Document Salem_doc_d212bf596d

CITY OF SALEM MASSACHUSETTS ANNUAL COMPREHENSIVE FINANCIAL REPORT For the Fiscal Year Ended June 30, 2022 Kimberley L. Driscoll, Mayor Anna Freedman, Finance Director Prepared by the City of Salem Finance Department ---PAGE BREAK--- Ships Visiting Salem Harbor Photos courtesy of Salem Harbormaster ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS ANNUAL COMPREHENSIVE FINANCIAL REPORT For the Year Ended June 30, 2022 Prepared by the City of Salem Finance Department ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS ANNUAL COMPREHENSIVE FINANCIAL REPORT JUNE 30, 2022 TABLE OF CONTENTS Introductory Section 1 Letter of Transmittal 3 Organizational Chart 21 Principal Executive Officers 22 Certificate of Achievement for Excellence in Financial Reporting 23 GFOA Distinguished Budget Presentation Award 24 Financial Section 25 Independent Auditor’s Report 27 Management’s Discussion and Analysis 31 Basic Financial Statements 40 Statement of net position 41 Statement of activities 42 Governmental funds – balance sheet 44 Reconciliation of the governmental funds balance sheet total fund balances to the statement of net position 45 Governmental funds – statement of revenues, expenditures and changes in fund balances 46 Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of activities 47 Proprietary funds – statement of net position 48 Proprietary funds – statement of revenues, expenses and changes in net position 49 Proprietary funds – statement of cash flows 50 Fiduciary funds – statement of fiduciary net position 51 Fiduciary funds – statement of changes in fiduciary net position 52 Notes to basic financial statements 53 Required Supplementary Information 99 General fund budgetary comparison schedule 100 General fund schedule of revenues, expenditures and changes in fund balance – budget and actual 101 Pension plan schedules – retirement system 105 Schedule of changes in the net pension liability and related ratios 106 Schedule of contributions 108 Schedule of investment returns 109 Pension plan schedules – City 110 ---PAGE BREAK--- Schedule of the City’s proportionate share of the net pension liability 111 Schedule of City’s contributions 112 Schedule of the special funding amounts of the net pension liability 113 Other postemployment benefit plan schedules 114 Schedule of changes in the City’s net OPEB liability and related ratios 115 Schedule of the City’s contributions 116 Schedule of investment returns 117 Notes to required supplementary information 118 Combining Statements 124 Nonmajor governmental funds 125 Nonmajor governmental funds – combining balance sheet 127 Nonmajor governmental funds – combining statement of revenues, expenditures, and changes in fund balances 130 Private purpose trust funds 133 Private purpose trust funds – combining statement of net position 134 Private purpose trust funds – combining statement of changes in net position 135 Statistical Section 137 Net position by component – last ten years 138 Changes in net position – last ten years 139 Fund balances, governmental funds – last ten years 141 Changes in fund balances, governmental funds – last ten years 142 Assessed value and actual value of taxable property by classification and tax rates – last ten years 143 Principal taxpayers – current year and nine years ago 144 Property tax levies and collections – last ten years 145 Ratios of outstanding debt by type – last ten years 146 Ratios of general bonded debt outstanding – last ten years 147 Direct and overlapping governmental activities debt – as of June 30, 2022 148 Computation of legal debt margin – last ten years 149 Demographic and economic statistics – last ten years 150 Principal employers – current year and nine years ago 151 Full-time equivalent City employees by function – last ten years 152 Operating indicators by function/program – last ten years 153 Capital asset statistics by function/program – last ten years 154 Free cash and stabilization fund balances – last ten years 155 ---PAGE BREAK--- Introductory Section Salem Art Scenes Harbor Connector Path Sculpture Garden 2020-2021 Jose Criollo Seahorse ---PAGE BREAK--- City of Salem, Massachusetts 1 Annual Comprehensive Financial Report Introductory Section ---PAGE BREAK--- City of Salem, Massachusetts 2 Annual Comprehensive Financial Report This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 3 Annual Comprehensive Financial Report City of Salem, Massachusetts Finance Department 93 Washington Street Salem, MA 01970 Ph. [PHONE REDACTED] Ext 5625 Fax [PHONE REDACTED] December 20, 2022 Letter of Transmittal 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 Annual Comprehensive Financial Report (ACFR) of the City of Salem, Massachusetts, for the fiscal year ending June 30, 2022, 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 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, 2022, 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, 2022, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that the City’s financial statements for the fiscal year ended June 30, 2022, are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report. The independent audit of the financial statements of the City was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City of Salem’s separately issued Single Audit Report. ---PAGE BREAK--- City of Salem, Massachusetts 4 Annual Comprehensive Financial Report GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement that analysis and should be read in conjunction with it. The City’s MD&A can be found immediately following the report of the independent auditors. Profile of the City The City of Salem, which was incorporated as a town in 1630 and became a city on March 23, 1836, is situated on the Massachusetts coast, 16 miles northeast of Boston. The City has a population of 44,480 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 odd-numbered years. The Mayor is the administrative head of the City and chairperson 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, then 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 (SESD); 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 SESD has been included in the City’s basic financial statements. The Salem Housing Authority owns and manages 715 units of low-income public housing throughout the City of Salem. There are 495 units of elderly/handicapped housing and 220 units of family housing. Additionally, the Salem Housing Authority currently administers approximately 1,130 housing vouchers through the Section 8 Housing Choice program and 17 housing vouchers for the Department of Mental Health through the Department of Housing and Community Development. The Salem Housing Authority does not meet the criteria to be considered a component unit of the City. The principal highways serving the City are state Routes 1A, 107, and 114, all of which provide immediate access to Routes 1 and 128 and other major highways serving the greater Boston area. The City is a member municipality of the Massachusetts Bay Commuter Railroad, which provides passenger and freight service. ---PAGE BREAK--- City of Salem, Massachusetts 5 Annual Comprehensive Financial Report Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without recommendation of the Mayor, the City Council may not increase any item or make an appropriation for a purpose not included in the proposed budget (except by a two-thirds vote in case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the City Council, pursuant to state statute). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. The amount raised on the tax recapitulation sheet approved by the Department of Revenue for fiscal year 2022 totaled approximately $191.2 million, which includes real & personal property tax revenue, state revenues, local revenues, transfers in of approximately $1.6 million from receipts reserved harbormaster, Witch House and golf course (to reduce tax rate), other receipts reserved transfers, overlay surplus usage charges for water, sewer, and trash services, and approximately $1.5 million of indirect costs from the Water & Sewer Enterprise funds. These revenues cover general fund and enterprise fund budgeted expenses and deficits raised, including snow and ice. 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 the East Indian trade. In its heyday, Salem was known as a thriving hub of American commerce and was the home of Nathaniel Hawthorne. Salem is well known for the infamous Salem Trials of 1692, when nineteen people were convicted for the crime of and were put to their deaths. The City's golden years have left her modern inhabitants with architectural treasures, fine museums, and a sparkling literary heritage. Equally important, the development of Salem has produced a rich ethnic history, to which people of all races, creeds, colors, and origins have contributed over the generations. Long a trading, manufacturing and retail center, Salem has been making a slow, and sometimes painful, transition to a service- based economy. The City today serves as the home of Salem State University, the North Shore Medical Center, the Essex County District Superior and Probate Courts, and Registry of Deeds, the world-famous Peabody Essex Museum, and a host of banks and other financial institutions. It is the educational, medical, legal, cultural, and banking hub of the North Shore. Salem also boasts an impressive collection of historically significant residential structures that are always in high demand. The uniqueness of these historic homes, coupled with a growing downtown condominium market, has helped boost home sales prices in Salem. Private and Public Development-Today The City has numerous facilities of continuing cultural and/or historical significance. These facilities contribute to making Salem a unique place that appeals to residents and attracts visitors. The visitor-based economy is important in Salem and contributes jobs and tax revenue for the City of Salem. Peabody-Essex Museum: In 2003, the Peabody Essex Museum (“PEM”) undertook the largest museum addition in America. The $125 million expansion allows them to showcase their extensive collection of Oceanic and Asiatic art for the first time. The PEM houses a broad spectrum of artifacts representing centuries of Essex County life and industry, as well as treasures from across the world brought to the region by early navigators. The PEM consists of a downtown campus, four National Historic landmarks and several properties on the National Register of Historic Places, as well as the Yin Yu Tang, the only complete Qing Dynasty house outside China. The PEM ---PAGE BREAK--- City of Salem, Massachusetts 6 Annual Comprehensive Financial Report enjoys an attendance of approximately 250,000 visitors per year. See the section on Economic Development for overview of PEM’s expansion project. The Salem Maritime National Historic Site and Derby Wharf Lighthouse: This 9.2-acre site, operated by the National Park Service, (“NPS”) is comprised of several buildings, including the original Customs House, as well as several wharves and homes. The NPS has restored the wharves and buildings. The Friendship, a full-size replica of one of Salem's historic trading ships is berthed at the site. This $6 million project was 75 percent federally funded and has become a major cultural attraction and educational tool. The National Park Service has recently relocated the historic Pedrick’s Warehouse from Marblehead to Derby Wharf and installed a pile supported dock adjacent to the building in order to facilitate interpretive display of historic maritime functions. The House of the Seven Gables: The House of the Seven Gables was made famous by Nathaniel Hawthorne's novel of the same name. The site is a complex of the actual house occupied by Hawthorne and several adjacent historic structures. The House of Seven Gables received the prestigious designation of "Museum" status in 2008 and has been designated a National Historic Landmark District. Salem Witch Museum: The Salem Witch Museum commemorates the famous witch trials that occurred in 1692 through an audio-visual presentation. Life-size stage settings, lighting and historically accurate narration recreate the afflicted girls, the trials and the executions of the Salem Witch Trials. The Witch House: The Witch House was the home of one of the famous Witch Trial judges, Jonathan Corwin. The Witch House is operated by the City of Salem and is an excellent example of 17th century architecture. The site recently received interior and exterior improvements for handicapped accessibility and historic preservation. Witch Dungeon Museum: The Witch Dungeon Museum provides a live re-enactment of the Witch Trials for visitors to the City. The presentation is adapted from the 1692 transcripts and re-enacted by professional actors. The First Church: The First Church, located on Essex Street, was founded in 1629 and is one of the oldest, continuing Protestant congregations in North America and the first to be governed by congregational polity, a central feature of Unitarian Universalism. Chestnut Street: Chestnut Street is a National Historic Landmark consisting of a group of homes of notable architectural significance. The homes are primarily old mansions built by Salem's successful sea captains during the early 19th century. Pickering House: The Pickering House is the oldest house in America to be continuously occupied by the same family. Pioneer Village: Pioneer Village, situated in Forest River Park, is a living-history Museum that depicts life in Salem in 1630. Guides in historical costumes show visitors how early Puritans lived. The site contains a thatched cottage, historic gardens, wigwams, and animals. The Old Burying Point: Located on Charter Street, this is the oldest burying ground in Salem. The site contains the graves of a Mayflower passenger and trial judge John Hawthorne, which is adjacent to the Salem Witch Trial Memorial. In 2016, the City completed the restoration of several headstones and tombstones developed a landscape plan for the site’s restoration. Winter Island Park: Operated by the City of Salem, Winter Island is a former U. S. Coast Guard Air and Sea Rescue Station located on Salem Harbor. The site is a seasonal recreation site with RV and tent spaces. The site also has a beach, boat launch, wind surfing, scuba diving, picnic areas and a snack bar. Historic Fort Pickering ---PAGE BREAK--- City of Salem, Massachusetts 7 Annual Comprehensive Financial Report and Fort Pickering Light are located within the site. Winter Island is now the home of “Sail Salem”, a community sailing program that provides free sailing lessons to Salem children. Salem Wax Museum of Witches and Seafarers: The Wax Museum, opened in July of 1993, features a multi- media presentation and realistic wax figures depicting pirate and witch stories of Salem's past. The Wax Museum also offers hands-on children's activities. Salem Witch Trials Memorial: The Salem Witch Trials Memorial was dedicated on August 5, 1992 to commemorate the 300th anniversary of the now famous Salem Witch Trials of 1692. The memorial is located adjacent to the Charter Street Burial Ground. The 20-year-old Memorial has now been restored with a rededication ceremony on September 9, 2012. Heritage Trail: The many cultural and historic facilities in Salem are connected by the Heritage Trail. Known locally as the “Red Line”, it leads to world-renowned museums and historic homes, as well as to restaurants offering simple fare to gourmet meals, full-service hotels, inns and bed and breakfasts. Salem Common: Salem Common has been public land since Salem's early days. Its eight acres were originally a swampy area, with several ponds and small hills. Salem's military heritage begins in 1636, when the first muster occurred on Salem Common. Today, the National Guard traces its roots to that first muster. Needing a place for regular military drills, it was voted in 1714 by the commoners to be "forever kept as a training field for the use of Salem". In 2016, the City completed Phase III of the historic fence’s restoration and next phases to continue through 2026. Baker’s Island Lighthouse: The tower is located on the north end of the island. The lighthouse was automated in 1972. The island is closed to the general public and is best seen by boat. Fort Lee: This American Revolution fort was built in 1776 and was added to the National Register of Historic Places in 1994. The Phillips House: The Phillips House is the only home on historic Chestnut Street open to the public, and it provides a glimpse into the private world of the Phillips family during the early decades of the twentieth century. Ye Olde Pepper Candy Companie: This is America’s Oldest Candy Company, dating back to 1806, when an English woman, Mrs. Spencer, was shipwrecked and landed in Salem. Mrs. Spencer was assisted financially by residents, and what resulted was the first candy made and sold commercially in America and carried around the world by sea captains and their crew. The tourist attractions described above are included to illustrate the continuously growing tourist economy. These attractions provide jobs and tax revenue for the City of Salem. ---PAGE BREAK--- City of Salem, Massachusetts 8 Annual Comprehensive Financial Report Public and Non-Profit Development Projects Downtown Redevelopment Salem has experienced over $1.5 billion of investment in recent years throughout the City. Three geographic areas of focus are downtown, the North River Canal Corridor, and the Waterfront. Several vacant and underutilized properties have been redeveloped into mixed-use residential/commercial buildings. The downtown alone has seen over $125 million in private investment from projects such as the Laundry Building, The Distillery, Old Police Station Redevelopment, Bluestone Alley, 10 Federal Street, the Salem News Building, Latitude (former Tompkins Furniture Building), Old Salem Jail, Commonwealth Diagnostics, Hotel Salem, Hampton Inn mixed use project, and Brix (the District Court redevelopment). New projects continue to be proposed, permitted, and get under construction as described below. El Centro: The North Shore Community Development Coalition and North Shore Health Services are collaborating on a redevelopment of property located at the intersection of Derby and Lafayette Streets as well as on a nearby property on Peabody Street. The El Centro project will result in a new health center and income-restricted senior housing. The project began permitting in 2021. Superior Court and County Commissioners Buildings: The Governor signed legislation in January 2017 to transfer ownership of these two iconic properties to the Salem Redevelopment Authority (SRA). DCAMM completed a warm mothballing project in early 2019 to maintain the properties while the SRA works to identify a redevelopment project. The SRA issued a Request for Proposals in early 2020 and selected WinnDevelopment as the preferred developer. Winn has begun the permitting process for a mixed-use mixed-income development that will adaptively reuse the court buildings and have new construction on a parking lot across the street. Washington and Dodge Street Redevelopment: This 146,000-square foot, $50 million project includes a mixed- use development with 56 residential units, hotel with 113 rooms, 12,000 square feet of commercial space, 212 parking spaces, associated landscaping, and pedestrian and transportation improvements. The project was completed in 2020. The City was awarded a state grant in the amount of $3.4 million for infrastructure improvements to support this project. District Court Redevelopment: The District Court building was transferred to the Salem Redevelopment Authority (SRA) in accordance with legislation passed by the Legislature for the purpose of redevelopment. The SRA solicited development proposals through a RFP process in 2015 and selected Diamond Sinacori as the designated developer. The project is projected to cost approximately $26 million and was completed in the fall of 2021. 217-221 Essex Street: Upper floors of this property were converted from offices to 20 housing units. Construction was completed in 2020 and included the restoration of the historic façade. Peabody Essex Museum (PEM): The PEM completed a 40,000 gross square feet expansion in 2019. It includes three floors of state-of-the-art galleries, a secondary entrance to the museum and a full basement for mechanical and electrical equipment. The project cost approximately $49 million. 90 Washington Street: In 2018, the three-story building was redeveloped as office space with ground floor retail. The City entered into a 20-year lease for the office space to accommodate personnel located in other leased premises. The City took occupancy in April 2018. ---PAGE BREAK--- City of Salem, Massachusetts 9 Annual Comprehensive Financial Report Old Salem Jail Complex Redevelopment: The first phase was completed in 2010, which includes 23 housing units, a restaurant, and a jail exhibit. Phase 2 includes an additional 13 housing units in a new building for a total project cost of approximately $11 million. Phase 2 was completed in summer 2018. North River Canal Corridor Redevelopment A second area undergoing transformation is the North River Canal Corridor, known as Blubber Hollow, adjacent to downtown. Formerly the region’s whaling and then tannery center, the neighborhood has more than $70 million in pending development. Guided by a community-based plan, the City changed the zoning to encourage development. The pending private investments will transform the largely vacant and contaminated sites into a vibrant mix of residences, offices, and retail uses. Specific projects are: Halstead (f/k/a Riverview Place): Located on the former Salem Suede site, Halstead consists of the demolition of an old tannery and construction of 130 residential rental units and 5,540 square feet of commercial space. Construction began in 2019 and was completed in 2021. 16, 18, 20R Franklin Street: In 2020, the project was amended and will clean up a former junkyard and result in 37 housing units. River Rock: In September 2016, the Planning Board approved a mixed-use development containing 50 housing units and retail space. Located on the former Tan property, the 1.98-acre site contained vacant industrial buildings and land along Boston Street, a major entrance corridor into Salem and within the new North River Canal Corridor (NRCC) Neighborhood Mixed Use District. The project was completed in 2020. 9 South Mason Street: The project involves redevelopment of industrial and residential land located between Mason Street and Commercial Street in the North River Canal Corridor district. The plans total 4 buildings and 29 dwelling units, including the rehabilitation and expansion of an existing two-story concrete industrial building; expansion of a three-story residential building; and construction of two new townhouse style buildings. The project was permitted in 2016 and was completed in 2020. Grove Street Apartments (formerly known as Legacy Apartments): This project consists of 129 residential apartments. It was approved by the Planning Board in 2012 and amended in 2015 to meet MEPA requirements. In July 2015 the project received a MEPA certificate and Superseding Order of Condition. Environmental remediation and demolition of some on-site structures is completed. Construction began in 2022. Waterfront Development Key changes also are rapidly occurring along Salem’s shoreline, creating rare waterfront development opportunities. Salem Harbor Power Station/Footprint Power: The new state-of-the-art, 630-megawatt gas-fired plant began operating in June 2018 and site work was completed in 2020. The new plant was developed on one-third of the site, opening up the remaining two-thirds of the 63-acre waterfront property to re-development opportunities. In June 2021, the City began collaborating with the Commonwealth of Massachusetts on the role the site could play in offshore wind. In September 2021, the City announced a public-private partnership with Vineyard Wind and Crowley Maritime Corporation to establish the site as a major offshore wind port. The Commonwealth selected the Vineyard Wind proposal in December 2021. Design and permitting of the port facility began in 2022. The facility will be operational in 2025. ---PAGE BREAK--- City of Salem, Massachusetts 10 Annual Comprehensive Financial Report Waterfront Facilities: In 2018, the City was awarded funding to expand recreational visitor access and expand economic opportunity. Projects included the Congress Street Dock, a new dinghy dock at Derby Wharf in partnership with the National Park Service, and a new gangway and small boat dock at Charlotte Forten Park. The projects were completed in 2020. Charlotte Forten Park (289 Derby Street): In 2016, the City Council approved a $1.4 million bond order to acquire property located at 289 Derby St. for the purpose of constructing a downtown waterfront park. Construction was completed in 2019. Port of Salem Expansion (Salem Wharf): This $20 million project resulted in the construction of a multi- commercial wharf facility with supporting utilities and amenities for cruise ships, commercial fishing, transient, and charter vessels. A terminal building, harbor walk, dredging, and landside improvements are part of the project. During the project’s first phase undertaken in 2011, the City completed utility installation, seawall construction, base paving and installation of an interim ferry terminal. In 2012 and 2013 a combination of state and federal Ferry Boat Discretionary (FBD) Funds enabled the City to construct the second phase of the project, which consisted of the first 260 feet of pier, wave fence and a portion of the seawall, install a gangway and ramp system, install utilities and begin dredging. The City has completed Phase 3 which includes final paving, landscaping, lighting and construction of the harbor walk. In addition, the City has made improvements to the adjoining deep-water dock owned by Footprint Power and constructed a connecting walkway between Footprint’s dock and the City’s Blaney Street pier. Since construction of the cruise port, Salem has received visits from a number of cruise ships. Now that construction of the powerplant is complete, the Port of Salem is able to host a full schedule of ship visits. In 2017, the City completed dredging and construction of an 11-slip Commercial Marina at Blaney St. The Marina is home to seven marine businesses. It implements an important recommendation and goal of the City’s Municipal Harbor Plan by creating a multi-use commercial wharf facility with deep water access for ocean-going vessels. As a result of its construction, the Port of Salem is now a full service commercial and industrial port. South River Dredge: The maintenance dredging for the South River Channel was last performed by the US Army Corps of Engineers (USACE) in 1967. In Feb 2008, the USACE dredged the Federal Navigation Channel into Salem Harbor, the Federal Anchorage Basin off Derby Wharf, and the approach to the South River Channel but stopped short of the South River Channel because contaminated sediment that exceed the state levels for open ocean disposal were encountered. Since then, the City obtained $155,000 from the Governor’s Seaport Advisory Council for sediment testing, bathometric survey work, cost analysis for dredge disposal options, and preliminary design and engineering of the dredge footprint for the South River Channel and the South River Basin (area west of the Congress Street Bridge). In 2012, the City received an additional $275,000 from the Seaport Council to finish the design, engineering and permitting stage of the dredge project. The City’s consultant, Apex, has prepared a Draft Environmental Impact Report and Notice of Intent. Upon the Army Corps of Engineers’ final determination of the suitability of the CAD cell material for offshore disposal, the City will submit both documents to the appropriate regulatory agencies and work to identify funding sources. Once completed, the dredging will provide direct access to downtown Salem for deeper drafting vessels, transient boats, and dingy boats, which will encourage increased boating activity and support economic development. Salem Ferry: The Salem to Boston Ferry is an alternative transportation option connecting two great cities. Named the Nathaniel Bowditch after the founder of modern maritime navigation and Salem’s native son, the ferry is a high-speed catamaran that carries 149 passengers, is entirely ADA accessible and makes the trip from Salem to Boston – where it docks at Long Wharf – in less than 45 minutes. The City of Salem and the Massachusetts Bay Transportation Association (MBTA) have an agreement which allows commuters to purchase a pass that can be used both on the Ferry commuter runs and on the commuter train, strengthening the Ferry’s viability as a transportation choice for daily commuters. Due to the success of the program, the City of Salem has obtained $3.4 million in grant funding to add a second ferry. The City of Salem is one of only a few municipalities to own a ferry vessel, which it purchased with a grant from the Massachusetts Executive Office of Transportation. ---PAGE BREAK--- City of Salem, Massachusetts 11 Annual Comprehensive Financial Report Public Infrastructure Projects The City works throughout Salem to improve infrastructure to meet the needs of residents, businesses, and visitors. Transportation Projects Salem Skipper: In December 2020, the City launched the Salem Skipper, an on-demand shuttle service. The first eight months of operation had more than 20,000 trips. BlueBikes: In 2021, the City launched BlueBikes bikeshare system. The program built on the success of the Zagster bike share that logged nearly 25,000 rides in its three years of operation. Essex Street Infrastructure Improvements: In 2022, the City completed a building face to building face reconstruction of the heavily travelled Essex Street from Washington Street to North Street. Boston and Bridge Complete Streets Infrastructure Improvements: The City received $3.5 million in FY2016 from MassWorks Infrastructure Grant Program funding, for “Complete Streets” streetscape improvements along Bridge Street, between Boston and Flint Street. An additional $250,000 in grant funds was awarded to this project from MassWorks that was expended in fiscal year 2017. Construction began in 2020 and was completed in 2022. Canal Street Improvements: The improvements included reconstruction of the roadway pavement, curbing and sidewalks. Wheelchair ramps and appropriate pedestrian crossings were added to improve pedestrian safety. Additional pedestrian improvement such as street trees and curb extensions were incorporated. Drainage and other utility improvement were made, the road crown was adjusted to provide a consistent cross slope, and settled locations were repaired. The project was completed in 2018. Parks and Recreation Projects Salem Willows: The City has been working on various improvements throughout Salem Willows Park. In December 2020, plans were approved for the design of a new parking lot, tennis courts, and hill area. This project was completed in 2022. In 2022, the City was awarded a $400,000 PARC grant for the next phase of work. Palmer Cove: In 2021, construction was completed for the first phase of renovation to Palmer Cove Park. These improvements, funded in part by a $400,000 PARC grant, include an upgraded waterfront path, relocated and enhanced community garden space, and improvements to the basketball court. Planning for phase two is underway in 2022. Lower Gallows Hill Park: The renovation of Lower Gallows Hill Park, funded in part by a $400,000 PARC grant, includes reconstruction of the Ryan Brennan Memorial Skate Park, expansion of the baseball field to regulation size, improved trail connections, and upgraded drainage. The project will be completed in 2022. Lafayette Park Renovation: In fall 2017 and spring 2018, Lafayette Park was renovated to include upgraded walkways, lights, and benches, a new irrigation system, and a tree plan with an appropriate mix of sun and shade. The project was funded through $100,000 from CPA, $162,000 from CDBG, and $25,000 from the Capital Improvement Plan. Bertram Field: A complete renovation of Bertram Field football stadium and track was completed, including a turf surface expansion of the track to regulation size and installation of a resilient surface. Cost of the project is $1.9 million and was partially funded with a Massachusetts PARC grant in the amount $400,000. ---PAGE BREAK--- City of Salem, Massachusetts 12 Annual Comprehensive Financial Report Fort Avenue/Szetela Lane Redevelopment: This City-owned site at the intersection of Fort Avenue and Szetela Lane consists of five parcels containing approximately 2.13 acres. The property now contains an easement for the natural gas pipeline supplying the Footprint Power Plant. The City intends to improve the site with a new multi-use path connection, greenspace, and possibly parking, utilizing funds secured through the easement agreement. Furlong Park: The City received a $500,000 Parkland Acquisition and Renovation for Communities (PARC) Grant from the State Division of Conservation Services for the restoration of Furlong Park. The 5.5 acre park is located along the North River and contains a baseball field, tennis court, playground, and basketball court. As part of the project these features were renovated and additions to the park included construction of a car top boat launch and stabilization of the eroded embankment that borders the North River. Environmental remediation work was funded with a separate state grant. Park renovations are now complete. Bicycling Accommodations: REDO The City undertook a demonstration project for protected bike lanes on Lafayette Street in accordance with Vision 2020. The City and the Salem Bike Path Committee continue to be committed to extending the Salem Bike Path to downtown Salem via an extension of the former Boston & Maine Railroad ROW at Canal Street, behind Gardner Mattress and all the businesses on Broadway Street, and a portion of the MBTA’s active and abandoned railroad ROW. This extension has been engineered as part of the Canal Street Roadway reconstruction project and the city is seeking to secure full funding. Other City Projects and Initiatives The City pursues additional opportunities to make physical improvements, increase efficiencies, and improve the community. Housing Agenda: In the spring of 2018, the City was awarded a $59,000 housing planning grant from MassHousing. The funds are being used to implement the vision of the City’s recent Imagine Salem planning process by conducting a citywide public engagement campaign around affordable housing needs, and advancing a new inclusionary zoning ordinance. The funds are also supporting a planning process to develop a mixed-use zoning overlay for Bridge Street Neck. In 2022, the City Council approved the new zoning overlay. Artists’ Row: Artists’ Row, five stalls originally built as a marketplace, is located across from Old Town Hall and Derby Square. This area is at the heart of the city and continues to be an important public plaza and pedestrian way. In the spring of 2015, the City initiated the Creative Entrepreneur Program to utilize the four stalls as maker/gallery space from May to October. EPA Brownfields grant: The City with the City of Peabody received a $950,000 federal grant to be utilized for a revolving loan fund to clean up contaminated sites. Working Cities Challenge: The City successfully implemented a $100,000 grant from the Boston Federal Reserve Bank to improve the quality of life through economic development initiatives in the Point neighborhood. Destination Salem: Salem continues to market sale as a premier, year-round travel destination. The City continues its funding commitment to destination Salem through its annual allocation of hotel/motel tax revenue. Residential Development South Campus: Salem State University, through the Division of Capital Asset Management and Maintenance (“DCAMM”), is selling South Campus. In September 2022, DCAMM announced that AvalonBay Communities and WinnDevelopment are the recommended developers of the property. The project will bring approximately 350 mixed income housing units to the site which is being sold to support the University’s Investment in new science building facilities. ---PAGE BREAK--- City of Salem, Massachusetts 13 Annual Comprehensive Financial Report 602 Loring Avenue: The project was permitted in 2020 for 20 residential units and will be completed in 2022. 160 Federal Street and 13 Hawthorne Boulevard: In 2019, North Shore Community Development Coalition permitted the adaptive reuse of two former church schools. The buildings will have a total of 62 units, some of which will be age-restricted and others which will be oriented to creative economy workers. First and Traders Way: In 2018, a 212-unit apartment complex with 7,000 square feet of commercial space was permitted. Construction began in 2019 and was completed in 2022. North Shore Community Development Coalition Properties: The has invested $18.9 million in renovating 77 affordable housing units in Salem since 2016. In 2017, the CDC began the permitting process to develop two new affordable housing buildings, known as the Lighthouses, with a total of 46 units at a project cost of $19 million. Construction on the Lighthouses began in 2022. Clark Avenue Cluster Subdivision: The proposed plan for a 26-lot residential subdivision with approximately 1.95 acres of public open space is fully permitted and currently under construction. There is no scheduled date for completion. Osborne Hills Subdivision (Strongwater Crossing): Currently under construction, Strongwater Crossing Subdivision is a cluster development project that includes the construction of 131 single-family homes on approximately 162 acres of land. Approximately 93 acres of the project will be permanently protected open space. The project represents one of the largest subdivisions built in Salem in recent history. Due to its size, this subdivision is being completed in phases. There is no scheduled date for completion. Witch Hill: The construction of 23 single family homes along the extension of an existing roadway is underway. There is no scheduled date for completion. St. Joseph’s Church Redevelopment: Located on the site of the former St. Joseph’s Church that was closed in 2004, this affordable housing development is a key revitalization project for the Point Neighborhood and will provide much-needed housing for the City. Phase 1 of the project is complete and includes a new building with 51 affordable housing units, commercial space, and a community room. Phase 2, which will bring an additional 37 units, began construction in 2020 and was completed in 2022. Eaton Place/Former Elks Lodge (17 North Street): With Planning Board Site Plan Approval in December 2009 to add a third and fourth floor, the former assembly hall’s conversion into six residential condominiums was completed with special care to restore the structure’s historic appearance. 50 Palmer Street: This project by the Salem Harbor Community Development Corporation (CDC) included the demolition of the existing structure and the construction of a new three-story residential structure with a footprint of 7,300 square feet. The new structure is complete and consists of 15 units of affordable rental housing for low- and moderate-income households. This project was funded using a partnership of private and public sources, including funds from the City. Institutional and Commercial Development in Other Areas of Salem Salem enjoys a mix of businesses and markets. Markets for Salem businesses include the local population, the large tourist trade of over 1 million visitors, Salem State University, the North Shore Medical Center, and the J. Michael Ruane Judicial Center. Salem State University with its 10,000 students and large employment base generated over $104 million for the City of Salem in direct and indirect spending, which is derived directly from employee salaries and benefits, purchased goods and services, and student spending. The North Shore Medical ---PAGE BREAK--- City of Salem, Massachusetts 14 Annual Comprehensive Financial Report Center is expanding its facilities in Salem, and in 2017, the Family and Probate Court renovation project was completed marking the completion of the overall court complex on Federal Street. Large commercial and industrial development, prominent in the Highland Avenue, Swampscott Road and Vinnin Square areas, is strong. Salem’s industrial park on Technology Way houses large companies such as Salem Glass and Thermal Circuits. On Swampscott Road, a 170,000 square foot vacant building was converted to commercial condominiums and is now home to 9 businesses relocating or expanding in Salem. A number of significant national retailers such as Staples, WalMart, Home Depot, Target, Pep Boys and Petsmart are located in these areas. The City also is home to Shetland Park, a 1.5 million square foot waterfront business park abutting downtown, which houses more than 150 businesses. Shetland Park: The City is working with the community and the Prime Group, owners of Shetland Park, to develop a framework for new investment in the property. The waterfront property is immediately adjacent to downtown. The framework plan will be completed in 2022 and set the stage for the Prime Group to move on to master planning and more detailed analysis. Tropical Products: In 2020, Tropical Products announced it was going to build a new facility along Highland Avenue in order to grow. The project was approved for a TIF and in September 2020 received $340,000 in state tax credits to support the expansion which will bring 120 new jobs. The project began its permitting process in September 2021. The existing facility will be sold. Construction began in 2022. Massachusetts General Brigham Salem Hospital: In 2019 the Salem Hospital completed redevelopment of a portion of their existing hospital campus in order to better serve the surrounding community by consolidating existing uses, improving access and circulation around the hospital, and constructing a new state-of-the-art emergency services department. The Project consisted of 119,735 square feet of new building space, interior renovations, parking and driveway reconfigurations, landscape and hardscape improvements, and utility infrastructure modifications to support this use. A subsequent phase to construct a new primary entrance and lobby got underway in 2022. Salem State University: Changes to the physical campus since 2007 are profound. Nearly 760,000 square feet of new construction and renovations have been completed or are underway, bringing state-of-the-art academic and student life spaces to campus. Through the support of the Commonwealth of Massachusetts and generous donors, combined with resources of the university’s operating budget, over $250 million has been invested in campus improvements. Highlights of these changes include the Frederick E. Berry Library and Learning Commons, the Sophia Gordon Center for Creative and Performing Arts, the Harold E. and Marilyn J. Gassett Fitness Center, athletic fields and courts, and two residence halls that provide accommodations for nearly 900 students. Efforts are currently underway to secure the Commonwealth’s support for a new science facility to meet the strong demand for science, health care, and technology programming. Land sale proceeds from the disposition of South Campus will also support the science facility. U.S. Biological Corporation: This Corporation completed the construction of a new $3 million, 50,000 square foot headquarters building on Technology Way with the plan to have 28 new jobs within five years. Endicott School (110 Boston Street): The former Endicott School sits on a .53-acre lot along Boston Street, a major entrance-corridor into Salem with direct access to Route 128. After a competitive RFP process, the property was sold for $350,000 to a nonprofit organization, Children’s Friend, who relocated their office from another location in Salem. The City also negotiated a PILOT Agreement with the agency. ---PAGE BREAK--- City of Salem, Massachusetts 15 Annual Comprehensive Financial Report Planning The City’s investments are guided and informed by planning studies including the following: Housing Goals and Production Plan: In early 2021, the City was awarded a $40,000 grant from the Executive Office for Administration and Finance (EOAF) to help create a Housing Goals and Production Plan. The plan will create a proactive strategy for planning and developing affordable housing to meet the anticipated needs of the city. The City Council and Planning Board approved the production plan in September 2022. Municipal Harbor Plan: The Harbor Plan update began in July 2020. The update will guide future development along Salem Harbor, most notably the reuse of the 44 acres of undeveloped land adjacent to the Footprint Power Plant. Public meetings began in August 2020.The opportunity for the Footprint site to be used for an offshore wind marshalling port arose during the development of the plan. The plan will be submitted for approval in late 2022. Resilient Together: The City partnered with the City of Beverly for a joint climate action and resilience plan known as Resilient Together. Funded through a $250,000 grant from the Municipal Vulnerability Program (MVP), the work included community engagement via social media campaigns, Zoom community meetings, and various other online engagement tools. The plan was completed in June 2021 and the Cities have begun to implement the priority actions. In 2022, Salem conducted a Climate Change Deep Dive Model, Alternative Analysis, and Targeted Outreach & Engagement project in the Point/Palmer Cove neighborhood. Highland Avenue Corridor Study: In September of 2020, a corridor study for Highland Avenue commenced. The goal of the study was to develop a vision for the future of the corridor from which other action can be taken to realize the vision within a context of market dynamics. The plan was completed in April 2021. Bridge Street Neck: A Bridge Street Neck updated vision report with recommendations was finalized in the March 2020. The first implementation step is development of a mixed-use overlay zone with design guidelines. The mixed-use overlay zone with design guidelines was approved in 2022. South Campus: The City partnered with Salem State University to support DCAMM’s development of a request for proposals for the redevelopment of the South Campus as the University consolidates its footprint to its North and Central Campuses. The redevelopment of the 21.5-acres site will be informed by the community vision completed by Sasaki Associates in April 2020. Imagine Salem: In 2016, the City was awarded a $30,000 Executive Office for Administration and Finance (EOAF) grant to support a citywide visioning project. In 2017, the Imagine Salem project was launched and had more than 1,900 interactions with people. The Imagine Salem Progress Report summarizes the findings and lays the path for future work. Historic Preservation Plan Update: In 2015, the City completed the Historic Preservation Plan Update. The preservation plan is used to prioritize local preservation efforts. Historic preservation is a key community value and tied to the economic success of the City. Public Art Master Plan: In recognition of the value that public art can bring to the cultural aesthetic and economic vitality of the community, the City completed a master plan for public art in partnership with the Peabody Essex Museum and the Salem Partnership, funded through the National Endowment for the Arts. ---PAGE BREAK--- City of Salem, Massachusetts 16 Annual Comprehensive Financial Report Community Preservation Projects The Community Preservation Act (CPA) was adopted by Salem voters in November, 2012. It established a local dedicated fund for the purpose of undertaking open space, historic preservation, outdoor recreation and community housing projects. It is financed by a voter-approved property tax surcharge along with annual matching funds from the statewide CPA Trust Fund. It has funded over $3.5 million in community projects since 2014, throughout Salem including park and community garden improvements, historical building and statue restorations, conservation trails, and many more important community projects. Workforce Statistics According to the Massachusetts Executive Office of Labor and workforce Development, in June of 2022, the City had a labor force of 23,996, of whom, 23,109 were employed and 887, or 3.7%, were unemployed. The Commonwealth, at the same time, had an unemployment rate of 3.5%. Financial Planning and Forecasting In fiscal year 2009, the City modified its budget format to improve upon its content and layout. The goal was to have a comprehensive budget that would allow an average person to read and comprehend the budget and budget process of the City. It also was modeled after several budgets that were submitted and approved for the Government Financial Officer’s Association (GFOA) “Distinguished Budget Presentation Award”. The new model included more narrative, including goals and objectives of each department, financial forecasts, policies and glossary of financial terms. It required a significant amount of work for all department heads and especially the finance division, who had to ensure all the materials were pulled together timely for submission to both the City Council and the GFOA. As a result of our efforts, the City has been awarded the GFOA’s “Distinguished Budget Presentation Award” for fiscal years 2009-2020 and 2022. Included in the budget was the City’s Five-Year Financial Forecast. This is the thirteenth year that such a forecast has been completed. This forecast acts as a useful tool to the Mayor and Council to better identify “budget busters” on the expenditure side and to also determine whether forecasted revenue growth is adequate for future expenses. Also included in the budget was the City’s Five-Year Capital Improvement Plan (CIP) for the purpose of planning and maintaining the City’s capital and infrastructure. The CIP includes policies on debt service and capital improvement budgeting. As part of the fiscal year 2022 CIP, the City has authorized over $15.2 million in general and enterprise fund capital projects. Health Insurance The City continues to explore options to contain the rising cost of health care for City employees/retirees. In fiscal year 2006, the City Council accepted the provisions of Massachusetts General Law chapter 32B, section 18, a Massachusetts statute requiring all Medicare-eligible retirees who are currently on self-insured plans to move from self-insured coverage to a fully insured Medicare supplement plan. This provision saved the City approximately $700,000 in fiscal 2007 and continues to realize savings for the City. This is a major cost saving initiative that will insure that all retirees over the age of 65 are treated consistently, while also providing greater control of costs associated with the City’s Healthcare Insurance. The City has used many different approaches to keep the cost of health insurance affordable as it relates to the overall budget of the City, including the procurement of new health care providers, modifications of existing plans, and collective bargaining to modify the employee/employer apportionment of costs. However, the most significant ---PAGE BREAK--- City of Salem, Massachusetts 17 Annual Comprehensive Financial Report 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). This year, NOL decreased from $166.5 million in 2021 to $141.7 million in 2022, per the City’s OPEB liability report performed by the Segal Company, the City’s contracted actuary. The savings to the City employees and retirees come from lower premiums, an increase in City’s contribution to PPO plans from 65% to 70%. The City also has agreed to pay all administrative fees for any person who wishes to enroll in a flexible spending account, which allows for pre-tax payments for certain medical costs, prescriptions, and some over the counter medications. Pension Assessment During fiscal year 2009, the Salem Contributory Retirement Board moved all available funds into the State’s Public Reserve Investment Trust (PRIT) to take advantage of its higher returns and lower administrative fees. Because of its size, the PRIT can diversify assets for maximum possible return. The Retirement Board shifted these assets voluntarily to the PRIT after a complete analysis and a vote of the Retirement Board. The City includes the Salem Contributory Retirement System (the System) in its financial reporting since the City represents approximately 84% of the members of the System. The System was established to provide retirement benefits to its members, including employees and beneficiaries of the City of Salem, the Salem-Beverly Water Supply Board, the Salem Housing Authority, the South Essex Sewerage District, and the Essex North Shore Agricultural and Technical High School District. Per the Pension Reserves Investment Management Board June 2022 report, the market value of the System’s assets totaled $245.3 million with over 98% of the funds invested in the State’s Pension Reserve Investment Trust’s (PRIT) Core Fund. The Salem Contributory Retirement Board completed its most recent actuarial valuation summary for January 1, 2022. The next actuarial valuation will take place in January 2024. The study was performed by the Segal Company and a preliminary report was delivered to the Retirement Board in April of 2022. The study reported that the actuarial value of the system’s assets, as of January 1, 2022, had increased to $277.1 million, while the system’s unfunded liability decreased by $28.7 million to $88.1 million. The Board maintains a funding schedule which will fully amortize the existing unfunded liability by June 30, 2032, with amortization payments that increase 5.55% per year. The total fiscal 2022 City share of 84% amounted to $13.7 million. Other Significant Financial Matters The Salem Harbor Power Station is the City’s largest taxpayer. The power plant in August of 2012 changed ownership from Dominion Energy to Footprint Power LLC. Early 2018, Footprint began producing electricity in the new plant Footprint has constructed a state-of-the-art 630 megawatt gas-fired plant on a portion of the site and has plans to open the remaining two-thirds of the 63 –acre waterfront property to private and public development opportunities. From a revenue perspective, at the end of FY2011, the City’s tax agreement with Dominion expired. Prior to this date, the City received a total payment from Dominion Energy in the amount of $4.75 million for FY2011, $3 million in tax dollars within the tax levy and $1.75 million dollars designated as a “host fee” accounted for as miscellaneous non-recurring revenues. ---PAGE BREAK--- City of Salem, Massachusetts 18 Annual Comprehensive Financial Report In FY2011, Dominion announced major operational changes shutting down two of their power generating units due to market conditions and regulatory challenges at the state level. Due to the implementation of state regulations impacting its operations, during the FY2012 budget process, the Massachusetts Legislature adopted a proposal to ensure that Salem taxpayers will not be overly burdened by lost revenues from the power plant through 2019. Chapter 68 of the Acts of 2011, Section 33 states that “…the municipality shall be entitled to reimbursement for the difference between the amount called for prior to the full or partial decommissioning or the change in operating status of the facility.” This legislation postpones the financial impact of the loss of a major taxpayer. More importantly, it allows the City to work toward replacing the lost revenues and planning for an appropriate reuse of the site. In December 2014, the City and Footprint entered into a payment in lieu of taxes (PILOT) agreement and a Community Benefits Agreement. The PILOT agreement is in effect through fiscal year 2032 and provides specific amounts to be paid annually to the City ranging from $4.8 million through 2019, completed power plant tax agreement starting at $5 million in 2020 and then escalates annually to $6.8 million in 2032. The Community Benefits Agreement provides additional sums to the City for waterfront planning, off-site emissions reduction, sustainable initiatives, public safety training, workforce retaining, pavement management and repair, Harbormaster and communications enhancements, community preservation, and Salem School and public art programs. The value of the contributions over the life of the agreement is expected to exceed $94.4 million. On March 29, 2022 Footprint Power Salem filed for Chapter 11 bankruptcy protection. The City has been advised that at this point, Footprint has agreed to comply with the Community Benefits Agreement and the PILOT agreement. Financial Policy The City has set a goal to fund the Stabilization fund in the amount of 5% of the City’s current operating budget, or roughly $8.0 million. As of June 30, 2022, the balance in the City’s Stabilization fund is $14.1 million. The Stabilization fund shall be funded by appropriations from free cash (available funds), operating budget appropriations when available, and other one-time non-recurring revenues that become available for appropriation per Massachusetts General Law. In fiscal 2008, the City established a second Stabilization fund (Retirement Stabilization Fund) for the funding of retirement buyouts for both City and School employees. As of June 30, 2022, the balance of this account was $453,000. During the fiscal 2022 budget process, all department heads were asked if they anticipated any retirements and to calculate the estimated cost of each person’s buyout for fiscal 2022. The goal of the Retirement Stabilization Fund is to pay for any unanticipated retirements from this Fund instead of using general fund appropriations. This will allow the departments to backfill vacancies in a timely manner without having to request a supplemental appropriation by the Council. In fiscal 2011, the City adopted Massachusetts General Law Chapter 32B, Section 20, establishing the “Other Postemployment Benefits (OPEB) Liability Trust Fund” as a local option. This fund gives communities a mechanism to reduce the unfunded actuarial liability of health care and other post-employment benefits. The City currently has $4.8 million in the account as of June 30, 2022. Future appropriations will be made to this fund in accordance with 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. ---PAGE BREAK--- City of Salem, Massachusetts 19 Annual Comprehensive Financial Report 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 is replenished, allocation of the remaining free cash shall be as follows:1  20% of any free cash available after funding a prior year drawdown will also be allocated from free cash to Stabilization Fund up to the goal of stabilization fund equaling 5% of the current operating budget of the City.  20% of any free cash available after funding a prior year drawdown of Stabilization fund will also be allocated to the Capital Improvement Fund for funding Capital and;  5% of any free cash available after funding any drawdown will be allocated to the OPEB Liability Trust Fund (beginning in FY2012). Any free cash available after funding the above may be used to augment trust funds related to fringe benefits and unfunded liabilities related to employee benefits, including Workers' Compensation Fund, Unemployment Fund, and any health benefits payable through Police and Fire operating budgets (111f settlements). Free cash available may also be used to augment general fund appropriations for expenses that increased due to extraordinary and/or unforeseen events as detailed by the department head of the affected budget. Corona Virus (COVID-19) In response to the outbreak of the virus, the Governor of the Commonwealth of Massachusetts declared a state of emergency on March 10, 2020. On March 13, 2020, the President declared a national emergency due to the outbreak. As a result, the Federal Government approved significant pandemic relief to communities to address emergency spending needs from March 2020 through December 2021. Salem has and will continue to apply for FEMA (Federal Emergency Management Agency) relief as the need arises. In addition, Salem was allotted up to $3.9 million of CARES Act funding and a number smaller grant awards that focus on, PPE, small businesses, first responder safety, school remote learning and reopening, and public health and safety. Another action at the federal level was the American Rescue Plan Act of 2021 (“ARPA”). Among other provisions, ARPA provides $350 billion to state and local governments to mitigate the fiscal disruptions created by the pandemic. Of the approximately $35,053,420 of direct ARPA funds the City expects to receive, $21,825,992 has been programmed to date for housing/digital equity capital/open space, economic/workforce development, food security, and direct pandemic response initiatives, as well as other items consistent with the requirements of ARPA. Future plans for programming remaining funds are currently underway. Salem responded quickly to the pandemic, the Mayor and City Council appropriated funding to address the public health crisis and implemented tax deferral and saving measures for those impacted. Although there are no assurances regarding the extent to which the continuing COVID-19 pandemic will impact the national and state economies and, accordingly, how it will adversely impact municipalities, including Salem, 1 The City is amending its Free Cash Policy in FY 2023 to direct additional funding to capital projects as its General Stabilization Fund balance has now exceeded the policy goal. ---PAGE BREAK--- City of Salem, Massachusetts 20 Annual Comprehensive Financial Report FY 2021 and FY 2022 actual revenues exceeded budgeted projections. When combined with cost saving measures and healthy reserves, the City is confident in meeting or exceeding its obligations through FY2023. 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 annual comprehensive financial report (ACFR) for the fiscal year ended June 30, 2021. In order to receive this prestigious award, a government had to publish an easily readable and efficiently organized ACFR 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 ACFR 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 City also received the GFOA’s Distinguished Budget Presentation Award for its fiscal 2022 annual budget document. To qualify for the Distinguished Budget Presentation Award, the City’s budget document had to be judged proficient as a policy document, a financial plan, an operations guide, and a communications device. The preparation of the ACFR 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, Anna Freedman Finance Director ---PAGE BREAK--- City of Salem, Massachusetts 21 Annual Comprehensive Financial Report Organizational Chart ---PAGE BREAK--- City of Salem, Massachusetts 22 Annual Comprehensive Financial Report Principal Executive Officers FIRST TITLE NAME TOOK OFFICE TERM EXPIRES Mayor Kimberley L. Driscoll 1/2/2006 12/31/2025 President, City Council Patricia Morsillo 1/1/2022 12/31/2023 Finance Director Anna Freedman 5/3/2021 1/31/2023 Treasurer Kathleen McMahon 12/27/2010 1/31/2025 Collector Bonnie Celi 3/11/2004 1/31/2023 City Clerk Ilene Simons 6/28/2018 6/28/2024 City Solicitor Elizabeth Rennard 1/10/2006 Indefinite Assistant Finance Director Justin MacCutcheon 6/23/2022 1/31/2024 Principal Executive Officers As of June 30, 2022 ---PAGE BREAK--- City of Salem, Massachusetts 23 Annual Comprehensive Financial Report Certificate of Achievement for Excellence in Financial Reporting ---PAGE BREAK--- City of Salem, Massachusetts 24 Annual Comprehensive Financial Report GFOA Distinguished Budget Presentation Award ---PAGE BREAK--- Financial Section Salem Art Scenes Harbor Connector Path Sculpture Garden 2020-2021 Anna Dugan Educators Appreciation Mural ---PAGE BREAK--- City of Salem, Massachusetts 25 Annual Comprehensive Financial Report Financial Section ---PAGE BREAK--- City of Salem, Massachusetts 26 Annual Comprehensive Financial Report This page intentionally left blank. ---PAGE BREAK--- 27 Independent Auditor’s Report To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts Report on the Audit of the Financial Statements Opinions 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, 2022 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2021), and the related notes to the financial statements, which collectively comprise the City of Salem, Massachusetts’ basic financial statements as listed in the table of contents. 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, 2022 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2021), 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. Basis for Opinions 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. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City of Salem, Massachusetts and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Change in Accounting Principle As discussed in Note 6 to the financial statements, during the year ending June 30, 2022, the City adopted new accounting guidance, Government Accounting Standards Board (GASB) Statement No. 87, Leases. Our opinions are not modified with respect to this matter. Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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. ---PAGE BREAK--- 28 In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the City of Salem, Massachusetts’ ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with generally accepted auditing standards and Government Auditing Standards, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit 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 City of Salem, Massachusetts’ internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the City of Salem, Massachusetts’ ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. 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 is the responsibility of management and, although not a 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 ---PAGE BREAK--- 29 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. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Salem, Massachusetts’ basic financial statements. The accompanying combining statements, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The 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 statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Information Management is responsible for the other information included in the Annual Comprehensive Financial Report. The other information comprises the introductory and statistical sections but does not include the basic financial statements and our auditor’s report thereon. Our opinions on the basic financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 20, 2022, 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 solely 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 the effectiveness of the City of Salem, Massachusetts’ internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Salem, Massachusetts’ internal control over financial reporting and compliance. December 20, 2022 ---PAGE BREAK--- 30 This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 31 Annual Comprehensive Financial Report Management’s Discussion and Analysis Management’s Discussion and Analysis ---PAGE BREAK--- City of Salem, Massachusetts 32 Annual Comprehensive Financial Report Management’s Discussion and Analysis As management of the City of Salem (City), we offer readers of these financial statements this narrative overview and analysis of the financial activities for the year ended June 30, 2022. 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’s basic financial statements. The basic financial statements consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of finances, in a manner similar to private-sector business. The statement of net position presents information on all assets and liabilities, and deferred inflows/outflows of resources, with the difference between them reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position is improving or deteriorating. The statement of activities presents information showing how the City’s net position changed during the most recent year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future periods uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities include general government, public safety, education, public works, community development, health and human services, culture and recreation, community preservation and interest. The business-type activities include the activities of water and sewer, trash disposal, and cable access. The government-wide financial statements include not only the City of Salem itself (known as the primary government), but also a legally separate public employee retirement system for which the City is financially accountable. Financial information for this component unit is reported 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 demonstrate compliance with finance-related legal requirements. All of the funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. ---PAGE BREAK--- City of Salem, Massachusetts 33 Annual Comprehensive Financial Report Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund statements focus on near-term inflows of spendable resources, as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the City’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided as required supplementary information to demonstrate compliance with this budget. Proprietary funds. The City maintains one type of proprietary fund. 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, trash disposal, and cable access. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The fiduciary fund financial statements provide combined information for the pension and other postemployment benefit (OPEB) trust funds of the City under the caption “pension and other postemployment benefit trust fund”. Private-purpose trust funds are reported and combined into a single, aggregate presentation in the fiduciary funds financial statements under the caption “private purpose trust fund”. Notes to the basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Government-wide Financial Analysis Governmental Activities As noted earlier, net position may serve over time as a useful indicator of a City’s financial position. The City’s governmental liabilities and deferred inflows exceed assets and deferred outflows by $43.5 million at the close of 2022. This represents an increase of $15.9 million from the prior year. Net position of $172.3 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. ---PAGE BREAK--- City of Salem, Massachusetts 34 Annual Comprehensive Financial Report An additional portion of the governmental net position, $19.5 million, represents resources that are subject to external restrictions on how they may be used. The balance of unrestricted net position has a year-end deficit of $235.3 million. The primary reasons for this deficit balance are the recognition of the net other postemployment benefit liability totaling $139.7 million and the net pension liability of $71.8 million. 2022 2021 Assets: Current 121,032,331 $ 102,791,855 Noncurrent assets (excluding capital)……………… 64,844 93,906 Capital assets, non depreciable……………………… 17,418,314 26,218,826 Capital assets, net of accumulated depreciation…… 238,499,752 218,360,352 Total 377,015,241 347,464,939 Deferred outflows of resources……………………… 23,989,078 27,182,549 Liabilities: Current liabilities (excluding 48,169,970 34,185,015 Noncurrent liabilities (excluding 221,615,410 269,901,398 Current 6,288,145 5,022,879 Noncurrent 82,577,962 74,120,784 Total liabilities…………………………………… 358,651,487 383,230,076 Deferred inflows of resources………………………… 85,869,038 50,797,583 Net position: Net investment in capital assets…………………… 172,251,531 175,205,346 19,544,415 18,694,258 Unrestricted…………………………………………… (235,312,152) (253,279,775) Total net (43,516,206) $ (59,380,171) Overall governmental net position increased during 2022 by $15.9 million. The increase can primarily be attributed to a decrease in the net pension liability and related deferred outflows and inflows of resources of $5.7 million, a decrease in the net OPEB liability and related deferred outflows and inflows of resources in the amount of $3.9 million and the receipt of $3.2 million in capital grants and contributions. The operating grants and contributions increase of $1.4 million related to grants related to the COVID-19 pandemic such as the ARPA and ESSER funds as well as additional grant funding related to job training and employment programs operated by the MassHire North Shore Career Center, these increases in operating grants were offset by a decrease in the on-behalf payment made by the State to the Massachusetts Teacher’s Retirement System grants in the amount of $9.5 million. Capital grants and contributions increased $510,000 as the MSBA provided cost reimbursements to the City for the Bentley School project that commenced in 2022. Real estate and personal property tax revenue increased $3.2 million over the prior year, which was consistent with the budgeted increase. The governmental expenses totaled $199.1 million of which $88.5 million was directly supported by program revenues consisting of charges for services, operating and capital grants, and contributions. ---PAGE BREAK--- City of Salem, Massachusetts 35 Annual Comprehensive Financial Report 2022 2021 Program Revenues: Charges for services……………………………… $ 16,432,652 $ 14,965,690 Operating grants and contributions……………… 68,916,399 67,513,431 Capital grants and contributions………………… 3,200,704 2,691,074 General Revenues: Real estate and personal property taxes, net of tax refunds payable…………………… 107,763,402 104,555,152 Tax and other 673,873 933,398 Motor vehicle and other excise taxes…………… 4,660,371 4,558,160 Hotel/motel 1,836,111 553,706 Meals 1,344,412 889,035 Marijuana 1,233,984 1,084,324 Marijuana impact 1,958,625 1,437,951 Community preservation 859,285 822,738 Penalties and interest on 576,991 718,270 Payments in lieu of 1,322,695 1,412,210 Grants and contributions not restricted to specific programs……………………………… 8,507,747 7,869,293 Unrestricted investment income (1,275,090) 2,419,524 Miscellaneous……………………………………… 885,577 819,712 Total 218,897,738 213,243,668 Expenses: General government………………………………… 17,854,285 17,244,438 Public 32,550,209 33,369,099 117,501,318 123,985,097 Public 12,844,904 10,647,022 Community development………………………… 1,924,333 929,881 Health and human services……………………… 8,851,177 6,654,258 Culture and recreation……………………………… 5,239,600 4,422,556 Community preservation…………………………… 344,261 267,267 1,971,167 1,325,596 Total 199,081,254 198,845,214 Excess (Deficiency) before 19,816,484 14,398,454 (3,952,519) (2,576,774) Change in net position……………………………… 15,863,965 11,821,680 Net position, beginning of (59,380,171) (71,201,851) Net position, end of (43,516,206) $ (59,380,171) Governmental activities expenses increased $236,000. The increase is primarily attributable to a $2.2 million increase in public works, a $994,000 increase in community development and a $2.2 million increase in health and human services. The increase in public works expense was due to the increased cost of contracted services and supplies as well as snow and ice related expenses. The increases in community development and health and human services were primarily due to increases in grant expenditures related to non-city owned Community Development Block Grants (CDBG) projects and increases in workforce grants administered by the MassHire North Shore Career Center, respectively. These increases were offset by a $6.5 million decrease in education expense which is mainly due to a $9.5 million decrease in on-behalf payment by the Commonwealth of Massachusetts to the Massachusetts Teachers Retirement System. The City implemented GASB Statement No. 87, Leases in 2022, which changed the reporting of the Lease for the City Hall Annex. The new GASB Statement requires this lease to be capitalized at the present value of the future minimum lease payments as of the beginning of the year of implementation. The City recorded a “right to use” ---PAGE BREAK--- City of Salem, Massachusetts 36 Annual Comprehensive Financial Report asset for the building lease in the amount of $5.0 million along with related depreciation and interest expense of $314,000 and $197,000, respectively. Business-type Activities For the City’s business-type activities, assets and deferred outflows exceeded liabilities and deferred inflows by $21.1 million at the close of 2022. 2022 2021 Assets: Current 18,886,394 $ 16,854,415 Noncurrent assets (excluding capital)……………… 2,441,826 2,174,632 Capital assets, non depreciable……………………… 2,029,350 1,968,479 Capital assets, net of accumulated depreciation…… 50,333,758 47,592,663 Total 73,691,328 68,590,189 Deferred outflows of resources……………………… 471,148 487,661 Liabilities: Current liabilities (excluding 1,607,340 1,500,280 Noncurrent liabilities (excluding 4,209,953 5,280,166 Current 3,153,941 2,963,948 Noncurrent 42,392,421 41,424,243 Total liabilities…………………………………… 51,363,655 51,168,637 Deferred inflows of resources………………………… 1,706,898 883,311 Net position: Net investment in capital assets…………………… 15,358,067 12,141,976 Unrestricted…………………………………………… 5,733,856 4,883,926 Total net 21,091,923 $ 17,025,902 Business-type net position of $15.4 million (72.8%) represents net investment in capital assets. The remaining $5.7 million (27.2%) is available to be used for the ongoing operation of the City’s water and sewer, trash, and cable access activities. There was an overall increase of $4.1 million in net position reported in connection with the enterprise funds. The water and sewer enterprise fund’s net position of $15.4 million (74.8%) represents the net investment in capital assets, while $5.2 million (25.2%) is unrestricted. The water and sewer enterprise experienced a net increase of $3.7 million in net position from the prior year. This can be attributed to an increase in the user fees rates, an increase in the investment in joint venture of $267,000, a capital contribution $890,000 from the general fund for a water main replacement project and a decrease in the net pension liability and related deferrals of $369,000. The water and sewer fund pays annual assessments to the Salem Beverly Water Supply Board and to the South Essex Sewerage District, which totaled $2.8 million and $4.5 million, respectively. Combined, these assessments represent 58.3% of the fund’s operating expenses for 2022. The unrestricted balance includes the City’s $2.4 million equity interest in the South Essex Sewerage District. The City’s trash enterprise fund operates on a trash fee that is set with full knowledge that the revenue will not be sufficient to cover the cost of operations. The City budgets for a subsidy from the general fund equal to the estimated cash basis deficit in the fund at year-end. During the year a $3.1 million transfer was made from the ---PAGE BREAK--- City of Salem, Massachusetts 37 Annual Comprehensive Financial Report general fund to subsidize for the budgeted deficit. As of June 30, 2022, the trash fund had an unrestricted net position of $489,000. In July 2019, the City established the cable access enterprise fund to account for monies received and spent for cable television public, educational and governmental (PEG) access facilities and operations. As of June 30, 2022, the cable access fund had unrestricted net position of $75,000. 2022 2021 Program Revenues: Charges for 18,003,318 $ 17,578,287 Expenses: Water and 13,663,317 14,389,522 3,642,700 3,694,631 Cable 583,799 599,119 Total 17,889,816 18,683,272 Excess (Deficiency) before 113,502 (1,104,985) 3,952,519 2,576,774 Change in net position……………………………… 4,066,021 1,471,789 Net position, beginning of 17,025,902 15,554,113 Net position, end of 21,091,923 $ 17,025,902 Financial Analysis of the Government’s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the year. In accordance with generally accepted accounting standards, the City reports the components of fund balance as nonspendable, restricted, committed, assigned and unassigned, based on restrictions on spending. Additionally, the City’s stabilization funds with the exception for the special education stabilization fund, are reported within the general fund as unassigned. The special education stabilization fund is reported as committed. As of the end of the current year, governmental funds reported combined ending fund balances of $73.5 million of which $35.1 million is reported in the general fund, $2.0 million in the community preservation fund, $11.5 million in the capital improvement fund and $24.8 million is reported in the nonmajor governmental funds. Cumulatively there was an increase of $4.7 million in fund balances from the prior year. The general fund is the City’s chief operating fund. At the end of the current year, unassigned fund balance of the general fund totaled $31.4 million, while total fund balance was $35.1 million. The general fund balance increased by $3.5 million in 2022. Real estate and personal property taxes are the primary revenues used to fund the general fund and the amounts allowed to be raised yearly are limited by Proposition 2 1/2. Real estate and personal property taxes increased $2.7 million Other significant increases in revenues were hotel/motel ---PAGE BREAK--- City of Salem, Massachusetts 38 Annual Comprehensive Financial Report and meals tax which increased $1.3 million and $455,000, respectively. These increases are attributable to the City’s tourism industry recovering from the COVID-19 pandemic. Total expenditures decreased $1.4 million exclusive of the City Hall Annex lease and the MTRS pension benefits which had offsetting revenues. The community preservation fund had an ending restricted fund balance at June 30, 2022, of $2.0 million. These funds are attributable to the City’s acceptance of the Community Preservation Act, which allows the City to impose up to a 1% surcharge on property taxes and to receive matching State grant funds for specified uses related to the acquisition, creation, preservation and support of open space, historical resources, land for recreational use and community housing. The City reported local community preservation tax revenue of $859,000 and state matching grant funds of $329,000. During fiscal year 2022, $854,000 was expended on various smaller community preservation projects. The ARPA fund is used to account for the funds received through the Coronavirus State and Local Fiscal Recovery Fund established under the American Rescue Plan Act (ARPA), and the related expenditures. The City recognized $1.0 million and reported the same in corresponding expenditures in the current year. The City has reported the $29.8 million received as unearned revenue and will recognize these funds as revenue when the qualifying expenditures are incurred. The capital improvement fund is used to account for the projects in the City’s capital improvement plan. The fund had a year-end fund balance of $11.5 million. The fund recognized $9.3 million in bond proceeds and $3.9 million in transfers in from the general fund as funding sources for ongoing projects. The $16.4 million of expenditures related to roadway and sidewalk infrastructure, the Signature Parks renovation initiative, park improvements for Bertram Field and Museum Place Garage improvements. Cumulatively, nonmajor governmental funds had a net increase of $4.0 million to $24.8 million. The increase primarily relates to timing difference between the receipt of grant funds and the related expenditures. The funds represent the activity of other nonmajor capital projects, special revenue funds, and permanent trust funds. General Fund Budgetary Highlights The City’s final general fund operating budget included $178.9 million in total current year appropriations and amounts carried forward from the prior year, to be funded with $163.9 million in estimated receipts and transfers in and approximately $3.5 million in transfers from other funds. The original budget included $1.0 million of free cash to reduce the tax rate. The $12.7 million increase between the original budget and the final amended budget was due to several council orders issued throughout the year to appropriate available funds. The most notable components of this increase include available funds (free cash) appropriated to fund stabilization reserves, capital improvements, other postemployment benefits trust, pension reserves and various additional departmental appropriations. The actual general fund revenues came in $8.3 million higher than budgeted. The City does not budget revenue for tax liens which totaled $464,000. Additionally, hotel/motel tax, meals tax, departmental and other, marijuana tax and marijuana impact fees reported budgetary surpluses of $1.3 million, $494,000, $2.8 million, $284,000, and $959,000 respectively. The City’s general fund reported expenditures and encumbrances less than appropriations by $4.1 million. The most significant turnback related to the school department, which turned back $1.3 million from a $70.1 million budget. The budget was overspent by $51,000 for the removal of snow and ice and $63,000 for state and county charges. These over-expenditures are allowed under state law. In addition, the City over spent the appropriation for Medicare in the amount of $25,000 which will be raised in fiscal year 2023. ---PAGE BREAK--- City of Salem, Massachusetts 39 Annual Comprehensive Financial Report On a budgetary basis, the general fund ended the year with a net increase of $508,000. Capital Asset and Debt Administration Capital Assets. The City’s investment in capital assets for its governmental and business-type activities as of June 30, 2022, amounts to $308.3 million (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, land improvements, right to use leased buildings, buildings and improvements, equipment, vehicles and infrastructure related to governmental and business-type activities. The City’s total investment in capital assets during the current year totaled $255.9 million for governmental activities and $52.4 million for business-type activities. Major governmental additions included Bertram Field renovations, Signature Parks renovations, roadway and sidewalk improvements, Museum Place Garage Place upgrades and various other improvements. Capital improvements for business-type activities were mainly for water infrastructure including water main and hydrant improvements, and various other annual improvements. Debt Administration. Outstanding long-term debt, including unamortized premiums, totaled $83.6 million for the governmental activities as of June 30, 2022. The City issued $16.9 million in general obligation bonds during fiscal year 2022 for both governmental and business-type activities. The bond issued in November 2022 permanently financed short-term debt, therefore the City has presented the issuance as long-term within the financial statements. The City redeemed $11.0 million of long-term debt in 2022. The bond was rated AA by Standard & Poor’s Outstanding debt of the water and sewer enterprise fund, including unamortized premiums, totaled $45.5 million and was used to fund various repairs, maintenance and infrastructure projects. This includes new debt issued in 2022 for water and sewer improvements of $7.0 million. In order to take advantage of favorable interest rates, the City issued $3.5 million of general obligation refunding bonds, which included a premium of $407,000, on November 18, 2021. The proceeds of the refunding bonds were used to complete a current refunding of $3.9 million of existing debt. As a result of the transaction, the refunded bonds were paid down on the call date and the liability has been removed from the statement of net position. The transaction resulted in an economic gain of $353,000 and a reduction of $374,000 in future debt service payments. Please refer to notes 4, 6, 7 and 8 in the financial statements for further discussion of the major capital and debt activity. Requests for Information This financial report is designed to provide a general overview of the City of Salem’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Finance Director, City Hall, 93 Washington Street, Salem, Massachusetts 01970. ---PAGE BREAK--- City of Salem, Massachusetts 40 Annual Comprehensive Financial Report Basic Financial Statements Basic Financial Statements ---PAGE BREAK--- Governmental Business-type Activities Activities Total ASSETS CURRENT: Cash and cash 91,516,428 $ 15,404,265 $ 106,920,693 21,544,963 - 21,544,963 Receivables, net of allowance for uncollectibles: Real estate and personal property 495,631 - 495,631 Tax 2,026,997 - 2,026,997 Community preservation fund surcharge…………………………… 5,760 - 5,760 Motor vehicle and other excise 659,271 - 659,271 User - 3,482,129 3,482,129 Departmental and 457,788 - 457,788 Intergovernmental……………………………………………………… 4,055,585 - 4,055,585 Community preservation state 237,000 - 237,000 32,908 - 32,908 Total current 121,032,331 18,886,394 139,918,725 NONCURRENT: Receivables, net of allowance for uncollectibles: 64,844 - 64,844 Investment in joint - 2,441,826 2,441,826 Capital assets, nondepreciable………………………………………… 17,418,314 2,029,350 19,447,664 Capital assets, net of accumulated depreciation……………………… 238,499,752 50,333,758 288,833,510 Total noncurrent 255,982,910 54,804,934 310,787,844 TOTAL 377,015,241 73,691,328 450,706,569 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to 7,909,029 236,212 8,145,241 Deferred outflows related to other postemployment benefits………… 16,080,049 234,936 16,314,985 TOTAL DEFERRED OUTFLOWS OF RESOURCES…………………… 23,989,078 471,148 24,460,226 LIABILITIES CURRENT: Warrants 2,997,946 1,241,502 4,239,448 Accrued 7,214,942 17,928 7,232,870 Tax refunds 2,770,300 - 2,770,300 Accrued 725,140 338,942 1,064,082 Other 1,042,217 - 1,042,217 Unearned 29,820,766 - 29,820,766 Landfill 1,125,000 - 1,125,000 Compensated 2,291,535 8,968 2,300,503 Workers' 182,124 - 182,124 Right to use lease 237,806 - 237,806 Long-term 6,050,339 3,153,941 9,204,280 Total current 54,458,115 4,761,281 59,219,396 NONCURRENT: Landfill 1,125,000 - 1,125,000 Compensated 7,527,034 24,532 7,551,566 Workers' 1,490,039 - 1,490,039 Net pension 71,823,055 2,145,076 73,968,131 Net other postemployment benefits liability…………………………… 139,650,282 2,040,345 141,690,627 Right to use lease 4,550,249 - 4,550,249 Long-term 78,027,713 42,392,421 120,420,134 Total noncurrent liabilities………………………………………… 304,193,372 46,602,374 350,795,746 TOTAL 358,651,487 51,363,655 410,015,142 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to 29,649,006 885,501 30,534,507 Deferred inflows related to other postemployment benefits………… 56,220,032 821,397 57,041,429 TOTAL DEFERRED INFLOWS OF RESOURCES……………………… 85,869,038 1,706,898 87,575,936 NET POSITION Net investment in capital 172,251,531 15,358,067 187,609,598 Restricted for: 97,752 - 97,752 Permanent funds: 6,436,229 - 6,436,229 1,894,529 - 1,894,529 Gifts and 8,830,963 - 8,830,963 Community 2,284,942 - 2,284,942 (235,312,152) 5,733,856 (229,578,296) TOTAL NET (43,516,206) $ 21,091,923 $ (22,424,283) See notes to basic financial statements. Primary Government STATEMENT OF NET POSITION JUNE 30, 2022 City of Salem, Massachusetts 41 Annual Comprehensive Financial Report ---PAGE BREAK--- Operating Capital Charges for Grants and Grants and Net (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Primary Government: Governmental Activities: General government…………………$ 17,854,285 $ 1,642,737 $ 5,353,126 $ - $ (10,858,422) Public 32,550,209 5,037,681 1,734,978 - (25,777,550) Education…………………………… 117,501,318 1,942,756 53,845,100 547,125 (61,166,337) Public 12,844,904 3,903,913 467,893 2,383,030 (6,090,068) Community development…………… 1,924,333 76,277 1,629,863 - (218,193) Health and human services………… 8,851,177 1,451,959 5,785,218 - (1,614,000) Culture and recreation……………… 5,239,600 2,377,329 100,221 - (2,762,050) Community preservation…………… 344,261 - - 270,549 (73,712) 1,971,167 - - - (1,971,167) Total Governmental Activities…… 199,081,254 16,432,652 68,916,399 3,200,704 (110,531,499) Business-Type Activities: Water and 13,663,317 16,484,285 - - 2,820,968 3,642,700 935,234 - - (2,707,466) Cable 583,799 583,799 - - - Total Business-Type Activities…… 17,889,816 18,003,318 - - 113,502 Total Primary Government……… $ 216,971,070 $ 34,435,970 $ 68,916,399 $ 3,200,704 $ (110,417,997) See notes to basic financial statements. (Continued) STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2022 Program Revenues City of Salem, Massachusetts 42 Annual Comprehensive Financial Report ---PAGE BREAK--- Governmental Business-Type Activities Activities Total Changes in net position: Net (expense) revenue from previous page………$ (110,531,499) $ 113,502 $ (110,417,997) General revenues: Real estate and personal property taxes, net of tax refunds payable…………………… 107,763,402 - 107,763,402 Tax and other 673,873 - 673,873 Motor vehicle and other excise taxes………… 4,660,371 - 4,660,371 Hotel/motel 1,836,111 - 1,836,111 Meals 1,344,412 - 1,344,412 Marijuana 1,233,984 - 1,233,984 Marijuana impact 1,958,625 - 1,958,625 Community preservation 859,285 - 859,285 Penalties and interest on taxes………………… 576,991 - 576,991 Payments in lieu of 1,322,695 - 1,322,695 Grants and contributions not restricted to specific programs……………………………… 8,507,747 - 8,507,747 Unrestricted investment income (loss)………… (1,275,090) - (1,275,090) Miscellaneous…………………………………… 885,577 - 885,577 Transfers, net (3,952,519) 3,952,519 - Total general revenues, capital contributions and 126,395,464 3,952,519 130,347,983 Change in net position………………………… 15,863,965 4,066,021 19,929,986 Net position: Beginning of (59,380,171) 17,025,902 (42,354,269) End of (43,516,206) $ 21,091,923 $ (22,424,283) (Concluded) See notes to basic financial statements. Primary Government STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2022 City of Salem, Massachusetts 43 Annual Comprehensive Financial Report ---PAGE BREAK--- Community Capital Nonmajor Total Preservation ARPA Improvement Governmental Governmental General Fund Fund Fund Funds Funds ASSETS Cash and cash equivalents……………………………… $ 29,253,441 $ 2,189,937 $ 29,814,240 $ 13,639,399 $ 16,619,411 $ 91,516,428 14,071,643 - - - 7,473,320 21,544,963 Receivables, net of uncollectibles: Real estate and personal property taxes…………… 495,631 - - - - 495,631 Tax 2,026,997 - - - - 2,026,997 Community preservation fund surcharge…………… - 5,760 - - - 5,760 Motor vehicle and other excise taxes……………… 659,271 - - - - 659,271 Departmental and - - - - 457,788 457,788 Intergovernmental……………………………………… - - - - 4,055,585 4,055,585 Community preservation state share………………… - 237,000 - - - 237,000 - - - - 97,752 97,752 Due from other 1,349,180 - - - - 1,349,180 TOTAL 47,856,163 $ 2,432,697 $ 29,814,240 $ 13,639,399 $ 28,703,856 $ 122,446,355 LIABILITIES Warrants 83,209 $ 147,725 $ - $ 2,063,066 $ 718,547 $ 3,012,547 Accrued 7,050,610 - 2,879 - 146,852 7,200,341 Tax refunds 2,770,300 - - - - 2,770,300 Due to other - - - - 1,349,180 1,349,180 Other liabilities………………………………………… - - - 31,188 1,011,029 1,042,217 Unearned 6,013 30 29,811,361 - 3,362 29,820,766 TOTAL LIABILITIES……………………………………… 9,910,132 147,755 29,814,240 2,094,254 3,228,970 45,195,351 DEFERRED INFLOWS OF RESOURCES Unavailable 2,860,389 242,760 - - 650,916 3,754,065 FUND BALANCES Nonspendable………………………………………… - - - - 1,894,529 1,894,529 - 2,042,182 - 11,545,145 23,349,631 36,936,958 550,000 - - - - 550,000 3,158,277 - - - - 3,158,277 31,377,365 - - - (420,190) 30,957,175 TOTAL FUND BALANCES……………………………… 35,085,642 2,042,182 - 11,545,145 24,823,970 73,496,939 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES………………$ 47,856,163 $ 2,432,697 $ 29,814,240 $ 13,639,399 $ 28,703,856 $ 122,446,355 See notes to basic financial statements. GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2022 City of Salem, Massachusetts 44 Annual Comprehensive Financial Report ---PAGE BREAK--- Total governmental fund $ 73,496,939 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the 255,918,066 Accounts receivable are not available to pay for current-period expenditures and, therefore, are unavailable in the 3,754,065 The statement of net position includes certain deferred inflows of resources and deferred outflows of resources that will be amortized over future periods. In governmental funds, these amounts are not (61,879,960) In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until (725,140) Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds: Long-term (84,078,052) Net pension (71,823,055) Net other postemployment benefits (139,650,282) Landfill (2,250,000) Right to use lease (4,788,055) Workers' (1,672,163) Compensated (9,818,569) Net effect of reporting long-term liabilities………………………………………. (314,080,176) Net position of governmental $ (43,516,206) See notes to basic financial statements. RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET POSITION JUNE 30, 2022 City of Salem, Massachusetts 45 Annual Comprehensive Financial Report ---PAGE BREAK--- Community Capital Nonmajor Total Preservation ARPA Improvement Governmental Governmental General Fund Fund Fund Funds Funds REVENUES: Real estate and personal property taxes, net of tax $ 107,947,611 $ - $ - $ - $ - $ 107,947,611 Tax 464,185 - - - - 464,185 Motor vehicle and other excise 4,574,784 - - - - 4,574,784 Hotel/motel 1,836,111 - - - - 1,836,111 Meals 1,344,412 - - - - 1,344,412 Marijuana 1,233,984 - - - - 1,233,984 Marijuana impact 1,958,625 - - - - 1,958,625 Charges for 2,478,826 - - - 977,995 3,456,821 Penalties and interest on 570,755 1,644 - - 4,592 576,991 Payments in lieu of 1,322,695 - - - - 1,322,695 Licenses and 532,740 - - - - 532,740 Fines and 1,336,985 - - - - 1,336,985 Intergovernmental - state 35,174,708 - - - - 35,174,708 Intergovernmental - School Building Authority………………… 547,125 - - - - 547,125 Intergovernmental - Teachers Retirement……………………… 9,747,726 - - - - 9,747,726 Intergovernmental - - 329,076 1,043,987 - 32,531,341 33,904,404 Departmental and 5,752,268 - - - 7,708,901 13,461,169 Community preservation - 859,285 - - - 859,285 Contributions and - - - - 667,948 667,948 Investment income (146,574) 2,518 - - (1,131,034) (1,275,090) TOTAL 176,676,966 1,192,523 1,043,987 - 40,759,743 219,673,219 EXPENDITURES: Current: General 14,048,191 - 702,599 4,053,850 3,147,651 21,952,291 Public 22,295,132 - - 339,787 3,517,837 26,152,756 66,183,513 - - 1,620,693 16,366,186 84,170,392 Public 6,591,629 - - 4,136,004 4,360,803 15,088,436 Community development……………………………………… - - - - 1,924,333 1,924,333 Health and human 1,594,035 - 341,388 - 6,540,375 8,475,798 Culture and 3,145,470 - - 6,271,339 407,202 9,824,011 Community preservation……………………………………… - 853,645 - - - 853,645 Pension 13,468,241 - - - - 13,468,241 Pension benefits - Teachers Retirement…………………… 9,747,726 - - - - 9,747,726 Employee 16,806,265 - - - - 16,806,265 State and county 9,490,288 - - - - 9,490,288 Debt service: 4,999,818 - - - - 4,999,818 2,129,135 - - - - 2,129,135 Principal payments on right to use 228,497 - - - - 228,497 Interest payments on right to use 196,503 - - - - 196,503 TOTAL EXPENDITURES………………………………… 170,924,443 853,645 1,043,987 16,421,673 36,264,387 225,508,135 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………………… 5,752,523 338,878 - (16,421,673) 4,495,356 (5,834,916) OTHER FINANCING SOURCES (USES): Issuance of - - - 9,327,262 - 9,327,262 Issuance of refunding 629,880 - - - - 629,880 Premium from issuance of - - - - 178,895 178,895 Premium from issuance of refunding 40,120 - - - - 40,120 Payments to refunded bond escrow (670,000) - - - - (670,000) Right to use lease 5,016,552 - - - - 5,016,552 Transfers - capital (890,000) - - - - (890,000) Transfers 1,541,541 - - 3,912,057 908,939 6,362,537 Transfers (7,883,515) - - - (1,541,541) (9,425,056) TOTAL OTHER FINANCING SOURCES (USES)……… (2,215,422) - - 13,239,319 (453,707) 10,570,190 NET CHANGE IN FUND BALANCES……………………………… 3,537,101 338,878 - (3,182,354) 4,041,649 4,735,274 FUND BALANCES AT BEGINNING OF 31,548,541 1,703,304 - 14,727,499 20,782,321 68,761,665 FUND BALANCES AT END OF $ 35,085,642 $ 2,042,182 $ - $ 11,545,145 $ 24,823,970 $ 73,496,939 See notes to basic financial statements. GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2022 City of Salem, Massachusetts 46 Annual Comprehensive Financial Report ---PAGE BREAK--- Net change in fund balances - total governmental $ 4,735,274 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 22,894,660 Depreciation (11,555,772) Net effect of reporting capital 11,338,888 Revenues in the Statement of Activities that do not provide current financial resources are unavailable in the Statement of Revenues, Expenditures and Changes in Fund Balances. Therefore, the recognition of revenue for various types of accounts receivable differ between the two statements. This amount represents the net change in unavailable (775,481) The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the financial resources of governmental funds. Neither transaction has any effect on net position. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are unavailable and amortized in the Statement of Activities. Issuance of (9,327,262) Issuance of refunding (629,880) Premium from issuance of (178,895) Premium from issuance of refunding (40,120) Payments to refunded bond escrow 670,000 Net amortization of premium from issuance of 686,129 Net change in deferred charge on (10,285) Debt service principal 4,999,818 Right to use lease (5,016,552) Principal payments on right to use lease 228,497 Net effect of reporting long-term (8,618,550) 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 (86,810) Net change in accrued interest on long-term (321,373) Net change in deferred outflow/(inflow) of resources related to pensions…………………………… (17,569,825) Net change in net pension 23,275,974 Net change in deferred outflow/(inflow) of resources related to other postemployment benefits…… (20,684,816) Net change in net other postemployment benefits 24,625,381 Net change in workers' compensation (54,697) Net effect of recording long-term 9,183,834 Change in net position of governmental $ 15,863,965 See notes to basic financial statements. RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2022 City of Salem, Massachusetts 47 Annual Comprehensive Financial Report ---PAGE BREAK--- Water and Sewer Trash Cable Access Total ASSETS CURRENT: Cash and cash 14,240,648 $ 1,088,194 $ 75,423 $ 15,404,265 Receivables, net of allowance for uncollectibles: User 3,427,954 54,175 - 3,482,129 Total current 17,668,602 1,142,369 75,423 18,886,394 NONCURRENT: Investment in joint 2,441,826 - - 2,441,826 Capital assets, non depreciable……………………………………… 2,029,350 - - 2,029,350 Capital assets, net of accumulated depreciation…………………… 50,333,758 - - 50,333,758 Total noncurrent 54,804,934 - - 54,804,934 TOTAL 72,473,536 1,142,369 75,423 73,691,328 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions……………………………… 219,922 16,290 - 236,212 Deferred outflows related to other postemployment benefits……… 220,252 14,684 - 234,936 TOTAL DEFERRED OUTFLOWS OF RESOURCES………………… 440,174 30,974 - 471,148 LIABILITIES CURRENT: Warrants 945,583 295,919 - 1,241,502 Accrued 17,132 796 - 17,928 Accrued 338,942 - - 338,942 Compensated 8,968 - - 8,968 Bonds 3,153,941 - - 3,153,941 Total current liabilities………………………………………… 4,464,566 296,715 - 4,761,281 NONCURRENT: Compensated 24,532 - - 24,532 Net pension 1,997,140 147,936 - 2,145,076 Net other postemployment benefits liability………………………… 1,912,823 127,522 - 2,040,345 Bonds 42,392,421 - - 42,392,421 Total noncurrent liabilities……………………………………… 46,326,916 275,458 - 46,602,374 TOTAL 50,791,482 572,173 - 51,363,655 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to 824,432 61,069 - 885,501 Deferred inflows related to other postemployment benefits……… 770,059 51,338 - 821,397 TOTAL DEFERRED INFLOWS OF RESOURCES…………………… 1,594,491 112,407 - 1,706,898 NET POSITION Net investment in capital 15,358,067 - - 15,358,067 5,169,670 488,763 75,423 5,733,856 TOTAL NET 20,527,737 $ 488,763 $ 75,423 $ 21,091,923 See notes to basic financial statements. PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2022 Business-type Activities - Enterprise Funds City of Salem, Massachusetts 48 Annual Comprehensive Financial Report ---PAGE BREAK--- Water and Sewer Trash Cable Access Total OPERATING REVENUES: Charges for 16,484,285 $ 935,234 $ 583,799 $ 18,003,318 OPERATING EXPENSES: Cost of services and administration…………………………… 3,834,944 3,642,700 583,799 8,061,443 District 7,251,644 - - 7,251,644 1,356,044 - - 1,356,044 TOTAL OPERATING EXPENSES…………………………… 12,442,632 3,642,700 583,799 16,669,131 OPERATING INCOME 4,041,653 (2,707,466) - 1,334,187 NONOPERATING REVENUES (EXPENSES): Interest (1,220,685) - - (1,220,685) INCOME (LOSS) BEFORE TRANSFERS………………… 2,820,968 (2,707,466) - 113,502 CAPITAL CONTRIBUTIONS………………………………………… 890,000 - - 890,000 TRANSFERS: Transfers - 3,062,519 - 3,062,519 CHANGE IN NET 3,710,968 355,053 - 4,066,021 NET POSITION AT BEGINNING OF 16,816,769 133,710 75,423 17,025,902 NET POSITION AT END OF $ 20,527,737 $ 488,763 $ 75,423 $ 21,091,923 See notes to basic financial statements. PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2022 Business-type Activities - Enterprise Funds City of Salem, Massachusetts 49 Annual Comprehensive Financial Report ---PAGE BREAK--- Water and Sewer Trash Cable Access Total CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and $ 16,180,082 $ 951,489 $ 583,799 $ 17,715,370 Payments to (11,256,708) (3,606,209) (583,799) (15,446,716) Payments to (1,121,473) (82,043) - (1,203,516) NET CASH FROM OPERATING ACTIVITIES……………………………………… 3,801,901 (2,736,763) - 1,065,138 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers - 3,062,519 - 3,062,519 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Capital 890,000 - - 890,000 Proceeds from the issuance of bonds and 8,113,046 - - 8,113,046 Premium from the issuance of bonds and 55,581 - - 55,581 Acquisition and construction of capital (3,285,933) - - (3,285,933) Principal payments on bonds and (6,767,279) - - (6,767,279) Interest (1,389,041) - - (1,389,041) NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES………… (2,383,626) - - (2,383,626) NET CHANGE IN CASH AND CASH EQUIVALENTS……………………………… 1,418,275 325,756 - 1,744,031 CASH AND CASH EQUIVALENTS AT BEGINNING OF 12,822,373 762,438 75,423 13,660,234 CASH AND CASH EQUIVALENTS AT END OF $ 14,240,648 $ 1,088,194 $ 75,423 $ 15,404,265 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income 4,041,653 $ (2,707,466) $ - $ 1,334,187 Adjustments to reconcile operating income to net cash from operating activities: 1,356,044 - - 1,356,044 Deferred (outflows)/inflows related to pensions……………………………… 479,708 36,172 - 515,880 Deferred (outflows)/inflows related to other postemployment benefits……… 307,283 16,937 - 324,220 Changes in assets and liabilities: User (304,203) 16,255 - (287,948) Investment in joint (267,194) - - (267,194) Warrants (804,430) (9,147) - (813,577) Accrued (19,835) (2,199) - (22,034) Compensated (3,160) - - (3,160) Net pension (848,961) (48,347) - (897,308) Net other postemployment benefits liability………………………………… (135,004) (38,968) - (173,972) Total (239,752) (29,297) - (269,049) NET CASH FROM OPERATING ACTIVITIES……………………………………… $ 3,801,901 $ (2,736,763) $ - $ 1,065,138 NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES: Issuance of refunding 2,897,910 $ - $ - $ 2,897,910 Long-term bonds (3,265,000) - - (3,265,000) Refunding 367,090 - - 367,090 Acquisition of capital assets on (872,077) - - (872,077) See notes to basic financial statements. PROPRIETARY FUNDS STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2022 Business-type Activities - Enterprise Funds City of Salem, Massachusetts 50 Annual Comprehensive Financial Report ---PAGE BREAK--- Pension and Other Employee Private Benefit Purpose Trust Fund Trust Fund ASSETS Cash and cash $ 253,326 $ 514,880 Investments: Investments in Pension Reserve Investment Trust…………… 272,832,723 - Equity - 956,040 Equity mutual 3,370,840 - Fixed income mutual 1,447,236 574,640 Repurchase 4,037,884 - Receivables, net of allowance for uncollectibles: Reimbursements from other 2,925 - Capital assets, net of accumulated depreciation…………………… 72,656 - TOTAL 282,017,590 2,045,560 LIABILITIES Warrants 6,959 - NET POSITION Restricted for 277,167,470 - Restricted for other postemployment benefits……………………… 4,843,161 - Held in trust for other - 2,045,560 TOTAL NET 282,010,631 $ 2,045,560 The Pension Trust Fund is as of December 31, 2021. See notes to basic financial statements. FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2022 City of Salem, Massachusetts 51 Annual Comprehensive Financial Report ---PAGE BREAK--- Pension and Other Employee Private Benefit Purpose Trust Fund Trust Fund ADDITIONS: Contributions: Employer $ 17,110,150 $ - Employer contributions for other postemployment benefit payments………… 4,579,291 - Member 5,325,905 - Transfers from other 664,399 - 3(8)c contributions from other 216,744 - Workers compensation 65,897 - State COLA reimbursements……………………………………………………… 74,786 - Member makeup payments and redeposits……………………………………… 28,953 - Reimbursement of 91A overearnings…………………………………………… 27,115 - Private - 229,548 Total 28,093,240 229,548 Net investment income (loss): Investment income 45,152,598 (237,187) Less: investment (1,233,650) - Net investment income 43,918,948 (237,187) TOTAL 72,012,188 (7,639) DEDUCTIONS: 333,877 - Transfers to other 794,201 - 3(8)c transfer to other 594,534 - Retirement benefits and 19,936,667 - 3,125 - Other postemployment benefit 4,579,291 - Health and human - 31,635 Educational - 38,819 TOTAL 26,241,695 70,454 NET INCREASE (DECREASE) IN NET POSITION………………………… 45,770,493 (78,093) NET POSITION AT BEGINNING OF 236,240,138 2,123,653 NET POSITION AT END OF $ 282,010,631 $ 2,045,560 The Pension Trust Fund is as of December 31, 2021. See notes to basic financial statements. YEAR ENDED JUNE 30, 2022 FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION City of Salem, Massachusetts 52 Annual Comprehensive Financial Report ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 53 Annual Comprehensive Financial Report NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Notes to basic financial statements The accompanying basic financial statements of the City of Salem, Massachusetts (City) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board (GASB) is the recognized standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described herein. A. Reporting Entity The City is a Massachusetts municipal corporation with a Mayor-Council form of government. The Mayor is elected at large for a four-year term. The City Council is comprised of eleven members elected for two-year terms from seven wards and four at-large. For financial reporting purposes, the City has included all funds, organizations, agencies, boards, commissions and institutions. The City has also considered all potential component units for which it is financially accountable as well as other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the basic financial statements to be misleading or incomplete. As required by GAAP, these basic financial statements present the City (the primary government) and its component units. One entity has been included as a component unit in the reporting entity, because of the significance of its operational and/or financial relationship. Component Unit Presented as a Fiduciary Fund – The following component unit is presented as a Fiduciary Fund of the primary government due to the nature and significance of relationship between the City and the component unit. The Salem Contributory Retirement System (System) was established to provide retirement benefits to City employees, the Salem Housing Authority employees, the South Essex Sewerage District employees, the Salem- Beverly Water Supply Board employees, the Essex North Shore Agricultural & Technical 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 issued a separate GAAP based audited financial statement along with a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth of Massachusetts’ (Commonwealth) Public Employee Retirement Administration Commission (PERAC). These reports may be obtained by contacting the System located at 20 Central Street, Suite 110, Salem, Massachusetts 01970. Joint Ventures – The following are joint ventures of the City. The City is a member of the South Essex Sewerage District (the District), a joint venture with the Cities of Salem, Peabody, and Beverly and the Towns of Danvers, Marblehead, and Middleton, for the operation of a septage disposal facility. The members share in overseeing the operations of the District. Each member is responsible for its proportionate share of the operational costs of the District, which are paid in the form of assessments. The 2022 assessment totaled $4.7 million. As of June 30, 2022, the City’s equity interest in the operations of the District totaled $2.4 million, which is recorded in the Water and Sewer Enterprise Fund. Complete financial statements for the District can be obtained by contacting them at 50 Fort Avenue, Salem, MA 01970. The City is a member of the Salem-Beverly Water Supply Board (Water Board), a joint venture with the City of Beverly for the operation of a water distribution system. The City does not have an equity interest in the Salem- ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 54 Annual Comprehensive Financial Report Beverly Water Supply Board. The annual assessment from the Water Board for the year ended June 30, 2022, totaled $2.8 million. Complete financial information for the Water Board can be obtained by contacting them at 50 Arlington Avenue, Beverly, MA 01915. The City is a member of the Essex North Shore Agricultural & Technical School that serves the members’ students seeking an education in academic, technical and agriculture studies. The members’ share in the operations of the School and each member is responsible for its proportionate share of the operational and capital cost of the School, which are paid in the form of assessments. The City does not have an equity interest in the Essex North Shore Agricultural & Technical School and the 2022 assessment was $2.6 million. B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The government-wide financial statements statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its component units. Governmental activities, which are primarily supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which are supported primarily by user fees and charges. Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Nonmajor funds are aggregated and displayed in a single column. Major Fund Criteria Major funds must be reported if the following criteria are met:  If the total assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues, or expenditures/expenses of an individual governmental or enterprise fund are at least 10% of the corresponding element (assets and deferred outflows of resources, liabilities and deferred inflows of resources, etc.) for all funds of that category or type (total governmental or total enterprise funds), and  If the total assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5% of the corresponding element for all governmental and enterprise funds combined. Additionally, any other governmental or enterprise fund that management believes is particularly significant to the basic financial statements may be reported as a major fund. Fiduciary funds are reported by fund type. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 55 Annual Comprehensive Financial Report recorded when the liabilities are incurred. Real estate and personal property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The statement of activities demonstrates the degree to which the direct expenses of a particular function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include the following:  Charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment.  Grants and contributions that are restricted to meeting the operational requirements of a particular function or segment.  Grants and contributions that are restricted to meeting the capital requirements of a particular function or segment. Taxes and other items not identifiable as program revenues are reported as general revenues. For the most part, the effect of interfund activity has been removed from the government-wide financial statements. However, the effect of interfund services provided and used between functions is not eliminated as the elimination of these charges would distort the direct costs and program revenues reported for the functions affected. Fund Financial Statements Governmental fund financial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual when measurable and available). Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with current expendable available resources. Real estate and personal property tax revenues are considered available if they are collected within 60 days after year-end. Investment income is susceptible to accrual. Other receipts and tax revenues become measurable and available when the cash is received and are recognized as revenue at that time. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria is met. Expenditure driven grants recognize revenue when the qualifying expenditures are incurred, and all other grant requirements are met. The following major governmental funds are reported: The general fund is the primary operating fund. It is used to account for all financial resources, except those that are required to be accounted for in another fund. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 56 Annual Comprehensive Financial Report The community preservation fund is a special revenue fund used to account for the accumulation of resources for the acquisition, creation, preservation and support of open space, historic resources, and community housing. The City is allowed to impose a surcharge on property taxes and to receive matching state funds for these specified uses. The ARPA fund is used to account for the funds received through the Coronavirus State and Local Fiscal Recovery Fund established under the American Rescue Plan Act (ARPA), and the related expenditures. The capital improvement fund is used to account for the City’s capital improvement plan projects. The nonmajor governmental funds consist of other special revenue, capital projects and permanent funds that are aggregated and presented in the nonmajor governmental funds column on the governmental funds financial statements. The following describes the general use of these fund types: The special revenue fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than permanent funds or capital projects. The capital projects fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets of the governmental funds. The permanent fund is used to account for and report financial resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the governmental programs. Proprietary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary funds principal ongoing operations. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. The following major proprietary funds are reported: The water and sewer enterprise fund is used to account for the City’s water and sewer activities. The trash enterprise fund is used to account for the solid waste disposal activities. The cable access enterprise fund is used to account for the local access television activities. Fiduciary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Fiduciary funds are used to account for assets held in a trustee capacity for others that cannot be used to support the governmental programs. The following fiduciary fund types are reported: The pension and other employee benefit 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 and to accumulate resources to provide funding for future other postemployment benefits (OPEB) liabilities. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 57 Annual Comprehensive Financial Report The private-purpose trust fund is used to account for trust arrangements that exclusively benefit individuals, private organizations, or other governments. Some of these trusts have donor restrictions and trustee policies that do not allow the endowment portion and any unrealized appreciation to be spent. The donor restrictions and trustee policies only allow the trustees to authorize spending of the realized investment earnings. The City’s educational scholarships and health and human service funds are accounted for in this fund. D. Cash and Investments Government-Wide and Fund Financial Statements Cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with an original maturity of three months or less from the date of acquisition. Investments are carried at fair value. The fair values were determined by the closing price for those securities traded on national stock exchanges and at the average bid-and-asked quotation for those securities traded in the over-the-counter market. Investments that do not have an established market are reported at estimated fair values. E. Fair Value Measurements The City reports required types of financial instruments in accordance with the fair value standards. These standards require an entity to maximize the use of observable inputs (such as quoted prices in active markets) and minimize the use of unobservable inputs (such as appraisals or valuation techniques) to determine fair value. Fair value standards also require the government to classify these financial instruments into a three-level hierarchy, based on the priority of inputs to the valuation technique or in accordance with net asset value practical expedient rules, which allow for either Level 2 or Level 3 depending on lock up and notice periods associated with the underlying funds. Instruments measured and reported at fair value are classified and disclosed in one of the following categories: Level 1 – Quoted prices are available in active markets for identical instruments as of the reporting date. Instruments, which are generally included in this category, include actively traded equity and debt securities, U.S. government obligations, and mutual funds with quoted market prices in active markets. Level 2 – Pricing inputs are other than quoted in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Certain fixed income securities, primarily corporate bonds, are classified as Level 2 because fair values are estimated using pricing models, matrix pricing, or discounted cash flows. Level 3 – Pricing inputs are unobservable for the instrument and include situations where there is little, if any, market activity for the instrument. The inputs into the determination of fair value require significant management judgment or estimation. In some instances the inputs used to measure fair value may fall into different levels of the fair value hierarchy and is based on the lowest level of input that is significant to the fair value measurement. Market price is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Instruments with readily available active quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. It is reasonably possible that change in values of these instruments will occur in the near term and that such changes could materially ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 58 Annual Comprehensive Financial Report affect amounts reported in these financial statements. For more information on the fair value of the City’s financial instruments, see Note 2 – Cash and Investments. F. Accounts Receivable Government-Wide and Fund Financial Statements The recognition of revenue related to accounts receivable reported in the government-wide financial statements and the proprietary funds and fiduciary funds financial statements are reported under the accrual basis of accounting. The recognition of revenue related to accounts receivable reported in the governmental funds financial statements are reported under the modified accrual basis of accounting. Real Estate, Personal Property Taxes, Tax Liens and Tax Foreclosures Real estate and personal property taxes are levied and based on values assessed on January 1st of every year. Assessed values are established by the Board of Assessor’s for 100% of the estimated fair market value. Taxes are due on August 1st, November 1st, February 1st and May 1st and are subject to penalties and interest if they are not paid by the respective due date. Real estate and personal property taxes levied are recorded as receivables in the year of the levy. The City has the ability to process real estate tax liens on delinquent properties. Tax liens are processed once a year following the first quarter of the following year. Liens are recorded as receivables in the year they are processed. Real estate receivables which have been secured via the tax lien process are considered 100% collectible. Accordingly, an allowance for uncollectibles is not reported. Personal property taxes cannot be secured through the lien process. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. Motor Vehicle and Other Excise Taxes Motor vehicle excise taxes are assessed annually for each vehicle registered and are recorded as receivables in the year of the levy. The Commonwealth is responsible for reporting the number of vehicles registered and the fair values of those vehicles. The tax calculation is the fair value of the vehicle multiplied by $25 per $1,000 of value. Boat excise taxes are assessed annually for each boat registered and are recorded as receivables in the year of the levy. The Commonwealth is responsible for reporting the number of boats registered and the fair value of those boats. The tax calculation is the fair value of the boat multiplied by $10 per $1,000 of value. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. Community Preservation Surcharges Community preservation surcharges are levied annually at a rate of 1% of resident’s real estate tax bills with exemptions for the first $100,000 of residential property and property owned by qualified persons with low income and seniors (60+) with low or moderate income defined by DOR guidelines. The surcharge is due with the real estate tax 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. Overdue surcharges are included on the tax liens processed on delinquent real estate taxes. Surcharges are recorded as receivables in the year of the levy. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 59 Annual Comprehensive Financial Report Since the receivables are secured via the lien process, these accounts are considered 100% collectible and therefore do not report an allowance for uncollectibles. 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 $29.00 for commercial and $20.00 for residential. Collection from any owner occupied property shall not exceed $127 per month. Unpaid trash fees are subject to interest and demand fees; any fees not paid within thirty (30) days may be liened to the property in the following years’ real estate bill. Since the receivables are secured via either a shut off or lien process, these accounts are considered 100% collectible and therefore do not report an allowance for uncollectibles. Departmental and Other Departmental and other receivables consist primarily of harbor mooring and slip fees and fire detail fees that are recorded as receivables in the year accrued. The allowance of uncollectibles is estimated based on historical trends and specific account analysis. Intergovernmental Various federal and state grants for operating and capital purposes are applied for and received annually. For non-expenditure driven grants, receivables are recorded as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred, and all other grant requirements are met. These receivables are considered 100% collectible and therefore do not report an allowance for uncollectibles. Loans Loan receivables are comprised of funds advanced to small businesses and developers under various Urban Development Action Grants (UDAG) and Community Development Block Grants (CDBG). The City loans funds to owners of commercial and residential properties for the purpose of rehabilitating these properties. The City receives funding for these loans from the U.S Department of Housing and Urban Development (HUD) under Community Development Block Grant (CDBG) programs for the City. These loans are repaid to the City under various terms and conditions stipulated by each loan agreement. The loan repayments may be used by the City for any eligible activity relevant to the community development program. G. Inventories and Prepaid Items Government-Wide and Fund Financial Statements Inventories are recorded as expenditures at the time of purchase. Inventories are not material in total to the government-wide and fund financial statements, and therefore are not reported. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 60 Annual Comprehensive Financial Report 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. H. Capital Assets Government-Wide and Proprietary Fund Financial Statements Capital assets, which include land, land improvements, right to use leased buildings, 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. Intangible right to use leased assets are recorded at the net present value of non-cancellable lease payments at inception. Donated capital assets, donated works of art, historical treasures and similar assets; and capital assets received in service concession arrangements are recorded at acquisition value. All purchases and construction costs in excess of $25,000 are capitalized at the date of acquisition or construction, respectively, with expected useful lives of greater than one year. This excludes vehicles, which will all be capitalized. Capital assets (excluding land and construction in progress) are depreciated on a straight-line basis. The estimated useful lives of capital assets are as follows: Estimated Useful Life Capital Asset Type (in years) Land improvements…………… 20 - 30 Right to use leased buildings… 20 Buildings and improvements… 40 Equipment……………………… 5 - 10 Vehicles………………………… 5 - 15 Infrastructure…………………… 15 - 80 The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized and are treated as expenses when incurred. Improvements are capitalized. Governmental Fund Financial Statements Capital asset costs are recorded as expenditures in the acquiring fund in the year of the purchase. I. Deferred Outflows/Inflows of Resources Government-Wide Financial Statements (Net Position) In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net assets that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The City reported deferred outflows related to pensions and other postemployment benefits under this category. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 61 Annual Comprehensive Financial Report 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 assets that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City reported deferred inflows related to pensions and other postemployment benefits under this category. Governmental Fund Financial Statements In addition to assets and liabilities, the balance sheet will sometimes report separate sections for deferred inflows and outflows of resources. These separate financial statement elements represent either an acquisition or consumption of fund balance that applies to a future period(s) and so will not be recognized until that time. The City has recorded unavailable revenue as deferred inflows of resources in the governmental funds balance sheet. Unavailable revenue is recognized as revenue in the conversion to the government-wide (full accrual) financial statements. The governmental funds did not have any deferred outflows of resources at year-end. J. Interfund Receivables and Payables During the course of its operations, transactions occur between and within individual funds that may result in amounts owed between funds. Government-Wide Financial Statements Transactions of a buyer/seller nature between and within governmental funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of net position as “internal balances”. Fund Financial Statements Transactions of a buyer/seller nature between and within funds are not eliminated from the individual fund statements. Receivables and payables resulting from these transactions are classified as “Due from other funds” or “Due to other funds” on the balance sheet. K. Interfund Transfers During the course of its operations, resources are permanently reallocated between and within funds. These transactions are reported as transfers in and transfers out. Government-Wide Financial Statements Transfers between and within governmental funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business- type activities are reported in the statement of activities as “Transfers, net”. Fund Financial Statements Transfers between and within funds are not eliminated from the individual fund statements and are reported as transfers in and transfers out. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 62 Annual Comprehensive Financial Report L. Net Position and Fund Equity Government-Wide Financial Statements (Net position) Net position reported as “net investment in capital assets” includes capital assets, net of accumulated depreciation, less the principal balance of outstanding debt used to acquire capital assets. Unspent proceeds of capital related debt are not considered to be capital assets. Outstanding debt related to future reimbursements from the state’s school building program is not considered to be capital related debt. Net position is reported as restricted when amounts are not available for appropriation or are legally restricted by outside parties for a specific future use. Net position has been “restricted for” the following: “Loans” represents community development outstanding loan receivable balances which are funded through the Community Development Block Grant program. The loan repayments are subject to various restrictions which are imposed by the grantors. “Permanent funds - expendable” represents the amount of realized and unrealized investment earnings of donor restricted trusts. The donor restrictions and trustee policies only allow the trustees to approve spending of the realized investment earnings that support governmental programs. “Permanent funds - nonexpendable” represents the endowment portion of donor restricted trusts that support governmental programs. “Grants and gifts” represents assets that have restrictions placed on them from outside parties. “Community preservation” amounts held for uses restricted by law for community preservation purposes. Sometimes the City will fund outlays for a particular purpose from both restricted restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted – net position to have been depleted before unrestricted – net position is applied. Fund Financial Statements (Fund Balances) Governmental fund equity is classified as fund balance. Fund balance is further classified as follows: “Nonspendable” fund balance includes amounts that cannot be spent because they are either not in spendable form or they are legally or contractually required to be maintained intact. “Restricted” fund balance includes amounts subject to constraints placed on the use of resources that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or that are imposed by law through constitutional provisions or enabling legislation. “Committed” fund balance includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority. An order of the City Council is the highest level of decision-making authority that can commit or rescind funds for a specific purpose. Once voted, the limitation imposed by the order remains in place until the funds are used for their intended purpose or an order is taken to rescind the commitment. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 63 Annual Comprehensive Financial Report “Assigned” fund balance includes amounts that are constrained by the City’s intent to be used for specific purposes but are neither restricted nor committed. The City Finance Director has the authority to assign fund balance. Funds are assigned when the City has an obligation to purchase goods or services from the current years’ appropriation. “Unassigned” fund balance includes the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund. The general fund is the only fund that reports a positive unassigned fund balance amount. 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. Bonds payable are reported net of the applicable bond premium or discount. 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. Intangible Right to Use Lease Liability Government-Wide and Proprietary Fund Financial Statements Intangible right to use lease liabilities are reported at the present value of their future minimum lease payments. Lease payments are reported as reductions of the lease liability and as interest expense during the lease term. Governmental Fund Financial Statements The present value of the future minimum lease payments are reported within the governmental funds as other financing sources and a capital expenditure. Lease payments are reported as debt service expenditures. O. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of both the Salem Contributory Retirement System and the Massachusetts Teachers’ Retirement System and additions to/deductions from the System’s fiduciary net position have been determined on the same basis as they are ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 64 Annual Comprehensive Financial Report reported by the Systems. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. P. 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. Q. 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. R. Appropriation and Fund Deficits A deficits exist at June 30, 2022, in the other special revenue fund. This deficit will be funded by departmental revenues and available fund balance. Actual expenditures exceeded appropriations for snow and ice removal and state and county charges by $51,000, and $63,000, respectively. Massachusetts General Law allows communities to overspend their snow and ice removal appropriation; however, the deficit must be raised in the subsequent year. State and county assessments are not required to be raised. In addition, the City exceeded the appropriations for Medicare by $25,000, this deficit will be raised in the subsequent year. S. Use of Estimates Government-Wide and Fund Financial Statements The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the year. Actual results could vary from estimates that were used. T. Total Column Government-Wide Financial Statements The total column presented on the government-wide financial statements represents consolidated financial information. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 65 Annual Comprehensive Financial Report Fund Financial Statements The total column on the fund financial statements is presented only to facilitate financial analysis. Data in this column is not the equivalent of consolidated financial information. NOTE 2 – CASH AND INVESTMENTS A cash and investment pool is maintained that is available for use by all funds. Each fund type's portion of this pool is displayed on the balance sheet as "Cash and Cash Equivalents". The deposits and investments of the trust funds are held separately from those of other funds. Statutes authorize the investment in obligations of the U.S. Treasury, agencies, and instrumentalities, certificates of deposit, repurchase agreements, money market accounts, bank deposits and the State Treasurer's Investment Pool (Pool). The Treasurer and Trust Fund Commission may also invest trust funds in securities, other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth; provided, that not more than 15% of any trust fund may be invested in bank stocks and 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. There are no limitations or restrictions on participant withdrawals, i.e. no redemption notice periods, maximum transaction amounts, ability of pool to impose liquidity fees or redemption gates. The City participates in MMDT which is unrated. MMDT maintains a cash portfolio with weighted average maturity of approximately 27 days. The fair value of the position of 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, 2022, $4,843,161, from the OPEB Trust Fund is included within the City’s cash and investment 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. The System participates in PRIT which is unrated. The effective weighted duration rate for PRIT investments ranged from 1.33 to 15.12 years. There is no credit quality rating for the fund. Custodial Credit Risk – Deposits In the case of deposits, this is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. The City does not have a formal deposit policy for custodial credit risk. At year-end, the carrying amount of deposits totaled $106,454,076 and the bank balance totaled $108,372,765. Of the bank balance, $2,121,210 was covered by Federal Depository Insurance, $39,459,332 was covered by the Depositors Insurance Fund, ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 66 Annual Comprehensive Financial Report $33,502,652 was collateralized and $33,289,571 was exposed to custodial credit risk because it was uninsured and uncollateralized. The System does not have a formal deposit policy for custodial credit risk. At year-end, the carrying amount of deposits totaled $228,241 and the bank balance totaled $477,108. The entire bank balance was covered by Federal Depository Insurance. Investments As of June 30, 2022, the City had the following investments: Investment Type Fair value Under 1 Year 1-5 Years 6-10 Years Debt securities: U.S. treasury $ 3,342,659 $ 1,321,899 $ 2,020,760 $ - Government sponsored enterprises…… 631,518 250,506 381,012 - Corporate 6,952,977 612,859 6,340,118 - Total debt 10,927,154 $ 2,185,264 $ 8,741,890 $ - Other investments: Equity 7,626,836 Equity mutual 3,370,840 Fixed 5,968,889 Money market mutual funds…………… 927,248 MMDT - Cash portfolio………………… 79,334 Total $ 28,900,301 Maturity As of December 31, 2021, the System had the following investments: Investment Type Fair Value Repurchase agreement……………………………$ 4,037,884 Pension Reserve Investment Trust (PRIT)……… 272,832,723 Total $ 276,870,607 Custodial Credit Risk – Investments For an investment, this is the risk that, in the event of a failure by the counterparty, the City will not be able to recover the value of its investments or collateral security that are in the possession of an outside party. The Citywide investment policy, as well as the investment policy specifically for OPEB funds, addresses custodial credit risk by requiring all securities not held directly by the City to be held in the City’s name and tax identification number by a third-party custodian approved by the Treasurer and evidenced by safekeeping receipts showing individual CUSIP numbers for each security. The City’s investments in U.S. treasury notes, government sponsored enterprises, corporate bonds and equity securities are covered by this policy. The System’s investments are not subject to custodial credit risk as all of the securities are insured or registered and held by its agents in the name of the Salem Contributory Retirement Board. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 67 Annual Comprehensive Financial Report Interest Rate Risk The City has a formal investment policy limiting investment maturities up to one year as a means of managing its exposure to fair value losses arising from increasing interest rates. The System does not have a formal investment policy related to interest rate risk. Credit Risk The City has not adopted a formal policy related to Credit Risk. The investment ratings are as follows: Quality Rating Government Sponsored Enterprises Corporate Bonds $ - $ 622,627 631,518 - - 1,304,713 - 610,291 - 2,287,725 - 2,127,621 Total………………… $ 631,518 $ 6,952,977 The System has not adopted a formal policy related to Credit Risk. The repurchase agreement and PRIT investments are unrated. Concentration of Credit Risk The City restricts investments to no more than 5% in any one issuer. The City did not have more than 5% of its investments in any one individual security. The System places no limit on the amount the government may invest in any one issuer. The System did not have more than 5% of its investments in any one individual security. Fair Value Measurement The City holds investments that are measured at fair value on a recurring basis. Because investing is not a core part of the City’s mission, the City determines that the disclosures related to these investments only need to be disaggregated by major type. The City chooses a tabular format for disclosing the levels within the fair value hierarchy. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 68 Annual Comprehensive Financial Report The following table presents financial assets at June 30, 2022, that the City measures fair value on a recurring basis, by level, within the fair value hierarchy: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable June 30, Assets Inputs Inputs Investment Type 2022 (Level 1) (Level 2) (Level 3) Investments measured at fair value: Debt securities: U.S. treasury $ 3,342,659 $ 3,342,659 $ - $ - Government sponsored enterprises………… 631,518 631,518 - - Corporate 6,952,977 - 6,952,977 - Total debt 10,927,154 3,974,177 6,952,977 - Other investments: Equity 7,626,836 7,626,836 - - Equity mutual 3,370,840 3,370,840 - - Fixed 5,968,889 5,968,889 - - Money market mutual funds………………… 927,248 927,248 - - Total other 17,893,813 17,893,813 - - Total investments measured at fair value……… 28,820,967 $ 21,867,990 $ 6,952,977 $ - Investments measured at amortized cost: MMDT - Cash portfolio………………………… 79,334 Total investments………………………………… $ 28,900,301 Fair Value Measurements Using U.S. treasury notes, government sponsored enterprises, equity securities, equity mutual funds, fixed income, and money market mutual funds classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Corporate bonds classified in Level 2 of the fair value hierarchy are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices. MMDT investments are valued at amortized cost. Under the amortized cost method, an investment is valued initially at its cost and adjusted for the amount of interest income accrued each day over the term of the investment to account for any difference between the initial cost and the amount payable at its maturity. If amortized cost is determined not to approximate fair value, the value of the portfolio securities will be determined under procedures established by the Advisor. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 69 Annual Comprehensive Financial Report The System holds significant amounts of investments that are measured at fair value on a recurring basis. Because investing is a key part of the System’s activities, the plan shows greater disaggregation in its disclosures. The System chooses a tabular format for disclosing the levels within the fair value hierarchy. The following table presents financial assets at December 31, 2021, that the System measures fair value on a recurring basis, by level, within the fair value hierarchy: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable December 31, Assets Inputs Inputs Investment Type 2021 (Level 1) (Level 2) (Level 3) Investments measured at fair value: Repurchase agreement…………………………$ 4,037,884 $ - $ - $ 4,037,884 Investments measured at net asset value: Pension Reserve Investment Trust (PRIT)…… 272,832,723 Total investments……………………………………$ 276,870,607 Fair Value Measurements Using Repurchase agreements classified in level 3 are valued using either a discounted cash flow or market comparable company’s technique. PRIT Investments are valued using the net asset value (NAV) method. The System does not have the ability to control any of the investment decisions relative to its funds in PRIT. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 70 Annual Comprehensive Financial Report NOTE 3 – RECEIVABLES At June 30, 2022, receivables for the individual major governmental funds and non-major governmental funds in the aggregate, including the applicable allowances for uncollectible accounts, were as follows: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Real estate and personal property taxes… $ 495,631 $ - $ 495,631 Tax 2,026,997 - 2,026,997 Community preservation fund surcharge…… 5,760 - 5,760 Motor vehicle and other excise taxes……… 944,871 (285,600) 659,271 Departmental and 542,015 (84,227) 457,788 Intergovernmental…………………………… 4,055,585 - 4,055,585 Community preservation state share……… 237,000 - 237,000 97,752 - 97,752 $ 8,405,611 $ (369,827) $ 8,035,784 At June 30, 2022, receivables for the water and sewer and trash enterprise funds consisted of the following: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Water and sewer user fees……… $ 3,427,954 $ - $ 3,427,954 Trash user 54,175 - 54,175 $ 3,482,129 $ - $ 3,482,129 Governmental funds report deferred inflows of resources in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. At the end of the current year, the various components of deferred inflows of resources for unavailable revenue reported in the governmental funds were as follows: Other General Governmental Fund Funds Total Receivables: Real estate and personal property taxes…………$ 174,121 $ - $ 174,121 Tax 2,026,997 - 2,026,997 Community preservation fund surcharge………… - 5,760 5,760 Motor vehicle and other excise taxes…………… 659,271 - 659,271 Departmental and - 457,788 457,788 Intergovernmental - highway improvements……… - 95,376 95,376 Community preservation state share……………… - 237,000 237,000 - 97,752 97,752 $ 2,860,389 $ 893,676 $ 3,754,065 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 71 Annual Comprehensive Financial Report NOTE 4 – CAPITAL ASSETS Capital asset activity for the year ended June 30, 2022, was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: $ 7,930,619 $ - $ - $ 7,930,619 Construction in progress……………………………… 18,288,207 7,119,595 (15,920,107) 9,487,695 Total capital assets not being depreciated……… 26,218,826 7,119,595 (15,920,107) 17,418,314 Capital assets being depreciated: Land improvements…………………………………… 17,828,325 18,104,504 (442,368) 35,490,461 Right to use leased - 5,016,552 - 5,016,552 Buildings and improvements………………………… 249,925,750 2,531,514 - 252,457,264 17,338,901 1,080,721 (2,125,051) 16,294,571 5,837,155 898,772 (229,208) 6,506,719 Infrastructure…………………………………………… 86,314,926 4,063,109 - 90,378,035 Total capital assets being depreciated………… 377,245,057 31,695,172 (2,796,627) 406,143,602 Less accumulated depreciation for: Land improvements…………………………………… (7,271,929) (1,100,551) 442,368 (7,930,112) Right to use leased - (313,535) - (313,535) Buildings and improvements………………………… (104,309,534) (5,910,097) - (110,219,631) (12,096,719) (993,336) 2,125,051 (10,965,004) (4,078,219) (610,715) 229,208 (4,459,726) Infrastructure…………………………………………… (31,128,304) (2,627,538) - (33,755,842) Total accumulated depreciation………………… (158,884,705) (11,555,772) 2,796,627 (167,643,850) Total capital assets being depreciated, 218,360,352 20,139,400 - 238,499,752 Total governmental activities capital assets, net……… $ 244,579,178 $ 27,258,995 $ (15,920,107) $ 255,918,066 Beginning Ending Balance Increases Decreases Balance Water and Sewer: Capital assets not being depreciated: $ 110,141 $ - $ - $ 110,141 Construction in progress……………………………… 1,858,338 1,919,209 (1,858,338) 1,919,209 Total capital assets not being depreciated…… 1,968,479 1,919,209 (1,858,338) 2,029,350 Capital assets being depreciated: Buildings and improvements………………………… 267,372 - - 267,372 834,280 - - 834,280 Infrastructure…………………………………………… 62,445,734 4,097,139 (349,000) 66,193,873 Total capital assets being depreciated………… 63,547,386 4,097,139 (349,000) 67,295,525 Less accumulated depreciation for: Buildings and improvements………………………… (120,796) (10,234) - (131,030) (363,221) (43,964) - (407,185) Infrastructure…………………………………………… (15,470,706) (1,301,846) 349,000 (16,423,552) Total accumulated depreciation………………… (15,954,723) (1,356,044) 349,000 (16,961,767) Total capital assets being depreciated, 47,592,663 2,741,095 - 50,333,758 Total water and sewer activities capital assets, net……$ 49,561,142 $ 4,660,304 $ (1,858,338) $ 52,363,108 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 72 Annual Comprehensive Financial Report In the fiduciary activities, the Retirement System owns a condominium, which is being depreciated on a straight- line basis over 40 years. The historical cost of the condominium was $125,000; accumulated depreciation through December 31, 2021, totals $52,344, for a net book value of $72,656. Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General government……………………………………$ 1,424,232 Public 790,383 5,289,756 Public 3,244,051 Health and human services…………………………… 2,599 Culture and recreation………………………………… 804,751 Total depreciation expense - governmental activities…$ 11,555,772 Business-Type Activities: Water and 1,356,044 Fiduciary Activities: Pension $ 3,125 NOTE 5 – INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS The City’s interfund balances at June 30, 2022 consisted of $1,349,180 in balances due to the general fund from the nonmajor governmental funds representing interfund borrowings for cash flow purposes. Interfund transfers for the year ended June 30, 2022, are summarized as follows: Capital Nonmajor Trash General Improvement Governmental Enterprise Transfers Out: Fund Fund Funds Fund Total General $ - $ 3,912,057 $ 908,939 $ 3,062,519 $ 7,883,515 Nonmajor Governmental Funds……… 1,541,541 - - - 1,541,541 1,541,541 $ 3,912,057 $ 908,939 $ 3,062,519 $ 9,425,056 Transfers In: Transfer from general fund to capital improvement fund to finance capital projects from free cash; to nonmajor governmental funds to fund the 400th anniversary fund and transit enhancement fund. Transfer to trash enterprise fund for the City's subsidized portion. Transfer from nonmajor governmental funds, receipts reserved for appropriation, to the general fund to reduce amounts raised by taxation and for supplemental appropriations. In 2022, the general fund transferred $890,000 to the water and sewer enterprise fund for capital outlay. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 73 Annual Comprehensive Financial Report NOTE 6 – LEASE LIABILITIES Change in Accounting Principle During the year 2022, the City adopted Governmental Accounting Standards Board (GASB) Statement No. 87, Leases. This statement redefines a lease as a right to use another entity’s asset over a definitive period of time and required the City to record the leases that were previously classified as operating leases where only footnote disclosure was required. No restatement of beginning net position was required. Leases The City has entered into a facility lease agreement for the City Hall Annex. The cost of the lease for the year ended June 30, 2022 totaled $425,000, and is reported as debt service on leases in the general fund. A corresponding right to use lease building in the amount of the present value of the future lease payments has been added to capital assets due to the implementation of GASB Statement No. 87. The City has also entered into lease agreements as lessee for financing the acquisition of various vehicles, equipment, and infrastructure for governmental activities. These lease agreements have been recorded at the present value of their future minimum lease payments and have been recorded as long-term debt in accordance with GASB 87. The assets acquired through leases were as follows: Governmental Activities Asset: Right to use leased $ 5,016,552 Less: accumulated depreciation……… (313,535) 4,703,017 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2022, were as follows: Years ending June 30: Principal Interest Total 237,806 $ 187,194 $ 425,000 247,495 177,505 425,000 257,578 167,422 425,000 268,072 156,928 425,000 278,994 146,006 425,000 290,360 134,640 425,000 302,190 122,810 425,000 314,502 110,498 425,000 327,315 97,685 425,000 340,651 84,349 425,000 354,529 70,471 425,000 368,973 56,027 425,000 384,006 40,994 425,000 399,651 25,349 425,000 415,933 9,067 425,000 $ 4,788,055 $ 1,586,945 $ 6,375,000 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 74 Annual Comprehensive Financial Report NOTE 7 – SHORT-TERM FINANCING Short-term debt may be authorized and issued to fund the following:  Current operating costs prior to the collection of revenues through issuance of revenue or tax anticipation notes (RANS or TANS).  Capital project costs and other approved expenditures incurred prior to obtaining permanent financing through issuance of bond anticipation notes (BANS), state aid anticipation notes (SAANS) or grant anticipation notes (GANS). Short-term loans are general obligations and carry maturity dates that are limited by statute. Interest expenditures and expenses for short-term borrowings are accounted for in the general fund and enterprise funds, respectively. Details related to the short-term debt activity for the year ended June 30, 2022, are as follows: Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose Due Date 2021 Issued Redeemed 2022 Governmental Funds: BAN General Obligation…………… 3.00% 11/18/22 $ - $ 9,327,262 $ (9,327,262) $ - Water and Sewer Enterprise Fund: BAN General Obligation…………… 3.00% 11/18/22 $ - $ 4,056,523 $ (4,056,523) $ - ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 75 Annual Comprehensive 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, 2022, and the debt service requirements are reported in the following tables. Long-term Debt Schedule – Governmental Activities Original Interest Outstanding Maturities Loan Rate at June 30, Project Through Amount 2022 Capital Financing: LED Lights Capital 2023 $ 1,240,594 5.13 $ 177,232 Pump Truck Capital 2024 559,960 2.59 169,380 Vehicle Capital 2023 600,346 3.30 163,873 Total Capital 510,485 General Obligation Bonds Payable: Municipal Purpose Bonds of 2013……………… 2043 . 15,143,598 2.63-4.00 11,265,000 Municipal Purpose Refunding Bonds of 2014…… 2025 2,509,500 3.00-4.00 475,000 Municipal Purpose Bonds of 2014……………… 2034 6,680,000 3.00-4.00 4,125,000 Municipal Purpose Bonds of 2015……………… 2035 4,860,000 2.50-4.00 2,405,000 Municipal Purpose Bonds of 2016……………… 2036 5,845,000 2.50-4.00 2,296,796 Municipal Purpose Bonds of 2017……………… 2036 5,707,000 3.00-4.00 2,335,000 Municipal Purpose Refunding Bonds of 2017…… 2037 3,312,000 3.00-4.00 1,862,000 Municipal Purpose Bonds of 2018……………… 2038 7,349,229 3.13-5.00 3,755,000 Municipal Purpose Bonds of 2019……………… 2049 13,146,358 3.00-5.00 11,925,000 Municipal Purpose Bonds of 2020……………… 2050 6,937,000 2.00-5.00 6,730,000 Municipal Purpose Bonds of 2021……………… 2051 21,723,827 2.00-5.00 21,373,827 Municipal Purpose Refunding Bonds of 2021…… 2026 629,880 5.00 629,880 Municipal Purpose Bonds of 2043 9,327,262 4.00-5.00 9,327,262 Total General Obligation Bonds 78,504,765 Add: Unamortized premium on 5,062,802 Total Long-term Debt, $ 84,078,052 The City implemented GASB Statement #87, Leases for the year ended June 30, 2022. Several capital leases previously reported as long-term leases have been reclassified as capital financing long-term debt this year. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 76 Annual Comprehensive Financial Report Debt service requirements for governmental long-term debt payable in future years are as follows: Year Principal Interest Total 2023……………$ 4,898,301 $ 2,672,412 $ 7,570,713 2024…………… 5,106,472 2,223,528 7,330,000 2025…………… 5,222,878 2,017,478 7,240,356 2026…………… 4,828,838 1,830,150 6,658,988 2027…………… 4,609,937 1,664,201 6,274,138 2028…………… 4,241,762 1,503,470 5,745,232 2029…………… 3,678,302 1,348,214 5,026,516 2030…………… 3,671,532 1,206,638 4,878,170 2031…………… 3,676,532 1,069,788 4,746,320 2032…………… 3,620,647 938,914 4,559,561 2033…………… 3,685,647 818,020 4,503,667 2034…………… 3,474,320 704,722 4,179,042 2035…………… 3,086,665 617,214 3,703,879 2036…………… 2,564,010 554,558 3,118,568 2037…………… 2,188,095 503,902 2,691,997 2038…………… 2,068,715 456,694 2,525,409 2039…………… 2,067,697 408,616 2,476,313 2040…………… 2,020,042 360,788 2,380,830 2041…………… 1,994,600 314,481 2,309,081 2042…………… 2,033,272 267,932 2,301,204 2043…………… 1,866,501 222,987 2,089,488 2044…………… 990,000 189,134 1,179,134 2045…………… 1,015,000 163,792 1,178,792 2046…………… 1,040,000 137,795 1,177,795 2047…………… 1,055,000 111,206 1,166,206 2048…………… 1,080,000 83,591 1,163,591 2049…………… 1,110,000 54,828 1,164,828 2050…………… 860,000 29,502 889,502 2051…………… 750,000 9,374 759,374 Total……………$ 78,504,765 $ 22,483,929 $ 100,988,694 General Obligation Bonds Payable: Year Principal Interest Total 2023……………$ 424,720 $ 13,896 $ 438,616 2024…………… 85,765 2,207 87,972 Total……………$ 510,485 $ 16,103 $ 526,588 Capital Financing: In order to take advantage of favorable interest rates, the City issued $3.5 million of general obligation refunding bonds, which included a premium of $407,000, on November 18, 2021. The proceeds of the refunding bonds were used to complete a current refunding of $3.9 million of existing debt. As a result of the transaction, the refunded bonds were paid down on the call date and the liability has been removed from the statement of net position. The transaction resulted in an economic gain of $353,000 and a reduction of $374,000 in future debt service payments. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 77 Annual Comprehensive Financial Report Long-term Debt Schedule – Water and Sewer Enterprise Fund Original Interest Outstanding Maturities Loan Rate at June 30, Project Through Amount 2022 Direct Borrowings Payable: Water Project - 2027 $ 2,330,656 2.00 $ 673,898 General Obligation Bonds Payable: Water Improvements of 2033 1,412,402 2.63-4.00 885,000 Sewer Improvements of 2033 1,435,000 2.63-4.00 875,000 Sewer Improvements of 2034 3,900,000 3.00-4.00 2,675,000 Sewer Improvements of 2035 2,300,000 2.50-4.00 1,495,000 Sewer Improvements of 2036 2,650,000 2.00-5.00 1,810,000 Water Improvements of 2025 3,600,000 2.00-5.00 1,180,000 Sewer Improvements of 2036 2,650,000 3.00-4.00 2,165,000 Water Improvements of 2036 4,095,000 3.00-4.00 2,630,000 Water Refunding Bonds of 2028 1,463,000 4.00 868,000 Water Improvements of 2048 2,660,000 3.13-5.00 2,345,000 Sewer Improvements of 2048 4,890,771 3.13-5.00 4,405,000 Sewer Improvements of 2037 2,260,269 2.00-5.00 1,628,204 Water & Sewer Improvements of 2019……………… 2050 7,649,067 3.00-5.00 7,270,000 Water & Sewer Improvements of 2020……………… 2050 1,158,000 2.00-5.00 1,120,000 Water & Sewer Improvements of 2021……………… 2051 4,108,383 2.00-5.00 4,108,383 Water & Sewer Refunding Bonds of 2021………… 2030 2,897,910 5.00 2,897,910 Water & Sewer Improvements of 2022……………… 2043 4,056,523 4.00-5.00 4,056,523 Subtotal General Obligation Bonds 42,414,020 Add: Unamortized premium on 2,458,444 Total Long-term Debt, 45,546,362 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 78 Annual Comprehensive Financial Report Debt service requirements for the water and sewer enterprise fund general obligation and direct borrowings payable in future years are as follows: Year Principal Interest Total 2023……………$ 2,676,699 $ 1,476,431 $ 4,153,130 2024…………… 2,840,937 1,548,988 4,389,925 2025…………… 2,961,165 1,324,104 4,285,269 2026…………… 2,626,597 1,200,602 3,827,199 2027…………… 2,302,266 1,094,482 3,396,748 2028…………… 2,230,604 998,556 3,229,160 2029…………… 2,092,672 905,900 2,998,572 2030…………… 1,982,604 820,116 2,802,720 2031…………… 2,017,334 739,720 2,757,054 2032…………… 1,892,266 665,533 2,557,799 2033…………… 1,897,469 595,497 2,492,966 2034…………… 1,797,401 527,627 2,325,028 2035…………… 1,547,198 469,780 2,016,978 2036…………… 1,392,198 423,246 1,815,444 2037…………… 1,232,026 382,886 1,614,912 2038…………… 901,890 349,656 1,251,546 2039…………… 911,823 320,630 1,232,453 2040…………… 951,620 290,115 1,241,735 2041…………… 961,552 257,280 1,218,832 2042…………… 996,417 223,124 1,219,541 2043…………… 1,016,282 187,383 1,203,665 2044…………… 780,000 156,674 936,674 2045…………… 810,000 131,928 941,928 2046…………… 830,000 106,435 936,435 2047…………… 855,000 78,874 933,874 2048…………… 890,000 50,303 940,303 2049…………… 515,000 20,678 535,678 2050…………… 355,000 8,590 363,590 150,000 1,879 151,879 Total……………$ 42,414,020 $ 15,357,017 $ 57,771,037 General Obligation Bonds Payable: Year Principal Interest Total 2023……………$ 129,443 $ 12,184 $ 141,627 2024…………… 132,058 9,569 141,627 2025…………… 134,726 6,901 141,627 2026…………… 137,447 4,179 141,626 2027…………… 140,224 1,402 141,626 Total……………$ 673,898 $ 34,235 $ 708,133 Direct Borrowings Payable: ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 79 Annual Comprehensive Financial Report The City is subject to various debt limits by statute and may issue additional general obligation debt under the normal debt limit. At June 30, 2022, the City had the following authorized and unissued debt: Purpose Amount General Government Capital Projects……………$ 12,225,630 Water and Sewer Capital Projects……………… 16,004,623 Collins School Improvement……………………… 4,360,410 Museum Place Parking 14,701,000 Transfer 1,530,673 Bentley Academy Boiler Replacement………… 688,860 School 1,100,094 50,611,290 Changes in Long-term Liabilities During the year ended June 30, 2022, the following changes occurred in long-term liabilities: Bonds and Bonds and Beginning Notes Notes Other Other Ending Due Within Balance Issued Redeemed Increases Decreases Balance One Year Governmental Activities: Long-term general obligation bonds payable……$ 73,613,747 $ 9,957,142 $ (5,066,124) $ - $ - $ 78,504,765 $ 4,898,356 Long-term capital 1,114,179 - (603,694) - - 510,485 424,720 Add: Unamortized premium on bonds……… 5,529,916 219,015 (686,129) - - 5,062,802 727,263 Total long-term debt payable…………………… 80,257,842 10,176,157 (6,355,947) - - 84,078,052 6,050,339 Right to use - - - 5,016,552 (228,497) 4,788,055 237,806 Landfill 2,250,000 - - - - 2,250,000 1,125,000 Compensated absences………………………… 9,731,759 - - 2,375,376 (2,288,566) 9,818,569 2,291,535 Workers' compensation………………………… 1,617,466 - - 234,545 (179,848) 1,672,163 182,124 Net pension liability……………………………… 95,099,029 - - 7,369,138 (30,645,112) 71,823,055 - Net other postemployment benefits liability…… 164,275,663 - - 1,383,172 (26,008,553) 139,650,282 - Total governmental activity long-term liabilities…………………………… $ 353,231,759 $ 10,176,157 $ (6,355,947) $ 16,378,783 $ (59,350,576) $ 314,080,176 $ 9,886,804 Business-Type Activities: Long-term general obligation bonds payable……$ 41,459,241 $ 6,954,433 $ (5,848,876) $ - $ $ 42,564,798 $ 2,731,142 Long-term direct borrowings payable…………… 650,000 - (126,880) - - 523,120 75,000 Add: Unamortized premium on bonds……… 2,278,950 422,671 (243,177) - - 2,458,444 347,799 Total long-term debt payable…………………… 44,388,191 7,377,104 (6,218,933) - - 45,546,362 3,153,941 Compensated absences………………………… 36,660 - - 30,035 (33,195) 33,500 8,968 Net pension liability……………………………… 3,042,384 - - 220,088 (1,117,396) 2,145,076 - Net other postemployment benefits liability…… 2,214,317 - - 228,030 (402,002) 2,040,345 - . Total business-type activity long-term liabilities…………………………… $ 49,681,552 $ 7,377,104 $ (6,218,933) $ 478,153 $ (1,552,593) $ 49,765,283 $ 3,162,909 Long-term liabilities related to both governmental and business-type activities are normally paid from the funds reporting payroll and related expenditures, which consist of the general fund and the sewer and water and trash enterprise funds, except for debt incurred by the community preservation act fund. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 80 Annual Comprehensive Financial Report NOTE 9 – GOVERNMENTAL FUND BALANCE CLASSIFICATIONS The City classifies fund balances according to the constraints imposed on the use of the resources. There are two major types of fund balances, which are nonspendable and spendable. Nonspendable fund balances are balances that cannot be spent because they are not expected to be converted to cash or they are legally or contractually required to remain intact. Examples of this classification are prepaid items, inventories, and principal (corpus) of an endowment fund. The City has reported principal portions of endowment funds as nonspendable. Spendable fund balances are classified based on a hierarchy of spending constraints.  Restricted: fund balances that are constrained by external parties, constitutional provisions, or enabling legislation.  Committed: fund balances that contain self-imposed constraints of the City from its highest level of decision-making authority.  Assigned: fund balances that contain self-imposed constraints of the City to be used for a particular purpose.  Unassigned: fund balance of the general fund that is not constrained for any particular purpose and the deficit fund balances for other funds that would otherwise be restricted, committed, or assigned. The City’s spending policy is to spend restricted fund balance first, followed by committed, assigned and unassigned fund balance. Most governmental funds are designated for one purpose at the time of their creation. Therefore, any expenditure from the fund will be allocated to the applicable fund balance classifications in the order of the aforementioned spending policy. The general fund and certain other funds may have more than one purpose. Massachusetts General Law Ch.40 §5B allows for the establishment of Stabilization funds for one or more different purposes. The creation of a fund requires a two-thirds vote of the legislative body and must clearly define the purpose of the fund. Any change to the purpose of the fund along with any additions to or appropriations from the fund requires a two-thirds vote of the legislative body. At year end the balances of the general stabilization fund and the retirement stabilization fund totaled $14.1 million, $453,000, respectively, and are reported as unassigned fund balance within the general fund. In fiscal year 2022, the City established the special education stabilization fund which totaled $550,000 and is reported as committed fund balance within the general fund. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 81 Annual Comprehensive Financial Report As of June 30, 2022, the governmental fund balances consisted of the following: Community Capital Nonmajor Total Preservation Improvement Governmental Governmental General Fund Fund Funds Funds Fund Balances: Nonspendable: Permanent fund principal………………………………$ - $ - $ - $ 1,894,529 $ 1,894,529 Restricted for: Community preservation……………………………… - 2,042,182 - - 2,042,182 Capital improvement…………………………………… - - 11,545,145 - 11,545,145 School - - - 3,488,133 3,488,133 City - - - 4,387,470 4,387,470 School - - - 1,240,438 1,240,438 Donations and - - - 762,232 762,232 Receipts - - - 2,889,762 2,889,762 City revolving - - - 2,933,601 2,933,601 School revolving accounts……………………………… - - - 503,610 503,610 City wharf - - - 519,681 519,681 Other - - - 188,475 188,475 - - - 3,477,757 3,477,757 Human - - - 1,617,812 1,617,812 Other permanent - - - 1,340,660 1,340,660 Committed to: Special education stabilization 550,000 - - - 550,000 Assigned to: City 10,605 - - - 10,605 36,110 - - - 36,110 Financing/Auditing……………………………………… 47,116 - - - 47,116 9,615 - - - 9,615 31 - - - 31 1,330 - - - 1,330 14,118 - - - 14,118 Human 436 - - - 436 Data 45,954 - - - 45,954 City clerk record 2,044 - - - 2,044 Sustainability and resiliency department…............. 110 - - - 110 Planning department…………………………………… 34 - - - 34 Building maintenance………………………………… 9,702 - - - 9,702 Market and 14,027 - - - 14,027 95,905 - - - 95,905 21,085 - - - 21,085 Building, plumbing, gas 8,293 - - - 8,293 Electrical inspection and maintenance……………… 4,743 - - - 4,743 Harbormaster…………………………………………… 2,271 - - - 2,271 2,518,824 - - - 2,518,824 Public 171,774 - - - 171,774 15,868 - - - 15,868 Parking 27,132 - - - 27,132 Health and human services…………………………… 6,602 - - - 6,602 Parks and recreation…………………………………… 28,061 - - - 28,061 Golf 17,962 - - - 17,962 Witch 29,431 - - - 29,431 Other culture and recreation…………………………… 12,357 - - - 12,357 Workmen's 525 - - - 525 Unemployment 6,212 - - - 6,212 31,377,365 - - (420,190) 30,957,175 Total Fund $ 35,085,642 $ 2,042,182 $ 11,545,145 $ 24,823,970 $ 73,496,939 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 82 Annual Comprehensive Financial Report NOTE 10 – RISK FINANCING The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the City carries commercial insurance. The amount of claim settlements has not exceeded insurance coverage in any of the previous three years. The City participates in premium-based health care plans for its active employees and retirees through the State’s Group Insurance Commission. Workers’ Compensation Workers’ compensation claims incurred prior to July 1, 2008, are administered by the City and are funded on a pay-as-you-go basis from annual appropriations. The estimated future workers’ compensation liability is based on history and injury type. At June 30, 2022, the amount of the liability for workers’ compensation claims totaled $1,672,163. Changes in the reported liability since July 1, 2020, are as follows: Current Year Balance at Claims and Beginning of Changes in Claims Balance at Current Year Estimate Payments Year-End Portion 2021……$ 1,590,768 $ 193,961 $ (167,263) $ 1,617,466 $ 169,438 2022…… 1,617,466 234,545 (179,848) 1,672,163 182,124 The City participates in a premium based workers’ compensation plan for active employees for claims incurred on or after July 1, 2008. The amount of claim settlements has not exceeded insurance coverage in any of the 3 preceding years. NOTE 11 – PENSION PLAN Plan Description The City is a member of the City of Salem Contributory Retirement System (System), a cost-sharing, multiple- employer defined benefit pension plan covering eligible employees of the member units. The System is administered by the City of Salem Retirement Board on behalf of all current employees and retirees except for current teachers and retired teachers. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the plan. The System issues a publicly available financial report in accordance with guidelines established by the Commonwealth’s Public Employee Retirement Administration Commission. That report may be obtained by contacting the System located at 20 Central Street, Suite 110, Salem, MA 01970. The City is a member of the Massachusetts Teachers’ Retirement System (MTRS), a cost-sharing multiple- employer defined benefit pension plan. MTRS is managed by the Commonwealth of Massachusetts (Commonwealth) on behalf of municipal teachers and municipal teacher retirees. The Commonwealth is a nonemployer contributor and is responsible for 100% of the contributions and future benefit requirements of the MTRS. The MTRS covers certified teachers in cities (except Boston), towns, regional school districts, charter schools, educational collaboratives and Quincy College. The MTRS is part of the Commonwealth’s reporting ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 83 Annual Comprehensive Financial Report entity and the audited financial report may be obtained by visiting reports/. Special Funding Situation The Commonwealth is a nonemployer contributor and is required by statute to make 100% of all actuarially determined employer contributions on behalf of the City to the MTRS. Therefore, the City is considered to be in a special funding situation as defined by GASB Statement No. 68, Accounting and Financial Reporting for Pensions and the Commonwealth is a nonemployer contributor in MTRS. Since the City does not contribute directly to MTRS, there is no net pension liability to recognize. The total of the Commonwealth provided contributions have been allocated based on each employer’s covered payroll to the total covered payroll of employers in MTRS as of the measurement date of June 30, 2021. The City’s portion of the collective pension expense, contributed by the Commonwealth, of $9,747,726, is reported in the general fund as intergovernmental revenue and pension benefits in the current year. The portion of the Commonwealth’s collective net pension liability associated with the City is $121,473,291, as of the measurement date. Benefits Provided Both Systems provide retirement, disability, survivor and death benefits to members and beneficiaries. Massachusetts Contributory Retirement System benefits are, with certain minor exceptions, uniform from system to system. The Systems provides for retirement allowance benefits up to a maximum of 80% of a member’s highest three-year average annual rate of regular compensation. For persons who became members on or after April 2, 2012, average salary is the average annual rate of regular compensation received during the five consecutive years that produce the highest average, or, if greater, during the last five years (whether or not consecutive) preceding retirement. Benefit payments are based upon a member’s age, length of creditable service, level of compensation, and group classification. Members become vested after ten years of creditable service. Employees who resign from service and who are not eligible to receive a retirement allowance or are under the age of 55 are entitled to request a refund of their accumulated total deductions. Survivor benefits are extended to eligible beneficiaries of members whose death occurs prior to or following retirement. Cost-of-living adjustments granted between 1981 and 1997 and any increase in other benefits imposed by the Commonwealth’s state law during those years are borne by the Commonwealth and are deposited into the pension fund. Cost-of-living adjustments granted after 1997 must be approved by the Board and are borne by the System. There were no changes in benefit terms that effected the measurement of the total pension liability at December 31, 2021. At December 31, 2021, the System’s membership consists of the following: Active 919 Inactive 346 Retirees and beneficiaries currently receiving benefits…. 636 1,901 Contributions Chapter 32 of the MGL governs the contributions of plan members and member units. Active plan members are required to contribute to the System at rates ranging from 5% to 9% of gross regular compensation with an additional 2% contribution required for compensation exceeding $30,000. The percentage rate is keyed to the ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 84 Annual Comprehensive Financial Report date upon which an employee's membership commences. The member units are required to pay into the System a legislatively mandated actuarially determined contribution. The total member units’ contribution for the year ended December 31, 2021, was $16,287,922, or 30.41% of covered payroll, actuarially determined as an amount that, when combined with plan member contributions, is expected to finance the costs of benefits earned by plan members during the year, with an additional amount to finance any unfunded accrued liability. The City’s proportionate share of the required contribution equaled its actual contribution for the year ended June 30, 2022, and totaled $13,676,803. Pension Liabilities The components of the net pension liability of the participating member units at December 31, 2021, were as follows: Total pension liability…………………………… $ 365,257,292 Total pension plan's fiduciary net position…… (277,167,470) Total net pension liability…………………………$ 88,089,822 The pension plan's fiduciary net position as a percentage of the total pension liability…… 75.88% At June 30, 2022, the City reported a liability of $73,968,131, for its proportionate share of the net pension liability. The net pension liability was measured as of December 31, 2021, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of January 1, 2022. Accordingly, procedures were used to roll back the total pension liability to the measurement date. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating members. At December 31, 2021, the City’s proportion was 83.97%, which decreased from its 84.04% proportion measured at December 31, 2020. Pension Expense For the year ended June 30, 2022, the City recognized a pension expense of $7,589,226. At June 30, 2022, the City reported deferred outflows of resources related to pensions of $8,145,241 and reported deferred inflows of resources related to pensions of $30,534,507. The City paid their annual pension appropriation on July 1, 2021 and the measurement date was December 31, 2021, therefore no contributions after the measurement date were reported by the City. The balances of deferred outflows and inflows at June 30, 2022, consist of the following: Deferred Deferred Outflows of Inflows of Deferred Category Resources Resources Total Differences between expected and actual experience………………$ 610,811 $ (4,381,713) $ (3,770,902) Difference between projected and actual earnings, - (26,021,335) (26,021,335) Changes in 7,534,430 - 7,534,430 Changes in proportion and proportionate share of contributions… - (131,459) (131,459) Total deferred outflows/(inflows) of resources……………………… $ 8,145,241 $ (30,534,507) $ (22,389,266) ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 85 Annual Comprehensive Financial Report The City’s deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year ended June 30: (4,116,245) (7,029,525) (6,452,391) (4,791,105) Total deferred outflows/(inflows) of resources… $ (22,389,266) Actuarial Assumptions The total pension liability in the January 1, 2022, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement that was rolled back to December 31, 2021: Valuation January 1, 2022 Actuarial cost method……………………… Entry Age Normal Cost Method. Amortization Appropriation increasing 5.55% per year through 2032. Remaining amortization period……………… As of July 1, 2022, 10 years. Asset valuation method……………………… The difference between the expected return and the actual investment return on a fair value basis is recognized over a five-year period. Asset value is adjusted as necessary to be within 20% of the market value. Investment rate of return / Discount rate… 6.90%, net of plan investment expenses, including inflation, previously 7.15%. Wage inflation 3.00%. Projected salary increases………………… Varies by length of service with ultimate rates of 3.75% for Group 1, 4.00% for Group 2, and 4.25% for Group 4. Cost of living adjustments…………………… 3.00% of first $15,000 of the annual retirement allowance. Mortality Rates: Pre-Retirement……………………………… RP-2014 Blue Collar Employee Mortality Table set forward one year for female participants projected generationally using Scale MP-2021. Healthy RP-2014 Blue Collar Healthy Annuitant Mortality Table set forward one year for female participants projected generationally using Scale MP-2021. Disabled RP-2014 Blue Collar Healthy Annuitant Mortality Table set forward one year projected generationally using Scale MP-2021. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 86 Annual Comprehensive Financial Report Investment Policy The System’s policy in regard to the allocation of invested assets is established by PRIT. Plan assets are managed on a total return basis with a long-term objective of achieving a fully funded status for the benefits provided through the pension plan. The long-term expected rate of return on the System’s investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage, adding expected inflation and subtracting expected investment expenses and a risk margin. The target allocation (approved by the Board) and projected arithmetic real rates of return for each major asset class, after deducting inflation, but before investment expenses, used in the derivation of the long-term expected investment rate of return assumption as of December 31, 2021, are summarized in the following table: Long-Term Expected Long-Term Expected Asset Class Asset Allocation Real Rate of Return Domestic 22.00% 6.11% International developed markets equity…… 11.50% 6.49% International emerging markets equity…… 4.50% 8.12% Core fixed 15.00% 0.38% High-yield fixed income…………………… 8.00% 2.48% Real 10.00% 3.72% 4.00% 3.44% Hedge fund, GTAA, risk parity…………… 10.00% 2.63% Private 15.00% 9.93% 100.00% Rate of Return For the year ended December 31, 2021, the annual money-weighted rate of return on System investments, net of pension plan investment expense, was 19.86%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Discount Rate The discount rate used to measure the total pension liability was 6.90%, previously 7.15%. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate and that contributions will be made at rates equal to the actuarially determined contribution rate. Based on those assumptions, the System’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 87 Annual Comprehensive Financial Report Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability, calculated using the discount rate of 6.90%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (5.90%) or 1-percentage-point higher (7.90%) than the current rate. Current 1% Decrease Discount 1% Increase (5.90%) (6.90%) (7.90%) The City's proportionate share of the net pension liability……………………$ 108,175,177 $ 73,968,131 $ 45,091,976 SCRS total net pension liability…………$ 128,827,536 $ 88,089,822 $ 53,700,750 December 31, 2021 Measurement Date Changes of Assumptions – The discount rate was lowered from 7.15% to 6.90%. The mortality improvement project scale was updated from MP-2017 to MP-2021. The administrative expense assumption was increased to $400,000 for calendar year 2022 (previously, $350,000) increasing 3.00% per a year. Changes in Plan Provisions – The COLA base was increased from $12,000 to $15,000. NOTE 12 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Plan Description The City administers a single-employer defined benefit healthcare plan (“Plan”). The Plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s participation in the Group Insurance Commission of the Commonwealth of Massachusetts (GIC), which covers both active and retired members. Chapter 32b of the MGL assigns authority to establish and amend benefit provisions of the plan. The Retiree Health Plan does not issue a publicly available financial report. Benefit provisions are negotiated between the City and unions representing City employees and are renegotiated each bargaining period. The employer’s share for life insurance is 65% while the retiree is responsible for 35%. Regarding health insurance, these rates are dependent upon the individual’s date of retirement. The rates range from 10% to 35% for the retiree’s co-payment of the total premium, and 65% to 90% for the City. Funding Policy Contribution requirements are also negotiated between the City and union representatives. The required contribution is based on a pay-as-you-go financing requirement. The City contributes 70% of the cost of current- year premiums for retirees in active plans, 65% for those in senior plans and 90% for retired teachers. The City contributes 50% for surviving spouses. Plan members receiving benefits contribute the remainder of their premium costs. For the year ended June 30, 2022, the City’s average contribution rate was 5.34% of covered- employee payroll. The Commonwealth of Massachusetts passed special legislation that has allowed the City to establish the other postemployment benefit trust fund to begin pre-funding its OPEB liabilities. The City has named the Health Care Security Board of Trustees as Trustees of the OPEB fund and as such has authorized the OPEB Trust Funds to be invested by Bartholomew & Company (the custodian). Investment of the fund monies by the ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 88 Annual Comprehensive Financial Report custodian must be consistent with the prudent person standard set forth in MGL Chapter 203C for private trust funds. Interest earned on the investment of the fund monies belongs to the fund. During 2022, the City pre-funded future OPEB liabilities totaling $822,228 by contributing funds to the OPEB trust fund in excess of the pay-as-you-go required contribution. These funds are reported within the Fiduciary Fund financial statements. As of June 30, 2022, the net position of the OPEB trust fund totaled $4.8 million. Investment Policy The City’s policy in regard to the allocation of invested assets is established and may be amended by the City Council by a majority vote of its members. The OPEB plan’s assets are managed on a total return basis with a long-term objective of achieving and maintaining a fully funded status for the benefits provided through the OPEB plan. The long-term real rate of return on OPEB investments was determined using the City’s OPEB trust investment policy. Measurement Date The net OPEB liability was measured as of June 30, 2022, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of June 30, 2020. Employees Covered by Benefit Terms The following table represents the Plan’s membership at June 30, 2020: Active 889 Retired members of beneficiaries currently receiving benefits… 904 1,793 Components of OPEB Liability The following table represents the components of the Plan’s OPEB liability as of June 30, 2022: Total OPEB liability………………………………$ 146,533,788 Less: OPEB plan's fiduciary net position……… (4,843,161) Net OPEB 141,690,627 The OPEB plan's fiduciary net position as a percentage of the total OPEB liability… 3.31% ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 89 Annual Comprehensive Financial Report Significant Actuarial Methods and Assumptions The total OPEB liability in the June 30, 2020, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified, that was updated to June 30, 2022: Valuation 6/30/2020 Actuarial cost method………………… Entry Age Normal. Asset valuation method……………… Fair Value. Wage 3.00% Discount 3.54% as of June 30, 2022, and 2.16% as of June 30, 2021. Investment rate of return……………… 6.75% as of June 30, 2022, and June 30, 2021. Health care trend rates: Non Medicare……………………… 7.30% for 1 year, then 6.75% decreasing by 0.25% each year to an ultimate level of 4.50% per year. Medicare Supplement……………… -7.20% for 1 year, then 5.75% decreasing by 0.25% each year to an ultimate level of 4.50% per year. Medicare Advantage……………… 0.30% for 1 year, then 5.75% decreasing by 0.25% each year to an ultimate level of 4.50% per year. Part 5.00%. Contributions……………………… Retiree contributions are expected to increase with respective trend above. Mortality rates: Pre-Retirement (Non-Teachers)…… RP-2014 Blue Collar Employee Mortality Table projected generationally with Scale MP-2017 and set forward one year for females. Healthy (Non-Teachers)…………… RP-2014 Blue Collar Healthy Annuitant Mortality Table projected generationally using Scale MP-2017 and set forward one year for females. Disabled (Non-Teachers)………… RP-2014 Blue Collar Healthy Annuitant Mortality Table set forward one year projected generationally using Scale MP-2017. Pre-Retirement (Teachers)………… RP-2014 White Collar Employee Mortality Table projected generationally with Scale MP-2016. Healthy (Teachers)………………. RP-2014 White Collar Healthy Annuitant Mortality Table projected generationally with Scale MP-2016. Disabled (Teachers)……………… RP-2014 White Collar Healthy Annuitant Mortality Table projected generationally using Scale MP-2016. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 90 Annual Comprehensive Financial Report Rate of Return For the year ended June 30, 2022, the annual money-weighted rate of return on investments, net of investment expense, was -18.19%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. The long-term expected rate of return on OPEB plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation and subtracting expected investment expenses and a risk margin. The target allocation and projected arithmetic real rates of return for each major asset class, after deducting inflation, but before investment expenses, used in the derivation of the long-term expected investment rate of return assumption, as of June 30, 2022, are summarized below: Long-Term Expected Long-Term Expected Asset Class Asset Allocation Real Rate of Return Domestic 18.00% 6.11% International developed markets equity… 16.00% 6.49% International emerging markets equity… 6.00% 8.12% Core fixed 12.00% 0.38% High yield fixed income…………………… 10.00% 2.48% Real 10.00% 3.72% Commodities……………………………… 4.00% 3.44% Hedge fund, GTAA, risk parity…………… 13.00% 2.63% Private 11.00% 9.93% 100.00% Discount Rate The discount rate used to measure the total OPEB liability was 3.54% as of June 30, 2022 and 2.16% as of June 30, 2021. The projection of cash flows used to determine the discount rate assumed that contributions will be made in accordance with the Plan’s funding policy. Based on those assumptions, the OPEB plan’s fiduciary net position was projected to be insufficient to make all projected benefit payments to current plan members. Therefore a blend of the long-term expected rate of return and a yield rate for 20-year, tax exempt general obligation municipal bonds with an average rate of AA/Aa or higher was applied to all periods. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 91 Annual Comprehensive Financial Report Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following table presents the net other postemployment benefit liability and service cost, calculated using the discount rate of 3.54%, as well as what the net other postemployment benefit liability and service cost would be if it were calculated using a discount rate that is 1-percentage-point lower (2.54%) or 1-percentage-point higher (4.54%) than the current rate. Current 1% Decrease Discount Rate 1% Increase (2.54%) (3.54%) (4.54%) Net OPEB liability……$ 165,070,408 $ 141,690,627 $ 122,896,952 Sensitivity of the Net OPEB Liability to Changes in the Healthcare Trend The following table presents the net other postemployment benefit liability and service cost, calculated using the current healthcare trend rate, as well as what the net other postemployment benefit liability and service cost would be if it were calculated using a healthcare trend rate that is 1-percentage-point lower or 1-percentage-point higher. 1% Decrease Current Trend 1% Increase Net OPEB liability……$ 118,447,813 $ 141,690,627 $ 171,746,721 Changes in the Net OPEB Liability Plan Total OPEB Fiduciary Net OPEB Liability Net Position Liability - Balances at June 30, 171,404,870 $ 4,914,890 $ 166,489,980 Changes for the year: Service 9,604,881 - 9,604,881 3,860,618 - 3,860,618 Changes in assumptions…………………………………… (33,757,290) - (33,757,290) Contributions - - 5,401,519 (5,401,519) Net investment - (893,957) 893,957 Benefit (4,579,291) (4,579,291) - Net (24,871,082) (71,729) (24,799,353) Balances at June 30, 146,533,788 $ 4,843,161 $ 141,690,627 Increase (Decrease) ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 92 Annual Comprehensive Financial Report OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB For the year ended June 30, 2022, the City recognized OPEB expense of $1,611,202. At June 30, 2022, the City reported deferred outflows and inflows of resources related to OPEB from the following sources: Deferred Deferred Outflows of Inflows of Deferred Category Resources Resources Total Differences between expected and actual experience…… $ - $ (3,533,906) $ (3,533,906) Difference between projected and actual earnings, net…… 645,574 - 645,574 Changes in assumptions……………………………………… 15,669,411 (53,507,523) (37,838,112) Total deferred outflows/(inflows) of resources………………$ 16,314,985 $ (57,041,429) $ (40,726,444) Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: Year ended June 30: (11,488,901) (8,104,782) (5,211,141) (10,295,405) (5,626,215) Total deferred outflows/(inflows) of resources…… $ (40,726,444) Changes of Assumptions -The discount rate increased from 2.16% as of June 30, 2021, to 3.54% as of June 30, 2022. Changes in Plan Provisions – None. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 93 Annual Comprehensive Financial Report NOTE 13 – FINANCIAL STATEMENTS FOR INDIVIDUAL PENSION AND OTHER EMPLOYEE BENEFITS TRUST FUND GAAP requires that all Pension and Other Postemployment Benefit Trust Funds be combined and presented in one column in the Fiduciary Funds financial statements and that the individual financial statements for each trust fund plan are reported in the notes to the financial statements. Provided below are the individual financial statements for the pension and OPEB plans that are included in the Fiduciary Funds as Pension and Other Postemployment Benefit Trust Fund. Total Pension Pension Other and Other Trust Fund Postemployment Employee (as of December Benefit Benefit 31, 2021) Trust Fund Trust Fund ASSETS Cash and cash equivalents………………………………………$ 228,241 $ 25,085 $ 253,326 Investments: Investments in Pension Reserve Investment Trust……… 272,832,723 - 272,832,723 Equity mutual - 3,370,840 3,370,840 Fixed income mutual - 1,447,236 1,447,236 Repurchase agreements…………………………………… 4,037,884 - 4,037,884 Receivables, net of allowance for uncollectibles: Departmental and 2,925 - 2,925 Capital assets, net of accumulated depreciation…………… 72,656 - 72,656 TOTAL 277,174,429 4,843,161 282,017,590 LIABILITIES Warrants 6,959 - 6,959 NET POSITION Restricted for 277,167,470 - 277,167,470 Restricted for other postemployment benefits………………… - 4,843,161 4,843,161 TOTAL NET 277,167,470 $ 4,843,161 $ 282,010,631 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 94 Annual Comprehensive Financial Report Total Pension Pension Other and Other Trust Fund Postemployment Employee (as of December Benefit Benefit 31, 2021) Trust Fund Trust Fund ADDITIONS: Contributions: Employer $ 16,287,922 $ 822,228 $ 17,110,150 Employer contributions for other postemployment benefit payments……… - 4,579,291 4,579,291 Member 5,325,905 - 5,325,905 Transfers from other 664,399 - 664,399 3(8)c contributions from other 216,744 - 216,744 Workers compensation 65,897 - 65,897 State COLA reimbursements…………………………………………………… 74,786 - 74,786 Member makeup payments and redeposits…………………………………… 28,953 - 28,953 Reimbursement of 91A overearnings…………………………………………… 27,115 - 27,115 Total 22,691,721 5,401,519 28,093,240 Net investment income: Investment income 46,046,555 (893,957) 45,152,598 Less: investment (1,233,650) - (1,233,650) Net investment income 44,812,905 (893,957) 43,918,948 TOTAL 67,504,626 4,507,562 72,012,188 DEDUCTIONS: 333,877 - 333,877 Transfers to other 794,201 - 794,201 3(8)c transfer to other 594,534 - 594,534 Retirement benefits and 19,936,667 - 19,936,667 3,125 - 3,125 Other postemployment benefit - 4,579,291 4,579,291 TOTAL 21,662,404 4,579,291 26,241,695 NET INCREASE (DECREASE) IN NET POSITION……………………… 45,842,222 (71,729) 45,770,493 NET POSITION AT BEGINNING OF 231,325,248 4,914,890 236,240,138 NET POSITION AT END OF $ 277,167,470 $ 4,843,161 $ 282,010,631 NOTE 14 – MAJOR TAXPAYER Footprint Power LLC is the City’s largest taxpayer. During December 2014, the City negotiated, and the City Council approved, an 18-year PILOT agreement with Footprint Power LLC, due to a change in ownership of the plant. The agreement includes annual payments which increase steadily as the company’s new gas fired plant becomes up and running, and are due to the City on a quarterly basis. In addition to the negotiated PILOT agreement, the City was able to finalize a community benefits agreement which will provide the City and School District with over $4.4 million in additional funding, of which $2.46 million has been received to date. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 95 Annual Comprehensive Financial Report In early 2018, Footprint began producing electricity in it’s new plant with a state-of-the-art 630-megawatt gas-fired plant using a portion of the site and has plans to open the remaining two-thirds of the 63-acre waterfront property to private and public development opportunities. Site work was substantially completed in 2020. NOTE 15 – LANDFILL CLOSURE State and federal laws and regulations require the City to construct a final capping system on its inactive landfill site, the Salem Transfer Station, when it stops accepting waste and to perform certain maintenance and monitoring functions at the site after closure. The City has stopped accepting waste at the site and the site is closed. The City is the owner and permittee of the Salem Transfer Station site. During 2017, the City discontinued its relationship with the long-time operator of the site and has approved a final plan for the City to cap the site and to construct a new transfer station on the site. The City anticipates the site will be capped in the Spring of 2023. As a result, the City has issued bonds for $644,000 and has authorized and unissued debt for $1.5 million. The City recorded a liability of $2.3 million in the entity-wide financial statements for the total estimated closure and post closure costs of the landfill. Actual costs may be higher due to inflation, changes in technology, or changes in applicable laws, regulations or agreements. NOTE 16 – COMMITMENTS The City has various commitments related to ongoing construction projects which will be financed through long- term borrowing. These projects include $50.6 for the signature parks improvement program, $12.2 million for general government capital projects, $16.0 million for water and sewer projects, $4.4 million for Collins School improvements, $14.7 million for Museum Place Garage Renovations and $3.3 million for various other capital projects. In fiscal year 2017, the City entered into a Community Benefits Agreement with North Shore Medical Center (NSMC) that consists of support for a broad range of City needs and programs. The agreement, which is in addition to the regular annual payment in lieu of taxes that the hospital provides to the City, comes as NSMC is undergoing a significant campus consolidation and expansion project. The agreement is intended to address and mitigate the disruption and impact that the project will have on the City. Under the terms of the agreement, NSMC will provide approximately $1.7 million over the next four years for various City endeavors. Additionally, NSMC will allow attendees at sporting events at Salem’s Bertram Field to utilize NSMC’s parking lot at 55 Highland Avenue for event parking on evenings and weekends; NSMC will work collaboratively with the City on the design and implementation of a South Salem Commuter Rail stop; and NSMC will maintain its current support for ongoing community public health programs and activities in the City. The general fund has various commitments for goods and services related to encumbrances of $3,158,277. NOTE 17 – CONTINGENCIES The City participates in a number of federal award programs. Although the grant programs have been audited in accordance with the provisions of the Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, these programs are still subject to financial and compliance audits. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time, although it is expected such amounts, if any, to be immaterial. Various legal actions and claims are pending. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not always predictable. Although the amount of the liability, if any, at June 30, 2022, ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 96 Annual Comprehensive Financial Report cannot be ascertained, management believes any resulting liability should not materially affect the financial position at June 30, 2022. NOTE 19 – SUBSEQUENT EVENTS Management has evaluated subsequent events through December 20, 2022, which is the date the financial statements were available to be issued. The Salem Contributory Retirement System carries its investments at fair (market) value in accordance with Generally Accepted Accounting Principles (GAAP). Market value adjustments are recorded Subsequent to year end, the System’s investments in PRIT of $272.8 million have declined in value by approximately $28.1 million. The market value decline is consistent with recent trends in the overall financial securities market. In accordance with GAAP, the System has not recorded the losses in its financial statements as the impairments were not known as of December 31, 2021. The System has recorded the losses associated with the investments during 2022. NOTE 20 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During 2022, the following GASB pronouncements were implemented:  GASB Statement #87, Leases. The basic financial statements and related notes were updated to be in compliance with this pronouncement.  GASB Statement #89, Accounting for Interest Cost Incurred before the End of a Construction Period. This pronouncement did not impact the basic financial statements.  GASB Statement #92, Omnibus 2020. This pronouncement did not impact the basic financial statements.  GASB Statement #93, Replacement of Interbank Offered Rates. This pronouncement did not impact the basic financial statements.  GASB Statement #97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans – an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32. This pronouncement did not impact the basic financial statements. The following GASB pronouncements will be implemented in the future:  The GASB issued Statement #91, Conduit Debt Obligations, which is required to be implemented in 2023.  The GASB issued Statement #94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, which is required to be implemented in 2023.  The GASB issued Statement #96, Subscription-Based Information Technology Arrangements, which is required to be implemented in 2023.  The GASB issued Statement #99, Omnibus 2022, which is required to be implemented in 2023. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2022 City of Salem, Massachusetts 97 Annual Comprehensive Financial Report  The GASB issued Statement #100, Accounting Changes and Error Corrections, which is required to be implemented in 2024.  The GASB issued Statement #101, Compensated Absences, which is required to be implemented in 2025. Management is currently assessing the impact the implementation of these pronouncements will have on the basic financial statements. ---PAGE BREAK--- City of Salem, Massachusetts 98 Annual Comprehensive Financial Report This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 99 Annual Comprehensive Financial Report Required Supplementary Information Required Supplementary Information ---PAGE BREAK--- City of Salem, Massachusetts 100 Annual Comprehensive 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 the City’s financial resources, except those required to be accounted for in another fund. ---PAGE BREAK--- GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2022 Amounts Current Year Actual Amounts Variance Carried Forward Initial Original Final Budgetary Carried Forward to Final From Prior Year Budget Budget Budget Amounts To Next Year Budget REVENUES: Real estate and personal property taxes, net of tax - $ 109,262,389 $ 109,262,389 $ 109,262,389 $ 109,433,258 $ - $ 170,869 Tax - - - - 464,185 - 464,185 Motor vehicle and other excise - 4,530,000 4,530,000 4,530,000 4,574,784 - 44,784 Hotel/motel - 550,000 550,000 550,000 1,836,111 - 1,286,111 Meals - 850,000 850,000 850,000 1,344,412 - 494,412 Marijuana - 950,000 950,000 950,000 1,233,984 - 283,984 Marijuana impact - 1,000,000 1,000,000 1,000,000 1,958,625 - 958,625 Charges for - 2,500,000 2,500,000 2,500,000 2,478,826 - (21,174) Penalties and interest on - 550,000 550,000 550,000 570,755 - 20,755 Payments in lieu of - 1,200,000 1,200,000 1,200,000 1,322,695 - 122,695 Licenses and - 300,000 300,000 300,000 532,740 - 232,740 Fines and forfeitures……………………………………… - 800,000 800,000 800,000 1,336,985 - 536,985 Intergovernmental - state - 34,868,192 34,868,192 34,868,192 35,721,833 - 853,641 Departmental and - 2,920,168 2,920,168 2,920,168 5,752,268 - 2,832,100 Investment income - 150,000 150,000 150,000 122,518 - (27,482) TOTAL REVENUES………………………… - 160,430,749 160,430,749 160,430,749 168,683,979 - 8,253,230 EXPENDITURES: Current: General Government City Council - 159,989 159,989 167,489 167,300 - 189 Non - Personnel……………………………… 14,966 86,981 101,947 131,947 121,163 10,605 179 14,966 246,970 261,936 299,436 288,463 10,605 368 Mayor - 435,887 435,887 435,887 407,302 - 28,585 Non - Personnel……………………………… 28,170 174,950 203,120 182,831 122,844 36,110 23,877 28,170 610,837 639,007 618,718 530,146 36,110 52,462 Finance/Auditing - 356,175 356,175 249,104 248,582 - 522 Non - Personnel……………………………… 27,323 52,215 79,538 206,899 157,049 47,116 2,734 27,323 408,390 435,713 456,003 405,631 47,116 3,256 Purchasing - 178,774 178,774 169,777 151,978 - 17,799 Non - Personnel……………………………… - 22,625 22,625 20,625 13,848 951 5,826 Fixed 5,353 82,588 87,941 98,938 80,639 8,664 9,635 5,353 283,987 289,340 289,340 246,465 9,615 33,260 Assessors - 328,792 328,792 307,192 270,578 - 36,614 Non - Personnel……………………………… 1,350 39,900 41,250 62,850 57,649 31 5,170 1,350 368,692 370,042 370,042 328,227 31 41,784 Treasurer - 263,033 263,033 266,232 254,965 - 11,267 Non - Personnel……………………………… 1,786 183,859 185,645 185,645 123,971 - 61,674 1,786 446,892 448,678 451,877 378,936 - 72,941 Collector - 249,323 249,323 252,855 252,640 - 215 Non - Personnel……………………………… 400 8,300 8,700 8,700 6,094 1,330 1,276 400 257,623 258,023 261,555 258,734 1,330 1,491 Solicitor - 434,574 434,574 434,574 358,711 - 75,863 Non - Personnel……………………………… 11,365 78,700 90,065 90,065 73,622 14,118 2,325 11,365 513,274 524,639 524,639 432,333 14,118 78,188 Human Resources - 520,745 520,745 1,069,505 1,057,694 - 11,811 Non - Personnel……………………………… 697 22,500 23,197 23,198 18,119 436 4,643 697 543,245 543,942 1,092,703 1,075,813 436 16,454 (continued) Budgeted Amounts City of Salem, Massachusetts 101 Annual Comprehensive Financial Report ---PAGE BREAK--- GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2022 Amounts Current Year Actual Amounts Variance Carried Forward Initial Original Final Budgetary Carried Forward to Final From Prior Year Budget Budget Budget Amounts To Next Year Budget Budgeted Amounts Data Processing - 788,741 788,741 788,741 720,828 - 67,913 Non - Personnel……………………………… 629 13,000 13,629 13,629 12,845 218 566 Fixed 181,317 834,565 1,015,882 1,015,882 931,432 45,736 38,714 181,946 1,636,306 1,818,252 1,818,252 1,665,105 45,954 107,193 City Clerk Record Maintenance - 312,811 312,811 315,693 315,687 - 6 Non - Personnel……………………………… 2,999 11,150 14,149 14,148 10,987 2,044 1,117 2,999 323,961 326,960 329,841 326,674 2,044 1,123 Elections & Registrations - 190,550 190,550 178,514 176,128 - 2,386 Non - Personnel……………………………… 6,365 37,500 43,865 50,020 46,864 - 3,156 6,365 228,050 234,415 228,534 222,992 - 5,542 Conservation Commission - 28,879 28,879 28,879 26,737 - 2,142 Non - Personnel……………………………… 709 800 1,509 1,509 27 - 1,482 709 29,679 30,388 30,388 26,764 - 3,624 Subdivision, Planning, and Zoning Board - 33,260 33,260 33,260 25,835 - 7,425 Non - Personnel……………………………… - 3,730 3,730 3,730 1,662 - 2,068 - 36,990 36,990 36,990 27,497 - 9,493 Board of Appeals Non - Personnel……………………………… - 1,200 1,200 1,200 - - 1,200 Sustainability and Resiliency Department - 184,894 184,894 184,894 184,894 - - Non - Personnel……………………………… - 14,290 14,290 14,290 10,772 110 3,408 - 199,184 199,184 199,184 195,666 110 3,408 Planning Department - 599,846 599,846 599,846 595,380 - 4,466 Non - Personnel……………………………… 36,863 82,270 119,133 119,133 101,288 34 17,811 36,863 682,116 718,979 718,979 696,668 34 22,277 Public Property/Building Maintenance Fixed 24,112 695,900 720,012 740,262 680,518 9,702 50,042 . . Market and 4,491 311,950 316,441 316,441 294,988 14,027 7,426 Total General Government…………………………… 348,895 7,825,246 8,174,141 8,784,384 8,081,620 191,232 511,532 Public Safety Police - 10,724,321 10,724,321 10,451,119 9,849,037 - 602,082 Non - Personnel……………………………… 32,536 878,207 910,743 1,194,953 1,049,223 95,905 49,825 32,536 11,602,528 11,635,064 11,646,072 10,898,260 95,905 651,907 Fire - 9,052,600 9,052,600 9,352,600 9,212,274 - 140,326 Non - Personnel……………………………… 19,402 503,206 522,608 522,608 454,989 21,085 46,534 19,402 9,555,806 9,575,208 9,875,208 9,667,263 21,085 186,860 Building, Plumbing, Gas Inspections - 645,994 645,994 611,244 572,133 - 39,111 Non - Personnel……………………………… 7,326 48,100 55,426 69,925 54,447 8,293 7,185 7,326 694,094 701,420 681,169 626,580 8,293 46,296 Electrical Inspection and Maintenance - 409,740 409,740 409,740 377,061 - 32,679 Non - Personnel……………………………… 30,381 427,940 458,321 458,321 421,067 4,743 32,511 30,381 837,680 868,061 868,061 798,128 4,743 65,190 Harbormaster - 343,681 343,681 346,425 344,522 - 1,903 Non - Personnel……………………………… 4,151 44,100 48,251 48,250 44,462 2,271 1,517 4,151 387,781 391,932 394,675 388,984 2,271 3,420 Total Public 93,796 23,077,889 23,171,685 23,465,185 22,379,215 132,297 953,673 (continued) City of Salem, Massachusetts 102 Annual Comprehensive Financial Report ---PAGE BREAK--- GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2022 Amounts Current Year Actual Amounts Variance Carried Forward Initial Original Final Budgetary Carried Forward to Final From Prior Year Budget Budget Budget Amounts To Next Year Budget Budgeted Amounts Education 1,444,914 66,597,919 68,042,833 67,534,451 63,679,270 2,518,824 1,336,357 Essex North Shore T&A School…………… - 2,602,989 2,602,989 2,602,989 2,597,484 - 5,505 Total 1,444,914 69,200,908 70,645,822 70,137,440 66,276,754 2,518,824 1,341,862 Public Works Public Services - 1,934,945 1,934,945 1,915,445 1,886,523 - 28,922 Non - Personnel……………………………… 465,873 1,529,696 1,995,569 2,040,568 1,700,434 171,774 168,360 465,873 3,464,641 3,930,514 3,956,013 3,586,957 171,774 197,282 Engineering - 155,077 155,077 178,685 178,685 - - Non - Personnel……………………………… 2,539 19,300 21,839 118,639 62,395 15,868 40,376 2,539 174,377 176,916 297,324 241,080 15,868 40,376 Snow and Ice - 50,000 50,000 50,000 101,305 - (51,305) Non - Personnel……………………………… - 408,935 408,935 1,899,547 1,898,948 - 599 - 458,935 458,935 1,949,547 2,000,253 - (50,706) Parking Garage - 916,032 916,032 975,265 973,882 - 1,383 Non - Personnel……………………………… 43,259 430,635 473,894 474,735 439,658 27,132 7,945 43,259 1,346,667 1,389,926 1,450,000 1,413,540 27,132 9,328 Total Public 511,671 5,444,620 5,956,291 7,652,884 7,241,830 214,774 196,280 Health and Human Services Board of Health - 593,180 593,180 593,180 544,817 - 48,363 Non - Personnel……………………………… 2,394 85,859 88,253 88,253 44,408 669 43,176 2,394 679,039 681,433 681,433 589,225 669 91,539 Council on Aging - 498,720 498,720 498,720 472,985 - 25,735 Non - Personnel……………………………… 630 89,900 90,530 90,530 57,123 5,933 27,474 630 588,620 589,250 589,250 530,108 5,933 53,209 Veterans Services - 122,269 122,269 124,474 123,558 - 916 Non - Personnel……………………………… - 410,800 410,800 410,800 351,144 - 59,656 - 533,069 533,069 535,274 474,702 - 60,572 Total Health and Human Services…………………… 3,024 1,800,728 1,803,752 1,805,957 1,594,035 6,602 205,320 Culture and Recreation Library - 1,095,190 1,095,190 1,095,190 1,049,972 - 45,218 Non - Personnel……………………………… 9,526 363,902 373,428 373,428 354,829 3,691 14,908 9,526 1,459,092 1,468,618 1,468,618 1,404,801 3,691 60,126 Parks and Recreation - 440,157 440,157 440,157 402,631 - 37,526 Non - Personnel……………………………… 26,335 341,125 367,460 367,460 267,373 28,061 72,026 26,335 781,282 807,617 807,617 670,004 28,061 109,552 Golf Course - 305,257 305,257 305,257 301,413 - 3,844 Non - Personnel……………………………… 8,517 220,978 229,495 268,041 221,307 17,962 28,772 8,517 526,235 534,752 573,298 522,720 17,962 32,616 Witch House - 197,075 197,075 197,789 162,894 - 34,895 Non - Personnel……………………………… 27,013 84,680 111,693 111,693 79,420 29,431 2,842 27,013 281,755 308,768 309,482 242,314 29,431 37,737 (continued) City of Salem, Massachusetts 103 Annual Comprehensive Financial Report ---PAGE BREAK--- GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2022 Amounts Current Year Actual Amounts Variance Carried Forward Initial Original Final Budgetary Carried Forward to Final From Prior Year Budget Budget Budget Amounts To Next Year Budget Budgeted Amounts Historical Commission - 31,904 31,904 31,904 31,904 - - Non - Personnel……………………………… 289 1,020 1,309 1,309 449 - 860 289 32,924 33,213 33,213 32,353 - 860 Winter Island - 203,367 203,367 203,367 194,784 - 8,583 Non - Personnel……………………………… 12,741 79,350 92,091 92,091 64,120 4,782 23,189 12,741 282,717 295,458 295,458 258,904 4,782 31,772 Pioneer Village Non - Personnel……………………………… 354 18,600 18,954 18,954 14,374 3,884 696 Total Culture and Recreation……………………… 84,775 3,382,605 3,467,380 3,506,640 3,145,470 87,811 273,359 Debt Service: - 4,395,000 4,395,000 4,395,000 4,377,000 - 18,000 - 2,075,521 2,075,521 2,075,521 2,014,814 - 60,707 Short Term - 330,975 330,975 330,975 139,083 - 191,892 Lease - 606,853 606,853 606,853 606,853 - - - 7,408,349 7,408,349 7,408,349 7,137,750 - 270,599 State and County - 9,427,073 9,427,073 9,427,073 9,490,288 - (63,215) Pension benefits Contributory Retirement……………………………… - 13,676,803 13,676,803 13,676,803 13,458,711 - 218,092 Non-Contributory Retirement………………………… - 10,315 10,315 10,315 9,530 - 785 - 13,687,118 13,687,118 13,687,118 13,468,241 - 218,877 Workmen's Compensation……………………………… 585 528,270 528,855 528,855 498,263 525 30,067 Unemployment Compensation…………………………… 131,760 300,000 431,760 211,073 133,196 6,212 71,665 Group 30,000 16,022,048 16,052,048 15,566,006 15,474,426 - 91,580 - 1,278,187 1,278,187 1,284,881 1,310,135 - (25,254) Municipal - 373,500 373,500 387,960 387,960 - - TOTAL EXPENDITURES…………………… 2,649,420 159,756,541 162,405,961 163,853,805 156,619,183 3,158,277 4,076,345 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………… (2,649,420) 674,208 (1,975,212) (3,423,056) 12,064,796 (3,158,277) 12,329,575 OTHER FINANCING SOURCES (USES): Capital - - - (890,000) (890,000) - - Transfers - 2,830,371 2,830,371 3,456,440 3,456,440 - - Transfers - (3,712,519) (3,712,519) (14,123,732) (14,123,732) - - TOTAL OTHER FINANCING SOURCES - (882,148) (882,148) (11,557,292) (11,557,292) - - NET CHANGE IN FUND BALANCE………………………… (2,649,420) (207,940) (2,857,360) (14,980,348) 507,504 (3,158,277) 12,329,575 BUDGETARY FUND BALANCE, Beginning of year……… - 21,770,826 21,770,826 21,770,826 21,770,826 - - BUDGETARY FUND BALANCE, End of (2,649,420) $ 21,562,886 $ 18,913,466 $ 6,790,478 $ 22,278,330 $ (3,158,277) $ 12,329,575 (concluded) See notes to required supplementary information. City of Salem, Massachusetts 104 Annual Comprehensive Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 105 Annual Comprehensive Financial Report Pension Plan Schedules – Retirement System Pension plan schedules – retirement system The Pension Plan’s Schedule of Changes in the Net Pension Liability presents multi-year trend information on the net pension liability and related ratios. The Pension Plan’s Schedule of Contributions presents multi-year trend information on the required and actual contributions to the pension plan and related ratios. The Pension Plan’s Schedule of Investment Returns presents multi-year trend information on the money-weighted investment return on retirement assets, net of investment expense. These schedules are intended to present information for ten years. Until a ten-year trend is compiled, information is presented for those years for which information is available. ---PAGE BREAK--- December 31, December 31, December 31, December 31, 2014 2015 2016 2017 Total pension liability: Service $ 5,854,030 $ 6,097,323 $ 6,350,728 $ 6,879,418 18,557,934 19,386,667 20,274,843 21,023,506 Changes in benefit - - - - Differences between expected and actual experience……… - - (5,574,549) (1,058,253) Changes in assumptions………………………………………… - - 12,360,928 5,467,970 Benefit (14,146,676) (13,777,134) (14,776,958) (15,699,301) Net change in total pension liability……………………………… 10,265,288 11,706,856 18,634,992 16,613,340 Total pension liability - beginning………………………………… 240,676,498 250,941,786 262,648,642 281,283,634 Total pension liability - ending $ 250,941,786 $ 262,648,642 $ 281,283,634 $ 297,896,974 Plan fiduciary net position: Employer contributions………………………………………… $ 11,942,341 $ 12,181,169 $ 12,527,730 $ 13,172,909 Member contributions…………………………………………… 3,939,454 4,121,728 4,311,175 4,488,581 Net investment income 9,022,647 659,962 10,046,275 25,387,723 Administrative (242,294) (238,374) (266,216) (273,699) Retirement benefits and (14,146,676) (13,777,134) (14,776,958) (15,699,301) Net increase (decrease) in fiduciary net position……………… 10,515,472 2,947,351 11,842,006 27,076,213 Fiduciary net position - beginning of 123,879,403 135,650,902 138,598,253 150,440,259 Adjustment to include members transferred from Essex Agricultural and Technical School 1,256,027 - - - Fiduciary net position - end of year 135,650,902 $ 138,598,253 $ 150,440,259 $ 177,516,472 Net pension liability - ending $ 115,290,884 $ 124,050,389 $ 130,843,375 $ 120,380,502 Plan fiduciary net position as a percentage of the total pension 54.06% 52.77% 53.48% 59.59% Covered 40,399,678 $ 42,015,665 $ 45,841,256 $ 46,608,505 Net pension liability as a percentage of covered 285.38% 295.25% 285.43% 258.28% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. Essex North Shore Agricultural and Technical School merged with Regional Vocational Technical School in 2014. As a result of this merger, 39 active and inactive members of Essex North Shore Agricultural and Technical School were transferred from Essex Regional Retirement System to Salem Contributory Retirement System and the annuity savings fund balances of those members, totaling $1,256,027, were also transferred. The 2014 total pension liability and fiduciary net position have been amended to include the liabilities and assets of these members that were transferred subsequent to year end. See notes to required supplementary information. SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 106 Annual Comprehensive Financial Report ---PAGE BREAK--- December 31, December 31, December 31, December 31, 2018 2019 2020 2021 $ 7,179,699 $ 7,450,413 $ 7,639,598 $ 7,887,870 21,882,675 22,806,632 23,849,121 24,727,136 - - - 5,031,297 - 1,818,559 - (6,522,814) - 9,780,518 - 6,325,829 (16,724,907) (16,876,507) (18,591,225) (20,303,576) 12,337,467 24,979,615 12,897,494 17,145,742 297,896,974 310,234,441 335,214,056 348,111,550 $ 310,234,441 $ 335,214,056 $ 348,111,550 $ 365,257,292 $ 13,851,313 $ 14,620,061 $ 15,431,474 $ 16,287,922 4,640,867 4,980,577 5,178,200 5,381,973 (4,217,149) 27,850,445 24,592,019 44,812,905 (321,267) (301,765) (303,360) (337,002) (16,724,907) (16,876,507) (18,591,225) (20,303,576) (2,771,143) 30,272,811 26,307,108 45,842,222 177,516,472 174,745,329 205,018,140 231,325,248 - - - - $ 174,745,329 $ 205,018,140 $ 231,325,248 $ 277,167,470 $ 135,489,112 $ 130,195,916 $ 116,786,302 $ 88,089,822 56.33% 61.16% 66.45% 75.88% $ 48,663,234 $ 50,117,547 $ 52,188,241 $ 53,564,840 278.42% 259.78% 223.78% 164.45% City of Salem, Massachusetts 107 Annual Comprehensive Financial Report ---PAGE BREAK--- Contributions in relation to the Contributions as Actuarially actuarially Contribution a percentage of determined determined deficiency Covered covered Year contribution contribution (excess) payroll payroll December 31, 2021…… $ 16,287,922 $ (16,287,922) $ - $ 53,564,840 30.41% December 31, 2020…… 15,431,474 (15,431,474) - 52,188,241 29.57% December 31, 2019…… 14,620,061 (14,620,061) - 50,117,547 29.17% December 31, 2018…… 13,851,313 (13,851,313) - 48,663,234 28.46% December 31, 2017…… 13,172,909 (13,172,909) - 46,608,505 28.26% December 31, 2016…… 12,527,730 (12,527,730) - 45,841,256 27.33% December 31, 2015…… 12,013,685 (12,181,169) (167,484) 42,015,665 28.99% December 31, 2014…… 11,942,341 (11,942,341) - 40,399,678 29.56% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF CONTRIBUTIONS SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 108 Annual Comprehensive Financial Report ---PAGE BREAK--- Annual money-weighted rate of return, Year net of investment expense December 31, 19.86% December 31, 12.25% December 31, 16.21% December 31, -2.46% December 31, 17.23% December 31, 7.41% December 31, 0.51% December 31, 7.58% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF INVESTMENT RETURNS SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 109 Annual Comprehensive Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 110 Annual Comprehensive Financial Report Pension Plan Schedules – City Pension plan schedules – City The Schedule of the City’s Proportionate Share of the Net Pension Liability presents multi-year trend information on the City’s net pension liability and related ratios. The Schedule of City Contributions presents multi-year trend information on the City’s required and actual contributions to the pension plan and related ratios. The Schedule of the Special Funding Amounts of the Net Pension Liability for the Massachusetts Teachers’ Contributory Retirement System presents multi-year trend information on the liability and expense assumed by the Commonwealth of Massachusetts on behalf of the City along with related ratios. These schedules are intended to present information for ten years. Until a ten-year trend is compiled, information is presented for those years for which information is available. ---PAGE BREAK--- Net pension Plan fiduciary Proportionate liability as a net position as Proportion of share of the percentage of a percentage of the net pension net pension Covered covered the total Year liability liability payroll payroll pension liability December 31, 2021…… 83.97% $ 73,968,131 $ 40,628,492 182.06% 75.88% December 31, 2020…… 84.04% 98,141,413 41,040,710 239.13% 66.45% December 31, 2019…… 84.05% 109,428,044 39,401,443 277.73% 61.16% December 31, 2018…… 84.16% 114,027,529 37,576,589 303.45% 56.33% December 31, 2017…… 84.17% 101,324,784 35,989,977 281.54% 59.59% December 31, 2016…… 84.73% 110,864,597 35,015,154 316.62% 53.48% December 31, 2015…… 84.67% 105,037,687 33,907,437 309.78% 52.77% December 31, 2014…… 84.01% 96,851,803 32,603,305 297.06% 54.06% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 111 Annual Comprehensive Financial Report ---PAGE BREAK--- Contributions in relation to the Contributions as Actuarially actuarially Contribution a percentage of determined determined deficiency Covered covered Year contribution contribution (excess) payroll payroll June 30, 2022…… $ 13,676,803 $ (13,676,803) $ - $ 41,034,777 33.33% June 30, 2021…… 12,967,845 (12,967,845) - 41,451,117 31.28% June 30, 2020…… 12,287,979 (12,287,979) - 39,795,457 30.88% June 30, 2019…… 11,657,254 (11,657,254) - 37,952,355 30.72% June 30, 2018…… 11,087,694 (11,087,694) - 36,349,877 30.50% June 30, 2017…… 10,513,908 (10,513,908) - 35,365,306 29.73% June 30, 2016…… 10,071,175 (10,238,659) (167,484) 34,246,511 29.90% June 30, 2015…… 10,121,621 (10,121,621) - 32,929,338 30.74% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF THE CITY'S CONTRIBUTIONS SALEM CONTRIBUTORY RETIREMENT SYSTEM City of Salem, Massachusetts 112 Annual Comprehensive Financial Report ---PAGE BREAK--- Year Commonwealth's 100% Share of the Associated Net Pension Liability Expense and Revenue Recognized for the Commonwealth's Support Plan Fiduciary Net Position as a Percentage of the Total Liability $ 121,473,291 $ 9,747,726 62.03% 155,458,332 19,201,331 50.67% 139,309,152 16,893,653 53.95% 135,976,121 13,779,211 54.84% 135,097,228 14,100,491 54.25% 129,844,131 13,244,953 52.73% 125,868,567 10,209,061 61.43% 97,197,542 6,752,780 61.64% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF THE SPECIAL FUNDING AMOUNTS OF THE NET PENSION LIABILITY MASSACHUSETTS TEACHERS' RETIREMENT SYSTEM The Commonwealth of Massachusetts is a nonemployer contributor and is required by statute to make all actuarially determined employer contributions on behalf of the member employers which creates a special funding situation. Therefore, there is no net pension liability to recognize. This schedule discloses the Commonwealth's 100% share of the associated collective net pension liability; the portion of the collective pension expense as both a revenue and pension expense recognized; and the Plan's fiduciary net position as a percentage of the total liability. City of Salem, Massachusetts 113 Annual Comprehensive Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 114 Annual Comprehensive Financial Report Other Postemployment Benefit Plan Schedules Other postemployment benefit plan schedules The Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios presents multi-year trend information on changes in the Plan’s total OPEB liability, changes in the Plan’s net position, and ending net OPEB liability. It also demonstrates the Plan’s net position as a percentage of the total liability and the Plan’s net other postemployment benefit liability as a percentage of covered-employee payroll. The Schedule of the City’s Contributions presents multi-year trend information on the City’s actual contributions to the other postemployment benefit plan and related ratios. The Schedule of Investment Returns presents multi-year trend information on the money-weighted investment return on the Plan’s other postemployment assets, net of investment expense. These schedules are intended to present information for ten years. Until a ten-year trend is compiled, information is presented for those years for which information is available. ---PAGE BREAK--- June 30, June 30, June 30, June 30, June 30, June 30, 2017 2018 2019 2020 2021 2022 Total OPEB Liability Service 8,252,716 $ 6,389,170 $ 6,114,584 $ 7,395,331 $ 10,692,286 $ 9,604,881 5,052,006 5,871,915 6,352,168 5,451,481 4,393,031 3,860,618 Differences between expected and actual experience…… - - (2,918,659) - (3,841,527) - Changes of assumptions…………………………………… (20,326,073) (7,215,647) (14,610,788) 31,338,819 (25,677,761) (33,757,290) Benefit (4,267,124) (4,459,144) (4,805,860) (4,432,568) (4,472,713) (4,579,291) Net change in total OPEB liability……………………………… (11,288,475) 586,294 (9,868,555) 39,753,063 (18,906,684) (24,871,082) Total OPEB liability - 171,129,227 159,840,752 160,427,046 150,558,491 190,311,554 171,404,870 Total OPEB liability - ending $ 159,840,752 $ 160,427,046 $ 150,558,491 $ 190,311,554 $ 171,404,870 $ 146,533,788 Plan fiduciary net position Employer contributions……………………………..…………$ 269,044 $ 246,147 $ 297,475 $ 381,937 $ 447,566 $ 822,228 Employer contributions for OPEB payments……………… 4,267,124 4,459,144 4,805,860 4,432,568 4,472,713 4,579,291 Net investment income 170,768 137,225 172,705 86,700 955,836 (893,957) Benefit (4,267,124) (4,459,144) (4,805,860) (4,432,568) (4,472,713) (4,579,291) Net change in plan fiduciary net position……………………… 439,812 383,372 470,180 468,637 1,403,402 (71,729) Plan fiduciary net position - beginning of 1,749,487 2,189,299 2,572,671 3,042,851 3,511,488 4,914,890 Plan fiduciary net position - end of year 2,189,299 $ 2,572,671 $ 3,042,851 $ 3,511,488 $ 4,914,890 $ 4,843,161 Net OPEB liability - ending $ 157,651,453 $ 157,854,375 $ 147,515,640 $ 186,800,066 $ 166,489,980 $ 141,690,627 Plan fiduciary net position as a percentage of the total OPEB 1.37% 1.60% 2.02% 1.85% 2.87% 3.31% Covered-employee 82,395,000 $ 86,683,000 $ 87,301,000 $ 91,888,000 $ 94,803,000 $ 101,074,000 Net OPEB liability as a percentage of covered-employee 191.34% 182.11% 168.97% 203.29% 175.62% 140.19% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF CHANGES IN THE CITY'S NET OPEB LIABILITY AND RELATED RATIOS OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 115 Annual Comprehensive Financial Report ---PAGE BREAK--- Contributions in relation to the Contributions as Actuarially actuarially Contribution a percentage of determined determined deficiency Covered- covered- Year contribution contribution (excess) employee payroll employee payroll June 30, 2022…… $ 8,522,474 $ (5,401,519) $ 3,120,955 $ 101,074,000 5.34% June 30, 2021…… 8,274,247 (4,920,279) 3,353,968 94,803,000 5.19% June 30, 2020…… 8,689,017 (4,814,502) 3,874,515 91,888,000 5.24% June 30, 2019…… 8,190,988 (5,103,335) 3,087,653 87,301,000 5.85% June 30, 2018…… 8,076,359 (4,705,291) 3,371,068 86,683,000 5.43% June 30, 2017…… 7,625,880 (4,536,167) 3,089,713 82,395,000 5.51% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF THE CITY'S CONTRIBUTIONS OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 116 Annual Comprehensive Financial Report ---PAGE BREAK--- Annual money-weighted rate of return, Year net of investment expense June 30, -18.19% June 30, 27.22% June 30, 2.74% June 30, 6.29% June 30, 5.89% June 30, 9.08% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF INVESTMENT RETURNS OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 117 Annual Comprehensive Financial Report ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2022 City of Salem, Massachusetts 118 Annual Comprehensive Financial Report NOTE A – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Notes to required supplementary information Budgetary Information Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without a recommendation of the Mayor, the Council may not make any appropriation for a purpose not included in the proposed budget, except by a two-thirds vote in the case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the Council. The Council may not increase any item without the recommendation of the Mayor (except as provided by legislation, recommendation of the school committee or regional district school committee and by two-thirds vote of the Council, provided that such increase does not cause the total annual budget to exceed the property tax limitations). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. City department heads are generally required to submit their budget requests to the Mayor between January 1, March 1, and December 1. This does not apply to the school department, which must submit its request in time for the Mayor to include it in the submission to the Council. If the Mayor does not make a timely budget submission, provision is made for preparation of a budget by the Council. Provision is also made for supplementary appropriations upon recommendation of the Mayor. Water and Sewer department expenditures are included in the budgets adopted by City Council. The City Council on the recommendation of the Mayor may transfer during May and June, and the first fifteen days of July, any amount appropriated for the use of any department to the appropriation for any other department, provided that no such transfer may be made from any appropriation for a school department, regional school district, or municipal light department. The majority of appropriations are non-continuing which lapse at the end of each year. Others are continuing appropriations for which the Finance Director has authorized that an unspent balance from a prior year be carried forward and made available for spending in the current year. These carry forwards are included as part of the subsequent year’s original budget. Generally, expenditures may not exceed the legal level of spending (personnel and non-personnel) 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 2022 approved budget authorized approximately $166.1 million in appropriations, other amounts to be raised and amounts encumbered from the prior year. During the year, increases to the original budget were approved totaling approximately $12.7 million. The most notable components of this increase include available funds (free cash) appropriated to fund stabilization reserves, capital improvements, other postemployment benefits trust and various additional departmental appropriations. The Finance Department has the responsibility to ensure that budgetary control is maintained. Budgetary control is exercised through the accounting system. ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2022 City of Salem, Massachusetts 119 Annual Comprehensive Financial Report Budgetary - GAAP Reconciliation For budgetary financial reporting purposes, the Uniform Municipal Accounting System basis of accounting (established by the Commonwealth) is followed, which differs from the GAAP basis of accounting. A reconciliation of budgetary-basis to GAAP-basis results for the general fund for the year ended June 30, 2022, is presented below: Net change in fund balance - budgetary 507,504 Perspective differences: Activity of the stabilization fund recorded in the general fund for 4,316,004 Basis of accounting differences: Net change in recording tax refunds payable………………… (1,202,900) Net change in recording 60 day receipts……………………… (282,747) Net change in recording accrued expenditures……………… 199,240 Recognition of revenue for on-behalf payments……………… 9,747,726 Recognition of expenditures for on-behalf payments………… (9,747,726) Net change in fund balance - GAAP $ 3,537,101 Appropriation Deficits During 2022, expenditures exceeded budgeted appropriations for snow and ice removal, state and county charges and Medicare. The over expenditures for snow and ice removal and state and county charges are allowable under Massachusetts General Law. The snow and ice and Medicare deficits will be raised in the next fiscal year. NOTE B – PENSION PLAN Pension Plan Schedules – Retirement System Schedule of Changes in the Net Pension Liability and Related Ratios The Schedule of Changes in the Net Pension Liability and Related Ratios includes the detailed changes in the System’s total pension liability, changes in the System’s net position, and the ending net pension liability. It also demonstrates the plan’s net position as a percentage of the total pension liability and the net pension liability as a percentage of covered payroll. Schedule of Contributions Governmental employers are required to pay an annual appropriation as established by PERAC. The appropriation includes the amounts to pay the pension portion of each member’s retirement allowance, an amount to amortize the actuarially determined unfunded liability to zero in accordance with the system’s funding schedule, and additional appropriations in accordance with adopted early retirement incentive programs. The appropriations are payable on July 1 and January 1. Employers may choose to pay the entire appropriation in July at a discounted rate. Accordingly, actual employer contributions may be less than the “total appropriation”. The appropriations are allocated amongst employers based on an actuarial valuation. ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2022 City of Salem, Massachusetts 120 Annual Comprehensive Financial Report Schedule of Investment Returns The money weighted rate of return is calculated as the internal rate of return on pension plan investments, net of pension plan investment expense. A money weighted rate of return expresses investment performance, net of pension plan investment expense, adjusted for the changing amounts actually invested. Inputs to the money weighted rate of return calculation are determined Pension Plan Schedules - City Schedule of the City’s Proportionate Share of the Net Pension Liability The Schedule of the City’s Proportionate Share of the Net Pension Liability details the allocated percentage of the net pension liability (asset), the proportionate share of the net pension liability, and the covered employee payroll. It also demonstrates the net position as a percentage of the pension liability and the net pension liability as a percentage of covered payroll. Schedule of City’s Contributions Governmental employers are required to pay an annual appropriation as established by PERAC. The appropriation includes the amounts to pay the pension portion of each member’s retirement allowance, an amount to amortize the actuarially determined unfunded liability to zero in accordance with the system’s funding schedule, and additional appropriations in accordance with adopted early retirement incentive programs. The appropriations are payable on July 1 and January 1. The City may choose to pay the entire appropriation in July at a discounted rate. Accordingly, actual contributions may be less than the “total appropriation”. Schedule of the Special Funding Amounts of the Net Pension Liabilities The Commonwealth of Massachusetts is a nonemployer contributor and is required by statute to make all actuarially determined employer contributions on behalf of the member employers which creates a special funding situation. Since the City does not contribute directly to MTRS, there is no net pension liability to recognize. This schedule discloses the Commonwealth's 100% share of the collective net pension liability that is associated with the City; the portion of the collective pension expense as both revenue and pension expense recognized by the City; and the Plan's fiduciary net position as a percentage of the total liability. Changes of Assumptions – The discount rate was lowered from 7.15% to 6.90%. The mortality improvement project scale was updated from MP-2017 to MP-2021. The administrative expense assumption was increased to $400,000 for calendar year 2022 (previously, $350,000) increasing 3.00% per a year. Changes in Plan Provisions – The COLA base was increased from $12,000 to $15,000. NOTE C – OTHER POSTEMPLOYMENT BENEFITS The City administers a single employer defined benefit healthcare plan (“The Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s participation in the Group Insurance Commission of the Commonwealth of Massachusetts (GIC) which covers both active and retired members. Additionally, retired teachers and their spouses receive health insurance through the Group Insurance Commission of the Commonwealth of Massachusetts (GIC). Each participating municipality is assessed for the governmental share of health and life insurance premiums paid on behalf of its teacher retirees by the state. ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2022 City of Salem, Massachusetts 121 Annual Comprehensive Financial Report The Other Postemployment Benefit Plan Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios The Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios presents multi-year trend information on changes in the Plan’s total OPEB liability, changes in the Plan’s net position, and ending net OPEB liability. It also demonstrates the Plan’s net position as a percentage of the total liability and the Plan’s net other postemployment benefit liability as a percentage of covered employee payroll. Schedule of the City’s Contributions The Schedule of the City’s Contributions includes the City’s annual required contribution to the Plan, along with the contribution made in relation to the actuarially determined contribution and the covered employee payroll. The City is not required to fully fund this contribution. It also demonstrates the contributions as a percentage of covered payroll. Actuarially contribution rates are calculated as of June 30, two years prior to the end of the fiscal year in which contributions are reported. Methods and assumptions used to determine contribution rates are as follows: Valuation 6/30/2020 Actuarial cost method………………… Entry Age Normal. Asset valuation method……………… Fair Value. Wage 3.00% Discount 3.54% as of June 30, 2022, and 2.16% as of June 30, 2021. Investment rate of return……………… 6.75% as of June 30, 2022, and June 30, 2021. Health care trend rates: Non Medicare……………………… 7.30% for 1 year, then 6.75% decreasing by 0.25% each year to an ultimate level of 4.50% per year. Medicare Supplement……………… -7.20% for 1 year, then 5.75% decreasing by 0.25% each year to an ultimate level of 4.50% per year. Medicare Advantage……………… 0.30% for 1 year, then 5.75% decreasing by 0.25% each year to an ultimate level of 4.50% per year. Part 5.00%. Contributions……………………… Retiree contributions are expected to increase with respective trend above. ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2022 City of Salem, Massachusetts 122 Annual Comprehensive Financial Report Mortality rates: Pre-Retirement (Non-Teachers)…… RP-2014 Blue Collar Employee Mortality Table projected generationally with Scale MP-2017 and set forward one year for females. Healthy (Non-Teachers)…………… RP-2014 Blue Collar Healthy Annuitant Mortality Table projected generationally using Scale MP-2017 and set forward one year for females. Disabled (Non-Teachers)………… RP-2014 Blue Collar Healthy Annuitant Mortality Table set forward one year projected generationally using Scale MP-2017. Pre-Retirement (Teachers)………… RP-2014 White Collar Employee Mortality Table projected generationally with Scale MP-2016. Healthy (Teachers)………………. RP-2014 White Collar Healthy Annuitant Mortality Table projected generationally with Scale MP-2016. Disabled (Teachers)……………… RP-2014 White Collar Healthy Annuitant Mortality Table projected generationally using Scale MP-2016. Schedule of Investment Returns The Schedule of Investment Returns includes the money-weighted investment return on the Plan’s other postemployment assets, net of investment expense. Changes of Assumptions - The discount rate increased from 2.16% as of June 30, 2021, to 3.54% as of June 30, 2022. Changes in Plan Provisions – None. ---PAGE BREAK--- City of Salem, Massachusetts 123 Annual Comprehensive Financial Report This page intentionally left blank ---PAGE BREAK--- City of Salem, Massachusetts 124 Annual Comprehensive Financial Report Combining Statements Combining Statements ---PAGE BREAK--- City of Salem, Massachusetts 125 Annual Comprehensive Financial Report Nonmajor governmental funds Nonmajor Governmental Funds Special Revenue Funds Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. School Grants Fund – This fund is used to account for the educational programs specifically financed by federal, state, and other grants which are designated for specific programs. 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 to 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. 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. These funds are expended for purposes specified by the enabling statutes. City Wharf Project Fund – This fund is used to account for the fourth phase of the wharf project which includes improvements to the harbor walk, docks, walkways, and pier construction. Other Special Revenue Fund – This fund is used to account for activity related to the City’s police and fire details, employee withholdings as well as deposits held in escrow. Capital Project Funds Other Capital Project Fund – This fund is used to account for various capital projects not reported as major funds. ---PAGE BREAK--- City of Salem, Massachusetts 126 Annual Comprehensive 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--- Community School City Development School Highway Donations Grants Grants Grants Lunch Grants and Gifts ASSETS Cash and cash equivalents…………………………… $ 3,128,135 $ 2,952,212 $ - $ 1,256,066 $ - $ 763,252 - - - - - - Receivables, net of uncollectibles: Departmental and - - - - - - Intergovernmental - 368,659 2,236,833 221,417 - 1,228,676 - - - 97,752 - - - TOTAL 3,496,794 $ 5,189,045 $ 319,169 $ 1,256,066 $ 1,228,676 $ 763,252 LIABILITIES Warrants $ - $ 711,681 $ - $ - $ - $ 488 Accrued 8,661 86,532 5,537 15,628 - 532 Due to other - - 215,880 - 1,133,300 - Other liabilities……………………………………… - - - - - - Unearned - 3,362 - - - - TOTAL LIABILITIES…………………………………… 8,661 801,575 221,417 15,628 1,133,300 1,020 DEFERRED INFLOWS OF RESOURCES Unavailable - - 97,752 - 95,376 - FUND BALANCES Nonspendable……………………………………… - - - - - - 3,488,133 4,387,470 - 1,240,438 - 762,232 - - - - - - TOTAL FUND BALANCES…………………………… 3,488,133 4,387,470 - 1,240,438 - 762,232 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES……………$ 3,496,794 $ 5,189,045 $ 319,169 $ 1,256,066 $ 1,228,676 $ 763,252 (continued) NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2022 Special Revenue Funds City of Salem, Massachusetts 127 Annual Comprehensive Financial Report ---PAGE BREAK--- City School City Other Receipts Revolving Revolving Wharf Special Reserved Accounts Accounts Project Revenue Subtotal ASSETS Cash and cash equivalents…………………………… $ 2,889,762 $ 2,935,318 $ 503,610 $ 519,681 $ 625,462 $ 15,573,498 - - - - - - Receivables, net of uncollectibles: Departmental and 7,439 - - - 450,349 457,788 Intergovernmental - - - - - - 4,055,585 - - - - - 97,752 TOTAL $ 2,897,201 $ 2,935,318 $ 503,610 $ 519,681 $ 1,075,811 $ 20,184,623 LIABILITIES Warrants - $ 1,717 $ - $ - $ 4,661 $ 718,547 Accrued - - - - 29,962 146,852 Due to other - - - - - 1,349,180 Other liabilities……………………………………… - - - - 1,011,029 1,011,029 Unearned - - - - - 3,362 TOTAL LIABILITIES…………………………………… - 1,717 - - 1,045,652 3,228,970 DEFERRED INFLOWS OF RESOURCES Unavailable 7,439 - - - 450,349 650,916 FUND BALANCES Nonspendable……………………………………… - - - - - - 2,889,762 2,933,601 503,610 519,681 - 16,724,927 - - - - (420,190) (420,190) TOTAL FUND BALANCES…………………………… 2,889,762 2,933,601 503,610 519,681 (420,190) 16,304,737 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES………… $ 2,897,201 $ 2,935,318 $ 503,610 $ 519,681 $ 1,075,811 $ 20,184,623 Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2022 City of Salem, Massachusetts 128 Annual Comprehensive Financial Report ---PAGE BREAK--- Capital Total Other Nonmajor Capital Human Governmental Projects Cemetery Service Other Subtotal Funds $ 188,475 $ 511,189 $ 38,186 $ 308,063 $ 857,438 $ 16,619,411 - 4,141,840 1,800,800 1,530,680 7,473,320 7,473,320 - - - - - 457,788 - - - - - 4,055,585 - - - - - 97,752 $ 188,475 $ 4,653,029 $ 1,838,986 $ 1,838,743 $ 8,330,758 $ 28,703,856 $ - $ - $ - $ - $ - $ 718,547 - - - - - 146,852 - - - - - 1,349,180 - - - - - 1,011,029 - - - - - 3,362 - - - - - 3,228,970 - - - - - 650,916 - 1,175,272 221,174 498,083 1,894,529 1,894,529 188,475 3,477,757 1,617,812 1,340,660 6,436,229 23,349,631 - - - - - (420,190) 188,475 4,653,029 1,838,986 1,838,743 8,330,758 24,823,970 $ 188,475 $ 4,653,029 $ 1,838,986 $ 1,838,743 $ 8,330,758 $ 28,703,856 (concluded) Permanent Funds Project Funds City of Salem, Massachusetts 129 Annual Comprehensive Financial Report ---PAGE BREAK--- Community School City Development School Highway Donations Grants Grants Grants Lunch Grants and Gifts REVENUES: Charges for - $ 65,000 $ - $ - $ - $ - Penalties and interest on - - - - - - Intergovernmental - 11,989,715 14,124,877 1,462,609 3,270,851 948,581 25,754 Departmental and 1,722,748 1,252,187 132,361 9,459 - 16,050 Contributions and - 302,600 - - - 226,824 Investment income - 63 9 - - (2,094) TOTAL 13,712,463 15,744,727 1,594,979 3,280,310 948,581 266,534 EXPENDITURES: Current: General - 2,407,897 - - - 14,574 Public - 1,451,495 - - - 25,158 13,783,787 11,552 - 2,195,608 - 50,503 Public - 3,030,290 - - 948,581 23,054 Community development………………………………………… - 250,000 1,594,979 - - 24,921 Health and human - 6,315,557 - - - 57,702 Culture and - 51,758 - - - 15,272 TOTAL EXPENDITURES……………………………………… 13,783,787 13,518,549 1,594,979 2,195,608 948,581 211,184 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………………… (71,324) 2,226,178 - 1,084,702 - 55,350 OTHER FINANCING SOURCES (USES): Premium from issuance of - - - - - - Transfers - 858,939 - - - 50,000 Transfers - - - - - - TOTAL OTHER FINANCING SOURCES (USES)………… - 858,939 - - - 50,000 NET CHANGE IN FUND BALANCES……………………………… (71,324) 3,085,117 - 1,084,702 - 105,350 FUND BALANCES AT BEGINNING OF 3,559,457 1,302,353 - 155,736 - 656,882 FUND BALANCES AT END OF 3,488,133 $ 4,387,470 $ - $ 1,240,438 $ - $ 762,232 NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2022 Special Revenue Funds City of Salem, Massachusetts 130 Annual Comprehensive Financial Report ---PAGE BREAK--- Capital City School City Other Other Receipts Revolving Revolving Wharf Special Capital Reserved Accounts Accounts Project Revenue Subtotal Projects $ 912,995 $ - $ - $ - $ - $ 977,995 $ - 4,592 - - - - 4,592 - - 527,931 - - - 32,350,318 181,023 1,078,477 1,458,201 440,809 - 1,589,737 7,700,029 - - 4,000 - - - 533,424 - - 95 (63) - - (1,990) - 1,996,064 1,990,227 440,746 - 1,589,737 41,564,368 181,023 133,611 538,292 - 11,376 - 3,105,750 41,901 121,534 12,504 - - 1,692,799 3,303,490 174,392 - 20,863 249,730 - 44,593 16,356,636 - - - - - - 4,001,925 - - 54,433 - - - 1,924,333 - - 83,487 - - - 6,456,746 - - 340,172 - - - 407,202 - 255,145 1,049,751 249,730 11,376 1,737,392 35,556,082 216,293 1,740,919 940,476 191,016 (11,376) (147,655) 6,008,286 (35,270) 178,895 - - - - 178,895 - - - - - - 908,939 - (1,541,541) - - - - (1,541,541) - (1,362,646) - - - - (453,707) - 378,273 940,476 191,016 (11,376) (147,655) 5,554,579 (35,270) 2,511,489 1,993,125 312,594 531,057 (272,535) 10,750,158 223,745 $ 2,889,762 $ 2,933,601 $ 503,610 $ 519,681 $ (420,190) $ 16,304,737 $ 188,475 (continued) Project Funds Special Revenue Funds City of Salem, Massachusetts 131 Annual Comprehensive Financial Report ---PAGE BREAK--- Total Nonmajor Human Governmental Cemetery Service Other Subtotal Funds REVENUES: Charges for - $ - $ - $ - $ 977,995 Penalties and interest on - - - - 4,592 Intergovernmental - - - - - 32,531,341 Departmental and - - 8,872 8,872 7,708,901 Contributions and 101,548 - 32,976 134,524 667,948 Investment income (609,563) (273,157) (246,324) (1,129,044) (1,131,034) TOTAL (508,015) (273,157) (204,476) (985,648) 40,759,743 EXPENDITURES: Current: General - - - - 3,147,651 Public - - 39,955 39,955 3,517,837 - - 9,550 9,550 16,366,186 Public 358,878 - - 358,878 4,360,803 Community development………………………………………… - - - - 1,924,333 Health and human - 81,233 2,396 83,629 6,540,375 Culture and - - - - 407,202 TOTAL EXPENDITURES……………………………………… 358,878 81,233 51,901 492,012 36,264,387 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………………… (866,893) (354,390) (256,377) (1,477,660) 4,495,356 OTHER FINANCING SOURCES (USES): Premium from issuance of - - - - 178,895 Transfers - - - - 908,939 Transfers - - - - (1,541,541) TOTAL OTHER FINANCING SOURCES (USES)………… - - - - (453,707) NET CHANGE IN FUND BALANCES……………………………… (866,893) (354,390) (256,377) (1,477,660) 4,041,649 FUND BALANCES AT BEGINNING OF 5,519,922 2,193,376 2,095,120 9,808,418 20,782,321 FUND BALANCES AT END OF 4,653,029 $ 1,838,986 $ 1,838,743 $ 8,330,758 $ 24,823,970 (concluded) Permanent Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2022 City of Salem, Massachusetts 132 Annual Comprehensive Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 133 Annual Comprehensive 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 Fund – This fund is used to account for scholarships held by the City to benefit individuals. ---PAGE BREAK--- Total Private Trust Fund Scholarship Purpose Commissioners Fund Trust Funds ASSETS Cash and cash equivalents………… $ 104,064 $ 410,816 $ 514,880 Investments: Equity securities………………… 956,040 - 956,040 Fixed income mutual funds…… 574,640 - 574,640 TOTAL 1,634,744 410,816 2,045,560 NET POSITION Held in trust for other purposes…… $ 1,634,744 $ 410,816 $ 2,045,560 PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF NET POSITION JUNE 30, 2022 City of Salem, Massachusetts 134 Annual Comprehensive Financial Report ---PAGE BREAK--- Total Private Trust Fund Scholarship Purpose Commissioners Fund Trust Funds ADDITIONS: Contributions: Private - $ 229,548 $ 229,548 Net investment income (loss): Investment income (234,669) (2,518) (237,187) TOTAL ADDITIONS………………………… (234,669) 227,030 (7,639) DEDUCTIONS: Health and human services…………………… 31,635 - 31,635 Educational scholarships……………………… 12,570 26,249 38,819 TOTAL DEDUCTIONS……………………… 44,205 26,249 70,454 NET INCREASE IN NET POSITION……… (278,874) 200,781 (78,093) NET POSITION AT BEGINNING OF YEAR…… 1,913,618 210,035 2,123,653 NET POSITION AT END OF 1,634,744 $ 410,816 $ 2,045,560 PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2022 City of Salem, Massachusetts 135 Annual Comprehensive Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 136 Annual Comprehensive Financial Report This page intentionally left blank ---PAGE BREAK--- Statistical Section Salem Art Scenes Artists’ Row Mural Commission Liz LaManche Unity Path ---PAGE BREAK--- City of Salem, Massachusetts 137 Annual Comprehensive Financial Report Statistical Section This part of the Annual Comprehensive 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 Annual Comprehensive Financial Reports for the relevant year. ---PAGE BREAK--- 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Governmental activities Net investment in capital assets…………… $ 169,750,602 $ 170,092,864 $ 172,084,606 $ 171,154,358 $ 176,860,142 $ 179,897,226 $ 179,256,590 $ 177,412,781 $ 175,205,346 $ 172,251,531 Restricted……………………………………… 12,499,976 14,383,949 12,047,560 9,234,701 11,301,791 11,216,626 12,710,222 13,833,693 18,694,258 19,544,415 Unrestricted…………………………………… (22,562,824) (116,481,627) (125,845,138) (126,419,624) (244,081,157) (258,892,411) (258,253,151) (262,448,325) (253,279,775) (235,312,152) Total governmental activities net position…… $ 159,687,754 $ 67,995,186 $ 58,287,028 $ 53,969,435 $ (55,919,224) $ (67,778,559) $ (66,286,339) $ (71,201,851) $ (59,380,171) $ (43,516,206) Business-type activities Net investment in capital assets…………… $ 9,562,558 $ 8,511,138 $ 8,744,920 $ 8,280,350 $ 8,340,720 $ 9,066,385 $ 10,850,954 $ 11,739,855 $ 12,141,976 $ 15,358,067 Unrestricted…………………………………… 4,857,190 6,184,586 3,008,694 3,573,341 3,735,855 3,761,807 4,355,082 3,814,258 4,883,926 5,733,856 Total business-type activities net position…… $ 14,419,748 $ 14,695,724 $ 11,753,614 $ 11,853,691 $ 12,076,575 $ 12,828,192 $ 15,206,036 $ 15,554,113 $ 17,025,902 $ 21,091,923 Primary government Net investment in capital assets…………… $ 179,313,160 $ 178,604,002 $ 180,829,526 $ 179,434,708 $ 185,200,862 $ 188,963,611 $ 190,107,544 $ 189,152,636 $ 187,347,322 $ 187,609,598 Restricted……………………………………… 12,499,976 14,383,949 12,047,560 9,234,701 11,301,791 11,216,626 12,710,222 11,160,605 18,694,258 19,544,415 Unrestricted…………………………………… (17,705,634) (110,297,041) (122,836,444) (122,846,283) (240,345,302) (255,130,604) (253,898,069) (255,736,767) (248,395,849) (229,578,296) Total primary government net position…………$ 174,107,502 $ 82,690,910 $ 70,040,642 $ 65,823,126 $ (43,842,649) $ (54,950,367) $ (51,080,303) $ (55,423,526) $ (42,354,269) $ (22,424,283) GASB 68 was implemented in 2015 and the net pension liability was recorded which changed the 2014 net position for the first time. GASB 75 was implemented in 2018 and the net other postemployment benefits liability was recorded. Fiscal year 2017 was revised to reflect this implementation. In 2018 it was determined the golf course fund would be more appropriately reported as a governmental fund, accordingly beginning net position for governmental and business-type activities was revised. In 2019 the City restated beginning net position to update the measurement date for GASB 75 to the current fiscal year end. Fiscal year 2018 has been restated to reflect the change. GASB 84 was implemented in 2021. This also required the revision of the ending net position in 2020. Net Position By Component Last Ten Years City of Salem, Massachusetts 138 Annual Comprehensive Financial Report ---PAGE BREAK--- 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Expenses Governmental activities: General 10,574,021 $ 10,080,121 $ 12,503,170 $ 11,788,264 $ 12,327,559 $ 13,502,981 $ 14,486,804 $ 14,730,269 $ 17,244,438 $ 17,854,285 Public 27,832,445 29,879,444 29,652,698 29,707,698 32,046,642 32,001,933 31,777,519 33,673,750 33,369,099 32,550,209 95,924,303 100,837,487 100,997,380 105,955,199 114,049,284 116,239,977 115,406,817 123,301,336 123,985,097 117,501,318 Public 8,848,271 9,092,995 11,878,911 12,627,503 10,846,604 10,560,810 9,959,222 11,229,781 10,647,022 12,844,904 Community development……………………………………… 1,347,731 1,304,481 1,569,281 1,033,601 1,335,941 1,404,147 1,588,839 1,281,898 929,881 1,924,333 Health and human 6,140,975 5,788,579 6,850,201 6,793,390 6,714,390 6,326,856 6,808,172 6,481,127 6,654,258 8,851,177 Culture and 3,429,452 3,589,253 3,277,578 3,585,339 3,576,595 4,177,418 5,636,443 5,511,415 4,422,556 5,239,600 Community preservation - 5,350 356,518 80,610 456,019 923,668 354,876 1,023,018 267,267 344,261 1,277,709 1,328,888 1,349,443 1,313,435 1,646,278 1,379,029 1,188,110 1,451,399 1,325,596 1,971,167 Total government activities expenses……………………………… 155,374,907 161,906,598 168,435,180 172,885,039 182,999,312 186,516,819 187,206,802 198,683,993 198,845,214 199,081,254 Business-type activities: Water and 11,169,816 11,241,391 12,386,557 11,694,630 10,787,708 11,472,948 13,471,149 15,280,177 14,389,522 13,663,317 Golf course 465,210 466,834 472,708 531,307 552,606 - - - - - Parking 1,052,780 968,159 - - - - - - - - 2,648,564 2,373,876 2,448,400 2,762,022 2,917,405 3,125,896 3,463,566 3,762,943 3,694,631 3,642,700 Cable access - - - - - - - 471,155 599,119 583,799 Total business type activities expenses…………………………… 15,336,370 15,050,260 15,307,665 14,987,959 14,257,719 14,598,844 16,934,715 19,514,275 18,683,272 17,889,816 Total primary government expenses……………………………… $ 170,711,277 $ 176,956,858 $ 183,742,845 $ 187,872,998 $ 197,257,031 $ 201,115,663 $ 204,141,517 $ 218,198,268 $ 217,528,486 $ 216,971,070 Program Revenues Governmental activities: Education charges for services……………………………… $ 1,171,221 $ 1,275,125 $ 1,036,778 $ 1,224,683 $ 807,217 $ 951,076 $ 1,182,469 $ 1,048,187 $ 1,864,460 $ 1,942,756 Public Safety charges for services…………………………… 2,780,253 2,237,189 2,712,983 2,289,056 3,257,068 2,589,149 3,126,420 2,976,397 5,529,258 5,037,681 Other charges for 2,264,412 2,345,324 4,762,457 4,971,335 5,576,210 6,403,324 7,518,374 6,627,486 7,571,872 9,452,215 Operating grants and contributions………………………… 49,028,512 50,489,073 46,826,741 52,223,253 54,915,403 56,548,429 58,620,802 61,085,619 67,513,431 68,916,399 Capital grant and contributions……………………………… 30,643,446 8,496,589 5,050,922 7,213,351 7,576,188 2,514,534 2,868,195 1,258,359 2,691,074 3,200,704 Total government activities program revenues...………………… 85,887,844 64,843,300 60,389,881 67,921,678 72,132,086 69,006,512 73,316,260 72,996,048 85,170,095 88,549,755 Business-type activities: Charges for services - Water and 13,692,023 13,086,639 13,288,556 13,043,867 13,312,357 13,486,343 15,901,307 15,611,454 15,991,225 16,484,285 Charges for services - Golf 697,232 705,341 724,052 805,227 749,590 - - - - - Charges for services - Parking 2,580,262 2,510,838 - - - - - - - - Charges for services - 684,262 678,607 689,982 838,882 861,402 855,521 869,723 905,403 950,498 935,234 Charges for services - Cable access - - - - - - - 509,133 636,564 583,799 Capital grants and contributions…………………………..... - 2,887,131 102,518 - - - - - - - Total business-type activities program revenues...……………… 17,653,779 19,868,556 14,805,108 14,687,976 14,923,349 14,341,864 16,771,030 17,025,990 17,578,287 18,003,318 Total primary government program revenues………………………$ 103,541,623 $ 84,711,856 $ 75,194,989 $ 82,609,654 $ 87,055,435 $ 83,348,376 $ 90,087,290 $ 90,022,038 $ 102,748,382 $ 106,553,073 Net (Expense)/Revenue Governmental $ (69,487,063) $ (97,063,298) $ (108,045,299) $ (104,963,361) $ (110,867,226) $ (117,510,307) $ (113,890,542) $ (125,687,945) $ (113,675,119) $ (110,531,499) Business-type 2,317,409 4,818,296 (502,557) (299,983) 665,630 (256,980) (163,685) (2,488,285) (1,104,985) 113,502 Total primary government net $ (67,169,654) $ (92,245,002) $ (108,547,856) $ (105,263,344) $ (110,201,596) $ (117,767,287) $ (114,054,227) $ (128,176,230) $ (114,780,104) $ (110,417,997) (continued) Changes in Net Position Last Ten Years City of Salem, Massachusetts 139 Annual Comprehensive Financial Report ---PAGE BREAK--- 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Changes in Net Position Last Ten Years General Revenues and other Changes in Net Position Governmental activities: Real estate and personal property taxes, net of tax refunds 76,770,134 $ 79,012,963 $ 82,444,144 $ 84,802,453 $ 90,118,638 $ 92,995,509 $ 97,731,795 $ 102,701,481 $ 104,555,152 $ 107,763,402 Tax and other 589,138 563,353 708,963 523,414 317,548 497,622 899,483 209,038 933,398 673,873 Motor vehicle and other excise 3,052,229 3,890,099 3,929,230 4,194,711 4,311,772 4,486,746 4,594,318 4,451,078 4,558,160 4,660,371 Hotel/motel and meals 1,224,849 1,319,418 1,362,357 1,541,901 1,683,573 1,845,865 1,965,633 2,053,446 1,442,741 3,180,523 Marijuana - - - - - - 223,889 742,899 1,084,324 1,233,984 Marijuana impact - - - - - - 223,889 1,288,454 1,437,951 1,958,625 Community preservation taxes - 486,797 535,637 561,424 590,722 612,399 661,702 783,879 822,738 859,285 Penalties and interest on 399,311 457,958 443,444 497,484 466,092 495,693 522,287 531,031 718,720 576,991 Payments in lieu of 1,462,692 1,321,060 1,043,782 1,322,806 1,082,164 1,572,535 1,674,743 1,294,385 1,412,210 1,322,695 Grants and contributions not restricted to specific 6,610,413 6,775,827 7,182,509 6,881,968 7,218,934 7,527,909 7,727,978 7,768,343 7,869,293 8,507,747 Unrestricted investment income 828,974 1,377,835 554,360 459,322 1,134,074 947,635 1,484,742 1,392,581 2,419,524 (1,275,090) Miscellaneous………………………………………………… 375,872 344,538 122,979 260,344 318,858 585,870 437,721 515,136 819,712 885,577 Capital contributions, - - - - - - - - - - Transfers, 588,144 1,653,218 9,736 (400,060) (510,404) (1,050,090) (2,541,529) (2,836,362) (2,576,774) (3,952,519) Total governmental 91,901,756 97,203,066 98,337,141 100,645,767 106,731,971 110,517,693 115,606,651 120,895,389 125,497,149 126,395,464 Business-type activities: Capital contributions, - - - - - - - - - - Transfers, (588,144) (1,653,218) (9,736) 400,060 510,404 1,050,090 2,541,529 2,836,362 2,576,774 3,062,519 Total business-type (588,144) (1,653,218) (9,736) 400,060 510,404 1,050,090 2,541,529 2,836,362 2,576,774 3,062,519 Total primary $ 91,313,612 $ 95,549,848 $ 98,327,405 $ 101,045,827 $ 107,242,375 $ 111,567,783 $ 118,148,180 $ 123,731,751 $ 128,073,923 $ 129,457,983 Changes in Net Position Governmental $ 22,414,693 $ 139,768 $ (9,708,158) $ (4,317,594) $ (4,135,255) $ (6,992,614) $ 1,716,109 $ (4,792,556) $ 11,822,030 $ 15,863,965 Business-type 1,729,265 3,165,078 (512,293) 100,077 1,176,034 793,110 2,377,844 348,077 1,471,789 3,176,021 Total primary $ 24,143,958 $ 3,304,846 $ (10,220,451) $ (4,217,517) $ (2,959,221) $ (6,199,504) $ 4,093,953 $ (4,444,479) $ 13,293,819 $ 19,039,986 In 2014 the City approved and established the Community Preservation Fund. (concluded) In 2015 the City reclassified the parking fund to a governmental activity. In 2018 the City reclassified the golf course fund to a governmental activity. In 2020 the City approved and established the cable access enterprise fund. City of Salem, Massachusetts 140 Annual Comprehensive Financial Report ---PAGE BREAK--- 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 General Fund Committed………………………… $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 550,000 1,059,667 1,002,935 558,880 661,246 468,894 303,334 281,435 1,138,425 3,649,420 3,158,277 Unassigned………………………… 11,663,494 11,998,002 11,159,068 12,937,609 14,518,650 13,712,764 16,663,968 21,573,780 27,899,121 31,377,365 Total general 12,723,161 $ 13,000,937 $ 11,717,948 $ 13,598,855 $ 14,987,544 $ 14,016,098 $ 16,945,403 $ 22,712,205 $ 31,548,541 $ 35,085,642 All Other Governmental Funds Nonspendable……………………… $ 2,074,989 $ 2,074,987 $ 2,151,087 $ 2,176,969 $ 2,206,224 $ 2,206,224 $ 1,886,480 $ 1,894,529 $ 1,894,529 $ 1,894,529 Restricted…………………………… 12,942,168 15,563,265 12,440,090 20,988,535 19,857,614 19,857,614 20,298,016 23,307,555 35,591,130 36,936,958 Unassigned………………………… (623,622) (2,089,648) (1,002,367) (23,344) (128,661) (128,661) - - (272,535) (420,190) Total all other governmental funds……$ 14,393,535 $ 15,548,604 $ 13,588,810 $ 23,142,160 $ 21,935,177 $ 21,935,177 $ 22,184,496 $ 25,202,084 $ 37,213,124 $ 38,411,297 GASB 84 was implemented in 2021. This also required the revision of the ending fund balance in 2020. Source: Audited Financial Statements Fund Balances, Governmental Funds Last Ten Years City of Salem, Massachusetts 141 Annual Comprehensive Financial Report ---PAGE BREAK--- 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Revenues: Real estate and personal property taxes, net of tax $ 77,018,965 $ 79,449,354 $ 82,905,745 $ 85,828,099 $ 91,488,374 $ 93,102,182 $ 98,715,028 $ 102,579,654 $ 105,839,943 $ 108,411,796 Motor vehicle and other excise 3,113,058 3,799,179 3,945,343 4,057,235 4,300,898 4,456,037 4,608,527 4,411,782 4,669,801 4,574,784 Intergovernmental……………………………………………… 84,640,597 49,698,445 49,811,556 51,544,933 53,058,071 46,824,285 51,721,106 52,116,754 56,914,294 69,079,112 Departmental and 12,049,109 11,097,377 13,036,554 14,259,338 14,159,322 19,953,037 20,904,170 19,449,187 23,906,864 28,587,766 Investment income 828,974 1,377,835 554,360 459,322 1,134,074 846,980 1,426,392 1,392,581 2,419,524 (1,275,090) Intergovernmental - School Building Authority……………… 4,310,837 3,695,128 3,171,572 3,171,572 3,171,572 1,389,074 732,824 732,824 - 547,125 Intergovernmental - Teachers Retirement 10,522,000 10,808,000 6,752,780 10,209,061 13,244,953 14,100,491 13,779,211 16,893,653 19,201,331 9,747,726 Total 192,483,540 159,925,318 160,177,910 169,529,560 180,557,264 180,672,086 191,887,258 197,576,435 212,951,757 219,673,219 Expenditures: General 6,351,699 6,218,639 8,285,799 7,404,363 7,971,958 9,740,148 10,635,954 10,120,706 13,334,262 13,688,032 Public 18,207,275 19,627,830 19,936,450 19,682,270 20,668,857 21,796,758 21,701,555 22,788,763 25,035,924 25,921,519 53,168,217 54,548,503 63,150,832 60,044,184 71,832,889 73,764,881 75,096,418 74,481,293 74,592,453 82,893,940 Public 5,338,674 5,230,942 7,137,934 7,530,669 6,216,029 6,469,400 5,866,995 6,962,887 6,621,075 8,549,478 Community development……………………………………… 1,322,586 1,629,209 1,544,509 1,033,601 1,335,941 1,404,147 1,588,839 1,281,898 929,881 1,924,333 Health and human 5,580,162 5,446,188 6,424,227 6,341,080 5,837,125 5,589,063 6,065,825 5,770,743 6,065,567 8,394,508 Culture and 2,468,723 2,368,401 2,264,401 2,347,889 2,366,896 2,872,247 4,286,937 3,954,001 3,050,376 3,830,931 Community preservation - 5,350 356,518 506,415 456,019 923,668 354,876 1,023,018 267,267 344,261 Pension 19,771,148 20,402,625 16,923,249 20,151,894 10,365,094 10,934,690 11,486,335 12,109,617 12,807,783 13,468,241 Pension benefits - Teachers Retirement 10,522,000 10,808,000 6,752,780 10,209,061 13,244,953 14,100,491 13,779,211 16,893,653 19,201,331 9,747,726 Employee 13,326,634 14,255,543 13,490,299 13,529,621 14,108,736 14,390,925 13,976,929 15,243,750 15,756,597 16,806,265 State and county 5,141,397 5,776,828 6,015,427 7,061,663 7,946,729 8,376,492 8,599,120 8,878,707 9,265,631 9,490,288 Capital 38,287,997 16,665,809 13,273,983 10,251,982 14,234,566 10,245,735 16,129,277 12,310,205 20,262,472 22,894,660 Debt service 19,454,000 3,073,598 2,935,000 3,500,000 3,752,361 4,312,000 4,958,353 5,024,124 4,590,057 4,999,818 1,816,117 1,536,769 1,558,748 1,640,859 1,810,439 1,840,860 1,770,949 1,898,097 1,914,893 2,129,135 Principal payments on right to use - - - - - - - - - 228,497 Interest payments on right to use - - - - - - - - - 196,503 Total Expenditures……………………………………………… 200,756,629 167,594,234 170,050,156 171,235,551 182,148,592 186,761,505 196,297,573 198,741,462 213,695,569 225,508,135 Excess of revenues over (under) expenditures……………… (8,273,089) (7,668,916) (9,872,246) (1,705,991) (1,591,328) (6,089,419) (4,410,315) (1,165,027) (743,812) (5,834,916) Other Financing Sources (Uses): Issuance of 11,242,660 6,680,000 5,980,000 10,473,361 665,000 7,349,229 9,513,869 10,719,064 21,373,827 9,327,262 Premium from issuance of 191,693 421,355 700,157 606,548 517,618 561,847 18,070 1,586,557 2,746,673 178,895 Issuance of refunding - 2,509,500 - - 3,312,000 - - - - 629,880 Premium from issuance of refunding bonds………………… - 262,818 - - 464,866 - - - - 40,120 Payments to refunded bond escrow - (2,709,130) - - (3,735,364) - - - - (670,000) Right to use lease 514,002 284,000 351,762 1,805,846 590,426 695,958 387,461 681,180 47,462 5,016,552 Transfers 5,343,327 6,718,284 3,699,383 4,779,568 7,261,562 9,364,166 3,879,780 4,512,993 4,293,092 6,362,537 Transfers (4,755,183) (5,065,066) (3,689,647) (5,179,628) (7,771,966) (10,414,256) (6,421,309) (7,349,355) (6,869,866) (9,425,056) Capital contributions…………………………………………… - - - - - (2,260,269) - - - (890,000) Total other financing sources 12,536,499 9,101,761 7,041,655 12,485,695 1,304,142 5,296,675 7,377,871 10,150,439 21,591,188 10,570,190 Net change in fund $ 4,263,410 $ 1,432,845 $ (2,830,591) $ 10,779,704 $ (287,186) $ (792,744) $ 2,967,556 $ 8,985,412 $ 20,847,376 $ 4,735,274 Debt service as a percentage of noncapital expenditures……… 13.09% 3.05% 2.87% 3.19% 3.31% 3.49% 3.74% 3.71% 3.36% 3.73% The Commonwealth is legally obligated to fund the Salem teachers retirement. Therefore the revenue and expenditure has been recorded in accordance with GASB 24. In 2014 the City approved and established the Community Preservation Fund. The City received a $15.8 million grant from the Commonwealth to pay down $15.6 million in school debt issued in 2013. Changes in Fund Balances, Governmental Funds Last Ten Years City of Salem, Massachusetts 142 Annual Comprehensive Financial Report ---PAGE BREAK--- Total Total Total Residential Residential Commercial Industrial Personal Commercial Commercial Direct City Year Value Tax Rate Value Value Property Value Tax Rate Rate Value 2013 $ 3,227,554,748 $ 16.38 $ 420,436,783 $ 116,029,720 $ 163,211,490 $ 699,677,993 $ 31.46 $ 19.07 $ 3,927,232,741 2014 3,265,724,508 16.73 421,704,398 115,505,220 160,002,170 697,211,788 32.05 19.43 3,962,936,296 2015 3,523,220,734 16.41 449,496,402 101,675,040 134,283,680 685,455,122 30.99 18.78 4,208,675,856 2016 3,802,708,194 15.67 479,297,217 108,008,340 144,065,880 731,371,437 29.55 17.91 4,534,079,631 2017 3,802,708,194 15.86 478,990,259 108,442,340 183,684,630 771,117,229 29.99 18.24 4,573,825,423 2018 4,249,989,014 15.38 483,778,163 131,020,400 202,795,500 817,594,063 29.97 17.73 5,067,583,077 2019 4,606,817,409 15.10 511,657,866 144,705,400 207,287,510 863,650,776 29.55 17.38 5,470,468,185 2020 5,043,728,493 14.45 556,513,446 319,546,560 205,396,370 1,081,456,376 28.42 16.92 6,125,184,869 2021 5,442,241,557 13.80 592,716,641 323,387,300 250,492,890 1,166,596,831 27.60 16.24 6,608,838,388 2022 5,904,892,027 13.25 611,299,183 343,903,330 258,562,250 1,213,764,763 26.31 15.48 7,118,656,790 Source: Assessor's Department, City of Salem All property in the Commonwealth of Massachusetts is assessed at 100% of fair cash value. Note: Chapter 59, Section 21C of the Massachusetts General Laws, known as "Proposition 2 1/2", imposes 2 separate limits on the annual tax levy of the City. The primary limitation is that the tax levy cannot exceed 2 1/2 percent of the full and fair cash value. The secondary limitation is that the tax levy cannot exceed the maximum levy limit for the preceding year as determined by the State Commissioner of Revenue by more than 2 1/2 percent, subject to an exception for property added to the tax rolls and for certain substantial valuation increases other than as part of a general revaluation. The secondary limit may be exceeded in any year by a majority vote of the voters, however it cannot exceed the primary limitation. Assessed Value and Actual Value of Taxable Property by Classification and Tax Rates Last Ten Years Assessed and Actual Values and Tax Rates 82.35% 8.97% 4.89% 3.79% Total Assessed Value by Classification Year Ended June 30, 2021 Residential Commercial Industrial Personal Property 10.0% 11.0% 12.0% 13.0% 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Commercial Value as % of Total Value 82.95% 8.59% 4.83% 3.63% Total Assessed Value by Classification Year Ended June 30, 2022 Residential Commercial Industrial Personal Property City of Salem, Massachusetts 143 Annual Comprehensive Financial Report ---PAGE BREAK--- Percentage of Percentage of Total Taxable Total Taxable Nature of Assessed Assessed Assessed Assessed Name Business Valuation Rank Value Valuation Rank Value Footprint Power Power Plant - Industrial $198,769,400 1 2.79% $49,756,000 1 1.27% New England Power Co./Boston Gas Personal & Industrial $73,711,630 2 1.04% $31,888,090 3 0.81% Mass Electric Personal Property $59,359,050 3 0.83% $33,906,380 2 0.86% Prime Storage Shetland, LLC Industrial & Commercial $55,954,400 4 0.79% $26,955,700 4 0.69% National Grid Personal & Industrial $53,986,400 5 0.76% $25,257,750 5 0.64% Bell Fund V (Salem Station LLC) Apartments $70,790,800 6 0.99% $33,943,300 8 0.86% Algonquin Gas Transmission Industrial & Commercial $31,921,500 7 0.45% $20,850,600 7 0.53% Highlander Plaza Commercial Property $31,668,100 8 0.44% $21,699,700 6 0.55% Princeton Crossing Apartments Apartments $52,220,900 9 0.73% $27,078,700 9 0.69% MIREF Hawthorne LLC Apartments $51,595,200 10 0.72% - - Verizon New England Personal property - - $13,244,900 10 0.34% Totals $679,977,380 9.6% $284,581,120 7.2% Source: Board of Assessors 2022 2013 Principal Taxpayers Current Year and Nine Years Ago City of Salem, Massachusetts 144 Annual Comprehensive Financial Report ---PAGE BREAK--- Percent of Less Percent of Delinquent Total Total Tax Total Abatements & Net Current Net Levy Tax Tax Collections to Year Tax Levy Exemptions Tax Levy Tax Collections Collected Collections Collections Net Tax Levy 2013 $ 74,879,216 $ 420,829 $ 74,458,387 $ 73,069,108 98.1% $ 1,389,279 $ 74,458,387 100.0% 2014 76,981,209 337,606 76,643,603 75,905,195 99.0% 738,408 76,643,603 100.0% 2015 79,058,306 354,811 78,703,495 78,006,777 99.1% 696,718 78,703,495 100.0% 2016 81,200,463 341,538 80,858,925 80,580,642 99.7% 278,283 80,858,925 100.0% 2017 85,600,551 364,920 85,235,631 84,518,157 99.2% 717,474 85,235,631 100.0% 2018 89,868,125 705,771 89,162,354 88,816,390 99.6% 345,964 89,162,354 100.0% 2019 95,083,826 701,588 94,382,238 94,317,747 99.9% 64,491 94,382,238 100.0% 2020 103,616,867 706,640 102,910,227 102,518,341 99.6% 391,886 102,910,227 100.0% 2021 107,301,006 832,919 106,468,087 105,541,964 99.1% 926,123 106,468,087 100.0% 2022 110,173,970 911,581 109,262,389 108,826,812 99.6% - 108,826,812 99.6% Source: Massachusetts Department of Revenue; Board of Assessors Property Tax Levies and Collections Last Ten Years City of Salem, Massachusetts 145 Annual Comprehensive Financial Report ---PAGE BREAK--- General General Total Percentage Percentage U. S. Census Personal Assessed Obligation Obligation Direct Outstanding Per of Personal of Assessed Year Population Income Value Bonds Leases Bonds Borrowings Leases Debt Capita Income Value 2013 41,654 $ 1,285,525,748 $ 3,927,232,741 $ 35,291,962 $ 619,317 $ 14,941,402 $ 1,729,422 $ - $ 52,582,103 $ 1,262 4.09% 1.34% 2014 41,340 1,301,351,782 3,962,936,296 39,943,717 626,059 17,204,000 1,621,303 105,047 59,500,126 1,439 4.57% 1.50% 2015 42,544 1,282,020,896 4,208,675,856 43,473,824 698,595 18,424,000 1,511,000 257,054 64,364,473 1,513 5.02% 1.53% 2016 42,544 1,083,723,312 4,534,079,631 50,735,271 2,211,224 28,268,426 1,398,468 274,554 82,887,943 1,948 7.65% 1.83% 2017 42,544 1,445,049,504 4,573,825,423 47,959,069 2,250,280 29,993,450 1,283,663 226,416 81,712,878 1,921 5.65% 1.79% 2018 41,340 1,161,075,240 5,067,583,077 49,229,007 2,346,553 37,697,556 1,166,539 67,083 90,506,738 2,189 7.80% 1.79% 2019 42,869 1,243,543,952 5,470,468,185 53,489,896 1,902,608 39,687,779 1,047,049 - 96,127,332 2,242 7.73% 1.76% 2020 43,226 1,563,138,612 6,125,184,869 60,242,882 1,846,952 41,933,073 925,145 - 104,948,052 2,428 6.71% 1.71% 2021 44,480 1,708,032,000 6,608,838,388 79,143,663 1,114,179 43,587,413 800,778 - 124,646,033 2,802 7.30% 1.89% 2022 44,480 1,708,032,000 6,608,838,388 84,078,052 4,788,055 44,872,464 673,898 - 134,412,469 3,022 7.87% 2.03% Source: Audited Financial Statements, U. S. Census Ratios of Outstanding Debt by Type Last Ten Years Governmental Activities Business-type Activities Total Primary Government City of Salem, Massachusetts 146 Annual Comprehensive Financial Report ---PAGE BREAK--- General Percentage Percentage U. S. Census Personal Assessed Obligation Per of Personal of Assessed Year Population Income Value Bonds Capita Income Value 2013 41,654 $ 1,285,525,748 $ 3,927,232,741 $ 50,233,364 $ 1,206 3.91% 1.28% 2014 41,340 1,301,351,782 3,962,936,296 57,147,717 1,382 4.39% 1.44% 2015 42,544 1,282,020,896 4,208,675,856 61,897,824 1,455 4.83% 1.47% 2016 42,544 1,083,723,312 4,534,079,631 79,003,697 1,857 7.29% 1.74% 2017 42,544 1,445,049,504 4,573,825,423 77,952,519 1,832 5.39% 1.70% 2018 41,340 1,161,075,240 5,067,583,077 86,926,563 2,103 7.49% 1.72% 2019 42,869 1,243,543,952 5,470,468,185 93,177,675 2,174 7.49% 1.70% 2020 43,226 1,563,138,612 6,125,184,869 102,175,955 2,364 6.54% 1.67% 2021 44,480 1,708,032,000 6,608,838,388 122,731,076 2,759 7.19% 1.86% 2022 44,480 1,708,032,000 6,608,838,388 122,731,076 2,759 7.19% 1.86% Source: Audited Financial Statements, U. S. Census Ratios of General Bonded Debt Outstanding Last Ten Years Total Primary Government City of Salem, Massachusetts 147 Annual Comprehensive Financial Report ---PAGE BREAK--- Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable Debt Overlapping debt: Essex North Shore Agricultural & Technical School…………$ 26,065,000 9.97% $ 2,599,910 Direct debt: Right to use lease 4,788,055 Capital 510,485 Governmental bonds 83,567,567 City total direct 88,866,107 Total direct and overlapping 91,466,017 Source: Treasurer and Essex North Shore Agricultural & Technical School 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 City. This process recognizes that, when considering the City'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 Essex North Shore Agricultural & Technical School is based on the number of students attending from the City of Salem as a percentage of all students at the Regional School. Direct and Overlapping Governmental Activities Debt As of June 30, 2022 City of Salem, Massachusetts 148 Annual Comprehensive Financial Report ---PAGE BREAK--- 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Equalized Valuation…………………………$ 4,256,808,900 $ 4,191,566,000 $ 4,191,566,000 $ 4,757,173,700 $ 4,757,173,700 $ 5,354,781,400 $ 5,354,781,400 $ 6,602,630,500 $ 6,641,110,700 $ 7,739,164,400 Debt Limit of Equalized Valuation……$ 212,840,445 $ 209,578,300 $ 209,578,300 $ 237,858,685 $ 237,858,685 $ 267,739,070 $ 267,739,070 $ 330,131,525 $ 332,055,535 $ 386,958,220 Less: Outstanding debt applicable to limit……… 19,976,500 23,966,500 30,306,500 32,996,153 36,040,315 40,102,544 37,522,000 47,851,731 50,962,000 67,755,600 Authorized and unissued debt……………… 46,646,035 36,905,041 28,415,041 60,521,980 49,272,080 37,700,822 61,697,012 55,805,827 91,477,893 50,611,290 Legal debt 146,217,910 $ 148,706,759 $ 150,856,759 $ 144,340,552 $ 152,546,290 $ 189,935,704 $ 168,520,058 $ 226,473,967 $ 189,615,642 $ 268,591,330 Total debt applicable to the limit as a percentage of debt limit…………… 31.30% 29.04% 28.02% 39.32% 35.87% 29.06% 37.06% 31.40% 42.90% 30.59% Source: Audited Financial Statements; Statement of Indebtedness; and the Massachusetts Department of Revenue, Bureau of Local Assessment. Last Ten Years Computation of Legal Debt Margin City of Salem, Massachusetts 149 Annual Comprehensive Financial Report ---PAGE BREAK--- Per Capita Population Personal Personal Median School Unemployment Year Estimates Income Income Age Enrollment Rate 2013 41,654 $ 1,285,525,748 $ 30,862 36.5 4,501 7.6% 2014 41,340 1,301,351,782 31,479 39.2 4,478 6.2% 2015 42,544 1,282,020,896 30,134 38.4 4,222 5.6% 2016 42,544 1,083,723,312 25,473 38.2 3,949 4.7% 2017 42,544 1,445,049,504 33,966 39.1 4,144 3.7% 2018 41,340 1,161,075,240 28,086 39.4 3,737 4.2% 2019 42,869 1,243,543,952 29,008 39.6 4,024 3.1% 2020 43,226 1,563,138,612 36,162 * 39.5 3,620 20.4% 2021 44,480 1,708,032,000 38,400 37.1 3,734 6.4% 2022 44,819 1,779,179,843 39,697 38.2 3,665 3.5% Note: *Per Capita Personal Income based on DOR Community Comparison Report (2014-2018 Figures available) **Unemployment rates in FY 2020 were 3.2% as of March 20th, prior to COVID 19 pandemic Source: Massachusetts Department of Revenue, Division of Local Services; City Clerks office, Workforce Board Demographic and Economic Statistics Last Ten Years City of Salem, Massachusetts 150 Annual Comprehensive Financial Report ---PAGE BREAK--- Percentage of Percentage of Nature of Total City Total City Employer Business Employees Rank Employment Employees Rank Employment North Shore Medical Center Healthcare 4,291 1 19.2% 4,263 1 19.3% City of Salem Municipal Government 1,665 2 7.5% 1,525 2 6.9% Salem State University Higher Education 1,332 3 6.0% 1,450 3 6.6% Commonwealth of Massachusetts State Government 567 4 2.5% 472 6 2.1% Market Basket Food Market 400 5 1.8% 500 5 2.3% Salem Five Savings Banking 354 6 1.6% 236 8 1.1% Excelitas Technologies Technology 150 7 0.7% - - Home Depot Retail 208 8 0.9% 210 9 - Walmart Retail 150 9 0.7% 163 10 - Peabody Essex Museum Cultural/Tourism 202 10 0.9% 241 7 1.1% Shaughnessy Health Care - - 538 4 2.4% 9,319 41.8% 9,598 41.7% Source: The City Planning Department In past years the City was excluded from the Principal Employers table. Principal Employers Current Year and Nine Years Ago 2022 2013 City of Salem, Massachusetts 151 Annual Comprehensive Financial Report ---PAGE BREAK--- 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Function General government……………… 35 37 38 56 65 91 88 73 80 87 Public safety……………………… 203 210 211 210 214 206 206 222 216 221 Education…………………………… 890 841 841 1,008 860 980 881 881 881 881 Public 39 41 41 58 60 40 43 43 49 38 Engineering………………………… 1 1 1 3 4 10 12 11 10 13 Health and human services……… 15 14 13 15 16 18 11 17 17 20 Culture and recreation…………… 23 24 24 25 25 25 35 27 25 30 Total 1,206 1,168 1,169 1,375 1,244 1,370 1,275 1,274 1,278 1,291 Source: Various City Departments Full-time Equivalent City Employees by Function Last Ten Years City of Salem, Massachusetts 152 Annual Comprehensive Financial Report ---PAGE BREAK--- Function/Program 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 General government Marriage recordings…………………………………… 324 365 338 337 352 346 356 427 448 435 Birth recordings……………………………………… 1,452 1,566 1,659 1,539 1,560 1,518 1,548 1,418 1,425 1,506 Death recordings……………………………………… 484 560 605 520 474 566 578 663 710 770 Police Physical 1,307 1,597 2,509 2,455 1,320 2,025 2,063 1,601 1,573 1,486 Motor vehicle violations……………………………… 6,161 7,936 8,660 6,267 5,764 5,437 7,727 5,330 5,427 5,685 Police personnel and officers………………………… 99 100 103 101 110 115 128 122 119 127 Fire 1,307 1,192 1,545 2,047 1,470 1,126 821 716 571 1,851 Emergency responses……………………………… 6,161 6,292 6,752 7,054 7,116 7,576 5,315 5,546 6,009 7,388 Fire personnel and officers…………………………… 86 88 88 88 88 88 88 88 88 88 Education Number of 4,501 4,478 4,222 3,949 3,831 4,065 4,096 3,939 3,734 3,665 Number of graduates………………………………… 275 275 271 211 228 228 219 184 204 226 Number of 540 542 571 521 464 510 503 354 324 360 Water Service connections………………………………… 11,729 11,827 9,833 9,998 10,136 10,009 10,218 10,155 10,269 10,191 Consumption in 1,934 1,898 1,898 1,612 1,504 1,500 1,297 1,711 1,101 1,076 Daily consumption 5.30 5.00 4.00 5.20 4 6 4.2 4.7 3.0 2.9 Sewer Service connections………………………………… 11,719 11,807 9,813 9,988 9,881 9,894 9,903 9,944 9,965 9,975 Health and human services Number of persons using COA transportation…… 16,170 12,698 14,704 11,479 12,575 18,548 19,290 13,073 3,236 11,096 Libraries Volumes in circulation…………………………………162,486 168,263 172,628 163,038 177,858 169,299 166,544 172,672 161,690 168,637 Total volumes borrowed……………………………… 471,416 430,391 397,810 353,800 356,973 328,276 337,782 239,099 154,458 235,498 Source: Various City Departments; Massachusetts Department of Education Operating Indicators by Function/Program Last Ten Years City of Salem, Massachusetts 153 Annual Comprehensive Financial Report ---PAGE BREAK--- Function/Program 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 General government Number of buildings…………………… 2 2 2 2 2 2 2 2 2 2 Police Number of stations……………………… 1 1 1 1 1 1 1 1 1 1 Fire Number of stations……………………… 4 4 4 4 4 4 4 4 4 4 Education Number of elementary schools……… 7 7 7 7 7 7 6 6 6 6 Number of middle schools…………… 1 1 1 1 1 1 1 1 1 1 Number of high schools……………… 1 1 1 1 1 1 1 1 1 1 Public Works Water mains 102 102 102 102 102 102 102 102 102 102 Number of personnel…………………… 14.7 13.8 13.8 21 21 18 27.9 27.9 26.9 35 Culture and recreation Parks and playgrounds………………… 35 35 35 35 35 36 36 36 36 Park and playground (acreage)……… 230 230 230 230 230 230 230 230 230 230 Conservation land (acreage)………… 128 128 128 128 128 128 128 128 128 128 Railroad right of way (acreage)……… 89 89 89 89 89 89 89 89 89 89 Public beaches………………………… 7 7 7 7 7 7 7 7 7 7 Ball 13 13 13 13 13 13 13 13 13 13 Tennis 10 10 10 10 10 10 10 10 10 10 Source: Various City Departments, Manual of the City Government Capital Asset Statistics by Function/Program Last Ten Years City of Salem, Massachusetts 154 Annual Comprehensive Financial Report ---PAGE BREAK--- Free Stabilization Year Cash Funds $ 16,293,365 $ 14,521,140 17,444,553 10,755,136 8,951,313 9,563,649 7,638,739 7,778,566 FY2018…………………… 5,949,483 6,511,290 FY2017…………………… 4,922,937 6,037,015 FY2016…………………… 5,380,858 5,531,963 FY2015…………………… 4,949,767 5,440,226 FY2014…………………… 3,349,683 5,173,812 . FY2013…………………… 5,498,710 3,438,799 Source: City Records Free Cash and Stabilization Fund Balances Last Ten Years City of Salem, Massachusetts 155 Annual Comprehensive Financial Report