COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2017 Prepared by: Finance Department
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Table of Contents INTRODUCTORY SECTION Page Letter of Transmittal 1 Organizational Chart 5 Elected and Appointed Officials 6 GFOA Certificate of Achievement 7 FINANCIAL SECTION Independent Auditors Report 11 Management s Discussion and Analysis 14 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position 25 Statement of Activities 26 Fund Financial Statements: Balance Sheet Governmental Funds 28 Reconciliation of Fund Balances for Governmental Funds to Net Position of Governmental Activities 29 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds 30 Reconciliation of Net Changes in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities 31 Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund 32 Statement of Net Position Proprietary Funds 34 Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Funds 35 Statement of Cash Flows Proprietary Funds 36 Statement of Fiduciary Assets and Liabilities 38 Notes to Financial Statements 40 Required Supplementary Information: MERS Agent Multiple-Employer Defined Benefit Pension Plan: Schedule of Changes in the City's Net Pension Liability and Related Ratios 66 Schedule of the Net Pension Liability 67 Schedule of Contributions 68 Other Postemployment Benefits Plan - Schedules of Funding Progress and Employer Contributions 69
Table of Contents Combining and Individual Fund Financial Statements and Schedules: Combining Balance Sheet Nonmajor Governmental Funds 72 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds 73 Combining Balance Sheet Nonmajor Special Revenue Funds 74 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Special Revenue Funds 76 Schedule of Revenues, Expenditures and Changes in Fund Balances - Final Budget and Actual Nonmajor Special Revenue Funds 78 Combining Balance Sheet - Nonmajor Debt Service Funds 82 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Debt Service Funds 83 Combining Balance Sheet Nonmajor Capital Projects Funds 84 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Capital Projects Funds 85 Combining Statement of Net Position Internal Service Funds 86 Combining Statement of Revenues, Expenses and Changes in Fund Net Position Internal Service Funds 87 Combining Statement of Cash Flows - Internal Service Funds 88 Statement of Changes in Assets and Liabilities - Tax Revolving Agency Fund 89 Downtown Development Authority Component Unit: Statement of Net Position and Governmental Fund Balance Sheet 92 Reconciliation of Fund Balances of Governmental Funds to Net Position of Governmental Activities 93 Statement of Activities and Governmental Fund Revenues, Expenditures and Changes in Fund Balance 94 Reconciliation of Net Changes in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities 95 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual 96 Page
Table of Contents STATISTICAL SECTION (UNAUDITED) Page Statistical Section Table of Contents 99 Net Position by Component 100 Changes in Net Position 102 Fund Balances - Governmental Funds 106 Changes in Fund Balances - Governmental Funds 108 Changes in Fund Balances - General Fund 110 Taxable and Estimated Actual Value of Property 113 Direct and Overlapping Property Tax Rates 114 Principal Property Taxpayers 116 Property Tax Levies and Collections 117 Ratios of Outstanding Debt by Type 118 Ratios of Net General Bonded Debt Outstanding 120 Computation of Net Direct and Overlapping Debt 121 Legal Debt Margin 122 Pledged-revenue Coverage 123 Demographic and Economic Statistics 124 Principal Employers 125 Full-time Equivalent Governmental Employees by Function/Program 126 Operating Indicators by Function/Program 128 Capital Asset Statistics by Function/Program 130
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INTRODUCTORY SECTION
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September 20, 2017 To the Honorable Mayor, Members of the City Council and Citizens of the City of Howell: State law requires that all local governments, subject to certain size criteria, publish within six months of the close of each fiscal year a complete set of financial statements presented in conformity with generally accepted accounting principles (GAAP) and audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants. This report is published to fulfill that requirement for the fiscal year ended June 30, 2017. Management assumes full responsibility for the completeness and reliability of all of the information contained in this report, based on a comprehensive framework of internal control that is established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatement. Rehmann Robson, a firm of licensed certified public accountants, has issued an unmodified opinion on the City of Howell s financial statements for the year ended June 30, 2017. The independent auditors report is presented at the front of the financial section of this report. Management s discussion and analysis (MD&A) immediately follows the independent auditors report and provides a narrative introduction, overview and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it. Profile of the Government As the county seat, the City of Howell is centrally located within Livingston County. It was platted in 1835 and later incorporated in 1863. The City of Howell is the most populated city in the county. The City currently has a land area of approximately 4.9 square miles and a population of 9,489 based on the 2010 census. The government is empowered to levy a property tax on both real and personal property located within its boundaries. The government also has the power by state statute to extend its corporate limits by annexation, which is done periodically, when deemed appropriate by the City Council. The City has operated under the council-manager form of government since 1955. All powers of the City shall be vested in and all matters of policy of the City shall be exercised and determined by a Council of seven members composed of the Mayor and six Council members. The Council shall hold at least two regular meetings per month. The Council is the City s legislative and policymaking body. Council is responsible for adopting the annual budget, contracts, laws, ordinances and resolutions; approving purchases; and granting permits and license terms. Council members are elected at large to four year, staggered terms; elections are held in November of odd years. City Council serves as the direct citizen s link to City Hall. City Council appoints the City Manager, Clerk, Treasurer, Attorney and Assessor. The City Manager is responsible for carrying out the policies and ordinances of the governing council, for supervising the day-to-day operations of the government, and for appointing the heads of the government s departments. 1
The City provides a full range of services, including: police; the construction and maintenance of highways, streets and other infrastructure; sanitary sewage treatment and disposal; water treatment and distribution; economic development; recreational activities; and cultural events. The City is also financially accountable for certain legally separate entities, which are reported separately within the City s financial statements. Additional information on each of these legally separate entities can be found in the notes to the basic financial statements. The City Council is required to adopt a final budget by the third Monday in May for the ensuing fiscal year. This annual budget serves as the foundation for the City s financial planning and control. The budget is prepared by fund, function and department. Department heads may transfer resources within a department as they see fit. Transfers between departments, however, require approval of the governing council. Factors Affecting Economic Condition The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the environment within which the City operates as described below: Local economy Many municipalities in Michigan are struggling to address the fundamental flaws in the existing local government financing system. The combined effects of Proposal A and the Headlee Amendment caps a city s ability to generate revenue at the rate of inflation, while the costs of providing services continues to increase faster than inflation. As taxable values recover, these factors will impede growth in property tax revenues. The state and federal government also limit a city s ability to raise non-tax revenue. In 2014 Michigan voters approved reallocating the State's Use Tax to fund personal property tax reform. Under the new system the City's commercial and industrial personal property tax base will essentially be capped at 2013 levels. The State will reimburse local municipalities the lost personal property revenues based on use tax collections. Fortunately for fiscal 2016/2017, use tax collections were higher than expected and the City realized additional reimbursements of $292,000. The State indicates that this additional revenue may not be available in the future and local units should assume that their future commercial/industrial reimbursement will equal their fiscal 2014 revenue. The City's tax base excluding personal property, grew by 2.9%. The City's State Equalized Value (SEV) for real property increased by 9.9% and overall (real and personal) grew by 2.69%. While this is encouraging, based on the effects of the Headlee Amendment, this increase will result in reducing the City's operating millage. The rollback reduced the operating millage for 2016/2017 to 15.8135 from the prior years maximum of 15.9443. Major initiatives During the current fiscal year, the City completed a major reconstruction of it's north parking lots and alleyway. The project included water and sewer improvements and the burying of all overhead utilities. The area has seen redevelopment over the past few years and the increased parking capacity will assist in future development. Long-term financial planning Continued economic development looks challenging and the City is preparing for structural changes that will be required. The City Council is committed to strategies designed to ensure the long-term financial health of the City. One of the ways to accomplish this is to develop an ongoing financial forecasting model. Since 2006 the City has maintained a five-year financial forecast model that is continuously refined to address changes and trends identified. By seeing what potential outcomes are available, the City can position itself to more adequately deal with its future. The City's master plan was recently revised and will help guide the City concerning future growth. The City's appointed and elected officials will utilize the Plan when making decisions about not only land use, but housing, transportation, infrastructure and overall quality of life. 2
Awards and Acknowledgements The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Howell for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2016. This was the tenth consecutive year that the City has received this prestigious award. In order to be awarded a Certificate of Achievement, the government published an easily readable and efficiently organized CAFR. This report satisfied both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the finance and administration departments. We wish to express our appreciation to all members of the departments who assisted and contributed to the preparation of this report. Credit also must be given to the Mayor and City Council for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Howell s finances. Respectfully submitted, Reid S. Charles II City Manager Catherine M. Stanislawski Treasurer / Finance Director 3
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ELECTED AND APPOINTED OFFICIALS For the Year Ended June 30, 2017 Elected Officials Nick Proctor Steven L. Manor Robert Ellis Jeffrey Hansen Jan Lobur Michael Mulvahill Scott Niblock Mayor Mayor Pro Tem Councilmember Councilmember Councilmember Councilmember Councilmember Appointed Officials Reid S. Charles II Jane Cartwright Catherine M Stanislawski Dennis Perkins City Manager City Clerk Finance Director/Treasurer City Attorney 6
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FINANCIAL SECTION 9
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Rehmann Robson 675 Robinson Rd. Jackson, MI 49203 Ph: 517.787.6503 Fx: 517.788.8111 rehmann.com INDEPENDENT AUDITORS' REPORT September 20, 2017 The Honorable Mayor and Members of the City Council City of Howell Livingston County, Michigan Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Howell, Michigan (the City ) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City s basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Independent Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators 11
Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Howell, Michigan, as of June 30, 2017 and the respective changes in financial position and, where applicable, cash flows thereof and the budgetary comparison for the general fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. Restatement of Beginning Net Position As described in Note 22, the beginning net position of the governmental activities (and internal service funds) was increased by $133,266 and the beginning net position of the fiduciary fund correspondingly decreased to reflect the reclassification of the fiduciary fund to an internal service fund. Required Supplementary Information Accounting principles generally accepted in the United States of America require that management s discussion and analysis and the schedules for the pension and other postemployment benefit plans, as listed 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 Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City s basic financial statements. The combining and individual fund financial statements and schedules, and the introductory section and statistical tables, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund financial statements and schedules are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. 12
MANAGEMENT'S DISCUSSION AND ANALYSIS 13
Management's Discussion and Analysis As management of the City of Howell, Michigan, we offer readers of the City s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2017. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal. Financial Highlights The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $31,531,219 (net position). Unrestricted net position is a deficit of $5,453,778 primarily because of the net pension liability of $10,712,937 recorded for the first time in fiscal 2015 pursuant to GASB Statement No. 68. The government s total net position decreased by $1,571,481. As of the close of the current fiscal year, the City's governmental funds reported combined ending fund balances of $3,551,489, an increase of $1,042,259. The City issued general obligation bonds to fund the North Parking Lot improvements in the amount of $1,975,000. The City also received an additional $292,000 reimbursement from the State for a personal property tax exemption which took effect in 2014. The additional reimbursement was due to higher than anticipated collections by the State of use tax revenues. The combined ending fund balance consists of nonspendable items (7.37%), restricted amounts (27.05%), committed amounts per Council (1.14%) and unassigned fund balance (64.44% or $2,288,333) and is available for spending at the government's discretion. At the end of the current fiscal year, unassigned fund balance for the general fund was $2,288,333 or 34.9 percent of total general fund expenditures and transfers out. The City's total bonded debt increased by $851,964. The City issued $1,975,000 of new general obligation bonds and refunded the 2010 sewage disposal system revenue bonds. The refunding generated a debt service savings to the City. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City s basic financial statements. The City s basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide Financial Statements. The government-wide financial statements are designed to provide readers with a broad overview of the City s finances, in a manner similar to a private sector business. The statement of net position presents information on all of the City s assets, deferred outflows of resources, liabilities and deferred inflows of resources, with the difference between them reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the government s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., earned but unused vacation leave). 14
Management's Discussion and Analysis Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, public works, parks and recreation, and community development. The business-type activities of the City include water supply and sewage disposal operations. The government-wide financial statements include not only the City itself (known as the primary government), but also legally separate entities for which the City is financially accountable. Financial information for these component units are reported separately from the financial information presented for the primary government itself. The City of Howell Building Authority, although also legally separate, functions for all practical purposes as a department of the City, and therefore has been included as an integral part of the primary government. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long term impact of the government s near term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains 18 individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general and north parking lots construction funds, which are the City s only major governmental funds. Data from the other 16 governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts an annual appropriated budget for its general and special revenue funds. Budgetary comparison statements or schedules have been provided herein to demonstrate compliance with those budgets. Proprietary Funds. The City maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its sewage disposal and water operations. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City s various functions. The City uses internal service funds to account for its public works services, general maintenance equipment, retiree health care, and selfinsurance program. Because these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the water supply and sewage disposal operations, both of which are considered to be major funds of the City. 15
Management's Discussion and Analysis Fiduciary Funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City's own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. Notes to the Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Other Information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information. This is limited to this management's discussion and analysis and the schedules for the MERS pension and other postemployment benefits plans immediately following the notes to the financial statements. The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the required supplementary information. Government-wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a government s financial position. In the case of the City of Howell, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $31,531,219 at the close of the most recent fiscal year. By far the largest portion of the City s net position (113.4 percent) reflects its investment in capital assets (e.g., land, buildings, machinery, equipment and infrastructure), less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City 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. An additional portion of the City s net position (3.9 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position is -17.3 percent or a deficit of $5,453,778. 16
Management's Discussion and Analysis Net Position Governmental Activities Business-type Activities Total 2017 2016 2017 2016 2017 2016 Current and other assets $ 6,777,643 $ 5,769,574 $ 5,600,041 $ 5,221,007 $ 12,377,684 $ 10,990,581 Capital assets, net 18,571,480 19,039,450 34,618,715 35,245,685 53,190,195 54,285,135 Total assets 25,349,123 24,809,024 40,218,756 40,466,692 65,567,879 65,275,716 Total deferred outflows of resources 981,978 1,690,797 328,389 571,359 1,310,367 2,262,156 Long-term liabilities 10,116,027 8,612,339 8,135,659 8,691,124 18,251,686 17,303,463 Other liabilities 12,194,708 12,526,861 4,310,846 4,177,010 16,505,554 16,703,871 Total liabilities 22,310,735 21,139,200 12,446,505 12,868,134 34,757,240 34,007,334 Total deferred inflows of resources 445,468 325,336 144,319 102,502 589,787 427,838 Net position: Net investment in capital assets 9,199,989 11,080,987 26,554,666 26,626,636 35,754,655 37,707,623 Restricted 960,773 901,219 269,569 376,188 1,230,342 1,277,407 Unrestricted (deficit) (6,585,864) (6,946,921) 1,132,086 1,064,591 (5,453,778) (5,882,330) Total net position $ 3,574,898 $ 5,035,285 $ 27,956,321 $ 28,067,415 $ 31,531,219 $ 33,102,700 Except for the unrestricted net position deficit in governmental activities, the City reports positive balances in all other categories of net position. The net position deficit is a direct result of the net pension liability that was recorded for the first time in fiscal 2015 pursuant to GASB Statement No. 68. The government s net position decreased by $1,571,481 compared to $1,590,740 in the prior year. The City also recorded an increase in other postemployment benefits liability of $518,981 over last year for retiree health care. The additional benefit costs were offset by the additional reimbursement from the State of $292,000. The City did realize additional professional fees of $26,076 and repair costs to City Hall of $63,651. The water and sewer systems had additional consultant fees of $39,500 for grant applications. 17
Management's Discussion and Analysis Change in Net Position Governmental Activities Business-type Activities Total 2017 2016 2017 2016 2017 2016 Program revenues: Charges for services $ 976,725 $ 908,272 $ 4,481,737 $ 4,334,094 $ 5,458,462 $ 5,242,366 Operating grants 1,046,055 836,309 74,688 25,404 1,120,743 861,713 Capital grants - - 190,009 78,000 190,009 78,000 General revenues: Property taxes 4,883,233 5,171,117 - - 4,883,233 5,171,117 Grants and contributions not restricted to specific programs 1,419,234 803,319 - - 1,419,234 803,319 Other 6,008 3,314 5,812 5,383 11,820 8,697 Total revenues 8,331,255 7,722,331 4,752,246 4,442,881 13,083,501 12,165,212 Expenses: General government 2,036,511 1,582,196 - - 2,036,511 1,582,196 Public safety 2,556,741 2,743,172 - - 2,556,741 2,743,172 Public works 3,717,543 3,861,200 - - 3,717,543 3,861,200 Community / economic development 728,250 329,158 - - 728,250 329,158 Parks and recreation 485,770 512,917 - - 485,770 512,917 Interest on long-term debt 315,211 348,507 - - 315,211 348,507 Water supply - - 2,234,532 2,143,325 2,234,532 2,143,325 Sewage disposal - - 2,580,424 2,235,477 2,580,424 2,235,477 Total expenses 9,840,026 9,377,150 4,814,956 4,378,802 14,654,982 13,755,952 Change in net position, before transfers (1,508,771) (1,654,819) (62,710) 64,079 (1,571,481) (1,590,740) Transfers 48,384 51,720 (48,384) (51,720) - - Change in net position (1,460,387) (1,603,099) (111,094) 12,359 (1,571,481) (1,590,740) Net position: Beginning of year, as restated 5,035,285 6,638,384 28,067,415 28,055,056 33,102,700 34,693,440 End of year $ 3,574,898 $ 5,035,285 $ 27,956,321 $ 28,067,415 $ 31,531,219 $ 33,102,700 Governmental Activities. Governmental activities decreased the City s net position by $1,460,387 in the current fiscal year; by comparison, in the prior year governmental activities net position decreased by $1,603,099, a change of $142,712. Key elements of this decrease include: Increased reimbursement from the State of personal property tax exemptions of $292,000. Additional accreditation expenses for the police of $15,236. Additional building department consultant fees of $19,251. Business-type Activities. Business-type activities decreased the City s net position by $111,094 as compared to an increase of $12,359 in the prior fiscal year. The City instituted a rate increase of 4.9% in August 2016 which resulted in additional revenues of $110,418. The City experienced additional sludge hauling costs of $53,380 due to the switch to a new contractor necessitated by the departure of prior long-standing contractor from the state. The systems also experienced additional consultant fees of $30,226, repairs of $56,521, and scanning fees of $25,625. 18
Management's Discussion and Analysis Financial Analysis of the City s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. Governmental Funds. The focus of the City s governmental funds is to provide information on near term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government s net resources available for spending at the end of the year. As of the end of the current fiscal year, the City s governmental funds reported combined ending fund balances of $3,551,489, an increase of $1,042,259 from the prior year. Of the total fund balance, approximately 64.4% (or $2,288,333) constitutes unassigned fund balance, which is available for spending at the government s discretion. The remainder of the fund balance is divided into categories based on the relative strength of the constraints that control how amounts can be spent. Nonspendable fund balance of $261,802 consists of prepaid items. Restricted fund balance of $960,773 consists of items that can only be spent for specific purposes based on external resource providers or legislation. Funds in this category include the major and local street funds and capital project funds financed by bond proceeds. Committed fund balance of $40,581 consists of funds that can only be used for specific purposes based on formal action by the City Council. Funds classified as committed include program reserves and various construction project funds. The general fund is the chief operating fund of the City. At the end of the current fiscal year, unassigned fund balance of the general fund was $2,288,333 while total fund balance was $2,550,135. As a measure of the general fund s liquidity, it may be useful to compare unassigned fund balance to total fund expenditures and transfers out. Unassigned fund balance represents 34.9% of total general fund expenditures and transfers out. The fund balance of the City s general fund increased by $363,760. As stated earlier, the City received an additional reimbursement from the State of $292,000 for exempted personal property taxes. The City also had additional building permit and site plan fees of $54,576. The north parking lots construction fund consists of the reconstruction of the City's parking lot #4, attached alley and burying all overhead utilities. In May 2016, Council decided to also improve the City's parking lot #2. It was decided to combine both bond transactions into a single issuance. A portion of the construction was completed in the prior fiscal year with the bond issuance in February 2017. Proprietary Funds. The City s proprietary funds provide the same type of information found in the business-type activities of the government-wide financial statements, but in more detail. Unrestricted net position of the water supply and sewage disposal funds at the end of the year amounted to $14,679 and $1,076,960, respectively. The water supply fund had an increase in total net position for the year of $72,778, and the sewage disposal fund had a decrease of $202,462. The City instituted a rate increase averaging 4.9% in the water fund effective August 2016. postemployment costs increased by $15,651. Pension and other The sewage disposal fund also instituted a 4.9% rate increase during the fiscal year. The system realized increased cost for sludge hauling of $53,380 and repair and maintenance costs of $56,251. Other factors concerning the finances of these two funds have already been addressed in the discussion of the City s business-type activities. 19
Management's Discussion and Analysis General Fund Budgetary Highlights Differences between the original and final amended budgets for expenditures were spread across various functions/departments. For fiscal 2017, the final budgetary estimate for the net change in fund balance was an increase of $221,962, the actual increase was $363,760 (or a difference of $141,798). The most significant variances resulted from: Delayed replacement of a position in the police department for $25,787. Additional building permit fees of $35,025. Capital Asset and Debt Administration Capital Assets. The City s investment in capital assets for its governmental and business-type activities as of June 30, 2017, amounted to $53,190,195 (net of accumulated depreciation). This investment in capital assets includes land, buildings and systems, improvements, machinery and equipment, park facilities, roads, highways, and bridges. The net decrease in the City s investment in capital assets, after depreciation, for the current fiscal year was 2.0% (a 2.5% decrease for governmental activities and a 1.8% decrease for business-type activities). Major capital asset events during the current fiscal year included the following: Completion of the north parking lot improvement of $1,343,656. Water main replacement of $82,201. Construction in progress of a dewatering plant for sewer of $109,383. Capital Assets (Net of Depreciation) Governmental Activities Business-type Activities Total 2017 2016 2017 2016 2017 2016 Land $ 1,802,824 $ 1,802,824 $ 430,064 $ 430,064 $ 2,232,888 $ 2,232,888 Construction in progress - 461,504 167,261 247,315 167,261 708,819 Buildings and improvements 2,295,579 2,354,433 19,849,938 20,219,856 22,145,517 22,574,289 Land improvements 1,757,273 512,302 - - 1,757,273 512,302 Machinery and equipment 666,751 843,430 61,353 89,233 728,104 932,663 Infrastructure 12,049,053 13,064,957 14,110,099 14,259,217 26,159,152 27,324,174 Total capital assets, net $ 18,571,480 $ 19,039,450 $ 34,618,715 $ 35,245,685 $ 53,190,195 $ 54,285,135 Additional information on the City s capital assets can be found in Note 9 (Capital Assets). 20
Management's Discussion and Analysis Long-term Debt. At the end of the current fiscal year, the City had total bonded debt outstanding of $17,677,913. Of this amount, $9,613,864 is comprised of debt backed by the full faith and credit of the government. General Obligation and Revenue Bonds Governmental Activities Business-type Activities Total 2017 2016 2017 2016 2017 2016 General obligation bonds $ 9,613,864 $ 8,206,900 $ - $ - $ 9,613,864 $ 8,206,900 Revenue bonds - - 8,064,049 8,619,049 8,064,049 8,619,049 $ 9,613,864 $ 8,206,900 $ 8,064,049 $ 8,619,049 $ 17,677,913 $ 16,825,949 The City's total bonded debt increased by $851,964. The City did issue new general obligation debt of $1,975,000 to finance the north parking lot improvements. The City refunded the 2010 sewerage disposal system revenue bonds. The 2010 revenue bonds were Recovery Zone Economic Bonds (RZEBS). The RZEBs were eligible for a 45% federal subsidy of the interest costs. For the past few years the subsidy had been decreasing due to the federal sequester and the refunding bonds generated debt service savings to the City. The City s rating from Standard and Poor s was "AA-" for the current fiscal year. State statutes limit the amount of general obligation debt a governmental entity may issue to 10% of its total assessed valuation. The current debt limitation for the City is $35.6 million, which significantly exceeds the City s outstanding general obligation debt of $9,903,578. Additional information on the City s long term debt can be found in Note 10 (Long-term Debt). Economic Factors and Next Year s Budget and Rates The following factors were considered in preparing the City s budget for the 2017-18 fiscal year: The overall plan for the budget is to maintain services in the community by providing a well-staffed, equipped and trained work force. Be willing to utilize fund balance during the fiscal year. During the year all aspects of the organization will be reviewed to determine if additional efficiencies can be obtained. To be sensitive to factors that may influence revenue projections, such as cuts to State shared revenue, housing values and flaws in the existing local government financing system. The City also wants to ensure that it has funding for streets, roads and other capital improvement projects by earmarking funds for future use. During the current fiscal year, unassigned fund balance in the general fund increased by $366,229 to $2,288,333. The City has budgeted a decrease in the general fund unassigned fund balance in the amount of $441,257 for the 2017-18 fiscal year. Requests for Information This financial report is designed to provide a general overview of the City s finances for all those with an interest in the government s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Finance Department, City of Howell, 611 East Grand River Avenue, Howell, Michigan, 48843. 21
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BASIC FINANCIAL STATEMENTS 23
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Statement of Net Position June 30, 2017 Primary Government Governmental Business-type Component Activities Activities Total Unit Assets Cash and cash equivalents $ 3,821,955 $ 3,841,104 $ 7,663,059 $ 96,051 Receivables 389,902 580,886 970,788 - Internal balances (774,673) 774,673 - - Inventory, prepaid items and other assets 2,282,072 120,355 2,402,427 3,309 Investment in joint venture 1,058,387-1,058,387 - Restricted cash and cash equivalents - 283,023 283,023 - Capital assets not being depreciated 1,802,824 597,325 2,400,149 152,884 Capital assets being depreciated, net 16,768,656 34,021,390 50,790,046 347,112 Total assets 25,349,123 40,218,756 65,567,879 599,356 Deferred outflows of resources Deferred charge on pension liability 954,672 328,389 1,283,061 - Deferred charge on refunding 27,306-27,306 30,950 Total deferred outflows of resources 981,978 328,389 1,310,367 30,950 Liabilities Accounts payable and accrued expenses 337,033 283,076 620,109 13,152 Accrued liabilities 308,146 32,052 340,198 17,856 Due to other government - - - 944 Unearned revenue 8,441-8,441 - Long-term liabilities: Due within one year 886,606 578,746 1,465,352 76,517 Due in more than one year 9,229,421 7,556,913 16,786,334 1,048,385 Other noncurrent liabilities: Net pension liability 7,970,426 2,742,511 10,712,937 - Net other postemployment benefits obligation 3,570,662 1,253,207 4,823,869 - Total liabilities 22,310,735 12,446,505 34,757,240 1,156,854 Deferred inflows of resources Deferred pension inflows 419,426 144,319 563,745 - Delinquent personal property taxes 26,042-26,042 - Total deferred inflows of resources 445,468 144,319 589,787 - Net position Net investment in capital assets 9,199,989 26,554,666 35,754,655 (588,080) Restricted for: Debt service - 269,569 269,569 - Capital projects 177,500-177,500 - Highways and streets 286,660-286,660 - Public safety 6,583-6,583 - Cemetery 490,030-490,030 - Unrestricted (deficit) (6,585,864) 1,132,086 (5,453,778) 61,532 Total net position (deficit) $ 3,574,898 $ 27,956,321 $ 31,531,219 $ (526,548) The accompanying notes are an integral part of these financial statements. 25
Statement of Activities For the Year Ended June 30, 2017 Program Revenues Operating Capital Net Charges Grants and Grants and (Expense) Functions / Programs Expenses for Services Contributions Contributions Revenue Primary government Governmental activities: General government $ 2,036,511 $ 789,495 $ 49,737 $ - $ (1,197,279) Public safety 2,556,741 2,542 7,346 - (2,546,853) Public works 3,717,543 136,102 988,972 - (2,592,469) Community / economic development 728,250 - - - (728,250) Parks and recreation 485,770 48,586 - - (437,184) Interest on long-term debt 315,211 - - - (315,211) Total governmental activities 9,840,026 976,725 1,046,055 - (7,817,246) Business-type activities: Water supply 2,234,532 2,202,488 55,354 78,825 102,135 Sewage disposal 2,580,424 2,279,249 19,334 111,184 (170,657) Total business-type activities 4,814,956 4,481,737 74,688 190,009 (68,522) Total primary government $ 14,654,982 $ 5,458,462 $ 1,120,743 $ 190,009 $ (7,885,768) Component unit Downtown development authority $ 366,444 $ - $ 72,416 $ - $ (294,028) continued 26
Statement of Activities For the Year Ended June 30, 2017 Primary Government Governmental Business-type Component Activities Activities Total Unit Changes in net position Net revenue (expense) $ (7,817,246) $ (68,522) $ (7,885,768) $ (294,028) General revenues: Property taxes 4,883,233-4,883,233 370,099 Grants and contributions not restricted to specific programs 1,419,234-1,419,234 - Unrestricted investment earnings 6,008 5,812 11,820 - Transfers - internal activities 48,384 (48,384) - - Total general revenues and transfers 6,356,859 (42,572) 6,314,287 370,099 Change in net position (1,460,387) (111,094) (1,571,481) 76,071 Net position (deficit), beginning of year, as restated 5,035,285 28,067,415 33,102,700 (602,619) Net position (deficit), end of year $ 3,574,898 $ 27,956,321 $ 31,531,219 $ (526,548) concluded. The accompanying notes are an integral part of these financial statements. 27
Balance Sheet Governmental Funds June 30, 2017 North Nonmajor Total Parking Lots Governmental Governmental General Construction Funds Funds Assets Cash and cash equivalents $ 1,978,010 $ 150,681 $ 706,430 $ 2,835,121 Accounts receivable 44,032-19,761 63,793 Taxes and special assessments receivable 26,042 - - 26,042 Due from other funds 501,757-286,436 788,193 Due from other governments 161,114-137,393 298,507 Prepaid items 261,802 - - 261,802 Total assets $ 2,972,757 $ 150,681 $ 1,150,020 $ 4,273,458 Liabilities Accounts payable $ 106,310 $ 45,900 $ 23,412 $ 175,622 Accrued liabilities 262,133-4,642 266,775 Due to other funds 19,696-225,393 245,089 Unearned revenue 8,441 - - 8,441 Total liabilities 396,580 45,900 253,447 695,927 Deferred inflows of resources Unavailable revenue - delinquent property taxes 26,042 - - 26,042 Fund balances Nonspendable for prepaid items 261,802 - - 261,802 Restricted for: Highways and streets - - 286,660 286,660 Public safety - - 6,583 6,583 Capital projects - 104,781 72,719 177,500 Cemetery - - 490,030 490,030 Committed for capital projects - - 40,581 40,581 Unassigned 2,288,333 - - 2,288,333 Total fund balances 2,550,135 104,781 896,573 3,551,489 Total liabilities, deferred inflows of resources and fund balances $ 2,972,757 $ 150,681 $ 1,150,020 $ 4,273,458 The accompanying notes are an integral part of these financial statements. 28