Document otsegocountymi_gov_doc_39fb05a329

Year Ended December 31, 2016 Financial Statements Otsego County, Michigan ---PAGE BREAK--- ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN ELECTED OFFICERS For the Year Ended December 31, 2016 BOARD OF COMMISSIONERS Ken Borton Doug Johnson Chairman Vice Chairman Erma Backenstose Paul Beachnau Paul Liss Bruce Brown Julia Powers-Gehman Ken Glasser Robert Harkness Diann Axford Susan DeFeyter Treasurer Clerk/Register of Deeds Matthew Nowicki Michael A. Rola Sheriff Prosecuting Attorney OTHER OFFICIALS John Burt Appointed County Administrator ---PAGE BREAK--- ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Table of Contents Page Independent Auditors’ Report 1-3 Management’s Discussion and Analysis 4-12 Basic Financial Statements Government-wide Financial Statements: Statement of Net Position 13 Statement of Activities 14-15 Fund Financial Statements: Balance Sheet – Governmental Funds 16-17 Reconciliation of Fund Balances of Governmental Funds to Net Position of Governmental Activities 18 Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds 19-20 Reconciliation of Net Changes in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities 21 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual: General Fund 22-24 Housing Commission Special Revenue Fund 25 M-TEC Special Revenue Fund 26 Statement of Net Position – Proprietary Funds 27-28 Statement of Revenues, Expenses and Changes in Fund Net Position – Proprietary Funds 29-30 Statement of Cash Flows – Proprietary Funds 31-34 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 37 Notes to Financial Statements 38-85 Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan: Schedule of Changes in County's Net Pension and Related Ratios 86 Schedule of the Net Pension Liability 87 Schedule of Contributions 88 Other Postemployment Benefits Plan (Primary Government): Schedule of Funding Progress – Other Postemployment Benefits Plan 89 Schedule of Employer Contributions – Other Postemployment Benefits Plan 89 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Table of Contents Page Combining and Individual Fund Financial Statements Nonmajor Governmental Funds: Combining Balance Sheet – Nonmajor Governmental Funds 90 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Governmental Funds 91 Combining Balance Sheet – Nonmajor Special Revenues Funds 92-95 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Special Revenues Funds 96-99 Combining Balance Sheet – Nonmajor Capital Projects Funds 100-101 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Capital Projects Funds 102-103 Nonmajor Enterprise Funds: Combining Statement of Net Position 104-105 Combining Statement of Revenues, Expenses and Changes in Fund Net Position 106-107 Combining Statement of Cash Flows 108-109 Internal Service Funds: Combining Statement of Net Position 110 Combining Statement of Revenues, Expenditures and Changes in Fund Net Position 111 Combining Statement of Cash Flows 112 Combining Statement of Fiduciary Assets and Liabilities - Fiduciary Funds 113 Balance Sheet and Statement of Net Position – University Center Component Unit 114 Statement of Revenues, Expenditures and Changes in Fund Balance and Statement of Activities – University Center Component Unit 115 Internal Control and Compliance 116-117 118 119     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 Summary Schedule of Prior Audit Findings Schedule of Findings and Responses ---PAGE BREAK--- 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 23, 2017 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, 2016, 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 86 percent, 83 percent, and 62 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. ---PAGE BREAK--- Opinions Other Information Required Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County’s basic financial statements. The 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. 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 the Otsego County, Michigan, as of December 31, 2016, 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. 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. 2 ---PAGE BREAK--- 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 23, 2017 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. 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, 2016 are as follows: Total net position $31,334,478 Unrestricted net position 9,703,020 Change in net position (1,277,862) Fund balances, governmental funds 11,960,224 Change in fund balances, governmental funds 427,428 Fund balance, general fund 4,619,287 (as percentage of general fund expenditures and transfers out) 61% Unassigned fund balance, general fund 4,601,720 (as percentage of general fund expenditures and transfers out) 60% Overview of the Financial Statements 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 cultural, and other functions. The business‑type activities of the County include delinquent tax collection, public transit, airport, and other non- major enterprise funds. 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, 2016. 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. 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 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, 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 fund balance sheet and in the governmental funds statement of revenues, expenditures and changes in fund balances for the General Fund, Housing Commission Fund, M-Tec Fund, Public Improvements Capital Projects 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, University Center at Gaylord, 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 fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. 5 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Net investment in capital assets is 52% of total net position. An additional portion of the County's net position, approximately 17%, 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 31%. This net position may be used to meet the government's ongoing obligations to citizens and creditors. Net Position The combining statements and schedules 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 management 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 exceeded liabilities and deferred inflows of resources by approximately $31,334,000 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. 6 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Net Position Governmental Activities Business-type Activities Total 2016 2015 2016 2015 2016 2015 Assets Current and other assets 18,413,194 $ 18,056,100 $ 9,326,332 $ 9,629,291 $ 27,739,526 $ 27,685,391 $ Capital assets, net 9,853,602 9,743,722 7,450,081 8,163,970 17,303,683 17,907,692 Total assets 28,266,796 27,799,822 16,776,413 17,793,261 45,043,209 45,593,083 Deferred outflows of resources Deferred pension amounts 2,626,420 501,614 544,221 83,924 3,170,641 585,538 Liabilities Long-term liabilities 2,038,770 2,471,090 - - 2,038,770 2,471,090 Other liabilities 11,059,014 8,417,437 1,040,638 383,292 12,099,652 8,800,729 Total liabilities 13,097,784 10,888,527 1,040,638 383,292 14,138,422 11,271,819 Deferred inflows of resources Taxes levied for a subsequent period 2,740,950 2,294,462 - - 2,740,950 2,294,462 Net position Net investment in capital assets 8,711,289 8,225,070 7,450,081 8,163,970 16,161,370 16,389,040 Restricted 5,470,088 5,100,031 - - 5,470,088 5,100,031 Unrestricted 873,105 1,793,346 8,829,915 9,329,923 9,703,020 11,123,269 Total net position 15,054,482 $ 15,118,447 $ 16,279,996 $ 17,493,893 $ 31,334,478 $ 32,612,340 $ The County’s total net position decreased approximately or approximately $1,278,000 to approximately $31,334,000 for the year ended December 31, 2016. 7 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Change in Net Position Governmental Activities Business-type Activities Total 2016 2015 2016 2015 2016 2015 Revenues Program revenues: Charges for services 2,283,073 $ 1,931,704 $ 1,768,953 $ 1,881,325 $ 4,052,026 $ 3,813,029 $ Operating grants 2,696,643 2,480,107 957,362 866,496 3,654,005 3,346,603 Capital grants 36,316 93,120 - - 36,316 93,120 General revenues: Property taxes 7,084,184 7,968,606 284,610 285,647 7,368,794 8,254,253 Interest and rentals 289,628 221,781 30,922 42,134 320,550 263,915 Other 1,615,023 1,637,880 297,972 467,988 1,912,995 2,105,868 Gain on sale of capital assets - 606 - - - 606 Total revenues 14,004,867 14,333,804 3,339,819 3,543,590 17,344,686 17,877,394 Expenses Legislative 215,808 199,764 - - 215,808 199,764 Judicial 1,941,671 1,880,211 - - 1,941,671 1,880,211 General government 3,494,065 2,553,185 - - 3,494,065 2,553,185 Public safety 4,126,567 4,304,627 - - 4,126,567 4,304,627 Public works 154,652 68,792 - - 154,652 68,792 Health and welfare 1,378,421 1,300,567 - - 1,378,421 1,300,567 Community & economic development 1,337,303 997,512 - - 1,337,303 997,512 Recreation and culture 1,525,880 1,409,665 - - 1,525,880 1,409,665 Other expenses - 552,683 - - - 552,683 Interest - unallocated 78,614 84,354 - - - - Delinquent tax collection - - 547,768 234,531 547,768 234,531 Bus System - - 1,954,767 1,850,405 1,954,767 1,850,405 Airport - - 1,524,185 1,539,330 1,524,185 1,539,330 Other business-type activities - - 342,847 302,582 342,847 302,582 Total expenses 14,252,981 13,351,360 4,369,567 3,926,848 18,543,934 17,193,854 Change in net position, before transfers (248,114) 982,444 (1,029,748) (383,258) (1,199,248) 683,540 Transfers 184,149 407,382 (184,149) (407,382) - - Change in net position (63,965) 1,389,826 (1,213,897) (790,640) (1,277,862) 599,186 Net position: Beginning of year 15,118,447 18,757,831 17,493,893 18,416,920 32,612,340 37,174,751 Restatement for implementation of GASB 68 - (5,029,210) - (132,387) - (5,161,597) End of year 15,054,482 $ 15,118,447 $ 16,279,996 $ 17,493,893 $ 31,334,478 $ 32,612,340 $ Governmental activities Governmental activities decreased the County’s net position by approximately $64,000. Overall revenues decreased by approximately $567,000. The most significant decrease in revenues was from the property taxes, by approximately $884,000. The ambulance building millage expired for fiscal year 2016, which had generated revenue of approximately $1,134,000 in the previous fiscal year, thus decreasing the amount of property taxes received in fiscal year 2016. Expenses increased by approximately $660,000. The most significant increase was in the general government function primarily due to an increase of approximately $325,000 from pension and other postemployment benefit expenses. 8 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis · · · · · · · · · · · 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 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. 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. 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. $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 Unrestricted net position of the internal service funds at year end amounted to approximately $515,000. The internal service funds had a decrease in net position for year of approximately $80,000. 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 2016 unassigned fund balance represented 33% of annual government expenditures in the governmental funds. The County's Public Improvements Capital Project Fund fund balance at December 31, 2016 was approximately $1,816,000 which increased approximately $22,000 from the prior year. The County's Debt Service Fund fund balance at December 31, 2016 remained at $0 for the 2016 fiscal year. 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. General Fund - The increase between the original and final amended budgets of revenue in the General Fund was a 3.83 percent increase. Capital Asset and Debt Administration The change between the original and final amended budgets of expenditures in the General Fund resulted in a 1.32 percent increase. Overall during the year, General Fund revenues were in line with the budgetary estimates and came in lower than anticipated by approximately $142,000 or 1.9 percent. Overall expenditures were under budget by approximately $523,000 or 7.9 percent. This is a result of fewer medical expenses than anticipated within the Circuit Court, an additional pension contribution not made, fewer other professional fees and a budgeted other contingency not used. The fund balance of the General Fund increased by approximately $281,000 from the prior year. Unassigned fund balance of approximately $4,457,000, is available for spending at the County's discretion. Budgetary Highlights Unrestricted net position of the enterprise funds at year end amounted to approximately $8,930,000. The enterprise funds had a decrease in net position for the year of approximately $1,214,000, due primarily to the transfer out of approximately $420,000 from the Tax Revolving fund used for various items including trail improvements, Veterans Memorial improvements, and a medical vehicle. Additionally, there was a loss on investments of approximately $343,000 that contributed to the decrease in net position. The County's Housing Commission Special Revenue Fund fund balance at December 31, 2016 was approximately $152,000; an increase of approximately $22,000 from the prior year. The County's M-TEC Special Revenue Fund fund balance at December 31, 2016 was approximately $100 which decreased approximately $260 from the prior year. 10 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Governmental Activities Business-type Activities Total 2016 2015 2016 2015 2016 2015 Land 2,227,138 $ 1,836,067 $ 99,998 $ 99,998 $ 2,327,136 $ 1,936,065 $ Construction in progress 146,867 365,100 16,500 219,670 163,367 584,770 Buildings 5,493,694 5,812,881 1,428,357 1,533,858 6,922,051 7,346,739 Furniture and Fixtures 90,887 122,045 - - 90,887 122,045 Equipment 1,647,593 1,389,053 106,629 105,383 1,754,222 1,494,436 Vehicles 225,265 194,421 223,569 350,739 448,834 545,160 Infrastructure 22,158 24,155 5,575,028 5,854,322 5,597,186 5,878,477 Total capital assets, net 9,853,602 $ 9,743,722 $ 7,450,081 $ 8,163,970 $ 17,303,683 $ 17,907,692 $ Governmental Activities Business-type Activities Total 2016 2015 2016 2015 2016 2015 1,867,313 $ 2,278,652 $ - $ - $ 1,867,313 $ 2,278,652 $ 171,457 192,438 - - 171,457 192,438 2,038,770 $ 2,471,090 $ - $ - $ 2,038,770 $ 2,471,090 $ Economic Factors and Next Year’s Budget and Rates · The following factors were considered in preparing the County's 2017 budget: 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 3% - The County is required to report the actuarially computed liability for Other Postemployment Healthcare Benefits (OPEB). The total actuarial accrued liability is approximately $2,537,000. If the County were required to fund that liability the estimated annual contribution would be approximately $240,000. The net OPEB obligation at the end of the fiscal year amounted to approximately $2,174,000. 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 GASB 68, Accounting and Financial Reporting for Pensions , was implemented for the County’s December 31, 2015 year end. Historically governments have only been required to report a net pension obligation to the extent that they have not met the annual required contribution (ARC) in any given year. Upon implementation of this standard, the County is required to report a net pension liability based on the current funded status of their pension plans. The net pension liability reported on the Statement of Net Position for the governmental activities, business activities and component units is $8,260,485, $848,995 and $5,125,023 respectively at December 31, 2016. Long-Term Debt. At the end of the current year, the County had total installment debt and compensated absences outstanding of $2,038,770. Current year additions for the 2016 fiscal year included construction in progress additions in the amount of approximately $102,000 for the Nature Center Building, equipment additions for the purchase of a zamboni for approximately $98,000 and building improvement of approximately $142,000. Total 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 Mr. John Burt, Otsego County Administrator at 225 West Main Street, Gaylord, MI 49735. Highlight of the 2017 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, 2016 Business- Governmental type Component Activities Activities Total Units Assets Cash and cash equivalents 7,668,314 $ 1,004,346 $ 8,672,660 $ 3,500,478 $ Investments 4,288,166 6,643,166 10,931,332 498,475 Receivables, net 5,532,805 1,249,186 6,781,991 4,513,406 Internal balances (77,046) 227,046 150,000 - Prepaid items 97,123 69,780 166,903 1,242 Inventory 13,592 42,808 56,400 731,372 Advance to component unit 165,240 90,000 255,240 - Lease receivable from component unit 725,000 - 725,000 - Capital assets not being depreciated 2,374,005 116,498 2,490,503 9,895,950 Capital assets being depreciated, net 7,479,597 7,333,583 14,813,180 24,502,667 Total assets 28,266,796 16,776,413 45,043,209 43,643,590 Deferred outflows of resources Deferred pension amounts 2,626,420 544,221 3,170,641 614,471 Liabilities Accounts payable and accrued liabilities 573,427 191,643 765,070 949,584 Advances from other government units - - - 309,691 Unearned revenue 51,237 - 51,237 32,399 Advance from primary government - - - 255,240 Long-term liabilities: Due within one year 272,483 - 272,483 387,890 Due in more than one year 1,766,287 - 1,766,287 1,719,670 Net pension liability 8,260,485 848,995 9,109,480 5,125,023 Net other postemployment benefits obligation 2,173,865 - 2,173,865 8,430,330 Total liabilities 13,097,784 1,040,638 14,138,422 17,209,827 Deferred inflows of resources Taxes levied for a subsequent period 2,740,950 - 2,740,950 2,410,005 Other state grants - - - 85,108 Total deferred inflows 2,740,950 - 2,740,950 2,495,113 Net position Net investment in capital assets 8,711,289 7,450,081 16,161,370 32,514,946 Restricted 5,470,088 - 5,470,088 387,145 Unrestricted (deficit) 873,105 8,829,915 9,703,020 (8,348,970) Total net position 15,054,482 $ 16,279,996 $ 31,334,478 $ 24,553,121 $ 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, 2016 Program Revenues Operating Capital Net Charges Grants and Grants and (Expenses) Functions/Programs Expenses For Services Contributions Contributions Revenues Primary government Governmental activities: Legislative 215,808 $ - $ - $ - $ (215,808) $ Judicial 1,941,671 607,595 864,204 - (469,872) General government 3,494,065 432,279 191,364 - (2,870,422) Public safety 4,126,567 961,621 422,126 - (2,742,820) Public works 154,652 - - 36,316 (118,336) Health and welfare 1,378,421 - 335,073 - (1,043,348) Community and economic development 1,337,303 36,415 212,434 - (1,088,454) Recreation and culture 1,525,880 245,163 671,442 - (609,275) Other - - - - - Interest - unallocated 78,614 - - - (78,614) Total governmental activities 14,252,981 2,283,073 2,696,643 36,316 (9,236,949) Business-type activities: Delinquent tax revolving 547,768 317,520 - - (230,248) Bus System 9/30/2016 1,954,767 341,872 937,182 - (675,713) Airport 1,524,185 807,265 20,180 - (696,740) Other business-type activities 342,847 302,296 - - (40,551) Total business-type activities 4,369,567 1,768,953 957,362 - (1,643,252) Total primary government 18,622,548 $ 4,052,026 $ 3,654,005 $ 36,316 $ (10,880,201) $ Component units Road Commission 7,565,508 $ 2,472,303 $ 2,289,538 $ 3,502,037 $ 698,370 $ Ambulance 2,036,432 1,712,331 - - (324,101) University center 765,666 - - - (765,666) Commission on Aging 9/30/2016 1,794,515 55,556 439,332 - (1,299,627) 849,627 574,313 - 3,000 (272,314) Total component units 13,011,748 $ 4,814,503 $ 2,728,870 $ 3,505,037 $ (1,963,338) $ Continued… 14 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Activities For the Year Ended December 31, 2016 Business- Governmental type Component Activities Activities Total Units Changes in net position Net expenses (9,236,949) $ (1,643,252) $ (10,880,201) $ (1,963,338) $ General revenues: Property taxes 7,084,184 284,610 7,368,794 2,511,691 Interest and rentals 289,628 30,922 320,550 15,565 Other revenue 1,615,023 297,972 1,912,995 1,324,490 Gain on sale of capital assets - - - 54,652 Transfers 184,149 (184,149) - - Total general revenues and transfers 9,172,984 429,355 9,602,339 3,906,398 Change in net position (63,965) (1,213,897) (1,277,862) 1,943,060 Net position, beginning of year 15,118,447 17,493,893 32,612,340 22,610,061 Net position, end of year 15,054,482 $ 16,279,996 $ 31,334,478 $ 24,553,121 $ 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, 2016 Housing Commission M-TEC Special Special General Revenue Revenue Fund Fund Fund Assets Cash and cash equivalents 3,035,511 $ 272,278 $ 122 $ Investments 1,397,708 - - Receivables Accounts 35,722 - - Property taxes 237,763 - 748,366 Due from other governments 135,610 - - Loans - 1,867,848 - Advances to other funds - - - Advances to component units - - - Lease receivable from component unit - - - Inventories 13,267 - - Other assets 4,300 - - Total assets 4,859,881 $ 2,140,126 $ 748,488 $ Liabilities Accounts payable 170,880 $ 178 $ - $ Accrued liabilities 41,742 482 - Due to other funds - 120,000 - Due to other governments - - - Advances from other funds - - - Unearned revenue - - - Total liabilities 212,622 120,660 - Deferred inflows of resources Taxes levied for a subsequent period - - 748,366 Unavailable resources 27,972 1,867,848 - Total deferred inflows of resources 27,972 1,867,848 748,366 Fund balances Nonspendable 17,567 - - Restricted - 151,618 122 Committed - - - Unassigned 4,601,720 - - Total fund balances 4,619,287 151,618 122 Total liabilities, deferred inflows of resources, and fund balances 4,859,881 $ 2,140,126 $ 748,488 $ The accompanying notes are an integral part of these basic financial statements. 16 ---PAGE BREAK--- Public Improvements Nonmajor Total Capital Project Debt Service Governmental Governmental Fund Fund Funds Funds 1,258,958 $ - $ 2,862,706 $ 7,429,575 $ 200,000 - 2,490,458 4,088,166 116,350 - 119,522 271,594 - - 1,964,612 2,950,741 - - 296,647 432,257 - - - 1,867,848 75,707 - - 75,707 165,240 - - 165,240 - 725,000 - 725,000 - - - 13,267 - - - 4,300 1,816,255 $ 725,000 $ 7,733,945 $ 18,023,695 $ - $ - $ 188,257 $ 359,315 $ - - 14,821 57,045 - - - 120,000 - - 109,323 109,323 - - 32,753 32,753 - - 51,237 51,237 - - 396,391 729,673 - - 1,964,612 2,712,978 - 725,000 - 2,620,820 - 725,000 1,964,612 5,333,798 - - - 17,567 - - 3,470,967 3,622,707 1,816,255 - 1,901,975 3,718,230 - - - 4,601,720 1,816,255 - 5,372,942 11,960,224 1,816,255 $ 725,000 $ 7,733,945 $ 18,023,695 $ 17 ---PAGE BREAK--- Reconciliation Fund Balances of Governmental Funds to Net Position of Governmental Activities December 31, 2016 Fund balances - total governmental funds 11,960,224 $ Capital assets used in governmental activities are not financial resources, and therefore are not reported in the funds. Capital assets not being depreciated 2,374,005 Capital assets being depreciated, net 7,479,597 Unavailable resources from mortgages and lease receivable 2,592,848 514,975 Bonds and notes payable (1,867,313) Compensated absences (171,457) Net other postemployment benefits obligation (2,173,865) Accrued interest on long-term debt (20,467) 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 (8,260,485) Deferred outflows related to the net pension liability 2,626,420 Net position of governmental activities 15,054,482 $ 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--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2016 Housing Commission M-TEC Special Special General Revenue Revenue Fund Fund Fund Revenues Taxes 4,717,049 $ - $ 732,402 $ Licenses and permits 41,766 - - Federal sources 86,109 210,590 - State sources 1,284,338 - - Local sources 42,597 1,844 - Charges for services 966,981 - - Fines and forfeits 15,028 - - Interest and rentals 200,291 121 - Other 506,789 61,483 5,425 Total revenues 7,860,948 274,038 737,827 Expenditures Current: Legislative 215,808 - - Judicial 1,393,841 - - General government 2,039,666 - - Public safety 1,996,085 - - Public works 4,390 - - Health and welfare 551,914 - - Community and economic development 80,925 252,115 738,085 Recreation and culture - - - Other 336,074 - - Debt service: Principal 9,511 - - Interest and fiscal charges - - - Capital outlay 10,980 - - Total expenditures 6,639,194 252,115 738,085 Revenues over (under) expenditures 1,221,754 21,923 (258) Other financing sources (uses) Transfers in 33,280 119,691 - Transfers out (974,167) (120,277) - Total other financing sources (uses) (940,887) (586) - Net change in fund balances 280,867 21,337 (258) Fund balances, beginning of year 4,338,420 130,281 380 Fund balances, end of year 4,619,287 $ 151,618 $ 122 $ The accompanying notes are an integral part of these financial statements. 19 ---PAGE BREAK--- Public Improvements Nonmajor Total Capital Project Debt Service Governmental Governmental Fund Fund Funds Funds - $ - $ 1,634,733 $ 7,084,184 $ - - - 41,766 50,000 - 310,759 657,458 - - 455,433 1,739,771 - 312,713 - 357,154 - - 1,274,326 2,241,307 - - 216,738 231,766 22,286 - 61,892 284,590 - - 778,986 1,352,683 72,286 312,713 4,732,867 13,990,679 - - - 215,808 - - 454,698 1,848,539 - - 342,222 2,381,888 50,000 - 1,774,089 3,820,174 - - 150,262 154,652 - - 823,356 1,375,270 - - - 1,071,125 - - 1,177,323 1,177,323 - - 9,287 345,361 - 240,000 161,828 411,339 - 72,713 5,901 78,614 - - 855,457 866,437 50,000 312,713 5,754,423 13,746,530 22,286 - (1,021,556) 244,149 - - 1,162,202 1,315,173 - - (37,450) (1,131,894) - - 1,124,752 183,279 22,286 - 103,196 427,428 1,793,969 - 5,269,746 11,532,796 1,816,255 $ - $ 5,372,942 $ 11,960,224 $ 20 ---PAGE BREAK--- Reconciliation Net Changes in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities For the Year Ended December 31, 2016 Net change in fund balances - total governmental funds 427,428 $ 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 866,435 Depreciation expense (800,704) Loss on sale of capital assets (4,866) 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 (276,380) Contributions from the Nature Center building of capital assets are not recognized in the funds but increase capital assets in the statement of net position. 49,015 Bond proceeds provide current financial resources to governmental funds in the period issued, but issuing bonds increases long-term liabilities in the statement of net position. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position. Principal payments on long-term liabilities 411,339 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. Change in the net pension liability and related deferred amounts (438,800) Change in compensated absences 20,981 Change in net other postemployment benefits obligation (237,995) 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 (80,418) Change in net position of governmental activities (63,965) $ 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 Changes in Fund Balance Budget and Actual - General Fund For the Year Ended December 31, 2016 Actual Over Original Final (Under) Final Budget Budget Actual Budget Revenues Taxes 4,663,000 $ 4,841,000 $ 4,717,049 $ (123,951) $ Licenses and permits 48,000 48,000 41,766 (6,234) Federal sources 91,600 97,068 86,109 (10,959) State sources 1,275,960 1,285,314 1,284,338 (976) Local sources 19,800 19,800 42,597 22,797 Charges for services 850,305 860,005 966,981 106,976 Fines and forfeits 12,000 12,000 15,028 3,028 Interest and rentals 134,500 134,500 200,291 65,791 Other 612,785 705,631 506,789 (198,842) Total revenues 7,707,950 8,003,318 7,860,948 (142,370) Expenditures Legislative: Board of Commissioners 206,372 221,551 215,808 (5,743) Judicial: Circuit court 1,071,504 1,073,174 1,009,243 (63,931) Lien fees 11,800 11,800 11,295 (505) Drug court 134,104 134,104 108,903 (25,201) RDSS transport 15,000 15,000 4,483 (10,517) District court 68,606 69,006 64,819 (4,187) Jury commission 33,950 33,950 21,307 (12,643) Probate court 173,620 173,820 169,869 (3,951) Probation/parole 1,500 1,500 1,442 (58) Family counseling 4,000 4,000 2,480 (1,520) Total judicial 1,514,084 1,516,354 1,393,841 (122,513) General government: Administrative services 279,904 279,904 270,404 (9,500) Buildings and grounds 280,000 280,000 280,000 - Clerk and register of deeds 274,225 278,703 273,205 (5,498) Audit services 11,267 11,267 11,267 - IT department 60,781 60,781 54,522 (6,259) Equalization 216,127 223,723 222,412 (1,311) Treasurer 125,414 129,754 128,560 (1,194) Cooperative extension 58,980 59,060 58,869 (191) Elections 25,740 35,740 33,103 (2,637) Prosecuting attorney 498,253 501,182 492,778 (8,404) Register of deeds 55,555 54,947 53,127 (1,820) Legal defense 45,000 45,000 35,726 (9,274) Human resources 86,707 86,707 86,707 - Surveyor 200 200 200 - Soil conservation 4,000 4,000 4,000 - Survey and remonumentation 34,788 34,788 34,786 Total general government 2,056,941 2,085,756 2,039,666 (46,090) Continued… 22 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund For the Year Ended December 31, 2016 Actual Over Original Final (Under) Final Budget Budget Actual Budget Public safety: Sheriff 851,364 $ 735,464 $ 714,567 $ (20,897) $ Civil division 36,747 44,627 44,613 (14) SANE 20,000 20,000 20,000 - Justice training - 1,968 1,938 (30) Marine safety 7,905 9,354 8,115 (1,239) safety education 48,541 48,541 54,276 5,735 Snowmobile 4,714 4,714 401 (4,313) Secondary road patrol 74,286 83,293 83,072 (221) ORV 6,614 18,575 13,311 (5,264) Jail 1,036,323 1,064,600 1,025,792 (38,808) Emergency 30,000 30,000 30,000 - Total public safety 2,116,494 2,061,136 1,996,085 (65,051) Public works: Drains 4,500 4,500 4,390 (110) Health and welfare: Communicable diseases 500 500 500 - Medical examiner 85,650 128,685 123,753 (4,932) District health 195,909 195,909 195,909 - Mental health 94,003 94,003 94,003 - Soldiers and sailors relief 8,500 8,500 2,925 (5,575) Veteran's burial 7,400 7,400 5,800 (1,600) Veteran's affairs 58,293 58,994 55,371 (3,623) Substance abuse 86,246 86,246 73,653 (12,593) Total health and welfare 536,501 580,237 551,914 (28,323) Community and Economic Development Planning and zoning 89,053 96,711 80,925 (15,786) Other: Appropriations 16,050 16,050 15,998 (52) Bonds and insurance 260,000 231,725 227,252 (4,473) Retiree insurance 80,000 63,597 62,964 (633) Additional pension contributions - 135,000 - (135,000) Other 152,006 99,979 29,860 (70,119) Total other 508,056 546,351 336,074 (210,277) Capital outlay 37,400 49,868 10,980 (38,888) Principal payments - - 9,511 9,511 Total expenditures 7,069,401 7,162,464 6,639,194 (523,270) Revenues over expenditures 638,549 840,854 1,221,754 380,900 Continued… 23 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund For the Year Ended December 31, 2016 Actual Over Original Final (Under) Final Budget Budget Actual Budget Other financing sources (uses) Operating transfers in 20,300 $ 20,300 $ 33,280 $ 12,980 $ Operating transfers out (703,849) (978,636) (974,167) (4,469) Proceeds from sale of capital assets - 7,425 - (7,425) Total other financing sources (uses) (683,549) (950,911) (940,887) 10,024 Net change in fund balance (45,000) (110,057) 280,867 390,924 Fund balance, beginning of year 4,338,420 4,338,420 4,338,420 - Fund balance, end of year 4,293,420 $ 4,228,363 $ 4,619,287 $ 390,924 $ Concluded The accompanying notes are an integral part of these financial statements. 24 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - Housing Commission Special Revenue Fund For the Year Ended December 31, 2016 Actual Over Original Final (Under) Final Budget Budget Actual Budget Federal sources 483,000 $ 244,000 $ 210,590 $ (33,410) $ Local sources 230,000 30,000 1,844 (28,156) Interest and rentals 200 200 121 (79) Other 106,800 103,250 61,483 (41,767) 820,000 377,450 274,038 (103,412) Community and economic development 882,648 327,619 252,115 (75,504) Revenues over (under) expenditures (62,648) 49,831 21,923 (27,908) Other financing sources (uses) Transfers in 203,000 127,262 119,691 (7,571) Transfers out (150,000) (178,850) (120,277) (58,573) Total other financing sources (uses) 53,000 (51,588) (586) 51,002 Net change in fund balance (9,648) (1,757) 21,337 23,094 Fund balance, beginning of year 130,281 130,281 130,281 - Fund balance, end of year 120,633 $ 128,524 $ 151,618 $ 23,094 $ 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 Changes in Fund Balance Budget and Actual - M-TEC Special Revenue Fund For the Year Ended December 31, 2016 Actual Over Original Final (Under) Final Budget Budget Actual Budget Taxes - $ 739,342 $ 732,402 $ (6,940) $ Other - - 5,425 5,425 - 739,342 737,827 (1,515) Community and economic development - 739,342 738,085 (1,257) Net change in fund balance - - (258) (258) Fund balance, beginning of year 380 380 380 - Fund balance, end of year 380 $ 380 $ 122 $ (258) $ The accompanying notes are an integral part of these financial statements. Revenues Total revenues Expenditures 26 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Net Position Proprietary Funds December 31, 2016 Delinquent Tax Revolving Bus System Fund 9/30/2016 Airport Assets Current assets: Cash and cash equivalents 299,439 $ 30,102 $ 271,501 $ Investments 5,262,414 - - Taxes receivable 992,960 - - Interest receivable 147,419 - - Accounts receivable 324 25,719 34,635 Due from other governments - 35,165 - Due from other funds 300,000 - - Advances to other funds 90,000 - - Inventories - - 42,808 Prepaids - - 69,780 Total current assets 7,092,556 90,986 418,724 Noncurrent assets: Capital assets not being depreciated - 99,998 16,500 Capital assets being depreciated, net - 493,350 6,754,150 Total noncurrent assets - 593,348 6,770,650 Total assets 7,092,556 684,334 7,189,374 Deferred outflows of resources Deferred pension amounts - 544,221 - Liabilities Current liabilities: Accounts payable 29,044 8,831 41,360 Accrued liabilities 436 71,748 1,785 Due to other funds - 30,000 - Due to other governments - 26,775 - Total current liabilities 29,480 137,354 43,145 Noncurrent liabilities: Advances from other funds - - 42,954 Net pension liability - 848,995 - Total noncurrent liabilities - 848,995 42,954 Total liabilities 29,480 986,349 86,099 Net position Investment in capital assets - 593,348 6,770,650 Unrestricted (deficit) 7,063,076 (351,142) 332,625 Total net position 7,063,076 $ 242,206 $ 7,103,275 $ 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 403,304 $ 1,004,346 $ 238,739 $ 1,380,752 6,643,166 200,000 - 992,960 - - 147,419 - 12,964 73,642 10,365 - 35,165 - - 300,000 - - 90,000 - - 42,808 325 - 69,780 92,823 1,797,020 9,399,286 542,252 - 116,498 - 86,083 7,333,583 - 86,083 7,450,081 - 1,883,103 16,849,367 542,252 - 544,221 - 11,228 90,463 25,671 436 74,405 1,606 - 30,000 - - 26,775 - 11,664 221,643 27,277 - 42,954 - - 848,995 - - 891,949 - 11,664 1,113,592 27,277 86,083 7,450,081 - 1,785,356 8,829,915 514,975 1,871,439 $ 16,279,996 $ 514,975 $ 28 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Funds For the Year Ended December 31, 2016 Delinquent Tax Revolving Bus System Fund 9/30/2016 Airport Operating revenues Charges for services 86,876 $ 341,872 $ 790,222 $ Interest and penalties 230,644 - - Local sources - - - Other - - 17,043 Total operating revenues 317,520 341,872 807,265 Operating expenses Salaries and fringes 55,509 1,450,700 133,946 Contractual services 121,867 - 149,784 Materials and supplies 5,938 - 562,685 Equipment repair and maintenance - - - Utilities - - - Depreciation - 165,226 573,740 Other 21,597 338,841 104,030 Total operating expenses 204,911 1,954,767 1,524,185 Operating loss 112,609 (1,612,895) (716,920) Nonoperating revenues (expenses) State operating grants - 618,595 1,650 Federal operating grants - 318,587 18,530 Investment (loss) earnings (342,857) - 3,358 Property taxes levied - 284,610 - Other revenues 1,992 8,954 - Total nonoperating revenues (340,865) 1,230,746 23,538 Income (loss) before transfers (228,256) (382,149) (693,382) Transfers in 125 13,000 248,581 Transfers out (420,480) - - Change in net position (648,611) (369,149) (444,801) Net position, beginning of year 7,711,687 611,355 7,548,076 Net position, end of year 7,063,076 $ 242,206 $ 7,103,275 $ 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 297,296 $ 1,516,266 $ 2,227,245 $ - 230,644 - 5,000 5,000 - - 17,043 - 302,296 1,768,953 2,227,245 55,914 1,696,069 1,823,127 124,780 396,431 242,424 52,228 620,851 6,513 - - 33,397 - - 195,468 12,300 751,266 - 97,625 562,093 12,642 342,847 4,026,710 2,313,571 (40,551) (2,257,757) (86,326) - 620,245 - - 337,117 - 27,564 (311,935) 5,038 - 284,610 - 287,026 297,972 - 314,590 1,228,009 5,038 274,039 (1,029,748) (81,288) 17,125 278,831 870 (42,500) (462,980) - 248,664 (1,213,897) (80,418) 1,622,775 17,493,893 595,393 1,871,439 $ 16,279,996 $ 514,975 $ 30 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Cash Flows Proprietary Funds For the Year Ended December 31, 2016 Business-type Activities - Delinquent Bus System Tax Fund 9/30/2016 Airport Cash flows from operating activities Cash received from customers 505,895 $ 334,899 $ 823,832 $ Cash received from interfund services - - - Cash payments for goods and services (139,160) (342,923) (887,613) Cash payments to employees (55,714) (1,293,506) (130,562) Net cash used in operating activities 311,021 (1,301,530) (194,343) Cash flows from noncapital financing activities State grants - 706,525 1,650 Federal grants - 298,243 18,530 Property tax - 284,610 - Other receipts 1,992 8,954 - Repayment on advance from other funds - (145,000) (10,412) Receipts of amounts from advance from other funds - 150,000 - Transfers in 125 13,000 248,581 Transfers out (420,480) - - Net cash provided by (used in) noncapital financing activities (418,363) 1,316,332 258,349 Cash flows from capital and related financing activities Purchase of capital assets - (8,047) (29,330) Cash flows from investing activities Proceeds from sale of investments 434,075 - - Purchases of investments - - - Interest received on investments (342,857) - 3,358 Net cash provided by (used in) investing activities 91,218 - 3,358 Net change in cash and cash equivalents (16,124) 6,755 38,034 Cash and cash equivalents, beginning of year 315,563 23,347 233,467 Cash and cash equivalents, end of year 299,439 $ 30,102 $ 271,501 $ Enterprise Funds 31 ---PAGE BREAK--- Business-type Activities - Governmental Enterprise Funds Activities Nonmajor Internal Enterprise Service Funds Total Funds 296,517 $ 1,961,143 $ - $ - - 2,220,063 (323,281) (1,692,977) (477,426) - (1,479,782) (1,899,904) (26,764) (1,211,616) (157,267) - 708,175 - - 316,773 - - 284,610 - 287,026 297,972 - - (155,412) - - 150,000 - 17,125 278,831 870 (42,500) (462,980) - 261,651 1,417,969 870 - (37,377) - - 434,075 - (434,445) (434,445) 100,000 27,564 (311,935) 5,038 (406,881) (312,305) 105,038 (171,994) (143,329) (51,359) 575,298 1,147,675 290,098 403,304 $ 1,004,346 $ 238,739 $ Continued… 32 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Cash Flows Proprietary Funds For the Year Ended December 31, 2016 Business-type Activities - Delinquent Bus System Tax Fund 9/30/2016 Airport Enterprise Funds Reconciliation of operating income (loss) to net cash provided by (used in) operating activities Operating loss 112,609 $ (1,612,895) $ (716,920) $ Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation expense - 165,226 573,740 Change in operating assets and liabilities that provided (used) cash: Taxes receivable 348,866 - - Interest receivable 15,245 - - Accounts receivable 59,672 (6,973) 16,567 Due from other funds (145,408) - - Advances to other funds (90,000) - - Prepaids - - (58,063) Inventories - - (13,604) Accounts payable 10,242 (271) 5,145 Due to other funds - - (4,592) Net pension liability and related deferred amounts - 153,383 - Accrued liabilities (205) - 3,384 Unearned revenue - - - Net cash used in operating activities 311,021 $ (1,301,530) $ (194,343) $ 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 (40,551) $ (2,257,757) $ (86,326) $ 12,300 751,266 - - 348,866 - - 15,245 - (5,279) 63,987 (5,391) - (145,408) - - (90,000) - 8,170 (49,893) (77,177) - (13,604) - (699) 14,417 13,018 - (4,592) - - 153,383 - (205) 2,974 400 (500) (500) (1,791) (26,764) $ (1,211,616) $ (157,267) $ Concluded 34 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Fiduciary Assets and Liabilities Fiduciary Funds December 31, 2016 Agency Funds Assets Cash and cash equivalents 1,674,210 $ Liabilities Undistributed tax collections 751,336 Bonds, restitutions, and payables to others 922,874 Total liabilities 1,674,210 $ The accompanying notes are an integral part of these financial statements. 35 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Net Position Discretely Presented Component Units December 31, 2016 Commission on Road Ambulance University Aging Commission Corporation Center 9/30/2016 Total Assets Cash and cash equivalents 2,108,554 $ 1,504 $ 569,728 $ 731,288 $ 89,404 $ 3,500,478 $ Investments - - 498,475 - - 498,475 Receivables, net: Accounts 1,286,494 778,000 11,568 15,709 31,103 2,122,874 Taxes 993,269 463,096 644,747 - 289,420 2,390,532 Inventories 714,181 - - 1,754 15,437 731,372 Prepaids - - - 1,242 - 1,242 Capital assets not being depreciated 9,895,950 - - - - 9,895,950 Capital assets being depreciated, net 22,573,036 1,784,735 144,896 - - 24,502,667 Total assets 37,571,484 3,027,335 1,869,414 749,993 425,364 43,643,590 Deferred outflows of resources Deferred pension amounts 614,471 - - - - 614,471 Liabilities Accounts payable 727,012 55,276 103 48,814 3,462 834,667 Accrued liabilities 108,858 5,407 - - - 114,265 Due to other governments 652 - - - - 652 Advances from government units 309,691 - - - - 309,691 Due to primary government - - - - - - Unearned revenue - - - - 32,399 32,399 Advances from primary government - 255,240 - - - 255,240 Long-term liabilities: Due within one year 387,890 - - - - 387,890 Due in more than one year 1,719,670 - - - - 1,719,670 Net pension liability 5,125,023 - - - - 5,125,023 Net other postemployment benefits obligation 8,430,330 - - - - 8,430,330 Total liabilities 16,809,126 315,923 103 48,814 35,861 17,209,827 Deferred inflows of resources Taxes levied for a subsequent period 993,269 463,096 664,220 - 289,420 2,410,005 Other state grants 85,108 - - - - 85,108 Total deferred inflows 1,078,377 463,096 664,220 - 289,420 2,495,113 Net position Net investment in capital assets 30,585,315 1,784,735 144,896 - - 32,514,946 Restricted - - 343,145 44,000 - 387,145 Unrestricted (deficit) (10,286,863) 463,581 717,050 657,179 100,083 (8,348,970) Total net position 20,298,452 $ 2,248,316 $ 1,205,091 $ 701,179 $ 100,083 $ 24,553,121 $ The accompanying notes are an integral part of these financial statements. 36 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Activities Discretely Presented Component Units For the Year Ended December 31, 2016 Commission on Road Ambulance University Aging Commission Corporation Center 9/30/2016 Total Expenses Road commission 7,565,508 $ - $ - $ - $ - $ 7,565,508 $ Ambulance corporation - 2,036,432 - - - 2,036,432 University center - - 765,666 - - 765,666 Commission on aging 9/30/2016 - - - 1,794,515 - 1,794,515 - - - - 849,627 849,627 Total expenses 7,565,508 2,036,432 765,666 1,794,515 849,627 13,011,748 Program revenues Charges for services 2,472,303 1,712,331 - 55,556 574,313 4,814,503 Operating grants and contributions 2,289,538 - - 439,332 - 2,728,870 Capital grants and contributions 3,502,037 - - - 3,000 3,505,037 Total program revenues 8,263,878 1,712,331 - 494,888 577,313 11,048,410 Net revenue (expense) 698,370 (324,101) (765,666) (1,299,627) (272,314) (1,963,338) General revenues Property taxes - 457,589 630,439 1,138,592 285,071 2,511,691 Investment earnings - 974 9,792 1,836 2,963 15,565 Gain on sale of capital assets 54,652 - - - - 54,652 Other 956,742 31,000 233,432 84,689 18,627 1,324,490 Total general revenues 1,011,394 489,563 873,663 1,225,117 306,661 3,906,398 Change in net position 1,709,764 165,462 107,997 (74,510) 34,347 1,943,060 Net position, beginning of year 18,588,688 2,082,854 1,097,094 775,689 65,736 22,610,061 Net position, end of year 20,298,452 $ 2,248,316 $ 1,205,091 $ 701,179 $ 100,083 $ 24,553,121 $ The accompanying notes are an integral part of these financial statements. 37 ---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 Units 38 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to 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 University Center (the "Facility") - On December 7, 1999, the electors of Otsego County authorized the County Board of Commissioners to levy a tax not to exceed .56 mills ($.56 per $1,000) for a period of 20 years to provide the funds required to acquire or construct, furnish, equip, and operate the Facility for use by the residents of the County and the public. On July 1, 2000, Otsego County entered into an agreement for operating and maintaining the facility with The University Center at Gaylord, a Michigan nonprofit corporation organized on November 3, 1989 pursuant to the provisions of Act 162, Public Acts of 1982, as amended. The University Center at Gaylord is governed by an eleven member Board of Directors whose mission is to facilitate the delivery of quality, state-of-the-art education and training that is responsive to personal growth and business needs throughout Otsego County and Northern Michigan through a consortium of colleges offering degrees, enrichment and skill certification programs. The agreement, requires the Facility to submit by October 1st annually a proposed budget for the operation of the Facility for the subsequent fiscal year beginning January 1st. Prior to December 31st each year, the County Board of Commissioners shall either approve the final budget as submitted for the operation of the facility or reject the budget setting forth reasons why it was not approved. Once approved, the County Board of Commissioners shall approve a resolution authorizing the levy of such amount of the millage. The Facility's taxes are levied under the taxing authority of the County and are included as part of the County's total tax levy reported in the Otsego County University Center Fund. 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. 39 ---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 80 Livingston Boulevard Gaylord, MI 49735 Gaylord, MI 49735 Otsego County Commission on Aging 120 Grandview Boulevard Gaylord, MI 49735 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 2016 was $195,909. Component Unit Financial Statements Otsego County Road Commission Otsego County University Center 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. 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. 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 2016 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. 40 ---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, 2016 Bus System Enterprise Fund September 30, 2016 Government-Wide and Fund Financial Statements Fund Fund Presentation Fiscal Year End The financial information presented in this report is for the year ended December 31, 2016, except for the following component unit and enterprise fund: 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. 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. 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. 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 2016 local match, recorded in the General fund, was $94,003. 41 ---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 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. The Housing Commission Special Revenue Fund accounts for grant revenue and contributions restricted for the improvement of housing within the County. 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 Public Improvements Capital Project Fund accounts for projects that maintain or improve the County's infrastructure. 42 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 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. 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. The Delinquent Tax Revolving Fund accounts for the purchase of and subsequent collection of delinquent taxes. Additionally, the County reports the following fund types: The County reports the following major proprietary funds: The Airport Fund accounts for the financial activity of the Gaylord Regional Airport. 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. 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). 43 ---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 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 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. The accounts receivable for the Ambulance Corporation component unit is presented net of allowance for doubtful accounts of $1,552,000. 44 ---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 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. Property, plant, and equipment are depreciated using the straight-line method over the following estimated useful lives: 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. 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. 45 ---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 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: 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. 46 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Deferred Inflows of Resources Budget Stabilization Arrangement Interfund Transactions 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. 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. 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. 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. 47 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Use of Estimates 2. BUDGETARY INFORMATION 1. 2. 3. 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. Federal grants and assistance awards for all governmental type funds are recorded as federal sources in accordance with the terms of the representative grants. 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. 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. Grants and other Intergovernmental Revenues 48 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 4. 5. 6. 3. EXCESS OF EXPENDITURES OVER BUDGET 4. DEFICIT FUND BALANCE 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, 2016 the County had safety and education expenditures in the General Fund which were in excess of the amounts budgeted by $5,735 and principal expenditures in the General Fund which were in excess of the amounts budgeted by $9,511. 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, and the Road Commission discretely presented component unit reported a deficit unrestricted net position of $351,142 at September 30, 2016 and $10,286,863 at December 31, 2016, respectively. 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. 49 ---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 8,672,660 $ 3,500,478 $ 12,173,138 $ Investments 10,931,332 498,475 11,429,807 Statement of Fiduciary Assets and Liabilities Cash and cash equivalents 1,674,210 - 1,674,210 Total 21,278,202 $ 3,998,953 $ 25,277,155 $ Deposits and investments Bank deposits: Checking and savings accounts 13,838,076 $ Pooled certificates of deposit: Due within one year 1,555,000 Due within six to ten years 1,181,047 U.S. agencies 8,693,760 Cash on hand 9,272 Total 25,277,155 $ 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 – 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, $9,864,867 of the County’s bank balance of $11,614,867 was exposed to custodial credit risk because it was uninsured and uncollateralized. 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, $2,305,000 of the County’s certificates of deposit was exposed to custodial credit risk because it was uninsured and uncollateralized. Following is a reconciliation of deposit and investment balances as of December 31, 2016: 50 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Credit Rating Fair Value AA+ $ 8,690,358 Equity in wholly owned subsidiary Not rated 3,402 Total $ 8,693,760 Investment More than 10 Type years U.S. Government agencies 8,690,358 $ Fair Value Measurement Investment Type Level 1 Level 2 Level 3 Total Fixed income: Debt securities: US government bonds - $ 8,690,358 $ - $ 8,690,358 $ Other - - 3,402 3,402 Total investments at fair value - $ 8,690,358 $ 3,402 $ 8,693,760 $ 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. 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: U.S. Government agencies Investments 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, 2016, the County had 76% of its investments in U.S. Government Agencies. The remaining 24% of the County's investments consists of certificates of deposit with an original maturity greater than 90 days, of which more than 5% are held in two financial institutions which consist of 14% and 9% respectively of the County's total investments. Investment Maturities (Fair Value) 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. 51 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 6. RECEIVABLES Governmental Business-type Component Activities Activities Unit Accounts 281,959 $ 73,642 $ 3,674,874 $ Less: Allowance for uncollectible accounts - - (1,552,000) Property taxes 2,950,741 992,960 2,390,532 Due from other governments 432,257 35,165 - Loans 1,867,848 - - Interest - 147,419 - Totals 5,532,805 $ 1,249,186 $ 4,513,406 $ 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. Loans receivable - Housing Commission Special Revenue Fund The amount recorded 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, 2016, the total amount of outstanding loans was $1,867,848. The County estimates that of the amounts due in 2017, $163,680 will not be collected. Receivables are comprised of the following at year-end: 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 52 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Governmental Business-type Component Activities Activities Unit Accounts payable 384,986 $ 90,463 $ 834,667 $ Accrued liabilities 58,651 74,405 114,265 Due to other governments 109,323 26,775 652 Accrued interest on long-term debt 20,467 - - Totals 573,427 $ 191,643 $ 949,584 $ 8. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS Due from Other Funds Due to Other Funds Housing Commission fund - $ 120,000 $ Delinquent Tax Revolving fund 300,000 - Bus system - 30,000 Timing difference - 150,000 300,000 $ 300,000 $ The composition of interfund balances as of December 31, 2016, was as follows: Due to and from primary government funds Accounts payable and accrued liabilities are comprised of the following: The timing difference above in the amount of $150,000, is a result of the Bus System Enterprise Fund having a fiscal year-end that is different from the County’s year-end. 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. 53 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Advance to Other Funds Advance From Other Funds Public Improvement Fund 75,707 $ - $ Nonmajor governmental funds - 32,753 Airport - 42,954 75,707 $ 75,707 $ Advance to Component Unit Advance From Component Unit Public Improvement Fund 165,240 $ - $ Delinquent Tax Revolving Fund 90,000 - Ambulance - 255,240 255,240 $ 255,240 $ Transfers In Transfers Out General Fund 33,280 $ 974,167 $ Housing Commission 119,691 120,277 Public Improvements - - Nonmajor governmental funds 1,162,202 37,450 Delinquent Tax Fund 125 420,480 Airport 248,581 - Bus System 13,000 - Nonmajor enterprise funds 17,125 42,500 Internal service funds 870 - 1,594,874 $ 1,594,874 $ 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, 2016, interfund transfers consisted of the following: Advances to and from component units Interfund advances - primary government 54 ---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 1,836,067 $ 99,165 $ - $ 291,906 $ 2,227,138 $ Construction in progress 365,100 129,248 - (347,481) 146,867 Total capital assets not being depreciated, net 2,201,167 228,413 - (55,575) 2,374,005 Capital assets, being depreciated: Buildings 15,628,905 217,323 - - 15,846,228 Furniture and fixtures 514,550 10,980 - - 525,530 Equipment: - Data handling 1,330,464 144,832 (115,013) - 1,360,283 Other equipment 2,180,487 199,295 (46,237) 55,575 2,389,120 Vehicles 1,447,688 114,607 (22,925) - 1,539,370 Infrastructure 37,130 - - - 37,130 21,139,224 687,037 (184,175) 55,575 21,697,661 Less accumulated depreciation for: Buildings (9,816,024) (536,510) - - (10,352,534) Furniture and fixtures (392,505) (42,138) - - (434,643) Equipment: - Data handling (1,164,125) (59,500) 110,149 - (1,113,476) Other equipment (957,773) (76,798) 46,237 - (988,334) Vehicles (1,253,267) (83,761) 22,923 - (1,314,105) Infrastructure (12,975) (1,997) - - (14,972) (13,596,669) (800,704) 179,309 - (14,218,064) Total capital assets being depreciated, net 7,542,555 (113,667) (4,866) 55,575 7,479,597 Governmental activities capital assets, net 9,743,722 $ 114,746 $ (4,866) $ - $ 9,853,602 $ Capital asset activity for the primary government for the year ended December 31, 2016, was as follows: Primary government 55 ---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 219,670 16,500 - (219,670) 16,500 Total capital assets not being depreciated, net 319,668 16,500 - (219,670) 116,498 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 317,370 15,547 - - 332,917 Infrastructure 12,288,302 5,330 - 219,670 12,513,302 16,944,575 20,877 - 219,670 17,185,122 Less accumulated depreciation for: Buildings (1,108,000) (105,501) - - (1,213,501) Furniture and fixtures (6,000) - - - (6,000) Vehicles (1,340,306) (127,170) - - (1,467,476) Equipment (211,987) (14,301) - - (226,288) Infrastructure (6,433,980) (504,294) - - (6,938,274) (9,100,273) (751,266) - - (9,851,539) Total capital assets being depreciated, net 7,844,302 (510,720) - - 7,333,583 Business-type activities capital assets, net 8,163,970 $ (494,220) $ - $ - $ 7,450,081 $ Depreciation expense was charged to functions/programs of the primary government as follows: Depreciation of governmental activities by function General government 327,658 $ Public safety 164,087 Recreation and culture 308,959 Total depreciation expense - governmental activities 800,704 $ Depreciation of business-type activities by function Bus System 9/30/2016 165,226 $ Airport 573,740 University Center Metropolitan Area Network 12,300 Total depreciation expense - business-type activities 751,266 $ 56 ---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 9,263,228 $ 632,722 $ - $ 9,895,950 $ Capital assets, being depreciated: Buildings 3,934,836 - - 3,934,836 Road equipment 6,345,386 885,573 (587,488) 6,643,471 Shop equipment 108,683 - - 108,683 Office equipment 60,038 2,150 (11,158) 51,030 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 32,503,421 2,869,315 - 35,372,736 44,129,584 3,757,038 (598,646) 47,287,976 Less accumulated depreciation for: Buildings (1,724,274) (87,460) - (1,811,734) Road equipment (5,445,932) (499,718) 587,376 (5,358,274) Shop equipment (94,460) (4,540) - (99,000) Office equipment (49,552) (4,803) 11,158 (43,197) Engineer's equipment (12,788) (465) - (13,253) Yard and storage equipment (1,800) - - (1,800) Traffic signals (40,542) (3,153) - (43,695) Infrastructure - bridges (247,430) (28,840) - (276,270) Infrastructure - roads (15,438,381) (1,629,336) - (17,067,717) (23,055,159) (2,258,315) 598,534 (24,714,940) Total capital assets being depreciated, net 21,074,425 1,498,723 (112) 22,573,036 Road Commission capital assets, net 30,337,653 $ 2,131,445 $ (112) $ 32,468,986 $ Capital assets activity for the discretely presented component units for the year ended December 31, 2016, was as follows: Discretely presented component units 57 ---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 755,726 $ - $ - $ (755,726) $ - $ Capital assets being depreciated: Buildings 725,000 119,818 - 755,726 1,600,544 Other equipment 613,746 20,499 - - 634,245 Vehicles 1,876,854 171,021 - - 2,047,875 3,215,600 311,338 - 755,726 4,282,664 Less accumulated depreciation for: Buildings (551,000) (64,022) - - (615,022) Other equipment (523,492) (21,982) - - (545,474) Vehicles (1,191,545) (145,888) - - (1,337,433) (2,266,037) (231,892) - - (2,497,929) Total capital assets being depreciated, net 949,563 79,446 - - 1,784,735 Otsego County Ambulance Corp capital assets, net 1,705,289 $ 79,446 $ - $ (755,726) $ 1,784,735 $ Component Unit - Otsego County University Center Capital assets being depreciated: Buildings 144,125 $ - $ - $ - $ 144,125 $ Leasehold improvements 24,854 - - - 24,854 Furniture and fixtures 323,707 - - - 323,707 Data handling equipment 542,300 16,278 - - 558,578 1,034,986 16,278 - - 1,051,264 Less accumulated depreciation for: Buildings (64,502) (10,575) - - (75,077) Leasehold improvements (24,854) - - - (24,854) Furniture and fixtures (260,013) (14,869) - - (274,882) Data handling equipment (507,284) (24,271) - - (531,555) (856,653) (49,715) - - (906,368) Otsego County University Center capital assets, net 178,333 $ (33,437) $ - $ - $ 144,896 $ 58 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 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 - $ - $ - $ - $ - $ 10. LONG-TERM DEBT Beginning Balance Additions Deductions Ending Balance Due Within One Year Governmental Activities 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 from 2.0% to 4.0%. $ 1,085,000 $ - $ 205,000 $ 880,000 $ 200,000 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 from 3.25% to 5.0%. 760,000 - 35,000 725,000 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%. 393,340 - 161,828 231,512 27,454 Changes in Long-term Debt. Long-term liability activity for the year ended December 31, 2016, was as follows: 59 ---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. $ 40,312 $ - $ 9,511 $ 30,801 $ 10,029 Total installment debt 2,278,652 - 411,339 1,867,313 272,483 Accrued compensated absences 192,438 418,872 439,853 171,457 - Total governmental activities $ 2,471,090 $ 418,872 $ 851,192 $ 2,038,770 $ 272,483 Year Ended Bonds Payable Installments Payable December 31, Principal Interest Principal Interest 2017 262,454 $ 66,386 $ $ 10,029 $ 1,394 2018 282,865 56,349 10,[PHONE REDACTED] 288,283 45,818 10,[PHONE REDACTED] 308,708 34,794 - - 2021 69,138 28,113 - - 2022-2026 325,063 104,829 - - 2027-2031 300,001 39,000 - - 1,836,512 $ 375,289 $ $ 30,801 $ 2,515 Annual debt service requirements to maturity for long-term debt included in governmental activities are as follows: 60 ---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%. $ 760,000 $ - $ 35,000 $ 725,000 $ 35,000 Installment purchase agreements 956,701 547,866 345,896 1,158,671 352,890 Total installment debt 1,716,701 547,866 380,896 1,883,671 387,890 Accrued compensated absences 218,807 5,082 - 223,889 - Total road commission component unit $ 1,935,508 $ 552,948 $ 380,896 $ 2,107,560 $ 387,890 Net increase. Ambulance Corporation Installment purchase agreement for medical equipment from Phillips Medical, due in repaid during 2016. 7,134 $ - $ 7,134 $ - $ - $ 61 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Year Ended Lease Payable Installments Payable December 31, Principal Interest Principal Interest 2017 35,000 $ 31,713 $ 352,890 $ 21,099 $ 2018 35,000 30,488 343,601 15,498 2019 40,000 29,175 201,383 9,487 2020 40,000 27,775 260,797 1,849 2021 40,000 26,325 - - 2022-2026 235,000 102,112 - - 2027-2031 300,000 39,000 - - 725,000 $ 286,588 $ 1,158,671 $ 47,933 $ 11. ACCRUED COMPENSATED ABSENCES 12. OPERATING LEASES 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. Lease Commitments - Commission on Aging Discretely Presented Component Unit 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 $37,620 at December 31, 2016. Annual debt service requirements to maturity for Road Commission long-term debt are as follows: 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. 62 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 13. RISK MANAGEMENT Changes in the balances of claims liabilities are as follows: 2016 2015 Estimated liability, beginning of year - $ 51,456 $ Receipts 74,430 71,997 Estimated claims incurred (55,111) (96,345) Claim payments (1,888) (27,108) Estimated liability, end of year $ 17,431 $ - 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. 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. 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, 2016, the balance of the County's member retention was $322,492. Fiscal Year Ended December Primary Government 63 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Workers' Compensation Component Unit - Road Commission Commercial Insurance Provider 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, 2016 there were no claims that exceeded insurance coverage. The County had no significant reduction in insurance coverage from previous years. 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. 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. 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. 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 $100,00 $1,000 Member Deductible $75,000 Employee Benefits Vehicle Physical Damage 64 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Component Unit - Ambulance Corporation Component Unit - Commission on Aging Component Unit - 14. PROPERTY TAXES At December 31, 2016, there were no claims that exceeded insurance coverage. The did not have any significant reduction in insurance coverage from previous years. At December 31, 2016, there were no claims that exceeded insurance coverage. The Ambulance Corporation did not have any significant reduction in insurance coverage from previous years. Although the County of Otsego 2015 ad valorem tax is levied and collectible on December 1, 2015 and the 2016 ad valorem tax is levied and collectible on July 1, 2016, 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 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. 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. 65 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Source Millage Rate Animal Control 0.3000 Commission on Aging 1.0000 Ambulance 0.4000 Bus System 0.2500 Parks and Recreation 0.1875 Road Projects 1.0000 Library 0.4000 Recycling 0.2500 0.2500 Building 0.1875 M-TEC 0.6464 University Center 0.5569 15. TAX ABATEMENTS Industrial Facilities Exemption City of Gaylord Tax Abatements Bagley Township Tax Abatements Corwith Township Tax Abatements The July 1, 2016 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. The December 1, 2016 taxable valuation of the County of Otsego totaled $1,152,385,044, on which ad valorem taxes were levied as follows: For the year ended December 31, 2016, Otsego County property taxes were reduced by $25,275 under this program. For the year ended December 31, 2016, Otsego County property taxes were reduced by $19,837 under this program. For the year ended December 31, 2016, Otsego County property taxes were reduced by $4,569 under this program. 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: 66 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Commercial Facilities Exemption City of Gaylord Tax Abatements Brownfield Redevelopment Financing City of Gaylord Tax Abatements 16. CONTINGENT LIABILITIES 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. 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, 2016, Otsego County property taxes were reduced by $5,956 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, 2016, Otsego County property taxes were reduced by $2,580 under this program. 67 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 17. BENEFIT PLANS Primary Government 97 45 110 252 Employees Covered by Benefit Terms. At December 31, 2015, plan membership consisted of the following: Inactive employees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits Active employees Total membership Plan Description. The County's defined benefit pension plan provides normal retirement, deferred retirement and service retirement allowance, disability retirement allowance, nonduty-connected death and post-retirement adjustments to plan members and their beneficiaries. The County participates in the Municipal Employees Retirement System of Michigan (“MERS”), an agent multiple-employer plan administered by the MERS Retirement Board. Act No. 427 of the Public Acts of 1984, as amended, establishes and amends the benefit provisions of the participants in MERS. The Municipal Employees Retirement System of Michigan issues a publicly available financial report that includes financial statements and required supplementary information for MERS. That report may be obtained by writing to the Municipal Employees Retirement System of Michigan, 1134 Municipal Way, Lansing, Michigan 48917 or by calling (800) 767-6377. 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. 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, 2015. Defined Benefit Pension Plan 68 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Division Name Status Employer Contribution Rate Employee Contribution Rate Defined Benefit Closed $ 3,983 0% Defined Benefit Open 10.22% 0% Defined Benefit Closed $ 4,547 0% Defined Benefit Closed $ 2,485 0% Defined Benefit Closed $ 17,836 0% Defined Benefit Closed $ 6,833 0% Defined Benefit Closed $ 3,584 0% Defined Benefit Closed $ 1,692 0% Defined Benefit Closed $ 7,788 0% Defined Benefit Open 7.33% 4% Defined Benefit Open 4.76% 0% Hybrid Open 7.17% 0% Hybrid Open 6.67% 0% Hybrid Open 6.18% 0% Hybrid Open 5.68% 0% Hybrid Open 6.23% 0% Hybrid Open 6.19% 0% Inflation 2.50% Salary increases 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 46th Trial Court hired after 6/1/11 Sheriff Union Net Pension Liability. The County's net pension liability was measured as of December 31, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. Clerical Local #214 after 1/1/12 Teamsters Bus hired after 1/1/11 Elected Appointed Supervisors after 1/1/09 General Non Union after 1/1/09 Investment rate of return 7.75%, net of investment and administrative Mortality rates used were based on the RP-2014 Group Annuity Mortality Table of a 50% Male and 50% Female blend. Although no specific price inflation assumptions are needed for the valuation, the 2.5% long-term wage inflation assumption would be consistent with a price inflation of 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, 2015 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Sheriff Union new hires after 6/1/10 Library Director Division Name General Non Union Library Non Union General Local 214 Bus 69 ---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% 3.50% 0.25% 8.25% Global fixed income Diversifying strategies Inflation The actuarial assumptions used in the December 31, 2015 valuation were based on the results of the most recent actuarial experience study of 2009-2013. The main assumption and method changes in the most recent actuarial valuation included an adjustment to the mortality table to reflect longer lifetimes, the assumed annual rate of return, net of all expenses, was lowered from 8.0% to 7.75%, and the asset smoothing was changed from 10 to 5 years. 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: Discount Rate. The discount rate used to measure the total pension liability is 8.25% for 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 pensions 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. Asset Class Administrative expenses netted above Investment rate of return 70 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Total Pension Liability Plan Fiduciary Net Position Net Pension Liability - $ 19,092,334 $ 13,160,140 $ 5,932,194 348,000 - 348,000 1,543,901 - 1,543,901 Differences between expected and actual experience 724,207 - 724,207 Changes in assumptions 1,036,885 - 1,036,885 - 693,476 (693,476) - 5,905 (5,905) - (195,083) 195,083 (1,104,777) (1,104,777) - - (28,591) 28,591 2,548,216 (629,070) 3,177,286 $ 21,640,550 $ 12,531,070 $ 9,109,480 1% Decrease (7.25%) Current Discount Rate (8.25%) 1% Increase (9.25%) $ 11,582,006 $ 9,109,480 $ 7,013,004 Benefit payments, including refunds Net changes Balances at December 31, 2015 Balances at December 31, 2014 Changes for the year: 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 8.25%, as well as what the County's net pension liability would be if it were calculated using a discount rate that is 1% lower (7.25%) or 1% higher (9.25%) than the current rate: County's net pension liability Change in Net Pension Liability Service cost 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 loss The components of the change in the net pension liability are summarized as follows: 71 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Deferred Outflows of Resources $ 1,151,114 Difference between expected and actual experience 543,155 Changes in assumptions 777,663 2,471,932 698,709 Total $ 3,170,641 Year Ended December 31, Amount 2017 739,785 $ 2018 739,785 2019 739,779 2020 252,583 Total $ 2,471,932 Road Commission - Component Unit Payable to the Pension Plan. At December 31, 2016, the County reported a payable of $13,089 for the outstanding amount of contributions to the pension plan required for the year ended December 31, 2016. 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, 2016. Other amounts reported as deferred outflows of resources related to the pension will be recognized in pension expense as follows: For the year ended December 31, 2016, the County recognized pension expense of $1,557,822. The County reported deferred outflows of resources related to pensions from the following sources: Net difference between projected and actual earnings on pension plan investments Pension Expense and Deferred Outflows of Resources Related to Pensions Contributions subsequent to the measurement 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, 2015. 72 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 2015 Valuation Benefit Multiplier: 2.50% Multiplier (80% max) Normal Retirement Age: 60 Vesting: 10 Years Early Retirement (Unreduced): 55/25 Early Retirement (Reduced): 50/25 55/15 Final Average Compensation: 5 Years Employee Contributions: 1.50% Act 88: Yes (Adopted 11/23/1970) 2015 Valuation Benefit Multiplier: 2.00% Multiplier (no max) Normal Retirement Age: 60 Vesting: 10 Years Early Retirement (Unreduced): - Early Retirement (Reduced): 50/25 55/15 Final Average Compensation: 5 Years Employee Contributions: 1.50% Act 88: Yes (Adopted 11/23/1970) 2015 Valuation Benefit Multiplier: 2.50% Multiplier (no max) Normal Retirement Age: 60 Vesting: 10 Years Early Retirement (Unreduced): 55/25 Early Retirement (Reduced): 50/25 55/15 Final Average Compensation: 5 Years Employee Contributions: 1.50% Act 88: Yes (Adopted 11/23/1970) 01-General: Closed Division 02-General: Open Division NonUnion: Open Division Plan Description. The employer's defined benefit pension plan provides certain retirement, disability and death benefits to plan members and beneficiaries. The employer 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. 73 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 49 6 29 Total 84 Inflation Salary increases expense including inflation The actuarial assumptions used in valuation were based on the results of the most recent actuarial experience study of January 1, 2009, through December 31, 2013. The main assumption and method changes in the most recent actuarial valuation included an adjustment to the mortality table to reflect longer lifetimes, the assumed annual rate of return, net of all expenses, was lowered from 8.0% to 7.75%, and the asset smoothing was changed from 10 to 5 years. Inactive employees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits At December 31, 2015, the following employees were covered by the benefit term: Investment rate of return 7.75%, net of interest and administrative 2.50% Mortality rates used were based on the 1994 Group Annuity Mortality Table of a 50% Male and 50% Female blend. For disabled retirees, the regular mortality table is used with a I0-year set forward in ages to reflect the higher expected mortality rates of disabled members. Active employees Funding Policy. The obligation to contribute to and maintain the system for these employees was established by negotiation with the Road Commission's competitive bargaining unit and personnel policy, which require employees to contribute to the plan. The Road Commission is required to contribute at an actuarially determined blended rate for 2016 of 32.73% of payroll. The actuarial assumptions used in valuation were based on the results of the most recent actuarial experience study in 2008. (MERS Retirement Board is currently conducting an actuarial experience study covering the period from January 1, 2009, through December 31, 2013.) Net Pension Liability. The Road Commission's net pension liability was measured as of December 31, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. Actuarial Assumptions. The total pension liability in the December 31, 2015 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: 3.75% 74 ---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% 3.50% 0.25% 8.25% Asset Class Inflation Administrative expenses netted above Investment rate of return Global fixed income Diversifying strategies Discount Rate. The discount rate used to measure the total pension liability is 8.25% for 2015 and will be 8.0% in 2016 and thereafter. The projection of cash flows used to determine the discount rate assumes that employer and employee contributions well 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. 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: 75 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Total Pension Liability Plan Fiduciary Net Position Net Pension Liability $ 10,675,637 $ 5,928,466 $ 4,747,171 125,690 - 125,690 853,243 - 853,243 (5,403) - (5,403) 18,096 - 18,096 588,192 - 588,192 - 508,482 (508,482) - 39,017 (39,017) - 662,026 (662,026) (792,294) (792,294) - - (13,077) 13,077 (5,518) - (5,518) 782,006 404,154 377,852 $ 11,457,643 $ 6,332,620 $ 5,125,023 1% Decrease (7.00%) Current Discount Rate (8.00%) 1% Increase (9.00%) Road Commission's net pension liability $ 6,331,562 $ 5,125,023 $ 4,094,813 Sensitivity of the net pension liability to changes in the discount rate. The following presents the net pension liability of the Road Commission, calculated using the discount rate of 8.00% , as well as what the Road Commission's net pension liability would be if it were calculated using a discount rate that is 1- percentage-point lower (7.00%) or 1-percentage-point higher (9.00%) than the current rate: Net investment income Benefit payments, including employee refunds Administrative expense Pension plan fiduciary net position. Detailed information about the pension plan's fiduciary net position is available in the separately issued MERS financial report. Net changes Balances at December 31, 2016 Other changes Changes in benefits Difference between expected and actual experience Changes in assumptions Increases (Decreases) Balances at December 31, 2015 Changes for the year: Service cost Interest on total pension liability Employer contributions Employee contributions The components of the change in the net pension liability are summarized as follows: Changes in Net Pension Liability 76 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Deferred Outflows of Resources $ 12,064 392,128 210,279 Total $ 614,471 Year Ended December 31, Amount 2017 284,426 $ 2018 284,426 2019 82,330 2020 (36,711) Total $ 614,471 Pension Expense and Deferred Outflows of Resources Related to Pensions Annual Pension Cost During the year ended December 31, 2016, the Road Commission's contributions totaling $366,192 were made in accordance with contribution requirement determined by an actuarial valuation of the plan as of December 31, 2014. The employer contribution rate has been determined based on the entry age normal funding method. Under the entry age normal cost funding method, the total employer contribution is comprised of the normal cost plus the level annual percentage of payroll payment required to normal cost is, for each employee, the level percentage of payroll contribution (from entry age to retirement) required to accumulate sufficient assets at the member's retirement to pay for his projected benefit. Significant actuarial assumptions used include a long-term investment yield rate of 8 percent and annual salary increases of 4.5 percent based on an age-related scale to reflect merit, longevity, and promotional salary increases. The unfunded actuarial liability is amortized as a level percent of payroll on a closed basis. The remaining amortization period is 24 years. For the year ended December 31, 2016, the Road Commission recognized pension expense of $748,037. At December 31, 2016, the Road Commission reported deferred outflows of resources related to pensions from the following sources: Difference between expected actual experience Changes in assumptions Net difference between projected and actual earnings on pension plan investments Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recorded in pension expense as follows: See separately issued independent auditor's report for required supplementary information with respect to the Road Commission's defined benefit pension plan. 77 ---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 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, 2014, the date of the last plan valuation, the County’s healthcare plan covered 41 members 19 active plan members and 22 retirees receiving benefits). 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 2016, the County contributed $77,482 to the plan. 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. 78 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Annual required contribution 239,478 $ Interest on net OPEB obligation 82,212 Adjustment to annual required contribution (136,753) 184,937 Contributions made (77,482) Adjustment to contributions 130,540 237,995 1,935,870 2,173,865 $ Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 12/31/2014 186,669 $ 49% 1,984,930 $ 12/31/2015 188,704 126% 1,935,870 12/31/2016 184,937 42% 2,173,865 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: Funded Status and Funding Progress. As of December 31, 2014, the most recent actuarial valuation date, the actuarial accrued liability for benefits was $2,537,155, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the Plan) was $745,953, and the ratio of the UAAL to the covered payroll was 340.1 percent. 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 2016 and the two preceding years were as follows: 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. Net OPEB obligation, end of year Net OPEB obligation, beginning of year Net OPEB cost (expense) Increase in net OPEB 79 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Road Commission - Component Unit Annual OPEB Cost and Net OPEB Obligation . The Road Commissions annual other post employment benefit (OPEB) cost is calculated based on the annual required contribution of the employer (ARC). The Road Commission has elected to calculate the ARC and related information using the alternative measurement method permitted by GASB Statement 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 to amortize any unfunded actuarial liabilities over a period not to exceed thirty years. The Road Commission has no obligation to make contributions in advance of when the premiums are due for payment may be financed on a "pay-as-you-go" basis). The only current contributions made are to pay the actual current premiums of the retirees. That amount was less than the annual required contribution and is reflected in the schedule that follows. Administrative costs of the plan are paid for by the Road Commission. 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, 2014 actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included a 4.0% investment rate of return (net of administrative expenses), which is a blended rate of the expected long-term investment returns on plan assets and on the employer's own investments calculated based on the funded level of the plan at the valuation date, and an annual healthcare cost trend rate of 9% initially, reduced by decrements to an ultimate rate of 5% after four years. Both rates included percent inflation assumptions of The actuarial value of assets (if any) was determined using techniques that spread the effects of short-term volatility in the market value of investments over a five- year period. The UAAL is being amortized as a level percentage of projected payroll on an open basis. 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. Funding Progress. For the year ended December 31, 2016, the Road Commission has determined an estimated cost of providing post employment benefits through the alternative measurement method of calculation as of December 31, 2016. The calculation computes an annual required contribution, which represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to cover the amortization of any unfunded actuarial liabilities from the past, over a period not to exceed 30 years. For fiscal year 2016, the Road Commission contributed $351,478 to the plan, including member contributions of $2,836. The plan does not issue a separate stand-alone financial statement. 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. The following are the Governmental Accounting Standards Board Statement No. 45 required disclosures which have been implemented prospectively by the Road Commission. 80 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Annual required contribution (ARC) 307,622 $ Interest on net OPEB obligation 325,930 Annual OPEB cost (expense) 633,552 Contributions made (351,478) Increase in net OPEB obligation 282,074 Net OPEB obligation, beginning of year 8,148,256 Net OPEB obligation, end of year 8,430,330 $ Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 12/31/2014 1,221,411 $ 25.75% 8,138,731 $ 12/31/2015 319,151 97.02% 8,148,256 12/31/2016 633,552 55.40% 8,430,330 Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the 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 member to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. Funded Status and Funding Progress. As of December 31, 2015, the most recent actuarial valuation date, the actuarial accrued liability for benefits was $6,088,899, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the Plan) was $1,103,398, and the ratio of the UAAL to the covered payroll was 552%. Three-Year Trend Information The Road Commission's computed contribution and actual funding is summarized as follows: Assumptions About Employees and Members. Based on historical average retirement age of the covered group, active plan members were assumed to retire at various ages between 55 and 65 or the first year thereafter in which the member would qualify for benefits. Marital status as of the calculation date was assumed to continue throughout retirement. Life expectancy was based on mortality tables published in the 2007 Version - United States Life Tables. The probability of remaining employed until the assumed retirement age and employees' expected future working lifetimes were developed using specific age-based turnover data. Assumptions About Healthcare Costs. The 2015 health insurance premiums for retirees were used to calculate the present value of total benefits to be paid. The expected rate of increase in health insurance premiums were based on the 2005-2020 version of the National Health Expenditures projection. The Road Commission's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal years 2014, 2015 and 2016 are as follows: 81 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Other Assumptions and Methods. The inflation rate was assumed to be 4.0%. Based on the historical and expected returns of the Commission's investments, the investment rate of return was assumed to be 4.0%. The value of Plan assets was set at market value. A simplified version of the entry age actuarial cost method was used in the actuarial valuation. The UAAL is amortized over a thirty-year period as a level percent of projected payroll on an open basis. Payroll was assumed to grow over the long-term at the same rate as inflation. 82 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN NOTES TO FINANCIAL STATEMENTS 20. FUND BALANCES - GOVERNMENTAL FUNDS Public Improvements Nonmajor Total General Housing Capital Project Governmental Governmental Fund Commission M-TEC Fund Funds Funds Nonspendable 17,567 $ - $ - $ - $ - $ 17,567 $ Restricted for: Housing projects - 151,618 - - - 151,618 Public safety - - - - 1,816,012 1,816,012 Health and welfare - - - - 119,894 119,894 Recreation and culture - - 122 - 1,080,140 1,080,262 Debt service - - - - 127,373 127,373 Recycling - - - - 212,964 212,964 Register of Deeds - - - - 78,567 78,567 Law Library - - - - 15,949 15,949 Bradford Lake Dam - - - - 20,068 20,068 Total restricted - 151,618 122 - 3,470,967 3,622,707 Committed for: Work Camp - - - - 90,889 90,889 Friend of the Court - - - - 247,537 247,537 Child Care Probate - - - - 245,546 245,546 Equipment - - - - 95,947 95,947 Public improvements - - - 1,816,255 1,222,056 3,038,311 Total committed - - - 1,816,255 1,901,975 3,718,230 Unassigned 4,601,720 - - - - 4,601,720 Total fund balances, governmental funds 4,619,287 $ 151,618 $ 122 $ 1,816,255 $ 5,372,942 $ 11,960,224 $ 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: 83 ---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, 2016, was as follows: Governmental Business-type Component Activities Activities Units Capital assets: Capital assets not being depreciated 2,374,005 $ 116,498 $ 9,895,950 $ Capital assets being depreciated, net 7,479,597 7,333,583 24,502,667 9,853,602 7,450,081 34,398,617 Less related debt: Total installment debt 1,867,313 - 1,883,671 Less: Otsego County Road Commission lease payable (725,000) - - 1,142,313 - 1,883,671 Net investment in capital assets 8,711,289 $ 7,450,081 $ 32,514,946 $ The composition of restricted net position as of December 31, 2016, was as follows: Governmental Business-type Component Activities Activities Units Net position restricted for: Housing projects 2,019,466 $ - $ - $ Public safety 1,816,012 - - Health and welfare 119,894 - - Recreation and culture 1,080,262 - - Debt service 106,906 - - Recycling 212,964 - - Register of Deeds 78,567 - - Law Library 15,949 - - Bradford Lake Dam 20,068 - - University Center - - 343,145 Commission on Aging - - 44,000 Total restricted net position 5,470,088 $ - $ 387,145 $ 22. SUBSEQUENT EVENTS Dissolution of The University Center Effective at the close of business on December 31, 2016, the University Center of Gaylord (UC), a Michigan nonprofit corporation and a component unit of the County, was dissolved. Beginning January 1, 2017, an agreement was formed between Kirtland Community College (KCC) and Otsego County for operating and maintaining the UC. The agreement provides that Otsego County will contract with KCC to operate the UC by providing academic programming and educational services. The agreement establishes a Governance Advisory Board (GAB), a 16-20 member board which shall include 2 Otsego County Commissioners or the County Administrator. The GAB serves in an advisory capacity only. KCC shall provide Otsego County with an operating budget annually for its review; the County does not approve this budget. 84 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN NOTES TO FINANCIAL STATEMENTS 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 $ Road Commission 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 will be 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 2017 or early 2018. Subsequent to year end, the Road Commission executed the purchase of a truck for approximately $120,000 and equipment purchases amounting to approximately $14,000.    The agreement also provides that all residual monies from the UC's Restricted, Unrestricted, University Center Metropolitan Area Network, and Advertising Funds will be transferred to Otsego County as soon as is practical. With those monies, Otsego County shall establish a sinking fund that will be used for the UC building repairs, maintenance, and improvements. Otsego County retains ownership of its half of the building and contents. Upon depletion of the sinking fund, KCC shall be solely responsible for the cost of all building maintenance, alterations, and repairs. KCC and Otsego County will meet and jointly develop and approve a capital improvement plan annually. This will be the budget for the sinking fund. Otsego County will continue to levy the approved millage for the University Center, which goes through 2020. The County will use the millage monies to pay for the debt service obligations on the UC building and for property insurance on the building. All remaining millage monies will be remitted to KCC for UC operations. 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 is has been awarded two grants for construction of the Otsego County portion of the Iron Belle Trail: 85 ---PAGE BREAK--- REQUIRED SUPPLEMENTARY INFORMATION ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan 2016 2015 Total pension liability Service cost 348,000 $ 338,932 $ Interest 1,543,901 1,479,439 Differences between expected and actual experience 724,207 - Changes in assumptions 1,036,885 - Benefit payments, including refunds of employee contributions (1,104,777) (978,368) Net change in total pension liability 2,548,216 840,003 Total pension liability, beginning of year 19,092,334 18,252,331 Total pension liability, end of year 21,640,550 19,092,334 Plan fiduciary net position Employer contributions 693,476 640,433 Employee contributions 5,905 3,630 Net investment (loss) income (195,083) 800,044 Benefit payments, including refunds of employee contributions (1,104,777) (978,368) Administrative expense (28,591) (29,357) Net change in plan fiduciary net position (629,070) 436,382 Plan fiduciary net position, beginning of year 13,160,140 12,723,758 Plan fiduciary net position, end of year 12,531,070 13,160,140 County's net pension liability 9,109,480 $ 5,932,194 $ Plan fiduciary net position as a percentage of total pension liability 57.9% 68.9% Covered-employee payroll 4,390,047 $ 4,188,926 $ County's net pension liability as a percentage of covered-employee payroll 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 86 ---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- Employee 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% 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. 87 ---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- Employee Payroll Contributions as Percentage of Covered- Employee Payroll 2007 635,376 $ 635,376 $ - $ 4,412,630 $ 14.40% 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 715,641 715,641 - 4,547,735 15.74% 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 23 years Asset valuation method 10 year smoothed Inflation 2.50% Salary increases Investment rate of return 7.75%, net of investment and administrative expense including inflation Retirement age Mortality Changes in Assumptions Based on the 2009-2013 Experience Study the following assumptions were changed starting with the December 31, 2015 valuation: mortality table was adjusted to reflect longer lifetimes, assumed annual rate of return of investment return, net of all expenses, was lowered from 8% to 7.75% asset smoothing period was changed from 10 years to 5 years. 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, 2015 actuarial valuations. The Early Retirement rates were first used for the December 31, 2015 actuarial valuations. Mortality rates used were based on the RP-2014 Group Annuity Mortality Table of a 50% Male and 50% Female blend. 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. 3.75% in the long-term 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 88 ---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) 12/31/2008 - $ 3,946,926 $ 3,946,926 $ 0.0% 2,060,811 $ 191.5% 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% Annual Year Ended Required Percentage December 31, Contributions Contributed 2014 230,628 $ 40% 2015 237,772 45% 2016 239,478 32% Schedule of Employer Contributions Other Postemployment Benefits Plan Schedule of Funding Progress Other Postemployment Benefits Plan 89 ---PAGE BREAK--- COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Governmental Funds December 31, 2016 Special Capital Revenue Projects Total Assets Cash and cash equivalents 1,916,740 $ 945,966 $ 2,862,706 $ Investments 2,057,770 432,688 2,490,458 Receivables, net: Accounts 119,522 - 119,522 Property taxes 1,315,782 648,830 1,964,612 Due from other governments 296,647 - 296,647 Total assets 5,706,461 $ 2,027,484 $ 7,733,945 $ Liabilities Accounts payable 161,003 $ 27,254 $ 188,257 $ Accrued liabilities 14,821 - 14,821 Due to other governments 109,323 - 109,323 Advances from other funds 32,753 - 32,753 Unearned revenue 51,237 - 51,237 Total liabilities 369,137 27,254 396,391 Deferred inflows of resources Taxes levied for a subsequent period 1,315,782 648,830 1,964,612 Fund balances Restricted 3,341,623 129,344 3,470,967 Committed 679,919 1,222,056 1,901,975 Total fund balances 4,021,542 1,351,400 5,372,942 Total liabilities, deferred inflows 5,706,461 $ 2,027,484 $ 7,733,945 $ of resources, and fund balances 90 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended December 31, 2016 Special Capital Revenue Projects Total Revenues Taxes 1,419,507 $ 215,226 $ 1,634,733 $ Federal sources 310,759 - 310,759 State sources 412,528 42,905 455,433 Charges for services 1,220,354 53,972 1,274,326 Fines and forfeits 216,738 - 216,738 Interest and rentals 53,769 8,123 61,892 Other 743,410 35,576 778,986 Total revenues 4,377,065 355,802 4,732,867 Expenditures Judicial 442,123 12,575 454,698 General government 342,222 - 342,222 Public safety 1,475,517 298,572 1,774,089 Public works - 150,262 150,262 Health and welfare 823,356 - 823,356 Recreation and culture 1,104,702 72,621 1,177,323 Other 9,287 9,287 Debt service: Principal 161,828 - 161,828 Interest and fiscal charges 5,901 - 5,901 Capital outlay 266,110 589,347 855,457 Total expenditures 4,621,759 1,132,664 5,754,423 Revenues under expenditures (244,694) (776,862) (1,021,556) Other financing sources (uses) Transfers in 854,702 307,500 1,162,202 Transfers out (28,300) (9,150) (37,450) Total other financing sources 826,402 298,350 1,124,752 Net change in fund balances 581,708 (478,512) 103,196 Fund balances, beginning of year 3,439,834 1,829,912 5,269,746 Fund balances, end of year 4,021,542 $ 1,351,400 $ 5,372,942 $ 91 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Special Revenue Funds December 31, 2016 Groen Friend Work Parks and Nature of the Camp Recreation Preserve Court Assets Cash and cash equivalents 65,305 $ 31,040 $ 19,119 $ 161,690 $ Investments 22,973 298,919 - - Receivables Accounts - 782 - 160 Property taxes - 217,312 - - Due from other governments 5,323 - - 99,319 Total assets 93,601 $ 548,053 $ 19,119 $ 261,169 $ Liabilities Accounts payable 1,739 $ 5,679 $ 1,206 $ 8,419 $ Accrued liabilities 973 2,071 529 5,213 Due to other governments - - - - Advances from other funds - - - - Unearned revenue - 51,237 - - Total liabilities 2,712 58,987 1,735 13,632 Deferred inflows of resources Taxes levied for a subsequent period - 217,312 - - Fund balances Restricted - 271,754 17,384 - Committed 90,889 - - 247,537 Total fund balances 90,889 271,754 17,384 247,537 Total liabilities, deferred inflows of 93,601 $ 548,053 $ 19,119 $ 261,169 $ resources, and fund balances 92 ---PAGE BREAK--- Animal Register Control Brownfield of Deeds Animal Forfeited Recycling Moth Redevelopment Building Automation Control Funds Funds Control Authority Department Fund Library 42,702 $ 8,160 $ 47,671 $ 114,188 $ 127,373 $ 516,596 $ 79,160 $ 124,767 $ 392,923 - 185,946 - - 297,418 - 552,564 - - - - - - 50 2,554 347,114 - 288,361 - - - - 462,995 481 - - - - - - - 783,220 $ 8,160 $ 521,978 $ 114,188 $ 127,373 $ 814,014 $ 79,210 $ 1,142,880 $ 12,468 $ - $ 20,653 $ - $ - $ 7,700 $ 643 $ 18,455 $ 2,892 - - - - 1,132 - (228) - - - - - - - - 32,753 - - - - - - - - - - - - - - - 48,113 - 20,653 - - 8,832 643 18,227 347,114 - 288,361 - - - - 462,995 387,993 8,160 212,964 114,188 127,373 805,182 78,567 661,658 - - - - - - - - 387,993 8,160 212,964 114,188 127,373 805,182 78,567 661,658 783,220 $ 8,160 $ 521,978 $ 114,188 $ 127,373 $ 814,014 $ 79,210 $ 1,142,880 $ Continued… 93 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Special Revenue Funds December 31, 2016 Emergency Concealed Local Department Child 911 Pistol Officers Law of Human Care Funds Licensing Training Library Services Probate Assets Cash and cash equivalents 148,757 $ 17,257 $ 25,104 $ 16,192 $ 246 $ 246,648 $ Investments 302,027 - - - 5,000 - Receivables, net: Accounts 112,015 98 1,502 - - 2,302 Property taxes - - - - - - Due from other governments 36,653 - - - - 154,871 Total assets 599,452 $ 17,355 $ 26,606 $ 16,192 $ 5,246 $ 403,821 $ Liabilities Accounts payable 28,736 $ - $ - $ 243 $ 106 $ 46,713 $ Accrued liabilities - - - - - 2,239 Due to other governments - - - - - 109,323 Advances from other funds - - - - - - Unearned revenue - - - - - - Total liabilities 28,736 - - 243 106 158,275 Deferred inflows of resources Taxes levied for a subsequent period - - - - - - Fund balances Restricted 570,716 17,355 26,606 15,949 5,140 - Committed - - - - - 245,546 Total fund balances 570,716 17,355 26,606 15,949 5,140 245,546 Total liabilities, inflows of 599,452 $ 17,355 $ 26,606 $ 16,192 $ 5,246 $ 403,821 $ resources, and fund balances 94 ---PAGE BREAK--- Bradford Veteran's Equipment Lake Trust Revolving Dam Total 566 $ 104,131 $ 20,068 $ 1,916,740 $ - - - 2,057,770 - 59 - 119,522 - - - 1,315,782 - - - 296,647 566 $ 104,190 $ 20,068 $ 5,706,461 $ - $ 8,243 $ - $ 161,003 $ - - - 14,821 - - - 109,323 - - - 32,753 - - - 51,237 - 8,243 - 369,137 - - - 1,315,782 566 - 20,068 3,341,623 - 95,947 - 679,919 566 95,947 20,068 4,021,542 566 $ 104,190 $ 20,068 $ 5,706,461 $ Concluded 95 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Special Revenue Funds For the Year Ended December 31, 2016 Animal Groen Friend Control Work Parks and Nature of the Animal Forfeited Camp Recreation Preserve Court Control Funds Revenues Taxes - $ 212,176 $ - $ - $ 339,609 $ - $ Federal sources - - - 310,759 - - State sources - 1,658 - 57,635 - - Charges for services 43,969 245,163 - 34,841 47,973 - Fines and forfeits - - - - 1,105 - Interest and rentals 179 6,564 - - 8,531 7 Other revenue 1,754 23,678 73,105 - 17,534 - Total revenues 45,902 489,239 73,105 403,235 414,752 7 Expenditures Judicial - - - 442,123 - - General government - - - - - - Public safety 129,305 - - - 366,420 1 Health and welfare - - - - - - Recreation and culture - 385,248 64,353 - - - Debt service: Principal - - - - - - Interest and fiscal charges - - - - - - Capital outlay - - - - - - Total expenditures 129,305 385,248 64,353 442,123 366,420 1 Revenues over (under) expenditures (83,403) 103,991 8,752 (38,888) 48,332 6 Other financing sources (uses) Transfers in 25,670 350 - 113,964 525 - Transfers out - - - - - - Total other financing sources (uses) 25,670 350 - 113,964 525 - Net change in fund balances (57,733) 104,341 8,752 75,076 48,857 6 Fund balances, beginning of year 148,622 167,413 8,632 172,461 339,136 8,154 Fund balances, end of year 90,889 $ 271,754 $ 17,384 $ 247,537 $ 387,993 $ 8,160 $ 96 ---PAGE BREAK--- Register Brownfield of Deeds Recycling Moth Redevelopment Building Automation Fund Control Authority Department Fund Library 282,969 $ - $ 131,917 $ - $ - $ 452,836 $ - - - - - - - - - - - 18,162 - - - 649,472 32,765 - - - - - - 215,633 3,408 240 - 3,037 - 22,859 3,575 - - - - 39,778 289,952 240 131,917 652,509 32,765 749,268 - - - - - - 306,190 - - - 19,443 - - - - 403,945 - - - - - - - - - - - - - 651,968 - - 161,828 - - - - - 5,901 - - - - - - - - 1 306,190 - 167,729 403,945 19,443 651,969 (16,238) 240 (35,812) 248,564 13,322 97,299 - - - - 3,823 - - - - (6,000) - - - - - (6,000) 3,823 - (16,238) 240 (35,812) 242,564 17,145 97,299 229,202 113,948 163,185 562,618 61,422 564,359 212,964 $ 114,188 $ 127,373 $ 805,182 $ 78,567 $ 661,658 $ Continued… 97 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Special Revenue Funds For the Year Ended December 31, 2016 Emergency Concealed Local Department Child 911 Pistol Officers Law of Human Care Funds Licensing Training Library Services Probate Revenues Taxes - $ - $ - $ - $ - $ - $ Federal sources - - - - - - State sources - - - - - 326,528 Charges for services 148,048 12,392 5,731 - - - Fines and forfeits - - - - - - Interest and rentals 7,816 - - - 51 - Other revenue 507,819 - - 3,500 - 69,758 Total revenues 663,683 12,392 5,731 3,500 51 396,286 Expenditures Judicial - - - - - - General government - - - - - - Public safety 572,976 - 2,870 - - - Health and welfare - - - - 6,252 808,516 Recreation and culture - - - 3,133 - - Debt service: Principal - - - - - - Interest and fiscal charges - - - - - - Capital outlay 89,758 - - - - - Total expenditures 662,734 - 2,870 3,133 6,252 808,516 Revenues over (under) expenditures 949 12,392 2,861 367 (6,201) (412,230) Other financing sources (uses) Transfers in - - - - 5,835 550,035 Transfers out (22,300) - - - - - Total other financing sources (uses) (22,300) - - - 5,835 550,035 Net change in fund balances (21,351) 12,392 2,861 367 (366) 137,805 Fund balances, beginning of year 592,067 4,963 23,745 15,582 5,506 107,741 Fund balances, end of year 570,716 $ 17,355 $ 26,606 $ 15,949 $ 5,140 $ 245,546 $ 98 ---PAGE BREAK--- Bradford Veteran's Equipment Lake Trust Revolving Dam Total - $ - $ - $ 1,419,507 $ - - - 310,759 8,545 - - 412,528 - - - 1,220,354 - - - 216,738 - 1,077 - 53,769 - 2,909 - 743,410 8,545 3,986 - 4,377,065 - - - 442,123 - 16,589 - 342,222 - - - 1,475,517 8,588 - - 823,356 - - - 1,104,702 - - - 161,828 - - - 5,901 - 176,351 - 266,110 8,588 192,940 - 4,621,759 (43) (188,954) - (244,694) - 154,500 - 854,702 - - - (28,300) - 154,500 - 826,402 (43) (34,454) - 581,708 609 130,401 20,068 3,439,834 566 $ 95,947 $ 20,068 $ 4,021,542 $ Concluded 99 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Capital Projects Funds December 31, 2016 EMS Building Capital Library Court Project Library Construction Restoration Fund Building Millage Building Assets Cash and cash equivalents 19,242 $ 251,987 $ - $ 83,792 $ Investments - 300,000 - - Receivables Property taxes 790 - 432,144 - Total assets 20,032 $ 551,987 $ 432,144 $ 83,792 $ Liabilities Accounts payable 19,223 $ - $ - $ - $ Deferred inflows of resources Taxes levied for a subsequent period 790 - 432,144 - Fund balances Restricted - - - - Committed 19 551,987 - 83,792 Total fund balances 19 551,987 - 83,792 Total liabilities, deferred inflows of resources, and fund balances 20,032 $ 551,987 $ 432,144 $ 83,792 $ 100 ---PAGE BREAK--- Groen Nature Groen Preserve Airport Capital Capital Building Capital Construction Projects II Projects Maintenance Projects Total 156,925 $ 26,220 $ 216 $ 96,656 $ 310,928 $ 945,966 $ - - - 32,688 100,000 432,688 - - - 215,896 - 648,830 156,925 $ 26,220 $ 216 $ 345,240 $ 410,928 $ 2,027,484 $ 1,650 $ - $ - $ - $ 6,381 $ 27,254 $ - - - 215,896 - 648,830 - - - 129,344 - 129,344 155,275 26,220 216 - 404,547 1,222,056 155,275 26,220 216 129,344 404,547 1,351,400 156,925 $ 26,220 $ 216 $ 345,240 $ 410,928 $ 2,027,484 $ 101 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Capital Projects Funds For the Year Ended December 31, 2016 EMS Building Capital Library Court Project Library Construction Restoration Fund Building Millage Building Revenues Property taxes 1,482 $ - $ - $ - $ State grants - - - - Charges for services - - - 53,972 Interest and rentals 703 6,572 - - Other revenue - - - - Total revenues 2,185 6,572 - 53,972 Expenditures Judicial - - - 12,575 Public safety 298,572 - - - Public works - - - - Recreation and culture - - - - Other - - - - Capital outlay - - - 36,230 Total expenditures 298,572 - - 48,805 Revenues over (under) expenditures (296,387) 6,572 - 5,167 Other financing sources (uses) Transfers in - - - - Transfers out - - - - Total other financing sources (uses) - - - - Net change in fund balances (296,387) 6,572 - 5,167 Fund balances, beginning of year 296,406 545,415 - 78,625 Fund balances, end of year 19 $ 551,987 $ - $ 83,792 $ 102 ---PAGE BREAK--- Groen Nature Groen Preserve Airport Capital Capital Building Capital Construction Projects II Projects Maintenance Projects Total - $ - $ - $ 213,744 $ - $ 215,226 $ - - - - 42,905 42,905 - - - - - 53,972 - - - 848 - 8,123 1,530 22,000 - 12,046 - 35,576 1,530 22,000 - 226,638 42,905 355,802 - - - - - 12,575 - - - - - 298,572 - - - - 150,262 150,262 - 20,250 - 52,371 - 72,621 9,287 - - - - 9,287 21,400 - - 113,672 418,045 589,347 30,687 20,250 - 166,043 568,307 1,132,664 (29,157) 1,750 - 60,595 (525,402) (776,862) 25,000 - - - 282,500 307,500 (9,150) - - - - (9,150) 15,850 - - - 282,500 298,350 (13,307) 1,750 - 60,595 (242,902) (478,512) 168,582 24,470 216 68,749 647,449 1,829,912 155,275 $ 26,220 $ 216 $ 129,344 $ 404,547 $ 1,351,400 $ 103 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Net Position Nonmajor Enterprise Funds December 31, 2016 Global University Tax Positioning Center Foreclosure System Metropolitan Fund Fund Area Network Assets Current assets: Cash and cash equivalents 181,168 $ 67,269 $ 130,437 $ Investments 1,380,752 - - Accounts receivable 2,356 - 5,487 Total current assets 1,564,276 67,269 135,924 Noncurrent assets: Capital assets being depreciated, net - - 86,083 Total assets 1,564,276 67,269 222,007 Liabilities (all current) Accounts payable 1,167 1,200 7,115 Accrued liabilities 436 - - Total liabilities 1,603 1,200 7,115 Net position Net investment in capital assets - - 86,083 Unrestricted 1,562,673 66,069 128,809 Total net position 1,562,673 $ 66,069 $ 214,892 $ 104 ---PAGE BREAK--- Airport Special Jail Homestead Events Commissary Audit Total 12,140 $ 332 $ 11,958 $ 403,304 $ - - - 1,380,752 - 5,121 - 12,964 12,140 5,453 11,958 1,797,020 - - - 86,083 12,140 5,453 11,958 1,883,103 71 1,675 - 11,228 - - - 436 71 1,675 - 11,664 - - - 86,083 12,069 3,778 11,958 1,785,356 12,069 $ 3,778 $ 11,958 $ 1,871,439 $ 105 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenses and Changes in Fund Net Position Nonmajor Enterprise Funds For the Year Ended December 31, 2016 Global University Tax Positioning Center Foreclosure System Metropolitan Fund Fund Area Network Operating revenues Charges for services 114,778 $ 23,125 $ 86,492 $ Local sources - 5,000 - Total operating revenues 114,778 28,125 86,492 Operating expenses Salaries and fringes 55,914 - - Contractual services - 10,785 - Materials and supplies 4,991 22,967 - Depreciation - - 12,300 Other 3,072 - 57,028 Total operating expenses 63,977 33,752 69,328 Operating income (loss) 50,801 (5,627) 17,164 Nonoperating revenues Investment earnings 26,774 - - Other 209,099 - - Total nonoperating revenues 235,873 - - Income (loss) before transfers 286,674 (5,627) 17,164 Transfers Transfers in 125 17,000 - Transfers out (42,500) - - Total transfers (42,375) 17,000 - Change in net position 244,299 11,373 17,164 Net position, beginning of year 1,318,374 54,696 197,728 Net position, end of year 1,562,673 $ 66,069 $ 214,892 $ 106 ---PAGE BREAK--- Airport Special Jail Homestead Events Commissary Audit Total 61,083 $ 11,723 $ 95 $ 297,296 $ - - - 5,000 61,083 11,723 95 302,296 - - - 55,914 113,995 - - 124,780 10,343 13,927 - 52,228 - - - 12,300 34,470 - 3,055 97,625 158,808 13,927 3,055 342,847 (97,725) (2,204) (2,960) (40,551) - - 790 27,564 77,927 - - 287,026 77,927 - 790 314,590 (19,798) (2,204) (2,170) 274,039 - - - 17,125 - - - (42,500) - - - (25,375) (19,798) (2,204) (2,170) 248,664 31,867 5,982 14,128 1,622,775 12,069 $ 3,778 $ 11,958 $ 1,871,439 $ 107 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Cash Flows Nonmajor Enterprise Funds For the Year Ended December 31, 2016 Global University Tax Positioning Center Foreclosure System Metropolitan Fund Fund Area Network Cash flows from operating activities Receipts from customers 112,422 $ 28,125 $ 81,644 $ Payments to suppliers (65,877) (34,347) (55,193) Net cash provided by (used in) operating activities 46,545 (6,222) 26,451 Cash flows from noncapital financing activities Other receipts 209,099 - - Transfers in 125 17,000 - Transfers out (42,500) - - Net cash provided by (used in) noncapital financing activities 166,724 17,000 - Cash flows from investing activities Purchases of investments (434,445) - - Interest received on investments 26,774 - - Net cash provided by (used in) investing activities (407,671) - - Net increase (decrease) in cash and cash equivalents (194,402) 10,778 26,451 Cash and cash equivalents, beginning of year 375,570 56,491 103,986 - Cash and cash equivalents, end of year 181,168 $ 67,269 $ 130,437 $ Reconciliation of operating income (loss) to net cash provided by (used in) operating activities Operating income (loss) 50,801 $ (5,627) $ 17,164 $ 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) - (4,848) Prepaids - - - Accounts payable (1,695) (595) 1,835 Accrued liabilities (205) - - Unearned revenue - - - Net cash provided by (used in) operating activities 46,545 $ (6,222) $ 26,451 $ 108 ---PAGE BREAK--- Airport Special Jail Homestead Events Commissary Audit Total 61,283 $ 12,948 $ 95 $ 296,517 $ (151,868) (12,941) (3,055) (323,281) (90,585) 7 (2,960) (26,764) 77,927 - - 287,026 - - - 17,125 - - - (42,500) 77,927 - - 261,651 - - - (434,445) - - 790 27,564 - - 790 (406,881) (12,658) 7 (2,170) (171,994) 24,798 325 14,128 575,298 - 12,140 $ 332 $ 11,958 $ 403,304 $ (97,725) $ (2,204) $ (2,960) $ (40,551) $ - - - 12,300 700 1,225 - (5,279) 8,170 - - 8,170 (1,230) 986 - (699) - - - (205) (500) - - (500) (90,585) $ 7 $ (2,960) $ (26,764) $ 109 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Net Position Internal Service Funds December 31, 2016 Building and Administrative Health Grounds Services Care Total Assets (all current) Cash and cash equivalents 159,114 $ 22,794 $ 56,831 $ 238,739 $ Investments - - 200,000 200,000 Accounts receivable, net 4,650 38 5,677 10,365 Inventories - 325 - 325 Prepaids - - 92,823 92,823 Total assets 163,764 23,157 355,331 542,252 Liabilities (all current) Accounts payable 19,934 5,737 - 25,671 Accrued liabilities - 1,606 - 1,606 Total liabilities 19,934 7,343 - 27,277 Net position Unrestricted 143,830 15,814 355,331 514,975 Total net position 143,830 $ 15,814 $ 355,331 $ 514,975 $ 110 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Changes in Fund Net Position Internal Service Funds For the Year Ended December 31, 2016 Building and Administrative Health Grounds Services Care Total Operating revenues Charges for services 431,129 $ 558,319 $ 1,237,797 $ 2,227,245 $ Operating expenses Salaries and fringes - 540,762 1,282,365 1,823,127 Contractual services 242,424 - - 242,424 Materials and supplies 1,087 5,426 - 6,513 Equipment repair and maintenance 26,868 6,529 - 33,397 Utilities 194,525 943 - 195,468 Other 4,115 8,527 - 12,642 Total operating expenses 469,019 562,187 1,282,365 2,313,571 Operating income (loss) (37,890) (3,868) (44,568) (86,326) Nonoperating revenues Investment earnings - - 5,038 5,038 Income (loss) before transfers (37,890) (3,868) (39,530) (81,288) Transfers Transfers in - 870 - 870 Change in net position (37,890) (2,998) (39,530) (80,418) Net position, beginning of year 181,720 18,812 394,861 595,393 Net position, end of year 143,830 $ 15,814 $ 355,331 $ 514,975 $ 111 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Cash Flows Internal Service Funds For the Year Ended December 31, 2016 Building and Administrative Health Grounds Services Care Total Cash flows from operating activities Internal activity - receipts from other funds 429,334 $ 558,281 $ 1,232,448 $ 2,220,063 $ Payments to suppliers (461,406) (16,020) - (477,426) Payments to employees for services and benefits - (540,362) (1,359,542) (1,899,904) Net cash provided by (used in) operating activities (32,072) 1,899 (127,094) (157,267) Cash flows provided by noncapital financing activities Transfers in - 870 - 870 Cash flows from investing activities Sale of investments - - 100,000 100,000 Interest received on investments - - 5,038 5,038 Net increase (decrease) in cash and cash equivalents (32,072) 2,769 (22,056) (51,359) Cash and cash equivalents, beginning of year 191,186 20,025 78,887 290,098 - Cash and cash equivalents, end of year 159,114 $ 22,794 $ 56,831 $ 238,739 $ Reconciliation of operating income (loss) to net cash provided by (used in) operating activities Operating income (loss) (37,890) $ (3,868) $ (44,568) $ (86,326) $ 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 (38) (5,349) (5,391) Prepaids - - (77,177) (77,177) Accounts payable 7,613 5,405 - 13,018 Accrued liabilities - 400 - 400 Unearned revenue (1,791) - - (1,791) Net cash provided by (used in) operating activities (32,072) $ 1,899 $ (127,094) $ (157,267) $ 112 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Fiduciary Assets and Liabilities Fiduciary Funds December 31, 2016 Michigan Municipal Risk General Agency Payroll Imprest Library Management Fund Fund Penal Fines Authority Total Assets Cash and cash equivalents 1,084,335 $ 164,414 $ 102,969 $ 322,492 $ 1,674,210 $ Liabilities Undistributed tax collections 751,336 $ - $ - $ - $ 751,336 $ Bonds, restitutions, and payables to others 332,999 164,414 102,969 322,492 922,874 Total liabilities 1,084,335 $ 164,414 $ 102,969 $ 322,492 $ 1,674,210 $ 113 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Balance Sheet and Statement of Net Position University Center Component Unit December 31, 2016 University Statement of Center Adjustments Net Position Assets Cash and cash equivalents 569,728 $ - $ 569,728 $ Investments 498,475 - 498,475 Receivables Accounts 11,568 - 11,568 Taxes 644,747 - 644,747 Capital assets being depreciated, net - 144,896 144,896 Total assets 1,724,518 $ 144,896 1,869,414 Liabilities Accounts payable 103 $ - 103 Deferred inflows of resources Taxes levied for a subsequent period 664,220 - 664,220 Fund balances Restricted 343,145 (343,145) - Unassigned 669,970 (669,970) - Total fund balances 1,013,115 (1,013,115) - Total liabilities, deferred inflows of resources and fund balances 1,677,438 $ Net position Investment in capital assets 144,896 144,896 Restricted 343,145 343,145 Unrestricted 717,050 717,050 Total net position 1,205,091 $ 1,205,091 $ 114 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Changes in Fund Balance and Statement of Activities University Center Component Unit For the Year Ended December 31, 2016 Statement of Revenues, Expenditures and Changes in Fund Statement of Balance Adjustments Activities Revenues Property taxes 630,439 $ - $ 630,439 $ Investment earnings 9,792 - 9,792 Other 233,432 - 233,432 Total revenues 873,663 - 873,663 Expenditures / expenses Current: Other functions 765,666 - 765,666 Change in fund balance / net position 107,997 - 107,997 Fund balance / net position, beginning of year 905,118 191,976 1,097,094 Fund balance / net position, end of year 1,013,115 $ 191,976 $ 1,205,091 $ 115 ---PAGE BREAK--- INTERNAL CONTROL AND COMPLIANCE ---PAGE BREAK--- Internal Control Over Financial Reporting Honorable members of the Board of Commissioners of Otsego County, Michigan Gaylord, Michigan 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, 2016, 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 23, 2017. 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. 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 23, 2017 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. 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. 116 ---PAGE BREAK--- Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 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. 117 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Schedule of Findings and Responses For the Year Ended December 31, 2016 None.      118 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Summary Schedule of Prior Audit Findings For the Year Ended December 31, 2016      2015-001 - Material Audit Adjustments (Repeat finding) In the prior year, the audited financials required material audit adjustments to adjust the County's general ledger to the appropriate balances. During the 2016 fiscal year audit, there were no material audit adjustments. As such, this finding is considered resolved. 119 ---PAGE BREAK--- INDEPENDENT AUDITORS’ COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE June 23, 2017 To the Board of Commissioners Otsego County, Michigan 225 West Main Street Gaylord, MI 49735 We have audited 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 the Otsego County, Michigan (the “County”) as of and for the year ended December 31, 2016, and have issued our report thereon dated June 23, 2017. We did not audit the financial statements of the Otsego County Road Commission or the Otsego County Commission on Aging. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion on the financial statements and this report, insofar as they relate the Otsego County Road Commission and the Otsego County Commission on Aging, are based solely on the report of other auditors. Professional standards require that we advise you of the following matters relating to our audit. Our Responsibility in Relation to the Financial Statement Audit As communicated in our engagement letter dated April 13, 2017, our responsibility, as described by professional standards, is to form and express opinions about whether the financial statements that have been prepared by management with your oversight are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities. Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the County solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you. We have provided our findings regarding internal control over financial reporting and compliance noted during our audit in a separate letter to you dated June 23, 2017. Other Matters In addition, we noted a certain other matter. At the end of the County’s 2016 fiscal year, the Bus System an enterprise fund, reported ending unrestricted deficit net position. It is the auditor’s recommendation that the County prepare a deficit elimination plan. ---PAGE BREAK--- Page 2 Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to you in our engagement letter and in our meeting about planning matters on April 19, 2017. Compliance with All Ethics Requirements Regarding Independence The engagement team, others in our firm, as appropriate, and our firm has complied with all relevant ethical requirements regarding independence. Qualitative Aspects of the County’s Significant Accounting Practices Significant Accounting Policies Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the County is included in Note 1 to the financial statements. There have been no initial selections of accounting policies and no changes in significant accounting policies or their application during the year. No matters have come to our attention that would require us, under professional standards, to inform you about the methods used to account for significant unusual transactions and the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Significant Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments. The most sensitive accounting estimates affecting the financial statements were:  Management’s estimate of the useful lives of depreciable capital assets is based on the length of time it is believed that those assets will provide some economic benefit in the future.  Management’s estimate of the accrued compensated absences is based on current hourly rates and policies regarding payment of sick and vacation banks.  Management’s estimate of the allowance for uncollectible receivable balances is based on past experience and future expectation for collection of various account balances.  The assumptions used in the actuarial valuation of the other postemployment benefits plan are based on historical trends and industry standards.  Management’s fair value determination of investments. ---PAGE BREAK--- Page 3 We evaluated the key factors and assumptions used to develop these estimates and determined that they are reasonable in relation to the basic financial statements taken as a whole and in relation to the applicable opinion units. In addition, the financial statements include a net pension liability and other pension-related amounts, which are dependent on estimates made by the plan. These estimates are based on historical trends and industry standards, but are not within the control of management. Significant Difficulties Encountered During the Audit We encountered no significant difficulties in dealing with management relating to the performance of the audit. Uncorrected and Corrected Misstatements For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each applicable opinion unit. In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. None of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole. The schedule of adjustments passed is included with management’s written representations in Attachment B to this letter, and summarizes uncorrected financial statement misstatements whose effects in the current and prior periods, as determined by management, are immaterial, both individually and in the aggregate, to the financial statements taken as a whole and each applicable opinion unit. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the County’s financial statements or the auditors’ report. No such disagreements arose during the course of the audit. Representations Requested from Management We have requested certain written representations from management, which are included in Attachment B to this letter. Management’s Consultations with Other Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters. ---PAGE BREAK--- Page 4 Other Significant Matters, Findings, or Issues In the normal course of our professional association with the County, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the County’s auditors. Other Information in Documents Containing Audited Financial Statements Our responsibility for the supplementary information accompanying the financial statements, as described by professional standards, is to evaluate the presentation of the supplementary information in relation to the financial statements as a whole and to report on whether the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole. We made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. Upcoming Changes in Accounting Standards Generally accepted accounting principles (GAAP) are continually changing in order to promote the usability and enhance the applicability of information included in external financial reporting. While it would not be practical to include an in-depth discussion of every upcoming change in professional standards, Attachment A to this letter contains a brief overview of recent pronouncements of the Governmental Accounting Standards Board (GASB) and their related effective dates. Management is responsible for reviewing these standards, determining their applicability, and implementing them in future accounting periods. This information is intended solely for the use of the governing body and management of the Otsego County, Michigan and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours, ---PAGE BREAK--- OTSEGO COUNTY Attachment A – Upcoming Changes in Accounting Standards / Regulations GASB 74  Postemployment Benefit Plans Other than Pension Plans Effective 06/15/2017 (your FY 2017) GASB 75  Postemployment Benefits Other than Pensions Effective 06/15/2018 (your FY 2018) GASB 80  Blending Requirements for Certain Component Units Effective 06/15/2017 (your FY 2017) GASB 81  Irrevocable Split-Interest Agreements Effective 12/15/2017 (your FY 2017) GASB 82  Pension Issues Effective 06/15/2017 (your FY 2017) For the December 31, 2016 Audit This standard requires the calculation of a net other postemployment benefit (OPEB) liability based on an actuarial valuation of retiree healthcare and similar benefits administered by an OPEB trust. It mirrors the new accounting and financial reporting requirements of GASB 67 for pension plans. This standard builds on the requirements of GASB 74 by requiring employers that provide other postemployment benefits (OPEB) to recognize a net OPEB liability on their statements of net position. It mirrors the new accounting and financial reporting requirements of GASB 68 for pension benefits. This standard addresses the accounting for split-interest agreements for which the government serves as the intermediary and/or the beneficiary. It requires governments to record assets, liabilities, and deferred inflows of resources at the inception of the agreement when serving as intermediary, or when the government controls the present service capacity of a beneficial interest. We do not expect this standard to have any significant effect on the County. This standard is an amendment to GASB 67/68 to clarify several issues related to pensions. We do not expect this standard to have any significant effect on the County. The following pronouncements of the Governmental Accounting Standards Board (GASB) have been released recently and may be applicable to the County in the near future. We encourage management to review the following information and determine which standard(s) may be applicable to the County. For the complete text of these and other GASB standards, visit www.gasb.org and click on the “Standards & Guidance” tab. If you have questions regarding the applicability, timing, or implementation approach for any of these standards, please contact your audit team. This standard is an amendment to GASB 14, The Financial Reporting Entity, and requires blending component units incorporated as not-for-profit corporations in which the government is the sole corporate member. We do not expect this standard to have any significant effect on the County. A-1 ---PAGE BREAK--- OTSEGO COUNTY Attachment A – Upcoming Changes in Accounting Standards / Regulations For the December 31, 2016 Audit GASB 83  Certain Asset Retirement Obligations Effective 06/15/2019 (your FY 2019) GASB 84  Fiduciary Activities Effective 12/15/2019 (your FY 2019) GASB 85  Omnibus 2017 Effective 06/15/2018 (your FY 2018) GASB 86  Certain Debt Extinguishment Issues Effective 06/15/2018 (your FY 2018) This standard establishes new criteria for determining how to report fiduciary activities in governmental financial statements. The focus is on whether the government is controlling the assets, and who the beneficiaries are. Under this revised standard, certain activities previously reported in agency funds may be reclassified in future periods. Due to the number of specific factors to consider, we will continue to assess the degree to which this standard may impact the County. This standard provides guidance for reporting the in-substance defeasance of outstanding debt obligations using existing resources. Qualifying transactions will remove both the assets placed into trust and the related debt obligation from the government's statement of net position. We do not expect this standard to have any significant effect on the County.      This standard includes a variety of small technical revisions to previously issued GASB statements. We do not expect this standard to have any significant effect on the County. This standard addresses accounting and financial reporting for certain asset retirement obligations--legally enforceable liabilities associated with the retirement of a tangible capital asset. We do not expect this standard to have any significant effect on the County. A-2 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Attachment B – Management Representations The following pages contain the written representations that we requested from management. For the December 31, 2016 Audit B-1 ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Schedule of Adjustments Passed (SOAP) Effect of Passed Adjustment - Over(Under)Statement Beginning Expenses/ Assets Liabilities Equity Revenues Expenditures Governmental activities Under accrual of deferred contributions to MERS - $ - $ (268,215) $ - $ (268,215) $ - - 130,540 - 130,540 - $ - $ (137,675) $ - $ (137,675) $ Misstatement as a percentage of total program/general revenues - governmental activities 0.00% 0.00% -1.01% 0.00% -1.01% Airport (8,509) $ - $ - $ - $ 8,509 $ Misstatement as a percentage of total revenues - business type activities -0.27% 0.00% 0.00% 0.00% 0.27% Component units - $ - $ 9,837 $ - $ 9,837 $ - - 17,942 - 17,942 - - 6,454 - 6,454 (19,931) - - - 19,931 - (10,358) - - (10,358) - (12,404) - - (12,404) - (7,103) - - (7,103) Component units (19,931) $ (29,865) $ 34,233 $ - $ 24,299 $ Misstatement as a percentage of total revenues - component units -0.13% -0.20% 0.23% 0.00% 0.16% For the December 31, 2016 Audit Unrecorded fuel purchase Cumulative effect of items noted above In accordance with generally accepted auditing standards, we have prepared the following schedule of proposed audit adjustments, which we believe are immaterial both individually and in the aggregate. We are providing this schedule to both management and those charged with governance to receive their assurance that they agree that the amounts listed below are not material to the financial statements, either individually or in the aggregate, and do not need to be recorded. 2015 - Understatement of retainage in the Capital Projects Fund 2015 - Understatement of payroll accrual in the Fund 2015 - Understatement of payroll accrual in the EMS Fund 2016 - Understatement of payroll accrual in the Library Fund Over calculation of OPEB contribution 2015 - Understatement of payroll accrual in the UC Man Fund 2016 - Understatement of payroll accrual in the Fund 2016 - Understatement of payroll accrual in the EMS Fund