Document Salem_doc_d408e436f0

CITY OF SALEM MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2014 Kimberley L. Driscoll, Mayor Sarah A. Stanton, Finance Director Prepared by the City of Salem Finance Department ---PAGE BREAK--- On the Cover – Salem Willows Neighborhood– View from Salem Harbor The Friendship Sailing Ship at Pickering Wharf The Friendship is a reconstruction of a 171-foot three-masted Salem East Indiaman built in 1797. She is the largest wooden, Coast Guard certified, sailing vessel to be built in New England in more than a century. The replica is based on a model of the original Friendship at the Peabody Essex Museum, as well as several paintings of the ship and numerous documents, including logs of the ship's voyages. The new Friendship is part of the National Park Service's larger exhibit area at Salem Maritime National Historic Site. She is a fully operational sailing vessel but stays close to home so that everyone can come aboard. On special occasions she sails as Essex County's flagship, visiting ports along our coast to join in maritime festivals and events. ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2014 Prepared by Finance Department ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2014 TABLE OF CONTENTS Introductory Section 1 Letter of Transmittal 3 Organizational Chart 14 Principal Executive Officers 15 Certificate of Achievement for Excellence in Financial Reporting 16 Distinguished Budget Presentation Award 17 Financial Section 19 Independent Auditor’s Report 21 Management’s Discussion and Analysis 23 Basic Financial Statements 34 Statement of net position 35 Statement of activities 36 Governmental funds – balance sheet 38 Reconciliation of the governmental funds balance sheet total fund balances to the statement of net position 39 Governmental funds – statement of revenues, expenditures and changes in fund balances 40 Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of activities 41 Proprietary funds – statement of net position 42 Proprietary funds – statement of revenues, expenses and changes in net position 43 Proprietary funds – statement of cash flows 44 Fiduciary funds – statement of fiduciary net position 45 Fiduciary funds – statement of changes in fiduciary net position 46 Notes to basic financial statements 47 Required Supplementary Information 81 General fund budgetary comparison schedule 82 General fund schedule of revenues, expenditures and changes in fund balance – budget and actual 83 Retirement system schedules 88 Retirement system schedule of funding progress 89 Retirement system schedule of employer contributions 90 ---PAGE BREAK--- Other postemployment benefit plan schedules 91 Other postemployment benefit plan schedule of funding progress and employer contributions 92 Other postemployment benefit plan actuarial methods and assumptions 93 Notes to required supplementary information 94 Combining and Individual Fund Statements 97 Nonmajor governmental funds 98 Nonmajor governmental funds – combining balance sheet 101 Nonmajor governmental funds – combining statement of revenues, expenditures, and changes in fund balances 104 Private purpose trust funds 107 Private purpose trust funds – combining statement of net position 108 Private purpose trust funds – combining statement of changes in net position 109 Agency fund 110 Agency fund – statement of changes in assets and liabilities 111 Statistical Section 113 Net position by component – last ten years 114 Changes in net position – last ten years 115 Fund balances, governmental funds – last ten years 116 Changes in fund balances, governmental funds – last ten years 117 Assessed value and actual value of taxable property by classification and tax rates – last ten years 118 Principal taxpayers – current year and nine years ago 119 Property tax levies and collections – last ten years 120 Ratios of outstanding debt and general bonded debt – last ten years 121 Direct and overlapping governmental activities debt – as of June 30, 2014 122 Computation of legal debt margin – last ten years 123 Demographic and economic statistics – last ten years 124 Principal employers (excluding City) – current year and nine years 125 Full-time equivalent City employees by function – last ten years 126 Operating indicators by function/program – last ten years 127 Capital asset statistics by function/program – last ten years 128 Free cash and stabilization fund balances – last ten years 129 ---PAGE BREAK--- Introductory Section Salem Willows Park The Salem Willows offers beautiful shaded seaside grounds, scenic ocean views, public pier, and band stand for concerts, picnic areas, beaches, children’s rides, activities and many eateries. One of Salem’s treasures, this park has a fascinating history. Salem Willows is renowned for the European white willow trees planted here in 1801 to form a shaded walk for patients convalescing at the old smallpox hospital. Later the area became a park. During the first half of the 20th century, Restaurant Row on the park's north shore served fresh seafood favored by locals and visitors alike. A carousel with carved flying horses was another special attraction at Salem Willows, which then, as now, operated as an entertainment center. Visitors still flock here during the summer to enjoy the sunshine, the arcade and the park's ample picnic grounds and recreational facilities. Annual Read Picnic and Science Fair-Salem Willows for All Salem School children ---PAGE BREAK--- City of Salem, Massachusetts 1 Comprehensive Annual Financial Report Introductory Section ---PAGE BREAK--- City of Salem, Massachusetts 2 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 3 Comprehensive Annual Financial Report City of Salem, Massachusetts Finance Department 93 Washington Street Salem, MA 01970 Ph. [PHONE REDACTED] Ext 5625 Fax [PHONE REDACTED] [EMAIL REDACTED] Letter of Transmittal Sarah A. Stanton, Finance Director October 29, 2014 To the Honorable Mayor, Members of the City Council and Citizens of the City of Salem, Massachusetts: At the close of each fiscal year, state law requires the City of Salem to publish a complete set of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) that are audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the Comprehensive Annual Financial Report (CAFR) of the City of Salem, Massachusetts, for the year ending June 30, 2014 for your review. This report consists of management’s representations concerning the finances of the City. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City’s financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements for the fiscal year ended June 30, 2014, 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, 2014, 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 year ended June 30, 2014 are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report. The independent audit of the financial statements of the City was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with ---PAGE BREAK--- City of Salem, Massachusetts 4 Comprehensive Annual Financial Report special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City of Salem’s separately issued Single Audit Report. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement that analysis and should be read in conjunction with it. The City’s MD&A can be found immediately following the report of the independent auditors. Profile of the City The City of Salem, which was incorporated as a town in 1630 and became a city on March 23, 1836, is situated on the Massachusetts coast, 16 miles northeast of Boston. The City has a population of 41,340 and occupies a land area of approximately 8 square miles. The second city in the Commonwealth to be incorporated, it is the Shire City of Essex County. Salem has operated under the Plan B form of government, with a mayor and an eleven-person City Council, seven elected from wards, and four at-large, since 1915. The Mayor is elected for four years in November of unevenly-numbered years. The Mayor is the administrative head of the City and chairman ex-officio of the School Committee, the Board of Library Trustees, and the Board of Trust Fund Commissioners. The Mayor acts with the City Council and School Committee to carry out City business. The Mayor appoints her office staff, the City Solicitor, and the Assistant City Solicitor without City Council confirmation. The appointments of most City department heads, and members of the various boards and commissions, however, require City Council confirmation. The Mayor has the right to veto any order, resolution, or ordinance passed by the Council. However, a veto may be overturned by a two-thirds vote of all councilors. After reviewing and revising estimates prepared by department heads, the Mayor submits the budget to the City Council for final action. The Mayor approves all municipal payrolls, vouchers, contracts and instruments; and recommends bond issues, legislations and orders to the City Council; and represents the City with other levels of government. As the general administrator of all City departments, the Mayor is consulted by department heads pertaining to the City’s welfare. The City Council is primarily the legislative branch of the City government. As the legislative body, the Council confirms appointments made by the Mayor and appropriates all monies necessary to City operation. It can approve, disapprove, or reduce the amount of appropriations, but not add to the appropriation. The Council receives orders of recommendation by the Mayor and petitions from the public, and acts on them after committee study. The City Council also has the power to enact the Ordinances and other regulations. A majority of the City Council constitutes a quorum, and the affirmative vote of a majority of all the members of the Council is necessary for the adoption of any motion resolution, or ordinance. In some instances, adoption by a two-thirds vote of the members is required by statute. The City provides general governmental services for the territory within its boundaries, including police and fire protection, disposal of garbage and rubbish (for residential properties); public education, including vocational- technical education at the high school level; street maintenance; certain water services, through the Salem and Beverly Water Supply Board; certain sewerage disposal services, through the South Essex Sewerage District; and parks and recreational facilities. Approximately 95% of the City is connected to the sewerage system; the entire area of the City is served by the municipal water system. Both the Salem and Beverly Water Supply Board and the South Essex Sewerage District qualify as joint ventures. Accordingly, the City’s equity interest in both entities has been included in the City’s basic financial statements. The Salem Housing Authority is responsible for managing 1,779 units of low income housing for the City. Buildings are either owned by the Authority, or are part of the rental subsidy program or the voucher program. Of the 1,179 units, 715 are public housing, 211 are designated for families, and 465 are for elderly housing. These units are owned and operated by the Authority. The Salem Housing Authority does not meet the criteria to be considered a component unit of the City. The ---PAGE BREAK--- City of Salem, Massachusetts 5 Comprehensive Annual Financial Report principal highways serving the City are state Routes 1A, 107, and 114, all of which provide immediate access to Routes 1 and 128 and other major highways serving the greater Boston area. The City is a member municipality of the Massachusetts Bay Commuter Railroad, which provides passenger and freight service. Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without recommendation of the Mayor, the City Council may not increase any item or make an appropriation for a purpose not included in the proposed budget (except by a two-thirds vote in case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the City Council, pursuant to state statute). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. The amount raised on the tax recapitulation sheet approved by the Department of Revenue for fiscal year 2014 totaled approximately $143 million, which includes Real & Personal Property tax revenue, State Revenues, MSBA Revenue, local revenues, transfers in of approximately $1 million from Receipts Reserved Harbormaster, Witch House and Golf Course (to reduce tax rate), other receipts reserved transfers, and approximately $1.5 million of indirect costs from the Water & Sewer Enterprise funds. These revenues cover general fund budgeted expenses and deficits raised including snow and ice, school lunch, and to fund the Retirement Stabilization Fund and Capital Improvement Projects Fund. These also include enterprise fund expenses. The City includes the Salem Contributory Retirement System (the System) in its financial reporting since the City represents approximately 85% of the members of the System. The System was established to provide retirement benefits to its members, including employees and beneficiaries of the City of Salem, the Salem-Beverly Water Supply Board, the Salem Housing Authority, the South Essex Sewerage District, and the North Shore Regional Vocational School System. Per the Pension Reserves Investment Management Board July 2014 report, the market value of the System’s assets totaled $136 million with 96% of the funds invested in the State’s Pension Reserve Investment Trust’s (PRIT) Core Fund. Factors Affecting Economic Condition The City of Salem is a historic waterfront community that has a rich cultural heritage, known worldwide for its architecture, maritime history, literary prominence, and hysteria. For this reason, tourism is one of the City’s major industries, accommodating almost one million visitors each year. Salem originated as one of the earliest landing sites of the English colonists, and went on to rise as the first major port in the United States, opening up the East Indian trade. In its heyday, Salem was known as a thriving hub of American commerce and was the home of Nathaniel Hawthorne. Salem is well known for the infamous Salem Trials of 1692, when nineteen people were convicted for the crime of and were put to their deaths. The City's golden years have left her modern inhabitants with architectural treasures, fine museums, and a sparkling literary heritage. Equally important, the development of Salem has produced a rich ethnic history, to which people of all races, creeds, colors and origins have contributed over the generations. Long a trading, manufacturing and retail center, Salem has been making a slow, and sometimes painful, transition to a service- based economy. The City today serves as the home of Salem State University, the North Shore Medical Center, the Essex County District Superior and Probate Courts, and Registry of Deeds, the world-famous Peabody Essex Museum, and a host of banks and other financial institutions. It is the educational, medical, legal, cultural and banking hub of the North Shore. Salem also boasts an impressive collection of historically significant residential structures that are always in high demand. The uniqueness of these historic homes, coupled with a growing downtown condominium market, has helped boost home sales prices in Salem. ---PAGE BREAK--- City of Salem, Massachusetts 6 Comprehensive Annual Financial Report Private Development FY14/15 Riley Plaza East Parcel B Mixed Use Development at Washington and Dodge Streets The City Council recently approved the sale of a City owned 38 space parking lot to Dodge Area LLC. The developer plans to fold this property into a proposed larger $45 million mixed-use development that would utilize adjacent properties it already owns. Proposed is an approximately 100 room hotel, a new 245 space parking structure located behind the street front that would maintain 38 spaces for public access, approximately 20,000 square feet of ground floor retail and commercial space, 80 residential units, and 3 live/work units. In June of 2014 the Salem Redevelopment Authority approved a proposed schematic design for this project. The Planning Board began its review of the project in September 2014. The City views this project as a viable way to effectively extend its downtown that has been experiencing significant investment and growth. Old Salem Jail (Phase II) New Boston Ventures, which repurposed the former “Old Salem Jail” into new condominiums with a restaurant space on the ground level, is moving forward with a second phase of development, which will include the construction of a new building on the site. The building will house 13 new condominium units and include off- street tandem parking spaces. The project has been approved by both the Salem Redevelopment Authority and Planning Board, and is scheduled to begin construction in the fall of 2014. The addition of multi-family housing in Salem’s downtown will continue to add to the area’s vibrancy and provide more opportunities for local businesses to attract customers. Peabody Essex Museum The first phase - an “enabling phase” that includes the construction of a mechanical penthouse that will support the future expansion - of a proposed $200 million expansion for the Peabody Essex Museum (PEM) is complete. The original proposal for expansion included 175,000 square feet of additional space, which will add approximately 75,000 square feet of new gallery, public program and education spaces, a restaurant, as well as improvements to the museum’s collection, conservation and exhibition processing areas. This proposal is subject to change due to the PEM recently selecting a new architectural firm – Ennead Architects of New York – to oversee the balance of the expansion, which was last projected to be complete by 2019. Gateway Center A $30 million proposed development to include the City’s senior center and professional offices received approval from all necessary City boards in August of 2010. In 2013, the City approved a Bond for the construction of a 20,000 square foot Senior Center on the first floor. The City anticipates that the development, which will be built upon a now abandoned five acre property that once housed a Sylvania lighting plant, will catalyze more economic development opportunities along its North River Canal and Boston Street corridors. St. Joseph’s Church Redevelopment Project Demolition of former St. Joes Church and school and construction of new four-story, mixed-use building which includes 51 affordable dwelling units, 4,560 sq. ft. of commercial space, and a 1,000 sq. ft. community center was completed and occupied in 2014. Salem Power Station The coal and oil-fired plant closed in May 2014. All litigation has been resolved and demolition has begun. A new 670 megawatt, $800 million natural gas plant will be constructed and is scheduled to open in 2016. A Community Benefits Agreement is being negotiated with plant owners, Footprint Energy Inc. and is expected to contain a range of benefits including significant tax revenue. ---PAGE BREAK--- City of Salem, Massachusetts 7 Comprehensive Annual Financial Report Salem Waterfront Hotel & Suites Expansion Located in Pickering Wharf on Congress and Derby Streets, the existing Salem Waterfront Hotel & Suites has received local approvals for the demolition of an existing marina building, and construction of a second hotel building that will be five stories high, 72,574 gross square feet, and house an additional 42 hotel units, a restaurant, function spaces, and public facilities associated with the marina. The project includes construction of a “harbor walk” along the waterfront of the property, which will be a part of the larger Harbor Walk network along the South River. North River Apartments This development is the first of several proposed mixed-use developments for the North River Canal Corridor area to be constructed. It received local approvals in 2007, and is slated to be completed and occupied in September 2015. It is a four-story structure with 6,000 square feet of commercial/retail space on the first floor and 44 residential units on the three upper floors. This project also includes construction of a public multi-use path along the property’s frontage on the North River Canal. Riverview Place Another project in the North River Canal Corridor, this mixed-use development went through local permitting in 2009. The project is now back before local permitting bodies for amendments to the original approvals, as changes to the plans were required for approval at the State level under Chapter 91 and MEPA. The proposed development includes 130 residential units and 5,000 square feet of commercial space, as well as parking, landscaping, and a public waterfront multi-use path along the North River canal. Public Infrastructure Improvements FY14/15 Street Light Acquisition/LED Conversion The City purchased the street light system from National Grid for $1 in August 2014. The acquisition of all 3,276 lights will save the City approximately $280,000 per year. This savings is accomplished by ending leasing and maintenance payments to National Grid and assuming all responsibility for maintaining the street lights. The Electric Department will realize much of the savings as street lighting is under their budget and will also be taking responsibility for the maintenance. Other departments who pay for street lights that will also see savings in their budgets are the Parks and Recreation Departments and the Parking Department. The Energy and Sustainability Manager is currently working with MAPC on a group procurement to convert all the current high pressure sodium fixtures to LED lights, which are more energy efficient and will save the City money. The LEDs will achieve 60-70% energy and cost reduction and save the City an additional $180,000 per year. Additional benefits for converting to LEDs are increased public safety using a whiter, clearer light and more uniform lighting levels throughout the City. Essex Street Pedestrian Mall Improvements A second round of improvements to the Essex Street Pedestrian Mall wrapped up in September of 2013. The work included the removal and bricking over of planting beds, removal and bricking over of cobblestone parking tabs, the removal and resetting of all cobblestone on a concrete slab, the removal and replacement of eight trees, the demolition and removal of an information kiosk, the relocation of utilities into a new electrical cabinet, and the installation of eight new bollards. The Town Pump Fountain at the head of Essex Street at Washington Street is currently being rehabilitated. The basin area is being reduced and replaced with etched concrete, new grating is being installed, and all functions of the fountain are being restored. The project will be complete in the fall of 2014. ---PAGE BREAK--- City of Salem, Massachusetts 8 Comprehensive Annual Financial Report Salem Wharf Construction The City is carrying out the $20 million construction of a concrete and steel pier and floating dock system with utilities to accommodate a variety of vessels including the Salem Ferry, cruise ships, excursion boats, water taxis and commercial fishing boats. Construction began in 2010 and is about 70% complete. The deep-water cruise terminal facility is nearing completion and is expected to begin hosting cruise ships in 2014. Project costs are primarily funded with State and Federal grants. Successful development of this facility will provide a major economic boost for the region by expanding markets in the tourism industry and by creating opportunity for new, innovative marine industry. Bertram Field The City completed its renovation of Bertram Field football stadium and track. The field was converted to turf which requires far less maintenance and can stand up to heavy use. The track was expanded to regulation size. Cost of the project is $1.9 million and was partially funded with a MA PARC grant in the amount $400,000. The project was completed on schedule and the new facilities are now in use. Splaine Park The City was awarded a $420,946 grant by the MA Office of Environmental Affairs to fund a full renovation including the ballpark, community gardens, new play equipment, enhanced park entrances and installation of an irrigation system. The City matched the grant with $216,851 and the park was recently completed. Salem Common Fence A second phase of restoration of the historic cast iron Salem Common fence is currently underway utilizing a combination of City of Salem, Community Preservation Act, and Massachusetts Preservation Projects Funding. This phase will be completed June 2015 for an estimated cost of $250,000. North Street Fire Station The City was awarded a $71,000 grant by the Massachusetts Historical Commission to fund masonry improvements and a window restoration at the Station #2 Fire House located at 142 North Street. City of Salem funding is being utilized as a 100% match. Lafayette St. Intersection Improvements The City was awarded $1 million Public Works Economic Development (PWED) grant to carry out needed roadway improvements including signalization on Lafayette St. from Harbor St. to Washington and Dow Streets and the project was successfully completed. Causeway Park Construction MA Department of Transportation is constructing a new waterfront park near the entrance to the Beverly-Salem Bridge. Construction Cost is estimated at $1.4 million. The project was bid and the contractor selected. MBTA Garage In July 2013 the MBTA began construction of a new $34 million garage, pedestrian bridge, and improved platform. The project is expected to be completed in the fall of 2014. Commuter rail and bus service to and from the Salem station is still available during construction. The new Salem Station and Parking Garage will be fully accessible with a new 9-Car high level platform and a lobby with two elevators in compliance with the Americans with Disabilities Act (ADA). Station access includes an at-grade bus platform, taxi lane and kiss-and-ride drop- off/pick-up area, pedestrian sidewalks and a pedestrian bridge from Bridge Street to the elevators and stairs down to the platform. There will be station upgrades to seating, lighting, signage systems, site improvements and landscaping. The new parking garage is being designed with 714 spaces. The garage will include parking for electric vehicles, accessible parking on each level, zip car parking, and bicycle parking, and a parking control system. The construction has been substantially completed by the fall of 2014. ---PAGE BREAK--- City of Salem, Massachusetts 9 Comprehensive Annual Financial Report Courthouse Re-Use The City is working with the Division of Capital Management and Maintenance (DCAMM) on the re-use of the Superior Court, County Commissioner’s Building and District Court, which were vacated upon the completion of the new J. Michael Ruane judicial Center. Legislation was recently passed by the State House and Senate, and subsequently signed by the Governor, to allow for DCAMM to convey the District Court property to the Salem Redevelopment Authority (SRA). The SRA will release an RFP in fall of 2014 to solicit development proposals, and the property will be conveyed after an appropriate development scenario is substantially completed. The Secretary of State has expressed interest in the use of the Superior Court and County Commissioner’s Building for the relocation of the Essex County Registry of Deeds; hence legislation to allow the conveyance of those properties has not moved forward. The City also has a partnership with Destination Salem, who markets the City as a key destination for visitors to Massachusetts. Targeting visitors, leisure travelers, group tour, LGBT tourism, and international travelers, Destination Salem matches the City’s annual investment with private dollars invested by Salem’s tourism industry and grants to maintain a year-round marketing strategy that benefits Salem’s tourism industry, including the downtown restaurant and retail businesses. In 2012, domestic tourism spending generated nearly $89 million, which, when combined with international tourism expenditures resulted in more than $100 million in spending in Salem. In addition, Salem’s tourism industry supported more than 700 jobs in 2012, and generated payroll in excess of $19.4 million. According to the Massachusetts Workforce Development Agency, the City had a labor force of 24,702, of whom 23,222 were employed and 1,480, or 6% were unemployed. The Commonwealth, for the same period, had an unemployment rate of 6.1%. Financial Planning and Forecasting In fiscal year 2009, the City modified its budget format to improve upon its content and layout. The goal was to have a comprehensive budget that would allow an average person to read and comprehend the budget and budget process of the City. It also was modeled after several budgets that were submitted and approved for the Government Financial Officer’s Association (GFOA) “Distinguished Budget Presentation Award”. The new model included more narrative, including goals and objectives of each department, financial forecasts, policies and glossary of financial terms. It required a significant amount of work for all department heads and especially the finance division, who had to ensure all the materials were pulled together timely for submission to both the City Council and the GFOA. As a result of our efforts, the City has been awarded the GFOA’s “Distinguished Budget Presentation Award” for fiscal years 2009 through 2014. Included in the budget was the City’s Five Year Financial Forecast. This is the seventh year that such a forecast has been completed. This forecast acts as a useful tool to the Mayor and Council to better identify “budget busters” on the expenditure side and to also determine whether forecasted revenue growth is adequate for future expenses. Also included in the budget was the City’s Five Year Capital Improvement Plan (CIP) for the purpose of planning and maintaining the City’s capital and infrastructure. The CIP includes policies on debt service and capital improvement budgeting. As part of the fiscal year 2014 CIP, the City will use $190,000 of one time revenues for capital improvements, including various repairs at the police and fire departments, as well as infrastructure repairs of playground equipment. Other highlights of the fiscal year 2014 CIP include over $400,000 in police technology and public safety upgrades. ---PAGE BREAK--- City of Salem, Massachusetts 10 Comprehensive Annual Financial Report Fixed Costs ~ Health Insurance and Pension Assessment Health Insurance The City continues to explore options to contain the rising cost of health care for City employees/retirees. In fiscal year 2006, the City Council accepted the provisions of Massachusetts General Law chapter 32B, section 18, a Massachusetts statute requiring all Medicare-eligible retirees who are currently on self-insured plans to move from self-insured coverage to a fully insured Medicare supplement plan. This provision saved the City approximately $700,000 in fiscal 2007 and continues to realize savings for the City. This is a major cost saving initiative that will insure that all retirees over the age of 65 are treated consistently, while also providing greater control of costs associated with the City’s Healthcare Insurance. The City has used many different approaches to keep the cost of health insurance affordable as it relates to the overall budget of the City, including the procurement of new health care providers, modifications of existing plans, and collective bargaining to modify the employee/employer apportionment of costs. However, the most significant approach was enacted in FY2012 with the City Council’s adoption of the Municipal Health Care Reform Act (the Act). As part of the Act, the City was allowed to enter into the State’s Group Insurance Commission (GIC), which resulted in significant short term savings ($1.5 million in FY13), and long term savings for the City. In fact, the City was able to reduce its long term liability, also known as “other postemployment benefits” (OPEB) by $26 million dollars, from $171 million in 2010 to $145 million in 2012, per the City’s OPEB liability report performed by the Segal Company, the City’s contracted actuary. While there were significant savings for the City, the employees and retirees of the City will also receive financial savings of approximately $1 million for FY2014, as well as the long term stability of being a member of the State’s GIC plan. The savings to the City employees and retirees come from lower premiums, an increase in City’s contribution to PPO plans from 65% to 70%. The City also has agreed to pay all administrative fees for any person who wishes to enroll in a flexible spending account, which allows for pre-tax payments for certain medical costs, prescriptions, and some over the counter medications. Pension Assessment In fiscal year 2007, the Mayor appointed herself to the Salem Retirement Board. By doing so, Mayor Driscoll has taken an active role in managing the City’s retirement system. The annual assessment from the Retirement Board to the City continues to be one of the biggest budget busters year in and year out. During fiscal year 2009, the Retirement Board moved all available funds into the State’s Public Reserve Investment Trust (PRIT) to take advantage of its higher returns and lower administrative fees. Because of its size, the PRIT can diversify assets for maximum possible return. The Retirement Board shifted these assets voluntarily to the PRIT after a complete analysis and a vote of the Retirement Board. The City includes the Salem Contributory Retirement System (the System) in its financial reporting since the City represents approximately 85% of the members of the System. The System was established to provide retirement benefits to its members, including employees and beneficiaries of the City of Salem, the Salem-Beverly Water Supply Board, the Salem Housing Authority, the South Essex Sewerage District, and the Essex North Shore Agricultural and Technical High School District. Per the Pension Reserves Investment Management Board July 2014 report, the market value of the System’s assets totaled $136 million with 96% 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, 2014. The next actuarial valuation will take place in January 2016. The study was performed by the Segal Company and was delivered to the Retirement Board in April of 2014. The study reported the actuarial assets of ---PAGE BREAK--- City of Salem, Massachusetts 11 Comprehensive Annual Financial Report the system as of January 1, 2014 of $120.4 million and an unfunded liability of $117.1 million. The unfunded liability increased from January 1, 2012 by $9.6 million, partially due to the modest actuarial growth in 2012, in which the actuarial rate of return was 0.89%, while the assumed actuarial rate of return was 8.00%. It should be noted that the actuarial value of assets gradually recognizes market value fluctuations, resulting in an actuarial rate of return (0.89%) that is significantly lower than the market value rate of return (12.03%). As a result of the increased unfunded liability, and the lower than expected return on investment, the Board adopted a funding schedule which will fully amortize the existing unfunded liability plus the expected increases in unfunded liability due to the deferred investment losses by June 30, 2032 with amortization payments that increase 4.5% per year. The total fiscal 2014 appropriation for the system is $11,400,398, with the City’s share of 85% amounting to $9,686,094. Other Significant Financial Matters The Salem Harbor Power Station is the City’s largest taxpayer. The power plant, in August of 2012, changed ownership from Dominion Energy to Footprint Power LLC. The new owners plan to run the plant through June 30, 2014 which is when Dominion filed to decommission all four of its power generating units prior to the change in ownership. As of June 2014, Footprint Power has begun demolition of all existing structures and undertake any necessary environmental remediation. Footprint plans to construct a state-of-the-art 630 megawatt gas-fired plant on a portion of the site and will open the remaining two-thirds of the 63 acre waterfront property to private and public development opportunities. From a revenue perspective, at the end of FY2011, the City’s tax agreement with Dominion expired. Prior to this date, the City received a total payment from Dominion Energy in the amount of $4.75 million for FY2011, $3 million in tax dollars within the tax levy and $1.75 million dollars designated as a “host fee” accounted for as miscellaneous non-recurring revenues. In FY2011, Dominion announced major operational changes shutting down two of their power generating units due to market conditions and regulatory challenges at the state level. Due to the implementation of state regulations impacting its operations, during the FY2012 budget process, the Massachusetts Legislature adopted a proposal to ensure that Salem taxpayers will not be overly burdened by lost revenues from the power plant through 2016. Chapter 68 of the Acts of 2011, Section 33 states that “…the municipality shall be entitled to reimbursement for the difference between the amount called for….prior to the full or partial decommissioning or the change in operating status of the facility.” This legislation postpones the financial impact of the loss of a major taxpayer. More importantly, it allows the City to work toward replacing the lost revenues and planning for an appropriate reuse of the site. For FY2014, the City entered into a one year agreement with Dominion that called for a $1.49 million payment of tax dollars and a $260,000 “host fee”, which triggered a $3 million dollar payment from the Commonwealth, bringing total revenues for FY14 to $4.75 million. The City is currently working on a long-term tax agreement with Footprint Power. Financial Policy The City has set a goal to fund the Stabilization fund in the amount of 5% of the City’s current operating budget, or $6.4 million. As of June 30, 2014, the balance in the City’s Stabilization fund is $5.1 million. The target date to have the Stabilization Fund fully funded is projected to occur by fiscal year 2016. The Stabilization fund shall be funded by appropriations from free cash (available funds), operating budget appropriations when available, and other one-time non-recurring revenues that become available for appropriation per Massachusetts General Law. ---PAGE BREAK--- City of Salem, Massachusetts 12 Comprehensive Annual Financial Report 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, 2014, the balance of this account was $297,018. During the fiscal 2014 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 2014. As such, the City appropriated $600,000 to that fund. The goal of the Retirement Stabilization Fund is to pay for any unanticipated retirements from this Fund instead of using general fund appropriations. This will allow the departments to backfill vacancies in a timely manner without having to request a supplemental appropriation by the Council. In 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 $1.35 million in the account. 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. The balance for free cash was certified in mid-October in the amount of $3 million. Free cash may be used for any lawful municipal purpose and provides communities with flexibility to fund additional appropriations after the tax rate has been set. Free cash balances do not carry forward to the next fiscal year (July 1st). The certification expires on June 30th at the end of the fiscal year. The City’s policy is to use free cash for reserves, capital, and special uses in accordance with the policies set forth by the Mayor and Finance Director. Once free cash is certified by the Director of Accounts, any drawdown of the Stabilization Fund from the prior fiscal year shall be replenished from the certified free cash if the free cash exceeds such drawdown. Once any drawdown of Stabilization funds are replenished, allocation of the remaining free cash shall be as follows; 20% of any free cash available after funding a prior year drawdown will also be allocated from free cash to Stabilization Fund up to the goal of stabilization fund equaling 5% of the current operating budget of the City. 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 10% of any free cash available after funding any drawdown will be allocated to the OPEB Liability Trust Fund (beginning in FY2012). Any free cash available after funding the above may be used to augment trust funds related to fringe benefits and unfunded liabilities related to employee benefits, including Workers' Compensation Fund, Unemployment Fund, and any health benefits payable through Police and Fire operating budgets (111f settlements). Free cash available may also be used to augment general fund appropriations for expenses that increased due to extraordinary and/or unforeseen events as detailed by the department head of the affected budget. ---PAGE BREAK--- City of Salem, Massachusetts 13 Comprehensive Annual Financial Report Awards and Acknowledgements The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement of Excellence in Financial Reporting to the City of Salem for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2013. This was the eighth year that the City submitted a CAFR to the GFOA. In order to receive this prestigious award, a government had to publish an easily readable and efficiently organized CAFR that satisfied both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The GFOA also awarded a Distinguished Budget Presentation Award to the City of Salem for its budget document for the fiscal year beginning July 1, 2013. The GFOA established the Distinguished Budget Award in 1984 to encourage and assist state and local governments to prepare budget documents of the very highest quality that reflect both the guidelines established by the National Advisory Council on State and Local Budgeting and the GFOA’s recommended practices on budgeting and then to recognize individual governments that succeed in achieving that goal. Documents submitted to the Budget Awards Program are reviewed by selected members of the GFOA professional staff and by outside reviewers with experience in public-sector budgeting. It should be noted that the Distinguished Budget Award was awarded to only fourteen of the 351 communities in the Commonwealth for the fiscal period beginning 2013 and that only seven Cities and Towns in the entire Commonwealth received both the Certificate of Achievement of Excellence in Financial Reporting and the Distinguished Budget Presentation Award in 2013. The preparation of both the CAFR and the Distinguished Budget Presentation Award would not have been possible without the efficient and dedicated services of the Finance Department’s staff. We would like to express our appreciation to all the members of the departments who assisted and contributed to the preparation of this report. Credit must also be given to the City Council and Mayor for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Salem’s finances. Respectfully submitted, Sarah A. Stanton Finance Director ---PAGE BREAK--- City of Salem, Massachusetts 14 Comprehensive Annual Financial Report Organizational Chart ---PAGE BREAK--- City of Salem, Massachusetts 15 Comprehensive Annual Financial Report Principal Executive Officers TITLE NAME FIRST TOOK OFFICE TERM EXPIRES Mayor Kimberley L. Driscoll 1/2/2006 12/31/2017 President, City Council Robert McCarthy 1/1/2014 12/31/2014 Finance Director Sarah Stanton 3/14/2013 1/31/2016 Treasurer Kathleen McMahon 12/27/2010 1/31/2016 Collector Bonnie Celi 3/11/2004 1/31/2016 City Clerk Cheryl LaPointe 7/15/2004 11/9/2015 City Solicitor Elizabeth Rennard 1/10/2006 Indefinite Assistant Finance Director Nina Bridgman 1/22/2004 1/31/2016 Principal Executive Officers ---PAGE BREAK--- City of Salem, Massachusetts 16 Comprehensive Annual Financial Report Certificate of Achievement for Excellence in Financial Reporting ---PAGE BREAK--- City of Salem, Massachusetts 17 Comprehensive Annual Financial Report The Government Finance Officers Association of the United States and Canada (GFOA) presented a Distinguished Budget Presentation Award to the City of Salem, Massachusetts for the Annual Budget beginning July 1, 2013. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, as an operational guide, as a financial plan, and as a communication device. Distinguished Budget Presentation Award ---PAGE BREAK--- City of Salem, Massachusetts 18 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- Financial Section Downtown Salem Salem has a wide variety of restaurants including outdoor cafes, ethnic eateries and fine dining establishments. For shoppers there are malls and department stores, an open market, a waterfront village, as well as a downtown retail district. Salem also boasts of a wealth of museums, historic sites and attractions. ---PAGE BREAK--- City of Salem, Massachusetts 19 Comprehensive Annual Financial Report Financial Section ---PAGE BREAK--- City of Salem, Massachusetts 20 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 21 Comprehensive Annual Financial Report Independent Auditor’s Report To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of and for the year ended June 30, 2014 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2013), and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of June 30, 2014 (except for the Salem Contributory Retirement System which is as of December 31, 2013), and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. ---PAGE BREAK--- City of Salem, Massachusetts 22 Comprehensive Annual Financial Report Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Salem’s basic financial statements. The introductory, combining and individual fund statements and statistical sections are presented for the purpose of additional analysis and are not a required part of the basic financial statements. The combining and individual fund statements are the responsibility of management and were derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund statements are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 30, 2014 on our consideration of the City of Salem, Massachusetts’ internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Salem, Massachusetts’ internal control over financial reporting and compliance. October 29, 2014 ---PAGE BREAK--- City of Salem, Massachusetts 23 Comprehensive Annual Financial Report Management’s Discussion and Analysis Management’s Discussion and Analysis ---PAGE BREAK--- City of Salem, Massachusetts 24 Comprehensive Annual Financial Report Management’s Discussion and Analysis As management of the City of Salem, we offer readers of these financial statements this narrative overview and analysis of the financial activities for the year ended June 30, 2014. We encourage readers to consider the information presented in this report in conjunction with additional information that we have furnished in our letter of transmittal. The Governmental Accounting Standards Board (GASB) is the authoritative standard setting body that provides guidance on how to prepare financial statements in conformity with generally accepted accounting principles (GAAP). Users of these financial statements (such as investors and rating agencies) rely on the GASB to establish consistent reporting standards for all governments in the United States. This consistent application is the only way users (including citizens, the media, legislators and others) can assess the financial condition of one government compared to others. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City of Salem’s basic financial statements. The basic financial statements consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of finances, in a manner similar to private-sector business. The statement of net position presents information on all assets and liabilities, and deferred inflows/outflows of resources, with the difference between them reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position is improving or deteriorating. The statement of activities presents information showing how the government’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, community preservation, culture and recreation and interest. The business-type activities include the activities of water, sewer, parking services, and trash disposal as well as the municipal golf course. The government-wide financial statements include not only the City of Salem itself (known as the primary government), but also a legally separate public employee retirement system for which the City of Salem is financially accountable. Financial information for this component unit is reported separately within the fiduciary fund statements. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Fund accounting is used to ensure and ---PAGE BREAK--- City of Salem, Massachusetts 25 Comprehensive Annual Financial Report demonstrate compliance with finance-related legal requirements. All of the funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund statements focus on near-term inflows of spendable resources, as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Salem adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided as required supplementary information to demonstrate compliance with this budget. Proprietary funds. The City maintains two types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government- wide financial statements. The City uses enterprise funds to account for its water and sewer activities, parking services, trash disposal, and for the operation of the municipal golf course. The internal service fund is used to account for the financing of services provided by one department to other departments or governmental units. The internal service fund is now used to account for funds set aside by the City to help offset health insurance costs of employees that were highly impacted from the switch to the GIC (Group Insurance Commission). Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The fiduciary fund financial statements provide separate information for the pension trust funds of the City. The other postemployment benefits trust fund is used to account for assets accumulated to provide funding for future other postemployment benefits (OPEB) liabilities. Private-purpose trust funds and agency funds are reported and combined into a single, aggregate presentation in the fiduciary funds financial statements under the captions “private purpose trust funds” and “agency funds”, respectively. Notes to the basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Government-wide Financial Analysis Governmental Activities As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. The City of Salem’s governmental assets exceeded liabilities by $160 million at the close of 2014. This represents an increase of $140,000 from the prior year. ---PAGE BREAK--- City of Salem, Massachusetts 26 Comprehensive Annual Financial Report Net position of $170.3 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. An additional portion of the governmental net position, $14.4 million, represents resources that are subject to external restrictions on how they may be used. This balance was up by approximately $1.9 million due to the timing of grant and gift receipts and expenses. The balance of unrestricted net position has a year-end deficit of $24.6 million. The primary reason for this deficit balance is the recognition of other postemployment benefit liabilities totaling $37.9 million, in accordance with the requirements of Governmental Auditing Standards Board (GASB) Statement 45. The statement requires the City to obtain a biannual actuarial valuation of the City’s liability to pay other postemployment benefits to current employees and retirees. The City is allowed to amortize the liability, which is currently estimated to be approximately $145 million, over 30 years. Since there is no legal obligation to fund the liability at this time, the City has opted to continue to fund the majority of its other postemployment benefits on a pay-as-you go basis. As a result, the City is required to record the difference between the current year pay-as-you go cost and the current year actuarial determined cost plus interest on any prior unfunded liability as an expense in the full accrual financial statements. This difference totaled $5.5 million for governmental activities for 2014. The City began the process of pre-funding a portion of the liability in 2012 by establishing an irrevocable trust which, as of June 30, 2014, has a balance of $1.4 million and is reported within the Fiduciary Funds in the City’s financial statements. The accrued OPEB liability was partially offset by $1.8 million in appropriated increases to the City’s stabilization funds and the City’s fiscal year 2014 adoption of the Community Preservation Act which allowed the City to assess an additional $487,000 in taxes and to qualify for $113,000 in state grants to be used for open space, historic preservation, and community housing. The CPA fund ended the year with a $520,000 balance. The components of the City’s governmental activities are presented below. 2014 2013 Assets: Current 50,727,724 $ 47,247,438 Noncurrent assets (excluding capital)…………………… 3,338,371 4,004,603 Capital 211,212,722 203,205,214 Total 265,278,817 254,457,255 Liabilities: Current liabilities (excluding 10,450,821 11,678,583 Noncurrent liabilities (excluding 46,890,153 40,971,218 Current 11,891,205 10,019,179 Noncurrent 36,335,012 32,100,521 Total liabilities………………………………………… 105,567,191 94,769,501 Net Position: Net investment in capital 170,092,864 169,750,602 14,383,949 12,499,976 (24,649,291) (22,562,824) Total net $ 159,827,522 $ 159,687,754 Governmental Activities ---PAGE BREAK--- City of Salem, Massachusetts 27 Comprehensive Annual Financial Report 2014 2013 Program revenues: Charges for $ 5,857,638 $ 6,215,886 Operating grants and contributions……………………… 50,489,073 49,028,512 Capital grants and contributions………………………… 8,496,589 30,643,446 General Revenues: Real estate and personal property taxes………………… 79,012,963 76,770,134 Community preservation 486,797 - Motor vehicle and other excise 3,890,099 3,052,229 Nonrestricted 6,775,827 6,610,413 Unrestricted investment 1,377,835 828,974 Other 4,006,327 4,051,862 Total 160,393,148 177,201,456 Expenses: General government……………………………………… 10,080,121 10,314,288 Public 29,879,444 28,468,855 100,837,487 95,844,527 Public 9,092,995 8,832,335 Community development………………………………… 1,304,481 1,347,731 Health and human services……………………………… 5,788,579 5,934,437 Community preservation…………………………………… 5,350 - Culture and recreation…………………………………… 3,589,253 3,355,025 1,328,888 1,277,709 Total 161,906,598 155,374,907 Excess (Deficiency) before transfers……………………… (1,513,450) 21,826,549 1,653,218 588,144 Change in net 139,768 22,414,693 Net position - 159,687,754 137,273,061 Net position - $ 159,827,522 $ 159,687,754 Governmental Activities The governmental expenses totaled $161.9 million of which $64.8 million (40%) was directly supported by program revenues consisting of charges for services, operating and capital grants, and contributions. Public safety and education expenses increased by $1.4 million and $5 million, respectively, both are primarily related to budgetary increases related to contract settlements. General government expenses decreased by approximately $234,000 due to contract settlement payments and sick leave buy-back payments which are budgeted and paid through this function. General revenues totaled $95.5 million, primarily coming from property taxes, motor vehicle and other excise, and non-restricted state aid. Capital grants and contributions decreased in 2014 mainly due to the MSBA reimbursement of 78.26% of allowable school construction costs on the Collins and Saltonstall school construction projects received in the prior year. These construction projects were substantially completed in the prior year. ---PAGE BREAK--- City of Salem, Massachusetts 28 Comprehensive Annual Financial Report Business-type Activities For the City’s business-type activities, assets exceeded liabilities by $17.6 million at the close of 2014. 2014 2013 Assets: Current 14,114,976 $ 7,893,316 Capital 30,464,856 25,271,454 Total 44,579,832 33,164,770 Liabilities: Current liabilities (excluding 861,484 601,381 Noncurrent liabilities (excluding 1,622,672 1,472,817 Current 6,410,350 1,160,521 Noncurrent 18,100,500 15,510,303 Total liabilities………………………………………… 26,995,006 18,745,022 Net Position: Net investment in capital 11,903,874 9,562,558 5,680,952 4,857,190 Total net $ 17,584,826 $ 14,419,748 Business-type Activities Business-type net position of $11.9 million (68%) represents net investment in capital assets. The remaining $5.7 million (32%) is available to be used for the ongoing operation of the City’s water, sewer, parking, trash and municipal golf course activities. There was an overall increase of $3.2 million in net position reported in connection with the enterprise funds. For fiscal year 2014, the City adopted the Massachusetts Department of Revenue Division of Local Services Bulletin 2012-02B which allows for the operation of a combined water and sewer enterprise fund voted under Massachusetts General Law Chapter 44, Section 53F ½. The water and sewer enterprise fund’s net position of $8.1 million (60%) represent the net investment in capital assets, while $5.4 million (40%) is unrestricted. The water and sewer enterprise experienced a net increase of $3.2 million in net position from the prior year. The fund pays annual assessments to the Salem Beverly Water Supply Board and to the South Essex Sewerage District, which totaled $2.5 million and $5.3 million, respectively. Combined, these assessments represent 73% the fund’s operating expenses for 2014. The unrestricted balance includes the City’s $828,000 equity interest in the South Essex Sewerage District which increased by approximately $130,000 during 2014. The water and sewer enterprise fund issued a state aid anticipation note of $3 million related to sewer drainage and pipe hazard mitigation improvements, of which they received $2.8 million in hazard mitigation federal grant funds before year end. This capital grant contributed to the increase in net position. These funds will be used to pay down the BAN when it matures in 2015. The fund also issued $2 million in BANs and $3.9 million in bonds related to sewer improvement projects. The golf course enterprise fund’s net position of $396,000 (62%) represent the net investment in capital assets, while $248,000 (38%) is unrestricted. Overall, revenues and expenses both increased by approximately 1% at the golf course during fiscal year 2014 as a result, net position remained substantially unchanged. ---PAGE BREAK--- City of Salem, Massachusetts 29 Comprehensive Annual Financial Report The parking enterprise fund’s net position of $3.4 million represent the net investment in capital assets, while a deficit balance of $504,000 is reported as unrestricted. The parking operations experienced a net decrease of $233,000 during 2014 which is consistent with prior years, and is mostly attributable to recording depreciation on previously purchased capital assets totaling approximately $159,000. The City reports this fee-for-service activity as an enterprise fund however any cash based surplus generated is transferred back to the general fund to support City programs. In 2014, $1.6 million was transferred back to the general fund and $200,000 was transferred to capital projects for parking related capital projects. Consequently, the amounts remaining in the enterprise fund at year end represent non-current assets and liabilities and the assets and liabilities related to the enterprise funds capital construction projects. The City’s trash enterprise fund operates on a trash fee that is set with full knowledge that the revenue will not be sufficient to cover the cost of operations. The City budgets for a subsidy from the general fund equal to the estimated cash basis deficit in the fund at year end. At year-end a $1.8 million transfer was made from the general fund to subsidize for the budgeted deficit. As of June 30, 2014 the trash fund had unrestricted net position totaling $488,000. 2014 2013 Program revenues: Charges for $ 16,981,425 $ 17,653,779 Capital grants and contributions………………………… 2,887,131 - Total 19,868,556 17,653,779 Expenses: Cost of service and administration……………………… 5,729,048 6,123,663 District assessment……………………………………… 7,804,436 7,959,481 836,614 723,853 680,162 529,373 Total 15,050,260 15,336,370 Excess (Deficiency) before transfers……………………… 4,818,296 2,317,409 (1,653,218) (588,144) Change in net 3,165,078 1,729,265 Net position - 14,419,748 12,690,483 Net position - 17,584,826 $ 14,419,748 Business-type Activities Financial Analysis of the Government’s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the year. ---PAGE BREAK--- City of Salem, Massachusetts 30 Comprehensive Annual Financial Report In accordance with generally accepted accounting standards, the City reports the components of fund balance as nonspendable, restricted, committed, assigned and unassigned, based on restrictions on spending. Additionally, the City’s stabilization funds are reported within the general fund as unassigned. As of the end of the current year, governmental funds reported combined ending fund balances of $28.5 million of which $13 million is reported in the general fund, $520,000 in the community preservation fund, $604,000 is reported in the school capital projects major fund, a deficit of $2.1 million is reported in the capital improvement major fund and $16.5 million is reported in the nonmajor governmental funds. Cumulatively there was an increase of $1.4 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 $12 million, while total fund balance was $13 million. The general fund balance increased by $278,000 in 2014. The increase primarily resulted from positive budgetary results. The Community Preservation fund had an ending restricted fund balance at June 30, 2014 of $520,000. These funds are attributable to the City’s acceptance of the Community Preservation Act, which allows the City to impose up to a 1% surcharge on property taxes and to receive matching State grant funds for specified uses related to the acquisition, creation, preservation and support of open space, historical resources, land for recreational use and community housing. This is the first year of the fund. In 2015, the City expects to receive the matching contribution from the state in the amount of $113,000. The City issued $4 million in state grant anticipation notes related to the fourth phase of the City wharf project which includes improvements to the City’s harborwalk, docks, walkways, and pier construction. This phase of the project is expected to begin in 2015. This major fund had no revenues or expenditures during fiscal year 2014. The school capital projects fund is used to account for the City’s ongoing major school construction projects on the Collins and Saltonstall schools. The fund increased by $889,000 in 2014 as the City bonded for the project during the year. The major fund ended the year with a balance of $604,000. Expenditures incurred to date have been financed with bond proceeds and partially funded with reimbursements received from the Massachusetts School Building Authority for the state’s share of eligible costs. Bond proceeds totaling $4.9 million were recognized in this fund in 2014 and the City expended $10 million on the projects. The capital improvement funds are used to account for the projects in the City’s capital improvement plan that specifically relate to City improvements for roads and fields. The fund had a year-end deficit fund balance of $2.1 million due to expenditures incurred that have primarily been financed with $3.9 million in bond anticipation notes (BANs) whose proceeds are not recognized until they are permanently financed. Cumulatively, nonmajor governmental funds had a net increase of $2.3 million. This represents the activity of other nonmajor capital projects, grants, and permanent trust funds. The 2014 increase was almost entirely the result of the timing of funding and recognizing expenditures on capital projects offset by increases in balances for city and state grants. General Fund Budgetary Highlights The City’s final general fund operating budget included $129 million in total appropriations to be funded with $124 million in estimated receipts and transfers in and approximately 4.8 million in available funds (free cash). The $4.5 million increase between the original budget and the final amended budget was due to several council orders issued throughout the year to appropriate available funds. The most notable components of this increase include an additional $4.3 million in available funds appropriated to fund stabilization reserves, veteran’s benefits, capital improvements, other postemployment benefits trust and various additional appropriations. ---PAGE BREAK--- City of Salem, Massachusetts 31 Comprehensive Annual Financial Report The actual general fund revenues came in $2 million higher than budgeted. The City does not budget revenue for tax liens which totaled $491,000. Additionally, motor vehicle and other excise taxes and hotel/motel tax and meals taxes reported budgetary surpluses of $669,000 and $109,000, respectively. Intergovernmental revenues reported a surplus of $1 million due to an increase of $349,000 in charter school reimbursement, $170,000 for reimbursement to the City related to snow and ice storms in the prior year, and a $303,000 increase in the amount received for Medicaid and Medicare from the state. The City’s General Fund reported expenditures less than appropriations by approximately $547,000. Of this, the largest turnbacks were in Public Safety, which turned back $371,000. The budget was overspent by $773,000 for the removal of snow and ice. This over-expenditure is allowed under state law. The City also closed several revolving accounts that were over their voted maximum balance. This resulted in a $300,000 unbudgeted increase to the general fund. On a budgetary basis, the general fund ended the year with a net decrease of $1.4 million. 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, 2014, amounts to $242 million (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, buildings and land improvements, equipment, vehicles and infrastructure related to governmental and business-type activities. The City’s total investment in capital assets for the current year totaled $211.2 million for governmental activities and $30.5 million for business-type activities. The City also transferred $48.1 million, mostly relating to the Collins Middle School and Saltonstall School renovation projects, from construction in progress to building improvements during the year. These projects were substantially completed during the year. Capital improvements for business-type activities included $431,000 in water infrastructure including water meters and water main improvements; $347,000 in the Folly Hill water tank project; $5 million in infrastructure related to the South River Basin, Forest Street, and Canal Street drainage projects; and $160,000 in golf and turf equipment. Debt Administration. Outstanding long-term debt of the governmental activities, as of June 30, 2014, totaled $39 million. The Commonwealth of Massachusetts is obligated to provide school construction assistance for approved school projects through a grant program administered by the MSBA. The assistance is paid to offset a portion of principal and interest on debt issued to finance approved school construction costs. At June 30, 2014 the City has recorded a receivable from the MSBA totaling $3.7 million, which represents future reimbursements of approved construction costs on projects completed under this MSBA program. The City also issued $6.7 million in general obligation bonds to finance various governmental capital projects including $5.1 million for school renovations and equipment, $1.3 million for public safety equipment and $240,000 for other equipment. The City also issued bond and state grant anticipation notes totaling $8.9 million which is made up of $4 million for the Blaney street wharf project, $1 million for the Collins Middle and Saltonstall schools, $2 million for roadway improvements, and $1.9 million for Bertram field improvements. Outstanding debt of the water, sewer, golf and parking enterprise funds totaled $12.1 million, $6.7 million, $79,000 and $580,000 respectively, and funded various repairs, maintenance and infrastructure projects. This includes new debt issued in 2014 for sewer improvements of $3.9 million. ---PAGE BREAK--- City of Salem, Massachusetts 32 Comprehensive Annual Financial Report In order to take advantage of favorable interest rates, the City issued $2.86 million of General Obligation Refunding Bonds on December 17, 2013 for an advance refunding of $2.96 million in debt. The $2.93 million of General Obligation Bonds was refunded by placing the proceeds of the refunding bonds plus $263,000 of bond premiums in an irrevocable trust to provide for all future debt service payments on the refunded bonds. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the statement of net position. The reacquisition price exceeded the net carrying amount of the old debt by $128,773. This refunding was undertaken to reduce total debt service payments by $251,915 and resulted in an economic gain of $212,588. At June 30, 2014, $1.56 million of bonds outstanding from the refunding is outstanding. 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 33 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 34 Comprehensive Annual Financial Report Basic Financial Statements Basic Financial Statements ---PAGE BREAK--- STATEMENT OF NET POSITION JUNE 30, 2014 Primary Government Governmental Business-type Activities Activities Total ASSETS CURRENT: Cash and cash equivalents………………………………… $ 32,050,186 $ 9,675,399 $ 41,725,585 Restricted deposits held in escrow……………………… 57,404 - 57,404 10,767,743 - 10,767,743 Receivables, net of allowance for uncollectibles: Real estate and personal property taxes…………… 1,101,574 - 1,101,574 Tax 1,808,167 - 1,808,167 Motor vehicle and other excise taxes………………… 497,291 - 497,291 User - 3,523,040 3,523,040 Trash - 88,206 88,206 Departmental and 64,896 - 64,896 Intergovernmental……………………………………… 4,243,100 - 4,243,100 137,363 - 137,363 Investment in joint - 828,331 828,331 Total current 50,727,724 14,114,976 64,842,700 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental……………………………………… 3,171,572 - 3,171,572 166,799 - 166,799 Capital assets, non depreciable…………………………… 7,637,608 1,991,211 9,628,819 Capital assets, net of accumulated depreciation………… 203,575,114 28,473,645 232,048,759 Total noncurrent 214,551,093 30,464,856 245,015,949 TOTAL 265,278,817 44,579,832 309,858,649 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding…………………………… 115,896 - 115,896 LIABILITIES CURRENT: Warrants 1,189,535 287,884 1,477,419 Accrued 1,061,292 346,853 1,408,145 Accrued 5,133,243 19,955 5,153,198 Tax refunds 463,857 - 463,857 Accrued 369,732 160,101 529,833 Capital lease obligations…………………………………… 279,226 51,540 330,766 Compensated 1,831,465 46,691 1,878,156 Workers' compensation…………………………………… 122,471 - 122,471 Notes 8,863,000 5,000,000 13,863,000 Bonds 3,028,205 1,305,303 4,333,508 Total current liabilities…………………………………… 22,342,026 7,218,327 29,560,353 NONCURRENT: Capital lease obligations…………………………………… 346,833 53,507 400,340 Landfill 600,000 - 600,000 Compensated 7,244,812 44,157 7,288,969 Other postemployment benefits…………………………… 37,945,390 1,578,515 39,523,905 Workers' compensation…………………………………… 753,118 - 753,118 Bonds 36,335,012 18,100,500 54,435,512 Total noncurrent liabilities……………………………… 83,225,165 19,776,679 103,001,844 TOTAL 105,567,191 26,995,006 132,562,197 NET POSITION Net investment in capital 170,092,864 11,903,874 181,996,738 Restricted for: 304,162 - 304,162 Permanent funds: 4,446,243 - 4,446,243 Nonexpendable………………………………………… 2,074,987 - 2,074,987 Grants and 7,558,557 - 7,558,557 (24,649,291) 5,680,952 (18,968,339) TOTAL NET $ 159,827,522 $ 17,584,826 $ 177,412,348 See notes to basic financial statements. City of Salem, Massachusetts 35 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2014 Operating Capital Charges for Grants and Grants and Net (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Primary Government: Governmental Activities: General government……………… $ 10,080,121 $ 764,481 $ 381,696 $ 31,020 $ (8,902,924) Public safety……………………… 29,879,444 2,237,189 626,574 - (27,015,681) Education…………………………… 100,837,487 1,275,125 42,981,187 5,954,797 (50,626,378) Public 9,092,995 176,867 1,037,115 1,852,551 (6,026,462) Community development………… 1,304,481 120,517 833,162 545,023 194,221 Health and human services……… 5,788,579 134,026 4,232,641 - (1,421,912) Community preservation………… 5,350 - - 113,198 107,848 Culture and recreation…………… 3,589,253 1,149,433 156,018 - (2,283,802) Interest……………………………… 1,328,888 - 240,680 - (1,088,208) Total Governmental Activities… 161,906,598 5,857,638 50,489,073 8,496,589 (97,063,298) Business-Type Activities: Water and 11,241,391 13,086,639 - 2,887,131 4,732,379 Golf 466,834 705,341 - - 238,507 968,159 2,510,838 - - 1,542,679 2,373,876 678,607 - - (1,695,269) Total Business-Type Activities… 15,050,260 16,981,425 - 2,887,131 4,818,296 Total Primary Government………$ 176,956,858 $ 22,839,063 $ 50,489,073 $ 11,383,720 $ (92,245,002) See notes to basic financial statements. (Continued) Program Revenues City of Salem, Massachusetts 36 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES (Continued) YEAR ENDED JUNE 30, 2014 Governmental Business-Type Activities Activities Total Changes in net position: Net (expense) revenue from previous page…………… $ (97,063,298) $ 4,818,296 $ (92,245,002) General revenues: Real estate and personal property taxes, net of tax refunds payable………………………… 79,012,963 - 79,012,963 Community preservation 486,797 - 486,797 Tax 563,353 - 563,353 Motor vehicle and other excise taxes……………… 3,890,099 - 3,890,099 Hotel/motel and meals 1,319,418 - 1,319,418 Penalties and interest on 457,958 - 457,958 Payments in lieu of 1,321,060 - 1,321,060 Grants and contributions not restricted to specific 6,775,827 - 6,775,827 Unrestricted investment income…………………… 1,377,835 - 1,377,835 Miscellaneous………………………………………… 344,538 - 344,538 Transfers, net 1,653,218 (1,653,218) - Total general revenues and transfers………………… 97,203,066 (1,653,218) 95,549,848 Change in net position……………………………… 139,768 3,165,078 3,304,846 NET POSITION: Beginning of 159,687,754 14,419,748 174,107,502 End of 159,827,522 $ 17,584,826 $ 177,412,348 (Concluded) Primary Government City of Salem, Massachusetts 37 Comprehensive Annual Financial Report ---PAGE BREAK--- Community City Wharf School Capital Nonmajor Total Preservation Project Capital Improvement Governmental Governmental General Funds Fund Projects Fund Funds Funds ASSETS Cash and cash $ 14,974,940 $ 519,787 $ 4,000,000 $ 1,311,492 $ 2,054,836 $ 9,041,689 $ 31,902,744 Restricted deposits held in - - - - 57,404 - 57,404 3,911,206 - - - - 6,856,537 10,767,743 Receivables, net of uncollectibles: Real estate and personal property 1,089,378 12,196 - - - - 1,101,574 Tax 1,808,167 - - - - - 1,808,167 Motor vehicle and other excise 497,291 - - - - - 497,291 Departmental and - - - - - 64,897 64,897 Intergovernmental……………………………………………………… 3,695,128 113,198 - 523,660 - 3,082,685 7,414,671 - - - - - 304,162 304,162 Due from other - - - - - 312,590 312,590 TOTAL 25,976,110 $ 645,181 $ 4,000,000 $ 1,835,152 $ 2,112,240 $ 19,662,560 $ 54,231,243 LIABILITIES Warrants $ 32,002 $ - $ - $ 267,797 $ 301,888 $ 587,848 $ 1,189,535 Accrued 1,061,292 - - - - - 1,061,292 Accrued 4,920,280 - - - - 212,963 5,133,243 Tax refunds 463,857 - - - - - 463,857 Due to other - - - - - 312,590 312,590 Notes - - 4,000,000 963,000 3,900,000 - 8,863,000 TOTAL 6,477,431 - 4,000,000 1,230,797 4,201,888 1,113,401 17,023,517 DEFERRED INFLOWS OF RESOURCES Unavailable 6,497,742 125,394 - - - 2,035,049 8,658,185 FUND BALANCES - - - - - 2,074,987 2,074,987 - 519,787 - 604,355 - 14,439,123 15,563,265 1,002,935 - - - - - 1,002,935 11,998,002 - - - (2,089,648) - 9,908,354 TOTAL FUND 13,000,937 519,787 - 604,355 (2,089,648) 16,514,110 28,549,541 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND $ 25,976,110 $ 645,181 $ 4,000,000 $ 1,835,152 $ 2,112,240 $ 19,662,560 $ 54,231,243 See notes to basic financial statements. GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2014 City of Salem, Massachusetts 38 Comprehensive Annual Financial Report ---PAGE BREAK--- RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET POSITION JUNE 30, 2014 Total governmental fund $ 28,549,541 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the 211,212,722 Accounts receivable are not available to pay for current-period expenditures and, therefore, are deferred in the 8,658,185 Internal service funds are used by management to account for health insurance activities. The assets and liabilities of the internal service funds are included in the governmental activities in the statement of net position……………………………… 147,442 In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until (369,732) Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds Bonds (39,363,217) Deferred charge on 115,896 Landfill (600,000) Workers' (875,589) Capital (626,059) Compensated (9,076,277) Other postemployment (37,945,390) Net effect of reporting long-term (88,370,636) Net position of governmental $ 159,827,522 See notes to basic financial statements. City of Salem, Massachusetts 39 Comprehensive Annual Financial Report ---PAGE BREAK--- GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2014 Community School Capital Nonmajor Total Preservation Capital Improvement Governmental Governmental General Funds Projects Fund Funds Funds REVENUES: Real estate and personal property taxes, net of tax $ 78,974,753 $ 474,601 $ - $ - $ - $ 79,449,354 Tax 491,336 - - - - 491,336 Motor vehicle and other excise 3,799,179 - - - - 3,799,179 Hotel/motel and meals 1,319,418 - - - - 1,319,418 Charges for 1,431,771 - - - 158,346 1,590,117 Penalties and interest on 453,971 482 - - 3,505 457,958 Payments in lieu of 1,321,060 - - - - 1,321,060 Licenses and 505,129 - - - - 505,129 Fines and 1,208,544 - - - - 1,208,544 Intergovernmental……………………………………………………… 41,105,747 - 5,954,797 - 17,141,029 64,201,573 Departmental and 447,891 - - - 3,253,046 3,700,937 - - - - 502,878 502,878 Investment 264,168 54 - - 1,113,613 1,377,835 TOTAL 131,322,967 475,137 5,954,797 - 22,172,417 159,925,318 EXPENDITURES: Current: General 5,774,323 - - 484,061 377,448 6,635,832 Public 19,004,724 - - 285,927 635,824 19,926,475 55,649,134 - 9,956,053 514,862 10,176,104 76,296,153 Public 3,424,419 - - 3,447,438 2,941,031 9,812,888 Community - - - - 1,629,209 1,629,209 Health and human 1,323,046 - - - 4,204,575 5,527,621 Community preservation…………………………………………… - 5,350 - - 5,350 Culture and 1,968,386 - - 96,541 650,416 2,715,343 Pension 20,402,625 - - - - 20,402,625 Employee 14,255,543 - - - - 14,255,543 State and county 5,776,828 - - - - 5,776,828 Debt service: 3,038,598 - - - 35,000 3,073,598 1,535,847 - - - 922 1,536,769 TOTAL EXPENDITURES………………………………………… 132,153,473 5,350 9,956,053 4,828,829 20,650,529 167,594,234 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………………………………… (830,506) 469,787 (4,001,256) (4,828,829) 1,521,888 (7,668,916) OTHER FINANCING SOURCES (USES): Issuance of - - 4,890,000 1,790,000 - 6,680,000 Issuance of refunding 2,509,500 - - - - 2,509,500 Premium from issuance of 421,355 - - - - 421,355 Premium from issuance of refunding 262,818 - - - - 262,818 Payments to refunded bond escrow (2,709,130) - - - - (2,709,130) Capital lease - - - 284,000 - 284,000 Transfers 4,711,141 50,000 - 200,000 1,757,143 6,718,284 Transfers (4,087,402) - - - (977,664) (5,065,066) TOTAL OTHER FINANCING SOURCES 1,108,282 50,000 4,890,000 2,274,000 779,479 9,101,761 NET CHANGE IN FUND 277,776 519,787 888,744 (2,554,829) 2,301,367 1,432,845 FUND BALANCES AT BEGINNING OF 12,723,161 - (284,389) 465,181 14,212,743 27,116,696 FUND BALANCES AT END OF 13,000,937 $ 519,787 $ 604,355 $ (2,089,648) $ 16,514,110 $ 28,549,541 See notes to basic financial statements. City of Salem, Massachusetts 40 Comprehensive Annual Financial Report ---PAGE BREAK--- RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2014 Net change in fund balances - total governmental $ 1,432,845 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 16,665,809 Depreciation (8,658,301) Net effect of reporting capital 8,007,508 In the Statement of Activities, only the gain on the sale of capital assets is reported, whereas in the governmental funds the entire proceeds of the sale are reported as financial resources. As a result, the change in net position differs from the change in fund balance by the cost of the capital assets Revenues in the Statement of Activities that do not provide current financial resources are fully deferred in the Statement of Revenues, Expenditures and Changes in Fund Balances. Therefore, the recognition of revenue for various types of accounts receivable real estate and personal property, motor vehicle excise, etc.) differ between the two statements. This amount represents the net change in deferred 467,830 The issuance of long-term debt bonds and leases) provides current financial resources to governmental funds, while the repayment of the principal of long- term debt consumes the financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. Capital lease principal 277,258 Capital lease (284,000) Issuance of refunding (2,509,500) Premium from issuance of bonds (421,355) Premium from issuance of refunding bonds (262,818) Payment to Refunded bond escrow 2,709,130 Deferred charge on 128,773 Amorization of deferred charge on (12,877) Issuance of (6,680,000) Refunding bond issue (129,130) Amortization of premium on 148,820 Debt service principal 3,073,598 Net effect of reporting long-term (3,962,101) 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 (362,270) Net change in workers' 73,510 Net change in accrued interest on long-term 46,184 Net change in other postemployment (5,536,995) Net effect of recording long-term liabilities and amortizing deferred losses…………… (5,779,571) Internal service funds are used by management to account for health insurance activities. The net activity of internal service funds is reported with Governmental Activities…………… (26,743) Change in net position of governmental $ 139,768 See notes to basic financial statements. City of Salem, Massachusetts 41 Comprehensive Annual Financial Report ---PAGE BREAK--- Governmental Activities - Water and Golf Internal Service Sewer Course Parking Trash Total Funds ASSETS CURRENT: Cash and cash equivalents……………………………$ 8,420,549 $ 451,522 $ - $ 803,328 $ 9,675,399 $ 147,442 Receivables, net of allowance for uncollectibles: User 3,523,040 - - - 3,523,040 - Trash - - - 88,206 88,206 - Investment in joint 828,331 - - - 828,331 - Total current 12,771,920 451,522 - 891,534 14,114,976 147,442 NONCURRENT: Capital assets, non depreciable……………………… 1,824,930 118,067 48,214 - 1,991,211 - Capital assets, net of accumulated depreciation…… 24,086,897 461,726 3,925,022 - 28,473,645 - Total noncurrent 25,911,827 579,793 3,973,236 - 30,464,856 - TOTAL 38,683,747 1,031,315 3,973,236 891,534 44,579,832 147,442 LIABILITIES CURRENT: Warrants 287,884 - - - 287,884 - Accrued liabilities……………………………………… 25,257 - - 321,596 346,853 - Accrued 18,340 - - 1,615 19,955 - Accrued 149,684 790 9,627 - 160,101 - Capital lease obligations……………………………… - 51,540 - - 51,540 - Compensated absences……………………………… 20,130 7,089 19,472 - 46,691 - Notes 5,000,000 - - - 5,000,000 - Bonds 1,160,303 30,000 115,000 - 1,305,303 - Total current liabilities…………………………… 6,661,598 89,419 144,099 323,211 7,218,327 - NONCURRENT: Capital lease obligations……………………………… - 53,507 - - 53,507 - Compensated absences……………………………… 40,824 - 3,333 - 44,157 - Other postemployment benefits obligation…………… 830,472 196,090 471,202 80,751 1,578,515 - Bonds 17,586,000 49,000 465,500 - 18,100,500 - Total noncurrent liabilities………………………… 18,457,296 298,597 940,035 80,751 19,776,679 - TOTAL LIABILITIES……………………………………… 25,118,894 388,016 1,084,134 403,962 26,995,006 - NET POSITION Net investment in capital 8,115,392 395,746 3,392,736 - 11,903,874 - 5,449,461 247,553 (503,634) 487,572 5,680,952 147,442 TOTAL NET 13,564,853 $ 643,299 $ 2,889,102 $ 487,572 $ 17,584,826 $ 147,442 See notes to basic financial statements. Business-type Activities - Enterprise Funds PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2014 City of Salem, Massachusetts 42 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2014 Governmental Activities - Water and Golf Internal Service Sewer Course Parking Trash Total Funds OPERATING REVENUES: Charges for services $ 13,086,639 $ 705,341 $ 2,510,838 $ 678,607 $ 16,981,425 $ - Intergovernmental……………………………… 2,887,131 - - - 2,887,131 - TOTAL OPERATING REVENUES 15,973,770 705,341 2,510,838 678,607 19,868,556 - OPERATING EXPENSES: Cost of services and administration 2,148,231 421,836 785,105 2,373,876 5,729,048 - District Assessment……………………………… 7,804,436 - - - 7,804,436 - Depreciation……………………………………… 634,959 42,378 159,277 - 836,614 - Employee benefits - - - - - 26,743 TOTAL OPERATING EXPENSES 10,587,626 464,214 944,382 2,373,876 14,370,098 26,743 OPERATING INCOME 5,386,144 241,127 1,566,456 (1,695,269) 5,498,458 (26,743) NONOPERATING REVENUES (EXPENSES): Interest (653,765) (2,620) (23,777) - (680,162) - INCOME (LOSS) BEFORE TRANSFERS… 4,732,379 238,507 1,542,679 (1,695,269) 4,818,296 (26,743) TRANSFERS: Transfers 141,782 494,860 - 1,839,288 2,475,930 - Transfers (1,641,654) (711,374) (1,776,120) - (4,129,148) - TOTAL TRANSFERS………………………… (1,499,872) (216,514) (1,776,120) 1,839,288 (1,653,218) - CHANGE IN NET POSITION……………… 3,232,507 21,993 (233,441) 144,019 3,165,078 (26,743) NET POSITION AT BEGINNING OF 10,332,346 621,306 3,122,543 343,553 14,419,748 174,185 NET POSITION AT END OF YEAR……………… $ 13,564,853 $ 643,299 $ 2,889,102 $ 487,572 $ 17,584,826 $ 147,442 See notes to basic financial statements. Business-type Activities - Enterprise Funds City of Salem, Massachusetts 43 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2014 Governmental Activities - Water and Golf Internal Service Sewer Course Parking Trash Total Funds CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and $ 13,496,655 $ 705,341 $ 2,510,838 $ 678,406 $ 17,391,240 $ - Receipts from other 2,887,131 - - - 2,887,131 - Payments to (9,014,442) (186,184) (211,298) (2,205,437) (11,617,361) - Payments to (854,667) (220,007) (577,020) (52,599) (1,704,293) - Payments for interfund services - - - - - (26,743) NET CASH FROM OPERATING ACTIVITIES…………………………………… 6,514,677 299,150 1,722,520 (1,579,630) 6,956,717 (26,743) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers 141,782 494,860 - 1,839,288 2,475,930 - Transfers (1,641,654) (711,374) (1,776,120) - (4,129,148) - NET CASH FROM NONCAPITAL FINANCING ACTIVITIES…………………… (1,499,872) (216,514) (1,776,120) 1,839,288 (1,653,218) - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from the issuance of bonds and 8,900,000 - - - 8,900,000 - Acquisition and construction of capital (5,911,062) - - - (5,911,062) - Principal payments on bonds and (1,015,521) (30,000) (115,000) - (1,160,521) - Principal payments on capital lease obligations………………………………… - (55,549) - - (55,549) - Interest (540,181) (3,120) (31,400) - (574,701) - NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES……… 1,433,236 (88,669) (146,400) - 1,198,167 - NET CHANGE IN CASH AND CASH EQUIVALENTS…………………………… 6,448,041 (6,033) (200,000) 259,658 6,501,666 (26,743) CASH AND CASH EQUIVALENTS AT BEGINNING OF 1,972,508 457,555 200,000 543,670 3,173,733 174,185 CASH AND CASH EQUIVALENTS AT END OF $ 8,420,549 $ 451,522 $ - $ 803,328 $ 9,675,399 $ 147,442 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income 5,386,144 $ 241,127 $ 1,566,456 $ (1,695,269) $ 5,498,458 $ (26,743) Adjustments to reconcile operating income (loss) to net cash from operating activities: 634,959 42,378 159,277 - 836,614 - Changes in assets and liabilities: User 410,016 - - - 410,016 - Trash - - - (201) (201) - Investment in joint (129,809) - - - (129,809) - Warrants 81,013 - - - 81,013 - Accrued 10,236 - - 102,315 112,551 - Accrued 1,085 - - 965 2,050 - Other postemployment 124,693 28,424 68,216 12,560 233,893 - Accrued compensated (3,660) (12,779) (71,429) - (87,868) - Total 1,128,533 58,023 156,064 115,639 1,458,259 - NET CASH FROM OPERATING ACTIVITIES…………………………………… $ 6,514,677 $ 299,150 $ 1,722,520 $ (1,579,630) $ 6,956,717 $ (26,743) NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES: Borrowing under capital - $ 160,595 $ - $ - $ 160,595 $ - Purchase of equipment by capital - (160,595) - - (160,595) - Proceeds of refunded - - 345,500 - 345,500 - Payment to escrow - - (345,500) - (345,500) - See notes to basic financial statements. Business-type Activities - Enterprise Funds City of Salem, Massachusetts 44 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2014 Other Postemployment Private Pension Benefits Purpose Agency Trust Funds Trust Fund Trust Funds Fund Cash and cash equivalents……………………………………… $ 3,983,994 $ 6,171 $ 230,421 $ 978,169 Investments: Corporate - 1,347,351 1,206,625 - Real estate and alternative investment mutual funds……… 1,999,323 - - - 117,477,913 - - - Receivables, net of allowance for uncollectibles: 324,992 - - - NONCURRENT: Capital assets, net of accumulated depreciation……………… 97,656 - - - TOTAL 123,883,878 1,353,522 1,437,046 978,169 LIABILITIES Warrants 4,475 - - - Liabilities due - - - 978,169 TOTAL 4,475 - - 978,169 NET POSITION Restricted for 123,879,403 - - - Held in trust for - 1,353,522 - - Held for other - - 1,437,046 - Total Net 123,879,403 $ 1,353,522 $ 1,437,046 $ - The Pension Trust Fund is as of December 31, 2013. See notes to basic financial statements. ASSETS City of Salem, Massachusetts 45 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION YEAR ENDED JUNE 30, 2014 Other Postemployment Private Pension Benefits Purpose Trust Funds Trust Fund Trust Funds ADDITIONS: Contributions: 11,433,741 $ 549,871 $ - Plan 3,792,803 - - Private - - 16,536 Total 15,226,544 549,871 16,536 Net investment income: Net change in fair value of 12,423,957 89,954 176,103 3,176,819 38,694 2,735 Total investment 15,600,776 128,648 178,838 Less: investment (612,828) - - Net investment 14,987,948 128,648 178,838 243,085 - - Transfers from other 408,280 - - TOTAL 30,865,857 678,519 195,374 DEDUCTIONS: 223,814 - - Transfers to other 491,986 - - Retirement benefits and 13,415,455 - - Educational - - 17,812 Housing - - 86,317 3,125 - - TOTAL 14,134,380 - 104,129 CHANGE IN NET 16,731,477 678,519 91,245 NET POSITION AT BEGINNING OF 107,147,926 675,003 1,345,801 NET POSITION AT END OF 123,879,403 $ 1,353,522 $ 1,437,046 The Pension Trust Fund is for the year ended December 31, 2013. See notes to basic financial statements. City of Salem, Massachusetts 46 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 47 Comprehensive Annual Financial Report NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Notes to basic financial statements The accompanying basic financial statements of the City of Salem, Massachusetts (the City) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board (GASB) is the recognized standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described herein. A. Reporting Entity The City is a Massachusetts municipal corporation with a Mayor-Council form of government. The Mayor is elected at large for a four-year term. The City Council is comprised of eleven members elected for two-year terms from seven wards and four at-large. For financial reporting purposes, the City has included all funds, organizations, agencies, boards, commissions and institutions. The City has also considered all potential component units for which it is financially accountable as well as other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the basic financial statements to be misleading or incomplete. As required by GAAP, these basic financial statements present the City (the primary government) and its component units. One entity has been included as a component unit in the reporting entity, because of the significance of its operational and/or financial relationship. Component Unit Presented as a Fiduciary Fund – The following component unit is presented as a Fiduciary Fund of the primary government due to the nature and significance of relationship between the City and the component unit. The Salem Contributory Retirement System (the System) was established to provide retirement benefits to City employees, the Salem Housing Authority employees, the South Essex Sewerage District employees, the Salem- Beverly Water Supply Board employees, the North Shore Regional Vocational School employees and their beneficiaries. The System is governed by a five-member board comprised of the Finance Director (ex-officio), two members elected by the System’s participants, one member appointed by the Mayor and one member appointed by the other board members. The System is presented using the accrual basis of accounting and is reported as a pension trust fund in the fiduciary fund financial statements. The System did not issue a separate audited financial statement. The System issues a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth of Massachusetts’ (Commonwealth) Public Employee Retirement Administration Commission (PERAC). That report may be obtained by contacting the System located at 20 Central Street, Suite 110, Salem, Massachusetts 01970. Joint Venture – The following are joint ventures of the City. The City is a member of the South Essex Sewerage District (the District), a joint venture with the Cities of Salem and Beverly and the Towns of Danvers and Marblehead, for the operation of a septage disposal facility. The members share in overseeing the operations of the District. Each member is responsible for its proportionate share of the operational costs of the District, which are paid in the form of assessments. As of June 30, 2014, the City’s equity interest in the operations of the District totaled $828,331, 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, 2014 City of Salem, Massachusetts 48 Comprehensive Annual Financial Report Beverly Water Supply Board. The annual assessment from the Water Board for the year ended June 30, 2014 totaled approximately $2,483,000. Complete financial information for the Water Board can be obtained by contacting them at 50 Arlington Avenue, Beverly, MA 01915. The Salem Public Schools was granted a charter by the Secretary of Education of the Commonwealth of Massachusetts, pursuant to Chapter 71, Section 89 of the Massachusetts General Laws to operate a Horace Mann Charter School to address the needs of the City’s high school dropouts and at-risk youth. The Salem Community Charter School opened during year 2013 and is part of the Salem Public Schools. The Charter School is managed by an appointed Board of Trustees and not by the School Committee and Superintendent. Ongoing funding for the school’s operations is provided by the City based upon a negotiated amount between the School Committee and Board of Trustees within the guidelines established by the authorizing legislation of the Commonwealth of Massachusetts. The activity is included within the City’s basic financial statements and is audited independently. Complete financial statements can be obtained by contacting the Salem Public Schools located at 29 Highland Ave., Salem MA 01970. B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The government-wide financial statements statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its component units. Governmental activities, which are primarily supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which are supported primarily by user fees and charges. Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Nonmajor funds are aggregated and displayed in a single column. Major Fund Criteria Major funds must be reported if the following criteria are met: • If the total assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues, or expenditures/expenses of an individual governmental or enterprise fund are at least 10% of the corresponding element (assets and deferred outflows of resources, liabilities and deferred inflows of resources, etc.) for all funds of that category or type (total governmental or total enterprise funds), and • If the total assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5% of the corresponding element for all governmental and enterprise funds combined. Additionally, any other governmental or enterprise fund that management believes is particularly significant to the basic financial statements may be reported as a major fund. Internal service funds and fiduciary funds are reported by fund type. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 49 Comprehensive Annual Financial Report C. Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Real estate and personal property taxes are recognized as revenues in the 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 50 Comprehensive Annual Financial Report The following major governmental funds are reported: The general fund is the primary operating fund. It is used to account for all financial resources, except those that are required to be accounted for in another fund. The 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 wharf project fund is used to account for the fourth phase of the wharf project which includes improvements to the harborwalk, docks, walkways and pier construction. The school capital projects fund is used to account for the ongoing construction and renovations of the City’s school buildings. The capital improvement fund is used to account for the City’s capital projects related to their capital improvement plan for City related projects. The nonmajor governmental funds consist of other special revenue, capital projects and permanent funds that are aggregated and presented in the nonmajor governmental funds column on the governmental funds financial statements. The following describes the general use of these fund types: The special revenue fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than permanent funds or capital projects. The capital projects fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets of the governmental funds. The permanent fund is used to account for and report financial resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the governmental programs. Proprietary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary funds principal ongoing operations. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. For fiscal year 2014, the City adopted the Massachusetts Department of Revenue Division of Local Services Bulletin 2012-02B which allows for the operation of a combined water and sewer enterprise fund voted under Massachusetts General Law Chapter 44, Section 53F ½. 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 golf course enterprise fund is used to account for the golf course activities. The parking activities enterprise fund is used to account for parking activities. The trash enterprise fund is used to account for the solid waste disposal activities. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 51 Comprehensive Annual Financial Report Additionally, the following proprietary fund type is reported: The internal service fund is used to account for the financing of services provided by one department to other departments or governmental units. This fund is used to account for risk financing activities related to retirees’ health insurance. Fiduciary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting except for the Agency Fund, which has no measurement focus. Fiduciary funds are used to account for assets held in a trustee capacity for others that cannot be used to support the governmental programs. The following fiduciary fund types are reported: The pension trust fund is used to account for the activities of the System, which accumulates resources to provide pension benefits to eligible retirees and their beneficiaries. The other postemployment benefit trust fund is used to accumulate resources to provide funding for future other postemployment benefits (OPEB) liabilities. The private-purpose trust fund is used to account for trust arrangements that exclusively benefit individuals, private organizations, or other governments. Some of these trusts have donor restrictions and trustee policies that do not allow the endowment portion and any unrealized appreciation to be spent. The donor restrictions and trustee policies only allow the trustees to authorize spending of the realized investment earnings. The City’s educational scholarships and housing subsidy trust funds are accounted for in this fund. The agency fund is used to account for assets held in a purely custodial capacity. The City’s agency funds consist primarily of payroll withholdings, police and fire details, escrow deposits and unclaimed property. D. Cash and Investments Government-Wide and Fund Financial Statements Cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with an original maturity of three months or less from the date of acquisition. Investments are carried at fair value. The fair values were determined by the closing price for those securities traded on national stock exchanges and at the average bid-and-asked quotation for those securities traded in the over-the-counter market. Investments that do not have an established market are reported at estimated fair values. E. Accounts Receivable Government-Wide and Fund Financial Statements The recognition of revenue related to accounts receivable reported in the government-wide financial statements and the proprietary funds and fiduciary funds financial statements are reported under the accrual basis of accounting. The recognition of revenue related to accounts receivable reported in the governmental funds financial statements are reported under the modified accrual basis of accounting. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 52 Comprehensive Annual Financial Report 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. User Fees Water and Sewer user fees are levied based on individual meter readings and are subject to penalties and interest if they are not paid by the respective due date. Unbilled user fees are estimated at year-end and are recorded as revenue in the current period. The City abides by a strict policy for unpaid user fees which includes liening any unpaid balance plus interest to the corresponding real estate tax bills. Trash user fees are levied based on the number of units located on the property. The per unit fee collected is $24 for commercial and $16 for residential. Collection from any one property shall not exceed $100 per month. Unpaid trash fees are subject to interest and demand fees; any fees not paid within thirty (30) days may be liened to the property in the following years’ real estate bill. Since the receivables are secured via either a shut off or lien process, these accounts are considered 100% collectible and therefore do not report an allowance for uncollectibles. Departmental and Other Departmental and other receivables consist primarily of grant proceeds, fire detail fees and investment funds of the retirement system received after year end that are recorded as receivables in the year accrued. The allowance of uncollectibles is estimated based on historical trends and specific account analysis. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 53 Comprehensive Annual Financial Report Intergovernmental Various federal and state grants for operating and capital purposes are applied for and received annually. For non-expenditure driven grants, receivables are recorded as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred and all other grant requirements are met. These receivables are considered 100% collectible and therefore do not report an allowance for uncollectibles. Loans Loan receivables are comprised of funds advanced to small businesses and developers under various Urban Development Action Grants (UDAG) and Community Development Block Grants (CDBG). The City loans funds to owners of commercial and residential properties for the purpose of rehabilitating these properties. The City receives funding for these loans from the U.S Department of Housing and Urban Development (HUD) under Community Development Block Grant (CDBG) programs for the City. These loans are repaid to the City under various terms and conditions stipulated by each loan agreement. The loan repayments may be used by the City for any eligible activity relevant to the community development program. F. Inventories and Prepaid Items Government-Wide and Fund Financial Statements Inventories are recorded as expenditures at the time of purchase. Inventories are not material in total to the government-wide and fund financial statements, and therefore are not reported. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. G. Capital Assets Government-Wide and Proprietary Fund Financial Statements Capital assets, which include land, land improvements, buildings and improvements, machinery and equipment, and infrastructure roads, water mains, sewer mains, and similar items), are reported in the applicable governmental or business-type activity column of the government-wide financial statements, and the proprietary fund financial statements. Capital assets are recorded at historical cost, or at estimated historical cost, if actual historical cost is not available. Donated capital assets are recorded at the estimated fair market value at the date of donation. Except for the capital assets of the governmental activities column in the government-wide financial statements, construction period interest is capitalized on constructed capital assets. All purchases and construction costs in excess of $25,000 are capitalized at the date of acquisition or construction, respectively, with expected useful lives of greater than one year. This excludes vehicles, which will all be capitalized. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 54 Comprehensive Annual Financial Report Capital assets (excluding land and construction in progress) are depreciated on a straight-line basis. The estimated useful lives of capital assets are as follows: Estimated Useful Life (in years) Land improvements…………………………… 20-30 Buildings and improvements…………….…… 40 5-10 5-15 Infrastructure…………………………………… 15-80 Capital Asset Type The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized and are treated as expenses when incurred. Improvements are capitalized. Governmental Fund Financial Statements Capital asset costs are recorded as expenditures in the acquiring fund in the year of the purchase. H. Deferred Outflows/Inflows of Resources Government-Wide Financial Statements (Net Position) In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/ expenditure) until then. The City reported a deferred charge on refunding under this category. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City did not have any items that qualify for reporting in 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 City did not have any deferred outflows of resources at year-end. I. Interfund Receivables and Payables During the course of its operations, transactions occur between and within individual funds that may result in amounts owed between funds. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 55 Comprehensive Annual Financial Report Government-Wide Financial Statements Transactions of a buyer/seller nature between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of net position as “internal balances”. Fund Financial Statements Transactions of a buyer/seller nature between and within funds are not eliminated from the individual fund statements. Receivables and payables resulting from these transactions are classified as “Due from other funds” or “Due to other funds” on the balance sheet. J. Interfund Transfers During the course of its operations, resources are permanently reallocated between and within funds. These transactions are reported as transfers in and transfers out. Government-Wide Financial Statements Transfers between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of activities as “Transfers, net”. Fund Financial Statements Transfers between and within funds are not eliminated from the individual fund statements and are reported as transfers in and transfers out. K. 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. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 56 Comprehensive Annual Financial Report “Permanent funds - nonexpendable” represents the endowment portion of donor restricted trusts that support governmental programs. “Grants and gifts” represents assets that have restrictions placed on them from outside parties. Sometimes the City will fund outlays for a particular purpose from both restricted restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted – net position to have been depleted before unrestricted – net position is applied. Fund Financial Statements (Fund Balances) Governmental fund equity is classified as fund balance. Fund balance is further classified as follows: “Nonspendable” fund balance includes amounts that cannot be spent because they are either not in spendable form or they are legally or contractually required to be maintained intact. “Restricted” fund balance includes amounts subject to constraints placed on the use of resources that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or that are imposed by law through constitutional provisions or enabling legislation. “Committed” fund balance includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority. A vote of the City Council is the highest level of decision making authority that can commit funds for a specific purpose. Once voted, the limitation imposed by the vote remains in place until the funds are used for their intended purpose or a vote is taken to rescind the commitment. “Assigned” fund balance includes amounts that are constrained by the City’s intent to be used for specific purposes, but are neither restricted nor committed. The City Finance Director has the authority to assign fund balance. Funds are assigned when the City has an obligation to purchase goods or services from the current years’ appropriation. “Unassigned” fund balance includes the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund. Sometimes the City will fund outlays for a particular purpose from different components of fund balance. In order to calculate the amounts to report as restricted, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. When different components of fund balance can be used for the same purpose, it is the City’s policy to consider restricted fund balance to have been depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. L. Long-term debt Government-Wide and Proprietary Fund Financial Statements Long-term debt is reported as liabilities in the government-wide and proprietary fund statement of net position. Material bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 57 Comprehensive Annual Financial Report Governmental Fund Financial Statements The face amount of governmental funds long-term debt is reported as other financing sources. Bond premiums and discounts, as well as issuance costs, are recognized in the current period. Bond premiums are reported as other financing sources and bond discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual bond proceeds received, are reported as general government expenditures. M. Investment Income Excluding the permanent funds, investment income derived from major and nonmajor governmental funds is legally assigned to the general fund unless otherwise directed by Massachusetts General Law (MGL). Investment income of the enterprise funds is voluntarily assigned to the general fund. N. Compensated Absences Employees are granted vacation and sick leave in varying amounts based on collective bargaining agreements, state laws and executive policies. Compensated absence liabilities related to both governmental and business- type activities are normally paid from the funds reporting payroll and related expenditures. Government-Wide and Proprietary Fund Financial Statements Vested or accumulated vacation and sick leave are reported as liabilities and expensed as incurred. Governmental Fund Financial Statements Vested or accumulated vacation and sick leave, which will be liquidated with expendable available financial resources, are reported as expenditures and fund liabilities upon maturity of the liability. O. Fund Deficits and Appropriation Deficits Individual fund deficits existed at June 30, 2014 within the nonmajor governmental funds. These deficits will be funded through long-term borrowing, capital grants and grant proceeds in year 2015. Actual expenditures exceeded appropriations for snow and ice by $773,000. This over-expenditure will be funded with available funds during year 2015. In the snow and ice removal appropriation line, the general law allows deficits to occur and to be raised in the subsequent year. P. Use of Estimates Government-Wide and Fund Financial Statements The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the year. Actual results could vary from estimates that were used. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 58 Comprehensive Annual Financial Report Q. Total Column Government-Wide Financial Statements The total column presented on the government-wide financial statements represents consolidated financial information. Fund Financial Statements The total column on the fund financial statements is presented only to facilitate financial analysis. Data in this column is not the equivalent of consolidated financial information. NOTE 2 – CASH AND INVESTMENTS A cash and investment pool is maintained that is available for use by all funds. Each fund type's portion of this pool is displayed on the balance sheet as "cash and cash equivalents". The deposits and investments of the trust funds are held separately from those of other funds. As of June 30, 2014, the City’s restricted deposit held in escrow represents capital lease proceeds that are held in escrow until the related equipment is purchased. Statutes authorize the investment in obligations of the U.S. Treasury, agencies, and instrumentalities, certificates of deposit, repurchase agreements, money market accounts, bank deposits and the State Treasurer's Investment Pool (the Pool). The Treasurer and Trust Fund Commission may also invest trust funds in securities, other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth; provided, that not more than 15% of any trust fund may be invested in bank stocks and insurance company stocks, and not more than 15% of any trust fund can be invested in the stock of any one bank or insurance company. The Pool meets the criteria of an external investment pool. The Pool is administered by the Massachusetts Municipal Depository Trust (MMDT), which was established by the Treasurer of the Commonwealth who serves as Trustee. The fair value of the position in the Pool is the same as the value of the Pool shares. The City Treasurer is the custodian of funds held in the Other Postemployment Benefit (OPEB) Trust Fund. As of June 30, 2014, $1,353,522 from the OPEB Trust Fund is included within the City’s cash and investments balances in the following disclosures. The System participates in the Pension Reserve Investment Trust (PRIT), which meets the criteria of an external investment pool. PRIT is administered by the Pension Reserves Investment Management Board, which was established by the Treasurer of the Commonwealth of Massachusetts who serves as Trustee. The fair value of the position in the PRIT is the same as the value of the PRIT shares. The System also has expanded investment powers which are governed by Chapter 32 of the general laws of the Commonwealth and by the regulations issued by the Public Employee Retirement Administration Commission (PERAC). The existing law provides that Systems will invest in securities other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 59 Comprehensive Annual Financial Report 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 $42,275,014 and the bank balance totaled $37,049,037. Of the bank balance, $3,425,206 was covered by Federal Depository Insurance, $11,984,630 was covered by the Share Insurance Fund, $1,037,433 was covered by the Depositors Insurance Fund, $3,820,308 was collateralized and $16,781,460 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 $457,855 and the bank balance totaled $470,292. The entire bank balance was covered by Federal Depository Insurance. Investments As of June 30, 2014, the City had the following investments: Investment Type Fair Value Under 1 Year 1-5 Years 6-10 Years Debt Securities: Corporate $ 2,479,701 $ 77,248 $ 2,402,453 $ - U.S. Treasury 527,261 - 527,261 - Government Sponsored Enterprises……………… 1,447,223 - 1,117,396 329,827 Total Debt 4,454,185 $ 77,248 $ 4,047,110 $ 329,827 Other Investments: Equity 5,313,734 Equity Mutual 3,000,858 Bond Mutual 552,942 Money Market Mutual 649,315 73,421 Total $ 14,044,455 Maturity As of December 31, 2013, the System had the following investments: Maturity Fair Value Under 1 Year Investment Type Repurchase Agreements…………………………… $ 1,691,421 $ 1,691,421 Other Investments: Government Short-term Investment Funds……… 1,834,718 Venture Capital and Limited Partnerships............. 164,605 Real Estate Investment 163,472 Pension Reserve Investment Trust (PRIT)………… 119,149,159 Total $ 123,003,375 The City participates in MMDT which is unrated. MMDT maintains a cash portfolio and a short-term bond portfolio with combined average maturities of approximately 3 months. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 60 Comprehensive Annual Financial Report The System participates in PRIT which is unrated. The effective weighted duration rate for PRIT investments ranged from .25 to 10.78 years. Custodial Credit Risk – Investments For an investment, this is the risk that, in the event of a failure by the counterparty, the City will not be able to recover the value of its investments or collateral security that are in the possession of an outside party. Of the City’s investments, $2,479,700 of corporate bonds, $527,261 of U.S. Treasury Notes, $1,447,223 of Government Sponsored Enterprises and $5,313,734 of equity securities are exposed to custodial credit risk because the related securities are uninsured, unregistered and are held by the counterparty. The Citywide investment policy, as well as the investment policy specifically for OPEB funds, addresses custodial credit risk by requiring all securities not held directly by the City to be held in the City’s name and tax identification number by a third party custodian approved by the Treasurer and evidenced by safekeeping receipts showing individual CUSIP numbers for each security. The System’s investments are not subject to custodial credit risk as all of the securities are insured or registered, and held by its agents in the name of the Salem Contributory Retirement Board. Interest Rate Risk The City has a formal investment policy limiting investment maturities up to one year as a means of managing its exposure to fair value losses arising from increasing interest rates. The System does not have a formal investment policy related to interest rate risk. Credit Risk The City has not adopted a formal policy related to Credit Risk. The investment ratings are as follows: Government Corporate Sponsored Bonds Enterprises - $ - 328,181 1,447,223 154,404 - 235,406 - 586,404 - 540,515 - 522,290 - BBB………… 102,626 - Unrated……… 9,875 - $ 2,479,701 $ 1,447,223 The System has not adopted a formal policy related to Credit Risk. The alternate investment mutual funds, real estate mutual fund investments and PRIT are unrated. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 61 Comprehensive Annual Financial Report Concentration of Credit Risk The City restricts investments to no more than 5% in any one issuer. The City did not have more than 5% of its investments in any one individual security. The retirement system places no limit on the amount the government may invest in any one issuer. The System did not have more than 5% of its investments in any one individual security. NOTE 3 – RECEIVABLES At June 30, 2014, receivables for the individual major governmental funds, non-major governmental funds and internal service funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Real estate and personal property $ 1,101,574 $ - $ 1,101,574 Tax 1,808,167 - 1,808,167 Motor vehicle and other excise 635,173 (137,882) 497,291 Departmental and 64,896 - 64,896 Intergovernmental…………………………………………… 7,414,672 - 7,414,672 576,712 (272,550) 304,162 $ 11,601,194 $ (410,432) $ 11,190,762 At June 30, 2014, receivables for the water and sewer and trash enterprise funds consist of the following: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Water and sewer user $ 3,523,040 $ - $ 3,523,040 Trash 88,206 - 88,206 $ 3,611,246 $ - $ 3,611,246 In addition, as of December 31, 2013, the retirement system had outstanding receivables of $324,992. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 62 Comprehensive Annual Financial Report 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 reported in the governmental funds were as follows: Other General Governmental Fund Funds Total Receivable type: Real estate and personal property $ 497,157 $ 12,196 $ 509,353 Tax 1,808,167 - 1,808,167 Motor vehicle and other excise 497,291 - 497,291 Departmental and - 64,896 64,896 Intergovernmental……………………………………………… 3,695,127 1,779,189 5,474,316 - 304,162 304,162 $ 6,497,742 $ 2,160,443 $ 8,658,185 NOTE 4 – CAPITAL ASSETS Capital asset activity for the year ended June 30, 2014, was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: $ 6,435,568 $ - $ - $ 6,435,568 Construction in progress……………………………… 38,543,756 10,772,945 (48,114,661) 1,202,040 Total capital assets not being depreciated…… 44,979,324 10,772,945 (48,114,661) 7,637,608 Capital assets being depreciated: Land improvements…………………………………… 8,283,578 2,747,862 - 11,031,440 Buildings and improvements………………………… 171,882,399 48,574,159 - 220,456,558 12,313,123 355,789 (201,541) 12,467,371 Infrastructure…………………………………………… 63,877,312 1,977,277 - 65,854,589 4,579,854 352,438 (341,195) 4,591,097 Total capital assets being depreciated………… 260,936,266 54,007,525 (542,736) 314,401,055 Less accumulated depreciation for: Land improvements…………………………………… (2,594,987) (410,701) - (3,005,688) Buildings and improvements………………………… (57,778,644) (5,383,798) - (63,162,442) (6,064,774) (802,658) 201,541 (6,665,891) Infrastructure…………………………………………… (32,600,158) (1,813,466) - (34,413,624) (3,671,813) (247,678) 341,195 (3,578,296) Total accumulated depreciation………………… (102,710,376) (8,658,301) 542,736 (110,825,941) Total capital assets being depreciated, 158,225,890 45,349,224 - 203,575,114 Total governmental activities capital assets…………… $ 203,205,214 $ 56,122,169 $ (48,114,661) $ 211,212,722 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 63 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Water and Sewer Activities: Capital assets not being depreciated: $ 110,141 $ - $ - $ 110,141 Construction in progress……………………………… 1,269,159 445,630 - 1,714,789 Total capital assets not being depreciated…… 1,379,300 445,630 - 1,824,930 Capital assets being depreciated: Buildings and improvements………………………… 119,975 - - 119,975 296,290 - - 296,290 97,590 - - 97,590 Infrastructure…………………………………………… 27,812,600 5,423,790 - 33,236,390 Total capital assets being depreciated………… 28,326,455 5,423,790 - 33,750,245 Less accumulated depreciation for: Buildings and improvements………………………… (71,294) (5,728) - (77,022) (172,089) (29,629) - (201,718) (97,590) - - (97,590) Infrastructure…………………………………………… (8,687,416) (599,602) - (9,287,018) Total accumulated depreciation………………… (9,028,389) (634,959) - (9,663,348) Total capital assets being depreciated, 19,298,066 4,788,831 - 24,086,897 Total water and sewer activities capital assets…………$ 20,677,366 $ 5,234,461 $ - $ 25,911,827 Beginning Ending Balance Increases Decreases Balance Golf Course Activities: Capital assets not being depreciated: $ 118,067 $ - $ - $ 118,067 Capital assets being depreciated: Land improvements…………………………………… 312,852 - - 312,852 Buildings and improvements………………………… 453,988 - - 453,988 337,233 160,596 - 497,829 Total capital assets being depreciated………… 1,104,073 160,596 - 1,264,669 Less accumulated depreciation for: Land improvements…………………………………… (307,448) (1,201) - (308,649) Buildings and improvements………………………… (162,488) (11,000) - (173,488) (290,629) (30,177) - (320,806) Total accumulated depreciation………………… (760,565) (42,378) - (802,943) Total capital assets being depreciated, 343,508 118,218 - 461,726 Total golf course activities capital assets……………… $ 461,575 $ 118,218 $ - $ 579,793 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 64 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Parking Activities: Capital assets not being depreciated: $ 48,214 $ - $ - $ 48,214 Capital assets being depreciated: Land improvements…………………………………… 1,338,366 - - 1,338,366 Buildings and improvements………………………… 7,625,100 - - 7,625,100 73,805 - - 73,805 Infrastructure…………………………………………… 24,952 - - 24,952 Total capital assets being depreciated………… 9,062,223 - - 9,062,223 Less accumulated depreciation for: Land improvements…………………………………… (275,353) (33,500) - (308,853) Buildings and improvements………………………… (4,655,960) (113,917) - (4,769,877) (29,146) (6,870) - (36,016) Infrastructure…………………………………………… (17,465) (4,990) - (22,455) Total accumulated depreciation………………… (4,977,924) (159,277) - (5,137,201) Total capital assets being depreciated, 4,084,299 (159,277) - 3,925,022 Total parking activities capital assets……………………$ 4,132,513 $ (159,277) $ - $ 3,973,236 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, 2013 totals $27,344, for a net book value of $97,656. Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General $ 407,983 Public 628,440 5,241,538 Public 2,150,392 Health and human 4,636 Culture and 203,098 Community 22,214 Total depreciation expense - governmental activities………………………… $ 8,658,301 Business-Type Activities: Water and 634,959 Golf 42,378 159,277 Total depreciation expense - business-type activities…………………………$ 836,614 Fiduciary Activities: Pension $ 3,125 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 65 Comprehensive Annual Financial Report NOTE 5 – INTERFUND TRANSFERS AND BALANCES Interfund transfers for the year ended June 30, 2014, are summarized as follows: Community Capital Trash Golf Course Water and Sewer Nonmajor General Preservation Improvement Enterprise Enterprise Enterprise Governmental Transfers Out: Fund Funds Funds Fund Fund Fund Funds Total General $ - $ 50,000 $ - $ 1,839,288 $ 494,860 $ - $ 1,703,254 $ 4,087,402 Nonmajor Governmental Funds………… 821,993 - - - - 126,782 28,889 977,664 Parking Enterprise 1,576,120 - 200,000 - - - - 1,776,120 Golf Course Enterprise Fund………….. 711,374 - - - - - - 711,374 Water and Sewer Enterprise Fund…… 1,601,654 - - - - 15,000 25,000 1,641,654 4,711,141 $ 50,000 $ 200,000 $ 1,839,288 $ 494,860 $ 141,782 $ 1,757,143 $ 9,194,214 Transfer from general fund to community preservation funds; transfer from general fund to trash enterprise fund for the City's subsidized portion; transfer from general fund to golf enterprise fund to reimburse for amounts raised by taxation; transfer from general fund to nonmajor governmental funds to fund capital projects. Transfer from the nonmajor governmental funds to the general fund for their share of indirect costs; transfer from the nonmajor funds to water and sewer enterprise to close out revolving funds for water backflow; transfers within nonmajor governmental funds. Transfer from the parking enterprise fund to the general fund to return their net operating income; transfer from the parking enterprise fund to the capital projects fund for parking related capital projects. Transfer from the golf course enterprise fund to the general fund as voted by council to fund related operations. Transfer from the water and sewer enterprise fund to the general fund for their share of indirect costs. transfer from water and sewer enterprise fund to the nonmajor funds for their share of the flood mitigation grant project. Transfers In: The City’s interfund balances at June 30, 2014 consisted of $312,590 in balances within the nonmajor governmental funds representing interfund borrowings for cash flow purposes. NOTE 6 – CAPITAL AND OPERATING LEASES Capital Leases The City has entered into lease agreements as lessee for financing the acquisition of police vehicles, a fire truck, department of public works vehicles, school buses, a maintenance van, golf and turf equipment and information technology. These lease agreements qualify as capital leases for accounting purposes and therefore, have been recorded at the present value of their future minimum lease payments as of the inception date. Century Bank Lease – In the prior year, the City entered into a new capital lease agreement for a total of $472,500 for equipment purchased in years 2013 and 2014. The funds were deposited into an escrow account and $272,050 of assets were purchased in 2013 and $200,450 of assets were purchased in 2014. In addition, during the current year the City entered into a new capital lease agreement for a total of $284,000 for various police, school and public works vehicles purchased during the year. The funds were deposited into an escrow account and $276,639 of assets were purchased and $2,361 remained in the escrow account at year end for use for future purchases. During the current year, the City also entered into a new capital lease totaling $160,595 for golf and turf equipment. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 66 Comprehensive Annual Financial Report The assets acquired through capital leases are as follows: Governmental Business-type Activities Activities Asset: Machinery and 602,873 $ 160,595 628,892 - Less: accumulated depreciation………………………… (336,715) (8,030) 895,050 $ 152,565 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2014, were as follows: Years Governmental Business-type Ending June 30 Activities Activities 291,167 $ 55,548 259,301 55,549 96,202 - Total minimum lease payments……………………… 646,670 111,097 Less: amounts representing interest………………… (20,611) (6,050) Present value of minimum lease payments………… $ 626,059 $ 105,047 Operating Leases The City leases office space for the City Hall Annex under an operating lease that began in February 2013 and expires on April 30, 2016. The City made twelve lease payments for the year ended June 30, 2014 totaling $366,000 which is reported as general government expenditures in the general fund. The future minimum lease payments for the City’s operating lease are as follows: Years Governmental Ending June 30 Activities 383,000 227,500 $ 610,500 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 67 Comprehensive Annual 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, 2014, are as follows: Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose Due Date 2013 Issued Redeemed 2014 Governmental Activities BAN Municipal Purpose……… 2.17% 12/20/13 $ 6,790,000 $ - $ (6,790,000) $ - SAAN Municipal Purpose……… 0.75% 12/20/13 37,738 - (37,738) - SAAN Municipal Purpose……… 0.75% 12/03/14 - 4,000,000 - 4,000,000 BAN Municipal Purpose……… 0.50% 12/03/14 - 4,863,000 - 4,863,000 Sub-total governmental 6,827,738 8,863,000 (6,827,738) 8,863,000 Business-type Activities BAN Sewer Improvements… 0.50% 12/03/14 - 2,000,000 - 2,000,000 SAAN Sewer Improvements… 0.25% 12/03/14 - 3,000,000 - 3,000,000 Sub-total business-type - 5,000,000 - 5,000,000 Total notes 6,827,738 $ 13,863,000 $ (6,827,738) $ 13,863,000 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, 2014, and the debt service requirements are reported in the following tables. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 68 Comprehensive Annual Financial Report Bonds Payable Schedule – Governmental Activities Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2013 Issued Redeemed 2014 HUD Section 2015 $ 6,000,000 9.00% $ 70,000 $ - $ (35,000) $ 35,000 Municipal Purpose Bonds of 2023 28,670,000 3.00-5.00% 1,495,000 - (1,495,000) - Municipal Purpose Bonds of 2025 2,465,000 3.00-5.00% 1,460,000 - (1,335,000) 125,000 Municipal Purpose Bonds of 2028 8,319,497 3.75-5.00% 5,875,000 - (485,000) 5,390,000 Municipal Purpose Refunding Bonds of 2010……… 2020 8,113,000 2.00-5.00% 6,251,000 - (1,370,000) 4,881,000 Municipal Purpose Bonds of 2026 5,219,000 3.00-5.00% 4,145,000 - (520,000) 3,625,000 Municipal Purpose Bonds of 2043 15,143,598 2.63-4.00% 15,143,598 - (413,598) 14,730,000 Municipal Purpose Bonds of 2034 6,680,000 3.00-4.00% - 6,680,000 - 6,680,000 Municipal Purpose Refunding Bonds of 2014……… 2025 2,509,500 3.00-4.00% - 2,509,500 - 2,509,500 Total Governmental bonds 34,439,598 9,189,500 (5,653,598) 37,975,500 Unamortized premiums on 852,364 684,173 (148,820) 1,387,717 Total outstanding bonds payable reported in governmental activities………………………………… $ 35,291,962 $ 9,873,673 $ (5,802,418) 39,363,217 Less unamortized premiums on (1,387,717) Total future fiscal year payments of bonds reported in governmental 37,975,500 Debt service requirements for governmental bonds are as follows: Year Principal Interest Total 2,851,700 $ 1,368,437 $ 4,220,137 2,808,300 1,271,878 4,080,178 2,600,500 1,173,204 3,773,704 2,635,000 1,077,626 3,712,626 2,570,000 978,219 3,548,219 2,605,000 870,872 3,475,872 1,740,000 774,847 2,514,847 1,600,000 703,247 2,303,247 1,625,000 633,795 2,258,795 1,450,000 567,453 2,017,453 1,455,000 509,285 1,964,285 1,260,000 459,831 1,719,831 1,220,000 419,220 1,639,220 1,250,000 377,720 1,627,720 755,000 343,669 1,098,669 775,000 317,769 1,092,769 810,000 290,919 1,100,919 835,000 263,019 1,098,019 860,000 234,244 1,094,244 860,000 204,719 1,064,719 2035 through 2,905,000 714,892 3,619,892 2040 through 2,505,000 174,657 2,679,657 37,975,500 $ 13,729,522 $ 51,705,022 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 69 Comprehensive Annual Financial Report The Commonwealth has approved school construction assistance to the City. The assistance program, which is administered by the MSBA, provides resources for future debt service of general obligation school bonds outstanding. During year 2014, $733,000 of such assistance was received. Approximately $4,397,000 will be received in future years of which $702,000 represents reimbursement of long-term interest costs, and $3,695,000 represents reimbursement of approved construction costs. Accordingly, a $3,695,000 intergovernmental receivable and corresponding deferred inflow of resources have been reported in the governmental fund financial statements. The deferred inflow of resources has been eliminated in the conversion to the government-wide financial statements and reported as net position. The MSBA has modified the method of funding for new projects in the school building assistance program. Under the new program, the assistance is paid to support the State’s share of eligible construction costs as they are incurred, therefore eliminating the need for the City to fund the State’s share through long-term debt. The Saltonstall and Collins School projects are being partially funded through this program. As of June 30, 2014, the City has recorded an intergovernmental receivable totaling $524,000, which represents the State’s 78.26% share of eligible construction costs incurred to date that have not yet been reimbursed. In order to take advantage of favorable interest rates, the City issued $2.86 million of General Obligation Refunding Bonds on December 17, 2013 for an advance refunding of $2.96 million in debt. The $2.93 million of General Obligation Bonds was refunded by placing the proceeds of the refunding bonds plus $263,000 of bond premiums in an irrevocable trust to provide for all future debt service payments on the refunded bonds. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the statement of net position. The reacquisition price exceeded the net carrying amount of the old debt by $128,773. This refunding was undertaken to reduce total debt service payments by $251,915 and resulted in an economic gain of $212,588. At June 30, 2014, $1.56 million of bonds outstanding from the refunding is outstanding. Bonds Payable Schedule – Water and Sewer Enterprise Fund WATER AND SEWER ENTERPRISE FUND Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2013 Issued Redeemed 2014 Water Project - 2027 $ 2,330,656 2.00% $ 1,729,422 $ - $ (108,119) $ 1,621,303 Water 2028 3,250,503 3.75-5.00% 2,420,000 - (165,000) 2,255,000 Sewer Improvements………………………………… 2030 1,690,000 3.00-5.00% 1,485,000 - (95,000) 1,390,000 Water System Tanks and Improvements………… 2031 8,464,000 3.00-5.00% 7,380,000 - (540,000) 6,840,000 Water System Improvements………………………… 2033 1,412,402 2.63-4.00% 1,412,402 - (52,402) 1,360,000 Sewer Improvements………………………………… 2033 1,435,000 2.63-4.00% 1,435,000 - (55,000) 1,380,000 Sewer Improvements………………………………… 2034 3,900,000 3.00-4.00% - 3,900,000 - 3,900,000 Total Water and Sewer Enterprise 15,861,824 $ 3,900,000 $ (1,015,521) $ 18,746,303 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 70 Comprehensive Annual Financial Report Debt service requirements for the water and sewer enterprise fund are as follows: Year Principal Interest Total 1,160,303 $ 654,301 $ 1,814,604 2016……………… 1,167,532 617,679 1,785,211 2017……………… 1,174,805 578,362 1,753,167 2018……………… 1,182,124 536,192 1,718,316 2019……………… 1,194,490 493,000 1,687,490 2020……………… 1,201,904 448,736 1,650,640 2021……………… 1,209,367 403,599 1,612,966 2022……………… 1,121,880 359,487 1,481,367 2023……………… 1,134,443 316,924 1,451,367 2024……………… 1,147,058 273,909 1,420,967 2025……………… 1,164,726 232,257 1,396,983 2026……………… 1,167,447 192,063 1,359,510 2027……………… 985,224 155,123 1,140,347 2028……………… 850,000 122,648 972,648 2029……………… 705,000 93,675 798,675 2030……………… 550,000 70,250 620,250 2031……………… 515,000 50,700 565,700 2032……………… 435,000 33,525 468,525 2034……………… 405,000 18,375 423,375 2033……………… 275,000 5,500 280,500 Total………………$ 18,746,303 $ 5,656,305 $ 24,402,608 Bonds Payable Schedule – Golf Course Enterprise Fund Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2013 Issued Redeemed 2014 Golf Course Clubhouse Refunding of 2010………… 2017 $ 172,000 2.00-5.00% $ 109,000 $ - $ (30,000) $ 79,000 Debt service requirements for the golf course enterprise fund are as follows: Year Principal Interest Total 30,000 $ 1,920 $ 31,920 2016……………… 30,000 1,020 31,020 2017……………… 19,000 285 19,285 Total………………$ 79,000 $ 3,225 $ 82,225 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 71 Comprehensive Annual Financial Report Bonds Payable Schedule – Parking Enterprise Fund Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount 2013 Issued Redeemed 2014 Parking Garage 2020 $ 1,100,000 3.00-5.00% $ 500,000 $ - $ (425,000) $ 75,000 Parking 2018 200,000 2.625-4% 200,000 - (40,000) 160,000 Parking Garage Repairs Refunding Bonds……… 2020 345,000 3.00-4.00% - 345,500 - 345,500 Total Parking Enterprise $ 700,000 $ 345,500 $ (465,000) $ 580,500 Debt service requirements for the parking enterprise fund are as follows: Year Principal Interest Total 115,000 $ 30,520 $ 145,520 2016……………… 115,500 13,810 129,310 2017……………… 115,000 9,975 124,975 2018……………… 115,000 6,525 121,525 2019……………… 75,000 3,300 78,300 2020……………… 45,000 900 45,900 Total………………$ 580,500 $ 65,030 $ 645,530 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, 2014, the City had the following authorized and unissued debt: Purpose Amount School Construction and Equipment………$ 10,063,488 Water Systems Improvements…………… 6,915,264 Water Meter Replacement Project………… 200,000 Capital 3,312,153 Roadway 2,000,000 Senior Center Construction………………… 4,994,136 Bertram 1,900,000 Sewer Improvements……………………… 2,900,000 Canal Street Improvements………………… 3,300,000 Parking Improvements……………………… 1,320,000 $ 36,905,041 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 72 Comprehensive Annual Financial Report Changes in Long-term Liabilities During the year ended June 30, 2014, the following changes occurred in long-term liabilities: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities: Long-term 34,439,598 $ 9,189,500 $ (5,653,598) $ 37,975,500 $ 2,851,700 Add: unamortized premium………… 852,364 684,173 (148,820) 1,387,717 176,505 Total bonds payable……………… 35,291,962 9,873,673 (5,802,418) 39,363,217 3,028,205 Capital 619,317 284,000 (277,258) 626,059 279,226 Compensated absences……………… 8,714,007 2,233,712 (1,871,442) 9,076,277 1,831,465 Landfill Closure………………………… 600,000 - - 600,000 - Workers' compensation……..……… 949,099 - (73,510) 875,589 122,471 Other postemployment benefits……… 32,408,395 10,663,047 (5,126,052) 37,945,390 - Total governmental activity long-term liabilities……………………$ 78,582,780 $ 23,054,432 $ (13,150,680) $ 88,486,532 $ 5,261,367 Business-Type Activities: Capital $ - $ 160,595 $ (55,548) $ 105,047 $ 51,540 Long-term 16,670,824 4,245,500 (1,510,521) 19,405,803 2,175,606 Compensated absences……………… 178,716 50,521 (138,389) 90,848 46,691 Other postemployment benefits……… 1,344,622 450,425 (216,532) 1,578,515 - Total business-type activity long-term liabilities……………………$ 18,194,162 $ 4,907,041 $ (1,920,990) $ 21,180,213 $ 2,273,837 Compensated absence, workers’ compensation and other postemployment liabilities related to both governmental and business-type activities are normally paid from the funds reporting payroll and related expenditures, which consist of the general fund and the sewer, water, golf, parking, and trash enterprise funds. NOTE 9 – GOVERNMENTAL FUND BALANCE CLASSIFICATIONS The City classifies fund balances according to the constraints imposed on the use of the resources. There are two major types of fund balances, which are nonspendable and spendable. Nonspendable fund balances are balances that cannot be spent because they are not expected to be converted to cash or they are legally or contractually required to remain intact. Examples of this classification are prepaid items, inventories, and principal (corpus) of an endowment fund. The City has reported principal portions of endowment funds as nonspendable. Spendable fund balances are classified based on a hierarchy of spending constraints. • Restricted: fund balances that are constrained by external parties, constitutional provisions, or enabling legislation. • Committed: fund balances that contain self-imposed constraints of the government from its highest level of decision making authority. • Assigned: fund balances that contain self-imposed constraints of the government to be used for a particular purpose. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 73 Comprehensive Annual Financial Report • Unassigned: fund balance of the general fund that is not constrained for any particular purpose and the deficit fund balances for other funds that would otherwise be restricted, committed, or assigned. The City of Salem’s spending policy is to spend restricted fund balance first, followed by committed, assigned and unassigned fund balance. Most governmental funds are designated for one purpose at the time of their creation. Therefore, any expenditure from the fund will be allocated to the applicable fund balance classifications in the order of the aforementioned spending policy. The general fund and certain other funds may have more than one purpose. Massachusetts General Law Ch.40 §5B allows for the establishment of Stabilization funds for one or more different purposes. The creation of a fund requires a two-thirds vote of the legislative body and must clearly define the purpose of the fund. Any change to the purpose of the fund along with any additions to or appropriations from the fund requires a two-thirds vote of the legislative body. At year end the balances of the General Stabilization Fund and the Retirement Stabilization Fund totaled $5,173,812 and $297,019, respectively and are reported as unassigned fund balance within the General Fund. As of June 30, 2014, the governmental fund balances consisted of the following: Community School Capital Nonmajor Total Preservation Capital Improvement Governmental Governmental General Fund Projects Funds Funds Funds FUND BALANCES Nonspendable: Permanent fund principal…………$ - $ - $ - $ - $ 2,074,987 $ 2,074,987 Restricted for: Community preservation fund…… - 519,787 - - - 519,787 School capital projects fund……… - - 604,355 - - 604,355 City revolving funds………………… - - - - 847,573 847,573 City grant - - - - 3,615,532 3,615,532 School - - - - 134,147 134,147 School revolving funds…………… - - - - 267,872 267,872 School grant funds………………… - - - - 2,209,699 2,209,699 Donations and gifts………………… - - - - 1,721,783 1,721,783 Receipts reserved………………… - - - - 698,221 698,221 Community development grants… - - - - 11,543 11,543 Other capital projects……………… - - - - 486,510 486,510 Cemetery - - - - 2,470,164 2,470,164 Human services fund……………… - - - - 1,409,494 1,409,494 Other permanent funds…………… - - - - 566,585 566,585 Assigned to: General government……………… 180,777 - - - - 180,777 Public 32,657 - - - - 32,657 Education…………………………… 565,785 - - - - 565,785 Human services…………………… 79,754 - - - - 79,754 Culture and recreation…………… 80,389 - - - - 80,389 Debt service interest……………… 63,573 - - - - 63,573 Unassigned…………………………… 11,998,002 - - (2,089,648) - 9,908,354 TOTAL FUND BALANCES…………… $ 13,000,937 $ 519,787 $ 604,355 $ (2,089,648) $ 16,514,110 $ 28,549,541 GOVERNMENTAL FUNDS ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 74 Comprehensive Annual Financial Report NOTE 10 – RISK FINANCING The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the City carries commercial insurance. The amount of claim settlements has not exceeded insurance coverage in any of the previous three years. The City participates in premium-based health care plans for its active employees and retirees through the state’s Group Insurance Commission. As of July 1, 2008, the City changed to a premium based plan for workers’ compensation coverage. The remaining claims that were incurred prior to July 1, 2008 are accounted for in the funds incurring the expenditures. Workers’ Compensation Workers’ compensation claims incurred prior to July 1, 2008 are administered by the City and are funded on a pay-as-you-go basis from annual appropriations. The estimated future workers’ compensation liability is based on history and injury type. At June 30, 2014, the amount of the liability for workers’ compensation claims totaled $875,589. Changes in the reported liability since July 1, 2012, are as follows: Current Year Balance at Claims and Balance at Beginning of Changes in Claim Fiscal Current the Year Estimate Payments Year-End Portion Year 2013…… $ 1,834,959 $ (710,792) $ (175,068) $ 949,099 $ 170,900 Year 2014…… 949,099 89,997 (163,507) 875,589 122,471 NOTE 11 – PENSION PLAN Plan Description - The City contributes to the System, a cost-sharing multiple-employer defined benefit pension plan administered by the Salem Contributory Retirement Board. Substantially all employees are members of the System, except for public school teachers and certain administrators who are members of the Massachusetts Teachers Retirement System, to which the City does not contribute. Pension benefits and administrative expenses paid by the Teachers Retirement Board are the legal responsibility of the Commonwealth. The amount of these on-behalf payments totaled $10,808,000 for the year ended June 30, 2014, and, accordingly, are reported in the general fund as intergovernmental revenues and pension expenditures. The System provides retirement, disability and death benefits to plan members and beneficiaries. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the plan. Cost-of-living adjustments granted between 1981 and 1997 and any increase in other benefits imposed by the Commonwealth’s state law during those years are borne by the Commonwealth and are deposited into the pension fund. Cost-of-living adjustments granted after 1997 must be approved by the Salem Contributory Retirement Board and are borne by the System. The System issues a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth’s PERAC. That report may be obtained by contacting the System located at 20 Central Street, Salem, Massachusetts 01970. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 75 Comprehensive Annual Financial Report At December 31, 2013, the System’s membership consists of the following: Active 899 Inactive 175 Retirees and beneficiaries currently receiving benefits……… 561 1,635 Funding Policy - Plan members are required to contribute to the System at rates ranging from 5% to 11% of annual covered compensation. The City is required to pay into the System its share of the system-wide actuarial determined contribution that is apportioned among the employers based on active current payroll. Administrative expenses are funded through investment earnings. The current and two preceding years’ apportionment of the annual pension cost between the employers required the City to contribute 85% of the total. Chapter 32 of the MGL governs the contributions of plan members and the City. Annual Pension Cost - The City’s contributions to the System for the years ended June 30, 2014, 2013, and 2012, were $9,686,094, $9,337,442, and $8,935,504, respectively, which equaled its required contribution for each year. The required contribution was determined as part of the January 1, 2012, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included an inflation rate of 8% investment rate of return and projected salary increases of 5% per year. The actuarial value of the System's assets was determined using the fair value of the assets. The System's unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll. The remaining open amortization period at January 1, 2012 was 20 years. Schedule of Funding Progress Actuarial UAAL as a Actuarial Accrued Unfunded Percentage Actuarial Value of Liability (AAL) AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (B-A) (A/B) 01/01/14 $ 120,440,960 $ 237,524,910 $ 117,083,950 50.7% $ 40,399,678 289.8% 01/01/12 106,806,161 214,346,363 107,540,202 49.8% 37,076,549 290.0% 01/01/10 100,046,731 193,470,036 93,423,305 51.7% 34,583,002 270.1% Funding progress is reported based on the biennial actuarial valuation performed by the System, and is being accumulated on a biennial basis. The City is responsible for approximately 85% of the unfunded liability. The schedule of progress, presented as required supplementary information, following the notes to the basic financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Additionally, the schedule of employer contributions, presented as required supplementary information, following the notes to the basic financial statements, presents multiyear trend information for required and actual contributions relating to the cost- sharing plan as a whole, of which the City is one participating employer, as well as the City’s proportionate share of the plan’s annual contributions. This information is designed to be helpful for understanding the scale of the information presented relative to the City. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 76 Comprehensive Annual Financial Report NOTE 12 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Plan Description – The City of Salem maintains a single-employer defined benefit healthcare plan (“the Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s participation in the Group Insurance Commission of the Commonwealth of Massachusetts (GIC), which covers both active and retired members. Chapter 32b of the MGL assigns authority to establish and amend benefit provisions of the plan. The Retiree Health Plan does not issue a publicly available financial report. The employer’s share for life insurance is 65% while the retiree is responsible for 35%. Regarding health insurance, these rates are dependent upon the individual’s date of retirement. The rates range from 10% to 35% for the retiree’s co-payment of the total premium, and 65% to 90% for the City. As of December 31, 2011, the plan’s membership consisted of: Active participants………………………………………… 890 Retired participants………………………………………… 1,053 Total participants…………………………………………… 1,943 Funding Policy – Contribution requirements are also negotiated between the City and union representatives. The required contribution is based on a pay-as-you-go financing requirement. The City contributes 70% of the cost of current-year premiums for retirees in active plans, 65% for those in senior plans and 90% for retired teachers. The City contributes 50% for surviving spouses. Plan members receiving benefits contribute the remainder of their premium costs. For year 2014, the City contributed $5.3 million to the plan. Administrative costs of the Plan are assumed to be included in the fully insured premium rates. The Commonwealth of Massachusetts passed special legislation that has allowed the City to establish the Other Postemployment Benefits Trust fund which allows the City to set aside amounts to begin pre-funding its OPEB liabilities. During 2014, the City pre-funded future OPEB liabilities in the amount of $549,871. Annual OPEB Cost and Net OPEB Obligation – The City’s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s net OPEB obligation are summarized in the following table: Annual required contribution……………………………………$ 10,799,677 Interest on net OPEB obligation……………………………… 1,518,886 Adjustments to annual required contribution………………… (1,205,091) Annual OPEB cost 11,113,472 Contributions made (including retired teachers)…………… (5,342,584) Increase in net OPEB obligation……………………………… 5,770,888 Net OPEB obligation-beginning of 33,753,017 Net OPEB obligation-end of 39,523,905 ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 77 Comprehensive Annual Financial Report The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for years 2012, 2013 and 2014 are as follows: Percentage of Year Annual Annual OPEB Net OPEB Ended OPEB Cost Cost Contributed Obligation 6/30/2014 $ 11,113,472 48% $ 39,523,905 6/30/2013 10,265,605 46% 33,753,017 6/30/2012 9,768,346 45% 28,169,097 Funded Status and Funding Progress – As of December 31, 2011, the most recent actuarial valuation date, the actuarial accrued liability for benefits totaled $145 million, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was $50 million and the ratio of unfunded actuarial accrued liability was 289.5%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions – Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the December 31, 2011, actuarial valuation, actuarial liabilities were determined using the projected unit credit cost method. The actuarial assumptions included a 4.5% investment return assumption, which is based on the expected yield on the assets of the City, calculated based on the funded level of the plan at the valuation date, and an annual medical/drug cost trend rate of 9% initially, graded to 5% over 8 years. Both rates included a 4.0% inflation assumption. The UAAL is being amortized over an open 30 year period using a level percentage of projected payroll with amortization payments increasing at 4% per year. NOTE 13 – MAJOR TAXPAYER The City receives a significant portion of its real estate and personal property tax revenue from one taxpayer, Dominion, who is the operator of a coal-fired electric generating power plant on the waterfront in Salem. In 2009, the City and the taxpayer entered into a three-year agreement, which would provide total payments of $4.75 million in years 2009, 2010, and 2011, in the form of annual tax payments of $3 million, and annual additional contributions of $1.75 million, to be used exclusively for public purposes. In year 2012, Dominion filed paperwork to decommission all four of its generating units in Salem, which would have a negative impact on the City’s revenue stream. To provide relief to municipalities from the decommissioning of electric generating stations, if the change in operating status also reduces the Commonwealth’s greenhouse gas emissions, the Commonwealth has enacted Section 33 of Chapter 68 of the Acts of 2013 (the Act). The Act will defray the burden of the closure ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 78 Comprehensive Annual Financial Report on the taxpayers by supplementing the difference between the payments in taxes from the plant and what the City would have otherwise collected until year 2016. During year 2013, Dominion was sold to Footprint Power in which, subject to negotiation, Footprint will assume the tax liability from Dominion. Footprint plans to operate the plant until 2014 at which time it will shut down the plant, demolish the old plant, clean up the site and build a new natural gas fired plant. They are in the process of applying for permitting for the complete decommission of the old plant and will demolish existing structures to make room for a new, 630 megawatt natural gas fired plant. This new plant will take up a portion of the property, leaving a significant portion of unused land in which the City and Footprint have been looking into other commercial uses of the land. During year 2014, the City entered into a payment in lieu of taxes (PILOT) and contribution agreement with Footprint Power for the Salem Harbor Power Station. The parties agreed that for the purpose of the City issuing property tax invoices for year 2014, the tax assessment will be based on a fair value of $50 million for the property. The payments are to be made on a quarterly basis. As part of the contribution agreement mentioned above, Footprint Power agreed to make a contribution in year 2014 of an amount which is the difference between $1.75 million and tax payments made consistent with the previously discussed PILOT agreement. This contribution was $140,476. NOTE 14 – ENVIRONMENTAL REMEDIATION LIABILITY State and federal laws and regulations require the City to construct a final capping system on its inactive landfill site, the Salem Transfer Station, when it stops accepting waste and to perform certain maintenance and monitoring functions at the site after closure. The City has stopped accepting waste at the site and the site is closed. The City is the owner and permittee of the Salem Transfer Station site, while Northside Carting, Inc. operated the facility. The City has completed a preliminary study in order to estimate the cost of the landfill postclosure care which is to be paid for equally by the City and the operator. As a result, the City has recorded a liability of $600,000 in the entity-wide financial statements for the total estimated postclosure costs. Actual costs may be higher due to inflation, changes in technology, or changes in applicable laws, regulations or agreements. NOTE 15 – COMMITMENTS The City entered into contracts totaling approximately $9.7 million. This amount includes a $3.3 million contract for the Salem Wharf Port Expansion project, $1.4 million dollars for roadway improvements, $1.6 million dollars for rehabilitation of the Folly Hill Reservoir, $1 million dollars for the renovation of Salem City Hall. The City is also nearing completion of the $48.4 million Collins Middle School and Saltonstall Elementary School renovation projects. The City entered into an agreement with Alternative Therapies Group, Inc. (ATG), a Massachusetts not for profit Corporation, on April 14th 2014. Alternative Therapies Group, Inc. wishes to locate a registered marijuana dispensary in the City and intends to provide benefits to the City, in the event it is licensed to operate and receives required local approvals. Per the agreement, in the first two years ATG shall pay the City annually a sum equal to 1.25% of the total gross annual sales. Such payments shall be made annually at the end of the first 12 months of operations and the end of the first 24 months of operations. In the third year of operations and for all subsequent years, unless renegotiated, ATG shall pay the City annually a sum of 2.0% of the total gross annual sales. ---PAGE BREAK--- Notes to Basic Financial Statements Year Ended June 30, 2014 City of Salem, Massachusetts 79 Comprehensive Annual Financial Report NOTE 16 – CONTINGENCIES The City participates in a number of federal award programs. Although the grant programs have been audited in accordance with the provisions of the Single Audit Act Amendments of 1996 through June 30, 2014, 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, 2014, cannot be ascertained, management believes any resulting liability should not materially affect the financial position at June 30, 2014. NOTE 17 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During 2014, the following GASB pronouncements were implemented: • GASB Statement #65, Items Previously Reported as Assets and Liabilities. Financial statement changes include the presentation of deferred outflows and inflows in the Statement of Net Position and Balance Sheet. Notes to the basic financial statements were changed to provide additional disclosure on deferred outflows of resources and deferred inflows of resources. • GASB Statement #70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. The implementation of this pronouncement did not impact the basic financial statements. The following GASB pronouncements will be implemented in future years: • The GASB issued Statement #67, Financial Reporting for Pension Plans, which is required to be implemented in 2015. • The GASB issued Statement #68, Accounting and Financial Reporting for Pensions, which is required to be implemented in 2015. • The GASB issued Statement #69, Government Combinations and Disposals of Government Operations, which is required to be implemented in 2015. • The GASB issued Statement #71, Pension Transition for Contributions Made Subsequent to the Measurement Date, which is required to be implemented simultaneously with GASB Statement #68 in 2015. Management is currently assessing the impact that the implementation of these pronouncements will have on the basic financial statements. ---PAGE BREAK--- City of Salem, Massachusetts 80 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- City of Salem, Massachusetts 81 Comprehensive Annual Financial Report Required Supplementary Information Required Supplementary Information ---PAGE BREAK--- City of Salem, Massachusetts 82 Comprehensive Annual Financial Report General Fund Budgetary Comparison Schedule General fund budgetary comparison schedule The General Fund is the general operating fund of the City. It is used to account for all of the City’s financial resources, except those required to be accounted for in another fund. ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2014 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget REVENUES: Real estate and personal property taxes, net of tax $ - $ 79,163,400 $ 79,163,400 $ 79,163,400 $ 79,058,525 $ - $ (104,875) Tax - - - - 491,336 - 491,336 Motor vehicle and other excise taxes…………… - 3,130,000 3,130,000 3,130,000 3,799,179 - 669,179 Hotel/motel tax and meals taxes………………… - 1,210,000 1,210,000 1,210,000 1,319,418 - 109,418 Charges for services……………………………… - 1,668,446 1,668,446 1,668,446 1,431,771 - (236,675) Penalties and interest on - 400,000 400,000 400,000 453,971 - 53,971 Payments in lieu of - 1,310,000 1,310,000 1,310,000 1,321,060 - 11,060 Licenses and - 450,000 450,000 450,000 505,129 - 55,129 Fines and forfeitures……………………………… - 1,200,000 1,200,000 1,200,000 1,208,544 - 8,544 Intergovernmental………………………………… - 29,287,153 29,287,153 29,287,153 30,297,747 - 1,010,594 Departmental and - 3,085,000 3,085,000 3,085,000 2,958,729 - (126,271) Investment - 125,000 125,000 125,000 150,400 - 25,400 TOTAL REVENUES…………………… - 121,028,999 121,028,999 121,028,999 122,995,809 - 1,966,810 EXPENDITURES: Current: General government City Council Personnel………………………………… - 122,450 122,450 122,450 119,700 - 2,750 Non - Personnel………………………… 5,000 53,127 58,127 58,127 44,794 - 13,333 5,000 175,577 180,577 180,577 164,494 - 16,083 Mayor Personnel………………………………… - 292,685 292,685 292,685 289,597 - 3,088 Non - Personnel………………………… 15,200 170,000 185,200 255,200 148,154 98,000 9,046 15,200 462,685 477,885 547,885 437,751 98,000 12,134 Finance/Auditing Personnel………………………………… 5,400 278,627 284,027 284,027 268,606 9,000 6,421 Non - Personnel………………………… 15,254 40,700 55,954 55,954 16,954 28,400 10,600 20,654 319,327 339,981 339,981 285,560 37,400 17,021 Purchasing Personnel………………………………… - 106,433 106,433 106,433 96,897 - 9,536 Non - Personnel………………………… - 18,250 18,250 18,250 15,833 212 2,205 Fixed - 56,580 56,580 56,580 56,168 - 412 - 181,263 181,263 181,263 168,898 212 12,153 Assessors Personnel………………………………… 12,000 275,418 287,418 287,418 273,882 - 13,536 Non - Personnel………………………… 5,000 33,677 38,677 38,677 23,410 6,312 8,955 17,000 309,095 326,095 326,095 297,292 6,312 22,491 Treasurer Personnel………………………………… - 221,825 221,825 221,843 221,843 - - Non - Personnel………………………… 28,900 101,060 129,960 129,942 125,421 - 4,521 28,900 322,885 351,785 351,785 347,264 - 4,521 Collector Personnel………………………………… - 208,829 208,829 208,834 208,543 - 291 Non - Personnel………………………… - 6,500 6,500 6,495 5,727 - 768 - 215,329 215,329 215,329 214,270 - 1,059 Solicitor Personnel………………………………… - 236,170 236,170 236,170 230,006 - 6,164 Non - Personnel………………………… - 64,400 64,400 64,400 63,417 - 983 - 300,570 300,570 300,570 293,423 - 7,147 (continued) Budgeted Amounts GENERAL FUND City of Salem, Massachusetts 83 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2014 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Human Resources Personnel………………………………… - 255,620 255,620 245,620 244,170 - 1,450 Non - Personnel………………………… - 30,950 30,950 40,950 34,071 - 6,879 - 286,570 286,570 286,570 278,241 - 8,329 Data Processing Personnel………………………………… - 166,928 166,928 166,928 153,283 - 13,645 Non - Personnel………………………… 9,470 21,449 30,919 30,919 18,108 7,736 5,075 Fixed - 358,559 358,559 358,559 324,689 26,964 6,906 9,470 546,936 556,406 556,406 496,080 34,700 25,626 City Clerk Record Maintenance Personnel………………………………… - 263,481 263,481 263,481 249,724 - 13,757 Non - Personnel………………………… 879 8,500 9,379 9,379 7,370 - 2,009 879 271,981 272,860 272,860 257,094 - 15,766 Elections & Registrations Personnel………………………………… - 102,460 102,460 102,460 98,566 - 3,894 Non - Personnel………………………… - 54,100 54,100 54,100 53,552 - 548 - 156,560 156,560 156,560 152,118 - 4,442 Conservation Commission Personnel………………………………… - 28,001 28,001 28,001 27,260 - 741 Non - Personnel………………………… - 425 425 425 422 - 3 - 28,426 28,426 28,426 27,682 - 744 Subdivision, Planning, and Zoning Board Personnel………………………………… - 25,559 25,559 25,559 21,673 - 3,886 Non - Personnel………………………… - 3,000 3,000 3,000 2,448 - 552 - 28,559 28,559 28,559 24,121 - 4,438 Board of Appeals Non - Personnel………………………… - 550 550 550 357 - 193 Planning Department Personnel………………………………… - 278,697 278,697 278,667 275,846 - 2,821 Non - Personnel………………………… 14,400 7,375 21,775 51,677 47,524 4,153 - 14,400 286,072 300,472 330,344 323,370 4,153 2,821 Public Property/Building Maintenance Fixed - 697,107 697,107 713,758 701,652 - 12,106 Market and Tourism………………………… - 212,875 212,875 212,875 212,298 - 577 Total General Government…………………… 111,503 4,802,367 4,913,870 5,030,393 4,681,965 180,777 167,651 (continued) City of Salem, Massachusetts 84 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2014 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Public safety Police Personnel………………………………… 85,000 8,766,001 8,851,001 8,836,001 8,699,090 - 136,911 Non - Personnel………………………… 789 542,221 543,010 628,010 595,982 25,222 6,806 85,789 9,308,222 9,394,011 9,464,011 9,295,072 25,222 143,717 Fire Personnel………………………………… - 7,681,339 7,681,339 7,681,339 7,595,527 - 85,812 Non - Personnel………………………… 41,259 388,914 430,173 452,173 424,725 - 27,448 41,259 8,070,253 8,111,512 8,133,512 8,020,252 - 113,260 Building, Plumbing, Gas Inspections Personnel………………………………… - 365,955 365,955 379,705 360,023 - 19,682 Non - Personnel………………………… - 27,450 27,450 19,700 16,470 - 3,230 - 393,405 393,405 399,405 376,493 - 22,912 Electrical Inspection and Maintenance Personnel………………………………… - 329,710 329,710 331,586 323,859 - 7,727 Non - Personnel………………………… - 614,408 614,408 812,532 747,090 - 65,442 - 944,118 944,118 1,144,118 1,070,949 - 73,169 Harbormaster Personnel………………………………… - 196,357 196,357 196,357 182,461 - 13,896 Non - Personnel………………………… 2,713 54,212 56,925 56,925 45,097 7,435 4,393 2,713 250,569 253,282 253,282 227,558 7,435 18,289 Total Public 129,761 18,966,567 19,096,328 19,394,328 18,990,324 32,657 371,347 Education 758,965 52,553,423 53,312,388 53,312,388 52,642,671 565,785 103,932 NSRS/Charter/Choice…………………… - 2,218,294 2,218,294 1,900,409 1,900,409 - - Total 758,965 54,771,717 55,530,682 55,212,797 54,543,080 565,785 103,932 Public Works Public Services Personnel………………………………… - 1,669,044 1,669,044 1,541,044 1,509,256 - 31,788 Non - Personnel………………………… 8,278 556,610 564,888 745,002 626,872 - 118,130 8,278 2,225,654 2,233,932 2,286,046 2,136,128 - 149,918 Engineering Personnel………………………………… - 78,238 78,238 78,437 78,437 - - Non - Personnel………………………… - 5,700 5,700 5,501 4,306 - 1,195 - 83,938 83,938 83,938 82,743 - 1,195 Snow and Ice Personnel………………………………… - 50,000 50,000 50,000 107,075 - (57,075) Non - Personnel………………………… - 382,335 382,335 382,335 1,098,473 - (716,138) - 432,335 432,335 432,335 1,205,548 - (773,213) Parking Garage Personnel………………………………… - 650,403 650,403 650,403 592,665 - 57,738 Non - Personnel………………………… 7,789 217,572 225,361 225,361 207,462 - 17,899 7,789 867,975 875,764 875,764 800,127 - 75,637 Total Public 16,067 3,609,902 3,625,969 3,678,083 4,224,546 - (546,463) (continued) City of Salem, Massachusetts 85 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2014 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Health and Human Services Board of Health Personnel………………………………… - 363,756 363,756 363,756 341,024 - 22,732 Non - Personnel………………………… - 17,350 17,350 18,850 16,593 - 2,257 - 381,106 381,106 382,606 357,617 - 24,989 Council on Aging Personnel………………………………… - 293,816 293,816 293,816 282,075 - 11,741 Non - Personnel………………………… 1,916 32,100 34,016 34,016 32,461 - 1,555 1,916 325,916 327,832 327,832 314,536 - 13,296 Veterans Services Personnel………………………………… - 77,935 77,935 77,935 77,671 - 264 Non - Personnel………………………… 6,200 442,300 448,500 663,500 577,118 79,754 6,628 6,200 520,235 526,435 741,435 654,789 79,754 6,892 Total Health and Human Services…………… 8,116 1,227,257 1,235,373 1,451,873 1,326,942 79,754 45,177 Culture and Recreation Library Personnel………………………………… - 905,787 905,787 905,787 877,503 - 28,284 Non - Personnel………………………… 4,500 302,043 306,543 306,543 297,483 - 9,060 4,500 1,207,830 1,212,330 1,212,330 1,174,986 - 37,344 Parks and Recreation Personnel………………………………… - 345,319 345,319 343,543 308,222 - 35,321 Non - Personnel………………………… 15,127 161,810 176,937 176,937 161,848 11,343 3,746 15,127 507,129 522,256 520,480 470,070 11,343 39,067 Golf Course Personnel………………………………… - 253,054 253,054 253,054 235,652 - 17,402 Non - Personnel………………………… 12,695 139,500 152,195 283,775 238,783 34,259 10,733 12,695 392,554 405,249 536,829 474,435 34,259 28,135 Witch House Personnel………………………………… - 74,661 74,661 84,956 84,956 - - Non - Personnel………………………… 1,262 66,780 68,042 86,192 45,586 33,647 6,959 1,262 141,441 142,703 171,148 130,542 33,647 6,959 Historical Commission Personnel………………………………… - 8,314 8,314 8,314 7,785 - 529 Non - Personnel………………………… - 1,000 1,000 1,000 911 - 89 - 9,314 9,314 9,314 8,696 - 618 Winter Island Personnel………………………………… - 123,499 123,499 123,499 123,472 - 27 Non - Personnel………………………… 1,671 52,000 53,671 53,671 47,925 1,140 4,606 1,671 175,499 177,170 177,170 171,397 1,140 4,633 Total Culture and Recreation……………… 35,255 2,433,767 2,469,022 2,627,271 2,430,126 80,389 116,756 (continued) City of Salem, Massachusetts 86 Comprehensive Annual Financial Report ---PAGE BREAK--- SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2014 Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Budgeted Amounts GENERAL FUND Debt service: - 3,183,598 3,183,598 3,183,598 3,183,598 - - - 1,204,222 1,204,222 1,197,665 1,197,655 - 10 Short Term Interest…………………………… - 494,727 494,727 466,603 368,212 63,573 34,818 Capital Lease Payment………………………… - 157,500 157,500 157,500 157,500 - - Bond Issue - 65,330 65,330 65,330 65,330 - - - 5,105,377 5,105,377 5,070,696 4,972,295 63,573 34,828 State and county charges………………………… - 5,371,193 5,371,193 5,776,834 5,776,828 - 6 Pension benefits Contributory Retirement……………………… - 9,526,094 9,526,094 9,532,651 9,531,271 - 1,380 Non-Contributory Retirement………………… - 74,408 74,408 74,408 63,354 - 11,054 - 9,600,502 9,600,502 9,607,059 9,594,625 - 12,434 Workmen's Compensation………………………… - 870,000 870,000 820,000 797,118 - 22,882 Unemployment Compensation…………………… - 300,000 300,000 340,000 313,641 - 26,359 Group - 11,782,795 11,782,795 12,332,666 12,140,329 - 192,337 - 832,974 832,974 1,004,665 1,004,455 - 210 Municipal Insurance……………………………… - 317,375 317,375 218,438 218,433 - 5 TOTAL EXPENDITURES……………… 1,059,667 119,991,793 121,051,460 122,565,103 121,014,707 1,002,935 547,461 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………… (1,059,667) 1,037,206 (22,461) (1,536,104) 1,981,102 (1,002,935) 2,514,271 OTHER FINANCING SOURCES (USES): Premium from issuance of bonds and notes…… - 298,402 298,402 298,402 329,258 - 30,856 Transfers - 2,616,649 2,616,649 2,834,583 3,135,021 - 300,438 Transfers - (3,862,545) (3,862,545) (6,874,979) (6,874,979) - - TOTAL OTHER FINANCING SOURCES - (947,494) (947,494) (3,741,994) (3,410,700) - 331,294 NET CHANGE IN FUND BALANCE………………… (1,059,667) 89,712 (969,955) (5,278,098) (1,429,598) (1,002,935) 2,845,565 BUDGETARY FUND BALANCE, Beginning of - 9,150,810 9,150,810 9,150,810 9,150,810 - - BUDGETARY FUND BALANCE, End of year……… $ (1,059,667) $ 9,240,522 $ 8,180,855 $ 3,872,712 $ 7,721,212 $ (1,002,935) $ 2,845,565 (concluded) See notes to required supplementary information. City of Salem, Massachusetts 87 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 88 Comprehensive Annual Financial Report Retirement System Schedules of Funding Progress and Employer Contributions Retirement system schedules The Retirement System Schedule of Funding Progress presents multiyear trend information relating to the cost- sharing plan as a whole, of which the City is one participating employer, about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. The Retirement System Schedule of Employer Contributions presents multiyear trend information for required and actual contributions relating to the cost-sharing plan as a whole, of which the City is one participating employer, as well as the City’s proportionate share of the plan’s annual contributions. ---PAGE BREAK--- Actuarial UAAL as a Actuarial Accrued Unfunded Percentage Actuarial Value of Liability (AAL) AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (B-A) (A/B) 01/01/14 $ 120,440,960 $ 237,524,910 $ 117,083,950 50.7% $ 40,399,678 289.8% 01/01/12 106,806,161 214,346,363 107,540,202 49.8% 37,076,549 290.0% 01/01/10 100,046,731 193,470,036 93,423,305 51.7% 34,583,002 270.1% 01/01/08 99,998,471 179,382,299 79,383,828 55.7% 34,410,002 230.7% 01/01/06 84,796,044 166,958,606 82,162,562 50.8% 32,824,144 250.3% 01/01/05 81,801,377 156,479,479 74,678,102 52.3% 31,328,083 238.4% 01/01/04 80,659,012 142,499,185 61,840,173 56.6% 29,355,291 210.7% 01/01/03 76,438,885 137,111,559 60,672,674 55.7% 31,089,195 195.2% See notes to required supplementary information. SALEM CONTRIBUTORY RETIREMENT SYSTEM SCHEDULE OF FUNDING PROGRESS City of Salem, Massachusetts 89 Comprehensive Annual Financial Report ---PAGE BREAK--- (B/A) Year Annual City's Percentage Ended Required Actual Percentage Actual of System Wide June 30 Contributions Contributions Contributed Contributions Actual Contributions 2014 $ 11,433,741 $ 11,433,741 100% $ 9,686,094 84.72% 2013 10,941,379 10,941,379 100% 9,337,442 85.34% 2012 10,470,232 10,470,232 100% 8,935,504 85.34% 2011 9,991,587 9,991,587 100% 8,543,631 85.51% 2010 9,628,758 9,628,758 100% 8,233,450 85.51% 2009 9,239,327 9,239,327 100% 7,952,910 86.08% 2008 8,939,812 8,939,812 100% 7,693,291 86.06% 2007 8,431,371 8,431,371 100% 7,209,359 85.51% The City's Actual Contributions equaled 100% of its Required Contributions for each year presented. See notes to required supplementary information. SALEM CONTRIBUTORY RETIREMENT SYSTEM SCHEDULE OF EMPLOYER CONTRIBUTIONS System Wide City of Salem City of Salem, Massachusetts 90 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 91 Comprehensive Annual Financial Report Other Postemployment Benefit Plan Schedules Other postemployment benefit plan schedules The Schedule of Funding Progress compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. The Schedule of Employer Contributions presents, over time, the ratio of the actual annual employer contributions to the annual required contribution. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. ---PAGE BREAK--- SCHEDULE OF FUNDING PROGRESS AND EMPLOYER CONTRIBUTIONS Actuarial Accrued UAAL as a Actuarial Liability (AAL) Unfunded Percentage Actuarial Value of Projected AAL Funded Covered of Covered Valuation Assets Unit Credit (UAAL) Ratio Payroll Payroll Date (B-A) (A/B) 12/31/2011 $ - $ 145,033,856 $ 145,033,856 0% $ 50,103,473 289.5% 12/31/2009 - 171,447,034 171,447,034 0% 52,107,612 329.0% 12/31/2007 - 156,258,800 156,258,800 0% 50,103,473 311.9% Annual Actual Percentage of Year Required Contributions the ARC Ended Contribution (ARC) Made Contributed 2014 $ 10,799,677 $ 5,342,584 49% 2013 10,003,723 4,681,685 47% 2012 9,555,726 4,419,491 46% 2011 11,374,693 5,916,957 52% 2010 10,869,698 5,287,195 49% 2009 11,068,269 6,799,394 61% 2008 10,554,680 3,443,274 33% See notes to required supplementary information. OTHER POSTEMPLOYMENT BENEFIT PLAN Schedule of Employer Contributions Schedule of Funding Progress City of Salem, Massachusetts 92 Comprehensive Annual Financial Report ---PAGE BREAK--- ACTUARIAL METHODS AND ASSUMPTIONS Actuarial Methods: Valuation date December 31, 2011 Actuarial cost method Projected Unit Credit Amortization method Payments increasing at 4.0% per year as a level percentage of projected payroll Remaining amortization period 30 years as of December 31, 2011, open Actuarial Assumptions: Investment rate of return 4.5%, pay-as-you-go scenario Medical/drug cost trend rate 9.0% decreasing by 0.5% for 8 years to be an ultimate level of 5.0% per year. Plan Membership: Current retirees, beneficiaries, and dependents 1,053 Current active members 890 Total 1,943 See notes to required supplementary information. OTHER POSTEMPLOYMENT BENEFIT PLAN City of Salem, Massachusetts 93 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2014 City of Salem, Massachusetts 94 Comprehensive Annual Financial Report NOTE A – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Notes to required supplementary information 1. Budgetary Information Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without a recommendation of the Mayor, the Council may not make any appropriation for a purpose not included in the proposed budget, except by a two-thirds vote in the case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the Council. The Council may not increase any item without the recommendation of the Mayor (except as provided by legislation, recommendation of the school committee or regional district school committee and by two-thirds vote of the Council, provided that such increase does not cause the total annual budget to exceed the property tax limitations). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. City department heads are generally required to submit their budget requests to the Mayor between January 1, March 1, and December 1. This does not apply to the school department, which must submit its request in time for the Mayor to include it in the submission to the Council. If the Mayor does not make a timely budget submission, provision is made for preparation of a budget by the Council. Provision is also made for supplementary appropriations upon recommendation of the Mayor. Water and Sewer department expenditures are included in the budgets adopted by City Council. Under recent legislation, the City Council on the recommendation of the Mayor may transfer during May and June, and the first fifteen days of July, any amount appropriated for the use of any department to the appropriation for any other department, provided that no such transfer may be made from any appropriation for a school department, regional school district, or municipal light department. The majority of appropriations are non-continuing which lapse at the end of each year. Others are continuing appropriations for which the governing body has authorized that an unspent balance from a prior year be carried forward and made available for spending in the current year. These carry forwards are included as part of the subsequent year’s original budget. Generally, expenditures may not exceed the legal level of spending (salaries, expenses and capital) authorized for an appropriation account. However, the payment of debt service is statutorily required, regardless of whether such amounts are appropriated. Additionally, expenditures for disasters, natural or otherwise, and final judgments may exceed the level of spending authorized by two-thirds majority vote of the City Council. An annual budget is adopted for the general fund in conformity with the guidelines described above. The original 2014 approved budget authorized approximately $123.9 million in appropriations and other amounts to be raised. During the year, increases to the original budget were approved totaling approximately $4.5 million. The most notable components of this increase include an additional $4.3 million in available funds (free cash) appropriated to fund stabilization reserves, veteran’s benefits, capital improvements, other postemployment benefits trust and various additional appropriations. The Finance Department has the responsibility to ensure that budgetary control is maintained. Budgetary control is exercised through the accounting system. ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2014 City of Salem, Massachusetts 95 Comprehensive Annual Financial Report 2. Budgetary - GAAP Reconciliation For budgetary financial reporting purposes, the Uniform Municipal Accounting System basis of accounting (established by the Commonwealth) is followed, which differs from the GAAP basis of accounting. A reconciliation of budgetary-basis to GAAP-basis results for the general fund for the year ended June 30, 2014, is presented below: Net change in fund balance - budgetary $ (1,429,598) Perspective differences: Reclassification of enterprise fund revenue budgeted in the general fund…………… (2,510,838) Reclassification of enterprise fund expenditures budgeted in the general fund……… 1,429,578 Reclassification of enterprise fund transfers budgeted in the general fund…………… 1,081,260 Activity of the Salem Community Charter 474 Activity of the stabilization funds recorded in the general fund for 1,836,943 Basis of accounting differences: Net change in revenues in recording tax refunds (83,772) Recognition of revenue for on-behalf 10,808,000 Recognition of expenditures for on-behalf (10,808,000) Net difference in recognition of expenditures…………………………………………… (46,271) Net change in fund balances - GAAP $ 277,776 3. Appropriation Deficits During 2014, expenditures exceeded budgeted appropriations for snow and ice. This over expenditure is allowable and will be funded in 2015. NOTE B – PENSION PLAN The City contributes to the System, a cost-sharing, multiple-employer defined benefit pension plan ("Plan") administered by the Salem Contributory Retirement Board. The System provides retirement, disability, and death benefits to members and beneficiaries. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the Plan. The City is required to pay into the Retirement System its share of the system-wide actuarially determined contribution which is apportioned among the employers based on active covered payroll. The schedule of funding progress, presented as required supplementary information presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Additionally, the schedule of employer contributions, presented as required supplementary information presents multi-year trend information for required and actual contributions relating to the cost-sharing plan as a whole, of which the City is one participating employer, as well as the City’s proportionate share of the plan’s annual contributions. This information is designed to be helpful for understanding the scale of the information presented relative to the City. ---PAGE BREAK--- Notes to Required Supplementary Information Year Ended June 30, 2014 City of Salem, Massachusetts 96 Comprehensive Annual Financial Report The following actuarial methods and assumptions were used in the Retirement System’s most recent actuarial valuation: Actuarial Methods and Assumptions: Valuation January 1, 2012 Actuarial Cost Method………………………………………Entry Age Normal Cost Method Amortization Method…………………………………………Increasing at 4.5% per year as a level percentage of projected payroll. Remaining Amortization Period……………………………20 years remaining as of January 1, 2013, open Asset Valuation The difference between the expected return on an actuarial basis and actual investment return on a market value basis is recognized over a 5 year period. Investment rate of 8.00% Projected salary increases…………………………………5.00% Cost of living adjustments…………………………………3.00% for the first $12,000 of retirement income NOTE C – OTHER POSTEMPLOYMENT BENEFITS The City administers a single-employer defined benefit healthcare plan (“The Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s participation in the Group Insurance Commission of the Commonwealth of Massachusetts (GIC) which covers both active and retired members. The City currently finances its other postemployment benefits (OPEB) on a pay-as-you-go basis. As a result, the funded ratio (actuarial value of assets expressed as a percentage of the actuarial accrued liability) is In accordance with Governmental Accounting Standards, the City has recorded its OPEB cost equal to the actuarial determined annual required contribution (ARC) which includes the normal cost of providing benefits for the year and a component for the amortization of the total unfunded actuarial accrued liability of the plan. The Schedule of Funding Progress presents multiyear trend information which compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. The Schedule of Employer Contributions presents, over time, the ratio of the actual annual employer contributions to the annual required contribution. Projections of benefits for financial reporting purposes are based on the substantive plan and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. ---PAGE BREAK--- City of Salem, Massachusetts 97 Comprehensive Annual Financial Report Combining and Individual Fund Statements Combining and Individual Fund Statements ---PAGE BREAK--- City of Salem, Massachusetts 98 Comprehensive Annual Financial Report Nonmajor governmental funds Nonmajor Governmental Funds Special Revenue Funds Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. City Grants Fund – This fund is used to account for non-school related activity specifically financed by federal, state, and other grants which are designated for specific programs. School Grants Fund – This fund is used to account for the educational programs specifically financed by federal, state, and other grants which are designated for specific programs. Community Development Grants Fund – This fund is used to account for community development activity specifically financed by federal, state, and other grants which are designated for specific programs. School Lunch Fund – This fund is used to account for all cafeteria activities and is funded by user charges, federal and state grants and commodities received. Highway Grants Fund – This fund is used to account for construction, reconstruction and improvements to roadways, streets and sidewalks. Funding is provided primarily by grants. Donations and Gifts Fund – This fund is used to account for gifts which have been accepted by the City to be used for the purpose specified by the donor. Receipts Reserved Fund – This fund is used to account for receipts reserved for appropriation. City Revolving Accounts Fund – This fund is used to account for non-school related revolving funds specifically allowed by the laws of the Commonwealth of Massachusetts. These funds are expended for purposes specified by the enabling statute. School Revolving Accounts Fund – This fund is used to account for school related revolving funds specifically allowed by the laws of the Commonwealth of Massachusetts. These funds are expended for purposes specified by the enabling statutes. Capital Project Funds Other Funds – This fund is used to account for various capital projects not reported as major funds. ---PAGE BREAK--- City of Salem, Massachusetts 99 Comprehensive Annual Financial Report Permanent Funds Permanent funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support governmental programs. Cemetery Fund – This fund is used to account for cemetery perpetual care contributions and expenditures. Human Service Fund – This fund is used to account for various contributions associated with human service activities. Other Funds – This fund is used to account for various contributions associated with governmental programs. ---PAGE BREAK--- City of Salem, Massachusetts 100 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- Community City School Development School Highway Grants Grants Grants Lunch Grants ASSETS Cash and cash equivalents……………………………$ 3,104,582 $ 2,428,075 $ - $ 153,152 $ - - - - - - Receivables, net of uncollectibles: Departmental and - - - - - Intergovernmental………………………………… 592,903 42,610 46,330 7,186 1,968,513 - - 169,970 - - Due from other 312,590 - - - - TOTAL $ 4,010,075 $ 2,470,685 $ 216,300 $ 160,338 $ 1,968,513 LIABILITIES Warrants 363,795 $ 121,232 $ 19,333 $ - $ - Accrued 30,748 139,754 5,387 26,191 - Due to other - - 10,067 - 302,523 TOTAL LIABILITIES………………………………… 394,543 260,986 34,787 26,191 302,523 DEFERRED INFLOWS OF RESOURCES Unavailable - - 169,970 - 1,665,990 FUND BALANCES Nonspendable……………………………………… - - - - - 3,615,532 2,209,699 11,543 134,147 - TOTAL FUND BALANCES…………………………… 3,615,532 2,209,699 11,543 134,147 - TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES……………………………$ 4,010,075 $ 2,470,685 $ 216,300 $ 160,338 $ 1,968,513 (Continued) Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2014 City of Salem, Massachusetts 101 Comprehensive Annual Financial Report ---PAGE BREAK--- City School Donations Receipts Revolving Revolving and Gifts Reserved Accounts Accounts Subtotal Cash and cash equivalents……………………………… $ 746,853 $ 705,721 $ 866,491 $ 274,749 $ 8,279,623 1,008,985 - - - 1,008,985 Receivables, net of uncollectibles: Departmental and - 64,897 - - 64,897 Intergovernmental……………………………………… - - - - 2,657,542 - - 134,192 - 304,162 Due from other - - - - 312,590 TOTAL 1,755,838 $ 770,618 $ 1,000,683 $ 274,749 $ 12,627,799 LIABILITIES Warrants $ 30,673 $ 7,500 $ 18,294 $ - $ 560,827 Accrued 3,382 - 624 6,877 212,963 Due to other - - - - 312,590 TOTAL LIABILITIES……………………………………… 34,055 7,500 18,918 6,877 1,086,380 DEFERRED INFLOWS OF RESOURCES Unavailable - 64,897 134,192 - 2,035,049 FUND BALANCES Nonspendable…………………………………………… - - - - - 1,721,783 698,221 847,573 267,872 9,506,370 TOTAL FUND BALANCES……………………………… 1,721,783 698,221 847,573 267,872 9,506,370 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES…………………………… $ 1,755,838 $ 770,618 $ 1,000,683 $ 274,749 $ 12,627,799 (Continued) Special Revenue Funds ASSETS NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2014 City of Salem, Massachusetts 102 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Governmental Other Cemetery Human Service Other Subtotal Funds $ 88,388 $ 345,259 $ 137,447 $ 190,972 $ 673,678 $ 9,041,689 - 3,185,914 1,493,221 1,168,417 5,847,552 6,856,537 - - - - - 64,897 425,143 - - - - 3,082,685 - - - - - 304,162 - - - - - 312,590 $ 513,531 $ 3,531,173 $ 1,630,668 $ 1,359,389 $ 6,521,230 $ 19,662,560 $ 27,021 $ - $ - $ - $ - $ 587,848 - - - - - 212,963 - - - - - 312,590 27,021 - - - - 1,113,401 - - - - - 2,035,049 - 1,061,009 221,174 792,804 2,074,987 2,074,987 486,510 2,470,164 1,409,494 566,585 4,446,243 14,439,123 486,510 3,531,173 1,630,668 1,359,389 6,521,230 16,514,110 $ 513,531 $ 3,531,173 $ 1,630,668 $ 1,359,389 $ 6,521,230 $ 19,662,560 (Concluded) Permanent Funds Capital Project Funds City of Salem, Massachusetts 103 Comprehensive Annual Financial Report ---PAGE BREAK--- Community City School Development School Highway Donations Grants Grants Grants Lunch Grants and Gifts REVENUES: Charges for 7,933 $ 150,413 $ - $ - $ - $ - Penalties and interest on - - - - - - Intergovernmental…………………………………………… 4,991,871 7,230,233 943,839 1,959,902 266,295 - Departmental and 248,229 369,594 123,339 - - - Contributions………………………………………………… 111,750 57,270 - 40,900 - 97,584 Investment 124 - 249 - - 95,439 TOTAL 5,359,907 7,807,510 1,067,427 2,000,802 266,295 193,023 EXPENDITURES: Current: General government……………………………………… 156,706 - - - - 1,028 Public 586,754 - - - - 7,057 4,048 7,264,863 - 1,970,468 - 81,113 Public 1,268,298 - - - 266,295 - Community development………………………………… 21,995 - 1,079,180 - - - Health and human services……………………………… 4,131,093 - - - - 20,784 Culture and recreation…………………………………… 87,679 - - - - 42,141 Debt service: - - 35,000 - - - - - 922 - - - TOTAL EXPENDITURES……………………………… 6,256,573 7,264,863 1,115,102 1,970,468 266,295 152,123 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES………………………… (896,666) 542,647 (47,675) 30,334 - 40,900 OTHER FINANCING SOURCES (USES): Transfers 1,732,578 6,994 - - - 10,000 Transfers (95,328) (6,868) - (33) - - TOTAL OTHER FINANCING SOURCES (USES)…… 1,637,250 126 - (33) - 10,000 NET CHANGE IN FUND BALANCES………………………… 740,584 542,773 (47,675) 30,301 - 50,900 FUND BALANCES AT BEGINNING OF YEAR……………… 2,874,948 1,666,926 59,218 103,846 - 1,670,883 FUND BALANCES AT END OF $ 3,615,532 $ 2,209,699 $ 11,543 $ 134,147 $ - $ 1,721,783 (Continued) NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2014 Special Revenue Funds City of Salem, Massachusetts 104 Comprehensive Annual Financial Report ---PAGE BREAK--- City School Receipts Revolving Revolving Reserved Accounts Accounts Subtotal Other $ - $ - $ - $ 158,346 $ - 3,505 - - 3,505 - 30,000 - - 15,422,140 1,718,889 664,863 832,498 1,005,856 3,244,379 8,667 - 2,720 - 310,224 - - 551 184 96,547 - 698,368 835,769 1,006,040 19,235,141 1,727,556 119,575 100,139 - 377,448 - - - - 593,811 - - - 855,612 10,176,104 - 29,057 129,216 - 1,692,866 877,734 - 181,092 - 1,282,267 346,942 - 5,834 - 4,157,711 - 3,000 517,596 - 650,416 - - - - 35,000 - - - - 922 - 151,632 933,877 855,612 18,966,545 1,224,676 546,736 (98,108) 150,428 268,596 502,880 - - - 1,749,572 7,571 (531,555) (127,082) (216,798) (977,664) - (531,555) (127,082) (216,798) 771,908 7,571 15,181 (225,190) (66,370) 1,040,504 510,451 683,040 1,072,763 334,242 8,465,866 (23,941) $ 698,221 $ 847,573 $ 267,872 $ 9,506,370 $ 486,510 Capital Project Funds Special Revenue Funds City of Salem, Massachusetts 105 Comprehensive Annual Financial Report ---PAGE BREAK--- Total Nonmajor Cemetery Governmental Cemetery Human Service Other Subtotal Funds REVENUES: Charges for - $ - $ - $ - $ 158,346 Penalties and interest on - - - - 3,505 Intergovernmental………………………………………… - - - - 17,141,029 Departmental and - - - - 3,253,046 Contributions……………………………………………… 14,000 - 178,654 192,654 502,878 Investment 644,880 209,831 162,355 1,017,066 1,113,613 TOTAL 658,880 209,831 341,009 1,209,720 22,172,417 EXPENDITURES: Current: General government…………………………………… - - - - 377,448 Public - - 42,013 42,013 635,824 - - - - 10,176,104 Public 269,657 - 100,774 370,431 2,941,031 Community development……………………………… - - - - 1,629,209 Health and human services…………………………… - 46,864 - 46,864 4,204,575 Culture and recreation………………………………… - - - - 650,416 Debt service: - - - - 35,000 - - - - 922 TOTAL EXPENDITURES…………………………… 269,657 46,864 142,787 459,308 20,650,529 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………… 389,223 162,967 198,222 750,412 1,521,888 OTHER FINANCING SOURCES (USES): Transfers - - - - 1,757,143 Transfers - - - - (977,664) TOTAL OTHER FINANCING SOURCES (USES)… - - - - 779,479 NET CHANGE IN FUND BALANCES…………………… 389,223 162,967 198,222 750,412 2,301,367 FUND BALANCES AT BEGINNING OF YEAR…………… 3,141,950 1,467,701 1,161,167 5,770,818 14,212,743 FUND BALANCES AT END OF 3,531,173 $ 1,630,668 $ 1,359,389 $ 6,521,230 $ 16,514,110 (Concluded) NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2014 Permanent Funds City of Salem, Massachusetts 106 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 107 Comprehensive Annual Financial Report Private Purpose Trust Funds Private purpose trust funds Trust Fund Commissioners – This fund is used to account for trusts held by the City to benefit individuals and is administered by the City’s Board of Trust Fund Commissioners. Scholarship Funds – This fund is used to account for scholarships held by the City to benefit individuals. ---PAGE BREAK--- PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF NET POSITION JUNE 30, 2014 Trust Fund Scholarship Commissioners Funds Total ASSETS Cash and cash equivalents………………………………… $ 114,437 $ 115,984 $ 230,421 Corporate 1,206,625 - 1,206,625 TOTAL 1,321,062 115,984 1,437,046 NET POSITION Held in trust for other 1,321,062 $ 115,984 $ 1,437,046 Private Purpose Trust Funds City of Salem, Massachusetts 108 Comprehensive Annual Financial Report ---PAGE BREAK--- Trust Fund Scholarship Commissioners Funds Total ADDITIONS: Contributions: Private $ 2,061 $ 14,475 $ 16,536 Net investment income: Net change in fair value of investments……………………………………… 176,103 - 176,103 32 2,703 2,735 Total Net Investment 176,135 2,703 178,838 TOTAL 178,196 17,178 195,374 DEDUCTIONS: Educational 8,226 9,586 17,812 Housing 86,317 - 86,317 TOTAL 94,543 9,586 104,129 CHANGE IN NET 83,653 7,592 91,245 NET POSITION AT BEGINNING OF 1,237,409 108,392 1,345,801 NET POSITION AT END OF $ 1,321,062 $ 115,984 $ 1,437,046 Private Purpose Trust Funds PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2014 City of Salem, Massachusetts 109 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 110 Comprehensive Annual Financial Report Agency fund Agency Fund This fund is used primarily to account for payroll withholdings, police and fire details, escrow deposits and unclaimed property. ---PAGE BREAK--- Beginning End of Year Additions Deletions of Year ASSETS CURRENT: Cash and cash equivalents………………$ 729,890 $ 15,875,759 $ (15,627,480) $ 978,169 LIABILITIES Liabilities due depositors…………………$ 729,890 $ 47,026,942 $ (46,778,663) $ 978,169 AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES YEAR ENDED JUNE 30, 2014 City of Salem, Massachusetts 111 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 112 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- Statistical Section Winter Island During the 1930's, the United States Coast Guard created a Search & Rescue Base here on Winter Island Park. The Frigate USS Essex was built and launched in 1799 from this location. It served General George Washington in the U.S. Navy. The three bunkers located in historic Fort Pickering once stored ammunition as early as the Civil War. Winter Island had Salem's first tavern and first shipyard. A fort was erected as early as 1643. In 1867, the War department "turned over" to the city "for public use" the part of the island not occupied by the fort, until it should be wanted for defense. On December 28, 1928, Salem's Park Department took formal possession of the island. The fort was renamed Fort Pickering, after Colonel Timothy Pickering, Secretary of State and War in Washington's Cabinet. Winter Island is located at 50 Winter Island Road in Salem, Massachusetts. It offers RV and Tent Camping May 1 to Nov 1, a public boat ramp that is open year round, Waikiki Beach a public beach with lifeguards, seasonal dinghy rack spaces, and a camp and gift store. Picnic areas can be rented May 1 through Nov 1. Winter Island offers a walking tour where you can see the historic Fort Pickering Lighthouse and is a stop along the Salem Trolley Tour. A function hall is available for year round rentals and is a great place for weddings and more! Go to www.salem.com Recreation Department for more information. ---PAGE BREAK--- City of Salem, Massachusetts 113 Comprehensive Annual Financial Report Statistical Section This part of the comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. Financial Trends • These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time. Revenue Capacity • These schedules contain information to help the reader assess the City’s most significant local revenue source, the property tax. Debt Capacity • These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future. Demographic and Economic Information • These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place. Operating Information • These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs. SOURCES: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. ---PAGE BREAK--- 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Governmental activities Net investment in capital assets………… $ 112,740,510 $ 109,183,737 $ 132,787,853 $ 139,683,360 $ 147,373,757 $ 147,313,749 $ 144,887,020 $ 147,692,495 $ 169,750,602 $ 170,092,864 Restricted…………………………………… 9,734,998 8,649,700 8,868,048 6,948,839 6,968,580 6,892,267 10,562,103 11,197,635 12,499,976 14,383,949 Unrestricted………………………………… (3,667,364) (371,947) (2,189,821) (6,668,493) (13,473,169) (17,907,226) (17,992,385) (21,617,069) (22,562,824) (24,649,291) Total governmental activities net position…………$ 118,808,144 $ 117,461,490 $ 139,466,080 $ 139,963,706 $ 140,869,168 $ 136,298,790 $ 137,456,738 $ 137,273,061 $ 159,687,754 $ 159,827,522 Business-type activities Net investment in capital assets………… 9,212,891 9,018,231 9,138,929 8,836,475 6,939,001 8,245,799 8,248,186 8,605,165 9,562,558 11,903,874 Unrestricted………………………………… 4,492,692 4,722,252 5,609,406 5,647,967 6,371,380 3,920,927 4,366,232 4,085,318 4,857,190 5,680,952 Total business-type activities net position…………$ 13,705,583 $ 13,740,483 $ 14,748,335 $ 14,484,442 $ 13,310,381 $ 12,166,726 $ 12,614,418 $ 12,690,483 $ 14,419,748 $ 17,584,826 Primary government Net investment in capital assets………… 121,953,401 118,201,968 141,926,782 148,519,835 154,312,758 155,559,548 153,135,206 156,297,660 179,313,160 181,996,738 Restricted…………………………………… 9,734,998 8,649,700 8,868,048 6,948,839 6,968,580 6,892,267 10,562,103 11,197,635 12,499,976 14,383,949 Unrestricted………………………………… 825,328 4,350,305 3,419,585 (1,020,526) (7,101,789) (13,986,299) (13,626,153) (17,531,751) (17,705,634) (18,968,339) Total primary government net position……………$ 132,513,727 $ 131,201,973 $ 154,214,415 $ 154,448,148 $ 154,179,549 $ 148,465,516 $ 150,071,156 $ 149,963,544 $ 174,107,502 $ 177,412,348 Last Ten Years Net Position By Component City of Salem, Massachusetts 114 Comprehensive Annual Financial Report ---PAGE BREAK--- 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Expenses Governmental activities: General government……………………………………$ 9,373,119 $ 9,867,573 $ 9,641,318 $ 10,598,174 $ 10,914,012 $ 10,865,152 $ 11,702,186 $ 11,904,711 $ 10,574,021 $ 10,080,121 Public 22,058,002 23,481,525 24,433,343 28,262,847 27,421,538 26,755,783 27,989,181 26,551,919 27,832,445 29,879,444 67,483,676 67,258,196 75,513,149 75,874,227 79,410,738 83,743,843 86,938,434 91,261,655 95,924,303 100,837,487 Public 8,421,997 7,991,774 9,229,479 6,846,006 6,705,986 6,820,639 8,894,659 5,952,380 8,848,271 9,092,995 Community development……………………………… 2,066,749 1,891,386 1,804,554 1,567,381 2,093,618 3,226,360 1,845,141 1,530,786 1,347,731 1,304,481 Health and human services…………………………… 4,856,306 5,016,513 4,675,688 5,904,063 6,226,498 6,622,114 5,930,089 6,001,130 6,140,975 5,788,579 Community preservation……………………………… 5,350 Culture and recreation………………………………… 3,689,992 3,718,183 2,448,265 3,293,415 3,228,906 3,169,224 2,997,090 3,219,315 3,429,452 3,589,253 2,689,312 2,889,116 2,604,390 2,503,461 2,396,187 1,888,315 1,582,033 1,544,887 1,277,709 1,328,888 Total government activities expenses……………………… 120,639,153 122,114,266 130,350,186 134,849,574 138,397,483 143,091,430 147,878,813 147,966,783 155,374,907 161,906,598 Business-type activities: Water and sewer services……………………………… 9,803,158 8,884,459 9,174,602 9,790,421 11,488,868 11,796,038 10,752,161 10,921,100 11,169,816 11,241,391 Golf 292,187 279,981 363,651 386,099 278,007 399,023 363,625 438,613 465,210 466,834 664,686 800,506 792,903 936,826 905,834 844,615 991,722 1,042,610 1,052,780 968,159 3,230,500 2,558,263 2,573,421 2,617,948 2,744,963 2,648,564 2,373,876 Total business type activities expenses…………………… 10,760,031 9,964,946 10,331,156 14,343,846 15,230,972 15,613,097 14,725,456 15,147,286 15,336,370 15,050,260 Total primary government expenses……………………… $ 131,399,184 $ 132,079,212 $ 140,681,342 $ 149,193,420 $ 153,628,455 $ 158,704,527 $ 162,604,269 $ 163,114,069 $ 170,711,277 $ 176,956,858 Program Revenues Governmental activities: Education charges for services…………………………$ 1,023,839 $ 831,579 $ 1,659,544 $ 1,586,525 $ 1,473,880 $ 1,370,250 $ 1,277,950 $ 1,271,626 $ 1,171,221 $ 1,275,125 Public Safety charges for services…………………… 1,923,845 2,003,791 2,217,287 2,378,961 2,456,341 2,074,324 2,115,452 2,212,295 2,780,253 2,237,189 Other charges for services……………………………… 1,481,467 1,825,898 2,561,814 1,602,847 1,693,333 1,824,040 1,744,351 1,872,305 2,264,412 2,345,324 Operating grants and contributions…………………… 34,087,248 37,934,300 37,957,703 41,168,760 43,744,124 46,352,034 51,358,511 47,872,700 49,028,512 50,489,073 Capital grant and contributions………………………… 2,090,467 3,312,346 30,118,572 9,615,336 8,762,642 4,135,374 5,197,515 5,699,571 30,643,446 8,496,589 Total government activities program revenues...………… 40,606,866 45,907,914 74,514,920 56,352,429 58,130,320 55,756,022 61,693,779 58,928,497 85,887,844 64,843,300 Business-type activities: Charges for services - Water and Sewer…………… 9,366,427 10,553,443 11,516,213 10,874,482 11,753,147 12,122,111 12,810,031 12,609,726 13,692,023 13,086,639 Charges for services - 502,770 525,404 546,841 570,142 547,301 589,345 548,805 648,916 697,232 705,341 Charges for services - Parking………………………… 1,453,088 1,549,833 1,713,649 1,651,032 1,694,708 2,038,235 2,333,478 2,274,470 2,580,262 2,510,838 Charges for services - 908,577 720,193 740,511 692,089 675,916 684,262 678,607 Capital grants and contributions……………………… - - - 49,707 43,796 41,820 39,804 - - 2,887,131 Total business-type activities program revenues...……… 11,322,285 12,628,680 13,776,703 14,053,940 14,759,145 15,532,022 16,424,207 16,209,028 17,653,779 19,868,556 Total primary government program revenues…………… $ 51,929,151 $ 58,536,594 $ 88,291,623 $ 70,406,369 $ 72,889,465 $ 71,288,044 $ 78,117,986 $ 75,137,525 $ 103,541,623 $ 84,711,856 Net (Expense)/Revenue Governmental (80,032,287) $ (76,206,352) $ (55,835,266) $ (78,497,145) $ (80,267,163) $ (87,335,408) $ (86,185,034) $ (89,038,286) $ (69,487,063) $ (97,063,298) Business-type activities……………………………………… 562,254 2,663,734 3,445,547 (289,906) (471,827) (81,075) 1,698,751 1,061,742 2,317,409 4,818,296 Total primary government net expense……………………$ (79,470,033) $ (73,542,618) $ (52,389,719) $ (78,787,051) $ (80,738,990) $ (87,416,483) $ (84,486,283) $ (87,976,544) $ (67,169,654) $ (92,245,002) General Revenues and other Changes in Net Position Governmental activities: Real estate and personal property taxes, net of tax refunds $ 55,915,767 $ 58,379,505 $ 60,991,003 $ 63,230,976 $ 66,672,653 $ 69,067,349 $ 71,828,412 $ 72,073,381 $ 76,770,134 $ 79,012,963 Community Preservation 486,797 Tax 690,557 635,624 182,650 752,178 527,492 234,353 510,973 795,443 589,138 563,353 Motor vehicle and other excise taxes………………… 3,489,584 3,452,569 3,357,765 3,286,119 2,978,961 3,092,527 3,181,247 3,131,334 3,052,229 3,890,099 Hotel/motel 219,628 263,962 282,324 373,655 324,622 294,214 955,092 1,161,007 1,224,849 1,319,418 Penalties and interest on 288,874 350,651 266,246 353,952 412,572 437,361 438,487 490,242 399,311 457,958 Payments in lieu of 1,073,539 1,088,754 1,235,083 1,229,435 1,320,945 1,307,078 1,319,079 1,440,186 1,462,692 1,321,060 Grants and contributions not restricted to specific 8,097,351 7,661,752 8,971,625 9,163,777 8,064,486 6,583,118 6,404,395 8,220,908 6,610,413 6,775,827 Unrestricted investment income……………………… 521,585 183,980 965,694 462,275 (35,188) 435,769 1,095,518 103,015 828,974 1,377,835 Miscellaneous…………………………………………… 77,454 214,067 248,905 168,417 203,848 250,681 358,720 453,416 375,872 344,538 2,542,444 2,628,834 2,437,695 (26,013) 702,234 1,062,580 1,251,059 985,677 588,144 1,653,218 Total governmental activities 72,916,783 74,859,698 78,938,990 78,994,771 81,172,625 82,765,030 87,342,982 88,854,609 91,901,756 97,203,066 Business-type activities: (2,542,444) (2,628,834) (2,437,695) 26,013 (702,234) (1,062,580) (1,251,059) (985,677) (588,144) (1,653,218) Total primary government……………………………………$ 70,374,339 $ 72,230,864 $ 76,501,295 $ 79,020,784 $ 80,470,391 $ 81,702,450 $ 86,091,923 $ 87,868,932 $ 91,313,612 $ 95,549,848 Changes in Net Position Governmental (5,775,504) $ (1,346,654) $ 23,103,724 $ 497,626 $ 905,462 $ (4,570,378) $ 1,157,948 $ (183,677) $ 22,414,693 $ 139,768 Business-type activities……………………………………… (1,980,190) 34,900 1,007,852 (263,893) (1,174,061) (1,143,655) 447,692 76,065 1,729,265 3,165,078 Total primary government……………………………………$ (7,755,694) $ (1,311,754) $ 24,111,576 $ 233,733 $ (268,599) $ (5,714,033) $ 1,605,640 $ (107,612) $ 24,143,958 $ 3,304,846 In years 2005- 2007 the City reported Trash in the governmental funds. In 2014 the City approved and established the Community Preservation Fund. Last Ten Years Changes in Net Position City of Salem, Massachusetts 115 Comprehensive Annual Financial Report ---PAGE BREAK--- 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 General Fund Reserved…………………………… $ 68,524 $ 197,581 $ 69,631 $ 220,608 $ 372,027 $ 421,825 $ - $ - $ - $ - Unreserved…………………………… 335,643 1,162,714 (1,151,199) 1,321,397 749,849 1,211,094 - - - - Assigned……………………………… - - - - - - 589,894 985,737 1,059,667 1,002,935 Unassigned………………………… - - - - - - 8,405,585 9,550,262 11,663,494 11,998,002 Total general 404,167 $ 1,360,295 $ (1,081,568) $ 1,542,005 $ 1,121,876 $ 1,632,919 $ 8,995,479 $ 10,535,999 $ 12,723,161 $ 13,000,937 All Other Governmental Funds Reserved…………………………… $ 1,591,750 $ 1,606,904 $ 1,629,202 $ 1,650,597 $ 1,688,851 $ 1,689,176 $ - $ - $ - $ - Unreserved, reported in: Special revenue funds………… 7,763,007 5,474,128 5,477,136 3,768,323 5,602,931 5,819,702 - - - - Capital projects funds…………… (10,513,270) (1,859,435) (197,270) 2,806,105 (537,848) 3,969,207 - - - - Permanent funds………………… 2,897,589 3,018,952 3,556,455 3,291,512 2,678,043 2,783,655 - - - - Nonspendable……………………… - - - - - - 1,707,276 2,074,097 2,074,989 2,074,987 Restricted…………………………… - - - - - - 11,329,632 14,344,418 12,942,168 15,563,265 Unassigned………………………… - - - - - - (665,295) (4,101,228) (623,622) (2,089,648) Total all other governmental funds…. $ 1,739,076 $ 8,240,549 $ 10,465,523 $ 11,516,537 $ 9,431,977 $ 14,261,740 $ 12,371,613 $ 12,317,287 $ 14,393,535 $ 15,548,604 Note: The City implemented GASB 54 in 2011, fund balances prior to 2011 have been reported in the pre-GASB 54 format. Last Ten Years Fund Balances, Governmental Funds City of Salem, Massachusetts 116 Comprehensive Annual Financial Report ---PAGE BREAK--- 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Revenues: Real estate and personal property taxes, net of tax 55,866,348 $ 58,601,934 $ 60,638,180 $ 63,376,714 $ 66,717,968 $ 68,747,759 $ 71,754,816 $ 72,202,064 $ 77,018,965 $ 79,449,354 Motor vehicle and other excise 3,531,673 3,577,544 3,215,438 3,427,889 3,154,642 3,007,759 3,180,552 3,203,122 3,113,058 3,799,179 Intergovernmental……………………………………………… 40,601,143 40,386,321 38,496,892 39,569,976 42,962,129 44,150,857 51,562,915 50,048,535 84,640,597 49,698,445 Departmental and 7,539,138 8,496,446 9,017,710 10,086,572 9,382,460 8,511,803 9,656,996 10,366,488 12,049,109 11,097,377 Investment 828,933 927,302 925,771 462,585 (32,923) 436,686 1,096,747 129,773 828,974 1,377,835 Commonwealth school construction grants………………… 12,739,570 16,559,515 35,025,316 17,324,905 13,130,784 7,095,272 4,310,837 4,310,837 4,310,837 3,695,128 On-behalf pension payments by the Commonwealth 5,890,261 6,376,140 7,044,987 7,511,889 8,277,958 8,602,216 9,290,000 9,695,000 10,522,000 10,808,000 Total 126,997,066 134,925,202 154,364,294 141,760,530 143,593,018 140,552,352 150,852,863 149,955,819 192,483,540 159,925,318 Expenditures: General 4,863,297 5,112,025 4,733,168 4,512,126 5,284,403 5,062,768 5,678,376 6,039,335 6,351,699 6,218,639 Public 14,417,276 14,547,596 14,969,952 15,945,719 16,452,689 16,147,666 17,129,546 17,807,607 18,207,275 19,627,830 46,260,838 47,647,867 47,719,326 47,293,548 48,101,995 49,491,944 51,429,439 50,076,848 53,168,217 54,548,503 Public 6,663,143 5,427,108 6,137,334 3,338,981 3,718,860 3,255,769 3,573,118 2,831,181 5,338,674 5,230,942 Community development……………………………………… 2,066,749 1,891,386 1,804,554 1,567,381 2,402,149 3,413,203 1,933,227 1,757,053 1,322,586 1,629,209 Health and human 4,348,098 4,475,413 4,730,161 5,306,444 5,339,094 6,158,089 5,927,137 5,538,621 5,580,162 5,446,188 Community Preservation……………………………………… - - - - - - - - - 5,350 Culture and 2,278,899 2,339,600 1,865,609 2,135,563 2,395,536 2,320,698 2,152,872 3,367,206 2,468,723 2,368,401 Pension 11,926,982 13,388,893 14,375,924 15,180,985 16,206,240 16,770,835 17,707,823 18,538,274 19,771,148 20,402,625 Massachusetts teachers' retirement 5,890,261 6,376,140 7,044,987 7,511,889 8,277,958 8,602,216 9,290,000 9,695,000 10,522,000 10,808,000 Employee 10,433,140 9,964,302 10,889,249 11,570,087 11,805,651 11,077,682 11,751,691 13,122,992 13,326,634 14,255,543 State and county 4,028,333 5,047,971 5,589,986 5,933,670 6,302,025 6,655,890 6,445,380 6,390,908 5,141,397 5,776,828 Capital 1,422,955 7,581,652 38,018,740 12,930,767 13,552,655 4,654,814 6,194,898 11,752,488 38,287,997 16,665,809 Debt service 4,105,000 4,385,000 4,310,000 6,620,000 4,559,497 5,385,000 7,550,000 4,717,000 19,454,000 3,073,598 2,919,668 2,958,101 2,513,575 2,622,389 2,568,643 2,087,028 1,851,117 1,761,551 1,816,117 1,536,769 Total Expenditures……………………………………………… 121,624,639 131,143,054 164,702,565 142,469,549 146,967,395 141,083,602 148,614,624 153,396,064 200,756,629 167,594,234 Excess of revenues over (under) expenditures…………… 5,372,427 3,782,148 (10,338,271) (709,019) (3,374,377) (531,250) 2,238,239 (3,440,245) (8,273,089) (7,668,916) Other Financing Sources (Uses) Issuance of 2,465,000 - 8,319,497 3,930,000 - 4,589,000 630,000 3,900,938 11,242,660 6,680,000 Premium from issuance of 232,856 - 85,169 84,840 - 575,986 1,167,420 1,059 191,693 421,355 Issuance of refunding - - - - 3,785,000 11,043,000 4,589,000 - - 2,509,500 Premium from issuance of refunding bonds………………… - - - - - - - - - 262,818 Payments to refunded bond escrow agent………………… - - - - - (8,512,000) - - - (2,709,130) Refunding bonds - - - - (3,785,000) (2,930,000) (4,589,000) - - - Capital lease 807,283 1,046,619 378,169 394,779 167,454 43,500 185,715 38,765 514,002 284,000 Transfers 3,597,240 5,320,517 3,558,845 4,508,229 5,228,530 6,160,597 5,137,447 5,184,894 5,343,327 6,718,284 Transfers (1,054,796) (2,691,683) (1,121,150) (4,534,242) (4,526,296) (5,098,017) (3,886,388) (4,199,217) (4,755,183) (5,065,066) Total other financing sources 6,047,583 3,675,453 11,220,530 4,383,606 869,688 5,872,066 3,234,194 4,926,439 12,536,499 9,101,761 Net change in fund 11,420,010 $ 7,457,601 $ 882,259 $ 3,674,587 $ (2,504,689) $ 5,340,816 $ 5,472,433 $ 1,486,194 $ 4,263,410 $ 1,432,845 Debt service as a percentage of noncapital expenditures……… 5.95% 5.94% 5.39% 7.13% 5.34% 5.48% 6.60% 4.57% 13.09% 3.05% The Commonwealth is legally obligated to fund the Salem teachers retirement. Therefore the revenue and expenditure has been recorded in accordance with GASB 24. Last Ten Years Changes in Fund Balances, Governmental Funds 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 2003. City of Salem, Massachusetts 117 Comprehensive Annual Financial Report ---PAGE BREAK--- Assessed Value and Actual Value of Taxable Property by Classification and Tax Rates Last Ten Years Assessed and Actual Values and Tax Rates Total Total Total Residential Residential Commercial Industrial Personal Commercial Commercial Direct City Year Value Tax Rate Value Value Property Value Tax Rate Rate Value 2005 $ 3,536,283,952 $ 11.38 $ 383,694,522 $ 142,371,000 $ 234,191,813 $ 760,257,335 $ 21.83 $ 13.23 $ 4,296,541,287 2006 3,807,396,999 11.21 393,448,700 143,388,000 241,940,480 778,777,180 21.33 12.93 4,586,174,179 2007 4,137,021,751 10.77 435,740,235 150,255,420 255,302,680 841,298,335 20.48 12.41 4,978,320,086 2008 4,008,575,509 11.67 449,128,612 134,872,400 212,904,820 796,905,832 22.11 13.40 4,805,481,341 2009 3,753,889,412 12.92 446,457,904 133,318,180 177,993,390 757,769,474 24.54 14.87 4,511,658,886 2010 3,527,110,563 14.01 432,747,534 127,061,700 207,643,630 767,452,864 26.93 16.32 4,294,563,427 2011 3,361,382,273 15.05 417,668,102 123,342,500 213,577,900 754,588,502 29.08 17.62 4,115,970,775 2012 3,291,268,444 15.63 410,704,364 118,044,040 153,768,900 682,517,304 29.81 18.07 3,973,785,748 2013 3,227,554,748 16.38 420,436,783 116,029,720 163,211,490 699,677,993 31.46 19.07 3,927,232,741 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 Revaluation year. Source: Assessor's Department, City of Salem All property in the Commonwealth of Massachusetts is assessed at 100% of fair cash value. Note: Chapter 59, Section 21C of the Massachusetts General Laws, known as "Proposition 2 1/2", imposes 2 separate limits on the annual tax levy of the City. The primary limitation is that the tax levy cannot exceed 2 1/2 percent of the full and fair cash value. The secondary limitation is that the tax levy cannot exceed the maximum levy limit for the preceding year as determined by the State Commissioner of Revenue by more than 2 1/2 percent, subject to an exception for property added to the tax rolls and for certain substantial valuation increases other than as part of a general revaluation. The secondary limit may be exceeded in any year by a majority vote of the voters, however it cannot exceed the primary limitation. 15.5% 16.0% 16.5% 17.0% 17.5% 18.0% 18.5% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Commercial Value as % of Total Value 82.41% 10.64% 2.91% 4.04% Total Assessed Value by Classification Year Ended June 30, 2014 Residential Commercial Industrial Personal Property 82.18% 10.71% 2.95% 4.16% Total Assessed Value by Classification Year Ended June 30, 2013 Residential Commercial Industrial Personal Property City of Salem, Massachusetts 118 Comprehensive Annual Financial Report ---PAGE BREAK--- Principal Taxpayers Current Year and Nine Years Ago Percentage of Percentage of Total Taxable Total Taxable Nature of Assessed Assessed Assessed Assessed Name Business Valuation Rank Value Valuation Rank Value Footprint Power Salem Personal & Industrial Property $50,000,000 1 1.3% - - Massachusetts Electric Personal Property $34,361,950 2 0.9% $20,820,941 5 0.5% New England Power Co. Personal & Industrial Property $31,171,120 3 0.8% $16,493,800 8 0.4% Shetland Properties Industrial & Commercial $26,642,790 4 0.7% $26,600,900 4 0.6% National Grid Industrial Property & PP $25,759,580 5 0.7% - - Highlander Plazas Commercial Property $20,941,700 6 0.5% $20,785,900 6 0.5% Algonquin Gas Transmission Personal Property $20,341,900 7 0.5% - - Salem Station LLC Apartments $33,943,300 8 0.9% $38,795,500 2 0.9% Princeton Crossing Personal Property $27,070,700 9 0.7% $30,065,400 3 0.7% Second Pickwick Trust Commercial Property $13,244,900 10 0.3% $14,207,000 9 0.3% US Gen New England Personal & Industrial Property - - $156,182,850 1 3.6% Vinnin Square LLC Apartments - - $18,555,400 7 0.4% Keyspan Personal & Industrial Property - - $10,077,908 10 0.2% Totals $283,477,940 7.2% $352,585,599 8.2% Source: Board of Assessors 2014 2005 City of Salem, Massachusetts 119 Comprehensive Annual Financial Report ---PAGE BREAK--- Percent of Less Percent of Delinquent Total Total Tax Total Abatements & Net Current Net Levy Tax Tax Collections to Year Tax Levy Exemptions Tax Levy Tax Collections Collected Collections Collections Net Tax Levy 2005 $ 56,839,329 $ 418,415 $ 56,420,914 $ 55,554,023 98.5% $ 866,450 $ 56,420,473 100.0% 2006 59,292,238 443,519 58,848,719 58,010,805 98.6% 835,900 58,846,705 100.0% 2007 61,785,514 593,521 61,191,993 60,318,905 98.6% 870,423 61,189,328 100.0% 2008 64,399,664 565,307 63,834,357 63,225,112 99.0% 609,245 63,834,357 100.0% 2009 67,095,914 514,742 66,581,172 66,300,317 99.6% 280,855 66,581,172 100.0% 2010 70,082,325 612,829 69,469,496 68,292,880 98.3% 1,176,616 69,469,496 100.0% 2011 72,532,237 402,324 72,129,913 70,936,056 98.3% 1,193,857 72,129,913 100.0% 2012 71,788,367 360,622 71,427,745 70,558,172 98.8% 869,573 71,427,745 100.0% 2013 74,879,216 420,829 74,458,387 73,069,108 98.1% 346,100 73,415,208 98.6% 2014 76,981,209 337,139 76,644,070 75,905,195 99.0% - 75,905,195 99.0% Revaluation Year Source: Massachusetts Department of Revenue; Board of Assessors Property Tax Levies and Collections Last Ten Years City of Salem, Massachusetts 120 Comprehensive Annual Financial Report ---PAGE BREAK--- Ratios of Outstanding Debt and General Bonded Debt Last Ten Years General Percentage Percentage U. S. Census Personal Assessed Obligation Capital Per of Personal of Assessed Year Population Income Value Bonds Leases Capita Income Value 2005 41,976 $ 1,105,650,179 $ 4,296,541,287 $ 58,770,000 $ 723,214 $ 1,417 5.38% 1.38% 2006 40,407 1,085,609,084 4,586,174,179 54,385,000 1,172,651 1,375 5.12% 1.21% 2007 40,407 1,107,321,266 4,978,320,086 50,040,000 779,906 1,258 4.59% 1.02% 2008 40,407 1,129,467,691 4,805,481,341 55,704,497 675,954 1,395 4.99% 1.17% 2009 41,421 1,180,967,527 4,511,658,886 51,145,000 530,771 1,248 4.38% 1.15% 2010 41,361 1,202,841,984 4,294,563,427 50,387,000 317,032 1,226 4.22% 1.18% 2011 41,361 1,226,898,824 4,115,970,775 44,581,526 384,965 1,087 3.67% 1.09% 2012 41,340 1,250,801,415 3,973,785,748 43,629,929 245,703 1,061 3.51% 1.10% 2013 41,654 1,285,525,748 3,927,232,741 35,291,962 619,317 862 2.79% 0.91% 2014 41,340 1,301,351,782 3,962,936,296 39,363,217 895,050 974 3.09% 1.02% General Total Percentage Percentage Obligation Capital Debt Per of Personal of Assessed Year Bonds Leases Outstanding Capita Income Value 2005 $ 1,450,000 $ 0 $ 60,943,214 $ 1,452 5.51% 1.42% 2006 1,345,000 0 56,902,651 1,408 5.24% 1.24% 2007 3,570,656 0 54,390,562 1,346 4.91% 1.09% 2008 7,624,241 0 64,004,692 1,584 5.67% 1.33% 2009 7,250,908 0 58,926,679 1,423 4.99% 1.31% 2010 12,949,102 0 63,653,134 1,539 5.29% 1.48% 2011 15,665,280 0 60,631,771 1,466 4.94% 1.47% 2012 16,762,802 0 60,638,434 1,467 4.85% 1.53% 2013 16,670,824 0 52,582,103 1,262 4.09% 1.34% 2014 19,405,803 0 59,664,070 1,443 4.58% 1.51% Source: Audited Financial Statements, U. S. Census Governmental Activities Debt Business-type Activities Total Primary Government City of Salem, Massachusetts 121 Comprehensive Annual Financial Report ---PAGE BREAK--- Direct and Overlapping Governmental Activities Debt As of June 30, 2014 Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable Debt Overlapping debt: North Shore Regional Vocational School District…………$ 105,000 28.45% $ 29,873 Direct debt: Capital Lease Obligations…………………………………… 619,317 General Governmental Debt 39,363,217 City total direct 39,982,534 Total direct and overlapping $ 40,012,407 Source: Treasurer and North Shore Regional Vocational School District Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of the overlapping governments that is borne by the taxpayers of the Town. This process recognizes that, when considering the government's ability to issue and repay long-term debt, the entire debt burden borne by the property taxpayers should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government. The percentage applicable for the North Shore Regional Vocational School District is based on the number of students attending from the City of Salem as a percentage of all students at the Regional School. City of Salem, Massachusetts 122 Comprehensive Annual Financial Report ---PAGE BREAK--- 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Equalized Valuation………………………… $ 4,223,735,800 $ 4,923,330,400 $ 4,923,330,400 $ 5,168,060,200 $ 5,168,060,200 $ 4,568,374,700 $ 4,568,374,700 $ 4,256,808,900 $ 4,256,808,900 $ 4,191,566,000 Debt Limit of Equalized Valuation…… $ 211,186,790 $ 246,166,520 $ 246,166,520 $ 258,403,010 $ 258,403,010 $ 228,418,735 $ 228,418,735 $ 212,840,445 $ 212,840,445 $ 209,578,300 Less: Outstanding debt applicable to limit………… 6,695,447 6,064,000 5,435,000 12,004,000 12,004,000 10,884,900 16,669,700 14,905,000 19,976,500 23,966,500 Authorized and unissued debt……………… 39,296,218 48,682,895 54,169,239 28,769,240 28,769,240 11,128,240 13,725,802 72,303,161 46,646,035 3,300,000 Legal debt $ 165,195,125 $ 191,419,625 $ 186,562,281 $ 217,629,770 $ 217,629,770 $ 206,405,595 $ 198,023,233 $ 125,632,284 $ 146,217,910 $ 182,311,800 Total debt applicable to the limit as a percentage of debt limit……………… 21.78% 22.24% 24.21% 15.78% 15.78% 9.64% 13.31% 40.97% 31.30% 13.01% 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 123 Comprehensive Annual Financial Report ---PAGE BREAK--- Demographic and Economic Statistics Last Ten Years Per Capita Population Personal Personal Median School Unemployment Year Estimates Income Income Age Enrollment Rate 2005 41,976 $ 1,105,650,179 $ 26,340 36.4 4,676 4.9% 2006 40,407 1,085,609,084 26,867 36.4 4,714 4.1% 2007 40,407 1,107,321,266 27,404 36.4 4,573 4.5% 2008 40,407 1,129,467,691 27,952 36.4 4,404 4.9% 2009 41,421 1,180,967,527 28,511 36.4 4,474 9.7% 2010 41,361 1,202,841,984 29,082 36.7 4,647 9.6% 2011 41,361 1,226,898,824 29,663 36.5 4,647 9.2% 2012 41,340 1,250,783,040 30,256 37.6 4,541 8.2% 2013 41,654 1,285,525,748 30,862 36.5 4,501 7.6% 2014 41,340 1,301,351,782 31,479 39.2 4,478 5.6% Note: Per Capita Personal Income based on 2010 U.S Census Source: Massachusetts Department of Revenue, Division of Local Services; U.S. Census Bureau City of Salem, Massachusetts 124 Comprehensive Annual Financial Report ---PAGE BREAK--- Principal Employers Current Year and Nine Years Ago Nature Percentage of Percentage of of Total City Total City Business Employees Rank Employment Employees Rank Employment North Shore Medical Center Healthcare 3,544 1 15.34% 3,680 1 16.3% City of Salem Municipal Government 1,566 2 6.78% - - Salem State College Higher Education 1,494 3 6.47% 1,699 2 7.5% Spaulding Rehab Hospital Health Care 575 4 2.49% - - Market Basket Food Market 560 5 2.42% 250 6 1.1% Commonwealth of Massachusetts State Government 344 6 1.49% 655 3 2.9% Salem Five Savings Banking 300 7 1.30% 356 4 1.6% Peabody Essex Museum Cultural Tourism 261 8 1.13% 285 5 1.3% Grosvenor Park Nursing Center Health Care 252 9 1.09% 200 7 0.9% Excelitas Manufacturer 200 10 0.87% - - Home Depot Retail - - 200 8 0.9% Perkin Elmer Opto Electronics Analytical Systems - - 180 9 0.8% Salem Harbor Station Utility - - 172 10 0.8% 9,096 39.4% 34.1% Source: The City Planning Department 2014 2005 7,677 Employer City of Salem, Massachusetts 125 Comprehensive Annual Financial Report ---PAGE BREAK--- 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Function General government…………… 64 40 34 36 35 35 35 35 35 37 Public safety……………………… 190 181 190 185 187 191 190 194 203 210 Education………………………… 756 752 752 753 752 752 752 776 890 841 Public 55 35 38 40 37 38 39 40 39 41 Engineering……………………… - - 1 3 1 1 1 1 1 1 Health and human services…… 21 21 20 17 14 17 15 14 15 14 Culture and recreation………… 31 34 23 21 22 22 23 23 23 24 Total 1,117 1,063 1,058 1,054 1,048 1,056 1,054 1,083 1,206 1,167 Source: Various City Departments Last Ten Years Full-time Equivalent City Employees by Function City of Salem, Massachusetts City of Salem, Massachusetts 126 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 General government Marriage recordings…………………………………… 327 375 322 306 276 243 381 321 324 365 Birth 1,761 2,044 2,043 1,712 1,614 1,774 1,599 1,433 1,452 1,566 Death recordings……………………………………… 847 737 755 520 535 557 492 436 484 560 Police Physical 685 2,792 2,793 2,502 2,502 2,072 2,629 1,627 1,307 1,597 Motor vehicle violations……………………………… 4,334 6,477 8,672 6,604 191 6,631 10,309 8,497 6,161 7,936 Police personnel and officers………………………… 85 81 84 85 85 87 89 93 99 100 Fire 2,789 1,187 1,562 886 886 935 1,077 973 1,307 1,192 Emergency responses………………………………… 4,572 6,235 6,719 6,330 17 6,409 6,079 5,952 6,161 6,292 Fire personnel and officers…………………………… 78 75 76 81 81 79 83 90 86 88 Education Number of 4,676 4,744 4,573 4,404 4,474 4,647 4,585 4,541 4,501 4,478 Number of graduates………………………………… 246 255 269 254 273 283 246 240 275 275 Number of 409 477 484 479 479 488 507 517 540 542 Water Service connections…………………………………… 10,568 11,000 11,811 11,701 11,737 11,719 11,719 11,719 11,729 11,827 Consumption in 2,136 2,000 2,056 2,123 1,994 2,103 2,025 1,921 1,934 1,898 Daily consumption 6.43 6.84 6.74 5.80 5.44 6.00 6.00 5.26 5.30 5.00 Sewer Service connections…………………………………… 10,568 11,000 11,811 11,701 11,727 11,709 11,706 11,719 11,719 11,807 Health and human services Number of persons using COA transportation……… 45,976 37,497 39,052 18,678 15,526 16,076 16,908 19,630 16,170 12,698 Libraries Volumes in circulation………………………………… 128,569 141,595 143,052 148,752 145,634 143,512 148,634 158,011 162,486 168,263 Total volumes borrowed……………………………… 490,116 508,728 500,907 514,708 538,184 508,507 508,293 493,315 471,416 430,391 Source: Various City Departments; Massachusetts Department of Education Last Ten Years Operating Indicators by Function/Program City of Salem, Massachusetts 127 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 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 38 7 7 7 7 7 Number of middle schools………………… 1 1 1 1 1 1 1 1 1 1 Number of high schools…………………… 1 1 1 1 17 1 1 1 1 1 Public Works Water mains 108 108 108 108 102 102 102 102 102 102 Health and human services Number of personnel……………………… 17 17 17 17 17 17 15 14.7 14.7 13.8 Culture and recreation Parks and playgrounds…………………… 35 35 35 35 35 35 35 35 35 35 Park and playground (acreage)…………… 230 230 230 230 230 230 230 230 230 230 Conservation land (acreage)……………… 128 128 128 128 128 128 128 128 128 128 Railroad right of way (acreage)…………… 89 89 89 89 89 89 89 89 89 89 Public 7 7 7 7 7 7 7 7 7 7 Ball 13 13 13 13 13 13 13 13 13 13 Tennis 10 10 10 10 10 10 10 10 10 10 Source: Various City Departments, Manual of the City Government Last Ten Years Capital Asset Statistics by Function/Program City of Salem, Massachusetts 128 Comprehensive Annual Financial Report ---PAGE BREAK--- Free Stabilization Year Cash Fund $ 3,300,000 $ 5,173,812 $ 5,498,710 $ 3,438,799 $ 2,525,829 $ 3,453,722 $ 3,249,238 $ 2,736,777 $ 750,607 $ 1,913,913 $ 1,261,200 $ 1,489,907 $ 1,114,950 $ 648,947 $ 691,149 $ 487,980 $ 538,372 $ 277,759 $ 2,732,090 $ 1,021,351 Source: City Records Note: 2014 Free Cash is estimated Free Cash and Stabilization Fund Balances Last Ten Years City of Salem, Massachusetts 129 Comprehensive Annual Financial Report