Document otsegocountymi_gov_doc_268335d0fd

Year Ended December 31, 2017 Financial Statements Otsego County, Michigan ---PAGE BREAK--- ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN ELECTED OFFICERS For the Year Ended December 31, 2017 BOARD OF COMMISSIONERS Ken Borton Doug Johnson Chairman Vice Chairman Robert Pallarito Paul Beachnau Paul Liss Bruce Brown Julia Powers Ken Glasser Diane Switalski Diann Axford Susan DeFeyter Treasurer Clerk/Register of Deeds Matthew Nowicki Brendan Curran Sheriff Prosecuting Attorney OTHER OFFICIALS Rachel Frisch Appointed County Administrator ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Table of Contents Page Independent Auditors’ Report 1 Management’s Discussion and Analysis 4 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 18 Statement of Revenues, Expenditures and Change in Fund Balances – Governmental Funds 19 Reconciliation of Net Change in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities 21 Statement of Revenues, Expenditures and Change in Fund Balance – Budget and Actual: General Fund 22 Housing Commission Special Revenue Fund 25 M-TEC Special Revenue Fund 26 Statement of Net Position – Proprietary Funds 27 Statement of Revenues, Expenses and Change in Fund Net Position – Proprietary Funds 29 Statement of Cash Flows – Proprietary Funds 31 Statement of Fiduciary Assets and Liabilities 35 Combining Statement of Net Position – Discretely Presented Component Units 36 Combining Statement of Activities – Discretely Presented Component Units 38 Notes to Financial Statements 40 Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan: Schedule of Changes in County's Net Pension and Related Ratios 82 Schedule of the Net Pension Liability 83 Schedule of Contributions 84 Other Postemployment Benefits Plan (Primary Government): Schedule of Funding Progress – Other Postemployment Benefits Plan 85 Schedule of Employer Contributions – Other Postemployment Benefits Plan 85 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Table of Contents Page Combining and Individual Fund Financial Statements Nonmajor Governmental Funds: Combining Balance Sheet – Nonmajor Governmental Funds 86 Combining Statement of Revenues, Expenditures and Change in Fund Balances – Nonmajor Governmental Funds 87 Combining Balance Sheet – Nonmajor Special Revenues Funds 88 Combining Statement of Revenues, Expenditures and Change in Fund Balances - Nonmajor Special Revenues Funds 93 Combining Balance Sheet – Nonmajor Capital Projects Funds 98 Combining Statement of Revenues, Expenditures and Change in Fund Balances – Nonmajor Capital Projects Funds 101 Nonmajor Enterprise Funds: Combining Statement of Net Position 104 Combining Statement of Revenues, Expenses and Change in Fund Net Position 106 Combining Statement of Cash Flows 108 Internal Service Funds: Combining Statement of Net Position 110 Combining Statement of Revenues, Expenses and Change in Fund Net Position 111 Combining Statement of Cash Flows 112 Combining Statement of Fiduciary Assets and Liabilities - Fiduciary Funds 113 Internal Control and Compliance 114 116     Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Schedule of Findings and Responses ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- Rehmann Robson 902 South Huron Cheboygan, MI 49721 Ph: [PHONE REDACTED] Fx: [PHONE REDACTED] rehmann.com CPAs & Consultants Wealth Advisors Corporate Investigators Rehmann is an independent member of Nexia International. INDEPENDENT AUDITORS' REPORT Honorable Members of the Board of Commissioners Otsego County Gaylord, Michigan Report on the Financial Statements Management's Responsibility for the Financial Statements Independent Auditors' Responsibility June 28, 2018 We have audited the accompanying financial statements of the governmental activities, the business- type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Otsego County, Michigan (the “County”), as of and for the year ended December 31, 2017, 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 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. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Otsego County Road Commission, a discretely presented component unit, which represents 90 percent, 90 percent, and 68 percent, respectively, of the assets and deferred outflows, net position, and revenues of the aggregate discretely presented component units. We did not audit the financial statements of the Otsego County Commission on Aging, a discretely presented component unit, which represents 2 percent, 3 percent, and 12 percent, respectively, of the assets and deferred outflows, net position, and revenues of the aggregate discretely presented component units. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Otsego County Road Commission and Otsego County Commission on Aging 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. The financial statements of the Otsego County Commission on Aging were not audited in accordance with Government Auditing Standards. 1 ---PAGE BREAK--- Opinions 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. In our opinion, based on our audit and the reports of the 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 Otsego County, Michigan, as of December 31, 2017, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the General Fund and each major special revenue fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis and the schedules for the pension and other postemployment benefit plans 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. As described in Note 22 to the financial statements, the operations of the University Center transferred to Kirtland Community College on January 1, 2017. The County maintains a special revenue University Center fund for collection of the tax millage and payment on the University Center building bond. Our opinion is not modified with respect to this matter. Transfer of Operations Required Supplementary Information 2 ---PAGE BREAK--- Other Information Other Reporting Required by Government Auditing Standards The combining and individual fund financial statements 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 are fairly stated, in all material respects, in relation to the basic financial statements as a whole. In accordance with Government Auditing Standards, we have also issued our report dated June 28, 2018 on our consideration of the County'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. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County’s basic financial statements. The combining and individual fund financial statements listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. 3 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- MANAGEMENT'S DISCUSSION AND ANALYSIS ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Financial Highlights Key metrics and financial highlights of the County for the year ended December 31, 2017 are as follows: Total net position $33,482,014 Unrestricted net position 8,623,618 Change in net position 2,147,536 Fund balances, governmental funds 15,954,430 Change in fund balances, governmental funds 3,994,206 Fund balance, general fund 4,868,675 (as percentage of general fund expenditures and transfers out) 61% Unassigned fund balance, general fund 4,693,890 (as percentage of general fund expenditures and transfers out) 59% Overview of the Financial Statements As management of Otsego 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, 2017. We encourage readers to consider the information presented here in conjunction with additional information that is furnished in the financial statements and notes to 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, deferred outflows of resources, liabilities and deferred inflows of resources, with the residual 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 uncollected taxes and earned but unused sick and 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 various services within the legislative, judicial, general government, public safety, public works, health and welfare, community and economic development, recreation and culture, and other functions. The business‐type activities of the County include delinquent tax collection, public transit, airport, and other non- major enterprise funds. 4 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis The County adopts an annual appropriated budget for its General Fund and special revenue funds. Budgetary comparison statements have been provided herein to demonstrate compliance with those budgets for the General Fund and major special revenue funds. Proprietary funds. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide information for the Delinquent Tax Revolving Fund, Bus System, and Airport, which are considered to be major funds of the County as well as the aggregate of the nonmajor enterprise funds. The County maintains several types of proprietary fund. 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 its delinquent tax, tax foreclosure, bus system, airport special events, global positioning system, university center metropolitan area network, homestead audit, I-75 sign, and jail commissary operations. Internal service funds are an accounting device used to accumulate and allocate costs internally among the County’s various functions. The County uses internal service funds to account for its building and grounds, administration services, and health care functions. Because these services predominately benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. 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. The County maintains numerous individual governmental funds. Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures and change in fund balances for the General Fund, Housing Commission Fund, M-Tec Fund, and Debt Service Fund which are considered to be major funds. Data from the other 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 government-wide financial statements include not only the County itself (known as the primary government), but also legally separate component units for which the County is financially accountable. The component units include the Otsego County Road Commission, Otsego County Ambulance Corporation, Otsego County Commission on Aging, and the Otsego County Financial information for the balance of the discretely presented component units are reported separately from the financial information presented for the primary government itself. Separately issued reports can be obtained from the Otsego County Road Commission and Otsego County Commission on Aging component unit's offices. 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 funds balance sheet and the governmental funds statement of revenues, expenditures, and change in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. 5 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis The combining statements and individual fund financial statements referred to earlier in connection with nonmajor funds are presented following the required supplementary information. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information. This is limited to this managements discussion and analysis and the schedules for the County pension and other postemployment benefits plans. Government-wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the County, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by approximately $33,482,000 at the close of the most recent fiscal year. A portion of the County’s net position represents its investment in capital assets land, buildings, vehicles, equipment and infrastructure). The County uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Net investment in capital assets is approximately 44% of total net position. An additional portion of the County's net position, approximately 30%, represents resources that are subject to external restrictions on how they may be used. Restricted net position has constraints placed on it by either: a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or b) imposed by law through constitutional provisions or enabling legislation. The unrestricted portion of the County's net position is 26%. This net position may be used to meet the government's ongoing obligations to citizens and creditors. Net Position 6 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Net Position Governmental Activities Business-type Activities Total 2017 2016 2017 2016 2017 2016 Assets Current and other assets 23,309,551 $ 18,413,194 $ 9,278,750 $ 9,326,332 $ 32,588,301 $ 27,739,526 $ Capital assets, net 10,644,933 9,853,602 6,941,708 7,450,081 17,586,641 17,303,683 Total assets 33,954,484 28,266,796 16,220,458 16,776,413 50,174,942 45,043,209 Deferred outflows of resources Deferred pension amounts 2,247,729 2,626,420 362,472 544,221 2,610,201 3,170,641 Liabilities Long-term debt 3,586,425 2,038,770 - - 3,586,425 2,038,770 Other liabilities 10,859,610 11,059,014 802,940 1,040,638 11,662,550 12,099,652 Total liabilities 14,446,035 13,097,784 802,940 1,040,638 15,248,975 14,138,422 Deferred inflows of resources Taxes levied for a subsequent period 3,676,796 2,740,950 - - 3,676,796 2,740,950 Deferred pension amounts 179,383 - 197,975 - 377,358 - Total deferred inflows 3,856,179 2,740,950 197,975 - 4,054,154 2,740,950 Net position Net investment in capital assets 7,936,598 8,711,289 6,941,708 7,450,081 14,878,306 16,161,370 Restricted 9,980,090 5,470,088 - - 9,980,090 5,470,088 Unrestricted (16,689) 873,105 8,640,307 8,829,915 8,623,618 9,703,020 Total net position 17,899,999 $ 15,054,482 $ 15,582,015 $ 16,279,996 $ 33,482,014 $ 31,334,478 $ The County’s total net position increased approximately or approximately $2,148,000 to approximately $33,482,000 for the year ended December 31, 2017. 7 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Change in Net Position Governmental Activities Business-type Activities Total 2017 2016 2017 2016 2017 2016 Revenues Program revenues: Charges for services 2,176,080 $ 2,283,073 $ 1,864,859 $ 1,768,953 $ 4,040,939 $ 4,052,026 $ Operating grants 3,774,437 2,696,643 1,341,465 957,362 5,115,902 3,654,005 Capital grants 64,830 36,316 - - 64,830 36,316 General revenues: Property taxes 8,503,537 7,084,184 293,501 284,610 8,797,038 7,368,794 Interest and rentals 264,373 289,628 143,524 30,922 407,897 320,550 Other 2,335,034 1,615,023 202,457 297,972 2,537,491 1,912,995 Total revenues 17,118,291 14,004,867 3,845,806 3,339,819 20,964,097 17,344,686 Expenses Legislative 216,112 215,808 - - 216,112 215,808 Judicial 1,801,679 1,941,671 - - 1,801,679 1,941,671 General government 4,300,820 3,494,065 - - 4,300,820 3,494,065 Public safety 3,877,185 4,126,567 - - 3,877,185 4,126,567 Public works 374,310 154,652 - - 374,310 154,652 Health and welfare 1,266,892 1,378,421 - - 1,266,892 1,378,421 Community & economic development 1,375,521 1,337,303 - - 1,375,521 1,337,303 Recreation and culture 1,243,739 1,525,880 - - 1,243,739 1,525,880 Interest - unallocated 69,902 78,614 - - - 78,614 Delinquent tax revolving - - 177,981 547,768 177,981 547,768 Bus System - - 1,867,037 1,954,767 1,867,037 1,954,767 Airport - - 1,707,350 1,524,185 1,707,350 1,524,185 Other business-type activities - - 370,998 342,847 370,998 342,847 Total expenses 14,526,160 14,252,981 4,123,366 4,369,567 18,579,624 18,622,548 Change in net position, before contributions and transfers 2,592,131 (248,114) (277,560) (1,029,748) 2,384,473 (1,277,862) Contribution to other governmental units (153,900) - - - (153,900) - Transfers 407,286 184,149 (420,421) (184,149) (13,135) - Change in net position 2,845,517 (63,965) (697,981) (1,213,897) 2,147,536 (1,277,862) Net position: Beginning of year 15,054,482 15,118,447 16,279,996 17,493,893 31,334,478 32,612,340 End of year 17,899,999 $ 15,054,482 $ 15,582,015 $ 16,279,996 $ 33,482,014 $ 31,334,478 $ Governmental activities Governmental activities increased the County’s net position by approximately $2,846,000. Overall revenues increased by approximately $3,113,000. The most significant increase in revenues was from property taxes, by approximately $1,419,000, primarily due to an increase in taxable value and a new millage of .3750 passed for the Otsego County Library Building project. The other significant increase in revenues is due to the new special revenue fund to account for the University Center, which was previously a component unit. Expenses increased by approximately $273,000. The most significant increase was in the general government function primarily due to an increase of approximately $428,000 from the inclusion of the University Center as a special revenue fund which was offset by decreases in public safety and recreation due to fewer repairs and maintenance expenses. 8 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis · · · · · · · · · · · Public works - expenses related to drains and airport planning grant. Community and economic development - planning and zoning department. Bus system - the Otsego County Bus System is funded by Federal and State operating grants, a local special voted millage, and user fees. Expenditures include the management, operations, and maintenance of the Bus System. Airport - the Airport Fund accounts for the financial activity of the Gaylord Regional Airport. The main sources of revenue are fuel sales and an annual General Fund appropriation. Expenditures include the management, operations, and maintenance of the airport. Delinquent tax collection - this fund was established as a means of providing the local governments within the County's jurisdiction with 100% of the property tax distributions owed to them annually. The County then acts as the collection agency for the outstanding delinquent real property taxes. As noted earlier, the County uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental activities consist primarily of: General government - expenses related to support the departments of the County such as administration, human resources, treasury, information services, facilities management, finance, equalization, and prosecuting attorney. Legislative - expenses related to support the Board of Commissioners and high-level administrative expenditures. Judicial - expenses related to the administration of circuit, district and probate/family courts and court probation units. Public safety - expenses related to sheriff's administration and road patrol and County corrections services. Health and welfare - expenses related to public health services, child care, programs for seniors, housing assistance programs, and medical examiner fees. Recreational and cultural activities - expenses related to the County library. Business‐type activities The major business-type activities of the County include the following proprietary operations: Financial Analysis of the County’s Funds $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 Expenses and Program Revenues - Governmental Activities Program Revenues Expenses 9 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis General Fund - The increase between the original and final amended budgets of revenue in the General Fund was a 3.06 percent increase. The change between the original and final amended budgets of expenditures in the General Fund resulted in a 4.53 percent increase. Overall during the year, General Fund revenues were in line with the budgetary estimates and came in lower than anticipated by approximately $74,000 or .9 percent. Overall expenditures were under budget by approximately $623,000 or 8.1 percent. This is a result of a planned additional pension contribution not made and a budgeted other contingency not used. The fund balance of the General Fund increased by approximately $249,000 from the prior year. The increase in fund balance is primarily attributable to the increase of tax revenue by approximately $393,000 for fiscal year 2017. Unassigned fund balance of approximately $4,694,000, is available for spending at the County's discretion. Budgetary Highlights Unrestricted net position of the enterprise funds at year end amounted to approximately $8,640,000. The enterprise funds had a decrease in net position for the year of approximately $698,000, due primarily to the transfer out of approximately $373,000 from the Delinquent Tax Revolving fund used for various items. The County's Housing Commission Special Revenue Fund fund balance at December 31, 2017 was approximately $150,000; a decrease of approximately $2,000 from the prior year. The change in fund balance is primarily attributable to a decrease in federal funding by approximately $79,000, which was offset by an increase in other revenue reimbursements of approximately $84,000. The County's M-TEC Special Revenue Fund fund balance at December 31, 2017 was $0 which decreased approximately $100 from the prior year. Revenues and expenditures increased by approximately $22,000 from the previous year with minimal fluctuations from the final budget. Unrestricted net position of the internal service funds at year end amounted to approximately $507,000. The internal service funds had a decrease in net position for year of approximately $8,000. 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. 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. In 2017 unassigned fund balance represented 30% of annual government expenditures in the governmental funds. The County's Debt Service Fund fund balance at December 31, 2017 remained at $0 for the 2017 fiscal year. 10 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Governmental Activities Business-type Activities Total 2017 2016 2017 2016 2017 2016 Land 2,282,072 $ 2,227,138 $ 99,998 $ 99,998 $ 2,382,070 $ 2,327,136 $ Construction in progress 522,956 146,867 - 16,500 522,956 163,367 Buildings 5,700,422 5,493,694 1,322,856 1,428,357 7,023,278 6,922,051 Furniture and fixtures 129,635 90,887 - - 129,635 90,887 Equipment 1,752,442 1,647,593 92,329 106,629 1,844,771 1,754,222 Vehicles 237,245 225,265 102,807 223,569 340,052 448,834 Infrastructure 20,161 22,158 5,323,718 5,575,028 5,343,879 5,597,186 Total capital assets, net 10,644,933 $ 9,853,602 $ 6,941,708 $ 7,450,081 $ 17,586,641 $ 17,303,683 $ Governmental Activities Business-type Activities Total 2017 2016 2017 2017 2017 2016 3,398,335 $ 1,867,313 $ - $ - $ 3,398,335 $ 1,867,313 $ 170,542 171,457 - - 170,542 171,457 3,568,877 $ 2,038,770 $ - $ - $ 3,568,877 $ 2,038,770 $ Economic Factors and Next Year’s Budget and Rates · Total Capital Asset and Debt Administration Additional information on the County's capital assets and long-term debt can be found in the notes to the financial statements. Property tax revenues are projected to increase approximately 2.5%. Capital Assets. The County considers a capital asset to be an asset whose cost exceeds $5,000 and useful life is greater than two years. Included in the cost of a capital asset are items such as labor and freight and any other costs associated with bringing the asset into full operation. Assets are depreciated using the straight-line method over the course of their useful lives. The County is required to report the actuarially computed liability for Other Postemployment Healthcare Benefits (OPEB). The total actuarial accrued liability is approximately $1,931,000. If the County were required to fund that liability the estimated annual contribution would be approximately $151,000. The net OPEB obligation at the end of the fiscal year amounted to approximately $2,211,000. This is a significant liability; however, due to changes in benefit levels for new employees, this liability is anticipated to decrease over time. Capital Assets (Net of Depreciation, where applicable) Long-term Debt Installment debt Compensated absences Long-term Debt. At the end of the current year, the County had total installment debt and compensated absences outstanding of $3,586,425. Construction in progress for the 2017 fiscal year was in the amount of approximately $523,000 for the Library Building expansion project and the Tennis Court. Additionally there was approximately $250,000 in additions for business type activities related to the Taxilane project. The remaining additions consisted of furniture, vehicles and building improvement. The following factors were considered in preparing the County's 2018 budget: 11 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis · This financial report is designed to provide a general overview of the County finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to Ms. Rachel Frisch, Otsego County Administrator at 225 West Main Street, Gaylord, MI 49735. Highlight of the 2018 budget is as follows: Requests for Information The cost of employee benefits continue to rise and will be monitored throughout the year. 12 ---PAGE BREAK--- BASIC FINANCIAL STATEMENTS ---PAGE BREAK--- GOVERNMENT-WIDE FINANCIAL STATEMENTS ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Net Position December 31, 2017 Business- Governmental type Component Activities Activities Total Units Assets Cash and cash equivalents 9,082,136 $ 1,422,205 $ 10,504,341 $ 2,594,833 $ Investments 6,773,892 6,136,792 12,910,684 1,932,664 Receivables, net 6,345,813 1,386,462 7,732,275 3,908,132 Internal balances (27,881) 27,881 - - Prepaid items 159,045 19,471 178,516 604 Inventory 17,180 45,939 63,119 669,810 Advance to component unit 269,366 240,000 509,366 - Lease receivable from component unit 690,000 - 690,000 - Capital assets not being depreciated 2,805,028 99,998 2,905,026 10,894,984 Capital assets being depreciated, net 7,839,905 6,841,710 14,681,615 24,699,554 Total assets 33,954,484 16,220,458 50,174,942 44,700,581 Deferred outflows of resources Deferred pension amounts 2,247,729 362,472 2,610,201 591,103 Liabilities Accounts payable and accrued liabilities 651,661 225,105 876,766 555,776 Advances from other government units - - - 412,175 Unearned revenue 200,572 - 200,572 31,707 Advance from primary government - - - 509,366 Long-term debt Due within one year 658,402 - 658,402 543,810 Due in more than one year 2,928,023 - 2,928,023 1,742,038 Net pension liability 7,796,345 577,835 8,374,180 5,074,074 Net other postemployment benefits obligation 2,211,032 - 2,211,032 8,718,698 Total liabilities 14,446,035 802,940 15,248,975 17,587,644 Deferred inflows of resources Taxes levied for a subsequent period 3,676,796 - 3,676,796 2,331,530 Deferred pension amounts 179,383 197,975 377,358 - Other state grants - - - 446,430 Total deferred inflows 3,856,179 197,975 4,054,154 2,777,960 Net position Net investment in capital assets 7,936,598 6,941,708 14,878,306 33,608,449 Restricted (Note 20) 9,980,090 - 9,980,090 44,000 Unrestricted (deficit) (16,689) 8,640,307 8,623,618 (8,726,369) Total net position 17,899,999 $ 15,582,015 $ 33,482,014 $ 24,926,080 $ The accompanying notes are an integral part of these financial statements. Primary Government 13 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Activities For the Year Ended December 31, 2017 Program Revenues Operating Capital Net Charges Grants and Grants and (Expenses) Functions/Programs Expenses For Services Contributions Contributions Revenues Primary government Governmental activities: Legislative 216,112 $ - $ - $ - $ (216,112) $ Judicial 1,801,679 544,474 870,646 - (386,559) General government 4,300,820 514,503 870,056 50,000 (2,866,261) Public safety 3,877,185 862,689 150,046 - (2,864,450) Public works 374,310 222 - 14,830 (359,258) Health and welfare 1,266,892 - 284,419 - (982,473) Community and economic development 1,375,521 28,500 133,017 - (1,214,004) Recreation and culture 1,243,739 225,692 1,466,253 - 448,206 Interest - unallocated 69,902 - - - (69,902) Total governmental activities 14,526,160 2,176,080 3,774,437 64,830 (8,510,813) Business-type activities: Delinquent tax revolving 177,981 337,222 - - 159,241 Bus System 9/30/2017 1,867,037 343,779 985,215 - (538,043) Airport 1,707,350 849,979 356,250 - (501,121) Other business-type activities 370,998 333,879 - - (37,119) Total business-type activities 4,123,366 1,864,859 1,341,465 - (917,042) Total primary government 18,649,526 $ 4,040,939 $ 5,115,902 $ 64,830 $ (9,427,855) $ Component units Road Commission 8,013,909 $ 2,229,510 $ 3,877,081 $ 3,046,218 $ 1,138,900 $ Ambulance 2,777,590 1,707,254 - - (1,070,336) Commission on Aging 9/30/2017 1,712,941 58,736 428,778 - (1,225,427) 855,101 398,172 - - (456,929) Total component units 13,359,541 $ 4,393,672 $ 4,305,859 $ 3,046,218 $ (1,613,792) $ Continued… 14 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Activities For the Year Ended December 31, 2017 Business- Governmental type Component Activities Activities Total Units Changes in net position Net expenses (8,510,813) $ (917,042) $ (9,427,855) $ (1,613,792) $ General revenues (expense): Property taxes 8,503,537 293,501 8,797,038 1,931,507 Interest and rentals 264,373 143,524 407,897 2,032 Other revenue 2,335,034 202,457 2,537,491 1,241,503 Gain on sale of capital assets - - - 16,800 Contribution to other governmental units (153,900) - (153,900) - Transfers 407,286 (420,421) (13,135) - Total general revenues and transfers 11,356,330 219,061 11,575,391 3,191,842 Change in net position 2,845,517 (697,981) 2,147,536 1,578,050 Special items Transfer of operations (Note 22) - - - (1,205,091) Net position, beginning of year 15,054,482 16,279,996 31,334,478 24,553,121 Net position, end of year 17,899,999 $ 15,582,015 $ 33,482,014 $ 24,926,080 $ Concluded The accompanying notes are an integral part of these financial statements. Primary Government 15 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- FUND FINANCIAL STATEMENTS ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Balance Sheet Governmental Funds December 31, 2017 Housing Commission M-TEC Special Special General Revenue Revenue Fund Fund Fund Assets Cash and cash equivalents 1,501,715 $ 210,592 $ - $ Investments 3,181,541 - - Receivables: Accounts 62,307 - - Property taxes 230,416 - 797,153 Due from other governments 128,770 - - Loans - 1,637,791 - Advances to other funds - - - Advances to component units - - - Lease receivable from component unit - - - Inventories 16,855 - - Other assets 7,930 - - Total assets 5,129,534 $ 1,848,383 $ 797,153 $ Liabilities Accounts payable 194,702 $ 129 $ - $ Accrued liabilities 45,532 484 - Due to other funds - 60,000 - Due to other governments - - - Unearned revenue - - - Total liabilities 240,234 60,613 - Deferred inflows of resources Taxes levied for a subsequent period 20,625 - 797,153 Unavailable resources - 1,637,791 - Total deferred inflows of resources 20,625 1,637,791 797,153 Fund balances Nonspendable 24,785 - - Restricted - 149,979 - Committed 150,000 - - Unassigned 4,693,890 - - Total fund balances 4,868,675 149,979 - Total liabilities, deferred inflows of resources, and fund balances 5,129,534 $ 1,848,383 $ 797,153 $ The accompanying notes are an integral part of these basic financial statements. 16 ---PAGE BREAK--- Nonmajor Total Debt Service Governmental Governmental Fund Funds Funds - $ 7,207,281 $ 8,919,588 $ - 3,392,351 6,573,892 - 378,014 440,321 - 2,859,018 3,886,587 - 240,336 369,106 - - 1,637,791 - 32,119 32,119 - 269,366 269,366 690,000 - 690,000 - - 16,855 - - 7,930 690,000 $ 14,378,485 $ 22,843,555 $ - $ 359,138 $ 553,969 $ - 15,142 61,158 - - 60,000 - 8,839 8,839 - 200,572 200,572 - 583,691 884,538 - 2,859,018 3,676,796 690,000 - 2,327,791 690,000 2,859,018 6,004,587 - - 24,785 - 7,510,753 7,660,732 - 3,617,374 3,767,374 - (192,351) 4,501,539 - 10,935,776 15,954,430 690,000 $ 14,378,485 $ 22,843,555 $ 17 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- Reconciliation Fund Balances of Governmental Funds to Net Position of Governmental Activities December 31, 2017 Fund balances - total governmental funds 15,954,430 $ Capital assets used in governmental activities are not financial resources, and therefore are not reported in the funds. Capital assets not being depreciated 2,805,028 Capital assets being depreciated, net 7,839,905 Unavailable resources from mortgages and lease receivable 2,327,791 506,734 Bonds and notes payable (3,415,883) Compensated absences (170,542) Net other postemployment benefits obligation (2,211,032) Accrued interest on long-term debt (8,433) 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 (7,796,345) Deferred outflows related to the net pension liability 2,247,729 Deferred inflows related to the net pension liability (179,383) Net position of governmental activities 17,899,999 $ The accompanying notes are an integral part of these financial statements. Long-term liabilities are not due and payable in the current period and therefore are not reported in the funds. Because the focus of governmental funds is on short-term financing, some assets will not be available to pay for current expenditures. Those assets receivables) are offset by deferred inflows of resources in the governmental funds and, therefore, are not included in fund balance. Amounts reported for governmental activities in the statement of net position are different because: OTSEGO COUNTY, MICHIGAN Internal service funds are used by management to charge the costs of certain equipment maintenance to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position. 18 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Change in Fund Balances Governmental Funds For the Year Ended December 31, 2017 Housing Commission M-TEC Special Special General Revenue Revenue Fund Fund Fund Revenues Taxes 5,110,265 $ - $ 754,540 $ Licenses and permits 32,553 - - Federal sources 68,184 131,499 - State sources 1,260,904 - - Local sources 30,240 1,518 - Charges for services 1,018,358 - - Fines and forfeits 13,286 - - Interest and rentals 167,441 244 - Other 374,605 145,640 5,514 Total revenues 8,075,836 278,901 760,054 Expenditures Current: Legislative 216,112 - - Judicial 1,347,549 - - General government 2,123,092 - - Public safety 2,125,053 - - Public works 4,390 - - Health and welfare 545,599 - - Community and economic development 98,511 280,540 760,176 Recreation and culture - - - Other 558,445 - - Contribution to other governmental units - - - Debt service: Principal 9,863 - - Interest and fiscal charges 1,394 - - Total expenditures 7,030,008 280,540 760,176 Revenues over (under) expenditures 1,045,828 (1,639) (122) Other financing sources (uses) Proceeds from the issuance of long-term debt - - - Premium on long-term debt - - - Transfers in 127,300 182,584 - Transfers out (923,740) (182,584) - Total other financing sources (uses) (796,440) - - Net change in fund balances 249,388 (1,639) (122) Fund balances, beginning of year 4,619,287 151,618 122 Fund balances, end of year 4,868,675 $ 149,979 $ - $ The accompanying notes are an integral part of these financial statements. 19 ---PAGE BREAK--- Nonmajor Total Debt Service Governmental Governmental Fund Funds Funds - $ 2,638,732 $ 8,503,537 $ - - 32,553 - 413,491 613,174 - 389,013 1,649,917 67,463 599,375 698,596 - 1,125,169 2,143,527 - 191,708 204,994 - 91,867 259,552 - 1,774,365 2,300,124 67,463 7,223,720 16,405,974 - - 216,112 - 434,708 1,782,257 - 945,486 3,068,578 - 1,687,468 3,812,521 - 369,920 374,310 - 720,697 1,266,296 - - 1,139,227 - 1,533,369 1,533,369 - 387,290 945,735 - 121,440 121,440 595,000 114,115 718,978 85,075 3,471 89,940 680,075 6,317,964 15,068,763 (612,612) 905,756 1,337,211 - 2,250,000 2,250,000 - 24,158 24,158 612,612 1,663,733 2,586,229 - (1,097,068) (2,203,392) 612,612 2,840,823 2,632,837 - 3,746,579 3,994,206 - 7,189,197 11,960,224 - $ 10,935,776 $ 15,954,430 $ 20 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- Reconciliation Net Change in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities For the Year Ended December 31, 2017 Net change in fund balances - total governmental funds 3,994,206 $ Amounts reported for governmental activities in the statement of activities are different because: Governmental funds reported capital outlays as expenditures. However in the statement of activities the cost of those assets is capitalized and allocated over their estimated useful lives and reported as depreciation expense. Acquisition/construction of capital assets 1,004,415 Depreciation expense (923,120) Loss on disposal of capital assets (32,460) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds, but rather are deferred to the following fiscal year. Net change in unavailable resources from mortgages and lease receivable (265,057) Contributions of capital assets from the Nature Center building are not recognized in the funds but increase capital assets in the statement of net position. 742,496 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. Issuance of long-term debt (2,250,000) Premium on long-term debt (24,158) Principal payments on long-term debt 718,978 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Amortization of issuance premium 3,510 Change in accrued interest payable on long-term debt 15,134 Change in the net pension liability and related deferred amounts (93,934) Change in compensated absences 915 Change in net other postemployment benefits obligation (37,167) An internal service fund is used by management to charge the costs of certain services to individual governmental funds. The net revenue (expense) attributable to those funds is reported with governmental activities. Change in net position from internal service funds reported within the governmental activities (8,241) Change in net position of governmental activities 2,845,517 $ The accompanying notes are an integral part of these financial statements. OTSEGO COUNTY, MICHIGAN 21 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Change in Fund Balance Budget and Actual - General Fund For the Year Ended December 31, 2017 Actual Over Original Final (Under) Final Budget Budget Actual Budget Revenues Taxes 5,001,111 $ 5,110,263 $ 5,110,265 $ 2 $ Licenses and permits 39,000 41,100 32,553 (8,547) Federal sources 72,600 72,600 68,184 (4,416) State sources 1,273,951 1,276,051 1,260,904 (15,147) Local sources 21,800 21,800 30,240 8,440 Charges for services 880,805 984,584 1,018,358 33,774 Fines and forfeits 14,000 14,000 13,286 (714) Interest and rentals 175,000 190,000 167,441 (22,559) Other 429,251 439,132 374,605 (64,527) Total revenues 7,907,518 8,149,530 8,075,836 (73,694) Expenditures Legislative: Board of Commissioners 225,360 224,466 216,112 (8,354) Judicial: Circuit court 1,090,683 1,097,059 1,027,051 (70,008) Lien fees 11,800 12,360 12,358 Drug court 134,162 134,162 104,140 (30,022) RDSS transport 15,000 15,000 6,446 (8,554) District court 34,912 34,912 3,150 (31,762) Jury commission 45,675 45,675 19,714 (25,961) Probate court 174,845 175,045 172,723 (2,322) Probation/parole 1,500 1,500 1,442 (58) Family counseling 4,000 4,000 525 (3,475) Total judicial 1,512,577 1,519,713 1,347,549 (172,164) General government: Administrative services 288,767 288,767 283,764 (5,003) Buildings and grounds 290,000 290,000 290,000 - Clerk and register of deeds 280,691 281,541 273,918 (7,623) Audit services 11,825 11,825 11,825 - IT department 61,381 62,275 64,614 2,339 Equalization 219,650 226,186 212,626 (13,560) Treasurer 127,069 127,319 126,056 (1,263) Cooperative extension 59,926 60,019 59,661 (358) Elections 20,740 20,740 11,020 (9,720) Prosecuting attorney 576,162 576,812 555,045 (21,767) Register of deeds 58,710 58,860 48,923 (9,937) Legal defense 25,000 65,000 53,374 (11,626) Human resources 90,991 90,991 90,991 - Surveyor 200 200 200 - Soil conservation 4,000 4,000 4,000 - Survey and remonumentation 37,075 37,075 37,075 - Total general government 2,152,187 2,201,610 2,123,092 (78,518) Continued… 22 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Change in Fund Balance Budget and Actual - General Fund For the Year Ended December 31, 2017 Actual Over Original Final (Under) Final Budget Budget Actual Budget Public safety: Sheriff 924,497 $ 904,927 $ 872,901 $ (32,026) $ Civil division 37,724 61,268 61,083 (185) SANE 20,000 20,000 20,000 - Justice training 3,000 3,000 1,367 (1,633) Marine safety 6,772 8,769 8,606 (163) safety education 59,300 48,200 41,370 (6,830) Snowmobile 5,751 12,751 4,169 (8,582) Secondary road patrol 89,411 95,329 95,232 (97) ORV 7,151 7,798 7,005 (793) Jail 1,036,694 1,037,936 983,320 (54,616) Emergency 30,000 30,000 30,000 - Total public safety 2,220,300 2,229,978 2,125,053 (104,925) Public works: Drains 6,000 6,000 4,390 (1,610) Health and welfare: Communicable diseases 500 500 500 - Medical examiner 103,650 108,535 96,225 (12,310) District health 205,606 205,606 205,606 - Mental health 94,003 94,003 94,003 - Soldiers and sailors relief 5,000 10,000 9,053 (947) Veteran's burial 7,650 7,650 4,530 (3,120) Veteran's affairs 59,846 59,985 53,244 (6,741) Substance abuse 78,421 82,441 82,438 Total health and welfare 554,676 568,720 545,599 (23,121) Community and economic development Planning and zoning 94,879 98,609 98,511 (98) Other: Appropriations 16,500 15,217 16,050 833 Bonds and insurance 255,000 219,340 219,339 Retiree insurance 75,617 54,388 52,911 (1,477) Additional pension contributions 55,261 355,262 205,260 (150,002) Other 121,651 130,439 64,885 (65,554) Total other 524,029 774,646 558,445 (216,201) Capital outlay 16,500 15,853 - (15,853) Debt service: Principal payments 13,924 12,102 9,863 (2,239) Interest and fiscal charges - - 1,394 1,394 Total debt service 13,924 12,102 11,257 (845) Total expenditures 7,320,432 7,651,697 7,030,008 (621,689) Revenues over expenditures 587,086 497,833 1,045,828 547,995 Continued… 23 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Change in Fund Balance Budget and Actual - General Fund For the Year Ended December 31, 2017 Actual Over Original Final (Under) Final Budget Budget Actual Budget Other financing sources (uses) Operating transfers in 127,300 $ 127,300 $ 127,300 $ - $ Operating transfers out (778,719) (925,240) (923,740) (1,500) Total other financing sources (uses) (651,419) (797,940) (796,440) 1,500 Net change in fund balance (64,333) (300,107) 249,388 549,495 Fund balance, beginning of year 4,619,287 4,619,287 4,619,287 - Fund balance, end of year 4,554,954 $ 4,319,180 $ 4,868,675 $ 549,495 $ Concluded The accompanying notes are an integral part of these financial statements. 24 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Change in Fund Balance Budget and Actual - Housing Commission Special Revenue Fund For the Year Ended December 31, 2017 Actual Over Original Final (Under) Final Budget Budget Actual Budget Federal sources 170,000 $ 170,000 $ 131,499 $ (38,501) $ Local sources 30,505 30,505 1,518 (28,987) Interest and rentals 100 250 244 Other 84,700 181,460 145,640 (35,820) 285,305 382,215 278,901 (103,314) Community and economic development 290,753 290,979 280,540 (10,439) Revenues over (under) expenditures (5,448) 91,236 (1,639) (92,875) Other financing sources (uses) Transfers in 114,470 114,696 182,584 67,888 Transfers out (112,145) (209,055) (182,584) (26,471) Total other financing sources (uses) 2,325 (94,359) - 94,359 Net change in fund balance (3,123) (3,123) (1,639) 1,484 Fund balance, beginning of year 151,618 151,618 151,618 - Fund balance, end of year 148,495 $ 148,495 $ 149,979 $ 1,484 $ The accompanying notes are an integral part of these financial statements. Revenues Total revenues Expenditures 25 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Change in Fund Balance Budget and Actual - M-TEC Special Revenue Fund For the Year Ended December 31, 2017 Actual Over Original Final (Under) Final Budget Budget Actual Budget Taxes 750,000 $ 770,000 $ 754,540 $ (15,460) $ Other - - 5,514 5,514 750,000 770,000 760,054 (9,946) Community and economic development 750,000 770,000 760,176 (9,824) Net change in fund balance - - (122) (122) Fund balance, beginning of year 122 122 122 - Fund balance, end of year 122 $ 122 $ - $ (122) $ The accompanying notes are an integral part of these financial statements. Revenues Total revenues Expenditures 26 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Net Position Proprietary Funds December 31, 2017 Delinquent Tax Revolving Bus System Fund 9/30/2017 Airport Assets Current assets: Cash and cash equivalents 466,738 $ 116,267 $ 177,883 $ Investments 4,929,626 - - Taxes receivable 1,106,649 - - Interest receivable 144,452 - - Accounts receivable 318 24,605 20,507 Due from other governments - 81,718 - Due from other funds 80,000 - - Advances to component units 240,000 - - Inventories - - 45,939 Prepaids - - 13,205 Total current assets 6,967,783 222,590 257,534 Noncurrent assets: Capital assets not being depreciated - 99,998 - Capital assets being depreciated, net - 334,532 6,433,395 Total noncurrent assets - 434,530 6,433,395 Total assets 6,967,783 657,120 6,690,929 Deferred outflows of resources Deferred pension amounts - 362,472 - Liabilities Current liabilities: Accounts payable 12,584 13,468 25,481 Accrued liabilities 823 65,687 532 Due to other funds - 20,000 - Due to other governments - 87,247 - Total current liabilities 13,407 186,402 26,013 Noncurrent liabilities: Advances from other funds - - 32,119 Net pension liability - 577,835 - Total noncurrent liabilities - 577,835 32,119 Total liabilities 13,407 764,237 58,132 Deferred inflows of resources Deferred pension amounts - 197,975 - Net position Investment in capital assets - 434,530 6,433,395 Unrestricted (deficit) 6,954,376 (377,150) 199,402 Total net position 6,954,376 $ 57,380 $ 6,632,797 $ The accompanying notes are an integral part of these financial statements. Business-type Activities - Enterprise Funds 27 ---PAGE BREAK--- Governmental Activities Nonmajor Internal Enterprise Service Funds Total Funds 661,317 $ 1,422,205 $ 162,548 $ 1,207,166 6,136,792 200,000 - 1,106,649 - - 144,452 - 8,213 53,643 12,008 - 81,718 - - 80,000 - - 240,000 - - 45,939 325 6,266 19,471 151,115 1,882,962 9,330,869 525,996 - 99,998 - 73,783 6,841,710 - 73,783 6,941,708 - 1,956,745 16,272,577 525,996 - 362,472 - 18,453 69,986 17,606 830 67,872 1,656 - 20,000 - - 87,247 - 19,283 245,105 19,262 - 32,119 - - 577,835 - - 609,954 - 19,283 855,059 19,262 - 197,975 - 73,783 6,941,708 - 1,863,679 8,640,307 506,734 1,937,462 $ 15,582,015 $ 506,734 $ 28 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Funds For the Year Ended December 31, 2017 Delinquent Tax Revolving Bus System Fund 9/30/2017 Airport Operating revenues Charges for services 98,036 $ 343,779 $ 835,938 $ Interest and penalties 239,186 - - Local sources - - - Other - - 14,041 Total operating revenues 337,222 343,779 849,979 Operating expenses Salaries and fringes 56,064 1,364,378 137,037 Contractual services 88,691 - 153,072 Materials and supplies 5,589 - 575,555 Equipment repair and maintenance - - - Utilities - - - Depreciation - 158,818 587,055 Other 27,637 343,841 254,631 Total operating expenses 177,981 1,867,037 1,707,350 Operating income (loss) 159,241 (1,523,258) (857,371) Nonoperating revenues (expenses) State grants - 623,244 18,750 Federal grants - 361,971 337,500 Investment earnings 104,709 - 5,491 Property taxes levied - 293,501 - Other revenues - 39,639 - Total nonoperating revenues 104,709 1,318,355 361,741 Income (loss) before transfers 263,950 (204,903) (495,630) Other financing sources (uses) Transfers in 150 20,077 25,152 Transfers out (372,800) - - Total other financing sources (uses) (372,650) 20,077 25,152 Change in net position (108,700) (184,826) (470,478) Net position, beginning of year 7,063,076 242,206 7,103,275 Net position, end of year 6,954,376 $ 57,380 $ 6,632,797 $ The accompanying notes are an integral part of these financial statements. Business-type Activities - Enterprise Funds 29 ---PAGE BREAK--- Governmental Activities Nonmajor Internal Enterprise Service Funds Total Funds 328,879 $ 1,606,632 $ 2,254,455 $ - 239,186 - 5,000 5,000 - - 14,041 - 333,879 1,864,859 2,254,455 56,231 1,613,710 1,795,375 105,967 347,730 243,640 60,108 641,252 32,271 - - 18,142 - - 187,049 12,300 758,173 - 136,392 762,501 15,488 370,998 4,123,366 2,291,965 (37,119) (2,258,507) (37,510) - 641,994 - - 699,471 - 33,324 143,524 4,820 - 293,501 - 162,818 202,457 - 196,142 1,980,947 4,820 159,023 (277,560) (32,690) 17,000 62,379 24,449 (110,000) (482,800) - (93,000) (420,421) 24,449 66,023 (697,981) (8,241) 1,871,439 16,279,996 514,975 1,937,462 $ 15,582,015 $ 506,734 $ 30 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Cash Flows Proprietary Funds For the Year Ended December 31, 2017 Business-type Activities - Delinquent Tax Revolving Bus System Fund 9/30/2017 Airport Cash flows from operating activities Cash received from customers 296,506 $ 346,257 $ 864,107 $ Cash received from interfund services - - - Cash payments for goods and services (138,377) (340,568) (945,693) Cash payments to employees (55,677) (1,261,875) (138,290) Net cash provided by (used in) operating activities 102,452 (1,256,186) (219,876) Cash flows from noncapital financing activities State grants - 683,716 337,500 Federal grants - 315,418 18,750 Property tax - 293,501 - Other receipts - 39,639 - Repayment on advance from other funds - (10,000) (10,835) Transfers in 150 20,077 25,152 Transfers out (372,800) - - Net cash provided by (used in) noncapital financing activities (372,650) 1,342,351 370,567 Cash flows from capital and related financing activities Purchase of capital assets - - (249,800) Cash flows from investing activities Proceeds from sale of investments 332,788 - - Interest received on investments 104,709 - 5,491 Net cash provided by investing activities 437,497 - 5,491 Net change in cash and cash equivalents 167,299 86,165 (93,618) Cash and cash equivalents, beginning of year 299,439 30,102 271,501 Cash and cash equivalents, end of year 466,738 $ 116,267 $ 177,883 $ Enterprise Funds 31 ---PAGE BREAK--- Business-type Activities - Governmental Enterprise Funds Activities Nonmajor Internal Enterprise Service Funds Total Funds 338,630 $ 1,845,500 $ - $ - - 2,252,812 (357,345) (1,781,983) (544,067) - (1,455,842) (1,814,205) (18,715) (1,392,325) (105,460) - 1,021,216 - - 334,168 - - 293,501 - 162,818 202,457 - - (20,835) - 17,000 62,379 24,449 (110,000) (482,800) - 69,818 1,410,086 24,449 - (249,800) - 173,586 506,374 - 33,324 143,524 4,820 206,910 649,898 4,820 258,013 417,859 (76,191) 403,304 1,004,346 238,739 661,317 $ 1,422,205 $ 162,548 $ Continued… 32 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Cash Flows Proprietary Funds For the Year Ended December 31, 2017 Business-type Activities - Delinquent Tax Revolving Bus System Fund 9/30/2017 Airport Enterprise Funds Reconciliation of operating income (loss) to net cash provided by (used in) operating activities Operating income (loss) 159,241 $ (1,523,258) $ (857,371) $ Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation expense - 158,818 587,055 Change in operating assets and liabilities that provided (used) cash: Taxes receivable (113,689) - - Interest receivable 2,967 - - Accounts receivable 6 2,478 14,128 Due from other funds 220,000 - - Advances to other funds (150,000) - - Prepaids - - 56,575 Inventories - - (3,131) Accounts payable (16,460) (2,788) (15,879) Net pension liability and related deferred amounts - 108,564 - Accrued liabilities 387 - (1,253) Net cash provided by (used in) operating activities 102,452 $ (1,256,186) $ (219,876) $ The accompanying notes are an integral part of these financial statements. 33 ---PAGE BREAK--- Business-type Activities - Governmental Enterprise Funds Activities Nonmajor Internal Enterprise Service Funds Total Funds (37,119) $ (2,258,507) $ (37,510) $ 12,300 758,173 - - (113,689) - - 2,967 - 4,751 21,363 (1,643) - 220,000 - - (150,000) - (6,266) 50,309 (58,292) - (3,131) - 7,225 (27,902) (8,065) - 108,564 - 394 (472) 50 (18,715) $ (1,392,325) $ (105,460) $ Concluded 34 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Fiduciary Assets and Liabilities Fiduciary Funds December 31, 2017 Agency Funds Assets Cash and cash equivalents 2,337,228 $ Liabilities Undistributed tax collections 1,315,141 Bonds, restitutions, and payables to others 1,022,087 Total liabilities 2,337,228 $ The accompanying notes are an integral part of these financial statements. 35 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Net Position Discretely Presented Component Units December 31, 2017 Road Ambulance University Commission Corporation Center Assets Cash and cash equivalents 1,737,982 $ 48,964 $ - $ Investments 1,887,450 - - Receivables, net: Accounts 1,120,506 393,000 - Taxes 1,063,476 959,788 - Inventories 660,735 - - Prepaids - - - Capital assets not being depreciated 10,889,984 5,000 - Capital assets being depreciated, net 22,958,528 1,741,026 - Total assets 40,318,661 3,147,778 - Deferred outflows of resources Deferred pension amounts 591,103 - - Liabilities Accounts payable 222,391 25,998 - Accrued liabilities 115,630 6,164 - Due to other governments 131,490 - - Advances from government units 412,175 - - Unearned revenue - - - Advances from primary government - 509,366 - Long-term debt Due within one year 543,810 - - Due in more than one year 1,742,038 - - Net pension liability 5,074,074 - - Net other postemployment benefits obligation 8,718,698 - - Total liabilities 16,960,306 541,528 - Deferred inflows of resources Taxes levied for a subsequent period 1,063,476 959,788 - Other state grants 446,430 - - Total deferred inflows 1,509,906 959,788 - Net position Net investment in capital assets 31,862,423 1,746,026 - Restricted - - - Unrestricted (deficit) (9,422,871) (99,564) - Total net position 22,439,552 $ 1,646,462 $ - $ The accompanying notes are an integral part of these financial statements. 36 ---PAGE BREAK--- Commission on Aging 9/30/2017 Total 753,717 $ 54,170 $ 2,594,833 $ - 45,214 1,932,664 24,699 38,397 1,576,602 - 308,266 2,331,530 2,007 7,068 669,810 604 - 604 - - 10,894,984 - - 24,699,554 781,027 453,115 44,700,581 - - 591,103 52,437 1,666 302,492 - - 121,794 - - 131,490 - - 412,175 - 31,707 31,707 - - 509,366 - - 543,810 - - 1,742,038 - - 5,074,074 - - 8,718,698 52,437 33,373 17,587,644 - 308,266 2,331,530 - - 446,430 - 308,266 2,777,960 - - 33,608,449 44,000 - 44,000 684,590 111,476 (8,726,369) 728,590 $ 111,476 $ 24,926,080 $ 37 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Activities Discretely Presented Component Units For the Year Ended December 31, 2017 Road Ambulance University Commission Corporation Center Expenses Road commission 8,013,909 $ - $ - $ Ambulance corporation - 2,777,590 - Commission on aging 9/30/2017 - - - - - - Total expenses 8,013,909 2,777,590 - Program revenues Charges for services 2,229,510 1,707,254 - Operating grants and contributions 3,877,081 - - Capital grants and contributions 3,046,218 - - Total program revenues 9,152,809 1,707,254 - Net revenue (expense) 1,138,900 (1,070,336) - General revenues Property taxes - 464,998 - Investment earnings - 71 - Gain on sale of capital assets 16,800 - - Other 985,400 3,413 - Total general revenues 1,002,200 468,482 - Change in net position 2,141,100 (601,854) - Special items Transfer of operations (Note 22) - - (1,205,091) Net position, beginning of year 20,298,452 2,248,316 1,205,091 Net position, end of year 22,439,552 $ 1,646,462 $ - $ The accompanying notes are an integral part of these financial statements. 38 ---PAGE BREAK--- Commission on Aging 9/30/2017 Total - $ - $ 8,013,909 $ - - 2,777,590 1,712,941 - 1,712,941 - 855,101 855,101 1,712,941 855,101 13,359,541 58,736 398,172 4,393,672 428,778 - 4,305,859 - - 3,046,218 487,514 398,172 11,745,749 (1,225,427) (456,929) (1,613,792) 1,173,658 292,851 1,931,507 1,961 - 2,032 - - 16,800 77,219 175,471 1,241,503 1,252,838 468,322 3,191,842 27,411 11,393 1,578,050 - - (1,205,091) 701,179 100,083 24,553,121 728,590 $ 111,476 $ 24,926,080 $ 39 ---PAGE BREAK--- NOTES TO FINANCIAL STATEMENTS ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity Otsego County (the "County" or the "Government") was organized in 1840 and covers an area of approximately 527 square miles divided into nine Townships, one village, and one city. The County seat is located in the City of Gaylord. The County operates under an elected board of commissioners (nine members) with an appointed County Administrator who assists with day-to-day operations. The County provides services to its more than 24,000 residents in many areas including law enforcement, administration of justice, community enrichment, economic development, and human services. Discretely Presented Component Units Otsego County Road Commission (the "Road Commission") - The Road Commission which is established pursuant to the County Road Law (MCL 224.1) is governed by a three member Board of County Road Commissioners elected biannually to serve a six year term. The Road Commission is responsible for the maintenance and construction of the County road system. It may not issue debt without the County's approval and the tax levy is subject to the County Board of Commissioners' approval. If approval is granted, Road Commission taxes are levied under the taxing authority of the County, as approved by the County electors, and would be included as part of the County's total tax levy as well as reported in the County Road Fund. The financial statements of the County have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The County's significant accounting policies are described below. Otsego County Building Authority (the "Building Authority") - The Building Authority is governed by a three member board appointed by the County Board of Commissioners. Although it is legally separate from the County, the Building Authority is reported as if it were part of the primary government because its sole purpose is to finance and construct the County's public buildings. The financial statements of the Otsego County Building Authority are reported in the County's Debt Service Fund and Capital Projects Funds as presented in this report. As required by generally accepted accounting principles, these financial statements present the government and its component units, entities for which the County is financially accountable. Blended component units, although legally separate entities, are, in substance, part of the government’s operations and as such, data from these units are combined with data of the primary government. Discretely presented component units, on the other hand, are reported in a separate column in the combined financial statements to emphasize that they are legally separate from the government. Blended Component Unit 40 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Administrative Offices Otsego County 1250 Gornick Avenue Industrial Park, PO Box 537 Gaylord, MI 49735 Gaylord, MI 49735 Otsego County Ambulance Corporation, Inc. 100 McLouth, PO Box 642 120 Grandview Boulevard Gaylord, MI 49735 Gaylord, MI 49735 Otsego County Road Commission Component Unit Financial Statements Otsego County Ambulance Corporation, Inc. (the "Ambulance Corporation") - The Ambulance Corporation, a nonprofit corporation which was established pursuant to the provisions of Public Act 327 of 1931, as amended, and Public Act 284 of 1972, has an agreement with Otsego County to provide ambulance service in and about Otsego County. A nine member board governs the Ambulance Corporation. The Ambulance Corporation may not issue debt without the County's approval and a tax levy is subject to the County Board of Commissioners' approval. If approval is granted, the Ambulance Corporation's taxes are levied under the taxing authority of the County, as approved by the County electors, and would be included as part of the County's total tax levy as well as in the Ambulance Corporation Fund. All assets are in the name of the County. Otsego County (the - The a nonprofit corporation that was established pursuant to the provisions of Public Act 162 of 1982, has an agreement with Otsego County to operate and maintain a recreational and sports complex for Otsego County. The agreement was amended on December 15, 2015 and expires on December 15, 2020.The sports complex was constructed during 1995 and opened in early 1996. The is operated by a Board of Directors, which consist of between seven and fifteen members. Members recommended by the Board of Directors and forwarded to the County Board of Commissioners for review and approval. The may not issue debt without the County's approval and the tax levy is subject to the County Board of Commissioners' approval. The taxes are levied under the taxing authority of the County, as approved by the County electors and are included as part of the County's total tax levy recorded in the County's Fund. The County Board of Commissioners also approves the budget and fee charges. Although this is a nonprofit corporation, the activities fit the description of a governmental special revenue fund type and, accordingly, are reported as a component unit in this report. Otsego County Commission on Aging (the "Commission") - The Commission is legally separable and administered by an advisory Board of Directors (the "Board") with twelve members. The Commission may not issue debt and the tax levy is subject to the County Board of Commissioners' approval. The Commission's taxes are levied under the taxing authority of the County, as approved by the County electors, and is included as part of the County's total tax levy as well as reported in the Commission on Aging Fund. Complete financial statements of the individual component units can be obtained from their respective administrative offices as listed below or from the County Clerk's Office at 225 West Main Street, Gaylord, MI 49735. Otsego County Commission on Aging 41 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Joint Ventures Otsego 22.7 percent Antrim 22.2 percent Charlevoix 24.4 percent Emmet 30.7 percent Otsego County's appropriation to the Health Agency recorded in the General fund in 2017 was $205,606. Northwest Michigan Community Health Agency (the "Health Agency") - The Health Agency provides health service for residents of Otsego County. The Counties of Otsego, Antrim, Emmet, and Charlevoix jointly established the agency. The financial operations of the Health Agency are recorded in the financial statements of Charlevoix County. The funding formula, approved by the member Counties, is based on a pro rata amount based on each unit's population and equalized valuation to the member Counties total population and valuation. Member Counties' percentages of the net operation budget for the year 2017 were as follows: Michigan Technical Education Center - Kirtland Community College, a community college district established pursuant to the provisions of Public Act 331 of 1996, obtained funding through the Michigan Economic Development Corporation ("MEDC") to construct and equip Michigan Technical Education Center ("M-TEC"), an educational facility in Otsego County. On December 7, 1999, the electors of the County authorized a tax levy not to exceed .56 mills for a period of twenty years for the purpose of generating funds to operate the facility. The facility provides vocational, technical, job skills, or workforce development programs and services. Pursuant to the operating agreement, Kirtland established an advisory board (which includes representatives of the County) and is to report its preliminary, final, and amended M-TEC budgets to the County's board. Financial records for M-TEC are recorded and maintained by the Kirtland Community College and are audited separately. M-TEC is used in conjunction with and occupied by the University Center established and operated by the University Center of Gaylord, a non-profit corporation. North Country Community Mental Health Authority (the "CMH Authority") - The CMH Authority consists of the counties of Antrim, Charlevoix, Cheboygan, Emmet, Kalkaska, and Otsego. Financial records for the CMH Authority are recorded and maintained by the Authority and audited separately. The funding formula for the community mental health operations and services is in accordance with an agreement approved by each county. The current agreement provides that each county will pay at an agreed upon rate. The Otsego County 2017 local match, recorded in the General fund, was $94,003. The County participates in the following activities, which are considered to be joint ventures in relation to the County due to the formation of an organization by contractual agreement between two or more participants that maintain joint control, financial interest, and fiscal responsibility. 42 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Component Unit and Enterprise Fund with Different Fiscal Year Ends Commission on Aging Component Unit September 30, 2017 Bus System Enterprise Fund September 30, 2017 Government-wide and Fund Financial Statements Fund Otsego County University Center (the "Facility") - Effective January 1, 2017, management of the Facility transferred to Kirtland Community College (the "College"). The terms of the agreement between the County and the College are effective January 1, 2017, through December 31, 2020, which will automatically be extended unless otherwise modified. The Governance Advisory Board (the "GAB") serves as citizen input on the operations of the Facility under the College's management. Membership of the GAB will consist of 16 to 20 members, of which, 2 will be members from the Otsego County Board of Commissioners or the County Administrator and the remaining members shall represent a broad variety of interests in Otsego County to include but not limited to those banking and financial services, medical, manufacturing, independent business owners and education. Further information regarding the Facility's operation is presented in a separately issued College report. The government-wide financial statements the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. 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 component units for which the primary government is financially accountable. 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. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 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. Fund Presentation Fiscal Year End The financial information presented in this report is for the year ended December 31, 2017, except for the following component unit and enterprise fund: 43 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Measurement Focus, Basis of Accounting, and Financial Statement Presentation The County reports the following major governmental funds: The Housing Commission Special Revenue Fund accounts for grant revenue and contributions restricted for the improvement of housing within the County. The Delinquent Tax Revolving Fund accounts for the purchase of and subsequent collection of delinquent taxes. Property taxes, intergovernmental revenue, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and as such 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-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. 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. Agency funds, a type of fiduciary fund, are unlike all other types of funds, reporting only assets and liabilities. Therefore, agency funds cannot be said to have a measurement focus. They do, however, use the accrual basis of accounting to recognize receivables and payables. 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. A 60-day availability period is used for revenue recognition for all governmental fund revenues, except for expenditure-driven grants, which must be collected within one year, and property taxes. Property taxes for the County, levied and payable within the current fiscal year, are fully recognized inasmuch as any uncollected taxes are settled with the Delinquent Tax Revolving fund not later than March 1 of the following fiscal year. While this schedule exceeds the normal availability period for property taxes of 60 days, management believes that fully recognizing property taxes in the year they are intended to finance better reflects the matching concept of generally accepted accounting principles. 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. The County reports the following major proprietary funds: The Debt Service Fund accounts for and reports financial resources that are restricted, committed, or assigned to expenditure for principal and interest. The General Fund is the government’s primary operating fund. It accounts for all the financial resources of the general government, except those accounted for and reported in another fund. The M-TEC Special Revenue Fund accounts for activities of an educational facility providing workforce development programs. 44 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Agency Funds are custodial in nature and do not present results of operations or have a measurement focus. These funds are used to account for assets that the government holds for others in an agency capacity (such as taxes collected for other governments). Capital Projects Funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. Additionally, funds are used for significant repairs to and maintenance of capital assets. Internal Service Funds account for buildings and grounds, administrative services, and employee health benefits provided to other departments or agencies of the County on a cost reimbursement basis. Enterprise Funds account for those operations that are financed and operated in a manner similar to private business or where the County has decided that the determination of revenues earned, costs incurred and/or net income is necessary for management accountability. The Bus System Fund accounts for the operation of the public transit system. Additionally, the County reports the following fund types: The Airport Fund accounts for the financial activity of the Gaylord Regional Airport. 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. 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 various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Restricted net position are assets that are subject to restrictions beyond the government’s control. The restrictions may be externally imposed or imposed by law. When both restricted and unrestricted resources are available for use, it is the government’s policy to use restricted resources first, then unrestricted resources as they are needed. 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 enterprise fund are charges to customers for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. 45 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Equity State statutes authorize the County to invest in: Bankers’ acceptances of United States banks. Receivables and Payables The accounts receivable for the Ambulance Corporation component unit is presented net of allowance for doubtful accounts of $824,000. Certificates of deposit, savings accounts, deposit accounts or depository receipts of a qualified financial institution. Commercial paper rated at the time of purchase within the two highest classifications established by not less than two standard rating services and that matures not more than 270 days after the date of purchase. Obligations of the State of Michigan and its political subdivisions, that, at the time of purchase are rated as investment grade by at least one standard rating service. The County’s cash and cash equivalents are considered to be cash on hand, amounts in demand deposit accounts and short-term investments with a maturity of three months or less when acquired. Investments are stated at fair value. Pooled investment income from all funds is allocated to each fund based on the average cash balance. Bonds, securities, and other obligations of the United States or an agency or instrumentality of the United States. Transactions 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” the current portion of interfund loans) or “advances to/from other funds” 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.” All trade and property tax receivables are shown net of an allowance for uncollectible accounts, as applicable. Property taxes are levied on December 1st and July 1st on the taxable valuation of property as of the preceding December 31st. Taxes are considered delinquent on March 1st of the following year, at which time penalties and interest are assessed. Mutual funds registered under the Investment Company Act of 1940 with the authority to purchase only investment vehicles that are legal for direct investment by a public corporation. External investment pools as authorized by Public Act 20 as amended through December 31, 1997. Deposits and Investments 46 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Other Assets Capital Assets Years Buildings 40 Bus operating facility 12-20 Shop equipment and furniture 3-10 Vehicles 3-7 Equipment 3-10 Infrastructure 20 The County reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its fair value. If it is determined that an impairment loss has occurred the asset is written down to its net realizable value and a current charge to income is recognized. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Property, plant, and equipment are depreciated using the straight-line method over the following estimated useful lives: Capital assets, which include property, plant, equipment, and infrastructure assets roads, bridges, sidewalks, and similar items) are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. Capital assets are stated at historical cost or estimated historical cost when actual cost information is not available. Donated capital assets are recorded at their estimated acquisition cost as of the date of donation. Inventories are valued at cost, using the consumption method. Inventories of governmental and enterprise funds are recorded as expenditures when consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future fiscal years and are recorded as prepaid items in both government-wide and fund financial statements. 47 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Road Commission - Discretely Presented Component Unit Years Buildings 30-50 Road equipment 5-8 Shop equipment 10 Engineering equipment 3-10 Office equipment 4-10 Infrastructure - roads 8-30 Infrastructure - bridges 12-50 Deferred Outflows of Resources Accrued Compensated Absences (Vacation and Sick Leave) Long-term Obligations In addition to assets, the statement of net position may report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflow of resources, represents a consumption of net position that applies to future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The County reports deferred outflows of resources related to the net pension liability. In the government-wide financial statements and proprietary fund types 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 proprietary fund type statement of net position. Bond premiums and discounts, are deferred and amortized over the life of the bonds using the straight-line basis. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as expense when incurred. 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. It is the County's policy to permit employees to accumulate earned but unused sick pay for the library employees and vacation pay benefits for all of the employees with certain limitations which vary among employee classification. Vacation and sick pay is accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee retirements. Depreciation on Road Commission capital assets is computed on the sum-of-the-years'-digit method for road equipment and straight-line method for all other capital assets. The depreciation rate is designed to amortize the cost of the assets over the following estimated useful lives: 48 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Deferred Inflows of Resources Budget Stabilization Arrangement Interfund Transactions The Otsego County Board of Commissioners has established a Budget Stabilization arrangement for the following purposes: to preserve current levels of services provided by the County's general fund, to cover potential general fund deficits, to cover potential expenses arising due to a natural disaster, and to assist with the County's cash flow during the fiscal year, in accordance with Public Act 30 of 1978. The Board appropriates funds as available and as deemed necessary during the budget process. Unassigned fund balance of the general fund includes $1,485,187 related to this stabilization arrangement. In addition to liabilities, the statement of net position and governmental funds balance sheet may report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The governmental funds also report unavailable revenues, which arise only under a modified accrual basis of accounting that are reported as deferred inflows of resources. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. In addition, deferred inflows of resources are reported in the government-wide and governmental fund financial statements for property taxes levied during the year and other state grants that were intended to finance future periods. Fund Balances Governmental funds report nonspendable fund balances for amounts that cannot be spent because they are either not in spendable form or legally or contractually required to be maintained intact. Restricted fund balance is reported when externally imposed constraints are placed on the use of resources by grantors, contributors, or laws or regulations of other governments. Committed fund balance is reported for amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the Board of Commissioners (the government’s highest level of decision-making authority). A formal resolution of the Board of Commissioners is required to establish, modify, or rescind a fund balance commitment. The County reports assigned fund balance for amounts that are constrained by the government’s intent to be used for specific purposes, but are neither restricted nor committed. The Board of Commissioners has delegated the authority to assign fund balance to the County Administrator or his/her designee. Unassigned fund balance is the residual classification for the General Fund and for deficit fund balances. When the government incurs an expenditure for purposes for which various fund balance classifications can be used, it is the government’s policy to use restricted fund balance first, then committed fund balance, assigned fund balance, and finally unassigned fund balance. During the course of normal operations, the County has numerous transactions between funds and component units, including expenditures and transfers of resources to provide services, construct assets, and service debt. The accompanying financial statements generally reflect such transactions as transfers. Transfers between governmental or proprietary funds are netted as part of the reconciliation to the government-wide financial statements. Internal service funds are used to record charges for services to all County departments and funds as transfers or operating revenue. All County funds record these payments to the internal service funds as transfers or operating expenditures/expenses. 49 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Use of Estimates 2. BUDGETARY INFORMATION 1. 2. 3. Grants and other Intergovernmental Revenues Federal grants and assistance awards for all governmental type funds are recorded as federal sources in accordance with the terms of the representative grants. Unearned Revenues Unearned revenues are those where asset recognition criteria have been met, but for which revenue recognition criteria have not. Budgets presented in the financial statements were prepared on the same basis as the accounting basis used to reflect actual results. The General Fund and special revenue funds are subject to legal budgetary accounting controls and all are budgeted annually. The County follows these procedures in establishing the budgetary data reflected in the financial statements: Public hearings are conducted to obtain taxpayer comments. Prior to the first day of the following fiscal year, the budget is legally enacted through a resolution passed by the Board of Commissioners. 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 amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Significant estimates of the County include management's estimate of the useful lives of depreciable capital assets, management’s estimate of the accrued compensated absences, management’s estimate of the allowance for uncollectible receivable balances and the assumptions used in the actuarial valuations of the pension and other postemployment benefit plans. The County utilizes various investment instruments which are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements. Pensions Each December, after receiving input from the individual departments, Administration and the County Budget and Finance Committee prepare a proposed operating budget for the fiscal period commencing January 1st and lapses on December 31st. The operating budget includes proposed expenditures and the means of financing them. 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. 50 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 4. 5. 6. 3. EXCESS OF EXPENDITURES OVER BUDGET 4. DEFICIT FUND BALANCE The County does not record encumbrances in the accounting records during the year as normal practice and, therefore, no outstanding encumbrances exist at year end. Budgetary control is exercised at the departmental level of the General Fund and special revenue funds. Any revisions that alter the total expenditures of any department or fund budget amendments) require approval by the Board of Commissioners. Such amendments are made in accordance with the procedures prescribed under Public Act 621 of 1978. P.A. 621 of 1978, as amended, provides that a local unit shall not incur expenditures in excess of the amount budgeted. The approved budgets of the County were adopted on the departmental level basis for the General Fund and all special revenue funds, which is the legal level of control. During the year ended December 31, 2017 the County had IT department and appropriation expenditures in the General Fund which were in excess of the amounts budgeted by $2,339 and $833 respectively. The budget document presents information by fund, function, department, and line items. The legal level of budgetary control adopted by the governing board is the departmental level. The budget and approved appropriations lapse at the end of the fiscal year. Budgeted amounts are as originally adopted or amended by the Board of Commissioners during the year. Individual amendments were not material in relation to the original appropriations which were amended. The modified accrual basis of accounting is used for budgetary purposes. The General Fund revenue budget was adopted on the basis of activities or programs of departments financed by the General Fund. Michigan Public Act 621 of 1978 requires that budgets be adopted for governmental funds. U.S. generally accepted accounting principles require that the financial statements present budgetary comparisons for the governmental fund types for which budgets were legally adopted. The original budget adopted for the General Fund was modified throughout the year through various budget amendments. The Bus System enterprise fund, the Road Commission and the Ambulance Corporation, discretely presented component units, reported a deficit unrestricted net position of $377,150 at September 30, 2017, $9,422,871 and $99,564 at December 31, 2017, respectively. The Tennis Court Construction fund, a nonmajor governmental fund, reported an unassigned deficit of $192,351 at December 31, 2017. 51 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 5. DEPOSITS AND INVESTMENTS Primary Government Component Units Totals Statement of Net Position Cash and cash equivalents 10,504,341 $ 2,594,833 $ 13,099,174 $ Investments 12,910,684 1,932,664 14,843,348 Statement of Fiduciary Assets and Liabilities Cash and cash equivalents 2,337,228 - 2,337,228 Total 25,752,253 $ 4,527,497 $ 30,279,750 $ Deposits and investments Bank deposits: Checking and savings accounts 15,423,058 $ Pooled certificates of deposit: Due within one year 955,000 Due within six to ten years 1,173,110 U.S. agencies 11,807,254 Public money market 502,710 Other - Road Commission Investments 401,872 Equity in wholly owned subsidiary 3,402 Cash on hand 13,344 Total 30,279,750 $ Following is a reconciliation of deposit and investment balances as of December 31, 2017: Credit Risk. State law limits investments to specific government securities, certificates of deposits and bank accounts with qualified financial institutions, commercial paper with specific maximum maturities and ratings when purchased, bankers acceptances of specific financial institutions, qualified mutual funds and qualified external investment pools as identified in the list of authorized investments in the accounting policies. The County has no investment policy that would further limit its investment choices. Listed below are the County's investments subject to credit risk. The credit ratings are established by Standard & Poor's. Custodial credit risk – Investments. For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the County will not be able to recover the value of the investments or collateral securities that are in possession of an outside party. The County does not have a policy for investment custodial credit risk. As of year-end, $1,931,900 of the County’s certificates of deposit was exposed to custodial credit risk because it was uninsured and uncollateralized. Custodial Credit Risk – Deposits. Custodial credit risk is the risk that, in the event of a bank failure, the County’s deposits might not be returned. State law does not require and the County does not have a policy for deposit custodial credit risk. As of year-end, $13,933,365 of the County’s bank balance of $15,151,300 was exposed to custodial credit risk because it was uninsured and uncollateralized. 52 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Credit Rating Fair Value AA+ $ 11,807,254 Other - Road Commission Investments Not rated 401,872 Equity in wholly owned subsidiary Not rated 3,402 Total $ 12,212,528 Investment More than 10 Type years U.S. Government agencies 11,807,254 $ Investment Maturities (Fair Value) Concentration of credit risk. The County's investment policy places no limit on the amount the County may invest in any one issuer. At December 31, 2017, the County had 85% of its investments in U.S. Government Agencies. The remaining 15% of the County's investments consists of certificates of deposit with an original maturity greater than 90 days, of which more than 91% are held in two financial institutions. U.S. Government agencies Investments Interest Rate Risk. Interest rate risk is the risk that the market rate of securities in the portfolio will fall due to changes in market interest rates. State law limits the allowable investments and the maturities of some of the allowable investments as identified in the summary of significant accounting policies. The County does not have a formal investment policy that would further limit investment maturities. The investments subject to interest rate risk are as follows: The University Center at Gaylord owns 100% equity in the University Center - Advertising. For purposes of the financial statements, it is classified as an investment. 53 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Fair Value Measurement Investment Type Level 1 Level 2 Level 3 Total Fair Value Fixed income: Debt securities: US government bonds - $ 11,807,254 $ - $ 11,807,254 $ Other - Road Commission Investments - 401,872 - 401,872 Equity in wholly owned subsidiary - - 3,402 3,402 Total investments at fair value - $ 12,209,126 $ 3,402 $ 12,212,528 Investments carried at amortized cost - 502,710 Total 12,715,238 $ The County categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. The County had the following recurring fair value measurements as of year end: The following is a description of the valuation methodology used for assets recorded at fair value. There have been no changes from the prior year in the methodologies used. Equity and other securities are classified as Level 1 of the fair value hierarchy are valued based on quoted market prices in active markets. Debt securities classified as Level 2 of the fair value hierarchy are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities' relationship to benchmark quoted prices. Equity in a wholly owned subsidiary is classified as Level 3 of the fair value hierarchy based on unobservable inputs. Money market funds 54 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 6. RECEIVABLES Governmental Business-type Component Activities Activities Units Accounts 452,329 $ 53,643 $ 2,400,602 $ Less: Allowance for uncollectible accounts - - (824,000) Property taxes 3,886,587 1,106,649 2,331,530 Due from other governments 369,106 81,718 - Loans 1,637,791 - - Interest - 144,452 - Totals 6,345,813 $ 1,386,462 $ 3,908,132 $ 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Governmental Business-type Component Activities Activities Units Accounts payable 571,575 $ 69,986 $ 302,492 $ Accrued liabilities 62,814 67,872 121,794 Due to other governments 8,839 87,247 131,490 Accrued interest on long-term debt 8,433 - - Totals 651,661 $ 225,105 $ 555,776 $ The amount recorded as the lease receivable from component unit represents amounts payable to the County primary government from the Road Commission a discretely presented component unit. The lease receivable relates to an agreement between the County and the Road Commission that requires the Road Commission to make payments sufficient to allow the County to pay the principal and interest on the Otsego County Building Authority Series 2011 bonds as they become due (Note 10). Lease receivable - Road Commission Discretely Presented Component Unit Accounts payable and accrued liabilities are comprised of the following: Loans receivable - Housing Commission Special Revenue Fund The amounts included as loans receivable represent long-term mortgage notes in the Housing Commission Special Revenue Fund, consisting of grants and loans made to individuals pursuant to community development block grants received from the State of Michigan. Certain homes are secured with mortgages and grants with liens to qualified applicants. The mortgage interest rates vary from 0% to 3.5% and the grants with liens are payable upon transfer of title. The receivable is offset with deferred inflows of resources. Revenue is recognized on a cash basis when collected. The loans were made for the purpose of repair, renovation, or rehabilitation of residential buildings. At December 31, 2017, the total amount of outstanding loans was $1,637,791. The County estimates that all payments due in 2018 will be paid. However, as of this reports issuance date of June 28, 2018, $69,800 of receivable loans were forgiven. Receivables are comprised of the following at year-end: 55 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 8. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS Due from Other Funds Due to Other Funds Housing Commission fund - $ 60,000 $ Delinquent Tax Revolving fund 80,000 - Bus system - 20,000 80,000 $ 80,000 $ Advance to Other Funds Advance From Other Funds Nonmajor governmental funds 32,119 $ - $ Airport - 32,119 32,119 $ 32,119 $ Advance to Component Unit Advance From Primary government Nonmajor governmental funds 269,366 $ - $ Delinquent Tax Revolving fund 240,000 - Ambulance - 509,366 509,366 $ 509,366 $ The composition of interfund balances as of December 31, 2017, was as follows: Due to and from primary government funds These balances resulted from the time lag between the dates that interfund goods and services are provided or reimbursable expenditures occur, transactions are recorded in the accounting system, and payments between funds are made. Interfund advances - primary government Advances to and from component units 56 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Transfers In Transfers Out General Fund 127,300 $ 923,740 $ Housing Commission 182,584 182,584 Debt service fund 612,612 - Nonmajor governmental funds 1,663,733 1,097,068 Delinquent Tax Fund 150 372,800 Bus System 20,077 - Airport 25,152 - Nonmajor enterprise funds 17,000 110,000 Internal service funds 24,449 - Timing difference 13,135 - 2,686,192 $ 2,686,192 $ The timing difference above in the amount of $13,135, is a result of the Bus System Enterprise Fund having a fiscal year-end that is different from the County’s year-end. Transfers are used to: move revenues from the fund that is required to collect them to the fund that is required or allowed to expend them; 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 use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. For the year ended December 31, 2017, interfund transfers consisted of the following: 57 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 9. CAPITAL ASSETS Beginning Balance Additions Disposals Transfers Ending Balance Governmental activities Capital assets, not being depreciated: Land 2,227,138 $ 54,934 $ - $ - $ 2,282,072 $ Construction in progress 146,867 510,847 (32,460) (102,298) 522,956 Total capital assets not being depreciated, net 2,374,005 565,781 (32,460) (102,298) 2,805,028 Capital assets, being depreciated: Buildings 15,846,228 758,438 - 102,298 16,706,964 Leasehold improvements - 24,854 - - 24,854 Furniture and fixtures 525,530 363,707 - - 889,237 Equipment: Data handling 1,360,283 586,240 - - 1,946,523 Other equipment 2,389,120 235,310 - - 2,624,430 Vehicles 1,539,370 118,949 (14,600) - 1,643,719 Infrastructure 37,130 - - - 37,130 21,697,661 2,087,498 (14,600) 102,298 23,872,857 Less accumulated depreciation for: Buildings (10,352,534) (654,008) - - (11,006,542) Leasehold improvements - (24,854) - - (24,854) Furniture and fixtures (434,643) (324,959) - - (759,602) Equipment: Data handling (1,113,476) (598,665) - - (1,712,141) Other equipment (988,334) (118,036) - - (1,106,370) Vehicles (1,314,105) (106,969) 14,600 - (1,406,474) Infrastructure (14,972) (1,997) - - (16,969) (14,218,064) (1,829,488) 14,600 - (16,032,952) Total capital assets being depreciated, net 7,479,597 258,010 - 102,298 7,839,905 Governmental activities capital assets, net 9,853,602 $ 823,791 $ (32,460) $ - $ 10,644,933 $ Capital asset activity for the primary government for the year ended December 31, 2017, was as follows: Primary government 58 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Disposals Transfers Ending Balance Business-type Activities Capital assets, not being depreciated: Land 99,998 $ - $ - $ - $ 99,998 $ Construction in progress 16,500 - - (16,500) - Total capital assets not being depreciated, net 116,498 - - (16,500) 99,998 Capital assets, being depreciated: Buildings 2,641,858 - - - 2,641,858 Furniture and fixtures 6,000 - - - 6,000 Vehicles 1,691,045 - - - 1,691,045 Equipment 332,917 - - - 332,917 Infrastructure 12,513,302 249,800 - 16,500 12,779,602 17,185,122 249,800 - 16,500 17,451,422 Less accumulated depreciation for: Buildings (1,213,501) (105,501) - - (1,319,002) Furniture and fixtures (6,000) - - - (6,000) Vehicles (1,467,476) (120,762) - - (1,588,238) Equipment (226,288) (14,300) - - (240,588) Infrastructure (6,938,274) (517,610) - - (7,455,884) (9,851,539) (758,173) - - (10,609,712) Total capital assets being depreciated, net 7,333,583 (508,373) - - 6,841,710 Business-type activities capital assets, net 7,450,081 $ (508,373) $ - $ - $ 6,941,708 $ Depreciation expense was charged to functions/programs of the primary government as follows: Depreciation of governmental activities by function General government 1,287,156 $ Public safety 187,103 Recreation and culture 355,229 Total depreciation expense - governmental activities 1,829,488 $ Depreciation of business-type activities by function Bus System 9/30/2017 158,818 $ Airport 587,055 University Center Metropolitan Area Network 12,300 Total depreciation expense - business-type activities 758,173 $ 59 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Disposals/ Adjustments Ending Balance Component Unit - Road Commission Capital assets, not being depreciated: Land and improvements 9,895,950 $ 994,034 $ - $ 10,889,984 $ Capital assets, being depreciated: Buildings 3,934,836 8,995 (7,701) 3,936,130 Road equipment 6,643,471 370,064 79,856 7,093,391 Shop equipment 108,683 - - 108,683 Office equipment 51,030 - (768) 50,262 Engineer's equipment 13,562 - - 13,562 Yard and storage equipment 1,800 - - 1,800 Traffic signals 49,557 - - 49,557 Infrastructure - bridges 1,112,301 - - 1,112,301 Infrastructure - roads 33,483,324 2,052,184 (3,193,949) 32,341,559 45,398,564 2,431,243 (3,122,562) 44,707,245 Less accumulated depreciation for: Buildings (1,811,734) (86,903) 7,570 (1,891,067) Road equipment (5,358,274) (594,591) 171,319 (5,781,546) Shop equipment (99,000) (3,618) - (102,618) Office equipment (43,197) (3,922) 768 (46,351) Engineer's equipment (13,253) (309) - (13,562) Yard and storage equipment (1,800) - - (1,800) Traffic signals (43,695) (1,701) - (45,396) Infrastructure - bridges (276,270) (28,839) - (305,109) Infrastructure - roads (15,178,305) (1,576,912) 3,193,949 (13,561,268) (22,825,528) (2,296,795) 3,373,606 (21,748,717) Total capital assets being depreciated, net 22,573,036 134,448 251,044 22,958,528 Road Commission capital assets, net 32,468,986 $ 1,128,482 $ 251,044 $ 33,848,512 $ Capital assets activity for the discretely presented component units for the year ended December 31, 2017, was as follows: Discretely presented component units 60 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Disposals Transfers Ending Balance Component Unit - Otsego County Ambulance Corporation Capital assets, not being depreciated: Construction in progress - $ 5,000 $ - $ - $ 5,000 $ Capital assets being depreciated: Buildings 1,600,544 - - - 1,600,544 Other equipment 634,245 31,500 - - 665,745 Vehicles 2,047,875 178,536 - - 2,226,411 4,282,664 210,036 - - 4,492,700 Less accumulated depreciation for: Buildings (615,022) (64,022) - - (679,044) Other equipment (545,474) (35,482) - - (580,956) Vehicles (1,337,433) (154,241) - - (1,491,674) (2,497,929) (253,745) - - (2,751,674) Total capital assets being depreciated, net 1,784,735 (43,709) - - 1,741,026 Otsego County Ambulance Corp capital assets, net 1,705,289 $ (38,709) $ - $ - $ 1,746,026 $ Beginning Balance Additions Disposals Transfers Ending Balance Component Unit - Otsego County Commission on Aging Capital assets being depreciated: Leasehold improvements and equipment 140,189 $ - $ - $ - $ 140,189 $ Less accumulated depreciation for: Leasehold improvements and equipment (140,189) - - - (140,189) Otsego County Commission on Aging capital assets, net - $ - $ - $ - $ - $ 61 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 10. LONG-TERM DEBT Beginning Balance Additions Deductions Ending Balance Due Within One Year Governmental Activities Otsego County Building Authority Series 2017 Bonds, maturing serially through 2022 in annual amounts ranging from $360,000 to $395,000 and at interest rates ranging from 1.75% to 2.0%. $ - $ 2,250,000 $ 360,000 $ 1,890,000 $ 360,000 Otsego County Building Authority Series 2010 Bonds, maturing serially through 2020 in annual amounts ranging from $20,000 to $240,000 and at interest rates ranging from 2.0% to 4.0%. 880,000 - 200,000 680,000 220,000 Otsego County Building Authority Series 2011 Bonds, issued on behalf of Otsego County Road Commission, maturing serially through 2031 in annual amounts ranging from $35,000 to $65,000 and at interest rates ranging from 3.25% to 5.0%. 725,000 - 35,000 690,000 35,000 Otsego County Brownfield Redevelopment Authority loan, maturing through 2024 with payments ranging from $47,472 to $48,184 and interest at 1.5%. 231,512 - 114,115 117,397 29,152 Changes in Long-term Debt. Long-term liability activity for the year ended December 31, 2017, was as follows: 62 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Deductions Ending Balance Due Within One Year Equipment purchase agreement through fiscal year 2019 requiring payments of $952 including interest at .44% secured by the related equipment. $ 30,801 $ - $ 9,863 $ 20,938 $ 10,740 Total installment debt 1,867,313 2,250,000 718,978 3,398,335 654,892 Premium on bond issuance - 21,058 3,510 17,548 3,510 Accrued compensated absences 171,457 268,404 269,319 170,542 - Total governmental activities $ 2,038,770 $ 2,539,462 $ 991,807 $ 3,586,425 $ 658,402 Year Ended Bonds Payable Installments Payable December 31, Principal Interest Principal Interest 2018 644,152 $ 86,577 $ $ 10,740 $ 848 2019 659,592 69,724 10,[PHONE REDACTED] 690,040 52,201 - - 2021 453,613 40,728 - - 2022 440,000 28,955 - - 2023-2027 245,000 91,176 - - 2028-2031 245,000 25,375 - - 3,377,397 $ 394,736 $ $ 20,938 $ 1,121 Annual debt service requirements to maturity for long-term debt included in governmental activities are as follows: 63 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Deductions Ending Balance Due Within One Year Discretely Presented Component Units Road Commission Lease payable to the County in amounts sufficient to allow the County to pay the principal and interest on the Otsego County Building Authority Series 2011 bonds as they become due, maturing serially through 2031 in annual amounts ranging from $35,000 to $65,000 and at interest rates from 3.25% to 5.0%. $ 725,000 $ - $ 35,000 $ 690,000 $ 35,000 Installment purchase agreements 1,158,671 505,141 367,723 1,296,089 508,810 Total installment debt 1,883,671 505,141 402,723 1,986,089 543,810 Accrued compensated absences 223,889 75,870 - 299,759 - Total road commission component unit $ 2,107,560 $ 581,011 $ 402,723 $ 2,285,848 $ 543,810 Net increase. Year Ended Lease Payable Installments Payable December 31, Principal Interest Principal Interest 2018 35,000 $ 30,488 $ 508,810 $ 24,361 $ 2019 40,000 29,175 368,851 14,799 2020 40,000 27,775 418,428 3,534 2021 40,000 26,325 - - 2022 45,000 24,562 - - 2023-2027 245,000 91,175 - - 2028-2031 245,000 25,375 - - 690,000 $ 254,875 $ 1,296,089 $ 42,694 $ Annual debt service requirements to maturity for Road Commission long-term debt are as follows: 64 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 11. ACCRUED COMPENSATED ABSENCES 12. OPERATING LEASES 13. RISK MANAGEMENT The Commission on Aging has entered into a sublease with Northwest Michigan Community Health Agency to rent the space commonly known as "Otsego Haus". The sublease terms require payments of $1,620, or $19,440 annually, and is renewable on a month-to-month basis. Substantially all County employees are entitled to certain vacation and sick pay benefits that accrue and vest under various parameters including individual labor contracts. Accrued benefits for all governmental fund types are reported as long-term debt. Vested Employee Benefits Payable - Bus System (Enterprise Fund) Vacation leave is accrued every pay period. Employees can accumulate a maximum of their base at any given time. Personal leave is earned at the beginning of the calendar year at a rate of 56 hours per full- time employee and 35 hours per part-time employee per year. Personal leave is paid out for up to 28 hours for full time employees and 17.5 hours for part-time employees. Compensated absences amounted to $29,413 at December 31, 2017. Primary Government The Commission on Aging leases office and activity space from Alpine Alten Zimmer. The future rent payments will approximate $28,000 per year, with a rent increase not to exceed 1% per year through December 31, 2029. The County is exposed to risks of loss related to theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The government manages its risk exposures and provides certain employee benefits through a combination of self-insurance programs, risk management pools and commercial insurance and excess coverage policies. The following is a summary of these self- insurance programs and risk management pool participation. The County participates in the Michigan Municipal Risk Management Authority (MMRMA) for general and automobile liability, motor vehicle physical damage, and property damage coverages. The MMRMA was established in January 1980, pursuant to laws of the State of Michigan, which authorize local units of government to jointly exercise any power, privilege or authority which each might exercise separately. The purpose of the Authority is to provide cooperative and comprehensive risk financing and risk control services. The MMRMA provides risk management, underwriting, reinsurance and claim review and processing services for all member governments pursuant to its charter. Lease Commitments - Commission on Aging Discretely Presented Component Unit Primary Government 65 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Changes in the balances of claims liabilities are as follows: 2017 2016 Estimated liability, beginning of year 17,430 $ - $ Receipts 49,945 74,430 Estimated claims incurred (37,850) (55,111) Claim payments (17,365) (1,888) Estimated liability, end of year $ 12,160 $ 17,431 Workers' Compensation Vehicle Physical Damage Employee Benefits The County is a member of the Michigan Counties Workers' Compensation Fund. Full statutory coverage for workers' disability compensation and employers' liability is guaranteed by the fund for Michigan operations through authority granted by the Sate of Michigan under Chapter 6, Section 418.611, Paragraph of the Workers' Disability Compensation Act of 1969, as amended. At December 31, 2017 there were no claims that exceeded insurance coverage. The County had no significant reduction in insurance coverage from previous years. Self-Insured Retention Coverage Liability $1,000 deductible per occurrence Property and crime $15,000 per vehicle $30,000 per occurrence 10% of the next $100,000 $1,000 Member Deductible The County makes annual contributions to MMRMA based on actuarial studies using historical data and insurance industry statistics. These contributions are paid from the General Fund using premiums paid into it by other funds of the government. Such contributions that are received by MMRMA are allocated between its general and member retention funds. Economic resources in the MMRMA's General Fund are expended for reinsurance coverage, claim payments and certain general and administrative costs, whereas resources in the member retention funds are used for loss payments and defense costs up to the members' self-insurance retention limits along with certain other member-specific costs. $75,000 Accordingly, because contributions to the member retention fund are essentially recognized as revenue by MMRMA to the extent of expenditures, the government records an asset and a related liability, equal to the loss reserves estimated by MMRMA, for its portion of the unexpended member retention fund in the Michigan Municipal Risk Agency Fund. At December 31, 2017, the balance of the County's member retention was $365,072. Fiscal Year Ended December Commercial Insurance Provider 66 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Component Unit - Road Commission Component Unit - Ambulance Corporation Component Unit - Commission on Aging Component Unit - The pooling agreement allows for the pool to make additional assessments to make the pool self- sustaining. The Road Commission is unable to provide an estimate of the amounts of additional assessments. At December 31, 2017, there were no claims that exceeded insurance coverage. The Ambulance Corporation did not have any significant reduction in insurance coverage from previous years. The Commission on Aging has insurance coverage provided by independent insurance companies for property, general liability, fire, workers' compensation and employee bond coverage. The Commission on Aging liability is normally limited to the deductible. The Ambulance Corporation is exposed to risks of loss related to theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Ambulance Corporation's general liability, property, and vehicle insurance is included in the County's plan. Additional vehicle insurance, health insurance, and workers' compensation is obtained through commercial insurance providers. The is exposed to risks of loss related to theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Health insurance and workers' compensation is obtained through commercial insurance providers. There are nonaccident liability and condemnation lawsuits sometimes pending against the Road Commission claiming amounts for damages and relief without stated limitations. It is the opinion of management and legal counsel that reasonable estimates of the Road Commission's current liability for these matters, if any, have been recorded. The Road Commission is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Road Commission was unable to obtain general liability insurance at a cost it considered to be economically justifiable. The Road Commission joined together with other Road Commissions and created a public entity risk pool currently operating as a common risk management and insurance program. The Road Commission pays an annual premium to the pool for its general insurance coverage. The agreement provides that the pool will be self-sustaining through member premiums and will reinsure through commercial companies for claims in excess of $1,000 ($2,000 for errors and omissions) for each insured event. The maximum limit of liability for each occurrence is $10,500,000. The Road Commission from time to time is named as a defendant in accident claims and lawsuits requesting damages of various amounts, the majority of which do not state a specific maximum. Insurance coverage related to these claims and lawsuits, if any, is categorized under the general liability insurance program. It is the opinion of management and legal counsel that reasonable estimates of the Road Commission's current liability for these matters, if any, have been recorded. 67 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 14. PROPERTY TAXES Source Millage Rate Animal Control 0.3000 Commission on Aging 1.0000 Ambulance 0.7800 Bus System 0.2500 Parks and Recreation 0.2500 Road Projects 1.0000 Library 0.4000 Library Building 0.3750 Recycling 0.2500 0.2500 Building 0.1875 M-TEC 0.6464 University Center 0.5569 15. TAX ABATEMENTS Industrial Facilities Exemption Although the County of Otsego 2016 ad valorem tax is levied and collectible on December 1, 2016 and the 2017 ad valorem tax is levied and collectible on July 1, 2017, it is the County of Otsego's policy to recognize revenue from the current tax levy in the current year when the proceeds of this levy are budgeted and made "available" for the financing of operations. "Available" means collected within the current period or expected to be paid from the delinquent tax revolving funds within one year. The December 1, 2017 taxable valuation of the County of Otsego totaled $1,231,607,518, on which ad valorem taxes were levied as follows: The County levies property tax on each December 1st and July 1st on the taxable valuation of property (as defined by State statutes) located in the County of Otsego as of the preceding December 31st. Municipalities within the County's boundaries entered into property tax abatement agreements with local businesses under the Plant Rehabilitation and Industrial Development Districts Act, known as the Industrial Facilities Exemption (IFT) PA 198 of 1974, as amended. The purpose of the exemption is to provide a tax incentive to manufacturers to enable renovation and expansion of aging facilities, assist in the building of new facilities, and to promote the establishment of high-tech facilities. IFT on such properties have resulted in an abatement of property taxes which reduced the property taxes collected by Otsego County and its component units as follows: The July 1, 2017 taxable valuation of the County of Otsego totaled $1,152,384,044, on which ad valorem taxes levied consisted of 4.0502 mills for the General Fund, this amount is recognized in the General Fund. At December 31, 2017, there were no claims that exceeded insurance coverage. The did not have any significant reduction in insurance coverage from previous years. 68 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements City of Gaylord Tax Abatements Bagley Township Tax Abatements Corwith Township Tax Abatements Livingston Township Tax Abatements Commercial Facilities Exemption City of Gaylord Tax Abatements Brownfield Redevelopment Financing For the year ended December 31, 2017, Otsego County property taxes were reduced by $1,995 under this program. For the year ended December 31, 2017, Otsego County property taxes were reduced by $1,738 under this program. Municipalities within the County's boundaries entered into property tax abatement agreements with local businesses under the Commercial Redevelopment Act, known as the Commercial Facilities Exemption (CFT) PA 255 of 1978, as amended. The purpose of the exemption is to provide a tax incentive to businesses to establish themselves in the designated commercial redevelopment district. CFT on such properties have resulted in an abatement of property taxes which reduced the property taxes collected by Otsego County and its component units as follows: For the year ended December 31, 2017, Otsego County property taxes were reduced by $3,234 under this program. Municipalities within the County's boundaries entered into property tax abatement agreements with local businesses under the Brownfield Redevelopment Financing Act, PA 381 of 1996, as amended. The purpose of the exemption is to provide a tax incentive to businesses to establish themselves in a Brownfield Redevelopment Zone to promote the revitalization, redevelopment, and reuse of certain property that had been deemed obsolete due to blight, environmental matters, or being tax reverted. The cost to clean up the property to make it usable was initially paid for by the State of Michigan under the Brownfield provisions, creating a loan to be repaid over a 20-year period. Once the property sold, the owner's taxes were abated to be used toward loan repayment, which reduced the property taxes collected by Otsego County and its component units as follows: For the year ended December 31, 2017, Otsego County property taxes were reduced by $11,318 under this program. For the year ended December 31, 2017, Otsego County property taxes were reduced by $7,946 under this program. 69 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements City of Gaylord Tax Abatements 16. CONTINGENT LIABILITIES 17. BENEFIT PLANS Primary Government 101 43 110 254 Defined Benefit Pension Plan Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the Federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the County expects such amounts, if any, to be immaterial. For the year ended December 31, 2017, Otsego County property taxes were reduced by $606 under this program. Benefits Provided. Pension benefits vary by division and are calculated as final average compensation (based on a 5 years and 3 years for defined benefit and hybrid divisions, respectively) and a multiplier ranging from 1.25% to 2.50%. Participants are fully vested in the plan after 8-10 years for defined benefit divisions and 6 years for hybrid divisions. Normal retirement age is 60 with early retirement at age 50 with 25 years of service or age 55 with 15 years of service. Member contributions range from 0% to 4% of covered wages as presented in the table below. Employees Covered by Benefit Terms. At December 31, 2016, plan membership consisted of the following: Inactive employees or beneficiaries currently receiving benefits The service requirement for General Non-union, POAM, Teamsters Local #214 and 46th Circuit Court is computed using credited service at the time of termination of membership multiplied by the sum of 2.25% times the final average compensation (FAC-5), with a maximum benefit of 80% of FAC. The service requirement for Elected and Appointed Supervisors and the Sheriff-POLC Union is computed using credited service at the time of termination of membership multiplied by the sum of 2.5% of (FAC-5), with a maximum benefit of 80% of FAC. The most recent period for which actuarial data was available was for the fiscal year ended December 31, 2016. Plan Description. The County's defined benefit pension plan provides certain retirement, disability and death benefits to plan members and beneficiaries. The County participates in the Municipal Employees Retirement System (MERS) of Michigan. MERS is an agent multiple-employer, statewide public employee pension plan established by the Michigan Legislature under Public Act 135 of 1945 and administered by a nine member Retirement Board. MERS issues a publicly available financial report that includes financial statements and required supplementary information. This report may be obtained accessing the MERS website at www.mersofmich.com. Inactive employees entitled to but not yet receiving benefits Active employees Total membership 70 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Division Name Status Employer Contribution Rate Employee Contribution Rate Defined Benefit Closed $ 6,381 0% Defined Benefit Open 12.35% 0% Defined Benefit Closed $ 7,268 0% Defined Benefit Closed $ 3,331 0% Defined Benefit Closed $ 23,061 0% Defined Benefit Closed $ 8,903 0% Defined Benefit Closed $ 4,167 0% Defined Benefit Closed $ 1,994 0% Defined Benefit Closed $ 9,170 0% Defined Benefit Closed $ 1,157 4% Defined Benefit Open 10.14% 0% Hybrid Open 7.88% 0% Hybrid Open 7.27% 0% Hybrid Open 6.28% 0% Hybrid Open 5.71% 0% Hybrid Open 6.53% 0% Hybrid Open 7.01% 0% Hybrid Open 5.63% 0% Inflation 2.50% Salary increases Division Name General Non Union Library Non Union General Local 214 Bus 46th Trial Court hired after 6/1/11 Clerical Local #214 after 1/1/12 3.75% in the long-term Police Officers Association of Michigan hired after 1/1/11 Actuarial Assumptions. The total pension liability in the December 31, 2016 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Investment rate of return 7.75%, net of investment and administrative expense including inflation Although no explicit price inflation assumption is used in the valuation, the long-term annual rate of price inflation implicit in the 3.75% base wage inflation is 2.50%. Teamsters Bus hired after 1/1/11 Net Pension Liability. The County's net pension liability was measured as of December 31, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. Contributions. The County is required to contribute amounts at least equal to the actuarially determined rate, as established by the MERS Retirement Board. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employer contributions are expressed as a percentage of payroll for open divisions and as a fixed amount for closed divisions as summarized in the following table: Police Officers Association of Michigan Elected Appointed Supervisors 46th Trial Court General Local 214 Clerical 87-A Judge/Friend of Court pre 9/1/14 All Full Time Police on/after 1/1/16 Elected Appointed Supervisors after 1/1/09 General Non Union after 1/1/09 Sheriff Union new hires after 6/1/10 Library Director Sheriff Union 71 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Target Allocation Long-term Expected Real Rate of Return Expected Money- Weighted Rate Global equity 57.50% 5.02% 2.89% 20.00% 2.18% 0.44% Real assets 12.50% 4.23% 0.53% 10.00% 6.56% 0.64% 100.00% 3.25% 0.25% 8.00% Administrative expenses netted above Investment rate of return Asset Class Discount Rate. The discount rate used to measure the total pension liability as of December 31, 2016 was 8.0% (down from 8.25% in 2015). 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. Diversifying strategies Inflation Mortality rates used were based on the RP-2014 Group Annuity Mortality Table of a 50% Male and 50% Female blend. The actuarial assumptions used in valuation were based on the results of the most recent actuarial experience study of 2009-2013. 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: Global fixed income 72 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Total Pension Liability Plan Fiduciary Net Position Net Pension Liability - $ 21,640,550 $ 12,531,070 $ 9,109,480 349,718 - 349,718 1,696,843 - 1,696,843 (10,695) - (10,695) Differences between expected and actual experience (503,144) - (503,144) - 865,641 (865,641) - 7,937 (7,937) - 1,422,497 (1,422,497) (1,209,751) (1,209,751) - - (28,053) 28,053 322,971 1,058,271 (735,300) $ 21,963,521 $ 13,589,341 $ 8,374,180 1% Decrease (7.00%) Current Discount Rate (8.00%) 1% Increase (9.00%) $ 10,858,126 $ 8,374,180 $ 6,265,637 of employee contributions Administrative expense Pension Plan Fiduciary Net Position. Detailed information about the pension plan's fiduciary net position is available in the separately issued Plan financial statements. Interest Employer contributions Employee contributions Net investment income Change in Net Pension Liability Balances at December 31, 2015 Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the County, calculated using the discount rate of 8.0%, as well as what the County’s net pension liability would be if it were calculated using a discount rate that is 1% lower or 1% higher than the current rate: County's net pension liability The components of the change in the net pension liability are summarized as follows: Changes for the year: Benefit payments, including refunds Net changes Balances at December 31, 2016 Service cost Changes in benefits 73 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Deferred Outflows of Resources Deferred Inflows of Resources Net Deferred Outflows (Inflows) of Resources $ 503,939 $ - $ 503,939 Difference between expected and actual experience 362,103 377,358 (15,255) Changes in assumptions 518,441 - 518,441 1,384,483 377,358 1,007,125 1,225,718 - 1,225,718 Total $ 2,610,201 $ 377,358 $ 2,232,843 Year Ended December 31, Amount 2018 527,082 $ 2019 527,081 2020 39,875 2021 (86,913) Total $ 1,007,125 Road Commission - Component Unit Description of Plan and Plan Assets. The Road Commission is in an agent multiple-employer defined benefit pension plan with the Municipal Employees’ Retirement System (MERS). The system provides the following provisions: normal retirement, deferred retirement and service retirement to plan members and their beneficiaries. The service requirement is computed using credited service at the time of termination of membership multiplies by the sum of 2.50% times the final compensation (FAC). The most recent period of which actuarial data was available was for year ended December 31, 2017. earnings on pension plan investments Net difference between projected and actual Payable to the Pension Plan. At December 31, 2017, the County reported a payable of $14,091 for the outstanding amount of contributions to the pension plan required for the year ended December 31, 2017. 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 December 31, 2018. Other amounts reported as deferred outflows and inflows of resources related to the pension will be recognized in pension expense as follows: For the year ended December 31, 2017, the County recognized pension expense of $1,630,637. The County reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Contributions subsequent to the measurement Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions 74 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 18. DEFERRED COMPENSATION PLAN Primary Government Commission on Aging Component Unit - 19. OTHER POSTEMPLOYMENT BENEFITS Primary government Further information regarding the Road Commission's participation in the Plan is presented in a separately issued Road Commission report. Plan Description . Otsego County administers a single-employer defined benefit healthcare plan (the “Plan”). The plan provides healthcare benefits for eligible employees upon retirement, through the County's group health insurance plan, which covers both active and retired members. The benefits are provided under the collective bargaining agreement for union employees and by personnel policies for nonunion employees. At December 31, 2017, the date of the last plan valuation, the County’s healthcare plan covered 29 members of which 10 were active plan members and 19 were retirees receiving benefits. The Otsego County Commission on Aging offers its employees a deferred compensation plan created in accordance with IRC Section 457. The plan, available to all employees, permits them to defer a portion of their current earnings until the employee's termination, retirement, death, or unforeseeable emergency. The Otsego County offers its employees a Saving Incentive Match Plan for Employees (SIMPLE plan) Individual Retirement Account (IRA) in accordance with IRC Section 408(p). The plan, available to employees earning at least $5,000 in annual compensation, permits them to defer a portion of their current salary until future years. The deferred compensation is not available to the employees until termination, retirement, death, or unforeseeable emergency. The employer matches employee contributions up to 3% of the employee's elected salary contribution. The Commission's liability to each participant is equal to the participant's deferred compensation adjusted by an amount equal to the investment performance in a related assets account. Investments are managed by a trustee, and investment decisions are made by individual employees. The Commission, through Otsego County, provides the duty of due care that would be required of an ordinary prudent investor. Otsego County offers its employees a deferred compensation plan created in accordance with IRC Section 457. Effective January 1, 1997, the assets of the plan were held in a trust, custodial account or annuity contract described in IRC Section 457(g) for the exclusive benefit for the participants (employees) and their beneficiaries. The custodial account is held by the custodian for the exclusive benefit of the participants and beneficiaries of these Section 457 plans and the assets may not be diverted to any other use. The administrator (Nationwide Retirement Solutions) is an agent of the employer. The Administrator provides direction to the custodian, from time to time, regarding the investment of the funds held in the account, transfer of assets to or from the account and all other matters. GASB 32 does not require inclusion of the deferred compensation balances in a trust and agency fund. 75 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Annual required contribution 150,887 $ Interest on net OPEB obligation 68,694 Adjustment to annual required contribution (115,640) 103,941 Contributions made (66,774) 37,167 2,173,865 2,211,032 $ Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 12/31/2015 188,704 $ 126% 1,935,870 $ 12/31/2016 184,937 42% 2,173,865 12/31/2017 103,941 64% 2,211,032 Funded Status and Funding Progress. As of December 31, 2017, the most recent actuarial valuation date, the actuarial accrued liability for benefits was $1,930,701, all of which was unfunded. Three-Year Trend Information The County's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2017 and the two preceding years were as follows: Funding policy. Contribution requirements also are negotiated between the County and employees. The County contributes 80% of the cost of current-year premiums for eligible retired plan members. For fiscal year 2017, the County contributed $66,774 to the plan. Net OPEB obligation, end of year Net OPEB obligation, beginning of year Net OPEB cost Increase in net OPEB Annual OPEB Cost and Net OPEB Obligation. The County’s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC). The County has elected to calculate the ARC and related information using the alternative measurement method permitted by GASB Statement No. 45 for employers in plans with fewer than one hundred total plan members. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the County’s annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the County’s net OPEB obligation: 76 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Road Commission - Component Unit Employees hired prior to December 31, 2008, and retire with 20 years of employment and age 55 years, or greater, will receive health insurance comparable to that provided to the current employees until age 65 years and supplemental health insurance for the employee and spouse for their lifetimes. Further information regarding the Plan is presented in a separately issued Road Commission report. The Otsego County Road Commission provides hospitalization and medical coverage for eligible retirees and their spouses through the Road Commissions group health insurance plan, which covers both active and retired members. Actuarial valuation of an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits calculations. Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the Plan as understood by the employer and Plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and Plan members to that point. The methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the December 31, 2017 actuarial valuation, the entry age actuarial normal (level percent) cost method was used. The actuarial assumptions included an annual healthcare cost trend rate of 8% initially, reduced by decrements to an ultimate rate of 5% after six years. 77 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN NOTES TO FINANCIAL STATEMENTS 20. FUND BALANCES - GOVERNMENTAL FUNDS Nonmajor Total General Housing Governmental Governmental Fund Commission Funds Funds Nonspendable for: Inventories 16,855 $ - $ - $ 16,855 $ Other assets 7,930 - - 7,930 24,785 - - 24,785 Restricted for: Housing projects - 149,979 - 149,979 Public safety - - 1,946,605 1,946,605 Health and welfare - - 122,436 122,436 Recreation and culture - - 4,864,236 4,864,236 University center - - 279,286 279,286 Debt service - - 14,864 14,864 Recycling - - 146,143 146,143 Register of Deeds - - 99,938 99,938 Law Library - - 17,173 17,173 Bradford Lake Dam - - 20,072 20,072 Total restricted - 149,979 7,510,753 7,660,732 Committed for: Pension contributions 150,000 - - 150,000 Work Camp - - 16,975 16,975 Friend of the Court - - 312,022 312,022 Child Care Probate - - 220,797 220,797 Equipment - - 67,381 67,381 Public improvements - - 3,000,199 3,000,199 Total committed 150,000 - 3,617,374 3,767,374 Unassigned (deficit) 4,693,890 - (192,351) 4,501,539 Total fund balances, governmental funds 4,868,675 $ 149,979 $ 10,935,776 $ 15,954,430 $ The County has adopted the provisions of GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions . GASB 54 establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Detailed information on fund balances of governmental funds is as follows: 78 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN NOTES TO FINANCIAL STATEMENTS 21. NET INVESTMENT IN CAPITAL ASSETS AND RESTRICTED NET POSITION The composition of net investment in capital assets as of December 31, 2017, was as follows: Governmental Business-type Component Activities Activities Units Capital assets: Capital assets not being depreciated 2,805,028 $ 99,998 $ 10,894,984 $ Capital assets being depreciated, net 7,839,905 6,841,710 24,699,554 10,644,933 6,941,708 35,594,538 Less related debt: Total installment debt 3,398,335 - 1,986,089 Less: Otsego County Road Commission lease payable (690,000) - - 2,708,335 - 1,986,089 Net investment in capital assets 7,936,598 $ 6,941,708 $ 33,608,449 $ The composition of restricted net position as of December 31, 2017, was as follows: Governmental Business-type Component Activities Activities Units Net position restricted for: Housing projects 2,477,770 $ - $ - $ Public safety 1,946,605 - - Health and welfare 122,436 - - Recreation and culture 4,864,236 - - University center 279,286 - - Debt service 6,431 - - Recycling 146,143 - - Register of Deeds 99,938 - - Law Library 17,173 - - Bradford Lake Dam 20,072 - - Commission on Aging - - 44,000 Total restricted net position 9,980,090 $ - $ 44,000 $ 22. SPECIAL ITEM - TRANSFER OF OPERATIONS Effective January 1, 2017, the operations of the University Center transferred to Kirtland Community College. The County maintains a special revenue University Center fund for collection of a certain tax millage and payment on the University Center building bond and, additionally, retained ownership of all the capital assets related to the University Center. 79 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN NOTES TO FINANCIAL STATEMENTS 23. SUBSEQUENT EVENTS / COMMITMENTS Iron Belle Trail Michigan Natural Resources Trust Fund Grant 300,000 $ Michigan Dept of Transportation Alternatives Program 1,379,558 Total 1,679,558 $ Library Expansion Project Funded by Library savings 750,000 $ Funded with bonds (to be repaid using the new millage) 2,250,000 Total estimated cost of the expansion project 3,000,000 $ Gaylord Gateway Trailhead Iron Belle Trail Grant for Engineering 80,000 $ Michigan Natural Resources Trust Fund Grant 300,000 Michigan Department of Natural Resources Recreational Trails Program 320,000 Other 220,000 Total estimated cost of the Trailhead Project 920,000 $ As part of the State of Michigan's Rails to Trails initiative, Otsego County will be home to a portion of the Iron Belle Trail, a statewide trail system that will connect Detroit's Belle Isle State Park to Ironwood in the Upper Peninsula. Otsego County's portion of the trail will be 12 miles long. It will be a non-motorized trail in the summer months and a snowmobile trail in the winter. In January 2017, the County received notification that it has been awarded two grants for construction of the Otsego County portion of the Iron Belle Trail: In addition to this funding, the local match for the project totals $610,000 as follows: $203,000 from both Otsego Lake and Bagley Townships, and $204,000 from Otsego County. Construction is anticipated to span 2017 and 2018. The voters of Otsego County passed a 0.375 millage in November, 2016 for 6 years, to repay bonds which were issued to fund a Library Expansion Project, which will increase the square footage of the existing Otsego County Library from 9,300 to 24,000 square feet. The expansion is anticipated to be completed in the Fall of 2018. Due to a planned 12 mile extension of the North Central State Trail, a downtown Gaylord trailhead is needed to provide better access by trail users to downtown businesses and facilities, as well as providing a relief station. The facility would include typical benches, picnic tables, and a pavilion with restrooms. The trailhead project is estimated to be completed in the Summer of 2019. 80 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN NOTES TO FINANCIAL STATEMENTS Road Commission      After fiscal year end, the Road Commission executed equipment purchases amounting to approximately $68,000. Additionally, the Road Commission established a Public Act 115 Health Care Trust in January 2018 with a $100,000 contribution. 81 ---PAGE BREAK--- REQUIRED SUPPLEMENTARY INFORMATION ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan 2017 2016 2015 Total pension liability Service cost 349,718 $ 348,000 $ 338,932 $ Interest 1,696,843 1,543,901 1,479,439 Changes in benefits (10,695) - - Differences between expected and actual experience (503,144) 724,207 - Changes in assumptions - 1,036,885 - Benefit payments, including refunds of employee contributions (1,209,751) (1,104,777) (978,368) Net change in total pension liability 322,971 2,548,216 840,003 Total pension liability, beginning of year 21,640,550 19,092,334 18,252,331 Total pension liability, end of year 21,963,521 21,640,550 19,092,334 Plan fiduciary net position Employer contributions 865,641 693,476 640,433 Employee contributions 7,937 5,905 3,630 Net investment (loss) income 1,422,497 (195,083) 800,044 Benefit payments, including refunds of employee contributions (1,209,751) (1,104,777) (978,368) Administrative expense (28,053) (28,591) (29,357) Net change in plan fiduciary net position 1,058,271 (629,070) 436,382 Plan fiduciary net position, beginning of year 12,531,070 13,160,140 12,723,758 Plan fiduciary net position, end of year 13,589,341 12,531,070 13,160,140 County's net pension liability 8,374,180 $ 9,109,480 $ 5,932,194 $ Plan fiduciary net position as a percentage of total pension liability 61.9% 57.9% 68.9% Covered payroll 4,547,735 $ 4,390,047 $ 4,188,926 $ County's net pension liability as a percentage of covered payroll 184.1% 207.5% 141.6% 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. Schedule of Changes in County's Net Pension Liability and Related Ratios Year Ended December 31 82 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan Schedule of the Net Pension Liability Fiscal Year Ended December 31, Total Pension Liability Plan Net Position Net Pension Liability Plan Net Position as Percentage of Total Pension Liability Covered Payroll Net Pension Liability as Percentage of Covered Payroll 2015 19,092,334 $ 13,160,140 $ 5,932,194 $ 68.9% 4,188,926 $ 141.62% 2016 21,640,550 12,531,070 9,109,480 57.9% 4,390,047 207.50% 2017 21,963,521 13,589,341 8,374,180 61.9% 4,547,735 184.14% 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. 83 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan Schedule of Contributions Fiscal Year Ending December 31, Actuarially Determined Contribution Contributions in Relation to the Actuarially Determined Contribution Contribution Deficiency (Excess) Covered Payroll Contributions as Percentage of Covered Payroll 2008 590,169 $ 590,169 $ - $ 4,441,009 $ 13.29% 2009 633,642 633,642 - 4,426,638 14.31% 2010 716,885 716,885 - 4,385,025 16.35% 2011 565,476 565,476 - 4,400,424 12.85% 2012 705,702 705,702 - 4,014,917 17.58% 2013 727,962 727,962 - 4,080,889 17.84% 2014 640,433 640,433 - 4,188,926 15.29% 2015 693,477 693,477 - 4,390,047 15.80% 2016 715,641 865,641 (150,000) 4,547,735 19.03% 2017 856,396 1,106,396 (250,000) 4,575,021 24.18% Valuation payroll as of the previous year ended December 31. Notes to Schedule of Contributions Valuation Date Methods and assumptions used to determine contribution rates: Actuarial cost method Entry-age normal Amortization method Remaining amortization period 24 years Asset valuation method Open; 10 year smoothed Inflation 3.05 to 4.0% Salary increases Investment rate of return 8.0%, net of investment and administrative expense including inflation Retirement age Mortality Age-based table of rates that are specific to the type of eligibility condition. The Normal Retirement rates were first used for the December 31, 2009 actuarial valuations. The Early Retirement rates were first used for the December 31, 2011 actuarial valuations. 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. Actuarially determined contribution rates are calculated as of December 31, that is 12 months prior to the beginning of the fiscal year in which contributions are reported. 4.5% in the long-term (2.0% and 3.0% for calendars years 2015 and 2016, respectively) The actuarially determined contribution was calculated based on projected covered payroll. Employer contributions were made in full based on actual covered payroll. Accordingly, the actuarially-determined contribution has been expressed above as a percentage of actual payroll. Level percent of payroll, open 84 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information Other Postemployment Benefits Plan (Primary Government) Actuarial Accrued UAAL as a Actuarial Liability Unfunded Percentage Actuarial Value of (AAL) - AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (b-a) (a / b) / c) 12/31/2011 - $ 3,742,809 $ 3,741,809 $ 0.0% 1,572,403 $ 238.0% 12/31/2014 - 2,537,155 2,537,155 0.0% 745,953 340.1% 12/31/2017 - 1,930,701 1,930,701 0.0% -N/A- -N/A- Annual Year Ended Required Percentage December 31, Contributions Contributed 2015 237,772 $ 45% 2016 239,478 32% 2017 150,887 44% Schedule of Employer Contributions Other Postemployment Benefits Plan Schedule of Funding Progress Other Postemployment Benefits Plan 85 ---PAGE BREAK--- COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Governmental Funds December 31, 2017 Special Capital Revenue Projects Total Assets Cash and cash equivalents 2,526,384 $ 4,680,897 $ 7,207,281 $ Investments 1,704,018 1,688,333 3,392,351 Receivables, net: Accounts 229,564 148,450 378,014 Property taxes 2,165,683 693,335 2,859,018 Due from other governments 190,336 50,000 240,336 Advances to other funds 32,119 32,119 Advances to component units - 269,366 269,366 Total assets 6,815,985 $ 7,562,500 $ 14,378,485 $ Liabilities Accounts payable 242,097 $ 117,041 $ 359,138 $ Accrued liabilities 15,142 - 15,142 Due to other governments 8,839 - 8,839 Unearned revenue 200,572 - 200,572 Total liabilities 466,650 117,041 583,691 Deferred inflows of resources Taxes levied for a subsequent period 2,165,683 693,335 2,859,018 Fund balances Restricted 3,566,477 3,944,276 7,510,753 Committed 617,175 3,000,199 3,617,374 Unassigned (deficit) - (192,351) (192,351) Total fund balances 4,183,652 6,752,124 10,935,776 Total liabilities, deferred inflows 6,815,985 $ 7,562,500 $ 14,378,485 $ of resources, and fund balances 86 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Change in Fund Balances Nonmajor Governmental Funds For the Year Ended December 31, 2017 Special Capital Revenue Projects Total Revenues Taxes 1,985,569 $ 653,163 $ 2,638,732 $ Federal sources 313,491 100,000 413,491 State sources 359,013 30,000 389,013 Local sources 509,325 90,050 599,375 Charges for services 1,076,386 48,783 1,125,169 Fines and forfeits 191,708 - 191,708 Interest and rentals 57,737 34,130 91,867 Other 999,521 774,844 1,774,365 Total revenues 5,492,750 1,730,970 7,223,720 Expenditures Judicial 434,708 - 434,708 General government 945,486 - 945,486 Public safety 1,637,468 50,000 1,687,468 Public works - 369,920 369,920 Health and welfare 720,697 - 720,697 Recreation and culture 1,371,168 162,201 1,533,369 Other 387,290 387,290 Contribution to other governmental units - 121,440 121,440 Debt service: Principal 114,115 - 114,115 Interest and fiscal charges 3,471 - 3,471 Total expenditures 5,227,113 1,090,851 6,317,964 Revenues over expenditures 265,637 640,119 905,756 Other financing sources (uses) Proceeds from issuance of long-term debt - 2,250,000 2,250,000 Premium on long-term debt - 24,158 24,158 Transfers in 594,828 1,068,905 1,663,733 Transfers out (698,355) (398,713) (1,097,068) Total other financing sources (uses) (103,527) 2,944,350 2,840,823 Net change in fund balances 162,110 3,584,469 3,746,579 Fund balances, beginning of year 4,021,542 3,167,655 7,189,197 Fund balances, end of year 4,183,652 $ 6,752,124 $ 10,935,776 $ 87 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Special Revenue Funds December 31, 2017 Groen Work Parks and Nature University Camp Recreation Preserve Center Assets Cash and cash equivalents 15,538 $ 58,998 $ 218,430 $ 275,884 $ Investments - 285,282 - 3,402 Receivables: Accounts - 3,917 10 - Property taxes - 308,111 - 686,778 Due from other governments 3,445 - - - Total assets 18,983 $ 656,308 $ 218,440 $ 966,064 $ Liabilities Accounts payable 1,095 $ 12,742 $ 54,123 $ - $ Accrued liabilities 913 1,922 426 - Due to other governments - - - - Unearned revenue - 66,772 133,800 - Total liabilities 2,008 81,436 188,349 - Deferred inflows of resources Taxes levied for a subsequent period - 308,111 - 686,778 Fund balances Restricted - 266,761 30,091 279,286 Committed 16,975 - - - Total fund balances 16,975 266,761 30,091 279,286 Total liabilities, deferred inflows of 18,983 $ 656,308 $ 218,440 $ 966,064 $ resources, and fund balances 88 ---PAGE BREAK--- Animal Friend Control of the Animal Forfeited Recycling Moth Court Control Funds Funds Control 267,964 $ 111,220 $ 8,173 $ 47,586 $ 114,389 $ - 287,884 - 140,000 - - - - - - - 369,945 - 307,644 - 56,151 3,332 - - - 324,115 $ 772,381 $ 8,173 $ 495,230 $ 114,389 $ 7,061 $ 12,129 $ - $ 41,443 $ - $ 5,032 3,081 - - - - - - - - - - - - - 12,093 15,210 - 41,443 - - 369,945 - 307,644 - - 387,226 8,173 146,143 114,389 312,022 - - - - 312,022 387,226 8,173 146,143 114,389 324,115 $ 772,381 $ 8,173 $ 495,230 $ 114,389 $ Continued… 89 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Special Revenue Funds December 31, 2017 Register Brownfield of Deeds Redevelopment Building Automation Authority Department Fund Library Assets Cash and cash equivalents 14,864 $ 728,791 $ 101,610 $ 32,953 $ Investments - 212,348 - 520,102 Receivables: Accounts - - 225 94,527 Property taxes - - - 493,205 Due from other governments - - - - Total assets 14,864 $ 941,139 $ 101,835 $ 1,140,787 $ Liabilities Accounts payable - $ 6,335 $ 1,897 $ 24,474 $ Accrued liabilities - 1,585 - - Due to other governments - - - - Unearned revenue - - - - Total liabilities - 7,920 1,897 24,474 Deferred inflows of resources Taxes levied for a subsequent period - - - 493,205 Fund balances Restricted 14,864 933,219 99,938 623,108 Committed - - - - Total fund balances 14,864 933,219 99,938 623,108 Total liabilities, deferred inflows of 14,864 $ 941,139 $ 101,835 $ 1,140,787 $ resources, and fund balances 90 ---PAGE BREAK--- Emergency Concealed Local Department 911 Pistol Officers Law of Human Funds Licensing Training Library Services 157,268 $ 22,666 $ 22,076 $ 17,173 $ 4,301 $ 250,000 - - - 5,000 130,761 124 - - - - - - - - 36,410 - - - - 574,439 $ 22,790 $ 22,076 $ 17,173 $ 9,301 $ 1,152 $ 166 $ - $ - $ 1,254 $ - - - - - - - - - - - - - - - 1,152 166 - - 1,254 - - - - - 573,287 22,624 22,076 17,173 8,047 - - - - - 573,287 22,624 22,076 17,173 8,047 574,439 $ 22,790 $ 22,076 $ 17,173 $ 9,301 $ Continued… 91 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Special Revenue Funds December 31, 2017 Child Bradford Care Veteran's Equipment Lake Probate Trust Revolving Dam Total Assets Cash and cash equivalents 200,757 $ - $ 85,671 $ 20,072 $ 2,526,384 $ Investments - - - - 1,704,018 Receivables: Accounts - - - - 229,564 Property taxes - - - - 2,165,683 Due from other governments 90,998 - - - 190,336 Total assets 291,755 $ - $ 85,671 $ 20,072 $ 6,815,985 $ Liabilities Accounts payable 59,936 $ - $ 18,290 $ - $ 242,097 $ Accrued liabilities 2,183 - - - 15,142 Due to other governments 8,839 - - - 8,839 Unearned revenue - - - - 200,572 Total liabilities 70,958 - 18,290 - 466,650 Deferred inflows of resources Taxes levied for a subsequent period - - - - 2,165,683 Fund balances Restricted - - - 20,072 3,566,477 Committed 220,797 - 67,381 - 617,175 Total fund balances 220,797 - 67,381 20,072 4,183,652 Total liabilities, inflows of 291,755 $ - $ 85,671 $ 20,072 $ 6,815,985 $ Concluded resources, and fund balances 92 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Change in Fund Balances Nonmajor Special Revenue Funds For the Year Ended December 31, 2017 Groen Work Parks and Nature University Camp Recreation Preserve Center Revenues Taxes - $ 218,747 $ - $ 649,969 $ Federal sources - - - - State sources - 19,000 - - Local sources - - - 509,325 Charges for services 47,030 225,692 - - Fines and forfeits - - - - Interest and rentals 337 9,142 - 3,511 Other revenue 94 13,909 130,764 8,153 Total revenues 47,461 486,490 130,764 1,170,958 Expenditures Judicial - - - - General government - - - 427,722 Public safety 147,045 - - - Health and welfare - - - - Recreation and culture - 491,908 118,057 - Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures 147,045 491,908 118,057 427,722 Revenues over (under) expenditures (99,584) (5,418) 12,707 743,236 Other financing sources (uses) Transfers in 25,670 425 - - Transfers out - - - (463,950) Total other financing sources (uses) 25,670 425 - (463,950) Net change in fund balances (73,914) (4,993) 12,707 279,286 Fund balances, beginning of year 90,889 271,754 17,384 - Fund balances, end of year 16,975 $ 266,761 $ 30,091 $ 279,286 $ 93 ---PAGE BREAK--- Animal Friend Control of the Animal Forfeited Recycling Moth Court Control Funds Fund Control - $ 350,117 $ - $ 291,628 $ - $ 313,491 - - - - 39,788 - - - - - - - - - 32,150 45,457 - - - - 415 - - - - 8,695 13 3,022 201 - 21,149 - 2,133 - 385,429 425,833 13 296,783 201 434,708 - - - - - - - 363,604 - - 427,300 - - - - - - - - - - - - - - - - - - - - - - - 434,708 427,300 - 363,604 - (49,279) (1,467) 13 (66,821) 201 113,764 700 - - - - - - - - 113,764 700 - - - 64,485 (767) 13 (66,821) 201 247,537 387,993 8,160 212,964 114,188 312,022 $ 387,226 $ 8,173 $ 146,143 $ 114,389 $ Continued… 94 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Change in Fund Balances Nonmajor Special Revenue Funds For the Year Ended December 31, 2017 Register Brownfield of Deeds Redevelopment Building Automation Authority Department Fund Library Revenues Taxes 5,077 $ - $ - $ 470,031 $ Federal sources - - - - State sources - - - 15,806 Local sources - - - - Charges for services - 527,223 37,810 - Fines and forfeits - - - 191,293 Interest and rentals - 5,195 - 19,446 Other revenue - - - 235,207 Total revenues 5,077 532,418 37,810 931,783 Expenditures Judicial - - - - General government - - 16,439 - Public safety - 398,381 - - Health and welfare - - - - Recreation and culture - - - 758,928 Debt service: Principal 114,115 - - - Interest and fiscal charges 3,471 - - - Total expenditures 117,586 398,381 16,439 758,928 Revenues over (under) expenditures (112,509) 134,037 21,371 172,855 Other financing sources (uses) Transfers in - - - - Transfers out - (6,000) - (211,405) Total other financing sources (uses) - (6,000) - (211,405) Net change in fund balances (112,509) 128,037 21,371 (38,550) Fund balances, beginning of year 127,373 805,182 78,567 661,658 Fund balances, end of year 14,864 $ 933,219 $ 99,938 $ 623,108 $ 95 ---PAGE BREAK--- Emergency Concealed Local Department 911 Pistol Officers Law of Human Funds Licensing Training Library Services - $ - $ - $ - $ - $ - - - - - - - - - - - - - - - 148,759 12,265 - - - - - - - - 7,081 - - - 51 516,947 - - 3,499 - 672,787 12,265 - 3,499 51 - - - - - - - - - - 653,216 6,996 4,530 - - - - - - 6,048 - - - 2,275 - - - - - - - - - - - 653,216 6,996 4,530 2,275 6,048 19,571 5,269 (4,530) 1,224 (5,997) - - - - 8,904 (17,000) - - - - (17,000) - - - 8,904 2,571 5,269 (4,530) 1,224 2,907 570,716 17,355 26,606 15,949 5,140 573,287 $ 22,624 $ 22,076 $ 17,173 $ 8,047 $ Continued… 96 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Change in Fund Balances Nonmajor Special Revenue Funds For the Year Ended December 31, 2017 Child Bradford Care Veteran's Equipment Lake Probate Trust Revolving Dam Total Revenues Taxes - $ - $ - $ - $ 1,985,569 $ Federal sources - - - - 313,491 State sources 282,981 1,438 - - 359,013 Local sources - - - - 509,325 Charges for services - - - - 1,076,386 Fines and forfeits - - - - 191,708 Interest and rentals - - 1,039 4 57,737 Other revenue 54,850 - 12,816 - 999,521 Total revenues 337,831 1,438 13,855 4 5,492,750 Expenditures Judicial - - - - 434,708 General government - - 137,721 - 945,486 Public safety - - - - 1,637,468 Health and welfare 712,645 2,004 - - 720,697 Recreation and culture - - - - 1,371,168 Debt service: Principal - - - - 114,115 Interest and fiscal charges - - - - 3,471 Total expenditures 712,645 2,004 137,721 - 5,227,113 Revenues over (under) expenditures (374,814) (566) (123,866) 4 265,637 Other financing sources (uses) Transfers in 350,065 - 95,300 - 594,828 Transfers out - - - - (698,355) Total other financing sources (uses) 350,065 - 95,300 - (103,527) Net change in fund balances (24,749) (566) (28,566) 4 162,110 Fund balances, beginning of year 245,546 566 95,947 20,068 4,021,542 Fund balances, end of year 220,797 $ - $ 67,381 $ 20,072 $ 4,183,652 $ Concluded 97 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Capital Projects Funds December 31, 2017 EMS Building Capital Library Court Project Library Construction Restoration Fund Building Millage Building Assets Cash and cash equivalents 2,536 $ 294,566 $ 157,808 $ 72,811 $ Investments - 500,000 280,854 - Receivables: Accounts - - - - Property taxes 335 - 462,366 - Due from other governments - - - - Advances to other funds - - - - Advances to component units - - - - Total assets 2,871 $ 794,566 $ 901,028 $ 72,811 $ Liabilities Accounts payable - $ - $ - $ 7,842 $ Deferred inflows of resources Taxes levied for a subsequent period 335 - 462,366 - Fund balances Restricted - - - - Committed 2,536 794,566 438,662 64,969 Unassigned (deficit) - - - - Total fund balances 2,536 794,566 438,662 64,969 Total liabilities, deferred inflows of resources, and fund balances 2,871 $ 794,566 $ 901,028 $ 72,811 $ 98 ---PAGE BREAK--- Groen Nature Groen Preserve University Library Airport Capital Capital Building Center Capital Capital Projects Tennis Court Construction Projects II Projects Maintenance Projects Fund Bond Construction 153,973 $ 28,620 $ 216 $ 6,614 $ 417,882 $ 1,640,246 $ (188,117) $ - - - 250,000 391,534 - - - - - - - - - - - - 230,634 - - - - - - - - - - - - - - - - - - - - - - - - 153,973 $ 28,620 $ 216 $ 487,248 $ 809,416 $ 1,640,246 $ (188,117) $ - $ - $ - $ - $ - $ 94,616 $ 4,234 $ - - - 230,634 - - - - - - 256,614 - 1,545,630 - 153,973 28,620 216 - 809,416 - - - - - - - - (192,351) 153,973 28,620 216 256,614 809,416 1,545,630 (192,351) 153,973 $ 28,620 $ 216 $ 487,248 $ 809,416 $ 1,640,246 $ (188,117) $ 99 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Capital Projects Funds December 31, 2017 Public Improvements Iron Belle Trail Capital Capital Project Capital Project Projects Fund Total Assets Cash and cash equivalents 268,737 $ 717,590 $ 1,107,415 $ 4,680,897 $ Investments - - 265,945 1,688,333 Receivables: Accounts 50,000 - 98,450 148,450 Property taxes - - - 693,335 Due from other governments - - 50,000 50,000 Advances to other funds - - 32,119 32,119 Advances to component units - - 269,366 269,366 Total assets 318,737 $ 717,590 $ 1,823,295 $ 7,562,500 $ Liabilities Accounts payable - $ 10,349 $ - $ 117,041 $ Deferred inflows of resources Taxes levied for a subsequent period - - - 693,335 Fund balances Restricted 318,737 - 1,823,295 3,944,276 Committed - 707,241 - 3,000,199 Unassigned (deficit) - - - (192,351) Total fund balances 318,737 707,241 1,823,295 6,752,124 Total liabilities, deferred inflows of resources, and fund balances 318,737 $ 717,590 $ 1,823,295 $ 7,562,500 $ Concluded 100 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Change in Fund Balances Nonmajor Capital Projects Funds For the Year Ended December 31, 2017 EMS Building Capital Library Court Project Library Construction Restoration Fund Building Millage Building Revenues Property taxes 2,517 $ - $ 432,953 $ - $ Federal sources - - - - State grants - - - - Local sources - 90,050 - - Charges for services - - - 48,561 Interest and rentals - 7,028 5,709 - Other revenue - - - - Total revenues 2,517 97,078 438,662 48,561 Expenditures Public safety - - - - Public works - - - - Recreation and culture - - - 67,384 Other - - - - Contribution to government to other governmental units - - - - Total expenditures - - - 67,384 Revenues over (under) expenditures 2,517 97,078 438,662 (18,823) Other financing sources (uses) Proceeds from issuance of long-term debt - - - - Premium on long-term debt - - - - Transfers in - 145,501 - - Transfers out - - - - Total other financing sources (uses) - 145,501 - - Net change in fund balances 2,517 242,579 438,662 (18,823) Fund balances, beginning of year 19 551,987 - 83,792 Fund balances, end of year 2,536 $ 794,566 $ 438,662 $ 64,969 $ 101 ---PAGE BREAK--- Groen Nature Groen Preserve University Library Airport Capital Capital Building Center Capital Capital Projects Tennis Court Construction Projects II Projects Maintenance Projects Fund Bond Construction - $ - $ - $ 217,693 $ - $ - $ - $ - - - - - - - - - - - - - - - - - - - - - 222 - - - - - - - - - 4,394 9,407 - - - 2,400 - - 569,459 - - 222 2,400 - 222,087 578,866 - - - - - - - - - - - - - - 236,754 - - - - 94,817 - - - 1,474 - - - 1,450 177,015 207,351 - - - - - - - 1,474 - - 94,817 1,450 413,769 207,351 (1,252) 2,400 - 127,270 577,416 (413,769) (207,351) - - - - - 2,250,000 - - - - - - 24,158 - 25,000 - - - - 65,904 15,000 (25,050) - - - 232,000 (380,663) - (50) - - - 232,000 1,959,399 15,000 (1,302) 2,400 - 127,270 809,416 1,545,630 (192,351) 155,275 26,220 216 129,344 - - - 153,973 $ 28,620 $ 216 $ 256,614 $ 809,416 $ 1,545,630 $ (192,351) $ 102 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Change in Fund Balances Nonmajor Capital Projects Funds For the Year Ended December 31, 2017 Public Improvements Iron Belle Trail Capital Capital Project Capital Project Projects Fund Total Revenues Property taxes - $ - $ - $ 653,163 $ Federal sources - 50,000 50,000 100,000 State grants 30,000 - - 30,000 Local sources - - - 90,050 Charges for services - - - 48,783 Interest and rentals 177 375 7,040 34,130 Other revenue 200,000 2,985 - 774,844 Total revenues 230,177 53,360 57,040 1,730,970 Expenditures Public safety - - 50,000 50,000 Public works - 133,166 - 369,920 Recreation and culture - - - 162,201 Other - - - 387,290 Contribution to government to other governmental units 121,440 - - 121,440 Total expenditures 121,440 133,166 50,000 1,090,851 Revenues over (under) expenditures 108,737 (79,806) 7,040 640,119 Other financing sources (uses) Proceeds from issuance of long-term debt - - - 2,250,000 Premium on long-term debt - - - 24,158 Transfers in 210,000 607,500 - 1,068,905 Transfers out - (225,000) - (398,713) Total other financing sources (uses) 210,000 382,500 - 2,944,350 Net change in fund balances 318,737 302,694 7,040 3,584,469 Fund balances, beginning of year - 404,547 1,816,255 3,167,655 Fund balances, end of year 318,737 $ 707,241 $ 1,823,295 $ 6,752,124 $ 103 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Net Position Nonmajor Enterprise Funds December 31, 2017 Global University Tax Positioning Center Foreclosure System Metropolitan Fund Fund Area Network Assets Current assets: Cash and cash equivalents 359,180 $ 70,236 $ 163,666 $ Investments 1,207,166 - - Accounts receivable - - 7,193 Prepaids - - - Total current assets 1,566,346 70,236 170,859 Noncurrent assets: Capital assets being depreciated, net - - 73,783 Total assets 1,566,346 70,236 244,642 Liabilities (all current) Accounts payable 1,423 1,200 8,938 Accrued liabilities 830 - - Total liabilities 2,253 1,200 8,938 Net position Investment in capital assets - - 73,783 Unrestricted 1,564,093 69,036 161,921 Total net position 1,564,093 $ 69,036 $ 235,704 $ 104 ---PAGE BREAK--- Airport Special Advertising Jail Homestead Events I-75 Sign Fund Commissary Audit Total 44,712 $ 3,150 $ 7,114 $ 13,259 $ 661,317 $ - - - - 1,207,166 1,020 - - - 8,213 6,266 - - - 6,266 51,998 3,150 7,114 13,259 1,882,962 - - - - 73,783 51,998 3,150 7,114 13,259 1,956,745 2,641 - 3,856 395 18,453 - - - - 830 2,641 - 3,856 395 19,283 - - - - 73,783 49,357 3,150 3,258 12,864 1,863,679 49,357 $ 3,150 $ 3,258 $ 12,864 $ 1,937,462 $ 105 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenses and Change in Fund Net Position Nonmajor Enterprise Funds For the Year Ended December 31, 2017 Global University Tax Positioning Center Foreclosure System Metropolitan Fund Fund Area Network Operating revenues Charges for services 102,518 $ 6,280 $ 108,866 $ Local sources - 5,000 - Total operating revenues 102,518 11,280 108,866 Operating expenses Salaries and fringes 56,231 - - Contractual services - - - Materials and supplies 5,606 25,313 - Depreciation - - 12,300 Other 2,651 - 75,754 Total operating expenses 64,488 25,313 88,054 Operating income (loss) 38,030 (14,033) 20,812 Nonoperating revenues Investment earnings 30,651 - - Other 42,739 - - Total nonoperating revenues 73,390 - - Income (loss) before transfers 111,420 (14,033) 20,812 Transfers Transfers in - 17,000 - Transfers out (110,000) - - Total transfers (110,000) 17,000 - Change in net position 1,420 2,967 20,812 Net position, beginning of year 1,562,673 66,069 214,892 Net position, end of year 1,564,093 $ 69,036 $ 235,704 $ 106 ---PAGE BREAK--- Airport Special Advertising Jail Homestead Events I-75 Sign Fund Commissary Audit Total 97,350 $ - $ 13,620 $ 245 $ 328,879 $ - - - - 5,000 97,350 - 13,620 245 333,879 - - - - 56,231 105,967 - - - 105,967 15,049 - 14,140 - 60,108 - - - - 12,300 55,723 252 - 2,012 136,392 176,739 252 14,140 2,012 370,998 (79,389) (252) (520) (1,767) (37,119) - - - 2,673 33,324 116,677 3,402 - - 162,818 116,677 3,402 - 2,673 196,142 37,288 3,150 (520) 906 159,023 - - - - 17,000 - - - - (110,000) - - - - (93,000) 37,288 3,150 (520) 906 66,023 12,069 - 3,778 11,958 1,871,439 49,357 $ 3,150 $ 3,258 $ 12,864 $ 1,937,462 $ 107 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Cash Flows Nonmajor Enterprise Funds For the Year Ended December 31, 2017 Global University Tax Positioning Center Foreclosure System Metropolitan Fund Fund Area Network Cash flows from operating activities Receipts from customers 104,874 $ 11,280 $ 107,160 $ Payments to suppliers (63,838) (25,313) (73,931) Net cash provided by (used in) operating activities 41,036 (14,033) 33,229 Cash flows from noncapital financing activities Other receipts 42,739 - - Transfers in - 17,000 - Transfers out (110,000) - - Net cash provided by (used in) noncapital financing activities (67,261) 17,000 - Cash flows from investing activities Proceeds from sale of investments 173,586 - - Interest received on investments 30,651 - - Net cash provided by investing activities 204,237 - - Net change in cash and cash equivalents 178,012 2,967 33,229 Cash and cash equivalents, beginning of year 181,168 67,269 130,437 - Cash and cash equivalents, end of year 359,180 $ 70,236 $ 163,666 $ Reconciliation of operating income (loss) to net cash provided by (used in) operating activities Operating income (loss) 38,030 $ (14,033) $ 20,812 $ Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation expense - - 12,300 Change in operating assets and liabilities that provided (used) cash: Accounts receivable 2,356 - (1,706) Prepaids - - - Accounts payable 256 - 1,823 Accrued liabilities 394 - - Net cash provided by (used in) operating activities 41,036 $ (14,033) $ 33,229 $ 108 ---PAGE BREAK--- Airport Special Advertising Jail Homestead Events I-75 Sign Fund Commissary Audit Total 96,330 $ - $ 18,741 $ 245 $ 338,630 $ (180,435) (252) (11,959) (1,617) (357,345) (84,105) (252) 6,782 (1,372) (18,715) 116,677 3,402 - - 162,818 - - - - 17,000 - - - - (110,000) 116,677 3,402 - - 69,818 - - - - 173,586 - - - 2,673 33,324 - - - 2,673 206,910 32,572 3,150 6,782 1,301 258,013 12,140 - 332 11,958 403,304 - - 44,712 $ 3,150 $ 7,114 $ 13,259 $ 661,317 $ (79,389) $ (252) $ (520) $ (1,767) $ (37,119) $ - - - - 12,300 (1,020) - 5,121 - 4,751 (6,266) - - - (6,266) 2,570 - 2,181 395 7,225 - - - - 394 (84,105) $ (252) $ 6,782 $ (1,372) $ (18,715) $ 109 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Net Position Internal Service Funds December 31, 2017 Building and Administrative Health Grounds Services Care Total Assets (all current) Cash and cash equivalents 56,634 $ 65,893 $ 40,021 $ 162,548 $ Investments - - 200,000 200,000 Accounts receivable, net 4,786 38 7,184 12,008 Inventories - 325 - 325 Prepaids 59,426 - 91,689 151,115 Total assets 120,846 66,256 338,894 525,996 Liabilities (all current) Accounts payable 13,248 2,586 1,772 17,606 Accrued liabilities - 1,656 - 1,656 Total liabilities 13,248 4,242 1,772 19,262 Net position Unrestricted 107,598 62,014 337,122 506,734 Total net position 107,598 $ 62,014 $ 337,122 $ 506,734 $ 110 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenses and Change in Fund Net Position Internal Service Funds For the Year Ended December 31, 2017 Building and Administrative Health Grounds Services Care Total Operating revenues Charges for services 418,235 $ 609,596 $ 1,226,624 $ 2,254,455 $ Operating expenses Salaries and fringes - 555,736 1,239,639 1,795,375 Contractual services 243,640 - - 243,640 Materials and supplies 3,229 7,256 21,786 32,271 Equipment repair and maintenance 17,145 997 - 18,142 Utilities 186,497 552 - 187,049 Other 3,956 11,532 - 15,488 Total operating expenses 454,467 576,073 1,261,425 2,291,965 Operating income (loss) (36,232) 33,523 (34,801) (37,510) Nonoperating revenues Investment earnings - - 4,820 4,820 Income (loss) before transfers (36,232) 33,523 (29,981) (32,690) Transfers Transfers in - 12,677 11,772 24,449 Change in net position (36,232) 46,200 (18,209) (8,241) Net position, beginning of year 143,830 15,814 355,331 514,975 Net position, end of year 107,598 $ 62,014 $ 337,122 $ 506,734 $ 111 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Cash Flows Internal Service Funds For the Year Ended December 31, 2017 Building and Administrative Health Grounds Services Care Total Cash flows from operating activities Internal activity - receipts from other funds 418,099 $ 609,596 $ 1,225,117 $ 2,252,812 $ Payments to suppliers (520,579) (23,488) - (544,067) Payments to employees for services and benefits - (555,686) (1,258,519) (1,814,205) Net cash provided by (used in) operating activities (102,480) 30,422 (33,402) (105,460) Cash flows provided by noncapital financing activities Transfers in - 12,677 11,772 24,449 Cash flows from investing activities Interest received on investments - - 4,820 4,820 Net change in cash and cash equivalents (102,480) 43,099 (16,810) (76,191) Cash and cash equivalents, beginning of year 159,114 22,794 56,831 238,739 Cash and cash equivalents, end of year 56,634 $ 65,893 $ 40,021 $ 162,548 $ Reconciliation of operating income (loss) to net cash provided by (used in) operating activities Operating income (loss) (36,232) $ 33,523 $ (34,801) $ (37,510) $ Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Change in operating assets and liabilities that provided (used) cash: Accounts receivable (136) - (1,507) (1,643) Prepaids (59,426) - 1,134 (58,292) Accounts payable (6,686) (3,151) 1,772 (8,065) Accrued liabilities - 50 - 50 Net cash provided by (used in) operating activities (102,480) $ 30,422 $ (33,402) $ (105,460) $ 112 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Fiduciary Assets and Liabilities Fiduciary Funds December 31, 2017 Michigan Municipal Risk General Agency Payroll Imprest Library Management Fund Fund Penal Fines Authority Total Assets Cash and cash equivalents 1,670,768 $ 247,979 $ 95,989 $ 322,492 $ 2,337,228 $ Liabilities Undistributed tax collections 1,315,141 $ - $ - $ - $ 1,315,141 $ Bonds, restitutions, and payables to others 355,627 247,979 95,989 322,492 1,022,087 Total liabilities 1,670,768 $ 247,979 $ 95,989 $ 322,492 $ 2,337,228 $ 113 ---PAGE BREAK--- INTERNAL CONTROL AND COMPLIANCE ---PAGE BREAK--- Rehmann Robson 902 South Huron Cheboygan, MI 49721 Ph: [PHONE REDACTED] Fx: [PHONE REDACTED] rehmann.com CPAs & Consultants Wealth Advisors Corporate Investigators Rehmann is an independent member of Nexia International. Gaylord, Michigan In planning and performing our audit of the financial statements, we considered the County’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 County’s internal control. Accordingly, we do not express an opinion on the effectiveness of the County’s internal control. Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards June 28, 2018 Internal Control Over Financial Reporting Honorable Members of the Board of Commissioners Otsego County We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Otsego County, Michigan (the "County"), as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the County’s basic financial statements, and have issued our report thereon dated June 28, 2018. Our report includes a reference to other auditors who audited the financial statements of Otsego County Road Commission and Otsego County Commission on Aging discretely presented component units, as described in our report on the County’s financial statements. This report does not include the results of the other auditors’ testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. The financial statements of the Otsego County Commission on Aging were not audited in accordance with Government Auditing Standards. 114 ---PAGE BREAK--- Compliance and Other Matters Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the County’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. As part of obtaining reasonable assurance about whether the County’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Otsego County’s Response to Finding The County’s response to the finding identified in our audit is described in the accompanying schedule of findings and responses. The County’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. 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 and therefore, material weaknesses or significant deficiencies may exist that have not been identified. We did identify a certain deficiency in internal control, described in the accompanying schedule of findings and questioned costs, as item 2017-001 that we consider to be a material weakness. 115 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Schedule of Findings and Responses For the Year Ended December 31, 2017 Finding Type. Material Weakness in Internal Control over Financial Reporting. 2017-001 - Material Audit Adjustments      View of Responsible Officials. Management agrees with the adjustments proposed by its auditors, and they have been posted in the County’s records. The County will improve procedures to ensure the account balances are reviewed and reconciled on a regular basis. Recommendation. The adjustments noted above have been reviewed by management, posted to the County’s records, and are reported correctly in the audited financial statements. However, we recommend that the County strive to strengthen its financial reporting processes by enhancing its review and reconciliation procedures. Criteria. Management is responsible for maintaining its accounting records in accordance with generally accepted accounting principles (GAAP). Condition. During our audit, we identified and proposed material adjustments (which were approved and posted by management) to adjust the County’s general ledger to the appropriate balances. These adjustments affected a variety of accounts of the primary government and component units which included, due from other governments, taxes receivable, capital assets and long-term debt. Cause. This condition was caused by turnover in personnel and the County failing to reconcile several accounts and make necessary adjustments to those accounts. Effect. As a result of this condition, the County’s accounting records were initially misstated by amounts material to the financial statements. 116