Document otsegocountymi_gov_doc_c148c00c3e

Year Ended December 31, 2018 Financial Statements Otsego County, Michigan ---PAGE BREAK--- ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN ELECTED OFFICERS For the Year Ended December 31, 2018 BOARD OF COMMISSIONERS Ken Borton Doug Johnson Chairman Vice Chairman Robert Pallarito Paul Beachnau Paul Liss Bruce Brown Julia Powers Ken Glasser Diane Switalski Diann Axford Susan DeFeyter Treasurer Clerk/Register of Deeds Matthew Nowicki Brendan Curran Sheriff Prosecuting Attorney OTHER OFFICIALS Rachel Frisch Appointed County Administrator ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Table of Contents Page Independent Auditors’ Report 1 Management’s Discussion and Analysis 4 Basic Financial Statements Government-wide Financial Statements: Statement of Net Position 13 Statement of Activities 14 Fund Financial Statements: Balance Sheet – Governmental Funds 16 Reconciliation of Fund Balances of Governmental Funds to Net Position of Governmental Activities 18 Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds 19 Reconciliation of Net Changes in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities 21 Statement of Revenues, Expenditures and Change in Fund Balance – Budget and Actual: General Fund 22 Housing Commission Special Revenue Fund 25 M-TEC Special Revenue Fund 26 Statement of Net Position – Proprietary Funds 27 Statement of Revenues, Expenses and Changes in Fund Net Position – Proprietary Funds 29 Statement of Cash Flows – Proprietary Funds 31 Statement of Fiduciary Assets and Liabilities 35 Combining Statement of Net Position – Discretely Presented Component Units 36 Combining Statement of Activities – Discretely Presented Component Units 38 Notes to Financial Statements 40 Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan: Schedule of Changes in County's Net Pension Liability and Related Ratios 83 Schedule of the Net Pension Liability 84 Schedule of Contributions 85 Single-Employer Other Postemployment Benefits Plan: Schedule of Changes in the County's Total OPEB Liability and Related Ratios 86 Schedule of Contributions 87 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Table of Contents Page Combining and Individual Fund Financial Statements Nonmajor Governmental Funds: Combining Balance Sheet – Nonmajor Governmental Funds 88 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Governmental Funds 89 Combining Balance Sheet – Nonmajor Special Revenues Funds 90 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Special Revenues Funds 95 Combining Balance Sheet – Nonmajor Capital Projects Funds 100 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Capital Projects Funds 103 Nonmajor Enterprise Funds: Combining Statement of Net Position 106 Combining Statement of Revenues, Expenses and Changes in Fund Net Position 108 Combining Statement of Cash Flows 110 Internal Service Funds: Combining Statement of Net Position 112 Combining Statement of Revenues, Expenses and Changes in Fund Net Position 113 Combining Statement of Cash Flows 114 Combining Statement of Fiduciary Assets and Liabilities - Fiduciary Funds 115 Internal Control and Compliance 116 118 119     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 Schedule of Findings and Responses Summary Schedule of Prior Audit Findings ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- Rehmann Robson 902 South Huron Cheboygan, MI 49721 Ph: [PHONE REDACTED] Fx: [PHONE REDACTED] rehmann.com CPAs & Consultants Wealth Advisors Corporate Investigators Rehmann is an independent member of Nexia International. INDEPENDENT AUDITORS' REPORT Honorable Members of the Board of Commissioners Otsego County Gaylord, Michigan Report on the Financial Statements Management's Responsibility for the Financial Statements Independent Auditors' Responsibility July 1, 2019 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, 2018, 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 91 percent, 92 percent, and 70 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 11 percent, respectively, of the assets and deferred outflows, net position, and revenues of the aggregate discretely presented component units. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Otsego County Road Commission and Otsego County Commission on Aging is based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The financial statements of the Otsego County Commission on Aging were not audited in accordance with Government Auditing Standards. 1 ---PAGE BREAK--- Opinions An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Otsego County, Michigan, as of December 31, 2018, 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. Required Supplementary Information Implementation of GASB Statement No. 75 As described in Note 23, the County implemented the provisions of GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions, in the current year. Accordingly, beginning net position of governmental activities and the Road Commission component unit was restated. Our opinion is not modified with respect to this matter. 2 ---PAGE BREAK--- Other Information Other Reporting Required by Government Auditing Standards The combining and individual fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. In accordance with Government Auditing Standards, we have also issued our report dated July 1, 2019 on our consideration of the County's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the County's internal control over financial reporting and compliance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County’s basic financial statements. The combining and individual fund financial statements listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. 3 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- MANAGEMENT'S DISCUSSION AND ANALYSIS ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Financial Highlights Key metrics and financial highlights of the County for the year ended December 31, 2018 are as follows: Total net position 34,080,857 $ Unrestricted net position 7,153,017 Change in net position 236,763 Fund balances, governmental funds 14,452,858 Change in fund balances, governmental funds (1,501,572) Fund balance, General fund 5,251,273 (as percentage of General fund expenditures and transfers out) 65% Unassigned fund balance, General fund 5,069,094 (as percentage of General fund expenditures and transfers out) 63% Overview of the Financial Statements As management of Otsego County, Michigan (the "County"), we offer readers of the County's financial statements this narrative overview and analysis of the financial activities of the County for the fiscal year ended December 31, 2018. We encourage readers to consider the information presented here in conjunction with additional information that is furnished in the financial statements and notes to the financial statements. This discussion and analysis is intended to serve as an introduction to the County’s basic financial statements. The County’s basic financial statements comprise three components: 1) government‐wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the County’s finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the County’s assets, deferred outflows of resources, liabilities and deferred inflows of resources, with the residual reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the County is improving or deteriorating. The statement of activities presents information showing how the government’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods uncollected taxes and earned but unused sick and vacation leave). Both of the government-wide financial statements distinguish functions of the County that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the County include various services within the legislative, judicial, general government, public safety, public works, health and welfare, community and economic development, and recreation and culture. The business‐type activities of the County include delinquent tax collection, bus system, airport and other non-major activities. 4 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Proprietary funds. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide information for the Delinquent Tax Revolving fund, the Bus System fund, and the Airport fund, 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 funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The County uses enterprise funds to account for its delinquent tax, tax foreclosure, bus system, global positioning system, university center metropolitan area network, airport special events, homestead audit, I-75 sign, and jail commissary operations. Internal service funds are an accounting device used to accumulate and allocate costs internally among the County’s various functions. The County uses internal service funds to account for its building and grounds, administration services, and health care functions. Because these services predominately benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the County’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The County maintains numerous individual governmental funds. Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures and change in fund balances for the General fund, Housing Commission special revenue fund, M-Tec special revenue fund, Library Capital Project Bond 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. These component units include the Otsego County Road Commission, Otsego County Ambulance Corporation, Otsego County Commission on Aging, and the Otsego County Financial information for the discretely presented component units are reported separately from the financial information presented for the primary government itself. Separately issued reports can be obtained from the Otsego County Road Commission and Otsego County Commission on Aging component unit's offices. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The County, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the County can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government‐wide financial statements. However, unlike the government‐wide financial statements, governmental fund financial statements focus on near‐term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near‐term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental funds balance sheet and the governmental funds statement of revenues, expenditures, and change in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The County adopts an annual appropriated budget for its General 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. 5 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis The combining statements and individual fund financial statements referred to earlier in connection with nonmajor funds are presented following the required supplementary information. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information. This is limited to this managements discussion and analysis and the schedules for the County pension and other postemployment benefits plans. Government-wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the County, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by approximately $34,081,000 at the close of the most recent fiscal year. A portion of the County’s net position represents its investment in capital assets land, buildings, vehicles, equipment and infrastructure). The County uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Net investment in capital assets is approximately 52% of total net position. An additional portion of the County's net position, approximately 27%, 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 21%. This net position may be used to meet the government's ongoing obligations to citizens and creditors. Net Position 6 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Net Position Governmental Activities Business-type Activities Total 2018 2017 2018 2017 2018 2017 Assets Current and other assets 21,996,842 $ 23,309,551 $ 9,248,169 $ 9,278,750 $ 31,245,011 $ 32,588,301 $ Capital assets, net 12,742,238 10,644,933 6,573,459 6,941,708 19,315,697 17,586,641 Total assets 34,739,080 33,954,484 15,821,628 16,220,458 50,560,708 50,174,942 Deferred outflows of resources Deferred pension amounts 1,409,578 2,247,729 140,229 362,472 1,549,807 2,610,201 Deferred other postemployment benefit amounts 97,818 - - - 97,818 - Total deferred outflows 1,507,396 2,247,729 140,229 362,472 1,647,625 2,610,201 Liabilities Long-term debt 2,966,308 3,586,425 25,545 - 2,991,853 3,586,425 Other liabilities 9,899,394 10,859,610 751,170 802,940 10,650,564 11,662,550 Total liabilities 12,865,702 14,446,035 776,715 802,940 13,642,417 15,248,975 Deferred inflows of resources Taxes levied for a subsequent period 3,847,499 3,676,796 - - 3,847,499 3,676,796 Deferred pension amounts 432,710 179,383 204,850 197,975 637,560 377,358 Total deferred inflows 4,280,209 3,856,179 204,850 197,975 4,485,059 4,054,154 Net position Net investment in capital assets 11,194,681 7,936,598 6,573,459 6,941,708 17,768,140 14,878,306 Restricted for: Housing projects 1,639,001 2,477,770 - - 1,639,001 2,477,770 Public safety 1,919,978 1,946,605 - - 1,919,978 1,946,605 Recreation and culture 3,652,571 4,864,236 - - 3,652,571 4,864,236 Other 1,948,150 691,479 - - 1,948,150 691,479 Unrestricted (deficit) (1,253,816) (16,689) 8,406,833 8,640,307 7,153,017 8,623,618 Total net position 19,100,565 $ 17,899,999 $ 14,980,292 $ 15,582,015 $ 34,080,857 $ 33,482,014 $ After taking into consideration an increase of approximately $362,000 related to the implementation of GASB No. 75, the County’s total net position increased approximately 1.8%, or approximately $599,000 to approximately $34,080,000 for the year ended December 31, 2018. 7 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Change in Net Position Governmental Activities Business-type Activities Total 2018 2017 2018 2017 2018 2017 Revenues Program revenues: Charges for services 2,166,057 $ 2,176,080 $ 1,666,509 $ 1,864,859 $ 3,832,566 $ 4,040,939 $ Operating grants 2,650,211 3,774,437 804,969 1,341,465 3,455,180 5,115,902 Capital grants 69,299 64,830 373,081 - 442,380 64,830 General revenues: Property taxes 8,300,297 8,503,537 315,663 293,501 8,615,960 8,797,038 Interest and rentals 355,688 264,373 259,535 143,524 615,223 407,897 Other 1,775,590 2,335,034 284,388 202,457 2,059,978 2,537,491 Total revenues 15,317,142 17,118,291 3,704,145 3,845,806 19,021,287 20,964,097 Expenses Legislative 225,294 216,112 - - 225,294 216,112 Judicial 1,890,595 1,801,679 - - 1,890,595 1,801,679 General government 4,003,061 4,300,820 - - 4,003,061 4,300,820 Public safety 4,412,678 3,877,185 - - 4,412,678 3,877,185 Public works 167,639 374,310 - - 167,639 374,310 Health and welfare 1,445,356 1,266,892 - - 1,445,356 1,266,892 Community & economic development 409,862 1,375,521 - - 409,862 1,375,521 Recreation and culture 2,026,823 1,243,739 - - 2,026,823 1,243,739 Interest - unallocated 86,457 69,902 - - - - Delinquent tax revolving - - 199,345 177,981 199,345 177,981 Bus System - - 1,673,970 1,867,037 1,673,970 1,867,037 Airport - - 1,713,366 1,707,350 1,713,366 1,707,350 Other business-type activities - - 546,238 370,998 546,238 370,998 Total expenses 14,667,765 14,526,160 4,132,919 4,123,366 18,714,227 18,579,624 Change in net position, before contributions and transfers 649,377 2,592,131 (428,774) (277,560) 307,060 2,384,473 Contribution to other governmental units - (153,900) - - - (153,900) Transfers 189,109 407,286 (172,949) (420,421) 16,160 (13,135) Change in net position 838,486 2,845,517 (601,723) (697,981) 236,763 2,147,536 Net position: Beginning of year 17,899,999 15,054,482 15,582,015 16,279,996 33,482,014 31,334,478 Restatement for implementation of GASB 75 362,080 - - - 362,080 - End of year 19,100,565 $ 17,899,999 $ 14,980,292 $ 15,582,015 $ 34,080,857 $ 33,482,014 $ 8 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis · · · · · · · · Governmental activities consist primarily of: General government - expenses related to support the departments of the County such as administration, human resources, treasury, information services, facilities management, finance, equalization, and prosecuting attorney. Legislative - expenses related to support the Board of Commissioners and high-level administrative expenditures. Judicial - expenses related to the administration of circuit, district and probate/family courts and court probation units. Public safety - expenses related to sheriff's administration and road patrol and County corrections services. Health and welfare - expenses related to public health services, child care, programs for seniors, housing assistance programs, and medical examiner fees. Recreational and cultural activities - expenses related to the County library. Public works - expenses related to drains and airport planning grant. Community and economic development - planning and zoning department. Governmental activities increased the County’s net position by approximately $838,000 after consideration of the increase of approximately $362,000 due to the implementation of GASB No. 75. Overall revenues decreased by approximately $1,801,000. The most significant decrease in revenues was operating grants, which decreased by approximately $1,124,000, primarily due to the County receiving approximately $742,000 in donated capital additions in the previous year. The other significant decrease in revenues is in other revenues, primarily due to an increase in other revenues in the previous year for the transition of the University Center management agreement between the County and Kirtland Community College. The net decrease in governmental expenses from 2017 to 2018 was approximately $142,000, primarily due to the reclassification of contributions to other governmental units to recreation and culture. General government expenses decreased approximately $243,000 due to the completion of the tennis court project in 2017. Public safety expenses increased approximately $535,000 primarily due to capital outlay, including equipment purchases, pension expense, employee wages and inmate healthcare costs. Recreation and culture expenses increased approximately $783,000 primarily due to the library building expansion project, trail head expansion project and the reclassification of contributions to the DNR. The most significant governmental activity expense decrease was in the community and economic development due to the MTEC tax collection disbursements being recorded as a fiduciary activity rather than a governmental activity. Governmental activities $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 · · · Bus system - the Otsego County Bus System is funded by Federal and State operating grants, a local special voted millage, and user fees. Expenses include the management, operations, and maintenance of the Bus System. The bus system's operating revenues decreased approximately $180,000 in federal and state grants, due to a decrease in reimbursable operating expenditures including salaries and fringes, and capital contributions increased approximately $373,000 due to federal and state capital assistance for the purchase of four transit busses. Airport - this activity accounts for the financial activity of the Gaylord Regional Airport. The main sources of revenue are fuel sales and an annual General Fund appropriation. Expenses include the management, operations, and maintenance of the airport. The airport's nonoperating revenues decreased approximately $357,000 in federal and state grants due to the completion of the taxi lane project in 2017. The fund balance of the General fund increased by approximately $383,000 from the prior year. The increase is primarily due to actual judicial expenses being less than management's budgeted amounts. The Circuit Court saw he most significant reduction of expenses compared to budgeted, due to payroll and applicable fringes being less than anticipated. Unassigned fund balance of approximately $5,069,000, is available for spending at the County's discretion. The County's Housing Commission fund balance at December 31, 2018 was approximately $113,000; a decrease of approximately $37,000 from the prior year. The change in fund balance is attributable to a decrease in revenue by approximately $158,000 due to a decrease in operating grants, which was offset by a decrease in expenditures of approximately $122,000 due to a decrease in housing rehabilitation costs. The County's M-TEC fund balance at December 31, 2018 remained at $0 for the 2018 fiscal year. Revenues and expenditures decreased by approximately $736,000 from the previous year due to the M-TEC tax levy being recorded in a trust and agency fund during the 2018 fiscal year. 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. As noted earlier, the County uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the County’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the County’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. The County's Debt Service fund balance at December 31, 2018 remained at $0 for the 2018 fiscal year. Revenues and expenditures decreased approximately $45,000 from the previous year as a result of a reduction in debt payments due. The County's Library Capital Projects Bond fund balance at December 31, 2018 was approximately $554,000 which decreased approximately $992,000 from the prior year. The change in fund balance is primarily attributable to an increase in construction expenditures of approximately $2,135,000, which was offset by an increase in transfers in of $1,327,000. Business‐type activities The major business-type activities of the County include the following proprietary operations: Financial Analysis of the County’s Funds Delinquent tax collection - this activity 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. 10 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Governmental Activities Business-type Activities Total 2018 2017 2018 2017 2018 2017 Land 2,436,427 $ 2,282,072 $ 99,998 $ 99,998 $ 2,536,425 $ 2,382,070 $ Construction in progress 2,771,224 522,956 - - 2,771,224 522,956 Buildings 5,592,458 5,700,422 1,217,348 1,322,856 6,809,806 7,023,278 Furniture and fixtures 87,081 129,635 - - 87,081 129,635 Equipment 1,658,028 1,752,442 111,655 92,329 1,769,683 1,844,771 Vehicles 178,856 237,245 337,545 102,807 516,401 340,052 Infrastructure 18,164 20,161 4,806,913 5,323,718 4,825,077 5,343,879 Total capital assets, net 12,742,238 $ 10,644,933 $ 6,573,459 $ 6,941,708 $ 19,315,697 $ 17,586,641 $ The revenue increased 1.4 percent from the original to the final budgeted amounts. The expenditures increased 3.3 percent from the original to the final amended budgets. Capital Asset and Debt Administration Overall during the year, General fund revenues were in line with the budgetary estimates and came in higher than anticipated by approximately $48,000 or .6 percent. Overall expenditures were under budget by approximately $499,000 or 6.3 percent as a result of the County not needing to fully use budgeted contingency and management's commitment to continually reviewing expenses. Budgetary Highlights General fund Unrestricted net position of the enterprise funds at year end amounted to approximately $8,407,000. The enterprise funds had a decrease in net position for the year of approximately $602,000. The net position in the Delinquent Tax Revolving fund decreased approximately $239,000, primarily due to the transfer out of approximately $352,000 from the Delinquent Tax Revolving Fund for various uses, which was primarily a distribution of the Library Bond tax millage. Capital Assets (Net of Depreciation, where applicable) Construction in progress for the 2018 fiscal year, in the amount of approximately $2,771,000, includes $2,248,000 in current year additions, consisting of the library building expansion project, trail head expansion project, and the Groen Nature Preserve project. The remaining $786,000 in governmental activities additions consisted of land, building improvements, equipment and a vehicle. The $439,000 in business-type activities additions consisted primarily of four transit busses. 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. 11 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Governmental Activities Business-type Activities Total 2018 2017 2018 2017 2018 2017 2,756,563 $ 3,398,335 $ - $ - $ 2,756,563 $ 3,398,335 $ 14,038 - - - 14,038 - 195,707 170,542 - - 195,707 170,542 2,966,308 $ 3,568,877 $ - $ - $ 2,966,308 $ 3,568,877 $ Economic Factors and Next Year’s Budget and Rates · · Total The County is required to record the total liability for other postemployment healthcare benefits (OPEB). The total OPEB liability is approximately $1,931,000. If the County were required to fund that liability, the estimated annual contribution would be approximately $156,000. This is a significant liability; however, due to changes in benefit levels for new employees, this liability is anticipated to decrease over time. Long-term Debt Installment debt Compensated absences Long-term Debt. At the end of the current year, the County had total installment debt and compensated absences outstanding of approximately $2,966,000. The County is required to record the actuarially computed liability for pension. The total liability is approximately $22,609,000. The estimated annual contribution required to fund that liability is approximately $934,000. The net pension liability at the end of the fiscal year amounted to approximately $7,385,000. This is a significant liability; however, due to additional contributions over the actuarially determined contribution made by the County, this liability is anticipated to decrease over time. Premium on bond issuance This financial report is designed to provide a general overview of the County finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to Ms. Rachel Frisch, Otsego County Administrator at 225 West Main Street, Gaylord, MI 49735. The following factors were considered in preparing the County's 2019 budget: Highlight of the 2019 budget is as follows: Requests for Information The cost of employee benefits continue to rise and will be monitored throughout the year. Property tax revenues are projected to increase approximately 2.5%. Additional information on the County's capital assets and long-term debt can be found in the notes to the financial statements. 12 ---PAGE BREAK--- BASIC FINANCIAL STATEMENTS ---PAGE BREAK--- GOVERNMENT-WIDE FINANCIAL STATEMENTS ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Net Position December 31, 2018 Business- Governmental type Component Activities Activities Total Units Assets Cash and cash equivalents 9,182,516 $ 2,054,542 $ 11,237,058 $ 2,175,674 $ Investments 5,475,774 5,576,803 11,052,577 2,279,669 Receivables, net 6,439,765 1,325,164 7,764,929 5,348,960 Prepaid items 119,487 3,025 122,512 - Inventory 20,432 54,479 74,911 871,442 Internal balances (39,156) 39,156 - - Advance to component unit 143,024 195,000 338,024 - Lease receivable from component unit 655,000 - 655,000 - Capital assets not being depreciated 5,207,651 99,998 5,307,649 11,666,767 Capital assets being depreciated, net 7,534,587 6,473,461 14,008,048 25,976,272 Total assets 34,739,080 15,821,628 50,560,708 48,318,784 Deferred outflows of resources Deferred pension amounts 1,409,578 140,229 1,549,807 789,530 Deferred other postemployment benefit amounts 97,818 - 97,818 - Total deferred outflows 1,507,396 140,229 1,647,625 789,530 Liabilities Accounts payable and accrued liabilities 762,233 359,607 1,121,840 434,656 Advance from other government units - - - 455,897 Advance from primary government - - - 338,024 Unearned revenue 210,532 2,204 212,736 24,427 Long-term debt: Due within one year 668,334 - 668,334 67,818 Due in more than one year 2,297,974 25,545 2,323,519 1,199,411 Net pension liability, due in more than one year 6,995,928 389,359 7,385,287 5,644,296 Total other postemployment benefits liability, due in more than one year 1,930,701 - 1,930,701 5,678,335 Total liabilities 12,865,702 776,715 13,642,417 13,842,864 Deferred inflows of resources Taxes levied for a subsequent period 3,847,499 - 3,847,499 2,543,027 Deferred pension amounts 432,710 204,850 637,560 - Other state grants - - - 1,087,745 Total deferred inflows 4,280,209 204,850 4,485,059 3,630,772 Net position Net investment in capital assets 11,194,681 6,573,459 17,768,140 36,628,028 Restricted for: Housing projects 1,639,001 - 1,639,001 - Public safety 1,919,978 - 1,919,978 - Recreation and culture 3,652,571 - 3,652,571 - Other (Note 21) 1,948,150 - 1,948,150 44,043 Unrestricted (deficit) (1,253,816) 8,406,833 7,153,017 (5,037,393) Total net position 19,100,565 $ 14,980,292 $ 34,080,857 $ 31,634,678 $ 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, 2018 Program Revenues Operating Capital Net Charges Grants and Grants and (Expenses) Functions/Programs Expenses For Services Contributions Contributions Revenues Primary government Governmental activities: Legislative 225,294 $ - $ - $ - $ (225,294) $ Judicial 1,890,595 562,024 877,216 - (451,355) General government 4,003,061 534,675 268,708 - (3,199,678) Public safety 4,412,678 809,161 155,042 - (3,448,475) Public works 167,639 - - 69,299 (98,340) Health and welfare 1,445,356 - 337,944 - (1,107,412) Community and economic development 409,862 32,945 110,644 - (266,273) Recreation and culture 2,026,823 227,252 900,657 - (898,914) Interest - unallocated 86,457 - - - (86,457) Total governmental activities 14,667,765 2,166,057 2,650,211 69,299 (9,782,198) Business-type activities: Delinquent Tax Revolving 199,345 101,470 - - (97,875) Bus System 9/30/2018 1,673,970 278,308 804,969 373,081 (217,612) Airport 1,713,366 929,347 - - (784,019) Other 546,238 357,384 - - (188,854) Total business-type activities 4,132,919 1,666,509 804,969 373,081 (1,288,360) Total primary government 18,800,684 $ 3,832,566 $ 3,455,180 $ 442,380 $ (11,070,558) $ Component units Road Commission 8,896,471 $ 2,264,312 $ 4,704,167 $ 3,638,474 $ 1,710,482 $ Ambulance 2,682,331 1,611,988 - - (1,070,343) Commission on Aging 9/30/2018 1,948,560 69,647 588,582 - (1,290,331) 855,274 461,085 - 10,000 (384,189) Total component units 14,382,636 $ 4,407,032 $ 5,292,749 $ 3,648,474 $ (1,034,381) $ Continued… 14 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Activities For the Year Ended December 31, 2018 Business- Governmental type Component Activities Activities Total Units Changes in net position Net expenses (9,782,198) $ (1,288,360) $ (11,070,558) $ (1,034,381) $ General revenues: Property taxes 8,300,297 315,663 8,615,960 3,756,698 Interest and rentals 355,688 259,535 615,223 24,189 Other revenue 1,775,590 284,388 2,059,978 1,275,216 Gain on sale of capital assets - - - 77,539 Transfers 189,109 (172,949) 16,160 - Total general revenues and transfers 10,620,684 686,637 11,307,321 5,133,642 Change in net position 838,486 (601,723) 236,763 4,099,261 Net position, beginning of year, as restated 18,262,079 15,582,015 33,844,094 27,535,417 Net position, end of year 19,100,565 $ 14,980,292 $ 34,080,857 $ 31,634,678 $ 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, 2018 Housing Commission M-TEC Special Special General Revenue Revenue Fund Fund Fund Assets Cash and cash equivalents 2,272,810 $ 173,210 $ - $ Investments 2,664,852 - - Receivables: Accounts 93,261 - - Property taxes 240,249 - 811,209 Due from other governments 116,183 - - Loans - 1,525,999 - Due from other funds 124,209 - - Advances to other funds - - - Advances to component units - - - Lease receivable from component unit - - - Inventories 20,107 - - Other assets 12,072 - - Total assets 5,543,743 $ 1,699,209 $ 811,209 $ Liabilities Accounts payable 194,288 $ 130 $ - $ Accrued liabilities 65,654 78 - Due to other funds 9,622 60,000 - Due to other governments - - - Unearned revenue - - - Total liabilities 269,564 60,208 - Deferred inflows of resources Taxes levied for a subsequent period - - 811,209 Unavailable resources 22,906 1,525,999 - Total deferred inflows of resources 22,906 1,525,999 811,209 Fund balances Nonspendable 32,179 - - Restricted - 113,002 - Committed 150,000 - - Unassigned 5,069,094 - - Total fund balances 5,251,273 113,002 - Total liabilities, deferred inflows of resources, and fund balances 5,543,743 $ 1,699,209 $ 811,209 $ The accompanying notes are an integral part of these basic financial statements. 16 ---PAGE BREAK--- Library Capital Projects Nonmajor Total Bond Debt Service Governmental Governmental Fund Fund Funds Funds 669,183 $ - $ 5,722,463 $ 8,837,666 $ - - 2,710,922 5,375,774 - - 303,883 397,144 - - 3,036,428 4,087,886 - - 300,200 416,383 - - - 1,525,999 - - - 124,209 - - 20,844 20,844 - - 143,024 143,024 - 655,000 - 655,000 - - - 20,107 - - 7,560 19,632 669,183 $ 655,000 $ 12,245,324 $ 21,623,668 $ 115,177 $ - $ 320,972 $ 630,567 $ - - 18,938 84,670 - - 114,587 184,209 - - 9,428 9,428 - - 210,532 210,532 115,177 - 674,457 1,119,406 - - 3,036,290 3,847,499 - 655,000 - 2,203,905 - 655,000 3,036,290 6,051,404 - - 7,560 39,739 554,006 - 6,295,612 6,962,620 - - 2,248,661 2,398,661 - - (17,256) 5,051,838 554,006 - 8,534,577 14,452,858 669,183 $ 655,000 $ 12,245,324 $ 21,623,668 $ 17 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- Reconciliation Fund Balances of Governmental Funds to Net Position of Governmental Activities December 31, 2018 Fund balances - total governmental funds 14,452,858 $ Capital assets used in governmental activities are not financial resources, and therefore are not reported in the funds. Capital assets not being depreciated 5,207,651 Capital assets being depreciated, net 7,534,587 Unavailable resources from mortgages 1,525,999 Unavailable resources from lease receivable 655,000 Unavailable resources from taxes 22,906 526,640 Bonds and notes payable (2,770,601) Compensated absences (195,707) Accrued interest on long-term debt (6,825) Certain pension and OPEB-related amounts, such as the net pension liability, total OPEB liability, and related 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 (6,995,928) Net other postemployment benefits liability (1,930,701) Deferred outflows related to the net pension liability 1,132,752 Deferred outflows related to the other postemployment benefits liability 97,818 Deferred inflows related to the net pension liability (155,884) Net position of governmental activities 19,100,565 $ The accompanying notes are an integral part of these financial statements. Long-term liabilities are not due and payable in the current period and therefore are not reported in the funds. Because the focus of governmental funds is on short-term financing, some assets will not be available to pay for current expenditures. Those assets receivables) are offset by deferred inflows of resources in the governmental funds and, therefore, are not included in fund balance. Amounts reported for governmental activities in the statement of net position are different because: OTSEGO COUNTY, MICHIGAN Internal service funds are used by management to charge the costs of certain equipment maintenance to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position. 18 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2018 Housing Commission M-TEC Special Special General Revenue Revenue Fund Fund Fund Revenues Taxes 5,161,173 $ - $ 18,971 $ Licenses and permits 36,843 - - Federal sources 83,924 109,504 - State sources 1,325,491 - - Local sources 35,109 1,140 - Charges for services 1,052,150 - - Fines and forfeits 13,437 - - Interest and rentals 222,403 201 - Other 451,015 10,645 5,555 Total revenues 8,381,545 121,490 24,526 Expenditures Current: Legislative 225,294 - - Judicial 1,381,030 - - General government 2,262,259 - - Public safety 2,347,218 - - Public works - - - Health and welfare 602,601 - - Community and economic development 95,496 158,723 24,526 Recreation and culture - - - Other 528,105 - - Debt service: Principal 10,741 - - Interest and fiscal charges 848 - - Capital outlay - - - Total expenditures 7,453,592 158,723 24,526 Revenues over (under) expenditures 927,953 (37,233) - Other financing sources (uses) Transfers in 93,284 256 - Transfers out (638,639) - - Total other financing sources (uses) (545,355) 256 - Net change in fund balances 382,598 (36,977) - Fund balances, beginning of year 4,868,675 149,979 - Fund balances, end of year 5,251,273 $ 113,002 $ - $ The accompanying notes are an integral part of these financial statements. 19 ---PAGE BREAK--- Library Capital Projects Nonmajor Total Bond Debt Service Governmental Governmental Fund Fund Funds Funds 13 $ - $ 3,120,140 $ 8,300,297 $ - - - 36,843 - - 320,742 514,170 - - 580,244 1,905,735 - 69,450 41,200 146,899 - - 1,077,064 2,129,214 - - 169,520 182,957 - - 129,180 351,784 - - 1,290,218 1,757,433 13 69,450 6,728,308 15,325,332 - - - 225,294 - - 448,956 1,829,986 - - 1,059,961 3,322,220 - - 1,815,777 4,162,995 - - - - - - 840,911 1,443,512 - - - 278,745 - - 1,475,664 1,475,664 11,734 - - 539,839 - 615,000 16,031 641,772 - 89,813 1,762 92,423 2,373,066 - 631,017 3,004,083 2,384,800 704,813 6,290,079 17,016,533 (2,384,787) (635,363) 438,229 (1,691,201) 1,393,163 635,363 681,382 2,803,448 - - (1,975,180) (2,613,819) 1,393,163 635,363 (1,293,798) 189,629 (991,624) - (855,569) (1,501,572) 1,545,630 - 9,390,146 15,954,430 554,006 $ - $ 8,534,577 $ 14,452,858 $ 20 ---PAGE BREAK--- Reconciliation Net Change in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities For the Year Ended December 31, 2018 Net change in fund balances - total governmental funds (1,501,572) $ 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 useful lives and reported as depreciation expense. Acquisition/construction of capital assets 3,033,859 Depreciation expense (936,554) 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 (111,792) Net change in unavailable resources from lease receivable (35,000) Net change in unavailable resources from taxes 22,906 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 debt 641,772 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Amortization of issuance premium 3,510 Change in accrued interest payable on long-term debt 1,608 Change in the net pension liability and related deferred amounts (291,061) Change in the total other postemployment benefits liability and related deferred amounts 16,069 Change in compensated absences (25,165) 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 19,906 Change in net position of governmental activities 838,486 $ The accompanying notes are an integral part of these financial statements. OTSEGO COUNTY, MICHIGAN 21 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Change in Fund Balance Budget and Actual - General Fund For the Year Ended December 31, 2018 Actual Over Original Final (Under) Final Budget Budget Actual Budget Revenues Taxes 5,182,712 $ 5,182,712 $ 5,161,173 $ (21,539) $ Licenses and permits 34,426 39,387 36,843 (2,544) Federal sources 72,600 76,200 83,924 7,724 State sources 1,338,932 1,405,665 1,325,491 (80,174) Local sources 28,500 36,000 35,109 (891) Charges for services 954,980 980,697 1,052,150 71,453 Fines and forfeits 12,050 12,050 13,437 1,387 Interest and rentals 165,000 165,000 222,403 57,403 Other 430,055 435,336 451,015 15,679 Total revenues 8,219,255 8,333,047 8,381,545 48,498 Expenditures Current: Legislative: Board of Commissioners 233,177 233,008 225,294 (7,714) Judicial: Circuit court 1,201,968 1,208,546 1,018,543 (190,003) Lien fees 15,500 15,500 9,800 (5,700) Drug court 143,786 144,286 123,308 (20,978) RDSS transport 15,000 15,000 8,495 (6,505) District court 34,912 34,912 7,372 (27,540) Jury commission 44,725 44,725 36,848 (7,877) Probate court 175,020 175,220 173,487 (1,733) Probation/parole 1,500 1,500 1,184 (316) Family counseling 4,000 4,000 1,993 (2,007) Total judicial 1,636,411 1,643,689 1,381,030 (262,659) General government: Administrative services 268,425 268,425 263,425 (5,000) Buildings and grounds 290,000 290,000 290,000 - Clerk and register of deeds 303,484 306,174 299,956 (6,218) Audit services 12,508 12,508 12,507 IT department 97,212 97,212 85,110 (12,102) Equalization 219,454 219,679 216,324 (3,355) Treasurer 148,596 148,712 135,645 (13,067) Cooperative extension 62,083 62,176 61,961 (215) Elections 21,440 28,497 27,787 (710) Prosecuting attorney 612,661 614,351 597,591 (16,760) Register of deeds 63,888 64,063 58,598 (5,465) Legal defense 35,000 71,300 67,154 (4,146) Human resources 94,947 94,947 94,947 - Surveyor 200 200 200 - Soil conservation 4,000 4,000 4,000 - Survey and remonumentation 47,055 47,055 47,054 Total general government 2,280,953 2,329,299 2,262,259 (67,040) Continued… 22 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Change in Fund Balance Budget and Actual - General Fund For the Year Ended December 31, 2018 Actual Over Original Final (Under) Final Budget Budget Actual Budget Public safety: Sheriff 986,413 $ 986,251 $ 976,433 $ (9,818) $ Civil division 57,236 57,236 41,018 (16,218) School resource officer - 25,815 20,805 (5,010) SANE 20,000 20,000 20,000 - Justice training 3,000 3,000 100 (2,900) Marine safety 4,886 8,486 4,134 (4,352) safety education 51,200 51,200 43,548 (7,652) Snowmobile 8,686 8,686 522 (8,164) Secondary road patrol 89,514 97,720 97,695 (25) ORV 7,386 7,426 13,691 6,265 Jail 1,078,595 1,110,272 1,099,272 (11,000) Emergency 30,000 30,000 30,000 - Total public safety 2,336,916 2,406,092 2,347,218 (58,874) Public works: Drains 6,000 6,000 - (6,000) Health and welfare: Communicable diseases 500 500 500 - Medical examiner 108,600 143,601 138,913 (4,688) District health 228,611 228,311 216,579 (11,732) Mental health 94,003 94,003 94,003 - Soldiers and sailors relief 5,000 6,650 5,620 (1,030) Veteran's burial 6,150 6,150 5,720 (430) Veteran's affairs 59,757 60,328 58,336 (1,992) Substance abuse 82,439 83,422 82,930 (492) Total health and welfare 585,060 622,965 602,601 (20,364) Community and economic development: Planning and zoning 91,171 96,282 95,496 (786) Other: Appropriations 23,338 23,338 23,338 - Bonds and insurance 220,000 220,000 218,967 (1,033) Retiree insurance 64,447 64,447 59,071 (5,376) Additional pension contributions 54,300 204,469 204,469 - Other 121,418 44,894 22,260 (22,634) Total other 483,503 557,148 528,105 (29,043) Capital outlay 36,500 48,100 - (48,100) Debt service: Principal payments 12,000 10,325 10,741 416 Interest and fiscal charges - - 848 848 Total debt service 12,000 10,325 11,589 1,264 Total expenditures 7,701,691 7,952,908 7,453,592 (499,316) Revenues over expenditures 517,564 380,139 927,953 547,814 Continued… 23 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Change in Fund Balance Budget and Actual - General Fund For the Year Ended December 31, 2018 Actual Over Original Final (Under) Final Budget Budget Actual Budget Other financing sources (uses) Transfers in 65,484 $ 93,349 $ 93,284 $ (65) $ Transfers out (588,048) (638,639) (638,639) - Total other financing sources (uses) (522,564) (545,290) (545,355) (65) Net change in fund balance (5,000) (165,151) 382,598 547,749 Fund balance, beginning of year 4,868,675 4,868,675 4,868,675 - Fund balance, end of year 4,863,675 $ 4,703,524 $ 5,251,273 $ 547,749 $ Concluded The accompanying notes are an integral part of these financial statements. 24 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Change in Fund Balance Budget and Actual - Housing Commission Special Revenue Fund For the Year Ended December 31, 2018 Actual Over Original Final (Under) Final Budget Budget Actual Budget Federal sources 65,000 $ 65,000 $ 109,504 $ 44,504 $ Local sources 65,000 65,000 1,140 (63,860) Interest and rentals 300 300 201 (99) Other 136,950 136,950 10,645 (126,305) 267,250 267,250 121,490 (145,760) Current: Community and economic development 278,727 278,953 158,723 (120,230) Revenues over (under) expenditures (11,477) (11,703) (37,233) (25,530) Other financing sources Transfers in - 226 256 30 Net change in fund balance (11,477) (11,477) (36,977) (25,500) Fund balance, beginning of year 149,979 149,979 149,979 - Fund balance, end of year 138,502 $ 138,502 $ 113,002 $ (25,500) $ The accompanying notes are an integral part of these financial statements. Revenues Total revenues Expenditures 25 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Change in Fund Balance Budget and Actual - M-TEC Special Revenue Fund For the Year Ended December 31, 2018 Actual Over Original Final (Under) Final Budget Budget Actual Budget Taxes - $ 21,269 $ 18,971 $ (2,298) $ Other - 5,555 5,555 - - 26,824 24,526 (2,298) Current: Community and economic development - 26,824 24,526 (2,298) Net change in fund balance - - - - Fund balance, beginning of year - - - - Fund balance, end of year - $ - $ - $ - $ 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, 2018 Delinquent Tax Revolving Bus System Fund 9/30/2018 Airport Assets Current assets: Cash and cash equivalents 1,346,042 $ 223,723 $ 44,788 $ Investments 3,963,402 - - Receivables: Accounts 1,842 5,479 70,664 Taxes 1,023,419 1,630 - Interest 143,330 - - Due from other governments - 75,868 - Due from other funds 60,000 - - Advances to component units 195,000 - - Inventories - - 54,479 Other assets - - - Total current assets 6,733,035 306,700 169,931 Noncurrent assets: Capital assets not being depreciated - 99,998 - Capital assets being depreciated, net - 536,978 5,875,001 Total noncurrent assets - 636,976 5,875,001 Total assets 6,733,035 943,676 6,044,932 Deferred outflows of resources Deferred pension amounts - 140,229 - Liabilities Current liabilities: Accounts payable 16,892 46,136 15,109 Accrued liabilities 923 - - Due to other governments - 223,518 - Unearned revenue - 1,630 - Total current liabilities 17,815 271,284 15,109 Noncurrent liabilities: Advances from other funds - - 20,844 Long term debt: Accrued compensated absences - due in more than one year - 25,545 - Net pension liability - 389,359 - Total noncurrent liabilities - 414,904 20,844 Total liabilities 17,815 686,188 35,953 Deferred inflows of resources Deferred pension amounts - 204,850 - Net position Investment in capital assets - 636,976 5,875,001 Unrestricted (deficit) 6,715,220 (444,109) 133,978 Total net position 6,715,220 $ 192,867 $ 6,008,979 $ 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 439,989 $ 2,054,542 $ 344,850 $ 1,613,401 5,576,803 100,000 2,932 80,917 12,353 - 1,025,049 - - 143,330 - - 75,868 - - 60,000 - - 195,000 - - 54,479 325 3,025 3,025 99,855 2,059,347 9,269,013 557,383 - 99,998 - 61,482 6,473,461 - 61,482 6,573,459 - 2,120,829 15,842,472 557,383 - 140,229 - 56,106 134,243 29,330 923 1,846 1,413 - 223,518 - 574 2,204 - 57,603 361,811 30,743 - 20,844 - - 25,545 - - 389,359 - - 435,748 - 57,603 797,559 30,743 - 204,850 - 61,482 6,573,459 - 2,001,744 8,406,833 526,640 2,063,226 $ 14,980,292 $ 526,640 $ 28 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Funds For the Year Ended December 31, 2018 Delinquent Tax Revolving Bus System Fund 9/30/2018 Airport Operating revenues Local sources - $ - $ - $ Charges for services 101,470 278,308 929,347 Interest and penalties 276,761 - - Other - - 6,299 Total operating revenues 378,231 278,308 935,646 Operating expenses Salaries and fringes 50,735 1,116,984 143,452 Contractual services 121,171 - 173,578 Materials and supplies 4,662 - 681,260 Equipment repair and maintenance - - - Utilities - - - Depreciation - 200,712 594,221 Other 22,777 356,274 120,855 Total operating expenses 199,345 1,673,970 1,713,366 Operating income (loss) 178,886 (1,395,662) (777,720) Nonoperating revenues (expenses) Property taxes levied - 315,663 - Federal grants - 258,567 - State grants - 546,402 - Investment (losses) earnings (65,942) - 3,727 Other revenues - 21,276 - Total nonoperating revenues (65,942) 1,141,908 3,727 Income (loss) before transfers 112,944 (253,754) (773,993) Other financing sources (uses) Transfers in - 16,160 150,175 Transfers out (352,100) - - Capital contribution - 373,081 - Total other financing sources (uses) (352,100) 389,241 150,175 Change in net position (239,156) 135,487 (623,818) Net position, beginning of year 6,954,376 57,380 6,632,797 Net position, end of year 6,715,220 $ 192,867 $ 6,008,979 $ 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 15,000 $ 15,000 $ - $ 357,384 1,666,509 2,253,032 - 276,761 - - 6,299 - 372,384 1,964,569 2,253,032 54,643 1,365,814 1,724,084 162,399 457,148 252,934 71,542 757,464 22,655 - - 7,002 - - 214,528 12,301 807,234 - 245,353 745,259 15,308 546,238 4,132,919 2,236,511 (173,854) (2,168,350) 16,521 - 315,663 - - 258,567 - - 546,402 - 44,989 (17,226) 3,905 241,813 263,089 - 286,802 1,366,495 3,905 112,948 (801,855) 20,426 31,000 197,335 - (18,184) (370,284) (520) - 373,081 - 12,816 200,132 (520) 125,764 (601,723) 19,906 1,937,462 15,582,015 506,734 2,063,226 $ 14,980,292 $ 526,640 $ 30 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Cash Flows Proprietary Funds For the Year Ended December 31, 2018 Business-type Activities - Delinquent Tax Revolving Bus System Fund 9/30/2018 Airport Cash flows from operating activities Received from customers 526,059 $ 296,070 $ 885,489 $ Received from interfund services - - - Payments for goods and services (144,302) (357,326) (981,400) Payments to employees (50,635) (1,081,134) (143,984) Net cash provided by (used in) operating activities 331,122 (1,142,390) (239,895) Cash flows from noncapital financing activities Property tax - 315,397 - Federal grants - 264,417 - State grants - 682,673 - Other receipts - 21,276 - Repayment on advance from other funds - (20,000) (11,275) Transfers in - 16,160 150,175 Transfers out (352,100) - - Net cash provided by (used in) noncapital financing activities (352,100) 1,279,923 138,900 Cash flows from capital and related financing activities Purchase of capital assets - (403,158) (35,827) Federal capital grants - 298,465 - State capital grants - 74,616 - Net cash used in investing activities - (30,077) (35,827) Cash flows from investing activities Proceeds from sale of investments 966,224 - - Purchase of investments - - - Interest received on investments (65,942) - 3,727 Net cash provided by (used in) investing activities 900,282 - 3,727 Net change in cash and cash equivalents 879,304 107,456 (133,095) Cash and cash equivalents, beginning of year 466,738 116,267 177,883 Cash and cash equivalents, end of year 1,346,042 $ 223,723 $ 44,788 $ Enterprise Funds 31 ---PAGE BREAK--- Business-type Activities - Governmental Enterprise Funds Activities Nonmajor Internal Enterprise Service Funds Total Funds 378,239 $ 2,085,857 $ - $ - - 2,252,687 (438,400) (1,921,428) (1,626,478) (54,550) (1,330,303) (547,292) (114,711) (1,165,874) 78,917 - 315,397 - - 264,417 - - 682,673 - 241,813 263,089 - - (31,275) - 31,000 197,335 - (18,184) (370,284) (520) 254,629 1,321,352 (520) - (438,985) - - 298,465 - - 74,616 - - (65,904) - - 966,224 - (406,235) (406,235) - 44,989 (17,226) 3,905 (361,246) 542,763 3,905 (221,328) 632,337 82,302 661,317 1,422,205 162,548 439,989 $ 2,054,542 $ 244,850 $ Continued… 32 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Cash Flows Proprietary Funds For the Year Ended December 31, 2018 Business-type Activities - Delinquent Tax Revolving Bus System Fund 9/30/2018 Airport Enterprise Funds Reconciliation of operating income (loss) to net cash provided by (used in) operating activities Operating income (loss) 178,886 $ (1,395,662) $ (777,720) $ Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation expense - 200,712 594,221 Change in operating assets and liabilities that provided (used) cash: Accounts receivable (1,524) 17,762 (50,157) Taxes receivable 83,230 - - Interest receivable 1,122 - - Due from other funds 20,000 - - Advances to other funds 45,000 - - Inventories - - (8,540) Other assets - - 13,205 Deferred pension outflows - 222,243 - Accounts payable 4,308 (5,844) (10,372) Due to other funds - - - Accrued liabilities 100 - (532) Unearned revenue - - - Deferred pension inflows - 6,875 - Net pension liability - (188,476) - Net cash provided by (used in) operating activities 331,122 $ (1,142,390) $ (239,895) $ 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 (173,854) $ (2,168,350) $ 16,521 $ 12,301 807,234 - 5,281 (28,638) (345) - 83,230 - - 1,122 - - 20,000 - - 45,000 - - (8,540) - 3,241 16,446 51,260 - 222,243 - 37,653 25,745 11,724 - - - 93 (339) (243) 574 574 - - 6,875 - - (188,476) - (114,711) $ (1,165,874) $ 78,917 $ Concluded 34 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Fiduciary Assets and Liabilities Fiduciary Funds December 31, 2018 Agency Funds Assets Cash and cash equivalents 1,936,022 $ Liabilities Undistributed tax collections 848,250 Bonds, restitutions, and payables to others 1,087,772 Total liabilities 1,936,022 $ The accompanying notes are an integral part of these financial statements. 35 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Net Position Discretely Presented Component Units December 31, 2018 Commission on Road Ambulance Aging Commission Corporation 9/30/2018 Assets Cash and cash equivalents 1,283,344 $ 11,483 $ 825,918 $ Investments 2,191,863 - - Receivables, net: Accounts 1,318,425 342,504 25,318 Taxes 2,339,661 977,213 - Inventories 863,667 - 2,163 Capital assets not being depreciated 11,647,119 19,648 - Capital assets being depreciated, net 24,403,746 1,572,526 - Total assets 44,047,825 2,923,374 853,399 Deferred outflows of resources Pension and OPEB amounts 789,530 - - Liabilities Accounts payable 160,068 53,391 54,110 Accrued liabilities 114,586 5,284 - Due to other governments 44,742 - - Advances from government units 455,897 - - Advances from primary government - 338,024 - Unearned revenue - - - Long-term debt: Due within one year 67,818 - - Due in more than one year 1,199,411 - - Net pension liability, due in more than one year 5,644,296 - - Net other postemployment benefits liability, due in more than one year 5,678,335 - - Total liabilities 13,365,153 396,699 54,110 Deferred inflows of resources Taxes levied for a subsequent period 1,251,916 977,213 - Other state grants 1,087,745 - - Total deferred inflows 2,339,661 977,213 - Net position Net investment in capital assets 35,035,854 1,592,174 - Restricted - - 44,043 Unrestricted (deficit) (5,903,313) (42,712) 755,246 Total net position 29,132,541 $ 1,549,462 $ 799,289 $ The accompanying notes are an integral part of these financial statements. 36 ---PAGE BREAK--- Total 54,929 $ 2,175,674 $ 87,806 2,279,669 31,941 1,718,188 313,898 3,630,772 5,612 871,442 - 11,666,767 - 25,976,272 494,186 48,318,784 - 789,530 759 268,328 1,716 121,586 - 44,742 - 455,897 - 338,024 24,427 24,427 - 67,818 - 1,199,411 - 5,644,296 - 5,678,335 26,902 13,842,864 313,898 2,543,027 - 1,087,745 313,898 3,630,772 - 36,628,028 - 44,043 153,386 (5,037,393) 153,386 $ 31,634,678 $ 37 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Activities Discretely Presented Component Units For the Year Ended December 31, 2018 Commission on Road Ambulance Aging Commission Corporation 9/30/2018 Expenses Road Commission 8,896,471 $ - $ - $ Ambulance Corporation - 2,682,331 - Commission on Aging 9/30/2018 - - 1,948,560 - - - Total expenses 8,896,471 2,682,331 1,948,560 Program revenues Charges for services 2,264,312 1,611,988 69,647 Operating grants and contributions 4,704,167 - 588,582 Capital grants and contributions 3,638,474 - - Total program revenues 10,606,953 1,611,988 658,229 Net revenue (expense) 1,710,482 (1,070,343) (1,290,331) General revenues Property taxes 1,229,639 959,210 1,262,757 Investment earnings 9,896 7,430 6,863 Gain on sale of capital assets 77,539 - - Other 1,056,096 6,703 91,410 Total general revenues 2,373,170 973,343 1,361,030 Change in net position 4,083,652 (97,000) 70,699 Net position, beginning of year, as restated 25,048,889 1,646,462 728,590 Net position, end of year 29,132,541 $ 1,549,462 $ 799,289 $ The accompanying notes are an integral part of these financial statements. 38 ---PAGE BREAK--- Total - $ 8,896,471 $ - 2,682,331 - 1,948,560 855,274 855,274 855,274 14,382,636 461,085 4,407,032 - 5,292,749 10,000 3,648,474 471,085 13,348,255 (384,189) (1,034,381) 305,092 3,756,698 - 24,189 - 77,539 121,007 1,275,216 426,099 5,133,642 41,910 4,099,261 111,476 27,535,417 153,386 $ 31,634,678 $ 39 ---PAGE BREAK--- NOTES TO FINANCIAL STATEMENTS ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity Otsego County (the "County" or the "Government") was organized in 1840 and covers an area of approximately 527 square miles divided into nine Townships, one village, and one city. The County seat is located in the City of Gaylord. The County operates under an elected Board of Commissioners (nine members) with an appointed County Administrator who assists with day-to-day operations. The County provides services to its more than 24,000 residents in many areas including law enforcement, administration of justice, community enrichment, economic development, and human services. Discretely Presented Component Units Otsego County Road Commission (the "Road Commission") - The Road Commission which is established pursuant to the County Road Law (MCL 224.1) is governed by a three member Board of County Road Commissioners elected biannually to serve a six year term. The Road Commission is responsible for the maintenance and construction of the County road system. It may not issue debt without the County's approval and the tax levy is subject to the County Board of Commissioners' approval. If approval is granted, Road Commission taxes are levied under the taxing authority of the County, as approved by the County electors, and would be included as part of the County's total tax levy as well as reported in the County Road Fund. The financial statements of the County have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The County's significant accounting policies are described below. Otsego County Building Authority (the "Building Authority") - The Building Authority is governed by a three member board appointed by the County Board of Commissioners. Although it is legally separate from the County, the Building Authority is reported as if it were part of the primary government because its sole purpose is to finance and construct the County's public buildings. The financial statements of the Otsego County Building Authority are reported in the County's Debt Service fund and Capital Projects fund as presented in this report. As required by generally accepted accounting principles, these financial statements present the government and its component units, entities for which the County is financially accountable. Blended component units, although legally separate entities, are, in substance, part of the government’s operations and as such, data from these units are combined with data of the primary government. Discretely presented component units, on the other hand, are reported in a separate column in the combined financial statements to emphasize that they are legally separate from the government. Blended Component Unit 40 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Administrative Offices Otsego County Otsego County Ambulance Corporation, Inc. 1250 Gornick Avenue 100 McLouth, PO Box 642 Gaylord, MI 49735 Gaylord, MI 49735 Complete financial statements of the following individual component units can be obtained from the County Clerk's Office at 225 West Main Street, Gaylord, MI 49735. Separate reports are not issued. Component Unit Financial Statements Otsego County Ambulance Corporation, Inc. (the "Ambulance Corporation") - The Ambulance Corporation, a nonprofit corporation which was established pursuant to the provisions of Public Act 327 of 1931, as amended, and Public Act 284 of 1972, has an agreement with Otsego County to provide ambulance service in and about Otsego County. A nine member board governs the Ambulance Corporation. The Ambulance Corporation may not issue debt without the County's approval and a tax levy is subject to the County Board of Commissioners' approval. If approval is granted, the Ambulance Corporation's taxes are levied under the taxing authority of the County, as approved by the County electors, and would be included as part of the County's total tax levy as well as in the Ambulance Corporation Fund. All assets are in the name of the County. Otsego County (the - The a nonprofit corporation that was established pursuant to the provisions of Public Act 162 of 1982, has an agreement with Otsego County to operate and maintain a recreational and sports complex for Otsego County. The agreement was amended on December 15, 2015 and expires on December 15, 2020. The sports complex was constructed during 1995 and opened in early 1996. The is operated by a Board of Directors, which consist of between seven and fifteen members. Members recommended by the Board of Directors and forwarded to the County Board of Commissioners for review and approval. The may not issue debt without the County's approval and the tax levy is subject to the County Board of Commissioners' approval. The taxes are levied under the taxing authority of the County, as approved by the County electors and are included as part of the County's total tax levy recorded in the County's Fund. The County Board of Commissioners also approves the budget and fee changes. 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. 41 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Administrative Offices Industrial Park, PO Box 537 120 Grandview Boulevard Gaylord, MI 49735 Gaylord, MI 49735 Joint Ventures Assets 7,990,487 $ Liabilities 3,864,491 Change in net position (1,413,040) Participant payments Total participant payments 1,029,088 Otsego County 216,579 Otsego County percent of total payments 21.05% Otsego County Road Commission 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 following individual component units can be obtained from their respective administrative offices as listed below. Separate reports are issued. 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. Financial information of the Health Agency as of September 30, 2018 (the most recent financial statements) is as follows: Michigan Technical Education Center - Kirtland Community College, a community college district established pursuant to the provisions of Public Act 331 of 1996, obtained funding through the Michigan Economic Development Corporation ("MEDC") to construct and equip Michigan Technical Education Center ("M-TEC"), an educational facility in Otsego County. On December 7, 1999, the electors of the County authorized a tax levy not to exceed .56 mills for a period of twenty years for the purpose of generating funds to operate the facility. The facility provides vocational, technical, job skills, or workforce development programs and services. Pursuant to the operating agreement, Kirtland established an advisory board (which includes representatives of the County) and is to report its preliminary, final, and amended M-TEC budgets to the County's board. Financial records for M-TEC are recorded and maintained by the Kirtland Community College and are audited separately. M-TEC is used in conjunction with and occupied by the University Center established and operated by the University Center of Gaylord, a non-profit corporation. North Country Community Mental Health Authority (the "CMH Authority") - The CMH Authority consists of the counties of Antrim, Charlevoix, Cheboygan, Emmet, Kalkaska, and Otsego. Financial records for the CMH Authority are recorded and maintained by the Authority and audited separately. Otsego County Commission on Aging 42 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Component Unit and Enterprise Funds with Different Fiscal Year Ends Commission on Aging Component Unit September 30, 2018 Bus System Enterprise Fund September 30, 2018 Government-wide and Fund Financial Statements Otsego County University Center (the "Facility") - Effective January 1, 2017, management of the Facility transferred to Kirtland Community College (the "College"). The terms of the agreement between the County and the College are effective January 1, 2017, through December 31, 2020, which will automatically be extended unless otherwise modified. The Governance Advisory Board (the "GAB") serves as citizen input on the operations of the Facility under the College's management. Membership of the GAB consists of 16 to 20 members, of which, 2 are members from the Otsego County Board of Commissioners or the County Administrator and the remaining members represent a broad variety of interests in Otsego County to include but not be limited to banking and financial services, medical, manufacturing, independent business owners and education. Further information regarding the Facility's operation is presented in a separately issued College report. Fund Presentation Fiscal Year End The financial information presented in this report is for the year ended December 31, 2018, 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. 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 2018 local match, recorded in the General fund, was $94,003. Fund 43 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Measurement Focus, Basis of Accounting, and Financial Statement Presentation The County reports the following major governmental funds: The 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 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 M-TEC special revenue fund accounts for activities of an educational facility providing workforce development programs. The Library Capital Project Bond fund accounts for activities related to the bond funded library expansion project. 44 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 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. 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. 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). 45 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Equity State statutes authorize the County to invest in: Bankers’ acceptances of United States banks. Receivables and Payables The accounts receivable for the Ambulance Corporation component unit is presented net of allowance for doubtful accounts of $420,000. 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. 46 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Other Assets Capital Assets Years Buildings 40 Bus operating facility 12-20 Shop equipment and furniture 3-10 Vehicles 3-7 Equipment 3-10 Infrastructure 20 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. 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. 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. 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. Property, plant, and equipment are depreciated using the straight-line method over the following estimated useful lives: 47 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Road Commission - Discretely Presented Component Unit Years Buildings 30-50 Road equipment 5-8 Shop equipment 10 Engineering equipment 3-10 Office equipment 4-10 Infrastructure - roads 8-30 Infrastructure - bridges 12-50 Deferred Outflows of Resources Accrued Compensated Absences (Vacation and Sick Leave) Long-term Obligations 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 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. 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 its pension and OPEB plans. 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. 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. 48 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Deferred Inflows of Resources Budget Stabilization Arrangement Fund Balances Governmental funds report nonspendable fund balances for amounts that cannot be spent because they are either not in spendable form or legally or contractually required to be maintained intact. Restricted fund balance is reported when externally imposed constraints are placed on the use of resources by grantors, contributors, or laws or regulations of other governments. Committed fund balance is reported for amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the Board of Commissioners (the government’s highest level of decision-making authority). A formal resolution of the Board of Commissioners is required to establish, modify, or rescind a fund balance commitment. The County reports assigned fund balance for amounts that are constrained by the government’s intent to be used for specific purposes, but are neither restricted nor committed. The Board of Commissioners has delegated the authority to assign fund balance to the County Administrator or his/her designee. Unassigned fund balance is the residual classification for the General fund and for deficit fund balances. 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 $1,498,141 related to this stabilization arrangement. 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. 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. The County also reports deferred inflows related to its pension plan. 49 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Interfund Transactions Use of Estimates 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. 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. 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 Grants and other Intergovernmental Revenues Federal grants and assistance awards for all governmental type funds are recorded as federal sources in accordance with the terms of the representative grants. Unearned Revenues Unearned revenues are those where asset recognition criteria have been met, but for which revenue recognition criteria have not. 50 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 2. BUDGETARY INFORMATION 1. 2. 3. 4. 5. 6. 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 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. 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. 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. 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. 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. 51 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 3. EXCESS OF EXPENDITURES OVER BUDGET Total Appropriations Amount of Expenditures Budget Variance General fund Public safety: ORV 7,426 $ 13,691 $ 6,265 $ Debt service: Principal payments 10,325 10,741 416 Interest and fiscal charges - 848 848 4. DEFICIT FUND BALANCE 5. DEPOSITS AND INVESTMENTS Primary Government Component Units Totals Statement of Net Position Cash and cash equivalents 11,237,058 $ 2,175,674 $ 13,412,732 $ Investments 11,052,577 2,279,669 13,332,246 Statement of Fiduciary Assets and Liabilities Cash and cash equivalents 1,936,022 - 1,936,022 Total 24,225,657 $ 4,455,343 $ 28,681,000 $ Deposits and investments Bank deposits: Checking and savings accounts 15,329,855 $ Pooled certificates of deposit: Due in one to five years 1,408,294 U.S. agencies 11,423,951 Other - Road Commission investments 500,000 Cash on hand 18,900 Total 28,681,000 $ The Tennis Court Construction fund and the Trail Head Capital Project fund, nonmajor governmental funds, reported unassigned deficits of $69 and $17,187 at December 31, 2018, respectively. P.A. 621 of 1978, as amended, provides that a local unit shall not incur expenditures in excess of the amount appropriated. 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, 2018, the County incurred expenditures in certain budgetary funds which were in excess of the amounts appropriated, as follows: Following is a reconciliation of deposit and investment balances as of December 31, 2018: 52 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Credit Rating Fair Value AA+ $ 11,423,951 Other - Road Commission investments Not rated 500,000 Total $ 11,923,951 Investment More than 10 Type years U.S. government agencies 11,423,951 $ 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. Investment Maturities (Fair Value) 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. U.S. government agencies Investments Interest Rate Risk. Interest rate risk is the risk that the market rate of securities in the portfolio will fall due to changes in market interest rates. State law limits the allowable investments and the maturities of some of the allowable investments as identified in the summary of significant accounting policies. The County does not have a formal investment policy that would further limit investment maturities. The investments subject to interest rate risk are as follows: 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, $14,776,015 of the County’s bank balance of $16,463,038 was exposed to custodial credit risk because it was uninsured and uncollateralized. 53 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Fair Value Measurement Investment Type Level 1 Level 2 Level 3 Total Fair Value Fixed income: Debt securities: U.S. government bonds - $ 11,423,951 $ - $ 11,423,951 $ Other - Road Commission investments - 500,000 - 500,000 Total investments at fair value - $ 11,923,951 $ - $ 11,923,951 Total 11,923,951 $ 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: 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. There have been no changes from the prior year in the methodologies used. 54 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 6. RECEIVABLES Governmental Business-type Component Activities Activities Units Accounts 409,497 $ 80,917 $ 2,138,188 $ Less: Allowance for uncollectible accounts - - (420,000) Property taxes 4,087,886 1,025,049 3,630,772 Due from other governments 416,383 75,868 - Loans 1,525,999 - - Interest - 143,330 - Totals 6,439,765 $ 1,325,164 $ 5,348,960 $ 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 Loans Receivable - Housing Commission Special Revenue Fund The amounts included as loans receivable represent long-term mortgage notes in the Housing Commission Special Revenue Fund, consisting of grants and loans made to individuals pursuant to community development block grants received from the State of Michigan. Certain homes are secured with mortgages and grants with liens to qualified applicants. The mortgage interest rates vary from 0% to 3.5% and the grants with liens are payable upon transfer of title. The receivable is offset with deferred inflows of resources. Revenue is recognized on a cash basis when collected. The loans were made for the purpose of repair, renovation, or rehabilitation of residential buildings. At December 31, 2018, the total amount of outstanding loans was $1,525,999. The County estimates that all payments due in 2019, totaling approximately $49,000, will be paid. However, as of this report's issuance date of July 1, 2019, $104,600 of receivable loans were forgiven. Receivables are comprised of the following at year-end: 55 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Governmental Business-type Component Activities Activities Units Accounts payable 659,897 $ 134,243 $ 268,328 $ Accrued liabilities 86,083 1,846 121,586 Due to other governments 9,428 223,518 44,742 Accrued interest on long-term debt 6,825 - - Totals 762,233 $ 359,607 $ 434,656 $ 8. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS Due from Other Funds Due to Other Funds General fund 124,209 $ 9,622 $ Housing Commission fund - 60,000 Delinquent Tax Revolving fund 60,000 - Nonmajor governmental funds 114,587 184,209 $ 184,209 $ Advance to Other Funds Advance From Other Funds Nonmajor governmental funds 20,844 $ - $ Airport fund - 20,844 20,844 $ 20,844 $ The composition of interfund balances as of December 31, 2018, was as follows: Due to and from - primary government Accounts payable and accrued liabilities are comprised of the following: These balances resulted from the time lag between the dates that interfund goods and services are provided or reimbursable expenditures occur, transactions are recorded in the accounting system, and payments between funds are made. Interfund advances - primary government 56 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Advance to Component Unit Advance From Primary government Nonmajor governmental funds 143,024 $ - $ Delinquent Tax Revolving fund 195,000 - Ambulance fund - 338,024 338,024 $ 338,024 $ The advances above were provided for/used to fund equipment purchases. Transfers In Transfers Out General fund 93,284 $ 638,639 $ Housing Commission fund 256 - Library Capital Projects fund 1,393,163 - Debt Service fund 635,363 - Nonmajor governmental funds 681,382 1,975,180 Delinquent Tax Revolving fund - 352,100 Bus System fund 16,160 - Airport fund 150,175 - Nonmajor enterprise funds 31,000 18,184 Internal service funds - 520 Timing difference - 16,160 3,000,783 $ 3,000,783 $ 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. Advances to and from - primary government and component unit For the year ended December 31, 2018, interfund transfers consisted of the following: The timing difference above in the amount of $16,160, is a result of the Bus System enterprise fund having a fiscal year-end that is different from the County’s year-end. 57 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 9. CAPITAL ASSETS Beginning Balance Additions Disposals Transfers Ending Balance Governmental activities Capital assets, not being depreciated: Land 2,282,072 $ 154,355 $ - $ - $ 2,436,427 $ Construction in progress 522,956 2,451,385 - (203,117) 2,771,224 Total capital assets not being depreciated, net 2,805,028 2,605,740 - (203,117) 5,207,651 Capital assets, being depreciated: Buildings 16,706,964 284,557 - 203,117 17,194,638 Leasehold improvements 24,854 - - - 24,854 Furniture and fixtures 889,237 6,215 - - 895,452 Equipment: Data handling 1,946,523 80,158 - - 2,026,681 Other equipment 2,624,430 13,073 - - 2,637,503 Vehicles 1,643,719 44,116 - - 1,687,835 Infrastructure 37,130 - - - 37,130 23,872,857 428,119 - 203,117 24,504,093 Less accumulated depreciation for: Buildings (11,006,542) (595,638) - - (11,602,180) Leasehold improvements (24,854) - - - (24,854) Furniture and fixtures (759,602) (48,769) - - (808,371) Equipment: Data handling (1,712,141) (71,532) - - (1,783,673) Other equipment (1,106,370) (116,113) - - (1,222,483) Vehicles (1,406,474) (102,505) - - (1,508,979) Infrastructure (16,969) (1,997) - - (18,966) (16,032,952) (936,554) - - (16,969,506) Total capital assets being depreciated, net 7,839,905 (508,435) - 203,117 7,534,587 Governmental activities capital assets, net 10,644,933 $ 2,097,305 $ - $ - $ 12,742,238 $ Capital asset activity for the primary government for the year ended December 31, 2018, was as follows: Primary government 58 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Disposals Transfers Ending Balance Business-type Activities Capital assets, not being depreciated: Land 99,998 $ - $ - $ - $ 99,998 $ Capital assets, being depreciated: Buildings 2,641,858 - - 2,641,858 Furniture and fixtures 6,000 - - - 6,000 Vehicles 1,691,045 396,425 - - 2,087,470 Equipment 332,917 42,560 - - 375,477 Infrastructure 12,779,602 - - - 12,779,602 17,451,422 438,985 - - 17,890,407 Less accumulated depreciation for: Buildings (1,319,002) (105,508) (1,424,510) Furniture and fixtures (6,000) - (6,000) Vehicles (1,588,238) (161,687) (1,749,925) Equipment (240,588) (23,234) (263,822) Infrastructure (7,455,884) (516,805) (7,972,689) (10,609,712) (807,234) - - (11,416,946) Total capital assets being depreciated, net 6,841,710 (368,249) - - 6,473,461 Business-type activities capital assets, net 6,941,708 $ (368,249) $ - $ - $ 6,573,459 $ Depreciation expense was charged to functions/programs of the primary government as follows: Depreciation of governmental activities by function General government 392,020 $ Public safety 175,805 Recreation and culture 368,729 Total depreciation expense - governmental activities 936,554 $ Depreciation of business-type activities by function Bus System 9/30/2018 200,712 $ Airport 594,221 University Center Metropolitan Area Network 12,301 Total depreciation expense - business-type activities 807,234 $ 59 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Disposals/ Adjustments Ending Balance Component Unit - Road Commission Capital assets, not being depreciated: Land and improvements 10,889,984 $ 757,135 $ - $ 11,647,119 $ Capital assets, being depreciated: Buildings 3,936,130 - - 3,936,130 Road equipment 7,093,391 877,895 (314,606) 7,656,680 Shop equipment 108,683 - (2,004) 106,679 Office equipment 50,262 - (8,215) 42,047 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 32,341,559 2,881,339 (1,273,773) 33,949,125 44,707,245 3,759,234 (1,598,598) 46,867,881 Less accumulated depreciation for: Buildings (1,891,067) (87,241) - (1,978,308) Road equipment (5,781,546) (556,341) 314,495 (6,023,392) Shop equipment (102,618) (3,047) 2,004 (103,661) Office equipment (46,351) (2,125) 8,215 (40,261) Engineer's equipment (13,562) - - (13,562) Yard and storage equipment (1,800) - - (1,800) Traffic signals (45,396) (320) - (45,716) Infrastructure - bridges (305,109) (28,840) - (333,949) Infrastructure - roads (13,561,268) (1,635,991) 1,273,773 (13,923,486) (21,748,717) (2,313,905) 1,598,487 (22,464,135) Total capital assets being depreciated, net 22,958,528 1,445,329 (111) 24,403,746 Road Commission capital assets, net 33,848,512 $ 2,202,464 $ (111) $ 36,050,865 $ Capital assets activity for the discretely presented component units for the year ended December 31, 2018, was as follows: Discretely presented component units 60 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Disposals Transfers Ending Balance Component Unit - Otsego County Ambulance Corporation Capital assets, not being depreciated: Construction in progress 5,000 $ 19,648 $ - $ (5,000) $ 19,648 $ Capital assets being depreciated: Buildings 1,600,544 - - - 1,600,544 Other equipment 665,745 26,700 - - 692,445 Vehicles 2,226,411 39,489 - 5,000 2,270,900 4,492,700 66,189 - 5,000 4,563,889 Less accumulated depreciation for: Buildings (679,044) (64,022) - - (743,066) Other equipment (580,956) (28,096) - - (609,052) Vehicles (1,491,674) (147,571) - - (1,639,245) (2,751,674) (239,689) - - (2,991,363) Total capital assets being depreciated, net 1,741,026 (173,500) - - 1,572,526 Otsego County Ambulance Corp capital assets, net 1,746,026 $ (153,852) $ - $ (5,000) $ 1,592,174 $ Beginning Balance Additions Disposals Transfers Ending Balance Component Unit - Otsego County Commission on Aging Capital assets being depreciated: Leasehold improvements and equipment 140,189 $ - $ - $ - $ 140,189 $ Less accumulated depreciation for: Leasehold improvements and equipment (140,189) - - - (140,189) Otsego County Commission on Aging capital assets, net - $ - $ - $ - $ - $ 61 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 10. LONG-TERM DEBT Beginning Balance Additions Deductions Ending Balance Due Within One Year Governmental Activities Otsego County Building Authority Series 2017 Bonds, maturing serially through 2022 in annual amounts ranging from $360,000 to $395,000 and at interest rates ranging from 1.75% to 2.0%. $ 1,890,000 $ - $ 360,000 $ 1,530,000 $ 370,000 Otsego County Building Authority Series 2010 Bonds, maturing serially through 2020 in annual amounts ranging from $20,000 to $240,000 and at interest rates ranging from 2.0% to 4.0%. 680,000 - 220,000 460,000 220,000 Otsego County Building Authority Series 2011 Bonds, issued on behalf of Otsego County Road Commission, maturing serially through 2033 in annual amounts ranging from $35,000 to $65,000 and at interest rates ranging from 3.25% to 5.0%. 690,000 - 35,000 655,000 40,000 Otsego County Brownfield Redevelopment Authority loan, maturing through 2024 with payments ranging from $16,031 to $17,529 and interest at 1.5%. 117,397 - 16,031 101,366 16,272 Changes in Long-term Debt. Long-term liability activity for the year ended December 31, 2018, was as follows: 62 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Deductions Ending Balance Due Within One Year Equipment purchase agreement through fiscal year 2019 requiring payments of $952 including interest at .44% secured by the related equipment. $ 20,938 $ - $ 10,741 $ 10,197 $ 10,198 Total bonds payable and installments payable 3,398,335 - 641,772 2,756,563 656,470 Premium on bond issuance 17,548 - 3,510 14,038 3,510 Accrued compensated absences 170,542 219,880 194,715 195,707 8,354 Total governmental activities $ 3,586,425 $ 219,880 $ 839,997 $ 2,966,308 $ 668,334 Year Ended Bonds Payable Installments Payable December 31, Principal Interest Principal Interest 2019 646,272 $ 69,910 $ $ 10,198 $ 273 2020 676,516 52,591 - - 2021 441,763 39,444 - - 2022 457,015 29,732 - - 2023 62,270 23,059 - - 2024-2028 272,529 79,775 - - 2029-2031 190,000 14,500 - - 2,746,365 $ 309,011 $ $ 10,198 $ 273 Beginning Balance Additions Deductions Ending Balance Due Within One Year Business-type activities Accrued compensated absences $ 29,413 $ 15,649 $ 19,517 $ 25,545 $ - Annual debt service requirements to maturity for long-term debt included in governmental activities are as follows: 63 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Deductions Ending Balance Due Within One Year Discretely Presented Component Units Road Commission Lease payable to the County in amounts sufficient to allow the County to pay the principal and interest on the Otsego County Building Authority Series 2011 bonds as they become due, maturing serially through 2031 in annual amounts ranging from $35,000 to $65,000 and at interest rates from 3.25% to 5.0%. $ 690,000 $ - $ 35,000 $ 655,000 $ 40,000 Installment payable secured by equipment, payable in annual installments of $84,277 including interest of 1.59%, due 2018. 82,908 - 82,908 - - Installment payable secured by equipment, payable in installments of $1,748 including interest of 2.19%, due 2020. 201,456 - 16,770 184,686 17,110 Installment payable secured by equipment, payable in installments of $14,430 including interest of 2.14%, 489,177 - 489,177 - - due 2020. Installment payable secured by equipment, payable in annual installments of $80,455 including interest of 1.59%, 62,592 - 62,592 - - due 2018. Installment payable secured by equipment, payable in installments of $113 including interest of 2.69%, due 2020. 92,390 1,276 - 93,666 - 64 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Deductions Ending Balance Due Within One Year Installment payable secured by equipment, payable in annual installments of $116,358 including interest of 1.69%, due 2019. 226,947 $ $ - 226,947 $ $ - $ - Installment payable secured by equipment, payable in annual installments of $72,097 including interest of 1.69%, due 2019. 140,619 - 140,619 - - Installment payable secured by equipment, payable in annual installments of $14,122 including interest of 4.18%, due 20223. - 160,780 79,121 81,659 10,708 Total lease payable and installment debt 1,986,089 162,056 1,133,134 1,015,011 67,818 Accrued compensated absences 299,759 - 47,541 252,218 - Total road commission component unit $ 2,285,848 $ 162,056 $ 1,180,675 $ 1,267,229 $ 67,818 Net decrease Year Ended Lease Payable Installments Payable December 31, Principal Interest Principal Interest 2019 40,000 $ 29,175 $ 27,818 $ 7,279 $ 2020 40,000 27,775 272,398 4,160 2021 40,000 26,325 11,622 2,499 2022 45,000 24,562 12,108 2,014 2023 45,000 22,538 36,065 1,507 2024-2028 255,000 79,512 - - 2029-2031 190,000 14,500 - - 655,000 $ 224,387 $ 360,011 $ 17,459 $ Annual debt service requirements to maturity for Road Commission long-term debt are as follows: 65 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 11. ACCRUED COMPENSATED ABSENCES 12. OPERATING LEASES 13. RISK MANAGEMENT Primary Government 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. 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 $25,545 at December 31, 2018. 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. Primary Government The Commission on Aging leases office and activity space from Alpine Alten Zimmer. The future rent payments will approximate $28,000 per year, with a rent increase not to exceed 1% per year through December 31, 2029. The County is exposed to risks of loss related to theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The government manages its risk exposures and provides certain employee benefits through a combination of self-insurance programs, risk management pools and commercial insurance and excess coverage policies. The following is a summary of these self- insurance programs and risk management pool participation. The County participates in the Michigan Municipal Risk Management Authority (MMRMA) for general and automobile liability, motor vehicle physical damage, and property damage coverages. The MMRMA was established in January 1980, pursuant to laws of the State of Michigan, which authorize local units of government to jointly exercise any power, privilege or authority which each might exercise separately. The purpose of the Authority is to provide cooperative and comprehensive risk financing and risk control services. The MMRMA provides risk management, underwriting, reinsurance and claim review and processing services for all member governments pursuant to its charter. 66 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Changes in the balances of claims liabilities are as follows: 2018 2017 Estimated liability, beginning of year 12,160 $ 17,430 $ Receipts 60,652 49,945 Estimated claims incurred (44,888) (37,850) Claim payments (10,736) (17,365) Estimated liability, end of year $ 17,188 $ 12,160 Workers' Compensation $75,000 Fiscal Year Ended December 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, 2018, the balance of the County's member retention was $370,100. Vehicle Physical Damage Employee Benefits The County is a member of the Michigan Counties Workers' Compensation Fund. Full statutory coverage for workers' disability compensation and employers' liability is guaranteed by the fund for Michigan operations through authority granted by the Sate of Michigan under Chapter 6, Section 418.611, Paragraph of the Workers' Disability Compensation Act of 1969, as amended. At December 31, 2018 there were no claims that exceeded insurance coverage. The County had no significant reduction in insurance coverage from previous years. Self-Insured Retention Coverage Liability $1,000 deductible per occurrence Property and crime $15,000 per vehicle $30,000 per occurrence 10% of the next $100,000 $1,000 Member Deductible The County makes annual contributions to MMRMA based on actuarial studies using historical data and insurance industry statistics. These contributions are paid from the General fund using premiums paid into it by other funds of the government. Such contributions that are received by MMRMA are allocated between its general and member retention funds. Economic resources in the MMRMA's General Fund are expended for reinsurance coverage, claim payments and certain general and administrative costs, whereas resources in the member retention funds are used for loss payments and defense costs up to the members' self-insurance retention limits along with certain other member-specific costs. Commercial Insurance Provider 67 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Component Unit - Road Commission Component Unit - Ambulance Corporation Component Unit - Commission on Aging Component Unit - 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 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. 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 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. At December 31, 2018, there were no claims that exceeded insurance coverage. The Ambulance Corporation did not have any significant reduction in insurance coverage from previous years. 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 Road Commission is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Road Commission was unable to obtain general liability insurance at a cost it considered to be economically justifiable. The Road Commission joined together with other Road Commissions and created a public entity risk pool currently operating as a common risk management and insurance program. The Road Commission pays an annual premium to the pool for its general insurance coverage. The agreement provides that the pool will be self-sustaining through member premiums and will reinsure through commercial companies for claims in excess of $1,000 ($2,000 for errors and omissions) for each insured event. The maximum limit of liability for each occurrence is $10,500,000. The Road Commission from time to time is named as a defendant in accident claims and lawsuits requesting damages of various amounts, the majority of which do not state a specific maximum. Insurance coverage related to these claims and lawsuits, if any, is categorized under the general liability insurance program. It is the opinion of management and legal counsel that reasonable estimates of the Road Commission's current liability for these matters, if any, have been recorded. 68 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 14. PROPERTY TAXES Source Millage Rate Animal Control 0.3000 Commission on Aging 1.0000 Ambulance 0.7800 Bus System 0.2500 Parks and Recreation 0.2500 Road Projects 1.0000 Library 0.4000 Library Building 0.3750 Recycling 0.3500 0.2500 Building 0.1875 M-TEC 0.6464 University Center 0.5569 The December 1, 2017 taxable valuation of the County of Otsego totaled $1,231,607,518, on which ad valorem taxes were levied as follows: Although the County of Otsego 2017 ad valorem tax for the General fund is levied and collectible on December 1, 2017 and the 2018 ad valorem tax is levied and collectible on July 1, 2018 for the special revenue funds, 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 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. At December 31, 2018, there were no claims that exceeded insurance coverage. The did not have any significant reduction in insurance coverage from previous years. The July 1, 2018 taxable valuation of the County of Otsego totaled $1,258,713,819, on which ad valorem taxes levied consisted of 4.0502 mills for the General fund. This amount is recognized in the General fund. 69 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 15. TAX ABATEMENTS Industrial Facilities Exemption Amount of Tax Abatement for the Year Ended December 31, 2018 11,345 $ 6,292 1,670 1,988 Commercial Facilities Exemption City of Gaylord Tax Abatements Taxing Unit City of Gaylord Bagley Township Corwith Township Livingston Township 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, 2018, Otsego County property taxes were reduced by $2,578 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: 70 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Brownfield Redevelopment Financing City of Gaylord Tax Abatements 16. CONTINGENT LIABILITIES 17. BENEFIT PLANS Primary Government Defined Benefit Pension Plan Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the Federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the County expects such amounts, if any, to be immaterial. Plan Description. The County's defined benefit pension plan provides certain retirement, disability and death benefits to plan members and beneficiaries. The County participates in the Municipal Employees Retirement System (MERS) of Michigan. MERS is an agent multiple-employer, statewide public employee pension plan established by the Michigan Legislature under Public Act 135 of 1945 and administered by a nine member Retirement Board. MERS issues a publicly available financial report that includes financial statements and required supplementary information. This report may be obtained accessing the MERS website at www.mersofmich.com. 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, 2018, Otsego County property taxes were reduced by $606 under this program. 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, 2017. 71 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 106 46 106 258 Division Name Status Employer Contribution Rate Employee Contribution Rate Defined Benefit Closed $ 7,196 0% Defined Benefit Open 12.16% 0% Defined Benefit Closed $ 5,957 0% Defined Benefit Closed $ 2,851 0% Defined Benefit Closed $ 21,263 0% Defined Benefit Closed $ 9,626 0% Defined Benefit Closed $ 5,045 0% Defined Benefit Closed $ 2,000 0% Defined Benefit Closed $ 7,807 0% Defined Benefit Closed $ 1,414 4% Defined Benefit Open 8.16% 0% Hybrid Open 7.10% 0% Hybrid Open 7.46% 0% Hybrid Open 5.23% 0% Hybrid Open 5.79% 0% Hybrid Open 0.00% 0% Hybrid Open 7.24% 0% Hybrid Open 6.03% 0% Police Officers Association of Michigan hired after 1/1/11 Employees Covered by Benefit Terms. At December 31, 2018, plan membership consisted of the following: General Local 214 Bus Clerical Local #214 after 1/1/12 Inactive employees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits 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. Active employees Total membership Contributions. The County is required to contribute amounts at least equal to the actuarially determined rate, as established by the MERS Retirement Board. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employer contributions are expressed as a percentage of payroll for open divisions and as a fixed amount for closed divisions as summarized in the following table: Police Officers Association of Michigan Elected Appointed Supervisors 46th Trial Court General Local 214 Clerical 87-A Judge/Friend of Court pre 9/1/14 All Full Time Police on/after 1/1/16 Elected Appointed Supervisors after 1/1/09 General Non Union after 1/1/09 Sheriff Union new hires after 6/1/10 Library Director Sheriff Union Division Name General Non Union Library Non Union Teamsters Bus hired after 1/1/11 46th Trial Court hired after 6/1/11 72 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Inflation 2.50% Salary increases Target Allocation Long-term Expected Real Rate of Return Expected Money- Weighted Rate Global equity 57.50% 5.02% 2.89% 20.00% 2.18% 0.44% Real assets 12.50% 4.23% 0.53% 10.00% 6.56% 0.64% 100.00% 3.25% 0.25% 8.00% 3.75% in the long-term Actuarial Assumptions. The total pension liability in the December 31, 2017 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: 7.75%, net of investment and administrative expense including inflation Diversifying strategies 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: Although no explicit price inflation assumption is used in the valuation, the long-term annual rate of price inflation implicit in the 3.75% base wage inflation is 2.50%. Administrative expenses netted above Investment rate of return Asset Class Investment rate of return Inflation Mortality rates used were based on the RP-2014 Group Annuity Mortality Table of a 50% Male and 50% Female blend. The actuarial assumptions used in valuation were based on the results of the most recent actuarial experience study of 2009-2013. Global fixed income Net Pension Liability. The County's net pension liability was measured as of December 31, 2017, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. 73 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Total Pension Liability Plan Fiduciary Net Position Net Pension Liability - $ 21,963,521 $ 13,589,341 $ 8,374,180 336,412 - 336,412 1,719,681 - 1,719,681 (91,145) - (91,145) Differences between expected and - actual experience (48,394) - (48,394) - 1,096,794 (1,096,794) - 30,679 (30,679) - 1,806,557 (1,806,557) - (1,271,380) (1,271,380) - - (28,580) 28,580 (54) (57) 3 645,120 1,634,013 (988,893) $ 22,608,641 $ 15,223,354 $ 7,385,287 1% Decrease (7.00%) Current Discount Rate (8.00%) 1% Increase (9.00%) $ 9,894,451 $ 7,385,287 $ 5,253,389 Employer contributions Changes for the year: Interest Discount Rate. The discount rate used to measure the total pension liability as of December 31, 2017 was 8.0% (same as 2016). The projection of cash flows used to determine the discount rate assumes that employer and employee contributions will be made at the rates agreed upon for employees and the actuarially determined rates for employers. Based on these assumptions, the pension plan’s fiduciary net position was projected to be available to pay all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. of employee contributions Employee contributions Net investment income Change in Net Pension Liability Balances at December 31, 2016 Other changes Changes in benefits 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. Benefit payments, including refunds Net changes Balances at December 31, 2017 Service cost The components of the change in the net pension liability are summarized as follows: Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the County, calculated using the discount rate of 8.0%, as well as what the County’s net pension liability would be if it were calculated using a discount rate that is 1% lower or 1% higher than the current rate: County's net pension liability 74 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Deferred Outflows of Resources Deferred Inflows of Resources Net Deferred Outflows (Inflows) of Resources $ - $ 289,704 $ (289,704) Difference between expected and actual experience 181,051 347,856 (166,805) Changes in assumptions 259,220 - 259,220 440,271 637,560 (197,289) 1,109,536 - 1,109,536 Total $ 1,549,807 $ 637,560 $ 912,247 Year Ended December 31, Amount 2019 349,719 $ 2020 (137,476) 2021 (264,270) 2022 (145,262) Total $ (197,289) For governmental activities, the net pension liability is generally liquidated by the General fund. For business-type activities, the net pension liability is liquidated by the Bus System fund. Net difference between projected and actual Payable to the Pension Plan. At December 31, 2018, the County reported a payable of $74,526 for the outstanding amount of contributions to the pension plan required for the year ended December 31, 2018. The amount reported as deferred outflows of resources resulting from contributions subsequent to the measurement date will be recognized as a reduction in the net pension liability for the year ending December 31, 2018. Other amounts reported as deferred outflows and inflows of resources related to the pension will be recognized in pension expense as follows: For the year ended December 31, 2018, the County recognized pension expense of $1,312,316. The County reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Contributions subsequent to the measurement Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions earnings on pension plan investments 75 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Road Commission - Component Unit 18. DEFERRED COMPENSATION PLAN Primary Government Commission on Aging Component Unit - Further information regarding the Road Commission's participation in the Plan is presented in a separately issued Road Commission report. Description of Plan and Plan Assets. The Road Commission participates in an agent multiple-employer defined benefit pension plan with the Municipal Employees’ Retirement System (MERS). The system provides the following provisions: normal retirement, deferred retirement and service retirement to plan members and their beneficiaries. The service requirement is computed using credited service at the time of termination of membership multiplies by the sum of 2.50% times the final compensation (FAC). The most recent period of which actuarial data was available was for year ended December 31, 2017. 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. 76 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 19. OTHER POSTEMPLOYMENT BENEFITS Inactive plan members or beneficiaries currently receiving benefit payments 19 Active plan members 10 Total membership 29 Salary increases including inflation Investment rate of return 20-year Aa Municipal bond rate Mortality Contributions. The Plan was established and is being funded under the authority of the Employer’s governing body and under agreements with the unions representing various classes of employees. The Plan's funding policy is to pay expected plan benefits from general operating funds – pay-as-you-go. Active participants do not make contributions to pre-fund the Plan. There are no long-term contracts for contributions to the plan. The plan has no legally required reserves. Benefits Provided. The County Board of Commissioners has the authority to establish or amend benefit terms, to determine the types of benefits provided through the OPEB Plan, and to determine the classes of plan members covered. The OPEB Plan provides medical insurance and prescription drug coverage to qualified retirees and their beneficiaries. Plan Membership. At December 31, 2017, OPEB Plan membership consisted of the following: Management of the OPEB Plan is vested with the County Board of Commissioners. 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. 3.16% As set forth in IRS Regulations for 2018 (1.430(h)(3)) for Non-annuitants, separately for males and females as well as annuitants and non- annuitants. Based on RP-2000Tables with Scale AA. Actuarial Assumptions. The total OPEB liability was determined by an actuarial valuation as of December 31, 2017 using the following actuarial assumptions (which were determined by management utilizing the best information available), applied to all periods included in the measurement, unless otherwise specified: Discount Rate. The discount rate used to measure the total OPEB liability was 3.16%. Because the plan does not have a dedicated OPEB trust, there are not assets projected to be sufficient to make projected future benefit payments of current plan members. For projected benefits that are covered by projected assets, the long-term expected rate was used to discount the projected benefits. The Plan is not funded through a trust, therefore, projected benefits were discounted at a discount rate reflecting a 20-year AA/Aa tax-exempt municipal bond yield. A single equivalent discount rate that yields the same present value of benefits is calculated. This discount rate is used to determine the Total OPEB Liability. 2.00% N/A; this is not prefunded 77 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Utilization Healthcare inflation Total OPEB Liability Balances at December 31, 2016 1,848,952 $ Changes for the year: Service cost 46,710 Interest 58,758 Changes in assumptions 48,727 Benefit payments, including refunds of employee contributions (72,446) Net changes 81,749 Balances at December 31, 2017 $ 1,930,701 1% Decrease (2.16%) Current Discount Rate (3.16%) 1% Increase (4.16%) 2,186,800 $ 1,930,701 $ 1,718,630 $ 1% Decrease Current Healthcare Trend Rate 1% Increase 1,697,566 $ 1,930,701 $ 2,215,515 $ 70% of eligible employees are assumed to elect coverage at retirement; Actual coverage used for non-active. Changes in Total OPEB Liability of the County Pre-65 - 8% in 2019 graded down 0.5% per year to 5.0% over 6 years. Medicare eligible – 5.0% per year. Sensitivity of the Total OPEB Liability to Changes in the Discount Rate. The following presents the total OPEB liability of the County, calculated using the discount rate of 3.16%, as well as what the County's total OPEB liability would be if it were calculated using a discount rate that is 1% lower (2.16%) or 1% higher (4.16%) than the current rate: Sensitivity of the Total OPEB Liability to Changes in the Healthcare Cost Trend Rates. The following presents the total OPEB liability of the County, calculated using the healthcare cost trend rate of 8% grading down to 5% after 6 years, as well as what the County's total OPEB liability would be if it were calculated using a healthcare cost trend rate that is 1% lower or 1% higher than the current rate: 78 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Deferred Outflows of Resources Deferred Inflows of Resources Net Deferred Outflows (Inflows) of Resources Changes in assumptions $ 26,857 $ - $ 26,857 Contributions subsequent to the measurement date 70,961 - 70,961 Total $ 97,818 $ - $ 97,818 Year Ended December 31, 2018 Amount 2019 21,870 $ 2020 4,987 Total 26,857 $ Road Commission - Component Unit Further information regarding the Plan is presented in a separately issued Road Commission report. OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB For the year ended December 31, 2018, the County recognized OPEB expense of $162,740. The County reported deferred outflows/inflows of resources related to OPEB from the following sources: Amounts reported as deferred outflows/inflows of resources related to the OPEB will be recognized in OPEB expense as follows: Payable to the OPEB Plan. At December 31, 2018 the County had no amounts payable for contributions to the OPEB plan. 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. 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. For governmental activities, the net OPEB liability is generally liquidated by the General fund. 79 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN NOTES TO FINANCIAL STATEMENTS 20. FUND BALANCES - GOVERNMENTAL FUNDS Library Housing Capital Project Nonmajor Total General Commission M-TEC Bond Governmental Governmental Fund Fund Fund Fund Funds Funds Nonspendable for: Inventories 20,107 $ - $ - $ - $ 7,560 $ 27,667 $ Other assets 12,072 - - - - 12,072 Total nonspendable 32,179 - - - 7,560 39,739 Restricted for: Housing projects - 113,002 - - - 113,002 Public safety - - - - 1,919,978 1,919,978 Health and welfare - - - - 125,050 125,050 Recreation and culture - - - - 3,652,571 3,652,571 University center - - - - 147,544 147,544 Debt service - - - 554,006 225,433 779,439 Recycling - - - - 100,654 100,654 Register of deeds - - - - 84,891 84,891 Law library - - - - 19,371 19,371 Bradford Lake Dam - - - - 20,120 20,120 Total restricted - 113,002 - 554,006 6,295,612 6,962,620 Committed for: Pension contributions 150,000 - - - - 150,000 Work camp - - - - 1,975 1,975 Friend of the court - - - - 338,269 338,269 Child care probate - - - - 21,001 21,001 Equipment - - - - 155,791 155,791 Public improvements - - - - 1,731,625 1,731,625 Total committed 150,000 - - - 2,248,661 2,398,661 Unassigned (deficit) 5,069,094 - - - (17,256) 5,051,838 Total fund balances, governmental funds 5,251,273 $ 113,002 $ - $ 554,006 $ 8,534,577 $ 14,452,858 $ 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: 80 ---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, 2018, was as follows: Governmental Business-type Component Activities Activities Units Capital assets: Capital assets not being depreciated 5,207,651 $ 99,998 $ 11,666,767 $ Capital assets being depreciated, net 7,534,587 6,473,461 25,976,272 12,742,238 6,573,459 37,643,039 Less related debt: Total installment debt 2,756,563 - 1,015,011 Less: noncapital related debt (655,000) - - Less: unexpended bond proceeds (554,006) - - 1,547,557 - 1,015,011 Net investment in capital assets 11,194,681 $ 6,573,459 $ 36,628,028 $ The composition of restricted net position as of December 31, 2018, was as follows: Governmental Business-type Component Activities Activities Units Net position restricted for: General government 22,906 $ - $ - $ Health and welfare 125,050 - - University center 147,544 - - Debt service 1,427,614 - - Recycling 100,654 - - Register of deeds 84,891 - - Law library 19,371 - - Bradford Lake Dam 20,120 - - Commission on Aging - - 44,043 Total restricted net position 1,948,150 $ - $ 44,043 $ 22. SUBSEQUENT EVENTS / COMMITMENTS 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 $ The voters of Otsego County passed a 0.375 millage in November, 2016 for 6 years, to repay bonds which were issued to fund a Library Expansion Project, which will increase the square footage of the existing Otsego County Library from 9,300 to 24,000 square feet. The expansion is anticipated to be completed in the summer 2019. Cost incurred through December 31, 2018 are approximately $2,771,000. The estimated costs to complete the project are $229,000. 81 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN NOTES TO FINANCIAL STATEMENTS Gaylord Gateway Trailhead Iron Belle Trail Grant for engineering 80,000 $ Michigan Natural Resources Trust Fund Grant 300,000 Michigan Department of Natural Resources Recreational Trails Program 320,000 Other 220,000 Total estimated cost of the Trailhead Project 920,000 $ Groen Preserve Projects Entrance project 375,000 $ Ranger station project 65,000 Total estimated cost of the Groen Preserve Projects 440,000 $ Road Commission 23. RESTATEMENTS The City adopted the provisions of GASB Statement No. 75, Accounting and Financial Reporting for Other Postemployment Benefits, in the current year. As a result of this change, beginning net position of governmental activities was decreased by $362,000. The Road Commission, a discretely presented component unit, beginning net position was increased by $2,498,727.      During April 2019, the Board executed a property settlement in the amount of $80,000. Due to a planned 12 mile extension of the North Central State Trail, a downtown Gaylord trailhead is needed to provide better access by trail users to downtown businesses and facilities, as well as providing a relief station. The facility would include typical benches, picnic tables, and a pavilion with restrooms. The trailhead project is estimated to be completed in the summer of 2019. Cost incurred through December 31, 2018 are approximately $63,000. The estimated costs to complete the project are $857,000. After fiscal year end, the Road Commission executed equipment purchases amounting to approximately $288,000. The Groen preserve project is estimated to be completed in 2019. Cost incurred through December 31, 2018 are approximately $15,000. The estimated costs to complete the project are $425,000. The County is a recipient of funding through the Groen Foundation (the Foundation). The County and the Foundation agreed to reconstruct the entrance to the Groen Preserve and renovate an existing structure to use as a Ranger Station in the Preserve. 82 ---PAGE BREAK--- REQUIRED SUPPLEMENTARY INFORMATION ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan 2018 2017 2016 2015 Total pension liability Service cost 336,412 $ 349,718 $ 348,000 $ 338,932 $ Interest 1,719,681 1,696,843 1,543,901 1,479,439 Changes in benefits (91,145) (10,695) - - Differences between expected and actual experience (48,394) (503,144) 724,207 - Changes in assumptions - - 1,036,885 - Benefit payments, including refunds of employee contributions (1,271,380) (1,209,751) (1,104,777) (978,368) Other changes (54) - - - Net change in total pension liability 645,120 322,971 2,548,216 840,003 Total pension liability, beginning of year 21,963,521 21,640,550 19,092,334 18,252,331 Total pension liability, end of year 22,608,641 21,963,521 21,640,550 19,092,334 Plan fiduciary net position Employer contributions 1,096,794 865,641 693,476 640,433 Employee contributions 30,679 7,937 5,905 3,630 Net investment (loss) income 1,806,557 1,422,497 (195,083) 800,044 Benefit payments, including refunds of employee contributions (1,271,380) (1,209,751) (1,104,777) (978,368) Administrative expense (28,580) (28,053) (28,591) (29,357) Other changes (57) - - - Net change in plan fiduciary net position 1,634,013 1,058,271 (629,070) 436,382 Plan fiduciary net position, beginning of year 13,589,341 12,531,070 13,160,140 12,723,758 Plan fiduciary net position, end of year 15,223,354 13,589,341 12,531,070 13,160,140 County's net pension liability 7,385,287 $ 8,374,180 $ 9,109,480 $ 5,932,194 $ Plan fiduciary net position as a percentage of total pension liability 67.3% 61.9% 57.9% 68.9% Covered payroll 4,575,021 $ 4,547,735 $ 4,390,047 $ 4,188,926 $ County's net pension liability as a percentage of covered payroll 161.4% 184.1% 207.5% 141.6% Notes: The amounts presented for each fiscal year were determined as of December 31 of the preceding year. GASB 68 was implemented in fiscal year 2015. This schedule is being built prospectively. Ultimately, 10 years of data will be presented. Schedule of Changes in the County's Net Pension Liability and Related Ratios Year Ended December 31 83 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan Fiscal Year Ended December 31, Total Pension Liability Plan Net Position Net Pension Liability Plan Net Position as Percentage of Total Pension Liability Covered Payroll Net Pension Liability as Percentage of Covered Payroll 2015 19,092,334 $ 13,160,140 $ 5,932,194 $ 68.9% 4,188,926 $ 141.62% 2016 21,640,550 12,531,070 9,109,480 57.9% 4,390,047 207.50% 2017 21,963,521 13,589,341 8,374,180 61.9% 4,547,735 184.14% 2018 22,608,641 15,223,354 7,385,287 67.3% 4,575,021 161.43% Schedule of the Net Pension Liability 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. Changes in assumptions. In 2016, amounts reported as changes in assumptions resulted primarily from adjustments to the mortality table to reflect longer lifetimes, decreases in the assumed rate of return and changes in asset smoothing. 84 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan Fiscal Year Ending December 31, Actuarially Determined Contribution Contributions in Relation to the Actuarially Determined Contribution Contribution Deficiency (Excess) Covered Payroll Contributions as Percentage of Covered Payroll 2009 633,642 $ 633,642 $ - $ 4,426,638 $ 14.31% 2010 716,885 716,885 - 4,385,025 16.35% 2011 565,476 565,476 - 4,400,424 12.85% 2012 705,702 705,702 - 4,014,917 17.58% 2013 727,962 727,962 - 4,080,889 17.84% 2014 640,433 640,433 - 4,188,926 15.29% 2015 693,477 693,477 - 4,390,047 15.80% 2016 715,641 865,641 (150,000) 4,547,735 19.03% 2017 856,396 1,106,396 (250,000) 4,575,021 24.18% 2018 934,199 1,184,199 (250,000) 4,401,566 26.90% Valuation payroll as of the previous year ended December 31. Notes to Schedule of Contributions Valuation Date Methods and assumptions used to determine contribution rates: Actuarial cost method Entry-age normal Amortization method Remaining amortization period 24 years Asset valuation method Open; 10 year smoothed Inflation 2.50% Salary increases Investment rate of return 7.75%, net of investment and administrative expense including inflation Retirement age Mortality Schedule of Contributions 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. 2014 Group Annuity Mortality Table of a 50% Male and 50% Female blend. The mortality tables were first used for the December 31, 2015 actuarial valuations. 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 85 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information Single-Employer Other Postemployment Benefits Plan Year Ended December 31, 2018 Total OPEB liability Service cost 46,710 $ Interest 58,758 Changes in assumptions 48,727 Benefit payments, including refunds of employee contributions (72,446) Net change in total OPEB liability 81,749 Total OPEB liability, beginning of year 1,848,952 Total OPEB liability, end of year 1,930,701 $ Covered-employee payroll 4,401,566 $ County's total OPEB liability as a percentage of covered-employee payroll 43.9% Note: GASB 75 was implemented in fiscal year 2018. This schedule is being built prospectively. Ultimately, 10 years of data will be presented. Schedule of Changes in the County's Total OPEB Liability and Related Ratios 86 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information Single-Employer Other Postemployment Benefits Plan Fiscal Year Ending December 31, Actuarially Determined Contribution Contributions in Relation to the Actuarially Determined Contribution Contribution Deficiency (Excess) Covered Payroll Contributions as Percentage of Covered Payroll 2018 155,520 $ 70,961 $ 84,559 $ 4,401,566 $ 1.61% Valuation payroll as of the previous year ended December 31. 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. Changes in assumptions. In 2018, amounts reported as changes in assumptions resulted primarily from adjustments to the mortality table to reflect longer lifetimes, healthcare inflation updates, and lowered utilization percentages. Schedule of Contributions 87 ---PAGE BREAK--- COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Governmental Funds December 31, 2018 Special Capital Revenue Projects Total Assets Cash and cash equivalents 2,450,501 $ 3,271,962 $ 5,722,463 $ Investments 1,860,901 850,021 2,710,922 Receivables: Accounts 198,370 105,513 303,883 Property taxes 2,328,861 707,567 3,036,428 Due from other governments 214,734 85,466 300,200 Advances to other funds 20,844 20,844 Advances to component units - 143,024 143,024 Other assets 7,560 - 7,560 Total assets 7,060,927 $ 5,184,397 $ 12,245,324 $ Liabilities Accounts payable 279,323 $ 41,649 $ 320,972 $ Accrued liabilities 18,938 - 18,938 Due to other funds 4,545 110,042 114,587 Due to other governments 9,428 - 9,428 Unearned revenue 210,394 138 210,532 Total liabilities 522,628 151,829 674,457 Deferred inflows of resources Taxes levied for a subsequent period 2,328,861 707,429 3,036,290 Fund balances Nonspendable 7,560 - 7,560 Restricted 3,684,842 2,610,770 6,295,612 Committed 517,036 1,731,625 2,248,661 Unassigned (deficit) - (17,256) (17,256) Total fund balances 4,209,438 4,325,139 8,534,577 Total liabilities, deferred inflows 7,060,927 $ 5,184,397 $ 12,245,324 $ of resources, and fund balances 88 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended December 31, 2018 Special Capital Revenue Projects Total Revenues Taxes 2,425,242 $ 694,898 $ 3,120,140 $ Federal sources 320,742 - 320,742 State sources 404,544 175,700 580,244 Local sources - 41,200 41,200 Charges for services 1,037,836 39,228 1,077,064 Fines and forfeits 169,520 - 169,520 Interest and rentals 54,663 74,517 129,180 Other 997,911 292,307 1,290,218 Total revenues 5,410,458 1,317,850 6,728,308 Expenditures Current: Judicial 448,956 - 448,956 General government 1,059,961 - 1,059,961 Public safety 1,815,777 - 1,815,777 Public works - - - Health and welfare 840,911 - 840,911 Recreation and culture 1,475,664 - 1,475,664 Debt service: Principal 16,031 - 16,031 Interest and fiscal charges 1,762 - 1,762 Capital outlay: Public safety - 167,639 167,639 Recreation and culture - 147,549 147,549 Other - 95,166 95,166 Contribution to other governmental units - 220,663 220,663 Total expenditures 5,659,062 631,017 6,290,079 Revenues (under) over expenditures (248,604) 686,833 438,229 Other financing sources (uses) Transfers in 561,382 120,000 681,382 Transfers out (286,992) (1,688,188) (1,975,180) Total other financing sources (uses) 274,390 (1,568,188) (1,293,798) Net change in fund balances 25,786 (881,355) (855,569) Fund balances, beginning of year 4,183,652 5,206,494 9,390,146 Fund balances, end of year 4,209,438 $ 4,325,139 $ 8,534,577 $ 89 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Special Revenue Funds December 31, 2018 Groen Work Parks and Nature University Camp Recreation Preserve Center Assets Cash and cash equivalents 25 $ 3,744 $ 165,284 $ 272,544 $ Investments - 303,200 - - Receivables: Accounts - 11,620 - - Property taxes - 313,585 - 698,889 Due from other governments 7,645 - - - Other assets - - - - Total assets 7,670 $ 632,149 $ 165,284 $ 971,433 $ Liabilities Accounts payable 434 $ 4,428 $ 1,709 $ 125,000 $ Accrued liabilities 716 3,141 259 - Due to other governments - - - - Due to other funds 4,545 - - - Unearned revenue - 70,304 140,090 - Total liabilities 5,695 77,873 142,058 125,000 Deferred inflows of resources Taxes levied for a subsequent period - 313,585 - 698,889 Fund balances Nonspendable - - - - Restricted - 240,691 23,226 147,544 Committed 1,975 - - - Total fund balances 1,975 240,691 23,226 147,544 Total liabilities, deferred inflows of 7,670 $ 632,149 $ 165,284 $ 971,433 $ resources, and fund balances 90 ---PAGE BREAK--- Animal Friend Control of the Animal Forfeited Moth Court Control Funds Recycling Control 218,758 $ 65,036 $ 8,188 $ 19,903 $ 114,584 $ - 345,997 - 120,000 - - - - 153 - - 376,469 - 438,014 - 133,658 797 - - - 5,856 - - - - 358,272 $ 788,299 $ 8,188 $ 578,070 $ 114,584 $ 8,167 $ 10,571 $ - $ 39,402 $ - $ 5,980 3,379 - - - - - - - - - - - - - - - - - - 14,147 13,950 - 39,402 - - 376,469 - 438,014 - 5,856 - - - - - 397,880 8,188 100,654 114,584 338,269 - - - - 344,125 397,880 8,188 100,654 114,584 358,272 $ 788,299 $ 8,188 $ 578,070 $ 114,584 $ Continued… 91 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Special Revenue Funds December 31, 2018 Brownfield Register Redevelopment Building of Deeds Authority Department Automation Library Assets Cash and cash equivalents 225,433 $ 483,644 $ 86,820 $ 199,176 $ Investments - 493,862 - 592,842 Receivables: Accounts - 319 55 3,188 Property taxes - - - 501,904 Due from other governments - - - - Other assets - - - - Total assets 225,433 $ 977,825 $ 86,875 $ 1,297,110 $ Liabilities Accounts payable - $ 11,310 $ 1,984 $ 17,322 $ Accrued liabilities - 3,186 - - Due to other governments - - - - Due to other funds - - - - Unearned revenue - - - - Total liabilities - 14,496 1,984 17,322 Deferred inflows of resources Taxes levied for a subsequent period - - - 501,904 Fund balances Nonspendable - - - - Restricted 225,433 963,329 84,891 777,884 Committed - - - - Total fund balances 225,433 963,329 84,891 777,884 Total liabilities, deferred inflows of 225,433 $ 977,825 $ 86,875 $ 1,297,110 $ resources, and fund balances 92 ---PAGE BREAK--- Emergency Concealed Local Department 911 Pistol Officers Law of Human Funds Licensing Training Library Services 329,815 $ 34,414 $ 28,802 $ 20,157 $ 5,751 $ - - - - 5,000 120,916 124 - - - - - - - - 44,164 - - - - - - - - - 494,895 $ 34,538 $ 28,802 $ 20,157 $ 10,751 $ 7,654 $ - $ - $ 786 $ 285 $ - - - - - - - - - - - - - - - - - - - - 7,654 - - 786 285 - - - - - - - - - - 487,241 34,538 28,802 19,371 10,466 - - - - - 487,241 34,538 28,802 19,371 10,466 494,895 $ 34,538 $ 28,802 $ 20,157 $ 10,751 $ Continued… 93 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Special Revenue Funds December 31, 2018 Child Bradford Care Equipment Lake Probate Revolving Dam Total Assets Cash and cash equivalents 52,324 $ 95,979 $ 20,120 $ 2,450,501 $ Investments - - - 1,860,901 Receivables: Accounts 121 61,874 - 198,370 Property taxes - - - 2,328,861 Due from other governments 28,470 - - 214,734 Other assets 1,704 - - 7,560 Total assets 82,619 $ 157,853 $ 20,120 $ 7,060,927 $ Liabilities Accounts payable 48,209 $ 2,062 $ - $ 279,323 $ Accrued liabilities 2,277 - - 18,938 Due to other governments 9,428 - - 9,428 Due to other funds - - - 4,545 Unearned revenue - - - 210,394 Total liabilities 59,914 2,062 - 522,628 Deferred inflows of resources Taxes levied for a subsequent period - - - 2,328,861 Fund balances Nonspendable 1,704 - - 7,560 Restricted - - 20,120 3,684,842 Committed 21,001 155,791 - 517,036 Total fund balances 22,705 155,791 20,120 4,209,438 Total liabilities, inflows of 82,619 $ 157,853 $ 20,120 $ 7,060,927 $ Concluded resources, and fund balances 94 ---PAGE BREAK--- This page intentionally left blank. ---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, 2018 Groen Work Parks and Nature University Camp Recreation Preserve Center Revenues Taxes - $ 311,102 $ - $ 695,920 $ Federal sources - - - - State sources - - - - Charges for services 52,738 227,252 - - Fines and forfeits - - - - Interest and rentals - 11,475 - 60 Other revenue 76 22,676 196,192 4,785 Total revenues 52,814 572,505 196,192 700,765 Expenditures Judicial - - - - General government - - - 588,957 Public safety 137,989 - - - Public works - - - - Health and welfare - - - - Recreation and culture - 598,925 203,057 - Debt service: Principal - - - - Interest and fiscal charges - - - - Capital outlay - - - - Total expenditures 137,989 598,925 203,057 588,957 Revenues (under) over expenditures (85,175) (26,420) (6,865) 111,808 Other financing sources (uses) Transfers in 70,175 350 - - Transfers out - - - (243,550) Total other financing sources (uses) 70,175 350 - (243,550) Net change in fund balances (15,000) (26,070) (6,865) (131,742) Fund balances, beginning of year 16,975 266,761 30,091 279,286 Fund balances, end of year 1,975 $ 240,691 $ 23,226 $ 147,544 $ 95 ---PAGE BREAK--- Animal Friend Control of the Animal Forfeited Moth Court Control Funds Recycling Control - $ 375,795 $ - $ 313,095 $ - $ 315,242 - - - - 39,160 - - - - 33,204 46,852 - - - - 685 - - - - 10,843 15 2,839 195 - 14,852 - 2,148 - 387,606 449,027 15 318,082 195 448,956 - - - - - - - 363,571 - - 438,923 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 448,956 438,923 - 363,571 - (61,350) 10,104 15 (45,489) 195 93,453 550 - - - - - - - - 93,453 550 - - - 32,103 10,654 15 (45,489) 195 312,022 387,226 8,173 146,143 114,389 344,125 $ 397,880 $ 8,188 $ 100,654 $ 114,584 $ Continued… 96 ---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, 2018 Brownfield Register Redevelopment Building of Deeds Authority Department Automation Library Revenues Taxes 228,362 $ - $ - $ 500,968 $ Federal sources - - - 5,500 State sources - - - 27,440 Charges for services - 488,161 39,135 - Fines and forfeits - - - 168,835 Interest and rentals - 9,686 - 17,869 Other revenue - - - 106,544 Total revenues 228,362 497,847 39,135 827,156 Expenditures Judicial - - - - General government - - 43,040 - Public safety - 457,737 - - Public works - - - - Health and welfare - - - - Recreation and culture - - - 672,380 Debt service: Principal 16,031 - - - Interest and fiscal charges 1,762 - - - Capital outlay - - - - Total expenditures 17,793 457,737 43,040 672,380 Revenues under (over) expenditures 210,569 40,110 (3,905) 154,776 Other financing sources (uses) Transfers in - - - - Transfers out - (10,000) (11,142) - Total other financing sources (uses) - (10,000) (11,142) - Net change in fund balances 210,569 30,110 (15,047) 154,776 Fund balances, beginning of year 14,864 933,219 99,938 623,108 Fund balances, end of year 225,433 $ 963,329 $ 84,891 $ 777,884 $ 97 ---PAGE BREAK--- Emergency Concealed Local Department 911 Pistol Officers Law of Human Funds Licensing Training Library Services - $ - $ - $ - $ - $ - - - - - - - - - - 127,533 13,885 9,076 - - - - - - - 1,266 6 4 - 18 584,252 - - 3,500 - 713,051 13,891 9,080 3,500 18 - - - - - - - - - - 776,797 1,977 2,354 - - - - - - - - - - - 6,719 - - - 1,302 - - - - - - - - - - - - - - - - 776,797 1,977 2,354 1,302 6,719 (63,746) 11,914 6,726 2,198 (6,701) - - - - 9,120 (22,300) - - - - (22,300) - - - 9,120 (86,046) 11,914 6,726 2,198 2,419 573,287 22,624 22,076 17,173 8,047 487,241 $ 34,538 $ 28,802 $ 19,371 $ 10,466 $ Continued… 98 ---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, 2018 Child Bradford Care Equipment Lake Probate Revolving Dam Total Revenues Taxes - $ - $ - $ 2,425,242 $ Federal sources - - - 320,742 State sources 337,944 - - 404,544 Charges for services - - - 1,037,836 Fines and forfeits - - - 169,520 Interest and rentals - 339 48 54,663 Other revenue 62,886 - - 997,911 Total revenues 400,830 339 48 5,410,458 Expenditures Judicial - - - 448,956 General government - 64,393 - 1,059,961 Public safety - - - 1,815,777 Public works - - - - Health and welfare 834,192 - - 840,911 Recreation and culture - - - 1,475,664 Debt service: Principal - - - 16,031 Interest and fiscal charges - - - 1,762 Capital outlay - - - - Total expenditures 834,192 64,393 - 5,659,062 Revenues (under) over expenditures (433,362) (64,054) 48 (248,604) Other financing sources (uses) Transfers in 235,270 152,464 - 561,382 Transfers out - - - (286,992) Total other financing sources (uses) 235,270 152,464 - 274,390 Net change in fund balances (198,092) 88,410 48 25,786 Fund balances, beginning of year 220,797 67,381 20,072 4,183,652 Fund balances, end of year 22,705 $ 155,791 $ 20,120 $ 4,209,438 $ Concluded 99 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Capital Projects Funds December 31, 2018 EMS Building Library Court Capital Library Construction Restoration Project Building Millage Building Assets Cash and cash equivalents 3,787 $ 19,446 $ 17,207 $ 61,238 $ Investments - - - - Receivables: Accounts - - - - Property taxes 138 - 472,719 - Due from other governments - - - - Advances to other funds - - - - Advances to component units - - - - Total assets 3,925 $ 19,446 $ 489,926 $ 61,238 $ Liabilities Accounts payable - $ - $ - $ - $ Due to other funds - - - - Unearned revenue 138 - - - Total liabilities 138 - - - Deferred inflows of resources Taxes levied for a subsequent period - - 472,719 - Fund balances Restricted - - - - Committed 3,787 19,446 17,207 61,238 Unassigned (deficit) - - - - Total fund balances 3,787 19,446 17,207 61,238 Total liabilities, deferred inflows of resources, and fund balances 3,925 $ 19,446 $ 489,926 $ 61,238 $ 100 ---PAGE BREAK--- Groen Nature Groen Preserve University Airport Capital Capital Building Center Capital Tennis Court Iron Belle Trail Construction Projects II Projects Maintenance Projects Construction Capital Project 169,140 $ 15,741 $ 219 $ 110,400 $ 560,747 $ - $ 318,811 $ - - - 350,000 259,745 - - - - - - - 10,000 - - - - 234,710 - - - - - - - - 85,466 - - - - - - - - - - - - - - - 169,140 $ 15,741 $ 219 $ 695,110 $ 820,492 $ 95,466 $ 318,811 $ - $ - $ - $ - $ - $ - $ 14,295 $ - - - 84 - 95,535 - - - - - - - - - - - 84 - 95,535 14,295 - - - 234,710 - - - - - - 460,316 - - 304,516 169,140 15,741 219 - 820,492 - - - - - - - (69) - 169,140 15,741 219 460,316 820,492 (69) 304,516 169,140 $ 15,741 $ 219 $ 695,110 $ 820,492 $ 95,466 $ 318,811 $ Continued… 101 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Capital Projects Funds December 31, 2018 Public Capital Improvements Trail Head Projects Capital Project Capital Project Total Assets Cash and cash equivalents 648,945 $ 1,346,281 $ - $ 3,271,962 $ Investments - 240,276 - 850,021 Receivables: Accounts - 95,513 - 105,513 Property taxes - - - 707,567 Due from other governments - - - 85,466 Advances to other funds - 20,844 - 20,844 Advances to component units - 143,024 - 143,024 Total assets 648,945 $ 1,845,938 $ - $ 5,184,397 $ Liabilities Accounts payable 24,590 $ - $ 2,764 $ 41,649 $ Due to other funds - - 14,423 110,042 Unearned revenue - - - 138 Total liabilities 24,590 - 17,187 151,829 Deferred inflows of resources Taxes levied for a subsequent period - - - 707,429 Fund balances Restricted - 1,845,938 - 2,610,770 Committed 624,355 - - 1,731,625 Unassigned (deficit) - - (17,187) (17,256) Total fund balances 624,355 1,845,938 (17,187) 4,325,139 Total liabilities, deferred inflows of resources, and fund balances 648,945 $ 1,845,938 $ - $ 5,184,397 $ Concluded 102 ---PAGE BREAK--- This page intentionally left blank. ---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, 2018 EMS Building Library Court Capital Library Construction Restoration Project Building Millage Building Revenues Property taxes 1,246 $ - $ 460,873 $ - $ State grants - - - - Local sources - - - - Charges for services - - - 39,228 Interest and rentals 5 12,380 18,360 - Other revenue - - - - Total revenues 1,251 12,380 479,233 39,228 Expenditures Capital outlay: Public works - - - - Recreation and culture - - - 42,959 Other - - - - Contribution to other governmental units - - - - Total expenditures - - - 42,959 Revenues over (under) expenditures 1,251 12,380 479,233 (3,731) Other financing sources (uses) Transfers in - - - - Transfers out - (787,500) (900,688) - Total other financing sources (uses) - (787,500) (900,688) - Net change in fund balances 1,251 (775,120) (421,455) (3,731) Fund balances, beginning of year 2,536 794,566 438,662 64,969 Fund balances, end of year 3,787 $ 19,446 $ 17,207 $ 61,238 $ 103 ---PAGE BREAK--- Groen Nature Groen Preserve University Airport Capital Capital Building Center Capital Tennis Court Iron Belle Trail Construction Projects II Projects Maintenance Projects Construction Capital Project - $ - $ - $ 231,074 $ 1,705 $ - $ - $ - - - - - 175,700 - - - - - - 41,200 - - - - - - - - - 314 3 10,885 9,371 - 442 - 2,400 - - - 65,715 206,000 - 2,714 3 241,959 11,076 282,615 206,442 - - - - - - - - 15,593 - 38,257 - - - 4,833 - - - - 90,333 - - - - - - - 220,663 4,833 15,593 - 38,257 - 90,333 220,663 (4,833) (12,879) 3 203,702 11,076 192,282 (14,221) 20,000 - - - - - - - - - - - - - 20,000 - - - - - - 15,167 (12,879) 3 203,702 11,076 192,282 (14,221) 153,973 28,620 216 256,614 809,416 (192,351) 318,737 169,140 $ 15,741 $ 219 $ 460,316 $ 820,492 $ (69) $ 304,516 $ Continued… 104 ---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, 2018 Public Capital Improvements Trail Head Projects Capital Project Capital Project Total Revenues Property taxes - $ - $ - $ 694,898 $ State grants - - - 175,700 Local sources - - - 41,200 Charges for services - - - 39,228 Interest and rentals 114 22,643 - 74,517 Other revenue 18,192 - - 292,307 Total revenues 18,306 22,643 - 1,317,850 Expenditures Capital outlay: Public works 167,639 - - 167,639 Recreation and culture - - 50,740 147,549 Other - - - 95,166 Contribution to other governmental units - - - 220,663 Total expenditures 167,639 - 50,740 631,017 Revenues over (under) expenditures (149,333) 22,643 (50,740) 686,833 Other financing sources (uses) Transfers in 100,000 - - 120,000 Transfers out (33,553) - 33,553 (1,688,188) Total other financing sources (uses) 66,447 - 33,553 (1,568,188) Net change in fund balances (82,886) 22,643 (17,187) (881,355) Fund balances, beginning of year 707,241 1,823,295 - 5,206,494 Fund balances, end of year 624,355 $ 1,845,938 $ (17,187) $ 4,325,139 $ Concluded 105 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Net Position Nonmajor Enterprise Funds December 31, 2018 University Global Center Tax Positioning Metropolitan Foreclosure System Area Network Assets Current assets: Cash and cash equivalents 157,319 $ 79,567 $ 143,447 $ Investments 1,613,401 - - Accounts receivable 204 - 1,728 Other assets - - - Total current assets 1,770,924 79,567 145,175 Noncurrent assets: Capital assets being depreciated, net - - 61,482 Total assets 1,770,924 79,567 206,657 Liabilities (all current) Accounts payable 8,602 15,860 21,319 Accrued liabilities 923 - - Unearned revenue - - - Total liabilities 9,525 15,860 21,319 Net position Investment in capital assets - - 61,482 Unrestricted 1,761,399 63,707 123,856 Total net position 1,761,399 $ 63,707 $ 185,338 $ 106 ---PAGE BREAK--- Airport Special Advertising Jail Homestead Events I-75 Sign Commissary Audit Total 25,868 $ 2,991 $ 18,509 $ 12,288 $ 439,989 $ - - - - 1,613,401 1,000 - - - 2,932 3,025 - - - 3,025 29,893 2,991 18,509 12,288 2,059,347 - - - - 61,482 29,893 2,991 18,509 12,288 2,120,829 - - 10,325 - 56,106 - - - - 923 574 - - - 574 574 - 10,325 - 57,603 - - - - 61,482 29,319 2,991 8,184 12,288 2,001,744 29,319 $ 2,991 $ 8,184 $ 12,288 $ 2,063,226 $ 107 ---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, 2018 University Global Center Tax Positioning Metropolitan Foreclosure System Area Network Operating revenues Charges for services 136,005 $ 14,389 $ 81,403 $ Local sources - 15,000 - Total operating revenues 136,005 29,389 81,403 Operating expenses Salaries and fringes 54,643 - - Contractual services - 43,600 - Materials and supplies 2,300 22,118 - Depreciation - - 12,301 Other 55,024 - 119,468 Total operating expenses 111,967 65,718 131,769 Operating income (loss) 24,038 (36,329) (50,366) Nonoperating revenues Investment earnings 43,901 - - Other 147,551 - - Total nonoperating revenues 191,452 - - Income (loss) before transfers 215,490 (36,329) (50,366) Transfers Transfers in - 31,000 - Transfers out (18,184) - - Total transfers (18,184) 31,000 - Change in net position 197,306 (5,329) (50,366) Net position, beginning of year 1,564,093 69,036 235,704 Net position, end of year 1,761,399 $ 63,707 $ 185,338 $ 108 ---PAGE BREAK--- Airport Special Advertising Jail Homestead Events I-75 Sign Commissary Audit Total 94,850 $ - $ 30,680 $ 57 $ 357,384 $ - - - - 15,000 94,850 - 30,680 57 372,384 - - - - 54,643 118,799 - - - 162,399 21,370 - 25,754 - 71,542 - - - - 12,301 68,981 159 - 1,721 245,353 209,150 159 25,754 1,721 546,238 (114,300) (159) 4,926 (1,664) (173,854) - - - 1,088 44,989 94,262 - - - 241,813 94,262 - - 1,088 286,802 (20,038) (159) 4,926 (576) 112,948 - - - - 31,000 - - - - (18,184) - - - - 12,816 (20,038) (159) 4,926 (576) 125,764 49,357 3,150 3,258 12,864 1,937,462 29,319 $ 2,991 $ 8,184 $ 12,288 $ 2,063,226 $ 109 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Cash Flows Nonmajor Enterprise Funds For the Year Ended December 31, 2018 University Global Center Tax Positioning Metropolitan Foreclosure System Area Network Cash flows from operating activities Receipts from customers 135,801 $ 29,389 $ 86,868 $ Payments to suppliers (50,145) (51,058) (107,087) Payments to employees (54,550) - - Net cash provided by (used in) operating activities 31,106 (21,669) (20,219) Cash flows from noncapital financing activities Other receipts 147,551 - - Transfers in - 31,000 - Transfers out (18,184) - - Net cash provided by (used in) noncapital financing activities 129,367 31,000 - Cash flows from investing activities Purchase of investments (406,235) - - Interest received on investments 43,901 - - Net cash (used in) provided by investing activities (362,334) - - Net change in cash and cash equivalents (201,861) 9,331 (20,219) Cash and cash equivalents, beginning of year 359,180 70,236 163,666 Cash and cash equivalents, end of year 157,319 $ 79,567 $ 143,447 $ Reconciliation of operating income (loss) to net cash provided by (used in) operating activities Operating income (loss) 24,038 $ (36,329) $ (50,366) $ Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation expense - - 12,301 Change in operating assets and liabilities that provided (used) cash: Accounts receivable (204) - 5,465 Other assets - - - Accounts payable 7,179 14,660 12,381 Accrued liabilities 93 - - Unearned revenue - - - Net cash provided by (used in) operating activities 31,106 $ (21,669) $ (20,219) $ 110 ---PAGE BREAK--- Airport Special Advertising Jail Homestead Events I-75 Sign Commissary Audit Total 95,444 $ - $ 30,680 $ 57 $ 378,239 $ (208,550) (159) (19,285) (2,116) (438,400) - - - - (54,550) (113,106) (159) 11,395 (2,059) (114,711) 94,262 - - - 241,813 - - - - 31,000 - - - - (18,184) 94,262 - - - 254,629 - - - - (406,235) - - - 1,088 44,989 - - - 1,088 (361,246) (18,844) (159) 11,395 (971) (221,328) 44,712 3,150 7,114 13,259 661,317 25,868 $ 2,991 $ 18,509 $ 12,288 $ 439,989 $ (114,300) $ (159) $ 4,926 $ (1,664) $ (173,854) $ - - - - 12,301 20 - - - 5,281 3,241 - - - 3,241 (2,641) - 6,469 (395) 37,653 - - - - 93 574 - - - 574 (113,106) $ (159) $ 11,395 $ (2,059) $ (114,711) $ 111 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Net Position Internal Service Funds December 31, 2018 Building and Administrative Health Grounds Services Care Total Assets (all current) Cash and cash equivalents 95,444 $ 100,393 $ 149,013 $ 344,850 $ Investments - - 100,000 100,000 Accounts receivable 4,979 38 7,336 12,353 Inventories - 325 - 325 Other assets - - 99,855 99,855 Total assets 100,423 100,756 356,204 557,383 Liabilities (all current) Accounts payable 28,289 958 83 29,330 Accrued liabilities - 1,413 - 1,413 Total liabilities 28,289 2,371 83 30,743 Net position Unrestricted 72,134 98,385 356,121 526,640 Total net position 72,134 $ 98,385 $ 356,121 $ 526,640 $ 112 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenses and Changes in Fund Net Position Internal Service Funds For the Year Ended December 31, 2018 Building and Administrative Health Grounds Services Care Total Operating revenues Charges for services 456,955 $ 603,948 $ 1,192,129 $ 2,253,032 $ Operating expenses Salaries and fringes 15 547,034 1,177,035 1,724,084 Contractual services 252,934 - - 252,934 Materials and supplies 15,288 7,367 - 22,655 Equipment repair and maintenance 5,915 1,087 - 7,002 Utilities 213,763 765 - 214,528 Other 4,504 10,804 - 15,308 Total operating expenses 492,419 567,057 1,177,035 2,236,511 Operating (loss) income (35,464) 36,891 15,094 16,521 Nonoperating revenues Investment earnings - - 3,905 3,905 (Loss) income before transfers (35,464) 36,891 18,999 20,426 Transfers Transfers out - (520) - (520) Change in net position (35,464) 36,371 18,999 19,906 Net position, beginning of year 107,598 62,014 337,122 506,734 Net position, end of year 72,134 $ 98,385 $ 356,121 $ 526,640 $ 113 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Cash Flows Internal Service Funds For the Year Ended December 31, 2018 Building and Administrative Health Grounds Services Care Total Cash flows from operating activities Internal activity - receipts from other funds 456,762 $ 603,948 $ 1,191,977 $ 2,252,687 $ Payments to suppliers (417,937) (21,651) (1,186,890) (1,626,478) Payments to employees for services and benefits (15) (547,277) - (547,292) Net cash provided by operating activities 38,810 35,020 5,087 78,917 Cash flows used by noncapital financing activities Transfers out - (520) - (520) Cash flows provided by investing activities Sale of investments - - 100,000 100,000 Interest received on investments - - 3,905 3,905 Net change in cash and cash equivalents 38,810 34,500 108,992 182,302 Cash and cash equivalents, beginning of year 56,634 65,893 40,021 162,548 Cash and cash equivalents, end of year 95,444 $ 100,393 $ 149,013 $ 344,850 $ Reconciliation of operating (loss) income to net cash provided by (used in) operating activities Operating (loss) income (35,464) $ 36,891 $ 15,094 $ 16,521 $ Adjustments to reconcile operating (loss) income to net cash provided by (used in) operating activities: Change in operating assets and liabilities that (used) provided cash: Accounts receivable (193) - (152) (345) Prepaids 59,426 - (8,166) 51,260 Accounts payable 15,041 (1,628) (1,689) 11,724 Accrued liabilities - (243) - (243) Net cash provided by operating activities 38,810 $ 35,020 $ 5,087 $ 78,917 $ 114 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Fiduciary Assets and Liabilities Fiduciary Funds December 31, 2018 Michigan Library Municipal Risk General Payroll Penal Management Agency Imprest Fines Authority Total Assets Cash and cash equivalents 1,204,844 $ 274,701 $ 86,377 $ 370,100 $ 1,936,022 $ Liabilities Undistributed tax collections 848,250 $ - $ - $ - $ 848,250 $ Bonds, restitutions, and payables to others 356,594 274,701 86,377 370,100 1,087,772 Total liabilities 1,204,844 $ 274,701 $ 86,377 $ 370,100 $ 1,936,022 $ 115 ---PAGE BREAK--- INTERNAL CONTROL AND COMPLIANCE ---PAGE BREAK--- Rehmann Robson 902 South Huron Cheboygan, MI 49721 Ph: [PHONE REDACTED] Fx: [PHONE REDACTED] rehmann.com CPAs & Consultants Wealth Advisors Corporate Investigators Rehmann is an independent member of Nexia International. Gaylord, Michigan In planning and performing our audit of the financial statements, we considered the County’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the County’s internal control. Accordingly, we do not express an opinion on the effectiveness of the County’s internal control. Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards July 1, 2019 Internal Control Over Financial Reporting Honorable Members of the Board of Commissioners Otsego County We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Otsego County, Michigan (the "County"), as of and for the year ended December 31, 2018, and the related notes to the financial statements, which collectively comprise the County’s basic financial statements, and have issued our report thereon dated July 1, 2019. Our report includes a reference to other auditors who audited the financial statements of Otsego County Road Commission and Otsego County Commission on Aging discretely presented component units, as described in our report on the County’s financial statements. This report does not include the results of the other auditors’ testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. The financial statements of the Otsego County Commission on Aging were not audited in accordance with Government Auditing Standards. 116 ---PAGE BREAK--- Compliance and Other Matters Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the County’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. As part of obtaining reasonable assurance about whether the County’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Otsego County’s Response to Finding The County’s response to the finding identified in our audit is described in the accompanying schedule of findings and responses. The County’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. We did identify a certain deficiency in internal control, described in the accompanying schedule of findings, as item 2018-001 that we consider to be a material weakness. 117 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Schedule of Findings and Responses For the Year Ended December 31, 2018 Finding Type. Material Weakness in Internal Control over Financial Reporting. 2018-001 - Material Audit Adjustments (Repeat)      View of Responsible Officials. Management agrees with the adjustments proposed by its auditors, and they have been posted in the County’s records. The County will improve procedures to ensure the account balances are reviewed and reconciled on a regular basis. Recommendation. The adjustments noted above have been reviewed by management, posted to the County’s records, and are reported correctly in the audited financial statements. However, we recommend that the County strive to strengthen its financial reporting processes by enhancing its review and reconciliation procedures. Criteria. Management is responsible for maintaining its accounting records in accordance with generally accepted accounting principles (GAAP). Condition. During our audit, we identified and proposed material adjustments (which were approved and posted by management) to adjust the County’s general ledger to the appropriate balances. These adjustments affected a variety of accounts, of the primary government, which included taxes receivable, capital assets, accrued expenses, long-term debt, and pension and OPEB liabilities and the related expenses. Cause. This condition was caused by turnover in personnel and the County failing to reconcile several accounts and make necessary adjustments to those accounts. Effect. As a result of this condition, the County’s accounting records were initially misstated by amounts material to the financial statements. 118 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Summary Schedule of Prior Audit Findings For the Year Ended December 31, 2018      2017-001 - Material Audit Adjustments - Management is responsible for maintaining its accounting records in accordance with generally accepted accounting principles (GAAP). During our audit, we identified and proposed material adjustments (which were approved and posted by management) to adjust the County’s general ledger to the appropriate balances. These adjustments affected a variety of accounts of the primary government and component units which included, due from other governments, taxes receivable, capital assets and long-term debt. 119