Document Salem_doc_9d44cd5f7a

CITY OF SALEM MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2013 Kimberley L. Driscoll, Mayor Sarah A. Stanton, Finance Director Prepared by the City of Salem Finance Department ---PAGE BREAK--- On the Cover – Winter Island Lighthouse Fort Pickering Light, also known as Winter Island Light, was built in 1871, the same year as Derby Wharf Light in Salem Harbor and Hospital Point Light in nearby Beverly. Mariners would line up Winter Island and Derby Wharf Lights after passing Baker’s Island on their way into Salem Harbor. The lighthouse was discontinued by the Coast Guard in 1969 and replaced by an offshore buoy. The lighthouse fell into disrepair until a group of concerned citizens and businesses formed the Fort Pickering Light Association in the early 1980s. The Association refurbished the lighthouse and Fort Pickering Light was relighted in 1983 as a private aid to navigation. The lighthouse was converted to solar power in 1995 by the City of Salem and the Fort Pickering Light Association and received a facelift in 1999, thanks to a community development block grant. Winter Island Light is a favorite of photographers and painters. The Friendship Sailing Ship at Pickering Wharf The Friendship is a reconstruction of a 171-foot three-masted Salem East Indiaman built in 1797. She is the largest wooden, Coast Guard certified, sailing vessel to be built in New England in more than a century. The replica is based on a model of the original Friendship at the Peabody Essex Museum, as well as several paintings of the ship and numerous documents, including logs of the ship's voyages. The new Friendship is part of the National Park Service's larger exhibit area at Salem Maritime National Historic Site. She is a fully operational sailing vessel but stays close to home so that everyone can come aboard. On special occasions she sails as Essex County's flagship, visiting ports along our coast to join in maritime festivals and events. ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2013 Prepared by Finance Department ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2013 TABLE OF CONTENTS Introductory Section 1 Letter of Transmittal 3 Organizational Chart 12 Principal Executive Officers 13 Certificate of Achievement for Excellence in Financial Reporting 14 Distinguished Budget Presentation Award 15 Financial Section 17 Independent Auditor’s Report 19 Management’s Discussion and Analysis 21 Basic Financial Statements 30 Statement of net position 31 Statement of activities 32 Governmental funds – balance sheet 34 Reconciliation of the governmental funds balance sheet total fund balances to the statement of net position 35 Governmental funds – statement of revenues, expenditures and changes in fund balances 36 Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of activities 37 Proprietary funds – statement of net position 38 Proprietary funds – statement of revenues, expenses and changes in net position 39 Proprietary funds – statement of cash flows 40 Fiduciary funds – statement of fiduciary net position 41 Fiduciary funds – statement of changes in fiduciary net position 42 Notes to basic financial statements 43 Required Supplementary Information 77 General fund budgetary comparison schedule 78 General fund schedule of revenues, expenditures and changes in fund balance – budget and actual 79 Retirement system schedules 84 Retirement system schedule of funding progress 85 Retirement system schedule of employer contributions 86 ---PAGE BREAK--- Other postemployment benefit plan schedules 87 Other postemployment benefit plan schedule of funding progress and employer contributions 88 Other postemployment benefit plan actuarial methods and assumptions 89 Notes to required supplementary information 90 Combining and Individual Fund Statements 93 Nonmajor governmental funds 94 Nonmajor governmental funds – combining balance sheet 97 Nonmajor governmental funds – combining statement of revenues, expenditures, and changes in fund balances 100 Private purpose trust funds 103 Private purpose trust funds – combining statement of net position 104 Private purpose trust funds – combining statement of changes in net position 105 Agency Fund 106 Agency fund – statement of changes in assets and liabilities 107 Statistical Section 109 Net position by component – last ten fiscal years 110 Changes in net position – last ten fiscal years 111 Fund balances, governmental funds – last ten fiscal years 112 Changes in fund balances, governmental funds – last ten fiscal years 113 Assessed value and actual value of taxable property by classification and tax rates – last ten fiscal years 114 Principal taxpayers – current year and nine years ago 115 Property tax levies and collections – last ten fiscal years 116 Ratios of outstanding debt and general bonded debt – last ten fiscal years 117 Direct and overlapping governmental activities debt – as of June 30, 2013 118 Computation of legal debt margin – last ten fiscal years 119 Demographic and economic statistics – last ten fiscal years 120 Principal employers (excluding City) – current year and nine years 121 Full-time equivalent City employees by function – last ten fiscal years 122 Operating indicators by function/program – last ten fiscal years 123 Capital asset statistics by function/program – last ten fiscal years 124 Free cash and stabilization fund balances – last ten fiscal years 125 ---PAGE BREAK--- Introductory Section Salem Willows Park The Salem Willows offers beautiful shaded seaside grounds, scenic ocean views, public pier, and band stand for concerts, picnic areas, beaches, children’s rides, activities and many eateries. One of Salem’s treasurers, this park has a fascinating history. Salem Willows is renowned for the European white willow trees planted here in 1801 to form a shaded walk for patients convalescing at the old smallpox hospital. Later the area became a park. During the first half of the 20th century, Restaurant Row on the park's north shore served fresh seafood favored by locals and visitors alike. A carousel with carved flying horses was another special attraction at Salem Willows, which then, as now, operated as an entertainment center. Visitors still flock here during the summer to enjoy the sunshine, the arcade and the park's ample picnic grounds and recreational facilities. Annual Read Picnic and Science Fair-Salem Willows for All Salem School children ---PAGE BREAK--- City of Salem, Massachusetts 1 Comprehensive Annual Financial Report Introductory Section ---PAGE BREAK--- City of Salem, Massachusetts 2 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 3 Comprehensive Annual Financial Report City of Salem, Massachusetts Finance Department 93 Washington Street Salem, MA 01970 Ph. [PHONE REDACTED] Ext 5625 Fax [PHONE REDACTED] [EMAIL REDACTED] Letter of Transmittal Sarah Stanton, Finance Director November 12, 2013 To the Honorable Mayor, Members of the City Council and Citizens of the City of Salem, Massachusetts: At the close of each fiscal year, state law requires the City of Salem to publish a complete set of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) that are audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the Comprehensive Annual Financial Report (CAFR) of the City of Salem, Massachusetts, for the fiscal year ending June 30, 2013 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, 2013, are fairly presented in conformity with GAAP. The City of Salem’s financial statements have been audited by Powers & Sullivan, LLC, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2013, 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, 2013 are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report. The independent audit of the financial statements of the City was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with ---PAGE BREAK--- City of Salem, Massachusetts 4 Comprehensive Annual Financial Report 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 41,654 and occupies a land area of approximately 8 square miles. The second city in the Commonwealth to be incorporated, it is the Shire City of Essex County. Salem has operated under the Plan B form of government, with a mayor and an eleven-person City Council, seven elected from wards, and four at-large, since 1915. The Mayor is elected for four years in November of unevenly-numbered years. The Mayor is the administrative head of the City and chairman ex-officio of the School Committee, the Board of Library Trustees, and the Board of Trust Fund Commissioners. The Mayor acts with the City Council and School Committee to carry out City business. The Mayor appoints her office staff, the City Solicitor, and the Assistant City Solicitor without City Council confirmation. The appointments of most City department heads, and members of the various boards and commissions, however, require City Council confirmation. The Mayor has the right to veto any order, resolution, or ordinance passed by the Council. However, a veto may be overturned by a two-thirds vote of all councilors. After reviewing and revising estimates prepared by department heads, the Mayor submits the budget to the City Council for final action. The Mayor approves all municipal payrolls, vouchers, contracts and instruments; and recommends bond issues, legislations and orders to the City Council; and represents the City with other levels of government. As the general administrator of all City departments, the Mayor is consulted by department heads pertaining to the City’s welfare. The City Council is primarily the legislative branch of the City government. As the legislative body, the Council confirms appointments made by the Mayor and appropriates all monies necessary to City operation. It can approve, disapprove, or reduce the amount of appropriations, but not add to the appropriation. The Council receives orders of recommendation by the Mayor and petitions from the public, and acts on them after committee study. The City Council also has the power to enact the ordinances and other regulations. A majority of the City Council constitutes a quorum, and the affirmative vote of a majority of all the members of the Council is necessary for the adoption of any motion resolution, or ordinance. In some instances, adoption by a two-thirds vote of the members is required by statute. The City provides general governmental services for the territory within its boundaries, including police and fire protection, disposal of garbage and rubbish (for residential properties); public education, including vocational- technical education at the high school level; street maintenance; certain water services, through the Salem and Beverly Water Supply Board; certain sewerage disposal services, through the South Essex Sewerage District; and parks and recreational facilities. Approximately 95% of the City is connected to the sewerage system; the entire area of the City is served by the municipal water system. Both the Salem and Beverly Water Supply Board and the South Essex Sewerage District 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 1,779 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 1,179 units, 715 are public housing, 211 are designated for families, and 465 are for elderly housing. 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. ---PAGE BREAK--- City of Salem, Massachusetts 5 Comprehensive Annual Financial Report 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 FY2014 totaled approximately $134 million, which includes Real & Personal Property tax revenue, State Revenues, Massachusetts School Building Authority (MSBA) Revenue, local revenues, transfers in of approximately $1,000,000 from Receipts Reserved Harbormaster, Witch House and Golf Course (to reduce tax rate), other receipts reserved transfers, and approximately $1.5 million of indirect costs from the Water & Sewer Enterprise funds. These revenues cover general fund budgeted expenses and deficits raised including snow and ice, school lunch, health insurance trust, and to fund the Retirement Anticipation Fund and Capital Improvement Projects Fund. These also include enterprise fund expenses. The City includes the Salem Contributory Retirement System (the System) in its financial reporting since the City represents approximately 85% of the members of the System. The System was established to provide retirement benefits to its members, including employees and beneficiaries of the City of Salem, the Salem-Beverly Water Supply Board, the Salem Housing Authority, the South Essex Sewerage District, and the North Shore Regional Vocational School System. Factors Affecting Economic Condition The City of Salem is a historic waterfront community that has a rich cultural heritage, known worldwide for its architecture, maritime history, literary prominence, and hysteria. For this reason, tourism is one of the City’s major industries, accommodating almost one million visitors each year. Salem originated as one of the earliest landing sites of the English colonists, and went on to rise as the first major port in the United States, opening up the East Indian trade. In its heyday, Salem was known as a thriving hub of American commerce and was the home of Nathaniel Hawthorne. Salem is well known for the infamous Salem Trials of 1692, when nineteen people were convicted for the crime of and were put to their deaths. The City's golden years have left her modern inhabitants with architectural treasures, fine museums, and a sparkling literary heritage. Equally important, the development of Salem has produced a rich ethnic history, to which people of all races, creeds, colors and origins have contributed over the generations. Long a trading, manufacturing and retail center, Salem has been making a slow, and sometimes painful, transition to a service- based economy. The City today serves as the home of Salem State University, the North Shore Medical Center, the Essex County District Superior and Probate Courts, and Registry of Deeds, the world-famous Peabody Essex Museum, and a host of banks and other financial institutions. It is the educational, medical, legal, cultural and banking hub of the North Shore. Salem also boasts an impressive collection of historically significant residential structures that are always in high demand. The uniqueness of these historic homes, coupled with a growing downtown condominium market, has helped boost home sales prices in Salem. ---PAGE BREAK--- City of Salem, Massachusetts 6 Comprehensive Annual Financial Report Private Infrastructure Improvements FY2013 The City Council recently approved the sale of a City owned 38 space parking area to Dodge Area LLC in FY2014. The developer plans to fold this property into a proposed larger $45 million mixed-use development that would utilize properties it already owns. Proposed is a 100 room hotel, a new 275 space parking structure that would maintain 38 spaces for public access, 22,400 square feet of ground floor retail and commercial space, 7,000 to 14,000 square feet of upper level office space, and 70 to 80 residential units. The City views this project as a viable way to effectively extend its downtown that has been experiencing significant investment and growth. Salem State University continues to invest in its ever-growing campus. FY2013 brought the completion of the brand new library. Opened in June 2013, the $74 million, 122,000-square-foot Frederick E. Berry Library houses 1,000 study seats, 150 personal computers, and 12 group study rooms. State-of-the-art technology is available throughout, including paint that can transform walls in the study rooms to dry-erase boards. Desks are adjustable to accommodate people with special needs. FY2013 also brought the long-awaited approval of the new Salem Senior Center. The $30 million proposed development was approved in FY2013 to include the City’s senior center, professional offices, and a health club. The City anticipates that the development, which will be built upon a now abandoned five acre property that once housed a Sylvania lighting plant, will catalyze more economic development opportunities along its North River Canal and Boston Street corridors. Around the corner from the proposed new Senior Center, demolition of former St. Joes Church and school and construction of new four-story, mixed-use building which includes 51 affordable dwelling units, 4,560 sq. ft. of commercial space, and a 1,000 sq. ft. community center is nearing completion. Construction started in August 2012 and is projected to be completed by January 2014. Also, the Peabody Essex Museum (PEM) is in the process of realizing a $200 million, 175,000 square foot expansion, which will add approximately 75,000 square feet of new gallery, public program and education spaces, a restaurant, as well as improvements to the museum’s collection, conservation and exhibition processing areas. A first phase of this expansion is currently wrapping up – an “enabling phase” that includes the construction of a mechanical penthouse that will support the future expansion – and PEM recently selected a new architectural firm – Ennead Architects of New York – to oversee the balance of the expansion, which should be complete by 2019. Finally, in July 2013, after FY2013 financial approval, the MBTA began construction of a new $34 million garage, pedestrian bridge, and improved platform. The project is expected to be completed around October 1, 2014. Commuter rail and bus service to and from the Salem station is still available during construction. The new Salem Station and Parking Garage will be fully accessible with a new 9-Car high level platform and a lobby with two elevators in compliance with the Americans with Disabilities Act (ADA). Station access includes an at-grade bus platform, taxi lane and kiss-and-ride drop-off/pick-up area, pedestrian sidewalks and a pedestrian bridge from Bridge Street to the elevators and stairs down to the platform. There will be station upgrades to seating, lighting, signage systems, site improvements and landscaping. The new parking garage is being designed with 714 spaces. The garage will include parking for electric vehicles, accessible parking on each level, zip car parking, and bicycle parking, and a parking control system. Public Infrastructure Improvements FY2013 Downtown Salem Continues to thrive as a vibrant center of commerce and activity. The City continues its investment in to the Essex Street Pedestrian Mall. FY2013 improvements included the removal of two planting beds and replacement with brick, removal of cobble parking tabs and replacement with brick, the removal and resetting of all cobble on a concrete slab, the removal and replacement of 8 trees, the demolition and removal of the information kiosk, the relocation of utilities into a new electrical cabinet, the removal of three bollards and the ---PAGE BREAK--- City of Salem, Massachusetts 7 Comprehensive Annual Financial Report installation of eight new bollards, etc. The project started in May 2013, substantially completed on June 30, 2013 and final punch list items was completed in September 2013. The City is carrying out the $20 Million construction of a concrete and steel pier and floating dock system with utilities to accommodate a variety of vessels including the Salem Ferry, cruise ships, excursion boats, water taxis and commercial fishing boats. Construction began in 2010 and is about 50% complete. Project costs are primarily funded with State and Federal grants. Successful development of this facility will provide a major economic boost for the region by expanding markets in the tourism industry and by creating opportunity for new, innovative marine industry. Continuing the City’s long standing commitment to open space and public recreation, Salem is undertaking a complete renovation of Bertram Field football stadium and track. The field is being converted to turf which requires far less maintenance and can stand up to heavy use. The track will be expanded to regulation size. Cost of the project is $1.9 million and is being partially funded with a MA PARC grant in the amount $400,000. The project was completed in October 2013, just in time to host the Thanksgiving football game of Salem v. Beverly. The City was also awarded a $420,946 grant by the MA Office of Environmental Affairs to fund a full renovation including the ballpark, community gardens, new play equipment, enhanced park entrances and installation of an irrigation system. The City matched the grant with $216,851. 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 completed their $12 million 10,700 square foot cardiac surgical suite and 19,000 square foot Emergency Department, which is one of the most sophisticated and modern emergency facilities in the state. According to the Massachusetts Workforce Development Agency, the City had a labor force of 23,914, of whom 22,389 were employed and 1,575, or 6.6% were unemployed. The Commonwealth, for the same period, had an unemployment rate of 7.2%. Financial Planning and Forecasting In FY2009, the City modified its budget format to improve upon its content and layout. The goal was to have a comprehensive budget that would allow an average person to read and comprehend the budget and budget process of the City. It also was modeled after several budgets that were submitted and approved for the Government Financial Officer’s Association (GFOA) “Distinguished Budget Presentation Award”. The new model included more narrative, including goals and objectives of each department, financial forecasts, policies and glossary of financial terms. It required a significant amount of work for all department heads and especially the finance division, who had to ensure all the materials were pulled together timely for submission to both the City Council and the GFOA. As a result of our efforts, the City has been awarded the GFOA’s “Distinguished Budget Presentation Award” for fiscal years 2009 through 2013. Included in the budget was the City’s Five Year Financial Forecast. This is the seventh year that such a forecast has been completed. This forecast acts as a useful tool to the Mayor and Council to better identify “budget busters” on the expenditure side and to also determine whether forecasted revenue growth is adequate for future expenses. Also included in the budget was the City’s Five Year Capital Improvement Plan (CIP) for the purpose of planning and maintaining the City’s capital and infrastructure. The CIP includes policies on debt service and capital improvement budgeting. As part of the FY2013 CIP, the City used $340,000 of one time revenues for capital improvements, including various repairs at the police and fire departments, as well as infrastructure repairs of playground equipment and the Salem Common Fence. Other highlights of the FY2013 CIP include the investment of over $1.1 million to ---PAGE BREAK--- City of Salem, Massachusetts 8 Comprehensive Annual Financial Report purchase a new ladder truck for the fire department, over $1.8 million to remediate the Universal Steel parking area, over $400,000 in police technology and public safety upgrades, and over $200,000 for a new prevention and response multi-mission boat for the Harbormaster. Fixed Costs ~ Health Insurance and Pension Assessment Health Insurance The City continues to explore options to contain the rising cost of health care for City employees/retirees. In FY2006, 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 FY2007 and continues to realize savings for the City. This is a major cost saving initiative that will insure that all retirees over the age of 65 are treated consistently, while also providing greater control of costs associated with the City’s Healthcare Insurance. The City has used many different approaches to keep the cost of health insurance affordable as it relates to the overall budget of the City, including the procurement of new health care providers, modifications of existing plans, and collective bargaining to modify the employee/employer apportionment of costs. However, the most significant approach was enacted in FY2012 with the City Council’s adoption of the Municipal Health Care Reform Act (the Act). As part of the Act, the City was allowed to enter into the State’s Group Insurance Commission (GIC), which resulted in significant short term savings ($1.5 million in FY13), and long term savings for the City. In fact, the City was able to reduce its long term liability, also known as “other postemployment benefits” (OPEB) by $26 million dollars, from $171 million in 2010 to $145 million in 2012, per the City’s OPEB liability report performed by the Segal Company, the City’s contracted actuary. While there were significant savings for the City, the employees and retirees of the City will also receive financial savings of approximately $1.25 million for FY2013, as well as the long term stability of being a member of the State’s GIC plan. The savings to the City employees and retirees come from lower premiums, an increase in City’s contribution to PPO plans from 65% to 70%, and the establishment of a “mitigation fund” of $220,000 that will pay for 100% of the copayments for inpatient and outpatient visits, as well as 50% of the copayments for all high tech imaging. The City also has agreed to pay all administrative fees for any person who wishes to enroll in a flexible spending account, which allows for pre-tax payments for certain medical costs, prescriptions, and some over the counter medications. Pension Assessment In FY2007, 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 FY2009, the Retirement Board moved all available funds into the State’s Pension Reserves Investment Trust (PRIT) to take advantage of its higher returns and lower administrative fees. Because of its size, the PRIT can diversify assets for maximum possible return. The Retirement Board shifted these assets voluntarily to the PRIT after a complete analysis and a vote of the Retirement Board. The Salem Contributory Retirement Board completed its most recent actuarial valuation summary for January 1, 2012. The next actuarial valuation will take place in January 2014. The study was performed by the Segal Company and was delivered to the Retirement Board in September of 2012. The study reported the actuarial assets of the system as of January 1, 2012 of $106.8 million and an unfunded liability of $107.5 million. The unfunded liability increased from January 1, 2010 by $14 million, partially due to the net investment losses of ---PAGE BREAK--- City of Salem, Massachusetts 9 Comprehensive Annual Financial Report calendar year 2011, in which market value rate of return was -0.25%, while the assumed rate of return was 8.25%. However, the market rate of return in calendar year 2010 was 12.03%, which helped offset some of the 2011 losses. As a result of the increased unfunded liability, and the lower than expected return on investment, the Board adopted a funding schedule which will fully amortize the existing unfunded liability plus the expected increases in unfunded liability due to the deferred investment losses by June 30, 2032 with amortization payments that increase 4.5% per year. The total FY2013 appropriation for the system is $10,941,379, with the City’s share of 85.3% amounting to $9,337,442. Other Significant Financial Matters The Salem Harbor Power Station is the City’s largest taxpayer. The power plant, in August of 2012, changed ownership from Dominion Energy to Footprint Power LLC. The new owners plan to run the plant through June 30, 2014 which is when Dominion filed to decommission all four of its power generating units prior to the change in ownership. Immediately after June 2014, Footprint Power plans to demolish all existing structures and undertake any necessary environmental remediation. Footprint plans to construct a state-of-the-art 630 megawatt gas-fired plant on a portion of the site and will open the remaining two-thirds of the 63 acre waterfront property to private and public development opportunities. From a revenue perspective, at the end of FY2011, the City’s tax agreement with Dominion expired. Prior to this date, the City received a total payment from Dominion Energy in the amount of $4.75 million for FY2011, $3 million in tax dollars within the tax levy and $1.75 million dollars designated as a “host fee” accounted for as miscellaneous non-recurring revenues. In FY2011, Dominion announced major operational changes shutting down two of their power generating units due to market conditions and regulatory challenges at the state level. Due to the implementation of state regulations impacting its operations, during the FY2012 budget process, the Massachusetts Legislature adopted a proposal to ensure that Salem taxpayers will not be overly burdened by lost revenues from the power plant through 2016. Chapter 68 of the Acts of 2011, Section 33 states that “…the municipality shall be entitled to reimbursement for the difference between the amount called for….prior to the full or partial decommissioning or the change in operating status of the facility.” This legislation postpones the financial impact of the loss of a major taxpayer. More importantly, it allows the City to work toward replacing the lost revenues and planning for an appropriate reuse of the site. For FY2013, the City entered into a one year agreement with Dominion that called for a $1.49 million payment of tax dollars and a $260,000 “host fee”, which triggered a $3 million dollar payment from the Commonwealth, bringing total revenues for FY13 to $4.75 million. This was the same agreement negotiated for FY2012. The City is working on completing an agreement for FY14. Financial Policy The City has set a goal to fund the Stabilization fund in the amount of 5% of the City’s current operating budget, or $6.3 million. As of June 30, 2013, the balance in the City’s Stabilization fund is $3.4 million. The target date to have the Stabilization Fund fully funded is projected to occur by FY 2016. 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 FY 2008, the City established a second Stabilization Fund (Retirement Stabilization Fund) for the funding of retirement buyouts for both City and School employees. As of June 30, 2013, the balance of this account was ---PAGE BREAK--- City of Salem, Massachusetts 10 Comprehensive Annual Financial Report $195,088. During the FY2013 budget process, all department heads were asked if they anticipated any retirements and to calculate the estimated cost of each person’s buyout for FY2013. As part of the FY2013 budget process, the City Council appropriated an additional $505,165 to the fund. The goal of the Retirement Stabilization Fund is to pay for any unanticipated retirements from this Fund instead of using general fund appropriations. This will allow the departments to backfill vacancies in a timely manner without having to request a supplemental appropriation by the Council. In FY2011, the City adopted Massachusetts General Law Chapter 32B, Section 20, establishing the “Other Postemployment Benefits (OPEB) Liability Trust Fund” as a local option. This fund gives communities a mechanism to reduce the unfunded actuarial liability of health care and other postemployment benefits. The City currently has $675,000 in the account, and has designated $600,000 to this fund as of June 30, 2013. Future appropriations will be made to this fund in accordance to financial policies of the Finance Department of the City. Free cash is the remaining unrestricted funds from operations of the previous fiscal year including unexpended free cash from the previous year, actual receipts in excess of revenue estimates shown on the tax rate recapitulation sheet, and unspent amounts in budget line-items. Unpaid property taxes and certain deficits reduce the amount that can be certified as free cash. The calculation of free cash is based on the balance sheet as of June 30th, which is submitted by the community's auditor, accountant, or comptroller. Free cash is not available for appropriation until certified by the Massachusetts Director of Accounts. Free cash is the term used for a community’s funds that are available for appropriation. Once free cash is certified, it is available for appropriation by City Council. The balance for free cash was certified in mid-October in the amount of $5.5 million. Free cash may be used for any lawful municipal purpose and provides communities with flexibility to fund additional appropriations after the tax rate has been set. Free cash balances do not carry forward to the next fiscal year (July 1st). The certification expires on June 30th at the end of the fiscal year. The City’s policy is to use free cash for reserves, capital, and special uses in accordance with the policies set forth by the Mayor and Finance Director. Once free cash is certified by the Director of Accounts, any drawdown of the Stabilization Fund from the prior fiscal year shall be replenished from the certified free cash if the free cash exceeds such drawdown. Once any drawdown of Stabilization funds are replenished, allocation of the remaining free cash shall be as follows; • 20% of any free cash available after funding a prior year drawdown will also be allocated from free cash to the Stabilization Fund up to the goal of the 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 the Stabilization Fund will also be allocated to the Capital Improvement Fund for funding Capital. • 10% of any free cash available after funding any drawdown will be allocated to the OPEB Liability Trust Fund (beginning in FY2012). Any free cash available after funding the above may be used to augment trust funds related to fringe benefits and unfunded liabilities related to employee benefits, including Workers' Compensation Fund, Unemployment Fund, and any health benefits payable through Police and Fire operating budgets (111f settlements). Free cash available may also be used to augment general fund appropriations for expenses that increased due to extraordinary and/or unforeseen events as detailed by the department head of the affected budget. Awards and Acknowledgements The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement of Excellence in Financial Reporting to the City of Salem for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2012. This was the seventh year that the City submitted a CAFR to the GFOA. In order to ---PAGE BREAK--- City of Salem, Massachusetts 11 Comprehensive Annual Financial Report receive this prestigious award, a government had to publish an easily readable and efficiently organized CAFR that satisfied both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The GFOA also awarded a Distinguished Budget Presentation Award to the City of Salem for its budget document for the fiscal year beginning July 1, 2012. 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. It should be noted that the Distinguished Budget Award was awarded to only twelve of the 351 communities in the Commonwealth for the fiscal period beginning 2012 and that only five communities in the entire Commonwealth received both the Certificate of Achievement of Excellence in Financial Reporting and the Distinguished Budget Presentation Award in 2012. 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, Sarah A. Stanton Finance Director ---PAGE BREAK--- City of Salem, Massachusetts 12 Comprehensive Annual Financial Report Organizational Chart ---PAGE BREAK--- City of Salem, Massachusetts 13 Comprehensive Annual Financial Report Principal Executive Officers TITLE NAME FIRST TOOK OFFICE TERM EXPIRES Mayor Kimberley L. Driscoll 1/2/2006 12/31/2013 President, City Council Jerry Ryan 1/1/2013 12/31/2013 Finance Director Sarah Stanton 3/14/2013 1/31/2013 Treasurer Kathleen McMahon 12/27/2010 1/31/2013 Collector Bonnie Celi 3/11/2004 1/31/2013 City Clerk Cheryl LaPointe 7/15/2004 11/9/2015 City Solicitor Elizabeth Rennard 1/10/2006 Indefinite Assistant Finance Director Nina Bridgman 1/22/2004 1/31/2014 Principal Executive Officers ---PAGE BREAK--- City of Salem, Massachusetts 14 Comprehensive Annual Financial Report Certificate of Achievement for Excellence in Financial Reporting ---PAGE BREAK--- City of Salem, Massachusetts 15 Comprehensive Annual Financial Report The Government Finance Officers Association of the United States and Canada (GFOA) presented a Distinguished Budget Presentation Award to the City of Salem, Massachusetts for the Annual Budget beginning July 1, 2012. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, as an operational guide, as a financial plan, and as a communication device. Distinguished Budget Presentation Award ---PAGE BREAK--- City of Salem, Massachusetts 16 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- Financial Section Downtown Salem Salem has a wide variety of restaurants including outdoor cafes, ethnic eateries and fine dining establishments. For shoppers there are malls and department stores, an open market, a waterfront village, as well as a downtown retail district. Salem also boasts of a wealth of museums, historic sites and attractions. ---PAGE BREAK--- City of Salem, Massachusetts 17 Comprehensive Annual Financial Report Financial Section ---PAGE BREAK--- City of Salem, Massachusetts 18 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 19 Comprehensive Annual Financial Report Independent Auditor’s Report To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of and for the year ended June 30, 2013 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2012), and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of June 30, 2013 (except for the Salem Contributory Retirement System which is as of December 31, 2012), and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. ---PAGE BREAK--- City of Salem, Massachusetts 20 Comprehensive Annual Financial Report Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Salem’s basic financial statements. The introductory, combining and individual fund statements and statistical sections are presented for the purpose of additional analysis and are not a required part of the basic financial statements. The combining and individual fund statements are the responsibility of management and were derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund statements are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 12, 2013 on our consideration of the City of Salem, Massachusetts’ internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Salem, Massachusetts’ internal control over financial reporting and compliance. November 12, 2013 ---PAGE BREAK--- City of Salem, Massachusetts 21 Comprehensive Annual Financial Report Management’s Discussion and Analysis Management’s Discussion and Analysis ---PAGE BREAK--- City of Salem, Massachusetts 22 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, 2013. We encourage readers to consider the information presented in this report in conjunction with additional information that we have furnished in our letter of transmittal. The Governmental Accounting Standards Board (GASB) is the authoritative standard setting body that provides guidance on how to prepare financial statements in conformity with generally accepted accounting principles (GAAP). Users of these financial statements (such as investors and rating agencies) rely on the GASB to establish consistent reporting standards for all governments in the United States. This consistent application is the only way users (including citizens, the media, legislators and others) can assess the financial condition of one government compared to others. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City of Salem’s basic financial statements. The basic financial statements consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of finances, in a manner similar to private-sector business. The statement of net position presents information on all assets and liabilities, and deferred inflows/outflows of resources, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position is improving or deteriorating. The statement of activities presents information showing how the government’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future 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, and 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 23 Comprehensive Annual Financial Report demonstrate compliance with finance-related legal requirements. All of the funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund statements focus on near-term inflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Salem adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided as required supplementary information to demonstrate compliance with this budget. Proprietary funds. The City maintains two types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government- wide financial statements. The City uses enterprise funds to account for its water and sewer activities, parking services, trash disposal, and for the operation of the municipal golf course. The internal service fund is used to account for the financing of services provided by one department to other departments or governmental units. The internal service fund is now used to account for funds set aside by the City to help offset health insurance costs of employees that were highly impacted from the switch to the GIC (Group Insurance Commission). Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The fiduciary fund financial statements provide separate information for the pension trust funds of the City. The other postemployment benefits trust fund is used to account for assets accumulated to provide funding for future other postemployment benefits (OPEB) liabilities. Private-purpose trust funds and agency funds are reported and combined into a single, aggregate presentation in the fiduciary funds financial statements under the captions “private purpose trust funds” and “agency funds”, respectively. Notes to the basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Government-wide Financial Analysis Governmental Activities As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. The City of Salem’s governmental assets exceeded liabilities by $159.7 million at the close of fiscal year 2013. This represents an increase of $22.4 million from the prior fiscal year. ---PAGE BREAK--- City of Salem, Massachusetts 24 Comprehensive Annual Financial Report Net position of $169.8 million reflects the City’s net investment in capital assets land, buildings, infrastructure, machinery, and equipment, less any related debt used to acquire those assets that are still outstanding). The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the investment in its capital assets is reported net of its related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Net investment in capital assets increased by approximately $22 million during fiscal year 2013. This was primarily the result of the acquisition of new capital assets of approximately $38 million, mainly related to school construction, net of $7.3 million in depreciation recorded against capital assets and a net decrease of $8 million in outstanding debt related to those assets. The $38 million of capital assets were partially funded by $30.6 million in capital grants ($25 million of which was from MSBA). An additional portion of the governmental net position, $12.5 million, represents resources that are subject to external restrictions on how they may be used. This balance was up by approximately $1.3 million due to the timing of grant and gift receipts and expenses. The balance of unrestricted net position has a year-end deficit of $22.6 million. The primary reason for this deficit balance is the recognition of other postemployment benefit liabilities totaling $32.4 million, in accordance with the requirements of Governmental Auditing Standards Board (GASB) Statement 45. The statement requires the City to obtain a biannual actuarial valuation of the City’s liability to pay other postemployment benefits to current employees and retirees. The City is allowed to amortize the liability, which is currently estimated to be approximately $145 million, over 30 years. Since there is no legal obligation to fund the liability at this time, the City has opted to continue to fund the majority of its other postemployment benefits on a pay-as-you go basis. As a result, the City is required to record the difference between the current year pay-as-you go cost and the current year actuarial determined cost plus interest on any prior unfunded liability as an expense in the full accrual financial statements. This difference totaled $5.4 million for governmental activities for fiscal year 2013. The City began the process of pre-funding a portion of the liability in fiscal year 2012 by establishing an irrevocable trust which, as of June 30, 2013, has a balance of $675,000 and is reported within the Fiduciary Funds in the City’s financial statements. This accrued liability was partially offset by positive budgetary results in the City’s general fund which contributed approximately $2 million to the unrestricted net position. The components of the City’s governmental activities are presented below. Fiscal 2013 Fiscal 2012 Assets: Current 47,247,438 $ 40,433,740 Noncurrent assets (excluding capital)…………………… 4,004,603 18,326,546 Capital 203,205,214 172,195,580 Total 254,457,255 230,955,866 Liabilities: Current liabilities (excluding 11,678,583 11,810,228 Noncurrent liabilities (excluding 40,971,218 35,447,909 Current 10,019,179 6,755,366 Noncurrent 32,100,521 39,669,302 Total liabilities………………………………………… 94,769,501 93,682,805 Net Position: Net investment in capital 169,750,602 147,692,495 12,499,976 11,197,635 (22,562,824) (21,617,069) Total net $ 159,687,754 $ 137,273,061 Governmental Activities ---PAGE BREAK--- City of Salem, Massachusetts 25 Comprehensive Annual Financial Report The $14.3 million decrease in noncurrent assets over the prior year was mainly due to the City receiving a $15.8 million payment from the MSBA as an early redemption of a portion of MSBA’s share of bonds issued in 2003 to finance school construction projects on the Bowditch, Carlton and Bates elementary schools. The MSBA payment, along with net premiums and City appropriations of approximately $333,000 were used to pay down $15.6 million of bonds outstanding. Through the early redemption the City realized a net decrease in its aggregate debt service payments of $2,113,445 over the next 10 years. Fiscal 2013 Fiscal 2012 Program revenues: Charges for $ 6,215,886 $ 5,356,226 Operating grants and contributions……………………… 49,028,512 47,872,700 Capital grants and contributions………………………… 30,643,446 5,699,571 General Revenues: Real estate and personal property taxes………………… 76,770,134 72,073,381 Motor vehicle and other excise 3,052,229 3,131,334 Nonrestricted 6,610,413 8,220,908 Unrestricted investment 828,974 103,015 Other 4,051,862 4,340,294 Total 177,201,456 146,797,429 Expenses: General government……………………………………… 10,574,021 9,353,833 Public 27,832,445 26,551,919 95,924,303 93,193,380 Public 8,848,271 6,571,533 Community development………………………………… 1,347,731 1,530,786 Health and human services……………………………… 6,140,975 6,001,130 Culture and recreation…………………………………… 3,429,452 3,219,315 1,277,709 1,544,887 Total 155,374,907 147,966,783 Excess (Deficiency) before transfers……………………… 21,826,549 (1,169,354) 588,144 985,677 Change in net $ 22,414,693 $ (183,677) Governmental Activities The governmental expenses totaled $155 million of which $85.9 million (55%) was directly supported by program revenues consisting of charges for services, operating and capital grants, and contributions. Public works and education expenses increased by $2.3 million and $2.7 million, respectively, both are primarily related to budgetary increases involving contracts and snow and ice removal costs. General revenues totaled $91 million, primarily coming from property taxes, motor vehicle and other excise, and non-restricted state aid. Capital grants and contributions increased in fiscal year 2013 mainly due to the MSBA reimbursement of 78.26% of allowable school construction costs on the Collins and Saltonstall school construction projects. ---PAGE BREAK--- City of Salem, Massachusetts 26 Comprehensive Annual Financial Report Business-type Activities For the City’s business-type activities, assets exceeded liabilities by $14.4 million at the close of fiscal year 2013. Fiscal 2013 Fiscal 2012 Assets: Current 7,893,316 $ 9,520,269 Capital 25,271,454 21,677,433 Total 33,164,770 31,197,702 Liabilities: Current liabilities (excluding 601,381 515,058 Noncurrent liabilities (excluding 1,472,817 1,228,817 Current 1,160,521 1,017,520 Noncurrent 15,510,303 15,745,824 Total liabilities………………………………………… 18,745,022 18,507,219 Net Position: Net investment in capital 9,562,558 8,605,165 4,857,190 4,085,318 Total net $ 14,419,748 $ 12,690,483 Business-type Activities Business-type net position of $9.6 million (66%) represents net investment in capital assets. The remaining $4.9 million (34%) is available to be used for the ongoing operation of the City’s water, sewer, parking, trash and municipal golf course activities. There was an overall increase of $1.7 in net position reported in connection with the enterprise funds. The water enterprise fund’s net position of $4.3 million (83%) represent the net investment in capital assets, while $898,000 (17%) is unrestricted. The water department experienced a net increase of $791,000 in net position from the prior year. The increase is partially the result of rates increasing 9% within fiscal year 2013. The water fund pays an annual assessment to the Salem Beverly Water Supply Board, which totaled $2.5 million or 63% of the fund’s operating expenses for fiscal year 2013. The sewer enterprise fund’s net position of $1.4 million (28%) represents the net investment in capital assets, and $3.7 million (72%) is unrestricted. The unrestricted balance includes the City’s $699,000 equity interest in the South Essex Sewerage District which decreased by approximately $432,000 during fiscal year 2013. This decrease was mainly due to the City receiving a drawdown of their investment during fiscal year 2013 to fund operations of the Sewer enterprise. The sewer department operations experienced an overall net increase of $908,000 during the current fiscal year. Approximately 81% of the expenses in the sewer fund consist of the annual assessments paid to the South Essex Sewerage District. The sewer enterprise fund had a rate increase of 4% within fiscal year 2013 which attributed to its overall increase. The golf course enterprise fund’s net position of $353,000 (57%) represent the net investment in capital assets, while $269,000 (43%) is unrestricted. Overall, revenues and expenses both increased by approximately 6-7% at the golf course during fiscal year 2013 as a result, net position remained substantially unchanged. ---PAGE BREAK--- City of Salem, Massachusetts 27 Comprehensive Annual Financial Report The parking enterprise fund’s net position of $3.4 million represent the net investment in capital assets, while a deficit balance of $310,000 is reported as unrestricted. The parking operations experienced a net decrease of $221,000 during fiscal year 2013 which is consistent with prior years, and is mostly attributable to recording depreciation on previously purchased capital assets totaling approximately $198,000. 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 2013, $1.7 million was transferred back to the general fund. Consequently, the amounts remaining in the enterprise fund at year end represent non-current assets and liabilities and the assets and liabilities related to the enterprise funds capital construction projects. The City’s trash enterprise fund operates on a trash fee that is set with full knowledge that the revenue will not be sufficient to cover the cost of operations. The City budgets for a subsidy from the general fund equal to the estimated cash basis deficit in the fund at year end. At fiscal year-end a $2.2 million transfer was made from the general fund to subsidize for the budgeted deficit. As of June 30, 2013 the trash fund had unrestricted net position totaling $344,000. Fiscal 2013 Fiscal 2012 Program revenues: Charges for $ 17,653,779 $ 16,209,028 Total 17,653,779 16,209,028 Expenses: Cost of service and administration……………………… 6,123,663 5,822,797 District assessment……………………………………… 7,959,481 8,100,740 723,853 718,324 529,373 505,425 Total 15,336,370 15,147,286 Excess (Deficiency) before transfers……………………… 2,317,409 1,061,742 (588,144) (985,677) Change in net 1,729,265 $ 76,065 Business-type Activities Financial Analysis of the Government’s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. In accordance with generally accepted accounting standards, the City reports the components of fund balance as nonspendable, restricted, committed, assigned and unassigned, based on restrictions on spending. Additionally, the City’s stabilization funds are reported within the general fund as unassigned. ---PAGE BREAK--- City of Salem, Massachusetts 28 Comprehensive Annual Financial Report As of the end of the current fiscal year, governmental funds reported combined ending fund balances of $27 million of which $12.7 million is reported in the general fund, a deficit of $284,000 is reported in the school capital projects major fund, and $14.7 million is reported in the nonmajor governmental funds. Cumulatively there was an increase of $4.3 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, unassigned fund balance of the general fund totaled $11.7 million, while total fund balance was $12.7 million. The general fund balance increased by $2.2 million in fiscal year 2013. The increase primarily resulted from positive budgetary results. The school capital projects fund is used to account for the City’s ongoing major school construction projects. The fund increased by $1 million in fiscal year 2013 as the City bonded for the project during the year. The major fund ended the fiscal year with a deficit balance of $284,000 due to the financing of $5 million in bond anticipation notes (BANs) whose proceeds are not recognized until they are permanently financed. Expenditures incurred to date have been partially financed with bond proceeds and partially funded with reimbursements received from the Massachusetts School Building Authority for the state’s share of eligible costs. Bond proceeds totaling $7.8 million were recognized in this fund in fiscal year 2013. Cumulatively, nonmajor governmental funds had a net increase of $1 million. This represents the activity of other nonmajor capital projects, grants, and permanent trust funds. The fiscal year 2013 increase was almost entirely the result of the timing of funding and recognizing expenditures on capital projects. Bond proceeds in this fund totaled $3.4 million in fiscal year 2013 related to various City improvement projects. General Fund Budgetary Highlights The $3 million increase between the original budget and the final amended budget was due to several council orders issued throughout the fiscal year to appropriate available funds. The most notable components of this increase include an additional $2.5 million in available funds (free cash) appropriated to fund stabilization reserves, veteran’s benefits, capital improvements, and various additional appropriations. The actual general fund revenues came in $3.2 million more than budgeted. The City does not budget revenue for tax liens which totaled $353,000. Additionally, fines and forfeitures reported a budgetary surplus of $471,000 which was the result of modest budgeting. Charges for services reported a surplus of $940,000 due to several major projects coming on-line including major renovation at PEM, moving entire electrical sub-station at North Shore Medical Center from the front of the building to the back of the building, and also the construction of an apartment building in the Blubber Hollow area. The City’s General Fund reported expenditures less than appropriations by approximately $1.2 million. The $1.2 million of expenditures less appropriations relates mostly to the refinancing of School Building Projects that saved the City $754,000 in Debt Service in fiscal year 2013. State and county assessments were lower than anticipated by $369,000, which mainly related to the charter school tuition. 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, 2013, amounts to $228.5 million (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, buildings and land improvements, equipment, vehicles and infrastructure related to governmental and business-type activities. The City’s total investment in capital assets for the current year totaled $38.3 million for governmental activities and $4.3 million for business-type activities. ---PAGE BREAK--- City of Salem, Massachusetts 29 Comprehensive Annual Financial Report For governmental activities, over $30 million of the additions related to the Collins Middle School and the Saltonstall School renovation projects. These assets are recorded as construction in progress at year end as the projects have not been completed. Equipment additions of $1.6 million included over $1 million for an Aerial Fire Truck, and $4.9 million in infrastructure improvements included $2.8 million for Blaney Street Wharf improvements and $1.5 million in road improvements. Capital improvements for business-type activities included $2.3 million in water infrastructure including water meters and water main improvements; $358,000 in the Folly Hill water tank project; and $1.6 million in infrastructure related to the South River Basin and Forest Street drainage projects. Debt Administration. Outstanding long-term debt of the governmental activities, as of June 30, 2013, totaled $35 million. The Commonwealth of Massachusetts is obligated to provide school construction assistance for approved school projects through a grant program administered by the MSBA. The assistance is paid to offset a portion of principal and interest on debt issued to finance approved school construction costs. At June 30, 2013 the City has recorded a receivable from the MSBA totaling $4.2 million, which represents future reimbursements of approved construction costs on projects completed under this MSBA program. During fiscal year 2013, the MSBA provided the City $15.8 million as an early redemption of a portion of bonds issued under this school construction assistance program. The $15.8 million was combined with net premiums and a $333,000 contribution from the City to redeem $15.6 million of bonds outstanding. This redemption has resulted in a future net debt service savings to the City of over $2 million. The City also issued $11.2 million in general obligation bonds in fiscal year 2013 to finance various governmental capital projects as well as part of the construction costs for the Collins and Saltonstall schools. Outstanding debt of the water, sewer, golf and parking enterprise funds totaled $12.9 million, $2.9 million, $109,000 and $700,000 respectively, and funded various repairs, maintenance and infrastructure projects. This includes new debt issued in fiscal year 2013 for sewer improvements $725,000 and for a parking study $200,000. 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 30 Comprehensive Annual Financial Report Basic Financial Statements Basic Financial Statements ---PAGE BREAK--- STATEMENT OF NET POSITION JUNE 30, 2013 Primary Government Governmental Business-type Activities Activities Total ASSETS CURRENT: Cash and cash equivalents………………………………… $ 31,350,975 $ 3,173,733 $ 34,524,708 Restricted deposits held in escrow……………………… 200,450 - 200,450 7,695,057 - 7,695,057 Receivables, net of allowance for uncollectibles: Real estate and personal property taxes……………… 990,653 - 990,653 Tax 1,736,150 - 1,736,150 Motor vehicle and other excise taxes………………… 406,367 - 406,367 User - 3,933,056 3,933,056 Trash - 88,005 88,005 Departmental and 90,834 - 90,834 Intergovernmental……………………………………… 4,629,244 - 4,629,244 147,708 - 147,708 Investment in joint - 698,522 698,522 Total current 47,247,438 7,893,316 55,140,754 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental……………………………………… 3,695,128 - 3,695,128 309,475 - 309,475 Capital assets, non depreciable…………………………… 44,979,324 1,545,581 46,524,905 Capital assets, net of accumulated depreciation………… 158,225,890 23,725,873 181,951,763 Total noncurrent 207,209,817 25,271,454 232,481,271 TOTAL 254,457,255 33,164,770 287,622,025 LIABILITIES CURRENT: Warrants 2,371,639 248,513 2,620,152 Accrued 1,257,261 234,302 1,491,563 Accrued 4,934,082 17,905 4,951,987 Tax refunds 380,085 - 380,085 Accrued 415,916 50,140 466,056 Capital lease obligations…………………………………… 277,258 - 277,258 Compensated 1,871,442 50,521 1,921,963 Workers' compensation…………………………………… 170,900 - 170,900 Notes 6,827,738 - 6,827,738 Bonds 3,191,441 1,160,521 4,351,962 Total current liabilities…………………………………… 21,697,762 1,761,902 23,459,664 NONCURRENT: Capital lease obligations…………………………………… 342,059 - 342,059 Landfill 600,000 - 600,000 Compensated 6,842,565 128,195 6,970,760 Other postemployment benefits…………………………… 32,408,395 1,344,622 33,753,017 Workers' compensation…………………………………… 778,199 - 778,199 Bonds 32,100,521 15,510,303 47,610,824 Total noncurrent liabilities……………………………… 73,071,739 16,983,120 90,054,859 TOTAL 94,769,501 18,745,022 113,514,523 NET POSITION Net investment in capital 169,750,602 9,562,558 179,313,160 Restricted for: 457,183 - 457,183 Permanent funds: 3,695,829 - 3,695,829 Nonexpendable………………………………………… 2,074,989 - 2,074,989 Grants and 6,271,975 - 6,271,975 (22,562,824) 4,857,190 (17,705,634) TOTAL NET $ 159,687,754 $ 14,419,748 $ 174,107,502 See notes to basic financial statements. City of Salem, Massachusetts 31 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES FISCAL YEAR ENDED JUNE 30, 2013 Operating Capital Charges for Grants and Grants and Net (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Primary Government: Governmental Activities: General government……………… $ 10,574,021 $ 814,824 $ 578,936 $ 15,087 $ (9,165,174) Public safety……………………… 27,832,445 2,780,253 615,897 - (24,436,295) Education…………………………… 95,924,303 1,171,221 41,104,658 25,150,812 (28,497,612) Public 8,848,271 259,825 245,092 2,801,276 (5,542,078) Community development………… 1,347,731 16,634 1,522,913 2,676,271 2,868,087 Health and human services……… 6,140,975 135,846 4,535,871 - (1,469,258) Culture and recreation…………… 3,429,452 1,037,283 155,362 - (2,236,807) Interest……………………………… 1,277,709 - 269,783 - (1,007,926) Total Governmental Activities… 155,374,907 6,215,886 49,028,512 30,643,446 (69,487,063) Business-Type Activities: 4,287,422 5,118,557 - - 831,135 6,882,394 8,573,466 - - 1,691,072 Golf 465,210 697,232 - - 232,022 1,052,780 2,580,262 - - 1,527,482 2,648,564 684,262 - - (1,964,302) Total Business-Type Activities… 15,336,370 17,653,779 - - 2,317,409 Total Primary Government………$ 170,711,277 $ 23,869,665 $ 49,028,512 $ 30,643,446 $ (67,169,654) See notes to basic financial statements. (Continued) Program Revenues City of Salem, Massachusetts 32 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES (Continued) FISCAL YEAR ENDED JUNE 30, 2013 Governmental Business-Type Activities Activities Total Changes in net position: Net (expense) revenue from previous page…………… $ (69,487,063) $ 2,317,409 $ (67,169,654) General revenues: Real estate and personal property taxes, net of tax refunds payable………………………… 76,770,134 - 76,770,134 Tax 589,138 - 589,138 Motor vehicle and other excise taxes……………… 3,052,229 - 3,052,229 Hotel/motel and meals 1,224,849 - 1,224,849 Penalties and interest on 399,311 - 399,311 Payments in lieu of 1,462,692 - 1,462,692 Grants and contributions not restricted to specific 6,610,413 - 6,610,413 Unrestricted investment income…………………… 828,974 - 828,974 Miscellaneous………………………………………… 375,872 - 375,872 Transfers, net 588,144 (588,144) - Total general revenues and transfers………………… 91,901,756 (588,144) 91,313,612 Change in net position……………………………… 22,414,693 1,729,265 24,143,958 NET POSITION: Beginning of 137,273,061 12,690,483 149,963,544 End of 159,687,754 $ 14,419,748 $ 174,107,502 (Concluded) Primary Government City of Salem, Massachusetts 33 Comprehensive Annual Financial Report ---PAGE BREAK--- School Nonmajor Total Capital Governmental Governmental ASSETS General Projects Funds Funds Cash and cash $ 16,884,055 $ 4,180,139 $ 10,112,596 $ 31,176,790 Restricted deposits held in - - 200,450 200,450 1,658,377 - 6,036,680 7,695,057 Receivables, net of uncollectibles: Real estate and personal property 990,653 - - 990,653 Tax 1,736,150 - - 1,736,150 Motor vehicle and other excise 406,367 - - 406,367 Departmental and - - 90,834 90,834 Intergovernmental……………………………………………………… 4,239,533 2,097,335 1,987,504 8,324,372 - - 457,183 457,183 Due from other - - 631,416 631,416 TOTAL 25,915,135 $ 6,277,474 $ 19,516,663 $ 51,709,272 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants - $ 1,561,863 $ 809,776 $ 2,371,639 Accrued 1,257,261 - - 1,257,261 Accrued 4,765,889 - 168,193 4,934,082 Tax refunds 380,085 - - 380,085 Deferred 6,788,739 - 1,401,616 8,190,355 Due to other - - 631,416 631,416 Notes - 5,000,000 1,827,738 6,827,738 TOTAL 13,191,974 6,561,863 4,838,739 24,592,576 FUND BALANCES: - - 2,074,989 2,074,989 - 226,825 12,715,343 12,942,168 1,059,667 - - 1,059,667 11,663,494 (511,214) (112,408) 11,039,872 TOTAL FUND 12,723,161 (284,389) 14,677,924 27,116,696 TOTAL LIABILITIES AND FUND BALANCES………………………… $ 25,915,135 $ 6,277,474 $ 19,516,663 $ 51,709,272 See notes to basic financial statements. GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2013 City of Salem, Massachusetts 34 Comprehensive Annual Financial Report ---PAGE BREAK--- RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET POSITION JUNE 30, 2013 Total governmental fund $ 27,116,696 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the 203,205,214 Accounts receivable are not available to pay for current-period expenditures and, therefore, are deferred in the 8,190,355 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 position……………………………… 174,185 In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until (415,916) Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds Bonds (35,291,962) Landfill (600,000) Workers' (949,099) Capital (619,317) Compensated (8,714,007) Other postemployment (32,408,395) Net effect of reporting long-term (78,582,780) Net position of governmental $ 159,687,754 See notes to basic financial statements. City of Salem, Massachusetts 35 Comprehensive Annual Financial Report ---PAGE BREAK--- GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2013 School Nonmajor Total Capital Governmental Governmental General Projects Funds Funds REVENUES: Real estate and personal property taxes, net of tax 77,018,965 $ - $ - $ 77,018,965 Tax 352,743 - - 352,743 Motor vehicle and other excise 3,113,058 - - 3,113,058 Hotel/motel and meals 1,224,849 - - 1,224,849 Charges for 1,990,257 - 139,545 2,129,802 Penalties and interest on 396,661 - 2,650 399,311 Payments in lieu of 1,462,692 - - 1,462,692 Licenses and 484,184 - - 484,184 Fines and 1,230,762 - - 1,230,762 Intergovernmental……………………………………………………… 57,540,213 22,493,602 19,439,619 99,473,434 Departmental and 459,515 - 3,957,980 4,417,495 - - 347,271 347,271 Investment 113,370 - 715,604 828,974 TOTAL 145,387,269 22,493,602 24,602,669 192,483,540 EXPENDITURES: Current: General 6,014,975 - 1,018,896 7,033,871 Public 17,820,345 - 1,783,468 19,603,813 53,767,839 29,282,741 10,498,388 93,548,968 Public 3,578,976 - 4,626,969 8,205,945 Community - - 4,603,651 4,603,651 Health and human 1,210,656 - 4,369,506 5,580,162 Culture and 1,898,562 - 772,361 2,670,923 Pension 19,771,148 - - 19,771,148 Employee 13,326,634 - - 13,326,634 State and county 5,141,397 - - 5,141,397 Debt service: 19,380,915 - 73,085 19,454,000 1,813,501 - 2,616 1,816,117 TOTAL EXPENDITURES………………………………………… 143,724,948 29,282,741 27,748,940 200,756,629 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………………………………… 1,662,321 (6,789,139) (3,146,271) (8,273,089) OTHER FINANCING SOURCES (USES): Issuance of - 7,795,160 3,447,500 11,242,660 Premium from issuance of 191,693 - - 191,693 Capital lease 41,502 - 472,500 514,002 Transfers 4,399,463 - 943,864 5,343,327 Transfers (4,107,817) - (647,366) (4,755,183) TOTAL OTHER FINANCING SOURCES 524,841 7,795,160 4,216,498 12,536,499 NET CHANGE IN FUND 2,187,162 1,006,021 1,070,227 4,263,410 FUND BALANCES AT BEGINNING OF 10,535,999 (1,290,410) 13,607,697 22,853,286 FUND BALANCES AT END OF $ 12,723,161 $ (284,389) $ 14,677,924 $ 27,116,696 See notes to basic financial statements. City of Salem, Massachusetts 36 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, 2013 Net change in fund balances - total governmental $ 4,263,410 Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital 38,287,997 Depreciation (7,278,363) Net effect of reporting capital 31,009,634 In the Statement of Activities, only the gain on the sale of capital assets is reported, whereas in the governmental funds the entire proceeds of the sale are reported as financial resources. As a result, the change in net position differs from the change in fund balance by the cost of the capital assets 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 (15,382,084) 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 position. 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 140,388 Capital lease (514,002) Issuance of (11,242,660) Debt service principal 19,454,000 Net effect of reporting long-term 7,837,726 Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds. Net change in compensated absences (1,260,938) Net change in workers' 885,860 Net change in accrued interest on long-term 220,088 Net change in other postemployment (5,357,605) Amortization of premium from issuance of bonds 126,627 Net effect of recording long-term liabilities and amortizing deferred losses……………… (5,385,968) 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…………… 71,975 Change in net position of governmental $ 22,414,693 See notes to basic financial statements. City of Salem, Massachusetts 37 Comprehensive Annual Financial Report ---PAGE BREAK--- Governmental Activities - Golf Internal Service Water Sewer Course Parking Trash Total Funds ASSETS CURRENT: Cash and cash equivalents…………………………$ 1,210,274 $ 762,234 $ 457,555 $ 200,000 $ 543,670 $ 3,173,733 $ 174,185 User 1,309,525 2,623,531 - - - 3,933,056 - Trash - - - - 88,005 88,005 - Investment in joint venture………………………… - 698,522 - - - 698,522 - Total current 2,519,799 4,084,287 457,555 200,000 631,675 7,893,316 174,185 NONCURRENT: Capital assets, non depreciable…………………… 1,279,748 99,552 118,067 48,214 - 1,545,581 - Capital assets, net of accumulated depreciation… 15,035,426 4,262,640 343,508 4,084,299 - 23,725,873 - Total noncurrent assets……………………… 16,315,174 4,362,192 461,575 4,132,513 - 25,271,454 - TOTAL 18,834,973 8,446,479 919,130 4,332,513 631,675 33,164,770 174,185 LIABILITIES CURRENT: Warrants 239,026 9,487 - - - 248,513 - Accrued liabilities…………………………………… - 15,021 - - 219,281 234,302 - Accrued 8,778 8,477 - - 650 17,905 - Accrued 36,100 - 1,290 12,750 - 50,140 - Compensated absences…………………………… 9,982 9,982 5,394 25,163 - 50,521 - Bonds 865,521 150,000 30,000 115,000 - 1,160,521 - Total current liabilities………………………… 1,159,407 192,967 36,684 152,913 219,931 1,761,902 - NONCURRENT: Compensated absences…………………………… 22,325 22,325 14,474 69,071 - 128,195 - Other postemployment benefits obligation………… 343,953 361,826 167,666 402,986 68,191 1,344,622 - Bonds 12,076,303 2,770,000 79,000 585,000 - 15,510,303 - Total noncurrent liabilities……………………… 12,442,581 3,154,151 261,140 1,057,057 68,191 16,983,120 - TOTAL LIABILITIES…………………………………… 13,601,988 3,347,118 297,824 1,209,970 288,122 18,745,022 - NET POSITION Net investment in capital assets……………………… 4,335,278 1,442,192 352,575 3,432,513 - 9,562,558 - Unrestricted…………………………………………… 897,707 3,657,169 268,731 (309,970) 343,553 4,857,190 174,185 TOTAL NET POSITION……………………………… $ 5,232,985 $ 5,099,361 $ 621,306 $ 3,122,543 $ 343,553 $ 14,419,748 $ 174,185 See notes to basic financial statements. Business-type Activities - Enterprise Funds PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2013 City of Salem, Massachusetts 38 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FISCAL YEAR ENDED JUNE 30, 2013 Business-type Activities - Enterprise Funds Governmental Activities - Golf Internal Service Water Sewer Course Parking Trash Total Funds OPERATING REVENUES: Charges for services $ 5,118,557 $ 8,573,466 $ 697,232 $ 2,580,262 $ 684,262 $ 17,653,779 $ - - - - - - - 100,000 TOTAL OPERATING REVENUES 5,118,557 8,573,466 697,232 2,580,262 684,262 17,653,779 100,000 OPERATING EXPENSES: Cost of services and administration 1,049,780 1,172,051 423,715 829,553 2,648,564 6,123,663 - District Assessment……………………………… 2,450,815 5,508,666 - - - 7,959,481 - Depreciation……………………………………… 364,284 124,569 37,148 197,852 - 723,853 - Employee benefits - - - - - - 28,025 TOTAL OPERATING EXPENSES 3,864,879 6,805,286 460,863 1,027,405 2,648,564 14,806,997 28,025 OPERATING INCOME 1,253,678 1,768,180 236,369 1,552,857 (1,964,302) 2,846,782 71,975 NONOPERATING REVENUES (EXPENSES): Interest (422,543) (77,108) (4,347) (25,375) - (529,373) - INCOME (LOSS) BEFORE TRANSFERS… 831,135 1,691,072 232,022 1,527,482 (1,964,302) 2,317,409 71,975 TRANSFERS: Transfers 668,998 - 431,415 - 2,160,684 3,261,097 - Transfers (708,877) (783,049) (609,167) (1,748,148) - (3,849,241) - TOTAL TRANSFERS………………………… (39,879) (783,049) (177,752) (1,748,148) 2,160,684 (588,144) - CHANGE IN NET POSITION………………… 791,256 908,023 54,270 (220,666) 196,382 1,729,265 71,975 NET POSITION AT BEGINNING OF 4,441,729 4,191,338 567,036 3,343,209 147,171 12,690,483 102,210 NET POSITION AT END OF YEAR……………… $ 5,232,985 $ 5,099,361 $ 621,306 $ 3,122,543 $ 343,553 $ 14,419,748 $ 174,185 See notes to basic financial statements. City of Salem, Massachusetts 39 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FISCAL YEAR ENDED JUNE 30, 2013 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 $ 4,947,610 $ 8,229,549 $ 697,232 $ 2,580,262 $ 689,360 $ 17,144,013 $ - Receipts from interfund services - - - - - - 100,000 Payments to (3,098,256) (5,852,585) (187,508) (155,954) (2,672,870) (11,967,173) - Payments to (384,288) (368,570) (208,732) (575,910) (19,556) (1,557,056) - Payments for interfund services - - - - - - (28,025) NET CASH FROM OPERATING ACTIVITIES………………………………… 1,465,066 2,008,394 300,992 1,848,398 (2,003,066) 3,619,784 71,975 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers 668,998 - 431,415 - 2,160,684 3,261,097 - Transfers (708,877) (783,049) (609,167) (1,748,148) - (3,849,241) - NET CASH FROM NONCAPITAL FINANCING ACTIVITIES………………… (39,879) (783,049) (177,752) (1,748,148) 2,160,684 (588,144) - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from the issuance of bonds and - 725,000 - 200,000 - 925,000 - Acquisition and construction of capital (2,465,290) (1,629,610) - - - (4,094,900) - Principal payments on bonds and (811,520) (100,000) (31,000) (75,000) - (1,017,520) - Interest (442,807) (77,108) (4,180) (25,250) - (549,345) - NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES…… (3,719,617) (1,081,718) (35,180) 99,750 - (4,736,765) - NET CHANGE IN CASH AND CASH EQUIVALENTS………………………… (2,294,430) 143,627 88,060 200,000 157,618 (1,705,125) 71,975 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR……………… 3,504,704 618,607 369,495 - 386,052 4,878,858 102,210 CASH AND CASH EQUIVALENTS AT END OF $ 1,210,274 $ 762,234 $ 457,555 $ 200,000 $ 543,670 $ 3,173,733 $ 174,185 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income $ 1,253,678 $ 1,768,180 $ 236,369 $ 1,552,857 $ (1,964,302) $ 2,846,782 $ 71,975 Adjustments to reconcile operating income (loss) to net cash from operating activities: 364,284 124,569 37,148 197,852 - 723,853 - Changes in assets and liabilities: User (170,947) (343,917) - - - (514,864) - Trash - - - - 5,098 5,098 - Investment in joint - 431,594 - - - 431,594 - Accrued (33,888) (32,234) - - (55,738) (121,860) - Accrued 1,359 345 - - (277) 1,427 - Other postemployment 55,688 64,965 27,503 66,006 12,153 226,315 - Accrued compensated (5,108) (5,108) (28) 31,683 - 21,439 - Total 211,388 240,214 64,623 295,541 (38,764) 773,002 - NET CASH FROM OPERATING ACTIVITIES………………………………… $ 1,465,066 $ 2,008,394 $ 300,992 $ 1,848,398 $ (2,003,066) $ 3,619,784 $ 71,975 See notes to basic financial statements. City of Salem, Massachusetts 40 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2013 Other Postemployment Private Pension Benefits Purpose Agency Trust Funds Trust Fund Trust Funds Fund ASSETS Cash and cash $ 9,715,249 $ 3,998 $ 312,372 $ 729,890 Investments: Corporate - 671,005 1,033,429 - Real estate and alternative investment mutual funds………………… 604,144 - - - 96,438,473 - - - Receivables, net of allowance for uncollectibles: 294,530 - - - NONCURRENT: Capital assets, net of accumulated depreciation………………………… 100,781 - - - TOTAL 107,153,177 675,003 1,345,801 729,890 LIABILITIES Warrants 5,251 - - - Accrued - - - 43,757 Liabilities due - - - 686,133 TOTAL 5,251 - - 729,890 NET POSITION Held in trust for pension, OPEB benefits, and other purposes…………… $ 107,147,926 $ 675,003 $ 1,345,801 $ - The Pension Trust Fund is as of December 31, 2012. See notes to basic financial statements. City of Salem, Massachusetts 41 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FISCAL YEAR ENDED JUNE 30, 2013 Other Postemployment Private Pension Benefits Purpose Trust Funds Trust Fund Trust Funds ADDITIONS: Contributions: 10,941,379 $ 252,582 $ - Plan 3,477,638 - - Private - - 19,726 Total 14,419,017 252,582 19,726 Net investment income: Net change in fair value of 8,971,946 41,409 142,927 2,978,515 - 123 Total investment 11,950,461 41,409 143,050 Less: investment (503,558) - - Net investment 11,446,903 41,409 143,050 255,540 - - Transfers from other 426,939 - - TOTAL 26,548,399 293,991 162,776 DEDUCTIONS: 418,035 - - Transfers to other 284,352 - - Retirement benefits and 13,329,363 - - Educational - - 21,456 Housing - - 84,789 3,125 - - TOTAL 14,034,875 - 106,245 CHANGE IN NET 12,513,524 293,991 56,531 NET POSITION AT BEGINNING OF 94,634,402 381,012 1,289,270 NET POSITION AT END OF 107,147,926 $ 675,003 $ 1,345,801 The Pension Trust Fund is for the year ended December 31, 2012. See notes to basic financial statements. City of Salem, Massachusetts 42 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 43 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. Component Unit Presented as a Fiduciary Fund – The following component unit is presented as a Fiduciary Fund of the primary government due to the nature and significance of relationship between the City and the component unit. The Salem Contributory Retirement System (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, 2013, the City’s equity interest in the operations of the District totaled $698,522, 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, 2013 City of Salem, Massachusetts 44 Comprehensive Annual Financial Report 2013 totaled approximately $2,451,000 million. Complete financial information for the Water Board can be obtained by contacting them at 50 Arlington Avenue, Beverly, MA 01915. The Salem Public Schools was granted a charter by the Secretary of Education of the Commonwealth of Massachusetts, pursuant to Chapter 71, Section 89 of the Massachusetts General Laws to operate a Horace Mann Charter School to address the needs of the City’s high school dropouts and at-risk youth. The Salem Community Charter School opened during fiscal year 2012 and is part of the Salem Public Schools. The Charter School is managed by an appointed Board of Trustees and not by the School Committee and Superintendent. Ongoing funding for the school’s operations is provided by the City based upon a negotiated amount between the School Committee and Board of Trustees within the guidelines established by the authorizing legislation of the Commonwealth of Massachusetts. The activity is included within the City’s basic financial statements and is audited independently. Complete financial statements can be obtained by contacting the Salem Public Schools located at 29 Highland Ave., Salem MA 01970. B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The government-wide financial statements statement of net position and the statement of changes in net position) 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. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 45 Comprehensive Annual Financial Report 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: • 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. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 46 Comprehensive Annual Financial Report The following major governmental funds are reported: The general fund is the primary operating fund. It is used to account for all financial resources, except those that are required to be accounted for in another fund. The school capital projects fund is used to account for the ongoing construction and renovations of the City’s school buildings. The nonmajor governmental funds consist of other special revenue, capital projects and permanent funds that are aggregated and presented in the nonmajor governmental funds column on the governmental funds financial statements. The following describes the general use of these fund types: The special revenue fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than permanent funds or capital projects. The capital projects fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets of the governmental funds. The permanent fund is used to account for and report financial resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the governmental programs. Proprietary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary funds principal ongoing operations. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. The following major proprietary funds are reported: The water enterprise fund is used to account for the water activities. The sewer enterprise fund is used to account for the sewer 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. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 47 Comprehensive Annual Financial Report Fiduciary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting except for the Agency Fund, which has no measurement focus. Fiduciary funds are used to account for assets held in a trustee capacity for others that cannot be used to support the governmental programs. The following fiduciary fund types are reported: The pension trust fund is used to account for the activities of the System, which accumulates resources to provide pension benefits to eligible retirees and their beneficiaries. The other postemployment benefit trust fund is used to accumulate resources to provide funding for future other postemployment benefits (OPEB) liabilities. The private-purpose trust fund is used to account for trust arrangements that exclusively benefit individuals, private organizations, or other governments. Some of these trusts have donor restrictions and trustee policies that do not allow the endowment portion and any unrealized appreciation to be spent. The donor restrictions and trustee policies only allow the trustees to authorize spending of the realized investment earnings. The City’s educational scholarships and housing subsidy trust funds are accounted for in this fund. The agency fund is used to account for assets held in a purely custodial capacity. The City’s agency funds consist primarily of payroll withholdings, police and fire details, escrow deposits and unclaimed property. D. Cash and Investments Government-Wide and Fund Financial Statements Cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with an original maturity of three months or less from the date of acquisition. Investments are carried at fair value. The fair values were determined by the closing price for those securities traded on national stock exchanges and at the average bid-and-asked quotation for those securities traded in the over-the-counter market. Investments that do not have an established market are reported at estimated fair values. E. 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, 2013 City of Salem, Massachusetts 48 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 per month. Unpaid trash fees are subject to interest and demand fees; any fees not paid within thirty (30) days may be liened to the property in the following fiscal years’ real estate bill. Since the receivables are secured via either a shut off or lien process, these accounts are considered 100% collectible and therefore do not report an allowance for uncollectibles. Departmental and Other Departmental and other receivables consist primarily of grant proceeds, fire detail fees and investment funds of the retirement system received after year end that are recorded as receivables in the fiscal year accrued. The allowance of uncollectibles is estimated based on historical trends and specific account analysis. Intergovernmental Various federal and state grants for operating and capital purposes are applied for and received annually. For non-expenditure driven grants, receivables are recorded as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred and all other grant requirements are met. These receivables are considered 100% collectible and therefore do not report an allowance for uncollectibles. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 49 Comprehensive Annual Financial Report Loans Loan receivables are comprised of funds advanced to small businesses and developers under various Urban Development Action Grants (UDAG) and Community Development Block Grants (CDBG). The City loans funds to owners of commercial and residential properties for the purpose of rehabilitating these properties. The City receives funding for these loans from the U.S Department of Housing and Urban Development (HUD) under Community Development Block Grant (CDBG) programs for the City. These loans are repaid to the City under various terms and conditions stipulated by each loan agreement. The loan repayments may be used by the City for any eligible activity relevant to the community development program. F. Inventories and Prepaid Items Government-Wide and Fund Financial Statements Inventories are recorded as expenditures at the time of purchase. Inventories are not material in total to the government-wide and fund financial statements, and therefore are not reported. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. G. Capital Assets Government-Wide and Proprietary Fund Financial Statements Capital assets, which include land, land improvements, buildings and improvements, machinery and equipment, and infrastructure roads, water mains, sewer mains, and similar items), are reported in the applicable governmental or business-type activity column of the government-wide financial statements, and the proprietary fund financial statements. Capital assets are recorded at historical cost, or at estimated historical cost, if actual historical cost is not available. Donated capital assets are recorded at the estimated fair market value at the date of donation. Except for the capital assets of the governmental activities column in the government-wide financial statements, construction period interest is capitalized on constructed capital assets. All purchases and construction costs in excess of $25,000 are capitalized at the date of acquisition or construction, respectively, with expected useful lives of greater than one year. This excludes vehicles, which will all be capitalized. Capital assets (excluding land and construction in progress) are depreciated on a straight-line basis. The estimated useful lives of capital assets are as follows: Estimated Useful Life (in years) Land improvements…………………………… 20-30 Buildings and improvements…………….…… 40 5-10 5-15 Infrastructure…………………………………… 15-80 Capital Asset Type ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 50 Comprehensive Annual Financial Report 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. Deferred Outflows/Inflows of Resources Government-Wide Financial Statements (Net Position) In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/ expenditure) until then. The City did not have any items that qualify for reporting in this category. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City did not have any items that qualify for reporting in this category. I. Interfund Receivables and Payables During the course of its operations, transactions occur between and within individual funds that may result in amounts owed between funds. Government-Wide Financial Statements Transactions of a buyer/seller nature between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of net position as “internal balances”. Fund Financial Statements Transactions of a buyer/seller nature between and within funds are not eliminated from the individual fund statements. Receivables and payables resulting from these transactions are classified as “Due from other funds” or “Due to other funds” on the balance sheet. J. Interfund Transfers During the course of its operations, resources are permanently reallocated between and within funds. These transactions are reported as transfers in and transfers out. Government-Wide Financial Statements Transfers between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of activities as “Transfers, net”. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 51 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. K. 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. L. Net position and Fund Equity Government-Wide Financial Statements (Net position) Net position reported as “net investment in capital assets” includes capital assets, net of accumulated depreciation, less the principal balance of outstanding debt used to acquire capital assets. Unspent proceeds of capital related debt are not considered to be capital assets. Outstanding debt related to future reimbursements from the state’s school building program is not considered to be capital related debt. Net position is reported as restricted when amounts are not available for appropriation or are legally restricted by outside parties for a specific future use. Net position has been “restricted for” the following: “Loans” represents community development outstanding loan receivable balances which are funded through the Community Development Block Grant program. The loan repayments are subject to various restrictions which are imposed by the grantors. “Permanent funds - expendable” represents the amount of realized and unrealized investment earnings of donor restricted trusts. The donor restrictions and trustee policies only allow the trustees to approve spending of the realized investment earnings that support governmental programs. “Permanent funds - nonexpendable” represents the endowment portion of donor restricted trusts that support governmental programs. “Grants and gifts” represents assets that have restrictions placed on them from outside parties. Sometimes the City will fund outlays for a particular purpose from both restricted restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted – net position to have been depleted before unrestricted – net position is applied. Fund Financial Statements (Fund Balances) Governmental fund equity is classified as fund balance. Fund balance is further classified as follows: “Nonspendable” fund balance includes amounts that cannot be spent because they are either not in spendable form or they are legally or contractually required to be maintained intact. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 52 Comprehensive Annual Financial Report “Restricted” fund balance includes amounts subject to constraints placed on the use of resources that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or that are imposed by law through constitutional provisions or enabling legislation. “Committed” fund balance includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority. A vote of the City Council is the highest level of decision making authority that can commit funds for a specific purpose. Once voted, the limitation imposed by the vote remains in place until the funds are used for their intended purpose or a vote is taken to rescind the commitment. “Assigned” fund balance includes amounts that are constrained by the City’s intent to be used for specific purposes, but are neither restricted nor committed. The City Finance Director has the authority to assign fund balance. Funds are assigned when the City has an obligation to purchase goods or services from the current years’ appropriation. “Unassigned” fund balance includes the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund. Sometimes the City will fund outlays for a particular purpose from different components of fund balance. In order to calculate the amounts to report as restricted, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. When different components of fund balance can be used for the same purpose, it is the City’s policy to consider restricted fund balance to have been depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. M. Long-term debt Government-Wide and Proprietary Fund Financial Statements Long-term debt is reported as liabilities in the government-wide and proprietary fund statement of net position. Material bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Governmental Fund Financial Statements The face amount of governmental funds long-term debt is reported as other financing sources. Bond premiums and discounts, as well as issuance costs, are recognized in the current period. Bond premiums are reported as other financing sources and bond discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual bond proceeds received, are reported as general government expenditures. N. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 53 Comprehensive Annual Financial Report O. 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. P. Fund Deficits and Appropriation Deficits Individual fund deficits existed at June 30, 2013 in the school capital fund and within the nonmajor governmental funds. These deficits will be funded through long-term borrowing, capital grants and grant proceeds in fiscal year 2014. Actual expenditures exceeded appropriations for snow and ice by $539,000. This over-expenditure will be funded with available funds during fiscal year 2014. In the snow and ice removal appropriation line, the general law allows deficits to occur and to be raised in the subsequent fiscal year. Q. Use of Estimates Government-Wide and Fund Financial Statements The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the fiscal year. Actual results could vary from estimates that were used. R. Total Column Government-Wide Financial Statements The total column presented on the government-wide financial statements represents consolidated financial information. Fund Financial Statements The total column on the fund financial statements is presented only to facilitate financial analysis. Data in this column is not the equivalent of consolidated financial information. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 54 Comprehensive Annual Financial Report NOTE 2 – CASH AND INVESTMENTS A cash and investment pool is maintained that is available for use by all funds. Each fund type's portion of this pool is displayed on the balance sheet as "cash and cash equivalents". The deposits and investments of the trust funds are held separately from those of other funds. As of June 30, 2013, the City’s restricted deposit held in escrow represents capital lease proceeds that are held in escrow until the related equipment is purchased. 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 15% of any trust fund can be invested in the stock of any one bank or insurance company. The Pool meets the criteria of an external investment pool. The Pool is administered by the Massachusetts Municipal Depository Trust (MMDT), which was established by the Treasurer of the Commonwealth who serves as Trustee. The fair value of the position in the Pool is the same as the value of the Pool shares. The City Treasurer is the custodian of funds held in the Other Postemployment Benefit (OPEB) Trust Fund. As of June 30, 2013, $675,003 from the OPEB Trust Fund is included within the City’s cash and investments balances in the following disclosures. The System participates in the Pension Reserve Investment Trust (PRIT), which meets the criteria of an external investment pool. PRIT is administered by the Pension Reserves Investment Management Board, which was established by the Treasurer of the Commonwealth of Massachusetts who serves as Trustee. The fair value of the position in the PRIT is the same as the value of the PRIT shares. The System also has expanded investment powers which are governed by Chapter 32 of the general laws of the Commonwealth and by the regulations issued by the Public Employee Retirement Administration Commission (PERAC). The existing law provides that Systems will invest in securities other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth. Custodial Credit Risk – Deposits In the case of deposits, this is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. The City does not have a formal deposit policy for custodial credit risk. At fiscal year-end, the carrying amount of deposits totaled $34,778,045 and the bank balance totaled $40,124,850. Of the bank balance, $4,404,662 was covered by Federal Depository Insurance, $11,779,719 was covered by the Share Insurance Fund, $2,044,768 was covered by the Depositors Insurance Fund, $18,635,810 was collateralized and $3,259,891 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 $120,114 and the bank balance totaled $315,981. The entire bank balance was covered by Federal Depository Insurance. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 55 Comprehensive Annual Financial Report Investments As of June 30, 2013, the City had the following investments: Investment Type Fair Value Under 1 Year 1-5 Years Debt Securities: Corporate $ 1,748,530 $ 14,927 $ 1,733,603 U.S. Treasury 401,060 - 401,060 Government Sponsored Enterprises……………… 163,637 - 163,637 Total Debt 2,313,227 $ 14,927 $ 2,298,300 Other Investments: Equity 3,577,909 Equity Mutual 2,922,841 Bond Mutual 585,514 Money Market Mutual 920,092 73,281 Total $ 10,392,864 Maturity As of December 31, 2012, the System had the following investments: Maturity Fair Value Under 1 Year Investment Type Repurchase Agreements…………………………… $ 8,116,835 $ 8,116,835 Other Investments: Government Short-term Investment Funds……… 1,478,300 Venture Capital and Limited Partnerships............. 141,242 Real Estate Investment 462,902 Pension Reserve Investment Trust (PRIT)………… 96,438,473 Total $ 106,637,752 The City participates in MMDT which is unrated. MMDT maintains a cash portfolio and a short-term bond portfolio with combined average maturities of approximately 3 months. The System participates in PRIT which is unrated. The effective weighted duration rate for PRIT investments ranged from .08 to 10.37 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, $1,748,530 of corporate bonds, $401,060 of U.S. Treasury Notes, $163,637 of Government Sponsored Enterprises and $3,577,909 of equity securities are exposed to custodial credit risk because the related securities are uninsured, unregistered and are held by the counterparty. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 56 Comprehensive Annual Financial Report The Citywide investment policy, as well as the investment policy specifically for OPEB funds, addresses custodial credit risk by requiring all securities not held directly by the City to be held in the City’s name and tax identification number by a third party custodian approved by the Treasurer and evidenced by safekeeping receipts showing individual CUSIP numbers for each security. The System’s investments are not subject to custodial credit risk as all of the securities are insured or registered, and held by its agents in the name of the Salem Contributory Retirement Board. Interest Rate Risk The City has a formal investment policy limiting investment maturities up to one year as a means of managing its exposure to fair value losses arising from increasing interest rates. The System does not have a formal investment policy related to interest rate risk. Credit Risk The City has not adopted a formal policy related to Credit Risk. The investment ratings are as follows: Fair Value AAA AA+ AA- A+ A A- BBB+ BBB Unrated Debt Securities: Corporate $ 1,748,530 $ - $ 575,574 $ 260,110 $ 155,339 $ 211,764 $ 101,897 $ 329,755 $ 101,466 $ 12,625 U.S. Treasury 401,060 401,060 - - - - - - - - Government Sponsored Enterprises… 163,637 - 163,637 - - - - - - - Total Debt $ 2,313,227 $ 401,060 $ 739,211 $ 260,110 $ 155,339 $ 211,764 $ 101,897 $ 329,755 $ 101,466 $ 12,625 The System has not adopted a formal policy related to Credit Risk. The alternate investment mutual funds, real estate mutual fund investments and PRIT are unrated. Concentration of Credit Risk The City restricts investments to no more than 5% in any one issuer. The City did not have more than 5% of its investments in any one individual security. The retirement system places no limit on the amount the government may invest in any one issuer. The System did not have more than 5% of its investments in any one individual security. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 57 Comprehensive Annual Financial Report NOTE 3 – RECEIVABLES At June 30, 2013, 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 $ 990,653 $ - $ 990,653 Tax 1,736,150 - 1,736,150 Motor vehicle and other excise 909,670 (503,303) 406,367 Departmental and 90,834 - 90,834 Intergovernmental…………………………………………… 8,324,372 - 8,324,372 660,352 (203,169) 457,183 $ 12,712,031 $ (706,472) $ 12,005,559 At June 30, 2013, receivables for the water, sewer and trash enterprise funds consist of the following: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Water user $ 1,309,525 $ - $ 1,309,525 Sewer user 2,623,531 - 2,623,531 Trash 88,005 - 88,005 $ 4,021,061 $ - $ 4,021,061 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 $ 458,949 $ - $ 458,949 Tax 1,736,150 - 1,736,150 Motor vehicle and other excise 406,367 - 406,367 Departmental and - 90,834 90,834 Intergovernmental……………………………………………… 4,187,273 853,599 5,040,872 - 457,183 457,183 $ 6,788,739 $ 1,401,616 $ 8,190,355 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 58 Comprehensive Annual Financial Report NOTE 4 – CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2013, was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: 6,435,568 $ - $ - $ 6,435,568 Construction in 8,484,708 30,059,048 - 38,543,756 Total capital assets not being depreciated………… 14,920,276 30,059,048 - 44,979,324 Capital assets being depreciated: Land improvements……………………………………… 7,512,954 770,624 - 8,283,578 Buildings and improvements…………………………… 171,282,735 713,884 (114,220) 171,882,399 10,906,383 1,567,786 (161,046) 12,313,123 Infrastructure……………………………………………… 58,935,910 4,941,402 - 63,877,312 5,107,730 235,253 (763,129) 4,579,854 Total capital assets being depreciated…………… 253,745,712 8,228,949 (1,038,395) 260,936,266 Less accumulated depreciation for: Land improvements……………………………………… (2,257,972) (337,015) - (2,594,987) Buildings and improvements…………………………… (53,606,192) (4,286,672) 114,220 (57,778,644) (5,521,072) (704,748) 161,046 (6,064,774) Infrastructure……………………………………………… (30,909,421) (1,690,737) - (32,600,158) (4,175,751) (259,191) 763,129 (3,671,813) Total accumulated depreciation…………………… (96,470,408) (7,278,363) 1,038,395 (102,710,376) Total capital assets being depreciated, 157,275,304 950,586 - 158,225,890 Total governmental activities capital assets…………………$ 172,195,580 $ 31,009,634 $ - $ 203,205,214 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 59 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Water Activities: Capital assets not being depreciated: 10,589 $ - $ - $ 10,589 Construction in 910,907 358,252 - 1,269,159 Total capital assets not being depreciated………… 921,496 358,252 - 1,279,748 Capital assets being depreciated: Land improvements……………………………………… 114,550 - - 114,550 296,290 - - 296,290 48,794 - - 48,794 Infrastructure……………………………………………… 19,766,016 2,346,064 - 22,112,080 Total capital assets being depreciated…………… 20,225,650 2,346,064 - 22,571,714 Less accumulated depreciation for: Land improvements……………………………………… (60,141) (5,727) - (65,868) (142,459) (29,630) - (172,089) (43,915) (4,879) - (48,794) Infrastructure……………………………………………… (6,925,489) (324,048) - (7,249,537) Total accumulated depreciation…………………… (7,172,004) (364,284) - (7,536,288) Total capital assets being depreciated, 13,053,646 1,981,780 - 15,035,426 Total water activities capital 13,975,142 $ 2,340,032 $ - $ 16,315,174 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……………………………………………… 4,086,962 1,613,558 - 5,700,520 Total capital assets being depreciated…………… 4,141,183 1,613,558 - 5,754,741 Less accumulated depreciation for: Buildings and improvements…………………………… (5,426) - - (5,426) (43,916) (4,880) - (48,796) Infrastructure……………………………………………… (1,318,190) (119,689) - (1,437,879) Total accumulated depreciation…………………… (1,367,532) (124,569) - (1,492,101) Total capital assets being depreciated, 2,773,651 1,488,989 - 4,262,640 Total sewer activities capital $ 2,873,203 $ 1,488,989 $ - $ 4,362,192 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 60 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Golf Course Activities: Capital assets not being depreciated: 118,067 $ - $ - $ 118,067 Capital assets being depreciated: Land improvements……………………………………… 312,852 - - 312,852 Buildings and improvements…………………………… 453,988 - - 453,988 337,233 - - 337,233 Total capital assets being depreciated…………… 1,104,073 - - 1,104,073 Less accumulated depreciation for: Land improvements……………………………………… (306,247) (1,201) - (307,448) Buildings and improvements…………………………… (151,488) (11,000) - (162,488) (265,682) (24,947) - (290,629) Total accumulated depreciation…………………… (723,417) (37,148) - (760,565) Total capital assets being depreciated, 380,656 (37,148) - 343,508 Total golf course activities capital assets……………………$ 498,723 $ (37,148) $ - $ 461,575 Beginning Ending Balance Increases Decreases Balance Parking Activities: Capital assets not being depreciated: 48,214 $ - $ - $ 48,214 Capital assets being depreciated: Land improvements……………………………………… 1,338,366 - - 1,338,366 Buildings and improvements…………………………… 7,625,100 - - 7,625,100 73,805 - - 73,805 Infrastructure……………………………………………… 24,952 - - 24,952 Total capital assets being depreciated…………… 9,062,223 - - 9,062,223 Less accumulated depreciation for: Land improvements……………………………………… (241,853) (33,500) - (275,353) Buildings and improvements…………………………… (4,503,469) (152,491) - (4,655,960) (22,275) (6,871) - (29,146) Infrastructure……………………………………………… (12,475) (4,990) - (17,465) Total accumulated depreciation…………………… (4,780,072) (197,852) - (4,977,924) Total capital assets being depreciated, 4,282,151 (197,852) - 4,084,299 Total parking activities capital 4,330,365 $ (197,852) $ - $ 4,132,513 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, 2012 totals $24,219, for a net book value of $100,781. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 61 Comprehensive Annual Financial Report Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General $ 390,988 Public 603,681 4,112,542 Public 1,971,819 Health and human 4,636 Culture and 194,697 Total depreciation expense - governmental activities……………………………… $ 7,278,363 Business-Type Activities: $ 364,284 124,569 Golf 37,148 197,852 Total depreciation expense - business-type activities……………………………… $ 723,853 Fiduciary Activities: Pension 3,125 NOTE 5 – INTERFUND TRANSFERS AND BALANCES Interfund transfers for the fiscal year ended June 30, 2013, are summarized as follows: Trash Golf Course Water Nonmajor General Enterprise Enterprise Enterprise Governmental Transfers Out: Fund Fund Fund Fund Funds Total General $ - $ 2,160,684 $ 431,415 $ 668,998 $ 846,720 $ 4,107,817 Nonmajor Governmental Funds………… 550,222 - - - 97,144 647,366 Parking Enterprise 1,748,148 - - - - 1,748,148 Golf Course Enterprise Fund…………. 609,167 - - - - 609,167 Sewer Enterprise 783,049 - - - - 783,049 Water Enterprise 708,877 - - - - 708,877 4,399,463 $ 2,160,684 $ 431,415 $ 668,998 $ 943,864 $ 8,604,424 Transfer from general fund to trash enterprise fund for the City's subsidized portion; transfer from general fund to golf enterprise fund to reimburse for amounts raised by taxation; transfer from general fund to water enterprise fund to cover year end deficits; transfer from general fund to nonmajor governmental funds to fund capital projects. Transfer from the nonmajor governmental funds to the general fund for their share of indirect costs and transfers within nonmajor governmental funds. Transfer from the parking enterprise fund to the general fund to return their net operating income. Transfer from the golf course enterprise fund to the general fund as voted by council to fund related operations. Transfer from the sewer enterprise fund to the general fund for their share of indirect costs. Transfer from the water enterprise fund to the general fund for their share of indirect costs. Transfers In: ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 62 Comprehensive Annual Financial Report The City’s interfund balances at June 30, 2013 consisted of $631,416 in balances within the nonmajor governmental funds all representing interfund borrowings for cash flow purposes. NOTE 6 – CAPITAL AND OPERATING LEASES Capital Leases The City has entered into lease agreements as lessee for financing the acquisition of police vehicles, fire truck, department of public works vehicles, school buses and maintenance van, and information technology. 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. During fiscal year 2013, the City entered into a new lease agreement for a total of $472,500 for equipment to be purchased in fiscal years 2013 and 2014. The funds were deposited into an escrow account and $272,050 of assets were purchased in fiscal year 2013 and $200,450 remained in the escrow account at year end to be used in fiscal 2014 for future purchases. The remaining funds are presented in the basic financial statements as restricted deposits held in escrow. The City also entered into a new capital lease totaling $41,502 for police vehicles. The assets acquired through capital leases are as follows: Governmental Activities Asset: Machinery and 583,386 363,821 Less: accumulated depreciation………………………… (268,432) 678,776 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2013, were as follows: Fiscal Years Governmental Ending June 30 Activities 293,216 191,893 160,774 Total minimum lease payments……………………… 645,883 Less: amounts representing interest………………… (26,566) Present value of minimum lease payments………… $ 619,317 Operating Leases The City leases office space for the City Hall Annex under an operating lease that began in February, 2013 and expires on April 30, 2016. The City made five lease payments for the fiscal year ended June 30, 2013 totaling ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 63 Comprehensive Annual Financial Report $152,000 which is reported as general government expenditures in the general fund. Prior to the lease agreement, the City paid $223,000 in rent payments during fiscal year 2013. Rental and lease payments for fiscal year 2013 totaled $375,000. The future minimum lease payments for the City’s operating lease are as follows: Fiscal Years Governmental Ending June 30 Activities 339,500 382,000 260,000 $ 981,500 NOTE 7 – SHORT-TERM FINANCING Short-term debt may be authorized and issued to fund the following: • Current operating costs prior to the collection of revenues through issuance of revenue or tax anticipation notes (RANS or TANS). • Capital project costs and other approved expenditures incurred prior to obtaining permanent financing through issuance of bond anticipation notes (BANS), state aid anticipation notes (SAANS) or grant anticipation notes (GANS). Short-term loans are general obligations and carry maturity dates that are limited by statute. Interest expenditures and expenses for short-term borrowings are accounted for in the general fund and enterprise funds, respectively. Details related to the short-term debt activity for the fiscal year ended June 30, 2013, are as follows: Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose Due Date 2012 Issued Redeemed 2013 Governmental Activities GAN Wharf Expansion……………………… 1.50% 10/19/13 $ 1,795,677 $ - $ (1,795,677) $ - BAN Municipal Purpose…………………… 1.20% 09/28/13 999,062 - (999,062) - BAN Municipal Purpose…………………… 2.17% 12/20/13 - 6,790,000 - 6,790,000 SAAN Municipal Purpose…………………… 0.75% 12/20/13 - 37,738 - 37,738 Sub-total governmental 2,794,739 6,827,738 (2,794,739) 6,827,738 Business-type Activities BAN Water Improvements………………… 1.20% 09/28/13 542 - (542) - Total notes 2,795,281 $ 6,827,738 $ (2,795,281) $ 6,827,738 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 64 Comprehensive Annual Financial Report NOTE 8 – LONG-TERM DEBT Under the provisions of Chapter 44, Section 10, Municipal Law authorizes indebtedness up to a limit of 5% of the equalized valuation. Debt issued in accordance with this section of the law is designated as being "inside the debt limit". In addition, however, debt may be authorized in excess of that limit for specific purposes. Such debt, when issued, is designated as being "outside the debt limit". Details related to the outstanding general obligation indebtedness at June 30, 2013, and the debt service requirements are reported in the following tables. Bonds Payable Schedule – Governmental Activities Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2012 Issued Redeemed 2013 HUD Section 2015 $ 6,000,000 9.00% $ 105,000 $ - $ (35,000) $ 70,000 Municipal Purpose Bonds of 2023 28,670,000 3.00-5.00% 18,500,000 - (17,005,000) 1,495,000 Municipal Purpose Refunding Bonds of 2003……… 2013 4,480,000 2.25-4.50% 460,000 - (460,000) - Municipal Purpose Bonds of 2025 2,465,000 3.00-5.00% 1,585,000 - (125,000) 1,460,000 Municipal Purpose Bonds of 2028 8,319,497 3.75-5.00% 6,360,000 - (485,000) 5,875,000 Municipal Purpose Refunding Bonds of 2010……… 2020 8,113,000 2.00-5.00% 7,060,000 - (809,000) 6,251,000 Municipal Purpose Bonds of 2026 5,219,000 3.00-5.00% 4,680,000 - (535,000) 4,145,000 Municipal Purpose Bonds of 2043 15,143,598 2.63-4.00% 3,900,938 11,242,660 - 15,143,598 Total Governmental bonds 42,650,938 11,242,660 (19,454,000) 34,439,598 Unamortized premiums on 978,991 - (126,627) 852,364 Total outstanding bonds payable reported in governmental activities…………………………………… $ 43,629,929 $ 11,242,660 $ (19,580,627) $ 35,291,962 The future fiscal years payments are as follows: Fiscal Year Principal Interest Total 3,073,598 $ 1,208,048 $ 4,281,646 2,535,000 1,097,663 3,632,663 2,515,000 1,010,444 3,525,444 2,301,000 925,736 3,226,736 2,330,000 841,396 3,171,396 2,260,000 755,957 3,015,957 2,285,000 664,562 2,949,562 1,405,000 584,835 1,989,835 1,245,000 531,185 1,776,185 1,260,000 479,905 1,739,905 1,120,000 427,977 1,547,977 1,130,000 385,996 1,515,996 900,000 349,580 1,249,580 840,000 321,470 1,161,470 850,000 293,870 1,143,870 465,000 272,869 737,869 475,000 258,769 733,769 495,000 244,219 739,219 505,000 229,219 734,219 520,000 213,844 733,844 520,000 197,919 717,919 2035 through 2,905,000 714,892 3,619,892 2040 through 2,505,000 174,658 2,679,658 34,439,598 $ 12,185,013 $ 46,624,611 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 65 Comprehensive Annual Financial Report The Commonwealth has approved school construction assistance to the City. The assistance program, which is administered by the MSBA, provides resources for future debt service of general obligation school bonds outstanding. During fiscal year 2013, $2,534,000 of such assistance was received. Approximately $5,130,000 will be received in future fiscal years of which $942,000 represents reimbursement of long-term interest costs, and $4,187,000 represents reimbursement of approved construction costs. Accordingly, a $4,187,000 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 position. During fiscal year 2013, the City received a $15.8 million payment from the MSBA as an early redemption of a portion of MSBA’s share of the bonds issued in 2003 to finance school construction projects on the Bowditch, Carlton and Bates elementary schools. The MSBA payment, along with net premiums and City appropriations of approximately $333,000, were used to pay down $15.6 million of bonds outstanding. Through the early redemption the City has realized a net decrease in its aggregate debt service payments of $2,113,445 over the next 10 years. The MSBA has modified the method of funding for new projects in the school building assistance program. Under the new program, the assistance is paid to support the State’s share of eligible construction costs as they are incurred, therefore eliminating the need for the City to fund the State’s share through long-term debt. The Saltonstall and Collins School projects are being partially funded through this program. As of June 30, 2013, the City has recorded an intergovernmental receivable totaling $2.1 million, which represents the State’s 78.26% share of eligible construction costs incurred to date that have not yet been reimbursed. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 66 Comprehensive Annual Financial Report Bonds Payable Schedule – Water Enterprise Fund Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2012 Issued Redeemed 2013 Water Project - 2027 $ 2,330,656 2.00% $ 1,835,400 $ - $ (105,978) $ 1,729,422 Water 2028 3,250,503 3.75-5.00% 2,585,000 - (165,000) 2,420,000 Water System Tanks and Improvements…………… 2031 8,464,000 3.00-5.00% 7,920,000 - (540,000) 7,380,000 Water System Improvements………………………… 2033 1,412,402 2.63-4.00% 1,412,402 - - 1,412,402 Total Water Enterprise 13,752,802 $ - $ (810,978) $ 12,941,824 The future fiscal years payments are as follows: Fiscal Year Principal Interest Total 865,521 $ 441,331 $ 1,306,852 2015……………… 870,303 414,736 1,285,039 2016……………… 872,532 388,264 1,260,796 2017……………… 874,805 359,047 1,233,852 2018……………… 877,124 326,902 1,204,026 2019……………… 879,490 294,735 1,174,225 2020……………… 881,904 262,521 1,144,425 2021……………… 889,367 229,859 1,119,226 2022……………… 791,880 198,747 990,627 2023……………… 799,443 169,484 968,927 2024……………… 797,058 140,169 937,227 2025……………… 804,726 111,264 915,990 2026……………… 802,447 82,767 885,214 2027……………… 610,224 58,202 668,426 2028……………… 470,000 38,850 508,850 2029……………… 310,000 24,050 334,050 2030……………… 180,000 15,075 195,075 2031……………… 180,000 8,725 188,725 2032……………… 90,000 4,200 94,200 2033……………… 95,000 1,425 96,425 Total………………$ 12,941,824 $ 3,570,353 $ 16,512,177 Bonds Payable Schedule – Sewer Enterprise Fund Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2012 Issued Redeemed 2013 Sewer Improvements…………………………………… 2030 $ 1,690,000 3.00-5.00% $ 1,585,000 $ - $ (100,000) $ 1,485,000 Sewer Improvements…………………………………… 2033 190,000 2.63-4.00% 710,000 725,000 - 1,435,000 Total Sewer Enterprise $ 2,295,000 $ 725,000 $ (100,000) $ 2,920,000 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 67 Comprehensive Annual Financial Report The future fiscal years payments are as follows: Fiscal Year Principal Interest Total 150,000 $ 98,851 $ 248,851 2015……………… 155,000 94,277 249,277 2016……………… 155,000 89,627 244,627 2017……………… 155,000 84,502 239,502 2018……………… 155,000 78,902 233,902 2019……………… 160,000 73,227 233,227 2020……………… 160,000 67,477 227,477 2021……………… 155,000 61,502 216,502 2022……………… 155,000 55,302 210,302 2023……………… 155,000 49,102 204,102 2024……………… 160,000 42,802 202,802 2025……………… 165,000 36,902 201,902 2026……………… 165,000 31,502 196,502 2027……………… 165,000 26,052 191,052 2028……………… 165,000 20,501 185,501 2029……………… 170,000 14,725 184,725 2030……………… 135,000 9,475 144,475 2031……………… 95,000 5,775 100,775 2032……………… 95,000 2,925 97,925 2033……………… 50,000 750 50,750 Total………………$ 2,920,000 $ 944,178 $ 3,864,178 Bonds Payable Schedule – Golf Course Enterprise Fund Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2012 Issued Redeemed 2013 Golf Course Clubhouse Refunding of 2010………… 2017 $ 172,000 2.00-5.00% $ 140,000 $ - $ (31,000) $ 109,000 Debt service requirements for principal and interest for the golf course enterprise fund bonds payable in future fiscal years are as follows: Fiscal Year Principal Interest Total 30,000 $ 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………………$ 109,000 $ 6,345 $ 115,345 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 68 Comprehensive Annual Financial Report Bonds Payable Schedule – Parking Enterprise Fund Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2012 Issued Redeemed 2013 Parking Garage 2020 $ 1,100,000 3.00-5.00% $ 575,000 $ - $ (75,000) $ 500,000 Parking 2018 200,000 2.625-4% - 200,000 - 200,000 Total Parking Enterprise $ 575,000 $ 200,000 $ (75,000) $ 700,000 The future fiscal years payments are as follows: Fiscal Year Principal Interest Total 115,000 $ 26,900 $ 141,900 2015……………… 115,000 21,950 136,950 2016……………… 115,000 17,000 132,000 2017……………… 115,000 12,800 127,800 2018……………… 115,000 8,600 123,600 2019……………… 75,000 5,000 80,000 2020……………… 50,000 2,000 52,000 Total………………$ 700,000 $ 94,250 $ 794,250 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, 2013, the City had the following authorized and unissued debt: Purpose Amount School Construction……………………$ 27,146,635 Water Systems Improvements………… 4,915,264 Capital 1,790,000 Roadway 2,000,000 Senior Center Construction…………… 4,994,136 Bertram 1,900,000 Canal Street Utility Program…………… 3,900,000 $ 46,646,035 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 69 Comprehensive Annual Financial Report Changes in Long-term Liabilities During the fiscal year ended June 30, 2013, the following changes occurred in long-term liabilities: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities: Long-term 42,650,938 $ 11,242,660 $ (19,454,000) $ 34,439,598 $ 3,073,598 Add: unamortized premium……………………… 978,991 - (126,627) 852,364 117,843 Total bonds 43,629,929 11,242,660 (19,580,627) 35,291,962 3,191,441 Capital 245,703 514,002 (140,388) 619,317 277,258 Compensated absences…………………………… 7,453,069 2,769,092 (1,508,154) 8,714,007 1,871,442 Landfill 600,000 - - 600,000 - Workers' compensation……..……………………… 1,834,959 - (885,860) 949,099 170,900 Other postemployment benefits…………………… 27,050,790 9,849,544 (4,491,939) 32,408,395 - Total governmental activity long-term liabilities………………………………… $ 80,814,450 $ 24,375,298 $ (26,606,968) $ 78,582,780 $ 5,511,041 Business-Type Activities: Long-term 16,762,802 $ 925,000 $ (1,016,978) $ 16,670,824 $ 1,160,521 Compensated absences…………………………… 157,277 68,206 (46,767) 178,716 50,521 Other postemployment benefits…………………… 1,118,307 416,061 (189,746) 1,344,622 - Total business-type activity long-term liabilities………………………………… $ 18,038,386 $ 1,409,267 $ (1,253,491) $ 18,194,162 $ 1,211,042 Compensated absence, workers’ compensation and other postemployment liabilities related to both governmental and business-type activities are normally paid from the funds reporting payroll and related expenditures, which consist of the general fund and the sewer, water, golf, parking, and trash enterprise funds. NOTE 9 – GOVERNMENTAL FUND BALANCE CLASSIFICATIONS The City classifies fund balances according to the constraints imposed on the use of the resources. There are two major types of fund balances, which are nonspendable and spendable. Nonspendable fund balances are balances that cannot be spent because they are not expected to be converted to cash or they are legally or contractually required to remain intact. Examples of this classification are prepaid items, inventories, and principal (corpus) of an endowment fund. The City has reported principal portions of endowment funds as nonspendable. Spendable fund balances are classified based on a hierarchy of spending constraints. • Restricted: fund balances that are constrained by external parties, constitutional provisions, or enabling legislation. • Committed: fund balances that contain self-imposed constraints of the government from its highest level of decision making authority. • Assigned: fund balances that contain self-imposed constraints of the government to be used for a particular purpose. • Unassigned: fund balance of the general fund that is not constrained for any particular purpose. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 70 Comprehensive Annual Financial Report The City of Salem’s spending policy is to spend restricted fund balance first, followed by committed, assigned and unassigned fund balance. Most governmental funds are designated for one purpose at the time of their creation. Therefore, any expenditure from the fund will be allocated to the applicable fund balance classifications in the order of the aforementioned spending policy. The general fund and certain other funds may have more than one purpose. Massachusetts General Law Ch.40 §5B allows for the establishment of Stabilization funds for one or more different purposes. The creation of a fund requires a two-thirds vote of the legislative body and must clearly define the purpose of the fund. Any change to the purpose of the fund along with any additions to or appropriations from the fund requires a two-thirds vote of the legislative body. At year end the balances of the General Stabilization Fund and the Retirement Stabilization Fund totaled $3,438,799 and $195,088, respectively and are reported as unassigned fund balance within the General Fund. As of June 30, 2013, the governmental fund balances consisted of the following: School Nonmajor Total Capital Governmental Governmental General Projects Funds Funds FUND BALANCES Nonspendable: Permanent fund principal…………………$ - $ - $ 2,074,989 $ 2,074,989 Restricted for: School capital projects fund……………… - 226,825 - 226,825 City revolving - - 1,072,763 1,072,763 City grant - - 2,874,948 2,874,948 School - - 103,846 103,846 School revolving - - 334,242 334,242 School grant - - 1,666,926 1,666,926 Donations and - - 1,670,883 1,670,883 Receipts reserved………………………..… - - 683,040 683,040 Community development grants………… - - 59,218 59,218 Capital Improvement - - 465,181 465,181 Other capital projects……………………… - - 88,467 88,467 Cemetery - - 2,146,941 2,146,941 Human services - - 1,246,527 1,246,527 Other permanent - - 302,361 302,361 Assigned to: General government……………………… 111,503 - - 111,503 Public 129,761 - - 129,761 758,965 - - 758,965 Public 16,067 - - 16,067 Human services…………………………… 8,116 - - 8,116 Culture and recreation…………………… 35,255 - - 35,255 11,663,494 (511,214) (112,408) 11,039,872 TOTAL FUND BALANCES (DEFICIT)…………$ 12,723,161 $ (284,389) $ 14,677,924 $ 27,116,696 GOVERNMENTAL FUNDS ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 71 Comprehensive Annual Financial Report NOTE 10 – RISK FINANCING The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the City carries commercial insurance. The amount of claim settlements has not exceeded insurance coverage in any of the previous three fiscal years. The City participates in premium-based health care plans for its active employees and retirees through the state’s Group Insurance Commission. As of July 1, 2008, the City changed to a premium based plan for workers’ compensation coverage. The remaining claims that were incurred prior to July 1, 2008 are accounted for in the funds incurring the expenditures. Workers’ Compensation Workers’ compensation claims incurred prior to July 1, 2008 are administered by the City and are funded on a pay-as-you-go basis from annual appropriations. The estimated future workers’ compensation liability is based on history and injury type. At June 30, 2013, the amount of the liability for workers’ compensation claims totaled $949,099. Changes in the reported liability since July 1, 2011, 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 2012………. $ 1,174,953 $ 1,142,946 $ (482,940) $ 1,834,959 $ 101,904 Fiscal Year 2013………. 1,834,959 (710,792) (175,068) 949,099 170,900 NOTE 11 – PENSION PLAN Plan Description - The City contributes to the System, a cost-sharing multiple-employer defined benefit pension plan administered by the Salem Contributory Retirement Board. Substantially all employees are members of the System, except for public school teachers and certain administrators who are members of the Massachusetts Teachers Retirement System, to which the City does not contribute. Pension benefits and administrative expenses paid by the Teachers Retirement Board are the legal responsibility of the Commonwealth. The amount of these on-behalf payments totaled $10,522,000 for the fiscal year ended June 30, 2013, and, accordingly, are reported in the general fund as intergovernmental revenues and pension expenditures. The System provides retirement, disability and death benefits to plan members and beneficiaries. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the plan. Cost-of-living adjustments granted between 1981 and 1997 and any increase in other benefits imposed by the Commonwealth’s state law during those years are borne by the Commonwealth and are deposited into the pension fund. Cost-of-living adjustments granted after 1997 must be approved by the Salem Contributory Retirement Board and are borne by the System. The System issues a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth’s PERAC. That report may be obtained by contacting the System located at 20 Central Street, Salem, Massachusetts 01970. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 72 Comprehensive Annual Financial Report At December 31, 2012, the System’s membership consists of the following: Active 868 Inactive 184 Retirees and beneficiaries currently receiving benefits……… 563 1,615 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 85% 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, 2013, 2012, and 2011, were $9,337,442, $8,935,504, and $8,543,631, respectively, which equaled its required contribution for each fiscal year. The required contribution was determined as part of the January 1, 2012, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included an inflation rate of 8% 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 open amortization period at January 1, 2012 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) 01/01/12 $ 106,806,161 $ 214,346,363 $ 107,540,202 49.8% $ 37,076,549 290.0% 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% 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 85% 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. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 73 Comprehensive Annual Financial Report NOTE 12 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Plan Description – The City of Salem maintains a single-employer defined benefit healthcare plan (“the Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s participation in the Group Insurance Commission of the Commonwealth of Massachusetts (GIC), which covers both active and retired members. Chapter 32b of the MGL assigns authority to establish and amend benefit provisions of the plan. The Retiree Health Plan does not issue a publicly available financial report. The employer’s share for life insurance is 65% while the retiree is responsible for 35%. Regarding health insurance, these rates are dependent upon the individual’s date of retirement. The rates range from 10% to 35% for the retiree’s co-payment of the total premium, and 65% to 90% for the City. As of December 31, 2011, the plan’s membership consisted of: Active participants………………………………………… 890 Retired participants………………………………………… 1,053 Total participants…………………………………………… 1,943 Funding Policy – Contribution requirements are also negotiated between the City and union representatives. The required contribution is based on a pay-as-you-go financing requirement. The City contributes 70% of the cost of current-year premiums for retirees in active plans, 65% for those in senior plans and 90% for retired teachers. The City contributes 50% for surviving spouses. Plan members receiving benefits contribute the remainder of their premium costs. For fiscal year 2013, the City contributed $4.7 million to the plan. Administrative costs of the Plan are assumed to be included in the fully insured premium rates. The Commonwealth of Massachusetts passed special legislation that has allowed the City to establish the Other Postemployment Benefits Trust fund which allows the City to set aside amounts to begin pre-funding its OPEB liabilities. During fiscal year 2013, the City pre-funded future OPEB liabilities in the amount of $252,582. Annual OPEB Cost and Net OPEB Obligation – The City’s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s net OPEB obligation are summarized in the following table: ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 74 Comprehensive Annual Financial Report Annual required contribution……………………………………$ 10,003,723 Interest on net OPEB obligation……………………………… 1,267,609 Adjustments to annual required contribution………………… (1,005,727) Annual OPEB cost 10,265,605 Contributions made (including retired teachers)…………… (4,681,685) Increase in net OPEB obligation……………………………… 5,583,920 Net OPEB obligation-beginning of 28,169,097 Net OPEB obligation-end of 33,753,017 The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal years 2011, 2012 and 2013 are as follows: Percentage of Fiscal Year Annual Annual OPEB Net OPEB Ended OPEB Cost Cost Contributed Obligation 6/30/2013 $ 10,265,605 46% $ 33,753,017 6/30/2012 9,768,346 45% 28,169,097 6/30/2011 11,577,795 51% 22,820,242 Funded Status and Funding Progress – As of December 31, 2011, the most recent actuarial valuation date, the actuarial accrued liability for benefits totaled $145 million, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was $50,103,473 and the ratio of unfunded actuarial accrued liability was 289.5%. 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, 2011, actuarial valuation, actuarial liabilities were determined using the projected unit credit cost method. The actuarial assumptions included a 4.5% 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 9% initially, graded to 5% over 8 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, 2013 City of Salem, Massachusetts 75 Comprehensive Annual Financial Report NOTE 13 – MAJOR TAXPAYER The City receives a significant portion of its real estate and personal property tax revenue from one taxpayer, Dominion, who is the operator of a coal-fired electric generating power plant on the waterfront in Salem. In fiscal 2009, the City and the taxpayer entered into a three-year agreement, which would provide total payments of $4.75 million in fiscal years 2009, 2010, and 2011, in the form of annual tax payments of $3 million, and annual additional contributions of $1.75 million, to be used exclusively for public purposes. In fiscal year 2012, Dominion filed paperwork to decommission all four of its generating units in Salem, which would have a negative impact on the City’s revenue stream. To provide relief to municipalities from the decommissioning of electric generating stations, if the change in operating status also reduces the Commonwealth’s greenhouse gas emissions, the Commonwealth has enacted Section 33 of Chapter 68 of the Acts of 2012 (the Act). The Act will defray the burden of the closure on the taxpayers by supplementing the difference between the payments in taxes from the plant and what the City would have otherwise collected until fiscal year 2016. During fiscal year 2013, Dominion was sold to Footprint Power in which subject to negotiation Footprint will assume the tax liability from Dominion. Footprint plans to operate the plant until 2014 at which time it will shut down the plant, demolish the old plant, clean up the site and build a new natural gas fired plant. They are in the process of applying for permitting for the complete decommission of the old plant and will demolish existing structures to make room for a new, 630 megawatt natural gas fired plant. This new plant will take up a portion of the property, leaving a significant portion of unused land in which the City and Footprint have been looking into other commercial uses of the land. NOTE 14 – ENVIRONMENTAL REMEDIATION LIABILITY State and federal laws and regulations require the City to construct a final capping system on its inactive landfill site, the Salem Transfer Station, when it stops accepting waste and to perform certain maintenance and monitoring functions at the site after closure. The City has stopped accepting waste at the site and the site is closed. The City is the owner and permittee of the Salem Transfer Station site, while Northside Carting, Inc. operated the facility. The City has completed a preliminary study in order to estimate the cost of the landfill postclosure care which is to be paid for equally by the City and the operator. As a result, the City has recorded a liability of $600,000 in the entity-wide financial statements for the total estimated postclosure costs. Actual costs may be higher due to inflation, changes in technology, or changes in applicable laws, regulations or agreements. NOTE 15 – COMMITMENTS The City entered into contracts totaling approximately $12.5 million. This amount includes $1.5 million for the first year of a five-year solid waste and recycling collection and transportation contract, $1.1 million for Phase 1 of the Salem Wharf dredging project, $1.1 million for the purchase of new fire apparatus, $3.5 million for Canal Street drainage, sewer and water improvements, $1.6 million for renovations to Bertram field and $1.1 million for roadway pavement rehabilitation. The City is also nearing completion of the $48.4 million Collins Middle School and Saltonstall Elementary School renovation projects. In June 2013, the City adopted a 1% community preservation act surcharge for fiscal year 2014. NOTE 16 – 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, 2013, these programs are still subject to financial and compliance audits. The amount, if any, of expenditures which may be ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 76 Comprehensive Annual Financial Report disallowed by the granting agencies cannot be determined at this time, although it is expected such amounts, if any, to be immaterial. Various legal actions and claims are pending. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not always predictable. Although the amount of the liability, if any, at June 30, 2013, cannot be ascertained, management believes any resulting liability should not materially affect the financial position at June 30, 2013. NOTE 17 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During fiscal year 2013, the following GASB pronouncements were implemented: • GASB Statement #60, Accounting and Financial Reporting for Service Concession Arrangements. The implementation of this pronouncement did not impact the basic financial statements. • GASB Statement #61, The Financial Reporting Entity: Omnibus. The implementation of this pronouncement did not impact the basic financial statements. • GASB Statement #63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. Financial statement changes include net assets changing to net position and invested in capital assets, net of related debt changing to net investment in capital assets. Notes to the basic financial statements were changed to provide additional disclosure on deferred outflows of resources and deferred inflows of resources. • GASB Statement #66, Technical Corrections – 2012, an amendment of GASB Statements No. 10 and No. 62. The implementation of this pronouncement did not impact the basic financial statements. The following GASB pronouncements will be implemented in future fiscal years: • The GASB issued Statement #65, Items Previously Reported as Assets and Liabilities, which is required to be implemented in fiscal year 2014. • The GASB issued Statement #67, Financial Reporting for Pension Plans – an amendment of GASB Statement No. 25, which is required to be implemented in fiscal year 2014. • The GASB issued Statement #68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27, which is required to be implemented in fiscal year 2015. • The GASB issued Statement #69, Government Combinations and Disposals of Government Operations, which is required to be implemented in fiscal year 2015. • The GASB issued Statement #70, Accounting and Financial Reporting for Nonexchange Financial Guarantees, which is required to be implemented in fiscal year 2014. Management is currently assessing the impact that the implementation of these pronouncements will have on the basic financial statements. ---PAGE BREAK--- City of Salem, Massachusetts 77 Comprehensive Annual Financial Report Required Supplementary Information Required Supplementary Information ---PAGE BREAK--- City of Salem, Massachusetts 78 Comprehensive Annual Financial Report General Fund Budgetary Comparison Schedule General fund budgetary comparison schedule The General Fund is the general operating fund of the City. It is used to account for all of the City’s financial resources, except those required to be accounted for in another fund. ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2013 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 $ - $ 76,905,201 $ 76,905,201 $ 76,905,201 $ 77,100,120 $ - $ 194,919 Tax - - - - 352,743 - 352,743 Motor vehicle and other excise taxes………… - 2,960,000 2,960,000 2,960,000 3,113,058 - 153,058 Hotel/motel tax and meals taxes……………… - 1,160,000 1,160,000 1,160,000 1,224,849 - 64,849 Charges for services…………………………… - 1,050,000 1,050,000 1,050,000 1,990,257 - 940,257 Penalties and interest on taxes……………… - 403,000 403,000 403,000 396,661 - (6,339) Payments in lieu of - 1,384,835 1,384,835 1,384,835 1,462,692 - 77,857 Licenses and - 450,000 450,000 450,000 484,184 - 34,184 Fines and forfeitures…………………………… - 760,000 760,000 760,000 1,230,762 - 470,762 Intergovernmental……………………………… - 31,168,464 31,168,464 31,168,464 31,217,082 - 48,618 Departmental and - 2,220,000 2,220,000 2,220,000 3,039,777 - 819,777 Investment - 70,000 70,000 70,000 110,089 - 40,089 TOTAL REVENUES………………… - 118,531,500 118,531,500 118,531,500 121,722,274 - 3,190,774 EXPENDITURES: Current: General government City Council Personnel……………………………… - 119,700 119,700 119,700 119,451 - 249 Non - Personnel……………………… - 52,627 52,627 52,627 30,378 5,000 17,249 - 172,327 172,327 172,327 149,829 5,000 17,498 Mayor Personnel……………………………… - 272,298 272,298 272,298 267,327 - 4,971 Non - Personnel……………………… 10,520 110,000 120,520 120,520 95,161 15,200 10,159 10,520 382,298 392,818 392,818 362,488 15,200 15,130 Finance/Auditing Personnel……………………………… - 251,983 251,983 253,841 248,420 5,400 21 Non - Personnel……………………… 6,955 40,700 47,655 47,655 31,635 15,254 766 6,955 292,683 299,638 301,496 280,055 20,654 787 Purchasing Personnel……………………………… - 102,366 102,366 103,820 103,797 - 23 Non - Personnel……………………… - 18,350 18,350 17,044 16,241 - 803 Fixed - 50,726 50,726 52,432 48,888 - 3,544 - 171,442 171,442 173,296 168,926 - 4,370 Assessors Personnel……………………………… - 258,799 258,799 261,801 247,442 12,000 2,359 Non - Personnel……………………… - 27,677 27,677 27,677 20,266 5,000 2,411 - 286,476 286,476 289,478 267,708 17,000 4,770 Treasurer Personnel……………………………… - 208,510 208,510 210,364 209,368 - 996 Non - Personnel……………………… 60,200 73,310 133,510 133,510 97,647 28,900 6,963 60,200 281,820 342,020 343,874 307,015 28,900 7,959 Collector Personnel……………………………… - 202,055 202,055 207,539 205,275 - 2,264 Non - Personnel……………………… 1,050 6,500 7,550 7,550 6,108 - 1,442 1,050 208,555 209,605 215,089 211,383 - 3,706 Solicitor Personnel……………………………… - 218,007 218,007 219,912 215,896 - 4,016 Non - Personnel……………………… - 78,400 78,400 78,400 78,004 - 396 - 296,407 296,407 298,312 293,900 - 4,412 (continued) Budgeted Amounts GENERAL FUND City of Salem, Massachusetts 79 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2013 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……………………………… - 751,452 751,452 703,379 657,572 - 45,807 Non - Personnel……………………… - 30,950 30,950 36,950 36,093 - 857 - 782,402 782,402 740,329 693,665 - 46,664 Data Processing Personnel……………………………… - 114,028 114,028 138,028 137,914 - 114 Non - Personnel……………………… 25,858 21,449 47,307 47,307 36,152 9,470 1,685 Fixed - 332,116 332,116 308,116 305,853 - 2,263 25,858 467,593 493,451 493,451 479,919 9,470 4,062 City Clerk Record Maintenance Personnel……………………………… - 254,030 254,030 254,873 251,685 - 3,188 Non - Personnel……………………… - 7,000 7,000 7,000 5,720 879 401 - 261,030 261,030 261,873 257,405 879 3,589 Elections & Registrations Personnel……………………………… - 97,729 97,729 109,116 108,007 - 1,109 Non - Personnel……………………… - 50,100 50,100 77,950 69,161 - 8,789 - 147,829 147,829 187,066 177,168 - 9,898 Conservation Commission Personnel……………………………… - 25,432 25,432 25,432 24,960 - 472 Non - Personnel……………………… - 425 425 425 425 - - - 25,857 25,857 25,857 25,385 - 472 Subdivision, Planning, and Zoning Board Personnel……………………………… - 24,275 24,275 24,275 22,633 - 1,642 Non - Personnel……………………… - 3,000 3,000 3,000 2,850 - 150 - 27,275 27,275 27,275 25,483 - 1,792 Board of Appeals Personnel……………………………… - 3,000 3,000 3,000 2,825 - 175 Non - Personnel……………………… - 550 550 550 131 - 419 - 3,550 3,550 3,550 2,956 - 594 Planning Department Personnel……………………………… - 276,969 276,969 276,969 265,133 - 11,836 Non - Personnel……………………… - 7,275 7,275 21,675 6,957 14,400 318 - 284,244 284,244 298,644 272,090 14,400 12,154 Public Property/Building Maintenance Fixed - 706,882 706,882 696,882 691,456 - 5,426 Market and Tourism……………………… - 209,875 209,875 209,875 207,813 - 2,062 Total General Government………………… 104,583 5,008,545 5,113,128 5,131,492 4,874,644 111,503 145,345 (continued) City of Salem, Massachusetts 80 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2013 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Public safety Police Personnel……………………………… - 7,960,787 7,960,787 8,194,731 8,109,427 85,000 304 Non - Personnel……………………… 6,088 522,945 529,033 542,478 527,112 789 14,577 6,088 8,483,732 8,489,820 8,737,209 8,636,539 85,789 14,881 Fire Personnel……………………………… - 7,061,510 7,061,510 7,230,440 7,219,932 - 10,508 Non - Personnel……………………… 5,700 386,064 391,764 426,764 354,869 41,259 30,636 5,700 7,447,574 7,453,274 7,657,204 7,574,801 41,259 41,144 Building, Plumbing, Gas Inspections Personnel……………………………… - 302,573 302,573 314,046 313,543 - 503 Non - Personnel……………………… - 22,950 22,950 40,310 40,030 - 280 - 325,523 325,523 354,356 353,573 - 783 Electrical Inspection and Maintenance Personnel……………………………… - 261,339 261,339 269,895 267,702 - 2,193 Non - Personnel……………………… - 759,700 759,700 759,700 722,846 - 36,854 - 1,021,039 1,021,039 1,029,595 990,548 - 39,047 Harbormaster Personnel……………………………… - 175,281 175,281 175,281 172,814 - 2,467 Non - Personnel……………………… - 55,212 55,212 55,212 50,568 2,713 1,931 - 230,493 230,493 230,493 223,382 2,713 4,398 Total Public 11,788 17,508,361 17,520,149 18,008,857 17,778,843 129,761 100,253 Education 429,179 50,508,040 50,937,219 52,010,292 51,220,406 758,965 30,921 NSRS/Charter/Choice……………… - 1,603,586 1,603,586 1,603,586 1,583,485 - 20,101 Total Education……………….……………… 429,179 52,111,626 52,540,805 53,613,878 52,803,891 758,965 51,022 Public Works Public Services Personnel……………………………… - 1,539,567 1,539,567 1,595,986 1,577,578 - 18,408 Non - Personnel……………………… 375,083 552,591 927,674 1,024,219 913,261 8,278 102,680 375,083 2,092,158 2,467,241 2,620,205 2,490,839 8,278 121,088 Engineering Personnel……………………………… - 76,411 76,411 76,411 76,223 - 188 Non - Personnel……………………… - 5,950 5,950 5,950 4,372 - 1,578 - 82,361 82,361 82,361 80,595 - 1,766 Snow and Ice Personnel……………………………… - 50,000 50,000 50,000 93,144 - (43,144) Non - Personnel……………………… 36,550 382,335 418,885 418,885 914,398 - (495,513) 36,550 432,335 468,885 468,885 1,007,542 - (538,657) Parking Garage Personnel……………………………… - 578,052 578,052 591,028 575,910 - 15,118 Non - Personnel……………………… 12,062 164,500 176,562 176,562 162,419 7,789 6,354 12,062 742,552 754,614 767,590 738,329 7,789 21,472 Total Public 423,695 3,349,406 3,773,101 3,939,041 4,317,305 16,067 (394,331) (continued) City of Salem, Massachusetts 81 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2013 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……………………………… - 343,598 343,598 353,479 348,143 - 5,336 Non - Personnel……………………… - 15,600 15,600 17,100 14,286 - 2,814 - 359,198 359,198 370,579 362,429 - 8,150 Council on Aging Personnel……………………………… - 255,467 255,467 257,321 253,189 - 4,132 Non - Personnel……………………… - 30,100 30,100 30,100 27,445 1,916 739 - 285,567 285,567 287,421 280,634 1,916 4,871 Veterans Services Personnel……………………………… - 77,567 77,567 77,567 75,535 - 2,032 Non - Personnel……………………… 4,800 240,700 245,500 505,500 495,383 6,200 3,917 4,800 318,267 323,067 583,067 570,918 6,200 5,949 Total Health and Human Services………… 4,800 963,032 967,832 1,241,067 1,213,981 8,116 18,970 Culture and Recreation Library Personnel……………………………… - 881,383 881,383 883,340 867,418 - 15,922 Non - Personnel……………………… - 300,145 300,145 300,145 290,160 4,500 5,485 - 1,181,528 1,181,528 1,183,485 1,157,578 4,500 21,407 Parks and Recreation Personnel……………………………… - 339,642 339,642 341,593 318,233 - 23,360 Non - Personnel……………………… 9,865 151,610 161,475 164,890 138,736 15,127 11,027 9,865 491,252 501,117 506,483 456,969 15,127 34,387 Golf Course Personnel……………………………… - 233,922 233,922 236,202 236,202 - - Non - Personnel……………………… 317 128,900 129,217 175,732 160,350 12,695 2,687 317 362,822 363,139 411,934 396,552 12,695 2,687 Witch House Personnel……………………………… - 74,066 74,066 74,066 70,867 - 3,199 Non - Personnel……………………… 1,510 64,280 65,790 65,790 58,130 1,262 6,398 1,510 138,346 139,856 139,856 128,997 1,262 9,597 Historical Commission Personnel……………………………… - 8,166 8,166 8,166 8,076 - 90 Non - Personnel……………………… - 1,030 1,030 1,030 956 - 74 - 9,196 9,196 9,196 9,032 - 164 Winter Island Personnel……………………………… - 114,951 114,951 114,951 109,483 - 5,468 Non - Personnel……………………… - 49,500 49,500 49,500 36,187 1,671 11,642 - 164,451 164,451 164,451 145,670 1,671 17,110 Total Culture and Recreation…………… 11,692 2,347,595 2,359,287 2,415,405 2,294,798 35,255 85,352 (continued) City of Salem, Massachusetts 82 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2013 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Debt service: - 4,398,098 4,398,098 3,913,627 3,866,915 - 46,712 - 2,058,448 2,058,448 1,799,281 1,765,699 - 33,582 Short Term Interest………………………… - 39,797 39,797 106,797 77,232 - 29,565 - 6,496,343 6,496,343 5,819,705 5,709,846 - 109,859 State and county charges……………………… - 5,550,473 5,550,473 5,510,721 5,141,397 - 369,324 Pension benefits Contributory Retirement…………………… - 9,167,161 9,167,161 9,186,991 9,186,991 - - Non-Contributory Retirement……………… - 72,650 72,650 72,650 62,158 - 10,492 - 9,239,811 9,239,811 9,259,641 9,249,149 - 10,492 Workmen's Compensation…………………… - 435,000 435,000 562,316 561,800 - 516 Unemployment Compensation………………… - 356,000 356,000 350,000 173,644 - 176,356 Group Insurance………………………………… - 11,885,068 11,885,068 12,071,075 11,647,207 - 423,868 - 797,239 797,239 943,983 943,983 - - Municipal Insurance…………………………… - 302,500 302,500 238,184 164,043 - 74,141 TOTAL EXPENDITURES…………… 985,737 116,350,999 117,336,736 119,105,365 116,874,531 1,059,667 1,171,167 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………… (985,737) 2,180,501 1,194,764 (573,865) 4,847,743 (1,059,667) 4,361,941 OTHER FINANCING SOURCES (USES): Proceeds from bonds and notes……………… - - - - 996 - 996 Premium from issuance of bonds……………… - - - - 191,693 - 191,693 Transfers - 2,500,032 2,500,032 3,002,291 3,031,316 - 29,025 Transfers - (4,680,533) (4,680,533) (5,900,240) (5,900,240) - - TOTAL OTHER FINANCING SOURCES - (2,180,501) (2,180,501) (2,897,949) (2,676,235) - 221,714 NET CHANGE IN FUND BALANCE……………… (985,737) - (985,737) (3,471,814) 2,171,508 (1,059,667) 4,583,655 BUDGETARY FUND BALANCE, Beginning of - 6,979,302 6,979,302 6,979,302 6,979,302 - - BUDGETARY FUND BALANCE, End of year…… $ (985,737) $ 6,979,302 $ 5,993,565 $ 3,507,488 $ 9,150,810 $ (1,059,667) $ 4,583,655 (concluded) See notes to required supplementary information. City of Salem, Massachusetts 83 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 84 Comprehensive Annual Financial Report Retirement System Schedules of Funding Progress and Employer Contributions Retirement system schedules The Retirement System Schedule of Funding Progress presents multiyear trend information relating to the cost- sharing plan as a whole, of which the City is one participating employer, about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. The Retirement System Schedule of Employer Contributions presents multiyear trend information for required and actual contributions relating to the cost-sharing plan as a whole, of which the City is one participating employer, as well as the City’s proportionate share of the plan’s annual contributions. ---PAGE BREAK--- Actuarial UAAL as a Actuarial Accrued Unfunded Percentage Actuarial Value of Liability (AAL) AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (B-A) (A/B) 01/01/12 $ 106,806,161 $ 214,346,363 $ 107,540,202 49.8% $ 37,076,549 290.0% 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 85 Comprehensive Annual Financial Report ---PAGE BREAK--- (B/A) Fiscal Year Annual City's Percentage Ended Required Actual Percentage Actual of System Wide June 30 Contributions Contributions Contributed Contributions Actual Contributions 2013 $ 10,941,379 $ 10,941,379 100% $ 9,337,442 85.34% 2012 10,470,232 10,470,232 100% 8,935,504 85.34% 2011 9,991,587 9,991,587 100% 8,543,631 85.51% 2010 9,628,758 9,628,758 100% 8,233,450 85.51% 2009 9,239,327 9,239,327 100% 7,952,910 86.08% 2008 8,939,812 8,939,812 100% 7,693,291 86.06% 2007 8,431,371 8,431,371 100% 7,209,359 85.51% The City's Actual Contributions equaled 100% of its Required Contributions for each year presented. See notes to required supplementary information. SALEM CONTRIBUTORY RETIREMENT SYSTEM SCHEDULE OF EMPLOYER CONTRIBUTIONS System Wide City of Salem City of Salem, Massachusetts 86 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 87 Comprehensive Annual Financial Report Other Postemployment Benefit Plan Schedules Other postemployment benefit plan schedules The Schedule of Funding Progress compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. The Schedule of Employer Contributions presents, over time, the ratio of the actual annual employer contributions to the annual required contribution. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. ---PAGE BREAK--- SCHEDULE OF FUNDING PROGRESS AND EMPLOYER CONTRIBUTIONS Actuarial Accrued UAAL as a Actuarial Liability (AAL) Unfunded Percentage Actuarial Value of Projected AAL Funded Covered of Covered Valuation Assets Unit Credit (UAAL) Ratio Payroll Payroll Date (B-A) (A/B) 12/31/2011 $ - $ 145,033,856 $ 145,033,856 0% $ 50,103,473 289.5% 12/31/2009 - 171,447,034 171,447,034 0% 52,107,612 329.0% 12/31/2007 - 156,258,800 156,258,800 0% 50,103,473 311.9% Fiscal Annual Actual Percentage of Year Required Contributions the ARC Ended Contribution (ARC) Made Contributed 2013 $ 10,003,723 $ 4,681,685 47% 2012 9,555,726 4,419,491 46% 2011 11,374,693 5,916,957 52% 2010 10,869,698 5,287,195 49% 2009 11,068,269 6,799,394 61% 2008 10,554,680 3,443,274 33% See notes to required supplementary information. OTHER POSTEMPLOYMENT BENEFIT PLAN Schedule of Employer Contributions Schedule of Funding Progress City of Salem, Massachusetts 88 Comprehensive Annual Financial Report ---PAGE BREAK--- ACTUARIAL METHODS AND ASSUMPTIONS Actuarial Methods: Valuation date December 31, 2011 Actuarial cost method Projected Unit Credit Amortization method Payments increasing at 4.0% per year as a level percentage of projected payroll Remaining amortization period 30 years as of December 31, 2011, open Actuarial Assumptions: Investment rate of return 4.5%, pay-as-you-go scenario Medical/drug cost trend rate 9.0% decreasing by 0.5% for 8 years to be an ultimate level of 5.0% per year. Plan Membership: Current retirees, beneficiaries, and dependents 1,053 Current active members 890 Total 1,943 See notes to required supplementary information. OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 89 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Required Supplementary Information Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 90 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 during May and June, and the first fifteen days of July, any amount appropriated for the use of any department to the appropriation for any other department, provided that no such transfer may be made from any appropriation for a school department, regional school district, or municipal light department. The majority of appropriations are non-continuing which lapse at the end of each 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 2013 approved budget authorized approximately $122,017,269 million in appropriations and other amounts to be raised. During the fiscal year, increases to the original budget were approved totaling approximately $2,988,336 million. The most notable components of this increase include an additional $2.5 million in available funds (free cash) appropriated to fund stabilization reserves, veteran’s benefits, capital improvements, and various additional appropriations. The Finance Department has the responsibility to ensure that budgetary control is maintained. Budgetary control is exercised through the accounting system. ---PAGE BREAK--- Notes to Required Supplementary Information Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 91 Comprehensive Annual Financial Report 2. Budgetary - GAAP Reconciliation For budgetary financial reporting purposes, the Uniform Municipal Accounting System basis of accounting (established by the Commonwealth) is followed, which differs from the GAAP basis of accounting. A reconciliation of budgetary-basis to GAAP-basis results for the general fund for the fiscal year ended June 30, 2013, is presented below: Net change in fund balance - budgetary $ 2,171,508 Perspective differences: Reclassification of enterprise fund revenue budgeted in the general fund…………… (2,580,262) Reclassification of enterprise fund expenditures budgeted in the general fund……… 1,263,529 Reclassification of enterprise fund transfers budgeted in the general fund…………… 1,316,733 Activity of the Salem Community Charter 120,818 Activity of the stabilization funds recorded in the general fund for 49,645 Basis of accounting differences: Net change in revenues in recording tax refunds (81,155) Recognition of revenue for on-behalf 10,522,000 Recognition of expenditures for on-behalf (10,522,000) Net difference in recognition of expenditures…………………………………………… (73,654) Net change in fund balances - GAAP $ 2,187,162 3. Appropriation Deficits During fiscal year 2013, expenditures exceeded budgeted appropriations for snow and ice. This over expenditure is allowable and will be funded in fiscal year 2014 through real estate taxes or with other available funds. 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, 2013 City of Salem, Massachusetts 92 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, 2012 Actuarial Cost Method………………………………………Entry Age Normal Cost Method Amortization Method…………………………………………Increasing at 4.5% per year as a level percentage of projected payroll. Remaining Amortization Period……………………………20 years remaining as of January 1, 2012, open Asset Valuation The difference between the expected return on an actuarial basis and actual investment return on a market value basis is recognized over a 5 year period. Investment rate of 8.00% 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 participation in the Group Insurance Commission of the Commonwealth of Massachusetts (GIC) which covers both active and retired members. 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 multiyear 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 93 Comprehensive Annual Financial Report Combining and Individual Fund Statements Combining and Individual Fund Statements ---PAGE BREAK--- City of Salem, Massachusetts 94 Comprehensive Annual Financial Report Nonmajor governmental funds Nonmajor Governmental Funds Special Revenue Funds Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. City Grants Fund – This fund is used to account for non-school related activity specifically financed by federal, state, and other grants which are designated for specific programs. School Grants Fund – This fund is used to account for the educational programs specifically financed by federal, state, and other grants which are designated for specific programs. Community Development Grants Fund – This fund is used to account for community development activity specifically financed by federal, state, and other grants which are designated for specific programs. School Lunch Fund – This fund is used to account for all cafeteria activities and is funded by user charges, federal and state grants and commodities received. Highway Grants Fund – This fund is used to account for construction, reconstruction and improvements to roadways, streets and sidewalks. Funding is provided primarily by grants. Donations and Gifts Fund – This fund is used to account for gifts which have been accepted by the City to be used for the purpose specified by the donor. Receipts Reserved Fund – This fund is used to account for receipts reserved for appropriation. City Revolving Accounts Fund – This fund is used to account for non-school related revolving funds specifically allowed by the laws of the Commonwealth of Massachusetts. These funds are expended for purposes specified by the enabling statute. School Revolving Accounts Fund – This fund is used to account for school related revolving funds specifically allowed by the laws of the Commonwealth of Massachusetts. These funds are expended for purposes specified by the enabling statutes. Capital Project Funds Capital Improvement Plan Fund– These funds are used to account for the budgeted capital improvements voted on an annual basis. Other Funds – This fund is used to account for various capital projects. ---PAGE BREAK--- City of Salem, Massachusetts 95 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 96 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- Community City School Development School Highway Donations Receipts ASSETS Grants Grants Grants Lunch Grants and Gifts Reserved Cash and cash equivalents……………………………$ 2,728,064 $ 1,864,158 $ 64,287 $ 141,818 $ - $ 661,096 $ 713,123 Deposits held in - - - - - - - - - - - - 1,009,787 - Receivables, net of uncollectibles: Departmental and - - - - - - 90,834 Intergovernmental………………………………… 366,790 120,551 6,825 - 900,711 - - - - 286,340 - - - - Due from other 53,611 - - - - - - TOTAL 3,148,465 $ 1,984,709 $ 357,452 $ 141,818 $ 900,711 $ 1,670,883 $ 803,957 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants 248,202 $ 206,343 $ - $ 18,479 $ - $ - $ 30,083 Accrued 25,315 111,440 5,394 19,493 - - - Deferred - - 286,340 - 853,600 - 90,834 Due to other - - 6,500 - 47,111 - - Notes - - - - - - - TOTAL LIABILITIES………………………………… 273,517 317,783 298,234 37,972 900,711 - 120,917 FUND BALANCES: Nonspendable……………………………………… - - - - - - - 2,874,948 1,666,926 59,218 103,846 - 1,670,883 683,040 - - - - - - - TOTAL FUND BALANCES…………………………… 2,874,948 1,666,926 59,218 103,846 - 1,670,883 683,040 TOTAL LIABILITIES AND FUND BALANCES……………………………$ 3,148,465 $ 1,984,709 $ 357,452 $ 141,818 $ 900,711 $ 1,670,883 $ 803,957 (Continued) Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2013 City of Salem, Massachusetts 97 Comprehensive Annual Financial Report ---PAGE BREAK--- City School Capital Revolving Revolving Improvement Accounts Accounts Subtotal Plan Other Subtotal Cash and cash equivalents……………………………… $ 1,096,577 $ 340,248 $ 7,609,371 $ 1,678,911 $ 80,389 $ 1,759,300 Deposits held in - - - 200,450 - 200,450 - - 1,009,787 - - - Receivables, net of uncollectibles: Departmental and - - 90,834 - - - Intergovernmental……………………………………… 825 - 1,395,702 - 591,802 591,802 170,843 - 457,183 - - - Due from other - - 53,611 577,805 - 577,805 TOTAL $ 1,268,245 $ 340,248 $ 10,616,488 $ 2,457,166 $ 672,191 $ 3,129,357 LIABILITIES: Warrants $ 24,095 $ - $ 527,202 $ 201,985 $ 80,589 $ 282,574 Accrued 545 6,006 168,193 - - - Deferred 170,842 - 1,401,616 - - - Due to other - - 53,611 - 577,805 577,805 Notes - - - 1,790,000 37,738 1,827,738 TOTAL LIABILITIES……………………………………… 195,482 6,006 2,150,622 1,991,985 696,132 2,688,117 FUND BALANCES: Nonspendable…………………………………………… - - - - - - 1,072,763 334,242 8,465,866 465,181 88,467 553,648 - - - - (112,408) (112,408) TOTAL FUND BALANCES……………………………… 1,072,763 334,242 8,465,866 465,181 (23,941) 441,240 TOTAL LIABILITIES AND FUND BALANCES……………………………… $ 1,268,245 $ 340,248 $ 10,616,488 $ 2,457,166 $ 672,191 $ 3,129,357 (Continued) LIABILITIES AND FUND BALANCES ASSETS Capital Project Funds Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2013 City of Salem, Massachusetts 98 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Cemetery Human Service Governmental Fund Fund Other Subtotal Funds $ 417,072 $ 193,458 $ 133,395 $ 743,925 $ 10,112,596 - - - - 200,450 2,724,878 1,274,243 1,027,772 5,026,893 6,036,680 - - - - 90,834 - - - - 1,987,504 - - - - 457,183 - - - - 631,416 $ 3,141,950 $ 1,467,701 $ 1,161,167 $ 5,770,818 $ 19,516,663 $ - $ - $ - $ - $ 809,776 - - - - 168,193 - - - - 1,401,616 - - - - 631,416 - - - - 1,827,738 - - - - 4,838,739 995,009 221,174 858,806 2,074,989 2,074,989 2,146,941 1,246,527 302,361 3,695,829 12,715,343 - - - - (112,408) 3,141,950 1,467,701 1,161,167 5,770,818 14,677,924 $ 3,141,950 $ 1,467,701 $ 1,161,167 $ 5,770,818 $ 19,516,663 (Concluded) Permanent Funds City of Salem, Massachusetts 99 Comprehensive Annual Financial Report ---PAGE BREAK--- Community City School Development School Highway Donations Grants Grants Grants Lunch Grants and Gifts REVENUES: Charges for 21,281 $ 118,264 $ - $ - $ - $ - Penalties and interest on - - - - - - Intergovernmental…………………………………………… 4,856,538 6,208,171 1,333,148 1,613,889 1,504,443 - Departmental and 778,136 897,906 105,142 - - - Contributions………………………………………………… 78,164 26,178 - - - 119,446 Investment 345 - 209 - - 55,708 TOTAL 5,734,464 7,250,519 1,438,499 1,613,889 1,504,443 175,154 EXPENDITURES: Current: General government……………………………………… 137,965 - - - - 1,010 Public 378,796 - - - - 4,725 102,574 7,524,349 - 1,676,829 - 21,005 Public 662,347 - - - 1,504,443 - Community development………………………………… - - 1,415,305 - - - Health and human services……………………………… 4,303,518 - - - - 13,932 Culture and recreation…………………………………… 53,308 - - - - 29,341 Debt service: - - 35,000 - - - - - 2,616 - - - TOTAL EXPENDITURES……………………………… 5,638,508 7,524,349 1,452,921 1,676,829 1,504,443 70,013 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES………………………… 95,956 (273,830) (14,422) (62,940) - 105,141 OTHER FINANCING SOURCES (USES): Issuance of bonds and - - - - - - Capital lease - - - - - - Transfers 886,194 7,702 - 49,968 - - Transfers (68,222) (7,744) - (50,205) - - TOTAL OTHER FINANCING SOURCES (USES)…… 817,972 (42) - (237) - - NET CHANGE IN FUND BALANCES………………………… 913,928 (273,872) (14,422) (63,177) - 105,141 FUND BALANCES AT BEGINNING OF YEAR……………… 1,961,020 1,940,798 73,640 167,023 - 1,565,742 FUND BALANCES AT END OF $ 2,874,948 $ 1,666,926 $ 59,218 $ 103,846 $ - $ 1,670,883 (Continued) Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2013 City of Salem, Massachusetts 100 Comprehensive Annual Financial Report ---PAGE BREAK--- City School Capital Receipts Revolving Revolving Improvement Reserved Accounts Accounts Subtotal Plan Other Subtotal $ - $ - $ - $ 139,545 $ - $ - $ - 2,650 - - 2,650 - - - 7,601 - - 15,523,790 - 3,915,829 3,915,829 736,144 658,002 782,650 3,957,980 - - - - 5,249 - 229,037 - 26,334 26,334 - 931 193 57,386 - - - 746,395 664,182 782,843 19,910,388 - 3,942,163 3,942,163 49,610 65,633 - 254,218 764,678 - 764,678 - 6,000 - 389,521 1,330,789 - 1,330,789 - - 888,774 10,213,531 284,857 - 284,857 - 117,142 - 2,283,932 1,022,074 1,226,046 2,248,120 - 222,036 - 1,637,341 - 2,966,310 2,966,310 - 7,066 - 4,324,516 - - - 8,600 471,722 - 562,971 209,390 - 209,390 - - - 35,000 38,085 - 38,085 - - - 2,616 - - - 58,210 889,599 888,774 19,703,646 3,649,873 4,192,356 7,842,229 688,185 (225,417) (105,931) 206,742 (3,649,873) (250,193) (3,900,066) - - - - 3,447,500 - 3,447,500 - - - - 472,500 - 472,500 - - - 943,864 - - - (521,195) - - (647,366) - - - (521,195) - - 296,498 3,920,000 - 3,920,000 166,990 (225,417) (105,931) 503,240 270,127 (250,193) 19,934 516,050 1,298,180 440,173 7,962,626 195,054 226,252 421,306 $ 683,040 $ 1,072,763 $ 334,242 $ 8,465,866 $ 465,181 $ (23,941) $ 441,240 (Continued) Capital Project Funds Special Revenue Funds City of Salem, Massachusetts 101 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Cemetery Human Service Governmental Fund Fund Other Subtotal Funds REVENUES: Charges for - $ - $ - $ - $ 139,545 Penalties and interest on - - - - 2,650 Intergovernmental………………………………………… - - - - 19,439,619 Departmental and - - - - 3,957,980 Contributions……………………………………………… 23,250 - 68,650 91,900 347,271 Investment 346,463 164,267 147,488 658,218 715,604 TOTAL 369,713 164,267 216,138 750,118 24,602,669 EXPENDITURES: Current: General government…………………………………… - - - - 1,018,896 Public - - 63,158 63,158 1,783,468 - - - - 10,498,388 Public 57,174 - 37,743 94,917 4,626,969 Community development……………………………… - - - - 4,603,651 Health and human services…………………………… - 44,990 - 44,990 4,369,506 Culture and recreation………………………………… - - - - 772,361 Debt service: - - - - 73,085 - - - - 2,616 TOTAL EXPENDITURES…………………………… 57,174 44,990 100,901 203,065 27,748,940 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………… 312,539 119,277 115,237 547,053 (3,146,271) OTHER FINANCING SOURCES (USES): Issuance of bonds and - - - - 3,447,500 Capital lease - - - - 472,500 Transfers - - - - 943,864 Transfers - - - - (647,366) TOTAL OTHER FINANCING SOURCES (USES)… - - - - 4,216,498 NET CHANGE IN FUND BALANCES…………………… 312,539 119,277 115,237 547,053 1,070,227 FUND BALANCES AT BEGINNING OF YEAR…………… 2,829,411 1,348,424 1,045,930 5,223,765 13,607,697 FUND BALANCES AT END OF 3,141,950 $ 1,467,701 $ 1,161,167 $ 5,770,818 $ 14,677,924 (Concluded) Permanent Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2013 City of Salem, Massachusetts 102 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 103 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 POSITION JUNE 30, 2013 Trust Fund Scholarship Commissioners Funds Total ASSETS Cash and cash equivalents………………………………… $ 203,980 $ 108,392 $ 312,372 1,033,429 - 1,033,429 TOTAL 1,237,409 108,392 1,345,801 NET POSITION Held in trust for other 1,237,409 $ 108,392 $ 1,345,801 Private Purpose Trust Funds City of Salem, Massachusetts 104 Comprehensive Annual Financial Report ---PAGE BREAK--- Trust Fund Scholarship Commissioners Funds Total ADDITIONS: Contributions: Private $ 2,102 $ 17,624 $ 19,726 Net investment income: Net change in fair value of investments……………………………………… 142,927 - 142,927 44 79 123 Total Net Investment 142,971 79 143,050 TOTAL 145,073 17,703 162,776 DEDUCTIONS: Educational 9,306 12,150 21,456 Housing 84,789 - 84,789 TOTAL 94,095 12,150 106,245 CHANGE IN NET 50,978 5,553 56,531 NET POSITION AT BEGINNING OF 1,186,431 102,839 1,289,270 NET POSITION AT END OF $ 1,237,409 $ 108,392 $ 1,345,801 Private Purpose Trust Funds PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF CHANGES IN NET POSITION FISCAL YEAR ENDED JUNE 30, 2013 City of Salem, Massachusetts 105 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 106 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………………$ 1,391,068 $ 15,800,246 $ (16,461,424) $ 729,890 LIABILITIES Accrued 56,752 $ 43,757 $ (56,752) $ 43,757 Liabilities due depositors………………… 1,334,316 39,889,543 (40,537,726) 686,133 TOTAL LIABILITIES…………………………$ 1,391,068 $ 39,933,300 $ (40,594,478) $ 729,890 AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FISCAL YEAR ENDED JUNE 30, 2013 City of Salem, Massachusetts 107 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 108 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- Statistical Section Winter Island During the 1930's, the United States Coast Guard created a Search & Rescue Base here on Winter Island Park. The Frigate USS Essex was built and launched in 1799 from this location. It served General George Washington in the U.S. Navy. The three bunkers located in historic Fort Pickering once stored ammunition as early as the Civil War. Winter Island had Salem's first tavern and first shipyard. A fort was erected as early as 1643. In 1867, the War department "turned over" to the city "for public use" the part of the island not occupied by the fort, until it should be wanted for defense. On December 28, 1928, Salem's Park Department took formal possession of the island. The fort was renamed Fort Pickering, after Colonel Timothy Pickering, Secretary of State and War in Washington's Cabinet. Winter Island is located at 50 Winter Island Road in Salem, Massachusetts. It offers RV and Tent Camping May 1 to Nov 1, a public boat ramp that is open year round, Waikiki Beach a public beach with lifeguards, seasonal dinghy rack spaces, and a camp and gift store. Picnic areas can be rented May 1 through Nov 1. Winter Island offers a walking tour where you can see the historic Fort Pickering Lighthouse and is a stop along the Salem Trolley Tour. A function hall is available for year round rentals and is a great place for weddings and more! Go to www.salem.com Recreation Department for more information. ---PAGE BREAK--- City of Salem, Massachusetts 109 Comprehensive Annual Financial Report Statistical Section This part of the comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. Financial Trends • These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time. Revenue Capacity • These schedules contain information to help the reader assess the City’s most significant local revenue source, the property tax. Debt Capacity • These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future. Demographic and Economic Information • These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place. Operating Information • These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs. SOURCES: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. ---PAGE BREAK--- 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Governmental activities Net investment in capital assets………… $ 79,729,492 $ 112,740,510 $ 109,183,737 $ 132,787,853 $ 139,683,360 $ 147,373,757 $ 147,313,749 $ 144,887,020 $ 147,692,495 $ 169,750,602 Restricted…………………………………… 8,759,761 9,734,998 8,649,700 8,868,048 6,948,839 6,968,580 6,892,267 10,562,103 11,197,635 12,499,976 Unrestricted………………………………… 6,519,783 (3,667,364) (371,947) (2,189,821) (6,668,493) (13,473,169) (17,907,226) (17,992,385) (21,617,069) (22,562,824) Total governmental activities net position…………$ 95,009,036 $ 118,808,144 $ 117,461,490 $ 139,466,080 $ 139,963,706 $ 140,869,168 $ 136,298,790 $ 137,456,738 $ 137,273,061 $ 159,687,754 Business-type activities Net investment in capital assets………… 8,147,378 9,212,891 9,018,231 9,138,929 8,836,475 6,939,001 8,245,799 8,248,186 8,605,165 9,562,558 Unrestricted………………………………… 7,538,395 4,492,692 4,722,252 5,609,406 5,647,967 6,371,380 3,920,927 4,366,232 4,085,318 4,857,190 Total business-type activities net position…………$ 15,685,773 $ 13,705,583 $ 13,740,483 $ 14,748,335 $ 14,484,442 $ 13,310,381 $ 12,166,726 $ 12,614,418 $ 12,690,483 $ 14,419,748 Primary government Net investment in capital assets………… 87,876,870 121,953,401 118,201,968 141,926,782 148,519,835 154,312,758 155,559,548 153,135,206 156,297,660 179,313,160 Restricted…………………………………… 8,759,761 9,734,998 8,649,700 8,868,048 6,948,839 6,968,580 6,892,267 10,562,103 11,197,635 12,499,976 Unrestricted………………………………… 14,058,178 825,328 4,350,305 3,419,585 (1,020,526) (7,101,789) (13,986,299) (13,626,153) (17,531,751) (17,705,634) Total primary government net position……………$ 110,694,809 $ 132,513,727 $ 131,201,973 $ 154,214,415 $ 154,448,148 $ 154,179,549 $ 148,465,516 $ 150,071,156 $ 149,963,544 $ 174,107,502 Note: As allowed by GASB #34, the City reported retroactive general infrastructure, acquired prior to fiscal 2002, beginning in fiscal 2005. Fiscal year 2004 has not been restated to reflect this change. Last Ten Fiscal Years Net Position By Component Fiscal Year City of Salem, Massachusetts 110 Comprehensive Annual Financial Report ---PAGE BREAK--- 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Expenses Governmental activities: General government………………………………… $ 9,454,148 $ 9,373,119 $ 9,867,573 $ 9,641,318 $ 10,598,174 $ 10,914,012 $ 10,865,152 $ 11,702,186 $ 11,904,711 $ 10,574,021 Public 22,235,461 22,058,002 23,481,525 24,433,343 28,262,847 27,421,538 26,755,783 27,989,181 26,551,919 27,832,445 61,775,760 67,483,676 67,258,196 75,513,149 75,874,227 79,410,738 83,743,843 86,938,434 91,261,655 95,924,303 Public 6,517,047 8,421,997 7,991,774 9,229,479 6,846,006 6,705,986 6,820,639 8,894,659 5,952,380 8,848,271 Community development……………………………… 5,767,362 2,066,749 1,891,386 1,804,554 1,567,381 2,093,618 3,226,360 1,845,141 1,530,786 1,347,731 Health and human services………………………… 1,410,712 4,856,306 5,016,513 4,675,688 5,904,063 6,226,498 6,622,114 5,930,089 6,001,130 6,140,975 Culture and recreation………………………………… 4,186,622 3,689,992 3,718,183 2,448,265 3,293,415 3,228,906 3,169,224 2,997,090 3,219,315 3,429,452 3,136,763 2,689,312 2,889,116 2,604,390 2,503,461 2,396,187 1,888,315 1,582,033 1,544,887 1,277,709 Total government activities expenses…………………… 114,483,875 120,639,153 122,114,266 130,350,186 134,849,574 138,397,483 143,091,430 147,878,813 147,966,783 155,374,907 Business-type activities: Water 9,619,356 3,186,840 3,197,864 3,562,372 3,895,551 4,021,536 4,395,607 4,161,481 4,188,083 4,287,422 Sewer 6,616,318 5,686,595 5,612,230 5,894,870 7,467,332 7,400,431 6,590,680 6,733,017 6,882,394 Golf 320,632 292,187 279,981 363,651 386,099 278,007 399,023 363,625 438,613 465,210 665,458 664,686 800,506 792,903 936,826 905,834 844,615 991,722 1,042,610 1,052,780 3,230,500 2,558,263 2,573,421 2,617,948 2,744,963 2,648,564 Total business type activities expenses………………… 10,605,446 10,760,031 9,964,946 10,331,156 14,343,846 15,230,972 15,613,097 14,725,456 15,147,286 15,336,370 Total primary government expenses…………………… $ 125,089,321 $ 131,399,184 $ 132,079,212 $ 140,681,342 $ 149,193,420 $ 153,628,455 $ 158,704,527 $ 162,604,269 $ 163,114,069 $ 170,711,277 Program Revenues Governmental activities: Education charges for services………………………$ 1,141,196 $ 1,023,839 $ 831,579 $ 1,659,544 $ 1,586,525 $ 1,473,880 $ 1,370,250 $ 1,277,950 $ 1,271,626 $ 1,171,221 Public Safety charges for services………………… 1,865,270 1,923,845 2,003,791 2,217,287 2,378,961 2,456,341 2,074,324 2,115,452 2,212,295 2,780,253 Other charges for services…………………………… 2,055,497 1,481,467 1,825,898 2,561,814 1,602,847 1,693,333 1,824,040 1,744,351 1,872,305 2,264,412 Operating grants and contributions………………… 35,305,349 34,087,248 37,934,300 37,957,703 41,168,760 43,744,124 46,352,034 51,358,511 47,872,700 49,028,512 Capital grant and contributions……………………… 2,129,821 2,090,467 3,312,346 30,118,572 9,615,336 8,762,642 4,135,374 5,197,515 5,699,571 30,643,446 Total government activities program revenues...……… 42,497,133 40,606,866 45,907,914 74,514,920 56,352,429 58,130,320 55,756,022 61,693,779 58,928,497 85,887,844 Business-type activities: Charges for services - 11,708,715 3,853,505 4,319,560 4,822,041 4,318,889 4,085,103 4,511,916 4,517,123 4,623,340 5,118,557 Charges for services - 5,512,922 6,233,883 6,694,172 6,555,593 7,668,044 7,610,195 8,292,908 7,986,386 8,573,466 Charges for services - 543,467 502,770 525,404 546,841 570,142 547,301 589,345 548,805 648,916 697,232 Charges for services - Parking……………………… 1,536,390 1,453,088 1,549,833 1,713,649 1,651,032 1,694,708 2,038,235 2,333,478 2,274,470 2,580,262 Charges for services - 908,577 720,193 740,511 692,089 675,916 684,262 Capital grants and contributions…………………… - - - - 49,707 43,796 41,820 39,804 - - Total business-type activities program revenues...…… 13,788,572 11,322,285 12,628,680 13,776,703 14,053,940 14,759,145 15,532,022 16,424,207 16,209,028 17,653,779 Total primary government program revenues……………$ 56,285,705 $ 51,929,151 $ 58,536,594 $ 88,291,623 $ 70,406,369 $ 72,889,465 $ 71,288,044 $ 78,117,986 $ 75,137,525 $ 103,541,623 Net (Expense)/Revenue Governmental activities……………………………………$ (71,986,742) $ (78,692,287) $ (76,206,352) $ (55,835,266) $ (78,497,145) $ (80,267,163) $ (87,335,408) $ (86,185,034) $ (89,038,286) $ (69,487,063) Business-type activities…………………………………… 3,183,126 562,254 2,663,734 3,445,547 (289,906) (471,827) (81,075) 1,698,751 1,061,742 2,317,409 Total primary government net expense………………… $ (68,803,616) $ (78,130,033) $ (73,542,618) $ (52,389,719) $ (78,787,051) $ (80,738,990) $ (87,416,483) $ (84,486,283) $ (87,976,544) $ (67,169,654) General Revenues and other Changes in Net Position Governmental activities: Real estate and personal property taxes, net of tax refunds payable………………………… $ 54,855,784 $ 55,915,767 $ 58,379,505 $ 60,991,003 $ 63,230,976 $ 66,672,653 $ 69,067,349 $ 71,828,412 $ 72,073,381 $ 76,770,134 Tax 690,557 635,624 182,650 752,178 527,492 234,353 510,973 795,443 589,138 Motor vehicle and other excise taxes……………… 3,478,999 3,489,584 3,452,569 3,357,765 3,286,119 2,978,961 3,092,527 3,181,247 3,131,334 3,052,229 Hotel/motel 219,628 263,962 282,324 373,655 324,622 294,214 955,092 1,161,007 1,224,849 Penalties and interest on 322,003 288,874 350,651 266,246 353,952 412,572 437,361 438,487 490,242 399,311 Payments in lieu of 1,073,539 1,088,754 1,235,083 1,229,435 1,320,945 1,307,078 1,319,079 1,440,186 1,462,692 Grants and contributions not restricted to specific 6,932,546 8,097,351 7,661,752 8,971,625 9,163,777 8,064,486 6,583,118 6,404,395 8,220,908 6,610,413 Unrestricted investment income……………………… 568,503 521,585 183,980 965,694 462,275 (35,188) 435,769 1,095,518 103,015 828,974 Miscellaneous………………………………………… 431,558 77,454 214,067 248,905 168,417 203,848 250,681 358,720 453,416 375,872 2,466,477 2,542,444 2,628,834 2,437,695 (26,013) 702,234 1,062,580 1,251,059 985,677 588,144 Total governmental activities 69,055,870 72,916,783 74,859,698 78,938,990 78,994,771 81,172,625 82,765,030 87,342,982 88,854,609 91,901,756 Business-type activities: (2,466,477) (2,542,444) (2,628,834) (2,437,695) 26,013 (702,234) (1,062,580) (1,251,059) (985,677) (588,144) Total primary government…………………………………$ 66,589,393 $ 70,374,339 $ 72,230,864 $ 76,501,295 $ 79,020,784 $ 80,470,391 $ 81,702,450 $ 86,091,923 $ 87,868,932 $ 91,313,612 Changes in Net Position Governmental activities……………………………………$ (2,930,872) $ (5,775,504) $ (1,346,654) $ 23,103,724 $ 497,626 $ 905,462 $ (4,570,378) $ 1,157,948 $ (183,677) $ 22,414,693 Business-type activities…………………………………… 716,649 (1,980,190) 34,900 1,007,852 (263,893) (1,174,061) (1,143,655) 447,692 76,065 1,729,265 Total primary government…………………………………$ (2,214,223) $ (7,755,694) $ (1,311,754) $ 24,111,576 $ 233,733 $ (268,599) $ (5,714,033) $ 1,605,640 $ (107,612) $ 24,143,958 In fiscal year 2004 the City reported a joint water/sewer enterprise fund. In fiscal year 2004 the City included in real estate and personal property taxes, net of tax refunds payable. In fiscal years 2004- 2007 the City reported Trash in the governmental funds. Last Ten Fiscal Years Changes in Net Position Fiscal Year City of Salem, Massachusetts 111 Comprehensive Annual Financial Report ---PAGE BREAK--- 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 General Fund Reserved…………………………… $ 1,153,872 $ 68,524 $ 197,581 $ 69,631 $ 220,608 $ 372,027 $ 421,825 $ - $ - $ - Unreserved…………………………… 3,398,534 335,643 1,162,714 (1,151,199) 1,321,397 749,849 1,211,094 - - - Assigned……………………………… - - - - - - - 589,894 985,737 1,059,667 Unassigned………………………… - - - - - - - 8,405,585 9,550,262 11,663,494 Total general 4,552,406 $ 404,167 $ 1,360,295 $ (1,081,568) $ 1,542,005 $ 1,121,876 $ 1,632,919 $ 8,995,479 $ 10,535,999 $ 12,723,161 All Other Governmental Funds Reserved…………………………… $ 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………… 6,618,566 7,763,007 5,474,128 5,477,136 3,768,323 5,602,931 5,819,702 - - - Capital projects funds…………… (24,963,657) (10,513,270) (1,859,435) (197,270) 2,806,105 (537,848) 3,969,207 - - - Permanent funds………………… 2,555,014 2,897,589 3,018,952 3,556,455 3,291,512 2,678,043 2,783,655 - - - Nonspendable……………………… - - - - - - - 1,707,276 2,074,097 2,074,989 Restricted…………………………… - - - - - - - 11,329,632 14,344,418 12,942,168 Unassigned………………………… - - - - - - - (665,295) (4,101,228) (623,622) Total all other governmental funds…. $ (13,945,352) $ 1,739,076 $ 8,240,549 $ 10,465,523 $ 11,516,537 $ 9,431,977 $ 14,261,740 $ 12,371,613 $ 12,317,287 $ 14,393,535 Note: The City implemented GASB 54 in fiscal year 2011, fund balances prior to fiscal year 2011 have been reported in the pre-GASB 54 format. Last Ten Fiscal Years Fund Balances, Governmental Funds Fiscal Year City of Salem, Massachusetts 112 Comprehensive Annual Financial Report ---PAGE BREAK--- 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues: Real estate and personal property taxes, net of tax $ 55,603,719 $ 55,866,348 $ 58,601,934 $ 60,638,180 $ 63,376,714 $ 66,717,968 $ 68,747,759 $ 71,754,816 $ 72,202,064 $ 77,018,965 Motor vehicle and other excise 3,387,266 3,531,673 3,577,544 3,215,438 3,427,889 3,154,642 3,007,759 3,180,552 3,203,122 3,113,058 Intergovernmental…………………………………………………… 37,305,545 40,601,143 40,386,321 38,496,892 39,569,976 42,962,129 44,150,857 51,562,915 50,048,535 84,640,597 Departmental and 9,324,193 7,539,138 8,496,446 9,017,710 10,086,572 9,382,460 8,511,803 9,656,996 10,366,488 12,049,109 Investment 568,503 828,933 927,302 925,771 462,585 (32,923) 436,686 1,096,747 129,773 828,974 Commonwealth school construction grants……………………… - 12,739,570 16,559,515 35,025,316 17,324,905 13,130,784 7,095,272 4,310,837 4,310,837 4,310,837 On-behalf pension payments by the Commonwealth 5,345,441 5,890,261 6,376,140 7,044,987 7,511,889 8,277,958 8,602,216 9,290,000 9,695,000 10,522,000 Total 111,534,667 126,997,066 134,925,202 154,364,294 141,760,530 143,593,018 140,552,352 150,852,863 149,955,819 192,483,540 Expenditures: General 4,627,702 4,863,297 5,112,025 4,733,168 4,512,126 5,284,403 5,062,768 5,678,376 6,039,335 6,351,699 Public 14,999,915 14,417,276 14,547,596 14,969,952 15,945,719 16,452,689 16,147,666 17,129,546 17,807,607 18,207,275 47,729,470 46,260,838 47,647,867 47,719,326 47,293,548 48,101,995 49,491,944 51,429,439 50,076,848 53,168,217 Public 5,209,599 6,663,143 5,427,108 6,137,334 3,338,981 3,718,860 3,255,769 3,573,118 2,831,181 5,338,674 Community 2,085,553 2,066,749 1,891,386 1,804,554 1,567,381 2,402,149 3,413,203 1,933,227 1,757,053 1,322,586 Health and human 855,553 4,348,098 4,475,413 4,730,161 5,306,444 5,339,094 6,158,089 5,927,137 5,538,621 5,580,162 Culture and 2,756,066 2,278,899 2,339,600 1,865,609 2,135,563 2,395,536 2,320,698 2,152,872 3,367,206 2,468,723 Pension 6,565,806 11,926,982 13,388,893 14,375,924 15,180,985 16,206,240 16,770,835 17,707,823 18,538,274 19,771,148 Massachusetts teachers' retirement 5,345,441 5,890,261 6,376,140 7,044,987 7,511,889 8,277,958 8,602,216 9,290,000 9,695,000 10,522,000 Employee 10,580,395 10,433,140 9,964,302 10,889,249 11,570,087 11,805,651 11,077,682 11,751,691 13,122,992 13,326,634 State and county 4,212,549 4,028,333 5,047,971 5,589,986 5,933,670 6,302,025 6,655,890 6,445,380 6,390,908 5,141,397 Capital 15,793,932 1,422,955 7,581,652 38,018,740 12,930,767 13,552,655 4,654,814 6,194,898 11,752,488 38,287,997 Debt service 3,890,000 4,105,000 4,385,000 4,310,000 6,620,000 4,559,497 5,385,000 7,550,000 4,717,000 19,454,000 3,259,021 2,919,668 2,958,101 2,513,575 2,622,389 2,568,643 2,087,028 1,851,117 1,761,551 1,816,117 Total 127,911,002 121,624,639 131,143,054 164,702,565 142,469,549 146,967,395 141,083,602 148,614,624 153,396,064 200,756,629 Excess of revenues over (under) expenditures…………………… (16,376,335) 5,372,427 3,782,148 (10,338,271) (709,019) (3,374,377) (531,250) 2,238,239 (3,440,245) (8,273,089) Other Financing Sources (Uses) Issuance of - 2,465,000 - 8,319,497 3,930,000 - 4,589,000 630,000 3,900,938 11,242,660 Premium from issuance of - 232,856 - 85,169 84,840 - 575,986 1,167,420 1,059 191,693 Issuance of refunding - - - - - 3,785,000 11,043,000 4,589,000 - - Payments to refunded bond escrow - - - - - - (8,512,000) - - - Refunding bonds - - - - - (3,785,000) (2,930,000) (4,589,000) - - Capital lease - 807,283 1,046,619 378,169 394,779 167,454 43,500 185,715 38,765 514,002 Sale of capital - - - - - - - - - - Transfers 10,693,915 3,597,240 5,320,517 3,558,845 4,508,229 5,228,530 6,160,597 5,137,447 5,184,894 5,343,327 Transfers (8,227,438) (1,054,796) (2,691,683) (1,121,150) (4,534,242) (4,526,296) (5,098,017) (3,886,388) (4,199,217) (4,755,183) Total other financing sources 2,466,477 6,047,583 3,675,453 11,220,530 4,383,606 869,688 5,872,066 3,234,194 4,926,439 12,536,499 Net change in fund (13,909,858) $ 11,420,010 $ 7,457,601 $ 882,259 $ 3,674,587 $ (2,504,689) $ 5,340,816 $ 5,472,433 $ 1,486,194 $ 4,263,410 Debt service as a percentage of noncapital expenditures…………… 6.16% 5.95% 5.94% 5.39% 7.13% 5.34% 5.48% 6.60% 4.57% 13.09% In fiscal year 2005 certain grants were reclassified to Human Services to better reflect the purpose. Prior to fiscal year 2005 any receipts from the Commonwealth for school construction projects were included in intergovernmental revenue. The Commonwealth is legally obligated to fund the Salem teachers retirement. Therefore the revenue and expenditure has been recorded in accordance with GASB 24. Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years Fiscal Year The City received a $15.8 million grant from the Commonwealth to paydown $15.6 million in school debt originally issued in 2003. City of Salem, Massachusetts 113 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 2004 $ 3,247,929,862 $ 11.71 $ 369,848,655 $ 140,122,325 $ 213,400,595 $ 723,371,575 $ 22.59 $ 13.69 $ 3,971,301,437 2005 3,536,283,952 11.38 383,694,522 142,371,000 234,191,813 760,257,335 21.83 13.23 4,296,541,287 2006 3,807,396,999 11.21 393,448,700 143,388,000 241,940,480 778,777,180 21.33 12.93 4,586,174,179 2007 4,137,021,751 10.77 435,740,235 150,255,420 255,302,680 841,298,335 20.48 12.41 4,978,320,086 2008 4,008,575,509 11.67 449,128,612 134,872,400 212,904,820 796,905,832 22.11 13.40 4,805,481,341 2009 3,753,889,412 12.92 446,457,904 133,318,180 177,993,390 757,769,474 24.54 14.87 4,511,658,886 2010 3,527,110,563 14.01 432,747,534 127,061,700 207,643,630 767,452,864 26.93 16.32 4,294,563,427 2011 3,361,382,273 15.05 417,668,102 123,342,500 213,577,900 754,588,502 29.08 17.62 4,115,970,775 2012 3,291,268,444 15.63 410,704,364 118,044,040 153,768,900 682,517,304 29.81 18.07 3,973,785,748 2013 3,227,554,748 16.38 420,436,783 116,029,720 163,211,490 699,677,993 31.46 19.07 3,927,232,741 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. 15.5% 16.0% 16.5% 17.0% 17.5% 18.0% 18.5% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Commercial Value as % of Total Value 82% 11% 3% 4% Total Assessed Value by Classification Fiscal Year Ended June 30, 2013 Residential Commercial Industrial Personal Property 83% 10% 3% 4% Total Assessed Value by Classification Fiscal Year Ended June 30, 2012 Residential Commercial Industrial Personal Property City of Salem, Massachusetts 114 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 Footprint Power Salem Personal & Industrial Property $49,756,000 1 1.3% - - Salem Station LLC Apartments $33,943,300 2 0.9% $35,841,800 2 0.9% Massachusetts Electric Personal Property $33,906,380 3 0.9% - - New England Power Co. Personal & Industrial Property $31,888,090 4 0.8% $15,893,945 7 0.4% Princeton Crossing Apartments Apartments $27,078,700 5 0.7% $26,802,200 3 0.7% Shetland Properties Industrial & Commercial $26,955,700 6 0.7% $25,649,600 4 - National Grid Industrial Property & PP $25,257,750 7 0.6% - - Highlander Plazas Commercial Property $21,699,700 8 0.6% $20,352,100 6 0.5% Algonquin Gas Transmission Personal Property $20,850,600 9 0.5% - - Second Pickwick Trust Commercial Property $13,244,900 10 0.3% $13,919,900 8 0.4% US Gen New England Personal & Industrial Property - - $199,198,110 1 5.0% Boston Gas Personal & Industrial Property - - $9,621,635 9 0.2% Home Depot Commercial Property - - $9,484,900 10 0.2% Vinnin Square LLC Apartments - - $22,604,900 5 0.6% Totals $284,581,120 7.2% $379,369,090 8.9% Source: Board of Assessors 2013 2004 City of Salem, Massachusetts 115 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 2004 $ 54,374,223 $ 564,486 $ 53,809,737 $ 53,259,047 99.0% $ 550,063 $ 53,809,110 100.0% 2005 56,839,329 418,415 56,420,914 55,554,023 98.5% 866,450 56,420,473 100.0% 2006 59,292,238 443,519 58,848,719 58,010,805 98.6% 835,900 58,846,705 100.0% 2007 61,785,514 593,521 61,191,993 60,318,905 98.6% 870,423 61,189,328 100.0% 2008 64,399,664 565,307 63,834,357 63,225,112 99.0% 609,245 63,834,357 100.0% 2009 67,095,914 514,742 66,581,172 66,300,317 99.6% 280,855 66,581,172 100.0% 2010 70,082,325 612,829 69,469,496 68,292,880 98.3% 1,176,616 69,469,496 100.0% 2011 72,532,237 402,324 72,129,913 70,936,056 98.3% 1,193,857 72,129,913 100.0% 2012 71,788,367 360,622 71,427,745 70,558,172 98.8% 869,573 71,427,745 100.0% 2013 74,879,216 420,829 74,458,387 73,069,108 98.1% - 73,069,108 98.1% Revaluation Year Source: Massachusetts Department of Revenue; Board of Assessors Property Tax Levies and Collections Last Ten Fiscal Years City of Salem, Massachusetts 116 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 2004 41,912 $ 1,082,318,054 $ 3,971,301,437 $ 59,840,000 $ 307,360 $ 1,435 5.56% 1.51% 2005 41,976 1,105,650,179 4,296,541,287 58,770,000 723,214 1,417 5.38% 1.38% 2006 40,407 1,085,609,084 4,586,174,179 54,385,000 1,172,651 1,375 5.12% 1.21% 2007 40,407 1,107,321,266 4,978,320,086 50,040,000 779,906 1,258 4.59% 1.02% 2008 40,407 1,129,467,691 4,805,481,341 55,704,497 675,954 1,395 4.99% 1.17% 2009 41,421 1,180,967,527 4,511,658,886 51,145,000 530,771 1,248 4.38% 1.15% 2010 41,361 1,202,841,984 4,294,563,427 50,387,000 317,032 1,226 4.22% 1.18% 2011 41,361 1,226,898,824 4,115,970,775 44,581,526 384,965 1,087 3.67% 1.09% 2012 41,340 1,250,801,415 3,973,785,748 43,629,929 245,703 1,061 3.51% 1.10% 2013 41,654 1,285,525,748 3,927,232,741 35,291,962 619,317 862 2.79% 0.91% General Total Percentage Percentage Fiscal Obligation Capital Debt Per of Personal of Assessed Year Bonds Leases Outstanding Capita Income Value 2004 $ 380,000 $ 0 $ 60,527,360 $ 1,444 5.59% 1.52% 2005 1,450,000 0 60,943,214 1,452 5.51% 1.42% 2006 1,345,000 0 56,902,651 1,408 5.24% 1.24% 2007 3,570,656 0 54,390,562 1,346 4.91% 1.09% 2008 7,624,241 0 64,004,692 1,584 5.67% 1.33% 2009 7,250,908 0 58,926,679 1,423 4.99% 1.31% 2010 12,949,102 0 63,653,134 1,539 5.29% 1.48% 2011 15,665,280 0 60,631,771 1,466 4.94% 1.47% 2012 16,762,802 0 60,638,434 1,467 4.85% 1.53% 2013 16,670,824 0 52,582,103 1,262 4.09% 1.34% Source: Audited Financial Statements, U. S. Census Governmental Activities Debt Business-type Activities Total Primary Government City of Salem, Massachusetts 117 Comprehensive Annual Financial Report ---PAGE BREAK--- Direct and Overlapping Governmental Activities Debt As of June 30, 2013 Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable Debt Overlapping debt: North Shore Regional Vocational School District…………$ 405,000 24.25% $ 98,213 Direct debt: Capital Lease Obligations…………………………………… 619,317 General Governmental Debt 35,291,962 City total direct 35,911,279 Total direct and overlapping $ 36,009,492 Source: Treasurer and North Shore Regional Vocational School District Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of the overlapping governments that is borne by the taxpayers of the Town. This process recognizes that, when considering the government's ability to issue and repay long-term debt, the entire debt burden borne by the property taxpayers should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government. The percentage applicable for the North Shore Regional Vocational School District is based on the number of students attending from the City of Salem as a percentage of all students at the Regional School City of Salem, Massachusetts 118 Comprehensive Annual Financial Report ---PAGE BREAK--- 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Equalized Valuation……………………………… $ 4,223,735,800 $ 4,223,735,800 $ 4,923,330,400 $ 4,923,330,400 $ 5,168,060,200 $ 5,168,060,200 $ 4,568,374,700 $ 4,568,374,700 $ 4,256,808,900 $ 4,256,808,900 Debt Limit of Equalized Valuation………… $ 211,186,790 $ 211,186,790 $ 246,166,520 $ 246,166,520 $ 258,403,010 $ 258,403,010 $ 228,418,735 $ 228,418,735 $ 212,840,445 $ 212,840,445 Less: Outstanding debt applicable to limit…………… 4,167,000 6,695,447 6,064,000 5,435,000 12,004,000 12,004,000 10,884,900 16,669,700 14,905,000 19,976,500 Authorized and unissued 70,336,913 39,296,218 48,682,895 54,169,239 28,769,240 28,769,240 11,128,240 13,725,802 72,303,161 46,646,035 Legal debt $ 136,682,877 $ 165,195,125 $ 191,419,625 $ 186,562,281 $ 217,629,770 $ 217,629,770 $ 206,405,595 $ 198,023,233 $ 125,632,284 $ 146,217,910 Total debt applicable to the limit as a percentage of debt limit………………… 35.28% 21.78% 22.24% 24.21% 15.78% 15.78% 9.64% 13.31% 40.97% 31.30% Source: Audited Financial Statements; Statement of Indebtedness; and the Massachusetts Department of Revenue, Bureau of Local Assessment. Computation of Legal Debt Margin Last Ten Fiscal Years Fiscal Year City of Salem, Massachusetts 119 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 2004 41,912 $ 1,082,318,054 $ 25,824 36.4 4,727 5.3% 2005 41,976 1,105,650,179 26,340 36.4 4,676 4.9% 2006 40,407 1,085,609,084 26,867 36.4 4,714 4.1% 2007 40,407 1,107,321,266 27,404 36.4 4,573 4.5% 2008 40,407 1,129,467,691 27,952 36.4 4,404 4.9% 2009 41,421 1,180,967,527 28,511 36.4 4,474 9.7% 2010 41,361 1,202,841,984 29,082 36.7 4,647 9.6% 2011 41,361 1,226,898,824 29,663 36.5 4,647 9.2% 2012 41,340 1,250,783,040 30,256 37.6 4,541 8.2% 2013 41,654 1,285,525,748 30,862 36.5 4,501 7.6% Note: Per Capita Personal Income based on 2010 U.S Census Source: Massachusetts Department of Revenue, Division of Local Services; U.S. Census Bureau City of Salem, Massachusetts 120 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 3,180 1 14.12% 3,680 1 16.3% Salem State College Higher Education 1,467 2 6.52% 1,699 2 7.5% City of Salem Municipal Government 1,263 3 5.61% 1,661 3 7.3% Shaughnessy Health Care 557 4 2.47% - - Market Basket Food Market 350 5 1.55% 250 7 1.1% Commonwealth of Massachusetts State Government 344 6 1.53% 655 4 2.9% Salem Five Savings Banking 275 7 1.22% 356 5 1.6% Peabody Essex Museum Cultural Tourism 255 8 1.13% 285 6 1.3% Grosvenor Park Nursing Center Health Care 250 9 1.11% 200 8 0.9% Salem YMCA Social Service Agency 166 10 0.74% - - Home Depot Retail - - 200 9 0.9% Perkin Elmer Opto Electronics Analytical Systems - - 180 10 0.8% 8,107 36.0% 40.5% Source: The City Planning Department 2013 2004 9,166 Employer City of Salem, Massachusetts 121 Comprehensive Annual Financial Report ---PAGE BREAK--- 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Function General government…………… 62 64 40 34 36 35 35 35 35 35 Public safety……………………… 180 190 181 190 185 187 191 190 194 203 Education………………………… 756 756 752 752 753 752 752 752 776 890 Public 45 55 35 38 40 37 38 39 40 39 Engineering……………………… - - - 1 3 1 1 1 1 1 Health and human services…… 21 21 21 20 17 14 17 15 14 15 Culture and recreation………… 31 31 34 23 21 22 22 23 23 23 Total 1,095 1,117 1,063 1,058 1,054 1,048 1,056 1,054 1,083 1,206 Source: Various City Departments Fiscal Year City of Salem, Massachusetts Full-time Equivalent City Employees by Function Last Ten Fiscal Years City of Salem, Massachusetts 122 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 General government Marriage recordings………………………………… 330 327 375 322 306 276 243 381 321 324 Birth recordings……………………………………… 1,839 1,761 2,044 2,043 1,712 1,614 1,774 1,599 1,433 1,452 Death recordings…………………………………… 935 847 737 755 520 535 557 492 436 484 Police Physical 965 685 2,792 2,793 2,502 2,502 2,072 2,629 1,627 1,307 Motor vehicle violations…………………………… 5,238 4,334 6,477 8,672 6,604 191 6,631 10,309 8,497 6,161 Police personnel and officers……………………… 85 85 81 84 85 85 87 89 93 98.5 Fire Inspections………………………………………… 3,231 2,789 1,187 1,562 886 886 935 1,077 973 1,307 Emergency responses……………………………… 4,281 4,572 6,235 6,719 6,330 17 6,409 6,079 5,952 6,161 Fire personnel and officers………………………… 78 78 75 76 81 81 79 83 90 86 Education Number of 4,727 4,676 4,744 4,573 4,404 4,474 4,647 4,585 4,541 4,501 Number of graduates……………………………… 257 246 255 269 254 273 283 246 240 275 Number of 415 409 477 484 479 479 488 507 517 540 Water Service connections………………………………… 10,516 10,568 11,000 11,811 11,701 11,737 11,719 11,719 11,719 11,729 Consumption in 2,111 2,136 2,000 2,056 2,123 1,994 2,103 2,025 1,921 1,934 Daily consumption 5.78 6.43 6.84 6.74 5.80 5.44 6.00 6.00 5.00 5.00 Sewer Service connections………………………………… 10,516 10,568 11,000 11,811 11,701 11,727 11,709 11,706 11,719 11,719 Health and human services Number of persons using COA transportation…… 44,500 45,976 37,497 39,052 18,678 15,526 16,076 16,908 19,630 16,170 Libraries Volumes in circulation……………………………… 125,516 128,569 141,595 143,052 148,752 145,634 143,512 148,634 158,011 162,486 Total volumes borrowed…………………………… 464,453 490,116 508,728 500,907 514,708 538,184 508,507 508,293 493,315 471,416 Source: Various City Departments; Massachusetts Department of Education Last Ten Fiscal Years Operating Indicators by Function/Program Fiscal Year City of Salem, Massachusetts 123 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 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 38 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 17 1 1 1 1 Public Works Water mains 108 108 108 108 108 102 102 102 102 102 Health and human services Number of personnel……………………… 17 17 17 17 17 17 17 15 14.7 14.7 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)……………… 128 128 128 128 128 128 128 128 128 128 Railroad right of way (acreage)…………… 89 89 89 89 89 89 89 89 89 89 Public 7 7 7 7 7 7 7 7 7 7 Ball 13 13 13 13 13 13 13 13 13 13 Tennis 10 10 10 10 10 10 10 10 10 10 Source: Various City Departments, Manual of the City Government Last Ten Fiscal Years Capital Asset Statistics by Function/Program Fiscal Year City of Salem, Massachusetts 124 Comprehensive Annual Financial Report ---PAGE BREAK--- Free Stabilization Fiscal Year Cash Fund $ 5,498,710 $ 3,438,799 $ 2,525,829 $ 3,453,722 $ 3,249,238 $ 2,736,777 $ 750,607 $ 1,913,913 $ 1,261,200 $ 1,489,907 $ 1,114,950 $ 648,947 $ 691,149 $ 487,980 $ 538,372 $ 277,759 $ 2,732,090 $ 1,021,351 $ 1,867,737 $ 1,297,417 Source: City Records Free Cash and Stabilization Fund Balances Last Ten Fiscal Years City of Salem, Massachusetts 125 Comprehensive Annual Financial Report