Document Salem_doc_8b7e1d78bc

CITY OF SALEM MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2008 Kimberley L. Driscoll, Mayor Richard Viscay, Jr., Finance Director Prepared by the City of Salem Finance Department ---PAGE BREAK--- On the cover A view of Salem Harbor from Winter Island. Salem Common In 1802, the Salem Common was named Washington Square. A wooden fence with four large, impressive gates was added to the Common in 1805. One of the gates on the western side was decorated with carvings by Samuel McIntire, the famous Salem architect and wood carver. Today the medallion portrait of George Washington and the gold painted eagle which adorned the original gate are preserved in the Peabody Essex Museum. After Salem’s great fire of 1914 which cut a destructive path through much of the city, the Salem Common was filled with tents to house the people who had lost their homes in the fire’s devastation. Reminders of the City’s past and evidence of our current lifestyle coexist in harmony on Salem Common today. A modern playground fills a large area of the park with the sounds of children playing while a handsome bandstand from an earlier era looms over the grounds. ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2008 Prepared by Finance Department ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2008 TABLE OF CONTENTS Introductory Letter of Transmittal Organizational Principal Executive Officers Certificate of Financial Section Independent Auditors’ Report Management’s Discussion and Analysis Basic Financial Statement of net Statement of activities Governmental funds – balance sheet Reconciliation of the governmental funds balance sheet total fund balances to the statement of net assets.......31 Governmental funds – statement of revenues, expenditures and changes in fund balances Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of Proprietary funds – statement of net Proprietary funds – statement of revenues, expenses and changes in fund net assets Proprietary funds – statement of cash flows Fiduciary funds – statement of fiduciary net assets Fiduciary funds – statement of changes in fiduciary net Notes to basic financial Required Supplementary Information General fund budgetary comparison schedule Schedule of revenues, expenditures and changes in fund balance – general fund – budget and actual..........74 Other post-employment benefit plan Other post-employment benefit plan funding progress Other post-employment benefit plan actuarial methods and assumptions Notes to required supplementary information Combining ---PAGE BREAK--- Nonmajor governmental funds Nonmajor governmental funds – combining balance sheet Nonmajor governmental funds – combining statement of revenues, expenditures, and changes in fund balances Private purpose trust funds – combining statement of net Private purpose trust funds – combining statement of changes in net assets Agency Fund Agency fund – statement of changes in assets and liabilities Statistical Net assets by component – last seven fiscal Changes in net assets – last seven fiscal Fund balances, governmental funds – last ten fiscal Changes in fund balances, governmental funds – last ten fiscal Assessed value and actual value of taxable property by classification and tax rates – last ten fiscal years Principal taxpayers – current year and nine years ago Property tax levies and collections – last ten fiscal Ratios of outstanding debt and general bonded debt – last ten fiscal Direct and overlapping governmental activities debt – as of June 30, 2008 Computation of legal debt margin – last ten fiscal years Demographic and economic statistics – last ten fiscal years Principal employers (excluding City) – current year and nine years Full-time equivalent City employees by function – last eight fiscal Operating indicators by function/program – last ten fiscal Capital asset statistics by function/program – last ten fiscal Free cash & stabilization fund balances – last ten fiscal years ---PAGE BREAK--- Introductory Section Salem Willows Park The Salem Willows offers beautiful shaded seaside grounds, scenic ocean views, a public pier, a band- stand for concerts, picnic areas, beaches, children’s rides, activities and many eateries. One of Salem’s treasures, this park has a fascinating history. Salem Willows is renowned for the European white willow trees planted here in 1801 to form a shaded walk for patients convalescing at the old smallpox hospital. Later the area became a park. During the first half of the 20th century, Restaurant Row on the park's north shore served fresh seafood favored by locals and visitors alike. A carousel with carved flying horses was another special attraction at Salem Willows, which then, as now, operated as an entertainment center. Visitors still flock here during the summer to enjoy the sunshine, the arcade and the park's ample picnic grounds and recreational facilities. ---PAGE BREAK--- City of Salem, Massachusetts 1 Comprehensive Annual Financial Report Introductory Section ---PAGE BREAK--- City of Salem, Massachusetts 2 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 3 City of Salem, Massachusetts Finance Department 93 Washington Street Salem, MA 01970 Ph. [PHONE REDACTED] ext 5625 Fax [PHONE REDACTED] [EMAIL REDACTED] Letter of Transmittal Kimberley L. Driscoll, Mayor Richard Viscay, Finance Director December 9, 2008 To the Honorable Mayor, Members of the City Council and Citizens of the City of Salem, Massachusetts: At the close of each fiscal year, state law requires the City of Salem to publish a complete set of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP), and that are audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the Comprehensive Annual Financial Report (CAFR) of the City of Salem, Massachusetts, for the fiscal year ending June 30, 2008 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, 2008, are fairly presented in conformity with GAAP. The City of Salem’s financial statements have been audited by Powers & Sullivan, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2008, 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 principals used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion, that the City’s financial statements for the fiscal year ended June 30, 2008 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 ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 4 engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City of Salem’s separately issued Single Audit Report. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement that analysis and should be read in conjunction with it. The City’s MD&A can be found immediately following the report of the independent auditors. Profile of the City The City of Salem, which was incorporated as a town in 1630 and became a city on March 23, 1836, is situated on the Massachusetts coast, 16 miles northeast of Boston. The City has a population of approximately 40,407 and occupies a land area of approximately 8 square miles. The second city in the Commonwealth to be incorporated, it is the Shire City of Essex County. Salem has operated under the Plan B form of government, with a mayor and an eleven-person City Council, seven elected from wards, and four at-large, since 1915. The Mayor is elected for four years in November of unevenly-numbered years. The Mayor is the administrative head of the City and chairman ex-officio of the School Committee, the Board of Library Trustees, and the Board of Trust Fund Commissioners. The Mayor acts with the City Council and School Committee to carry out city business. The Mayor appoints his or her office staff, the City Solicitor, and the Assistant City Solicitor without City Council confirmation. The appointments of most City department heads, and members of the various boards and commissions, however, require City Council confirmation. The Mayor has the right to veto any order, resolution, or ordinance passed by the Council. However, a veto may be overturned by a two-thirds vote of all councilors. After reviewing and revising estimates prepared by department heads, the Mayor submits the budget to the City Council for final action. The Mayor approves all municipal payrolls, vouchers, contracts and instruments; and recommends bond issues, legislations and orders to the City Council; and represents the city with other levels of government. As the general administrator of all City departments, the Mayor is consulted by department heads pertaining to the City’s welfare. The City Council is primarily the legislative branch of the City government. As the legislative body, the Council confirms appointments made by the Mayor and appropriates all monies necessary to City operation. It can approve, disapprove, or reduce the amount of appropriations, but not add to the appropriation. The Council receives orders of recommendation by the Mayor and petitions from the public, and acts on them after committee study. The City Council also has the power to enact the Ordinances and other regulations. A majority of the City Council constitutes a quorum, and the affirmative vote of a majority of all the members of the Council is necessary for the adoption of any motion resolution, or ordinance. In some instance, adoption by a two-thirds vote of the members is required by statute. The City provides general governmental services for the territory within its boundaries, including police and fire protection, disposal of garbage and rubbish (for residential properties); public education, including vocational- technical education at the high school level; street maintenance; certain water services, through the Salem and Beverly Water Supply Board; certain sewerage disposal services, through the South Essex Sewerage District; and parks and recreational facilities. Approximately 95 percent of the City is connected to the sewerage system; the entire area of the City is served by the municipal water system. The Salem Housing Authority is responsible for managing 1,462 units of low income housing for the City. Buildings are either owned by the Authority, or are part of the rental subsidy program or the voucher program. Of the 1,462 units, 715 are included in twelve elderly developments, nine family developments, and one handicapped accessible family development. These units are owned and operated by the Authority. The principal highways serving the City are state Routes 1A, 107, and 114, ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 5 all of which provide immediate access to Routes 1 and 128 and other major highways serving the greater Boston area. The City is a member municipality of the Massachusetts Bay Commuter Railroad, which provides passenger and freight service. Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without recommendation of the Mayor, the City Council may not increase any item or make an appropriation for a purpose not included in the proposed budget (except by a two-thirds vote in case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the City Council, pursuant to state statute). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. The City’s operating budget for fiscal year 2008 totaled approximately $108 million. Factors Affecting Economic Condition The City of Salem is a historic waterfront community that has a rich cultural heritage, known worldwide for its architecture, maritime history, literary prominence, and hysteria. For this reason, tourism is one of the City’s major industries, accommodating almost one million visitors each year. Salem originated as one of the earliest landing sites of the English colonists, and went on to rise as the first major port in the United States, opening up the East Indian trade. In its heyday, Salem was known as a thriving hub of American commerce and was the home of Nathaniel Hawthorne. Salem is well known for the infamous Salem Trials of 1692, when nineteen people were convicted for the crime of and were put to their deaths. The City's golden years have left her modern inhabitants with architectural treasures, fine museums, and a sparkling literary heritage. Equally important, the development of Salem has produced a rich ethnic history, to which people of all races, creeds, colors and origins have contributed over the generations. Long a trading, manufacturing and retail center, Salem has been making a slow, and sometimes painful, transition to a service- based economy. The City today serves as the home of Salem State College, the North Shore Medical Center, the Essex County District Superior and Probate Courts, and Registry of Deeds, the world-famous Peabody Essex Museum, and a host of banks and other financial institutions. It is the educational, medical, legal, cultural and banking hub of the North Shore. Salem boasts an impressive collection of historically significant residential structures that are always in high demand. The uniqueness of these historic homes, coupled with a growing downtown condominium market, has helped boost home sales prices in Salem. The City also enjoys a mix of commercial businesses and markets. Commercial development has been prominent in the Highland Avenue and Vinnin Square areas. Additionally, the City has recently experienced a $100 million expansion of the Peabody Essex Museum and the privately funded renovation and reuse of several key properties. In fact, private investment in commercial and residential developments in downtown since 2001 totals close to $50 million, and expected future investment over the next two years totals close to an additional $10 million. The redevelopment of long dormant and underutilized industrial sites is helping to revitalize our central business district. The Salem waterfront is also experiencing a great deal of investment from the addition of the Pickering Wharf Hotel and a municipally managed Harbor Walkway project which will connect pedestrians walking along the harbor from the Pickering Wharf area to adjacent areas. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 6 The City also boasts Shetland Park, a sprawling business park which houses more than 70 concerns and an industrial park on Technology Way which houses large or expanding companies. The North Shore Medical Center has recently invested $12 million for their new 10,700 square foot cardiac surgical suite and also built a new 19,000 square foot Emergency Department, which is one of the most sophisticated and modern emergency facilities in the state. According to the Massachusetts Workforce Development Agency, the City had a labor force of 23,627, of whom 22,475 were employed and 1,152, or 4.9% were unemployed. The Commonwealth, for the same period, had an unadjusted unemployment rate of 5.1%. On the operating side, the City had experienced financial challenges during fiscal year 2007 and into the 2008 budget cycle. The City uncovered a multi-million dollar shortfall in the school department that left the schools with a substantial mid-year budget gap. This discovery was made as we were in the process of hiring a new school business manager. The deficit was eradicated by a combination of mid year budget cuts, a citywide community fundraising effort, and a state funding bill. These items, plus many hours of hard work by the School and City’s finance offices, allowed us to weather the storm without laying off any classroom teachers. There was also a great deal of collaboration between the School and City’s finance departments in order to efficiently and effectively make cuts and transfer funds to ensure that the City would close the year without any general fund appropriation deficits. We were able to accomplish this as well as adopt a fiscal 2009 budget that is in balance and is transparent to the City Council, School Committee, and the taxpayers of Salem. Both the School Business Manager and Finance Director have weekly meetings to ensure that communication lines are open and finances are in order. We have consolidated the benefits administration of the School and the City to ensure proper budgeting and reconciliation of participants in our health insurance, dental insurance, and life insurance plans. All financial transactions, including journal entries, budget transfers, and retirement anticipations have also been consolidated into one department with multiple signoffs to ensure the proper checks and balances are in place to account for such. The City has also developed the Five Year Financial Forecast and made it part of the budget process. This is the second 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. We have also, for the first time in fiscal 2008, developed a Five Year Capital Improvement Plan (CIP) for the purpose of maintaining the City’s capital and infrastructure, including policies on debt service and capital improvement budgeting. The first year of the five year capital plan (fiscal 2009) was adopted by the Council in April of 2008. The CIP for fiscal 2009 includes $3 million for water meter replacement throughout the City, $2.5 million for replacement of a water transmission main, and $4.35 million in upgrading the South River Basin drainage issues. We’ve also allocated money for departmental equipment, including $375,000 for a new pumper truck for the Fire Department, $135,000 for new school buses, and $100,000 for new equipment for the maintenance of the City’s municipal golf course, to name a few. The City has major capital expenses in fiscal 2008, including $11.5 million toward the high school renovations. The total high school project is budgeted for $67.4 million and should be complete during fiscal year 2009. The City has been in the process of renovating several schools which is being financed, in part, by the State’s School Building Assistance Program which is run by the Massachusetts School Building Authority. Through this program, the City is reimbursed for 90% of the construction and debt interest costs of the projects. Other significant fiscal 2008 capital expenditures were technological upgrades (point of sale cafeteria equipment) for the school department, nine new vehicles for the Salem police department, as well as a new F-550 dump truck for the department of public services ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 7 One of the key challenges for the City has been rising health care costs for City employees/retirees, as well as increases in pension costs. Since the state law, known as proposition 2 ½, caps the City’s ability to raise taxes to meet rising costs, the City is actively exploring the use of alternative, local revenue sources to help offset the aforementioned rising expenditures. In fiscal year 2006, the City Council accepted the provisions of Massachusetts General Law chapter 32B, section 18, a Massachusetts statute requiring all Medicare- eligible retirees who are currently on self-insured plans to move from self-insured coverage to a fully insured Medicare supplement plan. This provision saved the City approximately $700,000 in 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 Trust account, the fastest rising municipal budget item for each of the last five years. The City also put its health insurance out to bid for the second time in three years. This process resulted in the City changing its health insurance providers from Tufts to Blue Cross through the Massachusetts Interlocal Insurance Agency (MIIA). The Request for Quotation (RFQ) process proved to be quite successful, as the insurance rates for active employees increased only 6.4% when they became effective in July of 2008. The 6.4% increase, when compared to the 11% increase that was quoted by Tufts, saved the City and the employees over $600,000. Furthermore, the City introduced a third product to compliment its HMO and PPO plans, the HMO Value Plus plan. This plan is offered to all City employees at a premium that is 9% less than the HMO and 19% less than the PPO. This third option, with higher co-pays for office visits, Rx, and ER visits, allows the employees more options in choosing their health plan. The HMO Value Plus plan is intended to mirror the co- pays found in the Commonwealth’s Group Insurance Commission (GIC) plan design. Another significant change in the health insurance budget was the City and School’s AFSCME union and the Teacher’s union modifying the contribution rates to the health insurance as the Firefighters Union agreed to a year earlier. All three of the new contracts lower the municipal contribution for health insurance from 80% in fiscal 2007 to 79% in fiscal 2008, 77% in fiscal 2009, and 75% in fiscal 2010. The City’s exempt employees have also adopted this structure and all other City’s bargaining units have been informed that these contribution percentages will be the basis for contract negotiations. It is believed that through collective bargaining with all of the City’s unions, we will have uniformity in the contribution rates which will help stabilize the ever increasing cost of providing health benefits to the employees of the City. In fiscal 2007, the Mayor appointed herself to the Salem Retirement Board. By appointing herself, Mayor Driscoll has taken an active role in managing the City’s retirement system. The annual assessment from the Retirement Board to the City continues to be one of the biggest budget busters year in and year out. The Retirement Board has 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. Over the last 10 years (as of June 30, 2008), the PRIT fund has returned 8.16% annually compared to the public fund median return of 6.00% over the same 10 year time period. This places the PRIT in the top one percentile ranking of all public pension plans with over one billion dollars in assets per the Trust Universe Comparison Services (TUCS) master trust report. To help curb the fiscal challenges, the City also adjusted fees charged for vital records from the City Clerks office, established a program to store boats in the winter at Winter Island, and negotiated a PILOT agreement with the Northeast Animal Shelter that begins in 2009. The Council also passed, in fiscal 2008, an increase of $5 on expired parking meters, bringing the fine from $10 to $15. For several years, it was cheaper to receive a ticket for an expired meter than it was to park in one of our municipal garages. Both the State Revenue Department and Parking Board recommended this change to the ticket fine structure to encourage greater use of the parking garage by long term parkers and freeing up additional short term spaces for downtown merchants. The additional revenue from these new collections is estimated to generate $270,000 per year. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 8 At the end of fiscal year 2006, the City purchased a Ferry Boat in which they received a state grant for 75% of the purchase cost. The City is leasing the Ferry Boat to Water Transportation Services, Inc., which operates the ferry. The City received $60,000 in revenue from Water Transportation Services in fiscal 2007 and $75,000 in fiscal 2008 and will receive $100,000 in fiscal 2009 per the three year agreement entered into in fiscal 2007. The City implemented a trash fee for fiscal year 2007 which went into effect in September 2006. The revenue received from the trash fees totaled $450,000, for the ten months of collections during fiscal year 2007 and $780,000 a year for the twelve months of collections in fiscal year 2008. These amounts are based on the number of residential and commercial units that are currently being billed for trash. The fees collected are used to offset the cost of collecting solid waste. The City adopted an Enterprise Fund for solid waste collections in fiscal year 2008. Our contract for solid waste collection was set to expire on June 30, 2008. As such, a committee was formed to develop a Request for Proposal (RFP) for trash collection for a term of five years. As a result of the procurement, the City was able to reduce its cost of collection by 20%, approximately $600,000 in total. As a result of this, the City has reduced its fee by 20% for trash collection as well, reducing non-owner occupied tenements from $20 per unit to $16 per unit, and businesses from $30 per unit to $24 per unit. The procurement of the solid waste collection not only saved the City $600,000, but it also increased the pick up of recyclables from bi-weekly to weekly. Weekly recycling, combined with a newly negotiated rate for cardboard recycling from $25 per ton to $65 per ton is estimated to save the City an additional $100,000 by crediting these new revenues to the Enterprise Fund for solid waste collections as another way to offset the net cost of collection the City’s solid waste and recyclables. The City has set a target level for the Stabilization fund of 5% of the City’s current operating budget. The target funding date is projected to occur by fiscal year 2012. The Stabilization fund shall be funded by appropriations from free cash, operating budget appropriations when available, and other one time non-recurring revenues that become available for appropriation per M.G.L. In fiscal 2008, the City also established a second Stabilization fund for the funding of retirement buyouts for both City and School employees. During the fiscal 2009 budget process, all department heads were asked to estimate those employees who may retire and to calculate the estimated cost of each person’s buyout for fiscal 2009. It was determined that the estimated liability for fiscal 2009 would be $400,000. As such, the City Council adopted the law to establish the new Stabilization fund for retirement buyouts and appropriated $400,000 to the fund. It is the hope of the Finance Department that this fund will grow so that if there are any unanticipated retirements, the City will be able to fund these unanticipated costs within the fund instead of using the general fund appropriations to fund salaries of active employees within the department that has the unanticipated retirement. This will allow the departments to backfill vacancies in a timely manner without having to request a supplemental appropriation by the Council to their salary line. Free cash is the remaining, unrestricted funds from operations of the previous fiscal year including unexpended free cash from the previous year, actual receipts in excess of revenue estimates shown on the tax rate recapitulation sheet, and unspent amounts in budget line-items. Unpaid property taxes and certain deficits reduce the amount that can be certified as free cash. The calculation of free cash is based on the balance sheet as of June 30, which is submitted by the community's auditor, accountant, or comptroller. Free cash is not available for appropriation until certified by the Massachusetts Director of Accounts. Free cash is the term used for a community’s funds that are available for appropriation. Once free cash is certified, it is available for appropriation by City Council. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 9 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 necessarily carry forward to the next fiscal year (July 1st); the Director’s certification expires on June 30th at the end of the fiscal year. The City’s policy is to use free cash for reserves, capital, and special uses in accordance with the policies set forth by the Mayor and Finance Director. Any drawdown of the Stabilization Fund from the prior fiscal year should be allocated from the certified free cash if the free cash exceeds such drawdown. Twenty percent of any free cash available after funding a prior year drawdown will also be allocated from free cash to Stabilization Fund up to the goal of stabilization fund equaling 5% of the current operating budget of the City. Twenty percent of any free cash available after funding a prior year drawdown of Stabilization fund will also be allocated to the Capital Improvement Fund for funding Capital. Any free cash available after funding the above may be used to augment trust funds related to fringe benefits and unfunded liabilities related to employee benefits, including Health Insurance Trust Fund, Workers' Compensation Fund, Unemployment Fund, and any health benefits payable through Police and Fire operating budgets (111f settlements). Free cash available may also be used to augment general fund appropriations for expenses that increased due to extraordinary and/or unforeseen events as detailed by the department head of the affected budget. 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, 2007. This was the third year that the City submitted a CAFR to the GFOA. In order to receive this prestigious award, a government had to publish an easily readable and efficiently organized CAFR that satisfied both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine it’s eligibility for another certificate. The preparation of this report would not have been possible without the efficient and dedicated services of the Finance Department’s staff. We would like to express our appreciation to all the members of the departments who assisted and contributed to the preparation of this report. Credit must also be given to the City Council and Mayor for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Salem’s finances. Respectfully submitted, Richard Viscay Finance Director ---PAGE BREAK--- ---PAGE BREAK--- City of Salem, Massachusetts 11 Comprehensive Annual Financial Report Principal Executive Officers TITLE NAME FIRST TOOK OFFICE TERM EXPIRES Mayor Kimberley L. Driscoll 1/2/2006 12/31/2009 President, City Council Michael Sosnowski 1/2/2006 12/31/2008 Finance Director Richard Viscay 3/6/2006 1/31/2009 Treasurer Anne L. Busteed 5/22/2000 1/31/2007* Collector Bonnie Celi 3/11/2004 1/31/2009 City Clerk Cheryl LaPointe 7/15/2004 11/9/2009 City Solicitor Elizabeth Rennard 1/10/2006 Indefinite Asst. Finance Director Nina Bridgman 1/22/2004 1/31/2008* *Treasurer's and Asst. Finance Director's terms have not been extended. ---PAGE BREAK--- City of Salem, Massachusetts 12 Comprehensive Annual Financial Report Certificate of Achievement ---PAGE BREAK--- Financial Section Downtown Salem The Essex Street Pedestrian Mall, is a shady red-bricked plaza sandwiched between rows of shops. The inventory of the corner bookstore spills onto tables out front on most days, and trolleys occasionally pass by. Young women hand out coupons and ads for nearby shops. Many tourists and locals enjoy the view of the terrace garden of the Peabody Essex Museum. Fountains at each end of the mall are a great place for people to relax and enjoy the views of historic Salem or sit on a bench and have a bite to eat. The red line of the Heritage Trail will lead visitors in and out of the area to various points of interest and history within the City. ---PAGE BREAK--- City of Salem, Massachusetts 13 Comprehensive Annual Financial Report Financial Section ---PAGE BREAK--- City of Salem, Massachusetts 14 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- 15 Independent Auditors’ Report To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of and for the fiscal year ended June 30, 2008 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2007), which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Salem, Massachusetts' management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of June 30, 2008 (except for the Salem Contributory Retirement System which is as of December 31, 2007), and the respective changes in financial position and cash flows, where applicable, thereof for the fiscal year then ended in conformity with accounting principles generally accepted in the United States of America. Management’s discussion and analysis, located on the following pages, and schedule of revenues, expenditures and changes in fund balance – general fund – budgetary basis, other post-employment benefit plan schedule of funding progress, and other post-employment benefit plan actuarial methods and assumptions located after the notes to the basic financial statements, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management, regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The combining fund statements, as listed in the table of contents, are presented for the purpose of supplementary analysis and are not a required part of the financial statements of the City of Salem, Massachusetts. Such supplementary information has been subjected to the auditing procedures applied in the audit of the financial ---PAGE BREAK--- 16 statements and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole. The introductory and statistical sections, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. As described in Note 16, the City has restated the net assets of the Governmental and Business-type Activities in the entity wide financial statements as of June 30, 2007. In accordance with Government Auditing Standards, we have also issued our report dated December 9, 2008 on our consideration of the City of Salem, Massachusetts’ internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grants agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. December 9, 2008 ---PAGE BREAK--- City of Salem, Massachusetts 17 Comprehensive Annual Financial Report Management’s Discussion and Analysis Management’s Discussion and Analysis ---PAGE BREAK--- City of Salem, Massachusetts 18 Comprehensive Annual Financial Report Management’s Discussion and Analysis As management of the City of Salem, we offer readers of these financial statements this narrative overview and analysis of the financial activities for the fiscal year ended June 30, 2008. We encourage readers to consider the information presented in this report in conjunction with additional information that we have furnished in our letter of transmittal. The Governmental Accounting Standards Board (GASB) is the authoritative standard setting body that provides guidance on how to prepare financial statements in conformity with generally accepted accounting principals (GAAP). Users of these financial statements (such as investors and rating agencies) rely on the GASB to establish consistent reporting standards for all governments in the United States. This consistent application is the only way users (including citizens, the media, legislators and others) can assess the financial condition of one government compared to others. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City of Salem’s basic financial statements. These basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of finances, in a manner similar to private-sector business. The statement of net assets presents information on all assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position is improving or deteriorating. The statement of activities presents information showing how the government’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities include general government, public safety, education, public works, community development, health and human services, culture and recreation and interest. The business-type activities include the activities of water and sewer, parking services, trash disposal as well as the municipal golf course. The government-wide financial statements include not only the City of Salem itself (known as the primary government), but also a legally separate public employee retirement system for which the City of Salem is financially accountable. Financial information for this component unit is reported separately within the fiduciary fund statements. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Fund accounting is used to ensure and ---PAGE BREAK--- City of Salem, Massachusetts 19 Comprehensive Annual Financial Report demonstrate compliance with finance-related legal requirements. All of the funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund statements focus on near-term inflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Salem adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided as required supplementary information for the general fund to demonstrate compliance with this budget. Proprietary funds. The City maintains two types of propriety funds. Enterprise funds are used to report the same functions presented as business-type activities in the government- wide financial statements. The City uses enterprise funds to account for its water and sewer activities, parking services, trash disposal, and for the operation of the municipal golf course. The internal service fund is used to account for the financing of services provided by one department to other departments or governmental units. This fund is used to account for risk financing activities related to retirees’ health insurance. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for propriety funds. Notes to the basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Government-wide Financial Analysis Governmental Activities As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. The City of Salem’s governmental assets exceeded liabilities by $140 million at the close of fiscal 2008 an increase of $500 thousand from the prior year. This is an indication that the overall financial position of the City has improved during the current fiscal year. Net assets of $140 million (100%) reflects its investment in capital assets land, buildings, infrastructure, machinery, and equipment), less any related debt used to acquire those assets that are still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future ---PAGE BREAK--- City of Salem, Massachusetts 20 Comprehensive Annual Financial Report spending. Although the investment in its capital assets is reported net of its related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the governmental net assets, $6.9 million represents resources that are subject to external restrictions on how they may be used. The balance of unrestricted net assets has a year end deficit of $6.7 million. The primary reason for this deficit balance is the recognition of other post-employment benefit expenses of $6.9 million, due to the implementation of Governmental Auditing Standards Board (GASB) Statement 45. Fiscal year 2008 was the City’s initial year for the implementation of GASB Statement 45. This statement required the City to obtain an actuarial valuation of the City’s liability to pay other post-employment benefits to current employees and retirees. The City is allowed to amortize the liability, which totaled $160 million, over 30 years, since there is no legal obligation to fund the liability at this time. The City has opted to continue to fund other post-employment benefits on a pay-as-you go basis. As a result, the City is required to record the difference between the current year pay-as-you go cost and the current year actuarial determined cost as a liability in the full accrual financial statements. This difference totaled $6.9 million for fiscal 2008. The components of the City’s governmental activities are presented below. Fiscal 2008 Fiscal 2007 Assets: Current $ 29,975,519 $ 30,051,728 Noncurrent assets (excluding capital)…………………… 25,750,071 35,727,288 Capital 161,393,672 153,601,798 Total 217,119,262 219,380,814 Liabilities: Current liabilities (excluding 8,296,834 11,450,475 Noncurrent liabilities (excluding 13,154,225 5,955,395 Current 4,594,497 8,908,864 Noncurrent 51,110,000 53,600,000 Total liabilities………………………………………… 77,155,556 79,914,734 Net Assets: Capital assets net of related 139,683,360 132,787,853 6,948,839 8,868,048 (6,668,493) (2,189,821) Total net $ 139,963,706 $ 139,466,080 Governmental Activities ---PAGE BREAK--- City of Salem, Massachusetts 21 Comprehensive Annual Financial Report Fiscal 2008 Fiscal 2007 Program revenues: Charges for $ 5,568,333 $ 6,438,645 Operating grants and contributions……………………… 41,168,760 37,957,703 Capital grants and contributions………………………… 9,615,336 30,118,572 General Revenues: Real estate and personal property taxes……………… 63,230,976 60,991,003 Motor vehicle and other excise 3,286,119 3,357,765 Nonrestricted 9,163,777 8,971,625 Unrestricted investment 462,275 965,694 Other 2,877,637 2,215,208 Total 135,373,213 151,016,215 Expenses: General government……………………………………… 10,598,174 9,641,318 Public 28,262,847 24,433,343 75,874,227 75,513,149 Public 6,846,006 9,229,479 Community development………………………………… 1,567,381 1,804,554 Health and human services……………………………… 5,904,063 4,675,688 Culture and recreation…………………………………… 3,293,415 2,448,265 2,503,461 2,604,390 Total 134,849,574 130,350,186 Excess (Deficiency) before transfers……………………… 523,639 20,666,029 (26,013) 2,437,695 Change in net $ 497,626 $ 23,103,724 The governmental expenses totaled $134.8 million of which $56.4 million (42%) was directly supported by program revenues consisting of charges for services, operating and capital grants and contributions. The decrease seen in public works in fiscal year 2008 relates to the establishment of a trash disposal enterprise fund and the $3 million in annual expenses are no longer reported as a governmental activity. General revenues totaled $79 million, primarily coming from property taxes, motor vehicle and other excise, and non-restricted state aid. ---PAGE BREAK--- City of Salem, Massachusetts 22 Comprehensive Annual Financial Report Business-type Activities For the City’s business-type activities, assets exceeded liabilities by $14.5 million at the close of fiscal year 2008. Fiscal 2008 Fiscal 2007 Assets: Current 7,727,919 $ 8,252,450 Capital 15,375,825 14,482,759 Total 23,103,744 22,735,209 Liabilities: Current liabilities (excluding 681,411 1,028,082 Noncurrent liabilities (excluding 313,650 80,000 Current 1,373,333 482,687 Noncurrent 6,250,908 6,396,105 Total liabilities………………………………………… 8,619,302 7,986,874 Net Assets: Invested in capital assets, net of related debt………… 8,836,475 9,138,929 5,647,967 5,609,406 Total net $ 14,484,442 $ 14,748,335 Business-type Activities Business-type net assets of $8.8 million (60.6%) represent investments in capital assets net of related debt. The remaining $5.6 million (39.4%) is available to be used for the ongoing operation of the City’s water, sewer, parking, trash and the municipal golf course activities. There was a decrease of $264 thousand in net assets reported in connection with the enterprise funds. The water enterprise fund’s net assets of $3.4 million (57%) represent the investment in capital assets while $2.5 million (43%) is unrestricted. The water department experienced a net decrease of $107 thousand in net assets from the prior year. The water fund pays an annual assessment to the Salem Beverly Water Supply Board, which totaled $2.1 million, or 57% of the funds expenses for fiscal year 2008. The minor change in net assets is the result of the City’s policy to recover 100% of the cost of operations through rates while still maintaining adequate reserves. The sewer enterprise fund’s net assets of $851 thousand (23%) represent the investment in capital assets net of related debt, and $2.9 million (77%) is unrestricted. The unrestricted balance includes the City’s $1.1 million equity interest in the South Essex Sewerage District. The sewer department operations experienced a net increase of $1,081 during the current fiscal year. Approximately 86% of the expenses in the sewer fund consist of the annual assessments paid to the South Essex Sewerage District. The minor change in net assets is the result of the City’s policy to recover 100% of the cost of operations through rates while still maintaining adequate reserves. The golf course enterprise fund’s net assets of $285 thousand (61%) represent the investment in capital assets while $183 thousand (39%) is unrestricted. The golf course operations experienced a decrease of $14 thousand during fiscal year 2008. ---PAGE BREAK--- City of Salem, Massachusetts 23 Comprehensive Annual Financial Report The parking enterprise fund’s net assets of $4.3 million (103%) represent the investment in capital assets net of related debt while ($118,413) (less than is unrestricted. The parking operations experienced a net decrease of $247 thousand during fiscal year 2008, mostly due to depreciation expense of $225 thousand. The City reports this fee-for-service activity an enterprise fund however any cash based surplus generated is transferred back to the general fund to support City programs. In fiscal year 2008, $961 thousand was transferred back to the general fund. Consequently, the funds remaining in the enterprise fund at year end represent non-current assets and liabilities and the assets and liabilities related to the enterprise funds capital construction projects. During fiscal year 2008, the City voted to establish a trash disposal enterprise fund. The trash fee 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 cash basis deficit in the fund at June 30th. At fiscal year-end a $2.4 million transfer was made from the general fund to cover the deficit. As of June 30, 2008, the trash fund’s statement of net assets is comprised only of non-cash assets and liabilities which results in unrestricted net assets of $103 thousand. Fiscal 2008 Fiscal 2007 Program revenues: Charges for $ 14,004,233 $ 13,776,703 Capital grants and contributions………………………… 49,707 - Total 14,053,940 13,776,703 Expenses: Cost of service and administration……………………… 6,445,788 2,713,667 District assessment……………………………………… 7,148,484 6,933,555 487,355 464,614 262,219 219,320 Total 14,343,846 10,331,156 Excess (Deficiency) before transfers……………………… (289,906) 3,445,547 26,013 (2,437,695) Change in net (263,893) $ 1,007,852 Activities Business-type Financial Analysis of the Government’s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, governmental funds reported combined ending fund balances of $13 million of which $1.5 million is reported in the general fund, $649 thousand is reported in the stabilization major fund, $2.7 million is reported in the school capital projects major fund, and $8.1 million is reported in the nonmajor governmental funds. Cumulatively there was an increase of $3.7 million in fund balances from the prior year. ---PAGE BREAK--- City of Salem, Massachusetts 24 Comprehensive Annual Financial Report The general fund is the chief operating fund. At the end of the current fiscal year, unreserved fund balance of the general fund was $1.3 million, while total fund balance was $1.5 million. The general fund net assets increased by $2.6 million in fiscal year 2008. The majority of this increase relates to a $1.2 million increase in chapter 70 school aid received from the Commonwealth, and a $1.25 million one time contribution received from the Dominion Power Plant. Public works expenditures decreased by $3.2 million due to the creation of the trash enterprise fund during fiscal year 2008, this was offset by a decrease in trash receipts of $450 thousand, and the general fund subsidy to the trash enterprise fund of $2.4 million. The stabilization major fund is used to account for the accumulation of resources to be used for general and/or capital purposes upon approval of City Council. The fund increased by $161 thousand in fiscal 2008, due to investment earnings and a budgeted transfer in from the general fund to fund the stabilization fund of $138 thousand. The school capital projects fund is used to account for the City’s ongoing major school construction projects. The fund increased by $3 million in fiscal 2008 due to the recognition of proceeds on long-term BANs. During fiscal 2008, the City received an additional $17.3 million to offset school construction expenditures. This was comprised of $5.1 million in the general fund to offset bond payments on completed school projects, and $12.2 million in the school capital projects major fund to offset current costs. General Fund Budgetary Highlights The $1.8 million increase between the original budget and the final amended budget was due to several council orders issued throughout the fiscal year to utilize available funds to address budget issues. The most significant components of the increase were the use of $1 million from the short-term borrowing for the school deficit funding, $420 thousand appropriated for a collective bargaining reserve for the school department, $69 thousand appropriated for other pay raises, $138 thousand in free cash transferred to the stabilization fund, and $50 thousand in overlay appropriated for various municipal purposes. The City experienced a net surplus of actual revenues compared to budget of $155 thousand. The deficiency in real estate and personal property taxes, of $508 thousand, was due to lower than anticipated collection rates. This was partially offset with a surplus in collections in tax liens of $306 thousand. The surplus in intergovernmental revenue was mainly due to Medicare and Medicaid reimbursements which came in approximately $344 thousand over budget. The deficiency in departmental and other revenue was mainly due to parking fees, which are budgeted in the general fund. Parking revenues were approximately $188 thousand less than anticipated. Due to recent budget cuts, most departments, with the exception of the schools, ended the year with a minimal amount of unspent funds. State and county assessments were lower than anticipated by $199 thousand, all related to the charter school assessments. The City’s snow and ice removal account ended the year in a deficit of $596 thousand, which is allowable under state law. This deficit is required to be funded in the subsequent year’s tax levy. The City also experienced a deficit in its group insurance account of $65 thousand which will be raised in the subsequent fiscal year. The largest variance to the appropriation budget is in the school department, which reports expenditures under the appropriation by $2.7 million. This is the result of over-expenditures of the fiscal year 2007 budget which were raised in fiscal year 2008. ---PAGE BREAK--- City of Salem, Massachusetts 25 Comprehensive Annual Financial Report Capital Asset and Debt Administration Capital Assets. The City’s investment in capital assets for its governmental and business-type activities as of June 30, 2008, amounts to $176.8 million (net of accumulated depreciation). This investment in capital assets includes land, buildings, system improvements, machinery and equipment, and infrastructure related to governmental and business-type activities. The City’s total investment in capital assets for the current year was $13 million for governmental activities and $1.4 million for business-type activities. The major capital asset event during the current fiscal year was the continued work on a major renovation to the Salem High School which is reported as construction in progress pending the completion of the project. The City receives a 90% reimbursement of eligible construction costs from the Massachusetts School Building Authority as work progresses on this project. Debt Administration. Outstanding long-term debt of the general government, as of June 30, 2008, totaled $55,704,497, of which $51,728,633 is related to school projects, and $1,000,000 is related to the school deficit funding loan, leaving a balance of $2,975,864 for other CIP related projects. The Commonwealth of Massachusetts is obligated to provide school construction assistance for approved school projects through a grant program administered by the Massachusetts School Building Authority (MSBA). The assistance is paid to support construction costs and reduce the total debt service of the City. At June 30, 2008 the City has recorded a receivable from the MSBA of $33.7 million, which is equal to 90% of approved construction and interest costs incurred by the City to date, less amounts that have been reimbursed to the City by the MSBA. The City has $2,930,000 in governmental related short-term notes remaining which came due on 10/23/08, with an interest rate of 4.00%. The City’s short-term notes represent $2,930,000 in temporary financing for school construction projects. Subsequent to year end, on October 23, 2008, the City reissued $2,930,000 related to the school construction projects. As a result, the $2,930,000 has been classified as long-term debt. At year end the golf course, parking and water enterprise funds have $260,000, $875,000 and $5,489,241, respectively, of outstanding long-term debt, which is fully supported by fees and does not rely on a general fund subsidy. Additionally, the City had water-improvement BANs outstanding at June 30, 2008 totaling $1,000,000. Subsequent to year end, on October 23, 2008, the City reissued $1 million related to the water-improvement projects. As a result, the $1 million has been classified as long-term debt. Please refer to notes 5, 8 and 9 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 26 Comprehensive Annual Financial Report Basic Financial Statements Basic Financial Statements ---PAGE BREAK--- STATEMENT OF NET ASSETS JUNE 30, 2008 Primary Government Governmental Business-type Activities Activities Total ASSETS CURRENT: Cash and cash equivalents……………………………… $ 11,581,020 $ 3,723,963 $ 15,304,983 4,257,794 - 4,257,794 Receivables, net of allowance for uncollectibles: Real estate and personal property taxes…………… 616,214 - 616,214 Tax 1,292,211 - 1,292,211 Motor vehicle and other excise taxes………………… 629,206 - 629,206 User - 2,690,049 2,690,049 Trash 170 128,310 128,480 Departmental and 496,446 - 496,446 Intergovernmental……………………………………… 10,937,151 78,030 11,015,181 159,691 - 159,691 Internal 5,616 (5,616) - Investment in joint - 1,113,183 1,113,183 Total current 29,975,519 7,727,919 37,703,438 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental……………………………………… 25,247,238 - 25,247,238 502,833 - 502,833 Capital assets, non depreciable………………………… 55,893,083 276,422 56,169,505 Capital assets, net of accumulated depreciation……… 105,500,589 15,099,403 120,599,992 Total noncurrent 187,143,743 15,375,825 202,519,568 TOTAL 217,119,262 23,103,744 240,223,006 LIABILITIES CURRENT: Warrants 1,759,630 45,787 1,805,417 Accrued 412,007 397,547 809,554 Accrued 2,885,116 19,309 2,904,425 Health claims 103,360 - 103,360 Tax refunds 104,471 - 104,471 Accrued 1,126,457 166,658 1,293,115 Capital lease obligations…………………………………… 289,374 - 289,374 Compensated 1,502,065 52,110 1,554,175 Workers' compensation…………………………………… 114,354 - 114,354 Bonds and notes 4,594,497 1,373,333 5,967,830 Total current liabilities………………………………… 12,891,331 2,054,744 14,946,075 NONCURRENT: Capital lease obligations…………………………………… 386,580 - 386,580 Compensated 5,478,338 65,890 5,544,228 Other post-employment benefits………………………… 6,863,646 247,760 7,111,406 Workers' compensation…………………………………… 425,661 - 425,661 Bonds and notes 51,110,000 6,250,908 57,360,908 Total noncurrent liabilities……………………………… 64,264,225 6,564,558 70,828,783 TOTAL 77,155,556 8,619,302 85,774,858 NET ASSETS Invested in capital assets, net of related debt……………… 139,683,360 8,836,475 148,519,835 Restricted for: 662,524 - 662,524 Permanent funds: 3,291,512 - 3,291,512 Nonexpendable………………………………………… 1,650,597 - 1,650,597 Grants and 1,344,206 - 1,344,206 (6,668,493) 5,647,967 (1,020,526) TOTAL NET $ 139,963,706 $ 14,484,442 $ 154,448,148 See notes to basic financial statements. City of Salem, Massachusetts 27 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES FISCAL YEAR ENDED JUNE 30, 2008 Operating Capital Charges for Grants and Grants and Net (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Primary Government: Governmental Activities: General government……………… $ 10,598,174 $ 718,713 $ 159,833 $ 341,388 $ (9,378,240) Public safety……………………… 28,262,847 2,378,961 1,034,617 18,498 (24,830,771) Education………………………… 75,874,227 1,586,525 32,858,433 7,897,854 (33,531,415) Public 6,846,006 58,076 17,000 1,156,651 (5,614,279) Community development………… 1,567,381 3,741 1,505,221 - (58,419) Health and human services……… 5,904,063 105,854 3,921,831 - (1,876,378) Culture and recreation…………… 3,293,415 716,463 101,088 200,945 (2,274,919) Interest……………………………… 2,503,461 - 1,570,737 - (932,724) Total Governmental Activities… 134,849,574 5,568,333 41,168,760 9,615,336 (78,497,145) Business-Type Activities: 3,895,551 4,318,889 - 49,707 473,045 5,894,870 6,555,593 - - 660,723 Golf 386,099 570,142 - - 184,043 936,826 1,651,032 - - 714,206 3,230,500 908,577 - - (2,321,923) Total Business-Type Activities… 14,343,846 14,004,233 - 49,707 (289,906) Total Primary Government………$ 149,193,420 $ 19,572,566 $ 41,168,760 $ 9,665,043 $ (78,787,051) See notes to basic financial statements. (Continued) Program Revenues City of Salem, Massachusetts 28 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES (Continued) FISCAL YEAR ENDED JUNE 30, 2008 Governmental Business-Type Activities Activities Total Changes in net assets: Net (expense) revenue from previous page…………… $ (78,497,145) $ (289,906) $ (78,787,051) General revenues: Real estate and personal property taxes, net of tax refunds payable………………………… 63,230,976 - 63,230,976 Tax 752,178 - 752,178 Motor vehicle and other excise taxes……………… 3,286,119 - 3,286,119 Hotel/motel 373,655 - 373,655 Penalties and interest on 353,952 - 353,952 Payments in lieu of 1,229,435 - 1,229,435 Grants and contributions not restricted to specific 9,163,777 - 9,163,777 Unrestricted investment income…………………… 462,275 - 462,275 Miscellaneous………………………………………… 168,417 - 168,417 Transfers, net (26,013) 26,013 - Total general revenues and transfers………………… 78,994,771 26,013 79,020,784 Change in net 497,626 (263,893) 233,733 Net Assets: Beginning of year, as restated……………………… 139,466,080 14,748,335 154,214,415 End of $ 139,963,706 $ 14,484,442 $ 154,448,148 (Concluded) Primary Government City of Salem, Massachusetts 29 Comprehensive Annual Financial Report ---PAGE BREAK--- GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2008 School Nonmajor Total Capital Governmental Governmental ASSETS General Stabilization Projects Funds Funds Cash and cash $ 3,431,863 $ 648,947 $ 3,320,469 $ 4,179,741 $ 11,581,020 - - - 4,257,794 4,257,794 Receivables, net of uncollectibles: Real estate and personal property 616,214 - - - 616,214 Tax 1,292,211 - - - 1,292,211 Motor vehicle and other excise 629,206 - - - 629,206 Trash 170 - - - 170 Departmental and 434,346 - - 21,217 455,563 Intergovernmental……………………………………………………… 33,391,837 - 919,033 1,873,519 36,184,389 - - - 662,524 662,524 Due from other 194,395 - - 788,715 983,110 TOTAL $ 39,990,242 $ 648,947 $ 4,239,502 $ 11,783,510 $ 56,662,201 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants $ 18,668 $ - $ 1,510,098 $ 230,864 $ 1,759,630 Accrued 404,586 - - - 404,586 Accrued 2,727,269 - - 157,847 2,885,116 Tax refunds 104,471 - - - 104,471 Accrued interest on short-term - - - - - Deferred 35,193,243 - - 2,467,898 37,661,141 Due to other - - - 788,715 788,715 Notes - - - - - TOTAL 38,448,237 - 1,510,098 3,645,324 43,603,659 FUND BALANCES: Reserved for: Encumbrances and continuing appropriations…………………… 220,608 - - - 220,608 Perpetual permanent - - - 1,650,597 1,650,597 Unreserved: Undesignated, reported in: General 1,321,397 - - - 1,321,397 Special revenue - 648,947 - 3,119,376 3,768,323 Capital projects - - 2,729,404 76,701 2,806,105 Permanent - - - 3,291,512 3,291,512 TOTAL FUND 1,542,005 648,947 2,729,404 8,138,186 13,058,542 TOTAL LIABILITIES AND FUND BALANCES………………………… $ 39,990,242 $ 648,947 $ 4,239,502 $ 11,783,510 $ 56,662,201 See notes to basic financial statements. City of Salem, Massachusetts 30 Comprehensive Annual Financial Report ---PAGE BREAK--- RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET ASSETS JUNE 30, 2008 Total governmental fund $ 13,058,542 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the 161,393,672 Accounts receivable are not available to pay for current-period expenditures and, therefore, are deferred in the 37,661,141 Internal service funds are used by management to account for health insurance activities. The assets and liabilities of the internal service funds are included in the governmental activities in the statement of net (258,677) In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until (1,126,457) Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds Bonds and notes (55,704,497) Workers' (540,015) Capital (675,954) Compensated (6,980,403) Other post-employment (6,863,646) Net effect of reporting long-term (70,764,515) Net assets of governmental $ 139,963,706 See notes to basic financial statements. City of Salem, Massachusetts 31 Comprehensive Annual Financial Report ---PAGE BREAK--- GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2008 School Nonmajor Total Capital Governmental Governmental General Stabilization Projects Funds Funds REVENUES: Real estate and personal property taxes, net of tax $ 63,376,714 $ - $ - $ - $ 63,376,714 Tax 306,948 - - - 306,948 Motor vehicle and other excise 3,427,889 - - - 3,427,889 Hotel/motel 373,655 - - - 373,655 Charges for 1,537,631 - - 44,493 1,582,124 Penalties and interest on 353,952 - - - 353,952 Payments in lieu of 1,229,435 - - - 1,229,435 Licenses and 510,120 - - - 510,120 Fines and 1,222,170 - - - 1,222,170 Intergovernmental……………………………………………………………… 37,200,938 - 11,603,278 15,602,554 64,406,770 Departmental and 1,600,685 - - 2,087,752 3,688,437 - - - 819,731 819,731 Investment 355,841 22,737 - 84,007 462,585 TOTAL 111,495,978 22,737 11,603,278 18,638,537 141,760,530 EXPENDITURES: Current: General 4,357,726 - - 588,737 4,946,463 Public 15,681,963 - - 621,970 16,303,933 45,369,665 - 11,493,232 9,607,025 66,469,922 Public 3,029,652 - - 575,885 3,605,537 Community - - - 1,567,381 1,567,381 Health and human 812,389 - - 4,494,055 5,306,444 Culture and 1,754,078 - - 588,660 2,342,738 Pension 15,180,985 - - - 15,180,985 Employee 11,570,087 - - - 11,570,087 State and county 5,933,670 - - - 5,933,670 Debt service: 4,300,000 - - 2,320,000 6,620,000 2,511,783 - - 110,606 2,622,389 TOTAL 110,501,998 - 11,493,232 20,474,319 142,469,549 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………………………………………… 993,980 22,737 110,046 (1,835,782) (709,019) OTHER FINANCING SOURCES (USES): Issuance of bonds and - - 2,930,000 1,000,000 3,930,000 Premium from issuance of bonds and 84,840 - - - 84,840 Capital lease 394,779 - - - 394,779 Transfers 4,191,691 138,230 - 178,308 4,508,229 Transfers (3,041,717) - - (1,492,525) (4,534,242) TOTAL OTHER FINANCING SOURCES 1,629,593 138,230 2,930,000 (314,217) 4,383,606 NET CHANGE IN FUND 2,623,573 160,967 3,040,046 (2,149,999) 3,674,587 FUND BALANCES AT BEGINNING OF (1,081,568) 487,980 (310,642) 10,288,185 9,383,955 FUND BALANCES AT END OF 1,542,005 $ 648,947 $ 2,729,404 $ 8,138,186 $ 13,058,542 See notes to basic financial statements. City of Salem, Massachusetts 32 Comprehensive Annual Financial Report ---PAGE BREAK--- RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FISCAL YEAR ENDED JUNE 30, 2008 Net change in fund balances - total governmental $ 3,674,587 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 12,930,767 Depreciation (5,138,893) Net effect of reporting capital 7,791,874 Revenues in the Statement of Activities that do not provide current financial resources are fully deferred in the Statement of Revenues, Expenditures and Changes in Fund Balances. Therefore, the recognition of revenue for various types of accounts receivable real estate and personal property, motor vehicle excise, etc.) differ between the two statements. This amount represents the net change in deferred (6,443,056) The issuance of long-term debt bonds and leases) provides current financial resources to governmental funds, while the repayment of the principal of long- term debt consumes the financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. Capital lease principal 498,731 Capital lease (394,779) Issuance of bonds and (3,930,000) Debt service principal 6,620,000 Net effect of reporting long-term 2,793,952 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 (437,057) Net change in workers' (134,712) Net change in accrued interest on long-term 34,088 Net change in other post-employment (6,863,646) Net effect of recording long-term liabilities and amortizing deferred losses…………… (7,401,327) Internal service funds are used by management to account for health insurance activities The net activity of internal service funds is reported with Governmental Activities…………… 81,596 Change in net assets of governmental $ 497,626 See notes to basic financial statements. City of Salem, Massachusetts 33 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF NET ASSETS JUNE 30, 2008 Governmental Activities - Golf Internal Service Water Sewer Course Parking Trash Total Funds ASSETS CURRENT: Cash and cash equivalents……………………… $ 2,912,687 $ 518,757 $ 269,185 $ 23,334 $ - $ 3,723,963 $ - Receivables, net of allowance for uncollectibles User 965,250 1,724,799 - - - 2,690,049 - Trash - - - - 128,310 128,310 - Departmental and - - - - - - 40,883 Intergovernmental……………………………… 78,030 - - - - 78,030 - Investment in joint venture………………………… - 1,113,183 - - - 1,113,183 - Total current 3,955,967 3,356,739 269,185 23,334 128,310 7,733,535 40,883 NONCURRENT: Capital assets, non depreciable………………… 10,589 99,552 118,067 48,214 - 276,422 - Capital assets, net of accumulated depreciation 8,803,937 751,791 427,012 5,116,663 - 15,099,403 - Total noncurrent assets……………………… 8,814,526 851,343 545,079 5,164,877 - 15,375,825 - TOTAL 12,770,493 4,208,082 814,264 5,188,211 128,310 23,109,360 40,883 LIABILITIES CURRENT: Warrants 45,786 - - - - 45,786 - Accrued liabilities…………………………………… 52,488 340,992 - - 4,068 397,548 7,421 Accrued 9,171 8,768 - - 1,370 19,309 - Health claims - - - - - - 103,360 Accrued 142,889 - 6,400 17,369 - 166,658 - Due to other - - - - 5,616 5,616 188,779 Compensated absences…………………………… 9,455 9,455 11,283 21,917 - 52,110 - Bonds and notes payable………………………… 1,268,333 - 30,000 75,000 - 1,373,333 - Total current liabilities………………………… 1,528,122 359,215 47,683 114,286 11,054 2,060,360 299,560 NONCURRENT: Compensated absences…………………………… 6,869 6,869 33,650 18,502 - 65,890 - Other post-employment benefits obligation……… 57,566 57,259 34,983 83,959 13,993 247,760 - Bonds and notes payable………………………… 5,220,908 - 230,000 800,000 - 6,250,908 - Total noncurrent liabilities…………………… 5,285,343 64,128 298,633 902,461 13,993 6,564,558 - TOTAL LIABILITIES………………………………… 6,813,465 423,343 346,316 1,016,747 25,047 8,624,918 299,560 NET ASSETS Invested in capital assets, net of related debt……… 3,410,176 851,343 285,079 4,289,877 - 8,836,475 - Unrestricted…………………………………………… 2,546,852 2,933,396 182,869 (118,413) 103,263 5,647,967 (258,677) TOTAL NET 5,957,028 $ 3,784,739 $ 467,948 $ 4,171,464 $ 103,263 $ 14,484,442 $ (258,677) See notes to basic financial statements. Business-type Activities - Enterprise Funds City of Salem, Massachusetts 34 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS FISCAL YEAR ENDED JUNE 30, 2008 Business-type Activities - Enterprise Funds Governmental Activities - Golf Internal Service Water Sewer Course Parking Trash Total Funds OPERATING REVENUES: Employee contributions $ - $ - $ - $ - $ - $ - $ 503,958 Employer contributions - - - - - - 1,135,134 Charges for services 4,318,889 6,555,593 570,142 1,651,032 908,577 14,004,233 - - - - - - - 83,479 TOTAL OPERATING REVENUES 4,318,889 6,555,593 570,142 1,651,032 908,577 14,004,233 1,722,571 OPERATING EXPENSES: Cost of services and administration 1,331,376 863,284 344,742 675,886 3,230,500 6,445,788 - District Assessment……………………………………… 2,140,679 5,007,805 - - - 7,148,484 - Depreciation……………………………………………… 212,888 23,781 25,609 225,077 - 487,355 - Employee benefits - - - - - - 1,643,733 TOTAL OPERATING EXPENSES 3,684,943 5,894,870 370,351 900,963 3,230,500 14,081,627 1,643,733 OPERATING INCOME 633,946 660,723 199,791 750,069 (2,321,923) (77,394) 78,838 NONOPERATING REVENUES (EXPENSES): Investment - - - - - - 2,758 Interest (210,608) - (15,748) (35,863) - (262,219) - Intergovernmental………………………………………… 49,707 - - - - 49,707 - TOTAL NONOPERATING REVENUES (EXPENSES), (160,901) - (15,748) (35,863) - (212,512) 2,758 INCOME (LOSS) BEFORE TRANSFERS………… 473,045 660,723 184,043 714,206 (2,321,923) (289,906) 81,596 TRANSFERS: Transfers - - 353,301 - 2,425,186 2,778,487 - Transfers (580,266) (659,642) (551,730) (960,836) - (2,752,474) - TOTAL TRANSFERS………………………………… (580,266) (659,642) (198,429) (960,836) 2,425,186 26,013 - CHANGE IN NET (107,221) 1,081 (14,386) (246,630) 103,263 (263,893) 81,596 NET ASSETS AT BEGINNING OF YEAR, as restated... 6,064,249 3,783,658 482,334 4,418,094 - 14,748,335 (340,273) NET ASSETS AT END OF $ 5,957,028 $ 3,784,739 $ 467,948 $ 4,171,464 $ 103,263 $ 14,484,442 $ (258,677) See notes to basic financial statements. City of Salem, Massachusetts 35 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FISCAL YEAR ENDED JUNE 30, 2008 Business-type Activities - Enterprise Funds Governmental Activities - Golf Internal Service Water Sewer Course Parking Trash Total Funds CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and $ 4,483,926 $ 6,480,184 $ 570,142 $ 1,651,032 $ 780,267 $ 13,965,551 $ - Receipts from interfund services - - - - - - 1,696,089 Payments to (3,038,283) (5,480,877) (132,062) (229,303) (3,169,923) (12,050,448) - Payments to (347,380) (329,253) (178,185) (358,205) (41,146) (1,254,169) - Payments for interfund services - - - - - - (1,609,355) NET CASH FROM OPERATING ACTIVITIES…………………………………… 1,098,263 670,054 259,895 1,063,524 (2,430,802) 660,934 86,734 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers - - 353,301 - 2,425,186 2,778,487 - Transfers (580,266) (659,642) (551,730) (960,836) - (2,752,474) - Advances from other - - - - 5,616 5,616 (89,492) NET CASH FROM NONCAPITAL FINANCING ACTIVITIES…………………… (580,266) (659,642) (198,429) (960,836) 2,430,802 31,629 (89,492) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from the issuance of bonds and 1,000,000 - - - - 1,000,000 - Acquisition and construction of capital (1,751,352) (85,543) - - - (1,836,895) - Principal payments on bonds and (149,551) - (30,000) (75,000) - (254,551) - Interest (103,655) - (13,475) (36,988) - (154,118) - NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES……… (1,004,558) (85,543) (43,475) (111,988) - (1,245,564) - CASH FLOWS FROM INVESTING ACTIVITIES: Investment - - - - - - 2,758 NET CHANGE IN CASH AND CASH EQUIVALENTS…………………………… (486,561) (75,131) 17,991 (9,300) - (553,001) - CASH AND CASH EQUIVALENTS AT BEGINNING OF 3,399,248 593,888 251,194 32,634 - 4,276,964 - CASH AND CASH EQUIVALENTS AT END OF $ 2,912,687 $ 518,757 $ 269,185 $ 23,334 $ - $ 3,723,963 $ - RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income 633,946 $ 660,723 $ 199,791 $ 750,069 $ (2,321,923) $ (77,394) $ 78,838 Adjustments to reconcile operating income (loss) to net cash from operating activities: 212,888 23,781 25,609 225,077 - 487,355 - Changes in assets and liabilities: User 165,037 (75,409) - - - 89,628 - Trash - - - - (128,310) (128,310) - Investment in joint - 4,596 - - - 4,596 - Departmental and - - - - - - (26,482) Working capital - - - - - - 82,426 Warrants - - (421) - - (421) (40,618) Accrued 30,350 977 - - 4,068 35,395 7,421 Accrued 3,152 2,803 - - 1,370 7,325 - Health claims - - - - - - (14,851) Other post-employment 57,566 57,259 34,983 83,959 13,993 247,760 - Accrued compensated (4,676) (4,676) (67) 4,419 - (5,000) - Total 464,317 9,331 60,104 313,455 (108,879) 738,328 7,896 NET CASH FROM OPERATING ACTIVITIES…………………………………… $ 1,098,263 $ 670,054 $ 259,895 $ 1,063,524 $ (2,430,802) $ 660,934 $ 86,734 See notes to basic financial statements. City of Salem, Massachusetts 36 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2008 Pension Trust Fund Private (as of December Purpose Agency 31, 2007) Trust Funds Fund ASSETS Cash and cash equivalents…………………………………… $ 75,029,000 $ 111,437 $ 724,874 Investments: Corporate 206,792 1,432,859 - Equity 4,104 - - Equity mutual 7,076,220 - - Real estate and alternative investment mutual funds… 4,535,989 - - 10,540,611 - - Receivables, net of allowance for uncollectibles: Departmental and 3,526,014 - 34,681 TOTAL 100,918,730 1,544,296 759,555 LIABILITIES Warrants 56,065 - 44,663 Liabilities due depositors……………………………………… - - 714,892 TOTAL 56,065 - 759,555 NET ASSETS Held in trust for pension benefits and other purposes…… $ 100,862,665 $ 1,544,296 $ - See notes to basic financial statements. City of Salem, Massachusetts 37 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FISCAL YEAR ENDED JUNE 30, 2008 Pension Trust Fund Private (as of December Purpose 31, 2007) Trust Funds ADDITIONS: Contributions: $ 9,176,126 $ - Plan 2,929,739 - Private - 16,880 Total 12,105,865 16,880 Net investment income (loss): Net change in fair value of 4,498,085 (22,177) 2,588,523 2,977 Total investment income 7,086,608 (19,200) Less: investment (665,069) - Net investment income 6,421,539 (19,200) 405,313 - Transfers from other 496,546 - TOTAL 19,429,263 (2,320) DEDUCTIONS: 401,427 - Transfers to other 185,997 - Retirement benefits and 11,656,975 - Educational - 14,736 Housing - 39,834 TOTAL 12,244,399 54,570 CHANGE IN NET 7,184,864 (56,890) NET ASSETS AT BEGINNING OF 93,677,801 1,601,186 NET ASSETS AT END OF 100,862,665 $ 1,544,296 See notes to basic financial statements. City of Salem, Massachusetts 38 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 39 Comprehensive Annual Financial Report NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Notes to basic financial statements The accompanying basic financial statements of the City of Salem, Massachusetts (the City) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board (GASB) is the recognized standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described herein. A. Reporting Entity The City is a Massachusetts municipal corporation with a Mayor-Council form of government. The Mayor is elected at large for a four-year term. The City Council is comprised of eleven members elected for two-year terms from seven wards and four at-large. For financial reporting purposes, the City has included all funds, organizations, agencies, boards, commissions and institutions. The City has also considered all potential component units for which it is financially accountable as well as other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the basic financial statements to be misleading or incomplete. As required by GAAP, these basic financial statements present the City (the primary government) and its component units. One entity has been included as a component unit in the reporting entity, because of the significance of its operational and/or financial relationship. Blended Component Units – Blended component units are entities that are legally separate from the City, but are so related that they are, in substance, the same as the City, or entities providing services entirely or almost entirely for the benefit of the City. The following component unit is blended within the Fiduciary Funds of the primary government: The Salem Contributory Retirement System (the System) was established to provide retirement benefits to City employees, the Salem Housing Authority employees, the South Essex Sewerage District employees, the Salem- Beverly Water Supply Board employees, the North Shore Regional Vocational School employees and their beneficiaries. The System is governed by a five-member board comprised of the Finance Director (ex-officio), two members elected by the System’s participants, one member appointed by the Mayor and one member appointed by the other board members. The System is presented using the accrual basis of accounting and is reported as a pension trust fund in the fiduciary fund financial statements. The City is a member of the South Essex Sewerage District (the District), a joint venture with the Cities of Salem and Beverly and the Towns of Danvers and Marblehead, for the operation of a septage disposal facility. The members share in overseeing the operations of the District. Each member is responsible for its proportionate share of the operational costs of the District, which are paid in the form of assessments. As of June 30, 2008, the City’s equity interest in the operations of the District totaled $1,113,183, which is recorded in the Sewer Enterprise Fund. Complete financial statements for the District can be obtained by contacting them at 50 Fort Avenue, Salem, MA 01970. The City is a member of the Salem-Beverly Water Supply Board (Water Board), a joint venture with the City of Beverly for the operation of a water distribution system. The City does not have an equity interest in the Salem- Beverly Water Supply Board. The annual assessment from the Water Board for the fiscal year ended June 30, 2008 totaled approximately $2,141,000. Complete financial information for the Water Board can be obtained by contacting them at 50 Arlington Avenue, Beverly, MA 01915. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 40 Comprehensive Annual Financial Report Availability of Financial Information for Component Units The System did not issue a separate audited financial statement. The System issues a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth of Massachusetts’ (Commonwealth) Public Employee Retirement Administration Commission (PERAC). That report may be obtained by contacting the System located at 20 Central Street, Suite 110, Salem, Massachusetts 01970. B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The government-wide financial statements statement of net assets and the statement of changes in net assets) report information on all of the non-fiduciary activities of the primary government and its component units. Governmental activities, which are primarily supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which are supported primarily by user fees and charges. Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Nonmajor funds are aggregated and displayed in a single column. Major Fund Criteria Major funds must be reported if the following criteria are met: • If the total assets, liabilities, revenues, or expenditures/expenses of an individual governmental or enterprise fund are at least 10 percent of the corresponding element (assets, liabilities, etc.) for all funds of that category or type (total governmental or total enterprise funds), and • If the total assets, liabilities, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5 percent of the corresponding element for all governmental and enterprise funds combined. Additionally, any other governmental or enterprise fund that management believes is particularly significant to the basic financial statements may be reported as a major fund. Internal service funds and fiduciary funds are reported by fund type. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Real estate and personal property taxes are recognized as revenues in the fiscal year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 41 Comprehensive Annual Financial Report The statement of activities demonstrates the degree to which the direct expenses of a particular function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include the following: • Charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment. • Grants and contributions that are restricted to meeting the operational requirements of a particular function or segment. • Grants and contributions that are restricted to meeting the capital requirements of a particular function or segment. Taxes and other items not identifiable as program revenues are reported as general revenues. For the most part, the effect of interfund activity has been removed from the government-wide financial statements. However, the effect of interfund services provided and used between functions is not eliminated as the elimination of these charges would distort the direct costs and program revenues reported for the functions affected. Fund Financial Statements Governmental fund financial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual measurable and available). Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences, claims and judgments which are recognized when the obligations are expected to be liquidated with current expendable available resources. Real estate and personal property tax revenues are considered available if they are collected within 60 days after fiscal year-end. Investment income is susceptible to accrual. Other receipts and tax revenues become measurable and available when the cash is received and are recognized as revenue at that time. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria is met. Expenditure driven grants recognize revenue when the qualifying expenditures are incurred and all other grant requirements are met. The following major governmental funds are reported: The general fund is the primary operating fund. It is used to account for all financial resources, except those that are required to be accounted for in another fund. The stabilization fund is a special revenue fund used to account for the accumulation of resources to be used for general and/or capital purposes upon approval of City Council. The school capital projects fund is used to account for the ongoing construction and renovations of the City’s school buildings. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 42 Comprehensive Annual Financial Report The nonmajor governmental funds consist of other special revenue, capital projects and permanent funds that are aggregated and presented in the nonmajor governmental funds column on the governmental funds financial statements. The following describes the general use of these fund types: The special revenue fund is used to account for the proceeds of specific revenue sources (other than permanent funds or capital projects funds) that are restricted by law or administrative action to expenditures for specified purposes. The capital projects fund is used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by Enterprise Funds). The permanent fund is used to account for financial resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the governmental programs. Proprietary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary funds principal ongoing operations. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. The following major proprietary funds are reported: The sewer enterprise fund is used to account for the sewer activities. The water enterprise fund is used to account for the water activities. The golf course enterprise fund is used to account for the golf course activities. The parking activities enterprise fund is used to account for parking activities. 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 excluding Agency Funds. Fiduciary funds are used to account for assets held in a trustee capacity for others that cannot be used to support the governmental programs. The following fiduciary fund types are reported: The pension trust fund is used to account for the activities of the System, which accumulates resources to provide pension benefits to eligible retirees and their beneficiaries. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 43 Comprehensive Annual Financial Report 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, and police and fire special detail accounts. Government-Wide and Fund Financial Statements Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The government has elected not to follow subsequent private-sector guidance. D. Cash and Investments Government-Wide and Fund Financial Statements Cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with an original maturity of three months or less from the date of acquisition. Investments are carried at fair value. The fair values were determined by the closing price for those securities traded on national stock exchanges and at the average bid-and-asked quotation for those securities traded in the over-the-counter market. Mortgages are valued on the basis of future plan principal and interest payments, and are discounted at prevailing interest rates for similar instruments. The fair value of real estate investments is based upon independent appraisals. Investments that do not have an established market are reported at estimated fair values. E. Accounts Receivable Government-Wide and Fund Financial Statements The recognition of revenue related to accounts receivable reported in the government-wide financial statements and the proprietary funds and fiduciary funds financial statements are reported under the accrual basis of accounting. The recognition of revenue related to accounts receivable reported in the governmental funds financial statements are reported under the modified accrual basis of accounting. Real Estate, Personal Property Taxes, Tax Liens and Tax Foreclosures Real estate and personal property taxes are levied and based on values assessed on January 1st of every year. Assessed values are established by the Board of Assessor’s for 100% of the estimated fair market value. Taxes are due on August 1st, November 1st, February 1st and May 1st and are subject to penalties and interest if they are not paid by the respective due date. Real estate and personal property taxes levied are recorded as receivables in the fiscal year of the levy. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 44 Comprehensive Annual Financial Report The City has the ability to process real estate tax liens on delinquent properties. Tax liens are processed once a year following the first quarter of the following fiscal year. Liens are recorded as receivables in the fiscal year they are processed. Real estate receivables which have been secured via the tax lien process are considered 100% collectible. Accordingly, an allowance for uncollectibles is not reported. Personal property taxes cannot be secured through the lien process. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. Motor Vehicle and Other Excise Taxes Motor vehicle excise taxes are assessed annually for each vehicle registered and are recorded as receivables in the fiscal year of the levy. The Commonwealth is responsible for reporting the number of vehicles registered and the fair values of those vehicles. The tax calculation is the fair value of the vehicle multiplied by $25 per $1,000 of value. Boat excise taxes are assessed annually for each boat registered and are recorded as receivables in the fiscal year of the levy. The Commonwealth is responsible for reporting the number of boats registered and the fair value of those boats. The tax calculation is the fair value of the boat multiplied by $10 per $1,000 of value. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. User Fees Water and Sewer user fees are levied based on individual meter readings and are subject to penalties and interest if they are not paid by the respective due date. Unbilled user fees are estimated at year-end and are recorded as revenue in the current period. The City abides by a strict policy for unpaid fees resulting in the discontinuation of service also known as a “shut off” policy. The water department provides strict guidelines as to the process of discontinuation of service. Trash user fees are levied based on the number of units located on the property. The per unit fee collected is $30 for commercial and $20 for residential. Collection from any one property shall not exceed $100. Unpaid trash fees are subject to interest and demand fees; any fees not paid within thirty (30) days may be liened to the property in the following fiscal years’ real estate bill. Since the receivables are secured via either a shut off or lien process, these accounts are considered 100% collectible and therefore do not report an allowance for uncollectibles. Departmental and Other Departmental and other receivables consist primarily of grant proceeds and fire detail fees and investment funds of the retirement system received after year end that are recorded as receivables in the fiscal year accrued. The allowance of uncollectibles is estimated based on historical trends and specific account analysis. Intergovernmental Various federal and state grants for operating and capital purposes are applied for and received annually. For non-expenditure driven grants, receivables are recorded as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred and all other grant requirements are met. These receivables are considered 100% collectible and therefore do not report an allowance for uncollectibles. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 45 Comprehensive Annual Financial Report Loans Loan receivables are comprised of funds advanced to small businesses and developers under various Urban Development Action Grants (UDAG) and Community Development Block Grants (CDBG). The City loans funds to owners of commercial and residential properties for the purpose of rehabilitating these properties. The City receives funding for these loans from the U.S Department of Housing and Urban Development (HUD) under Community Development Block Grant (CDBG) programs for the City. These loans are repaid to the City under various terms and conditions stipulated by each loan agreement. The loan repayments may be used by the City for any eligible activity relevant to the community development program. F. Inventories Government-Wide and Fund Financial Statements Inventories are recorded as expenditures at the time of purchase. Inventories are not material in total to the government-wide and fund financial statements, and therefore are not reported. G. Capital Assets Government-Wide and Proprietary Fund Financial Statements Capital assets, which include land, land improvements, buildings and improvements, machinery and equipment, and infrastructure roads, water mains, sewer mains, and similar items), are reported in the applicable governmental or business-type activity column of the government-wide financial statements, and the proprietary fund financial statements. Capital assets are recorded at historical cost, or at estimated historical cost, if actual historical cost is not available. Donated capital assets are recorded at the estimated fair market value at the date of donation. Except for the capital assets of the governmental activities column in the government-wide financial statements, construction period interest is capitalized on constructed capital assets. All purchases and construction costs in excess of $25,000 are capitalized at the date of acquisition or construction, respectively, with expected useful lives of greater than one year. This excludes vehicles, which will all be capitalized. Capital assets (excluding land and construction in progress) are depreciated on a straight-line basis. The estimated useful lives of capital assets are as follows: Estimated Useful Life (in years) Land improvements…………………………… 20-30 Buildings and improvements…………….…… 40 5-10 5-15 Infrastructure…………………………………… 15-80 Capital Asset Type The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized and are treated as expenses when incurred. Improvements are capitalized. Governmental Fund Financial Statements Capital asset costs are recorded as expenditures in the acquiring fund in the fiscal year of the purchase. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 46 Comprehensive Annual Financial Report H. Interfund Receivables and Payables During the course of its operations, transactions occur between and within individual funds that may result in amounts owed between funds. Government-Wide Financial Statements Transactions of a buyer/seller nature between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of net assets. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of net assets as “internal balances”. Fund Financial Statements Transactions of a buyer/seller nature between and within funds are not eliminated from the individual fund statements. Receivables and payables resulting from these transactions are classified as “Due from other funds” or “Due to other funds” on the balance sheet. I. Interfund Transfers During the course of its operations, resources are permanently reallocated between and within funds. These transactions are reported as transfers in and transfers out. Government-Wide Financial Statements Transfers between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of net assets. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of activities as “Transfers, net”. Fund Financial Statements Transfers between and within funds are not eliminated from the individual fund statements and are reported as transfers in and transfers out. J. Deferred Revenue Deferred revenue at the governmental fund financial statement level represents billed receivables that do not meet the available criterion in accordance with the current financial resources measurement focus and the modified accrual basis of accounting. Deferred revenue is recognized as revenue in the conversion to the government-wide (full accrual) financial statements. K. Net Assets and Fund Equity Government-Wide Financial Statements (Net Assets) Net assets reported as “invested in capital assets, net of related debt” includes capital assets, net of accumulated depreciation, less the principal balance of outstanding debt used to acquire capital assets. Unspent proceeds of capital related debt are not considered to be capital assets. Outstanding debt related to future reimbursements from the state’s school building program is not considered to be capital related debt. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 47 Comprehensive Annual Financial Report Net assets are reported as restricted when amounts that are not available for appropriation or are legally restricted by outside parties for a specific future use. Net assets have been “restricted for” the following: “Loans” represents community development outstanding loan receivable balances which are funded through the Community Development Block Grant program. The loan repayments are subject to various restrictions which are imposed by the grantors. “Permanent funds - expendable” represents the amount of realized and unrealized investment earnings of donor restricted trusts. The donor restrictions and trustee policies only allow the trustees to approve spending of the realized investment earnings that support governmental programs. “Permanent funds - nonexpendable” represents the endowment portion of donor restricted trusts that support governmental programs. “Grants and gifts” represents assets that have restrictions placed on them from outside parties. Fund Financial Statements (Fund Balances) Fund balances are reserved for amounts that are not available for appropriation or are legally restricted by outside parties for a specific future use. Designations of fund balance represent tentative management plans that are subject to change. Fund balances have been “reserved for” the following: “Encumbrances and continuing appropriations” represents amounts obligated under purchase orders, contracts and other commitments for expenditures that are being carried over to the ensuing fiscal year. “Perpetual permanent funds” represents amounts held in trust for which only investment earnings may be expended. L. Long-term debt Government-Wide and Proprietary Fund Financial Statements Long-term debt is reported as liabilities in the government-wide and proprietary fund statement of net assets. Material bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Governmental Fund Financial Statements The face amount of governmental funds long-term debt is reported as other financing sources. Bond premiums and discounts, as well as issuance costs, are recognized in the current period. Bond premiums are reported as other financing sources and bond discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual bond proceeds received, are reported as general government expenditures. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 48 Comprehensive Annual Financial Report M. Investment Income Excluding the permanent funds, investment income derived from major and nonmajor governmental funds is legally assigned to the general fund unless otherwise directed by Massachusetts General Law (MGL). Investment income of the enterprise funds is voluntarily assigned to the general fund. N. Compensated Absences Employees are granted vacation and sick leave in varying amounts based on collective bargaining agreements, state laws and executive policies. Compensated absence liabilities related to both governmental and business- type activities are normally paid from the funds reporting payroll and related expenditures. Government-Wide and Proprietary Fund Financial Statements Vested or accumulated vacation and sick leave are reported as liabilities and expensed as incurred. Governmental Fund Financial Statements Vested or accumulated vacation and sick leave, which will be liquidated with expendable available financial resources, are reported as expenditures and fund liabilities upon maturity of the liability. O. Fund Deficits and Appropriation Deficits Individual fund deficits exist at June 30, 2008 in the School Capital Projects Fund; and in the School Grants, School Lunch, and Highway Grants nonmajor governmental funds; and in the internal service fund. These deficits will be funded by grants, departmental revenues, long-term borrowing and available fund balance. Massachusetts General Laws require that any operating deficit within the internal service fund be funded by a general fund transfer. In addition any deficit created by recording the incurred but not reported liability must be funded through general fund contributions or other available funds. Actual expenditures exceeded appropriations for snow and ice removal and group insurance. These over- expenditures will be funded through available funds during fiscal year 2009. In the snow and ice removal appropriation line, the general law allows deficits to occur and to be raised in the subsequent fiscal year. P. Use of Estimates Government-Wide and Fund Financial Statements The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the fiscal year. Actual results could vary from estimates that were used. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 49 Comprehensive Annual Financial Report Q. Total Column Government-Wide Financial Statements The total column presented on the government-wide financial statements represents consolidated financial information. Fund Financial Statements The total column on the fund financial statements is presented only to facilitate financial analysis. Data in this column is not the equivalent of consolidated financial information. NOTE 2 – CASH AND INVESTMENTS A cash and investment pool is maintained that is available for use by all funds. Each fund type's portion of this pool is displayed on the balance sheet as "cash and cash equivalents". The deposits and investments of the trust funds are held separately from those of other funds. Statutes authorize the investment in obligations of the U.S. Treasury, agencies, and instrumentalities, certificates of deposit, repurchase agreements, money market accounts, bank deposits and the State Treasurer's Investment Pool (the Pool). The Treasurer and Trust Fund Commission may also invest trust funds in securities, other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth; provided, that not more than fifteen percent of any trust fund may be invested in bank stocks and insurance company stocks, and not more than one and one-half percent 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 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 deposit policy for custodial credit risk. At fiscal year-end, the carrying amount of deposits totaled $1,748,132 and the bank balance totaled $6,074,861. Of the bank balance, $503,293 was covered by Federal Depository Insurance, $809,322 was covered by the Depositors Insurance Fund, and $4,762,246 was exposed to custodial credit risk because it was uninsured and uncollateralized. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 50 Comprehensive Annual Financial Report The System does not have a deposit policy for custodial credit risk. At fiscal year-end, the carrying amount of deposits totaled $2,406,276 and the bank balance totaled $2,474,150. The entire bank balance was covered by Federal Depository Insurance. Investments As of June 30, 2008, the City had the following investments: Fair Value Under 1 Year 1-5 Years Investment Type Debt Securities: Federal Farm Credit 102,688 $ - $ 102,688 Federal Home Loan 105,438 - 105,438 Corporate 1,986,359 375,925 1,610,434 Repurchase Agreements……………………… 7,684,365 7,684,365 - Total Debt 9,878,850 $ 8,060,290 $ 1,818,560 Other Investments: Equity 3,168,418 Equity Mutual 327,750 Money Market Mutual Funds………………… 653,316 6,055,481 Total 20,083,815 Maturity As of December 31, 2007, the System had the following investments: Fair Value Under 1 Year Over 10 Years Investment Type Debt Securities: *Corporate 206,792 $ - $ 206,792 Repurchase Agreements……………………… 4,552,554 4,552,554 - Total Debt 4,759,346 $ 4,552,554 $ 206,792 Other Investments: *Equity 4,104 *Equity Mutual 7,076,220 *Government Short-term Investment Fund… 68,070,170 *Alternative Investment Mutual 2,851,901 *Real Estate Mutual 1,684,088 *Pension Reserve Investment Trust (PRIT)… 10,540,611 Total 94,986,440 Maturity *Subsequent to fiscal year end the System transferred the corporate bonds, equity securities, equity mutual funds and government short-term investment fund investments to PRIT. Since December 31, 2007, the market value of the System’s investments have declined by approximately ($20) million. Please refer to Note 3 for further information on this matter. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 51 Comprehensive Annual Financial Report Custodial Credit Risk – Investments For an investment, this is the risk that, in the event of a failure by the counterparty, the City will not be able to recover the value of its investments or collateral security that are in the possession of an outside party. Of the City’s investments, $102,688 in Federal Farm Credit Bank securities, $105,438 in Federal Home Loan Bank securities, $1,986,359 in corporate bonds, and $3,168,418 in equity securities are exposed to custodial credit risk because the related securities are uninsured, unregistered and are held by the counterparty. The investment in MMDT and money market mutual funds are not exposed to custodial credit risk because the existence is not evidenced by securities that exist in physical or book entry form. The $7,684,365 repurchase agreement is invested in collateralized Federal Home Loan Mortgage Corporation government backed securities. The City does not have an investment policy related to custodial credit risk. The System’s investments are not subject to custodial credit risk as all of the securities are insured or registered, and held by its agents in the name of the Salem Retirement System. Interest Rate Risk Neither the City nor the System have formal investment policies limiting investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk The City has not adopted a formal policy related to Credit Risk. Moody’s Investors Service rated $176,251 of corporate bonds AAA; and $1,810,108, A. The federal farm credit bank investment of $102,688 and the federal home loan bank investment of $105,438 are both A rated. The repurchase agreements, equity mutual fund, money market mutual funds and MMDT investments are unrated. The System has not adopted a formal policy related to Credit Risk. Moody’s Investors Service rated $76,753 of corporate bonds AA, and $130,039 of corporate bonds A. The repurchase agreement, equity mutual fund securities, alternate investment mutual funds, real estate mutual fund investments and PRIT are unrated. Concentration of Credit Risk The City places no limit on the amount the government may invest in any one issuer. Through the City’s repurchase agreement, more than 5 percent of the City’s investments are in the following securities: Percentage of Issuer Total Investments Federal Home Loan Mortgage Corporation………………… 38% The retirement system places no limit on the amount the government may invest in any one issuer. The System did not have more than 5 percent of its investments in any one individual security. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 52 Comprehensive Annual Financial Report NOTE 3 – SUBSEQUENT EVENT The Retirement System carries its investments at fair (market) value in accordance with Generally Accepted Accounting Principles (GAAP). Market value adjustments are recorded Subsequent to fiscal year end the System’s investments of $90,433,886 has declined in value by approximately ($20) million. The market value decline is consistent with recent trends in the overall financial securities markets. In accordance with GAAP, the System has not recorded the losses in its financial statements as the impairments were not known as of December 31, 2007. The System has recorded the losses associated with the investment during calendar year 2008. NOTE 4 – RECEIVABLES At June 30, 2008, receivables for the individual major governmental funds, non-major governmental funds and internal service funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Real estate and personal property $ 616,214 $ - $ 616,214 Tax 1,292,211 - 1,292,211 Motor vehicle and other excise 957,106 (327,900) 629,206 Trash 170 - 170 Departmental and 496,446 - 496,446 Intergovernmental…………………………………………… 36,184,389 - 36,184,389 662,524 - 662,524 $ 40,209,060 $ (327,900) $ 39,881,160 At June 30, 2008, receivables for the water, sewer and trash enterprise funds consist of the following: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Water user $ 965,250 $ - $ 965,250 Sewer user 1,724,799 - 1,724,799 Trash 128,310 - 128,310 $ 2,818,359 $ - $ 2,818,359 Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. At the end of the current fiscal year, the various components of deferred revenue reported in the governmental funds were as follows: ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 53 Comprehensive Annual Financial Report COMPONENTS OF DEFERRED REVENUE Other General Governmental Fund Funds Total Receivable type: Real estate and personal property $ 488,587 $ - $ 488,587 Tax 1,292,211 - 1,292,211 Motor vehicle and other 629,206 - 629,206 Trash 170 - 170 Intergovernmental……………………………………………… 32,783,069 1,805,374 34,588,443 - 662,524 662,524 $ 35,193,243 $ 2,467,898 $ 37,661,141 NOTE 5 – CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2008, was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: 4,684,753 $ - $ - $ 4,684,753 Construction in progress………………………… 39,648,226 11,560,104 - 51,208,330 Total capital assets not being depreciated… 44,332,979 11,560,104 - 55,893,083 Capital assets being depreciated: Land improvements……………………………… 2,625,803 424,499 - 3,050,302 Buildings and improvements……………………… 109,830,207 240,991 - 110,071,198 7,417,492 154,927 (159,005) 7,413,414 Infrastructure……………………………………… 51,559,905 195,774 - 51,755,679 6,102,824 354,472 (404,235) 6,053,061 Total capital assets being depreciated……… 177,536,231 1,370,663 (563,240) 178,343,654 Less accumulated depreciation for: Land improvements……………………………… (1,362,941) (101,351) - (1,464,292) Buildings and improvements……………………… (35,943,625) (2,801,677) - (38,745,302) (3,189,501) (512,735) 159,005 (3,543,231) Infrastructure……………………………………… (23,524,497) (1,371,470) - (24,895,967) (4,246,848) (351,660) 404,235 (4,194,273) Total accumulated depreciation…………… (68,267,412) (5,138,893) 563,240 (72,843,065) Total capital assets being depreciated, net………… 109,268,819 (3,768,230) - 105,500,589 Total governmental activities capital assets…………$ 153,601,798 $ 7,791,874 $ - $ 161,393,672 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 54 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Water Activities: Capital assets not being depreciated: 10,589 $ - $ - $ 10,589 Capital assets being depreciated: Land improvements……………………………… 114,550 - - 114,550 91,290 205,000 - 296,290 - 48,794 - 48,794 Infrastructure……………………………………… 13,625,454 777,833 - 14,403,287 Total capital assets being depreciated……… 13,831,294 1,031,627 - 14,862,921 Less accumulated depreciation for: Land improvements……………………………… (31,503) (5,726) - (37,229) (4,564) (19,379) - (23,943) - (4,879) - (4,879) Infrastructure……………………………………… (5,810,029) (182,904) - (5,992,933) Total accumulated depreciation…………… (5,846,096) (212,888) - (6,058,984) Total capital assets being depreciated, net………… 7,985,198 818,739 - 8,803,937 Total water activities capital assets……………………$ 7,995,787 $ 818,739 $ - $ 8,814,526 Beginning Ending Balance Increases Decreases Balance Sewer Activities: Capital assets not being depreciated: 99,552 $ - $ - $ 99,552 Capital assets being depreciated: Buildings and improvements……………………… 5,425 - - 5,425 125,488 48,794 - 174,282 Infrastructure……………………………………… 1,483,317 300,000 - 1,783,317 Total capital assets being depreciated……… 1,614,230 348,794 - 1,963,024 Less accumulated depreciation for: Buildings and improvements……………………… (5,087) (135) - (5,222) (125,486) (4,880) - (130,366) Infrastructure……………………………………… (1,056,879) (18,766) - (1,075,645) Total accumulated depreciation…………… (1,187,452) (23,781) - (1,211,233) Total capital assets being depreciated, net………… 426,778 325,013 - 751,791 Total sewer activities capital assets………………… $ 526,330 $ 325,013 $ - $ 851,343 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 55 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Golf Course Activities: Capital assets not being depreciated: 118,067 $ - $ - $ 118,067 Capital assets being depreciated: Land improvements……………………………… 312,852 - - 312,852 Buildings and improvements……………………… 453,988 - - 453,988 330,409 - (46,153) 284,256 Total capital assets being depreciated……… 1,097,249 - (46,153) 1,051,096 Less accumulated depreciation for: Land improvements……………………………… (300,240) (1,203) - (301,443) Buildings and improvements……………………… (96,488) (11,000) - (107,488) (247,900) (13,406) 46,153 (215,153) Total accumulated depreciation…………… (644,628) (25,609) 46,153 (624,084) Total capital assets being depreciated, net………… 452,621 (25,609) - 427,012 Total golf course activities capital assets…………… $ 570,688 $ (25,609) $ - $ 545,079 Beginning Ending Balance Increases Decreases Balance Parking Activities: Capital assets not being depreciated: 48,214 $ - $ - $ 48,214 Capital assets being depreciated: Land improvements……………………………… 1,338,366 - - 1,338,366 Buildings and improvements……………………… 7,625,100 - - 7,625,100 5,100 - - 5,100 Total capital assets being depreciated……… 8,968,566 - - 8,968,566 Less accumulated depreciation for: Land improvements……………………………… (74,353) (33,500) - (107,853) Buildings and improvements……………………… (3,548,138) (191,067) - (3,739,205) (4,335) (510) - (4,845) Total accumulated depreciation…………… (3,626,826) (225,077) - (3,851,903) Total capital assets being depreciated, net………… 5,341,740 (225,077) - 5,116,663 Total parking activities capital assets…………………$ 5,389,954 $ (225,077) $ - $ 5,164,877 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 56 Comprehensive Annual Financial Report Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General $ 339,160 Public 410,422 2,721,843 Public 1,496,066 Health and human 2,233 Culture and 169,169 Total depreciation expense - governmental activities……………………………… $ 5,138,893 Business-Type Activities: $ 212,888 23,781 Golf 25,609 225,077 Total depreciation expense - business-type activities……………………………… $ 487,355 NOTE 6 – INTERFUND TRANSFERS AND BALANCES Interfund transfers for the fiscal year ended June 30, 2008, are summarized as follows: Golf Course Trash Nonmajor General Stabilization Enterprise Enterprise Governmental Transfers Out: Fund Fund Fund Fund Funds Total General - $ 138,230 $ 353,301 $ 2,425,186 $ 125,000 $ 3,041,717 Nonmajor Governmental Funds…… 1,439,217 - - - 53,308 1,492,525 Parking Enterprise Fund…………… 960,836 - - - - 960,836 Golf Course Enterprise Fund……… 551,730 - - - - 551,730 Sewer Enterprise Fund……………… 659,642 - - - - 659,642 Water Enterprise Fund……………… 580,266 - - - - 580,266 $ 4,191,691 $ 138,230 $ 353,301 $ 2,425,186 $ 178,308 $ 7,286,716 Transfer from general fund to stabilization fund and golf course enterprise fund to reimburse for amounts raised by taxation. Transfer from general fund to trash enterprise for the City's subsidized portion. Transfer from the nonmajor funds to the general fund for their share of indirect costs and transfers within nonmajor funds. Transfer from parking enterprise fund to general fund for their share of indirect costs. Transfer from golf course enterprise fund to general fund for indirect costs. Transfer from sewer enterprise fund to general fund for indirect costs. Transfer from water enterprise fund to general fund for indirect costs. Transfers In: The City’s interfund balances at June 30, 2008 consisted of $188,779 due from the internal service fund to the general fund, $5,616 due from the trash enterprise to the general fund, and $788,715 in balances within the nonmajor governmental funds all representing interfund borrowings for cash flow purposes. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 57 Comprehensive Annual Financial Report NOTE 7 – CAPITAL & OPERATING LEASES The City has entered into lease agreements as lessee for financing the acquisition of a fire truck, police cruiser, a snow plow, a school bus, and computer hardware and software. These lease agreements qualify as capital leases for accounting purposes and therefore, have been recorded at the present value of their future minimum lease payments as of the inception date. The assets acquired through capital leases are as follows: Governmental Activities Asset: Machinery and 2,396,497 809,347 Less: accumulated depreciation………………………… (1,221,334) 1,984,510 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2008, were as follows: Fiscal Years Governmental Ending June 30 Activities 321,845 246,506 57,264 57,264 57,264 57,264 Total minimum lease payments……………………… 797,407 Less: amounts representing interest………………… (121,453) Present value of minimum lease payments………… $ 675,954 The City leases office space for the City Hall Annex under an operating lease that expires on February 28, 2011. The cost of the lease for the fiscal year ended June 30, 2008, totaled $360,000, and is reported as a general government expenditure in the general fund. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 58 Comprehensive Annual Financial Report The future minimum lease payments for the City’s operating lease are as follows: Fiscal Years Governmental Ending June 30 Activities 360,000 360,000 240,000 $ 960,000 NOTE 8 – SHORT-TERM FINANCING Short-term debt may be authorized and issued to fund the following: • Current operating costs prior to the collection of revenues through issuance of revenue or tax anticipation notes (RANS or TANS). • Capital project costs and other approved expenditures incurred prior to obtaining permanent financing through issuance of bond anticipation notes (BANS) or grant anticipation notes (GANS). Short-term loans are general obligations and carry maturity dates that are limited by statute. Interest expenditures and expenses for short-term borrowings are accounted for in the general fund and enterprise funds, respectively. Details related to the short-term debt activity for the fiscal year ended June 30, 2008, are as follows: Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose Due Date 2007 Issued Redeemed 2008 BAN School Construction…………………… 4.00% 10/23/07 $ 114,367 $ - $ 114,367 $ - BAN School Construction…………………… 4.00% 10/23/07 3,033,969 - 3,033,969 - BAN School Construction…………………… 4.00% 10/23/07 966,031 - 966,031 - Sub-total governmental-type notes…… 4,114,367 - 4,114,367 - BAN Water 4.00% 10/23/07 57,633 - 57,633 - Total notes payable…………………… $ 4,172,000 $ - $ 4,172,000 $ - NOTE 9 – 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". ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 59 Comprehensive Annual Financial Report Details related to the outstanding indebtedness at June 30, 2008, and the debt service requirements are as follows: Bonds and Notes Payable Schedule – Governmental Funds Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2007 Issued Redeemed 2008 School Construction………………… 5.13-5.75% $ 3,760,000 $ - $ 2,730,000 $ 1,030,000 School Construction………………… 5.13-5.75% 835,000 - 95,000 740,000 HUD Section 9.00% 245,000 - 35,000 210,000 School Construction………………. 4.50-6.75% 8,525,000 - 445,000 8,080,000 Swimming 4.50-6.75% 200,000 - 40,000 160,000 School Construction………………. 3.50-4.00% 2,100,000 - 545,000 1,555,000 School Construction………………… 3.50-4.00% 3,230,000 - 677,000 2,553,000 Police Station……………………… 3.50-4.00% 1,465,000 - 293,000 1,172,000 School Construction………………… 3.00-5.00% 15,185,000 - 680,000 14,505,000 School Construction………………. 3.00-5.00% 8,195,000 - 370,000 7,825,000 School Construction………………… 3.00-5.00% 1,235,000 - 75,000 1,160,000 School Construction………………… 2.25-4.50% 2,890,000 - 510,000 2,380,000 School Construction……………… 3.00-5.00% 1,695,000 - 95,000 1,600,000 School Construction………………… 3.00-5.00% 515,000 - 30,000 485,000 School Construction………………… 3.00-5.00% 6,885,633 - - 6,885,633 Police Equipment…………………… 3.00-5.00% 658,864 - - 658,864 Ferry 3.00-5.00% 775,000 - - 775,000 School Deficit Funding Loan……… 3.75% - 1,000,000 - 1,000,000 School Long-term 3.60% - 2,930,000 - 2,930,000 Total Governmental bonds payable…………………… $ 58,394,497 $ 3,930,000 $ 6,620,000 $ 55,704,497 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 60 Comprehensive Annual Financial Report Debt service requirements for principal and interest for Governmental bonds payable in future fiscal years are as follows: Fiscal Year Principal Interest Total 4,594,497 $ 2,442,783 $ 7,037,280 2010……………… 8,315,000 2,084,002 10,399,002 2011……………… 4,580,000 1,849,470 6,429,470 2012……………… 4,125,000 1,653,541 5,778,541 2013……………… 3,270,000 1,474,969 4,744,969 2014……………… 3,445,000 1,328,362 4,773,362 2015……………… 2,925,000 1,205,677 4,130,677 2016……………… 2,985,000 1,080,058 4,065,058 2017……………… 2,925,000 953,117 3,878,117 2018……………… 3,050,000 821,850 3,871,850 2019……………… 3,170,000 683,656 3,853,656 2020……………… 3,295,000 527,197 3,822,197 2021……………… 2,320,000 389,578 2,709,578 2022……………… 2,345,000 288,878 2,633,878 2023……………… 2,420,000 183,646 2,603,646 2024……………… 460,000 72,982 532,982 2025……………… 460,000 54,079 514,079 2026……………… 340,000 35,062 375,062 2027……………… 340,000 21,038 361,038 2028……………… 340,000 7,013 347,013 Totals…………… $ 55,704,497 $ 17,156,958 $ 72,861,455 The Commonwealth has approved school construction assistance to the City. The assistance program, which is administered by the Massachusetts School Building Authority, provides resources for future debt service of general obligation school bonds outstanding along with direct capital grants. During fiscal year 2008, $17,324,905 of such assistance was received. Approximately $42,481,000 will be received in future fiscal years. Of this amount, approximately $8,779,000 represents reimbursement of long-term interest costs, and approximately $33,702,000 represents reimbursement of approved construction costs. Accordingly, a $33,702,000 intergovernmental receivable and corresponding deferred revenue have been reported in the governmental fund financial statements. The net change in deferred revenue has been recognized as revenue in the conversion to the government-wide financial statements. The City received long-term loan proceeds from the Massachusetts Water Pollution Abatement Trust (MWPAT). MWPAT makes subsidized loans available to local governments to finance the costs of eligible water pollution abatement projects. The stated interest rate on the MWPAT loan is and the interest has been recorded at an implied rate of During fiscal year 2008, the City issued $1,000,000 in State Qualified Bonds, pursuant to Chapter 15 of the Acts of 2008, and Order Number 282 passed by the Salem City Council, and subsequently approved by the Mayor for the purpose of funding a deficit incurred by the City’s school department. The legislation provides that the City can amortize any deficit borrowings over a period not to exceed 7 years. Subsequent to year end, on October 23, 2008, the City retired $145,000 of the bonds outstanding, and reissued the remaining $855,000 State Qualified Bonds at a rate of 3.6%, which will mature on October 24, 2009. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 61 Comprehensive Annual Financial Report will mature on October 23, 2009 and has an interest rate of 3.6%. The new proceeds relate to equipment, school projects, water system, sewer system and other capital projects. Bonds and Notes Payable Schedule – Golf Course Enterprise Fund ENTERPRISE FUND Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2007 Issued Redeemed 2008 Golf 4.50-6.75% $ 290,000 $ - $ 30,000 $ 260,000 Debt service requirements for principal and interest for the golf course enterprise fund bonds payable in future fiscal years are as follows: Fiscal Year Principal Interest Total 30,000 $ 11,938 $ 41,938 2010……………… 30,000 10,401 40,401 2011……………… 30,000 9,036 39,036 2012……………… 30,000 7,641 37,641 2013……………… 30,000 6,216 36,216 2014……………… 30,000 4,761 34,761 2015……………… 30,000 3,276 33,276 2016……………… 30,000 1,776 31,776 2017……………… 20,000 513 20,513 Totals…………… $ 260,000 $ 55,558 $ 315,558 Bonds and Notes Payable Schedule – Parking Enterprise Fund PARKING ENTERPRISE FUND Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2007 Issued Redeemed 2008 Parking Garage Repairs………….. 3.00-5.00% $ 950,000 $ - $ 75,000 $ 875,000 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 62 Comprehensive Annual Financial Report Debt service requirements for principal and interest for the parking enterprise fund bonds payable in future fiscal years are as follows: Fiscal Year Principal Interest Total 75,000 $ 34,738 $ 109,738 2010……………… 75,000 32,488 107,488 2011……………… 75,000 30,238 105,238 2012……………… 75,000 27,800 102,800 2013……………… 75,000 25,250 100,250 2014……………… 75,000 21,500 96,500 2015……………… 75,000 17,750 92,750 2016……………… 75,000 14,000 89,000 2017……………… 75,000 11,000 86,000 2018……………… 75,000 8,000 83,000 2019……………… 75,000 5,000 80,000 2020……………… 50,000 2,000 52,000 Total………….. $ 875,000 $ 229,764 $ 1,104,764 Bonds and Notes Payable Schedule – Water Enterprise Fund WATER ENTERPRISE FUND Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2007 Issued Redeemed 2008 Water Project - MWPAT…………… 2.00% $ 2,330,656 $ - $ 91,918 $ 2,238,738 Water Project……………………… 3.75-5.00% 3,250,503 - - 3,250,503 Water System Long-term BAN…… 3.60% - 1,000,000 - 1,000,000 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 63 Comprehensive Annual Financial Report Debt service requirements for principal and interest for the water enterprise fund bonds payable in future fiscal years are as follows: Fiscal Year Principal Interest Total 268,333 $ 247,603 $ 515,936 2010……………… 1,264,806 203,882 1,468,688 2011……………… 266,822 157,615 424,437 2012……………… 268,880 147,309 416,189 2013……………… 270,978 136,961 407,939 2014……………… 273,119 127,395 400,514 2015……………… 275,303 118,611 393,914 2016……………… 277,532 109,989 387,521 2017……………… 279,805 101,322 381,127 2018……………… 277,124 92,502 369,626 2019……………… 279,490 83,735 363,225 2020……………… 281,904 74,921 356,825 2021……………… 284,367 66,059 350,426 2022……………… 286,880 57,147 344,027 2023……………… 289,443 48,184 337,627 2024……………… 292,058 39,169 331,227 2025……………… 294,726 30,001 324,727 2026……………… 297,447 20,679 318,126 2027……………… 300,224 11,302 311,526 2028……………… 160,000 3,300 163,300 Total………….. $ 6,489,241 $ 1,877,686 $ 8,366,927 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, 2008, the City had the following authorized and unissued debt: Purpose Amount School Construction………………….. $ 11,792,450 Water Systems Improvements………… 6,328,208 Capital Projects………………………… 12,985,000 School Defecit 1,000,000 Refund GOB of 9,500,000 $ 41,605,658 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 64 Comprehensive Annual Financial Report Changes in Long-term Liabilities During the fiscal year ended June 30, 2008, the following changes occurred in long-term liabilities: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities: Capital leases…………………… $ 779,906 $ 394,779 $ (498,731) $ 675,954 $ 289,374 Long-term bonds and notes…… 58,394,497 3,930,000 (6,620,000) 55,704,497 4,594,497 Compensated absences………… 6,543,346 1,820,057 (1,383,000) 6,980,403 1,502,065 Workers' compensation……..… 405,303 220,662 (85,950) 540,015 114,354 Total governmental activity long-term liabilities………………$ 66,123,052 $ 6,365,498 $ (8,587,681) $ 63,900,869 $ 6,500,290 Business-Type Activities: Long-term bonds and notes…… 6,821,159 1,000,000 (196,918) 7,624,241 373,333 Compensated absences………… 123,000 34,000 (39,000) 118,000 52,110 Total business-type activity long-term liabilities………………$ 6,944,159 $ 1,034,000 $ (235,918) $ 7,742,241 $ 425,443 Compensated absence and workers’ compensation liabilities related to both governmental and business-type activities are normally paid from the funds reporting payroll and related expenditures, which consist of the general fund and the sewer, water, golf and parking enterprise funds. NOTE 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. In addition, the City is self- insured for damages not covered by commercial insurance. The amount of claim settlements has not exceeded insurance coverage in any of the previous three fiscal years. The City is self-insured for Medex coverage for certain retirees which is accounted for in the City’s internal service fund where revenues are recorded when earned and expenses are recorded when the liability is incurred. The City is also self-insured for its workers’ compensation and unemployment compensation activities which are accounted for in the funds incurring the expenditures. Medex Medex claims are administered by a third party administrator and are funded on an as needed basis from the City’s internal service fund. The estimate of Incurred But Not Reported (IBNR) claims is based on 1 month of the annual claims. At June 30, 2008, the City’s estimated future liability for unreported claims is $136,011. This liability is the best estimate based on available information. Changes in the City’s liability since July 1, 2006 when the City was fully self-insured for health insurance through June 30, 2008, when the City was self-insured for Medex coverage only, are as follows: ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 65 Comprehensive Annual Financial Report Current Year Balance at Claims and Balance at Beginning of Changes in Claim Fiscal Current Fiscal Year Estimate Payments Year-End Portion Fiscal Year 2007………. $ 978,000 $ 7,709,418 $ (8,569,207) $ 118,211 $ 118,211 Fiscal Year 2008………. 118,211 1,656,892 (1,639,092) 136,011 136,011 Workers’ Compensation Workers’ compensation claims are administered by the City and are funded on a pay-as-you-go basis from annual appropriations. The estimated future workers’ compensation liability is based on history and injury type. At June 30, 2008, the amount of the liability for workers’ compensation claims totaled $540,015. Changes in the reported liability since July 1, 2006, are as follows: Current Year Balance at Claims and Balance at Beginning of Changes in Claim Fiscal Current Fiscal Year Estimate Payments Year-End Portion Fiscal Year 2007………. $ 430,092 $ 224,682 $ (249,471) $ 405,303 $ 85,950 Fiscal Year 2008………. 405,303 397,088 (262,376) 540,015 114,354 NOTE 11 – PENSION PLAN Plan Description - The City contributes to the System, a cost-sharing multiple-employer defined benefit pension plan administered by the Salem Contributory Retirement Board. Substantially all employees are members of the System, except for public school teachers and certain administrators who are members of the Massachusetts Teachers Retirement System, to which the City does not contribute. Pension benefits and administrative expenses paid by the Teachers Retirement Board are the legal responsibility of the Commonwealth. The amount of these on-behalf payments totaled $7,511,889 for the fiscal year ended June 30, 2008, and, accordingly, are reported in the general fund as intergovernmental revenues and pension expenditures. The System provides retirement, disability and death benefits to plan members and beneficiaries. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the plan. Cost-of-living adjustments granted between 1981 and 1997 and any increase in other benefits imposed by the Commonwealth’s state law during those years are borne by the Commonwealth and are deposited into the pension fund. Cost-of-living adjustments granted after 1997 must be approved by the Salem Contributory Retirement Board and are borne by the System. The System issues a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth’s PERAC. That report may be obtained by contacting the System located at 20 Central Street, Salem, Massachusetts 01970. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 66 Comprehensive Annual Financial Report At December 31, 2007, the System’s membership consists of the following: Active 867 Inactive 159 Retirees and beneficiaries currently receiving benefits……… 625 1,651 Funding Policy - Plan members are required to contribute to the System at rates ranging from 5% to 11% of annual covered compensation. The City is required to pay into the System its share of the system-wide actuarial determined contribution that is apportioned among the employers based on active current payroll. Administrative expenses are funded through investment earnings. The current and two preceding fiscal years apportionment of the annual pension cost between the employers required the City to contribute 90% of the total. Chapter 32 of the MGL governs the contributions of plan members and the City. Annual Pension Cost - The City’s contributions to the System for the fiscal years ended June 30, 2008, 2007, and 2006, were $7,693,291, $7,209,359, and $6,957,102, respectively, which equaled its required contribution for each fiscal year. At June 30, 2008, the City did not have a net pension obligation. The required contribution was determined as part of the January 1, 2008, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included an inflation rate of 3.5%, 8.25% investment rate of return and projected salary increases of 5.5% per year. The actuarial value of the System's assets was determined using the fair value of the assets. The System's unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll. The remaining open amortization period at January 1, 2008 was 17 years. Schedule of Funding Progress Actuarial UAAL as a Actuarial Accrued Unfunded Percentage Actuarial Value of Liability (AAL) AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (B-A) (A/B) 01/01/08 $ 99,988,471 $ 179,382,299 $ 79,393,828 55.7% $ 34,410,002 230.7% 01/01/06 84,796,044 166,958,606 82,162,562 50.8% 32,824,144 250.3% 01/01/05 81,801,377 156,479,479 74,678,102 52.3% 31,328,083 238.4% 01/01/04 80,659,012 142,499,185 61,840,173 56.6% 29,355,291 210.7% 01/01/03 76,438,885 137,111,559 60,672,674 55.7% 31,089,195 195.2% 01/01/01 73,727,923 117,334,727 43,606,804 62.8% 29,072,197 150.0% 01/01/99 68,563,143 111,294,953 42,731,810 61.6% 25,411,629 168.2% Funding progress is reported based on the biennial actuarial valuation performed by the System, and is being accumulated on a biennial basis. The City is responsible for approximately 90% of the unfunded liability. Noncontributory Retirement Allowance – The City pays the entire retirement allowance for certain retirees who are eligible for noncontributory benefits and are not members of the System. The general fund expenditure for fiscal year 2008 totaled approximately $130,113. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 67 Comprehensive Annual Financial Report NOTE 12 – POST-EMPLOYMENT BENEFITS OTHER THAN PENSIONS Fiscal year 2008 is the initial year that the City has implemented GASB Statement 45, Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pensions (GASB 45). As allowed by GASB 45, the City has established the net OPEB obligation at zero at the beginning of the transition year and has applied the measurement and recognition requirements of GASB 45 on a prospective basis. Plan Description – The City of Salem administers a single-employer defined benefit healthcare plan (“the Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s group health insurance plan, which covers both active and retired members. Chapter 32b of the MGL assigns authority to establish and amend benefit provisions of the plan. Benefit provisions are negotiated between the City and the unions representing City employees and are renegotiated each bargaining period. The Retiree Health Plan does not issue a publicly available financial report. Additionally, retired teachers and their spouses receive health insurance through the Group Insurance Commission of the Commonwealth of Massachusetts (GIC). Each participating municipality is assessed for the governmental share of health and life insurance premiums paid on behalf of its teacher retirees by the state. The employer’s share is 90% of the total premium; the retiree's co-payment is 10% of the total premium as well as full payment for catastrophic illness coverage. The City’s assessment of the employer’s share by the GIC, for retired teachers, for fiscal year 2008, totaled $2,018,333. 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 79% of the cost of current-year premiums for retirees in active plans and 65% for those in senior plans. The City contributes 50% for surviving spouses. The City will contribute 75% in fiscal year 2009, 70% in fiscal year 2010 and 65% in fiscal year 2011, for retirees in active plans. Plan members receiving benefits contribute the remainder of their premium costs. For fiscal year 2008, the City contributed $1,424,941 to the plan, and total member contributions totaled $716,396. Annual OPEB Cost and Net OPEB Obligation – The City’s annual other post-employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s net OPEB obligation are summarized in the following table: Normal 4,473,713 Amortization of unfunded actuarial accrued liability………………… 5,970,489 Adjustment for 110,478 Annual OPEB cost 10,554,680 Contributions made (including retired teachers)…………………… (3,443,274) Increase in net OPEB obligation……………………………………… 7,111,406 Net OPEB obligation--beginning of - Net OPEB obligation--end of 7,111,406 *Adjustment for timing assumes payment in the middle of the year. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 68 Comprehensive Annual Financial Report The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal year 2008 was as follows: Percentage of Fiscal Year Annual Annual OPEB Net OPEB Ended OPEB Cost Cost Contributed Obligation 6/30/2008 $ 10,554,680 33% $ 7,111,406 Funded Status and Funding Progress – As of December 31, 2007, the most recent actuarial valuation date, the actuarial accrued liability for benefits totaled $160 million, all of which was unfunded. The covered payroll was $50,103,473 and the ratio of UAAL to covered payroll was 319.2%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions – Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the December 31, 2007, actuarial valuation, actuarial liabilities were determined using the projected unit credit cost method. The actuarial assumptions included a 5 percent investment return assumption, which is based on the expected yield on the assets of the City, calculated based on the funded level of the plan at the valuation date, and an annual medical/drug cost trend rate of 10 percent initially, graded to 5 percent over 5 years. Both rates included a 4.0 percent inflation assumption. The UAAL is being amortized over a 30 year period, with amortization payments increasing at 4% per year. NOTE 13 – MAJOR TAXPAYER The City receives a significant portion of its real estate and personal property tax revenue from one taxpayer under a Real and Personal Property Tax Appeal Settlement Agreement (the Agreement). The Agreement was entered into in July 1997 and covers fiscal years 1997 through 2007. The City and the taxpayer agreed on a real and personal property tax assessment amount for fiscal years 1997 through 2004. For fiscal years 2005 through 2007, the City and the taxpayer agreed that a portion of the property would be assessed at fair market value as calculated by the City and that, in the absence of an agreement by the parties, the remaining property will be assessed at fair market value of the existing facilities as determined in binding arbitration, resulting in tax revenue not to exceed $4.5 million in each fiscal year. The parties further agreed if additional facilities are constructed during this period, the total assessment would be based on the fair market value of the new facilities and existing facilities, resulting in a tax revenue not to exceed $4.5 million plus 50% of any such taxes in excess of $4.5 million resulting from the aggregate assessed valuation of any new facilities. On December 14, 2007, the City and the taxpayer signed an agreement stipulating that the taxpayer would make a tax payment for fiscal year 2008 in the ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 69 Comprehensive Annual Financial Report amount of $3,500,000, 7% of total real estate and personal property tax revenue, and an additional agreement was signed stipulating that the taxpayer would make an additional contribution to the City of $1,250,000, to be used exclusively for public purposes. Subsequent to year end, the City and the taxpayer have entered into a three-year agreement that mirrors the agreement signed in December 2007, which would provide total payments of $4,750,000 in fiscal years 2009, 2010, and 1011, in the form of annual tax payments of $3,000,000, and annual additional contributions of $1,750,000. NOTE 14 – COMMITMENTS The City is in the process of completing school construction projects and improvements to its water system. The City has entered into or is planning to enter into contracts totaling approximately $13,400,000, and $6,600,000, respectively to complete these projects. NOTE 15 – CONTINGENCIES The City participates in a number of federal award programs. Although the grant programs have been audited in accordance with the provisions of the Single Audit Act Amendments of 1996 through June 30, 2008, these programs are still subject to financial and compliance audits. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time, although it is expected such amounts, if any, to be immaterial. Various legal actions and claims are pending. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not always predictable. Although the amount of liability, if any, at June 30, 2008, cannot be ascertained, management believes any resulting liability should not materially affect the financial position at June 30, 2008. NOTE 16 – RESTATEMENT OF BEGINNING BALANCES During fiscal year 2008, the City made identified adjustments to the beginning balance of accumulated depreciation. Accordingly, the capital assets of the Governmental Activities previously reported as $157,019,282 have been restated to $153,601,798. The capital assets of Enterprise Activities previously reported as $14,665,096 have since been restated to $14,482,759. In addition, compensated absences of the Governmental Activities were understated by approximately $885 thousand and have been restated as of June 30, 2007. NOTE 17 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During fiscal year 2008, the following GASB pronouncements were implemented: The GASB issued Statement #45, Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pensions. This pronouncement required additional disclosure and has impacted the basic financial statements. The GASB issued Statement #50, Pension Disclosures—an amendment of GASB Statements No. 25 and No. 27. The standards in this statement did not change the disclosure related to pensions. The GASB issue Statement #53, Accounting and Financial Reporting for Derivative Instruments, which is required to be implemented in fiscal year 2010. The standards requires governments to measure most derivative instruments at fair value in their financial statements that are prepared using the economic resources ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 70 Comprehensive Annual Financial Report measurement focus and the accrual basis of accounting. Management elected to implement this standard early and this standard did not impact the basic financial statements. The GASB issued Statement #52, Land and Other Real Estate Held as Investments by Endowments, which is required to be implemented in fiscal year 2009. The standards in this statement require all investments in land and real estate in permanent and similar funds to be reported at fair value. Management elected to implement this standard early and this standard did not impact the basic financial statements. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 71 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 72 Comprehensive Annual Financial Report Required Supplementary Information Required Supplementary Information ---PAGE BREAK--- City of Salem, Massachusetts 73 Comprehensive Annual Financial Report General Fund Budgetary Comparison Schedule General fund budgetary comparison schedule The General Fund is the general operating fund of the City. It is used to account for all of the City’s financial resources, except those required to be accounted for in another fund. ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2008 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget REVENUES: Real estate and personal property taxes, net of tax $ - $ 64,742,428 $ 64,742,428 $ 63,806,437 $ 63,298,226 $ - $ (508,211) Tax - - - - 306,948 - 306,948 Motor vehicle and other excise taxes…………… - 3,350,000 3,350,000 3,350,000 3,427,889 - 77,889 Hotel/motel - 315,000 315,000 315,000 373,655 - 58,655 Charges for services……………………………… - 1,475,000 1,475,000 1,475,000 1,537,631 - 62,631 Penalties and interest on - 275,000 275,000 275,000 353,952 - 78,952 Payments in lieu of - 1,280,000 1,280,000 1,280,000 1,229,435 - (50,565) Licenses and - 525,000 525,000 525,000 510,120 - (14,880) Fines and forfeitures……………………………… - 1,281,000 1,281,000 1,281,000 1,222,170 - (58,830) Intergovernmental………………………………… - 29,494,319 29,494,319 29,494,319 29,689,049 - 194,730 Departmental and - 3,400,000 3,400,000 3,400,000 3,251,717 - (148,283) Investment - 200,000 200,000 200,000 355,841 - 155,841 TOTAL REVENUES…………………… - 106,337,747 106,337,747 105,401,756 105,556,633 - 154,877 EXPENDITURES: Current: General government City Council Personnel………………………………… - 119,700 119,700 119,700 119,543 - 157 Non - Personnel………………………… - 30,850 30,850 30,850 28,130 2,642 78 - 150,550 150,550 150,550 147,673 2,642 235 Mayor Personnel………………………………… - 235,220 235,220 235,540 235,537 - 3 Non - Personnel………………………… 3,700 127,050 130,750 106,810 72,676 27,665 6,469 3,700 362,270 365,970 342,350 308,213 27,665 6,472 Finance/Auditing Personnel………………………………… - 220,398 220,398 221,279 211,346 - 9,933 Non - Personnel………………………… 1,000 27,600 28,600 33,900 24,061 9,608 231 1,000 247,998 248,998 255,179 235,407 9,608 10,164 Purchasing Personnel………………………………… - 97,378 97,378 98,268 98,267 - 1 Non - Personnel………………………… - 18,700 18,700 20,691 15,577 - 5,114 Fixed - 62,393 62,393 62,393 62,393 - - - 178,471 178,471 181,352 176,237 - 5,115 Assessors Personnel………………………………… - 233,767 233,767 235,390 226,407 - 8,983 Non - Personnel………………………… - 34,000 34,000 34,000 27,677 - 6,323 - 267,767 267,767 269,390 254,084 - 15,306 Treasurer Personnel………………………………… - 136,199 136,199 137,868 135,089 - 2,779 Non - Personnel………………………… 8,800 53,550 62,350 62,350 60,520 1,580 250 8,800 189,749 198,549 200,218 195,609 1,580 3,029 Collector Personnel………………………………… - 177,340 177,340 180,944 180,190 - 754 Non - Personnel………………………… - 17,625 17,625 16,525 15,938 - 587 - 194,965 194,965 197,469 196,128 - 1,341 Solicitor Personnel………………………………… - 149,284 149,284 149,293 149,292 - 1 Non - Personnel………………………… - 91,000 91,000 90,991 72,949 - 18,042 - 240,284 240,284 240,284 222,241 - 18,043 (continued) Budgeted Amounts GENERAL FUND City of Salem, Massachusetts 74 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2008 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Human Resources Personnel………………………………… - 394,926 394,926 394,926 369,532 - 25,394 Non - Personnel………………………… - 49,650 49,650 49,650 36,803 4,822 8,025 - 444,576 444,576 444,576 406,335 4,822 33,419 Data Processing Personnel………………………………… - 151,829 151,829 151,859 151,858 - 1 Non - Personnel………………………… 250 17,516 17,766 17,766 17,178 588 - Fixed - 225,016 225,016 228,377 227,796 581 - GIS Expenses…………………………… - 25,000 25,000 25,000 24,944 - 56 GIS Personal…………………………… - 31,320 31,320 27,929 27,929 - - 250 450,681 450,931 450,931 449,705 1,169 57 City Clerk Record Maintenance Personnel………………………………… - 154,829 154,829 155,710 155,016 - 694 Non - Personnel………………………… - 6,550 6,550 6,550 6,482 - 68 - 161,379 161,379 162,260 161,498 - 762 Elections & Registrations Personnel………………………………… - 172,420 172,420 175,063 174,611 - 452 Non - Personnel………………………… - 51,850 51,850 51,850 45,799 5,673 378 - 224,270 224,270 226,913 220,410 5,673 830 Licensing Personnel………………………………… - 46,808 46,808 47,689 41,291 2,000 4,398 Non - Personnel………………………… - 1,540 1,540 1,540 1,395 - 145 - 48,348 48,348 49,229 42,686 2,000 4,543 Conservation Commission Personnel………………………………… - 22,569 22,569 22,569 22,178 - 391 Non - Personnel………………………… - 425 425 425 306 - 119 - 22,994 22,994 22,994 22,484 - 510 Subdivision, Planning, and Zoning Board Personnel………………………………… - 23,439 23,439 22,899 22,135 - 764 Non - Personnel………………………… - 3,500 3,500 3,500 2,528 - 972 - 26,939 26,939 26,399 24,663 - 1,736 Board of Appeals Personnel………………………………… - 3,000 3,000 3,000 2,750 - 250 Non - Personnel………………………… - 900 900 900 740 - 160 - 3,900 3,900 3,900 3,490 - 410 Planning Department Personnel………………………………… - 184,193 184,193 184,733 184,731 - 2 Non - Personnel………………………… - 32,275 32,275 32,275 31,415 - 860 - 216,468 216,468 217,008 216,146 - 862 Public Property/Building Maintenance Personnel………………………………… - 44,061 44,061 44,993 43,781 - 1,212 Non - Personnel………………………… - 129,660 129,660 158,660 148,887 - 9,773 Fixed - 508,500 508,500 525,200 518,170 - 7,030 - 682,221 682,221 728,853 710,838 - 18,015 Market and Tourism………………………… - 73,000 73,000 73,000 72,991 - 9 Total General Government…………………… 13,750 4,186,830 4,200,580 4,242,855 4,066,838 55,159 120,858 (continued) City of Salem, Massachusetts 75 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2008 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Public safety Police Personnel………………………………… - 7,070,002 7,070,002 7,047,747 7,008,463 - 39,284 Non - Personnel………………………… 20,000 503,263 523,263 548,263 543,049 - 5,214 20,000 7,573,265 7,593,265 7,596,010 7,551,512 - 44,498 Fire Personnel………………………………… - 6,049,696 6,049,696 6,055,498 6,020,742 - 34,756 Non - Personnel………………………… - 406,407 406,407 406,407 391,073 - 15,334 - 6,456,103 6,456,103 6,461,905 6,411,815 - 50,090 Building, Plumbing, Gas Inspections Personnel………………………………… - 306,638 306,638 315,737 307,956 - 7,781 Non - Personnel………………………… - 15,000 15,000 3,000 2,213 - 787 - 321,638 321,638 318,737 310,169 - 8,568 Electrical Inspection and Maintenance Personnel………………………………… - 252,935 252,935 274,375 274,374 - 1 Non - Personnel………………………… - 664,032 664,032 652,394 647,470 - 4,924 - 916,967 916,967 926,769 921,844 - 4,925 Harbormaster Personnel………………………………… - 204,332 204,332 204,332 202,459 - 1,873 Non - Personnel………………………… - 39,300 39,300 40,300 37,598 - 2,702 - 243,632 243,632 244,632 240,057 - 4,575 Total Public 20,000 15,511,605 15,531,605 15,548,053 15,435,397 - 112,656 Education - 44,850,174 44,850,174 46,480,469 43,769,802 - 2,710,667 NSRS/Charter/Choice…………………… - 1,656,821 1,656,821 1,608,768 1,608,768 - - Total - 46,506,995 46,506,995 48,089,237 45,378,570 - 2,710,667 Public Works Public Services Personnel………………………………… - 1,437,494 1,437,494 1,429,193 1,382,817 - 46,376 Non - Personnel………………………… 14,430 540,077 554,507 650,586 568,113 40,938 41,535 14,430 1,977,571 1,992,001 2,079,779 1,950,930 40,938 87,911 Engineering Personnel………………………………… - 76,225 76,225 76,225 75,834 - 391 Non - Personnel………………………… - 13,100 13,100 13,100 10,842 - 2,258 - 89,325 89,325 89,325 86,676 - 2,649 Snow and Ice Personnel………………………………… - 50,000 50,000 50,000 71,210 - (21,210) Non - Personnel………………………… - 344,560 344,560 344,560 919,531 - (574,971) - 394,560 394,560 394,560 990,741 - (596,181) Parking Garage Personnel………………………………… - 464,780 464,780 469,615 442,164 - 27,451 Non - Personnel………………………… 1,068 148,200 149,268 149,268 138,300 5,451 5,517 1,068 612,980 614,048 618,883 580,464 5,451 32,968 Total Public 15,498 3,074,436 3,089,934 3,182,547 3,608,811 46,389 (472,653) (continued) City of Salem, Massachusetts 76 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2008 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Health and Human Services Board of Health Personnel………………………………… - 362,571 362,571 345,095 342,428 - 2,667 Non - Personnel………………………… - 17,650 17,650 16,650 15,021 - 1,629 - 380,221 380,221 361,745 357,449 - 4,296 Council on Aging Personnel………………………………… - 276,791 276,791 278,487 269,888 - 8,599 Non - Personnel………………………… - 31,100 31,100 31,100 28,457 - 2,643 - 307,891 307,891 309,587 298,345 - 11,242 Veterans Services Personnel………………………………… - 68,678 68,678 68,678 68,218 - 460 Non - Personnel………………………… - 81,200 81,200 106,200 88,377 16,740 1,083 - 149,878 149,878 174,878 156,595 16,740 1,543 Total Health and Human Services…………… - 837,990 837,990 846,210 812,389 16,740 17,081 Culture and Recreation Library Personnel………………………………… - 805,711 805,711 806,581 779,178 - 27,403 Non - Personnel………………………… - 271,857 271,857 271,857 271,845 - 12 - 1,077,568 1,077,568 1,078,438 1,051,023 - 27,415 Parks and Recreation Personnel………………………………… - 326,168 326,168 327,049 301,928 - 25,121 Non - Personnel………………………… - 116,210 116,210 116,210 112,271 1,036 2,903 - 442,378 442,378 443,259 414,199 1,036 28,024 Golf Course Personnel………………………………… - 223,040 223,040 224,786 213,101 - 11,685 Non - Personnel………………………… 20,383 94,850 115,233 124,233 114,097 2,554 7,582 20,383 317,890 338,273 349,019 327,198 2,554 19,267 Witch House Personnel………………………………… - 74,066 74,066 74,066 64,875 - 9,191 Non - Personnel………………………… - 63,280 63,280 63,280 56,480 1,514 5,286 - 137,346 137,346 137,346 121,355 1,514 14,477 Historical Commission Personnel………………………………… - 6,958 6,958 6,958 6,871 - 87 Non - Personnel………………………… - 1,609 1,609 1,609 494 - 1,115 - 8,567 8,567 8,567 7,365 - 1,202 Winter Island Personnel………………………………… - 94,076 94,076 94,076 94,011 - 65 Non - Personnel………………………… - 50,000 50,000 50,000 48,753 253 994 - 144,076 144,076 144,076 142,764 253 1,059 Total Culture and Recreation……………… 20,383 2,127,825 2,148,208 2,160,705 2,063,904 5,357 91,444 Debt service: - 4,405,000 4,405,000 4,405,000 4,405,000 - - - 2,166,422 2,166,422 2,067,335 2,067,334 - 1 Short Term Interest…………………………… - 578,933 578,933 578,933 571,312 7,600 21 - 7,150,355 7,150,355 7,051,268 7,043,646 7,600 22 State and county charges………………………… - 6,214,013 6,214,013 6,133,053 5,933,670 - 199,383 Pension benefits Contributory Retirement……………………… - 7,521,529 7,521,529 7,539,074 7,538,983 - 91 Non-Contributory Retirement………………… - 143,047 143,047 130,147 130,113 - 34 - 7,664,576 7,664,576 7,669,221 7,669,096 - 125 (continued) City of Salem, Massachusetts 77 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2008 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Workmen's Compensation………………………… - 305,000 305,000 305,000 262,376 41,000 1,624 Unemployment Compensation…………………… - 260,000 260,000 195,000 182,155 12,000 845 Group - 10,275,797 10,275,797 10,370,502 10,436,039 - (65,537) - 655,000 655,000 690,840 689,517 - 1,323 Municipal Insurance……………………………… - 326,300 326,300 326,300 289,937 36,363 - TOTAL EXPENDITURES……………… 69,631 105,096,722 105,166,353 106,810,791 103,872,345 220,608 2,717,838 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………… (69,631) 1,241,025 1,171,394 (1,409,035) 1,684,288 (220,608) 2,872,715 OTHER FINANCING SOURCES (USES): Premium from issuance of bonds………………… - 80,917 80,917 80,917 84,840 - 3,923 Transfers - 1,239,908 1,239,908 3,221,219 3,230,855 - 9,636 Transfers - (2,550,186) (2,550,186) (2,688,416) (2,688,416) - - TOTAL OTHER FINANCING SOURCES - (1,229,361) (1,229,361) 613,720 627,279 - 13,559 NET CHANGE IN FUND BALANCE………………… (69,631) 11,664 (57,967) (795,315) 2,311,567 (220,608) 2,886,274 BUDGETARY FUND BALANCE, Beginning of year… (645,934) (645,934) (645,934) (645,934) (645,934) - - BUDGETARY FUND BALANCE, End of year……… $ (715,565) $ (634,270) $ (703,901) $ (1,441,249) $ 1,665,633 $ (220,608) $ 2,886,274 (concluded) See notes to required supplementary information. City of Salem, Massachusetts 78 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 79 Comprehensive Annual Financial Report Other Post-Employment Benefit Plan Schedules Other post-employment benefit plan schedules The Schedule of Funding Progress compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. ---PAGE BREAK--- SCHEDULE OF FUNDING PROGRESS Actuarial UAAL as a Actuarial Accrued Unfunded Percentage Actuarial Value of Liability (AAL) AAL Funded Covered of Covered Valuation Assets Projected Unit Credit (UAAL) Ratio Payroll Payroll Date (B-A) (A/B) 12/31/2007 $ - $ 159,945,511 $ 159,945,511 0% $ 50,103,473 319.2% The City implemented GASB Statement No. 45 for the fiscal year ended June 30, 2008. Information for prior years is not available. See notes to required supplementary information. OTHER POST-EMPLOYMENT BENEFIT PLAN JUNE 30, 2008 City of Salem, Massachusetts 80 Required Supplementary Information ---PAGE BREAK--- ACTUARIAL METHODS AND ASSUMPTIONS Actuarial Methods: Valuation date December 31, 2007 Actuarial cost method Projected Unit Credit Amortization method Amortization payments increasing at 4.0% Remaining amortization period 30 years as of July 1, 2007 Actuarial Assumptions: Investment rate of return 5.0%, pay-as-you-go scenario Medical/drug cost trend rate 10.0% graded to 5.0% over 5 years Plan Membership: Current retirees, beneficiaries, and dependents 928 Current active members 919 Total 1,847 See notes to required supplementary information. OTHER POST-EMPLOYMENT BENEFIT PLAN FISCAL YEAR ENDED JUNE 30, 2008 City of Salem, Massachusetts 81 Required Supplementary Information ---PAGE BREAK--- Notes to Required Supplementary Information Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 82 Comprehensive Annual Financial Report NOTE A - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Notes to required supplementary information 1. Budgetary Information Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without a recommendation of the Mayor, the Council may not make any appropriation for a purpose not included in the proposed budget, except by a two-thirds vote in the case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the Council. The Council may not increase any item without the recommendation of the Mayor (except as provided by legislation, recommendation of the school committee or regional district school committee and by two-thirds vote of the Council, provided that such increase does not cause the total annual budget to exceed the property tax limitations). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. City department heads are generally required to submit their budget requests to the Mayor between January 1, March 1, and December 1. This does not apply to the school department, which must submit its request in time for the Mayor to include them in the submission to the council. If the Mayor does not make a timely budget submission, provision is made for preparation of a budget by the Council. Provision is also made for supplementary appropriations upon recommendation of the Mayor. Water and sewer department expenditures are included in the budgets adopted by City Council. Under recent legislation, the City Council on the recommendation of the Mayor may transfer within the last 2 months of the fiscal year, any amount appropriated for the use of any department to the appropriation for any other department, provided that no such transfer may be made from any appropriation for a school department, regional school district, or municipal light department. The majority of appropriations are non-continuing which lapse at the end of each fiscal year. Others are continuing appropriations for which the governing body has authorized that an unspent balance from a prior fiscal year be carried forward and made available for spending in the current fiscal year. These carry forwards are included as part of the subsequent fiscal year’s original budget. Generally, expenditures may not exceed the legal level of spending (salaries, expenses and capital) authorized for an appropriation account. However, the payment of debt service is statutorily required, regardless of whether such amounts are appropriated. Additionally, expenditures for disasters, natural or otherwise, and final judgments may exceed the level of spending authorized by two-thirds majority vote of the City Council. An annual budget is adopted for the general fund in conformity with the guidelines described above. The original fiscal year 2008 approved budget authorized approximately $107.6 million in appropriations and other amounts to be raised. During the fiscal year, increases to the original budget were approved totaling approximately $1.8 million. The Finance Department has the responsibility to ensure that budgetary control is maintained. Budgetary control is exercised through the accounting system. 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 ---PAGE BREAK--- Notes to Required Supplementary Information Fiscal Year Ended June 30, 2008 City of Salem, Massachusetts 83 Comprehensive Annual Financial Report reconciliation of budgetary-basis to GAAP-basis results for the general fund for the fiscal year ended June 30, 2008, is presented below: Net change in fund balance - budgetary $ 2,311,567 Basis of accounting differences: Net change in revenues in recording tax refunds payable………………………… 78,488 Net change in short-term debt service interest 5,496 Recognition of revenue for on-behalf 7,511,889 Recognition of expenditures for on-behalf payments……………………………… (7,511,889) Reclassification of enterprise fund revenue budged in the general fund………… 2,004,333 Reclassification of enterprise fund expenditures budged in the general fund… (2,004,333) Net difference in recognition of expenditures……………………………………… 157,118 Net change in fund balances - GAAP $ 2,552,669 3. Appropriation Deficits During fiscal year 2008, expenditures exceeded budgeted appropriations for snow and ice and group insurance. These deficits will be funded through the tax levy in fiscal year 2009. NOTE B - OTHER POST-EMPLOYMENT BENEFITS The City administers a single-employer defined benefit healthcare plan (“The Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s group health insurance plan, which covers both active and retired members. Additionally, retired teachers and their spouses receive health insurance through the Group Insurance Commission of the Commonwealth of Massachusetts (GIC). Each participating municipality is assessed for the governmental share of health and life insurance premiums paid on behalf of its teacher retires by the state. The City currently finances its other post-employment benefits (OPEB) on a pay-as-you-go basis. As a result, the funded ratio (actuarial value of assets expressed as a percentage of the actuarial accrued liability) is In accordance with Governmental Accounting Standards, the City has recorded its OPEB cost equal to the actuarial determined annual required contribution (ARC) which includes the normal cost of providing benefits for the year and a component for the amortization of the total unfunded actuarial accrued liability of the plan. The Schedule of Funding Progress presents multi-year trend information which compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. Since this is the City’s initial year of implementation of GASB Statement 45, information for prior years is not available. Projections of benefits for financial reporting purposes are based on the substantive plan and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. ---PAGE BREAK--- City of Salem, Massachusetts 84 Comprehensive Annual Financial Report Combining Statements Combining Statements ---PAGE BREAK--- City of Salem, Massachusetts 85 Comprehensive Annual Financial Report Nonmajor governmental funds Nonmajor Governmental Funds Special Revenue Funds Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. City Grants Fund – This fund is used to account for non-school related activity specifically financed by federal, state, and other grants which are designated for specific programs. School Grants Fund – This fund is used to account for the educational programs specifically financed by federal, state, and other grants which are designated for specific programs. Community Development Grants Fund – This fund is used to account for community development activity specifically financed by federal, state, and other grants which are designated for specific programs. School Lunch Fund – This fund is used to account for all cafeteria activities and is funded by user charges, federal and state grants and commodities received. Highway Grants Fund – This fund is used to account for construction, reconstruction and improvements to roadways, streets and sidewalks. Funding is provided primarily by grants. Donations & Gifts Fund – This fund is used to account for gifts which have been accepted by the City to be used for the purpose specified by the donor. Receipts Reserved Fund – This fund is used to account for receipts reserved for appropriation. City Revolving Accounts Fund – This fund is used to account for non school related revolving funds specifically allowed by the laws of the Commonwealth of Massachusetts. These funds are expended for purposes specified by the enabling statute. School Revolving Accounts Fund – This fund is used to account for school related revolving funds specifically allowed by the laws of the Commonwealth of Massachusetts. These funds are expended for purposes specified by the enabling statutes. Capital Project Funds Police Station Equipment Fund – This fund is used to account for the purchase of equipment for the Police Station which is being financed through the issuance of capital leases. Salem Ferry – This fund is used to account for the purchase of the Salem Ferry, a high-speed catamaran purchased by the City to provide seasonal ferry service between Salem and Boston. Telephone System – This fund is used to account for the purchase of a new telephone system for the City. Permanent Funds Permanent funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support governmental programs. Cemetery Funds – This fund is used to account for cemetery perpetual care contributions and expenditures. ---PAGE BREAK--- City of Salem, Massachusetts 86 Comprehensive Annual Financial Report Human Service Funds – This fund is used to account for various contributions associated with human service activities. Other Funds – This fund is used to account for various contributions associated with governmental programs. ---PAGE BREAK--- Community City School Development School Highway Donations Receipts ASSETS Grants Grants Grants Lunch Grants & Gifts Reserved Cash and cash equivalents…………………………$ 528,968 $ - $ 180,674 $ - $ - $ 498,842 $ 341,290 Investments………………………………………… - - - - - - - Receivables, net of uncollectibles: Departmental and - - - 21,217 - - - Intergovernmental……………………………… - - - 68,145 1,805,374 - - - - - - - - - Due from other 788,715 - - - - - - TOTAL $ 1,317,683 $ - $ 180,674 $ 89,362 $ 1,805,374 $ 498,842 $ 341,290 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants 199,567 $ - $ - $ - $ 16,499 $ - $ - Accrued 35,959 88,181 8,548 17,962 - 2,301 - Deferred revenues……………………………… - - - - 1,805,374 - - Due to other - 265,281 - 486,777 36,657 - - TOTAL LIABILITIES………………………………… 235,526 353,462 8,548 504,739 1,858,530 2,301 - FUND BALANCES: Reserved for: Perpetual permanent funds………………… - - - - - - - Unreserved: Undesignated, reported in: Special revenue 1,082,157 (353,462) 172,126 (415,377) (53,156) 496,541 341,290 Capital projects - - - - - - - Permanent - - - - - - - TOTAL FUND BALANCES………………………… 1,082,157 (353,462) 172,126 (415,377) (53,156) 496,541 341,290 TOTAL LIABILITIES AND FUND BALANCES……$ 1,317,683 $ - $ 180,674 $ 89,362 $ 1,805,374 $ 498,842 $ 341,290 (Continued) Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2008 City of Salem, Massachusetts 87 Comprehensive Annual Financial Report ---PAGE BREAK--- City School Police Revolving Revolving Station Salem ASSETS Accounts Accounts Subtotal Equipment Ferry Subtotal Cash and cash equivalents…………………………$ 1,669,457 $ 199,494 $ 3,418,725 $ 38,615 $ 38,086 $ 76,701 Investments………………………………………… - - - - - - Receivables, net of uncollectibles: Departmental and - - 21,217 - - - Intergovernmental……………………………… - - 1,873,519 - - - 662,524 - 662,524 - - - Due from other - - 788,715 - - - TOTAL $ 2,331,981 $ 199,494 $ 6,764,700 $ 38,615 $ 38,086 $ 76,701 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants 14,798 $ - $ 230,864 $ - $ - $ - Accrued 1,009 3,887 157,847 - - - Deferred revenues……………………………… 662,524 - 2,467,898 - - - Due to other - - 788,715 - - - TOTAL LIABILITIES………………………………… 678,331 3,887 3,645,324 - - - FUND BALANCES: Reserved for: Perpetual permanent funds………………… - - - - - - Unreserved: Undesignated, reported in: Special revenue 1,653,650 195,607 3,119,376 - - - Capital projects - - - 38,615 38,086 76,701 Permanent - - - - - - TOTAL FUND BALANCES………………………… 1,653,650 195,607 3,119,376 38,615 38,086 76,701 TOTAL LIABILITIES AND FUND BALANCES……$ 2,331,981 $ 199,494 $ 6,764,700 $ 38,615 $ 38,086 $ 76,701 (Continued) NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2008 Capital Project Funds Special Revenue Funds City of Salem, Massachusetts 88 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Cemetery Human Service Governmental Funds Funds Other Subtotal Funds $ 290,956 $ 138,756 $ 254,603 $ 684,315 $ 4,179,741 2,340,040 1,208,625 709,129 4,257,794 4,257,794 - - - - 21,217 - - - - 1,873,519 - - - - 662,524 - - - - 788,715 $ 2,630,996 $ 1,347,381 $ 963,732 $ 4,942,109 $ 11,783,510 $ - $ - $ - $ - $ 230,864 - - - - 157,847 - - - - 2,467,898 - - - - 788,715 - - - - 3,645,324 961,509 221,174 467,914 1,650,597 1,650,597 - - - - 3,119,376 - - - - 76,701 1,669,487 1,126,207 495,818 3,291,512 3,291,512 2,630,996 1,347,381 963,732 4,942,109 8,138,186 $ 2,630,996 $ 1,347,381 $ 963,732 $ 4,942,109 $ 11,783,510 (Concluded) Permanent Funds City of Salem, Massachusetts 89 Comprehensive Annual Financial Report ---PAGE BREAK--- Community City School Development School Highway Donations Receipts Grants Grants Grants Lunch Grants & Gifts Reserved REVENUES: Charges for 3,613 $ 7,180 $ - $ - $ - $ - $ - Intergovernmental………………………………………………… 4,838,569 7,414,770 1,641,728 1,519,632 120,637 - - Departmental and 209,547 62,431 56,070 18,600 - - 415,032 3,252 130,769 - - - 230,700 - Investment income 3,068 - 2,767 - - - - TOTAL 5,058,049 7,615,150 1,700,565 1,538,232 120,637 230,700 415,032 EXPENDITURES: Current: General 331,693 - - - - 96,968 75,796 Public 527,052 - - - - 49,575 - - 6,843,517 - 1,529,722 - 8,435 - Public 142,054 - - - 159,213 18,514 - Community development……………………………………… - - 1,485,453 - - - - Human 4,369,665 - - - - 24,424 - Culture and 197,922 - 169,945 - - 15,359 - Debt service: - 2,285,000 35,000 - - - - - 99,087 11,519 - - - - TOTAL EXPENDITURES………………………………… 5,568,386 9,227,604 1,701,917 1,529,722 159,213 213,275 75,796 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………………… (510,337) (1,612,454) (1,352) 8,510 (38,576) 17,425 339,236 OTHER FINANCING SOURCES (USES): Proceeds from bonds and 1,000,000 - - - - - - Transfers 153,376 787 7,130 - - - - Transfers (1,035,697) (9,971) - - - - (429,056) TOTAL OTHER FINANCING SOURCES (USES)…… 117,679 (9,184) 7,130 - - - (429,056) NET CHANGE IN FUND BALANCES……………………………… (392,658) (1,621,638) 5,778 8,510 (38,576) 17,425 (89,820) FUND BALANCES AT BEGINNING OF 1,474,815 1,268,176 166,348 (423,887) (14,580) 479,116 431,110 FUND BALANCES AT END OF 1,082,157 $ (353,462) $ 172,126 $ (415,377) $ (53,156) $ 496,541 $ 341,290 (Continued) Special Revenue Funds FISCAL YEAR ENDED JUNE 30, 2008 NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES City of Salem, Massachusetts 90 Comprehensive Annual Financial Report ---PAGE BREAK--- City School Police Revolving Revolving Station Salem Accounts Accounts Subtotal Equipment Ferry Subtotal $ 33,700 $ - $ 44,493 $ - $ - $ - 65,000 - 15,600,336 - - - 410,237 909,707 2,081,624 - - - 1,200 53,472 419,393 - - - 47,654 3,741 57,230 - - - 557,791 966,920 18,203,076 - - - 84,280 - 588,737 - - - - - 576,627 36,671 - 36,671 - 840,099 9,221,773 - - - 70,985 - 390,766 - - - 81,928 - 1,567,381 - - - - - 4,394,089 - - - 205,434 - 588,660 - - - - - 2,320,000 - - - - - 110,606 - - - 442,627 840,099 19,758,639 36,671 - 36,671 115,164 126,821 (1,555,563) (36,671) - (36,671) - - 1,000,000 - - - - 17,015 178,308 - - - - (17,801) (1,492,525) - - - - (786) (314,217) - - - 115,164 126,035 (1,869,780) (36,671) - (36,671) 1,538,486 69,572 4,989,156 75,286 38,086 113,372 $ 1,653,650 $ 195,607 $ 3,119,376 $ 38,615 $ 38,086 $ 76,701 (Continued) Capital Project Funds Special Revenue Funds City of Salem, Massachusetts 91 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Cemetery Human Service Governmental Funds Funds Other Subtotal Funds REVENUES: Charges for - $ - $ - $ - $ 44,493 Intergovernmental………………………………………………… - - 2,218 2,218 15,602,554 Departmental and - - 6,128 6,128 2,087,752 17,000 - 383,338 400,338 819,731 Investment income 19,945 (19,635) 26,467 26,777 84,007 TOTAL 36,945 (19,635) 418,151 435,461 18,638,537 EXPENDITURES: Current: General - - - - 588,737 Public - - 8,672 8,672 621,970 - - 385,252 385,252 9,607,025 Public 129,852 - 55,267 185,119 575,885 Community development……………………………………… - - - - 1,567,381 Human - 99,966 - 99,966 4,494,055 Culture and - - - - 588,660 Debt service: - - - - - 2,320,000 - - - - 110,606 TOTAL EXPENDITURES………………………………… 129,852 99,966 449,191 679,009 20,474,319 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………………… (92,907) (119,601) (31,040) (243,548) (1,835,782) OTHER FINANCING SOURCES (USES): Proceeds from bonds and - - - - 1,000,000 Transfers - - - - 178,308 Transfers - - - - (1,492,525) TOTAL OTHER FINANCING SOURCES (USES)…… - - - - (314,217) NET CHANGE IN FUND BALANCES……………………………… (92,907) (119,601) (31,040) (243,548) (2,149,999) FUND BALANCES AT BEGINNING OF 2,723,903 1,466,982 994,772 5,185,657 10,288,185 FUND BALANCES AT END OF 2,630,996 $ 1,347,381 $ 963,732 $ 4,942,109 $ 8,138,186 (Concluded) Permanent Funds FISCAL YEAR ENDED JUNE 30, 2008 NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES City of Salem, Massachusetts 92 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 93 Comprehensive Annual Financial Report Private Purpose Trust Funds Trust Fund Commissioners – This fund is used to account for trusts held by the City to benefit individuals and administered by the City’s Board of Trust Fund Commissioners.. Scholarship Funds – This fund is used to account for scholarships held by the City to benefit individuals. ---PAGE BREAK--- PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF PRIVATE PURPOSE TRUST FUNDS NET ASSETS JUNE 30, 2008 Trust Fund Scholarship Commissioners Funds Total ASSETS Cash and cash equivalents………………………………… $ 17,084 $ 94,353 $ 111,437 1,432,859 - 1,432,859 TOTAL 1,449,943 94,353 1,544,296 NET ASSETS Held in trust for other 1,449,943 $ 94,353 $ 1,544,296 Private Purpose Trust Funds City of Salem, Massachusetts 94 Comprehensive Annual Financial Report ---PAGE BREAK--- Trust Fund Scholarship Commissioners Funds Total ADDITIONS: Contributions: Private $ 1,930 $ 14,950 $ 16,880 Net investment income (loss): Net change in fair value of investments……………………………………… (22,177) - (22,177) 177 2,800 2,977 TOTAL (20,070) 17,750 (2,320) DEDUCTIONS: Educational 13,836 900 14,736 Housing 39,834 - 39,834 TOTAL 53,670 900 54,570 CHANGE IN NET (73,740) 16,850 (56,890) NET ASSETS AT BEGINNING OF 1,523,683 77,503 1,601,186 NET ASSETS AT END OF $ 1,449,943 $ 94,353 $ 1,544,296 Private Purpose Trust Funds PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF CHANGES IN PRIVATE PURPOSE TRUST FUNDS NET ASSETS FISCAL YEAR ENDED JUNE 30, 2008 City of Salem, Massachusetts 95 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 96 Comprehensive Annual Financial Report Agency Fund Agency Fund This fund is used primarily to account for payroll withholdings, police and fire details, and unclaimed property. ---PAGE BREAK--- Beginning End of Year Additions Deletions of Year ASSETS CURRENT: Cash and cash equivalents…………………………… $ 404,548 $ 6,030,389 $ (5,710,063) $ 724,874 Receivables, net of allowance for uncollectibles: Departmental and 21,851 34,681 (21,851) 34,681 TOTAL $ 426,399 $ 6,065,070 $ (5,731,914) $ 759,555 LIABILITIES Warrants $ 36,409 $ 44,661 $ (36,407) $ 44,663 Liabilities due depositors……………………………… 389,990 6,020,409 (5,695,507) 714,892 TOTAL 426,399 $ 6,065,070 $ (5,731,914) $ 759,555 AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FISCAL YEAR ENDED JUNE 30, 2008 City of Salem, Massachusetts 97 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 98 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. On December 28, 1928, Salem's Park Department took formal possession of the island. The fort was renamed Fort Pickering, after Colonel Timothy Pickering, Secretary of State and War in Washington's Cabinet. Winter Island is located at 50 Winter Island Road in Salem, Massachusetts. It offers RV and Tent Camping May 1 to Nov 1, a public boat ramp that is open year round, a public beach with lifeguards, seasonal dinghy rack spaces, and a camp and gift store. Picnic areas can be rented May 1 through Nov 1. Winter Island offers a walking tour where you can see the historic Fort Pickering Lighthouse and is a stop along the Salem Trolley Tour. A function hall is available for year round rentals and is a great place for weddings and more! Go to www.salem.com Recreation Department for more information. ---PAGE BREAK--- City of Salem, Massachusetts 99 Comprehensive Annual Financial Report Statistical Section This part of the comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. Financial Trends • These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time. Revenue Capacity • These schedules contain information to help the reader assess the City’s most significant local revenue source, the property tax. Debt Capacity • These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future. Demographic and Economic Information • These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place. Operating Information • These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs. SOURCES: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Statistical Section ---PAGE BREAK--- 2002 2003 2004 2005 2006 2007 2008 Governmental activities Invested in capital assets, net of related debt………$ 82,253,876 $ 83,045,604 $ 79,729,492 $ 112,740,510 $ 109,183,737 $ 132,787,853 $ 139,683,360 5,755,817 5,237,908 8,759,761 9,734,998 8,649,700 8,868,048 6,948,839 Unrestricted…………………………………………… 4,546,625 9,656,396 6,519,783 (3,667,364) (371,947) (2,189,821) (6,668,493) Total governmental activities net assets…………………… $ 92,556,318 $ 97,939,908 $ 95,009,036 $ 118,808,144 $ 117,461,490 $ 139,466,080 $ 139,963,706 Business-type activities Invested in capital assets, net of related debt……… 8,782,331 8,319,902 8,147,378 9,212,891 9,018,231 9,138,929 8,836,475 Unrestricted…………………………………………… 7,754,552 6,649,222 7,538,395 4,492,692 4,722,252 5,609,406 5,647,967 Total business-type activities net assets…………………… $ 16,536,883 $ 14,969,124 $ 15,685,773 $ 13,705,583 $ 13,740,483 $ 14,748,335 $ 14,484,442 Primary government Invested in capital assets, net of related debt……… 91,036,207 91,365,506 87,876,870 121,953,401 118,201,968 141,926,782 148,519,835 5,755,817 5,237,908 8,759,761 9,734,998 8,649,700 8,868,048 6,948,839 Unrestricted…………………………………………… 12,301,177 16,305,618 14,058,178 825,328 4,350,305 3,419,585 (1,020,526) Total primary government net assets……………………… $ 109,093,201 $ 112,909,032 $ 110,694,809 $ 132,513,727 $ 131,201,973 $ 154,214,415 $ 154,448,148 Note: As allowed by GASB#34 , the City reported retroactive general infrastructure, acquired prior to fiscal 2002, beginning in fiscal 2006. Fiscal years 2002-2004 have not been restated to reflect this change. Fiscal Year Last Seven Fiscal Years Net Assets By Component City of Salem, Massachusetts 100 Comprehensive Annual Financial Report ---PAGE BREAK--- 2002 2003 2004 2005 2006 2007 2008 Expenses Governmental activities: General 8,640,622 $ 8,514,423 $ 9,454,148 $ 9,373,119 $ 9,867,573 $ 9,641,318 $ 10,598,174 Public 20,770,322 20,884,198 22,235,461 22,058,002 23,481,525 24,433,343 28,262,847 59,420,837 59,386,206 61,775,760 67,483,676 67,258,196 75,513,149 75,874,227 Public 5,397,486 6,464,257 6,517,047 8,421,997 7,991,774 9,229,479 6,846,006 Community development…………………………………… 5,856,034 4,954,608 5,767,362 2,066,749 1,891,386 1,804,554 1,567,381 Health and human 1,416,802 1,388,761 1,410,712 4,856,306 5,016,513 4,675,688 5,904,063 Culture and recreation……………………………………… 3,694,420 4,022,880 4,186,622 3,689,992 3,718,183 2,448,265 3,293,415 3,046,692 3,366,107 3,136,763 2,689,312 2,889,116 2,604,390 2,503,461 Total government activities expenses………………………… 108,243,215 108,981,440 114,483,875 120,639,153 122,114,266 130,350,186 134,849,574 Business-type activities: Water 10,967,114 10,196,489 9,619,356 3,186,840 3,197,864 3,562,372 3,895,551 Sewer 6,616,318 5,686,595 5,612,230 5,894,870 Golf 387,935 333,512 320,632 292,187 279,981 363,651 386,099 719,042 679,171 665,458 664,686 800,506 792,903 936,826 3,230,500 Total business type activities expenses……………………… 12,074,091 11,209,172 10,605,446 10,760,031 9,964,946 10,331,156 14,343,846 Total primary government expenses……………………………$ 120,317,306 $ 120,190,612 $ 125,089,321 $ 131,399,184 $ 132,079,212 $ 140,681,342 $ 149,193,420 Program Revenues Governmental activities: Education charges for services…………………………… $ 1,216,334 $ 1,097,764 $ 1,141,196 $ 1,023,839 $ 831,579 $ 1,659,544 $ 1,586,525 Public Safety charges for services………………………… 1,323,642 1,804,781 1,865,270 1,923,845 2,003,791 2,217,287 2,378,961 Other charges for 1,489,223 1,197,196 2,055,497 1,481,467 1,825,898 2,561,814 1,602,847 Operating grants and contributions………………………… 40,717,414 39,127,290 35,305,349 34,087,248 37,934,300 37,957,703 41,168,760 Capital grant and contributions…………………………… 17,467,468 7,019,891 2,129,821 2,090,467 3,312,346 30,118,572 9,615,336 Total government activities program revenues...……………… 62,214,081 50,246,922 42,497,133 40,606,866 45,907,914 74,514,920 56,352,429 Business-type activities: Charges for services - 9,794,892 10,415,528 11,708,715 3,853,505 4,319,560 4,822,041 4,318,889 Charges for services - 5,512,922 6,233,883 6,694,172 6,555,593 Charges for services - 615,878 549,091 543,467 502,770 525,404 546,841 570,142 Charges for services - 1,270,928 1,364,076 1,536,390 1,453,088 1,549,833 1,713,649 1,651,032 Charges for services - 908,577 Total business-type activities program revenues...…………… 11,681,698 12,328,695 13,788,572 11,322,285 12,628,680 13,776,703 14,004,233 Total primary government program revenues…………………$ 73,895,779 $ 62,575,617 $ 56,285,705 $ 51,929,151 $ 58,536,594 $ 88,291,623 $ 70,356,662 Net (Expense)/Revenue Governmental $ (46,029,134) $ (58,734,518) $ (71,986,742) $ (78,692,287) $ (76,206,352) $ (55,835,266) $ (78,497,145) Business-type (392,393) 1,119,523 3,183,126 562,254 2,663,734 3,445,547 (289,906) Total primary government net (46,421,527) $ (57,614,995) $ (68,803,616) $ (78,130,033) $ (73,542,618) $ (52,389,719) $ (78,787,051) General Revenues and other Changes in Net Assets Governmental activities: Real estate and personal property taxes, net of tax refunds 49,486,747 $ 52,118,338 $ 54,855,784 $ 55,915,767 $ 58,379,505 $ 60,991,003 $ 63,230,976 Tax 690,557 635,624 182,650 752,178 Motor vehicle excise 3,626,065 3,793,044 3,478,999 3,489,584 3,452,569 3,357,765 3,286,119 Hotel/motel 219,628 263,962 282,324 373,655 Penalties and interest on 330,035 391,429 322,003 288,874 350,651 266,246 353,952 Payments in lieu of 1,073,539 1,088,754 1,235,083 1,229,435 Grants and contributions not restricted to specific 3,931,117 3,774,422 6,932,546 8,097,351 7,661,752 8,971,625 9,163,777 Unrestricted investment 125,481 816,614 568,503 521,585 183,980 965,694 462,275 Miscellaneous………………………………………………… 504,968 536,979 431,558 77,454 214,067 248,905 168,417 2,274,567 2,687,282 2,466,477 2,542,444 2,628,834 2,437,695 (26,013) Total governmental activities 60,278,980 64,118,108 69,055,870 72,916,783 74,859,698 78,938,990 78,994,771 Business-type activities: (2,274,567) (2,687,282) (2,466,477) (2,542,444) (2,628,834) (2,437,695) 26,013 Total primary government……………………………………… $ 58,004,413 $ 61,430,826 $ 66,589,393 $ 70,374,339 $ 72,230,864 $ 76,501,295 $ 79,020,784 Changes in Net Assets Governmental $ 14,249,846 $ 5,383,590 $ (2,930,872) $ (5,775,504) $ (1,346,654) $ 23,103,724 $ 497,626 Business-type (2,666,960) (1,567,759) 716,649 (1,980,190) 34,900 1,007,852 (263,893) Total primary government……………………………………… $ 11,582,886 $ 3,815,831 $ (2,214,223) $ (7,755,694) $ (1,311,754) $ 24,111,576 $ 233,733 In fiscal years 2002 - 2004 the City reported a joint water/sewer enterprise fund. In fiscal years 2002 - 2004 the City included in real estate and personal property taxes, net of tax refunds payable. In fiscal years 2002-2007 the City reported Trash in the governmental funds. Fiscal Year Last Seven Fiscal Years Changes in Net Assets City of Salem, Massachusetts 101 Comprehensive Annual Financial Report ---PAGE BREAK--- 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 General Fund Reserved…………………………… $ 978,075 $ 966,088 $ 1,432,723 $ 1,442,182 $ 1,382,756 $ 1,153,872 $ 68,524 $ 197,581 $ 69,631 $ 220,608 Unreserved………………………… 4,738,658 5,764,170 5,901,496 4,633,278 3,980,693 3,398,534 335,643 1,162,714 (1,151,199) 1,321,397 Total general 5,716,733 $ 6,730,258 $ 7,334,219 $ 6,075,460 $ 5,363,449 $ 4,552,406 $ 404,167 $ 1,360,295 $ (1,081,568) $ 1,542,005 All Other Governmental Funds Reserved…………………………… $ - $ - $ - $ 1,430,279 $ 1,481,549 $ 1,844,725 $ 1,591,750 $ 1,606,904 $ 1,629,202 $ 1,650,597 Unreserved, reported in: Special revenue funds………… 4,477,410 5,738,091 6,910,085 8,289,823 8,920,508 6,618,566 7,763,007 5,474,128 5,477,136 3,768,323 Capital projects funds………… (3,404,797) (14,076,153) (17,882,945) (26,709,082) (14,050,593) (24,963,657) (10,513,270) (1,859,435) (197,270) 2,806,105 Permanent funds……………… - - - 3,137,655 2,801,999 2,555,014 2,897,589 3,018,952 3,556,455 3,291,512 Total all other governmental funds…. $ 1,072,613 $ (8,338,062) $ (10,972,860) $ (13,851,325) $ (846,537) $ (13,945,352) $ 1,739,076 $ 8,240,549 $ 10,465,523 $ 11,516,537 Notes: Fiscal years 1999 through 2001 exclude Expendable and Nonexpendable Trust Funds which were reported under the pre-GASB 34 format. Fiscal Year Last Ten Fiscal Years Fund Balances, Governmental Funds City of Salem, Massachusetts 102 Comprehensive Annual Financial Report ---PAGE BREAK--- 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Revenues: Real estate and personal property taxes, net of tax 45,299,037 $ 45,824,415 $ 48,802,188 $ 50,152,793 $ 52,448,384 $ 55,603,719 $ 55,866,348 $ 58,601,934 $ 60,638,180 $ 63,376,714 Motor vehicle and excise 2,658,847 2,686,784 3,178,682 3,156,366 3,875,265 3,387,266 3,531,673 3,577,544 3,215,438 3,427,889 Intergovernmental……………………………………………… 29,619,516 32,053,323 37,284,876 39,949,863 37,949,147 37,305,545 40,601,143 40,386,321 38,496,892 39,569,976 Departmental and 7,383,713 8,793,381 8,473,063 8,122,563 8,628,161 9,324,193 7,539,138 8,496,446 9,017,710 10,086,572 Investment 392,136 736,266 1,024,892 127,462 816,821 568,503 828,933 927,302 925,771 462,585 Commonwealth school construction grants………………… - - - - - - 12,739,570 16,559,515 35,025,316 17,324,905 On-behalf pension payments by Commonwealth………… - - 4,505,009 4,301,287 4,275,669 5,345,441 5,890,261 6,376,140 7,044,987 7,511,889 Total 85,353,249 90,094,169 103,268,710 105,810,334 107,993,447 111,534,667 126,997,066 134,925,202 154,364,294 141,760,530 Expenditures: General 4,281,803 4,287,021 5,801,716 4,866,231 4,463,397 4,627,702 4,863,297 5,112,025 4,733,168 4,512,126 Public 14,328,164 14,074,132 14,589,271 15,738,798 15,368,476 14,999,915 14,417,276 14,547,596 14,969,952 15,945,719 37,518,451 40,101,425 45,852,552 47,250,529 48,449,552 47,729,470 46,260,838 47,647,867 47,719,326 47,293,548 Public 4,490,661 5,044,735 6,004,568 4,652,745 5,232,421 5,209,599 6,663,143 5,427,108 6,137,334 3,338,981 Community development……………………………………… 1,700,155 3,118,010 2,462,534 1,936,213 2,348,162 2,085,553 2,066,749 1,891,386 1,804,554 1,567,381 Health and human 2,053,609 920,083 927,024 960,817 901,407 855,553 4,348,098 4,475,413 4,730,161 5,306,444 Culture and 2,824,761 2,963,811 3,338,502 2,728,470 2,981,769 2,756,066 2,278,899 2,339,600 1,865,609 2,135,563 3,474,477 3,813,000 4,610,788 4,204,226 4,340,575 6,565,806 11,926,982 13,388,893 14,375,924 15,180,985 Massachusetts teachers' retirement………………………… - - 4,505,009 4,301,287 4,275,669 5,345,441 5,890,261 6,376,140 7,044,987 7,511,889 Employee 5,374,227 5,499,340 5,550,602 9,853,473 10,529,297 10,580,395 10,433,140 9,964,302 10,889,249 11,570,087 State and district assessments……………………………… 1,970,865 3,495,301 2,183,362 3,770,566 3,911,644 4,212,549 4,028,333 5,047,971 5,589,986 5,933,670 Capital 3,198,871 10,684,440 17,106,792 12,975,601 18,550,903 15,793,932 1,422,955 7,581,652 38,018,740 12,930,767 Debt service 2,980,702 2,835,050 3,220,000 2,605,000 2,795,000 3,890,000 4,105,000 4,385,000 4,310,000 6,620,000 2,010,471 2,482,071 2,482,795 3,111,786 2,854,502 3,259,021 2,919,668 2,958,101 2,513,575 2,622,389 Total Expenditures…………………………………………… 86,607,217 99,318,419 118,635,515 118,955,742 127,002,774 127,911,002 121,624,639 131,143,054 164,702,565 142,469,549 Excess of revenues over (under) expenditures…………… (1,253,968) (9,224,250) (15,366,805) (13,145,408) (19,009,327) (16,376,335) 5,372,427 3,782,148 (10,338,271) (709,019) Other Financing Sources (Uses) Issuance of 400,000 - 13,300,000 - 28,670,000 - 2,465,000 - 8,319,497 3,930,000 Premium from issuance of - - - - - - 232,856 - 85,169 84,840 Capital lease - - - - - - 807,283 1,046,619 378,169 394,779 Transfers 2,131,143 2,187,421 1,813,102 9,045,003 9,051,161 10,693,915 3,597,240 5,320,517 3,558,845 4,508,229 Transfers (1,733,369) (1,360,322) (1,435,512) (6,770,436) (6,719,057) (8,227,438) (1,054,796) (2,691,683) (1,121,150) (4,534,242) Total other financing sources 797,774 827,099 13,677,590 2,274,567 31,302,104 2,466,477 6,047,583 3,675,453 11,220,530 4,383,606 Net change in fund $ (456,194) $ (8,397,151) $ (1,689,215) $ (10,870,841) $ 12,292,777 $ (13,909,858) $ 11,420,010 $ 7,457,601 $ 882,259 $ 3,674,587 Debt service as a percentage of noncapital expenditures…… 5.84% 5.43% 4.87% 4.87% 4.51% 6.16% 5.95% 5.94% 5.39% 5.27% Prior to fiscal year 2005 any receipts from the Commonwealth for school construction projects were included in intergovernmental revenue. In fiscal year 2005 certain grants were reclassified to Human Services to better reflect the purpose The Commonwealth is legally obligated to fund the Salem teachers retirement. Therefore the revenue and expenditure has been recorded in accordance with GASB 24. Last Ten Fiscal Years Changes in Fund Balances, Governmental Funds Fiscal Year City of Salem, Massachusetts 103 Comprehensive Annual Financial Report ---PAGE BREAK--- Assessed Value and Actual Value of Taxable Property by Classification and Tax Rates Last Ten Fiscal Years Assessed and Actual Values and Tax Rates Total Total Total Fiscal Residential Residential Commercial Industrial Personal Commercial Commercial Direct Town Year Value Tax Rate Value Value Property Value Tax Rate Rate Value 1999 1,552,242,000 $ $ 15.17 $ 254,271,400 $ 112,399,300 $ 240,804,300 $ 607,475,000 $ 33.96 20.46 $ $ 2,159,717,000 2000 1,705,349,600 14.23 266,300,300 141,171,100 247,511,700 654,983,100 31.65 19.06 $ 2,360,332,700 2001 1,963,462,114 13.42 315,485,948 168,301,665 254,604,294 738,391,907 29.63 17.85 $ 2,701,854,021 2002 2,135,490,544 13.53 324,729,500 136,077,225 261,760,050 722,566,775 28.62 17.35 $ 2,858,057,319 2003 2,575,202,432 12.87 341,154,055 135,580,725 254,704,340 731,439,120 26.05 15.79 $ 3,306,641,552 2004 3,247,929,862 11.71 369,848,655 140,122,325 213,400,595 723,371,575 22.59 13.69 $ 3,971,301,437 2005 3,536,283,952 11.38 383,694,522 142,371,000 234,191,813 760,257,335 21.83 13.23 $ 4,296,541,287 2006 3,807,396,999 11.21 393,448,700 143,388,000 241,940,480 778,777,180 21.33 12.93 $ 4,586,174,179 2007 4,137,021,751 10.77 435,740,235 150,255,420 255,302,680 841,298,335 20.48 12.41 $ 4,978,320,086 2008 4,008,575,509 11.67 449,128,612 134,872,400 212,904,820 796,905,832 22.11 13.40 $ 4,805,481,341 Revaluation year. Source: Assessor's Department, City of Salem All property in the Commonwealth of Massachusetts is assessed at 100% of fair cash value. Note: Chapter 59, Section 21C of the Massachusetts General Laws, known as "Proposition 2 1/2", imposes 2 separate limits on the annual tax levy of the Town. The primary limitation is that the tax levy cannot exceed 2 1/2 percent of the full and fair cash value. The secondary limitation is that the tax levy cannot exceed the maximum levy limit for the preceding fiscal year as determined by the State Commissioner of Revenue by more than 2 1/2 percent, subject to an exception for property added to the tax rolls and for certain substantial valuation increases other than as part of a general revaluation. The secondary limit may be exceeded in any year by a majority vote of the voters, however it cannot exceed the primary limitation. Commercial Value as % of Total Value 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Total Assessed Value by Classification Fiscal Year Ended June 30, 2008 84% 9% 3% 4% Residential Commercial Industrial Personal Property Total Assessed Value by Classification Fiscal Year Ended June 30, 2007 83% 9% 3% 5% Residential Commercial Industrial Personal Property City of Salem, Massachusetts 104 Comprehensive Annual Financial Report ---PAGE BREAK--- Principal Taxpayers Current Year and Nine Years Ago Percentage of Percentage of Total Taxable Total Taxable Nature of Assessed Assessed Assessed Assessed Name Business Valuation Rank Value Valuation Rank Value Dominion Personal & Industrial Property $158,305,850 1 3.3% - - Shetland Properties Industrial & Commercial $29,315,600 2 0.6% $15,114,000 2 0.7% New England Power Co. Personal & Industrial Property $24,520,050 3 0.5% $256,219,800 1 12.4% Massachusetts Electric Personal Property $21,899,450 4 0.5% $13,459,100 6 0.7% Highlander Plaza Commercial Property $21,728,900 5 0.5% $14,419,400 5 0.7% Salem Station LLC Apartments $40,027,860 6 0.8% - - Keyspan PP Personal Property & Real Estate $18,849,020 7 0.4% - - Princeton Crossing Apts. Apartments $30,981,000 8 0.6% $12,713,400 7 0.6% Hawthorne Commons Apartments $28,417,500 9 0.6% $6,261,900 9 0.3% Second Pickwick Trust Commercial Property $14,542,500 10 0.3% - - NYNEX Personal & Industrial Property - - $14,943,800 3 0.7% Boston Gas Personal & Industrial Property - - $14,614,900 4 0.7% Applied Extrusions Technologies Electronics - - $6,306,700 8 0.3% Lagonakis/Crete/Minoan RT Commercial Property - - $6,053,400 10 0.3% Totals $388,587,730 8.1% $360,106,400 17% Source: Board of Assessors 2008 1999 City of Salem, Massachusetts 105 Comprehensive Annual Financial Report ---PAGE BREAK--- Percent of Less First Year Percent of Delinquent Total Total Tax Fiscal Total Abatements & Net Current Net Levy Tax Tax Collections to Year Tax Levy Exemptions Tax Levy Tax Collections Collected Collections Collections Net Tax Levy 1999 $ 44,177,362 $ 379,865 $ 43,797,497 $ 43,723,214 99.8% $ 73,228 $ 43,796,442 100% 2000 44,997,340 549,334 44,448,006 43,623,904 98.1% 820,868 44,444,772 100% 2001 48,228,214 654,519 47,573,695 47,565,588 99.9% 6,113 47,571,701 100% 2002 49,789,935 484,373 49,305,562 49,199,288 99.8% 105,089 49,304,377 100% 2003 52,210,909 508,719 51,702,190 51,303,297 99.2% 398,826 51,702,123 100% 2004 54,374,223 564,486 53,809,737 53,259,047 99.0% 550,063 53,809,110 100% 2005 56,839,329 418,415 56,420,914 55,554,023 98.5% 866,450 56,420,473 100% 2006 59,292,238 414,204 58,878,034 58,010,805 98.5% 865,215 58,876,020 100% 2007 61,785,514 532,920 61,252,594 60,318,905 98.5% 931,024 61,249,929 100% 2008 64,399,664 529,244 63,870,420 63,261,175 99.0% - 63,261,175 99% Revaluation Year Source: Massachusetts Department of Revenue; Board of Assessors Property Tax Levies and Collections Last Ten Years City of Salem, Massachusetts 106 Comprehensive Annual Financial Report ---PAGE BREAK--- Ratios of Outstanding Debt and General Bonded Debt Last Ten Fiscal Years General Percentage Percentage Fiscal U. S. Census Personal Assessed Obligation Capital Per of Personal of Assessed Year Population Income Value Bonds Leases Capita Income Value 1999 38,341 $ 896,407,212 $ 2,159,717,000 $ 33,460,698 $ 494,359 $ 886 3.79% 1.57% 2000 40,564 967,735,348 2,360,332,700 30,716,400 2,517,607 819 3.43% 1.41% 2001 41,130 1,000,863,178 2,701,854,021 40,700,000 1,929,115 1,036 4.26% 1.58% 2002 42,179 1,046,917,485 2,858,057,319 37,625,000 1,103,986 918 3.70% 1.36% 2003 42,067 1,065,020,304 3,307,181,452 63,730,000 441,217 1,525 6.03% 1.94% 2004 41,912 1,082,318,054 3,971,301,437 59,840,000 307,360 1,435 5.56% 1.51% 2005 41,976 1,105,650,179 4,296,541,287 58,770,000 723,214 1,417 5.38% 1.38% 2006 40,407 1,085,609,084 4,586,174,179 54,385,000 1,172,651 1,375 5.12% 1.21% 2007 40,407 1,107,321,266 4,978,320,086 50,040,000 779,906 1,258 4.59% 1.02% 2008 40,407 1,129,467,691 4,805,481,341 55,704,497 675,954 1,395 4.99% 1.17% General Total Percentage Percentage Year Bonds Leases Outstanding Capita Income Value 1999 $ 1,880,000 $ 0 $ 35,835,057 $ 935 4.00% 1.66% 2000 1,600,000 0 34,834,007 859 3.60% 1.48% 2001 1,345,000 0 43,974,115 1,069 4.39% 1.63% 2002 650,000 0 39,378,986 934 3.76% 1.38% 2003 515,000 0 64,686,217 1,538 6.07% 1.96% 2004 380,000 0 60,527,360 1,444 5.59% 1.52% 2005 1,450,000 0 60,943,214 1,452 5.51% 1.42% 2006 1,345,000 0 56,902,651 1,408 5.24% 1.24% 2007 3,570,656 0 54,390,562 1,346 4.91% 1.09% 2008 7,624,241 0 64,004,692 1,584 5.67% 1.33% Source: Audited Financial Statements, U. S. Census Governmental Activities Debt Business-type Activities Total Primary Government City of Salem, Massachusetts 107 Comprehensive Annual Financial Report ---PAGE BREAK--- Direct and Overlapping Governmental Activities Debt As of June 30, 2008 Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable Debt North Shore Regional Vocational School District……………$ 1,905,000 27.60% $ 525,780 City direct 55,704,497 Total direct and overlapping $ 56,230,277 Source: Treasurer and North Shore Regional Vocational School District City of Salem, Massachusetts 108 Comprehensive Annual Financial Report ---PAGE BREAK--- 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Equalized Valuation……………………………… $ 2,174,217,600 $ 2,174,217,600 $ 2,472,012,500 $ 2,472,012,500 $ 3,148,016,400 $ 3,148,016,400 $ 4,184,128,700 $ 4,223,735,800 $ 4,923,330,400 $ 4,923,330,400 Debt Limit of Equalized Valuation………… $ 108,710,880 $ 108,710,880 $ 123,600,625 $ 123,600,625 $ 157,400,820 $ 157,400,820 $ 209,206,435 $ 211,186,790 $ 246,166,520 $ 246,166,520 Less: Outstanding debt applicable to limit…………… 3,785,000 3,475,000 5,080,000 5,625,000 4,646,000 4,167,000 6,695,447 6,064,000 5,435,000 13,126,497 Authorized and unissued 72,050,000 63,950,000 82,537,000 83,033,130 69,000,988 70,336,913 39,296,218 48,682,895 54,169,239 41,605,658 Legal debt $ 32,875,880 $ 41,285,880 $ 35,983,625 $ 34,942,495 $ 83,753,832 $ 82,896,907 $ 163,214,770 $ 156,439,895 $ 186,562,281 $ 191,434,365 Total debt applicable to the limit as a percentage of debt limit………………… 69.76% 62.02% 70.89% 71.73% 46.79% 47.33% 21.98% 25.92% 24.21% 22.23% Source: Audited Financial Statements; Statement of Indebtedness Fiscal Year Last Ten Fiscal Years Computation of Legal Debt Margin City of Salem, Massachusetts 109 Comprehensive Annual Financial Report ---PAGE BREAK--- Demographic and Economic Statistics Last Ten Fiscal Years Per Capita Fiscal Population Personal Personal Median School Unemployment Year Estimates Income Income Age Enrollment Rate 1999 38,341 $ 896,407,212 $ 23,380 33.5 5,059 3.3% 2000 40,564 967,735,348 23,857 36.4 5,007 2.5% 2001 41,130 1,000,863,178 24,334 36.4 5,107 3.9% 2002 42,179 1,046,917,485 24,821 36.4 5,064 5.6% 2003 42,067 1,065,020,304 25,317 36.4 5,016 6.2% 2004 41,912 1,082,318,054 25,824 36.4 4,727 5.3% 2005 41,976 1,105,650,179 26,340 36.4 4,676 4.9% 2006 40,407 1,085,609,084 26,867 36.4 4,714 4.1% 2007 40,407 1,107,321,266 27,404 36.4 4,573 4.5% 2008 40,407 1,129,467,691 27,952 36.4 4,404 4.9% Note: Per Capita Personal Income and Median Age based on 1990 and 2000 U.S Censuses Source: Massachusetts Department of Revenue, Division of Local Services; U.S. Census Bureau City of Salem, Massachusetts 110 Comprehensive Annual Financial Report ---PAGE BREAK--- Principal Employers (excluding City) Current Year and Nine Years Ago Nature Percentage of Percentage of of Total City Total City Business Employees Rank Employment Employees Rank Employment North Shore Medical Center Healthcare 2,875 1 12.1% 2,500 1 11.7% Higher Education 1,500 2 6.3% 750 2 3.5% State Government 520 3 2.2% - - Food Market 325 4 1.4% - - Cultural/Tourism 290 5 1.2% - - Banking 236 6 1.0% - - Lodging 210 7 0.9% - - Health Care 202 8 0.8% - - Retail 187 9 0.8% - - Salem YMCA Social Service Agency 185 10 0.8% Sears Boston Credit Central Public Utility - - 600 3 2.8% New England Power Company Public Utility - - 476 4 2.2% North Shore Children's Hospital Children's Health Care - - 400 5 1.9% EG & G Inc. Diabetic Supplies - - 281 6 1.3% Atwood & Morrill Co. Inc. Valve Manufacturing - - 189 7 0.9% Food Market - - 176 8 0.8% Van Waters & Rogers Chemical Distribution - - 162 9 0.8% Harbor Sweets Candy & Confection Wholesale - - 101 10 0.5% 6,530 27.5% 5,635 26.5% Source: The City Planning Department 2008 1999 Commonwealth of Massachusetts Offices Market Basket Salem State College Crosby's Market Place Salem Five Savings Bank Employer Peabody Essex Museum Grosvenor Park Nursing Center Hawthorne Hotel Home Depot City of Salem, Massachusetts 111 Comprehensive Annual Financial Report ---PAGE BREAK--- 2000 2001 2002 2003 2004 2005 2006 2007 2008 Function General government……………… 82 59 62 68 62 64 40 34 36 Public safety……………………… 198 183 183 185 180 190 181 190 185 Education………………………… 755 755 755 755 756 756 752 752 753 Public 67 50 59 47 45 55 35 38 40 Engineering……………………… - - - - - - - 1 3 Health and human services……… 23 20 22 22 21 21 21 20 17 Culture and recreation…………… 36 36 35 34 31 31 34 23 21 Total 1,161 1,103 1,116 1,111 1,095 1,117 1,063 1,058 1,054 Source: Various City Departments Information not available on years prior to FY2000. Fiscal Year Last Nine Fiscal Years Full-time Equivalent City Employees by Function City of Salem, Massachusetts City of Salem, Massachusetts 112 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 General government Marriage recordings………………………………… 317 292 328 362 327 330 327 375 322 306 Birth recordings……………………………………… 1,726 1,777 1,680 1,708 1,804 1,839 1,761 2,044 2,043 1,712 Death recordings…………………………………… 765 764 865 848 823 935 847 737 755 520 Police Physical 1,131 975 1,039 1,057 984 965 685 2,792 2,793 2,569 Motor vehicle violations……………………………… 2,791 3,066 3,967 4,872 5,489 5,238 4,334 6,477 8,672 7,838 Police personnel and officers……………………… 94 94 103 105 94 85 85 81 84 85 Fire 3,417 3,226 3,004 2,950 1,972 3,231 2,789 1,187 1,562 1,562 Emergency responses……………………………… 3,433 3,717 3,917 3,993 3,911 4,281 4,572 6,235 6,719 6,663 Fire personnel and officers………………………… 89 90 92 96 85 78 78 75 76 78 Education Number of 5,059 5,007 5,107 5,064 5,016 4,727 4,676 4,744 4,573 4,404 Number of graduates………………………………… 187 213 220 237 218 257 246 255 269 254 Number of 369 370 369 397 406 415 409 477 484 479 Water Service connections………………………………… 9,627 9,720 9,812 9,842 9,898 10,516 10,568 11,000 11,811 11,701 Consumption in 1,853 1,985 2,107 2,064 2,090 2,111 2,136 2,000 2,056 2,089 Daily consumption 5.10 5.44 5.77 5.66 5.73 5.78 6.43 6.84 6.74 977.79 Sewer Service connections………………………………… 9,627 9,720 9,812 9,842 9,898 10,516 10,568 11,000 11,811 11,701 Health and human services Number of persons using COA transportation…… 54,620 44,326 45,523 47,220 44,804 44,500 45,976 37,497 39,052 18,678 Libraries Volumes in circulation……………………………… 127,923 126,526 130,510 128,626 124,435 125,516 128,569 141,595 143,052 148,752 Total volumes borrowed…………………………… 379,511 379,534 395,311 453,548 470,192 464,453 490,116 508,728 500,907 514,708 Source: Various City Departments; Massachusetts Department of Education Fiscal Year Last Ten Fiscal Years Operating Indicators by Function/Program City of Salem, Massachusetts 113 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 General government Number of buildings………………………… 2 2 2 2 2 2 2 2 2 2 Police Number of stations………………………… 1 1 1 1 1 1 1 1 1 1 Fire Number of stations………………………… 4 4 4 4 4 4 4 4 4 4 Education Number of elementary schools…………… 7 7 7 7 7 7 7 7 7 7 Number of middle schools………………… 1 1 1 1 1 1 1 1 1 1 Number of high schools…………………… 1 1 1 1 1 1 1 1 1 1 Public Works Water mains 103 103 103 103 108 108 108 108 108 108 Health and human services Number of personnel……………………… 20 19 18 18 17 17 17 17 17 17 Culture and recreation Parks and playgrounds…………………… 35 35 35 35 35 35 35 35 35 35 Park and playground (acreage)…………… 219 230 230 230 230 230 230 230 230 230 Conservation land (acreage)……………… 114 114 114 114 114 128 128 128 128 128 Railroad right of way (acreage)…………… 89 89 89 89 89 89 89 89 89 89 Public 7 7 7 7 7 7 7 7 7 7 Ball 13 13 13 13 13 13 13 13 13 13 Tennis 10 10 10 10 10 10 10 10 10 10 Source: Various City Departments, Manual of the City Government Fiscal Year Last Ten Fiscal Years Capital Asset Statistics by Function/Program City of Salem, Massachusetts 114 Comprehensive Annual Financial Report ---PAGE BREAK--- Free Stabilization Fiscal Year Cash Fund $ 1,114,950 $ 648,947 $ 691,149 $ 487,980 $ 538,372 $ 277,759 $ 2,732,090 $ 1,021,351 $ 1,867,737 $ 1,297,417 $ 3,212,194 $ 2,278,823 $ 4,010,382 $ 2,248,337 $ 4,965,894 $ 1,713,814 $ 4,425,158 $ 1,149,864 $ 4,313,929 $ 1,087,575 Source: City Records Free Cash & Stabilization Fund Balances Last Ten Fiscal Years City of Salem, Massachusetts 115 Comprehensive Annual Financial Report