Document Salem_doc_780a35c883

CITY OF SALEM MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2007 Kimberley L. Driscoll, Mayor Richard Viscay, Jr., Finance Director Prepared by the City of Salem Finance Department ---PAGE BREAK--- On the cover: The Salem Ferry, named the Nathaniel Bowditch, is a 92-foot high-speed catamaran. It has a capacity of 149 passengers. Twin diesel engines drive the vessel to a top speed of 30 knots, meaning she can make the trip between Salem and Boston in only 45 minutes! The main deck features walk-around deck space with an enclosed cabin with a full-service snack bar and booth-style seating. The second deck is open air with a partially covered space after of the bridge. The Bowditch is ADA-accessible and has restrooms onboard for your comfort. For more information you can visit the website www.salemferry.com. Salem Common In 1802, the Salem Common was named Washington Square. A wooden fence with four large, impressive gates was added to the Common in 1805 with one of the gates on the western side decorated with carvings by Samuel McIntire, the famous Salem architect and wood carver. Today the medallion portrait of George Washington and the gold painted eagle which adorned the original gate are preserved in the Peabody Essex Museum. After Salem’s great fire of 1914 which cut a destructive path through much of the City, the Salem Common was filled with tents to house the people who had lost their homes in the fire’s devastation. Reminders of the City’s past and evidence of our current lifestyle coexist in harmony on Salem Common today. A modern playground fills a large area of the park with the sounds of children playing while a handsome bandstand from an earlier era looms over the grounds. ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2007 Prepared by Finance Department ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2007 TABLE OF CONTENTS Introductory Letter of Transmittal Organizational Principal Executive Officers Certificate of 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.......31 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 Schedule of revenues, expenditures and changes in fund balance – general fund – budget 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 ---PAGE BREAK--- 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 six fiscal years Changes in net assets – last six fiscal years 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, 2007 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 eight fiscal Operating indicators by function/program – last ten fiscal Capital asset statistics by function/program – last ten fiscal Free cash & stabilization fund balances – last ten fiscal years ---PAGE BREAK--- Introductory Section Photo courtesy of Jeff Brown Salem Willows Park Bandstand The Salem Willows offers beautiful shaded seaside grounds, scenic ocean views, public pier, bandstand 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. ---PAGE BREAK--- City of Salem, Massachusetts 1 Comprehensive Annual Financial Report Introductory Section Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 2 Comprehensive Annual Financial Report This page intentionally left blank. Sec 7 - ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 211 - FAX: [PHONE REDACTED] 3 City of Salem, Massachusetts Finance Department 93 Washington Street Salem, MA 01970 Ph. [PHONE REDACTED] ext 210 Fax [PHONE REDACTED] [EMAIL REDACTED] Letter of Transmittal Kimberley L. Driscoll, Mayor Richard Viscay, Finance Director January 29, 2008 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, 2007 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, 2007, are fairly presented in conformity with GAAP. The City of Salem’s financial statements have been audited by Powers & Sullivan, 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, 2007, are free of material Sec 7 - ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 211 - FAX: [PHONE REDACTED] 4 misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principals 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, 2007 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 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 approximately 40,407 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 his or her office staff, the City Solicitor, and the Assistant City Solicitor without City Council confirmation. The appointments of most city department heads, and members of the various boards and commissions, however, require City Council confirmation. The Mayor has the right to veto any order, resolution, or ordinance passed by the Council. However, a veto may be overturned by a two-thirds vote of all councilors. After reviewing and revising estimates prepared by department heads, the Mayor submits the budget to the City Council for final action. The Mayor approves all municipal payrolls, vouchers, contracts and instruments; and recommends bond issues, legislations and orders to the City Council; and represents the city with other levels of government. As the general administrator of all city departments, the Mayor is consulted by department heads pertaining to the city’s welfare. The City Council is primarily the legislative branch of the city government. As the legislative body, the Council confirms appointments made by the Mayor and appropriates all monies necessary to city Sec 7 - ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 211 - FAX: [PHONE REDACTED] 5 operation. It can approve, disapprove, or reduce the amount of appropriations, but not add to the appropriation. The Council receives orders of recommendation by the Mayor and petitions from the public, and acts on them after committee study. The City Council also has the power to enact the Ordinances and other regulations. A majority of the City Council constitutes a quorum, and the affirmative vote of a majority of all the members of the Council is necessary for the adoption of any motion resolution, or ordinance. In some instance, 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 percent of the City is connected to the sewerage system; the entire area of the City is served by the municipal water system. 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 developments. These units are owned and operated by the Authority. The principal highways serving the City are state Routes 1A, 107, and 114, all of which provide immediate access to Routes 1 and 128 and other major highways serving the greater Boston area. The City is a member municipality of the Massachusetts Bay Commuter Railroad, which provides passenger and freight service. Within 170 days after the annual organization of the city government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without recommendation of the Mayor, the City Council may not increase any item or make an appropriation for a purpose not included in the proposed budget (except by a two-thirds vote in case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the City Council, pursuant to state statute). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. The City’s operating budget for fiscal year 2007 totaled approximately $106 million. 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. Sec 7 - ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 211 - FAX: [PHONE REDACTED] 6 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 and 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 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. Additionally, the City has recently experienced a $100 million expansion of the Peabody Essex Museum and the privately funded renovation and reuse of several key properties. In fact, private investment in commercial and residential developments in downtown since 2001 totals close to $50 million, and expected future investment over the next two years totals close to an additional $10 million. The redevelopment of long dormant and underutilized industrial sites is helping to revitalize our central business district. The Salem waterfront is also experiencing a great deal of investment from the addition of the Pickering Wharf Hotel and a municipally managed Harbor Walkway project which will connect pedestrians walking along the harbor from the Pickering Wharf area to adjacent areas. 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 23,504, of whom 22,531 were employed and 973, or 4.1% were unemployed. The Commonwealth, for the same period, had an unadjusted unemployment rate of 5.1%. On the operating side, the City had experienced financial challenges during fiscal year 2006 and into the 2007 budget cycle. In order to better forecast the financial challenges, the City has developed its first Five Year Financial Forecast and made it part of the budget process. This forecast will act 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. We have also developed a Five Year Capital Plan for the purposes of maintaining the City’s capital and infrastructure. We have also adopted policies on funding options for all of the City’s capital needs. The first draft has been distributed to all departments for their review and input. The City has major capital expenses in FY07, including $34 million toward the high school renovations and $1.9 million for water system improvements. The City has been in the process of renovating several schools which is being Sec 7 - ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 211 - FAX: [PHONE REDACTED] 7 financed, in part, by the State’s School Building Assistance Program which is run by the Massachusetts School Building Authority. Through this program, the City is reimbursed for 90% of the construction and debt interest costs of the projects. Other significant FY07 capital expenditures were a purchase of a new boat at $123 thousand through a State grant for our Harbormaster, as well as four new school buses and various vehicles for our water, sewer, and fire departments. One of the key challenges for the City has been rising health care costs 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 FY07 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 Trust account, the fastest rising municipal budget item for each of the last five years. The City also put its health insurance out to bid for the first time in many years. This process resulted in the City changing its health insurance structure from a self-insurance system to a premium based system. The RFQ process proved to be quite successful, as the insurance rates for active employees decreased when they became effective in February, 2007, saving both the City and its employee’s money on the premiums for the last five months of FY07. Furthermore, the City, with the approval of the insurance advisory committee, introduced a third product to compliment its HMO and PPO plans, the Advantage HMO. This plan is offered to all City employees at a premium that is 23% less than the HMO and allows the employees more options in choosing their health plan. Another significant change in the health insurance budget was the Firefighters Union agreeing to a three year contract commencing on July 1, 2007 that lowers the municipal contribution for health insurance from 80% in FY07 to 79% in FY08, 77% in FY09, and 75% in FY10. The City’s exempt employees have also adopted this structure and all other bargaining units have been informed that these contribution percentages will be the basis for contract negotiations. It is believed that through collective bargaining with all of the City’s unions, we will have uniformity in the contribution rates which will help stabilize the ever increasing cost of providing health benefits to the employees of the City. In FY07, the Mayor appointed herself to the Salem Retirement Board. By appointing herself, 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. The Retirement Board moved some of its 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. Over the last 21 years, PRIT has averaged an 11.27% return, making it one of the best pension systems in the country. PRIT currently invests the full assets of the state employees, state teachers, and 28 other local pension systems. The Board continues to research whether to invest its entire $85 million portfolio in the PRIT core fund. Sec 7 - ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 211 - FAX: [PHONE REDACTED] 8 To help curb the fiscal challenges, the City also expanded the hours at the parking garage, instituted Saturday meter collections, and also installed seasonal meters at Salem Willows recreational park. The council also passed an increase of $5 on expired parking meters, bringing the fine from $10 to $15. For several years, it was cheaper to receive a ticket for an expired meter than it was to park in one of our municipal garages. Both the State Revenue Department and Parking Board recommended this change to the ticket fine structure to encourage greater use of the parking garage by long term parkers and freeing up additional short term spaces for downtown merchants. The additional revenue from these new collections is estimated to generate $270,000 per year. At the end of fiscal year 2006, the City purchased a Ferry Boat in which they received a state grant for 75% of the purchase cost. The City is leasing the Ferry Boat to Water Transportation Services, Inc., which operates the ferry. The City received $60,000 in revenue from Water Transportation Services in FY07 and will receive $75,000 in FY08 and $100,000 in FY09 per the three year agreement entered into in FY07. The City implemented a trash fee for fiscal year 2007 which went into effect in September 2006. The City collected approximately $450 thousand for the 10 months of collections during fiscal year 2007 and has an additional $237 thousand recorded as receivable at year end. The City anticipates revenues of $800 thousand a year for twelve months of collections in future fiscal years. These amounts are based on the number of residential and commercial units that are currently being billed for trash. The fees collected are used to offset the cost of collecting solid waste. The City adopted an Enterprise Fund for solid waste collections for fiscal year 2008. The City has set a target level for the Stabilization fund of 5% of the City’s current operating budget. The target funding date is projected to occur by fiscal year 2011. The stabilization fund shall be funded by appropriations from free cash, operating budget appropriations when available, and other one time non-recurring revenues that become available for appropriation per M.G.L. 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 30, 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. 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 Director’s 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. Any drawdown of the Stabilization Fund from the prior fiscal year should be allocated from the certified free cash if the free cash exceeds such drawdown. Twenty percent of any free cash available after funding a prior year drawdown will also be Sec 7 - ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 211 - FAX: [PHONE REDACTED] 9 allocated from free cash to Stabilization Fund up to the goal of stabilization fund equaling 5% of the current operating budget of the City. Twenty percent 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. 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 Health Insurance Trust Fund, 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. School Operating Deficit Subsequent to the close of the fiscal year, City officials became aware that $2.6 million of general fund school expenditures were not processed or recorded during the fiscal 2007 budget year. In addition, $341 thousand of inappropriate special revenue fund payments to the health insurance internal service fund were recorded. The City’s financial statements properly reflect these changes, however, significant problems have resulted in the fiscal year 2008 budget. The City and School Department are working with state officials to close the budget deficiency through the use of reserves, layoffs, expenditure reductions, and other measures. Although a difficult proposition, the City expects to finish fiscal year 2008 with a balanced 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, 2006. This was the second 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 preparation of this report 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 Sec 7 - ---PAGE BREAK--- Citizens of Salem Mayor Engineering Capital Improvement Plan Engineering and Plan Review Recycling and Conservation Salem-Beverly Water Board South Essex Sewerage District Water/Sewer Billing Meters Finance Auditing Assessing Collector Information Technology Parking Procurement Treasurer Fire Civil Defense/Emergency Preparedness Fire Prevention Fire Protection Human Resources Employee Benefits Hiring/Recruitment Labor Relations Switchboard and Telephone Operations Inspectional Services Building Electrical Health Licensing Plumbing Weights and Measures Legal Division Claims and Judgments In-house Legal Services Planning and Community Development Community/Planning/ Neighborhood Project Conservation Commission Historical Commission Market and Tourist Commission Planning Board Salem Redevelopment Authority Police Zoning Board of Appeals Animal Control Harbormaster Police Patrol Public Services Cemetery Central Motors Park and Open Space Maintenance Public Property Maintenance Shade Tree Street and Sidewalk Traffic Maintenance/Sign Painting Water/Sewer Maintenance Recreation and Community Services Council on Aging Golf Course Library Recreation Veterans Affairs Winter Island City Council City Clerk School Committee School Superintendent Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 11 Comprehensive Annual Financial Report Principal Executive Officers TITLE NAME FIRST TOOK OFFICE TERM EXPIRES Mayor Kimberley L. Driscoll 1/2/2006 12/31/2009 President, City Council Matthew A. Veno 1/2/2006 12/31/2007 Finance Director Richard Viscay 3/6/2006 1/31/2009 Treasurer Anne L. Busteed 5/22/2000 1/31/2007* Collector Bonnie Celi 3/11/2004 1/31/2009 City Clerk Cheryl LaPointe 7/15/2004 11/9/2009 City Solicitor Elizabeth Rennard 1/10/2006 Indefinite Asst. Finance Director Nina Bridgman 1/22/2004 1/31/2008 *Treasurer's term has not been extended. Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 12 Comprehensive Annual Financial Report Certificate of Achievement Sec 7 - ---PAGE BREAK--- Financial Section Downtown Salem The Essex Street Pedestrian Mall, a shady red-bricked plaza sandwiched between rows of shops. The inventory of the corner bookstore spills onto tables out front on most days, and trolleys occasionally pass by. Young women hand out coupons and ads for nearby shops. Many tourists and locals enjoy the view of the terrace garden of the Peabody Essex Museum. Fountains at each end of the mall are a great place for people to relax and enjoy the views of historic Salem or sit on a bench and have a bite to eat. The red line of the Heritage Trail will lead visitors in and out of the area to various points of interest and history within the City. The fountain in this picture has a raised outline of Salem in concrete surrounded by the water of the fountain. Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 13 Comprehensive Annual Financial Report Financial Section Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 14 Comprehensive Annual Financial Report This page intentionally left blank. Sec 7 - ---PAGE BREAK--- 15 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, 2007 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2006), 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, 2007 (except for the Salem Contributory Retirement System which is as of December 31, 2006), 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. Management’s discussion and analysis, located on the following pages, and schedule of revenues, expenditures and changes in fund balance – general fund – budgetary basis, 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 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. Sec 7 - ---PAGE BREAK--- 16 As described in Note 14, the City has restated the fund balance of the General Fund in the governmental fund financial statements and the net assets of the Governmental Activities in the entity wide financial statements as of June 30, 2006, by $1,099,148. In accordance with Government Auditing Standards, we have also issued our report dated January 29, 2008 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, grants 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. January 29, 2008 Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 17 Comprehensive Annual Financial Report Management’s Discussion and Analysis Management’s Discussion and Analysis Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 18 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, 2007. 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 principals (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 and sewer and parking services 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 Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 19 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 for the general fund to demonstrate compliance with this budget. Proprietary funds. The City maintains two types of propriety 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, 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. This fund is used to account for risk financing activities related to active employees’ and retirees’ health insurance. 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 statement 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 propriety 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 $143.8 million at the close of Fiscal 2007 an increase of $27.4 million from the prior year. This is an indication that the overall financial position of the City has improved during the current fiscal year. The majority of the increase is the result of a $29 million capital construction grant received from the Massachusetts School Building Authority as a 90% reimbursement of the construction costs for the City’s High School project. The remaining change in net assets shows a decrease of $1.9 million, which is consistent with the prior fiscal year. Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 20 Comprehensive Annual Financial Report Net assets of $136.2 million (95%) reflects its investment in capital assets land, buildings, infrastructure, machinery, and equipment), less any related debt used to acquire those assets that are still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the investment in its capital assets is reported net of its related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the governmental net assets, $8.8 million represents resources that are subject to external restrictions on how they may be used. The balance of unrestricted net assets has a year end deficit of $1.3 million, which reflects the City’s lack of resources available to be used to meet the City’s ongoing obligations to citizens and creditors. During fiscal year 2006, the School Department understated accrued expenses in the General Fund by approximately $1,099,000. The fiscal year 2006 balances presented below reflect a restatement of the June 30, 2006 balances by $1,099,148. The components of the City’s governmental activities are presented below. Fiscal 2007 Fiscal 2006 Assets: Current $ 30,051,728 $ 31,394,323 Noncurrent assets (excluding capital)…………………… 35,727,288 39,293,034 Capital 157,019,282 124,167,537 Total 222,798,298 194,854,894 Liabilities: Current liabilities (excluding 11,450,475 11,186,979 Noncurrent liabilities (excluding 5,070,049 5,161,709 Current 8,908,864 12,103,864 Noncurrent 53,600,000 50,040,000 Total liabilities………………………………………… 79,029,388 78,492,552 Net Assets: Capital assets net of related 136,205,337 109,183,737 8,868,048 8,649,700 (1,304,475) (1,471,095) Total net $ 143,768,910 $ 116,362,342 Governmental Activities Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 21 Comprehensive Annual Financial Report Fiscal 2007 Fiscal 2006 Program revenues: Charges for $ 6,438,645 $ 4,661,268 Operating grants and contributions……………………… 37,957,703 37,934,300 Capital grants and contributions………………………… 30,118,572 3,312,346 General Revenues: Real estate and personal property taxes……………… 60,991,003 58,379,505 Motor vehicle and other excise 3,357,765 3,452,569 Nonrestricted 8,971,625 7,661,752 Unrestricted investment 965,694 183,980 Other 2,215,208 2,553,058 Total 151,016,215 118,138,778 Expenses: General government……………………………………… 9,432,631 9,867,573 Public 23,511,430 23,481,525 72,450,806 68,357,344 Public 8,550,491 7,991,774 Community development………………………………… 1,804,554 1,891,386 Health and human services……………………………… 5,045,584 5,016,513 Culture and recreation…………………………………… 2,647,456 3,718,183 2,604,390 2,889,116 Total 126,047,342 123,213,414 Excess (Deficiency) before transfers……………………… 24,968,873 (5,074,636) 2,437,695 2,628,834 Change in net $ 27,406,568 $ (2,445,802) The governmental expenses totaled $126 million of which $74.5 million (59%) was directly supported by program revenues consisting of charges for services, operating and capital grants and contributions. General revenues totaled $76.5 million, primarily coming from property taxes, motor vehicle and other excise, and non-restricted state aid. The governmental net assets increased by $27.4 million during the current fiscal year which directly relates to $29 million in capital grants received from the Massachusetts School Building Authority representing 90% of the City’s construction cost related to the High School Construction Project. Restricted net assets are up from fiscal year 2006, which is due to the timing of expenditures of City and School Grant funds. The deficit in the City’s unrestricted net assets has remained consistent after accounting for the restatement of the 2006 net assets. In an effort to better manage its finances, the City restructured the Parks and Recreation Department through closing a separate office building, and combining the parks function within the Department of Public Works. As a result, expenses in the culture and recreation function have decreased during fiscal year 2007 by approximately $1.1 million. Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 22 Comprehensive Annual Financial Report Business-type Activities For the City’s business-type activities, assets exceeded liabilities by $14.9 million at the close of fiscal year 2007. Fiscal 2007 Fiscal 2006 Assets: Current 8,252,450 $ 6,414,075 Capital 14,665,096 12,482,454 Total 22,917,546 18,896,529 Liabilities: Current liabilities (excluding 1,028,082 396,910 Noncurrent liabilities (excluding 80,000 73,000 Current 482,687 3,446,136 Noncurrent 6,396,105 1,240,000 Total liabilities………………………………………… 7,986,874 5,156,046 Net Assets: Invested in capital assets, net of related debt………… 9,321,266 9,018,231 5,609,406 4,722,252 Total net $ 14,930,672 $ 13,740,483 Business-type Activities Business-type net assets of $9.3 million (62%) represent investments in capital assets net of related debt. The remaining $5.6 million (38%) is available to be used for the ongoing operation of the City’s water, sewer, parking and the municipal golf course activities. There was an increase of $1.2 million in net assets reported in connection with the water, sewer, parking, and the municipal golf course. The water enterprise fund’s net assets of $4.1 million (65%) represent the investment in capital assets while $2.2 million (35%) is unrestricted. The water department experienced a net increase of $879 thousand in net assets from the prior year. The water fund pays an annual assessment to the Salem Beverly Water Supply Board, which totaled $2.1 million, or 65% of the funds expenses for fiscal year 2007. The minor change in net assets is the result of the City’s policy to recover 100% of the cost of operations through rates while still maintaining adequate reserves. The sewer enterprise fund’s net assets of $534 thousand (14%) represent the investment in capital assets net of related debt, and $3.3 million (86%) is unrestricted. The unrestricted balance includes the City’s equity interest in the South Essex Sewerage District. The sewer department operations experienced a net increase of $456 thousand during the current fiscal year. Approximately 87% of the expenses in the sewer fund consist of the annual assessments paid to the South Essex Sewerage District. The minor change in net assets is the result of the City’s policy to recover 100% of the cost of operations through rates while still maintaining adequate reserves. The golf course enterprise fund’s net assets of $287 thousand (59%) represent the investment in capital assets while $201 thousand (41%) is unrestricted. The golf course operations experienced a decrease of $1,070 during fiscal year 2007. Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 23 Comprehensive Annual Financial Report The parking enterprise fund’s net assets of $4.4 million (100%) represent the investment in capital assets net of related debt while ($21,880) (less than is unrestricted. The parking operations experienced a net decrease of $144 thousand during fiscal year 2007, mostly due to depreciation expense of $223 thousand. The City reports this fee-for-service activity an enterprise fund however any cash based surplus generated is transferred back to the general fund to support City programs. In FY2007 $1.05 million was transferred back to the general fund. Consequently, the funds 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. Fiscal 2007 Fiscal 2006 Program revenues: Charges for $ 13,776,703 $ 12,628,680 Expenses: Cost of service and administration……………………… 2,531,330 2,556,558 District assessment……………………………………… 6,933,555 6,750,205 464,614 439,720 219,320 218,463 Total 10,148,819 9,964,946 Excess (Deficiency) before transfers……………………… 3,627,884 2,663,734 (2,437,695) (2,628,834) Change in net 1,190,189 $ 34,900 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 financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, governmental funds reported combined ending fund balances of $9.4 million of which a deficit of $1.1 million is reported in the general fund, $488 thousand is reported in the stabilization major fund, a deficit of $310 thousand is reported in the school capital projects major fund, and $10.3 million is reported in the nonmajor governmental funds. Cumulatively there was an increase of $882 thousand in fund balances from the prior year. The general fund is the chief operating fund. At the end of the current fiscal year, unreserved fund balance of the general fund was in a deficit of $1.2 million, while total fund balance was in a deficit of $1.1 million. This negative position is a direct reflection of the overspending within the City’s school department. During the previous fiscal year, the school department understated accrued expenses in the general fund by $1.1 million, resulting in a restatement of the 2006 balance. During fiscal year 2007, the school department under-reported expenditures in the general fund and misallocated expenditures to the internal service fund and to the grant funds, once the Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 24 Comprehensive Annual Financial Report expenditures were properly classified, the school’s general fund budget was overspent for education by $1.4 million for fiscal year 2007. To address this issue, management has raised $1.8 million in the subsequent fiscal year’s tax levy, and has taken aggressive steps to recoup the remaining deficit by making adjustments in the fiscal year 2008 budget. The fund balance decrease in the City’s general fund totaled $1.3 million for fiscal year 2007, which is almost entirely the result of the mismanagement of the school department’s budget. The stabilization major fund is used to account for the accumulation of resources to be used for general and/or capital purposes upon approval of City Council. The fund increased by $210 thousand in fiscal 2007, due to investment earnings and a budgeted transfer in from the general fund to fund the stabilization fund of $194 thousand. The School Capital Projects fund is used to account for the City’s ongoing major school construction projects. The fund balance is in a deficit position because short-term notes of $4.1 million which have not yet been borrowed long-term or funded by state grants. Permanent long-term borrowing is anticipated to occur for the City’s share of the projects once the Commonwealth reimburses the City for all of its 90% of approved project costs. During fiscal 2007, the City received an additional $29 million to offset current school construction expenditures. Subsequent to year end, the City issued general obligation bonds which were used to permanently finance $6.9 million of BANs that were outstanding as of June 30th. The bond proceeds have been recognized in the City’s financial statements as of June 30th. General Fund Budgetary Highlights The $729 thousand 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. One significant component of the increase was the result of contract settlements with the fire department which resulted in a total budget increase of $173 thousand. Insurance and retirement budgets were also increased by $50 thousand, and settlements within the school department were funded for $40 thousand. The City experienced a deficiency of actual revenues compared to budget of $547 thousand. The deficiency in real estate and personal property taxes was due to lower than anticipated collection rates. The deficiency in motor vehicle and other excise taxes was due to bills being sent out late by the City’s outside vendor. The deficiency in intergovernmental revenue was mainly due to a less than anticipated reimbursement for Charter School Tuition. Due to recent budget cuts, most departments, with the exception of the schools, ended the year with a minimal amount of unspent funds. State and county assessments were lower than anticipated by $325 thousand, and the City’s snow and ice removal account ended the year in a deficit of $12 thousand, which is allowable under state law. This deficit is required to be funded in the subsequent year’s tax levy. 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, 2007, amounts to $171.7 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 $38 million for governmental activities and $2.6 million for business-type activities. Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 25 Comprehensive Annual Financial Report The major capital asset event during the current fiscal year was the continued work on a major renovation to the Salem High School which is reported as construction in progress pending the completion of the project. The City receives a 90% reimbursement of eligible construction costs from the Massachusetts School Building Authority as work progresses on this project. Debt Administration. Outstanding long-term debt of the general government, as of June 30, 2007, totaled $58,394,497, of which $55,050,633 is related to school projects, leaving a balance of $3,308,864 for other CIP related projects. The long-term debt reported includes $8,319,497 in BANs outstanding as of June 30, 2007 which were permanently financed subsequent to year end. The BANs have been classified as long-term debt as of June 30th, and bond proceeds have been recognized by the City. 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, 2007 the City has recorded a receivable from the MSBA of $41.5 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. After the classification of the $8.3 million in BANs to long term debt, the City has $4,114,367 in governmental related short-term notes remaining which are due on 10/23/07, with an interest rate of The City’s short-term notes represent temporary financing for school construction projects. At year end the golf course and parking enterprise funds have $290,000 and $950,000, respectively, of outstanding long-term debt, which is fully supported by fees and does not rely on a general fund subsidy. In fiscal year 2007, the City entered into a loan program with Massachusetts Water Pollution Abatement Trust for Water projects which entitled the city to borrow $2,330,656 at 2% for 20 years. Additionally, the City had water- improvement BANs outstanding at June 30, 2007 totaling $3,308,136, of which $3,250,503 were converted into long-term debt subsequent to year end and have been classified as long-term debt in the financial statements. Please refer to notes 4, 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. Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 26 Comprehensive Annual Financial Report Basic Financial Statements Basic Financial Statements Sec 7 - ---PAGE BREAK--- STATEMENT OF NET ASSETS JUNE 30, 2007 Primary Government Governmental Business-type Activities Activities Total ASSETS CURRENT: Cash and cash equivalents……………………………… $ 13,649,596 $ 4,276,964 $ 17,926,560 4,658,377 - 4,658,377 Receivables, net of allowance for uncollectibles: Real estate and personal property taxes…………… 970,348 - 970,348 Tax 846,981 - 846,981 Motor vehicle and other excise taxes………………… 770,978 - 770,978 User - 2,779,677 2,779,677 Trash 236,850 - 236,850 Departmental and 83,327 - 83,327 Intergovernmental……………………………………… 8,586,490 78,030 8,664,520 166,355 - 166,355 Investment in joint - 1,117,779 1,117,779 Working capital 82,426 - 82,426 Total current 30,051,728 8,252,450 38,304,178 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental……………………………………… 35,106,011 - 35,106,011 621,277 - 621,277 Capital assets, non depreciable………………………… 44,332,979 276,422 44,609,401 Capital assets, net of accumulated depreciation……… 112,686,303 14,388,674 127,074,977 Total noncurrent 192,746,570 14,665,096 207,411,666 TOTAL 222,798,298 22,917,546 245,715,844 LIABILITIES CURRENT: Warrants 5,062,546 765,932 5,828,478 Accrued 1,140,759 98,902 1,239,661 Accrued 1,935,895 11,984 1,947,879 Health claims 118,211 - 118,211 Tax refunds 182,959 - 182,959 Accrued 1,236,945 108,264 1,345,209 Capital lease obligations…………………………………… 304,210 - 304,210 Compensated 1,383,000 43,000 1,426,000 Workers' compensation…………………………………… 85,950 - 85,950 Bonds and notes 8,908,864 482,687 9,391,551 Total current liabilities………………………………… 20,359,339 1,510,769 21,870,108 NONCURRENT: Capital lease obligations…………………………………… 475,696 - 475,696 Compensated 4,275,000 80,000 4,355,000 Workers' compensation…………………………………… 319,353 - 319,353 Bonds and notes 53,600,000 6,396,105 59,996,105 Total noncurrent liabilities……………………………… 58,670,049 6,476,105 65,146,154 TOTAL 79,029,388 7,986,874 87,016,262 NET ASSETS Invested in capital assets, net of related debt……………… 136,205,337 9,321,266 145,526,603 Restricted for: 787,632 - 787,632 Permanent funds: 3,556,455 - 3,556,455 Nonexpendable………………………………………… 1,629,202 - 1,629,202 Grants and 2,894,759 - 2,894,759 (1,304,475) 5,609,406 4,304,931 TOTAL NET $ 143,768,910 $ 14,930,672 $ 158,699,582 See notes to basic financial statements. City of Salem, Massachusetts 27 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- STATEMENT OF ACTIVITIES FISCAL YEAR ENDED JUNE 30, 2007 Operating Capital Charges for Grants and Grants and Net (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Primary Government: Governmental Activities: General government……………… $ 9,432,631 $ 716,592 $ 313,535 $ 446,477 $ (7,956,027) Public safety……………………… 23,511,430 2,217,287 805,059 - (20,489,084) Education………………………… 72,450,806 1,659,544 28,773,984 29,307,001 (12,710,277) Public 8,550,491 994,682 108,767 365,094 (7,081,948) Community development………… 1,804,554 13,093 1,778,583 - (12,878) Health and human services……… 5,045,584 70,692 4,050,350 - (924,542) Culture and recreation…………… 2,647,456 766,755 82,594 - (1,798,107) Interest……………………………… 2,604,390 - 2,044,831 - (559,559) Total Governmental Activities… 126,047,342 6,438,645 37,957,703 30,118,572 (51,532,422) Business-Type Activities: 3,381,221 4,822,041 - - 1,440,820 5,604,546 6,694,172 - - 1,089,626 Golf 357,072 546,841 - - 189,769 805,980 1,713,649 - - 907,669 Total Business-Type Activities… 10,148,819 13,776,703 - - 3,627,884 Total Primary Government………$ 136,196,161 $ 20,215,348 $ 37,957,703 $ 30,118,572 $ (47,904,538) See notes to basic financial statements. (Continued) Program Revenues City of Salem, Massachusetts 28 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- STATEMENT OF ACTIVITIES (Continued) FISCAL YEAR ENDED JUNE 30, 2007 Governmental Business-Type Activities Activities Total Changes in net assets: Net (expense) revenue from previous page…………… $ (51,532,422) $ 3,627,884 $ (47,904,538) General revenues: Real estate and personal property taxes, net of tax refunds payable………………………… 60,991,003 - 60,991,003 Tax 182,650 - 182,650 Motor vehicle and other excise taxes……………… 3,357,765 - 3,357,765 Hotel/motel 282,324 - 282,324 Penalties and interest on 266,246 - 266,246 Payments in lieu of 1,235,083 - 1,235,083 Grants and contributions not restricted to specific 8,971,625 - 8,971,625 Unrestricted investment income…………………… 965,694 - 965,694 Miscellaneous………………………………………… 248,905 - 248,905 Transfers, net 2,437,695 (2,437,695) - Total general revenues and transfers………………… 78,938,990 (2,437,695) 76,501,295 Change in net 27,406,568 1,190,189 28,596,757 Net Assets: Beginning of year as restated………………………… 116,362,342 13,740,483 130,102,825 End of $ 143,768,910 $ 14,930,672 $ 158,699,582 (Concluded) Primary Government City of Salem, Massachusetts 29 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2007 School Nonmajor Total Capital Governmental Governmental ASSETS General Stabilization Projects Funds Funds Cash and cash $ 2,701,384 $ 487,980 $ 5,163,965 $ 5,296,267 $ 13,649,596 - - - 4,658,377 4,658,377 Receivables, net of uncollectibles: Real estate and personal property 970,348 - - - 970,348 Tax 846,981 - - - 846,981 Motor vehicle and other excise 770,978 - - - 770,978 Trash 236,850 - - - 236,850 Departmental and 49,001 - - 19,925 68,926 Intergovernmental……………………………………………………… 40,410,252 - 1,500,343 1,781,906 43,692,501 - - - 787,632 787,632 Due from other 278,271 - - 575,936 854,207 TOTAL $ 46,264,065 $ 487,980 $ 6,664,308 $ 13,120,043 $ 66,536,396 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants $ 1,620,582 $ - $ 2,860,583 $ 540,763 $ 5,021,928 Accrued 1,140,759 - - - 1,140,759 Accrued 1,777,728 - - 158,167 1,935,895 Tax refunds 182,959 - - - 182,959 Accrued interest on short-term 76,400 - - - 76,400 Deferred 42,547,205 - - 1,556,992 44,104,197 Due to other - - - 575,936 575,936 Notes - - 4,114,367 - 4,114,367 TOTAL 47,345,633 - 6,974,950 2,831,858 57,152,441 FUND BALANCES: Reserved for: Encumbrances and continuing appropriations…………………… 69,631 - - - 69,631 Perpetual permanent - - - 1,629,202 1,629,202 Unreserved: Undesignated, reported in: General (1,151,199) - - - (1,151,199) Special revenue - 487,980 - 4,989,156 5,477,136 Capital projects - - (310,642) 113,372 (197,270) Permanent - - - 3,556,455 3,556,455 TOTAL FUND (1,081,568) 487,980 (310,642) 10,288,185 9,383,955 TOTAL LIABILITIES AND FUND BALANCES………………………… $ 46,264,065 $ 487,980 $ 6,664,308 $ 13,120,043 $ 66,536,396 See notes to basic financial statements. City of Salem, Massachusetts 30 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET ASSETS JUNE 30, 2007 Total governmental fund $ 9,383,955 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the 157,019,282 Accounts receivable are not available to pay for current-period expenditures and, therefore, are deferred in the 44,104,197 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 (340,273) In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until (1,160,545) Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds Bonds and notes (58,394,497) Workers' (405,303) Capital (779,906) Compensated (5,658,000) Net effect of reporting long-term (65,237,706) Net assets of governmental $ 143,768,910 See notes to basic financial statements. City of Salem, Massachusetts 31 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2007 School Nonmajor Total Capital Governmental Governmental General Stabilization Projects Funds Funds REVENUES: Real estate and personal property taxes, net of tax 60,638,180 $ - $ - $ - $ 60,638,180 Tax 216,663 - - - 216,663 Motor vehicle and other excise 3,215,438 - - - 3,215,438 Hotel/motel 282,324 - - - 282,324 Charges for 1,473,751 - - 130,960 1,604,711 Trash 449,665 - - - 449,665 Penalties and interest on 266,246 - - - 266,246 Payments in lieu of 1,235,083 - - - 1,235,083 Licenses and 517,697 - - - 517,697 Fines and 1,085,729 - - - 1,085,729 Intergovernmental……………………………………………………………… 35,390,860 - 29,821,380 15,354,955 80,567,195 Departmental and 248,905 - - 2,194,799 2,443,704 - - - 915,888 915,888 Investment 187,374 16,447 - 721,950 925,771 TOTAL 105,207,915 16,447 29,821,380 19,318,552 154,364,294 EXPENDITURES: Current: General 4,019,115 - - 1,176,731 5,195,846 Public 14,649,823 - - 1,149,735 15,799,558 45,161,936 - 35,805,582 9,756,178 90,723,696 Public 5,678,440 - - 1,103,374 6,781,814 Community - - - 1,804,554 1,804,554 Health and human 848,440 - - 3,881,721 4,730,161 Culture and 1,630,818 - - 357,384 1,988,202 Pension 14,375,924 - - - 14,375,924 Employee 10,889,249 - - - 10,889,249 State and county 5,589,986 - - - 5,589,986 Debt service: 4,255,000 - - 55,000 4,310,000 2,496,858 - - 16,717 2,513,575 TOTAL EXPENDITURES……………………………………………… 109,595,589 - 35,805,582 19,301,394 164,702,565 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………………………………………… (4,387,674) 16,447 (5,984,202) 17,158 (10,338,271) OTHER FINANCING SOURCES (USES): Issuance of bonds and - - 6,885,633 1,433,864 8,319,497 Premium from issuance of bonds and 85,169 - - - 85,169 Capital lease 280,002 - - 98,167 378,169 Transfers 3,234,524 193,774 - 130,547 3,558,845 Transfers (554,736) - - (566,414) (1,121,150) TOTAL OTHER FINANCING SOURCES 3,044,959 193,774 6,885,633 1,096,164 11,220,530 NET CHANGE IN FUND (1,342,715) 210,221 901,431 1,113,322 882,259 FUND BALANCES AT BEGINNING OF YEAR, AS RESTATED…………… 261,147 277,759 (1,212,073) 9,174,863 8,501,696 FUND BALANCES AT END OF $ (1,081,568) $ 487,980 $ (310,642) $ 10,288,185 $ 9,383,955 See notes to basic financial statements. City of Salem, Massachusetts 32 Comprehensive Annual Financial Report Sec 7 - ---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, 2007 Net change in fund balances - total governmental $ 882,259 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 38,018,740 Depreciation (5,166,995) Net effect of reporting capital 32,851,745 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 (3,391,538) 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 770,914 Capital lease (378,169) Issuance of bonds and (8,319,497) Debt service principal 4,310,000 Net effect of reporting long-term (3,616,752) 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 444,000 Net change in workers' 24,789 Net change in accrued interest on long-term (175,984) Net effect of recording long-term liabilities and amortizing deferred losses…………… 292,805 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…………… 388,049 Change in net assets of governmental $ 27,406,568 See notes to basic financial statements. City of Salem, Massachusetts 33 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF NET ASSETS JUNE 30, 2007 Governmental Activities - Golf Internal Service Water Sewer Course Parking Total Funds ASSETS CURRENT: Cash and cash equivalents……………………… $ 3,399,248 $ 593,888 $ 251,194 $ 32,634 $ 4,276,964 $ - Receivables, net of allowance for uncollectibles User 1,130,287 1,649,390 - - 2,779,677 - Departmental and - - - - - 14,401 Intergovernmental……………………………… 78,030 - - - 78,030 - Working capital - - - - - 82,426 Investment in joint venture………………………… - 1,117,779 - - 1,117,779 - Total current 4,607,565 3,361,057 251,194 32,634 8,252,450 96,827 NONCURRENT: Capital assets, non depreciable………………… 10,589 99,552 118,067 48,214 276,422 - Capital assets, net of accumulated depreciation 8,166,349 434,462 459,200 5,328,663 14,388,674 - Total noncurrent assets……………………… 8,176,938 534,014 577,267 5,376,877 14,665,096 - TOTAL 12,784,503 3,895,071 828,461 5,409,511 22,917,546 96,827 LIABILITIES CURRENT: Warrants 765,511 - 421 - 765,932 40,618 Accrued liabilities…………………………………… 22,138 76,764 - - 98,902 - Accrued 6,019 5,965 - - 11,984 - Health claims - - - - - 118,211 Accrued 85,643 - 4,127 18,494 108,264 - Due to other - - - - - 278,271 Compensated absences…………………………… 6,000 6,000 12,000 19,000 43,000 - Bonds and notes payable………………………… 377,687 - 30,000 75,000 482,687 - Total current liabilities………………………… 1,262,998 88,729 46,548 112,494 1,510,769 437,100 NONCURRENT: Compensated absences…………………………… 15,000 15,000 33,000 17,000 80,000 - Bonds and notes payable………………………… 5,261,105 - 260,000 875,000 6,396,105 - Total noncurrent liabilities…………………… 5,276,105 15,000 293,000 892,000 6,476,105 - TOTAL LIABILITIES………………………………… 6,539,103 103,729 339,548 1,004,494 7,986,874 437,100 NET ASSETS Invested in capital assets, net of related debt……… 4,073,108 534,014 287,267 4,426,877 9,321,266 - Unrestricted…………………………………………… 2,172,292 3,257,328 201,646 (21,860) 5,609,406 (340,273) TOTAL NET 6,245,400 $ 3,791,342 $ 488,913 $ 4,405,017 $ 14,930,672 $ (340,273) See notes to basic financial statements. Business-type Activities - Enterprise Funds City of Salem, Massachusetts 34 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS FISCAL YEAR ENDED JUNE 30, 2007 Business-type Activities - Enterprise Funds Governmental Activities - Golf Internal Service Water Sewer Course Parking Total Funds OPERATING REVENUES: Employee contributions $ - $ - $ - $ - $ - $ 4,378,765 Employer contributions - - - - - 9,600,028 Charges for services 4,822,041 6,694,172 546,841 1,713,649 13,776,703 - - - - - - 224,008 TOTAL OPERATING REVENUES 4,822,041 6,694,172 546,841 1,713,649 13,776,703 14,202,801 OPERATING EXPENSES: Cost of services and administration 941,132 733,692 311,621 544,885 2,531,330 - District Assessment……………………………………… 2,081,364 4,852,191 - - 6,933,555 - Depreciation……………………………………………… 191,949 18,663 31,020 222,982 464,614 - Employee benefits - - - - - 13,858,211 TOTAL OPERATING EXPENSES 3,214,445 5,604,546 342,641 767,867 9,929,499 13,858,211 OPERATING INCOME 1,607,596 1,089,626 204,200 945,782 3,847,204 344,590 NONOPERATING REVENUES (EXPENSES): Investment - - - - - 43,459 Interest (166,776) - (14,431) (38,113) (219,320) - TOTAL NONOPERATING REVENUES (EXPENSES), (166,776) - (14,431) (38,113) (219,320) 43,459 INCOME (LOSS) BEFORE TRANSFERS………… 1,440,820 1,089,626 189,769 907,669 3,627,884 388,049 TRANSFERS: Transfers - - 325,025 - 325,025 - Transfers (561,761) (633,569) (515,864) (1,051,526) (2,762,720) - TOTAL TRANSFERS………………………………… (561,761) (633,569) (190,839) (1,051,526) (2,437,695) - CHANGE IN NET 879,059 456,057 (1,070) (143,857) 1,190,189 388,049 NET ASSETS AT BEGINNING OF YEAR 5,366,341 3,335,285 489,983 4,548,874 13,740,483 (728,322) NET ASSETS AT END OF $ 6,245,400 $ 3,791,342 $ 488,913 $ 4,405,017 $ 14,930,672 $ (340,273) See notes to basic financial statements. City of Salem, Massachusetts 35 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FISCAL YEAR ENDED JUNE 30, 2007 Business-type Activities - Enterprise Funds Governmental Activities - Golf Internal Service Water Sewer Course Parking Total Funds CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and 4,544,171 $ 6,474,209 $ 546,841 $ 1,713,649 $ 13,278,870 $ - Receipts from interfund services - - - - - 14,274,218 Payments to (2,820,878) (5,416,047) (85,087) (154,645) (8,476,657) - Payments to (181,396) (162,121) (195,113) (393,240) (931,870) - Payments for interfund services - - - - - (14,929,045) NET CASH FROM OPERATING ACTIVITIES……………………………………… 1,541,897 896,041 266,641 1,165,764 3,870,343 (654,827) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers - - 325,025 - 325,025 - Transfers (561,761) (633,569) (515,864) (1,051,526) (2,762,720) - Advances from other - - - - - 278,271 NET CASH FROM NONCAPITAL FINANCING ACTIVITIES…………………… (561,761) (633,569) (190,839) (1,051,526) (2,437,695) 278,271 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from the issuance of bonds and 2,252,626 - - - 2,252,626 - Acquisition and construction of capital (2,074,538) (38,502) - (29,134) (2,142,174) - Principal payments on bonds and (33,000) - (30,000) (75,000) (138,000) - Interest (152,233) - (14,825) (39,238) (206,296) - NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES……… (7,145) (38,502) (44,825) (143,372) (233,844) - CASH FLOWS FROM INVESTING ACTIVITIES: Investment - - - - - 43,459 NET CHANGE IN CASH AND CASH EQUIVALENTS…………………………… 972,991 223,970 30,977 (29,134) 1,198,804 (333,097) CASH AND CASH EQUIVALENTS AT BEGINNING OF 2,426,257 369,918 220,217 61,768 3,078,160 333,097 CASH AND CASH EQUIVALENTS AT END OF 3,399,248 $ 593,888 $ 251,194 $ 32,634 $ 4,276,964 $ - RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income 1,607,596 $ 1,089,626 $ 204,200 $ 945,782 $ 3,847,204 $ 344,590 Adjustments to reconcile operating income (loss) to net cash from operating activities: 191,949 18,663 31,020 222,982 464,614 - Changes in assets and liabilities: User (277,870) (219,963) - - (497,833) - Investment in joint - (63,708) - - (63,708) - Departmental and - - - - - 71,417 Working capital - - - - - 82,574 Warrants 21,554 (5,104) 421 - 16,871 (293,619) Accrued 18,845 76,562 - - 95,407 - Accrued (14,177) 5,965 - - (8,212) - Health claims - - - - - (859,789) Accrued compensated (6,000) (6,000) 31,000 (3,000) 16,000 - Total (65,699) (193,585) 62,441 219,982 23,139 (999,417) NET CASH FROM OPERATING 1,541,897 $ 896,041 $ 266,641 $ 1,165,764 $ 3,870,343 $ (654,827) See notes to basic financial statements. City of Salem, Massachusetts 36 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2007 Pension Trust Fund Private (as of December Purpose Agency 31, 2006) Trust Funds Fund ASSETS Cash and cash equivalents…………………………………… $ 7,010,830 $ 244,278 $ 404,548 Investments: U.S. Treasury 12,236,864 - - Corporate 7,886,503 1,356,908 - Equity 11,334,087 - - Equity mutual 44,116,819 Real estate and alternative investment mutual funds… 9,531,719 - - Federal Home Loan Mortgages………………………… 677,179 - - Federal National Mortgage Association………………… 669,168 - - Receivables, net of allowance for uncollectibles: Departmental and 328,563 - 21,851 TOTAL 93,791,732 1,601,186 426,399 LIABILITIES Warrants 113,931 - 36,409 Liabilities due depositors……………………………………… - - 389,990 TOTAL 113,931 - 426,399 NET ASSETS Held in trust for pension benefits and other purposes…… $ 93,677,801 $ 1,601,186 $ - See notes to basic financial statements. City of Salem, Massachusetts 37 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FISCAL YEAR ENDED JUNE 30, 2007 Pension Trust Fund Private (as of December Purpose 31, 2006) Trust Funds ADDITIONS: Contributions: $ 8,468,103 $ - Plan 2,793,697 - Private - 12,432 Total 11,261,800 12,432 Net investment income (loss): Net change in fair value of 9,942,426 - 2,079,599 208,640 Total investment income 12,022,025 208,640 Less: investment (725,663) - Net investment income 11,296,362 208,640 431,290 - Transfers from other 446,445 - TOTAL 23,435,897 221,072 DEDUCTIONS: 312,366 - Retirement benefits and 11,361,454 - Educational - 23,173 Housing - 28,265 TOTAL 11,939,067 51,438 CHANGE IN NET 11,496,830 169,634 NET ASSETS AT BEGINNING OF 82,180,971 1,431,552 NET ASSETS AT END OF 93,677,801 $ 1,601,186 See notes to basic financial statements. City of Salem, Massachusetts 38 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 39 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 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, 2007, the City’s equity interest in the operations of the District totaled $1,117,779, 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, 2007 totaled approximately $2,081,000. Complete financial information for the Water Board can be obtained by contacting them at 50 Arlington Avenue, Beverly, MA 01915. Availability of Financial Information for Component Units Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 40 Comprehensive Annual Financial Report 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. 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 percent 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 percent 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. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 41 Comprehensive Annual Financial Report The statement of activities demonstrates the degree to which the direct expenses of a particular function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include the following: • Charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment. • Grants and contributions that are restricted to meeting the operational requirements of a particular function or segment. • Grants and contributions that are restricted to meeting the capital requirements of a particular function or segment. Taxes and other items not identifiable as program revenues are reported as general revenues. For the most part, the effect of interfund activity has been removed from the government-wide financial statements. However, the effect of interfund services provided and used between functions is not eliminated as the elimination of these charges would distort the direct costs and program revenues reported for the functions affected. Fund Financial Statements Governmental fund financial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual 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, 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 stabilization fund is a special revenue fund used to account for the accumulation of resources to be used for general and/or capital purposes upon approval of City Council. The school capital projects fund is used to account for the ongoing construction and renovations of the City’s school buildings. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 42 Comprehensive Annual Financial Report 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 the proceeds of specific revenue sources (other than permanent funds or capital projects funds) that are restricted by law or administrative action to expenditures for specified purposes. The capital projects fund is used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by Enterprise Funds). The permanent fund is used to account for 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. 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 active employees’ and retirees’ health insurance. Fiduciary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. 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 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 Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 43 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, and police and fire special detail accounts. Government-Wide and Fund Financial Statements For enterprise fund accounting, all applicable Financial Accounting Standards Board (FASB) pronouncements issued on or prior to November 30, 1989, are applied, unless those pronouncements conflict with or contradict GASB pronouncements. 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. Mortgages are valued on the basis of future plan principal and interest payments, and are discounted at prevailing interest rates for similar instruments. The fair value of real estate investments is based upon independent appraisals. 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. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 44 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 fees resulting in the discontinuation of service also known as a “shut off” policy. The water department provides strict guidelines as to the process of discontinuation of service Trash user fees are levied based on the number of units located on the property. The per unit fee collected is $30 for commercial and $20 for residential. Collection from any one property shall not exceed $100. 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 and 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. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 45 Comprehensive Annual Financial Report Loans Loan receivables are comprised of funds advanced to small businesses and developers under various Urban Development Action Grants (UDAG) and Community Development Block Grants (CDBG). The City loans funds to owners of commercial and residential properties for the purpose of rehabilitating these properties. The City receives funding for these loans from the U.S Department of Housing and Urban Development (HUD) under Community Development Block Grant (CDBG) programs for the City. These loans are repaid to the City under various terms and conditions stipulated by each loan agreement. The loan repayments may be used by the City for any eligible activity relevant to the community development program. F. Inventories 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 is 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…………………………………… 15-40 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. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 46 Comprehensive Annual Financial Report 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. 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. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 47 Comprehensive Annual Financial Report K. Net Assets and Fund Equity Government-Wide Financial Statements (Net Assets) Net assets are reported as restricted when amounts that are not available for appropriation or are legally restricted by outside parties for a specific future use. 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 o 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) Fund balances are reserved for amounts that are not available for appropriation or are legally restricted by outside parties for a specific future use. Designations of fund balance represent tentative management plans that are subject to change. Fund balances have been “reserved for” the following: “Encumbrances and continuing appropriations” represents amounts obligated under purchase orders, contracts and other commitments for expenditures that are being carried over to the ensuing fiscal year. “Perpetual permanent funds” represents amounts held in trust for which only investment earnings may be expended. 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. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 48 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. Post Retirement Benefits Government-Wide and Fund Financial Statements In addition to providing pension benefits, health insurance coverage is provided for retired employees and their survivors in accordance with MGL, Chapter 32, on a pay-as-you-go basis. The cost of providing health insurance is recognized by recording its share of insurance premiums in the general fund in the fiscal year paid. For the fiscal year ended June 30, 2007, this expenditure totaled approximately $1,259,000. There were approximately 578 participants eligible to receive benefits at June 30, 2007. The Commonwealth of Massachusetts administers a health insurance plan for all retired teachers of the Commonwealth. The cost of providing that benefit is assessed to each community annually. For the fiscal year ending June 30, 2007 this expense/expenditure amounted to approximately $1,898,000. The number of participants covered is not provided by the Commonwealth. P. Fund Deficits and Appropriation Deficits Individual fund deficits exist at June 30, 2007 in the School Capital Projects Fund; in the School Lunch, Highway Grants, Police Station Equipment and Salem Ferry nonmajor governmental funds; and in the internal service fund. These deficits will be funded by grants, departmental revenues, long-term borrowing and available fund balance. Massachusetts General Laws require that any operating deficit within the internal service fund be funded by a general fund transfer. In addition any deficit created by recording the incurred but not reported liability must be funded through general fund contributions or other available funds. Actual expenditures exceeded appropriations for education and snow and ice removal. These over-expenditures will be funded through available funds during fiscal year 2008. In the snow and ice removal appropriation line, the general law allows deficits to occur and to be raised in the subsequent fiscal year. The deficit in the education line is the result of the School Department understating accrued expenditures at year end. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 49 Comprehensive Annual Financial Report Q. Use of Estimates Government-Wide and Fund Financial Statements The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the fiscal year. Actual results could vary from estimates that were used. R. Total Column Government-Wide Financial Statements The total column presented on the government-wide financial statements represents consolidated financial information. Fund Financial Statements The total column on the fund financial statements is presented only to facilitate financial analysis. Data in this column is not the equivalent of consolidated financial information. NOTE 2 – CASH AND INVESTMENTS A cash and investment pool is maintained that is available for use by all funds. Each fund type's portion of this pool is displayed on the balance sheet as "Cash and cash equivalents". The deposits and investments of the trust funds are held separately from those of other funds. Statutes authorize the investment in obligations of the U.S. Treasury, agencies, and instrumentalities, certificates of deposit, repurchase agreements, money market accounts, bank deposits and the State Treasurer's Investment Pool (the Pool). The Treasurer and Trust Fund Commission may also invest trust funds in securities, other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth; provided, that not more than fifteen per cent of any trust fund may be invested in bank stocks and insurance company stocks, and not more than one and one-half per cent of any trust fund can invested in the stock of any one bank or insurance company. 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. 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. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 50 Comprehensive Annual Financial Report 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 deposit policy for custodial credit risk. At fiscal year-end, the carrying amount of deposits totaled $13,128,132 and the bank balance totaled $15,000,818. Of the bank balance, $503,277 was covered by Federal Depository Insurance, $1,182,801 was covered by the Depositors Insurance Fund, and $13,314,740 was exposed to custodial credit risk because it was uninsured and uncollateralized. The System does not have a deposit policy for custodial credit risk. At fiscal year-end, the carrying amount of deposits totaled $2,435,751 and the bank balance totaled $2,573,728. The entire bank balance was covered by Federal Depository Insurance. Investments As of June 30, 2007, the City had the following investments: Fair Value Under 1 Year 1-5 Years Investment Type Debt Securities: Federal Farm Credit 97,594 $ - $ 97,594 Corporate 1,394,619 99,245 1,295,374 Repurchase Agreements…………………… 3,879,092 3,879,092 - Total Debt 5,371,305 $ 3,978,337 $ 1,392,968 Other Investments: Equity 3,746,810 Equity Mutual 533,252 Real Estate Investment Trusts…………… 243,010 1,568,162 Total 11,462,539 Maturity As of December 31, 2006, the System had the following investments: Fair Value Under 1 Year 1-5 Years 6-10 Years Over 10 Years Investment Type Debt Securities: U.S. Treasury 2,116,102 $ - $ 44,859 $ 2,045,105 $ 26,138 Corporate 7,529,734 80,956 1,147,633 677,527 5,623,618 Federal Home Loan Mortgages…………… 667,270 301,038 - - 366,232 Federal National Mortgage Association…… 661,935 - - 254,300 407,635 Repurchase Agreements…………………… 4,575,079 4,575,079 - - - Total Debt 15,550,120 $ 4,957,073 $ 1,192,492 $ 2,976,932 $ 6,423,623 Other Investments: Equity 4,422,580 Equity Mutual 58,550,368 Alternative Investment Mutual 3,308,388 Real Estate Mutual Funds………………… 9,195,962 Total 91,027,418 Maturity Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 51 Comprehensive Annual Financial Report 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, $97,594 in Federal Farm Credit Bank securities, $1,394,619 in corporate bonds and $4,280,062 in equity securities are exposed to custodial credit risk because the related securities are uninsured, unregistered and are held by the counterparty. The investments in MMDT is not exposed to custodial credit risk because the existence is not evidenced by securities that exist in physical or book entry form. The $3,879,092 repurchase agreement is invested in collateralized Federal Home Loan Mortgage Corporation government backed securities. The City does not have an investment policy related to custodial credit risk. 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 Retirement System. Interest Rate Risk Neither the City nor the System have formal investment policies limiting investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk The City has not adopted a formal policy related to Credit Risk. Moody’s Investors Service rated $197,212 of corporate bonds AAA; $249,095, AA; and $948,312, A. The federal farm credit bank investment of $97,594 and $1,568,162 of MMDT investments are rated AAA. The repurchase agreements and equity mutual fund investments are unrated. The System has not adopted a formal policy related to Credit Risk. Moody’s Investors Service rated $2,458,216 of corporate bonds AAA; $1,412,637, AA; $1,609,886, A; $1,132,647, BBB and $916,348 were unrated. The Federal Home Loan investments of $667,270 are rated AAA. The repurchase agreement, equity mutual fund securities, alternate investment mutual funds and real estate mutual fund investments are unrated. Concentration of Credit Risk The City places no limit on the amount the government may invest in any one issuer. Through the City’s repurchase agreement, more than 5 percent of the City’s investments are in the following securities: Percentage of Issuer Federal Home Loan Mortgage Corporation………………… 34% Total Investments Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 52 Comprehensive Annual Financial Report The retirement system places no limit on the amount the government may invest in any one issuer. More than 5 percent of the System’s investments are in the following securities: Percentage of Issuer Copper Rock Small Capital Growth 5% PRIT Core Real Estate 6% Freedom Large Capital Growth 9% Freedom Large Capital Value 10% Freedom Capital Equity Style 12% Freedom Core Plus Fixed Income 12% TBC International Core 17% Total Investments NOTE 3 – RECEIVABLES At June 30, 2007, 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 $ 970,348 $ - $ 970,348 Tax 846,981 - 846,981 Motor vehicle and other excise 1,063,799 (292,821) 770,978 Trash 236,850 - 236,850 Departmental and 83,327 - 83,327 Intergovernmental…………………………………………… 43,692,501 - 43,692,501 787,632 - 787,632 $ 47,681,438 $ (292,821) $ 47,388,617 At June 30, 2007, receivables for the water and sewer enterprise funds consist of the following: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Water user $ 1,130,287 $ - $ 1,130,287 Sewer user 1,649,390 - 1,649,390 Intergovernmental……………………………………………… 78,030 - 78,030 $ 2,857,707 $ - $ 2,857,707 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: Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 53 Comprehensive Annual Financial Report COMPONENTS OF DEFERRED REVENUE Other General Governmental Fund Funds Total Receivable type: Real estate and personal property $ 634,325 $ - $ 634,325 Tax 846,981 - 846,981 Motor vehicle and other 770,978 - 770,978 Trash 236,850 - 236,850 Intergovernmental……………………………………………… 40,058,071 769,360 40,827,431 - 787,632 787,632 $ 42,547,205 $ 1,556,992 $ 44,104,197 NOTE 4 – CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2007, was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: $ 4,684,753 $ - $ - $ 4,684,753 Construction in 3,315,079 36,333,147 - 39,648,226 Total capital assets not being depreciated………… 7,999,832 36,333,147 - 44,332,979 Capital assets being depreciated: Land improvements……………………………………… 2,401,862 223,933 - 2,625,795 Buildings and improvements……………………………… 109,830,207 - - 109,830,207 7,037,351 438,843 (58,702) 7,417,492 Infrastructure……………………………………………… 50,915,425 644,480 - 51,559,905 6,006,125 378,337 (281,637) 6,102,825 Total capital assets being depreciated……………… 176,190,970 1,685,593 (340,339) 177,536,224 Less accumulated depreciation for: Land improvements……………………………………… (1,275,019) (87,926) - (1,362,945) Buildings and improvements……………………………… (29,563,834) (2,875,487) - (32,439,321) (2,746,599) (498,994) 58,702 (3,186,891) Infrastructure……………………………………………… (22,176,249) (1,372,995) - (23,549,244) (4,261,564) (331,593) 281,637 (4,311,520) Total accumulated depreciation…………………… (60,023,265) (5,166,995) 340,339 (64,849,921) Total capital assets being depreciated, 116,167,705 (3,481,402) - 112,686,303 Total governmental activities capital assets………………… $ 124,167,537 $ 32,851,745 $ - $ 157,019,282 Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 54 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Water Activities: Capital assets not being depreciated: $ 10,589 $ - $ - $ 10,589 Capital assets being depreciated: Land improvements……………………………………… 114,550 - - 114,550 - 91,290 - 91,290 Infrastructure……………………………………………… 11,117,124 2,508,330 - 13,625,454 Total capital assets being depreciated……………… 11,231,674 2,599,620 - 13,831,294 Less accumulated depreciation for: Land improvements……………………………………… (25,775) (5,728) - (31,503) - (9,129) (9,129) Infrastructure……………………………………………… (5,447,221) (177,092) - (5,624,313) Total accumulated depreciation…………………… (5,472,996) (191,949) - (5,664,945) Total capital assets being depreciated, 5,758,678 2,407,671 - 8,166,349 Total water activities capital $ 5,769,267 $ 2,407,671 $ - $ 8,176,938 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 - - 5,425 125,486 - - 125,486 Infrastructure……………………………………………… 1,444,815 38,502 - 1,483,317 Total capital assets being depreciated……………… 1,575,726 38,502 - 1,614,228 Less accumulated depreciation for: Buildings and improvements……………………………… (4,951) (136) - (5,087) (125,486) - - (125,486) Infrastructure……………………………………………… (1,030,666) (18,527) - (1,049,193) Total accumulated depreciation…………………… (1,161,103) (18,663) - (1,179,766) Total capital assets being depreciated, 414,623 19,839 - 434,462 Total sewer activities capital $ 514,175 $ 19,839 $ - $ 534,014 Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 55 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 - - 453,988 330,409 - - 330,409 Total capital assets being depreciated……………… 1,097,249 - - 1,097,249 Less accumulated depreciation for: Land improvements……………………………………… (294,226) (6,014) - (300,240) Buildings and improvements……………………………… (76,089) (11,350) - (87,439) (236,714) (13,656) - (250,370) Total accumulated depreciation…………………… (607,029) (31,020) - (638,049) Total capital assets being depreciated, 490,220 (31,020) - 459,200 Total golf course activities capital assets…………………… $ 608,287 $ (31,020) $ - $ 577,267 Beginning Ending Balance Increases Decreases Balance Parking Activities: Capital assets not being depreciated: $ 48,214 $ - $ - $ 48,214 Construction in 1,036,532 - (1,036,532) - Total capital assets not being depreciated………… 1,084,746 - (1,036,532) 48,214 Capital assets being depreciated: Land improvements……………………………………… 292,700 1,045,666 - 1,338,366 Buildings and improvements……………………………… 7,625,100 - - 7,625,100 5,100 - - 5,100 Total capital assets being depreciated……………… 7,922,900 1,045,666 - 8,968,566 Less accumulated depreciation for: Land improvements……………………………………… (54,141) (33,289) - (87,430) Buildings and improvements……………………………… (3,358,955) (189,183) - (3,548,138) (3,825) (510) - (4,335) Total accumulated depreciation…………………… (3,416,921) (222,982) - (3,639,903) Total capital assets being depreciated, 4,505,979 822,684 - 5,328,663 Total parking activities capital $ 5,590,725 $ 822,684 $ (1,036,532) $ 5,376,877 Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 56 Comprehensive Annual Financial Report Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General $ 298,938 Public 378,870 2,781,427 Public 1,491,465 Health and human 29,990 Culture and 186,305 Total depreciation expense - governmental activities……………………………… $ 5,166,995 Business-Type Activities: $ 191,949 18,663 Golf 31,020 222,982 Total depreciation expense - business-type activities……………………………… $ 464,614 NOTE 5 – INTERFUND TRANSFERS AND BALANCES Interfund transfers for the fiscal year ended June 30, 2007, are summarized as follows: Golf Course Nonmajor General Stabilization Enterprise Governmental Transfers Out: Fund Fund Fund Funds Total General - $ 193,774 $ 325,025 $ 35,937 $ 554,736 Nonmajor Governmental Funds……… 471,804 - - 94,610 566,414 Parking Enterprise Fund……………… 1,051,526 - - - 1,051,526 Golf Course Enterprise Fund………… 515,864 - - - 515,864 Sewer Enterprise 633,569 - - - 633,569 Water Enterprise 561,761 - - - 561,761 $ 3,234,524 $ 193,774 $ 325,025 $ 130,547 $ 3,883,870 Transfer from general fund to stabilization fund and golf course enterprise fund to reimburse for amounts raised by taxation. Transfer from general fund to nonmajor fund to fund deficit in MTC Collaborative. Transfer from nonmajor funds to general fund for their share of indirect costs and transfers within nonmajor funds. Transfer from parking enterprise fund to general fund for their share of indirect costs. (4)Transfer from golf course enterprise fund to general fund for their share of indirect costs. Transfer from sewer enterprise fund to general fund for their share of indirect costs. Transfer from water enterprise fund to general fund for their share of indirect costs. Transfers In: The City’s interfund balances at June 30, 2007 consisted of $278,271 due from the internal service fund to the general fund and $575,936 in balances within the nonmajor governmental funds all representing interfund borrowings for cash flow purposes. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 57 Comprehensive Annual Financial Report NOTE 6 – CAPITAL & OPERATING LEASES The City has entered into lease agreements as lessee for financing the acquisition of a fire truck, police cruiser, a snow plow, a school bus, 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 2,334,415 476,650 Less: accumulated depreciation………………………… (808,333) 2,002,732 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2007, were as follows: Fiscal Years Governmental Ending June 30 Activities 342,946 192,876 117,537 57,264 57,264 57,264 57,264 Total minimum lease payments……………………… 882,415 Less: amounts representing interest………………… (102,509) Present value of minimum lease payments………… $ 779,906 The City leases office space for the City Hall Annex under an operating lease that expires on February 28, 2011. The cost of the lease for the fiscal year ended June 30, 2007, totaled $360,000, and is reported as a general government expenditure in the general fund. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 58 Comprehensive Annual Financial Report The future minimum lease payments for the City’s operating lease are as follows: Fiscal Years Governmental Ending June 30 Activities 360,000 360,000 360,000 240,000 $ 1,320,000 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). 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. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 59 Comprehensive Annual Financial Report Details related to the short-term debt activity for the fiscal year ended June 30, 2007, are as follows: Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose Due Date 2006 Issued Redeemed 2007 SAN Equipment - Ferry 6.0% 07/21/06 $ 2,325,000 $ - $ 2,325,000 $ - BAN Equipment - Ferry 6.0% 07/21/06 775,000 - 775,000 - RAN Equipment - Ferry 4.3% 08/30/06 - 3,100,000 3,100,000 - RAN Equipment - Ferry 3.7% 11/01/06 - 9,100,000 9,100,000 - BAN School Construction…………………… 4.3% 01/11/07 4,000,000 - 4,000,000 - BAN Police Equipment……………………… 4.3% 01/11/07 658,864 - 658,864 - BAN Equipment - Ferry 6.5% 07/18/07 - 775,000 775,000 - BAN School Construction…………………… 4.0% 10/23/07 - 7,000,000 6,885,633 114,367 BAN School Construction…………………… 4.0% 10/23/07 - 3,033,969 - 3,033,969 BAN School Construction…………………… 4.0% 10/23/07 - 966,031 - 966,031 BAN Police Equipment……………………… 4.0% 10/23/07 - 658,864 658,864 - Sub-total governmental-type notes…… 7,758,864 24,633,864 28,278,361 4,114,367 BAN Water 4.3% 01/11/07 3,341,136 - 3,341,136 - BAN Water 4.0% 10/23/07 - 3,308,136 3,250,503 57,633 Sub-total business-type notes………… 3,341,136 3,308,136 6,591,639 57,633 Total notes payable…………………… $ 11,100,000 $ 27,942,000 $ 34,870,000 $ 4,172,000 Subsequent to year end, on July 18, 2007, the City reissued the $775,000 BAN at 5.95% with a maturity date of October 23, 2007. In October, the City issued $11,570,000 in General Obligation Bonds, which were used to retire $6,885,633 of School Construction BANs, $658,864 of Police Equipment BANs, $775,000 of Equipment – Ferry Boat BANs, and $3,250,503 of Water System BANs. The City retired $242,000 of outstanding BANs with available funds, and issued $3,930,000 in new BANs at which will mature on October 24, 2008. The $11,570,000 General Obligation Bonds have been recorded as long-term bonds payable as of June 30, 2007. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 60 Comprehensive Annual Financial Report NOTE 8 – LONG-TERM DEBT Under the provisions of Chapter 44, Section 10, Municipal Law authorizes indebtedness up to a limit of 5% of the equalized valuation. Debt issued in accordance with this section of the law is designated as being "inside the debt limit". In addition, however, debt may be authorized in excess of that limit for specific purposes. Such debt, when issued, is designated as being "outside the debt limit". Details related to the outstanding indebtedness at June 30, 2007, and the debt service requirements are as follows: Bonds and Notes Payable Schedule – Governmental Funds Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2006 Issued Redeemed 2007 School Construction………………. 5.13-5.75% $ 4,180,000 $ - $ 420,000 $ 3,760,000 School Construction………………… 5.13-5.75% 930,000 - 95,000 835,000 HUD Section 3.41-3.70% 55,000 - 55,000 - HUD Section 9.00% 245,000 - - 245,000 School Construction………………. 4.50-6.75% 8,945,000 - 420,000 8,525,000 Swimming 4.50-6.75% 240,000 - 40,000 200,000 School Construction………………. 3.50-4.00% 2,655,000 - 555,000 2,100,000 School Construction………………… 3.50-4.00% 3,936,000 - 706,000 3,230,000 Police Station……………………… 3.50-4.00% 1,759,000 - 294,000 1,465,000 School Construction………………… 3.00-5.00% 15,840,000 - 655,000 15,185,000 School Construction………………. 3.00-5.00% 8,550,000 - 355,000 8,195,000 School Construction………………… 3.00-5.00% 1,305,000 - 70,000 1,235,000 School Construction………………… 2.25-4.50% 3,410,000 - 520,000 2,890,000 School Construction……………… 3.00-5.00% 1,790,000 - 95,000 1,695,000 School Construction………………… 3.00-5.00% 545,000 - 30,000 515,000 School Construction………………… 3.75-5.00% - 6,885,633 - 6,885,633 Police Equipment…………………… 3.75-5.00% - 658,864 - 658,864 Ferry 3.75-5.00% - 775,000 - 775,000 Total Governmental bonds payable…………………… $ 54,385,000 $ 8,319,497 $ 4,310,000 $ 58,394,497 Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 61 Comprehensive Annual Financial Report Debt service requirements for principal and interest for Governmental bonds payable in future fiscal years are as follows: Fiscal Year Principal Interest Total 4,794,497 $ 2,136,191 $ 6,930,688 2009……………… 4,880,000 2,492,644 7,372,644 2010……………… 4,955,000 2,108,022 7,063,022 2011……………… 5,025,000 1,899,968 6,924,968 2012……………… 4,600,000 1,699,376 6,299,376 2013……………… 3,770,000 1,515,794 5,285,794 2014……………… 3,445,000 1,348,487 4,793,487 2015……………… 2,960,000 1,206,683 4,166,683 2016……………… 2,905,000 1,080,058 3,985,058 2017……………… 2,925,000 953,117 3,878,117 2018……………… 3,050,000 821,850 3,871,850 2019……………… 3,170,000 683,656 3,853,656 2020……………… 3,290,000 527,197 3,817,197 2021……………… 2,265,000 389,578 2,654,578 2022……………… 2,345,000 288,878 2,633,878 2023……………… 2,420,000 183,646 2,603,646 2024……………… 460,000 72,982 532,982 2025……………… 455,000 54,079 509,079 2026……………… 340,000 35,063 375,063 2027……………… 340,000 28,050 368,050 Totals…………… $ 58,394,497 $ 19,525,319 $ 77,919,816 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 2007, $39,869,000 of such assistance was received. Approximately $49,389,000 will be received in future fiscal years. Of this amount, approximately $7,831,000 represents reimbursement of long-term interest costs, and approximately $41,558,000 represents reimbursement of approved construction costs. Accordingly, a $41,558,000 intergovernmental receivable and corresponding deferred revenue have been reported in the governmental fund financial statements. The net change in deferred revenue has been recognized as revenue in the conversion to the government-wide financial statements. Bonds and Notes Payable Schedule – Golf Course Enterprise Fund Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2006 Issued Redeemed 2007 Golf 4.50-6.75% $ 320,000 $ - $ 30,000 $ 290,000 Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 62 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 30,000 $ 13,475 $ 43,475 2009……………… 30,000 11,938 41,938 2010……………… 30,000 10,401 40,401 2011……………… 30,000 9,036 39,036 2012……………… 30,000 7,641 37,641 2013……………… 30,000 6,216 36,216 2014……………… 30,000 4,761 34,761 2015……………… 30,000 3,276 33,276 2016……………… 30,000 1,776 31,776 2017……………… 20,000 513 20,513 Totals…………… $ 290,000 $ 69,033 $ 359,033 Bonds and Notes Payable Schedule – Parking Enterprise Fund Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2006 Issued Redeemed 2007 Parking Garage Repairs………….. 3.00-5.00% $ 1,025,000 $ - $ 75,000 $ 950,000 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 $ 36,988 $ 111,988 2009……………… 75,000 34,738 109,738 2010……………… 75,000 32,488 107,488 2011……………… 75,000 30,238 105,238 2012……………… 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………….. $ 950,000 $ 266,752 $ 1,216,752 Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 63 Comprehensive Annual Financial Report Bonds and Notes Payable Schedule – Water Enterprise Fund In fiscal year 2007, the City entered into a loan program with Massachusetts Water Pollution Abatement Trust for Water project which entitled the city to borrow $2,330,656 at 2% for 20 years. Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2006 Issued Redeemed 2007 Water Project……………………… 2.00% $ - $ 2,330,656 $ - $ 2,330,656 Water Project……………………… 3.75-5.00% - 3,250,503 - 3,250,503 Total Water Enterprise Fund……… $ - $ 5,581,159 $ - $ 5,581,159 Debt service requirements for principal and interest for the water enterprise fund bonds payable in future fiscal years are as follows: Fiscal Year Principal Interest Total 262,421 $ 49,707 $ 312,128 2009……………… 262,830 247,613 510,443 2010……………… 264,806 167,882 432,688 2011……………… 266,822 157,615 424,437 2012……………… 268,880 147,309 416,189 2013……………… 270,978 136,961 407,939 2014……………… 273,119 127,395 400,514 2015……………… 275,303 118,611 393,914 2016……………… 277,532 109,989 387,521 2017……………… 274,805 101,322 376,127 2018……………… 277,124 92,502 369,626 2019……………… 279,490 83,735 363,225 2020……………… 281,904 74,921 356,825 2021……………… 284,367 66,059 350,426 2022……………… 286,880 57,147 344,027 2023……………… 289,443 48,184 337,627 2024……………… 292,058 39,169 331,227 2025……………… 294,726 30,001 324,727 2026……………… 297,447 20,679 318,126 2027……………… 300,224 14,602 314,826 Total………….. $ 5,581,159 $ 1,891,403 $ 7,472,562 Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 64 Comprehensive Annual Financial Report The City is subject to various debt limits by statute and may issue additional general obligation debt under the normal debt limit. At June 30, 2007, the City had the following authorized and unissued debt: Purpose Amount School construction………………….. $ 45,516,031 Water systems improvements………… 6,295,208 Ferry Boat Project……………………… 2,325,000 $ 54,136,239 Changes in Long-term Liabilities During the fiscal year ended June 30, 2007, the following changes occurred in long-term liabilities: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities: Capital leases…………………… $ 1,172,651 $ 378,169 $ (770,914) $ 779,906 $ 304,210 Long-term bonds and notes…… 54,385,000 8,319,497 (4,310,000) 58,394,497 4,794,497 Compensated absences………… 6,102,000 1,758,000 (2,202,000) 5,658,000 1,383,000 Workers' compensation……..… 430,092 123,136 (147,925) 405,303 85,950 Total governmental activity long-term liabilities………………$ 62,089,743 $ 10,578,802 $ (7,430,839) $ 65,237,706 $ 6,567,657 Business-Type Activities: Long-term bonds and notes…… 1,345,000 5,581,159 (105,000) 6,821,159 425,054 Compensated absences………… 107,000 34,000 (18,000) 123,000 43,000 Total business-type activity long-term liabilities………………$ 1,452,000 $ 5,615,159 $ (123,000) $ 6,944,159 $ 468,054 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 and parking enterprise funds. NOTE 9 – 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. In addition, the City is self- insured for damages not covered by commercial insurance. The amount of claim settlements has not exceeded insurance coverage in any of the previous three fiscal years. The City is self-insured for Medex coverage for certain retirees which is accounted for in the City’s internal service fund where revenues are recorded when earned and expenses are recorded when the liability is incurred. The City is also self-insured for its workers’ compensation and unemployment compensation activities which are accounted for in the funds incurring the expenditures. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 65 Comprehensive Annual Financial Report During fiscal year 2007 the City has converted most health insurance plans to premium based which shifts the risk of insurance to a third party. The premium based plan took effect on February 1, 2007. The City has paid all residual claims under the self-insured health plan that have been reported through June 30, 2007. The City is responsible for paying any additional claims on the self-insured plan that may not have been reported as of June 30, 2007. However, the City estimates that the future liability for unreported claims is immaterial to the financial statements and, accordingly, has not recorded an estimated future liability for health insurance for active employees. Medex Medex claims are administered by a third party administrator and are funded on an as needed basis from the City’s internal service fund. The estimate of Incurred But Not Reported (IBNR) claims is based on 1 month of the annual claims. At June 30, 2007, the City’s estimated future liability for unreported claims is $118,111. This liability is the best estimate based on available information. Changes in the City’s liability since July 1, 2005 when the City was fully self-insured for health insurance through June 30, 2007, when the City was self-insured for Medex coverage only, 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 2006………. $ 900,000 $ 10,092,974 $ (10,014,974) $ 978,000 $ 978,000 Fiscal Year 2007………. 978,000 7,709,418 (8,569,207) 118,211 118,211 Workers’ Compensation Workers’ compensation claims 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, 2007, the amount of the liability for workers’ compensation claims totaled $405,303. Changes in the reported liability since July 1, 2005, 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 2006………. $ 705,225 $ 119,493 $ (394,626) $ 430,092 $ 123,136 Fiscal Year 2007………. 430,092 224,682 (249,471) 405,303 85,950 NOTE 10 – 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 $7,044,987 for the fiscal year ended June 30, 2007, and, accordingly, are reported in the general fund as intergovernmental revenues and pension expenditures. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 66 Comprehensive Annual Financial Report 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. At December 31, 2006, the System’s membership consists of the following: Active 834 Inactive 155 Retirees and beneficiaries currently receiving benefits……… 633 1,622 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 90% 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, 2007, 2006, and 2005, were $7,209,359, $6,957,102, and $5,918,415, respectively, which equaled its required contribution for each fiscal year. At June 30, 2007, the City did not have a net pension obligation. The required contribution was determined as part of the January 1, 2006, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included an inflation rate of 4.5%, 8.25% investment rate of return and projected salary increases of 5.5% 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 open amortization period at January 1, 2007 was 18 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) 01/01/06 $ 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% 01/01/97 51,236,360 82,440,774 31,204,414 62.1% 22,930,939 136.1% Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 67 Comprehensive Annual Financial Report 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 90% of the unfunded liability. Noncontributory Retirement Allowance – The City pays the entire retirement allowance for certain retirees who are eligible for noncontributory benefits and are not members of the System. The general fund expenditure for fiscal year 2007 totaled approximately $148,443. NOTE 11 – MAJOR TAXPAYER The City receives a significant portion of its real estate and personal property tax revenue from one taxpayer under a Real and Personal Property Tax Appeal Settlement Agreement (the Agreement). The Agreement was entered into in July 1997 and covers fiscal years 1997 through 2007. The City and the taxpayer have agreed on a real and personal property tax assessment amount for fiscal years 1997 through 2004. For fiscal years 2005 through 2007, the City and the taxpayer have agreed that a portion of the property would be assessed at fair market value as calculated by the City and that, in the absence of an agreement by the parties, the remaining property will be assessed at fair market value of the existing facilities as determined in binding arbitration, resulting in tax revenue not to exceed $4.5 million in each fiscal year. The parties further agreed if additional facilities are constructed during this period, the total assessment would be based on the fair market value of the new facilities and existing facilities, resulting in a tax revenue not to exceed $4.5 million plus 50% of any such taxes in excess of $4.5 million resulting from the aggregate assessed valuation of any new facilities. For the fiscal year ended June 30, 2007, the City received approximately 7% ($4.5 million) of its total real estate and personal property tax revenue from this taxpayer. On December 14, 2007, the City and the taxpayer have signed an agreement stipulating that the taxpayer would make an in-lieu-of- tax payment for fiscal year 2008 in the amount of $3,500,000, and an additional agreement was signed stipulating that the taxpayer would make a one-time contribution to the City of $1,250,000 to be used exclusively for public purposes. NOTE 12 – COMMITMENTS The City is in the process of completing school construction projects and improvements to its water system. The City has entered into or is planning to enter into contracts totaling approximately $30,550,000, and $8,746,000, respectively to complete these projects. NOTE 13 – 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, 2007, 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 liability, if any, at June 30, 2007, cannot be ascertained, management believes any resulting liability should not materially affect the financial position at June 30, 2007. Sec 7 - ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 68 Comprehensive Annual Financial Report NOTE 14 – RESTATEMENT OF BEGINNING BALANCES During fiscal year 2006, the School Department understated accrued expenditures in the General Fund by approximately $1,099,000. As a result, the fund balance of the General Fund, and the net assets of the Governmental Activities in the entity wide financial statements, as of June 30, 2006, have been restated by $1,099,148. NOTE 15 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During fiscal year 2007, the following GASB pronouncements were implemented: The GASB issued Statement #43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, which was required to be implemented in Fiscal 2007. Since there is no legally established separate trust for the postemployment benefit plan this pronouncement will not impact the basic financial statements. The GASB issued Statement #49, Accounting and Financial Reporting for Pollution Remediation Obligations, which is required to be implemented in fiscal year 2008. Management has elected to implement this GASB early. The basic financial statements were not impacted by this GASB. The GASB issued Statement #51, Accounting and Financial Reporting for Intangible Assets, which is required to be implemented in fiscal year 2010. Management has elected to implement this GASB early. The basic financial statements were not impacted by this GASB. Other Future GASB Pronouncements: The GASB issued Statement #45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, which is required to be implemented in Fiscal 2008. Management believes this pronouncement will require additional disclosure and impact the basic financial statements. The GASB issued Statement #50, Pension Disclosures—an amendment of GASB Statements No. 25 and No. 27, which is required to be implemented in fiscal year 2008. This GASB will change the disclosures related to pensions. The GASB issued Statement #52, Land and Other Real Estate Held as Investments by Endowments, which is required to be implemented in fiscal year 2009. The standards in this statement require all investments in land and real estate in permanent and similar funds to be reported at fair value. Management does not expect this pronouncement to impact the basic financial statements. Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 69 Comprehensive Annual Financial Report Required Supplementary Information Required Supplementary Information Sec 7 - ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2007 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 $ - $ 61,135,514 $ 61,135,514 $ 61,135,514 $ 60,720,951 $ - $ (414,563) Tax - - - - 216,663 - 216,663 Motor vehicle and other excise taxes…………… - 3,479,295 3,479,295 3,479,295 3,215,438 - (263,857) Hotel/motel - 308,500 308,500 308,500 282,324 - (26,176) Charges for services……………………………… - 1,250,000 1,250,000 1,250,000 1,473,751 - 223,751 Trash - 700,000 700,000 700,000 449,665 - (250,335) Penalties and interest on - 325,000 325,000 325,000 266,246 - (58,754) Payments in lieu of - 1,108,500 1,108,500 1,108,500 1,235,083 - 126,583 Licenses and - 510,000 510,000 510,000 517,697 - 7,697 Fines and forfeitures……………………………… - 1,150,000 1,150,000 1,150,000 1,085,729 - (64,271) Intergovernmental………………………………… - 28,466,106 28,466,106 28,466,106 28,331,837 - (134,269) Departmental and - 1,910,000 1,910,000 1,910,000 1,962,554 - 52,554 Investment - 150,000 150,000 150,000 187,374 - 37,374 TOTAL REVENUES…………………… - 100,492,915 100,492,915 100,492,915 99,945,312 - (547,603) EXPENDITURES: Current: General government City Council Personnel………………………………… - 119,700 119,700 119,700 119,700 - - Non - Personnel………………………… - 26,850 26,850 47,741 46,919 - 822 - 146,550 146,550 167,441 166,619 - 822 Mayor Personnel………………………………… - 227,967 227,967 227,967 227,967 - - Non - Personnel………………………… 21,100 127,050 148,150 148,150 137,398 3,700 7,052 21,100 355,017 376,117 376,117 365,365 3,700 7,052 Finance/Auditing Personnel………………………………… 9,700 211,804 221,504 221,504 210,527 - 10,977 Non - Personnel………………………… 580 5,000 5,580 5,580 4,329 1,000 251 10,280 216,804 227,084 227,084 214,856 1,000 11,228 Purchasing Personnel………………………………… - 94,523 94,523 94,523 94,523 - - Non - Personnel………………………… - 17,701 17,701 21,701 20,885 - 816 Fixed - 54,000 54,000 57,500 57,500 - - - 166,224 166,224 173,724 172,908 - 816 Assessors Personnel………………………………… - 194,013 194,013 194,013 194,013 - - Non - Personnel………………………… 12,300 34,000 46,300 46,300 42,811 - 3,489 12,300 228,013 240,313 240,313 236,824 - 3,489 Treasurer Personnel………………………………… - 135,734 135,734 135,734 135,734 - - Non - Personnel………………………… - 52,050 52,050 52,050 42,452 8,800 798 - 187,784 187,784 187,784 178,186 8,800 798 Collector Personnel………………………………… - 193,758 193,758 194,538 193,943 - 595 Non - Personnel………………………… 7,300 17,625 24,925 24,145 23,078 - 1,067 7,300 211,383 218,683 218,683 217,021 - 1,662 Solicitor Personnel………………………………… - 142,418 142,418 142,418 142,409 - 9 Non - Personnel………………………… - 91,000 91,000 91,000 90,973 - 27 - 233,418 233,418 233,418 233,382 - 36 (continued) Budgeted Amounts GENERAL FUND City of Salem, Massachusetts 70 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2007 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Human Resources Personnel………………………………… - 181,857 181,857 168,849 165,147 - 3,702 Non - Personnel………………………… - 25,650 25,650 38,650 36,900 - 1,750 - 207,507 207,507 207,499 202,047 - 5,452 Data Processing Personnel………………………………… - 144,734 144,734 144,734 144,734 - - Non - Personnel………………………… - 9,116 9,116 9,116 8,507 250 359 Fixed - 172,920 172,920 172,920 172,108 - 812 - 57,000 57,000 57,000 56,605 - 395 - 383,770 383,770 383,770 381,954 250 1,566 City Clerk Record Maintenance Personnel………………………………… - 149,289 149,289 149,289 149,289 - - Non - Personnel………………………… - 6,551 6,551 6,551 5,774 - 777 - 155,840 155,840 155,840 155,063 - 777 Elections & Registrations Personnel………………………………… - 167,593 167,593 168,443 168,307 - 136 Non - Personnel………………………… - 51,850 51,850 44,109 43,714 - 395 - 219,443 219,443 212,552 212,021 - 531 Licensing Personnel………………………………… - 46,658 46,658 46,857 46,857 - - Non - Personnel………………………… - 1,539 1,539 1,340 1,169 - 171 - 48,197 48,197 48,197 48,026 - 171 Conservation Commission Personnel………………………………… - 21,591 21,591 21,591 21,591 - - Non - Personnel………………………… - 426 426 426 351 - 75 - 22,017 22,017 22,017 21,942 - 75 Subdivision, Planning, and Zoning Board Personnel………………………………… - 21,592 21,592 21,592 19,981 - 1,611 Non - Personnel………………………… - 3,500 3,500 3,500 2,978 - 522 - 25,092 25,092 25,092 22,959 - 2,133 Board of Appeals Personnel………………………………… - 3,000 3,000 3,000 2,410 - 590 Non - Personnel………………………… - 675 675 675 642 - 33 - 3,675 3,675 3,675 3,052 - 623 Planning Department Personnel………………………………… - 175,586 175,586 175,586 175,463 - 123 Non - Personnel………………………… - 7,275 7,275 7,275 6,997 - 278 - 182,861 182,861 182,861 182,460 - 401 Public Property/Building Maintenance Personnel………………………………… - 88,693 88,693 44,201 42,145 - 2,056 Non - Personnel………………………… 4,739 143,160 147,899 180,274 173,804 - 6,470 Fixed 11,900 497,725 509,625 492,625 485,562 - 7,063 16,639 729,578 746,217 717,100 701,511 - 15,589 Market and Tourism………………………… - 8,000 8,000 8,000 7,685 - 315 Total General Government…………………… 67,619 3,731,173 3,798,792 3,791,167 3,723,881 13,750 53,536 (continued) City of Salem, Massachusetts 71 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2007 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Public safety Police Personnel………………………………… - 6,716,656 6,716,656 6,689,811 6,689,811 - - Non - Personnel………………………… - 384,150 384,150 410,995 367,895 20,000 23,100 - 7,100,806 7,100,806 7,100,806 7,057,706 20,000 23,100 Fire Personnel………………………………… - 5,578,410 5,578,410 5,848,702 5,818,530 - 30,172 Non - Personnel………………………… - 367,863 367,863 383,434 369,003 - 14,431 - 5,946,273 5,946,273 6,232,136 6,187,533 - 44,603 Building, Plumbing, Gas Inspections Personnel………………………………… - 228,626 228,626 251,986 243,843 - 8,143 Non - Personnel………………………… - 2,000 2,000 2,000 2,000 - - - 230,626 230,626 253,986 245,843 - 8,143 Electrical Inspection and Maintenance Personnel………………………………… - 265,452 265,452 268,802 268,802 - - Non - Personnel………………………… - 546,198 546,198 542,848 540,007 - 2,841 - 811,650 811,650 811,650 808,809 - 2,841 Harbormaster Personnel………………………………… - 214,506 214,506 214,506 180,667 - 33,839 Non - Personnel………………………… - 37,300 37,300 42,100 38,097 - 4,003 - 251,806 251,806 256,606 218,764 - 37,842 Total Public - 14,341,161 14,341,161 14,655,184 14,518,655 20,000 116,529 Education - 42,163,350 42,163,350 42,202,883 43,647,853 - (1,444,970) NSRS/Charter/Choice…………………… - 1,514,562 1,514,562 1,511,259 1,510,808 - 451 Total - 43,677,912 43,677,912 43,714,142 45,158,661 - (1,444,519) Public Works Public Services Personnel………………………………… - 1,451,399 1,451,399 1,451,399 1,402,440 - 48,959 Non - Personnel………………………… - 551,590 551,590 633,269 582,860 14,430 35,979 - 2,002,989 2,002,989 2,084,668 1,985,300 14,430 84,938 Engineering Personnel………………………………… - 77,483 77,483 77,483 70,612 - 6,871 Non - Personnel………………………… - 12,850 12,850 12,850 11,855 - 995 - 90,333 90,333 90,333 82,467 - 7,866 Snow and Ice Personnel………………………………… - 50,000 50,000 50,000 37,030 - 12,970 Non - Personnel………………………… - 344,560 344,560 344,560 369,194 - (24,634) - 394,560 394,560 394,560 406,224 - (11,664) Solid Waste Collection……………………… - 3,198,754 3,198,754 3,198,754 3,198,754 - - Parking Garage Personnel………………………………… - 448,153 448,153 448,153 393,240 - 54,913 Non - Personnel………………………… 12,691 145,200 157,891 157,891 154,645 1,068 2,178 12,691 593,353 606,044 606,044 547,885 1,068 57,091 (continued) City of Salem, Massachusetts 72 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2007 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 Open Space/Cemetery / Shade Tree Non - Personnel………………………… 5,695 - 5,695 5,695 5,695 - - Total Public 18,386 6,279,989 6,298,375 6,380,054 6,226,325 15,498 138,231 Health and Human Services Board of Health Personnel………………………………… - 401,586 401,586 395,586 390,536 - 5,050 Non - Personnel………………………… 1,220 17,650 18,870 18,870 17,519 - 1,351 1,220 419,236 420,456 414,456 408,055 - 6,401 Council on Aging Personnel………………………………… - 262,168 262,168 262,168 254,901 - 7,267 Non - Personnel………………………… - 18,797 18,797 18,797 17,473 - 1,324 - 280,965 280,965 280,965 272,374 - 8,591 Veterans Services Personnel………………………………… - 56,014 56,014 61,414 60,953 - 461 Non - Personnel………………………… - 77,157 77,157 120,757 107,058 - 13,699 - 133,171 133,171 182,171 168,011 - 14,160 Total Health and Human Services…………… 1,220 833,372 834,592 877,592 848,440 - 29,152 Library Personnel………………………………… - 758,008 758,008 758,008 732,699 - 25,309 Non - Personnel………………………… - 268,846 268,846 268,846 268,827 - 19 - 1,026,854 1,026,854 1,026,854 1,001,526 - 25,328 Parks and Recreation Personnel………………………………… - 308,136 308,136 308,139 274,187 - 33,952 Non - Personnel………………………… - 97,415 97,415 98,912 89,977 - 8,935 - 405,551 405,551 407,051 364,164 - 42,887 Golf Course Personnel………………………………… - 220,222 220,222 220,222 195,113 - 25,109 Non - Personnel………………………… 656 86,911 87,567 112,567 85,691 20,383 6,493 656 307,133 307,789 332,789 280,804 20,383 31,602 Witch House Personnel………………………………… - 74,066 74,066 74,066 71,397 - 2,669 Non - Personnel………………………… - 60,680 60,680 63,680 52,378 - 11,302 - 134,746 134,746 137,746 123,775 - 13,971 Historical Commission Personnel………………………………… - 6,709 6,709 6,709 6,709 - - Non - Personnel………………………… - 1,610 1,610 1,610 1,173 - 437 - 8,319 8,319 8,319 7,882 - 437 Winter Island Personnel………………………………… - 92,482 92,482 92,482 90,737 - 1,745 Non - Personnel………………………… 2,000 41,520 43,520 43,520 42,130 - 1,390 2,000 134,002 136,002 136,002 132,867 - 3,135 Total Culture and Recreation……………… 2,656 2,016,605 2,019,261 2,048,761 1,911,018 20,383 117,360 (continued) City of Salem, Massachusetts 73 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2007 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Debt service: - 4,424,480 4,424,480 4,360,000 4,360,000 - - - 2,263,770 2,263,770 2,328,250 2,328,250 - - Short Term Interest…………………………… 14,000 297,454 311,454 311,454 311,371 - 83 14,000 6,985,704 6,999,704 6,999,704 6,999,621 - 83 State and county charges………………………… - 5,914,866 5,914,866 5,914,866 5,589,986 - 324,880 Pension benefits Contributory Retirement………………… 62,400 7,065,685 7,128,085 7,188,611 7,182,494 - 6,117 Non-Contributory Retirement…………… 11,600 175,000 186,600 151,525 148,443 - 3,082 74,000 7,240,685 7,314,685 7,340,136 7,330,937 - 9,199 Workmen's Compensation………………………… - 305,000 305,000 292,862 292,862 - - Unemployment Compensation…………………… - 260,000 260,000 259,138 249,471 - 9,667 Group - 9,429,000 9,429,000 9,457,233 9,442,762 - 14,471 19,700 645,000 664,700 672,337 652,621 - 19,716 Municipal Insurance……………………………… - 306,000 306,000 296,118 295,234 - 884 TOTAL EXPENDITURES……………… 197,581 101,966,467 102,164,048 102,699,294 103,240,474 69,631 (610,811) EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………… (197,581) (1,473,552) (1,671,133) (2,206,379) (3,295,162) (69,631) (1,158,414) OTHER FINANCING SOURCES (USES): Premium from issuance of bonds………………… - - - - 85,169 - 85,169 Transfers - 2,031,882 2,031,882 2,182,997 2,182,997 - - Transfers - (335,937) (335,937) (529,710) (529,710) - - TOTAL OTHER FINANCING SOURCES - 1,695,945 1,695,945 1,653,287 1,738,456 - 85,169 NET CHANGE IN FUND BALANCE………………… (197,581) 222,393 24,812 (553,092) (1,556,706) (69,631) (1,073,245) BUDGETARY FUND BALANCE, Beginning of year… 910,772 910,772 910,772 910,772 910,772 - - BUDGETARY FUND BALANCE, End of year……… $ 713,191 $ 1,133,165 $ 935,584 $ 357,680 $ (645,934) $ (69,631) $ (1,073,245) (concluded) See notes to required supplementary information. City of Salem, Massachusetts 74 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- Notes to Required Supplementary Information Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 75 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 them 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 2007 approved budget authorized approximately $102 million in appropriations and other amounts to be raised. During the fiscal year, increases to the original budget were approved totaling $729,019. The Finance Department has the responsibility to ensure that budgetary control is maintained. Budgetary control is exercised through the accounting system. The City has an unauthorized deficit reported in the education function due to an underreporting of year-end expenditures by the school department. The City has taken action in the subsequent fiscal year to raise this deficit and to ensure that similar problems will not occur in future fiscal years. Sec 7 - ---PAGE BREAK--- Notes to Required Supplementary Information Fiscal Year Ended June 30, 2007 City of Salem, Massachusetts 76 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, 2007, is presented below: Net change in fund balance - budgetary $ (1,556,706) Basis of accounting differences: Net change in revenues in recording tax refunds payable………………………… (82,771) Additional expense to fund internal service Recognition of revenue for on-behalf 7,044,987 Recognition of expenditures for on-behalf payments……………………………… (7,044,987) Reclassification of enterprise fund revenue budged in the general fund………… (1,713,649) Reclassification of enterprise fund expenditures budged in the general fund… 1,713,649 Net difference in recognition of expenditures……………………………………… 296,762 Net change in fund balances - GAAP $ (1,342,715) Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 77 Comprehensive Annual Financial Report Combining Statements Combining Statements Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 78 Comprehensive Annual Financial Report Nonmajor governmental funds Nonmajor Governmental Funds Special Revenue Funds Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. City Grants Fund – This fund is used to account for non-school related activity specifically financed by federal, state, and other grants which are designated for specific programs. School Grants Fund – This fund is used to account for the educational programs specifically financed by federal, state, and other grants which are designated for specific programs. Community Development Grants Fund – This fund is used to account for community development activity specifically financed by federal, state, and other grants which are designated for specific programs. School Lunch Fund – This fund is used to account for all cafeteria activities and is funded by user charges, federal and state grants and commodities received. Highway Grants Fund – This fund is used to account for construction, reconstruction and improvements to roadways, streets and sidewalks. Funding is provided primarily by grants. Donations & 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 – 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. Telephone System – This fund is used to account for the purchase of a new telephone system for the City. 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 Funds – This fund is used to account for cemetery perpetual care contributions and expenditures. Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 79 Comprehensive Annual Financial Report Human Service Funds – 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. Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 80 Comprehensive Annual Financial Report This page left intentionally blank. Sec 7 - ---PAGE BREAK--- Community City School Development School Highway Donations Receipts ASSETS Grants Grants Grants Lunch Grants & Gifts Reserved Cash and cash equivalents…………………………$ 1,192,923 $ 690,269 $ 59,289 $ - $ - $ 540,478 $ 610,154 Investments………………………………………… - - - - - - - Receivables, net of uncollectibles: Departmental and - - - 19,925 - - - Intergovernmental……………………………… 277,668 383,580 124,972 72,556 854,291 168 - - - - - - - - Due from other 575,936 - - - - - - TOTAL $ 2,046,527 $ 1,073,849 $ 184,261 $ 92,481 $ 854,291 $ 540,646 $ 610,154 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants 255,456 $ - $ 12,392 $ - $ 23,641 $ 57,340 $ 179,044 Accrued 36,056 85,873 5,521 16,302 - 4,190 - Deferred revenues……………………………… - - - - 769,360 - - Due to other - - - 500,066 75,870 - - TOTAL LIABILITIES………………………………… 291,512 85,873 17,913 516,368 868,871 61,530 179,044 FUND BALANCES: Reserved for: Perpetual permanent funds………………… - - - - - - - Unreserved: Undesignated, reported in: Special revenue 1,755,015 987,976 166,348 (423,887) (14,580) 479,116 431,110 Capital projects - - - - - - - Permanent - - - - - - - TOTAL FUND BALANCES………………………… 1,755,015 987,976 166,348 (423,887) (14,580) 479,116 431,110 TOTAL LIABILITIES AND FUND BALANCES……$ 2,046,527 $ 1,073,849 $ 184,261 $ 92,481 $ 854,291 $ 540,646 $ 610,154 (Continued) Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2007 City of Salem, Massachusetts 81 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- City School Police Revolving Revolving Station Salem Telephone ASSETS Accounts Accounts Subtotal Equipment Ferry System Subtotal Cash and cash equivalents…………………………$ 1,554,579 $ 7,923 $ 4,655,615 $ 75,286 $ 38,086 $ - $ 113,372 Investments………………………………………… - - - - - - - Receivables, net of uncollectibles: Departmental and - - 19,925 - - - - Intergovernmental……………………………… - 68,671 1,781,906 - - - - 787,632 - 787,632 - - - - Due from other - - 575,936 - - - - TOTAL $ 2,342,211 $ 76,594 $ 7,821,014 $ 75,286 $ 38,086 $ - $ 113,372 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants 12,890 $ - $ 540,763 $ - $ - $ - $ - Accrued 3,203 7,022 158,167 - - - - Deferred revenues……………………………… 787,632 - 1,556,992 - - - - Due to other - - 575,936 - - - - TOTAL LIABILITIES………………………………… 803,725 7,022 2,831,858 - - - - FUND BALANCES: Reserved for: Perpetual permanent funds………………… - - - - - - - Unreserved: Undesignated, reported in: Special revenue 1,538,486 69,572 4,989,156 - - - - Capital projects - - - 75,286 38,086 - 113,372 Permanent - - - - - - - TOTAL FUND BALANCES………………………… 1,538,486 69,572 4,989,156 75,286 38,086 - 113,372 TOTAL LIABILITIES AND FUND BALANCES……$ 2,342,211 $ 76,594 $ 7,821,014 $ 75,286 $ 38,086 $ - $ 113,372 (Continued) NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2007 Capital Project Funds Special Revenue Funds City of Salem, Massachusetts 82 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- Total Nonmajor Cemetery Human Service Governmental Funds Funds Other Subtotal Funds $ 281,793 $ 141,450 $ 104,037 $ 527,280 $ 5,296,267 2,442,110 1,325,532 890,735 4,658,377 4,658,377 - - - - 19,925 - - - - 1,781,906 - - - - 787,632 - - - - 575,936 $ 2,723,903 $ 1,466,982 $ 994,772 $ 5,185,657 $ 13,120,043 $ - $ - $ - $ - $ 540,763 - - - - 158,167 - - - - 1,556,992 - - - - 575,936 - - - - 2,831,858 943,305 221,174 464,723 1,629,202 1,629,202 - - - - 4,989,156 - - - - 113,372 1,780,598 1,245,808 530,049 3,556,455 3,556,455 2,723,903 1,466,982 994,772 5,185,657 10,288,185 $ 2,723,903 $ 1,466,982 $ 994,772 $ 5,185,657 $ 13,120,043 (Concluded) Permanent Funds City of Salem, Massachusetts 83 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- Community City School Development School Highway Donations Receipts Grants Grants Grants Lunch Grants & Gifts Reserved REVENUES: Charges for 6,180 $ 56,414 $ - $ - $ - $ - $ - Intergovernmental………………………………………………… 4,795,007 6,519,355 1,708,081 1,399,832 660,776 - - Departmental and 73,417 - - - - - 457,845 320,915 3,165 - - - 483,495 - Investment 3,536 - 5,626 - - - - TOTAL 5,199,055 6,578,934 1,713,707 1,399,832 660,776 483,495 457,845 EXPENDITURES: Current: General 408,100 - - - - 119,543 178,941 Public 564,693 - - - - 29,319 - 266,915 6,673,004 - 1,628,298 - 23,281 - Public 38,727 - - - 644,480 248,413 - Community development……………………………………… - - 1,642,157 - 30,876 - - Human 3,788,356 - - - - 40,687 - Culture and 185,983 - - - - 34,617 - Debt service: - - 55,000 - - - - - - 16,717 - - - - TOTAL EXPENDITURES………………………………… 5,252,774 6,673,004 1,713,874 1,628,298 675,356 495,860 178,941 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………………… (53,719) (94,070) (167) (228,466) (14,580) (12,365) 278,904 OTHER FINANCING SOURCES (USES): Proceeds from bonds and - - - - - - - Capital lease - - - - - - - Transfers 94,610 35,937 - - - - - Transfers (94,610) - - - - - (466,804) TOTAL OTHER FINANCING SOURCES (USES)…… - 35,937 - - - - (466,804) NET CHANGE IN FUND BALANCES……………………………… (53,719) (58,133) (167) (228,466) (14,580) (12,365) (187,900) FUND BALANCES AT BEGINNING OF 1,808,734 1,046,109 166,515 (195,421) - 491,481 619,010 FUND BALANCES AT END OF 1,755,015 $ 987,976 $ 166,348 $ (423,887) $ (14,580) $ 479,116 $ 431,110 (Continued) NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2007 Special Revenue Funds City of Salem, Massachusetts 84 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- City School Police Revolving Revolving Station Salem Telephone Accounts Accounts Subtotal Equipment Ferry System Subtotal $ 68,366 $ - $ 130,960 $ - $ - $ - $ - 271,353 - 15,354,404 - - - - 534,911 1,128,626 2,194,799 - - - - - 58,322 865,897 - - - - 47,873 3,946 60,981 - - - - 922,503 1,190,894 18,607,041 - - - - 252,274 - 958,858 - 119,706 98,167 217,873 - 299 594,311 553,424 - - 553,424 - 1,164,680 9,756,178 - - - - 79,722 - 1,011,342 - - - - 131,521 - 1,804,554 - - - - - - 3,829,043 - - - - 136,784 - 357,384 - - - - - - 55,000 - - - - - - 16,717 - - - - 600,301 1,164,979 18,383,387 553,424 119,706 98,167 771,297 322,202 25,915 223,654 (553,424) (119,706) (98,167) (771,297) - - - 658,864 775,000 - 1,433,864 - - - - - 98,167 98,167 - - 130,547 - - - - - - (561,414) - - - - - - (430,867) 658,864 775,000 98,167 1,532,031 322,202 25,915 (207,213) 105,440 655,294 - 760,734 1,216,284 43,657 5,196,369 (30,154) (617,208) - (647,362) $ 1,538,486 $ 69,572 $ 4,989,156 $ 75,286 $ 38,086 $ - $ 113,372 (Continued) Capital Project Funds Special Revenue Funds City of Salem, Massachusetts 85 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- Total Nonmajor Cemetery Human Service Governmental Funds Funds Other Subtotal Funds REVENUES: Charges for - $ - $ - $ - $ 130,960 Intergovernmental………………………………………………… - - 551 551 15,354,955 Departmental and - - - - 2,194,799 15,700 - 34,291 49,991 915,888 Investment 386,838 192,630 81,501 660,969 721,950 TOTAL 402,538 192,630 116,343 711,511 19,318,552 EXPENDITURES: Current: General - - - - 1,176,731 Public - - 2,000 2,000 1,149,735 - - - - 9,756,178 Public 58,233 - 33,799 92,032 1,103,374 Community development……………………………………… - - - - 1,804,554 Human - 52,678 - 52,678 3,881,721 Culture and - - - - 357,384 Debt service: - - - - - 55,000 - - - - 16,717 TOTAL EXPENDITURES………………………………… 58,233 52,678 35,799 146,710 19,301,394 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………………… 344,305 139,952 80,544 564,801 17,158 OTHER FINANCING SOURCES (USES): Proceeds from bonds and - - - - 1,433,864 Capital lease - - - - 98,167 Transfers - - - - 130,547 Transfers (5,000) - - (5,000) (566,414) TOTAL OTHER FINANCING SOURCES (USES)…… (5,000) - - (5,000) 1,096,164 NET CHANGE IN FUND BALANCES……………………………… 339,305 139,952 80,544 559,801 1,113,322 FUND BALANCES AT BEGINNING OF 2,384,598 1,327,030 914,228 4,625,856 9,174,863 FUND BALANCES AT END OF 2,723,903 $ 1,466,982 $ 994,772 $ 5,185,657 $ 10,288,185 (Concluded) NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2007 Permanent Funds City of Salem, Massachusetts 86 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 87 Comprehensive Annual Financial Report Private Purpose Trust Funds Trust Fund Commissioners – This fund is used to account for trusts held by the City to benefit individuals and 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. Sec 7 - ---PAGE BREAK--- PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF PRIVATE PURPOSE TRUST FUNDS NET ASSETS JUNE 30, 2007 Trust Fund Scholarship Commissioners Funds Total ASSETS Cash and cash equivalents………………………………… $ 166,775 $ 77,503 $ 244,278 1,356,908 - 1,356,908 TOTAL 1,523,683 77,503 1,601,186 NET ASSETS Held in trust for other 1,523,683 $ 77,503 $ 1,601,186 Private Purpose Trust Funds City of Salem, Massachusetts 88 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- Trust Fund Scholarship Commissioners Funds Total ADDITIONS: Contributions: Private $ 1,082 $ 11,350 $ 12,432 Net investment income (loss): 205,818 2,822 208,640 TOTAL 206,900 14,172 221,072 DEDUCTIONS: Educational 16,006 7,167 23,173 Housing 28,265 - 28,265 TOTAL 44,271 7,167 51,438 CHANGE IN NET 162,629 7,005 169,634 NET ASSETS AT BEGINNING OF 1,361,054 70,498 1,431,552 NET ASSETS AT END OF $ 1,523,683 $ 77,503 $ 1,601,186 Private Purpose Trust Funds PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF CHANGES IN PRIVATE PURPOSE TRUST FUNDS NET ASSETS FISCAL YEAR ENDED JUNE 30, 2007 City of Salem, Massachusetts 89 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 90 Comprehensive Annual Financial Report Agency Fund Agency Fund This fund is used primarily to account for payroll withholdings, police and fire details, and unclaimed property. Sec 7 - ---PAGE BREAK--- Beginning End of Year Additions Deletions of Year ASSETS CURRENT: Cash and cash equivalents…………………………… $ 476,628 $ 4,124,434 $ (4,196,514) $ 404,548 Receivables, net of allowance for uncollectibles: Departmental and 6,041 21,851 (6,041) 21,851 TOTAL $ 482,669 $ 4,146,285 $ (4,202,555) $ 426,399 LIABILITIES Warrants $ 28,099 $ 1,146,529 $ (1,138,219) $ 36,409 Payroll witholdings……………………………………… 121,322 1,299,328 (1,322,322) 98,328 Special 15,180 1,432,604 (1,378,802) 68,982 Other 318,068 239,932 (335,320) 222,680 TOTAL 482,669 $ 4,118,393 $ (4,174,663) $ 426,399 AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FISCAL YEAR ENDED JUNE 30, 2007 City of Salem, Massachusetts 91 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 92 Comprehensive Annual Financial Report This page intentionally left blank. Sec 7 - ---PAGE BREAK--- Statistical Section Winter Island During the 1930's, the United States Coast Guard created a Search & Rescue Base here on Winter Island Park. The Frigate USS Essex was built and launched in 1799 from this location. It served General George Washington in the U.S. Navy. The three bunkers located in historic Fort Pickering once stored ammunition as early as the Civil War. Winter Island had Salem's first tavern and first shipyard. A fort was erected as early as 1643. In 1867, the War department "turned over" to the city "for public use" the part of the island not occupied by the fort, until it should be wanted for defense. On December 28, 1928, Salem's Park Department took formal possession of the island. The fort was renamed Fort Pickering, after Colonel Timothy Pickering, Secretary of State and War in Washington's Cabinet. Winter Island is located at 50 Winter Island Road in Salem, Massachusetts. It offers RV and Tent Camping May 1 to Nov 1, a public boat ramp that is open year round, 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. Sec 7 - ---PAGE BREAK--- City of Salem, Massachusetts 93 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. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Statistical Section Sec 7 - ---PAGE BREAK--- 2002 2003 2004 2005 2006 2007 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 $ 136,205,337 5,755,817 5,237,908 8,759,761 9,734,998 8,649,700 8,868,048 Unrestricted…………………………………………… 4,546,625 9,656,396 6,519,783 (3,667,364) (371,947) (1,304,475) Total governmental activities net assets…………………… $ 92,556,318 $ 97,939,908 $ 95,009,036 $ 118,808,144 $ 117,461,490 $ 143,768,910 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 9,321,266 Unrestricted…………………………………………… 7,754,552 6,649,222 7,538,395 4,492,692 4,722,252 5,609,406 Total business-type activities net assets……………………$ 16,536,883 $ 14,969,124 $ 15,685,773 $ 13,705,583 $ 13,740,483 $ 14,930,672 Primary government Invested in capital assets, net of related debt……… 91,036,207 91,365,506 87,876,870 121,953,401 118,201,968 145,526,603 5,755,817 5,237,908 8,759,761 9,734,998 8,649,700 8,868,048 Unrestricted…………………………………………… 12,301,177 16,305,618 14,058,178 825,328 4,350,305 4,304,931 Total primary government net assets……………………… $ 109,093,201 $ 112,909,032 $ 110,694,809 $ 132,513,727 $ 131,201,973 $ 158,699,582 Note: As allowed by GASB#34 , the City reported retroactive general infrastructure, acquired prior to fiscal 2002, beginning in fiscal 2006. Fiscal years 2002-2004 have not been restated to reflect this change. Fiscal Year Last Six Fiscal Years Net Assets By Component City of Salem, Massachusetts 94 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- 2002 2003 2004 2005 2006 2007 Expenses Governmental activities: General 8,640,622 $ 8,514,423 $ 9,454,148 $ 9,373,119 $ 9,867,573 $ 9,432,631 Public 20,770,322 20,884,198 22,235,461 22,058,002 23,481,525 23,511,430 59,420,837 59,386,206 61,775,760 67,483,676 67,258,196 72,450,806 Public 5,397,486 6,464,257 6,517,047 8,421,997 7,991,774 8,550,491 Community development…………………………………… 5,856,034 4,954,608 5,767,362 2,066,749 1,891,386 1,804,554 Health and human 1,416,802 1,388,761 1,410,712 4,856,306 5,016,513 5,045,584 Culture and recreation……………………………………… 3,694,420 4,022,880 4,186,622 3,689,992 3,718,183 2,647,456 3,046,692 3,366,107 3,136,763 2,689,312 2,889,116 2,604,390 Total government activities expenses………………………… 108,243,215 108,981,440 114,483,875 120,639,153 122,114,266 126,047,342 Business-type activities: Water 10,967,114 10,196,489 9,619,356 3,186,840 3,197,864 3,381,221 Sewer 6,616,318 5,686,595 5,604,546 Golf 387,935 333,512 320,632 292,187 279,981 357,072 719,042 679,171 665,458 664,686 800,506 805,980 Total business type activities expenses………………………… 12,074,091 11,209,172 10,605,446 10,760,031 9,964,946 10,148,819 Total primary government expenses……………………………$ 120,317,306 $ 120,190,612 $ 125,089,321 $ 131,399,184 $ 132,079,212 $ 136,196,161 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 Public Safety charges for services………………………… 1,323,642 1,804,781 1,865,270 1,923,845 2,003,791 2,217,287 Other charges for 1,489,223 1,197,196 2,055,497 1,481,467 1,825,898 2,561,814 Operating grants and contributions………………………… 40,717,414 39,127,290 35,305,349 34,087,248 37,934,300 37,957,703 Capital grant and contributions…………………………… 17,467,468 7,019,891 2,129,821 2,090,467 3,312,346 30,118,572 Total government activities program revenues...……………… 62,214,081 50,246,922 42,497,133 40,606,866 45,907,914 74,514,920 Business-type activities: Charges for services - 9,794,892 10,415,528 11,708,715 3,853,505 4,319,560 4,822,041 Charges for services - 5,512,922 6,233,883 6,694,172 Charges for services - 615,878 549,091 543,467 502,770 525,404 546,841 Charges for services - 1,270,928 1,364,076 1,536,390 1,453,088 1,549,833 1,713,649 Total business-type activities program revenues...…………… 11,681,698 12,328,695 13,788,572 11,322,285 12,628,680 13,776,703 Total primary government program revenues…………………$ 73,895,779 $ 62,575,617 $ 56,285,705 $ 51,929,151 $ 58,536,594 $ 88,291,623 Net (Expense)/Revenue Governmental $ (46,029,134) $ (58,734,518) $ (71,986,742) $ (78,692,287) $ (76,206,352) $ (51,532,422) Business-type (392,393) 1,119,523 3,183,126 562,254 2,663,734 3,627,884 Total primary government net (46,421,527) $ (57,614,995) $ (68,803,616) $ (78,130,033) $ (73,542,618) $ (47,904,538) 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 Tax 690,557 635,624 182,650 Motor vehicle excise 3,626,065 3,793,044 3,478,999 3,489,584 3,452,569 3,357,765 Hotel/motel 219,628 263,962 282,324 Penalties and interest on 330,035 391,429 322,003 288,874 350,651 266,246 Payments in lieu of 1,073,539 1,088,754 1,235,083 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 Unrestricted investment 125,481 816,614 568,503 521,585 183,980 965,694 Miscellaneous………………………………………………… 504,968 536,979 431,558 77,454 214,067 248,905 2,274,567 2,687,282 2,466,477 2,542,444 2,628,834 2,437,695 Total governmental activities 60,278,980 64,118,108 69,055,870 72,916,783 74,859,698 78,938,990 Business-type activities: (2,274,567) (2,687,282) (2,466,477) (2,542,444) (2,628,834) (2,437,695) Total primary government……………………………………… $ 58,004,413 $ 61,430,826 $ 66,589,393 $ 70,374,339 $ 72,230,864 $ 76,501,295 Changes in Net Assets Governmental $ 14,249,846 $ 5,383,590 $ (2,930,872) $ (5,775,504) $ (1,346,654) $ 27,406,568 Business-type (2,666,960) (1,567,759) 716,649 (1,980,190) 34,900 1,190,189 Total primary government……………………………………… $ 11,582,886 $ 3,815,831 $ (2,214,223) $ (7,755,694) $ (1,311,754) $ 28,596,757 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 Fiscal Year Changes in Net Assets Last Six Fiscal Years City of Salem, Massachusetts 95 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 General Fund Reserved…………………………… $ 250,549 $ 978,075 $ 966,088 $ 1,432,723 $ 1,442,182 $ 1,382,756 $ 1,153,872 $ 68,524 $ 197,581 $ 69,631 Unreserved………………………… 5,327,627 4,738,658 5,764,170 5,901,496 4,633,278 3,980,693 3,398,534 335,643 1,162,714 (1,151,199) Total general 5,578,176 $ 5,716,733 $ 6,730,258 $ 7,334,219 $ 6,075,460 $ 5,363,449 $ 4,552,406 $ 404,167 $ 1,360,295 $ (1,081,568) All Other Governmental Funds Reserved…………………………… $ - $ - $ - $ - $ 1,430,279 $ 1,481,549 $ 1,844,725 $ 1,591,750 $ 1,606,904 $ 1,629,202 Unreserved, reported in: Special revenue funds………… 2,477,573 4,477,410 5,738,091 6,910,085 8,289,823 8,920,508 6,618,566 7,763,007 5,474,128 5,477,136 Capital projects funds………… (390,925) (3,404,797) (14,076,153) (17,882,945) (26,709,082) (14,050,593) (24,963,657) (10,513,270) (1,859,435) (197,270) Permanent funds……………… - - - - 3,137,655 2,801,999 2,555,014 2,897,589 3,018,952 3,556,455 Total all other governmental funds… $ 2,086,648 $ 1,072,613 $ (8,338,062) $ (10,972,860) $ (13,851,325) $ (846,537) $ (13,945,352) $ 1,739,076 $ 8,240,549 $ 10,465,523 Notes: Fiscal years 1998 through 2001 exclude Expendable and Nonexpendable Trust Funds which were reported under the pre-GASB 34 format. In fiscal year 1999, the unreserved fund balance of 1998 was restated. Fiscal Year Last Ten Fiscal Years Fund Balances, Governmental Funds City of Salem, Massachusetts 96 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Revenues: Real estate and personal property taxes, net of tax $ 45,004,696 $ 45,299,037 $ 45,824,415 $ 48,802,188 $ 50,152,793 $ 52,448,384 $ 55,603,719 $ 55,866,348 $ 58,601,934 $ 60,638,180 Motor vehicle and excise 2,658,569 2,658,847 2,686,784 3,178,682 3,156,366 3,875,265 3,387,266 3,531,673 3,577,544 3,215,438 Intergovernmental………………………………………………… 27,339,805 29,619,516 32,053,323 37,284,876 39,949,863 37,949,147 37,305,545 40,601,143 40,386,321 38,496,892 Departmental and 5,659,080 7,383,713 8,793,381 8,473,063 8,122,563 8,628,161 9,324,193 7,539,138 8,496,446 9,017,710 Investment 540,904 392,136 736,266 1,024,892 127,462 816,821 568,503 828,933 927,302 925,771 Commonwealth school construction grants…………………… - - - - - - - 12,739,570 16,559,515 35,025,316 On-behalf pension payments by Commonwealth…………… - - - 4,505,009 4,301,287 4,275,669 5,345,441 5,890,261 6,376,140 7,044,987 Total 81,203,054 85,353,249 90,094,169 103,268,710 105,810,334 107,993,447 111,534,667 126,997,066 134,925,202 154,364,294 Expenditures: General 4,709,129 4,281,803 4,287,021 5,801,716 4,866,231 4,463,397 4,627,702 4,863,297 5,112,025 4,588,962 Public 12,471,452 14,328,164 14,074,132 14,589,271 15,738,798 15,368,476 14,999,915 14,417,276 14,547,596 14,999,951 34,208,249 37,518,451 40,101,425 45,852,552 47,250,529 48,449,552 47,729,470 46,260,838 47,647,867 47,607,207 Public 4,804,094 4,490,661 5,044,735 6,004,568 4,652,745 5,232,421 5,209,599 6,663,143 5,427,108 6,781,814 Community development………………………………………… 2,813,361 1,700,155 3,118,010 2,462,534 1,936,213 2,348,162 2,085,553 2,066,749 1,891,386 1,804,554 Health and human 886,308 2,053,609 920,083 927,024 960,817 901,407 855,553 4,348,098 4,475,413 4,730,161 Culture and 2,570,079 2,824,761 2,963,811 3,338,502 2,728,470 2,981,769 2,756,066 2,278,899 2,339,600 1,865,609 3,365,633 3,474,477 3,813,000 4,610,788 4,204,226 4,340,575 6,565,806 11,926,982 13,388,893 14,375,924 Massachusetts teachers' retirement…………………………… - - - 4,505,009 4,301,287 4,275,669 5,345,441 5,890,261 6,376,140 7,044,987 Employee 4,864,929 5,374,227 5,499,340 5,550,602 9,853,473 10,529,297 10,580,395 10,433,140 9,964,302 10,889,249 State and district assessments………………………………… 1,887,916 1,970,865 3,495,301 2,183,362 3,770,566 3,911,644 4,212,549 4,028,333 5,047,971 5,589,986 Capital 1,909,687 3,198,871 10,684,440 17,106,792 12,975,601 18,550,903 15,793,932 1,422,955 7,581,652 37,600,586 Debt 3,050,000 2,980,702 2,835,050 3,220,000 2,605,000 2,795,000 3,890,000 4,105,000 4,385,000 4,310,000 2,111,236 2,010,471 2,482,071 2,482,795 3,111,786 2,854,502 3,259,021 2,919,668 2,958,101 2,513,575 Total Expenditures……………………………………………… 79,652,073 86,607,217 99,318,419 118,635,515 118,955,742 127,002,774 127,911,002 121,624,639 131,143,054 164,702,565 Excess of revenues over (under) expenditures……………… 1,550,981 (1,253,968) (9,224,250) (15,366,805) (13,145,408) (19,009,327) (16,376,335) 5,372,427 3,782,148 (10,338,271) Other Financing Sources (Uses) Issuance of - 400,000 - 13,300,000 - 28,670,000 - 2,465,000 - 8,319,497 Premium from issuance of - - - - - - - 232,856 - 85,169 Capital lease - - - - - - - 807,283 1,046,619 378,169 Transfers 2,207,493 2,131,143 2,187,421 1,813,102 9,045,003 9,051,161 10,693,915 3,597,240 5,320,517 3,558,845 Transfers (1,690,956) (1,733,369) (1,360,322) (1,435,512) (6,770,436) (6,719,057) (8,227,438) (1,054,796) (2,691,683) (1,121,150) Total other financing sources 516,537 797,774 827,099 13,677,590 2,274,567 31,302,104 2,466,477 6,047,583 3,675,453 11,220,530 Net change in fund $ 2,067,518 $ (456,194) $ (8,397,151) $ (1,689,215) $ (10,870,841) $ 12,292,777 $ (13,909,858) $ 11,420,010 $ 7,457,601 $ 882,259 Debt service as a percentage of noncapital expenditures……… 6.51% 6.04% 5.09% 4.54% 4.86% 4.56% 4.87% 6.06% 5.69% 3.59% Prior to fiscal year 2005 any receipts from the Commonwealth for school construction projects were included in intergovernmental revenue. Changes in Fund Balances, Governmental Funds In fiscal year 2005 certain grants were reclassified to Human Services to better reflect the purpose. The Commonwealth is legally obligated to fund the Salem teachers retirement. Therefore the revenue and expenditure has been recorded in accordance with GASB 24. Fiscal Year Last Ten Fiscal Years City of Salem, Massachusetts 97 Comprehensive Annual Financial Report Sec 7 - ---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 Fiscal Residential Residential Commercial Industrial Personal Commercial Commercial Town Year Value Tax Rate Value Value Property Value Tax Rate Value 1998 1,462,850,200 $ $ 15.22 $ 247,668,000 $ 114,333,800 $ 238,873,800 $ 600,875,600 $ 34.67 $ 2,063,725,800 1999 1,552,242,000 15.17 254,271,400 112,399,300 240,804,300 607,475,000 33.96 2,159,717,000 2000 1,705,349,600 14.23 266,300,300 141,171,100 247,511,700 654,983,100 31.65 2,360,332,700 2001 1,963,462,114 13.42 315,485,948 168,301,665 254,604,294 738,391,907 29.63 2,701,854,021 2002 2,135,490,544 13.53 324,729,500 136,077,225 261,760,050 722,566,775 28.62 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 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 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 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 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 4,978,320,086 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 Town. 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% 35.0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Total Assessed Value by Classification Fiscal Year Ended June 30, 2006 83% 9% 3% 5% Residential Commercial Industrial Personal Property Total Assessed Value by Classification Fiscal Year Ended June 30, 2007 83% 9% 3% 5% Residential Commercial Industrial Personal Property City of Salem, Massachusetts 98 Comprehensive Annual Financial Report Sec 7 - ---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 $219,732,050 1 4.4% - - Shetland Properties Industrial & Commercial $28,895,600 2 0.6% $11,748,500 5 0.6% New England Power Co. Personal & Industrial Property $25,825,130 3 0.5% $254,268,600 1 12.8% Highlander Plaza Commercial Property $21,951,500 4 0.4% $11,567,900 6 0.6% Massachusetts Electric Utility $21,321,110 5 0.4% $15,798,400 2 0.8% Salem Station LLC Apartments $40,102,800 6 0.8% - - - Princeton Crossing Apts. Apartments $31,682,200 7 0.6% $11,888,200 4 0.6% Hawthorne Commons Apartments $28,649,500 8 0.6% - - - Second Pickwick Trust Commercial Property $12,622,800 9 0.3% - - - Vinnin Square Apartments $23,156,000 10 0.5% - - - NYNEX Utility - - $13,795,100 3 0.7% Boston Gas/Mass. LNG Utility - - $9,317,800 7 0.5% Hawthorne Square Mall Shopping Center - - $8,104,000 8 0.4% Osram Sylvania Electronics Manufacturer - - $7,238,400 9 0.4% Applied Extrusion Tech Electronics - - $6,281,300 10 0.3% Totals $453,938,690 9.1% $350,008,200 18% Source: Board of Assessors 2007 1998 City of Salem, Massachusetts 99 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- Percent of Less First Year 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 1998 $ 43,096,937 $ 735,267 $ 42,361,670 $ 41,210,163 97.3% $ 1,151,507 $ 42,361,670 100% 1999 44,177,362 379,865 43,797,497 43,723,214 99.8% 73,228 43,796,442 100% 2000 44,997,340 549,334 44,448,006 43,623,904 98.1% 820,868 44,444,772 100% 2001 48,228,214 654,519 47,573,695 47,565,588 99.9% 6,113 47,571,701 100% 2002 49,789,935 484,373 49,305,562 49,199,288 99.8% 87,458 49,286,746 100% 2003 52,210,909 508,719 51,702,190 51,303,297 99.2% 386,573 51,689,870 100% 2004 54,374,223 564,486 53,809,737 53,259,047 99.0% 539,944 53,798,991 100% 2005 56,839,329 418,415 56,420,914 55,554,023 98.5% 865,641 56,419,664 100% 2006 59,292,238 414,204 58,878,034 58,010,805 98.5% 836,239 58,847,044 100% 2007 61,785,514 532,920 61,252,594 60,318,905 98.5% - 60,318,905 98% Revaluation Year Source: Massachusetts Department of Revenue; Board of Assessors Property Tax Levies and Collections Last Ten Years City of Salem, Massachusetts 100 Comprehensive Annual Financial Report Sec 7 - ---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 1998 38,351 $ 878,708,191 $ 2,063,725,800 $ 36,345,000 $ 0 $ 948 4.14% 1.76% 1999 38,341 896,407,212 2,159,717,000 33,460,698 494,359 886 3.79% 1.57% 2000 40,564 967,735,348 2,360,332,700 30,716,400 2,517,607 819 3.43% 1.41% 2001 41,130 1,000,863,178 2,701,854,021 40,700,000 1,929,115 1,036 4.26% 1.58% 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% General Total Percentage Percentage Fiscal Obligation Capital Debt Per of Personal of Assessed Year Bonds Leases Outstanding Capita Income Value 1998 $ 2,225,000 $ 0 $ 38,570,000 $ 1,006 4.39% 1.87% 1999 1,880,000 0 35,835,057 935 4.00% 1.66% 2000 1,600,000 0 34,834,007 859 3.60% 1.48% 2001 1,345,000 0 43,974,115 1,069 4.39% 1.63% 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% Source: Audited Financial Statements, U. S. Census Governmental Activities Debt Business-type Activities Total Primary Government City of Salem, Massachusetts 101 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- Direct and Overlapping Governmental Activities Debt As of June 30, 2007 Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable Debt North Shore Regional Vocational School District……………$ 2,000,205 27.68% $ 553,577 City direct 58,394,497 Total direct and overlapping $ 58,948,074 Source: Treasurer and North Shore Regional Vocational School District City of Salem, Massachusetts 102 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Equalized $ 2,083,065,400 $ 2,174,217,600 $ 2,174,217,600 $ 2,472,012,500 $ 2,472,012,500 $ 3,148,016,400 $ 3,148,016,400 $ 4,184,128,700 $ 4,223,735,800 $ 4,923,330,400 Debt Limit of Equalized Valuation……………… $ 104,153,270 $ 108,710,880 $ 108,710,880 $ 123,600,625 $ 123,600,625 $ 157,400,820 $ 157,400,820 $ 209,206,435 $ 211,186,790 $ 246,166,520 Less: Outstanding debt applicable to limit………………… 4,940,000 3,785,000 3,475,000 5,080,000 5,625,000 4,646,000 4,167,000 6,695,447 6,064,000 5,435,000 Authorized and unissued 100,000 72,050,000 63,950,000 82,537,000 83,033,130 69,000,988 70,336,913 39,296,218 48,682,895 54,169,239 Legal debt $ 99,113,270 $ 32,875,880 $ 41,285,880 $ 35,983,625 $ 34,942,495 $ 83,753,832 $ 82,896,907 $ 163,214,770 $ 156,439,895 $ 186,562,281 Total debt applicable to the limit as a percentage of debt 4.84% 69.76% 62.02% 70.89% 71.73% 46.79% 47.33% 21.98% 25.92% 24.21% Source: Audited Financial Statements; Statement of Indebtedness Fiscal Year Last Ten Fiscal Years Computation of Legal Debt Margin City of Salem, Massachusetts 103 Comprehensive Annual Financial Report Sec 7 - ---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 1998 38,351 $ 878,708,191 $ 22,912 33.5 5,128 3.5% 1999 38,341 896,407,212 23,380 33.5 5,059 3.3% 2000 40,564 967,735,348 23,857 36.4 5,007 2.5% 2001 41,130 1,000,863,178 24,334 36.4 5,107 3.9% 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% Note: Per Capita Personal Income and Median Age based on 1990 and 2000 U.S Censuses Source: Massachusetts Department of Revenue, Division of Local Services; U.S. Census Bureau City of Salem, Massachusetts 104 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- Principal Employers (excluding City) 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 2,850 1 12.0% 2,500 1 11.7% Higher Education 1,290 2 5.4% 750 2 3.5% State Government 568 3 2.4% - - Food Market 300 4 1.3% - - Cultural/Tourism 271 5 1.1% - - Health Care 214 6 0.9% - - Banking 210 7 0.9% - - Lodging 200 8 0.8% - - Retail 182 9 0.8% - - PerkinElmer Optoelectronics Manufacturer 165 10 0.7% Sears Boston Credit Central Public Utility - - 600 3 2.8% New England Power Company Public Utility - - 476 4 2.2% North Shore Children's Hospital Children's Health Care - - 400 5 1.9% EG & G Inc. Diabetic Supplies - - 281 6 1.3% Atwood & Morrill Co. Inc. Valve Manufacturing - - 189 7 0.9% Food Market - - 176 8 0.8% Van Waters & Rogers Chemical Distribution - - 162 9 0.8% Harbor Sweets Candy & Confection Wholesale - - 101 10 0.5% 6,250 26.3% 5,635 26.5% Source: The City Planning Department Crosby's Market Place Salem Five Savings Bank Employer Peabody Essex Museum Grosvenor Park Nursing Center Hawthorne Hotel Home Depot 2007 1998 Commonwealth of Massachusetts Offices Market Basket Salem State College City of Salem, Massachusetts 105 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- 2000 2001 2002 2003 2004 2005 2006 2007 Function General government…………… 82 59 62 68 62 64 40 34 Public safety……………………… 198 183 183 185 180 190 181 190 Education………………………… 755 755 755 755 756 756 752 752 Public 67 50 59 47 45 55 35 38 Engineering……………………… - - - - - - - 1 Health and human services…… 23 20 22 22 21 21 21 20 Culture and recreation…………… 36 36 35 34 31 31 34 23 Total 1,161 1,103 1,116 1,111 1,095 1,117 1,063 1,058 Source: Various City Departments Information not available on years prior to FY2000. Fiscal Year Last Eight Fiscal Years Full-time Equivalent City Employees by Function City of Salem, Massachusetts City of Salem, Massachusetts 106 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- Function/Program 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 General government Marriage recordings………………………………… 274 317 292 328 362 327 330 327 375 322 Birth recordings……………………………………… 1,708 1,726 1,777 1,680 1,708 1,804 1,839 1,761 2,044 2,043 Death recordings…………………………………… 765 765 764 865 848 823 935 847 737 755 Police Physical 1,157 1,131 975 1,039 1,057 984 965 685 2,792 2,793 Motor vehicle violations…………………………… 3,472 2,791 3,066 3,967 4,872 5,489 5,238 4,334 6,477 8,672 Police personnel and officers……………………… 95 94 94 103 105 94 85 85 81 93 Fire 2,805 3,417 3,226 3,004 2,950 1,972 3,231 2,789 1,187 1,562 Emergency responses……………………………… 3,517 3,433 3,717 3,917 3,993 3,911 4,281 4,572 6,235 6,719 Fire personnel and officers………………………… 88 89 90 92 96 85 78 78 75 76 Education Number of 5,128 5,059 5,007 5,107 5,064 5,016 4,727 4,676 4,744 4,573 Number of graduates……………………………… 213 187 213 220 237 218 257 246 255 269 Number of 352 369 370 369 397 406 415 409 477 484 Water Service connections………………………………… 9,600 9,627 9,720 9,812 9,842 9,898 10,516 10,568 11,000 11,811 Consumption in 1,764 1,853 1,985 2,107 2,064 2,090 2,111 2,136 2,000 2,056 Daily consumption 4.83 5.10 5.44 5.77 5.66 5.73 5.78 6.43 6.84 6.74 Sewer Service connections………………………………… 9,600 9,627 9,720 9,812 9,842 9,898 10,516 10,568 11,000 11,811 Health and human services Number of persons using COA transportation…… 40,535 54,620 44,326 45,523 47,220 44,804 44,500 45,976 37,497 39,052 Libraries Volumes in circulation……………………………… 119,300 127,923 126,526 130,510 128,626 124,435 125,516 128,569 141,595 143,052 Total volumes borrowed…………………………… 370,542 379,511 379,534 395,311 453,548 470,192 464,453 490,116 508,728 500,907 Source: Various City Departments; Massachusetts Department of Education Fiscal Year Last Ten Fiscal Years Operating Indicators by Function/Program City of Salem, Massachusetts 107 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- Function/Program 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 General government Number of buildings………………………… 2 2 2 2 2 2 2 2 2 2 Police Number of stations………………………… 1 1 1 1 1 1 1 1 1 1 Fire Number of stations………………………… 4 4 4 4 4 4 4 4 4 4 Education Number of elementary schools…………… 7 7 7 7 7 7 7 7 7 7 Number of middle schools………………… 1 1 1 1 1 1 1 1 1 1 Number of high schools…………………… 1 1 1 1 1 1 1 1 1 1 Public Works Water mains 103 103 103 103 103 108 108 108 108 108 Health and human services Number of personnel……………………… 18 20 19 18 18 17 17 17 17 17 Culture and recreation Parks and playgrounds…………………… 34 35 35 35 35 35 35 35 35 35 Park and playground (acreage)…………… 218 219 230 230 230 230 230 230 230 230 Conservation land (acreage)……………… 114 114 114 114 114 114 128 128 128 128 Railroad right of way (acreage)…………… 89 89 89 89 89 89 89 89 89 89 Public 7 7 7 7 7 7 7 7 7 7 Ball 13 13 13 13 13 13 13 13 13 13 Tennis 10 10 10 10 10 10 10 10 10 10 Source: Various City Departments, Manual of the City Government Last Ten Fiscal Years Capital Asset Statistics by Function/Program Fiscal Year City of Salem, Massachusetts 108 Comprehensive Annual Financial Report Sec 7 - ---PAGE BREAK--- Free Stabilization Fiscal Year Cash Fund $ 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 $ 4,965,894 $ 1,713,814 $ 4,425,158 $ 1,149,864 $ 4,313,929 $ 1,087,575 $ 2,756,091 $ 639,004 Source: City Records Free Cash & Stabilization Fund Balances Last Ten Fiscal Years City of Salem, Massachusetts 109 Comprehensive Annual Financial Report Sec 7 -