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City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of Muskegon, Michigan conform to accounting principles generally accepted in
the United States of America (GAAP) as applicable to cities. GAAP includes all relevant Governmental
Accounting Standards Board (GASB) pronouncements. In the government-wide financial statements
and the fund financial statements for proprietary funds, Financial Accounting Standards Board (FASB)
pronouncements and Accounting Principles Board (APB) opinions issued on or before November 30,
1989, have been applied unless those pronouncements conflict with or contradict GASB
pronouncements, in which case, GASB prevails. For enterprise funds, GASB 20 and 34 provide the
City the option of electing to apply FASB pronouncements issued after November 30, 1989. The City
has elected not to apply those pronouncements. The more significant accounting policies establishing
GAAP and used by the City are discussed below.
Financial Reporting Entity - The City of Muskegon was incorporated October 6, 1919, under the
provisions of the Home Rule Act of the State of Michigan. The City operates under a
Commission-Manager form of government and provides the following services as authorized by
its charter: general administrative services, public safety, highway and street maintenance,
sanitation, culture, recreation and other governmental functions. As required by GASB 14, these
financial statements present the City (the primary government) and its component units, entities
for which the City is considered to be financially accountable. The component units discussed
below are included in the City's reporting entity because of the significance of their operational or
financial relationships with the City.
Component Units - In conformity with generally accepted accounting principles, the financial
statements of component units have been included in the financial reporting entity either as
blended component units or as discretely presented component units. Each blended and
discretely presented component unit has a December 31 year-end.
Blended Component Units - Blended component units, although legally separate entities, are,
in substance, part of City operations and so data from these units are combined with data
from the primary government.
City of Muskegon Building Authority - The Authority is governed by a three-member
board comprised of the City Manager, City Attorney and City Finance Director. The City
is involved in the purchase, by lease contract, of the City hall building and an automobile
parking facility from the Authority. For financial reporting purposes, the Building Authority
is reported as if it were part of the City's operations since its sole purpose is to acquire
and lease property to the City.
Discretely Presented Component Units - The component units' columns in the government-
wide financial statements include the financial data of the City's other component units.
These units are reported in a separate column to emphasize that they are legally separate
from the City.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
City of Muskegon Downtown Development Authority (DDA) - The Authority's sole
purpose is the collection of tax increment revenues, the issuance and repayment of debt
and the construction of public facilities to promote and facilitate economic growth in the
downtown district. Members of the DDA are appointed by the City Commission and the
Authority is fiscally dependent on the City since the City Commission approves the DDA
budget and must approve any debt issuance.
City of Muskegon Local Development Finance Authority - The City has created three
separate local development finance authority districts under the aegis of the Local
Development Finance Authority (LDFA) to promote and facilitate economic growth in the
Port City Industrial Park, the Medendorp Industrial Park, and the SmartZone Hi-Tech
Park. The LDFA's sole purpose is the collection of tax increment revenues and the
construction of public facilities. Members of the LDFA are appointed by the City
Commission and the Authority is fiscally dependent on the City since the City
Commission approves budgets and must approve any debt issuance.
Complete financial statements of the component units can be obtained from their
administrative offices, 933 Terrace Street, Muskegon, Michigan 49443.
Related Organizations - The following organizations are related to the City's financial reporting
entity:
Muskegon Hospital Finance Authority - The Muskegon Hospital Finance Authority was
created by the City of Muskegon in accordance with the laws of the State of Michigan.
Members of the Hospital Finance Authority are appointed by the City but the City is not
financially accountable for the Authority and therefore the Authority is excluded from the
accompanying financial statements. The Hospital Finance Authority's sole purpose is to
issue tax-exempt debt for the benefit of Hackley and Mercy-General hospitals, both of which
are located within the City. The Authority has no assets or financial activity and does not
prepare financial statements. The Hospital Finance Authority has no taxing power. As of
December 31, 2003, there was no outstanding debt issued by the Hospital Finance Authority.
The City is not obligated in any manner for repayment of debt issued by the Hospital Finance
Authority, as any debt is payable solely from contractual payments from the hospitals.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
Muskegon Housing Commission - The Muskegon Housing Commission was created by the
City of Muskegon in accordance with the laws of the State of Michigan. Members of the
Housing Commission are appointed by the City but the City is not financially accountable for
the Commission and therefore the Commission is excluded from the accompanying financial
statements. The Housing Commission's main purpose is to administer activities that provide
adequate housing facilities for low-income families and the elimination of housing conditions
that are detrimental to the public peace, health, safety and welfare. The Commission's policy
is to prepare its financial statements on the basis prescribed by the Department of Housing
and Urban Development. Accordingly, the summary information below (which is required by
federal regulations), is not intended to present financial position and results of operations in
conformity with generally accepted accounting principles. Summary financial information for
the fiscal year ended September 30, 2003, the date of its latest audited financial statements
is as follows:
Muskegon Housing Commission
Total assets $5,455,749
Total liabilities 222,942
Total fund equity $5,232,807
Total operating income $286,485
Total operating expenditures (2,047,621)
Total nonoperating revenues 1,434,149
Net loss ($326,987)
Complete audited financial statements can be obtained from the Muskegon Housing Commission
at 1080 Terrace Street, Muskegon, Michigan 49442.
Joint Ventures - The City of Muskegon participates in the following joint ventures:
Central Operations for Police Services - The City is a member of an area-wide central
dispatch system, Central Operations for Police Services. It is a joint venture of nine
governmental units governed by a board composed of representatives of the participants. It
is financed through property taxes, an emergency telephone surcharge to the public and
through annual member assessments based on population, composite state equalized
valuation of property and the average of service calls placed. The City does not report an
equity interest in this joint venture in these financial statements because the City does not
have an explicit and measurable right to the joint venture's resources. The City is unaware of
any circumstances that would cause an additional benefit or burden to the participating
governments in the near future. Financial information based on the September 30, 2003 audit
report of Central Operations for Police Services follows:
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Central Operations for Police Services
General Fund
Total assets $1,554,240
Total liabilities 136,581
Fund balance $1,417,659
Revenues $3,052,078
Expenditures 2,118,002
Revenues over expenditures $934,076
General fixed assets account group $ 2,080,810
General long term debt $ 393,448
Complete financial statements for Central Operations for Police Services can be obtained from
their administrative office at 860 Terrace St., Muskegon, Michigan 49443.
Muskegon Regional Water Alliance - The City is a member of an area-wide alliance, the
Muskegon Regional Water Alliance. It is a joint venture of seven governmental units
governed by a board composed of representatives of the participants. It is financed through
member assessments. The purpose of the alliance is to review, advise and participate in non-
binding issues regarding water service within Muskegon County. The City does not report an
equity interest in this joint venture in these financial statements because the City does not
have an explicit and measurable right to the joint venture's resources. The City is unaware of
any circumstances that would cause an additional benefit or burden to the participating
governments in the near future. Financial information based on the May 31, 2003 audit report
of the Muskegon Regional Water Alliance follows:
Muskegon Regional Water Alliance
General Fund
Total assets $6,362
Total liabilities -
Fund balance $6,362
Revenues $ -
Expenditures 450
Revenues under expenditures ($ 450)
General fixed assets account group $ -
General long term debt $ -
Complete financial statements for the Muskegon Regional Water Alliance can be obtained from
their administrative office at 5428 East Apple Avenue, Muskegon, Michigan 49444.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Basis of Accounting - Government-Wide Financial Statements - The statement of net assets and
the statement of activities display information about the City as a whole. They include all funds of
the reporting entity except for fiduciary funds. These statements distinguish between activities
that are governmental and those that are considered business-type activities. Internal service
fund activity is eliminated to avoid "doubling up" revenues and expenses.
The government-wide statements are prepared using the economic resources measurement
focus and the accrual basis of accounting. This is the same approach used in preparation of the
proprietary fund financial statements but differs from the manner in which the governmental fund
financial statements are prepared. Therefore, governmental fund financial statements include a
reconciliation with brief explanations to better identify the relationship between the government-
wide statements and the statements for governmental funds.
The government-wide statement of activities presents a comparison between expenses, both
direct and indirect, and program revenues for each segment of the business-type activities of the
City and for each governmental and component unit program. Direct expenses are those that are
specifically associated with a service, program or department and are therefore clearly identifiable
to a particular function. Some functions, such as administrative and financial services include
expenses that are, in essence, indirect expenses of other functions. The City has elected not to
allocate those indirect expenses to other functions. Program revenues include charges paid by
the recipients of the goods or services offered by the programs and grants and contributions that
are restricted to meeting the operational or capital requirements of a particular program.
Revenues which are not classified as program revenues are presented as general revenues. The
comparison of program revenues and expenses identifies the extent to which each program is
self-financing or draws from the general revenues of the City.
Net assets should be reported as restricted when constraints placed on net asset use are either
externally imposed by creditors (such as through debt covenants), grantors, contributors or laws
or regulations of other governments or imposed by law through constitutional provisions or
enabling legislation. When both restricted and unrestricted resources are available, it is the City's
policy to use restricted resources first, then unrestricted resources as they are needed.
Basis of Accounting - Fund Financial Statements - Fund financial statements of the reporting
entity are organized into funds, each of which is considered to be a separate accounting entity.
Each fund is accounted for by providing a separate set of self-balancing accounts that constitute
its assets, liabilities, fund equity, revenues and expenditure/expenses. Funds are organized into
three major categories: governmental, proprietary and fiduciary. The focus of governmental and
enterprise fund financial statements is on major funds rather than reporting funds by type. A fund
is considered major if it is the primary operating fund of the City or meets the following criteria:
Total assets, liabilities, revenues or expenditures/expenses of that individual governmental or
enterprise fund are at least 10 percent of the corresponding total for all funds of that category
or type; and
Total assets, liabilities, revenues or expenditures/expenses of the individual governmental or
enterprise fund are at least 5 percent of the corresponding total for all governmental and
enterprise funds combined.
Each major fund is presented in a separate column. Non-major funds are aggregated and
presented in a single column. The internal service funds are presented in a single column on the
face of the proprietary fund statements. To improve reporting cohesiveness, the City has elected
to include the Local Street and Marina funds as major funds for this report.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
The City reports the following major funds:
General Fund - The general fund is the general operating fund of the City. The fund is used
to account for all financial transactions except those required to be accounted for in another
fund. Revenues are derived primarily from property taxes, state shared revenues and
charges for services.
Special Revenue Funds
Major Street and Trunkline Fund - To account for gas and weight tax allocations to the
City by the Michigan Department of Transportation for construction and maintenance of
major streets within the City.
Local Street Fund - To account for gas and weight tax allocations to the City by the
Michigan Department of Transportation for construction and maintenance of local streets
within the City.
Enterprise Funds
Water Fund - To account for user charges and for operating expenses and debt service
of the City's water system.
Sewer Fund - To account for user charges and for operating expenses and debt service
of the City's sewer system.
Marina Fund To account for user fees collected and operating expenses for the
Hartshorn Marina and boat launch ramp facilities.
The following is a description of the three major categories and various fund types within those
categories into which the funds are grouped:
Governmental Funds - All governmental funds are accounted for using modified accrual
basis of accounting and the current financial resources measurement focus. Under the
modified accrual basis of accounting, revenues are recognized in the accounting period
in which they become susceptible to accrual (i.e., when they become both measurable
and available). Expenditures are recognized in the accounting period in which the fund
liability is incurred, if measurable.
Revenue Recognition - "Measurable" means the amount of the transaction can be
determined and "available" means collectable within the current period or soon
enough thereafter to be used to pay liabilities of the current period. The City
considers income taxes, property taxes, special assessments, licenses, interest
revenue and charges for sales and services as susceptible to accrual if the amount
was due on or before fiscal year end and collection was within two months of year-
end. Reimbursements due for expenditure-driven grants are accrued as revenue at
the time the expenditures are made, or when received in advance, deferred until
expenditures are made. All other revenue is recognized as payments are received.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
Expenditure Recognition - The measurement focus of governmental accounting is on
decreases in net financial resources (expenditures) rather than expenses. Most
expenditures are measurable and are recorded when the related fund liability is
incurred. However, principal and interest on general long-term debt, which has not
matured, are recognized when paid. Allocation of costs, such as depreciation and
amortization, are not recognized in the governmental funds.
The following is a description of the governmental fund types of the City:
General Fund - The general fund is the general operating fund of the City. The fund
is used to account for all financial transactions except those required to be accounted
for in another fund. Revenues are derived primarily from property taxes, state shared
revenues and charges for services.
Special Revenue Funds - Special revenue funds are used to account for the
proceeds of specific revenue sources (other than special assessments and major
capital projects) requiring separate accounting because of legal or regulatory
provisions or administrative action.
Debt Service Funds - Debt service funds are used to record the funding and payment
of principal, interest and related expenses in connection with certain long-term debt
other than debt payable from the operations of the proprietary funds.
Capital Projects Funds - Capital projects funds are used to account for the acquisition
or construction of major capital facilities other than those financed by proprietary fund
operations.
Permanent Funds The permanent funds are used to account for the assets of legal
trust agreements held by the City as trustee for which only the interest income on the
principal may be spent.
Proprietary Funds - All proprietary funds are accounted for using the accrual basis of
accounting. These funds account for operations that are primarily financed by user charges.
The economic resource focus concerns determining costs as a means of maintaining the
capital investment and management control. Their revenues are recognized when they are
earned and their expenses are recognized when they are incurred. Allocations of costs, such
as depreciation, are recorded in proprietary funds. Unbilled utility receivables are recorded at
year end.
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 a proprietary fund's principal ongoing operations.
The principal operating revenues of the City's enterprise funds and internal service funds are
charges to customers for sales and services. The water and sewer funds also recognizes as
operating revenue the portion of tap fees intended to recover the cost of connecting new
customers to the system. Operating expenses include the cost of sales and services,
administrative costs and depreciation on capital assets. All revenues and expenses not
meeting this definition are reported as nonoperating revenues and expenses.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
The following is a description of the proprietary fund types of the City:
Enterprise Funds - Enterprise funds report operations that provide services which are
financed primarily by user charges, or activities where periodic measurement of net
income is appropriate for capital maintenance, public policy, management control or
other purposes.
Internal Service Funds - Internal service funds are used to record the financing of
goods or services provided by the City to other departments and funds or to other
governmental units on a cost reimbursement basis.
Fiduciary Funds (Not Included in Government-Wide Financial Statements) - Fiduciary funds
are used to report assets held in a trustee or agency capacity for others and therefore are not
available to support City programs.
Agency Funds - Agency funds are used to account for assets held by the City in a trustee
capacity or as an agent for individuals, private organizations, other governments and/or
other funds. The agency funds are custodial in nature (assets equal liabilities) and do not
involve measurement of results of operations.
Pension Trust Funds - The pension trust funds are used to account for the assets held by
the City as trustee for the employee retirement systems.
Budgets and Budgetary Accounting - Budgets are adopted on a basis consistent with generally
accepted accounting principles. Annual appropriated budgets are legally adopted for the general
and special revenue funds. The City adopts its budget in accordance with City Charter and
Public Act 621, the Uniform Budgeting and Accounting Act, which mandates an annual budget
process and an annual appropriation act to implement the budget. The City follows these
procedures in establishing the budgetary data reflected in the financial statements:
Prior to September 1, the City Manager submits to the City Commission a proposed
operating budget for the fiscal year commencing the following January 1. The operating
budget includes proposed expenditures and the means of financing them.
Public hearings are conducted at the City hall to obtain public comments.
Prior to September 25th the budget and annual appropriations act are legally adopted by the
City Commission.
Formal budget integration is employed as a management control device during the year for
all budgetary funds.
Budgetary control is exercised at the department level in the general fund, and at the total
expenditure or "fund" level for the special revenue funds. Similarly, the City's "appropriation
centers" are defined at the department level in the general fund and at the total expenditure
or "fund" level for the special revenue funds. The City Manager is empowered to transfer
line-item budget amounts within appropriation centers.
Budget transfers between appropriation centers or changes to appropriation center totals
require formal amendment by the City Commission. Expenditures in the special revenue
funds are classified by major functional category for informational purposes. Budgets for the
current year are carefully reviewed throughout the year for any revisions of estimates. The
legislative body amends the general appropriation act as soon as it becomes apparent this
action is necessary. In 2003, the general fund and special revenue fund budgets were
amended to reflect actual expenditures that were higher than originally budgeted.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
All budget appropriations lapse at the end of the year.
Budgets as presented for the governmental funds are prepared on the modified accrual basis
consistent with generally accepted accounting principles.
Deposits and Investments - Statutes authorize the primary government and component units to
invest in the following:
In bonds, securities and other obligations of the United States or agency or instrumentality of
the United States.
In certificates of deposit, savings accounts, deposit accounts or depository receipts of a bank
which is a member of the Federal Deposit Insurance Corporation, a savings and loan
association which is a member of the Federal Savings and Loan Insurance Corporation or a
credit union which is insured by the National Credit Union Administration.
In commercial paper rated at the time of purchase within the two highest classifications
established by not less than two standard rating services and which matures not more than
270 days after the date of purchase.
In United States government or federal agency obligation repurchase agreements.
In banker's acceptances of United States banks.
In obligations of this state or any of its political subdivisions that at the time of purchase are
rated as investment grade by not less than one standard rating service.
In mutual funds composed of investment vehicles which are legal for direct investment by
local units of government in Michigan.
The City's three pension trust funds are also authorized to invest in corporate bonds, common
stock and certain other investment vehicles. The City's deposits and investments are in
accordance with statutory authority.
The City maintains a cash and investment pool that is available for use by all funds and
component units. Each fund type's or component unit's portion of this pool is displayed on the
combined balance sheet as "cash and cash equivalents". In addition, certain City trust funds
including the Policemen and Firemen Retirement Trust Fund, the General Employees Retirement
Trust Fund and the Cemetery Perpetual Care Trust Fund have investments which are separately
held from those of other City funds.
For the purpose of the statement of cash flows, the City considers all assets held in the cash and
investment pool to be cash and cash equivalents because the investments are not identifiable to
the specific funds and the assets can be withdrawn at any time, similar to a demand deposit
account.
In accordance with State law, interest earned in the Budget Stabilization Fund is recorded in the
General Fund.
Investments with a maturity of greater than one year at the date of purchase are stated at fair
value, and all other investments are stated at cost or amortized cost.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
Receivables and Payables - Activity between funds that are representative of lending/borrowing
arrangements outstanding at the end of the fiscal year are referred to as "advances to/from other
funds." All other outstanding balances between funds are reported as "due to/due from other
funds." Any residual balances outstanding between the governmental activities and the business-
type activities are reported in the government-wide financial statements as "internal balances."
All trade and property tax receivables are shown as net of allowance for uncollectible amounts.
Property taxes attach as enforceable liens on property as of December 31st. Taxes are levied on
December 1st of the following year and are payable from the date of levy through March 1st.
Taxes levied on December 1st are recorded as receivables and deferred revenue. Taxes are
recognized as revenue (and become available for appropriation) in the calendar year following
the levy date (December 1st). The City bills and collects its own property taxes and also taxes for
the county and school districts. Collections of all the taxes and remittance of them to the other
taxing authorities are accounted for in the current tax fund. The City is permitted by state law
without voter approval to levy taxes up to $10.00 per $1,000 of state equalized valuation for
general governmental purposes, $3.00 for sanitation, and up to $50,000 per year for community
promotion. The tax rate to finance City services for the year ended December 31, 2003, was
$10.0786 per $1,000 of taxable valuation.
Inventories and Prepaid Items - Inventories include materials, repair parts and supplies for
various City operations and are valued at the lower of cost (first-in, first-out) or market. Certain
payments to vendors reflect costs applicable to future accounting periods and are recorded as
prepaid items in both the government-wide and fund financial statements.
Restricted Cash and Cash Equivalents Certain proceeds of the City's enterprise fund revenue
bonds, as well as certain resources set aside for their repayment, are classified as restricted
assets on the balance sheet because their use is limited by applicable bond covenants.
Wastewater Facility Rights - The City is a participant in the Muskegon County Wastewater
Management System, a wastewater treatment facility owned and operated by Muskegon County.
Members are charged usage fees based on the volume of wastewater treated. In addition, each
member municipality has pledged its full faith and credit in repayment of their allocated shares of
long-term debt of the system. The City has a binding commitment from a large industrial user of
the system to participate in the repayment of its share of the debt. The industrial user, whose
demand for wastewater treatment accounts for 59% of the Citywide wastewater flow into the
system, has agreed to fund 59% of the City's share of the contracts payable to the County.
The City accounts for the group of transactions substantially in accordance with APB 17,
Intangible Assets. The contract payable to Muskegon County is presented as long-term debt.
The long-term receivable from the industrial user is recorded as an "other" asset and the
difference, which represents the City's investment in an intangible asset, is presented as
wastewater facility rights. The investment in wastewater facility rights is amortized over the life of
the debt issue.
Capital Assets and Depreciation - Capital assets, which include property, plant, equipment and
infrastructure assets (e.g., roads, bridges, sidewalks and similar items), are reported in the
applicable governmental or business-type activities columns in the government-wide financial
statements. Capital assets are defined by the City as assets with an initial, individual cost of
more than $7,500 and an estimated useful life in excess of two years. Such assets are recorded
at historical cost or estimated historical cost of purchase or construction. Contributed assets are
recorded at estimated fair market value at the date of donation. Additions, improvements and
other capital outlays that significantly extend the useful life of an asset are also capitalized. Other
costs incurred for repairs and maintenance are expensed as incurred. Depreciation on all assets
is provided on the straight-line basis over the following estimated useful lives:
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
Years
Buildings 25 - 50
Improvements 40 - 50
Water and sewage mains 40 - 100
Equipment 5 - 20
GASB 34 requires major networks and major subsystems of infrastructure acquired, donated,
constructed or substantially rehabilitated since fiscal years ending after June 30, 1980 be
inventoried and capitalized by the fourth anniversary of the mandated date of adoption of the
other provisions of GASB 34. The City has capitalized infrastructure since January 1, 2002 when
GASB 34 was implemented, and has reported the infrastructure in the statement of net assets.
The City will retroactively capitalize the major infrastructure assets on or before December 31,
2007, as permitted by GASB 34.
Compensated Absences - City employees are granted vacation and sick leave in varying
amounts based on length of service and employee group. Unused vacation and sick leave days
are paid to employees upon termination under limits that vary by employee group. The City
follows the accounting and reporting principles outlined in GASB 16, with regard to employee
vacation and sick leave. The liability for these compensated absences is recorded as long-term
debt in the government-wide statements. The current portion of this debt is estimated based on
historical trends. In the fund financial statements, a liability for these amounts is reported in the
governmental funds only for employee terminations as of year-end while the proprietary funds
report the liability as it is incurred.
Long-Term Obligations - In the government-wide financial statements and the proprietary fund
types in the fund financial statements, long-term debt and other long-term obligations are
reported as liabilities in the applicable governmental activities, business-type activities or
proprietary fund type statement of net assets. Bond premiums and discounts, as well as
issuance costs, are deferred and amortized over the life of the bonds using the effective interest
method. Bonds payable are reported net of the applicable bond premium or discount. Bond
issuance costs are reported as deferred charges and amortized over the term of the related debt.
In the fund financial statements, governmental fund types recognize bond premiums and
discounts, as well as bond issuance costs during the current period. The face amount of debt
issued is reported as other financing sources. Premiums received on debt issuances are
reported as other financing sources while discounts on debt issuances are reported as other
financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received,
are reported as debt service expenditures.
Cash Overdrafts - To facilitate cash management and to maximize interest income, the primary
government and component units have pooled certain cash and investment accounts. Cash
overdrafts represent a deficit position in the pooled account and have been classified as amounts
due to other funds.
Fund Equity In the fund statements, reservations of fund balance represent amounts that are
not available for appropriation or are legally segregated for a specific purpose. Reserves exist for
prepaid expenditures and inventories as those items will be expended in subsequent years.
Designations of fund balance represent tentative management plans that are subject to change.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
Comparative Data - Comparative total data for the prior year have been presented in selected
sections of the accompanying financial statements in order to provide an understanding of
changes in the City's financial position and operations. However, comparative (i.e. presentation
of prior year's totals by fund type) data has not been presented in each of the statements since its
inclusion would make the statements unduly complex and difficult to read.
NOTE B - CASH AND INVESTMENTS
Deposits - At year-end the carrying amount of the primary government and component unit's
deposits was $12,492,652 and the bank balance was $12,272,761. Of the bank balance,
$100,000 was covered by federal depository insurance and $12,172,761 was uninsured and
uncollateralized.
Deposits are categorized below according to level of credit risk:
Category 1 represents insured or collateralized deposits with securities held by the entity or
by its agent in the entity's name.
Category 2 represents collateralized deposits with securities held by the pledging financial
institution's trust department or agent in the entity's name.
Category 3 represents uncollateralized deposits including any bank balances that are
collateralized with securities held by the pledging financial institutions, or by its trust
department or agent but not in the entity's name.
Bank Carrying
Category Balance Amount
1 2 3
Demand Deposits $100,000 $ - $12,172,761 $12,272,761 $12,492,652
Investments - Investments of the primary government and component units are categorized
below to give an indication of the level of risk assumed by the entity at year-end:
Category 1 includes investments that are insured or registered, or for which the securities are
held by the entity or its agent in the entity's name.
Category 2 includes uninsured and unregistered investments, for which the securities are
held by the counterparty's trust department or agent in the entity's name.
Category 3 includes uninsured and unregistered investments for which the securities are held
by the counterparty or by its trust department or agent but not in the entity's name.
Category Carrying Amount
1 2 3
US Government Securities $6,824,653 $ - $ - $6,824,653
Investments Not Subject to Categorization:
Stable Net Asset Value Money Market Mutual Funds 996,507
Variable Net Asset Value Equity/Bond Collective Funds 86,437,579
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
$94,258,739
NOTE B - CASH AND INVESTMENTS Continued
Total deposits and investments at December 31, 2003, were $106,751,391 and are presented in the
fund financial statements as follows:
Balance Sheet Classification: Combined Total
Governmental Funds Balance Sheet
Cash and Cash Equivalents $5,630,443
Investments 6,824,653
Statement of Fund Net Assets Proprietary Funds
Enterprise Funds
Cash and Cash Equivalents 3,646,033
Restricted Cash and Cash Equivalents 822,559
Internal Service Funds
Cash and Cash Equivalents 2,050,882
Statement of Fiduciary Net Assets Fiduciary Funds
Cash and Cash Equivalents 5,156,212
Investments 81,694,610
Statement of Net Assets Discretely Presented Component Units
Cash and Cash Equivalents 925,999
$106,751,391
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE C - CAPITAL ASSETS
Primary Government - Capital asset activity for the year ended December 31, 2003 was as
follows:
Balance Balance
January 1, December 31,
2003 Additions Deletions 2003
Governmental Activities
Capital Assets Being
Depreciated and Amortized
Land Improvements $ 527,562 $ 363,087 $ - $890,649
Building and Other Improvements 14,559,534 581,093 - 15,140,627
Machinery and Equipment 10,638,577 554,461 434,835 10,758,203
Infrastructure 1,642,897 1,929,902 - 3,572,799
Shared Street Improvements 4,898,056 678,845 - 5,576,901
Total Capital Assets Being
Depreciated and Amortized 32,266,626 4,107,388 434,835 35,939,179
Less Accumulated
Depreciation and Amortization
Land Improvements 131,252 20,924 - 152,176
Building and Other Improvements 10,319,345 597,695 - 10,917,040
Machinery and Equipment 7,802,551 892,701 426,488 8,268,764
Infrastructure - 92,775 - 92,775
Shared Street Improvements - 244,903 - 244,903
Total Accumulated
Depreciation and Amortization 18,253,148 1,848,998 426,488 19,675,658
Net Capital Assets Being
Depreciated and Amortized 14,013,478 2,258,390 8,347 16,263,521
Capital Assets Not Being
Depreciated or Amortized
Land 13,411,170 151,313 - 13,562,483
Construction in Progress 3,179,089 9,068,915 2,871,288 9,376,716
Total Capital Assets Not Being
Depreciated or Amortized 16,590,259 9,220,228 2,871,288 22,939,199
Total Governmental Activities
Capital Assets Net of
Depreciation and Amortization $30,603,737 $11,478,618 $2,879,635 $39,202,720
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE C - CAPITAL ASSETS Continued
Balance Balance
January 1, December 31,
2003 Additions Deletions 2003
Business-Type Activities
Capital Assets Being Depreciated
Land Improvements $ 1,925,473 $ - $ 938 $1,924,535
Buildings and Systems 49,607,809 1,094,691 141,257 50,561,243
Machinery and Equipment 3,061,746 - 1,484,979 1,576,767
Total Capital Assets Being Depreciated 54,595,028 1,094,691 1,627,174 54,062,545
Less Accumulated Depreciation
Land Improvements 1,395,031 51,907 6,177 1,440,761
Buildings and Systems 19,224,006 803,168 18,668 20,008,506
Machinery and Equipment 1,449,106 85,041 768,374 765,773
Total Accumulated Depreciation 22,068,143 940,116 793,219 22,215,040
Net Capital Assets Being Depreciated 32,526,885 154,575 833,955 31,847,505
Capital Assets Not Being Depreciated
Land 135,654 - 15,966 119,688
Construction in Progress 8,279,665 2,225,643 1,120,267 9,385,041
Total Capital Assets Not Being
Depreciated 8,415,319 2,225,643 1,136,233 9,504,729
Total Business-Type Activities Capital
Assets Net of Depreciation $40,942,204 $2,380,218 $1,970,188 $41,352,234
Depreciation was charged to programs of the primary government as follows:
Governmental activities
Administrative services $448,635
Financial services 11,411
Public safety 103,803
Public works 37,546
Leisure services 207,865
Planning 19,057
Highways, streets and bridges 316,417
Internal service fund depreciation is
charged to the various programs based
on their usage of the assets 704,264
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
Total Governmental Activities
Depreciation Expense $1,848,998
Business-type activities
Water $282,302
Sewer 596,776
Marina 61,308
Total Business-Type Activities Depreciation Expense $940,116
NOTE C - CAPITAL ASSETS Continued
Discretely Presented Component Units Capital asset activity for the City's discretely presented
component units for the year ended December 31, 2003 was as follows:
Balance Balance
January 1, December 31,
2003 Additions Deletions 2003
Capital Assets Being Depreciated
Buildings and Other Improvements $ - $3,798,258 $ - $3,798,258
Less Accumulated Depreciation
Buildings and Other Improvements - 14,387 - 14,387
Net Capital Assets Being Depreciated - 3,783,871 - 3,783,871
Capital Assets Not Being Depreciated
Land 400,000 - - 400,000
Construction in Progress 318,803 3,479,455 3,798,258 -
Total Capital Assets Not Being Depreciated 718,803 3,479,455 3,798,258 400,000
Total Discretely Presented Component
Units Capital Assets Net of Depreciation $718,803 $7,263,326 $3,798,258 $4,183,871
Construction Commitments As of December 31, 2003, the City and its component units had the
following active construction projects and related commitments with contractors:
Remaining
Project Name Spent-to-Date Commitment
Water Filtration Plant Improvements $552,286 $16,847,714
Shoreline Drive East Construction 4,022,694 4,090,613
Cross Lake Ferry Site Improvements - 1,200,000
Shoreline Drive Construction Engineering 654,511 413,434
Roberts Street Water Tank Painting - 151,000
Public Service Building Heating Units - 82,725
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE D - LONG-TERM DEBT
Following is a summary of long-term debt transactions for the year ended December 31, 2003:
Balance Balance Amounts Due
January 1, December 31, Within One
2003 Borrowings Payments 2003 Year
Business-Type Activities
Revenue Debt $9,750,000 $ - $405,000 $9,345,000 $420,000
Intergovernmental Contractual Debt 7,038,014 - 1,151,091 5,886,923 1,107,267
Long-Term Compensated Absences 186,528 3,429 - 189,957 31,659
16,974,542 3,429 1,556,091 15,421,880 1,558,926
Governmental Activities
Intergovernmental Contractual Debt 1,276,900 - 150,000 1,126,900 150,000
Michigan Transportation Fund Debt 3,335,000 - 550,000 2,785,000 555,000
General Obligation Debt 400,000 - 195,000 205,000 205,000
Special Assessment Debt 1,835,000 1,575,000 375,000 3,035,000 425,000
Long-Term Compensated Absences 1,373,693 82,259 - 1,455,952 242,658
8,220,593 1,657,259 1,270,000 8,607,852 1,577,658
Total Primary Government Long-Term
Debt 25,195,135 1,660,688 2,826,091 24,029,732 3,136,584
Discretely Presented Component Units
Revenue Debt 1,000,000 - - 1,000,000 -
General Obligation Debt 9,390,000 - 995,000 8,395,000 180,000
10,390,000 - 995,000 9,395,000 180,000
$35,585,135 $1,660,688 $3,821,091 $33,424,732 $3,316,584
Long-term debt payable at December 31, 2003, consisted of the following individual issues:
Primary Government
Business-Type Activities
$5,465,000 water supply system bonds of 1993 due in two
installments of $450,000 through May 1, 2013; interest at $ 900,000
4.50% (unamortized discount $16,537).
$9,575,000 water supply system bonds of 1999 due in annual
installments of $420,000 to $800,000 through May 1, 2019; 8,445,000
interest at 3.85% to 4.75% (unamortized discount $77,117).
$6,990,000 contractual obligation of 2002 for County
wastewater debt due in annual installments of $116,862 to 3,938,249
$1,244,580 through 2008; interest at 2.00% to 5.00%.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
Primary Government
$8,034,263 contractual obligation of 1996 for County
wastewater debt retirement due in annual installments of
$964,112 to $984,562 through July 1, 2005; interest at 5.10% to 1,948,674
5.70%.
Total Bonds and Loans Payable 15,231,923
Long-term compensated absences 189,957
Total Business-Type Activities Long-Term Liabilities $15,421,880
NOTE D - LONG-TERM DEBT - Continued
Governmental Activities
$1,545,000 Building Authority limited tax bonds of 1996 (City
Hall renovations) due in an annual installment of $205,000 on $205,000
December 1, 2004; interest at 4.30%.
$1,155,000 special assessment improvement bonds of 1996 90,000
due in annual installments of $25,000 to $65,000 through
December 1, 2005; interest at 4.30% to 4.40%.
$1,495,000 special assessment improvement bonds of 1998 780,000
due in annual installments of $60,000 to $165,000 through April
1, 2009; interest at 3.90% to 4.00%.
$825,000 special assessment improvement bonds of 2000 due
in annual installments of $70,000 to $90,000 through April 1, 590,000
2010; interest at 4.55% to 5.00%.
$1,575,000 capital improvement bonds of 2003 due in annual
installments of $105,000 to $150,000 through June 1, 2016; 1,575,000
interest at 2.00% to 4.05%.
$1,276,900 State of Michigan urban land assembly loan due in
annual installments of $150,000 to $276,900 through October 1,126,900
31, 2009; interest free.
$2,245,000 Michigan Transportation Fund bonds of 2002 for
street improvements due in annual installments of $350,000 to 1,895,000
$400,000 through June 1, 2008; interest at 2.00% to 3.13%
(unamortized premium $7,119).
$1,950,000 Michigan Transportation Fund bonds of 1998 for
street improvements due in annual installments of $205,000 to 890,000
$240,000 through December 1, 2007; interest at 4.10% to
4.25%.
Total Bonds and Loans Payable 7,151,900
Long-term compensated absences 1,455,952
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
Total Governmental Activities Long-Term Liabilities $8,607,852
Total Primary Government Long-Term Debt $24,029,732
NOTE D - LONG-TERM DEBT - Continued
Discretely Presented Component Units Debt
$1,000,000 Downtown Development Authority promissory note
to Muskegon County due in a balloon payment August 30, $1,000,000
2019; interest free.
$4,005,000 Downtown Development Authority tax increment
refunding bonds of 2001 due in annual installments of $180,000 3,670,000
to $335,000 through June 1, 2018; interest at 4.00% to 5.00%.
$4,725,000 Local Development Finance Authority tax increment
bonds of 2002 for building improvements in the Smartzone
Tech Park due in annual installments of $80,000 to $400,000 4,725,000
through November 1, 2025; interest at 3.25% to 4.85%
(unamortized discount $8,597).
Total Discretely Presented Component Units Long-Term
Debt $9,395,000
Total Reporting Entity Long-Term Debt $33,424,732
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE D - LONG-TERM DEBT - Continued
The annual requirements to amortize all debt outstanding as of December 31, 2003, including
interest payments of $9,989,180 are as follows:
Year
Ending
December Discretely Presented
31 Business-Type Activities Governmental Activities Component Units Totals
Principal Interest Principal Interest Principal Interest
2004 $1,527,267 $671,958 $1,335,000 $198,379 $180,000 $365,640 $4,278,244
2005 1,515,974 600,244 1,115,000 158,123 185,000 358,340 3,932,681
2006 1,699,580 552,333 1,120,000 126,535 200,000 350,640 4,049,088
2007 1,702,894 471,373 1,170,000 93,966 280,000 342,640 4,060,873
2008 1,711,208 390,288 880,000 60,379 290,000 331,840 3,663,715
2009 510,000 308,850 536,900 43,685 300,000 320,220 2,019,655
2010 535,000 287,160 190,000 34,755 310,000 307,813 1,664,728
2011 555,000 263,993 120,000 28,805 320,000 294,605 1,582,403
2012 580,000 239,108 125,000 24,393 425,000 280,834 1,674,335
2013 605,000 212,620 130,000 19,610 500,000 262,268 1,729,498
2014 635,000 184,798 135,000 14,508 575,000 240,715 1,785,021
2015 665,000 155,381 145,000 8,975 605,000 215,435 1,794,791
2016 695,000 124,266 150,000 3,031 640,000 188,343 1,800,640
2017 730,000 91,310 - - 670,000 159,088 1,650,398
2018 765,000 56,167 - - 710,000 127,750 1,658,917
2019 800,000 19,000 - - 1,395,000 103,063 2,317,063
2020 - - - - 400,000 85,485 485,485
2021 - - - - 255,000 67,085 322,085
2022 - - - - 265,000 55,355 320,355
2023 - - - - 280,000 43,165 323,165
2024 - - - - 295,000 29,585 324,585
2025 - - - - 315,000 15,278 330,278
$15,231,923 $4,628,849 $7,151,900 $815,144 $9,395,000 $4,545,187 $41,768,003
Future debt service requirements (i.e. principal and interest) by type of debt are as follows:
General Obligation Bonds Revenue Bonds
General Discretely Discretely
Long-Term Presented Presented
Debt Component Enterprise Component
Units Funds Units
2004 $213,816 $545,640 $821,880 $ -
2005 - 543,340 820,204 -
2006 - 550,640 822,399 -
2007 - 622,640 818,667 -
2008 - 621,840 819,228 -
2009 - 620,220 818,850 -
2010 - 617,813 822,160 -
2011 - 2015 - 3,718,856 4,095,899 -
2016 - 2020 - 3,478,733 3,280,745 1,000,000
2021 - 2025 - 1,620,465 - -
$213,816 $12,940,187 $13,120,032 $1,000,000
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE D - LONG-TERM DEBT - Continued
Michigan
Special Transportation
Intergovernmental Assessment Fund Bonds
Business-
Type Governmental Governmental Governmental
Activities Activities Activities Activities
2004 $1,377,345 $150,000 $532,239 $637,325
2005 1,296,015 150,000 471,865 651,258
2006 1,429,514 150,000 433,175 663,360
2007 1,355,599 200,000 395,828 668,138
2008 1,282,267 200,000 344,285 396,091
2009 - 276,900 303,684 -
2010 - - 224,755 -
2011 -2015 - - 751,291 -
2016 -2020 - - 153,034 -
2021 -2025 - - - -
$6,740,740 $1,126,900 $3,610,156 $3,016,172
There are a number of limitations and restrictions contained in the various bond indentures. The
City is in substantial compliance with all the significant provisions of the bond indentures.
The limited full faith and credit of the City has been pledged for repayment of special
assessments bonds.
The $4,725,000 Local Development Finance Authority (LDFA) tax increment bonds of 2002 are
partially guaranteed by the Community Foundation for Muskegon County. If LDFA tax increment
revenues are not sufficient to cover debt service costs in any year, the Foundation has agreed to
pay one-half of such shortfall up to $75,000 annually.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE E - RECEIVABLES, PAYABLES AND TRANSFERS WITHIN THE REPORTING
ENTITY
Receivables and payables consisted of the following at December 31, 2003:
Fund/Component Unit Receivable Fund/Component Unit Payable
General $1,036,348 Current Tax $1,036,348
State Grants 177,313 Lakeshore Trail 177,313
Major Street and Trunkline 8,081,356 General 6,239,088
Local Street 493,226
Enterprise Community 4,281
EC Micro Loan 32,993
Rehab Loan Escrow 4,221
HOME Rehabilitation 291,054
Community Development Block Grant 235,344
State Grants 595,801
Marina 72,012
Cemetery Perpetual Care 113,336
8,081,356 8,081,356
Total Primary Government $9,295,017 Total Primary Government $9,295,017
Component Unit Local Development
Primary Government - General 177,304 Finance Authority II 177,304
Total Reporting Entity $9,472,321 Total Reporting Entity $9,472,321
Property taxes are collected in a central current tax fund from where they are distributed to the various
taxing jurisdictions - including the City and its component units. Amounts owed the City at December 31,
2003 are shown as interfund payables/receivables. The amount due to the state grants fund from the
lakeshore trail fund is for a match on a grant. Other interfund payables/receivables consist entirely of
temporary loans to cover cash shortfalls in a given fund. .
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE E - RECEIVABLES, PAYABLES AND TRANSFERS WITHIN THE REPORTING
ENTITY Continued
Transfers consisted of the following for the year ended December 31, 2003:
Fund Transfers Out Fund Transfers In
General $1,240,856 Local Street $870,000
L.C. Walker Arena 210,000
State Grants 10,856
Public Improvement 150,000
1,240,856 1,240,856
Budget Stabilization 500,000 General 566,282
Revolving Loan 5,000
Cemetery Perpetual Care 61,282
566,282 566,282
Major Street and Trunkline 525,049 Local Street 500,000
Sidewalk Improvement 25,049
525,049 525,049
Local Street 64,169 Sidewalk Improvement 64,169
TIFA Debt Service 120,000 L.C. Walker Arena 120,000
General Employees Retirement System 289,603 General Insurance 1,179,938
Police and Firemen Retirement System 890,335
1,179,938 1,179,938
Lakeshore Trail 224,386 State Grants 224,386
Total Reporting Entity $3,920,680 Total Reporting Entity $3,920,680
Each year, the general fund transfers funds to the local and major street funds and to the public
improvement fund to finance capital improvement projects. The general fund also provides an operating
subsidy transfer to the L.C. Walker arena fund. Also on an annual basis, the City's pension funds transfer
funds to the City's insurance fund to offset the cost of retiree healthcare benefits. Other transfers
between funds are made to meet grant matching requirements or other operational needs.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE F - DEFINED BENEFIT PENSION PLANS
The primary government maintains two separate single employer contributory pension plans - the
General Employees Retirement System and the Policemen and Firemen Retirement System -
which cover all active full-time employees of the City. The pension plans are maintained as
pension trust funds and are included as part of the City's reporting entity. Staff costs associated
with administering the plans are paid from the city's general fund. Contractual service costs for
investment management and consulting, actuarial services, custodial services and similar items
are paid from investment earnings of the funds. A stand alone financial report of the pension
plans has not been issued.
Plan Descriptions - The following schedule is derived from the respective actuarial reports and
from City information and reflects accounting policies, membership and plan provisions and
actuarial assumptions for the two pension plans as of December 31, 2002:
General Policemen and
Employees Firemen
General Information:
Authority City Ordinance City Ordinance
Basis of Accounting Accrual Accrual
Asset Valuation:
Reporting Fair Value Fair Value
Four-Year Smoothed Four-Year Smoothed
Actuarial Valuation Market Market
Valuation Date December 31, 2002 December 31, 2002
Actuarial Cost Method Individual Entry Age Individual Entry Age
Amortization Method Level Percent (Open) Level Percent (Open)
Remaining Amortization Period 10 Years 10 Years
Non-government investments in excess of 5% None None
Membership And Plan Provisions:
Members:
Active Participants 171 127
Retirees and Beneficiaries Receiving
Benefits 158 156
Terminated Plan Members Entitled to But Not Yet
Receiving Benefits 21 4
Member Contributions:
First $4,200 of Earnings 3.0% 6.0%
Excess of $4,200 of Earnings 5.0% 6.0%
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE F - DEFINED BENEFIT PENSION PLANS - Continued
General Policemen and
Employees Firemen
Normal Retirement Benefit:
Retirement Age 55 - 60 53 - 55
Years of Service (Minimum) 5 - 30 10 - 25
Accrual (First $4,200 final average compensation) 1.9% - 2.25% 2.5% - 2.6%
Final average compensation in excess of $4,200 1.9% - 2.25% 2.5% - 2.6%
Maximum (% of final average compensation) None 75%-80%
Years to Vest 5 - 10 10
Assumptions:
Investment Earnings 8.0% 8.0%
Salary Increases 5.0% - 8.8% 5.0% - 8.0%
Investment and salary assumptions include inflation at 5.0%.
Basis of Accounting - The pension plans' financial statements are prepared using the accrual
basis of accounting. Plan member contributions are recognized in the period they are due. The
City's contributions to the plans are recognized when due and the City has made a formal
commitment to provide them. Benefits and refunds are recognized when due and payable in
accordance with the terms of the plan.
Funding Policy - The City is obligated by the state constitution to make annual contributions to
each of its pension plans based on actuarially computed percentages of covered wages in
amounts sufficient to cover the normal cost of benefits and amortize prior service liabilities over a
period of future years. Actuarial assumptions used in determining the annual funding
requirements are set by the boards of trustees of each system. During the year ended December
31, 2002, contributions were made to the plans in accordance with contribution requirements
determined by actuarial valuations of the plans as of December 31, 2000, and were as follows:
General Policemen
Employees and Firemen
Retirement Contributions Members $325,527 $ 410,413
Retirement Contributions City - 290,431
$325,527 $700,844
Benefits Pension benefit levels are established through negotiation and contract with the City's
various collective bargaining units. Benefit levels for non-represented employees are established
by policy of the City Commission.
Investments - Investments are reported at fair value which is determined using selected bases as
follows: short-term investments are reported at cost which approximates fair value; securities
traded on a national exchange are valued at the last reported sales price; investments that do not
have established fair values are reported at estimated fair value; and, cash deposits are reported
at carrying amount which reasonably estimates fair value. The following summarizes the carrying
values of investments of the City's two pension plans at December 31, 2002:
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE F - DEFINED BENEFIT PENSION PLANS - Continued
Cost Fair Value
General Employees
Bond index fund $12,001,488 $13,660,138
Common stocks (collective funds) 15,439,230 15,929,148
Other instruments 595,704 595,704
$28,036,422 $30,184,990
Policemen and Firemen
Bond index fund $16,662,038 $18,968,452
Common stocks (collective funds) 21,193,161 21,802,940
Other instruments 320,729 320,729
$38,175,928 $41,092,121
GASB 25 Required Information - Three-year trend information as required by GASB 25 is
presented below. GASB 25 required supplementary information is presented after the Notes to
the Financial Statements.
Three Year Trend Information
Actuarial Fiscal Year
Valuation Dated Ended Annual Pension Percentage Net Pension
December 31, December 31, Cost (APC) Contributed Obligation
General Employees
1998 2000 $50,987 100.00% 0
1999 2001 - - 0
2000 2002 - - 0
Policemen and Firemen
1998 2000 $98,491 100.00% 0
1999 2001 96,549 100.00% 0
2000 2002 290,431 100.00% 0
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE G - OTHER POST EMPLOYMENT BENEFITS
In addition to the pension benefits described in Note F, the City provides healthcare benefits to
retirees receiving a City pension. As of December 31, 2003, 313 retirees or beneficiaries were
eligible for post-employment health care benefits. Specific benefit provisions vary by employee
group; however, in general, benefits for retirees under age 65 are the same as for regular
employees while retirees over 65 receive a Medicare supplemental benefit. 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 it funds the
pension obligation. During 2003, the City made contributions to the retiree healthcare program as
follows:
General Employees Police and Firemen
Contribution $ 305,265 $ 581,837
As a % of Payroll 4.4% 8.4%
As of December 31, 2002 the total unfunded actuarial accrued liability computed for the City's
retiree health benefits was $8,889,702.
NOTE H - EXCESS OF EXPENDITURES OVER APPROPRIATIONS IN BUDGETED
FUNDS
P.A. 621 of 1978, Section 18(1) as amended, provides that a local unit shall not incur
expenditures in excess of the amount appropriated.
During the year ended December 31, 2003, the City incurred expenditures in certain budgetary
funds which were in excess of the amounts appropriated, as follows:
Amended Budget Actual Expenditures
Budget Stabilization Fund $400,000 $500,000
The budget overage in the budget stabilization fund resulted from the need to transfer at year-end
additional operating funds to the general fund.
All expenditures over appropriations have either been paid by available revenues, transfers from
other funds or by reduction of the current fund balance.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE I - RISK MANAGEMENT
The City purchases insurance, participates in public entity risk pools and is self-insured for the
various risks associated with City operations. The City's risk financing activities are accounted for
in the general insurance internal service fund. Significant risk management activities of the City
are accounted for and disclosed below as required by GASB 10.
The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of
assets; errors and omissions; injuries to employees; and natural disasters. The City obtains its
liability and property insurance coverage as a member of the Michigan Municipal Risk
Management Authority (MMRMA), a public entity risk pool providing liability and property
coverage to its participating members. The City pays an annual premium to MMRMA for liability
insurance coverage. The MMRMA is self-sustaining through member premiums and provides,
subject to certain deductibles, occurrence based coverage by internally insuring certain risks and
reinsuring risks through commercial companies. A $75,000 deductible is maintained to place the
responsibility for small charges with the City. Settled claims resulting from these risks have not
exceeded insurance coverage in any of the past three fiscal years. Changes in the fund's claim
liability amount in 2003 and 2002 were as follows:
City General Liability
2003 2002
Claims Liability at January 1 $119,422 $245,152
Current Year Claims and Changes in Estimates 115,266 136,525
Claim Payments (113,859) (262,255)
Claims Liability at December 31 $120,829 $119,422
The City manages workers' compensation risk by participating in the Michigan Municipal Workers'
Compensation Self-Insurance Fund (MMWCSIF), a public risk pool providing workers'
compensation coverage to its members. The City pays an annual premium to MMWCSIF for its
workers compensation coverage. The MMWCSIF is self-sustaining through member premiums
and provides statutory workers compensation coverage to its members by internally insuring
certain risks and reinsuring risks through commercial companies. Settled claims resulting from
these risks have not exceeded insurance coverage in any of the past three fiscal years.
The City is self-insured for employee health care benefits for those employees selecting the City
plan over other options. Under this plan, the general insurance fund provides coverage for up to a
maximum of $125,000 per covered individual. As of December 31, 2003, the claims liability
including incurred but not reported claims was $97,521. A liability was recorded in the
accompanying financial statements for the estimated claims liability. The claims liability was
based on past experience, a review of pending claims and other social and economic factors. The
above estimate was not discounted and there were no outstanding claims for which annuity
contracts have been purchased in the claimant's name. No significant reductions in insurance
coverage were made in the last fiscal year. Settled claims have not exceeded the commercial
coverage in any of the past three fiscal years. Changes in the fund's claim liability amount in
2003 and 2002 were as follows:
City Employee Medical
2003 2002
Claims Liability at January 1 $97,055 $44,548
Current Year Claims and Changes in Estimates 1,527,828 1,520,235
Claim Payments (1,527,362) (1,467,728)
Claims Liability at December 31 $97,521 $97,055
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE J - CONTINGENCIES
The City has advanced funds in the amount of $1,933,844 to the Downtown Development
Authority (DDA) for activities involving redevelopment of the downtown area. Repayment of
these advances is contingent upon collection of tax increment revenue (or "Proposal A"
replacement revenues from the State) in excess of the amounts needed for debt service
payments on outstanding bond issues. Repayment was uncertain and the advances were written
off for financial statement purposes. If excess tax increment revenue (or "Proposal A"
replacement revenues from the State) become available, the City will apply such revenue to
repayment of the advances. The following advances were outstanding at December 31, 2003:
Date of Obligation Original Amount Outstanding Balance Interest Rate
8/10/1989 $1,150,000 $1,150,000 0.0%
8/31/1989 783,844 662,032 7.0%
The City is party to various other legal proceedings and claims which normally occur in
governmental operations. Although the outcome of these legal proceedings and claims are not
presently determinable, it is the opinion of the City's management that the resolution of these
matters will not have a material adverse effect on the financial condition of the City.
In the normal course of operations, the City receives grant funds from various federal and state
agencies. The grant programs are subject to audit by agents of the granting authority, the
purpose of which is to ensure compliance with conditions precedent to the granting of funds. Any
liability for reimbursement which may arise as the result of these audits is not believed to be
material.
NOTE K - DESIGNATED FUND BALANCE
Unreserved fund balances designated for specific purposes at December 31, 2003, are as
follows:
Public Improvement Fund
Designated for Fire Equipment Replacement $316,586
Designated for Pere Marquette Park Improvements 5,982
$322,568
NOTE L SUBSEQUENT YEAR INFORMATION
The City issued $13,900,000 of water system revenue bonds through the Michigan Municipal
Bond Authority to finance improvements at the water filtration plant. The bonds are dated March
25, 2004 and carry a fixed interest rate of 2.125%. The bonds are to be paid over twenty years
with the first principal payment being made in 2006.
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE M SALE OF WATER SYSTEM
During 2003, the City sold a part of its water system ("southside system") to Muskegon Charter
Township. Ownership of the system and related issues had been the subject of litigation. Major
terms of the sale are as follows:
$1,000,000 cash payment by the Township to the City in two equal annual installments in
2003 and 2004;
City agreed to waive hydrant rental fees in the amount of $257,000 that had been in dispute;
Wholesale water sales by the City to the Township at a rate of 1.35 times the rate the City
charges its residents;
The City to continue maintenance of the system under contractual arrangement; and
Township dismissed its lawsuit against the City.
At the time of sale, assets of the southside water system including receivables associated with
hydrant rentals were carried on the City's books at a value of $1,093,267. The sale price of
$1,000,000 resulted in a loss on the sale of $93,267, which is shown in the water fund.
NOTE N SUPPLEMENTAL INFORMATION TO STATEMENT OF CASHFLOWS
A noncash transaction consisting of a payment due in the amount of $500,000 for the sale of the
southside water system to Muskegon Charter Township has been included in the accompanying
water fund financial statements.
NOTE O STATE CONSTRUCTION CODE ACT
P.A. 245 of 1999, section 22(1) of the State Construction Code Act, requires fees generated by
enforcing agencies of construction board of appeals be intended to bear a reasonable relationship
to the actual cost of performing those services. The fees generated by the City's enforcing
agencies and the costs of providing those services were as follows for the year ended December
31, 2003:
Revenues
Building permits $275,642
Plumbing permits 50,030
Mechanical permits 94,013
Electrical permits 125,718
Total Revenues $545,403
Expenses
Salaries and benefits $761,792
Supplies 18,780
Contractual services 152,279
Other expenses 14,710
Total Expenses $947,561
Deficiency of revenues under expenses ($402,158)
City of Muskegon
NOTES TO FINANCIAL STATEMENTS
December 31, 2003