Year Ended June 30, 2015 Financial Statements
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Table of Contents Financial Section Page Independent Auditors Report 1 Management s Discussion and Analysis 6 Basic Financial Statements Government-wide Financial Statements: Statement of Net Position 13 Statement of Activities 14 Fund Financial Statements: Balance Sheet Governmental Funds 16 Reconciliation of Fund Balances of Governmental Funds to Net Position of Governmental Activities 17 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds 18 Reconciliation of Net Changes in Fund Balances of Governmental Funds to Changes in Net Position of Governmental Activities 19 Statement of Revenues, Expenditures and Changes in Fund Balances Budget and Actual: General Fund 20 Major Streets Fund 22 Statement of Net Position Water and Sewer Enterprise Fund 23 Statement of Revenues, Expenses and Changes in Fund Net Position Water and Sewer Enterprise Fund 25 Statement of Cash Flows Water and Sewer Enterprise Fund 26 Statement of Fiduciary Assets and Liabilities - Agency Funds 28 Notes to Financial Statements 30 Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan: Schedule of Changes in City's Net Pension Liability Related Ratios 50 Schedule of Net Pension Liability 51 Schedule of Contributions 52 Employees' Postemployment Benefits Plan - Retiree Health - Schedule of of Funding Progress and Employer Contributions 53 Combining and Individual Fund Financial Statements and Schedules Combining Balance Sheet - Nonmajor Governmental Funds 56 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds 58 Schedules of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Nonmajor Special Revenue Funds 60 Combining Statement of Fiduciary Assets and Liabilities - Agency Funds 66
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FINANCIAL SECTION
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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 December 14, 2015 The Honorable Mayor and Members of the City Council City of Ecorse Wayne County, Michigan Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Ecorse, Michigan (the City ), as of and for the year ended June 30, 2015, 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. Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators 1
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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 Ecorse, Michigan, as of June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for the general fund and the major special revenue fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. Implementation of GASB Statement No. 68 As described in Note 16, the City implemented the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, in the current year. Accordingly, beginning net position of the governmental activities, business-type activities, and water and sewer enterprise funds were restated. 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 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. 2
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 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. 3
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MANAGEMENT'S DISCUSSION AND ANALYSIS 5
Management's Discussion and Analysis Our discussion and analysis of the City of Ecorse, Michigan s (the City ) financial performance provides an overview of the City s financial activities for the fiscal year ended June 30, 2015. Please read it in conjunction with the City s financial statements. Financial Highlights As discussed in further detail in this discussion and analysis, the following represents the most significant financial highlights for the year ended June 30, 2015: Effective April 1, 2013, the city transitioned away from the Governor-appointed Emergency Manager ( EM ). The city is now governed by the City Council with oversight by a Transition Advisory Board appointed by the State of Michigan. The current year general fund operations resulted in revenue over expenditures of $518,947. For the fiscal year ended June 30, 2015, the City again showed a positive fund balance in the general fund. In total, the general fund was over budget with total operating expenditures out being $270,984 more than the amended budget. Using this Annual Report This annual report consists of a series of financial statements. The statement of net position and the statement of activities provide information about the activities of the City as a whole and present a longer-term view of the City s finances. This longerterm view uses the accrual basis of accounting so that it can measure the cost of providing services during the current year and whether the taxpayers have funded the full cost of providing government services. The fund financial statements present a short-term view; they tell us how the taxpayers resources were spent during the year, as well as how much is available for future spending. Fund financial statements also report the City s operations in more detail than the government-wide financial statements by providing information about the City s most significant funds. The fiduciary fund statement provides financial information about activities for which the City acts solely as a trustee or agent for the benefit of those outside of the government. The City as a Whole The following table shows, in a condensed format, the net position as of June 30, 2015 and compared to the prior year: Net Position Governmental Activities Business-type Activities Total 2015 2014 2015 2014 2015 2014 Current and other assets $ 10,132,093 $ 8,928,486 $ 5,188,976 $ 4,523,981 $ 15,321,069 $ 13,452,467 Capital assets, net 4,236,018 4,507,949 17,389,091 16,588,638 21,625,109 21,096,587 Total assets 14,368,111 13,436,435 22,578,067 21,112,619 36,946,178 34,549,054 Deferred outflows 1,056,865-50,564-1,107,429 - Long-term liabilities 17,240,216 19,633,261 6,048,930 5,686,907 23,289,146 25,320,168 Other liabilities 27,755,820 918,744 1,985,676 1,159,011 29,741,496 2,077,755 Total liabilities 44,996,036 20,552,005 8,034,606 6,845,918 53,030,642 27,397,923 Net position: Net investment in capital assets 4,012,797 4,234,728 11,345,412 10,905,866 15,358,209 15,140,594 Restricted 3,539,202 3,054,432 1,280,593 1,278,095 4,819,795 4,332,527 Unrestricted (deficit) (37,123,059) (14,404,730) 1,968,020 2,082,740 (35,155,039) (12,321,990) Total net position $ (29,571,060) $ (7,115,570) $ 14,594,025 $ 14,266,701 $ (14,977,035) $ 7,151,131 6
Management's Discussion and Analysis The City s combined net position increased $1,493,387 from a year ago. As we look at the governmental activities separately from the business-type activities, we can see that governmental activities net position increased approximately $88,000 while the business-type increased approximately $1,400,000 which is due partially to an increase in charges for services. Of the total combined net position, approximately $15.4 million is net investment in capital assets, while $4.8 million is restricted for various purposes and cannot be used for general obligations. The following table shows the changes of the net position during the current year ended June 30, 2015 as compared to the prior year: Change in Net Position Governmental Activities Business-type Activities Total 2015 2014 2015 2014 2015 2014 Program revenues: Charges for services $ 851,478 $ 808,315 $ 5,696,712 $ 4,957,798 $ 6,548,190 $ 5,766,113 Operating grants 192,275 3,632-23,912 192,275 27,544 Capital grants 840,445 836,438 - - 840,445 836,438 General revenues: Property taxes 8,496,019 8,645,206 677,042 682,883 9,173,061 9,328,089 Grants and contributions not restricted to specific programs 1,522,679 1,476,247 - - 1,522,679 1,476,247 Other 3,828 3,042 10,825 4,575 14,653 7,617 Total revenues 11,906,724 11,772,880 6,384,579 5,669,168 18,291,303 17,442,048 Expenses: General government 5,815,268 4,371,771 - - 5,815,268 4,371,771 Public safety 3,571,760 3,864,669 - - 3,571,760 3,864,669 Public works 1,103,012 1,255,234 - - 1,103,012 1,255,234 Highways and streets 302,998 549,180 - - 302,998 549,180 Recreation and culture 207,532 159,128 - - 207,532 159,128 Community and economic development 87,312 59,886 - - 87,312 59,886 Interest on long-term debt 731,320 755,218 - - 731,320 755,218 Water and sewer - - 4,978,714 4,750,156 4,978,714 4,750,156 Total expenses 11,819,202 11,015,086 4,978,714 4,750,156 16,797,916 15,765,242 Change in net position 87,522 757,794 1,405,865 919,012 1,493,387 1,676,806 Net position: Beginning of year, Previously stated (7,115,570) (7,873,364) 14,266,701 13,347,689 7,151,131 5,474,325 Restatement (22,543,012) - (1,078,541) - (23,621,553) - End of year $ (29,571,060) $ (7,115,570) $ 14,594,025 $ 14,266,701 $ (14,977,035) $ 7,151,131 Governmental Activities The City s total governmental revenues net of current year expenses resulted in an increase of approximately $88,000 in net position, compared to the prior year s net increase of approximately $757,800. In the prior year there was a significant reduction of Wayne County tax chargebacks. 7
Management's Discussion and Analysis Business-type Activities The City s business-type activities consist of the water and sewer enterprise fund. The City provides water to residents from the Detroit water system and sewage treatment through the downriver sewage treatment system. Business-type activities revenues net of current year expenses resulted in an increase in net position of $1,405,865 as compared to last year s increase of $919,012 The City increased water/sewer rates during the fiscal year, and plans to do so next year, at 4.4% per year to offset rising costs. The City s Funds Our analysis of the City s major funds begins with the governmental funds balance sheet, following the government-wide financial statements. The fund financial statements provide detail information about the most significant funds, not the City as a whole. The City creates funds to help manage money for specific purposes as well as to show accountability for certain activities. The City s major governmental funds are the general and major streets funds. The general fund pays for most of the City s governmental services. The most significant areas are general government and public safety, which incurred expenditures of $4,839,853 and $3,385,041, or 54 percent and 37 percent, respectfully, of the general fund s total expenditures in 2015. During this fiscal year the main expenditures in the general government were the liability insurances and retiree healthcare costs. The public safety department is comprised of police and fire services. These areas were funded primarily by the City s operating and judgment levy millages. The major streets special revenue fund change in fund balance increased $36,692 as compared to the prior fiscal year decrease of $59,353. This is the result of incurred expenditures due to expanded maintenance and repair. General Fund Budgetary Highlights The general fund total expenditures came in over budget by $270,984 due to the following reasons. The retiree health care was over budget by $583,685; this increase was due to the City transitioning retirees out of Blue Cross Blue Shield to Health Alliance Plan. Attorney fees were over budget by $564,778 due to increased litigation against the City. Total revenues were over budget by $823,261. This is due to a conservative budget for property taxes and the City instituted a traffic detail program. Capital Asset and Debt Administration During the fiscal year the City had no significant expenditures for capital assets. The total capital assets increased from the prior year by $528,522. This net increase was mainly due to additions to the sewer systems. Capital Assets (Net of Depreciation) Governmental Activities Business-type Activities Total 2015 2014 2015 2014 2015 2014 Land $ 231,268 $ 231,268 $ 852,529 $ 19,174 $ 1,083,797 $ 250,442 Land improvements 230,548 263,960 - - 230,548 263,960 Buildings and systems 552,837 581,149 16,536,562 16,569,464 17,089,399 17,150,613 Vehicles 181,144 221,175 - - 181,144 221,175 Equipment 488,954 526,158 - - 488,954 526,158 Infrastructure 2,551,267 2,684,239 - - 2,551,267 2,684,239 Total $ 4,236,018 $ 4,507,949 $ 17,389,091 $16,588,638 $ 21,625,109 $21,096,587 8
Management's Discussion and Analysis During the current year, the City had additions to the water/sewer systems debt of $543,928 through the state revolving fund loans. General Obligation and Revenue Bonds Governmental Activities Business-type Activities Total 2015 2014 2015 2014 2015 2014 Fiscal stabilization bonds $ 2,945,000 $ 3,250,000 $ - $ - $ 2,945,000 $ 3,250,000 Financial recovery bonds 8,910,000 9,115,000 - - 8,910,000 9,115,000 Emergency loan 5,000,000 5,000,000 - - 5,000,000 5,000,000 Capital lease 223,221 273,221 - - 223,221 273,221 State revolving fund loans - - 5,548,030 5,136,788 5,548,030 5,136,788 Revenue bonds - - 495,649 545,984 495,649 545,984 Total $ 17,078,221 $ 17,638,221 $ 6,043,679 $ 5,682,772 $ 23,121,900 $ 23,320,993 Additional information of capital assets and long-term debt can be found in the notes to the financial statements. Economic Factors and Next Year s Budgets and Rates As part of the City transitioning away from the EM, the City was required to prepare a two-year budget. The EM put in place a twoyear budget with revenues exceeding expenditures through the fiscal year ending June 30, 2015. The City's budget projects property taxes to decrease by three percent over the next couple years. The City is continuing to operate conservatively due to uncertainties in the current economy. Following the departure of the EM, day-to-day operations of the City are supervised by the City Administrator. The City will continue working on a five year projection, which includes the general fund to assist with budgeting and provide a financial roadmap for the years ahead. The City continually monitors the adequacy of the water and sewer rates compared to operating costs; the City will continue to monitor the rates over the years and will adjust, accordingly. Contacting the City s Management This financial report is intended to provide our citizens, taxpayers, customers, and investors with a general overview of the City s finances and to show the City s accountability for the money it receives. If you have questions about this report or need additional information, we welcome you to contact the City Clerk s office. 9
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BASIC FINANCIAL STATEMENTS 11
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Statement of Net Position June 30, 2015 Primary Government Governmental Business-type Activities Activities Total Component Unit Brownfield Redevelopment Authority Assets Cash and cash equivalents $ 8,196,032 $ 2,049,166 $ 10,245,198 $ - Receivables, net 1,787,866 1,859,090 3,646,956 - Prepaid items and other assets 148,195 127 148,322 739,219 Restricted assets - cash - 1,280,593 1,280,593 - Capital assets not being depreciated 231,268 852,529 1,083,797 79,696 Capital assets being depreciated, net 4,004,750 16,536,562 20,541,312 - Total assets 14,368,111 22,578,067 36,946,178 818,915 Deferred outflows Deferred pension amounts 1,056,865 50,564 1,107,429 - Liabilities Accounts payable and accrued liabilities 1,531,745 812,871 2,344,616 363,782 Accrued interest payable 122,406 28,679 151,085 - Long-term liabilities: Due within one year 649,197 513,396 1,162,593 - Due in more than one year 16,591,019 5,535,534 22,126,553 - Other noncurrent liabilities: Net other postemployment benefit obligation 2,187,843-2,187,843 - Net pension liability 23,913,826 1,144,126 25,057,952 - Total liabilities 44,996,036 8,034,606 53,030,642 363,782 Net position Net investment in capital assets 4,012,797 11,345,412 15,358,209 79,696 Restricted for: Highways and streets 2,537,765-2,537,765 - Public safety 45,570-45,570 - Public works 120,069-120,069 - Debt service 214,933-214,933 - Pension judgment levy tax collections 620,865-620,865 - Funds on deposit with Wayne County for sewer debt reserve and capital outlay - 1,280,593 1,280,593 - Unrestricted (deficit) (37,123,059) 1,968,020 (35,155,039) 375,437 Total net position (deficit) $ (29,571,060) $ 14,594,025 $ (14,977,035) $ 455,133 The accompanying notes are an integral part of these financial statements. 13
Statement of Activities For the Year Ended June 30, 2015 Program Revenues Operating Capital Net Charges Grants and Grants and (Expense) Functions / Programs Expenses for Services Contributions Contributions Revenues Primary government Governmental activities: General government $ 5,815,268 $ 828,258 $ 140,834 $ 94,269 $ (4,751,907) Public safety 3,571,760-26,878 - (3,544,882) Public works 1,103,012-13,912 - (1,089,100) Highways and streets 302,998 - - 608,864 305,866 Recreation and culture 207,532 23,220 10,651 - (173,661) Community and economic development 87,312 - - 137,312 50,000 Interest on long-term debt 731,320 - - - (731,320) Total governmental activities 11,819,202 851,478 192,275 840,445 (9,935,004) Business-type activities - Water and sewer 4,978,714 5,696,712 - - 717,998 Total primary government $ 16,797,916 $ 6,548,190 $ 192,275 $ 840,445 $ (9,217,006) Component unit Brownfield redevelopment authority $ 31 $ - $ - $ - $ (31) continued 14
Statement of Activities For the Year Ended June 30, 2015 Primary Government Governmental Business-type Activities Activities Total Component Unit Brownfield Redevelopment Authority Changes in net position Net revenues (expense) $ (9,935,004) $ 717,998 $ (9,217,006) $ (31) General revenues: Property taxes 8,496,019 677,042 9,173,061 - Grants and contributions not restricted to specific programs 1,522,679-1,522,679 - Unrestricted investment earnings 3,828 10,825 14,653 - Total general revenues Change in net position 10,022,526 687,867 10,710,393-87,522 1,405,865 1,493,387 (31) Net position, beginning of year, as restated (29,658,582) 13,188,160 (16,470,422) 455,164 Net position, end of year $ (29,571,060) $ 14,594,025 $ (14,977,035) $ 455,133 concluded. The accompanying notes are an integral part of these financial statements. 15
Balance Sheet Governmental Funds June 30, 2015 Major Nonmajor Total General Streets Governmental Governmental Fund Fund Funds Funds Assets Cash and cash equivalents $ 5,138,868 $ 1,441,863 $ 1,615,301 $ 8,196,032 Accounts receivable 25,540-3,956 29,496 Due from other funds 15,571 - - 15,571 Due from other governments 1,497,966 64,898 195,506 1,758,370 Prepaid items 148,195 - - 148,195 Total assets $ 6,826,140 $ 1,506,761 $ 1,814,763 $ 10,147,664 Liabilities Accounts payable $ 510,211 $ 3,847 $ 104,730 $ 618,788 Accrued liabilities 96,584 1,095 421 98,100 Due to other funds - - 15,571 15,571 Due to other governments 224,857 - - 224,857 Judgments and litigation payable 590,000 - - 590,000 Total liabilities 1,421,652 4,942 120,722 1,547,316 Fund balances Nonspendable - Prepaids 148,195 - - 148,195 Restricted: Highways and streets - 1,501,819 1,035,946 2,537,765 Public safety - - 45,570 45,570 Public works - - 120,069 120,069 Debt service - - 214,933 214,933 Pension judgment levy tax collections 620,865 - - 620,865 Committed for: Debt service - - 254,977 254,977 Recreation and culture - - 22,546 22,546 Assigned for future expenditures 1,915,966 - - 1,915,966 Unassigned 2,719,462 - - 2,719,462 Total fund balances 5,404,488 1,501,819 1,694,041 8,600,348 Total liabilities and fund balances $ 6,826,140 $ 1,506,761 $ 1,814,763 $ 10,147,664 The accompanying notes are an integral part of these financial statements. 16
Reconciliation Fund Balances of Governmental Funds to Net Position of Governmental Activities June 30, 2015 Fund balances - total governmental funds $ 8,600,348 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 funds. Capital assets not being depreciated 231,268 Capital assets being depreciated, net 4,004,750 Certain liabilities, such as bonds payable, are not due and payable in the current period and therefore are not reported in the funds. Bonds, loans and capital leases payable (17,078,220) Unamortized bond discount 151,077 Accrued interest on bonds payable (122,406) Net other postemployment benefit obligation (2,187,843) Compensated absences (313,073) Certain pension-related amounts, such as the net pension liability and deferred amounts are not due and payable in the current period or do not represent current financial resources and therefore are not reported in the funds. Net pension liability (23,913,826) Deferred outflows related to the net pension liability 1,056,865 Net position of governmental activities $ (29,571,060) The accompanying notes are an integral part of these financial statements. 17
Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2015 Major Nonmajor Total General Streets Governmental Governmental Fund Fund Funds Funds Revenues Property taxes $ 6,981,914 $ - $ 1,514,105 $ 8,496,019 Licenses and permits 210,113 - - 210,113 Intergovernmental 1,657,608 404,887 374,764 2,437,259 Charges for services 107,497 - - 107,497 Fines and forfeitures 380,074-53,525 433,599 Investment income 3,828 - - 3,828 Other 207,484-10,925 218,409 Total revenues 9,548,518 404,887 1,953,319 11,906,724 Expenditures Current: General government 4,839,853 - - 4,839,853 Public safety 3,385,041-2,603 3,387,644 Public works 376,206-580,924 957,130 Highway and streets 407,853 177,695 125,303 710,851 Recreation and culture - - 171,608 171,608 Community and economic development - - 87,312 87,312 Debt service: Principal - - 560,000 560,000 Interest and fiscal charges 20,618-702,777 723,395 Total expenditures Revenues over (under) expenditures 9,029,571 177,695 2,230,527 11,437,793 518,947 227,192 (277,208) 468,931 Other financing sources (uses) Transfers in - - 743,680 743,680 Transfers out (553,180) (190,500) - (743,680) Total other financing sources (uses) Net changes in fund balances (553,180) (190,500) 743,680 - (34,233) 36,692 466,472 468,931 Fund balances, beginning of year 5,438,721 1,465,127 1,227,569 8,131,417 Fund balances, end of year $ 5,404,488 $ 1,501,819 $ 1,694,041 $ 8,600,348 The accompanying notes are an integral part of these financial statements. 18
Reconciliation Net Changes in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities For the Year Ended June 30, 2015 Net change in fund balances - total governmental funds $ 468,931 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital outlay 29,384 Depreciation expense (301,315) Bond proceeds provide current financial resources to governmental funds in the period issued, but issuing bonds increases long-term liabilities in the statement of net position. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position. Principal payments on long-term liabilities 560,000 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 the funds. Change in accrued interest payable on bonds (731) Amortization of bond discount (7,194) Change in the net pension liability and related deferred amounts (313,949) Change in net other postemployment benefit obligation (351,977) Change in the accrual for compensated absences 4,373 Change in net position of governmental activities $ 87,522 The accompanying notes are an integral part of these financial statements. 19
Statement of Revenues, Expenditures and Changes in Fund Balances Budget and Actual - General Fund For the Year Ended June 30, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Revenues Property taxes $ 6,747,000 $ 6,747,000 $ 6,981,914 $ 234,914 Licenses and permits 155,250 155,250 210,113 54,863 Intergovernmental 1,385,591 1,385,591 1,657,608 272,017 Charges for services 114,816 114,816 107,497 (7,319) Fines and forfeitures 202,600 202,600 380,074 177,474 Investment income 500 500 3,828 3,328 Other 119,500 119,500 207,484 87,984 Total revenues 8,725,257 8,725,257 9,548,518 823,261 Expenditures Current: General government: Attorney 1,090,500 1,090,500 1,655,278 564,778 Finance 261,415 261,415 237,621 (23,794) City hall 551,875 551,875 496,673 (55,202) Retiree health care 1,522,000 1,522,000 2,105,685 583,685 Other 1,208,840 1,208,840 827,096 (381,744) Less reimbursements (482,500) (482,500) (482,500) - Total general government 4,152,130 4,152,130 4,839,853 687,723 Public safety: Police and Fire 3,520,422 3,520,422 3,196,419 (324,003) EVIP grant - - 8,218 8,218 Building inspection 205,831 205,831 180,404 (25,427) Total public safety 3,726,253 3,726,253 3,385,041 (341,212) Public works - Department of public works 418,004 418,004 376,206 (41,798) Highway and streets - Street lighting 440,000 440,000 407,853 (32,147) continued 20
Statement of Revenues, Expenditures and Changes in Fund Balances Budget and Actual - General Fund For the Year Ended June 30, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Expenditures (concluded) Debt service: Interest and fiscal charges $ 22,200 $ 22,200 $ 20,618 $ (1,582) Total expenditures Revenues over (under) expenditures 8,758,587 8,758,587 9,029,571 270,984 (33,330) (33,330) 518,947 552,277 Other financing uses Transfers out (522,000) (522,000) (553,180) (31,180) Net change in fund balance (555,330) (555,330) (34,233) 521,097 Fund balance, beginning of year 5,438,721 5,438,721 5,438,721 - Fund balance, end of year $ 4,883,391 $ 4,883,391 $ 5,404,488 $ 521,097 concluded. The accompanying notes are an integral part of these financial statements. 21
Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - Major Streets Fund For the Year Ended June 30, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Revenues Intergovernmental $ 380,000 $ 380,000 $ 404,887 $ 24,887 Expenditures Highways and streets 295,500 295,500 177,695 (117,805) Revenues over expenditures 84,500 84,500 227,192 142,692 Other financing uses Transfers out (190,500) (190,500) (190,500) - Net change in fund balance (106,000) (106,000) 36,692 142,692 Fund balance, beginning of year 1,465,127 1,465,127 1,465,127 - Fund balance, end of year $ 1,359,127 $ 1,359,127 $ 1,501,819 $ 142,692 The accompanying notes are an integral part of these financial statements. 22
Statement of Net Position Water and Sewer Enterprise Fund June 30, 2015 Assets Current assets: Cash and cash equivalents $ 2,049,166 Accounts receivable, net 1,475,381 Due from other government 383,709 Prepaid items Total current assets 127 3,908,383 Noncurrent assets: Restricted cash 1,280,593 Capital assets, net 17,389,091 Total noncurrent assets 18,669,684 Total assets 22,578,067 Deferred outflows of resources Deferred pension amounts 50,564 Liabilities Current liabilities: Accounts payable 811,450 Accrued liabilities 1,421 Accrued interest payable 28,679 Bonds, loans and compensated absences payable, current portion 513,396 Total current liabilities 1,354,946 Noncurrent liabilities: Net pension liability 1,144,126 Bonds, loans and compensated absences payable, net of current portion 5,535,534 Total noncurrent liabilities 6,679,660 Total liabilities 8,034,606 Net position Net investment in capital assets 11,345,412 Restricted for funds on deposit with Wayne County for sewer debt reserve and capital outlay 1,280,593 Unrestricted 1,968,020 Total net position $ 14,594,025 The accompanying notes are an integral part of these financial statements. 23
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Statement of Revenues, Expenses and Changes in Fund Net Position Water and Sewer Enterprise Fund For the Year Ended June 30, 2015 Operating revenues Charges for services: Water operations $ 2,607,452 Sewer operations 2,952,696 Intergovernmental revenue 23,354 Other revenue Total operating revenues 113,210 5,696,712 Operating expenses Personnel 152,687 Administrative fee 355,000 Repair and maintenance 8,036 Utilities 2,923,967 Other 823,483 Depreciation Total operating expenses 576,830 4,840,003 Operating income 856,709 Nonoperating revenues (expenses) Property taxes 677,042 Investment income 10,825 Interest expense (138,711) Total nonoperating revenues 549,156 Change in net position 1,405,865 Net position, beginning of year, as restated 13,188,160 Net position, end of year $ 14,594,025 The accompanying notes are an integral part of these financial statements. 25
Statement of Cash Flows Water and Sewer Enterprise Fund For the Year Ended June 30, 2015 Cash flows from operating activities Cash received from customers $ 5,781,644 Cash payments to suppliers for goods and services (4,407,748) Cash payments to employees (151,575) Net cash provided by operating activities 1,222,321 Cash flows from capital and related financing activities Acquisition of capital assets (1,377,283) Proceeds from issuance of debt 1,294,761 Long-term debt principal payments (933,850) Interest payments on long-term debt (143,889) Net cash used by capital and related financing activities (1,160,261) Cash flows from noncapital financing activities Property taxes 677,042 Cash flows from investing activities Interest on investments 10,825 Net change in cash and cash equivalents 749,927 Cash and cash equivalents, beginning of year 2,579,832 Cash and cash equivalents, end of year $ 3,329,759 Reconciliation of cash and cash equivalents per statement of net position: Cash and cash equivalents $ 2,049,166 Restricted cash $ 1,280,593 3,329,759 continued 26
Statement of Cash Flows Water and Sewer Enterprise Fund For the Year Ended June 30, 2015 Reconciliation of operating income to net cash provided by operating activities Operating income $ 856,709 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 576,830 Change in assets and liabilities: Accounts receivable (159,809) Due from other government (199,576) Due from other funds 444,444 Prepaid items (127) Accounts payable (312,392) Accrued liabilities 109 Net pension liability and deferred amounts 15,021 Accrued compensated absences 1,112 Net cash provided by operating activities $ 1,222,321 concluded. The accompanying notes are an integral part of these financial statements. 27
Statement of Fiduciary Assets and Liabilities Agency Funds June 30, 2015 Assets Cash and cash equivalents $ 72,631 Due from other governments 12,800 Total assets $ 85,431 Liabilities Undistributed receipts $ 85,431 The accompanying notes are an integral part of these financial statements. 28
NOTES TO FINANCIAL STATEMENTS 29
Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity The City of Ecorse (the "City") is a municipal corporation currently governed and administered by a city council along with the Transition Advisory Board appointed by the State of Michigan. The accompanying financial statements present the government and its component unit, an entity for which the government is considered to be financially accountable. The discretely presented component unit is reported in a separate column in the government-wide financial statements to emphasize that it is legally separate from the government. The discretely presented component unit has a June 30 year end. Discretely Presented Component Unit. The Ecorse Brownfield Redevelopment Authority (EBRA), whose board is appointed by the City Council, was created to facilitate the implementation of plans relating to the identification and treatment of environmentally distressed areas to promote revitalization within the brownfield redevelopment zone. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component unit. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements, except for agency funds, which do not have a measurement focus. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 30
Notes to Financial Statements Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period or within one year for reimbursement-based grants, if any. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, intergovernmental revenue, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. The government reports the following major governmental funds: The general fund is the government s primary operating fund. It accounts for all financial resources of the general government, except those accounted for and reported in another fund. The major streets special revenue fund accounts for the expenditure of motor fuel taxes that are earmarked by state law for major street and highway purposes. The government reports the following major proprietary fund - The water and sewer enterprise fund accounts for the activities of the water distribution and sewage disposal systems, which are financed primarily by user charges. Additionally, the government reports the following fund types: Special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. Debt service funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest on long-term general obligation debt of governmental funds. The agency funds account for undistributed tax collections and fire insurance escrow payments. As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments in-lieu of taxes and other charges between the government s water and sewer function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. 31
Notes to Financial Statements 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 water and sewer enterprise fund are charges to customers for sales and services. Operating expenses for the enterprise fund includes the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Assets, Deferred Outflows of Resources, Liabilities, and Equity Cash and Cash Equivalents The government s cash and cash equivalents are considered to be cash on hand, demand deposits and shortterm investments with original maturities of three months or less from the date of acquisition. State statutes authorize the government to deposit in the accounts of federally insured banks, credit unions, and savings and loan associations, and to invest in obligations of the U.S. Treasury, certain commercial paper, repurchase agreements, bankers acceptances, and mutual funds composed of otherwise legal investments. Investments, if any, are reported at fair value. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either due to/from other funds (i.e., the current portion of interfund loans) or advances to/from other funds (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as due to/from other funds. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as internal balances. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements using the consumption method. Restricted Cash Restricted cash of $1,280,593 in the enterprise fund represents amounts held by Wayne County for a sewer debt reserve and capital outlay. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. The government defines capital assets as assets with an initial, individual cost of more than $2,500 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. 32
Notes to Financial Statements Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities, if any, is included as part of the capitalized value of the assets constructed. No such interest expense was incurred during the current fiscal year. Capital assets of the primary government are depreciated using the straight-line method over the following estimated useful lives: Deferred Outflows of Resources Compensated Absences Years Land improvements 20 Buildings 20-50 Vehicles 5-8 Equipment 5-15 Infrastructure 40 Water and sewer systems 50 The City reports deferred outflows of resources for change in expected and actual investment returns, assumptions, and benefits provided in its pension plans. It is the government s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. A liability for vacation and sick pay benefits is accrued when incurred in the government-wide and enterprise fund financial statements, whereas it is reported in governmental funds only if it has matured, for example, as a result of employee resignations or retirements. The compensated absence liability will be liquidated primarily by the general fund and the water and sewer fund. Long-term Obligations In the government-wide financial statements, and the enterprise fund in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or enterprise fund statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 33
Notes to Financial Statements Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the plan fiduciary net position have been determined on the same basis as they are reported by the plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Fund Balances Governmental funds report nonspendable fund balance for amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. Restricted fund balance is reported when externally imposed constraints are placed on the use of the resources by grantors, contributors, or laws or regulations of other governments. Committed fund balance is reported for amounts that can be used for specific purposes pursuant to constraints imposed by formal action of the government s highest level of decision making authority; a formal resolution or action is required to establish, modify or rescind a fund balance commitment. Assigned fund balance is reported for amounts that are constrained by the government s intent to be used for specific purposes, but are neither restricted nor committed. Unassigned fund balance is the residual classification for the general fund. When the City incurs expenditures for purposes for which various fund balance classifications can be used, it is the City s policy to use restricted fund balance first, then committed, assigned, and finally unassigned fund balance. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. 2. BUDGETARY INFORMATION Annual budgets are adopted on a basis consistent with generally accepted accounting principles for the general and special revenue funds. All annual appropriations lapse at fiscal year end. Budgets may be amended by the City Council with the approval of the Transition Advisory Board and the State Treasurer. The budget document is prepared by fund, function and department. The legal level of budgetary control is the department level for the general fund and the fund level for the special revenue funds. 34
Notes to Financial Statements 3. EXCESS OF EXPENDITURES OVER BUDGET P.A. 621 of 1978, as amended, provides that a local unit shall not incur expenditures in excess of the amounts appropriated. For the year ended June 30, 2015, the government incurred the following excess of expenditures over appropriations as follows: Fund / Department Final Over Budget Actual Budget General fund General government: Attorney $ 1,090,500 $ 1,655,278 $ 564,778 Retiree health care 1,522,000 2,105,685 583,685 Transfers out 522,000 553,180 31,180 Public safety - EVIP grant - 8,218 8,218 Special revenue funds Rubbish fund 580,900 580,924 24 Library fund 138,570 171,608 33,038 CDBG 67,307 87,312 20,005 4. CASH AND CASH EQUIVALENTS Following is a reconciliation of cash and cash equivalents as of June 30, 2015: Primary Government Statement of net position Cash and cash equivalents $ 10,245,198 Restricted cash 1,280,593 Statement of fiduciary net position Cash and cash equivalents 72,631 $ 11,598,422 Deposits and investments Bank deposits (checking, sweep and money market accounts) $ 10,317,829 Cash on deposit with Wayne County 1,280,593 $ 11,598,422 Custodial Credit Risk - Deposits. Deposits are exposed to custodial credit risk if they are not covered by depository insurance. As of June 30, 2015, $9,691,267 of the City s total bank balance of $10,449,603 (total book balance was $10,317,829) was exposed to custodial credit risk. 35
Notes to Financial Statements In accordance with the City s investment policy and State law, all deposits are uncollateralized and held in the City s name. Due to the dollar amounts of cash deposits and the limits of FDIC insurance, the City believes it is impractical to insure all bank deposits. As a result, the City evaluates each financial institution and assesses the level of risk of each institution; only those institutions with an acceptable estimated risk level are used as depositories. 5. RECEIVABLES Receivables in the governmental activities are 1.65% accounts receivable and 98.35% due from other governments. Business-type activities receivables (net of an estimated allowance of $271,500 for uncollectible accounts) are 79.4% due from customers and 20.6% due from other governments. 6. CAPITAL ASSETS Capital asset activity for the year ended June 30, 2015 was as follows: Beginning Ending Balance Additions Disposals Balance Governmental activities Capital assets not being depreciated - Land $ 231,268 $ - $ - $ 231,268 Capital assets being depreciated: Land improvements 2,011,040 - - 2,011,040 Buildings 2,671,398 - - 2,671,398 Vehicles 1,816,481 29,384-1,845,865 Equipment 715,023 - - 715,023 Infrastructure 11,088,299 - - 11,088,299 18,302,241 29,384-18,331,625 Less accumulated depreciation for: Land improvements (1,747,080) (33,412) - (1,780,492) Buildings (2,090,249) (28,312) - (2,118,561) Vehicles (1,595,306) (69,415) - (1,664,721) Equipment (188,865) (37,204) - (226,069) Infrastructure (8,404,060) (132,972) - (8,537,032) (14,025,560) (301,315) - (14,326,875) Total capital assets being depreciated, net 4,276,681 (271,931) - 4,004,750 Governmental activities capital assets, net $ 4,507,949 $ (271,931) $ - $ 4,236,018 36
Notes to Financial Statements Beginning Ending Balance Additions Disposals Balance Business-type activities Capital assets not being depreciated: Land $ 19,174 $ - $ - $ 19,174 Construction in Progress - 833,355-833,355 19,174 833,355-852,529 Capital assets being depreciated: Land improvements $ 3,700 $ - $ - $ 3,700 Buildings 187,002 - - 187,002 Water and sewer mains 13,659,042 - - 13,659,042 Sewage system 17,037,409 543,928-17,581,337 30,887,153 543,928-31,431,081 Less accumulated depreciation for: Land improvements (3,700) - - (3,700) Buildings (166,507) (4,369) - (170,876) Water and sewer mains (9,096,443) (220,529) - (9,316,972) Sewage system (5,051,039) (351,932) - (5,402,971) (14,317,689) (576,830) - (14,894,519) Total capital assets being depreciated, net 16,569,464 (32,902) - 16,536,562 Business-type activities capital assets, net $ 16,588,638 $ (32,902) $ - $ 17,389,091 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities General government $ 55,416 Public safety 71,948 Public works including depreciation of infrastructure assets 141,141 Recreation and culture 32,810 Total depreciation expense - governmental activities $ 301,315 Business-type activities Water and sewer $ 576,830 The Brownfield Redevelopment Authority reports land of $79,696 on the statement of net position as capital assets not being depreciated. 7. PAYABLES Payables in the governmental activities are 55.0% accounts payable and accrued liabilities, 17.2% due to other governments and 27.8% other. Business-type activities payables are entirely accounts payable, accrued liabilities and accrued interest. 37
Notes to Financial Statements 8. INTERFUND RECEIVABLES AND PAYABLES AND TRANSFERS The composition of interfund receivables and payables at year end was as follows: Receivable Payable General fund $ 15,571 $ - Nonmajor governmental funds - 15,571 $ 15,571 $ 15,571 These balances resulted from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur and (2) payments between funds are made. For the year ended June 30, 2015, interfund transfers are summarized as follows: Transfers In Transfers Out Governmental funds: General fund $ - $ 553,180 Major streets fund - 190,500 Nonmajor governmental funds 743,680 - $ 743,680 $ 743,680 Transfers are used to: (1) move revenues from the fund that is required to collect them to the fund that is required or allowed to expend them; (2) move receipts restricted to or allowed for debt service from the funds collecting the receipts to the debt service fund as debt service payments become due; and (3) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. 9. LONG-TERM DEBT The City issues long-term debt to provide funds for the acquisition and construction of major capital facilities for governmental and business-type activities and to provide working capital for governmental activities (or financial resources for governmental funds) in the case of fiscal stabilization bonds and emergency loans. General obligation debt, including fiscal stabilization bonds, emergency loans and capital leases, pledge the full faith and credit of the government whereas revenue bonds, including State revolving fund loans, pledge the income of the water and sewer operations for the repayment of the debt. 38
Notes to Financial Statements A summary of long-term debt outstanding as of June 30, 2015 is as follows: Interest Rates Maturities Amount Governmental activities Fiscal stabilization bonds 2.0-5.0% 2022 $ 2,945,000 Financial recovery bonds 5.8-6.5% 2036 8,910,000 Emergency loans.234% 2030 5,000,000 Capital lease (fire truck) 5.5% 2019 223,221 $ 17,078,221 Business-type activities State revolving fund loans 1.625-2.5% 2015-2035 $ 5,548,030 Revenue bonds 2.5% 2011-2029 495,649 $ 6,043,679 Annual debt service requirements to maturity for governmental activities bonds, loans and leases are as follows: Fiscal Stabilization Bonds Financial Recovery Bonds Principal Interest Principal Interest 2016 $ 315,000 $ 130,833 $ 220,000 $ 546,905 2017 330,000 116,999 235,000 533,710 2018 340,000 102,130 245,000 519,790 2019 355,000 86,315 260,000 505,145 2020 375,000 69,337 275,000 489,630 2021-2025 1,230,000 93,763 1,655,000 2,179,320 2026-2030 - - 2,220,000 1,608,552 2031-2035 - - 3,060,000 763,750 2036 - - 740,000 24,050 $ 2,945,000 $ 599,377 $ 8,910,000 $ 7,170,852 Emergency Loans Capital Lease Principal Interest Principal Interest 2016 $ - $ 13,208 $ 51,582 $ 12,610 2017-13,208 54,481 9,711 2018-13,208 57,543 6,650 2019-13,208 59,615 3,416 2020 300,000 13,208 - - 2021-2025 2,500,000 43,290 - - 2026-2030 2,200,000 14,040 - - $ 5,000,000 $ 123,370 $ 223,221 $ 32,387 39
Notes to Financial Statements Annual debt service requirements to maturity for business-type activities debt are as follows: Principal Interest 2016 $ 512,346 $ 139,466 2017 485,350 128,794 2018 497,572 116,019 2019 502,042 103,069 2020 341,270 92,311 2021-2025 1,666,111 269,676 2026-2030 1,704,163 117,617 2031-2035 334,825 33,291 $ 6,043,679 $ 1,000,243 Long-term liability activity for the year ended June 30, 2015, was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities Fiscal stabilization bonds $ 3,250,000 $ - $ (305,000) $ 2,945,000 $ 315,000 Financial recovery bonds 9,115,000 - (205,000) 8,910,000 220,000 Emergency loan 5,000,000 - - 5,000,000 - Capital lease (fire truck) 273,221 - (50,000) 223,221 51,582 Compensated absences 317,446 60,000 (64,373) 313,073 62,615 Deduct deferred amount for bond issuance discount (158,272) - 7,194 (151,078) - Total governmental activities $ 17,797,395 $ 60,000 $ (617,179) $ 17,240,216 $ 649,197 Business-type activities State revolving fund loans $ 5,136,787 $ 1,294,761 $ (883,518) $ 5,548,030 $ 461,015 Revenue bonds 545,981 - (50,332) 495,649 51,331 Compensated absences 4,139 2,112 (1,000) 5,251 1,050 Total business-type activities $ 5,686,907 $ 1,296,873 $ (934,850) $ 6,048,930 $ 513,396 10. RISK MANAGEMENT The government is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. During the year ended June 30, 2015, the government carried insurance through various commercial carriers to cover all risks of losses. The government has had no settled claims resulting from these risks that exceeded its commercial coverage in any of the past three fiscal years. 40
Notes to Financial Statements 11. PROPERTY TAXES The government s property taxes are levied each July 1 on the taxable valuation of property located in the City as of the preceding December 31, the lien date. Property taxes are payable without penalty and interest through August 1; as of March 1 of the succeeding year, unpaid real property taxes are sold to and collected by Wayne County. Assessed values as established annually by the government, and subject to acceptance by the County, are equalized by the State at an estimated 50% of current market value. The taxable value of real and personal property in the City totaled $211,336,027 (not including $6,676,000 taxable value of industrial facility tax abated property). The government s general operating tax rate for fiscal year 2014-15 was 18.6713 for general operating, 2.9481 mills for sanitation, 0.2500 mills for police and fire pension, 0.4913 mills for longevity, 6.2000 mills for pension judgment levy, 11.9000 mills for police and fire special assessment, 4.4000 mills for other court ordered judgment levies, 0.2456 mills for library (library special revenue fund) and 4.0000 mills for Environmental Protection Agency judgment levy (water and sewer enterprise fund). 12. PENSION PLAN General Information About the Plan Plan Description. The City participates in the Municipal Employees' Retirement System (MERS) of Michigan, a defined benefit pension plan providing certain retirement, disability and death benefits to plan members and beneficiaries. MERS is an agent multiple-employer, statewide public employee pension plan established by the Michigan Legislature under Public Act 135 of 1945 and administered by a nine member Retirement Board. Public Act 427 of 1984, as amended, establishes and amends the benefit provisions of the participants in MERS. MERS issues a publicly available financial report that includes financial statements and required supplementary information. This report may be obtained accessing the MERS website at www.mersofmich.com. Benefits Provided. Pension benefits vary by division/bargaining unit and are calculated as final average compensation (based on a 3 year period) and multipliers ranging from 2.25% to 2.50%. Participants are considered to be fully vested in the plan after 10 years. Normal retirement age is 60 with early retirement at age 55 or with 15 years of service. Member contributions range from 0% to 5.0%. Employees Covered by Benefit Terms. At June 30, 2015, plan membership consisted of the following: Inactive employees or beneficiaries currently receiving benefits 141 Inactive employees entitled to but not yet receiving benefits 12 Active employees 27 Total membership 180 Contributions. The employer is required to contribute amounts at least equal to the actuarially determined rate, as established by the MERS Retirement Board. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer may establish contribution rates to be paid by its covered employees. Employer contributions range from 4.45% to 11.0% of annual payroll for open divisions. Closed divisions have an annual employer contribution ranging from $14,560 to $35,999. 41
Notes to Financial Statements Net Pension Liability. The City's net pension liability was measured as of December 31, 2014, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. Actuarial Assumptions. The total pension liability in the December 31, 2014 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 3% to 4% Salary increases 4.5% in the long-term (1%, 2% and 3% for calendar years 2014, 2015 and 2016, respectively) Investment rate of return 8.25%, net of investment expense and including inflation Although no specific price inflation assumptions are needed for the valuation, the 4.5% long-term wage inflation assumption would be consistent with a price inflation of 3%-4%. Mortality rates used were based on the 1994 Group Annuity Mortality Table of a 50% Male and 50% Female blend. For disabled retirees, the regular mortality table is used with a 10-year set forward in ages to reflect the higher expected mortality rates of disabled members. The actuarial assumptions used in the December 31, 2014 valuation were based on the results of an actuarial experience study conducted in 2008. (The MERS Retirement Board is currently conducting an actuarial experience study covering the period from January 1, 2009, through December 31, 2013.) The long-term expected rate of return on pension plan investments was determined using a model method in which the best-estimate ranges of expected future real rates of return (expected returns, net of investment and administrative expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Asset Class Target Allocation Long-term Expected Real Rate of Return Expected Money- Weighted Rate of Return Global equity 57.50% 5.02% 2.88% Global fixed income 20.00% 2.18% 0.44% Real Assets 12.50% 4.23% 0.53% Diversifying strategies 10.00% 6.56% 0.65% 100.00% Inflation 3.50% Administrative expenses netted above 0.25% Investment rate of return 8.24% 42
Notes to Financial Statements Discount Rate. The discount rate used to measure the total pension liability is 8.25% for 2014. The projection of cash flows used to determine the discount rate assumes that employer and employee contributions will be made at the rates agreed upon for employees and the actuarially determined rates for employers. Based on these assumptions, the pension plan s fiduciary net position was projected to be available to pay all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Changes in Net Pension Liability The components of the change in the net pension liability are summarized as follows: Total Pension Liability (a) Plan Fiduciary Net Position (b) Net Pension Liability (a) - (b) Balances at December 31, 2013 $ 40,268,202 $ 15,960,605 $ 24,307,597 Changes for the year: Service cost 191,053-191,053 Interest 3,174,890-3,174,890 Employer contributions - 1,602,541 (1,602,541) Employee contributions - 84,791 (84,791) Net investment income - 952,166 (952,166) Benefit payments, including refunds of employee contributions (3,760,437) (3,760,437) - Administrative expense - (34,427) 34,427 Other changes (10,517) - (10,517) Net changes (405,011) (1,155,366) 750,355 Balances at December 31, 2014 $ 39,863,191 $ 14,805,239 $ 25,057,952 Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the City, calculated using the discount rate of 8.25%, as well as what the City s net pension liability would be if it were calculated using a discount rate that is 1% lower (7.25%) or 1% higher (9.25%) than the current rate: 1% Decrease (7.25%) Current Discount Rate (8.25%) 1% Increase (9.25%) City's net pension liability $ 28,531,590 $ 25,057,952 $ 22,049,601 Pension Plan Fiduciary Net Position. Detailed information about the pension plan s fiduciary net position is available in the separately issued Plan financial statements. 43
Notes to Financial Statements Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended June 30, 2015, the City recognized pension expense of $2,130,776. The City reported deferred outflows of resources related to pensions from the following sources: Deferred Outflows of Resources Net difference between projected and actual earnings on pension plan investments $ 222,119 Contributions subsequent to the measurement date 885,310 Total $ 1,107,429 The amount reported as deferred outflows of resources resulting from contributions subsequent to the measurement date will be recognized as a reduction in the net pension liability for the year ending June 30, 2016. Other amounts reported as pension-related deferred outflows of resources will be recognized in pension expense as follows: Year Ended June 30, Amount 2016 $ 55,530 2017 55,530 2018 55,530 2019 55,529 Total $ 222,119 Payable to the Pension Plan. At June 30, 2015, the City reported a payable of $155,115 for the outstanding amount of contributions to the pension plan required for the year ended June 30, 2015. 44
Notes to Financial Statements 13. POSTEMPLOYMENT HEALTH CARE BENEFITS The City provides postemployment health care benefits to certain retirees and their beneficiaries, which are provided on a pay-as-you-go basis. The plan is a single-employer defined benefit health care plan administered by the City. The plan was adopted and established by action of the City Council. The plan does not issue a separate or stand-alone report. Plan membership consisted of the following at December 31, 2011 (the date of the latest actuarial valuation): Retirees currently receiving benefits 140 Terminated employees entitled to but not yet receiving benefits - Active participants 47 The City has no obligation to make contributions in advance of when the insurance premiums or benefits are due for payment; in other words, the plan may be financed on a pay-as-you-go basis. Administrative costs of the plan are paid for by the City s general fund. Plan participants are not required to contribute to the plan. For the year ended June 30, 2015, the City did not make any contributions to advance-fund the plan, but paid benefits totaling $1,307,432. For the year ended June 30, 2015, the City estimated the cost of providing retiree healthcare benefits through an actuarial valuation as of December 31, 2011. Such a valuation computes an annual required contribution (ARC) that represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. For the year ended June 30, 2015, the components of the City s annual OPEB (other postemployment benefit) cost for the year, the amount actually contributed to the plan (including pay-as-you-go amounts), and changes in the City s net OPEB obligation to the plan are as follows: Annual required contribution $ 1,649,280 Interest on net OPEB obligation 73,435 Adjustment to annual required contribution Annual OPEB cost (63,306) 1,659,409 Payments of current cost (1,307,432) Change in net OPEB obligation 351,977 Net OPEB obligation, beginning of year 1,835,866 Net OPEB obligation, end of year $ 2,187,843 45
Notes to Financial Statements The City s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation as of June 30, 2015 and the preceding two years were as follows: Three-Year Trend Information % of Annual Net Year OPEB OPEB Cost OPEB Ended Cost Contributed Obligation 2013 $ 2,136,878 61.7% $ 1,406,163 2014 1,657,293 74.1% 1,835,866 2015 1,659,409 78.8% 2,187,843 The funded status of the plan as of December 31, 2011, the date of the latest actuarial valuation, was as follows: Actuarial accrued liabilities (AAL) $ 25,165,686 Actuarial value of plan assets - Unfunded actuarial accrued liability (UAAL) $ 25,165,686 Funded ratio 0.0% Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. Significant methods and assumptions were as follows: Actuarial valuation date 12/31/11 Actuarial cost method Entry age Amortization method Level percent of payroll or level of contributions dollar depending on division; open Remaining amortization period 30 years; open basis Actuarial assumptions Investment rate of return 4.0% Projected salary increases 4.0% Healthcare inflation rate 9.0% initially, 4.0% ultimately 46
Notes to Financial Statements 14. CLAIMS AND JUDGMENTS The City is and has been the defendant in a number of lawsuits that are currently pending, on appeal and/or have resulted in judgments against the City. Judgments that are currently due and payable in the amount of $590,000 are recorded in the general fund. In addition, the City has ten pending cases with estimated potential liability exposures totaling from approximately $1,110,000 to $2,385,000. No liability has been recorded in the financial statements for these potential liabilities. 15. NET INVESTMENT IN CAPITAL ASSETS Following is a summary of net investment in capital assets, as presented in the government-wide statement of net position: Governmental Business-type Activities Activities Capital assets Capital assets not being depreciated $ 231,268 $ 852,529 Capital assets being depreciated, net 4,004,750 16,536,562 4,236,018 17,389,091 Related debt Due within one year 649,197 513,396 Due in more than one year 16,591,019 5,535,534 Less noncapital related debt, net of discount (16,703,922) - Less compensated absences (313,073) (5,251) 223,221 6,043,679 Net investment in capital assets $ 4,012,797 $ 11,345,412 16. RESTATEMENTS The City adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, in the current year. As a result of this change, beginning net position of governmental activities and business-type activities (along with the water and sewer enterprise fund) decreased by $22,543,012 and $1,078,541 respectively. 47
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REQUIRED SUPPLEMENTARY INFORMATION 49
Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan Schedule of Changes in City's Net Pension Liability and Related Ratios Year Ended June 30, 2015 Total pension liability Service cost $ 191,053 Interest 3,174,890 Benefit payments, including refunds of employee contributions (3,760,437) Other (10,517) Net change in total pension liability (405,011) Total pension liability, beginning of year 40,268,202 Total pension liability, end of year 39,863,191 Plan fiduciary net position Employer contributions 1,602,541 Employee contributions 84,791 Net investment income 952,166 Benefit payments, including refunds of employee contributions (3,760,437) Administrative expense (34,427) Net change in plan fiduciary net position (1,155,366) Plan fiduciary net position, beginning of year 15,960,605 Plan fiduciary net position, end of year 14,805,239 City's net pension liability $ 25,057,952 Plan fiduciary net position as a percentage of total pension liability 37.1% Covered-employee payroll $ 1,668,040 City's net pension liability as a percentage of covered-employee payroll 1502.2% Notes: The amounts presented for each fiscal year were determined as of December 31 of the preceding year. GASB 68 was implemented in fiscal year 2015. This schedule is being built prospectively. Ultimately, 10 years of data will be presented. 50
Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan Schedule of the Net Pension Liability Fiscal Year Ended June 30, Total Pension Liability Plan Net Position Net Pension Liability Plan Net Position as Percentage of Total Pension Liability Covered- Employee Payroll Net Pension Liability as Percentage of Covered Payroll 2015 $ 39,863,191 $ 14,805,239 $ 25,057,952 37.1% $ 1,668,040 1502.2% The amounts presented for each fiscal year were determined as of December 31 of the preceding year. Note: GASB 68 was implemented in fiscal year 2015. This schedule is being built prospectively. Ultimately, 10 years of data will be presented. 51
Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan Schedule of Contributions Fiscal Year Ending June 30, Actuarially Determined Contribution Contributions in Relation to the Actuarially Determined Contribution Contribution Deficiency (Excess) Covered- Employee Payroll Contributions as Percentage of Covered- Employee Payroll 2015 $ 1,801,807 $ 1,620,541 $ (181,266) $ 1,668,040 97.2% Note: GASB 68 was implemented in fiscal year 2015. This schedule is being built prospectively. Ultimately, 10 years of data will be presented. Notes to Schedule of Contributions Valuation Date December 31, 2014 (rolled forward to June 30, 2015) Notes Actuarially determined contribution rates are calculated as of June 30, which is 12 months prior to the beginning of the fiscal year in which contributions are reported. Methods and assumptions used to determine contribution rates: Actuarial cost method Entry-age normal Amortization method Level percent of payroll, closed Remaining amortization period 28 years Asset valuation method Open; 5-year smooth market Inflation 3.0% to 4.0% Salary increases 4.5% in the long-term (1%, 2% and 3% for calendar years 2014, 2015 and 2016, respectively) Investment rate of return 7.60% Retirement age Age-based table of rates that are specific to the type of eligibility condition. Last updated for the December 31, 2011 valuation. The next study is scheduled for 2016. Mortality RP2000 Combined Healthy Tables set back one year for females. For Disabled members, the disabled version of these tables are assumed. 52
Required Supplementary Information Other Postemployment Benefits Plan Schedule of Funding Progress Actuarial Actuarial Valuation Actuarial Accrued Unfunded Date Value of Liability (AAL) AAL Funded December 31, Assets Entry Age (UAAL) Ratio 2009 $ - $ 40,060,838 $ 40,060,838 0.0% 2011-25,165,686 25,165,686 0.0% Schedule of Employer Contributions Annual Year Ended Required Percentage June 30, Contribution Contributed 2012 $ 2,133,646 94.0% 2013 2,133,646 61.7% 2014 1,649,534 74.4% 2015 1,649,280 78.8% 53
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COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES 55
Combining Balance Sheet Nonmajor Governmental Funds June 30, 2015 Special Revenue Funds Local Drug Streets Rubbish Enforcement Assets Cash and cash equivalents $ 1,012,481 $ 133,548 $ 46,297 Receivables: Accounts receivable - - - Due from other governments 37,098 50,780 - Total assets $ 1,049,579 $ 184,328 $ 46,297 Liabilities Accounts payable $ 13,633 $ 64,259 $ 2,600 Accrued liabilities - - - Due to other funds - - - Total liabilities 13,633 64,259 2,600 Fund balances Restricted for: Highways and streets 1,035,946 - - Public safety - - 43,697 Public works - 120,069 - Debt service - - - Committed for: Debt service - - - Recreation and culture - - - Total fund balances 1,035,946 120,069 43,697 Total liabilities and fund balances $ 1,049,579 $ 184,328 $ 46,297 56
Special Revenue Funds Debt Service Funds Community Fiscal Justice Development Stabilization 2012 Training Library Block Grant Bond Bond Total $ 1,873 $ 38,608 $ 1,450 $ 254,977 $ 126,067 $ 1,615,301 - - - - 3,956 3,956-7,147 15,571-84,910 195,506 $ 1,873 $ 45,755 $ 17,021 $ 254,977 $ 214,933 $ 1,814,763 $ - $ 22,788 $ 1,450 $ - $ - $ 104,730-421 - - - 421 - - 15,571 - - 15,571-23,209 17,021 - - 120,722 - - - - - 1,035,946 1,873 - - - - 45,570 - - - - - 120,069 - - - - 214,933 214,933 - - - 254,977-254,977-22,546 - - - 22,546 1,873 22,546-254,977 214,933 1,694,041 $ 1,873 $ 45,755 $ 17,021 $ 254,977 $ 214,933 $ 1,814,763 57
Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds For the Year Ended June 30, 2015 Special Revenue Funds Local Drug Streets Rubbish Enforcement Revenues Property taxes $ - $ 590,828 $ - Intergovernmental 203,977 13,912 - Fines and forfeiture - - 30,305 Other - - - Total revenues 203,977 604,740 30,305 Expenditures Current: Public safety - - 2,603 Public works - 580,924 - Highways and streets 125,303 - - Recreation and culture - - - Community and economic development - - - Debt service: Principal - - - Interest and fiscal charges - - - Total expenditures Revenues over (under) expenditures 125,303 580,924 2,603 78,674 23,816 27,702 Other financing sources Transfers in 190,500 - - Net changes in fund balances 269,174 23,816 27,702 Fund balances, beginning of year 766,772 96,253 15,995 Fund balances, end of year $ 1,035,946 $ 120,069 $ 43,697 58
Special Revenue Funds Debt Service Funds Community Fiscal Justice Development Stabilization 2012 Training Library Block Grant Bond Bond Total $ - $ 50,066 $ - $ - $ 873,211 $ 1,514,105-1,159 137,312-18,404 374,764-23,220 - - - 53,525-10,925 - - - 10,925-85,370 137,312-891,615 1,953,319 - - - - - 2,603 - - - - - 580,924 - - - - - 125,303-171,608 - - - 171,608 - - 87,312 - - 87,312 - - 50,000 305,000 205,000 560,000 - - - 143,548 559,229 702,777-171,608 137,312 448,548 764,229 2,230,527 - (86,238) - (448,548) 127,386 (277,208) - 100,000-453,180-743,680-13,762-4,632 127,386 466,472 1,873 8,784-250,345 87,547 1,227,569 $ 1,873 $ 22,546 $ - $ 254,977 $ 214,933 $ 1,694,041 59
Schedules of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Local Streets Fund For the Year Ended June 30, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Revenues Property taxes $ - $ - $ - $ - Intergovernmental 145,000 145,000 203,977 58,977 Charges for services - - - - Fines and forfeiture - - - - Investment income - - - - Other - - - - Total revenues 145,000 145,000 203,977 58,977 Expenditures Current: General government - - - - Public safety - - - - Public works - - - - Highways and streets 138,700 138,700 125,303 (13,397) Recreation and culture - - - - Community and economic development - - - - Capital outlay - - - - Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures Revenues over (under) expenditures 138,700 138,700 125,303 (13,397) 6,300 6,300 78,674 72,374 Other financing sources Transfers in 190,500 190,500 190,500 - Net change in fund balance 196,800 196,800 269,174 72,374 Fund balance, beginning of year 766,772 766,772 766,772 - Fund balance, end of year $ 963,572 $ 963,572 $ 1,035,946 $ 72,374 60
Schedules of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Rubbish Fund For the Year Ended June 30, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Revenues Property taxes $ 583,595 $ 583,595 $ 590,828 $ 7,233 Intergovernmental - - 13,912 13,912 Charges for services - - - - Fines and forfeiture - - - - Investment income - - - - Other - - - - Total revenues 583,595 583,595 604,740 21,145 Expenditures Current: General government - - - - Public safety - - - - Public works 580,900 580,900 580,924 24 Highways and streets - - - - Recreation and culture - - - - Community and economic development - - - - Capital outlay - - - - Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures Revenues over (under) expenditures 580,900 580,900 580,924 24 2,695 2,695 23,816 21,121 Other financing sources Transfers in - - - - Net change in fund balance 2,695 2,695 23,816 21,121 Fund balance, beginning of year 96,253 96,253 96,253 - Fund balance, end of year $ 98,948 $ 98,948 $ 120,069 $ 21,121 61
Schedules of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Drug Enforcement Fund For the Year Ended June 30, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Revenues Property taxes $ - $ - $ - $ - Intergovernmental - - - - Charges for services - - - - Fines and forfeiture 5,000 5,000 30,305 25,305 Investment income - - - - Other - - - - Total revenues 5,000 5,000 30,305 25,305 Expenditures Current: General government - - - - Public safety 5,000 5,000 2,603 (2,397) Public works - - - - Highways and streets - - - - Recreation and culture - - - - Community and economic development - - - - Capital outlay - - - - Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures Revenues over (under) expenditures 5,000 5,000 2,603 (2,397) - - 27,702 27,702 Other financing sources Transfers in - - - - Net change in fund balance - - 27,702 27,702 Fund balance, beginning of year 15,995 15,995 15,995 - Fund balance, end of year $ 15,995 $ 15,995 $ 43,697 $ 27,702 62
Schedules of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Justice Training Fund For the Year Ended June 30, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Revenues Property taxes $ - $ - $ - $ - Intergovernmental 5,000 5,000 - (5,000) Charges for services - - - - Fines and forfeiture - - - - Investment income - - - - Other - - - - Total revenues 5,000 5,000 - (5,000) Expenditures Current: General government 5,000 - - - Public safety - 5,000 - (5,000) Public works - - - - Highways and streets - - - - Recreation and culture - - - - Community and economic development - - - - Capital outlay - - - - Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures Revenues over (under) expenditures 5,000 5,000 - (5,000) - - - - Other financing sources Transfers in - - - - Net change in fund balance - - - - Fund balance, beginning of year 1,873 1,873 1,873 - Fund balance, end of year $ 1,873 $ 1,873 $ 1,873 $ - 63
Schedules of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Library Fund For the Year Ended June 30, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Revenues Property taxes $ 47,934 $ 47,934 $ 50,066 $ 2,132 Intergovernmental - - 1,159 1,159 Charges for services - - - - Fines and forfeiture 20,000 20,000 23,220 3,220 Investment income - - - - Other 4,500 4,500 10,925 6,425 Total revenues 72,434 72,434 85,370 12,936 Expenditures Current: General government - - - - Public safety - - - - Public works - - - - Highways and streets - - - - Recreation and culture 138,570 138,570 171,608 33,038 Community and economic development - - - - Capital outlay - - - - Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures Revenues over (under) expenditures 138,570 138,570 171,608 33,038 (66,136) (66,136) (86,238) (20,102) Other financing sources Transfers in 67,000 67,000 100,000 33,000 Net change in fund balance 864 864 13,762 12,898 Fund balance, beginning of year 8,784 8,784 8,784 - Fund balance, end of year $ 9,648 $ 9,648 $ 22,546 $ 12,898 64
Schedules of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Community Development Block Grant Fund For the Year Ended June 30, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Revenues Property taxes $ - $ - $ - $ - Intergovernmental 122,000 122,000 137,312 15,312 Charges for services - - - - Fines and forfeiture - - - - Investment income - - - - Other - - - - Total revenues 122,000 122,000 137,312 15,312 Expenditures Current: General government - - - - Public safety - - - - Public works - - - - Highways and streets - - - - Recreation and culture - - - - Community and economic development 67,307 67,307 87,312 20,005 Capital outlay - - - - Debt service: Principal 50,000 50,000 50,000 - Interest and fiscal charges - - - - Total expenditures Revenues over (under) expenditures 117,307 117,307 137,312 20,005 4,693 4,693 - (4,693) Other financing sources Transfers in - - - - Net change in fund balance 4,693 4,693 - (4,693) Fund balance (deficit), beginning of year - - - - Fund balance (deficit), end of year $ 4,693 $ 4,693 $ - $ (4,693) 65
Combining Statement of Fiduciary Assets and Liabilities Agency Funds June 30, 2015 Fire Tax Insurance Collections Escrow Total Assets Cash and cash equivalents $ 30,492 $ 42,139 $ 72,631 Due from other governments 12,800-12,800 Total assets $ 43,292 $ 42,139 $ 85,431 Liabilities Undistributed receipts $ 43,292 $ 42,139 $ 85,431 66
Rehmann Robson 675 Robinson Rd. Jackson, MI 49203 Ph: 517.787.6503 Fx: 517.788.8111 rehmann.com INDEPENDENT AUDITORS COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE December 14, 2015 To the Honorable Mayor and Members of the City Council City of Ecorse, Michigan We have audited the 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 Ecorse, Michigan (the City ) as of and for the year ended June 30, 2015, and have issued our report thereon dated December 14, 2015. Professional standards require that we advise you of the following matters relating to our audit. Our Responsibility in Relation to the Financial Statement Audit As communicated in our engagement letter dated May 27, 2015, our responsibility, as described by professional standards, is to form and express opinions about whether the financial statements that have been prepared by management with your oversight are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities. Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the City solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you. Our findings regarding internal control over financial reporting, compliance, and other matters noted during our audit are included in Attachment A to this letter. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to you in our engagement letter and in our meeting about planning matters on November 2, 2015. Compliance with All Ethics Requirements Regarding Independence The engagement team, others in our firm, as appropriate, and our firm has complied with all relevant ethical requirements regarding independence. Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators
Page 2 Qualitative Aspects of the City s Significant Accounting Practices Significant Accounting Policies Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City is included in Note 1 to the financial statements. As described in Note 16 to the financial statements, the City changed accounting policies related to accounting for pension plans by adopting Statement of Governmental Accounting Standards Board (GASB Statement) No. 68, Accounting and Financial Reporting for Pensions. The cumulative effect of the accounting change as of the beginning of the year is reported in the proprietary funds statement of revenues, expenses, and changes in fund net position, and government-wide statement of activities. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Significant Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management s current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management s current judgments. The most sensitive accounting estimates affecting the financial statements were: Management s estimate of the useful lives of depreciable capital assets is based on the length of time it is believed that those assets will provide some economic benefit in the future. Management s estimate of the accrued compensated absences is based on current hourly rates and policies regarding payment of sick and vacation banks. Management s estimate of the allowance for uncollectible receivable balances is based on past experience and future expectation for collection of various account balances. The assumptions used in the actuarial valuations of the pension and other postemployment benefits plans are based on historical trends and industry standards. We evaluated the key factors and assumptions used to develop these estimates and determined that they are reasonable in relation to the basic financial statements taken as a whole and in relation to the applicable opinion units. In addition, the financial statements include a net pension liability and other pension-related amounts, which are dependent on estimates made by the plan. These estimates are based on historical trends and industry standards, but are not within the control of management. Significant Difficulties Encountered During the Audit We encountered no significant difficulties in dealing with management relating to the performance of the audit.
Page 3 Uncorrected and Corrected Misstatements For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each applicable opinion unit. In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. None of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole. The schedule of adjustments passed is included with management s written representations in Attachment C to this letter, and summarizes uncorrected financial statement misstatements whose effects in the current and prior periods, as determined by management, are immaterial, both individually and in the aggregate, to the financial statements taken as a whole and each applicable opinion unit. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the City s financial statements or the auditors report. No such disagreements arose during the course of the audit. Representations Requested from Management We have requested certain written representations from management, which are included in Attachment C to this letter. Management s Consultations with Other Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters. Other Significant Matters, Findings, or Issues In the normal course of our professional association with the City, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the City s auditors. Other Information in Documents Containing Audited Financial Statements Our responsibility for the supplementary information accompanying the financial statements, as described by professional standards, is to evaluate the presentation of the supplementary information in relation to the financial statements as a whole and to report on whether the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole. We made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally
accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. Upcoming Changes in Accounting Standards Generally accepted accounting principles (GAAP) are continually changing in order to promote the usability and enhance the applicability of information included in external financial reporting. While it would not be practical to include an in-depth discussion of every upcoming change in professional standards, Attachment B to this letter contains a brief overview of recent pronouncements of the Governmental Accounting Standards Board (GASB) and their related effective dates. Management is responsible for reviewing these standards, determining their applicability, and implementing them in future accounting periods. This information is intended solely for the use of the governing body and management of the City of Ecorse, Michigan, and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours, Page 4
Attachment A - Comments and Recommendations For the June 30, 2015 Audit We have audited, in accordance with the auditing standards generally accepted in the United States of America the financial statements of the City of Ecorse (the "City"), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the City s financial statements, and have issued our report thereon dated December 14, 2015. In planning and performing our audit of the financial statements, we considered the City s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City s internal control. Accordingly, we do not express an opinion on the effectiveness of the City s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Other Matters City Network Server (Repeat comment) The City currently has panels improperly fastened as well as a broken lock on their server housing cabinets. This could allow someone other than authorized personnel to access the physical servers. We recommend the City secure the panels and locks to protect the servers and the data that is stored on them. Independent Review of Manual Journal Entries During our review of manual journal entries, we noted that independent review of manual journal entries is not being consistently documented. The Finance Director reviews the monthly financials to ensure that account balances are correctly stated, however, there is not consistent documentation of independent review for all general journal entries. We recommend that the City implement a process which requires the reviewer to initial and date each manual journal entry prepared as evidence that the review is taking place. A1
Attachment A - Comments and Recommendations For the June 30, 2015 Audit Reconciliation of Library Account During our review of the City's bank reconciliations, we noted that the bank account for the Public Library Commission was not being reconciled to the general ledger on a regular basis. This was likely due to turnover in staff of both the Library and the City Controller's office. We recommend that the City include this account in their monthly bank reconciliation process to ensure that the ledger balance agrees to the underlying bank statement and to mitigate the risk of misappropriation of funds. Independent Review of Utility Billing Register It was noted during the audit that utility bills are not independently reviewed prior to mailing. We recommend that an employee, independent of the preparation process, review the utility bills and the utility billing register prior to mailing. Evidence of this review should be documented by signature or initials. A2
Attachment B Upcoming Changes in Accounting Standards / Regulations For the June 30, 2015 Audit The following pronouncements of the Governmental Accounting Standards Board (GASB) have been released recently and may be applicable to the City in the near future. We encourage management to review the following information and determine which standard(s) may be applicable to the City. For the complete text of these and other GASB standards, visit www.gasb.org and click on the Standards & Guidance tab. If you have questions regarding the applicability, timing, or implementation approach for any of these standards, please contact your audit team. GASB 72 Fair Value Measurement and Application Effective 06/15/2016 (your FY 2016) This standard defines "fair value" as the price that would be received to sell an asset in an orderly transaction between market participants (an "exit price"). Fair value measurement is currently applied principally to investments, which GASB 72 does not change. However, it does introduce specific methods for measuring fair value when a market price is not readily available, and establishes a 3-level hierarchy of fair value that is disclosed in the footnotes, based on the presence or absence of observable market inputs. GASB 73 Pensions and Related Assets Not Within the Scope of GASB 68 Effective 06/15/2016 (your FY 2016) This standard addresses accounting and financial reporting for pensions that were not covered by GASB Statement No. 68, because the plan assets are not held in trust. Essentially, it applies the same treatment as GASB 68, but reflects the total pension liability and plan assets separately, rather than a net pension liability. We do not expect this standard to have any significant effect on the City. GASB 74 Postemployment Benefit Plans Other than Pension Plans Effective 06/15/2017 (your FY 2017) This standard requires the calculation of a net other postemployment benefit (OPEB) liability based on an actuarial valuation of retiree healthcare and similar benefits administered by an OPEB trust. It mirrors the new accounting and financial reporting requirements of GASB 67 for pension plans. GASB 75 Postemployment Benefits Other than Pensions Effective 06/15/2018 (your FY 2018) This standard builds on the requirements of GASB 74 by requiring employers that provide other postemployment benefits (OPEB) to recognize a net OPEB liability on their statements of net position. It mirrors the new accounting and financial reporting requirements of GASB 68 for pension benefits. GASB 76 The Hierarchy of GAAP for State and Local Governments Effective 06/15/2016 (your FY 2016) This standard clarifies the source of "generally accepted accounting principles" (GAAP) for governments. Authoritative sources of GAAP now include (1) GASB pronouncements, (2) GASB implementation guides, and (3) AICPA literature specifically cleared by the GASB. This standard does not change existing GAAP. B1
Attachment B Upcoming Changes in Accounting Standards / Regulations For the June 30, 2015 Audit GASB 77 Tax Abatement Disclosures Effective 12/15/2016 (your FY 2017) This standard requires governments to disclose certain information about tax abatement agreements made to foster economic development or otherwise benefit the government or its citizens. Required disclosures include a brief description of the arrangement, the gross dollar amount of taxes abated in the current period, and any additional commitments made by the government as part of the agreement. 2 CFR 200 Uniform Guidance for Federal Awards Cost Principles Effective 12/26/2014; Single Audit Requirements Effective 12/26/2015 (your FY 2016) The Office of Management and Budget (OMB) has consolidated seven separate circulars (including administrative requirements, cost principles, and audit requirements) into a single federal regulation. The new Uniform Guidance covers all aspects of federal grants from pre-award through the single audit. While much of the guidance was simply reorganized and recodified, there were also several substantive changes to the single audit thresholds. A single audit will now only be required if total expenditures of federal awards exceed $750,000 (up from $500,000). The OMB also made revisions to the list of compliance requirements tested in a single audit. In addition, the Uniform Guidance now explicitly requires grant recipients to have sound internal controls (which should be consistent with the COSO framework), and documented procedures for grant administration. Written procedures are required for payments (cash draws), procurement (including conflicts of interest), allowability of costs, compensation, and travel costs. Rehmann is available to assist grant recipients in developing/documenting these policies and procedures in compliance with the new requirements. B2
Attachment C Management Representations For the June 30, 2015 Audit Following are the written representations that we requested from management. C1