Grand Rapids Housing Commission. Year Ended June 30, Financial Statements

Transcription

1 Grand Rapids Housing Commission Year Ended June 30, 2016 Financial Statements

2 Table of Contents Independent Auditors Report 1 Management s Discussion and Analysis 3 Basic Financial Statements Statement of Net Position 12 Statement of Revenues, Expenses, and Changes in Fund Net Position 14 Statement of Cash Flows 15 Notes to Financial Statements 17 Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan: Schedule of Changes in the Commission's Net Pension Liability and Related Ratios 42 Schedule of the Net Pension Liability 43 Schedule of Contributions 44 Defined Benefit Other Postemployment Benefits Plan: Schedule of Funding Progress 45 Schedule of Employer Contributions 45 Page

3 2330 East Paris Ave., SE Rehmann Robson PO Box East Paris Ave. SE Grand Rapids, MI Grand Rapids, MI Ph: Ph: Fx: Board of Housing Commissioners Grand Rapids Housing Commission Grand Rapids, Michigan Report on the Financial Statements INDEPENDENT AUDITORS' REPORT December 21, 2016 We have audited the accompanying financial statements of the Grand Rapids Housing Commission (the Commission ), as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Commission's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Independent Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Grand Rapids Housing Commission as of June 30, 2016, and its changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and schedules for the pension and other postemployment benefit plans as noted in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued, under separate cover, our report dated December 21, 2016 on our consideration of the Commission s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Commission's internal control over financial reporting and compliance. 2

5 MANAGEMENT'S DISCUSSION AND ANALYSIS 3

6 Management's Discussion and Analysis This section of the Grand Rapids Housing Commission's ("the Commission") annual financial report presents our discussion and analysis of the Commission's financial performance during its fiscal year that ended on June 30, This discussion has been prepared by management along with the financial statements and related footnote disclosures and should be read in conjunction with and is qualified in its entirety by the financial statements and footnotes. This discussion and analysis is designed to focus on current activities, resulting changes and currently known facts. The financial statements, footnotes and this discussion are the responsibility of the Commission s management. Using This Annual Report This annual financial report consists of two parts management's discussion and analysis (this section), and the basic financial statements. The basic financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The Commission's statements report information about the Commission as a whole using accounting methods similar to those used by private sector companies. These statements include a Statement of Net Position, which is similar to a Balance Sheet. The Statement of Net Position reports all financial and capital resources for the Commission. The Statement is presented in the format where assets plus deferred outflows of resources minus liabilities equals Net Position. Assets and liabilities are presented in order of liquidity, and are classified as current (convertible into cash within one year), and noncurrent. The focus of the statement of Net Position is Net Position which represents the difference of the Commission's assets and deferred outflows of resources from liabilities. Net position is reported in three broad categories: Net Investment in Capital Assets consists of all capital assets, reduced by the outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted Net Position consists of restricted assets, when constraints are placed on the asset by creditors (such as debt covenants), grantors, contributors, laws, regulations, etc. Unrestricted Net Position (Deficit) consists of net position that does not meet the definition of net investment in capital assets or restricted net position. The Commission's financial statements also include a Statement of Revenue, Expenses and Changes in Fund Net Position. This Statement includes operating revenues, such as federal grants and rental income, operating expenses, such as contractual services, utilities, and depreciation, and nonoperating revenues and expenses, such as investment income and interest expense. The focus of the Statement of Revenue, Expenses, and Changes in Fund Net Position is the change in net position, which is similar to net income or loss. Finally, a Statement of Cash Flows is included, which discloses net cash provided by, or used for operating, noncapital financing, capital and related financing, and investing activities. In addition to information about cash transactions, the Statement of Cash Flows reconciles operating income on the Statement of Revenues, Expenses and Changes in Fund Net Position with net cash provided by operating activities on the Statement of Cash Flows. 4

7 Management's Discussion and Analysis The Statement of Net Position and the Statement of Revenue, Expenses and Changes in Fund Net Position include not only the Commission itself, but also legally separate blended component units for which the Commission is financially accountable. A listing of blended component units and a description of each can be found in Note 1 of the financial statements. Financial Highlights The Commission's net position increased by $782,808 during fiscal year Net position was $27,299,236 at June 30, Operating revenues were $28,556,435 for the year ended June 30, 2016, which was an increase from the prior year of $459,383. Operating expenses were $27,123,889 for the year ended June 30, 2016, which was an increase from the prior year of $1,171,353. The Commission's unrestricted deficit in net position increased by $9,080,668 during fiscal year 2016, primarily as a result of an increase in unearned revenue related to partnership contributions received for Creston I and II, which are recorded as revenue over the life of the related tax credits (10 years). The partnership contributions were utilized primarily for the construction and acquisition of capital assets. The unrestricted deficit in net position was $14,699,589. The following table reflects the Statement of Net Position: Net Position Assets Current and other assets $ 8,680,545 $ 7,415,097 Capital assets, net 48,745,523 41,725,309 Total assets 57,426,068 49,140,406 Deferred outflows of resources 171,437 59,887 Liabilities Other liabilities 19,944,596 9,487,975 Long-term liabilities 10,353,673 13,195,890 Total liabilities 30,298,269 22,683,865 Net position Net investment in capital assets 38,639,122 28,762,456 Restricted 3,359,703 3,372,893 Unrestricted (deficit) (14,699,589) (5,618,921) Total net position $ 27,299,236 $ 26,516,428 The largest portion of the Commission s net position, $38,639,122 reflects its investment in capital assets (e.g., land, buildings, machinery and equipment), less any related outstanding debt used to acquire those assets. The Commission uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the Commission s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources since the capital assets themselves cannot be used to liquidate these liabilities. 5

8 Management's Discussion and Analysis The following table reflects the Statement of Revenues, Expense, and Changes in Fund Net Position: Change in Net Position Revenues Operating revenues: Federal grants $ 23,157,926 $ 22,857,090 Charges for services 2,520,523 2,313,466 Miscellaneous 2,877,986 2,926,496 Total revenues 28,556,435 28,097,052 Expenses Operating expenses: Administrative 4,183,507 3,474,127 Tenant services 813, ,354 Utilities 1,127,757 1,139,292 Maintenance 1,864,170 1,502,019 General 461, ,860 Housing assistance payment 16,849,081 17,326,490 Depreciation 1,824,033 1,331,394 Total expenses 27,123,889 25,952,536 Operating income 1,432,546 2,144,516 Nonoperating expenses, net (667,428) (804,055) Capital contributions 17,690 19,163 Change in net position 782,808 1,359,624 Net position, beginning of year 26,516,428 25,679,353 Restatement for implementation of GASB 68 - (522,549) Net position, end of year $ 27,299,236 $ 26,516,428 6

9 Management's Discussion and Analysis The Commission s net position increased by $782,808 during the current fiscal year. As compared to the prior year increase in net position of $1,359,624, the current year results reflected an increase in depreciation expense related to Creston I and II projects as they have been completed. Operating and Nonoperating Revenue Miscellaneous 10% Charges for services 9% Interest 0% Capital Grant 0% Federal revenue 81% Operating and Nonoperating Expenses Interest expense and paying agent fees 3% Housing assistance payment 65% Administrative 16% Tenant services 3% Utilities 4% Maintenance 7% General 2% 7

10 Management's Discussion and Analysis Capital Asset and Debt Administration Capital Assets. As of year end, the Commission had $48,745,523 invested in a variety of capital assets as reflected in the following schedule. Major capital asset events during the current fiscal year included the following: The Commission completed construction of the Creston Plaza site, resulting in additions to construction in progress during the year of $8,714,036, with $19,259,762 transferred out of construction in progress to other capital asset categories. Capital Assets (Net of Depreciation) Land $ 1,263,981 $ 964,990 Construction in progress 52,089 10,597,815 Land improvements 3,818, ,924 Buildings and improvements 64,927,710 51,377,563 Furniture and fixtures 3,664,993 1,686,559 Accumulated depreciation (24,981,575) (23,157,542) Total capital assets, net $ 48,745,523 $ 41,725,309 Additional information on the Commission s capital assets can be found in Note 5 of this report. Long-Term Debt. As of year-end, the Commission had $10,353,673 in debt (loans payable, accrued compensated absences, etc.) outstanding compared to $13,195,890 last year, a $2,842,217 decrease. This decrease is the result of principal payments on long-term debt. Additional information on the Commission's long-term debt can be found in Note 6 of this report. The following condensed Statement of Cash Flows for fiscal years ended June 30, 2016 and 2015: Cash Flows Cash provided by operating activities $ 2,247,189 $ 170,609 Cash provided by (used in) capital and related financing activities (816,211) 89,351 Cash provided by investing activities 3,936 3,325 Net increase in cash 1,434, ,285 Cash, beginning of year 6,928,223 6,664,938 Cash, end of year $ 8,363,137 $ 6,928,223 8

11 Management's Discussion and Analysis Cash provided by operating activities of $2,247,189 is the difference between federal grants received, rental income received from tenants, and other miscellaneous revenues and expenses for administrative expenses, tenant services, utilities, maintenance, general expenses, and housing assistance payments. Cash provided by (used in) capital and related financing activities includes amounts paid for principal and interest on bonds and notes payable, improvements and renovations made to Housing Commission property, proceeds from loans, construction and renovation of capital assets, federal grants for improvements and renovations, and other financing activities. Cash provided by investing activities is interest earned. Overall, the Housing Commission received $1,434,914, more in cash than it paid, leading to a 21% increase in the cash balance since the beginning of the year. Economic Factors and Next Year s Budget and Rates Significant economic factors affecting the Commission are as follows: Federal funding of the Department of Housing and Urban Development Local inflationary, recessionary and employment trends, which can affect resident incomes and therefore the amount of rental income Inflationary pressure on utility rates, supplies and other costs Overall Financial Position Management believes the Commission is in sound condition financially, with revenues exceeding expenses and net position of $27,299,236. The Housing Commission continues to pursue funding to build additional housing that will help meet the needs of our community's lower income population. Our staff will continue to take a leadership role in addressing the housing and supportive needs of Greater Grand Rapids families. Forward Looking Statements From time to time, the Commission may publish forward-looking statements and comments relating to possible or assumed future results for operations, construction, anticipated financial performance and similar matters. These forward-looking statements are subject to risks and uncertainties. When the Commission uses any of the words such as "believes," "expects," "anticipates," "estimates" or similar expressions, the Commission is making forward-looking statements. The Commission claims the protection of safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of the Commission's forwardlooking statements. The Commission believes that its forward-looking statements are reasonable. Readers should not place undue reliance on any such forward-looking statements, which address issues only as of the date made. Readers should understand that many factors, in addition to those discussed elsewhere in this Annual Report and in the Commission's public documents to which it refers, could affect the Commission's future results. This could cause those results to differ materially from those expressed in the Commission's forward-looking statements. The Commission undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events. 9

12 Management's Discussion and Analysis Requests for Information This financial report is designed to provide a general overview of the Grand Rapids Housing Commission s finances for all those with an interest in the Commission s activities. Questions concerning any of the information provided in this report, requests for additional financial information, including the separately issued financial statements of the discretely presented component units, should be addressed to Linda Bigelow, Financial Manager, Grand Rapids Housing Commission, 1420 Fuller Avenue SE, Grand Rapids, MI

13 BASIC FINANCIAL STATEMENTS 11

14 Statement of Net Position June 30, 2016 Assets Current assets: Cash and cash equivalents $ 3,830,114 Receivables: Accounts 34,799 Due from other governmental units 60,944 Prepaid items 19,381 Total current assets 3,945,238 Noncurrent assets: Restricted assets: Cash and cash equivalents 4,533,023 Other noncurrent assets: Notes receivable 45,197 Deferred mortgage costs, net of accumulated amortization of $37, ,087 Total other noncurrent assets 202,284 Capital assets: Not being depreciated: Land 1,263,981 Construction in progress 52,089 Being depreciated: Land improvements 3,818,325 Buildings and improvements 64,927,710 Furniture and fixtures 3,664,993 Accumulated depreciation (24,981,575) Total capital assets, net 48,745,523 Total noncurrent assets 53,480,830 Total assets 57,426,068 Deferred outflows of resources Deferred pension amounts 171,437 continued 12

15 Statement of Net Position June 30, 2016 Liabilities Current liabilities: Vouchers payable $ 400,614 Salaries and wages payable 55,109 Accrued interest payable 25,309 Due to other governmental units 212,365 Unearned revenue 46,660 Other current liabilities 20,214 Accrued compensated absences - current portion 9,361 Loans and notes payable - current portion 4,543,431 Total current liabilities 5,313,063 Noncurrent liabilities: Unearned revenue 17,099,560 Fair value of interest rate swap agreements 5,647 Liabilities payable from restricted assets: Tenant security deposits 234,603 Family self sufficiency program escrow 938,717 Accrued compensated absences, net of current portion 237,911 Loans and notes payable, net of current portion 5,562,970 Net pension liability 841,155 Net other postemployment benefit obligation 64,643 Total noncurrent liabilities 24,985,206 Total liabilities 30,298,269 Net position Net investment in capital assets 38,639,122 Restricted 3,359,703 Unrestricted (deficit) (14,699,589) Total net position $ 27,299,236 concluded The accompanying notes are an integral part of these financial statements. 13

16 Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2016 Operating revenues Federal grants $ 23,157,926 Charges for services 2,520,523 Miscellaneous 2,877,986 Total operating revenues 28,556,435 Operating expenses Administrative 4,183,507 Tenant services 813,500 Utilities 1,127,757 Maintenance 1,864,170 General 461,841 Housing assistance payments 16,849,081 Depreciation 1,824,033 Total operating expenses 27,123,889 Operating income 1,432,546 Nonoperating revenues (expenses) Interest revenue 3,936 Interest expense and paying agent fees (671,364) Net nonoperating revenue (expenses) (667,428) Change in net position before capital contributions 765,118 Capital contributions Federal capital grant 17,690 Change in net position 782,808 Net position, beginning of year 26,516,428 Net position, end of year $ 27,299,236 The accompanying notes are an integral part of these financial statements. 14

17 Statement of Cash Flows For the Year Ended June 30, 2016 Cash flows from operating activities Receipts from federal grants $ 23,327,364 Receipts from rental payments 2,503,231 Receipts from other sources 1,494,969 Payments for administrative services (4,273,808) Payments for tenant services (783,304) Payments for utilities (1,127,757) Payments for operations and maintenance (1,793,233) Payments to other vendors (339,935) Housing assistance payments (16,760,338) Net cash provided by operating activities 2,247,189 Cash flows from capital and related financing activities Principal payments on loans and notes payable (15,770,847) Proceeds from construction mortgage loan 12,914,395 Interest paid on loans and notes payable (685,109) Proceeds from sale of tax credits 15,199,540 Federal capital grants 17,690 Purchases and construction of capital assets (12,491,880) Net cash used in capital and related financing activities (816,211) Cash flows from investing activities Interest received 3,936 Net increase in cash and cash equivalents 1,434,914 Cash and cash equivalents, beginning of year 6,928,223 Cash and cash equivalents, end of year $ 8,363,137 Classified on the statement of net position as: Cash and cash equivalents $ 3,830,114 Restricted cash and cash equivalents 4,533,023 $ 8,363,137 continued 15

18 Statement of Cash Flows For the Year Ended June 30, 2016 Cash flows from operating activities Operating income $ 1,432,546 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 1,824,033 Amortization of noncurrent unearned revenue (1,384,680) Changes in operating assets and liabilities which provided (used) cash: Accounts receivable (12,279) Due from other governmental units 169,438 Notes receivable 1,663 Prepaid items 5,083 Deferred pension amounts (111,550) Vouchers payable 65,854 Salaries and wages payable (93,506) Due to other governmental units (36,575) Unearned revenue (5,013) Other current liabilities 28 Tenant security deposits 30,196 Family self sufficiency program escrow 88,743 Accrued compensated absences 14,235 Net pension liability 270,003 Net other postemployment benefit obligation (11,030) Net cash provided by operating activities $ 2,247,189 concluded Non-cash capital transaction Purchases and construction of capital assets is net of change in accounts payable of $3,647,633 related to construction in progress. The accompanying notes are an integral part of these financial statements. 16

19 NOTES TO FINANCIAL STATEMENTS 17

20 Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Grand Rapids Housing Commission (the Commission ) was created by the City of Grand Rapids (the City ) under the provisions of Act 18, Public Acts of 1933 of the State of Michigan to provide for the development, maintenance and improvement of safe and sanitary housing for low-income families, handicapped and disabled persons, and senior citizens within the community. The Commission is under the supervision and control of a five-member Board appointed by the City Manager, subject to the confirmation by the City Commission. The Commission s primary source of revenues is derived through federal grants. Reporting Entity The Commission is considered to be a stand-alone government in accordance with generally accepted accounting principles. The Commission reports as a business-type activity, as defined by the Governmental Accounting Standards Board Statement No. 34, rather than issuing financial statements which focus on the accountability of individual funds. As required by generally accepted accounting principles, these financial statements present the Commission and its component units, entities for which the Commission is considered to be financially accountable. The blended component units, although legally separate entities, provide services exclusively beneficial to the primary government by providing services that in other circumstances, the Commission would have to provide anyway. Because of this relationship, data from these units are combined with data of the primary government. Blended Component Units The financial information of the following blended component units is included in the basic financial statements. The separately issued financial statements of these component units can be obtained through the Commission by contacting Linda Bigelow, Financial Manager at 1420 Fuller Avenue SE, Grand Rapids, MI Ransom Avenue Development Corporation The Ransom Avenue Development Corporation ( Ransom ) was created as a not-for-profit housing corporation for the purpose of constructing and operating a 153- unit apartment building for the elderly located in Grand Rapids, Michigan. Campau Commons Limited Partnership The Campau Commons Limited Partnership ("Campau Commons") was created as a for-profit limited partnership for the purposes of operating the Campau Commons housing development and selling low-income housing tax credits to investment limited partners. Sheldon Avenue Limited Partnership The Sheldon Avenue Limited Partnership ("Sheldon") was created as a for-profit limited partnership for the purposes of operating the Sheldon Avenue housing development and selling low-income housing tax credits to investment limited partners. Mount Mercy Phase II Limited Partnership The Mount Mercy Phase II Limited Partnership ("Mount Mercy II") was created as a for-profit limited partnership for the purposes of operating Phase II of the Mount Mercy housing development and selling low-income housing tax credits to investment limited partners. 18

21 Notes to Financial Statements Grand Rapids Hope II Limited Partnership The Grand Rapids Hope II Limited Partnership ("Hope II") was created as a for-profit limited partnership for the purposes of operating Phase II of the Hope housing development and selling low-income housing tax credits to investment limited partners. Creston Plaza Housing Development Limited Partnership Phase I - The Creston Plaza Housing Development Limited Partnership Phase I ("Creston Phase I") was created as a for-profit limited partnership for the purposes of operating phase I of the Creston Plaza housing development and selling low-income housing tax credits to investment limited partners. Creston Plaza Housing Development Limited Partnership Phase II - The Creston Plaza Housing Development Limited Partnership Phase II ("Creston Phase II") was created as a for-profit limited partnership for the purposes of operating phase II of the Creston Plaza housing development and selling low-income housing tax credits to investment limited partners. The following blended component units do not have separately issued financial statements. Leonard Terrace Housing Corporation The Leonard Terrace Housing Corporation ( Leonard Terrace ) was created as a not-for-profit housing corporation for the purpose of owning and operating a 125-unit apartment building for the elderly located in Grand Rapids, Michigan. Mount Mercy Phase I Corporation Mount Mercy Phase I Corporation ("Mount Mercy") was created as a not-for-profit housing corporation for the purpose of owning and operating a 125-unit apartment building for the elderly located in Grand Rapids, Michigan. Hope Community Housing Corporation The Hope Community Housing Corporation ("Hope") was created as a not-for-profit housing corporation for the purpose of owning and operating a 12-unit apartment building for the elderly located in Grand Rapids, Michigan. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The economic resources measurement focus and the accrual basis of accounting are used in preparing the financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the Commission are federal grants and charges to customers for services. Operating expenses include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Assets, deferred outflows of resources, liabilities and equity Cash and cash equivalents For the purpose of the statement of cash flows, the Commission considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. 19

22 Notes to Financial Statements Investments Investments displayed on the financial statement are recorded at fair value. State statute authorizes the Commission and its component units to invest in: Bonds, securities, other obligations and repurchase agreements of the United States, or an agency or instrumentality of the United States. Certificates of deposit, savings accounts, deposit accounts or depository receipts of a qualified financial institution. Commercial paper rated at the time of purchase within the two highest classifications established by not less than two standard rating services and that matures not more than 270 days after the date of purchase. Bankers acceptances of United States banks. Obligations of the State of Michigan and its political subdivisions, that, at the time of purchase are rated as investment grade by at least one standard rating service. Mutual funds registered under the Investment Company Act of 1940 with the authority to purchase only investment vehicles that are legal for direct investment by a public corporation. External investment pools as authorized by Public Act 20 as amended through December 31, The Commission s investment policy allows for all of these types of investments. Receivables All receivables are reported at their gross value and, where appropriate, are reduced by the estimated portion that is expected to be uncollectible. Uncollectible balances at year-end are considered by management to be immaterial. Prepaid Items The Commission incurred expenses prior to year-end for services that will be performed in the next fiscal year. In these situations, the Commission records an asset to reflect the payment for future services. Notes Receivable Notes receivable represent mortgages loans to individuals for the purchase of homes previously owned by the Commission. 20

23 Notes to Financial Statements Restricted Assets Restricted assets consist of cash and cash equivalents set aside because of various third-party restrictions. Tenant security deposits are collected from tenants on move in and held in escrow by the Commission for the purpose of offsetting any damages to a unit that might be caused during a tenant s term of occupancy until the tenants move out and certain inspections are complete. The family self sufficiency program allows certain rental increases paid by tenants to be paid into an escrow for the eventual benefit of the tenant, if certain pre-set goals are reached. Under various mortgage notes payable, the Commission is required to set aside funds in escrow to pay for taxes and insurance pertaining to specific pieces of real property. The blended component unit limited partnerships, as decreed by the associated partnership agreement, are required to set aside specific funds for future contingencies. Certain funds are restricted as to use by compliance requirements set forth by the U.S. Department of Housing and Urban Development (HUD). Properties that benefit from specific HUD administered housing programs are required to set aside funds in escrow for future capital improvements and other contingencies. When both restricted and unrestricted resources are available for use, it is the government s policy to use restricted resources first, then unrestricted resources as they are needed. Deferred Mortgage Costs Deferred mortgage costs of $157,087, net of accumulated amortization of $37,535 for the year ended June 30, 2016, are amortized using the straight-line method over the term of the mortgage. These costs are related to a mortgage loan from a financial institution to the Ransom Avenue Development Corporation, which is blended for the basic financial statements as previously described, but follows general accepted accounting principles for non-profit organizations. Capital Assets Capital assets, which include property, plant and equipment, are reported in the financial statements. Capital assets are defined by the Commission as assets with an estimated useful life in excess of two years and cost over $5,000. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated acquisition cost as of the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. Depreciation on the capital assets (including infrastructure) of the primary government, as well as the component units, is computed using the straight-line method over the following estimated useful lives: Years Building and improvements 35 Furniture and fixtures

24 Notes to Financial Statements Deferred Outflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to one or more future periods and so will not be recognized as an outflow of resources (expense) until then. The Commission reports deferred outflows of resources for changes in expected and actual investment returns, assumptions, and benefits provided in its pension plan. More detailed information can be found in Note 8. Due From and Due To Other Governmental Units/Current Unearned Revenue These accounts represent amounts due from and due to federal grantors for specific programs and capital projects. Revenues received in advance of project costs being incurred are recorded as current unearned revenue. Limited Partnerships/Low Income Housing Credits/Long-Term Unearned Revenue The Commission has created a series of for-profit limited partnerships for the purposes of transferring the rights to use income tax credits available on low-income housing to investor limited partners. The investor limited partners have paid in amounts to the Commission (the general partner) for the right to use these low income housing credits. Because the Commission, per the various partnership agreements, is responsible for any shortfalls incurred by the partnership, the activity of the various partners is netted and reported as general expenses on the statement of revenues, expenses and changes in net position. The amounts paid in by the investor limited partners are deferred and amortized to income over the life of the tax credits. The unamortized portion of these contributions is recorded on the statement of net position as long-term unearned revenue. Compensated Absences Commission full-time employees are granted paid time off leave in varying amounts, based on years of service. Management employees earn the maximum annual benefit amount at the beginning of each calendar year. Non-management employees accrue paid time off benefits on a month-to-month basis each calendar year, not to exceed the maximum benefit amount allowed. If employees do not use all of their PTO hours during a calendar year, the PTO hours automatically carry over to the next calendar year and are added to the hours that are earned for that year, not to exceed the maximum amount. Employees who have hours accrued, at the end of the calendar year, of 100 hours or more are eligible for payout of a portion of those hours. Employees who elect this option can receive pay for up to 80 or 40 hours for management or non-management, respectively. This option must be elected at the end of the calendar year or it is forfeited until the next calendar year end. Capital Contributions Certain expenditures for public housing capital improvements are significantly funded through the United States Department of Housing and Urban Development. Capital funding provided under government grants is considered earned as the related allowable expenditures are incurred. Grants for capital assets acquisition, facilities development and rehabilitation are reported in the statement of net position, after nonoperating revenues and expenses as capital contributions. 22

25 Notes to Financial Statements Pensions For purposes of measuring the net pension liability, deferred outflows of resources related to pensions and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the Plan fiduciary net position have been determined on the same basis as they are reported by the Plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Risk Management The Commission is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. During the year ended June 30, 2016, the Commission carried commercial insurance to cover risk of losses. The Commission has had no settled claims resulting from these risks that exceeded their commercial coverage in any of the past three fiscal years. The Commission has not significantly reduced insurance coverage during the past year. 2. RESTRICTED ASSETS Assets are restricted as follows: Restricted Tenant security deposits $ 234,603 Family self sufficiency program 938,717 Mortgage note payable 275,094 Limited partnership agreements 1,022,386 HUD program restrictions 314,991 HUD mandated reserves 1,747,232 Total restricted assets $ 4,533,023 23

26 Notes to Financial Statements 3. DEPOSITS AND INVESTMENTS The Commission s deposits are included on the statement of net position under the following classifications: Current assets: Cash and cash equivalents $ 3,830,114 Restricted assets: Cash and cash equivalents 4,533,023 Total $ 8,363,137 Deposits are comprised of the following at June 30, 2016: Deposits Checking and savings accounts $ 8,362,567 Petty cash 570 Total $ 8,363,137 Investment and Deposit Risk Credit Risk. State law limits investments to bonds and notes, certain commercial paper, U.S. government repurchase agreements, bankers acceptances and mutual funds and investment pools that are composed of authorized investment vehicles. The Commission's investment policy does not have specific limits in excess of state law on investment credit risk. Custodial Credit Risk - Deposits. Custodial credit risk is the risk that in the event of a bank failure, the Commission s deposits may not be returned. State law does not require and the Commission s investment policy does not have specific limits in excess of state law pertaining to custodial credit risk. As of yearend, $8,015,169 of the Commission s bank balance of $8,765,169 was exposed to custodial credit risk because it was uninsured and uncollateralized. 4. INTEREST RATE SWAPS As a means to lower its borrowing costs, when compared against variable mortgage rates, the Commission has entered into three interest rate swap agreements in connection with various mortgage loans. GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, requires that the fair value of interest rate swap agreements, when they constitute an effective hedge against the volatility of interest rate changes, be deferred on the statement of net position. Management has elected not to implement this provision of GASB 53 inasmuch as the effect on the financial statements has been deemed immaterial. 24

27 Notes to Financial Statements Mount Mercy Phase II Mortgage Objective. The intention of the swap was effectively to change the Commission's variable interest rate on the loan to a synthetic fixed rate of 4.62%. Terms. The loan and the related swap agreement matured on October 15, 2016, and it is the Commission s intent to refinance the related mortgage, see Note 10. The swap s notional amount of $772,588 matches the principal balance on the loan. The swap was entered into at the same time the loan was closed (June 2012). Under the swap, the Commission pays the counterparty a fixed payment of 1.125%, and receives a variable payment at the London Interbank Offered Rate (LIBOR) (effective rate at June 30, 2016 of 0.44%). Conversely, the loan's variable rate interest payments are at 3.50% above the LIBOR (effective rate at June 30, 2016 of 3.94%). Fair Value. Because interest rates have declined since execution of the swap, the swap had a negative fair value of $1,583 as of June 30, The swap's negative fair value may be countered by a reduction in total interest payments required under the variable rate loan. Because the Commission's variable rate loan adjusts to changing interest rates, the loan does not have a corresponding fair value increase. Credit Risk. As of June 30, 2016, the Commission was not exposed to credit risk because the swap had a negative fair value. However, should interest rates change and the fair value of the swap become positive, the Commission would be exposed to credit risk in the amount of the swap's fair value. Termination Risk. The government or counterparty may terminate the swap if the other party fails to perform under the terms of the contract. If the swap is terminated, the variable rate loan would no longer carry a synthetic interest rate. Also, if at the time of termination the swap has a negative fair value, the Commission would be liable to the counterparty for a payment equal to the swap's fair value. Leonard Terrace Housing Development Mortgage Objective. The intention of the swap was effectively to change the Corporation's variable interest rate on the loan to a synthetic fixed rate of 4.52%. Terms. The loan and the related swap agreement matured on October 15, 2016, and it is the Commission s intent to refinance the related mortgage, see Note 10. The swap s notional amount of $325,707 matches the principal balance on the loan. The swap was entered into at the same time the loan was closed (June 2012). Under the swap, the Corporation pays the counterparty a fixed payment of 1.02%, and receives a variable payment at the London Interbank Offered Rate (LIBOR) (effective rate of 0.44% at June 30, 2016). Conversely, the loan's variable rate interest payments are at 3.50% above the LIBOR (effective rate of 3.94% at June 30, 2016). Fair Value. Because interest rates have declined since execution of the swap, the swap had a negative fair value of $518 as of June 30, The swap's negative fair value may be countered by a reduction in total interest payments required under the variable-rate loan. Because the Commission's variable rate loan adjusts to changing interest rates, the loan does not have a corresponding fair value increase. Credit Risk. As of June 30, 2016, the Corporation was not exposed to credit risk because the swap had a negative fair value. However, should interest rates change and the fair value of the swap become positive, the Corporation would be exposed to credit risk in the amount of the swap's fair value. 25

28 Notes to Financial Statements Termination Risk. The government or counterparty may terminate the swap if the other party fails to perform under the terms of the contract. If the swap is terminated, the variable rate loan would no longer carry a synthetic interest rate. Also, if at the time of termination the swap has a negative fair value, the Corporation would be liable to the counterparty for a payment equal to the swap's fair value. Mount Mercy Phase I Mortgage Objective. The intention of the swap was effectively to change the Corporation's variable interest rate on the loan (based on the bank s prime rate) to a synthetic variable rate, which will be calculated as 3.5% above LIBOR (effective rate at June 30, 2016 of 3.94%). Terms. The loan and the related swap agreement matured on October 15, 2016, and it is the Commission s intent to refinance the related mortgage, see Note 10. The swap's notional amount of $1,710,513 matches the principal balance on the loan. The swap was entered into at the same time the loan was closed (June 2012). Under the swap, Mount Mercy II pays the counterparty a fixed payment of 1.13%, and receives a variable payment at the London Interbank Offered Rate (LIBOR) (effective rate at June 30, 2016 of 0.44%). Conversely, the loan's variable rate interest payments are at 3.50% above the LIBOR (effective rate of 3.94% at June 30, 2016). Fair Value. Because interest rates have declined since execution of the swap, the swap had a negative fair value of $3,546 as of June 30, The swap's negative fair value may be countered by a reduction in total interest payments required under the variable rate loan. Because the Commission's variable rate loan adjusts to changing interest rates, the loan does not have a corresponding fair value increase. Credit Risk. As of June 30, 2016, the Corporation was not exposed to credit risk because the swap had a negative fair value. However, should interest rates change and the fair value of the swap become positive, the Corporation would be exposed to credit risk in the amount of the swap's fair value. Termination Risk. The government or counterparty may terminate the swap if the other party fails to perform under the terms of the contract. If the swap is terminated, the variable rate loan would no longer carry a synthetic interest rate. Also, if at the time of termination the swap has a negative fair value, the Corporation would be liable to the counterparty for a payment equal to the swap's fair value. 26

29 Notes to Financial Statements 5. CAPITAL ASSETS A summary of capital assets is as follows: Beginning Balance Additions Disposals Transfers Ending Balance Business-type Activities Capital assets, not being depreciated: Land $ 964,990 $ - $ 298,991 $ 1,263,981 Construction in progress 10,597,815 8,714,036 - (19,259,762) 52,089 11,562,805 8,714,036 - (18,960,771) 1,316,070 Capital assets, being depreciated: Land improvements 255, ,562,401 3,818,325 Buildings and improvements 51,377,563 52,947-13,497,200 64,927,710 Furniture and fixtures 1,686,559 77,264-1,901,170 3,664,993 53,320, ,211-18,960,771 72,411,028 Less accumulated depreciation for: Land improvements (214,604) (151,896) - - (366,500) Buildings and improvements (21,522,183) (1,503,490) - - (23,025,673) Furniture and fixtures (1,420,755) (168,647) - - (1,589,402) (23,157,542) (1,824,033) - - (24,981,575) Total capital assets being depreciated, net 30,162,504 (1,693,822) - 18,960,771 47,429,453 Business-type activities capital assets, net $ 41,725,309 $ 7,020,214 $ - $ - $ 48,745,523 27

30 Notes to Financial Statements 6. LONG-TERM DEBT Long-term debt outstanding is as follows: Beginning Ending Due Within Balance Additions Deletions Balance One Year Total installment debt $ 12,962,853 $ 12,914,395 $ (15,770,847) $ 10,106,401 $ 4,543,431 Accrued compensated absences 233, ,022 (291,787) 247,272 9,361 Total long-term debt $ 13,195,890 $ 13,220,417 $ (16,062,634) 10,353,673 $ 4,552,792 Installment debt Installment loan payable in monthly principal installments of $6,130, plus accrued interest at 3.75% through June Installment loan payable in monthly principal installments of $4,900 to $5,500, plus accrued interest at LIBOR plus 3.50% (effective rate is 3.94% at June 30, 2016). Remaining unpaid principal and accrued interest was due October 2016, it is the intent of the Commission to refinance, see Note 10. Installment loan payable in monthly installments of $1,441 to $3,388, plus interest at 7.40%. Remaining unpaid principal and accrued interest is due February Installment loan payable in monthly installments of $25,865 plus interest at 5.00% through November Installment loan payable in monthly principal installments of $16,600 to $18,700 plus accrued interest at LIBOR plus 3.50% (effective rate is 3.94% at June 30, 2016). Remaining unpaid principal and accrued interest was due October 2016, it is the intent of the Commission to refinance, see Note 10. Installment loan payable in monthly principal installments of $7,500 to $8,400 plus accrued interest at LIBOR plus 3.50% (effective rate is 3.94% at June 30, 2016). Remaining unpaid principal and accrued interest was due October 2016, it is the intent of the Commission to refinance, see Note 10. Construction mortgage loan payable due in one principal installment on December 1, 2016 plus monthly interest payments at 4.0%. $ 73, , ,702 4,682, ,707 1,710,513 1,547,071 Total installment debt $ 10,106,401 28

31 Notes to Financial Statements The annual requirements to maturity on mortgages and term loans outstanding as of June 30, 2016, which include estimated principal and interest maturities for debt that the Commission intends to refinance in the subsequent year, is as follows: Business-type Activities Year Ended June 30, Principal Interest Total 2017 $ 4,543,431 $ 314,419 $ 4,857, , , , , , , , , , , , , ,496,192 1,001,467 2,497, , ,597 1,332, , ,433 1,332, ,070, ,804 1,332, ,277 56, ,726 $ 10,106,401 $ 3,598,260 $ 13,704,661 In November 2014, the Commission entered into various financing arrangements related to the reconstruction of Creston Plaza in two phases. For Phase I, the Commission signed a mortgage note in the amount of $1,183,000, bearing interest at 6.5% per year. The Commission also signed a construction loan of $9,725,000. For Phase II, the Commission signed a mortgage note in the amount of $1,154,000, bearing interest at 6.5% per year. The Commission also signed a construction loan of $6,820,000. As of June 30, 2016, the Commission had drawn down $16,545,000 of the Creston Phase I and II construction loans, none of the remaining financing arrangements have yet been necessary. The Commission is paying these loans by selling low-income housing tax credits to investment limited partners and created Creston Plaza Limited Partnerships I & II for this purpose. During the current year, approximately $15.2 million of tax credits were sold. As explained in Note 4, the Commission has entered into various interest rate swaps. Using rates as of June 30, 2016, debt service requirements of the variable-rate debt and net swap payments, assuming current interest rates remain the same for their term, were as follows. As rates vary, variable-rate bond interest payments and net swap payments will vary. Variable Rate Loans Year Ended June 30, Principal Interest Total Interest Rate Swaps, Net 2017 $ 2,808,808 $ 36,266 $ 97,796 29

32 Notes to Financial Statements 7. NET POSITION Net position is comprised of the following at June 30, 2016: Net investment in capital assets: Capital assets: Capital assets not being depreciated $ 1,316,070 Capital assets being depreciated, net 47,429,453 Related debt: Installment debt (10,106,401) Net investment in capital assets 38,639,122 Restricted net position: Restricted assets 4,533,023 Liabilities payable from restricted assets: Tenant security deposits (234,603) Family self sufficiency program escrow (938,717) Total restricted net position 3,359,703 Total unrestricted (deficit) (14,699,589) Total net position $ 27,299,236 At June 30, 2016, the Commission reported an unrestricted deficit of $14,699,589. The unrestricted deficit will be eliminated through future year operations. 8. BENEFIT PLANS Defined Benefit Pension Plan General Information About the Plan Plan Description. The Commission's defined benefit pension plan provides certain retirement, disability and death benefits to plan members and beneficiaries. The Commission participates in the Municipal Employees Retirement System (MERS) of Michigan. MERS is an agent multiple-employer, statewide public employee pension plan established by the Michigan Legislature under Public Act 135 of 1945 and administered by a nine member Retirement Board. MERS issues a publicly available financial report that includes financial statements and required supplementary information. This report may be obtained accessing the MERS website at Benefits Provided. Pension benefits are calculated as final average compensation (based on a 3 year period) and multipliers at 2.5%. Participants are considered to be fully vested in the plan after 8 years. Normal retirement age is 60 with early retirement at age 50 with 25 years of service or age 55 with 15 years of service. 30

33 Notes to Financial Statements Employees Covered by Benefit Terms. following: At December 31, 2015, plan membership consisted of the Inactive employees or beneficiaries currently receiving benefits 5 Inactive employees entitled to but not yet receiving benefits - Active employees 2 Total membership 7 Contributions. The Commission is required to contribute amounts at least equal to the actuarially determined rate, as established by the MERS Retirement Board. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employer contributions were $8,427 per month for the year ended June 30, In addition, the employer may establish contribution rates to be paid by its covered employees. Currently, employees are required to contribute to the plan at 3.28% of payroll. The plan is closed to new entrants. Net Pension Liability. The Commission's net pension liability was measured as of December 31, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. Actuarial Assumptions. The total pension liability in the December 31, 2015 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.5% Salary increases 3.75% in the long-term Investment rate of return 7.75%, net of investment and administrative expense including inflation Although no specific price inflation assumptions are needed for the valuation, the 2.5% long-term wage inflation assumption would be consistent with a price inflation of 3%-4%. Mortality rates used were based on the RP-2014 Group Annuity Mortality Table of a 50% Male and 50% Female blend. The actuarial assumptions used in valuation were based on the results of the most recent actuarial experience study of

34 Notes to Financial Statements The long-term expected rate of return on pension plan investments was determined using a model method in which the best-estimate ranges of expected future real rates of return (expected returns, net of investment and administrative expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Asset Class Target Allocation Long-term Expected Real Rate of Return Expected Money- Weighted Rate of Return Global equity 57.5% 5.02% 2.89% Global fixed income 20.0% 2.18% 0.44% Real assets 12.5% 4.23% 0.51% Diversifying strategies 10.0% 6.56% 0.66% 100.0% Inflation 3.25% Administrative expenses netted above 0.50% Investment rate of return 8.25% Discount Rate. The discount rate used to measure the total pension liability is 8.25% for The projection of cash flows used to determine the discount rate assumes that employer and employee contributions will be made at the rates agreed upon for employees and the actuarially determined rates for employers. Based on these assumptions, the pension plan s fiduciary net position was projected to be available to pay all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 32

35 Notes to Financial Statements Changes in Net Pension Liability The components of the change in the net pension liability are summarized as follows: Total Pension Liability (a) Plan Fiduciary Net Position (b) Net Pension Liability (a) - (b) Balances at December 31, 2014 $ 1,936,885 $ 1,365,733 $ 571,152 Changes for the year: Service cost 18,574-18,574 Interest 156, ,134 Differences between expected and actual experience 63,258-63,258 Changes in assumptions 105, ,644 Employer contributions - 90,990 (90,990) Employee contributions - 6,341 (6,341) Net investment income (loss) - (20,712) 20,712 Benefit payments, including refunds of employee contributions (107,270) (107,270) - Administrative expense - (3,012) 3,012 Net changes 236,340 (33,663) 270,003 Balances at December 31, 2015 $ 2,173,225 $ 1,332,070 $ 841,155 Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the Commission, calculated using the discount rate of 8.25%, as well as what the Commission's net pension liability would be if it were calculated using a discount rate that is 1% lower (7.25%) or 1% higher (9.25%) than the current rate: 1% Decrease (7.25%) Current Discount Rate (8.25%) 1% Increase (9.25%) $ 1,070,371 $ 841,155 $ 644,103 Pension Plan Fiduciary Net Position. Detailed information about the pension plan s fiduciary net position is available in the separately issued Plan financial statements. 33

36 Notes to Financial Statements Pension Expense and Deferred Outflows of Resources Related to Pensions For the year ended June 30, 2016, the Commission recognized pension expense of $259,577. The Commission reported deferred outflows of resources related to pensions from the following sources: Deferred Outflows of Resources Difference between expected and actual experience $ - Changes in assumptions - Net difference between projected and actual earnings on pension plan investments 120, ,875 Contributions subsequent to the measurement date 50,562 Total $ 171,437 The amount reported as deferred outflows of resources resulting from contributions subsequent to the measurement date will be recognized as a reduction in the net pension liability for the year ending June 30, Other amounts reported as deferred outflows of resources related to the pension will be recognized in pension expense as follows: Year Ended June 30, Amount Defined Contribution Plan 2017 $ 31, , , ,571 Total $ 120,875 Payable to the Pension Plan. At June 30, 2016, the Commission had no amounts outstanding for contributions to the pension plan required for the year ended June 30, The Commission offers a deferred compensation plan created in accordance with Internal Revenue Code ( IRC ) section 457. The plan, available to all Commission employees, permits them to defer a portion of their current salary until future years. The deferred compensation is not available to the employees until termination, retirement, death or unforeseeable emergency. The Plan assets are held in trust for the exclusive benefit of participants and their beneficiaries. As such, these amounts have not been included in the financial statements. For the year ended June 30, 2016 the Commission contributed $121,072 and employees contributed $32,593 to the defined compensation plan. 34

37 Notes to Financial Statements The Commission also offers a defined contribution contributory savings plan created in accordance with IRC Section 401(a) to all full-time employees not participating in the MERS defined benefit plan. Participants contribute 3% of gross wages, except for the Director who contributes 6% of gross wages; the Commission contributes 8% and 14% of gross wages, respectively. Participants are immediately vested in required employee contributions and in employer contributions. Plan contributions are maintained with earnings in a deferred account for each participant. At June 30, 2016, there were 56 plan members and the total fair market value of plan assets, which consists of various mutual funds administered by MERS, was $3,961,174. Contributions made by employees and the Commission totaled $97,673 and $257,369, respectively, for the year ended June 30, Covered payroll for the year ended June 30, 2016 was $3,374,925. Plan provisions and contribution requirements are established and may be amended by the Commission. Other Postemployment Benefits Plan Description. The Grand Rapids Housing Commission administers a single-employer defined benefit healthcare plan (the Plan ). In addition to the retirement benefits described above, the Plan provides health insurance benefits to certain retirees and their beneficiaries, which are advance-funded on a discretionary basis. In accordance with Commission policy, eligible retirees and their spouses receive healthcare through age 65. Funding Policy. The contribution requirements of Plan members and the Commission are established and may be amended by the Commission Board of Directors. The required contribution is based on projected pay-as-you go financing requirements, with an additional amount to prefund benefits as determined annually by the Commission Board of Directors. For the year ended June 30, 2016, the Commission contributed $39,328 to the Plan and plan members contributed $7,866. Annual OPEB Cost and Net OPEB Obligation. The Commission s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC). The Commission has elected to calculate the ARC and related information using the alternative measurement method permitted by GASB Statement No. 45 for employers in plans with fewer than one hundred total plan members. 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 (or funding excess) over a period not to exceed thirty years. The following table shows the components of the Commission s annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the Commission s net OPEB obligation: Annual required contribution $ 29,749 Interest on net OPEB obligation 1,513 Adjustment to annual required contribution (2,964) Net OPEB cost (expense) 28,298 Contributions made (39,328) Decrease in net OPEB obligation (11,030) Net OPEB obligation, beginning of year 75,673 Net OPEB obligation, end of year $ 64,643 35

38 Notes to Financial Statements The Commission s annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation for 2016 and the prior two years was as follows: Year Ended June 30, Three-Year Trend Information Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 2014 $ 35, % $ 85, , % 75, , % 64,643 Funded Status and Funding Progress. As of June 30, 2016, the date of the last valuation, the actuarial accrued liability for benefits was $538,788, all of which was unfunded. The covered payroll (annual payroll of the active employees covered by the Plan) was $535,875 and the ratio of the UAAL to the covered payroll was 101 percent. The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits calculations. Actuarial 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 methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The following simplifying assumptions were made: Retirement age for active employees is based on the historical average retirement age for the covered group, active plan members were assumed to retire at age 60. Marital status of members at the calculation date was assumed to continue throughout retirement. Mortality. Life expectancies were based on mortality tables from the National Center for Health Statistics. The 2006 United States Life Tables for Males and for Females were used. 36

39 Notes to Financial Statements Turnover. Non-group-specific age-based turnover data from GASB Statement 45 were used as the basis for assigning active members a probability of remaining employed until the assumed retirement age and for developing an expected future working lifetime assumption for purposes of allocating to periods the present value of total benefits to be paid. Healthcare cost trend rate. The expected rate of increase in healthcare insurance premiums was based on projections by Commission management. A rate of 12.0 percent was used for 2017 and 8.0 percent thereafter. Health insurance premiums health insurance premiums for retirees were used as the basis for calculation of the present value of total benefits to be paid. Inflation rate. The expected long-term inflation assumption of 3.30 percent was based on projected changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in The 2006 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds for an intermediate growth scenario. Payroll growth rate. The expected long-term payroll growth rate was assumed to equal the rate of inflation. Based on the historical and expected returns of the Commission's short-term investment portfolio, a discount rate of 2.00 percent was used. In addition, a simplified version of the entry age actuarial cost method was used. The unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at June 30, 2016, was thirty years. 9. CONTINGENCIES AND RELATED PARTY TRANSACTIONS Federal Grants The Commission has received several federal grants for specific purposes that are subject to review and audit by the grantor agencies. Although no amounts have been claimed, such audits could lead to requests for reimbursement to the grantor agency for expenditures disallowed under the terms of the grant. The Commission believes such disallowances, if any, will be immaterial. Guarantees The Commission is the sole member of certain corporations which are general partners of several limited partnerships. The limited partnerships were established to qualify for low income housing tax credits pursuant to federal income tax regulations. Accordingly, the Commission agreed to advance these limited partnerships amounts necessary to fund working capital deficits generated in the operation of lowincome transitional housing facilities for homeless women with children or elderly individuals. Advances will bear interest at a specified banking institution s prime lending rate and are payable when the housing facilities generate sufficient revenues to make such payments. The Commission has not recorded an asset for these advances or the related interest income as the collection of the advances is not likely. In addition, pursuant to agreements between the limited partnerships and the Grand Rapids Housing Commission, at various dates beginning January 2007, the limited partnerships have rights to sell certain property and the Grand Rapids Housing Commission is obligated to purchase the property for the amount of outstanding advances. 37

40 Notes to Financial Statements Litigation In the normal course of its activities, the Commission becomes a party in various legal actions. In the opinion of management, adequate reserves have been established for the potential liability of all claims. 10. SUBSEQUENT EVENT As noted in Note 4, in December 2016, the Commission has refinanced the mortgages of Leonard Terrace, Mount Mercy I, and Mount Mercy II, which matured on October 15, 2016 in the amounts of $2,000,000, $2,500,000, and $756,088 respectively. The loan's variable rate interest payments are at 3.00% above London Interbank Offered Rate (LIBOR). All amounts mature on October 15,

41 Notes to Financial Statements 11. BLENDED COMPONENT UNITS Summary information of the Commission's blended component units as of June 30, 2016, are as follows: Leonard Mount Mercy Mount Mercy Hope Grand Rapids Terrace Phase I Phase II Community Hope II Housing Housing Limited Housing Limited Corporation Corporation Partnership Corporation Partnership Assets Current $ 408,455 $ 379,201 $ 22,200 $ 33,658 $ 9,289 Noncurrent: Capital assets, net 428,857 4,363,924 5,672, , Other noncurrent 29,624 31, ,023 1,082 1,013 Total assets 866,936 4,774,129 5,811, ,937 10,365 Liabilities Current 392,172 1,757, ,767 2, ,023 Noncurrent 36,633 50,019 2,436,035 1,772 1,703 Total liabilities 428,805 1,807,581 3,249,802 4, ,726 Net position $ 438,131 $ 2,966,548 $ 2,561,294 $ 509,434 $ (91,361) Revenues $ 977,394 $ 980,346 $ 444,858 $ 102,768 $ 129,355 Expenses 768, , , ,881 98,361 Operating income (expense) 209, ,131 (11,143) 1,887 30,994 Nonoperating expenses (17,595) (71,993) (32,811) - - Change in net position 191,568 58,138 (43,954) 1,887 30,994 Net position, beginning of year 246,563 2,908,410 2,605, ,547 (122,355) Net position, end of year $ 438,131 $ 2,966,548 $ 2,561,294 $ 509,434 $ (91,361) 39

42 Notes to Financial Statements Ransom Campau Sheldon Creston Plaza Creston Plaza Avenue Commons Avenue Phase I Phase II Development Limited Limited Limited Limited Corporation Partnership Partnership Partnership Partnership Assets Current $ 135,703 $ 215,032 $ 22,255 $ 131,171 $ 372,348 Noncurrent: Capital assets, net 1,205,897 11,766,554 3,925,676 11,852,561 9,353,079 Other Noncurrent 1,574, , ,596 (231,966) (439,386) Total assets 2,916,298 12,553,974 4,364,527 11,751,766 9,286,041 Liabilities Current 163,799 43, ,524 2,003,867 1,961,409 Noncurrent 4,636,285 2,223, ,894 18,292 23,168 Total liabilities 4,800,084 2,267,445 1,537,418 2,022,159 1,984,577 Net position $ (1,883,786) $ 10,286,529 $ 2,827,109 $ 9,729,607 $ 7,301,464 Revenues $ 1,423,051 $ 503,624 $ 401,580 $ 234,421 $ 175,892 Expenses 1,168, , , , ,581 Operating income (loss) 254,562 (290,358) (10,685) (370,381) (304,689) Nonoperating expenses (179,798) - (75,069) (180,505) (108,203) Change in net position 74,764 (290,358) (85,754) (550,886) (412,892) Net position, beginning of year (1,958,550) 10,576,887 2,912,863 10,280,493 7,714,356 Net position, end of year $ (1,883,786) $ 10,286,529 $ 2,827,109 $ 9,729,607 $ 7,301,464 40

43 REQUIRED SUPPLEMENTARY INFORMATION 41

44 Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan Schedule of Changes in the Commission's Net Pension Liability and Related Ratios Year Ended June Total pension liability Service cost $ 18,574 $ 25,280 Interest 156, ,993 Differences between expected and actual experience 63,258 - Changes of assumptions 105,644 - Benefit payments, including refunds of employee contributions (107,270) (87,691) Net change in total pension liability 236,340 87,582 Total pension liability, beginning of year 1,936,885 1,849,303 Total pension liability, end of year 2,173,225 1,936,885 Plan fiduciary net position Employer contributions 90,990 71,916 Employee contributions 6,341 7,204 Net investment income (loss) (20,712) 82,057 Benefit payments, including refunds of employee contributions (107,270) (87,691) Administrative expense (3,012) (3,019) Net change in plan fiduciary net position (33,663) 70,467 Plan fiduciary net position, beginning of year 1,365,733 1,295,266 Plan fiduciary net position, end of year 1,332,070 1,365,733 Commission's net pension liability $ 841,155 $ 571,152 Plan fiduciary net position as a percentage of total pension liability 61.3% 70.5% Covered-employee payroll $ 161,372 $ 219,635 Commission's net pension liability as a percentage of covered-employee payroll 521.3% 260.0% The amounts presented for each fiscal year were determined as of December 31 of the preceding year. Note: GASB 68 was implemented in fiscal year This schedule is being built prospectively. Ultimately, 10 years of data will be presented. 42

45 Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan Schedule of the Net Pension Liability Fiscal Year Ended June 30, Total Pension Liability Plan Net Position Net Pension Liability Plan Net Position as Percentage of Total Pension Liability Covered- Employee Payroll 2016 $ 2,173,225 $ 1,332,070 $ 841, % $ 161, ,936,885 1,365, , % 219,635 The amounts presented for each fiscal year were determined as of December 31 of the preceding year. Note: GASB 68 was implemented in fiscal year This schedule is being built prospectively. Ultimately, 10 years of data will be presented. 43

46 Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan Schedule of Contributions Fiscal Year Ended June 30, Actuarially Determined Contribution Contributions in Relation to the Actuarially Determined Contribution Contribution Deficiency (Excess) Covered- Employee Payroll Contributions as Percentage of Covered- Employee Payroll 2016 $ 101,124 $ 101,124 $ - $ 173, % ,856 80, , % Note: GASB 68 was implemented in fiscal year This schedule is being built prospectively. Ultimately, 10 years of data will be presented. Notes to Schedule of Contributions Valuation Date Actuarially determined contribution rates are calculated as of the December 31 that is 18 months prior to the beginning of the fiscal year in which contributions are reported. Methods and assumptions used to determine contribution rates: Actuarial cost method Entry-age normal Amortization method Level percent of payroll, closed Remaining amortization period 4 years Asset valuation method Open; 5-year smooth market Inflation 2.50% Salary increases 3.75% in the long-term Investment rate of return 7.75%, net of investment and administrative expense including inflation Retirement age Age-based table of rates that are specific to the type of eligibility condition. The Normal Retirement rates were first used for the December 31, 2015 actuarial valuations. The Early Retirement rates were first used for the December 31, 2015 actuarial valuations. Mortality Mortality rates used were based on the RP-2014 Group Annuity Mortality Table of a 50% Male and 50% Female blend. 44

47 Required Supplementary Information Single Employer Defined Benefit Other Postemployment Benefits Plan Schedule of Funding Progress Actuarial Accrued UAAL as a Actuarial Liability Unfunded Percentage Actuarial Value of (AAL) - AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (a) (b) (b-a) (a / b) (c) ((b-a) / c) 6/30/2014 $ - $ 636,606 $ 636,606 0% $ 555, % 6/30/ , ,809 0% 565, % 6/30/ , ,788 0% 535, % Schedule of Employer Contributions Annual Year Ended Required Percentage June 30 Contributions Contributed 2014 $ 36,760 99% , % , % 45

48 Grand Rapids Housing Commission Need Logo Year Ended June 30, 2016 Single Audit Act Compliance

49 Table of Contents Page Independent Auditors Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report on Compliance for Each Major Federal Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings Corrective Action Plan

50 Rehmann 2330 East Robson Paris Ave., SE PO Box Grand East Rapids, Paris MI Ave SE Grand Rapids, MI Ph: Ph: Fx: Fx: rehmann.com Board of Housing Commissioners Grand Rapids Housing Commission Grand Rapids, Michigan INDEPENDENT AUDITORS REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE December 21, 2016 We have audited the financial statements of the Grand Rapids Housing Commission (the "Commission"), as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Commission's basic financial statements. We issued our report thereon dated December 21, 2016, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. 1

51 Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2016 CFDA Passed Pass-through / Federal Federal Agency / Cluster / Program Title Number Through Grantor Number Expenditures U.S. Department of Housing and Urban Development Supportive Housing Program Direct MI28-various $ 373,989 Section 8 Project Based Cluster: Section 8 Moderate Rehabilitation Single Room Occupancy Direct MI073MR ,745 Lower Income Housing Assistance Program - Section 8 Moderate Rehabilitation Direct MI073MR ,535 Total Section 8 Project Based Cluster 561,280 Public and Indian Housing Direct MI073-various 837,806 Resident Opportunity and Support Services Direct MI073-various 76,810 Section 8 Housing Choice Vouchers Direct MI073VO-various 19,834,470 Public Housing Capital Fund Direct MI33PO73-various 363,812 Public Housing Family Self-Sufficiency under Resident Opportunity and Supportive Services Direct MI073RFS-various 230,810 Total Expenditures of Federal Awards $ 22,278,977 See notes to schedule of expenditures of federal awards. 2

52 Notes to Schedule of Expenditures of Federal Awards 1. BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards (the Schedule ) presents the activity of all federal awards programs of the Grand Rapids Housing Commission (the Commission ) under programs of the federal government for the year ended June 30, Federal awards received directly from federal agencies, as well as federal awards passed through other government agencies, are included on the Schedule. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the schedule presents only a selected portion of the operations of the Commission, it is not intended to and does not present the financial position, changes in net position or cash flows of the Commission. The Commission's reporting entity is defined in Note 1 of the Commission's basic financial statements. The Commission's financial statements include the operations of the Ransom Avenue Development Corporation, a blended component unit that received $896,639 in federal awards not reported on this Schedule. The federal awards of the Ransom Avenue Development Corporation are presented as part of a separately issued single audit for that entity. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the Schedule are reported on the accrual basis of accounting, which is described in Note 1 to the Commission's financial statements. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. Pass-through entity identifying numbers are presented where available. For purposes of charging indirect costs to federal awards, the Commission has not elected to use the 10% de minimis cost rate as permitted by of the Uniform Guidance. 3. RECONCILIATION TO BASIC FINANCIAL STATEMENTS A reconciliation of the amounts presented in the Schedule to the amounts presented in the financial statements is as follows: Federal revenue as reported in the financial statements: Federal operating grants $ 23,157,926 Federal capital grants 17,690 Less: Federal operating grant for Ransom Avenue Development Corporation blended component unit (See note 1) (896,639) Federal expenditures reported in the schedule of expenditures of federal awards $ 22,278,977 3

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54 Rehmann 2330 East Paris Ave., SE Robson PO Box Grand Rapids, MI East Paris Ave. SE Grand Ph: Rapids, MI Ph: Fx: Fx: rehmann.com INDEPENDENT AUDITORS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Housing Commissioners Grand Rapids Housing Commission Grand Rapids, Michigan December 21, 2016 We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the Grand Rapids Housing Commission (the "Commission"), as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Commission s basic financial statements, and have issued our report thereon dated December 21, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Commission s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Commission s internal control. Accordingly, we do not express an opinion on the effectiveness of the Commission s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying schedule of findings and questioned costs, we identified a certain deficiency in internal control over financial reporting that we consider to be a material weakness. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency described in the accompanying schedule of findings and questioned costs as item to be a material weakness. 5

55 A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Commission s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Grand Rapids Housing Commission s Response to Finding The Commission s response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The Commission s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Commission s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. 6

56 Rehmann 2330 East Paris Ave., SE Robson PO Box Grand Rapids, MI East Paris Ave. SE Grand Ph: Rapids, MI Ph: Fx: Fx: rehmann.com INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Board of Housing Commissioners Grand Rapids Housing Commission Grand Rapids, Michigan December 21, 2016 Report on Compliance for Each Major Federal Program We have audited the compliance of the Grand Rapids Housing Commission (the "Commission") with the types of compliance requirements described in the OMB compliance Supplement that could have a direct and material effect on each of the Commission s major federal programs for the year ended June 30, The Commission s major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. The Commission s basic financial statements include the operations of the Ransom Avenue Development Corporation blended component unit, which received $896,639 in federal awards, and which is not included in the schedule of expenditures of federal awards for the year ended June 30, Our audit, described below, did not include the operations of the Ransom Avenue Development Corporation because it arranged for a separate audit in accordance with the Uniform Guidance. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Independent Auditors Responsibility Our responsibility is to express an opinion on compliance for each of the Commission s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Commission s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. 7

57 We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Commission s compliance. Opinion on Each Major Federal Program In our opinion, the Commission complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Other Matters The results of our auditing procedures disclosed an instance of noncompliance, which is required to be reported in accordance with the Uniform Guidance and which is described in the accompanying schedule of findings and questioned costs as item Our opinion on each major federal program is not modified with respect to this matter. The Commission s response to the noncompliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The Commission s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on it. Report on Internal Control Over Compliance Management of the Commission is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Commission s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Commission s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe that a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. 8

58 Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, we identified a certain deficiency in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as item that we consider to be a significant deficiency. The Commission s response to the internal control over compliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The Commission s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. 9

59 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2016 SECTION I - SUMMARY OF AUDITORS RESULTS Financial Statements Type of auditors report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified? Noncompliance material to financial statements noted? X yes no yes X none reported yes X no Federal Awards Internal control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified? Type of auditors report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200, Section 516(a)? yes X no X yes none reported Unmodified X yes no Identification of major programs: CFDA Number Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? Name of Federal Program or Cluster Public and Indian Housing Section 8 Housing Choice Vouchers $ 750,000 X yes no 10

60 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2016 SECTION II FINANCIAL STATEMENT FINDINGS Material Audit Adjustments Finding Type. Material Weakness in Internal Control over Financial Reporting. Criteria. Management is responsible for maintaining its accounting records in accordance with generally accepted accounting principles (GAAP). Condition. During our audit, we identified and proposed a material audit adjustment (which was approved and posted by management) to adjust capital assets, other income and net position to correct amounts. Cause. Certain year-end construction accruals and eliminations were initially double recorded. Effect. As a result of this condition, the Commission's accounting records were initially misstated by an amount material to the financial statements. Recommendation. Management has already taken appropriate corrective action by reviewing and approving the proposed audit adjustment, which is reflected in the audited financial statements. View of Responsible Officials. Management has reviewed the adjustment to the financial statements, proposed by the auditors, and will revise procedures accordingly for future periods. 11

61 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2016 SECTION III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Home Quality Inspection Requirements Finding Type. Immaterial Noncompliance/Significant Deficiency in Internal Control over Compliance (Special Tests and Provisions). Program. Section 8 Housing Choice Vouchers; U.S. Department of Housing and Urban Development; CFDA Number ; Award Number MI073VO-various. Criteria. Recipients of funds under the Section 8 Housing Choice Voucher Program are required to perform housing unit inspections annually, notify the landlord of any deficiencies, and verify remedial action has taken place within 30 days, or abate future landlord payments. Condition. We observed one case file out of forty case files tested that did not have the required Home Quality Inspection performed. Cause. This is a result of a management oversight of not having the initial inspection performed and documented. Effect. As a result of this condition, the Commission did not follow the proper procedures in enforcing Housing Quality Standards. Questioned Costs. No costs were questioned as a result of this finding. Recommendation. We recommend that the Commission revise its procedures to be in compliance with the requirements of Uniform Guidance. View of Responsible Officials. The Commission will take appropriate measures to ensure that all Housing Quality Inspections are performed within required timeframes. 12

62 Summary Schedule of Prior Audit Findings For the Year Ended June 30, 2016 None reported. 13

63 14

64 Rehmann Robson 2330 East Paris Ave. SE Grand Rapids, MI Ph: Fx: rehmann.com INDEPENDENT AUDITORS COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE December 21, 2016 Board of Housing Commissioners Grand Rapids Housing Commission Grand Rapids, Michigan We have audited the financial statements of the Grand Rapids Housing Commission (the Commission ) as of and for the year ended June 30, 2016, and have issued our report thereon dated December 21, Professional standards require that we advise you of the following matters relating to our audit. Our Responsibility in Relation to the Financial Statement Audit As communicated in our engagement letter dated August 2, 2016, our responsibility, as described by professional standards, is to form and express an opinion about whether the financial statements that have been prepared by management with your oversight are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities. Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the Commission solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you. We have provided our findings regarding internal control over financial reporting and compliance noted during our audit in a separate letter to you dated December 21, In addition, we noted certain other matters which are included in Attachment A to this letter. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to you in our engagement letter and in our meeting about planning matters on October 31, Compliance with All Ethics Requirements Regarding Independence The engagement team, others in our firm, as appropriate, and our firm has complied with all relevant ethical requirements regarding independence.

65 Page 2 Qualitative Aspects of the Commission s Significant Accounting Practices Significant Accounting Policies Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the Commission is included in Note 1 to the financial statements. There have been no initial selections of accounting policies and no changes in significant accounting policies or their application during the year. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Significant Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management s current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management s current judgments. The most sensitive accounting estimates affecting the financial statements were: Management s estimate of the useful lives of depreciable capital assets is based on the length of time it is believed that those assets will provide some economic benefit in the future. Management s estimate of the accrued compensated absences is based on current hourly rates and policies regarding payment of sick and vacation banks. Management s estimate of the allowance for uncollectible receivable balances is based on past experience and future expectation for collection of various account balances. The assumptions used in the actuarial valuations of other postemployment benefits plans are based on historical trends and industry standards. We evaluated the key factors and assumptions used to develop these estimates and determined that they are reasonable in relation to the basic financial statements taken as a whole and in relation to the applicable opinion units. In addition, the financial statements include a net pension liability and other pension-related amounts, which are dependent on estimates made by the plan. These estimates are based on historical trends and industry standards, but are not within the control of management.

66 Page 3 Significant Difficulties Encountered During the Audit We encountered no significant difficulties in dealing with management relating to the performance of the audit. Uncorrected and Corrected Misstatements For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each applicable opinion unit. In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. The material misstatements detected as a result of audit procedures and corrected by management are described in the Schedule of Findings and Questioned Costs issued in connection with the Single Audit. The schedule of adjustments passed is included with management s written representations in Attachment C to this letter, and summarizes uncorrected financial statement misstatements whose effects in the current and prior periods, as determined by management, are immaterial, both individually and in the aggregate, to the financial statements taken as a whole and each applicable opinion unit. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the Commission s financial statements or the auditors report. No such disagreements arose during the course of the audit. Representations Requested from Management We have requested certain written representations from management, which are included in Attachment C to this letter. Management s Consultations with Other Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters. Other Significant Matters, Findings, or Issues In the normal course of our professional association with the Commission, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the Commission s auditors.

67 Page 4 Upcoming Changes in Accounting Standards Generally accepted accounting principles (GAAP) are continually changing in order to promote the usability and enhance the applicability of information included in external financial reporting. While it would not be practical to include an in-depth discussion of every upcoming change in professional standards, Attachment B to this letter contains a brief overview of recent pronouncements of the Governmental Accounting Standards Board (GASB) and their related effective dates. Management is responsible for reviewing these standards, determining their applicability, and implementing them in future accounting periods. This information is intended solely for the use of the governing body and management of the Grand Rapids Housing Commission and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours,

68 Attachment A - Consideration of Internal Control Over Financial Reporting For the June 30, 2016 Audit During our audit, we became aware of certain other matters that are opportunities for strengthening internal control and/or improving operating efficiency. This memorandum summarizes our comments and recommendations regarding these matters. Our consideration of the Commission's internal control over financial reporting is described in our report, dated December 21, 2016 issued in accordance with Government Auditing Standards. This memorandum does not affect that report or our report dated December 21, 2016, on the financial statements of the Commission. Other Matters Independent Review of Credit Card Expenditures (Repeat Comment) According to the Commission's credit card policy, the Financial Manager shall review each credit card statement as soon as possible to ensure all transactions comply with the policy. During our review of credit card transactions for two selected months of the fiscal year, we noted no evidence of independent review of the statements. We recommend that management initial the credit card statements to document its review. Housing Choice Voucher Payments During our testing, we observed one housing choice voucher payment that was overpaid by approximately $200. The Commission has taken steps to correct the situation by underpaying subsequent payments until the overpayment was resolved. We recommend that management review it policies and procedures in regards to reviewing housing choice voucher payment registers to ensure correct amounts are being paid. A1

69 Attachment B Upcoming Changes in Accounting Standards / Regulations For the June 30, 2016 Audit The following pronouncements of the Governmental Accounting Standards Board (GASB) have been released recently and may be applicable to the Commission in the near future. We encourage management to review the following information and determine which standard(s) may be applicable to the Commission. For the complete text of these and other GASB standards, visit and click on the Standards & Guidance tab. If you have questions regarding the applicability, timing, or implementation approach for any of these standards, please contact your audit team. GASB 74 Postemployment Benefit Plans Other than Pension Plans Effective 06/15/2017 (your FY 2017) This standard requires the calculation of a net other postemployment benefit (OPEB) liability based on an actuarial valuation of retiree healthcare and similar benefits administered by an OPEB trust. It mirrors the new accounting and financial reporting requirements of GASB 67 for pension plans. GASB 75 Postemployment Benefits Other than Pensions Effective 06/15/2018 (your FY 2018) This standard builds on the requirements of GASB 74 by requiring employers that provide other postemployment benefits (OPEB) to recognize a net OPEB liability on their statements of net position. It mirrors the new accounting and financial reporting requirements of GASB 68 for pension benefits. GASB 77 Tax Abatement Disclosures Effective 12/15/2016 (your FY 2017) This standard requires governments to disclose certain information about tax abatement agreements made to foster economic development or otherwise benefit the government or its citizens. Required disclosures include a brief description of the arrangement, the gross dollar amount of taxes abated in the current period, and any additional commitments made by the government as part of the agreement. GASB 78 Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans Effective 12/15/2016 (your FY 2017) This standard is an amendment to GASB 68, and provides guidance to governments that participate in nongovernmental cost-sharing pension plans. We do not expect this standard to have any significant effect on the Commission. GASB 80 Blending Requirements for Certain Component Units Effective 06/15/2017 (your FY 2017) This standard is an amendment to GASB 14, The Financial Reporting Entity, and requires blending component units incorporated as not-for-profit corporations in which the government is the sole corporate member. We do not expect this standard to have any significant effect on the Commission. B1

70 Attachment B Upcoming Changes in Accounting Standards / Regulations For the June 30, 2016 Audit GASB 81 Irrevocable Split-Interest Agreements Effective 12/15/2017 (your FY 2018) This standard addresses the accounting for split-interest agreements for which the government serves as the intermediary and/or the beneficiary. It requires governments to record assets, liabilities, and deferred inflows of resources at the inception of the agreement when serving as intermediary, or when the government controls the present service capacity of a beneficial interest. We do not expect this standard to have any significant effect on the Commission. GASB 82 Pension Issues Effective 06/15/2017 (your FY 2017) This standard is an amendment to GASB 67/68 to clarify several issues related to pensions. We do not expect this standard to have any significant effect on the Commission. GASB 83 Certain Asset Retirement Obligations Effective 06/15/2019 (your FY 2019) This standard addresses accounting and financial reporting for certain asset retirement obligations--legally enforceable liabilities associated with the retirement of a tangible capital asset. We do not expect this standard to have any significant effect on the Commission. B2

71 Attachment C Management Representations For the June 30, 2016 Audit The following pages contain the written representations that we requested from management. C1

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