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City of Muskegon,
Michigan
Comprehensive Annual
Financial Report
For The Year Ended December 31, 2006
WWW.SHORELINECITY.COM
CITY OF MUSKEGON,
MICHIGAN
COMPREHENSIVE
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 2006
Prepared By
FINANCIAL SERVICES DIVISION
Timothy Paul
Director of Finance
Elizabeth
Lewis
Derrick
Smith
Assistant
Finance
Director
City
Treasurer
Kenneth
Grant
James
Maurer
Income Tax Administrator Information Systems Director
Kathy
Coleman
Matt
Lee
Accounts
Payable
Payroll
1
2
3
4
Affirmative
Action
(231)724-6703
FAX (231)722-
1214
Cemetery
(231)724-6783
FAX (231)726-
5617
City Manager
(231)724-6724
FAX (231)722-
1214
Civil Service
(231)724-6716 April 5, 2007
FAX (231)724-
4405
Clerk Honorable Mayor and Members of the
(231)724-6705
FAX (231)724- City Commission
4178 City of Muskegon
Comm. & Muskegon, Michigan 49443
Neigh. Services
(231)724-6717
FAX (231)726-
2501
Ladies and Gentlemen:
Finance
(231)724-6713
FAX (231)724- We are pleased to present to you the Comprehensive Annual Financial Report (CAFR) for
6768
the City of Muskegon, Michigan, for the year ended December 31, 2006. This report
Fire Department includes the City's audited financial statements in accordance with the requirements of
(231)724-6792
FAX (231)724- state law. The financial statements are presented in conformity with accounting principles
6985 generally accepted in the United States of America (GAAP), and audited in accordance
Income Tax with generally accepted auditing standards by a firm of licensed certified public
(231)724-6770 accountants. This annual report is formatted to comply with the financial reporting model
FAX (231)724-
6768 developed by the Government Accounting Standards Board (GASB) Statement 34.
Inspection
Services GAAP requires that management provide a narrative introduction, overview, and analysis
(231)724-6715
FAX (231)728- to accompany the basic financial statements in the form of Management's Discussion and
4371 Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should
Leisure Services be read in conjunction with the financial statements. The City of Muskegon's MD&A can
(231)724-6704 be found immediately following the independent auditor's report.
FAX (231)724-
1196
Mayor's Office The Comprehensive Annual Financial Report is prepared by the City's Finance
(231)724-6701
FAX (231)722- Department and responsibility for both the accuracy of the data presented and the
1214 completeness and fairness of the presentation, including all disclosures, rests with the
Planning/Zoning City. We believe the data as presented is accurate in all material respects; that it is
(231)724-6702
FAX (231)724- presented in a manner designed to set forth fairly the financial position and results of
6790 operation of the City as measured by the financial activity of its various funds and
Police component units; and that all disclosures necessary to enable the reader to gain the
Department maximum understanding of the City's finances have been included. Brickley DeLong,
(231)724-6750
FAX (231)722- P.L.C., Certified Public Accountants, performed the independent audit of all accounts of
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the City as required by state law and their report and unqualified opinion is presented as
Public Works the first component of the financial section of this report.
(231)724-4100
FAX (231)722-
4188
Treasurer
(231)724-6720
FAX (231)724-
6768 5
City of Muskegon, 933 Terrace Street, P.O. Box 536, Muskeg on, MI 49443-0536
http://www.shorelinecity.com
THE CITY AND THE REGION
The City of Muskegon is located in Western Michigan on the shores of Lake Michigan. The City covers
eighteen square miles and, with a population of approximately 40,000, is the largest city on the eastern
shore of Lake Michigan. The City is located in Muskegon County and is part of the Muskegon-Norton
Shores MSA. Although Michigan's economy has lagged the national economy due to loss of
manufacturing, Muskegon's local economy has performed better than most Michigan communities:
Inc. Magazine named Muskegon as Michigan's top "boomtown" for 2006
The California-based Milken Institute ranked Muskegon ahead of all other Michigan communities
in its ranking of the 200 largest cities in the country;
Muskegon is also home to many outstanding recreation and cultural facilities and activities:
Michigan
Adventure
Amusement
Park, located north of the city, is the largest amusement park in
Michigan. Muskegon County is currently helping to finance the extension of City water to the
amusement park which is expected to spur further development of the area.
Muskegon is home to both a professional hockey team (UHL Muskegon Fury) and a professional
arena football team (Muskegon Thunder).
Muskegon's Pere Marquette beach has been nationally recognized as one of the best beaches
in the nation by USA Today and is the only beach in Michigan to receive and maintain the Blue
Wave Certification by the Clean Beaches Council. The Blue Wave certification identifies the nation's
cleanest, safest and most environmentally well-managed beaches.
Muskegon is the cultural hub for West Michigan with many museums and live performances. The
Muskegon Museum of Art has the third best art collection in the Midwest, and the Muskegon County
Museum provides insight into the area's history. The former residences of Muskegon's lumber
barons, Charles H. Hackley and Thomas Hume, proudly display the glory of the Victorian ages. The
Fire Barn Museum takes visitors back to a 1890s Muskegon Fire Station. The West Shore
Symphony and Muskegon Civic Theater bring the stage of The Frauenthal Center for the Performing
Arts to life throughout the year.
Muskegon is home to three historic museum ships that attract thousands of visitors each year:
USS Silversides, a rare surviving World War II submarine maintained in pristine condition;
LST-393, a landing craft used in the D-day invasion and one of only two such vessels
remaining in existence; and the
Milwaukee Clipper, a Great Lakes passenger ship built before the Titanic that for many
years served as a cross-lake ferry between Muskegon and Milwaukee.
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City of Muskegon, 933 Terrace Street, P.O. Box 536, Muskeg on, MI 49443-0536
http://www.shorelinecity.com
The City operates under a Commission-Manager form of government and provides the full range of
traditional municipal services. These include police and fire protection, parks and recreation activities,
public works operations, water and sewer services, parking facilities, solid waste collection, community
development and general administrative support services. The City also provides treated water to
several surrounding communities on a wholesale basis.
COMPONENT UNITS
The City has three discretely presented component unit types. These entities are discretely presented
in the financial statements as the governing boards of the component units are substantially the same
as the City's governing board:
The Downtown Development Authority (DDA) which exists primarily for the purpose of financing
redevelopment activities in the City's downtown area. The DDA has issued bonds that are repaid
through tax increment revenues generated by development within the Authority's boundaries.
The Tax Increment Finance Authority (TIFA), which exists primarily for the purpose of financing
redevelopment activities in a sub-section of the City's downtown area. The TIFA generates tax
increment revenues through development within the Authority's boundaries.
The Local Development Finance Authority issues bonds for development activities in the City's
industrial park and high-tech park areas. Bonds are repaid through tax increment revenues
generated by development within the Authority's boundaries. The City has created four separate
local development finance authority districts under the aegis of the Local Development Finance
Authority (LDFA). Only one of these four districts has outstanding debt at this time.
LOCAL ECONOMIC CONDITION AND OUTLOOK
Muskegon is fortunate to have a diverse local economy. The manufacturing sector is strong in the
areas of aerospace, chemicals, plastics, metals and castings, office furniture and automotive parts. The
City of Muskegon also benefits from being home to large government, corrections, healthcare, and
educational employers. Local income tax withholdings remitted by these employers help provide
stability to City finances in times of economic weakness.
As noted, the downturn in Michigan's manufacturing economy has impacted Muskegon, but not to the
extent it has other Michigan communities. According to the W.E. Upjohn Institute, the local economy in
Muskegon is expected to see 0.6% and 1.2% job growth for 2007 and 2008, respectively.
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City of Muskegon, 933 Terrace Street, P.O. Box 536, Muskeg on, MI 49443-0536
http://www.shorelinecity.com
MAJOR INITIATIVES AND ACCOMPLISHMENTS
Among the City's major initiatives and accomplishments in 2006 were the following:
The high-speed cross-lake ferry service linking Muskegon with Milwaukee, Wisconsin completed
a successful third year of operations. More than 110,000 passengers rode the ferry in 2006.
Development began on a nine-acre former Brownfield site in Muskegon's downtown. The City is
using part of the site for a new 20,000 square foot Central Fire Station to replace the existing 80-
year old facility. The rest of the site was sold to a private developer who is the process of
constructing a new car and motor cycle dealerships and will further develop the site with restaurants
and retail development.
Work was completed on streets and other infrastructure improvements for the former Downtown
Mall property. This 23-acre site in the center of the City is under development as a mixed-use
residential and commercial site. The Downtown Muskegon Development Corporation is
spearheading this effort and the City and County have assisted through the granting of a tax-free
"renaissance zone" status and through financial participation, primarily in the form of state and
federal grants.
A $10.6 million cleanup of the contaminated Ruddiman Creek and Lagoon was completed. The
cleanup is being funded by federal and state grants and involved the dredging and removal of
80,000 cubic yards of contaminated sediment.
Development of the Edison Landing Smartzone on the City's downtown waterfront continued
with the opening of a 25,000 square foot law office building and construction of four luxury
condominiums on the site. Work on additional office buildings and residential space is scheduled for
2007.
OTHER INFORMATION
INTERNAL ACCOUNTING CONTROLS
The City's management is responsible for establishing and maintaining an internal control structure that
is designed to ensure adequate protection of the City's assets from loss, theft, or misuse, and adequate
accounting data to allow for preparation of financial statements in conformity with generally accepted
accounting principles. The internal control structure is designed to provide reasonable, but not absolute
assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the
costs of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and
benefits requires estimates and judgments by management.
All internal control evaluations occur within the above framework. We believe that the City's internal
accounting controls adequately safeguard assets and provide reasonable assurances of proper
recording of financial transactions.
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City of Muskegon, 933 Terrace Street, P.O. Box 536, Muskeg on, MI 49443-0536
http://www.shorelinecity.com
BUDGETARY CONTROL
Budgetary control is maintained through an annual budget resolution passed by the City Commission.
Budgetary control at the functional level is maintained by review of estimated expenditures prior to
making purchases. Encumbrances are not recorded in the City's funds. The City does, however, utilize
an informal monitoring system to facilitate budgetary control over proposed purchases. Essentially, this
system entails the use of on-line budgetary information that details year-to-date "actual versus
budgeted" expenditure comparisons by budget category. This information is accessible to appropriate
personnel to enable them to ascertain the budget status of an expenditure category prior to authorizing
additional purchases.
DEBT ADMINISTRATION
At December 31, 2006, the total of City bonds and contractual debt outstanding (including discretely
presented component unit debt) was $46,409,589 as compared to $40,789,817 at December 31, 2005.
During the year, the City issued $5.4 million in capital improvement bonds to finance the new Central
Fire Station and certain recreation projects. In addition, the following new obligations were incurred:
$243,924 Urban Land Assembly (ULA) loan proceeds were drawn from the State of Michigan.
This represents the balance of a $700,000 ULA loan from the State, with $456,076 having been
drawn down during 2005. The loan carries zero percent interest and was used to finance
downtown infrastructure improvements.
$3,078,010 was the City's share of county-issued debt to fund improvements to the regional
wastewater treatment system.
During the year, Standard & Poor's affirmed the City's general obligation debt rating of A.
CASH MANAGEMENT AND INVESTMENTS
Temporarily idle cash from the City's various funds is invested through management of a common
pooled cash and investments system. Maturity of investments are timed to meet the City's cash needs.
Investment instruments generally consisted of U.S. Treasury Bills and Notes, government agency
securities, high quality commercial paper and liquid money-market funds. Daily liquidity needs are
managed by investments in liquid short-term funds of all cash not needed in the common checking
account to cover checks and other debits presented to the bank for payment that day. The City has
contracted with MBIA Municipal Investors Service Corporation to provide full-time, non-discretionary
management of the City's operating funds portfolio.
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City of Muskegon, 933 Terrace Street, P.O. Box 536, Muskeg on, MI 49443-0536
http://www.shorelinecity.com
PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS
For more than sixty years, the City of Muskegon has sponsored two locally-administered defined benefit
pension programs: the Police and Fire Retirement System for uniformed police and fire personnel and
the General Employees' Retirement System for all other full-time employees. In late 2005, the City
began transitioning administrative responsibility for defined benefit pensions to the statewide Municipal
Employees Retirement System (MERS) of Michigan. This was done to achieve the economies of scale
and investment diversification that the $6 billion MERS program offers. Transitioning to MERS has
involved extensive negotiations with five labor unions and gaining the cooperation of affected
employees and retirees. We are pleased to report that the transition to MERS will be completed as of
April 1, 2007.
A parallel effort has been to stabilize the City's retirement benefit costs by replacing the defined benefit
pension program with a defined contribution model. Again, through extensive negotiations, this goal
has been achieved and, all new employees hired by the City are now covered by the defined
contribution retirement program.
The City also provides post-retirement health benefits for retirees and their dependents. Since 1987,
the City has had an actuarial valuation of its post employment healthcare obligation performed each
year and has followed a program of prefunding the obligation in the same manner as its pension
obligations. Starting in 2005, the City has implemented the requirements of GASB statements 43 and
45 "Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions."
RISK MANAGEMENT
During 2006, the City continued its participation in the Michigan Municipal Risk Management Authority
(MMRMA), an intergovernmental cooperative self-insurance program. The MMRMA offers secure
liability and property insurance coverage with premium stability and broad coverage at a competitive
price. The City is insured up to $15 million with a $100,000 deductible per occurrence for general, auto,
public official and law enforcement liability. Since the City began participating in the MMRMA program
in March 1986, total incurred losses and expenses (exclusive of reinsurance recoveries) have been
$7,940,113.
SINGLE AUDIT
The City is required to have an annual single audit in conformity with the provisions of the Single Audit
Act Amendments of 1996 and U.S. Office of Management and Budget Circular A-133, "Audits of State,
Local Governments and Non-Profit Organizations". Information related to the single audit, including the
schedule of federal awards, findings and questioned costs, and auditors' reports on internal control over
financial reporting and compliance with certain laws, regulations and grants are included herein. The
financial activities related to the single audit requirements, such as the Community Development Block
Grant Program, are also included in this financial report.
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City of Muskegon, 933 Terrace Street, P.O. Box 536, Muskeg on, MI 49443-0536
http://www.shorelinecity.com
AWARDS
The Government Finance Officers Association of the United States and Canada (GFOA) awarded a
Certificate of Achievement for Excellence in Financial Reporting to the City of Muskegon for its
Comprehensive Annual Financial Report for the year ended December 31, 2005. This marked the
twenty-first consecutive year that the City has received this prestigious award. In order to be awarded a
Certificate of Achievement, a governmental unit must publish an easily readable and efficiently
organized Comprehensive Annual Financial Report, whose contents conform to program standards.
Such reports must satisfy both generally accepted accounting principles and applicable legal
requirements.
A Certificate of Achievement is valid for a period of one year only. We believe our current report
continues to conform to the Certificate of Achievement Program requirements, and we are submitting it
to the GFOA to determine its eligibility for another certificate.
ACKNOWLEDGEMENTS
The preparation of this report could not be accomplished without the dedicated and efficient services of
the staff of the Financial Services Division and the Muskegon County Print Shop. We would also like to
thank the members of the City Commission for their continued interest and support in conducting the
financial affairs of the City in a responsible and progressive manner and for their tireless efforts in
working for the betterment of the Muskegon community.
Respectfully submitted,
Bryon L. Mazade Timothy J. Paul
City Manager Director of Finance
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City of Muskegon, 933 Terrace Street, P.O. Box 536, Muskeg on, MI 49443-0536
http://www.shorelinecity.com
12
Citizens of Muskegon
The 7-member
Commission The Citizens of The 7-member
appoints various Muskegon elect Commission
Boards and this Commission appoints the City
Commissions Attorney
Various Boards & 7-Member City City Attorney
Commissions Commission
The 7-member
Commission
appoints the City
Manager
City Manager
Administrative Services Financial Services
Division Division
Public Safety Division Leisure Services
Division
Community & Economic
Development Division Public Works Division
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CITY OF MUSKEGON, MICHIGAN
LIST OF PRINCIPAL OFFICIALS
December 31, 2006
ELECTED OFFICIALS
Mayor-Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Steve Warmington
At Large
Vice Mayor-Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Stephen J. Gawron
At Large
Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chris Carter
Ward 1
Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Clara Shepherd
Ward 2
Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Lawrence O. Spataro
Ward 3
Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kevin Davis
Ward 4
Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sue Wierengo
At Large
APPOINTED OFFICIALS
City Manager. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bryon L. Mazade
City Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John C. Schrier
Director of Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Timothy J. Paul
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FINANCIAL SECTION
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MANAGEMENT'S DISCUSSION AND ANALYSIS
This section of the City of Muskegon's annual financial report presents our discussion
and analysis of the City's financial performance during the fiscal year ended December
31, 2006. Please read it in conjunction with the City's financial statements, which follow
this section.
FINANCIAL HIGHLIGHTS
The assets of the City of Muskegon exceeded its liabilities by $131,145,730 as of
December 31, 2006. Of the total net assets, $15,689,033 (12.0%) was
unrestricted and may be used to meet the City's ongoing obligations to citizens
and creditors.
The City's total combined net assets increased $6,565,310 (5.3%) over the prior
year. This increase is primarily the result of tight control of expenses and
increased investment in capital assets funded largely by state and federal grants.
The City's governmental funds reported combined ending fund balance of
$13,232,111, an increase of $3,624,462 in comparison to the prior year. Most of
this increase results from proceeds of general obligation long-term debt issued to
fund construction of a new Central Fire Station.
During the year, the City's total debt increased by $5,736,881 (17%). Most of this
increase is attributable to the issuance of $5.4
million in capital improvement bonds for previously Figure A-1, Required Components of the
City's Annual Financial Report
mentioned fire station, marina improvements and
completion of a lakefront bike/walking trail
The City's general fund reported a total fund balance
of $2,690,039, an increase of $170,434 over the prior
year. The City also maintained a budget stabilization
(or "rainy day") fund that reported a fund balance of
$1.5 million at December 31, 2006, an increase of
$150,000 from 2005.
OVERVIEW OF THE FINANCIAL STATEMENTS
This annual report consists of three parts-management's
discussion and analysis (this section), the basic financial
statements, and required supplementary information. The
basic financial statements include two kinds of statements
that present different views of the City:
The first two statements are government-wide
financial statements that provide both long-term and short-term information about
the City's overall financial status.
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The remaining statements are fund financial statements that focus on individual
parts of the government, reporting individual City operations in greater detail than
the government-wide statements.
The governmental funds statements tell how general government services
were financed in the short-term as well as what remains available for future
spending.
Proprietary fund statements offer short- and long-term financial information
about activities the City operates like private businesses.
Fiduciary fund statements provide information about the financial relationships
in which the City acts solely as a trustee or agent for the benefit of others, to
whom the resources in question belong.
The financial statements also include detailed notes that explain some of the
information in the Figure A-2. Major Features of the City's Government-Wide and Fund Financial Statements
financial statements Fund Statements
and provide additional Type of Statements Government-Wide Governmental Funds Proprietary Funds Fiduciary Funds
Entire City government The activities of the City Activities the City Instances in which the
data. The statements (except fiduciary funds) that are not proprietary or operates similar to private City is the trustee or
are followed by a Scope and the City's component fiduciary businesses. agent for someone else's
units resources
section of required
supplementary Statement of net assets Balance sheet Statement of net assets Statement of fiduciary
net assets
information that further
Required financial Statement of activities Statement of revenues, Statement of revenues, Statement of changes
explains and supports statements expenditures & changes expenses and changes in in fiduciary net assets
in fund balances fund net assets
the information in the Statement of cash flows
Accounting basis Accrual accounting and Modified accrual Accrual accounting and Accrual accounting and
financial statements.
and measurement economic resources focus accounting and current economic resources focus economic resources focus
Figure A-1 shows how focus financial resources focus
All assets and liabilities, Only assets expected to All assets and liabilities, All assets and liabilities,
the required parts of Type of both financial and capital, be used up and liabilities both financial and capital, both short-term and long-
short-term and long-term that come due during the and short-term and long- term; the City's funds do
this annual report are asset/liability
information year or soon thereafter; term not currently contain
no capital assets included capital assets, although
arranged and related to they can
one another. All revenues and Revenues for which cash All revenues and expenses All revenues and
expenses during year, is received during or soon during year, regardless of expenses during year,
regardless of when cash after the end of the year; when cash is received or regardless of when cash
Type of is received or paid expenditures when goods paid is received or paid
Figure A-2 summarizes inflow/outflow or services have been
information received and payment is
the major features of due during the year or
the City's financial soon thereafter
statements, including the portion of the City government they cover and the types of
information they contain. The remainder of this overview section of management's
discussion and analysis explains the structure and contents of each of the statements.
Government-Wide Statements
The government-wide statements report information about the City as a whole using
accounting methods similar to those used by private-sector companies. The statement
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of net assets includes all of the government's assets and liabilities. All of the current
year's revenues and expenses are accounted for in the statement of activities
regardless of when cash is received or paid.
The two government-wide statements report the City's net assets and how they have
changed. Net assets-the difference between the City's assets and liabilities-is one
way to measure the City's overall financial health or position. Over time, increases or
decreases in the City's net assets are an indicator of whether its financial health is
improving or deteriorating, respectively. However, to assess the overall health of the
City, one needs to consider additional nonfinancial factors such as changes in the City's
tax base.
The government-wide financial statements include not only the City of Muskegon itself
(known as the primary government), but also legally separate component units for which
the City is financially accountable. Financial information for these component units is
reported separately from the financial information presented for the primary government
itself.
The government-wide financial statements of the City include the governmental
activities. Most of the City's basic services are included here, such as general
government, public safety, highways and streets, sanitation, economic development,
parks and recreation, and interest on long-term debt. Income taxes, federal grants,
property taxes and revenues from the State of Michigan finance most of these activities.
Also included in the government-wide statements are the City's business-type activities:
water, sewer and marina operations.
Fund Financial Statements
The fund financial statements provide more detailed information about the City's major
funds-not the City as a whole. Funds are accounting devices that the City uses to
keep track of specific sources of funding and spending for particular purposes.
Some funds are required by State law or other legal requirements.
The City Commission establishes other funds to control and manage money for
particular purposes or to show that it is properly using certain taxes and grants.
The City has the following kinds of funds:
Governmental funds-Most of the City's basic services are included in
governmental funds, which focus on (1) how cash and other financial assets that
can readily be converted to cash flow in and out and (2) the balances left at year-
end that are available for spending. Consequently, the governmental fund
statements provide a detailed short-term view that helps the user determine
whether there are more or fewer financial resources that can be spent in the near
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future to finance the City's programs. Because this information does not
encompass the additional long-term focus of the government-wide statements, we
provide additional information on the subsequent page of the governmental funds
statements that explain the relationship (or differences) between them.
Proprietary funds-Services for which the City charges customers a fee are
generally reported in proprietary funds. The City uses three proprietary funds:
water, sewer, and marina. Proprietary funds, like the government-wide
statements, provide both long-term and short-term financial information.
We use internal service funds to report activities that provide supplies and services
for the City's other programs and activities.
Fiduciary funds-The City is the trustee, or fiduciary, for certain funds. It is also
responsible for other assets that-because of a trust arrangement-can be used
only for the trust beneficiaries. The City is responsible for ensuring that the assets
reported in these funds are used for their intended purposes. All of the City's
fiduciary activities are reported in a separate statement of fiduciary net assets and
a statement of changes in fiduciary net assets. We exclude these activities from
the City's government-wide financial statements because the City cannot use
these assets to finance its operations.
Component units Finally, the City of Muskegon's Comprehensive Annual
Financial report includes five component units: the Downtown Development
Authority (DDA), the Tax Increment Finance Authority (TIFA) and, three Local
Development Finance Authorities (LDFAs). Component units are separate legal
entities for which the City of Muskegon has some level of financial accountability.
The component units of the City exist primarily for the issuance and repayment of
debt to finance projects in specific areas of the City. Accordingly, they are
discussed below under the Capital Assets and Debt Administration heading.
FINANCIAL ANALYSIS OF THE CITY AS A WHOLE
Net assets. The Statement of Net Assets provides an overview of the City's assets,
liabilities and net assets. Over time this can provide a good indicator of the City's fiscal
health. The total net assets of the City were $131,145,730 as of December 31, 2006.
This is an increase of $6,563,310 over reported net assets for the prior year. A
summary of the City's net assets follows:
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City's Net Assets
(In thousands of dollars)
Total
Governmental
Business-Type
Percentage
Activities
Activities
Total
Change
2006 2005 2006 2005 2006 2005 2006-2005
Current and other assets $27,617 $22,734 $13,342 $14,843 $40,959 $37,577 9.0%
Capital
assets 79,762 75,845 62,036 56,744 141,798 132,589 6.9%
Total Assets 107,379 98,579 75,378 71,587 182,757 170,166 7.4%
Long-term
liabilities 10,043 5,738 25,167 24,001 35,210 29,739 18.4%
Other liabilities 13,365 12,490 3,036 3,357
16,401 15,847
3.5%
Total Liabilities 23,408 18,228 28,203 27,358 51,611 45,586 13.2%
Net
Assets
Invested in capital assets,
net of related debt 69,814 67,120 39,442 36,743 109,256 103,863 5.2%
Restricted 5,378 5,420 822 822 6,200 6,242 -0.7%
Unrestricted 8,779 7,811 6,911 6,664 15,690 14,475 8.4%
Total Net Assets $83,971 $80,351 $47,175 $44,229 $131,146 $124,580 5.3%
The bulk of the City's net assets (83%) reflect investment in capital infrastructure assets
less the outstanding balance of debt issued to acquire those assets. These physical
assets are used to provide public services to citizens and are not available for future
spending. Five percent ($6,201,228) of the City's net assets are subject to legal
restriction on the resources may be used. The remaining net assets ($15,689,033) are
unrestricted and may be used to meet the City's ongoing obligations.
Changes in net assets . The City's total revenues were $49,123,893. About one-third of the
City's revenue stream came from
charges to users of specific services Figure A 3
such as water or sewer (See Figure A-3). City of Muskegon
Another twenty-three percent came from Sources of Revenue for Fiscal Year 2006
various grants from the state and federal
Operating &
governments and thirty-two percent was Capital Grants
from local property and income taxes. 23% Property Taxes
The remainder was comprised of state 16%
revenues and various other sources such Charges for
as interest income. Services Income Taxes
32% 16%
Other State Revenue
The total cost of all City programs and 3% 10%
services during 2006 was $42,558,583,
an increase of $1,295,553 from 2005.
Seventy-seven percent of these costs
were for governmental activities such as police and fire protection, streets, parks, and
general administration. The remaining twenty-three percent represents business-type
activities operated by the City, specifically, water, sewer and marina operations.
23
The difference between the City's total revenues and expenses ($6,565,310) represents
the increase in total net assets for 2006. The following table (Changes in City's Net
Assets) further breaks down the change in total net assets into year-to-year changes in
individual revenue and expense categories:
Changes in City's Net Assets
(In thousands of dollars)
Total
Governmental Business-Type Percentage
Activities Activities Total
Change
2006 2005 2006 2005 2006 2005 2006-2005
Program revenues
Charges for services $4,967 $5,169 $11,413 $11,310 $16,380 $16,479 -0.6%
Operating grants and contributions 5,093 6,017 - - 5,093 6,017 -15.4%
Capital grants and contributions 5,360 5,894 711 100 6,071 5,994 1.3%
General revenues
Property taxes 7,847 7,670 - - 7,847 7,670 2.3%
Income taxes 7,674 7,238 - - 7,674 7,238 6.0%
State shared revenues 4,674 4,593 - - 4,674 4,593 1.8%
All other 1,263 1,114 122 138 1,385
1,252 10.6%
Total revenues 36,878 37,695 12,246 11,548 49,124 49,243 -0.2%
Governmental activities expenses
Public representation 904 885 - - 904 885 2.1%
Administrative services 733 804 - - 733 804 -8.8%
Financial services 2,062 1,872 - - 2,062 1,872 10.1%
Public safety 13,059 12,482 - - 13,059
12,482 4.6%
Public works 3,089 2,854 - - 3,089 2,854 8.2%
Highways, streets and bridges 5,672 5,910 - - 5,672
5,910 -4.0%
Community and economic development 3,383 3,693 - - 3,383 3,693 -8.4%
Culture and recreation 2,465 2,505 - - 2,465 2,505 -1.6%
General administration 1,144 1,608 - - 1,144 1,608 -28.9%
Interest on long-term debt 207 171 - - 207 171 21.1%
Business-type activities expenses
Water - - 4,500 4,181 4,500
4,181 7.6%
Sewer - - 5,007 3,953 5,007
3,953 26.7%
Marina - - 333 344 333 344 -3.2%
Total ex penses 32,718 32,784 9,840 8,478 42,558 41,262 3.1%
Change in net assets before transfers 4,160 4,911 2,406 3,070 6,566 7,981 -17.7%
Transfers (540) (80) 540 80 - - -
Change in net assets 3,620 4,831 2,946 3,150 6,566
7,981 -17.7%
Net assets at beginning of year 80,351 53,281 44,229 41,079 124,580 94,360 32.0%
Restatement at January 1 - 22,239 - - - 22,239 -
Net assets at end of year $83,971 $80,351 $47,175 $44,229 $131,147 $124,580 5.3%
Net assets for governmental activities increased $3,619,383 primarily due to strong
local income and property tax collections and continued tight cost controls. Business-
type activities saw an increase in net assets of $2,945,927, down from last year's
increase of $3,149,500.
Governmental Activities
The following table (Net Cost of Selected City Functions) presents the cost of each of
the City's largest functions as well as each function's net cost (total cost less fees
generated by the activities and intergovernmental aid specifically related to the
function). The net cost reflects the portion of costs funded by local tax dollars and other
general resources.
24
The operational cost of all governmental activities during 2006 was $32,718,585.
The net cost that City taxpayers paid for these activities through local taxes was
$15,520,403, or 47% of the total.
The remaining cost was paid by user charges to those who directly benefit from
the programs or by state and federal grants and contributions
Net Cost of Selected City Functions
(in thousands of dollars)
Total Cost of Net Cost of
Services % Change Services %
Change
2006 2005 2006 2005
Governmental activities
Public safety $13,059 $12,482 4.6% $11,678
$11,191
4.4%
Community and economic development 3,383 3,693 -8.4% 675 117 476.9%
Culture and recreation 2,465 2,505 -1.6% 425 1,262 -66.3%
Highways, streets and bridges 5,672 5,910 -4.0% (1,508) (2,919) -48.3%
Public works 3,090 2,853 8.3% 2,454 2,185 12.3%
All other 5,049 5,341 -5.5% 3,575
3,867
-7.6%
Total governmental activities $32,718 $32,784 -0.2% $17,299 $15,703 10.2%
Business-Type Activities
The financial goal of the City's business-type activities (i.e. water, sewer and marina
operations) is to operate on a more or less "break-even" basis without making
significant profit or needing general tax subsidies. For 2006 this goal was achieved with
the City's total business-type activities realizing an overall increase in net assets of
$2,945,927. These funds were used to pay debt principal, fund required reserves and
further invest in capital assets.
FINANCIAL ANALYSIS OF THE CITY'S FUNDS
The fund financial statements provide detailed information about the major City funds,
not the City as a whole. The City's major funds for 2006 were the general fund, the
major and local street funds, and the public improvement fund.
General Fund Budgetary Highlights
The general fund receives the most public attention since it is where local tax revenues
are accounted for and where the most visible municipal services such as police, fire and
parks are funded. The City reforecasts its general fund budget on a quarterly basis to
take into account changing economic conditions and policy priorities. The following
table shows the general fund year-end fund balance for the last five years:
Fund Balance as a % of
Year-End Fund Year-to-Year % Prior Year's Prior Year Expenditures
Year Balance Change Expenditures and (Policy Target = 10%)
Other Uses
2006 $2,690,039
+6.8%
$
23,658,227
11.37%
2005 2,519,605
+3.0% 23,388,020
10.77%
2004 2,445,191
+0.5% 23,705,334
10.31%
2003 2,431,418
-13.4% 23,971,536
10.14%
2002 2,807,996
23,235,978
12.08%
25
Actual 2006 general fund expenditures were $169,808 less than the original budget
amount. Most of this variance occurred in the areas of salaries, benefits and other
operating costs as the City continued to manage its way through a difficult economy
with continued tight control of position vacancies and overtime. Significant budget
amendments made during the year included:
City Attorney amended to account for costs incurred by the City's involvement
in an environmental matter involving a mining company's plans to discharge
water into Lake Michigan.
Arena Administration amended to reflect terms of a new operating arrangement
for the LC Walker Arena and the closeout of the former LC Walker Arena special
revenue fund.
Transfers out to other funds amended to reflect additional transfers to the street
funds and the budget stabilization fund made possible by higher than expected
income tax revenues at year-end.
General fund revenues for 2006 were $1,087,526 more than originally budgeted. This
positive variance is attributable to higher than anticipated local income tax collections
and investment earnings.
CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets
At the end of 2006, the City and its component units had invested $141,217,171 in a
wide range of capital assets, including land, equipment, buildings, water and sewer
lines, and vehicles. Note D of the notes to the basic financial statements provides
detailed information on the City's capital asset investment.
The City's largest capital asset project during 2006 was construction of a new $4.0
million Central Fire Station. Other major projects included improvements to the
municipal marina, lakeshore bike trail and infrastructure improvements in the downtown.
Long-Term Debt
At year-end 2006, the City had $38,986,624 in bonds and other long-term obligations
outstanding. This represents an increase of 17% over the prior year. During 2006, the
City entered into the following new debt obligations:
Bond Ratings
$5,400,000
Capital
improvement bonds issued for the The City's limited full faith
purpose of constructing a new Central Fire Station and and credit bonds (i.e. bonds
making improvements to the City's marina and guaranteed by the City's
recreation trail systems. general taxing powers)
presently carry a Standard &
$243,924 Urban Land Assembly (ULA) Loan through Poors rating of "A".
the State of Michigan. This loan carries zero-percent
26
interest and will be used for downtown redevelopment.
$3,078,010 of contractual wastewater debt issued by Muskegon County.
Additional information concerning the City's long-term debt is presented in Note I to the
basic financial statements.
City's Long Term Debt Bonds and Other Obligations
(In thousands of dollars)
Total
Governmental Business-Type Percentage
Activities
Activities Total
Change
2006 2005 2006 2005 2006 2005 2006-2005
Due within one year $1,468 $1,423 $2,308 $2,088 $3,776 $3,511 7.5%
Due in more than one year 10,043 5,738 25,167 24,001 35,210 29,739 18.4%
Total bonds & other obligations $11,511 $7,161 $27,475 $26,089 $38,986 $33,250 17.3%
In addition to direct City debt, component units such as the Downtown Development
Authority (DDA) and Local Development Finance Authority (LDFA) had outstanding debt
totaling $8,823,140 at year-end as shown in the table below. Debt issued by these
component units typically is secured by the limited full faith and credit of the City and so
is an important consideration in assessing the City's overall fiscal health. Additional
information concerning component units' long-term debt is presented in Note I to the
basic financial statements and is summarized as follows:
Component Unit Long Term Debt Bonds and Other Obligations
(In thousands of dollars)
Total
Downtown
Local
Development Percentage
Finance
Authority Finance Authority Total Change
2006 2005 2006 2005 2006 2005 2006-2005
Due within one year $200 $200 $80 $ - $ 280 $ 200 40.0%
Due in more than one year 3,905 4,105 4,638 4,717 8,543 8,822 -3.2%
Total bonds & other obligations $4,105 $4,305 $4,718 $4,717 $8,823 $9,022 -2.2%
ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES
The City's fiscal year 2007 capital budget anticipates spending $10,347,900 for capital
projects, principally street improvements, water and sewer system improvements, and
completion of the new central fire station. These improvements will be funded through
grants, proceeds from debt already issued, and revenues generated by operations. No
new City-issued debt is anticipated in 2007; however, the City's share of County issued
wastewater debt will likely increase as the County continues to fund major system
renovations.
From an operations standpoint, the City's 2007 budget plan is to maintain current
service levels with no new expenditure initiatives.
27
To fund its operations, the City depends on five major sources of revenue: local income
taxes, local property taxes, state-shared revenues, state street funds, and water and
sewer utility fees. Together, these five income sources account for about three-quarters
of the City's total revenues. Meaningful discussion of the City's financial outlook needs
to center on these major income sources.
Local Income Tax
The City income tax was approved by voters in 1993 and now is the primary source of
funding for police, fire, parks and other general operations. The tax rate is 1% on City
residents and ½ of 1% on non-residents who work in the City. The income tax provides
key advantages for urban core cities such as Muskegon. First, it allows the City to
regionalize its tax structure by taxing non-residents who work here and use City
services and by allowing the City to benefit from development occurring outside City
limits. A second major advantage is that it generates revenue from employees working
at hospitals, churches, government agencies, colleges and other institutions traditionally
exempt from paying property taxes. This is particularly important for Muskegon since six
of the ten largest income tax sources are such institutions. Income tax revenues
increased from $7,083,023 in 2005 to $7,425,173 for 2006 (+4.8%). For 2007, the City
is conservatively estimating income tax revenues at $6,980,000. The following table
shows the resident and non-resident composition of the income tax base:
Number of 2006 Percent of Average Average
Category Payers Amount Paid Total Amount Paid Amount Paid
2006 2005
City Resident 7,408 $ 2,895,547 39% $ 391 $ 308
Non-Resident 14,235 3,531,934 48% 248 280
Corporate 1,850 997,692 13% 539 375
Total 23,493 $7,425,173 100% $ 316 $297
Local Property Tax
The City's 2006 property tax millage consisted of 11 mills: 8.5 mills for general
operations and 2.5 mills levied for sanitation. City charter authorizes a general
operating millage up to 10 mills and state law permits a maximum sanitation millage of 3
mills. Millage rates are applied to the taxable value of property in the City to arrive at
the City's property tax levy. As shown below, the City's property values have grown
modestly over the last few years. For 2007, the City is projecting $7,361,472 in property
taxes, a 3% increase over the $7,142,298 collected in 2006.
Percent
Year Real Personal Total Change
2006 $706,285,650
$149,374,300 $855,659,950 +2.9%
2005 673,785,278
158,140,600 831,925,878 +0.3%
2004 661,233,389
168,106,228 829,339,617 -1.2%
2003 661,692,712
177,348,400 839,041,112 +1.6%
2002 638,624,250
187,393,600 826,017,850 +1.6%
2001 601,420,300
211,503,600 812,923,900 -
28
State Shared Revenues
State shared sales tax revenues represent about twenty-percent of total general fund
revenue. The City's state shared revenue allocation is made up of two approximately
equal parts. The constitutional component is a fixed percentage of total state sales tax
collections that is allocated to cities on a per capita basis and that cannot be reduced by
the legislature. The statutory component is determined by a complex formula and is
subject to adjustment through the State's budget process. Both constitutional and
statutory components depend, of course, on overall state sales tax collections. Over
the last several years, state shared revenues have fallen sharply due to the faltering
economy and to executive order budget cuts in the statutory share. The City's recent
state shared revenue history is summarized below:
State Shared Percent
Year Revenues Change
2006 $4,556,801 -0.1%
2005 4,592,852 -1.1%
2005 4,645,348 -5.9%
2004 4,938,861
-7.8%
2002 5,353,987
-6.9%
2001 5,748,523 -
Continued erosion of the state shared revenue component constitutes the single biggest
threat to the stability of City finances at this time. Due to the local income tax,
Muskegon is somewhat less dependent on this revenue source than most Michigan
cities.
For 2007, the City projects $4,628,616 based on current information available from the
state. This is little changed from the $4,556,801 received during 2006.
Street Funds
The State also returns to the City a share of gasoline tax revenues to help fund
maintenance and construction of major and local streets in the City. These revenues
have not suffered to the extent that general state sales tax revenues have:
Street Revenues Percent
Year from State Change
2006 $3,297,183 -0.7%
2005 3,319,131 -4.1%
2004 3,459,503 +9.2%
2003 3,166,406 -1.7%
2002 3,220,625 +1.9%
2001 3,159,325 -
For 2007, the City is projecting a modest increase in street funds from the State of
Michigan.
29
Water and Sewer Fees
From a government-wide entity perspective, combined water and sewer fees represent
the City's largest income source totaling $10,947,364 in 2006. Charges to customers
are based on the amount of metered services used times rates periodically set by the
City Commission. For 2006, sewer rates were increased to help offset the loss of flow
related to the closing of part of a major industrial sewer user. A further sewer rate
increase will be needed in 2007 to offset higher wastewater treatment costs charged by
Muskegon County.
CONTACTING THE CITY'S FINANCIAL MANAGEMENT
This financial report is designed to provide our citizens, taxpayers, customers, and
investors and creditors with a general overview of the City's finances and to
demonstrate the City's accountability for the money it receives. If you have questions
about this report, need additional financial information, or wish to obtain separate
financial statements for the City's component units, contact the City's Finance
Department at (231) 724-6713 or by e-mail (finance@shorelinecity.com).
30
FINANCIAL STATEMENTS
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33
34
35
36
37
38
39
40
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42
43
44
45
46
47
48
49
50
51
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55
56
57
58
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60
61
62
63
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65
66
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68
69
70
71
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79
80
81
82
83
84
85
86
87
88
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90
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95
96
97
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99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
SCHEDULE OF INDEBTEDNESS
115
City of Muskegon
SCHEDULE OF INDEBTEDNESS
December 31, 2006
Annual
Date Amount Interest Date of Interest
of Issue of Issue Rate Maturity 2005 2006 Payable
Business-Type Activities Bonds and Loans Payable:
Water supply system bonds 10/1/1993 5,465,000
$ 0.00% 05/01/07 $ - $ - $ 40,500
($11,315 unamortized discount) 0.00% 05/01/08 - - 40,500
0.00% 05/01/09 - - 40,500
0.00% 05/01/10 - - 40,500
0.00% 05/01/11 - - 40,500
4.50% 05/01/12 450,000
450,000
30,375
4.50% 05/01/13 450,000
450,000
10,121
900,000
900,000
242,996
Water supply system bonds 3/2/1999 9,575,000
$ 4.05% 05/01/06 455,000
- -
($53,762 unamortized discount) 4.05% 05/01/07 470,000
470,000
308,168
4.05% 05/01/08 490,000
490,000
288,728
4.10% 05/01/09 510,000
510,000
268,350
4.20% 05/01/10 535,000
535,000
246,660
4.30% 05/01/11 555,000
555,000
223,493
4.35% 05/01/12 130,000
130,000
208,733
4.40% 05/01/13 155,000
155,000
202,495
4.50% 05/01/14 635,000
635,000
184,798
4.55% 05/01/15 665,000
665,000
155,381
4.60% 05/01/16 695,000
695,000
124,268
4.65% 05/01/17 730,000
730,000
91,310
4.75% 05/01/18 765,000
765,000
56,169
4.75% 05/01/19 800,000
800,000
19,000
7,590,000
7,135,000
2,377,553
Drinking Water State Revolving Fund (DWSRF) 3/2/2004 13,900,000
$ 2.13% 10/01/06 565,000
- -
2.13% 10/01/07 575,000
575,000
283,369
2.13% 10/01/08 590,000
590,000
271,150
2.13% 10/01/09 600,000
600,000
258,613
2.13% 10/01/10 615,000
615,000
245,863
2.13% 10/01/11 630,000
630,000
232,794
2.13% 10/01/12 640,000
640,000
219,406
2.13% 10/01/13 655,000
655,000
205,806
2.13% 10/01/14 670,000
670,000
191,888
2.13% 10/01/15 685,000
685,000
177,650
2.13% 10/01/16 695,000
695,000
163,094
2.13% 10/01/17 710,000
710,000
148,325
2.13% 10/01/18 725,000
725,000
133,238
2.13% 10/01/19 745,000
745,000
117,831
2.13% 10/01/20 760,000
760,000
102,000
2.13% 10/01/21 775,000
775,000
85,850
2.13% 10/01/22 790,000
790,000
69,382
2.13% 10/01/23 810,000
810,000
52,594
2.13% 10/01/24 825,000
825,000
35,381
2.13% 10/01/25 840,000
840,000
17,850
13,900,000
13,335,000
3,012,084
Contractual obligation for 11/6/2002 6,990,000
$ 5.00% 07/01/06 1,058,767
- -
County wastewater debt retirement - refunding bonds 5.00% 07/01/07 1,048,826
1,232,894
104,386
5.00% 07/01/08 1,038,885
1,221,207
51,944
3,146,478
2,454,101
156,330
Contractual obligation for 10/1/2006 6,497,750
$
County wastewater debt retirement 1.63% 10/01/08 459,539 3,537,549
-
459,539 3,537,549
-
TOTAL BUSINESS-TYPE ACTIVITIES BONDS AND LOANS PAYABLE $ 25,996,017
$ 27,361,650
$ 5,788,963
116
City of Muskegon
SCHEDULE OF INDEBTEDNESS - CONTINUED
December 31, 2006
Annual
Date Amount Interest Date of Interest
of Issue of Issue Rate Maturity 2005 2006 Payable
Governmental Activities Bonds and Loans Payable:
Installment purchase contract 7/26/2005 605,824
$ 3.83% 04/01/06 $ 49,785
$ - -
$
of 2005 (firetrucks) 3.83% 04/01/07 51,921
51,921
20,302
3.83% 04/01/08 54,148
54,148
18,271