Document Salem_doc_f418d6b7ae

CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the fiscal year ended June 30, 2005 Prepared by Finance Department ---PAGE BREAK--- On the cover: The Friendship is a reconstruction of a 171-foot three-masted Salem East Indiaman originally built in 1797. The new Friendship is the largest wooden, Coast Guard certified, sailing vessel to be built in New England in more than a century. She arrived in Salem, after two years of construction, in 1998. The ship is open for tours at historic Derby Wharf as part of the programs of the Salem Maritime National Historic Site and sails as an ambassador ship for the Essex National Heritage Area. Custom House at McAllister Waterfront ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2005 Prepared by Finance Department ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2005 TABLE OF CONTENTS Introductory Letter of Transmittal Organizational Principal Executive Officers Financial Section Independent Auditors’ Report Management’s Discussion and Analysis Basic Financial Statement of net Statement of activities Governmental funds – balance sheet Reconciliation of the governmental funds balance sheet total fund balances to the statement of net assets.......31 Governmental funds – statement of revenues, expenditures and changes in fund balances Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of Proprietary funds – statement of net Proprietary funds – statement of revenues, expenses and changes in fund net assets Proprietary funds – statement of cash flows Fiduciary funds – statement of fiduciary net assets Fiduciary funds – statement of changes in fiduciary net Notes to basic financial Required Supplementary Information Schedule of revenues, expenditures and changes in fund balance – general fund – budget and Notes to required supplementary information Combining Nonmajor governmental funds Nonmajor governmental funds – combining balance sheet Nonmajor governmental funds – combining statement of revenues, expenditures, and changes in fund balances Private Purpose Trust ---PAGE BREAK--- Private purpose trust funds – combining statement of net Private purpose trust funds – combining statement of changes in net assets Agency Fund Agency fund – statement of changes in assets and liabilities Statistical Net assets by component – last four fiscal years Changes in net assets – last four fiscal years Fund balances, governmental funds – last ten fiscal Changes in fund balances, governmental funds – last ten fiscal Assessed value and actual value of taxable property by classification and tax rates – last ten fiscal years Principal taxpayers – current year and nine years ago Property tax levies and Ratios of outstanding debt and general bonded debt – last ten fiscal Direct and overlapping governmental activities debt – as of June 30, 2005 Computation of legal debt margin – last ten fiscal years Demographic and economic statistics – last ten fiscal years Principal employers (excluding City) – current year and nine years Operating indicators by function/program – last ten fiscal Capital asset statistics by function/program – last ten fiscal Free cash & stabilization fund balances – last ten fiscal years ---PAGE BREAK--- Introductory Section Light House at Winter Island Winter Island Park is a former Coast Guard base located on Salem harbor. The site is a seasonal recreation site. The site also has a beach, boat launch, wind surfing, scuba diving, picnic areas, and a snack bar. Historic Fort Pickering and Fort Pickering Light are located within the site. ---PAGE BREAK--- City of Salem, Massachusetts 1 Comprehensive Annual Financial Report Introductory Section ---PAGE BREAK--- City of Salem, Massachusetts 2 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 211 - FAX: [PHONE REDACTED] 3 CITY OF SALEM, MASSACHUSETTS OFFICE OF FINANCE NINA BRIDGMAN ACTING DIRECTOR OF FINANCE Letter of Transmittal October 6, 2005 To the Honorable Mayor, Members of the City Council and Citizens of the City of Salem, Massachusetts: At the close of each fiscal year, state law requires the City of Salem to publish a complete set of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP), and that are audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the Comprehensive Annual Financial Report (CAFR) of the City of Salem, Massachusetts, for the fiscal year ending June 30, 2005 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, 2005, are fairly presented in conformity with GAAP. The City of Salem’s financial statements have been audited by Powers & Sullivan, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2005, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principals used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City’s financial statements for the fiscal year ended June 30, 2005 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--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 211 - FAX: [PHONE REDACTED] 4 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 on Boston. The City has a population of approximately 40,407 and occupies a land area of approximately 8 square miles. The second city in the Commonwealth to be incorporated, it is the Shire City of Essex County. Salem has operated under the Plan B form of government, with a mayor and an eleven-person City Council, seven elected from wards, and four at-large, since 1915. The Mayor is elected for four years in November of unevenly-numbered years. The Mayor is the administrative head of the city and chairman ex-officio of the School Committee, the Board of Library Trustees, and the Board of Trust Fund Commissioners. The Mayor acts with the City Council and School Committee to carry out city business. The Mayor appoints his or her office staff, the City Solicitor, and the Assistant City Solicitor without City Council confirmation. The appointments of most city department heads, and members of the various boards and commissions, however, require City Council confirmation. The Mayor has the right to veto any order, resolution, or ordinance passed by the Council. However, a veto may be overturned by a two-thirds vote of all councilors. After reviewing and revising estimates prepared by department heads, the Mayor submits the budget to the City Council for final action. The Mayor approves all municipal payrolls, vouchers, contracts and instruments; and recommends bond issues, legislations and orders to the City Council; and represents the city with other levels of government. As the general administrator of all city departments, the Mayor is consulted by department heads pertaining to the city’s welfare. The City Council is primarily the legislative branch of the city government. As the legislative body, the Council confirms appointments made by the Mayor and appropriates all monies necessary to city operation. It can approve, disapprove, or reduce the amount of appropriations, but not add to the appropriation. The Council receives orders of recommendation by the Mayor and petitions from the public, and acts on them after committee study. The City Council also has the power to enact the Ordinances and other regulations. A majority of the City Council constitutes a quorum, and the affirmative vote of a majority of all the members of the Council is necessary for the adoption of any motion resolution, or ordinance. In some instance, adoption by a two-thirds vote of the members is required by statute. The City provides general governmental services for the territory within its boundaries, including police and fire protection, disposal of garbage and rubbish (for residential properties); public education, including vocational- technical education at the high school level; street maintenance; certain water services, through the Salem and Beverly Water Supply Board; certain sewerage disposal services, through the South Essex Sewerage District; and parks and recreational facilities. Approximately 95 percent of the City is connected to the sewerage system; the entire area of the City is served by the municipal water system. The Salem Housing Authority is responsible for managing 1,462 units of low income housing for the City. Buildings are either owned by the Authority, or are part of the rental subsidy program or the voucher program. Of the 1,462 units, 715 are included in twelve elderly developments, nine family developments, and one handicapped accessible family developments. These units are owned and operated by the Authority. The principal highways serving the City are state Routes 1A, 107, and 114, all of which provide immediate access to Routes 1 and 128 and other major highways serving the greater ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 211 - FAX: [PHONE REDACTED] 5 Boston area. The City is a member municipality of the Massachusetts Bay Commuter Railroad, which provides passenger and freight service. Within 170 days after the annual organization of the city government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without recommendation of the Mayor, the City Council may not increase any item or make an appropriation for a purpose not included in the proposed budget (except by a two-thirds vote in case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the City Council, pursuant to state statute). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. The City’s operating budget for fiscal year 2005 totaled approximately $102 million. Factors Affecting Economic Condition The City of Salem is a historic waterfront community that has a rich cultural heritage, known worldwide for its architecture, maritime history, literary prominence, and hysteria. For this reason, tourism is one of the City’s major industries, accommodating almost one million visitors each year. Salem originated as one of the earliest landing sites of the English colonists, and went on to rise as the first major port in the United States, opening up the East Indian trade. In its heyday, Salem was known as a thriving hub of American commerce and was the home of Nathaniel Hawthorne. Salem is well known for the infamous Salem Trials of 1692, when nineteen people were convicted for the crime of and were put to their deaths. The City's golden years have left her modern inhabitants with architectural treasures, fine museums, and a sparkling literary heritage. Equally important, the development of Salem has produced a rich ethnic history, to which people of all races, creeds, colors and origins have contributed over the generations. Long a trading, manufacturing and retail center, Salem has been making a slow, and sometimes painful, transition to a service- based economy. The City today serves as the home of Salem State College, the North Shore Medical Center, the Essex County District Superior and Probate Courts, and Registry of Deeds, the world-famous Peabody and Essex Museum, and a host of banks and other financial institutions. It is the educational, medical, legal, cultural and banking hub of the North Shore. Salem boasts an impressive collection of historically significant residential structures that are always in high demand. The uniqueness of these historic homes, coupled with a growing downtown condominium market, have helped boost home sales prices in Salem. The City also enjoys a mix of commercial businesses and markets. Commercial development has been prominent in the Highland Avenue and Vinnin Square areas. Additionally, the City has recently experienced a $100 million expansion of the Peabody Essex Museum and the privately funded renovation and reuse of several key properties. In fact, private investment in commercial and residential developments in downtown since 2001 totals close to $50 million, and expected future investment over the next two years totals close to an additional $10 million. The redevelopment of long dormant and underutilized industrial sites is helping to revitalize our central business district. The Salem waterfront is also experiencing a great deal of investment from the addition of the Pickering Wharf Hotel and a municipally managed Harbor Walkway project which will connect pedestrians walking along the harbor from the Pickering Wharf area to adjacent areas. ---PAGE BREAK--- SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: [PHONE REDACTED] EXT. 211 - FAX: [PHONE REDACTED] 6 The City also boasts Shetland Park, a sprawling business park which houses more than 70 concerns and an industrial park on Technology Way which houses large or expanding companies. The North Shore Medical Center has recently invested $12 million for their new 10,700 square foot cardiac surgical suite and also built a new 19,000 square foot Emergency Department, which is one of the most sophisticated and modern emergency facilities in the state. According to the Massachusetts Department of Employment and Training, in October 2005, the City had a labor force of 23,464, of whom 22,530 were employed and 934, or 4% were unemployed. The Commonwealth, for the same period, had an unadjusted unemployment rate of 4.3%. On the operating side, the City has experienced financial challenges during fiscal year 2005 and into the 2006 budget cycle. Once of the key challenges for the City has been rising health care costs for City employees/retirees, as well as increases in pension costs. Since the state law, known as proposition 2 ½, caps the City’s ability to raise taxes to meet rising costs, the City is actively exploring the use of alternative, local revenue sources to help offset the aforementioned rising expenditures. Lastly, the City has been in the process of renovating several schools which is being financed, in part, by the State’s School Building Assistance Program which is run by the Massachusetts School Building Authority. Through this program, the City is reimbursed for 90% of the construction and debt interest costs of the projects. Acknowledgements The preparation of this report would not have been possible without the efficient and dedicated services of the Finance department’s staff. We would like to express our appreciation to all the members of the departments who assisted and contributed to the preparation of this report. Credit must also be given to the City Council and Mayor for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Salem’s finances. Respectfully submitted, Nina Bridgman Acting Finance Director ---PAGE BREAK--- City of Salem, Massachusetts 7 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 8 Comprehensive Annual Financial Report Principal Executive Officers TITLE NAME FIRST TOOK OFFICE TERM EXPIRES Mayor Kimberley Driscoll 1/2/2006 12/31/09 Mayor Stanley J. Usovicz Jr. 01/01/98 12/31/05 President, City Council Michael Bencal 01/01/05 12/31/05 President, City Council Jean Pelletier 01/02/06 12/31/06 Acting Finance Director Nina Bridgman 01/23/06 03/06/06 Treasurer /Collector Anne Busteed 05/01/01 01/31/07 City Clerk Cheryl Lapointe 07/15/04 11/09/06 Acting City Solicitor Elizabeth Rennard 01/10/06 Indefinite City Planner Lynn Duncan 07/15/04 01/31/06 Superintendent of Schools Dr. Lawrence Callahan 07/01/05 06/01/07 ---PAGE BREAK--- Financial Section Downtown Salem ---PAGE BREAK--- City of Salem, Massachusetts 9 Comprehensive Annual Financial Report Financial Section ---PAGE BREAK--- City of Salem, Massachusetts 10 Comprehensi This page intentionally left blank. ---PAGE BREAK--- 11 Independent Auditors’ Report To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of and for the fiscal year ended June 30, 2005 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2004), which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Salem, Massachusetts' management. Our responsibility is to express opinions on these financial statements based on our audit. The basic financial statements of the City as of June 30, 2004, were audited by other auditors whose opinion, dated December 15, 2004, on those statements was unqualified. As discussed in Note 15, the City has restated its 2004 basic financial statements during the current year. The other auditors reported on the 2004 basic financial statements before the restatement. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 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, 2005 (except for the Salem Contributory Retirement System which is as of December 31, 2004), and the respective changes in financial position and cash flows, where applicable, thereof for the fiscal year then ended in conformity with accounting principles generally accepted in the United States of America. We also audited the adjustments described in Note 15 that were applied to restate the 2004 basic financial statements. In our opinion, such adjustments are appropriate and have been properly applied. Management’s discussion and analysis, located on the following pages, and schedule of revenues, expenditures and changes in fund balance – general fund – budgetary basis, located after the notes to the basic financial statements, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. ---PAGE BREAK--- 12 Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The combining fund statements, as listed in the table of contents, are presented for the purpose of supplementary analysis and are not a required part of the financial statements of the City of Salem, Massachusetts. Such supplementary information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole. The introductory and statistical sections, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. In accordance with Government Auditing Standards, we have also issued our report dated October 6, 2005 on our consideration of the City of Salem, Massachusetts’ internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. October 6, 2005 ---PAGE BREAK--- City of Salem, Massachusetts 13 Comprehensive Annual Financial Report Management’s Discussion and Analysis Management’s Discussion and Analysis ---PAGE BREAK--- City of Salem, Massachusetts 14 Comprehensive Annual Financial Report Management’s Discussion and Analysis As management of the City of Salem, we offer readers of these financial statements this narrative overview and analysis of the financial activities for the fiscal year ended June 30, 2005. We encourage readers to consider the information presented in this report in conjunction with additional information that we have furnished in our letter of transmittal. The Governmental Accounting Standards Board (GASB) is the authoritative standard setting body that provides guidance on how to prepare financial statements in conformity with generally accepted accounting principals (GAAP). Users of these financial statements (such as investors and rating agencies) rely on the GASB to establish consistent reporting standards for all governments in the United States. This consistent application is the only way users (including citizens, the media, legislators and others) can assess the financial condition of one government compared to others. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City of Salem’s basic financial statements. These basic financial statements comprise 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 assets presents information on all assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position is improving or deteriorating. The statement of activities presents information showing how the government’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities include general government, public safety, education, public works, cemetery, community development, health and human services, culture and recreation, interest and state and county charges. The business-type activities include the activities of water and sewer and parking services 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 15 Comprehensive Annual Financial Report demonstrate compliance with finance-related legal requirements. All of the funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund statements focus on near-term inflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Salem adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided as required supplementary information for the general fund to demonstrate compliance with this budget. Proprietary funds. The City maintains two types of propriety funds. Enterprise funds are used to report the same functions presented as business-type activities in the government- wide financial statements. The City uses enterprise funds to account for its water, sewer activities and parking services as well as the municipal golf course. The internal service fund is used to account for the financing of services provided by one department to other departments or governmental units. This fund is used to account for risk financing activities related to active employees’ and retirees’ health insurance. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for propriety funds. Notes to the basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Government-wide Financial Analysis Governmental Activities As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. The City of Salem’s governmental assets exceeded liabilities by $90 million at the close of Fiscal 2005 a decrease of $6 million from the prior year. Net assets of $84 million (93%) reflects its investment in capital assets land, buildings, infrastructure, machinery, and equipment), less any related debt used to acquire those assets that are still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the investment in its capital assets is reported net of its related debt, it should be noted that ---PAGE BREAK--- City of Salem, Massachusetts 16 Comprehensive Annual Financial Report the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the governmental net assets, $9.7 million represents resources that are subject to external restrictions on how they may be used. The balance of unrestricted net assets has a year end deficit of $3.7 million, which reflects the City’s lack of resources available to be used to meet the City’s ongoing obligations to citizens and creditors. The main factors in the decrease in the City’s unrestricted net assets include a $3.9 million increase in the City’s estimated long term liability for compensated absences and an increased deficit in the City’s self-insured health insurance fund. The components of the City’s governmental activities are presented below. Fiscal 2005 Fiscal 2004 Assets: Current $ 35,292,646 $ 24,703,084 Noncurrent assets (excluding capital)…………………… 45,917,070 79,710,010 Capital 92,868,638 92,409,692 Total 174,078,354 196,822,786 Liabilities: Current liabilities (excluding 8,572,285 12,130,244 Noncurrent liabilities (excluding 5,467,647 4,543,506 Current 15,541,418 28,800,000 Noncurrent 54,475,000 56,340,000 Total liabilities………………………………………… 84,056,350 101,813,750 Net Assets: Capital assets net of related 83,954,370 79,729,492 9,734,998 8,759,761 (3,667,364) 6,519,783 Total net $ 90,022,004 $ 95,009,036 ---PAGE BREAK--- City of Salem, Massachusetts 17 Comprehensive Annual Financial Report Fiscal 2005 Fiscal 2004 Program revenues: Charges for $ 4,429,151 $ 5,061,963 Operating grants and contributions……………………… 34,087,248 35,305,349 Capital grants and contributions………………………… 2,090,467 2,129,821 General Revenues: Real estate and personal property taxes……………… 55,915,767 54,855,784 Motor vehicle and other excise 3,489,584 3,478,999 Nonrestricted 8,097,351 6,932,546 Unrestricted investment 521,585 568,503 Other 2,350,052 753,561 Total 110,981,205 109,086,526 Expenses: General government……………………………………… 7,103,324 7,095,121 Public 21,912,834 22,066,959 65,870,306 60,090,740 Public 7,081,997 6,517,047 Community development………………………………… 2,066,749 2,085,553 Health and human services……………………………… 4,856,306 5,092,521 Culture and recreation…………………………………… 3,689,992 4,186,622 2,689,312 3,136,763 State and county 4,028,333 4,212,549 Total 119,299,153 114,483,875 Increase in net assets before transfers…………………… (8,317,948) (5,397,349) 2,542,444 2,466,477 Change in net $ (5,775,504) $ (2,930,872) The governmental expenses totaled $119 million of which $40.6 million (34%) was directly supported by program revenues consisting of charges for services, operating and capital grants and contributions. General revenues totaled $70 million, primarily coming from property taxes, motor vehicle and other excise, and non-restricted state aid. The governmental net assets decreased by $6 million during the current fiscal year. This was primarily due to increasing costs for the City’s share of providing employees and retiree’s health insurance coverage and an increase in the City’s estimated liability for compensated absences. Business-type Activities As mentioned previously, the City’s business-type activities consist of water, sewer, parking and the municipal golf course activities. The results of operations of each of these activities are discussed individually below. The water enterprise fund’s net assets of $3.7 million (74%) represent the investment in capital assets while $1.3 million (26%) is unrestricted. The water department experienced a net decrease of $693 thousand in net assets from the prior year. The deficit is the result of a budgeted transfer of $618 thousand to the sewer fund. The water fund pays an annual assessment to the Salem Beverly Water Supply Board, which totaled $1.9 million, or 60% of the funds expenses for fiscal year 2005. ---PAGE BREAK--- City of Salem, Massachusetts 18 Comprehensive Annual Financial Report The components of the City’s water activities are presented below. Fiscal 2005 Fiscal 2004 Assets: Current $ 3,752,502 $ 3,083,056 Capital 4,761,105 4,010,707 Total 8,513,607 7,093,763 Liabilities: Current liabilities (excluding 226,218 99,475 Noncurrent liabilities (excluding 36,000 54,000 Current 3,253,582 1,249,012 Total liabilities………………………………………… 3,515,800 1,402,487 Net Assets: Capital assets net of related 3,717,450 2,761,695 1,280,357 2,929,581 Total net $ 4,997,807 $ 5,691,276 Fiscal 2005 Fiscal 2004 Program revenues: Charges for $ 3,853,505 $ 3,982,209 Expenses: Cost of service and administration……………………… 1,105,609 833,348 District assessment……………………………………… 1,923,601 1,794,228 126,015 5,863 31,615 - Total 3,186,840 2,633,439 Increase in net assets before transfers………………… 666,665 1,348,770 (1,360,134) (1,311,820) Change in net $ (693,469) $ 36,950 ---PAGE BREAK--- City of Salem, Massachusetts 19 Comprehensive Annual Financial Report The sewer enterprise fund’s net assets of $533 thousand (15%) represent the investment in capital assets net of related debt, and $3.0 million (88%) is unrestricted. The unrestricted balance includes the City’s equity interest in the South Essex Sewerage District. The sewer department operations experienced a decrease of $1.2 million during the current fiscal year. The current rates are not sufficient to cover annual expenses. Approximately 85% of the expenses in the sewer fund consist of the annual assessments paid to the South Essex Sewerage District. The components of the City’s sewer activities are presented below. Fiscal 2005 Fiscal 2004 Assets: Current $ 3,088,767 $ 4,758,830 Capital 532,597 316,748 Total 3,621,364 5,075,578 Liabilities: Current liabilities (excluding 44,205 407,069 Noncurrent liabilities (excluding 36,000 - Total liabilities………………………………………… 80,205 407,069 Net Assets: Capital assets net of related 532,597 217,196 3,008,562 4,451,313 Total net $ 3,541,159 $ 4,668,509 Fiscal 2005 Fiscal 2004 Program revenues: Charges for $ 5,512,922 $ 5,890,555 Total 5,512,922 5,890,555 Expenses: Cost of service and administration……………………… 976,807 1,069,500 District assessment……………………………………… 5,622,545 5,715,601 16,966 17,168 Total 6,616,318 6,802,269 Increase in net assets before transfers………………… (1,103,396) (911,714) (23,954) (50,612) Change in net $ (1,127,350) $ (962,326) The golf course enterprise fund’s net assets of $245 thousand (56%) represent the investment in capital assets while $192 thousand (44%) is unrestricted. The golf course operations experienced an increase of $42 thousand. On a budgetary basis, the City budgets for the expenditures of the golf course in the City’s general operating ---PAGE BREAK--- City of Salem, Massachusetts 20 Comprehensive Annual Financial Report budget and the proceeds from operations are voted, as necessary, to offset those expenditures as a funding source in the operating budget. The components of the City’s golf course activities are presented below. Fiscal 2005 Fiscal 2004 Assets: Current $ 249,960 $ 273,302 Capital 595,173 568,413 Total 845,133 841,715 Liabilities: Current liabilities (excluding 25,536 6,522 Noncurrent liabilities (excluding 32,000 58,966 Current 30,000 30,000 Noncurrent 320,000 350,000 Total liabilities………………………………………… 407,536 445,488 Net Assets: Capital assets net of related 245,173 188,413 192,424 207,784 Total net $ 437,597 $ 396,197 Business-type Activities Fiscal 2005 Fiscal 2004 Program revenues: Charges for $ 502,770 $ 543,467 Total 502,770 543,467 Expenses: Cost of service and administration……………………… 235,388 294,725 33,905 25,907 22,894 18,988 Total 292,187 339,620 Increase in net assets before transfers………………… 210,583 203,847 (169,183) (189,587) Change in net $ 41,400 $ 14,260 Business-type Activities ---PAGE BREAK--- City of Salem, Massachusetts 21 Comprehensive Annual Financial Report The parking enterprise fund’s net assets of $4.7 million (99.8%) represent the investment in capital assets net of related debt while $11 thousand is unrestricted. The parking operations experienced a net decrease of $200 thousand. The City budgets for the operations (both revenues and expenditures) of the parking operations in the City’s general operating budget. Consequently, the funds remaining in the enterprise fund at year end represent non-current assets and liabilities and the assets and liabilities related to the enterprise funds capital construction projects. The components of the City’s parking activities are presented below. Fiscal 2005 Fiscal 2004 Assets: Current $ 63,468 $ - Capital 5,817,671 4,980,074 Total 5,881,139 4,980,074 Liabilities: Current liabilities (excluding 34,119 5,028 Noncurrent liabilities (excluding 18,000 45,255 Current 75,000 - Noncurrent 1,025,000 - Total liabilities………………………………………… 1,152,119 50,283 Net Assets: Capital assets net of related 4,717,671 4,980,074 11,349 (50,283) Total net $ 4,729,020 $ 4,929,791 Business-type Activities Fiscal 2005 Fiscal 2004 Program revenues: Charges for $ 1,453,088 $ 1,536,390 Total 1,453,088 1,536,390 Expenses: Cost of service and administration……………………… 444,632 468,442 198,935 197,016 21,119 - Total 664,686 665,458 Increase in net assets before transfers………………… 788,402 870,932 (989,173) (914,458) Change in net $ (200,771) $ (43,526) Business-type Activities ---PAGE BREAK--- City of Salem, Massachusetts 22 Comprehensive Annual Financial Report Financial Analysis of the Government’s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, governmental funds reported combined ending fund balances of $2.1 million of which $400 thousand is reported in the general fund, $1.0 million is reported in the stabilization major fund, and $11.2 million is reported in the nonmajor governmental funds and a deficit of $10.5 million is reported in the school capital projects major fund. Cumulatively there was an increase of $11.5 million in fund balances from the prior year. The general fund is the chief operating fund. At the end of the current fiscal year, unreserved fund balance of the general fund was $335 thousand, while total fund balance was $404 thousand. As a measure of the general fund’s liquidity, it may be useful to compare both unreserved fund balance and the total fund balance to total fund expenditures. Both unreserved fund balance and total fund balance represent less than 1% of the total general fund expenditures. The City’s general fund decreased by $3 million in fiscal 2005. The key factor in this reduction was the City’s planned use of reserves to balance the budget, the under-budgeting of snow removal costs and the insufficient budget for employee benefits costs. The general fund was required to fund the cash deficit in the City’s health insurance trust fund at year end which required a transfer of approximately $2.2 million from the general fund to the internal service fund. The stabilization major fund is used to account for the accumulation of resources to be used for general and/or capital purposes upon approval of City Council. The fund decreased by $276 thousand in fiscal 2005, primarily due to appropriation of funds to support the City’s operating budget. In FY2006 the City voted to use all of the remaining funds to balance the general fund budget. The School Capital Projects fund is used to account for the City’s ongoing major school construction projects. The fund balance is in a deficit position because short-term notes have not yet been borrowed long-term or funded by state grants. Permanent long-term borrowing is anticipated to occur for the City’s share of the projects once the Commonwealth reimburses the City for 90% of approved project costs. During fiscal 2005, the City received a lump sum payment of approximately $12 million to pay down a portion of its short-term debt on school construction projects. General Fund Budgetary Highlights The $1.9 million increase between the original budget and the final amended budget was primarily due to supplemental appropriations to various City departmental budgets. Approximately $875 of this was raised in taxes to fund additional fire personnel and approximately $1 million represents the use of available fund balance, once certified as available by the Department of Revenue, appropriated to fund human resources ($214,000), police ($282,000), education ($125,000), libraries ($151,000), building maintenance ($94,000), and other various general fund line items. ---PAGE BREAK--- City of Salem, Massachusetts 23 Comprehensive Annual Financial Report The total general fund revenues exceeded the final budget by $1.1 million. The majority of this surplus is the result of collections in excess of budget for tax title accounts, motor vehicle excise, and intergovernmental revenues primarily related to charter school reimbursements. Fortunately, the excesses made up for shortfalls in anticipated real estate collections, hotel taxes, penalties on taxes and investment income. In most instances, expenditures were very close to budgeted appropriations for the general fund. The fire department had a surplus of approximately $375,000 at year end which was due to the cutback and reinstatement and re-funding of several positions during the year. Expenditures exceeded appropriations for state and county charges and for snow & ice removal. Both over-expenditures are allowable under state law. 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, 2005, amounts to $105 million (net of accumulated depreciation). This investment in capital assets includes land, buildings, system improvements, machinery and equipment, and infrastructure related to business- type activities. The City has delayed retroactively reporting general infrastructure assets until fiscal year 2006 as allowed by GASB 34. The City’s total investment in capital assets for the current year was $3.5 million for governmental activities and $2.2 million for business-type activities. Major capital asset events during the current fiscal year included the construction and remodeling of the Elementary School and the High School. As detailed below, both projects qualify for the state’s school building assistance program which will allow the City to be reimbursed for 90% of construction costs and short- term interest related to the projects. The $1.1 million in additions to water and sewer fund capital assets are attributable to infrastructure improvements. The $1 million in additions to the parking fund were due to improvements to the City’s parking garage. The $60 thousand additions to the golf course fund were due to equipment purchases. Debt Administration. Outstanding long-term debt of the general government, as of June 30, 2005, totaled $58,770,000, of which $55,957,000 is related to school projects, leaving a balance of $2,813,000 for other CIP related projects. The Commonwealth of Massachusetts is obligated to provide school construction assistance for approved school projects through a grant program administered by the Massachusetts School Building Authority (MSBA). The assistance is paid to support construction costs and reduce the total debt service of the City. At June 30, 2005 the City has recorded a receivable from the MSBA of $60 million, which is equal to 90% of approved construction and interest costs incurred by the City to date. During fiscal 2005, the City issued $2,465,000 in governmental long-term bonds to fund the ongoing school construction projects. The City has $14,500,000 outstanding at year-end in short-term notes due on 1/12/06 with an interest rate of 3.5%. The City issued long-term bonds of $1,100,000 for garage repairs in fiscal 2005. At year end the golf course and parking enterprise funds have $350,000 and $1,100,000, respectively, of outstanding long-term debt, which is fully supported by fees and does not rely on a general fund subsidy. ---PAGE BREAK--- City of Salem, Massachusetts 24 Comprehensive Annual Financial Report Please refer to notes 4, 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 25 Comprehensive Annual Financial Report Basic Financial Statements Basic Financial Statements ---PAGE BREAK--- City of Salem, Massachusetts 26 Comprehensive Annual Financial Report This page intentionally left blank. ---PAGE BREAK--- STATEMENT OF NET ASSETS JUNE 30, 2005 Primary Government Governmental Business-type Activities Activities Total ASSETS CURRENT: Cash and cash equivalents……………………………… $ 10,973,825 $ 3,603,792 $ 14,577,617 3,726,856 - 3,726,856 Receivables, net of allowance for uncollectibles: Real estate and personal property taxes…………… 937,055 - 937,055 Tax 1,341,001 - 1,341,001 Motor vehicle and other excise taxes………………… 753,626 - 753,626 User - 2,762,450 2,762,450 Departmental and 205,460 - 205,460 Intergovernmental……………………………………… 17,016,255 - 17,016,255 173,568 - 173,568 Investment in joint - 788,455 788,455 Working capital 165,000 - 165,000 Total current 35,292,646 7,154,697 42,447,343 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental……………………………………… 45,142,000 - 45,142,000 775,070 - 775,070 Capital assets, non depreciable………………………… 6,732,337 2,189,367 8,921,704 Capital assets, net of accumulated depreciation……… 86,136,301 9,517,179 95,653,480 Total noncurrent 138,785,708 11,706,546 150,492,254 TOTAL 174,078,354 18,861,243 192,939,597 LIABILITIES CURRENT: Warrants 1,602,421 161,348 1,763,769 Accrued 556,462 46,775 603,237 Accrued 1,098,447 - 1,098,447 Health claims 900,000 - 900,000 Tax refunds 178,317 - 178,317 Accrued 1,130,846 48,750 1,179,596 Capital lease obligations………………………………… 337,792 20,205 357,997 Compensated 2,448,000 53,000 2,501,000 Workers' compensation…………………………………… 320,000 - 320,000 Bonds and notes 15,541,418 3,358,582 18,900,000 Total current liabilities………………………………… 24,113,703 3,688,660 27,802,363 NONCURRENT: Capital lease obligations………………………………… 385,422 - 385,422 Compensated 4,697,000 122,000 4,819,000 Workers' compensation…………………………………… 385,225 - 385,225 Bonds and notes 54,475,000 1,345,000 55,820,000 Total noncurrent liabilities……………………………… 59,942,647 1,467,000 61,409,647 TOTAL 84,056,350 5,155,660 89,212,010 NET ASSETS Invested in capital assets, net of related debt……………… 83,954,370 9,212,891 93,167,261 Restricted for: 948,638 - 948,638 Permanent funds: 2,897,589 - 2,897,589 Nonexpendable………………………………………… 1,591,750 - 1,591,750 Grants and 4,297,021 - 4,297,021 (3,667,364) 4,492,692 825,328 TOTAL NET $ 90,022,004 $ 13,705,583 $ 103,727,587 See notes to basic financial statements. City of Salem, Massachusetts 27 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES FISCAL YEAR ENDED JUNE 30, 2005 Operating Capital Charges for Grants and Grants and Net (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Primary Government: Governmental Activities: General government……………… $ 7,103,324 $ 603,927 $ 708,193 $ - $ (5,791,204) Public safety……………………… 21,912,834 1,923,845 636,958 - (19,352,031) Education………………………… 65,870,306 1,023,839 26,013,132 383,124 (38,450,211) Public 7,081,997 246,868 107,404 1,707,343 (5,020,382) Community development………… 2,066,749 29,216 1,362,397 - (675,136) Health and human services……… 4,856,306 74,151 3,486,216 - (1,295,939) Culture and recreation…………… 3,689,992 527,305 88,269 - (3,074,418) Interest……………………………… 2,689,312 - 1,684,679 - (1,004,633) State and county charges………… 4,028,333 - - - (4,028,333) Total Governmental Activities… 119,299,153 4,429,151 34,087,248 2,090,467 (78,692,287) Business-Type Activities: 3,186,840 3,853,505 - - 666,665 6,616,318 5,512,922 - - (1,103,396) Golf 292,187 502,770 - - 210,583 664,686 1,453,088 - - 788,402 Total Business-Type Activities… 10,760,031 11,322,285 - - 562,254 Total Primary Government………$ 130,059,184 $ 15,751,436 $ 34,087,248 $ 2,090,467 $ (78,130,033) See notes to basic financial statements. (Continued) Program Revenues City of Salem, Massachusetts 28 Comprehensive Annual Financial Report ---PAGE BREAK--- STATEMENT OF ACTIVITIES (Continued) FISCAL YEAR ENDED JUNE 30, 2005 Governmental Business-Type Activities Activities Total Changes in net assets: Net (expense) revenue from previous page…………… $ (78,692,287) $ 562,254 $ (78,130,033) General revenues: Real estate and personal property taxes, net of tax refunds payable………………………… 55,915,767 - 55,915,767 Tax 690,557 - 690,557 Motor vehicle and other excise taxes……………… 3,489,584 - 3,489,584 Hotel/motel 219,628 - 219,628 Penalties and interest on 288,874 - 288,874 Payments in lieu of 1,073,539 - 1,073,539 Grants and contributions not restricted to specific 8,097,351 - 8,097,351 Unrestricted investment income…………………… 521,585 - 521,585 Miscellaneous………………………………………… 77,454 - 77,454 Transfers, net 2,542,444 (2,542,444) - Total general revenues and transfers………………… 72,916,783 (2,542,444) 70,374,339 Change in net (5,775,504) (1,980,190) (7,755,694) Net Assets: Beginning of year, as restated……………………… 95,797,508 15,685,773 111,483,281 End of $ 90,022,004 $ 13,705,583 $ 103,727,587 (Concluded) Primary Government City of Salem, Massachusetts 29 Comprehensive Annual Financial Report ---PAGE BREAK--- GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2005 School Nonmajor Total Capital Governmental Governmental ASSETS General Stabilization Projects Funds Funds Cash and cash $ 2,406,430 $ 1,021,351 $ 733,148 $ 6,812,896 $ 10,973,825 - - - 3,726,856 3,726,856 Receivables, net of uncollectibles: Real estate and personal property 937,055 - - - 937,055 Tax 1,341,001 - - - 1,341,001 Motor vehicle and other excise 753,626 - - - 753,626 Departmental and 105,001 - - 49,432 154,433 Intergovernmental……………………………………………………… 60,210,035 - - 1,948,220 62,158,255 - - - 948,638 948,638 Due from other 143,490 - - 514,049 657,539 TOTAL $ 65,896,638 $ 1,021,351 $ 733,148 $ 14,000,091 $ 81,651,228 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants $ 1,205,387 $ - $ - $ 324,497 $ 1,529,884 Accrued 556,462 - - - 556,462 Accrued 1,098,447 - - - 1,098,447 Tax refunds 178,317 - - - 178,317 Accrued interest on short-term 77,300 - - - 77,300 Deferred 62,376,558 - - 1,930,550 64,307,108 Due to other - - - 514,049 514,049 Notes - - 11,246,418 - 11,246,418 TOTAL 65,492,471 - 11,246,418 2,769,096 79,507,985 FUND BALANCES: Reserved for: Encumbrances and continuing appropriations…………………… 68,524 - - - 68,524 Perpetual permanent - - - 1,591,750 1,591,750 Unreserved: Undesignated, reported in: General 335,643 - - - 335,643 Special revenue - 1,021,351 - 6,741,656 7,763,007 Capital projects - - (10,513,270) - (10,513,270) Permanent - - - 2,897,589 2,897,589 TOTAL FUND 404,167 1,021,351 (10,513,270) 11,230,995 2,143,243 TOTAL LIABILITIES AND FUND BALANCES………………………… $ 65,896,638 $ 1,021,351 $ 733,148 $ 14,000,091 $ 81,651,228 See notes to basic financial statements. City of Salem, Massachusetts 30 Comprehensive Annual Financial Report ---PAGE BREAK--- RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET ASSETS JUNE 30, 2005 Total governmental fund $ 2,143,243 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the 92,868,638 Accounts receivable are not available to pay for current-period expenditures and, therefore, are deferred in the 64,307,108 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 (900,000) In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until (1,053,546) Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds Bonds and notes (58,770,000) Workers' (705,225) Capital (723,214) Compensated (7,145,000) Net effect of reporting long-term (67,343,439) Net assets of governmental $ 90,022,004 See notes to basic financial statements. City of Salem, Massachusetts 31 Comprehensive Annual Financial Report ---PAGE BREAK--- GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2005 School Nonmajor Total Capital Governmental Governmental General Stabilization Projects Funds Funds REVENUES: Real estate and personal property taxes, net of tax 55,866,348 $ - $ - $ - $ 55,866,348 Tax 330,548 - - - 330,548 Motor vehicle and other excise 3,531,673 - - - 3,531,673 Hotel/motel 219,628 - - - 219,628 Charges for 1,252,782 - - 8,522 1,261,304 Penalties and interest on 288,874 - - - 288,874 Payments in lieu of 1,073,539 - - - 1,073,539 Licenses and 474,284 - - - 474,284 Fines and 973,995 - - - 973,995 Intergovernmental……………………………………………………………… 31,558,968 - 12,739,570 14,932,436 59,230,974 Departmental and 77,454 - - 1,969,656 2,047,110 - - - 869,856 869,856 Investment 147,055 23,934 366,715 291,229 828,933 TOTAL 95,795,148 23,934 13,106,285 18,071,699 126,997,066 EXPENDITURES: Current: General 4,454,927 - - 408,370 4,863,297 Public 14,147,030 - - 270,246 14,417,276 42,395,426 - 1,422,955 9,620,407 53,438,788 Public 5,847,055 - - 816,088 6,663,143 Community - - - 2,066,749 2,066,749 Health and human 810,325 - - 3,537,773 4,348,098 Culture and 2,132,771 - - 146,128 2,278,899 Pension 11,926,982 - - - 11,926,982 Employee 10,433,140 - - - 10,433,140 State and county 4,028,333 - - - 4,028,333 Debt service: 4,015,000 - - 90,000 4,105,000 2,887,574 - - 32,094 2,919,668 TOTAL EXPENDITURES……………………………………………… 103,078,563 - 1,422,955 16,987,855 121,489,373 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………………………………………… (7,283,415) 23,934 11,683,330 1,083,844 5,507,693 OTHER FINANCING SOURCES (USES): Issuance of bonds and - - 2,465,000 - 2,465,000 Premium from issuance of bonds and 232,856 - - - 232,856 Capital lease 807,283 - - - 807,283 Transfers 3,597,240 - - - 3,597,240 Transfers (356,899) (300,000) - (397,897) (1,054,796) TOTAL OTHER FINANCING SOURCES 4,280,480 (300,000) 2,465,000 (397,897) 6,047,583 NET CHANGE IN FUND (3,002,935) (276,066) 14,148,330 685,947 11,555,276 FUND BALANCES AT BEGINNING OF YEAR, as restated………………… 3,407,102 1,297,417 (24,661,600) 10,545,048 (9,412,033) FUND BALANCES AT END OF $ 404,167 $ 1,021,351 $ (10,513,270) $ 11,230,995 $ 2,143,243 See notes to basic financial statements. City of Salem, Massachusetts 32 Comprehensive Annual Financial Report ---PAGE BREAK--- RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FISCAL YEAR ENDED JUNE 30, 2005 Net change in fund balances - total governmental $ 11,555,276 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 3,558,516 Depreciation (3,099,571) Net effect of reporting capital 458,945 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 (16,023,675) The issuance of long-term debt bonds and leases) provides current financial resources to governmental funds, while the repayment of the principal of long- term debt consumes the financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. Capital lease principal 391,429 Capital lease (807,283) Issuance of bonds and (2,465,000) Debt service principal 4,105,000 Net effect of reporting long-term 1,224,146 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 (3,901,856) Net change in workers' 190,000 Net change in accrued interest on long-term (2,500) Net effect of recording long-term liabilities and amortizing deferred losses…………… (3,714,356) 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…………… 724,160 Change in net assets of governmental $ (5,775,504) See notes to basic financial statements. City of Salem, Massachusetts 33 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF NET ASSETS JUNE 30, 2005 Governmental Activities - Golf Internal Service Water Sewer Course Parking Total Funds ASSETS CURRENT: Cash and cash equivalents……………………… $ 2,675,642 $ 614,722 $ 249,960 $ 63,468 $ 3,603,792 $ - Receivables, net of allowance for uncollectibles User 1,076,860 1,685,590 - - 2,762,450 - Departmental and - - - - - 51,027 Working capital - - - - - 165,000 Investment in joint venture………………………… - 788,455 - - 788,455 - Total current 3,752,502 3,088,767 249,960 63,468 7,154,697 216,027 NONCURRENT: Capital assets, non depreciable………………… 887,002 99,552 118,067 1,084,746 2,189,367 - Capital assets, net of accumulated depreciation 3,874,103 433,045 477,106 4,732,925 9,517,179 - Total noncurrent assets……………………… 4,761,105 532,597 595,173 5,817,671 11,706,546 - TOTAL 8,513,607 3,621,364 845,133 5,881,139 18,861,243 216,027 LIABILITIES CURRENT: Warrants 155,528 5,820 - - 161,348 72,537 Accrued liabilities…………………………………… 28,390 18,385 - - 46,775 - Health claims - - - - - 900,000 Accrued 22,300 - 5,331 21,119 48,750 - Capital lease obligations…………………………… - - 20,205 - 20,205 - Due to other - - - - - 143,490 Compensated absences…………………………… 20,000 20,000 - 13,000 53,000 - Bonds and notes payable………………………… 3,253,582 - 30,000 75,000 3,358,582 - Total current liabilities………………………… 3,479,800 44,205 55,536 109,119 3,688,660 1,116,027 NONCURRENT: Compensated absences…………………………… 36,000 36,000 32,000 18,000 122,000 - Bonds and notes payable………………………… - - 320,000 1,025,000 1,345,000 - Total noncurrent liabilities…………………… 36,000 36,000 352,000 1,043,000 1,467,000 - TOTAL LIABILITIES………………………………… 3,515,800 80,205 407,536 1,152,119 5,155,660 1,116,027 NET ASSETS Invested in capital assets, net of related debt……… 3,717,450 532,597 245,173 4,717,671 9,212,891 - Unrestricted…………………………………………… 1,280,357 3,008,562 192,424 11,349 4,492,692 (900,000) TOTAL NET 4,997,807 $ 3,541,159 $ 437,597 $ 4,729,020 $ 13,705,583 $ (900,000) See notes to basic financial statements. City of Salem, Massachusetts 34 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS FISCAL YEAR ENDED JUNE 30, 2005 Business-type Activities - Enterprise Funds Governmental Activities - Golf Internal Service Water Sewer Course Parking Total Funds OPERATING REVENUES: Employee contributions $ - $ - $ - $ - $ - $ 2,909,687 Employer contributions - - - - - 9,780,572 Charges for services 3,853,505 5,512,922 502,770 1,453,088 11,322,285 - - - - - - 181,848 TOTAL OPERATING REVENUES 3,853,505 5,512,922 502,770 1,453,088 11,322,285 12,872,107 OPERATING EXPENSES: Cost of services and administration 1,105,609 976,807 235,388 444,632 2,762,436 - District Assessment……………………………………… 1,923,601 5,622,545 - - 7,546,146 - Depreciation……………………………………………… 126,015 16,966 33,905 198,935 375,821 - Employee benefits - - - - - 12,155,762 TOTAL OPERATING EXPENSES 3,155,225 6,616,318 269,293 643,567 10,684,403 12,155,762 OPERATING INCOME 698,280 (1,103,396) 233,477 809,521 637,882 716,345 NONOPERATING REVENUES (EXPENSES): Investment - - - - - 7,815 Interest (31,615) - (22,894) (21,119) (75,628) - TOTAL NONOPERATING REVENUES (EXPENSES), (31,615) - (22,894) (21,119) (75,628) 7,815 INCOME (LOSS) BEFORE TRANSFERS………… 666,665 (1,103,396) 210,583 788,402 562,254 724,160 TRANSFERS: Transfers - 618,480 356,899 - 975,379 - Transfers (1,360,134) (642,434) (526,082) (989,173) (3,517,823) - TOTAL TRANSFERS………………………………… (1,360,134) (23,954) (169,183) (989,173) (2,542,444) - CHANGE IN NET (693,469) (1,127,350) 41,400 (200,771) (1,980,190) 724,160 NET ASSETS AT BEGINNING OF YEAR, as restated… 5,691,276 4,668,509 396,197 4,929,791 15,685,773 (1,624,160) NET ASSETS AT END OF $ 4,997,807 3,541,159 $ 437,597 $ 4,729,020 $ 13,705,583 $ (900,000) See notes to basic financial statements. City of Salem, Massachusetts 35 Comprehensive Annual Financial Report ---PAGE BREAK--- PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FISCAL YEAR ENDED JUNE 30, 2005 Business-type Activities - Enterprise Funds Governmental Activities - Golf Internal Service Water Sewer Course Parking Total Funds CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and 4,273,572 $ 6,699,323 $ 502,770 $ 1,453,088 $ 12,928,753 $ - Receipts from interfund services - - - - - 12,898,384 Receipts from other - 1,179,539 - - 1,179,539 - Payments to (2,540,165) (6,588,337) (63,268) (102,628) (9,294,398) - Payments to (358,202) (337,879) (205,608) (361,287) (1,262,976) - Payments for interfund services - - - - - (11,983,225) NET CASH FROM OPERATING ACTIVITIES……………………………………… 1,375,205 952,646 233,894 989,173 3,550,918 915,159 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers - 618,480 356,899 - 975,379 - Transfers (1,360,134) (642,434) (526,082) (989,173) (3,517,823) - Advances from other - - - - - 143,490 NET CASH FROM NONCAPITAL FINANCING ACTIVITIES…………………… (1,360,134) (23,954) (169,183) (989,173) (2,542,444) 143,490 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from the issuance of bonds and 3,253,582 - - 1,100,000 4,353,582 - Acquisition and construction of capital (876,413) (232,815) - (1,036,532) (2,145,760) - Principal payments on bonds and (1,249,012) - (30,000) - (1,279,012) - Principal payments on capital lease obligations………………………………… - - (40,490) - (40,490) - Interest (53,715) - (17,563) - (71,278) - NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES……… 1,074,442 (232,815) (88,053) 63,468 817,042 - CASH FLOWS FROM INVESTING ACTIVITIES: Investment - - - - - 7,815 NET CHANGE IN CASH AND CASH EQUIVALENTS…………………………… 1,089,513 695,877 (23,342) 63,468 1,825,516 1,066,464 CASH AND CASH EQUIVALENTS AT BEGINNING OF 1,586,129 (81,155) 273,302 - 1,778,276 (1,066,464) - CASH AND CASH EQUIVALENTS AT END OF 2,675,642 $ 614,722 $ 249,960 $ 63,468 $ 3,603,792 $ - RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income 698,280 $ (1,103,396) $ 233,477 $ 809,521 $ 637,882 $ 716,345 Adjustments to reconcile operating income (loss) to net cash from operating activities: 126,015 16,966 33,905 198,935 375,821 - Changes in assets and liabilities: User 420,067 686,401 - - 1,106,468 - Investment in joint - 1,179,539 - - 1,179,539 - Departmental and - - - - - 26,277 Intergovernmental…………………………………………………………… - 500,000 - - 500,000 - Warrants 136,672 (323,421) - - (186,749) 72,537 Accrued (7,829) 18,385 - - 10,556 - Health claims - - - - - 100,000 Accrued compensated 2,000 (21,828) (33,488) (19,283) (72,599) - Total 676,925 2,056,042 417 179,652 2,913,036 198,814 NET CASH FROM OPERATING 1,375,205 $ 952,646 $ 233,894 $ 989,173 $ 3,550,918 $ 915,159 NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES: Borrowing under capital $ 60,665 Purchase of equipment by capital $ (60,665) See notes to basic financial statements. City of Salem, Massachusetts 36 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2005 Pension Trust Fund Private (as of December Purpose Agency 31, 2004) Trust Funds Fund ASSETS CURRENT: Cash and cash equivalents…………………………………… $ 3,900,127 $ 106,868 $ 274,062 Investments: U.S. Treasury 2,113,914 - - Corporate 9,782,717 1,290,597 - Equity 49,076,552 - - Real estate and alternative investments………………… 13,365,816 - - Federal Home Loan Mortgages………………………… 117,178 - - Receivables, net of allowance for uncollectibles: Departmental and 159,664 - 18,092 Intergovernmental………………………………………… 292,474 - 70,467 TOTAL 78,808,442 1,397,465 362,621 LIABILITIES Warrants 83,353 - 18,753 Liabilities due depositors……………………………………… - - 343,868 TOTAL 83,353 - 362,621 NET ASSETS Held in trust for pension benefits and other purposes…… $ 78,725,089 $ 1,397,465 $ - See notes to basic financial statements. City of Salem, Massachusetts 37 Comprehensive Annual Financial Report ---PAGE BREAK--- FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FISCAL YEAR ENDED JUNE 30, 2005 Pension Trust Fund Private (as of December Purpose 31, 2004) Trust Funds ADDITIONS: Contributions: $ 6,617,862 $ - Plan 2,675,807 - Private - 69,006 Total 9,293,669 69,006 Net investment income (loss): Net change in fair value of 6,146,448 - 880,863 81,150 Total investment income 7,027,311 81,150 Less: investment (436,757) - Net investment income 6,590,554 81,150 551,370 - Transfers from other 404,205 - TOTAL 16,839,798 150,156 DEDUCTIONS: 313,258 - Transfers to other 102,404 - Retirement benefits and 10,869,113 - Educational - 17,032 Housing - 24,779 TOTAL 11,284,775 41,811 CHANGE IN NET 5,555,023 108,345 NET ASSETS AT BEGINNING OF 73,170,066 1,289,120 NET ASSETS AT END OF $ 78,725,089 $ 1,397,465 See notes to basic financial statements. City of Salem, Massachusetts 38 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 39 Comprehensive Annual Financial Report NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Notes to basic financial statements The accompanying basic financial statements of the City of Salem, Massachusetts (the City) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board (GASB) is the recognized standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described herein. A. Reporting Entity The City is a Massachusetts municipal corporation with a Mayor-Council form of government. The Mayor is elected at large for a four-year term. The City Council is comprised of eleven members elected for two-year terms from seven wards and four at-large. For financial reporting purposes, the City has included all funds, organizations, account groups, agencies, boards, commissions and institutions. The City has also considered all potential component units for which it is financially accountable as well as other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the basic financial statements to be misleading or incomplete. As required by GAAP, these basic financial statements present the City (the primary government) and its component units. One entity has been included as a component unit in the reporting entity, because of the significance of its operational and/or financial relationship. Blended Component Units – Blended component units are entities that are legally separate from the City, but are so related that they are, in substance, the same as the City, or entities providing services entirely or almost entirely for the benefit of the City. The following component unit is blended within the Fiduciary Funds of the primary government: The Salem Contributory Retirement System (the System) was established to provide retirement benefits to City employees, the Salem Housing Authority employees, and their beneficiaries. The System is governed by a five- member board comprised of the Finance Director (ex-officio), two members elected by the System’s participants, one member appointed by the Mayor and one member appointed by the other board members. The System is presented using the accrual basis of accounting and is reported as a pension trust fund in the fiduciary fund financial statements. The City is a member of the South Essex Sewerage District (the District), a joint venture with the Cities of Salem and Beverly and the Towns of Danvers and Marblehead, for the operation of a septage disposal facility. The members share in overseeing the operations of the District. Each member is responsible for its proportionate share of the operational costs of the District, which are paid in the form of assessments. As of June 30, 2005, the City’s equity interest in the operations of the District totaled $788,455, which is recorded in the Sewer Enterprise Fund. Complete financial statements for the District can be obtained by contacting them at 50 Fort Avenue, Salem, MA 01970. The City is a member of the Salem-Beverly Water Supply Board (Water Board), a joint venture with the City of Beverly for the operation a water distribution system. The City does not have an equity interest in the Salem- Beverly Water Supply Board. The annual assessment from the Water Board for the fiscal year ended June 30, 2005 totaled approximately $1.9 million. Complete financial information for the Water Board can be obtained by contacting them at 50 Arlington Avenue, Beverly, MA 01915. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 40 Comprehensive Annual Financial Report Availability of Financial Information for Component Units The System did not issue a separate audited financial statement. The System issues a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth of Massachusetts’ (Commonwealth) Public Employee Retirement Administration Commission (PERAC). That report may be obtained by contacting the System located at 20 Central Street, Suite 110, Salem, Massachusetts 01970. B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The government-wide financial statements statement of net assets and the statement of changes in net assets) report information on all of the non-fiduciary activities of the primary government and its component units. Governmental activities, which are primarily supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which are supported primarily by user fees and charges. Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Nonmajor funds are aggregated and displayed in a single column. Major Fund Criteria Major funds must be reported if the following criteria are met: • If the total assets, liabilities, revenues, or expenditures/expenses of an individual governmental or enterprise fund are at least 10 percent of the corresponding element (assets, liabilities, etc.) for all funds of that category or type (total governmental or total enterprise funds), and • If the total assets, liabilities, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5 percent of the corresponding element for all governmental and enterprise funds combined. Additionally, any other governmental or enterprise fund that management believes is particularly significant to the basic financial statements may be reported as a major fund. Internal service funds and fiduciary funds are reported by fund type. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Real estate and personal property taxes are recognized as revenues in the fiscal year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 41 Comprehensive Annual Financial Report The statement of activities demonstrates the degree to which the direct expenses of a particular function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include the following: • Charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment. • Grants and contributions that are restricted to meeting the operational requirements of a particular function or segment. • Grants and contributions that are restricted to meeting the capital requirements of a particular function or segment. Taxes and other items not identifiable as program revenues are reported as general revenues. For the most part, the effect of interfund activity has been removed from the government-wide financial statements. Exceptions are charges between the general fund and proprietary funds. Elimination of these charges would distort the direct costs and program revenues reported for the functions affected. Fund Financial Statements Governmental fund financial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual measurable and available). Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences, claims and judgments which are recognized when the obligations are expected to be liquidated with current expendable available resources. Real estate and personal property tax revenues are considered available if they are collected within 60 days after fiscal year-end. Investment income is susceptible to accrual. Other receipts and tax revenues become measurable and available when the cash is received and are recognized as revenue at that time. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria is met. Expenditure driven grants recognize revenue when the qualifying expenditures are incurred and all other grant requirements are met. The following major governmental funds are reported: The general fund is the primary operating fund. It is used to account for all financial resources, except those that are required to be accounted for in another fund. The stabilization fund is a special revenue fund used to account for the accumulation of resources to be used for general and/or capital purposes upon approval of City Council. The school capital projects fund is used to account for the ongoing construction and renovations of the City’s school buildings. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 42 Comprehensive Annual Financial Report The nonmajor governmental funds consist of other special revenue, capital projects and permanent funds that are aggregated and presented in the nonmajor governmental funds column on the governmental funds financial statements. The following describes the general use of these fund types: The special revenue fund is used to account for the proceeds of specific revenue sources (other than permanent funds or capital projects funds) that are restricted by law or administrative action to expenditures for specified purposes. The capital projects fund is used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by Enterprise Funds). The permanent fund is used to account for financial resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the governmental programs. Proprietary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary funds principal ongoing operations. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. The following major proprietary funds are reported: The sewer enterprise fund is used to account for the sewer activities. The water enterprise fund is used to account for the water activities. The golf course enterprise fund is used to account for the golf course activities. The parking activities enterprise fund is used to account for parking activities. 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 active employees’ and retirees’ health insurance. Fiduciary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Fiduciary funds are used to account for assets held in a trustee capacity for others that cannot be used to support the governmental programs. The following fiduciary fund types are reported: The pension trust fund is used to account for the activities of the System, which accumulates resources to provide pension benefits to eligible retirees and their beneficiaries. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 43 Comprehensive Annual Financial Report The private-purpose trust fund is used to account for trust arrangements, other than those properly reported in the pension trust fund or permanent fund, under which principal and investment income exclusively benefit individuals, private organizations, or other governments. The agency fund is used to account for assets held in a purely custodial capacity. The City’s agency funds consist primarily of payroll withholdings, and police and fire special detail accounts. Government-Wide and Fund Financial Statements For enterprise fund accounting, all applicable Financial Accounting Standards Board (FASB) pronouncements issued on or prior to November 30, 1989, are applied, unless those pronouncements conflict with or contradict GASB pronouncements. 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. E. Accounts Receivable Government-Wide and Fund Financial Statements The recognition of revenue related to accounts receivable reported in the government-wide financial statements and the proprietary funds and fiduciary funds financial statements are reported under the accrual basis of accounting. The recognition of revenue related to accounts receivable reported in the governmental funds financial statements are reported under the modified accrual basis of accounting. Real Estate, Personal Property Taxes, Tax Liens and Tax Foreclosures Real estate and personal property taxes are levied and based on values assessed on January 1st of every year. Assessed values are established by the Board of Assessor’s for 100% of the estimated fair market value. Taxes are due on August 1st, November 1st, February 1st and May 1st and are subject to penalties and interest if they are not paid by the respective due date. Real estate and personal property taxes levied are recorded as receivables in the fiscal year of the levy. The City has the ability to process real estate tax liens on delinquent properties. Liens are recorded as receivables in the fiscal year they are processed. Real estate receivables which have been secured via the tax lien process are considered 100% collectible. Accordingly, an allowance for uncollectibles is not reported. Personal property taxes cannot be secured through the lien process. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. Motor Vehicle and Other Excise Taxes Motor vehicle excise taxes are assessed annually for each vehicle registered and are recorded as receivables in the fiscal year of the levy. The Commonwealth is responsible for reporting the number of vehicles registered and ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 44 Comprehensive Annual Financial Report the fair values of those vehicles. The tax calculation is the fair value of the vehicle multiplied by $25 per $1,000 of value. Boat excise taxes are assessed annually for each boat registered and are recorded as receivables in the fiscal year of the levy. The Commonwealth is responsible for reporting the number of boats registered and the fair value of those boats. The tax calculation is the fair value of the boat multiplied by $10 per $1,000 of value. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. User Fees Water and Sewer user fees are levied based on individual meter readings and are subject to penalties and interest if they are not paid by the respective due date. Unbilled user fees are estimated at year-end and are recorded as revenue in the current period. The City abides by a strict policy for unpaid fees resulting in the discontinuation of service also known as a “shut off” policy. The water department provides strict guidelines as to the process of discontinuation of service Since the receivables are secured via a shut off 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 claims and settlements received after year end that are recorded as receivables in the fiscal year accrued. The allowance of uncollectibles is estimated based on historical trends and specific account analysis. Intergovernmental Various federal and state grants for operating and capital purposes are applied for and received annually. For non-expenditure driven grants, receivables are recorded as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred and all other grant requirements are met. These receivables are considered 100% collectible and therefore do not report an allowance for uncollectibles. 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 and prepaid items are recorded as expenditures at the time of purchase. Inventories are not material in total to the government-wide and fund financial statements, and therefore are not reported. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 45 Comprehensive Annual Financial Report H. 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 $10,000 are capitalized at the date of acquisition or construction, respectively, with expected useful lives of greater than one year. Capital assets (excluding land) 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 Capital Asset Type The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized and are treated as expenses when incurred. Improvements are capitalized. Governmental Fund Financial Statements Capital asset costs are recorded as expenditures in the acquiring fund in the fiscal year of the purchase. I. Interfund Receivables and Payables During the course of its operations, transactions occur between and within individual funds that may result in amounts owed between funds. Government-Wide Financial Statements Transactions of a buyer/seller nature between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of net assets. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of net assets as “internal balances”. Fund Financial Statements Transactions of a buyer/seller nature between and within funds are not eliminated from the individual fund statements. Receivables and payables resulting from these transactions are classified as “Due from other funds” or “Due to other funds” on the balance sheet. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 46 Comprehensive Annual Financial Report 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 assets. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of activities as “Transfers, net”. Fund Financial Statements Transfers between and within funds are not eliminated from the individual fund statements and are reported as transfers in and transfers out. K. Deferred Revenue Deferred revenue at the governmental fund financial statement level represents billed receivables that do not meet the available criterion in accordance with the current financial resources measurement focus and the modified accrual basis of accounting. Deferred revenue is recognized as revenue in the conversion to the government-wide (full accrual) financial statements. L. Net Assets and Fund Equity Government-Wide Financial Statements (Net Assets) Net assets are reported as restricted when amounts that are not available for appropriation or are legally restricted by outside parties for a specific future use. Net assets have been “restricted for” the following: “Loans” represents community development outstanding loans receivable balances. “Permanent funds - expendable” represents amounts held in trust for which the expenditures are restricted by various trust agreements. “Permanent funds - nonexpendable” represents amounts held in trust for which only investment earnings may be expended. “Grants and gifts” represents assets that have restrictions placed on them from outside parties. Fund Financial Statements (Fund Balances) Fund balances are reserved for amounts that are not available for appropriation or are legally restricted by outside parties for a specific future use. Designations of fund balance represent tentative management plans that are subject to change. Fund balances have been “reserved for” the following: ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 47 Comprehensive Annual Financial Report “Encumbrances and continuing appropriations” represents amounts obligated under purchase orders, contracts and other commitments for expenditures that are being carried over to the ensuing fiscal year. “Perpetual permanent funds” represents amounts held in trust for which only investment earnings may be expended. M. Long-term debt Government-Wide and Proprietary Fund Financial Statements Long-term debt is reported as liabilities in the government-wide and proprietary fund statement of net assets. Material bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Governmental Fund Financial Statements The face amount of governmental funds long-term debt is reported as other financing sources. Bond premiums and discounts, as well as issuance costs, are recognized in the current period. Bond premiums are reported as other financing sources and bond discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual bond proceeds received, are reported as general government expenditures. N. Investment Income Excluding the permanent funds, investment income derived from major and nonmajor governmental funds is legally assigned to the general fund unless otherwise directed by Massachusetts General Law (MGL). Investment income of the enterprise funds is voluntarily assigned to the general fund. O. Compensated Absences Employees are granted vacation and sick leave in varying amounts based on collective bargaining agreements, state laws and executive policies. Compensated absence liabilities related to both governmental and business- type activities are normally paid from the funds reporting payroll and related expenditures. Government-Wide and Proprietary Fund Financial Statements Vested or accumulated vacation and sick leave are reported as liabilities and expensed as incurred. Governmental Fund Financial Statements Vested or accumulated vacation and sick leave, which will be liquidated with expendable available financial resources, are reported as expenditures and fund liabilities. P. Post Retirement Benefits Government-Wide and Fund Financial Statements In addition to providing pension benefits, health insurance coverage is provided for retired employees and their survivors in accordance with MGL, Chapter 32, on a pay-as-you-go basis. The cost of providing health insurance is recognized by recording its share of insurance premiums in the general fund in the fiscal year paid. For the ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 48 Comprehensive Annual Financial Report fiscal year ended June 30, 2005, this expenditure totaled approximately $2,099,000. There were approximately 588 participants eligible to receive benefits at June 30, 2005. The Commonwealth of Massachusetts administers a health insurance plan for all retired teachers of the Commonwealth. The cost of providing that benefit is assessed to each community annually. For the fiscal year ending June 30, 2005 this expense/expenditure amounted to approximately $1,381,000. The number of participants covered is not provided by the Commonwealth. Q. Fund Deficits and Appropriation Deficits Individual fund deficits exist at June 30, 2005 in the School Capital Projects F and the School Lunch nonmajor governmental fund. These deficits will be funded by grants, departmental revenues and available fund balance. Massachusetts General Laws require that any operating deficit within the health insurance internal service fund be funded by a general fund transfer. In addition any deficit created by recording the incurred but not reported liability must be funded through general fund contributions or other available funds beginning in FY2006. Actual expenditures exceeded appropriations for state and county charges, group insurance, and snow and ice removal. These over-expenditures will be funded through available funds during fiscal year 2006. R. Use of Estimates Government-Wide and Fund Financial Statements The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the fiscal year. Actual results could vary from estimates that were used. S. Total Column Government-Wide Financial Statements The total column presented on the government-wide financial statements represents consolidated financial information. Fund Financial Statements The total column on the fund financial statements is presented only to facilitate financial analysis. Data in this column is not the equivalent of consolidated financial information. NOTE 2 – CASH AND INVESTMENTS A cash and investment pool is maintained that is available for use by all funds. Each fund type's portion of this pool is displayed on the balance sheet as "Cash and cash equivalents". The deposits and investments of the trust funds are held separately from those of other funds. Statutes authorize the investment in obligations of the U.S. Treasury, agencies, and instrumentalities, certificates of deposit, repurchase agreements, money market accounts, bank deposits and the State Treasurer's Investment ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 49 Comprehensive Annual Financial Report Pool (the Pool). The Treasurer and Trust Fund Commission may also invest trust funds in securities, other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth; provided, that not more than fifteen per cent of any trust fund may be invested in bank stocks and insurance company stocks, and not more than one and one-half per cent of any trust fund can invested in the stock of any one bank or insurance company. The System has expanded investment powers which are governed by Chapter 32 of the general laws of the Commonwealth and by the regulations issued by the Public Employee Retirement Administration Commission (PERAC). The existing law provides that Systems will invest in securities other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth. The 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. Custodial Credit Risk – Deposits In the case of deposits, this is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. The City does not have a deposit policy for custodial credit risk. At fiscal year-end, the carrying amount of deposits totaled $6,792,448 and the bank balance totaled $9,823,889. Of the bank balance, $542,523 was covered by Federal Depository Insurance, $2,834,033 was covered by the Depositors Insurance Fund, and $6,447,333 was exposed to custodial credit risk because it was uninsured and uncollateralized. The System does not have a deposit policy for custodial credit risk. At fiscal year-end, the carrying amount of deposits totaled $1,458,029 and the bank balance totaled $1,547,595. Of the bank balance $200,000 was covered by Federal Depository Insurance and $1,347,595 was exposed to custodial credit risk because it was uninsured and uncollateralized Investments As of June 30, 2005, the City had the following investments: Fair Value Under 1 Year 1-5 Years 6-10 Years Investment Type Debt Securities: Federal Farm Credit Bank………$ 101,844 $ - $ - $ 101,844 Corporate 1,416,131 505,086 608,110 302,935 Repurchase Agreements………… 8,112,233 8,112,233 - - Money Market Mutual Funds…… 23,000 23,000 - - Total Debt 9,653,208 $ 8,640,319 $ 608,110 $ 404,779 Other Investments: Equity 3,499,478 30,866 Total 13,183,552 Maturity ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 50 Comprehensive Annual Financial Report Custodial Credit Risk – Investments For an investment, this is the risk that, in the event of a failure by the counterparty, the City will not be able to recover the value of its investments or collateral security that are in the possession of an outside party. Of the City’s investments, $101,844 in Federal Farm Credit Bank securities, $1,416,131 in corporate bonds and $3,499,478 in equity securities are exposed to custodial credit risk because the related securities are uninsured, unregistered and are held by the counterparty. The investments in money market mutual funds and MMDT are not exposed to custodial credit risk because their existence is not evidenced by securities that exist in physical or book entry form. The $8,112,233 repurchase agreement is invested in collateralized Federal Home Loan Bank government backed securities. The City does not have an investment policy related to custodial credit risk. As of December 31, 2004, the System had the following investments: Fair Value Under 1 Year 1-5 Years 6-10 Years Over 10 Years Investment Type Debt Securities: U.S. Treasury Notes………………$ 2,113,914 $ 1,869,108 $ - $ 244,806 $ - Corporate Bonds………………… 9,782,717 882,202 2,215,604 492,762 6,192,149 Federal Home Loan Mortgages… 117,178 - 117,178 - - Repurchase Agreements………… 2,442,098 2,442,098 - - - Total Debt 14,455,907 $ 5,193,408 $ 2,332,782 $ 737,568 $ 6,192,149 Other Investments: Equity 49,076,552 Alternative Investments............... 7,337,383 Real 6,028,433 Total 76,898,275 Maturity Of the System’s investments, $9,782,717 in corporate bonds, $117,178 in Federal Home Loan Mortgages, $49,076,552 in equity securities, $7,337,383 in alternate venture capital investments, and $6,028,433 in real estate investments are exposed to custodial credit risk exposure because the related securities are uninsured, unregistered and held by the counterparty. The U.S. Treasury Notes are not subject to custodial credit risk. The $2,442,098 repurchase agreement is invested in collateralized Federal Home Loan Bank government backed securities. The System does not have an investment policy for custodial credit risk. Interest Rate Risk Neither the City nor the System have formal investment policies limiting investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk The City has not adopted a formal policy related to Credit Risk. Moody’s Investors Service rated $405,494 of corporate bonds Aaa, $408,721 Aa, and $301,144 A. The federal farm credit bank investment of $101,844 is rated AAA. The repurchase agreements, money market mutual funds, equity securities and MMDT investments are unrated. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 51 Comprehensive Annual Financial Report The System has not adopted a formal policy related to Credit Risk. Moody’s Investors Service rated $558,782 of corporate bonds Aaa, $1,349,736 Aa, $3,328,534 A, $2,288,946 Baa, and $395,522 Ba. The repurchase agreement, equity securities, and alternate and real estate investments are unrated. Concentration of Credit Risk The City places no limit on the amount the government may invest in any one issuer. More than 5 percent of the City’s investments are in the following securities: Percentage of Issuer Federal Home Loan Bank Repurchase Agreement………………………………… 62% Total Investments The retirement system places no limit on the amount the government may invest in any one issuer. More than 5 percent of the System’s investments are in the following securities: Percentage of Issuer Invesco Equity Real Estate 7% TBC International Core … 9% Freedom 31% Total Investments NOTE 3 – RECEIVABLES At June 30, 2005, 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 $ 937,055 $ - $ 937,055 Tax 1,341,001 - 1,341,001 Motor vehicle and other excise 952,389 (198,763) 753,626 Departmental and 205,460 - 205,460 Intergovernmental…………………………………………… 62,158,255 - 62,158,255 948,638 - 948,638 $ 66,542,798 $ (198,763) $ 66,344,035 At June 30, 2005, receivables for the water and sewer enterprise funds consist of the following: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Water user $ 1,076,860 $ - $ 1,076,860 Sewer user 1,685,590 - 1,685,590 $ 2,762,450 $ - $ 2,762,450 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 52 Comprehensive Annual Financial Report Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. At the end of the current fiscal year, the various components of deferred revenue reported in the governmental funds were as follows: Other General Governmental Fund Funds Total Receivable type: Real estate and personal property $ 503,931 $ - $ 503,931 Tax 1,341,001 - 1,341,001 Motor vehicle and other 753,626 - 753,626 Intergovernmental……………………………………………… 59,778,000 981,912 60,759,912 - 948,638 948,638 $ 62,376,558 $ 1,930,550 $ 64,307,108 NOTE 4 – CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2005, was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: $ 4,684,753 $ - $ - $ 4,684,753 Construction in - 2,047,584 - 2,047,584 Total capital assets not being depreciated………… 4,684,753 2,047,584 - 6,732,337 Capital assets being depreciated: Land improvements……………………………………… 2,401,862 - - 2,401,862 Buildings and improvements…………………………… 108,288,058 - - 108,288,058 3,135,122 756,150 - 3,891,272 Infrastructure……………………………………………… - 666,425 - 666,425 6,385,656 88,357 - 6,474,013 Total capital assets being depreciated…………… 120,210,698 1,510,932 - 121,721,630 Less accumulated depreciation for: Land improvements……………………………………… (1,095,854) (89,582) - (1,185,436) Buildings and improvements…………………………… (24,295,663) (2,405,213) - (26,700,876) (2,327,788) (238,374) - (2,566,162) Infrastructure……………………………………………… - (16,661) - (16,661) (4,766,454) (349,740) - (5,116,194) Total accumulated depreciation…………………… (32,485,759) (3,099,570) - (35,585,329) Total capital assets being depreciated, 87,724,939 (1,588,638) - 86,136,301 Total governmental activities capital assets………………… $ 92,409,692 $ 458,946 $ - $ 92,868,638 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 53 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Water Activities: Capital assets not being depreciated: $ 10,589 $ - $ - $ 10,589 Construction in - 876,413 - 876,413 Total capital assets not being depreciated………… 10,589 876,413 - 887,002 Capital assets being depreciated: Land improvements……………………………………… 114,550 - - 114,550 Infrastructure……………………………………………… 9,081,083 - - 9,081,083 Total capital assets being depreciated…………… 9,195,633 - - 9,195,633 Less accumulated depreciation for: Land improvements……………………………………… (14,319) (5,728) - (20,047) Infrastructure……………………………………………… (5,181,196) (120,287) - (5,301,483) Total accumulated depreciation…………………… (5,195,515) (126,015) - (5,321,530) Total capital assets being depreciated, 4,000,118 (126,015) - 3,874,103 Total water activities capital $ 4,010,707 $ 750,398 $ - $ 4,761,105 Beginning Ending Balance Increases Decreases Balance Sewer Activities: Capital assets not being depreciated: $ 99,552 $ - $ - $ 99,552 Total capital assets not being depreciated………… 99,552 - - 99,552 Capital assets being depreciated: Buildings and improvements…………………………… 5,425 - - 5,425 125,486 - - 125,486 Infrastructure……………………………………………… 1,212,000 232,815 - 1,444,815 Total capital assets being depreciated…………… 1,342,911 232,815 - 1,575,726 Less accumulated depreciation for: Buildings and improvements…………………………… (4,679) (136) - (4,815) (125,486) - - (125,486) Infrastructure……………………………………………… (995,550) (16,830) - (1,012,380) Total accumulated depreciation…………………… (1,125,715) (16,966) - (1,142,681) Total capital assets being depreciated, 217,196 215,849 - 433,045 Total sewer activities capital $ 316,748 $ 215,849 $ - $ 532,597 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 54 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Golf Course Activities: Capital assets not being depreciated: $ 118,067 $ - $ - $ 118,067 Total capital assets not being depreciated………… 118,067 - - 118,067 Capital assets being depreciated: Land improvements……………………………………… 312,852 - - 312,852 Buildings and improvements…………………………… 453,988 - - 453,988 213,744 60,665 - 274,409 Total capital assets being depreciated…………… 980,584 60,665 - 1,041,249 Less accumulated depreciation for: Land improvements……………………………………… (272,568) (10,829) - (283,397) Buildings and improvements…………………………… (53,389) (11,350) - (64,739) (204,281) (11,726) - (216,007) Total accumulated depreciation…………………… (530,238) (33,905) - (564,143) Total capital assets being depreciated, 450,346 26,760 - 477,106 Total golf course activities capital assets…………………… $ 568,413 $ 26,760 $ - $ 595,173 Beginning Ending Balance Increases Decreases Balance Parking Activities: Capital assets not being depreciated: $ 48,214 $ - $ - $ 48,214 Construction in - 1,036,532 - 1,036,532 Total capital assets not being depreciated………… 48,214 1,036,532 - 1,084,746 Capital assets being depreciated: Land improvements……………………………………… 292,700 - - 292,700 Buildings and improvements…………………………… 7,625,100 - - 7,625,100 5,100 - - 5,100 10,668 - - 10,668 Total capital assets being depreciated…………… 7,933,568 - - 7,933,568 Less accumulated depreciation for: Land improvements……………………………………… (13,294) (7,359) - (20,653) Buildings and improvements…………………………… (2,974,941) (191,066) - (3,166,007) (2,805) (510) - (3,315) (10,668) - - (10,668) Total accumulated depreciation…………………… (3,001,708) (198,935) - (3,200,643) Total capital assets being depreciated, 4,931,860 (198,935) - 4,732,925 Total parking activities capital $ 4,980,074 $ 837,597 $ - $ 5,817,671 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 55 Comprehensive Annual Financial Report Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General $ 151,124 Public 362,744 2,190,471 Public 130,530 Health and human 67,124 Culture and 197,578 Total depreciation expense - governmental activities……………………………… $ 3,099,571 Business-Type Activities: $ 126,015 16,966 Golf 33,905 198,935 Total depreciation expense - business-type activities……………………………… $ 375,821 NOTE 5 – INTERFUND TRANSFERS AND BALANCES Interfund transfers for the fiscal year ended June 30, 2005, are summarized as follows: Golf Course Sewer General Enterprise Enterprise Transfers Out: Fund Fund Fund Total General - $ 356,899 $ - $ 356,899 Stabilization 300,000 - - 300,000 Nonmajor Governmental Funds……… 397,897 - - 397,897 Parking Enterprise Fund……………… 989,173 - 989,173 Golf Course Enterprise Fund………… 526,082 - - 526,082 Sewer Enterprise 642,434 - - 642,434 Water Enterprise 741,654 - 618,480 1,360,134 $ 3,597,240 $ 356,899 $ 618,480 $ 4,572,619 Transfer from general fund to golf course enterprise fund to reimburse for amounts raised by taxation Transfer from stabilization fund to general fund to support general operating budget Transfer from non major funds to general fund to support general operating budget Transfer from parking enterprise fund to general fund to support general operating budget Transfer from golf course enterprise fund to general fund to support general operating budget Transfer from sewer enterprise fund to general fund to reimburse for indirect costs Transfer from water enterprise fund to general fund to reimburse for indirect costs and transfer from water enterprise fund to sewer enterprise fund for South Essex Sewer District assessment Transfers In: ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 56 Comprehensive Annual Financial Report The City’s interfund balances at June 30, 2005 consisted of $143,490 due from the general fund to the internal service fund for transfers not yet recorded and $514,049 in balances within the nonmajor governmental funds which represent interfund borrowings to fund cash deficits. NOTE 6 – CAPITAL & OPERATING LEASES The City has entered into lease agreements as lessee for financing the acquisition of a fire truck, police cruiser, golf course equipment, a snow plow, a school bus, and computer hardware and software. These lease agreements qualify as capital leases for accounting purposes and therefore, have been recorded at the present value of their future minimum lease payments as of the inception date. The assets acquired through capital leases are as follows: Governmental Business-Type Activities Activities Asset: Machinery and 1,386,277 $ 60,665 26,574 - Less: accumulated depreciation………………………… (259,914) (9,100) 1,152,937 $ 51,565 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2005, were as follows: Fiscal Years Governmental Business-Type Ending June 30 Activities Activities 376,660 $ 21,300 367,333 - 39,560 - Total minimum lease payments……………………… 783,553 21,300 Less: amounts representing interest………………… (60,339) (1,095) Present value of minimum lease payments………… $ 723,214 $ 20,205 The City leases office space for the City Hall Annex under an operating lease that expires on February 28, 2011. The cost of the lease for the fiscal year ended June 30, 2005, totaled $360,000, and is reported as a general government expenditure in the general fund. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 57 Comprehensive Annual Financial Report The future minimum lease payments are as follows: Fiscal Years Governmental Ending June 30 Activities 360,000 360,000 360,000 360,000 360,000 240,000 $ 2,040,000 NOTE 7 – SHORT-TERM FINANCING Short-term debt may be authorized and issued to fund the following: • Current operating costs prior to the collection of revenues through issuance of revenue or tax anticipation notes (RANS or TANS). • Capital project costs and other approved expenditures incurred prior to obtaining permanent financing through issuance of bond anticipation notes (BANS) or grant anticipation notes (GANS). Short-term loans are general obligations and carry maturity dates that are limited by statute. Interest expenditures and expenses for short-term borrowings are accounted for in the general fund and enterprise funds, respectively. Details related to the short-term debt activity for the fiscal year ended June 30, 2005, is as follows: Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose Due Date 2004 Issued Redeemed 2005 BAN School Construction………………… 1.5% 01/15/05 $ 26,450,988 $ - $ 26,450,988 $ - BAN Parking Garage……………………… 1.5% 01/15/05 1,100,000 - 1,100,000 - BAN School Construction………………… 3.5% 01/12/06 - 7,000,000 - 7,000,000 BAN School Construction………………… 3.5% 01/12/06 - 4,246,418 4,246,418 Sub-total governmental notes……… 27,550,988 11,246,418 27,550,988 11,246,418 BAN Water 1.5% 01/15/05 1,249,012 - 1,249,012 - BAN Water 3.5% 01/12/06 - 3,253,582 - 3,253,582 Sub-total business-type notes……… 1,249,012 3,253,582 1,249,012 3,253,582 Total notes payable………………… $ 28,800,000 $ 14,500,000 $ 28,800,000 $ 14,500,000 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 58 Comprehensive Annual Financial Report NOTE 8 – LONG-TERM DEBT Under the provisions of Chapter 44, Section 10, Municipal Law authorizes indebtedness up to a limit of 5% of the equalized valuation. Debt issued in accordance with this section of the law is designated as being "inside the debt limit". In addition, however, debt may be authorized in excess of that limit for specific purposes. Such debt, when issued, is designated as being "outside the debt limit". Details related to the outstanding indebtedness at June 30, 2005, and the debt service requirements are as follows: Bonds and Notes Payable Schedule – Governmental Funds Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2004 Issued Redeemed 2005 School Construction………………. 5.125-5.750% $ 4,950,000 $ - $ 375,000 $ 4,575,000 School Construction………………… 5.125-5.750% 1,120,000 - 95,000 1,025,000 HUD Section 3.41-3.70% 220,000 - 55,000 165,000 HUD Section 9.00% 350,000 - 35,000 315,000 School Construction………………. 4.50-6.75% 9,715,000 - 375,000 9,340,000 Swimming 4.50-6.75% 320,000 - 40,000 280,000 School Construction………………. 3.50-4.00% 3,795,000 - 575,000 3,220,000 School Construction………………… 3.50-4.00% 5,388,000 - 731,000 4,657,000 Police Station……………………… 3.50-4.00% 2,347,000 - 294,000 2,053,000 School Construction………………… 3.00-5.00% 17,070,000 - 600,000 16,470,000 School Construction………………. 3.00-5.00% 9,215,000 - 325,000 8,890,000 School Construction………………… 3.00-5.00% 1,440,000 - 65,000 1,375,000 School Construction………………… 2.25-4.50% 4,480,000 - 540,000 3,940,000 School Construction……………… 3.00-5.00% - 1,887,447 - 1,887,447 School Construction………………… 3.00-5.00% - 577,553 - 577,553 Total Governmental bonds payable…………………… $ 60,410,000 $ 2,465,000 $ 4,105,000 $ 58,770,000 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 59 Comprehensive Annual Financial Report Debt service requirements for principal and interest for Governmental bonds payable in future fiscal years are as follows: Fiscal Year Principal Interest Total 4,295,000 $ 2,459,125 $ 6,754,125 2007……………… 4,345,000 2,297,438 6,642,438 2008……………… 4,390,000 2,136,191 6,526,191 2009……………… 4,390,000 1,968,429 6,358,429 2010……………… 4,465,000 1,787,278 6,252,278 2011……………… 4,540,000 1,603,724 6,143,724 2012……………… 4,115,000 1,427,507 5,542,507 2013……………… 3,285,000 1,268,175 4,553,175 2014……………… 2,960,000 1,122,693 4,082,693 2015……………… 2,440,000 1,000,289 3,440,289 2016……………… 2,500,000 892,458 3,392,458 2017……………… 2,520,000 782,711 3,302,711 2018……………… 2,645,000 667,644 3,312,644 2019……………… 2,765,000 545,650 3,310,650 2020……………… 2,890,000 405,391 3,295,391 2021……………… 1,920,000 283,872 2,203,872 2022……………… 2,000,000 198,072 2,198,072 2023……………… 2,075,000 106,640 2,181,640 2024……………… 115,000 9,776 124,776 2025……………… 115,000 4,888 119,888 Totals……………$ 58,770,000 $ 20,967,951 $ 79,737,951 The Commonwealth has approved school construction assistance to the City. The assistance program, which is administered by the Massachusetts School Building Authority, provides resources for future debt service of general obligation school bonds outstanding along with direct capital grants. During fiscal year 2005, $18,302,803 of such assistance was received. Approximately $78,566,000 will be received in future fiscal years. Of this amount, approximately $18,197,000 represents reimbursement of long-term interest costs, and approximately $60,369,000 represents reimbursement of approved construction costs. Accordingly, a $60,369,000 intergovernmental receivable and corresponding deferred revenue have been reported in the governmental fund financial statements. The net change in deferred revenue has been recognized as revenue in the conversion to the government-wide financial statements. Bonds and Notes Payable Schedule – Golf Course Enterprise Fund Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2004 Issued Redeemed 2005 Golf 4.50-6.75% $ 380,000 $ - $ 30,000 $ 350,000 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 60 Comprehensive Annual Financial Report Debt service requirements for principal and interest for the golf course enterprise fund bonds payable in future fiscal years are as follows: Fiscal Year Principal Interest Total 30,000 $ 16,175 $ 46,175 2007……………… 30,000 14,825 44,825 2008……………… 30,000 13,475 43,475 2009……………… 30,000 11,938 41,938 2010……………… 30,000 10,401 40,401 2011……………… 30,000 9,036 39,036 2012……………… 30,000 7,641 37,641 2013……………… 30,000 6,216 36,216 2014……………… 30,000 4,761 34,761 2015……………… 30,000 3,276 33,276 2016……………… 30,000 1,776 31,776 2017……………… 20,000 513 20,513 Totals……………$ 350,000 $ 100,033 $ 450,033 Bonds and Notes Payable Schedule – Parking Enterprise Fund Interest Outstanding Outstanding Rate at June 30, at June 30, Project 2004 Issued Redeemed 2005 Parking Garage Repairs………….. 3.00-5.00% $ - $ 1,100,000 $ - $ 1,100,000 Debt service requirements for principal and interest for the parking enterprise fund bonds payable in future fiscal years are as follows: Fiscal Year Principal Interest Total 75,000 $ 42,238 $ 117,238 2007……………… 75,000 39,238 114,238 2008……………… 75,000 36,988 111,988 2009……………… 75,000 34,738 109,738 2010……………… 75,000 32,488 107,488 2011……………… 75,000 30,238 105,238 2012……………… 75,000 27,800 102,800 2013……………… 75,000 25,250 100,250 2014……………… 75,000 21,500 96,500 2015……………… 75,000 17,750 92,750 2016……………… 75,000 14,000 89,000 2017……………… 75,000 11,000 86,000 2018……………… 75,000 8,000 83,000 2019……………… 75,000 5,000 80,000 2020……………… 50,000 2,000 52,000 Total………….. $ 1,100,000 $ 348,228 1,448,228 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 61 Comprehensive Annual Financial Report The City is subject to various debt limits by statute and may issue additional general obligation debt under the normal debt limit. At June 30, 2005, the City had the following authorized and unissued debt: Purpose Amount School construction………………….. $ 22,700,000 School construction…………………… 7,850,000 Water systems improvements………… 8,746,418 $ 39,296,418 Changes in Long-term Liabilities During the fiscal year ended June 30, 2005, the following changes occurred in long-term liabilities: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities: Capital 307,360 $ 807,283 $ (391,429) $ 723,214 $ 337,792 Long-term bonds and notes………… 60,410,000 2,465,000 (4,105,000) 58,770,000 4,295,000 Compensated absences………….. 3,243,144 5,013,013 (1,111,157) 7,145,000 2,448,000 Workers' compensation……..……… 895,225 129,331 (319,331) 705,225 320,000 Total governmental activity long-term liabilities……………………$ 64,855,729 $ 8,414,627 $ (5,926,917) $ 67,343,439 $ 7,400,792 Business-Type Activities: Capital $ - $ 20,205 $ - $ 20,205 $ 20,205 Long-term bonds and notes…….. 380,000 1,100,000 (30,000) 1,450,000 105,000 Compensated absences………….. 260,597 53,000 (138,597) 175,000 53,000 Total business-type activity long-term liabilities……………………$ 640,597 $ 1,173,205 $ (168,597) $ 1,645,205 $ 178,205 Compensated absence and workers’ compensation liabilities related to both governmental and business-type activities are normally paid from the funds reporting payroll and related expenditures. NOTE 9 – RISK FINANCING The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the City carries commercial insurance. In addition, the City is self- insured for damages not covered by commercial insurance. The amount of claim settlements has not exceeded insurance coverage in any of the previous three fiscal years. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 62 Comprehensive Annual Financial Report The City is self-insured for health care insurance of its active employees and retirees. The City is also self- insured for its workers’ compensation and unemployment compensation activities which are accounted for in the funds incurring the expenditures. The self-insured health insurance activities are accounted for in the City’s internal service fund where revenues are recorded when earned and expenses are recorded when the liability is incurred. Health Insurance Health insurance claims are administered by a third party administrator and are funded on an as needed basis from the City’s internal service fund. The estimate of Incurred But Not Reported (IBNR) claims is based on 10% of the previous year’s claims. The City purchases individual stop loss insurance for claims in excess of the coverage provided by the City in the amount of $200,000 per claim. At June 30, 2005, the estimated future liability ranges from $900,000 to $1,350,000. This liability is the best estimate based on available information. Changes in the reported liability since July 1, 2003, are as follows: Current Year Balance at Claims and Balance at Beginning of Changes in Claims Fiscal Current Fiscal Year Estimate Payments Year-End Portion Fiscal Year 2004………. $ 700,000 $ 7,845,000 $ (7,745,000) $ 800,000 $ 800,000 Fiscal Year 2005……….. 800,000 8,878,000 (8,778,000) 900,000 900,000 Workers’ Compensation Workers’ compensation claims are administered by the City and are funded on a pay-as-you-go basis from annual appropriations. The estimated future workers’ compensation liability is based on history and injury type. At June 30, 2005, the amount of the liability for workers’ compensation claims totaled $705,225. Changes in the reported liability since July 1, 2003, are as follows: Current Year Balance at Claims and Balance at Beginning of Changes in Claims Fiscal Current Fiscal Year Estimate Payments Year-End Portion Fiscal Year 2004………. $ 984,748 $ 490,818 $ (580,341) $ 895,225 $ 580,000 Fiscal Year 2005………. 895,225 129,331 (319,331) 705,225 320,000 NOTE 10 – PENSION PLAN Plan Description - The City contributes to the System, a cost-sharing multiple-employer defined benefit pension plan administered by the Salem Contributory Retirement Board. Substantially all employees are members of the System, except for public school teachers and certain administrators who are members of the Massachusetts Teachers Retirement System, to which the City does not contribute. Pension benefits and administrative expenses paid by the Teachers Retirement Board are the legal responsibility of the Commonwealth. The amount of these on-behalf payments totaled approximately $5,890,261 for the fiscal year ended June 30, 2005, 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 ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 63 Comprehensive Annual Financial Report granted between 1981 and 1997 and any increase in other benefits imposed by the Commonwealth’s state law during those years are borne by the Commonwealth and are deposited into the pension fund. Cost-of-living adjustments granted after 1997 must be approved by the Salem Contributory Retirement Board and are borne by the System. The System issues a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth’s PERAC. That report may be obtained by contacting the System located at 20 Central Street, Salem, Massachusetts 01970. At December 31, 2004, the System’s membership consists of the following: Active 883 Inactive 116 Retirees and beneficiaries currently receiving benefits……… 640 1,639 Funding Policy - Plan members are required to contribute to the System at rates ranging from 5% to 11% of annual covered compensation. The City is required to pay into the System its share of the system-wide actuarial determined contribution that is apportioned among the employers based on active current payroll. Administrative expenses are funded through investment earnings. The current and two preceding fiscal years apportionment of the annual pension cost between the employers required the City to contribute 90% of the total. Chapter 32 of the MGL governs the contributions of plan members and the City. Annual Pension Cost - The City’s contributions to the System for the fiscal years ended June 30, 2005, 2004, and 2003 were $5,918,415, $4,923,382, and $4,223,383, respectively, which equaled its required contribution for each fiscal year. At June 30, 2005, the City did not have a net pension obligation. The required contribution was determined as part of the January 1, 2004, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included an 8.5% investment rate of return and projected salary increases of 5.5% per year. The actuarial value of the System's assets was determined using the fair value of the assets. The System's unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll. The remaining amortization period at January 1, 2004, was 22 years. Schedule of Funding Progress (Dollar amounts in thousands) 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) 01/01/05 $ 81,801,377 $ 156,479,479 $ 74,678,102 52.3% $ 31,328,083 238.4% 01/01/04 80,659,012 142,499,185 61,840,173 56.6% 29,355,291 210.7% 01/01/03 76,438,885 137,111,559 60,672,674 55.7% 31,089,195 195.2% 01/01/01 73,727,923 117,334,727 43,606,804 62.8% 29,072,197 150.0% 01/01/99 68,563,143 111,294,953 42,731,810 61.6% 25,411,629 168.2% 01/01/97 51,236,360 82,440,774 31,204,414 62.1% 22,930,939 136.1% 01/01/94 41,074,617 71,831,709 30,757,092 57.2% 17,753,129 173.2% Funding progress is reported based on the biennial actuarial valuation performed by the System, and is being accumulated on a biennial basis. The City is responsible for approximately 90% of the unfunded liability. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 64 Comprehensive Annual Financial Report Noncontributory Retirement Allowance – The City pays the entire retirement allowance for certain retirees who are eligible for noncontributory benefits and are not members of the System. The general fund expenditure for fiscal year 2005 totaled approximately $225,000. NOTE 11 – MAJOR TAXPAYER The City receives a significant portion of its real estate and personal property tax revenue from one taxpayer under a Real and Personal Property Tax Appeal Settlement Agreement (the Agreement). The Agreement was entered into in July 1997 and covers fiscal years 1997 through 2007. The City and the taxpayer have agreed on a real and personal property tax assessment amount for fiscal years 1997 through 2004. For fiscal years 2005 through 2007, the City and the taxpayer have agreed that a portion of the property would be assessed at fair market value as calculated by the City and that, in the absence of an agreement by the parties, the remaining property will be assessed at fair market value of the existing facilities as determined in binding arbitration, resulting in tax revenue not to exceed $4.5 million in each fiscal year. The parties further agreed if additional facilities are constructed during this period, the total assessment would be based on the fair market value of the new facilities and existing facilities, resulting in a tax revenue not to exceed $4.5 million plus 50% of any such taxes in excess of $4.5 million resulting from the aggregate assessed valuation of any new facilities. For the fiscal year ended June 30, 2005, the City received approximately 8% ($4.5 million) of its total real estate and personal property tax revenue from this taxpayer. NOTE 12 – COMMITMENTS The City is in the process of completing school construction projects. Consequently, the City has entered into, or is planning to enter into, contracts totaling approximately $30,550,000 to complete the projects. The City is in the process of completing improvements to its water system. Consequently, the City has entered into, or is planning to enter into, contracts totaling approximately $8,746,000 to complete the improvements. NOTE 13 – 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, 2005, these programs are still subject to financial and compliance audits. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time, although it is expected such amounts, if any, to be immaterial. Various legal actions and claims are pending. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not always predictable. Although the amount of liability, if any, at June 30, 2005, cannot be ascertained, management believes any resulting liability should not materially affect the financial position at June 30, 2005. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 65 Comprehensive Annual Financial Report NOTE 14 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During fiscal year 2005, the following GASB pronouncements were implemented: The GASB issued Statement #40, Deposit and Investment Risk Disclosures, an Amendment of GASB Statement was required to be implemented during fiscal year 2005. This pronouncement only required changes to the note disclosure. The GASB issued Statement #44, Economic Condition Reporting: The Statistical Section, which is required to be implemented in Fiscal 2006. This new GASB establishes and modifies requirements related to supplementary information presented in a statistical section. The presentation of a statistical section is not required by this pronouncement. This pronouncement did not impact the basic financial statements. Other Future GASB Pronouncements: The GASB issued Statement #42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, which is required to be implemented in Fiscal 2006. Management does not believe that this pronouncement will significantly impact the basic financial statements. The GASB issued Statement #43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, which is required to be implemented in Fiscal 2007. Since there is no legally established separate trust for the postemployment benefit plan this pronouncement will not impact the basic financial statements. The GASB issued Statement #45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, which is required to be implemented in Fiscal 2008. Management believes this pronouncement will require additional disclosure and impact the basic financial statements. The GASB issued Statement # 46, Net Assets Restricted by Legislation an amendment of GASB Statement No. 34. This Statement clarifies that a legally enforceable enabling legislation restriction is one that a party external to a government—such as citizens, public interest groups, or the judiciary—can compel a government to honor. It requires governments to disclose the portion of total net assets that is restricted by enabling legislation. This statement is required to be implemented in FY2006. Management believes that this statement will not impact the basic financial statements. The GASB issued Statement # 47, Accounting for Termination Benefits. The Statement provides accounting and reporting guidance for state and local governments that offer benefits such as early retirement incentives or severance to employees that are involuntarily terminated. The Statement requires that similar forms of termination benefits be accounted for in the same manner and is intended to enhance both the consistency of reporting for termination benefits and the comparability of financial statements. This statement is required to be implemented in FY2006. Management believes that this statement will not impact the basic financial statements. ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 66 Comprehensive Annual Financial Report NOTE 15 – RESTATEMENT OF BEGINNING BALANCES Government-wide Financial Statements The following restatements were made to beginning net assets of governmental and business-type activities: Governmental Business-Type Description Activities Activities Net assets at June 30, 2004, as previously $ 68,080,145 $ 10,037,822 To record the School Building Assistance receivable…………… 28,667,363 - To record accrued interest on short term (153,500) (44,400) To reclassify water capital projects to the water fund…………… 302,057 (302,057) To restate the health claims IBNR accrual……………………… 788,472 - To record workers compensation liability………………………… (895,225) - To record fixed - 4,116,337 To record teacher's pay (991,804) - To record unbilled user charges receivable……………………… - 1,878,071 Net assets at June 30, 2004, as restated………………………… $ 95,797,508 $ 15,685,773 Fund Financial Statements The following restatements were made to beginning fund balances of the governmental funds: School Nonmajor Capital Governmental Description General Projects Funds Total Fund balances at June 30, 2004, as previously 4,552,406 $ - $ (15,242,769) $ (10,690,363) To reclassify a major - (24,661,600) 24,661,600 - To record accrued interest on short-term debt in the General (153,500) - - (153,500) To reclassify Water Capital Projects to the Water - - 302,057 302,057 To record teacher's pay accrual………………..… (991,804) - - (991,804) To reclassify the Health Claims Trust Fund to the Internal Service - - 824,160 824,160 Fund balances at June 30, 2004, as $ 3,407,102 $ (24,661,600) 10,545,048 $ (10,709,450) ---PAGE BREAK--- Notes to Basic Financial Statements Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 67 Comprehensive Annual Financial Report The following restatements were made to beginning net assets of the proprietary funds: Internal Water Service Description and Sewer Water Sewer Total Fund Net assets at June 30, 2004, as previously reported………………………….. … $ 4,711,834 $ - $ - $ 4,711,834 $ - To record sewer user charges - - 1,109,744 1,109,744 - To record water user charges - 768,327 - 768,327 - To reclassify the Health Claims Trust Fund to the Internal Service - - - - (824,160) To reclassify water and sewer as individual (4,711,834) 1,369,519 3,342,315 - - To reclassify Water Capital Projects to the Water - (302,057) - (302,057) - To record accrued interest on short-term debt in the Water - (44,400) - (44,400) - To record fixed - 3,899,887 216,450 4,116,337 - To record the health claims liability………………… - - - - (800,000) Net assets at June 30, 2004, as - $ 5,691,276 $ 4,668,509 $ 10,359,785 $ (1,624,160) ---PAGE BREAK--- City of Salem, Massachusetts 68 Comprehensive Annual Financial Report Required Supplementary Information Required Supplementary Information ---PAGE BREAK--- GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2005 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 $ - $ 55,338,484 $ 55,338,484 $ 56,214,209 $ 56,044,664 $ - $ (169,545) Tax - - - - 330,548 - 330,548 Motor vehicle and other excise taxes…………… - 3,200,000 3,200,000 3,200,000 3,531,673 - 331,673 Hotel/motel - 268,451 268,451 268,451 219,628 - (48,823) Charges for services……………………………… - 1,161,560 1,161,560 1,161,560 1,252,782 - 91,222 Penalties and interest on - 392,350 392,350 392,350 288,874 - (103,476) Payments in lieu of - 1,006,233 1,006,233 1,006,233 1,073,539 - 67,306 Licenses and - 454,300 454,300 454,300 474,284 - 19,984 Fines and forfeitures……………………………… - 903,438 903,438 903,438 973,995 - 70,557 Intergovernmental………………………………… - 25,026,277 25,026,277 25,026,277 25,668,707 - 642,430 Departmental and - 1,445,500 1,445,500 1,445,500 1,530,543 - 85,043 Investment - 361,375 361,375 361,375 147,055 - (214,320) TOTAL REVENUES…………………… - 89,557,968 89,557,968 90,433,693 91,536,292 - 1,102,599 EXPENDITURES: Current: General government City Council Personnel………………………………… - 119,700 119,700 119,700 119,033 - 667 Non - Personnel………………………… - 17,450 17,450 22,450 21,404 - 1,046 - 137,150 137,150 142,150 140,437 - 1,713 Mayor Personnel………………………………… - 251,336 251,336 253,104 248,400 - 4,704 Non - Personnel………………………… 38,050 77,062 115,112 115,112 79,423 32,000 3,689 38,050 328,398 366,448 368,216 327,823 32,000 8,393 Finance/Auditing Personnel………………………………… - 207,049 207,049 182,721 169,131 - 13,590 Non - Personnel………………………… 7,050 3,955 11,005 11,005 4,852 3,100 3,053 7,050 211,004 218,054 193,726 173,983 3,100 16,643 Purchasing Personnel………………………………… - 128,188 128,188 129,106 128,604 - 502 Non - Personnel………………………… - 14,200 14,200 18,200 15,295 - 2,905 Fixed - 61,746 61,746 61,746 55,031 - 6,715 - 204,134 204,134 209,052 198,930 - 10,122 Assessors Personnel………………………………… - 226,175 226,175 227,093 225,277 - 1,816 Non - Personnel………………………… - 35,773 35,773 35,773 26,272 - 9,501 - 261,948 261,948 262,866 251,549 - 11,317 Treasurer Personnel………………………………… - 152,808 152,808 153,726 151,334 - 2,392 Non - Personnel………………………… - 108,443 108,443 108,443 107,952 - 491 - 261,251 261,251 262,169 259,286 - 2,883 Collector Personnel………………………………… - 113,606 113,606 114,715 110,602 - 4,113 Non - Personnel………………………… - 31,525 31,525 31,525 24,949 - 6,576 - 145,131 145,131 146,240 135,551 - 10,689 Solicitor Personnel………………………………… - 112,415 112,415 112,415 111,987 - 428 Non - Personnel………………………… 54,799 90,000 144,799 224,799 224,711 - 88 54,799 202,415 257,214 337,214 336,698 - 516 (continued) Budgeted Amounts City of Salem, Massachusetts 69 Comprehensive Annual Financial Report ---PAGE BREAK--- GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2005 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 Human Resources Personnel………………………………… - 158,782 158,782 388,642 379,839 - 8,803 Non - Personnel………………………… - 31,150 31,150 31,150 22,222 - 8,928 - 189,932 189,932 419,792 402,061 - 17,731 Data Processing Personnel………………………………… - 140,101 140,101 140,101 139,606 - 495 Non - Personnel………………………… - 9,116 9,116 9,116 7,525 985 606 Fixed - 152,897 152,897 152,897 151,803 - 1,094 - 57,000 57,000 57,000 57,000 - - - 359,114 359,114 359,114 355,934 985 2,195 City Clerk Record Maintenance Personnel………………………………… - 145,053 145,053 145,512 144,648 - 864 Non - Personnel………………………… - 4,550 4,550 4,550 4,549 - 1 - 149,603 149,603 150,062 149,197 - 865 Elections & Registrations Personnel………………………………… - 156,711 156,711 158,443 148,227 - 10,216 Non - Personnel………………………… - 45,525 45,525 45,525 44,273 - 1,252 - 202,236 202,236 203,968 192,500 - 11,468 Licensing Personnel………………………………… - 44,277 44,277 48,336 47,329 - 1,007 Non - Personnel………………………… - 1,539 1,539 1,539 1,094 - 445 - 45,816 45,816 49,875 48,423 - 1,452 Conservation Commission Personnel………………………………… - 21,255 21,255 21,255 17,416 - 3,839 Non - Personnel………………………… - 425 425 425 399 - 26 - 21,680 21,680 21,680 17,815 - 3,865 Subdivision, Planning, and Zoning Board Personnel………………………………… - 21,255 21,255 21,255 21,121 - 134 Non - Personnel………………………… - 3,500 3,500 3,500 3,403 - 97 - 24,755 24,755 24,755 24,524 - 231 Board of Appeals Personnel………………………………… - 3,000 3,000 3,000 3,000 - - Non - Personnel………………………… - 975 975 975 458 - 517 - 3,975 3,975 3,975 3,458 - 517 Planning Department Personnel………………………………… - 177,742 177,742 177,742 173,470 - 4,272 Non - Personnel………………………… - 7,275 7,275 7,275 7,249 - 26 - 185,017 185,017 185,017 180,719 - 4,298 Public Property/Building Maintenance Personnel………………………………… - 83,456 83,456 84,468 82,509 - 1,959 Non - Personnel………………………… - 122,160 122,160 208,115 194,206 11,906 2,003 Fixed - 483,500 483,500 523,500 500,589 - 22,911 - 689,116 689,116 816,083 777,304 11,906 26,873 Market and Tourism………………………… - 8,767 8,767 8,767 7,431 - 1,336 Total General Government…………………… 99,899 3,631,442 3,731,341 4,164,721 3,983,623 47,991 133,107 (continued) City of Salem, Massachusetts 70 Comprehensive Annual Financial Report ---PAGE BREAK--- GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2005 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 Public safety Police Personnel………………………………… - 6,085,017 6,085,017 6,308,758 6,296,159 - 12,599 Non - Personnel………………………… - 343,650 343,650 408,331 352,469 9,047 46,815 - 6,428,667 6,428,667 6,717,089 6,648,628 9,047 59,414 Fire Personnel………………………………… - 5,343,736 5,343,736 6,223,020 5,847,100 - 375,920 Non - Personnel………………………… - 378,995 378,995 378,995 367,864 - 11,131 - 5,722,731 5,722,731 6,602,015 6,214,964 - 387,051 Building, Plumbing, Gas Inspections Personnel………………………………… 5,415 263,336 268,751 269,608 246,705 - 22,903 Electrical Inspection and Maintenance Personnel………………………………… - 260,172 260,172 262,172 260,880 - 1,292 Non - Personnel………………………… - 527,545 527,545 527,545 522,848 - 4,697 - 787,717 787,717 789,717 783,728 - 5,989 Harbormaster Personnel………………………………… - 168,590 168,590 168,590 159,756 - 8,834 Non - Personnel………………………… - 35,900 35,900 36,900 33,520 - 3,380 - 204,490 204,490 205,490 193,276 - 12,214 Parking Fines Personnel………………………………… - 25,677 25,677 25,868 24,779 - 1,089 Non - Personnel………………………… - 8,500 8,500 8,500 8,376 - 124 - 34,177 34,177 34,368 33,155 - 1,213 Total Public 5,415 13,441,118 13,446,533 14,618,287 14,120,456 9,047 488,784 Education 991,804 40,209,283 41,201,087 41,326,087 40,221,528 1,098,447 6,112 NSRS/Charter/Choice…………………… - 1,261,402 1,261,402 1,257,402 1,224,075 - 33,327 Total 991,804 41,470,685 42,462,489 42,583,489 41,445,603 1,098,447 39,439 Public Works Public Services/Engineering Personnel………………………………… - 701,241 701,241 716,646 690,755 - 25,891 Non - Personnel………………………… 6,727 320,800 327,527 327,527 317,561 - 9,966 6,727 1,022,041 1,028,768 1,044,173 1,008,316 - 35,857 Snow and Ice Personnel………………………………… - 50,000 50,000 50,000 125,814 - (75,814) Non - Personnel………………………… - 300,000 300,000 300,000 1,055,394 - (755,394) - 350,000 350,000 350,000 1,181,208 - (831,208) Solid Waste Collection……………………… - 2,943,877 2,943,877 2,943,877 2,943,877 - - Parking Garage Personnel………………………………… - 428,298 428,298 430,353 361,289 - 69,064 Non - Personnel………………………… 3,283 103,000 106,283 106,283 105,859 - 424 3,283 531,298 534,581 536,636 467,148 - 69,488 (continued) City of Salem, Massachusetts 71 Comprehensive Annual Financial Report ---PAGE BREAK--- GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2005 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 Open Space/Cemetary / Shade Tree Personnel………………………………… - 444,577 444,577 456,331 456,293 - 38 Non - Personnel………………………… 6,290 58,707 64,997 115,221 107,899 6,605 717 6,290 503,284 509,574 571,552 564,192 6,605 755 Total Public 16,300 5,350,500 5,366,800 5,446,238 6,164,741 6,605 (725,108) Health and Human Services Board of Health Personnel………………………………… - 351,339 351,339 354,929 324,892 - 30,037 Non - Personnel………………………… 1,987 16,650 18,637 18,637 16,852 570 1,215 1,987 367,989 369,976 373,566 341,744 570 31,252 Council on Aging Personnel………………………………… - 311,689 311,689 312,568 312,359 - 209 Non - Personnel………………………… - 20,850 20,850 20,850 19,596 - 1,254 - 332,539 332,539 333,418 331,955 - 1,463 Veterans Services Personnel………………………………… - 64,760 64,760 64,760 60,231 - 4,529 Non - Personnel………………………… - 81,937 81,937 81,937 76,427 - 5,510 - 146,697 146,697 146,697 136,658 - 10,039 Total Health and Human Services…………… 1,987 847,225 849,212 853,681 810,357 570 42,754 Library Personnel………………………………… - 676,096 676,096 676,096 666,713 - 9,383 Non - Personnel………………………… - 150,548 150,548 301,408 225,653 - 75,755 - 826,644 826,644 977,504 892,366 - 85,138 Parks and Recreation Personnel………………………………… - 774,817 774,817 779,813 728,209 - 51,604 Non - Personnel………………………… 7,850 201,112 208,962 208,962 202,906 4,311 1,745 7,850 975,929 983,779 988,775 931,115 4,311 53,349 Golf Course Personnel………………………………… - 218,109 218,109 219,034 205,608 - 13,426 Non - Personnel………………………… 22,625 87,911 110,536 131,618 126,130 - 5,488 22,625 306,020 328,645 350,652 331,738 - 18,914 Witch House Personnel………………………………… - 74,066 74,066 74,066 71,475 - 2,591 Non - Personnel………………………… 6,881 60,680 67,561 67,561 63,009 - 4,552 6,881 134,746 141,627 141,627 134,484 - 7,143 Historical Commission Personnel………………………………… - 6,624 6,624 6,624 6,612 - 12 Non - Personnel………………………… - 1,609 1,609 1,609 1,528 - 81 - 8,233 8,233 8,233 8,140 - 93 Winter Island Personnel………………………………… - 105,873 105,873 105,873 103,679 - 2,194 Non - Personnel………………………… 1,111 39,020 40,131 45,131 42,000 - 3,131 1,111 144,893 146,004 151,004 145,679 - 5,325 Total Culture and Recreation……………… 38,467 2,396,465 2,434,932 2,617,795 2,443,522 4,311 169,962 (continued) City of Salem, Massachusetts 72 Comprehensive Annual Financial Report ---PAGE BREAK--- GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2005 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 Debt service: - 4,015,000 4,015,000 4,015,000 4,015,000 - - - 2,502,805 2,502,805 2,502,805 2,502,805 - - Short Term Interest…………………………… - 460,969 460,969 460,969 460,969 - - - 6,978,774 6,978,774 6,978,774 6,978,774 - - State and county charges………………………… - 3,879,609 3,879,609 3,879,609 4,028,333 - (148,724) Pension benefits Contributory Retirement………………… - 5,918,415 5,918,415 5,909,331 5,811,637 - 97,694 Non-Contributory Retirement…………… - 216,000 216,000 225,084 225,084 - - - 6,134,415 6,134,415 6,134,415 6,036,721 - 97,694 Workmen's Compensation………………………… - 340,000 340,000 340,000 319,331 - 20,669 Unemployment Compensation…………………… - 200,000 200,000 200,000 185,717 - 14,283 Group - 7,162,000 7,162,000 7,162,000 7,162,606 - (606) - 650,000 650,000 650,000 622,584 - 27,416 Municipal Insurance……………………………… - 472,200 472,200 472,200 472,200 - - TOTAL EXPENDITURES……………… 1,153,872 92,954,433 94,108,305 96,101,209 94,774,568 1,166,971 159,670 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES…………………………… (1,153,872) (3,396,465) (4,550,337) (5,667,516) (3,238,276) (1,166,971) 1,262,269 OTHER FINANCING SOURCES (USES): Premium from issuance of bonds………………… - - - - 232,856 - 232,856 Transfers - 2,523,324 2,523,324 2,608,067 2,608,067 - - Transfers - (47,563) (47,563) (47,563) (47,563) - - TOTAL OTHER FINANCING SOURCES - 2,475,761 2,475,761 2,560,504 2,793,360 - 232,856 NET CHANGE IN FUND BALANCE………………… (1,153,872) (920,704) (2,074,576) (3,107,012) (444,916) (1,166,971) 1,495,125 BUDGETARY FUND BALANCE, Beginning of year 1,439,253 1,439,253 1,439,253 1,439,253 4,558,529 - - BUDGETARY FUND BALANCE, End of year……… $ 285,381 $ 518,549 $ (635,323) $ (1,667,759) $ 4,113,613 $ (1,166,971) $ 1,495,125 (concluded) See notes to required supplementary information. City of Salem, Massachusetts 73 Comprehensive Annual Financial Report ---PAGE BREAK--- Notes to Required Supplementary Information Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 74 Comprehensive Annual Financial Report NOTE A - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Notes to required supplementary information 1. Budgetary Information Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without a recommendation of the Mayor, the Council may not make any appropriation for a purpose not included in the proposed budget, except by a two-thirds vote in the case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the Council. The Council may not increase any item without the recommendation of the Mayor (except as provided by legislation, recommendation of the school committee or regional district school committee and by two-thirds vote of the Council, provided that such increase does not cause the total annual budget to exceed the property tax limitations). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. City department heads are generally required to submit their budget requests to the Mayor between January 1, March 1, and December 1. This does not apply to the school department, which must submit its request in time for the Mayor to include them in the submission to the council. If the Mayor does not make a timely budget submission, provision is made for preparation of a budget by the Council. Provision is also made for supplementary appropriations upon recommendation of the Mayor. Water and sewer department expenditures are included in the budgets adopted by City Council. Under recent legislation, the City Council on the recommendation of the Mayor may transfer within the last 2 months of fiscal years 2003, 2004 and 2005 any amount appropriated for the use of any department to the appropriation for any other department, provided that no such transfer may be made from any appropriation for a school department, regional school district, or municipal light department. The majority of appropriations are non-continuing which lapse at the end of each fiscal year. Others are continuing appropriations for which the governing body has authorized that an unspent balance from a prior fiscal year be carried forward and made available for spending in the current fiscal year. These carry forwards are included as part of the subsequent fiscal year’s original budget. Generally, expenditures may not exceed the legal level of spending (salaries, expenses and capital) authorized for an appropriation account. However, the payment of debt service is statutorily required, regardless of whether such amounts are appropriated. Additionally, expenditures for disasters, natural or otherwise, and final judgments may exceed the level of spending authorized by two-thirds majority vote of the City Council. An annual budget is adopted for the general fund in conformity with the guidelines described above. The original fiscal year 2005 approved budget authorized approximately $94,000,000 in appropriations and other amounts to be raised. During fiscal year 2005, the Council also approved supplemental appropriations totaling approximately $2,000,000. The Finance Department has the responsibility to ensure that budgetary control is maintained. Budgetary control is exercised through the accounting system. ---PAGE BREAK--- Notes to Required Supplementary Information Fiscal Year Ended June 30, 2005 City of Salem, Massachusetts 75 Comprehensive Annual Financial Report 2. Budgetary - GAAP Reconciliation For budgetary financial reporting purposes, the Uniform Municipal Accounting System basis of accounting (established by the Commonwealth) is followed, which differs from the GAAP basis of accounting. A reconciliation of budgetary-basis to GAAP-basis results for the general fund for the fiscal year ended June 30, 2005, is presented below: Net change in fund balance - budgetary $ (444,916) Basis of accounting differences: Net change in revenues in recording tax refunds payable………… (178,316) Additional expense to fund internal service deficit………………… (2,142,902) Net difference in recognition of expenditures……………………… (236,801) Net change in fund balances - GAAP (3,002,935) 3. Excess of Expenditures over Appropriations For the fiscal year ended June 30, 2005, actual expenditures exceeded appropriations for state and county charges, snow and ice, and group insurance. These over-expenditures will be funded through available funds during fiscal year 2006. ---PAGE BREAK--- City of Salem, Massachusetts 76 Comprehensive Annual Financial Report Combining Statements Combining Statements ---PAGE BREAK--- City of Salem, Massachusetts 77 Comprehensive Annual Financial Report Nonmajor governmental funds Nonmajor Governmental Funds Special Revenue Funds Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. City Grants Fund – This fund is used to account for non-school related activity specifically financed by federal, state, and other grants which are designated for specific programs. School Grants Fund – This fund is used to account for the educational programs specifically financed by federal, state, and other grants which are designated for specific programs. Community Development Grants Fund – This fund is used to account for community development activity specifically financed by federal, state, and other grants which are designated for specific programs. School Lunch Fund – This fund is used to account for all cafeteria activities and is funded by user charges, federal and state grants and commodities received. Highway Grants Fund – This fund is used to account for construction, reconstruction and improvements to roadways, streets and sidewalks. Funding is provided primarily by grants. Donations & Gifts Fund – This fund is used to account for gifts which have been accepted by the City to be used for the purpose specified by the donor. Receipts Reserved Fund ñ 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. Permanent Funds Permanent funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support governmental programs. Cemetery Funds – This fund is used to account for cemetery perpetual care contributions and expenditures. Human Service Funds – This fund is used to account for various contributions associated with human service activities. Other Funds – This fund is used to account for various contributions associated with governmental programs. ---PAGE BREAK--- Community City School Development School Highway Donations ASSETS Grants Grants Grants Lunch Grants & Gifts Cash and cash equivalents…………………………$ 1,752,773 $ 1,981,062 $ 29,772 $ - $ - $ 637,330 Investments………………………………………… - - - - - - Receivables, net of uncollectibles: Departmental and - - 49,432 - - - Intergovernmental……………………………… 224,621 184,118 117,304 85,589 1,336,588 - - - - - - - Due from other 514,049 - - - - - TOTAL $ 2,491,443 $ 2,165,180 $ 196,508 $ 85,589 $ 1,336,588 $ 637,330 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants 57,786 $ 146,170 $ 82,543 $ 15,364 $ - $ - Deferred revenues……………………………… - - - - 981,912 - Due to other - - - 159,373 354,676 - TOTAL LIABILITIES………………………………… 57,786 146,170 82,543 174,737 1,336,588 - FUND BALANCES: Reserved for: Perpetual permanent funds………………… - - - - - - Unreserved: Undesignated, reported in: Special revenue 2,433,657 2,019,010 113,965 (89,148) - 637,330 Permanent - - - - - - TOTAL FUND BALANCES………………………… 2,433,657 2,019,010 113,965 (89,148) - 637,330 TOTAL LIABILITIES AND FUND BALANCES……$ 2,491,443 $ 2,165,180 $ 196,508 $ 85,589 $ 1,336,588 $ 637,330 Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2005 City of Salem, Massachusetts 78 Comprehensive Annual Financial Report ---PAGE BREAK--- Total City School Nonmajor Receipts Revolving Revolving Cemetery Human Service Governmental Reserved Accounts Accounts Subtotal Funds Funds Other Subtotal Funds $ 316,449 $ 1,053,917 $ 279,110 $ 6,050,413 $ 386,641 $ 221,260 $ 154,582 $ 762,483 $ 6,812,896 - - - - 1,882,336 1,106,225 738,295 3,726,856 3,726,856 - - - 49,432 - - - - 49,432 - - - 1,948,220 - - - - 1,948,220 - 948,638 - 948,638 - - - - 948,638 - - - 514,049 - - - - 514,049 $ 316,449 $ 2,002,555 $ 279,110 $ 9,510,752 $ 2,268,977 $ 1,327,485 $ 892,877 $ 4,489,339 $ 14,000,091 $ - $ 253 $ 22,381 $ 324,497 $ - $ - $ - $ - $ 324,497 - 948,638 - 1,930,550 - - - - 1,930,550 - - - 514,049 - - - - 514,049 - 948,891 22,381 2,769,096 - - - - 2,769,096 - - - - 907,765 221,174 462,811 1,591,750 1,591,750 316,449 1,053,664 256,729 6,741,656 - - - - 6,741,656 - - - - 1,361,212 1,106,311 430,066 2,897,589 2,897,589 316,449 1,053,664 256,729 6,741,656 2,268,977 1,327,485 892,877 4,489,339 11,230,995 $ 316,449 $ 2,002,555 $ 279,110 $ 9,510,752 $ 2,268,977 $ 1,327,485 $ 892,877 $ 4,489,339 $ 14,000,091 Special Revenue Funds Permanent Funds City of Salem, Massachusetts 79 Comprehensive Annual Financial Report ---PAGE BREAK--- Community City School Development School Highway Donations Grants Grants Grants Lunch Grants & Gifts REVENUES: Charges for 8,522 $ - $ - $ - $ - $ - Intergovernmental………………………………………………… 3,997,085 6,699,946 1,965,824 1,362,756 906,825 - Departmental and 79,881 322,611 5,000 - - - 331,625 - - - - 426,001 Investment 1,699 - 89,644 3,731 - - TOTAL 4,418,812 7,022,557 2,060,468 1,366,487 906,825 426,001 EXPENDITURES: Current: General 320,825 - - - - 59,974 Public 237,406 - - - - 4,439 319,673 7,224,214 - 1,383,995 - - Public 89,767 - - - 666,425 - Community development…………………………………… - - 2,015,779 - 31,676 - Human 3,447,065 - - - - 36,531 Culture and 11,278 - - - - 22,899 Debt service: - - 90,000 - - - - - 32,094 - - - TOTAL EXPENDITURES………………………………… 4,426,014 7,224,214 2,137,873 1,383,995 698,101 123,843 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………………… (7,202) (201,657) (77,405) (17,508) 208,724 302,158 OTHER FINANCING SOURCES (USES): Transfers - - - - - - TOTAL OTHER FINANCING SOURCES (USES)…… - - - - - - NET CHANGE IN FUND BALANCES……………………………… (7,202) (201,657) (77,405) (17,508) 208,724 302,158 FUND BALANCES AT BEGINNING OF YEAR, as restated…… 2,440,859 2,220,667 191,370 (71,640) (208,724) 335,172 FUND BALANCES AT END OF $ 2,433,657 $ 2,019,010 $ 113,965 $ (89,148) $ - $ 637,330 NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2005 Special Revenue Funds City of Salem, Massachusetts 80 Comprehensive Annual Financial Report ---PAGE BREAK--- Total City School Nonmajor Receipts Revolving Revolving Cemetery Human Service Governmental Reserved Accounts Accounts Subtotal Funds Funds Other Subtotal Funds $ - $ - $ - $ 8,522 $ - $ $ - $ - $ 8,522 - - - 14,932,436 - - - - 14,932,436 433,426 427,510 701,228 1,969,656 - - - - 1,969,656 - - 19,508 777,134 82,268 - 10,454 92,722 869,856 - 13,374 1,954 110,402 99,945 43,662 37,220 180,827 291,229 433,426 440,884 722,690 17,798,150 182,213 43,662 47,674 273,549 18,071,699 - - - 380,799 - - 27,571 27,571 408,370 - - - 241,845 - - 28,401 28,401 270,246 - - 681,206 9,609,088 - - 11,319 11,319 9,620,407 - 6,950 - 763,142 52,946 - - 52,946 816,088 - 19,294 - 2,066,749 - - - - 2,066,749 - - - 3,483,596 - 54,177 - 54,177 3,537,773 - 107,417 - 141,594 - - 4,534 4,534 146,128 - - - - 90,000 - - - - 90,000 - - - 32,094 - - - - 32,094 - 133,661 681,206 16,808,907 52,946 54,177 71,825 178,948 16,987,855 433,426 307,223 41,484 989,243 129,267 (10,515) (24,151) 94,601 1,083,844 (392,897) - - (392,897) (5,000) - - (5,000) (397,897) (392,897) - - (392,897) (5,000) - - (5,000) (397,897) 40,529 307,223 41,484 596,346 124,267 (10,515) (24,151) 89,601 685,947 275,920 746,441 215,245 6,145,310 2,144,710 1,338,000 917,028 4,399,738 10,545,048 $ 316,449 $ 1,053,664 $ 256,729 $ 6,741,656 $ 2,268,977 $ 1,327,485 $ 892,877 $ 4,489,339 $ 11,230,995 Special Revenue Funds Permanent Funds City of Salem, Massachusetts 81 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 82 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 administered by the City’s Board of Trust Fund Commissioners.. Scholarship Funds – This fund is used to account for scholarships held by the City to benefit individuals. ---PAGE BREAK--- PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF PRIVATE PURPOSE TRUST FUNDS NET ASSETS JUNE 30, 2005 Trust Fund Scholarship Commissioners Funds Total ASSETS CURRENT: Cash and cash equivalents………………………………… $ 38,302 $ 68,566 $ 106,868 1,290,597 - 1,290,597 TOTAL 1,328,899 68,566 1,397,465 NET ASSETS Held in trust for other 1,328,899 $ 68,566 $ 1,397,465 Private Purpose Trust Funds City of Salem, Massachusetts 83 Comprehensive Annual Financial Report ---PAGE BREAK--- Trust Fund Scholarship Commissioners Funds Total ADDITIONS: Contributions: Private $ 37,709 $ 31,297 $ 69,006 Net investment income (loss): 80,242 908 81,150 TOTAL 117,951 32,205 150,156 DEDUCTIONS: Educational 9,032 8,000 17,032 Housing 24,779 - 24,779 TOTAL 33,811 8,000 41,811 CHANGE IN NET 84,140 24,205 108,345 NET ASSETS AT BEGINNING OF 1,244,759 44,361 1,289,120 NET ASSETS AT END OF $ 1,328,899 $ 68,566 $ 1,397,465 Private Purpose Trust Funds PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF CHANGES IN PRIVATE PURPOSE TRUST FUNDS NET ASSETS FISCAL YEAR ENDED JUNE 30, 2005 City of Salem, Massachusetts 84 Comprehensive Annual Financial Report ---PAGE BREAK--- City of Salem, Massachusetts 85 Comprehensive Annual Financial Report Agency Fund Agency Fund This fund is used primarily to account for payroll withholdings, police and fire details, and unclaimed property. ---PAGE BREAK--- Beginning End of Year Additions Deletions of Year ASSETS CURRENT: Cash and cash equivalents…………………………… $ 369,187 $ 4,504,926 $ (4,600,051) $ 274,062 Receivables, net of allowance for uncollectibles: Departmental and 6,669 88,559 (6,669) 88,559 TOTAL $ 375,856 $ 4,593,485 $ (4,606,720) $ 362,621 LIABILITIES Warrants $ 45,420 $ 2,046,332 $ (2,072,999) $ 18,753 Payroll witholdings……………………………………… 70,343 1,176,903 (1,198,873) 48,373 Special 15,088 1,064,431 (1,047,676) 31,843 Other 245,005 305,819 (287,172) 263,652 TOTAL 375,856 $ 4,593,485 $ (4,606,720) $ 362,621 AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES JUNE 30, 2005 City of Salem, Massachusetts 86 Comprehensive Annual Financial Report ---PAGE BREAK--- Statistical Section Witch House Picture by Philip D. Moran ---PAGE BREAK--- City of Salem, Massachusetts 87 Comprehensive Annual Financial Report Statistical Section Statistical Section This part of the comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. Financial Trends • These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time. Revenue Capacity • These schedules contain information to help the reader assess the City’s most significant local revenue source, the property tax. Debt Capacity • These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future. Demographic and Economic Information • These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place. Operating Information • These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs. SOURCES: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Statistical Section ---PAGE BREAK--- 2002 2003 2004 2005 Governmental activities Invested in capital assets, net of related debt………$ 82,253,876 $ 83,045,604 $ 79,729,492 $ 83,954,370 5,755,817 5,237,908 8,759,761 9,734,998 Unrestricted…………………………………………… 4,546,625 9,656,396 6,519,783 (3,667,364) Total governmental activities net assets…………………$ 92,556,318 $ 97,939,908 $ 95,009,036 $ 90,022,004 Business-type activities Invested in capital assets, net of related debt……… 8,782,331 8,319,902 8,147,378 9,212,891 Unrestricted…………………………………………… 7,754,552 6,649,222 7,538,395 4,492,692 Total business-type activities net assets…………………$ 16,536,883 $ 14,969,124 $ 15,685,773 $ 13,705,583 Primary government Invested in capital assets, net of related debt……… 91,036,207 91,365,506 87,876,870 93,167,261 5,755,817 5,237,908 8,759,761 9,734,998 Unrestricted…………………………………………… 12,301,177 16,305,618 14,058,178 825,328 Total primary government net assets…………………… $ 109,093,201 $ 112,909,032 $ 110,694,809 $ 103,727,587 Net Assets By Component Last Four Fiscal Years Fiscal Year City of Salem, Massachusetts 88 Comprehensive Annual Financial Report ---PAGE BREAK--- 2002 2003 2004 2005 Expenses Governmental activities: General 6,529,105 $ 6,323,902 $ 7,095,121 $ 7,103,324 Public 20,619,499 20,727,733 22,066,959 21,912,834 57,912,611 57,821,548 60,090,740 65,870,306 Public 5,397,486 6,464,257 6,517,047 7,081,997 Human 1,416,802 1,388,761 1,410,712 4,856,306 Culture and 3,694,420 4,022,880 4,186,622 3,689,992 State and county 3,770,566 3,911,644 4,212,549 4,028,333 3,046,692 3,366,107 3,136,763 2,689,312 Community development………………………………………… 5,856,034 4,954,608 5,767,362 2,066,749 Total government activities 108,243,215 108,981,440 114,483,875 119,299,153 Business-type activities: Water 10,967,114 10,196,489 9,619,356 3,186,840 Sewer 6,616,318 Golf 387,935 333,512 320,632 292,187 719,042 679,171 665,458 664,686 Total business type activities expenses……………………………… 12,074,091 11,209,172 10,605,446 10,760,031 Total primary government $ 120,317,306 $ 120,190,612 $ 125,089,321 $ 130,059,184 Program Revenues Governmental activities: Education charges for $ 1,216,334 $ 1,097,764 $ 1,141,196 $ 1,023,839 Public Safety charges for services……………………………… 1,323,642 1,804,781 1,865,270 1,923,845 Other charges for 1,489,223 1,197,196 2,055,497 1,481,467 Operating grants and contributions……………………………… 40,717,414 39,127,290 35,305,349 34,087,248 Capital grant and contributions…………………………………… 17,467,468 7,019,891 2,129,821 2,090,467 Total government activities program revenues...…………………… 62,214,081 50,246,922 42,497,133 40,606,866 Business-type activities: Charges for services - 9,794,892 10,415,528 11,708,715 3,853,505 Charges for services - 5,512,922 Charges for services - 615,878 549,091 543,467 502,770 Charges for services - 1,270,928 1,364,076 1,536,390 1,453,088 Total business-type activities program revenues...………………… 11,681,698 12,328,695 13,788,572 11,322,285 Total primary government program revenues……………………… $ 73,895,779 $ 62,575,617 $ 56,285,705 $ 51,929,151 Net (Expense)/Revenue Governmental (46,029,134) $ (58,734,518) $ (71,986,742) $ (78,692,287) Business-type (392,393) 1,119,523 3,183,126 562,254 Total primary government net $ (46,421,527) $ (57,614,995) $ (68,803,616) $ (78,130,033) General Revenues and other Changes in Net Assets Governmental activities: Real estate and personal property taxes, net of tax refunds $ 49,486,747 $ 52,118,338 $ 54,855,784 $ 55,915,767 Motor vehicle excise 3,626,065 3,793,044 3,478,999 3,489,584 Penalties and interest on 330,035 391,429 322,003 288,874 Grants and contributions not restricted to specific 3,931,117 3,774,422 6,932,546 8,097,351 Unrestricted investment 125,481 816,614 568,503 521,585 504,968 536,979 431,558 77,454 2,274,567 2,687,282 2,466,477 2,542,444 Total governmental activities 60,278,980 64,118,108 69,055,870 70,933,059 Business-type activities: (2,274,567) (2,687,282) (2,466,477) (2,542,444) Total primary 58,004,413 $ 61,430,826 $ 66,589,393 $ 68,390,615 Changes in Net Assets Governmental 14,249,846 $ 5,383,590 $ (2,930,872) $ (5,775,504) Business-type (2,666,960) (1,567,759) 716,649 (1,980,190) Total primary 11,582,886 $ 3,815,831 $ (2,214,223) $ (7,755,694) In fiscal years 2002 - 2004 the City reported a joint water/sewer enterprise fund. Changes in Net Assets Last Four Fiscal Years Fiscal Year City of Salem, Massachusetts 89 Comprehensive Annual Financial Report ---PAGE BREAK--- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 General Fund Reserved…………………………… $ - $ 557,509 $ 250,549 $ 978,075 $ 966,088 $ 1,432,723 $ 1,442,182 $ 1,382,756 $ 1,153,872 $ 68,524 Unreserved………………………… 833,878 2,146,333 5,327,627 4,738,658 5,764,170 5,901,496 4,633,278 3,980,693 3,398,534 335,643 Total general 833,878 $ 2,703,842 $ 5,578,176 $ 5,716,733 $ 6,730,258 $ 7,334,219 $ 6,075,460 $ 5,363,449 $ 4,552,406 $ 404,167 All Other Governmental Funds Reserved…………………………… $ - $ - $ - $ - $ - $ - $ 1,430,279 $ 1,481,549 $ 1,844,725 $ 1,591,750 Unreserved, reported in: Special revenue funds………… 854,417 6,898,664 2,477,573 4,477,410 5,738,091 6,910,085 8,289,823 8,920,508 6,618,566 7,763,007 Capital projects funds………… (6,590,739) 1,621,835 (390,925) (3,404,797) (14,076,153) (17,882,945) (26,709,082) (14,050,593) (24,963,657) (10,513,270) Permanent funds……………… - - - - - - 3,137,655 2,801,999 2,555,014 2,897,589 Total all other governmental funds… $ (5,736,322) $ 8,520,499 $ 2,086,648 $ 1,072,613 $ (8,338,062) $ (10,972,860) $ (13,851,325) $ (846,537) $ (13,945,352) $ 1,739,076 Notes: Fiscal years 1996 through 2001 exclude Expendable and Nonexpendable Trust Funds which were reported under the pre-GASB 34 format. In fiscal year 1999, the unreserved fund balance of 1998 was restated. Source: Audited Financial Statements Fund Balances, Governmental Funds Last Ten Fiscal Years Fiscal Year City of Salem, Massachusetts 90 Comprehensive Annual Financial Report ---PAGE BREAK--- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Revenues: Real estate and personal property taxes, net of tax 40,142,655 $ 42,400,497 $ 45,004,696 $ 45,299,037 $ 45,824,415 $ 48,802,188 $ 50,152,793 $ 52,448,384 $ 55,603,719 $ 55,866,348 Motor vehicle and excise 2,068,493 2,327,427 2,658,569 2,658,847 2,686,784 3,178,682 3,156,366 3,875,265 3,387,266 3,531,673 Intergovernmental………………………………………………… 23,030,138 25,753,506 27,339,805 29,619,516 32,053,323 37,284,876 39,949,863 37,949,147 37,305,545 40,601,143 Departmental and 5,551,286 5,104,053 5,659,080 7,383,713 8,793,381 8,473,063 8,122,563 8,628,161 9,324,193 7,539,138 Investment 224,435 294,782 540,904 392,136 736,266 1,024,892 127,462 816,821 568,503 828,933 Commonwealth school construction grants…………………… - - - - - - - - - 12,739,570 On-behalf pension payments by Commonwealth………………(B) - - - - - 4,505,009 4,301,287 4,275,669 5,345,441 5,890,261 Total 71,017,007 75,880,265 81,203,054 85,353,249 90,094,169 103,268,710 105,810,334 107,993,447 111,534,667 126,997,066 Expenditures: General 6,268,081 4,784,959 4,709,129 4,281,803 4,287,021 5,801,716 4,866,231 4,463,397 4,627,702 4,863,297 Public 11,960,186 11,794,339 12,471,452 14,328,164 14,074,132 14,589,271 15,738,798 15,368,476 14,999,915 14,390,702 29,272,594 31,435,082 34,208,249 37,518,451 40,101,425 45,852,552 47,250,529 48,449,552 47,729,470 51,382,500 Public 4,629,263 5,150,084 4,804,094 4,490,661 5,044,735 6,004,568 4,652,745 5,232,421 5,209,599 6,515,767 Human 808,843 862,893 886,308 2,053,609 920,083 927,024 960,817 901,407 855,553 4,348,098 Culture and 2,337,157 2,465,461 2,570,079 2,824,761 2,963,811 3,338,502 2,728,470 2,981,769 2,756,066 2,278,899 3,211,000 3,221,976 3,365,633 3,474,477 3,813,000 4,610,788 4,204,226 4,340,575 6,565,806 6,036,721 Massachusetts teachers' retirement…………………………...…(B) - - - - - 4,505,009 4,301,287 4,275,669 5,345,441 5,890,261 Employee 4,814,136 5,043,845 4,864,929 5,374,227 5,499,340 5,550,602 9,853,473 10,529,297 10,580,395 10,433,140 State and district assessments…………………………………… 2,280,985 1,842,397 1,887,916 1,970,865 3,495,301 2,183,362 3,770,566 3,911,644 4,212,549 4,028,333 Community 2,597,378 2,354,083 2,813,361 1,700,155 3,118,010 2,462,534 1,936,213 2,348,162 2,085,553 2,066,749 Capital 4,324,332 785,085 1,909,687 3,198,871 10,684,440 17,106,792 12,975,601 18,550,903 15,793,932 2,230,238 Debt 3,585,000 2,725,000 3,050,000 2,980,702 2,835,050 3,220,000 2,605,000 2,795,000 3,890,000 4,105,000 1,044,222 2,395,126 2,111,236 2,010,471 2,482,071 2,482,795 3,111,786 2,854,502 3,259,021 2,919,668 Court - - - 400,000 - - - - - - Total 77,133,177 74,860,330 79,652,073 86,607,217 99,318,419 118,635,515 118,955,742 127,002,774 127,911,002 121,489,373 Excess of revenues over (under) expenditures………………… (6,116,170) 1,019,935 1,550,981 (1,253,968) (9,224,250) (15,366,805) (13,145,408) (19,009,327) (16,376,335) 5,507,693 Other Financing Sources (Uses) Issuance of - 8,800,000 - 400,000 - 13,300,000 - 28,670,000 - 2,465,000 Premium from issuance of - - - - - - - - - 232,856 Capital lease - - - - - - - - - 807,283 Sale of capital - - - - - - - 300,000 - - Transfers 2,716,385 1,828,026 2,207,493 2,131,143 2,187,421 1,813,102 9,045,003 9,051,161 10,693,915 3,597,240 Transfers (2,039,571) (1,148,211) (1,690,956) (1,733,369) (1,360,322) (1,435,512) (6,770,436) (6,719,057) (8,227,438) (1,054,796) Total other financing sources 676,814 9,479,815 516,537 797,774 827,099 13,677,590 2,274,567 31,302,104 2,466,477 6,047,583 Net change in fund $ (5,439,356) $ 10,499,750 $ 2,067,518 $ (456,194) $ (8,397,151) $ (1,689,215) $ (10,870,841) $ 12,292,777 $ (13,909,858) $ 11,555,276 Debt service as a percentage of noncapital expenditures………… 6.36% 6.91% 6.64% 5.98% 6.00% 5.62% 5.39% 5.21% 6.38% 5.89% In FY05 certain grants were reclassified to Human Services to better reflect the purpose. The Commonwealth is legally obligated to fund the Salem teachers retirement. Therefore the revenue and expenditure has been recorded in accordance with GASB 24. Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years Fiscal Year City of Salem, Massachusetts 91 Comprehensive Annual Financial Report ---PAGE BREAK--- Assessed Value and Actual Value of Taxable Property by Classification and Tax Rates Last Ten Fiscal Years Assessed and Actual Values and Tax Rates Total Total Fiscal Residential Residential Commercial Industrial Personal Commercial Commercial Town Year Value Tax Rate Value Value Property Value Tax Rate Value 1996 $1,374,242,300 $14.65 $232,950,000 $116,493,300 $235,681,200 $585,124,500 $34.23 $1,959,366,800 1997 $1,393,420,200 $15.23 $232,530,700 $118,096,600 $237,232,900 $587,860,200 $35.03 $1,981,280,400 1998 $1,462,850,200 $15.22 $247,668,000 $114,333,800 $238,873,800 $600,875,600 $34.67 $2,063,725,800 1999 $1,552,242,000 $15.17 $254,271,400 $112,399,300 $240,804,300 $607,475,000 $33.96 $2,159,717,000 2000 $1,705,349,600 $14.23 $266,300,300 $141,171,100 $247,511,700 $654,983,100 $31.65 $2,360,332,700 2001 $1,963,462,114 $13.42 $315,485,948 $168,301,665 $254,604,294 $738,391,907 $29.63 $2,701,854,021 2002 $2,135,490,544 $13.53 $324,729,500 $136,077,225 $261,760,050 $722,566,775 $28.62 $2,858,057,319 2003 $2,575,202,432 $12.87 $341,154,055 $135,580,725 $254,704,340 $731,439,120 $26.05 $3,306,641,552 2004 $3,247,929,862 $11.71 $369,848,655 $140,122,325 $213,400,595 $723,371,575 $22.59 $3,971,301,437 2005 $3,536,283,952 $11.38 $383,694,522 $142,371,000 $234,191,813 $760,257,335 $21.83 $4,296,541,287 Revaluation year. Source: Assessor's Department, City of Salem All property in the Commonwealth of Massachusetts is assessed at 100% of fair cash value. Note: Chapter 59, Section 21C of the Massachusetts General Laws, known as "Proposition 2 1/2", imposes 2 separate limits on the annual tax levy of the Town. The primary limitation is that the tax levy cannot exceed 2 1/2 percent of the full and fair cash value. The secondary limitation is that the tax levy cannot exceed the maximum levy limit for the preceding fiscal year as determined by the State Commissioner of Revenue by more than 2 1/2 percent, subject to an exception for property added to the tax rolls and for certain substantial valuation increases other than as part of a general revaluation. The secondary limit may be exceeded in any year by a majority vote of the voters, however it cannot exceed the primary limitation. Total Assessed Value by Classification Fiscal Year Ended June 30, 2005 83% 9% 3% 5% Residential Commercial Industrial Personal Property Total Assessed Value by Classification Fiscal Year Ended June 30, 2004 82% 9% 4% 5% Residential Commercial Industrial Personal Property Commercial Value as % of Total Value 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 City of Salem, Massachusetts 92 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 US Gen. New England Inc. Utility - Personal Property $156,132,850 1 3.6% US Gen. New England Inc. Utility - Industrial Property $50,000,000 2 1.2% Salem Station, LLC Apartments $38,795,500 3 0.9% Princeton Crossing Apartments Apartments $30,065,400 4 0.7% $11,888,200 4 0.6% Shetland Properties Commercial Property $26,600,900 5 0.6% $11,748,500 5 0.6% Massachusetts Electric Co. Utility $20,820,941 6 0.5% $15,798,400 2 0.8% Highlander Plaza Realty Trust Commercial Property $20,785,900 7 0.5% $11,567,900 6 0.6% New England Power Utility $16,493,800 8 0.4% $254,268,600 1 13.0% Second Pickwick Trust Commercial Property $14,207,000 9 0.3% Keyspan Energy Delivery Utility $10,077,908 10 0.2% NYNEX Utility $13,795,100 3 0.7% Boston Gas/Mass LNG Utility $9,317,800 7 0.5% Hawthorne Square Mall Shopping Center $8,104,000 8 0.4% Osram Sylvania Electronics Manufacturer $7,238,400 9 0.4% Applied Extrusion Tech Electronics $6,281,300 10 0.3% Totals $383,980,199 8.9% $350,008,200 18% Source: Board of Assessors 2005 1996 City of Salem, Massachusetts 93 Comprehensive Annual Financial Report ---PAGE BREAK--- Percent of Less First Year Percent of Delinquent Total Total Tax Fiscal Total Abatements & Net Current Net Levy Tax Tax Collections to Year Tax Levy Exemptions Tax Levy Tax Collections Collected Collections Collections Net Tax Levy 1996 $40,161,461 $802,084 $39,359,377 $38,447,181 97.7% $1,591,975 $40,039,156 101.73% 1997 $41,814,532 $728,298 $41,086,234 $40,660,473 99.0% $1,154,059 $41,814,532 101.77% 1998 $43,096,937 $735,267 $42,361,670 $41,210,163 97.3% $942,495 $42,152,658 99.51% 1999 $44,177,362 $379,865 $43,797,497 $43,723,214 99.8% $454,148 $44,177,362 100.87% 2000 $44,997,340 $549,334 $44,448,006 $44,641,147 100.4% $675,074 $45,316,221 101.95% 2001 $48,228,214 $654,519 $47,573,695 $47,565,588 100.0% $662,626 $48,228,214 101.38% 2002 $49,789,935 $484,373 $49,305,562 $49,199,288 99.8% $590,647 $49,789,935 100.98% 2003 $52,210,909 $598,516 $51,612,393 $51,303,297 99.4% $907,612 $52,210,909 101.16% 2004 $54,374,223 $562,850 $53,811,373 $53,259,047 99.0% $542,025 $53,801,072 99.98% 2005 $56,839,329 $418,415 $56,420,914 $55,554,023 98.5% $935,714 $56,489,737 100.12% Revaluation Year Source: Massachusetts Department of Revenue; Board of Assessors Property Tax Levies and Collections Last Ten Years City of Salem, Massachusetts 94 Comprehensive Annual Financial Report ---PAGE BREAK--- Ratios of Outstanding Debt and General Bonded Debt Last Ten Fiscal Years General Percentage Percentage Fiscal U. S. Census Personal Assessed Obligation Capital Per of Personal of Assessed Year Population Income Value Bonds Leases Capita Income Value 1996 38,008 836,363,653 1,959,366,800 $36,195,000 $0 $952 4.33% 1.85% 1997 38,172 857,114,758 1,981,280,400 $41,950,000 $0 $1,099 4.89% 2.12% 1998 38,351 878,708,191 2,063,725,800 $36,345,000 $0 $948 4.14% 1.76% 1999 38,341 896,407,212 2,159,717,000 $33,460,698 $494,359 $886 3.79% 1.57% 2000 40,564 967,735,348 2,360,332,700 $30,716,400 $2,517,607 $819 3.43% 1.41% 2001 41,130 1,000,863,178 2,701,854,021 $40,700,000 $1,929,115 $1,036 4.26% 1.58% 2002 42,179 1,046,917,485 2,858,057,319 $37,625,000 $1,103,986 $918 3.70% 1.36% 2003 42,067 1,065,020,304 3,307,181,452 $63,730,000 $441,217 $1,525 6.03% 1.94% 2004 41,912 1,082,318,054 3,971,301,437 $59,840,000 $307,360 $1,435 5.56% 1.51% 2005 41,976 1,105,650,179 4,296,541,287 $58,770,000 $723,214 $1,417 5.38% 1.38% General Total Percentage Percentage Fiscal Obligation Capital Debt Per of Personal of Assessed Year Bonds Leases Outstanding Capita Income Value 1996 $0 $0 $36,195,000 $952 4.33% 1.85% 1997 $0 $0 $41,950,000 $1,099 4.89% 2.12% 1998 $2,225,000 $0 $38,570,000 $1,006 4.39% 1.87% 1999 $1,880,000 $0 $35,835,057 $935 4.00% 1.66% 2000 $1,600,000 $0 $34,834,007 $859 3.60% 1.48% 2001 $1,345,000 $0 $43,974,115 $1,069 4.39% 1.63% 2002 $650,000 $0 $39,378,986 $934 3.76% 1.38% 2003 $515,000 $0 $64,686,217 $1,538 6.07% 1.96% 2004 $380,000 $0 $60,527,360 $1,444 5.59% 1.52% 2005 $1,450,000 $0 $60,943,214 $1,452 5.51% 1.42% Source: Audited Financial Statements, U. S. Census Governmental Activities Debt Business-type Activities Total Primary Government City of Salem, Massachusetts 95 Comprehensive Annual Financial Report ---PAGE BREAK--- Direct and Overlapping Governmental Activities Debt As of June 30, 2005 Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable Debt North Shore Regional Vocational School District……………$ 2,650,000 44.93% $ 1,190,755 Town direct 59,390,000 Total direct and overlapping $ 60,580,755 Source: Treasurer and North Shore Regional Vocational School District City of Salem, Massachusetts 96 Comprehensive Annual Financial Report ---PAGE BREAK--- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Equalized Valuation………………………… $2,155,183,700 $2,083,065,400 $2,083,065,400 $2,174,217,600 $2,174,217,600 $2,472,012,500 $2,472,012,500 $3,148,016,400 $3,148,016,400 $4,184,128,700 Debt Limit of Equalized Valuation…… $107,759,185 $104,153,270 $104,153,270 $108,710,880 $108,710,880 $123,600,625 $123,600,625 $157,400,820 $157,400,820 $209,206,435 Less: Outstanding debt applicable to limit………… $5,895,000 $5,195,000 $4,940,000 $3,785,000 $3,475,000 $5,080,000 $5,625,000 $4,646,000 $4,167,000 $6,695,447 Authorized and unissued debt……………… $5,500,000 $500,000 $100,000 $72,050,000 $63,950,000 $82,537,000 $83,033,130 $69,000,988 $70,336,913 $39,296,218 Legal debt $96,364,185 $98,458,270 $99,113,270 $32,875,880 $41,285,880 $35,983,625 $34,942,495 $83,753,832 $82,896,907 $163,214,770 Total debt applicable to the limit as a percentage of debt limit……………… 10.57% 5.47% 4.84% 69.76% 62.02% 70.89% 71.73% 46.79% 47.33% 21.98% Source: Audited Financial Statements; Statement of Indebtedness Computation of Legal Debt Margin Last Ten Fiscal Years City of Salem, Massachusetts 97 Comprehensive Annual Financial Report ---PAGE BREAK--- Demographic and Economic Statistics Last Ten Fiscal Years Per Capita Fiscal Population Personal Personal Median School Unemployment Year Estimates Income Income Age Enrollment Rate 1996 38,008 $836,363,653 $22,005 33.5 4,903 4.3% 1997 38,172 $857,114,758 $22,454 33.5 5,028 4.0% 1998 38,351 $878,708,191 $22,912 33.5 5,128 3.5% 1999 38,341 $896,407,212 $23,380 33.5 5,059 3.3% 2000 40,564 $967,735,348 $23,857 36.4 5,007 2.5% 2001 41,130 $1,000,863,178 $24,334 36.4 5,107 3.9% 2002 42,179 $1,046,917,485 $24,821 36.4 5,064 5.6% 2003 42,067 $1,065,020,304 $25,317 36.4 5,016 6.2% 2004 41,912 $1,082,318,054 $25,824 36.4 4,727 5.3% 2005 41,976 $1,105,650,179 $26,340 36.4 4,676 4.9% Note: Per Capita Personal Income and Median Age based on 1990 and 2000 U.S Censuses Source: Massachusetts Department of Revenue, Division of Local Services; U.S. Census Bureau City of Salem, Massachusetts 98 Comprehensive Annual Financial Report ---PAGE BREAK--- Principal Employers (excluding City) Current Year and Nine Years Ago Nature Percentage of Percentage of of Total City Total City Business Employees Rank Employment Employees Rank Employment Healthcare 3,500 1 15.3% 2,500 1 11.7% Higher Education 1,215 2 5.3% 750 2 3.5% Public Utility 371 3 1.6% 600 3 2.8% Banking 300 4 1.3% Judicial 202 5 0.9% Analytical Systems Supplies 200 6 0.9% Public Utility 184 7 0.8% Legal 168 8 0.7% Cultural/Tourism 165 9 0.7% Insurance 156 10 0.7% New England Power Co. Public Utility 476 4 2.2% North Shore Children's Hospital Children's Health Care 400 5 1.9% EG & G Inc. Diabetic Supplies 281 6 1.3% Atwood & Morrill Co., Inc. Valve Manufacturing 189 7 0.9% Crosby's Markey Place Food Market 176 8 0.8% Van Waters & Rogers Chemical Distribution 162 9 0.8% Harbor Sweets Candy & Confection Wholesale 101 10 0.5% 6,461 28.3% 5,635 26.5% Source: The City Planning Department North Shore Medical Center/Salem Hospital Employer 2005 1996 Salem State College Sears Boston Credit Central Salem Five Cent Savings Bank Salem Court System Holyoke Perkin Elmer Opto Electronics PG & E District Attorney's Office Peabody Essex Museum City of Salem, Massachusetts 99 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 General government Marriage recordings……………………………… 313 290 274 317 292 328 362 327 330 327 Birth recordings…………………………………… 1,760 1,793 1,708 1,726 1,777 1,680 1,708 1,804 1,839 1,761 Death recordings…………………………………… 830 843 765 765 764 865 848 823 935 847 Police Physical 1,031 1,097 1,157 1,131 975 1,039 1,057 984 965 685 Motor vehicle violations…………………………… 3,635 4,772 3,472 2,791 3,066 3,967 4,872 5,489 5,238 4,334 Police personnel and officers……………………… 96 97 95 94 94 103 105 94 85 85 Fire Inspections………………………………………… 2,151 2,486 2,805 3,417 3,226 3,004 2,950 1,972 3,231 2,789 Emergency responses…………………………… 4,046 3,786 3,517 3,433 3,717 3,917 3,993 3,911 4,281 4,572 Fire personnel and officers………………………… 92 94 88 89 90 92 96 85 78 78 Education Number of 4,903 5,028 5,128 5,059 5,007 5,107 5,064 5,016 4,727 4,676 Number of graduates……………………………… 186 197 213 187 213 220 237 218 257 246 Number of 325 340 352 369 370 369 397 406 415 409 Water Service connections……………………………… N/A 9,600 9,600 9,627 9,720 9,812 9,842 9,898 10,516 10,568 Consumption in N/A 1,779 1,764 1,853 1,985 2,107 2,064 2,090 2,111 2,136 Daily consumption N/A 4.87 4.83 5.10 5.44 5.77 5.66 5.73 5.78 6.43 Sewer Service connections……………………………… N/A 9,600 9,600 9,627 9,720 9,812 9,842 9,898 10,516 10,568 Health and human services Number of persons using COA transportation… N/A N/A 40,535 54,620 44,326 45,523 47,220 44,804 44,500 45,976 Libraries Volumes in circulation……………………………… 113,775 117,758 119,300 127,923 126,526 130,510 128,626 124,435 125,516 128,569 Total volumes borrowed…………………………… 353,280 363,817 370,542 379,511 379,534 395,311 453,548 470,192 464,453 490,116 N/A - information not available Source: Various City Departments; Massachusetts Department of Education Fiscal Year Operating Indicators by Function/Program Last Ten Fiscal Years City of Salem, Massachusetts 100 Comprehensive Annual Financial Report ---PAGE BREAK--- Function/Program 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 General government Number of buildings……………………… 2 2 2 2 2 2 2 2 2 2 Police Number of stations……………………… 1 1 1 1 1 1 1 1 1 1 Fire Number of stations……………………… 4 4 4 4 4 4 4 4 4 4 Education Number of elementary schools………… 7 7 7 7 7 7 7 7 7 7 Number of middle schools……………… 1 1 1 1 1 1 1 1 1 1 Number of high schools………………… 1 1 1 1 1 1 1 1 1 1 Public Works Water mains 103 103 103 103 103 103 103 108 108 108 Health and human services Number of personnel…………………… 20 20 18 20 19 18 18 17 17 17 Culture and recreation Parks and playgrounds………………… 33 33 34 35 35 35 35 35 35 35 Park and playground (acreage)………… 218 218 218 219 230 230 230 230 230 230 Conservation land (acreage)…………… 114 114 114 114 114 114 114 114 128 128 Railroad right of way (acreage)………… 94 89 89 89 89 89 89 89 89 89 Public 7 7 7 7 7 7 7 7 7 7 Ball 13 13 13 13 13 13 13 13 13 13 Tennis 10 10 10 10 10 10 10 10 10 10 Source: Various City Departments, Manual of the City Government Fiscal Year Capital Asset Statistics by Function/Program Last Ten Fiscal Years City of Salem, Massachusetts 101 Comprehensive Annual Financial Report ---PAGE BREAK--- Free Stabilization Fiscal Year Cash Fund $ 2,732,090 $ 1,021,351 $ 1,867,737 $ 1,297,417 $ 3,212,194 $ 2,278,823 $ 4,010,382 $ 2,248,337 $ 4,965,894 $ 1,713,814 $ 4,425,158 $ 1,149,864 $ 4,313,929 $ 1,087,575 $ 2,756,091 $ 639,004 $ 1,423,512 $ N/A $ 1,260,229 $ N/A Source: City Records Free Cash & Stabilization Fund Balances Last Ten Fiscal Years City of Salem, Massachusetts 102 Comprehensive Annual Financial Report ---PAGE BREAK--- Winter Island Lighthouse