Midland County, Michigan 2014 Comprehensive Annual Financial Report and Single Audit For the Year Ended December 31, 2014 This report was prepared by Midland County Finance Department
Table of Contents INTRODUCTORY SECTION Page Letter of Transmittal 1 GFOA Certificate of Achievement 6 Chart of Organization 7 List of Elected and Appointed Officials 8 FINANCIAL SECTION Independent Auditors Report 9 Management s Discussion and Analysis 13 Basic Financial Statements Government-wide Financial Statements: Statement of Net Position 23 Statement of Activities 24 Fund Financial Statements: Balance Sheet Governmental Funds 26 Reconciliation of Fund Balances for Governmental Funds to Net Position of Governmental Activities 27 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds 28 Reconciliation of Net Changes in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities 29 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - General Fund 30 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Senior Citizen Special Revenue Fund 31 Statement of Net Position Proprietary Funds 32 Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Funds 34 Statement of Cash Flows Proprietary Funds 36 Statement of Fiduciary Net Position - Fiduciary Funds 40 Statement of Changes in Fiduciary Net Position - Fiduciary Funds 41 Combining Statement of Net Position Discretely Presented Component Units 42 Combining Statement of Activities Discretely Presented Component Units 43 Notes to Financial Statements 45
Table of Contents Required Supplementary Information Page Schedule of Funding Progress - Act 345 Retirement System 97 Schedule of Employer Contributions - Act 345 Retirement System 97 Schedule of Changes in Net Pension Liability and Related Ratios - Act 345 Retirement System 98 Schedule of Net Pension Liability - Act 345 Retirement System 99 Schedule of Contributions - Act 345 Retirement System 100 Schedule of Investment Returns - Act 345 Retirement System 101 Schedule of Funding Progress - Employees' Retirement System 102 Schedule of Employer Contributions - Employees' Retirement System 102 Schedule of Changes in Net Pension Liability and Related Ratios - Employees' Retirement System 103 Schedule of Net Pension Liability Employees' Retirement System 104 Schedule of Contributions Employees' Retirement System 105 Schedule of Investment Returns Employees' Retirement System 106 Schedule of Funding Progress Other Postemployment Benefits Plan Retiree Health Care 107 Schedule of Employer Contributions Other Postemployment Benefits Plan Retiree Health Care 107 Combining and Individual Fund Financial Statements and Schedules Nonmajor Governmental Funds: Combining Balance Sheet Nonmajor Governmental Funds 112 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds 120 Schedules of Revenues, Expenditures and Changes in Fund Balances Budget and Actual Nonmajor Special Revenue Funds 128 Nonmajor Enterprise Funds: Combining Statement of Net Position Nonmajor Enterprise Funds 163 Combining Statement of Revenues, Expenses and Changes in Fund Net Position - Nonmajor Enterprise Funds 167 Combining Statement of Cash Flows Nonmajor Enterprise Funds 171 Internal Service Funds: Combining Statement of Net Position Internal Service Funds 176 Combining Statement of Revenues, Expenses and Changes in Fund Net Position Internal Service Funds 178 Combining Statement of Cash Flows Internal Service Funds 180
Table of Contents Fiduciary Funds: Combining Statement of Fiduciary Net Position - Private Purpose Trust Funds 184 Combining Statement of Changes in Fiduciary Net Position - Private Purpose Trust Funds 186 Combining Statement of Fiduciary Net Position Pension and Other Employee Benefit Trust Funds 188 Combining Statement of Changes in Fiduciary Net Position Pension and Other Employee Benefit Trust Funds 189 Combining Statement of Fiduciary Assets and Liabilities - Agency Funds 190 Combining Statement of Changes in Fiduciary Assets and Liabilities - Agency Funds 192 Component Unit: Drain Commission: Statement of Net Position and Governmental Fund Balance Sheet 194 Statement of Activities and Governmental Fund Revenues, Expenditures and Changes in Fund Balance 196 STATISTICAL SECTION (UNAUDITED) TABLE 1 Net Position by Component 200 2 Changes in Net Position 201 3 Governmental Activities Tax Revenue by Source 203 4 Fund Balances of Governmental Funds 204 5 Changes in Fund Balances of Governmental Funds 205 6 Taxable Value and Estimated True Cash Value of Taxable Property 207 7 Property Tax Rates Direct and Overlapping Governments 208 8 Principal Property Taxpayers 209 9 Property Taxes, Levies and Collections 210 10 Ratio of Outstanding Debt by Type 211 11 Ratios of General Bonded Debt Outstanding 212 12 Legal Debt Margin Information 213 13 Direct and Overlapping Governmental Activities Debt 214 14 Demographic and Economic Statistics 216 15 Principal Employers 217 16 Full-Time Equivalent County Employees by Function 218 17 Operating Indicators by Function 219 18 Capital Asset Statistics by Function 220 Page
Table of Contents SINGLE AUDIT ACT COMPLIANCE Page Independent Auditors' Report on the Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 222 Schedule of Expenditures of Federal Awards 223 Notes to Schedule of Expenditures of Federal Awards 225 Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Governmental Auditing Standards 227 Independent Auditors' Report on Compliance for Each Major Federal Program and on Internal Control Over Compliance Required by OMB Circular A-133 229 Schedule of Findings and Questioned Costs 231 Summary Schedule of Prior Audit Findings 234
June 30, 2015 To the Citizens of Midland County, Michigan: The Comprehensive Annual Financial Report of the County of Midland, Michigan, for the fiscal year ended December 31, 2014, is submitted herewith. This report was prepared by the Midland County Finance Department with assistance from the County s Independent Auditors. Responsibility for both the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with the County. We believe the data, as presented, is accurate in all material respects; that it is presented in a manner designed to fairly set forth the financial position and results of operations of the County, as measured by the financial activity of its various funds; and that the disclosures necessary to enable the reader to gain the maximum understanding of the County s financial activity have been included. The Comprehensive Annual Financial Report is presented in four sections: introductory, financial, statistical and single audit. The introductory section includes this transmittal letter, a list of principal officials and the Certificate of Achievement for Excellence in Financial Reporting. The financial section includes Management s Discussion and Analysis, the basic financial statements and the combining fund statements, as well as the auditor s report on the financial statements. The statistical section includes, at a minimum, the required GFOA financial and demographic information, generally presented on a multi year basis. Management s discussion and analysis ( MD&A ) immediately follows the independent auditor s report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complement this letter of transmittal and should be read in conjunction with it. The County is required to undergo an annual single audit in conformity with the provisions of the Single Audit Act Amendments of 1996 and U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Information related to this single audit, including the schedule of expenditures of federal awards, findings and recommendations, and auditors reports on internal control and compliance with applicable laws, regulations, contracts and grants, is included in the single audit section of this report. Tori S. Meyer Suzanne V. Ault Kevin D. Beeson Denise L. Mason Finance Director Human Resources Director Facilities Manager Procurement & Contracts Administrator (989)832-6786 (989)832-6752 (989)832-6790 (989)832-6865
This report includes all funds of the County and its component units as defined in Government Accounting Standards Board Statement No. 61, The Financial Reporting Entity. The County has implemented GASB Statement No. 61, which sets forth criteria for including/excluding certain related entities in the County s basic financial statements. As a result, the Midland County Road Commission, the Office of the Midland County Drain Commissioner, and the Economic Development Corporation of the County of Midland ( EDCCM ) have been discretely presented as component units in the basic financial statements. The Midland Economic Development Council (EDCCM Loan Revolving Fund) is also a discrete component unit, but is not presented in the financial statements, as there was no activity for the year. Profile of the Government The management of Midland County is overseen by a district-elected Board of Commissioners. This board consists of seven members. Board of Commissioners are elected for two year terms and have the responsibility of making appropriations to all County functions and establishing policy for all County operations. The Board of Commissioners appoints an Administrator/Controller who has the overall responsibility to oversee the administrative duties of the County with the exception of Elected Officials Offices. The County provides many services to the County residents including, the administration of the Courts, Sheriff Road Patrol services in the unincorporated jurisdictions of the County, the constitutional offices of the County Clerk, Treasurer, Register of Deeds, Sheriff and Prosecutor and the statutory office of the Drain Commissioner. In addition, the County supports many other programs such as the Mosquito Control Program, Gypsy Moth Suppression, Health Services, Ambulance Services, County Transportation, County Infirmary and Services to older Citizens. The County also supports cultural and recreational services such as the MSU Extension, Parks and Recreation Services, and the Pere` Marquette Rail-Trail of Mid-Michigan. Local Economy The local economy is seeing some new construction and expansion. The Savant Group is in the midst of an 11,300-square-foot, $3 million expansion to its existing facility at 4800 James Savage Road in Midland. This expansion will give the Savant Group a total of 27,000 square feet. The Savant Group, established in 1969, is comprised of four individually incorporated companies that do business in more than 50 countries: Savant, Inc. independent testing laboratory and research center specializing in testing of lubricants; Tannas Co. developer and manufacturer of advanced laboratory instrumentation for the automotive, petroleum and chemical industries; King Refrigeration, Inc. manufacturer of low-temperature laboratory instruments requiring development and application of advanced refrigeration design; and The Institute of Materials publisher of independent and unbiased databases on engine oil properties from samples collected worldwide. In the past year, The Savant Group has hired 23 new employees, for a total for more than 60 employees in Midland. The company increased its growth projections by 20 percent for 2014. CNNMoney recently named Midland County as one of eight communities across the country where the middle class thrives. The county was noted for its strong business base, top-notch public safety and roads, minimal taxes, and high quality of life. Communities were considered based on unemployment numbers, income levels, violent crime rates, poverty and inequality levels, housing costs, college degree attainment, school enrollment numbers, and access to key locations in the community. A new 5-story, 84,000 square-foot, mix-use building is being constructed in downtown Midland that will house restaurants, retail and residential condos. The developer is SSP Associates and the construction is expected to create 46 full-time jobs. 2
Residential New housing in 2014 increased 27% from the prior year with 114 new housing starts. New housing starts in 2013 were 90. The County also oversees a housing rehabilitation assistance program to facilitate comprehensive residential development. Major initiatives Now that the former Jail, which was connected to the Courthouse, is demolished and a new holding cell area has been constructed, the County is looking at repurposing some of the space inside the Courthouse. Early projections for the renovation suggest that the cost will near $600,000 and will add a much-needed, efficient lay-out for the offices inside the Courthouse. Long-Term Financial Planning/Financial Policies Financial Management Management of the County is responsible for establishing and maintaining internal control designed to ensure that the assets of the County are protected from loss, theft or misuse and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. Budgeting Control The County maintains budgetary control with the objective to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the County Board of Commissioners. Activities of the General and Special Revenue Funds are included in the annual appropriation budget. The level of budgetary control (that is, the level at which expenditures cannot legally exceed the appropriated amount) is established by activity within these Funds. The County also maintains an encumbrance accounting system as one technique of accomplishing budgetary control. Encumbered amounts lapse at year-end and are reappropriated as part of the following year s budget. As demonstrated by the statements and schedules included in the financial section of this report, the County continues to meet its responsibility for sound financial management. Single Audit As a recipient of federal and state awards, the County is responsible for ensuring that adequate internal control is in place to achieve compliance with applicable laws and regulations related to those programs. This internal control is subject to periodic evaluation by management and the independent auditors of the County. As part of the County s single audit, described earlier, tests are made to determine the adequacy of internal control, including that portion related to federal award programs, as well as to determine that the County has complied with applicable laws and regulations. The results of the County s single audit for the fiscal year ended December 31, 2014, disclosed no significant deficiencies and no material weaknesses or significant violations of applicable laws and regulations. 3
Long-Term Financial Planning The budget serves as the foundation for the County s financial planning and control. As part of the budget process, management prepares an annual budget for the General Fund, where revenues, expenditures and fund balances are forecasted. The General Fund Budget for 2014 forecasted an overall increase in revenue with a slight increase in tax revenue. General Fund Budget expenditures in 2014 contained a slight increase with an expected increase in the General Fund Use of Surplus. As part of long-term financial planning, a Five-Year Forecast is prepared and updated annually. This forecast is presented to the Board of Commissioners and allows the governing body to look beyond the current budget year and discuss strategy. Management presents the current financial condition of the County to the Board of Commissioners Finance Committee on a quarterly basis. The reports include a comparison of the amended budget to the actual amounts and explanations for major variances. This process means that the budget remains current through the year and that actual expenditures are continually monitored. Lastly, the County s management trends key financial indictors to aid in long-term financial planning. These key financial indicators include, but are not limited to, tax revenue, revenue sharing, and healthcare costs. Financial Policies It is the Board of Commissioner s policy to maintain a sufficient fund balance in the County s General Fund. A portion of this fund balance shall be unassigned to provide available financial resources to be used exclusively for maintaining a stable tax and revenue structure and to provide for the orderly delivery of services to County residents; to maintain and improve the County s credit standing; and to provide financial resources that can be used to meet contingency and working capital requirements. The unassigned fund balance shall not be less than one-twelfth of the annual General Fund operating budget. Policy also dictates that a General Fund Contingency Account be recommended in the Annual County Budget to be used in the event of unplanned expenditures. The Annual Budget Contingency Account shall not be less than one percent of the total annual General Fund Budget. It is the Board of Commissioner s policy that any authorized positions that are supported in whole or in part by a grant or other source of outside funding shall be reviewed for reduction or elimination when notified that sufficient outside funding will not be received. Further, the County maintains a strong position control and position budgeting system and adheres to the practice of budgeting for full employment. Salary and fringe benefits appropriations are tied to specific authorized positions. Should vacancies occur or if positions are filled at a level lower than authorized, the resulting favorable variance falls to fund balance. Recently the Board of Commissioner s adopted a Fund Balance policy that requires a General Fund balance of no less than 8.33% and a target fund balance of 30% of the annual operating expenditures. None of the other fiscal policies had a significant impact on the current period financial statements. 4
Other information Independent Audit The Michigan Uniform Accounting and Budgeting Act requires an annual audit by independent certified public accountants. The accounting firm of Rehmann Robson was selected by the Midland County Board of Commissioners to perform the County s annual audit. In addition to meeting the requirements set forth in state statutes, the audit also was designed to meet the requirements of the federal Single Audit Act Amendments of 1996 and related OMB Circular A-133. The auditor s report on the financial statements and combining and individual fund statements and schedules is included in the financial section of this report. The auditor s reports related specifically to the single audit are also included in this report in the Single Audit Section. Accounting Systems and Reports The County s accounting records for traditional governmental operations; i.e., General Fund, Special Revenue Funds, Debt Service Funds and Capital Project Funds, are maintained on a modified accrual basis of accounting. As a result, the more significant revenues such as property taxes, intergovernmental revenues and investment earnings are recognized as earned and other revenues are generally recognized only when received. Expenditures are recorded when incurred and encumbrances placed when purchase orders are issued. Employees accumulated unused annual leave, sick pay and longevity pay are also recognized on the modified accrual basis. Budgetary control is maintained by an annual allotment system. Allotments, or appropriation, balances are encumbered by the simultaneous issuance and recording of purchase orders. Purchase orders that exceed allotted balances are not released until additional appropriations or appropriate budgetary adjustments are made available. Awards The Government Finance Officers Association of the United States and Canada ( GFOA ) awarded a Certificate of Achievement for Excellence in Financial Reporting to Midland County for its comprehensive annual financial report for the fiscal year ended December 31, 2013. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. Acknowledgements Appreciation is extended to the Finance Department and various employees throughout the County responsible for financial management and reporting. Their adherence to following the law, utilizing proper accounting methods and eliminating waste from processes has greatly improved the efficiency and accountability of the entire County. Respectfully submitted, Bridgette M. Gransden, CPA, CGFM Midland County Administrator/Controller 5
GFOA Certificate of Achievement 6
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COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended December 31, 2014 BOARD OF COMMISSIONERS Mark Bone, Chairman James H. Geisler, Vice Chairman Eric Dorrien Al Kloha Richard Keenan James Leigeb Administrator/Controller Bridgette M. Gransden, CPA, CGFM Finance Director Tori S. Meyer Chief Accountant Laurie A. Tarkowski Independent Auditors Rehmann Robson 8
Rehmann Robson INDEPENDENT AUDITORS' REPORT 5800 Gratiot Rd. Suite 201 Saginaw, MI 48638 Ph: 989.799.9580 Fx: 989.799.0227 rehmann.com June 30, 2015 Board of Commissioners Midland County, Michigan Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Midland County, Michigan (the County ), as of and for the year ended December 31, 2014, and the related notes to the financial statements, which collectively comprise the County 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 did not audit the financial statements of the Midland County Road Commission which represents 80 percent, 81 percent, and 93 percent of the assets, net position, and revenues, respectively, of the discretely presented component units, and the Economic Development Corporation of the County of Midland ("EDCCM") which represents 7 percent of the assets and net position, and zero percent of the revenues of the discretely presented component units. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Midland County Road Commission and EDCCM, is based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators 9
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the reports of other auditors, 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 aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Midland County, Michigan, as of December 31, 2014, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund and the Senior Citizen special revenue fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis and schedules for the pension and other postemployment benefit plans, as noted in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We and other auditors have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County s basic financial statements. The introductory section, combining and individual fund financial statements and schedules, and statistical schedules are presented for purposes of additional analysis and are not a required part of the basic financial statements. 10
The combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund financial statements and schedules are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 30, 2015, on our consideration of Midland County, Michigan s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the County's internal control over financial reporting and compliance. 11
MANAGEMENT'S DISCUSSION AND ANALYSIS 12
Management's Discussion and Analysis As management of Midland County, Michigan (the County ), we offer readers of the County s financial statements this narrative overview and analysis of the financial activities of the County for the fiscal year ended December 31, 2014. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which is identified in the table of contents. Financial Highlights The assets of the County exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $34,237,651 (net position). Of this amount, $11,376,353 (unrestricted net position) may be used to meet the government s ongoing obligations to citizens and creditors. The government s total net position increased by $1,678,973. As of the close of the current fiscal year, the County s governmental funds reported combined ending fund balances of $22,092,629, an increase of $1,259,225 (6.04%) in comparison with the prior year. The County had three new debt issuances during the year, totaling $4,028,000, including the Drain component unit. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the County s basic financial statements. The County s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-Wide Financial Statements. The government-wide financial statements are designed to provide readers with a broad overview of the County s finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the County s assets, liabilities, and deferred inflows of resources, with the residual balance reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the County is improving or deteriorating. The statement of activities presents information showing how the government s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the County that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the County include general government, legislative, judicial, public safety, public works, health and welfare, culture and recreation, and planning and development. The business-type activities of the County include the delinquent property tax collections, local unit water bonds, and inmate services. The government-wide financial statements include not only the County itself (known as the primary government), but also a legally separate Road Commission, Drain Commission, and a the Economic Development Corporation for which the County is financially accountable. Financial information for these component units is reported separately from the financial information presented for the primary government itself. The Midland County Building Authority, although legally separate, functions for all practical purposes as a department of the County, and therefore has been included as an integral part of the primary government. 13
Management's Discussion and Analysis Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The County, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the County can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. Individual governmental fund information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenue, expenditures, and changes in fund balances for the General Fund, Senior Citizen Special Revenue Fund and Building Authority Debt Service Fund, each of which is considered to be a major fund. Data from the remaining governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The County adopts an annual appropriated budget for its General Fund and special revenue funds. comparison statements have been provided for these funds to demonstrate compliance with this budget. Budgetary Proprietary Funds. The County maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The County uses enterprise funds to account for the Larkin Township Water Bonds III Fund, Lee Township Water Bonds Fund, Edenville Township Water Bonds Fund, Hope Township Water Bonds Fund, and various other enterprise funds that are considered nonmajor. Internal service funds are used to accumulate and allocate costs internally among the County s various functions. The County uses internal service funds to account for its computer equipment maintenance and replacement, insurances, and mobile data terminal operations. Because these services predominately benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the enterprise fund major funds. Both the enterprise fund nonmajor funds and internal service funds are combined in separate single, aggregated presentations in the proprietary fund financial statements. Individual fund data for nonmajor enterprise funds and internal service funds are provided in the form of combining statements elsewhere in this report. Fiduciary Funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the County s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. 14
Management's Discussion and Analysis Notes to the Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Other Information. In addition to the basic financial statements and accompanying notes, this report also presents certain information concerning the County s progress in funding its obligation to provide pension and other postemployment benefits to its employees. Government-Wide Financial Analysis As previously stated, net position may serve over time as a useful indicator of a government s financial position. In the case of the County, assets exceeded liabilities by $34,237,651 at the close of the most recent fiscal year. Net Position Governmental Activities Business-type Activities Total 2014 2013 2014 2013 2014 2013 Current and other assets $ 41,224,803 $ 41,075,378 $ 28,573,466 $ 30,306,934 $ 69,798,269 $ 71,382,312 Capital assets, net 40,629,202 40,832,089 16,142,115 14,820,947 56,771,317 55,653,036 Total assets 81,854,005 81,907,467 44,715,581 45,127,881 126,569,586 127,035,348 Long-term liabilities 26,066,052 27,552,269 38,272,769 39,859,697 64,338,821 67,411,966 Other liabilities 16,205,892 14,915,426 694,916 826,380 16,900,808 15,741,806 Total liabilities 42,271,944 42,467,695 38,967,685 40,686,077 81,239,629 83,153,772 Total deferred inflows of resources 10,606,188 10,788,168 486,118 534,730 11,092,306 11,322,898 Net position: Net investment in capital assets 16,127,985 15,035,072 841,301 1,274 16,969,286 15,036,346 Restricted 5,508,732 6,266,528 383,280-5,892,012 6,266,528 Unrestricted 7,339,156 7,350,004 4,037,197 3,905,800 11,376,353 11,255,804 Total net position $ 28,975,873 $ 28,651,604 $ 5,261,778 $ 3,907,074 $ 34,237,651 $ 32,558,678 A substantial portion of the County s net position $16,969,286 (49.6 percent), reflects its net investment in capital assets (e.g. land, buildings, machinery and equipment). The County uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the County s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the County s net position of $5,892,012 (17.2 percent) represents resources that are subject to external restrictions on how they may be used. The County may use the remaining balance of unrestricted net position of $11,376,353 (33.2 percent) to meet its ongoing obligations to citizens and creditors. At the end of the current fiscal year, the County is able to report positive balances in all three categories of net position, both for the government as a whole, and for its separate governmental and business-type activities. 15
Management's Discussion and Analysis There was a decrease of $374,516 in restricted net position reported in connection with the County s governmental activities. This decrease is largely attributed to two things. First, the Building Authority's fund balance was reduced as $300,000 was transferred to the General Fund, which applied this amount to the jail bond principal. Second, the last phase of the former Jail demolition and Courthouse renovations were, for the most part, completed and this reduced the funds that were secured for this capital construction project. Change in Net Position Governmental Activities Business-type Activities Total 2014 2013 2014 2013 2014 2013 Program revenues: Charges for services $ 9,995,606 $ 10,539,419 $ 1,738,539 $ 1,733,818 $ 11,734,145 $ 12,273,237 Operating grants 9,734,911 9,251,052 1,383,166 1,436,956 11,118,077 10,688,008 Capital grants 70,587 50,300 840,000-910,587 50,300 General revenues: Property taxes 28,686,347 27,565,966 - - 28,686,347 27,565,966 Grants and contributions not restricted to specific programs 3,625 52,556 - - 3,625 52,556 Unrestricted investment earnings 300,574 441,043 39,793 43,757 340,367 484,800 Miscellaneous 91,610 - - - 91,610 - Total revenues 48,883,260 47,900,336 4,001,498 3,214,531 52,884,758 51,114,867 Expenses: General government 10,267,499 9,836,275 - - 10,267,499 9,836,275 Legislative 208,124 211,723 - - 208,124 211,723 Judicial 5,890,447 5,872,461 - - 5,890,447 5,872,461 Public safety 12,761,084 11,723,068 - - 12,761,084 11,723,068 Public works 15,621 22,519 - - 15,621 22,519 Health and welfare 17,497,785 17,635,552 - - 17,497,785 17,635,552 Culture and recreation 991,814 966,917 - - 991,814 966,917 Planning and development 452,652 267,792 - - 452,652 267,792 Interest on debt 1,187,093 1,226,786 - - 1,187,093 1,226,786 Delinquent property tax collection - - 194,971 197,603 194,971 197,603 Local unit water bonds - - 1,400,839 1,465,025 1,400,839 1,465,025 Inmate services - - 337,856 370,032 337,856 370,032 Total expenses 49,272,119 47,763,093 1,933,666 2,032,660 51,205,785 49,795,753 Change in net position, before transfers (388,859) 137,243 2,067,832 1,181,871 1,678,973 1,319,114 Transfers 713,128 739,871 (713,128) (739,871) - - Change in net position 324,269 877,114 1,354,704 442,000 1,678,973 1,319,114 Net position: Beginning of year 28,651,604 27,774,490 3,907,074 3,465,074 32,558,678 31,239,564 End of year $ 28,975,873 $ 28,651,604 $ 5,261,778 $ 3,907,074 $ 34,237,651 $ 32,558,678 The County s net position increased by $1,678,973 during the current fiscal year. The primary reason for the increase in net position is attributed to a grant received from Rural Development for the Hope Township water project in the amount of $840,000. The balance of the increase largely consists of interest earned on delinquent taxes and collection fees on forfeited or foreclosed properties. 16
Management's Discussion and Analysis Governmental Activities. Governmental activities increased the County s net position by $324,269. Expenses in 2014 were $1,509,026 higher when compared to 2013. The bulk of this increase in expenses is attributable to law enforcement. Specifically, funding for retirement and retiree healthcare costs in 2014 were higher by more than $290,000. Health services provided to inmates of the jail also experienced increases in nursing services and pharmaceutical costs by approximately $330,000. Meanwhile, revenues in 2014 were $982,924 higher than in 2013 as a result of an increase in tax revenue by $1,120,381. Expenses and Program Revenues - Governmental Activities (in dollars) 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 - Expenses Program Revenues Unrestricted investment earnings 1% Revenues by Source - Governmental Activities Grants and contributions not restricted 0% Charges for services 20% Property taxes 59% Operating grants and contributions 20% Capital grants and contributions 0% Business-type Activities. Business-type activities increased the County s net position by $1,354,704. The key element for this increase was a capital grant received from Rural Development in the amount of $840,000 related to the Hope Township Water Project. 17
Management's Discussion and Analysis Expenses and Program Revenues - Business-type Activities (in dollars) 1,600,000 1,400,000 1,200,000 Expenses Program Revenues 1,000,000 800,000 600,000 400,000 200,000 - Delinquent tax collection Local unit water bonds Inmate services Revenues by Source - Business-type Activities Unrestricted investment earnings 9% Operating grants and contributions 40% Charges for services 51% Financial Analysis of the County s Funds As noted earlier, the County uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds. The focus of the County s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the County s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government s net resources available for spending at the end of the fiscal year. 18
Management's Discussion and Analysis As of the end of the current fiscal year, the County s governmental funds reported combined ending fund balances of $22,092,629, an increase of $1,259,225 in comparison with the prior year. The fund balance is classified as one of the following: A) Nonspendable funds in the amount of $754,587 (or 3.4%), which consists primarily of long-term advances and prepaids; B) Restricted for use per special revenue, capital project, and debt service fund restrictions in the amount of $5,840,472 (or 26.4%); C) committed for health and welfare, culture and recreation, public safety, and judicial funds per Board policy in the amount of $1,181,203 (or 5.3%); D) Assigned for other specific uses in the County s general operations in the amount of $5,075,350 (or 23.0%) or E) is unassigned ($9,241,017, or 41.9%) and available for spending at the County's discretion and needs. The General Fund is the chief operating fund of the County. At the end of the current fiscal year, nonspendable fund balance of the General Fund was $706,885, assigned fund balance of the General Fund was $1,341,122, and the unassigned fund balance of the General Fund was $9,257,066 or a total fund balance amounted to $11,305,073. The fund balance of the County s General Fund increased by $268,416 during the current fiscal year. Key factors in this change are as follows: Revenues in 2014 were $212,270 higher when compared to 2013 and largely in the Intergovernmental revenue line, as a result of a $240,356 increase in Revenue Sharing payments from the State of Michigan. Meanwhile, expenditures in 2014 were $996,200 higher than 2013. Law enforcement and correction expenditures increased $779,529 or 9.2% over 2013. The General Fund budgeted for a decrease in fund balance of $1,278,952 and the actual increase in fund balance was $268,416. Significant changes in budgetary variances are as follows: Actual revenues exceeded the budget by $668,801 and again most of this excess came from charges for services, where the Register of Deeds generated more revenue than budgeted and in the Jail, where more revenue was generated in prisoner boarding. Expenditures had an overall positive effect as actual expenditures were $774,232 less than budgeted, most of that cost savings was in the General Services Administration. Specifically, personnel costs came in below budget because the County budgets for full employment, but sometimes turnover can create vacancies in employment as does disability leaves. Budget savings in personnel costs totalled $123,000. Utility costs came in below budget by more than $42,000 and Education/Training costs came in below budget by more than $41,000. Transfers in exceeded the budget by $109,662. Fund balance reserves in some of the Special Revenue funds were transferred back into the General Fund, where General Fund appropriations into those funds had exceeded the operating expenses. The building authority s fund balance decreased by $299,385 during the fiscal year. This decrease was the result of applying some of the bond proceeds to the payment of the debt. Proprietary Funds. The County s proprietary fund financial statements provide the same type of information found in the government-wide financial statements, but in more detail. 19