commissioner of Revenue for an overlay to provide for tax abatements. If abatements are granted in excess of the applicable overlay reserve, the resultant overlay deficit is required to be added to the next tax levy. Abatements are granted where real or personal property has been overvalued or disproportionately valued. The assessors may also abate uncollectible personal property taxes. They may abate real and personal property taxes on broad grounds (including inability to pay) with the approval of the State Commissioner of Revenue. Uncollectible real property taxes are ordinarily not written off until they become municipal tax titles (either by purchase at the public sale or by taking), at which time the tax is written off in full by reserving the amount of tax and charging surplus. The following table reflects the total tax levy, the reserve for abatements, the amount of abatements granted during the fiscal year of the levy. For Fiscal Year Tax Levy. $10,247,595 $9,981,341 $9,678,412 $9,427,038 $8,857,828 Overlay Reserve for Abatements 95, , , ,800 69,002 Percent of Tax Levy Abatements Granted: During Fiscal Year of Levy 0.9% $56, % $64, % $58, % $71, % $71,025 Source: Massachusetts Department of Revenue. Largest Taxpayers The following is a list of the ten largest taxpayers for fiscal year % of Assessed Assessed FY 2013 Name Nature of Business Valuation Valuation Estimated Tax North Shore Community LLC Trailer Park $ 4,499, % $ 69,517 Greenleaf Park Apartments 3,600, , East Main Street LLC Manufacturing 3,000, ,359 Essex County Gas Gas Utility 2,829, ,709 Verizon New England Telecommunications 2,345, ,230 BC Realty Trust Developer 1,461, ,582 Clarity M20 LLC Rental Property 1,673, ,848 Waterhouse Realty Trust Property 1,457, ,521 Victor J. Silva Horse Farm 1,478, ,952 Comcast of CT/GA/MA/NH/NY/NC/VA Cable Provider 1,292, ,962 Total: $ 23,637, % $ 363,306 Community Preservation Act The Massachusetts Community Preservation Act (the CPA or the Community Preservation Act ) permits cities and towns that accept its provisions to levy a surcharge on its real property tax levy, dedicate revenue (other than state or federal funds), and to receive state matching funds for (i) the acquisition, creation, preservation, rehabilitation and restoration of land for recreational use, open space, and affordable housing and (ii) the acquisition, preservation, rehabilitation and restoration of historic resources. The provisions of the CPA must be accepted by the voters of the city or town at an election after such provisions have first been accepted by either a vote of the legislative body of the city or town or an initiative petition signed by 5% of its registered voters. A city or town may approve a surcharge of up to 3% (but not less than 1% under certain circumstances) and may make an additional commitment of funds by dedicating revenue other than state or federal funds, provided that the total funds collected do no exceed 3% of the real property tax levy, less any exemptions adopted (such as an exemption for 26

33 low-income individuals and families and for low and moderate-income senior citizens, an exemption for $100,000 of the value of each taxable parcel of residential real property or $100,000 of the value of each taxable parcel of class three, commercial property, and class four, industrial property as defined in Chapter 59, Section 2A of the General Laws, and an exemption for commercial and industrial properties in cities and towns with classified tax rates). In the event that the municipality shall no longer dedicate all or part of the additional funds to community preservation, the surcharge on the real property tax levy of not less than 1% shall remain in effect, provided that any such change must be approved pursuant to the same process as acceptance of the CPA. The surcharge is not counted in the total taxes assessed for the purpose of determining the permitted levy amount under Proposition 2½ (see Tax Limitations under PROPERTY TAXATION above). A city or town may revoke its acceptance of the provisions of the CPA at any time after 5 years from the date of such acceptance and may change the amount of the surcharge or the exemptions to the surcharge at any time, including reducing the surcharge to 1% and committing additional municipal funds as outlined above, provided that any such revocation or change must be approved pursuant to the same process as acceptance of the CPA. Any city or town that accepts the provisions of the CPA will receive annual state matching grants to supplement amounts raised by its surcharge and dedication of revenue. The state matching funds are raised from certain recording and filing fees of the registers of deeds. Those amounts are deposited into a state trust fund and are distributed to cities and towns that have accepted the provisions of the CPA, which distributions are not subject to annual appropriation by the state legislature. The amount distributed to each city and town is based on a statutory formula and the total state distribution made to any city or town may not exceed 100% of the amount raised locally by the surcharge on the real property tax levy. The amounts raised by the surcharge on taxes, the dedication of revenue and received in state matching funds are required to be deposited in a dedicated community preservation fund. Each city or town that accepts the provisions of the CPA is required to establish a community preservation committee to study the community preservation needs of the community and to make recommendations to the legislative body of the city or town regarding the community preservation projects that should be funded from the community preservation fund. Upon the recommendations of the committee, the legislative body of the city or town may appropriate amounts from the fund for permitted community preservation purposes or may reserve amounts for spending in future fiscal years, provided that at least 10% of the total annual revenues to the fund must be spent or set aside for open space purposes, 10% for historic resource purposes and 10% for affordable housing purposes. The CPA authorizes cities and towns that accept its provisions to issue bonds and notes in anticipation of the receipt of surcharge and dedicated revenues to finance community preservation projects approved under the provisions of the CPA. Bonds and notes issued under the CPA are general obligations of the city or town and are payable from amounts on deposit in the community preservation fund. In the event that a city or town revokes its acceptance of the provisions of the CPA, the surcharge shall remain in effect until all contractual obligations incurred by the city or town prior to such revocation, including the payment of bonds or notes issued under the CPA, have been fully discharged. The Town has not adopted the provisions of the CPA. 27

34 ADDITIONAL INFORMATION Budget and Appropriation Process TOWN FINANCES The annual appropriations of a town are ordinarily made at the annual meeting which takes place in February, March, April, May or June. Appropriations may also be voted at special meetings. Every town must have an appropriation, advisory or finance committee. The committee (or the board of selectmen if authorized by by-law) is required to submit a budget of proposed expenditures at the annual town meeting. Water and sewer department expenditures are generally included in the budgets adopted by city councils and town meetings but electric and gas department funds may be appropriated by the municipal light boards. Under certain legislation any city or town which accepts the legislation may provide that the appropriation for the operating costs of any department may be offset, in whole or in part, by estimated receipts from fees charged for services provided by the department. It is assumed that this general provision does not alter the pre-existing power of an electric or gas department to appropriate its own receipts. The school budget is limited to the total amount appropriated by the city council or town meeting, but the school committee retains full power to allocate the funds appropriated. State legislation known as the Education Reform Act of 1993, as amended, imposes certain minimum expenditure requirements on municipalities with respect to funding for education. The requirements are determined on the basis of formulas affected by various measures of wealth and income, enrollments, prior levels of local spending and state aid, and other factors. (See State Aid below.) State and county assessments, abatements in excess of overlays, principal and interest not otherwise provided for, and final judgments are included in the tax levy whether or not included in the budget. Revenues are not required to be set forth in the budget but estimated non-tax revenues are taken into account by the assessors in fixing the tax levy. (See Property Taxation above.) Operating Budget Trends The following table sets forth the operating budgets for the following fiscal years as voted by the Town. As such, said budgets reflect neither revenues nor state and county assessments and other mandatory items nor supplemental budget appropriations. See Budget and Appropriation Process above. The budgets summarized below include expenditures for non-operating or capital outlay items authorized under special warrant articles at town meetings which are not funded by debt. Water and Sewer operations are included in the budgets adopted by the town meeting. Appropriated Appropriated Appropriated Appropriated Appropriated Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year General Government. $579,698 $530,486 $517,930 $467,757 $475,742 Public Safety 1,556,456 1,480,174 1,390,728 1,379,024 1,334,438 Public Works 629, , , , ,234 Human Services 385, , , , ,814 Parks & Recreation.. 12,300 12,300 12,300 12,300 22,920 Library.. 252, , , , ,975 Schools. 7,365,199 7,128,251 6,955,701 6,835,671 6,743,670 Debt and Interest. 637, , ,202 1,018,726 1,071,138 Employee Benefits.. 649, , , , ,884 Unclassified. 201, , , , ,624 Insurance. 95, , , , ,000 Total General ,365,260 12,102,878 11,790,345 11,521,555 11,610,439 Water Department , , , , ,985 Sewer... 1,113,957 1,137,278 1,168,283 1,188,986 1,305,511 Total Appropriations.. $14,471,529 $14,069,611 $13,785,118 $13,504,559 $13,709,935 28

35 Water and Sewer Rates and Services Although the water and sewer operations are included in the budgets adopted by the town meeting, the operating costs of the water and sewer operations are fully supported by estimated receipts from fees charged for services provided by the departments. Water services are provided to 80 percent of the Town and sewer is provided to 70 percent of the Town. Water and sewer rates were recently increased effective July 1, Charges for water are based on actual metered consumption at a rate of $0.80 per 100 gallons per quarter. Bills are sent quarterly and there is a meter charge of $15.00 per quarter. Operating expenses of the water department are supported fully by user charges. The Town has raised rates such that debt service on the bonds for water projects offered herein will be covered by water revenues. The operating expenses of the sewer department are fully supported by user charges. The rates for use of sewer are $1.275 per 100 gallons per quarter with a minimum charge of $68.00 for the first 7,500 gallons per quarter. The debt service on the bonds issued for Attitash Station repairs included in this issue is expected to be repaid from revenues of the sewer department. Municipal Light Department The Town of Merrimac Municipal Light Department (the Department ) was incorporated in 1904 and operates under the provisions of Chapter 164 of the Massachusetts General Laws with an elected Board of Light Commissioners. Under Massachusetts law, electric rates of the Department are set by the Board of Commissioners and may be changed once every three months. Rate schedules are filed with the Massachusetts Department of Public Utilities. Rates must be set such that net earnings from operations do not exceed 8% of the cost of utility plant, unless prior year losses are being recaptured. The Department s indebtedness consists of a bond issued in 2008 for a substation rebuilding project that carries interest rates ranging from 3% to 4.75%. All bond issues must be approved by Town Meeting. As of December 31, 2012, the total amount of outstanding debt was $1,125,000, payable in years 2013 through The Department has no authorized and unissued debt. The Department purchases its power through contracts with various power suppliers. These contracts are subject to certain market factors. Based on current market conditions, the Department anticipates some stability to its power cost expenses over the next few years. Additional information relating to the Department is available in the Town of Merrimac Municipal Light Department Financial Statements and Required Supplementary Information for the year ended December 31, 2012 prepared by Bill Fraher, CPA. The documents can be obtained by writing to The Board of Light Commissioners, 10 West Main Street, Merrimac, MA Retirement Plan The Massachusetts General Laws provide for the establishment of contributory retirement systems for state employees, for teachers and for county, city and town employees other than teachers. Teachers are assigned to a separate statewide teachers system and not to the city and town systems. For all employees other than teachers, this law is subject to acceptance in each city and town. Substantially all employees of an accepting city or town are covered. If a town has a population of less than 10,000 when it accepts the statute, its non-teacher employees participate through the county system and its share of the county cost is proportionate to the aggregate annual rate of regular compensation of its covered employees. In addition to the contributory systems, cities and towns provide non-contributory pensions to a limited number of employees, primarily persons who entered service prior to July 1, 1937 and their dependents. The Public Employee Retirement Administration Commission ( PERAC ) provides oversight and guidance for and regulates all state and local retirement systems. The obligations of a city or town, whether direct or through a county system, are contractual legal obligations and are required to be included in the annual tax levy. If a city or town, or the county system of which it is a member, has not established a retirement system funding schedule as described below, the city or town is required to provide for the payment of the portion of its current pension obligations which is not otherwise covered by employee contributions and investment income. Excess earnings, or earnings on individual employees retirement accounts in excess of a predetermined rate, are required to be set aside in a pension reserve fund for future, not current, pension liabilities. Cities and towns may voluntarily appropriate to their system s pension reserve fund in any given year up to five percent of the preceding year s tax levy. The aggregate amount in the fund may not exceed ten percent of the equalized valuation of the city or town. 29

36 If a city or town, or each member city and town of a county retirement system, has accepted the applicable law, it is required to annually appropriate an amount sufficient to pay not only its current pension obligations, but also a portion of its future pension liability. The portion of each such annual payment allocable to future pension obligations is required to be deposited in the pension reserve fund. The amount of the annual city or town appropriation for each such system is prescribed by a retirement system funding schedule which is periodically reviewed and approved by PERAC. Each system s retirement funding schedule is designed to reduce the unfunded actuarial pension liability of the system to zero by not later than June 30, 2030, with annual increases in the scheduled payment amounts of not more than 4.5%. The funding schedule must provide that the payment in any year of the schedule is not less than 95% of the amount appropriated in the previous fiscal year. City, town and county systems which have an approved retirement funding schedule receive annual pension funding grants from the Commonwealth for the first 16 years of such funding schedule. Pursuant to Chapter 188 of the Acts of 2010, a system (other than the state employee s retirement system and the teacher s retirement system) which conduct an actuarial valuation as of January 1, 2009, or later, may establish a revised schedule which reduces the unfunded actuarial liability to zero by not later than June 30, 2040, subject to certain conditions. If the schedule is so extended under such provision and a later updated valuation allows for the development of a revised schedule with reduced payments, the revised schedule shall be adjusted to provides that the appropriation or each year shall not be less than that for such year under the prior schedule, thus providing for a shorter schedule rather than reduced payments. City, town and county systems may choose to participate in the Pension Reserves Investment Trust Fund (the PRIT Fund ), which receives additional state funds to offset future pension costs of participating state and local systems. If a local system participates in the PRIT Fund, it must transfer ownership and control of all assets of its system to the Pension Reserves Investment Management Board, which manages the investment and reinvestment of the PRIT Fund. Cities and towns with systems participating in the PRIT Fund continue to be obligated to fund their pension obligations in the manner described above. The additional state appropriations to offset future pension liabilities of state and local systems participating in the PRIT Fund are required to total at least 1.3 percent of state payroll. Such additional state appropriations are deposited in the PRIT Fund and shared by all participating systems in proportion to their interests in the assets of the PRIT Fund as of July 1 for each fiscal year. Cost-of-living increases for each local retirement system may be granted and funded only by the local system, and only if it has established a funding schedule. Those statutory provisions are subject to acceptance by the local retirement board and approval by the local legislative body, which acceptance may not be revoked. The Town provides pension benefits to employees by contributing to the Essex Regional Retirement System, a cost sharing multiple-employer defined benefit pension plan administered by the Essex Regional Retirement System. The system provides retirement benefits, cost of living adjustments, disability benefits and death benefits. The system is a member of the Massachusetts Contributory Retirement System and is governed by Chapter 32 of the Massachusetts General Laws. The Essex Regional Retirement System issues a publicly available financial report in accordance with guidelines established by the Commonwealth s Public Employee Retirement Administration Commission. That report may be obtained by writing to the Essex Regional Retirement System, 491 Maple Street, Suite 292, Danvers, Massachusetts, Plan members of the System are required to contribute at rates ranging from 5% to 11% of annual covered compensation. The Town is required to pay into the System its share of the system-wide actuarial determined contribution that is apportioned among the employers based on active current payroll. The Town s contributions to the Essex Regional Retirement System for the last five fiscal years are set forth below. For Fiscal Year 2014(1) Contributory.. $ 599,097 $ 583,118 $ 536,270 $ 526,049 $ 450,385 (1) Budgeted. The foregoing data does not include the retirement system costs or liabilities attributable to employees of the County or the retirement system costs or liabilities of any other entity of which the Town is a constituent part. As of January 1, 2011, Merrimac s total estimated past service liability in the contributory retirement system was $13,237,764, and its assets were $6,872,573, leaving an estimated unfunded past service liability of $6,365,

37 Other Post-Employment Benefits In addition to pension benefits, cities and towns may provide retired employees with health care and life insurance benefits. The portion of the cost of such benefits paid by cities or towns is generally provided on a pay-as-you-go basis. The Governmental Accounting Standards Board ( GASB ) promulgated its Statement Nos. 43 and 45, which require public sector entities to report the future costs of these non-pension, post-employment benefits in their financial statements. These new accounting standards do not require pre-funding such benefits, but the basis applied by the standards for measurement of costs and liabilities for these benefits is conservative if they continue to be funded on a pay-as-you-go basis and will result in larger yearly cost and liability accruals than if such benefits were pre-funded in a trust fund in the same manner as traditional pension benefits. Cities and towns that choose to self-insure all or a portion of the cost of the health care benefits they provide to employees and retirees may establish a trust fund for the purpose of paying claims. In addition, cities and towns may establish a trust fund for the purpose of pre-funding other postemployment benefits liability in the same manner as traditional pension benefits. Using the services of an actuary, the Town has finalized its current obligation/liability for other post-employment benefits for active and retired employees following the GASB Statements 43 and 45 (including health care and life insurance) as of July 1, Using the actuarial cost method, the unfunded actuarial accrued liability was $4,347,003 (assuming a 4.0% discount rate). With this study, an annual required contribution (ARC) of $448,325 was developed based on assumptions determined by the Town. The Town established an OPEB liability trust fund in fiscal year 2014 with an initial deposit of $72,586. Contributions made to the plan in the past three years are as follows: Year Ended Annual OPEB Cost Actual Contribution % Contributed Net OPEB Obligation 6/30/12 $447,692 $142,579 33% $1,374,515 6/30/11 447, ,564 21% 1,069,402 6/30/10 458,958 90,080 20% 717,916 Contractual Obligations Municipal contracts are generally limited to currently available appropriations. A city or town generally has authority to enter into contracts for the exercise of any of its corporate powers for any period of time deemed to serve its best interests, but generally only when funds are available for the first fiscal year; obligations for succeeding fiscal years generally are expressly subject to availability and appropriation of funds. Municipalities have specific authority in relatively few cases to enter long-term contractual obligations that are not subject to annual appropriation, including contracts for refuse disposal and sewage treatment and disposal. Municipalities may also enter into long-term contracts in aid of housing and renewal projects. There may be implied authority to make other long-term contracts required to carry out authorized municipal functions, such as contracts to purchase water from private water companies. Municipal contracts relating to solid waste disposal facilities may contain provisions requiring the delivery of minimum amounts of waste and payments based thereon and requiring payments in certain circumstances without regard to the operational status of the facilities. Municipal electric departments have statutory power to enter into long-term contracts for joint ownership and operation of generating and transmission facilities and for the purchase or sale of capacity, including contracts requiring payments without regard to the operational status of the facilities. Pursuant to the Home Rule Amendment to the Massachusetts Constitution, cities and towns may also be empowered to make other contracts and leases. The Town has a contract with Northside Carting for trash and recycling collection. The contract period is for three years with a two year extension which expires June 30, The cost for fiscal year 2013 was $158,239 and the amount budgeted for fiscal year 2014 is $185,000. Excluding the rubbish collection contract, the Town does not have any additional significant long-term contracts or lease-purchase agreements. 31

38 Motor Vehicle Excise An excise is imposed on the registration of motor vehicles (subject to exemptions) at the rate of $25 per $1,000 of valuation. The excise is collected by and for the benefit of the municipality in which the motor vehicle is customarily kept. Valuations are determined by a statutory formula based on manufacturers list price and year of manufacture. Bills not paid when due bear interest at 12 percent per annum. Provision is also made, after notice to the owner, for suspension of the owner s operating license or registration by the registrar of motor vehicles. The Town collects the motor vehicle excise tax from bills prepared by the Massachusetts Registry of Motor Vehicles. The following table reflects motor vehicle excise receipts for each of the last five fiscal years. For Fiscal Year Motor Vehicle Excise Taxes(1). $ 766,977 $ 649,227 $ 668,407 $ 696,223 $ 624,752 (1) Net after refunds. Includes receipts for prior years. Other Taxes Three additional sources of revenue for local governments are the room occupancy tax, local meals excise tax and the aviation tax. All the taxes take effect only where accepted by individual municipalities. Under the room occupancy excise tax, local governments may tax the provision of hotel, motel, lodging house and bed and breakfast rooms at a rate not to exceed six percent of the cost of renting such rooms. The tax is paid by the operator of each establishment to the State Commissioner of Revenue, who in turn pays the tax back to the municipality in which the rooms are located. The Town has not voted to impose the room occupancy excise tax. The local meals excise tax, effective for sales of restaurant meals on or after October 1, 2009, is a three-fourths percent on the gross receipts of a vendor from the sale of restaurant meals. The tax is paid by the vendor to the State Commissioner of Revenue, who in turn pays the tax to the municipality in which the meal was sold. The Town has not voted to accept the local meals excise tax. The aviation fuel tax is a five percent tax (with a minimum of five cents per gallon) on the sale or use of jet fuel to or by jet aircraft. The tax is paid by the seller/user of the fuel to the Commissioner of Revenue, who in turn, rebates the tax back to the municipality in which the fuel being taxed was transferred to an aircraft. The Town has not voted to accept the aviation fuel tax. State Aid In addition to grants for specified capital purposes (some of which are payable over the life of the bonds issued for the projects), the Commonwealth provides financial assistance to cities and towns for current purposes. Payments to cities and towns are derived primarily from a percentage of the State s personal income, sales and use, and corporate excise tax receipts, together with the net receipts from the State Lottery. A municipality s state aid entitlement is based on a number of different formulas, of which the schools and lottery formulas are the most important. Both of the major formulas tend to provide more state aid to poorer communities. The formulas for determining a municipality s state aid entitlement are subject to amendment by the state legislature and, while a formula might indicate that a particular amount of state aid is owed, the amount of state aid actually paid is limited to the amount appropriated by the state legislature. The state annually estimates state aid, but the actual state aid payments may vary from the estimate. In the fall of 1986, both the State Legislature (by statute, repealed as of July 1, 1999) and the voters (by initiative petition) placed limits on the growth of state tax revenues. Although somewhat different in detail, each measure essentially limited the annual growth in state tax revenues to an average rate of growth in wages and salaries in the Commonwealth over the three previous calendar years. If not amended, the remaining law could restrict the amount of state revenues available for state aid to local communities. Legislation was enacted in 1991 to help municipalities compensate for additional local aid reductions by the Commonwealth for fiscal year Under that law, municipalities were allowed to defer budgeting for teacher s summer compensation payable by the end of the fiscal years 1992 and Municipalities that chose to defer such amounts are 32

39 required to amortize the resulting budget deficiency by raising at least one fifteenth of the deferred amount in each of the fiscal years 1997 through 2011, or in accordance with a more rapid amortization schedule. The following table represents state aid receipts, net of estimated charges, for the following fiscal years and the estimated receipts net of estimated charges for fiscal year 2014: For Fiscal Year General government aid.... $ 792,328 $ 760,488 $ 709,814 $ 740,297 $ 808,433 Less Estimated charges (156,147) (166,054) (175,802) (158,682) (120,997) Net State aid. $ 636,181 $ 594,434 $ 534,012 $ 581,615 $ 687,436 State School Building Assistance Program Under its school building assistance program, the Commonwealth of Massachusetts provides grants to cities, towns and regional school districts for school construction projects. Until July 26, 2004, the State Board of Education was responsible for approving grants for school projects and otherwise administering the program. Grant amounts ranged from 50% to 90% of approved project costs. Municipalities generally issued bonds to finance the entire project cost, and the Commonwealth disbursed the grants in equal annual installments over the term of the related bonds. Pursuant to legislation which became effective on July 26, 2004, the state legislature created the Massachusetts School Building Authority (the Authority ) to finance and administer the school building assistance program. The Authority has assumed all powers and obligations of the Board of Education with respect to the program. In addition to certain other amounts, the legislation dedicates a portion of Commonwealth sales tax receipts to the Authority to finance the program. Projects previously approved for grants by the State Board of Education are entitled to receive grant payments from the Authority based on the approved project cost and reimbursement rate applicable under the prior law. The Authority has paid and is expected to continue to pay the remaining amounts of the grants for such projects either in annual installments to reimburse debt service on bonds issued by the municipalities to finance such projects, or as lump sum payments to contribute to the defeasance of such bonds. Projects on the priority waiting list as of July 1, 2004 are also entitled to receive grant payments from the Authority based on the eligible project costs and reimbursement rates applicable under the prior law. With limited exceptions, the Authority is required to fund the grants for such projects in the order in which they appear on the waiting list. Grants for any such projects that have been completed or substantially completed have been paid and are expected to continue to be paid by the Authority in lump sum payments, thereby eliminating the need for the Authority to reimburse interest expenses that would otherwise be incurred by the municipalities to permanently finance the Authority s share of such project costs. Interest on debt issued by municipalities prior to July 1, 2004 to finance such project costs, and interest on temporary debt until receipt of the grant, is included in the approved costs of such projects. Grants for any such projects that have not yet commenced or that are underway have been and are expected to continue to be paid by the Authority as project costs are incurred by the municipality pursuant to a project funding agreement between the Authority and the municipality, eliminating the need for the municipality to borrow even on a temporary basis to finance the Authority s share of the project costs in most cases. The range of reimbursement rates for new project grant applications submitted to the Authority on or after July 1, 2007 has been reduced to between 40% and 80% of approved project costs. The Authority promulgated new regulations with respect to the application and approval process for projects submitted after July 1, The Authority expects to pay grants for such projects as project costs are incurred pursuant to project funding agreements between the Authority and the municipalities. None of the interest expense incurred on debt issued by municipalities to finance their portion of the costs of new projects will be included in the approved project costs eligible for reimbursement. 33

40 Tax Increment Financing for Development Districts Under recent legislation, cities and towns are authorized to establish development districts to encourage increased residential, industrial and commercial activity. All or a portion of the taxes on growth in assessed value in such districts may be pledged and used solely to finance economic development projects pursuant to the city or town s development program for the district. This includes pledging such tax increments for the payment of bonds issued to finance such projects. As a result of any such pledge, tax increments raised from new growth properties in development districts are not available for other municipal purposes. Tax increments are taken into account in determining the total taxes assessed for the purpose of calculating the maximum permitted tax levy under Proposition 2½ (see Property Tax Limitation under PROPERTY TAXATION above). Investments Investments of funds of cities and towns, except for trust funds, are generally restricted by Massachusetts General Laws Chapter 44, 55. That statute permits investments of available revenue funds and bond and note proceeds in term deposits and certificates of deposits of banks and trust companies, in obligations issued or unconditionally guaranteed by the federal government or an agency thereof with a maturity of not more than one year, in repurchase agreements with a maturity of not more than 90 days secured by federal or federal agency securities, in participation units in the Massachusetts Municipal Depository Trust ( MMDT ), or in shares in SEC-registered money market funds with the highest possible rating from at least one nationally recognized rating organization. MMDT is an investment pool created by the Commonwealth. The State Treasurer is the sole trustee, and the funds are managed under contract by an investment firm under the supervision of the State Treasurer s office. According to the State Treasurer the Trust s investment policy is designed to maintain an average weighted maturity of 90 days or less and is limited to high-quality, readily marketable fixed income instruments, including U.S. Government obligations and highlyrated corporate securities with maturities of one year or less. Trust funds, unless otherwise provided by the donor, may be invested in accordance with 54 of Chapter 44, which permits a broader range of investments than 55, including any bonds or notes that are legal investments for savings banks in the Commonwealth. The restrictions imposed by 54 and 55 do not apply to city and town retirement systems. Undesignated General Fund Balance and Stabilization Fund Balance Under Section 5B of Chapter 40 of the Massachusetts General Laws, the Town may for the purpose of creating a stabilization fund, appropriate in any year an amount not exceeding ten percent of the amount raised in the preceding year by taxation of real estate and tangible personal property or such larger amount as may be approved by the Emergency Finance Board. The aggregate amount in the fund at any time shall not exceed ten percent of the equalized valuation of the Town and any interest shall be added to and become a part of the fund. The stabilization fund may be appropriated in a town at a town meeting and also at a special town meeting by a two-thirds vote for any lawful purpose. The following table reflects the Undesignated General Fund Balance and the Stabilization Fund Balance for the following fiscal years. For Fiscal Year Stabilization Fund.. $ 866,207 $ 742,132 $ 665,807 $ 638,835 $ 633,413 Undesignated General Fund Balance.. NA 841,253(1) 499, , ,542 (1) General Fund Unassigned as a result of GASB

41 Free Cash Under Massachusetts law, an amount known as free cash is certified as of the beginning of each fiscal year by the State Bureau of Accounts and this, together with certain subsequent tax receipts, is used as the basis for subsequent appropriations from available funds, which are not required to be included in the annual tax levy. Subject to certain adjustments, free cash is surplus revenue less uncollected and overdue property taxes from prior years. Free cash as of the beginning of the fiscal year, together with collections of prior years taxes through March 31, is available under current law for appropriation to reduce the following fiscal years tax levy. The following table reflects the certified free cash for the following fiscal years. For Fiscal Year Beginning July Free Cash.. $ 523,414 $ 609,241 $ 308,009 $ 386,225 $ 68,158 Source: Massachusetts Department of Revenue - Subject to certain adjustments, free cash is surplus revenue less uncollected and overdue property taxes from prior years. Financial Statements Comparative balance sheets and revenues and expenditures have been extracted from the Town s financial statements for the fiscal years ending June 30, 2008 through June 30, 2012 prepared by Powers & Sullivan, Certified Public Accountants and are included as Appendix A. The Town s financial statements for the fiscal year ended June 30, 2012 are included as Appendix B. Litigation In the opinion of the Town, there is no litigation pending which, either individually or in the aggregate, is likely to result in final judgments against the Town which would materially affect the Town s financial position or its ability to pay its obligations. Dated: November 14, 2013 TOWN OF MERRIMAC, MASSACHUSETTS By: /s/ Carol A. McLeod Finance Director 35

42 TOWN OF MERRIMAC, MASSACHUSETTS COMPARATIVE BALANCE SHEETS(1) APPENDIX A Assets: Cash and cash equivalents $ 2,057,256 $ 1,529,061 $ 747,574 $ 499,639 $ 799,420 Receivables: Property taxes 155, , , , ,762 Tax liens and foreclosures 533, , , , ,628 Motor vehicle excise 69,481 61,147 60,798 54,266 69,395 Departmental 75,113 70, , ,425 92,092 Less: Allowance for abatements and uncollectibles (141,578) (90,272) (50,584) (147,779) (5,476) Due from other governments 385, , ,083 1,250,226 1,538,369 Total Assets $ 3,134,583 $ 2,762,559 $ 2,390,625 $ 2,419,078 $ 2,942,190 Liabilities and Fund Equity: Warrants payable $ 177,261 $ 121,552 $ 138,442 $ 248,854 $ 223,588 Deferred revenue 1,016,473 1,152,697 1,569,797 1,826,460 2,061,801 Total Liabilities 1,193,734 1,274,249 1,708,239 2,075,314 2,285,389 Fund Balances: Restricted - 4, Committed 742, , Assigned 357, , Unassigned 841, , Reserved For Encumbrances , , ,421 Reserved For other - - 5,923 5,923 5,923 Unreserved reported in: - - General fund , , ,457 Total Fund Equity 1,940,849 1,488, , , ,801 Total Liabilities and Fund Equity $ 3,134,583 $ 2,762,559 $ 2,390,625 $ 2,419,078 $ 2,942,190 (1) Extracted from the audited financial statement of the Town. 36

43 TOWN OF MERRIMAC, MASSACHUSETTS COMPARATIVE STATEMENT OF REVENUES AND EXPENDITURES(1) Revenues: Property taxes $ 10,005,154 $ 9,639,865 $ 9,379,436 $ 8,822,057 $ 8,513,152 Excise taxes 651, , , , ,168 Payments in lieu of taxes 1,291 2, ,052 Departmental charges for services 452, , , , ,811 Licenses and permits 67,325 85,426 85,827 83,925 94,999 Intergovernmental 1,268,658 1,281,283 1,316,224 1,407,017 1,495,927 Fines 59,632 53,305 58,232 58,115 75,023 Investment income 15,593 17,786 9,594 24,716 56,813 Other 58,013 43,247 57,281 71,977 68,298 Total Revenues $ 12,579,974 $ 12,231,435 $ 11,981,972 $ 11,459,250 $ 11,368,243 Expenditures: General government $ 610,215 $ 558,447 $ 547,281 $ 584,740 $ 592,213 Public safety 1,495,075 1,377,775 1,334,635 1,327,081 1,251,812 Education 6,864,851 6,835,980 6,747,852 6,201,741 6,064,494 Public works 804, , , , ,227 Human services 305, , , , ,586 Recreation and culture 239, , , , ,470 Intergovernmental 175, , , , ,643 Debt service 975,918 1,023,041 1,076,053 1,150,412 1,223,881 Other 106, , , , ,464 Employee benefits 578, , , , ,011 Capital outlay - 223,146 60, , ,328 Total Expenditures $ 12,155,600 $ 12,192,404 $ 11,739,421 $ 11,726,597 $ 11,435,129 Excess (Deficiency) of Revenues Over Expenditures 424,374 39, ,551 (267,347) (66,886) Other Financing Sources (Uses): Operating Transfers In (Out) 28, ,058 96,071 (45,690) 141,760 Excess (Deficiency) of Revenues Over Expenditures and Other Financing Sources (Uses) 452, , ,622 (313,037) 74,874 Fund Balance (Deficit), Beginning of Year 1,488,310 1,321, , , ,927 Fund Balance (Deficit), End of Year $ 1,940,849 $ 1,488,310 $ 682,386 $ 343,764 $ 656,801 (1) Extracted from the audited financial statement of the Town. 37

44 TOWN OF MERRIMAC, MASSACHUSETTS COMPARATIVE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS SEWER ENTERPRISE(1) Operating Revenues: Charges for services $ 1,092,800 $ 1,153,777 $ 1,121,073 $ 1,064,656 $ 1,037,719 Special assessments 142,290 17,562 20,020 63,431 77,202 Other operating revenues 47,429 55, , ,162 - Total operating revenues 1,282,519 1,226,859 1,281,346 1,328,249 1,114,921 Operating Expenses: Other operating expenses 703, , , , ,652 Depreciation 257, , , , ,443 Total operating expenses 961,258 1,042,356 1,054,864 1,054,140 1,126,095 Operating income 321, , , ,109 (11,174) Non-operating revenues(expenses) Interest expense (66,840) (77,486) (83,837) (86,344) (96,206) Other 2,738 2,873 2,985 3,550 18,596 Investment income 1, ,944 7,321 19,435 Total nonoperating revenues(exp) (62,525) (74,292) (77,908) (75,473) (58,175) Income before transfers 258, , , ,636 (69,349) Operating transfers (out) - - (6,300) - (22,668) Changes in net assets 258, , , ,636 (92,017) Net Assets, beginning of year 6,620,005 6,509,794 6,367,520 6,168,884 6,260,901 Net assets, end of year $ 6,878,741 $ 6,620,005 $ 6,509,794 $ 6,367,520 $ 6,168,884 (1) Extracted from the audited financial statement of the Town. 38

45 TOWN OF MERRIMAC, MASSACHUSETTS COMPARATIVE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS WATER ENTERPRISE(1) Operating Revenues: Charges for services $ 818,513 $ 868,432 $ 860,289 $ 787,075 $ 770,598 Special assessments Other operating revenues 1,612 1,126 26, ,229 - Total operating revenues 820, , ,804 1,047, ,598 Operating Expenses: Other operating expenses 680, , , , ,435 Depreciation 83,293 82,586 81,292 84,637 79,961 Total operating expenses 763, , , , ,396 Operating income 56, , , ,135 83,202 Non-operating revenues(expenses) Interest expense (6,685) (8,209) (12,477) (13,848) (24,085) Other (14,782) Investment income 1,821 2,123 3,907 8,838 10,715 Total nonoperating revenues(exp) (4,864) (6,086) (8,570) (5,010) (28,152) Income before transfers 51, , , ,125 55,050 Operating transfers (out) - - (5,300) - - Changes in net assets 51, , , ,125 55,050 Net Assets, beginning of year 2,224,058 2,094,987 1,969,959 1,753,834 1,698,784 Net assets, end of year $ 2,275,488 $ 2,224,058 $ 2,094,987 $ 1,969,959 $ 1,753,834 (1) Extracted from the audited financial statement of the Town. 39

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47 APPENDIX B Bill Fraher, CPA TOWN OF MERRIMAC, MASSACHUSETTS Basic Financial Statements, Required Supplementary Information and Supplementary Information Year ended June 30, 2012 (Except for the Electric Enterprise Fund which is December 31, 2011) (With Independent Auditor's Report Thereon)

48 TOWN OF MERRIMAC, MASSACHUSETTS Table of Contents Page Independent Auditor's Report Independent Auditor's Report on Compliance and on Internal Control Over Financial Reporting Management's Discussion and Analysis (required supplementary information) I Basic Financial Statements Government-wide Financial Statements: Statement of Net Assets Statement of Activities Fund Financial Statements: Balance Sheet - Government Funds Statement of Revenues, Expenditures and Changes in Fund Balances- Governmental Funds Reconciliation of the Governmental Fund Balance Sheet to the Statement of Net Assets Reconciliation ofthe Governmental Funds- Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities. Budgetary Comparison Schedule - General Fund Statement of Net Assets - Proprietary Funds Statement of Revenues, Expenses, and Changes in Fund Net Assets- Proprietary Funds Statement of Cash Flows - Proprietary Funds Statement of Net Assets - Fiduciary Funds Notes to the Financial Statements Combining Financial Statements: Combining Balance Sheet - Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds

49 The Board of Selectman Town Of Merrimac, Massachusetts: Independent Auditor's Report Bill Fraher, CPA 1313 Washington Street- Unit 225 Boston, MA Tel: Fax: I 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 Town of Merrimac, Massachusetts, as of and for the year ended June 30, 2012 (except for the Electric Enterprise Fund which is December 31, 2011 ), which collectively comprise the Town's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Town of Merrimac's management. My responsibility is to express opinions on these financial statements based on my audit. I conducted my 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 I 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 fmancial statement presentation. I believe that my audit provides a reasonable basis for my opinions. In my opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Town of Merrimac, Massachusetts, as of June 30, 2012 (except for the Electric Enterprise Fund which is December 31, 2011 ), and the respective changes in financial position and, where applicable, cash flows 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. In accordance with Government Auditing Standards, I have also issued my report dated February 20, 2013 on my consideration of the Town of Merrimac's internal control structure over financial reporting and on my 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 my 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. This report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of my audit. Page 1

50 The Board of Selectmen Town of Merrimac, Massachusetts Independent Auditor's Report Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages 5 through 11 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Government Auditing Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. I have applied certain limited procedures to the required supplementary information, which consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements and other knowledge obtained during the audit of the basic financial statements. I do not express an opinion or provide any assurance on the information because the limited. procedures do not provide sufficient evidence to express an opinion or provide any assurance. My audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Town ofmerrimac's financial statements as a whole. The combining fund financial statements listed in the accompanying table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. These statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other procedures in accordance with auditing standards generally accepted in the U.S. In my opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. ~ Bill Fraher, CPA Boston, Massachusetts February 20,2013 Page2

51 Bill Fraher, CPA 1313 Washington Street- Unit 225 Boston, MA 02ll8 Tel: Fax: 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 The Honorable Board of Selectmen Town ofmerrimac, Massachusetts I have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information ofthe Town of Merrimac, Massachusetts, as of and for the year ended June 30, 2012 (except for the Electric Enterprise Fund which is December 31, 2011), which collectively comprise the Town's basic financial statements and have issued my report thereon dated February 20, I conducted my audit in accordance with generally accepted auditing standards in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Internal Control over Financial Reporting Management of the Town is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing my audit, I considered the Town's internal control over financial reporting as a basis for designing my auditing procedures for the purpose of expressing my opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Town of Southborough, Massachusetts' internal control over financial reporting. Accordingly, I do not express an opinion on the effectiveness ofthe Town of Southborough, Massachusetts' internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. My consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. I did not identify any deficiencies in internal control over financial reporting that I consider to be material weaknesses, as defined above. Page 3

52 The Board of Selectmen Town of Merrimac, Massachusetts Report on Compliance and p.n Internal Control over Financial Reporting Compliance and Other Matters As part of obtaining reasonable assurance about whether the Town's financial statements are free of material misstatement, I performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of my audit, and accordingly, I do not express such opinion. The results of my tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. I noted certain other matters that I reported to management of the Town of Merrimac, Massachusetts, in a separate letter dated February 20, This report is intended solely for the information and use of the Board of Selectmen, management, others within the organization, federal awarding agencies and pass through entities and is not intended to be and should not be used by anyone other than these specified parties. Bill Fraher, CPA Boston, Massachusetts February 20, 2013 Page4

53 Town of Merrimac, Massachusetts Management's Discussion and Analysis (Required Supplementary Information) June 30, 2012 As management for the Town of Merrimac, we offer the readers of our financial statements this overview and analysis of the Town's financial activities for the fiscal year ended June 30, Please read it in conjunction with the Town's financial statements, which begin on page 14. Financial Highlights of Fiscal year 2012 (July 1, June 30, 2012) The Town's assets exceeded its liabilities at the close offy2012 by $31,476,853 (net assets) as compared with $30,506,362 at June 30, Of the amount at June 30,2012, $5,832,602 is considered unrestricted (unrestricted net assets), as compared to $7,053,018last year (some items in unrestricted net assets in 2011 are now in restricted net assets). The unrestricted net assets of the Town's governmental activities are $1,553,621 and may be used to meet the government's ongoing obligations to citizens and creditors. The unrestricted net assets of business-type activities are $4,278,981 and may be used to meet the obligations of the Town's light, water and sewer departments. The total cost of all town services for Fiscal Year 2012 was $18,814,093, as compared to $19,508,567last year, or a decrease of$694,474 or 3.55%. Of the total cost of services, $12,415,348 was spent on governmental activities (compared to $12,817,082 last year) and an additional $6,398,745 was spent on business type activities consisting of the light, water and sewer departments (compared to $6,691,485 last year). At June 30,2012, the Town's governmental funds reported a combined ending fund balance of $3,320, 930, up 20% from $2,758,053 at June 30, 2011, due to favorable results in revenue and expenditures less the usage of reserves. A total of$841,253 of this amount is considered unassigned at June 30, The Town's total bonded indebtedness is $6,798,703, down from $7,933,482 last year. The Town also shows a liability of$1,374,515 for Other Post Employment Benefits (retiree health insurance), $405,000 for landfill post closure care costs and $165,615 for compensated absences. The Town has additional overlapping debt of$739,640 for the Town's share (36.982%) ofthe Pentucket Regional School District and $1,701,861 for Merrimac's Elementary School Debt. The Town's bond rating is A 1. Page 5

54 Town of Merrimac, Massachusetts Management's Discussion and Analysis (Required Supplementary Information) June 30, 2012 Overview of the Financial Statements: The discussion and analysis are intended to serve as an introduction to the Town's basic financial statements. The Town's basic financial statements consist of three components: 1) government-wide financial statements; 2) fund financial statements; and 3) notes to the financial statements. This report also contains 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 the Town of Merrimac, Massachusetts' finances in a manner similar to a private sector business. The statement of net assets presents information on all of the Town's 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 of the Town is improving. 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 of 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). The government-wide financial statements have separate columns for government activities and businesstype activities. The Town's activities are classified as follows: );;> Governmental Activities -Activities reported here include education, public safety, public works, library and general administration. Property taxes, motor vehicle excise taxes, federal, state and other local revenues finance these activities. );;> Business-type Activities - Activities reported here are for electric light department, water department and the sewer department operations. User fees charged to the customers receiving services finance these services. 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. The Town of Merrimac, Massachusetts, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the Town of Merrimac, Massachusetts can be divided into three categories; government funds, proprietary funds and fiduciary funds. Governmental funds: Governmental funds are used to account for essentially the same functions reported as government 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 expendable resources, as well as on balances of expendable resources 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 government funds is narrower than that of the government-wide 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 Page 6

55 Town of Merrimac, Massachusetts Management's Discussion and Analysis (Required Supplementary Information) June 30,2012 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. Proprietary funds: The Town of Merrimac, Massachusetts now maintains three proprietary fund types. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The Town of Merrimac, Massachusetts uses enterprise funds to account for its Electric Light, Water and Sewer Departments. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. 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 Town's own programs. The accounting used for fiduciary funds is like that used for proprietary funds. Reconciliation of Government-wide Financial Statements to Fund Financial Statements The government activities of the government-wide financial statements and the governmental funds of the fund financial statements do not use the same accounting basis and measurement focus. Capital assets and long-term liabilities are not included on the balance sheet of the governmental funds, but are included on the statement of net assets. Capital assets are recorded as expenditures when they are purchased in the governmental funds and depreciated over the useful life in the government-wide financial statements. We have included schedules that provide a crosswalk from the government-wide financial statements to the governmental funds of the fund financial statements: );> Reconciliation of the Governmental funds balance sheet -total fund balances to the statement of net assets. );> Reconciliation of the statement of revenues and expenditures and changes in fund balance of governmental funds to the statement of activities The reconciliation of government-wide financial statements to enterprise funds of the fund financial statements is not necessary. The business-type activities of the government-wide financial statements and the enterprise funds use the same accounting basis and measurement focus. Financial Analysis of the Government-wide Financial Statements Net Assets may serve over time as a useful indicator of a government's financial position. However, the bet assets of governmental activities should be viewed independently from business-type activities. Resources of the governmental activities are not used to finance costs related to business-type activities. Revenues of the business-type activities are used to finance the operations of the Light, Water and Sewer Enterprise Funds. The following table reflects the condensed net assets. [Note that last year's governmental activities restricted and unrestricted net assets have been restated to correspond to current year classifications.] Page7

56 Town of Merrimac, Massachusetts Management's Discussion and Analysis (Required Supplementary Information) June 30, 2012 Town of Merrimac's Statement of Net Assets Governmental Activities Business-type Activities Total Current and other assets $ 4,119,834 $ 4,732,805 $ 5,433,244 $ 5,637,423 $ 9,553,078 $ 10,370,228 Capital assets $ 16,861,912 $16,528,107 $ 14,101,947 $ 14,805,249 $ 30,963,859 $ 31,333,356 Total assets $ 20,981,746 $ 21,260,912 $ 19,535,191 $ 20,442,672 $ 40,516,937 $ 41,703,584 Current liabilities $ 196,041 $ 381,606 $ 239,973 $ 1 '101,292 $ 436,014 1,482,898 Long term liabilities $ 5,970,660 $ 5,445,001 $ 3,603,901 $ 3,298,832 $ 9,574,561 $ 8,743,833 Total Liabilities $ 6,166,701 $ 5,826,607 $ 3,843,874 $ 4,400,124 $ 10,010,575 $ 10,226,731 Net Assets: Invested in capital, net of related debt Restricted Unrestricted Total net assets $ 12,046,086 $ 1,226,006 $ 1,542,953 $ 14,815,045 $ 12,500,603 $ 1,380,081 $ 1,553,621 $ 15,434,305 $ 10,984,291 $ 0 $ 4,707,026 $ 15,691,317 $ 11 '763,567 $ 0 $ 4,278,981 $ 16,042,548 $ 23,030,377 $ 1,226,006 $ 6,249,979 $ 30,506,362 $ 24,264,170 $ 1,380,081 $ 5,832,602 $ 31,476,853 The Town's assets exceeded liabilities by $31,476,853 at the close of the most recent fiscal year. Major changes to the statement of net assets are as follows. First, cash and investments and net assets increased due to current year operating results. Net capital assets increased, although capital assets decreased in governmental activities (no significant additions) while capital assets increased in business type activities as additions outpaced depreciation (primarily due to water capital project additions). Long term liabilities declined due to debt repayments (offset somewhat by an increase in the OPEB liability). The largest portion of the Town's total net assets (77.09%) reflects its investment in capital assets (e.g., land, buildings, machinery and equipment, and infrastructure), less any related debt used to acquire those assets that are still outstanding. The Town uses capital assets to provide services to citizens; therefore, these assets are not available for future spending. Although the Town's investment in capital assets is reported net of related debt, it should be noted that the resources to repay debt must be provided from other sources, since capital assets themselves, cannot be used to liquidate these liabilities. An additional portion of the Town's net assets ( 4.38%) represents resources that are subject to restrictions placed on how they may be used by parties external to the Town. The remaining 18.53% of total net assets may be used to meet the government's on-going obligations to citizens and creditors. It is important to note that although the total unrestricted net assets is $5,832,602; the unrestricted net assets of the Town's business-type activities, $4,278,981, may not be used to fund governmental activities. At the end of the current fiscal year, the Town is able to report positive balances in all three categories of net assets, both for the government as a whole, as well as for its separate governmental and business-type activities. The government's total assets increased by $970,491 during the current fiscal year, governmental activities total assets increased by $619,260 while the business activities total assets increased by $3 51,231. Page 8

57 Town of Merrimac, Massachusetts Management's Discussion and Analysis (Required Supplementary Information) June 30, 2012 Changes in Net Assets The following condensed fmancial information was derived from the government-wide Statement of Net Assets. It reflects how the Town's net assets have changed during Fiscal Year Town of Merrimac's Statement of Changes in Net Assets Governmental Activities Business-type Activities Total Revenues: Program revenues: Charges for Services $ 747,955 $ 829,505 $ 6,679,877 $ 6,692,948 $ 7,427,832 $ 7,522,453 Operating Grants and Contributions $ 282,308 $ 372,716 $ 55,520 $ 337,828 $ 372,716 Capital Grants and Contributions $ 334,842 $ 212,028 $ 334,842 $ 212,028 General Revenues: Property Taxes $ 9,622,923 $10,005,154 $ 9,622,923 $10,005,154 Excise Taxes $ 671,377 $ 790,959 $ 671,377 $ 790,959 Other $ 893,993 $ 824,246 $ 85,216 $ 57,028 $ 979,209 $ 881,274 Total Revenues and Transfers $ 12,553,398 $ 13,034,608 $ 6,820,613 $ 6,749,976 $19,374,011 $19,784,584 Expenses: General Government $ 1,050,655 $ 1,032,287 $ 1,050,655 $ 1,032,287 Public Safety $ 2,082,570 $ 2,076,342 $ 2,082,570 $ 2,076,342 Education $ 7,045,942 $ 7,188,274 $ 7,045,942 $ 7,188,274 Public Works $ 1,563,517 $ 1,017,818 $ 1,563,517 $ 1,017,818 Health & Human Services $ 470,880 $ 495,055 $ 470,880 $ 495,055 Recreation and Culture $ 390,177 $ 424,834 $ 390,177 $ 424,834 Interest on Debt Service $ 213,341 $ 180,738 $ 213,341 $ 180,738 Water $ 742,610 $ 770,516 $ 742,610 $ 770,516 Sewer $ 1 '119,842 $ 1,028,098 $ 1 '119,842 $ 1,028,098 Electric $ 4,829,033 $ 4,600,131 $ 4,829,033 $ 4,600,131 Total Expenses $ 12,817,082 $ 12,415,348 $ 6,691,485 $ 6,398,745 $ 19,508,567 $18,814,093 Change in Net Assets $ (263,684) $ 619,260 $ 129,128 $ 351,231 $ (134,556) $ 970,491 Net Assets -Beginning of Year, as revised $ 15,078,729 $ 14,815,045 $ 15,562,189 $15,691,317 $30,640,918 $30,506,362 Net Assets- End of Year $14,815,045 $ 15,434,305 $ 15,691,317 $16,042,548 $ 30,506,362 $31,476,853 % of Increase 4.18% 2.24% 3.18% Page 9

58 Town of Merrimac, Massachusetts Management's Discussion and Analysis (Required Supplementary Information) June 30, 2012 Government Activities- Governmental activities net assets increased by $619,260 or 4.18% during A summary of revenues and major functional expenditures is presented above. The increase is due mainly to current year operating results. Tax revenues increased due to the usual property tax budgetary increase and strong excise tax collections. Public works expenses decreased due to last year's recognition of landfill liabilities. There were no other significant changes from the prior year. Business-type Activities - Business-type activities increased the Town's net assets by $3 51,231 or 2.24% during Fiscal Year There were no increases in rates this fiscal year. Sewer operations were the largest cause of the increase due to collections from rates and assessments. Electric expenses declined due to lower power costs. Financial Analysis of Governmental Funds As noted earlier, the Town uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental funds - The focus of the Town's governmental funds is to provide information on nearterm inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Town's financing requirements. In particular, unreserved 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 June 30, 2012, the Town's governmental funds reported combined ending fund balances of $3,320,930, an increase of $562,877 in comparison with the prior year. $841,253 of this amount constitutes unassigned fund balance, which is available for spending at the government's discretion. The remainder of the fund balance is assigned, committed or restricted to indicate it is not available for new spending because it has already been committed to liquidate contracts and purchase orders of the prior period; continued appropriations for capital outlay and improvement purposes; non expendable permanent fund balances; and other purposes per detail on page 34. The general fund is the chief operating fund of the Town. At June 30, 2012, unassigned fund balance of the general fund was $841,253. $742,132 was committed to the Stabilization Fund, and $357,464 was assigned for continued appropriations, while the total fund balance was $1,940,849. 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 fund expenditures (including transfers to other funds). Unassigned fund balance represents 6.9% of total general fund expenditures (including transfers), while total fund balance also represents 15.9% of the same amount. Fund Balance Trends The total general fund balance of the Town increased by $452,539, or 30.41%, during fiscal year The major reason for this increase was strong revenue collections as well as higher than anticipated unexpended appropriation balances. General fund actual expenditures were $3 72,707 lower than budgeted while actual revenues were $277, 197 higher than budgeted. Page 10

59 Town of Merrimac, Massachusetts Management's Discussion and Analysis (Required Supplementary Information) June 30, 2012 Total fiscal year 2012 general fund revenues and transfers from other funds totaled $12,608,139, an increase of$228,646 or 1.8% over the previous fiscal year. Town of Merrimac General Fund Revenue Changes FY2012 % Increase/ % Source Amount of Total (Decrease) Change Real Estate and Personal Property Tax $10,005, % $ 365, % Motor Vehicle Excise $ 651, % $ (19,519) -3.0% Intergovernmental $ 1,268, % $ (12,625) -1.0% Departmental and other revenue $ 639, % $ 17, % Investment Income $ 15, % $ (2,193) -14.1% Total Revenues $12,579, % $ 348, % Transfers from other funds $ 28, % $(119,893) % Total revenue and transfers from other funds $12,608, % $ 228, % Property tax growth generally represents a combination of the 2.5% annual increase allowed in the levy under Proposition 2 Y2, new growth, and collection of prior years' delinquent taxes. In recognizing property tax revenue due to the favorable settlement of personal property tax abatement cases in excess of accrued refunds, as well as accruals and tax levy usage, real estate and personal property tax revenue increased 3. 7%. Departmental revenue was steady in FY12. Aggregate town revenue increased, however due to bank interest rates declining and less funds in general and stabilization to invest investment income has continued to drop off, revenue estimates continue to be analyzed with the poor market conditions forecast forfy13. Total general fund expenditures and transfers to other funds totaled $12,715,600 an decrease of $18,804 or -.2% over the previous fiscal year. Page 11

60 Town of Merrimac, Massachusetts Management's Discussion and Analysis (Required Supplementary Information) June 30,2012 Town of Merrimac General Fund Expenditure Changes % FY2012 of Increase/ % Function Amount Total (Decrease) Change General Government $ 610, % $ 51, % Public Safety $ 1,495, % $ 117, % Public Works $ 804, % $ (10,984) -1.4% Health and Human Services $ 305, % $ 19, % Culture and Recreation $ 239, % $ 10, % Education $ 6,864, % $ (194,275) -2.7% Employee pensions and benefits $ 578, % $ 3, % Debt Service $ 975, % $ (47,123) -4.8% Other $ 281, % $ 12, % Total Expenditures $ 12,155, % $ (36,804) -0.3% Transfers to other funds $ 20, % $ 18, % Total expenses and transfers from other funds $ 12,175, % $ (18,804) -0.2% Significant changes are discussed below. The increase in Employee Pensions and Benefits is due to the additional contribution to the Essex Regional Retirement System and increased premium expense for health plans for fiscal year Premiums for most plans increased approximately 13.5%. The decrease in education expenditures is due to prior year capital articles. The increase in Public Safety was largely due to an increase in EMT Wages as well as major repairs to the building. Other increases in expenditures in fiscal year 2012 are due primarily to contractual wage and salary increases. Debt service continued to decline as the Town commits to having no major new debt issuances in the current economic climate. Proprietary fund - The Town's proprietary fund provides the same information found in the government-wide statements, but in slightly more detail. Unrestricted net assets of the Water Fund amounted to $316,552, a decrease of $329,147. Unrestricted net assets of the Sewer Fund amounted to $1,344,413, an increase of $142,261. Unrestricted net assets of the Electric Fund amounted to $2,618,016, a decrease of $241,159. The water decrease is due mainly to available resources being used for capital articles. Page 12

61 Town of Merrimac, Massachusetts Management's Discussion and Analysis (Required Supplementary Information) June 30, 2012 General Fund Budgetary Highlights The difference between the original budget and the final amended budget was due to Special Town Meeting Action to several areas amounting to $312,709. Long term debt - At June 30, 2012 the Town had total bonded debt outstanding of $6,798,703, $4,027,504 for governmental activities and $2,771,199 for business-type activities. All debt issues are general obligations of the Town, although Water, Sewer and Light debt service payments are made from the resources ofthe enterprise fund. Additional information on the Town's long-term debt can be found in Note 7 to the financial statements. Economic Factors and Next Year's Budgets and Rates: According to the Commonwealth of Massachusetts Division of Employment and Training, the unemployment rate for the Town for 2011 was 5.8%, which compares favorably with state and national unemployment rate. According to the U. S. Department of Commerce Census Bureau, the median family income for the Town for 2009 was $148,297; the per capita income for the same time was $57,198. This compares favorably with both state and national incomes. According to the Town's Board of Assessors the average 2012 single family home in Merrimac is valued at $313,000. All properties compare favorable with state and national property values. The Town received a decreased state aid, and is expected to receive level funding in FY2013. However the Town still is forced to rely increasingly on real estate taxes to fund the budget. Most contracts within the Town and the school district have been negotiated, with increases that are in line with the current economy. Contacting the Town's Financial Management This financial report is designed to provide residents, taxpayers, customers, and creditors with a general overview of the Town's finances and to show the Town's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Finance Director's Office at 4 School Street, Merrimac, Massachusetts. Page 13

62 TOWN OF MERRIMAC, MASSACHUSETTS Statement of Net Assets June 30, 2012 (Electric Business-Type Activity is as of December 31, 2011) Governmental Business-Type Activities Activities Total Assets Cash and cash equivalents $ 3,250,779 2,806,423 6,057,202 Investments 311,224 1,124,553 1,435,777 Receivables (net of allowance for uncollectibles) 735, ,759 1,501,647 Due from commonwealth 434,914 21, ,414 Prepaid Expenses 398, ,138 Other assets 521, ,050 Capital assets: Assets not being depreciated 3,086,738 1,246,608 4,333,346 Assets being depreciated, net 13,441,369 13,558,641 27,000,010 Total assets $ 21,260,912 20,442,672 41,703,584 Liabilities Warrants and accounts payable $ 209, , ,776 Other accrued liabilities 67,431 67,431 Accrued interest payable 31,856 30,835 62,691 Notes payable 140, , ,000 Long-term liabilities: Due within one year: Compensated absences 14,287 93, ,535 Landfill postclosure care costs 15,000 15,000 Bonds payable 703, , ,701 Due in more than one year: Compensated absences 55,077 3,003 58,080 Landfill postclosure care costs 390, ,000 Other post employment benefits 943, ,382 1,374,515 Bonds payable 3,324,181 2,511,821 5,836,002 Total liabilities 5,826,607 4,400,124 10,226,731 Net Assets Invested in capital assets, net of related debt 12,500,603 11,763,567 24,264,170 Restricted for: Perpetual funds - nonexpendable 318, ,517 Perpetual funds - expendable 137, ,529 Other specific purposes 924, ,035 Unrestricted 1,553,621 4,278,981 5,832,602 Total net assets $ 15,434,305 16,042,548 31,476,853 The notes to the financial statements are an integral part of this statement. Page 14

63 TOWN OF MERRIMAC. MASSACHUSETTS Statement of Activities For the Year Ended June 30, 2012 (Electric Business-Type Activity is for the year ended December 31, 2011) Pro~ram Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Ex12enses Services Contributions Contributions Governmental activities: General government $ 1,032, , ,389 12,545 Public safety 2,076, ,803 48,345 Education 7,188,274 60, ,080 Public works 1,017, ,624 29,960 37,403 Human services 495,055 1,604 84,675 Recreation and culture 424,834 17,388 Interest on debt service 180,738 3,715 Total governmental activities 12,415, , , ,028 Business-type activities: Water 770, ,125 Sewer 1,028,098 1,282,519 Electric 4,600,131 4,590,304 Total business-type activities 6,398,745 6,692,948 Net (Expense) Revenue and Chan~es in Net Assets Governmental Business-Type Activities Activities Totals (737,879) (737,879) (1,487,194) (1,487,194) (6,965,950) (6,965,950) (816,831) (816,831) (408,776) (408,776) (407,446) (407,446) (177,023} (177,023} (11,001,099} (11,001,099} 49,609 49, , ,421 (9,827} (9,827} 294, ,203 Total government $ 18,814,093 7,522, , ,028 (11,001,099) 294,203 (10,706,896) General revenues: Property taxes Excise taxes Payments in lieu of taxes Intergovernmental Unrestricted investment earnings Miscellaneous Transfers in (out) Total general revenues and transfers Changes in net assets Net assets - beginning of year, as revised $ 10,005,154 10,005, , ,959 9,624 9, , ,859 15,651 82,313 97,964 58,013 2,738 60,751 9,099 (28,023} (18,924} 11,620,359 57,028 11,677, , , ,491 14,815,045 15,691,317 30,506,362 Net assets - end of year $ 15,434,305 16,042,548 31,476,853 The notes to the financial statements are an integral part of this statement. Page 15

64 TOWN OF MERRIMAC 1 MASSACHUSETTS Balance Sheet - Governmental Funds June 30, 2012 Non major General Governmental Fund Funds Total Assets Cash and cash equivalents $ 2,057,256 1 '193,523 3,250,779 Investments 311, ,224 Receivables: Property taxes 155, ,382 Tax liens and foreclosures 533, ,132 Motor vehicle excise 69,481 69,481 Departmental 75,113 44, ,471 Less: allowance for uncollectible accounts (141,578) (141,578) Due from other governments 385,797 47, ,620 Total assets $ 3,134,583 $ 1,596,928 $ 4,731,511 Liabilities and Fund Balances Liabilities: Warrants and accounts payable $ 177,261 32, ,750 Deferred revenue 1,016,473 44,358 1,060,831 Notes payable 140, ,000 Total liabilities 1 '193, ,847 1,410,581 Fund balances: Nonspendable 318, ,517 Restricted 1,024,738 1,024,738 Committed 742, ,132 Assigned 357,464 36, ,290 Unassigned 841, ,253 Total fund balances 1,940,849 1,380,081 3,320,930 Total liabilities and fund balances $ 3,134,583 1,596,928 4,731,511 The notes to the financial statements are an integral part of this statement. Page 16

65 TOWN OF MERRIMAC 1 MASSACHUSETTS Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2012 Non major General Governmental Fund Funds Total Revenues: Property taxes $ 10,005,154 10,005,154 Excise taxes 651, ,509 Payments in lieu of taxes 1,291 1,291 Departmental charges for services 452, , ,518 Licenses and permits 67,325 67,325 Intergovernmental 1,268, ,480 1,376,138 Fines 59,632 59,632 Investment income 15,593 30,017 45,610 Other 58, , ,661 Total revenues 12,579, ,864 13,167,838 Expenditures: Current: General government 610,215 73, ,135 Public safety 1,495, ,982 1,722,057 Education 6,864,851 6,864,851 Public works 804,261 49, ,209 Human services 305,941 82, ,249 Recreation and culture 239,150 25, ,452 Intergovernmental 175, ,522 Employee benefits 578, ,271 Other 106, ,396 Debt service 975, ,918 Total expenditures 12,155, ,460 12,614,060 Excess (deficiency) of revenues over expenditures 424, , ,778 Other financing sources (uses): Operating transfers in 28,165 28,165 Operating transfers out (19,066) (19,066) Total other financing sources (uses) 28,165 (19,066) 9,099 Net changes in fund balances 452, , ,877 Fund balance, beginning of year, as revised 1,488,310 1,269,743 2,758,053 Fund balance, end of year $ 1,940,849 1,380,081 3,320,930 The notes to the financial statements are an integral part of this statement. Page 17

66 TOWN OF MERRIMAC. MASSACHUSETTS Reconciliation of the Governmental Fund Balance Sheet To the Statement of Net Assets Year Ended June 30, 2012 Total fund balances - governmental funds $ 3,320,930 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. These assets consist of: Land and land improvements Construction in progress Infrastructure assets Buildings and building improvements Other capital assets Accumulated depreciation 2,670, ,977 5,015,686 17,943,496 2,242,704 (11,760,517) Total Capital Assets Other long-term assets are not available to pay for current period expenditures and, therefore, are deferred in funds. 16,528,107 1,060,831 Long-term liabilities are not due and payable in the current period and, therefore, are not reported in funds. These liabilities consist of: Bonds payable Accrued interest on bonds (net of accrued state reimbursement) Landfill postclosure care costs Other post employment benefits Compensated absences (4,027,504) (30,562) (405,000) (943,133) (69,364) Total long-term liabilities (5,475,563) Net assets of governmental activities $ 15,434,305 The notes to the financial statements are an integral part of this statement. Page 18

67 TOWN OF MERRIMAC. MASSACHUSETTS Reconciliation of the Governmental Funds - Statement of Revenues; Expenditures and Changes in Fund Balances To the Statement of Activities Year Ended June 30, 2012 Net changes in fund balances - governmental funds $ 562,877 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, these amounts are recorded as capital assets and depreciated over their estimated useful lives. This is the amount by which capital outlays are less than depreciation for the year. Bond proceeds provide financial resources and bond payments are recorded as expenditures in governmental funds, while these are recorded as increases or decreases to long-term liabilities in the statement of net assets. This is the amount by which bond proceeds are less than long-term debt repayments for the year and debt refinancing costs. Certain liabilities are not recognized in the fund based statements until paid. This represents the change in other long term liabilities from the prior year. Revenues in the statement of activities that do not provide current financial resources are not reported as revenue in the funds. (333,805) 795,180 (262,663) (142,329) Changes in net assets of governmental activities $ 619,260 ======= The notes to the financial statements are an integral part of this statement. Page 19

68 TOWN OF MERRIMAC 1 MASSACHUSETTS Budgetary Comparison Schedule - General Fund Year Ended June 30, 2012 Variance To Actual Final Budget Original Final (Budgetary Favorable Budget Budget Basis) (Unfavorable) Resources (inflows): Property taxes $ 9,936,454 9,936,454 10,025,101 88,647 Excise taxes 645, , ,509 6,009 Payments in lieu of taxes 1,300 1,300 1,291 (9) Departmental charges for services 412, , ,799 40,799 Licenses and permits 50,000 50,000 67,325 17,325 Intergovernmental 1,152,860 1,152,860 1,204,698 51,838 Fines 50,000 50,000 59,632 9,632 Investment income 8,000 8,000 11,377 3,377 Other 58,013 58,013 Transfers from other funds 26,599 26,599 28,165 1,566 Total resources 12,282,713 12,282,713 12,559, ,197 Charges to appropriations (outflows): General government 641, , ,791 41,164 Public safety 1,442,401 1,621,131 1,563,872 57,259 Education 6,955,701 6,955,701 6,850, ,010 Public works 814, , ,525 54,365 Human services 304, , ,067 16,057 Recreation and culture 238, , ,513 1,725 Debt service 972, , ,202 Intergovernmental 175, , , Employee benefits 586, , ,027 68,243 Insurance 135, , ,396 28,604 Transfers to other funds 20,000 72,109 72,109 Total charges to appropriations 12,287,413 12,595,422 12,222, ,707 Excess (deficiency) of resources over charges to appropriations (4,700) (312,709) 337, ,904 Fund balance allocation 4, ,709 Excess (deficiency) of resources over charges to appropriations and fund balance allocation $ The notes to the financial statements are an integral part of this statement. Page 20

69 TOWN OF MERRIMAC, MASSACHUSETTS Statement of Net Assets - Proprietary Funds June 30, 2012 (Except for Electric Enterprise which is as of December 31, 2011) Water Sewer Electric Enter~rise Enter~rise Enter~rise Total Assets Current assets: Cash and cash equivalents - unrestricted $ 841, ,249 1,067,577 2,738,992 Cash and cash equivalents - restricted 67,431 67,431 Investments 1,124,553 1,124,553 Receivables (net): User charges 64,239 92, , ,308 Special Assessments 467, ,451 Materials and supplies inventory 15,002 15,002 Prepaid expenses 398, ,138 Other assets 506, ,048 Due from Commonwealth 1,265 1,265 Total current assets 905,405 1,391,625 3,320,158 5,617,188 Noncurrent assets: Due from Commonwealth 20,235 20,235 Capital assets 4,630,799 12,602,270 9,105,623 26,338,692 Accumulated depreciation (2,233,981) (5,664, 142) (3,635,320) (11,533,443) Total noncurrent assets 2,396,818 6,958,363 5,470,303 14,825,484 Total assets $ 3,302,223 8,349,988 8,790,461 20,442,672 Liabilities Current Liabilities: Warrants and accounts payable $ 45,382 14, , ,026 Accrued expenses 266 9, '175 30,835 Notes payable 715, ,000 Other liabilities 714 3, , ,679 Bonds payable, current portion 22, ,906 75, ,378 Total current liabilities 783, , ,986 1,453,918 Noncurrent liabilities: Other liabilities 2, ,003 Other post employment benefits 95,477 39, , ,382 Bonds payable 144,927 1,241,894 1,125,000 2,511,821 Total noncurrent liabilities 242,901 1,282,149 1,421 '156 2,946,206 Total liabilities 1,026,735 1,471,247 1,902,142 4,400,124 Net Assets Invested in capital assets, net of related debt 1,958,936 5,534,328 4,270,303 11,763,567 Unrestricted 316,552 1,344,413 2,618,016 4,278,981 Total net assets $ 2,275,488 6,878,741 6,888,319 16,042,548 The notes to the financial statements are an integral part of this statement. Page 21

70 TOWN OF MERRIMAC, MASSACHUSETTS Statement of Revenues, Expenses and Changes in Fund Net Assets - Proprietary Funds For the Year Ended June 30, 2012 (Except for Electric Enterprise which is as of December 31, 2011) Water Sewer Electric Enter~ rise Enter~ rise Enter~rise Total Operating revenues: Charges for services $ 818,513 1,092,800 4,544,266 6,455,579 Special assessments 142, ,290 Other operating revenues 1,612 47,429 46,038 95,079 Total operating revenues 820,125 1,282,519 4,590,304 6,692,948 Operating expenditures: Energy purchases 3,293,778 3,293,778 Other operating expenses 680, , ,611 2,377,874 Depreciation 83, , , ,212 Total operating expenditures 763, ,258 4,554,775 6,279,864 Operating income 56, ,261 35, ,084 Nonoperating revenues (expenses): Interest expense (6,685) (66,840) (45,356) (118,881) Other 2,738 2,738 Investment income (loss) 1,821 1,577 78,915 82,313 Total nonoperating revenues (expenses) {4,864) (62,525) 33,559 (33,830) Income before transfers 51, ,736 69, ,254 Operating transfers (out) (28,023) (28,023) Changes in net assets 51, ,736 41, ,231 Net assets, beginning of year, as revised 2,224,058 6,620,005 6,847,254 15,691,317 Net assets, end of year $ 2,275,488 6,878,741 6,888,319 16,042,548 The notes to the financial statements are an integral part of this statement. Page22

71 TOWN OF MERRIMAC, MASSACHUSETTS Statement of Cash Flows - Proprietary Funds For the Year Ended June 30, 2012 (Except for Electric Enterprise which is as of December 31, 2011) Water Sewer Electric Enteq~rise Enteq~rise Enter~rise Total Cash flows from operating activities: Cash received from customers $ 819,899 1,158,636 4,621,924 6,600,459 Other operating cash receipts 1,613 47,429 49,042 Cash paid to suppliers (334,331) (331,712) (3,532,262) (4,198,305) Cash paid to employees (349,510) (420,582) (621,094) (1,391,186) Payment in lieu of taxes (28,023) (28,023) Net cash provided by operating activities 137, , ,545 1,031,987 Cash flows from capital and related financing activities: Capital expenditures and adjustments (677,856) (125,023) (474,610) (1,277,489) Interest paid, net of subsidy (6,712) (65,571) (48,450) (120,733) Net borrowing (repayments), net of subsidy 692,528 (246,668) (75,000) 370,860 Net cash provided by capital and related financing activities: 7,960 {437,262} {598,060} {1,027,362} Cash flows from investing activities: (Purchases) sales of investments (net) (92,584) (92,584) Investment income (loss) 1,821 1,577 78,915 82,313 Net cash provided by capital and related financing activities: 1,821 1,577 {13,669} {10,271} Net increase in cash and cash equivalents 147,452 18,086 (171,184) (5,646) Cash and cash equivalents, beginning of year 693, ,163 1,306,192 2,812,069 Cash and cash equivalents, end of year $ 841, ,249 1,135,008 2,806,423 Reconciliation of operating income to net cash provided By operating activities: Operating income (loss) $ 56, ,261 35, ,084 Depreciation 83, , , ,212 Payment in lieu of taxes and transfers (28,023) (28,023) (Increase) decrease in accounts receivable 1,386 (76,453) 1,449 (73,618) (Increase) decrease in other assets 20,061 20,061 (Increase) decrease in prepaid expenses (66,075) (66,075) Increase (decrease) in accounts payable (7,290) (166) 114, ,848 Increase (decrease) in accrued expenses 10,110 10,110 Increase (decrease) in other liabilities 3,988 {48,404) 85,804 41,388 Net cash provided by operating activities $ 137, , ,545 1,031,987 The notes to the financial statements are an integral part of this statement. Page 23

72 TOWN OF MERRIMAC. MASSACHUSETTS Statement of Net Assets Fiduciary Funds June 30, 2012 Agency Funds Assets Cash and cash equivalents Total assets Liabilities Other liabilities Total liabilities $ ;4~2,1,..;;.;32;;;...;8;._ 42,328 42,328 42,328 Net Assets Unrestricted Total net assets $===== The notes to the financial statements are an integral part of this statement. Page 24

73 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 1. Reporting Entity and Significant Accounting Policies A. Introduction The Town of Merrimac was incorporated as a town in 1876 under the statutes of the Commonwealth of Massachusetts. The Town operates with a selectmen-open Town meeting form of government and an elected three member Board of Selectmen. The Town provides general municipal services including public safety, education, public works, health, culture and recreation. Water, sewer and electric services are provided on an enterprise basis. The Town's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board is the standard setting body for governmental accounting and financial reporting. B. Financial Reporting Entity GAAP require that the accompanying financial statements present the Town (primary government) and its component units. Component units are included in the Town's reporting entity if their operational and financial relationships with the Town are significant. In determining the financial reporting entity, the Town considered all potential component units and (ound that none exist. Joint Ventures: The Town is a participant in the Pentucket Regional School District (the District). The District was created to provide education to students in grades K through twelve, from the Towns of Merrimac, Groveland, and West Newbury. The District is governed by a twelve member board composed of the School Committees of member Towns. The Town is indirectly liable for the District's debt and other expenditures and is assessed annually for its share of operating and capital costs. The Town's assessment for fiscal year 2012 was $6,337,103, which represents approximately 34% of the District's operating budget. A copy of the District's financial statement is available from the Superintendent's Office, 22 Main Street, West Newbury, MA The.Town is a participant in the Whittier Regional Vocational Technical School District (the District). The School was created to provide vocational technical education to students in Merrimac and other communities and is governed by a board composed of member Towns. The Town is indirectly liable for the District's debt and other expenditures and is assessed annually for its share of operating and capital costs. The Town's assessment for fiscal2012 was $513,588, which represents approximately4.82% ofthe School's operating budget. A copy ofthe School's financial statement is available from the Superintendent's Office, 115 Amesbury Line Road, Haverhill, MA C. Financial Statement Presentation The financial condition and results of operations of the Town's funds are presented as of and for the year ended June 30, 2012 (except for the Electric Enterprise Fund which is as of and for the year ended December 31, 2011). The accounting policies of the Town conform to GAAP. D. Government-wide and Fund Financial Statements The Town's basic financial statements include both government-wide and fund financial statements. The government-wide financial statements report information on all the non-fiduciary activities of the Town. For the most part, the effect of interfund activities has been removed from these statements. Page 25

74 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 1. Reporting Entity and Significant Accounting Policies (continued) D. Government-wide and Fund Financial Statements (continued) Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from 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 are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. Program revenues include 1) charges to customers or others who purchase, use or directly benefit from goods services, or privileges provided by a certain function and 2) grants and contributions restricted to meeting the operational or capital requirements of a function. Taxes and other items not properly included among program revenues are reported instead as general revenues. 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. GAAP requires that major individual governmental funds and major individual enterprise funds be reported as separate columns in the fund financial statements. The Town's general, water, sewer and electric funds are reported as major funds. The Town reports the following fund financial statements: Governmental Funds General Fund- This fund is the Town's primary operating fund. This accounts for all financial resources of the general government, except those required to be accounted for in another fund. Other Governmental Funds - These funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. Proprietary Funds Water Enterprise Fund- This fund is used to account for the Town's water operations. Sewer Enterprise Fund- This fund is used to account for the Town's sewer operations. Electric Enterprise Fund- This fund is used to account for the Town's electric operations. Fiduciary Funds Agency Funds - These funds are used to report resources held by the Town in a purely custodial capacity (assets equal liabilities). E. Measurement Focus and Basis of Accounting The government-wide, propriety, and fiduciary fund financial statements are reported using the economic resources measurement focus. The government-wide and propriety fund financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants is recognized in the fiscal year in which all eligibility requirements have been satisfied. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. The Town considers revenues reported in the governmental funds to be available if the revenues are collected within sixty days after year end. Property taxes and interest associated with Page 26

75 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 1. Reporting Entity and Significant Accounting Policies (continued) E. Measurement Focus and Basis of Accounting (continued) the current fiscal year are considered to be susceptible to accrual. Expenditures generally are recorded when a liability is incurred, as under accrual accounting, however, principal and interest on general long-term debt, claims and judgments, and compensated absences are recorded when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. All governmental and business-type activities and enterprise funds of the Town follow F ASB Statements and Interpretations issued on or before November 30, 1989, Accounting Principles Board Opinions, and Accounting Research Bulletins, unless those pronouncements conflict with GASB pronouncements. F. Assets, Liabilities, and Net Assets or Equity a. Deposits and Investments State statutes place certain limitations on the nature of deposits and investments available to the Town. Deposits (including demand deposits, term deposits and certificates of deposit) in any one financial institution may not exceed certain levels without collateralization by the financial institutions involved. The Town, with certain restrictions, can also purchase obligations of United States Government or its agencies, repurchase agreements, money market funds and units of the Massachusetts Municipal Depository Trust (MMDT), an investment pool established by the State Treasurer. In addition, certain other governmental funds have other investment powers, most notably the ability to invest in common stocks, corporate bonds and other specified investments. The Town pools cash to facilitate the management of cash. Each fund presents it's pro rata share of the combined cash account as cash and cash equivalents in the accompanying basic financial statements. The Town has defined cash and cash equivalents to include cash on hand, demand deposits, cash with fiscal agent and deposits with the MMDT. Investments are reported at fair value. b. Property Taxes The Town is responsible for assessing and collecting property taxes in accordance with enabling state laws. Property taxes are determined, each year, on the full and fair cash value of taxable properties as of January 1st. The tax levy is divided into two billings and is payable on a quarterly basis. The first billing is an estimate of the current year's levy based on the prior year's taxes. 50% is due on August 1st and 50% is due on November 1st. The second billing reflects adjustments to the current year's actual levy with 50% due on February 1st and 50% due on May 1st. Taxes due and unpaid after the respective due dates are subject to interest and penalties. The Town has an ultimate right to foreclose on property for which taxes have not been paid. Property taxes levied are recorded as receivable in the fiscal year billed. A statewide tax limitation statute know as "Proposition 2-1/2" limits the property tax levy to an amount equal to 2 1/2% of the value of all taxable property in the Town. A secondary limitation Page 27

76 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 1. Reporting Entity and Significant Accounting Policies (continued) F. Assets, Liabilities, and Net Assets or Equity (continued) b. Property Taxes (continued) is that no levy in a fiscal year may exceed the preceding year's allowable tax levy by more than 2-1/2 %, plus taxes levied on certain property newly added to the tax rolls. Certain Proposition 2-1/2 taxing limitations can be overridden by a Town-wide referendum vote. c. Inventories The costs of inventories are not material and the purchase method is used in all funds except for the electric enterprise fund. The electric enterprise fund uses the average cost method of recording inventory for materials and supplies. d. Capital Assets Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated capital assets are recorded at estimated fair market value at the date of donation. General infrastructure assets acquired prior to July I, 2002 consist of the roadways and curbing assets that were acquired or that received substantial improvements subsequent to July 1, 1980 and are reported at estimated historical cost using deflated replacement cost. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Capital assets are defined by the Town as assets with an initial, individual cost of more than $5,000 and an estimated life in excess of three years. Such assets are depreciated using the straight-line method over the following estimated useful lives: Assets Land improvements Buildings Building improvements Vehicles and equipment Infrastructure Years e. Compensated Absences The liability for compensated absences reported in the government-wide and proprietary fund statements consist of unpaid, accumulated vacation and certain sick leave absences. In the government-wide and proprietary fund financial statements, this liability is recognized when the associated benefit has been earned. For sick leave benefits, a liability is recognized when the sick leave benefit (primarily sick leave buy back benefits) is fully vested. f Long-term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities. Bond Page 28

77 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 1. Reporting Entity and Significant Accounting Policies (continued) F. Assets, Liabilities, and Net Assets or Equity (continued) f Long-term Obligations (continued) premiums and discounts, as well as issuance costs, are (if material) deferred and amortized over the life ofthe bonds. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuance's are reported as other financing sources while discounts received on debt issuance's are reported as other financing uses. Issuance costs are reported as debt service expenditures. g. Fund Balances - Governmental Funds GASB Statement Number 54, Fund Balance Reporting and Governmental Fund Type Definitions, was implemented for the 2011 financial statements. In the governmental fund financial statements, fund balance is divided into five categories - nonspendable, restricted, committed, assigned and unassigned. Presented below is a discussion of each GASB 54 fund balance classification. Nonspendable - Amounts that cannot be spent because they are either not in spendable form or must be kept intact for legal or contractual reasons. This category is utilized mainly for permanent fund principal and also includes (if applicable) prepaid expenses, inventory and long term portion of loans receivable (unless the purpose is restricted, committed or assigned). Restricted - Amounts constrained to specific purpose by external parties, enabling legislation and constitutional provision. Enabling legislation means the government is authorized to collect revenue and other parties (citizens, courts) can compel the government to spend the funds only on the authorized purpose. Committed - Amounts constrained to specific purpose by the highest level of decision making authority (Town Meeting) and can be changed only by the same action. Assigned- Amounts intended for a specific purpose by the Selectmen, Town Committee or Town management but do not meet the criteria to be classified as restricted or committed. Unassigned- The residual classification of the Town's general fund only (and residual deficits in other governmental funds). Committed fund balance is created from Town Meeting action and must be uncommitted by similar action. Committed fund balance in the general fund includes $742,132 in three stabilization fund balances. Stabilization funds are obtained by Town Meeting authorization and are almost exclusively generated from transfers from the general fund budget. These funds are set aside for extraordinary or unforeseen purposes, must be approved by Town Meeting and (in the case of general stabilization) can be utilized for any lawful purpose. Assigned fund balance is created primarily from authorized actions ofthe Board of Selectmen or Town management. Assigned fund balance includes general fund encumbrances and article carry forwards of$357,464 and accepted gifts and donations of$36,826. The Town's policy is to apply expenditures against restricted fund balance, committed fund balance, assigned fund balance and unassigned fund balance at the end of the fiscal year via Page 29

78 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 1. Reporting Entity and Significant Accounting Policies (continued) F. Assets, Liabilities, and Net Assets or Equity (continued) g. Fund Balances - Governmental Funds (continued) adjusting journal entries. Non-general funds may have negative unassigned fund balances when non-spendable amounts plus restricted, committed and assigned fund balances exceed the total positive fund balance in a fund. Currently, the Town does not have a fund balance policy addressing the level of targeted reserves. h. Net Assets Net assets appear in the Town's proprietary (enterprise) fund and the entity wide financial statements. Net assets are the difference between assets and liabilities. Net assets invested in capital assets represent capital assets less accumulated depreciation and outstanding debt (net of related debt subsidies from the state). Restricted net asserts consist of net assets with constraints placed on the use either by grantors, creditors, contributors or laws and regulations of other governments or by constitutional provisions or enabling legislation. i Use of Estimates In preparing the Town's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date ofthe financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2. Budgetary Information Under the Town's by-laws, budget requests are prepared by Town departments and submitted to the Selectmen and Finance Committee for review. The Selectmen and the Finance Committee have until May, when the Town meeting is held, to make their recommendations regarding department requests. After approval of the budget at the annual Town meeting, the tax recapitulation sheet is prepared. During this process the property tax rate is determined and the recap sheet is sent to the Department of Revenue for approval. This process should generally be completed by November so the actual tax bills can be mailed by January 1, due and payable by the taxpayer on February 1. The Town must establish its tax rate each year so that the resulting property tax levy will comply with the limits required by Proposition 2 1/2 and also constitute that amount which will equal the sum of (a) the aggregate of all annual appropriations for expenditures, state and county assessments, and transfers, plus (b) provision for the prior fiscal year's deficits, if any, less (c) the aggregate of all nonproperty tax revenues and transfers projected to be received by the Town, including available funds. Page 30

79 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 2. Budgetary Information (continued) The final Town budget as presented in the Budgetary Comparison Schedule was developed as: Charges to appropriations and transfers out To be funded as follows: Budgeted revenue Transfers from other funds Allocation of surplus Total funding (resources) $ $12,256,214 26, $ The Town's General Fund budget is prepared on a basis other than GAAP. The "actual" results column of the Budgetary Comparison Schedule- General Fund is presented on a "budget basis" to provide a meaningful comparison with the budget. The major differences between the budget and GAAP bases are: a. Property tax revenues are recorded when the cash is received as opposed to when susceptible to accrual (GAAP); b. Encumbrances and continuing appropriations are recorded as expenditures (budgetary) as opposed to a reservation of fund balance (GAAP); c. On behalf payments for state teacher's retirement system and water pollution trust debt are recognized for GAAP only; and d. Stabilization and capital improvement funds are not part of the general fund. The following reconciliation summarizes the differences between budgetary and GAAP basis accounting principles for the general fund for the year ended June 30, 2012: Excess (deficiency) of resources over charges to appropriations: Adjustments: Record Revenues on a Modified Accrual Basis On Behalf Payments, Net (Gross of$63,960) Stabilization Fund Interest and Transfers Adjustment for Encumbrances and Continuing Articles Net changes in fund balances - GAAP Basis $337,195 ($19,948) $76,325 $58,967 $ Within the adopted budget a sum is allocated to provide funding for extraordinary or unforeseen expenditures. The Finance Committee can authorize transfers from this reserve fund. Any other modifications to the budget would require action by Town Meeting. Page 31

80 Note 3. Deposits and Investments Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Please note that the difference between the amounts below and the amounts in the financial statements is due solely to the presentation of the electric enterprise fund as of December 31, Cash Deposits Custodial risk on cash deposits is the risk that in the event of a depository failure, the Town will not be able to recover the value of its deposits or collateral securities that are in the possession of the depository. The Town's attempts to limit custodial risk by placing funds in a variety of financial institutions and maximizing amounts insured or collateralized. At June 30, 2012, the Town's carrying amount of deposits was $5,425,134 and the bank balance was $4,989,036. Of the bank balances, $4,773,678 was covered by Federal Deposit Insurance Corporation or other state insurance. The remaining amount of $215,358 was neither insured nor collateralized. Investments At June 30, 2012, the Town's investment balances were as follows: Type of Investment US government and agency securities Other fixed income securities Mutual funds Pooled Investments: Money market funds External Investment Pool: MMDT Total investments Fair Value $767, , ,517 82, ,547 $ Custodial credit risk for investments is the risk that, in the event of the failure of the counter party to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The Town does not have an investment policy covering custodial credit risk. Interest rate risk is the risk that changes in market interest rates that will adversely affect the fair market value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair market value to changes in market interest rates. The Town does not have an investment policy covering interest rate risk. The US government and agency securities investments have the following maturities: $77,414 between three and five years, and $690,019 thereafter. The other fixed income securities have maturities of$27,601 between one and two years, $262,707 between three and five years and $143,359 thereafter. Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. Credit risk is measured by the assignment of a rating by a nationally recognized statistical rating organization. The US government and agency securities investments are rated Aaa and AA by Moody's Investor Services; AAA and AA by Standard and Poor's and are not considered to have credit risk. The other fixed income securities investments are rated Aaa and Aa to A by Moody's Investor Services; AAA and Aa to A by Standard and Poor's. MMDT, equities securities and money market funds are not rated as to credit risk. The Town does not have an investment policy which would limit its investment choices as to credit risk. Page 32

81 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 3. Deposits and Investments (continued) Concentration of credit risk- The Town does not have an investment policy which limits the amount that can be invested in any one issuer or security. Excluding US federal agency securities, and external investment pools, there are no securities or issuers which represent more than 5% of the total investments of the governmental funds or governmental activities. Note 4. Capital Assets Capital asset activity for the year ended June 30, 2012 (electric enterprise fund as of December 31, 2011) was as follows: Governmental activities: Capital assets not being depreciated: Land and land improvements Construction in progress Total capital assets not being depreciated Beginning Balance $2,670, Additions Reductions Ending Balance 2,670, , Capital assets being depreciated: Buildings and improvements Equipment Infrastructure Total capital assets being depreciated 17,889,680 2,149,423 4,886, , , , ,000-80;000 17,943,496 2,242, Less accumulated depreciation for: Buildings and improvements Equipment Infrastructure Total accumulated depreciation (5,598,552) (1,704,026) (3,872,044) ( ) (418,336) (109,368) ( ) ( ) (63,000) - (63.000) (6,016,888) (1,750,394) ( ) (11, 760,517) Capital assets being depreciated, net ( ) ,441,369 Total governmental activities capital assets, net $ (82 990) Depreciation expense was charged to functions as follows: General government Public safety Education Public works Human services Recreation and culture Total governmental activities depreciation expense Governmental Activities $81,819 81, , ,740 16, $ Page 33

82 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 4. Capital Assets (continued) Business-type activities: Capital assets not being depreciated: Land and land improvements Construction in progress Total capital assets not being depreciated Beginning Balance $352, Additions Reductions Ending Balance 352, Capital assets being depreciated: Improvements other than buildings Buildings and improvements Equipment Infrastructure Total capital assets being depreciated 237, ,544 1,294, ,451 24,225, , , , , ,544 1,413, Less accumulated depreciation for: Improvements other than buildings Buildings and improvements Equipment Infrastructure Total accumulated depreciation (12,781) (178,439) (807,518) ( ) ( ) (6,221) (15,670) (87,951) (498,370) ( ) (28.725) (28.725) (19,002) (194,109) (895,469) ( 1 0, ) (11,533,443) Capital assets being depreciated, net 13,271, Total governmental activities capital assets, net $ I Depreciation expense was charged to functions as follows: Water Sewer Electric Total business-type activities depreciation expense Business-tvpe Activities $ 83, , ,386 $ Note 5. Short-term Debt Subject to state laws, the Town is authorized to issue general obligation debt on a temporary basis. The following classes of short-term loans can be issued: Tax anticipation notes (TANs)- This debt is issued to provide funding for operations during lean periods in a fiscal cycle. They are repaid from subsequent collections of taxes or other revenues. Bond anticipation notes (BANs)- This debt is issued to provide initial funding for capital projects. They are redeemed from the proceeds from the sale of the bonds. Grant anticipation notes (GANs)- This debt is issued to provide funding for projects in anticipation of reimbursement from federal or state grants. They are repaid from subsequent distributions from the federal or state agency. Short-term debt activity for the year ended June 30, 2012, was as follows: Beginning Ending Balance Additions Reductions Balance Governmental activities: Bond anticipation notes - school land,$,;; ~ - ~ Business Type: Bond anticipation notes -water projects,$,;; lli..qqq - lli..qqq Page 34

83 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30,2012 Note 6. Long-term Obligations The following is a summary of the changes in the Town's long-term obligation for the year ended June 30,2012: Beginning Ending Amount Due Balance Additions Reductions Balance Within One Year Governmental activities: Compensated absences $67,403 1,961 69,364 14,287 Landfill post closure costs 420,000 15, ,000 15,000 Other post employment benefits 667, , ,133 Bonds payable , , , ~ ~ lQ Business-type activities: Compensated absences 84,274 11,977 96,251 93,248 Other post employment benefits 401,971 29, ,382 Bonds payable , , ,378 $ ~ ~ ~ Note 7. Bonds Pa~able The Town's indebtedness consists of general obligation serial notes issued between fiscal years 1999 and 2011 for funding various special projects. All bond issues must be approved by Town meeting. The outstanding governmental activities bonds were issued for a variety of capital purposes, the largest portion related to school and library construction. The outstanding business-type activities bonds were issued for water, sewer, and light projects. The bonds bear interest from 2.0% to 5.0% and are due in various annual installments ranging through The annual debt service requirements of the Town's outstanding indebtedness at June 30, 2012 (December 31, 2011 for electric light business-type activities) are as follows: Governmental Governmental Business-type Business-type Activities Activities Activities Activities Total Total Fiscal Year PrinciQal Interest PrinciQal Interest PrinciQal Interest 2013 $703, , , , , , , , ,070 97, , , , , ,250 86, , , , , ,250 79, , , ,850 86, ,250 70, , , ,440, , , ,365 2,420, , ,000 13, ,000 59, ,000 73, , ,500 Totals $ ~ ~ Ofthe total governmental activities debt service requirements of$4,863,059, the Town is scheduled to receive $602,807 as reimbursement from the Commonwealth of Massachusetts School Business Assistance Program. Of this reimbursement amount, $385,797 is related to debt principal and has been recorded as an intergovernmental receivable in the financial statements. In addition, the Town is scheduled to receive $41,732 as reimbursement from the Commonwealth ofmassachusetts Water Page 35

84 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 7. Bonds Payable (continued) Pollution Abatement Trust. Of this reimbursement amount, $20,235 is related to debt principal and has been recorded as an intergovernmental receivable in the financial statements. The Town is subject to a dual level general debt limit; the normal debt limit and the double debt limit. Such limits are equal to 5% and 10%, respectively, of the valuation of taxable property in the Town as last equalized by the Commonwealth's Department of Revenue. Debt may be authorized up to the normal debt limit without state approval. Authorizations under the double debt limit, however, require the approval of the Commonwealth's Oversight Board. Additionally, there are many categories of general obligation debt, which are exempt from the debt limit but are subject to other limitations. As of June 30, 2012, the Town may issue approximately $33,200,171 of additional general obligation debt under the normal debt limit. The Town has $2,165,318 of issued debt exempt from the debt limit. At June 30, 2012, the Town also has authorized and unissued debt of$3,985,000 for various water projects. In addition to the Town's outstanding debt, the Town is assessed its share of debt from other governmental entities (known as overlapping debt). For the Pentucket Regional School District, the Town's share of the Regional School's $11,064,510 debt at June 30, 2012 (based on current assessment percentages) is 20.0% or $2,441,501. Note 8. Governmental Fund Balances The detailed breakdown of fund balances for the Town's governmental funds appears below. Fund Balances: Nonspendable: Permanent fund principal Restricted: Permanent fund spendable amounts Cable TV Inspections Affordable housing Other purposes - special revenue Other purposes- capital projects Committed: Stabilization funds Assigned: Gifts and donations General fund encumbrances Unassigned: General fund residual balance Total governmental fund balances General Fund Nonmajor Governmental Funds $ 318, , , , , , , ,583 12,989 36, , $1,24Q 842 I Total 318, , , , , ,583 12, ,132 36, , , Page 36

85 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 9. Inter-fund Transfers Operating transfers constitute the transfer of resources from the fund that receives the resources to the fund that utilizes them. Transfers are typically made to offset the cost of budgeted items in the general fund or to set aside funds for future use. For the year ended June 30, 2012, the general fund transferred $40,000 to the fire stabilization fund and $32,109 to the capital stabilization fund (these appear only in the budgetary statement transfers, as the stabilization fund is now included in the general fund based on the requirements ofgasb 54). The general fund received $9,098 from the electric enterprise fund. The general fund also received $6,400 from the cemetery lots and graves fund, $11,100 from Title V and $1,566 from the loss control account to offset budget line items. The difference in transfers between governmental funds and activities and enterprise funds and businesstype activities is due to the presentation of the light department as of December 31, Note 10. Pension Plans Town employees participate in two cost sharing, multiple employer defined benefit plans. The systems are funded by contributions from participants, employer contributions and/or state appropriations. These systems are the Essex Regional Retirement System, which covers most nonteaching employees of the Town and the Massachusetts Teachers Retirement System, which covers most teaching employees. Essex Regional Retirement System: Eligibility and Vesting- Employees of the Town who are employed on a basis which anticipates work at an annual rate to exceed 1040 hours are eligible to participate in the System. Employees are eligible immediately after the date of employment. For participants who were employed by the Town prior to January 1, 1978, benefits become vested after 20 or more years of creditable service or upon reaching the age of 55. Benefits relating to participants who were hired subsequent to December 31, 1977 become vested after 20 or more years of creditable service or after 10 or more years of creditable service and if they have reached the age of 55. Contributions - Employees contribute 5% of regular compensation if employed prior to January 1, 1975; 7% iffirstemployed from January 1, 1975 to December 31, 1983; 8% of the first $30,000 and 10% thereafter if first employed on or after January 1, 1984; and 9% ofthe first $30,000 and 11% thereafter if first employed on or after January 1, Employee contributions may be returned to the participants upon leaving Town employment prior to retirement, within certain age and length of employment restrictions, as prescribed by the Massachusetts General Laws. Retirement Benefits - The amount of normal monthly retirement benefit is equal to a percentage of the participant's average monthly compensation, determined based on age at retirement, the maximum being 2.5% at age 65, and based on the higher of the participant's (1) highest three consecutive years of compensation or (2) last three calendar years of employment preceding retirement whether or not such years are consecutive, multiplied by years of service, up to a maximum of 80% of the average monthly compensation as computed above. Any cost-of-living adjustments granted since 1981 and any increase in other benefits imposed by law after that year are borne by the Commonwealth of Massachusetts. Other - Provisions exist in the plan for cost of living adjustments and disability benefits. Page 37

86 Note 10. Pension Plans (continued) Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Town Contributions Required and Made - The Town is assessed annually for their share of system. The Town was assessed and paid $450,385 in 2010, $526,050 in 2011 and $536,204 in These amounts represent approximately 1% of system wide employer assessments. Trend Information showing the System's progress in accumulating sufficient assets to pay benefits when due is presented in the System's annual financial report. A copy of this report is available from the system. Massachusetts Teachers Retirement System Eligibility and Vesting- Teaching employees ofthe Town who are employed on a basis which anticipates work at an annual rate to exceed 1000 hours are required to participate in the System. For participants who were employed by the Town prior to January 1, 1978, benefits become vested after 20 or more years of creditable service or upon reaching the age of 55. Benefits relating to participants who wenl hired subsequent to December 31, 1977 become vested after 20 or more years of creditable service or after 10 or more years of creditable service and if they have reached the age of 55. Contributions - Employees contribute 5% of regular compensation if employed prior to January 1, 1975; 7% if first employed from January 1, 1975 to December 31, 1983; and 8% if first employed on or after January 1, Employee contributions may be returned to the participants upon leaving Town employment prior to retirement, within certain age and length of employment restrictions, as prescribed by the Massachusetts General Laws. Other - Provisions exist in the plan for cost of living adjustments and disability benefits. Town Contributions Required and Made- The Town is not required to contribute to this plan. State appropriations are made annually to fund system costs. For the fiscal year ended June 30, 2012, the state's contribution to this plan on behalf of the Town was $66,065. This on-behalf payment has been recorded as intergovernmental revenue and employee benefit expenditure in the general fund. Trend Information showing the System's progress in accumulating sufficient assets to pay benefits when due is presented in the System's annual financial report. A copy of this report is available from the system. Note 11. Other Post-Employment Benefits (OPEB) The Town implemented GASB 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, for the 2009 financial statements. As allowed by GASB 45, the Town established the net OPEB obligation at zero for the beginning of fiscal year 2009 and has applied the measurement and recognition requirements of GASB 45 on a prospective basis for 2009 through Plan Description- The Town provides health and life insurance coverage for its retirees and their survivors as a single-employer defined benefit Other Post-Employment Benefits Plan (the Plan). The plan was established in accordance with Massachusetts General Law Chapter 32B, to employees who retire in accordance with various predetermined years of service and under various age requirements.. Changes to plan design and contribution rates must be negotiated through the collective bargaining process. Page 38

87 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 11. Other Post-Employment Benefits (OPEB) continued As of July 1, 2009 (the most recent valuation date), the number of Plan participants is as follows: Active employees Retirees and beneficiaries Total Funding Policy- Contribution requirements are negotiated as part of the collective bargaining process. Currently, members receiving these benefits contribute at a 50% coverage rate or at 50% of the Medex rate, depending on the plan. The cost of administering the plan is paid for by the Town. Annual OPEB Cost and Net OPEB Obligation- The Town's annual OPEB cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an actuarially determined amount that is calculated in accordance with GASB 45 parameters. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed thirty years. The components of the Town's annual OPEB cost for the year, the actual contribution to the plan and changes to the Town's net OPEB obligation are presented in the following table. Normal cost Amortization of unfunded actuarial accrued liability Interest Annual required contributions Interest on OPEB obligation Adjustment to annual required contribution Annual OPEB cost Employer contributions Increase (decrease) in net OPEB obligation Net OPEB obligation- beginning of year Net OPEB obligation- end of year $216, ,715 14, ,325 64,679 (65,312) 447,692 (142,579) 305,113 1, $ The Town's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation is as follows: Fiscal Year Annual Percentage of Annual NetOPEB Ended OPEB Cost OPEB Cost Contributed Obligation 6/30/2012 $447,692 32% $1,374,515 6/30/2011 $447,486 21% $1,069,402 6/30/2010 $458,958 20% $717,916 Funding Status and Funding Progress- The funded status of the plan at July 1, 2008, the most recent actuarial valuation, was as follows: Page 39

88 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 11. Other Post-Employment Benefits (OPEB) continued Actuarial Accrued Actuarial Liability (AAL) Unfunded Actuarial Value of Entry Age Normal AAL Funded Valuation Assets Cost (VAAL) Ratio Date.(A} (ill CB-A) (A/B) 7/ $0 $3,596,597 $3,596,597 0% 7/1/2009 $0 $4,347,003 $4,347,003 0% UAALasa Percentage Covered Of Covered Payroll Payroll.{Q ((B-A}/C) $2,500, % $2,500, % The actuarial valuation of an ongoing plan involves estimates of the value of the reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and healthcare cost trends. Amounts determined regarding funding status of the plan and the annual required contribution of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Methods and Assumptions- 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 short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The following additional information is provided as of the latest actuarial valuation: Valuation date July 1, 2009 Actuarial cost method Projected unit credit Amortization method 30 years, level dollar Remaining amortization period 26 years, as of June 30, 2012 Interest discount rate 4% Medical cost trend 10% trending down to 5% in 2014 Note 12. Landfill Closure and Post Closure Care Costs State and Federal regulations require that the Town place a final cover on its landfill after the landfill is closed and also to perform certain ongoing maintenance and monitoring for thirty years after closure. The Town's landfill has been closed, and a project to perform the needed closure steps is nearly complete. The Town plans to fund post closure testing and monitoring costs, estimated at $405,000 over the next eighteen years, from its annual tax levy. This estimated liability, which is subject to change due to inflation, technology and applicable regulations, is presented in the Statement of Net Assets. Note 13. Commitments The Department purchases its power through contracts with various power suppliers. These contracts are subject to certain market factors. Based on current market conditions, the Department anticipates some stability to its power cost expenses over the next few years. Page 40

89 Town of Merrimac, Massachusetts Notes to the Financial Statements June 30, 2012 Note 14. Risk Management Lawsuits may be pending or threatened against the Town, which arise from the ordinary course of operations, including actions commenced and claims asserted against it for property damage and personal injury, breaches of contract, condemnation proceedings and other alleged violations oflaw. The Town estimates that potential claims against the Town, not covered by insurance, resulting from such litigation, would not materially affect the financial statements. The Town receives some financial assistance from numerous federal and state agencies in the form of grants and entitlements. Expenditures of funds under these programs require compliance with the grant agreements and may be subject to audit. Any disallowed expenditures resulting from such audits become a liability of the Town, although the Town expects that these amounts, if any, would be immaterial to the financial statements. Note 15. Implementation of new GASB Statements During fiscal year 2012, the Town implemented the following GASB pronouncements: GASB Statement #64 -Derivative Instruments: Application of Hedge Accounting Termination Provisions. This statement did not impact the Town's financial statements. In future fiscal years, the Town will implement the following GASB pronouncements: GASB Statement #60 -Accounting and Financial Reporting for Service Concession Arrangements, which is required to be implemented in fiscal year This statement will have no impact on the Town's financial statements. GASB Statement #61 - The Financial Reporting Entity: Omnibus - an Amendment of GASB Statements No. 14 and No. 34, which is required to be implemented in fiscal year The Town is currently evaluating the possible impact of this will have on its financial statements. GASB Statement #62 - Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and A/CPA Pronouncements, which is required to be implemented in fiscal year The Town is currently evaluating the possible impact of this will have on its financial statements. GASB Statement #63 -Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position, which is required to be implemented in fiscal year The Town is currently evaluating the possible impact of this will have on its financial statements. GASB Statement #65 - Items Previously Reported as Assets and Liabilities, which is required to be implemented in fiscal year The Town is currently evaluating the possible impact of this will have on its financial statements. GASB Statement #66- Technical Correction An Amendment ofgasb Statements No. 10 and No. 62, which is required to be implemented in fiscal year The Town is currently evaluating the possible impact of this will have on its financial statements. GASB Statement #67- Financial Reporting for Pension Plans- An Amendment ofgasb Statement No. 25, which is required to be implemented in fiscal year This statement will have no impact on the Town's financial statements. GASB Statement #68-Accounting and Financial Reporting for Pensions-An Amendment ofgasb Statement No. 27, which is required to be implemented in fiscal year The Town is currently evaluating the possible impact of this will have on its financial statement Page 41

90 TOWN OF MERRIMAC, MASSACHUSETTS Combining Balance Sheet - Nonmajor Governmental Funds June 30, 2012 Special Revenue Grants Other Assets Cash and cash equivalents $ 42, ,140 Investments Receivables: Departmental 44,358 Due from other governments 47,823 Total assets $ 89, ,498 Capital Projects. Permanent Totals 153, ,822 1,193, , ,224 44,358 47, , ,046 1,596,928 Liabilities and Fund Balances Liabilities: Warrants and accounts payable 21,641 7,305 Deferred revenue 44,358 Notes payable $ Total liabilities 21,641 51,663 Fund Balances: Nonspendable Restricted 68, ,009 Committed Assigned 36,826 Unassigned Total fund balances 68, ,835 Total liabilities and fund balances $ 89, , ,000 32,489 44, , , ,543 3, , , ,517 12, ,529 1,024,738 36,826 12, ,046 1,380, , ,046 1,596,928 Page42

91 TOWN OF MERRIMAC, MASSACHUSETTS Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended June 30, 2012 Special Revenue Capital Grants Other Projects Permanent Totals Revenues: Departmental charges for services $ 245,319 6, ,719 Intergovernmental 107, ,480 Investment income ,960 30,017 Other 198, ,648 Total revenues 107, ,010 36, ,864 Expenditures: Current: General government 6,355 57,097 10, ,920 Public safety 45, , ,982 Public works 49,948 49,948 Human services 7,621 74,687 82,308 Recreation and culture 19,453 2,849 3,000 25,302 Total expenditures 128, ,261 10,187 3, ,460 Excess (deficiency) of revenues over expenditures (21,237) 127,749 (10, 187) 33, ,404 Other financing sources (uses): Operating transfers in Operating transfers out (1,566) (17,500) (19,066) Total other financing sources (uses) (1,566) (17,500) (19,066) Net changes in fund balances (22,803) 110,249 (10, 187) 33, ,338 Fund balance, beginning of year 91, ,586 23, ,967 1,269,743 Fund balance, end of year $ 68, ,835 12, ,046 1,380,081 Page 43

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93 PROPOSED FORM OF LEGAL OPINION APPENDIX C (Date of Delivery) Carol McLeod, Finance Director Town of Merrimac Merrimac, Massachusetts $3,971,000 Town of Merrimac, Massachusetts General Obligation State Qualified Municipal Purpose Loan of 2013 Bonds Dated December 3, 2013 We have acted as bond counsel to the Town of Merrimac, Massachusetts (the Town ) in connection with the issuance by the Town of the above-referenced bonds (the Bonds ). In such capacity, we have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion. As to questions of fact material to our opinion we have relied upon representations and covenants of the Town contained in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. Based on our examination, we are of the opinion, under existing law, as follows: 1. The Bonds are valid and binding general obligations of the Town and, except to the extent they are paid from other sources, the principal of and interest on the Bonds are payable from taxes which may be levied upon all taxable property in the Town, without limitation as to rate or amount, except as provided under Chapter 44, Section 20 of the General Laws, with respect to that portion of the principal and interest payments that the Town has voted to exempt from the limit imposed by Chapter 59, Section 21C of the General Laws, and subject to the limit imposed by Chapter 59, Section 21C of the General Laws with respect to that portion of the principal and interest payments that the Town has not voted to exempt from that limit. 2. The Bonds are qualified bonds as defined in Chapter 44A of the General Laws and is entitled to the benefits of the provisions thereof. 3. Interest on the Bonds is excluded from the gross income of the owners of the Bonds for federal income tax purposes. In addition, interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. However, such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. In rendering the opinions set forth in this paragraph, we have assumed compliance by the Town with all requirements of the Internal Revenue Code of C-1

94 1986 that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, and continue to be, excluded from gross income for federal income tax purposes. The Town has covenanted to comply with all such requirements. Failure by the Town to comply with certain of such requirements may cause interest on the Bonds to become included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. Except as expressed in paragraph 5 below, we express no opinion regarding any other federal tax consequences arising with respect to the Bonds. 4. Interest on the Bonds is exempt from Massachusetts personal income taxes and the Bonds are exempt from Massachusetts personal property taxes. We express no opinion regarding any other Massachusetts tax consequences arising with respect to the Bonds or any tax consequences arising with respect to the Bonds under the laws of any state other than Massachusetts. 5. The Bonds are qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. This opinion is expressed as of the date hereof, and we neither assume nor undertake any obligation to update, revise, supplement or restate this opinion to reflect any action taken or omitted, or any facts or circumstances or changes in law or in the interpretation thereof, that may hereafter arise or occur, or for any other reason. The rights of the holders of the Bonds and the enforceability of the Bonds may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights heretofore or hereafter enacted to the extent constitutionally applicable, and their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. EDWARDS WILDMAN PALMER LLP AM C-2