Document Salem_doc_6dba6f5eaa

CITY OF SALEM MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2011 Kimberley L. Driscoll, Mayor Richard Viscay, Jr., Finance Director Prepared by the City of Salem Finance Department ---PAGE BREAK--- On the Cover – Pickering Wharf & Salem Harbor Pickering Wharf is a quaint harbor side village featuring a variety of shops, boutiques and restaurants. This exciting marketplace is also home to the Salem Waterfront Hotel & Pickering Wharf Marina. For more information go to - www.pickeringwharf.com. Pickering Wharf Light House ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2011 Prepared by Finance Department ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2011 TABLE OF CONTENTS Introductory Letter of Transmittal Organizational Principal Executive Officers Certificate of Achievement for Excellence in Financial Reporting Distinguished Budget Presentation Award Financial Section Independent Auditors’ Report Management’s Discussion and Analysis Basic Financial Statement of net Statement of activities Governmental funds – balance sheet Reconciliation of the governmental funds balance sheet total fund balances to the statement of net assets.......33 Governmental funds – statement of revenues, expenditures and changes in fund balances Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of Proprietary funds – statement of net Proprietary funds – statement of revenues, expenses and changes in fund net assets Proprietary funds – statement of cash flows Fiduciary funds – statement of fiduciary net assets Fiduciary funds – statement of changes in fiduciary net Notes to basic financial Required Supplementary Information General fund budgetary comparison schedule General fund schedule of revenues, expenditures and changes in fund balance – budget and Retirement system schedules Retirement system schedule of funding progress Retirement system schedule of employer ---PAGE BREAK--- Other postemployment benefit plan Other postemployment benefit plan schedule of funding progress and employer Other postemployment benefit plan actuarial methods and Notes to required supplementary information Combining Nonmajor governmental funds Nonmajor governmental funds – combining balance sheet Nonmajor governmental funds – combining statement of revenues, expenditures, and changes in fund balances Private purpose trust funds Private purpose trust funds – combining statement of net Private purpose trust funds – combining statement of changes in net assets Agency Fund Agency fund – statement of changes in assets and liabilities Statistical Net assets by component – last ten fiscal Changes in net assets – last ten fiscal Fund balances, governmental funds – last ten fiscal Changes in fund balances, governmental funds – last ten fiscal Assessed value and actual value of taxable property by classification and tax rates – last ten fiscal years Principal taxpayers – current year and nine years ago Property tax levies and collections – last ten fiscal Ratios of outstanding debt and general bonded debt – last ten fiscal Direct and overlapping governmental activities debt – as of June 30, 2011 Computation of legal debt margin – last ten fiscal years Demographic and economic statistics – last ten fiscal years Principal employers (excluding City) – current year and nine years Full-time equivalent City employees by function – last ten fiscal Operating indicators by function/program – last ten fiscal Capital asset statistics by function/program – last ten fiscal Free cash and stabilization fund balances – last ten fiscal ---PAGE BREAK--- Introductory Section Salem Willows Park The Salem Willows offers beautiful shaded seaside grounds, scenic ocean views, public pier, 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. Read Picnic and Science Fair-Salem Willows June 25, 2011 ---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 Kimberley L. Driscoll, Mayor Richard Viscay, Finance Director October 7, 2011 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) and 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, 2011 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, 2011, 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, 2011, 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, 2011 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 40,707 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, requires 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 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. The City’s equity interest in the South Essex Sewerage District is included in the basic financial statements. The City does not have an equity interest in the Salem and Beverly Water Supply Board. The Salem Housing Authority is responsible for managing 1,462 units of low income housing for the City. Buildings are either owned by the Authority, or are part of the rental subsidy program or the voucher program. Of the 1,462 units, 715 are included in twelve elderly developments, nine family developments, and one handicapped accessible family development. 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 principal highways serving the City are state Routes 1A, 107, and 114, all of which provide immediate access ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 5 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 2011 totaled approximately $128 million, which includes Real & Personal Property tax revenue, State Revenues, MSBA Revenue, local revenues, transfers in of $934,070 from Receipts Reserved Harbormaster, Witch House and Golf Course (to reduce tax rate), $505,796 from free cash supplemental appropriations, other receipts reserved transfers, and $1,452,222 of indirect costs from the Water & Sewer Enterprise funds. These revenues cover general fund budgeted expenditures 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 Public Employee Retirement Administration Commission’s (PERAC) 2010 annual report, the market value of the System’s assets totaled $94.1 million with 91% 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 College, the North Shore Medical Center, the Essex County District Superior and Probate Courts and Registry of Deeds, the world-famous Peabody Essex Museum, and a host of banks and other financial institutions. It is the educational, medical, legal, cultural and banking hub of the North Shore. Salem also boasts an impressive collection of historically significant residential structures that are always in high demand. The uniqueness of these historic homes, coupled with a growing downtown condominium market, has helped boost home sales prices in Salem. The City also enjoys a mix of commercial businesses and markets. Commercial development has been prominent in the Highland Avenue and Vinnin Square areas, including a proposed development that would ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 6 replace the existing Walmart with a new development that would include a new Lowe’s store, an expanded Walmart and Meineke store, a new City water tower and roadway improvements. Additionally, downtown Salem continues to thrive as a vibrant center of commerce and activity. The construction is just about complete (November 2011) on the new $106 million J. Michael Ruane Judicial Center. Also, the MBTA will be building a new commuter rail garage and other infrastructure improvements at the Washington/Bridge Street location. The expected completion of this project is September 2014. These projects, as well as the completion of the Old Salem Jail Complex, the Salem News building, and the continued expansion of the Salem waterfront will ensure long term vibrancy to Downtown Salem. The Salem waterfront is also experiencing a great deal of investment from the addition of the Waterfront Hotel at Pickering Wharf to the South River Harborwalk waterfront development, which will include seawall and bulkhead improvements from Derby Street to Congress Street. The City received a $3 million grant from the Governor’s Seaport Council for this project, as well as the acquisition of land at the Blaney Street Wharf. The City welcomed its first cruise ship to the Blaney Street Wharf in 2008 when Blount Small Ship Adventures, operating out of Warren, Rhode Island, stopped in Salem to fill a cancellation and absolutely loved it. Salem is emerging as a destination for small cruise ships making stops in historic ports that dot the New England seacoast. Once the Blaney Street wharf expansion is completed, the City expects to attract the large cruise liners, which is projected to have a significant impact on the local economy. 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. It is estimated that the City welcomes nearly one million visitors annually, generating more than $99 million in tourism spending in 2010. This infusion of dollars and visitors not only helps keep the current businesses thriving, but also encourages new businesses to come to Salem. In 2010, twenty-five new businesses opened in downtown Salem, including a farmer’s market, many new restaurants, and a Segway tour company. These new businesses have generated approximately 150 new jobs in 2010. With the passage of House Bill 4560, Senate Bill 4864 and the approval of Massachusetts Governor Deval Patrick, Salem State College obtained University status. Salem State University is the largest institution of higher education on the North Shore of Massachusetts. Recent expansion at the University includes the construction of the college’s newest campus on the former GTE Sylvania site. Central Campus, as it is currently known, houses the Bertolon School of Business, a recital hall, a ‘green’ and sustainable residence hall, and a small business incubator for the region. Expansion of the college continues currently, including the recent completion of a new 525 bed residence hall and dining facility, as well as the ongoing construction of a new Library and Learning Commons, scheduled to be completed in late 2012. The new library will be a four-level, 124,000-square-foot complex on Salem State's North Campus. The City also boasts Shetland Park, a sprawling business park which houses more than 70 concerns and an industrial park on Technology Way which houses large or expanding companies. The North Shore Medical Center has recently invested $12 million for their new 10,700 square foot cardiac surgical suite and also built a new 19,000 square foot Emergency Department, which is one of the most sophisticated and modern emergency facilities in the state. According to the Massachusetts Workforce Development Agency, the City had a labor force of 23,902, of whom 22,145 were employed and 1,757, or 9.2% were unemployed. The Commonwealth, for the same period, had an unemployment rate of 7.8%. 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 ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 7 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, 2010, and 2011. Salem is one of only nine municipalities in the Commonwealth to receive the Award in fiscal year 2011. Included in the budget was the City’s Five Year Financial Forecast. This is the fifth 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 2011 CIP, the City will use $680,000 of one time revenues for capital improvements, including various infrastructure repairs on Derby, Lafayette, and Boston Streets. Also, repairs to Engine Five (pumper truck) and Ladder One will ensure that our fire equipment is in top working order for efficient emergency responses. Other highlights of the fiscal year 2011 CIP include the investment of over $800,000 in neighborhood roadway improvements, $140,000 for a master study of Winter Island, and $250,000 in technological advancements for the Fire Department’s radio infrastructure, of which 90% was funded by grant dollars. Fixed Costs ~ Health Insurance and Pension Assessment Health Insurance The City continues to struggle with the rising cost of health care for City employees/retirees, as well as increases in pension costs. Since the state law, known as proposition 2 ½, caps the City’s ability to raise taxes to meet rising costs, the City is actively exploring the use of alternative, local revenue sources to help offset the aforementioned rising expenditures. In fiscal year 2006, the City Council accepted the provisions of Massachusetts General Law chapter 32B, section 18, a Massachusetts statute requiring all Medicare- eligible retirees who are currently on self-insured plans to move from self-insured coverage to a fully insured Medicare supplement plan. This provision saved the City approximately $700,000 in fiscal 2007 and continues to realize savings for the City. This is a major cost saving initiative that will insure that all retirees over the age of 65 are treated consistently, while also providing greater control of costs associated with the City’s Healthcare Insurance. The City has used many different approaches to keep the cost of health insurance affordable as it relates to the overall budget of the City. The most significant of which are the contribution rates between employee and employer, as well as plan design of the current Blue Cross Blue Shield products. Contribution rates need to be collectively bargained with each of the City’s eight unions. Over the past several years, the contribution rates have changed from 80/20 split (employer/employee), to 75/25 split (employer/employee) on its HMO products. PPO has been and continues to be a 65/35 split (employer/employee). However, as part of the FY2012 budget process, the Mayor proposed a two year phase-in modification for contribution rates. As a result, all non-union and management employees will contribute 26% of their health insurance costs in FY2012 and 27% of the costs in FY2013. These contribution rates will serve as benchmarks for our collective bargaining units during our upcoming contract negotiations. Plan design modification of the City’s Blue Cross Blue Shield products also helped stabilize the rates. In 2010, the City introduced HMO Network Blue Options (Options). Within the Options network, hospitals and groups of primary care providers are ranked into three benefit tiers based on cost and nationally accepted quality ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 8 performance criteria selected by Blue Cross Blue Shield of Massachusetts. This plan replaced both the HMO Blue $5 co-payment plan, as well as the HMO Blue Value Plus $15 co-payment plan. The migration of all employees to this plan was completed for all groups during FY2011. The switch to the Options plan saved the City nearly $800,000 in FY2011, and is expected to save the City over $1 million during FY2012, when compared to the previous plan designs. 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 Salem Contributory Retirement Board completed its most recent actuarial valuation summary for January 1, 2010. The study was performed by the Segal Company and was delivered to the Retirement Board in October of 2010. The study reported the actuarial assets of the system as of January 1, 2010 of $100 million and an unfunded liability of $93.4 million. The unfunded liability increased from January 1, 2008 by $14 million, mostly due to the net investment losses of calendar year 2008, in which market value rate of return was -28.8%. However, the market rate of return in calendar year 2009 was 14.9%, which helped offset some of the 2008 losses. As a result of the increased unfunded liability, 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, 2030 with amortization payments that increase 4.5% per year. The total fiscal 2012 appropriation for the system is $10,470,232, with the City’s share of 85.3% amounting to $8,935,504. Other Significant Financial Matters The City’s tax agreement with its largest taxpayer, has expired as of July 1, 2011. Prior to this date, the agreement between the City and Dominion was $4.75 million for FY2011, where the City received $3 million in tax dollars within the tax levy and $1.75 million dollars as a “host fee” that is accounted for as miscellaneous non- recurring revenues. Dominion is the largest tax payer in the City, and without an agreement in place for fiscal year 2012, the City could have to bill Dominion “ad valorem”, which could present a potential liability issue if there is a disagreement on the fair cash value of the plant. This is significant since Dominion has filed paperwork to decommission all four of its power generating units. In December of 2010, Dominion also recorded an impairment charge of $31 million on their consolidated financial statements to write off the value of the Salem plant due to profitability issues. Dominion does not plan to invest in any pollution controls for the Salem plant and plans to close the plant completely. However, during the FY2012 budget process, the Massachusetts Legislature adopted a proposal to ensure that the Salem taxpayers won’t be burdened by the lost revenues. The “hold harmless” agreement is currently in effect for five years, until 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 other change in operating status of the facility…” The new legislation postpones the financial impact to the City of the loss of a major taxpayer which provides the City the opportunity to work toward replacing the lost revenues. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 9 Financial Policy The City has set a target level for the Stabilization fund of 5% of the City’s current operating budget, or $6.4 million. As of June 30, 2011, the balance in the City’s Stabilization fund is $2.7 million. The target funding date is projected to occur by fiscal year 2015. The Stabilization fund shall be funded by appropriations from free cash (available funds), operating budget appropriations when available, and other one time non-recurring revenues that become available for appropriation per Massachusetts General Law. In fiscal 2008, the City established a second Stabilization fund for the funding of retirement buyouts for both City and School employees. As of June 30, 2011, the balance of this account was $256,089. During the fiscal 2012 budget process, all department heads were asked to estimate those employees who may retire and to calculate the estimated cost of each person’s buyout for fiscal 2012. As part of the fiscal 2012 budget process, the City Council appropriated an additional $400,000 to the fund. It is the hope of the Finance Department that this fund will grow so that if there are any unanticipated retirements, the City will be able to fund these unanticipated costs within the stabilization fund instead of using the general fund appropriations to fund unanticipated retirement payouts of active employees within the department that has the unanticipated retirement. 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 postemployment benefits. The City has designated $50,000 dollars to this fund as of June 30, 2011. 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 was certified for fiscal year 2010 in the amount of $750,607. 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 • 10% of any free cash available after funding any drawdown will be allocated to the OPEB Liability Trust Fund (beginning in FY2012). ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 10 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 the Workers' Compensation Fund, Unemployment Fund, and any health benefits payable through Police and Fire operating budgets (111f settlements). Free cash available may also be used to augment general fund appropriations for expenses that increased due to extraordinary and/or unforeseen events as detailed by the department head of the affected budget. Awards and Acknowledgements The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement of Excellence in Financial Reporting to the City of Salem for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2010. This was the sixth year that the City submitted a CAFR to the GFOA. 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 it’s 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, 2010. 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 City has also submitted its budget document for fiscal year beginning July 1, 2011 for consideration of the award for the fourth year and has received that award. It should be noted that the Distinguished Budget Award was awarded to only nine of the 351 communities in the Commonwealth for the fiscal period beginning 2009 and that only four entities in the entire Commonwealth received both the Certificate of Achievement of Excellence in Financial Reporting and the Distinguished Budget Presentation Award for 2009. 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, Richard Viscay Finance Director ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 11 Organizational Chart ---PAGE BREAK--- City of Salem, Massachusetts 12 Comprehensive Annual Financial Report TITLE NAME FIRST TOOK OFFICE TERM EXPIRES Mayor Kimberley L. Driscoll 1/2/2006 12/31/2013 President, City Council Robert K. McCarthy 1/1/2011 12/31/2011 Finance Director Richard Viscay 3/6/2006 1/31/2012 Treasurer Kathleen McMahon 12/27/2010 1/31/2012 Collector Bonnie Celi 3/11/2004 1/31/2013 City Clerk Cheryl LaPointe 7/15/2004 11/9/2012 City Solicitor Elizabeth Rennard 1/10/2006 Indefinite Assistant Finance Director Nina Bridgman 1/22/2004 1/31/2012 Principal Executive Officers Principal Executive Officers ---PAGE BREAK--- City of Salem, Massachusetts 13 Comprehensive Annual Financial Report Certificate of Achievement for Excellence in Financial Reporting ---PAGE BREAK--- City of Salem, Massachusetts 14 Comprehensive Annual Financial Report Distinguished Budget Presentation Award 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, 2010. 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. This award is valid for a period of one year only. We believe our current budget continues to conform to program requirements, and we are submitting it to the GFOA to determine its eligibility for another award. ---PAGE BREAK--- Financial Section Salem Police Station July 4, 2001 October Halloween Parade Salem Fire Department Ladder 1 Helicopter Rescue Operation ---PAGE BREAK--- City of Salem, Massachusetts 15 Comprehensive Annual Financial Report Financial Section ---PAGE BREAK--- City of Salem, Massachusetts 16 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- 17 Independent Auditors’ Report To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts 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 fiscal year ended June 30, 2011 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2010), which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Salem, Massachusetts' management. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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, 2011 (except for the Salem Contributory Retirement System which is as of December 31, 2010), and the respective changes in financial position and cash flows, where applicable, thereof for the fiscal year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated October 7, 2011 on our consideration of the City of Salem, Massachusetts’ internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, 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 compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. ---PAGE BREAK--- 18 Management’s discussion and analysis, located on the following pages, and general fund schedule of revenues, expenditures and changes in fund balance – budgetary basis, retirement system schedule of funding progress, retirement system schedule of employer contributions, other postemployment benefit plan schedule of funding progress and employer contributions, and other postemployment benefit plan actuarial methods and assumptions located after the notes to the basic financial statements, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management, regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The combining fund statements, as listed in the table of contents, are presented for the purpose of supplementary analysis and are not a required part of the basic financial statements of the City of Salem, Massachusetts. Such supplementary information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole. The introductory and statistical sections, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. October 7, 2011 ---PAGE BREAK--- City of Salem, Massachusetts 19 Comprehensive Annual Financial Report Management’s Discussion and Analysis Management’s Discussion and Analysis ---PAGE BREAK--- City of Salem, Massachusetts 20 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 fiscal year ended June 30, 2011. 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. These basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of finances, in a manner similar to private-sector business. The statement of net assets presents information on all assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets 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 assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods uncollected taxes and earned but unused 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, culture and recreation and interest. The business-type activities include the activities of water, sewer, parking services, trash disposal as well as the municipal golf course. 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 21 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 fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. 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, parking services, 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. Prior to fiscal year 2010, the City used an internal service fund to account for risk financing activities related to retirees’ health insurance. In fiscal year 2009, the City changed to a premium based insurance plan for Medex coverage. The internal service fund is now used to account for run-out claims for liabilities incurred prior to July 1, 2008. 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. 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 assets may serve over time as a useful indicator of a government’s financial position. The City of Salem’s governmental assets exceeded liabilities by $137 million at the close of fiscal year 2011. This represents an increase of $1.2 million from the prior fiscal year. Net assets of $145 million reflects the City’s 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 ---PAGE BREAK--- City of Salem, Massachusetts 22 Comprehensive Annual Financial Report 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. Invested in capital assets, net of related debt, decreased by approximately $2.4 million during fiscal year 2011. This was the net result of the issuance of new debt for the construction of capital assets, the pay down of debt related to capital assets, the purchase and construction of capital assets, and depreciation recorded against capital assets. An additional portion of the governmental net assets, $10.5 million, represents resources that are subject to external restrictions on how they may be used. This balance was up by approximately $3 million due to the timing of grant and gift receipts. The balance of unrestricted net assets has a year end deficit of $18 million. The primary reason for this deficit balance is the recognition of other postemployment benefit liabilities of $21.9 million, due to the fiscal year 2008 implementation of Governmental Auditing Standards Board (GASB) Statement 45. The statement requires the City 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 totaled $171 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 a liability in the full accrual financial statements. This difference totaled $5.4 million for governmental activities for fiscal year 2011. During fiscal year 2011, the City began the process of pre-funding a portion of the liability by establishing an irrevocable trust which had a year end balance of $50,000 and is reported within the Fiduciary Funds in the City’s financial statements. The City also had an increase in its estimated landfill liability as two sites were added to the areas requiring environmental remediation, which increased the estimated liability by $1.9 million. Offsetting these increased liabilities, the City’s General Fund reported expenditures less than appropriations by approximately $1.7 million and higher than budgeted collection of revenues of approximately $1.3 million. The components of the City’s governmental activities are presented below. Fiscal 2011 Fiscal 2010 Assets: Current 38,183,620 $ 28,277,655 Noncurrent assets (excluding capital)…………………… 20,008,795 23,027,488 Capital 167,439,062 168,198,736 Total 225,631,477 219,503,879 Liabilities: Current liabilities (excluding 8,925,422 8,526,655 Noncurrent liabilities (excluding 30,668,729 24,291,434 Current 8,716,062 7,550,000 Noncurrent 39,864,526 42,837,000 Total liabilities………………………………………… 88,174,739 83,205,089 Net Assets: Invested in capital assets, net of related debt………… 144,887,020 147,313,749 10,562,103 6,892,267 (17,992,385) (17,907,226) Total net $ 137,456,738 $ 136,298,790 Governmental Activities ---PAGE BREAK--- City of Salem, Massachusetts 23 Comprehensive Annual Financial Report Fiscal 2011 Fiscal 2010 Program revenues: Charges for $ 5,137,753 $ 5,268,614 Operating grants and contributions……………………… 51,358,511 46,352,034 Capital grants and contributions………………………… 5,197,515 4,135,374 General Revenues: Real estate and personal property taxes………………… 71,828,412 69,067,349 Motor vehicle and other excise 3,181,247 3,092,527 Nonrestricted 6,404,395 6,583,118 Unrestricted investment 1,095,518 435,769 Other 3,582,351 2,523,687 Total 147,785,702 137,458,472 Expenses: General government……………………………………… 11,702,186 10,865,152 Public 27,989,181 26,755,783 86,938,434 83,743,843 Public 8,894,659 6,820,639 Community development………………………………… 1,845,141 3,226,360 Health and human services……………………………… 5,930,089 6,622,114 Culture and recreation…………………………………… 2,997,090 3,169,224 1,582,033 1,888,315 Total 147,878,813 143,091,430 Excess (Deficiency) before transfers……………………… (93,111) (5,632,958) 1,251,059 1,062,580 Change in net $ 1,157,948 $ (4,570,378) Governmental Activities The governmental expenses totaled $148 million of which $62 million (42%) was directly supported by program revenues consisting of charges for services, operating and capital grants and contributions. Education expenses increased by $3.2 million due to budgetary increases and increased grant activity. Increases in the City’s health insurance and pensions added $1.6 million to total costs. Community development expenses were down due to the use of community development grants to construct capital assets related to the Salem Wharf improvement project. Decreases in health and human services were due to the decline of funding for the ARRA workforce investment program. Public works expenses showed the largest increase at approximately 30%. This is a result of increased activity in environmental remediation for the cleanup of two additional sites within the City. General revenues totaled $86.1 million, primarily coming from property taxes, motor vehicle and other excise, and non- restricted state aid. Increases in operating grants and contributions represent increases in school grants received by the City. Capital grants and contributions increased from the prior year as the City received a new $3.7 million grant for the Salem Wharf improvement project and MSBA reimbursements decreased due to school project timing and the City’s effort to obtain lower debt interest rates by refunding bonds related to school construction. ---PAGE BREAK--- City of Salem, Massachusetts 24 Comprehensive Annual Financial Report Business-type Activities For the City’s business-type activities, assets exceeded liabilities by $12.6 million at the close of fiscal year 2011. Fiscal 2011 Fiscal 2010 Assets: Current 10,333,632 $ 10,362,773 Capital 19,742,463 17,759,560 Total 30,076,095 28,122,333 Liabilities: Current liabilities (excluding 589,893 2,095,265 Noncurrent liabilities (excluding 996,504 911,240 Current 1,234,880 371,822 Noncurrent 14,640,400 12,577,280 Total liabilities………………………………………… 17,461,677 15,955,607 Net Assets: Invested in capital assets, net of related debt………… 8,248,186 8,245,799 4,366,232 3,920,937 Total net $ 12,614,418 $ 12,166,736 Business-type Activities Business-type net assets of $8 million (63%) represent investments in capital assets net of related debt. The remaining $4.6 million (37%) is available to be used for the ongoing operation of the City’s water, sewer, parking, trash and municipal golf course activities. There was an overall increase of $448,000 in net assets reported in connection with the enterprise funds. The water enterprise fund’s net assets of $3.4 million (74%) represent the investment in capital assets net of related debt, while $1.2 million (26%) is unrestricted. The water department experienced a net decrease of $298,000 in net assets from the prior year. The decrease is mostly due to increases in interest expense, depreciation and their district assessment. The water fund pays an annual assessment to the Salem Beverly Water Supply Board, which totaled $2.3 million, or 61% of the funds expenses for fiscal year 2011. The sewer enterprise fund’s net assets of $320,000 represent the investment in capital assets net of related debt, and $3.4 million (91%) is unrestricted. The unrestricted balance includes the City’s $687,000 equity interest in the South Essex Sewerage District which increased by approximately $316,000 during fiscal year 2011. The sewer department operations experienced an overall net increase of $943,000 during the current fiscal year. The increase relates to an increase in charges for services and decreases in the South Essex Sewerage District assessment. Approximately 86% of the expenses in the sewer fund consist of the annual assessments paid to the South Essex Sewerage District. The golf course enterprise fund’s net assets of $365,000 (65%) represent the investment in capital assets, net of related debt, while $196,000 (35%) is unrestricted. Overall, revenues and expenses both decreased by approximately 7% at the golf course during fiscal year 2011 as a result, net assets remained substantially unchanged. ---PAGE BREAK--- City of Salem, Massachusetts 25 Comprehensive Annual Financial Report The parking enterprise fund’s net assets of $3.9 million represent the investment in capital assets net of related debt while a deficit balance of $321,000 is reported as unrestricted. The parking operations experienced a net decrease of $243,000 during fiscal year 2011 which is consistent with prior years, and is mostly attributable to recording depreciation on previously purchased capital assets totaling approximately $236,000. The City reports this fee-for-service activity as an enterprise fund however any cash based surplus generated is transferred back to the general fund to support City programs. In fiscal year 2011, $1.6 million was transferred back to the general fund. Consequently, the amounts remaining in the enterprise fund at year end represent non-current assets and liabilities and the assets and liabilities related to the enterprise funds capital construction projects. 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 fiscal year-end a $2 million transfer was made from the general fund to subsidize for the budgeted deficit. As of June 30, 2011 the trash fund had unrestricted net assets totaling $126,000. Fiscal 2011 Fiscal 2010 Program revenues: Charges for $ 16,384,403 $ 15,490,202 Capital grants and contributions………………………… 39,804 41,820 Total 16,424,207 15,532,022 Expenses: Cost of service and administration……………………… 5,668,504 6,372,368 District assessment……………………………………… 7,985,222 8,323,119 650,974 572,250 420,756 345,360 Total 14,725,456 15,613,097 Excess (Deficiency) before transfers……………………… 1,698,751 (81,075) (1,251,059) (1,062,580) Change in net 447,692 $ (1,143,655) Business-type Activities 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 fiscal year. Fiscal year 2011 was the City’s initial year of implementation of GASB #54, Fund Balance Reporting and Governmental Fund Type Definitions. The implementation of this standard has changed the fund balance ---PAGE BREAK--- City of Salem, Massachusetts 26 Comprehensive Annual Financial Report components into nonspendable, restricted, committed, assigned and unassigned. Additionally, under the new standard, the City’s stabilization funds are reported within the general fund as unassigned. As of the end of the current fiscal year, governmental funds reported combined ending fund balances of $21.4 million of which $9 million is reported in the general fund, a deficit of $654,000 is reported in the school capital projects major fund, and $13.0 million is reported in the nonmajor governmental funds. Cumulatively there was an increase of $5.5 million in fund balances from the prior year. The general fund is the City’s chief operating fund. At the end of the current fiscal year, unassigned fund balance of the general fund totaled $8.4 million, while total fund balance was $9 million. The general fund balance increased by $5.4 million in fiscal year 2011. The increase resulted from a combination of the receipt of a large unbudgeted bond premium; positive budgetary results; and the impact of reporting the City’s stabilization funds as required under GASB Statement #54. The school capital projects fund is used to account for the City’s ongoing major school construction projects. The fund decreased by $3.6 million in fiscal year 2011 as the City paid down long term notes related to the school construction projects with grant proceeds received from the Commonwealth in prior years and the City began incurring costs for engineering studies on improvements to be made on the Saltonstall and Collins schools. The major fund ended the fiscal year with a deficit balance of $654,000, expenditures incurred to date have been financed with bond anticipation notes. Cumulatively, nonmajor governmental funds had a net increase of $3.6 million. This represents the activity of other nonmajor capital projects, grants, and permanent trust funds. The fiscal year 2011 increase was almost entirely the result of the timing of expenditures on capital projects, such as the wharf improvement project and the issuance of long-term debt and contributions from Dominion for $1 million towards education science, technology, engineering and mathematics. General Fund Budgetary Highlights The $771,000 increase between the original budget and the final amended budget was due to several council orders issued throughout the fiscal year to utilize available funds to address budget issues. The most notable components of this increase include an additional $700,000 in available funds (free cash) appropriated to fund stabilization reserves, veteran’s benefits, capital improvements, and various additional appropriations. The actual general fund revenues came in $1.3 million more than budgeted. The City does not budget revenue for tax liens which totaled $242,000. Additionally, fines and forfeitures reported a budgetary surplus of $258,000 which was the result of an increase in estimated receipts during the budget process. Motor vehicle and other excise taxes reported a surplus of $411,000 mainly due to conservative budgetary estimates. Due to recent budget cuts, most departments ended the year with a minimal amount of unspent funds. State and county assessments were lower than anticipated by $547,000, which mainly related to the charter school tuition. The City’s snow and ice removal account ended the year in a deficit of $592,000, which is allowable under state law. This deficit is required to be funded in the subsequent year’s tax levy. The City’s debt service interest line was under budget by $52,000 due to changes in interest payments for fiscal year 2011 resulting from the refunding of debt. ---PAGE BREAK--- City of Salem, Massachusetts 27 Comprehensive Annual Financial Report 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, 2011, amounts to $187 million (net of accumulated depreciation). This investment in capital assets includes land, buildings, system improvements, machinery and equipment, and infrastructure related to governmental and business-type activities. The City’s total investment in capital assets for the current year was $6.2 million for governmental activities and $2.6 million for business-type activities. The City also transferred $228,000, mostly relating to school building projects, from construction in progress to depreciable assets as projects were completed in governmental activities. Debt Administration. Outstanding long-term debt of the general government, as of June 30, 2011, totaled $43.5 million, of which $36.8 million is related to school projects, leaving a balance of $6.5 million for capital improvements and $181,000 for other CIP related projects. The Commonwealth of Massachusetts is obligated to provide school construction assistance for approved school projects through a grant program administered by the Massachusetts School Building Authority (MSBA). The assistance is paid to support construction costs and reduce the total debt service of the City. At June 30, 2011 the City has recorded a receivable from the MSBA of $22.6 million, which is equal to 90% of approved construction and interest costs incurred by the City to date, less amounts that have been reimbursed to the City by the MSBA. Outstanding debt of the water, sewer, golf and parking enterprise funds totaled $13.2 million, $1.7 million, $172,000 and $650,000, respectively, and funded various repairs, maintenance and infrastructure projects. 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 28 Comprehensive Annual Financial Report Basic Financial Statements Basic Financial Statements ---PAGE BREAK--- STATEMENT OF NET ASSETS JUNE 30, 2011 Primary Government Governmental Business-type Activities Activities Total ASSETS CURRENT: Cash and cash equivalents……………………………… $ 23,150,113 $ 6,218,701 $ 29,368,814 5,127,064 - 5,127,064 Receivables, net of allowance for uncollectibles: Real estate and personal property taxes…………… 1,173,407 - 1,173,407 Tax 1,351,357 - 1,351,357 Motor vehicle and other excise taxes………………… 538,988 - 538,988 User - 3,324,139 3,324,139 Trash - 104,020 104,020 Departmental and 84,730 - 84,730 Intergovernmental……………………………………… 6,572,404 - 6,572,404 185,557 - 185,557 Investment in joint - 686,772 686,772 Total current 38,183,620 10,333,632 48,517,252 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental……………………………………… 19,595,749 - 19,595,749 413,046 - 413,046 Capital assets, non depreciable…………………………… 6,997,269 1,806,017 8,803,286 Capital assets, net of accumulated depreciation……… 160,441,793 17,936,446 178,378,239 Total noncurrent 187,447,857 19,742,463 207,190,320 TOTAL 225,631,477 30,076,095 255,707,572 LIABILITIES CURRENT: Warrants 1,089,923 174,780 1,264,703 Accrued 962,308 294,925 1,257,233 Accrued 3,684,277 12,933 3,697,210 Tax refunds 214,910 - 214,910 Accrued 716,074 75,592 791,666 Capital lease obligations…………………………………… 178,027 - 178,027 Landfill 600,000 - 600,000 Compensated 1,381,116 31,663 1,412,779 Workers' compensation…………………………………… 98,787 - 98,787 Notes 3,999,062 210,000 4,209,062 Bonds 4,717,000 1,024,880 5,741,880 Total current liabilities………………………………… 17,641,484 1,824,773 19,466,257 NONCURRENT: Capital lease obligations…………………………………… 206,938 - 206,938 Landfill 1,800,000 - 1,800,000 Compensated 5,666,903 94,984 5,761,887 Other postemployment benefits…………………………… 21,918,722 901,520 22,820,242 Workers' compensation…………………………………… 1,076,166 - 1,076,166 Bonds 39,864,526 14,640,400 54,504,926 Total noncurrent liabilities……………………………… 70,533,255 15,636,904 86,170,159 TOTAL 88,174,739 17,461,677 105,636,416 NET ASSETS Invested in capital assets, net of related debt……………… 144,887,020 8,248,186 153,135,206 Restricted for: 598,603 - 598,603 Permanent funds: 3,644,129 - 3,644,129 Nonexpendable………………………………………… 1,707,276 - 1,707,276 Grants and 4,612,095 - 4,612,095 (17,992,385) 4,366,232 (13,626,153) TOTAL NET $ 137,456,738 $ 12,614,418 $ 150,071,156 See notes to basic financial statements. City of Salem, Massachusetts 29 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES FISCAL YEAR ENDED JUNE 30, 2011 Operating Capital Charges for Grants and Grants and Net (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Primary Government: Governmental Activities: General government……………… $ 11,702,186 $ 705,951 $ 653,538 $ 662,409 $ (9,680,288) Public safety……………………… 27,989,181 2,115,452 1,403,973 - (24,469,756) Education…………………………… 86,938,434 1,277,950 41,703,045 10,251 (43,947,188) Public 8,894,659 172,450 122,900 1,524,855 (7,074,454) Community development………… 1,845,141 7,531 1,817,993 3,000,000 2,980,383 Health and human services……… 5,930,089 129,822 5,040,588 - (759,679) Culture and recreation…………… 2,997,090 728,597 87,436 - (2,181,057) Interest……………………………… 1,582,033 - 529,038 - (1,052,995) Total Governmental Activities… 147,878,813 5,137,753 51,358,511 5,197,515 (86,185,034) Business-Type Activities: 4,161,481 4,517,123 - 39,804 395,446 6,590,680 8,292,908 - - 1,702,228 Golf 363,625 548,805 - - 185,180 991,722 2,333,478 - - 1,341,756 2,617,948 692,089 - - (1,925,859) Total Business-Type Activities… 14,725,456 16,384,403 - 39,804 1,698,751 Total Primary Government………$ 162,604,269 $ 21,522,156 $ 51,358,511 $ 5,237,319 $ (84,486,283) See notes to basic financial statements. (Continued) Program Revenues City of Salem, Massachusetts 30 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES (Continued) FISCAL YEAR ENDED JUNE 30, 2011 Governmental Business-Type Activities Activities Total Changes in net assets: Net (expense) revenue from previous page…………… $ (86,185,034) $ 1,698,751 $ (84,486,283) General revenues: Real estate and personal property taxes, net of tax refunds payable………………………… 71,828,412 - 71,828,412 Tax 510,973 - 510,973 Motor vehicle and other excise taxes……………… 3,181,247 - 3,181,247 Hotel/motel and meals 955,092 - 955,092 Penalties and interest on 438,487 - 438,487 Payments in lieu of 1,319,079 - 1,319,079 Grants and contributions not restricted to specific 6,404,395 - 6,404,395 Unrestricted investment income…………………… 1,095,518 - 1,095,518 Miscellaneous………………………………………… 358,720 - 358,720 Transfers, net 1,251,059 (1,251,059) - Total general revenues and transfers………………… 87,342,982 (1,251,059) 86,091,923 Change in net 1,157,948 447,692 1,605,640 Net Assets: Beginning of 136,298,790 12,166,726 148,465,516 End of $ 137,456,738 $ 12,614,418 $ 150,071,156 (Concluded) Primary Government City of Salem, Massachusetts 31 Comprehensive Annual Financial Report ---PAGE BREAK--- School Nonmajor Total Capital Governmental Governmental ASSETS General Projects Funds Funds Cash and cash 13,254,259 $ 613,394 $ 9,248,838 $ 23,116,491 - - 5,127,064 5,127,064 Receivables, net of uncollectibles: Real estate and personal property 1,173,407 - - 1,173,407 Tax 1,351,357 - - 1,351,357 Motor vehicle and other excise 538,988 - - 538,988 Departmental and - - 84,730 84,730 Intergovernmental……………………………………………………… 22,094,875 - 4,073,278 26,168,153 - - 598,603 598,603 Due from other - - 185,911 185,911 TOTAL 38,412,886 $ 613,394 $ 19,318,424 $ 58,344,704 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants - $ 268,657 $ 821,266 $ 1,089,923 Accrued 962,308 - - 962,308 Accrued 3,445,347 - 238,930 3,684,277 Tax refunds 214,910 - - 214,910 Accrued interest on short-term - - - - Deferred 24,794,842 - 2,046,379 26,841,221 Due to other - - 185,911 185,911 Notes - 999,062 3,000,000 3,999,062 TOTAL 29,417,407 1,267,719 6,292,486 36,977,612 FUND BALANCES: - - 1,707,276 1,707,276 - 10,970 11,318,662 11,329,632 589,894 - - 589,894 8,405,585 (665,295) - 7,740,290 TOTAL FUND 8,995,479 (654,325) 13,025,938 21,367,092 TOTAL LIABILITIES AND FUND BALANCES…………………………$ 38,412,886 $ 613,394 $ 19,318,424 $ 58,344,704 See notes to basic financial statements. GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2011 City of Salem, Massachusetts 32 Comprehensive Annual Financial Report ---PAGE BREAK--- RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET ASSETS JUNE 30, 2011 Total governmental fund $ 21,367,092 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the 167,439,062 Accounts receivable are not available to pay for current-period expenditures and, therefore, are deferred in the 26,841,221 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 33,622 In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until (716,074) Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds Bonds and notes (44,581,526) Landfill (2,400,000) Workers' (1,174,953) Capital (384,965) Compensated (7,048,019) Other postemployment (21,918,722) Net effect of reporting long-term (77,508,185) Net assets of governmental $ 137,456,738 See notes to basic financial statements. City of Salem, Massachusetts 33 Comprehensive Annual Financial Report ---PAGE BREAK--- GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2011 School Nonmajor Total Capital Governmental Governmental General Projects Funds Funds REVENUES: Real estate and personal property taxes, net of tax 71,754,816 $ - $ - $ 71,754,816 Tax 241,637 - - 241,637 Motor vehicle and other excise 3,180,552 - - 3,180,552 Hotel/motel and meals 955,092 - - 955,092 Charges for 1,168,187 - 72,764 1,240,951 Penalties and interest on 437,282 - 1,205 438,487 Payments in lieu of 1,319,079 - - 1,319,079 Licenses and 510,375 - - 510,375 Fines and 1,208,272 - - 1,208,272 Intergovernmental……………………………………………………… 40,262,559 10,253 24,890,940 65,163,752 Departmental and 181,666 - 2,395,556 2,577,222 - - 1,165,881 1,165,881 Investment 89,037 - 1,007,710 1,096,747 TOTAL 121,308,554 10,253 29,534,056 150,852,863 EXPENDITURES: Current: General 5,035,343 - 1,272,289 6,307,632 Public 16,074,952 - 1,603,411 17,678,363 48,588,197 665,295 11,757,084 61,010,576 Public 3,156,866 - 2,609,408 5,766,274 Community - - 4,465,759 4,465,759 Health and human 861,769 - 5,065,368 5,927,137 Culture and 1,840,373 - 312,499 2,152,872 Pension 17,707,823 - - 17,707,823 Employee 11,751,691 - - 11,751,691 State and county 6,445,380 - - 6,445,380 Debt service: 4,585,000 2,930,000 35,000 7,550,000 1,836,671 - 14,446 1,851,117 TOTAL EXPENDITURES………………………………………… 117,884,065 3,595,295 27,135,264 148,614,624 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………………………………… 3,424,489 (3,585,042) 2,398,792 2,238,239 OTHER FINANCING SOURCES (USES): Issuance of bonds and - - 630,000 630,000 Issuance of refunding 4,589,000 - - 4,589,000 Premium from issuance of refunding 1,167,420 - - 1,167,420 Refunding bonds (4,589,000) - - (4,589,000) Capital lease 110,715 - 75,000 185,715 Transfers 4,052,593 - 1,084,854 5,137,447 Transfers (3,314,361) - (572,027) (3,886,388) TOTAL OTHER FINANCING SOURCES 2,016,367 - 1,217,827 3,234,194 NET CHANGE IN FUND 5,440,856 (3,585,042) 3,616,619 5,472,433 FUND BALANCES AT BEGINNING OF YEAR, AS REVISED……… 3,554,623 2,930,717 9,409,319 15,894,659 FUND BALANCES AT END OF $ 8,995,479 $ (654,325) $ 13,025,938 $ 21,367,092 See notes to basic financial statements. City of Salem, Massachusetts 34 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 FISCAL YEAR ENDED JUNE 30, 2011 Net change in fund balances - total governmental $ 5,472,433 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 6,194,898 Depreciation (6,954,572) Net effect of reporting capital (759,674) 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 (2,994,883) 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 assets. 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 117,782 Capital lease (185,715) Issuance of refunding (4,589,000) Refunding bonds 4,589,000 Issuance of bonds and (630,000) Premium from issuance of bonds and notes (1,167,420) Debt service principal 7,550,000 Net effect of reporting long-term 5,684,647 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 1,136,081 Net change in landfill liability (1,900,000) Net change in workers' (362,821) Net change in accrued interest on long-term 216,190 Net change in other postemployment (5,402,727) Amortization of premium from issuance of bonds and notes payable………………………… 52,894 Net effect of recording long-term liabilities and amortizing deferred losses…………… (6,260,383) 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…………… 15,808 Change in net assets of governmental $ 1,157,948 See notes to basic financial statements. City of Salem, Massachusetts 35 Comprehensive Annual Financial Report ---PAGE BREAK--- Governmental Activities - Golf Internal Service Water Sewer Course Parking Trash Total Funds ASSETS CURRENT: Cash and cash equivalents………………………………$ 4,955,597 $ 647,726 $ 327,737 $ - $ 287,641 $ 6,218,701 $ 33,622 Receivables, net of allowance for uncollectibles: User 1,089,390 2,234,749 - - - 3,324,139 - Trash - - - - 104,020 104,020 - Investment in joint - 686,772 - - - 686,772 - Total current 6,044,987 3,569,247 327,737 - 391,661 10,333,632 33,622 NONCURRENT: Capital assets, non depreciable………………………… 1,540,184 99,552 118,067 48,214 - 1,806,017 - Capital assets, net of accumulated depreciation……… 10,629,777 2,369,288 418,804 4,518,577 - 17,936,446 - Total noncurrent 12,169,961 2,468,840 536,871 4,566,791 - 19,742,463 - TOTAL 18,214,948 6,038,087 864,608 4,566,791 391,661 30,076,095 33,622 LIABILITIES CURRENT: Warrants 60,464 114,316 - - - 174,780 - Accrued liabilities………………………………………… 44,227 30,042 - - 220,656 294,925 - Accrued 6,299 6,263 - - 371 12,933 - Accrued 60,409 - 1,283 13,900 - 75,592 - Compensated 8,069 8,069 1,647 13,878 - 31,663 - Notes - 210,000 - - - 210,000 - Bonds 812,880 105,000 32,000 75,000 - 1,024,880 - Total current liabilities……………………………… 992,348 473,690 34,930 102,778 221,027 1,824,773 - NONCURRENT: Compensated 30,335 30,335 15,238 19,076 - 94,984 - Other postemployment benefits obligation…………… 234,922 234,630 113,818 273,753 44,397 901,520 - Bonds 12,340,400 1,585,000 140,000 575,000 - 14,640,400 - Total noncurrent liabilities………………………… 12,605,657 1,849,965 269,056 867,829 44,397 15,636,904 - TOTAL LIABILITIES………………………………………… 13,598,005 2,323,655 303,986 970,607 265,424 17,461,677 - NET ASSETS Invested in capital assets, net of related debt…………… 3,397,684 568,840 364,871 3,916,791 - 8,248,186 - 1,219,259 3,145,592 195,751 (320,607) 126,237 4,366,232 33,622 TOTAL NET 4,616,943 $ 3,714,432 $ 560,622 $ 3,596,184 $ 126,237 $ 12,614,418 $ 33,622 See notes to basic financial statements. Business-type Activities - Enterprise Funds PROPRIETARY FUNDS STATEMENT OF NET ASSETS JUNE 30, 2011 City of Salem, Massachusetts 36 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS FISCAL YEAR ENDED JUNE 30, 2011 Business-type Activities - Enterprise Funds Governmental Activities - Golf Internal Service Water Sewer Course Parking Trash Total Funds OPERATING REVENUES: Charges for services $ 4,517,123 $ 8,292,908 $ 548,805 $ 2,333,478 $ 692,089 $ 16,384,403 $ - - - - - - - 15,808 TOTAL OPERATING REVENUES 4,517,123 8,292,908 548,805 2,333,478 692,089 16,384,403 15,808 OPERATING EXPENSES: Cost of services and administration 1,200,149 800,588 322,042 727,777 2,617,948 5,668,504 - District Assessment……………………………………… 2,313,119 5,672,103 - - - 7,985,222 - Depreciation……………………………………………… 290,235 86,165 38,148 236,426 - 650,974 - TOTAL OPERATING EXPENSES 3,803,503 6,558,856 360,190 964,203 2,617,948 14,304,700 - OPERATING INCOME 713,620 1,734,052 188,615 1,369,275 (1,925,859) 2,079,703 15,808 NONOPERATING REVENUES (EXPENSES): Interest (357,978) (31,824) (3,435) (27,519) - (420,756) - Intergovernmental………………………………………… 39,804 - - - - 39,804 - TOTAL NONOPERATING REVENUES (EXPENSES), (318,174) (31,824) (3,435) (27,519) - (380,952) - INCOME (LOSS) BEFORE TRANSFERS………… 395,446 1,702,228 185,180 1,341,756 (1,925,859) 1,698,751 15,808 TRANSFERS: Transfers 36,000 - 363,764 - 1,970,475 2,370,239 - Transfers (728,958) (759,264) (548,276) (1,584,800) - (3,621,298) - TOTAL TRANSFERS………………………………… (692,958) (759,264) (184,512) (1,584,800) 1,970,475 (1,251,059) - CHANGE IN NET (297,512) 942,964 668 (243,044) 44,616 447,692 15,808 NET ASSETS AT BEGINNING OF 4,914,455 2,771,468 559,954 3,839,228 81,621 12,166,726 17,814 NET ASSETS AT END OF $ 4,616,943 $ 3,714,432 $ 560,622 $ 3,596,184 $ 126,237 $ 12,614,418 $ 33,622 See notes to basic financial statements. City of Salem, Massachusetts 37 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FISCAL YEAR ENDED JUNE 30, 2011 Business-type Activities - Enterprise Funds Governmental Activities - Golf Internal Service Water Sewer Course Parking Trash Total Funds CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and $ 4,662,837 $ 7,955,103 $ 548,805 $ 2,333,478 $ 697,048 $ 16,197,271 $ - Receipts from interfund services - - - - - - 15,808 Receipts from other - - - - - - - Payments to (3,157,844) (6,473,193) (95,953) (217,436) (2,574,063) (12,518,489) - Payments to (376,888) (344,172) (227,251) (440,988) (23,595) (1,412,894) - Payments for interfund services - - - - - - - NET CASH FROM OPERATING ACTIVITIES…………………………………… 1,128,105 1,137,738 225,601 1,675,054 (1,900,610) 2,265,888 15,808 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers 36,000 - 363,764 - 1,970,475 2,370,239 - Transfers (728,958) (759,264) (548,276) (1,584,800) - (3,621,298) - NET CASH FROM NONCAPITAL FINANCING ACTIVITIES…………………… (692,958) (759,264) (184,512) (1,584,800) 1,970,475 (1,251,059) - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from the issuance of bonds and 8,464,000 1,900,000 - - - 10,364,000 - Acquisition and construction of capital (3,442,295) (585,324) - - - (4,027,619) - Principal payments on bonds and (5,691,822) (1,641,000) (30,000) (75,000) - (7,437,822) - Interest (356,451) (48,234) (10,560) (30,238) - (445,483) - NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES……… (1,026,568) (374,558) (40,560) (105,238) - (1,546,924) - NET CHANGE IN CASH AND CASH EQUIVALENTS…………………………… (591,421) 3,916 529 (14,984) 69,865 (532,095) 15,808 CASH AND CASH EQUIVALENTS AT BEGINNING OF 5,547,018 643,810 327,208 14,984 217,776 6,750,796 17,814 CASH AND CASH EQUIVALENTS AT END OF $ 4,955,597 $ 647,726 $ 327,737 $ - $ 287,641 $ 6,218,701 $ 33,622 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income 713,620 $ 1,734,052 $ 188,615 $ 1,369,275 $ (1,925,859) $ 2,079,703 $ 15,808 Adjustments to reconcile operating income (loss) to net cash from operating activities: 290,235 86,165 38,148 236,426 - 650,974 - Changes in assets and liabilities: User 145,714 (337,805) - - - (192,091) - Trash - - - - 4,959 4,959 - Investment in joint - (315,823) - - - (315,823) - Accrued (5,189) (14,057) - - 11,756 (7,490) - Accrued (7,457) (5,975) - - (600) (14,032) - Other postemployment 75,513 75,513 28,635 69,316 9,134 258,111 - Accrued compensated (84,331) (84,331) (29,797) 37 - (198,422) - Total 414,485 (596,314) 36,986 305,779 25,249 186,185 - NET CASH FROM OPERATING ACTIVITIES…………………………………… $ 1,128,105 $ 1,137,738 $ 225,601 $ 1,675,054 $ (1,900,610) $ 2,265,888 $ 15,808 See notes to basic financial statements. City of Salem, Massachusetts 38 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2011 Pension Other Trust Fund Postemployment Private (as of December Benefits Purpose Agency 31, 2010) Trust Fund Trust Funds Fund ASSETS Cash and cash $ 7,559,203 $ 50,000 $ 254,978 $ 683,356 Investments: Corporate - - 1,135,871 - Real estate and alternative investment mutual funds………………… 799,727 - - - 85,296,150 - - - Receivables, net of allowance for uncollectibles: Departmental and 301,852 - - - NONCURRENT: Capital assets, net of accumulated depreciation………………………… 107,031 - - - TOTAL 94,063,963 50,000 1,390,849 683,356 LIABILITIES Warrants 7,621 - - 17,049 Liabilities due - - - 666,307 TOTAL 7,621 - - 683,356 NET ASSETS Held in trust for pension, OPEB benefits, and other purposes………… $ 94,056,342 $ 50,000 $ 1,390,849 $ - See notes to basic financial statements. City of Salem, Massachusetts 39 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FISCAL YEAR ENDED JUNE 30, 2011 Pension Other Trust Fund Postemployment Private (as of December Benefits Purpose 31, 2010) Trust Fund Trust Funds ADDITIONS: Contributions: 9,991,587 $ 50,000 $ - Plan 3,209,500 - - Private - - 27,516 Total 13,201,087 50,000 27,516 Net investment income: Net change in fair value of 8,141,432 - 251,697 2,311,954 - 198 Total investment 10,453,386 - 251,895 Less: investment (401,570) - - Net investment 10,051,816 - 251,895 314,507 - - Transfers from other 280,470 - - TOTAL 23,847,880 50,000 279,411 DEDUCTIONS: 331,631 - - Transfers to other 200,497 - - Retirement benefits and 12,628,561 - - Educational - - 19,597 Housing - - 104,815 3,125 - - TOTAL 13,163,814 - 124,412 CHANGE IN NET 10,684,066 50,000 154,999 NET ASSETS AT BEGINNING OF 83,372,276 - 1,235,850 NET ASSETS AT END OF 94,056,342 $ 50,000 $ 1,390,849 See notes to basic financial statements. City of Salem, Massachusetts 40 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 41 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. Blended Component Units – Blended component units are entities that are legally separate from the City, but are so related that they are, in substance, the same as the City, or entities providing services entirely or almost entirely for the benefit of the City. The following component unit is blended within the Fiduciary Funds of the primary government: 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. 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, 2011, the City’s equity interest in the operations of the District totaled $686,772, which is recorded in the 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- Beverly Water Supply Board. The annual assessment from the Water Board for the fiscal year ended June 30, ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 42 Comprehensive Annual Financial Report 2011 totaled approximately $2.3 million. Complete financial information for the Water Board can be obtained by contacting them at 50 Arlington Avenue, Beverly, MA 01915. B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The government-wide financial statements statement of net assets and the statement of changes in net assets) 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, liabilities, revenues, or expenditures/expenses of an individual governmental or enterprise fund are at least 10% of the corresponding element (assets, liabilities, etc.) for all funds of that category or type (total governmental or total enterprise funds), and • If the total assets, liabilities, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5% of the corresponding element for all governmental and enterprise funds combined. Additionally, any other governmental or enterprise fund that management believes is particularly significant to the basic financial statements may be reported as a major fund. Internal service funds and fiduciary funds are reported by fund type. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Real estate and personal property taxes are recognized as revenues in the fiscal 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: ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 43 Comprehensive Annual Financial Report • 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 fiscal year-end. Investment income is susceptible to accrual. Other receipts and tax revenues become measurable and available when the cash is received and are recognized as revenue at that time. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria is met. Expenditure driven grants recognize revenue when the qualifying expenditures are incurred and all other grant requirements are met. The following major governmental funds are reported: The general fund is the primary operating fund. It is used to account for all financial resources, except those that are required to be accounted for in another fund. The school capital projects fund is used to account for the ongoing construction and renovations of the City’s school buildings. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 44 Comprehensive Annual Financial Report 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 sewer enterprise fund is used to account for the sewer activities. The water enterprise fund is used to account for the water activities. The golf course enterprise fund is used to account for the golf course activities. The parking activities enterprise fund is used to account for parking activities. The trash enterprise fund is used to account for the solid waste disposal activities. Additionally, the following proprietary fund type is reported: The internal service fund is used to account for the financing of services provided by one department to other departments or governmental units. This fund is used to account for risk financing activities related to retirees’ health insurance. Fiduciary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting except for the Agency Fund, which has no measurement focus. Fiduciary 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 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 45 Comprehensive Annual Financial Report 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. Government-Wide and Fund Financial Statements Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The government has elected not to follow subsequent private-sector guidance. 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. 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 fiscal 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 fiscal year. Liens are recorded as receivables in the fiscal 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. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 46 Comprehensive Annual Financial Report 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 fiscal 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 fiscal 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 $24 for commercial and $16 for residential. Collection from any one property shall not exceed $100 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 fiscal 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 fiscal year accrued. The allowance of uncollectibles is estimated based on historical trends and specific account analysis. Intergovernmental Various federal and state grants for operating and capital purposes are applied for and received annually. For non-expenditure driven grants, receivables are recorded as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred and all other grant requirements are met. These receivables are considered 100% collectible and therefore do not report an allowance for uncollectibles. Loans Loan receivables are comprised of funds advanced to small businesses and developers under various Urban Development Action Grants (UDAG) and Community Development Block Grants (CDBG). The City loans funds to owners of commercial and residential properties for the purpose of rehabilitating these properties. The City receives funding for these loans from the U.S Department of Housing and Urban Development (HUD) under Community Development Block Grant (CDBG) programs for the City. These loans are repaid to the City under ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 47 Comprehensive Annual Financial Report 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 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. 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. 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 fiscal year of the purchase. H. 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 Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 48 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 assets. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of net assets 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. I. 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 assets. 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. J. Deferred Revenue Deferred revenue at the governmental fund financial statement level represents billed receivables that do not meet the available criterion in accordance with the current financial resources measurement focus and the modified accrual basis of accounting. Deferred revenue is recognized as revenue in the conversion to the government-wide (full accrual) financial statements. K. Net Assets and Fund Equity Government-Wide Financial Statements (Net Assets) Net assets reported as “invested in capital assets, net of related debt” 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 assets are reported as restricted when amounts are not available for appropriation or are legally restricted by outside parties for a specific future use. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 49 Comprehensive Annual Financial Report Net assets have been “restricted for” the following: “Loans” represents community development outstanding loan receivable balances which are funded through the Community Development Block Grant program. The loan repayments are subject to various restrictions which are imposed by the grantors. “Permanent funds - expendable” represents the amount of realized and unrealized investment earnings of donor restricted trusts. The donor restrictions and trustee policies only allow the trustees to approve spending of the realized investment earnings that support governmental programs. “Permanent funds - nonexpendable” represents the endowment portion of donor restricted trusts that support governmental programs. “Grants and gifts” represents assets that have restrictions placed on them from outside parties. 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. “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. “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. 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 assets. Material bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Governmental Fund Financial Statements The face amount of governmental funds long-term debt is reported as other financing sources. Bond premiums and discounts, as well as issuance costs, are recognized in the current period. Bond premiums are reported as other financing sources and bond discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual bond proceeds received, are reported as general government expenditures. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 50 Comprehensive Annual Financial Report M. 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. N. 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. O. Fund Deficits and Appropriation Deficits Individual fund deficit existed at June 30, 2011 in the school capital projects major fund. This deficit will be funded through long-term borrowing. Actual expenditures exceeded appropriations for snow and ice. These over-expenditures will be funded with available funds during fiscal year 2012. In the snow and ice removal appropriation line, the general law allows deficits to occur and to be raised in the subsequent fiscal year. P. 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 fiscal year. Actual results could vary from estimates that were used. Q. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 51 Comprehensive Annual Financial Report 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 1½% 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, 2011, $50,000 from the OPEB Trust Fund is included within the City’s cash and investments balances in the following disclosures. The System participates in the Pension Reserve Investment Trust (PRIT), which meets the criteria of an external investment pool. PRIT is administered by the Pension Reserves Investment Management Board, which was established by the Treasurer of the Commonwealth of Massachusetts who serves as Trustee. The fair value of the position in the PRIT is the same as the value of the PRIT shares. The System also has expanded investment powers which are governed by Chapter 32 of the general laws of the Commonwealth and by the regulations issued by the Public Employee Retirement Administration Commission (PERAC). The existing law provides that Systems will invest in securities other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth. Custodial Credit Risk – Deposits In the case of deposits, this is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. The City does not have a formal deposit policy for custodial credit risk. At fiscal year-end, the carrying amount of deposits totaled $24,504,618 and the bank balance totaled $26,754,377. Of the bank balance, $1,649,626 was covered by Federal Depository Insurance, $4,563,563 was covered by the Share Insurance Fund, $2,547,446 was covered by the Depositors Insurance Fund, $12,095,115 was collateralized and $5,898,627 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 fiscal year-end, the carrying amount of deposits totaled $158,304 and the bank balance totaled $300,000. The entire bank balance was covered by Federal Depository Insurance. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 52 Comprehensive Annual Financial Report Investments As of June 30, 2011, the City had the following investments: Fair Value Under 1 Year 1-5 Years Investment Type Debt Securities: Corporate $ 1,016,408 $ 208,135 $ 808,273 Federal National Mortgage Association…………… 377,792 276,753 101,039 Total Debt 1,394,200 $ 484,888 $ 909,312 Other Investments: Equity 3,253,995 Equity Mutual 742,169 Bond Mutual 485,186 International Emerging Market Mutual Funds…… 387,385 Money Market Mutual 780,863 5,071,667 Total $ 12,115,465 Maturity As of December 31, 2010, the System had the following investments: Maturity Fair Value Under 1 Year Investment Type Repurchase Agreements…………………………… $ 6,160,439 $ 6,160,439 Other Investments: Government Short-term Investment Funds……… 1,240,460 Venture Capital and Limited Partnerships............. 227,877 Real Estate Investment 571,850 Pension Reserve Investment Trust (PRIT)………… 85,296,150 Total $ 93,496,776 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 .08 to 11.6 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, $1,016,408 in corporate bonds, $377,792 in Federal National Mortgage Association and ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 53 Comprehensive Annual Financial Report $3,253,995 in equity securities are exposed to custodial credit risk because the related securities are uninsured, unregistered and are held by the counterparty. The City has a formal investment policy related to custodial credit risk to invest in U.S. Treasuries, U.S. Agency obligations and fully collateralized certificates of deposit and, in addition, any investment not meeting this criteria are limited to no more than 5% of an institution’s assets and no more than 10% of the municipality’s cash. 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: Fair Value AAA AA A A+ A- Debt Securities: Corporate $ 1,016,408 $ - $ 167,055 $ 559,015 $ 185,869 $ 104,469 Federal National Mortgage Association…… - 377,792 - - - - Total Debt $ 1,016,408 $ 377,792 $ 167,055 $ 559,015 $ 185,869 $ 104,469 Rating The System has not adopted a formal policy related to Credit Risk. The alternate investment mutual funds, real estate mutual fund investments and PRIT are unrated. Concentration of Credit Risk The City restricts investments to no more than 5% in any one issuer. The City did not have more than 5% of its investments in any one individual security. The retirement system places no limit on the amount the government may invest in any one issuer. The System did not have more than 5% of its investments in any one individual security. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 54 Comprehensive Annual Financial Report NOTE 3 – RECEIVABLES At June 30, 2011, 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 $ 1,173,407 $ - $ 1,173,407 Tax 1,351,357 - 1,351,357 Motor vehicle and other excise 993,445 (454,457) 538,988 Departmental and 84,730 - 84,730 Intergovernmental…………………………………………… 26,168,153 - 26,168,153 837,257 (238,654) 598,603 $ 30,608,349 $ (693,111) $ 29,915,238 At June 30, 2011, receivables for the water, sewer and trash enterprise funds consist of the following: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Water user $ 1,089,390 $ - $ 1,089,390 Sewer user 2,234,749 - 2,234,749 Trash 104,020 - 104,020 $ 3,428,159 $ - $ 3,428,159 Governmental funds report deferred revenue 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 fiscal year, the various components of deferred revenue reported in the governmental funds were as follows: Other General Governmental Fund Funds Total Receivable type: Real estate and personal property $ 836,460 $ - $ 836,460 Tax 1,351,357 - 1,351,357 Motor vehicle and other excise 538,988 - 538,988 Departmental and - 84,730 84,730 Intergovernmental……………………………………………… 22,068,037 1,363,046 23,431,083 - 598,603 598,603 $ 24,794,842 $ 2,046,379 $ 26,841,221 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 55 Comprehensive Annual Financial Report NOTE 4 – CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2011, was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: 4,724,892 $ 1,714,720 $ - $ 6,439,612 Construction in 516,826 268,657 (227,826) 557,657 Total capital assets not being depreciated………… 5,241,718 1,983,377 (227,826) 6,997,269 Capital assets being depreciated: Land improvements……………………………………… 4,973,589 1,595,508 - 6,569,097 Buildings and improvements…………………………… 171,233,847 - - 171,233,847 9,339,966 814,177 (81,870) 10,072,273 Infrastructure……………………………………………… 55,048,008 2,005,276 - 57,053,284 5,604,194 24,386 (254,780) 5,373,800 Total capital assets being depreciated…………… 246,199,604 4,439,347 (336,650) 250,302,301 Less accumulated depreciation for: Land improvements……………………………………… (1,743,053) (222,396) - (1,965,449) Buildings and improvements…………………………… (45,041,414) (4,287,401) - (49,328,815) (4,403,327) (581,173) 81,870 (4,902,630) Infrastructure……………………………………………… (27,805,034) (1,569,375) - (29,374,409) (4,249,758) (294,227) 254,780 (4,289,205) Total accumulated depreciation…………………… (83,242,586) (6,954,572) 336,650 (89,860,508) Total capital assets being depreciated, 162,957,018 (2,515,225) - 160,441,793 Total governmental activities capital assets…………………$ 168,198,736 $ (531,848) $ (227,826) $ 167,439,062 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 56 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Water Activities: Capital assets not being depreciated: 10,589 $ - $ - $ 10,589 Construction in 1,499,760 29,835 - 1,529,595 Total capital assets not being depreciated………… 1,510,349 29,835 - 1,540,184 Capital assets being depreciated: Land improvements……………………………………… 114,550 - - 114,550 296,290 - - 296,290 48,794 1,904,402 - 1,953,196 Infrastructure……………………………………………… 15,101,050 - - 15,101,050 Total capital assets being depreciated…………… 15,560,684 1,904,402 - 17,465,086 Less accumulated depreciation for: Land improvements……………………………………… (48,685) (5,728) - (54,413) (83,201) (29,629) - (112,830) (24,397) (9,759) - (34,156) Infrastructure……………………………………………… (6,388,791) (245,119) - (6,633,910) Total accumulated depreciation…………………… (6,545,074) (290,235) - (6,835,309) Total capital assets being depreciated, 9,015,610 1,614,167 - 10,629,777 Total water activities capital 10,525,959 $ 1,644,002 $ - $ 12,169,961 Beginning Ending Balance Increases Decreases Balance Sewer Activities: Capital assets not being depreciated: 99,552 $ - $ - $ 99,552 Capital assets being depreciated: Buildings and improvements…………………………… 5,425 - - 5,425 48,796 - - 48,796 Infrastructure……………………………………………… 2,875,904 699,640 - 3,575,544 Total capital assets being depreciated…………… 2,930,125 699,640 - 3,629,765 Less accumulated depreciation for: Buildings and improvements…………………………… (5,426) - - (5,426) (24,398) (9,759) - (34,157) Infrastructure……………………………………………… (1,144,488) (76,406) - (1,220,894) Total accumulated depreciation…………………… (1,174,312) (86,165) - (1,260,477) Total capital assets being depreciated, 1,755,813 613,475 - 2,369,288 Total sewer activities capital $ 1,855,365 $ 613,475 $ - $ 2,468,840 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 57 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Golf Course Activities: Capital assets not being depreciated: 118,067 $ - $ - $ 118,067 Capital assets being depreciated: Land improvements……………………………………… 312,852 - - 312,852 Buildings and improvements…………………………… 453,988 - - 453,988 337,233 - - 337,233 Total capital assets being depreciated…………… 1,104,073 - - 1,104,073 Less accumulated depreciation for: Land improvements……………………………………… (303,845) (1,201) - (305,046) Buildings and improvements…………………………… (129,488) (11,000) - (140,488) (213,788) (25,947) - (239,735) Total accumulated depreciation…………………… (647,121) (38,148) - (685,269) Total capital assets being depreciated, 456,952 (38,148) - 418,804 Total golf course activities capital assets……………………$ 575,019 $ (38,148) $ - $ 536,871 Beginning Ending Balance Increases Decreases Balance Parking Activities: Capital assets not being depreciated: 48,214 $ - $ - $ 48,214 Capital assets being depreciated: Land improvements……………………………………… 1,338,366 - - 1,338,366 Buildings and improvements…………………………… 7,625,100 - - 7,625,100 73,805 - - 73,805 Infrastructure……………………………………………… 24,952 - - 24,952 Total capital assets being depreciated…………… 9,062,223 - - 9,062,223 Less accumulated depreciation for: Land improvements……………………………………… (174,853) (33,500) - (208,353) Buildings and improvements…………………………… (4,121,337) (191,066) - (4,312,403) (8,535) (6,870) - (15,405) Infrastructure……………………………………………… (2,495) (4,990) - (7,485) Total accumulated depreciation…………………… (4,307,220) (236,426) - (4,543,646) Total capital assets being depreciated, 4,755,003 (236,426) - 4,518,577 Total parking activities capital 4,803,217 $ (236,426) $ - $ 4,566,791 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, 2010 totals $17,969, for a net book value of $107,031. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 58 Comprehensive Annual Financial Report Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General $ 380,456 Public 511,311 4,128,266 Public 1,777,543 Health and human 4,636 Culture and 152,360 Total depreciation expense - governmental activities……………………………… $ 6,954,572 Business-Type Activities: $ 290,235 86,165 Golf 38,148 236,426 Total depreciation expense - business-type activities……………………………… $ 650,974 Fiduciary Activities: Pension 3,125 NOTE 5 – INTERFUND TRANSFERS AND BALANCES Interfund transfers for the fiscal year ended June 30, 2011, are summarized as follows: Golf Course Water Trash Nonmajor General Enterprise Enterprise Enterprise Governmental Transfers Out: Fund Fund Fund Fund Funds Total General $ - $ 363,764 $ - $ 1,970,475 $ 980,122 $ 3,314,361 Nonmajor Governmental Funds………… 467,295 - - - 104,732 572,027 Parking Enterprise 1,584,800 - - - - 1,584,800 Golf Course Enterprise Fund………….. 548,276 - - - - 548,276 Sewer Enterprise 759,264 - - - - 759,264 Water Enterprise 692,958 - 36,000 - - 728,958 4,052,593 $ 363,764 $ 36,000 $ 1,970,475 $ 1,084,854 $ 7,507,686 Transfer from general fund to golf course enterprise fund to reimburse for amounts raised by taxation; Transfer from general fund to trash enterprise fund for the City's subsidized portion; Transfer from general fund to nonmajor governmental funds to fund capital projects. Transfer from the nonmajor governmental funds to the general fund for their share of indirect costs and transfers within nonmajor govnernmental funds. Transfer from the parking enterprise fund to the general fund for their share of indirect costs. Transfer from the golf course enterprise fund to the general fund for their share of indirect costs. Transfer from the sewer enterprise fund to the general fund for their share of indirect costs. Transfer from the water enterprise fund to the general fund for their share of indirect costs, and a transfer for System Improvements Capital Project. Transfers In: ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 59 Comprehensive Annual Financial Report The City’s interfund balances at June 30, 2011 consisted of $185,911 in balances within the nonmajor governmental funds all representing interfund borrowings for cash flow purposes. NOTE 6 – CAPITAL LEASES The City has entered into lease agreements as lessee for financing the acquisition of a fire truck, radio equipment, police vehicles, school buses, and computer hardware and software. 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 assets acquired through capital leases are as follows: Governmental Activities Asset: Machinery and 541,403 285,954 Less: accumulated depreciation………………………… (225,152) 602,205 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2011, were as follows: Fiscal Years Governmental Ending June 30 Activities 196,085 123,946 98,049 Total minimum lease payments……………………… 418,080 Less: amounts representing interest………………… (33,115) Present value of minimum lease payments………… $ 384,965 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) or grant anticipation notes (GANS). ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 60 Comprehensive Annual Financial Report Short-term loans are general obligations and carry maturity dates that are limited by statute. Interest expenditures and expenses for short-term borrowings are accounted for in the general fund and enterprise funds, respectively. Details related to the short-term debt activity for the fiscal year ended June 30, 2011, are as follows: Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose Due Date 2010 Issued Redeemed 2011 Governmental Activities GAN Wharf Expansion………………………………… 1.00% 10/21/2011 $ - $ 3,000,000 $ - $ 3,000,000 BAN Collins Middle School Feasibility Study……… 1.60% 6/29/2012 - 687,062 - 687,062 BAN Saltonstall School Feasibility Study…………… 1.60% 6/29/2012 - 312,000 - 312,000 Sub-total government-type notes……………… - 3,999,062 - 3,999,062 Business-type Activities BAN Water Improvements…………………………… 1.50% 10/22/2010 36,000 - 36,000 - BAN Sewer Pump Station Upgrade………………… 1.60% 6/29/2012 - 210,000 - 210,000 Sub-total business-type notes………………… 36,000 210,000 36,000 210,000 Total notes $ 36,000 $ 4,209,062 $ 36,000 $ 4,209,062 On October 21st 2011 the City paid down the $3 million GAN for Wharf Expansion with grant proceeds. 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". In prior fiscal years, the City refunded debt on an advanced basis; as such, the proceeds of the refunding bonds have been placed in an irrevocable trust with an escrow agent to provide for all future debt service payments on the refunded bonds. The trust account’s assets and liabilities for the defeased bonds are not included in the basic financial statements. As of June 30, 2011, $6,775,000 of the refunded bonds are considered defeased. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 61 Comprehensive Annual Financial Report Details related to the outstanding general obligation indebtedness at June 30, 2011, and the debt service requirements are as follows: Bonds Payable Schedule – Governmental Funds Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2010 Issued Redeemed 2011 School Construction……………………… 2.25-6.75% $ 32,814,000 $ - $ 3,892,000 $ 28,922,000 HUD Section 9.00% 175,000 - 35,000 140,000 Swimming 4.50-6.75% 40,000 - 40,000 - Police 3.50-4.00% 586,000 - 293,000 293,000 Capital Improvements………………… 3.50-4.00% 1,140,000 - 145,000 995,000 School Long-term 3.60% 2,930,000 - 2,930,000 - Refunding 2.00-5.00% 8,071,100 - 213,800 7,857,300 Swimming Pool Refunding……………… 2.00-5.00% 41,900 - 1,200 40,700 Capital Improvements…………………… 3.00-4.00% 4,589,000 5,219,000 4,589,000 5,219,000 Total Governmental bonds payable……… 50,387,000 5,219,000 12,139,000 43,467,000 Unamortized premiums on Bonds……… - 1,167,420 52,894 1,114,526 $ 50,387,000 $ 6,386,420 $ 12,191,894 $ 44,581,526 The future fiscal years payments are as follows: Fiscal Year Principal Interest Total 4,717,000 $ 1,694,755 $ 6,411,755 3,834,000 1,544,487 5,378,487 3,975,000 1,389,345 5,364,345 3,470,000 1,242,740 4,712,740 3,485,000 1,117,921 4,602,921 3,306,000 992,431 4,298,431 3,385,000 863,842 4,248,842 3,485,000 729,816 4,214,816 3,580,000 575,378 4,155,378 2,655,000 431,078 3,086,078 2,545,000 319,678 2,864,678 2,620,000 206,446 2,826,446 660,000 87,782 747,782 660,000 60,879 720,879 410,000 36,462 446,462 340,000 21,038 361,038 340,000 7,013 347,013 43,467,000 $ 11,321,091 $ 54,788,091 The City had $4,589,000 in long-term governmental BANs, $5,389,000 in long-term water BANs, and $1,641,000 in long-term sewer BANs outstanding on July 1, 2010 which were refinanced during the fiscal year and have been classified as a current refunding of debt. The current refunding did not have an economic gain or loss. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 62 Comprehensive Annual Financial Report The Commonwealth has approved school construction assistance to the City. The assistance program, which is administered by the Massachusetts School Building Authority, provides resources for future debt service of general obligation school bonds outstanding along with direct capital grants. During fiscal year 2011, $4,311,000 of such assistance was received. Approximately $28,846,000 will be received in future fiscal years. Of the $28,846,000, $6,778,000 represents reimbursement of long-term interest costs, and $22,068,000 represents reimbursement of approved construction costs. Accordingly, a $22,068,000 intergovernmental receivable and corresponding deferred revenue have been reported in the governmental fund financial statements. Deferred revenue has been eliminated in the conversion to the government-wide financial statements and reported as net assets. The City received long-term loan proceeds from the Massachusetts Water Pollution Abatement Trust (MWPAT). MWPAT makes subsidized loans available to local governments to finance the costs of eligible water pollution abatement projects. The stated interest rate on the MWPAT loan is and the interest has been recorded at an implied rate of Bonds Payable Schedule – Water Enterprise Fund Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2010 Issued Redeemed 2011 Water Project - MWPAT………………… 2.00% $ 2,041,102 $ - $ 101,822 $ 1,939,280 Water 3.75-5.00% 2,915,000 - 165,000 2,750,000 Water System Improvements…………… 3.00-4.00% 5,389,000 7,464,000 5,389,000 7,464,000 Water Storage 3.00-4.00% - 1,000,000 - 1,000,000 Total Water Enterprise Fund……………… $ 10,345,102 $ 8,464,000 $ 5,655,822 $ 13,153,280 The future fiscal years payments are as follows: Fiscal Year Principal Interest Total 812,880 $ 450,669 $ 1,263,549 2013……………… 810,978 424,061 1,235,039 2014……………… 813,119 398,295 1,211,414 2015……………… 815,303 373,311 1,188,614 2016……………… 817,532 348,489 1,166,021 2017……………… 819,805 320,922 1,140,727 2018……………… 817,124 290,502 1,107,626 2019……………… 819,490 260,135 1,079,625 2020……………… 821,904 229,721 1,051,625 2021……………… 824,367 199,259 1,023,626 2022……………… 726,880 170,747 897,627 2023……………… 729,443 144,184 873,627 2024……………… 727,058 117,669 844,727 2025……………… 729,726 91,101 820,827 2026……………… 727,447 64,479 791,926 2027……………… 530,224 41,902 572,126 2028……………… 390,000 24,700 414,700 2029……………… 230,000 12,200 242,200 2030……………… 95,000 5,700 100,700 2031……………… 95,000 1,900 96,900 Total………………$ 13,153,280 $ 3,969,946 $ 17,123,226 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 63 Comprehensive Annual Financial Report Bonds Payable Schedule – Sewer Enterprise Fund Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2010 Issued Redeemed 2011 Sewer Improvements……………………… 3.00-4.00% $ 1,641,000 $ 1,690,000 $ 1,641,000 $ 1,690,000 The future fiscal years payments are as follows: Fiscal Year Principal Interest Total 105,000 $ 61,125 $ 166,125 2013……………… 100,000 58,050 158,050 2014……………… 95,000 55,125 150,125 2015……………… 95,000 52,275 147,275 2016……………… 95,000 49,425 144,425 2017……………… 95,000 46,100 141,100 2018……………… 95,000 42,300 137,300 2019……………… 95,000 38,500 133,500 2020……………… 95,000 34,700 129,700 2021……………… 90,000 31,000 121,000 2022……………… 85,000 27,500 112,500 2023……………… 85,000 24,100 109,100 2024……………… 85,000 20,700 105,700 2025……………… 85,000 17,300 102,300 2026……………… 85,000 13,900 98,900 2027……………… 85,000 10,500 95,500 2028……………… 85,000 7,100 92,100 2029……………… 85,000 3,700 88,700 2030……………… 50,000 1,000 51,000 Total………………$ 1,690,000 $ 594,400 $ 2,284,400 Bonds Payable Schedule – Golf Course Enterprise Fund Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2010 Issued Redeemed 2011 Golf 4.50-6.75% $ 30,000 $ - $ 30,000 $ - Refunding Bond 2.00-5.00% 172,000 - - 172,000 Total Golf Course Enterprise bonds $ 202,000 $ - $ 30,000 $ 172,000 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 64 Comprehensive Annual Financial Report Debt service requirements for principal and interest for the golf course enterprise fund bonds payable in future fiscal years are as follows: Fiscal Year Principal Interest Total 32,000 $ 4,810 $ 36,810 2013……………… 31,000 4,180 35,180 2014……………… 30,000 3,120 33,120 2015……………… 30,000 1,920 31,920 2016……………… 30,000 1,020 31,020 2017……………… 19,000 285 19,285 Total………………$ 172,000 $ 15,335 $ 187,335 Bonds Payable Schedule – Parking Enterprise Fund Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2010 Issued Redeemed 2011 Parking Garage Repairs………………… 3.00-5.00% $ 725,000 $ - $ 75,000 $ 650,000 Debt service requirements for principal and interest for the parking enterprise fund bonds payable in future fiscal years are as follows: Fiscal Year Principal Interest Total 75,000 $ 27,800 $ 102,800 2013……………… 75,000 25,250 100,250 2014……………… 75,000 21,500 96,500 2015……………… 75,000 17,750 92,750 2016……………… 75,000 14,000 89,000 2017……………… 75,000 11,000 86,000 2018……………… 75,000 8,000 83,000 2019……………… 75,000 5,000 80,000 2020……………… 50,000 2,000 52,000 Total………………$ 650,000 $ 132,300 $ 782,300 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, 2011, the City had the following authorized and unissued debt: Purpose Amount School Construction……………………$ 1,100,094 Water Systems Improvements………… 4,328,208 Capital 7,082,500 Refunding 1,215,000 $ 13,725,802 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 65 Comprehensive Annual Financial Report Changes in Long-term Liabilities During the fiscal year ended June 30, 2011, the following changes occurred in long-term liabilities: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities: Long-term 50,387,000 $ 5,219,000 $ (12,139,000) $ 43,467,000 $ 4,717,000 Add: unamortized premium……………………… - 1,167,420 (52,894) 1,114,526 - Total bonds 50,387,000 6,386,420 (12,191,894) 44,581,526 4,717,000 Capital 317,032 185,715 (117,782) 384,965 178,027 Compensated absences…………………………… 8,184,100 160,785 (1,296,866) 7,048,019 1,381,116 Landfill 500,000 1,900,000 - 2,400,000 600,000 Workers' compensation……..……………………… 812,132 446,538 (83,717) 1,174,953 98,787 Other postemployment benefits…………………… 16,515,995 11,120,411 (5,717,684) 21,918,722 - Total governmental activity long-term liabilities………………………………… $ 76,716,259 $ 20,199,869 $ (19,407,943) $ 77,508,185 $ 6,974,930 Business-Type Activities: Long-term 12,913,102 $ 10,154,000 $ (7,401,822) $ 15,665,280 $ 1,024,880 Compensated absences…………………………… 325,069 57,238 (255,660) 126,647 31,663 Other postemployment benefits…………………… 643,409 457,384 (199,273) 901,520 - Total business-type activity long-term liabilities………………………………… $ 13,881,580 $ 10,668,622 $ (7,856,755) $ 16,693,447 $ 1,056,543 Compensated absence and workers’ compensation 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, parking, and trash enterprise funds. NOTE 9 – GOVERNMENTAL FUND BALANCE CLASSIFICATIONS In fiscal year 2011, the City implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The intention of the GASB is to provide a more structured classification of fund balance and to improve the usefulness of fund balance reporting to the users of the City’s financial statements. The reporting standard establishes a hierarchy for fund balance classifications and the constraints imposed on the uses of those resources. In accordance with Statement No. 54, the stabilization funds have been reported in the general fund, and accordingly, the general fund, the nonmajor fund and City Stabilization funds beginning balances have been revised from $1,632,919 to $3,554,623, from $9,417,110 to $9,409,319 and from $1,913,913 to respectively. 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 $2,736,777 and $256,089, respectively and are reported as unassigned fund balance within the General Fund. GASB 54 provides for two major types of fund balances, which are nonspendable and spendable. Nonspendable fund balances are balances that cannot be spent because they are not expected to be converted to cash or they are legally or contractually required to remain intact. Examples of this classification are prepaid items, inventories, and principal (corpus) of an endowment fund. The City has reported principal portions of endowment funds as nonspendable. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 66 Comprehensive Annual Financial Report In addition to the nonspendable fund balance, GASB 54 has provided a hierarchy of spendable fund balances, based on a hierarchy of spending constraints. • Restricted: fund balances that are constrained by external parties, constitutional provisions, or enabling legislation. • Committed: fund balances that contain self-imposed constraints of the government from its highest level of decision making authority. • Assigned: fund balances that contain self-imposed constraints of the government to be used for a particular purpose. • Unassigned: fund balance of the general fund that is not constrained for any particular purpose. As of June 30, 2011, the governmental fund balances consisted of the following: School Nonmajor Total Capital Governmental Governmental General Projects Funds Funds FUND BALANCES Nonspendable: Permanent fund principal…………………$ - $ - $ 1,707,276 $ 1,707,276 Restricted for: School Capital Projects fund……………… - 10,970 - 10,970 City revolving - - 1,253,294 1,253,294 City grant - - 1,081,780 1,081,780 School - - 55,458 55,458 School revolving - - 277,524 277,524 School grant - - 2,044,738 2,044,738 Donations and - - 1,385,819 1,385,819 Receipts reserved………………………..… - - 454,639 454,639 Community development grants………… - - 99,758 99,758 Salem Redevelopment Authority………… - - 20,786 20,786 Police station equipment………………… - - 9,668 9,668 Salem - - 38,086 38,086 Other capital projects……………………… - - 952,983 952,983 Cemetery - - 1,892,144 1,892,144 Human services - - 1,177,159 1,177,159 Other permanent - - 574,826 574,826 Assigned to: General government……………………… 31,005 - - 31,005 Public 39,807 - - 39,807 393,287 - - 393,287 Public 3,360 - - 3,360 Human services…………………………… 33,900 - - 33,900 Culture and recreation…………………… 20,963 - - 20,963 Pension benefits…………………………… 32,473 - - 32,473 Debt service interest……………………… 35,099 - - 35,099 8,405,585 (665,295) - 7,740,290 TOTAL FUND BALANCES (DEFICIT)…………$ 8,995,479 $ (654,325) $ 13,025,938 $ 21,367,092 GOVERNMENTAL FUNDS ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 67 Comprehensive Annual Financial Report 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 fiscal years. 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, 2011, the amount of the liability for workers’ compensation claims totaled $1,174,953. Changes in the reported liability since July 1, 2009, are as follows: Current Year Balance at Claims and Balance at Beginning of Changes in Claim Fiscal Current Fiscal Year Estimate Payments Year-End Portion Fiscal Year 2010………. $ 394,442 $ 663,363 $ (245,673) $ 812,132 $ 73,150 Fiscal Year 2011………. 812,132 639,627 (276,806) 1,174,953 98,787 NOTE 11 – PENSION PLAN Plan Description - The City contributes to the System, a cost-sharing multiple-employer defined benefit pension plan administered by the Salem Contributory Retirement Board. Substantially all employees are members of the System, except for public school teachers and certain administrators who are members of the Massachusetts Teachers Retirement System, to which the City does not contribute. Pension benefits and administrative expenses paid by the Teachers Retirement Board are the legal responsibility of the Commonwealth. The amount of these on-behalf payments totaled $9,290,000 for the fiscal year ended June 30, 2011, and, accordingly, are reported in the general fund as intergovernmental revenues and pension expenditures. The System provides retirement, disability and death benefits to plan members and beneficiaries. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the plan. 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 Salem Contributory Retirement Board and are borne by the System. The System issues a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth’s PERAC. That report may be obtained by contacting the System located at 20 Central Street, Salem, Massachusetts 01970. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 68 Comprehensive Annual Financial Report At December 31, 2010, the System’s membership consists of the following: Active 878 Inactive 149 Retirees and beneficiaries currently receiving benefits……… 578 1,605 Funding Policy - Plan members are required to contribute to the System at rates ranging from 5% to 11% of annual covered compensation. The City is required to pay into the System its share of the system-wide actuarial determined contribution that is apportioned among the employers based on active current payroll. Administrative expenses are funded through investment earnings. The current and two preceding fiscal years apportionment of the annual pension cost between the employers required the City to contribute 86% of the total. Chapter 32 of the MGL governs the contributions of plan members and the City. Annual Pension Cost - The City’s contributions to the System for the fiscal years ended June 30, 2011, 2010, and 2009, were $8,543,631, $8,233,450, and $7,952,910, respectively, which equaled its required contribution for each fiscal year. The required contribution was determined as part of the January 1, 2010, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included an inflation rate of 8.25% investment rate of return and projected salary increases of 5% per year. The actuarial value of the System's assets was determined using the fair value of the assets. The System's unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll. The remaining closed amortization period at January 1, 2011 was 19 years. Schedule of Funding Progress Actuarial UAAL as a Actuarial Accrued Unfunded Percentage Actuarial Value of Liability (AAL) AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (B-A) (A/B) 01/01/10 $ 100,046,731 $ 193,470,036 $ 93,423,305 51.7% $ 34,583,002 270.1% 01/01/08 99,988,471 179,382,299 79,393,828 55.7% 34,410,002 230.7% 01/01/06 84,796,044 166,958,606 82,162,562 50.8% 32,824,144 250.3% 01/01/05 81,801,377 156,479,479 74,678,102 52.3% 31,328,083 238.4% 01/01/04 80,659,012 142,499,185 61,840,173 56.6% 29,355,291 210.7% 01/01/03 76,438,885 137,111,559 60,672,674 55.7% 31,089,195 195.2% 01/01/01 73,727,923 117,334,727 43,606,804 62.8% 29,072,197 150.0% 01/01/99 68,563,143 111,294,953 42,731,810 61.6% 25,411,629 168.2% Funding progress is reported based on the biennial actuarial valuation performed by the System, and is being accumulated on a biennial basis. The City is responsible for approximately 86% of the unfunded liability. The schedule of progress, presented as required supplementary information, following the notes to the basic 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 liability for benefits. Additionally, the schedule of employer contributions, presented as required supplementary information, following the notes to the basic financial statements, presents multiyear trend information for required and actual contributions relating to the cost- sharing plan as a whole, of which the City is one participating employer, as well as the City’s proportionate share ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 69 Comprehensive Annual Financial Report of the plan’s annual contributions. This information is designed to be helpful for understanding the scale of the information presented relative to the City. NOTE 12 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Plan Description – The City of Salem 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 group health insurance plan, which covers both active and retired members. Chapter 32b of the MGL assigns authority to establish and amend benefit provisions of the plan. Benefit provisions are negotiated between the City and the unions representing City employees and are renegotiated each bargaining period. The Retiree Health Plan does not issue a publicly available financial report. Additionally, retired teachers and their spouses receive health insurance through the Group Insurance Commission of the Commonwealth of Massachusetts (GIC). Each participating municipality is assessed for the governmental share of health and life insurance premiums paid on behalf of its teacher retirees by the state. The employer’s share is 90% of the total premium; the retiree's co-payment is 10% of the total premium as well as full payment for catastrophic illness coverage. The City’s assessment of the employer’s share by the GIC, for retired teachers, for fiscal year 2011, totaled $2.3 million. 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 and 65% for those in senior plans. The City contributes 50% for surviving spouses. The City will contribute 65% in fiscal year 2012 for retirees in active plans. Plan members receiving benefits contribute the remainder of their premium costs. For fiscal year 2011, the City contributed $3.6 million to the plan, and total member contributions totaled $1.4 million. Annual OPEB Cost and Net OPEB Obligation – The City’s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s net OPEB obligation are summarized in the following table: Annual required contribution……………………………………$ 11,374,693 Interest on net OPEB obligation……………………………… 857,970 Adjustments to annual required contribution………………… (654,868) Annual OPEB cost 11,577,795 Contributions made (including retired teachers)…………… (5,916,957) Increase in net OPEB obligation……………………………… 5,660,838 Net OPEB obligation-beginning of 17,159,404 Net OPEB obligation-end of 22,820,242 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 70 Comprehensive Annual Financial Report The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal years 2010 and 2011 are as follows: Percentage of Fiscal Year Annual Annual OPEB Net OPEB Ended OPEB Cost Cost Contributed Obligation 6/30/2011 $ 11,577,795 51% $ 22,820,242 6/30/2010 11,005,122 48% 17,159,404 6/30/2009 11,129,465 61% 11,441,477 Funded Status and Funding Progress – The funded status of the Plan is as follows: 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) 12/31/2009 $ - $ 171,447,034 $ 171,447,034 0% $ 52,107,612 329.0% 12/31/2007 - 159,945,511 159,945,511 0% 50,103,473 319.2% 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, 2009, actuarial valuation, actuarial liabilities were determined using the projected unit credit cost method. The actuarial assumptions included a 5% 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 10% initially, graded to 5% over 7 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. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 71 Comprehensive Annual Financial Report 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 fiscal 2009, the City and the taxpayer entered into a three-year agreement, which would provide total payments of $4.75 million in fiscal 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. During fiscal year 2011, 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 2011 (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 until fiscal year 2016. Meanwhile, the mayor has established a task force to identify possible alternatives for the future development of the site. NOTE 14 – ENVIRONMENTAL REMEDIATION LIABILITY 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, while Northside Carting, Inc. operated the facility. The City has completed a preliminary study in order to estimate the cost of the landfill closure and postclosure care which are to be paid for equally by the City and the operator. As a result, the City has recorded a liability of $600,000 in the entity-wide financial statements, which represents 50% of the total estimated closure and postclosure costs. In addition, the City has identified two additional sites that will require environmental remediation by the City. The current estimated liability for the additional sites totals $1.8 million which has also been recorded as a liability in the entity-wide financial statements. Actual costs may be higher due to inflation, changes in technology, or changes in applicable laws, regulations or agreements. NOTE 15 – SALEM COMMUNITY CHARTER SCHOOL During fiscal year 2011, the City was approved 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 is scheduled to open during fiscal year 2012. During fiscal year 2011, the Charter School has incurred start-up costs totaling approximately $25,000; which were funded through state grants and have been reported within the City’s basic financial statements. The Charter School will be managed independently by an appointed Board of Trustees and not by the School Committee and Superintendent. Ongoing funding for the school’s operations will be 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 will be included within the City’s basic financial statements and will be audited independently. NOTE 16 – COMMITMENTS The City entered into contracts totaling approximately $10.6 million. Of this amount, $866,000 relates to the water main cleaning and lining, $1.7 million relates to the furnish and delivery of water meters, $100,000 relates to the install of water meters, $355,000 relates to traffic signal improvements and $331,000 relates to the Dove Avenue culvert replacement. Additionally, the City is in the process of executing contracts of $200,000 for the re-use of the Salem Harbor Power Station Site and $1.5 million for roadway pavement services. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 72 Comprehensive Annual Financial Report NOTE 17 – 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, 2011, 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, 2011, cannot be ascertained, management believes any resulting liability should not materially affect the financial position at June 30, 2011. NOTE 18 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During fiscal year 2011, the following GASB pronouncements were implemented: • The GASB issued Statement #54, Fund Balance Reporting and Governmental Fund Type Definitions, was implemented in fiscal year 2011. Financial statement changes include new fund balance designations and the reclassification of stabilization funds from the special revenue fund to the general fund. Notes to the basic financial statements were changed to provide additional disclosure on the new designations of fund balance. • The GASB issued Statement #59, Financial Instruments Omnibus. The objective of this Statement is to update and improve existing standards regarding financial reporting and disclosure requirements of certain financial instruments and external investment pools. The implementation of this standard did not impact the basic financial statements. Other Future GASB Pronouncements: • The GASB issued Statement #60, Accounting and Financial Reporting for Service Concession Arrangements, which is required to be implemented in fiscal year 2013. This Statement addresses service concession arrangements, which are a type of public-private or public-public partnership. Management is evaluating whether this pronouncement will require additional disclosure or impact the basic financial statements. • The GASB issued Statement #61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No.14 and No.34, which is required to be implemented in fiscal year 2013. The objective of this Statement is to improve financial reporting for a governmental financial reporting entity. Management does not believe that this pronouncement will require additional disclosure or impact the basic financial statements. • The GASB issued Statement #62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, which is required to be implemented in fiscal year 2013. The objective of this Statement is to incorporate into the GASB’s authoritative literature certain accounting and financial reporting guidance that does not conflict with or contradict GASB pronouncements. Management does not believe that this pronouncement will require additional disclosure or impact the basic financial statements. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 73 Comprehensive Annual Financial Report • The GASB issued Statement #63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, which is required to be implemented in fiscal year 2013. Management’s current assessment is that this pronouncement will have a significant impact on the basic financial statements. • The GASB issued Statement #64, Derivative Instruments: Application of Hedge Accounting Termination Provisions, an amendment of GASB Statement No. 53, which is required to be implemented in fiscal year 2012. Management does not believe that this pronouncement will require additional disclosure or impact the basic financial statements. ---PAGE BREAK--- City of Salem, Massachusetts 74 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 75 Comprehensive Annual Financial Report Required Supplementary Information Required Supplementary Information ---PAGE BREAK--- City of Salem, Massachusetts 76 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--- 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 refunds……………………… $ - $ 71,553,250 $ 71,553,250 $ 71,553,250 $ 71,557,825 $ - $ 4,575 Tax - - - - 241,637 - 241,637 Motor vehicle and other excise taxes…… - 2,770,000 2,770,000 2,770,000 3,180,552 - 410,552 Hotel/motel and meals taxes……………… - 960,000 960,000 960,000 955,092 - (4,908) Charges for services……………………… - 1,050,000 1,050,000 1,050,000 1,168,187 - 118,187 Penalties and interest on taxes…………… - 383,000 383,000 383,000 437,282 - 54,282 Payments in lieu of taxes………………… - 1,320,000 1,320,000 1,320,000 1,319,079 - (921) Licenses and permits……………………… - 450,000 450,000 450,000 510,375 - 60,375 Fines and forfeitures……………………… - 950,000 950,000 950,000 1,208,272 - 258,272 Intergovernmental…………………………… - 30,854,431 30,854,431 30,854,431 30,816,309 - (38,122) Departmental and - 2,300,000 2,300,000 2,300,000 2,515,144 - 215,144 Investment - 50,000 50,000 50,000 63,021 - 13,021 TOTAL REVENUES…………… - 112,640,681 112,640,681 112,640,681 113,972,775 - 1,332,094 EXPENDITURES: Current: General government City Council Personnel………………………… - 119,700 119,700 119,700 119,672 - 28 Non - Personnel………………… - 42,450 42,450 52,450 40,165 2,500 9,785 - 162,150 162,150 172,150 159,837 2,500 9,813 Mayor Personnel………………………… - 261,784 261,784 261,784 261,693 - 91 Non - Personnel………………… 17,600 95,250 112,850 112,850 94,630 13,000 5,220 17,600 357,034 374,634 374,634 356,323 13,000 5,311 Finance/Auditing Personnel………………………… - 234,594 234,594 235,418 233,875 - 1,543 Non - Personnel………………… 2,719 22,485 25,204 25,204 20,675 4,360 169 2,719 257,079 259,798 260,622 254,550 4,360 1,712 Purchasing Personnel………………………… - 96,558 96,558 97,632 97,594 - 38 Non - Personnel………………… - 21,500 21,500 21,500 19,517 - 1,983 Fixed - 53,000 53,000 53,000 52,013 - 987 - 171,058 171,058 172,132 169,124 - 3,008 Assessors Personnel………………………… - 242,674 242,674 244,025 242,851 - 1,174 Non - Personnel………………… - 27,177 27,177 27,177 18,345 - 8,832 - 269,851 269,851 271,202 261,196 - 10,006 Treasurer Personnel………………………… - 151,194 151,194 160,842 159,124 - 1,718 Non - Personnel………………… - 58,295 58,295 77,795 65,396 - 12,399 - 209,489 209,489 238,637 224,520 - 14,117 Collector Personnel………………………… - 197,897 197,897 174,236 171,377 - 2,859 Non - Personnel………………… - 6,600 6,600 5,200 4,019 1,000 181 - 204,497 204,497 179,436 175,396 1,000 3,040 Solicitor Personnel………………………… - 151,528 151,528 153,195 151,224 1,900 71 Non - Personnel………………… - 64,176 64,176 62,509 61,400 - 1,109 - 215,704 215,704 215,704 212,624 1,900 1,180 (continued) Budgeted Amounts GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2011 City of Salem, Massachusetts 77 Comprehensive Annual Financial Report ---PAGE BREAK--- 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 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2011 Human Resources Personnel………………………… - 902,799 902,799 216,166 216,154 - 12 Non - Personnel………………… - 31,450 31,450 31,450 30,375 - 1,075 - 934,249 934,249 247,616 246,529 - 1,087 Data Processing Personnel………………………… - 171,043 171,043 171,043 164,760 - 6,283 Non - Personnel………………… - 14,100 14,100 14,100 12,696 - 1,404 Fixed - 315,140 315,140 316,240 314,016 1,270 954 GIS Expenses…………………… - 13,294 13,294 46,071 40,596 450 5,025 GIS Personnel…………………… - 32,777 32,777 - - - - - 546,354 546,354 547,454 532,068 1,720 13,666 City Clerk Record Maintenance Personnel………………………… - 247,940 247,940 250,381 245,210 - 5,171 Non - Personnel………………… - 6,550 6,550 6,550 5,987 500 63 - 254,490 254,490 256,931 251,197 500 5,234 Elections & Registrations Personnel………………………… - 95,242 95,242 96,066 96,061 - 5 Non - Personnel………………… 9,139 50,100 59,239 54,239 46,404 6,025 1,810 9,139 145,342 154,481 150,305 142,465 6,025 1,815 Licensing Personnel………………………… - 49,858 49,858 50,682 50,679 - 3 Non - Personnel………………… - 1,740 1,740 1,740 561 - 1,179 - 51,598 51,598 52,422 51,240 - 1,182 Conservation Commission Personnel………………………… - 24,448 24,448 24,448 23,281 - 1,167 Non - Personnel………………… - 425 425 425 425 - - - 24,873 24,873 24,873 23,706 - 1,167 Subdivision, Planning, and Zoning Board Personnel………………………… - 23,409 23,409 23,409 22,394 - 1,015 Non - Personnel………………… - 3,000 3,000 3,000 2,597 - 403 - 26,409 26,409 26,409 24,991 - 1,418 Board of Appeals Personnel………………………… - 3,000 3,000 3,000 2,960 - 40 Non - Personnel………………… - 900 900 900 388 - 512 - 3,900 3,900 3,900 3,348 - 552 Planning Department Personnel………………………… - 200,740 200,740 200,740 198,113 - 2,627 Non - Personnel………………… - 7,275 7,275 7,275 6,644 - 631 - 208,015 208,015 208,015 204,757 - 3,258 Public Property/Building Maintenance Fixed 2,000 645,500 647,500 685,461 681,752 - 3,709 Market and Tourism………………… - 195,500 195,500 195,500 195,492 - 8 Total General Government…………… 31,458 4,883,092 4,914,550 4,283,403 4,171,115 31,005 81,283 (continued) City of Salem, Massachusetts 78 Comprehensive Annual Financial Report ---PAGE BREAK--- 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 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2011 Public safety Police Personnel………………………… - 7,266,743 7,266,743 7,245,325 7,089,200 - 156,125 Non - Personnel………………… 12,527 481,250 493,777 516,777 476,730 16,607 23,440 12,527 7,747,993 7,760,520 7,762,102 7,565,930 16,607 179,565 Fire Personnel………………………… 36,717 6,616,227 6,652,944 6,768,259 6,619,714 13,500 135,045 Non - Personnel………………… 28,331 370,514 398,845 418,845 395,481 9,700 13,664 65,048 6,986,741 7,051,789 7,187,104 7,015,195 23,200 148,709 Building, Plumbing, Gas Inspections Personnel………………………… - 288,678 288,678 297,896 297,409 - 487 Non - Personnel………………… - 27,400 27,400 15,850 14,347 - 1,503 - 316,078 316,078 313,746 311,756 - 1,990 Electrical Inspection and Maintenance Personnel………………………… - 257,695 257,695 261,213 254,921 - 6,292 Non - Personnel………………… - 789,000 789,000 789,000 722,672 - 66,328 - 1,046,695 1,046,695 1,050,213 977,593 - 72,620 Harbormaster Personnel………………………… - 175,307 175,307 175,307 164,026 - 11,281 Non - Personnel………………… - 40,730 40,730 42,230 40,452 - 1,778 - 216,037 216,037 217,537 204,478 - 13,059 Total Public Safety……………………… 77,575 16,313,544 16,391,119 16,530,702 16,074,952 39,807 415,943 Education 217,684 47,000,000 47,217,684 47,750,305 47,019,720 393,287 337,298 NSRS/Charter/Choice…………… - 1,588,602 1,588,602 1,588,602 1,588,226 - 376 Total Education……………….………… 217,684 48,588,602 48,806,286 49,338,907 48,607,946 393,287 337,674 Public Works Public Services Personnel………………………… - 1,490,253 1,490,253 1,512,274 1,444,443 - 67,831 Non - Personnel………………… 23,814 536,836 560,650 567,650 541,575 - 26,075 23,814 2,027,089 2,050,903 2,079,924 1,986,018 - 93,906 Engineering Personnel………………………… - 70,671 70,671 70,671 70,595 - 76 Non - Personnel………………… - 3,500 3,500 3,500 2,644 - 856 - 74,171 74,171 74,171 73,239 - 932 Snow and Ice Personnel………………………… - 50,000 50,000 50,000 94,631 - (44,631) Non - Personnel………………… - 344,560 344,560 344,560 892,296 - (547,736) - 394,560 394,560 394,560 986,927 - (592,367) Parking Garage Personnel………………………… - 536,219 536,219 541,052 510,304 - 30,748 Non - Personnel………………… 7,095 136,700 143,795 143,795 135,738 3,360 4,697 7,095 672,919 680,014 684,847 646,042 3,360 35,445 Total Public 30,909 3,168,739 3,199,648 3,233,502 3,692,226 3,360 (462,084) (continued) City of Salem, Massachusetts 79 Comprehensive Annual Financial Report ---PAGE BREAK--- 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 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2011 Health and Human Services Board of Health Personnel………………………… - 337,609 337,609 342,181 275,925 - 66,256 Non - Personnel………………… - 21,200 21,200 21,200 16,014 - 5,186 - 358,809 358,809 363,381 291,939 - 71,442 Council on Aging Personnel………………………… - 237,631 237,631 238,455 232,305 - 6,150 Non - Personnel………………… 15,000 31,100 46,100 46,100 35,032 - 11,068 15,000 268,731 283,731 284,555 267,337 - 17,218 Veterans Services Personnel………………………… - 72,881 72,881 72,881 72,096 - 785 Non - Personnel………………… 11,944 141,200 153,144 285,644 249,302 33,900 2,442 11,944 214,081 226,025 358,525 321,398 33,900 3,227 Total Health and Human Services…… 26,944 841,621 868,565 1,006,461 880,674 33,900 91,887 Culture and Recreation Library Personnel………………………… - 861,915 861,915 862,731 820,649 - 42,082 Non - Personnel………………… - 281,601 281,601 281,601 278,576 - 3,025 - 1,143,516 1,143,516 1,144,332 1,099,225 - 45,107 Parks and Recreation Personnel………………………… - 331,695 331,695 332,519 311,390 - 21,129 Non - Personnel………………… 14,078 151,610 165,688 168,188 144,965 12,843 10,380 14,078 483,305 497,383 500,707 456,355 12,843 31,509 Golf Course Personnel………………………… - 230,220 230,220 231,878 226,089 - 5,789 Non - Personnel………………… 4,758 99,500 104,258 113,258 105,358 4,284 3,616 4,758 329,720 334,478 345,136 331,447 4,284 9,405 Witch House Personnel………………………… - 74,066 74,066 74,066 69,210 - 4,856 Non - Personnel………………… 15,576 64,280 79,856 79,856 60,558 2,994 16,304 15,576 138,346 153,922 153,922 129,768 2,994 21,160 Historical Commission Personnel………………………… - 7,913 7,913 7,913 7,612 - 301 Non - Personnel………………… - 1,350 1,350 1,350 1,274 - 76 - 9,263 9,263 9,263 8,886 - 377 Winter Island Personnel………………………… - 105,054 105,054 105,054 93,133 - 11,921 Non - Personnel………………… 2,843 50,000 52,843 52,843 49,018 842 2,983 2,843 155,054 157,897 157,897 142,151 842 14,904 Total Culture and Recreation……… 37,255 2,259,204 2,296,459 2,311,257 2,167,832 20,963 122,462 Debt service: Principal………………………………… - 4,690,000 4,690,000 4,690,000 4,690,000 - - - 1,831,152 1,831,152 1,831,152 1,799,231 - 31,921 Short Term Interest and fees………… - 172,472 172,472 172,472 117,373 35,099 20,000 - 6,693,624 6,693,624 6,693,624 6,606,604 35,099 51,921 State and county charges………………… - 6,992,578 6,992,578 6,992,578 6,445,380 - 547,198 Pension benefits Contributory Retirement………………… - 8,392,927 8,392,927 8,392,927 8,331,689 32,473 28,765 Non-Contributory Retirement………… - 106,448 106,448 106,448 86,134 - 20,314 - 8,499,375 8,499,375 8,499,375 8,417,823 32,473 49,079 (continued) City of Salem, Massachusetts 80 Comprehensive Annual Financial Report ---PAGE BREAK--- 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 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2011 Workmen's Compensation………………… - 431,474 431,474 431,474 420,991 - 10,483 Unemployment Compensation…………… - 300,000 300,000 300,000 227,026 - 72,974 Group Insurance…………………………… - 10,680,005 10,680,005 10,630,635 10,293,265 - 337,370 - 717,344 717,344 810,944 810,409 - 535 Municipal Insurance………………………… - 291,535 291,535 291,535 239,410 - 52,125 TOTAL EXPENDITURES……… 421,825 110,660,737 111,082,562 111,354,397 109,055,653 589,894 1,708,850 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES………… (421,825) 1,979,944 1,558,119 1,286,284 4,917,122 (589,894) 3,040,944 OTHER FINANCING SOURCES (USES): Premium from issuance of bonds………… - - - - 1,167,420 - 1,167,420 Transfers - 2,386,292 2,386,292 2,406,292 2,467,793 - 61,501 Transfers - (4,100,249) (4,100,249) (4,599,021) (4,599,021) - - TOTAL OTHER FINANCING SOURCES (USES)………… - (1,713,957) (1,713,957) (2,192,729) (963,808) - 1,228,921 NET CHANGE IN FUND BALANCE………… (421,825) 265,987 (155,838) (906,445) 3,953,314 (589,894) 4,269,865 BUDGETARY FUND BALANCE, Beginning of - 2,132,396 2,132,396 2,132,396 2,132,396 - - BUDGETARY FUND BALANCE, End of (421,825) $ 2,398,383 $ 1,976,558 $ 1,225,951 $ 6,085,710 $ (589,894) $ 4,269,865 (concluded) See notes to required supplementary information. City of Salem, Massachusetts 81 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 82 Comprehensive Annual Financial Report Retirement System Schedules of Funding Progress and Employer Contributions Retirement system schedules The Retirement System Schedule of Funding Progress presents multiyear trend information relating to the cost- sharing plan as a whole, of which the City is one participating employer, about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. The Retirement System Schedule of Employer Contributions presents multiyear trend information for required and actual contributions relating to the cost-sharing plan as a whole, of which the City is one participating employer, as well as the City’s proportionate share of the plan’s annual contributions. ---PAGE BREAK--- Actuarial UAAL as a Actuarial Accrued Unfunded Percentage Actuarial Value of Liability (AAL) AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (B-A) (A/B) 01/01/10 $ 100,046,731 $ 193,470,036 $ 93,423,305 51.7% $ 34,583,002 270.1% 01/01/08 99,998,471 179,382,299 79,383,828 55.7% 34,410,002 230.7% 01/01/06 84,796,044 166,958,606 82,162,562 50.8% 32,824,144 250.3% 01/01/05 81,801,377 156,479,479 74,678,102 52.3% 31,328,083 238.4% 01/01/04 80,659,012 142,499,185 61,840,173 56.6% 29,355,291 210.7% 01/01/03 76,438,885 137,111,559 60,672,674 55.7% 31,089,195 195.2% See notes to required supplementary information. SALEM CONTRIBUTORY RETIREMENT SYSTEM SCHEDULE OF FUNDING PROGRESS City of Salem, Massachusetts 83 Comprehensive Annual Financial Report ---PAGE BREAK--- (B/A) Fiscal Year Annual City's Percentage Ended Required Actual Percentage Actual of System Wide June 30 Contributions Contributions Contributed Contributions Actual Contributions 2011 $ 9,991,587 $ 9,991,587 100% $ 8,543,631 85.51% 2010 9,628,758 9,628,758 100% 8,233,450 85.51% 2009 9,239,327 9,239,327 100% 7,952,910 86.08% 2008 8,939,812 8,939,812 100% 7,693,291 86.06% 2007 8,431,371 8,431,371 100% 7,209,359 85.51% The City's Actual Contributions equaled 100% of its Required Contributions for each year presented. See notes to required supplementary information. SALEM CONTRIBUTORY RETIREMENT SYSTEM SCHEDULE OF EMPLOYER CONTRIBUTIONS System Wide City of Salem City of Salem, Massachusetts 84 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 85 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) 12/31/2009 $ - $ 171,447,034 $ 171,447,034 0% $ 52,107,612 329.0% 12/31/2007 - 159,945,511 159,945,511 0% 50,103,473 319.2% Fiscal Annual Actual Percentage of Year Required Contributions the ARC Ended Contribution (ARC) Made Contributed 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 86 Comprehensive Annual Financial Report ---PAGE BREAK--- ACTUARIAL METHODS AND ASSUMPTIONS Actuarial Methods: Valuation date December 31, 2009 Actuarial cost method Projected Unit Credit Amortization method Amortization payments increasing at 4.0%, using a level percentage of payroll. Remaining amortization period 30 years as of December 31, 2009, open Actuarial Assumptions: Investment rate of return 5.0%, pay-as-you-go scenario Medical/drug cost trend rate 10.0% graded to 5.0% over 7 years Plan Membership: Current retirees, beneficiaries, and dependents 972 Current active members 880 Total 1,852 See notes to required supplementary information. OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 87 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Required Supplementary Information Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 88 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 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 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 within the last 2 months of the fiscal year, 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 fiscal year. Others are continuing appropriations for which the governing body has authorized that an unspent balance from a prior fiscal year be carried forward and made available for spending in the current fiscal year. These carry forwards are included as part of the subsequent fiscal 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 fiscal year 2011 approved budget authorized approximately $115 million in appropriations and other amounts to be raised. During the fiscal year, increases to the original budget were approved totaling approximately $771,000. 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 Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 89 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 fiscal year ended June 30, 2011, is presented below: Net change in fund balance - budgetary $ 3,953,314 Perspective differences: Reclassification of enterprise fund revenue budgeted in the general fund…………… 1,942,949 Reclassification of enterprise fund expenditures budgeted in the general fund……… (1,942,949) Activity of the Salem Community Charter 131,813 Activity of the stabilization funds recorded in the general fund for 1,071,162 Basis of accounting differences: Net change in revenues in recording tax refunds 196,991 Net change in short-term debt service interest 43,390 Recognition of revenue for on-behalf 9,290,000 Recognition of expenditures for on-behalf (9,290,000) Net difference in recognition of expenditures…………………………………………… 44,186 Net change in fund balances - GAAP $ 5,440,856 3. Appropriation Deficits During fiscal year 2011, expenditures exceeded budgeted appropriations for snow and ice. These over expenditures will be funded with available funds in fiscal year 2012. NOTE B – PENSION PLAN The City contributes to the System, a cost-sharing, multiple-employer defined benefit pension plan ("Plan") administered by the Salem Contributory Retirement Board. The System provides retirement, disability, and death benefits to members and beneficiaries. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the Plan. The City is required to pay into the Retirement System its share of the system-wide actuarially determined contribution which is apportioned among the employers based on active covered payroll. The schedule of funding progress, presented as required supplementary information presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Additionally, the schedule of employer contributions, presented as required supplementary information presents multi-year trend information for required and actual contributions relating to the cost-sharing plan as a whole, of which the City is one participating employer, as well as the City’s proportionate share of the plan’s annual contributions. This information is designed to be helpful for understanding the scale of the information presented relative to the City. ---PAGE BREAK--- Notes to Required Supplementary Information Fiscal Year Ended June 30, 2011 City of Salem, Massachusetts 90 Comprehensive Annual Financial Report The following actuarial methods and assumptions were used in the Retirement System’s most recent actuarial valuation: Actuarial Methods and Assumptions: Valuation January 1, 2010 Actuarial Cost Method………………………………………Entry Age Normal Cost Method Amortization Method…………………………………………Increasing at 4.5% per year Remaining Amortization Period……………………………20 years remaining as of July 1, 2010, open 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 5 year period. Actuarial Assumptions: Investment rate of 8.25% Projected salary increases…………………………………5.00% Cost of living adjustments…………………………………3.00% for the first $12,000 of retirement income 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 group health insurance plan, which covers both active and retired members. Additionally, retired teachers and their spouses receive health insurance through the Group Insurance Commission of the Commonwealth of Massachusetts (GIC). Each participating municipality is assessed for the governmental share of health and life insurance premiums paid on behalf of its teacher retirees by the state. 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 multi year 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 91 Comprehensive Annual Financial Report Combining Statements Combining Statements ---PAGE BREAK--- City of Salem, Massachusetts 92 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. Salem Redevelopment Authority Fund – This fund is used to account for the activity of the Salem Redevelopment Authority (SRA) and is financed by federal, state, and other grants included with the Community Development grants. The funds are used for redevelopment and improvement of buildings and business storefronts located within the Urban Renewal Area which makes up a majority of Downtown Salem. 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 Police Station Equipment Fund – This fund is used to account for the purchase of equipment for the Police Station which is being financed through the issuance of capital leases. Salem Ferry Fund – This fund is used to account for the purchase of the Salem Ferry, a high-speed catamaran purchased by the City to provide seasonal ferry service between Salem and Boston. Wharf Renovation Fund – This fund is used to account for the renovation of the wharf which is being financed mainly by grants. Other Funds – This fund is used to account for various capital projects. ---PAGE BREAK--- City of Salem, Massachusetts 93 Comprehensive Annual Financial Report 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--- City of Salem, Massachusetts 94 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- Community Salem City School Development Redevelopment School Highway Donations Receipts ASSETS Grants Grants Grants Authority Lunch Grants and Gifts Reserved Cash and cash equivalents…………………$ 1,172,270 $ 2,010,186 $ 75,987 $ 20,786 $ 45,092 $ - $ 947,451 $ 454,639 Investments………………………………… - - - - - - 438,368 - Receivables, net of uncollectibles: Departmental and other………………… - - - - - - - 84,730 Intergovernmental……………………… - 281,100 45,796 - 24,756 1,729,955 - - - - 415,354 - - - - - Due from other 185,911 - - - - - - - TOTAL 1,358,181 $ 2,291,286 $ 537,137 $ 20,786 $ 69,848 $ 1,729,955 $ 1,385,819 $ 539,369 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants 243,413 $ 61,601 $ 17,176 $ - $ - $ 180,998 $ - $ - Accrued 32,988 184,947 4,849 - 14,390 - - - Deferred revenues……………………… - - 415,354 - - 1,363,046 - 84,730 Due to other - - - - - 185,911 - - Notes - - - - - - - - TOTAL LIABILITIES………………………… 276,401 246,548 437,379 - 14,390 1,729,955 - 84,730 FUND BALANCES: Nonspendable…………………………… - - - - - - - - Restricted………………………………… 1,081,780 2,044,738 99,758 20,786 55,458 - 1,385,819 454,639 TOTAL FUND BALANCES………………… 1,081,780 2,044,738 99,758 20,786 55,458 - 1,385,819 454,639 TOTAL LIABILITIES AND FUND BALANCES…………………$ 1,358,181 $ 2,291,286 $ 537,137 $ 20,786 $ 69,848 $ 1,729,955 $ 1,385,819 $ 539,369 (Continued) Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2011 City of Salem, Massachusetts 95 Comprehensive Annual Financial Report ---PAGE BREAK--- City School Police Revolving Revolving Station Salem Wharf ASSETS Accounts Accounts Subtotal Equipment Ferry Renovation Other Subtotal Cash and cash equivalents…………………………$ 1,253,562 $ 292,742 $ 6,272,715 $ 9,668 $ 38,086 $ 1,264,206 $ 1,001,454 $ 2,313,414 Investments………………………………………… - - 438,368 - - - - - Receivables, net of uncollectibles: Departmental and - - 84,730 - - - - - Intergovernmental……………………………… - - 2,081,607 - - 1,991,671 - 1,991,671 183,249 - 598,603 - - - - - Due from other - - 185,911 - - - - - TOTAL $ 1,436,811 $ 292,742 $ 9,661,934 $ 9,668 $ 38,086 $ 3,255,877 $ 1,001,454 $ 4,305,085 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants $ - $ 13,730 $ 516,918 $ - $ - $ 255,877 $ 48,471 $ 304,348 Accrued 268 1,488 238,930 - - - - - Deferred revenues……………………………… 183,249 - 2,046,379 - - - - - Due to other - - 185,911 - - - - - Notes - - - - - 3,000,000 - 3,000,000 TOTAL LIABILITIES………………………………… 183,517 15,218 2,988,138 - - 3,255,877 48,471 3,304,348 FUND BALANCES: Nonspendable…………………………………… - - - - - - - - 1,253,294 277,524 6,673,796 9,668 38,086 - 952,983 1,000,737 TOTAL FUND BALANCES………………………… 1,253,294 277,524 6,673,796 9,668 38,086 - 952,983 1,000,737 TOTAL LIABILITIES AND FUND BALANCES……………………… $ 1,436,811 $ 292,742 $ 9,661,934 $ 9,668 $ 38,086 $ 3,255,877 $ 1,001,454 $ 4,305,085 (Continued) NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2011 Capital Project Funds City of Salem, Massachusetts 96 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Cemetery Human Service Governmental Fund Fund Other Subtotal Funds $ 358,434 $ 165,304 $ 138,971 $ 662,709 $ 9,248,838 2,523,469 1,233,029 932,198 4,688,696 5,127,064 - - - - 84,730 - - - - 4,073,278 - - - - 598,603 - - - - 185,911 $ 2,881,903 $ 1,398,333 $ 1,071,169 $ 5,351,405 $ 19,318,424 $ - $ - $ - $ - $ 821,266 - - - - 238,930 - - - - 2,046,379 - - - - 185,911 - - - - 3,000,000 - - - - 6,292,486 989,759 221,174 496,343 1,707,276 1,707,276 1,892,144 1,177,159 574,826 3,644,129 11,318,662 2,881,903 1,398,333 1,071,169 5,351,405 13,025,938 $ 2,881,903 $ 1,398,333 $ 1,071,169 $ 5,351,405 $ 19,318,424 (Concluded) Permanent Funds City of Salem, Massachusetts 97 Comprehensive Annual Financial Report ---PAGE BREAK--- Community Salem City School Development Redevelopment School Highway Donations Grants Grants Grants Authority Lunch Grants and Gifts REVENUES: Charges for 6,263 $ 66,501 $ - $ - $ - $ - $ - Penalties and interest on - - - - - - - Intergovernmental………………………………………………………… 7,578,678 9,727,646 1,724,779 - 1,710,534 452,632 - Departmental and 195,082 297,249 54,904 - - - 403 7,146 24,255 - - - - 1,102,267 Investment income 548 - 496 41 - - 681 TOTAL 7,787,717 10,115,651 1,780,179 41 1,710,534 452,632 1,103,351 EXPENDITURES: Current: General 1,077,000 - - - - - 75,005 Public 1,451,949 - - - - - 43,476 6,655 8,889,627 - - 1,788,800 - 26,827 Public 262,318 - - - - 452,632 - Community 523,928 - 1,715,923 - - - 120 Health and human 5,021,545 - - - - - 17,944 Culture and 40,349 - - - - - 29,676 Debt service: - - 35,000 - - - - - - 4,303 - - - - TOTAL EXPENDITURES…………………………………………… 8,383,744 8,889,627 1,755,226 - 1,788,800 452,632 193,048 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………………………… (596,027) 1,226,024 24,953 41 (78,266) - 910,303 OTHER FINANCING SOURCES (USES): Issuance of bonds and - - - - - - - Capital lease - - - - - - - Transfers 915,518 19,258 72 - - - - Transfers (144,469) (19,258) - - - - - TOTAL OTHER FINANCING SOURCES 771,049 - 72 - - - - NET CHANGE IN FUND 175,022 1,226,024 25,025 41 (78,266) - 910,303 FUND BALANCES AT BEGINNING OF YEAR, AS REVISED………… 906,758 818,714 74,733 20,745 133,724 - 475,516 FUND BALANCES AT END OF 1,081,780 $ 2,044,738 $ 99,758 $ 20,786 $ 55,458 $ - $ 1,385,819 (Continued) NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2011 Special Revenue Funds City of Salem, Massachusetts 98 Comprehensive Annual Financial Report ---PAGE BREAK--- City School Police Receipts Revolving Revolving Station Salem Wharf Reserved Accounts Accounts Subtotal Equipment Ferry Renovation Other Subtotal $ - $ - $ - $ 72,764 $ - $ - $ - $ - $ - 1,205 - - 1,205 - - - - - - - - 21,194,269 - - 3,696,671 - 3,696,671 459,237 564,346 824,335 2,395,556 - - - - - - 10,360 - 1,144,028 - - - - - - 2,173 488 4,427 - - - - - 460,442 576,879 824,823 24,812,249 - - 3,696,671 - 3,696,671 - 119,569 - 1,271,574 - - - - - - - - 1,495,425 - - - 105,986 105,986 - - 916,432 11,628,341 - - - 128,743 128,743 - 91,381 - 806,331 - - 1,276,003 409,106 1,685,109 - 134,790 - 2,374,761 - - 2,090,998 - 2,090,998 - - - 5,039,489 - - - - - - 228,699 - 298,724 - - - 13,775 13,775 - - - 35,000 - - - - - - - - 4,303 - - - 10,143 10,143 - 574,439 916,432 22,953,948 - - 3,367,001 667,753 4,034,754 460,442 2,440 (91,609) 1,858,301 - - 329,670 (667,753) (338,083) - - - - - - - 630,000 630,000 - - 75,000 75,000 - - - - - - - 6 934,854 - - 150,000 - 150,000 (405,794) (2,500) (572,027) - - - - - (405,794) (2,500) 75,000 437,827 - - 150,000 630,000 780,000 54,648 (60) (16,609) 2,296,128 - - 479,670 (37,753) 441,917 399,991 1,253,354 294,133 4,377,668 9,668 38,086 (479,670) 990,736 558,820 $ 454,639 $ 1,253,294 $ 277,524 $ 6,673,796 $ 9,668 $ 38,086 $ - $ 952,983 $ 1,000,737 (Continued) Capital Project Funds Special Revenue Funds City of Salem, Massachusetts 99 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Cemetery Human Service Governmental Fund Fund Other Subtotal Funds REVENUES: Charges for $ - $ - $ - $ - $ 72,764 Penalties and interest on - - - 1,205 Intergovernmental………………………………………… - - - - 24,890,940 Departmental and - - - - 2,395,556 Contributions………………………………………………… 18,000 - 3,853 21,853 1,165,881 Investment income 524,589 257,719 220,975 1,003,283 1,007,710 TOTAL 542,589 257,719 224,828 1,025,136 29,534,056 EXPENDITURES: Current: General government…………………………………… - - 715 715 1,272,289 Public - - 2,000 2,000 1,603,411 - - - - 11,757,084 Public 66,764 - 51,204 117,968 2,609,408 Community development……………………………… - - - - 4,465,759 Health and human services…………………………… - 25,879 - 25,879 5,065,368 Culture and recreation…………………………………… - - - - 312,499 Debt service: - - - - 35,000 - - - - 14,446 TOTAL EXPENDITURES…………………………… 66,764 25,879 53,919 146,562 27,135,264 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………… 475,825 231,840 170,909 878,574 2,398,792 OTHER FINANCING SOURCES (USES): Issuance of bonds and - - - - 630,000 Capital lease - - - - 75,000 Transfers - - - - 1,084,854 Transfers - - - - (572,027) TOTAL OTHER FINANCING SOURCES (USES)… - - - - 1,217,827 NET CHANGE IN FUND BALANCES……………………… 475,825 231,840 170,909 878,574 3,616,619 FUND BALANCES AT BEGINNING OF YEAR…………… 2,406,078 1,166,493 900,260 4,472,831 9,409,319 FUND BALANCES AT END OF $ 2,881,903 $ 1,398,333 $ 1,071,169 $ 5,351,405 $ 13,025,938 (Concluded) NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2011 Permanent Funds City of Salem, Massachusetts 100 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 101 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 ASSETS JUNE 30, 2011 Trust Fund Scholarship Commissioners Funds Total ASSETS Cash and cash equivalents………………………………… $ 159,185 $ 95,793 $ 254,978 1,135,871 - 1,135,871 TOTAL 1,295,056 95,793 1,390,849 NET ASSETS Held in trust for other 1,295,056 $ 95,793 $ 1,390,849 Private Purpose Trust Funds City of Salem, Massachusetts 102 Comprehensive Annual Financial Report ---PAGE BREAK--- Trust Fund Scholarship Commissioners Funds Total ADDITIONS: Contributions: Private $ 1,942 $ 25,574 $ 27,516 Net investment income: Net change in fair value of investments……………………………………… 251,697 - 251,697 15 183 198 TOTAL 253,654 25,757 279,411 DEDUCTIONS: Educational 5,398 14,199 19,597 Housing 104,815 - 104,815 TOTAL 110,213 14,199 124,412 CHANGE IN NET 143,441 11,558 154,999 NET ASSETS AT BEGINNING OF 1,151,615 84,235 1,235,850 NET ASSETS AT END OF $ 1,295,056 $ 95,793 $ 1,390,849 Private Purpose Trust Funds PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF CHANGES IN NET ASSETS FISCAL YEAR ENDED JUNE 30, 2011 City of Salem, Massachusetts 103 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 104 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………………$ 778,528 $ 8,668,949 $ (8,764,121) $ 683,356 LIABILITIES Warrants 51,680 $ 17,050 $ (51,681) $ 17,049 Liabilities due depositors………………… 726,848 35,634,616 (35,695,157) 666,307 TOTAL LIABILITIES…………………………$ 778,528 $ 35,651,666 $ (35,746,838) $ 683,356 AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FISCAL YEAR ENDED JUNE 30, 2011 City of Salem, Massachusetts 105 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 106 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- Statistical Section Winter Island Light House Winter Island During the 1930's, the United States Coast Guard created a Search & Rescue Base here on Winter Island Park. The Frigate USS Essex was built and launched in 1799 from this location. It served General George Washington in the U.S. Navy. The three bunkers located in historic Fort Pickering once stored ammunition as early as the Civil War. Winter Island had Salem's first tavern and first shipyard. A fort was erected as early as 1643. In 1867, the War department "turned over" to the city "for public use" the part of the island not occupied by the fort, until it should be wanted for defense. On December 28, 1928, Salem's Park Department took formal possession of the island. The fort was renamed Fort Pickering, after Colonel Timothy Pickering, Secretary of State and War in Washington's Cabinet. Winter Island is located at 50 Winter Island Road in Salem, Massachusetts. It offers RV and Tent Camping May 1 to Nov 1, a public boat ramp that is open year round, Waikiki Beach a public beach with lifeguards, seasonal dinghy rack spaces, and a camp and gift store. Picnic areas can be rented May 1 through Nov 1. Winter Island offers a walking tour where you can see the historic Fort Pickering Lighthouse and is a stop along the Salem Trolley Tour. A function hall is available for year round rentals and is a great place for weddings and more! Go to www.salem.com Recreation Department for more information. ---PAGE BREAK--- City of Salem, Massachusetts 107 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--- 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Governmental activities Invested in capital assets, net of related debt…… $ 82,253,876 $ 83,045,604 $ 79,729,492 $ 112,740,510 $ 109,183,737 $ 132,787,853 $ 139,683,360 $ 147,373,757 $ 147,313,749 $ 144,887,020 5,755,817 5,237,908 8,759,761 9,734,998 8,649,700 8,868,048 6,948,839 6,968,580 6,892,267 10,562,103 Unrestricted…………………………………………… 4,546,625 9,656,396 6,519,783 (3,667,364) (371,947) (2,189,821) (6,668,493) (13,473,169) (17,907,226) (17,992,385) Total governmental activities net assets……………………$ 92,556,318 $ 97,939,908 $ 95,009,036 $ 118,808,144 $ 117,461,490 $ 139,466,080 $ 139,963,706 $ 140,869,168 $ 136,298,790 $ 137,456,738 Business-type activities Invested in capital assets, net of related debt…… 8,782,331 8,319,902 8,147,378 9,212,891 9,018,231 9,138,929 8,836,475 6,939,001 8,245,799 8,248,186 Unrestricted…………………………………………… 7,754,552 6,649,222 7,538,395 4,492,692 4,722,252 5,609,406 5,647,967 6,371,380 3,920,927 4,366,232 Total business-type activities net assets……………………$ 16,536,883 $ 14,969,124 $ 15,685,773 $ 13,705,583 $ 13,740,483 $ 14,748,335 $ 14,484,442 $ 13,310,381 $ 12,166,726 $ 12,614,418 Primary government Invested in capital assets, net of related debt…… 91,036,207 91,365,506 87,876,870 121,953,401 118,201,968 141,926,782 148,519,835 154,312,758 155,559,548 153,135,206 5,755,817 5,237,908 8,759,761 9,734,998 8,649,700 8,868,048 6,948,839 6,968,580 6,892,267 10,562,103 Unrestricted…………………………………………… 12,301,177 16,305,618 14,058,178 825,328 4,350,305 3,419,585 (1,020,526) (7,101,789) (13,986,299) (13,626,153) Total primary government net 109,093,201 $ 112,909,032 $ 110,694,809 $ 132,513,727 $ 131,201,973 $ 154,214,415 $ 154,448,148 $ 154,179,549 $ 148,465,516 $ 150,071,156 Note: As allowed by GASB #34, the City reported retroactive general infrastructure, acquired prior to fiscal 2002, beginning in fiscal 2005. Fiscal years 2002-2004 have not been restated to reflect this change. Net Assets By Component Last Ten Fiscal Years Fiscal Year City of Salem, Massachusetts 108 Comprehensive Annual Financial Report ---PAGE BREAK--- 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Expenses Governmental activities: General government……………………………………$ 8,640,622 $ 8,514,423 $ 9,454,148 $ 9,373,119 $ 9,867,573 $ 9,641,318 $ 10,598,174 $ 10,914,012 $ 10,865,152 $ 11,702,186 Public 20,770,322 20,884,198 22,235,461 22,058,002 23,481,525 24,433,343 28,262,847 27,421,538 26,755,783 27,989,181 59,420,837 59,386,206 61,775,760 67,483,676 67,258,196 75,513,149 75,874,227 79,410,738 83,743,843 86,938,434 Public 5,397,486 6,464,257 6,517,047 8,421,997 7,991,774 9,229,479 6,846,006 6,705,986 6,820,639 8,894,659 Community development……………………………… 5,856,034 4,954,608 5,767,362 2,066,749 1,891,386 1,804,554 1,567,381 2,093,618 3,226,360 1,845,141 Health and human services…………………………… 1,416,802 1,388,761 1,410,712 4,856,306 5,016,513 4,675,688 5,904,063 6,226,498 6,622,114 5,930,089 Culture and recreation………………………………… 3,694,420 4,022,880 4,186,622 3,689,992 3,718,183 2,448,265 3,293,415 3,228,906 3,169,224 2,997,090 3,046,692 3,366,107 3,136,763 2,689,312 2,889,116 2,604,390 2,503,461 2,396,187 1,888,315 1,582,033 Total government activities expenses…………………… 108,243,215 108,981,440 114,483,875 120,639,153 122,114,266 130,350,186 134,849,574 138,397,483 143,091,430 147,878,813 Business-type activities: Water 10,967,114 10,196,489 9,619,356 3,186,840 3,197,864 3,562,372 3,895,551 4,021,536 4,395,607 4,161,481 Sewer 6,616,318 5,686,595 5,612,230 5,894,870 7,467,332 7,400,431 6,590,680 Golf 387,935 333,512 320,632 292,187 279,981 363,651 386,099 278,007 399,023 363,625 719,042 679,171 665,458 664,686 800,506 792,903 936,826 905,834 844,615 991,722 3,230,500 2,558,263 2,573,421 2,617,948 Total business type activities expenses………………… 12,074,091 11,209,172 10,605,446 10,760,031 9,964,946 10,331,156 14,343,846 15,230,972 15,613,097 14,725,456 Total primary government expenses………………………$ 120,317,306 $ 120,190,612 $ 125,089,321 $ 131,399,184 $ 132,079,212 $ 140,681,342 $ 149,193,420 $ 153,628,455 $ 158,704,527 $ 162,604,269 Program Revenues Governmental activities: Education charges for services………………………$ 1,216,334 $ 1,097,764 $ 1,141,196 $ 1,023,839 $ 831,579 $ 1,659,544 $ 1,586,525 $ 1,473,880 $ 1,370,250 $ 1,277,950 Public Safety charges for services…………………… 1,323,642 1,804,781 1,865,270 1,923,845 2,003,791 2,217,287 2,378,961 2,456,341 2,074,324 2,115,452 Other charges for services…………………………… 1,489,223 1,197,196 2,055,497 1,481,467 1,825,898 2,561,814 1,602,847 1,693,333 1,824,040 1,744,351 Operating grants and contributions………………… 40,717,414 39,127,290 35,305,349 34,087,248 37,934,300 37,957,703 41,168,760 43,744,124 46,352,034 51,358,511 Capital grant and contributions……………………… 17,467,468 7,019,891 2,129,821 2,090,467 3,312,346 30,118,572 9,615,336 8,762,642 4,135,374 5,197,515 Total government activities program revenues...……… 62,214,081 50,246,922 42,497,133 40,606,866 45,907,914 74,514,920 56,352,429 58,130,320 55,756,022 61,693,779 Business-type activities: Charges for services - 9,794,892 10,415,528 11,708,715 3,853,505 4,319,560 4,822,041 4,318,889 4,085,103 4,511,916 4,517,123 Charges for services - 5,512,922 6,233,883 6,694,172 6,555,593 7,668,044 7,610,195 8,292,908 Charges for services - 615,878 549,091 543,467 502,770 525,404 546,841 570,142 547,301 589,345 548,805 Charges for services - Parking……………………… 1,270,928 1,364,076 1,536,390 1,453,088 1,549,833 1,713,649 1,651,032 1,694,708 2,038,235 2,333,478 Charges for services - 908,577 720,193 740,511 692,089 Capital grants and contributions……………………… - - - - - - 49,707 43,796 41,820 39,804 Total business-type activities program revenues...……… 11,681,698 12,328,695 13,788,572 11,322,285 12,628,680 13,776,703 14,053,940 14,759,145 15,532,022 16,424,207 Total primary government program revenues……………$ 73,895,779 $ 62,575,617 $ 56,285,705 $ 51,929,151 $ 58,536,594 $ 88,291,623 $ 70,406,369 $ 72,889,465 $ 71,288,044 $ 78,117,986 Net (Expense)/Revenue Governmental activities…………………………………… $ (46,029,134) $ (58,734,518) $ (71,986,742) $ (78,692,287) $ (76,206,352) $ (55,835,266) $ (78,497,145) $ (80,267,163) $ (87,335,408) $ (86,185,034) Business-type activities…………………………………… (392,393) 1,119,523 3,183,126 562,254 2,663,734 3,445,547 (289,906) (471,827) (81,075) 1,698,751 Total primary government net expense………………… $ (46,421,527) $ (57,614,995) $ (68,803,616) $ (78,130,033) $ (73,542,618) $ (52,389,719) $ (78,787,051) $ (80,738,990) $ (87,416,483) $ (84,486,283) General Revenues and other Changes in Net Assets Governmental activities: Real estate and personal property taxes, net of tax refunds 49,486,747 $ 52,118,338 $ 54,855,784 $ 55,915,767 $ 58,379,505 $ 60,991,003 $ 63,230,976 $ 66,672,653 $ 69,067,349 $ 71,828,412 Tax 690,557 635,624 182,650 752,178 527,492 234,353 510,973 Motor vehicle and other excise taxes……………… 3,626,065 3,793,044 3,478,999 3,489,584 3,452,569 3,357,765 3,286,119 2,978,961 3,092,527 3,181,247 Hotel/motel 219,628 263,962 282,324 373,655 324,622 294,214 955,092 Penalties and interest on 330,035 391,429 322,003 288,874 350,651 266,246 353,952 412,572 437,361 438,487 Payments in lieu of 1,073,539 1,088,754 1,235,083 1,229,435 1,320,945 1,307,078 1,319,079 Grants and contributions not restricted to specific 3,931,117 3,774,422 6,932,546 8,097,351 7,661,752 8,971,625 9,163,777 8,064,486 6,583,118 6,404,395 Unrestricted investment income……………………… 125,481 816,614 568,503 521,585 183,980 965,694 462,275 (35,188) 435,769 1,095,518 Miscellaneous………………………………………… 504,968 536,979 431,558 77,454 214,067 248,905 168,417 203,848 250,681 358,720 2,274,567 2,687,282 2,466,477 2,542,444 2,628,834 2,437,695 (26,013) 702,234 1,062,580 1,251,059 Total governmental activities 60,278,980 64,118,108 69,055,870 72,916,783 74,859,698 78,938,990 78,994,771 81,172,625 82,765,030 87,342,982 Business-type activities: (2,274,567) (2,687,282) (2,466,477) (2,542,444) (2,628,834) (2,437,695) 26,013 (702,234) (1,062,580) (1,251,059) Total primary government………………………………… $ 58,004,413 $ 61,430,826 $ 66,589,393 $ 70,374,339 $ 72,230,864 $ 76,501,295 $ 79,020,784 $ 80,470,391 $ 81,702,450 $ 86,091,923 Changes in Net Assets Governmental activities…………………………………… $ 14,249,846 $ 5,383,590 $ (2,930,872) $ (5,775,504) $ (1,346,654) $ 23,103,724 $ 497,626 $ 905,462 $ (4,570,378) $ 1,157,948 Business-type activities…………………………………… (2,666,960) (1,567,759) 716,649 (1,980,190) 34,900 1,007,852 (263,893) (1,174,061) (1,143,655) 447,692 Total primary government………………………………… $ 11,582,886 $ 3,815,831 $ (2,214,223) $ (7,755,694) $ (1,311,754) $ 24,111,576 $ 233,733 $ (268,599) $ (5,714,033) $ 1,605,640 In fiscal years 2002 - 2004 the City reported a joint water/sewer enterprise fund. In fiscal years 2002 - 2004 the City included in real estate and personal property taxes, net of tax refunds payable. In fiscal years 2002 - 2007 the City reported Trash in the governmental funds. Changes in Net Assets Last Ten Fiscal Years Fiscal Year City of Salem, Massachusetts 109 Comprehensive Annual Financial Report ---PAGE BREAK--- 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 General Fund Reserved…………………………… $ 1,442,182 $ 1,382,756 $ 1,153,872 $ 68,524 $ 197,581 $ 69,631 $ 220,608 $ 372,027 $ 421,825 $ - Unreserved…………………………… 4,633,278 3,980,693 3,398,534 335,643 1,162,714 (1,151,199) 1,321,397 749,849 1,211,094 - Assigned……………………………… - - - - - - - - - 589,894 Unassigned………………………… - - - - - - - - - 8,405,585 Total general 6,075,460 $ 5,363,449 $ 4,552,406 $ 404,167 $ 1,360,295 $ (1,081,568) $ 1,542,005 $ 1,121,876 $ 1,632,919 $ 8,995,479 All Other Governmental Funds Reserved…………………………… $ 1,430,279 $ 1,481,549 $ 1,844,725 $ 1,591,750 $ 1,606,904 $ 1,629,202 $ 1,650,597 $ 1,688,851 $ 1,689,176 $ - Unreserved, reported in: Special revenue funds………… 8,289,823 8,920,508 6,618,566 7,763,007 5,474,128 5,477,136 3,768,323 5,602,931 5,819,702 - Capital projects funds…………… (26,709,082) (14,050,593) (24,963,657) (10,513,270) (1,859,435) (197,270) 2,806,105 (537,848) 3,969,207 - Permanent funds………………… 3,137,655 2,801,999 2,555,014 2,897,589 3,018,952 3,556,455 3,291,512 2,678,043 2,783,655 - Nonspendable……………………… - - - - - - - - - 1,707,276 Restricted…………………………… - - - - - - - - - 11,329,632 Unassigned………………………… - - - - - - - - - (665,295) Total all other governmental funds…. $ (13,851,325) $ (846,537) $ (13,945,352) $ 1,739,076 $ 8,240,549 $ 10,465,523 $ 11,516,537 $ 9,431,977 $ 14,261,740 $ 12,371,613 Note: The City implemented GASB 54 in fiscal year 2011, fund balances prior to fiscal year 2011 have been reported in the pre-GASB 54 format. Fund Balances, Governmental Funds Last Ten Fiscal Years Fiscal Year City of Salem, Massachusetts 110 Comprehensive Annual Financial Report ---PAGE BREAK--- 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Revenues: Real estate and personal property taxes, net of tax $ 50,152,793 $ 52,448,384 $ 55,603,719 $ 55,866,348 $ 58,601,934 $ 60,638,180 $ 63,376,714 $ 66,717,968 $ 68,747,759 $ 71,754,816 Motor vehicle and other excise 3,156,366 3,875,265 3,387,266 3,531,673 3,577,544 3,215,438 3,427,889 3,154,642 3,007,759 3,180,552 Intergovernmental…………………………………………………… 39,949,863 37,949,147 37,305,545 40,601,143 40,386,321 38,496,892 39,569,976 42,962,129 44,150,857 51,562,915 Departmental and 8,122,563 8,628,161 9,324,193 7,539,138 8,496,446 9,017,710 10,086,572 9,382,460 8,511,803 9,656,996 Investment 127,462 816,821 568,503 828,933 927,302 925,771 462,585 (32,923) 436,686 1,096,747 Commonwealth school construction grants……………………… - - - 12,739,570 16,559,515 35,025,316 17,324,905 13,130,784 7,095,272 4,310,837 On-behalf pension payments by Commonwealth…………………(C) 4,301,287 4,275,669 5,345,441 5,890,261 6,376,140 7,044,987 7,511,889 8,277,958 8,602,216 9,290,000 Total 105,810,334 107,993,447 111,534,667 126,997,066 134,925,202 154,364,294 141,760,530 143,593,018 140,552,352 150,852,863 Expenditures: General 4,866,231 4,463,397 4,627,702 4,863,297 5,112,025 4,733,168 4,512,126 5,284,403 5,062,768 5,678,376 Public 15,738,798 15,368,476 14,999,915 14,417,276 14,547,596 14,969,952 15,945,719 16,452,689 16,147,666 17,129,546 47,250,529 48,449,552 47,729,470 46,260,838 47,647,867 47,719,326 47,293,548 48,101,995 49,491,944 51,429,439 Public 4,652,745 5,232,421 5,209,599 6,663,143 5,427,108 6,137,334 3,338,981 3,718,860 3,255,769 3,573,118 Community 1,936,213 2,348,162 2,085,553 2,066,749 1,891,386 1,804,554 1,567,381 2,402,149 3,413,203 1,933,227 Health and human 960,817 901,407 855,553 4,348,098 4,475,413 4,730,161 5,306,444 5,339,094 6,158,089 5,927,137 Culture and 2,728,470 2,981,769 2,756,066 2,278,899 2,339,600 1,865,609 2,135,563 2,395,536 2,320,698 2,152,872 Pension 4,204,226 4,340,575 6,565,806 11,926,982 13,388,893 14,375,924 15,180,985 16,206,240 16,770,835 17,707,823 Massachusetts teachers' retirement……………………………… 4,301,287 4,275,669 5,345,441 5,890,261 6,376,140 7,044,987 7,511,889 8,277,958 8,602,216 9,290,000 Employee 9,853,473 10,529,297 10,580,395 10,433,140 9,964,302 10,889,249 11,570,087 11,805,651 11,077,682 11,751,691 State and county 3,770,566 3,911,644 4,212,549 4,028,333 5,047,971 5,589,986 5,933,670 6,302,025 6,655,890 6,445,380 Capital 12,975,601 18,550,903 15,793,932 1,422,955 7,581,652 38,018,740 12,930,767 13,552,655 4,654,814 6,194,898 Debt service 2,605,000 2,795,000 3,890,000 4,105,000 4,385,000 4,310,000 6,620,000 4,559,497 5,385,000 7,550,000 3,111,786 2,854,502 3,259,021 2,919,668 2,958,101 2,513,575 2,622,389 2,568,643 2,087,028 1,851,117 Total 118,955,742 127,002,774 127,911,002 121,624,639 131,143,054 164,702,565 142,469,549 146,967,395 141,083,602 148,614,624 Excess of revenues over (under) expenditures…………………… (13,145,408) (19,009,327) (16,376,335) 5,372,427 3,782,148 (10,338,271) (709,019) (3,374,377) (531,250) 2,238,239 Other Financing Sources (Uses) Issuance of - 28,670,000 - 2,465,000 - 8,319,497 3,930,000 - 4,589,000 630,000 Premium from issuance of - - - 232,856 - 85,169 84,840 - 575,986 1,167,420 Issuance of refunding - - - - - - - 3,785,000 11,043,000 4,589,000 Payments to refunded bond escrow - - - - - - - - (8,512,000) - Refunding bonds - - - - - - - (3,785,000) (2,930,000) (4,589,000) Capital lease - - - 807,283 1,046,619 378,169 394,779 167,454 43,500 185,715 Sale of capital - 300,000 - - - - - - - - Transfers 9,045,003 9,051,161 10,693,915 3,597,240 5,320,517 3,558,845 4,508,229 5,228,530 6,160,597 5,137,447 Transfers (6,770,436) (6,719,057) (8,227,438) (1,054,796) (2,691,683) (1,121,150) (4,534,242) (4,526,296) (5,098,017) (3,886,388) Total other financing sources 2,274,567 31,302,104 2,466,477 6,047,583 3,675,453 11,220,530 4,383,606 869,688 5,872,066 3,234,194 Net change in fund $ (10,870,841) $ 12,292,777 $ (13,909,858) $ 11,420,010 $ 7,457,601 $ 882,259 $ 3,674,587 $ (2,504,689) $ 5,340,816 $ 5,472,433 Debt service as a percentage of noncapital expenditures…………… 4.87% 4.51% 6.16% 5.95% 5.94% 5.39% 7.13% 5.34% 5.48% 6.60% In fiscal year 2005 certain grants were reclassified to Human Services to better reflect the purpose. Prior to fiscal year 2005 any receipts from the Commonwealth for school construction projects were included in intergovernmental revenue. The Commonwealth is legally obligated to fund the Salem teachers retirement. Therefore the revenue and expenditure has been recorded in accordance with GASB 24. Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years Fiscal Year City of Salem, Massachusetts 111 Comprehensive Annual Financial Report ---PAGE BREAK--- Assessed Value and Actual Value of Taxable Property by Classification and Tax Rates Last Ten Fiscal Years Assessed and Actual Values and Tax Rates Total Total Total Fiscal Residential Residential Commercial Industrial Personal Commercial Commercial Direct City Year Value Tax Rate Value Value Property Value Tax Rate Rate Value 2002 2,135,490,544 $ $ 13.53 $ 324,729,500 $ 136,077,225 $ 261,760,050 $ 722,566,775 $ 28.62 $ 17.35 $ 2,858,057,319 2003 2,575,202,432 12.87 341,154,055 135,580,725 254,704,340 731,439,120 26.05 15.79 3,306,641,552 2004 3,247,929,862 11.71 369,848,655 140,122,325 213,400,595 723,371,575 22.59 13.69 3,971,301,437 2005 3,536,283,952 11.38 383,694,522 142,371,000 234,191,813 760,257,335 21.83 13.23 4,296,541,287 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 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 fiscal 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. Commercial Value as % of Total Value 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total Assessed Value by Classification Fiscal Year Ended June 30, 2011 82% 10% 3% 5% Residential Commercial Industrial Personal Property Total Assessed Value by Classification Fiscal Year Ended June 30, 2010 82% 10% 3% 5% Residential Commercial Industrial Personal Property City of Salem, Massachusetts 112 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 Dominion Personal & Industrial Property $103,172,200 1 2.5% - - New England Power Company Personal & Industrial Property $32,131,420 2 0.8% $10,651,310 6 0.4% Salem Station LLC Apartments $32,000,700 3 0.8% - - Massachuesetts Electric Personal Property $28,878,740 4 0.7% - - Princeton Crossing Apartments Apartments $27,635,200 5 0.7% $17,614,329 4 0.6% Shetland Properties Industrial & Commercial Property $25,849,900 6 0.6% $22,347,900 2 0.8% Algonquin Gas Transmission Personal Property $21,690,400 7 0.5% - - Hawthorne Commons Apartments $21,000,000 8 0.5% - - Highlander Plazas Commercial Property $20,417,800 9 0.5% $18,814,000 3 0.7% TMG Vinnin Square LLC Apartments $20,405,900 10 0.5% - US Gen New England Personal & Industrial Property - - $258,556,760 1 9.0% Second Pickwick Trust Commercial Property - - $12,655,700 5 0.4% Home Depot Commercial Property - - $8,874,550 7 0.3% Boston Gas Personal & Industrial Property - - $7,665,500 8 0.3% Grosvenor Park Nursing Home Commercial Property - - $6,788,400 9 0.3% Applied Extrusions Technologies Electronics - - $6,505,100 10 0.2% Totals $333,182,260 8.1% $370,473,549 13.0% Source: Board of Assessors 2011 2002 City of Salem, Massachusetts 113 Comprehensive Annual Financial Report ---PAGE BREAK--- Percent of Less Percent of Delinquent Total Total Tax Fiscal Total Abatements & Net Current Net Levy Tax Tax Collections to Year Tax Levy Exemptions Tax Levy Tax Collections Collected Collections Collections Net Tax Levy 2002 $ 49,789,935 $ 484,373 $ 49,305,562 $ 49,199,288 99.8% $ 105,089 $ 49,304,377 100.0% 2003 52,210,909 508,719 51,702,190 51,303,297 99.2% 398,826 51,702,123 100.0% 2004 54,374,223 564,486 53,809,737 53,259,047 99.0% 550,063 53,809,110 100.0% 2005 56,839,329 418,415 56,420,914 55,554,023 98.5% 866,450 56,420,473 100.0% 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% 0 70,936,056 98.3% Revaluation Year Source: Massachusetts Department of Revenue; Board of Assessors Property Tax Levies and Collections Last Ten Fiscal Years City of Salem, Massachusetts 114 Comprehensive Annual Financial Report ---PAGE BREAK--- Ratios of Outstanding Debt and General Bonded Debt Last Ten Fiscal Years General Percentage Percentage Fiscal U. S. Census Personal Assessed Obligation Capital Per of Personal of Assessed Year Population Income Value Bonds Leases Capita Income Value 2002 42,179 $ 1,046,917,485 $ 2,858,057,319 $ 37,625,000 $ 1,103,986 $ 918 3.70% 1.36% 2003 42,067 1,065,020,304 3,307,181,452 63,730,000 441,217 1,525 6.03% 1.94% 2004 41,912 1,082,318,054 3,971,301,437 59,840,000 307,360 1,435 5.56% 1.51% 2005 41,976 1,105,650,179 4,296,541,287 58,770,000 723,214 1,417 5.38% 1.38% 2006 40,407 1,085,609,084 4,586,174,179 54,385,000 1,172,651 1,375 5.12% 1.21% 2007 40,407 1,107,321,266 4,978,320,086 50,040,000 779,906 1,258 4.59% 1.02% 2008 40,407 1,129,467,691 4,805,481,341 55,704,497 675,954 1,395 4.99% 1.17% 2009 41,421 1,180,967,527 4,511,658,886 51,145,000 530,771 1,248 4.38% 1.15% 2010 41,361 1,202,841,984 4,294,563,427 50,387,000 317,032 1,226 4.22% 1.18% 2011 41,361 1,226,898,824 4,115,970,775 44,581,526 384,965 1,087 3.67% 1.09% General Total Percentage Percentage Fiscal Obligation Capital Debt Per of Personal of Assessed Year Bonds Leases Outstanding Capita Income Value 2002 $ 650,000 $ 0 $ 39,378,986 $ 934 3.76% 1.38% 2003 515,000 0 64,686,217 1,538 6.07% 1.96% 2004 380,000 0 60,527,360 1,444 5.59% 1.52% 2005 1,450,000 0 60,943,214 1,452 5.51% 1.42% 2006 1,345,000 0 56,902,651 1,408 5.24% 1.24% 2007 3,570,656 0 54,390,562 1,346 4.91% 1.09% 2008 7,624,241 0 64,004,692 1,584 5.67% 1.33% 2009 7,250,908 0 58,926,679 1,423 4.99% 1.31% 2010 12,949,102 0 63,653,134 1,539 5.29% 1.48% 2011 15,665,280 0 60,631,771 1,466 4.94% 1.47% Source: Audited Financial Statements, U. S. Census Governmental Activities Debt Business-type Activities Total Primary Government City of Salem, Massachusetts 115 Comprehensive Annual Financial Report ---PAGE BREAK--- Direct and Overlapping Governmental Activities Debt As of June 30, 2011 Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable Debt North Shore Regional Vocational School District……………$ 1,005,000 23.75% $ 238,688 City direct 43,467,000 Total direct and overlapping $ 43,705,688 Source: Treasurer and North Shore Regional Vocational School District City of Salem, Massachusetts 116 Comprehensive Annual Financial Report ---PAGE BREAK--- 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Equalized Valuation……………………………… $ 2,472,012,500 $ 3,148,016,400 $ 3,148,016,400 $ 4,184,128,700 $ 4,223,735,800 $ 4,923,330,400 $ 4,923,330,400 $ 5,168,060,200 $ 4,521,039,500 $ 4,521,039,500 Debt Limit of Equalized Valuation………… $ 123,600,625 $ 157,400,820 $ 157,400,820 $ 209,206,435 $ 211,186,790 $ 246,166,520 $ 246,166,520 $ 258,403,010 $ 226,051,975 $ 226,051,975 Less: 191 Outstanding debt applicable to limit…………… 5,625,000 4,646,000 4,167,000 6,695,447 6,064,000 5,435,000 12,004,000 12,004,000 10,884,900 16,669,700 Authorized and unissued 83,033,130 69,000,988 70,336,913 39,296,218 48,682,895 54,169,239 28,769,240 38 11,128,240 13,725,802 Legal debt $ 34,942,495 $ 83,753,832 $ 82,896,907 $ 163,214,770 $ 156,439,895 $ 186,562,281 $ 205,393,280 $ 17 $ 204,038,835 $ 195,656,473 Total debt applicable to the limit as a percentage of debt limit………………… 71.73% 46.79% 47.33% 21.98% 25.92% 24.21% 16.56% 4.65% 9.74% 13.45% Source: Audited Financial Statements; Statement of Indebtedness Computation of Legal Debt Margin Last Ten Fiscal Years Fiscal Year City of Salem, Massachusetts 117 Comprehensive Annual Financial Report ---PAGE BREAK--- Demographic and Economic Statistics Last Ten Fiscal Years Per Capita Fiscal Population Personal Personal Median School Unemployment Year Estimates Income Income Age Enrollment Rate 2002 42,179 $ 1,046,917,485 $ 24,821 36.4 5,064 5.6% 2003 42,067 1,065,020,304 25,317 36.4 5,016 6.2% 2004 41,912 1,082,318,054 25,824 36.4 4,727 5.3% 2005 41,976 1,105,650,179 26,340 36.4 4,676 4.9% 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% Note: Per Capita Personal Income based on 2000 U.S Census Source: Massachusetts Department of Revenue, Division of Local Services; U.S. Census Bureau City of Salem, Massachusetts 118 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 2,875 1 13.0% 3,500 1 15.2% Municipal Government 1,650 2 7.4% 1,347 2 5.9% Higher Education 1,500 3 6.8% 1,215 3 5.3% State Government 520 4 2.3% - - Food Market 325 5 1.5% - - Cultural Tourism 290 6 1.3% 165 10 0.7% Banking 236 7 1.1% 300 5 1.3% Lodging 210 8 0.9% - - Health Care 202 9 0.9% - - Home Depot Retail 187 10 0.8% - - Sears Boston Credit Central Credit Collection - - 371 4 1.6% Salem Court System Judicial - - 202 6 0.9% Perkin Elmer Opto Electronics Analytical Systems - - 200 7 0.9% PG&E Public Utilities - - 184 8 0.8% District Attorney's Office Legal - - 168 9 0.7% 7,995 36.0% 33.3% Source: The City Planning Department 7,652 Peabody Essex Museum Employer Market Basket Hawthorne Hotel Salem Five Savings Grovenor Park Nursing 2011 2002 Salem State College Commonwealth of Massachusetts City of Salem City of Salem, Massachusetts 119 Comprehensive Annual Financial Report ---PAGE BREAK--- 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Function General government…………… 62 68 62 64 40 34 36 35 35 35 Public safety……………………… 183 185 180 190 181 190 185 187 191 190 Education………………………… 755 755 756 756 752 752 753 752 752 752 Public 59 47 45 55 35 38 40 37 38 39 Engineering……………………… - - - - - 1 3 1 1 1 Health and human services…… 22 22 21 21 21 20 17 14 17 15 Culture and recreation………… 35 34 31 31 34 23 21 22 22 23 Total 1,116 1,111 1,095 1,117 1,063 1,058 1,054 1,048 1,056 1,054 Source: Various City Departments City of Salem, Massachusetts Full-time Equivalent City Employees by Function Last Ten Fiscal Years Fiscal Year City of Salem, Massachusetts 120 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 General government Marriage recordings………………………………… 362 327 330 327 375 322 306 276 243 381 Birth recordings……………………………………… 1,708 1,804 1,839 1,761 2,044 2,043 1,712 1,614 1,774 1,599 Death recordings…………………………………… 848 823 935 847 737 755 520 535 557 492 Police Physical 1,057 984 965 685 2,792 2,793 2,502 2,502 2,072 2,629 Motor vehicle violations…………………………… 4,872 5,489 5,238 4,334 6,477 8,672 6,604 191 6,631 10,309 Police personnel and officers……………………… 105 94 85 85 81 84 85 85 87 89 Fire 38 2,950 1,972 3,231 2,789 1,187 1,562 886 886 935 1,077 Emergency responses……………………………… 3,993 3,911 4,281 4,572 6,235 6,719 6,330 17 6,409 6,079 Fire personnel and officers………………………… 96 85 78 78 75 76 81 81 79 83 Education Number of 5,064 5,016 4,727 4,676 4,744 4,573 4,404 4,474 4,647 4,585 Number of graduates……………………………… 237 218 257 246 255 269 254 273 283 246 Number of 397 406 415 409 477 484 479 479 488 507 Water Service connections………………………………… 9,842 9,898 10,516 10,568 11,000 11,811 11,701 11,737 11,719 11,719 Consumption in 2,064 2,090 2,111 2,136 2,000 2,056 2,123 1,994 2,103 2,025 Daily consumption 5.66 5.73 5.78 6.43 6.84 6.74 5.80 5.44 6.00 6.00 Sewer Service connections………………………………… 9,842 9,898 10,516 10,568 11,000 11,811 11,701 11,727 11,709 11,706 Health and human services Number of persons using COA transportation…… 47,220 44,804 44,500 45,976 37,497 39,052 18,678 15,526 16,076 16,908 Libraries Volumes in circulation……………………………… 128,626 124,435 125,516 128,569 141,595 143,052 148,752 145,634 143,512 148,634 Total volumes borrowed…………………………… 453,548 470,192 464,453 490,116 508,728 500,907 514,708 538,184 508,507 508,293 Source: Various City Departments; Massachusetts Department of Education Last Ten Fiscal Years Fiscal Year Operating Indicators by Function/Program City of Salem, Massachusetts 121 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 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 4 191 4 4 Education Number of elementary schools…………… 7 7 7 7 7 7 7 38 7 7 Number of middle schools………………… 1 1 1 1 1 1 1 1 1 1 Number of high schools…………………… 1 1 1 1 1 1 1 17 1 1 Public Works Water mains 103 108 108 108 108 108 108 102 102 102 Health and human services Number of personnel……………………… 18 17 17 17 17 17 17 17 17 15 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)……………… 114 114 128 128 128 128 128 128 128 128 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 Capital Asset Statistics by Function/Program Last Ten Fiscal Years Fiscal Year City of Salem, Massachusetts 122 Comprehensive Annual Financial Report ---PAGE BREAK--- Free Stabilization Fiscal Year Cash Fund $ 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 $ 2,732,090 $ 1,021,351 $ 1,867,737 $ 1,297,417 $ 3,212,194 $ 2,278,823 $ 4,010,382 $ 2,248,337 Source: City Records Free Cash and Stabilization Fund Balances Last Ten Fiscal Years City of Salem, Massachusetts 123 Comprehensive Annual Financial Report