Document Salem_doc_7b66ffe004

CITY OF SALEM MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2018 Kimberley L. Driscoll, Mayor Laurie Giardella, Finance Director Prepared by the City of Salem Finance Department ---PAGE BREAK--- On the Cover – Winter Island Lighthouse – Picture courtesy of Stacia Cooper of Destination Salem Ships Visiting Salem Harbor Photos courtesy of Salem Harbormaster ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2018 Prepared by Finance Department ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2018 TABLE OF CONTENTS Introductory Section 1 Letter of Transmittal 3 Organizational Chart 22 Principal Executive Officers 23 Certificate of Achievement for Excellence in Financial Reporting 24 Distinguished Budget Presentation Award 25 Financial Section 27 Independent Auditor’s Report 29 Management’s Discussion and Analysis 31 Basic Financial Statements 40 Statement of net position 41 Statement of activities 42 Governmental funds – balance sheet 44 Reconciliation of the governmental funds balance sheet total fund balances to the statement of net position 45 Governmental funds – statement of revenues, expenditures and changes in fund balances 46 Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of activities 47 Proprietary funds – statement of net position 48 Proprietary funds – statement of revenues, expenses and changes in net position 49 Proprietary funds – statement of cash flows 50 Fiduciary funds – statement of fiduciary net position 51 Fiduciary funds – statement of changes in fiduciary net position 52 Notes to basic financial statements 53 Required Supplementary Information 99 General fund budgetary comparison schedule 100 General fund schedule of revenues, expenditures and changes in fund balance – budget and actual 101 Pension Plan Schedules – Retirement System 105 Schedule of changes in the net pension liability and related ratios 106 Schedule of contributions 107 Schedule of investment returns 108 Pension Plan Schedules – City 109 ---PAGE BREAK--- Schedule of the City’s proportionate share of the net pension liability 110 Schedule of City’s contributions 111 Schedule of the special funding amounts of the net pension liability 112 Other postemployment benefit plan schedules 113 Schedule of changes in the City’s net OPEB liability and related ratios 114 Schedule of the City’s contributions 115 Schedule of investment return 116 Notes to required supplementary information 117 Combining and Individual Fund Statements 123 Nonmajor governmental funds 124 Nonmajor governmental funds – combining balance sheet 125 Nonmajor governmental funds – combining statement of revenues, expenditures, and changes in fund balances 128 Private purpose trust funds 131 Private purpose trust funds – combining statement of net position 132 Private purpose trust funds – combining statement of changes in net position 133 Agency fund 134 Agency fund – statement of changes in assets and liabilities 135 Statistical Section 137 Net position by component – last ten years 138 Changes in net position – last ten years 139 Fund balances, governmental funds – last ten years 140 Changes in fund balances, governmental funds – last ten years 141 Assessed value and actual value of taxable property by classification and tax rates – last ten years 142 Principal taxpayers – current year and nine years ago 143 Property tax levies and collections – last ten years 144 Ratios of outstanding debt by type – last ten years 145 Ratios of general bonded debt outstanding – last ten years 146 Direct and overlapping governmental activities debt – as of June 30, 2018 147 Computation of legal debt margin – last ten years 148 Demographic and economic statistics – last ten years 149 Principal employers (excluding City) – current year and nine years 150 Full-time equivalent City employees by function – last ten years 151 Operating indicators by function/program – last ten years 152 Capital asset statistics by function/program – last ten years 153 Free cash and stabilization fund balances – last ten years 154 ---PAGE BREAK--- Introductory Section Salem Willows Park The Salem Willows offers beautiful shaded seaside grounds, scenic ocean views, public pier, and band stand for concerts, picnic areas, beaches, children’s rides, activities and many eateries. One of Salem’s treasurers, this park has a fascinating history. Salem Willows is renowned for the European white willow trees planted here in 1801 to form a shaded walk for patients convalescing at the old smallpox hospital. Later the area became a park. During the first half of the 20th century, Restaurant Row on the park's north shore served fresh seafood favored by locals and visitors alike. A carousel with carved flying horses was another special attraction at Salem Willows, which then, as now, operated as an entertainment center. Visitors still flock here during the summer to enjoy the sunshine, the arcade and the park's ample picnic grounds and recreational facilities. Salem Art Scenes ---PAGE BREAK--- City of Salem, Massachusetts 1 Comprehensive Annual Financial Report Introductory Section ---PAGE BREAK--- City of Salem, Massachusetts 2 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 3 Comprehensive Annual Financial Report City of Salem, Massachusetts Finance Department 93 Washington Street Salem, MA 01970 Ph. [PHONE REDACTED] Ext 5625 Fax [PHONE REDACTED] [EMAIL REDACTED] December 18, 2018 Letter of Transmittal Laurie A. Giardella, Finance Director To the Honorable Mayor, Members of the City Council and Citizens of the City of Salem, Massachusetts: At the close of each fiscal year, state law requires the City of Salem to publish a complete set of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) that are audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the Comprehensive Annual Financial Report (CAFR) of the City of Salem, Massachusetts, for the fiscal year ending June 30, 2018, 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, 2018, are fairly presented in conformity with GAAP. The City of Salem’s financial statements have been audited by Powers & Sullivan, LLC, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2018, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that the City’s financial statements for the fiscal year ended June 30, 2018, 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. ---PAGE BREAK--- City of Salem, Massachusetts 4 Comprehensive Annual Financial Report GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement that analysis and should be read in conjunction with it. The City’s MD&A can be found immediately following the report of the independent auditors. Profile of the City The City of Salem, which was incorporated as a town in 1630 and became a city on March 23, 1836, is situated on the Massachusetts coast, 16 miles northeast of Boston. The City has a population of 41,340 and occupies a land area of approximately 8 square miles. The second city in the Commonwealth to be incorporated, it is the Shire City of Essex County. Salem has operated under the Plan B form of government, with a mayor and an eleven-person City Council, seven elected from wards, and four at-large, since 1915. The Mayor is elected for four years in November of unevenly-numbered years. The Mayor is the administrative head of the City and chairman ex-officio of the School Committee, the Board of Library Trustees, and the Board of Trust Fund Commissioners. The Mayor acts with the City Council and School Committee to carry out City business. The Mayor appoints her office staff, the City Solicitor, and the Assistant City Solicitor without City Council confirmation. The appointments of most City department heads, and members of the various boards and commissions, however, require City Council confirmation. The Mayor has the right to veto any order, resolution, or ordinance passed by the Council. However, a veto may be overturned by a two-thirds vote of all councilors. After reviewing and revising estimates prepared by department heads, the Mayor submits the budget to the City Council for final action. The Mayor approves all municipal payrolls, vouchers, contracts and instruments; and recommends bond issues, legislations and orders to the City Council; and represents the City with other levels of government. As the general administrator of all City departments, the Mayor is consulted by department heads pertaining to the City’s welfare. The City Council is primarily the legislative branch of the City government. As the legislative body, the Council confirms appointments made by the Mayor and appropriates all monies necessary to City operation. It can approve, disapprove, or reduce the amount of appropriations, but not add to the appropriation. The Council receives orders of recommendation by the Mayor and petitions from the public, and acts on them after committee study. The City Council also has the power to enact the Ordinances and other regulations. A majority of the City Council constitutes a quorum, and the affirmative vote of a majority of all the members of the Council is necessary for the adoption of any motion resolution, or ordinance. In some instances, adoption by a two-thirds vote of the members is required by statute. The City provides general governmental services for the territory within its boundaries, including police and fire protection, disposal of garbage and rubbish (for residential properties); public education, including vocational- technical education at the high school level; street maintenance; certain water services, through the Salem and Beverly Water Supply Board; certain sewerage disposal services, through the South Essex Sewerage District; and parks and recreational facilities. Approximately 95% of the City is connected to the sewerage system; the entire area of the City is served by the municipal water system. Both the Salem and Beverly Water Supply Board and the South Essex Sewerage District (SESD) qualify as joint ventures. Accordingly, the City’s equity interest in SESD has been included in the City’s basic financial statements. The Salem Housing Authority owns and manages 715 units of low income public housing throughout the City of Salem. There are 495 units of elderly/handicapped housing and 220 units of family housing. Additionally, the Salem Housing Authority currently administers approximately 1,130 housing vouchers through the Section 8 Housing Choice program and 17 housing vouchers for the Department of Mental Health through the Department of Housing and Community Development. The Salem Housing Authority does not meet the criteria to be considered a component unit of the City. The principal highways serving the City are state Routes 1A, 107, and 114, all of which provide immediate access 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. ---PAGE BREAK--- City of Salem, Massachusetts 5 Comprehensive Annual Financial Report Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without recommendation of the Mayor, the City Council may not increase any item or make an appropriation for a purpose not included in the proposed budget (except by a two-thirds vote in case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the City Council, pursuant to state statute). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. The amount raised on the tax recapitulation sheet approved by the Department of Revenue for fiscal year 2018 totaled approximately $165.2 million, which includes Real & Personal Property tax revenue, State Revenues, MSBA Revenue, local revenues, transfers in of approximately $1.3 million from Receipts Reserved Harbormaster, Witch House and Golf Course (to reduce tax rate), other receipts reserved transfers, overlay surplus, and approximately $1.31 million of indirect costs from the Water & Sewer Enterprise funds. These revenues cover general fund budgeted expenses and deficits raised including snow and ice, school lunch, health insurance trust, to fund the Retirement Anticipation Fund and Capital Improvement Projects Fund, including Enterprise fund expenses. The City includes the Salem Contributory Retirement System (System) in its financial reporting since the City represents approximately 84% of the members of the System. The System was established to provide retirement benefits to its members, including employees and beneficiaries of the City of Salem, the Salem-Beverly Water Supply Board, the Salem Housing Authority, the South Essex Sewerage District, and the Essex Technical High School. Per the Pension Reserves Investment Management Board June 2018 report, the market value of the System’s assets totaled $171.8 million with 98.5% of the funds invested in the State’s Pension Reserve Investment Trust’s (PRIT) Core Fund. Factors Affecting Economic Condition The City of Salem is a historic waterfront community that has a rich cultural heritage, known worldwide for its architecture, maritime history, literary prominence, and hysteria. For this reason, tourism is one of the City’s major industries, accommodating almost one million visitors each year. Salem originated as one of the earliest landing sites of the English colonists and went on to rise as the first major port in the United States, opening up the East Indian trade. In its heyday, Salem was known as a thriving hub of American commerce and was the home of Nathaniel Hawthorne. Salem is well known for the infamous Salem Trials of 1692, when nineteen people were convicted for the crime of and were put to their deaths. The City's golden years have left her modern inhabitants with architectural treasures, fine museums, and a sparkling literary heritage. Equally important, the development of Salem has produced a rich ethnic history, to which people of all races, creeds, colors and origins have contributed over the generations. Long a trading, manufacturing and retail center, Salem has been making a slow, and sometimes painful, transition to a service- based economy. The City today serves as the home of Salem State University, the North Shore Medical Center, the Essex County District Superior and Probate Courts, and Registry of Deeds, the world-famous Peabody Essex Museum, and a host of banks and other financial institutions. It is the educational, medical, legal, cultural and banking hub of the North Shore. Salem also boasts an impressive collection of historically significant residential structures that are always in high demand. The uniqueness of these historic homes, coupled with a growing downtown condominium market, has helped boost home sales prices in Salem. Private and Public Development-FY15-Today The City has numerous facilities of continuing cultural and/or historical significance: Peabody-Essex Museum: In 2003, the Peabody Essex Museum (“PEM”) undertook the largest museum addition in America. The $125 million expansion allows them to showcase their extensive collection of Oceanic and Asiatic ---PAGE BREAK--- City of Salem, Massachusetts 6 Comprehensive Annual Financial Report art for the first time. The PEM houses a broad spectrum of artifacts representing centuries of Essex County life and industry, as well as treasures from across the world brought to the region by early navigators. The PEM consists of a downtown campus, four National Historic landmarks and several properties on the National Register of Historic Places, as well as the Yin Yu Tang, the only complete Qing Dynasty house outside China. The PEM enjoys an attendance of approximately 250,000 visitors per year. See the section on Economic Development for overview of PEM’s expansion project. The Salem Maritime National Historic Site and Derby Wharf Lighthouse: This 9.2 acre site, operated by the National Park Service, (“NPS”) is comprised of several buildings, including the original Customs House, as well as several wharves and homes. The NPS has restored the wharves and buildings. The Friendship, a full size replica of one of Salem's historic trading ships is berthed at the site. This $6 million project was 75 percent federally- funded and has become a major cultural attraction and educational tool. The National Park Service has recently relocated the historic Pedrick’s Warehouse from Marblehead to Derby Wharf and installed a pile supported dock adjacent to the building in order to facilitate interpretive display of historic maritime functions. The House of the Seven Gables: The House of the Seven Gables was made famous by Nathaniel Hawthorne's novel of the same name. The site is a complex of the actual house occupied by Hawthorne and several adjacent historic structures. The House of Seven Gables received the prestigious designation of "Museum" status in 2008 and has been designated a National Historic Landmark District. Salem Witch Museum: The Salem Witch Museum commemorates the famous witch trials that occurred in 1692 through an audio visual presentation. Life-size stage settings, lighting and historically accurate narration recreate the afflicted girls, the trials and the executions of the Salem Witch Trials. The Witch House: The Witch House was the home of one of the famous Witch Trial judges, Jonathan Corwin. The Witch House is operated by the City of Salem and is an excellent example of 17th century architecture. The site recently received interior and exterior improvements for handicapped accessibility and historic preservation. Witch Dungeon Museum: The Witch Dungeon Museum provides a live re-enactment of the Witch Trials for visitors to the City. The presentation is adapted from the 1692 transcripts and re-enacted by professional actors. The First Church: The First Church, located on Essex Street, was founded in 1629 and is one of the oldest, continuing Protestant congregations in North America and the first to be governed by congregational polity, a central feature of Unitarian Universalism. Chestnut Street: Chestnut Street is a National Historic Landmark consisting of a group of homes of notable architectural significance. The homes are primarily old mansions built by Salem's successful sea captains during the early 19th century. Pickering House: The Pickering House is the oldest house in America to be continuously occupied by the same family. Pioneer Village: Pioneer Village, situated in Forest River Park, is a living-history Museum that depicts life in Salem in 1630. Guides in historical costumes show visitors how early Puritans lived. The site contains a thatched cottage, historic gardens, wigwams, and animals. The Old Burying Point: Located on Charter Street, this is the oldest burying ground in Salem. The site contains the graves of a Mayflower passenger and trial judge John Hawthorne, which is adjacent to the Salem Witch Trial Memorial. In 2016, the City completed the restoration of several headstones and tombstones developed a landscape plan for the site’s restoration. ---PAGE BREAK--- City of Salem, Massachusetts 7 Comprehensive Annual Financial Report Winter Island Park: Operated by the City of Salem, Winter Island is a former U. S. Coast Guard Air and Sea Rescue Station located on Salem Harbor. The site is a seasonal recreation site with RV and tent spaces. The site also has a beach, boat launch, wind surfing, scuba diving, picnic areas and a snack bar. Historic Fort Pickering and Fort Pickering Light are located within the site. Winter Island is now the home of “Sail Salem”, a community sailing program that provides free sailing lessons to Salem children. Salem Wax Museum of Witches and Seafarers: The Wax Museum, opened in July of 1993, features a multi- media presentation and realistic wax figures depicting pirate and witch stories of Salem's past. The Wax Museum also offers hands-on children's activities. Salem Witch Trials Memorial: The Salem Witch Trials Memorial was dedicated on August 5, 1992 to commemorate the 300th anniversary of the now famous Salem Witch Trials of 1692. The memorial is located adjacent to the Charter Street Burial Ground. The 20-year old Memorial has now been restored with a rededication ceremony on September 9, 2012. Heritage Trail: The many cultural and historic facilities in Salem are connected by the Heritage Trail. Known locally as the “Red Line”, it leads to world-renowned museums and historic homes, as well as to restaurants offering simple fare to gourmet meals, full service hotels, inns and bed and breakfasts. Salem Common: Salem Common has been public land since Salem's early days. Its eight acres were originally a swampy area, with several ponds and small hills. Salem's military heritage begins in 1636, when the first muster occurred on Salem Common. Today, the National Guard traces its roots to that first muster. Needing a place for regular military drills, it was voted in 1714 by the commoners to be "forever kept as a training field for the use of Salem". In 2016, the City completed Phase III of the historic fence’s restoration. Baker’s Island Lighthouse: The tower is located on the north end of the island. The lighthouse was automated in 1972. The island is closed to the general public and is best seen by boat. Fort Lee: This American Revolution fort was built in 1776 and was added to the National Register of Historic Places in 1994. The Phillips House: The Phillips House is the only home on historic Chestnut Street open to the public, and it provides a glimpse into the private world of the Phillips family during the early decades of the twentieth century. Ye Olde Pepper Candy Companie: This is America’s Oldest Candy Company, dating back to 1806, when an English woman, Mrs. Spencer, was shipwrecked and landed in Salem. Mrs. Spencer was assisted financially by residents, and what resulted was the first candy made and sold commercially in America and carried around the world by sea captains and their crew. The tourist attractions described above are included to illustrate the continuously growing tourist economy. These attractions provide jobs and tax revenue for the City of Salem. Public and Non-Profit Development Projects Salem experienced new growth of approximately hundreds of millions of dollars in new development since 2003. This includes:  The J. Michael Ruane Judicial Center opened at the end of 2011. This $106 million court expansion in downtown Salem continues to have a significant positive economic impact on the downtown and the City.  MBTA Station Improvements and New Garage: The new MBTA garage opened October 2014. The $37 million MBTA commuter rail station and parking garage provides an enhanced station and approximately 700 parking spaces for commuters, residents, and visitors. ---PAGE BREAK--- City of Salem, Massachusetts 8 Comprehensive Annual Financial Report  Remond Park: Improvements to the old bridge abutment on Bridge Street Neck have been funded by the State to create a new park. Construction is complete.  The Peabody Essex Museum is planning a 40,000 gross square feet expansion. It will include three floors of state-of-the-art galleries, a secondary entrance to the museum and a full basement for mechanical and electrical equipment. Construction began in 2017 and is anticipated to be complete in the spring of 2019.  St. Joseph’s Church Redevelopment: Located on the site of the former St. Joseph’s Church that was closed in 2004, this affordable housing development is a key revitalization project for the Point Neighborhood and will provide much-needed housing for the City. Phase 1 of the project is complete and includes a new building with 51 affordable housing units, commercial space, and a community room. In addition, in 2017 the North Shore Medical Center began redevelopment of a portion of their existing hospital campus in order to better serve the surrounding community by consolidating existing uses, improving access and circulation around the hospital, and constructing a new state-of-the-art emergency services department. As proposed, the Project consists of 119,735 square feet of new building space, 119,734 square feet of interior renovations, parking and driveway reconfigurations, landscape and hardscape improvements, and utility infrastructure modifications to support this use. The project is anticipated to be completed in the fall of 2019. Downtown Redevelopment A number of vacant and underutilized properties have been redeveloped into mixed-use residential/commercial buildings. The downtown alone has seen over $40 million in private investment from projects such as the Laundry Building, The Distillery, Old Police Station Redevelopment, Bluestone Alley, 10 Federal Street, the Salem News Building, Latitudes in the old Tompkins Furniture Building and the Old Salem Jail. New projects continue to be proposed and permitted, as described below. 90-98 Washington Street: The three-story building has been redeveloped as office space with some ground floor retail. The City of Salem has entered into a 20-year lease for the office space to accommodate personnel currently located in other leased premises. The building has been occupied with City personnel as of April 2018. District Court Redevelopment: The District Court building will be transferred to the Salem Redevelopment Authority (SRA) in accordance with recent legislation passed by the Legislature for the purpose of redevelopment. The SRA solicited development proposals through a RFP process in 2015 and selected Diamond Sinacori as the designated developer. The SRA and Diamond Sinacori executed a Land Disposition Agreement in January 2017, and the project is in the permitting process. Washington and Dodge Street Redevelopment: This 160,000-square foot, $50 million project includes a mixed- use development with 64 residential units, proposed hotel with approximately 100 rooms, commercial space, 212 parking spaces, associated landscaping, and pedestrian and transportation improvements. Ground breaking occurred in October 2018. When completed, this project will dramatically increase the footprint of Salem’s downtown. The City was awarded a state grant in the amount of $3.36 million for infrastructure improvements to support this proposed project The Merchant: A new Lark Properties hotel opened in 2016 in the historic Joshua Ward House in downtown Salem. The Hotel Salem: Located in the Newmark Building located on the Essex Street Pedestrian Mall, the 44-room boutique hotel was completed in 2018, after receiving approval from the Salem Redevelopment Authority. It includes loft style and micro rooms, a basement lounge with bowling alley, roof deck restaurant, and high-end fixtures and furnishings. It is anticipated to be a catalyst for further economic development activity on the pedestrian mall. ---PAGE BREAK--- City of Salem, Massachusetts 9 Comprehensive Annual Financial Report Old Salem Jail Complex Redevelopment: The first phase was completed in 2010, which includes 23 housing units, a restaurant, and a jail exhibit. Phase 2 includes an additional 13 housing units in a new building for a total project cost of approximately $11 million. Phase 2 was completed in spring of 2018. Salem News Building: This major redevelopment project in Salem’s downtown included the renovation of two buildings and construction of a new building at 155 Washington Street, 26 New Derby and 31 Front Street. The project retains approximately 6,000 square feet of existing retail use and adds an additional 7,500 square feet of new retail, and includes the construction of 31 new residential units. Construction is complete, and Tavern in the Square restaurant opened in June 2009. 275-281 Essex Street: The development includes the conversion of the four-story, 30,000 square foot former C.F Tompkins Furniture Building into a mixed-use retail/residential development with 3 retail units on the ground floor and 20 residential condos on the upper floors. Old Police Station Redevelopment: In March 2004, the SRA transferred ownership of the Old Police Station to Heritage Plaza Enterprises and construction was completed in the fall of 2006. All of the units were under agreement months before the project was due to be completed. The $3 million project includes 14 residential condominium units with parking on-site. Derby Lofts (former Laundry Building): The Derby Lofts project includes the renovation of the 100 year old, four- story industrial building, known as the Laundry Building, into a mixed-use residential and retail development. The project consists of 14,000 square feet of first floor retail and 54 luxury residential units on the upper floors. The project cost approximately $14 million and was completed in 2006. 10 Federal Street: The owners of 10 Federal Street constructed three-stories of additional office space on top of their existing two-story downtown office building. The additional space allowed the District Attorney’s Office to relocate to the space and remain in downtown Salem. The construction began in 2005 and is complete. The project cost was approximately $10 million. Bluestone Alley: The Blue Stone Alley project at 7 Crombie Street redeveloped the former Salem Mission into 17 artist live/work condominium spaces. The redevelopment was a “gentle renovation” of the building that integrated many of the historic characteristics of the building. Construction was completed in 2006. The project cost was approximately $3.3 million. Old Town Hall: The City manages this building and programs both non-profit and private events, such as musical performances and weddings, in this historic space. The City received a $20,000 Cultural Facilities grant from the state, which was matched with local CPA and C.I.P. funds for window restoration and repair. The restoration work was completed in early 2016. North River Canal Corridor Redevelopment A second area undergoing transformation is the North River Canal Corridor, known as Blubber Hollow, adjacent to downtown. Formerly the region’s whaling and then tannery center, the neighborhood has more than $70 million in pending development. Guided by a community-based plan, the City changed the zoning to encourage development. The pending private investments will transform the largely vacant and contaminated sites into a vibrant mix of residences, offices, and retail uses. Specific projects are: 9 South Mason Street: The project involves redevelopment of industrial and residential land located between Mason Street and Commercial Street in the North River Canal Corridor district. The plans total 4 buildings and 29 dwelling units, including the rehabilitation and expansion of an existing two-story concrete industrial building; expansion of a three-story residential building; and construction of two new townhouse style buildings. The project was permitted in 2016 and anticipated to be complete during the summer of 2019. ---PAGE BREAK--- City of Salem, Massachusetts 10 Comprehensive Annual Financial Report 28 Goodhue Street: Now known as North River Apartments, this mixed-use project on the site of a former factory was completed in 2014 and is occupied. The development included 44 residential condominiums, 6,000 square feet of commercial retail space and on-site parking. Riverview Place: Located on the former Salem Suede site, Riverview Place consists of the demolition of the old tannery and construction of 130 residential rental units and 5,540 square feet of commercial space. Local approvals are secured and the project is expected to be complete in the spring of 2019. Gateway Center: Local permitting was completed in August 2016 for the development of a 3.48-acre parcel located at the corner of Bridge Street and Boston Street to include a mixed-use building with a commercial/retail and 117 housing units and a free-standing building that will house the City’s Community Life Center. Construction of the Community Life Center began in the summer of 2017 and is scheduled for the grand opening in fall of 2018. Grove Street Apartments (formerly known as Legacy Apartments): This project consists of 129 residential apartments and re-use of an existing 17,000 square foot commercial office building. It was approved by the Planning Board in 2012 and amended in 2015 to meet MEPA requirements. In July 2015, the project received a MEPA certificate and Superseding Order of Condition. Environmental remediation and demolition of some on-site structures was completed. Tan Site (70-92 ½ Boston Street): The Planning Board approved a new medical office building with 40,000 square feet in 2014; however, the project has not moved forward. In September 2016, the Planning Board approved a mixed-use development containing 50 housing units and a retail space. The Tan property is a 1.98-acre site containing vacant industrial buildings and land along Boston Street, a major entrance corridor into Salem and within the new North River Canal Corridor (NRCC) Neighborhood Mixed Use District. The project is expected to be complete in the spring of 2019. Waterfront Development Key changes also are rapidly occurring along Salem’s shoreline, creating rare waterfront development opportunities. 289 Derby Street: In 2016, the City Council approved a $1.4 million bond order to acquire property located at 289 Derby St. for the purpose of constructing a downtown waterfront park. The project is progressing with construction beginning in the spring of 2018. Salem Harbor Power Station/Footprint Power: Demolition of the coal plant is complete and construction of the new natural gas facility is underway. A new state-of-the-art, 630-megawatt gas-fired plant is being constructed and is scheduled to be completed in December 2017. The new plant will be developed on one-third of the site, opening up the remaining two-thirds of the 63-acre waterfront property to re-development opportunities. The new plant began producing electricity early in 2018. Port of Salem Expansion (Salem Wharf): This $20 million project calls for construction of a multi-purpose commercial wharf facility with supporting utilities and amenities for cruise ships, commercial fishing, transient, and charter vessels. A terminal building, harbor walk, dredging, and landside improvements are part of the project. During the project’s first phase undertaken in 2011, the City completed utility installation, seawall construction, base paving and installation of an interim ferry terminal. In 2012 and 2013 a combination of state and federal Ferry Boat Discretionary (FBD) Funds enabled the City to construct the second phase of the project, which consisted of the first 260 feet of pier, wave fence and a portion of the seawall, install a gangway and ramp system, install utilities and begin dredging. The City has completed Phase 3 which includes final paving, landscaping, lighting and construction of the harbor walk. In addition, the City has made improvements to the adjoining deep-water dock owned by Footprint Power, and constructed a connecting walkway between Footprint’s dock and the City’s Blaney Street pier. Since construction of the cruise port, Salem has received visits from a ---PAGE BREAK--- City of Salem, Massachusetts 11 Comprehensive Annual Financial Report number of cruise ships. At present, Footprint is utilizing the pier for construction purposes and this limits the number of cruise ships visits. Once the plant is completed, the Port of Salem will be able to host a full schedule of ship visits. This past year, the City completed dredging and construction of an 11-slip Commercial Marina at Blaney St. The Marina began operating this past summer and is home to 7 marine businesses. It implements an important recommendation and goal of the City’s Municipal Harbor Plan by creating a multi-use commercial wharf facility with deep water access for ocean-going vessels. As a result of its construction, the Port of Salem is now a full service commercial and industrial port. South River Dredge: The maintenance dredging for the South River Channel was last performed by the US Army Corps of Engineers (USACE) in 1967. In Feb 2008, the USACE dredged the Federal Navigation Channel into Salem Harbor, the Federal Anchorage Basin off Derby Wharf, and the approach to the South River Channel but stopped short of the South River Channel because contaminated sediment that exceed the state levels for open ocean disposal were encountered. Since then, the City obtained $155,000 from the Governor’s Seaport Advisory Council for sediment testing, bathometric survey work, cost analysis for dredge disposal options, and preliminary design and engineering of the dredge footprint for the South River Channel and the South River Basin (area west of the Congress Street Bridge). In 2012, the City received an additional $275,000 from the Seaport Council to finish the design, engineering and permitting stage of the dredge project. The City’s consultant, Apex, has prepared a Draft Environmental Impact Report and Notice of Intent. Upon the Army Corps of Engineers’ final determination of the suitability of the CAD cell material for offshore disposal, the City will submit both documents to the appropriate regulatory agencies and work to identify funding sources. Once completed, the dredging will provide direct access to downtown Salem for deeper drafting vessels, transient boats, and dingy boats, which will encourage increased boating activity and support economic development. Salem Ferry: The Salem to Boston Ferry, currently in its twelfth successful season, is an alternative transportation option connecting two great cities. Named the Nathaniel Bowditch after the founder of modern maritime navigation and Salem’s native son, the ferry is a high-speed catamaran that carries 149 passengers, is entirely ADA accessible and makes the trip from Salem to Boston – where it docks at Long Wharf – in less than 45 minutes. The City of Salem and the Massachusetts Bay Transportation Association (MBTA) have an agreement which allows commuters to purchase a pass that can be used both on the Ferry commuter runs and on the commuter train, strengthening the Ferry’s viability as a transportation choice for daily commuters. Due to the success of the program, the City of Salem has obtained $3.4 million in grant funding to add a second ferry which is expected to be operational by 2020. The City of Salem is one of only a few municipalities to own a ferry vessel, which it purchased with a grant from the Massachusetts Executive Office of Transportation. South River Harborwalk: The City secured $1,336,000 from the Governor’s Seaport Advisory Council for construction of the South River Harborwalk. The City has contributed $267,200 of Community Development Block Grant (CDBG) for its required 20% match, totaling $1.6 million. On July 15, 2010, the South River Harborwalk was completed and unveiled to the public. The Harborwalk is a fully accessible public walkway with pedestrian amenities such as benches, lighting and landscaping along the southern and western banks of the South River Basin. Port Security Grants (Installation of Wireless Surveillance Cameras/Infrastructure): The Governor’s Seaport Advisory Council submitted and obtained a Port Security Grant from the US Homeland Security Department on behalf of the Ports of Salem and Gloucester for $518,320 to begin implementing security features within each Port to address federal mandates. With the help of the Salem Police Department, the City installed fourteen wireless surveillance cameras around critical waterfront infrastructure in August 2010. The City will continue to work to comply with federal Homeland Security mandates as the Port of Salem continues to grow. McCabe Marina: The City received a $500,000 grant from the State Public Access Board to reconstruct the public boat launch at McCabe Marine. Construction was completed in July 2010. ---PAGE BREAK--- City of Salem, Massachusetts 12 Comprehensive Annual Financial Report Public Infrastructure Projects Canal Street Improvements: The improvements include reconstruction of the roadway pavement, curbing and sidewalks. Wheelchair ramps and appropriate pedestrian crossings will be added to improve pedestrian safety. Additional pedestrian improvement such as street trees and curb extensions will be incorporated. Drainage and other utility improvement will be made, the road crown will be adjusted to provide a consistent cross slope, and repair of settled locations will be done. Boston and Bridge Public Infrastructure Improvements: The City received a $3.5 million in FY2016 through the State MassWorks Program to fund “Complete Streets” streetscape improvements along Bridge Street, between Boston and Flint Street. The Utility has begun the permitting process. Grove Street Improvements: The City received a $1,250,000 grant for improvement to Grove Street to support the proposed housing and mixed use developments in the North River Canal Corridor. The project is complete. Washington and Dodge Street Public Infrastructure Improvements: The City received a $2.5 million grant through the State MassWorks program to fund infrastructure improvements associated with the proposed 160,000 square foot mixed-use development on Washington and Dodge Streets. Due to increased construction costs, the City was awarded an additional $825,000 for this project. Project was completed in the spring of 2018. Improvement of the Essex Street Pedestrian Mall: The City invested in the redesign and improvement of the pedestrian mall in the heart of downtown. Phase 2 improvements to make the mall more pedestrian friendly and to improve the aesthetics were completed in fall, 2013. Phase 3, which includes the renovation of the fountain at Washington Street, was completed in October 2014. 1A Bridge Street Improvement Project: The major reconstruction of 1A Bridge Street is complete, including roadway reconstruction, new sidewalks and crosswalks, landscaping and period lights. Lafayette Street Improvements: Funded through a Public Works Economic Development (PWED) grant, construction was completed in the fall of 2012. Improvements include the installation of traffic signals at the Harbor/Lafayette Street intersection and the Lafayette/Washington Street intersection, new sidewalks, new crosswalks and curbing, period lights, new bus shelters and new benches along Lafayette Street. The $1 million grant was matched with approximately $200,000 in CDBG funding. Salem/Beverly Transportation Project/Bridge Street Bypass Road: The Salem-Beverly Transportation Project is a multi-phase roadway project that provides improved vehicular access between Salem and Beverly. The Bridge Street Bypass Road, a component of this project, was completed in 2008, reducing congestion and providing a multi-use pathway for pedestrians and bicyclists. North Street Improvement Project: Reconstruction of North Street, including roadway, sidewalk, signalization and period lighting was completed. Derby/Congress Traffic Lights: This intersection was redesigned to increase pedestrian safety. Installation of traffic lights for pedestrian and vehicle safety and traffic circulation was completed. Congress/Peabody/Ward Street Intersection: Reconstruction of the intersection was completed in November 2009. The work included the reconfiguration of the entire intersection to provide a more organized roadway for both vehicular and pedestrian safety. The reconfiguration of the intersection was facilitated by the demolition and remediation of the former 61 Ward Street property. These changes have minimized the crossing distance for pedestrians and greatly improved the traffic movement for vehicles entering and exiting the intersection. Pedestrian improvements include striped crosswalks, handicap ramps, and a pocket park that was created as a ---PAGE BREAK--- City of Salem, Massachusetts 13 Comprehensive Annual Financial Report result of the reconfiguration. The pocket park consists of concrete and stone paver walkways, landscaping beds, trees, and seating areas. Residential Development Clark Avenue Cluster Subdivision: The proposed plan for a 26-lot residential subdivision is fully permitted. Osborne Hills Subdivision (Strongwater Crossing): Currently under construction, Strongwater Crossing Subdivision is a cluster development project that includes the construction of 131 single-family homes on approximately 162 acres of land. Approximately 93 acres of the project will be permanently protected open space. The project represents one of the largest subdivisions built in Salem in recent history. Due to its size, this subdivision is being completed in phases. There is no scheduled date for completion. Witch Hill: The construction of 23 single family homes along the extension of an existing roadway is underway. There is no scheduled date for completion. Eaton Place/Former Elks Lodge (17 North Street): With Planning Board Site Plan Approval in December 2009 to add a third and fourth floor, the former assembly hall’s conversion into six residential condominiums was completed with special care to restore the structure’s historic appearance. 50 Palmer Street: This project by the Salem Harbor Community Development Corporation (CDC) included the demolition of the existing structure and the construction of a new three-story residential structure with a footprint of 7,300 square feet. The new structure is complete and consists of 15 units of affordable rental housing for low and moderate income households. This project was funded using a partnership of private and public sources, including funds from the City. Commercial Development Salem enjoys a mix of businesses and markets. Markets for Salem businesses include the local population, the large tourist trade of over 1 million visitors, Salem State University, the North Shore Medical Center, and the J. Michael Ruane Judicial Center. Salem State University with its 10,000 students and large employment base generated over $104 million for the City of Salem in direct and indirect spending, which is derived directly from employee salaries and benefits, purchased goods and services, and student spending. The North Shore Medical Center will be expanding its facilities in Salem, and the Probate Court is currently under construction and when complete will represent the completion of the J. Michael Ruane Judicial Center. Large commercial and industrial development, prominent in the Highland Avenue, Swampscott Road and Vinnin Square areas, is strong. Salem’s industrial park on Technology Way houses large companies such as Salem Glass and Thermal Circuits. On Swampscott Road, a 170,000 square foot vacant building was converted to commercial condominiums and is now home to 9 businesses relocating or expanding in Salem. A number of significant national retailers such as Staples, WalMart, Home Depot, Target, Pep Boys and Petsmart are located in these areas. The City also is home to Shetland Park, a 900,000 square foot business park abutting downtown, which houses more than 70 businesses. Lafayette Street and West Avenue: The project includes the construction of a three-story 24,388 square foot mixed use commercial building with retail on the first floor and offices on the upper floors. An existing two-family home on the site will remain in its current use. U.S. Biological completed the construction of a new $3 million, 50,000 square foot headquarters building on Technology Way with the plan to have 28 new jobs within five years. ---PAGE BREAK--- City of Salem, Massachusetts 14 Comprehensive Annual Financial Report Endicott School (110 Boston Street): The former Endicott School sits on a .53-acre lot along Boston Street, a major entrance-corridor into Salem with direct access to Route 128. After a competitive RFP process, the property was sold for $350,000 to a nonprofit organization, Children’s Friend, who relocated their office from another location in Salem. The City also negotiated a PILOT Agreement with the agency. Leggs Hill Road YMCA: The project was approved by the Planning Board in 2007; construction of the 88,000 square foot YMCA facility is complete. 319 Highland Avenue: Highland Avenue is the major commercial corridor in Salem with a mix of shopping and dining options. However, this area had long lacked a gas service station. 319 Highland Avenue is the site of the former Moose Lodge. Construction of an Irving Gas Station with a Blue Canoe Convenience Store, North Shore Bank, and a Subway Restaurant was completed in 2007. In coordination with this project, Mass Highway undertook improvements to the Highland Avenue and Swampscott Road Intersection, which included a right turn lane and cueing of the lights. MassDOT completed a study for transportation improvements for this corridor in coordination with the Cities of Salem and Lynn and working to move to the design phase. Other City Initiatives LED Streetlight Conversion: In 2016, the City completed the conversion of 3,000 overhead streetlights to LED fixtures. This project will result in $194,000 annual cost savings and 1.2 million kilowatt hours in annual energy savings. Urban Forestry: A tree committee was formed to renew Salem’s dedication to its urban forestry. A pilot neighborhood tree inventory was completed in 2016, and the City received a DCR Urban Forestry Challenge Grant to fund a citywide tree inventory, management plan, and cost estimates for implementation of the management plan in 2017. Working Cities Challenge: The City successfully implemented a $100,000 grant from the Boston Federal Reserve Bank to improve the quality of life through economic development initiatives in the Point neighborhood. EPA Brownfields grant: The City with the City of Peabody received a $950,000 federal grant to be utilized for a revolving loan fund to clean up contaminated sites. Universal Steel site: This brownfields site was taken by the City for tax title in 2012. Through a coordinated effort with EPA, DEP, and MassDevelopment, the site has been remediated and paved and was used for temporary parking during the construction of the MBTA garage. The City expects to solicit new proposals for redevelopment in order to put the site back on the tax rolls. North Street Fire Station: The City was awarded a $65,000 Massachusetts Historical Commission MPPF grant in June, 2013 for exterior repairs and restoration to the North Street Fire Station, which was completed in 2017. Public Art: Over the past four years, the City has been working to increase the amount and quality of public art. Partly in response to public demand, this initiative is being pursued to support the City’s identity as an arts and cultural destination. The physical presence of public works of art further supports the City’s efforts to leverage the arts for economic development purposes. A Master Plan for Public Art was completed in 2013; Council adopted an ordinance to establish a Public Art Commission in 2014 and the City’s first full-time public Art Planner was hired in 2014 to spearhead new initiatives. The City currently manages a program to transform utility boxes into works of art and solicits proposals annually for the production of diverse art installations throughout Salem. In May 2012, a mural by an internationally renowned artist was installed on the exterior of the downtown parking garage, and in November 2015 another renowned artist turned two crosswalks into works of art in the Point neighborhood, which received an award from the Massachusetts Chapter of the American Planning Association. ---PAGE BREAK--- City of Salem, Massachusetts 15 Comprehensive Annual Financial Report In addition to these activities, the City supports the annual arts festival which draws thousands of participants into downtown in early June. City Hall Handicapped Access: Utilizing American Recovery and Reinvestment Act funding, the City was able to move forward with significant handicap accessibility improvements at City Hall. These improvements include a new elevator addition with entrance lobby and restroom upgrades. The elevator was open for use in 2010. Redevelopment of 5 Broad Street: In March 2010, a reuse feasibility study was completed for a city-owned building located at 5 Broad Street. The building, which currently houses the City’s Council on Aging, was declared as surplus property by the City Council. The City hired consultants to examine the redevelopment potential for this property in preparation for its future sale. Proceeds from the sale of this building will be used to off-set the cost of a new senior center. Salem Main Streets Program: In July 2007, the City, in collaboration with the Salem Chamber of Commerce and the Salem Partnership, revived the Salem Main Streets program. The program works to support the revitalization of downtown Salem as a vibrant year-round retail, dining and cultural destination through business recruitment, retention, and the promotion of downtown Salem. The program has continued to support business recruitment and retention while adding an annual downtown arts festival and a weekly farmers market. Salem Affordable Housing Trust Fund: The City adopted an ordinance to create a municipal housing trust fund in October, 2006. Through negotiations with a developer, the Trust Fund received $50,000 and additional funds are expected from negotiated contributions from other large development projects. The Trust held its first meeting in March, 2007 and has developed a set of goals and strategies to increase affordable housing opportunities in Salem. In 2009, the Trust provided $25,000 to HAWC toward construction of a shelter for abused parents and children. The remainder of the funds was provided to the St. Joseph’s redevelopment project for assistance with designated units of affordable housing. Destination Salem: Salem continues to market sale as a premier, year-round travel destination. The City continues its funding commitment to destination Salem through its annual allocation of hotel/motel tax revenue. Planning Salem Artists’ Row Framework Plan: Completed in late 2015, this Plan lays out a vision and action steps to enhance this core area of the downtown. As a result of its success, improvements were made during 2018 to extend the use from seasonal to year round use. Salem Housing Needs and Demand Analysis: Completed in July 2015 by the Metropolitan Area Planning Council, this analysis identifies the need for an additional 1,900 to 2,725 units of housing by 2030. Vision and Action Plan for the Point Neighborhood in Salem 2013 – 2020: This Plan outlines a vision to improve the quality of life in the Point neighborhood and an action agenda that the City of Salem and community partners will work together to implement over a seven-year period from 2013 to 2020. This Plan is a product of a year-long grassroots, neighborhood-level visioning process. Public Art Master Plan: In recognition of the value that public art can bring to the cultural aesthetic and economic vitality of the community, the City completed a master plan for public art in partnership with the Peabody Essex Museum and the Salem Partnership, funded through the National Endowment for the Arts. Greenlawn Cemetery: The City was awarded a $4,000 Massachusetts Historical Commission Survey and Planning Grant in March 2013 to prepare a National Register of Historic Places nomination form for the Greenlawn Cemetery. The Cemetery received the National Registry status in 2015. ---PAGE BREAK--- City of Salem, Massachusetts 16 Comprehensive Annual Financial Report Salem Downtown Renewal Plan: In January 2012 the Department of Housing and Community Development approved a major plan change to the City’s urban renewal plans, creating a consolidated plan, the “Salem Downtown Renewal Plan”, which updates goals and objective and design guidelines. This new plan will be in effect for thirty years. Winter Island Master Plan: The City utilized grant funds to undertake a Master Plan for the renovation and redevelopment of Winter Island Park. The City, with its consultant The Cecil Group, conducted a six month public planning process and completed the final report in 2011. The City is now seeking funding to implement the plan’s recommendations. See below for recent state grant award. Bridge Street Neck Neighborhood Revitalization Plan: This neighborhood master plan for the Bridge Street Neck area was completed in August 2009. The City was awarded technical assistance funds from the regional planning agency, MAPC, to undertake implementation of one of the key recommendations of the plan, creation of a mixed use district. Salem Harbor Plan Update: The update of the City’s Municipal Harbor Plan, created in 2000, was approved by the EOEEA in 2008. The City worked with a consultant and the Salem Harbor Plan Implementation Committee to update the plan. The Plan outlines a 10 year strategy for port development which guides the future use and character of the Port of Salem. Parks and Recreation Proctor’s Ledge Memorial: In July 2017, the City completed the Proctor’s Ledge Memorial at the site where the hangings occurred during the Salem Witch Trials of 1692. Mary Jane Lee Park Renovation: In June 2017, The City completed the renovation of the park that had begun with the construction of a new splash pad in 2015. The project is supported by CPA funds as well as a $400,000 PARC grant from the Commonwealth. McGlew Park Renovation: The Executive Office of Energy and Environmental Affairs awarded the City a $400,000 Parkland Acquisitions and Renovations for Communities (PARC) grant to renovate McGlew Park. The project was completed in the spring of 2018. Lafayette Park Renovation: In 2017, the City completed plans for upgrades to Lafayette Park. The project was completed in the spring of 2018. Winter Island: Salem was awarded a Parks and Conservation Partnership grant in the amount of $192,404 for a scenic multi-use trail on Winter Island bordering Cat Cove. Improvements include interpretive signage, native plantings, installation of site amenities and improvements to the boat launch parking area. Mary Jane Lee Park Splash Pad: The City was awarded a $200,000 grant from the “Our Common Backyards” program for a splash pad at Mary Jane Lee Park located in our densest neighborhood. The splash pad was completed in time for the 2015 season and was a significant success. The remainder of the park was improved through four funding sources—$400,000 PARC grant, $100,000 CDBG, $85,075 CPA, and $60,000 CIP. The project was completed in the summer of 2017. Bertram Field: A complete renovation of Bertram Field football stadium and track was completed, including a turf surface expansion of the track to regulation size and installation of a resilient surface. Cost of the project is $1.9 million and was partially funded with a Massachusetts PARC grant in the amount $400,000. Salem Common Fence: The City was awarded a $62,000 Massachusetts Historical Commission MPPF Grant in 2014 for the restoration of the Salem Common Fence, continuing the phasing of improvements to this historically ---PAGE BREAK--- City of Salem, Massachusetts 17 Comprehensive Annual Financial Report significant fence at Salem Common. In addition, the project was awarded $100,000 in local CPA funds, and an additional $113,000 in City funding for a total project budget of $275,000. Construction on this phase of the project was completed and additional funding secured from CPA to continue incremental improvements. Fort Avenue/Szetela Lane Redevelopment: This City-owned site at the intersection of Fort Avenue and Szetela Lane consists of five parcels containing approximately 2.13 acres. A Phase II and Phase III environmental assessment were completed and the City will be improving the site as a park. Bicycling Accommodations: The City is proposing to undertake a demonstration project for protected bike lanes on Lafayette Street in accordance with Vision 2020. The City and the Salem Bike Path Committee continue to be committed to extending the Salem Bike Path to downtown Salem via an extension of the former Boston & Maine Railroad ROW at Canal Street, behind Gardner Mattress and all the businesses on Broadway Street, and a portion of the MBTA’s active and abandoned railroad ROW. This extension has been engineered as part of the Canal Street Roadway reconstruction project and the City is seeking to secure full funding. Open Space & Recreation Plan Update: The City has submitted an updated Open Space and Recreation Plan to the State for approval and was approved in 2015. The Plan established long-term goals for the preservation, continued protection and maintenance of open space and recreational areas in the City. Completion of the Plan makes the City eligible to apply for grants through the State PARC program. The City has been successful in the past and has received grants for Peabody Street Park, Furlong Park, Bertram Field, Lead Mills acquisition of open space, and Splaine Park. Splaine Park: The City was awarded a $420,946 grant from the State through the PARC program to upgrade Splaine Park. Improvements to the park include the construction of a stone dust bike/walking path along the park perimeter, the enhancement of the two main entrances, the construction of play structures, the installation of a new baseball field and irrigation system, and the rebuilding of the bleachers and dugouts. Construction is complete. Furlong Park: The City received a $500,000 Parkland Acquisition and Renovation for Communities (PARC) Grant from the State Division of Conservation Services for the restoration of Furlong Park. The 5.5 acre park is located along the North River and contains a baseball field, tennis court, playground, and basketball court. As part of the project these features were renovated and additions to the park included construction of a car top boat launch and stabilization of the eroded embankment that borders the North River. Environmental remediation work was funded with a separate state grant. Park renovations are now complete. Peabody Street Park: In July 2010, construction was completed on a new City park along Peabody Street. Previously an abandoned lot, the City of Salem was awarded a $200,000 EPA Brownfields Cleanup Grant in May 2007 and an Urban Self Help grant in the amount of $469,110 to fund its cleanup and revitalization. The City provided a 20% match. High Street Playground: In Spring, 2010, the City installed a new play structure and fence in this neighborhood playground, utilizing Community Development Block Grant funds. Community Preservation Projects The Community Preservation Act (CPA) was adopted by Salem voters in November, 2012. It established a local dedicated fund for the purpose of undertaking open space, historic preservation, outdoor recreation and community housing projects. It is financed by a voter-approved property tax surcharge along with annual matching funds from the statewide CPA Trust Fund. It has funded over $3.5 million in community projects since 2014 throughout Salem including park and community garden improvements, historical building and statue restorations, conservation trails, and many more important community projects. ---PAGE BREAK--- City of Salem, Massachusetts 18 Comprehensive Annual Financial Report Workforce Statistics According to the Massachusetts Executive Office of Labor and workforce Development, in August of 2018, the City had a labor force of 24,887, of whom, 23,937 were employed and 950, or 3.8%, were unemployed. The Commonwealth, at the same time, had an unemployment rate of 3.6%. Financial Planning and Forecasting In fiscal year 2009, the City modified its budget format to improve upon its content and layout. The goal was to have a comprehensive budget that would allow an average person to read and comprehend the budget and budget process of the City. It also was modeled after several budgets that were submitted and approved for the Government Financial Officer’s Association (GFOA) “Distinguished Budget Presentation Award”. The new model included more narrative, including goals and objectives of each department, financial forecasts, policies and glossary of financial terms. It required a significant amount of work for all department heads and especially the finance division, who had to ensure all the materials were pulled together timely for submission to both the City Council and the GFOA. As a result of our efforts, the City has been awarded the GFOA’s “Distinguished Budget Presentation Award” for fiscal years 2009 through 2018. Included in the budget was the City’s Five Year Financial Forecast. This is the tenth year that such a forecast has been completed. This forecast acts as a useful tool to the Mayor and Council to better identify “budget busters” on the expenditure side and to also determine whether forecasted revenue growth is adequate for future expenses. Also included in the budget was the City’s Five Year Capital Improvement Plan (CIP) for the purpose of planning and maintaining the City’s capital and infrastructure. The CIP includes policies on debt service and capital improvement budgeting. As part of the fiscal year 2019 CIP, the City has authorized over $20 million in general and enterprise fund capital projects. Health Insurance The City continues to explore options to contain the rising cost of health care for City employees/retirees. In fiscal year 2006, the City Council accepted the provisions of Massachusetts General Law chapter 32B, section 18, a Massachusetts statute requiring all Medicare-eligible retirees who are currently on self-insured plans to move from self-insured coverage to a fully insured Medicare supplement plan. This provision saved the City approximately $700,000 in fiscal 2007 and continues to realize savings for the City. This is a major cost saving initiative that will insure that all retirees over the age of 65 are treated consistently, while also providing greater control of costs associated with the City’s Healthcare Insurance. The City has used many different approaches to keep the cost of health insurance affordable as it relates to the overall budget of the City, including the procurement of new health care providers, modifications of existing plans, and collective bargaining to modify the employee/employer apportionment of costs. However, the most significant approach was enacted in FY2012 with the City Council’s adoption of the Municipal Health Care Reform Act (Act). As part of the Act, the City was allowed to enter into the State’s Group Insurance Commission (GIC), which resulted in significant short-term savings ($1.5 million in FY13), and long-term savings for the City. In fact, the City was able to reduce its long-term liability, also known as “other postemployment benefits” (OPEB) by $13 million dollars, from $171 million in 2010 to $158 million in 2018, per the City’s OPEB liability report performed by the Segal Company, the City’s contracted actuary. The savings to the City employees and retirees come from lower premiums, an increase in City’s contribution to PPO plans from 65% to 70%. The City also has agreed to pay all administrative fees for any person who wishes ---PAGE BREAK--- City of Salem, Massachusetts 19 Comprehensive Annual Financial Report to enroll in a flexible spending account, which allows for pre-tax payments for certain medical costs, prescriptions, and some over the counter medications. Pension Assessment During fiscal year 2009, the Salem Contributory Retirement Board moved all available funds into the State’s Public Reserve Investment Trust (PRIT) to take advantage of its higher returns and lower administrative fees. Because of its size, the PRIT can diversify assets for maximum possible return. The Retirement Board shifted these assets voluntarily to the PRIT after a complete analysis and a vote of the Retirement Board. The City includes the Salem Contributory Retirement System (the System) in its financial reporting since the City represents approximately 82% of the members of the System. The System was established to provide retirement benefits to its members, including employees and beneficiaries of the City of Salem, the Salem-Beverly Water Supply Board, the Salem Housing Authority, the South Essex Sewerage District, and the Essex North Shore Agricultural and Technical High School District. Per the Pension Reserves Investment Management Board July 2018 report, the market value of the System’s assets totaled $171.8 million, with 98.5% of the funds invested in the State’s Pension Reserve Investment Trust’s (PRIT) Core Fund. The Salem Contributory Retirement Board completed its most recent actuarial valuation summary for January 1, 2018. The next actuarial valuation will take place in January 2020. The study was performed by the Segal Company and a preliminary report was delivered to the Retirement Board in July of 2018. The study reported that the actuarial value of the system’s assets, as of January 1, 2018, had increased to $177.5 million, while the system’s unfunded liability increased by $2.7 million to $126.8 million. The Board maintains a funding schedule which will fully amortize the existing unfunded liability by June 30, 2031, with amortization payments that increase 5.55% per year. The total fiscal 2019 City share of 84% amounted to $11,657,254. Other Significant Financial Matters The Salem Harbor Power Station is the City’s largest taxpayer. The power plant in August of 2012 changed ownership from Dominion Energy to Footprint Power LLC. Early 2018, Footprint began producing electricity in the new plant Footprint has constructed a state-of-the-art 630megawatt gas-fired plant on a portion of the site and has plans to open the remaining two-thirds of the 63 – acre waterfront property to private and public development opportunities. From a revenue perspective, at the end of FY2011, the City’s tax agreement with Dominion expired. Prior to this date, the City received a total payment from Dominion Energy in the amount of $4.75 million for FY2011, $3 million in tax dollars within the tax levy and $1.75 million dollars designated as a “host fee” accounted for as miscellaneous non-recurring revenues. In FY2011, Dominion announced major operational changes shutting down two of their power generating units due to market conditions and regulatory challenges at the state level. Due to the implementation of state regulations impacting its operations, during the FY2012 budget process, the Massachusetts Legislature adopted a proposal to ensure that Salem taxpayers will not be overly burdened by lost revenues from the power plant through 2019. Chapter 68 of the Acts of 2011, Section 33 states that “…the municipality shall be entitled to reimbursement for the difference between the amount called for….prior to the full or partial decommissioning or the change in operating status of the facility.” This legislation postpones the financial impact of the loss of a major taxpayer. More importantly, it allows the City to work toward replacing the lost revenues and planning for an appropriate reuse of the site. As of December 2014, the City has negotiated, and the City Council approved, an 18 year PILOT agreement with Footprint Power LLC. This agreement will utilize the “hold harmless agreement” of $4.75 million from the State ---PAGE BREAK--- City of Salem, Massachusetts 20 Comprehensive Annual Financial Report during construction through 2019, with payments increasing steadily as the plan becomes up and running. A graduated escalation factor will result in the City receiving over $99,242,000 for the duration of the contract, or $5.5 million a year; a 16% increase over the current tax level collected. In addition to the negotiated PILOT agreement, the City was able to draft and finalize a community benefits agreement which will provide the City and School District with over $4.4 million in additional funding. Financial Policy The City has set a goal to fund the Stabilization fund in the amount of 5% of the City’s current operating budget, or roughly $7.5 million. As of June 30, 2018, the balance in the City’s Stabilization fund is $6.54 million. The target date to have the Stabilization Fund fully funded is projected to occur by fiscal year 2020. The Stabilization fund shall be funded by appropriations from free cash (available funds), operating budget appropriations when available, and other one-time non-recurring revenues that become available for appropriation per Massachusetts General Law. In fiscal 2008, the City established a second Stabilization fund (Retirement Stabilization Fund) for the funding of retirement buyouts for both City and School employees. As of June 30, 2018, the balance of this account was $182,000. During the fiscal 2018 budget process, all department heads were asked if they anticipated any retirements and to calculate the estimated cost of each person’s buyout for fiscal 2018. The goal of the Retirement Stabilization Fund is to pay for any unanticipated retirements from this Fund instead of using general fund appropriations. This will allow the departments to backfill vacancies in a timely manner without having to request a supplemental appropriation by the Council. In fiscal 2011, the City adopted Massachusetts General Law Chapter 32B, Section 20, establishing the “Other Postemployment Benefits (OPEB) Liability Trust Fund” as a local option. This fund gives communities a mechanism to reduce the unfunded actuarial liability of health care and other post-employment benefits. The City currently has $2.6 million in the account. Future appropriations will be made to this fund in accordance to financial policies of the Finance Department of the City. Free cash is the remaining unrestricted funds from operations of the previous fiscal year including unexpended free cash from the previous year, actual receipts in excess of revenue estimates shown on the tax rate recapitulation sheet, and unspent amounts in budget line-items. Unpaid property taxes and certain deficits reduce the amount that can be certified as free cash. The calculation of free cash is based on the balance sheet as of June 30th, which is submitted by the community's auditor, accountant, or comptroller. Free cash is not available for appropriation until certified by the Massachusetts Director of Accounts. Free cash is the term used for a community’s funds that are available for appropriation. Once free cash is certified, it is available for appropriation by City Council. The balance for free cash has been certified subsequent to year-end at $5.9 million. Free cash may be used for any lawful municipal purpose and provides communities with flexibility to fund additional appropriations after the tax rate has been set. Free cash balances do not carry forward to the next fiscal year (July 1st). The certification expires on June 30th at the end of the fiscal year. The City’s policy is to use free cash for reserves, capital, and special uses in accordance with the policies set forth by the Mayor and Finance Director. Once free cash is certified by the Director of Accounts, any drawdown of the Stabilization Fund from the prior fiscal year shall be replenished from the certified free cash if the free cash exceeds such drawdown. Once any drawdown of Stabilization funds are replenished, allocation of the remaining free cash shall be as follows:  20% of any free cash available after funding a prior year drawdown will also be allocated from free cash to Stabilization Fund up to the goal of stabilization fund equaling 5% of the current operating budget of the City. ---PAGE BREAK--- City of Salem, Massachusetts 21 Comprehensive Annual Financial Report  20% of any free cash available after funding a prior year drawdown of Stabilization fund will also be allocated to the Capital Improvement Fund for funding Capital and  5% of any free cash available after funding any drawdown will be allocated to the OPEB Liability Trust Fund (beginning in FY2012). Any free cash available after funding the above may be used to augment trust funds related to fringe benefits and unfunded liabilities related to employee benefits, including Workers' Compensation Fund, Unemployment Fund, and any health benefits payable through Police and Fire operating budgets (111f settlements). Free cash available may also be used to augment general fund appropriations for expenses that increased due to extraordinary and/or unforeseen events as detailed by the department head of the affected budget. 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, 2017. In order to receive this prestigious award, a government had to publish an easily readable and efficiently organized CAFR that satisfied both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The GFOA also awarded a Distinguished Budget Presentation Award to the City of Salem for its budget document for the fiscal year beginning July 1, 2017. The GFOA established the Distinguished Budget Award in 1984 to encourage and assist state and local governments to prepare budget documents of the very highest quality that reflect both the guidelines established by the National Advisory Council on State and Local Budgeting and the GFOA’s recommended practices on budgeting and then to recognize individual governments that succeed in achieving that goal. Documents submitted to the Budget Awards Program are reviewed by selected members of the GFOA professional staff and by outside reviewers with experience in public-sector budgeting. The preparation of both the CAFR and the Distinguished Budget Presentation Award would not have been possible without the efficient and dedicated services of the Finance Department’s staff. We would like to express our appreciation to all the members of the departments who assisted and contributed to the preparation of this report. Credit must also be given to the City Council and Mayor for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Salem’s finances. Respectfully submitted, Laurie A. Giardella Finance Director ---PAGE BREAK--- City of Salem, Massachusetts 22 Comprehensive Annual Financial Report Organizational Chart ---PAGE BREAK--- City of Salem, Massachusetts 23 Comprehensive Annual Financial Report Principal Executive Officers TITLE NAME FIRST TOOK OFFICE TERM EXPIRES Mayor Kimberley L. Driscoll 1/2/2006 12/31/2021 President, City Council Beth Gerard 1/1/2018 12/31/2018 Finance Director Laurie A. Giardella 10/2/2017 1/31/2020 Treasurer Kathleen McMahon 12/27/2010 1/31/2019 Collector Bonnie Celi 3/11/2004 1/31/2021 City Clerk Ilene Simons 6/28/2018 6/28/2021 City Solicitor Elizabeth Rennard 1/10/2006 Indefinite Assistant Finance Director Nina Bridgman 1/22/2004 1/31/2020 Principal Executive Officers ---PAGE BREAK--- City of Salem, Massachusetts 24 Comprehensive Annual Financial Report Certificate of Achievement for Excellence in Financial Reporting ---PAGE BREAK--- City of Salem, Massachusetts 25 Comprehensive Annual Financial Report The Government Finance Officers Association of the United States and Canada (GFOA) presented a Distinguished Budget Presentation Award to the City of Salem, Massachusetts for the Annual Budget beginning July 1, 2018. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, as an operational guide, as a financial plan, and as a communication device. Distinguished Budget Presentation Award ---PAGE BREAK--- City of Salem, Massachusetts 26 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- Financial Section Annual Polar Plunge at Winter Island ---PAGE BREAK--- City of Salem, Massachusetts 27 Comprehensive Annual Financial Report Financial Section ---PAGE BREAK--- 28 This page intentionally left blank. ---PAGE BREAK--- 29 Independent Auditor’s Report To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of and for the year ended June 30, 2018 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2017), and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of June 30, 2018 (except for the Salem Contributory Retirement System which is as of December 31, 2017), and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. ---PAGE BREAK--- 30 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Salem’s basic financial statements. The introductory, combining and individual fund statements and statistical sections are presented for the purpose of additional analysis and are not a required part of the basic financial statements. The combining and individual fund statements are the responsibility of management and were derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund statements are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 18, 2018, on our consideration of the City of Salem, Massachusetts’ internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Salem, Massachusetts’ internal control over financial reporting and compliance. December 18, 2018 ---PAGE BREAK--- City of Salem, Massachusetts 31 Comprehensive Annual Financial Report Management’s Discussion and Analysis Management’s Discussion and Analysis ---PAGE BREAK--- City of Salem, Massachusetts 32 Comprehensive Annual Financial Report Management’s Discussion and Analysis As management of the City of Salem (the City), we offer readers of these financial statements this narrative overview and analysis of the financial activities for the year ended June 30, 2018. We encourage readers to consider the information presented in this report in conjunction with additional information that we have furnished in our letter of transmittal. The Governmental Accounting Standards Board (GASB) is the authoritative standard setting body that provides guidance on how to prepare financial statements in conformity with generally accepted accounting principles (GAAP). Users of these financial statements (such as investors and rating agencies) rely on the GASB to establish consistent reporting standards for all governments in the United States. This consistent application is the only way users (including citizens, the media, legislators and others) can assess the financial condition of one government compared to others. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City of Salem’s basic financial statements. The basic financial statements consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of finances, in a manner similar to private-sector business. The statement of net position presents information on all assets and liabilities, and deferred inflows/outflows of resources, with the difference between them reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position is improving or deteriorating. The statement of activities presents information showing how the City’s net position changed during the most recent year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future periods uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities include general government, public safety, education, public works, community development, health and human services, culture and recreation, community preservation and interest. The business-type activities include the activities of water and sewer and trash disposal. The government-wide financial statements include not only the City of Salem itself (known as the primary government), but also a legally separate public employee retirement system for which the City is financially accountable. Financial information for this component unit is reported separately within the fiduciary fund statements. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Fund accounting is used to ensure and ---PAGE BREAK--- City of Salem, Massachusetts 33 Comprehensive Annual Financial Report demonstrate compliance with finance-related legal requirements. All of the funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund statements focus on near-term inflows of spendable resources, as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the City’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 adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided as required supplementary information to demonstrate compliance with this budget. Proprietary funds. The City maintains two types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government- wide financial statements. The City uses enterprise funds to account for its water and sewer activities and trash disposal. The internal service fund is used to account for the financing of services provided by one department to other departments or governmental units. The internal service fund is now used to account for funds set aside by the City to help offset health insurance costs of employees that were highly impacted from the switch to the GIC (Group Insurance Commission). Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The fiduciary fund financial statements provide combined information for the pension and other postemployment benefit (OPEB) trust funds of the City under the caption “pension and other employee benefit trust funds”. Private-purpose trust funds and agency funds are reported and combined into a single, aggregate presentation in the fiduciary funds financial statements under the captions “private purpose trust funds” and “agency funds”, respectively. Notes to the basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Government-wide Financial Analysis Governmental Activities As noted earlier, net position may serve over time as a useful indicator of a City’s financial position. The City’s governmental liabilities and deferred inflows exceed assets and deferred outflows by $62.9 million at the close of 2018. This represents a decrease of $7 million from the prior year. ---PAGE BREAK--- City of Salem, Massachusetts 34 Comprehensive Annual Financial Report Net position of $179.9 million reflects the City’s net investment in capital assets land, buildings, infrastructure, machinery, and equipment, less any related debt used to acquire those assets that are still outstanding). The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the investment in its capital assets is reported net of its related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the governmental net position, $11.2 million, represents resources that are subject to external restrictions on how they may be used. The balance of unrestricted net position has a year-end deficit of $254 million. The primary reasons for this deficit balance are the recognition of the net other postemployment benefit liabilities totaling $156.2 million and a net pension liability of $98.7 million, in accordance with recent requirements of Governmental Auditing Standards Board (GASB). (As Revised) 2018 2017 Assets: Current 51,342,755 $ 53,695,358 Noncurrent assets (excluding capital)………………… 863,167 1,827,647 Capital assets, non depreciable……………………… 10,822,082 9,615,071 Capital assets, net of accumulated depreciation…… 215,830,840 216,486,211 Total 278,858,844 281,624,287 Deferred outflows of resources……………………… 14,604,450 18,818,248 Liabilities: Current liabilities (excluding 14,497,800 12,783,849 Noncurrent liabilities (excluding 265,984,925 286,005,005 Current 5,710,104 8,719,607 Noncurrent 43,818,903 45,055,338 Total liabilities…………………………………… 330,011,732 352,563,799 Deferred inflows of resources………………………… 26,363,400 3,797,960 Net position: Net investment in capital assets……………………… 179,897,226 176,860,142 11,216,626 11,301,791 Unrestricted…………………………………………… (254,025,690) (244,081,157) Total net (62,911,838) $ (55,919,224) Beginning net position of the governmental activities has been revised to reflect the implementation of GASB Statement #75. The implementation of this standard required the OPEB liability to be revised due to the use of different methods and assumptions as previously required by GASB Statement #45. This resulted in a decrease to the beginning unrestricted net position of $106.5 million. Further, as of June 30, 2017 the City determined the golf course fund would be more appropriately reported as a governmental fund, beginning net position was revised by $742,000 to reflect the change. The net result is the previously reported net position of $49.8 million has been revised and totals a deficit of $55.9 million (see Note 18 for details). ---PAGE BREAK--- City of Salem, Massachusetts 35 Comprehensive Annual Financial Report Overall governmental net position decreased during 2018 by $7 million. Of this decrease, $5 million is directly related to the increase in the net OPEB liability and the amortization of deferred outflows/inflows related to OPEB. Approximately $760,000 is directly related to changes in the City’s net pension liability and the amortization of deferred outflows/inflows related to pensions. Another $971,000 relates to the net decrease in the City’s general fund. Operating grants have increased due to a change in on-behalf payments associated with the Massachusetts Teachers’ Retirement System (MTRS) which have been recorded in accordance with new GASB pension standards. The governmental expenses totaled $186.5 million of which $69 million was directly supported by program revenues consisting of charges for services, operating and capital grants, and contributions. Education expenses increased due to MTRS on-behalf payments increasing by $856,000. (As Revised) 2018 2017 Program Revenues: Charges for services…………………………… $ 9,943,549 $ 10,390,085 Operating grants and contributions……………… 56,548,429 54,915,403 Capital grants and contributions………………… 2,514,534 7,576,188 General Revenues: Real estate and personal property taxes, net of tax refunds payable…………………… 92,995,509 90,118,638 Tax and other 497,622 317,548 Motor vehicle and other excise taxes…………… 4,486,746 4,311,772 Hotel/motel 755,910 663,968 Meals 1,089,955 1,019,605 Community preservation 612,399 590,722 Penalties and interest on taxes………………… 495,693 466,092 Payments in lieu of 1,572,535 1,082,164 Grants and contributions not restricted to specific programs…………………………… 7,527,909 7,218,934 Unrestricted investment income………………… 947,635 1,134,074 Miscellaneous…………………………………… 585,870 318,858 Total revenues……………………………… 180,574,295 180,124,051 Expenses: General government……………………………… 13,502,981 12,327,559 Public 32,001,933 32,046,642 116,239,977 114,049,284 Public 10,560,810 10,846,604 Community development………………………… 1,404,147 1,335,941 Health and human services……………………… 6,326,856 6,714,390 Culture and recreation…………………………… 4,177,418 4,123,392 Community preservation………………………… 923,668 456,019 1,379,029 1,652,087 Total expenses……………………………… 186,516,819 183,551,918 Excess (Deficiency) before transfers…………… (5,942,524) (3,427,867) (1,050,090) (794,525) Change in net position…………………………… (6,992,614) (4,222,392) Net position, beginning of year (as revised)…… (55,919,224) (51,696,832) Net position, end of $ (62,911,838) $ (55,919,224) ---PAGE BREAK--- City of Salem, Massachusetts 36 Comprehensive Annual Financial Report Business-type Activities For the City’s business-type activities, assets and deferred outflows exceeded liabilities and deferred inflows by $12.9 million at the close of 2018. (As Revised) 2018 2017 Assets: Current 15,194,821 $ 13,724,658 Noncurrent assets (excluding capital)………………… 1,310,457 1,131,807 Capital assets, non depreciable……………………… 1,725,699 110,141 Capital assets, net of accumulated depreciation…… 40,053,409 34,758,661 Total 58,284,386 49,725,267 Deferred outflows of resources……………………… 298,311 410,687 Liabilities: Current liabilities (excluding 2,424,656 1,639,355 Noncurrent liabilities (excluding 4,025,336 4,370,413 Current 2,799,508 3,124,951 Noncurrent 36,064,587 28,825,412 Total liabilities…………………………………… 45,314,087 37,960,131 Deferred inflows of resources………………………… 398,925 99,248 Net position: Net investment in capital assets……………………… 9,066,385 8,340,720 Unrestricted…………………………………………… 3,803,300 3,735,855 Total net 12,869,685 $ 12,076,575 Business-type net position of $9.1 million (70.4%) represents net investment in capital assets. The remaining $3.8 million (29.6%) is available to be used for the ongoing operation of the City’s water and sewer, and trash activities. There was an overall increase of $793,000 in net position reported in connection with the enterprise funds. Beginning net position of the business-type activities has been revised to reflect the implementation of GASB Statement #75. The implementation of this standard required the OPEB liability to be revised due to the use of different methods and assumptions as previously required by GASB Statement #45. Further, as of June 30, 2017 the City determined the golf course fund would be more appropriately reported as a governmental fund. Accordingly, beginning net position was reduced by $742,000 to reflect this revision. The net impact of these two revisions was a reduction in the previously reported net position of $13 million to $12.1 million (see Note 18 for details). The water and sewer enterprise fund’s net position of $9.1 million (71.4%) represents the net investment in capital assets, while $3.6 million (28.6%) is unrestricted. The water and sewer enterprise experienced a net increase of $1 million in net position from the prior year. The fund pays annual assessments to the Salem Beverly Water Supply Board and to the South Essex Sewerage District, which totaled $2.4 million and $4.4 million, respectively. Combined, these assessments represent 59.3% of the fund’s operating expenses for 2018. ---PAGE BREAK--- City of Salem, Massachusetts 37 Comprehensive Annual Financial Report The unrestricted balance includes the City’s $1.3 million equity interest in the South Essex Sewerage District. The City’s trash enterprise fund operates on a trash fee that is set with full knowledge that the revenue will not be sufficient to cover the cost of operations. The City budgets for a subsidy from the general fund equal to the estimated cash basis deficit in the fund at year-end. At year-end a $2.1 million transfer was made from the general fund to subsidize for the budgeted deficit. As of June 30, 2018, the trash fund had unrestricted net position totaling $163,000. (As Revised) 2018 2017 Program Revenues: Charges for services……………………………$ 14,341,864 $ 14,173,759 Expenses: Water and 11,472,948 10,787,713 3,125,896 2,917,400 Total expenses……………………………… 14,598,844 13,705,113 Excess (Deficiency) before transfers…………… (256,980) 468,646 1,050,090 794,525 Change in net position…………………………… 793,110 1,263,171 Net position, beginning of year (as revised)…… 12,076,575 10,813,404 Net position, end of 12,869,685 $ 12,076,575 Financial Analysis of the Government’s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the year. In accordance with generally accepted accounting standards, the City reports the components of fund balance as nonspendable, restricted, committed, assigned and unassigned, based on restrictions on spending. Additionally, the City’s stabilization funds are reported within the general fund as unassigned. As of the end of the current year, governmental funds reported combined ending fund balances of $36.2 million of which $14 million is reported in the general fund, $893,000 in the community preservation fund, $1.9 million is reported in the city grants fund, $5.3 million in the capital improvement fund and $14 million is reported in the nonmajor governmental funds. Cumulatively there was a decrease of $793,000 in fund balances from the prior year. The general fund is the City’s chief operating fund. At the end of the current year, unassigned fund balance of the general fund totaled $13.7 million, while total fund balance was $14 million. The general fund balance decreased by $971,000 in 2018. The decrease is mainly the result of the use of free cash for budgetary purposes. ---PAGE BREAK--- City of Salem, Massachusetts 38 Comprehensive Annual Financial Report The community preservation fund had an ending restricted fund balance at June 30, 2018, of $893,000. These funds are attributable to the City’s acceptance of the Community Preservation Act, which allows the City to impose up to a 1% surcharge on property taxes and to receive matching State grant funds for specified uses related to the acquisition, creation, preservation and support of open space, historical resources, land for recreational use and community housing. The City reported community preservation tax revenue of $612,000 and state grant funds of $100,000 during fiscal year 2018. $924,000 was expended on community preservation projects. The city grants fund is used to account for non-school related activity specifically financed by federal, state, and other grants which are designated for special programs. The ending restricted fund balance at June 30, 2018, was $2.2 million while total fund balance was $1.9 million. A deficit unassigned fund balance relates to a grant temporarily financed by short-term notes. Total fund balance decreased by $963,000 in 2018, partially due to transfers to finance capital projects. The capital improvement fund is used to account for the projects in the City’s capital improvement plan that specifically relate to City improvements for roads and fields. The fund had a year-end fund balance of $5.3 million. The fund recognized $7.3 million in bond proceeds and $696,000 in capital lease proceeds and $6.7 million in transfers in from the general fund and city grants fund as funding sources for ongoing projects. Cumulatively, nonmajor governmental funds had a net decrease of $5 million. This represents the activity of other nonmajor capital projects, grants, and permanent trust funds. The 2018 decrease was almost entirely the result of City Council’s re-appropriation of unspent bond proceeds from the school capital projects to water and sewer projects. General Fund Budgetary Highlights The City’s final general fund operating budget included $146 million in total current year appropriations to be funded with $141.3 million in estimated receipts and transfers in and approximately $4.7 million in available funds. The $3.6 million increase between the original budget and the final amended budget was due to several council orders issued throughout the year to appropriate available funds. The most notable components of this increase include an additional $3.2 million in available funds appropriated to fund stabilization reserves, capital improvements, other postemployment benefits trust, pension reserves and various additional appropriations. The actual general fund revenues came in $2.3 million higher than budgeted. The City does not budget revenue for tax liens which totaled $406,000. Additionally, motor vehicle and other excise taxes, payments in lieu of taxes and intergovernmental state aid reported budgetary surpluses of $456,000, $573,000 and $717,000, respectively. The City’s general fund reported expenditures and encumbrances less than appropriations by a net of approximately $1.3 million. The budget was overspent by $1.47 million for the removal of snow and ice. This over-expenditure is allowed under state law. On a budgetary basis, the general fund ended the year with a net decrease of $704,000. Capital Asset and Debt Administration Capital Assets. The City’s investment in capital assets for its governmental and business-type activities as of June 30, 2018, amounts to $268.4 million (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, buildings and land improvements, equipment, vehicles and infrastructure related to governmental and business-type activities. The City’s total investment in capital assets for the current year totaled $226.7 million for governmental activities and $41.8 million for business-type activities. ---PAGE BREAK--- City of Salem, Massachusetts 39 Comprehensive Annual Financial Report Major governmental additions included ongoing upgrades for Canal Street improvements, roadway improvements, Salem port expansion, DOER renewal energy project and Museum Place stair replacement. Capital improvements for business-type activities were mainly for water infrastructure including water main improvements and infrastructure related to the Canal Street improvements, Folly Hill water tank project, and annual improvements. Debt Administration. Outstanding long-term debt, including unamortized premiums, totaled $49.2 million for the governmental activities as of June 30, 2018. The Commonwealth of Massachusetts is obligated to provide school construction assistance for approved school projects through a grant program administered by the MSBA. The assistance is paid to offset a portion of principal and interest on debt issued to finance approved school construction costs. At June 30, 2018, the City has recorded a receivable from the MSBA totaling $1.4 million, which represents anticipated future reimbursements of approved construction costs on projects completed under this MSBA program. The City issued $14.9 million in general obligation bonds during fiscal year 2018 for both governmental and business-type activities. The City also issued a state grant anticipation note for $300,000. The City redeemed $6.5 million in general obligation bonds in 2018. Outstanding debt of the water and sewer enterprise fund, including unamortized premiums, totaled $38.9 million and was used to fund various repairs, maintenance and infrastructure projects. This includes new debt issued in 2018 for water and sewer improvements of $7.6 million. Please refer to notes 4, 6, 7 and 8 in the financial statements for further discussion of the major capital and debt activity. Requests for Information This financial report is designed to provide a general overview of the City of Salem’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Finance Director, City Hall, 93 Washington Street, Salem, Massachusetts 01970. ---PAGE BREAK--- City of Salem, Massachusetts 40 Comprehensive Annual Financial Report Basic Financial Statements Basic Financial Statements ---PAGE BREAK--- Governmental Business-type Activities Activities Total ASSETS CURRENT: Cash and cash 32,097,750 $ 12,037,542 $ 44,135,292 12,606,222 - 12,606,222 Receivables, net of allowance for uncollectibles: Real estate and personal property 1,135,326 - 1,135,326 Tax 1,513,522 - 1,513,522 Community preservation fund 9,335 - 9,335 Motor vehicle and other excise 660,235 - 660,235 User - 3,157,279 3,157,279 Departmental and 83,991 - 83,991 Intergovernmental - 3,041,918 - 3,041,918 Community preservation state 72,152 - 72,152 122,304 - 122,304 Total current 51,342,755 15,194,821 66,537,576 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental - 714,600 - 714,600 148,567 - 148,567 Investment in joint - 1,310,457 1,310,457 Capital assets, nondepreciable……………………………………… 10,822,082 1,725,699 12,547,781 Capital assets, net of accumulated depreciation…………………… 215,830,840 40,053,409 255,884,249 Total noncurrent 227,516,089 43,089,565 270,605,654 TOTAL 278,858,844 58,284,386 337,143,230 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows for refunding 41,937 - 41,937 Deferred outflows related to pensions……………………………… 9,896,909 258,624 10,155,533 Deferred outflows related to other postemployment benefits…… 4,665,604 39,687 4,705,291 TOTAL DEFERRED OUTFLOWS OF RESOURCES………………… 14,604,450 298,311 14,902,761 LIABILITIES CURRENT: Warrants 2,818,836 2,081,254 4,900,090 Accrued 6,872,029 20,440 6,892,469 Tax refunds 192,525 - 192,525 Accrued 364,822 236,333 601,155 Other 117,500 - 117,500 Capital lease 831,406 67,083 898,489 Landfill 1,125,000 - 1,125,000 Compensated 2,041,403 19,546 2,060,949 Workers' compensation……………………………………………… 134,279 - 134,279 Notes 300,000 - 300,000 Bonds 5,410,104 2,799,508 8,209,612 Total current liabilities………………………………………… 20,207,904 5,224,164 25,432,068 NONCURRENT: Capital lease 1,515,147 - 1,515,147 Landfill 1,125,000 - 1,125,000 Compensated 6,958,412 41,869 7,000,281 Workers' compensation……………………………………………… 1,393,596 - 1,393,596 Net pension 98,744,415 2,580,369 101,324,784 Net other postemployment benefits liability………………………… 156,248,355 1,403,098 157,651,453 Bonds 43,818,903 36,064,587 79,883,490 Total noncurrent liabilities……………………………………… 309,803,828 40,089,923 349,893,751 TOTAL 330,011,732 45,314,087 375,325,819 DEFERRED INFLOWS OF RESOURCES Taxes paid in 63,458 - 63,458 Deferred inflows related to 9,488,936 247,963 9,736,899 Deferred inflows related to other postemployment benefits……… 16,811,006 150,962 16,961,968 TOTAL DEFERRED INFLOWS OF RESOURCES…………………… 26,363,400 398,925 26,762,325 NET POSITION Net investment in capital 179,897,226 9,066,385 188,963,611 Restricted for: 270,871 - 270,871 Permanent funds: 5,021,540 - 5,021,540 2,230,357 - 2,230,357 Gifts and 2,719,673 - 2,719,673 Community preservation……………………………………………… 974,185 - 974,185 (254,025,690) 3,803,300 (250,222,390) TOTAL NET $ (62,911,838) $ 12,869,685 $ (50,042,153) See notes to basic financial statements. Primary Government STATEMENT OF NET POSITION JUNE 30, 2018 City of Salem, Massachusetts 41 Comprehensive Annual Financial Report ---PAGE BREAK--- Operating Capital Charges for Grants and Grants and Net (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Primary Government: Governmental Activities: General government…………………$ 13,502,981 $ 3,739,247 $ 1,122,897 $ 49,031 $ (8,591,806) Public 32,001,933 2,589,149 1,089,635 - (28,323,149) Education…………………………… 116,239,977 951,076 47,859,262 - (67,429,639) Public 10,560,810 259,866 834,074 2,381,341 (7,085,529) Community development…………… 1,404,147 84,181 1,257,538 - (62,428) Health and human services………… 6,326,856 324,138 3,863,381 - (2,139,337) Culture and recreation……………… 4,177,418 1,995,892 521,642 - (1,659,884) Community preservation…………… 923,668 - - 84,162 (839,506) Interest……………………………… 1,379,029 - - - (1,379,029) Total Governmental Activities…… 186,516,819 9,943,549 56,548,429 2,514,534 (117,510,307) Business-Type Activities: Water and 11,472,948 13,486,343 - - 2,013,395 3,125,896 855,521 - - (2,270,375) Total Business-Type Activities…… 14,598,844 14,341,864 - - (256,980) Total Primary Government……… $ 201,115,663 $ 24,285,413 $ 56,548,429 $ 2,514,534 $ (117,767,287) See notes to basic financial statements. (Continued) STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2018 Program Revenues City of Salem, Massachusetts 42 Comprehensive Annual Financial Report ---PAGE BREAK--- Governmental Business-Type Activities Activities Total Changes in net position: Net (expense) revenue from previous page………$ (117,510,307) $ (256,980) $ (117,767,287) General revenues: Real estate and personal property taxes, net of tax refunds payable…………………… 92,995,509 - 92,995,509 Tax and other 497,622 - 497,622 Motor vehicle and other excise taxes………… 4,486,746 - 4,486,746 Hotel/motel 755,910 - 755,910 Meals 1,089,955 - 1,089,955 Community preservation 612,399 - 612,399 Penalties and interest on taxes………………… 495,693 - 495,693 Payments in lieu of 1,572,535 - 1,572,535 Grants and contributions not restricted to specific programs……………………………… 7,527,909 - 7,527,909 Unrestricted investment income……………… 947,635 - 947,635 Miscellaneous…………………………………… 585,870 - 585,870 Transfers, net (1,050,090) 1,050,090 - Total general revenues and transfers…………… 110,517,693 1,050,090 111,567,783 Change in net position………………………… (6,992,614) 793,110 (6,199,504) Net position: Beginning of year, as revised…………………… (55,919,224) 12,076,575 (43,842,649) End of (62,911,838) $ 12,869,685 $ (50,042,153) (Concluded) See notes to basic financial statements. Primary Government STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2018 City of Salem, Massachusetts 43 Comprehensive Annual Financial Report ---PAGE BREAK--- Community City Capital Nonmajor Total Preservation Grants Improvement Governmental Governmental General Fund Fund Fund Funds Funds ASSETS Cash and cash equivalents……………………………… $ 16,054,472 $ 892,698 $ 1,534,862 $ 6,531,604 $ 7,058,795 $ 32,072,431 5,599,966 - - - 7,006,256 12,606,222 Receivables, net of uncollectibles: Real estate and personal property taxes…………… 1,135,326 - - - - 1,135,326 Tax 1,513,522 - - - - 1,513,522 Community preservation fund surtax………………… - 9,335 - - - 9,335 Motor vehicle and other excise taxes……………… 660,235 - - - - 660,235 Departmental and - - - - 83,991 83,991 Intergovernmental - 1,498,398 - 921,215 - 1,336,905 3,756,518 Community preservation state share………………… - 72,152 - - - 72,152 - - - - 270,871 270,871 Due from other 274,148 - - - - 274,148 TOTAL 26,736,067 $ 974,185 $ 2,456,077 $ 6,531,604 $ 15,756,818 $ 52,454,751 LIABILITIES Warrants 1,499,636 $ - $ 174,299 $ 1,144,901 $ - $ 2,818,836 Accrued 6,638,695 - 33,946 - 199,388 6,872,029 Tax refunds 192,525 - - - - 192,525 Due to other - - - - 274,148 274,148 Other liabilities………………………………………… - - - 117,500 - 117,500 Notes - - 300,000 - - 300,000 TOTAL LIABILITIES……………………………………… 8,330,856 - 508,245 1,262,401 473,536 10,575,038 DEFERRED INFLOWS OF RESOURCES Taxes paid in 63,458 - - - - 63,458 Unavailable 4,325,655 81,486 - - 1,247,771 5,654,912 TOTAL DEFERRED INFLOWS OF RESOURCES…… 4,389,113 81,486 - - 1,247,771 5,718,370 FUND BALANCES Nonspendable………………………………………… - - - - 2,230,357 2,230,357 - 892,699 2,230,500 5,269,203 11,805,154 20,197,556 303,334 - - - - 303,334 13,712,764 - (282,668) - - 13,430,096 TOTAL FUND BALANCES……………………………… 14,016,098 892,699 1,947,832 5,269,203 14,035,511 36,161,343 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES………………$ 26,736,067 $ 974,185 $ 2,456,077 $ 6,531,604 $ 15,756,818 $ 52,454,751 See notes to basic financial statements. GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2018 City of Salem, Massachusetts 44 Comprehensive Annual Financial Report ---PAGE BREAK--- Total governmental fund $ 36,161,343 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the 226,652,922 Accounts receivable are not available to pay for current-period expenditures and, therefore, are unavailable in the 5,654,912 The statement of net position includes certain deferred inflows of resources and deferred outflows of resources that will be amortized over future periods. In governmental funds, these amounts are not (11,695,492) The assets and liabilities of the internal service funds are included in the governmental activities in the statement of net position…………………………… 25,319 In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until (364,822) Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds: Bonds (49,229,007) Net pension (98,744,415) Net other postemployment benefits (156,248,355) Landfill (2,250,000) Capital lease (2,346,553) Workers' (1,527,875) Compensated (8,999,815) Net effect of reporting long-term liabilities………………………………………… (319,346,020) Net position of governmental $ (62,911,838) See notes to basic financial statements. RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET POSITION JUNE 30, 2018 City of Salem, Massachusetts 45 Comprehensive Annual Financial Report ---PAGE BREAK--- Community City Capital Nonmajor Total Preservation Grants Improvement Governmental Governmental General Fund Fund Fund Funds Funds REVENUES: Real estate and personal property taxes, net of tax $ 92,695,956 $ - $ - $ - $ - $ 92,695,956 Tax 406,226 - - - - 406,226 Motor vehicle and other excise 4,456,037 - - - - 4,456,037 Hotel/motel 755,910 - - - - 755,910 Meals 1,089,955 - - - - 1,089,955 Charges for 2,034,201 - - - 759,208 2,793,409 Penalties and interest on 491,762 1,341 - - 2,590 495,693 Payments in lieu of 1,572,535 - - - - 1,572,535 Licenses and 533,820 - - - - 533,820 Fines and 1,004,571 - - - - 1,004,571 Intergovernmental - state 30,531,671 - - - - 30,531,671 Intergovernmental - Teachers Retirement……………………… 14,100,491 - - - - 14,100,491 Intergovernmental - - 100,418 6,559,233 1,000,000 10,022,037 17,681,688 Departmental and 4,900,448 - 1,873,161 - 4,130,063 10,903,672 Community preservation - 612,399 - - - 612,399 Contributions and - - 40,000 - 151,073 191,073 Investment 197,602 752 202 - 648,424 846,980 TOTAL 154,771,185 714,910 8,472,596 1,000,000 15,713,395 180,672,086 EXPENDITURES: Current: General 8,217,736 - 558,489 1,437,203 200,411 10,413,839 Public 20,974,379 - 671,597 467,767 77,844 22,191,587 61,992,400 - 944,517 903,553 11,097,303 74,937,773 Public 5,544,371 - 410,988 6,341,421 1,067,363 13,364,143 Community development……………………………………… - - 2,933 - 1,401,214 1,404,147 Health and human 1,256,030 - 4,108,623 - 224,410 5,589,063 Culture and 2,756,221 - 629,770 211,381 384,455 3,981,827 Community preservation……………………………………… - 923,668 - - - 923,668 Pension 10,934,690 - - - - 10,934,690 Pension benefits - Teachers Retirement…………………… 14,100,491 - - - - 14,100,491 Employee 14,390,925 - - - - 14,390,925 State and county 8,376,492 - - - - 8,376,492 Debt service: 4,312,000 - - - - 4,312,000 1,840,860 - - - - 1,840,860 TOTAL EXPENDITURES………………………………… 154,696,595 923,668 7,326,917 9,361,325 14,453,000 186,761,505 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………………… 74,590 (208,758) 1,145,679 (8,361,325) 1,260,395 (6,089,419) OTHER FINANCING SOURCES (USES): Issuance of - - - 7,349,229 - 7,349,229 Premium from issuance of 4,856 - - - 556,991 561,847 Capital lease - - - 695,958 - 695,958 Transfers 2,474,840 - 141,028 6,672,853 75,445 9,364,166 Transfers (3,525,732) - (2,249,976) - (4,638,548) (10,414,256) Capital - - - - (2,260,269) (2,260,269) TOTAL OTHER FINANCING SOURCES (USES)……… (1,046,036) - (2,108,948) 14,718,040 (6,266,381) 5,296,675 NET CHANGE IN FUND BALANCES……………………………… (971,446) (208,758) (963,269) 6,356,715 (5,005,986) (792,744) FUND BALANCES AT BEGINNING OF YEAR, AS REVISED… 14,987,544 1,101,457 2,911,101 (1,087,512) 19,041,497 36,954,087 FUND BALANCES AT END OF $ 14,016,098 $ 892,699 $ 1,947,832 $ 5,269,203 $ 14,035,511 $ 36,161,343 See notes to basic financial statements. GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2018 City of Salem, Massachusetts 46 Comprehensive Annual Financial Report ---PAGE BREAK--- Net change in fund balances - total governmental $ (792,744) 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 10,245,735 Depreciation (9,694,095) Net effect of reporting capital 551,640 Revenues in the Statement of Activities that do not provide current financial resources are unavailable in the Statement of Revenues, Expenditures and Changes in Fund Balances. Therefore, the recognition of revenue for various types of accounts receivable differ between the two statements. This amount represents the net change in unavailable 202,209 The issuance of long-term debt 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 has any effect on net position. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are unavailable and amortized in the Statement of Activities. Principal payments on capital 693,851 Issuance of (7,349,229) Premium from issuance of (561,847) Capital lease (695,958) Net amortization of premium from issuance of 463,869 Net change in deferred charge on (15,451) Debt service principal 4,012,000 Capital 2,260,269 Net effect of reporting long-term (1,192,496) 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 89,311 Net change in accrued interest on long-term 13,413 Net change in deferred outflow/(inflow) of resources related to pensions…………………………… (10,056,736) Net change in net pension 9,296,870 Net change in deferred outflow/(inflow) of resources related to other postemployment benefits…… (16,643,593) Net change in net other postemployment benefits 11,623,905 Net change in workers' compensation (46,280) Net effect of recording long-term (5,723,110) The net activity of internal service funds is reported with Governmental Activities………………………… (38,113) Change in net position of governmental $ (6,992,614) See notes to basic financial statements. RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2018 City of Salem, Massachusetts 47 Comprehensive Annual Financial Report ---PAGE BREAK--- Governmental Activities - Water and Internal Service Sewer Trash Total Fund ASSETS CURRENT: Cash and cash 11,422,008 $ 615,534 $ 12,037,542 $ 25,319 Receivables, net of allowance for uncollectibles: User 3,063,486 93,793 3,157,279 - Total current 14,485,494 709,327 15,194,821 25,319 NONCURRENT: Investment in joint 1,310,457 - 1,310,457 - Capital assets, non depreciable…………………………………… 1,725,699 - 1,725,699 - Capital assets, net of accumulated depreciation………………… 40,053,409 - 40,053,409 - Total noncurrent 43,089,565 - 43,089,565 - TOTAL 57,575,059 709,327 58,284,386 25,319 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions…………………………… 258,624 - 258,624 - Deferred outflows related to other postemployment benefits…… 32,998 6,689 39,687 - TOTAL DEFERRED OUTFLOWS OF RESOURCES……………… 291,622 6,689 298,311 - LIABILITIES CURRENT: Warrants 1,791,675 289,579 2,081,254 - Accrued 18,907 1,533 20,440 - Accrued 236,333 - 236,333 - Capital lease 67,083 - 67,083 - Compensated 19,546 - 19,546 - Bonds 2,799,508 - 2,799,508 - Total current liabilities……………………………………… 4,933,052 291,112 5,224,164 - NONCURRENT: Compensated 41,869 - 41,869 - Net pension 2,580,369 - 2,580,369 - Net other postemployment benefits liability……………………… 1,166,621 236,477 1,403,098 - Bonds 36,064,587 - 36,064,587 - Total noncurrent liabilities…………………………………… 39,853,446 236,477 40,089,923 - TOTAL 44,786,498 527,589 45,314,087 - DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions……………………………… 247,963 - 247,963 - Deferred inflows related to other postemployment benefits…… 125,519 25,443 150,962 - TOTAL DEFERRED INFLOWS OF RESOURCES………………… 373,482 25,443 398,925 - NET POSITION Net investment in capital 9,066,385 - 9,066,385 - 3,640,316 162,984 3,803,300 25,319 TOTAL NET 12,706,701 $ 162,984 $ 12,869,685 $ 25,319 See notes to basic financial statements. PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2018 Business-type Activities - Enterprise Funds City of Salem, Massachusetts 48 Comprehensive Annual Financial Report ---PAGE BREAK--- Governmental Activities - Water and Internal Service Sewer Trash Total Fund OPERATING REVENUES: Charges for $ 13,486,343 $ 855,521 $ 14,341,864 $ - OPERATING EXPENSES: Cost of services and administration…………………………… 2,596,112 3,125,896 5,722,008 - District 6,880,204 - 6,880,204 - 1,122,272 - 1,122,272 - Employee - - - 38,113 TOTAL OPERATING EXPENSES………………………… 10,598,588 3,125,896 13,724,484 38,113 OPERATING INCOME 2,887,755 (2,270,375) 617,380 (38,113) NONOPERATING REVENUES (EXPENSES): Interest (874,360) - (874,360) - INCOME (LOSS) BEFORE TRANSFERS………………… 2,013,395 (2,270,375) (256,980) (38,113) TRANSFERS: Transfers - 2,054,990 2,054,990 - Transfers (1,004,900) - (1,004,900) - TOTAL (1,004,900) 2,054,990 1,050,090 - CHANGE IN NET POSITION……………………………… 1,008,495 (215,385) 793,110 (38,113) NET POSITION AT BEGINNING OF YEAR, AS REVISED…… 11,698,206 378,369 12,076,575 63,432 NET POSITION AT END OF $ 12,706,701 $ 162,984 $ 12,869,685 $ 25,319 See notes to basic financial statements. PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2018 Business-type Activities - Enterprise Funds City of Salem, Massachusetts 49 Comprehensive Annual Financial Report ---PAGE BREAK--- Governmental Activities - Water and Internal Service Sewer Trash Total Fund CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and 13,340,671 $ 856,879 $ 14,197,550 $ - Payments to (8,569,688) (3,028,031) (11,597,719) - Payments to (972,750) (68,716) (1,041,466) - Payments for interfund services - - - (38,113) NET CASH FROM OPERATING ACTIVITIES……………………………………… 3,798,233 (2,239,868) 1,558,365 (38,113) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers - 2,054,990 2,054,990 - Transfers (1,304,900) - (1,304,900) - NET CASH FROM NONCAPITAL FINANCING ACTIVITIES……………………… (1,304,900) 2,054,990 750,090 - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from the issuance of bonds and 8,822,771 - 8,822,771 - Premium from the issuance of 580,998 - 580,998 - Capital 2,260,269 - 2,260,269 - Acquisition and construction of capital (7,379,858) - (7,379,858) - Principal payments on bonds and (4,125,124) - (4,125,124) - Principal payments on capital lease obligations………………………………… (65,167) - (65,167) - Interest (1,076,495) - (1,076,495) - NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES………… (982,606) - (982,606) - NET CHANGE IN CASH AND CASH EQUIVALENTS…………………………… 1,510,727 (184,878) 1,325,849 (38,113) CASH AND CASH EQUIVALENTS AT BEGINNING OF 9,911,281 800,412 10,711,693 63,432 CASH AND CASH EQUIVALENTS AT END OF 11,422,008 $ 615,534 $ 12,037,542 $ 25,319 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income 2,887,755 $ (2,270,375) $ 617,380 $ (38,113) Adjustments to reconcile operating income to net cash from operating activities: 1,122,272 - 1,122,272 - Deferred (outflows)/inflows related to pensions……………………………… 262,800 - 262,800 - Deferred (outflows)/inflows related to other postemployment benefits…… 124,098 25,155 149,253 - Changes in assets and liabilities: User (145,672) 1,358 (144,314) - Investment in joint (178,650) - (178,650) - Warrants 50,271 22,416 72,687 - Accrued 965 (829) 136 - Compensated 4,127 - 4,127 - Net pension (242,944) - (242,944) - Other postemployment (86,789) (17,593) (104,382) - Total 910,478 30,507 940,985 - NET CASH FROM OPERATING 3,798,233 $ (2,239,868) $ 1,558,365 $ (38,113) See notes to basic financial statements. PROPRIETARY FUNDS STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2018 Business-type Activities - Enterprise Funds City of Salem, Massachusetts 50 Comprehensive Annual Financial Report ---PAGE BREAK--- Pension and Other Employee Private Benefit Purpose Agency Trust Funds Trust Funds Funds ASSETS Cash and cash equivalents………………………………… $ 222,578 $ 202,961 $ 483,858 Investments: Investments in Pension Reserve Investment Trust…… 175,313,753 - - Equity - 839,247 - Equity mutual 1,854,277 - - Fixed income mutual 709,452 485,038 - Repurchase agreements………………………………… 1,610,414 Alternative investments…………………………………… 112,468 - - Receivables, net of allowance for uncollectibles: Departmental and 189,693 - - Capital assets, net of accumulated depreciation………… 85,156 - - TOTAL 180,097,791 1,527,246 483,858 LIABILITIES Warrants 8,648 - - Liabilities due depositors…………………………………… - - 483,858 TOTAL 8,648 - 483,858 NET POSITION Restricted for 177,516,472 - - Restricted for other postemployment benefits…………… 2,572,671 - - Held in trust for other purposes……………………………. - 1,527,246 - TOTAL NET 180,089,143 $ 1,527,246 $ - The Pension Trust Fund is as of December 31, 2017. See notes to basic financial statements. FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2018 City of Salem, Massachusetts 51 Comprehensive Annual Financial Report ---PAGE BREAK--- Pension and Other Employee Private Benefit Purpose Trust Funds Trust Funds ADDITIONS: Contributions: Employer $ 13,419,056 $ - Employer contributions for other postemployment benefit payments…… 4,459,144 - Member 4,454,440 - Transfers from other 636,186 - 3(8)c contributions from other 179,521 - State COLA reimbursements………………………………………………… 68,796 - Member makeup payments and redeposits……………………………… 34,141 - Private - 26,203 Total 23,251,284 26,203 Net investment income: Investment 26,371,122 110,187 Less: investment (846,174) - Net investment 25,524,948 110,187 TOTAL 48,776,232 136,390 DEDUCTIONS: 270,574 - Transfers to other 578,480 - 3(8)c transfer to other 648,419 - Retirement benefits and 15,356,905 - 3,125 - Other postemployment benefit 4,459,144 - Health and human - 38,626 Educational - 34,057 TOTAL 21,316,647 72,683 NET INCREASE IN NET 27,459,585 63,707 NET POSITION AT BEGINNING OF 152,629,558 1,463,539 NET POSITION AT END OF $ 180,089,143 $ 1,527,246 The Pension Trust Fund is for the year ended December 31, 2017. See notes to basic financial statements. FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION YEAR ENDED JUNE 30, 2018 City of Salem, Massachusetts 52 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 53 Comprehensive Annual Financial Report NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Notes to basic financial statements The accompanying basic financial statements of the City of Salem, Massachusetts (City) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board (GASB) is the recognized standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described herein. A. Reporting Entity The City is a Massachusetts municipal corporation with a Mayor-Council form of government. The Mayor is elected at large for a four-year term. The City Council is comprised of eleven members elected for two-year terms from seven wards and four at-large. For financial reporting purposes, the City has included all funds, organizations, agencies, boards, commissions and institutions. The City has also considered all potential component units for which it is financially accountable as well as other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the basic financial statements to be misleading or incomplete. As required by GAAP, these basic financial statements present the City (the primary government) and its component units. One entity has been included as a component unit in the reporting entity, because of the significance of its operational and/or financial relationship. Component Unit Presented as a Fiduciary Fund – The following component unit is presented as a Fiduciary Fund of the primary government due to the nature and significance of relationship between the City and the component unit. The Salem Contributory Retirement System (System) was established to provide retirement benefits to City employees, the Salem Housing Authority employees, the South Essex Sewerage District employees, the Salem- Beverly Water Supply Board employees, the North Shore Regional Vocational School employees and their beneficiaries. The System is governed by a five-member board comprised of the Finance Director (ex-officio), two members elected by the System’s participants, one member appointed by the Mayor and one member appointed by the other board members. The System is presented using the accrual basis of accounting and is reported as a pension trust fund in the fiduciary fund financial statements. The System did issued a separate GAAP based audited financial statement along with a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth of Massachusetts’ (Commonwealth) Public Employee Retirement Administration Commission (PERAC). These reports may be obtained by contacting the System located at 20 Central Street, Suite 110, Salem, Massachusetts 01970. Joint Ventures – The following are joint ventures of the City. The City is a member of the South Essex Sewerage District (the District), a joint venture with the Cities of Salem and Beverly and the Towns of Danvers and Marblehead, for the operation of a septage disposal facility. The members share in overseeing the operations of the District. Each member is responsible for its proportionate share of the operational costs of the District, which are paid in the form of assessments. The 2018 assessment totaled $4.4 million. As of June 30, 2018, the City’s equity interest in the operations of the District totaled $1.3 million, which is recorded in the Water and Sewer Enterprise Fund. Complete financial statements for the District can be obtained by contacting them at 50 Fort Avenue, Salem, MA 01970. The City is a member of the Salem-Beverly Water Supply Board (Water Board), a joint venture with the City of Beverly for the operation of a water distribution system. The City does not have an equity interest in the Salem- ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 54 Comprehensive Annual Financial Report Beverly Water Supply Board. The annual assessment from the Water Board for the year ended June 30, 2018, totaled approximately $2.4 million. Complete financial information for the Water Board can be obtained by contacting them at 50 Arlington Avenue, Beverly, MA 01915. The City is a member of the Essex Technical High School that serves the members’ students seeking an education in academic, technical and agriculture studies. The members’ share in the operations of the Essex Technical High School and each member is responsible for its proportionate share of the operational and capital cost of the Essex Technical High School, which are paid in the form of assessments. The City does not have an equity interest in the Essex Technical High School and the 2018 assessment was $2.3 million. B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The government-wide financial statements statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its component units. Governmental activities, which are primarily supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which are supported primarily by user fees and charges. Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Nonmajor funds are aggregated and displayed in a single column. Major Fund Criteria Major funds must be reported if the following criteria are met:  If the total assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues, or expenditures/expenses of an individual governmental or enterprise fund are at least 10% of the corresponding element (assets and deferred outflows of resources, liabilities and deferred inflows of resources, etc.) for all funds of that category or type (total governmental or total enterprise funds), and  If the total assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5% of the corresponding element for all governmental and enterprise funds combined. Additionally, any other governmental or enterprise fund that management believes is particularly significant to the basic financial statements may be reported as a major fund. Internal service funds and fiduciary funds are reported by fund type. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 55 Comprehensive Annual Financial Report recorded when the liabilities are incurred. Real estate and personal property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The statement of activities demonstrates the degree to which the direct expenses of a particular function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include the following:  Charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment.  Grants and contributions that are restricted to meeting the operational requirements of a particular function or segment.  Grants and contributions that are restricted to meeting the capital requirements of a particular function or segment. Taxes and other items not identifiable as program revenues are reported as general revenues. For the most part, the effect of interfund activity has been removed from the government-wide financial statements. However, the effect of interfund services provided and used between functions is not eliminated as the elimination of these charges would distort the direct costs and program revenues reported for the functions affected. Fund Financial Statements Governmental fund financial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual when measurable and available). Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with current expendable available resources. Real estate and personal property tax revenues are considered available if they are collected within 60 days after year-end. Investment income is susceptible to accrual. Other receipts and tax revenues become measurable and available when the cash is received and are recognized as revenue at that time. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria is met. Expenditure driven grants recognize revenue when the qualifying expenditures are incurred and all other grant requirements are met. The following major governmental funds are reported: The general fund is the primary operating fund. It is used to account for all financial resources, except those that are required to be accounted for in another fund. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 56 Comprehensive Annual Financial Report The community preservation fund is a special revenue fund used to account for the accumulation of resources for the acquisition, creation, preservation and support of open space, historic resources, and community housing. The City is allowed to impose a surcharge on property taxes and to receive matching state funds for these specified uses. The city grants fund is used to account for non-school related activity specifically financed by federal, state, and other grants which are designated to specific programs. The capital improvement fund is used to account for the City’s capital projects related to their capital improvement plan for City related projects. The nonmajor governmental funds consist of other special revenue, capital projects and permanent funds that are aggregated and presented in the nonmajor governmental funds column on the governmental funds financial statements. The following describes the general use of these fund types: The special revenue fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than permanent funds or capital projects. The capital projects fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets of the governmental funds. The permanent fund is used to account for and report financial resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the governmental programs. Proprietary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary funds principal ongoing operations. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. The following major proprietary funds are reported: The water and sewer enterprise fund is used to account for the City’s water and sewer activities. The trash enterprise fund is used to account for the solid waste disposal activities. Additionally, the following proprietary fund type is reported: The internal service fund is used to account for the financing of services provided by one department to other departments or governmental units. This fund is used to account for risk financing activities related to retirees’ health insurance. Fiduciary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting except for the agency fund, which has no measurement focus. Fiduciary funds are used to account for assets held in a trustee capacity for others that cannot be used to support the governmental programs. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 57 Comprehensive Annual Financial Report The following fiduciary fund types are reported: The pension and other employee benefit trust funds are used to account for the activities of the System, which accumulates resources to provide pension benefits to eligible retirees and their beneficiaries and to accumulate resources to provide funding for future other postemployment benefits (OPEB) liabilities. The private-purpose trust fund is used to account for trust arrangements that exclusively benefit individuals, private organizations, or other governments. Some of these trusts have donor restrictions and trustee policies that do not allow the endowment portion and any unrealized appreciation to be spent. The donor restrictions and trustee policies only allow the trustees to authorize spending of the realized investment earnings. The City’s educational scholarships and housing subsidy trust funds are accounted for in this fund. The agency fund is used to account for assets held in a purely custodial capacity. The City’s agency funds consist primarily of payroll withholdings, police and fire details, escrow deposits and unclaimed property. D. Cash and Investments Government-Wide and Fund Financial Statements Cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with an original maturity of three months or less from the date of acquisition. Investments are carried at fair value. The fair values were determined by the closing price for those securities traded on national stock exchanges and at the average bid-and-asked quotation for those securities traded in the over-the-counter market. Investments that do not have an established market are reported at estimated fair values. E. Fair Value Measurements The City reports required types of financial instruments in accordance with the fair value standards. These standards require an entity to maximize the use of observable inputs (such as quoted prices in active markets) and minimize the use of unobservable inputs (such as appraisals or valuation techniques) to determine fair value. Fair value standards also require the government to classify these financial instruments into a three-level hierarchy, based on the priority of inputs to the valuation technique or in accordance with net asset value practical expedient rules, which allow for either Level 2 or Level 3 depending on lock up and notice periods associated with the underlying funds. Instruments measured and reported at fair value are classified and disclosed in one of the following categories: Level 1 – Quoted prices are available in active markets for identical instruments as of the reporting date. Instruments, which are generally included in this category, include actively traded equity and debt securities, U.S. government obligations, and mutual funds with quoted market prices in active markets. Level 2 – Pricing inputs are other than quoted in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Certain fixed income securities, primarily corporate bonds, are classified as Level 2 because fair values are estimated using pricing models, matrix pricing, or discounted cash flows. Level 3 – Pricing inputs are unobservable for the instrument and include situations where there is little, if any, market activity for the instrument. The inputs into the determination of fair value require significant management judgment or estimation. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 58 Comprehensive Annual Financial Report In some instances the inputs used to measure fair value may fall into different levels of the fair value hierarchy and is based on the lowest level of input that is significant to the fair value measurement. Market price is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Instruments with readily available active quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. It is reasonably possible that change in values of these instruments will occur in the near term and that such changes could materially affect amounts reported in these financial statements. For more information on the fair value of the City’s financial instruments, see Note 2 – Cash and Investments. F. Accounts Receivable Government-Wide and Fund Financial Statements The recognition of revenue related to accounts receivable reported in the government-wide financial statements and the proprietary funds and fiduciary funds financial statements are reported under the accrual basis of accounting. The recognition of revenue related to accounts receivable reported in the governmental funds financial statements are reported under the modified accrual basis of accounting. Real Estate, Personal Property Taxes, Tax Liens and Tax Foreclosures Real estate and personal property taxes are levied and based on values assessed on January 1st of every year. Assessed values are established by the Board of Assessor’s for 100% of the estimated fair market value. Taxes are due on August 1st, November 1st, February 1st and May 1st and are subject to penalties and interest if they are not paid by the respective due date. Real estate and personal property taxes levied are recorded as receivables in the year of the levy. The City has the ability to process real estate tax liens on delinquent properties. Tax liens are processed once a year following the first quarter of the following year. Liens are recorded as receivables in the year they are processed. Real estate receivables which have been secured via the tax lien process are considered 100% collectible. Accordingly, an allowance for uncollectibles is not reported. Personal property taxes cannot be secured through the lien process. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. Motor Vehicle and Other Excise Taxes Motor vehicle excise taxes are assessed annually for each vehicle registered and are recorded as receivables in the year of the levy. The Commonwealth is responsible for reporting the number of vehicles registered and the fair values of those vehicles. The tax calculation is the fair value of the vehicle multiplied by $25 per $1,000 of value. Boat excise taxes are assessed annually for each boat registered and are recorded as receivables in the 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 59 Comprehensive Annual Financial Report User Fees Water and Sewer user fees are levied based on individual meter readings and are subject to penalties and interest if they are not paid by the respective due date. Unbilled user fees are estimated at year-end and are recorded as revenue in the current period. The City abides by a strict policy for unpaid user fees which includes liening any unpaid balance plus interest to the corresponding real estate tax bills. Trash user fees are levied based on the number of units located on the property. The per unit fee collected is $26.50 for commercial and $18.00 for residential. Collection from any one property shall not exceed $120 per month. Unpaid trash fees are subject to interest and demand fees; any fees not paid within thirty (30) days may be liened to the property in the following years’ real estate bill. Since the receivables are secured via either a shut off or lien process, these accounts are considered 100% collectible and therefore do not report an allowance for uncollectibles. Departmental and Other Departmental and other receivables consist primarily of grant proceeds, fire detail fees and investment funds of the retirement system received after year end that are recorded as receivables in the year accrued. The allowance of uncollectibles is estimated based on historical trends and specific account analysis. Intergovernmental Various federal and state grants for operating and capital purposes are applied for and received annually. For non-expenditure driven grants, receivables are recorded as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred and all other grant requirements are met. These receivables are considered 100% collectible and therefore do not report an allowance for uncollectibles. Loans Loan receivables are comprised of funds advanced to small businesses and developers under various Urban Development Action Grants (UDAG) and Community Development Block Grants (CDBG). The City loans funds to owners of commercial and residential properties for the purpose of rehabilitating these properties. The City receives funding for these loans from the U.S Department of Housing and Urban Development (HUD) under Community Development Block Grant (CDBG) programs for the City. These loans are repaid to the City under various terms and conditions stipulated by each loan agreement. The loan repayments may be used by the City for any eligible activity relevant to the community development program. G. Inventories and Prepaid Items Government-Wide and Fund Financial Statements Inventories are recorded as expenditures at the time of purchase. Inventories are not material in total to the government-wide and fund financial statements, and therefore are not reported. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 60 Comprehensive Annual Financial Report H. Capital Assets Government-Wide and Proprietary Fund Financial Statements Capital assets, which include land, land improvements, buildings and improvements, machinery and equipment, and infrastructure roads, water mains, sewer mains, and similar items), are reported in the applicable governmental or business-type activity column of the government-wide financial statements, and the proprietary fund financial statements. Capital assets are recorded at historical cost, or at estimated historical cost, if actual historical cost is not available. Donated capital assets, donated works of art, historical treasures and similar assets; and capital assets received in service concession arrangements are recorded at acquisition value. Except for the capital assets of the governmental activities column in the government-wide financial statements, construction period interest is capitalized on constructed capital assets. All purchases and construction costs in excess of $25,000 are capitalized at the date of acquisition or construction, respectively, with expected useful lives of greater than one year. This excludes vehicles, which will all be capitalized. Capital assets (excluding land and construction in progress) are depreciated on a straight-line basis. The estimated useful lives of capital assets are as follows: Estimated Useful Life Capital Asset Type (in years) Land improvements…………… 20 - 30 Buildings and improvements…… 40 Equipment……………………… 5 - 10 Vehicles………………………… 5 - 15 Infrastructure…………………… 15 - 80 The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized and are treated as expenses when incurred. Improvements are capitalized. Governmental Fund Financial Statements Capital asset costs are recorded as expenditures in the acquiring fund in the year of the purchase. I. Deferred Outflows/Inflows of Resources Government-Wide Financial Statements (Net Position) In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/ expenditure) until then. The City reported a deferred charge on refunding and deferred outflows related to pensions and other postemployment benefits under this category. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 61 Comprehensive Annual Financial Report until that time. The City reported taxes paid in advance and deferred inflows related to pensions and other postemployment benefits under this category. Governmental Fund Financial Statements In addition to assets and liabilities, the balance sheet will sometimes report separate sections for deferred inflows and outflows of resources. These separate financial statement elements represent either an acquisition or consumption of fund balance that applies to a future period(s) and so will not be recognized until that time. The City has recorded unavailable revenue and taxes paid in advance as deferred inflows of resources in the governmental funds balance sheet. Unavailable revenue is recognized as revenue in the conversion to the government-wide (full accrual) financial statements. The City did not have any deferred outflows of resources at year-end. J. Interfund Receivables and Payables During the course of its operations, transactions occur between and within individual funds that may result in amounts owed between funds. Government-Wide Financial Statements Transactions of a buyer/seller nature between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of net position as “internal balances”. Fund Financial Statements Transactions of a buyer/seller nature between and within funds are not eliminated from the individual fund statements. Receivables and payables resulting from these transactions are classified as “Due from other funds” or “Due to other funds” on the balance sheet. K. Interfund Transfers During the course of its operations, resources are permanently reallocated between and within funds. These transactions are reported as transfers in and transfers out. Government-Wide Financial Statements Transfers between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of activities as “Transfers, net”. Fund Financial Statements Transfers between and within funds are not eliminated from the individual fund statements and are reported as transfers in and transfers out. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 62 Comprehensive Annual Financial Report L. Net Position and Fund Equity Government-Wide Financial Statements (Net position) Net position reported as “net investment in capital assets” includes capital assets, net of accumulated depreciation, less the principal balance of outstanding debt used to acquire capital assets. Unspent proceeds of capital related debt are not considered to be capital assets. Outstanding debt related to future reimbursements from the state’s school building program is not considered to be capital related debt. Net position is reported as restricted when amounts are not available for appropriation or are legally restricted by outside parties for a specific future use. Net position has been “restricted for” the following: “Loans” represents community development outstanding loan receivable balances which are funded through the Community Development Block Grant program. The loan repayments are subject to various restrictions which are imposed by the grantors. “Permanent funds - expendable” represents the amount of realized and unrealized investment earnings of donor restricted trusts. The donor restrictions and trustee policies only allow the trustees to approve spending of the realized investment earnings that support governmental programs. “Permanent funds - nonexpendable” represents the endowment portion of donor restricted trusts that support governmental programs. “Grants and gifts” represents assets that have restrictions placed on them from outside parties. “Community preservation” amounts held for uses restricted by law for community preservation purposes. Sometimes the City will fund outlays for a particular purpose from both restricted restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted – net position to have been depleted before unrestricted – net position is applied. Fund Financial Statements (Fund Balances) Governmental fund equity is classified as fund balance. Fund balance is further classified as follows: “Nonspendable” fund balance includes amounts that cannot be spent because they are either not in spendable form or they are legally or contractually required to be maintained intact. “Restricted” fund balance includes amounts subject to constraints placed on the use of resources that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or that are imposed by law through constitutional provisions or enabling legislation. “Committed” fund balance includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority. An order of the City Council is the highest level of decision making authority that can commit or rescind funds for a specific purpose. Once voted, the limitation imposed by the order remains in place until the funds are used for their intended purpose or an order is taken to rescind the commitment. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 63 Comprehensive Annual Financial Report “Assigned” fund balance includes amounts that are constrained by the City’s intent to be used for specific purposes, but are neither restricted nor committed. The City Finance Director has the authority to assign fund balance. Funds are assigned when the City has an obligation to purchase goods or services from the current years’ appropriation. “Unassigned” fund balance includes the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund. Sometimes the City will fund outlays for a particular purpose from different components of fund balance. In order to calculate the amounts to report as restricted, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. When different components of fund balance can be used for the same purpose, it is the City’s policy to consider restricted fund balance to have been depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. M. Long-term debt Government-Wide and Proprietary Fund Financial Statements Long-term debt is reported as liabilities in the government-wide and proprietary fund statement of net position. Material bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Governmental Fund Financial Statements The face amount of governmental funds long-term debt is reported as other financing sources. Bond premiums and discounts, as well as issuance costs, are recognized in the current period. Bond premiums are reported as other financing sources and bond discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual bond proceeds received, are reported as general government expenditures. N. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of both the Salem Contributory Retirement System and the Massachusetts Teachers Retirement System and additions to/deductions from the Systems fiduciary net position have been determined on the same basis as they are reported by the Systems. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. O. Investment Income Excluding the permanent funds, investment income derived from major and nonmajor governmental funds is legally assigned to the general fund unless otherwise directed by Massachusetts General Law (MGL). Investment income of the enterprise funds is voluntarily assigned to the general fund. P. Compensated Absences Employees are granted vacation and sick leave in varying amounts based on collective bargaining agreements, state laws and executive policies. Compensated absence liabilities related to both governmental and business- type activities are normally paid from the funds reporting payroll and related expenditures. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 64 Comprehensive Annual Financial Report Government-Wide and Proprietary Fund Financial Statements Vested or accumulated vacation and sick leave are reported as liabilities and expensed as incurred. Governmental Fund Financial Statements Vested or accumulated vacation and sick leave, which will be liquidated with expendable available financial resources, are reported as expenditures and fund liabilities upon maturity of the liability. Q. Fund Deficits and Appropriation Deficits Individual fund deficits existed at June 30, 2018, in the City grants fund. The deficit will be funded through grant proceeds in 2019. Actual expenditures exceeded appropriations for snow and ice removal by $1.5 million and will be raised in fiscal year 2019. Massachusetts General Laws allows communities to overspend their snow and ice removal appropriation line; however, deficits must be raised in the subsequent year. R. Use of Estimates Government-Wide and Fund Financial Statements The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the year. Actual results could vary from estimates that were used. S. Total Column Government-Wide Financial Statements The total column presented on the government-wide financial statements represents consolidated financial information. 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 (Pool). The Treasurer and Trust Fund Commission may also invest trust funds in securities, other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth; provided, that not more than 15% of any trust fund may be invested in bank stocks and ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 65 Comprehensive Annual Financial Report insurance company stocks, and not more than 15% of any trust fund can be invested in the stock of any one bank or insurance company. The Pool meets the criteria of an external investment pool. The Pool is administered by the Massachusetts Municipal Depository Trust (MMDT), which was established by the Treasurer of the Commonwealth who serves as Trustee. The fair value of the position in the Pool is the same as the value of the Pool shares. The City Treasurer is the custodian of funds held in the Other Postemployment Benefit (OPEB) Trust Fund. As of June 30, 2018, $2,572,671, from the OPEB Trust Fund is included within the City’s cash and investments balances in the following disclosures. The System participates in the Pension Reserve Investment Trust (PRIT), which meets the criteria of an external investment pool. PRIT is administered by the Pension Reserves Investment Management Board, which was established by the Treasurer of the Commonwealth of Massachusetts who serves as Trustee. The fair value of the position in the PRIT is the same as the value of the PRIT shares. The System also has expanded investment powers which are governed by Chapter 32 of the general laws of the Commonwealth and by the regulations issued by the Public Employee Retirement Administration Commission (PERAC). The existing law provides that Systems will invest in securities other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth. Custodial Credit Risk – Deposits In the case of deposits, this is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. The City does not have a formal deposit policy for custodial credit risk. At year-end, the carrying amount of deposits totaled $44,212,044 and the bank balance totaled $45,657,469. Of the bank balance, $4,035,799 was covered by Federal Depository Insurance, $8,484,548 was covered by the Share Insurance Fund, $21,674,454 was covered by the Depositors Insurance Fund, $9,093,845 was collateralized and $2,368,823 was exposed to custodial credit risk because it was uninsured and uncollateralized. The System does not have a formal deposit policy for custodial credit risk. At year-end, the carrying amount of deposits totaled $213,636 and the bank balance totaled $424,021. The entire bank balance was covered by Federal Depository Insurance. Investments As of June 30, 2018, the City had the following investments: Investment Type Fair value Under 1 Year 1-5 Years Debt securities: U.S. treasury $ 1,123,415 $ 946,311 $ 177,104 Government sponsored enterprises…… 2,212,872 - 2,212,872 Corporate 1,392,811 249,745 1,143,066 Total debt 4,729,098 $ 1,196,056 $ 3,533,042 Other investments: Equity 5,104,319 Equity mutual 2,872,131 Fixed 3,788,688 Money market mutual funds…………… 534,332 MMDT - Cash portfolio………………… 75,735 Total $ 17,104,303 Maturity ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 66 Comprehensive Annual Financial Report As of December 31, 2017, the System had the following investments: Investment Type Fair Value Other investments: Repurchase agreement…………………………$ 1,610,414 Pooled alternative investments………………… 112,468 Pension Reserve Investment Trust (PRIT)…… 175,313,753 Total 177,036,635 The City participates in MMDT which is unrated. MMDT maintains a cash portfolio and a short-term bond portfolio with combined average maturities of approximately 3 months. The System participates in PRIT which is unrated. The effective weighted duration rate for PRIT investments ranged from 0.15 to 16.31 years. Custodial Credit Risk – Investments For an investment, this is the risk that, in the event of a failure by the counterparty, the City will not be able to recover the value of its investments or collateral security that are in the possession of an outside party. The Citywide investment policy, as well as the investment policy specifically for OPEB funds, addresses custodial credit risk by requiring all securities not held directly by the City to be held in the City’s name and tax identification number by a third party custodian approved by the Treasurer and evidenced by safekeeping receipts showing individual CUSIP numbers for each security. The City’s investments, $1,392,811 of corporate bonds, $1,123,415 of U.S. Treasury notes, $2,212,872 of government sponsored enterprises and $5,104,319 of equity securities are covered by this policy. The System’s investments are not subject to custodial credit risk as all of the securities are insured or registered, and held by its agents in the name of the Salem Contributory Retirement Board. Interest Rate Risk The City has a formal investment policy limiting investment maturities up to one year as a means of managing its exposure to fair value losses arising from increasing interest rates. The System does not have a formal investment policy related to interest rate risk. Credit Risk The City has not adopted a formal policy related to Credit Risk. The investment ratings are as follows: Quality Rating U.S. Treasury Notes Government Sponsored Enterprises Corporate Bonds $ 1,123,415 $ - $ - - 2,212,872 - - - 386,614 - - 260,899 - - 441,500 - - 303,798 Total…………… $ 1,123,415 $ 2,212,872 $ 1,392,811 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 67 Comprehensive Annual Financial Report The System has not adopted a formal policy related to Credit Risk. The alternate investments, repurchase agreement and PRIT are unrated. Concentration of Credit Risk The City restricts investments to no more than 5% in any one issuer. The City did not have more than 5% of its investments in any one individual security. The System places no limit on the amount the government may invest in any one issuer. The System did not have more than 5% of its investments in any one individual security. Fair Value Measurement The City holds investments that are measured at fair value on a recurring basis. Because investing is not a core part of the City’s mission, the City determines that the disclosures related to these investments only need to be disaggregated by major type. The City chooses a tabular format for disclosing the levels within the fair value hierarchy. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. The following table presents financial assets at June 30, 2018, that the City measures fair value on a recurring basis, by level, within the fair value hierarchy: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable June 30, Assets Inputs Inputs Investment Type 2018 (Level 1) (Level 2) (Level 3) Investments measured at fair value: Debt securities: U.S. treasury $ 1,123,415 $ 1,123,415 $ - $ - Government sponsored enterprises………… 2,212,872 2,212,872 - - Corporate 1,392,811 - 1,392,811 - Total debt 4,729,098 3,336,287 1,392,811 - Other investments: Equity 5,104,319 5,104,319 - - Equity mutual 2,872,131 2,872,131 - - Fixed 3,788,688 3,788,688 - - Money market mutual 534,332 534,332 - - Total other 12,299,470 12,299,470 - - Total investments measured at fair value………… 17,028,568 $ 15,635,757 $ 1,392,811 $ - Investments measured at amortized cost: MMDT - Cash portfolio………………………… 75,735 Total investments……………………………………$ 17,104,303 Fair Value Measurements Using ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 68 Comprehensive Annual Financial Report U.S. treasury bonds, government sponsored enterprises, equity securities, equity mutual funds, fixed income, money market mutual funds classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Corporate bonds classified in Level 2 of the fair value hierarchy are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices. MMDT investments are valued at amortized cost. Under the amortized cost method, an investment is valued initially at its cost and adjusted for the amount of interest income accrued each day over the term of the investment to account for any difference between the initial cost and the amount payable at its maturity. If amortized cost is determined not to approximate fair value, the value of the portfolio securities will be determined under procedures established by the Advisor. The System holds significant amounts of investments that are measured at fair value on a recurring basis. Because investing is a key part of the plan’s activities, the plan shows greater disaggregation in its disclosures. The plan chooses a tabular format for disclosing the levels within the fair value hierarchy. The following table presents financial assets at December 31, 2017, that the System measures fair value on a recurring basis, by level, within the fair value hierarchy: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable December 31, Assets Inputs Inputs Investment Type 2017 (Level 1) (Level 2) (Level 3) Investments measured at fair value: Other investments: Repurchase agreement…………………………$ 1,610,414 - $ - $ 1,610,414 Alternative investments………………………… 112,468 - - 112,468 Total other 1,722,882 $ - $ - $ 1,722,882 Investments measured at net asset value: Pension Reserve Investment Trust (PRIT)…… 175,313,753 Total investments……………………………………$ 177,036,635 Fair Value Measurements Using Alternative investments and repurchase agreements classified in level 3 are valued using either a discounted cash flow or market comparable company’s technique. PRIT Investments are valued using the net asset value (NAV) method. This investment pool was established by the Treasurer of the Commonwealth of Massachusetts, who serves as Trustee. PRIT is administered by the Pension Reserves Investment Management Board (PRIM). The fair values of the positions in each investment Pool are the same as the value of each Pool’s shares. The System does not have the ability to control any of the investment decisions relative to its funds in PRIT. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 69 Comprehensive Annual Financial Report NOTE 3 – RECEIVABLES At June 30, 2018, receivables for the individual major governmental funds and non-major governmental funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Real estate and personal property taxes……$ 1,135,326 $ - $ 1,135,326 Tax 1,513,522 - 1,513,522 Community preservation fund surtax……… 9,335 - 9,335 Motor vehicle and other excise taxes……… 852,635 (192,400) 660,235 Departmental and 83,991 - 83,991 Intergovernmental - 3,756,518 - 3,756,518 Community preservation state share……… 72,152 - 72,152 270,871 - 270,871 7,694,350 $ (192,400) $ 7,501,950 At June 30, 2018, receivables for the water and sewer and trash enterprise funds consist of the following: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Water and sewer user fees……… $ 3,063,486 $ - $ 3,063,486 Trash user 93,793 - 93,793 $ 3,157,279 $ - $ 3,157,279 Governmental funds report deferred inflows of resources in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. At the end of the current year, the various components of deferred inflows of resources for unavailable revenue reported in the governmental funds were as follows: Other General Governmental Fund Funds Total Receivables: Real estate and personal property taxes………… $ 762,824 $ - $ 762,824 Tax 1,513,522 - 1,513,522 Community preservation…………………………… - 81,487 81,487 Motor vehicle and other excise taxes……………… 660,235 - 660,235 Departmental and - 83,991 83,991 Intergovernmental - highway improvements……… - 892,908 892,908 Intergovernmental - School Building Authority…… 1,389,074 - 1,389,074 - 270,871 270,871 4,325,655 $ 1,329,257 $ 5,654,912 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 70 Comprehensive Annual Financial Report NOTE 4 – CAPITAL ASSETS Capital asset activity for the year ended June 30, 2018, was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: 7,848,824 $ 100,000 $ (18,205) $ 7,930,619 Construction in progress………………………… 1,766,247 2,780,493 (1,655,277) 2,891,463 Total capital assets not being depreciated…… 9,615,071 2,880,493 (1,673,482) 10,822,082 Capital assets being depreciated: Land improvements………………………………… 14,580,502 985,378 (101,197) 15,464,683 Buildings and improvements……………………… 238,789,658 1,899,193 - 240,688,851 14,981,332 459,358 (93,611) 15,347,079 5,954,595 434,139 (293,707) 6,095,027 Infrastructure………………………………………… 84,718,801 5,260,656 - 89,979,457 Total capital assets being depreciated………… 359,024,888 9,038,724 (488,515) 367,575,097 Less accumulated depreciation for: Land improvements………………………………… (4,947,575) (656,821) 109,900 (5,494,496) Buildings and improvements……………………… (84,382,758) (5,413,475) - (89,796,233) (9,139,182) (990,500) 84,908 (10,044,774) (3,621,138) (502,873) 293,707 (3,830,304) Infrastructure………………………………………… (40,448,024) (2,130,426) - (42,578,450) Total accumulated depreciation……………… (142,538,677) (9,694,095) 488,515 (151,744,257) Total capital assets being depreciated, net………… 216,486,211 (655,371) - 215,830,840 Total governmental activities capital assets, net………$ 226,101,282 $ 2,225,122 $ (1,673,482) $ 226,652,922 Beginning Ending Balance Increases Decreases Balance Water and Sewer: Capital assets not being depreciated: $ 110,141 $ - $ - $ 110,141 Construction in progress…………………………… - 1,615,558 - 1,615,558 Total capital assets not being depreciated…… 110,141 1,615,558 - 1,725,699 Capital assets being depreciated: Buildings and improvements………………………… 119,975 - - 119,975 296,290 - (91,290) 205,000 423,701 - - 423,701 Infrastructure………………………………………… 46,472,205 6,417,020 - 52,889,225 Total capital assets being depreciated………… 47,312,171 6,417,020 (91,290) 53,637,901 Less accumulated depreciation for: Buildings and improvements………………………… (94,202) (5,727) - (99,929) (286,041) (10,249) 91,290 (205,000) (260,642) (65,222) - (325,864) Infrastructure………………………………………… (11,912,625) (1,041,074) - (12,953,699) Total accumulated depreciation………………… (12,553,510) (1,122,272) 91,290 (13,584,492) Total capital assets being depreciated, 34,758,661 5,294,748 - 40,053,409 Total water and sewer activities capital assets, net……$ 34,868,802 $ 6,910,306 $ - $ 41,779,108 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 71 Comprehensive Annual Financial Report In the fiduciary activities, the Retirement System owns a condominium, which is being depreciated on a straight- line basis over 40 years. The historical cost of the condominium was $125,000; accumulated depreciation through December 31, 2017, totals $39,844, for a net book value of $85,156. Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General government……………………………………$ 529,994 Public 1,001,169 5,012,646 Public 2,716,284 Health and human services…………………………… 12,221 Culture and recreation………………………………… 421,781 Total depreciation expense - governmental activities……$ 9,694,095 Business-Type Activities: Water and 1,122,272 Fiduciary Activities: Pension $ 3,125 NOTE 5 – INTERFUND TRANSFERS AND BALANCES Interfund transfers for the year ended June 30, 2018, are summarized as follows: City Capital Nonmajor Trash General Grants Improvement Governmental Enterprise Transfers Out: Fund Fund Fund Funds Fund Total General - $ 25,707 $ 1,406,442 $ 38,593 $ 2,054,990 $ 3,525,732 City Grants 25,261 115,321 2,094,522 14,872 - 2,249,976 Nonmajor Governmental Funds……… 1,444,679 - 3,171,889 21,980 - 4,638,548 Water and Sewer Enterprise Fund… 1,004,900 - - - - 1,004,900 2,474,840 $ 141,028 $ 6,672,853 $ 75,445 $ 2,054,990 $ 11,419,156 Transfers In: Transfer from general fund to capital improvement fund to fund capital projects from free cash; transfer from general fund to City grants fund and nonmajor governmental funds to fund deficits and the 400th anniversary fund; to trash enterprise fund for the City's subsidized portion. Transfer from city grants fund to general fund to close out old grant funds; transfers within city grant funds and capital improvement funds and nonmajor governmental funds to reallocate resources. Transfer from nonmajor governmental funds, receipts reserved for appropriation, to the general fund to reduce amounts raised by taxation and for supplemental appropriations; transfer to capital improvement fund to fund capital projects from reallocated unspent bond proceeds and receipts reserved for appropriation; transfers within nonmajor governmental funds to reallocate resources; transfer to water and sewer enterprise fund to reallocate unspent bond proceeds to sewer upgrades. Transfer from water and sewer enterprise fund to the general fund. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 72 Comprehensive Annual Financial Report Additionally, the nonmajor school capital projects fund reported a $2,260,269 capital transfer out of unspent bond proceeds which were reappropriated by City Council during fiscal 2018 for a sewer project. Accordingly, the corresponding bonds payable were reclassified from governmental activities to the water and sewer enterprise fund. The City’s interfund balances at June 30, 2018 consisted of $274,148 in balances due to the general fund from the nonmajor governmental funds representing interfund borrowings for cash flow purposes. NOTE 6 – CAPITAL AND OPERATING LEASES Capital Leases The City has entered into lease agreements as lessee for financing the acquisition of various vehicles and equipment for governmental and business-type activities. These lease agreements qualify as capital leases for accounting purposes and therefore, have been recorded at the present value of their future minimum lease payments as of the inception date. The assets acquired through capital leases are as follows: Governmental Business-Type Activities Activities Asset: Machinery and equipment…………$ 636,254 $ 326,110 Vehicles……………………………… 1,863,104 - Infrastructure………………………… 1,240,594 - Less: accumulated depreciation…… (873,771) (228,278) $ 2,866,181 $ 97,832 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2018, were as follows: Governmental Business-Type Years ending June 30: Activities Activities 874,489 $ 69,055 628,079 - 339,556 - 270,838 - 268,047 - 87,972 - Total minimum lease payments………………… 2,468,981 69,055 Less: amounts representing interest…………… (122,428) (1,972) Present value of minimum lease payments……$ 2,346,553 $ 67,083 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 73 Comprehensive Annual Financial Report Operating Leases The City leased office space at 120 Washington Street for the City Hall Annex under an operating lease that began in March 2013 and ended in April 2018. The City made nine lease payments for the year ended June 30, 2018, totaling approximately $348,000 which is reported as general government expenditures in the general fund. In April 2018, the City began leasing new office space at 98 Washington Street for the new City Hall Annex under a 20 year operating lease The City made three lease payments for the year ended June 30, 2018, totaling $87,970 which is reported as general government expenditures in the general fund. NOTE 7 – SHORT-TERM FINANCING Short-term debt may be authorized and issued to fund the following:  Current operating costs prior to the collection of revenues through issuance of revenue or tax anticipation notes (RANS or TANS).  Capital project costs and other approved expenditures incurred prior to obtaining permanent financing through issuance of bond anticipation notes (BANS), state aid anticipation notes (SAANS) or grant anticipation notes (GANS). Short-term loans are general obligations and carry maturity dates that are limited by statute. Interest expenditures and expenses for short-term borrowings are accounted for in the general fund and enterprise funds, respectively. Details related to the short-term debt activity for the year ended June 30, 2018, are as follows: Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose Due Date 2017 Issued Redeemed 2018 Governmental Funds: SAAN Municipal Purpose…………… 1.50% 06/28/18 $ 948,500 $ - $ (948,500) $ - BAN Municipal Purpose…………… 1.60% 11/17/17 2,427,930 - (2,427,930) - BAN Municipal Purpose…………… 1.23% 01/31/18 - 2,427,930 (2,427,930) - BAN Municipal Purpose…………… 1.45% 06/28/18 - 1,027,930 (1,027,930) - SAAN Derby Street………………… 2.10% 06/28/19 - 300,000 - 300,000 Total Governmental 3,376,430 $ 3,755,860 $ (6,832,290) $ 300,000 Water and Sewer Enterprise Fund: BAN Municipal Purpose…………… 1.60% 11/17/17 $ 636,000 $ - $ (636,000) $ - BAN Municipal Purpose…………… 1.23% 01/31/18 - 636,000 (636,000) - BAN Municipal Purpose…………… 1.45% 06/28/18 - 636,000 (636,000) - Total Water and Sewer Enterprise 636,000 $ 1,272,000 $ (1,908,000) $ - ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 74 Comprehensive Annual Financial Report NOTE 8 – LONG-TERM DEBT Under the provisions of Chapter 44, Section 10, Municipal Law authorizes indebtedness up to a limit of 5% of the equalized valuation. Debt issued in accordance with this section of the law is designated as being "inside the debt limit". In addition, however, debt may be authorized in excess of that limit for specific purposes. Such debt, when issued, is designated as being "outside the debt limit". Details related to the outstanding general obligation indebtedness at June 30, 2018, and the debt service requirements are reported in the following tables. Bonds Payable Schedule – Governmental Activities Original Interest Outstanding Maturities Loan Rate at June 30, Project Through Amount 2018 Municipal Purpose Refunding Bonds of 2010…… 2020 $ 8,113,000 2.00-5.00 $ 1,690,000 Municipal Purpose Bonds of 2026 5,219,000 3.00-5.00 1,895,000 Municipal Purpose Bonds of 2043 15,143,598 2.63-4.00 12,870,000 Municipal Purpose Refunding Bonds of 2014…… 2025 2,509,500 3.00-4.00 1,555,000 Municipal Purpose Bonds of 2034 6,680,000 3.00-4.00 5,610,000 Municipal Purpose Bonds of 2035 4,860,000 2.50-4.00 4,285,000 Municipal Purpose Bonds of 2036 5,845,000 2.50-4.00 3,439,416 Municipal Purpose Bonds of 2036 5,707,000 3.00-4.00 4,355,315 Municipal Purpose Refunding Bonds of 2017…… 2037 3,312,000 3.00-4.00 3,312,000 Municipal Purpose Bonds of 2038 7,349,229 3.13-5.00 7,349,229 Total Bonds 46,360,960 Add: Unamortized premium on 2,868,047 Total Bonds Payable, 49,229,007 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 75 Comprehensive Annual Financial Report Debt service requirements for governmental bonds are as follows: Year Principal Interest Total 2019……………$ 4,896,916 $ 1,839,851 $ 6,736,767 2020…………… 4,959,449 1,634,272 6,593,721 2021…………… 3,841,424 1,429,797 5,271,221 2022…………… 3,479,722 1,260,348 4,740,070 2023…………… 3,251,483 1,098,795 4,350,278 2024…………… 2,701,483 951,977 3,653,460 2025…………… 2,701,483 833,425 3,534,908 2026…………… 2,270,005 730,002 3,000,007 2027…………… 2,069,937 646,178 2,716,115 2028…………… 2,055,176 568,573 2,623,749 2029…………… 1,508,176 498,793 2,006,969 2030…………… 1,409,937 441,893 1,851,830 2031…………… 1,409,937 388,518 1,798,455 2032…………… 1,373,176 338,733 1,711,909 2033…………… 1,396,630 287,121 1,683,751 2034…………… 1,116,630 234,456 1,351,086 2035…………… 801,630 199,236 1,000,866 2036…………… 723,391 171,765 895,156 2037…………… 664,375 146,486 810,861 2038…………… 605,000 123,953 728,953 2039…………… 620,000 102,044 722,044 2040…………… 645,000 79,117 724,117 2041…………… 660,000 55,473 715,473 2042…………… 695,000 30,914 725,914 2043…………… 505,000 9,154 514,154 Total……………$ 46,360,960 $ 14,100,874 $ 60,461,834 The Commonwealth has approved school construction assistance to the City. The assistance program, which is administered by the MSBA, provides resources for future debt service of general obligation school bonds outstanding. During 2018, $733,000 of such assistance was received. Approximately $1,466,000 will be received in future years of which $77,000 represents reimbursement of long-term interest costs, and $1,389,000 represents reimbursement of approved construction costs. Accordingly, a $1,389,000 intergovernmental receivable and corresponding deferred inflow of resources have been reported in the governmental fund financial statements. The deferred inflow of resources has been eliminated in the conversion to the government-wide financial statements and reported as net position. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 76 Comprehensive Annual Financial Report Bonds Payable Schedule – Water and Sewer Enterprise Fund Original Interest Outstanding Maturities Loan Rate at June 30, Project Through Amount 2018 Water Project - 2027 $ 2,330,656 2.00 $ 1,166,539 Sewer Improvements………………………… 2030 1,690,000 3.00-5.00 1,010,000 Water System Tanks and Improvements…… 2031 8,464,000 3.00-5.00 4,680,000 Water System Improvements 2033 1,412,402 2.63-4.00 1,135,000 Sewer Improvements………………………… 2033 1,435,000 2.63-4.00 1,140,000 Sewer Improvements………………………… 2034 3,900,000 3.00-4.00 3,330,000 Sewer Improvements………………………… 2035 2,300,000 2.50-4.00 1,955,000 Sewer Improvements………………………… 2036 2,650,000 2.00-5.00 2,370,000 Water Improvements………………………… 2025 3,600,000 2.00-5.00 2,770,000 Sewer Improvements………………………… 2036 2,650,000 3.00-4.00 2,560,000 Water Improvements………………………… 2036 4,095,000 3.00-4.00 3,820,000 Water Refunding Bonds of 2017…………… 2028 1,463,000 4.00 1,463,000 Water Improvements of 2048 2,660,000 3.13-5.00 2,660,000 Sewer Improvements of 2048 4,890,771 3.13-5.00 4,890,771 Sewer Improvements………………………… 2037 2,260,269 2.00-5.00 2,260,269 Total Bonds 37,210,579 Add: Unamortized premium on 1,653,516 Total Bonds Payable, 38,864,095 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 77 Comprehensive Annual Financial Report Debt service requirements for the water and sewer enterprise fund are as follows: Year Principal Interest Total 2019……………$ 2,587,574 $ 1,300,188 $ 3,887,762 2020…………… 2,602,455 1,212,362 3,814,817 2021…………… 2,622,943 1,110,200 3,733,143 2022…………… 2,492,158 1,008,887 3,501,045 2023…………… 2,517,960 908,725 3,426,685 2024…………… 2,535,575 807,360 3,342,935 2025…………… 2,568,243 707,634 3,275,877 2026…………… 2,222,442 619,151 2,841,593 2027…………… 1,860,287 547,992 2,408,279 2028…………… 1,644,824 486,938 2,131,762 2029…………… 1,481,824 430,719 1,912,543 2030…………… 1,345,063 380,993 1,726,056 2031…………… 1,340,063 335,922 1,675,985 2032…………… 1,266,824 295,488 1,562,312 2033…………… 1,248,370 255,914 1,504,284 2034…………… 1,138,370 217,835 1,356,205 2035…………… 873,370 188,191 1,061,561 2036…………… 776,609 165,922 942,531 2037…………… 585,625 147,231 732,856 2038…………… 265,000 134,444 399,444 2039…………… 270,000 125,500 395,500 2040…………… 275,000 116,050 391,050 2041…………… 295,000 105,050 400,050 2042…………… 305,000 93,250 398,250 2043…………… 310,000 81,050 391,050 2044…………… 335,000 68,650 403,650 2045…………… 345,000 56,506 401,506 2046…………… 355,000 44,000 399,000 2047…………… 365,000 29,800 394,800 2048…………… 380,000 15,200 395,200 Total……………$ 37,210,579 $ 11,997,152 $ 49,207,731 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, 2018, the City had the following authorized and unissued debt: Purpose Amount CIP Projects Water and Sewer………$ 15,408,960 Capital Projects Water and Sewer…… 5,053,269 Senior Center Construction…………… 4,994,136 Collins School Improvement…………… 4,360,410 Water Systems Improvement………… 2,915,264 Transfer Station………………………… 1,605,500 CIP General Government……………… 1,918,189 Feasibility Study Collins School……… 687,062 Feasibility Study Saltonstall School…… 312,000 Capital Projects General Government… 345,000 High 101,032 $ 37,700,822 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 78 Comprehensive Annual Financial Report Changes in Long-term Liabilities During the year ended June 30, 2018, the following changes occurred in long-term liabilities: Bonds and Bonds and Beginning Notes Notes Other Other Ending Due Within Balance Issued Redeemed Increases Decreases Balance One Year Governmental Activities: Long-term bonds payable……………………. $ 45,584,000 $ 7,349,229 $ (4,312,000) $ - $ (2,260,269) $ 46,360,960 $ 4,896,916 Add: Unamortized premium on bonds……… 2,770,069 561,847 (463,869) - - 2,868,047 513,188 Total bonds 48,354,069 7,911,076 (4,775,869) - (2,260,269) 49,229,007 5,410,104 Capital lease obligations……………………… 2,344,446 - - 695,958 (693,851) 2,346,553 831,406 Landfill 2,250,000 - - - - 2,250,000 1,125,000 Compensated absences……………………… 9,089,126 - - 1,391,820 (1,481,131) 8,999,815 2,041,403 Workers' compensation……………………… 1,481,595 - - 177,986 (131,706) 1,527,875 134,279 Net pension liability…………………………… 108,041,285 - - 1,508,461 (10,805,331) 98,744,415 - Net other postemployment benefits liability…… 167,603,216 - - 9,951,940 (21,306,801) 156,248,355 - Total governmental activity long-term liabilities…………………………. $ 339,163,737 $ 7,911,076 $ (4,775,869) $ 13,726,165 $ (36,679,089) $ 319,346,020 $ 9,542,192 Business-Type Activities: Long-term bonds payable……………………. $ 29,616,663 $ 7,550,771 $ (2,217,124) $ 2,260,269 $ - $ 37,210,579 $ 2,587,574 Add: Unamortized premium on bonds……… 1,265,450 580,998 (192,932) - - 1,653,516 211,934 Total bonds 30,882,113 8,131,769 (2,410,056) 2,260,269 - 38,864,095 2,799,508 Capital lease obligations……………………… 132,250 - - - (65,167) 67,083 67,083 Compensated absences……………………… 57,288 - - 21,795 (17,668) 61,415 19,546 Net pension liability…………………………… 2,823,313 - - 39,419 (282,363) 2,580,369 - Net other postemployment benefits liability…… 1,507,480 - - 86,952 (191,334) 1,403,098 - Total business-type activity long-term liabilities…………………………. $ 35,402,444 $ 8,131,769 $ (2,410,056) $ 2,408,435 $ (556,532) $ 42,976,060 $ 2,886,137 Long-term 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 and water and trash enterprise funds, except for debt incurred by the CPA fund. NOTE 9 – GOVERNMENTAL FUND BALANCE CLASSIFICATIONS The City classifies fund balances according to the constraints imposed on the use of the resources. There are two major types of fund balances, which are nonspendable and spendable. Nonspendable fund balances are balances that cannot be spent because they are not expected to be converted to cash or they are legally or contractually required to remain intact. Examples of this classification are prepaid items, inventories, and principal (corpus) of an endowment fund. The City has reported principal portions of endowment funds as nonspendable. Spendable fund balances are classified based on a hierarchy of spending constraints.  Restricted: fund balances that are constrained by external parties, constitutional provisions, or enabling legislation.  Committed: fund balances that contain self-imposed constraints of the City from its highest level of decision making authority.  Assigned: fund balances that contain self-imposed constraints of the City to be used for a particular purpose. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 79 Comprehensive Annual Financial Report  Unassigned: fund balance of the general fund that is not constrained for any particular purpose and the deficit fund balances for other funds that would otherwise be restricted, committed, or assigned. The City’s spending policy is to spend restricted fund balance first, followed by committed, assigned and unassigned fund balance. Most governmental funds are designated for one purpose at the time of their creation. Therefore, any expenditure from the fund will be allocated to the applicable fund balance classifications in the order of the aforementioned spending policy. The general fund and certain other funds may have more than one purpose. Massachusetts General Law Ch.40 §5B allows for the establishment of Stabilization funds for one or more different purposes. The creation of a fund requires a two-thirds vote of the legislative body and must clearly define the purpose of the fund. Any change to the purpose of the fund along with any additions to or appropriations from the fund requires a two-thirds vote of the legislative body. At year end the balances of the General Stabilization Fund and the Retirement Stabilization Fund totaled $6.5 million and $182,000, respectively and are reported as unassigned fund balance within the general fund. As of June 30, 2018, the governmental fund balances consisted of the following: Community City Capital Nonmajor Total Preservation Grants Improvement Governmental Governmental General Fund Fund Fund Funds Funds Fund Balances: Nonspendable: Permanent fund principal…………………$ - $ - $ - $ - $ 2,230,357 $ 2,230,357 Restricted for: Community preservation………………… - 892,699 - - - 892,699 City - - 2,230,500 - - 2,230,500 Capital improvement……………………… - - - 5,269,203 - 5,269,203 School - - - - 1,110,987 1,110,987 Community development grants………… - - - - 26,929 26,929 School - - - - 403,183 403,183 Donations and - - - - 715,777 715,777 Receipts reserved………………………… - - - - 2,311,103 2,311,103 City revolving accounts………………… - - - - 1,150,185 1,150,185 School revolving accounts……………… - - - - 301,538 301,538 City wharf project………………………… - - - - 531,057 531,057 School - - - - 6,845 6,845 Other - - - - 226,010 226,010 - - - - 2,769,997 2,769,997 Human - - - - 1,178,509 1,178,509 Other permanent………………………… - - - - 1,073,034 1,073,034 Assigned to: Encumbrances: Finance/auditing………………………… 30,000 - - - - 30,000 Data processing………………………… 18,950 - - - - 18,950 Planning department……………………… 17,754 - - - - 17,754 Other general government……………… 3,190 - - - - 3,190 8,740 - - - - 8,740 Electrical inspection and maintenance… 2,554 - - - - 2,554 Harbormaster…………………………… 2,512 - - - - 2,512 Education………………………………… 63,977 - - - - 63,977 Public 1,911 - - - - 1,911 Health and human services……………… 53,746 - - - - 53,746 Unemployment compensation…………… 100,000 - - - - 100,000 Unassigned……………………………………… 13,712,764 - (282,668) - - 13,430,096 Total Fund 14,016,098 $ 892,699 $ 1,947,832 $ 5,269,203 $ 14,035,511 $ 36,161,343 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 80 Comprehensive Annual Financial Report NOTE 10 – RISK FINANCING The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the City carries commercial insurance. The amount of claim settlements has not exceeded insurance coverage in any of the previous three years. The City participates in premium-based health care plans for its active employees and retirees through the State’s Group Insurance Commission. Workers’ Compensation Workers’ compensation claims incurred prior to July 1, 2008, are administered by the City and are funded on a pay-as-you-go basis from annual appropriations. The estimated future workers’ compensation liability is based on history and injury type. At June 30, 2018, the amount of the liability for workers’ compensation claims totaled $1,527,875. Changes in the reported liability since July 1, 2016, are as follows: Current Year Balance at Claims and Beginning of Changes in Claims Balance at Current Year Estimate Payments Year-End Portion 2017……$ 1,421,695 $ 180,756 $ (120,856) $ 1,481,595 $ 123,130 2018…… 1,481,595 177,986 (131,706) 1,527,875 134,279 NOTE 11 – PENSION PLAN Plan Description The City is a member of the City of Salem Contributory Retirement System (System), a cost-sharing, multiple- employer defined benefit pension plan covering eligible employees of the member units. The System is administered by the City of Salem Retirement Board on behalf of all current employees and retirees except for current teachers and retired teachers. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the plan. The City is a member of the Massachusetts Teachers’ Retirement System (MTRS), a cost-sharing multiple- employer defined benefit pension plan. MTRS is managed by the Commonwealth of Massachusetts (Commonwealth) on behalf of municipal teachers and municipal teacher retirees. The Commonwealth is a nonemployer contributor and is responsible for 100% of the contributions and future benefit requirements of the MTRS. The MTRS covers certified teachers in cities (except Boston), towns, regional school districts, charter schools, educational collaboratives and Quincy College. The MTRS is part of the Commonwealth’s reporting entity and the audited financial report may be obtained by visiting http://www.mass.gov/osc/publications-and- reports/financial-reports/. Special Funding Situation The Commonwealth is a nonemployer contributor and is required by statute to make 100% of all actuarially determined employer contributions on behalf of the City to the MTRS. Therefore, the City is considered to be in a special funding situation as defined by GASB Statement No. 68, Accounting and Financial Reporting for Pensions ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 81 Comprehensive Annual Financial Report and the Commonwealth is a nonemployer contributor in MTRS. Since the City does not contribute directly to MTRS, there is no net pension liability to recognize. The total of the Commonwealth provided contributions have been allocated based on each employer’s covered payroll to the total covered payroll of employers in MTRS as of the measurement date of June 30, 2017. The City’s portion of the collective pension expense, contributed by the Commonwealth, of $14,100,491, is reported in the general fund as intergovernmental revenue and pension benefits in the current year. The portion of the Commonwealth’s collective net pension liability associated with the City is $135,097,228, as of the measurement date. Benefits Provided Both Systems provide retirement, disability, survivor and death benefits to members and beneficiaries. Massachusetts Contributory Retirement System benefits are, with certain minor exceptions, uniform from system to system. The Systems provides for retirement allowance benefits up to a maximum of 80% of a member’s highest three-year average annual rate of regular compensation. For persons who became members on or after April 2, 2012, average salary is the average annual rate of regular compensation received during the five consecutive years that produce the highest average, or, if greater, during the last five years (whether or not consecutive) preceding retirement. Benefit payments are based upon a member’s age, length of creditable service, level of compensation, and group classification. Members become vested after ten years of creditable service. Employees who resign from service and who are not eligible to receive a retirement allowance or are under the age of 55 are entitled to request a refund of their accumulated total deductions. Survivor benefits are extended to eligible beneficiaries of members whose death occurs prior to or following retirement. Cost-of-living adjustments granted between 1981 and 1997 and any increase in other benefits imposed by the Commonwealth’s state law during those years are borne by the Commonwealth and are deposited into the pension fund. Cost-of-living adjustments granted after 1997 must be approved by the Board and are borne by the System. There were no changes in benefit terms that effected the measurement of the total pension liability at December 31, 2017. At December 31, 2017, the System’s membership consists of the following: Active 1,072 Inactive 105 Disabled 56 Retirees and beneficiaries currently receiving benefits…. 510 1,743 Contributions Chapter 32 of the MGL governs the contributions of plan members and member units. Active plan members are required to contribute to the System at rates ranging from 5% to 9% of gross regular compensation with an additional 2% contribution required for compensation exceeding $30,000. The percentage rate is keyed to the date upon which an employee's membership commences. The member units are required to pay into the System a legislatively mandated actuarial determined contribution. The total member units’ contribution for the year ended December 31, 2017, was $13,172,909, 28.26% of covered payroll, actuarially determined as an amount that, when combined with plan member contributions, is expected to finance the costs of benefits earned by plan members during the year, with an additional amount to finance any unfunded accrued liability. The City’s proportionate share of the required contribution equaled its actual contribution for the year ended June 30, 2018, and totaled $11,087,694. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 82 Comprehensive Annual Financial Report Pension Liabilities The components of the net pension liability of the participating member units at June 30, 2018, were as follows: Total pension liability…………………………… $ 297,896,974 Total pension plan's fiduciary net position……… (177,516,472) Total net pension liability…………………………$ 120,380,502 The pension plan's fiduciary net position as a percentage of the total pension liability…… 59.59% At June 30, 2018, the City reported a liability of $101,324,784, for its proportionate share of the net pension liability. The net pension liability was measured as of December 31, 2017, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of January 1, 2018. Accordingly, update procedures were used to roll back the total pension liability to the measurement date. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating members. At December 31, 2017, the City’s proportion was 84.17%, which decreased from its 84.73% proportion measured at December 31, 2016. Pension Expense For the year ended June 30, 2018, the City recognized a pension expense of $11,834,820. At June 30, 2018, the City reported deferred outflows of resources related to pensions of $10,155,533, and reported deferred inflows of resources related to pensions of $9,736,899. The balances of deferred outflows and inflows at June 30, 2018, consist of the following: Deferred Deferred Outflows of Inflows of Deferred Category Resources Resources Total Differences between expected and actual experience………………$ - $ (3,527,861) $ (3,527,861) Difference between projected and actual earnings, - (5,598,189) (5,598,189) Changes in 9,924,478 - 9,924,478 Changes in proportion and proportionate share of contributions…… 231,055 (610,849) (379,794) Total deferred outflows/(inflows) of resources………………………$ 10,155,533 $ (9,736,899) $ 418,634 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 83 Comprehensive Annual Financial Report The City’s deferred outflows (inflows) of resources related to pensions will be recognized in pension expense as follows: Year ended June 30: 1,479,349 1,183,561 (490,022) (1,754,254) $ 418,634 Actuarial Assumptions The total pension liability in the January 1, 2018, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement that was rolled back to December 31, 2017: Valuation January 1, 2018 Actuarial cost method……………………… Entry Age Normal Cost Method Amortization method……………………… Increasing at 4.5% per year for 2002 and 2003 ERI and level dollar amortization for 2010 ERI, with total contribution increasing 5.15% per year Remaining amortization period…………… As of July 1, 2016, 15 years remaining for 2002 and 2003 ERI liability, 6 years remaining for 2010 ERI liability and 15 years for remaining unfunded liability Asset valuation method…………………… The difference between the expected return on an actuarial basis and the actual investment return on a market value basis is recognized over a five-year period. Asset value is adjusted as necessary to be within 20% of the market value Investment rate of return/Discount rate…… 7.375% (previously, 7.50%) Inflation 3.50% Projected salary increases………………… Varies by length of service with ultimate rates of 4.25% for Group 1, 4.50% for Group 2, and 4.75% for Group 4 Cost of living adjustments………………… 3.00% of first $12,000 Rates of retirement………………………… Varies based upon age for public employees, police and fire employees, hazardous occupation employees, and officers and inspectors of the State Police Mortality Rates: Pre-Retirement…………… RP-2014 Blue Collar Employee Mortality Table set forward one year for female participants projected generationally using Scale MP-2017 (Previously, RP-2000 Employee Mortality Table projected generationally from 2009 using Scale BB2D) Healthy Retiree…………… RP-2014 Blue Collar Healthy Annuitant Mortality Table set forward one year for female participants projected generationally using Scale MP-2017 (Previously, RP-2000 Healthy Annuitant Mortality Table projected generationally from 2009 using Scale BB2D) Disabled Retiree………… RP-2014 Blue Collar Healthy Annuitant Mortality Table set forward one year projected generationally using Scale MP-2017 (Previously, RP-2000 Healthy Annuitant Mortality Table projected generationally from 2015 using Scale BB2D) ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 84 Comprehensive Annual Financial Report Investment Policy The pension plan’s policy in regard to the allocation of invested assets is established by PRIT. Plan assets are managed on a total return basis with a long-term objective of achieving a fully funded status for the benefits provided through the pension plan. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage, adding expected inflation and subtracting expected investment expenses and a risk margin. The target allocation (approved by the Board) and projected arithmetic real rates of return for each major asset class, after deducting inflation, but before investment expenses, used in the derivation of the long-term expected investment rate of return assumption as of December 31, 2017, are summarized in the following table: Long-Term Expected Long-Term Expected Asset Class Asset Allocation Real Rate of Return Domestic 17.5% 6.15% International developed markets equity…… 15.5% 7.11% International emerging markets equity…… 6.0% 9.41% Core fixed 12.0% 1.68% High-yield fixed income…………………… 10.0% 4.13% Real 10.0% 4.90% Commodities………………………………… 4.0% 4.71% Hedge fund, GTAA, risk parity…………… 13.0% 3.94% Private 12.0% 10.28% 100.00% Rate of Return: For the year ended December 31, 2017, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expense, was 17.23%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Discount Rate: The discount rate used to measure the total pension liability was 7.375%. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate and that contributions will be made at rates equal to the actuarially determined contribution rated. Based on those assumptions, the System’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the Net Pension Liability to Changes in the Discount Rate: The following page presents the net position liability, calculated using the discount rate of 7.375%, as well as what the net position liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.375%) or 1-percentage-point higher (8.375%) than the current rate. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 85 Comprehensive Annual Financial Report Current 1% Decrease Discount 1% Increase (6.375%) (7.375%) (8.375%) The City's proportionate share of the net pension liability……………………$ 129,222,222 $ 101,324,784 $ 77,686,439 SCRS total net pension liability………… $ 153,524,490 $ 120,380,502 $ 92,296,594 December 31, 2017 Measurement Date Changes in Assumptions The following assumption changes were reflected in the January 1, 2018, actuarial valuation:  The investment return assumption was lowered from 7.50% to 7.375%.  The mortality assumption for non-disabled participants was updated from the RP-2000 Employee and Healthy Annuitant Mortality Tables projected generationally from 2009 with Scale BB2D to the RP-2014 Blue Collar Healthy Annuitant Mortality Table set forward one year for female participants projected generationally with Scale MP-2017.  The mortality assumption for disabled participants was changed from the RP-2000 Healthy Annuitant Mortality Table projected generationally from 2015 with Scale B2D to the RP-2014 Blue Collar Healthy Annuitant Mortality Table set forward one year projected generationally with Scale MP-2017.  The administrative expense assumption was decreased from $350,000 to $305,000. Changes in Plan Provisions There were no changes in plan provisions. NOTE 12 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Plan Description – City administers a single-employer defined benefit healthcare plan (“Plan”). The Plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s participation in the Group Insurance Commission of the Commonwealth of Massachusetts (GIC), which covers both active and retired members. Chapter 32b of the MGL assigns authority to establish and amend benefit provisions of the plan. The Retiree Health Plan does not issue a publicly available financial report. Benefit provisions are negotiated between the City and unions representing City employees and are renegotiated each bargaining period. The employer’s share for life insurance is 65% while the retiree is responsible for 35%. Regarding health insurance, these rates are dependent upon the individual’s date of retirement. The rates range from 10% to 35% for the retiree’s co- payment of the total premium, and 65% to 90% for the City. Funding Policy – Contribution requirements are also negotiated between the City and union representatives. The required contribution is based on a pay-as-you-go financing requirement. The City contributes 70% of the cost of current-year premiums for retirees in active plans, 65% for those in senior plans and 90% for retired teachers. The City contributes 50% for surviving spouses. Plan members receiving benefits contribute the remainder of their premium costs. For the year ended June 30, 2018, the City’s average contribution rate was 5.43% of covered-employee payroll. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 86 Comprehensive Annual Financial Report The Commonwealth of Massachusetts passed special legislation that has allowed the City to establish the other postemployment benefit trust fund to begin pre-funding its OPEB liabilities. The City has named the Health Care Security Board of Trustees as Trustees of the OPEB fund and as such has authorized the OPEB Trust Funds to be invested by Bartholomew & Company (the custodian). Investment of the fund monies by the custodian must be consistent with the prudent person standard set forth in MGL Chapter 203C for private trust funds. Interest earned on the investment of the fund monies belongs to the fund. During 2018, the City pre-funded future OPEB liabilities totaling $246,000, by contributing funds to the OPEB trust fund in excess of the pay-as-you-go required contribution. These funds are reported within the Fiduciary Fund financial statements. As of June 30, 2018, the net position of the OPEB trust fund totaled $2.6 million. Investment policy – The City’s policy in regard to the allocation of invested assets is established and may be amended by the Board of Selectmen by a majority vote of its members. The OPEB plan’s assets are managed on a total return basis with a long-term objective of achieving and maintaining a fully funded status for the benefits provided through the OPEB plan. The long-term real rate of return on OPEB investments was determined using the City’s OPEB trust investment policy. GASB Statement #74 – OPEB Plan Financial Reporting Measurement Date – GASB #74 requires the net OPEB liability to be measured as of the OPEB Plan’s most recent fiscal year-end. Accordingly, the net OPEB liability was measured as of June 30, 2018, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of June 30, 2016. Employees Covered by Benefit Terms – The following table represents the Plan’s membership at June 30, 2016: Active 822 Retired members of beneficiaries currently receiving benefits… 968 1,790 Components of OPEB Liability – The following table represents the components of the Plan’s OPEB liability as of June 30, 2018: Total OPEB liability………………………………$ 160,427,046 Less: OPEB plan's fiduciary net position……… (2,572,671) Net OPEB 157,854,375 The OPEB plan's fiduciary net position as a percentage of the total OPEB liability…… 1.60% Significant Actuarial Methods and Assumptions – The total OPEB liability in the June 30, 2016, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified, that was updated to June 30, 2018, to be in accordance with GASB Statement #74: ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 87 Comprehensive Annual Financial Report Valuation June 30, 2016 Actuarial cost method……………………… Entry Age Normal Amortization method……………………… Level percentage of payroll Remaining amortization period…………… 30 years from July 1, 2016 Asset valuation method…………………… Market Value Salary increase…………………………… Service-related increases for Group 1 (Excluding Teachers) and Group 2 Employees: 6.0% decreasing over 9 years to an ultimate level of 4.25%. Service-related increases for Group 4 members: 7.0% decreasing over 5 years to an ultimate level of 4.75%. Service-related increases for Teachers: 7.5% decreasing over 20 years to an ultimate level of 4.0% Discount 3.87% as of June 30, 2018 and 3.58% as of June 30, 2017 Investment rate of return………………… 7.50% Inflation 3.50% Health care trend rates: Non Medicare……………………… 6.3% for year 1, then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% Medicare Supplement……………… 0.4% for year 1, then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% Medicare Advantage………………… 8.9% for year 1, then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% Part 5.00% Contributions………………………… Non-Medicare and Medicare retiree contributions are expected to increase with the respective medical trends shown above Mortality rates: Pre-Retirement (Non-Teachers)…… RP-2000 Employee Mortality Table projected generationally from 2009 with Scale BB2D Healthy (Non-Teachers)…………… RP-2000 Healthy Annuitant Mortality Table projected generationally from 2009 with Scale BB2d Disabled (Non-Teachers)…………… RP-2000 Healthy Annuitant Mortality Table projected generationally from 2015 with Scale BB2d Pre-Retirement (Teachers)………… RP-2014 White Collar Employee Mortality Table projected generationally with Scale MP-2016 Healthy (Teachers)………………. RP-2014 White Collar Healthy Annuitant Mortality Table projected generationally with Scale MP-2016 Disabled (Teachers)………………. RP-2014 Healthy Annuitant Mortality Table set forward 4 years projected generationally with Scale BB from 2014 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 88 Comprehensive Annual Financial Report Rate of return – For the year ended June 30, 2018, the annual money-weighted rate of return on investments, net of investment expense, was 5.89%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. The long-term expected rate of return on OPEB plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return of by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation and subtracting expected investment expenses and a risk margin. The target allocation and projected arithmetic real rates of return for each major asset class, after deducting inflation, but before investment expenses, used in the derivation of the long-term expected investment rate of return assumption, as of June 30, 2018, are summarized in the table on the following page. Long-Term Expected Long-Term Expected Asset Class Asset Allocation Real Rate of Return Domestic 18.00% 6.15% International developed markets equity…… 16.00% 7.11% International emerging markets equity…… 6.00% 9.41% Core fixed 12.00% 1.68% High yield fixed income…………………… 10.00% 4.13% Real 10.00% 4.90% Commodities……………………………… 4.00% 4.71% Hedge fund, GTAA, risk parity…………… 13.00% 3.94% Private 11.00% 10.28% 100.00% Discount rate – The discount rate used to measure the total OPEB liability was 3.87% as of June 30, 2018 and 3.58% as of June 30, 2017. The projection of cash flows used to determine the discount rate assumed that contributions will be made in accordance with the Plan’s funding policy. Based on those assumptions, the OPEB plan’s fiduciary net position was projected to be insufficient to make all projected benefit payments to current plan members. Therefore the tax exempt general obligation municipal bonds with an average rate of AA/Aa or higher, which was based on the S&P Municipal Bond 20 – Year High Grade Index as of June 30, 2018, was applied to all periods. Sensitivity of the Net OPEB Liability to Changes in the Discount Rate – The following table presents the net other postemployment benefit liability and service cost, calculated using the discount rate of 3.87%, as well as what the net other postemployment benefit liability and service cost would be if it were calculated using a discount rate that is 1-percentage-point lower (2.87%) or 1-percentage-point higher (4.87%) than the current rate. Current 1% Decrease Discount Rate 1% Increase (2.87%) (3.87%) (4.87%) Net OPEB liability………$ 184,894,705 $ 157,854,375 $ 136,242,314 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 89 Comprehensive Annual Financial Report Sensitivity of the Net OPEB Liability to Changes in the Healthcare Trend – The following table presents the net other postemployment benefit liability and service cost, calculated using the current healthcare trend rate, as well as what the net other postemployment benefit liability and service cost would be if it were calculated using a healthcare trend rate that is 1-percentage-point lower or 1-percentage-point higher. 1% Decrease Current Trend 1% Increase Net OPEB liability…… $ 132,584,084 $ 157,854,375 $ 190,605,671 Changes of Assumptions – The discount rate was increased from 3.58% to 3.87%. Changes in Plan Provisions – None. GASB Statement #75 – OPEB Employer Financial Reporting Summary of Significant Accounting Policies – For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the Plan and additions to/deductions from the Plan’s fiduciary net position have been determined on the same basis as they are reported by the Plan. For this purpose, the Plan recognizes benefit payments when due and payable in accordance with the benefit terms. Investments are reported at fair value, except for money market investments and participating interest-earning investment contracts (repurchase agreements) that have a maturity at the time of purchase of one year or less, which are reported at cost. Measurement Date – GASB Statement #75 requires the net OPEB liability to be measured as of a date no earlier than the end of the employer’s prior fiscal year and no later than the end of the employer’s current fiscal year, consistently applied from period to period. Accordingly, the net OPEB liability was measured as of June 30, 2017, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of June 30, 2016. The plan membership and actuarial assumptions are consistent with those used for GASB Statement #74, since the same actuarial valuation was used. The long-term expected rate of return on OPEB plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return of by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation and subtracting expected investment expenses and a risk margin. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 90 Comprehensive Annual Financial Report The target allocation and projected arithmetic real rates of return for each major asset class, after deducting inflation, but before investment expenses, used in the derivation of the long-term expected investment rate of return assumption, as of June 30, 2017 are summarized in the following table: Long-Term Expected Long-Term Expected Asset Class Asset Allocation Real Rate of Return Domestic 18.00% 6.44% International developed markets equity…… 16.00% 7.40% International emerging markets equity…… 6.00% 9.20% Core fixed 12.00% 2.02% High yield fixed income…………………… 10.00% 4.43% Real 10.00% 5.00% Commodities……………………………… 4.00% 4.43% Hedge fund, GTAA, risk parity…………… 13.00% 3.75% Private 11.00% 10.47% 100.00% Discount rate – The discount rate used to measure the total OPEB liability was 3.58% as of June 30, 2017 and 2.85% as of June 30, 2016. The projection of cash flows used to determine the discount rate assumed that contributions will be made in accordance with the Plan’s funding policy. Based on those assumptions, the OPEB plan’s fiduciary net position was projected to be insufficient to make all projected benefit payments to current plan members. Therefore a yield or index rate for 20 year, tax exempt general obligation municipal bonds with an average rate of AA/Aa or higher, which was based on the S&P Municipal Bond 20 – Year High Grade Index as of June 30, 2017, was applied to all periods of projected future benefits payments. Changes in the Net OPEB Liability Plan Total OPEB Fiduciary Net OPEB Liability Net Position Liability - Balances at June 30, 2016………$ 171,129,227 $ 1,749,487 $ 169,379,740 Changes for the year: Service 8,252,716 - 8,252,716 Interest……………………… 5,052,006 - 5,052,006 Changes in assumptions…… (20,326,073) - (20,326,073) Contributions - employer…… - 4,536,167 (4,536,167) Net investment income……… - 170,769 (170,769) Benefit payments…………… (4,267,124) (4,267,124) - Net change……………… (11,288,475) 439,812 (11,728,287) Balances at June 30, 2017………$ 159,840,752 $ 2,189,299 $ 157,651,453 Increase (Decrease) ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 91 Comprehensive Annual Financial Report Sensitivity of the Net OPEB Liability to Changes in the Discount Rate – The following table presents the net other postemployment benefit liability, calculated using the discount rate of 3.58%, as well as what the net other postemployment benefit liability would be if it were calculated using a discount rate that is 1-percentage-point lower (2.58%) or 1-percentage-point higher (4.58%) than the current discount rate. Current 1% Decrease Discount Rate 1% Increase (2.58%) (3.58%) (4.58%) Net OPEB liability…… $ 185,396,485 $ 157,651,453 $ 135,547,971 Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rates – The following table presents the net other postemployment benefit liability, calculated using the current healthcare trend, as well as what the net other postemployment benefit liability would be if it were calculated using a healthcare trend rate that is 1-percentage-point lower or 1-percentage-point higher. 1% Decrease Current Trend 1% Increase Net OPEB liability………$ 133,089,808 $ 157,651,453 $ 189,474,498 OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB – For the year ended June 30, 2018, the GASB Statement #75 measurement date, the City recognized OPEB expense of $9,600,725. At June 30, 2018, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred Deferred Outflows of Inflows of Deferred Category Resources Resources Total Difference between projected and actual earnings……………$ - $ (23,574) $ (23,574) Changes in assumptions………………………………………… - (16,938,394) (16,938,394) Contributions made subsequent to the measurement date…… 4,705,291 - 4,705,291 Total deferred outflows/(inflows) of resources…………………$ 4,705,291 $ (16,961,968) $ (12,256,677) Rate of return – As of June 30, 2017, the annual money-weighted rate of return on investments, net of investment expense, was 9.08%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 92 Comprehensive Annual Financial Report Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: For the year ended June 30: $ (3,393,573) (3,393,573) (3,393,573) (3,393,571) (3,387,678) Subtotal amortized deferred outflows/(inflows) of (16,961,968) Contributions made subsequent to the measurement 4,705,291 Total deferred outflows/(inflows) of resources……… $ (12,256,677) Changes of Assumptions – The discount rate was increased from 2.85% to 3.58%. Changes in Plan Provisions – None. NOTE 13 – FINANCIAL STATEMENTS FOR INDIVIDUAL PENSION AND OTHER EMPLOYEE BENEFITS TRUST FUND GAAP requires that all Pension and Other Employee Benefit Trust Funds be combined and presented in one column in the Fiduciary Funds financial statements and that the individual financial statements for each trust fund plan are reported in the notes to the financial statements. Provided below are the individual financial statements for the pension and OPEB plans that are included in the Fiduciary Funds as Pension and Other Employee Benefit Trust Funds. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 93 Comprehensive Annual Financial Report Total Pension Pension Other and Other Trust Fund Employee Employee (as of December Benefit Benefit 31, 2017) Trust Fund Trust Funds ASSETS Cash and cash equivalents……………………………… $ 213,636 $ 8,942 $ 222,578 Investments: Investments in Pension Reserve Investment Trust…… 175,313,753 - 175,313,753 Equity mutual - 1,854,277 1,854,277 Repurchase agreements……………………………… 1,610,414 709,452 2,319,866 Alternative investments………………………………… 112,468 - 112,468 Receivables, net of allowance for uncollectibles: Departmental and 189,693 - 189,693 Capital assets, net of accumulated depreciation………… 85,156 - 85,156 TOTAL 177,525,120 2,572,671 180,097,791 LIABILITIES Warrants 8,648 - 8,648 NET POSITION Restricted for 177,516,472 - 177,516,472 Restricted for other postemployment benefits…………… - 2,572,671 2,572,671 TOTAL NET $ 177,516,472 $ 2,572,671 $ 180,089,143 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 94 Comprehensive Annual Financial Report Total Pension Pension Other and Other Trust Fund Postemployment Postemployment (as of December Benefit Benefit 31, 2017) Trust Fund Trust Funds ADDITIONS: Contributions: Employer 13,172,909 $ 246,147 $ 13,419,056 Employer contributions for other postemployment benefit payments…… - 4,459,144 4,459,144 Member 4,454,440 - 4,454,440 Transfers from other 636,186 - 636,186 3(8)c contributions from other 179,521 - 179,521 State COLA reimbursements……………………………………………… 68,796 - 68,796 Member makeup payments and redeposits……………………………… 34,141 - 34,141 Total 18,545,993 4,705,291 23,251,284 Net investment income: Investment 26,233,897 137,225 26,371,122 Less: investment (846,174) - (846,174) Net investment 25,387,723 137,225 25,524,948 TOTAL 43,933,716 4,842,516 48,776,232 DEDUCTIONS: 270,574 - 270,574 Transfers to other 578,480 - 578,480 3(8)c transfer to other 648,419 - 648,419 Retirement benefits and 15,356,905 - 15,356,905 3,125 - 3,125 Other postemployment benefit - 4,459,144 4,459,144 TOTAL 16,857,503 4,459,144 21,316,647 NET INCREASE IN NET 27,076,213 383,372 27,459,585 NET POSITION AT BEGINNING OF 150,440,259 2,189,299 152,629,558 NET POSITION AT END OF 177,516,472 $ 2,572,671 $ 180,089,143 NOTE 14 – MAJOR TAXPAYER The Salem Harbor Power Station is the City’s largest taxpayer. The power plant in August of 2012 changed ownership from Dominion Energy to Footprint Power LLC. From a revenue perspective, at the end of FY2011, the City’s tax agreement with Dominion expired. Prior to this date, the City received a total payment from Dominion Energy in the amount of $4.75 million for FY2011, $3 million in tax dollars within the tax levy and $1.75 million dollars designated as a “host fee” accounted for as miscellaneous non-recurring revenues. In FY2011, Dominion announced major operational changes shutting down two of their power generating units due to market conditions and regulatory challenges at the state level. Due to the implementation of state regulations impacting its operations, during the FY2012 budget process, the Massachusetts Legislature adopted a proposal to ensure that Salem taxpayers will not be overly burdened by lost revenues from the power plant ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 95 Comprehensive Annual Financial Report through 2017. Chapter 68 of the Acts of 2011, Section 33 states that “…the municipality shall be entitled to reimbursement for the difference between the amount called for….prior to the full or partial decommissioning or the change in operating status of the facility.” This legislation postpones the financial impact of the loss of a major taxpayer. More importantly, it allows the City to work toward replacing the lost revenues and planning for an appropriate reuse of the site. As of December 2014, the City has negotiated, and the City Council approved, an 18 year PILOT agreement with Footprint Power LLC. This agreement will utilize the “hold harmless agreement” of $4.75 million from the State during construction through 2019, with payments increasing steadily as the plan becomes up and running. A graduated escalation factor will result in the City receiving over $99,242,000 for the duration of the contract, or $5.5 million a year; a 16% increase over the current tax level collected. In addition to the negotiated PILOT agreement, the City was able to draft and finalize a community benefits agreement which will provide the City and School District with over $4.4 million in additional funding. In early 2018, Footprint began producing electricity in the new plant with a state-of-the-art 630 megawatt gas-fired plant using a portion of the site and has plans to open the remaining two-thirds of the 63 acre waterfront property to private and public development opportunities. NOTE 15 – LANDFILL CLOSURE State and federal laws and regulations require the City to construct a final capping system on its inactive landfill site, the Salem Transfer Station, when it stops accepting waste and to perform certain maintenance and monitoring functions at the site after closure. The City has stopped accepting waste at the site and the site is closed. The City is the owner and permittee of the Salem Transfer Station site. During 2017, the City discontinued its relationship with the long-time operator of the site and has approved a final plan for the City to cap the site and to construct a new transfer station on the site. As a result, the City has issued bonds for $644,000 and has authorized and unissued debt for $1.6 million. The City recorded a liability of $2.25 million in the entity-wide financial statements for the total estimated post closure costs. Actual costs may be higher due to inflation, changes in technology, or changes in applicable laws, regulations or agreements. NOTE 16 – COMMITMENTS The City has various commitments related to ongoing construction projects which will be financed through long- term borrowing. These projects include $1.6 million for the transfer station, $5 million for senior center construction, $18.2 million for water and sewer projects and $2.3 million for various other capital projects. In fiscal year 2015, the City entered into an agreement with Alternative Therapies Group, Inc. (ATG), a Massachusetts not for profit Corporation, on April 14th 2014. Alternative Therapies Group, Inc. wanted to locate a registered marijuana dispensary in the City. Per the agreement, in the first two years ATG shall pay the City annually a sum equal to 1.25% of the total gross annual sales. Such payments shall be made annually at the end of the first 12 months of operations and the end of the first 24 months of operations. In the third year of operations and for all subsequent years, unless renegotiated, ATG shall pay the City annually a sum of 3.0% of the total gross annual sales. The City received its first payment in fiscal year 2016 and has since has collected $618,000. In fiscal year 2017, the City entered into a Community Benefits Agreement with North Shore Medical Center (NSMC) that consists of support for a broad range of City needs and programs. The agreement, which is in addition to the regular annual payment in lieu of taxes that the hospital provides to the City, comes as NSMC is ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 96 Comprehensive Annual Financial Report undergoing a significant campus consolidation and expansion project. The agreement is intended to address and mitigate the disruption and impact that the project will have on the City. Under the terms of the agreement, NSMC will provide approximately $1.7 million over the next seven years for various City endeavors. Additionally, NSMC will allow attendees at sporting events at Salem’s Bertram Field to utilize NSMC’s parking lot at 55 Highland Avenue for event parking on evenings and weekends; NSMC will work collaboratively with the City on the design and implementation of a South Salem Commuter Rail stop; and NSMC will maintain its current support for ongoing community public health programs and activities in the City, including the current annual payment in lieu of taxes of $125,000. NOTE 17 – CONTINGENCIES The City participates in a number of federal award programs. Although the grant programs have been audited in accordance with the provisions of the Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, these programs are still subject to financial and compliance audits. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time, although it is expected such amounts, if any, to be immaterial. Various legal actions and claims are pending. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not always predictable. Although the amount of the liability, if any, at June 30, 2018, cannot be ascertained, management believes any resulting liability should not materially affect the financial position at June 30, 2018. NOTE 18 – REVISION OF PRIOR BALANCES AND NET POSITION PREVIOUSLY REPORTED The City revised its beginning net position as of July 1, 2017 to the reflect the implementation of GASB Statement #75 Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. The cumulative effect of the revision is presented in the following table. As of June 30, 2017, the governmental and business-type activities net position, and nonmajor governmental fund balance, have been revised. In fiscal 2018, management determined that the golf course fund, previously reported as a business-type activity, should now be reported as a governmental fund because it is management’s current policy that all costs, including capital costs, i.e. depreciation and debt service, will not be funded with through fees and charges. The beginning net position, and fund balance, have been revised in the table on the following page. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 97 Comprehensive Annual Financial Report Previously Reported Implementation Golf course Revised Balances of GASB #75 fund Balances Government-Wide Financial Statements Governmental activities…………………………$ 49,834,179 $ (106,495,766) $ 742,363 $ (55,919,224) Business-type activities……………………… 13,029,725 (210,787) (742,363) 12,076,575 $ 62,863,904 $ (106,706,553) $ - $ (43,842,649) Business-type Activities - Enterpise Funds Water and Sewer 11,786,034 $ (87,828) $ - $ 11,698,206 Golf Course 742,363 - (742,363) - Trash 501,328 (122,959) - 378,369 $ 13,029,725 $ (210,787) $ (742,363) $ 12,076,575 Governmental Funds Nonmajor governmental 18,541,239 $ - $ 500,258 $ 19,041,497 NOTE 19 – SUBSEQUENT EVENTS Management has evaluated subsequent events through December 18, 2018, which is the date the financial statements were available to be issued. NOTE 20 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During 2018, the following GASB pronouncements were implemented:  GASB Statement #75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. The basic financial statements, related notes and required supplementary information were updated to be in compliance with this pronouncement.  GASB Statement #81, Irrevocable Split-Interest Agreements. This pronouncement did not impact the basic financial statements.  GASB Statement #85, Omnibus 2017. This pronouncement did not impact the basic financial statements.  GASB Statement #86, Certain Debt Extinguishment Issues. This pronouncement did not impact the basic financial statements. The following GASB pronouncements will be implemented in the future:  The GASB issued Statement #83, Certain Asset Retirement Obligations, which is required to be implemented in 2019.  The GASB issued Statement #84, Fiduciary Activities, which is required to be implemented in 2019.  The GASB issued Statement #87, Leases, which is required to be implemented in 2021. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2018 City of Salem, Massachusetts 98 Comprehensive Annual Financial Report  The GASB issued Statement #88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements, which is required to be implemented in 2019.  The GASB issued Statement #89, Accounting for Interest Cost Incurred before the End of a Construction Period, which is required to be implemented in 2021.  The GASB issued Statement #90, Majority Equity Interests – an amendment of GASB Statements #14 and #61, which is required to be implemented in 2020. Management is currently assessing the impact the implementation of these pronouncements will have on the basic financial statements. ---PAGE BREAK--- City of Salem, Massachusetts 99 Comprehensive Annual Financial Report Required Supplementary Information Required Supplementary Information ---PAGE BREAK--- City of Salem, Massachusetts 100 Comprehensive Annual Financial Report General Fund Budgetary Comparison Schedule General fund budgetary comparison schedule The General Fund is the general operating fund of the City. It is used to account for the entire City’s financial resources, except those required to be accounted for in another fund. ---PAGE BREAK--- GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2018 Amounts Current Year Actual Amounts Variance Carried Forward Initial Original Final Budgetary Carried Forward to Final From Prior Year Budget Budget Budget Amounts To Next Year Budget REVENUES: Real estate and personal property taxes, net of tax $ - $ 93,162,354 $ 93,162,354 $ 93,162,354 $ 93,033,940 $ - $ (128,414) Tax - - - - 406,226 - 406,226 Motor vehicle and other excise taxes……………… - 4,000,000 4,000,000 4,000,000 4,456,037 - 456,037 Hotel/motel - 798,000 798,000 798,000 755,910 - (42,090) Meals - 1,000,000 1,000,000 1,000,000 1,089,955 - 89,955 Charges for - 2,250,000 2,250,000 2,250,000 2,034,201 - (215,799) Penalties and interest on - 430,000 430,000 430,000 491,762 - 61,762 Payments in lieu of - 1,000,000 1,000,000 1,000,000 1,572,535 - 572,535 Licenses and - 500,000 500,000 500,000 533,820 - 33,820 Fines and forfeitures………………………………… - 800,000 800,000 800,000 1,004,571 - 204,571 Intergovernmental - state - 30,157,339 30,157,339 30,157,339 30,873,976 - 716,637 Intergovernmental - School Building Authority……… - 732,824 732,824 732,824 732,824 - - Departmental and - 3,250,000 3,250,000 3,250,000 3,355,323 - 105,323 Investment - 200,000 200,000 200,000 246,422 - 46,422 TOTAL REVENUES……………………… - 138,280,517 138,280,517 138,280,517 140,587,502 - 2,306,985 EXPENDITURES: Current: General government City Council Personnel………………………………… - 149,950 149,950 149,950 149,325 - 625 Non - Personnel…………………………… - 35,950 35,950 93,950 93,763 - 187 - 185,900 185,900 243,900 243,088 - 812 Mayor Personnel………………………………… - 387,958 387,958 388,461 388,461 - - Non - Personnel…………………………… 6,300 167,200 173,500 172,998 158,574 700 13,724 6,300 555,158 561,458 561,459 547,035 700 13,724 Finance/Auditing Personnel………………………………… - 297,142 297,142 284,407 252,676 - 31,731 Non - Personnel…………………………… 23,100 51,220 74,320 87,055 43,878 30,000 13,177 23,100 348,362 371,462 371,462 296,554 30,000 44,908 Purchasing Personnel………………………………… - 127,395 127,395 127,395 124,709 - 2,686 Non - Personnel…………………………… - 18,850 18,850 18,850 12,666 - 6,184 Fixed - 63,412 63,412 71,412 69,025 - 2,387 - 209,657 209,657 217,657 206,400 - 11,257 Assessors Personnel………………………………… - 304,063 304,063 306,318 306,312 - 6 Non - Personnel…………………………… 2,000 24,200 26,200 23,945 22,341 1,600 4 2,000 328,263 330,263 330,263 328,653 1,600 10 Treasurer Personnel………………………………… - 238,310 238,310 238,310 238,309 - 1 Non - Personnel…………………………… - 116,884 116,884 149,884 143,943 - 5,941 - 355,194 355,194 388,194 382,252 - 5,942 Collector Personnel………………………………… - 226,364 226,364 238,364 237,289 - 1,075 Non - Personnel…………………………… - 8,300 8,300 8,300 7,460 - 840 - 234,664 234,664 246,664 244,749 - 1,915 Solicitor Personnel………………………………… - 280,808 280,808 280,808 280,664 - 144 Non - Personnel…………………………… - 62,300 62,300 62,300 61,400 - 900 - 343,108 343,108 343,108 342,064 - 1,044 Human Resources Personnel………………………………… - 238,604 238,604 240,404 240,332 - 72 Non - Personnel…………………………… - 31,450 31,450 31,450 26,742 23 4,685 - 270,054 270,054 271,854 267,074 23 4,757 (continued) Budgeted Amounts City of Salem, Massachusetts 101 Comprehensive Annual Financial Report ---PAGE BREAK--- GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2018 Amounts Current Year Actual Amounts Variance Carried Forward Initial Original Final Budgetary Carried Forward to Final From Prior Year Budget Budget Budget Amounts To Next Year Budget Budgeted Amounts Data Processing Personnel………………………………… - 830,380 830,380 830,380 796,751 - 33,629 Non - Personnel…………………………… - 24,750 24,750 24,750 20,490 - 4,260 Fixed 126,889 866,733 993,622 993,622 948,450 18,950 26,222 126,889 1,721,863 1,848,752 1,848,752 1,765,691 18,950 64,111 City Clerk Record Maintenance Personnel………………………………… - 290,581 290,581 290,581 273,293 - 17,288 Non - Personnel…………………………… 9,002 9,700 18,702 18,702 11,946 6,756 9,002 300,281 309,283 309,283 285,239 - 24,044 Elections & Registrations Personnel………………………………… - 122,970 122,970 125,470 122,134 - 3,336 Non - Personnel…………………………… - 75,657 75,657 73,157 72,437 - 720 - 198,627 198,627 198,627 194,571 - 4,056 Conservation Commission Personnel………………………………… - 29,401 29,401 29,401 26,545 - 2,856 Non - Personnel…………………………… - 1,108 1,108 1,108 1,054 54 - - 30,509 30,509 30,509 27,599 54 2,856 Subdivision, Planning, and Zoning Board Personnel………………………………… - 30,918 30,918 30,918 30,237 - 681 Non - Personnel…………………………… - 4,500 4,500 4,500 337 158 4,005 - 35,418 35,418 35,418 30,574 158 4,686 Board of Appeals Non - Personnel…………………………… - 400 400 400 196 - 204 Planning Department Personnel………………………………… - 441,150 441,150 446,350 439,403 - 6,947 Non - Personnel…………………………… 20,000 101,807 121,807 138,807 112,535 17,754 8,518 20,000 542,957 562,957 585,157 551,938 17,754 15,465 Public Property/Building Maintenance Fixed 5,000 720,625 725,625 725,625 699,666 655 25,304 . Market and - 244,425 244,425 244,425 241,772 - 2,653 Total General Government……………………… 192,291 6,625,465 6,817,756 6,952,757 6,655,115 69,894 227,748 Public safety Police Personnel………………………………… - 9,875,733 9,875,733 9,939,739 9,764,632 - 175,107 Non - Personnel…………………………… 28,660 671,887 700,547 789,182 724,714 8,740 55,728 28,660 10,547,620 10,576,280 10,728,921 10,489,346 8,740 230,835 Fire Personnel………………………………… - 8,357,575 8,357,575 8,536,104 8,514,095 - 22,009 Non - Personnel…………………………… 13,164 442,911 456,075 508,473 461,996 - 46,477 13,164 8,800,486 8,813,650 9,044,577 8,976,091 - 68,486 Building, Plumbing, Gas Inspections Personnel………………………………… - 527,429 527,429 515,014 475,447 - 39,567 Non - Personnel…………………………… - 39,600 39,600 53,215 41,435 - 11,780 - 567,029 567,029 568,229 516,882 - 51,347 Electrical Inspection and Maintenance Personnel………………………………… - 395,823 395,823 395,823 379,414 - 16,409 Non - Personnel…………………………… - 379,900 379,900 403,900 314,933 2,554 86,413 - 775,723 775,723 799,723 694,347 2,554 102,822 Harbormaster Personnel………………………………… - 230,440 230,440 230,440 214,669 - 15,771 Non - Personnel…………………………… 22,226 49,000 71,226 71,226 62,285 2,512 6,429 22,226 279,440 301,666 301,666 276,954 2,512 22,200 Total Public 64,050 20,970,298 21,034,348 21,443,116 20,953,620 13,806 475,690 (continued) City of Salem, Massachusetts 102 Comprehensive Annual Financial Report ---PAGE BREAK--- GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2018 Amounts Current Year Actual Amounts Variance Carried Forward Initial Original Final Budgetary Carried Forward to Final From Prior Year Budget Budget Budget Amounts To Next Year Budget Budgeted Amounts Education 106,554 56,807,834 56,914,388 57,183,725 56,935,803 63,977 183,945 NSRS/Charter/Choice…………………… - 2,414,672 2,414,672 2,291,866 2,281,622 - 10,244 Total 106,554 59,222,506 59,329,060 59,475,591 59,217,425 63,977 194,189 Public Works Public Services Personnel………………………………… - 1,734,825 1,734,825 1,734,825 1,704,953 - 29,872 Non - Personnel…………………………… - 752,891 752,891 1,026,087 976,230 - 49,857 - 2,487,716 2,487,716 2,760,912 2,681,183 - 79,729 Engineering Personnel………………………………… - 94,394 94,394 94,394 80,413 - 13,981 Non - Personnel…………………………… - 6,200 6,200 6,200 4,577 - 1,623 - 100,594 100,594 100,594 84,990 - 15,604 Snow and Ice Personnel………………………………… - 50,000 50,000 50,000 93,515 - (43,515) Non - Personnel…………………………… - 408,935 408,935 408,935 1,836,760 - (1,427,825) - 458,935 458,935 458,935 1,930,275 - (1,471,340) Parking Garage Personnel………………………………… - 695,557 695,557 695,557 636,324 - 59,233 Non - Personnel…………………………… 39,309 216,132 255,441 255,441 250,894 1,911 2,636 39,309 911,689 950,998 950,998 887,218 1,911 61,869 Total Public 39,309 3,958,934 3,998,243 4,271,439 5,583,666 1,911 (1,314,138) Health and Human Services Board of Health Personnel………………………………… - 461,969 461,969 465,769 406,990 - 58,779 Non - Personnel…………………………… 500 32,500 33,000 32,500 25,074 310 7,116 500 494,469 494,969 498,269 432,064 310 65,895 Council on Aging Personnel………………………………… 17,000 354,216 371,216 371,216 348,967 - 22,249 Non - Personnel…………………………… 3,000 37,950 40,950 60,950 51,531 1,251 8,168 20,000 392,166 412,166 432,166 400,498 1,251 30,417 Veterans Services Personnel………………………………… - 109,084 109,084 109,089 109,088 - 1 Non - Personnel…………………………… 223 522,709 522,932 524,427 319,641 52,185 152,601 223 631,793 632,016 633,516 428,729 52,185 152,602 Total Health and Human Services……………… 20,723 1,518,428 1,539,151 1,563,951 1,261,291 53,746 248,914 Culture and Recreation Library Personnel………………………………… - 1,015,251 1,015,251 1,015,251 937,203 - 78,048 Non - Personnel…………………………… 20,967 309,829 330,796 330,796 327,307 - 3,489 20,967 1,325,080 1,346,047 1,346,047 1,264,510 - 81,537 Parks and Recreation Personnel………………………………… - 282,958 282,958 282,958 281,861 - 1,097 Non - Personnel…………………………… - 233,485 233,485 233,485 210,561 - 22,924 - 516,443 516,443 516,443 492,422 - 24,021 Golf Course Personnel………………………………… - 305,812 305,812 305,812 297,247 - 8,565 Non - Personnel…………………………… - 223,972 223,972 303,617 289,161 - 14,456 - 529,784 529,784 609,429 586,408 - 23,021 Witch House Personnel………………………………… - 131,051 131,051 131,051 126,725 - 4,326 Non - Personnel…………………………… - 67,480 67,480 67,480 63,522 - 3,958 - 198,531 198,531 198,531 190,247 - 8,284 (continued) City of Salem, Massachusetts 103 Comprehensive Annual Financial Report ---PAGE BREAK--- GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2018 Amounts Current Year Actual Amounts Variance Carried Forward Initial Original Final Budgetary Carried Forward to Final From Prior Year Budget Budget Budget Amounts To Next Year Budget Budgeted Amounts Historical Commission Personnel………………………………… - 9,036 9,036 9,036 8,736 - 300 Non - Personnel…………………………… - 1,250 1,250 1,250 464 - 786 - 10,286 10,286 10,286 9,200 - 1,086 Winter Island Personnel………………………………… - 177,366 177,366 177,366 156,895 - 20,471 Non - Personnel…………………………… - 52,300 52,300 52,300 39,609 - 12,691 - 229,666 229,666 229,666 196,504 - 33,162 Pioneer Village Non - Personnel…………………………… - 17,900 17,900 17,900 16,930 - 970 Total Culture and Recreation………………… 20,967 2,827,690 2,848,657 2,928,302 2,756,221 - 172,081 Debt service: - 4,312,000 4,312,000 4,312,000 4,312,000 - - - 1,602,783 1,602,783 1,602,784 1,602,781 - 3 Short Term 25,000 200,822 225,822 265,222 238,079 - 27,143 Capital Lease - 491,588 491,588 491,588 491,588 - - 25,000 6,607,193 6,632,193 6,671,594 6,644,448 - 27,146 State and county - 8,947,490 8,947,490 8,947,490 8,376,492 - 570,998 Pension benefits Contributory Retirement…………………………… - 10,933,812 10,933,812 10,933,812 10,915,833 - 17,979 Non-Contributory Retirement…………………… - 19,935 19,935 19,935 18,857 - 1,078 - 10,953,747 10,953,747 10,953,747 10,934,690 - 19,057 Workmen's Compensation…………………………… - 448,832 448,832 451,432 451,363 - 69 Unemployment Compensation……………………… - 400,000 400,000 397,400 175,123 100,000 122,277 Group - 12,868,727 12,868,727 13,114,874 12,600,550 - 514,324 - 1,080,484 1,080,484 1,163,890 1,163,889 - 1 Municipal - 317,907 317,907 317,907 244,290 - 73,617 TOTAL EXPENDITURES………………… 468,894 136,747,701 137,216,595 138,653,490 137,018,183 303,334 1,331,973 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES………………… (468,894) 1,532,816 1,063,922 (372,973) 3,569,319 (303,334) 3,638,958 OTHER FINANCING SOURCES (USES): Premium from issuance of - - - - 4,856 - 4,856 Transfers - 2,599,934 2,599,934 3,018,108 3,043,369 - 25,261 Transfers - (5,135,816) (5,135,816) (7,319,607) (7,321,513) - (1,906) TOTAL OTHER FINANCING SOURCES - (2,535,882) (2,535,882) (4,301,499) (4,273,288) - 28,211 NET CHANGE IN FUND BALANCE……………………… (468,894) (1,003,066) (1,471,960) (4,674,472) (703,969) (303,334) 3,667,169 BUDGETARY FUND BALANCE, Beginning of year…… - 8,279,163 8,279,163 8,279,163 8,279,163 - - BUDGETARY FUND BALANCE, End of year………… $ (468,894) $ 7,276,097 $ 6,807,203 $ 3,604,691 $ 7,575,194 $ (303,334) $ 3,667,169 (concluded) See notes to required supplementary information. City of Salem, Massachusetts 104 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 105 Comprehensive Annual Financial Report Pension Plan Schedules – Retirement System Pension Plan Schedules – Retirement System The Pension Plan’s Schedule of Changes in the Net Pension Liability presents multi-year trend information on the net pension liability and related ratios. The Pension Plan’s Schedule of Contributions presents multi-year trend information on the required and actual contributions to the pension plan and related ratios. The Pension Plan’s Schedule of Investment Returns presents multi-year trend information on the money-weighted investment return on retirement assets, net of investment expense. These schedules are intended to present information for ten years. Until a ten year trend is compiled, information is presented for those years for which information is available. ---PAGE BREAK--- December 31, December 31, December 31, December 31, 2014 2015 2016 2017 Total pension liability: Service $ 5,854,030 $ 6,097,323 $ 6,350,728 $ 6,879,418 18,557,934 19,386,667 20,274,843 21,023,506 Changes in benefit - - - - Differences between expected and actual experience…… - - (5,574,549) (1,058,253) Changes in assumptions……………………………………… - - 12,360,928 5,467,970 Benefit (14,146,676) (13,777,134) (14,776,958) (15,699,301) Interest on benefit - - - - Net change in total pension liability…………………………… 10,265,288 11,706,856 18,634,992 16,613,340 Total pension liability - beginning……………………………… 240,676,498 250,941,786 262,648,642 281,283,634 Total pension liability - ending $ 250,941,786 $ 262,648,642 $ 281,283,634 $ 297,896,974 Plan fiduciary net position: Employer contributions…………………………………………$ 11,942,341 $ 12,181,169 $ 12,527,730 $ 13,172,909 Member contributions………………………………………… 3,939,454 4,121,728 4,311,175 4,488,581 Net investment income 9,022,647 659,962 10,046,275 25,387,723 Administrative (242,294) (238,374) (266,216) (273,699) Retirement benefits and (14,146,676) (13,777,134) (14,776,958) (15,699,301) Net increase (decrease) in fiduciary net position……………… 10,515,472 2,947,351 11,842,006 27,076,213 Fiduciary net position - beginning of 123,879,403 135,650,902 138,598,253 150,440,259 Adjustment to include members transferred from Essex Agricultural and Technical School 1,256,027 - - - Fiduciary net position - end of year $ 135,650,902 $ 138,598,253 $ 150,440,259 $ 177,516,472 Net pension liability - ending $ 115,290,884 $ 124,050,389 $ 130,843,375 $ 120,380,502 Plan fiduciary net position as a percentage of the total pension 54.06% 52.77% 53.48% 59.59% Covered $ 40,399,678 $ 42,015,665 $ 45,841,256 $ 46,608,505 Net pension liability as a percentage of covered 285.38% 295.25% 285.43% 258.28% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. Essex Agricultural and Technical School merged with Regional Vocational Technical School in 2014. As a result of this merger, 39 active and inactive members of Essex Agricultural and Technical School were transferred from Essex Regional Retirement System to Salem Contributory Retirement System and the annuity savings fund balances of those members, totaling $1,256,027, were also transferred. The 2014 total pension liability and fiduciary net position have been amended to include the liabilities and assets of these members that were transferred subsequent to year end. See notes to required supplementary information. SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 106 Comprehensive Annual Financial Report ---PAGE BREAK--- Contributions in relation to the Contributions as Actuarially actuarially Contribution a percentage of determined determined deficiency Covered covered Year contribution contribution (excess) payroll payroll December 31, 2017…… $ 13,172,909 $ (13,172,909) $ - $ 46,608,505 28.26% December 31, 2016…… 12,527,730 (12,527,730) - 45,841,256 27.33% December 31, 2015…… 12,013,685 (12,181,169) (167,484) 42,015,665 28.99% December 31, 2014…… 11,942,341 (11,942,341) - 40,399,678 29.56% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF CONTRIBUTIONS SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 107 Comprehensive Annual Financial Report ---PAGE BREAK--- Annual money-weighted rate of return, Year net of investment expense December 31, 17.23% December 31, 7.41% December 31, 0.51% December 31, 7.58% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF INVESTMENT RETURNS SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 108 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 109 Comprehensive Annual Financial Report Pension Plan Schedules – City Pension Plan Schedules – City The Schedule of the City’s Proportionate Share of the Net Pension Liability presents multi-year trend information on the City’s net pension liability and related ratios. The Schedule of City Contributions presents multi-year trend information on the City’s required and actual contributions to the pension plan and related ratios. The Schedule of the Special Funding Amounts of the Net Pension Liability for the Massachusetts Teachers Contributory Retirement System presents multi-year trend information on the liability and expense assumed by the Commonwealth of Massachusetts on behalf of the City along with related ratios. These schedules are intended to present information for ten years. Until a ten year trend is compiled, information is presented for those years for which information is available. ---PAGE BREAK--- Net pension Plan fiduciary Proportionate liability as a net position as Proportion of share of the percentage of a percentage of the net pension net pension Covered covered the total Year liability liability payroll payroll pension liability December 31, 2017…… 84.17% $ 101,324,784 $ 35,989,977 281.54% 59.59% December 31, 2016…… 84.73% 110,864,597 35,015,154 316.62% 53.48% December 31, 2015…… 84.67% 105,037,687 33,907,437 309.78% 52.77% December 31, 2014…… 84.01% 96,851,803 32,603,305 297.06% 54.06% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 110 Comprehensive Annual Financial Report ---PAGE BREAK--- Contributions in relation to the Contributions as Actuarially actuarially Contribution a percentage of determined determined deficiency Covered covered Year contribution contribution (excess) payroll payroll June 30, 2018…… $ 11,087,694 $ (11,087,694) $ - $ 35,989,977 30.81% June 30, 2017…… 10,513,908 (10,513,908) - 35,015,154 30.03% June 30, 2016…… 10,071,175 (10,238,659) (167,484) 33,907,437 30.20% June 30, 2015…… 10,121,621 (10,121,621) - 32,603,305 31.04% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF THE CITY'S CONTRIBUTIONS SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 111 Comprehensive Annual Financial Report ---PAGE BREAK--- Year Commonwealth's 100% Share of the Associated Net Pension Liability Expense and Revenue Recognized for the Commonwealth's Support Plan Fiduciary Net Position as a Percentage of the Total Liability $ 135,097,228 $ 14,100,491 54.25% 129,844,131 13,244,953 52.73% 125,868,567 10,209,061 61.43% 97,197,542 6,752,780 61.64% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF THE SPECIAL FUNDING AMOUNTS OF THE NET PENSION LIABILITY MASSACHUSETTS TEACHERS' RETIREMENT SYSTEM The Commonwealth of Massachusetts is a nonemployer contributor and is required by statute to make all actuarially determined employer contributions on behalf of the member employers which creates a special funding situation. Therefore, there is no net pension liability to recognize. This schedule discloses the Commonwealth's 100% share of the associated collective net pension liability; the portion of the collective pension expense as both a revenue and pension expense recognized; and the Plan's fiduciary net position as a percentage of the total liability. City of Salem, Massachusetts 112 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 113 Comprehensive Annual Financial Report Other Postemployment Benefit Plan Schedules Other postemployment benefit plan schedules The Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios presents multi-year trend information on changes in the Plan’s total OPEB liability, changes in the Plan’s net position, and ending net OPEB liability. It also demonstrates the Plan’s net position as a percentage of the total liability and the Plan’s net other postemployment benefit liability as a percentage of covered-employee payroll. The Schedule of the City’s Contributions presents multi-year trend information on the City’s actual contributions to the other postemployment benefit plan and related ratios. The Schedule of Investment Returns presents multi-year trend information on the money-weighted investment return on the Plan’s other postemployment assets, net of investment expense. ---PAGE BREAK--- June 30, June 30, 2017 2018 Total OPEB Liability Service 8,252,716 $ 6,389,170 5,052,006 5,871,915 Changes of benefit - - Differences between expected and actual experience…… - - Changes of assumptions……………………………………… (20,326,073) (7,215,647) Benefit (4,267,124) (4,459,144) Net change in total OPEB liability……………………………… (11,288,475) 586,294 Total OPEB liability - 171,129,227 159,840,752 Total OPEB liability - ending 159,840,752 $ 160,427,046 Plan fiduciary net position Employer contributions……………………………..…………$ 269,044 $ 246,147 Employer contributions for OPEB payments……………… 4,267,124 4,459,144 Net investment 170,768 137,225 Benefit (4,267,124) (4,459,144) Net change in plan fiduciary net position……………………… 439,812 383,372 Plan fiduciary net position - beginning of year……………… 1,749,487 2,189,299 Plan fiduciary net position - end of year 2,189,299 $ 2,572,671 Net OPEB liability - ending 157,651,453 $ 157,854,375 Plan fiduciary net position as a percentage of the total OPEB 1.37% 1.60% Covered-employee $ 82,395,392 $ 86,683,070 Net OPEB liability as a percentage of covered-employee 191.34% 182.11% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF CHANGES IN THE CITY'S NET OPEB LIABILITY AND RELATED RATIOS OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 114 Comprehensive Annual Financial Report ---PAGE BREAK--- Contributions in relation to the Contributions as Actuarially actuarially Contribution a percentage of determined determined deficiency Covered- covered- Year contribution contribution (excess) employee payroll employee payroll June 30, 2018…… $ 8,076,359 $ (4,705,291) $ 3,371,068 $ 86,683,070 5.43% June 30, 2017…… 7,625,880 (4,536,167) 3,089,713 82,395,392 5.51% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF THE CITY'S CONTRIBUTIONS OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 115 Comprehensive Annual Financial Report ---PAGE BREAK--- Annual money-weighted rate of return, Year net of investment expense June 30, 5.89% June 30, 9.08% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF INVESTMENT RETURNS OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 116 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2018 City of Salem, Massachusetts 117 Comprehensive Annual Financial Report NOTE A – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Notes to required supplementary information 1. Budgetary Information Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without a recommendation of the Mayor, the Council may not make any appropriation for a purpose not included in the proposed budget, except by a two-thirds vote in the case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the Council. The Council may not increase any item without the recommendation of the Mayor (except as provided by legislation, recommendation of the school committee or regional district school committee and by two-thirds vote of the Council, provided that such increase does not cause the total annual budget to exceed the property tax limitations). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. City department heads are generally required to submit their budget requests to the Mayor between January 1, March 1, and December 1. This does not apply to the school department, which must submit its request in time for the Mayor to include it in the submission to the Council. If the Mayor does not make a timely budget submission, provision is made for preparation of a budget by the Council. Provision is also made for supplementary appropriations upon recommendation of the Mayor. Water and Sewer department expenditures are included in the budgets adopted by City Council. Under recent legislation, the City Council on the recommendation of the Mayor may transfer during May and June, and the first fifteen days of July, any amount appropriated for the use of any department to the appropriation for any other department, provided that no such transfer may be made from any appropriation for a school department, regional school district, or municipal light department. The majority of appropriations are non-continuing which lapse at the end of each year. Others are continuing appropriations for which the governing body has authorized that an unspent balance from a prior year be carried forward and made available for spending in the current year. These carry forwards are included as part of the subsequent year’s original budget. Generally, expenditures may not exceed the legal level of spending (salaries, expenses and capital) authorized for an appropriation account. However, the payment of debt service is statutorily required, regardless of whether such amounts are appropriated. Additionally, expenditures for disasters, natural or otherwise, and final judgments may exceed the level of spending authorized by two-thirds majority vote of the City Council. An annual budget is adopted for the general fund in conformity with the guidelines described above. The original 2018 approved budget authorized approximately $142.4 million in appropriations and other amounts to be raised. During the year, increases to the original budget were approved totaling approximately $3.6 million. The most notable components of this increase include an additional $3.2 million in available funds (free cash) appropriated to fund stabilization reserves, capital improvements, other postemployment benefits trust, pension reserves and various additional appropriations. The Finance Department has the responsibility to ensure that budgetary control is maintained. Budgetary control is exercised through the accounting system. ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2018 City of Salem, Massachusetts 118 Comprehensive Annual Financial Report 2. Budgetary - GAAP Reconciliation For budgetary financial reporting purposes, the Uniform Municipal Accounting System basis of accounting (established by the Commonwealth) is followed, which differs from the GAAP basis of accounting. A reconciliation of budgetary-basis to GAAP-basis results for the general fund for the year ended June 30, 2018, is presented below: Net change in fund balance - budgetary basis………………$ (703,969) Perspective differences: Activity of the stabilization fund recorded in the general fund for (73,611) Activity of the Bentley Charter School…………………… 98,239 Basis of accounting differences: Net change in recording tax refunds payable…………… (45,958) Net change in recording 60 day receipts………………… (228,341) Net change in recording accrued expenditures………… (17,806) Recognition of revenue for on-behalf payments………… 14,100,491 Recognition of expenditures for on-behalf payments…… (14,100,491) Net change in fund balance - GAAP (971,446) 3. Appropriation Deficits During 2018, expenditures exceeded budgeted appropriations for snow and ice removal. This over expenditure is allowable under Massachusetts General Law. The City will fund this deficit in the next fiscal year. NOTE B – PENSION PLAN Pension Plan Schedules – Retirement System A. Schedule of Changes in the Net Pension Liability and Related Ratios The Schedule of Changes in the Net Pension Liability and Related Ratios includes the detailed changes in the System’s total pension liability, changes in the System’s net position, and the ending net pension liability. It also demonstrates the plan’s net position as a percentage of the total pension liability and the net pension liability as a percentage of covered payroll. B. Schedule of Contributions Governmental employers are required to pay an annual appropriation as established by PERAC. The appropriation includes the amounts to pay the pension portion of each member’s retirement allowance, an amount to amortize the actuarially determined unfunded liability to zero in accordance with the system’s funding schedule, and additional appropriations in accordance with adopted early retirement incentive programs. The appropriations are payable on July 1 and January 1. Employers may choose to pay the entire appropriation in July at a discounted rate. Accordingly, actual employer contributions may be less than the “total appropriation”. The appropriations are allocated amongst employers based on an actuarial valuation. ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2018 City of Salem, Massachusetts 119 Comprehensive Annual Financial Report C. Schedule of Investment Return The money weighted rate of return is calculated as the internal rate of return on pension plan investments, net of pension plan investment expense. A money weighted rate of return expresses investment performance, net of pension plan investment expense, adjusted for the changing amounts actually invested. Inputs to the money weighted rate of return calculation are determined Pension Plan Schedules - City A. Schedule of the City’s Proportionate Share of the Net Pension Liability The Schedule of the City’s Proportionate Share of the Net Pension Liability details the allocated percentage of the net pension liability (asset), the proportionate share of the net pension liability, and the covered employee payroll. It also demonstrates the net position as a percentage of the pension liability and the net pension liability as a percentage of covered payroll. B. Schedule of City’s Contributions Governmental employers are required to pay an annual appropriation as established by PERAC. The appropriation includes the amounts to pay the pension portion of each member’s retirement allowance, an amount to amortize the actuarially determined unfunded liability to zero in accordance with the system’s funding schedule, and additional appropriations in accordance with adopted early retirement incentive programs. The appropriations are payable on July 1 and January 1. The City may choose to pay the entire appropriation in July at a discounted rate. Accordingly, actual contributions may be less than the “total appropriation”. C. Schedule of the Special Funding Amounts of the Net Pension Liabilities The Commonwealth of Massachusetts is a nonemployer contributor and is required by statute to make all actuarially determined employer contributions on behalf of the member employers which creates a special funding situation. Since the City does not contribute directly to MTRS, there is no net pension liability to recognize. This schedule discloses the Commonwealth's 100% share of the collective net pension liability that is associated with the City; the portion of the collective pension expense as both revenue and pension expense recognized by the City; and the Plan's fiduciary net position as a percentage of the total liability. Changes in Assumptions The following assumption changes were reflected in the January 1, 2018 actuarial valuation:  The investment return assumption was lowered from 7.50% to 7.375%.  The mortality assumption for non-disabled participants was updated from the RP-2000 Employee and Healthy Annuitant Mortality Tables projected generationally from 2009 with Scale BB2D to the RP-2014 Blue Collar Healthy Annuitant Mortality Table set forward one year for female participants projected generationally with Scale MP-2017.  The mortality assumption for disabled participants was changed from the RP-2000 Healthy Annuitant Mortality Table projected generationally from 2015 with Scale B2D to the RP-2014 Blue Collar Healthy Annuitant Mortality Table set forward one year projected generationally with Scale MP-2017.  The administrative expense assumption was decreased from $350,000 to $305,000. ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2018 City of Salem, Massachusetts 120 Comprehensive Annual Financial Report Changes in Plan Provisions – None. NOTE C – OTHER POSTEMPLOYMENT BENEFITS The City administers a single-employer defined benefit healthcare plan (“The Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s participation in the Group Insurance Commission of the Commonwealth of Massachusetts (GIC) which covers both active and retired members. Additionally, retired teachers and their spouses receive health insurance through the Group Insurance Commission of the Commonwealth of Massachusetts (GIC). Each participating municipality is assessed for the governmental share of health and life insurance premiums paid on behalf of its teacher retirees by the state. The Other Postemployment Benefit Plan Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios The Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios presents multi-year trend information on changes in the Plan’s total OPEB liability, changes in the Plan’s net position, and ending net OPEB liability. It also demonstrates the Plan’s net position as a percentage of the total liability and the Plan’s net other postemployment benefit liability as a percentage of covered employee payroll. Schedule of the City’s Contributions The Schedule of the City’s Contributions includes the City’s annual required contribution to the Plan, along with the contribution made in relation to the actuarially determined contribution and the covered employee payroll. The City is not required to fully fund this contribution. It also demonstrates the contributions as a percentage of covered payroll. Actuarially contribution rates are calculated as of June 30, two years prior to the end of the fiscal year in which contributions are reported. Methods and assumptions used to determine contribution rates are as follows: Valuation June 30, 2016 Actuarial cost method……………………… Entry Age Normal Amortization method……………………… Level percentage of payroll Remaining amortization period…………… 30 years from July 1, 2016 Asset valuation method…………………… Market Value Salary increase…………………………… Service-related increases for Group 1 (Excluding Teachers) and Group 2 Employees: 6.0% decreasing over 9 years to an ultimate level of 4.25%. Service-related increases for Group 4 members: 7.0% decreasing over 5 years to an ultimate level of 4.75%. Service-related increases for Teachers: 7.5% decreasing over 20 years to an ultimate level of 4.0% Discount 3.87% as of June 30, 2018 and 3.58% as of June 30, 2017 Investment rate of return………………… 7.50% Inflation 3.50% ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2018 City of Salem, Massachusetts 121 Comprehensive Annual Financial Report Health care trend rates: Non Medicare……………………… 6.3% for year 1, then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% Medicare Supplement……………… 0.4% for year 1, then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% Medicare Advantage………………… 8.9% for year 1, then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% Part 5.00% Contributions………………………… Non-Medicare and Medicare retiree contributions are expected to increase with the respective medical trends shown above Mortality rates: Pre-Retirement (Non-Teachers)…… RP-2000 Employee Mortality Table projected generationally from 2009 with Scale BB2D Healthy (Non-Teachers)…………… RP-2000 Healthy Annuitant Mortality Table projected generationally from 2009 with Scale BB2d Disabled (Non-Teachers)…………… RP-2000 Healthy Annuitant Mortality Table projected generationally from 2015 with Scale BB2d Pre-Retirement (Teachers)………… RP-2014 White Collar Employee Mortality Table projected generationally with Scale MP-2016 Healthy (Teachers)………………. RP-2014 White Collar Healthy Annuitant Mortality Table projected generationally with Scale MP-2016 Disabled (Teachers)………………. RP-2014 Healthy Annuitant Mortality Table set forward 4 years projected generationally with Scale BB from 2014 Schedule of Investment Returns The Schedule of Investment Returns includes the money-weighted investment return on the Plan’s other postemployment assets, net of investment expense. Changes in Assumptions – The discount rate was increased from 3.58% to 3.87% as of June 30, 2018. Changes in Plan Provisions – None ---PAGE BREAK--- City of Salem, Massachusetts 122 Comprehensive Annual Financial Report This page left intentionally blank. ---PAGE BREAK--- City of Salem, Massachusetts 123 Comprehensive Annual Financial Report Combining and Individual Fund Statements Combining and Individual Fund Statements ---PAGE BREAK--- City of Salem, Massachusetts 124 Comprehensive Annual Financial Report Nonmajor governmental funds Nonmajor Governmental Funds Special Revenue Funds Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. School Grants Fund – This fund is used to account for the educational programs specifically financed by federal, state, and other grants which are designated for specific programs. Community Development Grants Fund – This fund is used to account for community development activity specifically financed by federal, state, and other grants which are designated for specific programs. School Lunch Fund – This fund is used to account for all cafeteria activities and is funded by user charges, federal and state grants and commodities received. Highway Grants Fund – This fund is used to account for construction, reconstruction and improvements to roadways, streets and sidewalks. Funding is provided primarily by grants. Donations and Gifts Fund – This fund is used to account for gifts which have been accepted by the City to be used for the purpose specified by the donor. Receipts Reserved Fund – This fund is used to account for receipts reserved for appropriation. City Revolving Accounts Fund – This fund is used to account for non-school related revolving funds specifically allowed by the laws of the Commonwealth of Massachusetts. These funds are expended for purposes specified by the enabling statute. School Revolving Accounts Fund – This fund is used to account for school related revolving funds specifically allowed by the laws of the Commonwealth of Massachusetts. These funds are expended for purposes specified by the enabling statutes. City Wharf Project Fund – This fund is used to account for the fourth phase of the wharf project which includes improvements to the harborwalk, docks, walkways and pier construction. Capital Project Funds School Capital Projects- This fund is used to account for school capital projects. Other Funds – This fund is used to account for various capital projects not reported as major funds. Permanent Funds Permanent funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support governmental programs. Cemetery Fund – This fund is used to account for cemetery perpetual care contributions and expenditures. Human Service Fund – This fund is used to account for various contributions associated with human service activities. Other Funds – This fund is used to account for various contributions associated with governmental programs. ---PAGE BREAK--- Community School Development School Highway Donations Grants Grants Lunch Grants and Gifts ASSETS Cash and cash equivalents…………………………… $ 1,130,359 $ - $ 428,695 $ - $ 439,912 - - - - 276,211 Receivables, net of uncollectibles: Departmental and - - - - - Intergovernmental - 137,261 62,382 - 1,137,262 - - 136,679 - - - TOTAL $ 1,267,620 $ 199,061 $ 428,695 $ 1,137,262 $ 716,123 LIABILITIES Accrued $ 156,633 $ 5,658 $ 25,512 $ - $ 346 Due to other - 29,795 - 244,353 - TOTAL LIABILITIES…………………………………… 156,633 35,453 25,512 244,353 346 DEFERRED INFLOWS OF RESOURCES Unavailable - 136,679 - 892,909 - FUND BALANCES Nonspendable………………………………………… - - - - - 1,110,987 26,929 403,183 - 715,777 TOTAL FUND BALANCES…………………………… 1,110,987 26,929 403,183 - 715,777 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES…………… $ 1,267,620 $ 199,061 $ 428,695 $ 1,137,262 $ 716,123 (continued) NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2018 Special Revenue Funds City of Salem, Massachusetts 125 Comprehensive Annual Financial Report ---PAGE BREAK--- City School City Receipts Revolving Revolving Wharf Reserved Accounts Accounts Project Subtotal ASSETS Cash and cash equivalents…………………………… $ 2,311,103 $ 1,150,269 $ 312,693 $ 531,057 $ 6,304,088 - - - - 276,211 Receivables, net of uncollectibles: Departmental and 83,991 - - - 83,991 Intergovernmental - - - - - 1,336,905 - 134,192 - - 270,871 TOTAL 2,395,094 $ 1,284,461 $ 312,693 $ 531,057 $ 8,272,066 LIABILITIES Accrued $ - $ 84 $ 11,155 $ - $ 199,388 Due to other - - - - 274,148 TOTAL LIABILITIES…………………………………… - 84 11,155 - 473,536 DEFERRED INFLOWS OF RESOURCES Unavailable 83,991 134,192 - - 1,247,771 FUND BALANCES Nonspendable……………………………………… - - - - - 2,311,103 1,150,185 301,538 531,057 6,550,759 TOTAL FUND BALANCES…………………………… 2,311,103 1,150,185 301,538 531,057 6,550,759 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES……………$ 2,395,094 $ 1,284,461 $ 312,693 $ 531,057 $ 8,272,066 Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2018 City of Salem, Massachusetts 126 Comprehensive Annual Financial Report ---PAGE BREAK--- Total School Other Nonmajor Capital Capital Human Governmental Projects Projects Subtotal Cemetery Service Other Subtotal Funds $ 6,845 $ 226,010 $ 232,855 $ 259,693 $ 99,748 $ 162,411 $ 521,852 $ 7,058,795 - - - 3,754,585 1,613,469 1,361,991 6,730,045 7,006,256 - - - - - - - 83,991 - - - - - - - 1,336,905 - - - - - - - 270,871 $ 6,845 $ 226,010 $ 232,855 $ 4,014,278 $ 1,713,217 $ 1,524,402 $ 7,251,897 $ 15,756,818 $ - $ - $ - $ - $ - $ - $ - $ 199,388 - - - - - - - 274,148 - - - - - - - 473,536 - - - - - - - 1,247,771 - - - 1,244,281 534,708 451,368 2,230,357 2,230,357 6,845 226,010 232,855 2,769,997 1,178,509 1,073,034 5,021,540 11,805,154 6,845 226,010 232,855 4,014,278 1,713,217 1,524,402 7,251,897 14,035,511 $ 6,845 $ 226,010 $ 232,855 $ 4,014,278 $ 1,713,217 $ 1,524,402 $ 7,251,897 $ 15,756,818 (concluded) Permanent Funds Capital Project Funds City of Salem, Massachusetts 127 Comprehensive Annual Financial Report ---PAGE BREAK--- Community School Development School Highway Donations Grants Grants Lunch Grants and Gifts REVENUES: Charges for - $ - $ - $ - $ - Penalties and interest on - - - - - Intergovernmental - 5,600,588 1,176,107 2,270,401 909,691 - Departmental and 1,143,702 187,909 143,357 - - Contributions and - - - - 120,966 Investment - 33 - - 27,841 TOTAL 6,744,290 1,364,049 2,413,758 909,691 148,807 EXPENDITURES: Current: General - - - - 16,004 Public - - - - 16,168 7,557,475 - 2,352,944 - 103,399 Public - - - 912,057 - Community development………………………………………… - 1,363,285 - - - Health and human - - - - 74,328 Culture and - - - - 13,162 TOTAL EXPENDITURES……………………………………… 7,557,475 1,363,285 2,352,944 912,057 223,061 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES………………………………… (813,185) 764 60,814 (2,366) (74,254) OTHER FINANCING SOURCES (USES): Premium from issuance of - - - - - Transfers 21,979 - - 43,466 10,000 Transfers (21,979) - - - - Capital - - - - - TOTAL OTHER FINANCING SOURCES (USES)………… - - - 43,466 10,000 NET CHANGE IN FUND BALANCES……………………………… (813,185) 764 60,814 41,100 (64,254) FUND BALANCES AT BEGINNING OF YEAR, AS REVISED…… 1,924,172 26,165 342,369 (41,100) 780,031 FUND BALANCES AT END OF $ 1,110,987 $ 26,929 $ 403,183 $ - $ 715,777 NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2018 Special Revenue Funds City of Salem, Massachusetts 128 Comprehensive Annual Financial Report ---PAGE BREAK--- City School City School Other Receipts Revolving Revolving Wharf Capital Capital Reserved Accounts Accounts Project Subtotal Projects Projects Subtotal $ 759,208 $ - $ - - $ 759,208 $ - $ - $ - 2,590 - - - 2,590 - - - - 65,250 - - 10,022,037 - - - 820,342 887,457 895,083 - 4,077,850 - 49,031 49,031 - 4,062 - - 125,028 - - - - 1,715 828 - 30,417 - - - 1,582,140 958,484 895,911 - 15,017,130 - 49,031 49,031 - 183,171 - - 199,175 - 1,236 1,236 28,173 11,777 - - 56,118 - - - - - 1,083,485 - 11,097,303 - - - - - - - 912,057 - - - - 37,929 - - 1,401,214 - - - - 88,143 - - 162,471 - - - 57,316 313,977 - - 384,455 - - - 85,489 634,997 1,083,485 - 14,212,793 - 1,236 1,236 1,496,651 323,487 (187,574) - 804,337 - 47,795 47,795 556,991 - - - 556,991 - - - - - - - 75,445 - - - (1,955,069) - - - (1,977,048) (2,661,500) - (2,661,500) - - - - - (2,260,269) - (2,260,269) (1,398,078) - - - (1,344,612) (4,921,769) - (4,921,769) 98,573 323,487 (187,574) - (540,275) (4,921,769) 47,795 (4,873,974) 2,212,530 826,698 489,112 531,057 7,091,034 4,928,614 178,215 5,106,829 $ 2,311,103 $ 1,150,185 $ 301,538 $ 531,057 $ 6,550,759 $ 6,845 $ 226,010 $ 232,855 (continued) Capital Project Funds Special Revenue Funds City of Salem, Massachusetts 129 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Human Governmental Cemetery Service Other Subtotal Funds REVENUES: Charges for - $ - $ - $ - $ 759,208 Penalties and interest on - - - - 2,590 Intergovernmental - - - - - 10,022,037 Departmental and - - 3,182 3,182 4,130,063 Contributions and 29,100 - (3,055) 26,045 151,073 Investment 388,725 132,461 96,821 618,007 648,424 TOTAL 417,825 132,461 96,948 647,234 15,713,395 EXPENDITURES: Current: General - - - - 200,411 Public - - 21,726 21,726 77,844 - - - - 11,097,303 Public 155,306 - - 155,306 1,067,363 Community development………………………………………… - - - - 1,401,214 Health and human - 61,939 - 61,939 224,410 Culture and - - - - 384,455 TOTAL EXPENDITURES……………………………………… 155,306 61,939 21,726 238,971 14,453,000 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES………………………………… 262,519 70,522 75,222 408,263 1,260,395 OTHER FINANCING SOURCES (USES): Premium from issuance of - - - - 556,991 Transfers - - - - 75,445 Transfers - - - - (4,638,548) Capital - - - - (2,260,269) TOTAL OTHER FINANCING SOURCES (USES)………… - - - - (6,266,381) NET CHANGE IN FUND BALANCES……………………………… 262,519 70,522 75,222 408,263 (5,005,986) FUND BALANCES AT BEGINNING OF YEAR, AS REVISED…… 3,751,759 1,642,695 1,449,180 6,843,634 19,041,497 FUND BALANCES AT END OF $ 4,014,278 $ 1,713,217 $ 1,524,402 $ 7,251,897 $ 14,035,511 (concluded) Permanent Funds City of Salem, Massachusetts 130 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 131 Comprehensive Annual Financial Report Private Purpose Trust Funds Private purpose trust funds Trust Fund Commissioners – This fund is used to account for trusts held by the City to benefit individuals and is administered by the City’s Board of Trust Fund Commissioners. Scholarship Funds – This fund is used to account for scholarships held by the City to benefit individuals. ---PAGE BREAK--- Total Private Trust Fund Scholarship Purpose Commissioners Funds Trust Funds ASSETS Cash and cash equivalents…………$ 81,870 $ 121,091 $ 202,961 Investments: Equity securities………………… 839,247 - 839,247 Fixed income mutual funds……… 485,038 - 485,038 TOTAL 1,406,155 121,091 1,527,246 NET POSITION Held in trust for other purposes…… $ 1,406,155 $ 121,091 $ 1,527,246 PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF NET POSITION JUNE 30, 2018 City of Salem, Massachusetts 132 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Private Trust Fund Scholarship Purpose Commissioners Funds Trust Funds ADDITIONS: Contributions: Private donations………………………………$ - $ 26,203 $ 26,203 Net investment income: Investment 108,528 1,659 110,187 TOTAL ADDITIONS……………………… 108,528 27,862 136,390 DEDUCTIONS: Health and human services…………………… 38,626 - 38,626 Educational scholarships……………………… 6,700 27,357 34,057 TOTAL DEDUCTIONS…………………… 45,326 27,357 72,683 NET INCREASE IN NET POSITION…… 63,202 505 63,707 NET POSITION AT BEGINNING OF YEAR…… 1,342,953 120,586 1,463,539 NET POSITION AT END OF YEAR…………… $ 1,406,155 $ 121,091 $ 1,527,246 PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2018 City of Salem, Massachusetts 133 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 134 Comprehensive Annual Financial Report Agency fund Agency Fund This fund is used primarily to account for payroll withholdings, police and fire details, escrow deposits and unclaimed property. ---PAGE BREAK--- AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES YEAR ENDED JUNE 30, 2018 June 30, June 30, 2017 Additions Deletions 2018 CURRENT: Cash and cash equivalents…… $ 652,922 $ 64,868,030 $ (65,037,094) $ 483,858 Liabilities due depositors……… $ 652,922 $ 64,868,030 $ (65,037,094) $ 483,858 ASSETS LIABILITIES City of Salem, Massachusetts 135 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 136 Comprehensive Annual Financial Report This page intentionally left blank ---PAGE BREAK--- Statistical Section Winter Island During the 1930's, the United States Coast Guard created a Search & Rescue Base here on Winter Island Park. The Frigate USS Essex was built and launched in 1799 from this location. It served General George Washington in the U.S. Navy. The three bunkers located in historic Fort Pickering once stored ammunition as early as the Civil War. Winter Island had Salem's first tavern and first shipyard. A fort was erected as early as 1643. In 1867, the War department "turned over" to the city "for public use" the part of the island not occupied by the fort, until it should be wanted for defense. On December 28, 1928, Salem's Park Department took formal possession of the island. The fort was renamed Fort Pickering, after Colonel Timothy Pickering, Secretary of State and War in Washington's Cabinet. Winter Island is located at 50 Winter Island Road in Salem, Massachusetts. It offers RV and Tent Camping May 1 to Nov 1, a public boat ramp that is open year round, Waikiki Beach a public beach with lifeguards, seasonal dinghy rack spaces, and a camp and gift store. Picnic areas can be rented May 1 through Nov 1. Winter Island offers a walking tour where you can see the historic Fort Pickering Lighthouse and is a stop along the Salem Trolley Tour. A function hall is available for year round rentals and is a great place for weddings and more! Go to www.salem.com Recreation Department for more information. ---PAGE BREAK--- City of Salem, Massachusetts 137 Comprehensive Annual Financial Report Statistical Section This part of the comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. Financial Trends  These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time. Revenue Capacity  These schedules contain information to help the reader assess the City’s most significant local revenue source, the property tax. Debt Capacity  These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future. Demographic and Economic Information  These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place. Operating Information  These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs. SOURCES: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. ---PAGE BREAK--- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Governmental activities Net investment in capital assets…………… $ 147,373,757 $ 147,313,749 $ 144,887,020 $ 147,692,495 $ 169,750,602 $ 170,092,864 $ 172,084,606 $ 171,154,358 $ 176,860,142 $ 179,897,226 Restricted……………………………………… 6,968,580 6,892,267 10,562,103 11,197,635 12,499,976 14,383,949 12,047,560 9,234,701 11,301,791 11,216,626 Unrestricted…………………………………… (13,473,169) (17,907,226) (17,992,385) (21,617,069) (22,562,824) (116,481,627) (125,845,138) (126,419,624) (244,081,157) (254,025,690) Total governmental activities net position…… $ 140,869,168 $ 136,298,790 $ 137,456,738 $ 137,273,061 $ 159,687,754 $ 67,995,186 $ 58,287,028 $ 53,969,435 $ (55,919,224) $ (62,911,838) Business-type activities Net investment in capital assets…………… 6,939,001 $ 8,245,799 $ 8,248,186 $ 8,605,165 $ 9,562,558 $ 8,511,138 $ 8,744,920 $ 8,280,350 $ 8,340,720 $ 9,066,385 Unrestricted…………………………………… 6,371,380 3,920,927 4,366,232 4,085,318 4,857,190 6,184,586 3,008,694 3,573,341 3,735,855 3,803,300 Total business-type activities net position…… $ 13,310,381 $ 12,166,726 $ 12,614,418 $ 12,690,483 $ 14,419,748 $ 14,695,724 $ 11,753,614 $ 11,853,691 $ 12,076,575 $ 12,869,685 Primary government Net investment in capital assets…………… 154,312,758 $ 155,559,548 $ 153,135,206 $ 156,297,660 $ 179,313,160 $ 178,604,002 $ 180,829,526 $ 179,434,708 $ 185,200,862 $ 188,963,611 Restricted……………………………………… 6,968,580 6,892,267 10,562,103 11,197,635 12,499,976 14,383,949 12,047,560 9,234,701 11,301,791 11,216,626 Unrestricted…………………………………… (7,101,789) (13,986,299) (13,626,153) (17,531,751) (17,705,634) (110,297,041) (122,836,444) (122,846,283) (240,345,302) (250,222,390) Total primary government net position…………$ 154,179,549 $ 148,465,516 $ 150,071,156 $ 149,963,544 $ 174,107,502 $ 82,690,910 $ 70,040,642 $ 65,823,126 $ (43,842,649) $ (50,042,153) GASB 68 was implemented in 2015 and the net pension liability was recorded which changed the 2014 net position for the first time. GASB 75 was implemented in 2018 and the net other postemployment benefits liability was recorded. Fiscal year 2017 was revised to reflect this implementation. In 2018 it was determined the golf course fund would be more appropriately reported as a governmental fund, accordingly beginning net position for governmental and business-type activities was revised. Net Position By Component Last Ten Years City of Salem, Massachusetts 138 Comprehensive Annual Financial Report ---PAGE BREAK--- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Expenses Governmental activities: General $ 10,914,012 $ 10,865,152 $ 11,702,186 $ 11,904,711 $ 10,574,021 $ 10,080,121 $ 12,503,170 $ 11,788,264 $ 12,327,559 $ 13,502,981 Public 27,421,538 26,755,783 27,989,181 26,551,919 27,832,445 29,879,444 29,652,698 29,707,698 32,046,642 32,001,933 79,410,738 83,743,843 86,938,434 91,261,655 95,924,303 100,837,487 100,997,380 105,955,199 114,049,284 116,239,977 Public 6,705,986 6,820,639 8,894,659 5,952,380 8,848,271 9,092,995 11,878,911 12,627,503 10,846,604 10,560,810 Community development……………………………………… 2,093,618 3,226,360 1,845,141 1,530,786 1,347,731 1,304,481 1,569,281 1,033,601 1,335,941 1,404,147 Health and human 6,226,498 6,622,114 5,930,089 6,001,130 6,140,975 5,788,579 6,850,201 6,793,390 6,714,390 6,326,856 Community preservation……………………………………… 5,350 356,518 80,610 456,019 923,668 Culture and 3,228,906 3,169,224 2,997,090 3,219,315 3,429,452 3,589,253 3,277,578 3,585,339 3,576,595 4,177,418 2,396,187 1,888,315 1,582,033 1,544,887 1,277,709 1,328,888 1,349,443 1,313,435 1,646,278 1,379,029 Total government activities expenses……………………………… 138,397,483 143,091,430 147,878,813 147,966,783 155,374,907 161,906,598 168,435,180 172,885,039 182,999,312 186,516,819 Business-type activities: Water and sewer 11,488,868 11,796,038 10,752,161 10,921,100 11,169,816 11,241,391 12,386,557 11,694,630 10,787,708 11,472,948 Golf 278,007 399,023 363,625 438,613 465,210 466,834 472,708 531,307 552,606 905,834 844,615 991,722 1,042,610 1,052,780 968,159 2,558,263 2,573,421 2,617,948 2,744,963 2,648,564 2,373,876 2,448,400 2,762,022 2,917,405 3,125,896 Total business type activities expenses…………………………… 15,230,972 15,613,097 14,725,456 15,147,286 15,336,370 15,050,260 15,307,665 14,987,959 14,257,719 14,598,844 Total primary government expenses……………………………… $ 153,628,455 $ 158,704,527 $ 162,604,269 $ 163,114,069 $ 170,711,277 $ 176,956,858 $ 183,742,845 $ 187,872,998 $ 197,257,031 $ 201,115,663 Program Revenues Governmental activities: Education charges for services……………………………… $ 1,473,880 $ 1,370,250 $ 1,277,950 $ 1,271,626 $ 1,171,221 $ 1,275,125 $ 1,036,778 $ 1,224,683 $ 807,217 $ 951,076 Public Safety charges for services…………………………… 2,456,341 2,074,324 2,115,452 2,212,295 2,780,253 2,237,189 2,712,983 2,289,056 3,257,068 2,589,149 Other charges for 1,693,333 1,824,040 1,744,351 1,872,305 2,264,412 2,345,324 4,762,457 4,971,335 5,576,210 6,403,324 Operating grants and contributions………………………… 43,744,124 46,352,034 51,358,511 47,872,700 49,028,512 50,489,073 46,826,741 52,223,253 54,915,403 56,548,429 Capital grant and contributions……………………………… 8,762,642 4,135,374 5,197,515 5,699,571 30,643,446 8,496,589 5,050,922 7,213,351 7,576,188 2,514,534 Total government activities program revenues...………………… 58,130,320 55,756,022 61,693,779 58,928,497 85,887,844 64,843,300 60,389,881 67,921,678 72,132,086 69,006,512 Business-type activities: Charges for services - Water and 11,753,147 12,122,111 12,810,031 12,609,726 13,692,023 13,086,639 13,288,556 13,043,867 13,312,357 13,486,343 Charges for services - 547,301 589,345 548,805 648,916 697,232 705,341 724,052 805,227 749,590 Charges for services - 1,694,708 2,038,235 2,333,478 2,274,470 2,580,262 2,510,838 Charges for services - 720,193 740,511 692,089 675,916 684,262 678,607 689,982 838,882 861,402 855,521 Capital grants and contributions………………………. 43,796 41,820 39,804 - - 2,887,131 102,518 - - - Total business-type activities program revenues...……………… 14,759,145 15,532,022 16,424,207 16,209,028 17,653,779 19,868,556 14,805,108 14,687,976 14,923,349 14,341,864 Total primary government program revenues…………………… $ 72,889,465 $ 71,288,044 $ 78,117,986 $ 75,137,525 $ 103,541,623 $ 84,711,856 $ 75,194,989 $ 82,609,654 $ 87,055,435 $ 83,348,376 Net (Expense)/Revenue Governmental (80,267,163) $ (87,335,408) $ (86,185,034) $ (89,038,286) $ (69,487,063) $ (97,063,298) $ (108,045,299) $ (104,963,361) $ (110,867,226) $ (117,510,307) Business-type (471,827) (81,075) 1,698,751 1,061,742 2,317,409 4,818,296 (502,557) (299,983) 665,630 (256,980) Total primary government net $ (80,738,990) $ (87,416,483) $ (84,486,283) $ (87,976,544) $ (67,169,654) $ (92,245,002) $ (108,547,856) $ (105,263,344) $ (110,201,596) $ (117,767,287) General Revenues and other Changes in Net Position Governmental activities: Real estate and personal property taxes, net of tax refunds 66,672,653 $ 69,067,349 $ 71,828,412 $ 72,073,381 $ 76,770,134 $ 79,012,963 $ 82,444,144 $ 84,802,453 $ 90,118,638 $ 92,995,509 Community Preservation 486,797 535,637 561,424 590,722 612,399 Tax 527,492 234,353 510,973 795,443 589,138 563,353 708,963 523,414 317,548 497,622 Motor vehicle and other excise 2,978,961 3,092,527 3,181,247 3,131,334 3,052,229 3,890,099 3,929,230 4,194,711 4,311,772 4,486,746 Hotel/motel 324,622 294,214 955,092 1,161,007 1,224,849 1,319,418 1,362,357 1,541,901 1,683,573 1,845,865 Penalties and interest on 412,572 437,361 438,487 490,242 399,311 457,958 443,444 497,484 466,092 495,693 Payments in lieu of 1,320,945 1,307,078 1,319,079 1,440,186 1,462,692 1,321,060 1,043,782 1,322,806 1,082,164 1,572,535 Grants and contributions not restricted to specific 8,064,486 6,583,118 6,404,395 8,220,908 6,610,413 6,775,827 7,182,509 6,881,968 7,218,934 7,527,909 Unrestricted investment (35,188) 435,769 1,095,518 103,015 828,974 1,377,835 554,360 459,322 1,134,074 947,635 Miscellaneous………………………………………………… 203,848 250,681 358,720 453,416 375,872 344,538 122,979 260,344 318,858 585,870 702,234 1,062,580 1,251,059 985,677 588,144 1,653,218 9,736 (400,060) (510,404) (1,050,090) Total governmental 81,172,625 82,765,030 87,342,982 88,854,609 91,901,756 97,203,066 98,337,141 100,645,767 106,731,971 110,517,693 Business-type activities: (702,234) (1,062,580) (1,251,059) (985,677) (588,144) (1,653,218) (9,736) 400,060 510,404 1,050,090 Total primary 80,470,391 $ 81,702,450 $ 86,091,923 $ 87,868,932 $ 91,313,612 $ 95,549,848 $ 98,327,405 $ 101,045,827 $ 107,242,375 $ 111,567,783 Changes in Net Position Governmental 905,462 $ (4,570,378) $ 1,157,948 $ (183,677) $ 22,414,693 $ 139,768 $ (9,708,158) $ (4,317,594) $ (4,135,255) $ (6,992,614) Business-type (1,174,061) (1,143,655) 447,692 76,065 1,729,265 3,165,078 (512,293) 100,077 1,176,034 793,110 Total primary (268,599) $ (5,714,033) $ 1,605,640 $ (107,612) $ 24,143,958 $ 3,304,846 $ (10,220,451) $ (4,217,517) $ (2,959,221) $ (6,199,504) In 2014 the City approved and established the Community Preservation Fund. In 2015 the City reclassified the parking fund to a governmental activity. In 2018 the City reclassified the golf course fund to a governmental activity. Changes in Net Position Last Ten Years City of Salem, Massachusetts 139 Comprehensive Annual Financial Report ---PAGE BREAK--- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 General Fund Reserved…………………………… $ 372,027 $ 421,825 $ - $ - $ - $ - $ - $ - $ - $ - Unreserved………………………… 749,849 1,211,094 - - - - - - - - Assigned…………………………… - - 589,894 985,737 1,059,667 1,002,935 558,880 661,246 468,894 303,334 Unassigned………………………… - - 8,405,585 9,550,262 11,663,494 11,998,002 11,159,068 12,937,609 14,518,650 13,712,764 Total general $ 1,121,876 $ 1,632,919 $ 8,995,479 $ 10,535,999 $ 12,723,161 $ 13,000,937 $ 11,717,948 $ 13,598,855 $ 14,987,544 $ 14,016,098 All Other Governmental Funds Reserved…………………………… $ 1,688,851 $ 1,689,176 $ - $ - $ - $ - $ - $ - $ - $ - Unreserved, reported in: Special revenue funds………… 5,602,931 5,819,702 - - - - - - - - Capital projects funds………… (537,848) 3,969,207 - - - - - - - - Permanent funds……………… 2,678,043 2,783,655 - - - - - - - - Nonspendable……………………… - - 1,707,276 2,074,097 2,074,989 2,074,987 2,151,087 2,176,969 2,206,224 2,230,357 Restricted…………………………… - - 11,329,632 14,344,418 12,942,168 15,563,265 12,440,090 20,988,535 19,857,614 20,197,556 Unassigned………………………… - - (665,295) (4,101,228) (623,622) (2,089,648) (1,002,367) (23,344) (128,661) (282,668) Total all other governmental funds……$ 9,431,977 $ 14,261,740 $ 12,371,613 $ 12,317,287 $ 14,393,535 $ 15,548,604 $ 13,588,810 $ 23,142,160 $ 21,935,177 $ 22,145,245 Note: The City implemented GASB 54 in 2011, fund balances prior to 2011 have been reported in the pre-GASB 54 format. Fund Balances, Governmental Funds Last Ten Years City of Salem, Massachusetts 140 Comprehensive Annual Financial Report ---PAGE BREAK--- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Revenues: Real estate and personal property taxes, net of tax $ 66,717,968 $ 68,747,759 $ 71,754,816 $ 72,202,064 $ 77,018,965 $ 79,449,354 $ 82,905,745 $ 85,828,099 $ 91,488,374 $ 93,102,182 Motor vehicle and other excise 3,154,642 3,007,759 3,180,552 3,203,122 3,113,058 3,799,179 3,945,343 4,057,235 4,300,898 4,456,037 Intergovernmental……………………………………………… 42,962,129 44,150,857 51,562,915 50,048,535 84,640,597 49,698,445 49,811,556 51,544,933 53,058,071 46,824,285 Departmental and 9,382,460 8,511,803 9,656,996 10,366,488 12,049,109 11,097,377 13,036,554 14,259,338 14,159,322 19,953,037 Investment (32,923) 436,686 1,096,747 129,773 828,974 1,377,835 554,360 459,322 1,134,074 846,980 Commonwealth school construction grants………………… 13,130,784 7,095,272 4,310,837 4,310,837 4,310,837 3,695,128 3,171,572 3,171,572 3,171,572 1,389,074 On-behalf pension payments by the Commonwealth 8,277,958 8,602,216 9,290,000 9,695,000 10,522,000 10,808,000 6,752,780 10,209,061 13,244,953 14,100,491 Total 143,593,018 140,552,352 150,852,863 149,955,819 192,483,540 159,925,318 160,177,910 169,529,560 180,557,264 180,672,086 Expenditures: General 5,284,403 5,062,768 5,678,376 6,039,335 6,351,699 6,218,639 8,285,799 7,404,363 7,971,958 9,740,148 Public 16,452,689 16,147,666 17,129,546 17,807,607 18,207,275 19,627,830 19,936,450 19,682,270 20,668,857 21,796,758 48,101,995 49,491,944 51,429,439 50,076,848 53,168,217 54,548,503 63,150,832 60,044,184 71,832,889 73,764,881 Public 3,718,860 3,255,769 3,573,118 2,831,181 5,338,674 5,230,942 7,137,934 7,530,669 6,216,029 6,469,400 Community development……………………………………… 2,402,149 3,413,203 1,933,227 1,757,053 1,322,586 1,629,209 1,544,509 1,033,601 1,335,941 1,404,147 Health and human 5,339,094 6,158,089 5,927,137 5,538,621 5,580,162 5,446,188 6,424,227 6,341,080 5,837,125 5,589,063 Community Preservation - - - - - 5,350 356,518 506,415 456,019 923,668 Culture and 2,395,536 2,320,698 2,152,872 3,367,206 2,468,723 2,368,401 2,264,401 2,347,889 2,366,896 2,872,247 Pension 16,206,240 16,770,835 17,707,823 18,538,274 19,771,148 20,402,625 16,923,249 20,151,894 10,365,094 10,934,690 Massachusetts teachers' retirement 8,277,958 8,602,216 9,290,000 9,695,000 10,522,000 10,808,000 6,752,780 10,209,061 13,244,953 14,100,491 Employee 11,805,651 11,077,682 11,751,691 13,122,992 13,326,634 14,255,543 13,490,299 13,529,621 14,108,736 14,390,925 State and county 6,302,025 6,655,890 6,445,380 6,390,908 5,141,397 5,776,828 6,015,427 7,061,663 7,946,729 8,376,492 Capital 13,552,655 4,654,814 6,194,898 11,752,488 38,287,997 16,665,809 13,273,983 10,251,982 14,234,566 10,245,735 Debt service 4,559,497 5,385,000 7,550,000 4,717,000 19,454,000 3,073,598 2,935,000 3,500,000 3,752,361 4,312,000 2,568,643 2,087,028 1,851,117 1,761,551 1,816,117 1,536,769 1,558,748 1,640,859 1,810,439 1,840,860 Total Expenditures……………………………………………… 146,967,395 141,083,602 148,614,624 153,396,064 200,756,629 167,594,234 170,050,156 171,235,551 182,148,592 186,761,505 Excess of revenues over (under) expenditures……………… (3,374,377) (531,250) 2,238,239 (3,440,245) (8,273,089) (7,668,916) (9,872,246) (1,705,991) (1,591,328) (6,089,419) Other Financing Sources (Uses) Issuance of - 4,589,000 630,000 3,900,938 11,242,660 6,680,000 5,980,000 10,473,361 665,000 7,349,229 Premium from issuance of - 575,986 1,167,420 1,059 191,693 421,355 700,157 606,548 517,618 561,847 Issuance of refunding 3,785,000 11,043,000 4,589,000 - - 2,509,500 - - 3,312,000 - Premium from issuance of refunding bonds………………… - - - - - 262,818 - - 464,866 - Payments to refunded bond escrow - (8,512,000) - - - (2,709,130) - - (3,735,364) - Refunding bonds (3,785,000) (2,930,000) (4,589,000) - - - - - - - Capital lease 167,454 43,500 185,715 38,765 514,002 284,000 351,762 1,805,846 590,426 695,958 Transfers 5,228,530 6,160,597 5,137,447 5,184,894 5,343,327 6,718,284 3,699,383 4,779,568 7,261,562 9,364,166 Transfers (4,526,296) (5,098,017) (3,886,388) (4,199,217) (4,755,183) (5,065,066) (3,689,647) (5,179,628) (7,771,966) (10,414,256) Capital - - - - - - - - - (2,260,269) Total other financing sources 869,688 5,872,066 3,234,194 4,926,439 12,536,499 9,101,761 7,041,655 12,485,695 1,304,142 5,296,675 Net change in fund $ (2,504,689) $ 5,340,816 $ 5,472,433 $ 1,486,194 $ 4,263,410 $ 1,432,845 $ (2,830,591) $ 10,779,704 $ (287,186) $ (792,744) Debt service as a percentage of noncapital expenditures……… 5.34% 5.48% 6.60% 4.57% 13.09% 3.05% 2.87% 3.19% 3.31% 3.49% The Commonwealth is legally obligated to fund the Salem teachers retirement. Therefore the revenue and expenditure has been recorded in accordance with GASB 24. The City received a $15.8 million grant from the Commonwealth to pay down $15.6 million in school debt issued in 2013. Changes in Fund Balances, Governmental Funds Last Ten Years In 2014 the City approved and established the Community Preservation Fund. City of Salem, Massachusetts 141 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Total Total Residential Residential Commercial Industrial Personal Commercial Commercial Direct City Year Value Tax Rate Value Value Property Value Tax Rate Rate Value 2009 $ 3,753,889,412 $ 12.92 $ 446,457,904 $ 133,318,180 $ 177,993,390 $ 757,769,474 $ 24.54 $ 14.87 $ 4,511,658,886 2010 3,527,110,563 14.01 432,747,534 127,061,700 207,643,630 767,452,864 26.93 16.32 4,294,563,427 2011 3,361,382,273 15.05 417,668,102 123,342,500 213,577,900 754,588,502 29.08 17.62 4,115,970,775 2012 3,291,268,444 15.63 410,704,364 118,044,040 153,768,900 682,517,304 29.81 18.07 3,973,785,748 2013 3,227,554,748 16.38 420,436,783 116,029,720 163,211,490 699,677,993 31.46 19.07 3,927,232,741 2014 3,265,724,508 16.73 421,704,398 115,505,220 160,002,170 697,211,788 32.05 19.43 3,962,936,296 2015 3,523,220,734 16.41 449,496,402 101,675,040 134,283,680 685,455,122 30.99 18.78 4,208,675,856 2016 3,802,708,194 15.67 479,297,217 108,008,340 144,065,880 731,371,437 29.55 17.91 4,534,079,631 2017 3,802,708,194 15.86 478,990,259 108,442,340 183,684,630 771,117,229 29.99 18.24 4,573,825,423 2018 4,249,989,014 15.38 483,778,163 131,020,400 202,795,500 817,594,063 29.97 17.73 5,067,583,077 Source: Assessor's Department, City of Salem All property in the Commonwealth of Massachusetts is assessed at 100% of fair cash value. Note: Chapter 59, Section 21C of the Massachusetts General Laws, known as "Proposition 2 1/2", imposes 2 separate limits on the annual tax levy of the City. The primary limitation is that the tax levy cannot exceed 2 1/2 percent of the full and fair cash value. The secondary limitation is that the tax levy cannot exceed the maximum levy limit for the preceding year as determined by the State Commissioner of Revenue by more than 2 1/2 percent, subject to an exception for property added to the tax rolls and for certain substantial valuation increases other than as part of a general revaluation. The secondary limit may be exceeded in any year by a majority vote of the voters, however it cannot exceed the primary limitation. Assessed Value and Actual Value of Taxable Property by Classification and Tax Rates Last Ten Years Assessed and Actual Values and Tax Rates 83.14% 10.47% 2.37% 4.02% Total Assessed Value by Classification Year Ended June 30, 2017 Residential Commercial Industrial Personal Property 15.0% 15.5% 16.0% 16.5% 17.0% 17.5% 18.0% 18.5% 2009 2010 2011 2012 2012 2013 2014 2015 2016 2017 2018 Commercial Value as % of Total Value 83.87% 9.55% 2.59% 4.00% Total Assessed Value by Classification Year Ended June 30, 2018 Residential Commercial Industrial Personal Property City of Salem, Massachusetts 142 Comprehensive Annual Financial Report ---PAGE BREAK--- Percentage of Percentage of Total Taxable Total Taxable Nature of Assessed Assessed Assessed Assessed Name Business Valuation Rank Value Valuation Rank Value New England Power Co./Boston Gas Personal & Industrial $69,810,060 1 1.38% $24,520,050 6 0.54% Mass Electric Personal Property $34,648,590 2 0.68% $21,899,450 7 0.49% National Grid Personal & Industrial $38,307,500 3 0.76% - - Shetland Properties Industrial & Commercial $29,259,100 4 0.58% $29,315,600 4 0.65% Highlander Plaza Commercial Property $23,565,500 5 0.47% $21,728,900 8 0.48% Algonquin Gas Transmission Personal Property $31,471,900 6 0.62% - - Footprint Power Power Plant - Industrial $25,860,000 7 0.51% - - Bell Fund V (Salem Station LLC) Apartments $48,930,600 8 0.97% $40,027,860 2 0.89% RCG, Total Properties Apartments & Commercial $15,157,200 9 0.30% - - Princeton Crossing Apartments Apartments $30,785,000 10 0.61% $30,981,000 3 0.69% Dominion Personal & Industrial Property - - $158,305,850 1 3.51% Hawthorne Commons Apartments - - $28,417,500 5 0.63% Keyspan PP Personal Property & Real Estate - - $18,849,020 9 0.42% Second Pickwick Trust Commercial Property - - $14,542,500 10 0.32% Totals $347,795,450 6.9% $388,587,730 8.6% Source: Board of Assessors 2018 2009 Principal Taxpayers Current Year and Nine Years Ago City of Salem, Massachusetts 143 Comprehensive Annual Financial Report ---PAGE BREAK--- Percent of Less Percent of Delinquent Total Total Tax Total Abatements & Net Current Net Levy Tax Tax Collections to Year Tax Levy Exemptions Tax Levy Tax Collections Collected Collections Collections Net Tax Levy 2009 $ 67,095,914 $ 514,742 $ 66,581,172 $ 66,300,317 99.6% $ 280,855 $ 66,581,172 100.0% 2010 70,082,325 612,829 69,469,496 68,292,880 98.3% 1,176,616 69,469,496 100.0% 2011 72,532,237 402,324 72,129,913 70,936,056 98.3% 1,193,857 72,129,913 100.0% 2012 71,788,367 360,622 71,427,745 70,558,172 98.8% 869,573 71,427,745 100.0% 2013 74,879,216 420,829 74,458,387 73,069,108 98.1% 1,389,279 74,458,387 100.0% 2014 76,981,209 337,606 76,643,603 75,905,195 99.0% 738,408 76,643,603 100.0% 2015 79,058,306 354,811 78,703,495 78,006,777 99.1% 696,718 78,703,495 100.0% 2016 81,200,463 341,538 80,858,925 80,580,642 99.7% 278,283 80,858,925 100.0% 2017 85,600,551 364,920 85,235,631 84,518,157 99.2% 717,474 85,235,631 100.0% 2018 89,868,125 705,771 89,162,354 88,816,390 99.6% - 88,816,390 99.6% Source: Massachusetts Department of Revenue; Board of Assessors Property Tax Levies and Collections Last Ten Years City of Salem, Massachusetts 144 Comprehensive Annual Financial Report ---PAGE BREAK--- General General Total Percentage Percentage U. S. Census Personal Assessed Obligation Capital Obligation Capital Outstanding Per of Personal of Assessed Year Population Income Value Bonds Leases Bonds Leases Debt Capita Income Value 2009 41,421 $ 1,180,967,527 $ 4,511,658,886 $ 7,250,908 $ - $ 51,145,000 $ 530,771 $ 58,926,679 $ 1,423 4.99% 1.31% 2010 41,361 1,202,841,984 4,294,563,427 12,949,102 - 50,387,000 317,032 63,653,134 1,539 5.29% 1.48% 2011 41,361 1,226,898,824 4,115,970,775 15,665,280 - 44,581,526 384,965 60,631,771 1,466 4.94% 1.47% 2012 41,340 1,250,801,415 3,973,785,748 16,762,802 - 43,629,929 245,703 60,638,434 1,467 4.85% 1.53% 2013 41,654 1,285,525,748 3,927,232,741 16,670,824 - 35,291,962 619,317 52,582,103 1,262 4.09% 1.34% 2014 41,340 1,301,351,782 3,962,936,296 18,825,303 105,047 39,943,717 626,059 59,500,126 1,439 4.57% 1.50% 2015 42,544 1,282,020,896 4,208,675,856 19,935,000 257,054 43,473,824 698,595 64,364,473 1,513 5.02% 1.53% 2016 42,544 1,083,723,312 4,534,079,631 29,666,894 274,554 50,735,271 2,211,224 82,887,943 1,948 7.65% 1.83% 2017 42,544 1,445,049,504 4,573,825,423 31,277,113 226,416 47,959,069 2,250,280 81,712,878 1,921 5.65% 1.79% 2018 41,340 1,161,075,240 5,067,583,077 38,864,095 67,083 49,229,007 2,346,553 90,506,738 2,189 7.80% 1.79% Source: Audited Financial Statements, U. S. Census Ratios of Outstanding Debt by Type Last Ten Years Business-type Activities Governmental Activities Total Primary Government City of Salem, Massachusetts 145 Comprehensive Annual Financial Report ---PAGE BREAK--- General Percentage Percentage U. S. Census Personal Assessed Obligation Per of Personal of Assessed Year Population Income Value Bonds Capita Income Value 2009 41,421 $ 1,180,967,527 $ 4,511,658,886 $ 58,395,908 $ 1,410 4.94% 1.29% 2010 41,361 1,202,841,984 4,294,563,427 63,336,102 1,531 5.27% 1.47% 2011 41,361 1,226,898,824 4,115,970,775 60,246,806 1,457 4.91% 1.46% 2012 41,340 1,250,801,415 3,973,785,748 60,392,731 1,461 4.83% 1.52% 2013 41,654 1,285,525,748 3,927,232,741 51,962,786 1,247 4.04% 1.32% 2014 41,340 1,301,351,782 3,962,936,296 58,769,020 1,422 4.52% 1.48% 2015 42,544 1,282,020,896 4,208,675,856 63,408,824 1,490 4.95% 1.51% 2016 42,544 1,083,723,312 4,534,079,631 80,402,165 1,890 7.42% 1.77% 2017 42,544 1,445,049,504 4,573,825,423 79,236,182 1,862 5.48% 1.73% 2018 41,340 1,161,075,240 5,067,583,077 88,093,102 2,131 7.59% 1.74% Source: Audited Financial Statements, U. S. Census Ratios of General Bonded Debt Outstanding Last Ten Years Total Primary Government City of Salem, Massachusetts 146 Comprehensive Annual Financial Report ---PAGE BREAK--- Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable Debt Overlapping debt: North Shore Regional Vocational School District……………$ 30,395,000 21.78% $ 6,620,031 Direct debt: Capital Lease Obligations……………………………………… 2,346,553 General Governmental Debt 49,229,007 City total direct 51,575,560 Total direct and overlapping $ 58,195,591 Source: Treasurer and North Shore Regional Vocational School District Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of the overlapping governments that is borne by the taxpayers of the Town. This process recognizes that, when considering the government's ability to issue and repay long-term debt, the entire debt burden borne by the property taxpayers should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government. The percentage applicable for the North Shore Regional Vocational School District is based on the number of students attending from the City of Salem as a percentage of all students at the Regional School. Direct and Overlapping Governmental Activities Debt As of June 30, 2018 City of Salem, Massachusetts 147 Comprehensive Annual Financial Report ---PAGE BREAK--- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Equalized Valuation………………………… $ 5,168,060,200 $ 4,568,374,700 $ 4,568,374,700 $ 4,256,808,900 $ 4,256,808,900 $ 4,191,566,000 $ 4,191,566,000 $ 4,757,173,700 $ 4,757,173,700 $ 5,354,781,400 Debt Limit of Equalized Valuation…… $ 258,403,010 $ 228,418,735 $ 228,418,735 $ 212,840,445 $ 212,840,445 $ 209,578,300 $ 209,578,300 $ 237,858,685 $ 237,858,685 $ 267,739,070 Less: Outstanding debt applicable to limit………… 12,004,000 10,884,900 16,669,700 14,905,000 19,976,500 23,966,500 30,306,500 32,996,153 36,040,315 40,102,544 Authorized and unissued debt……………… 28,769,240 11,128,240 13,725,802 72,303,161 46,646,035 36,905,041 28,415,041 60,521,980 49,272,080 37,700,822 Legal debt $ 217,629,770 $ 206,405,595 $ 198,023,233 $ 125,632,284 $ 146,217,910 $ 148,706,759 $ 150,856,759 $ 144,340,552 $ 152,546,290 $ 189,935,704 Total debt applicable to the limit as a percentage of debt limit……………… 15.78% 9.64% 13.31% 40.97% 31.30% 29.04% 28.02% 39.32% 35.87% 29.06% Source: Audited Financial Statements; Statement of Indebtedness; and the Massachusetts Department of Revenue, Bureau of Local Assessment. Computation of Legal Debt Margin Last Ten Years City of Salem, Massachusetts 148 Comprehensive Annual Financial Report ---PAGE BREAK--- Per Capita Population Personal Personal Median School Unemployment Year Estimates Income Income Age Enrollment Rate 2009 41,421 $ 1,180,967,527 $ 28,511 36.4 4,474 9.7% 2010 41,361 1,202,841,984 29,082 36.7 4,647 9.6% 2011 41,361 1,226,898,824 29,663 36.5 4,647 9.2% 2012 41,340 1,250,783,040 30,256 37.6 4,541 8.2% 2013 41,654 1,285,525,748 30,862 36.5 4,501 7.6% 2014 41,340 1,301,351,782 31,479 39.2 4,478 6.2% 2015 42,544 1,282,020,896 30,134 38.4 4,222 5.6% 2016 42,544 1,083,723,312 25,473 38.2 3,949 4.7% 2017 42,544 1,445,049,504 33,966 39.1 4,144 3.7% 2018 41,340 1,161,075,240 28,086 39.4 3,737 4.2% Note: Per Capita Personal Income based on DOR Community Comparison Report (2014 Figures available) Source: Massachusetts Department of Revenue, Division of Local Services; City Clerks office, Workforce Board Demographic and Economic Statistics Last Ten Years City of Salem, Massachusetts 149 Comprehensive Annual Financial Report ---PAGE BREAK--- Percentage of Percentage of Nature of Total City Total City Business Employees Rank Employment Employees Rank Employment Commonwealth of Massachusetts State Government 2,735 1 11.5% 520 3 - 2.4% North Shore Medical Center Healthcare 2,566 2 - 10.8% 2,875 1 13.0% City of Salem Municipal Government 1,654 3 7.0% - - - Salem State University Higher Education 1,569 4 6.6% 1,500 2 6.8% Footprint Utility 310 5 1.3% - - - Market Basket Food Market 295 6 1.2% 325 4 - 1.5% Peabody Essex Museum Cultural/Tourism 260 7 1.1% 290 5 1.3% Salem YMCA Social Service Agency 217 8 0.9% 185 10 0.8% Excelitas Technologies Technology 214 9 0.9% - - - Finz & Sealevel Seafood Restaurant 200 10 0.8% - - - Salem Five Savings Banking - - - 236 6 1.1% Hawthorne Hotel Lodging - - - 210 7 - 0.9% Grosvenor Park Nursing Center Health Care - - - 202 8 0.9% Home Depot Retail - - - 187 9 0.8% 10,020 42.3% 6,530 29.5% Source: The City Planning Department Principal Employers Current Year and Nine Years Ago 2018 Employer 2009 City of Salem, Massachusetts 150 Comprehensive Annual Financial Report ---PAGE BREAK--- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Function General government……………… 35 35 35 35 35 37 38 56 65 91 Public safety……………………… 187 191 190 194 203 210 211 210 214 206 Education…………………………… 752 752 752 776 890 841 841 1,008 860 980 Public 37 38 39 40 39 41 41 58 60 40 Engineering………………………… 1 1 1 1 1 1 1 3 4 10 Health and human services……… 14 17 15 14 15 14 13 15 16 18 Culture and recreation…………… 22 22 23 23 23 24 24 25 25 25 Total 1,048 1,056 1,055 1,083 1,206 1,168 1,169 1,375 1,244 1,370 Source: Various City Departments City of Salem, Massachusetts Full-time Equivalent City Employees by Function City of Salem, Massachusetts 151 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 General government Marriage recordings………………………………… 276 243 381 321 324 365 338 337 352 346 Birth recordings…………………………………… 1,614 1,774 1,599 1,433 1,452 1,566 1,659 1,539 1,560 1,518 Death recordings…………………………………… 535 557 492 436 484 560 605 520 474 566 Police Physical 2,502 2,072 2,629 1,627 1,307 1,597 2,509 2,455 1,320 2,025 Motor vehicle violations…………………………… 191 6,631 10,309 8,497 6,161 7,936 8,660 6,267 5,764 5,437 Police personnel and officers……………………… 85 87 89 93 99 100 103 101 110 115 Fire Inspections………………………………………… 886 935 1,077 973 1,307 1,192 1,545 2,047 1,470 1,126 Emergency responses…………………………… 17 6,409 6,079 5,952 6,161 6,292 6,752 7,054 7,116 7,576 Fire personnel and officers………………………… 81 79 83 90 86 88 88 88 88 88 Education Number of 4,474 4,647 4,585 4,541 4,501 4,478 4,222 3,949 3,831 4,065 Number of graduates……………………………… 273 283 246 240 275 275 271 211 228 228 Number of 479 488 507 517 540 542 571 521 464 510 Water Service connections……………………………… 11,737 11,719 11,719 11,719 11,729 11,827 9,833 9,998 10,136 10,009 Consumption in 1,994 2,103 2,025 1,921 1,934 1,898 1,898 1,612 1,504 1,500 Daily consumption 5.44 6.00 6.00 5.26 5.30 5.00 4.00 5.20 4 6 Sewer Service connections……………………………… 11,727 11,709 11,706 11,719 11,719 11,807 9,813 9,988 9,881 9,894 Health and human services Number of persons using COA transportation… 15,526 16,076 16,908 19,630 16,170 12,698 14,704 11,479 12,575 18,548 Libraries Volumes in circulation……………………………… 145,634 143,512 148,634 158,011 162,486 168,263 172,628 163,038 177,858 169,299 Total volumes borrowed…………………………… 538,184 508,507 508,293 493,315 471,416 430,391 397,810 353,800 356,973 328,276 Source: Various City Departments; Massachusetts Department of Education Operating Indicators by Function/Program Last Ten Years City of Salem, Massachusetts 152 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 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…… 38 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…………… 17 1 1 1 1 1 1 1 1 1 Public Works Water mains 102 102 102 102 102 102 102 102 102 102 Number of personnel……………… 17 17 15 14.7 14.7 13.8 13.8 21 21 18 Culture and recreation Parks and playgrounds……………… 35 35 35 35 35 35 35 35 35 36 Park and playground (acreage)…… 230 230 230 230 230 230 230 230 230 230 Conservation land (acreage)……… 128 128 128 128 128 128 128 128 128 128 Railroad right of way (acreage)…… 89 89 89 89 89 89 89 89 89 89 Public beaches……………………… 7 7 7 7 7 7 7 7 7 7 Ball 13 13 13 13 13 13 13 13 13 13 Tennis 10 10 10 10 10 10 10 10 10 10 Source: Various City Departments, Manual of the City Government Capital Asset Statistics by Function/Program Last Ten Years City of Salem, Massachusetts 153 Comprehensive Annual Financial Report ---PAGE BREAK--- General Free Stabilization Year Cash Fund FY2018…… $ 5,949,483 $ 6,511,290 FY2017…… $ 4,922,937 $ 6,037,015 FY2016…… $ 5,380,858 $ 5,531,963 FY2015…… $ 4,949,767 $ 5,440,226 FY2014…… $ 3,349,683 $ 5,173,812 . FY2013…… $ 5,498,710 $ 3,438,799 FY2012…… $ 2,525,829 $ 3,453,722 FY2011…… $ 3,249,238 $ 2,736,777 FY2010…… $ 750,607 $ 1,913,913 FY2009…… $ 1,261,200 $ 1,489,907 Source: City Records Free Cash and Stabilization Fund Balances Last Ten Years City of Salem, Massachusetts 154 Comprehensive Annual Financial Report