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City of Musk egon,
Mic higan
Compr ehensiv e Annual
Financial R epor t
For The Year Ended December 31, 2004
WWW.SHORELINECITY.COM
CITY OF MUSKEGON,
MICHIGAN
COMPREHENSIVE
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 2004
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
Candace Baker
Kathy Coleman
COMPREHENSIVE ANNUAL FINANCIAL REPORT
City of Muskegon
December 31, 2004
TABLE OF CONTENTS
I. INTRODUCTORY SECTION
Letter of Transmittal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Certificate of Achievement for Excellence in Financial Reporting. . . . . . . . . 12
Organization Chart. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
List of Principal Officials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
II. FINANCIAL SECTION
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Management's Discussion and Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Financial Statements
Government-Wide Financial Statements
Statement of Net Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Statement of Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Fund Financial Statements
Balance Sheet Governmental Funds. . . . . . . . . . . . . . . . . . . . . . . . . . 34
Reconciliation of Total Governmental Fund Balances to Net
Assets of Governmental Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Statement of Revenues, Expenditures and Changes in Fund
Balances Governmental Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Reconciliation of the Statement of Revenues, Expenditures and
Changes in Fund Balances of Governmental Funds to the
Statement of Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Statement of Fund Net Assets Proprietary Funds. . . . . . . . . . . . . . . . 38
Statement of Revenues, Expenses and Changes in Fund Net
Assets Proprietary Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Statement of Cash Flows Proprietary Funds. . . . . . . . . . . . . . . . . . . . 40
Statement of Fiduciary Net Assets Fiduciary Funds. . . . . . . . . . . . . . 41
Statement of Changes in Fiduciary Net Assets Fiduciary Funds. . . . 42
Statement of Net Assets Discretely Presented Component Units. . . . 43
Statement of Activities Discretely Presented Component Units. . . . . . 44
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Required Supplementary Information
Schedule of Revenues, Expenditures and Changes in Fund
Balances Budget and Actual
General Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Major Special Revenue Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
Schedule of Funding Progress and Employer Contributions
Pension Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
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COMPREHENSIVE ANNUAL FINANCIAL REPORT
City of Muskegon
December 31, 2004
TABLE OF CONTENTS CONTINUED
Supplemental Financial Information
Non-Major Governmental Funds
Description of Non-Major Governmental Funds. . . . . . . . . . . . . . . . . . . . .84
Combining Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
Combining Statement of Revenues, Expenditures and Changes
in Fund Balances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87
Combining Balance Sheet Non-Major Special Revenue Funds. . . . . . 88
Combining Statement of Revenues, Expenditures and Changes
in Fund Balances Non-Major Special Revenue Funds. . . . . . . . . . . . .89
Schedule of Revenues, Expenditures and Changes in Fund
Balances Budget and Actual - Non-Major
Special Revenue Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Combining Balance Sheet - Non-Major Capital Projects Funds . . . . . . . 92
Combining Statement of Revenues, Expenditures and Changes
in Fund Balances Non-Major Capital Projects Funds. . . . . . . . . . . . 93
Internal Service Funds
Description of Internal Service Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Combining Statement of Fund Net Assets. . . . . . . . . . . . . . . . . . . . . . . . .96
Combining Statement of Revenues, Expenses and Changes
in Fund Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Combining Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . .98
Fiduciary Funds
Description of Fiduciary Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99
Pension Trust Funds
Combining Statement of Plan Net Assets. . . . . . . . . . . . . . . . . . . . . . . 100
Combining Statement of Changes in Plan Net Assets. . . . . . . . . . . . . .101
Agency Funds
Combining Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Statement of Changes in Assets and Liabilities. . . . . . . . . . . . . . . . . . . 103
Discretely Presented Component Units
Description of Discretely Presented Component Units. . . . . . . . . . . . . . .105
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
Reconciliation of Total Discretely Presented Component Unit Fund
Balances to Net Assets of Discretely Presented Component Unit
Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
COMPREHENSIVE ANNUAL FINANCIAL REPORT
City of Muskegon
December 31, 2004
TABLE OF CONTENTS CONTINUED
Statement of Revenues, Expenditures and Changes in Fund
Balances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Reconciliation of the Statement of Revenues, Expenditures and
Changes in Fund Balances of Discretely Presented Component
Units to the Statement of Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Schedule of Indebtness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111
III. STATISTICAL SECTION
General Fund Revenues and Other Financing Sources by Source. . . . . . . 116
General Fund Expenditures and Other Uses by Function. . . . . . . . . . . . . . 117
Assessed and Estimated Actual Value of Taxable Property. . . . . . . . . . . . . 118
Ten Largest Property Assessments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Ten Largest Taxpayers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Tax Rates per $1,000 Taxable Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Property Tax Levies and Collections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122
Special Assessment Levies and Collections. . . . . . . . . . . . . . . . . . . . . . . . .123
Statement of Bonded Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Statement of Legal Debt Margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Statement of Direct and Overlapping Debt. . . . . . . . . . . . . . . . . . . . . . . . . . 126
Ratio of Debt Service for General Bonded Debt to
Total General Fund Expenditures and Other Uses. . . . . . . . . . . . .. . . . . . 127
Revenue Bond Coverage
Sewage Disposal System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Water Supply System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Ratio of Net Bonded Debt to Assessed Value and
Net Bonded Debt Per Capita. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Property Values, Construction Activity and Bank Deposits. . . . . . . . . . . . . .131
Demographic Statistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Labor Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Schedule of Insurance in Force. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Salaries of Principal Officials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
IV. SINGLE AUDIT OF FEDERAL FINANCIAL ASSISTANCE PROGRAMS
Independent Auditors' Report on Internal Control over Financial
Reporting and on Compliance and Other Matters Based on an Audit of
Financial Statements Performed in Accordance with Government Auditing
Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
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COMPREHENSIVE ANNUAL FINANCIAL REPORT
City of Muskegon
December 31, 2004
TABLE OF CONTENTS CONTINUED
Independent Auditors' Report on Compliance with Requirements
Applicable to Each Major Program and Internal Control over Compliance
In Accordance with OMB Circular A-133. . . . . . . . . . . . . . . . . . . . . . . . . . . .143
Schedule of Expenditures of Federal Awards. . . . . . . . . . . . . . . . . . . . . . . . .145
Schedule of Findings and Questioned Costs. . . . . . . . . . . . . . . . . . . . . . . . . 148
Supplemental Information
Independent Auditors' Report on Supplement Information. . . . . . . . . . . . . 150
Schedule of Reconciliation of Revenues from Federal Sources
Per Financial Statements and Expenditures per Single Audit Report
Schedule of Expenditures of Federal Awards. . . . . . . . . . . . . . . . . . . . . . .151
Client Documents
Summary Schedule of Prior Audit Findings. . . . . . . . . . . . . . . . . . . . . . . . . 154
Corrective Action Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
4
Affirmative
Action
(231)724-6703
FAX (231)722-
1214
Assessor
(231)724-6708
FAX (231)726-
5181
Cemetery
(231)724-6783
FAX (231)726-
5617
City Manager
(231)724-6724 March 7, 2005
FAX (231)722-
1214
Civil Service Honorable Mayor and Members of the
(231)724-6716
FAX (231)724- City Commission
4405
City of Muskegon
Clerk Muskegon, Michigan 49443
(231)724-6705
FAX (231)724-
4178
Comm. & Ladies and Gentlemen:
Neigh. Services
(231)724-6717
FAX (231)726- We are pleased to present to you the Comprehensive Annual Financial Report (CAFR) for
2501
the City of Muskegon, Michigan, for the year ended December 31, 2004, in accordance
Engineering with the requirements of state law. The financial statements are presented in conformity
(231)724-6707
FAX (231)727- with accounting principles generally accepted in the United States of America (GAAP),
6904 and audited in accordance with generally accepted auditing standards by a firm of
Finance licensed certified public accountants. This annual report is formatted to comply with the
(231)724-6713 financial reporting model developed by the Government Accounting Standards Board
FAX (231)724-
6768 (GASB) Statement 34.
Fire Department
(231)724-6792 GAAP requires that management provide a narrative introduction, overview, and analysis
FAX (231)724-
6985 to accompany the basic financial statements in the form of Management's Discussion and
Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should
Income Tax
(231)724-6770 be read in conjunction with the financial statements. The City of Muskegon's MD&A can
FAX (231)724-
6768 be found immediately following the independent auditor's report.
Info.
Technology The City has elected not to report historic infrastructure or related depreciation costs prior
(231)724-4126 to January 1, 2002 in this report as allowed by GASB 34. GASB 34 requires that this
FAX (231)722-
4301 information be included in the City's CAFR by the year ending December 31, 2007; the
City, intends to report this information in its 2005 CAFR.
Inspection
Services
(231)724-6715 The Comprehensive Annual Financial Report is prepared by the City's Finance
FAX (231)728- Department and responsibility for both the accuracy of the data presented and the
4371
completeness and fairness of the presentation, including all disclosures, rests with the
Leisure Services City. We believe the data as presented is accurate in all material respects; that it is
(231)724-6704
FAX (231)724- presented in a manner designed to set forth fairly the financial position and results of
1196
operation of the City as measured by the financial activity of its various funds and
Mayor's Office component units; and that all disclosures necessary to enable the reader to gain the
(231)724-6701
FAX (231)722- maximum understanding of the City's finances have been included. Brickley DeLong,
1214 P.C., Certified Public Accountants, performed the independent audit of all accounts of the
Planning/Zoning City as required by state law and their report and unqualified opinion is presented as the
(231)724-6702 first component of the financial section of this report.
FAX (231)724-
6790 5
City of Muske gon, 933 Terr ace Street, P.O. Box 536, Muskegon, MI 49443-0536
Police http: //www.shorelinecit y.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 40,105, is the largest city on the Eastern Shore of Lake
Michigan. The City is located within the County of Muskegon and is part of the Grand Rapids-
Muskegon-Holland metropolitan statistical area (MSA):
With
West
Michigan's
diverse
industrial sector and excellent intergovernmental cooperation, the
area has ranked in the top 30 out of 315 metropolitan communities in Industry Week's World Class
Community annual survey for five consecutive years.
The Muskegon-Grand Rapids-Holland area finished 13th in a national ranking of the 50 best
large metropolitan areas for starting and growing a business. The survey produced annually by
Cognetics Inc., a Waltham, Massachusetts-based economics research firm, compares the business
climates in communities by analyzing significant new business starts and looking at the growth rate
of young businesses.
West Michigan is a fun place to be! Places Rated Almanac ranked the area No. 3 in the fun and
recreation category.
Muskegon's Pere Marquette beach has been nationally recognized as one of the best beaches
in the nation by USA Today and was the only beach in the state 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. In April 2003, The Detroit News
voted Muskegon's Beaches #1 as the "Best Place to Run Sand Between Your Toes".
Muskegon has become a 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. The Great Lakes Naval Memorial and Museum
allows visitors to step back in time and tour the USS Silversides, a surviving World War II
submarine.
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 a
number of surrounding communities on a wholesale basis.
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City of Muske gon, 933 Terr ace Street, P.O. Box 536, Muskegon, MI 49443-0536
http: //www.shorelinecit y.com
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 three separate
local development finance authority districts under the aegis of the Local Development Finance
Authority (LDFA).
LOCAL ECONOMIC CONDITION AND OUT LOOK
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 otherwise tax-exempt
employers help provide stability to City finances. According to the W.E. Upjohn Institute, employment
growth for Muskegon County in 2004 was 0.1%. The employment growth rate is projected to be 0.7%
in 2005 rebounding to 0.9% in 2006.
MAJOR INITIATIVES AND ACCOMPLISHMENTS
Among the City's major initiatives and accomplishments in 2004 were the following:
A new $18 million high-speed cross-lake ferry service linking Muskegon with Milwaukee,
Wisconsin began operating in June. First year results exceeded expectations with more than
110,000 passengers taking the ferry including 2004 presidential candidate John Kerry. The City
and County assisted in this project by providing site improvements costing $1.85 million. Ferry
operations will restart in May 2005.
Work was completed on phase one of the renovation of a former office equipment manufacturing
plant into loft-style condominium units. The obsolete plant comprises nearly one million square feet
of space and is well suited for residential living being located directly across from the downtown
municipal marina and waterfront. The first phase of this project included construction of 53 one to
7
City of Muske gon, 933 Terr ace Street, P.O. Box 536, Muskegon, MI 49443-0536
http: //www.shorelinecit y.com
three bedroom condominium units. Construction of the second phase is scheduled to begin in June
2005 and will include 12,000 square feet of commercial retail space.
Work was completed on construction of the $11 million extension of Shoreline Drive. The new
road is scheduled to be designated as Business US-31 and will route 23,000 vehicles along the
city's downtown waterfront.
The former Downtown Mall property was substantially demolished and cleared for
redevelopment. The 21-acre site will be redeveloped as 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. At this time grants have been
secured to finance a large portion of construction of the public infrastructure and work will
commence in June 2005.
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.
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. Purchases that result in over expenditure of budget levels are not made until
additional appropriations or budget changes are processed to make funds available.
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. 8
City of Muske gon, 933 Terr ace Street, P.O. Box 536, Muskegon, MI 49443-0536
http: //www.shorelinecit y.com
DEBT ADMINISTRATION
At December 31, 2004, the total of City bonds and contractual debt outstanding (including discretely
presented component unit debt) was $37,220,322 as compared to $31,778,823 at December 31, 2003.
During the year, the City drew down $8,483,766 through the state's low-interest Drinking Water
Revolving Fund to finance water filtration plant improvements. A total of $13.9 million will be borrowed
through this program to complete the filtration plant project. Standard & Poor's has 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 money-market 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.
PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS
The City of Muskegon sponsors 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. Each year an independent actuary engaged by
the respective pension boards calculates the annual contributions that the city must make to ensure the
retirement systems are able to meet current and future obligations. Both of the City's retirement
systems are over fifty years old and the City has a longstanding policy of fully funding each year's
contribution requirements as determined by the actuary.
The City also provides post-retirement health benefits for retirees and their dependents. Since 1987,
the City has also 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 the pension
obligations. GAAP does not currently require governments to report a liability in the financial
statements in connection with an employer's obligation to provide these benefits.
9
City of Muske gon, 933 Terr ace Street, P.O. Box 536, Muskegon, MI 49443-0536
http: //www.shorelinecit y.com
RISK MANAGEMENT
During 2004, the City continued 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
$7,416,923.
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.
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 fiscal year ended December 31, 2003. This was the
nineteenth 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.
10
City of Muske gon, 933 Terr ace Street, P.O. Box 536, Muskegon, MI 49443-0536
http: //www.shorelinecit y.com
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 efforts in working for
the betterment of the Muskegon community.
Respectfully submitted,
Bryon L. Mazade Timothy J. Paul
City Manager Director of Finance
11
City of Muske gon, 933 Terr ace Street, P.O. Box 536, Muskegon, MI 49443-0536
http: //www.shorelinecit y.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
13
CITY OF MUSKEGON, MICHIGAN
LIST OF PRINCIPAL OFFICIALS
December 31, 2004
ELECTED OFFICIALS
Mayor-Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Steve Warmington
At Large
Vice Mayor-Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . William Larson
At Large
Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chris Carter
Ward 1
Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Clara Shepherd
Ward 2
Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Lawrence O. Spataro
Ward 3
Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kevin Davis
Ward 4
Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stephen J. Gawron
At Large
APPOINTED OFFICIALS
City Manager. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bryon L. Mazade
City Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John C. Schrier
Director of Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Timothy J. Paul
14
FINANCIAL SECTION
15
16
BRICKLEY DELONG
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
March 7, 2005
City Commission
City of Muskegon
Muskegon, Michigan
We have audited the accompanying financial statements of the governmental activities,
the business-type activities, the aggregate discretely presented component units, each
major fund, and the aggregate remaining fund information of the City of Muskegon,
Michigan (the "City"), as of and for the year ended December 31, 2004, which
collectively comprise the City's basic financial statements as listed in the table of
contents. These financial statements are the responsibility of the management of the
City of Muskegon, Michigan. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the
United States of America and the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United
States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the respective financial position of the governmental activities, the business-
type activities, the aggregate discretely presented component units, each major fund,
and the aggregate remaining fund information of the City of Muskegon, Michigan, as of
December 31, 2004, and the respective changes in financial position and cash flows,
where applicable, thereof for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued our report
dated March 7, 2005, on our consideration of the City of Muskegon, Michigan's internal
control over financial reporting and on our tests of its compliance with certain provisions
of laws, regulations, contracts, and grant agreements and other matters. The purpose
of that report is to describe the scope of our testing of internal controls over financial
reporting and compliance and the results of that testing, and not to provide an opinion
on the internal control over financial reporting or on compliance. That report is an
integral part of an audit performed in accordance with Government Auditing Standards
and should be considered in assessing the results of our audit.
500 Terrace Plaza * P.O. Box 999 * Muskegon, MI 49443 17 907 S. State St. * P.O. Box 331 * Hart, MI 49420
PHONE (231) 726-3147 * FAX (231) 722-0260 PHONE (231) 873-1040 * FAX (231) 873-0602
BRICKLEY DELONG
City Commission
March 7, 2005
Page 2
The management's discussion and analysis and the required supplementary information
on pages 19 through 29 and 77 through 82 are not a required part of the basic financial
statements but are supplementary information required by accounting principles
generally accepted in the United States of America. We have applied certain limited
procedures, which consisted principally of inquiries of management regarding the
methods of measurement and presentation of the required supplementary information.
However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements
that collectively comprise the City of Muskegon, Michigan's basic financial statements.
The introductory section, supplemental financial information, and statistical section are
presented for purposes of additional analysis and are not a required part of the basic
financial statements. The accompanying schedule of expenditures of federal awards is
presented for the purposes of additional analysis as required by U.S. Office of
Management and Budget Circular A-133 Audits of States, Local Governments, and
Non-Profit Organizations, and is also not a required part of the basic financial
statements of the City of Muskegon, Michigan. The supplemental financial information
and the schedule of expenditures of federal awards have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic financial statements as a
whole. The introductory section and statistical tables have not been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
accordingly, we express no opinion on them.
18
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, 2004. Please read it in conjunction with the City's financial statements, which follow
this section.
FINANCIAL HIGHLIGHTS
The City's total combined net assets were $94,360,144 at December 31, 2004, an
increase of $8,160,148 (9.5%) over the prior year. Most of this increase is
attributable to tight cost controls and an increase in water user fees implemented
during the year. Of the total net assets, $16,055,071 was unrestricted and may be
used to meet the City's ongoing obligations to citizens and creditors.
During the year, the City's total expenses for both governmental and business-
type activities were $37,958,125, a decrease of $531,514 (-1.4%) from 2003. Of
the total 2004 expenses:
$14,370,405 (38%) was paid through direct charges (such as water fees) to
benefiting parties. In 2003, 35% of total expenses were paid from direct
charges;
$12,452,103 (33%) was paid by grants and contributions, primarily from the
state and federal governments. In 2003 the share of expenses paid from this
source was 43%; and
The remaining portion was paid from state shared revenues, local income and
property taxes, and other locally generated revenues.
The City's general fund reported a fund balance of $2,445,191, a slight increase of
$13,773 from the prior year. The City also maintained a budget stabilization (or
"rainy day") fund that reported a fund balance of Figure A-1, Required Components of the
$1.25 million at December 31, 2004, a decrease City's Annual Financial Report
of $250,000 from 2003.
During 2004, the City issued $13.9 million in
Drinking Water State Revolving Fund (DWSRF)
debt. These funds are being used to finance
improvements at the City's water filtration facility.
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
19
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.
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 State ments
and provide additional Type of Statements Government-Wide Governmenta l Funds Proprietary Funds Fiduciar y 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 both financial and capital, be used up and liabilities both financial and capital, both short-term and long-
Type of 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.
20
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
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, property taxes and
revenues from the State of Michigan finance most of these activities. The government-
wide financial statements can be found beginning on page 32 of this report.
Fund Financial State ments
The fund financial statements beginning on page 34 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
21
whether there are more or fewer financial resources that can be spent in the near
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. 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 three component units: the Downtown Development
Authority (DDA), the Tax Increment Finance Authority (TIFA) and, the Local
Development Finance Authority (LDFA), which contains three sub-districts.
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. A summary of the City's net assets follows:
22
City's Net Assets
(In thousands of dollars)
Total
Governmental
Business-Type
Percentage
Activities
Activities
Total
Change
2004 2003 2004 2003 2004 2003 2004-2003
Current and other assets $28,758 $32,654 $13,645 $13,539 $42,403 $46,193 -8.2%
Capital
assets 46,420 39,203
52,488 41,352
98,908 80,555
22.8%
Total Assets 75,178 71,857 66,133 54,891 141,311 126,748 11.5%
Long-term
liabilities 7,389 8,615 22,283 15,328 29,672 23,943 23.9%
Other
liabilities 14,508 16,161 2,772 444 17,280 16,605 4.1%
Total Liabilities 21,897 24,776
25,055 15,772
46,952 40,548
15.8%
Net
Assets
Invested in capital assets,
net of related debt 40,664 32,120 31,609 27,809 72,273 59,929 20.6%
Restricted 5,210 5,674 822 822 6,032 6,496 -7.1%
Unrestricted 7,407 9,287 8,648 10,488 16,055 19,775 -18.8%
Total Net Assets $53,281 $47,081 $41,079 $39,119 $94,360 $86,200 9.5%
The total net assets of the City were $94,360,144 as of December 31, 2004. This
represents an increase of $8,160,148 over the prior year. This change is explained
more fully below.
Changes in net assets . The City's total revenues were $46,118,273. A significant portion
(31%) of the City's revenue stream
Figur e A-3
came from charges to users of specific City of Muske gon
services such as water or sewer (See Sour ces of Revenue f or Fiscal Year 2004
Figure A-3). Another twenty-seven
percent came from various grants from Operating &
the state and federal governments and Capital Grants
27%
thirty-one percent was from local Property Taxes
15%
property and income taxes. The
remainder was comprised of state-
Charges for
shared revenues (10%) and various Services Income Taxes
31% 16%
other sources such as interest income. Other State Shared
1% Revenue
10%
The total cost of all City programs and
services during 2004 was $37,958,125,
representing a decrease of $531,514
from 2003. Seventy-eight percent of these costs were for governmental activities such
as police and fire protection, streets, parks, and general administration. The remaining
twenty-two percent represents business-type activities operated by the City, specifically,
for water, sewer and marina operations.
The difference between the City's total revenues and expenses ($8,160,148) represents
the increase in total net assets for 2004. The increase is primarily attributable to a
combination of tight cost controls, an increase in water user charges, and receipt of
grants to finance infrastructure improvements. 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:
23
Changes in City's Net Assets
(In thousands of dollars)
Total
Governmental Business-Type Percentage
Activities Activities Total
Change
2004 2003 2004 2003 2004 2003 2004-2003
Program revenues
Charges for services $5,043 $4,917 $9,328 $8,463 $14,371 $13,380 7.4%
Operating grants and contributions 6,009 5,614 - - 6,009 5,614 7.0%
Capital grants and contributions 5,786 10,495 658 256 6,444 10,751 -40.1%
General revenues
Property taxes 6,962 7,029 - - 6,962 7,029 -1.0%
Income taxes 7,327 6,645 - - 7,327 6,645 10.3%
State shared revenues 4,645 4,939 - - 4,645 4,939 -6.0%
All other 167 719 194 (17) 361 702 -48.6%
Total revenues 35,939 40,358 10,180 8,702 46,119 49,060 -6.0%
Governmental activities expenses
Public representation 867 888 - - 867 888 -2.4%
Administrative services 1,132 1,228 - - 1,132 1,228 -7.8%
Financial services 1,809 1,843 - - 1,809 1,843 -1.8%
Public safety 12,164 11,583 - - 12,164
11,583 5.0%
Public works 2,848 2,947 - - 2,848 2,947 -3.4%
Leisure services 2,468 3,042 - - 2,468 3,042 -18.9%
Planning and economic development 2,653 3,371 - - 2,653 3,371 -21.3%
Highways, streets and bridges 3,880 3,483 - - 3,880 3,483 11.4%
General administration 1,725 1,601 - - 1,725 1,601 7.7%
Interest on long-term debt 193 224 - - 193 224 -13.8%
Business-type activities expenses
Water - - 4,123 4,538 4,123
4,538 -9.1%
Sewer - - 3,745 3,416 3,745
3,416 9.6%
Marina - - 352 326 352 326 8.0%
Total expenses 29,739 30,210 8,220 8,280 37,959 38,490 -1.4%
Change in net assets 6,200 10,148 1,960 422 8,160 10,570 -22.8%
Net assets at beginning of year 47,081 36,933 39,119 38,697 86,200
75,630 14.0%
Net asse ts at end of year $53,281 $47,081 $41,079 $39,119 $94,360 $86,200 9.5%
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 related intergovernmental aid). The net cost reflects
what was funded by local tax dollars and other general resources.
The operational cost of all governmental activities during 2004 was $29,738,442.
This is a slight decrease from 2003 as the City continued to reduce costs in
response to economic conditions and falling state-shared revenues.
The net cost that City taxpayers paid for these activities through local taxes was
$14,289,264, or about 48% 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.
Revenues for highways and streets function exceeded program costs because the
City's historic infrastructure or related depreciation costs are not yet recorded.
GASB 34 requires that this information be reported by the year ending December
31, 2007. The City plans to include this information in the 2005 CAFR.
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Net Cost of Selected City Functions
(in thousands of dollars)
Total Cost of Net Cost of
Services % Change Services %
Change
2004 2003 2004 2003
Governmental activities
Public safety $12,164 $11,583 5.0% $10,814
$10,210
5.9%
Planning and economic development 2,652 3,371 -21.3% (994) (351) 183.2%
Leisure services 2,468 3,042 -18.9% 1,117 1,717 -34.9%
Highways and streets 3,879 3,483 11.4% (4,186) (9,220) -54.6%
Public works 2,848 2,947 -3.4% 1,858 2,290 -18.9%
All other 5,728 5,784 -1.0% 4,292
4,538
-5.4%
Total governmental activities $29,739 $30,210 -1.6% $12,901 $9,184 40.5%
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 2004 this goal was achieved with
the City's total business-type activities realizing an overall increase in net assets of
$1,959,918. These funds were used to pay debt principal and invest in capital assets.
FINANCIAL ANAL YSIS OF THE CITY'S FUNDS
The analysis of the City's major funds begins on page 34 of the CAFR report, following
the government-wide statements. The fund financial statements provide detailed
information about the major City funds, not the City as a whole. The City's major funds
for 2004 were the general fund and the major and local street funds.
General Fund Budgetar y Highlights
The general fund receives the most public attention since it is where local tax revenues
are accounted for and where the most popular 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 quarterly
budget reforecasts were particularly relevant in 2004 due to the turbulent state and
national economies. A $250,000 transfer from the City's rainy day fund was needed at
year-end to offset state shared revenue losses and maintain the City's target fund
balance. 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
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
-11.2% 23,235,978
12.08%
2001 3,162,368 +7.1% 22,232,657 14.22%
2000 2,951,735 - 22,011,881 13.41%
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Actual 2004 general fund expenditures were $430,022 below 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.
General fund revenues in 2004 were $440,724 more than originally budgeted. The
positive variance is attributable to higher than anticipated local income tax collections
resulting from stringent enforcement and the success of an amnesty program for
delinquent taxpayers. Under this program, delinquent taxpayers were give a short-term,
one-time opportunity to bring accounts current without penalty. The higher than
expected income tax revenues helped to offset other revenues losses. Most
significantly, state shared revenues were $354,652 under original budget due to
continued faltering state sales tax collections and cutbacks by the state.
CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets
At the end of 2004, the City and its component units had invested $102,920,150 in a
wide range of capital assets, including land, equipment, buildings, water and sewer
lines, and vehicles. In addition the City reports infrastructure assets, including roads,
bridges, sidewalks, and storm sewers acquired or improved since the start of 2002. In
future years, the City will also include historical infrastructure asset investments made
between 1980 and 2002. Note C of the notes to the basic financial statements provides
detailed information on the City's capital asset investment.
Bond Ra tin gs
The City's fiscal year 2005 capital budget anticipates
spending $18,454,400 for capital projects principally street The City's limited full faith
and water system improvements. These improvements will and credit bonds (i.e. bonds
guaranteed by the City's
be funded through grants, loan proceeds, and operating general taxing powers)
revenues. presently carry a Standard &
Poors rating of "A".
Long-Term Debt
At year-end the City had $27,926,199 in bonds and notes
outstanding as shown below. This represents an increase of 25.2% over the prior year
as new water fund debt in the amount of $13.9 million was issued for the purpose of
financing water filtration plant improvements. Of the total $13.9 million, $8,483,766 was
drawn during 2004; the remaining $5,416,214 will be drawn in 2005 to complete the
project. Additional information concerning the City's long-term debt is presented in Note
D to the basic financial statements.
26
City's Long Term Debt
(In thousands of dollars)
Total
Governmental Business-Type Percentage
Activities
Activities Total
Change
2004 2003 2004 2003 2004 2003 2004-2003
Bonds and loans payable $5,821
$7,159 $22,105 $15,138 $27,926
$22,297 25.2%
Long-term absences payable 1,568 1,456 178 190 1,746 1,646 6.1%
Total bonds & notes payable $7,389 $8,615 $22,283 $15,328 $29,672 $23,943 23.9%
In addition to the City's debt, component units such as the Downtown Development
Authority (DDA) and Local Development Finance Authority (LDFA) had outstanding debt
totaling $9,206,982 at year-end as shown in the table below. Debt issued by the
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 D to the
basic financial statements and is summarized as follows:
Component Unit Long Term Debt
(In thousands of dollars)
Total
Downtown
Local
Development
Percentage
Finance
Authority Finance
Authority Total
Change
2004 2003 2004 2003 2004 2003 2004-2003
Bonds and loans payable $4,490
$4,670 $4,716 $4,716 $9,206 $9,386
-1.9%
ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES
The City depends on five major sources of revenue to fund its operations: 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 nearly seventy
percent of the City's total 2004 revenues. Meaningful discussion of the City's finances
centers on the outlook for 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 the City
limits. A second major advantage is that it generates revenue from employees working
at hospitals, churches, government agencies, colleges and other institutions traditionally
exempted 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 $6,542,355 in 2003 to $7,033,387 for 2004 (+7.5%) due primarily to
aggressive compliance efforts including a successful, one-time delinquent taxpayer
27
amnesty program. For 2005, the City is conservatively estimating income tax revenues
at $6,650,000. The following table shows the resident and non-resident composition of
the income tax base:
Number of 2004 Percent of Average
Category Payers Amount Paid Total Amount Paid
City Resident 7,985 $ 2,350,485 33% $ 294
Non-Resident 14,543 3,868,363 55% 266
Corporate 1,850 814,539 12% 440
Total 24,378 $7,033,387 100% $ 289
Local Property Tax
The City's 2004 property tax millage consisted of 10 mills: 7.5 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, taxable values have been relatively
stagnant over the last few years.
Percent
Year Real Personal Total Change
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 +12.3%
State Shared Revenues
State shared sales tax revenues represent 19.9% of total general fund revenue and
other financing sources. 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 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 most recent data available from the state
indicates that the state shared revenues will remain at current level for 2005. The City's
recent state shared revenue history is summarized below:
State Shared Percent
Year Revenues Change
2005* $4,688,657 +0.9%
2004 4,645,348 -5.9%
2003 4,938,861
-7.8%
2002 5,353,987
-6.9%
2001 5,748,523 -
* Budget amount
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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.
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
2005* $3,537,574 +2.3%
2004 3,459,503 +9.2%
2003 3,166,406 -1.7%
2002 3,220,625 +1.9%
2001 3,159,325 -
* Budgeted amount
Water and Sewer Fees
From a government-wide entity perspective, combined water and sewer fees represent
the City's largest income source totaling $9,060,911 in 2004. Charges to customers
are based on the amount of metered services used times rates periodically set by the
City Commission. For 2005, it is anticipated that water and sewer rates will be adjusted
upwards to finance major capital improvements at the water filtration plant.
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).
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FINANCIAL STATEMENTS
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City of Muskegon
STATEMENT OF NET ASSETS
December 31, 2004
Primary Government
Governmental Business-Type Component Total Reporting
Activities Activities Total Units Entity
ASSETS
Cash and cash equivalents (note A and B) $ 4,915,403
$ 5,042,717
9,958,120
$ 925,703
$ $ 10,883,823
Investments (note A and B) 7,632,588
- 7,632,588
- 7,632,588
Receivables (net of allowance for
uncollectibles) (note A)
Accounts and loans 1,785,554
2,297,435
4,082,989
- 4,082,989
Special assessments
Current 443,954
- 443,954
- 443,954
Non-current 3,718,728
- 3,718,728
- 3,718,728
Taxes
Property 6,444,950
- 6,444,950
709,847
7,154,797
Income 2,509,611
- 2,509,611
- 2,509,611
Internal balances (1,298,315)
1,298,315
- - -
Due from other governmental units 2,259,123
57,432
2,316,555
- 2,316,555
Inventories (note A) 18,270
108,769
127,039
- 127,039
Prepaid items (note A) 263,172
22,086
285,258
- 285,258
Restricted cash and cash
equivalents (note A and B) -
822,559
822,559
- 822,559
Deferred debt expense (note A) 64,892
130,895
195,787
129,621
325,408
Contract receivable (note A) -
2,770,434
2,770,434
- 2,770,434
Wastewater facility rights (net of accumlated
amortization of $2,369,748) (note A) -
1,094,345
1,094,345
- 1,094,345
28,757,930
13,644,987
42,402,917
1,765,171
44,168,088
Capital assets (note A and C)
Land, construction in progress and other
assets not being depreciated 19,161,190
18,991,429
38,152,619
400,000
38,552,619
Other capital assets, net of depreciation 27,259,255
33,497,053
60,756,308
3,611,223
64,367,531
Total capital assets 46,420,445
52,488,482
98,908,927
4,011,223
102,920,150
TOTAL ASSETS $ 75,178,375
$ 66,133,469
141,311,844
$ 5,776,394
$ $ 147,088,238
LIABILITIES AND NET ASSETS
Liabilities
Accounts payable $ 1,521,137
$ 2,392,167
3,913,304
$ $ - $ 3,913,304
Accrued payroll 427,773
59,667
487,440
- 487,440
Accrued interest 20,800
105,000
125,800
48,400
174,200
Due to other governmental units -
214,825
214,825
- 214,825
Deferred revenue (note A) 12,538,527
- 12,538,527
709,847
13,248,374
14,508,237
2,771,659
17,279,896
758,247
18,038,143
Long-term liabilities (note A and D)
Due within one year
Bonds payable 1,115,000
1,515,974
2,630,974
185,000
2,815,974
Compensated absences 261,299
30,228
291,527
- 291,527
Due in more than one year
Bonds payable 4,706,493
20,588,732
25,295,225
9,021,982
34,317,207
Compensated absences 1,306,493
147,585
1,454,078
- 1,454,078
Total long-term liabilities 7,389,285
22,282,519
29,671,804
9,206,982
38,878,786
Total liabilities 21,897,522
25,054,178
46,951,700
9,965,229
56,916,929
Net assets (note A)
Invested in capital assets, net of related debt 40,663,844
31,609,016
72,272,860
(576,138)
71,696,722
Restricted for
Streets and highways 4,016,739
- 4,016,739
- 4,016,739
Debt service -
822,559
822,559
- 822,559