Document Salem_doc_20726097f8

CITY OF SALEM MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2017 Kimberley L. Driscoll, Mayor Sarah A. Stanton, Finance Director Prepared by the City of Salem Finance Department ---PAGE BREAK--- On the Cover – Morning Glory Bed and Breakfast – Picture curtesy of Destination Salem Salem Garden Tour ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2017 Prepared by Finance Department ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2017 TABLE OF CONTENTS Introductory Section 1 Letter of Transmittal 3 Organizational Chart 23 Principal Executive Officers 24 Certificate of Achievement for Excellence in Financial Reporting 25 Distinguished Budget Presentation Award 26 Financial Section 27 Independent Auditor’s Report 29 Management’s Discussion and Analysis 31 Basic Financial Statements 40 Statement of net position 41 Statement of activities 42 Governmental funds – balance sheet 44 Reconciliation of the governmental funds balance sheet total fund balances to the statement of net position 45 Governmental funds – statement of revenues, expenditures and changes in fund balances 46 Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of activities 47 Proprietary funds – statement of net position 48 Proprietary funds – statement of revenues, expenses and changes in net position 49 Proprietary funds – statement of cash flows 50 Fiduciary funds – statement of fiduciary net position 51 Fiduciary funds – statement of changes in fiduciary net position 52 Notes to basic financial statements 53 Required Supplementary Information 96 General fund budgetary comparison schedule 97 General fund schedule of revenues, expenditures and changes in fund balance – budget and actual 99 Pension Plan Schedules – Retirement System 104 Schedule of changes in the net pension liability and related ratios 105 Schedule of City’s contributions 106 Schedule of investment returns 107 Pension Plan Schedules – City 108 ---PAGE BREAK--- Schedule of the City’s proportionate share of the net pension liability 109 Schedule of City contributions 110 Schedule of the special funding amounts of the net pension liability 111 Other postemployment benefit plan schedules 112 Schedule of City’s net OPEB liability and related ratios 113 Schedule of City contributions 114 Schedule of investment returns 115 Schedule of funding progress and employer contributions 116 Actuarial methods and assumptions 117 Notes to required supplementary information 118 Combining and Individual Fund Statements 123 Nonmajor governmental funds 124 Nonmajor governmental funds – combining balance sheet 125 Nonmajor governmental funds – combining statement of revenues, expenditures, and changes in fund balances 128 Private purpose trust funds 131 Private purpose trust funds – combining statement of net position 132 Private purpose trust funds – combining statement of changes in net position 133 Agency fund 134 Agency fund – statement of changes in assets and liabilities 135 Statistical Section 137 Net position by component – last ten years 138 Changes in net position – last ten years 139 Fund balances, governmental funds – last ten years 140 Changes in fund balances, governmental funds – last ten years 141 Assessed value and actual value of taxable property by classification and tax rates – last ten years 142 Principal taxpayers – current year and nine years ago 143 Property tax levies and collections – last ten years 144 Ratios of outstanding debt by type – last ten years 145 Ratios of general bonded debt outstanding – last ten years 146 Direct and overlapping governmental activities debt – as of June 30, 2017 147 Computation of legal debt margin – last ten years 148 Demographic and economic statistics – last ten years 149 Principal employers (excluding City) – current year and nine years 150 Full-time equivalent City employees by function – last ten years 151 Operating indicators by function/program – last ten years 152 Capital asset statistics by function/program – last ten years 153 Free cash and stabilization fund balances – last ten years 154 ---PAGE BREAK--- Introductory Section Salem Willows Park The Salem Willows offers beautiful shaded seaside grounds, scenic ocean views, public pier, and band stand for concerts, picnic areas, beaches, children’s rides, activities and many eateries. One of Salem’s treasurers, this park has a fascinating history. Salem Willows is renowned for the European white willow trees planted here in 1801 to form a shaded walk for patients convalescing at the old smallpox hospital. Later the area became a park. During the first half of the 20th century, Restaurant Row on the park's north shore served fresh seafood favored by locals and visitors alike. A carousel with carved flying horses was another special attraction at Salem Willows, which then, as now, operated as an entertainment center. Visitors still flock here during the summer to enjoy the sunshine, the arcade and the park's ample picnic grounds and recreational facilities. Salem Art Scenes ---PAGE BREAK--- City of Salem, Massachusetts 1 Comprehensive Annual Financial Report Introductory Section ---PAGE BREAK--- City of Salem, Massachusetts 2 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 3 City of Salem, Massachusetts Finance Department 93 Washington Street Salem, MA 01970 Ph. [PHONE REDACTED] Ext 5625 Fax [PHONE REDACTED] [EMAIL REDACTED] December 21, 2017 Letter of Transmittal Sarah A. Stanton, Finance Director To the Honorable Mayor, Members of the City Council and Citizens of the City of Salem, Massachusetts: At the close of each fiscal year, state law requires the City of Salem to publish a complete set of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) that are audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the Comprehensive Annual Financial Report (CAFR) of the City of Salem, Massachusetts, for the fiscal year ending June 30, 2017, for your review. This report consists of management’s representations concerning the finances of the City. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City’s financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements for the fiscal year ended June 30, 2017, are fairly presented in conformity with GAAP. The City of Salem’s financial statements have been audited by Powers & Sullivan, LLC, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2017, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City’s financial statements for the fiscal year ended June 30, 2017, are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report. The independent audit of the financial statements of the City was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 4 special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City of Salem’s separately issued Single Audit Report. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement that analysis and should be read in conjunction with it. The City’s MD&A can be found immediately following the report of the independent auditors. Profile of the City The City of Salem, which was incorporated as a town in 1630 and became a city on March 23, 1836, is situated on the Massachusetts coast, 16 miles northeast of Boston. The City has a population of 41,340 and occupies a land area of approximately 8 square miles. The second city in the Commonwealth to be incorporated, it is the Shire City of Essex County. Salem has operated under the Plan B form of government, with a mayor and an eleven-person City Council, seven elected from wards, and four at-large, since 1915. The Mayor is elected for four years in November of unevenly-numbered years. The Mayor is the administrative head of the City and chairman ex-officio of the School Committee, the Board of Library Trustees, and the Board of Trust Fund Commissioners. The Mayor acts with the City Council and School Committee to carry out City business. The Mayor appoints her office staff, the City Solicitor, and the Assistant City Solicitor without City Council confirmation. The appointments of most City department heads, and members of the various boards and commissions, however, require City Council confirmation. The Mayor has the right to veto any order, resolution, or ordinance passed by the Council. However, a veto may be overturned by a two-thirds vote of all councilors. After reviewing and revising estimates prepared by department heads, the Mayor submits the budget to the City Council for final action. The Mayor approves all municipal payrolls, vouchers, contracts and instruments; and recommends bond issues, legislations and orders to the City Council; and represents the City with other levels of government. As the general administrator of all City departments, the Mayor is consulted by department heads pertaining to the City’s welfare. The City Council is primarily the legislative branch of the City government. As the legislative body, the Council confirms appointments made by the Mayor and appropriates all monies necessary to City operation. It can approve, disapprove, or reduce the amount of appropriations, but not add to the appropriation. The Council receives orders of recommendation by the Mayor and petitions from the public, and acts on them after committee study. The City Council also has the power to enact the Ordinances and other regulations. A majority of the City Council constitutes a quorum, and the affirmative vote of a majority of all the members of the Council is necessary for the adoption of any motion resolution, or ordinance. In some instances, adoption by a two-thirds vote of the members is required by statute. The City provides general governmental services for the territory within its boundaries, including police and fire protection, disposal of garbage and rubbish (for residential properties); public education, including vocational- technical education at the high school level; street maintenance; certain water services, through the Salem and Beverly Water Supply Board; certain sewerage disposal services, through the South Essex Sewerage District; and parks and recreational facilities. Approximately 95% of the City is connected to the sewerage system; the entire area of the City is served by the municipal water system. Both the Salem and Beverly Water Supply Board and the South Essex Sewerage District qualify as joint ventures. Accordingly, the City’s equity interest in both entities has been included in the City’s basic financial statements. The Salem Housing Authority is responsible for managing 1,922 units of low income housing for the City. Buildings are either owned by the Authority, or are part of the Section 8 Housing Choice Voucher Program. Of the 1,922 units, 715 are public housing, 211 are designated for families, and 465 are for elderly housing.” These units are owned and operated by the Authority. The Salem Housing Authority does not meet the criteria to be considered a component unit of the City. The ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 5 principal highways serving the City are state Routes 1A, 107, and 114, all of which provide immediate access to Routes 1 and 128 and other major highways serving the greater Boston area. The City is a member municipality of the Massachusetts Bay Commuter Railroad, which provides passenger and freight service. Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without recommendation of the Mayor, the City Council may not increase any item or make an appropriation for a purpose not included in the proposed budget (except by a two-thirds vote in case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the City Council, pursuant to state statute). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. The amount raised on the tax recapitulation sheet approved by the Department of Revenue for fiscal year 2017 totaled approximately $155 million, which includes Real & Personal Property tax revenue, State Revenues, MSBA Revenue, local revenues, transfers in of approximately $1,140,000 from Receipts Reserved Harbormaster, Witch House and Golf Course (to reduce tax rate), other receipts reserved transfers, and approximately $1.32 million of indirect costs from the Water & Sewer Enterprise funds. These revenues cover general fund budgeted expenses and deficits raised including snow and ice, school lunch, health insurance trust, and to fund the Retirement Anticipation Fund and Capital Improvement Projects Fund. These also include enterprise fund expenses. The City includes the Salem Contributory Retirement System (the System) in its financial reporting since the City represents approximately 85% of the members of the System. The System was established to provide retirement benefits to its members, including employees and beneficiaries of the City of Salem, the Salem-Beverly Water Supply Board, the Salem Housing Authority, the South Essex Sewerage District, and the Essex Technical High School. Per the Pension Reserves Investment Management Board July 2016 report, the market value of the System’s assets totaled $139 million with 98% of the funds invested in the State’s Pension Reserve Investment Trust’s (PRIT) Core Fund. Factors Affecting Economic Condition The City of Salem is a historic waterfront community that has a rich cultural heritage, known worldwide for its architecture, maritime history, literary prominence, and hysteria. For this reason, tourism is one of the City’s major industries, accommodating almost one million visitors each year. Salem originated as one of the earliest landing sites of the English colonists, and went on to rise as the first major port in the United States, opening up the East Indian trade. In its heyday, Salem was known as a thriving hub of American commerce and was the home of Nathaniel Hawthorne. Salem is well known for the infamous Salem Trials of 1692, when nineteen people were convicted for the crime of and were put to their deaths. The City's golden years have left her modern inhabitants with architectural treasures, fine museums, and a sparkling literary heritage. Equally important, the development of Salem has produced a rich ethnic history, to which people of all races, creeds, colors and origins have contributed over the generations. Long a trading, manufacturing and retail center, Salem has been making a slow, and sometimes painful, transition to a service- based economy. The City today serves as the home of Salem State University, the North Shore Medical Center, the Essex County District Superior and Probate Courts, and Registry of Deeds, the world-famous Peabody Essex Museum, and a host of banks and other financial institutions. It is the educational, medical, legal, cultural and banking hub of the North Shore. Salem also boasts an impressive collection of historically significant residential structures that are always in high demand. The uniqueness of these historic homes, coupled with a growing downtown condominium market, has helped boost home sales prices in Salem. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 6 Private and Public Development-FY15-Today The City has numerous facilities of continuing cultural and/or historical significance: Peabody-Essex Museum: In 2003, the Peabody Essex Museum (“PEM”) undertook the largest museum addition in America. The $125 million expansion allows them to showcase their extensive collection of Oceanic and Asiatic art for the first time. The PEM houses a broad spectrum of artifacts representing centuries of Essex County life and industry, as well as treasures from across the world brought to the region by early navigators. The PEM consists of a downtown campus, four National Historic landmarks and several properties on the National Register of Historic Places, as well as the Yin Yu Tang, the only complete Qing Dynasty house outside China. The PEM enjoys an attendance of approximately 250,000 visitors per year. See the section on Economic Development for overview of PEM’s expansion project. The Salem Maritime National Historic Site and Derby Wharf Lighthouse: This 9.2 acre site, operated by the National Park Service, (“NPS”) is comprised of several buildings, including the original Customs House, as well as several wharves and homes. The NPS has restored the wharves and buildings. The Friendship, a full size replica of one of Salem's historic trading ships is berthed at the site. This $6 million project was 75 percent federally- funded and has become a major cultural attraction and educational tool. The National Park Service has recently relocated the historic Pedrick’s Warehouse from Marblehead to Derby Wharf and installed a pile supported dock adjacent to the building in order to facilitate interpretive display of historic maritime functions. The House of the Seven Gables: The House of the Seven Gables was made famous by Nathaniel Hawthorne's novel of the same name. The site is a complex of the actual house occupied by Hawthorne and several adjacent historic structures. The House of Seven Gables received the prestigious designation of "Museum" status in 2008 and has been designated a National Historic Landmark District. Salem Witch Museum: The Salem Witch Museum commemorates the famous witch trials that occurred in 1692 through an audio visual presentation. Life-size stage settings, lighting and historically accurate narration recreate the afflicted girls, the trials and the executions of the Salem Witch Trials. The Witch House: The Witch House was the home of one of the famous Witch Trial judges, Jonathan Corwin. The Witch House is operated by the City of Salem and is an excellent example of 17th century architecture. The site recently received interior and exterior improvements for handicapped accessibility and historic preservation. Witch Dungeon Museum: The Witch Dungeon Museum provides a live re-enactment of the Witch Trials for visitors to the City. The presentation is adapted from the 1692 transcripts and re-enacted by professional actors. The First Church: The First Church, located on Essex Street, was founded in 1629 and is one of the oldest, continuing Protestant congregations in North America and the first to be governed by congregational polity, a central feature of Unitarian Universalism. Chestnut Street: Chestnut Street is a National Historic Landmark consisting of a group of homes of notable architectural significance. The homes are primarily old mansions built by Salem's successful sea captains during the early 19th century. Pickering House: The Pickering House is the oldest house in America to be continuously occupied by the same family. Pioneer Village: Pioneer Village, situated in Forest River Park, is a living-history Museum that depicts life in Salem in 1630. Guides in historical costumes show visitors how early Puritans lived. The site contains a thatched cottage, historic gardens, wigwams, and animals. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 7 The Old Burying Point: Located on Charter Street, this is the oldest burying ground in Salem. The site contains the graves of a Mayflower passenger and trial judge John Hawthorne, and is adjacent to the Salem Witch Trial Memorial. In 2016, the City completed the restoration of several headstones and tombstones developed a landscape plan for the site’s restoration. Winter Island Park: Operated by the City of Salem, Winter Island is a former U. S. Coast Guard Air and Sea Rescue Station located on Salem Harbor. The site is a seasonal recreation site with RV and tent spaces. The site also has a beach, boat launch, wind surfing, scuba diving, picnic areas and a snack bar. Historic Fort Pickering and Fort Pickering Light are located within the site. Winter Island is now the home of “Sail Salem”, a community sailing program that provides free sailing lessons to Salem children. Salem Wax Museum of Witches and Seafarers: The Wax Museum, opened in July of 1993, features a multi- media presentation and realistic wax figures depicting pirate and witch stories of Salem's past. The Wax Museum also offers hands-on children's activities. Salem Witch Trials Memorial: The Salem Witch Trials Memorial was dedicated on August 5, 1992 to commemorate the 300th anniversary of the now famous Salem Witch Trials of 1692. The memorial is located adjacent to the Charter Street Burial Ground. The 20-year old Memorial has now been restored with a rededication ceremony on September 9, 2012. Heritage Trail: The many cultural and historic facilities in Salem are connected by the Heritage Trail. Known locally as the “Red Line”, it leads to world-renowned museums and historic homes, as well as to restaurants offering simple fare to gourmet meals, full service hotels, inns and bed and breakfasts. Salem Common: Salem Common has been public land since Salem's early days. Its eight acres were originally a swampy area, with several ponds and small hills. Salem's military heritage begins in 1636, when the first muster occurred on Salem Common. Today, the National Guard traces its roots to that first muster. Needing a place for regular military drills, it was voted in 1714 by the commoners to be "forever kept as a training field for the use of Salem". In 2016, the City completed Phase III of the historic fence’s restoration. Baker’s Island Lighthouse: The tower is located on the north end of the island. The lighthouse was automated in 1972. The island is closed to the general public and is best seen by boat. Fort Lee: This American Revolution fort was built in 1776 and was added to the National Register of Historic Places in 1994. The Phillips House: The Phillips House is the only home on historic Chestnut Street open to the public, and it provides a glimpse into the private world of the Phillips family during the early decades of the twentieth century. Ye Olde Pepper Candy Companie: This is America’s Oldest Candy Company, dating back to 1806, when an English woman, Mrs. Spencer, was shipwrecked and landed in Salem. Mrs. Spencer was assisted financially by residents, and what resulted was the first candy made and sold commercially in America and carried around the world by sea captains and their crew. The tourist attractions described above are included to illustrate the continuously growing tourist economy. These attractions provide jobs and tax revenue for the City of Salem. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 8 Public and Non-Profit Development Projects Salem experienced new growth of approximately $350 million in new development since 2003. This includes: • The J. Michael Ruane Judicial Center opened at the end of 2011. This $106 million court expansion in downtown Salem continues to have a significant positive economic impact on the downtown and the City. • MBTA Station Improvements and New Garage: The new MBTA garage opened October 2014. The $37 million MBTA commuter rail station and parking garage provides an enhanced station and approximately 700 parking spaces for commuters, residents, and visitors. • Remond Park: Improvements to the old bridge abutment on Bridge Street Neck have been funded by the State to create a new park. Construction is complete. • The Peabody Essex Museum is planning a 40,000 gross square feet expansion. It will include three floors of state-of-the-art galleries, a secondary entrance to the museum and a full basement for mechanical and electrical equipment. Construction began in 2017. • St. Joseph’s Church Redevelopment: Located on the site of the former St. Joseph’s Church that was closed in 2004, this affordable housing development is a key revitalization project for the Point Neighborhood and will provide much-needed housing for the City. Phase 1 of the project is complete and includes a new building with 51 affordable housing units, commercial space, and a community room. In addition, in 2017 the North Shore Medical Center began redevelopment of a portion of their existing hospital campus in order to better serve the surrounding community by consolidating existing uses, improving access and circulation around the hospital, and constructing a new state-of-the-art emergency services department. As proposed, the Project consists of 119,735 square feet of new building space, 119,734 square feet of interior renovations, parking and driveway reconfigurations, landscape and hardscape improvements, and utility infrastructure modifications to support this use. Downtown Redevelopment A number of vacant and underutilized properties have been redeveloped into mixed-use residential/commercial buildings. The downtown alone has seen over $40 million in private investment from projects such as the Laundry Building, The Distillery, Old Police Station Redevelopment, Bluestone Alley, 10 Federal Street, the Salem News Building, Latitudes in the old Tompkins Furniture Building and the Old Salem Jail. New projects continue to be proposed and permitted, as described below. 90 Washington Street: The three-story building will be redeveloped as office space with ground floor retail. The City of Salem has entered into a 20-year lease for the office space to accommodate personnel currently located in other leased premises. Construction began in spring 2017 and is expected to be completed in spring 2018. District Court Redevelopment: The District Court building will be transferred to the Salem Redevelopment Authority (SRA) in accordance with recent legislation passed by the Legislature for the purpose of redevelopment. The SRA solicited development proposals through a RFP process in 2015 and selected Diamond Sinacori as the designated developer. The SRA and Diamond Sinacori executed a Land Disposition Agreement in January 2017, and the project is in the permitting process. Washington and Dodge Street Redevelopment: This 160,000-square foot, $50 million project includes a mixed- use development with 64 residential units, proposed hotel with approximately 100 rooms, commercial space, 212 parking spaces, associated landscaping, and pedestrian and transportation improvements. Construction begins in fall 2016. When completed, this project will dramatically increase the footprint of Salem’s downtown. The City ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 9 was awarded a state grant in the amount of $3.36 million for infrastructure improvements to support this proposed project The Merchant: A new Lark Properties hotel opened in 2016 in the historic Joshua Ward House in downtown Salem. The Hotel Salem: A 44-room boutique hotel is planned for the Newmark Building located on the Essex Street Pedestrian Mall. The project has received approval from the Salem Redevelopment Authority. It will include loft style and micro rooms, a basement lounge with bowling alley, roof deck restaurant, and high-end fixtures and furnishings. It will be a catalyst for further economic development activity on the pedestrian mall. Old Salem Jail Complex Redevelopment: The first phase was completed in 2010, which includes 23 housing units, a restaurant, and a jail exhibit. Phase 2 includes an additional 13 housing units in a new building for a total project cost of approximately $11 million. Phase 2 began construction in summer 2016. Salem News Building: This major redevelopment project in Salem’s downtown includes the renovation of two buildings and construction of a new building at 155 Washington Street, 26 New Derby and 31 Front Street. The project retains approximately 6,000 square feet of existing retail use and adds an additional 7,500 square feet of new retail, and includes the construction of 31 new residential units. Construction is complete, and Tavern in the Square restaurant opened in June 2009. 275-281 Essex Street: The development includes the conversion of the four-story, 30,000 square foot former C.F Tompkins Furniture Building into a mixed-use retail/residential development with 3 retail units on the ground floor and 20 residential condos on the upper floors. Old Police Station Redevelopment: In March 2004, the SRA transferred ownership of the Old Police Station to Heritage Plaza Enterprises and construction was completed in the fall of 2006. All of the units were under agreement months before the project was due to be completed. The $3 million project includes 14 residential condominium units with parking on-site. Derby Lofts (former Laundry Building): The Derby Lofts project includes the renovation of the 100 year old, four- story industrial building, known as the Laundry Building, into a mixed-use residential and retail development. The project consists of 14,000 square feet of first floor retail and 54 luxury residential units on the upper floors. The project cost approximately $14 million and was completed in 2006. 10 Federal Street: The owners of 10 Federal Street constructed three-stories of additional office space on top of their existing two-story downtown office building. The additional space allowed the District Attorney’s Office to relocate to the space and remain in downtown Salem. The construction began in 2005 and is complete. The project cost was approximately $10 million. Bluestone Alley: The Blue Stone Alley project at 7 Crombie Street redeveloped the former Salem Mission into 17 artist live/work condominium spaces. The redevelopment was a “gentle renovation” of the building that integrated many of the historic characteristics of the building. Construction was completed in 2006. The project cost was approximately $3.3 million. Old Town Hall: The City manages this building and programs both non-profit and private events, such as musical performances and weddings, in this historic space. The City received a $20,000 Cultural Facilities grant from the state, which was matched with local CPA and C.I.P. funds for window restoration and repair. The restoration work was completed in early 2016. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 10 North River Canal Corridor Redevelopment A second area undergoing transformation is the North River Canal Corridor, known as Blubber Hollow, adjacent to downtown. Formerly the region’s whaling and then tannery center, the neighborhood has more than $70 million in pending development. Guided by a community-based plan, the City changed the zoning to encourage development. The pending private investments will transform the largely vacant and contaminated sites into a vibrant mix of residences, offices, and retail uses. Specific projects are: 9 South Mason Street: The project involves redevelopment of industrial and residential land located between Mason Street and Commercial Street in the North River Canal Corridor district. The plans total 4 buildings and 29 dwelling units, including the rehabilitation and expansion of an existing two-story concrete industrial building; expansion of a three-story residential building; and construction of two new townhouse style buildings. The project was permitted in 2016. 28 Goodhue Street: Now known as North River Apartments, this mixed-use project on the site of a former factory was completed in 2014. The development includes 44 residential condominiums, 6,000 square feet of commercial retail space and on-site parking. Construction is complete and the building is occupied. Riverview Place: Located on the former Salem Suede site, Riverview Place consists of the demolition of the old tannery and construction of 130 residential rental units and 5,540 square feet of commercial space. Local approvals are secured. Gateway Center: Local permitting was completed in August 2016 for the development of a 3.48-acre parcel located at the corner of Bridge Street and Boston Street to include a mixed-use building with a commercial/retail and 117 housing units and a free-standing building that will house the City’s Community Life Center. Construction of the Community Life Center will begin in the summer of 2017. Grove Street Apartments (formerly known as Legacy Apartments): This project consists of 129 residential apartments and re-use of an existing 17,000 square foot commercial office building. It was approved by the Planning Board in 2012 and amended in 2015 to meet MEPA requirements. In July 2015, the project received a MEPA certificate and Superseding Order of Condition. Environmental remediation and demolition of some on-site structures was completed. Tan Site (70-92 ½ Boston Street): The Planning Board approved a new medical office building with 40,000 square feet in 2014; however, the project has not moved forward. In September 2016, the Planning Board approved a mixed-use development containing 50 housing units and a retail space. The Tan property is a 1.98-acre site containing vacant industrial buildings and land along Boston Street, a major entrance corridor into Salem and within the new North River Canal Corridor (NRCC) Neighborhood Mixed Use District. Waterfront Development Key changes also are rapidly occurring along Salem’s shoreline, creating rare waterfront development opportunities. 289 Derby Street: In 2016, the City Council approved a $1.4 million bond order to acquire property located at 289 Derby St. for the purpose of constructing a downtown waterfront park. Design is underway during summer 2017. Salem Harbor Power Station/Footprint Power: Demolition of the coal plant is complete and construction of the new natural gas facility is underway. A new state-of-the-art, 630-megawatt gas-fired plant is being constructed and is scheduled to be completed in December 2017. The new plant will be developed on one-third of the site, ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 11 opening up the remaining two-thirds of the 63-acre waterfront property to re-development opportunities. The new plant will be operational in 2017. Port of Salem Expansion (Salem Wharf): This $20 million project calls for construction of a multi-purpose commercial wharf facility with supporting utilities and amenities for cruise ships, commercial fishing, transient, and charter vessels. A terminal building, harbor walk, dredging, and landside improvements are part of the project. During the project’s first phase undertaken in 2011, the City completed utility installation, seawall construction, base paving and installation of an interim ferry terminal. In 2012 and 2013 a combination of state and federal Ferry Boat Discretionary (FBD) Funds enabled the City to construct the second phase of the project, which consisted of the first 260 feet of pier, wave fence and a portion of the seawall, install a gangway and ramp system, install utilities and begin dredging. The City has completed Phase 3 which includes final paving, landscaping, lighting and construction of the harbor walk. In addition, the City has made improvements to the adjoining deep-water dock owned by Footprint Power, and constructed a connecting walkway between Footprint’s dock and the City’s Blaney Street pier. Since construction of the cruise port, Salem has received visits from a number of cruise ships. At present, Footprint is utilizing the pier for construction purposes and this limits the number of cruise ships visits. Once the plant is completed, the Port of Salem will be able to host a full schedule of ship visits. This past year, the City completed dredging and construction of an 11-slip Commercial Marina at Blaney St. The Marina began operating this past summer and is home to 7 marine businesses. Construction of the Salem Wharf is close to completion. It implements an important recommendation and goal of the City’s Municipal Harbor Plan by creating a multi-use commercial wharf facility with deep water access for ocean-going vessels. As a result of its construction, the Port of Salem is now a full service commercial and industrial port. South River Dredge: The maintenance dredging for the South River Channel was last performed by the US Army Corps of Engineers (USACE) in 1967. In Feb 2008, the USACE dredged the Federal Navigation Channel into Salem Harbor, the Federal Anchorage Basin off Derby Wharf, and the approach to the South River Channel but stopped short of the South River Channel because contaminated sediment that exceed the state levels for open ocean disposal were encountered. Since then, the City obtained $155,000 from the Governor’s Seaport Advisory Council for sediment testing, bathometric survey work, cost analysis for dredge disposal options, and preliminary design and engineering of the dredge footprint for the South River Channel and the South River Basin (area west of the Congress Street Bridge). In 2012, the City received an additional $275,000 from the Seaport Council to finish the design, engineering and permitting stage of the dredge project. The City’s consultant, Apex, has prepared a Draft Environmental Impact Report and Notice of Intent. Upon the Army Corps of Engineers’ final determination of the suitability of the CAD cell material for offshore disposal, the City will submit both documents to the appropriate regulatory agencies. Once completed, the dredging will provide direct access to downtown Salem for deeper drafting vessels, transient boats, and dingy boats, which will encourage increased boating activity and support economic development. Salem Ferry: The Salem to Boston Ferry, currently in its eleventh successful season, is an alternative transportation option connecting two great cities. Named the Nathaniel Bowditch after the founder of modern maritime navigation and Salem’s native son, the ferry is a high-speed catamaran that carries 149 passengers, is entirely ADA accessible and makes the trip from Salem to Boston – where it docks at Long Wharf – in less than 45 minutes. The City of Salem and the Massachusetts Bay Transportation Association (MBTA) have an agreement which allows commuters to purchase a pass that can be used both on the Ferry commuter runs and on the commuter train, strengthening the Ferry’s viability as a transportation choice for daily commuters. The City of Salem is one of only a few municipalities to own a ferry vessel, which it purchased with a grant from the Massachusetts Executive Office of Transportation. South River Harborwalk: The City secured $1,336,000 from the Governor’s Seaport Advisory Council for construction of the South River Harborwalk. The City has contributed $267,200 of Community Development Block Grant (CDBG) for its required 20% match, totaling $1.6 million. On July 15, 2010 the South River ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 12 Harborwalk was completed and unveiled to the public. The Harborwalk is a fully accessible public walkway with pedestrian amenities such as benches, lighting and landscaping along the southern and western banks of the South River Basin. Port Security Grants (Installation of Wireless Surveillance Cameras/Infrastructure): The Governor’s Seaport Advisory Council submitted and obtained a Port Security Grant from the US Homeland Security Department on behalf of the Ports of Salem and Gloucester for $518,320 to begin implementing security features within each Port to address federal mandates. With the help of the Salem Police Department, the City installed fourteen wireless surveillance cameras around critical waterfront infrastructure in August 2010. The City will continue to work to comply with federal Homeland Security mandates as the Port of Salem continues to grow. McCabe Marina: The City received a $500,000 grant from the State Public Access Board to reconstruct the public boat launch at McCabe Marine. Construction was completed in July 2010. Public Infrastructure Projects Canal Street Improvements: The improvements include reconstruction of the roadway pavement, curbing and sidewalks. Wheelchair ramps and appropriate pedestrian crossings will be added to improve pedestrian safety. Additional pedestrian improvement such as street trees and curb extensions will be incorporated. Drainage and other utility improvement will be made, the road crown will be adjusted to provide a consistent cross slope, and repair of settled locations will be done. Boston and Bridge Public Infrastructure Improvements: The City received a $3.5 million in FY2016 through the State MassWorks Program to fund “Complete Streets” streetscape improvements along Bridge Street, between Boston and Flint Street. Construction is slated to begin in summer of 2017. Grove Street Improvements: The City received a $1,250,000 grant for improvement to Grove Street to support the proposed housing and mixed use developments in the North River Canal Corridor. The project is complete. Washington and Dodge Street Public Infrastructure Improvements: The City received a $2.5 million grant through the State MassWorks program to fund infrastructure improvements associated with the proposed 160,000 square foot mixed-use development on Washington and Dodge Streets. Due to increased construction costs, the City was awarded an additional $825,000 for this project. Construction will be completed in the first half of 2017. Improvement of the Essex Street Pedestrian Mall: The City invested in the redesign and improvement of the pedestrian mall in the heart of downtown. Phase 2 improvements to make the mall more pedestrian friendly and to improve the aesthetics were completed in fall, 2013. Phase 3, which includes the renovation of the fountain at Washington Street, was completed in October 2014. 1A Bridge Street Improvement Project: The major reconstruction of 1A Bridge Street is complete, including roadway reconstruction, new sidewalks and crosswalks, landscaping and period lights. Lafayette Street Improvements: Funded through a Public Works Economic Development (PWED) grant, construction was completed in the fall of 2012. Improvements include the installation of traffic signals at the Harbor/Lafayette Street intersection and the Lafayette/Washington Street intersection, new sidewalks, new crosswalks and curbing, period lights, new bus shelters and new benches along Lafayette Street. The $1 million grant was matched with approximately $200,000 in CDBG funding. Salem/Beverly Transportation Project/Bridge Street Bypass Road: The Salem-Beverly Transportation Project is a multi-phase roadway project that provides improved vehicular access between Salem and Beverly. The Bridge ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 13 Street Bypass Road, a component of this project, was completed in 2008, reducing congestion and providing a multi-use pathway for pedestrians and bicyclists. North Street Improvement Project: Reconstruction of North Street, including roadway, sidewalk, signalization and period lighting was completed. Derby/Congress Traffic Lights: This intersection was redesigned to increase pedestrian safety. Installation of traffic lights for pedestrian and vehicle safety and traffic circulation was completed. Congress/Peabody/Ward Street Intersection: Reconstruction of the intersection was completed in November 2009. The work included the reconfiguration of the entire intersection to provide a more organized roadway for both vehicular and pedestrian safety. The reconfiguration of the intersection was facilitated by the demolition and remediation of the former 61 Ward Street property. These changes have minimized the crossing distance for pedestrians and greatly improved the traffic movement for vehicles entering and exiting the intersection. Pedestrian improvements include striped crosswalks, handicap ramps, and a pocket park that was created as a result of the reconfiguration. The pocket park consists of concrete and stone paver walkways, landscaping beds, trees, and seating areas. Residential Development Clark Avenue Cluster Subdivision: The proposed plan for a 26-lot residential subdivision is fully permitted. Osborne Hills Subdivision (Strongwater Crossing): Currently under construction, Strongwater Crossing Subdivision is a cluster development project that includes the construction of 131 single-family homes on approximately 162 acres of land. Approximately 93 acres of the project will be permanently protected open space. The project represents one of the largest subdivisions built in Salem in recent history. Due to its size, this subdivision is being completed in phases. There is no scheduled date for completion. Witch Hill: The construction of 23 single family homes along the extension of an existing roadway is underway. There is no scheduled date for completion. Eaton Place/Former Elks Lodge (17 North Street): With Planning Board Site Plan Approval in December 2009 to add a third and fourth floor, the former assembly hall’s conversion into six residential condominiums was completed with special care to restore the structure’s historic appearance. 50 Palmer Street: This project by the Salem Harbor Community Development Corporation (CDC) included the demolition of the existing structure and the construction of a new three-story residential structure with a footprint of 7,300 square feet. The new structure is complete and consists of 15 units of affordable rental housing for low and moderate income households. This project was funded using a partnership of private and public sources, including funds from the City. Commercial Development Salem enjoys a mix of businesses and markets. Markets for Salem businesses include the local population, the large tourist trade of over 1 million visitors, Salem State University, the North Shore Medical Center, and the J. Michael Ruane Judicial Center. Salem State University with its 10,000 students and large employment base generated over $104 million for the City of Salem in direct and indirect spending, which is derived directly from employee salaries and benefits, purchased goods and services, and student spending. The North Shore Medical Center will be expanding its facilities in Salem, and the Probate Court is currently under construction and when complete will represent the completion of the J. Michael Ruane Judicial Center. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 14 Large commercial and industrial development, prominent in the Highland Avenue, Swampscott Road and Vinnin Square areas, is strong. Salem’s industrial park on Technology Way houses large companies such as Salem Glass and Thermal Circuits. On Swampscott Road, a 170,000 square foot vacant building was converted to commercial condominiums and is now home to 9 businesses relocating or expanding in Salem. A number of significant national retailers such as Staples, WalMart, Home Depot, Target, Pep Boys and Petsmart are located in these areas. The City also is home to Shetland Park, a 900,000 square foot business park abutting downtown, which houses more than 70 businesses. Lafayette Street and West Avenue: The project includes the construction of a three-story 24,388 square foot mixed use commercial building with retail on the first floor and offices on the upper floors. An existing two-family home on the site will remain in its current use. U.S. Biological completed the construction of a new $3 million, 50,000 square foot headquarters building on Technology Way with the plan to have 28 new jobs within five years. Endicott School (110 Boston Street): The former Endicott School sits on a .53-acre lot along Boston Street, a major entrance-corridor into Salem with direct access to Route 128. After a competitive RFP process, the property was sold for $350,000 to a nonprofit organization, Children’s Friend, who relocated their office from another location in Salem. The City also negotiated a PILOT Agreement with the agency. Leggs Hill Road YMCA: The project was approved by the Planning Board in 2007; construction of the 88,000 square foot YMCA facility is complete. 319 Highland Avenue: Highland Avenue is the major commercial corridor in Salem with a mix of shopping and dining options. However, this area had long lacked a gas service station. 319 Highland Avenue is the site of the former Moose Lodge. Construction of an Irving Gas Station with a Blue Canoe Convenience Store, North Shore Bank, and a Subway Restaurant was completed in 2007. In coordination with this project, Mass Highway undertook improvements to the Highland Avenue and Swampscott Road Intersection, which included a right turn lane and cueing of the lights. Now MassDOT is undertaking a study for transportation improvements for this corridor in coordination with the Cities of Salem and Lynn. Other City Initiatives LED Streetlight Conversion: In 2016, the City completed the conversion of 3,000 overhead streetlights to LED fixtures. This project will result in $194,000 annual cost savings and 1.2 million kilowatt hours in annual energy savings. Urban Forestry: A tree committee was formed to renew Salem’s dedication to its urban forestry. A pilot neighborhood tree inventory was completed in 2016, and the City received a DCR Urban Forestry Challenge Grant to fund a citywide tree inventory, management plan, and cost estimates for implementation of the management plan in 2017. Working Cities Challenge: The City successfully implemented a $100,000 grant from the Boston Federal Reserve Bank to improve the quality of life through economic development initiatives in the Point neighborhood. A second grant to further this initiative has been recently awarded. EPA Brownfields grant: The City with the City of Peabody received a $950,000 federal grant to be utilized for a revolving loan fund to clean up contaminated sites. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 15 Universal Steel site: This brownfields site was taken by the City for tax title in 2012. Through a coordinated effort with EPA, DEP, and MassDevelopment, the site has been remediated and paved and was used for temporary parking during the construction of the MBTA garage. The City solicited proposals for redevelopment in order to put the site back on the tax rolls and received a proposal from the adjacent commercial business, F.W. Webb Company, to build a new warehouse and commercial showroom. North Street Fire Station: The City was awarded a $65,000 Massachusetts Historical Commission MPPF grant in June, 2013 for exterior repairs and restoration to the North Street Fire Station, which are substantially complete. Public Art: Over the past four years, the City has been working to increase the amount and quality of public art. Partly in response to public demand, this initiative is being pursued to support the City’s identity as an arts and cultural destination. The physical presence of public works of art further supports the City’s efforts to leverage the arts for economic development purposes. A Master Plan for Public Art was completed in 2013; Council adopted an ordinance to establish a Public Art Commission in 2014 and the City’s first full-time public Art Planner was hired in 2014 to spearhead new initiatives. The City currently manages a program to transform utility boxes into works of art. In May 2012, a mural by an internationally renowned artist was installed on the exterior of the downtown parking garage, and in November 2015 another renowned artist turned two crosswalks into works of art in the Point neighborhood, which received an award from the Massachusetts Chapter of the American Planning Association. In addition to these activities, the City supports the annual arts festival which draws thousands of participants into downtown in early June. City Hall Handicapped Access: Utilizing American Recovery and Reinvestment Act funding, the City was able to move forward with significant handicap accessibility improvements at City Hall. These improvements include a new elevator addition with entrance lobby and restroom upgrades. The elevator was open for use in 2010. Redevelopment of 5 Broad Street: In March 2010, a reuse feasibility study was completed for a city-owned building located at 5 Broad Street. The building, which currently houses the City’s Council on Aging, was declared as surplus property by the City Council. The City hired consultants to examine the redevelopment potential for this property in preparation for its future sale. Proceeds from the sale of this building will be used to off-set the cost of a new senior center. Salem Main Streets Program: In July 2007, the City, in collaboration with the Salem Chamber of Commerce and the Salem Partnership, revived the Salem Main Streets program. The program works to support the revitalization of downtown Salem as a vibrant year-round retail, dining and cultural destination through business recruitment, retention, and the promotion of downtown Salem. The program has continued to support business recruitment and retention while adding an annual downtown arts festival and a weekly farmers market. Salem Affordable Housing Trust Fund: The City adopted an ordinance to create a municipal housing trust fund in October, 2006. Through negotiations with a developer, the Trust Fund received $50,000 and additional funds are expected from negotiated contributions from other large development projects. The Trust held its first meeting in March, 2007 and has developed a set of goals and strategies to increase affordable housing opportunities in Salem. In 2009, the Trust provided $25,000 to HAWC toward construction of a shelter for abused parents and children. The remainder of the funds was provided to the St. Joseph’s redevelopment project for assistance with designated units of affordable housing. Destination Salem: Salem continues to market sale as a premier, year-round travel destination. The City continues its funding commitment to destination Salem through its annual allocation of hotel/motel tax revenue. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 16 Planning Salem Artists’ Row Framework Plan: Completed in late 2015, this Plan lays out a vision and action steps to enhance this core area of the downtown. Salem Housing Needs and Demand Analysis: Completed in July 2015 by the Metropolitan Area Planning Council, this analysis identifies the need for an additional 1,900 to 2,725 units of housing by 2030. Vision and Action Plan for the Point Neighborhood in Salem 2013 – 2020: This Plan outlines a vision to improve the quality of life in the Point neighborhood and an action agenda that the City of Salem and community partners will work together to implement over a seven-year period from 2013 to 2020. This Plan is a product of a year-long grassroots, neighborhood-level visioning process. Public Art Master Plan: In recognition of the value that public art can bring to the cultural aesthetic and economic vitality of the community, the City completed a master plan for public art in partnership with the Peabody Essex Museum and the Salem Partnership, funded through the National Endowment for the Arts. Greenlawn Cemetery: The City was awarded a $4,000 Massachusetts Historical Commission Survey and Planning Grant in March 2013 to prepare a National Register of Historic Places nomination form for the Greenlawn Cemetery, and the Cemetery has since been nominated to the National Register. Salem Downtown Renewal Plan: In January 2012 the Department of Housing and Community Development approved a major plan change to the City’s urban renewal plans, creating a consolidated plan, the “Salem Downtown Renewal Plan”, which updates goals and objective and design guidelines. This new plan will be in effect for thirty years. Winter Island Master Plan: The City utilized grant funds to undertake a Master Plan for the renovation and redevelopment of Winter Island Park. The City, with its consultant The Cecil Group, conducted a six month public planning process and completed the final report in 2011. The City is now seeking funding to implement the plan’s recommendations. See below for recent state grant award. Bridge Street Neck Neighborhood Revitalization Plan: This neighborhood master plan for the Bridge Street Neck area was completed in August 2009. The City was awarded technical assistance funds from the regional planning agency, MAPC, to undertake implementation of one of the key recommendations of the plan, creation of a mixed use district. Salem Harbor Plan Update: The update of the City’s Municipal Harbor Plan, created in 2000, was approved by the EOEEA in 2008. The City worked with a consultant and the Salem Harbor Plan Implementation Committee to update the plan. The Plan outlines a 10 year strategy for port development which guides the future use and character of the Port of Salem. Parks and Recreation Proctor’s Ledge Memorial: In July 2017, the City completed the Proctor’s Ledge Memorial at the site where the hangings occurred during the Salem Witch Trials of 1692. Mary Jane Lee Park Renovation: In June 2017, The City completed the renovation of the park that had begun with the construction of a new splash pad in 2015. The project is supported by CPA funds as well as a $400,000 PARC grant from the Commonwealth. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 17 McGlew Park Renovation: The Executive Office of Energy and Environmental Affairs awarded the City a $400,000 Parkland Acquisitions and Renovations for Communities (PARC) grant to renovate McGlew Park. Construction will begin in 2017. Lafayette Park Renovation: In 2017, the City completed plans for upgrades to Lafayette Park. Construction will begin in 2017. Winter Island: Salem was awarded a Parks and Conservation Partnership grant in the amount of $192,404 for a scenic multi-use trail on Winter Island bordering Cat Cove. Improvements include interpretive signage, native plantings, installation of site amenities and improvements to the boat launch parking area. Mary Jane Lee Park Splash Pad: The City was awarded a $200,000 grant from the “Our Common Backyards” program for a splash pad at Mary Jane Lee Park located in our densest neighborhood. The splash pad was completed in time for the 2015 season and was a significant success. The remainder of the park is being improved through four funding sources—$400,000 PARC grant, $100,000 CDBG, $85,075 CPA, and $60,000 CIP. Construction will be completed by June 2017. Bertram Field: A complete renovation of Bertram Field football stadium and track was completed, including a turf surface expansion of the track to regulation size and installation of a resilient surface. Cost of the project is $1.9 million and was partially funded with a Massachusetts PARC grant in the amount $400,000. Salem Common Fence: The City was awarded a $62,000 Massachusetts Historical Commission MPPF Grant in 2014 for the restoration of the Salem Common Fence, continuing the phasing of improvements to this historically significant fence at Salem Common. In addition, the project was awarded $100,000 in local CPA funds, and an additional $113,000 in City funding for a total project budget of $275,000. Construction on this phase of the project was completed and additional funding secured from CPA to continue incremental improvements. Fort Avenue/Szetela Lane Redevelopment: This City-owned site at the intersection of Fort Avenue and Szetela Lane consists of five parcels containing approximately 2.13 acres. A Phase II and Phase III environmental assessment were completed and the City will be improving the site as a park. Bicycling Accommodations: The City is proposing to undertake a demonstration project for protected bike lanes on Lafayette Street in accordance with Vision 2020. The City and the Salem Bike Path Committee continue to be committed to extending the Salem Bike Path to downtown Salem via an extension of the former Boston & Maine Railroad ROW at Canal Street, behind Gardner Mattress and all the businesses on Broadway Street, and a portion of the MBTA’s active and abandoned railroad ROW. This extension has been engineered as part of the Canal Street Roadway reconstruction project and the city is seeking to secure funding in order to construct it in the near future. Open Space & Recreation Plan Update: The City has recently submitted an updated Open Space and Recreation Plan to the State for approval. The Plan establishes long-term goals for the preservation, continued protection and maintenance of open space and recreational areas in the City. Completion of the Plan makes the City eligible to apply for grants through the State PARC program. The City has been successful in the past and has received grants for Peabody Street Park, Furlong Park, Bertram Field, Lead Mills acquisition of open space, and Splaine Park. Splaine Park: The City was awarded a $420,946 grant from the State through the PARC program to upgrade Splaine Park. Improvements to the park include the construction of a stone dust bike/walking path along the park perimeter, the enhancement of the two main entrances, the construction of play structures, the installation of a ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 18 new baseball field and irrigation system, and the rebuilding of the bleachers and dugouts. Construction is complete. Furlong Park: The City received a $500,000 Parkland Acquisition and Renovation for Communities (PARC) Grant from the State Division of Conservation Services for the restoration of Furlong Park. The 5.5 acre park is located along the North River and contains a baseball field, tennis court, playground, and basketball court. As part of the project these features were renovated and additions to the park included construction of a car top boat launch and stabilization of the eroded embankment that borders the North River. Environmental remediation work was funded with a separate state grant. Park renovations are now complete. Peabody Street Park: In July 2010, construction was completed on a new City park along Peabody Street. Previously an abandoned lot, the City of Salem was awarded a $200,000 EPA Brownfields Cleanup Grant in May 2007 and an Urban Self Help grant in the amount of $469,110 to fund its cleanup and revitalization. The City provided a 20% match. High Street Playground: In Spring, 2010, the City installed a new play structure and fence in this neighborhood playground, utilizing Community Development Block Grant funds. Community Preservation Projects The Community Preservation Act (CPA) was adopted by Salem voters in November, 2012. It established a local dedicated fund for the purpose of undertaking open space, historic preservation, outdoor recreation and community housing projects. It is financed by a voter-approved property tax surcharge along with annual matching funds from the statewide CPA Trust Fund. In FY14 projects totaling $709,623 were recommended by the Community Preservation Committee (CPC) and approved by Council; in FY15 projects totaling $730,975 were recommended by the CPC and approved by Council; in Fy16 projects totaling $824,790. Projects include North Shore CDC housing acquisition assistance, Salem Public Library renovations, Salem Common Fence restoration, Old Town hall window restoration, Choate Statue restoration, Winter Island scenic trail, 15 Ward Street pocket park creation, Community Gardens improvements, Driver and Patten Parks improvements, Harbor and Lafayette Homes, Council Chamber artwork restoration, Greenlawn Cemetery Chapel restoration, Charter Street Burial Ground improvements, House of the & Gables roof project, Hamilton Hall window restoration, Forest River Conservation Area trail assessment, McGlew Park redesign, Mary Jane Lee Park improvements, Camp Naumkeag rehabilitation plan, Bates Elementary School playground construction, Boston Street housing acquisition, Emmerton House preservation, Proctor’s Ledge memorial, Salem Willows pavilions restoration, Forest River bathrooms improvements, Forest River Pool conditions assessment, Ryan Brennan Memorial Skate Park renovation, Mack Park bathrooms improvements, Bentley Academy Charter School playground installation and Collins Cove Playground renovation . Workforce Statistics According to the Massachusetts Executive Office of Labor and workforce Development, in July of 2016, the City had a labor force of 24,104, of whom, 23,009 were employed and 1,033, or 4.3%, were unemployed. The Commonwealth, at the same time, had an unemployment rate of 4.0%. Financial Planning and Forecasting In fiscal year 2009, the City modified its budget format to improve upon its content and layout. The goal was to have a comprehensive budget that would allow an average person to read and comprehend the budget and budget process of the City. It also was modeled after several budgets that were submitted and approved for the Government Financial Officer’s Association (GFOA) “Distinguished Budget Presentation Award”. The new model ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 19 included more narrative, including goals and objectives of each department, financial forecasts, policies and glossary of financial terms. It required a significant amount of work for all department heads and especially the finance division, who had to ensure all the materials were pulled together timely for submission to both the City Council and the GFOA. As a result of our efforts, the City has been awarded the GFOA’s “Distinguished Budget Presentation Award” for fiscal years 2009 through 2017. Included in the budget was the City’s Five Year Financial Forecast. This is the ninth year that such a forecast has been completed. This forecast acts as a useful tool to the Mayor and Council to better identify “budget busters” on the expenditure side and to also determine whether forecasted revenue growth is adequate for future expenses. Also included in the budget was the City’s Five Year Capital Improvement Plan (CIP) for the purpose of planning and maintaining the City’s capital and infrastructure. The CIP includes policies on debt service and capital improvement budgeting. As part of the fiscal year 2018 CIP, the City has authorized over $8 million in general and enterprise fund capital projects. Health Insurance The City continues to explore options to contain the rising cost of health care for City employees/retirees. In fiscal year 2006, the City Council accepted the provisions of Massachusetts General Law chapter 32B, section 18, a Massachusetts statute requiring all Medicare-eligible retirees who are currently on self-insured plans to move from self-insured coverage to a fully insured Medicare supplement plan. This provision saved the City approximately $700,000 in fiscal 2007 and continues to realize savings for the City. This is a major cost saving initiative that will insure that all retirees over the age of 65 are treated consistently, while also providing greater control of costs associated with the City’s Healthcare Insurance. The City has used many different approaches to keep the cost of health insurance affordable as it relates to the overall budget of the City, including the procurement of new health care providers, modifications of existing plans, and collective bargaining to modify the employee/employer apportionment of costs. However, the most significant approach was enacted in FY2012 with the City Council’s adoption of the Municipal Health Care Reform Act (the Act). As part of the Act, the City was allowed to enter into the State’s Group Insurance Commission (GIC), which resulted in significant short term savings ($1.5 million in FY13), and long term savings for the City. In fact, the City was able to reduce its long term liability, also known as “other postemployment benefits” (OPEB) by $26 million dollars, from $171 million in 2010 to $143 million in 2015, per the City’s OPEB liability report performed by the Segal Company, the City’s contracted actuary. The savings to the City employees and retirees come from lower premiums, an increase in City’s contribution to PPO plans from 65% to 70%. The City also has agreed to pay all administrative fees for any person who wishes to enroll in a flexible spending account, which allows for pre-tax payments for certain medical costs, prescriptions, and some over the counter medications. Pension Assessment During fiscal year 2009, the Salem Contributory Retirement Board moved all available funds into the State’s Public Reserve Investment Trust (PRIT) to take advantage of its higher returns and lower administrative fees. Because of its size, the PRIT can diversify assets for maximum possible return. The Retirement Board shifted these assets voluntarily to the PRIT after a complete analysis and a vote of the Retirement Board. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 20 The City includes the Salem Contributory Retirement System (the System) in its financial reporting since the City represents approximately 82% of the members of the System. The System was established to provide retirement benefits to its members, including employees and beneficiaries of the City of Salem, the Salem-Beverly Water Supply Board, the Salem Housing Authority, the South Essex Sewerage District, and the Essex North Shore Agricultural and Technical High School District. Per the Pension Reserves Investment Management Board July 2016 report, the market value of the System’s assets totaled $139 million, with 98% of the funds invested in the State’s Pension Reserve Investment Trust’s (PRIT) Core Fund. The Salem Contributory Retirement Board completed its most recent actuarial valuation summary for January 1, 2016. The next actuarial valuation will take place in January 2018. The study was performed by the Segal Company and a preliminary report was delivered to the Retirement Board in July of 2016. The study reported that the actuarial value of the system’s assets, as of January 1, 2016, had increased to $143.6 million, while the system’s unfunded liability increased by $11.5 million to $125.7 million. The Board maintains a funding schedule which will fully amortize the existing unfunded liability by June 30, 2031, with amortization payments that increase 4.5% per year. The total fiscal 2018 City share of 82% amounted to $10,933,812. Other Significant Financial Matters The Salem Harbor Power Station is the City’s largest taxpayer. The power plant in August of 2012 changed ownership from Dominion Energy to Footprint Power LLC. As of September 2016, Footprint Power has nearly completed all demolition of all existing structures and undertaken any necessary environmental remediation. Footprint has begun constructing a state-of-the-art 630 megawatt gas-fired plant on a portion of the site and will open the remaining two-thirds of the 63 –acre waterfront property to private and public development opportunities. From a revenue perspective, at the end of FY2011, the City’s tax agreement with Dominion expired. Prior to this date, the City received a total payment from Dominion Energy in the amount of $4.75 million for FY2011, $3 million in tax dollars within the tax levy and $1.75 million dollars designated as a “host fee” accounted for as miscellaneous non-recurring revenues. In FY2011, Dominion announced major operational changes shutting down two of their power generating units due to market conditions and regulatory challenges at the state level. Due to the implementation of state regulations impacting its operations, during the FY2012 budget process, the Massachusetts Legislature adopted a proposal to ensure that Salem taxpayers will not be overly burdened by lost revenues from the power plant through 2019. Chapter 68 of the Acts of 2011, Section 33 states that “…the municipality shall be entitled to reimbursement for the difference between the amount called for….prior to the full or partial decommissioning or the change in operating status of the facility.” This legislation postpones the financial impact of the loss of a major taxpayer. More importantly, it allows the City to work toward replacing the lost revenues and planning for an appropriate reuse of the site. As of December 2014, the City has negotiated, and the City Council approved, an 18 year PILOT agreement with Footprint Power LLC. This agreement will utilize the “hold harmless agreement” of $4.75 million from the State during construction through 2019, with payments increasing steadily as the plan becomes up and running. A graduated escalation factor will result in the City receiving over $99,242,000 for the duration of the contract, or $5.5 million a year; a 16% increase over the current tax level collected. In addition to the negotiated PILOT agreement, the City was able to draft and finalize a community benefits agreement which will provide the City and School District with over $4.4 million in additional funding. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 21 Financial Policy The City has set a goal to fund the Stabilization fund in the amount of 5% of the City’s current operating budget, or roughly $7.2 million. As of June 30, 2017, the balance in the City’s Stabilization fund is $6.037 million. The target date to have the Stabilization Fund fully funded is projected to occur by fiscal year 2020. The Stabilization fund shall be funded by appropriations from free cash (available funds), operating budget appropriations when available, and other one-time non-recurring revenues that become available for appropriation per Massachusetts General Law. In fiscal 2008, the City established a second Stabilization fund (Retirement Stabilization Fund) for the funding of retirement buyouts for both City and School employees. As of June 30, 2017, the balance of this account was $729,000. During the fiscal 2017 budget process, all department heads were asked if they anticipated any retirements and to calculate the estimated cost of each person’s buyout for fiscal 2018. The goal of the Retirement Stabilization Fund is to pay for any unanticipated retirements from this Fund instead of using general fund appropriations. This will allow the departments to backfill vacancies in a timely manner without having to request a supplemental appropriation by the Council. In fiscal 2011, the City adopted Massachusetts General Law Chapter 32B, Section 20, establishing the “Other Postemployment Benefits (OPEB) Liability Trust Fund” as a local option. This fund gives communities a mechanism to reduce the unfunded actuarial liability of health care and other post-employment benefits. The City currently has $2.18 million in the account. Future appropriations will be made to this fund in accordance to financial policies of the Finance Department of the City. Free cash is the remaining unrestricted funds from operations of the previous fiscal year including unexpended free cash from the previous year, actual receipts in excess of revenue estimates shown on the tax rate recapitulation sheet, and unspent amounts in budget line-items. Unpaid property taxes and certain deficits reduce the amount that can be certified as free cash. The calculation of free cash is based on the balance sheet as of June 30th, which is submitted by the community's auditor, accountant, or comptroller. Free cash is not available for appropriation until certified by the Massachusetts Director of Accounts. Free cash is the term used for a community’s funds that are available for appropriation. Once free cash is certified, it is available for appropriation by City Council. The balance for free cash has been certified subsequent to year end at $4.9 million. Free cash may be used for any lawful municipal purpose and provides communities with flexibility to fund additional appropriations after the tax rate has been set. Free cash balances do not carry forward to the next fiscal year (July 1st). The certification expires on June 30th at the end of the fiscal year. The City’s policy is to use free cash for reserves, capital, and special uses in accordance with the policies set forth by the Mayor and Finance Director. Once free cash is certified by the Director of Accounts, any drawdown of the Stabilization Fund from the prior fiscal year shall be replenished from the certified free cash if the free cash exceeds such drawdown. Once any drawdown of Stabilization funds are replenished, allocation of the remaining free cash shall be as follows; • 20% of any free cash available after funding a prior year drawdown will also be allocated from free cash to Stabilization Fund up to the goal of stabilization fund equaling 5% of the current operating budget of the City. • 20% of any free cash available after funding a prior year drawdown of Stabilization fund will also be allocated to the Capital Improvement Fund for funding Capital and • 5% of any free cash available after funding any drawdown will be allocated to the OPEB Liability Trust Fund (beginning in FY2012). ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 22 Any free cash available after funding the above may be used to augment trust funds related to fringe benefits and unfunded liabilities related to employee benefits, including Workers' Compensation Fund, Unemployment Fund, and any health benefits payable through Police and Fire operating budgets (111f settlements). Free cash available may also be used to augment general fund appropriations for expenses that increased due to extraordinary and/or unforeseen events as detailed by the department head of the affected budget. Awards and Acknowledgements The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement of Excellence in Financial Reporting to the City of Salem for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2016. In order to receive this prestigious award, a government had to publish an easily readable and efficiently organized CAFR that satisfied both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The GFOA also awarded a Distinguished Budget Presentation Award to the City of Salem for its budget document for the fiscal year beginning July 1, 2016. The GFOA established the Distinguished Budget Award in 1984 to encourage and assist state and local governments to prepare budget documents of the very highest quality that reflect both the guidelines established by the National Advisory Council on State and Local Budgeting and the GFOA’s recommended practices on budgeting and then to recognize individual governments that succeed in achieving that goal. Documents submitted to the Budget Awards Program are reviewed by selected members of the GFOA professional staff and by outside reviewers with experience in public-sector budgeting. The preparation of both the CAFR and the Distinguished Budget Presentation Award would not have been possible without the efficient and dedicated services of the Finance Department’s staff. We would like to express our appreciation to all the members of the departments who assisted and contributed to the preparation of this report. Credit must also be given to the City Council and Mayor for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Salem’s finances. Respectfully submitted, Sarah A. Stanton Finance Director ---PAGE BREAK--- City of Salem, Massachusetts 23 Comprehensive Annual Financial Report Organizational Chart ---PAGE BREAK--- City of Salem, Massachusetts 24 Comprehensive Annual Financial Report Principal Executive Officers TITLE NAME FIRST TOOK OFFICE TERM EXPIRES Mayor Kimberley L. Driscoll 1/2/2006 12/31/2021 President, City Council Elaine Milo 1/1/2016 12/31/2017 Finance Director* Laurie A. Giardella 9/14/2017 1/31/2020 Treasurer Kathleen McMahon 12/27/2010 1/31/2019 Collector Bonnie Celi 3/11/2004 1/31/2018 City Clerk Cheryl LaPointe 7/15/2004 11/9/2018 City Solicitor Elizabeth Rennard 1/10/2006 Indefinite Assistant Finance Director Nina Bridgman 1/22/2004 1/31/2018 Principal Executive Officers The City’s current Finance Director took office subsequent to the fiscal year end. ---PAGE BREAK--- City of Salem, Massachusetts 25 Comprehensive Annual Financial Report Certificate of Achievement for Excellence in Financial Reporting ---PAGE BREAK--- City of Salem, Massachusetts 26 Comprehensive Annual Financial Report The Government Finance Officers Association of the United States and Canada (GFOA) presented a Distinguished Budget Presentation Award to the City of Salem, Massachusetts for the Annual Budget beginning July 1, 2016. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, as an operational guide, as a financial plan, and as a communication device. Distinguished Budget Presentation Award ---PAGE BREAK--- Financial Section Winter Island Light House ---PAGE BREAK--- City of Salem, Massachusetts 27 Comprehensive Annual Financial Report Financial Section ---PAGE BREAK--- City of Salem, Massachusetts 28 Comprehensive Annual Financial Report This page left intentionally blank. ---PAGE BREAK--- 29 Independent Auditor’s Report To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of and for the year ended June 30, 2017 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2016), and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America 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. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of June 30, 2017 (except for the Salem Contributory Retirement System which is as of December 31, 2016), and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. ---PAGE BREAK--- 30 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not 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. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Salem’s basic financial statements. The introductory, combining and individual fund statements and statistical sections are presented for the purpose of additional analysis and are not a required part of the basic financial statements. The combining and individual fund statements are the responsibility of management and were derived from and relates 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 statements are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 21, 2017 on our consideration of the City of Salem, Massachusetts’ 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 City of Salem, Massachusetts’ internal control over financial reporting and compliance. December 21, 2017 ---PAGE BREAK--- City of Salem, Massachusetts 31 Comprehensive Annual Financial Report Management’s Discussion and Analysis Management’s Discussion and Analysis ---PAGE BREAK--- City of Salem, Massachusetts 32 Comprehensive Annual Financial Report Management’s Discussion and Analysis As management of the City of Salem, we offer readers of these financial statements this narrative overview and analysis of the financial activities for the year ended June 30, 2017. We encourage readers to consider the information presented in this report in conjunction with additional information that we have furnished in our letter of transmittal. The Governmental Accounting Standards Board (GASB) is the authoritative standard setting body that provides guidance on how to prepare financial statements in conformity with generally accepted accounting principles (GAAP). Users of these financial statements (such as investors and rating agencies) rely on the GASB to establish consistent reporting standards for all governments in the United States. This consistent application is the only way users (including citizens, the media, legislators and others) can assess the financial condition of one government compared to others. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City of Salem’s basic financial statements. The basic financial statements consist of 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 finances, in a manner similar to private-sector business. The statement of net position presents information on all assets and liabilities, and deferred inflows/outflows of resources, with the difference between them reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position is improving or deteriorating. The statement of activities presents information showing how the government’s net position changed during the most recent 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 periods uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions 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 include general government, public safety, education, public works, community development, health and human services, community preservation, culture and recreation and interest. The business-type activities include the activities of water and sewer, the municipal golf course, and trash disposal. The government-wide financial statements include not only the City of Salem itself (known as the primary government), but also a legally separate public employee retirement system for which the City of Salem is financially accountable. Financial information for this component unit is reported separately within the fiduciary fund statements. 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. Fund accounting is used to ensure and ---PAGE BREAK--- City of Salem, Massachusetts 33 Comprehensive Annual Financial Report demonstrate compliance with finance-related legal requirements. All of the funds 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 statements focus on near-term inflows of spendable resources, as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Salem adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided as required supplementary information to demonstrate compliance with this budget. Proprietary funds. The City maintains two 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 City uses enterprise funds to account for its water and sewer activities, trash disposal, and for the operation of the municipal golf course. The internal service fund is used to account for the financing of services provided by one department to other departments or governmental units. The internal service fund is now used to account for funds set aside by the City to help offset health insurance costs of employees that were highly impacted from the switch to the GIC (Group Insurance Commission). 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 City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The fiduciary fund financial statements provide separate information for the pension and other postemployment benefit (OPEB) trust funds of the City. Private-purpose trust funds and agency funds are reported and combined into a single, aggregate presentation in the fiduciary funds financial statements under the captions “private purpose trust funds” and “agency funds”, respectively. Notes to the basic 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. Government-wide Financial Analysis Governmental Activities As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. The City of Salem’s governmental assets and deferred outflows exceeded liabilities and deferred inflows by $49.8 million at the close of 2017. This represents a decrease of $4.1 million from the prior year. ---PAGE BREAK--- City of Salem, Massachusetts 34 Comprehensive Annual Financial Report Net position of $176.3 million reflects the City’s net investment in capital assets land, buildings, infrastructure, machinery, and equipment, less any related debt used to acquire those assets that are still outstanding). The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the investment in its capital assets is reported net of its related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the governmental net position, $10.1 million, represents resources that are subject to external restrictions on how they may be used. The balance of unrestricted net position has a year-end deficit of $136.6 million. The primary reason for this deficit balance is the recognition of other postemployment benefit liabilities totaling $56.6 million and a net pension liability of $108.0 million, in accordance with recent requirements of Governmental Auditing Standards Board (GASB). The net pension liability was recorded in accordance with GASB Statements #67, #68 and #71. This requires the Salem Contributory Retirement System (System) to obtain a biannual actuarial valuation of the System’s liability to pay pension benefits to retirees and beneficiaries. The City funds a portion of the net pension liability annually as part of the required appropriation to the System. For fiscal year 2017, the City continues to follow GASB Statement #45. Accordingly, to calculate the estimated other postemployment benefit (OPEB) liabilities, the City is required to obtain a biannual actuarial valuation of the City’s liability to pay other postemployment benefits to current employees and retirees. The City is allowed to amortize the unfunded liability, which is currently estimated to be approximately $150.6 million, over 30 years. Since there is no legal obligation to fund the liability at this time, the City has opted to continue to fund the majority of its other postemployment benefits on a pay-as-you go basis. As a result, the City is required to record the difference between the current year pay-as-you go cost and the current year actuarial determined cost plus interest on any prior unfunded liability as an expense in the full accrual financial statements. This difference totaled $7.5 million for governmental activities for 2017. The City has begun the process of pre-funding a portion of the liability by establishing an irrevocable trust which, as of June 30, 2017, has a balance of $2.2 million and is reported within the fiduciary funds in the City’s financial statements. 2017 2016 Assets: Current 53,195,099 $ 51,804,803 Noncurrent assets (excluding capital)……………… 1,827,647 2,225,911 Capital 225,387,645 220,388,173 Total 280,410,391 274,418,887 Deferred Outflows of Resources…………………… 14,320,057 7,559,761 Liabilities: Current liabilities (excluding 13,305,526 11,368,650 Noncurrent liabilities (excluding 176,457,284 163,582,171 Current 8,117,443 6,913,357 Noncurrent 43,218,056 46,089,814 Total liabilities…………………………………… 241,098,309 227,953,992 Deferred Inflows of Resources……………………… 3,797,960 55,222 Net Position: Net investment in capital assets…………………… 176,335,671 171,154,357 10,103,927 9,234,701 Unrestricted…………………………………………… (136,605,419) (126,419,624) Total net position……………………………… $ 49,834,179 $ 53,969,434 ---PAGE BREAK--- City of Salem, Massachusetts 35 Comprehensive Annual Financial Report GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pensions Plans, was implemented this year. This standard added Note disclosures and Required Supplemental Information for the City’s OPEB Trust fund. Its sister standard, GASB Statement No. 75, Accounting and Financial Reporting for Postemployment benefits Other Than Pensions, is required to be implemented in FY2018. This standard will affect the financial statements themselves by requiring the City to record its OPEB assets, liabilities, and deferred financial statement elements for the first time. Overall governmental net position decreased during 2017 by $4.1 million. Of this decrease, $5.6 million is directly related to the increase in the net pension liability and a $7.5 million increase in the OPEB liability. Operating grants have increased due to a change in on-behalf payments associated with the Massachusetts Teachers’ Retirement System which have been recorded in accordance with new GASB pension standards. The governmental expenses totaled $183 million of which $72.1 million (39%) was directly supported by program revenues consisting of charges for services, operating and capital grants, and contributions. Education expenses increased due to MTRS on-behalf payments increasing by $3.0 million. Public work expenses decreased mainly due to landfill liability estimate changes and transfer station cleanup costs recorded in the prior fiscal year. 2017 2016 Program revenues: Charges for 9,640,495 $ 8,485,074 Operating grants and contributions………………… 54,915,403 52,223,253 Capital grants and contributions…………………… 7,576,188 7,213,351 General Revenues: Real estate and personal property taxes………… 90,118,638 84,802,453 Community preservation 590,722 561,424 Motor vehicle and other excise taxes……………… 4,311,772 4,194,711 Nonrestricted 7,218,934 6,881,968 Unrestricted investment income…………………… 1,134,074 459,322 Other 3,868,235 4,145,949 Total 179,374,461 168,967,505 Expenses: General government………………………………… 12,327,559 11,788,264 Public 32,046,642 29,707,698 114,049,284 105,955,199 Public 10,846,604 12,627,503 Community development…………………………… 1,335,941 1,033,601 Health and human services………………………… 6,714,390 6,793,390 Community preservation…………………………… 456,019 80,610 Culture and recreation……………………………… 3,576,595 3,585,339 1,646,278 1,313,435 Total 182,999,312 172,885,039 Excess (Deficiency) before transfers……………… (3,624,851) (3,917,534) (510,404) (400,060) Change in net (4,135,255) (4,317,594) Net position, beginning of 53,969,434 58,287,028 Net position, end of 49,834,179 $ 53,969,434 ---PAGE BREAK--- City of Salem, Massachusetts 36 Comprehensive Annual Financial Report Business-type Activities For the City’s business-type activities, assets and deferred outflows exceeded liabilities and deferred inflows by $13 million at the close of 2017. 2017 2016 Assets: Current $ 15,356,724 $ 14,014,842 Capital 35,582,439 33,760,168 Total 50,939,163 47,775,010 Deferred Outflows of Resources…………………… 372,709 195,596 Liabilities: Current liabilities (excluding 1,770,009 2,142,421 Noncurrent liabilities (excluding 4,499,777 4,306,157 Current 3,074,784 2,251,468 Noncurrent 28,838,329 27,415,426 Total liabilities…………………………………… 38,182,899 36,115,472 Deferred Inflows of Resources……………………… 99,248 1,443 Net Position: Net investment in capital assets…………………… 8,865,191 8,280,350 Unrestricted…………………………………………… 4,164,534 3,573,341 Total net position……………………………… $ 13,029,725 $ 11,853,691 Business-type net position of $8.9 million (68%) represents net investment in capital assets. The remaining $4.2 million (32%) is available to be used for the ongoing operation of the City’s water, sewer, trash and municipal golf course activities. There was an overall increase of $1.2 million in net position reported in connection with the enterprise funds. The water and sewer enterprise fund’s net position of $8.3 million (70.4%) represents the net investment in capital assets, while $3.4 million (29.6%) is unrestricted. The water and sewer enterprise experienced a net increase of $1.2 million in net position from the prior year. The fund pays annual assessments to the Salem Beverly Water Supply Board and to the South Essex Sewerage District, which totaled $2.5 million and $4.5 million, respectively. Combined, these assessments represent 64.9% the fund’s operating expenses for 2017. The increase was primarily due to a decrease in assessments for fiscal year 2017. The unrestricted balance includes the City’s $1.1 million equity interest in the South Essex Sewerage District. The golf course enterprise fund’s net position of $524,000 represents the net investment in capital assets, while $218,000 is unrestricted. The golf course’s net position decreased by $87,000 primarily due to an increase in the Other Postemployment Benefits liability. The City’s trash enterprise fund operates on a trash fee that is set with full knowledge that the revenue will not be sufficient to cover the cost of operations. The City budgets for a subsidy from the general fund equal to the estimated cash basis deficit in the fund at year end. At year-end a $2.1 million transfer was made from the ---PAGE BREAK--- City of Salem, Massachusetts 37 Comprehensive Annual Financial Report general fund to subsidize for the budgeted deficit. As of June 30, 2017, the trash fund had unrestricted net position totaling $501,000. 2017 2016 Program revenues: Charges for services……………………………… $ 14,923,349 $ 14,687,976 Expenses: Cost of service and administration……………… 5,863,708 5,326,724 District assessment……………………………… 6,553,363 7,858,326 Depreciation………………………………………… 1,144,456 1,054,659 696,192 748,250 Total 14,257,719 14,987,959 Excess (Deficiency) before transfers…………… 665,630 (299,983) 510,404 400,060 Change in net position……………………………… 1,176,034 100,077 Net position, beginning of 11,853,691 11,753,614 Net position, end of 13,029,725 $ 11,853,691 Financial Analysis of the Government’s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’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 year. In accordance with generally accepted accounting standards, the City reports the components of fund balance as nonspendable, restricted, committed, assigned and unassigned, based on restrictions on spending. Additionally, the City’s stabilization funds are reported within the general fund as unassigned. As of the end of the current year, governmental funds reported combined ending fund balances of $36.5 million of which $15.0 million is reported in the general fund, $1.1 million in the community preservation fund, $531,000 is reported in the city wharf project fund, $2.9 million is reported in the city grants fund, a deficit of $1.1 million is reported in the capital improvement fund and $18 million is reported in the nonmajor governmental funds. Cumulatively there was a decrease of $287,000 in fund balances from the prior year. The general fund is the City’s chief operating fund. At the end of the current year, unassigned fund balance of the general fund totaled $14.5 million, while total fund balance was $15.0 million. The general fund balance increased by $1.4 million in 2017. The increase is the result of positive budgetary results. The Community Preservation fund had an ending restricted fund balance at June 30, 2017, of $1.1 million. These funds are attributable to the City’s acceptance of the Community Preservation Act, which allows the City to ---PAGE BREAK--- City of Salem, Massachusetts 38 Comprehensive Annual Financial Report impose up to a 1% surcharge on property taxes and to receive matching State grant funds for specified uses related to the acquisition, creation, preservation and support of open space, historical resources, land for recreational use and community housing. This is the third year that the City has operated the Community Preservation fund and the second year that the City received a contribution from the state toward the operation of this fund. The City wharf project fund includes improvements to the City’s harborwalk, docks, walkways, and pier construction. Project expenditures totaled $265K, while state capital grant reimbursements totaled $819,000 during 2017. The city grants fund is used to account for non-school related activity specifically financed by federal, state, and other grants which are designated for special programs. The ending restricted fund balance at June 30, 2017, was $2.9 million. Total fund balance decreased by $1.3 million in 2017, due to a $3.6 million increase in current year expenditures. The capital improvement funds are used to account for the projects in the City’s capital improvement plan that specifically relate to City improvements for roads and fields. The fund had a year-end fund balance of deficit of $1.1 million. This fund recognized $665,000 in bond proceeds and $590,000 in capital lease proceeds as funding sources for ongoing projects. Cumulatively, nonmajor governmental funds had a net increase of $2.7 million. This represents the activity of other nonmajor capital projects, grants, and permanent trust funds. The 2017 increase was almost entirely the result of bond and grant proceeds recognized for school capital projects. General Fund Budgetary Highlights The City’s final general fund operating budget included $141.9 million in total current year appropriations to be funded with $135.9 million in estimated receipts and transfers in and approximately $4.9 million in available funds. The $4.7 million increase between the original budget and the final amended budget was due to several council orders issued throughout the year to appropriate available funds. The most notable components of this increase include an additional $3.3 million in available funds appropriated to fund stabilization reserves, capital improvements, other postemployment benefits trust, pension reserves and various additional appropriations. The actual general fund revenues came in $3.3 million higher than budgeted. The City does not budget revenue for tax liens which totaled $763,000. Additionally, motor vehicle and other excise taxes and charges for services reported budgetary surpluses of $801,000 and $1.0 million, respectively. The City’s general fund reported expenditures and encumbrances less than appropriations by a net of approximately $1.6 million. The budget was overspent by $852,000 for the removal of snow and ice. This over- expenditure is allowed under state law. On a budgetary basis, the general fund ended the year with a net increase of $356,000. Capital Asset and Debt Administration Capital Assets. The City’s investment in capital assets for its governmental and business-type activities as of June 30, 2017, amounts to $261.0 million (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, buildings and land improvements, equipment, vehicles and infrastructure related to governmental and business-type activities. The City’s total investment in capital assets for the current year totaled $14.2 million for governmental activities and $3.0 million for business-type activities. ---PAGE BREAK--- City of Salem, Massachusetts 39 Comprehensive Annual Financial Report Major governmental additions included ongoing upgrades to the Collins and Saltonstall school buildings, roadway improvements and improvements to the City wharf. Capital improvements for business-type activities were mainly for water infrastructure including water main improvements and infrastructure related to the South River Basin, Forest Street, and Canal Street drainage projects and the Folly Hill water tank project. Debt Administration. Outstanding long-term debt of the governmental activities, as of June 30, 2017, totaled $48.0 million. The Commonwealth of Massachusetts is obligated to provide school construction assistance for approved school projects through a grant program administered by the MSBA. The assistance is paid to offset a portion of principal and interest on debt issued to finance approved school construction costs. At June 30, 2017, the City has recorded a receivable from the MSBA totaling $4.4 million, which represents anticipated future reimbursements of approved construction costs on projects completed under this MSBA program. The City issued $4 million in general obligation bonds during fiscal year 2017, of which $3.3 million related to a debt refunding in 2017, to finance various governmental capital projects. The City also issued bond and state grant anticipation notes totaling $3.4 million. Outstanding debt of the water and sewer, and golf enterprise funds totaled $31.2 million and $95,000 respectively, and funded various repairs, maintenance and infrastructure projects. This includes new debt issued in 2017 for water and sewer improvements of $4.6 million, of which $1.5 million related to a debt refunding in 2017. Please refer to notes 4, 6, 7 and 8 in the financial statements for further discussion of the major capital and debt activity. Requests for Information This financial report is designed to provide a general overview of the City of Salem’s 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 the Finance Director, City Hall, 93 Washington Street, Salem, Massachusetts 01970. ---PAGE BREAK--- City of Salem, Massachusetts 40 Comprehensive Annual Financial Report Basic Financial Statements Basic Financial Statements ---PAGE BREAK--- STATEMENT OF NET POSITION JUNE 30, 2017 Primary Government Governmental Business-type Activities Activities Total ASSETS CURRENT: Cash and cash equivalents……………………………… $ 30,318,958 $ 11,211,952 $ 41,530,910 11,978,617 - 11,978,617 Receivables, net of allowance for uncollectibles: Real estate and personal property taxes…………… 1,137,134 - 1,137,134 Tax 1,422,126 - 1,422,126 Motor vehicle and other excise taxes………………… 629,528 - 629,528 User - 2,917,814 2,917,814 Trash - 95,151 95,151 Departmental and 156,117 - 156,117 Intergovernmental……………………………………… 7,420,167 - 7,420,167 132,452 - 132,452 Investment in joint - 1,131,807 1,131,807 Total current 53,195,099 15,356,724 68,551,823 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental……………………………………… 1,389,074 - 1,389,074 438,573 - 438,573 Capital assets, non depreciable………………………… 9,497,004 228,208 9,725,212 Capital assets, net of accumulated depreciation……… 215,890,641 35,354,231 251,244,872 Total noncurrent 227,215,292 35,582,439 262,797,731 TOTAL 280,410,391 50,939,163 331,349,554 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding…………………………… 57,388 - 57,388 Deferred outflows of resources related to pensions…… 14,262,669 372,709 14,635,378 TOTAL DEFERRED OUTFLOWS OF RESOURCES…… 14,320,057 372,709 14,692,766 LIABILITIES CURRENT: Warrants 1,627,539 897,629 2,525,168 Accrued liabilities………………………………………… 1,530,606 458,217 1,988,823 Accrued 6,371,640 20,305 6,391,945 Tax refunds 146,567 - 146,567 Accrued 377,518 246,254 623,772 Capital lease obligations………………………………… 530,871 121,460 652,331 Landfill 1,125,000 - 1,125,000 Compensated 1,472,655 26,144 1,498,799 Workers' compensation…………………………………… 123,130 - 123,130 Notes 3,376,430 636,000 4,012,430 Bonds 4,741,013 2,438,784 7,179,797 Total current liabilities………………………………… 21,422,969 4,844,793 26,267,762 NONCURRENT: Capital lease obligations………………………………… 1,719,409 104,956 1,824,365 Landfill 1,125,000 - 1,125,000 Compensated 7,607,995 39,620 7,647,615 Other postemployment benefits………………………… 56,605,130 1,531,888 58,137,018 Net pension 108,041,285 2,823,313 110,864,598 Workers' compensation…………………………………… 1,358,465 - 1,358,465 Bonds 43,218,056 28,838,329 72,056,385 Total noncurrent liabilities……………………………… 219,675,340 33,338,106 253,013,446 TOTAL 241,098,309 38,182,899 279,281,208 DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources related to pensions……… 3,797,960 99,248 3,897,208 NET POSITION Net investment in capital 176,335,671 8,865,191 185,200,862 Restricted for: 571,025 - 571,025 Permanent funds: 4,637,410 - 4,637,410 Nonexpendable………………………………………… 2,206,224 - 2,206,224 Grants and 2,689,268 - 2,689,268 (136,605,419) 4,164,534 (132,440,885) TOTAL NET $ 49,834,179 $ 13,029,725 $ 62,863,904 See notes to basic financial statements. City of Salem, Massachusetts 41 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2017 Operating Capital Charges for Grants and Grants and Net (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Primary Government: Governmental Activities: General government……………… $ 12,327,559 $ 3,908,114 $ 498,961 $ 146,594 $ (7,773,890) Public safety……………………… 32,046,642 3,257,068 1,041,359 1,790,799 (25,957,416) Education…………………………… 114,049,284 807,217 46,915,053 1,295,566 (65,031,448) Public 10,846,604 191,766 286,569 4,256,527 (6,111,742) Community development………… 1,335,941 133,964 1,289,533 - 87,556 Health and human services……… 6,714,390 130,407 4,577,029 - (2,006,954) Community preservation………… 456,019 - - 86,702 (369,317) Culture and recreation…………… 3,576,595 1,211,959 167,281 - (2,197,355) Interest……………………………… 1,646,278 - 139,618 - (1,506,660) Total Governmental Activities… 182,999,312 9,640,495 54,915,403 7,576,188 (110,867,226) Business-Type Activities: Water and 10,787,708 13,312,357 - - 2,524,649 Golf 552,606 749,590 - - 196,984 2,917,405 861,402 - - (2,056,003) Total Business-Type Activities… 14,257,719 14,923,349 - - 665,630 Total Primary Government………$ 197,257,031 $ 24,563,844 $ 54,915,403 $ 7,576,188 $ (110,201,596) See notes to basic financial statements. (Continued) Program Revenues City of Salem, Massachusetts 42 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES (Continued) YEAR ENDED JUNE 30, 2017 Governmental Business-Type Activities Activities Total Changes in net position: Net (expense) revenue from previous page…………… $ (110,867,226) $ 665,630 $ (110,201,596) General revenues: Real estate and personal property taxes, net of tax refunds payable………………………… 90,118,638 - 90,118,638 Community preservation 590,722 - 590,722 Tax 317,548 - 317,548 Motor vehicle and other excise taxes……………… 4,311,772 - 4,311,772 Hotel/motel and meals 1,683,573 - 1,683,573 Penalties and interest on 466,092 - 466,092 Payments in lieu of 1,082,164 - 1,082,164 Grants and contributions not restricted to specific 7,218,934 - 7,218,934 Unrestricted investment income…………………… 1,134,074 - 1,134,074 Miscellaneous………………………………………… 318,858 - 318,858 Transfers, net (510,404) 510,404 - Total general revenues and transfers………………… 106,731,971 510,404 107,242,375 Change in net position……………………………… (4,135,255) 1,176,034 (2,959,221) NET POSITION: Beginning of 53,969,434 11,853,691 65,823,125 End of 49,834,179 $ 13,029,725 $ 62,863,904 (Concluded) Primary Government City of Salem, Massachusetts 43 Comprehensive Annual Financial Report ---PAGE BREAK--- Community City Wharf Capital Nonmajor Total Preservation Project City Improvement Governmental Governmental General Funds Fund Grants Fund Funds Funds ASSETS Cash and cash equivalents…………………………… $ 16,793,872 $ 1,101,456 $ 531,057 $ 2,812,212 $ 2,071,200 $ 6,945,729 $ 30,255,526 5,295,319 - - - - 6,683,298 11,978,617 Receivables, net of uncollectibles: Real estate and personal property taxes………… 1,129,134 8,000 - - - - 1,137,134 Tax 1,422,126 - - - - - 1,422,126 Motor vehicle and other excise taxes……………… 629,528 - - - - - 629,528 Departmental and - - - - - 156,117 156,117 Intergovernmental…………………………………… 2,021,243 88,408 - 1,974,440 - 4,725,150 8,809,241 - - - 250,000 - 321,025 571,025 Due from other - - - - - 57,700 57,700 TOTAL 27,291,222 $ 1,197,864 $ 531,057 $ 5,036,652 $ 2,071,200 $ 18,889,019 $ 55,017,014 LIABILITIES Warrants - $ - $ - $ 896,755 $ 730,782 $ 2 $ 1,627,539 Accrued liabilities…………………………………… 1,530,606 - - - - - 1,530,606 Accrued 6,089,004 - - 30,296 - 252,340 6,371,640 Tax refunds 146,567 - - - - - 146,567 Due to other - - - - - 57,700 57,700 Notes - - - 948,500 2,427,930 - 3,376,430 TOTAL LIABILITIES…………………………………… 7,766,177 - - 1,875,551 3,158,712 310,042 13,110,482 DEFERRED INFLOWS OF RESOURCES Unavailable 4,537,501 96,407 - 250,000 - 568,795 5,452,703 FUND BALANCES Nonspendable……………………………………… - - - - - 2,206,224 2,206,224 - 1,101,457 531,057 2,911,101 - 15,845,058 20,388,673 468,894 - - - - - 468,894 14,518,650 - - - (1,087,512) (41,100) 13,390,038 TOTAL FUND BALANCES…………………………… 14,987,544 1,101,457 531,057 2,911,101 (1,087,512) 18,010,182 36,453,829 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES………… $ 27,291,222 $ 1,197,864 $ 531,057 $ 5,036,652 $ 2,071,200 $ 18,889,019 $ 55,017,014 See notes to basic financial statements. GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2017 City of Salem, Massachusetts 44 Comprehensive Annual Financial Report ---PAGE BREAK--- RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET POSITION JUNE 30, 2017 Total governmental fund $ 36,453,829 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the 225,387,645 Accounts receivable are not available to pay for current-period expenditures and, therefore, are deferred in the 5,452,703 Certain changes in the net pension liability are required to be included in pension expense over future periods. These changes are reported as deferred outflows of resources or (deferred inflows of resources) related to pensions…………………………… 10,464,709 Internal service funds are used by management to account for health insurance activities. The assets and liabilities of the internal service funds are included in the governmental activities in the statement of net position……………………………… 63,432 In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until (377,518) Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds Bonds (47,959,069) Deferred charge on 57,388 Landfill (2,250,000) Workers' (1,481,595) Capital (2,250,280) Compensated (9,080,650) Other postemployment (56,605,130) Net pension (108,041,285) Net effect of reporting long-term (227,610,621) Net position of governmental $ 49,834,179 See notes to basic financial statements. City of Salem, Massachusetts 45 Comprehensive Annual Financial Report ---PAGE BREAK--- GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2017 Community City Grant Capital Nonmajor Total Preservation Wharf Improvement Governmental Governmental General Funds Fund City Grants Fund Funds Funds REVENUES: Real estate and personal property taxes, net of tax 90,142,571 $ 582,723 $ - $ - $ - $ - $ 90,725,294 Tax 763,080 - - - - - 763,080 Motor vehicle and other excise 4,300,898 - - - - - 4,300,898 Hotel/motel and meals 1,683,573 - - - - - 1,683,573 Charges for 2,777,857 - - 8,687 - 6,960 2,793,504 Penalties and interest on 460,601 1,385 - - - 4,106 466,092 Payments in lieu of 1,082,164 - - - - - 1,082,164 Licenses and 509,915 - - - - - 509,915 Fines and forfeitures………………………………………… 823,329 - - - - - 823,329 Intergovernmental…………………………………………… 44,878,077 114,479 819,438 10,359,290 490,000 12,813,312 69,474,596 Departmental and 3,302,414 - - 242,969 80,000 2,946,795 6,572,178 Contributions………………………………………………… - - - - - 228,567 228,567 Investment 295,907 487 - 16 - 837,664 1,134,074 TOTAL 151,020,386 699,074 819,438 10,610,962 570,000 16,837,404 180,557,264 EXPENDITURES: Current: General government……………………………………… 7,765,468 - - 838,930 2,212,817 242,635 11,059,850 Public 20,092,249 - - 2,389,955 1,116,982 64,628 23,663,814 58,499,630 - - 608,137 243,186 12,606,059 71,957,012 Public 4,850,394 - 265,037 5,130,200 1,897,457 1,801,094 13,944,182 Community development………………………………… - - - 80,000 - 1,255,941 1,335,941 Health and human services……………………………… 1,371,737 - - 4,249,124 - 216,264 5,837,125 Community preservation………………………………… - 604,319 - - - - 604,319 Culture and recreation…………………………………… 2,056,471 - - 97,128 90,543 273,895 2,518,037 Pension 23,610,047 - - - - - 23,610,047 Employee 14,108,736 - - - - - 14,108,736 State and county 7,946,729 - - - - - 7,946,729 Debt service: 3,728,127 - - - 24,234 - 3,752,361 1,810,439 - - - - - 1,810,439 TOTAL EXPENDITURES……………………………… 145,840,027 604,319 265,037 13,393,474 5,585,219 16,460,516 182,148,592 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………… 5,180,359 94,755 554,401 (2,782,512) (5,015,219) 376,888 (1,591,328) OTHER FINANCING SOURCES (USES): Issuance of - - - - 665,000 - 665,000 Issuance of refunding 3,312,000 - - - - - 3,312,000 Premium from issuance of 7,229 - - - - 510,389 517,618 Premium from issuance of refunding bonds……………… 464,866 - - - - - 464,866 Payments to refunded bond escrow agent……………… (3,735,364) - - - - - (3,735,364) Capital lease - - - - 590,426 - 590,426 Transfers 2,687,231 - - 1,648,085 - 2,926,246 7,261,562 Transfers (6,527,632) - - (178,808) - (1,065,526) (7,771,966) TOTAL OTHER FINANCING SOURCES (USES)… (3,791,670) - - 1,469,277 1,255,426 2,371,109 1,304,142 NET CHANGE IN FUND BALANCES……………………… 1,388,689 94,755 554,401 (1,313,235) (3,759,793) 2,747,997 (287,186) FUND BALANCES AT BEGINNING OF YEAR…………… 13,598,855 1,006,702 (23,344) 4,224,336 2,672,281 15,262,185 36,741,015 FUND BALANCES AT END OF 14,987,544 $ 1,101,457 $ 531,057 $ 2,911,101 $ (1,087,512) $ 18,010,182 $ 36,453,829 See notes to basic financial statements. City of Salem, Massachusetts 46 Comprehensive Annual Financial Report ---PAGE BREAK--- RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2017 Net change in fund balances - total governmental $ (287,186) Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital 14,234,566 Depreciation (9,235,094) Net effect of reporting capital 4,999,472 Revenues in the Statement of Activities that do not provide current financial resources are fully deferred in the Statement of Revenues, Expenditures and Changes in Fund Balances. Therefore, the recognition of revenue for various types of accounts receivable real estate and personal property, motor vehicle excise, etc.) differ between the two statements. This amount represents the net change in deferred (1,182,803) The issuance of long-term debt bonds and leases) provides current financial resources to governmental funds, while the repayment of the principal of long- term debt consumes the financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. Capital lease principal 551,370 Capital lease (590,426) Issuance of refunding (3,312,000) Premium from issuance of bonds (517,618) Premium from issuance of refunding bonds (464,866) Payment to Refunded bond escrow 3,735,364 Amortization of deferred charge on (17,397) Issuance of (665,000) Refunding bond issue (125,364) Amortization of premium on 373,325 Debt service principal 3,752,361 Net effect of reporting long-term 2,719,749 Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds. Net change in compensated absences (137,502) Net change in workers' (59,900) Net change in accrued interest on long-term (42,487) Net change in other postemployment (7,470,971) Net change in deferred outflow/(inflow) of resources related to pensions……………………… 3,034,955 Net change in net pension (5,678,521) Net effect of recording long-term liabilities and amortizing deferred losses……………… (10,354,426) Internal service funds are used by management to account for health insurance activities. The net activity of internal service funds is reported with Governmental Activities……………… (30,061) Change in net position of governmental $ (4,135,255) See notes to basic financial statements. City of Salem, Massachusetts 47 Comprehensive Annual Financial Report ---PAGE BREAK--- Governmental Activities - Water and Golf Internal Service Sewer Course Trash Total Funds ASSETS CURRENT: Cash and cash equivalents…………………………………$ 9,911,280 $ 500,259 $ 800,413 $ 11,211,952 $ 63,432 Receivables, net of allowance for uncollectibles: User 2,917,814 - - 2,917,814 - Trash - - 95,151 95,151 - Investment in joint 1,131,807 - - 1,131,807 - Total current 13,960,901 500,259 895,564 15,356,724 63,432 NONCURRENT: Capital assets, non depreciable…………………………… 110,141 118,067 - 228,208 - Capital assets, net of accumulated depreciation………… 34,758,661 595,570 - 35,354,231 - Total noncurrent 34,868,802 713,637 - 35,582,439 - TOTAL 48,829,703 1,213,896 895,564 50,939,163 63,432 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pensions……… 372,709 - - 372,709 - LIABILITIES CURRENT: Warrants 897,629 - - 897,629 - Accrued 191,054 - 267,163 458,217 - Accrued 17,942 - 2,363 20,305 - Accrued 245,536 718 - 246,254 - Capital lease obligations…………………………………… 65,167 56,293 - 121,460 - Compensated 17,668 8,476 - 26,144 - Notes 636,000 - - 636,000 - Bonds 2,423,784 15,000 - 2,438,784 - Total current liabilities………………………………… 4,494,780 80,487 269,526 4,844,793 - NONCURRENT: Capital lease obligations…………………………………… 67,083 37,873 - 104,956 - Compensated 39,620 - - 39,620 - Other postemployment benefits obligation………………. 1,134,005 273,173 124,710 1,531,888 - Net pension 2,823,313 - - 2,823,313 - Bonds 28,758,329 80,000 - 28,838,329 - Total noncurrent liabilities……………………………… 32,822,350 391,046 124,710 33,338,106 - TOTAL 37,317,130 471,533 394,236 38,182,899 - DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pensions……… 99,248 - - 99,248 - NET POSITION Net investment in capital 8,340,720 524,471 - 8,865,191 - 3,445,314 217,892 501,328 4,164,534 63,432 TOTAL NET 11,786,034 $ 742,363 $ 501,328 $ 13,029,725 $ 63,432 See notes to basic financial statements. PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2017 Business-type Activities - Enterprise Funds City of Salem, Massachusetts 48 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2017 Governmental Activities - Water and Golf Internal Service Sewer Course Trash Total Funds OPERATING REVENUES: Charges for services $ 13,312,357 $ 749,590 $ 861,402 $ 14,923,349 $ - OPERATING EXPENSES: Cost of services and administration 2,474,549 471,754 2,917,405 5,863,708 - District Assessment……………………………… 6,553,363 - - 6,553,363 - Depreciation……………………………………… 1,069,413 75,043 - 1,144,456 - Employee benefits - - - - 30,061 TOTAL OPERATING EXPENSES 10,097,325 546,797 2,917,405 13,561,527 30,061 OPERATING INCOME 3,215,032 202,793 (2,056,003) 1,361,822 (30,061) NONOPERATING REVENUES (EXPENSES): Interest (690,383) (5,809) - (696,192) - TOTAL NONOPERATING REVENUES (EXPENSES), (690,383) (5,809) - (696,192) - INCOME (LOSS) BEFORE TRANSFERS… 2,524,649 196,984 (2,056,003) 665,630 (30,061) TRANSFERS: Transfers - 518,027 2,118,620 2,636,647 - Transfers (1,324,095) (802,148) - (2,126,243) - TOTAL TRANSFERS………………………… (1,324,095) (284,121) 2,118,620 510,404 - CHANGE IN NET POSITION………………… 1,200,554 (87,137) 62,617 1,176,034 (30,061) NET POSITION AT BEGINNING OF YEAR……… 10,585,480 829,500 438,711 11,853,691 93,493 NET POSITION AT END OF YEAR……………… $ 11,786,034 $ 742,363 $ 501,328 $ 13,029,725 $ 63,432 See notes to basic financial statements. Business-type Activities - Enterprise Funds City of Salem, Massachusetts 49 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2017 Governmental Activities - Water and Golf Internal Service Sewer Course Trash Total Funds CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and 13,261,095 $ 749,590 $ 863,348 $ 14,874,033 $ - Payments to (8,492,304) (224,318) (2,834,060) (11,550,682) - Payments to (767,570) (225,009) (53,621) (1,046,200) - Payments for interfund services - - - - (30,061) NET CASH FROM OPERATING ACTIVITIES…………………………………… 4,001,221 300,263 (2,024,333) 2,277,151 (30,061) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers - 518,027 2,118,620 2,636,647 - Transfers (1,324,095) (802,148) - (2,126,243) - NET CASH FROM NONCAPITAL FINANCING ACTIVITIES…………………… (1,324,095) (284,121) 2,118,620 510,404 - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from the issuance of bonds and 3,788,250 - - 3,788,250 - Premium from the issuance of bonds and 651,799 - - 651,799 - Acquisition and construction of capital (3,314,282) (36,000) - (3,350,282) - Principal payments on bonds and (1,844,805) (37,639) - (1,882,444) - Principal payments on capital lease obligations……………………………… (63,306) (42,148) - (105,454) - Interest (1,000,047) (6,704) - (1,006,751) - NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES……… (1,782,391) (122,491) - (1,904,882) - NET CHANGE IN CASH AND CASH EQUIVALENTS…………………………… 894,735 (106,349) 94,287 882,673 (30,061) CASH AND CASH EQUIVALENTS AT BEGINNING OF 9,016,545 606,608 706,126 10,329,279 93,493 CASH AND CASH EQUIVALENTS AT END OF 9,911,280 $ 500,259 $ 800,413 $ 11,211,952 $ 63,432 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income $ 3,215,032 $ 202,793 $ (2,056,003) $ 1,361,822 $ (30,061) Adjustments to reconcile operating income (loss) to net cash from operating activities: 1,069,413 75,043 - 1,144,456 - Deferred (outflows)/inflows of resources related to pensions…………… (79,308) - - (79,308) - Changes in assets and liabilities: User (51,262) - - (51,262) - Trash - - 1,946 1,946 - Investment in joint (409,893) - - (409,893) - Accrued 32,217 - 9,267 41,484 - Accrued 4,677 - 513 5,190 - Other postemployment 65,113 22,736 19,944 107,793 - Accrued compensated 6,842 (309) - 6,533 - Net pension 148,390 - - 148,390 Total 786,189 97,470 31,670 915,329 - NET CASH FROM OPERATING ACTIVITIES……………………………………$ 4,001,221 $ 300,263 $ (2,024,333) $ 2,277,151 $ (30,061) NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES: Proceeds of refunded 1,463,000 - - 1,463,000 - Payment to escrow (1,463,000) - - (1,463,000) - See notes to basic financial statements. Business-type Activities - Enterprise Funds City of Salem, Massachusetts 50 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2017 Other Postemployment Private Pension Benefits Purpose Agency Trust Fund Trust Fund Trust Funds Fund Cash and cash equivalents……………………………………… $ 2,584,302 $ 6,597 $ 204,831 $ 652,922 Investments: Corporate - - 328,738 - Equity - - 809,684 - Equity mutual - 1,637,742 - - Fixed income mutual - 544,960 98,635 - Mutual - - 21,651 - 147,768,466 - - - Capital assets, net of accumulated depreciation……………… 88,281 - - - TOTAL 150,441,049 2,189,299 1,463,539 652,922 LIABILITIES Warrants 790 - - - Liabilities due - - - 652,922 TOTAL 790 - - 652,922 NET POSITION Restricted for 150,440,259 - - - Restricted for - 2,189,299 - - Held for other - - 1,463,539 - Total Net 150,440,259 $ 2,189,299 $ 1,463,539 $ - The Pension Trust Fund is as of December 31, 2016. See notes to basic financial statements. ASSETS City of Salem, Massachusetts 51 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION YEAR ENDED JUNE 30, 2017 Other Postemployment Private Pension Benefits Purpose Trust Fund Trust Fund Trust Funds ADDITIONS: Contributions: Employer 12,527,730 $ 269,044 $ - Employer contribution to pay for OPEB - 4,267,124 - Plan member 4,311,175 - - Retirement benefits - reimbursement of 91A overearnings…………………… - - - Retirement benefits - 3(8)c contributions from other systems………………… 198,591 - - Retirement benefits - transfers from other 431,438 - - Retirement benefits - state COLA reimbursements……………………………… 241,473 Private - - 29,127 Total 17,710,407 4,536,168 29,127 Net investment income: Net change in fair value of 6,734,232 115,481 137,180 Investment 4,069,114 55,287 982 Total investment 10,803,346 170,768 138,162 Less: investment (757,071) - - Net investment 10,046,275 170,768 138,162 TOTAL 27,756,682 4,706,936 167,289 DEDUCTIONS: 263,091 - - Retirement benefits - transfers to other 526,234 - - Retirement benefits and 15,122,226 - - Educational - - 38,825 Housing - - 30,613 3,125 - - OPEB - 4,267,124 - TOTAL 15,914,676 4,267,124 69,438 CHANGE IN NET 11,842,006 439,812 97,851 NET POSITION AT BEGINNING OF 138,598,253 1,749,487 1,365,688 NET POSITION AT END OF 150,440,259 $ 2,189,299 $ 1,463,539 The Pension Trust Fund is for the year ended December 31, 2016. See notes to basic financial statements. City of Salem, Massachusetts 52 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 53 Comprehensive Annual Financial Report NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Notes to basic financial statements The accompanying basic financial statements of the City of Salem, Massachusetts (the City) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board (GASB) is the recognized standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described herein. A. Reporting Entity The City is a Massachusetts municipal corporation with a Mayor-Council form of government. The Mayor is elected at large for a four-year term. The City Council is comprised of eleven members elected for two-year terms from seven wards and four at-large. For financial reporting purposes, the City has included all funds, organizations, agencies, boards, commissions and institutions. The City has also considered all potential component units for which it is financially accountable as well as other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the basic financial statements to be misleading or incomplete. As required by GAAP, these basic financial statements present the City (the primary government) and its component units. One entity has been included as a component unit in the reporting entity, because of the significance of its operational and/or financial relationship. Component Unit Presented as a Fiduciary Fund – The following component unit is presented as a Fiduciary Fund of the primary government due to the nature and significance of relationship between the City and the component unit. The Salem Contributory Retirement System (the System) was established to provide retirement benefits to City employees, the Salem Housing Authority employees, the South Essex Sewerage District employees, the Salem- Beverly Water Supply Board employees, the North Shore Regional Vocational School employees and their beneficiaries. The System is governed by a five-member board comprised of the Finance Director (ex-officio), two members elected by the System’s participants, one member appointed by the Mayor and one member appointed by the other board members. The System is presented using the accrual basis of accounting and is reported as a pension trust fund in the fiduciary fund financial statements. The System did issued a separate GAAP based audited financial statement along with a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth of Massachusetts’ (Commonwealth) Public Employee Retirement Administration Commission (PERAC). These reports may be obtained by contacting the System located at 20 Central Street, Suite 110, Salem, Massachusetts 01970. Joint Ventures – The following are joint ventures of the City. The City is a member of the South Essex Sewerage District (the District), a joint venture with the Cities of Salem and Beverly and the Towns of Danvers and Marblehead, for the operation of a septage disposal facility. The members share in overseeing the operations of the District. Each member is responsible for its proportionate share of the operational costs of the District, which are paid in the form of assessments. As of June 30, 2017, the City’s equity interest in the operations of the District totaled $1.1 million, which is recorded in the Water and Sewer Enterprise Fund. Complete financial statements for the District can be obtained by contacting them at 50 Fort Avenue, Salem, MA 01970. The City is a member of the Salem-Beverly Water Supply Board (Water Board), a joint venture with the City of Beverly for the operation of a water distribution system. The City does not have an equity interest in the Salem- ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 54 Comprehensive Annual Financial Report Beverly Water Supply Board. The annual assessment from the Water Board for the year ended June 30, 2017, totaled approximately $2,501,000. Complete financial information for the Water Board can be obtained by contacting them at 50 Arlington Avenue, Beverly, MA 01915. The City is a member of the Essex Technical High School that serves the members’ students seeking an education in academic, technical and agriculture studies. The members’ share in the operations of the Essex Technical High School and each member is responsible for its proportionate share of the operational and capital cost of the Essex Technical High School, which are paid in the form of assessments. The City does not have an equity interest in the Essex Technical High School and the 2017 assessment was $2,266,000. B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The government-wide financial statements statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its component units. Governmental activities, which are primarily supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which are supported primarily by user fees and charges. Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds 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. Nonmajor funds are aggregated and displayed in a single column. Major Fund Criteria Major funds must be reported if the following criteria are met: • If the total assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues, or expenditures/expenses of an individual governmental or enterprise fund are at least 10% of the corresponding element (assets and deferred outflows of resources, liabilities and deferred inflows of resources, etc.) for all funds of that category or type (total governmental or total enterprise funds), and • If the total assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5% of the corresponding element for all governmental and enterprise funds combined. Additionally, any other governmental or enterprise fund that management believes is particularly significant to the basic financial statements may be reported as a major fund. Internal service funds and fiduciary funds are reported by fund type. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 55 Comprehensive Annual Financial Report recorded when the liabilities are incurred. Real estate and personal 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. The statement of activities demonstrates the degree to which the direct expenses of a particular 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 the following: • Charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment. • Grants and contributions that are restricted to meeting the operational requirements of a particular function or segment. • Grants and contributions that are restricted to meeting the capital requirements of a particular function or segment. Taxes and other items not identifiable as program revenues are reported as general revenues. For the most part, the effect of interfund activity has been removed from the government-wide financial statements. However, the effect of interfund services provided and used between functions is not eliminated as the elimination of these charges would distort the direct costs and program revenues reported for the functions affected. Fund Financial Statements Governmental fund financial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual when measurable and available). Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with current expendable available resources. Real estate and personal property tax revenues are considered available if they are collected within 60 days after year-end. Investment income is susceptible to accrual. Other receipts and tax revenues become measurable and available when the cash is received and are recognized as revenue at that time. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria is met. Expenditure driven grants recognize revenue when the qualifying expenditures are incurred and all other grant requirements are met. The following major governmental funds are reported: The general fund is the primary operating fund. It is used to account for all financial resources, except those that are required to be accounted for in another fund. The community preservation fund is a special revenue fund used to account for the accumulation of resources for the acquisition, creation, preservation and support of open space, historic resources, and community housing. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 56 Comprehensive Annual Financial Report The City is allowed to impose a surcharge on property taxes and to receive matching state funds for these specified uses. The city wharf project fund is used to account for the fourth phase of the wharf project which includes improvements to the harborwalk, docks, walkways and pier construction. The city grants fund is used to account for non-school related activity specifically financed by federal, state, and other grants which are designated to specific programs. The capital improvement fund is used to account for the City’s capital projects related to their capital improvement plan for City related projects. The nonmajor governmental funds consist of other special revenue, capital projects and permanent funds that are aggregated and presented in the nonmajor governmental funds column on the governmental funds financial statements. The following describes the general use of these fund types: The special revenue fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than permanent funds or capital projects. The capital projects fund is 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 of the governmental funds. The permanent fund is used to account for and report financial resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the governmental programs. Proprietary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. 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 the proprietary funds principal ongoing operations. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. The following major proprietary funds are reported: The water and sewer enterprise fund is used to account for the City’s water and sewer activities. The golf course enterprise fund is used to account for the golf course activities. The trash enterprise fund is used to account for the solid waste disposal activities. Additionally, the following proprietary fund type is reported: The internal service fund is used to account for the financing of services provided by one department to other departments or governmental units. This fund is used to account for risk financing activities related to retirees’ health insurance. Fiduciary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting except for the agency fund, which has no measurement focus. Fiduciary ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 57 Comprehensive Annual Financial Report funds are used to account for assets held in a trustee capacity for others that cannot be used to support the governmental programs. The following fiduciary fund types are reported: The pension trust fund is used to account for the activities of the System, which accumulates resources to provide pension benefits to eligible retirees and their beneficiaries. The other postemployment benefit trust fund is used to accumulate resources to provide funding for future other postemployment benefits (OPEB) liabilities. The private-purpose trust fund is used to account for trust arrangements that exclusively benefit individuals, private organizations, or other governments. Some of these trusts have donor restrictions and trustee policies that do not allow the endowment portion and any unrealized appreciation to be spent. The donor restrictions and trustee policies only allow the trustees to authorize spending of the realized investment earnings. The City’s educational scholarships and housing subsidy trust funds are accounted for in this fund. The agency fund is used to account for assets held in a purely custodial capacity. The City’s agency funds consist primarily of payroll withholdings, police and fire details, escrow deposits and unclaimed property. D. Cash and Investments Government-Wide and Fund Financial Statements Cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with an original maturity of three months or less from the date of acquisition. Investments are carried at fair value. The fair values were determined by the closing price for those securities traded on national stock exchanges and at the average bid-and-asked quotation for those securities traded in the over-the-counter market. Investments that do not have an established market are reported at estimated fair values. E. Fair Value Measurements The City reports required types of financial instruments in accordance with the fair value standards. These standards require an entity to maximize the use of observable inputs (such as quoted prices in active markets) and minimize the use of unobservable inputs (such as appraisals or valuation techniques) to determine fair value. Fair value standards also require the government to classify these financial instruments into a three-level hierarchy, based on the priority of inputs to the valuation technique or in accordance with net asset value practical expedient rules, which allow for either Level 2 or Level 3 depending on lock up and notice periods associated with the underlying funds. Instruments measured and reported at fair value are classified and disclosed in one of the following categories: Level 1 – Quoted prices are available in active markets for identical instruments as of the reporting date. Instruments, which are generally included in this category, include actively traded equity and debt securities, U.S. government obligations, and mutual funds with quoted market prices in active markets. Level 2 – Pricing inputs are other than quoted in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 58 Comprehensive Annual Financial Report Certain fixed income securities, primarily corporate bonds, are classified as Level 2 because fair values are estimated using pricing models, matrix pricing, or discounted cash flows. Level 3 – Pricing inputs are unobservable for the instrument and include situations where there is little, if any, market activity for the instrument. The inputs into the determination of fair value require significant management judgment or estimation. In some instances the inputs used to measure fair value may fall into different levels of the fair value hierarchy and is based on the lowest level of input that is significant to the fair value measurement. Market price is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Instruments with readily available active quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. It is reasonably possible that change in values of these instruments will occur in the near term and that such changes could materially affect amounts reported in these financial statements. For more information on the fair value of the City’s financial instruments, see Note 2 – Cash and Investments. F. Accounts Receivable Government-Wide and Fund Financial Statements The recognition of revenue related to accounts receivable reported in the government-wide financial statements and the proprietary funds and fiduciary funds financial statements are reported under the accrual basis of accounting. The recognition of revenue related to accounts receivable reported in the governmental funds financial statements are reported under the modified accrual basis of accounting. Real Estate, Personal Property Taxes, Tax Liens and Tax Foreclosures Real estate and personal property taxes are levied and based on values assessed on January 1st of every year. Assessed values are established by the Board of Assessor’s for 100% of the estimated fair market value. Taxes are due on August 1st, November 1st, February 1st and May 1st and are subject to penalties and interest if they are not paid by the respective due date. Real estate and personal property taxes levied are recorded as receivables in the year of the levy. The City has the ability to process real estate tax liens on delinquent properties. Tax liens are processed once a year following the first quarter of the following year. Liens are recorded as receivables in the year they are processed. Real estate receivables which have been secured via the tax lien process are considered 100% collectible. Accordingly, an allowance for uncollectibles is not reported. Personal property taxes cannot be secured through the lien process. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. Motor Vehicle and Other Excise Taxes Motor vehicle excise taxes are assessed annually for each vehicle registered and are recorded as receivables in the year of the levy. The Commonwealth is responsible for reporting the number of vehicles registered and the fair values of those vehicles. The tax calculation is the fair value of the vehicle multiplied by $25 per $1,000 of value. Boat excise taxes are assessed annually for each boat registered and are recorded as receivables in the ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 59 Comprehensive Annual Financial Report year of the levy. The Commonwealth is responsible for reporting the number of boats registered and the fair value of those boats. The tax calculation is the fair value of the boat multiplied by $10 per $1,000 of value. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. User Fees Water and Sewer user fees are levied based on individual meter readings and are subject to penalties and interest if they are not paid by the respective due date. Unbilled user fees are estimated at year-end and are recorded as revenue in the current period. The City abides by a strict policy for unpaid user fees which includes liening any unpaid balance plus interest to the corresponding real estate tax bills. Trash user fees are levied based on the number of units located on the property. The per unit fee collected is $26.50 for commercial and $18 for residential. Collection from any one property shall not exceed $120 per month. Unpaid trash fees are subject to interest and demand fees; any fees not paid within thirty (30) days may be liened to the property in the following years’ real estate bill. Since the receivables are secured via either a shut off or lien process, these accounts are considered 100% collectible and therefore do not report an allowance for uncollectibles. Departmental and Other Departmental and other receivables consist primarily of grant proceeds, fire detail fees and investment funds of the retirement system received after year end that are recorded as receivables in the year accrued. The allowance of uncollectibles is estimated based on historical trends and specific account analysis. Intergovernmental Various federal and state grants for operating and capital purposes are applied for and received annually. For non-expenditure driven grants, receivables are recorded as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred and all other grant requirements are met. These receivables are considered 100% collectible and therefore do not report an allowance for uncollectibles. Loans Loan receivables are comprised of funds advanced to small businesses and developers under various Urban Development Action Grants (UDAG) and Community Development Block Grants (CDBG). The City loans funds to owners of commercial and residential properties for the purpose of rehabilitating these properties. The City receives funding for these loans from the U.S Department of Housing and Urban Development (HUD) under Community Development Block Grant (CDBG) programs for the City. These loans are repaid to the City under various terms and conditions stipulated by each loan agreement. The loan repayments may be used by the City for any eligible activity relevant to the community development program. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 60 Comprehensive Annual Financial Report G. Inventories and Prepaid Items Government-Wide and Fund Financial Statements Inventories are recorded as expenditures at the time of purchase. Inventories are not material in total to the government-wide and fund financial statements, and therefore are not reported. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. H. Capital Assets Government-Wide and Proprietary Fund Financial Statements Capital assets, which include land, land improvements, buildings and improvements, machinery and equipment, and infrastructure roads, water mains, sewer mains, and similar items), are reported in the applicable governmental or business-type activity column of the government-wide financial statements, and the proprietary fund financial statements. Capital assets are recorded at historical cost, or at estimated historical cost, if actual historical cost is not available. Donated capital assets, donated works of art, historical treasures and similar assets; and capital assets received in service concession arrangements are recorded at acquisition value. Except for the capital assets of the governmental activities column in the government-wide financial statements, construction period interest is capitalized on constructed capital assets. All purchases and construction costs in excess of $25,000 are capitalized at the date of acquisition or construction, respectively, with expected useful lives of greater than one year. This excludes vehicles, which will all be capitalized. Capital assets (excluding land and construction in progress) are depreciated on a straight-line basis. The estimated useful lives of capital assets are as follows: Estimated Useful Life (in years) Land improvements…………………………… 20-30 Buildings and improvements…………….…… 40 5-10 5-15 Infrastructure…………………………………… 15-80 Capital Asset Type The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized and are treated as expenses when incurred. Improvements are capitalized. Governmental Fund Financial Statements Capital asset costs are recorded as expenditures in the acquiring fund in the year of the purchase. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 61 Comprehensive Annual Financial Report I. Deferred Outflows/Inflows of Resources Government-Wide Financial Statements (Net Position) In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/ expenditure) until then. The City reported a deferred charge on refunding and deferred outflows related to pensions under this category. In addition to liabilities, the statement of net position will sometimes 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 City reported deferred inflows related to pensions under this category. Governmental Fund Financial Statements In addition to assets and liabilities, the balance sheet will sometimes report separate sections for deferred inflows and outflows of resources. These separate financial statement elements represent either an acquisition or consumption of fund balance that applies to a future period(s) and so will not be recognized until that time. The City has recorded unavailable revenue as deferred inflows of resources in the governmental funds balance sheet. Unavailable revenue is recognized as revenue in the conversion to the government-wide (full accrual) financial statements. The City did not have any deferred outflows of resources at year-end. J. Interfund Receivables and Payables During the course of its operations, transactions occur between and within individual funds that may result in amounts owed between funds. Government-Wide Financial Statements Transactions of a buyer/seller nature between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of net position as “internal balances”. Fund Financial Statements Transactions of a buyer/seller nature between and within funds are not eliminated from the individual fund statements. Receivables and payables resulting from these transactions are classified as “Due from other funds” or “Due to other funds” on the balance sheet. K. Interfund Transfers During the course of its operations, resources are permanently reallocated between and within funds. These transactions are reported as transfers in and transfers out. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 62 Comprehensive Annual Financial Report Government-Wide Financial Statements Transfers between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of activities as “Transfers, net”. Fund Financial Statements Transfers between and within funds are not eliminated from the individual fund statements and are reported as transfers in and transfers out. L. Net Position and Fund Equity Government-Wide Financial Statements (Net position) Net position reported as “net investment in capital assets” includes capital assets, net of accumulated depreciation, less the principal balance of outstanding debt used to acquire capital assets. Unspent proceeds of capital related debt are not considered to be capital assets. Outstanding debt related to future reimbursements from the state’s school building program is not considered to be capital related debt. Net position is reported as restricted when amounts are not available for appropriation or are legally restricted by outside parties for a specific future use. Net position has been “restricted for” the following: “Loans” represents community development outstanding loan receivable balances which are funded through the Community Development Block Grant program. The loan repayments are subject to various restrictions which are imposed by the grantors. “Permanent funds - expendable” represents the amount of realized and unrealized investment earnings of donor restricted trusts. The donor restrictions and trustee policies only allow the trustees to approve spending of the realized investment earnings that support governmental programs. “Permanent funds - nonexpendable” represents the endowment portion of donor restricted trusts that support governmental programs. “Grants and gifts” represents assets that have restrictions placed on them from outside parties. Sometimes the City will fund outlays for a particular purpose from both restricted restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted – net position to have been depleted before unrestricted – net position is applied. Fund Financial Statements (Fund Balances) Governmental fund equity is classified as fund balance. Fund balance is further classified as follows: “Nonspendable” fund balance includes amounts that cannot be spent because they are either not in spendable form or they are legally or contractually required to be maintained intact. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 63 Comprehensive Annual Financial Report “Restricted” fund balance includes amounts subject to constraints placed on the use of resources that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or that are imposed by law through constitutional provisions or enabling legislation. “Committed” fund balance includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority. An order of the City Council is the highest level of decision making authority that can commit or rescind funds for a specific purpose. Once voted, the limitation imposed by the order remains in place until the funds are used for their intended purpose or an order is taken to rescind the commitment. “Assigned” fund balance includes amounts that are constrained by the City’s intent to be used for specific purposes, but are neither restricted nor committed. The City Finance Director has the authority to assign fund balance. Funds are assigned when the City has an obligation to purchase goods or services from the current years’ appropriation. “Unassigned” fund balance includes the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund. Sometimes the City will fund outlays for a particular purpose from different components of fund balance. In order to calculate the amounts to report as restricted, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. When different components of fund balance can be used for the same purpose, it is the City’s policy to consider restricted fund balance to have been depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. M. Long-term debt Government-Wide and Proprietary Fund Financial Statements Long-term debt is reported as liabilities in the government-wide and proprietary fund statement of net position. Material bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Governmental Fund Financial Statements The face amount of governmental funds long-term debt is reported as other financing sources. Bond premiums and discounts, as well as issuance costs, are recognized in the current period. Bond premiums are reported as other financing sources and bond discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual bond proceeds received, are reported as general government expenditures. N. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of both the Salem Contributory Retirement System and the Massachusetts Teachers Retirement System and additions to/deductions from the Systems fiduciary net position have been determined on the same basis as they are reported by the Systems. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 64 Comprehensive Annual Financial Report O. Investment Income Excluding the permanent funds, investment income derived from major and nonmajor governmental funds is legally assigned to the general fund unless otherwise directed by Massachusetts General Law (MGL). Investment income of the enterprise funds is voluntarily assigned to the general fund. P. Compensated Absences Employees are granted vacation and sick leave in varying amounts based on collective bargaining agreements, state laws and executive policies. Compensated absence liabilities related to both governmental and business- type activities are normally paid from the funds reporting payroll and related expenditures. Government-Wide and Proprietary Fund Financial Statements Vested or accumulated vacation and sick leave are reported as liabilities and expensed as incurred. Governmental Fund Financial Statements Vested or accumulated vacation and sick leave, which will be liquidated with expendable available financial resources, are reported as expenditures and fund liabilities upon maturity of the liability. Q. Fund Deficits and Appropriation Deficits Individual fund deficits existed at June 30, 2017, in the capital improvement fund and the highway grant fund. The deficits will be funded through long-term borrowing, capital grants and grant proceeds in 2018. Actual expenditures exceeded appropriations for snow and ice removal by $852,000, in FY2017 which will be raised in FY2018. Due to the unusual magnitude of snow and ice removal costs in 2015, the state has allowed communities to raise the 2015 deficits over 3 years. At the end of FY2017 $662,000, of the FY2015 deficit will be raised in FY2018. Massachusetts General Laws allows communities to overspend their snow and ice removal appropriation line; however, deficits must be raised in the subsequent year. R. Use of Estimates Government-Wide and Fund Financial Statements The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the year. Actual results could vary from estimates that were used. S. Total Column Government-Wide Financial Statements The total column presented on the government-wide financial statements represents consolidated financial information. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 65 Comprehensive Annual Financial Report Fund Financial Statements The total column on the fund financial statements is presented only to facilitate financial analysis. Data in this column is not the equivalent of consolidated financial information. NOTE 2 – CASH AND INVESTMENTS A cash and investment pool is maintained that is available for use by all funds. Each fund type's portion of this pool is displayed on the balance sheet as "cash and cash equivalents". The deposits and investments of the trust funds are held separately from those of other funds. Statutes authorize the investment in obligations of the U.S. Treasury, agencies, and instrumentalities, certificates of deposit, repurchase agreements, money market accounts, bank deposits and the State Treasurer's Investment Pool (the Pool). The Treasurer and Trust Fund Commission may also invest trust funds in securities, other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth; provided, that not more than 15% of any trust fund may be invested in bank stocks and insurance company stocks, and not more than 15% of any trust fund can be invested in the stock of any one bank or insurance company. The Pool meets the criteria of an external investment pool. The Pool is administered by the Massachusetts Municipal Depository Trust (MMDT), which was established by the Treasurer of the Commonwealth who serves as Trustee. The fair value of the position in the Pool is the same as the value of the Pool shares. The City Treasurer is the custodian of funds held in the Other Postemployment Benefit (OPEB) Trust Fund. As of June 30, 2017, $2,189,299, from the OPEB Trust Fund is included within the City’s cash and investments balances in the following disclosures. The System participates in the Pension Reserve Investment Trust (PRIT), which meets the criteria of an external investment pool. PRIT is administered by the Pension Reserves Investment Management Board, which was established by the Treasurer of the Commonwealth of Massachusetts who serves as Trustee. The fair value of the position in the PRIT is the same as the value of the PRIT shares. The System also has expanded investment powers which are governed by Chapter 32 of the general laws of the Commonwealth and by the regulations issued by the Public Employee Retirement Administration Commission (PERAC). The existing law provides that Systems will invest in securities other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth. Custodial Credit Risk – Deposits In the case of deposits, this is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. The City does not have a formal deposit policy for custodial credit risk. At year-end, the carrying amount of deposits totaled $41,774,792 and the bank balance totaled $43,644,442. Of the bank balance, $3,989,714 was covered by Federal Depository Insurance, $11,979,353 was covered by the Share Insurance Fund, $7,138,656 was covered by the Depositors Insurance Fund, $17,880,319 was collateralized and $2,656,400 was exposed to custodial credit risk because it was uninsured and uncollateralized. The System does not have a formal deposit policy for custodial credit risk. At year-end, the carrying amount of deposits totaled $249,772 and the bank balance totaled $568,069. The entire bank balance was covered by Federal Depository Insurance. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 66 Comprehensive Annual Financial Report Investments As of June 30, 2017, the City had the following investments: Investment Type Fair Value Under 1 Year 1-5 Years 6-10 Years Debt Securities: U.S. Treasury 1,197,322 $ 301,160 $ 896,162 $ - U.S. Government Securities……………………………… 1,753,190 - 1,753,190 - Corporate 3,061,819 389,643 1,950,886 721,290 Total Debt 6,012,331 $ 690,803 $ 4,600,238 $ 721,290 Other Investments: Equity 5,710,520 Equity Mutual 2,977,090 Mutual 129,611 Fixed Income Mutual 590,475 Money Market Mutual 545,916 74,552 Total $ 16,040,495 Maturity As of December 31, 2016, the System had the following investments: Maturity Fair Value Under 1 Year Investment Type Repurchase Agreements…………………………………$ 2,334,530 $ 2,334,530 Other Investments: Alternative 122,707 Pension Reserve Investment Trust 147,645,759 Total $ 150,102,996 The City participates in MMDT which is unrated. MMDT maintains a cash portfolio and a short-term bond portfolio with combined average maturities of approximately 3 months. The System participates in PRIT which is unrated. The effective weighted duration rate for PRIT investments ranged from 0.45 to 22.60 years. Custodial Credit Risk – Investments For an investment, this is the risk that, in the event of a failure by the counterparty, the City will not be able to recover the value of its investments or collateral security that are in the possession of an outside party. The Citywide investment policy, as well as the investment policy specifically for OPEB funds, addresses custodial credit risk by requiring all securities not held directly by the City to be held in the City’s name and tax identification number by a third party custodian approved by the Treasurer and evidenced by safekeeping receipts showing individual CUSIP numbers for each security. The City’s investments, $3,061,819 of corporate bonds, $1,197,322 of U.S. Treasury Notes, $1,753,190 of Government Sponsored Enterprises and $5,710,520 of equity securities are covered by this policy. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 67 Comprehensive Annual Financial Report The System’s investments are not subject to custodial credit risk as all of the securities are insured or registered, and held by its agents in the name of the Salem Contributory Retirement Board. Interest Rate Risk The City has a formal investment policy limiting investment maturities up to one year as a means of managing its exposure to fair value losses arising from increasing interest rates. The System does not have a formal investment policy related to interest rate risk. Credit Risk The City has not adopted a formal policy related to Credit Risk. The investment ratings are as follows: Government Corporate Sponsored Bonds Enterprises - $ 1,753,190 1,048,186 - 476,408 - 1,053,350 - BBB………… 277,542 - 203,208 - $ 3,061,819 $ 1,753,190 The System has not adopted a formal policy related to Credit Risk. The alternate investment mutual funds, real estate mutual fund investments and PRIT are unrated. Concentration of Credit Risk The City restricts investments to no more than 5% in any one issuer. The City did not have more than 5% of its investments in any one individual security. The retirement system places no limit on the amount the government may invest in any one issuer. The System did not have more than 5% of its investments in any one individual security. Fair Value Measurement The City holds investments that are measured at fair value on a recurring basis. Because investing is not a core part of the City’s mission, the City determines that the disclosures related to these investments only need to be disaggregated by major type. The City chooses a tabular format for disclosing the levels within the fair value hierarchy. The City 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 asset. Level 1inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 68 Comprehensive Annual Financial Report The following table presents financial assets at June 30, 2017, that the City measures fair value on a recurring basis, by level, within the fair value hierarchy: Quoted Prices in Active Markets for Other Significant Identical Observable Unobservable June 30, Assets Inputs Inputs Investment Type 2017 (Level 1) (Level 2) (Level 3) Debt Securities: U.S. Government Treasuries…………………………………$ 1,197,322 $ 1,197,322 $ - $ - Government Sponsored Enterprises………………………… 1,753,190 1,753,190 - - Corporate 3,061,819 - 3,061,819 - Total debt 6,012,331 2,950,512 3,061,819 - Other investments: Equity 5,710,520 5,710,520 - - Equity Mutual 2,977,090 2,977,090 - - Mutual 129,611 129,611 - - Money Market Mutual 545,916 545,916 - - Fixed Income Mutual 590,475 590,475 - - Total other 9,953,612 9,953,612 - - Total investments measured at fair 15,965,943 $ 12,904,124 $ 3,061,819 $ - Investments measured at amortized cost: 74,552 Total investments………………………………………… $ 16,040,495 Fair Value Measurements Using U.S. government treasuries and government sponsored enterprises, equity securities, equity mutual funds, mutual funds, corporate bond mutual funds, money market mutual funds classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Corporate bonds classified in 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. MMDT investments are valued at amortized cost. Under the amortized cost method, an investment is valued initially at its cost and adjusted for the amount of interest income accrued each day over the term of the investment to account for any difference between the initial cost and the amount payable at its maturity. If amortized cost is determined not to approximate fair value, the value of the portfolio securities will be determined under procedures established by the Advisor. The retiree pension defined benefit plan holds significant amounts of investments that are measured at fair value on a recurring basis. Because investing is a key part of the plan’s activities, the plan shows greater disaggregation in its disclosures. The plan chooses a tabular format for disclosing the levels within the fair value hierarchy. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 69 Comprehensive Annual Financial Report The following table presents financial assets at December 31, 2016, that the System measures fair value on a recurring basis, by level, within the fair value hierarchy: Quoted Prices in Active Markets for Other Significant Identical Observable Unobservable December 31, Assets Inputs Inputs Investment Type 2016 (Level 1) (Level 2) (Level 3) Alternative Investments……………………………………… $ 122,707 $ - $ - $ 122,707 Repurchase Agreements…………………………………… 2,334,530 - - 2,334,530 Total investments measured at fair 2,457,237 $ - $ - $ 2,457,237 Investments measured at net asset value: 147,645,759 Total investments………………………………………… $ 150,102,996 Fair Value Measurements Using Alternative investments and repurchase agreements classified in level 3 are valued using either a discounted cash flow or market comparable company’s technique. PRIT Investments are valued using the net asset value (NAV) method. This investment pool was established by the Treasurer of the Commonwealth of Massachusetts, who serves as Trustee. PRIT is administered by the Pension Reserves Investment Management Board (PRIM). The fair values of the positions in each investment Pool are the same as the value of each Pool’s shares. The System does not have the ability to control any of the investment decisions relative to its funds in PRIT. NOTE 3 – RECEIVABLES At June 30, 2017, receivables for the individual major governmental funds, non-major governmental funds and internal service funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Real estate and personal property taxes…………… $ 1,137,134 $ - $ 1,137,134 Tax 1,422,126 - 1,422,126 Motor vehicle and other excise taxes………………… 796,773 (167,245) 629,528 Departmental and 156,117 - 156,117 Intergovernmental……………………………………… 8,809,241 - 8,809,241 571,025 - 571,025 $ 12,892,416 $ (167,245) $ 12,725,171 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 70 Comprehensive Annual Financial Report At June 30, 2017, receivables for the water and sewer and trash enterprise funds consist of the following: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Water and sewer user $ 2,917,814 $ - $ 2,917,814 Trash 95,151 - 95,151 $ 3,012,965 $ - $ 3,012,965 Governmental funds report deferred inflows of resources in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. At the end of the current year, the various components of deferred inflows of resources for unavailable revenue reported in the governmental funds were as follows: Other General Governmental Fund Funds Total Receivable type: Real estate and personal property taxes………………$ 464,604 $ 7,999 $ 472,603 Tax 1,422,126 - 1,422,126 Motor vehicle and other excise taxes………………… 629,528 - 629,528 Departmental and - 156,117 156,117 Intergovernmental……………………………………… 2,021,243 180,061 2,201,304 - 571,025 571,025 4,537,501 $ 915,202 $ 5,452,703 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 71 Comprehensive Annual Financial Report NOTE 4 – CAPITAL ASSETS Capital asset activity for the year ended June 30, 2017, was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: $ 6,330,757 $ 1,400,000 $ - $ 7,730,757 Construction in progress……………………………… 996,403 769,844 - 1,766,247 Total capital assets not being depreciated…… 7,327,160 2,169,844 - 9,497,004 Capital assets being depreciated: Land improvements…………………………………… 13,269,708 972,200 (10,258) 14,231,650 Buildings and improvements………………………… 235,646,258 2,689,412 - 238,335,670 13,656,689 759,022 (125,850) 14,289,861 Infrastructure………………………………………… 78,245,204 6,498,549 (24,952) 84,718,801 5,350,812 1,155,848 (609,381) 5,897,279 Total capital assets being depreciated………… 346,168,671 12,075,031 (770,441) 357,473,261 Less accumulated depreciation for: Land improvements…………………………………… (4,120,540) (523,992) 10,109 (4,634,423) Buildings and improvements………………………… (78,777,987) (5,398,283) - (84,176,270) (7,938,574) (895,773) 125,850 (8,708,497) Infrastructure………………………………………… (38,457,278) (2,015,698) 24,952 (40,448,024) (3,813,279) (401,348) 599,221 (3,615,406) Total accumulated depreciation………………… (133,107,658) (9,235,094) 760,132 (141,582,620) Total capital assets being depreciated, 213,061,013 2,839,937 (10,309) 215,890,641 Total governmental activities capital assets…………… $ 220,388,173 $ 5,009,781 $ (10,309) $ 225,387,645 Beginning Ending Balance Increases Decreases Balance Water and Sewer Activities: Capital assets not being depreciated: $ 110,141 $ - $ - $ 110,141 Capital assets being depreciated: Buildings and improvements………………………… 119,975 - - 119,975 296,290 - - 296,290 423,701 - - 423,701 Infrastructure…………………………………………… 43,598,794 2,873,411 - 46,472,205 Total capital assets being depreciated………… 44,438,760 2,873,411 - 47,312,171 Less accumulated depreciation for: Buildings and improvements………………………… (88,474) (5,728) - (94,202) (260,976) (25,065) - (286,041) (195,420) (65,222) - (260,642) Infrastructure…………………………………………… (10,939,227) (973,398) - (11,912,625) Total accumulated depreciation………………… (11,484,097) (1,069,413) - (12,553,510) Total capital assets being depreciated, 32,954,663 1,803,998 - 34,758,661 Total water and sewer activities capital assets…………$ 33,064,804 $ 1,803,998 $ - $ 34,868,802 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 72 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Golf Course Activities: Capital assets not being depreciated: $ 118,067 $ - $ - $ 118,067 Capital assets being depreciated: Land improvements…………………………………… 312,852 36,000 - 348,852 Buildings and improvements………………………… 453,988 - - 453,988 - 57,316 - 57,316 691,471 - - 691,471 Total capital assets being depreciated………… 1,458,311 93,316 - 1,551,627 Less accumulated depreciation for: Land improvements…………………………………… (311,051) (2,101) - (313,152) Buildings and improvements………………………… (195,488) (11,000) - (206,488) (5,732) - (5,732) (374,475) (56,210) - (430,685) Total accumulated depreciation………………… (881,014) (75,043) - (956,057) Total capital assets being depreciated, 577,297 18,273 - 595,570 Total golf course activities capital assets……………… $ 695,364 $ 18,273 $ - $ 713,637 In the fiduciary activities, the Retirement System owns a condominium, which is being depreciated on a straight- line basis over 40 years. The historical cost of the condominium was $125,000; accumulated depreciation through December 31, 2016, totals $36,719, for a net book value of $88,281. Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General $ 536,467 Public 741,136 4,997,158 Public 2,685,823 Health and human 14,766 Culture and 259,744 Total depreciation expense - governmental activities………………………… $ 9,235,094 Business-Type Activities: Water and 1,069,413 Golf 75,043 Total depreciation expense - business-type activities…………………………$ 1,144,456 Fiduciary Activities: Pension $ 3,125 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 73 Comprehensive Annual Financial Report NOTE 5 – INTERFUND TRANSFERS AND BALANCES Interfund transfers for the year ended June 30, 2017, are summarized as follows: City Trash Golf Course Water and Sewer Nonmajor General Grants Enterprise Enterprise Enterprise Governmental Transfers Out: Fund Fund Fund Fund Fund Funds Total General $ - $ 1,236,566 $ 2,118,620 $ 518,027 $ - $ 2,654,419 $ 6,527,632 City Grants 14,790 164,018 - - - - 178,808 Nonmajor Governmental Funds………… 546,198 247,501 - - - 271,827 1,065,526 Golf Course Enterprise Fund………….. 802,148 - - - - - 802,148 Water and Sewer Enterprise Fund…… 1,324,095 - - - 1,464,097 - 2,788,192 2,687,231 $ 1,648,085 $ 2,118,620 $ 518,027 $ 1,464,097 $ 2,926,246 $ 11,362,306 Transfers In: Transfer from general fund to city grants fund to fund capital projects; to trash enterprise fund for the City's subsidized portion; transfer from general fund to golf enterprise fund to reimburse for amounts raised by taxation; transfer from general fund to nonmajor governmental funds to fund capital projects. Transfer from city grants fund to general fund to close out old grant funds; transfers within city grant funds. Transfer from other governmental funds to the general fund for their share of indirect costs; transfer to city grants funds to fund capital projects; transfers within nonmajor governmental funds to reallocate resources. Transfers from the golf course enterprise fund to the general fund as voted by the City council to fund related operations. Transfer from the water and sewer enterprise fund to the general fund for their share of indirect costs. The City’s interfund balances at June 30, 2017, consisted of $57,700 in balances within the nonmajor governmental funds representing interfund borrowings for cash flow purposes. NOTE 6 – CAPITAL AND OPERATING LEASES Capital Leases The City has entered into lease agreements as lessee for financing the acquisition of various vehicles and equipment for governmental activities. These lease agreements qualify as capital leases for accounting purposes and therefore, have been recorded at the present value of their future minimum lease payments as of the inception date. The City has also entered into a new capital lease agreements for golf and turf equipment recorded in business-type activities. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 74 Comprehensive Annual Financial Report The assets acquired through capital leases are as follows: Governmental Business-type Activities Activities Asset: Machinery and 205,252 $ 447,254 1,586,189 57,316 Infrastructure………...……………………………………… 1,240,594 - Less: accumulated depreciation………………………… (459,752) (205,206) 2,572,283 $ 299,364 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2017, were as follows: Governmental Business-type Years Ending June 30: Activities Activities 569,446 $ 127,239 575,400 88,598 328,991 19,543 284,199 - 270,838 - 268,047 - 87,972 - Total minimum lease payments……………………… 2,384,893 235,380 Less: amounts representing interest………………… (134,613) (8,964) Present value of minimum lease payments………… $ 2,250,280 $ 226,416 Operating Leases The City leases office space for the City Hall Annex under an operating lease that began in March 2013 and has been extended through 2018. The City made twelve lease payments for the year ended June 30, 2017, totaling $396,506 which is reported as general government expenditures in the general fund. NOTE 7 – SHORT-TERM FINANCING Short-term debt may be authorized and issued to fund the following: • Current operating costs prior to the collection of revenues through issuance of revenue or tax anticipation notes (RANS or TANS). • Capital project costs and other approved expenditures incurred prior to obtaining permanent financing through issuance of bond anticipation notes (BANS), state aid anticipation notes (SAANS) or grant anticipation notes (GANS). ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 75 Comprehensive Annual Financial Report Short-term loans are general obligations and carry maturity dates that are limited by statute. Interest expenditures and expenses for short-term borrowings are accounted for in the general fund and enterprise funds, respectively. Details related to the short-term debt activity for the year ended June 30, 2017, are as follows: Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose Due Date 2016 Issued Redeemed 2017 Governmental Activities SAAN Municipal Purpose……… 1.50% 06/28/18 $ - $ 948,500 $ - $ 948,500 BAN Municipal Purpose……… 1.60% 11/17/17 - 2,427,930 - 2,427,930 SAAN Municipal Purpose……… 1.08% 06/30/17 2,267,000 - (2,267,000) - BAN Municipal Purpose……… 1.50% 01/31/17 900 - (900) - Sub-total governmental 2,267,900 3,376,430 (2,267,900) 3,376,430 Business-type Activities BAN Municipal Purpose……… 1.60% 11/17/17 - 50,000 - 50,000 BAN Municipal Purpose……… 1.60% 11/17/17 - 586,000 - 586,000 Sub-total business-type - 636,000 - 636,000 Total notes 2,267,900 $ 4,012,430 $ (2,267,900) $ 4,012,430 Subsequent to year end the City rolled the BANs that matured on November 17, 2017, into a new BAN totaling $3,063,930, with a 2.00% interest rate, which matures on January 31, 2018. NOTE 8 – LONG-TERM DEBT Under the provisions of Chapter 44, Section 10, Municipal Law authorizes indebtedness up to a limit of 5% of the equalized valuation. Debt issued in accordance with this section of the law is designated as being "inside the debt limit". In addition, however, debt may be authorized in excess of that limit for specific purposes. Such debt, when issued, is designated as being "outside the debt limit". Details related to the outstanding general obligation indebtedness at June 30, 2017, and the debt service requirements are reported in the following tables. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 76 Comprehensive Annual Financial Report Bonds Payable Schedule – Governmental Activities Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2016 Issued Redeemed 2017 Municipal Purpose Bonds of 2028 $ 8,319,497 3.75-5.00% $ 4,420,000 $ - $ (4,015,000) $ 405,000 Municipal Purpose Refunding Bonds of 2010……… 2020 8,113,000 2.00-5.00% 3,251,000 - (766,000) 2,485,000 Municipal Purpose Bonds of 2026 5,219,000 3.00-5.00% 2,630,000 - (380,000) 2,250,000 Municipal Purpose Bonds of 2043 15,143,598 2.63-4.00% 13,920,000 - (520,000) 13,400,000 Municipal Purpose Bonds of 2034 6,680,000 3.00-4.00% 6,100,000 - (300,000) 5,800,000 Municipal Purpose Refunding Bonds of 2014……… 2025 2,509,500 3.00-4.00% 2,375,000 - (345,000) 2,030,000 Municipal Purpose Bonds of 2035 4,860,000 2.50-4.00% 5,405,000 - (565,000) 4,840,000 Municipal Purpose Bonds of 2036 5,731,361 2.50-4.00% 5,731,361 - (471,361) 5,260,000 Municipal Purpose Bonds of 2036 5,407,000 3.00-4.00% 4,742,000 665,000 - 5,407,000 Municipal Purpose Refunding Bonds of 2017……… 2037 3,312,000 3.00-4.00% - 3,312,000 - 3,312,000 Total Governmental bonds 48,574,361 3,977,000 (7,362,361) 45,189,000 Unamortized premiums on 2,160,910 982,484 (373,325) 2,770,069 Total outstanding bonds payable reported in governmental activities……………………………………$ 50,735,271 $ 4,959,484 $ (7,735,686) 47,959,069 Less unamortized premiums on (2,770,069) Total future payments of bonds reported in governmental 45,189,000 Debt service requirements for governmental bonds are as follows: Year Principal Interest Total $ 4,282,000 $ 1,634,731 $ 5,916,731 4,190,000 1,483,545 5,673,545 4,200,000 1,309,772 5,509,772 3,060,000 1,151,597 4,211,597 2,625,000 1,029,698 3,654,698 2,630,000 916,320 3,546,320 2,465,000 806,302 3,271,302 2,480,000 705,050 3,185,050 2,055,000 618,527 2,673,527 1,830,000 551,453 2,381,453 1,792,000 491,348 2,283,348 1,335,000 440,068 1,775,068 1,230,000 397,168 1,627,168 1,230,000 355,593 1,585,593 1,200,000 314,745 1,514,745 1,215,000 274,533 1,489,533 1,215,000 233,468 1,448,468 905,000 198,573 1,103,573 830,000 171,265 1,001,265 695,000 146,148 841,148 600,000 123,784 723,784 620,000 102,044 722,044 645,000 79,117 724,117 660,000 55,473 715,473 695,000 30,914 725,914 505,000 9,154 514,154 $ 45,189,000 $ 13,630,390 $ 58,819,390 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 77 Comprehensive Annual Financial Report The Commonwealth has approved school construction assistance to the City. The assistance program, which is administered by the MSBA, provides resources for future debt service of general obligation school bonds outstanding. During 2017, $733,000 of such assistance was received. Approximately $2,198,000 will be received in future years of which $177,000 represents reimbursement of long-term interest costs, and $2,021,000 represents reimbursement of approved construction costs. Accordingly, a $2,021,000 intergovernmental receivable and corresponding deferred inflow of resources have been reported in the governmental fund financial statements. The deferred inflow of resources has been eliminated in the conversion to the government-wide financial statements and reported as net position. The MSBA has modified the method of funding for new projects in the school building assistance program. Under the new program, the assistance is paid to support the State’s share of eligible construction costs as they are incurred, therefore eliminating the need for the City to fund the State’s share through long-term debt. The Saltonstall and Collins School projects are being partially funded through this program. As of June 30, 2017, the City has recorded an intergovernmental receivable totaling $4.4 million, which represents the State’s 78.23% share of eligible construction costs incurred to date that have not yet been reimbursed. The MSBA has performed final audits on the City’s construction costs and final reimbursements of $3,892,750 have been received in July 2017. In order to take advantage of favorable interest rates, the City issued $4,775,000 of General Obligation Refunding Bonds on November 17, 2016. The proceeds of the refunding bonds along with the bond premiums and City funds were used to advance refund $5,210,000 of general obligation bonds by placing the proceeds of the refunding bonds and additional City funds in an irrevocable trust to provide for all future debt service payments on the refunded bonds. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the statement of net positon. This advance refunding was undertaken to reduce total debt service payments over the next 10 years by $435,000 and resulted in an economic gain of $525,324. At June 30, 2017, $5,210,000 of bonds outstanding from the advance refunding are considered defeased. Bonds Payable Schedule – Water and Sewer Enterprise Fund Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2016 Issued Redeemed 2017 Water Project - 2027 $ 2,330,656 2.00% $ 1,398,468 $ - $ (114,805) $ 1,283,663 Water 2028 3,250,503 3.75-5.00% 1,925,000 - (1,765,000) 160,000 Sewer Improvements………………………………… 2030 1,690,000 3.00-5.00% 1,200,000 - (95,000) 1,105,000 Water System Tanks and Improvements………… 2031 8,464,000 3.00-5.00% 5,760,000 - (540,000) 5,220,000 Water System Improvements………………………… 2033 1,412,402 2.63-4.00% 1,250,000 - (55,000) 1,195,000 Sewer Improvements………………………………… 2033 1,435,000 2.63-4.00% 1,260,000 - (60,000) 1,200,000 Sewer Improvements………………………………… 2034 3,900,000 3.00-4.00% 3,625,000 - (145,000) 3,480,000 Sewer Improvements………………………………… 2035 2,300,000 2.50-4.00% 2,185,000 - (115,000) 2,070,000 Sewer Improvements………………………………… 2036 2,650,000 2.00-5.00% 2,650,000 - (140,000) 2,510,000 Water Improvements………………………………… 2025 3,600,000 2.00-5.00% 3,600,000 - (415,000) 3,185,000 Sewer Improvements………………………………… 2036 2,950,000 3.00-4.00% 1,010,750 1,939,250 - 2,950,000 Water Improvements………………………………… 2036 4,095,000 3.00-4.00% 2,882,000 1,213,000 - 4,095,000 Water Refunding Bonds of 2028 1,463,000 4.00% - 1,463,000 - 1,463,000 Total Water and Sewer bonds 28,746,218 4,615,250 (3,444,805) 29,916,663 Unamortized premiums on 788,037 651,799 (174,386) 1,265,450 Total outstanding bonds payable reported in water and $ 29,534,255 $ 5,267,049 $ (3,619,191) $ 31,182,113 Less unamortized premiums on bonds (1,265,450) Total future payments on bonds reported in water and sewer 29,916,663 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 78 Comprehensive Annual Financial Report Debt service requirements for the water and sewer enterprise fund are as follows: Year Principal Interest Total 2,232,124 $ 1,088,737 $ 3,320,861 2019……………… 2,229,490 1,011,770 3,241,260 2020……………… 2,246,904 923,206 3,170,110 2021……………… 2,274,367 830,494 3,104,861 2022……………… 2,201,880 738,131 2,940,011 2023……………… 2,219,443 646,919 2,866,362 2024……………… 2,252,058 554,754 2,806,812 2025……………… 2,279,726 463,478 2,743,204 2026……………… 1,922,447 383,595 2,306,042 2027……………… 1,545,224 321,437 1,866,661 2028……………… 1,328,000 270,632 1,598,632 2029……………… 1,205,000 224,913 1,429,913 2030……………… 1,050,000 183,687 1,233,687 2031……………… 1,040,000 145,816 1,185,816 2032……………… 940,000 111,444 1,051,444 2033……………… 915,000 80,470 995,470 2034……………… 790,000 51,391 841,391 2035……………… 525,000 29,547 554,547 2036……………… 420,000 19,428 439,428 2037……………… 300,000 - 300,000 Total………………$ 29,916,663 $ 8,079,849 $ 37,996,512 Bonds Payable Schedule – Golf Course Enterprise Fund Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2016 Issued Redeemed 2017 Golf Course Clubhouse Refunding of 2010………… 2017 $ 172,000 2.00-5.00% $ 19,000 $ - $ (19,000) $ - Golf Course Equipment of 2024 113,639 2.00-5.00% 113,639 - (18,639) 95,000 Total Golf Course Enterprise bonds 132,639 $ - $ (37,639) $ 95,000 Debt service requirements for the golf course enterprise fund are as follows: Year Principal Interest Total 15,000 $ 4,075 $ 19,075 2019……………… 15,000 3,550 18,550 2020……………… 15,000 2,875 17,875 2021……………… 15,000 2,125 17,125 2022……………… 15,000 1,375 16,375 2023……………… 10,000 750 10,750 2024……………… 10,000 250 10,250 Total………………$ 95,000 $ 15,000 $ 110,000 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 79 Comprehensive Annual Financial Report The City is subject to various debt limits by statute and may issue additional general obligation debt under the normal debt limit. At June 30, 2017, the City had the following authorized and unissued debt: Purpose Amount School Construction and Equipment…… $ 5,460,504 Water Systems Improvements................ 2,915,264 Capital 15,176,676 Senior Center Construction……………… 4,994,136 CIP Projects Water and 17,720,000 Transfer 1,605,500 Derby Street Land 1,400,000 $ 49,272,080 Changes in Long-term Liabilities During the year ended June 30, 2017, the following changes occurred in long-term liabilities: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities: Long-term bonds………………… $ 48,574,361 $ 3,977,000 $ (7,362,361) $ 45,189,000 $ 4,282,000 Add: unamortized premium…… 2,160,910 982,484 (373,325) 2,770,069 459,013 Total bonds payable………… 50,735,271 4,959,484 (7,735,686) 47,959,069 4,741,013 Capital leases……………………… 2,211,224 590,426 (551,370) 2,250,280 530,871 Compensated absences………… 8,943,148 2,109,311 (1,971,809) 9,080,650 1,472,655 Landfill closure…………………… 2,250,000 - - 2,250,000 1,125,000 Workers' compensation……..…… 1,421,695 180,756 (120,856) 1,481,595 123,130 Other postemployment benefits… 49,134,159 11,953,143 (4,482,172) 56,605,130 - Net pension liability……………… 102,362,764 8,322,087 (2,643,566) 108,041,285 - Total governmental activity long-term liabilities……………… $ 217,058,261 $ 28,115,207 $ (17,505,459) $ 227,668,009 $ 7,992,669 Business-Type Activities: Capital 274,554 $ 57,316 $ (105,454) $ 226,416 $ 121,460 Long-term bonds………………… 28,878,857 4,615,250 (3,482,444) 30,011,663 2,247,124 Add: unamortized premium…… 788,037 651,799 (174,386) 1,265,450 191,660 29,666,894 5,267,049 (3,656,830) 31,277,113 2,438,784 Compensated absences………… 59,231 31,233 (24,700) 65,764 26,144 Other postemployment benefits… 1,424,095 161,788 (53,995) 1,531,888 - Net pension liability……………… 2,674,923 416,140 (267,750) 2,823,313 - Total business-type activity long-term liabilities……………… $ 34,099,697 $ 5,933,526 $ (4,108,729) $ 35,924,494 $ 2,586,388 Compensated absence, workers’ compensation and other postemployment liabilities related to both governmental and business-type activities are normally paid from the funds reporting payroll and related expenditures, which consist of the general fund and the sewer, water, golf, and trash enterprise funds. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 80 Comprehensive Annual Financial Report NOTE 9 – GOVERNMENTAL FUND BALANCE CLASSIFICATIONS The City classifies fund balances according to the constraints imposed on the use of the resources. There are two major types of fund balances, which are nonspendable and spendable. Nonspendable fund balances are balances that cannot be spent because they are not expected to be converted to cash or they are legally or contractually required to remain intact. Examples of this classification are prepaid items, inventories, and principal (corpus) of an endowment fund. The City has reported principal portions of endowment funds as nonspendable. Spendable fund balances are classified based on a hierarchy of spending constraints. • Restricted: fund balances that are constrained by external parties, constitutional provisions, or enabling legislation. • Committed: fund balances that contain self-imposed constraints of the government from its highest level of decision making authority. • Assigned: fund balances that contain self-imposed constraints of the government to be used for a particular purpose. • Unassigned: fund balance of the general fund that is not constrained for any particular purpose and the deficit fund balances for other funds that would otherwise be restricted, committed, or assigned. The City of Salem’s spending policy is to spend restricted fund balance first, followed by committed, assigned and unassigned fund balance. Most governmental funds are designated for one purpose at the time of their creation. Therefore, any expenditure from the fund will be allocated to the applicable fund balance classifications in the order of the aforementioned spending policy. The general fund and certain other funds may have more than one purpose. Massachusetts General Law Ch.40 §5B allows for the establishment of Stabilization funds for one or more different purposes. The creation of a fund requires a two-thirds vote of the legislative body and must clearly define the purpose of the fund. Any change to the purpose of the fund along with any additions to or appropriations from the fund requires a two-thirds vote of the legislative body. At year end the balances of the General Stabilization Fund and the Retirement Stabilization Fund totaled $6.0 million and $729k, respectively and are reported as unassigned fund balance within the general fund. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 81 Comprehensive Annual Financial Report As of June 30, 2017, the governmental fund balances consisted of the following: Community City Wharf Capital Nonmajor Total Preservation Project City Improvement Governmental Governmental General Fund Fund Grants Funds Funds Funds FUND BALANCES Nonspendable: Permanent fund principal…………$ - $ - $ - $ - $ - $ 2,206,224 $ 2,206,224 Restricted for: Community preservation fund…… - 1,101,457 - - - - 1,101,457 City grant - - - 2,911,101 - - 2,911,101 City Wharf Project………………… - - 531,057 - - - 531,057 City revolving funds………………… - - - - - 826,698 826,698 School capital projects…………… - - - - - 4,928,614 4,928,614 School - - - - - 342,369 342,369 School revolving funds…………… - - - - - 489,112 489,112 School grant funds………………… - - - - - 1,924,172 1,924,172 Donations and gifts………………… - - - - - 780,031 780,031 Receipts reserved………………… - - - - - 1,712,272 1,712,272 Community development grants… - - - - - 26,165 26,165 Other capital projects……………… - - - - - 178,215 178,215 Cemetery - - - - - 2,613,736 2,613,736 Human services fund……………… - - - - - 1,421,521 1,421,521 Other permanent funds…………… - - - - 602,153 602,153 Assigned to: General government……………… 192,291 - - - - - 192,291 Public 64,050 - - - - - 64,050 Education…………………………… 106,554 - - - - - 106,554 Public 39,309 - - - - - 39,309 Human services…………………… 20,723 - - - - - 20,723 Culture and recreation…………… 20,967 - - - - - 20,967 Short term interest………………… 25,000 - - - - - 25,000 Unassigned…………………………… 14,518,650 - - - (1,087,512) (41,100) 13,390,038 TOTAL FUND BALANCES…………… $ 14,987,544 $ 1,101,457 $ 531,057 $ 2,911,101 $ (1,087,512) $ 18,010,182 $ 36,453,829 GOVERNMENTAL FUNDS NOTE 10 – RISK FINANCING The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the City carries commercial insurance. The amount of claim settlements has not exceeded insurance coverage in any of the previous three years. The City participates in premium-based health care plans for its active employees and retirees through the State’s Group Insurance Commission. Workers’ Compensation Workers’ compensation claims incurred prior to July 1, 2008 are administered by the City and are funded on a pay-as-you-go basis from annual appropriations. The estimated future workers’ compensation liability is based on history and injury type. At June 30, 2017, the amount of the liability for workers’ compensation claims totaled $1,481,595. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 82 Comprehensive Annual Financial Report Changes in the reported liability since July 1, 2015, are as follows: Current Year Balance at Claims and Beginning of Changes in Claim Balance at Current the Year Estimate Payments Year-End Portion Year 2016…… $ 854,030 $ 680,225 $ (112,560) $ 1,421,695 $ 112,306 Year 2017…… 1,421,695 180,756 (120,856) 1,481,595 123,130 NOTE 11 – PENSION PLAN Plan Description The City is a member of the City of Salem Contributory Retirement System (System), a cost-sharing, multiple- employer defined benefit pension plan covering eligible employees of the member units. The System is administered by the City of Salem Retirement Board on behalf of all current employees and retirees except for current teachers and retired teachers. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the plan. The City is a member of the Massachusetts Teachers’ Retirement System (MTRS), a cost-sharing multiple- employer defined benefit pension plan. MTRS is managed by the Commonwealth of Massachusetts (Commonwealth) on behalf of municipal teachers and municipal teacher retirees. The Commonwealth is a nonemployer contributor and is responsible for 100% of the contributions and future benefit requirements of the MTRS. The MTRS covers certified teachers in cities (except Boston), towns, regional school districts, charter schools, educational collaboratives and Quincy College. The MTRS is part of the Commonwealth’s reporting entity and the audited financial report may be obtained by visiting http://www.mass.gov/osc/publications-and- reports/financial-reports/. Special Funding Situation The Commonwealth is a nonemployer contributor and is required by statute to make 100% of all actuarially determined employer contributions on behalf of the City to the MTRS. Therefore, the City is considered to be in a special funding situation as defined by GASB Statement No. 68, Accounting and Financial Reporting for Pensions and the Commonwealth is a nonemployer contributor in MTRS. Since the City does not contribute directly to MTRS, there is no net pension liability to recognize. The total of the Commonwealth provided contributions have been allocated based on each employer’s covered payroll to the total covered payroll of employers in MTRS as of the measurement date of June 30, 2016. The City’s portion of the collective pension expense, contributed by the Commonwealth, of $13,244,953 is reported in the general fund as intergovernmental revenue and pension benefits in the current year. The portion of the Commonwealth’s collective net pension liability associated with the City is $129,844,131 as of the measurement date. Benefits Provided Both Systems provide retirement, disability, survivor and death benefits to members and beneficiaries. Massachusetts Contributory Retirement System benefits are, with certain minor exceptions, uniform from system to system. The Systems provides for retirement allowance benefits up to a maximum of 80% of a member’s highest three-year average annual rate of regular compensation. For persons who became members on or after April 2, 2012, average salary is the average annual rate of regular compensation received during the five consecutive years that produce the highest average, or, if greater, during the last five years (whether or not ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 83 Comprehensive Annual Financial Report consecutive) preceding retirement. Benefit payments are based upon a member’s age, length of creditable service, level of compensation, and group classification. Members become vested after ten years of creditable service. Employees who resign from service and who are not eligible to receive a retirement allowance or are under the age of 55 are entitled to request a refund of their accumulated total deductions. Survivor benefits are extended to eligible beneficiaries of members whose death occurs prior to or following retirement. Cost-of-living adjustments granted between 1981 and 1997 and any increase in other benefits imposed by the Commonwealth’s state law during those years are borne by the Commonwealth and are deposited into the pension fund. Cost-of-living adjustments granted after 1997 must be approved by the Board and are borne by the System. There were no changes in benefit terms that effected the measurement of the total pension liability at December 31, 2016. At December 31, 2016, the System’s membership consists of the following: Active 1,036 Inactive 106 Retirees and beneficiaries currently receiving benefits……… 577 1,719 Contributions Chapter 32 of the MGL governs the contributions of plan members and member units. Active plan members are required to contribute to the System at rates ranging from 5% to 9% of gross regular compensation with an additional 2% contribution required for compensation exceeding $30,000. The percentage rate is keyed to the date upon which an employee's membership commences. The member units are required to pay into the System a legislatively mandated actuarial determined contribution. The total member units’ contribution for the year ended December 31, 2016, was $12,527,730, 27.33% of covered payroll, actuarially determined as an amount that, when combined with plan member contributions, is expected to finance the costs of benefits earned by plan members during the year, with an additional amount to finance any unfunded accrued liability. The City’s proportionate share of the required contribution equaled its actual contribution for the year ended June 30, 2017, and totaled $10,513,908. Pension Liabilities The components of the net pension liability of the participating member units at June 30, 2017, were as follows: Total pension liability…………………………… $ 281,283,635 The pension plan's fiduciary net position……… (150,440,259) The net pension liability………………………… $ 130,843,376 The pension plan's fiduciary net position as a percentage of the total pension liability…… 53.48% At June 30, 2017, the City reported a liability of $110,864,598 for its proportionate share of the net pension liability. The net pension liability was measured as of December 31, 2016, and the total pension liability used to ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 84 Comprehensive Annual Financial Report calculate the net pension liability was determined by an actuarial valuation as of January 1, 2016. Accordingly, update procedures were used to roll forward the total pension liability to the measurement date. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating members. At December 31, 2016, the City’s proportion was 84.73%, which increased from its 84.67% proportion measured at December 31, 2015. Pension Expense For the year ended June 30, 2017, the City recognized a pension expense of $13,061,110. At June 30, 2017, the City reported deferred outflows of resources related to pensions of $5,820,996, and reported deferred inflows of resources related to pensions of $3,778,686. The balances of deferred outflows and inflows at June 30, 2017, consist of the following: Deferred Deferred Outflows Inflows Deferred category of Resources of Resources Total Differences between expected and actual experience………$ - $ (3,778,686) $ (3,778,686) Difference between projected and actual earnings…………… 5,820,996 - 5,820,996 Changes of assumptions……………………………………… 8,378,808 - 8,378,808 Changes in 435,574 (118,522) 317,052 Total Deferred Outflows/(Inflows) of Resources………………$ 14,635,378 $ (3,897,208) $ 10,738,170 The City’s deferred outflows of resources related to pensions will be recognized in pension expense as follows: Year ended June 30: $ 3,254,028 3,254,028 2,957,418 1,272,696 $ 10,738,170 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 85 Comprehensive Annual Financial Report Actuarial Assumptions The total pension liability in the January 1, 2016, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement that was updated to December 31, 2016: Valuation January 1, 2016 Actuarial cost method…………………… Entry Age Normal Cost Method. Amortization method……………………… Increasing at 4.5% per year for 2002 and 2003 ERI and remaining unfunded liability and level dollar amortization for 2010 ERI. Remaining amortization period…………… As of July 1, 2016, 6 years remaining on 2010 ERI, 15 years remaining on the 2002 and 2003 ERI and the remaining unfunded liability. Asset valuation method…………………… The difference between the expected return on an actuarial basis and actual investment return on a market value basis is recognized over a five-year period. Inflation 3.50% Projected salary increases……………… Varies by length of service with ultimate rates of 4.25% for Group 1, 4.50% for Group 2 and 4.75% for Group 4. Cost of living adjustments………………… 3.00% for first $12,000 of retirement income. Rates of retirement………………………… Varies based upon age for public employees, police and fire employees, hazardous occupation employees, and officers and inspectors of the State Police. Rates of disability………………………… For general employees, it was assumed that 45% of all disabilities are ordinary (55% are service connected). For police and fire employees, 10% of all disabilities are assumed to be ordinary (90% are service connected). Mortality Rates: Pre-Retirement……………… RP-2000 Employee Mortality Table projected generationally using Scale BB2D from 2009. Healthy Retiree……………… RP-2000 Healthy Annuitant Mortality Table projected generationally using Scale BB2D from 2009. Disabled Retiree……………… RP-2000 Healthy Annuitant Mortality Table projected generationally using Scale BB2D from 2009. Investment rate of return/Discount rate… 7.5%, net of pension plan investment expense, including inflation. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 86 Comprehensive Annual Financial Report Investment Policy The pension plan’s policy in regard to the allocation of invested assets is established by PRIT. Plan assets are managed on a total return basis with a long-term objective of achieving a fully funded status for the benefits provided through the pension plan. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense 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. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of January 1, 2016, are summarized in the following table: Target Long-Term Expected Asset Class Allocation Real Rate of Return Large Cap 14.5% 4.00% Small/Mid Cap Equities……………………………… 3.5% 4.25% International 16.0% 4.33% Emerging International Equities……………………… 6.0% 6.11% Core 5.0% 0.50% 20+ Year Treasury STRIPS 5.0% 0.25% Treasury Inflation Protected Securities (TIPS)……… 3.0% 0.25% High-Yield 1.5% 2.25% Bank 1.5% 2.50% Emerging Market Debt (External)…………………… 1.0% 2.25% Emerging Market Debt (Local Currency)…………… 2.0% 3.00% Private 4.0% 5.56% Private 10.0% 6.00% Real 10.0% 3.00% 4.0% 2.50% Hedge Funds and Portfolio Completion…………… 13.0% 2.98% Total/Total Fund Expected Return…………………… 100.00% Rate of Return: For the year ended December 31, 2016, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expense, was 7.41%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Discount Rate: The discount rate used to measure the total pension liability was 7.5%. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate and that contributions will be made at rates equal to the actuarially determined contribution rated. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 87 Comprehensive Annual Financial Report Sensitivity of the Net Pension Liability to Changes In the Discount Rate: The following presents the net position liability, calculated using the discount rate of 7.5%, as well as what the net position liability would be if it were calculated using a discount rate that is 1-percentage-point lower or 1- percentage-point higher than the current rate: Current 1% Decrease Discount 1% Increase The City's proportionate share of the net pension liability……$ 137,015,634 $ 110,864,598 $ 88,669,595 The Retirement System's total net pension liability………… $ 161,707,064 $ 130,843,376 $ 104,648,641 Changes in Assumptions None. Changes in Plan Provisions None. NOTE 12 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Plan Description – The City of Salem administers a single-employer defined benefit healthcare plan (“Plan”). The Plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s participation in the Group Insurance Commission of the Commonwealth of Massachusetts (GIC), which covers both active and retired members. Chapter 32b of the MGL assigns authority to establish and amend benefit provisions of the plan. The Retiree Health Plan does not issue a publicly available financial report. Benefit provisions are negotiated between the City and unions representing City employees and are renegotiated each bargaining period. The employer’s share for life insurance is 65% while the retiree is responsible for 35%. Regarding health insurance, these rates are dependent upon the individual’s date of retirement. The rates range from 10% to 35% for the retiree’s co-payment of the total premium, and 65% to 90% for the City. Funding Policy Contribution requirements are also negotiated between the City and union representatives. The required contribution is based on a pay-as-you-go financing requirement. The City contributes 70% of the cost of current- year premiums for retirees in active plans, 65% for those in senior plans and 90% for retired teachers. The City contributes 50% for surviving spouses. Plan members receiving benefits contribute the remainder of their premium costs. For 2017, the City’s age adjusted contribution to the plan totaled approximately $4.5 million. For the year ended June 30, 2017, the City’s average contribution rate was 14.61% of covered payroll. The Commonwealth of Massachusetts passed special legislation that has allowed the City to establish a postemployment benefit trust fund and to enable the City to begin pre-funding its other postemployment benefits (OPEB) liabilities. The City has named the Health Care Security Board of Trustees as Trustees of the OPEB Fund and as such has authorized the OPEB Trust Funds to be invested entirely in the State Retirement Benefits Trust Fund (SRBT Fund). Massachusetts General Law directs the to invest the SRBT Fund in the Pension Reserves Investment Trust (PRIT) Fund. The Trustees have adopted a trust agreement detailing ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 88 Comprehensive Annual Financial Report their duties and responsibilities as Trustees. The PRIT Fund is subject to oversight by the Pension Reserves Investment management Board (PRIM) Board. A nine member Board of Trustees governs the PRIM Board. The Board of Trustees has the authority to employ an Executive Director, outside investment managers, custodians, consultants, and others as it deems necessary to formulate policies and procedures and to take such other actions as necessary and appropriate to manage the assets of the PRIT fund. During 2017, the City pre-funded future OPEB liabilities totaling approximately $269,000, by contributing funds to the OPEB fund in excess of the pay-as-you-go required contribution. These funds are reported within the City’s Fiduciary Fund financial statements. As of June 30, 2017, the balance of this fund totaled $2.2 million. Rate of Return - The annual money-weighted rate of return on OPEB plan investments was 9.08%. The money- weighted rate of return expresses investment performance, net of OPEB plan investment expense, adjusted for the changing amounts actually invested. Plan Membership – The following table represents the Plan’s membership at June 30, 2017: Active participants………………………………………… 822 Retired participants………………………………………… 968 Total participants…………………………………………… 1,790 Components of OPEB Liability – The following table represents the components of the other postemployment benefits liability as of June 30, 2017: Total OPEB liability………………………………… $ 159,840,752 Less: OPEB plan's fiduciary net position………… (2,189,299) Net OPEB 157,651,453 The OPEB plan's fiduciary net position as a percentage of the total OPEB liability……… 1.37% Significant Actuarial Methods Assumptions – The following actuarial methods and assumptions were used to determine the total other postemployment benefit liability in the June 30, 2016, actuarial valuation, applied to all periods included in the measurement date that was updated to June 30, 2017 to be in compliance with GASB Statement # 74: Valuation June 30, 2016 Actuarial cost method……………… Entry Age Normal - Level percentage of payroll Asset valuation method…………… Market value Amortization method………………… Payments increasing at 3.5% Remaining amortization period…… 30 years open Inflation 3.5% ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 89 Comprehensive Annual Financial Report Discount 3.58% as of June 30, 2017 and 2.85% as of June 30, 2016 Investment rate of return…………… 7.50% Salary increases…………………… Service-related increases for Group 1 (excluding Teachers) and Group 2 employees: 6.00% decreasing over 9 years to an ultimate level of 4.25% Service-related increases for Group 4 members: 7.00% decreasing over 5 years to an ultimate level of 4.75% Service-related increases for Teachers: 7.50% decreasing over 20 years to an ultimate level of 4.00% Healthcare cost trend rates: Non-Medicare*……………………… 6.3% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year Medicare Supplement*…………… 0.4% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year Medicare Advantage*……………… 8.9% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year Part B premium…………………… 5.00% Contributions………………………… Non-Medicare and Medicare retiree contributions are expected to increase with the respective medical trends shown above. Mortality tables: Pre-Retirement (Non-Teachers)…… RP-2000 Employee Mortality Table projected generationally from 2009 with Scale BB2D Healthy (Non-Teachers)…………… RP-2000 Healthy Annuitant Mortality Table projected generationally from 2009 with Scale BB2D Disabled (Non-Teachers)…………… RP-2000 Healthy Annuitant Mortality Table projected generationally from 2015 with Scale BB2D Pre-Retirement (Teachers)………… RP-2014 White Collar Employee Mortality Table projected generationally with Scale MP-2016 Healthy (Teachers)………………… RP-2014 White Collar Healthy Annuitant Mortality Table projected generationally with Scale MP-2016 Disabled (Teachers)………………… RP-2014 Healthy Annuitant Mortality Table set forward 4 years projected generationally with Scale BB from 2014 *Trends reflect known increases. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 90 Comprehensive Annual Financial Report Investment Policy – The City’s policy in regard to the allocation of invested assets is established and may be amended by the Council by a majority vote of its members. The OPEB plan’s assets are managed on a total return basis with a long-term objective of achieving and maintaining a fully funded status for the benefits provided through the plan. The long-term expected rate of return on OPEB plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage and by adding expected inflation and subtracting expected investment expenses and a risk margin. The target allocation and projected arithmetic real rates of return for each major asset class, after deducting inflation, but before investment expenses, used in the derivation of the long-term expected investment rate of return assumption are summarized below: Long-term Expected Long-term Expected Asset Class Asset Allocation Real Rate of Return Domestic 18% 6.44% International developed markets equity…………… 16% 7.40% International emerging markets equity…………… 6% 9.42% Core fixed 12% 2.02% High-yield fixed 10% 4.43% Real 10% 5.00% Commodities………………………………………… 4% 4.43% Hedge fund, GTAA, Risk parity…………………… 13% 3.75% Private 11% 10.47% 100% Discount Rate- The City’s Net Other Postemployment Benefits liability was determined based on the index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher as of June 30, 2017 as reported by the Bond Buyer’s 20 bond index. Because the current assets in the OPEB Trust and the City’s funding policy to contribute $200,000 per year are insufficient to pay projected benefits, the Bond Buyer’s 20 bond index was used. Sensitivity of the Net OPEB Liability to Changes in the Discount Rate – The following table presents the net OPEB liability calculated using the discount rate of 3.58%, as well as what the net OPEB liability would be if it were calculated using a discount rate that is 1 percentage point lower (2.58%) or 1 percentage point higher (4.58%) than the current rate. Current 1% Decrease Discount Rate 1% Increase (2.58%) (3.58%) (4.58%) Net OPEB liability……$ 185,535,428 $ 157,651,453 $ 135,686,914 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 91 Comprehensive Annual Financial Report Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rate – The following table presents the net OPEB liability calculated using a healthcare cost trend rate that is 1 percentage point lower or 1 percentage point higher than the current rate. 1% Decrease Current 1% Increase in Trend Rates Trend Rates in Trend Rates Net OPEB liability……$ 133,228,751 $ 157,651,453 $ 189,613,441 The City’s Annual OPEB Cost and Net OPEB Obligation – The City’s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement #45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s net OPEB obligation are summarized in following table: Annual required contribution……………………………………$ 12,039,407 Interest on net OPEB obligation……………………………… 1,809,985 Adjustments to annual required contribution………………… (1,734,461) Annual OPEB cost 12,114,931 Contributions made (including retired teachers)…………… (4,536,167) Increase in net OPEB obligation……………………………… 7,578,764 Net OPEB obligation-beginning of 50,558,254 Net OPEB obligation-end of 58,137,018 The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2017 and the prior two years was as follows: Percentage of Year Annual Annual OPEB Net OPEB Ended OPEB Cost Cost Contributed Obligation 6/30/2017 $ 12,114,931 37% $ 58,137,018 6/30/2016 9,358,722 49% 50,558,254 6/30/2015 11,679,191 48% 45,806,700 Funded Status and Funding Progress – As of June 30, 2016, the most recent actuarial valuation date, the actuarial accrued liability for benefits totaled $152 million, of which $1.7 million was funded, resulting in a funded ratio of 1.15%. The annual covered payroll was approximately $82.3 million and the ratio of UAAL to covered payroll was 182.8%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 92 Comprehensive Annual Financial Report The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions – Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the June 30, 2016, actuarial valuation, actuarial liabilities were determined using the entry age normal actuarial cost method. The actuarial assumptions included a 3.58% discount rate, which is based on the expected yield on the assets of the Trust at an investment return assumption of 7.5%, calculated based on the funded level of the plan at the valuation date, and an annual medical/drug cost trend rates listed below. The UAAL is being amortized over a closed 30 year period, with amortization payments increasing at 3.5% per year. The asset valuation method used is market value. The remaining amortization period at June 30, 2016, is 30 years. Healthcare cost trend rates: Non-Medicare*……………………… 6.3% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year Medicare Supplement*…………… 0.4% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year Medicare Advantage*……………… 8.9% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year Part B premium…………………… 5.00% * Trends reflect known increases. NOTE 13 – MAJOR TAXPAYER The Salem Harbor Power Station is the City’s largest taxpayer. The power plant in August of 2012 changed ownership from Dominion Energy to Footprint Power LLC. From a revenue perspective, at the end of FY2011, the City’s tax agreement with Dominion expired. Prior to this date, the City received a total payment from Dominion Energy in the amount of $4.75 million for FY2011, $3 million in tax dollars within the tax levy and $1.75 million dollars designated as a “host fee” accounted for as miscellaneous non-recurring revenues. In FY2011, Dominion announced major operational changes shutting down two of their power generating units due to market conditions and regulatory challenges at the state level. Due to the implementation of state regulations impacting its operations, during the FY2012 budget process, the Massachusetts Legislature adopted a proposal to ensure that Salem taxpayers will not be overly burdened by lost revenues from the power plant through 2017. Chapter 68 of the Acts of 2011, Section 33 states that “…the municipality shall be entitled to reimbursement for the difference between the amount called for….prior to the full or partial decommissioning or ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 93 Comprehensive Annual Financial Report the change in operating status of the facility.” This legislation postpones the financial impact of the loss of a major taxpayer. More importantly, it allows the City to work toward replacing the lost revenues and planning for an appropriate reuse of the site. As of December 2014, the City has negotiated, and the City Council approved, an 18 year PILOT agreement with Footprint Power LLC. This agreement will utilize the “hold harmless agreement” of $4.75 million from the State during construction through 2019, with payments increasing steadily as the plan becomes up and running. A graduated escalation factor will result in the City receiving over $99,242,000 for the duration of the contract, or $5.5 million a year; a 16% increase over the current tax level collected. In addition to the negotiated PILOT agreement, the City was able to draft and finalize a community benefits agreement which will provide the City and School District with over $4.4 million in additional funding. Footprint Power has nearly completed the demolition of all existing structures and undertaken any necessary environmental remediation. Footprint has begun constructing a state-of-the-art 630 megawatt gas-fired plant on a portion of the site and will open the remaining two-thirds of the 63 acre waterfront property to private and public development opportunities. NOTE 14 – LANDFILL CLOSURE State and federal laws and regulations require the City to construct a final capping system on its inactive landfill site, the Salem Transfer Station, when it stops accepting waste and to perform certain maintenance and monitoring functions at the site after closure. The City has stopped accepting waste at the site and the site is closed. The City is the owner and permittee of the Salem Transfer Station site. During 2016, the City discontinued its relationship with the long-time operator of the site and has approved a final plan for the City to cap the site and to construct a new transfer station on the site. As a result, the City has issued bonds for $644,000 and has authorized and unissued debt for $1,605,500. The City recorded a liability of $2.25 million in the entity-wide financial statements for the total estimated post closure costs. Actual costs may be higher due to inflation, changes in technology, or changes in applicable laws, regulations or agreements. NOTE 15 – COMMITMENTS The City has various commitments related to the construction projects which will be financed through long-term borrowing. These projects include $5.5 million for school construction, $2.9 million for water system improvements, $1.6 million for the transfer station, $1.4 million for Derby St. land taking, $5 million for senior center construction, $27.1 million for water and sewer projects and $5.8 million for various other capital projects. In fiscal year 2015, the City entered into an agreement with Alternative Therapies Group, Inc. (ATG), a Massachusetts not for profit Corporation, on April 14th 2014. Alternative Therapies Group, Inc. wanted to locate a registered marijuana dispensary in the City. Per the agreement, in the first two years ATG shall pay the City annually a sum equal to 1.25% of the total gross annual sales. Such payments shall be made annually at the end of the first 12 months of operations and the end of the first 24 months of operations. In the third year of operations and for all subsequent years, unless renegotiated, ATG shall pay the City annually a sum of 3.0% of the total gross annual sales. The City received its first payment in fiscal year 2016, totaling $82,000, and its second payment in fiscal year 2017, totaling $248,000. In fiscal year 2017, the City entered into a Community Benefits Agreement with North Shore Medical Center (NSMC) that consists of support for a broad range of City needs and programs. The agreement, which is in addition to the regular annual payment in lieu of taxes that the hospital provides to the City, comes as NSMC is ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 94 Comprehensive Annual Financial Report undergoing a significant campus consolidation and expansion project. The agreement is intended to address and mitigate the disruption and impact that the project will have on the City. Under the terms of the agreement, NSMC will provide approximately $1.7 million over the next seven years for various City endeavors. Additionally, NSMC will allow attendees at sporting events at Salem’s Bertram Field to utilize NSMC’s parking lot at 55 Highland Avenue for event parking on evenings and weekends; NSMC will work collaboratively with the City on the design and implementation of a South Salem Commuter Rail stop; and NSMC will maintain its current support for ongoing community public health programs and activities in the City, including the current annual payment in lieu of taxes of $125,000. NOTE 16 – CONTINGENCIES The City participates in a number of federal award programs. Although the grant programs have been audited in accordance with the provisions of the Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, these programs are still subject to financial and compliance audits. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time, although it is expected such amounts, if any, to be immaterial. Various legal actions and claims are pending. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not always predictable. Although the amount of the liability, if any, at June 30, 2017, cannot be ascertained, management believes any resulting liability should not materially affect the financial position at June 30, 2017. NOTE 17 – SUBSEQUENT EVENTS Management has evaluated subsequent events through December 21, 2017, which is the date the financial statements were available to be issued. NOTE 18 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During 2017, the following GASB pronouncements were implemented: • GASB Statement #74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. The basic financial statements, related notes and required supplementary information were updated to be in compliance with this pronouncement. • GASB Statement #77, Tax Abatement Disclosures. This pronouncement did not impact the basic financial statements. • GASB Statement #78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans. This pronouncement did not impact the basic financial statements. • GASB Statement #80, Blending Requirements for Certain Component Units – an amendment of GASB Statement #14. This pronouncement did not impact the basic financial statements. • GASB Statement #82, Pension Issues – an amendment of GASB Statements #67, #68, and #73. The basic financial statements and related notes were updated to be in compliance with this pronouncement. The following GASB pronouncements will be implemented in the future: ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2017 City of Salem, Massachusetts 95 Comprehensive Annual Financial Report • The GASB issued Statement #75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which is required to be implemented in 2018. • The GASB issued Statement #81, Irrevocable Split-Interest Agreements, which is required to be implemented in 2018. • The GASB issued Statement #83, Certain Asset Retirement Obligations, which is required to be implemented in 2019. • The GASB issued Statement #84, Fiduciary Activities, which is required to be implemented in 2020. • The GASB issued Statement #85, Omnibus 2017, which is required to be implemented in 2018. • The GASB issued Statement #86, Certain Debt Extinguishment Issues, which is required to be implemented in 2018. • The GASB issued Statement #87, Leases, which is required to be implemented in 2021. Management is currently assessing the impact the implementation of these pronouncements will have on the basic financial statements. ---PAGE BREAK--- City of Salem, Massachusetts 96 Comprehensive Annual Financial Report Required Supplementary Information Required Supplementary Information ---PAGE BREAK--- City of Salem, Massachusetts 97 Comprehensive Annual Financial Report General Fund Budgetary Comparison Schedule General fund budgetary comparison schedule The General Fund is the general operating fund of the City. It is used to account for the entire City’s financial resources, except those required to be accounted for in another fund. ---PAGE BREAK--- City of Salem, Massachusetts 98 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2017 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget REVENUES: Real estate and personal property taxes, net of tax $ - $ 89,674,837 $ 89,674,837 $ 89,674,837 $ 89,339,967 $ - $ (334,870) Tax - - - - 763,080 - 763,080 Motor vehicle and other excise taxes…………… - 3,500,000 3,500,000 3,500,000 4,300,898 - 800,898 Hotel/motel tax and meals taxes………………… - 1,534,500 1,534,500 1,534,500 1,683,573 - 149,073 Charges for services……………………………… - 1,750,000 1,750,000 1,750,000 2,777,857 - 1,027,857 Penalties and interest on - 410,000 410,000 410,000 460,601 - 50,601 Payments in lieu of - 1,200,000 1,200,000 1,200,000 1,082,164 - (117,836) Licenses and - 500,000 500,000 500,000 509,915 - 9,915 Fines and forfeitures……………………………… - 1,000,000 1,000,000 1,000,000 823,329 - (176,671) Intergovernmental………………………………… - 31,251,206 31,251,206 31,251,206 31,633,124 - 381,918 Departmental and - 2,650,000 2,650,000 2,650,000 3,300,744 - 650,744 Investment - 160,000 160,000 160,000 263,963 - 103,963 TOTAL REVENUES…………………… - 133,630,543 133,630,543 133,630,543 136,939,215 - 3,308,672 EXPENDITURES: Current: General government City Council Personnel………………………………… - 141,700 141,700 141,700 141,700 - - Non - Personnel………………………… - 31,950 31,950 49,650 48,126 - 1,524 - 173,650 173,650 191,350 189,826 - 1,524 Mayor Personnel………………………………… - 371,338 371,338 371,338 369,898 - 1,440 Non - Personnel………………………… - 179,000 179,000 179,000 170,454 6,300 2,246 - 550,338 550,338 550,338 540,352 6,300 3,686 Finance/Auditing Personnel………………………………… - 289,602 289,602 289,602 279,627 - 9,975 Non - Personnel………………………… 22,326 46,220 68,546 68,546 27,138 23,100 18,308 22,326 335,822 358,148 358,148 306,765 23,100 28,283 Purchasing Personnel………………………………… - 113,213 113,213 113,213 111,704 - 1,509 Non - Personnel………………………… - 19,550 19,550 19,550 17,506 - 2,044 Fixed - 61,012 61,012 61,012 61,011 - 1 - 193,775 193,775 193,775 190,221 - 3,554 Assessors Personnel………………………………… - 298,040 298,040 298,040 295,679 - 2,361 Non - Personnel………………………… 2,000 24,200 26,200 26,200 21,489 2,000 2,711 2,000 322,240 324,240 324,240 317,168 2,000 5,072 Treasurer Personnel………………………………… - 240,460 240,460 240,460 222,595 - 17,865 Non - Personnel………………………… - 99,154 99,154 121,654 118,455 - 3,199 - 339,614 339,614 362,114 341,050 - 21,064 Collector Personnel………………………………… - 222,255 222,255 222,255 217,093 - 5,162 Non - Personnel………………………… - 7,900 7,900 7,900 6,233 - 1,667 - 230,155 230,155 230,155 223,326 - 6,829 Solicitor Personnel………………………………… - 273,780 273,780 273,780 272,883 - 897 Non - Personnel………………………… 2,933 62,300 65,233 65,234 53,471 - 11,763 2,933 336,080 339,013 339,014 326,354 - 12,660 (continued) GENERAL FUND Budgeted Amounts City of Salem, Massachusetts 99 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2017 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget GENERAL FUND Budgeted Amounts Human Resources Personnel………………………………… - 252,023 252,023 252,023 244,412 - 7,611 Non - Personnel………………………… - 31,450 31,450 31,450 (36,159) - 67,609 - 283,473 283,473 283,473 208,253 - 75,220 Data Processing Personnel………………………………… - 789,146 789,146 789,146 732,417 - 56,729 Non - Personnel………………………… - 33,405 33,405 33,405 12,718 - 20,687 Fixed 55,000 753,473 808,473 808,473 622,641 126,889 58,943 55,000 1,576,024 1,631,024 1,631,024 1,367,776 126,889 136,359 City Clerk Record Maintenance Personnel………………………………… - 279,580 279,580 279,580 271,132 - 8,448 Non - Personnel………………………… - 8,700 8,700 8,700 2,648 9,002 (2,950) - 288,280 288,280 288,280 273,780 9,002 5,498 Elections & Registrations Personnel………………………………… - 121,879 121,879 123,879 112,351 - 11,528 Non - Personnel………………………… - 93,425 93,425 91,425 81,366 - 10,059 - 215,304 215,304 215,304 193,717 - 21,587 Conservation Commission Personnel………………………………… - 30,002 30,002 30,002 28,864 - 1,138 Non - Personnel………………………… - 649 649 649 641 - 8 - 30,651 30,651 30,651 29,505 - 1,146 Subdivision, Planning, and Zoning Board Personnel………………………………… - 30,248 30,248 30,081 26,699 - 3,382 Non - Personnel………………………… - 3,000 3,000 5,167 5,031 - 136 - 33,248 33,248 35,248 31,730 - 3,518 Board of Appeals Non - Personnel………………………… - 400 400 400 358 - 42 Planning Department Personnel………………………………… - 418,695 418,695 418,695 400,598 - 18,097 Non - Personnel………………………… 24,000 44,020 68,020 103,020 69,943 20,000 13,077 24,000 462,715 486,715 521,715 470,541 20,000 31,174 Public Property/Building Maintenance Fixed - 701,227 701,227 701,227 681,862 5,000 14,365 . Market and Tourism………………………… 3,750 244,775 248,525 248,525 243,943 - 4,582 Total General Government…………………… 110,009 6,317,771 6,427,780 6,504,981 5,936,527 192,291 376,163 (continued) City of Salem, Massachusetts 100 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2017 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget GENERAL FUND Budgeted Amounts Public safety Police Personnel………………………………… - 9,656,861 9,656,861 9,596,861 9,415,433 - 181,428 Non - Personnel………………………… 24,844 666,720 691,564 833,254 789,956 28,660 14,638 24,844 10,323,581 10,348,425 10,430,115 10,205,389 28,660 196,066 Fire Personnel………………………………… - 8,334,892 8,334,892 8,334,892 8,136,129 - 198,763 Non - Personnel………………………… 18,153 341,728 359,881 420,661 377,615 13,164 29,882 18,153 8,676,620 8,694,773 8,755,553 8,513,744 13,164 228,645 Building, Plumbing, Gas Inspections Personnel………………………………… - 447,666 447,666 457,996 401,735 - 56,261 Non - Personnel………………………… - 23,300 23,300 12,970 12,883 - 87 - 470,966 470,966 470,966 414,618 - 56,348 Electrical Inspection and Maintenance Personnel………………………………… - 357,069 357,069 358,369 345,140 - 13,229 Non - Personnel………………………… 36,675 357,800 394,475 393,175 344,730 - 48,445 36,675 714,869 751,544 751,544 689,870 - 61,674 Harbormaster Personnel………………………………… - 227,865 227,865 227,865 217,051 - 10,814 Non - Personnel………………………… 5,973 74,000 79,973 79,973 50,473 22,226 7,274 5,973 301,865 307,838 307,838 267,524 22,226 18,088 Total Public 85,645 20,487,901 20,573,546 20,716,016 20,091,145 64,050 560,821 Education 265,888 55,041,847 55,307,735 56,167,700 55,805,059 106,554 256,087 NSRS/Charter/Choice…………………… - 2,331,662 2,331,662 2,273,662 2,266,130 - 7,532 Total 265,888 57,373,509 57,639,397 58,441,362 58,071,189 106,554 263,619 Public Works Public Services Personnel………………………………… - 1,925,145 1,925,145 1,925,145 1,866,133 - 59,012 Non - Personnel………………………… - 804,340 804,340 804,340 731,138 - 73,202 - 2,729,485 2,729,485 2,729,485 2,597,271 - 132,214 Engineering Personnel………………………………… - 84,703 84,703 84,703 84,451 - 252 Non - Personnel………………………… - 6,200 6,200 6,200 5,278 - 922 - 90,903 90,903 90,903 89,729 - 1,174 Snow and Ice Personnel………………………………… - 50,000 50,000 50,000 77,268 - (27,268) Non - Personnel………………………… - 408,935 408,935 408,935 1,233,964 - (825,029) - 458,935 458,935 458,935 1,311,232 - (852,297) Parking Garage Personnel………………………………… - 684,700 684,700 684,700 609,332 - 75,368 Non - Personnel………………………… 7,708 217,072 224,780 224,780 174,044 39,309 11,427 7,708 901,772 909,480 909,480 783,376 39,309 86,795 Total Public 7,708 4,181,095 4,188,803 4,188,803 4,781,608 39,309 (632,114) (continued) City of Salem, Massachusetts 101 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2017 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget GENERAL FUND Budgeted Amounts Health and Human Services Board of Health Personnel………………………………… - 396,845 396,845 396,845 384,120 - 12,725 Non - Personnel………………………… - 16,500 16,500 19,000 15,807 500 2,693 - 413,345 413,345 415,845 399,927 500 15,418 Council on Aging Personnel………………………………… - 350,397 350,397 367,397 317,423 17,000 32,974 Non - Personnel………………………… 2,125 37,950 40,075 43,075 34,643 3,000 5,432 2,125 388,347 390,472 410,472 352,066 20,000 38,406 Veterans Services Personnel………………………………… - 105,101 105,101 105,101 105,048 - 53 Non - Personnel………………………… 321 522,709 523,030 523,030 517,081 223 5,726 321 627,810 628,131 628,131 622,129 223 5,779 Total Health and Human Services…………… 2,446 1,429,502 1,431,948 1,454,448 1,374,122 20,723 59,603 Culture and Recreation Library Personnel………………………………… - 986,102 986,102 980,102 952,507 - 27,595 Non - Personnel………………………… 9,300 295,082 304,382 310,382 279,061 20,967 10,354 9,300 1,281,184 1,290,484 1,290,484 1,231,568 20,967 37,949 Parks and Recreation Personnel………………………………… - 272,757 272,757 272,757 254,519 - 18,238 Non - Personnel………………………… 250 222,310 222,560 222,560 202,641 - 19,919 250 495,067 495,317 495,317 457,160 - 38,157 Golf Course Personnel………………………………… - 283,441 283,441 283,441 247,436 - 36,005 Non - Personnel………………………… 45,000 186,880 231,880 274,027 271,047 - 2,980 45,000 470,321 515,321 557,468 518,483 - 38,985 Witch House Personnel………………………………… - 103,327 103,327 103,327 98,974 - 4,353 Non - Personnel………………………… - 63,480 63,480 63,480 62,576 - 904 - 166,807 166,807 166,807 161,550 - 5,257 Historical Commission Personnel………………………………… - 8,853 8,853 8,853 8,707 - 146 Non - Personnel………………………… - 900 900 900 709 - 191 - 9,753 9,753 9,753 9,416 - 337 Winter Island Personnel………………………………… - 154,819 154,819 154,819 154,477 - 342 Non - Personnel………………………… - 44,300 44,300 44,300 42,876 - 1,424 - 199,119 199,119 199,119 197,353 - 1,766 Pioneer Village Non - Personnel………………………… - 16,900 16,900 16,900 16,701 - 199 Total Culture and Recreation……………… 54,550 2,639,151 2,693,701 2,735,848 2,592,231 20,967 122,650 (continued) City of Salem, Massachusetts 102 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2017 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget GENERAL FUND Budgeted Amounts Debt service: - 3,790,000 3,790,000 3,790,000 3,765,766 - 24,234 - 1,626,291 1,626,291 1,626,291 1,607,703 - 18,588 Short Term Interest…………………………… 135,000 201,049 336,049 353,548 326,855 25,000 1,693 Capital Lease Payment………………………… - 503,803 503,803 503,803 503,803 - - 135,000 6,121,143 6,256,143 6,273,642 6,204,127 25,000 44,515 State and county charges………………………… - 8,068,331 8,068,331 8,038,331 7,946,729 - 91,602 Pension benefits Contributory Retirement……………………… - 9,960,727 9,960,727 10,360,727 10,344,806 - 15,921 Non-Contributory Retirement………………… - 41,417 41,417 20,308 20,288 - 20 - 10,002,144 10,002,144 10,381,035 10,365,094 - 15,941 Workmen's Compensation………………………… - 428,500 428,500 428,500 404,569 - 23,931 Unemployment Compensation…………………… - 425,000 425,000 425,000 331,820 - 93,180 Group - 12,554,604 12,554,604 12,823,647 12,257,069 - 566,578 - 1,036,734 1,036,734 1,115,843 1,115,278 - 565 Municipal Insurance……………………………… - 356,282 356,282 346,282 330,724 - 15,558 TOTAL EXPENDITURES……………… 661,246 131,421,667 132,082,913 133,873,738 131,802,232 468,894 1,602,612 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………… (661,246) 2,208,876 1,547,630 (243,195) 5,136,983 (468,894) 4,911,284 OTHER FINANCING SOURCES (USES): Premium from issuance of bonds and notes…… - - - - 7,229 - 7,229 Transfers - 2,617,493 2,617,493 3,259,641 3,287,231 - 27,590 Transfers - (5,133,000) (5,133,000) (8,065,180) (8,075,579) - (10,399) TOTAL OTHER FINANCING SOURCES - (2,515,507) (2,515,507) (4,805,539) (4,781,119) - 24,420 NET CHANGE IN FUND BALANCE………………… (661,246) (306,631) (967,877) (5,048,734) 355,864 (468,894) 4,935,704 BUDGETARY FUND BALANCE, Beginning of - 7,923,299 7,923,299 7,923,299 7,923,299 - - BUDGETARY FUND BALANCE, End of year……… $ (661,246) $ 7,616,668 $ 6,955,422 $ 2,874,565 $ 8,279,163 $ (468,894) $ 4,935,704 (concluded) See notes to required supplementary information. City of Salem, Massachusetts 103 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 104 Comprehensive Annual Financial Report Pension Plan Schedules – Retirement System Pension Plan Schedules – Retirement System The Pension Plan’s Schedule of Changes in the Net Pension Liability presents multi-year trend information on the net pension liability and related ratios. The Pension Plan’s Schedule of Contributions presents multi-year trend information on the required and actual contributions to the pension plan and related ratios. The Pension Plan’s Schedule of Investment Returns presents multi-year trend information on the money-weighted investment return on retirement assets, net of investment expense. These schedules are intended to present information for ten years. Until a ten year trend is compiled, information is presented for those years for which information is available. ---PAGE BREAK--- December 31, December 31, December 31, 2014 2015 2016 Total pension liability: Service $ 5,854,030 $ 6,097,323 $ 6,350,728 18,557,934 19,386,667 20,274,843 Differences between expected and actual experience………………… - - (5,574,549) Changes in - - 12,360,928 Changes in benefit - - - Benefit payments, including refunds of employee contributions……… (14,146,676) (13,777,134) (14,776,958) Net change in total pension 10,265,288 11,706,856 18,634,992 Total pension liability, 240,676,498 250,941,786 262,648,642 Total pension liability, ending 250,941,786 $ 262,648,642 $ 281,283,634 Plan fiduciary net position: Member $ 3,939,454 $ 4,121,728 $ 4,311,175 Employer 11,942,341 12,181,169 12,527,730 Net investment income 9,022,647 659,962 10,046,275 Retirement benefits and (14,146,676) (13,777,134) (14,776,958) Administrative expenses and depreciation……………………………… (242,294) (238,374) (266,216) Net increase (decrease) in fiduciary net position……………………………… 10,515,472 2,947,351 11,842,006 Fiduciary net position at beginning of 123,879,403 135,650,902 138,598,253 Adjustment to include members transferred from Essex Agricultural and Technical School 1,256,027 - - Fiduciary net position at end of year $ 135,650,902 $ 138,598,253 $ 150,440,259 Net pension liability - ending - 115,290,884 $ 124,050,389 $ 130,843,375 Plan fiduciary net position as a percentage of the total pension 54.06% 52.77% 53.48% Covered-employee $ 40,399,678 $ 42,015,665 $ 45,841,256 Net pension liability as a percentage of covered-employee 285.38% 295.25% 285.43% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. Essex Agricultural and Technical School merged with Regional Vocational Technical School in 2014. As a result of this merger, 39 active and inactive members of Essex Agricultural and Technical School were transferred from Essex Regional Retirement System to Salem Contributory Retirement System and the annuity savings fund balances of those members, totaling $1,256,027, were also transferred. The 2014 total pension liability and fiduciary net position have been amended to include the liabilities and assets of these members that were transferred subsequent to year end. See notes to required supplementary information. SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 105 Comprehensive Annual Financial Report ---PAGE BREAK--- December 31, December 31, December 31, 2014 2015 2016 Actuarially determined contribution…………………… $ 11,942,341 $ 12,013,685 $ 12,527,730 Contributions in relation to the actuarially determined contribution…………………………… (11,942,341) (12,181,169) (12,527,730) Contribution deficiency (excess)…… $ - $ (167,484) $ - Covered-employee 40,399,678 $ 42,015,665 $ 45,841,256 Contributions as a percentage of covered- employee 29.56% 28.99% 27.33% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF CONTRIBUTIONS SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 106 Comprehensive Annual Financial Report ---PAGE BREAK--- December 31, December 31, December 31, 2014 2015 2016 Annual money-weighted rate of return, net of investment expense……………… 7.58% 0.51% 7.41% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. The annual money-weighted rate of return has been calculated by the Pension Reserves Investment Management Board (PRIM). See notes to required supplementary information. SCHEDULE OF INVESTMENT RETURNS SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 107 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 108 Comprehensive Annual Financial Report Pension Plan Schedules – City Pension Plan Schedules – City The Schedule of the City’s Proportionate Share of the Net Pension Liability presents multi-year trend information on the City’s net pension liability and related ratios. The Schedule of City Contributions presents multi-year trend information on the City’s required and actual contributions to the pension plan and related ratios. The Schedule of the Special Funding Amounts of the Net Pension Liability for the Massachusetts Teachers Contributory Retirement System presents multi-year trend information on the liability and expense assumed by the Commonwealth of Massachusetts on behalf of the City along with related ratios. These schedules are intended to present information for ten years. Until a ten year trend is compiled, information is presented for those years for which information is available. ---PAGE BREAK--- December 31, December 31, December 31, 2014 2015 2016 City's proportion of the net pension liability 84.01% 84.67% 84.73% City's proportionate share of the net pension liability (asset)…… $ 96,851,803 $ 105,037,687 $ 110,864,598 City's covered employee 32,603,305 $ 33,907,437 $ 88,669,595 Net pension liability as a percentage of covered-employee 297.06% 309.78% 125.03% Plan fiduciary net position as a percentage of the total pension 54.06% 52.77% 53.48% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 109 Comprehensive Annual Financial Report ---PAGE BREAK--- June 30, June 30, June 30, 2015 2016 2017 Actuarially determined contribution…………………… $ 10,121,621 $ 10,071,175 $ 10,513,908 Contributions in relation to the actuarially determined contribution…………………………… (10,121,621) (10,238,659) (10,513,908) Contribution deficiency (excess)…… $ - $ (167,484) $ - Covered-employee $ 32,603,305 $ 33,907,437 $ 88,669,595 Contributions as a percentage of covered- employee 31.04% 30.20% 11.86% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF CITY CONTRIBUTIONS SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 110 Comprehensive Annual Financial Report ---PAGE BREAK--- Year Commonwealth's 100% Share of the Net Pension Liability Associated with the City City's Expense and Revenue Recognized for the Commonwealth's Support Plan Fiduciary Net Position as a Percentage of the Total Liability $ 129,844,131 $ 13,244,953 52.73% 125,868,567 10,209,061 61.43% 97,197,542 6,752,780 61.64% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF THE SPECIAL FUNDING AMOUNTS OF THE NET PENSION LIABILITY MASSACHUSETTS TEACHERS' RETIREMENT SYSTEM The Commonwealth of Massachusetts is a nonemployer contributor and is required by statute to make all actuarially determined employer contributions on behalf of the member employers which creates a special funding situation. Since the City does not contribute directly to MTRS, there is no net pension liability to recognize. This schedule discloses the Commonwealth's 100% share of the collective net pension liability that is associated with the City; the portion of the collective pension expense as both a revenue and pension expense recognized by the City; and the Plan's fiduciary net position as a percentage of the total liability. City of Salem, Massachusetts 111 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 112 Comprehensive Annual Financial Report Other Postemployment Benefit Plan Schedules Other postemployment benefit plan schedules GASB #74 Schedules The Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Radios presents multi-year trend information on the Plan’s net other postemployment benefit liability and related ratios. The Schedule of the City’s Contributions presents multi-year trend information on the City’s actual contributions to the other postemployment benefit plan and related ratios. The Schedule of Investment Returns presents multi-year trend information on the money-weighted investment return on the Plan’s other postemployment assets, net of investment expense. GASB #45 Schedules The Schedule of Funding Progress compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. The Schedule of Employer Contributions presents multi-year trend information for required and actual contributions relating to the plan. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. ---PAGE BREAK--- June 30, 2017 Total OPEB Liability Service 8,252,716 5,052,006 Changes of benefit - Differences between expected and actual experience………… - Changes of assumptions………………………………………… (20,326,073) Benefit (4,267,124) Net change in total OPEB liability………………………………… (11,288,475) Total OPEB liability- 171,129,227 Total OPEB liability- ending 159,840,752 Plan fiduciary net position Contributions- employer $ 4,536,168 Net investment 170,768 Benefit (4,267,124) Net change in plan fiduciary net position………………………… 439,812 Plan fiduciary net position- beginning…………………………..… 1,749,487 Plan fiduciary net position- ending $ 2,189,299 City's net OPEB liability- ending $ 157,651,453 Plan fiduciary net position as a percentage of the total OPEB 1.37% Covered-employee $ 82,395,392 City's net OPEB liability as a percentage of covered-employee 191% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF CHANGES IN THE CITY'S NET OPEB LIABILITY AND RELATED RATIOS OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 113 Comprehensive Annual Financial Report ---PAGE BREAK--- June 30, 2017 Actuarially determined contribution…………………………………$ 12,039,407 Contributions in relation to the actuarially determined contribution…………………………………………… (4,536,167) Contribution deficiency $ 7,503,240 Covered-employee 82,395,392 Contributions as a percentage of covered- employee 14.61% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF CITY CONTRIBUTIONS OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 114 Comprehensive Annual Financial Report ---PAGE BREAK--- June 30, 2017 Annual money-weighted rate of return, net of investment 9.08% Note: This schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF INVESTMENT RETURNS OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 115 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF FUNDING PROGRESS AND EMPLOYER CONTRIBUTIONS Actuarial Accrued UAAL as a Actuarial Liability (AAL) Unfunded Percentage Actuarial Value of Projected AAL Funded Covered of Covered Valuation Assets Unit Credit (UAAL) Ratio Payroll Payroll Date (B-A) (A/B) 6/30/2016 $ 1,749,487 $ 152,335,852 $ 150,586,365 1.15% $ 82,395,392 182.8% 12/31/2013 803,651 109,605,701 108,802,050 0.73% 65,100,000 167.1% 12/31/2011 - 145,033,856 145,033,856 0.00% 50,103,473 289.5% 12/31/2009 - 171,447,034 171,447,034 0.00% 52,107,612 329.0% Annual Actual Percentage of Year Required Contributions the ARC Ended Contribution (ARC) Made Contributed 2017 $ 12,039,407 $ 4,536,167 38% 2016 8,874,011 4,607,168 52% 2015 11,311,746 5,396,396 48% 2014 10,799,677 5,342,584 49% 2013 10,003,723 4,681,685 47% 2012 9,555,726 4,419,491 46% 2011 11,374,693 5,916,957 52% See notes to required supplementary information. OTHER POSTEMPLOYMENT BENEFIT PLAN Schedule of Funding Progress Schedule of Employer Contributions City of Salem, Massachusetts 116 Comprehensive Annual Financial Report ---PAGE BREAK--- ACTUARIAL METHODS AND ASSUMPTIONS Actuarial Methods: Valuation June 30, 2016 Actuarial cost Entry Age Normal - Level percentage of payroll Amortization Payments increasing at 3.5% Remaining amortization 30 years open Actuarial Assumptions: Investment rate of 7.50% Discount 3.58% Inflation 3.50% Projected salary increases…………………………… Service-related increases for Group 1 (excluding Teachers) and Group 2 employees: 6.00% decreasing over 9 years to an ultimate level of 4.25% Service-related increases for Group 4 members: 7.00% decreasing over 5 years to an ultimate level of 4.75% Service-related increases for Teachers: 7.50% decreasing over 20 years to an ultimate level of 4.00% Medical trend rate: 6.3% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year Medicare Supplement*…………………………… 0.4% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year Medicare Advantage*……………………………… 8.9% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year Part B 5.00% Plan Membership: Current retirees, beneficiaries, and dependents…… 968 Current active 822 1,790 * Trend reflects known increases. See notes to required supplementary information. OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 117 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2017 City of Salem, Massachusetts 118 Comprehensive Annual Financial Report NOTE A – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Notes to required supplementary information 1. Budgetary Information Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without a recommendation of the Mayor, the Council may not make any appropriation for a purpose not included in the proposed budget, except by a two-thirds vote in the case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the Council. The Council may not increase any item without the recommendation of the Mayor (except as provided by legislation, recommendation of the school committee or regional district school committee and by two-thirds vote of the Council, provided that such increase does not cause the total annual budget to exceed the property tax limitations). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. City department heads are generally required to submit their budget requests to the Mayor between January 1, March 1, and December 1. This does not apply to the school department, which must submit its request in time for the Mayor to include it in the submission to the Council. If the Mayor does not make a timely budget submission, provision is made for preparation of a budget by the Council. Provision is also made for supplementary appropriations upon recommendation of the Mayor. Water and Sewer department expenditures are included in the budgets adopted by City Council. Under recent legislation, the City Council on the recommendation of the Mayor may transfer during May and June, and the first fifteen days of July, any amount appropriated for the use of any department to the appropriation for any other department, provided that no such transfer may be made from any appropriation for a school department, regional school district, or municipal light department. The majority of appropriations are non-continuing which lapse at the end of each year. Others are continuing appropriations for which the governing body has authorized that an unspent balance from a prior year be carried forward and made available for spending in the current year. These carry forwards are included as part of the subsequent year’s original budget. Generally, expenditures may not exceed the legal level of spending (salaries, expenses and capital) authorized for an appropriation account. However, the payment of debt service is statutorily required, regardless of whether such amounts are appropriated. Additionally, expenditures for disasters, natural or otherwise, and final judgments may exceed the level of spending authorized by two-thirds majority vote of the City Council. An annual budget is adopted for the general fund in conformity with the guidelines described above. The original 2017 approved budget authorized approximately $137.2 million in appropriations and other amounts to be raised. During the year, increases to the original budget were approved totaling approximately $4.7 million. The most notable components of this increase include an additional $4.1 million in available funds (free cash) appropriated to fund stabilization reserves, capital improvements, other postemployment benefits trust, pension reserves and various additional appropriations. The Finance Department has the responsibility to ensure that budgetary control is maintained. Budgetary control is exercised through the accounting system. ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2017 City of Salem, Massachusetts 119 Comprehensive Annual Financial Report 2. Budgetary - GAAP Reconciliation For budgetary financial reporting purposes, the Uniform Municipal Accounting System basis of accounting (established by the Commonwealth) is followed, which differs from the GAAP basis of accounting. A reconciliation of budgetary-basis to GAAP-basis results for the general fund for the year ended June 30, 2017, is presented below: Net change in fund balance - budgetary $ 355,864 Perspective differences: Reclassification of enterprise fund expenditures budgeted in the general fund…………… 473,683 Reclassification of enterprise fund transfers budgeted in the general (473,683) Activity of the Salem Community Charter (86,312) Activity of the Bentley Charter (203,334) Activity of the stabilization funds recorded in the general fund for 656,992 Basis of accounting differences: Net change in revenues in recording 60 day 100,168 Net change in revenues in recording tax refunds 702,436 Net difference in recognition of (137,125) Net change in fund balances - GAAP $ 1,388,689 3. Appropriation Deficits During 2017, expenditures exceeded budgeted appropriations for snow and ice removal. This over expenditure is allowable under Massachusetts General Law. The City will fund this deficit in the next fiscal year. NOTE B – PENSION PLAN Pension Plan Schedules – Retirement System A. Schedule of Changes in the Net Pension Liability and Related Ratios The Schedule of Changes in the Net Pension Liability and Related Ratios includes the detailed changes in the System’s total pension liability, changes in the System’s net position, and the ending net pension liability. It also demonstrates the plan’s net position as a percentage of the total pension liability and the net pension liability as a percentage of covered payroll. Since the System performs an actuarial valuation bi-annually, there are no reported amounts for the changes in benefit terms, differences between expected and actual experience and changes in assumptions as of December 31, 2016. B. Schedule of Contributions Governmental employers are required to pay an annual appropriation as established by PERAC. The appropriation includes the amounts to pay the pension portion of each member’s retirement allowance, an amount to amortize the actuarially determined unfunded liability to zero in accordance with the system’s funding schedule, and additional appropriations in accordance with adopted early retirement incentive programs. The ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2017 City of Salem, Massachusetts 120 Comprehensive Annual Financial Report appropriations are payable on July 1 and January 1. Employers may choose to pay the entire appropriation in July at a discounted rate. Accordingly, actual employer contributions may be less than the “total appropriation”. The appropriations are allocated amongst employers based on an actuarial valuation. C. Schedule of Investment Return The money weighted rate of return is calculated as the internal rate of return on pension plan investments, net of pension plan investment expense. A money weighted rate of return expresses investment performance, net of pension plan investment expense, adjusted for the changing amounts actually invested. Inputs to the money weighted rate of return calculation are determined Pension Plan Schedules - City A. Schedule of the City’s Proportionate Share of the Net Pension Liability The Schedule of the City’s Proportionate Share of the Net Pension Liability details the allocated percentage of the net pension liability (asset), the proportionate share of the net pension liability, and the covered employee payroll. It also demonstrates the net position as a percentage of the pension liability and the net pension liability as a percentage of covered payroll. B. Schedule of City’s Contributions Governmental employers are required to pay an annual appropriation as established by PERAC. The appropriation includes the amounts to pay the pension portion of each member’s retirement allowance, an amount to amortize the actuarially determined unfunded liability to zero in accordance with the system’s funding schedule, and additional appropriations in accordance with adopted early retirement incentive programs. The appropriations are payable on July 1 and January 1. The City may choose to pay the entire appropriation in July at a discounted rate. Accordingly, actual contributions may be less than the “total appropriation”. C. Schedule of the Special Funding Amounts of the Net Pension Liabilities The Commonwealth of Massachusetts is a nonemployer contributor and is required by statute to make all actuarially determined employer contributions on behalf of the member employers which creates a special funding situation. Since the City does not contribute directly to MTRS, there is no net pension liability to recognize. This schedule discloses the Commonwealth's 100% share of the collective net pension liability that is associated with the City; the portion of the collective pension expense as both revenue and pension expense recognized by the City; and the Plan's fiduciary net position as a percentage of the total liability. D. Changes in Assumptions None. E. Changes in Plan Provisions None. ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2017 City of Salem, Massachusetts 121 Comprehensive Annual Financial Report NOTE C – OTHER POSTEMPLOYMENT BENEFITS The City administers a single-employer defined benefit healthcare plan (“The Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s participation in the Group Insurance Commission of the Commonwealth of Massachusetts (GIC) which covers both active and retired members. The Other Postemployment Benefit Plan A. Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios The Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios presents multi-year trend information on changes in the Plan’s total OPEB liability, changes in the Plan’s net position, and ending net OPEB liability. It also demonstrates the Plan’s net position as a percentage of the total liability and the Plan’s net other postemployment benefit liability as a percentage of covered employee payroll. B. Schedule of the City’s Contributions The Schedule of the City’s Contributions includes the City’s annual required contribution to the Plan, along with the contribution made in relation to the actuarially determined contribution and the covered employee payroll. The City is not required to fully fund this contribution. It also demonstrates the contributions as a percentage of covered payroll. C. Schedule of Investment Returns The Schedule of Investment Returns includes the money-weighted investment return on the Plan’s other postemployment assets, net of investment expense. The City The City currently finances its other postemployment benefits (OPEB) on a pay-as-you-go basis. As a result, the funded ratio (actuarial value of assets expressed as a percentage of the actuarial accrued liability) is 1.15%. In accordance with Governmental Accounting Standards, the City has recorded its OPEB cost equal to the actuarial determined annual required contribution (ARC) which includes the normal cost of providing benefits for the year and a component for the amortization of the total unfunded actuarial accrued liability of the plan. Projections of benefits for financial reporting purposes are based on the substantive plan and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. A. Schedule of Funding Progress The Schedule of Funding Progress presents multi-year trend information which compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. B. Schedule of Employer Contributions The Schedule of Employer Contributions presents multi-year trend information for the City’s required and actual contributions relating to the plan. ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2017 City of Salem, Massachusetts 122 Comprehensive Annual Financial Report C. Schedule of Actuarial Methods and Assumptions The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. D. Changes in Assumptions The discount rate was lowered from 4.75% to 3.58% Mortality assumptions, enrollment assumptions, and the trend on medical costs were updated. The cost method was changed from the Projected Unit Credit cost method to the Entry Age Normal cost method. E. Changes in Plan Provisions None ---PAGE BREAK--- City of Salem, Massachusetts 123 Comprehensive Annual Financial Report Combining and Individual Fund Statements Combining and Individual Fund Statements ---PAGE BREAK--- City of Salem, Massachusetts 124 Comprehensive Annual Financial Report Nonmajor governmental funds Nonmajor Governmental Funds Special Revenue Funds Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. School Grants Fund – This fund is used to account for the educational programs specifically financed by federal, state, and other grants which are designated for specific programs. Community Development Grants Fund – This fund is used to account for community development activity specifically financed by federal, state, and other grants which are designated for specific programs. School Lunch Fund – This fund is used to account for all cafeteria activities and is funded by user charges, federal and state grants and commodities received. Highway Grants Fund – This fund is used to account for construction, reconstruction and improvements to roadways, streets and sidewalks. Funding is provided primarily by grants. Donations and Gifts Fund – This fund is used to account for gifts which have been accepted by the City to be used for the purpose specified by the donor. Receipts Reserved Fund – This fund is used to account for receipts reserved for appropriation. City Revolving Accounts Fund – This fund is used to account for non-school related revolving funds specifically allowed by the laws of the Commonwealth of Massachusetts. These funds are expended for purposes specified by the enabling statute. School Revolving Accounts Fund – This fund is used to account for school related revolving funds specifically allowed by the laws of the Commonwealth of Massachusetts. These funds are expended for purposes specified by the enabling statutes. Capital Project Funds School Capital Projects- This fund is used to account for school capital projects. Other Funds – This fund is used to account for various capital projects not reported as major funds. Permanent Funds Permanent funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support governmental programs. Cemetery Fund – This fund is used to account for cemetery perpetual care contributions and expenditures. Human Service Fund – This fund is used to account for various contributions associated with human service activities. Other Funds – This fund is used to account for various contributions associated with governmental programs. ---PAGE BREAK--- Community School Development School Highway Donations Grants Grants Lunch Grants and Gifts ASSETS Cash and cash equivalents……………………………$ 1,841,923 $ - $ 307,430 $ - $ 338,622 - - - - 441,767 Receivables, net of uncollectibles: Departmental and - - - - - Intergovernmental………………………………… 203,448 45,965 - 94,019 - - 186,833 - - - Due from other - - 57,700 - - TOTAL $ 2,045,371 $ 232,798 $ 365,130 $ 94,019 $ 780,389 LIABILITIES Accrued 121,197 $ 5,566 $ 22,761 $ - $ 358 Due to other - 14,234 - 43,466 - TOTAL LIABILITIES………………………………… 121,199 19,800 22,761 43,466 358 DEFERRED INFLOWS OF RESOURCES Unavailable - 186,833 - 91,653 - FUND BALANCES Nonspendable……………………………………… - - - - - 1,924,172 26,165 342,369 - 780,031 - - - (41,100) - TOTAL FUND BALANCES…………………………… 1,924,172 26,165 342,369 (41,100) 780,031 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES……………………………$ 2,045,371 $ 232,798 $ 365,130 $ 94,019 $ 780,389 (Continued) JUNE 30, 2017 COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS Special Revenue Funds City of Salem, Massachusetts 125 Comprehensive Annual Financial Report ---PAGE BREAK--- City School Receipts Revolving Revolving Reserved Accounts Accounts Subtotal Cash and cash $ 1,712,272 $ 826,986 $ 591,282 $ 5,618,515 - - - 441,767 Receivables, net of uncollectibles: Departmental and 156,117 - - 156,117 Intergovernmental…………………………………………………………… - - - 343,432 - 134,192 - 321,025 Due from other - - - 57,700 TOTAL $ 1,868,389 $ 961,178 $ 591,282 $ 6,938,556 LIABILITIES Accrued $ - $ 288 $ 102,170 $ 252,340 Due to other - - - 57,700 TOTAL - 288 102,170 310,042 DEFERRED INFLOWS OF RESOURCES Unavailable 156,117 134,192 - 568,795 FUND BALANCES - - - - 1,712,272 826,698 489,112 6,100,819 - - - (41,100) TOTAL FUND 1,712,272 826,698 489,112 6,059,719 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND 1,868,389 $ 961,178 $ 591,282 $ 6,938,556 ASSETS Special Revenue Funds JUNE 30, 2017 COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS City of Salem, Massachusetts 126 Comprehensive Annual Financial Report ---PAGE BREAK--- Total School Nonmajor Capital Human Governmental Projects Other Subtotal Cemetery Service Other Subtotal Funds $ 546,896 $ 178,215 $ 725,111 $ 276,389 $ 103,049 $ 222,665 $ 602,103 $ 6,945,729 - - - 3,475,370 1,539,646 1,226,515 6,241,531 6,683,298 - - - - - - - 156,117 4,381,718 - 4,381,718 - - - - 4,725,150 - - - - - - - 321,025 - - - - - - - 57,700 $ 4,928,614 $ 178,215 $ 5,106,829 $ 3,751,759 $ 1,642,695 $ 1,449,180 $ 6,843,634 $ 18,889,019 $ - $ - $ - $ - $ - $ - $ - $ 252,340 - - - - - - - 57,700 - - - - - - - 310,042 - - - - - - - 568,795 - - - 1,138,023 221,174 847,027 2,206,224 2,206,224 4,928,614 178,215 5,106,829 2,613,736 1,421,521 602,153 4,637,410 15,845,058 - - - - - - - (41,100) 4,928,614 178,215 5,106,829 3,751,759 1,642,695 1,449,180 6,843,634 18,010,182 $ 4,928,614 $ 178,215 $ 5,106,829 $ 3,751,759 $ 1,642,695 $ 1,449,180 $ 6,843,634 $ 18,889,019 (Concluded) Permanent Funds Capital Project Funds City of Salem, Massachusetts 127 Comprehensive Annual Financial Report ---PAGE BREAK--- Community School Development School Highway Donations Grants Grants Lunch Grants and Gifts REVENUES: Charges for $ 6,960 $ - $ - $ - $ - Penalties and interest on - - - - - Intergovernmental…………………………………………… 7,146,051 1,053,317 2,081,447 1,128,148 - Departmental and 34,141 119,244 - - - 16,939 - - - 143,868 Investment - 48 - - 21,555 TOTAL 7,204,091 1,172,609 2,081,447 1,128,148 165,423 EXPENDITURES: Current: General government……………………………………… - - - - 5,396 Public - - - - 20,894 7,004,793 - 2,094,173 - 81,887 Public - - - 1,182,438 - Community development………………………………… - 1,187,215 - - - Health and human services……………………………… - - - - 33,048 Culture and recreation……………………………………… - - - - 17,129 TOTAL EXPENDITURES……………………………… 7,004,793 1,187,215 2,094,173 1,182,438 158,354 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES………………………… 199,298 (14,606) (12,726) (54,290) 7,069 OTHER FINANCING SOURCES (USES): Premium from issuance of refunding bonds……………… - - - - - Transfers 11,866 - - - 10,000 Transfers (11,864) - - - - TOTAL OTHER FINANCING SOURCES (USES)…… 2 - - - 10,000 NET CHANGE IN FUND BALANCES………………………… 199,300 (14,606) (12,726) (54,290) 17,069 FUND BALANCES AT BEGINNING OF YEAR……………… 1,724,872 40,771 355,095 13,190 762,962 FUND BALANCES AT END OF $ 1,924,172 $ 26,165 $ 342,369 $ (41,100) $ 780,031 NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2017 Special Revenue Funds City of Salem, Massachusetts 128 Comprehensive Annual Financial Report ---PAGE BREAK--- City School School Receipts Revolving Revolving Capital Reserved Accounts Accounts Subtotal Projects Other Subtotal $ - $ - $ - $ 6,960 $ - $ - $ - 4,106 - - 4,106 - - - 30,000 68,370 2,080 11,509,413 1,084,336 219,563 1,303,899 1,103,928 695,410 939,182 2,891,905 - 54,890 54,890 - 5,089 - 165,896 - - - - 779 354 22,736 - - - 1,138,034 769,648 941,616 14,601,016 1,084,336 274,453 1,358,789 - 237,239 - 242,635 - - - - 33,629 - 54,523 - - - - - 3,417,190 12,598,043 8,016 - 8,016 34,100 29,411 - 1,245,949 - 227,390 227,390 - 68,726 - 1,255,941 - - - - 118,270 - 151,318 - - - - 256,766 - 273,895 - - - 34,100 744,041 3,417,190 15,822,304 8,016 227,390 235,406 1,103,934 25,607 (2,475,574) (1,221,288) 1,076,320 47,063 1,123,383 510,389 - - 510,389 - - - - - 2,904,380 2,926,246 - - - (780,898) - (272,764) (1,065,526) - - - (270,509) - 2,631,616 2,371,109 - - - 833,425 25,607 156,042 1,149,821 1,076,320 47,063 1,123,383 878,847 801,091 333,070 4,909,898 3,852,294 131,152 3,983,446 $ 1,712,272 $ 826,698 $ 489,112 $ 6,059,719 $ 4,928,614 $ 178,215 $ 5,106,829 (Continued) Capital Project Funds Special Revenue Funds City of Salem, Massachusetts 129 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Human Governmental Cemetery Service Other Subtotal Funds REVENUES: Charges for - $ - $ - $ - $ 6,960 Penalties and interest on - - - - 4,106 Intergovernmental…………………………………………… - - - - 12,813,312 Departmental and - - - - 2,946,795 Contributions………………………………………………… 17,100 - 45,571 62,671 228,567 Investment 420,486 160,822 233,620 814,928 837,664 TOTAL 437,586 160,822 279,191 877,599 16,837,404 EXPENDITURES: Current: General government……………………………………… - - - - 242,635 Public - - 10,105 10,105 64,628 - - - - 12,606,059 Public 188,261 - 139,494 327,755 1,801,094 Community development………………………………… - - - - 1,255,941 Health and human services……………………………… - 64,946 - 64,946 216,264 Culture and recreation……………………………………… - - - - 273,895 TOTAL EXPENDITURES……………………………… 188,261 64,946 149,599 402,806 16,460,516 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES………………………… 249,325 95,876 129,592 474,793 376,888 OTHER FINANCING SOURCES (USES): Premium from issuance of refunding bonds……………… - - - - 510,389 Transfers - - - - 2,926,246 Transfers - - - - (1,065,526) TOTAL OTHER FINANCING SOURCES (USES)…… - - - - 2,371,109 NET CHANGE IN FUND BALANCES………………………… 249,325 95,876 129,592 474,793 2,747,997 FUND BALANCES AT BEGINNING OF YEAR……………… 3,502,434 1,546,819 1,319,588 6,368,841 15,262,185 FUND BALANCES AT END OF 3,751,759 $ 1,642,695 $ 1,449,180 $ 6,843,634 $ 18,010,182 (Concluded) NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2017 Permanent Funds City of Salem, Massachusetts 130 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 131 Comprehensive Annual Financial Report Private Purpose Trust Funds Private purpose trust funds Trust Fund Commissioners – This fund is used to account for trusts held by the City to benefit individuals and is administered by the City’s Board of Trust Fund Commissioners. Scholarship Funds – This fund is used to account for scholarships held by the City to benefit individuals. ---PAGE BREAK--- PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF NET POSITION JUNE 30, 2017 Trust Fund Scholarship Commissioners Funds Total ASSETS Cash and cash equivalents………………………………… $ 85,686 $ 119,145 $ 204,831 Corporate 328,738 - 328,738 Equity 809,684 - 809,684 Fixed income mutual 98,635 - 98,635 Mutual 21,651 - 21,651 TOTAL 1,344,394 119,145 1,463,539 NET POSITION Held in trust for other 1,344,394 $ 119,145 $ 1,463,539 Private Purpose Trust Funds City of Salem, Massachusetts 132 Comprehensive Annual Financial Report ---PAGE BREAK--- Trust Fund Scholarship Commissioners Funds Total ADDITIONS: Contributions: Private $ 1,627 $ 27,500 $ 29,127 Net investment income: Net change in fair value of investments…………………… 137,180 - 137,180 95 887 982 Total Net Investment 137,275 887 138,162 TOTAL 138,902 28,387 167,289 DEDUCTIONS: Educational scholarships…………………………………… 10,925 27,900 38,825 Housing 30,613 - 30,613 TOTAL DEDUCTIONS…………………………………… 41,538 27,900 69,438 CHANGE IN NET POSITION…………………………… 97,364 487 97,851 NET POSITION AT BEGINNING OF 1,247,030 118,658 1,365,688 NET POSITION AT END OF 1,344,394 $ 119,145 $ 1,463,539 PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2017 Private Purpose Trust Funds City of Salem, Massachusetts 133 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 134 Comprehensive Annual Financial Report Agency fund Agency Fund This fund is used primarily to account for payroll withholdings, police and fire details, escrow deposits and unclaimed property. ---PAGE BREAK--- Beginning End of Year Additions Deletions of Year ASSETS CURRENT: Cash and cash equivalents………………$ 612,207 $ 63,190,224 $ (63,149,509) $ 652,922 LIABILITIES Liabilities due depositors…………………$ 612,207 $ 63,190,224 $ (63,149,509) $ 652,922 AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES YEAR ENDED JUNE 30, 2017 City of Salem, Massachusetts 135 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 136 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- Statistical Section Winter Island During the 1930's, the United States Coast Guard created a Search & Rescue Base here on Winter Island Park. The Frigate USS Essex was built and launched in 1799 from this location. It served General George Washington in the U.S. Navy. The three bunkers located in historic Fort Pickering once stored ammunition as early as the Civil War. Winter Island had Salem's first tavern and first shipyard. A fort was erected as early as 1643. In 1867, the War department "turned over" to the city "for public use" the part of the island not occupied by the fort, until it should be wanted for defense. On December 28, 1928, Salem's Park Department took formal possession of the island. The fort was renamed Fort Pickering, after Colonel Timothy Pickering, Secretary of State and War in Washington's Cabinet. Winter Island is located at 50 Winter Island Road in Salem, Massachusetts. It offers RV and Tent Camping May 1 to Nov 1, a public boat ramp that is open year round, Waikiki Beach a public beach with lifeguards, seasonal dinghy rack spaces, and a camp and gift store. Picnic areas can be rented May 1 through Nov 1. Winter Island offers a walking tour where you can see the historic Fort Pickering Lighthouse and is a stop along the Salem Trolley Tour. A function hall is available for year round rentals and is a great place for weddings and more! Go to www.salem.com Recreation Department for more information. ---PAGE BREAK--- City of Salem, Massachusetts 137 Comprehensive Annual Financial Report Statistical Section This part of the comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. Financial Trends • These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time. Revenue Capacity • These schedules contain information to help the reader assess the City’s most significant local revenue source, the property tax. Debt Capacity • These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future. Demographic and Economic Information • These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place. Operating Information • These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs. SOURCES: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. ---PAGE BREAK--- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Governmental activities Net investment in capital assets…………… $ 139,683,360 $ 147,373,757 $ 147,313,749 $ 144,887,020 $ 147,692,495 $ 169,750,602 $ 170,092,864 $ 172,084,606 $ 171,154,358 $ 176,335,671 Restricted……………………………………… 6,948,839 6,968,580 6,892,267 10,562,103 11,197,635 12,499,976 14,383,949 12,047,560 9,234,701 10,103,927 Unrestricted…………………………………… (6,668,493) (13,473,169) (17,907,226) (17,992,385) (21,617,069) (22,562,824) (116,481,627) (125,845,138) (126,419,624) (136,605,419) Total governmental activities net position………$ 139,963,706 $ 140,869,168 $ 136,298,790 $ 137,456,738 $ 137,273,061 $ 159,687,754 $ 67,995,186 $ 58,287,028 $ 53,969,435 $ 49,834,179 Business-type activities Net investment in capital assets…………… $ 8,836,475 $ 6,939,001 $ 8,245,799 $ 8,248,186 $ 8,605,165 $ 9,562,558 $ 8,511,138 $ 8,744,920 $ 8,280,350 $ 8,865,191 Unrestricted…………………………………… 5,647,967 6,371,380 3,920,927 4,366,232 4,085,318 4,857,190 6,184,586 3,008,694 3,573,341 4,164,534 Total business-type activities net position…… $ 14,484,442 $ 13,310,381 $ 12,166,726 $ 12,614,418 $ 12,690,483 $ 14,419,748 $ 14,695,724 $ 11,753,614 $ 11,853,691 $ 13,029,725 Primary government Net investment in capital assets…………… $ 148,519,835 $ 154,312,758 $ 155,559,548 $ 153,135,206 $ 156,297,660 $ 179,313,160 $ 178,604,002 $ 180,829,526 $ 179,434,708 $ 185,200,862 Restricted……………………………………… 6,948,839 6,968,580 6,892,267 10,562,103 11,197,635 12,499,976 14,383,949 12,047,560 9,234,701 10,103,927 Unrestricted…………………………………… (1,020,526) (7,101,789) (13,986,299) (13,626,153) (17,531,751) (17,705,634) (110,297,041) (122,836,444) (122,846,283) (132,440,885) Total primary government net position…………$ 154,448,148 $ 154,179,549 $ 148,465,516 $ 150,071,156 $ 149,963,544 $ 174,107,502 $ 82,690,910 $ 70,040,642 $ 65,823,126 $ 62,863,904 GASB 68 was implemented in 2015 and the net pension liability was recorded which changed the 2014 net position for the first time. Net Position By Component Last Ten Years City of Salem, Massachusetts 138 Comprehensive Annual Financial Report ---PAGE BREAK--- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Expenses Governmental activities: General 10,598,174 $ 10,914,012 $ 10,865,152 $ 11,702,186 $ 11,904,711 $ 10,574,021 $ 10,080,121 $ 12,503,170 $ 11,788,264 $ 12,327,559 Public 28,262,847 27,421,538 26,755,783 27,989,181 26,551,919 27,832,445 29,879,444 29,652,698 29,707,698 32,046,642 75,874,227 79,410,738 83,743,843 86,938,434 91,261,655 95,924,303 100,837,487 100,997,380 105,955,199 114,049,284 Public 6,846,006 6,705,986 6,820,639 8,894,659 5,952,380 8,848,271 9,092,995 11,878,911 12,627,503 10,846,604 Community development…………………………………… 1,567,381 2,093,618 3,226,360 1,845,141 1,530,786 1,347,731 1,304,481 1,569,281 1,033,601 1,335,941 Health and human 5,904,063 6,226,498 6,622,114 5,930,089 6,001,130 6,140,975 5,788,579 6,850,201 6,793,390 6,714,390 Community preservation…………………………………… 5,350 356,518 80,610 456,019 Culture and recreation……………………………………… 3,293,415 3,228,906 3,169,224 2,997,090 3,219,315 3,429,452 3,589,253 3,277,578 3,585,339 3,576,595 2,503,461 2,396,187 1,888,315 1,582,033 1,544,887 1,277,709 1,328,888 1,349,443 1,313,435 1,646,278 Total government activities expenses…………………………… 134,849,574 138,397,483 143,091,430 147,878,813 147,966,783 155,374,907 161,906,598 168,435,180 172,885,039 182,999,312 Business-type activities: Water and sewer 9,790,421 11,488,868 11,796,038 10,752,161 10,921,100 11,169,816 11,241,391 12,386,557 11,694,630 10,787,708 Golf 386,099 278,007 399,023 363,625 438,613 465,210 466,834 472,708 531,307 552,606 936,826 905,834 844,615 991,722 1,042,610 1,052,780 968,159 3,230,500 2,558,263 2,573,421 2,617,948 2,744,963 2,648,564 2,373,876 2,448,400 2,762,022 2,917,405 Total business type activities expenses………………………… 14,343,846 15,230,972 15,613,097 14,725,456 15,147,286 15,336,370 15,050,260 15,307,665 14,987,959 14,257,719 Total primary government 149,193,420 $ 153,628,455 $ 158,704,527 $ 162,604,269 $ 163,114,069 $ 170,711,277 $ 176,956,858 $ 183,742,845 $ 187,872,998 $ 197,257,031 Program Revenues Governmental activities: Education charges for services…………………………… $ 1,586,525 $ 1,473,880 $ 1,370,250 $ 1,277,950 $ 1,271,626 $ 1,171,221 $ 1,275,125 $ 1,036,778 $ 1,224,683 $ 807,217 Public Safety charges for services………………………… 2,378,961 2,456,341 2,074,324 2,115,452 2,212,295 2,780,253 2,237,189 2,712,983 2,289,056 3,257,068 Other charges for 1,602,847 1,693,333 1,824,040 1,744,351 1,872,305 2,264,412 2,345,324 4,762,457 4,971,335 5,576,210 Operating grants and contributions………………………… 41,168,760 43,744,124 46,352,034 51,358,511 47,872,700 49,028,512 50,489,073 46,826,741 52,223,253 54,915,403 Capital grant and contributions……………………………… 9,615,336 8,762,642 4,135,374 5,197,515 5,699,571 30,643,446 8,496,589 5,050,922 7,213,351 7,576,188 Total government activities program revenues...……………… 56,352,429 58,130,320 55,756,022 61,693,779 58,928,497 85,887,844 64,843,300 60,389,881 67,921,678 72,132,086 Business-type activities: Charges for services - Water and Sewer………………… 10,874,482 11,753,147 12,122,111 12,810,031 12,609,726 13,692,023 13,086,639 13,288,556 13,043,867 13,312,357 Charges for services - 570,142 547,301 589,345 548,805 648,916 697,232 705,341 724,052 805,227 749,590 Charges for services - 1,651,032 1,694,708 2,038,235 2,333,478 2,274,470 2,580,262 2,510,838 Charges for services - 908,577 720,193 740,511 692,089 675,916 684,262 678,607 689,982 838,882 861,402 Capital grants and contributions………………………. 49,707 43,796 41,820 39,804 - - 2,887,131 102,518 - - Total business-type activities program revenues...……………… 14,053,940 14,759,145 15,532,022 16,424,207 16,209,028 17,653,779 19,868,556 14,805,108 14,687,976 14,923,349 Total primary government program revenues……………………$ 70,406,369 $ 72,889,465 $ 71,288,044 $ 78,117,986 $ 75,137,525 $ 103,541,623 $ 84,711,856 $ 75,194,989 $ 82,609,654 $ 87,055,435 Net (Expense)/Revenue Governmental (78,497,145) $ (80,267,163) $ (87,335,408) $ (86,185,034) $ (89,038,286) $ (69,487,063) $ (97,063,298) $ (108,045,299) $ (104,963,361) $ (110,867,226) Business-type (289,906) (471,827) (81,075) 1,698,751 1,061,742 2,317,409 4,818,296 (502,557) (299,983) 665,630 Total primary government net expense………………………… $ (78,787,051) $ (80,738,990) $ (87,416,483) $ (84,486,283) $ (87,976,544) $ (67,169,654) $ (92,245,002) $ (108,547,856) $ (105,263,344) $ (110,201,596) General Revenues and other Changes in Net Position Governmental activities: Real estate and personal property taxes, net of tax refunds 63,230,976 $ 66,672,653 $ 69,067,349 $ 71,828,412 $ 72,073,381 $ 76,770,134 $ 79,012,963 $ 82,444,144 $ 84,802,453 $ 90,118,638 Community Preservation 486,797 535,637 561,424 590,722 Tax 752,178 527,492 234,353 510,973 795,443 589,138 563,353 708,963 523,414 317,548 Motor vehicle and other excise 3,286,119 2,978,961 3,092,527 3,181,247 3,131,334 3,052,229 3,890,099 3,929,230 4,194,711 4,311,772 Hotel/motel 373,655 324,622 294,214 955,092 1,161,007 1,224,849 1,319,418 1,362,357 1,541,901 1,683,573 Penalties and interest on 353,952 412,572 437,361 438,487 490,242 399,311 457,958 443,444 497,484 466,092 Payments in lieu of 1,229,435 1,320,945 1,307,078 1,319,079 1,440,186 1,462,692 1,321,060 1,043,782 1,322,806 1,082,164 Grants and contributions not restricted to specific 9,163,777 8,064,486 6,583,118 6,404,395 8,220,908 6,610,413 6,775,827 7,182,509 6,881,968 7,218,934 Unrestricted investment 462,275 (35,188) 435,769 1,095,518 103,015 828,974 1,377,835 554,360 459,322 1,134,074 Miscellaneous………………………………………………… 168,417 203,848 250,681 358,720 453,416 375,872 344,538 122,979 260,344 318,858 (26,013) 702,234 1,062,580 1,251,059 985,677 588,144 1,653,218 9,736 (400,060) (510,404) Total governmental activities……………………………………… 78,994,771 81,172,625 82,765,030 87,342,982 88,854,609 91,901,756 97,203,066 98,337,141 100,645,767 106,731,971 Business-type activities: 26,013 (702,234) (1,062,580) (1,251,059) (985,677) (588,144) (1,653,218) (9,736) 400,060 510,404 Total primary 79,020,784 $ 80,470,391 $ 81,702,450 $ 86,091,923 $ 87,868,932 $ 91,313,612 $ 95,549,848 $ 98,327,405 $ 101,045,827 $ 107,242,375 Changes in Net Position Governmental 497,626 $ 905,462 $ (4,570,378) $ 1,157,948 $ (183,677) $ 22,414,693 $ 139,768 $ (9,708,158) $ (4,317,594) $ (4,135,255) Business-type (263,893) (1,174,061) (1,143,655) 447,692 76,065 1,729,265 3,165,078 (512,293) 100,077 1,176,034 Total primary 233,733 $ (268,599) $ (5,714,033) $ 1,605,640 $ (107,612) $ 24,143,958 $ 3,304,846 $ (10,220,451) $ (4,217,517) $ (2,959,221) In 2014 the City approved and established the Community Preservation Fund. In 2015 the City reclassified the parking fund to a governmental activity. Changes in Net Position Last Ten Years City of Salem, Massachusetts 139 Comprehensive Annual Financial Report ---PAGE BREAK--- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General Fund $ 220,608 $ 372,027 $ 421,825 $ - $ - $ - $ - $ - $ - $ - Unreserved………………………………… 1,321,397 749,849 1,211,094 - - - - - - - - - - 589,894 985,737 1,059,667 1,002,935 558,880 661,246 468,894 Unassigned………………………………… - - - 8,405,585 9,550,262 11,663,494 11,998,002 11,159,068 12,937,609 14,518,650 Total general 1,542,005 $ 1,121,876 $ 1,632,919 $ 8,995,479 $ 10,535,999 $ 12,723,161 $ 13,000,937 $ 11,717,948 $ 13,598,855 $ 14,987,544 All Other Governmental Funds $ 1,650,597 $ 1,688,851 $ 1,689,176 $ - $ - $ - $ - $ - $ - $ - Unreserved, reported in: Special revenue 3,768,323 5,602,931 5,819,702 - - - - - - - Capital projects funds………………… 2,806,105 (537,848) 3,969,207 - - - - - - - Permanent 3,291,512 2,678,043 2,783,655 - - - - - - - Nonspendable……………………………… - - - 1,707,276 2,074,097 2,074,989 2,074,987 2,151,087 2,176,969 2,206,224 Restricted…………………………………… - - - 11,329,632 14,344,418 12,942,168 15,563,265 12,440,090 20,988,535 19,857,614 Unassigned………………………………… - - - (665,295) (4,101,228) (623,622) (2,089,648) (1,002,367) (23,344) (128,661) Total all other governmental funds……………$ 11,516,537 $ 9,431,977 $ 14,261,740 $ 12,371,613 $ 12,317,287 $ 14,393,535 $ 15,548,604 $ 13,588,810 $ 23,142,160 $ 21,935,177 Note: The City implemented GASB 54 in 2011, fund balances prior to 2011 have been reported in the pre-GASB 54 format. Last Ten Years Fund Balances, Governmental Funds City of Salem, Massachusetts 140 Comprehensive Annual Financial Report ---PAGE BREAK--- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenues: Real estate and personal property taxes, net of tax $ 63,376,714 $ 66,717,968 $ 68,747,759 $ 71,754,816 $ 72,202,064 $ 77,018,965 $ 79,449,354 $ 82,905,745 $ 85,828,099 $ 91,488,374 Motor vehicle and other excise 3,427,889 3,154,642 3,007,759 3,180,552 3,203,122 3,113,058 3,799,179 3,945,343 4,057,235 4,300,898 Intergovernmental……………………………………………… 39,569,976 42,962,129 44,150,857 51,562,915 50,048,535 84,640,597 49,698,445 49,811,556 51,544,933 66,303,024 Departmental and 10,086,572 9,382,460 8,511,803 9,656,996 10,366,488 12,049,109 11,097,377 13,036,554 14,259,338 14,159,322 Investment 462,585 (32,923) 436,686 1,096,747 129,773 828,974 1,377,835 554,360 459,322 1,134,074 Commonwealth school construction grants………………… 17,324,905 13,130,784 7,095,272 4,310,837 4,310,837 4,310,837 3,695,128 3,171,572 3,171,572 3,171,572 On-behalf pension payments by the Commonwealth 7,511,889 8,277,958 8,602,216 9,290,000 9,695,000 10,522,000 10,808,000 6,752,780 10,209,061 - Total 141,760,530 143,593,018 140,552,352 150,852,863 149,955,819 192,483,540 159,925,318 160,177,910 169,529,560 180,557,264 Expenditures: General 4,512,126 5,284,403 5,062,768 5,678,376 6,039,335 6,351,699 6,218,639 8,285,799 7,404,363 11,059,850 Public 15,945,719 16,452,689 16,147,666 17,129,546 17,807,607 18,207,275 19,627,830 19,936,450 19,682,270 23,663,814 47,293,548 48,101,995 49,491,944 51,429,439 50,076,848 53,168,217 54,548,503 63,150,832 60,044,184 71,957,012 Public 3,338,981 3,718,860 3,255,769 3,573,118 2,831,181 5,338,674 5,230,942 7,137,934 7,530,669 13,944,182 Community development…………………………………… 1,567,381 2,402,149 3,413,203 1,933,227 1,757,053 1,322,586 1,629,209 1,544,509 1,033,601 1,335,941 Health and human 5,306,444 5,339,094 6,158,089 5,927,137 5,538,621 5,580,162 5,446,188 6,424,227 6,341,080 5,837,125 Community Preservation……………………………………… - - - - - - 5,350 356,518 506,415 604,319 Culture and 2,135,563 2,395,536 2,320,698 2,152,872 3,367,206 2,468,723 2,368,401 2,264,401 2,347,889 2,518,037 Pension 15,180,985 16,206,240 16,770,835 17,707,823 18,538,274 19,771,148 20,402,625 16,923,249 20,151,894 23,610,047 Massachusetts teachers' retirement 7,511,889 8,277,958 8,602,216 9,290,000 9,695,000 10,522,000 10,808,000 6,752,780 10,209,061 - Employee 11,570,087 11,805,651 11,077,682 11,751,691 13,122,992 13,326,634 14,255,543 13,490,299 13,529,621 14,108,736 State and county 5,933,670 6,302,025 6,655,890 6,445,380 6,390,908 5,141,397 5,776,828 6,015,427 7,061,663 7,946,729 Capital 12,930,767 13,552,655 4,654,814 6,194,898 11,752,488 38,287,997 16,665,809 13,273,983 10,251,982 14,234,566 Debt service 6,620,000 4,559,497 5,385,000 7,550,000 4,717,000 19,454,000 3,073,598 2,935,000 3,500,000 3,752,361 2,622,389 2,568,643 2,087,028 1,851,117 1,761,551 1,816,117 1,536,769 1,558,748 1,640,859 1,810,439 Total Expenditures…………………………………………… 142,469,549 146,967,395 141,083,602 148,614,624 153,396,064 200,756,629 167,594,234 170,050,156 171,235,551 196,383,158 Excess of revenues over (under) expenditures…………… (709,019) (3,374,377) (531,250) 2,238,239 (3,440,245) (8,273,089) (7,668,916) (9,872,246) (1,705,991) (15,825,894) Other Financing Sources (Uses) Issuance of 3,930,000 - 4,589,000 630,000 3,900,938 11,242,660 6,680,000 5,980,000 10,473,361 665,000 Premium from issuance of 84,840 - 575,986 1,167,420 1,059 191,693 421,355 700,157 606,548 517,618 Issuance of refunding - 3,785,000 11,043,000 4,589,000 - - 2,509,500 - - 3,312,000 Premium from issuance of refunding bonds………………… - - - - - - 262,818 - - 464,866 Payments to refunded bond escrow agent………………… - - (8,512,000) - - - (2,709,130) - - (3,735,364) Refunding bonds - (3,785,000) (2,930,000) (4,589,000) - - - - - - Capital lease 394,779 167,454 43,500 185,715 38,765 514,002 284,000 351,762 1,805,846 590,426 Transfers 4,508,229 5,228,530 6,160,597 5,137,447 5,184,894 5,343,327 6,718,284 3,699,383 4,779,568 7,261,562 Transfers (4,534,242) (4,526,296) (5,098,017) (3,886,388) (4,199,217) (4,755,183) (5,065,066) (3,689,647) (5,179,628) (7,771,966) Total other financing sources 4,383,606 869,688 5,872,066 3,234,194 4,926,439 12,536,499 9,101,761 7,041,655 12,485,695 1,304,142 Net change in fund $ 3,674,587 $ (2,504,689) $ 5,340,816 $ 5,472,433 $ 1,486,194 $ 4,263,410 $ 1,432,845 $ (2,830,591) $ 10,779,704 $ (14,521,752) Debt service as a percentage of noncapital expenditures……… 7.13% 5.34% 5.48% 6.60% 4.57% 13.09% 3.05% 2.87% 3.19% 3.05% The Commonwealth is legally obligated to fund the Salem teachers retirement. Therefore the revenue and expenditure has been recorded in accordance with GASB 24. The City received a $15.8 million grant from the Commonwealth to pay down $15.6 million in school debt issued in 2013. Changes in Fund Balances, Governmental Funds In 2014 the City approved and established the Community Preservation Fund. Last Ten Years City of Salem, Massachusetts 141 Comprehensive Annual Financial Report ---PAGE BREAK--- Assessed Value and Actual Value of Taxable Property by Classification and Tax Rates Last Ten Years Assessed and Actual Values and Tax Rates Total Total Total Residential Residential Commercial Industrial Personal Commercial Commercial Direct City Year Value Tax Rate Value Value Property Value Tax Rate Rate Value 2008 $ 4,008,575,509 $ 11.67 $ 449,128,612 $ 134,872,400 $ 212,904,820 $ 796,905,832 $ 22.11 $ 13.40 $ 4,805,481,341 2009 3,753,889,412 12.92 446,457,904 133,318,180 177,993,390 757,769,474 24.54 14.87 4,511,658,886 2010 3,527,110,563 14.01 432,747,534 127,061,700 207,643,630 767,452,864 26.93 16.32 4,294,563,427 2011 3,361,382,273 15.05 417,668,102 123,342,500 213,577,900 754,588,502 29.08 17.62 4,115,970,775 2012 3,291,268,444 15.63 410,704,364 118,044,040 153,768,900 682,517,304 29.81 18.07 3,973,785,748 2013 3,227,554,748 16.38 420,436,783 116,029,720 163,211,490 699,677,993 31.46 19.07 3,927,232,741 2014 3,265,724,508 16.73 421,704,398 115,505,220 160,002,170 697,211,788 32.05 19.43 3,962,936,296 2015 3,523,220,734 16.41 449,496,402 101,675,040 134,283,680 685,455,122 30.99 18.78 4,208,675,856 2016 3,802,708,194 15.67 479,297,217 108,008,340 144,065,880 731,371,437 29.55 17.91 4,534,079,631 2017 3,802,708,194 15.86 478,990,259 108,442,340 183,684,630 771,117,229 29.99 18.24 4,573,825,423 Revaluation year. Source: Assessor's Department, City of Salem All property in the Commonwealth of Massachusetts is assessed at 100% of fair cash value. Note: Chapter 59, Section 21C of the Massachusetts General Laws, known as "Proposition 2 1/2", imposes 2 separate limits on the annual tax levy of the City. The primary limitation is that the tax levy cannot exceed 2 1/2 percent of the full and fair cash value. The secondary limitation is that the tax levy cannot exceed the maximum levy limit for the preceding year as determined by the State Commissioner of Revenue by more than 2 1/2 percent, subject to an exception for property added to the tax rolls and for certain substantial valuation increases other than as part of a general revaluation. The secondary limit may be exceeded in any year by a majority vote of the voters, however it cannot exceed the primary limitation. 83.87% 10.57% 2.38% 3.18% Total Assessed Value by Classification Year Ended June 30, 2016 15.0% 15.5% 16.0% 16.5% 17.0% 17.5% 18.0% 18.5% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Commercial Value as % of Total Value 83.14% 10.47% 2.37% 4.02% Total Assessed Value by Classification Year Ended June 30, 2017 Residential Commercial Industrial Personal Property City of Salem, Massachusetts 142 Comprehensive Annual Financial Report ---PAGE BREAK--- Principal Taxpayers Current Year and Nine Years Ago Percentage of Percentage of Total Taxable Total Taxable Nature of Assessed Assessed Assessed Assessed Name Business Valuation Rank Value Valuation Rank Value New England Power Co./Boston Gas Personal & Industrial $47,896,180 1 1.05% $24,520,050 3 0.51% Mass Electric Personal Property $37,920,190 2 0.83% $21,899,450 4 0.46% National Grid Personal & Industrial $41,122,890 3 0.90% - 0.00% Shetland Properties Industrial & Commercial $27,840,600 4 0.61% $29,315,600 2 0.61% Highlander Plaza Commercial Property $23,518,100 5 0.51% 21,728,900 5 0.45% Algonquin Gas Transmission Personal Property $25,606,200 6 0.56% - 0.00% Salem Station LLC Apartments $41,112,900 7 0.90% $40,027,860 6 0.83% RCG, Total Properties Apartments & Commercial $24,273,890 8 0.53% - 0.00% Princeton Crossing Apartments Apartments $30,648,700 9 0.67% $30,981,000 8 0.64% Hawthorne Commons Apartments $30,902,600 10 0.68% 28,417,500 9 0.59% Dominion Personal & Industrial Property - 0.00% $219,732,050 1 4.57% Totals $330,842,250 7.2% $416,622,410 8.7% Source: Board of Assessors 2017 2008 City of Salem, Massachusetts 143 Comprehensive Annual Financial Report ---PAGE BREAK--- Percent of Less Percent of Delinquent Total Total Tax Total Abatements & Net Current Net Levy Tax Tax Collections to Year Tax Levy Exemptions Tax Levy Tax Collections Collected Collections Collections Net Tax Levy 2008 $ 64,399,664 $ 565,307 $ 63,834,357 $ 63,225,112 99.0% $ 609,245 $ 63,834,357 100.0% 2009 67,095,914 514,742 66,581,172 66,300,317 99.6% 280,855 66,581,172 100.0% 2010 70,082,325 612,829 69,469,496 68,292,880 98.3% 1,176,616 69,469,496 100.0% 2011 72,532,237 402,324 72,129,913 70,936,056 98.3% 1,193,857 72,129,913 100.0% 2012 71,788,367 360,622 71,427,745 70,558,172 98.8% 869,573 71,427,745 100.0% 2013 74,879,216 420,829 74,458,387 73,069,108 98.1% 1,389,279 74,458,387 100.0% 2014 76,981,209 337,606 76,643,603 75,905,195 99.0% 738,408 76,643,603 100.0% 2015 79,058,306 354,811 78,703,495 78,006,777 99.1% 696,718 78,703,495 100.0% 2016 81,200,463 341,538 80,858,925 80,580,642 99.7% 278,283 80,858,925 100.0% 2017 85,600,551 364,920 85,235,631 84,518,157 99.2% - 84,518,157 99.2% Revaluation Year Source: Massachusetts Department of Revenue; Board of Assessors Property Tax Levies and Collections Last Ten Years City of Salem, Massachusetts 144 Comprehensive Annual Financial Report ---PAGE BREAK--- General General Total Percentage Percentage U. S. Census Personal Assessed Obligation Capital Obligation Capital Outstanding Per of Personal of Assessed Year Population Income Value Bonds Leases Bonds Leases Debt Capita Income Value 2008 40,407 $ 1,129,467,691 $ 4,805,481,341 $ 7,624,241 $ - $ 55,704,497 $ 675,954 $ 64,004,692 $ 1,584 5.67% 1.33% 2009 41,421 1,180,967,527 4,511,658,886 7,250,908 - 51,145,000 530,771 58,926,679 1,423 4.99% 1.31% 2010 41,361 1,202,841,984 4,294,563,427 12,949,102 - 50,387,000 317,032 63,653,134 1,539 5.29% 1.48% 2011 41,361 1,226,898,824 4,115,970,775 15,665,280 - 44,581,526 384,965 60,631,771 1,466 4.94% 1.47% 2012 41,340 1,250,801,415 3,973,785,748 16,762,802 - 43,629,929 245,703 60,638,434 1,467 4.85% 1.53% 2013 41,654 1,285,525,748 3,927,232,741 16,670,824 - 35,291,962 619,317 52,582,103 1,262 4.09% 1.34% 2014 41,340 1,301,351,782 3,962,936,296 18,825,303 105,047 39,943,717 626,059 59,500,126 1,439 4.57% 1.50% 2015 42,544 1,282,020,896 4,208,675,856 19,935,000 257,054 43,473,824 698,595 64,364,473 1,513 5.02% 1.53% 2016 42,544 1,083,723,312 4,534,079,631 29,666,894 274,554 50,735,271 2,211,224 82,887,943 1,948 7.65% 1.83% 2017 42,544 1,445,049,504 4,573,825,423 31,277,113 226,416 47,959,069 2,250,280 81,712,878 1,921 5.65% 1.79% Source: Audited Financial Statements, U. S. Census Total Primary Government Business-type Activities Business-type Activities Governmental Activities Ratios of Outstanding Debt by Type Last Ten Years City of Salem, Massachusetts 145 Comprehensive Annual Financial Report ---PAGE BREAK--- General Percentage Percentage U. S. Census Personal Assessed Obligation Per of Personal of Assessed Year Population Income Value Bonds Capita Income Value 2008 40,407 $ 1,129,467,691 $ 4,805,481,341 $ 63,328,738 $ 1,567 5.61% 1.32% 2009 41,421 1,180,967,527 4,511,658,886 58,395,908 1,410 4.94% 1.29% 2010 41,361 1,202,841,984 4,294,563,427 63,336,102 1,531 5.27% 1.47% 2011 41,361 1,226,898,824 4,115,970,775 60,246,806 1,457 4.91% 1.46% 2012 41,340 1,250,801,415 3,973,785,748 60,392,731 1,461 4.83% 1.52% 2013 41,654 1,285,525,748 3,927,232,741 51,962,786 1,247 4.04% 1.32% 2014 41,340 1,301,351,782 3,962,936,296 58,769,020 1,422 4.52% 1.48% 2015 42,544 1,282,020,896 4,208,675,856 63,408,824 1,490 4.95% 1.51% 2016 42,544 1,083,723,312 4,534,079,631 80,402,165 1,890 7.42% 1.77% 2017 42,544 1,445,049,504 4,573,825,423 79,236,182 1,862 5.48% 1.73% Source: Audited Financial Statements, U. S. Census Total Primary Government Ratios of General Bonded Debt Outstanding Last Ten Years City of Salem, Massachusetts 146 Comprehensive Annual Financial Report ---PAGE BREAK--- Direct and Overlapping Governmental Activities Debt As of June 30, 2017 Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable Debt Overlapping debt: Essex North Shore Agricultural & Tech School District…… $ 29,720,000 18.81% $ 5,590,332 Direct debt: Capital Lease Obligations……………………………………… 2,250,280 General Governmental Debt 47,959,069 City total direct 50,209,349 Total direct and overlapping $ 55,799,681 Source: Treasurer and North Shore Regional Vocational School District Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of the overlapping governments that is borne by the taxpayers of the Town. This process recognizes that, when considering the government's ability to issue and repay long-term debt, the entire debt burden borne by the property taxpayers should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government. The percentage applicable for the North Shore Regional Vocational School District is based on the number of students attending from the City of Salem as a percentage of all students at the Regional School. City of Salem, Massachusetts 147 Comprehensive Annual Financial Report ---PAGE BREAK--- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Equalized Valuation………………………… $ 5,168,060,200 $ 5,168,060,200 $ 4,568,374,700 $ 4,568,374,700 $ 4,256,808,900 $ 4,256,808,900 $ 4,191,566,000 $ 4,191,566,000 $ 4,757,173,700 $ 4,757,173,700 Debt Limit of Equalized Valuation…… $ 258,403,010 $ 258,403,010 $ 228,418,735 $ 228,418,735 $ 212,840,445 $ 212,840,445 $ 209,578,300 $ 209,578,300 $ 237,858,685 $ 237,858,685 Less: Outstanding debt applicable to limit………… 12,004,000 12,004,000 10,884,900 16,669,700 14,905,000 19,976,500 23,966,500 30,306,500 32,996,153 36,040,315 Authorized and unissued debt……………… 28,769,240 28,769,240 11,128,240 13,725,802 72,303,161 46,646,035 36,905,041 28,415,041 60,521,980 49,272,080 Legal debt $ 217,629,770 $ 217,629,770 $ 206,405,595 $ 198,023,233 $ 125,632,284 $ 146,217,910 $ 148,706,759 $ 150,856,759 $ 144,340,552 $ 152,546,290 Total debt applicable to the limit as a percentage of debt limit……………… 15.78% 15.78% 9.64% 13.31% 40.97% 31.30% 29.04% 28.02% 39.32% 35.87% Source: Audited Financial Statements; Statement of Indebtedness; and the Massachusetts Department of Revenue, Bureau of Local Assessment. Last Ten Years Computation of Legal Debt Margin City of Salem, Massachusetts 148 Comprehensive Annual Financial Report ---PAGE BREAK--- Demographic and Economic Statistics Last Ten Years Per Capita Population Personal Personal Median School Unemployment Year Estimates Income Income Age Enrollment Rate 2008 40,407 $ 1,129,467,691 $ 27,952 36.4 4,404 4.9% 2009 41,421 1,180,967,527 28,511 36.4 4,474 9.7% 2010 41,361 1,202,841,984 29,082 36.7 4,647 9.6% 2011 41,361 1,226,898,824 29,663 36.5 4,647 9.2% 2012 41,340 1,250,783,040 30,256 37.6 4,541 8.2% 2013 41,654 1,285,525,748 30,862 36.5 4,501 7.6% 2014 41,340 1,301,351,782 31,479 39.2 4,478 6.2% 2015 42,544 1,282,020,896 30,134 38.4 4,222 5.6% 2016 42,544 1,083,723,312 25,473 38.2 3,949 4.7% 2017 42,544 1,445,049,504 33,966 39.1 4,144 3.7% Note: Per Capita Personal Income based on 2010 U.S Census Source: Massachusetts Department of Revenue, Division of Local Services; U.S. Census Bureau City of Salem, Massachusetts 149 Comprehensive Annual Financial Report ---PAGE BREAK--- Principal Employers Current Year and Nine Years Ago Nature Percentage of Percentage of of Total City Total City Business Employees Rank Employment Employees Rank Employment North Shore Medical Center Healthcare 3,116 1 12.8% 2,875 1 12.7% Commonwealth of Massachusetts State Government 2,735 2 11.3% 568 3 - Salem State University Higher Education 1,465 3 6.0% 1,500 2 6.6% City of Salem Municipal Government 1,462 4 6.0% - - Peabody Essex Museum Cultural/Tourism 250 5 1.0% 271 5 1.2% Excelitas Technologies Technology 200 6 0.8% 0.0% Salem Five Savings Banking 195 7 0.8% 210 7 0.9% Salem YMCA Social Service Agency 185 8 0.8% 0.0% Grosvenor Park Nursing Center Health Care 177 9 0.7% 214 6 0.9% Hawthorne Hotel Lodging 165 10 0.7% 200 8 0.9% 9,950 41.0% 23.3% Source: The City Planning Department 2017 2008 5,838 Employer City of Salem, Massachusetts 150 Comprehensive Annual Financial Report ---PAGE BREAK--- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Function General government…………………… 36 35 35 35 35 35 37 38 56 65 Public 185 187 191 190 194 203 210 211 210 214 Education………………………………… 753 752 752 752 776 890 841 841 1,008 860 Public 40 37 38 39 40 39 41 41 58 60 Engineering……………………………… 3 1 1 1 1 1 1 1 3 4 Health and human services…………… 17 14 17 15 14 15 14 13 15 16 Culture and recreation…………………… 21 22 22 23 23 23 24 24 25 25 Total 1,054 1,048 1,056 1,054 1,083 1,206 1,167 1,169 1,376 1,242 Source: Various City Departments City of Salem, Massachusetts Full-time Equivalent City Employees by Function City of Salem, Massachusetts 151 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General government Marriage recordings………………………………… 306 276 243 381 321 324 365 338 337 352 Birth recordings……………………………………… 1,712 1,614 1,774 1,599 1,433 1,452 1,566 1,659 1,539 1,560 Death recordings……………………………………… 520 535 557 492 436 484 560 605 520 474 Police Physical 2,502 2,502 2,072 2,629 1,627 1,307 1,597 2,509 2,455 1,320 Motor vehicle violations……………………………… 6,604 191 6,631 10,309 8,497 6,161 7,936 8,660 6,267 5,764 Police personnel and officers………………………… 85 85 87 89 93 99 100 103 101 110 Fire 886 886 935 1,077 973 1,307 1,192 1,545 2,047 1,470 Emergency responses……………………………… 6,330 17 6,409 6,079 5,952 6,161 6,292 6,752 7,054 7,116 Fire personnel and officers…………………………… 81 81 79 83 90 86 88 88 88 88 Education Number of 4,404 4,474 4,647 4,585 4,541 4,501 4,478 4,222 3,949 3,831 Number of graduates………………………………… 254 273 283 246 240 275 275 271 211 228 Number of 479 479 488 507 517 540 542 571 521 464 Water Service connections………………………………… 11,701 11,737 11,719 11,719 11,719 11,729 11,827 9,833 9,998 10,136 Consumption in 2,123 1,994 2,103 2,025 1,921 1,934 1,898 1,898 1,612 1,504 Daily consumption 5.80 5.44 6.00 6.00 5.26 5.30 5.00 4.00 5.20 4 Sewer Service connections………………………………… 11,701 11,727 11,709 11,706 11,719 11,719 11,807 9,813 9,988 9,881 Health and human services Number of persons using COA transportation…… 18,678 15,526 16,076 16,908 19,630 16,170 12,698 14,704 11,479 12,575 Libraries Volumes in circulation…………………………………148,752 145,634 143,512 148,634 158,011 162,486 168,263 172,628 163,038 177,858 Total volumes borrowed………………………………514,708 538,184 508,507 508,293 493,315 471,416 430,391 397,810 353,800 356,973 Source: Various City Departments; Massachusetts Department of Education Last Ten Years Operating Indicators by Function/Program City of Salem, Massachusetts 152 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General government Number of buildings………………………… 2 2 2 2 2 2 2 2 2 2 Police Number of stations………………………… 1 1 1 1 1 1 1 1 1 1 Fire Number of stations………………………… 4 4 4 4 4 4 4 4 4 4 Education Number of elementary schools…………… 7 38 7 7 7 7 7 7 7 7 Number of middle schools………………… 1 1 1 1 1 1 1 1 1 1 Number of high schools…………………… 1 17 1 1 1 1 1 1 1 1 Public Works Water mains (miles)…………………………108 102 102 102 102 102 102 102 102 102 Health and human services Number of personnel……………………… 17 17 17 15 14.7 14.7 13.8 13.8 21 21 Culture and recreation Parks and playgrounds…………………… 35 35 35 35 35 35 35 35 35 35 Park and playground (acreage)…………… 230 230 230 230 230 230 230 230 230 230 Conservation land (acreage)……………… 128 128 128 128 128 128 128 128 128 128 Railroad right of way (acreage)…………… 89 89 89 89 89 89 89 89 89 89 Public 7 7 7 7 7 7 7 7 7 7 Ball 13 13 13 13 13 13 13 13 13 13 Tennis 10 10 10 10 10 10 10 10 10 10 Source: Various City Departments, Manual of the City Government Last Ten Years Capital Asset Statistics by Function/Program City of Salem, Massachusetts 153 Comprehensive Annual Financial Report ---PAGE BREAK--- Free Stabilization Year Cash Fund $ 4,922,937 $ 6,037,015 $ 5,380,858 $ 5,531,963 $ 4,949,767 $ 5,440,226 $ 3,349,683 $ 5,173,812 $ 5,498,710 $ 3,438,799 $ 2,525,829 $ 3,453,722 $ 3,249,238 $ 2,736,777 $ 750,607 $ 1,913,913 $ 1,261,200 $ 1,489,907 $ 1,114,950 $ 648,947 Source: City Records Free Cash and Stabilization Fund Balances Last Ten Years City of Salem, Massachusetts 154 Comprehensive Annual Financial Report