Document Salem_doc_67ccf84ee6

CITY OF SALEM MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2015 Kimberley L. Driscoll, Mayor Sarah A. Stanton, Finance Director Prepared by the City of Salem Finance Department ---PAGE BREAK--- On the Cover – House of Seven Gables When you arrive at The House of the Seven Gables – which constitutes its own national historic district on The National Register of Historic places – professional guides will warmly greet you for an unforgettable historical experience. Outside, spectacular seaside gardens await. Inside of The House of the Seven Gables, also known as the Turner-Ingersoll Mansion, you will discover a mysterious secret staircase where you least expect it! Built in 1668, this is the oldest surviving 17th century wooden mansion in New England. The House of the Seven Gables inspired author Nathaniel Hawthorne to write his legendary novel of the same name. The very home where Hawthorne was born was moved to The House of the Seven Gables site and now lies just feet away from the mysterious mansion made famous in fiction. When you step into the Nathaniel Hawthorne (c.1750), you will learn about the life of the famous author. The museum grounds also include Kid’s Cove at the 1830s Counting House, the Museum Store inside the 1655 Retire Beckett House, an 18th century granite sea wall, and seaside Colonial Revival Gardens. The Friendship Sailing Ship at Pickering Wharf The Friendship is a reconstruction of a 171-foot three-masted Salem East Indiaman built in 1797. She is the largest wooden, Coast Guard certified, sailing vessel to be built in New England in more than a century. The replica is based on a model of the original Friendship at the Peabody Essex Museum, as well as several paintings of the ship and numerous documents, including logs of the ship's voyages. The new Friendship is part of the National Park Service's larger exhibit area at Salem Maritime National Historic Site. She is a fully operational sailing vessel but stays close to home so that everyone can come aboard. On special occasions she sails as Essex County's flagship, visiting ports along our coast to join in maritime festivals and events. ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2015 Prepared by Finance Department ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2015 TABLE OF CONTENTS Introductory Section 1 Letter of Transmittal 3 Organizational Chart 19 Principal Executive Officers 20 Certificate of Achievement for Excellence in Financial Reporting 21 Distinguished Budget Presentation Award 22 Financial Section 23 Independent Auditor’s Report 25 Management’s Discussion and Analysis 27 Basic Financial Statements 36 Statement of net position 37 Statement of activities 38 Governmental funds – balance sheet 40 Reconciliation of the governmental funds balance sheet total fund balances to the statement of net position 41 Governmental funds – statement of revenues, expenditures and changes in fund balances 42 Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of activities 43 Proprietary funds – statement of net position 44 Proprietary funds – statement of revenues, expenses and changes in net position 45 Proprietary funds – statement of cash flows 46 Fiduciary funds – statement of fiduciary net position 47 Fiduciary funds – statement of changes in fiduciary net position 48 Notes to basic financial statements 49 Required Supplementary Information 85 General fund budgetary comparison schedule 86 General fund schedule of revenues, expenditures and changes in fund balance – budget and actual 88 Pension Plan Schedules – Retirement System 93 Schedule of changes in the net pension liability and related ratios 94 Schedule of contributions 95 ---PAGE BREAK--- Schedule of investment returns 96 Pension Plan Schedules – City 97 Schedule of the City’s proportionate share of the net pension liability 98 Schedule of City contributions 99 Schedule of the special funding amounts of the net pension liability 100 Other postemployment benefit plan schedules 101 Other postemployment benefit plan schedule of funding progress and employer contributions 102 Other postemployment benefit plan actuarial methods and assumptions 103 Notes to required supplementary information 104 Combining and Individual Fund Statements 109 Nonmajor governmental funds 110 Nonmajor governmental funds – combining balance sheet 111 Nonmajor governmental funds – combining statement of revenues, expenditures, and changes in fund balances 114 Private purpose trust funds 117 Private purpose trust funds – combining statement of net position 118 Private purpose trust funds – combining statement of changes in net position 119 Agency fund 120 Agency fund – statement of changes in assets and liabilities 121 Statistical Section 123 Net position by component – last ten years 124 Changes in net position – last ten years 125 Fund balances, governmental funds – last ten years 126 Changes in fund balances, governmental funds – last ten years 127 Assessed value and actual value of taxable property by classification and tax rates – last ten years 128 Principal taxpayers – current year and nine years ago 129 Property tax levies and collections – last ten years 130 Ratios of outstanding debt and general bonded debt – last ten years 131 Direct and overlapping governmental activities debt – as of June 30, 2015 132 Computation of legal debt margin – last ten years 133 Demographic and economic statistics – last ten years 134 Principal employers (excluding City) – current year and nine years 135 Full-time equivalent City employees by function – last ten years 136 Operating indicators by function/program – last ten years 137 Capital asset statistics by function/program – last ten years 138 Free cash and stabilization fund balances – last ten years 139 ---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. Annual Read Picnic and Science Fair-Salem Willows for All Salem School children ---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] Letter of Transmittal Sarah A. Stanton, Finance Director October 30, 2015 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, 2015 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, 2015, 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, 2015, 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, 2015 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 2015 totaled approximately $143 million, which includes Real & Personal Property tax revenue, State Revenues, MSBA Revenue, local revenues, transfers in of approximately $1,100,000 from Receipts Reserved Harbormaster, Witch House and Golf Course (to reduce tax rate), other receipts reserved transfers, and approximately $1.4 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 North Shore Regional Vocational School System. Per the Pension Reserves Investment Management Board July 2014 report, the market value of the System’s assets totaled $136 million with 96% 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 ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 6 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. Private and Public Development-FY15/FY16 Salem experienced new growth of approximately $350 million in new development since 2003. This includes: MBTA Station and Garage Improvements – The $37 million MBTA commuter rail station and parking garage is substantially complete, providing an enhanced station and approximately 700 parking spaces for commuters, residents, and visitors. The new facility is a significant asset to the City in terms of economic development. Remond Park (formerly known as Causeway Park) – Improvements to the old bridge abutment on Bridge Street Neck have been funded by the State. Construction is anticipated in early 2016. Peabody Essex Museum – A $125 million expansion of the Museum was completed in 2003. A new, 175,000- square-foot expansion is scheduled for completion in 2019, and will add new gallery, public program and education spaces to the museum. Once complete, the PEM expects 400,000 visitors annually, and it will rank among the nation’s largest art museums. 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. Phase II is set to begin in 2016. District Court Building – The City worked with the Salem Redevelopment Authority (SRA) to ensure that legislation conveying the District Court property to the SRA was passed and signed by the Governor. At present, the Superior Court complex will remain under state control. The SRA has issued a RFP for redevelopment of the District Court building/site and a designer has been selected. The project is set to begin in spring 2016. 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 is in the process of reviewing proposals for commercial redevelopment to put the site back on the tax rolls now that the MBTA garage is complete. Downtown development A number of vacant and underutilized properties have been redeveloped over the past 10 years into mixed-use residential/commercial buildings. The downtown alone has seen over $40 million in private investment from projects described below. Old Town Hall – In August 2014, the City formally ended its lease agreement for the management of Old Town Hall. The City will be managing the building and recently received a $20,000 Cultural Facilities grant from the state for window restoration and repair, which is being matched with local CPA funds. Significant additional mixed-use development is currently proposed as described below. Washington and Dodge Street Redevelopment – approximately $50 million, 190,000 square foot mixed-use development consisting of 111 hotel rooms, 84 residential units (including live-work units), approximately 20,000 square feet of commercial space, and at least 245 parking spaces. This development will effectively extend the ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 7 footprint of the downtown. The City was recently awarded a state grant in the amount of $2.5 million for infrastructure improvements to support this proposed project. 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: 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. Riverview Place – A new development planned for 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. Approved locally, the project is currently seeking its C. 91 environmental permit. Gateway Center – High Rock Bridge Street, LLC, received Planning Board approval 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 20,000 square foot Senior/Community Life Center and approximately 120,000 square feet of commercial and office space. The project is being revised to include a free-standing Community Life Center and a mixed-use building with commercial and residential units. Grove Street Apartments (formerly known as Legacy Apartments) – This project was originally approved by the Planning Board in 2012, consisting of three multi-family residential buildings with 141 units and re-use of an existing 17,000 square foot commercial office building. A project amendment was approved by the Planning Board in 2014 to respond to environmental concerns raised by MEPA, resulting in a reduction of the number of residential units to 129. MEPA review is pending. Tan Site (70-92 ½ Boston Street) – The Planning Board approved a new medical office building with 40,000 square feet in 2014. 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. This project is being revised and it is anticipated that a proposed mixed use/residential project will be submitted for approval in the near future. Waterfront Development Key changes also are rapidly occurring along Salem’s shoreline, creating rare waterfront development opportunities. Salem Harbor Power Station/Footprint Power – Footprint is constructing a state-of-the-art 630 megawatt gas-fired plant on a portion of the site. The plans were approved by the Planning Board and Board of Appeals, as well as the Energy Facilities Siting Board. The remaining two-thirds of the 63-acre waterfront property will be available for future redevelopment. Phase one of the site demolition is complete. Phase two including the main building and the last two stacks is in progress. The new plant will be on-line June 1, 2017. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 8 Port of Salem Expansion (Salem Wharf) – This $18 million to $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 also proposed. The City has finished the design, engineering, and has obtained all the Federal, State, and local regulatory permits for construction. Construction of the project is segmented into phases, which are undertaken as funding becomes available. The City was able to begin the first phase of construction in 2011 with a combination of local and state funds. Work included seawall construction, utility installation, base paving and installation of an interim, prefabricated ferry terminal. A combination of state and federal (Ferry Boat Discretionary (FBD) funds enabled the City, in 2012-13, to construct the second phase consisting of the first 260’ of the pier, wave fence, a portion of the seawall, gangway and ramp system, utilities and some dredging. In 2014, using a $4M funding allocation from the Governor’s Seaport Council, the City undertook renovations to the Footprint Deep-water Dock and constructed a connector to the Salem Wharf. These improvements enabled the City to successfully host its first major cruise ship, Holland America’s Seaborne Quest. During this phase, the City also installed lighting, undertook landscaping improvements at Blaney St. and began construction of a commercial Marina and Harbor walk. During the upcoming year, the City will seek additional state and federal funding to complete dredging and pier construction. The Salem Wharf will implement the most 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. This facility will fill a void in Salem Harbor and help move the Port of Salem one step closer to becoming a full service port. South River Dredge – 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). The City has received an additional $275,000 from the Seaport Council to finish the design, engineering and permitting stage of the dredge project. Presently, the Environmental Impact Report (EIR) is being finalized and will be submitted to the Massachusetts Environmental Policy Act (MEPA) Office in late 2015. The remaining regulatory permit applications will be prepared and filed after the EIR Certificate is issued. Once completed, the dredging will provide direct access to downtown Salem for deeper drafting vessels, transient boats, and dingy boats. Salem Ferry – The Salem to Boston Ferry is a relatively new 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. On the three commuter runs, a second stop is added, located at the World Trade Center dock in Boston Harbor. 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. In October a second ferry was added on a weekend schedule which brings visitors from Hingham and the South Shore to Salem for the Haunted Happenings celebration. 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. Salem Ferry Pier – In spring of 2006, the City completed construction of a $600,000 ferry pier consisting of a wooden pier, ADA accessible gangways, steel float, and aluminum dock at the end of 10 Blaney Street for the Salem Ferry. The City has since made numerous improvements to the Salem Ferry Pier including the installation of shore power, dry fire line, potable water lines, and a fuel line utilizing and additional grant from the Seaport Council. This temporary facility will be integrated into the permanent Salem Wharf structure. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 9 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 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. Public Infrastructure Projects 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 currently under construction with completion anticipated in 2016. 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 190,000 square foot mixed-use development on Washington and Dodge Streets. 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. 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 Osborne Hills Subdivision – Currently under construction, the Osborne Hills 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 ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 10 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. Thorndike Street Subdivision – This 5-lot subdivision was approved by the Planning Board in December 2012 and is currently under construction. Circle Hill Subdivision – This 3-lot subdivision was approved by the Planning Board in 2011 and is currently under construction. 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 Court Complex. 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 recently invested $12 million for their cardiac surgical suite and also built an Emergency Department, which is one of the most sophisticated and modern emergency facilities in the state. 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. The City is home to Shetland Park, a 900,000 square foot business park abutting downtown, which houses more than 70 businesses. Jacqueline’s Wholesale Bakery – 96 Swampscott Road - City Council approved a tax increment financing agreement for Jacqueline’s Wholesale Bakery, which provides over $75,000 in tax relief to the company over five years. This agreement paved the way for Jacqueline’s to receive over $475,000 in state tax credits through the Commonwealth’s Economic Development Incentive Program. The company will be adding 50 new jobs and investing about $4.7 million in the expansion of their business over the next few years. AL Prime Gas Station – 175 and 183 Lafayette Street – This redevelopment included the demolition of two existing buildings and existing gasoline pumps, and construction of a new convenience store and three new double-sided gasoline pumps, which are now open for business, representing additional investment in The Point neighborhood. U.S. Biological – Completed the construction of a $3 million, 50,000 square foot headquarters building on Technology Way with the plan to have 28 new jobs within five years. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 11 Other City Initiatives Working Cities Challenge – In 2014 the City was awarded a total of $105,000 through the Federal Reserve Bank of Boston’s “Working Cities Challenge,” which is being used to realize action items in the Point Vision and Action Plan. Examples of programs being funded include a healthcare career training program, leadership and civic engagement activities, and the development of a retail market analysis of the neighborhood. Salem was one of only six Gateway Cities to receive funding through this competitive program. 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, a weekly farmers market through November and December, and a New Year’s Eve launch. Destination Salem – Destination Salem continues to market Salem 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. 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, which is currently underway. 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 and improvements for this phase are underway. EPA Brownfields Revolving Loan Fund – The City obtained a $950,000 grant from the US EPA to establish a Brownfields Cleanup Revolving Loan Fund jointly with the City of Peabody. The program is focused on the remediation of industrial contamination to spur redevelopment of underutilized properties within the North River Corridor. 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 is currently underway. Public Art – Over the past three years, the City has been working to increase the amount and quality of public art 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. The development of a master plan for public art, funded by the National Endowment for the Arts (NEA), was completed in 2013 in partnership with the Salem Partnership and the Peabody Essex Museum. As recommended in this Plan, Council approved an ordinance to create a Public Art Commission and hired its first Public Art Planner in 2014. Initiatives include a public art installation, a revised Artists’ Row program, and the continuation of ArtBox, a program to transform utility boxes into works of art. In addition to these activities, the City supports the annual arts festival which draws thousands of participants into downtown in early June. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 12 Planning 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. Point Neighborhood Commercial Corridor Plan – In 2014 the City was awarded $25,000 in District Local Technical Assistant (DLTA) funding from the Metropolitan Area Planning Council (MAPC), which was used to develop a Commercial Corridor Plan for the Point neighborhood. 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 in 2013 for public art in partnership with the Peabody Essex Museum and the Salem Partnership, funded through the National Endowment for the Arts. Preservation Master Plan – The City was awarded a $16,000 Massachusetts Historical Commission Survey and Planning Grant to update the City’s Preservation Master Plan, which is now underway. 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 was approved by the EOEEA in 2008. The City will update the Harbor Plan again in 2015 to respond to changing conditions on the harbor with the development of a natural gas facility and future availability of 45 acres for waterfront development. The purpose of the Harbor Plan is to provide a strategy for port development to guide the future use and character of the Port of Salem. Parks and Recreation Winter Island – The City received a grant on $192,404 to construct a multi-purpose trail along the ocean at Winter Island and expects to construct the trail in the spring of 2016. The City is also utilizing Community Preservation funds to begin restoration of Fort Pickering at Winter Island. These projects were recommendations of the Master Plan for the renovation and redevelopment of Winter Island Park. Splash Pad – The City began construction of a splash pad at Mary Jane Lee Park, funded in part by an Our Common Backyards grant from Executive Office of Energy and Environmental Affairs. The grant additionally supported the development of a master plan for the park to identify future improvements beyond the splash pad. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 13 Open Space and Recreation Plan – The City hired Gale Associates to update its Open Space & Recreation Plan and to conduct a Recreation Facilities Needs Assessment & Master Plan. Salem Bike Path – The 1.5 mile long extension of the Salem Bike Path from its current end at Canal Street near Gardner Mattress to Downtown Salem via a City owned right-of-way and portions of MBTA active and unused railroad rights-of-way is being done in conjunction with the Canal Street Improvement Project. Splaine Park – The City completed the renovation of Splaine Park. The project was supported by a $420,946 Parkland Acquisitions and Renovations for Communities (PARC) grant from the Division of Conservation Services and a $42,500 Brownfields Assessment grant from MassDevelopment. 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 new baseball field and irrigation system, community gardens, and the rebuilding of the bleachers and dugouts. Causeway Park – Improvements to the old bridge abutment on Bridge Street Neck have been funded by the State and a contractor has been selected by MassDOT. Bertram Field – A complete renovation of Bertram Field football stadium and track is complete, 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. 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. 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. Projects awarded CPA funds as recommended by the Community Preservation Committee and approved by Council, as follows: • $ 93,505 North Shore CDC Housing Acquisition (52-60 Dow Street/105-111 Congress Street) • $135,500 Salem Public Library Roof Replacement • $100,000 Salem Common Fence Restoration • $ 90,000 Fort Pickering Phase Rehabilitation • $ 46,000 Old Town Hall Window Restoration • $ 40,000 Choate Statue Restoration • $ 51,000 Winter Island Scenic Trail • $ 40,000 15 Ward Street Pocket Park ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 14 • $ 23,049 Salem Community Gardens Improvements • $ 22,500 Driver and Patten Parks Improvements The City also has a partnership with Destination Salem, who markets the City as one of Massachusetts’ best destinations for families, couples, domestic, and international travelers. Visitation to Salem increased an estimated 5% in 2011 over 2010, and generated nearly $104 million in tourism spending in 2011. This infusion of dollars and visitors not only helps keep the current businesses thriving, but also encourages new businesses to open in Salem. According to the Massachusetts Executive Office of Labor and Workforce Development, the City had a labor force of 23,956, of whom 22,739 were employed and 1,217, or 5.1% were unemployed. The Commonwealth, for the same period, had an unemployment rate of 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 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 2015. Included in the budget was the City’s Five Year Financial Forecast. This is the seventh 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 2016 CIP, the City has authorized over $25.2 million in general and enterprise fund capital projects. Funding sources ranging from bonding, grants, to CPA will begin several major projects including the second phase of Canal Street redevelopment, a new pumper truck for the Fire Department, and a heavy investment in public safety and public works vehicles. 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. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 15 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. While there were significant savings for the City, the employees and retirees of the City will also receive financial savings of approximately $1 million for FY2014, as well as the long term stability of being a member of the State’s GIC plan. 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 In fiscal year 2007, the Mayor appointed herself to the Salem Retirement Board. By doing so, Mayor Driscoll has taken an active role in managing the City’s retirement system. The annual assessment from the Retirement Board to the City continues to be one of the biggest budget busters year in and year out. During fiscal year 2009, the 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. 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 2014 report, the market value of the System’s assets totaled $136 million with 96% 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, 2014. The next actuarial valuation will take place in January 2016. The study was performed by the Segal Company and was delivered to the Retirement Board in April of 2014. The study reported the actuarial assets of the system as of January 1, 2014 of $120.4 million and an unfunded liability of $117.1 million. The unfunded liability increased from January 1, 2012 by $9.6 million, partially due to the modest actuarial growth in 2012, in which the actuarial rate of return was 0.89%, while the assumed actuarial rate of return was 8.00%. It should be noted that the actuarial value of assets gradually recognizes market value fluctuations, resulting in an actuarial rate of return (0.89%) that is significantly lower than the market value rate of return (12.03%) for calendar year 2012. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 16 As a result of the increased unfunded liability, and the lower than expected return on investment, the Board adopted a funding schedule which will fully amortize the existing unfunded liability plus the expected increases in unfunded liability due to the deferred investment losses by June 30, 2032 with amortization payments that increase 4.5% per year. The total fiscal 2016 City share of 85% amounted to $10,071,175. 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 June 2014, Footprint Power has begun demolition of all existing structures and undertake any necessary environmental remediation. Footprint plans to construct 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 2016. 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. For FY2014, the City entered into a one year agreement with Dominion that called for a $1.49 million payment of tax dollars and a $260,000 “host fee”, which triggered a $3 million dollar payment from the Commonwealth, bringing total revenues for FY14 to $4.75 million. As of December 2014, the City has negotiated, and the City Council approved, a 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 plant 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. 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, 2015, the balance in the City’s Stabilization fund is $5.4 million. The target date to have the Stabilization Fund fully funded is projected to occur by fiscal year 2018. 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. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 17 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, 2015, the balance of this account was $463,000. During the fiscal 2016 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 2015. As such, the City appropriated $600,000 to that fund. 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 $1.5 million in the account, and has designated approximately $550,000 to this fund as of June 30, 2015. 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 as of June 30, 2015 was approved 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). 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. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 18 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, 2014. 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, 2014. 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 19 Comprehensive Annual Financial Report Organizational Chart ---PAGE BREAK--- City of Salem, Massachusetts 20 Comprehensive Annual Financial Report Principal Executive Officers TITLE NAME FIRST TOOK OFFICE TERM EXPIRES Mayor Kimberley L. Driscoll 1/2/2006 12/31/2017 President, City Council Arthur C. Sargent III 1/1/2015 12/31/2015 Finance Director Sarah Stanton 3/14/2013 1/31/2016 Treasurer Kathleen McMahon 12/27/2010 1/31/2016 Collector Bonnie Celi 3/11/2004 1/31/2016 City Clerk Cheryl LaPointe 7/15/2004 11/9/2015 City Solicitor Elizabeth Rennard 1/10/2006 Indefinite Assistant Finance Director Nina Bridgman 1/22/2004 1/31/2016 Principal Executive Officers ---PAGE BREAK--- City of Salem, Massachusetts 21 Comprehensive Annual Financial Report Certificate of Achievement for Excellence in Financial Reporting ---PAGE BREAK--- City of Salem, Massachusetts 22 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, 2014. 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 Downtown Salem Salem has a wide variety of restaurants including outdoor cafes, ethnic eateries and fine dining establishments. For shoppers there are malls and department stores, an open market, a waterfront village, as well as a downtown retail district. Salem also boasts of a wealth of museums, historic sites and attractions. ---PAGE BREAK--- City of Salem, Massachusetts 23 Comprehensive Annual Financial Report Financial Section ---PAGE BREAK--- City of Salem, Massachusetts 24 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 25 Comprehensive Annual Financial Report 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, 2015 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2014), 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, 2015 (except for the Salem Contributory Retirement System which is as of December 31, 2014), 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--- City of Salem, Massachusetts 26 Comprehensive Annual Financial Report 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 October 30, 2015 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. October 30, 2015 ---PAGE BREAK--- City of Salem, Massachusetts 27 Comprehensive Annual Financial Report Management’s Discussion and Analysis Management’s Discussion and Analysis ---PAGE BREAK--- City of Salem, Massachusetts 28 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, 2015. 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 29 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 trust funds of the City. The other postemployment benefits trust fund is used to account for assets accumulated to provide funding for future other postemployment benefits (OPEB) liabilities. 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 exceeded liabilities by $58.3 million at the close of 2015. This represents a decrease of $9.7 million from the prior year. ---PAGE BREAK--- City of Salem, Massachusetts 30 Comprehensive Annual Financial Report Net position of $172.1 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, $12 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 $125.8 million. The primary reason for this deficit balance is the recognition of other postemployment benefit liabilities totaling $44.5 million and a net pension liability of $94.4 million, in accordance with recent requirements of Governmental Auditing Standards Board (GASB). 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 liability, which is currently estimated to be approximately $109.6 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 $6.1 million for governmental activities for 2015. The City has begun the process of pre-funding a portion of the liability by establishing an irrevocable trust which, as of June 30, 2015, has a balance of $1.5 million and is reported within the fiduciary funds in the City’s financial statements. The net pension liability is recorded for the first time in 2015 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. (As Revised) 2015 2014 Assets: Current 50,149,219 $ 50,727,724 Noncurrent assets (excluding capital)…………………… 2,826,215 3,338,371 Capital 219,428,010 215,185,958 Total 272,403,444 269,252,053 Deferred Outflows of Resources…………………………… 574,798 115,896 Liabilities: Current liabilities (excluding 14,542,376 10,479,920 Noncurrent liabilities (excluding 147,130,967 142,086,126 Current 12,888,570 12,006,205 Noncurrent 40,129,301 36,800,512 Total liabilities………………………………………… 214,691,214 201,372,763 Net Position: Net investment in capital 172,084,606 173,485,600 12,047,560 14,383,949 (125,845,138) (119,874,363) Total net $ 58,287,028 $ 67,995,186 ---PAGE BREAK--- City of Salem, Massachusetts 31 Comprehensive Annual Financial Report The beginning net position of governmental activities has been revised to reflect the implementation of GASB Statements #67, #68, and $71 as well as to reclassify the City’s Parking Garage activities from Business-type activities to Governmental Activities. To reflect these changes, the June 30, 2014 balance of the governmental activities has been revised by ($94,721,438) for the net pension liability and by $2,889,102 for the Parking Garage net position. Previously reported net position of $159,827,522 has been revised to $67,995,186. Overall governmental net position decreased during 2015 by $9.7 million. Of this decrease $6.1 million is directly related to the additional amortization of the OPEB liability. Capital grants have decreased by $3.4 million since the state reimbursements on the Collins and Saltonstall school projects have been substantially completed. Operating grants have decreased due to a change in on-behalf payments associated with the Massachusetts Teachers’ Retirement System which have been recorded in accordance with the new GASB pension standards. The governmental expenses totaled $168.4 million of which $60.4 million (36%) was directly supported by program revenues consisting of charges for services, operating and capital grants, and contributions. General government expenses increased during 2015 partially due to contract settlement payments and sick leave buy- back payments which are budgeted and paid through this function. Public works expenses were up due to an additional $740,000 liability recorded for the City’s liabilities related to the landfill. During 2015, the City determined that it would close and cap the landfill and build a transfer station on the site. (As Revised) 2015 2014 Program revenues: Charges for $ 8,512,218 $ 8,368,476 Operating grants and contributions……………………… 46,826,741 50,489,073 Capital grants and contributions………………………… 5,050,922 8,496,589 General Revenues: Real estate and personal property taxes………………… 82,444,144 79,012,963 Community preservation 535,637 486,797 Motor vehicle and other excise 3,929,230 3,890,099 Nonrestricted 7,182,509 6,775,827 Unrestricted investment 554,360 1,377,835 Other 3,681,525 4,006,327 Total 158,717,286 162,903,986 Expenses: General government……………………………………… 12,503,170 10,080,121 Public 29,652,698 29,879,444 100,997,380 100,837,487 Public 11,878,911 10,037,377 Community development………………………………… 1,569,281 1,304,481 Health and human services……………………………… 6,850,201 5,788,579 Community preservation………………………………… 356,518 5,350 Culture and recreation…………………………………… 3,277,578 3,589,253 1,349,443 1,352,665 Total 168,435,180 162,874,757 Excess (Deficiency) before transfers……………………… (9,717,894) 29,229 9,736 (122,902) Change in net (9,708,158) (93,673) Net position, beginning of year (as revised)…………… 67,995,186 68,088,859 Net position, end of $ 58,287,028 $ 67,995,186 ---PAGE BREAK--- City of Salem, Massachusetts 32 Comprehensive Annual Financial Report Business-type Activities For the City’s business-type activities, assets exceeded liabilities by $11.8 million at the close of 2015. (As Revised) 2015 2014 Assets: Current 14,078,860 $ 14,114,976 Capital 29,763,387 26,491,620 Total 43,842,247 40,606,596 Deferred Outflows of Resources………………………… 12,335 - Liabilities: Current liabilities (excluding 1,910,417 832,385 Noncurrent liabilities (excluding 3,748,497 3,577,954 Current 7,624,030 6,295,350 Noncurrent 18,818,024 17,635,000 Total liabilities………………………………………… 32,100,968 28,340,689 Net Position: Net investment in capital 8,744,920 8,511,138 3,008,694 3,754,769 Total net $ 11,753,614 $ 12,265,907 Business-type net position of $8.7 million (74%) represents net investment in capital assets. The remaining $3 million (26%) 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 decrease of $512,000 in net position reported in connection with the enterprise funds. The water and sewer enterprise fund’s net position of $8.2 million (77%) represents the net investment in capital assets, while $2.5 million (23%) is unrestricted. The water and sewer enterprise experienced a net decrease of $497,000 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 $5.4 million, respectively. Combined, these assessments represent 68% the fund’s operating expenses for 2015. The unrestricted balance includes the City’s $1.2 million equity interest in the South Essex Sewerage District which increased by approximately $325,000 during 2015. The beginning net position of the water and sewer enterprise fund has been revised to reflect the implementation of GASB Statements #67, #68, and #71. To reflect this change, the City has recorded a net pension liability and a deferred outflow of resources, which has resulted in the revision of the June 30, 2014 balance of the business- type activities by $2,429,817. Additionally, the City has reclassified the Parking Garage activities from a business-type operation to a governmental operation, which has resulted in the revision of the June 30, 2014 balance of the business-type activities by $2,889,102. As a result of these revisions, previously reported net position of $17,584,826 has been revised to $12,265,907. The golf course enterprise fund’s net position of $588,000 represents the net investment in capital assets, while $215,000 is unrestricted. The golf course’s net position remained substantially unchanged from 2014. ---PAGE BREAK--- City of Salem, Massachusetts 33 Comprehensive Annual Financial Report 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 $1.6 million transfer was made from the general fund to subsidize for the budgeted deficit. As of June 30, 2015 the trash fund had unrestricted net position totaling $312,000. (As Revised) 2015 2014 Program revenues: Charges for $ 14,702,590 $ 14,470,587 Capital grants and contributions………………………… 102,518 2,887,131 Total 14,805,108 17,357,718 Expenses: Cost of service and administration……………………… 5,798,649 4,943,943 District assessment……………………………………… 7,939,255 7,804,436 883,012 677,337 686,749 656,385 Total 15,307,665 14,082,101 Excess (Deficiency) before transfers……………………… (502,557) 3,275,617 (9,736) 122,902 Change in net (512,293) 3,398,519 Net position, beginning of year (as revised)…………… 12,265,907 8,867,388 Net position, end of $ 11,753,614 $ 12,265,907 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 $25.7 million of which $12.1 million is reported in the general fund, $804,000 in the community preservation fund, $67,000 is reported in the city wharf project fund, a deficit of $555,000 is reported in the school capital projects fund, a deficit of $448,000 is reported in the capital improvement fund and $13.7 million is reported in the nonmajor governmental funds. Cumulatively there was a decrease of $2.8 million in fund balances from the prior year. ---PAGE BREAK--- City of Salem, Massachusetts 34 Comprehensive Annual Financial Report 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 $11.2 million, while total fund balance was $12.1 million. The general fund balance decreased by $871,000 in 2015. The decrease is the net result of the budgeted use of fund balance of approximately $4.1 million netted against overall positive budgetary results. The Community Preservation fund had an ending restricted fund balance at June 30, 2015 of $804,000. These funds are attributable to the City’s acceptance of the Community Preservation Act, which allows the City to 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 second year that the City has operated the Community Preservation fund and the first 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. The City has $3 million in state grant anticipation notes outstanding related to this project at year end which is expected to be repaid during 2016. Project expenditures totaled $2.1 million, while state capital grant reimbursements totaled $2.2 million during 2015. The school capital projects fund is used to account for the City’s ongoing major school construction projects on the Collins and Saltonstall schools. The fund decreased by $1.2 million in 2015 as the City expended $3.2 million on the project, which was partially reimbursed by the state. The major fund ended the year with a deficit of $555,000. Expenditures incurred to date have been partially funded with reimbursements received from the Massachusetts School Building Authority (MSBA) for the state’s share of eligible costs. Since the projects are in their final phases, the MSBA holds back on final reimbursements until the projects are closed out and the final costs can be approved. 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 deficit fund balance of $447,000 due to expenditures incurred that have primarily been financed with $2.7 million in bond anticipation notes (BANs) whose proceeds are not recognized until they are permanently financed. Cumulatively, nonmajor governmental funds had a net decrease of $2.8 million. This represents the activity of other nonmajor capital projects, grants, and permanent trust funds. The 2015 decrease was almost entirely the result of the timing of funding and recognizing expenditures on capital projects offset by decreases in balances for city and state grants. General Fund Budgetary Highlights The City’s final general fund operating budget included $132.4 million in total appropriations to be funded with $128 million in estimated receipts and transfers in and approximately $4.1 million in available funds. The $4.2 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 $2.4 million higher than budgeted. The City does not budget revenue for tax liens which totaled $638,000. Additionally, motor vehicle and other excise taxes and hotel/motel tax and meals taxes reported budgetary surpluses of $717,000 and $147,000, respectively. ---PAGE BREAK--- City of Salem, Massachusetts 35 Comprehensive Annual Financial Report The City’s general fund reported expenditures more than appropriations by a net of approximately $187,000. The budget was overspent by $2.3 million 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 decrease of $939,000. 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, 2015, amounts to $249.2 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 $13.4 million for governmental activities and $4.2 million for business-type activities. 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, 2015, totaled $43.5 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, 2015 the City has recorded a receivable from the MSBA totaling $3.2 million, which represents anticipated future reimbursements of approved construction costs on projects completed under this MSBA program. The City issued $6 million in general obligation bonds to finance various governmental capital projects including $1.1 million for parking garage improvements, $2 million for road improvements, $1.5 million for the Bertram Field project, and $1.4 million for other various other projects. The City also issued bond and state grant anticipation notes totaling $8.8 million which included $3 million for the Blaney street wharf project, $3.2 million for the Collins Middle and Saltonstall schools, $850,000 for roadway and seawall improvements, and $1.8 million for various other capital projects. Outstanding debt of the water and sewer, and golf enterprise funds totaled $19.9 million and $49,000 respectively, and funded various repairs, maintenance and infrastructure projects. This includes new debt issued in 2015 for sewer improvements of $2.3 million. 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 36 Comprehensive Annual Financial Report Basic Financial Statements Basic Financial Statements ---PAGE BREAK--- STATEMENT OF NET POSITION JUNE 30, 2015 Primary Government Governmental Business-type Activities Activities Total ASSETS CURRENT: Cash and cash equivalents………………………………… $ 29,489,373 $ 9,660,817 $ 39,150,190 12,248,091 - 12,248,091 Receivables, net of allowance for uncollectibles: Real estate and personal property taxes…………… 1,083,040 - 1,083,040 Tax 1,878,765 - 1,878,765 Motor vehicle and other excise taxes………………… 481,176 - 481,176 User - 3,185,996 3,185,996 Trash - 79,107 79,107 Departmental and 90,609 - 90,609 Intergovernmental……………………………………… 4,754,962 - 4,754,962 123,203 - 123,203 Investment in joint - 1,152,940 1,152,940 Total current 50,149,219 14,078,860 64,228,079 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental……………………………………… 2,614,449 - 2,614,449 211,766 - 211,766 Capital assets, non depreciable…………………………… 9,156,290 1,368,065 10,524,355 Capital assets, net of accumulated depreciation………… 210,271,720 28,395,322 238,667,042 Total noncurrent 222,254,225 29,763,387 252,017,612 TOTAL 272,403,444 43,842,247 316,245,691 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding…………………………… 94,386 - 94,386 Deferred outflows of resources related to pensions…… 480,412 12,335 492,747 TOTAL DEFERRED OUTFLOWS OF RESOURCES……… 574,798 12,335 587,133 LIABILITIES CURRENT: Warrants 2,560,755 1,041,331 3,602,086 Accrued 1,418,275 644,623 2,062,898 Accrued 6,559,796 25,034 6,584,830 Tax refunds 548,452 - 548,452 Accrued 363,594 176,873 540,467 Capital lease obligations…………………………………… 252,167 61,498 313,665 Landfill 1,090,000 - 1,090,000 Compensated 1,893,650 22,556 1,916,206 Workers' compensation…………………………………… 107,854 - 107,854 Notes 8,845,452 6,250,000 15,095,452 Bonds 3,790,951 1,312,532 5,103,483 Total current liabilities…………………………………… 27,430,946 9,534,447 36,965,393 NONCURRENT: Capital lease obligations…………………………………… 446,428 195,556 641,984 Landfill 250,000 - 250,000 Compensated 7,188,529 36,256 7,224,785 Other postemployment benefits…………………………… 44,519,015 1,287,685 45,806,700 Net pension 94,427,247 2,424,556 96,851,803 Workers' compensation…………………………………… 746,176 - 746,176 Bonds 39,682,873 18,622,468 58,305,341 Total noncurrent liabilities……………………………… 187,260,268 22,566,521 209,826,789 TOTAL 214,691,214 32,100,968 246,792,182 NET POSITION Net investment in capital 172,084,606 8,744,920 180,829,526 Restricted for: 334,969 - 334,969 Permanent funds: 4,383,024 - 4,383,024 Nonexpendable………………………………………… 2,151,087 - 2,151,087 Grants and 5,178,480 - 5,178,480 (125,845,138) 3,008,694 (122,836,444) TOTAL NET $ 58,287,028 $ 11,753,614 $ 70,040,642 See notes to basic financial statements. City of Salem, Massachusetts 37 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2015 Operating Capital Charges for Grants and Grants and Net (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Primary Government: Governmental Activities: General government……………… $ 12,503,170 $ 3,173,286 $ 587,074 $ 9,465 $ (8,733,345) Public safety……………………… 29,652,698 2,712,983 735,695 - (26,204,020) Education…………………………… 100,997,380 1,036,778 38,032,468 1,811,133 (60,117,001) Public 11,878,911 163,453 866,663 2,936,779 (7,912,016) Community development………… 1,569,281 121,899 1,348,278 125,312 26,208 Health and human services……… 6,850,201 128,936 4,904,328 - (1,816,937) Community preservation………… 356,518 - - 168,233 (188,285) Culture and recreation…………… 3,277,578 1,174,883 142,967 - (1,959,728) Interest……………………………… 1,349,443 - 209,268 - (1,140,175) Total Governmental Activities… 168,435,180 8,512,218 46,826,741 5,050,922 (108,045,299) Business-Type Activities: Water and 12,386,557 13,288,556 - 102,518 1,004,517 Golf 472,708 724,052 - - 251,344 2,448,400 689,982 - - (1,758,418) Total Business-Type Activities… 15,307,665 14,702,590 - 102,518 (502,557) Total Primary Government………$ 183,742,845 $ 23,214,808 $ 46,826,741 $ 5,153,440 $ (108,547,856) See notes to basic financial statements. (Continued) Program Revenues City of Salem, Massachusetts 38 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES (Continued) YEAR ENDED JUNE 30, 2015 Governmental Business-Type Activities Activities Total Changes in net position: Net (expense) revenue from previous page…………… $ (108,045,299) $ (502,557) $ (108,547,856) General revenues: Real estate and personal property taxes, net of tax refunds payable………………………… 82,444,144 - 82,444,144 Community preservation 535,637 - 535,637 Tax 708,963 - 708,963 Motor vehicle and other excise taxes……………… 3,929,230 - 3,929,230 Hotel/motel and meals 1,362,357 - 1,362,357 Penalties and interest on 443,444 - 443,444 Payments in lieu of 1,043,782 - 1,043,782 Grants and contributions not restricted to specific 7,182,509 - 7,182,509 Unrestricted investment income…………………… 554,360 - 554,360 Miscellaneous………………………………………… 122,979 - 122,979 Transfers, net 9,736 (9,736) - Total general revenues and transfers………………… 98,337,141 (9,736) 98,327,405 Change in net position……………………………… (9,708,158) (512,293) (10,220,451) NET POSITION: Beginning of year (as revised)……………………… 67,995,186 12,265,907 80,261,093 End of 58,287,028 $ 11,753,614 $ 70,040,642 (Concluded) Primary Government City of Salem, Massachusetts 39 Comprehensive Annual Financial Report ---PAGE BREAK--- Community City Wharf School Capital Nonmajor Total Preservation Project Capital Improvement Governmental Governmental General Funds Fund Projects Fund Funds Funds ASSETS Cash and cash 14,114,082 $ 865,433 $ 3,066,624 $ 1,375,862 $ 2,411,235 $ 7,529,944 $ 29,363,180 5,695,623 - - - - 6,552,468 12,248,091 Receivables, net of uncollectibles: Real estate and personal property 1,070,589 12,451 - - - - 1,083,040 Tax 1,878,765 - - - - - 1,878,765 Motor vehicle and other excise 481,176 - - - - - 481,176 Departmental and - - - - - 90,609 90,609 Intergovernmental……………………………………………………… 3,265,677 123,920 - 2,334,793 - 1,645,021 7,369,411 - - - - - 334,969 334,969 Due from other - - - - - 200,714 200,714 TOTAL $ 26,505,912 $ 1,001,804 $ 3,066,624 $ 3,710,655 $ 2,411,235 $ 16,353,725 $ 53,049,955 LIABILITIES Warrants - $ 61,375 $ - $ 1,076,964 $ 201,841 $ 1,220,575 $ 2,560,755 Accrued 1,418,275 - - - - - 1,418,275 Accrued 6,343,788 - - - - 216,008 6,559,796 Tax refunds 548,452 - - - - - 548,452 Due to other - - - - - 200,714 200,714 Notes - - 3,000,000 3,188,299 2,657,153 - 8,845,452 TOTAL 8,310,515 61,375 3,000,000 4,265,263 2,858,994 1,637,297 20,133,444 DEFERRED INFLOWS OF RESOURCES Unavailable 6,065,257 136,370 - - - 995,934 7,197,561 FUND BALANCES - - - - - 2,151,087 2,151,087 - 804,059 66,624 - - 11,569,407 12,440,090 412,192 - - - - - 412,192 558,880 - - - - - 558,880 11,159,068 - - (554,608) (447,759) - 10,156,701 TOTAL FUND 12,130,140 804,059 66,624 (554,608) (447,759) 13,720,494 25,718,950 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND 26,505,912 $ 1,001,804 $ 3,066,624 $ 3,710,655 $ 2,411,235 $ 16,353,725 $ 53,049,955 See notes to basic financial statements. GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2015 City of Salem, Massachusetts 40 Comprehensive Annual Financial Report ---PAGE BREAK--- RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET POSITION JUNE 30, 2015 Total governmental fund $ 25,718,950 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the 219,428,010 Accounts receivable are not available to pay for current-period expenditures and, therefore, are deferred in the 7,197,561 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…………………………… 480,412 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……………………………… 126,193 In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until (363,594) Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds Bonds (43,473,824) Deferred charge on 94,386 Landfill (1,340,000) Workers' (854,030) Capital (698,595) Compensated (9,082,179) Other postemployment (44,519,015) Net pension (94,427,247) Net effect of reporting long-term (194,300,504) Net position of governmental $ 58,287,028 See notes to basic financial statements. City of Salem, Massachusetts 41 Comprehensive Annual Financial Report ---PAGE BREAK--- GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2015 Community City Grant School Capital Nonmajor Total Preservation Wharf Capital Improvement Governmental Governmental General Funds Fund Projects Fund Funds Funds REVENUES: Real estate and personal property taxes, net of tax 82,382,558 $ 523,187 $ - $ - $ - $ - $ 82,905,745 Tax 638,365 - - - - - 638,365 Motor vehicle and other excise 3,945,343 - - - - - 3,945,343 Hotel/motel and meals 1,362,357 - - - - - 1,362,357 Charges for 1,997,227 - - - - 14,629 2,011,856 Penalties and interest on 437,538 1,173 - - - 4,733 443,444 Payments in lieu of 1,043,782 - - - - - 1,043,782 Licenses and 504,857 - - - - - 504,857 Fines and 1,167,426 - - - - - 1,167,426 Intergovernmental…………………………………………………… 37,231,526 169,707 2,207,009 2,032,967 200,000 17,894,699 59,735,908 Departmental and 2,622,117 - - - - 2,924,536 5,546,653 - - - - - 317,814 317,814 Investment 263,815 228 - - - 290,317 554,360 TOTAL 133,596,911 694,295 2,207,009 2,032,967 200,000 21,446,728 160,177,910 EXPENDITURES: Current: General 6,823,887 53,505 - - 1,408,307 1,129,717 9,415,416 Public 18,659,469 - - - 360,609 1,097,496 20,117,574 59,430,902 - - 3,191,930 291,031 10,709,642 73,623,505 Public 6,093,656 - 2,140,385 - 2,557,562 3,896,975 14,688,578 Community - - - - - 1,800,308 1,800,308 Health and human 1,242,013 - - - 66,498 5,171,131 6,479,642 Community preservation…………………………………………… - 356,518 - - - 356,518 Culture and 2,028,893 - - - 60,543 556,456 2,645,892 Pension 16,923,249 - - - - - 16,923,249 Employee 13,490,299 - - - - - 13,490,299 State and county 6,015,427 - - - - - 6,015,427 Debt service: 2,900,000 - - - - 35,000 2,935,000 1,523,616 - - - 34,225 907 1,558,748 TOTAL EXPENDITURES………………………………………… 135,131,411 410,023 2,140,385 3,191,930 4,778,775 24,397,632 170,050,156 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES………………………………… (1,534,500) 284,272 66,624 (1,158,963) (4,578,775) (2,950,904) (9,872,246) OTHER FINANCING SOURCES (USES): Issuance of - - - - 5,980,000 - 5,980,000 Premium from issuance of 700,157 - - - - - 700,157 Capital lease - - - - 351,762 - 351,762 Transfers 2,750,624 - - - - 948,759 3,699,383 Transfers (2,787,078) - - - (111,098) (791,471) (3,689,647) TOTAL OTHER FINANCING SOURCES 663,703 - - - 6,220,664 157,288 7,041,655 NET CHANGE IN FUND (870,797) 284,272 66,624 (1,158,963) 1,641,889 (2,793,616) (2,830,591) FUND BALANCES AT BEGINNING OF 13,000,937 519,787 - 604,355 (2,089,648) 16,514,110 28,549,541 FUND BALANCES AT END OF 12,130,140 $ 804,059 $ 66,624 $ (554,608) $ (447,759) $ 13,720,494 $ 25,718,950 See notes to basic financial statements. City of Salem, Massachusetts 42 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, 2015 Net change in fund balances - total governmental $ (2,830,591) 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 13,273,983 Depreciation (9,031,931) Net effect of reporting capital 4,242,052 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 (1,460,624) 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 279,226 Capital lease (351,762) Premium from issuance of bonds (700,157) Amorization of deferred charge on (21,510) Issuance of (5,980,000) Amortization of premium on 215,050 Debt service principal 2,935,000 Net effect of reporting long-term (3,624,153) 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 16,903 Net change in landfill liability (740,000) Net change in workers' 21,559 Net change in accrued interest on long-term 15,765 Net change in other postemployment (6,102,423) Net change in deferred outflow/(inflow) of resources related to pensions……………………… 480,412 Net change in net pension 294,191 Net effect of recording long-term liabilities and amortizing deferred losses……………… (6,013,593) 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…………… (21,249) Change in net position of governmental $ (9,708,158) See notes to basic financial statements. City of Salem, Massachusetts 43 Comprehensive Annual Financial Report ---PAGE BREAK--- Governmental Activities - Water and Golf Internal Service Sewer Course Trash Total Funds ASSETS CURRENT: Cash and cash equivalents…………………………………$ 8,419,358 $ 449,253 $ 792,206 $ 9,660,817 $ 126,193 Receivables, net of allowance for uncollectibles: User 3,185,996 - - 3,185,996 - Trash - - 79,107 79,107 - Investment in joint 1,152,940 - - 1,152,940 - Total current 12,758,294 449,253 871,313 14,078,860 126,193 NONCURRENT: Capital assets, non depreciable…………………………… 1,249,998 118,067 - 1,368,065 - Capital assets, net of accumulated depreciation………… 27,876,008 519,314 - 28,395,322 - Total noncurrent 29,126,006 637,381 - 29,763,387 - TOTAL 41,884,300 1,086,634 871,313 43,842,247 126,193 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pensions……… 12,335 - - 12,335 - TOTAL DEFERRED OUTFLOWS OF RESOURCES……… 12,335 - - 12,335 - LIABILITIES CURRENT: Warrants 1,041,331 - - 1,041,331 - Accrued 182,312 - 462,311 644,623 - Accrued 22,826 - 2,208 25,034 - Accrued 176,383 490 - 176,873 - Capital lease obligations…………………………………… 61,498 - - 61,498 - Compensated 15,794 6,762 - 22,556 - Notes 6,250,000 - - 6,250,000 - Bonds 1,282,532 30,000 - 1,312,532 - Total current liabilities………………………………… 9,032,676 37,252 464,519 9,534,447 - NONCURRENT: Capital lease obligations…………………………………… 195,556 - - 195,556 - Compensated 36,256 - - 36,256 - Other postemployment benefits obligation………………. 966,225 227,035 94,425 1,287,685 - Net pension 2,424,556 - - 2,424,556 - Bonds 18,603,468 19,000 - 18,622,468 - Total noncurrent liabilities……………………………… 22,226,061 246,035 94,425 22,566,521 - TOTAL 31,258,737 283,287 558,944 32,100,968 - NET POSITION Net investment in capital 8,156,539 588,381 - 8,744,920 - 2,481,359 214,966 312,369 3,008,694 126,193 TOTAL NET 10,637,898 $ 803,347 $ 312,369 $ 11,753,614 $ 126,193 See notes to basic financial statements. Business-type Activities - Enterprise Funds PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2015 City of Salem, Massachusetts 44 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2015 Governmental Activities - Water and Golf Internal Service Sewer Course Trash Total Funds OPERATING REVENUES: Charges for services $ 13,288,556 $ 724,052 $ 689,982 $ 14,702,590 $ - TOTAL OPERATING REVENUES 13,288,556 724,052 689,982 14,702,590 - OPERATING EXPENSES: Cost of services and administration 2,936,802 413,447 2,448,400 5,798,649 - District Assessment……………………………… 7,939,255 - - 7,939,255 - Depreciation……………………………………… 829,502 53,510 - 883,012 - Employee benefits - - - - 21,249 TOTAL OPERATING EXPENSES 11,705,559 466,957 2,448,400 14,620,916 21,249 OPERATING INCOME 1,582,997 257,095 (1,758,418) 81,674 (21,249) NONOPERATING REVENUES (EXPENSES): Interest (680,998) (5,751) - (686,749) - Intergovernmental………………………………… 102,518 - - 102,518 - TOTAL NONOPERATING REVENUES (EXPENSES), (578,480) (5,751) - (584,231) - INCOME (LOSS) BEFORE TRANSFERS… 1,004,517 251,344 (1,758,418) (502,557) (21,249) TRANSFERS: Transfers - 635,026 1,583,215 2,218,241 - Transfers (1,501,655) (726,322) - (2,227,977) - TOTAL TRANSFERS………………………… (1,501,655) (91,296) 1,583,215 (9,736) - CHANGE IN NET POSITION………………… (497,138) 160,048 (175,203) (512,293) (21,249) NET POSITION AT BEGINNING OF YEAR (as 11,135,036 643,299 487,572 12,265,907 147,442 NET POSITION AT END OF YEAR……………… $ 10,637,898 $ 803,347 $ 312,369 $ 11,753,614 $ 126,193 See notes to basic financial statements. Business-type Activities - Enterprise Funds City of Salem, Massachusetts 45 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2015 Governmental Activities - Water and Golf Internal Service Sewer Course Trash Total Funds CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and 13,625,600 $ 724,052 $ 699,081 $ 15,048,733 $ - Receipts from other - - - - - Payments to (10,330,673) (166,735) (2,236,429) (12,733,837) - Payments to (843,607) (216,094) (56,989) (1,116,690) - Payments for interfund services - - - - (21,249) NET CASH FROM OPERATING ACTIVITIES…………………………………… 2,451,320 341,223 (1,594,337) 1,198,206 (21,249) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers - 635,026 1,583,215 2,218,241 - Transfers (1,501,655) (726,322) - (2,227,977) - NET CASH FROM NONCAPITAL FINANCING ACTIVITIES…………………… (1,399,137) (91,296) 1,583,215 92,782 - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from the issuance of bonds and 8,550,000 - - 8,550,000 - Acquisition and construction of capital (2,719,716) (111,098) - (2,830,814) - Principal payments on bonds and (6,160,303) (30,000) - (6,190,303) - Principal payments on capital lease obligations……………………………… (69,056) (105,047) - (174,103) - Interest (654,299) (6,051) - (660,350) - NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES……… (1,053,374) (252,196) - (1,305,570) - NET CHANGE IN CASH AND CASH EQUIVALENTS…………………………… (1,191) (2,269) (11,122) (14,582) (21,249) CASH AND CASH EQUIVALENTS AT BEGINNING OF 8,420,549 451,522 803,328 9,675,399 147,442 CASH AND CASH EQUIVALENTS AT END OF 8,419,358 $ 449,253 $ 792,206 $ 9,660,817 $ 126,193 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income $ 1,582,997 $ 257,095 $ (1,758,418) $ 81,674 $ (21,249) Adjustments to reconcile operating income (loss) to net cash from operating activities: 829,502 53,510 - 883,012 - Deferred (outflows)/inflows of resources related to pensions…………… (12,335) - - (12,335) - Changes in assets and liabilities: User 337,044 - - 337,044 - Trash - - 9,099 9,099 - Investment in joint (324,609) - - (324,609) - Warrants (244,408) - - (244,408) - Accrued 157,055 - 140,715 297,770 - Accrued 4,486 - 593 5,079 - Other postemployment 135,753 30,945 13,674 180,372 - Accrued compensated (8,904) (327) - (9,231) - Net Pension (5,261) - - (5,261) Total 868,323 84,128 164,081 1,116,532 - NET CASH FROM OPERATING ACTIVITIES……………………………………$ 2,451,320 $ 341,223 $ (1,594,337) $ 1,198,206 $ (21,249) NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES: Borrowing under capital $ 326,110 $ - $ - $ 326,110 $ - Purchase of equipment by capital (326,110) - - (326,110) - See notes to basic financial statements. Business-type Activities - Enterprise Funds City of Salem, Massachusetts 46 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2015 Other Postemployment Private Pension Benefits Purpose Agency Trust Fund Trust Fund Trust Funds Fund Cash and cash equivalents……………………………………… $ 2,616,262 $ 7,592 $ 207,904 $ 1,077,503 Investments: Corporate - 1,526,851 1,210,513 - Real estate and alternative investment mutual funds……… 229,440 - - - 131,910,203 - - - Receivables, net of allowance for uncollectibles: 805,490 - - - NONCURRENT: Capital assets, net of accumulated depreciation……………… 94,531 - - - TOTAL 135,655,926 1,534,443 1,418,417 1,077,503 LIABILITIES Warrants 5,024 - - - Liabilities due - - - 1,077,503 TOTAL 5,024 - - 1,077,503 NET POSITION Restricted for 135,650,902 - - - Held in trust for OPEB - 1,534,443 - - Held for other - - 1,418,417 - Total Net 135,650,902 $ 1,534,443 $ 1,418,417 $ - The Pension Trust Fund is as of December 31, 2014. See notes to basic financial statements. ASSETS City of Salem, Massachusetts 47 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION YEAR ENDED JUNE 30, 2015 Other Postemployment Private Pension Benefits Purpose Trust Fund Trust Fund Trust Funds ADDITIONS: Contributions: Employer 11,942,341 $ 167,484 $ - Plan member 3,939,454 - - Retirement benefits - reimbursement of 91A overearnings…………………… 22,313 - - Retirement benefits - 3(8)c contributions from other systems………………… 264,347 - - Retirement benefits - transfers from other 1,383,938 - - Private - - 20,231 Total 17,552,393 167,484 20,231 Net investment income: Net change in fair value of 6,165,492 (71,065) 31,965 3,529,772 84,502 489 Total investment 9,695,264 13,437 32,454 Less: investment (672,617) - - Net investment 9,022,647 13,437 32,454 Retirement benefits - state COLA reimbursements……………………………… 106,053 - - TOTAL 26,681,093 180,921 52,685 DEDUCTIONS: 239,169 - - Retirement benefits - transfers to other 583,640 - - Retirement benefits and 14,083,660 - - Educational - - 30,173 Housing - - 41,141 3,125 - - TOTAL 14,909,594 - 71,314 CHANGE IN NET 11,771,499 180,921 (18,629) NET POSITION AT BEGINNING OF 123,879,403 1,353,522 1,437,046 NET POSITION AT END OF 135,650,902 $ 1,534,443 $ 1,418,417 The Pension Trust Fund is for the year ended December 31, 2014. See notes to basic financial statements. City of Salem, Massachusetts 48 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 49 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 not issue a separate audited financial statement. The System issues a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth of Massachusetts’ (Commonwealth) Public Employee Retirement Administration Commission (PERAC). That report 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, 2015, the City’s equity interest in the operations of the District totaled $1,152,940, 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, 2015 City of Salem, Massachusetts 50 Comprehensive Annual Financial Report Beverly Water Supply Board. The annual assessment from the Water Board for the year ended June 30, 2015 totaled approximately $2,527,000. Complete financial information for the Water Board can be obtained by contacting them at 50 Arlington Avenue, Beverly, MA 01915. The Salem Public School System was granted a charter by the Secretary of Education of the Commonwealth of Massachusetts, pursuant to Chapter 71, Section 89 of the Massachusetts General Laws to operate a Horace Mann Charter School to address the needs of the City’s high school dropouts and at-risk youth. The Salem Community Charter School opened during 2013 and is part of the Salem Public School System. Beginning in 2015, the name was changed to the New Liberty Charter School. The Charter School is managed by an appointed Board of Trustees and not by the School Committee and Superintendent. Ongoing funding for the school’s operations is provided by the City based upon a negotiated amount between the School Committee and Board of Trustees within the guidelines established by the authorizing legislation of the Commonwealth of Massachusetts. The activity is included within the City’s basic financial statements and is audited independently. Complete financial statements can be obtained by contacting the Salem Public Schools located at 29 Highland Ave., Salem MA 01970. 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 2015 assessment was $2,486,713. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 51 Comprehensive Annual Financial Report 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 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 52 Comprehensive Annual Financial Report 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. 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 school capital projects fund is used to account for the ongoing construction and renovations of the City’s school buildings. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 53 Comprehensive Annual Financial Report 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 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. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 54 Comprehensive Annual Financial Report 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 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 55 Comprehensive Annual Financial Report 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. F. 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. G. 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 are recorded at the estimated fair market value at the date of donation. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 56 Comprehensive Annual Financial Report 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. H. 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 did not have any items that qualify for reporting in 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. I. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 57 Comprehensive Annual Financial Report 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. J. 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. 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. K. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 58 Comprehensive Annual Financial Report “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. “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. A vote of the City Council is the highest level of decision making authority that can commit funds for a specific purpose. Once voted, the limitation imposed by the vote remains in place until the funds are used for their intended purpose or a vote 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. L. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 59 Comprehensive Annual Financial Report 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. M. 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. N. 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. O. 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. P. Fund Deficits and Appropriation Deficits Individual fund deficits existed at June 30, 2015 within the nonmajor governmental funds. These deficits will be funded through long-term borrowing, capital grants and grant proceeds in 2016. Actual expenditures exceeded appropriations for snow and ice by $2,323,000. $1.0 million of this over- expenditure will be funded with available funds during 2016 and the remainder will be amortized over the following two years. In the snow and ice removal appropriation line, the general law allows deficits to occur and to be raised in the subsequent year. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 60 Comprehensive Annual Financial Report Q. 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. R. Total Column Government-Wide Financial Statements The total column presented on the government-wide financial statements represents consolidated financial information. 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, 2015, $1,534,443 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 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 61 Comprehensive Annual Financial Report (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 $39,818,556 and the bank balance totaled $39,787,539. Of the bank balance, $2,839,610 was covered by Federal Depository Insurance, $15,114,424 was covered by the Share Insurance Fund, $6,090,434 was covered by the Depositors Insurance Fund, $12,254,394 was collateralized and $3,488,677 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 $360,357 and the bank balance totaled $369,406. The entire bank balance was covered by Federal Depository Insurance. Investments As of June 30, 2015, the City had the following investments: Investment Type Fair Value Under 1 Year 1-5 Years 6-10 Years Debt Securities: Corporate $ 2,654,599 $ 516,284 $ 1,638,504 $ 499,811 U.S. Treasury 671,742 - 671,742 - Government Sponsored Enterprises……………… 2,766,138 - 2,766,138 - Total Debt 6,092,479 $ 516,284 $ 5,076,384 $ 499,811 Other Investments: Equity 5,368,750 Equity Mutual 2,946,992 Bond Mutual 577,234 Money Market Mutual 551,066 73,567 Total $ 15,610,088 Maturity As of December 31, 2014, the System had the following investments: Maturity Fair Value Under 1 Year Investment Type Repurchase Agreements…………………………… $ 2,176,735 $ 2,176,735 Other Investments: Government Short-term Investment Funds……… 79,170 Venture Capital and Limited Partnerships............. 192,680 Real Estate Investment 36,760 Pension Reserve Investment Trust (PRIT)………… 131,910,203 Total $ 134,395,548 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 62 Comprehensive Annual Financial Report 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 1.33 to 21.81 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. Of the City’s investments, $2,654,599 of corporate bonds, $671,742 of U.S. Treasury Notes, $2,766,138 of Government Sponsored Enterprises and $5,368,750 of equity securities are exposed to custodial credit risk because the related securities are uninsured, unregistered and are held by the counterparty. 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 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 325,400 $ 2,766,138 102,596 - 278,685 - 583,172 - 321,384 - 938,484 - BBB………… 99,440 - Unrated……… 5,438 - $ 2,654,599 $ 2,766,138 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 63 Comprehensive Annual Financial Report 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. NOTE 3 – RECEIVABLES At June 30, 2015, 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 $ 1,083,040 $ - $ 1,083,040 Tax 1,878,765 - 1,878,765 Motor vehicle and other excise 644,457 (163,281) 481,176 Departmental and 90,609 - 90,609 Intergovernmental…………………………………………… 7,369,411 - 7,369,411 334,969 - 334,969 $ 11,401,251 $ (163,281) $ 11,237,970 At June 30, 2015, 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 $ 3,185,996 $ - $ 3,185,996 Trash 79,107 - 79,107 $ 3,265,103 $ - $ 3,265,103 In addition, as of December 31, 2014, the retirement system had outstanding receivables of $805,490. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 64 Comprehensive Annual Financial Report 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 $ 533,742 $ 12,450 $ 546,192 Tax 1,878,765 - 1,878,765 Motor vehicle and other excise 481,176 - 481,176 Departmental and - 90,609 90,609 Intergovernmental……………………………………………… 3,171,574 694,276 3,865,850 - 334,969 334,969 $ 6,065,257 $ 1,132,304 $ 7,197,561 NOTE 4 – CAPITAL ASSETS Capital asset activity for the year ended June 30, 2015, was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: $ 6,483,782 $ - $ (153,025) $ 6,330,757 Construction in progress……………………………… 1,202,040 2,078,417 (454,924) 2,825,533 Total capital assets not being depreciated…… 7,685,822 2,078,417 (607,949) 9,156,290 Capital assets being depreciated: Land improvements…………………………………… 12,369,806 236,446 (196,350) 12,409,902 Buildings and improvements………………………… 228,081,658 3,735,427 (6,905) 231,810,180 12,541,176 868,125 (446,217) 12,963,084 Infrastructure…………………………………………… 65,879,541 6,736,797 - 72,616,338 4,591,097 226,720 - 4,817,817 Total capital assets being depreciated………… 323,463,278 11,803,515 (649,472) 334,617,321 Less accumulated depreciation for: Land improvements…………………………………… (3,314,541) (470,406) 196,350 (3,588,597) Buildings and improvements………………………… (67,932,319) (5,481,715) 6,905 (73,407,129) (6,701,907) (794,532) 446,217 (7,050,222) Infrastructure…………………………………………… (34,436,079) (1,964,037) - (36,400,116) (3,578,296) (321,241) - (3,899,537) Total accumulated depreciation………………… (115,963,142) (9,031,931) 649,472 (124,345,601) Total capital assets being depreciated, 207,500,136 2,771,584 - 210,271,720 Total governmental activities capital assets…………… $ 215,185,958 $ 4,850,001 $ (607,949) $ 219,428,010 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 65 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Water and Sewer Activities: Capital assets not being depreciated: $ 110,141 $ - $ - $ 110,141 Construction in progress……………………………… 1,714,789 1,139,857 (1,714,789) 1,139,857 Total capital assets not being depreciated…… 1,824,930 1,139,857 (1,714,789) 1,249,998 Capital assets being depreciated: Buildings and improvements………………………… 119,975 - - 119,975 296,290 - - 296,290 97,590 326,111 - 423,701 Infrastructure…………………………………………… 33,236,390 4,292,502 - 37,528,892 Total capital assets being depreciated………… 33,750,245 4,618,613 - 38,368,858 Less accumulated depreciation for: Buildings and improvements………………………… (77,022) (5,728) - (82,750) (201,718) (29,629) - (231,347) (97,590) (32,611) - (130,201) Infrastructure…………………………………………… (9,287,018) (761,534) - (10,048,552) Total accumulated depreciation………………… (9,663,348) (829,502) - (10,492,850) Total capital assets being depreciated, 24,086,897 3,789,111 - 27,876,008 Total water and sewer activities capital assets…………$ 25,911,827 $ 4,928,968 $ (1,714,789) $ 29,126,006 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 - - 312,852 Buildings and improvements………………………… 453,988 - - 453,988 497,829 111,098 (38,851) 570,076 Total capital assets being depreciated………… 1,264,669 111,098 (38,851) 1,336,916 Less accumulated depreciation for: Land improvements…………………………………… (308,649) (1,201) - (309,850) Buildings and improvements………………………… (173,488) (11,000) - (184,488) (320,806) (41,309) 38,851 (323,264) Total accumulated depreciation………………… (802,943) (53,510) 38,851 (817,602) Total capital assets being depreciated, 461,726 57,588 - 519,314 Total golf course activities capital assets……………… $ 579,793 $ 57,588 $ - $ 637,381 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 66 Comprehensive Annual Financial Report 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, 2014 totals $30,469, for a net book value of $94,531. Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General $ 592,813 Public 621,902 5,229,935 Public 2,337,477 Health and human 9,060 Culture and 215,972 Community 24,772 Total depreciation expense - governmental activities………………………… $ 9,031,931 Business-Type Activities: Water and 829,502 Golf 53,510 Total depreciation expense - business-type activities…………………………$ 883,012 Fiduciary Activities: Pension $ 3,125 NOTE 5 – INTERFUND TRANSFERS AND BALANCES Interfund transfers for the year ended June 30, 2015, are summarized as follows: Trash Golf Course Water and Sewer Nonmajor General Enterprise Enterprise Enterprise Governmental Transfers Out: Fund Fund Fund Fund Funds Total General $ - $ 1,583,215 $ 523,928 $ - $ 679,935 $ 2,787,078 Capital Improvement Fund……………… - - 111,098 - - 111,098 Nonmajor Governmental Funds………… 522,647 - - - 268,824 791,471 Golf Course Enterprise Fund…………. 726,322 - - - - 726,322 Water and Sewer Enterprise Fund…… 1,501,655 - - - - 1,501,655 2,750,624 $ 1,583,215 $ 635,026 $ - $ 948,759 $ 5,917,624 Transfers In: Transfer from general fund 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 capital improvement fund to the golf course for the paydown of the golf course capital lease. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 67 Comprehensive Annual Financial Report Transfer from nonmajor funds to the general fund for their share of indirect costs; transfers within nonmajor funds. 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, 2015, consisted of $200,714 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. The assets acquired through capital leases are as follows: Governmental Business-type Activities Activities Asset: Machinery and 602,873 $ 486,705 959,159 - Less: accumulated depreciation………………………… (852,100) (56,700) 709,932 $ 430,005 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2015, were as follows: Years Governmental Business-type Ending June 30 Activities Activities 259,940 $ 69,055 125,050 69,055 122,437 69,055 216,048 69,055 Total minimum lease payments……………………… 723,475 276,220 Less: amounts representing interest………………… (24,880) (19,166) Present value of minimum lease payments………… $ 698,595 $ 257,054 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 68 Comprehensive Annual Financial Report Operating Leases The City leases office space for the City Hall Annex under an operating lease that began in March 2013 and expires on April 30, 2016. The City made twelve lease payments for the year ended June 30, 2015 totaling $380,327 which is reported as general government expenditures in the general fund. The future minimum lease payments for the City’s operating lease total $383,000, payable in 2016. 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). 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, 2015, are as follows: Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose Due Date 2014 Issued Redeemed 2015 Governmental Activities SAAN Municipal Purpose……… 0.75% 12/03/14 $ 4,000,000 $ - $ (4,000,000) $ - BAN Municipal Purpose……… 0.50% 12/03/14 4,863,000 - (4,863,000) - SAAN Municipal Purpose……… 1.00% 12/03/15 - 3,000,000 - 3,000,000 BAN Municipal Purpose……… 1.25% 12/03/15 - 4,440,153 - 4,440,153 BAN Municipal Purpose……… 0.40% 12/03/15 - 1,405,299 - 1,405,299 Sub-total governmental 8,863,000 8,845,452 (8,863,000) 8,845,452 Business-type Activities BAN Sewer Improvements… 0.50% 12/03/14 2,000,000 - (2,000,000) - SAAN Sewer Improvements… 0.25% 12/03/14 3,000,000 - (3,000,000) - BAN Municipal Purpose……… 1.00% 12/03/15 - 6,250,000 - 6,250,000 Sub-total business-type 5,000,000 6,250,000 (5,000,000) 6,250,000 Total notes 13,863,000 $ 15,095,452 $ (13,863,000) $ 15,095,452 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 69 Comprehensive Annual Financial Report 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, 2015, and the debt service requirements are reported in the following tables. Bonds Payable Schedule – Governmental Activities Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2014 Issued Redeemed 2015 HUD Section 2014 $ 6,000,000 9.00% $ 35,000 $ - $ (35,000) $ - Municipal Purpose Bonds of 2025 2,465,000 3.00-5.00% 200,000 - (200,000) - Municipal Purpose Bonds of 2028 8,319,497 3.75-5.00% 5,390,000 - (485,000) 4,905,000 Municipal Purpose Refunding Bonds of 2010……… 2020 8,113,000 2.00-5.00% 4,881,000 - (810,000) 4,071,000 Municipal Purpose Bonds of 2026 5,219,000 3.00-5.00% 3,625,000 - (505,000) 3,120,000 Municipal Purpose Bonds of 2043 15,143,598 2.63-4.00% 14,890,000 - (475,000) 14,415,000 Municipal Purpose Bonds of 2034 6,680,000 3.00-4.00% 6,680,000 - (285,000) 6,395,000 Municipal Purpose Refunding Bonds of 2014……… 2025 2,509,500 3.00-4.00% 2,855,000 - (140,000) 2,715,000 Municipal Purpose Bonds of 2035 4,860,000 2.50-4.00% - 5,980,000 - 5,980,000 Total Governmental bonds 38,556,000 5,980,000 (2,935,000) 41,601,000 Unamortized premiums on 1,387,717 700,157 (215,050) 1,872,824 Total outstanding bonds payable reported in governmental activities………………………………… $ 39,943,717 $ 6,680,157 $ (3,150,050) 43,473,824 Less unamortized premiums on (1,872,824) Total future payments of bonds reported in governmental 41,601,000 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 70 Comprehensive Annual Financial Report Debt service requirements for governmental bonds are as follows: Year Principal Interest Total $ 3,500,000 $ 1,448,459 $ 4,948,459 3,281,000 1,329,384 4,610,384 3,305,000 1,213,806 4,518,806 3,200,000 1,094,599 4,294,599 3,195,000 965,652 4,160,652 2,135,000 855,127 2,990,127 1,990,000 770,028 2,760,028 2,015,000 687,176 2,702,176 1,845,000 607,433 2,452,433 1,865,000 535,865 2,400,865 1,450,000 478,025 1,928,025 1,410,000 433,871 1,843,871 1,440,000 388,489 1,828,489 940,000 350,463 1,290,463 855,000 322,238 1,177,238 890,000 294,622 1,184,622 915,000 265,925 1,180,925 940,000 236,338 1,176,338 940,000 205,985 1,145,985 630,000 181,622 811,622 560,000 163,516 723,516 575,000 144,348 719,348 600,000 123,784 723,784 620,000 102,044 722,044 645,000 79,117 724,117 660,000 55,473 715,473 695,000 30,914 725,914 505,000 9,153 514,153 $ 41,601,000 $ 13,373,456 $ 54,974,456 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 2015, $733,000 of such assistance was received. Approximately $3,664,000 will be received in future years of which $492,000 represents reimbursement of long-term interest costs, and $3,172,000 represents reimbursement of approved construction costs. Accordingly, a $3,172,000 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, 2015, the City has recorded an intergovernmental receivable totaling $2.3 million, which represents the State’s 78.26% share of eligible construction costs incurred to date that have not yet been reimbursed. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 71 Comprehensive Annual Financial Report Bonds Payable Schedule – Water and Sewer Enterprise Fund Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2014 Issued Redeemed 2015 Water Project - 2027 $ 2,330,656 2.00% $ 1,621,303 $ - $ (110,303) $ 1,511,000 Water 2028 3,250,503 3.75-5.00% 2,255,000 - (165,000) 2,090,000 Sewer Improvements………………………………… 2030 1,690,000 3.00-5.00% 1,390,000 - (95,000) 1,295,000 Water System Tanks and Improvements………… 2031 8,464,000 3.00-5.00% 6,840,000 - (540,000) 6,300,000 Water System Improvements………………………… 2033 1,412,402 2.63-4.00% 1,360,000 - (55,000) 1,305,000 Sewer Improvements………………………………… 2033 1,435,000 2.63-4.00% 1,380,000 - (60,000) 1,320,000 Sewer Improvements………………………………… 2034 3,900,000 3.00-4.00% 3,900,000 - (135,000) 3,765,000 Sewer Improvements………………………………… 2035 2,300,000 2.50-4.00% - 2,300,000 - 2,300,000 Total Water and Sewer Enterprise 18,746,303 $ 2,300,000 $ (1,160,303) $ 19,886,000 Debt service requirements for the water and sewer enterprise fund are as follows: Year Principal Interest Total 1,282,532 $ 696,597 $ 1,979,129 2017……………… 1,289,805 652,680 1,942,485 2018……………… 1,297,124 605,910 1,903,034 2019……………… 1,309,490 558,118 1,867,608 2020……………… 1,316,904 509,254 1,826,158 2021……………… 1,324,367 459,517 1,783,884 2022……………… 1,236,880 410,804 1,647,684 2023……………… 1,249,443 363,642 1,613,085 2024……………… 1,262,058 316,027 1,578,085 2025……………… 1,279,726 269,776 1,549,502 2026……………… 1,282,447 225,843 1,508,290 2027……………… 1,100,224 185,885 1,286,109 2028……………… 965,000 150,103 1,115,103 2029……………… 820,000 117,682 937,682 2030……………… 665,000 90,806 755,806 2031……………… 630,000 67,735 697,735 2032……………… 550,000 46,894 596,894 2033……………… 520,000 28,007 548,007 2034……………… 390,000 11,322 401,322 2035……………… 115,000 1,941 116,941 Total………………$ 19,886,000 $ 5,768,543 $ 25,654,543 Bonds Payable Schedule – Golf Course Enterprise Fund Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2014 Issued Redeemed 2015 Golf Course Clubhouse Refunding of 2010………… 2017 $ 172,000 2.00-5.00% $ 79,000 $ - $ (30,000) $ 49,000 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 72 Comprehensive Annual Financial Report Debt service requirements for the golf course enterprise fund are as follows: Year Principal Interest Total 30,000 $ 1,020 $ 31,020 2017……………… 19,000 285 19,285 Total………………$ 49,000 $ 1,305 $ 50,305 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, 2015, the City had the following authorized and unissued debt: Purpose Amount School Construction and Equipment……………… $ 9,828,488 Water Systems Improvements…………………. 6,915,264 Water Meter Replacement Project………………… 200,000 Capital 2,077,153 Senior Center Construction………………………… 4,994,136 Sewer Improvements………………………………… 900,000 Canal Street Improvements………………………… 3,300,000 Parking Improvements……………………………… 200,000 $ 28,415,041 Changes in Long-term Liabilities During the year ended June 30, 2015, the following changes occurred in long-term liabilities: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities: Long-term 38,556,000 $ 5,980,000 $ (2,935,000) $ 41,601,000 $ 3,500,000 Add: unamortized premium………… 1,387,717 700,157 (215,050) 1,872,824 290,951 Total bonds payable……………… 39,943,717 6,680,157 (3,150,050) 43,473,824 3,790,951 Capital 626,059 351,762 (279,226) 698,595 252,167 Compensated absences……………… 9,076,277 1,837,367 (1,831,465) 9,082,179 1,893,650 Landfill closure………………………… 600,000 740,000 - 1,340,000 1,090,000 Workers' compensation……..……… 875,589 101,438 (122,997) 854,030 107,854 Other postemployment benefits……… 37,945,390 11,205,838 (4,632,213) 44,519,015 - Net pension liability…………………… 94,721,438 - (294,191) 94,427,247 - Total governmental activity long-term liabilities……………………$ 183,788,470 $ 20,916,562 $ (10,310,142) $ 194,394,890 $ 7,134,622 Business-Type Activities: Capital $ 105,047 $ 326,110 $ (174,103) $ 257,054 $ 61,498 Long-term 18,825,303 2,300,000 (1,190,303) 19,935,000 1,312,532 Compensated absences……………… 90,848 (78,727) 46,691 58,812 22,556 Other postemployment benefits……… 1,578,515 473,353 (764,183) 1,287,685 - Net pension liability…………………… 2,429,817 - (5,261) 2,424,556 - Total business-type activity long-term liabilities……………………$ 23,029,530 $ 3,020,736 $ (2,087,159) $ 23,963,107 $ 1,396,586 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 73 Comprehensive Annual Financial Report 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. 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 $5.4 million and $463,000, respectively and are reported as unassigned fund balance within the general fund. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 74 Comprehensive Annual Financial Report As of June 30, 2015, the governmental fund balances consisted of the following: Community City Wharf School Capital Nonmajor Total Preservation Project Capital Improvement Governmental Governmental General Fund Fund Projects Funds Funds Funds FUND BALANCES Nonspendable: Permanent fund principal…………$ - $ - $ - $ - $ - $ 2,151,087 $ 2,151,087 Restricted for: Community preservation fund…… - 804,059 - - - - 804,059 City Wharf Project………………… - - 66,624 - - - 66,624 City revolving funds………………… - - - - - 676,579 676,579 City grant - - - - - 2,312,839 2,312,839 School - - - - - 214,011 214,011 School revolving funds…………… - - - - - 238,052 238,052 School grant funds………………… - - - - - 1,626,386 1,626,386 Donations and gifts………………… - - - - - 1,195,379 1,195,379 Receipts reserved………………… - - - - - 777,329 777,329 Community development grants… - - - - - 43,876 43,876 Other capital projects……………… - - - - - 101,932 101,932 Cemetery - - - - - 2,473,205 2,473,205 Human services fund……………… - - - - - 1,397,429 1,397,429 Other permanent funds…………… - - - - 512,390 512,390 Committed to: New Liberty Charter School……… 412,192 - - - - - 412,192 Assigned to: General government……………… 58,678 - - - - - 58,678 Public 4,467 - - - - - 4,467 Education…………………………… 463,805 - - - - - 463,805 Public 13,367 - - - - - 13,367 Human services…………………… 162 - - - - - 162 Culture and recreation…………… 18,401 - - - - - 18,401 Unassigned…………………………… 11,159,068 - - (554,608) (447,759) - 10,156,701 TOTAL FUND BALANCES…………… $ 12,130,140 $ 804,059 $ 66,624 $ (554,608) $ (447,759) $ 13,720,494 $ 25,718,950 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. As of July 1, 2008, the City changed to a premium based plan for workers’ compensation coverage. The remaining claims that were incurred prior to July 1, 2008 are accounted for in the funds incurring the expenditures. 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, 2015, the amount of the liability for workers’ compensation claims totaled $854,030. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 75 Comprehensive Annual Financial Report Changes in the reported liability since July 1, 2013, 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 2014…… $ 949,099 $ 89,997 $ (163,507) $ 875,589 $ 122,471 Year 2015…… 875,589 101,438 (122,997) 854,030 107,854 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, 2014. The City’s portion of the collective pension expense, contributed by the Commonwealth, of $6,752,780 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 $97,197,542 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, 2015 City of Salem, Massachusetts 76 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, 2014. At December 31, 2014, the System’s membership consists of the following: Active 827 Inactive 233 Retirees and beneficiaries currently receiving benefits……… 571 1,631 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, 2014 was $11,942,341, 28.44% 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 December 31, 2014 and totaled $10,121,621. Pension Liabilities The components of the net pension liability of the participating member units at June 30, 2015 were as follows: Total pension liability…………………………… $ 250,941,786 The pension plan's fiduciary net position……… (135,650,902) The net pension liability………………………… $ 115,290,884 The pension plan's fiduciary net position as a percentage of the total pension liability…… 54.06% At June 30, 2015, the City reported a liability of $96,851,803 for its proportionate share of the net pension liability. The net pension liability was measured as of December 31, 2014, and the total pension liability used to calculate ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 77 Comprehensive Annual Financial Report the net pension liability was determined by an actuarial valuation as of January 1, 2014. 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, 2014, the City’s proportion was 84.01%, which did not change from its proportion measured at December 31, 2013. Pension Expense For the year ended June 30, 2015, the City recognized a pension expense of $9,329,422. At June 30, 2015, the City reported deferred outflows of resources related to pensions of $492,747, from the net difference between projected and actual investment earnings on pension plan investments. Since the system performs an actuarial valuation bi-annually, there are no reported differences between expected and actual experience or a change of assumptions as of December 31, 2014. The City’s deferred outflows of resources related to pensions will be recognized in pension expense as follows: Year ended June 30: $ 123,186 123,187 123,187 123,187 $ 492,747 Actuarial Assumptions The total pension liability in the January 1, 2014, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement that was updated to December 31, 2014: Valuation January 1, 2014 Actuarial cost Entry Age Normal Cost Method. Amortization 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, 2014, 8 years remaining on 2010 ERI, 17 years remaining on the 2002 and 2003 ERI and the remaining unfunded liability Asset valuation 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 4.00% 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 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 78 Comprehensive Annual Financial Report 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 with Scale AA from 2010. Healthy Retiree……………………… RP-2000 Healthy Annuitant Mortality Table projected generationally with Scale AA from 2010. Disabled Retiree…………………… RP-2000 Mortality Table set forward three years for males only projected generationally with Scale AA from 2010. Investment rate of return/Discount rate……… 7.75%, net of pension plan investment expense, including inflation 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, 2014 are summarized in the following table: Target Long-Term Expected Asset Class Allocation Real Rate of Return Domestic 19.60% 6.60% International developed markets equity……………… 15.60% 7.10% International emerging markets equity……………… 6.50% 9.40% Core fixed 15.30% 2.20% High-yield fixed 8.30% 4.70% Real 9.90% 4.40% 3.90% 4.40% Hedge fund, GTAA, Risk parity……………………… 9.80% 3.90% Private 11.10% 11.70% ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 79 Comprehensive Annual Financial Report Rate of return: For the year ended December 31, 2014, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expense, was 7.58%. 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 7.75%. 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. Sensitivity of the net position liability to changes in the discount rate: The following presents the net position liability, calculated using the discount rate of 7.75%, as well as what the net position liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.75%) or 1-percentage-point higher (8.75%) than the current rate: Current 1% Decrease Discount 1% Increase (6.75%) (7.75%) (8.75%) The City's proportionate share of the net pension liability……$ 119,442,267 $ 96,851,802 $ 77,565,699 The Retirement System's total net pension liability………… $ 142,182,222 $ 115,290,884 $ 92,333,005 NOTE 12 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Plan Description – The City of Salem maintains 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. 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. 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. As of December 31, 2013, the plan’s membership consisted of: Active participants………………………………………… 861 Retired participants………………………………………… 944 Total participants…………………………………………… 1,805 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 80 Comprehensive Annual Financial Report 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 2015, the City contributed $5.4 million to the plan. Administrative costs of the Plan are assumed to be included in the fully insured premium rates. The Commonwealth of Massachusetts passed special legislation that has allowed the City to establish the Other Postemployment Benefits Trust fund which allows the City to set aside amounts to begin pre-funding its OPEB liabilities. During 2015, the City pre-funded future OPEB liabilities in the amount of $167,484. Annual OPEB Cost and Net OPEB Obligation – The City’s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s net OPEB obligation are summarized in the following table: Annual required contribution……………………………………$ 11,311,746 Interest on net OPEB obligation……………………………… 1,778,576 Adjustments to annual required contribution………………… (1,411,131) Annual OPEB cost 11,679,191 Contributions made (including retired teachers)…………… (5,396,396) Increase in net OPEB obligation……………………………… 6,282,795 Net OPEB obligation-beginning of 39,523,905 Net OPEB obligation-end of 45,806,700 The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for years 2013, 2014 and 2015 are as follows: Percentage of Year Annual Annual OPEB Net OPEB Ended OPEB Cost Cost Contributed Obligation 6/30/2015 $ 11,679,191 46% $ 45,806,700 6/30/2014 11,113,472 48% 39,523,905 6/30/2013 10,265,605 46% 33,753,017 Funded Status and Funding Progress – As of December 31, 2013, the most recent actuarial valuation date, the actuarial accrued liability for benefits totaled $110 million, of which $803,651 was funded, resulting in a funded ratio of The annual covered payroll was $65.1 million and the ratio of UAAL to covered payroll was 167.2%. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 81 Comprehensive Annual Financial Report 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. 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 December 31, 2013 actuarial valuation, actuarial liabilities were determined using the projected unit credit cost method. The actuarial assumptions included a 4.75% investment return assumption, which is based on the expected yield on the assets of the City, calculated based on the funded level of the plan at the valuation date, and an annual medical/drug cost trend rate of 6.5% initially, graded to 5% over 10 years. Both rates included a 4.0% inflation assumption. The UAAL is being amortized over an open 30 year period using a level percentage of projected payroll with amortization payments increasing at 4% per year. NOTE 13 – MAJOR TAXPAYER The City receives a significant portion of its real estate and personal property tax revenue from one taxpayer, Dominion, who is the operator of a coal-fired electric generating power plant on the waterfront in Salem. In 2009, the City and the taxpayer entered into a three-year agreement, which would provide total payments of $4.75 million in years 2009, 2010, and 2011, in the form of annual tax payments of $3 million, and annual additional contributions of $1.75 million, to be used exclusively for public purposes. In 2012, Dominion filed paperwork to decommission all four of its generating units in Salem, which would have a negative impact on the City’s revenue stream. To provide relief to municipalities from the decommissioning of electric generating stations, if the change in operating status also reduces the Commonwealth’s greenhouse gas emissions, the Commonwealth has enacted Section 33 of Chapter 68 of the Acts of 2013 (the Act). The Act will defray the burden of the closure on the taxpayers by supplementing the difference between the payments in taxes from the plant and what the City would have otherwise collected. During 2013, Dominion was sold to Footprint Power in which, subject to negotiation, Footprint will assume the tax liability from Dominion. Footprint has since shut down the plant, and is in the process of demolishing the old plant, cleaning up the site and building a new natural gas fired plant. This new plant will take up a portion of the property, leaving a significant portion of unused land in which the City and Footprint have been looking into other commercial uses of the land. The City has entered into a payment in lieu of taxes (PILOT) and contribution agreement with Footprint Power for the Salem Harbor Power Station which sets the PILOT payments from 2015 through 2028. For 2015, this payment was $375,000. These payments are scheduled to increase incrementally as the state payments decrease. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 82 Comprehensive Annual Financial Report NOTE 14 – LANDFULL 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 2015, 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 recorded a liability of $1.3 million in the entity-wide financial statements for the total estimated postclosure 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 entered into contracts totaling approximately $9 million. This amount includes the first year cost of $1.85 million for a newly executed $21.5 million ten-year trash collection and transportation contract, a $2.4 million contract for the rehabilitation of the Gallows Hill Reservoir, a $1.5 million contract for Grove Street roadway improvements, and a $1.2 million three-year school bus transportation contract. 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. wishes to locate a registered marijuana dispensary in the City and intends to provide benefits to the City, in the event it is licensed to operate and receives required local approvals. 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 2.0% of the total gross annual sales. 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. 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 Single Audit Act Amendments of 1996 through June 30, 2015, 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, 2015, cannot be ascertained, management believes any resulting liability should not materially affect the financial position at June 30, 2015. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 83 Comprehensive Annual Financial Report NOTE 17 – SUBSEQUENT EVENTS Management has evaluated subsequent events through October 30, 2015, which is the date the financial statements were available to be issued. NOTE 18 – REVISION OF STATEMENT OF NET POSITION In accordance with GASB 68, the City has recorded its net pension liability for the first time in 2015. Additionally, the City has reclassified its parking garage enterprise fund from a business-type to a governmental activity. As a result, the City has revised the beginning net position of both the governmental and business-type activities as follows: 6/30/2014 Reclassification Previously of 6/30/2014 Reported Implementation Parking Restated Description Balances of GASB 68 Enterprise Fund Balances Governmental Activities………………… $ 159,827,522 $ (94,721,438) $ 2,889,102 $ 67,995,186 Business-Type Activities………………… 17,584,826 (2,429,817) (2,889,102) 12,265,907 $ 177,412,348 $ (97,151,255) $ - $ 80,261,093 The previously reported net position of the parking enterprise fund has been revised from $2,889,102 to This revision did not impact the governmental fund balances since the fund only maintained long-term assets and liabilities. NOTE 19 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During 2015, the following GASB pronouncements were implemented: • GASB Statement #67, Financial Reporting for Pension Plans; GASB Statement #68, Accounting and Financial Reporting for Pensions; and GASB Statement #71 Pension Transition for Contributions Made Subsequent to the Measurement Date. Financial statement changes include the recognition of a net pension liability, pension expense and deferred outflows/inflows of resources depending on the nature of the change each year. The financial statements also recognized a restatement of the beginning net position to reflect the net pension liability at the beginning of the year. The notes to the basic financial statements and the required supplementary information were expanded to include additional required schedules and disclosures. • GASB Statement #69, Governmental Combinations and Disposals of Government Operations. This pronouncement did not impact the basic financial statements. The following GASB pronouncements will be implemented in the future: • The GASB issued Statement #72, Fair Value Measurement and Application, which is required to be implemented in 2016. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2015 City of Salem, Massachusetts 84 Comprehensive Annual Financial Report • The GASB issued Statement #73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. The provisions of this Statement are effective for 2016—except those provisions that address employers and governmental non-employer contributing entities for pensions that are not within the scope of Statement 68, which is required to be implemented in 2017. • The GASB issued Statement #74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, which is required to be implemented in 2017. • 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 #76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, which is required to be implemented in 2016. • The GASB issued Statement #77, Tax Abatement Disclosures, which is required to be implemented in 2017. Management is currently assessing the impact the implementation of these pronouncements will have on the basic financial statements. ---PAGE BREAK--- City of Salem, Massachusetts 85 Comprehensive Annual Financial Report Required Supplementary Information Required Supplementary Information ---PAGE BREAK--- City of Salem, Massachusetts 86 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 all of the City’s financial resources, except those required to be accounted for in another fund. ---PAGE BREAK--- City of Salem, Massachusetts 87 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, 2015 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 $ - $ 82,669,747 $ 82,669,747 $ 82,669,747 $ 81,930,309 $ - $ (739,438) Tax - - - - 638,365 - 638,365 Motor vehicle and other excise taxes…………… - 3,228,000 3,228,000 3,228,000 3,945,343 - 717,343 Hotel/motel tax and meals taxes………………… - 1,215,000 1,215,000 1,215,000 1,362,357 - 147,357 Charges for services……………………………… - 1,200,000 1,200,000 1,200,000 1,997,227 - 797,227 Penalties and interest on - 380,000 380,000 380,000 437,538 - 57,538 Payments in lieu of - 1,100,000 1,100,000 1,100,000 1,043,782 - (56,218) Licenses and - 450,000 450,000 450,000 504,857 - 54,857 Fines and forfeitures……………………………… - 1,000,000 1,000,000 1,000,000 1,167,426 - 167,426 Intergovernmental………………………………… - 30,200,316 30,200,316 30,200,316 30,478,746 - 278,430 Departmental and - 2,400,000 2,400,000 2,400,000 2,622,117 - 222,117 Investment - 100,000 100,000 100,000 202,893 - 102,893 TOTAL REVENUES…………………… - 123,943,063 123,943,063 123,943,063 126,330,960 - 2,387,897 EXPENDITURES: Current: General government City Council Personnel………………………………… - 119,700 119,700 119,700 119,696 - 4 Non - Personnel………………………… - 53,127 53,127 53,127 34,391 - 18,736 - 172,827 172,827 172,827 154,087 - 18,740 Mayor Personnel………………………………… - 331,119 331,119 322,419 318,796 - 3,623 Non - Personnel………………………… 98,000 190,000 288,000 296,700 219,286 10,800 66,614 98,000 521,119 619,119 619,119 538,082 10,800 70,237 Finance/Auditing Personnel………………………………… - 284,114 284,114 284,114 275,189 - 8,925 Non - Personnel………………………… 37,400 40,700 78,100 78,100 68,289 8,900 911 37,400 324,814 362,214 362,214 343,478 8,900 9,836 Purchasing Personnel………………………………… - 109,406 109,406 108,206 104,554 - 3,652 Non - Personnel………………………… 212 18,550 18,762 19,935 19,552 - 383 Fixed - 57,396 57,396 57,423 57,423 - - 212 185,352 185,564 185,564 181,529 - 4,035 Assessors Personnel………………………………… - 284,247 284,247 284,247 283,214 - 1,033 Non - Personnel………………………… 6,312 32,900 39,212 39,212 34,021 6 5,185 6,312 317,147 323,459 323,459 317,235 6 6,218 Treasurer Personnel………………………………… - 227,653 227,653 227,653 224,120 - 3,533 Non - Personnel………………………… - 101,855 101,855 101,855 98,577 - 3,278 - 329,508 329,508 329,508 322,697 - 6,811 Collector Personnel………………………………… - 214,295 214,295 214,295 210,579 - 3,716 Non - Personnel………………………… - 8,500 8,500 8,500 7,610 - 890 - 222,795 222,795 222,795 218,189 - 4,606 Solicitor Personnel………………………………… - 244,358 244,358 244,358 243,964 - 394 Non - Personnel………………………… - 64,400 64,400 64,400 62,561 - 1,839 - 308,758 308,758 308,758 306,525 - 2,233 (continued) Budgeted Amounts GENERAL FUND City of Salem, Massachusetts 88 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2015 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 Budgeted Amounts GENERAL FUND Human Resources Personnel………………………………… - 488,701 488,701 738,701 735,154 - 3,547 Non - Personnel………………………… - 30,950 30,950 30,950 6,932 - 24,018 - 519,651 519,651 769,651 742,086 - 27,565 Data Processing Personnel………………………………… - 211,401 211,401 211,401 158,307 - 53,094 Non - Personnel………………………… 7,736 21,449 29,185 29,185 6,101 6,850 16,234 Fixed 26,964 383,190 410,154 410,154 393,799 - 16,355 34,700 616,040 650,740 650,740 558,207 6,850 85,683 City Clerk Record Maintenance Personnel………………………………… - 266,644 266,644 266,840 266,840 - - Non - Personnel………………………… - 8,900 8,900 8,704 6,702 - 2,002 - 275,544 275,544 275,544 273,542 - 2,002 Elections & Registrations Personnel………………………………… - 101,482 101,482 101,482 100,044 - 1,438 Non - Personnel………………………… - 54,100 54,100 54,100 45,051 5,556 3,493 - 155,582 155,582 155,582 145,095 5,556 4,931 Conservation Commission Personnel………………………………… - 28,610 28,610 28,610 27,977 - 633 Non - Personnel………………………… - 622 622 622 38 - 584 - 29,232 29,232 29,232 28,015 - 1,217 Subdivision, Planning, and Zoning Board Personnel………………………………… - 25,414 25,414 16,914 16,260 - 654 Non - Personnel………………………… - 3,000 3,000 3,000 1,996 - 1,004 - 28,414 28,414 19,914 18,256 - 1,658 Board of Appeals Non - Personnel………………………… - 550 550 550 549 - 1 Planning Department Personnel………………………………… - 342,793 342,793 352,658 352,164 - 494 Non - Personnel………………………… 4,153 78,375 82,528 91,528 60,310 26,566 4,652 4,153 421,168 425,321 444,186 412,474 26,566 5,146 Public Property/Building Maintenance Fixed - 686,831 686,831 686,831 678,630 - 8,201 Market and Tourism………………………… - 239,525 239,525 239,525 239,031 - 494 Total General Government…………………… 180,777 5,354,857 5,535,634 5,795,999 5,477,707 58,678 259,614 (continued) City of Salem, Massachusetts 89 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2015 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 Budgeted Amounts GENERAL FUND Public safety Police Personnel………………………………… - 8,851,236 8,851,236 8,851,236 8,667,909 - 183,327 Non - Personnel………………………… 25,222 583,330 608,552 668,552 594,361 - 74,191 25,222 9,434,566 9,459,788 9,519,788 9,262,270 - 257,518 Fire Personnel………………………………… - 7,788,653 7,788,653 7,778,653 7,704,837 - 73,816 Non - Personnel………………………… - 342,250 342,250 352,250 299,454 - 52,796 - 8,130,903 8,130,903 8,130,903 8,004,291 - 126,612 Building, Plumbing, Gas Inspections Personnel………………………………… - 374,931 374,931 382,681 380,249 - 2,432 Non - Personnel………………………… - 23,450 23,450 46,170 43,735 - 2,435 - 398,381 398,381 428,851 423,984 - 4,867 Electrical Inspection and Maintenance Personnel………………………………… - 333,127 333,127 333,127 332,413 - 714 Non - Personnel………………………… - 615,408 615,408 615,408 378,598 - 236,810 - 948,535 948,535 948,535 711,011 - 237,524 Harbormaster Personnel………………………………… - 199,103 199,103 208,103 202,983 - 5,120 Non - Personnel………………………… 7,435 59,212 66,647 66,647 50,865 4,467 11,315 7,435 258,315 265,750 274,750 253,848 4,467 16,435 Total Public 32,657 19,170,700 19,203,357 19,302,827 18,655,404 4,467 642,956 Education 565,785 54,461,543 55,027,328 55,691,182 55,137,593 463,805 89,784 NSRS/Charter/Choice…………………… - 2,376,792 2,376,792 2,486,713 2,486,713 - - Total 565,785 56,838,335 57,404,120 58,177,895 57,624,306 463,805 89,784 Public Works Public Services Personnel………………………………… - 1,693,214 1,693,214 1,626,464 1,626,463 - 1 Non - Personnel………………………… - 669,347 669,347 907,890 842,752 8,737 56,401 - 2,362,561 2,362,561 2,534,354 2,469,215 8,737 56,402 Engineering Personnel………………………………… - 80,191 80,191 80,191 79,015 - 1,176 Non - Personnel………………………… - 7,200 7,200 7,200 6,426 - 774 - 87,391 87,391 87,391 85,441 - 1,950 Snow and Ice Personnel………………………………… - 50,000 50,000 50,000 154,660 - (104,660) Non - Personnel………………………… - 382,335 382,335 382,335 2,600,201 - (2,217,866) - 432,335 432,335 432,335 2,754,861 - (2,322,526) Parking Garage Personnel………………………………… - 659,227 659,227 659,227 580,663 - 78,564 Non - Personnel………………………… - 223,572 223,572 217,572 190,845 4,630 22,097 - 882,799 882,799 876,799 771,508 4,630 100,661 Total Public - 3,765,086 3,765,086 3,930,879 6,081,025 13,367 (2,163,513) (continued) City of Salem, Massachusetts 90 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2015 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 Budgeted Amounts GENERAL FUND Health and Human Services Board of Health Personnel………………………………… - 363,726 363,726 363,726 345,586 - 18,140 Non - Personnel………………………… - 17,050 17,050 19,050 11,455 - 7,595 - 380,776 380,776 382,776 357,041 - 25,735 Council on Aging Personnel………………………………… - 318,719 318,719 318,719 311,778 - 6,941 Non - Personnel………………………… - 38,300 38,300 38,300 37,395 - 905 - 357,019 357,019 357,019 349,173 - 7,846 Veterans Services Personnel………………………………… - 80,730 80,730 80,730 80,135 - 595 Non - Personnel………………………… 79,754 459,300 539,054 540,554 531,548 162 8,844 79,754 540,030 619,784 621,284 611,683 162 9,439 Total Health and Human Services…………… 79,754 1,277,825 1,357,579 1,361,079 1,317,897 162 43,020 Culture and Recreation Library Personnel………………………………… - 926,549 926,549 926,549 909,619 - 16,930 Non - Personnel………………………… - 306,461 306,461 306,461 299,371 - 7,090 - 1,233,010 1,233,010 1,233,010 1,208,990 - 24,020 Parks and Recreation Personnel………………………………… - 290,173 290,173 290,173 245,798 - 44,375 Non - Personnel………………………… 11,343 217,710 229,053 235,253 228,199 3,228 3,826 11,343 507,883 519,226 525,426 473,997 3,228 48,201 Golf Course Personnel………………………………… - 254,576 254,576 254,576 246,712 - 7,864 Non - Personnel………………………… 34,259 153,400 187,659 284,187 277,195 - 6,992 34,259 407,976 442,235 538,763 523,907 - 14,856 Witch House Personnel………………………………… - 88,562 88,562 49,234 47,165 - 2,069 Non - Personnel………………………… 33,647 66,780 100,427 100,427 82,062 6,963 11,402 33,647 155,342 188,989 149,661 129,227 6,963 13,471 Historical Commission Personnel………………………………… - 8,477 8,477 8,477 7,847 - 630 Non - Personnel………………………… - 1,000 1,000 1,000 513 - 487 - 9,477 9,477 9,477 8,360 - 1,117 Winter Island Personnel………………………………… - 135,521 135,521 135,521 133,938 - 1,583 Non - Personnel………………………… 1,140 52,000 53,140 53,140 44,401 3,504 5,235 1,140 187,521 188,661 188,661 178,339 3,504 6,818 Pioneer Village Non - Personnel………………………… - 18,900 18,900 18,900 12,631 4,706 1,563 Total Culture and Recreation……………… 80,389 2,520,109 2,600,498 2,663,898 2,535,451 18,401 110,046 (continued) City of Salem, Massachusetts 91 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2015 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 Budgeted Amounts GENERAL FUND Debt service: - 2,930,000 2,930,000 2,930,000 2,930,000 - - - 1,317,491 1,317,491 1,317,491 1,291,760 - 25,731 Short Term Interest…………………………… 63,573 231,548 295,121 295,714 289,132 - 6,582 Capital Lease Payment………………………… - 157,500 157,500 156,907 149,004 - 7,903 63,573 4,636,539 4,700,112 4,700,112 4,659,896 - 40,216 State and county charges………………………… - 6,365,908 6,365,908 6,365,908 6,015,427 - 350,481 Pension benefits Contributory Retirement……………………… - 10,011,291 10,011,291 10,114,612 10,112,586 - 2,026 Non-Contributory Retirement………………… - 76,196 76,196 57,883 57,883 - - - 10,087,487 10,087,487 10,172,495 10,170,469 - 2,026 Workmen's Compensation………………………… - 452,345 452,345 452,345 401,076 - 51,269 Unemployment Compensation…………………… - 300,000 300,000 380,000 379,985 - 15 Group - 11,982,350 11,982,350 12,013,408 11,660,754 - 352,654 - 950,000 950,000 1,048,858 1,048,484 - 374 Municipal Insurance……………………………… - 284,018 284,018 267,636 233,312 - 34,324 TOTAL EXPENDITURES……………… 1,002,935 123,985,559 124,988,494 126,633,339 126,261,193 558,880 (186,734) EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………… (1,002,935) (42,496) (1,045,431) (2,690,276) 69,767 (558,880) 2,201,163 OTHER FINANCING SOURCES (USES): Premium from issuance of bonds and notes…… - - - - 700,157 - 700,157 Transfers - 3,192,106 3,192,106 4,042,648 4,014,478 - (28,170) Transfers - (3,183,472) (3,183,472) (5,723,344) (5,723,344) - - TOTAL OTHER FINANCING SOURCES - 8,634 8,634 (1,680,696) (1,008,709) - 671,987 NET CHANGE IN FUND BALANCE………………… (1,002,935) (33,862) (1,036,797) (4,370,972) (938,942) (558,880) 2,873,150 BUDGETARY FUND BALANCE, Beginning of - 7,721,212 7,721,212 7,721,212 7,721,212 - - BUDGETARY FUND BALANCE, End of year……… $ (1,002,935) $ 7,687,350 $ 6,684,415 $ 3,350,240 $ 6,782,270 $ (558,880) $ 2,873,150 (concluded) See notes to required supplementary information. City of Salem, Massachusetts 92 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 93 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, 2014 Total pension liability: Service 5,854,030 18,557,934 Differences between expected and actual experience…………………… - Changes in - Changes in benefit - Benefit payments, including refunds of employee contributions………… (14,146,676) Net change in total pension 10,265,288 Total pension liability, 240,676,498 Total pension liability, ending $ 250,941,786 Plan fiduciary net position: Member 3,939,454 Employer 11,942,341 Net investment income 9,022,647 Retirement benefits and (14,146,676) Administrative expenses and depreciation………………………………… (242,294) Net increase (decrease) in fiduciary net position……………………………… 10,515,472 Fiduciary net position at beginning of 123,879,403 Adjustment to include members transferred from Essex Agricultural and Technical School 1,256,027 Fiduciary net position at end of year $ 135,650,902 Net pension liability - ending - $ 115,290,884 Plan fiduciary net position as a percentage of the total pension 54.06% Covered-employee payroll $ 41,988,253 Net pension liability as a percentage of covered-employee 274.58% 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. *Covered employee payroll as reported in the January 1, 2014 funding valuation report. 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 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 SALEM CONTRIBUTORY RETIREMENT SYSTEM AND RELATED RATIOS City of Salem, Massachusetts 94 Comprehensive Annual Financial Report ---PAGE BREAK--- December 31, 2014 Actuarially determined contribution $ 11,942,341 Contributions in relation to the actuarially determined contribution…………………………………… (11,942,341) Contribution deficiency (excess)………………$ - Covered-employee payroll $ 41,988,253 Contributions as a percentage of covered- employee 28.44% 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. Based on the results of the January 1, 2012 actuarial valuation (including assumptions and methods) which determined budgeted appropriations for fiscal 2015. *Covered employee payroll as reported in the January 1, 2014 funding valuation report. See notes to required supplementary information. SCHEDULE OF CONTRIBUTIONS SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 95 Comprehensive Annual Financial Report ---PAGE BREAK--- December 31, 2014 Annual money-weighted rate of return, net of investment 7.58% 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. SALEM CONTRIBUTORY RETIREMENT SYSTEM SCHEDULE OF INVESTMENT RETURNS City of Salem, Massachusetts 96 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 97 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, 2014 City's proportion of the net pension liability 84.01% City's proportionate share of the net pension liability (asset)………$ 96,851,803 City's covered employee payroll 32,603,305 Net pension liability as a percentage of covered-employee 297.06% Plan fiduciary net position as a percentage of the total pension 54.06% 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. *Covered employee payroll as reported in the January 1, 2014, funding valuation report. 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 98 Comprehensive Annual Financial Report ---PAGE BREAK--- December 31, 2014 Actuarially determined contribution $ 10,121,621 Contributions in relation to the actuarially determined contribution…………………………………… (10,121,621) Contribution deficiency (excess)………………$ - Covered-employee payroll $ 32,603,305 Contributions as a percentage of covered- employee 31.04% 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. Based on the results of the January 1, 2012 actuarial valuation (including assumptions and methods) which determined budgeted appropriations for fiscal 2015. *Covered employee payroll as reported in the January 1, 2014 funding valuation report. See notes to required supplementary information. SALEM CONTRIBUTORY RETIREMENT SYSTEM SCHEDULE OF CITY CONTRIBUTIONS City of Salem, Massachusetts 99 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 $ 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 100 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 101 Comprehensive Annual Financial Report Other Postemployment Benefit Plan Schedules Other postemployment benefit plan 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, over time, the ratio of the actual annual employer contributions to the annual required contribution. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. ---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) 12/31/2013 $ 803,651 $ 109,605,701 $ 108,802,050 1% $ 65,077,393 167.2% 12/31/2011 - 145,033,856 145,033,856 0% 57,371,799 252.8% 12/31/2009 - 171,447,034 171,447,034 0% 52,107,612 329.0% 12/31/2007 - 156,258,800 156,258,800 0% 50,103,473 311.9% Annual Actual Percentage of Year Required Contributions the ARC Ended Contribution (ARC) Made Contributed 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% 2010 10,869,698 5,287,195 49% 2009 11,068,269 6,799,394 61% 2008 10,554,680 3,443,274 33% See notes to required supplementary information. OTHER POSTEMPLOYMENT BENEFIT PLAN Schedule of Employer Contributions Schedule of Funding Progress City of Salem, Massachusetts 102 Comprehensive Annual Financial Report ---PAGE BREAK--- ACTUARIAL METHODS AND ASSUMPTIONS Actuarial Methods: Valuation date December 31, 2013 Actuarial cost method Projected Unit Credit Amortization method Payments increasing at 4.0% per year as a level percentage of projected payroll Remaining amortization period 30 years as of December 31, 2013, open Actuarial Assumptions: Investment rate of return 4.75%, pay-as-you-go scenario Medical/drug cost trend rate 6.5% decreasing to 6.0% for 8 years then decreasing by 0.5% for 2 years to an ultimate level of 5.0% per year Plan Membership: Current retirees, beneficiaries, and dependents 944 Current active members 861 Total 1,805 See notes to required supplementary information. OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 103 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2015 City of Salem, Massachusetts 104 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 2015 approved budget authorized approximately $128.2 million in appropriations and other amounts to be raised. During the year, increases to the original budget were approved totaling approximately $4.2 million. The most notable components of this increase include an additional $3.3 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, 2015 City of Salem, Massachusetts 105 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, 2015, is presented below: Net change in fund balance - budgetary $ (938,942) Perspective differences: Reclassification of enterprise fund expenditures budgeted in the general fund……… 463,927 Reclassification of enterprise fund transfers budgeted in the general fund…………… (463,927) Activity of the Salem Community Charter (97,088) Activity of the stabilization funds recorded in the general fund for 432,235 Basis of accounting differences: Net change in revenues in recording 60 day 536,844 Net change in revenues in recording tax refunds (84,595) Net change in short-term debt service interest Recognition of revenue for on-behalf 6,752,780 Recognition of expenditures for on-behalf (6,752,780) Net difference in recognition of expenditures…………………………………………… (719,251) Net change in fund balances - GAAP $ (870,797) 3. Appropriation Deficits During 2015, expenditures exceeded budgeted appropriations for snow and ice removal. This over expenditure is allowable under Massachusetts General Law. The City will fund this deficit over the next three fiscal years. 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, 2014. ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2015 City of Salem, Massachusetts 106 Comprehensive Annual Financial Report 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 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, 2015 City of Salem, Massachusetts 107 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 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 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. The Schedule of Funding Progress presents multiyear trend information which compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. The Schedule of Employer Contributions presents, over time, the ratio of the actual annual employer contributions to the annual required contribution. 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. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. ---PAGE BREAK--- City of Salem, Massachusetts 108 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 109 Comprehensive Annual Financial Report Combining and Individual Fund Statements Combining and Individual Fund Statements ---PAGE BREAK--- City of Salem, Massachusetts 110 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. City Grants Fund – This fund is used to account for non-school related activity specifically financed by federal, state, and other grants which are designated for specific programs. 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 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 City School Development School Highway Grants Grants Grants Lunch Grants ASSETS Cash and cash equivalents……………………………$ 2,426,096 $ 1,730,567 $ 57,983 $ 242,630 $ - - - - - - Receivables, net of uncollectibles: Departmental and - - - - - Intergovernmental………………………………… 607,225 266,726 - - 771,070 - - 200,777 - - Due from other 200,714 - - - - TOTAL $ 3,234,035 $ 1,997,293 $ 258,760 $ 242,630 $ 771,070 LIABILITIES Warrants 873,865 $ 272,853 $ 6,802 $ - $ - Accrued 47,331 98,054 7,305 28,619 - Due to other - - - - 200,714 TOTAL LIABILITIES………………………………… 921,196 370,907 14,107 28,619 200,714 DEFERRED INFLOWS OF RESOURCES Unavailable - - 200,777 - 570,356 FUND BALANCES Nonspendable……………………………………… - - - - - 2,312,839 1,626,386 43,876 214,011 - TOTAL FUND BALANCES…………………………… 2,312,839 1,626,386 43,876 214,011 - TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES……………………………$ 3,234,035 $ 1,997,293 $ 258,760 $ 242,630 $ 771,070 (Continued) Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2015 City of Salem, Massachusetts 111 Comprehensive Annual Financial Report ---PAGE BREAK--- City School Donations Receipts Revolving Revolving and Gifts Reserved Accounts Accounts Subtotal Cash and cash equivalents……………………………… $ 541,374 $ 796,735 $ 688,515 $ 269,187 $ 6,753,087 683,671 - - - 683,671 Receivables, net of uncollectibles: Departmental and - 90,609 - - 90,609 Intergovernmental……………………………………… - - - - 1,645,021 - - 134,192 - 334,969 Due from other - - - - 200,714 TOTAL 1,225,045 $ 887,344 $ 822,707 $ 269,187 $ 9,708,071 LIABILITIES Warrants $ 26,102 $ 19,406 $ 11,936 $ - $ 1,210,964 Accrued 3,564 - - 31,135 216,008 Due to other - - - - 200,714 TOTAL LIABILITIES……………………………………… 29,666 19,406 11,936 31,135 1,627,686 DEFERRED INFLOWS OF RESOURCES Unavailable - 90,609 134,192 - 995,934 FUND BALANCES Nonspendable…………………………………………… - - - - - 1,195,379 777,329 676,579 238,052 7,084,451 TOTAL FUND BALANCES……………………………… 1,195,379 777,329 676,579 238,052 7,084,451 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES…………………………… $ 1,225,045 $ 887,344 $ 822,707 $ 269,187 $ 9,708,071 (Continued) Special Revenue Funds ASSETS NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2015 City of Salem, Massachusetts 112 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Governmental Other Cemetery Human Service Other Subtotal Funds $ 111,543 $ 379,259 $ 116,895 $ 169,160 $ 665,314 $ 7,529,944 - 3,181,939 1,501,707 1,185,151 5,868,797 6,552,468 - - - - - 90,609 - - - - - 1,645,021 - - - - - 334,969 - - - - - 200,714 $ 111,543 $ 3,561,198 $ 1,618,602 $ 1,354,311 $ 6,534,111 $ 16,353,725 $ 9,611 $ - $ - $ - $ - $ 1,220,575 - - - - - 216,008 - - - - - 200,714 9,611 - - - - 1,637,297 - - - - - 995,934 - 1,087,993 221,173 841,921 2,151,087 2,151,087 101,932 2,473,205 1,397,429 512,390 4,383,024 11,569,407 101,932 3,561,198 1,618,602 1,354,311 6,534,111 13,720,494 $ 111,543 $ 3,561,198 $ 1,618,602 $ 1,354,311 $ 6,534,111 $ 16,353,725 (Concluded) Permanent Funds Capital Project Funds City of Salem, Massachusetts 113 Comprehensive Annual Financial Report ---PAGE BREAK--- Community City School Development School Highway Donations Grants Grants Grants Lunch Grants and Gifts REVENUES: Charges for 4,799 $ 9,830 $ - $ - $ - $ - Penalties and interest on - - - - - - Intergovernmental…………………………………………… 6,404,009 6,412,539 1,297,234 1,922,672 1,655,466 - Departmental and 236,519 280,543 115,261 - - 780 Contributions………………………………………………… 59,780 39,961 - 9,100 - 86,589 Investment 12 - 262 - - 24,784 TOTAL 6,705,119 6,742,873 1,412,757 1,931,772 1,655,466 112,153 EXPENDITURES: Current: General government……………………………………… 786,441 - - - - 93,174 Public 1,004,399 - - - - 9,980 17,263 7,379,435 - 1,851,789 - 505,891 Public 1,709,924 - - - 1,655,466 - Community development………………………………… 5,736 - 1,344,956 - - - Health and human services……………………………… 5,076,289 - - - - 23,762 Culture and recreation…………………………………… 103,358 - - - - 15,311 Debt service: - - 35,000 - - - - - 907 - - - TOTAL EXPENDITURES……………………………… 8,703,410 7,379,435 1,380,863 1,851,789 1,655,466 648,118 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES………………………… (1,998,291) (636,562) 31,894 79,983 - (535,965) OTHER FINANCING SOURCES (USES): Transfers 749,935 188,276 439 - - 10,109 Transfers (54,337) (135,027) - (119) - (548) TOTAL OTHER FINANCING SOURCES (USES)…… 695,598 53,249 439 (119) - 9,561 NET CHANGE IN FUND BALANCES………………………… (1,302,693) (583,313) 32,333 79,864 - (526,404) FUND BALANCES AT BEGINNING OF YEAR……………… 3,615,532 2,209,699 11,543 134,147 - 1,721,783 FUND BALANCES AT END OF $ 2,312,839 $ 1,626,386 $ 43,876 $ 214,011 $ - $ 1,195,379 (Continued) Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2015 City of Salem, Massachusetts 114 Comprehensive Annual Financial Report ---PAGE BREAK--- City School Receipts Revolving Revolving Reserved Accounts Accounts Subtotal Other $ - $ - $ - $ 14,629 $ - 4,733 - - 4,733 - 30,000 46,508 - 17,768,428 126,271 679,691 632,848 978,894 2,924,536 - - 6,134 - 201,564 - - 438 175 25,671 - 714,424 685,928 979,069 20,939,561 126,271 89,135 160,473 494 1,129,717 - - 1,500 - 1,015,879 - - - 955,264 10,709,642 - 26,092 48,026 - 3,439,508 224,030 - 193,817 - 1,544,509 255,799 - 18,119 - 5,118,170 - 2,800 434,987 - 556,456 - - - - 35,000 - - - - 907 - 118,027 856,922 955,758 23,549,788 479,829 596,397 (170,994) 23,311 (2,610,227) (353,558) - - - 948,759 - (517,289) - (53,131) (760,451) (31,020) (517,289) - (53,131) 188,308 (31,020) 79,108 (170,994) (29,820) (2,421,919) (384,578) 698,221 847,573 267,872 9,506,370 486,510 $ 777,329 $ 676,579 $ 238,052 $ 7,084,451 $ 101,932 (Continued) Capital Project Funds Special Revenue Funds City of Salem, Massachusetts 115 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Governmental Cemetery Human Service Other Subtotal Funds REVENUES: Charges for - $ - $ - $ - $ 14,629 Penalties and interest on - - - - 4,733 Intergovernmental………………………………………… - - - - 17,894,699 Departmental and - - - - 2,924,536 Contributions……………………………………………… 15,100 - 101,150 116,250 317,814 Investment 212,830 40,895 10,921 264,646 290,317 TOTAL 227,930 40,895 112,071 380,896 21,446,728 EXPENDITURES: Current: General government…………………………………… - - - - 1,129,717 Public - - 81,617 81,617 1,097,496 - - - - 10,709,642 Public 197,905 - 35,532 233,437 3,896,975 Community development……………………………… - - - - 1,800,308 Health and human services…………………………… - 52,961 - 52,961 5,171,131 Culture and recreation………………………………… - - - - 556,456 Debt service: - - - - 35,000 - - - - 907 TOTAL EXPENDITURES…………………………… 197,905 52,961 117,149 368,015 24,397,632 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………… 30,025 (12,066) (5,078) 12,881 (2,950,904) OTHER FINANCING SOURCES (USES): Transfers - - - - 948,759 Transfers - - - - (791,471) TOTAL OTHER FINANCING SOURCES (USES)… - - - - 157,288 NET CHANGE IN FUND BALANCES…………………… 30,025 (12,066) (5,078) 12,881 (2,793,616) FUND BALANCES AT BEGINNING OF YEAR…………… 3,531,173 1,630,668 1,359,389 6,521,230 16,514,110 FUND BALANCES AT END OF 3,561,198 $ 1,618,602 $ 1,354,311 $ 6,534,111 $ 13,720,494 (Concluded) Permanent Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2015 City of Salem, Massachusetts 116 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 117 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, 2015 Trust Fund Scholarship Commissioners Funds Total ASSETS Cash and cash equivalents………………………………… $ 96,704 $ 111,200 $ 207,904 Corporate 1,210,513 - 1,210,513 TOTAL 1,307,217 111,200 1,418,417 NET POSITION Held in trust for other 1,307,217 $ 111,200 $ 1,418,417 Private Purpose Trust Funds City of Salem, Massachusetts 118 Comprehensive Annual Financial Report ---PAGE BREAK--- Trust Fund Scholarship Commissioners Funds Total ADDITIONS: Contributions: Private $ 2,061 $ 18,170 $ 20,231 Net investment income: Net change in fair value of investments…………………… 31,965 - 31,965 43 446 489 Total Net Investment 32,008 446 32,454 TOTAL 34,069 18,616 52,685 DEDUCTIONS: Educational scholarships…………………………………… 6,773 23,400 30,173 Housing 41,141 - 41,141 TOTAL DEDUCTIONS…………………………………… 47,914 23,400 71,314 CHANGE IN NET POSITION…………………………… (13,845) (4,784) (18,629) NET POSITION AT BEGINNING OF 1,321,062 115,984 1,437,046 NET POSITION AT END OF 1,307,217 $ 111,200 $ 1,418,417 Private Purpose Trust Funds PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2015 City of Salem, Massachusetts 119 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 120 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………………$ 978,169 $ 60,558,434 $ (60,459,100) $ 1,077,503 LIABILITIES Liabilities due depositors…………………$ 978,169 $ 60,558,434 $ (60,459,100) $ 1,077,503 AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES YEAR ENDED JUNE 30, 2015 City of Salem, Massachusetts 121 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 122 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. Winter Island Light House ---PAGE BREAK--- City of Salem, Massachusetts 123 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--- As Revised 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Governmental activities Net investment in capital assets………… $ 109,183,737 $ 132,787,853 $ 139,683,360 $ 147,373,757 $ 147,313,749 $ 144,887,020 $ 147,692,495 $ 169,750,602 $ 170,092,864 $ 172,084,606 Restricted…………………………………… 8,649,700 8,868,048 6,948,839 6,968,580 6,892,267 10,562,103 11,197,635 12,499,976 14,383,949 12,047,560 Unrestricted………………………………… (371,947) (2,189,821) (6,668,493) (13,473,169) (17,907,226) (17,992,385) (21,617,069) (22,562,824) (116,481,627) (125,845,138) Total governmental activities net position…………$ 117,461,490 $ 139,466,080 $ 139,963,706 $ 140,869,168 $ 136,298,790 $ 137,456,738 $ 137,273,061 $ 159,687,754 $ 67,995,186 $ 58,287,028 Business-type activities Net investment in capital assets………… 9,018,231 9,138,929 8,836,475 6,939,001 8,245,799 8,248,186 8,605,165 9,562,558 8,511,138 8,744,920 Unrestricted………………………………… 4,722,252 5,609,406 5,647,967 6,371,380 3,920,927 4,366,232 4,085,318 4,857,190 6,184,586 3,008,694 Total business-type activities net position…………$ 13,740,483 $ 14,748,335 $ 14,484,442 $ 13,310,381 $ 12,166,726 $ 12,614,418 $ 12,690,483 $ 14,419,748 $ 14,695,724 $ 11,753,614 Primary government Net investment in capital assets………… 118,201,968 141,926,782 148,519,835 154,312,758 155,559,548 153,135,206 156,297,660 179,313,160 178,604,002 180,829,526 Restricted…………………………………… 8,649,700 8,868,048 6,948,839 6,968,580 6,892,267 10,562,103 11,197,635 12,499,976 14,383,949 12,047,560 Unrestricted………………………………… 4,350,305 3,419,585 (1,020,526) (7,101,789) (13,986,299) (13,626,153) (17,531,751) (17,705,634) (110,297,041) (122,836,444) Total primary government net position……………$ 131,201,973 $ 154,214,415 $ 154,448,148 $ 154,179,549 $ 148,465,516 $ 150,071,156 $ 149,963,544 $ 174,107,502 $ 82,690,910 $ 70,040,642 Net Position By Component Last Ten Years City of Salem, Massachusetts 124 Comprehensive Annual Financial Report ---PAGE BREAK--- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Expenses Governmental activities: General government…………………………………… $ 9,867,573 $ 9,641,318 $ 10,598,174 $ 10,914,012 $ 10,865,152 $ 11,702,186 $ 11,904,711 $ 10,574,021 $ 10,080,121 $ 12,503,170 Public 23,481,525 24,433,343 28,262,847 27,421,538 26,755,783 27,989,181 26,551,919 27,832,445 29,879,444 29,652,698 67,258,196 75,513,149 75,874,227 79,410,738 83,743,843 86,938,434 91,261,655 95,924,303 100,837,487 100,997,380 Public 7,991,774 9,229,479 6,846,006 6,705,986 6,820,639 8,894,659 5,952,380 8,848,271 9,092,995 11,878,911 Community development……………………………… 1,891,386 1,804,554 1,567,381 2,093,618 3,226,360 1,845,141 1,530,786 1,347,731 1,304,481 1,569,281 Health and human services…………………………… 5,016,513 4,675,688 5,904,063 6,226,498 6,622,114 5,930,089 6,001,130 6,140,975 5,788,579 6,850,201 Community preservation………………………………… 5,350 356,518 Culture and recreation…………………………………… 3,718,183 2,448,265 3,293,415 3,228,906 3,169,224 2,997,090 3,219,315 3,429,452 3,589,253 3,277,578 2,889,116 2,604,390 2,503,461 2,396,187 1,888,315 1,582,033 1,544,887 1,277,709 1,328,888 1,349,443 Total government activities expenses……………………… 122,114,266 130,350,186 134,849,574 138,397,483 143,091,430 147,878,813 147,966,783 155,374,907 161,906,598 168,435,180 Business-type activities: Water and sewer services……………………………… 8,884,459 9,174,602 9,790,421 11,488,868 11,796,038 10,752,161 10,921,100 11,169,816 11,241,391 12,386,557 Golf 279,981 363,651 386,099 278,007 399,023 363,625 438,613 465,210 466,834 472,708 800,506 792,903 936,826 905,834 844,615 991,722 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 Total business type activities expenses…………………… 9,964,946 10,331,156 14,343,846 15,230,972 15,613,097 14,725,456 15,147,286 15,336,370 15,050,260 15,307,665 Total primary government expenses…………………………$ 132,079,212 $ 140,681,342 $ 149,193,420 $ 153,628,455 $ 158,704,527 $ 162,604,269 $ 163,114,069 $ 170,711,277 $ 176,956,858 $ 183,742,845 Program Revenues Governmental activities: Education charges for services…………………………$ 831,579 $ 1,659,544 $ 1,586,525 $ 1,473,880 $ 1,370,250 $ 1,277,950 $ 1,271,626 $ 1,171,221 $ 1,275,125 $ 1,036,778 Public Safety charges for services…………………… 2,003,791 2,217,287 2,378,961 2,456,341 2,074,324 2,115,452 2,212,295 2,780,253 2,237,189 2,712,983 Other charges for services……………………………… 1,825,898 2,561,814 1,602,847 1,693,333 1,824,040 1,744,351 1,872,305 2,264,412 2,345,324 4,762,457 Operating grants and contributions…………………… 37,934,300 37,957,703 41,168,760 43,744,124 46,352,034 51,358,511 47,872,700 49,028,512 50,489,073 46,826,741 Capital grant and contributions………………………… 3,312,346 30,118,572 9,615,336 8,762,642 4,135,374 5,197,515 5,699,571 30,643,446 8,496,589 5,050,922 Total government activities program revenues...………… 45,907,914 74,514,920 56,352,429 58,130,320 55,756,022 61,693,779 58,928,497 85,887,844 64,843,300 60,389,881 Business-type activities: Charges for services - Water and Sewer……………… 10,553,443 11,516,213 10,874,482 11,753,147 12,122,111 12,810,031 12,609,726 13,692,023 13,086,639 13,288,556 Charges for services - 525,404 546,841 570,142 547,301 589,345 548,805 648,916 697,232 705,341 724,052 Charges for services - Parking………………………… 1,549,833 1,713,649 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 Capital grants and contributions……………………… - - 49,707 43,796 41,820 39,804 - - 2,887,131 102,518 Total business-type activities program revenues...……… 12,628,680 13,776,703 14,053,940 14,759,145 15,532,022 16,424,207 16,209,028 17,653,779 19,868,556 14,805,108 Total primary government program revenues………………$ 58,536,594 $ 88,291,623 $ 70,406,369 $ 72,889,465 $ 71,288,044 $ 78,117,986 $ 75,137,525 $ 103,541,623 $ 84,711,856 $ 75,194,989 Net (Expense)/Revenue Governmental activities……………………………………… $ (76,206,352) $ (55,835,266) $ (78,497,145) $ (80,267,163) $ (87,335,408) $ (86,185,034) $ (89,038,286) $ (69,487,063) $ (97,063,298) $ (108,045,299) Business-type activities……………………………………… 2,663,734 3,445,547 (289,906) (471,827) (81,075) 1,698,751 1,061,742 2,317,409 4,818,296 (502,557) Total primary government net expense…………………… $ (73,542,618) $ (52,389,719) $ (78,787,051) $ (80,738,990) $ (87,416,483) $ (84,486,283) $ (87,976,544) $ (67,169,654) $ (92,245,002) $ (108,547,856) General Revenues and other Changes in Net Position Governmental activities: Real estate and personal property taxes, net of tax refunds $ 58,379,505 $ 60,991,003 $ 63,230,976 $ 66,672,653 $ 69,067,349 $ 71,828,412 $ 72,073,381 $ 76,770,134 $ 79,012,963 $ 82,444,144 Community Preservation 486,797 535,637 Tax 635,624 182,650 752,178 527,492 234,353 510,973 795,443 589,138 563,353 708,963 Motor vehicle and other excise taxes………………… 3,452,569 3,357,765 3,286,119 2,978,961 3,092,527 3,181,247 3,131,334 3,052,229 3,890,099 3,929,230 Hotel/motel 263,962 282,324 373,655 324,622 294,214 955,092 1,161,007 1,224,849 1,319,418 1,362,357 Penalties and interest on 350,651 266,246 353,952 412,572 437,361 438,487 490,242 399,311 457,958 443,444 Payments in lieu of 1,088,754 1,235,083 1,229,435 1,320,945 1,307,078 1,319,079 1,440,186 1,462,692 1,321,060 1,043,782 Grants and contributions not restricted to specific 7,661,752 8,971,625 9,163,777 8,064,486 6,583,118 6,404,395 8,220,908 6,610,413 6,775,827 7,182,509 Unrestricted investment income……………………… 183,980 965,694 462,275 (35,188) 435,769 1,095,518 103,015 828,974 1,377,835 554,360 Miscellaneous…………………………………………… 214,067 248,905 168,417 203,848 250,681 358,720 453,416 375,872 344,538 122,979 2,628,834 2,437,695 (26,013) 702,234 1,062,580 1,251,059 985,677 588,144 1,653,218 9,736 Total governmental activities 74,859,698 78,938,990 78,994,771 81,172,625 82,765,030 87,342,982 88,854,609 91,901,756 97,203,066 98,337,141 Business-type activities: (2,628,834) (2,437,695) 26,013 (702,234) (1,062,580) (1,251,059) (985,677) (588,144) (1,653,218) (9,736) Total primary government…………………………………… $ 72,230,864 $ 76,501,295 $ 79,020,784 $ 80,470,391 $ 81,702,450 $ 86,091,923 $ 87,868,932 $ 91,313,612 $ 95,549,848 $ 98,327,405 Changes in Net Position Governmental activities……………………………………… $ (1,346,654) $ 23,103,724 $ 497,626 $ 905,462 $ (4,570,378) $ 1,157,948 $ (183,677) $ 22,414,693 $ 139,768 $ (9,708,158) Business-type activities……………………………………… 34,900 1,007,852 (263,893) (1,174,061) (1,143,655) 447,692 76,065 1,729,265 3,165,078 (512,293) Total primary government…………………………………… $ (1,311,754) $ 24,111,576 $ 233,733 $ (268,599) $ (5,714,033) $ 1,605,640 $ (107,612) $ 24,143,958 $ 3,304,846 $ (10,220,451) In years 2005- 2007 the City reported Trash in the governmental funds. 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 125 Comprehensive Annual Financial Report ---PAGE BREAK--- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 General Fund Reserved…………………………… $ 197,581 $ 69,631 $ 220,608 $ 372,027 $ 421,825 $ - $ - $ - $ - $ - Unreserved…………………………… 1,162,714 (1,151,199) 1,321,397 749,849 1,211,094 - - - - - Restricted…………………………… - - - - - - - - - Assigned……………………………… - - - - - 589,894 985,737 1,059,667 1,002,935 558,880 Unassigned………………………… - - - - - 8,405,585 9,550,262 11,663,494 11,998,002 11,159,068 Total general 1,360,295 $ (1,081,568) $ 1,542,005 $ 1,121,876 $ 1,632,919 $ 8,995,479 $ 10,535,999 $ 12,723,161 $ 13,000,937 $ 11,717,948 All Other Governmental Funds Reserved…………………………… $ 1,606,904 $ 1,629,202 $ 1,650,597 $ 1,688,851 $ 1,689,176 $ - $ - $ - $ - $ - Unreserved, reported in: Special revenue funds………… 5,474,128 5,477,136 3,768,323 5,602,931 5,819,702 - - - - - Capital projects funds…………… (1,859,435) (197,270) 2,806,105 (537,848) 3,969,207 - - - - - Permanent funds………………… 3,018,952 3,556,455 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 Restricted…………………………… - - - - - 11,329,632 14,344,418 12,942,168 15,563,265 12,440,090 Unassigned………………………… - - - - - (665,295) (4,101,228) (623,622) (2,089,648) (1,002,367) Total all other governmental funds…. $ 8,240,549 $ 10,465,523 $ 11,516,537 $ 9,431,977 $ 14,261,740 $ 12,371,613 $ 12,317,287 $ 14,393,535 $ 15,548,604 $ 13,588,810 Note: The City implemented GASB 54 in 2011, fund balances prior to 2011 have been reported in the pre-GASB 54 format. Fund Balances, Governmental Funds Last Ten Years City of Salem, Massachusetts 126 Comprehensive Annual Financial Report ---PAGE BREAK--- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Revenues: Real estate and personal property taxes, net of tax 58,601,934 $ 60,638,180 $ 63,376,714 $ 66,717,968 $ 68,747,759 $ 71,754,816 $ 72,202,064 $ 77,018,965 $ 79,449,354 $ 82,905,745 Motor vehicle and other excise 3,577,544 3,215,438 3,427,889 3,154,642 3,007,759 3,180,552 3,203,122 3,113,058 3,799,179 3,945,343 Intergovernmental……………………………………………… 40,386,321 38,496,892 39,569,976 42,962,129 44,150,857 51,562,915 50,048,535 84,640,597 49,698,445 49,811,556 Departmental and 8,496,446 9,017,710 10,086,572 9,382,460 8,511,803 9,656,996 10,366,488 12,049,109 11,097,377 13,036,554 Investment 927,302 925,771 462,585 (32,923) 436,686 1,096,747 129,773 828,974 1,377,835 554,360 Commonwealth school construction grants………………… 16,559,515 35,025,316 17,324,905 13,130,784 7,095,272 4,310,837 4,310,837 4,310,837 3,695,128 3,171,572 On-behalf pension payments by the Commonwealth 6,376,140 7,044,987 7,511,889 8,277,958 8,602,216 9,290,000 9,695,000 10,522,000 10,808,000 6,752,780 Total 134,925,202 154,364,294 141,760,530 143,593,018 140,552,352 150,852,863 149,955,819 192,483,540 159,925,318 160,177,910 Expenditures: General 5,112,025 4,733,168 4,512,126 5,284,403 5,062,768 5,678,376 6,039,335 6,351,699 6,218,639 8,285,799 Public 14,547,596 14,969,952 15,945,719 16,452,689 16,147,666 17,129,546 17,807,607 18,207,275 19,627,830 19,936,450 47,647,867 47,719,326 47,293,548 48,101,995 49,491,944 51,429,439 50,076,848 53,168,217 54,548,503 63,150,832 Public 5,427,108 6,137,334 3,338,981 3,718,860 3,255,769 3,573,118 2,831,181 5,338,674 5,230,942 7,137,934 Community development……………………………………… 1,891,386 1,804,554 1,567,381 2,402,149 3,413,203 1,933,227 1,757,053 1,322,586 1,629,209 1,544,509 Health and human 4,475,413 4,730,161 5,306,444 5,339,094 6,158,089 5,927,137 5,538,621 5,580,162 5,446,188 6,424,227 Community Preservation……………………………………… - - - - - - - - 5,350 356,518 Culture and 2,339,600 1,865,609 2,135,563 2,395,536 2,320,698 2,152,872 3,367,206 2,468,723 2,368,401 2,264,401 Pension 13,388,893 14,375,924 15,180,985 16,206,240 16,770,835 17,707,823 18,538,274 19,771,148 20,402,625 16,923,249 Massachusetts teachers' retirement 6,376,140 7,044,987 7,511,889 8,277,958 8,602,216 9,290,000 9,695,000 10,522,000 10,808,000 6,752,780 Employee 9,964,302 10,889,249 11,570,087 11,805,651 11,077,682 11,751,691 13,122,992 13,326,634 14,255,543 13,490,299 State and county 5,047,971 5,589,986 5,933,670 6,302,025 6,655,890 6,445,380 6,390,908 5,141,397 5,776,828 6,015,427 Capital 7,581,652 38,018,740 12,930,767 13,552,655 4,654,814 6,194,898 11,752,488 38,287,997 16,665,809 13,273,983 Debt service 4,385,000 4,310,000 6,620,000 4,559,497 5,385,000 7,550,000 4,717,000 19,454,000 3,073,598 2,935,000 2,958,101 2,513,575 2,622,389 2,568,643 2,087,028 1,851,117 1,761,551 1,816,117 1,536,769 1,558,748 Total Expenditures……………………………………………… 131,143,054 164,702,565 142,469,549 146,967,395 141,083,602 148,614,624 153,396,064 200,756,629 167,594,234 170,050,156 Excess of revenues over (under) expenditures…………… 3,782,148 (10,338,271) (709,019) (3,374,377) (531,250) 2,238,239 (3,440,245) (8,273,089) (7,668,916) (9,872,246) Other Financing Sources (Uses) Issuance of - 8,319,497 3,930,000 - 4,589,000 630,000 3,900,938 11,242,660 6,680,000 5,980,000 Premium from issuance of - 85,169 84,840 - 575,986 1,167,420 1,059 191,693 421,355 700,157 Issuance of refunding - - - 3,785,000 11,043,000 4,589,000 - - 2,509,500 - Premium from issuance of refunding bonds………………… - - - - - - - - 262,818 - Payments to refunded bond escrow agent………………… - - - - (8,512,000) - - - (2,709,130) - Refunding bonds - - - (3,785,000) (2,930,000) (4,589,000) - - - - Capital lease 1,046,619 378,169 394,779 167,454 43,500 185,715 38,765 514,002 284,000 351,762 Transfers 5,320,517 3,558,845 4,508,229 5,228,530 6,160,597 5,137,447 5,184,894 5,343,327 6,718,284 3,699,383 Transfers (2,691,683) (1,121,150) (4,534,242) (4,526,296) (5,098,017) (3,886,388) (4,199,217) (4,755,183) (5,065,066) (3,689,647) Total other financing sources 3,675,453 11,220,530 4,383,606 869,688 5,872,066 3,234,194 4,926,439 12,536,499 9,101,761 7,041,655 Net change in fund 7,457,601 $ 882,259 $ 3,674,587 $ (2,504,689) $ 5,340,816 $ 5,472,433 $ 1,486,194 $ 4,263,410 $ 1,432,845 $ (2,830,591) Debt service as a percentage of noncapital expenditures……… 5.94% 5.39% 7.13% 5.34% 5.48% 6.60% 4.57% 13.09% 3.05% 2.87% The Commonwealth is legally obligated to fund the Salem teachers retirement. Therefore the revenue and expenditure has been recorded in accordance with GASB 24. In 2014 the City approved and established the Community Preservation Fund. The City received a $15.8 million grant from the Commonwealth to pay down $15.6 million in school debt issued in 2003. Changes in Fund Balances, Governmental Funds Last Ten Years City of Salem, Massachusetts 127 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 2006 $ 3,807,396,999 11.21 $ 393,448,700 $ 143,388,000 $ 241,940,480 $ 778,777,180 21.33 12.93 $ 4,586,174,179 2007 4,137,021,751 10.77 435,740,235 150,255,420 255,302,680 841,298,335 20.48 12.41 4,978,320,086 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 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. 15.0% 15.5% 16.0% 16.5% 17.0% 17.5% 18.0% 18.5% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Commercial Value as % of Total Value 83.71% 10.68% 2.42% 3.19% Total Assessed Value by Classification Year Ended June 30, 2015 Residential Commercial Industrial Personal Property 82.41% 10.64% 2.91% 4.04% Total Assessed Value by Classification Year Ended June 30, 2014 Residential Commercial Industrial Personal Property City of Salem, Massachusetts 128 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 Salem Station LLC Apartments $35,140,300 1 0.9% $40,550,000 2 0.9% Massachusetts Electric Personal Property $33,999,480 2 0.9% $21,489,250 7 0.5% New England Power Co. Personal & Industrial $31,688,840 3 0.8% $23,966,550 6 0.6% Princeton Crossing Apartments Apartments $27,826,400 4 0.7% $36,354,900 3 0.8% National Grid Personal & Industrial $27,508,820 5 0.7% - - Shetland Properties Industrial & Commercial $27,043,800 6 0.7% $26,346,200 5 0.6% Hawthorne Commons Apartments $24,897,000 7 0.6% 28,599,100 4 - Highlander Plaza Commercial Property $23,627,100 8 0.6% 20,628,500 8 0.9% Algonquin Gas Transmission Personal Property $20,117,800 9 0.5% 0.0% Second Pickwick Trust Commercial Property $14,749,900 10 0.4% $11,871,200 9 0.3% Dominion Personal & Industrial Property - - $210,964,700 1 4.9% Apartments - - $10,788,700 10 0.2% Totals $266,599,440 6.7% $431,559,100 9.8% Source: Board of Assessors 2015 2006 City of Salem, Massachusetts 129 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 2006 $ 59,292,238 $ 443,519 $ 58,848,719 $ 58,010,805 98.6% $ 835,900 $ 58,846,705 100.0% 2007 61,785,514 593,521 61,191,993 60,318,905 98.6% 870,423 61,189,328 100.0% 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% - 78,006,777 99.1% Revaluation Year Property Tax Levies and Collections Last Ten Years City of Salem, Massachusetts 130 Comprehensive Annual Financial Report ---PAGE BREAK--- Ratios of Outstanding Debt and General Bonded Debt Last Ten Years Bonded Debt General Percentage as a Percentage U. S. Census Personal Assessed Obligation Capital Per of Personal of Assessed Year Population Income Value Bonds Leases Capita Income Value 2006 40,407 $ 1,085,609,084 $ 4,586,174,179 $ 54,385,000 $ 1,172,651 $ 1,375 5.12% 1.19% 2007 40,407 1,107,321,266 4,978,320,086 50,040,000 779,906 1,258 4.59% 1.01% 2008 40,407 1,129,467,691 4,805,481,341 55,704,497 675,954 1,395 4.99% 1.16% 2009 41,421 1,180,967,527 4,511,658,886 51,145,000 530,771 1,248 4.38% 1.13% 2010 41,361 1,202,841,984 4,294,563,427 50,387,000 317,032 1,226 4.22% 1.17% 2011 41,361 1,226,898,824 4,115,970,775 44,581,526 384,965 1,087 3.67% 1.08% 2012 41,340 1,250,801,415 3,973,785,748 43,629,929 245,703 1,061 3.51% 1.10% 2013 41,654 1,285,525,748 3,927,232,741 35,291,962 619,317 862 2.79% 0.90% 2014 41,340 1,301,351,782 3,962,936,296 39,943,717 626,059 981 3.12% 1.01% 2015 42,544 1,282,020,896 4,208,675,856 43,473,824 - 1,022 3.39% 1.03% Bonded Debt General Total Bonded Percentage as a Percentage Obligation Capital Debt Per of Personal of Assessed Year Bonds Leases Outstanding Capita Income Value 2006 $ 1,345,000 $ - $ 55,730,000 $ 1,379 5.13% 1.22% 2007 3,570,656 - 53,610,656 1,327 4.84% 1.08% 2008 7,624,241 - 63,328,738 1,567 5.61% 1.32% 2009 7,250,908 - 58,395,908 1,410 4.94% 1.29% 2010 12,949,102 - 63,336,102 1,531 5.27% 1.47% 2011 15,665,280 - 60,246,806 1,457 4.91% 1.46% 2012 16,762,802 - 60,392,731 1,461 4.83% 1.52% 2013 16,670,824 - 51,962,786 1,247 4.04% 1.32% 2014 18,825,303 105,047 58,769,020 1,422 4.52% 1.48% 2015 19,935,000 0 63,408,824 1,490 4.95% 1.51% Source: Audited Financial Statements, U. S. Census Governmental Activities Debt Business-type Activities Total Primary Government City of Salem, Massachusetts 131 Comprehensive Annual Financial Report ---PAGE BREAK--- Direct and Overlapping Governmental Activities Debt As of June 30, 2015 Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable Debt Overlapping debt: North Shore Regional Vocational School District…………$ 31,090,000 28.45% $ 8,845,105 Direct debt: Capital Lease Obligations…………………………………… - General Governmental Debt 43,473,824 City total direct 43,473,824 Total direct and overlapping $ 52,318,929 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 132 Comprehensive Annual Financial Report ---PAGE BREAK--- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Equalized Valuation………………………… $ 4,923,330,400 $ 4,923,330,400 $ 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 Debt Limit of Equalized Valuation…… $ 246,166,520 $ 246,166,520 $ 258,403,010 $ 258,403,010 $ 228,418,735 $ 228,418,735 $ 212,840,445 $ 212,840,445 $ 209,578,300 $ 209,578,300 Less: Outstanding debt applicable to limit………… 6,064,000 5,435,000 12,004,000 12,004,000 10,884,900 16,669,700 14,905,000 19,976,500 23,966,500 30,306,500 Authorized and unissued debt……………… 48,682,895 54,169,239 28,769,240 28,769,240 11,128,240 13,725,802 72,303,161 46,646,035 36,905,041 28,415,041 Legal debt $ 191,419,625 $ 186,562,281 $ 217,629,770 $ 217,629,770 $ 206,405,595 $ 198,023,233 $ 125,632,284 $ 146,217,910 $ 148,706,759 $ 150,856,759 Total debt applicable to the limit as a percentage of debt limit……………… 22.24% 24.21% 15.78% 15.78% 9.64% 13.31% 40.97% 31.30% 29.04% 28.02% Source: Audited Financial Statements; Statement of Indebtedness; and the Massachusetts Department of Revenue, Bureau of Local Assessment. Computation of Legal Debt Margin Last Ten Years City of Salem, Massachusetts 133 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 2006 40,407 $ 1,085,609,084 $ 26,867 36.4 4,714 4.1% 2007 40,407 1,107,321,266 27,404 36.4 4,573 4.5% 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% 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 134 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 3,100 1 13.5% 5,910 1 25.3% City of Salem Municipal Government 1,780 2 7.7% - - Salem State University Higher Education 1,443 3 6.3% 1,400 2 6.0% Spaulding Rehab Hospital Health Care 576 4 2.5% - - Market Basket Food Market 475 5 2.1% 310 4 1.3% Commonwealth of Massachusetts State Government 420 6 1.8% 545 3 2.3% Salem Five Savings Banking 320 7 1.4% 200 6 0.9% Peabody Essex Museum Cultural Tourism 255 8 1.1% 265 5 1.1% Grosvenor Park Nursing Center Health Care 241 9 1.0% - 0.0% Home Depot Retail 185 10 0.8% 200 7 0.9% Excelitas Manufacturer - - - - Walmart Retail - - 180 8 0.8% Hawthorne Hotel Lodging - - 175 9 0.7% Salem Harbor Station Utility - - 170 10 0.7% 8,795 38.3% 40.1% Source: The City Planning Department 2015 2006 9,355 Employer City of Salem, Massachusetts 135 Comprehensive Annual Financial Report ---PAGE BREAK--- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Function General government…………… 40 34 36 35 35 35 35 35 37 38 Public safety……………………… 181 190 185 187 191 190 194 203 210 211 Education………………………… 752 752 753 752 752 752 776 890 841 841 Public 35 38 40 37 38 39 40 39 41 41 Engineering……………………… - 1 3 1 1 1 1 1 1 1 Health and human services…… 21 20 17 14 17 15 14 15 14 13 Culture and recreation………… 34 23 21 22 22 23 23 23 24 24 Total 1,063 1,058 1,054 1,048 1,056 1,054 1,083 1,206 1,167 1,169 Source: Various City Departments Last Ten Years Full-time Equivalent City Employees by Function City of Salem, Massachusetts City of Salem, Massachusetts 136 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 General government Marriage recordings………………………………… 375 322 306 276 243 381 321 324 365 338 Birth recordings……………………………………… 2,044 2,043 1,712 1,614 1,774 1,599 1,433 1,452 1,566 1,659 Death recordings…………………………………… 737 755 520 535 557 492 436 484 560 605 Police Physical 2,792 2,793 2,502 2,502 2,072 2,629 1,627 1,307 1,597 2,509 Motor vehicle violations…………………………… 6,477 8,672 6,604 191 6,631 10,309 8,497 6,161 7,936 8,660 Police personnel and officers……………………… 81 84 85 85 87 89 93 99 100 103 Fire Inspections………………………………………… 1,187 1,562 886 886 935 1,077 973 1,307 1,192 1,545 Emergency responses……………………………… 6,235 6,719 6,330 17 6,409 6,079 5,952 6,161 6,292 6,752 Fire personnel and officers………………………… 75 76 81 81 79 83 90 86 88 88 Education Number of 4,744 4,573 4,404 4,474 4,647 4,585 4,541 4,501 4,478 4,222 Number of graduates……………………………… 255 269 254 273 283 246 240 275 275 271 Number of 477 484 479 479 488 507 517 540 542 571 Water Service connections………………………………… 11,000 11,811 11,701 11,737 11,719 11,719 11,719 11,729 11,827 9,833 Consumption in 2,000 2,056 2,123 1,994 2,103 2,025 1,921 1,934 1,898 1,898 Daily consumption 6.84 6.74 5.80 5.44 6.00 6.00 5.26 5.30 5.00 4.00 Sewer Service connections………………………………… 11,000 11,811 11,701 11,727 11,709 11,706 11,719 11,719 11,807 9,813 Health and human services Number of persons using COA transportation…… 37,497 39,052 18,678 15,526 16,076 16,908 19,630 16,170 12,698 14,704 Libraries Volumes in circulation……………………………… 141,595 143,052 148,752 145,634 143,512 148,634 158,011 162,486 168,263 172,628 Total volumes borrowed…………………………… 508,728 500,907 514,708 538,184 508,507 508,293 493,315 471,416 430,391 397,810 Source: Various City Departments; Massachusetts Department of Education Last Ten Years Operating Indicators by Function/Program City of Salem, Massachusetts 137 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 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 7 7 38 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 1 1 17 1 1 1 1 1 1 Public Works Water mains 108 108 108 102 102 102 102 102 102 102 Health and human services Number of personnel……………………… 17 17 17 17 17 15 14.7 14.7 13.8 13.8 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 138 Comprehensive Annual Financial Report ---PAGE BREAK--- Free Stabilization Year Cash Fund $ 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 $ 691,149 $ 487,980 $ 538,372 $ 277,759 Source: City Records Free Cash and Stabilization Fund Balances Last Ten Years City of Salem, Massachusetts 139 Comprehensive Annual Financial Report