Audited Financial Statements and Required Supplementary Information City of Perry Year Ended with Report of Independent Auditors
Audited Financial Statements and Required Supplementary Information Year Ended Contents Report of Independent Auditors... 1 Management s Discussion and Analysis... 3 Basic Financial Statements Statement of Net Position... 7 Statement of Activities... 8 Governmental Funds: Balance Sheet... 9 Reconciliation of Balance Sheet to Statement of Net Position... 10 Statement of Revenues, Expenditures, and Changes in Fund Balance... 11 Reconciliation of Statement of Revenues, Expenditures, and Changes in Fund Balance to Statement of Activities... 12 Proprietary Funds: Statement of Net Position... 13 Statement of Revenues, Expenses, and Changes in Net Position... 14 Statement of Cash Flows... 15 Fiduciary Funds: Statement of Net Position... 16 Notes to Financial Statements... 17 Required Supplementary Information Budgetary Comparison Schedule: General Fund... 34 Major Street Fund... 35 Local Street Fund... 36 Drug Law Enforcement Fund... 37 Schedule of Funding Progress for City of Perry Retiree Medical Plan... 38
ANDREWS HOOPER PAVLIK PLC 217 N. WASHINGTON STREET SUITE 201 OWOSSO, MI 48867 p: 989.723.8227 f: 989.725.5143 www.ahpplc.com Report of Independent Auditors To the City Council City of Perry Shiawassee County, Michigan We have audited the accompanying financial statements of the governmental activities, the business type activities, each major fund, and the aggregate remaining fund information of the City of Perry, Michigan as of and for the year ended, and the related notes to the financial statements, which collectively comprise the City of Perry 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. 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 of 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 assessments 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. ANN ARBOR AUBURN HILLS BAY CITY GRAND RAPIDS GREATER LANSING MIDLAND OWOSSO SAGINAW
Opinion 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, each major fund, and the aggregate remaining fund information of the City of Perry as of, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 10 to the financial statements, an understatement of prior year depreciation expense for the Sewer Fund was discovered during the current year. Accordingly, an adjustment to the net position and accumulated depreciation for Sewer Fund was made during 2016 to correct the balances as of the beginning of the fiscal year. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, budgetary comparison information, and schedule of funding progress 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. Owosso, Michigan December 8, 2016 2
Management s Discussion and Analysis The Management s Discussion and Analysis report of the City of Perry (City) covers the City s financial performance during the year ended. Financial Highlights Our financial status remained stable over the last year. Net position as of totaled $1,031,415 for governmental activities and $2,830,635 for business-type activities. As of June 30, 2015, net position totaled $1,049,027 for governmental activities and $2,887,873 for business-type activities. Overall revenues were $2,229,401 ($1,398,699 from governmental activities and $830,702 from business-type activities). Governmental activities had a $17,612 decrease in net position. Business-type activities had a decrease in net position of $57,238. Overview of Financial Statements This annual report consists of three parts: Management s Discussion and Analysis, the Basic Financial Statements, and Required Supplementary Information. The basic financial statements include two different types of statements that present different views of the City and the Notes to the Financial Statements. The first two statements are entity-wide financial statements and provide both long and short-term information about our overall financial status. These statements present governmental and business-type activities. The remaining statements are fund financial statements, which focus on individual parts of the City s government in more detail than the government-wide statements. The Notes to the Financial Statements explain some of the information in the statements and provide more detailed data. Required Supplementary Information further explains and supports the financial statement information with budgetary comparisons. Entity-Wide Financial Statements The entity-wide statements report information about the City as a whole using accounting methods used by private companies. The Statement of Net Position includes all of the City s assets and liabilities. The Statement of Activities records all of the current year revenues and expenses regardless of when received or paid. 3
Management s Discussion and Analysis The two entity-wide statements report net position and how it has changed. Net position is the difference between the entity s assets and liabilities. This is one method to measure the entity s financial health or position. Over time, increases or decreases in the entity s net position are an indicator of whether financial position is improving or deteriorating. To assess overall health of the entity, you may also have to consider additional factors such as tax base changes, facility conditions and personnel changes. All of the activities of the City are reported as governmental activities or business-type activities. Governmental Activities Business-Type Activities Total 2016 2015 2016 2015 2016 2015 Assets Capital assets $ 1,844,949 $ 1,755,767 $ 5,562,030 $ 5,728,687 $ 7,406,979 $ 7,484,454 Current assets 755,615 698,592 733,427 850,453 1,489,042 1,549,045 Total assets 2,600,564 2,454,359 6,295,457 6,579,140 8,896,021 9,033,499 Liabilities Long-term liabilities 1,509,310 1,270,031 3,421,065 3,414,775 4,930,375 4,684,806 Other liabilities 59,839 135,301 43,757 276,492 103,596 411,793 Total liabilities 1,569,149 1,405,332 3,464,822 3,691,267 5,033,971 5,096,599 Net Position Invested in capital assets, net of related debt 1,350,949 1,213,637 2,153,961 2,100,618 3,504,910 3,314,255 Restricted 218,292 148,527 76,054 75,243 294,346 223,770 Unrestricted (537,826) (313,137) 600,620 712,012 62,794 398,875 Total net position $ 1,031,415 $ 1,049,027 $ 2,830,635 $ 2,887,873 $ 3,862,050 $ 3,936,900 4
Management s Discussion and Analysis Governmental Activities Business-Type Activities Total 2016 2015 2016 2015 2016 2015 Revenue Program revenue: Fees and charges for services $ 67,067 $ 99,654 $ 822,106 $ 831,343 $ 889,173 $ 930,997 General revenue: Property taxes and special assessments 689,304 677,674 - - 689,304 677,674 State-shared revenue 394,691 362,874 - - 394,691 362,874 Interest 1,280 1,356 8,596 2,284 9,876 3,640 Miscellaneous 246,357 292,942 - - 246,357 292,942 Total revenue 1,398,699 1,434,500 830,702 833,627 2,229,401 2,268,127 Expenses Program expenses: General government 629,255 788,776 - - 629,255 788,776 Public safety 433,525 404,549 - - 433,525 404,549 Public works 324,305 293,309 - - 324,305 293,309 Water and sewer - - 887,940 889,681 887,940 889,681 Recreation and culture 8,749 11,156 - - 8,749 11,156 Other 20,477 6,021 - - 20,477 6,021 Total program expenses 1,416,311 1,503,811 887,940 889,681 2,304,251 2,393,492 Change in net position (17,612) (69,311) (57,238) (56,054) (74,850) (125,365) Net position at beginning of year, as restated 1,049,027 1,118,338 2,887,873 2,943,927 3,936,900 4,062,265 Net position at end of year $ 1,031,415 $ 1,049,027 $ 2,830,635 $ 2,887,873 $ 3,862,050 $ 3,936,900 Fund Financial Statements The fund financial statements provide more detailed information about the City s funds, focusing on significant (major) funds not the City as a whole. Funds are used to account for specific activities or funding sources. Some funds are required by law or bond covenants. The City Council also may create them. Funds are established to account for funding and spending of specific financial resources and to show proper expenditures of those resources. The City has the following types of funds: Governmental Funds These funds are presented on the modified accrual basis, which is designed to show short-term financial information. You will note that the differences between the City s entity-wide statements and the fund statements are disclosed in reconciling statements to explain the differences between them. The City s governmental funds include the General Fund, the Major Street Fund, the Local Street Fund, the Drug Law Enforcement Fund, and the Building Authority Fund. Business-Type Funds The City has a Water Fund and a Sewer Fund which include the activity of providing water and sewer to City residents. 5
Management s Discussion and Analysis Financial Analysis of the City as a Whole Our financial position in both the governmental and business-type activities remains strong. Total net position decreased from $3,936,900 in the prior year to $3,862,050 in the current fiscal year. Of the total decrease in net position, $17,512 was attributed to governmental activities and $57,238 was attributed to business-type activities. Financial Analysis of the City s Funds The General Fund had a decrease in fund balance of $3,572. Total governmental funds, including the General Fund, had an increase in fund balance of $66,189. The Water Fund had an increase in net position of $19,492 and the Sewer Fund had a decrease in net position of $76,730. General Fund Budgetary Highlights Over the course of the fiscal year, the City Council made necessary budget adjustments due to general fund unanticipated expenditures during the year. There was an overall favorable budget to actual variance of $57,290. Capital Asset and Long-Term Debt Activity The City s governmental activities invested $216,386 in capital assets. The City s governmental activities paid $149,552 of principal on long-term debt. The City s business-type activities paid $220,000 of principal on long-term debt. Known Factors Affecting Future Operations The City of Perry s goal is to continually look for the most efficient and effective methods to maintain and enhance the services that are provided to the public. The City has a conservative and financially prudent budget for the fiscal year 2017 that also promotes and funds numerous project objectives. Contacting the City s Management The financial report is intended to provide our taxpayers, creditors, investors and customers with a general overview of the City s finances and to demonstrate the City s accountability for the revenues it receives. If you have any questions concerning this report please contact the City Treasurer at (517) 625-6155. 6
Statement of Net Position Governmental Activities Business-Type Activities Total Assets Cash and cash equivalents $ 656,301 $ 570,411 $ 1,226,712 Accounts receivable 13,551 86,962 100,513 Due from other governments 65,121-65,121 Due from others 6,981-6,981 Prepaid expenses 13,661-13,661 Restricted cash in bank - 76,054 76,054 Capital assets, net of depreciation 1,844,949 5,562,030 7,406,979 Total assets 2,600,564 6,295,457 8,896,021 Liabilities Accounts payable 24,438 4,173 28,611 Accrued expenses 18,984 24,099 43,083 Due to others 16,417-16,417 Customer water deposits - 15,485 15,485 Long-term liabilities: Due within one year 123,166 230,000 353,166 Due in more than one year 1,386,144 3,191,065 4,577,209 Total liabilities 1,569,149 3,464,822 5,033,971 Net position Net investment in capital assets 1,350,949 2,153,961 3,504,910 Restricted 218,292 76,054 294,346 Unrestricted (deficit) (537,826) 600,620 62,794 Total net position $ 1,031,415 $ 2,830,635 $ 3,862,050 See accompanying notes. 7
Statement of Activities Year Ended Program Revenue Net (Expense) Revenue and Changes in Net Position Functions/programs Expenses Charges for Services Governmental Activities Business-Type Activities Total Governmental activities: General government $ 629,255 $ 67,067 $ (562,188) $ - $ (562,188) Public safety 433,525 (433,525) - (433,525) Public works 324,305 (324,305) - (324,305) Culture and recreation 8,749 (8,749) - (8,749) Community and economic development 20,477 (20,477) - (20,477) Total governmental activities 1,416,311 67,067 (1,349,244) - (1,349,244) Business-type activities: Water 341,963 360,448-18,485 18,485 Sewer 545,977 461,658 - (84,319) (84,319) Total business-type activities 887,940 822,106 - (65,834) (65,834) Total government $ 2,304,251 $ 889,173 (1,349,244) (65,834) (1,415,078) General revenues: Property taxes 568,503-568,503 Special assessments 120,801-120,801 State-shared revenue/act 51 street 394,691-394,691 Rents and royalties 193,900-193,900 Fines and forfeitures 10,322-10,322 Miscellaneous other 42,135-42,135 Interest income 1,280 8,596 9,876 Total general revenues 1,331,632 8,596 1,340,228 Change in net position (17,612) (57,238) (74,850) Net position at beginning of year, as restated 1,049,027 2,887,873 3,936,900 Net position at end of year $ 1,031,415 $ 2,830,635 $ 3,862,050 See accompanying notes. 8
Governmental Funds Balance Sheet Special Revenue Drug Law Enforcement Fund Building Authority Fund Total Governmental Funds General Major Street Local Street Fund Fund Fund Assets Cash and cash equivalents $ 343,056 $ 108,246 $ 54,960 $ 5,187 $ 24,607 $ 536,056 Accounts receivable 13,551 - - - - 13,551 Due from other governments 35,322 17,087 12,712 - - 65,121 Due from other funds 2,926 950 3,105 - - 6,981 Prepaid expenses 13,661 - - - - 13,661 Total assets $ 408,516 $ 126,283 $ 70,777 $ 5,187 $ 24,607 $ 635,370 Liabilities Accounts payable $ 19,935 $ 699 $ 699 $ 270 $ - $ 21,603 Wages payable 4,393 306 322 - - 5,021 Due to other funds 2,156 - - - 12,362 14,518 Total liabilities 26,484 1,005 1,021 270 12,362 41,142 Fund balances Nonspendable 13,661 - - - - 13,661 Restricted: Streets - 125,278 69,756 - - 195,034 Drug law enforcement - - - 4,917-4,917 Building authority - - - - 12,245 12,245 Skate park 6,096 - - - - 6,096 Committed: Retiree health 126,274 - - - - 126,274 Parks and recreation 4,634 - - - - 4,634 Unassigned 231,367 - - - - 231,367 Total fund balance 382,032 125,278 69,756 4,917 12,245 594,228 Total liabilities and fund balance $ 408,516 $ 126,283 $ 70,777 $ 5,187 $ 24,607 $ 635,370 See accompanying notes. 9
Governmental Funds Reconciliation of Balance Sheet to Statement of Net Position Total fund balances governmental funds $ 594,228 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the Governmental Funds Balance Sheet. 1,844,949 Long-term debt liabilities are not due and payable in the current period and therefore are not reported in the governmental funds: Bonds and notes payable (494,000) Accrued compensated absences (49,895) Net OPEB liability (826,458) Accrued interest on debt (10,292) Internal service funds are used by management to charge the costs of certain equipment usage to individual funds. The assets and liabilities of the internal service funds are included in the governmental activities in the Statement of Net Position. (27,117) Total net position governmental activities $ 1,031,415 See accompanying notes. 10
Governmental Funds Statement of Revenue, Expenditures, and Changes in Fund Balance Year Ended Special Revenue Drug Law Building Total Major Street Local Street Enforcement Authority Governmental General Fund Fund Fund Fund Funds Revenues Property taxes and fees $ 568,503 $ - $ - $ - $ - $ 568,503 Special assessments 120,801 - - - - 120,801 State-shared revenue 215,483 105,965 73,243 - - 394,691 Charges for services 4,149 - - - - 4,149 Rents and royalties 139,475 - - - 54,425 193,900 Licenses and permits 18,052 - - - - 18,052 Fines and forfeitures 10,322 - - - - 10,322 Interest 1,112 58 24 3 9 1,206 Miscellaneous other income 11,085 - - - 5,000 16,085 Total revenues 1,088,982 106,023 73,267 3 59,434 1,327,709 Expenditures Current: General government 389,132 - - - 950 390,082 Public safety 461,845 - - 1,598-463,443 Public works 199,458 61,646 65,347 - - 326,451 Culture and recreation 6,642 - - - - 6,642 Community and ecomonic development 20,477 - - - - 20,477 Debt service - - - - 54,425 54,425 Total expenditures 1,077,554 61,646 65,347 1,598 55,375 1,261,520 Excess of revenues over (under) expenditures 11,428 44,377 7,920 (1,595) 4,059 66,189 Other financing sources (uses) Transfers from other funds - - 22,000 - - 22,000 Transfers to other funds (15,000) (7,000) - - - (22,000) Net other financing sources (uses) (15,000) (7,000) 22,000 - - - Net change in fund balance (3,572) 37,377 29,920 (1,595) 4,059 66,189 Fund balances at beginning of year 385,604 87,901 39,836 6,512 8,186 528,039 Fund balances at end of year $ 382,032 $ 125,278 $ 69,756 $ 4,917 $ 12,245 $ 594,228 See accompanying notes. 11
Governmental Funds Reconciliation of Statement of Revenue, Expenditures, and Changes in Fund Balance to Statement of Activities Year Ended Net change in fund balances total governmental funds $ 66,189 Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report capital outlays as expenditures; in the Statement of Activities, these costs are allocated over their estimated useful lives as depreciation Depreciation expense (127,204) Capital outlay 216,386 Repayment of debt principal is an expenditure in the governmental funds; the repayment does not have an effect in the Statement of Activities, but does reduce the debt balance in the Statement of Net Position Principal payments on long-term debt 102,326 Increase in compensated absences (3,071) Increase in accrued interest payable bonds (2,875) Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds Increase in the accrual for the net OPEB liability (57,251) Internal service funds are used by management to charge the costs of equipment services to individual funds. Net revenue of the internal service fund is reported within governmental activities, net of depreciation expense of $40,618, capital asset additions of $216,386, increase in accrued interest payable of $3,479, and debt payment of $54,196, included above. (212,112) Change in net position governmental activities $ (17,612) See accompanying notes. 12
Proprietary Funds Statement of Net Position Enterprise Funds Sewer Fund Water Fund Total Assets Current assets: Cash and cash equivalents $ 362,616 $ 207,795 570,411 Internal Service Funds $ $ 120,245 Accounts receivable 48,942 38,020 86,962 - Due from other funds 79,000-79,000 - Total current assets 490,558 245,815 736,373 120,245 Noncurrent assets: Capital assets, net of depreciation 3,731,806 1,830,224 5,562,030 330,319 Restricted cash 13,906 62,148 76,054 - Total noncurrent assets 3,745,712 1,892,372 5,638,084 330,319 Total assets 4,236,270 2,138,187 6,374,457 450,564 Liabilities Current liabilities: Accounts payable 2,061 2,112 4,173 2,835 Accrued wages 1,339 647 1,986 192 Accrued interest 13,396 8,717 22,113 3,479 Due to other funds - 79,000 79,000 1,899 Compensated absences 2,500 2,500 5,000 - Bonds payable 120,000 105,000 225,000 52,166 Customer water deposits - 15,485 15,485 - Total current liabilities 139,296 213,461 352,757 60,571 Noncurrent liabilities: Compensated absences 3,998 3,998 7,996 - Bonds payable 2,023,369 1,159,700 3,183,069 86,791 Total noncurrent liabilities 2,027,367 1,163,698 3,191,065 86,791 Total liabilities 2,166,663 1,377,159 3,543,822 147,362 Net position Net investment in capital assets 1,588,437 565,524 2,153,961 330,319 Restricted for debt service 13,906 62,148 76,054 - Unrestricted, as restated 467,264 133,356 600,620 (27,117) Total net position $ 2,069,607 $ 761,028 $ 2,830,635 $ 303,202 See accompanying notes. 13
Proprietary Funds Statement of Revenue, Expenses, and Changes in Net Position Year Ended Enterprise Funds Internal Sewer Fund Water Fund Total Service Funds Operating revenues Charges for services $ 461,608 $ 360,448 $ 822,056 $ 111,616 Miscellaneous other revenues 50-50 26,050 Total operating revenues 461,658 360,448 822,106 137,666 Operating expenses Salaries 118,621 72,999 191,620 18,321 Payroll taxes and fringe benefits 48,322 40,285 88,607 9,274 Operating supplies 21,204 5,732 26,936 24,747 Contracted services 10,858 7,549 18,407 - Building and equipment rentals 99,271 33,933 133,204 - Utilities 11,034 15,495 26,529 - Repairs and maintenance 9,807 27,528 37,335 16,400 Miscellaneous other expenses 1,213 2,458 3,671 - Administration fees 15,000 5,000 20,000 6,500 Depreciation expense 154,906 92,835 247,741 40,618 Capital Outlay - - - 329 Total operating expenses 490,236 303,814 794,050 116,189 Operating income (loss) (28,578) 56,634 28,056 21,477 Nonoperating revenues (expenses) Interest income 7,589 1,007 8,596 74 Bond interest expense (55,741) (38,149) (93,890) (7,178) Total nonoperating revenues (expenses) (48,152) (37,142) (85,294) (7,104) Change in net position (76,730) 19,492 (57,238) 14,373 Net position at beginning of period, as restated 2,146,337 741,536 2,887,873 288,829 Net position at end of period $ 2,069,607 $ 761,028 $ 2,830,635 $ 303,202 See accompanying notes. 14
Proprietary Funds Statement of Cash Flows Year Ended Enterprise Funds Sewer Fund Water Fund Totals Internal Service Funds Cash flows from operating activities Receipts from customers $ 459,560 $ 360,456 $ 820,016 $ - Payments to suppliers (56,327) (58,490) (114,817) (42,263) Payments to employees (168,637) (114,534) (283,171) (28,036) Internal activity payments for services (114,271) (38,933) (153,204) 105,116 Net cash from operating activities 120,325 148,499 268,824 34,817 Cash flows from capital and related financing activities Purchase of capital assets (58,578) (22,506) $ (81,083) (216,386) Proceeds from sale of capital assets - - - 26,050 Principal paid on capital debt (115,000) (105,000) (220,000) (54,196) Proceeds from additional borrowings of capital debt - - - 195,052 Interest paid on capital debt (56,459) (38,993) (95,453) (3,699) Net cash from capital and related financing activities (230,037) (166,499) (396,536) (53,179) Cash flows from investing activities Interest 7,589 1,007 8,596 74 Net change in cash and cash equivalents (102,123) (16,993) (119,116) (18,288) Cash and cash equivalents at beginning of year 478,645 286,936 765,581 138,533 Cash and cash equivalents at end of year $ 376,522 $ 269,943 $ 646,465 $ 120,245 Reconciliation of operating income (loss) to net cash from operating activities Operating income (loss) $ (28,578) $ 56,634 $ 28,056 $ 21,477 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 154,906 92,835 247,741 40,618 Gain on disposal of assets - - - (26,050) Change in assets and liabilities: Accounts receivable (2,098) 8 (2,090) - Accounts payable and accrued expenses (3,905) (978) (4,883) (1,228) Net cash from operating activities $ 120,325 $ 148,499 $ 268,824 $ 34,817 See accompanying notes. 15
Fiduciary Funds Statement of Net Position Agency Funds Tax Imprest Payroll Total Assets Cash and cash equivalents $ 100 $ 4,525 $ 4,625 Total assets $ 100 $ 4,525 $ 4,625 Liabilities Due to other funds $ 100 $ 2,826 $ 2,926 Accrued liabilities - 1,699 1,699 Total liabilities $ 100 $ 4,525 $ 4,625 See accompanying notes. 16
Notes to Financial Statements 1. Summary of Significant Accounting Policies The financial statements of the City of Perry (City) have been prepared in conformity with accounting principles generally accepted in the United States of America (U. S. GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting practices. The significant accounting and reporting policies and practices used by the City are described below. Reporting Entity The reporting entity is the City of Perry. The City is governed by an elected City Council. As required by generally accepted accounting principles, these financial statements present the City as the primary government and include any component units. A component unit is included in the City s reporting entity if it is both fiscally dependent on the City and there is a potential for the component unit to provide specific financial benefits to, or impose specific financial burdens on the primary government. The primary government is required to consider other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity s financial statements to be misleading or incomplete. Blended Component Unit A blended component unit is legally separate from the City, but is so intertwined with the City that is in substance the same as the City. It is reported as part of the City and blended into appropriate funds. The Perry Area Building Authority is a blended component unit, which has a December 31 year end. The Perry Area Building Authority The Perry Area Building Authority exists and operates for the purpose of owning, equipping, operating, and maintaining property leased by the City of Perry. The City makes semi-annual rent payments to the Building Authority and will continue to do so until the principal and interest of the Authority bonds are paid in full. For the year ended, the City made rent payments amounting to $59,425 for occupancy of facilities owned by the Authority. As of December 31, 2015, the Authority owed the City of Perry $12,362. This amount was repaid prior to the close of the City of Perry s fiscal year of. The board members of the Authority are appointed by City Council. Since the Perry Building Authority exists and operates for the sole benefit of the City of Perry, its financial records are included as a blended component in the general purpose financial statements of the City. Separate financial statements are issued for the Perry Area Building Authority and are available at Perry City Hall. 17
Notes to Financial Statements 1. Summary of Significant Accounting Policies (continued) Basis of Presentation The government-wide financial statements (the Statement of Net Position and the Statement of Activities) report information on all of the nonfiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, normally supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental and business-type funds are reported in separate columns in the fund financial statements. The City reports the following major governmental funds: General Fund This fund is used to account for all financial transactions except those required to be accounted for in another fund. The fund includes the general operating expenditures of the local unit. Revenues are derived primarily from property taxes, state and federal distributions, grants, and other intergovernmental revenues Major Streets This fund accounts for the City s share of proceeds from gas and weight taxes levied by the State and distributed to local governmental units for major streets and roads. Local Streets This fund accounts for the City s share of proceeds from gas and weight taxes levied by the State and distributed to local governmental units for local streets and roads. Drug Law Enforcement This fund is used to account for monies collected in relation to drug laws. These collections are required by law to be used for drug law enforcement. The City reports the following major proprietary funds: Water and Sewer Funds These funds are used to account for water and sewer service operations that are financed and operated in a manner similar to private business enterprises. The intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. 18
Notes to Financial Statements 1. Summary of Significant Accounting Policies (continued) Basis of Presentation (continued) The City reports the following internal service funds: Internal Service Funds The internal services funds account for the financing of equipment and vehicles by one department or agency to other departments or agencies of the City, or to other governments, on a cost-reimbursement basis. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurements focus and the accrual basis of accounting. Revenue is recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. When an expense is incurred for purposes for which both restricted and unrestricted net assets are available, restricted resources are applied first. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized as soon as it is both measurable and available. Revenue is considered to be available if it is collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, expenditures relating to compensated absences, and claims and judgments are recorded only when payment is due. 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 sewer and water funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. The proprietary and internal service funds are reported using the economic resource measurement focus and the accrual basis of accounting. 19
Notes to Financial Statements 1. Summary of Significant Accounting Policies (continued) Cash and cash equivalents Cash and cash equivalents include cash on hand, demand deposits, certificates of deposit, and short-term investments. Receivables Receivables have been recognized for all significant amounts due to the City. Allowances for uncollectible accounts have not been provided for since collection is not considered doubtful and any uncollected amount would be immaterial. Property Taxes Property taxes and other revenue that are both measurable and available for use to finance operations are recorded as revenue when earned. The City tax is levied on December 1 on the taxable valuation of property (as defined by State statutes) located in the City as of the preceding December 31. These taxes are due on March 1 of the following year. The City s 2015 tax roll millage rate was 13.7039 mills, and the taxable value was $39,460,658. Internal Balances In general, outstanding balances between funds are reported as due to/from other funds. Any residual balances outstanding between the governmental activities and the business-type activities are reported in the government-wide financial statements as due to/from other funds. Capital Assets Capital assets are defined by the City as assets with an initial cost of more than $500 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost. Donated assets are reported at estimated fair market value as of the date of donation. Additions, improvements, and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Depreciation on all assets is provided on the straight-line basis over the following estimated useful lives: 20
Notes to Financial Statements 1. Summary of Significant Accounting Policies (continued) Capital Assets (continued) Land and improvements Buildings and building improvements Utility systems Roads Other infrastructure Vehicles Machinery and equipment 10 20 years 25 40 years 25 40 years 25 years 20 40 years 5 10 years 5 10 years Compensated Absences (Vacation and Sick Leave) Full-time employees receive 48 hours of sick leave time after completing six months of employment. Thereafter, sick leave time accumulates eight hours per month with a maximum accumulation of 960 hours. Full-time employees who have accumulated their 960 hours will be paid for half of the unused sick leave time for the year on the first pay of December of each year. The balance will be lost due to accumulation. The City will also pay one-third of accumulated sick leave upon retirement or death. Other reasons for termination will not be reimbursed for accumulated sick leave. Full-time employees earn vacation time at the following rate: 40 hours after one year of service, 80 hours after two years of services, 120 hours after five years of service, 160 hours after 15 years of service. If vacation time is not used during the year, employees may carry over up to 40 hours to the next year. Any remaining unused vacation time will be paid at the employee s normal rate of pay in the first pay period following their anniversary date. Upon termination, employees will be paid accumulated vacation time. All vacation pay and one third of sick pay is accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only for terminations as of year-end ($0 as of ). Government-Wide Net Position Government-wide net position is divided into three components: Net investment in capital assets this category consists of the historical cost of capital assets less accumulated depreciation and less any debt that remains outstanding that was used to finance those assets; Restricted net position net position is considered restricted if its use is constrained to a particular purpose (as imposed by external organization such as federal or state laws); Unrestricted all other net position is reported in this category. 21
Notes to Financial Statements 1. Summary of Significant Accounting Policies (continued) Governmental Fund Balances In the governmental fund financial statements, fund balances are classified as follows: Nonspendable Amounts that cannot be spent either because they are in a nonspendable form or because they are legally or contractually required to be maintained intact; Restricted Amounts constrained to specific purposes by their providers through constitutional provisions, or by enabling legislation; Committed Amounts constrained to a specific purpose by the government itself, determined by a formal action by City Council ordinance or resolution; Assigned Amounts the City Council intends to use for a specific purpose but are neither restricted nor committed; Unassigned All amounts not included in other spendable classifications. For the classification of governmental fund balances, the City considers an expenditure to be made from the most restrictive first when more than one classification is available. 2. Budgets and Budgetary Accounting The following procedures are followed in establishing the budgetary data reflected in these financial statements: 1. Prior to the beginning of the fiscal year, the proposed budget for each budgetary fund is submitted to the City Council for consideration. 2. The proposed budgets include expenditures as well as the methods of financing them. 3. Public hearings are held to obtain taxpayer comments. 4. The budgets are adopted at the activity level by a majority vote of the City Council. 5. The budgets are adopted on the modified accrual basis of accounting. 22
Notes to Financial Statements 2. Budgets and Budgetary Accounting (continued) 6. The originally adopted budgets can be amended during the year only by a majority vote of the City Council. 7. The adopted budgets are used as a management control device during the year for all budgetary funds. 8. Budget appropriations lapse at the end of each fiscal year. 9. The budgeted amounts shown in these financial statements are the originally adopted budgets with all amendments that were approved by the City Council during the fiscal year. Public Act 2 of 1968, as amended, requires the adoption of a balanced budget for general and special revenue funds, as well as budget amendments as needed to prevent actual expenditures from exceeding those provided for in the budget. 3. Deposits and Investments Michigan Compiled Laws, Section 129.91, authorizes the City to deposit and invest in the accounts of federally insured banks, credit unions, and savings and loan associations; bonds, securities, and other direct obligations of the United States, or any agency or instrumentality of the United States; banker s acceptance of United States banks; commercial paper rated within the two highest classifications, which mature not more than 270 days after the date purchase; and mutual funds composed of investment vehicles which are legal for direct investment by local units of government in Michigan. Financial institutions eligible for deposit of public funds must maintain an office in Michigan. The City Council has designated two banks for the deposit of City funds. The investment policy adopted by the Council in accordance with Public Act 196 of 1997 has authorized investment in all investments as listed above. Bank Balances Insured (FDIC) $ 500,000 Uninsured and uncollateralized 822,669 Total deposits $ 1,322,669 23
Notes to Financial Statements 3. Deposits and Investments (continued) Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by participating in financial institution pooled funds and in mutual funds which hold diverse investments that are authorized by law for direct investments. Concentration of Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The financial institution pooled funds and the mutual funds do not have a rating provided by a nationally recognized statistical rating organization. The investment policy of the City contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by Michigan law. Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. Michigan law and the City s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. Michigan law and the City s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for investments. With respect to investment, custodial credit risk generally applies only to direct investments in marketable securities. Custodial credit risk does not apply to a local government s indirect investment in securities through the use of mutual funds or government investment pools. 24
Notes to Financial Statements 4. Capital Assets Capital asset activity of the City s governmental and business-type activities for the current year was as follows: Beginning Balance Acquisitions Disposals Ending Balance Governmental activities: Land $ 64,580 $ - $ - $ 64,580 Buildings 2,067,025 - - 2,067,025 Infrastructure 578,962 - - 578,962 Equipment 970,107 216,386 (92,837) 1,093,656 Total 3,680,674 216,386 (92,837) 3,804,223 Accumulated depreciation (1,924,907) (127,204) 92,837 (1,959,274) Net governmental capital assets $ 1,755,767 $ 89,182 $ - $ 1,844,949 Business-type activities: Land $ 146,503 $ - $ - $ 146,503 Plant, property, and equipment 9,268,338 81,083-9,349,421 Total 9,414,841 81,083-9,495,924 Accumulated depreciation (3,686,153) (247,741) - (3,933,894) Net business-type capital assets $ 5,728,688 $ (166,658) $ - $ 5,562,030 Depreciation expense was charged to functions/programs as follows: Governmental activities: General government $ 98,411 Public safety 1,582 Public works 25,104 Culture and recreation 2,107 Total depreciation governmental activities $ 127,204 Business-type activities: Water systems $ 92,835 Sewer systems 154,906 Total depreciation business-type activities $ 247,741 25
Notes to Financial Statements 5. Long-Term Debt The City issues bonds to provide for the acquisition and construction of major capital projects. General obligation bonds are direct obligations and pledge the full faith and credit of the government. Special assessment bonds provide for capital improvements that benefit specific properties benefited from the construction. The City currently holds the following bonds: Perry Area Building Authority Bond Due in annual installments through October 2027, with interest of 5% payable semi-annually. Annual maturities range from $20,000 - $53,000. 1982 Water System Revenue Bond Due in annual installments through October 2021, with interest of 5% payable semi-annually. Annual maturities range from $10,000 - $30,000. 1983 Water System Revenue Bond Due in annual installments through October 2021, with interest of 5% payable semi-annually. Annual maturities range from $1,000 - $5,000. 2008 Water System Revenue Bond Due in annual installments through April 2028, with interest of 2.5% payable semi-annually. Annual maturities range from $65,000 - $104,700. 2012 Sewer Lagoon Revenue Bond Due in annual installments through April 2031, with interest of 2.5% payable semi-annually. Annual maturities range from $110,000 - $168,369. The City retired the 1998 Spalding Drain Special Assessment Bond in October 2015 at an annual maturity of $19,130. Interest on this bond was 5% payable annually. In addition to the above bonds, on February 19, 2015, the City entered into a purchase agreement with Mercedes-Benz Financial Services USA LLC for the purchase of a dump truck. The total cost of the dump truck was $123,690; annual payments are due in installments through February 19, 2019; the interest rate is 7.6%; annual maturities range from $29,570 to $32,302. On August 17, 2015, the City entered into a purchase agreement with Ford Motor Credit Company LLC for a police vehicle. The total cost of the vehicle was $37,676; the payments are due in annual installments through August 17, 2017; annual maturities range from $11,777 to $13,357. On August 19, 2015, the City entered into a purchase agreement for a pickup truck with Ford Motor Company LLC. The total cost of the vehicle was $31,787; payments are due in annual installments through September 3, 2017; annual maturities range from $9,936 to $11,269. The interest rate for the purchase of the police vehicle and pickup truck is 6.4%. 26
Notes to Financial Statements 5. Long-Term Debt (continued) Interest expense related to the above debt was charged to functions/programs as follows: Governmental activities: General government $ 32,603 Business-type activities: Water systems $ 38,149 Sewer systems 55,741 Total business-type activities $ 93,890 Long-term obligation activity is summarized as follows: Beginning Balance Increases Decreases Ending Balance Governmental activities: Special assessment bonds: 1998 Spalding Drain $ 19,130 $ - $ 19,130 $ - Building Authority bonds 523,000-29,000 494,000 Vehicle notes - 193,153 54,196 138,957 OPEB liability 769,207 77,384 20,133 826,458 Compensated absences 46,824 30,164 27,093 49,895 Total $ 1,358,161 $ 300,701 $ 149,552 $ 1,509,310 Business-type activities: Revenue bonds: 1982 Water System $ 185,000 $ - $ 25,000 $ 160,000 1983 Water System 35,000-5,000 30,000 2008 Water System 1,149,700-75,000 1,074,700 2012 Sewer Lagoon 2,258,369-115,000 2,143,369 Compensated absences 11,706 7,541 6,251 12,996 Total $ 3,639,775 $ 7,541 $ 226,251 $ 3,421,065 27
Notes to Financial Statements 5. Long-Term Debt (continued) Due Within 1 Year Governmental activities: Building Authority bonds $ 31,000 Vehicle notes 52,166 OPEB liability 20,000 Compensated absences 20,000 Total $ 123,166 Business-type activities: Revenue bonds: 1982 Water System $ 25,000 1983 Water System 5,000 2008 Water System 75,000 2012 Sewer Lagoon 120,000 Compensated absences 5,000 Total $ 230,000 Annual debt service requirements to maturity for long-term bonds and notes are as follows: Year Ending Governmental Activities Business-Type Activities June 30 Principal Interest Principal Interest 2017 $ 83,166 $ 29,654 $ 225,000 $ 88,452 2018 87,488 26,332 235,000 82,077 2019 67,302 21,591 240,000 75,452 2020 36,000 18,850 250,000 68,577 2021 38,000 17,000 245,000 61,452 2022-2026 217,000 54,275 1,200,000 216,135 2027-2031 104,000 5,250 1,013,069 69,031 Total $ 632,956 $ 172,952 $ 3,408,069 $ 661,176 28
Notes to Financial Statements 6. Interfund Payables, Receivables, and Transfers The amounts of interfund receivables and payables as of are as follows: Fund Interfund Receivable Fund Interfund Payable General $ 2,926 Current tax collection $ 100 Sewer 79,000 Imprest payroll 2,826 Local street 3,105 Water 79,000 Major street 950 Motor pool 1,899 - General 2,156 $ 85,981 $ 85,981 Due to/due from transactions are used for short-term interfund loans. The outstanding balances for the General, Imprest Payroll, and Current Tax Collection Fund are the result of a time lag between the date the money was received in the agency fund and the date the payment was made. The Sewer and Water Fund balance is a result of a shortage in the Water Fund that was covered by the Sewer Fund. The outstanding balance for Local Street and General Fund is a result of Local Street money deposited into the General Fund bank account. The outstanding balances between Local Street and Major Street Fund from Motor Pool Fund (an internal service fund) resulted from asset purchases made by the Motor Pool Fund for the Local Street and Major Street Fund. As of December 31, 2015, the date of the financial statements for the Perry Building Authority, the blended component unit owed the general fund $12,362. This amount was subsequently repaid to the general fund prior to. The amounts of interfund transfers for the year ending are as follows: Fund Transfers In Fund Transfers Out Local street $ 22,000 General $ 15,000 - Major street 7,000 Total $ 22,000 Total $ 22,000 Transfers are used to move unrestricted revenues to finance various programs in accordance with budgetary authorizations. 29