Document Salem_doc_962bae056a

CITY OF SALEM MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2010 Kimberley L. Driscoll, Mayor Richard Viscay, Jr., Finance Director Prepared by the City of Salem Finance Department ---PAGE BREAK--- On the Cover – Old Town Hall Located at 32 Derby Street, Salem Old Town Hall was designed by noted architect Charles Bulfinch, and stands today as one of the finest examples of Federal style architecture in town. The Old Town Hall has also offered the community a place to gather for centuries, first as a town hall and most recently as an auditorium. Salem Old Town Hall was built in 1816-1817 as a waterfront commercial and civic center. Attributed to the great Boston architect Charles Bulfinch, it is a close cousin of Boston’s Faneuil Hall and is the oldest surviving municipal structure in Salem. The Town Hall has long served as the community meeting place and market, and continues those traditions. Today, along with holding events, Old Town Hall serves as a community landmark of architecture and history in downtown Salem. Salem Old Town Hall is currently open to the public and regularly offers re-enactments of the Salem Witch trials of 1692 on the second floor. The City is looking to obtain funding to address structural issues, as well as provide new finishes in some of the public spaces. With these improvements, more re-enactments would take place and the building would be able to expand services to the community as a classroom space and a museum. Pickering Wharf Light House ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2010 Prepared by Finance Department ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2010 TABLE OF CONTENTS Introductory Letter of Transmittal Organizational Principal Executive Officers Certificate of Achievement for Excellence in Financial Reporting Distinguished Budget Presentation Award Financial Section Independent Auditors’ Report Management’s Discussion and Analysis Basic Financial Statement of net Statement of activities Governmental funds – balance sheet Reconciliation of the governmental funds balance sheet total fund balances to the statement of net assets.......33 Governmental funds – statement of revenues, expenditures and changes in fund balances Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of Proprietary funds – statement of net Proprietary funds – statement of revenues, expenses and changes in fund net assets Proprietary funds – statement of cash flows Fiduciary funds – statement of fiduciary net assets Fiduciary funds – statement of changes in fiduciary net Notes to basic financial Required Supplementary Information General fund budgetary comparison schedule General fund schedule of revenues, expenditures and changes in fund balance – budget and Retirement System Retirement System Schedule of Funding Progress Retirement System Schedule of Employer Contributions ---PAGE BREAK--- Other postemployment benefit plan Other postemployment benefit plan schedule of funding progress and employer Other postemployment benefit plan actuarial methods and Notes to required supplementary information Combining Nonmajor governmental funds Nonmajor governmental funds – combining balance sheet Nonmajor governmental funds – combining statement of revenues, expenditures, and changes in fund balances Private purpose trust funds Private purpose trust funds – combining statement of net Private purpose trust funds – combining statement of changes in net assets Agency Fund Agency fund – statement of changes in assets and liabilities Statistical Net assets by component – last nine fiscal Changes in net assets – last nine 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, 2010 Computation of legal debt margin – last ten fiscal years Demographic and economic statistics – last ten fiscal years Principal employers (excluding City) – current year and nine years Full-time equivalent City employees by function – last ten fiscal Operating indicators by function/program – last ten fiscal Capital asset statistics by function/program – last ten fiscal Free cash & 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 14, 2010 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, 2010 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, 2010, 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, 2010, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City’s financial statements for the fiscal year ended June 30, 2010 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 40,707 and occupies a land area of approximately 8 square miles. The second city in the Commonwealth to be incorporated, it is the Shire City of Essex County. Salem has operated under the Plan B form of government, with a mayor and an eleven-person City Council, seven elected from wards, and four at-large, since 1915. The Mayor is elected for four years in November of unevenly-numbered years. The Mayor is the administrative head of the City and chairman ex-officio of the School Committee, the Board of Library Trustees, and the Board of Trust Fund Commissioners. The Mayor acts with the City Council and School Committee to carry out City business. The Mayor appoints 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 instances, adoption by a two-thirds vote of the members is required by statute. The City provides general governmental services for the territory within its boundaries, including police and fire protection, disposal of garbage and rubbish (for residential properties); public education, including vocational- technical education at the high school level; street maintenance; certain water services, through the Salem and Beverly Water Supply Board; certain sewerage disposal services, through the South Essex Sewerage District; and parks and recreational facilities. Approximately 95% of the City is connected to the sewerage system; the entire area of the City is served by the municipal water system. Both the Salem and Beverly Water Supply Board and the South Essex Sewerage District qualify as joint ventures. Accordingly, the City’s equity interest in both entities has been included in the City’s basic financial statements. The Salem Housing Authority is responsible for managing 1,462 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 ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 5 developments, nine family developments, and one handicapped accessible family development. These units are owned and operated by the Authority. The Salem Housing Authority does not meet the criteria to be considered a component unit of the City. The principal highways serving the City are state Routes 1A, 107, and 114, all of which provide immediate access to Routes 1 and 128 and other major highways serving the greater Boston area. The City is a member municipality of the Massachusetts Bay Commuter Railroad, which provides passenger and freight service. Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without recommendation of the Mayor, the City Council may not increase any item or make an appropriation for a purpose not included in the proposed budget (except by a two-thirds vote in case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the City Council, pursuant to state statute). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. The amount raised on the tax recapitulation sheet approved by the Department of Revenue for fiscal year 2010 totaled approximately $124 million, which includes Real & Personal Property tax revenue, State Revenues, MSBA Revenue, local revenues, transfers in of $925,686 from Receipts Reserved Harbormaster, Witch House and Golf Course (to reduce tax rate), $1,534,374 from free cash supplemental appropriations, other receipts reserved transfers, School Deficit Bond Revenue and $1,430,065 of indirect costs from the Water & Sewer Enterprise funds. These revenues cover general fund budgeted expenses and deficits raised including snow and ice, school lunch, health insurance trust, and to fund the Retirement Anticipation Fund and Capital Improvement Projects Fund. These also include enterprise fund expenses. The City includes the Salem Contributory Retirement System (the System) in its financial reporting since the City represents approximately 86% of the members of the System. The System was established to provide retirement benefits to its members, including employees and beneficiaries of the City of Salem, the Salem-Beverly Water Supply Board, the Salem Housing Authority, the South Essex Sewerage District, and the North Shore Regional Vocational School System. Per the Public Employee Retirement Administration Commission (PERAC) 2009 annual report, the market value of the System’s assets is $82.7 million with 91% of the funds invested in the State’s Pension Reserve Investment Trust’s (PRIT) Core Fund. Factors Affecting Economic Condition The City of Salem is a historic waterfront community that has a rich cultural heritage, known worldwide for its architecture, maritime history, literary prominence, and hysteria. For this reason, tourism is one of the City’s major industries, accommodating almost one million visitors each year. Salem originated as one of the earliest landing sites of the English colonists, and went on to rise as the first major port in the United States, opening up the East Indian trade. In its heyday, Salem was known as a thriving hub of American commerce and was the home of Nathaniel Hawthorne. Salem is well known for the infamous Salem Trials of 1692, when nineteen people were convicted for the crime of and were put to their deaths. The City's golden years have left her modern inhabitants with architectural treasures, fine museums, and a sparkling literary heritage. Equally important, the development of Salem has produced a rich ethnic history, to which people of all races, creeds, colors and origins have contributed over the generations. Long a trading, manufacturing and retail center, Salem has been making a slow, and sometimes painful, transition to a service- based economy. The City today serves as the home of Salem State College, the North Shore Medical Center, the Essex County District Superior and Probate Courts, and Registry of Deeds, the world-famous Peabody Essex ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 6 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, construction is underway on the new $106 million J. Michael Ruane Judicial Center, as well as the $12 million redevelopment of the Old Salem Jail, which will include 23 residential units, a restaurant, a jail history exhibit, and one affordable artist live/work unit. These projects, as well as the $7.5 million redevelopment of the former Salem News building, will ensure long term vibrancy to Downtown Salem. The City has also developed a comprehensive Capital Improvement Program (CIP), which identifies both short term and long term capital needs for the City. As part of the fiscal year 2010 CIP, the City will begin remodeling several parks and playgrounds in the City, including the $789 thousand renovation of Furlong Park. Other highlights of the fiscal year 2010 CIP include the investment of $1.5 million in neighborhood roadway improvements, $515 thousand of vehicle and equipment replacement for the police, fire, and department of public services, $100 thousand in technological advancements for the parking department, and $150 thousand for the installation of a new ball field at the Heights Elementary School. The Salem waterfront is also experiencing a great deal of investment from the addition of the Waterfront Hotel at Pickering Wharf to the South River Harborwalk waterfront development, which will include seawall and bulkhead improvements from Derby Street to Congress Street. The City received a $3 million grant from the Governor’s Seaport Council for this project, as well as the acquisition of land at the Blaney Street Wharf. The City welcomed its first cruise ship to the Blaney Street Wharf in 2008 when Blount Small Ship Adventures, operating out of Warren, Rhode Island, stopped in Salem to fill a cancellation and absolutely loved it. As a result, they have included Salem as part of the “Olde New England Sampler” cruise package with three scheduled stops in the City in the summer of 2010. Salem is emerging as a destination for small cruise ships making stops in historic ports that dot the New England seacoast. Once the Blaney Street wharf expansion is completed, the City expects to attract the large cruise liners, which is projected to have a significant impact on the local economy. With the passage of House Bill 4560, Senate Bill 4864 and the approval of Massachusetts Governor Deval Patrick, Salem State College obtained University status. Salem State University is the largest institution of higher education on the North Shore of Massachusetts. Recent expansion at the University includes the construction of the college’s newest campus on the former GTE Sylvania site. Central Campus, as it is currently known, houses the Bertolon School of Business, a recital hall, a ‘green’ and sustainable residence hall, and a small business incubator for the region. Expansion of the college continues currently, including the ongoing construction of a new 525 bed residence hall and dining facility, as well as the construction of a new library, set to begin construction by the end of 2010. 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. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 7 According to the Massachusetts Workforce Development Agency, the City had a labor force of 24,247, of whom 22,122 were employed and 2,125, or 8.8% were unemployed. The Commonwealth, for the same period, had an unadjusted unemployment rate of 9.0%. Financial Planning and Forecasting In fiscal year 2009, the City modified its budget format to improve upon its content and layout. The goal was to have a comprehensive budget that would allow an average person to read and comprehend the budget and budget process of the City. It also was modeled after several budgets that were submitted and approved for the Government Financial Officer’s Association (GFOA) “Distinguished Budget Presentation Award”. The new model included much more narrative, including goals and objectives of each department, financial forecasts, policies and glossary of financial terms. It required a significant amount of work for all department heads and especially the finance division, who had to ensure all the materials were pulled together timely for submission to both the City Council and the GFOA. As a result of our efforts, the City has been awarded the GFOA’s “Distinguished Budget Presentation Award” for fiscal years 2009 and 2010. Salem is one of only nine municipalities in the Commonwealth to receive the Award in fiscal year 2010. Included in the budget was the City’s Five Year Financial Forecast. This is the fourth year that such a forecast has been completed. This forecast acts as a useful tool to the Mayor and Council to better identify “budget busters” on the expenditure side and to also determine whether forecasted revenue growth is adequate for future expenses. Also included in the budget was the City’s Five Year Capital Improvement Plan (CIP) for the purpose of planning and maintaining the City’s capital and infrastructure. The CIP includes policies on debt service and capital improvement budgeting. Fixed Costs ~ Health Insurance and Pension Assessment The City continues to struggle with the rising cost of health care for City employees/retirees, as well as increases in pension costs. Since the state law, known as proposition 2 ½, caps the City’s ability to raise taxes to meet rising costs, the City is actively exploring the use of alternative, local revenue sources to help offset the aforementioned rising expenditures. In fiscal year 2006, the City Council accepted the provisions of Massachusetts General Law chapter 32B, section 18, a Massachusetts statute requiring all Medicare- eligible retirees who are currently on self-insured plans to move from self-insured coverage to a fully insured Medicare supplement plan. This provision saved the City approximately $700,000 in fiscal 2007 and continues to realize savings for the City. This is a major cost saving initiative that will insure that all retirees over the age of 65 are treated consistently, while also providing greater control of costs associated with the City’s Healthcare Insurance Trust account, the fastest rising municipal budget item for each of the last five years. Another significant change in the health insurance budget for fiscal year 2010 was the finalization of the Police Patrolmen’s contract which allowed the City to convert its final union to a contribution rate of 25% for the employee and 75% for the City. The patrolmen were the last of the groups to convert to the modified contribution rates. The City now has uniformity in the contribution rates with all collective bargaining units. This will help stabilize the ever increasing cost of providing health benefits to the employees of the City in fiscal year 2010 and further. Not only has the City changed the contribution rates of health insurance, but also the plan designs of its Blue Cross Blue Shield products. In 2010, the City introduced HMO Network Blue Options (Options). Within the Options network, hospitals and groups of primary care providers are ranked into three benefit tiers based on cost and nationally accepted quality performance criteria selected by Blue Cross Blue Shield of Massachusetts. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 8 This plan will ultimately replace both the HMO Blue $5 co-payment plan, as well as the HMO Blue Value Plus. The migration of all employees to this plan is expected to be complete by fiscal year 2011. All health changes of this nature are required to be negotiated with the City’s eight collective bargaining units. As of September 2010, the City has successfully converted six of its eight collective bargaining units, as well as its “ninth” unit of management and non-union employees. The switch to the Options plan is expected to save the City between $1 million to $1.4 million, depending on the timeliness of getting all City employees migrated to the Options plan. In fiscal year 2007, the Mayor appointed herself to the Salem Retirement Board. By doing so, Mayor Driscoll has taken an active role in managing the City’s retirement system. The annual assessment from the Retirement Board to the City continues to be one of the biggest budget busters year in and year out. During fiscal year 2009, the Retirement Board moved all available funds into the State’s Public Reserve Investment Trust (PRIT) to take advantage of its higher returns and lower administrative fees. Because of its size, the PRIT can diversify assets for maximum possible return. The Retirement Board shifted these assets voluntarily to the PRIT after a complete analysis and a vote of the Retirement Board. 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. However, because of a global economic downturn, the investments of the City’s retirement funds decreased by 28% in 2008. This decrease was offset by a 15.4% increase in 2009. While this fluctuation did not have an adverse affect on either the fiscal year 2010 or fiscal year 2011 budgets (due to the fixed contribution rates set by the Salem Retirement Board’s 2008 actuarial report), it will certainly have an adverse affect on the fiscal year 2012 budget once the 2010 actuarial report considers that effect of 2008 and 2009. As of the 2009 annual report of the Public Employee Retirement Administration Commission (PERAC) report, the Salem Retirement Board’s unfunded liability is $79.4 million with a funding schedule of 2025 to be fully funded. The City of Salem represents 86% of the Salem Contributory Retirement System. Other Significant Financial Matters 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. The City has averaged $750,000 in collections over fiscal years 2008, 2009, and 2010. 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 City continues to offset the costs of solid waste collection for fiscal year 2009 by the collection of the trash fee. 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. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 9 The City is in the last year of its PILOT tax agreement with Dominion energy (fiscal year 2009-fiscal year 2011). As part of the agreement negotiated between the City and Dominion, the City receives $3 million in tax dollars within the tax levy and $1.75 million dollars as a “host fee” that is accounted for as miscellaneous non-recurring revenues. Dominion is the largest tax payer in the City, and without an agreement in place for fiscal year 2012, the City would have to bill Dominion “ad valorem”, which could present a potential liability issue if there is a disagreement on the fair cash value of the plant. As part of determining the value and future viability of the plant, the City has received a grant of $150 thousand to do a complete assessment of the plant that is scheduled to be complete by the end of 2010. Financial Policy 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 (available funds), operating budget appropriations when available, and other one time non- recurring revenues that become available for appropriation per Massachusetts General Law. In fiscal 2008, the City established a second Stabilization fund for the funding of retirement buyouts for both City and School employees. During the fiscal 2010 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 2010. It was determined that the estimated liability for fiscal 2010 would be $850,000. 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 unanticipated retirement payouts of active employees within the department that has the unanticipated retirement. This will allow the departments to backfill vacancies in a timely manner without having to request a supplemental appropriation by the Council 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. The balance for free cash has been certified for fiscal year 2010 in the amount of $1,699,065. Free cash may be used for any lawful municipal purpose and provides communities with flexibility to fund additional appropriations after the tax rate has been set. Free cash balances do not carry forward to the next fiscal year (July 1st); the Director’s certification expires on June 30th at the end of the fiscal year. The City’s policy is to use free cash for reserves, capital, and special uses in accordance with the policies set forth by the Mayor and Finance Director. Any drawdown of the Stabilization Fund from the prior fiscal year should be allocated from the certified free cash if the free cash exceeds such drawdown. 20% of any free cash available after funding a prior year drawdown will also be allocated from free cash to Stabilization Fund up to the goal of stabilization fund equaling 5% of the current operating budget of the City. 20% of any free cash available after funding a prior year drawdown of Stabilization fund will also be allocated to the Capital Improvement Fund for funding Capital. 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 ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 10 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, 2009. This was the fifth year that the City submitted a CAFR to the GFOA. In order to receive this prestigious award, a government had to publish an easily readable and efficiently organized CAFR that satisfied both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine it’s eligibility for another certificate. The GFOA also awarded a Distinguished Budget Presentation Award to the City of Salem for its budget document for the fiscal year beginning July 1, 2009. The GFOA established the Distinguished Budget Award in 1984 to encourage and assist state and local governments to prepare budget documents of the very highest quality that reflect both the guidelines established by the National Advisory Council on State and Local Budgeting and the GFOA’s recommended practices on budgeting and then to recognize individual governments that succeed in achieving that goal. Documents submitted to the Budget Awards Program are reviewed by selected members of the GFOA professional staff and by outside reviewers with experience in public-sector budgeting. The City has also submitted its budget document for fiscal year beginning July 1, 2010 for consideration of the award for the third year and has received that award. It should be noted that the Distinguished Budget Award was awarded to only nine of the 351 communities in the Commonwealth for the fiscal period beginning 2009 and that only five entities in the entire Commonwealth received both the Certificate of Achievement of Excellence in Financial Reporting and the Distinguished Budget Presentation Award in 2007. The preparation of both the CAFR and the Distinguished Budget Presentation Award would not have been possible without the efficient and dedicated services of the Finance Department’s staff. We would like to express our appreciation to all the members of the departments who assisted and contributed to the preparation of this report. Credit must also be given to the City Council and Mayor for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Salem’s finances. Respectfully submitted, Richard Viscay Finance Director ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 5626 - FAX: [PHONE REDACTED] 11 Organizational Chart ---PAGE BREAK--- City of Salem, Massachusetts 12 Comprehensive Annual Financial Report TITLE NAME FIRST TOOK OFFICE TERM EXPIRES Mayor Kimberley L. Driscoll 1/2/2006 12/31/2013 President, City Council Robert K. McCarthy 1/1/2010 12/31/2010 Finance Director Richard Viscay 3/6/2006 1/31/2012 Acting Treasurer Bonnie Celi 8/1/2010 N/A Collector Bonnie Celi 3/11/2004 1/31/2013 City Clerk Cheryl LaPointe 7/15/2004 11/9/2012 City Solicitor Elizabeth Rennard 1/10/2006 Indefinite Assistant Finance Director Nina Bridgman 1/22/2004 1/31/2012 Principal Executive Officers Principal Executive Officers ---PAGE BREAK--- City of Salem, Massachusetts 13 Comprehensive Annual Financial Report Certificate of Achievement for Excellence in Financial Reporting ---PAGE BREAK--- City of Salem, Massachusetts 14 Comprehensive Annual Financial Report Distinguished Budget Presentation Award The Government Finance Officers Association of the United States and Canada (GFOA) presented a Distinguished Budget Presentation Award to the City of Salem, Massachusetts for the Annual Budget beginning July 1, 2009. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, as an operational guide, as a financial plan, and as a communication device. This award is valid for a period of one year only. We believe our current budget continues to conform to program requirements, and we are submitting it to GFOA to determine its eligibility for another award. ---PAGE BREAK--- Financial Section Downtown Salem The Essex Street Pedestrian Mall, a shady red-bricked plaza sandwiched between rows of shops. The inventory of the corner bookstore spills onto tables out front on most days, and trolleys occasionally pass by. Young women hand out coupons and ads for nearby shops. Many tourists and locals enjoy the view of the terrace garden of the Peabody Essex Museum. Fountains at each end of the mall are a great place for people to relax and enjoy the views of historic Salem or sit on a bench and have a bite to eat. The red line of the Heritage Trail will lead visitors in and out of the area to various points of interest and history within the City. ---PAGE BREAK--- City of Salem, Massachusetts 15 Comprehensive Annual Financial Report Financial Section ---PAGE BREAK--- City of Salem, Massachusetts 16 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- 17 Independent Auditors’ Report To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of and for the fiscal year ended June 30, 2010 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2009), 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, 2010 (except for the Salem Contributory Retirement System which is as of December 31, 2009), and the respective changes in financial position and cash flows, where applicable, thereof for the fiscal year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated December 14, 2010 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. Management’s discussion and analysis, located on the following pages, and general fund schedule of revenues, expenditures and changes in fund balance – budgetary basis, other postemployment benefit plan schedule of funding progress and employer contributions, and other postemployment benefit plan actuarial methods and assumptions located after the notes to the basic financial statements, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of ---PAGE BREAK--- 18 management, regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The combining fund statements, as listed in the table of contents, are presented for the purpose of supplementary analysis and are not a required part of the basic financial statements of the City of Salem, Massachusetts. Such supplementary information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole. The introductory and statistical sections, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. December 14, 2010 ---PAGE BREAK--- City of Salem, Massachusetts 19 Comprehensive Annual Financial Report Management’s Discussion and Analysis Management’s Discussion and Analysis ---PAGE BREAK--- City of Salem, Massachusetts 20 Comprehensive Annual Financial Report Management’s Discussion and Analysis As management of the City of Salem, we offer readers of these financial statements this narrative overview and analysis of the financial activities for the fiscal year ended June 30, 2010. We encourage readers to consider the information presented in this report in conjunction with additional information that we have furnished in our letter of transmittal. The Governmental Accounting Standards Board (GASB) is the authoritative standard setting body that provides guidance on how to prepare financial statements in conformity with generally accepted accounting principles (GAAP). Users of these financial statements (such as investors and rating agencies) rely on the GASB to establish consistent reporting standards for all governments in the United States. This consistent application is the only way users (including citizens, the media, legislators and others) can assess the financial condition of one government compared to others. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City of Salem’s basic financial statements. These basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of finances, in a manner similar to private-sector business. The statement of net assets presents information on all assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position is improving or deteriorating. The statement of activities presents information showing how the government’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities include general government, public safety, education, public works, community development, health and human services, culture and recreation and interest. The business-type activities include the activities of water, sewer, parking services, trash disposal as well as the municipal golf course. The government-wide financial statements include not only the City of Salem itself (known as the primary government), but also a legally separate public employee retirement system for which the City of Salem is financially accountable. Financial information for this component unit is reported separately within the fiduciary fund statements. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Fund accounting is used to ensure and ---PAGE BREAK--- City of Salem, Massachusetts 21 Comprehensive Annual Financial Report demonstrate compliance with finance-related legal requirements. All of the funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund statements focus on near-term inflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Salem adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided as required supplementary information for the general fund to demonstrate compliance with this budget. Proprietary funds. The City maintains two types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government- wide financial statements. The City uses enterprise funds to account for its water and sewer activities, parking services, trash disposal, and for the operation of the municipal golf course. The internal service fund is used to account for the financing of services provided by one department to other departments or governmental units. This fund is used to account for risk financing activities related to retirees’ health insurance. In fiscal year 2009, the City changed to a premium based insurance plan for Medex coverage. The internal service fund will be used to account for run-out claims for liabilities incurred prior to July 1, 2008. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial 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 proprietary funds. Notes to the basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Government-wide Financial Analysis Governmental Activities As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. The City of Salem’s governmental assets exceeded liabilities by $136 million at the close of fiscal year 2010. This represents a decrease of $4.6 million from the prior fiscal year. Net assets of $147 million (108%) reflects the City’s investment in capital assets land, buildings, infrastructure, machinery, and equipment), less any related debt used to acquire those assets that are still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are ---PAGE BREAK--- City of Salem, Massachusetts 22 Comprehensive Annual Financial Report not available for future spending. Although the investment in its capital assets is reported net of its related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Invested in capital assets, net of related debt, decreased by approximately $60,000 during fiscal year 2010. 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 ($17.9) million. The primary reason for this deficit balance is the recognition of other postemployment benefit liabilities of $16.5 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 postemployment benefits to current employees and retirees. The City is allowed to amortize the liability, which totaled $171 million, over 30 years. Since there is no legal obligation to fund the liability at this time, the City has opted to continue to fund other postemployment benefits on a pay-as-you go basis. As a result, the City is required to record the difference between the current year pay-as-you go cost and the current year actuarial determined cost plus interest on any prior unfunded liability as a liability in the full accrual financial statements. This difference totaled $5.5 million for governmental activities for fiscal year 2010, which accounts for most of the $4.6 million decrease in net assets. The components of the City’s governmental activities are presented below. Fiscal 2010 Fiscal 2009 Assets: Current $ 28,277,655 $ 25,148,453 Noncurrent assets (excluding capital)…………………… 23,027,488 26,229,450 Capital 168,198,736 169,690,214 Total 219,503,879 221,068,117 Liabilities: Current liabilities (excluding 8,526,655 9,650,973 Noncurrent liabilities (excluding 24,291,434 17,267,976 Current 7,550,000 7,520,000 Noncurrent 42,837,000 45,760,000 Total liabilities………………………………………… 83,205,089 80,198,949 Net Assets: Invested in capital assets, net of related debt…………… 147,313,749 147,373,757 6,892,267 6,968,580 (17,907,226) (13,473,169) Total net 136,298,790 $ 140,869,168 Governmental Activities ---PAGE BREAK--- City of Salem, Massachusetts 23 Comprehensive Annual Financial Report Fiscal 2010 Fiscal 2009 Program revenues: Charges for 5,268,614 $ 5,623,554 Operating grants and contributions……………………… 46,352,034 43,744,124 Capital grants and contributions…………………………… 4,135,374 8,762,642 General Revenues: Real estate and personal property taxes………………… 69,067,349 66,672,653 Motor vehicle and other excise 3,092,527 2,978,961 Nonrestricted 6,583,118 8,064,486 Unrestricted investment 435,769 (35,188) Other 2,523,687 2,789,479 Total 137,458,472 138,600,711 Expenses: General 10,865,152 10,914,012 Public 26,755,783 27,421,538 83,743,843 79,410,738 Public 6,820,639 6,705,986 Community development…………………………………… 3,226,360 2,093,618 Health and human 6,622,114 6,226,498 Culture and recreation……………………………………… 3,169,224 3,228,906 1,888,315 2,396,187 Total 143,091,430 138,397,483 Excess (Deficiency) before transfers……………………… (5,632,958) 203,228 1,062,580 702,234 Change in net $ (4,570,378) $ 905,462 The governmental expenses totaled $143 million of which $55.8 million (39%) was directly supported by program revenues consisting of charges for services, operating and capital grants and contributions. Education expenses increased by $4.3 million, which was the combination of several factors. General fund expenditures increased by a modest $600,000 which was supported by an additional $1.5 million in special revenue grants. A new $60 million school was opened which increased depreciation expense by $750,000. Finally, increases in health insurance and pensions added $500,000 of costs. Community development expenses showed the largest increase of approximately 54%. This is a result of increased activity in grants and loan-to-grant programs to finance first time homebuyer and rental assistance programs and economic and community development programs. All other functional expenses remained stable due to management’s budgetary policies. General revenues totaled $81.7 million, primarily coming from property taxes, motor vehicle and other excise, and non- restricted state aid. ---PAGE BREAK--- City of Salem, Massachusetts 24 Comprehensive Annual Financial Report Business-type Activities For the City’s business-type activities, assets exceeded liabilities by $12.2 million at the close of fiscal year 2010. Fiscal 2010 Fiscal 2009 Assets: Current $ 10,362,773 $ 8,775,456 Capital 17,759,560 16,105,731 Total 28,122,333 24,881,187 Liabilities: Current liabilities (excluding 2,095,265 1,098,107 Noncurrent liabilities (excluding 911,240 456,791 Current 371,822 4,134,806 Noncurrent 12,577,280 5,881,102 Total liabilities………………………………………… 15,955,607 11,570,806 Net Assets: Invested in capital assets, net of related debt…………… 6,301,944 6,939,001 5,864,782 6,371,380 Total net $ 12,166,726 $ 13,310,381 Business-type Activities Business-type net assets of $6.3 million (52%) represent investments in capital assets net of related debt. The remaining $5.9 million (48%) is available to be used for the ongoing operation of the City’s water, sewer, parking, trash and municipal golf course activities. There was a decrease of $1.1 million in net assets reported in connection with the enterprise funds. The water enterprise fund’s net assets of $1.4 million (29%) represent the investment in capital assets net of related debt, while $3.5 million (71%) is unrestricted. The water department experienced a net decrease of $522,000 in net assets from the prior year. The water fund pays an annual assessment to the Salem Beverly Water Supply Board, which totaled $2.2 million, or 54% of the funds expenses for fiscal year 2010. The change in net assets resulted from a combination of a planned use of reserves and increases in accrued liabilities. The sewer enterprise fund’s net assets of $407,000 (15%) represent the investment in capital assets net of related debt, and $2.4 million (85%) is unrestricted. The unrestricted balance includes the City’s $371,000 equity interest in the South Essex Sewerage District. The sewer department operations experienced a net decrease of $540,000 during the current fiscal year. Approximately 82% of the expenses in the sewer fund consist of the annual assessments paid to the South Essex Sewerage District. The change in net assets resulted from the combination of a planned use of reserves and increases in accrued liabilities. The golf course enterprise fund’s net assets of $373,000 (67%) represent the investment in capital assets while $187,000 (33%) is unrestricted. Overall, revenues and expenses both increased at the golf course during fiscal year 2010. The operation experienced an overall decrease in net assets of $1,300 during the fiscal year. ---PAGE BREAK--- City of Salem, Massachusetts 25 Comprehensive Annual Financial Report The parking enterprise fund’s net assets of $4.1 million represent the investment in capital assets net of related debt while a deficit balance of $254,000 is reported as unrestricted. The parking operations experienced a net decrease of $125,000 during fiscal year 2010, which is consistent with prior years, and is mostly attributable to recording depreciation on previously purchased capital assets totaling approximately $230,000. The City reports this fee-for-service activity as an enterprise fund however any cash based surplus generated is transferred back to the general fund to support City programs. In fiscal year 2010, $1.3 million was transferred back to the general fund. Consequently, the amounts remaining in the enterprise fund at year end represent non-current assets and liabilities and the assets and liabilities related to the enterprise funds capital construction projects. During fiscal year 2008, the City voted to establish a trash enterprise fund. The City’s trash enterprise fund operates on a trash fee that is set with full knowledge that the revenue will not be sufficient to cover the cost of operations. The City budgets for a subsidy from the general fund equal to the cash basis deficit in the fund at year end. At fiscal year-end a $1.9 million transfer was made from the general fund to cover the deficit. As of June 30, 2010, the trash fund had unrestricted net assets of $82,000. Fiscal 2010 Fiscal 2009 Program revenues: Charges for $ 15,490,202 $ 14,715,349 Capital grants and contributions………………………… 41,820 43,796 Total 15,532,022 14,759,145 Expenses: Cost of service and administration……………………… 6,372,368 5,717,758 District 8,323,119 8,591,925 572,250 527,748 345,360 393,541 Total 15,613,097 15,230,972 Excess (Deficiency) before transfers……………………… (81,075) (471,827) (1,062,580) (702,234) Change in net $ (1,143,655) $ (1,174,061) 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 $15.9 million of which $1.6 million is reported in the general fund, $1.9 million is reported in the stabilization major fund, ---PAGE BREAK--- City of Salem, Massachusetts 26 Comprehensive Annual Financial Report $2.9 is reported in the school capital projects major fund, and $9.4 million is reported in the nonmajor governmental funds. Cumulatively there was an increase of $5.3 million in fund balances from the prior year. The general fund is the City’s chief operating fund. At the end of the current fiscal year, unreserved fund balance of the general fund totaled $1.2 million, while total fund balance was $1.6 million. The general fund balance increased by $511,000 in fiscal year 2010. The majority of this increase relates to an increase in local receipts due to the City’s adoption of the meals tax at the beginning of the fiscal year and an increase in parking fees and fines. 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 $424,000 in fiscal 2010, due to investment earnings and a $410,000 budgeted transfer in from the general fund. The school capital projects fund is used to account for the City’s ongoing major school construction projects. The fund increased by $2.2 million in fiscal 2010 as the City recognized $2.7 million in grant proceeds related to school renovation projects during fiscal year 2010. Cumulatively, nonmajor governmental funds had a net increase of $2.2 million. This represents the activity of other nonmajor capital projects, grants, and permanent trust funds. The fiscal year 2010 increase was almost entirely the result of the timing of expenditures on capital projects, such as roads and sidewalks and the issuance of long term debt. General Fund Budgetary Highlights The $2.2 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 notable components of this increase include an additional $1 million in tax revenues appropriated to fund education, health insurance, and tax foreclosure services; and $1 million in available funds (free cash) appropriated to fund stabilization reserves, capital improvements, and various additional appropriations. The actual general fund revenues came in $521,000 higher than budgeted. The City does not budget revenue for tax liens which totaled $450,000. Additionally, fines and forfeitures reported a budgetary surplus of $316,000 which was the result of a decrease in estimated receipts during the budget process. Due to recent budget cuts, most departments ended the year with a minimal amount of unspent funds. State and county assessments were higher than anticipated by $37,000, which mainly related to the special education assessments. The City’s snow and ice removal account ended the year in a deficit of $256,000, which is allowable under state law. This deficit is required to be funded in the subsequent year’s tax levy. The City’s debt service interest line was under budget by $842,000 due to changes in interest payments for fiscal year 2010 resulting from the refunding of debt. 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, 2010, amounts to $186 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 $4.7 million for governmental activities and $2.2 million for business-type activities. The City also transferred $61.1 million, mostly relating to school building projects, from construction in progress to depreciable assets as projects were completed in governmental activities. ---PAGE BREAK--- City of Salem, Massachusetts 27 Comprehensive Annual Financial Report Debt Administration. Outstanding long-term debt of the general government, as of June 30, 2010, totaled $50,387,000, of which $43,815,100 is related to school projects, leaving a balance of $1,982,900 for other CIP related projects and $4,589,000 for capital improvements. 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, 2010 the City has recorded a receivable from the MSBA of $26 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. During fiscal year 2010, the City took advantage of favorable interest rates by refinancing debt related to school construction, a swimming pool, and the golf course. The savings will be recognized by lower net payments over the life of the new refunding bonds. Outstanding debt of the water, sewer, golf and parking enterprise funds totaled $10,381,000, $1,641,000, $202,000 and $725,000, respectively, and funded various repairs, maintenance and infrastructure projects. Please refer to notes 4, 6, 7 and 8 in the financial statements for further discussion of the major capital and debt activity. Requests for Information This financial report is designed to provide a general overview of the City of Salem’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Finance Director, City Hall, 93 Washington Street, Salem, Massachusetts 01970. ---PAGE BREAK--- City of Salem, Massachusetts 28 Comprehensive Annual Financial Report Basic Financial Statements Basic Financial Statements ---PAGE BREAK--- STATEMENT OF NET ASSETS JUNE 30, 2010 Primary Government Governmental Business-type Activities Activities Total ASSETS CURRENT: Cash and cash equivalents……………………………… $ 15,824,345 $ 6,750,796 $ 22,575,141 3,988,569 - 3,988,569 Receivables, net of allowance for uncollectibles: Real estate and personal property taxes…………… 1,221,040 - 1,221,040 Tax 1,082,021 - 1,082,021 Motor vehicle and other excise taxes………………… 538,292 - 538,292 User - 3,132,048 3,132,048 Trash - 108,980 108,980 Intergovernmental……………………………………… 5,440,484 - 5,440,484 182,904 - 182,904 Investment in joint - 370,949 370,949 Total current 28,277,655 10,362,773 38,640,428 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental……………………………………… 22,594,798 - 22,594,798 432,690 - 432,690 Capital assets, non depreciable………………………… 5,241,718 1,776,182 7,017,900 Capital assets, net of accumulated depreciation……… 162,957,018 15,983,378 178,940,396 Total noncurrent 191,226,224 17,759,560 208,985,784 TOTAL 219,503,879 28,122,333 247,626,212 LIABILITIES CURRENT: Warrants 562,892 1,568,522 2,131,414 Accrued 1,032,006 302,415 1,334,421 Accrued 3,506,377 26,967 3,533,344 Tax refunds 411,901 - 411,901 Accrued 975,654 140,123 1,115,777 Capital lease obligations…………………………………… 113,033 - 113,033 Compensated 1,841,075 57,238 1,898,313 Workers' compensation…………………………………… 83,717 - 83,717 Bonds and notes 7,550,000 371,822 7,921,822 Total current liabilities………………………………… 16,076,655 2,467,087 18,543,742 NONCURRENT: Capital lease obligations…………………………………… 203,999 - 203,999 Landfill 500,000 - 500,000 Compensated 6,343,025 267,831 6,610,856 Other postemployment benefits………………………… 16,515,995 643,409 17,159,404 Workers' compensation…………………………………… 728,415 - 728,415 Bonds and notes 42,837,000 12,577,280 55,414,280 Total noncurrent liabilities……………………………… 67,128,434 13,488,520 80,616,954 TOTAL 83,205,089 15,955,607 99,160,696 NET ASSETS Invested in capital assets, net of related debt……………… 147,313,749 6,301,944 153,615,693 Restricted for: 615,594 - 615,594 Permanent funds: 2,783,655 - 2,783,655 Nonexpendable………………………………………… 1,689,176 - 1,689,176 Grants and 1,803,842 - 1,803,842 (17,907,226) 5,864,782 (12,042,444) TOTAL NET $ 136,298,790 $ 12,166,726 $ 148,465,516 See notes to basic financial statements. City of Salem, Massachusetts 29 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES FISCAL YEAR ENDED JUNE 30, 2010 Operating Capital Charges for Grants and Grants and Net (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Primary Government: Governmental Activities: General government……………… $ 10,865,152 $ 736,908 $ 277,052 $ 832,323 $ (9,018,869) Public safety……………………… 26,755,783 2,074,324 341,869 - (24,339,590) Education…………………………… 83,743,843 1,370,250 35,187,247 2,725,905 (44,460,441) Public 6,820,639 166,937 86,299 577,146 (5,990,257) Community development………… 3,226,360 9,836 3,676,846 - 460,322 Health and human services……… 6,622,114 150,736 5,515,780 - (955,598) Culture and recreation…………… 3,169,224 759,623 89,898 - (2,319,703) Interest……………………………… 1,888,315 - 1,177,043 - (711,272) Total Governmental Activities… 143,091,430 5,268,614 46,352,034 4,135,374 (87,335,408) Business-Type Activities: 4,395,607 4,511,916 - 41,820 158,129 7,400,431 7,610,195 - - 209,764 Golf 399,023 589,345 - - 190,322 844,615 2,038,235 - - 1,193,620 2,573,421 740,511 - - (1,832,910) Total Business-Type Activities… 15,613,097 15,490,202 - 41,820 (81,075) Total Primary Government………$ 158,704,527 $ 20,758,816 $ 46,352,034 $ 4,177,194 $ (87,416,483) See notes to basic financial statements. (Continued) Program Revenues City of Salem, Massachusetts 30 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES (Continued) FISCAL YEAR ENDED JUNE 30, 2010 Governmental Business-Type Activities Activities Total Changes in net assets: Net (expense) revenue from previous page…………… $ (87,335,408) $ (81,075) $ (87,416,483) General revenues: Real estate and personal property taxes, net of tax refunds payable………………………… 69,067,349 - 69,067,349 Tax 234,353 - 234,353 Motor vehicle and other excise taxes……………… 3,092,527 - 3,092,527 Hotel/motel 294,214 - 294,214 Penalties and interest on 437,361 - 437,361 Payments in lieu of 1,307,078 - 1,307,078 Grants and contributions not restricted to specific 6,583,118 - 6,583,118 Unrestricted investment income…………………… 435,769 - 435,769 Miscellaneous………………………………………… 250,681 - 250,681 Transfers, net 1,062,580 (1,062,580) - Total general revenues and transfers………………… 82,765,030 (1,062,580) 81,702,450 Change in net (4,570,378) (1,143,655) (5,714,033) Net Assets: Beginning of 140,869,168 13,310,381 154,179,549 End of $ 136,298,790 $ 12,166,726 $ 148,465,516 (Concluded) Primary Government City of Salem, Massachusetts 31 Comprehensive Annual Financial Report ---PAGE BREAK--- School Nonmajor Total Capital Governmental Governmental ASSETS General Stabilization Projects Funds Funds Cash and cash $ 5,289,959 $ 1,913,913 $ 2,930,717 $ 5,671,942 $ 15,806,531 - - - 3,988,569 3,988,569 Receivables, net of uncollectibles: Real estate and personal property 1,221,040 - - - 1,221,040 Tax 1,082,021 - - - 1,082,021 Motor vehicle and other excise 538,292 - - - 538,292 Intergovernmental……………………………………………………… 26,533,062 - - 1,502,220 28,035,282 - - - 615,594 615,594 Due from other - - - 100,968 100,968 TOTAL 34,664,374 $ 1,913,913 $ 2,930,717 $ 11,879,293 $ 51,388,297 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants $ 44,186 $ - $ - $ 518,706 $ 562,892 Accrued 1,032,006 - - - 1,032,006 Accrued 3,266,956 - - 239,421 3,506,377 Tax refunds 411,901 - - - 411,901 Accrued interest on short-term 43,390 - - - 43,390 Deferred 28,233,016 - - 1,603,088 29,836,104 Due to other - - - 100,968 100,968 TOTAL 33,031,455 - - 2,462,183 35,493,638 FUND BALANCES: Reserved for: Encumbrances and continuing appropriations…………………… 421,825 - - - 421,825 Perpetual permanent - - - 1,689,176 1,689,176 Unreserved: Undesignated, reported in: General 1,211,094 - - - 1,211,094 Special revenue - 1,913,913 - 3,905,789 5,819,702 Capital projects - - 2,930,717 1,038,490 3,969,207 Permanent - - - 2,783,655 2,783,655 TOTAL FUND 1,632,919 1,913,913 2,930,717 9,417,110 15,894,659 TOTAL LIABILITIES AND FUND BALANCES………………………… $ 34,664,374 $ 1,913,913 $ 2,930,717 $ 11,879,293 $ 51,388,297 See notes to basic financial statements. GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2010 City of Salem, Massachusetts 32 Comprehensive Annual Financial Report ---PAGE BREAK--- RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET ASSETS JUNE 30, 2010 Total governmental fund $ 15,894,659 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the 168,198,736 Accounts receivable are not available to pay for current-period expenditures and, therefore, are deferred in the 29,836,104 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 17,814 In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until (932,264) Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds Bonds and notes (50,387,000) Landfill (500,000) Workers' (812,132) Capital (317,032) Compensated (8,184,100) Other postemployment (16,515,995) Net effect of reporting long-term (76,716,259) Net assets of governmental $ 136,298,790 See notes to basic financial statements. City of Salem, Massachusetts 33 Comprehensive Annual Financial Report ---PAGE BREAK--- GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2010 School Nonmajor Total Capital Governmental Governmental General Stabilization Projects Funds Funds REVENUES: Real estate and personal property taxes, net of tax $ 68,747,759 $ - $ - $ - $ 68,747,759 Tax 449,935 - - - 449,935 Motor vehicle and other excise 3,007,759 - - - 3,007,759 Hotel/motel 294,214 - - - 294,214 Charges for 1,190,514 - - 67,130 1,257,644 Penalties and interest on 437,361 - - - 437,361 Payments in lieu of 1,307,078 - - - 1,307,078 Licenses and 567,733 - - - 567,733 Fines and 1,266,267 - - - 1,266,267 Intergovernmental…………………………………………………… 36,907,119 - 2,725,906 20,215,320 59,848,345 Departmental and 177,484 - - 2,274,199 2,451,683 - - - 479,888 479,888 Investment 62,904 13,970 - 359,812 436,686 TOTAL 114,416,127 13,970 2,725,906 23,396,349 140,552,352 EXPENDITURES: Current: General 4,526,661 - - 1,899,117 6,425,778 Public 15,527,593 - - 863,505 16,391,098 47,315,210 - 516,919 10,751,260 58,583,389 Public 2,622,215 - - 2,103,451 4,725,666 Community development………………………………………… - - - 3,958,870 3,958,870 Health and human 745,139 - - 5,436,448 6,181,587 Culture and 1,768,739 - - 1,072,040 2,840,779 Pension 16,770,835 - - - 16,770,835 Employee 11,077,682 - - - 11,077,682 State and county 6,655,890 - - - 6,655,890 Debt service: 4,495,000 - - 890,000 5,385,000 2,051,969 - - 35,059 2,087,028 TOTAL EXPENDITURES……………………………………… 113,556,933 - 516,919 27,009,750 141,083,602 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES………………………………… 859,194 13,970 2,208,987 (3,613,401) (531,250) OTHER FINANCING SOURCES (USES): Issuance of bonds and - - - 4,589,000 4,589,000 Issuance of refunding 11,043,000 - - - 11,043,000 Premium from issuance of refunding 575,986 - - - 575,986 Refunding bonds (2,930,000) - - - (2,930,000) Payments to refunded bond escrow (8,512,010) - - - (8,512,010) Capital lease 43,500 - - - 43,500 Transfers 3,835,406 410,036 - 1,915,155 6,160,597 Transfers (4,404,033) - - (693,984) (5,098,017) TOTAL OTHER FINANCING SOURCES (USES)………… (348,151) 410,036 - 5,810,171 5,872,056 NET CHANGE IN FUND BALANCES……………………………… 511,043 424,006 2,208,987 2,196,770 5,340,806 FUND BALANCES AT BEGINNING OF 1,121,876 1,489,907 721,730 7,220,340 10,553,853 FUND BALANCES AT END OF 1,632,919 $ 1,913,913 $ 2,930,717 $ 9,417,110 $ 15,894,659 See notes to basic financial statements. City of Salem, Massachusetts 34 Comprehensive Annual Financial Report ---PAGE BREAK--- RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FISCAL YEAR ENDED JUNE 30, 2010 Net change in fund balances - total governmental $ 5,340,806 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 4,654,814 Depreciation (6,146,292) Net effect of reporting capital (1,491,478) Revenues in the Statement of Activities that do not provide current financial resources are fully deferred in the Statement of Revenues, Expenditures and Changes in Fund Balances. Therefore, the recognition of revenue for various types of accounts receivable real estate and personal property, motor vehicle excise, etc.) differ between the two statements. This amount represents the net change in deferred (2,962,850) 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 257,239 Capital lease (43,500) Issuance of bonds and (4,589,000) Debt service principal 5,385,000 Net effect of reporting long-term 1,009,739 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 (328,617) Net change in landfill liability (500,000) Net change in workers' (326,205) Net change in accrued interest on long-term 21,737 Net change in other postemployment (5,463,914) Net effect of recording long-term liabilities and amortizing deferred losses……………… (6,596,999) 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……………… 130,404 Change in net assets of governmental $ (4,570,378) See notes to basic financial statements. City of Salem, Massachusetts 35 Comprehensive Annual Financial Report ---PAGE BREAK--- Governmental Activities - Golf Internal Service Water Sewer Course Parking Trash Total Funds ASSETS CURRENT: Cash and cash equivalents……………………………$ 5,547,018 $ 643,810 $ 327,208 $ 14,984 $ 217,776 $ 6,750,796 $ 17,814 Receivables, net of allowance for uncollectibles: User 1,235,104 1,896,944 - - - 3,132,048 - Trash - - - - 108,980 108,980 - Investment in joint - 370,949 - - - 370,949 - Total current 6,782,122 2,911,703 327,208 14,984 326,756 10,362,773 17,814 NONCURRENT: Capital assets, non depreciable……………………… 1,510,349 99,552 118,067 48,214 - 1,776,182 - Capital assets, net of accumulated depreciation…… 9,015,610 1,755,813 456,952 4,755,003 - 15,983,378 - Total noncurrent 10,525,959 1,855,365 575,019 4,803,217 - 17,759,560 - TOTAL 17,308,081 4,767,068 902,227 4,818,201 326,756 28,122,333 17,814 LIABILITIES CURRENT: Warrants 1,568,522 - - - - 1,568,522 - Accrued liabilities……………………………………… 49,416 44,099 - - 208,900 302,415 - Accrued 13,756 12,239 - - 972 26,967 - Accrued 98,686 16,410 8,408 16,619 - 140,123 - Compensated absences……………………………… 11,059 11,059 11,747 23,373 - 57,238 - Bonds and notes 266,822 - 30,000 75,000 - 371,822 - Total current liabilities…………………………… 2,008,261 83,807 50,155 114,992 209,872 2,467,087 - NONCURRENT: Compensated absences……………………………… 111,676 111,676 34,935 9,544 - 267,831 - Other postemployment benefits obligation………… 159,409 159,117 85,183 204,437 35,263 643,409 - Bonds and notes 10,114,280 1,641,000 172,000 650,000 - 12,577,280 - Total noncurrent liabilities……………………… 10,385,365 1,911,793 292,118 863,981 35,263 13,488,520 - TOTAL LIABILITIES……………………………………… 12,393,626 1,995,600 342,273 978,973 245,135 15,955,607 - NET ASSETS Invested in capital assets, net of related debt………… 1,429,224 406,500 373,019 4,093,201 - 6,301,944 - Unrestricted……………………………………………… 3,485,231 2,364,968 186,935 (253,973) 81,621 5,864,782 17,814 TOTAL NET 4,914,455 $ 2,771,468 $ 559,954 $ 3,839,228 $ 81,621 $ 12,166,726 $ 17,814 See notes to basic financial statements. Business-type Activities - Enterprise Funds PROPRIETARY FUNDS STATEMENT OF NET ASSETS JUNE 30, 2010 City of Salem, Massachusetts 36 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS FISCAL YEAR ENDED JUNE 30, 2010 Business-type Activities - Enterprise Funds Governmental Activities - Golf Internal Service Water Sewer Course Parking Trash Total Funds OPERATING REVENUES: Employer contributions $ - $ - $ - $ - $ - $ - $ 112,591 Charges for services 4,511,916 7,250,195 589,345 2,038,235 740,511 15,130,202 - Intergovernmental………………………………………… - 360,000 - - - 360,000 - - - - - - - 17,813 TOTAL OPERATING REVENUES 4,511,916 7,610,195 589,345 2,038,235 740,511 15,490,202 130,404 OPERATING EXPENSES: Cost of services and administration 1,631,757 1,236,023 349,911 581,256 2,573,421 6,372,368 - District Assessment……………………………………… 2,241,401 6,081,718 - - - 8,323,119 - Depreciation……………………………………………… 248,606 55,000 38,148 230,496 - 572,250 - TOTAL OPERATING EXPENSES 4,121,764 7,372,741 388,059 811,752 2,573,421 15,267,737 - OPERATING INCOME 390,152 237,454 201,286 1,226,483 (1,832,910) 222,465 130,404 NONOPERATING REVENUES (EXPENSES): Interest (273,843) (27,690) (10,964) (32,863) - (345,360) - Intergovernmental………………………………………… 41,820 - - - - 41,820 - TOTAL NONOPERATING REVENUES (EXPENSES), (232,023) (27,690) (10,964) (32,863) - (303,540) - INCOME (LOSS) BEFORE TRANSFERS………… 158,129 209,764 190,322 1,193,620 (1,832,910) (81,075) 130,404 TRANSFERS: Transfers - - 355,763 - 1,877,504 2,233,267 - Transfers (680,125) (749,940) (547,405) (1,318,377) - (3,295,847) - TOTAL TRANSFERS………………………………… (680,125) (749,940) (191,642) (1,318,377) 1,877,504 (1,062,580) - CHANGE IN NET (521,996) (540,176) (1,320) (124,757) 44,594 (1,143,655) 130,404 NET ASSETS AT BEGINNING OF 5,436,451 3,311,644 561,274 3,963,985 37,027 13,310,381 (112,590) NET ASSETS AT END OF $ 4,914,455 $ 2,771,468 $ 559,954 $ 3,839,228 $ 81,621 $ 12,166,726 $ 17,814 See notes to basic financial statements. City of Salem, Massachusetts 37 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FISCAL YEAR ENDED JUNE 30, 2010 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 $ 4,270,968 $ 7,170,497 $ 589,345 $ 2,038,235 $ 764,190 $ 14,833,235 $ - Receipts from interfund services - - - - - - 130,404 Receipts from other - 360,000 - - - 360,000 - Payments to (3,381,255) (6,636,976) (125,552) (105,135) (2,537,767) (12,786,685) - Payments to (363,042) (348,291) (194,118) (413,578) (24,281) (1,343,310) - Payments for interfund services - - - - - - (304,917) NET CASH FROM OPERATING ACTIVITIES…………………………………… 526,671 545,230 269,675 1,519,522 (1,797,858) 1,063,240 (174,513) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers - - 355,763 - 1,877,504 2,233,267 - Transfers (680,125) (749,940) (547,405) (1,318,377) - (3,295,847) - NET CASH FROM NONCAPITAL FINANCING ACTIVITIES…………………… (680,125) (749,940) (191,642) (1,318,377) 1,877,504 (1,062,580) - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from the issuance of bonds and 7,389,000 1,641,000 - - - 9,030,000 - Acquisition and construction of capital (348,251) (698,075) - (93,657) - (1,139,983) - Principal payments on bonds and (5,053,806) (940,000) (28,000) (75,000) - (6,096,806) - Interest (269,583) (33,840) (8,093) (32,488) - (344,004) - NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES……… 1,717,360 (30,915) (36,093) (201,145) - 1,449,207 - NET CHANGE IN CASH AND CASH EQUIVALENTS…………………………… 1,563,906 (235,625) 41,940 - 79,646 1,449,867 (174,513) CASH AND CASH EQUIVALENTS AT BEGINNING OF 3,983,112 879,435 285,268 14,984 138,130 5,300,929 192,327 CASH AND CASH EQUIVALENTS AT END OF $ 5,547,018 $ 643,810 $ 327,208 $ 14,984 $ 217,776 $ 6,750,796 $ 17,814 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income 390,152 $ 237,454 $ 201,286 $ 1,226,483 $ (1,832,910) $ 222,465 $ 130,404 Adjustments to reconcile operating income (loss) to net cash from operating activities: 248,606 55,000 38,148 230,496 - 572,250 - Changes in assets and liabilities: User (240,948) (79,698) - - - (320,646) - Trash - - - - (1,683) (1,683) - Investment in joint - 159,517 - - - 159,517 - Departmental and - - - - 25,362 25,362 - Warrants 17,290 - - - - 17,290 - Accrued (69,288) (4,540) - - 3,761 (70,067) - Accrued 2,298 (1,064) - - (836) 398 - Health claims - - - - - - (304,917) Other postemployment 73,772 73,772 28,830 69,191 8,448 254,013 - Accrued compensated 104,789 104,789 1,411 (6,648) - 204,341 - Total 136,519 307,776 68,389 293,039 35,052 840,775 (304,917) NET CASH FROM OPERATING ACTIVITIES…………………………………… $ 526,671 $ 545,230 $ 269,675 $ 1,519,522 $ (1,797,858) $ 1,063,240 $ (174,513) See notes to basic financial statements. City of Salem, Massachusetts 38 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2010 Pension Trust Fund Private (as of December Purpose Agency 31, 2009) Trust Funds Fund ASSETS Cash and cash equivalents…………………………………… $ 6,023,739 $ 203,599 $ 778,528 Investments: Corporate - 1,032,251 - Real estate and alternative investment mutual funds… 1,470,216 - - 75,342,608 - - Receivables, net of allowance for uncollectibles: Departmental and 433,276 - - NONCURRENT: Capital assets, net of accumulated depreciation…………… 110,156 - - TOTAL 83,379,995 1,235,850 778,528 LIABILITIES Warrants 7,719 - 51,680 Liabilities due depositors……………………………………… - - 726,848 TOTAL 7,719 - 778,528 NET ASSETS Held in trust for pension benefits and other purposes…… $ 83,372,276 $ 1,235,850 $ - See notes to basic financial statements. City of Salem, Massachusetts 39 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FISCAL YEAR ENDED JUNE 30, 2010 Pension Trust Fund Private (as of December Purpose 31, 2009) Trust Funds ADDITIONS: Contributions: $ 9,628,758 $ - Plan 3,075,565 - Private - 4,765 Total 12,704,323 4,765 Net investment income: Net change in fair value of 8,870,179 55,749 2,320,825 303 Total investment 11,191,004 56,052 Less: investment (429,564) - Net investment 10,761,440 56,052 327,757 - Transfers from other 225,373 - TOTAL 24,018,893 60,817 DEDUCTIONS: 241,547 - Transfers to other 155,418 - Retirement benefits and 12,443,057 - Educational - 24,210 Housing - 101,428 3,125 - TOTAL 12,843,147 125,638 CHANGE IN NET 11,175,746 (64,821) NET ASSETS AT BEGINNING OF 72,196,530 1,300,671 NET ASSETS AT END OF 83,372,276 $ 1,235,850 See notes to basic financial statements. City of Salem, Massachusetts 40 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 41 Comprehensive Annual Financial Report NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Notes to basic financial statements The accompanying basic financial statements of the City of Salem, Massachusetts (the City) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board (GASB) is the recognized standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described herein. A. Reporting Entity The City is a Massachusetts municipal corporation with a Mayor-Council form of government. The Mayor is elected at large for a four-year term. The City Council is comprised of eleven members elected for two-year terms from seven wards and four at-large. For financial reporting purposes, the City has included all funds, organizations, agencies, boards, commissions and institutions. The City has also considered all potential component units for which it is financially accountable as well as other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the basic financial statements to be misleading or incomplete. As required by GAAP, these basic financial statements present the City (the primary government) and its component units. One entity has been included as a component unit in the reporting entity, because of the significance of its operational and/or financial relationship. Blended Component Units – Blended component units are entities that are legally separate from the City, but are so related that they are, in substance, the same as the City, or entities providing services entirely or almost entirely for the benefit of the City. The following component unit is blended within the Fiduciary Funds of the primary government: The Salem Contributory Retirement System (the System) was established to provide retirement benefits to City employees, the Salem Housing Authority employees, the South Essex Sewerage District employees, the Salem- Beverly Water Supply Board employees, the North Shore Regional Vocational School employees and their beneficiaries. The System is governed by a five-member board comprised of the Finance Director (ex-officio), two members elected by the System’s participants, one member appointed by the Mayor and one member appointed by the other board members. The System is presented using the accrual basis of accounting and is reported as a pension trust fund in the fiduciary fund financial statements. The System did not issue a separate audited financial statement. The System issues a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth of Massachusetts’ (Commonwealth) Public Employee Retirement Administration Commission (PERAC). That report may be obtained by contacting the System located at 20 Central Street, Suite 110, Salem, Massachusetts 01970. The City is a member of the South Essex Sewerage District (the District), a joint venture with the Cities of Salem and Beverly and the Towns of Danvers and Marblehead, for the operation of a septage disposal facility. The members share in overseeing the operations of the District. Each member is responsible for its proportionate share of the operational costs of the District, which are paid in the form of assessments. As of June 30, 2010, the City’s equity interest in the operations of the District totaled $370,949, which is recorded in the Sewer Enterprise Fund. Complete financial statements for the District can be obtained by contacting them at 50 Fort Avenue, Salem, MA 01970. The City is a member of the Salem-Beverly Water Supply Board (Water Board), a joint venture with the City of Beverly for the operation of a water distribution system. The City does not have an equity interest in the Salem- Beverly Water Supply Board. The annual assessment from the Water Board for the fiscal year ended June 30, ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 42 Comprehensive Annual Financial Report 2010 totaled approximately $2,241,000. Complete financial information for the Water Board can be obtained by contacting them at 50 Arlington Avenue, Beverly, MA 01915. B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The government-wide financial statements statement of net assets and the statement of changes in net assets) report information on all of the non-fiduciary activities of the primary government and its component units. Governmental activities, which are primarily supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which are supported primarily by user fees and charges. Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Nonmajor funds are aggregated and displayed in a single column. Major Fund Criteria Major funds must be reported if the following criteria are met: • If the total assets, liabilities, revenues, or expenditures/expenses of an individual governmental or enterprise fund are at least 10% of the corresponding element (assets, liabilities, etc.) for all funds of that category or type (total governmental or total enterprise funds), and • If the total assets, liabilities, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5% of the corresponding element for all governmental and enterprise funds combined. Additionally, any other governmental or enterprise fund that management believes is particularly significant to the basic financial statements may be reported as a major fund. Internal service funds and fiduciary funds are reported by fund type. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Real estate and personal property taxes are recognized as revenues in the fiscal year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The statement of activities demonstrates the degree to which the direct expenses of a particular function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include the following: ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 43 Comprehensive Annual Financial Report • Charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment. • Grants and contributions that are restricted to meeting the operational requirements of a particular function or segment. • Grants and contributions that are restricted to meeting the capital requirements of a particular function or segment. Taxes and other items not identifiable as program revenues are reported as general revenues. For the most part, the effect of interfund activity has been removed from the government-wide financial statements. However, the effect of interfund services provided and used between functions is not eliminated as the elimination of these charges would distort the direct costs and program revenues reported for the functions affected. Fund Financial Statements Governmental fund financial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual when measurable and available). Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with current expendable available resources. Real estate and personal property tax revenues are considered available if they are collected within 60 days after fiscal year-end. Investment income is susceptible to accrual. Other receipts and tax revenues become measurable and available when the cash is received and are recognized as revenue at that time. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria is met. Expenditure driven grants recognize revenue when the qualifying expenditures are incurred and all other grant requirements are met. The following major governmental funds are reported: The general fund is the primary operating fund. It is used to account for all financial resources, except those that are required to be accounted for in another fund. The 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. 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: ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 44 Comprehensive Annual Financial Report 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 except for the Agency Fund, which has no measurement focus. Fiduciary funds are used to account for assets held in a trustee capacity for others that cannot be used to support the governmental programs. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 45 Comprehensive Annual Financial Report The following fiduciary fund types are reported: The pension trust fund is used to account for the activities of the System, which accumulates resources to provide pension benefits to eligible retirees and their beneficiaries. The private-purpose trust fund is used to account for trust arrangements that exclusively benefit individuals, private organizations, or other governments. Some of these trusts have donor restrictions and trustee policies that do not allow the endowment portion and any unrealized appreciation to be spent. The donor restrictions and trustee policies only allow the trustees to authorize spending of the realized investment earnings. The City’s educational scholarships and housing subsidy trust funds are accounted for in this fund. The agency fund is used to account for assets held in a purely custodial capacity. The City’s agency funds consist primarily of payroll withholdings, police and fire details, escrow deposits and unclaimed property. Government-Wide and Fund Financial Statements Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The government has elected not to follow subsequent private-sector guidance. D. Cash and Investments Government-Wide and Fund Financial Statements Cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with an original maturity of three months or less from the date of acquisition. Investments are carried at fair value. The fair values were determined by the closing price for those securities traded on national stock exchanges and at the average bid-and-asked quotation for those securities traded in the over-the-counter market. Investments that do not have an established market are reported at estimated fair values. E. Accounts Receivable Government-Wide and Fund Financial Statements The recognition of revenue related to accounts receivable reported in the government-wide financial statements and the proprietary funds and fiduciary funds financial statements are reported under the accrual basis of accounting. The recognition of revenue related to accounts receivable reported in the governmental funds financial statements are reported under the modified accrual basis of accounting. Real Estate, Personal Property Taxes, Tax Liens and Tax Foreclosures Real estate and personal property taxes are levied and based on values assessed on January 1st of every year. Assessed values are established by the Board of Assessor’s for 100% of the estimated fair market value. Taxes are due on August 1st, November 1st, February 1st and May 1st and are subject to penalties and interest if they are not paid by the respective due date. Real estate and personal property taxes levied are recorded as receivables in the fiscal year of the levy. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 46 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 user fees which includes liening any unpaid balance plus interest to the corresponding real estate tax bills. Trash user fees are levied based on the number of units located on the property. The per unit fee collected is $24 for commercial and $16 for residential. Collection from any one property shall not exceed $100. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 47 Comprehensive Annual Financial Report Intergovernmental Various federal and state grants for operating and capital purposes are applied for and received annually. For non-expenditure driven grants, receivables are recorded as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred and all other grant requirements are met. These receivables are considered 100% collectible and therefore do not report an allowance for uncollectibles. Loans Loan receivables are comprised of funds advanced to small businesses and developers under various Urban Development Action Grants (UDAG) and Community Development Block Grants (CDBG). The City loans funds to owners of commercial and residential properties for the purpose of rehabilitating these properties. The City receives funding for these loans from the U.S Department of Housing and Urban Development (HUD) under Community Development Block Grant (CDBG) programs for the City. These loans are repaid to the City under various terms and conditions stipulated by each loan agreement. The loan repayments may be used by the City for any eligible activity relevant to the community development program. F. Inventories 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. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 48 Comprehensive Annual Financial Report Capital assets (excluding land and construction in progress) are depreciated on a straight-line basis. The estimated useful lives of capital assets are as follows: Estimated Useful Life (in years) Land improvements…………………………… 20-30 Buildings and improvements…………….…… 40 5-10 5-15 Infrastructure…………………………………… 15-80 Capital Asset Type The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized and are treated as expenses when incurred. Improvements are capitalized. Governmental Fund Financial Statements Capital asset costs are recorded as expenditures in the acquiring fund in the fiscal year of the purchase. H. Interfund Receivables and Payables During the course of its operations, transactions occur between and within individual funds that may result in amounts owed between funds. 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”. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 49 Comprehensive Annual Financial Report Fund Financial Statements Transfers between and within funds are not eliminated from the individual fund statements and are reported as transfers in and transfers out. J. Deferred Revenue Deferred revenue at the governmental fund financial statement level represents billed receivables that do not meet the available criterion in accordance with the current financial resources measurement focus and the modified accrual basis of accounting. Deferred revenue is recognized as revenue in the conversion to the government-wide (full accrual) financial statements. K. Net Assets and Fund Equity Government-Wide Financial Statements (Net Assets) Net assets reported as “invested in capital assets, net of related debt” includes capital assets, net of accumulated depreciation, less the principal balance of outstanding debt used to acquire capital assets. Unspent proceeds of capital related debt are not considered to be capital assets. Outstanding debt related to future reimbursements from the state’s school building program is not considered to be capital related debt. Net assets are reported as restricted when amounts 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. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 50 Comprehensive Annual Financial Report “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. M. Investment Income Excluding the permanent funds, investment income derived from major and nonmajor governmental funds is legally assigned to the general fund unless otherwise directed by Massachusetts General Law (MGL). Investment income of the enterprise funds is voluntarily assigned to the general fund. N. Compensated Absences Employees are granted vacation and sick leave in varying amounts based on collective bargaining agreements, state laws and executive policies. Compensated absence liabilities related to both governmental and business- type activities are normally paid from the funds reporting payroll and related expenditures. Government-Wide and Proprietary Fund Financial Statements Vested or accumulated vacation and sick leave are reported as liabilities and expensed as incurred. Governmental Fund Financial Statements Vested or accumulated vacation and sick leave, which will be liquidated with expendable available financial resources, are reported as expenditures and fund liabilities upon maturity of the liability. O. Fund Deficits and Appropriation Deficits Individual fund deficit existed at June 30, 2010 in the other capital project funds. This deficit will be funded by grants, departmental revenues and available fund balance. Actual expenditures exceeded appropriations for snow and ice and state and county charges. These over- expenditures will be funded through available funds during fiscal year 2011. In the snow and ice removal appropriation line, the general law allows deficits to occur and to be raised in the subsequent fiscal year. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 51 Comprehensive Annual Financial Report P. Use of Estimates Government-Wide and Fund Financial Statements The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the fiscal year. Actual results could vary from estimates that were used. Q. Total Column Government-Wide Financial Statements The total column presented on the government-wide financial statements represents consolidated financial information. Fund Financial Statements The total column on the fund financial statements is presented only to facilitate financial analysis. Data in this column is not the equivalent of consolidated financial information. NOTE 2 – CASH AND INVESTMENTS A cash and investment pool is maintained that is available for use by all funds. Each fund type's portion of this pool is displayed on the balance sheet as "cash and cash equivalents". The deposits and investments of the trust funds are held separately from those of other funds. Statutes authorize the investment in obligations of the U.S. Treasury, agencies, and instrumentalities, certificates of deposit, repurchase agreements, money market accounts, bank deposits and the State Treasurer's Investment Pool (the Pool). The Treasurer and Trust Fund Commission may also invest trust funds in securities, other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth; provided, that not more than 15% of any trust fund may be invested in bank stocks and insurance company stocks, and not more than 1½% of any trust fund can be invested in the stock of any one bank or insurance company. The Pool meets the criteria of an external investment pool. The Pool is administered by the Massachusetts Municipal Depository Trust (MMDT), which was established by the Treasurer of the Commonwealth who serves as Trustee. The fair value of the position in the Pool is the same as the value of the Pool shares. The 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. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 52 Basic Financial Statements Custodial Credit Risk – Deposits In the case of deposits, this is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. The City does not have a formal deposit policy for custodial credit risk. At fiscal year-end, the carrying amount of deposits totaled $15,950,579 and the bank balance totaled $18,305,625. Of the bank balance, $1,314,922 was covered by Federal Depository Insurance, $3,078,786 was covered by the FDIC Transaction Account Guarantee Program, $1,694,659 was covered by the Depositors Insurance Fund, and $12,217,258 was exposed to custodial credit risk because it was uninsured and uncollateralized. The System does not have a formal deposit policy for custodial credit risk. At fiscal year-end, the carrying amount of deposits totaled $267,067 and the bank balance totaled $300,000. The entire bank balance was covered by Federal Depository Insurance. Investments As of June 30, 2010, the City had the following investments: Maturity Fair Value 1-5 Years Investment Type Debt Securities: Corporate 1,079,876 $ 1,079,876 Other Investments: Equity 2,533,935 Equity Mutual 502,155 Bond Mutual 501,491 International Emerging Market Mutual Funds…… 403,363 Money Market Mutual 546,786 7,059,903 Total 12,627,509 As of December 31, 2009, the System had the following investments: Maturity Fair Value Under 1 Year Investment Type Debt Securities: Repurchase Agreements……………………………$ 5,261,752 $ 5,261,752 Other Investments: Government Short-term Investment Funds………… 494,920 Venture Capital and Limited Partnerships............. 879,761 Real Estate Investment 590,455 Pension Reserve Investment Trust (PRIT)………… 75,342,608 Total 82,569,496 The City participates in MMDT, which maintains a cash portfolio and a short-term bond portfolio with combined average maturities of approximately 3 months. Credit ratings associated with the City’s investment in MMDT ranged from A1/P1 to unrated; with approximately 98% rated A1/P1 and approximately 2% rated A2/P2. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 53 Basic Financial Statements The System participates in PRIT. The effective weighted duration rate for PRIT investments ranged from .08 to 8.58 years. Custodial Credit Risk – Investments For an investment, this is the risk that, in the event of a failure by the counterparty, the City will not be able to recover the value of its investments or collateral security that are in the possession of an outside party. Of the City’s investments, $1,079,876 in corporate bonds, and $2,533,935 in equity securities are exposed to custodial credit risk because the related securities are uninsured, unregistered and are held by the counterparty. The City has a formal investment policy related to custodial credit risk to invest in U.S Treasuries, U.S. Agency obligations and fully collateralized certificates of deposit and in addition any investments not meeting this criteria is limited to no more than 5% of an institution’s assets and no more than 10% of the municipality’s cash. The System’s investments are not subject to custodial credit risk as all of the securities are insured or registered, and held by its agents in the name of the Salem Contributory Retirement Board. Interest Rate Risk The City has a formal investment policy limiting investment maturities up to one year as a means of managing its exposure to fair value losses arising from increasing interest rates. The System does not have a formal investment policy related to interest rate risk. Credit Risk The City has not adopted a formal policy related to Credit Risk. The investment ratings are as follows: Fair Value AA A Unrated Debt Securities: Corporate $ 1,079,876 $ 276,097 $ 793,904 $ 9,875 Rating The System has not adopted a formal policy related to Credit Risk. The alternate investment mutual funds, real estate mutual fund investments and PRIT are unrated. Concentration of Credit Risk The City restricts investments in any one issuer to no more than 5% in any one issuer. The City did not have more than 5% of its investments in any one individual security. The retirement system places no limit on the amount the government may invest in any one issuer. The System did not have more than 5% of its investments in any one individual security. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 54 Basic Financial Statements NOTE 3 – RECEIVABLES At June 30, 2010, receivables for the individual major governmental funds, non-major governmental funds and internal service funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Real estate and personal property $ 1,221,040 $ - $ 1,221,040 Tax 1,082,021 - 1,082,021 Motor vehicle and other excise 941,014 (402,722) 538,292 Intergovernmental……………………………………………… 28,035,282 - 28,035,282 878,864 (263,270) 615,594 $ 32,158,221 $ (665,992) $ 31,492,229 At June 30, 2010, receivables for the water, sewer and trash enterprise funds consist of the following: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Water user $ 1,235,104 $ - $ 1,235,104 Sewer user 1,896,944 - 1,896,944 Trash 108,980 - 108,980 $ 3,241,028 $ - $ 3,241,028 Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. At the end of the current fiscal year, the various components of deferred revenue reported in the governmental funds were as follows: Other General Governmental Fund Funds Total Receivable type: Real estate and personal property $ 762,865 $ - $ 762,865 Tax 1,082,021 - 1,082,021 Motor vehicle and other excise 538,292 - 538,292 Intergovernmental……………………………………………… 25,849,838 987,494 26,837,332 - 615,594 615,594 $ 28,233,016 $ 1,603,088 $ 29,836,104 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 55 Basic Financial Statements NOTE 4 – CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2010, was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: $ 4,724,892 $ - $ - $ 4,724,892 Construction in 61,152,601 480,396 (61,116,171) 516,826 Total capital assets not being depreciated………… 65,877,493 480,396 (61,116,171) 5,241,718 Capital assets being depreciated: Land improvements………………………………………… 3,461,505 1,512,084 - 4,973,589 Buildings and improvements……………………………… 110,256,867 61,009,540 (32,560) 171,233,847 8,171,101 1,309,039 (140,174) 9,339,966 Infrastructure………………………………………………… 53,701,589 1,346,419 - 55,048,008 5,815,512 113,507 (324,825) 5,604,194 Total capital assets being depreciated……………… 181,406,574 65,290,589 (497,559) 246,199,604 Less accumulated depreciation for: Land improvements………………………………………… (1,583,750) (159,303) - (1,743,053) Buildings and improvements……………………………… (41,514,296) (3,559,678) 32,560 (45,041,414) (3,940,747) (602,754) 140,174 (4,403,327) Infrastructure………………………………………………… (26,310,987) (1,494,047) - (27,805,034) (4,244,073) (330,510) 324,825 (4,249,758) Total accumulated depreciation……………………… (77,593,853) (6,146,292) 497,559 (83,242,586) Total capital assets being depreciated, 103,812,721 59,144,297 - 162,957,018 Total governmental activities capital assets………………… $ 169,690,214 $ 59,624,693 $ (61,116,171) $ 168,198,736 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 56 Basic Financial Statements Beginning Ending Balance Increases Decreases Balance Water Activities: Capital assets not being depreciated: $ 10,589 $ - $ - $ 10,589 Construction in - 1,499,760 - 1,499,760 Total capital assets not being depreciated………… 10,589 1,499,760 - 1,510,349 Capital assets being depreciated: Land improvements………………………………………… 114,550 - - 114,550 296,290 - - 296,290 48,794 - - 48,794 Infrastructure………………………………………………… 14,746,038 355,012 - 15,101,050 Total capital assets being depreciated……………… 15,205,672 355,012 - 15,560,684 Less accumulated depreciation for: Land improvements………………………………………… (42,957) (5,728) - (48,685) (53,572) (29,629) - (83,201) (14,638) (9,759) - (24,397) Infrastructure………………………………………………… (6,185,301) (203,490) - (6,388,791) Total accumulated depreciation……………………… (6,296,468) (248,606) - (6,545,074) Total capital assets being depreciated, 8,909,204 106,406 - 9,015,610 Total water activities capital 8,919,793 $ 1,606,166 $ - $ 10,525,959 Beginning Ending Balance Increases Decreases Balance Sewer Activities: Capital assets not being depreciated: $ 99,552 $ - $ - $ 99,552 Capital assets being depreciated: Buildings and improvements……………………………… 5,425 - - 5,425 48,796 - - 48,796 Infrastructure………………………………………………… 2,598,254 277,650 - 2,875,904 Total capital assets being depreciated……………… 2,652,475 277,650 - 2,930,125 Less accumulated depreciation for: Buildings and improvements……………………………… (5,358) (68) - (5,426) (14,639) (9,759) - (24,398) Infrastructure………………………………………………… (1,099,315) (45,173) - (1,144,488) Total accumulated depreciation……………………… (1,119,312) (55,000) - (1,174,312) Total capital assets being depreciated, 1,533,163 222,650 - 1,755,813 Total sewer activities capital 1,632,715 $ 222,650 $ - $ 1,855,365 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 57 Basic Financial Statements 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 - - 453,988 342,233 - (5,000) 337,233 Total capital assets being depreciated……………… 1,109,073 - (5,000) 1,104,073 Less accumulated depreciation for: Land improvements………………………………………… (302,644) (1,201) - (303,845) Buildings and improvements……………………………… (118,488) (11,000) - (129,488) (192,841) (25,947) 5,000 (213,788) Total accumulated depreciation……………………… (613,973) (38,148) 5,000 (647,121) Total capital assets being depreciated, 495,100 (38,148) - 456,952 Total golf course activities capital assets…………………… $ 613,167 $ (38,148) $ - $ 575,019 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 68,705 - 73,805 Infrastructure………………………………………………… - 24,952 - 24,952 Total capital assets being depreciated……………… 8,968,566 93,657 - 9,062,223 Less accumulated depreciation for: Land improvements………………………………………… (141,353) (33,500) - (174,853) Buildings and improvements……………………………… (3,930,271) (191,066) - (4,121,337) (5,100) (3,435) - (8,535) Infrastructure………………………………………………… - (2,495) - (2,495) Total accumulated depreciation……………………… (4,076,724) (230,496) - (4,307,220) Total capital assets being depreciated, 4,891,842 (136,839) - 4,755,003 Total parking activities capital 4,940,056 $ (136,839) $ - $ 4,803,217 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 58 Basic Financial Statements In the fiduciary activities, the Retirement System owns a condominium, which is being depreciated on a straight- line basis over 40 years. The historical cost of the condominium was $125,000; accumulated depreciation through December 31, 2009 totals $14,844, for a net book value of $110,156. Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General 369,974 Public 507,574 3,447,711 Public 1,659,222 Health and human 3,435 Culture and 158,376 Total depreciation expense - governmental activities……………………………… $ 6,146,292 Business-Type Activities: $ 248,606 55,000 Golf 38,148 230,496 Total depreciation expense - business-type activities……………………………… $ 572,250 Fiduciary Activities: Pension $ 3,125 NOTE 5 – INTERFUND TRANSFERS AND BALANCES Interfund transfers for the fiscal year ended June 30, 2010, are summarized as follows: Golf Course Trash Nonmajor General Stabilization Enterprise Enterprise Governmental Transfers Out: Fund Fund Fund Fund Funds Total General $ - $ 410,036 $ 355,763 $ 1,877,504 $ 1,760,730 $ 4,404,033 Nonmajor Governmental Funds…… 539,559 - - - 154,425 693,984 Parking Enterprise Fund…………… 1,318,377 - - - - 1,318,377 Golf Course Enterprise Fund……… 547,405 - - - - 547,405 Sewer Enterprise Fund……………… 749,940 - - - - 749,940 Water Enterprise Fund……………… 680,125 - - - - 680,125 3,835,406 $ 410,036 $ 355,763 $ 1,877,504 $ 1,915,155 $ 8,393,864 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 general fund to nonmajor for the retirement of the school funding deficit loan. 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, 2010 consisted of $100,968 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, 2010 City of Salem, Massachusetts 59 Basic Financial Statements NOTE 6 – CAPITAL AND OPERATING LEASES The City has entered into lease agreements as lessee for financing the acquisition of a fire truck, radio equipment, police vehicles, school buses, and computer hardware and software. These lease agreements qualify as capital leases for accounting purposes and therefore, have been recorded at the present value of their future minimum lease payments as of the inception date. The assets acquired through capital leases are as follows: Governmental Activities Asset: Machinery and equipment………………………………… $ 590,937 823,653 Less: accumulated depreciation…………………………… (341,285) 1,073,305 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2010, were as follows: Fiscal Years Governmental Ending June 30 Activities 129,402 129,402 57,264 57,264 Total minimum lease payments……………………… 373,332 Less: amounts representing interest………………… (56,300) Present value of minimum lease payments………… $ 317,032 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, 2010, totaled $360,000, and is reported as a general government expenditure in the general fund. The future minimum lease payments for the City’s operating lease are as follows: Fiscal Years Governmental Ending June 30 Activities 240,000 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 60 Basic Financial Statements NOTE 7 – SHORT-TERM FINANCING Short-term debt may be authorized and issued to fund the following: • Current operating costs prior to the collection of revenues through issuance of revenue or tax anticipation notes (RANS or TANS). • Capital project costs and other approved expenditures incurred prior to obtaining permanent financing through issuance of bond anticipation notes (BANS) or grant anticipation notes (GANS). Short-term loans are general obligations and carry maturity dates that are limited by statute. Interest expenditures and expenses for short-term borrowings are accounted for in the general fund and enterprise funds, respectively. Details related to the short-term debt activity for the fiscal year ended June 30, 2010, are as follows: Governmental Activities Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose Due Date 2009 Issued Redeemed 2010 BAN Departmental Vehicles and Equipment………… 3.60% 10/23/09 $ 2,135,000 $ - $ 2,135,000 $ - Business-type activities BAN Water Improvements…………………………… 3.60% 10/23/09 1,825,000 - 1,825,000 - BAN Water Improvements…………………………… 1.50% 10/22/10 - 36,000 - 36,000 BAN Sewer Improvements…………………………… 3.60% 10/23/09 940,000 - 940,000 - Sub-total business-type notes………………… 2,765,000 36,000 2,765,000 36,000 Total notes $ 4,900,000 $ 36,000 $ 4,900,000 $ 36,000 The City had $4,589,000 of governmental BANs, $5,389,000 of water BANs and $1,641,000 of sewer BANs outstanding at June 30, 2010 classified as long-term debt as these BANs were refinanced subsequent to year end by the issuance of long-term debt. This transaction is more fully explained in Note 8. NOTE 8 – LONG-TERM DEBT Under the provisions of Chapter 44, Section 10, Municipal Law authorizes indebtedness up to a limit of 5% of the equalized valuation. Debt issued in accordance with this section of the law is designated as being "inside the debt limit". In addition, however, debt may be authorized in excess of that limit for specific purposes. Such debt, when issued, is designated as being "outside the debt limit". Subsequent to year end, the City issued $15,373,000 of long-term debt. The proceeds of this debt were used to retire $4,589,000 of governmental BANs, $5,389,000 of water BANs and $1,641,000 of sewer BANs outstanding at June 30, 2010. The remaining $3,754,000 of proceeds is allocated for $1,630,000 in governmental expenditures, $2,075.000 in water expenditures and $49,000 in sewer expenditures. During fiscal year 2010, the City also issued $8,285,000 of General Obligation Refunding Bonds to refund, on a current basis $1,470,000, and on an advance basis $6,775,000 of outstanding debt related to school construction, a swimming pool, and the golf course. The proceeds of the Refunding Bonds were placed in an irrevocable trust ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 61 Basic Financial Statements to provide for all future debt service payments on the refunded bonds. Accordingly, the trust account’s assets and liabilities for the defeased bonds are not included in the basic financial statements. Through this refunding, the City has decreased its aggregate debt service payments by $881,061 and will experience an economic gain of $876,634. A portion of this savings, once determined, will be offset by a decrease in future reimbursements of interest costs from the MSBA. As of June 30, 2010, $6,775,000 of the refunded bonds are considered defeased. Details related to the outstanding general obligation indebtedness at June 30, 2010, 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 2009 Issued Redeemed 2010 School Construction………………………… 2.25-6.75% $ 44,866,000 $ - $ 12,052,000 $ 32,814,000 HUD Section 9.00% 210,000 - 35,000 175,000 Swimming 4.50-6.75% 120,000 - 80,000 40,000 Police 3.50-4.00% 879,000 - 293,000 586,000 Police Equipment…………………………… 3.50-4.00% 570,000 - 85,000 485,000 Ferry 3.50-4.00% 715,000 - 60,000 655,000 School Deficit Funding 3.60% 855,000 - 855,000 - School Long-term 3.60% 2,930,000 2,930,000 2,930,000 2,930,000 Refunding Bond 2.00-5.00% - 8,071,100 - 8,071,100 Swimming Pool Refunding…………………… 2.00-5.00% - 41,900 - 41,900 Capital Improvements……………………… 3.00-4.00% - 4,589,000 - 4,589,000 TotalGovernmental bonds payable………… $ 51,145,000 $ 15,632,000 $ 16,390,000 50,387,000 General obligation bonds issued October 15, 2010 (see 1,630,000 $ 52,017,000 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 62 Basic Financial Statements Debt service requirements for principal and interest for Governmental bonds payable include the debt issuance subsequent to year in which all but $1,630,000 of new funds were used to redeem long-term BANs. The future fiscal years payments are as follows: Fiscal Year Principal Interest Total 7,550,000 $ 1,976,982 $ 9,526,982 4,817,000 1,728,255 6,545,255 3,934,000 1,574,987 5,508,987 4,075,000 1,416,845 5,491,845 3,570,000 1,267,240 4,837,240 3,585,000 1,139,421 4,724,421 3,406,000 1,010,431 4,416,431 3,485,000 877,842 4,362,842 3,585,000 739,816 4,324,816 3,680,000 581,378 4,261,378 2,755,000 433,078 3,188,078 2,545,000 319,678 2,864,678 2,620,000 206,446 2,826,446 660,000 87,782 747,782 660,000 60,879 720,879 410,000 36,462 446,462 340,000 21,038 361,038 340,000 7,013 347,013 52,017,000 $ 13,485,573 $ 65,502,573 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. 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 matured on October 23, 2009, at which time the City retired the balance with available funds. The City had $2,930,000 in school long-term bans and $1,000,000 in water long-term BANs outstanding on July 1, 2009 which were refinanced during the fiscal year and have been classified as a current refunding of debt. The current refunding did not have an economic gain or loss. 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 2010, $4,369,000 of such assistance was received. Approximately $33,743,000 will be received in future fiscal years. Of the $33,742,000, $7,893,000 represents reimbursement of long-term interest costs, and $25,850,000 represents reimbursement of approved construction costs. Accordingly, a $25,850,000 intergovernmental receivable and corresponding deferred revenue have been reported in the governmental fund financial statements. Deferred revenue has been eliminated in the conversion to the government-wide financial statements and reported as net assets. The City received long-term loan proceeds from the Massachusetts Water Pollution Abatement Trust (MWPAT). MWPAT makes subsidized loans available to local governments to finance the costs of eligible water pollution ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 63 Basic Financial Statements abatement projects. The stated interest rate on the MWPAT loan is and the interest has been recorded at an implied rate of Bonds and Notes Payable Schedule – Water Enterprise Fund Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2009 Issued Redeemed 2010 Water Project - 2.00% $ 2,140,908 $ - $ 99,806 $ 2,041,102 Water 3.75-5.00% 3,080,000 - 165,000 2,915,000 Water System Long-term 3.60% 1,000,000 - 1,000,000 - Water System Improvements……………… 3.00-4.00% - 5,389,000 - 5,389,000 Total Water Enterprise $ 6,220,908 $ 5,389,000 $ 1,264,806 10,345,102 General obligation bonds issued October 15, 2010 (see 2,075,000 $ 12,420,102 Debt service requirements for principal and interest for water enterprise bonds payable include the debt issuance subsequent to year in which all but $2,075,000 of new funds were used to redeem long-term BANs. The future fiscal years payments are as follows: Fiscal Year Principal Interest Total 266,822 $ 262,078 $ 528,900 2012……………… 712,880 417,169 1,130,049 2013……………… 710,978 393,561 1,104,539 2014……………… 713,119 370,795 1,083,914 2015……………… 715,303 348,811 1,064,114 2016……………… 717,532 326,989 1,044,521 2017……………… 719,805 302,922 1,022,727 2018……………… 717,124 276,502 993,626 2019……………… 719,490 250,135 969,625 2020……………… 721,904 223,721 945,625 2021……………… 724,367 197,259 921,626 2022……………… 726,880 170,747 897,627 2023……………… 729,443 144,184 873,627 2024……………… 727,058 117,669 844,727 2025……………… 729,726 91,101 820,827 2026……………… 727,447 64,479 791,926 2027……………… 530,224 41,902 572,126 2028……………… 390,000 24,700 414,700 2029……………… 230,000 12,200 242,200 2030……………… 95,000 5,700 100,700 2031……………… 95,000 1,900 96,900 Total………………$ 12,420,102 $ 4,044,524 $ 16,464,626 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 64 Basic Financial Statements Bonds and Notes Payable Schedule – Sewer Enterprise Fund Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2009 Issued Redeemed 2010 Sewer Improvements………………………… 3.00-4.00% $ - $ 1,641,000 $ - $ 1,641,000 General obligation bonds issued October 15, 2010 (see 49,000 $ 1,690,000 Debt service requirements for principal and interest for sewer enterprise bonds payable include the debt issuance subsequent to year in which all but $49,000 of new funds were used to redeem long-term BANs. The future fiscal years payments are as follows: Fiscal Year Principal Interest Total - 23,686 23,686 105,000 $ 61,125 $ 166,125 2013……………… 100,000 58,050 158,050 2014……………… 95,000 55,125 150,125 2015……………… 95,000 52,275 147,275 2016……………… 95,000 49,425 144,425 2017……………… 95,000 46,100 141,100 2018……………… 95,000 42,300 137,300 2019……………… 95,000 38,500 133,500 2020……………… 95,000 34,700 129,700 2021……………… 90,000 31,000 121,000 2022……………… 85,000 27,500 112,500 2023……………… 85,000 24,100 109,100 2024……………… 85,000 20,700 105,700 2025……………… 85,000 17,300 102,300 2026……………… 85,000 13,900 98,900 2027……………… 85,000 10,500 95,500 2028……………… 85,000 7,100 92,100 2029……………… 85,000 3,700 88,700 2030……………… 50,000 1,000 51,000 Total………………$ 1,690,000 $ 618,086 $ 2,308,086 Bonds and Notes Payable Schedule – Golf Course Enterprise Fund Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2009 Issued Redeemed 2010 Golf 4.50-6.75% $ 230,000 $ - $ 200,000 $ 30,000 Refunding Bond 2.00-5.00% - 172,000 - 172,000 Total Golf Course Enterprise bonds $ 230,000 $ 172,000 $ 200,000 $ 202,000 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 65 Basic Financial Statements 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 $ 6,305 $ 36,305 2012……………… 32,000 4,810 36,810 2013……………… 31,000 4,180 35,180 2014……………… 30,000 3,120 33,120 2015……………… 30,000 1,920 31,920 2016……………… 30,000 1,020 31,020 2017……………… 19,000 285 19,285 Total………………$ 202,000 $ 21,640 $ 223,640 Bonds and Notes Payable Schedule – Parking Enterprise Fund Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2009 Issued Redeemed 2010 Parking Garage Repairs…………………… 3.00-5.00% $ 800,000 $ - $ 75,000 $ 725,000 Debt service requirements for principal and interest for the parking enterprise fund bonds payable in future fiscal years are as follows: Fiscal Year Principal Interest Total 75,000 $ 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………………$ 725,000 $ 162,538 $ 887,538 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 66 Basic Financial Statements 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, 2010, the City had the following authorized and unissued debt: Purpose Amount School Construction…………………… $ 101,032 Water Systems Improvements………… 4,328,208 Water 2,075,000 3,409,000 Refunding 1,215,000 $ 11,128,240 Changes in Long-term Liabilities During the fiscal year ended June 30, 2010, the following changes occurred in long-term liabilities: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities: Capital $ 530,771 $ 43,500 $ (257,239) $ 317,032 $ 113,033 Long-term bonds and 51,145,000 15,632,000 (16,390,000) 50,387,000 7,550,000 Compensated absences……………………………… 7,855,483 2,297,230 (1,968,613) 8,184,100 1,841,075 Landfill - 500,000 - 500,000 - Workers' compensation……..………………………… 485,927 466,129 (139,924) 812,132 83,717 Other postemployment benefits……………………… 11,052,081 10,592,474 (5,128,560) 16,515,995 - Total governmental activity long-term liabilities……………………………………$ 71,069,262 $ 29,531,333 $ (23,884,336) $ 76,716,259 $ 9,587,825 Business-Type Activities: Long-term bonds and $ 7,250,908 $ 7,202,000 $ (1,539,806) $ 12,913,102 $ 371,822 Compensated absences……………………………… 120,728 257,674 (53,333) 325,069 57,238 Other postemployment benefits……………………… 389,396 412,648 (158,635) 643,409 - Total business-type activity long-term liabilities……………………………………$ 7,761,032 $ 7,872,322 $ (1,751,774) $ 13,881,580 $ 429,060 Compensated absence and workers’ compensation liabilities related to both governmental and business-type activities are normally paid from the funds reporting payroll and related expenditures, which consist of the general fund and the sewer, water, golf, parking, and trash enterprise funds. NOTE 9 – RISK FINANCING The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the City carries commercial insurance. The amount of claim settlements has not exceeded insurance coverage in any of the previous three fiscal years. The City participates in premium-based health care plans for its active employees. As of July 1, 2008, the City changed to a premium based plan for Medex coverage. The remaining claims that were incurred prior to July 1, 2008 are accounted for in the City’s internal service fund where revenues are recorded when earned and expenses are recorded when the liability is incurred. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 67 Basic Financial Statements As of July 1, 2008 the City changed to a premium based plan for workers’ compensation coverage. The remaining claims that were incurred prior to July 1, 2008 are accounted for in the funds incurring the expenditures. 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, 2010, the City did not record an estimated future liability for unreported claims. The prior year remaining claims were settled during the fiscal year. Changes in the City’s liability since July 1, 2008, when the City was self-insured for Medex coverage only, are as follows: Current Year Balance at Claims and Balance at Beginning of Changes in Claim Fiscal Current Fiscal Year Estimate Payments Year-End Portion Fiscal Year 2009………. $ 136,011 $ 296,236 $ (127,330) $ 304,917 $ 304,917 Fiscal Year 2010………. 304,917 - (304,917) - - 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, 2010, the amount of the liability for workers’ compensation claims totaled $812,132. Changes in the reported liability since July 1, 2008, 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 2009………. $ 540,015 $ 279,702 $ (425,275) $ 394,442 $ 139,924 Fiscal Year 2010………. 394,442 663,363 (245,673) 812,132 83,717 NOTE 10 – PENSION PLAN Plan Description - The City contributes to the System, a cost-sharing multiple-employer defined benefit pension plan administered by the Salem Contributory Retirement Board. Substantially all employees are members of the System, except for public school teachers and certain administrators who are members of the Massachusetts Teachers Retirement System, to which the City does not contribute. Pension benefits and administrative expenses paid by the Teachers Retirement Board are the legal responsibility of the Commonwealth. The amount of these on-behalf payments totaled $8,602,000 for the fiscal year ended June 30, 2010, and, accordingly, are reported in the general fund as intergovernmental revenues and pension expenditures. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 68 Basic Financial Statements The System provides retirement, disability and death benefits to plan members and beneficiaries. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the plan. Cost-of-living adjustments granted between 1981 and 1997 and any increase in other benefits imposed by the Commonwealth’s state law during those years are borne by the Commonwealth and are deposited into the pension fund. Cost-of-living adjustments granted after 1997 must be approved by the Salem Contributory Retirement Board and are borne by the System. The System issues a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth’s PERAC. That report may be obtained by contacting the System located at 20 Central Street, Salem, Massachusetts 01970. At December 31, 2009, the System’s membership consists of the following: Active 845 Inactive 178 Retirees and beneficiaries currently receiving benefits……… 588 1,611 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, 2010, 2009, and 2008, were $8,233,450, $7,952,910, and $7,693,291, respectively, which equaled its required contribution for each fiscal year. The required contribution was determined as part of the January 1, 2010, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included an inflation rate of 8.25% investment rate of return and projected salary increases of 5% per year. The actuarial value of the System's assets was determined using the fair value of the assets. The System's unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll. The remaining closed amortization period at January 1, 2010 was 20 years. Schedule of Funding Progress Actuarial UAAL as a Actuarial Accrued Unfunded Percentage Actuarial Value of Liability (AAL) AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (B-A) (A/B) 01/01/10 $ 100,046,731 $ 193,470,036 $ 93,423,305 51.7% $ 34,583,002 270.1% 01/01/08 99,988,471 179,382,299 79,393,828 55.7% 34,410,002 230.7% 01/01/06 84,796,044 166,958,606 82,162,562 50.8% 32,824,144 250.3% 01/01/05 81,801,377 156,479,479 74,678,102 52.3% 31,328,083 238.4% 01/01/04 80,659,012 142,499,185 61,840,173 56.6% 29,355,291 210.7% 01/01/03 76,438,885 137,111,559 60,672,674 55.7% 31,089,195 195.2% 01/01/01 73,727,923 117,334,727 43,606,804 62.8% 29,072,197 150.0% 01/01/99 68,563,143 111,294,953 42,731,810 61.6% 25,411,629 168.2% ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 69 Basic Financial Statements 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. The schedule of progress, presented as required supplementary information, following the notes to the basic financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Additionally, the schedule of employer contributions, presented as required supplementary information, following the notes to the basic financial statements, presents multiyear trend information for required and actual contributions relating to the cost- sharing plan as a whole, of which the City is one participating employer, as well as the City’s proportionate share of the plan’s annual contributions. This information is designed to be helpful for understanding the scale of the information presented relative to the City. 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. As of fiscal year 2010, the amount of noncontributory pension totaled approximately $100,000. NOTE 11 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Plan Description – The City of Salem administers a single-employer defined benefit healthcare plan (“the Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s group health insurance plan, which covers both active and retired members. Chapter 32b of the MGL assigns authority to establish and amend benefit provisions of the plan. Benefit provisions are negotiated between the City and the unions representing City employees and are renegotiated each bargaining period. The Retiree Health Plan does not issue a publicly available financial report. Additionally, retired teachers and their spouses receive health insurance through the Group Insurance Commission of the Commonwealth of Massachusetts (GIC). Each participating municipality is assessed for the governmental share of health and life insurance premiums paid on behalf of its teacher retirees by the state. The employer’s share is 90% of the total premium; the retiree's co-payment is 10% of the total premium as well as full payment for catastrophic illness coverage. The City’s assessment of the employer’s share by the GIC, for retired teachers, for fiscal year 2010, totaled $2,018,668. Funding Policy – Contribution requirements are also negotiated between the City and union representatives. The required contribution is based on a pay-as-you-go financing requirement. The City contributes 70% of the cost of current-year premiums for retirees in active plans and 65% for those in senior plans. The City contributes 50% for surviving spouses. The City will contribute 65% in fiscal year 2011 and fiscal year 2012 for retirees in active plans. Plan members receiving benefits contribute the remainder of their premium costs. For fiscal year 2010, the City contributed $3,268,525 to the plan, and total member contributions totaled $1,320,202. Annual OPEB Cost and Net OPEB Obligation – The City’s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 70 Basic Financial Statements The components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s net OPEB obligation are summarized in the following table: Annual required contribution……………………………………$ 10,869,698 Interest on net OPEB obligation……………………………… 572,074 Adjustments to annual required contribution………………… (436,650) Annual OPEB cost 11,005,122 Contributions made (including retired teachers)……………… (5,287,195) Increase in net OPEB obligation……………………………… 5,717,927 Net OPEB obligation-beginning of 11,441,477 Net OPEB obligation-end of 17,159,404 The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal years 2009 and 2010 are as follows: Percentage of Fiscal Year Annual Annual OPEB Net OPEB Ended OPEB Cost Cost Contributed Obligation 6/30/2010 $ 11,005,122 48% $ 17,159,404 6/30/2009 11,129,465 61% 11,441,477 Funded Status and Funding Progress – As of December 31, 2009, the most recent actuarial valuation date, the actuarial accrued liability for benefits totaled $171 million, all of which was unfunded. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions – Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the December 31, 2009, actuarial valuation, actuarial liabilities were determined using the projected unit credit cost method. The actuarial assumptions included a 5% investment return assumption, which is based on the expected yield on the assets of the City, calculated based on the funded level of the plan at the valuation date, and an annual medical/drug cost trend rate of 10% initially, graded to 5% over 7 years. Both rates included a 4.0% inflation assumption. The UAAL is being amortized over an open 30 year period using a level percentage of projected payroll with amortization payments increasing at 4% per year. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 71 Basic Financial Statements NOTE 12 – 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 covered 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 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. In fiscal 2009, the City and the taxpayer 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 2011, in the form of annual tax payments of $3,000,000, and annual additional contributions of $1,750,000. NOTE 13 – ENVIRONMENTAL REMEDIATION LIABILITY State and federal laws and regulations require the City to construct a final capping system on its inactive landfill site, the Salem Transfer Station, when it stops accepting waste and to perform certain maintenance and monitoring functions at the site after closure. The City has stopped accepting ash and closed the site. The City is the owner and permittee of the Salem Transfer Station, while Northside Carting, Inc. operated the facility. The City has completed a preliminary study in order to estimate the cost of the landfill closure and post closure care costs which will be paid for equally by the City and the operator. As a result, the estimate of $1 million has been recorded as a liability in the amount of $500,000 (representing 50% of the shared cost) in the entity-wide financial statements. Actual costs may be higher due to inflation, changes in technology, or changes in applicable laws, regulations or agreements. NOTE 14 – COMMITMENTS The City entered into contracts totaling approximately $3,684,000. Of this amount, $738,000 relates to the water main cleaning and lining, $1,810,000 relates to the furnish and delivery of water meters, $691,000 relates to the installation of water meters and AMR equipment, $75,000 relates to LED traffic signal retrofit, $150,000 relates to traffic signal improvements and $220,000 relates to the Dove Ave. culvert replacement. Additionally, the City is in the process of executing contracts of $200,000 for the re-use of the Salem Harbor Power Station Site and $561,000 for roadway pavement services. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 72 Basic Financial Statements 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, 2010, 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, 2010, cannot be ascertained, management believes any resulting liability should not materially affect the financial position at June 30, 2010. NOTE 16 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During fiscal year 2010, the following GASB pronouncements were implemented: • The GASB issued Statement #57, OPEB Measurements by Agent Employers and Agent Multiple- Employer Plans. The standards in this statement permits an agent employer that has an individual employer OPEB plan with fewer than 100 members to use an alternative measurement method to produce actuarially based information for purposes of financial reporting, regardless of the number of total plan members in the agent multiple-employer OPEB plan in which it participates. Management elected to implement this standard early and this standard did not impact the basic financial statements. • GASB issued Statement #58, Accounting and Financial Reporting for Chapter 9 Bankruptcies. The standards in this statement provide guidance for bankrupt state and local governments by establishing requirements for recognizing and measuring the effects of the bankruptcy process on assets and liabilities and for classifying changes in those items and related costs. Management elected to implement this standard early and this standard did not impact the basic financial statements. Other Future GASB Pronouncements: • The GASB issued Statement #54, Fund Balance Reporting and Governmental Fund Type Definitions, which is required to be implemented in fiscal year 2011. Management believes this pronouncement will require additional disclosure and impact the basic financial statements. • The GASB issued Statement #59, Financial Instruments Omnibus. The objective of this Statement is to update and improve existing standards regarding financial reporting and disclosure requirements of certain financial instruments and external investment pools for which significant issues have been identified in practice. The provisions of this Statement are effective for periods beginning after June 15, 2010. ---PAGE BREAK--- City of Salem, Massachusetts 73 Basic Financial Statements Required Supplementary Information Required Supplementary Information ---PAGE BREAK--- City of Salem, Massachusetts 74 Basic Financial Statements 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, 2010 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 - $ 68,856,043 $ 68,856,043 $ 68,981,043 $ 68,940,660 $ - $ (40,383) Tax - - - - 449,935 - 449,935 Motor vehicle and other excise taxes………… - 3,070,000 3,070,000 3,070,000 3,007,759 - (62,241) Hotel/motel - 360,000 360,000 360,000 294,214 - (65,786) Charges for services…………………………… - 1,350,000 1,350,000 1,350,000 1,190,514 - (159,486) Penalties and interest on taxes……………… - 383,000 383,000 383,000 437,361 - 54,361 Payments in lieu of - 1,320,000 1,320,000 1,320,000 1,307,078 - (12,922) Licenses and permits………………………… - 475,000 475,000 475,000 567,733 - 92,733 Fines and forfeitures…………………………… - 950,000 950,000 950,000 1,266,267 - 316,267 Intergovernmental……………………………… - 28,285,085 28,285,085 28,285,085 28,304,903 - 19,818 Departmental and - 2,200,000 2,200,000 2,200,000 2,215,719 - 15,719 Investment - 150,000 150,000 150,000 62,904 - (87,096) TOTAL REVENUES………………… - 107,399,128 107,399,128 107,524,128 108,045,047 - 520,919 EXPENDITURES: Current: General government City Council Personnel…………………………… - 119,700 119,700 119,800 119,800 - - Non - Personnel……………………… - 31,650 31,650 31,550 25,221 - 6,329 - 151,350 151,350 151,350 145,021 - 6,329 Mayor Personnel…………………………… - 251,491 251,491 251,491 237,355 - 14,136 Non - Personnel……………………… 19,000 105,250 124,250 124,250 97,986 17,600 8,664 19,000 356,741 375,741 375,741 335,341 17,600 22,800 Finance/Auditing Personnel…………………………… - 230,747 230,747 230,747 225,171 - 5,576 Non - Personnel……………………… 4,470 26,485 30,955 30,955 25,828 2,719 2,408 4,470 257,232 261,702 261,702 250,999 2,719 7,984 Purchasing Personnel…………………………… - 102,766 102,766 102,766 101,549 - 1,217 Non - Personnel……………………… - 16,750 16,750 21,750 15,372 - 6,378 Fixed - 63,000 63,000 63,000 62,177 - 823 - 182,516 182,516 187,516 179,098 - 8,418 Assessors Personnel…………………………… - 234,495 234,495 234,495 229,463 - 5,032 Non - Personnel……………………… 50,000 30,177 80,177 80,177 74,269 - 5,908 50,000 264,672 314,672 314,672 303,732 - 10,940 Treasurer Personnel…………………………… - 149,918 149,918 149,918 148,966 - 952 Non - Personnel……………………… 3,070 36,695 39,765 50,265 47,180 - 3,085 3,070 186,613 189,683 200,183 196,146 - 4,037 Collector Personnel…………………………… - 195,820 195,820 198,695 196,079 - 2,616 Non - Personnel……………………… 1,270 9,600 10,870 7,995 5,856 - 2,139 1,270 205,420 206,690 206,690 201,935 - 4,755 Solicitor Personnel…………………………… - 143,858 143,858 143,858 142,533 - 1,325 Non - Personnel……………………… - 72,000 72,000 99,000 89,953 - 9,047 - 215,858 215,858 242,858 232,486 - 10,372 (continued) Budgeted Amounts GENERAL FUND 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, 2010 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…………………………… - 211,467 211,467 508,467 508,415 - 52 Non - Personnel……………………… - 33,450 33,450 33,450 30,458 - 2,992 - 244,917 244,917 541,917 538,873 - 3,044 Data Processing Personnel…………………………… - 166,630 166,630 144,755 139,863 - 4,892 Non - Personnel……………………… - 13,050 13,050 34,925 33,679 - 1,246 Fixed - 249,536 249,536 249,536 248,657 - 879 GIS Expenses……………………… - 11,229 11,229 43,363 42,646 - 717 GIS Personnel……………………… - 32,134 32,134 - - - - - 472,579 472,579 472,579 464,845 - 7,734 City Clerk Record Maintenance Personnel…………………………… - 220,576 220,576 245,540 233,705 - 11,835 Non - Personnel……………………… 3,700 6,550 10,250 10,250 9,601 - 649 3,700 227,126 230,826 255,790 243,306 - 12,484 Elections & Registrations Personnel…………………………… - 119,344 119,344 99,380 94,456 - 4,924 Non - Personnel……………………… - 50,100 50,100 62,600 46,069 9,139 7,392 - 169,444 169,444 161,980 140,525 9,139 12,316 Licensing Personnel…………………………… - 49,858 49,858 49,858 49,856 - 2 Non - Personnel……………………… 90 1,940 2,030 2,030 1,135 - 895 90 51,798 51,888 51,888 50,991 - 897 Conservation Commission Personnel…………………………… - 26,001 26,001 26,001 21,378 - 4,623 Non - Personnel……………………… - 425 425 425 423 - 2 - 26,426 26,426 26,426 21,801 - 4,625 Subdivision, Planning, and Zoning Board Personnel…………………………… - 22,999 22,999 22,999 21,949 - 1,050 Non - Personnel……………………… - 3,000 3,000 3,000 2,722 - 278 - 25,999 25,999 25,999 24,671 - 1,328 Board of Appeals Personnel…………………………… - 3,000 3,000 3,040 3,040 - - Non - Personnel……………………… - 900 900 860 308 - 552 - 3,900 3,900 3,900 3,348 - 552 Planning Department Personnel…………………………… - 196,804 196,804 196,804 194,109 - 2,695 Non - Personnel……………………… - 7,275 7,275 7,275 6,929 - 346 - 204,079 204,079 204,079 201,038 - 3,041 Public Property/Building Maintenance Fixed - 643,360 643,360 643,360 636,816 2,000 4,544 Market and Tourism……………………… - 83,000 83,000 83,000 82,638 - 362 Total General Government………………… 81,600 3,973,030 4,054,630 4,411,630 4,253,610 31,458 126,562 (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, 2010 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Public safety Police Personnel…………………………… - 6,665,945 6,665,945 6,781,747 6,780,914 - 833 Non - Personnel……………………… - 533,806 533,806 568,004 540,715 12,527 14,762 - 7,199,751 7,199,751 7,349,751 7,321,629 12,527 15,595 Fire Personnel…………………………… - 6,407,944 6,407,944 6,407,944 6,321,720 36,717 49,507 Non - Personnel……………………… 22,000 416,545 438,545 438,545 391,983 28,331 18,231 22,000 6,824,489 6,846,489 6,846,489 6,713,703 65,048 67,738 Building, Plumbing, Gas Inspections Personnel…………………………… - 284,686 284,686 290,686 290,593 - 93 Non - Personnel……………………… - 27,400 27,400 21,400 19,218 - 2,182 - 312,086 312,086 312,086 309,811 - 2,275 Electrical Inspection and Maintenance Personnel…………………………… - 258,434 258,434 258,434 254,888 - 3,546 Non - Personnel……………………… - 794,000 794,000 794,000 690,851 - 103,149 - 1,052,434 1,052,434 1,052,434 945,739 - 106,695 Harbormaster Personnel…………………………… - 175,307 175,307 175,307 167,376 - 7,931 Non - Personnel……………………… - 37,300 37,300 39,650 39,524 - 126 - 212,607 212,607 214,957 206,900 - 8,057 Total Public 22,000 15,601,367 15,623,367 15,775,717 15,497,782 77,575 200,360 Education 192,873 45,876,000 46,068,873 46,068,873 45,743,444 217,684 107,745 NSRS/Charter/Choice……………… - 1,531,740 1,531,740 1,531,740 1,513,891 - 17,849 Total Education……………….…………… 192,873 47,407,740 47,600,613 47,600,613 47,257,335 217,684 125,594 Public Works Public Services Personnel…………………………… - 1,452,736 1,452,736 1,412,236 1,381,420 - 30,816 Non - Personnel……………………… 31,919 544,165 576,084 634,084 517,724 23,814 92,546 31,919 1,996,901 2,028,820 2,046,320 1,899,144 23,814 123,362 Engineering Personnel…………………………… - 69,286 69,286 69,436 69,369 - 67 Non - Personnel……………………… - 3,500 3,500 3,350 2,722 - 628 - 72,786 72,786 72,786 72,091 - 695 Snow and Ice Personnel…………………………… - 50,000 50,000 50,000 66,533 - (16,533) Non - Personnel……………………… - 344,560 344,560 344,560 584,489 - (239,929) - 394,560 394,560 394,560 651,022 - (256,462) Parking Garage Personnel…………………………… - 438,640 438,640 485,064 482,769 - 2,295 Non - Personnel……………………… 2,164 136,700 138,864 138,864 131,504 7,095 265 2,164 575,340 577,504 623,928 614,273 7,095 2,560 Total Public 34,083 3,039,587 3,073,670 3,137,594 3,236,530 30,909 (129,845) (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, 2010 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…………………………… - 335,623 335,623 335,623 272,553 - 63,070 Non - Personnel……………………… - 21,200 21,200 21,200 12,095 - 9,105 - 356,823 356,823 356,823 284,648 - 72,175 Council on Aging Personnel…………………………… - 231,727 231,727 237,227 232,876 - 4,351 Non - Personnel……………………… - 31,100 31,100 46,100 26,074 15,000 5,026 - 262,827 262,827 283,327 258,950 15,000 9,377 Veterans Services Personnel…………………………… - 71,452 71,452 71,452 70,538 - 914 Non - Personnel……………………… 15,000 117,200 132,200 159,200 145,901 11,944 1,355 15,000 188,652 203,652 230,652 216,439 11,944 2,269 Total Health and Human Services………… 15,000 808,302 823,302 870,802 760,037 26,944 83,821 Culture and Recreation Library Personnel…………………………… - 845,090 845,090 845,090 809,373 - 35,717 Non - Personnel……………………… - 269,466 269,466 269,466 264,194 - 5,272 - 1,114,556 1,114,556 1,114,556 1,073,567 - 40,989 Parks and Recreation Personnel…………………………… - 331,298 331,298 331,298 280,984 - 50,314 Non - Personnel……………………… 10,268 151,610 161,878 161,878 145,403 14,078 2,397 10,268 482,908 493,176 493,176 426,387 14,078 52,711 Golf Course Personnel…………………………… - 229,100 229,100 229,100 224,358 - 4,742 Non - Personnel……………………… 4,585 99,500 104,085 114,085 99,814 4,758 9,513 4,585 328,600 333,185 343,185 324,172 4,758 14,255 Witch House Personnel…………………………… - 74,066 74,066 74,066 66,128 - 7,938 Non - Personnel……………………… 9,068 64,280 73,348 73,348 52,357 15,576 5,415 9,068 138,346 147,414 147,414 118,485 15,576 13,353 Historical Commission Personnel…………………………… - 7,643 7,643 7,665 7,665 - - Non - Personnel……………………… - 1,350 1,350 1,328 1,144 - 184 - 8,993 8,993 8,993 8,809 - 184 Winter Island Personnel…………………………… - 95,453 95,453 95,453 94,185 - 1,268 Non - Personnel……………………… 2,550 56,000 58,550 58,550 42,803 2,843 12,904 2,550 151,453 154,003 154,003 136,988 2,843 14,172 Total Culture and Recreation…………… 26,471 2,224,856 2,251,327 2,261,327 2,088,408 37,255 135,664 Debt service: - 4,600,000 4,600,000 4,600,000 4,600,000 - - - 2,044,102 2,044,102 2,673,002 1,831,243 - 841,759 Short Term Interest………………………… - 227,340 227,340 221,840 196,003 - 25,837 - 6,871,442 6,871,442 7,494,842 6,627,246 - 867,596 State and county charges……………………… - 6,618,904 6,618,904 6,618,904 6,655,890 - (36,986) Pension benefits Contributory Retirement…………………… - 8,082,746 8,082,746 8,082,746 8,068,481 - 14,265 Non-Contributory Retirement……………… - 133,852 133,852 133,852 100,138 - 33,714 - 8,216,598 8,216,598 8,216,598 8,168,619 - 47,979 (continued) City of Salem, Massachusetts 78 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2010 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…………………… - 451,295 451,295 451,295 425,070 - 26,225 Unemployment Compensation……………… - 230,000 230,000 345,000 345,000 - - Group Insurance……………………………… - 10,385,915 10,385,915 9,675,915 9,535,095 - 140,820 - 696,450 696,450 772,550 772,517 - 33 Municipal Insurance…………………………… - 291,535 291,535 291,535 256,208 - 35,327 TOTAL EXPENDITURES…………… 372,027 106,817,021 107,189,048 107,924,322 105,879,347 421,825 1,623,150 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………… (372,027) 582,107 210,080 (400,194) 2,165,700 (421,825) 2,144,069 OTHER FINANCING SOURCES (USES): Premium from issuance of bonds…………… - - - - 105,821 - 105,821 Transfers - 2,355,751 2,355,751 2,371,601 2,517,029 - 145,428 Transfers - (2,570,129) (2,570,129) (4,048,270) (4,048,270) - - TOTAL OTHER FINANCING SOURCES - (214,378) (214,378) (1,676,669) (1,425,420) - 251,249 NET CHANGE IN FUND BALANCE……………… (372,027) 367,729 (4,298) (2,076,863) 740,280 (421,825) 2,395,318 BUDGETARY FUND BALANCE, Beginning of 1,392,116 1,392,116 1,392,116 1,392,116 1,392,116 - - BUDGETARY FUND BALANCE, End of year……$ 1,020,089 $ 1,759,845 $ 1,387,818 $ (684,747) $ 2,132,396 $ (421,825) $ 2,395,318 (concluded) See notes to required supplementary information. City of Salem, Massachusetts 79 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 80 Basic Financial Statements Retirement System Schedules of Funding Progress and Employer Contributions Retirement System Schedules The Retirement System Schedule of Funding progress presents multiyear trend information relating to the cost- sharing plan as a whole, of which the City is one participating employer, about whether the actuarial value of planned assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. The Retirement System Schedule of Employer Contributions presents multiyear trend information for required and actual contributions relating to the cost-sharing plan as a whole, of which the City is one participating employer, as well as the City’s proportionate share of the plan’s annual contributions. ---PAGE BREAK--- Actuarial UAAL as a Actuarial Accrued Unfunded Percentage Actuarial Value of Liability (AAL) AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (B-A) (A/B) 01/01/10 $ 100,046,731 $ 193,470,036 $ 93,423,305 51.7% $ 34,583,002 270.1% 01/01/08 99,998,471 179,382,299 79,383,828 55.7% 34,410,002 230.7% 01/01/06 84,796,044 166,958,606 82,162,562 50.8% 32,824,144 250.3% 01/01/05 81,801,377 156,479,479 74,678,102 52.3% 31,328,083 238.4% 01/01/04 80,659,012 142,499,185 61,840,173 56.6% 29,355,291 210.7% 01/01/03 76,438,885 137,111,559 60,672,674 55.7% 31,089,195 195.2% See notes to required supplementary information. SALEM CONTRIBUTORY RETIREMENT SYSTEM SCHEDULE OF FUNDING PROGRESS City of Salem, Massachusetts 81 Required Supplementary Information ---PAGE BREAK--- (B/A) Fiscal Year Annual City's Percentage Ended Required Actual Percentage Actual of System Wide June 30 Contributions Contributions Contributed Contributions Actual Contributions 2010 $ 9,628,758 $ 9,628,758 100% $ 8,233,450 85.51% 2009 9,239,327 9,239,327 100% 7,952,910 86.08% 2008 8,939,812 8,939,812 100% 7,693,291 86.06% 2007 8,431,371 8,431,371 100% 7,209,359 85.51% The City's Actual Contributions equaled 100% of its Required Contributions for each year presented. See notes to required supplementary information. SALEM CONTRIBUTORY RETIREMENT SYSTEM SCHEDULE OF EMPLOYER CONTRIBUTIONS System Wide City of Salem City of Salem, Massachusetts 82 Required Supplementary Information ---PAGE BREAK--- City of Salem, Massachusetts 83 Basic Financial Statements Other Postemployment Benefit Plan Schedules Other postemployment benefit plan schedules The Schedule of Funding Progress compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. The Schedule of Employer Contributions presents, over time, the ratio of the actual annual employer contributions to the annual required contribution. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. ---PAGE BREAK--- SCHEDULE OF FUNDING PROGRESS AND EMPLOYER CONTRIBUTIONS Actuarial Accrued UAAL as a Actuarial Liability (AAL) Unfunded Percentage Actuarial Value of Projected AAL Funded Covered of Covered Valuation Assets Unit Credit (UAAL) Ratio Payroll Payroll Date (B-A) (A/B) 12/31/2009 $ - $ 171,447,034 $ 171,447,034 0% $ 52,107,612 329.0% 12/31/2007 - 159,945,511 159,945,511 0% 50,103,473 319.2% Fiscal Annual Actual Percentage of Year Required Contributions the ARC Ended Contribution (ARC) Made Contributed 2010 $ 10,869,698 $ 5,287,195 $ 49% 2009 11,068,269 6,799,394 61% 2008 10,554,680 3,443,274 33% See notes to required supplementary information. OTHER POSTEMPLOYMENT BENEFIT PLAN Schedule of Employer Contributions Schedule of Funding Progress City of Salem, Massachusetts 84 Comprehensive Annual Financial Report ---PAGE BREAK--- ACTUARIAL METHODS AND ASSUMPTIONS Actuarial Methods: Valuation date December 31, 2009 Actuarial cost method Projected Unit Credit Amortization method Amortization payments increasing at 4.0%, using a level percentage of payroll. Remaining amortization period 30 years, open Actuarial Assumptions: Investment rate of return 5.0%, pay-as-you-go scenario Medical/drug cost trend rate 10.0% graded to 5.0% over 7 years Plan Membership: Current retirees, beneficiaries, and dependents 972 Current active members 880 Total 1,852 See notes to required supplementary information. OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 85 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Required Supplementary Information Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 86 Comprehensive Annual Financial Report NOTE A - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Notes to required supplementary information 1. Budgetary Information Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without a recommendation of the Mayor, the Council may not make any appropriation for a purpose not included in the proposed budget, except by a two-thirds vote in the case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the Council. The Council may not increase any item without the recommendation of the Mayor (except as provided by legislation, recommendation of the school committee or regional district school committee and by two-thirds vote of the Council, provided that such increase does not cause the total annual budget to exceed the property tax limitations). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. City department heads are generally required to submit their budget requests to the Mayor between January 1, March 1, and December 1. This does not apply to the school department, which must submit its request in time for the Mayor to include it in the submission to the Council. If the Mayor does not make a timely budget submission, provision is made for preparation of a budget by the Council. Provision is also made for supplementary appropriations upon recommendation of the Mayor. Water and sewer department expenditures are included in the budgets adopted by City Council. Under recent legislation, the City Council on the recommendation of the Mayor may transfer within the last 2 months of the fiscal year, any amount appropriated for the use of any department to the appropriation for any other department, provided that no such transfer may be made from any appropriation for a school department, regional school district, or municipal light department. The majority of appropriations are non-continuing which lapse at the end of each fiscal year. Others are continuing appropriations for which the governing body has authorized that an unspent balance from a prior fiscal year be carried forward and made available for spending in the current fiscal year. These carry forwards are included as part of the subsequent fiscal year’s original budget. Generally, expenditures may not exceed the legal level of spending (salaries, expenses and capital) authorized for an appropriation account. However, the payment of debt service is statutorily required, regardless of whether such amounts are appropriated. Additionally, expenditures for disasters, natural or otherwise, and final judgments may exceed the level of spending authorized by two-thirds majority vote of the City Council. An annual budget is adopted for the general fund in conformity with the guidelines described above. The original fiscal year 2010 approved budget authorized approximately $110 million in appropriations and other amounts to be raised. During the fiscal year, increases to the original budget were approved totaling approximately $2.2 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, 2010 City of Salem, Massachusetts 87 Comprehensive Annual Financial Report reconciliation of budgetary-basis to GAAP-basis results for the general fund for the fiscal year ended June 30, 2010, is presented below: Net change in fund balance - budgetary 740,280 Perspective differences: Reclassification of enterprise fund revenue budgeted in the general fund………… 1,694,708 Reclassification of enterprise fund expenditures budgeted in the general fund…… (1,694,708) Basis of accounting differences: Net change in revenues in recording tax refunds (192,901) Net change in short-term debt service interest 7,850 Recognition of revenue for on-behalf 8,602,216 Recognition of expenditures for on-behalf (8,602,216) Net difference in recognition of expenditures…………………………………………… (44,186) Net change in fund balances - GAAP $ 511,043 3. Appropriation Deficits During fiscal year 2010, expenditures exceeded budgeted appropriations for snow and ice and state and county charges. These deficits will be funded through the tax levy and available funds in fiscal year 2011. NOTE B – PENSION PLAN The City contributes to the System, a cost-sharing, multiple-employer defined benefit pension plan ("Plan") administered by the Salem Contributory Retirement Board. The System provides retirement, disability, and death benefits to members and beneficiaries. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the Plan. The City is required to pay into the Retirement System its share of the system-wide actuarially determined contribution which is apportioned among the employers based on active covered payroll. The schedule of funding progress, presented as required supplementary information presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Additionally, the schedule of employer contributions, presented as required supplementary information presents multi-year trend information for required and actual contributions relating to the cost-sharing plan as a whole, of which the City is one participating employer, as well as the City’s proportionate share of the plan’s annual contributions. This information is designed to be helpful for understanding the scale of the information presented relative to the City. ---PAGE BREAK--- Notes to Required Supplementary Information Fiscal Year Ended June 30, 2010 City of Salem, Massachusetts 88 Comprehensive Annual Financial Report The following actuarial methods and assumptions were used in the Retirement System’s most recent actuarial valuation: Actuarial Methods and Assumptions: Valuation January 1, 2010 Actuarial Cost Method………………………………………Entry Age Normal Cost Method Amortization Method…………………………………………Increasing at 4.5% per year Remaining Amortization Period……………………………20 years remaining as of July 1, 2010, open Asset Valuation The difference between the expected return on an actuarial basis and actual investment return on a market value basis is recognized over a 5 year perio Actuarial Assumptions: Investment rate of Projected salary increases…………………………………5.00% Cost of living adjustments…………………………………3.00% for the first $12,000 of retirement income NOTE C - OTHER POSTEMPLOYMENT BENEFITS The City administers a single-employer defined benefit healthcare plan (“The Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s group health insurance plan, which covers both active and retired members. Additionally, retired teachers and their spouses receive health insurance through the Group Insurance Commission of the Commonwealth of Massachusetts (GIC). Each participating municipality is assessed for the governmental share of health and life insurance premiums paid on behalf of its teacher retirees by the state. The City currently finances its other postemployment benefits (OPEB) on a pay-as-you-go basis. As a result, the funded ratio (actuarial value of assets expressed as a percentage of the actuarial accrued liability) is In accordance with Governmental Accounting Standards, the City has recorded its OPEB cost equal to the actuarial determined annual required contribution (ARC) which includes the normal cost of providing benefits for the year and a component for the amortization of the total unfunded actuarial accrued liability of the plan. The Schedule of Funding Progress presents multi year trend information which compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. The Schedule of Employer Contributions presents, over time, the ratio of the actual annual employer contributions to the annual required contribution. Projections of benefits for financial reporting purposes are based on the substantive plan and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. ---PAGE BREAK--- City of Salem, Massachusetts 89 Comprehensive Annual Financial Report Combining Statements Combining Statements ---PAGE BREAK--- City of Salem, Massachusetts 90 Comprehensive Annual Financial Report Nonmajor governmental funds Nonmajor Governmental Funds Special Revenue Funds Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. City Grants Fund – This fund is used to account for non-school related activity specifically financed by federal, state, and other grants which are designated for specific programs. School Grants Fund – This fund is used to account for the educational programs specifically financed by federal, state, and other grants which are designated for specific programs. Community Development Grants Fund – This fund is used to account for community development activity specifically financed by federal, state, and other grants which are designated for specific programs. Salem Redevelopment Authority Fund – This fund is used to account for the activity of the Salem Redevelopment Authority (SRA) and is financed by federal, state, and other grants included with the Community Development grants. The funds are used for redevelopment and improvement of buildings and business storefronts located within the Urban Renewal Area which makes up a majority of DownCity Salem. School Lunch Fund – This fund is used to account for all cafeteria activities and is funded by user charges, federal and state grants and commodities received. Highway Grants Fund – This fund is used to account for construction, reconstruction and improvements to roadways, streets and sidewalks. Funding is provided primarily by grants. Donations & 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. Other Funds – This fund is used to account for various capital projects. ---PAGE BREAK--- City of Salem, Massachusetts 91 Comprehensive Annual Financial Report Permanent Funds Permanent funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support governmental programs. Cemetery Fund – This fund is used to account for cemetery perpetual care contributions and expenditures. Human Service Fund – This fund is used to account for various contributions associated with human service activities. Other Funds – This fund is used to account for various contributions associated with governmental programs. ---PAGE BREAK--- City of Salem, Massachusetts 92 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- Community Salem City School Development Redevelopment School Highway Donations Receipts ASSETS Grants Grants Grants Authority Lunch Grants & Gifts Reserved Cash and cash equivalents…………………… $ 448,368 $ 1,143,869 $ 53,962 $ 20,745 $ 28,669 $ - $ 502,259 $ 399,991 Investments……………………………………… - - - - - - - - Receivables, net of uncollectibles: Intergovernmental……………………………… 196,337 - 86,001 - 131,420 1,088,462 - - - - 388,976 - - - - - Due from other 100,968 - - - - - - - TOTAL 745,673 $ 1,143,869 $ 528,939 $ 20,745 $ 160,089 $ 1,088,462 $ 502,259 $ 399,991 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants 259,316 $ 180,987 $ 54,403 $ - $ - $ - $ 24,000 $ - Accrued 51,478 144,168 10,827 - 26,365 - 2,743 - Deferred revenues…………………………… - - 388,976 - - 987,494 - - Due to other - - - - - 100,968 - - TOTAL LIABILITIES……………………………… 310,794 325,155 454,206 - 26,365 1,088,462 26,743 - FUND BALANCES: Reserved for: Perpetual permanent funds………………… - - - - - - - - Undesignated, reported in: Special revenue 434,879 818,714 74,733 20,745 133,724 - 475,516 399,991 Capital projects - - - - - - - - Permanent - - - - - - - - TOTAL FUND BALANCES……………………… 434,879 818,714 74,733 20,745 133,724 - 475,516 399,991 TOTAL LIABILITIES AND FUND BALANCES $ 745,673 $ 1,143,869 $ 528,939 $ 20,745 $ 160,089 $ 1,088,462 $ 502,259 $ 399,991 (Continued) Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2010 City of Salem, Massachusetts 93 Comprehensive Annual Financial Report ---PAGE BREAK--- City School Police Revolving Revolving Station Salem ASSETS Accounts Accounts Subtotal Equipment Ferry Other Subtotal Cash and cash equivalents……………………………… $ 1,254,193 $ 297,134 $ 4,149,190 $ 9,668 $ 38,086 $ 990,736 $ 1,038,490 - - - - - - - Receivables, net of uncollectibles: Intergovernmental……………………………………… - - 1,502,220 - - - - 226,618 - 615,594 - - - - Due from other - - 100,968 - - - - TOTAL $ 1,480,811 $ 297,134 $ 6,367,972 $ 9,668 $ 38,086 $ 990,736 $ 1,038,490 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants $ - $ - $ 518,706 $ - $ - $ - $ - Accrued 839 3,001 239,421 - - - - Deferred 226,618 - 1,603,088 - - - - Due to other - - 100,968 - - - - TOTAL LIABILITIES………………………………………… 227,457 3,001 2,462,183 - - - - FUND BALANCES: Reserved for: Perpetual permanent - - - - - - - Undesignated, reported in: Special revenue 1,253,354 294,133 3,905,789 - - - - Capital projects - - - 9,668 38,086 990,736 1,038,490 Permanent - - - - - - - TOTAL FUND 1,253,354 294,133 3,905,789 9,668 38,086 990,736 1,038,490 TOTAL LIABILITIES AND FUND BALANCES………… $ 1,480,811 $ 297,134 $ 6,367,972 $ 9,668 $ 38,086 $ 990,736 $ 1,038,490 NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2010 Capital Project Funds City of Salem, Massachusetts 94 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Cemetery Human Service Governmental Fund Fund Other Subtotal Funds $ 270,365 $ 114,559 $ 99,338 $ 484,262 $ 5,671,942 2,135,713 1,051,934 800,922 3,988,569 3,988,569 - - - - 1,502,220 - - - - 615,594 - - - - 100,968 $ 2,406,078 $ 1,166,493 $ 900,260 $ 4,472,831 $ 11,879,293 $ - $ - $ - $ - $ 518,706 - - - - 239,421 - - - - 1,603,088 - - - - 100,968 - - - - 2,462,183 971,759 221,174 496,243 1,689,176 1,689,176 - - - - 3,905,789 - - - - 1,038,490 1,434,319 945,319 404,017 2,783,655 2,783,655 2,406,078 1,166,493 900,260 4,472,831 9,417,110 $ 2,406,078 $ 1,166,493 $ 900,260 $ 4,472,831 $ 11,879,293 (Concluded) Permanent Funds City of Salem, Massachusetts 95 Comprehensive Annual Financial Report ---PAGE BREAK--- Community Salem City School Development Redevelopment School Highway Donations Grants Grants Grants Authority Lunch Grants & Gifts REVENUES: Charges for $ 9,726 $ 57,404 $ - $ - $ - $ - $ - Intergovernmental………………………………………… 7,590,684 7,520,028 2,710,748 - 1,828,854 565,006 - Departmental and 220,841 166,270 114,859 - 31,939 - - Contributions……………………………………………… 3,500 370,643 - - - - 92,350 Investment income 1,840 - 561 61 - - - TOTAL 7,826,591 8,114,345 2,826,168 61 1,860,793 565,006 92,350 EXPENDITURES: Current: General government…………………………………… 1,716,080 - - - - - 134,685 Public 571,854 - - - - - 38,382 - 8,079,112 - - 1,743,641 - 18,992 Public 44,015 - - - - 280,465 30,000 Community development……………………………… 710,226 - 2,842,866 24,851 - - - Health and human services…………………………… 5,323,221 - - - - - 13,261 Culture and recreation…………………………………… 375,612 - - - - - 12,685 Debt service: 855,000 - 35,000 - - - - 30,000 - 5,059 - - - - TOTAL EXPENDITURES…………………………… 9,626,008 8,079,112 2,882,925 24,851 1,743,641 280,465 248,005 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………… (1,799,417) 35,233 (56,757) (24,790) 117,152 284,541 (155,655) OTHER FINANCING SOURCES (USES): Issuance of bonds and - - - - - - - Transfers 1,575,562 25,038 - - 182,555 - 132,000 Transfers (45,980) (220,436) (81) - - - (22,856) TOTAL OTHER FINANCING SOURCES (USES)… 1,529,582 (195,398) (81) - 182,555 - 109,144 NET CHANGE IN FUND BALANCES……………………… (269,835) (160,165) (56,838) (24,790) 299,707 284,541 (46,511) FUND BALANCES AT BEGINNING OF YEAR…………… 704,714 978,879 131,571 45,535 (165,983) (284,541) 522,027 FUND BALANCES AT END OF $ 434,879 $ 818,714 $ 74,733 $ 20,745 $ 133,724 $ - $ 475,516 NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2010 Special Revenue Funds City of Salem, Massachusetts 96 Comprehensive Annual Financial Report ---PAGE BREAK--- City School Police Receipts Revolving Revolving Station Salem Reserved Accounts Accounts Subtotal Equipment Ferry Other Subtotal $ - $ - $ - $ 67,130 $ - $ - $ - $ - - - - 20,215,320 - - - - 451,127 478,576 809,622 2,273,234 - - - - - - - 466,493 - - - - - 3,851 407 6,720 - - - - 451,127 482,427 810,029 23,028,897 - - - - - 48,352 - 1,899,117 - - - - - - - 610,236 - - 248,269 248,269 - - 885,442 10,727,187 - - 24,073 24,073 - 44,070 - 398,550 - - 1,548,352 1,548,352 - 380,927 - 3,958,870 - - - - - - - 5,336,482 - - - - - 213,505 - 601,802 - - 470,238 470,238 - - - 890,000 - - - - - - - 35,059 - - - - - 686,854 885,442 24,457,303 - - 2,290,932 2,290,932 451,127 (204,427) (75,413) (1,428,406) - - (2,290,932) (2,290,932) - - - - - - 4,589,000 4,589,000 - - - 1,915,155 - - - - (404,631) - - (693,984) - - - - (404,631) - - 1,221,171 - - 4,589,000 4,589,000 46,496 (204,427) (75,413) (207,235) - - 2,298,068 2,298,068 353,495 1,457,781 369,546 4,113,024 9,668 38,086 (1,307,332) (1,259,578) $ 399,991 $ 1,253,354 $ 294,133 $ 3,905,789 $ 9,668 $ 38,086 $ 990,736 $ 1,038,490 (Continued) Capital Project Funds Special Revenue Funds City of Salem, Massachusetts 97 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Cemetery Human Service Governmental Fund Fund Other Subtotal Funds REVENUES: Charges for - $ - $ - $ - $ 67,130 Intergovernmental………………………………………… - - - - 20,215,320 Departmental and - - 965 965 2,274,199 Contributions……………………………………………… 11,500 - 1,895 13,395 479,888 Investment income 119,232 50,795 183,065 353,092 359,812 TOTAL 130,732 50,795 185,925 367,452 23,396,349 EXPENDITURES: Current: General government…………………………………… - - - - 1,899,117 Public - - 5,000 5,000 863,505 - - - - 10,751,260 Public 55,900 - 100,649 156,549 2,103,451 Community development……………………………… - - - - 3,958,870 Health and human services…………………………… - 36,094 63,872 99,966 5,436,448 Culture and recreation………………………………… - - - - 1,072,040 Debt service: - - - - 890,000 - - - - 35,059 TOTAL EXPENDITURES…………………………… 55,900 36,094 169,521 261,515 27,009,750 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………… 74,832 14,701 16,404 105,937 (3,613,401) OTHER FINANCING SOURCES (USES): Issuance of bonds and - - - - 4,589,000 Transfers - - - - 1,915,155 Transfers - - - - (693,984) TOTAL OTHER FINANCING SOURCES (USES)… - - - - 5,810,171 NET CHANGE IN FUND BALANCES……………………… 74,832 14,701 16,404 105,937 2,196,770 FUND BALANCES AT BEGINNING OF YEAR…………… 2,331,246 1,151,792 883,856 4,366,894 7,220,340 FUND BALANCES AT END OF 2,406,078 $ 1,166,493 $ 900,260 $ 4,472,831 $ 9,417,110 (Concluded) NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2010 Permanent Funds City of Salem, Massachusetts 98 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 99 Comprehensive Annual Financial Report Private Purpose Trust Funds Private purpose trust funds Trust Fund Commissioners – This fund is used to account for trusts held by the City to benefit individuals and is administered by the City’s Board of Trust Fund Commissioners. Scholarship Funds – This fund is used to account for scholarships held by the City to benefit individuals. ---PAGE BREAK--- PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF NET ASSETS JUNE 30, 2010 Trust Fund Scholarship Commissioners Funds Total ASSETS Cash and cash equivalents………………………………… $ 119,364 $ 84,235 $ 203,599 1,032,251 - 1,032,251 TOTAL 1,151,615 84,235 1,235,850 NET ASSETS Held in trust for other 1,151,615 $ 84,235 $ 1,235,850 Private Purpose Trust Funds City of Salem, Massachusetts 100 Comprehensive Annual Financial Report ---PAGE BREAK--- Trust Fund Scholarship Commissioners Funds Total ADDITIONS: Contributions: Private $ 1,415 $ 3,350 $ 4,765 Net investment income: Net change in fair value of investments……………………………………… 55,749 - 55,749 25 278 303 TOTAL 57,189 3,628 60,817 DEDUCTIONS: Educational 10,079 14,131 24,210 Housing 101,428 - 101,428 TOTAL 111,507 14,131 125,638 CHANGE IN NET (54,318) (10,503) (64,821) NET ASSETS AT BEGINNING OF 1,205,933 94,738 1,300,671 NET ASSETS AT END OF $ 1,151,615 $ 84,235 $ 1,235,850 Private Purpose Trust Funds PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF CHANGES IN NET ASSETS FISCAL YEAR ENDED JUNE 30, 2010 City of Salem, Massachusetts 101 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 102 Comprehensive Annual Financial Report Agency Fund Agency Fund This fund is used primarily to account for payroll withholdings, police and fire details, escrow deposits and unclaimed property. ---PAGE BREAK--- Beginning End of Year Additions Deletions of Year ASSETS CURRENT: Cash and cash equivalents………………$ 757,183 $ 6,180,767 $ (6,159,422) $ 778,528 LIABILITIES Warrants 22,219 $ 51,679 $ (22,218) $ 51,680 Liabilities due depositors………………… 734,964 12,709,391 (12,717,507) 726,848 TOTAL LIABILITIES…………………………$ 757,183 $ 12,761,070 $ (12,739,725) $ 778,528 AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FISCAL YEAR ENDED JUNE 30, 2010 City of Salem, Massachusetts 103 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 104 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- Statistical Section Winter Island During the 1930's, the United States Coast Guard created a Search & Rescue Base here on Winter Island Park. The Frigate USS Essex was built and launched in 1799 from this location. It served General George Washington in the U.S. Navy. The three bunkers located in historic Fort Pickering once stored ammunition as early as the Civil War. Winter Island had Salem's first tavern and first shipyard. A fort was erected as early as 1643. In 1867, the War department "turned over" to the city "for public use" the part of the island not occupied by the fort, until it should be wanted for defense. On December 28, 1928, Salem's Park Department took formal possession of the island. The fort was renamed Fort Pickering, after Colonel Timothy Pickering, Secretary of State and War in Washington's Cabinet. Winter Island is located at 50 Winter Island Road in Salem, Massachusetts. It offers RV and Tent Camping May 1 to Nov 1, a public boat ramp that is open year round, 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 105 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 2009 2010 Governmental activities Invested in capital assets, net of related debt………$ 82,253,876 $ 83,045,604 $ 79,729,492 $ 112,740,510 $ 109,183,737 $ 132,787,853 $ 139,683,360 $ 147,373,757 $ 147,313,749 5,755,817 5,237,908 8,759,761 9,734,998 8,649,700 8,868,048 6,948,839 6,968,580 6,892,267 Unrestricted…………………………………………… 4,546,625 9,656,396 6,519,783 (3,667,364) (371,947) (2,189,821) (6,668,493) (13,473,169) (17,907,226) Total governmental activities net assets…………………… $ 92,556,318 $ 97,939,908 $ 95,009,036 $ 118,808,144 $ 117,461,490 $ 139,466,080 $ 139,963,706 $ 140,869,168 $ 136,298,790 Business-type activities Invested in capital assets, net of related debt……… 8,782,331 8,319,902 8,147,378 9,212,891 9,018,231 9,138,929 8,836,475 6,939,001 6,301,944 Unrestricted…………………………………………… 7,754,552 6,649,222 7,538,395 4,492,692 4,722,252 5,609,406 5,647,967 6,371,380 5,864,782 Total business-type activities net assets…………………… $ 16,536,883 $ 14,969,124 $ 15,685,773 $ 13,705,583 $ 13,740,483 $ 14,748,335 $ 14,484,442 $ 13,310,381 $ 12,166,726 Primary government Invested in capital assets, net of related debt……… 91,036,207 91,365,506 87,876,870 121,953,401 118,201,968 141,926,782 148,519,835 154,312,758 153,615,693 5,755,817 5,237,908 8,759,761 9,734,998 8,649,700 8,868,048 6,948,839 6,968,580 6,892,267 Unrestricted…………………………………………… 12,301,177 16,305,618 14,058,178 825,328 4,350,305 3,419,585 (1,020,526) (7,101,789) (12,042,444) Total primary government net 109,093,201 $ 112,909,032 $ 110,694,809 $ 132,513,727 $ 131,201,973 $ 154,214,415 $ 154,448,148 $ 154,179,549 $ 148,465,516 Note: As allowed by GASB #34, the City reported retroactive general infrastructure, acquired prior to fiscal 2002, beginning in fiscal 2005. Fiscal years 2002-2004 have not been restated to reflect this change. Net Assets By Component Last Nine Fiscal Years Fiscal Year City of Salem, Massachusetts 106 Comprehensive Annual Financial Report ---PAGE BREAK--- 2002 2003 2004 2005 2006 2007 2008 2009 2010 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 $ 10,914,012 $ 10,865,152 Public 20,770,322 20,884,198 22,235,461 22,058,002 23,481,525 24,433,343 28,262,847 27,421,538 26,755,783 59,420,837 59,386,206 61,775,760 67,483,676 67,258,196 75,513,149 75,874,227 79,410,738 83,743,843 Public 5,397,486 6,464,257 6,517,047 8,421,997 7,991,774 9,229,479 6,846,006 6,705,986 6,820,639 Community development…………………………………… 5,856,034 4,954,608 5,767,362 2,066,749 1,891,386 1,804,554 1,567,381 2,093,618 3,226,360 Health and human 1,416,802 1,388,761 1,410,712 4,856,306 5,016,513 4,675,688 5,904,063 6,226,498 6,622,114 Culture and recreation……………………………………… 3,694,420 4,022,880 4,186,622 3,689,992 3,718,183 2,448,265 3,293,415 3,228,906 3,169,224 3,046,692 3,366,107 3,136,763 2,689,312 2,889,116 2,604,390 2,503,461 2,396,187 1,888,315 Total government activities expenses…………………………… 108,243,215 108,981,440 114,483,875 120,639,153 122,114,266 130,350,186 134,849,574 138,397,483 143,091,430 Business-type activities: Water 10,967,114 10,196,489 9,619,356 3,186,840 3,197,864 3,562,372 3,895,551 4,021,536 4,395,607 Sewer 6,616,318 5,686,595 5,612,230 5,894,870 7,467,332 7,400,431 Golf 387,935 333,512 320,632 292,187 279,981 363,651 386,099 278,007 399,023 719,042 679,171 665,458 664,686 800,506 792,903 936,826 905,834 844,615 3,230,500 2,558,263 2,573,421 Total business type activities expenses………………………… 12,074,091 11,209,172 10,605,446 10,760,031 9,964,946 10,331,156 14,343,846 15,230,972 15,613,097 Total primary government expenses……………………………$ 120,317,306 $ 120,190,612 $ 125,089,321 $ 131,399,184 $ 132,079,212 $ 140,681,342 $ 149,193,420 $ 153,628,455 $ 158,704,527 Program Revenues Governmental activities: Education charges for services…………………………… $ 1,216,334 $ 1,097,764 $ 1,141,196 $ 1,023,839 $ 831,579 $ 1,659,544 $ 1,586,525 $ 1,473,880 $ 1,370,250 Public Safety charges for services………………………… 1,323,642 1,804,781 1,865,270 1,923,845 2,003,791 2,217,287 2,378,961 2,456,341 2,074,324 Other charges for 1,489,223 1,197,196 2,055,497 1,481,467 1,825,898 2,561,814 1,602,847 1,693,333 1,824,040 Operating grants and contributions………………………… 40,717,414 39,127,290 35,305,349 34,087,248 37,934,300 37,957,703 41,168,760 43,744,124 46,352,034 Capital grant and contributions……………………………… 17,467,468 7,019,891 2,129,821 2,090,467 3,312,346 30,118,572 9,615,336 8,762,642 4,135,374 Total government activities program revenues...……………… 62,214,081 50,246,922 42,497,133 40,606,866 45,907,914 74,514,920 56,352,429 58,130,320 55,756,022 Business-type activities: Charges for services - 9,794,892 10,415,528 11,708,715 3,853,505 4,319,560 4,822,041 4,318,889 4,085,103 4,511,916 Charges for services - 5,512,922 6,233,883 6,694,172 6,555,593 7,668,044 7,610,195 Charges for services - 615,878 549,091 543,467 502,770 525,404 546,841 570,142 547,301 589,345 Charges for services - 1,270,928 1,364,076 1,536,390 1,453,088 1,549,833 1,713,649 1,651,032 1,694,708 2,038,235 Charges for services - 908,577 720,193 740,511 Operating grants and contributions………………………. - - - - - - 49,707 43,796 41,820 Total business-type activities program revenues...…………… 11,681,698 12,328,695 13,788,572 11,322,285 12,628,680 13,776,703 14,053,940 14,759,145 15,532,022 Total primary government program revenues………………… $ 73,895,779 $ 62,575,617 $ 56,285,705 $ 51,929,151 $ 58,536,594 $ 88,291,623 $ 70,406,369 $ 72,889,465 $ 71,288,044 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) $ (80,267,163) $ (87,335,408) Business-type (392,393) 1,119,523 3,183,126 562,254 2,663,734 3,445,547 (289,906) (471,827) (81,075) 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) $ (80,738,990) $ (87,416,483) General Revenues and other Changes in Net Assets Governmental activities: Real estate and personal property taxes, net of tax refunds 49,486,747 $ 52,118,338 $ 54,855,784 $ 55,915,767 $ 58,379,505 $ 60,991,003 $ 63,230,976 $ 66,672,653 $ 69,067,349 Tax 690,557 635,624 182,650 752,178 527,492 234,353 Motor vehicle and other excise 3,626,065 3,793,044 3,478,999 3,489,584 3,452,569 3,357,765 3,286,119 2,978,961 3,092,527 Hotel/motel 219,628 263,962 282,324 373,655 324,622 294,214 Penalties and interest on 330,035 391,429 322,003 288,874 350,651 266,246 353,952 412,572 437,361 Payments in lieu of 1,073,539 1,088,754 1,235,083 1,229,435 1,320,945 1,307,078 Grants and contributions not restricted to specific 3,931,117 3,774,422 6,932,546 8,097,351 7,661,752 8,971,625 9,163,777 8,064,486 6,583,118 Unrestricted investment 125,481 816,614 568,503 521,585 183,980 965,694 462,275 (35,188) 435,769 Miscellaneous………………………………………………… 504,968 536,979 431,558 77,454 214,067 248,905 168,417 203,848 250,681 2,274,567 2,687,282 2,466,477 2,542,444 2,628,834 2,437,695 (26,013) 702,234 1,062,580 Total governmental activities 60,278,980 64,118,108 69,055,870 72,916,783 74,859,698 78,938,990 78,994,771 81,172,625 82,765,030 Business-type activities: (2,274,567) (2,687,282) (2,466,477) (2,542,444) (2,628,834) (2,437,695) 26,013 (702,234) (1,062,580) Total primary 58,004,413 $ 61,430,826 $ 66,589,393 $ 70,374,339 $ 72,230,864 $ 76,501,295 $ 79,020,784 $ 80,470,391 $ 81,702,450 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 $ 905,462 $ (4,570,378) Business-type (2,666,960) (1,567,759) 716,649 (1,980,190) 34,900 1,007,852 (263,893) (1,174,061) (1,143,655) Total primary 11,582,886 $ 3,815,831 $ (2,214,223) $ (7,755,694) $ (1,311,754) $ 24,111,576 $ 233,733 $ (268,599) $ (5,714,033) 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 Nine Fiscal Years Changes in Net Assets City of Salem, Massachusetts 107 Comprehensive Annual Financial Report ---PAGE BREAK--- 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 General Fund Reserved…………………………… $ 1,432,723 $ 1,442,182 $ 1,382,756 $ 1,153,872 $ 68,524 $ 197,581 $ 69,631 $ 220,608 $ 372,027 $ 421,825 Unreserved………………………… 5,901,496 4,633,278 3,980,693 3,398,534 335,643 1,162,714 (1,151,199) 1,321,397 749,849 1,211,094 Total general 7,334,219 $ 6,075,460 $ 5,363,449 $ 4,552,406 $ 404,167 $ 1,360,295 $ (1,081,568) $ 1,542,005 $ 1,121,876 $ 1,632,919 All Other Governmental Funds Reserved…………………………… $ - $ 1,430,279 $ 1,481,549 $ 1,844,725 $ 1,591,750 $ 1,606,904 $ 1,629,202 $ 1,650,597 $ 1,688,851 $ 1,689,176 Unreserved, reported in: Special revenue funds………… 6,910,085 8,289,823 8,920,508 6,618,566 7,763,007 5,474,128 5,477,136 3,768,323 5,602,931 5,819,702 Capital projects funds………… (17,882,945) (26,709,082) (14,050,593) (24,963,657) (10,513,270) (1,859,435) (197,270) 2,806,105 (537,848) 3,969,207 Permanent funds……………… - 3,137,655 2,801,999 2,555,014 2,897,589 3,018,952 3,556,455 3,291,512 2,678,043 2,783,655 Total all other governmental funds…. $ (10,972,860) $ (13,851,325) $ (846,537) $ (13,945,352) $ 1,739,076 $ 8,240,549 $ 10,465,523 $ 11,516,537 $ 9,431,977 $ 14,261,740 Notes: Fiscal year 2001 excludes Expendable and Nonexpendable Trust Funds which were reported under the pre-GASB 34 format. Last Ten Fiscal Years Fund Balances, Governmental Funds Fiscal Year City of Salem, Massachusetts 108 Comprehensive Annual Financial Report ---PAGE BREAK--- 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Revenues: Real estate and personal property taxes, net of tax $ 48,802,188 $ 50,152,793 $ 52,448,384 $ 55,603,719 $ 55,866,348 $ 58,601,934 $ 60,638,180 $ 63,376,714 $ 66,717,968 $ 68,747,759 Motor vehicle and other excise 3,178,682 3,156,366 3,875,265 3,387,266 3,531,673 3,577,544 3,215,438 3,427,889 3,154,642 3,007,759 Intergovernmental…………………………………………………… 37,284,876 39,949,863 37,949,147 37,305,545 40,601,143 40,386,321 38,496,892 39,569,976 42,962,129 44,150,857 Departmental and 8,473,063 8,122,563 8,628,161 9,324,193 7,539,138 8,496,446 9,017,710 10,086,572 9,382,460 8,511,803 Investment 1,024,892 127,462 816,821 568,503 828,933 927,302 925,771 462,585 (32,923) 436,686 Commonwealth school construction grants……………………… - - - - 12,739,570 16,559,515 35,025,316 17,324,905 13,130,784 7,095,272 On-behalf pension payments by Commonwealth…………………(C) 4,505,009 4,301,287 4,275,669 5,345,441 5,890,261 6,376,140 7,044,987 7,511,889 8,277,958 8,602,216 Total 103,268,710 105,810,334 107,993,447 111,534,667 126,997,066 134,925,202 154,364,294 141,760,530 143,593,018 140,552,352 Expenditures: General 5,801,716 4,866,231 4,463,397 4,627,702 4,863,297 5,112,025 4,733,168 4,512,126 5,284,403 5,062,768 Public 14,589,271 15,738,798 15,368,476 14,999,915 14,417,276 14,547,596 14,969,952 15,945,719 16,452,689 16,147,666 45,852,552 47,250,529 48,449,552 47,729,470 46,260,838 47,647,867 47,719,326 47,293,548 48,101,995 49,491,944 Public 6,004,568 4,652,745 5,232,421 5,209,599 6,663,143 5,427,108 6,137,334 3,338,981 3,718,860 3,255,769 Community 2,462,534 1,936,213 2,348,162 2,085,553 2,066,749 1,891,386 1,804,554 1,567,381 2,402,149 3,413,203 Health and human 927,024 960,817 901,407 855,553 4,348,098 4,475,413 4,730,161 5,306,444 5,339,094 6,158,089 Culture and 3,338,502 2,728,470 2,981,769 2,756,066 2,278,899 2,339,600 1,865,609 2,135,563 2,395,536 2,320,698 Pension 4,610,788 4,204,226 4,340,575 6,565,806 11,926,982 13,388,893 14,375,924 15,180,985 16,206,240 16,770,835 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 8,277,958 8,602,216 Employee 5,550,602 9,853,473 10,529,297 10,580,395 10,433,140 9,964,302 10,889,249 11,570,087 11,805,651 11,077,682 State and county 2,183,362 3,770,566 3,911,644 4,212,549 4,028,333 5,047,971 5,589,986 5,933,670 6,302,025 6,655,890 Capital 17,106,792 12,975,601 18,550,903 15,793,932 1,422,955 7,581,652 38,018,740 12,930,767 13,552,655 4,654,814 Debt service 3,220,000 2,605,000 2,795,000 3,890,000 4,105,000 4,385,000 4,310,000 6,620,000 4,559,497 5,385,000 2,482,795 3,111,786 2,854,502 3,259,021 2,919,668 2,958,101 2,513,575 2,622,389 2,568,643 2,087,028 Total 118,635,515 118,955,742 127,002,774 127,911,002 121,624,639 131,143,054 164,702,565 142,469,549 146,967,395 141,083,602 Excess of revenues over (under) expenditures…………………… (15,366,805) (13,145,408) (19,009,327) (16,376,335) 5,372,427 3,782,148 (10,338,271) (709,019) (3,374,377) (531,250) Other Financing Sources (Uses) Issuance of 13,300,000 - 28,670,000 - 2,465,000 - 8,319,497 3,930,000 - 4,589,000 Premium from issuance of - - - - 232,856 - 85,169 84,840 - 575,986 Issuance of refunding - - - - - - - - 3,785,000 11,043,000 Payments to refunded bond escrow - - - - - - - - - (8,512,000) Refunding bonds - - - - - - - - (3,785,000) (2,930,000) Capital lease - - - - 807,283 1,046,619 378,169 394,779 167,454 43,500 Sale of capital - - 300,000 - - - - - - - Transfers 1,813,102 9,045,003 9,051,161 10,693,915 3,597,240 5,320,517 3,558,845 4,508,229 5,228,530 6,160,597 Transfers (1,435,512) (6,770,436) (6,719,057) (8,227,438) (1,054,796) (2,691,683) (1,121,150) (4,534,242) (4,526,296) (5,098,017) Total other financing sources 13,677,590 2,274,567 31,302,104 2,466,477 6,047,583 3,675,453 11,220,530 4,383,606 869,688 5,872,066 Net change in fund $ (1,689,215) $ (10,870,841) $ 12,292,777 $ (13,909,858) $ 11,420,010 $ 7,457,601 $ 882,259 $ 3,674,587 $ (2,504,689) $ 5,340,816 Debt service as a percentage of noncapital expenditures…………… 4.87% 4.87% 4.51% 6.16% 5.95% 5.94% 5.39% 7.13% 5.34% 5.48% In fiscal year 2005 certain grants were reclassified to Human Services to better reflect the purpose. Prior to fiscal year 2005 any receipts from the Commonwealth for school construction projects were included in intergovernmental revenue. The Commonwealth is legally obligated to fund the Salem teachers retirement. Therefore the revenue and expenditure has been recorded in accordance with GASB 24. Fiscal Year Last Ten Fiscal Years Changes in Fund Balances, Governmental Funds City of Salem, Massachusetts 109 Comprehensive Annual Financial Report ---PAGE BREAK--- Assessed Value and Actual Value of Taxable Property by Classification and Tax Rates Last Ten Fiscal Years Assessed and Actual Values and Tax Rates Total Total Total Fiscal Residential Residential Commercial Industrial Personal Commercial Commercial Direct City Year Value Tax Rate Value Value Property Value Tax Rate Rate Value 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 2009 3,753,889,412 12.92 446,457,904 133,318,180 177,993,390 757,769,474 24.54 14.87 4,511,658,886 2010 3,527,110,563 14.01 432,747,534 127,061,700 207,643,630 767,452,864 26.93 16.32 4,294,563,427 Revaluation year. Source: Assessor's Department, City of Salem All property in the Commonwealth of Massachusetts is assessed at 100% of fair cash value. Note: Chapter 59, Section 21C of the Massachusetts General Laws, known as "Proposition 2 1/2", imposes 2 separate limits on the annual tax levy of the City. The primary limitation is that the tax levy cannot exceed 2 1/2 percent of the full and fair cash value. The secondary limitation is that the tax levy cannot exceed the maximum levy limit for the preceding fiscal year as determined by the State Commissioner of Revenue by more than 2 1/2 percent, subject to an exception for property added to the tax rolls and for certain substantial valuation increases other than as part of a general revaluation. The secondary limit may be exceeded in any year by a majority vote of the voters, however it cannot exceed the primary limitation. Commercial Value as % of Total Value 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 2001 2002 2003 2004 2004 2005 2006 2007 2008 2009 2010 Total Assessed Value by Classification Fiscal Year Ended June 30, 2010 82% 10% 3% 5% Residential Commercial Industrial Personal Property Total Assessed Value by Classification Fiscal Year Ended June 30, 2009 83% 10% 3% 4% Residential Commercial Industrial Personal Property City of Salem, Massachusetts 110 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 $113,091,000 1 2.6% - - New England Power Company Personal & Industrial Property $35,913,210 2 0.8% $293,789,800 1 10.9% Shetland Properties Industrial & Commercial $27,329,200 3 0.6% $21,675,700 2 0.8% Massachusetts Electric Personal Property $25,560,650 4 0.6% $21,619,070 3 0.8% Highlander Plaza Commercial Property $21,817,100 5 0.5% $17,916,400 4 0.7% Salem Station LLC Apartments $21,104,900 6 0.5% - - Princeton Crossing Apartments Apartments $35,401,800 7 0.8% $12,713,400 8 0.5% Second Pickwick Trust Commercial Property $27,658,900 8 0.6% - - Bell Atlantic Personal Property $13,898,700 9 0.3% - - Keyspan PP Personal Property & Real Estate $13,793,600 10 0.3% - - Hawthorne Commons Apartments - - $6,261,900 9 0.2% NYNEX Personal & Industrial Property - - $14,943,800 6 0.6% Boston Gas Personal & Industrial Property - - $14,614,900 5 0.5% Applied Extrusions Technologies Electronics - - $6,306,700 7 0.2% Lagonakis/Crete/Minoan RT Commercial Property - - $6,053,400 10 0.2% Totals $335,569,060 7.8% $415,895,070 15.4% Source: Board of Assessors 2010 2001 City of Salem, Massachusetts 111 Comprehensive Annual Financial Report ---PAGE BREAK--- Percent of Less Percent of Delinquent Total Total Tax Fiscal Total Abatements & Net Current Net Levy Tax Tax Collections to Year Tax Levy Exemptions Tax Levy Tax Collections Collected Collections Collections Net Tax Levy 2001 $ 48,228,214 $ 654,519 $ 47,573,695 $ 47,565,588 99.9% $ 6,113 $ 47,571,701 100.0% 2002 49,789,935 484,373 49,305,562 49,199,288 99.8% 105,089 49,304,377 100.0% 2003 52,210,909 508,719 51,702,190 51,303,297 99.2% 398,826 51,702,123 100.0% 2004 54,374,223 564,486 53,809,737 53,259,047 99.0% 550,063 53,809,110 100.0% 2005 56,839,329 418,415 56,420,914 55,554,023 98.5% 866,450 56,420,473 100.0% 2006 59,292,238 443,519 58,848,719 58,010,805 98.6% 835,900 58,846,705 100.0% 2007 61,785,514 593,521 61,191,993 60,318,905 98.6% 870,423 61,189,328 100.0% 2008 64,399,664 565,307 63,834,357 63,225,112 99.0% 609,245 63,834,357 100.0% 2009 67,095,914 514,742 66,581,172 66,300,317 99.6% 280,855 66,581,172 100.0% 2010 70,082,325 612,829 69,469,496 68,292,880 98.3% 0 68,292,880 98.3% Revaluation Year Source: Massachusetts Department of Revenue; Board of Assessors Property Tax Levies and Collections Last Ten Fiscal Years City of Salem, Massachusetts 112 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 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% 2009 41,421 1,180,967,527 4,511,658,886 51,145,000 530,771 1,248 4.38% 1.15% 2010 41,361 1,202,841,984 4,294,563,427 50,387,000 317,032 1,226 4.22% 1.18% General Total Percentage Percentage Fiscal Obligation Capital Debt Per of Personal of Assessed Year Bonds Leases Outstanding Capita Income Value 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% 2009 7,250,908 0 58,926,679 1,423 4.99% 1.31% 2010 12,949,102 0 63,653,134 1,539 5.29% 1.48% Source: Audited Financial Statements, U. S. Census Governmental Activities Debt Business-type Activities Total Primary Government City of Salem, Massachusetts 113 Comprehensive Annual Financial Report ---PAGE BREAK--- Direct and Overlapping Governmental Activities Debt As of June 30, 2010 Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable Debt North Shore Regional Vocational School District……………$ 1,305,000 23.75% $ 309,938 City direct 52,017,000 Total direct and overlapping $ 52,326,938 Source: Treasurer and North Shore Regional Vocational School District City of Salem, Massachusetts 114 Comprehensive Annual Financial Report ---PAGE BREAK--- 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Equalized Valuation……………………………… $ 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 $ 5,168,060,200 $ 4,521,039,500 Debt Limit of Equalized Valuation………… $ 123,600,625 $ 123,600,625 $ 157,400,820 $ 157,400,820 $ 209,206,435 $ 211,186,790 $ 246,166,520 $ 246,166,520 $ 258,403,010 $ 226,051,975 Less: Outstanding debt applicable to limit…………… 5,080,000 5,625,000 4,646,000 4,167,000 6,695,447 6,064,000 5,435,000 13,126,497 12,004,000 10,884,900 Authorized and unissued 82,537,000 83,033,130 69,000,988 70,336,913 39,296,218 48,682,895 54,169,239 41,605,658 28,769,240 11,128,240 Legal debt $ 35,983,625 $ 34,942,495 $ 83,753,832 $ 82,896,907 $ 163,214,770 $ 156,439,895 $ 186,562,281 $ 191,434,365 $ 217,629,770 $ 204,038,835 Total debt applicable to the limit as a percentage of debt limit………………… 70.89% 71.73% 46.79% 47.33% 21.98% 25.92% 24.21% 22.23% 15.78% 9.74% Source: Audited Financial Statements; Statement of Indebtedness Fiscal Year Last Ten Fiscal Years Computation of Legal Debt Margin City of Salem, Massachusetts 115 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 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% 2009 41,421 1,180,967,527 28,511 36.4 4,474 9.7% 2010 41,361 1,202,841,984 29,082 36.7 4,647 9.6% Note: Per Capita Personal Income based on 2000 U.S Census Source: Massachusetts Department of Revenue, Division of Local Services; U.S. Census Bureau City of Salem, Massachusetts 116 Comprehensive Annual Financial Report ---PAGE BREAK--- Principal Employers Current Year and Nine Years Ago Nature Percentage of Percentage of of Total City Total City Business Employees Rank Employment Employees Rank Employment North Shore Medical Center Healthcare 2,875 1 13.0% 3,500 1 15.4% Higher Education 1,500 2 6.8% 1,215 3 5.3% State Government 520 3 2.3% - - - Food Market 325 4 1.5% - - - Cultural/Tourism 290 5 1.3% 165 10 0.7% Banking 236 6 1.1% 300 5 1.3% Lodging 210 7 0.9% - - - Health Care 202 8 0.9% - - - Retail 187 9 0.8% - - - Salem YMCA Social Service Agency 185 10 0.8% - - - City of Salem Municipal Government - - - 1,347 2 5.9% Sears Boston Credit Central Public Utility - - - 371 4 1.6% Salem Court System Judicial - - - 202 6 0.9% Perkin Elmer Opto Electronics Analytical Systems - - - 200 7 0.9% PG & E Public Utility - - - 184 8 0.8% District Attorney's Office Legal - - - 168 9 0.7% 6,530 29.4% 7,652 33.7% Source: The City Planning Department 2010 2001 Commonwealth of Massachusetts Offices Market Basket Salem State College Salem Five Savings Bank Employer Peabody Essex Museum Grosvenor Park Nursing Center Hawthorne Hotel Home Depot City of Salem, Massachusetts 117 Comprehensive Annual Financial Report ---PAGE BREAK--- 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Function General government…………… 59 62 68 62 64 40 34 36 35 35 Public safety……………………… 183 183 185 180 190 181 190 185 187 191 Education………………………… 755 755 755 756 756 752 752 753 752 752 Public 50 59 47 45 55 35 38 40 37 38 Engineering……………………… - - - - - - 1 3 1 1 Health and human services…… 20 22 22 21 21 21 20 17 14 17 Culture and recreation………… 36 35 34 31 31 34 23 21 22 22 Total 1,103 1,116 1,111 1,095 1,117 1,063 1,058 1,054 1,048 1,056 Source: Various City Departments Fiscal Year Last Ten Fiscal Years Full-time Equivalent City Employees by Function City of Salem, Massachusetts City of Salem, Massachusetts 118 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 General government Marriage recordings………………………………… 328 362 327 330 327 375 322 306 276 243 Birth recordings……………………………………… 1,680 1,708 1,804 1,839 1,761 2,044 2,043 1,712 1,614 1,774 Death recordings…………………………………… 865 848 823 935 847 737 755 520 535 557 Police Physical 1,039 1,057 984 965 685 2,792 2,793 2,569 2,502 2,072 Motor vehicle violations…………………………… 3,967 4,872 5,489 5,238 4,334 6,477 8,672 7,838 6,604 6,631 Police personnel and officers……………………… 103 105 94 85 85 81 84 85 85 87 Fire 3,004 2,950 1,972 3,231 2,789 1,187 1,562 1,562 886 935 Emergency responses……………………………… 3,917 3,993 3,911 4,281 4,572 6,235 6,719 6,663 6,330 6,409 Fire personnel and officers………………………… 92 96 85 78 78 75 76 78 81 79 Education Number of 5,107 5,064 5,016 4,727 4,676 4,744 4,573 4,404 4,474 4,647 Number of graduates……………………………… 220 237 218 257 246 255 269 254 273 283 Number of 369 397 406 415 409 477 484 479 479 488 Water Service connections………………………………… 9,812 9,842 9,898 10,516 10,568 11,000 11,811 11,701 11,737 11,719 Consumption in 2,107 2,064 2,090 2,111 2,136 2,000 2,056 2,123 1,994 2,103 Daily consumption 5.77 5.66 5.73 5.78 6.43 6.84 6.74 5.80 5.44 6.00 Sewer Service connections………………………………… 9,812 9,842 9,898 10,516 10,568 11,000 11,811 11,701 11,727 11,709 Health and human services Number of persons using COA transportation…… 45,523 47,220 44,804 44,500 45,976 37,497 39,052 18,678 15,526 16,076 Libraries Volumes in circulation……………………………… 130,510 128,626 124,435 125,516 128,569 141,595 143,052 148,752 145,634 143,512 Total volumes borrowed…………………………… 395,311 453,548 470,192 464,453 490,116 508,728 500,907 514,708 538,184 508,507 Source: Various City Departments; Massachusetts Department of Education Fiscal Year Last Ten Fiscal Years Operating Indicators by Function/Program City of Salem, Massachusetts 119 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 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 103 103 108 108 108 108 108 108 102 102 Health and human services Number of personnel……………………… 18 18 17 17 17 17 17 17 17 15 Culture and recreation Parks and playgrounds…………………… 35 35 35 35 35 35 35 35 35 35 Park and playground (acreage)…………… 230 230 230 230 230 230 230 230 230 230 Conservation land (acreage)……………… 114 114 114 128 128 128 128 128 128 128 Railroad right of way (acreage)…………… 89 89 89 89 89 89 89 89 89 89 Public 7 7 7 7 7 7 7 7 7 7 Ball 13 13 13 13 13 13 13 13 13 13 Tennis 10 10 10 10 10 10 10 10 10 10 Source: Various City Departments, Manual of the City Government Fiscal Year Last Ten Fiscal Years Capital Asset Statistics by Function/Program City of Salem, Massachusetts 120 Comprehensive Annual Financial Report ---PAGE BREAK--- Free Stabilization Fiscal Year Cash Fund $ 750,607 $ 1,913,913 $ 1,261,200 $ 1,489,907 $ 1,114,950 $ 648,947 $ 691,149 $ 487,980 $ 538,372 $ 277,759 $ 2,732,090 $ 1,021,351 $ 1,867,737 $ 1,297,417 $ 3,212,194 $ 2,278,823 $ 4,010,382 $ 2,248,337 $ 4,965,894 $ 1,713,814 Source: City Records Free Cash & Stabilization Fund Balances Last Ten Fiscal Years City of Salem, Massachusetts 121 Comprehensive Annual Financial Report