New Financial Report with Supplemental Information June 30, 20137C4055DF... · 2016. 11. 8. ·...

City of Eastpointe, Michigan

Financial Report

with Supplemental Information

June 30, 2013


Contents

Introductory Section

Letter of Transmittal i-xv

Financial Section

Report Letter 1-3

Management's Discussion and Analysis 4-11

Basic Financial Statements

Government-wide Financial Statements:Statement of Net Position 12Statement of Activities 13-14

Fund Financial Statements:Governmental Funds:

Balance Sheet 15Reconciliation of Balance Sheet to the Statement of Net Position 16Statement of Revenue, Expenditures, and Changes in Fund Balances 17Reconciliation of the Statement of Revenue, Expenditures, and Changes in

Fund Balances of Governmental Funds to the Statement of Activities 18

Proprietary Funds:Statement of Net Position 19Statement of Revenue, Expenses, and Changes in Net Position 20Statement of Cash Flows 21

Fiduciary Funds:Statement of Net Position 22Statement of Changes in Net Position 23

Component Units:Statement of Net Position 24Statement of Activities 25-26

Notes to Financial Statements 27-52


Contents (Continued)

Required Supplemental Information 53

Budgetary Comparison Schedule:General Fund 54Major Special Revenue Funds 55-57

Retirement System Schedule of Funding Progress and Employer Contributions 58

Retiree Healthcare System Schedule of Funding Progress and EmployerContributions 59

Note to Required Supplemental Information 60-61

Other Supplemental Information 62

Nonmajor Governmental Funds:Combining Balance Sheet 63-64Combining Statement of Revenue, Expenditures, and Changes in

Fund Balances (Deficit) 65-66

Fiduciary Funds:Combining Statement of Net Position 67-68Combining Statement of Changes in Net Position 69

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November 26, 2013 To the Honorable Mayor, Members of the City Council, and the Citizens of the City of Eastpointe The financial report of the City of Eastpointe (the “City”) for the year ended June 30, 2013 is hereby submitted as mandated by the City Charter and state statute, Public Act 2 of 1968. The City Charter and state statute require that the City of Eastpointe issue annually a report on its financial position and activity, and that this report be audited by an independent firm of certified public accountants. The financial statements and supplemental schedules contained herein have been audited by Plante & Moran, PLLC, certified public accountants. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with management. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner that presents fairly the financial position and results of operations of the various funds and component units of the City of Eastpointe. All disclosures necessary to enable the reader to gain an understanding of the City of Eastpointe’s activities have been included. The financial report is presented in two sections: introductory and financial. The introductory section, which is unaudited, includes this letter of transmittal. The financial section includes the entity-wide financial statements, fund financial statements and schedules, as well as the independent auditor's report on these financial statements and schedules. The required supplemental section includes management’s discussion and analysis and information on the pension plan. Other supplemental information includes combining and individual fund financial statements. Generally accepted accounting principles require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of management’s discussion and analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City of Eastpointe’s MD&A can be found immediately following the report of the independent auditor.

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City Profile and Economic Conditions Regional Settings The City of Eastpointe is located near the southeast corner of Macomb County, adjacent to the southern boundary of Macomb County and north of the city of Detroit. Freeway access to the southeast Michigan region is provided by lnterstate-94 (1-94) and lnterstate-696 (1-696). In addition, regional access is available using the bus system of the Suburban Mobility Authority for Regional Rapid Transit (SMART) system. Local Economy The City of Eastpointe has grown and prospered significantly as one of southeastern Michigan’s earliest and strongest suburban communities. The City of Eastpointe continues to welcome residents, businesses, and visitors alike to a vibrant and diverse community. The City is ideally located in southeastern Michigan, within Macomb County and proud of the initiative to “Make Macomb Your Home.” The City of Eastpointe provides a full range of services to residents, visitors, and the business community and is conveniently located for employers and employees alike near the intersection of 1-94 and 1-696 and is centered by the Gratiot Corridor “M-3 the Place to Be.” Macomb County continues to rank high in per capita income, employment opportunities, and overall quality of life. The City of Eastpointe exemplifies the best in Macomb County through its high value to cost City services, road system, active community place-making efforts and organizations, and a variety of opportunities for residents and the business community. It is an aggressively fiscally managed and solid community with many advantages because of its affordable housing mix, business climate, and convenient access to other business and residential areas in southeastern Michigan. There are more than 800 commercial and industrial businesses and service enterprises within the City's 5.0 square miles. The City is proud to have a majority of small businesses, as well as more than 60 major companies within its borders, such as BMW and Porsche dealerships, CVS Pharmacy, Walgreen, Family Dollar, and Olive Garden. Job Forecast

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Workers Percent

1 Eastpointe 1,942 23.5%2 Detroit 1,040 12.6%3 Warren 877 10.6%4 St. Clair Shores 516 6.3%5 Clinton Township 502 6.1%6 Roseville 502 6.1%7 Sterling Heights 361 4.4%8 Harrison Township 173 2.1%9 Macomb Township 146 1.8%

10 Harper Woods 144 1.7%- Elsewhere 2,043 24.8%

Total 8,246 100.0%

Where Workers Commute From *Census 2000

* Workers, age 16 and over, employed in Eastpointe

Income5-Yr ACS

2010Change

2000 - 2010Percent Change

2000 - 2010

Median Household Income (in 2010 dollars) 45,157$ (15,392)$ -25.4%Per Capita Income (in 2010 dollars) 21,086$ (5,962)$ -22.0% Annual Household Income

$200,000 or more 28 $150,000 to $199,999 183 $125,000 to $149,999 377 $100,000 to $124,999 702 $75,000 to $99,999 1,798 $60,000 to $74,999 1,403 $50,000 to $59,999 1,381 $45,000 to $49,999 630 $40,000 to $44,999 842 $35,000 to $39,999 793 $30,000 to $34,999 845 $25,000 to $29,999 773 $20,000 to $24,999 803 $15,000 to $19,999 977 $10,000 to $14,999 632 Less than $10,000 796

Total 12,963

5-Yr ACS 2010

PovertyPercentage Point Chg

2000 - 2010

Persons in Poverty 2,174 6.4% 4,242 12.9% 6.5%Households in Poverty 930 6.8% 1,414 10.9% 4.1%

Census 2000 5-Yr ACS 2010

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Local Economic Base Eastpointe is a full-service community. It has sound infrastructure, stable values, and has many advantages accruing to it because of its housing mix and business climate. City officials proudly point to the fact that almost 91 percent of the buildings are single-family homes or condominiums. The diversity of the City's economic base is reflected in its building stock:

Single family homes* 12,699 Homes Condominiums - 9 complexes* 331 Units Senior citizen towers - 2 buildings 200 Units Rental apartments - 36 complexes 2600 Units Sites Shopping centers (174,644 sq. ft.) 4 Centers Hotel/Motels - 2 properties 208 Rooms Offices (409,932 sq. ft.) 99 Buildings Commercial (gas station/retail/restaurants, etc.) 463 Buildings Light industrial (202,453 sq. ft.) 12 Buildings Total units/buildings 16,616 * Single-family homes range in value from $40,000 to in excess of $80,000. Tax Base Composition The principal source of revenues to fund the City's operations is the property tax (55 percent of total 2012-2013 General Fund revenues). The property tax revenues are a result of applying the millage rate set by City Council within the restrictions of state law to the taxable value of real and personal property located within the City. The tables below illustrate the diversity of the City's tax base, including the DDA district, which was the basis for property tax revenue for the fiscal year 2012-2013 budget.

By Class Taxable Value Percent Real property $ 428,540,724 92.3Personal property 35,620,390 7.7 Total $ 464,161,114 100.0

By Use Taxable Value Percent Residential $ 348,642,995 75.1Commercial 91,043,229 19.6Industrial 2,938,470 0.6Personal property 21,536,420 4.6 Total $ 464,161,114 100.0

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Major Achievements and Results of Operations for 2012/2013 Recent years have not been without challenges, which will remain in the foreseeable future. Despite serious financial constraints, there were significant achievements in fiscal year 2012-2013 with more anticipated in the years ahead. Revise and implement the garbage and refuse collection program eliminating commercial and

industrial service and eliminate the fee for businesses. It is anticipated that at the conclusion of bidding, the City Council will have several options regarding the provision of garbage and refuse collection services to the residents. It is my recommendation that subject to contract specifications chosen and the projected fiscal analysis of estimates of cost that the fee-based system be applied only to residential services, that the City no longer provide garbage and refuse collection to commercial and industrial services and that business and commercial establishments facilities not be assessed the monthly refuse fee. This means business is not provided with the service and, as most have noted, they are already individually responsible for dumpster mechanical device pickups while at the same time have paid the monthly fee on water billings.

The passage of a millage proposal for 1 additional mill for the library in August 2012 enabled the library to reinstate funding for all material and part-time employees, while also offering additional materials in downloadable format, and much needed capital improvements. The additional monies also enabled the library department to become completely independent of the General Fund, therefore freeing up funds to assist in the structural general operations deficit.

Six union contracts were settled and nonunion administrative rules and benefits were changed with employee pay and benefit reductions averaging 17 percent. The savings from these changes were partially seen during this fiscal year. When implemented for a full year, these concessions and restructuring will reduce operating expenses in excess of $2.2 million annually. Containment of future cost of changes to pension and retirement healthcare benefits for all existing employees and new hires was achieved.

The Recreational Authority of Roseville and Eastpointe agreed to pay a use fee to the respective cities of $45,000 and the parties agree that $10,000 of the use fee shall be earmarked for capital improvements in the parks.

Adopted ordinance requiring reimbursement for emergency service response cost recovery to enable the City to require reimbursement from those responsible for (either intentionally, accidentally, or as a result of actions by others) or owning or controlling property affected by the leaking, spilling, releasing, or allowing certain hazardous substances or materials to escape containment requiring the city and/or its agents to provide emergency containment, cleaning, and/or disposal of hazardous substances or materials, or for the securing and prudent monitoring of the site of an accident or natural disaster, including those involving public or private utilities.

Adopted contract for ambulance service with Medstar Ambulance to provide transport support to the fire and rescue department with budgeted savings of $750,000 - $850,000 per year.

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The City requested proposals for banking services from financial institutions with depository branches within the City limits. Four commercial banks within the City bid, with the successful bid award reducing banking fees to the City by over 50 percent.

Approved redevelopment project with increment financing work under the Brownfield Redevelopment Financing Act, 1996 PA 381, as amended (Act 381) for the proposed project. The Macomb County BRA will facilitate the redevelopment of the commercial property at 9 Mile and Kelly, the former fruit and vegetable market and retail/food site. There are two rounds of funding for this project. One is from the BRA and City Tax Capture and the other the joint DEQ and City loan fully payable as an obligation by the developer. The City agreed to make contract with the MDEQ for a loan in an amount not to exceed $624,537, to pay for old storage tank removal leftover materials, environmental assessments. The taxable value of the site at the completion of the building in 2014 will increase from the current approximately T.V. $150,000 to approximately T.V. $1,031,461. The City received $18,155.90 project management and approval revenue.

Joint and shared services collaboration plan qualified for State of Michigan Economic Vitality program of $750,000 for fiscal year

Replaced 4.5 miles of water mains at a cost of $5,355,000, including Ego from Gratiot to Redmond, Brick from Stricker to Ego, Juliana from Brock to Universal, Stricker from Brock to Universal, Universal from 8 Mile to Veronica, Gratiot from 8 Mile to Toepfer, Toepfer from Gratiot to Crusade, Almond from 9 Mile to Stephens, Stephens from Gratiot to Kelly, and Petersburg from Holbrook to Stephens.

Cleaning and T.V. inspected 12.3 miles of the sewer lines from 8 Mile to Toepfer from Virginia to Kelly Roads at a cost of $357,000

Lined 20,200 feet of sewer at a total cost of $1,076,000

Repaired 4,500 feet of sewer by open cut or pipe bursting at a total cost of $2,000,000

Replaced nearly one mile of local streets at a total cost of $1,320,000, including Ego from Gratiot to Universal, Juliana from Brock to Crusade, Stricker from Brock to Crusade and Crusade from 8 Mile to Ego.

Completed construction of the Stephens Road resurfacing project from Flower to the west

city limits at a total cost of $1,200,000, using $840,000 in federal highway administration funds

Began construction on the Stephens Road resurfacing project from Tuscany to Kelly at a total estimated cost of $1,416,000, using $1,000,000 in federal highway administration funds

Began construction on the Stephens Road reconstruction project from Gratiot to Tuscany at a total estimated cost of $2,336,400, using $1,584,000 in federal highway administration funds

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Approved preparation of plans and specifications for the reconstruction of the Almond from 9 Mile to Norton at an estimated total cost of $301,250, using $195,000 of CDBG funds

Approved preparation of plans and specifications for the NB Kelly Road reconstruction project from Tuscany to 9 Mile at a total estimated cost of $2,100,000, using $1,248,000 in federal highway administration funds

Approved preparation of plans and specifications for the 2014 water main replacement project, including Owen from Gratiot to Hofer, Semrau from Gratiot to Melrose, Nicolai from Gratiot to Hofer, Evergreen from Gratiot to Hofer, Aurora from Gratiot to Hofer, Liscomb from Aurora to 9 Mile, Hofer from Aurora to Stephens, Wilmot from 9 Mile to Rosetta, Oak from Wilmot to Kelly, Rosetta from Wilmot to Kelly, Kelly from Rosetta to Oak, and Rosetta from Kelly to Marine at an estimated total cost of $1,972,000

Approved preparation of plans and specifications for the resurfacing of Petersburg Ave. from Norton to Spindler at an estimated total cost of $225,750

Approved preparation of plans and specifications for the rehabilitation of critical sewer repairs located in the area between 8 Mile Road and Toepfer from Virginia to Kelly roads and other miscellaneous locations throughout the City at a total estimated cost of $1,810,000

Approved preparation of plans and specifications for the cleaning and T.V. inspection of sewer lines in the area between 9 Mile and 10 Mile from Schroeder to the East City limits at a total estimated cost of $425,000

Although 2012/2013 saw an extremely light winter, City streets were kept safe and passable with reduced expense to the Major and Local Street Funds preserving funding of reserves for the inevitable more challenging winters ahead. DEVELOPMENT In 2012/2013, the City was pleased to see the completion of numerous private developments, including the demolition of an old service station replaced with a Tim Horton’s Cafe and Bake Shop soon to open and the demolition of a very old, fire-damaged bowling alley was completed on Gratiot and Toepfer to pave the way for construction of a new 10,000 square foot credit union.

A long vacated nursery and garden center was transformed into a full-service grocery store, Five Star Food Center, which recently opened on 8 Mile.

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Departmental Services and Accomplishments

The City of Eastpointe has been operating under the council-manager form of government since 1929. The city manager is the chief administrative officer of the City government, responsible for the efficient and effective management of all operations of the City. The city manager appoints all department heads and employees of the City except the city attorney. The city manager also appoints the members of the Housing Commission and the Downtown Development Authority (DDA) and serves as a voting member on the DDA. The City manager serves as the City Clerk and Director of Personnel of the City, as well as Administrative Officer and Secretary to the City of Eastpointe Employees’ Retirement System. The city manager prepares the City's annual budget for submission to the City Council and administers the budget after City Council adoption. The office of the city manager is also responsible for economic development and information technology services.

The management office is responsible for human resource planning, recruitment, and selection; human resource development; compensation and benefits; safety and health; and employee and labor relations. This office also is responsible for developing, implementing, and interpreting personnel policies that are consistent with the needs and objectives of the City of Eastpointe. The city manager serves as the director of personnel in accordance with the City Charter and the assistant city manager serves as the secretary to the Civil Service Commission.

The office administers the City purchasing programs and coordinates the purchase of all goods and services for the City of Eastpointe. Purchasing is the centralized function through which all City departments must request goods and vendors may be placed on the bidders’ list by submitting their request in writing or by email to the purchasing department. The assistant city manager is the purchasing agent for the City. The information technology office is responsible for supporting the City’s wide area network (WAN) and computer-related functions. Examples of key services provided include installation and support of microcomputers, technical support liaison for all hardware and software, water and tax bill production, and assistance in setting the technological direction for the City. District Court The 38th District Court, Eastpointe, was established by the State of Michigan to render judicial decisions for the citizens of the City. The State is divided into judicial districts, each of which is an administrative unit subject to the control of the Supreme Court of the State of Michigan. Jurisdiction of the District Court includes all felonies, misdemeanors, civil infractions, and civil and small claim cases. The District Court Judge, who is an employee of the State of Michigan and elected by local voters, supervises the District Court employees.

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Downtown Development Authority The DDA follows the DDA Design Framework Plan and the National Mainstreet Program objectives. The authority operates under a seven-person board of directors appointed by the city manager. Promotion goals for the authority in 2012/2013 included sponsorship of the farmers market, visible banner identification for the same market, paver replacement in the district, and streetscape cleaning and improvements district-wide as special events. Construction expenditure related activities included erection and operation of an electronic public information sign at the center intersection of the district. Finance Department The finance department consists of two distinct but intertwined functions: treasury and accounting.

The accounting activities include preparing a line item budget in accordance with generally accepted accounting principles. The preparation is coordinated with the city manager and department heads. When completed, it is presented to City Council for adoption.

Accounting maintains complete and accurate financial reporting through general ledger activities, in accordance with generally accepted accounting principles. An annual audit is required of the City’s books, performed by an independent auditor experienced in GAAP accounting practices. The City is required to implement into its audit practices any pronouncements that are handed down to local units of government by the Government Accounting Standards Board (GASB).

In preparation for the annual audit, the accounting function has the responsibility of reviewing line items and analyzing the accuracy of revenue and expenditure allocations. It is necessary to have the books complete and supporting schedules available in a timely manner for the purpose of auditor review and to correctly present the financial position of all City activities.

Accounting also includes paying the obligations of the City through the accounts payable process and paying employee and retiree obligations through the payroll process. Both activities require significant compliance activities with federal and state government reporting requirements.

Accounting enrolls individuals in and maintains employee benefits, including health, dental, optical, and life insurance. In addition to pension payments, retiree other postemployment benefits (OPEB) are administered, which include health and dental insurance and pension death benefits.

The treasury function involves billing, collecting, and recording City funds. The major items processed are the billing and collecting of property taxes and the monthly billing and collecting for the water/sewer system. Additional activities include billing and collecting miscellaneous/ special assessment items.

Treasury maintains accurate accounting records providing a clear audit trail for all receipts deposited into City bank accounts. All receipts are balanced daily.

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Treasury processes and maintains information for tax billings, including mortgage company requests, deferment requests, special assessments and Board of Review, MTT, and state tax commission adjustments. Property transfer information is coordinated with the assessing department.

Tax rolls are reconciled annually with Macomb County records. Delinquent taxes are processed and submitted to the Macomb County treasurer’s office for further collection efforts. Pertinent tax billing and collection information is available on the City’s webpage and is provided to citizens, homeowners, mortgage, and title companies upon request.

Monthly water/sewer billings are processed by the Treasury. Billings are based on actual usage with data coordinated with the water/sewer department. Final billings are generated off-cycle when requested by property owners and title companies. Pertinent water/sewer billing and collection information is available on the City’s webpage and is provided to citizens, homeowners, mortgage, and title companies upon request.

The role of the treasury function is to accurately and timely invoice for funds due to the City of Eastpointe, collect, receipt, and deposit funds paid to the City, and then make available the necessary funds to meet the City’s expenditure obligations. Any funds temporarily available in excess of current city obligations are to be invested in minimal risk instruments that will produce the highest return.

The mission of the finance department is to accurately record and report City financial activities in a timely manner and in accordance with GAAP. Its other mission is meeting and understanding the business needs of both the people and the City. In partnership with other departments, we create a working environment in which cooperation, teamwork, and creativity are encouraged and valued.

The finance department prepares and maintains the City’s financial statements in compliance with the requirements of the Governmental Accounting Standards Board. The finance department is responsible for all accounting, pension administration, and treasury functions. In addition, the department also assists in budget development, implementation, maintenance, and control.

The City assessor’s office is responsible for the appraisal of all real estate and personal property for property tax purposes. There are approximately 13,845 real property descriptions and 1,281 personal property accounts contained in the City’s mass appraisal files.

The assessing office operates under the provisions of the General Property Tax Act of 1893, as amended, and applicable local Charter provisions. In addition, the department maintains and monitors the “principal residence” status of all property throughout the City as well as tracking property transfers.

The assessor is responsible for development of special assessment district rolls used to fund many infrastructure improvements. The assessing department also defends all assessments before the Michigan tax tribunal and supports some economic development programs.

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Police Department The police department strives to preserve and protect life and property in Eastpointe through its two operating bureaus. The majority of the department’s staffing, equipment, and financial resources are allocated to the Road Patrol Bureau. The bureau's role is to establish a communication network through community policing, suppress crime, maintain order, and respond to emergencies and calls for assistance.

The investigative bureau includes trained professional investigators who are responsible for researching, solving, and successful prosecution of crimes.

The accident investigation team's officers, through training in traffic and motor carrier enforcement, work to reduce traffic accidents by determining causes and making recommendations for changes in traffic regulations, and enforcing overweight and safe vehicle statutes to protect the City's roadways.

Finally, the auxiliary services unit is responsible for helping citizens who wish to become more involved in and aware of methods of crime prevention in their community. Auxiliary services consist primarily of volunteers supervised by a police lieutenant.

Fire Department

The fire department is responsible for the protection of life and property from the ravages of fire. The fire department responds to residential, commercial, and industrial fires with specialized equipment designed to meet the needs of the particular fire. In addition, the department is able to respond to hazardous materials incidents, confined space rescue, and trench rescue.

The fire department provides advance life support emergency medical services in cases of sudden illness or injury. Licensed paramedics, working under the direction of a base hospital physician, provide quality pre-hospital emergency care. The fire prevention division is involved in the enforcement of state laws and City ordinances that relate to fire protection and prevention. In addition, the department inspects commercial and industrial buildings and multiple-unit dwellings for fire code violations. The division also conducts fire investigations and aids in the fire prevention effort through the development and presentation of public fire education programs. Department of Development Public Works and Services Development and Building Services Division The building services division enforces building codes and zoning codes. This division administers the Michigan building and housing code issuing permits for construction and reconstruction. This office receives construction permit applications, reviews construction plans and documents, and issues the appropriate permits for the erection and alteration of residential, commercial, and industrial buildings.

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This division administers all work of the Planning Commission and Zoning Board of Appeals. The field work includes administration of the rental registration and inspection program, the vacant structure registration, sidewalk, and dangerous building programs. Code enforcement is administered through this division including violations and regulatory enforcement of blight, rodent, and property maintenance compliance including long grass, refuse, and weed regulations. Streets Division The Department of Public Services - Streets Division is responsible for maintaining the miles of streets within the City. The streets division is responsible for handling all street cleaning, snow and ice removal, tree trimming, street signs, and open drain repair. The streets division is upgrading street signs with a high density facing for a safer, more visible sign. The streets division will be performing both targeted and generalized concrete repair as part of the neighborhood road improvement program that was initiated in 1997. Public Services Division The motor pool program is responsible for maintaining all City vehicles and related equipment. The Motor Pool Division keeps individual records on each vehicle and piece of equipment to help determine whether the cost of repair is justified as the need arises. The equipment is also inspected for safety problems, thereby protecting the employees and the general public. The Motor Pool Division is also responsible for keeping adequate vehicle and equipment parts in stock and updated. The Motor Pool Division also orders gasoline and diesel fuel and oversees the work done on all emergency backup generators. The solid waste program of public services supervises the contracted WMI and is responsible for the collection of refuse and recyclables, brush chipping, street sweeping, leaf pickup, litter disposal, and catch basin cleanout. The City has established a mandatory recycling program. Recycled materials include metals, telephone books, magazines, paper, plastics, glass, tin, Christmas trees, batteries, grass clippings, and leaves. Department of Public Works - Parks Division The parks division is responsible for the maintenance of all City parks. In addition, the parks division performs landscaping duties, as well as sidewalk and parking lot maintenance for all City buildings. The parks division is also responsible for mowing, responding to tree service calls, removal of unsafe or dead trees, and oversight of the mowing contractor. All athletic field sites are prepared for use and maintained by the parks division.

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Department of Public Services - Water and Sewer Division The water and sewer division is responsible for providing water distribution and sewage collection to the City's citizens and businesses. The process begins with the purchase of water from the Detroit water and sewerage department. The water and sewer division handles the installation, repair, and reading of all water meters. The water and sewer division does all repair work on water and sewer mains, gate wells, maintenance, and catch basin structures; all cleaning of sewer mains, catch basins, gate wells and culverts; and all other related services. The water and sewer division handles all repair work, including pavement and landscape repairs arising from water main breaks and/or sewer trench settlement. The process ends with the City paying the Macomb County Drain Commission for the treatment of sewage that enters its facilities and transmission of the sewage via the Southeast Macomb Sanitary District of which the City is a collaborative member. Library Department

The library department is a multifaceted service agency involved in meeting the community’s needs for information in a variety of formats. Demand for educational, recreational, and cultural materials is met with a constantly updated collection of books, periodicals, pamphlets, videos, compact discs, and books on tape. The library department's ability to provide information is further enhanced by its membership in The Suburban Library Cooperative (SLC). This membership allows for the electronic inter-loan of items from other SLC members. These items are then delivered to Eastpointe for patron pickup. A myriad of additional services is offered by the Library. Personal computers, with Internet access, are available for use by patrons as well as Wi-Fi access to reference material. A liaison is maintained with the City’s schools and classroom visits are arranged. Art exhibits are scheduled regularly and speakers, films, book reviews, and children’s programming are offered year round. The Reporting Entity and Services Provided The City of Eastpointe has defined its financial reporting entity in accordance with the pronouncements of the Governmental Accounting Standards Board (GASB). The City of Eastpointe includes all the funds, agencies, boards, commissions, and authorities that are controlled by or dependent on the mayor and City Council. Based on these criteria, the Municipal Building Authority, Downtown Development Authority, and the Economic Development Corporation have been included in this report. The City of Eastpointe provides a full range of services including police and fire protection; sanitation services; the construction and maintenance of highways, streets, and infrastructure; planning and zoning; library services; recreational activities; and cultural events. In addition, water and sewer services are provided under an Enterprise Fund concept, with user charges set by the City Council to ensure adequate coverage of operating expenses and payments on outstanding debt.

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Financial Information Management of the City is responsible for establishing and maintaining internal control designed to ensure that the assets of the City are protected from loss, theft, or misuse and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost 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 the City's internal accounting controls adequately safeguard assets and provide reasonable assurance of proper recording of financial transactions. The City adopted a balanced FY 2012-2013 General Fund and public safety budget. The City will use $1,752,178 of fund balance in FY 2012-2013. The slowdown in the economy, including a loss of more than 7 percent of taxable property values, cuts in State revenue sharing, and increases in expenditures for health insurance and pension costs will seriously affect the budgets. However, with the implementation of employee benefit controls and reductions, initial restructuring, and new fiscal controls and modifications to programs, this use of fund balance was less due to additional expenditure reductions of $1,221,567 from the adopted amended budget. Long-term Financial Planning The City Council has adopted the financial management plan and following financial policies to guide the process for long-term financial decisions: (1) debt management policy - provides guidelines for borrowing money to finance projects, (2) cash management policy - provides guidelines for the day-to-day handling of cash and investments, (3) capital improvement policy - sets capitalization thresholds and parameters for capital asset purchases, and (4) investment policy - provides guidelines for investment of the City’s liquid assets. As the City faces a slower economy, additional funding sources will have to be found to fund field service operations and large capital projects. This may include additional taxes, which can only be raised by a vote of the people. Other sources of revenue may include grants or raising fees. These challenges will be met using the financial policies above. Federal Financial Assistance As a recipient of federal financial assistance, the City is also responsible for ensuring that an adequate internal control system is in place to ensure compliance with applicable laws and regulations related to those programs. The internal control systems are evaluated periodically by management to achieve these objectives. The City is not required to have a single audit in FY 2012-2013 to test these controls because it did not receive more than $500,000 in federal assistance as required by the Federal Office of Management and Budget (OMB) Circular A-133.

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Budgeting Controls In accordance with state law, the City's budget is prepared on the modified accrual basis for governmental-type funds, and its accounting records are also maintained on that basis. Under modified accrual accounting, revenues are recorded when they are both measurable and available. Expenditures are recorded when a liability is incurred, except for interest on long-term debt and accrued vacation benefits. Governmental fund types, such as the City's General Fund, special revenue funds, debt service funds, and capital projects funds, are reported on the modified accrual basis. The City's Enterprise Fund, internal service funds, and Pension Trust Fund are reported on the full accrual basis, under which revenues are recorded when earned and expenses are recorded when incurred. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City's governing body. Activities of the General Fund are included in the annual appropriated budget. The level of budgetary control (that is, the level at which expenditures cannot legally exceed the appropriated amount) is established at the department level for the General Fund, special revenue funds, and certain debt service funds. However, for internal accounting purposes, budgetary control is maintained by object class (line account) for all funds. The City also maintains an encumbrance accounting system as one technique of accomplishing budgetary control. Purchase orders that would create an over-encumbrance are not written until additional appropriations are available. Encumbered accounts lapse at year end. However, any encumbrances outstanding at June 30, 2013 are reported as reservations of fund balances. As demonstrated by the statements and schedules included in the financial section of this report, the City continues to meet its responsibility for sound financial management. The preparation of the financial report on a timely basis was made possible by the dedicated service of the entire staff of the department of finance, Office of City Management, and our independent auditors, Plante & Moran, PLLC, certified public accountants. Each of them has our sincere thanks and compliments for professional work performed. In closing, without the leadership and support of the City Council, preparation of this report would not have been possible.

Sincerely, Steve M. Duchane City Manager

Randall Blum Director of Finance

Independent Auditor's Report

To the Honorable Mayor andMembers of the City Council


Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business-typeactivities, the aggregate discretely presented component units, each major fund, and the aggregateremaining fund information of the City of Eastpointe, Michigan (the "City") as of and for the year endedJune 30, 2013 and the related notes to the financial statements, which collectively comprise the City ofEastpointe, Michigan's basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements inaccordance with accounting principles generally accepted in the United States of America; this includesthe design, implementation, and maintenance of internal control relevant to the preparation and fairpresentation of financial statements that are free from material misstatement, whether due to fraud orerror.

Auditor’s Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conductedour audit in accordance with auditing standards generally accepted in the United States of America andthe standards applicable to financial audits contained in Government Auditing Standards, issued by theComptroller General of the United States. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether the financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the City’spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluatingthe appropriateness of accounting policies used and the reasonableness of significant accountingestimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinions.

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cheryl.shipman

Ann Arbor

cheryl.shipman

Praxity



Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, therespective financial position of the governmental activities, the business-type activities, the aggregatediscretely presented component units, each major fund, and the aggregate remaining fund information ofthe City of Eastpointe, Michigan as of June 30, 2013 and the respective changes in its financial positionand cash flows, where applicable, for the year then ended, in accordance with accounting principlesgenerally accepted in the United States of America.

Other Matters

Required Supplemental Information

Accounting principles generally accepted in the United States of America require that the management'sdiscussion and analysis, budgetary comparison schedules, retirement system, and retiree healthcaresystem schedules of funding progress and employer contributions, as identified in the table of contents,be presented to supplement the basic financial statements. Such information, although not a part of thebasic financial statements, is required by the Governmental Accounting Standards Board, which considersit to be an essential part of financial reporting for placing the basic financial statements in an appropriateoperational, economic, or historical context. We have applied certain limited procedures to the requiredsupplemental information in accordance with auditing standards generally accepted in the United Statesof America, which consisted of inquiries of management about the methods of preparing the informationand comparing the information for consistency with management's responses to our inquiries, the basicfinancial statements, and other knowledge we obtained during our audit of the basic financial statements.We do not express an opinion or provide any assurance on the information because the limitedprocedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectivelycomprise the City of Eastpointe, Michigan's basic financial statements. The transmittal letter and othersupplemental information, as identified in the table of contents, are presented for the purpose ofadditional analysis and are not a required part of the basic financial statements.

The other supplemental information, as identified in the table of contents, is the responsibility ofmanagement and was derived from and relates directly to the underlying accounting and other recordsused to prepare the basic financial statements. Such information has been subjected to the auditingprocedures applied in the audit of the basic financial statements and certain additional procedures,including comparing and reconciling such information directly to the underlying accounting and otherrecords used to prepare the basic financial statements or to the basic financial statements themselves,and other additional procedures in accordance with auditing standards generally accepted in the UnitedStates of America. In our opinion, the other supplemental information, as identified in the table ofcontents, is fairly stated in all material respects in relation to the basic financial statements as a whole.

The transmittal letter has not been subjected to the auditing procedures applied in the audit of the basicfinancial statements and, accordingly, we do not express an opinion or provide any assurance on it.

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Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated November 15,2013 on our consideration of the City of Eastpointe, Michigan's internal control over financial reportingand on our tests of its compliance with certain provisions of laws, regulations, contracts, grantagreements, and other matters. The purpose of that report is to describe the scope of our testing ofinternal control over financial reporting and compliance and the results of that testing, and not to providean opinion on the internal control over financial reporting or on compliance. That report is an integralpart of an audit performed in accordance with Government Auditing Standards in considering the City ofEastpointe, Michigan's internal control over financial reporting and compliance.

November 15, 2013

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Management’s Discussion and Analysis

4

The City of Eastpointe, Michigan’s (the “City”) management’s discussion and analysis (MD&A) is a narrative overview of the City’s financial activities and performance for the fiscal year ended June 30, 2013. Please read it in conjunction with the City’s financial statements and notes to the financial statements.

Financial Highlights The City’s combined total net position is reported as $76.3 million for the fiscal year ended

June 30, 2013, compared to $74.6 million last fiscal year. In the City’s governmental activities, revenue generated $23.1 million, while expenses

totaled $25.4 million. In the City’s business-type activities, program revenue generated $13.5 million, while

operating expenses totaled $9.5 million and capital investment in the City’s water system totaled $8.1 million.

The total cost of all of the City’s programs, including governmental activities and business-

type activities, was $34.9 million, down $2.3 million from last fiscal year; this compares to a $1.8 million increase last year.

Total net position increased $1.7 million, largely due to investments in water main and drain

infrastructure. Government-wide Statements The MD&A is followed by the City’s basic financial statements, which are comprised of two sections. The first two statements, entitled government-wide statement of net position followed by the government-wide statement of activities, are financial statements that represent the City as a whole and provide a long-term perspective regarding the City’s overall financial status. The statement of net position includes all of the City’s assets and liabilities as described in Notes 4 and 7, respectively, to the financial statements. The difference between the City’s assets and liabilities is “net position,” which is a way to measure the financial health of the City as it fluctuates from one year to the next. The statement of activities reports all of the current year’s earned revenue and accrued expenses, regardless of when cash is received or paid, and represents the change in net position from one year to the next.


Management’s Discussion and Analysis (Continued)

5

The City’s activities are separated into three categories: governmental and business-type activities, which represent the City’s total financial performance, followed by the component unit financial information. • The governmental activities column reports the City’s basic services, including general

administration, public safety, public works, and parks and recreation.

• Business-type activities represent those activities for which the City charges fees to customers to cover the cost of services. The City’s water and sewer system is the only business-type activity reported.

• The City has two discretely presented component units included in this report as follows: the Downtown Development Authority and the Economic Development Corporation. Although legally separate, these component units are important because the City is financially accountable. Further information regarding the purpose of each component unit is found in Note 1 to the financial statements.

Fund Financial Statements The City’s fund financial statements are similar to the historical presentation; however, this section individually discloses only those funds designated as the City’s “major” funds. All nonmajor funds are aggregated into one column. These statements provide a higher level of detail than the government-wide statements and continue to illustrate how the services provided by the City were financed in the short term as well as what remains for future spending. The City has three types of funds that are used to keep track of specific sources of funding and spending for particular purposes as follows:

• Governmental Funds - The majority of the City’s basic services included in the governmental funds not only focus on how cash and other financial assets that can readily be converted to cash flow in and out, but also what year-end balances are available to finance future City programs. Because this information does not include the additional long-term focus of the government-wide statements, reconciliation statements are provided to explain the differences between the two methods of reporting. Pages 16 and 18 illustrate this concept.

• Proprietary Funds - Services for which the City charges customers fees are reported in this fund type. This fund type provides both the short- and long-term financial information comparable to the business-type activity in the government-wide statements. The Water and Sewer Fund is an enterprise fund, which typically charges residents usage fees and accounts for the cost of operations.



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• Fiduciary Funds - The Trust Fund and agency funds are used to account for assets held by the City in a trustee capacity or as an agent for individual, private organizations, other governments, and other city funds. The City is responsible for ensuring the assets reported in these funds are used for their intended purpose. The City’s fiduciary activities are reported in a separate statement of fiduciary net position. Fiduciary activities are excluded from the City’s government-wide statements because these assets are not available to finance City operations.

Financial Analysis of the City as a Whole Statement of Net Position - The City’s combined net position increased 2.2 percent, or $1.7 million, from $74.6 million in 2012 to $76.3 million in 2013. The net position for the governmental activities saw a decrease from $33.3 million in 2012 to $30.9 million in 2013. The current level of unrestricted net position for governmental activities is $7.1 million, or about 27.9 percent of expenses. The net position of the business-type activity increased from $41.4 million in 2012 to $45.4 million in 2013, or $4.0 million. The primary change is due to an increase in capital assets of $6.6 million. The unrestricted net position decreased by $2.0 million, or 10.0 percent in the business-type activity.

The City’s assets totaled $97.7 million in 2013, increased by $1.0 million from 2012. This relates to a decrease in net current assets of $6.6 million, or 18.5 percent and an increase in net capital assets of $7.1 million, or 13.0 percent. The primary change in net current assets is due to a decrease in cash and investments by $4.6 million. The primary change in net capital assets is due to the addition of assets related to water and sewer of $8.1 million.

The City’s total liabilities decreased $0.6 million, or 2.9 percent, to $21.3 million in 2013. This is primarily due to the decrease in long-term liabilities.



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In condensed format, the table below shows the comparison of net position (in millions) as of June 30, 2013 to the prior two years:

Governmental Activities Business-type Activities Total2013 2012 2011 2013 2012 2011 2013 2012 2011

AssetsCurrent assets 15,354$ 18,833$ 20,974$ 13,480$ 16,559$ 15,437$ 28,834$ 35,392$ 36,411$ Capital assets 22,347 21,817 23,763 39,249 32,683 31,673 61,596 54,500 55,436 Other noncurrent assets 648 2,308 2,750 6,611 4,447 4,332 7,259 6,755 7,082

Total assets 38,349 42,958 47,487 59,340 53,689 51,442 97,689 96,647 98,929

LiabilitiesCurrent liabilities 1,258 2,112 1,897 3,013 1,796 1,311 4,271 3,908 3,208 Long-term liabilities 6,168 7,586 8,335 10,933 10,514 11,429 17,101 18,100 19,764

Total liabilities 7,426 9,698 10,232 13,946 12,310 12,740 21,372 22,008 22,972

Net PositionNet investment in

capital assets 18,726 17,957 19,780 27,478 21,508 20,269 46,204 39,465 40,049 Restricted 5,084 5,652 6,430 20 20 19 5,104 5,672 6,449 Unrestricted 7,113 9,651 11,045 17,896 19,851 18,414 25,009 29,502 29,459

Total net position 30,923$ 33,260$ 37,255$ 45,394$ 41,379$ 38,702$ 76,317$ 74,639$ 75,957$

Changes in Net Position - The City’s total net position increased by $1.7 million during the fiscal year ended June 30, 2013. The table below shows the comparison of changes in net position (in millions) to the prior two years:

Governmental Activities Business-type Activities Total2013 2012 2011 2013 2012 2011 2013 2012 2011

RevenueProgram revenue:

Charges for services 5,865$ 4,618$ 4,261$ 12,283$ 11,122$ 10,879$ 18,148$ 15,740$ 15,140$ Operating grants and contributions 2,169 2,142 2,449 - - - 2,169 2,142 2,449 Capital grants and contributions 15 409 278 166 - - 181 409 278

General revenue:Property taxes 12,208 13,987 15,263 - - - 12,208 13,987 15,263 State-shared revenue 3,144 3,049 3,214 - - - 3,144 3,049 3,214 Interest 46 85 118 111 92 109 157 177 227 Cable fees and other 564 323 421 - - - 564 323 421 Transfers and other revenue (923) (903) (739) 994 991 906 71 88 167

Total revenue 23,088 23,710 25,265 13,554 12,205 11,894 36,642 35,915 37,159

Program ExpensesGeneral government 5,826 8,154 5,442 - - - 5,826 8,154 5,442 Public safety 10,397 11,783 13,445 - - - 10,397 11,783 13,445 Public works 6,708 5,336 4,603 - - - 6,708 5,336 4,603 Community and economic development 596 155 171 - - - 596 155 171 Recreation and culture 1,730 2,102 2,256 - - - 1,730 2,102 2,256 Interest on long-term debt 168 174 179 - - - 168 174 179 Water and sewer - - - 9,539 9,528 9,329 9,539 9,528 9,329

Total program expenses 25,425 27,704 26,096 9,539 9,528 9,329 34,964 37,232 35,425

Change in Net Position (2,337)$ (3,994)$ (831)$ 4,015$ 2,677$ 2,565$ 1,678$ (1,317)$ 1,734$



8

The City’s governmental activity continued to see the impacts of revenue falling faster than expenses with a $2.3 million decrease in net position to $31.0 million as of June 30, 2013. Annual revenue for business-type activity exceeded expenses by $4.0 million, resulting in an increase in net position to $45.4 million. The following graphs illustrate the primary sources of revenue and expenses for the total primary government of the City of Eastpointe for the year ended June 30, 2013:

General Government

17%

Public Safety30%

Public Works19%

Community and Economic

Development2%

Recreation and Culture

5%

Interest on Long-term Debt

0%

Water and Sewer27%

Program Expenses

Charges for Services

50%

Grants6%

Property Taxes33%

State-Shared Revenue

9%Interest

0%

Cable Fees2%Revenue



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Governmental Activities - Of the City’s total revenue generated for fiscal year 2013, property tax comprises the largest segment, $12.2 million. Property tax revenue decreased over the prior year by $1.8 million, or 12.7 percent, which is consistent with the decrease in property taxable values. State-shared revenue is another primary source of revenue for the City, of which we received $3.1 million; this is an increase of $0.1 million, or 3.1 percent. Of the charges for service revenue of $5.9 million, $2.0 million is associated with court fines and fees, $1.9 million for garbage collection fees, $0.6 million for building department activity, and $0.3 million for ambulance service. Of the grants and contributions revenue of $2.2 million, the majority is associated with the governmental activity related to road system improvements in the amount of $1.9 million. Investment earnings decreased slightly. This is due to the exceptionally low interest rate environment experienced in 2013.

The majority of governmental expense is associated with the public safety function, which is $10.4 million, or 41.9 percent of the governmental activity. Public safety includes police, fire, ambulance, and building inspection services. Public works expenses were $6.7 million, or 24.6 percent, which includes road improvements. Community and economic development expenses totaled $0.6 million, or 2.4 percent of the governmental activity. Recreation and cultural expenses totaled $1.7 million, or 7.0 percent, which is related to park operations, recreation programs, and library operations. General government expenses totaled $5.8 million, or 23.4 percent.

Business-type Activities - The City’s business-type activities are recorded in the Water and Sewer Fund. The City provides water service and sewage disposal and treatment, purchased from the City of Detroit, to residents and businesses. Of the City’s charges for service revenue, the majority is generated from charges passed on to residents, which is $12.3 million. Charges for service are offset by water and sewer expenses of $9.5 million, or 27.8 percent of the City’s total expenses, and after capital contributions, the business activity has an increased net change in position of $4.0 million.

Financial Analysis of the City’s Funds An analysis of the City’s major funds follows the government-wide financial statements. The fund level financial statements provide detailed information on the most significant funds, not the City as a whole. In addition to state legislative requirements to maintain separate funds for Act 51 major and local road money, the City creates funds to administer certain dedicated dollars and demonstrate accountability to the citizens for special tax millages voted by citizens or earmarked bond proceeds. The City’s major funds for fiscal year 2013 include the General Fund, the Major Streets Fund, the Local Streets Fund, and the Garbage and Rubbish Collection Fund.



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The General Fund accounts for most of the City’s governmental services. During the prior year, the Public Safety Fund was combined with the General Fund. The most significant expenditures in this fund relate to public safety which totaled $11.8 million in 2013, a decrease of $1.4 million from 2012. Police and fire services are supported by General Fund contributions and a special public safety millage, all of which are recorded in the General Fund. The Major Streets Fund and Local Streets Fund are supported by state-shared gas and weight taxes. State funding of approximately $1.4 million and $0.5 million was reported in 2013 for the Major Streets Fund and Local Streets Fund, respectively.

General Fund/Public Safety Fund (Operations) Budgetary Highlights - Actual operations revenue came in $0.2 million higher than the amended budget. Actual operations expenditures came in $1.3 million below budget. Expenditures were under budget due to delays in filling personnel vacancies from retirements and attrition. In addition, administration continued tighter controls on spending, assessing purchases and exercising cost savings measures which provided positive results. The fund balance for City operations was reduced by $1.1 million, which was $1.5 million less than budget. The fund balance for City operations was reduced from $10.7 million a year ago to $9.6 million at June 30, 2013.

Capital Asset and Debt Administration - At the end of 2013, the City of Eastpointe had $61.6 million invested in a wide range of capital assets, including land, buildings, police and fire equipment, computer equipment, and water and sewer lines. The largest asset is infrastructure, which consists of sidewalks, roads within the major and local street system, and water and sewer lines. The value of infrastructure assets, net of depreciation contained in this report, is $52.3 million for fiscal year 2013.

Debt reported in these financial statements is related to the construction of the above-mentioned infrastructure assets and buildings and is reported as a liability on the statement of net position (see Note 7 of the notes to the basic financial statements for additional information).

Economic Factors and Next Year’s Budgets and Rates - The City of Eastpointe’s budget for next year reflects an additional decrease in the City’s taxable value of approximately $32.4 million, or 7.0 percent. This will produce a decrease in tax collections for the City’s general and public safety operations of $0.6 million. It appears the downward pressure on taxable values is subsiding; however, state restrictions prevent the ability for recovery.

During fiscal year 2013, six union contracts were settled and nonunion administrative rules were changed. The employee pay and benefit reductions averaged 17 percent and the savings for the City were partially seen during the year. Full-year concessions and restructuring will reduce operating expenses in excess of $2.2 million annually for future years. Containment of future costs through changes to pension and retirement healthcare benefits for all existing employees and new hires has been achieved. The continued reductions in revenue will force further personnel cost reductions in coming years.



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The City’s pension system is 61 percent funded with required actuarial determined contributions made by the City on an annual basis. The financial markets returned significant investment improvements and negotiated pension changes should improve the system’s funding level. Improved funding levels will positively impact the system’s future required contributions.

The City has been able to maintain a sufficient fund balance that will allow a short timeframe for necessary structural changes. In addition to employee concessions, the City migrated from property tax revenues to a user fee for rubbish services and then bid out the rubbish contract, resulting in significant savings and a stable revenue stream. This has shored up the Rubbish Fund and eliminated the need for a General Fund subsidy. The City will implement a street lighting special assessment next year which will relieve expenditures from the General Fund. The City continues reviewing revenue options; however, without state restructuring of municipal financing, the City has exhausted its options for improvement.

The City purchases its water service and disposal and treatment of sewage from the City of Detroit. The City’s water and sewer rates are based on anticipated costs of the system in the current fiscal year and system improvements in current and future fiscal years. The Water/Sewer Fund has strong retained earnings and liquid assets. There are major water main and sewer projects scheduled over the next three years which can be sustained with current unrestricted funds. An annual evaluation process is undertaken to determine the amount of increase, if any, that is needed to continue providing water and sewer service to all users in the City. Contacting the City of Eastpointe’s Management - This financial report is intended to provide our citizens, taxpayers, customers, and investors with a general overview of the City of Eastpointe’s finances and to show the City’s accountability for the money it receives. If you have questions about this report or need additional information, we welcome you to contact the administration offices at the City of Eastpointe, 23200 Gratiot Avenue, Eastpointe, Michigan 48021.


Statement of Net PositionJune 30, 2013

Primary Government

Governmental

Activities

Business-type

Activities Total

Component

Units

AssetsCash and cash equivalents (Note 3) $ 8,769,792 $ 3,452,177 $ 12,221,969 $ 499,735Investments (Note 3) 4,648,329 6,975,346 11,623,675 -Receivables:

Property taxes 123,876 - 123,876 -Accounts - Net of allowance for doubtful

accounts of $44,149 749,892 2,876,886 3,626,778 -Due from other governmental units 1,193,586 5,303 1,198,889 -Special assessments 23,640 - 23,640 -

Internal balances (165,517) 165,517 - -Prepaid expenses 10,182 4,700 14,882 -Restricted assets (Note 5) 334,042 19,850 353,892 -Investment in joint ventures (Note 15) (652,971) 6,556,263 5,903,292 -Capital assets (Note 4):

Assets not subject to depreciation 1,339,259 6,373 1,345,632 -Assets subject to depreciation 21,008,050 39,242,693 60,250,743 -

Other amortizable noncurrent assets 78,580 34,619 113,199 -Assets held for sale 527,994 - 527,994 -

Other assets 360,315 - 360,315 -

Total assets 38,349,049 59,339,727 97,688,776 499,735

LiabilitiesAccounts payable 624,314 1,999,104 2,623,418 17,955Accrued liabilities and other 441,866 160,844 602,710 1,451Noncurrent liabilities:

Due within one year:Compensated absences (Note 7) 60,369 - 60,369 -Current portion of long-term debt

(Note 7) 131,523 852,579 984,102 -Due in more than one year:

Compensated absences (Note 7) 431,404 15,171 446,575 -Other long-term liabilities (Note 9) 90,851 - 90,851 -Net retiree healthcare obligation

(Note 12) 906,628 - 906,628 -Net pension obligation (Note 10) 911,056 - 911,056 -Long-term debt - Net of current

portion (Note 7) 3,827,792 10,918,026 14,745,818 -

Total liabilities 7,425,803 13,945,724 21,371,527 19,406

Net PositionNet investment in capital assets 18,726,021 27,478,461 46,204,482 -Restricted for:

Roads 3,769,123 - 3,769,123 -Debt service 83,156 19,850 103,006 -Library 349,805 - 349,805 -Drug law enforcement 475,462 - 475,462 -Capital projects 94,009 - 94,009 -Garbage and rubbish collection 312,218 - 312,218 -

Unrestricted 7,113,452 17,895,692 25,009,144 480,329

Total net position $ 30,923,246 $ 45,394,003 $ 76,317,249 $ 480,329

The Notes to Financial Statements are anIntegral Part of this Statement. 12


Program Revenues

Expenses

Charges for

Services

Operating

Grants and

Contributions

Capital Grants

and

Contributions

Functions/Programs

Primary government: Governmental activities:

General government $ 5,825,908 $ 2,694,390 $ 168,953 $ -Public safety 10,396,968 958,605 39,055 -Public works 6,708,364 1,938,326 1,945,873 7,618Community and economic

development 595,960 - - 7,382Recreation and culture 1,729,975 273,729 15,372 -

Interest on long-term debt 168,715 - - -

Total governmentalactivities 25,425,890 5,865,050 2,169,253 15,000

Business-type activities 9,538,559 12,283,293 - 165,545

Total primary government $ 34,964,449 $ 18,148,343 $ 2,169,253 $ 180,545

Component units:DDA $ 147,217 $ - $ 3,950 $ -

Economic Development Authority 9,047 - - -

Total component units $ 156,264 $ - $ 3,950 $ -

General revenues:Property taxesState-shared revenueInvestment incomeCable franchise fees

Other miscellaneous income

Total general revenues

Transfers

Change in Net Position

Net Position - Beginning of year

Net Position - End of year


Statement of ActivitiesYear Ended June 30, 2013

Net (Expense) Revenue and Changes in Net Position

Primary Government

Governmental

Activities

Business-type

Activities Total

Component

Units

$ (2,962,565) $ - $ (2,962,565) $ -(9,399,308) - (9,399,308) -(2,816,547) - (2,816,547) -

(588,578) - (588,578) -(1,440,874) - (1,440,874) -

(168,715) - (168,715) -

(17,376,587) - (17,376,587) -

- 2,910,279 2,910,279 -

(17,376,587) 2,910,279 (14,466,308) -

- - - (143,267)- - - (9,047)

- - - (152,314)

12,208,420 - 12,208,420 97,5743,144,224 - 3,144,224 -

45,613 110,943 156,556 680564,382 - 564,382 -

71,030 - 71,030 -

16,033,669 110,943 16,144,612 98,254

(994,167) 994,167 - -

(2,337,085) 4,015,389 1,678,304 (54,060)

33,260,331 41,378,614 74,638,945 534,389

$ 30,923,246 $ 45,394,003 $ 76,317,249 $ 480,329

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Governmental FundsBalance SheetJune 30, 2013

General Fund

Major Streets

Fund

Local Streets

Fund

Garbage and

Rubbish

Collection

Fund

Other

Nonmajor

Governmental

Funds Total

Assets

Cash and cash equivalents (Note 3) $ 3,272,705 $ 3,182,652 $ 396,587 $ 112,425 $ 1,548,264 $ 8,512,633Investments (Note 3) 4,648,329 - - - - 4,648,329Receivables:

Property taxes 123,876 - - - - 123,876Special assessments - - - - 23,640 23,640Customer 367,249 - - 382,643 - 749,892Due from other governmental

units 880,201 216,332 84,103 - 12,950 1,193,586Prepaid expenses 10,182 - - - - 10,182Restricted assets (Note 5) - - - - 334,042 334,042

Assets held for sale 527,994 - - - - 527,994

Total assets $ 9,830,536 $ 3,398,984 $ 480,690 $ 495,068 $ 1,918,896 $ 16,124,174

Liabilities and Fund Balances

LiabilitiesAccounts payable $ 285,615 $ 89,162 $ 11,655 $ 182,180 $ 15,580 $ 584,192Accrued liabilities and other 369,374 2,569 7,165 670 15,109 394,887

Deferred revenue (Note 8) 299,848 - - - 15,576 315,424

Total liabilities 954,837 91,731 18,820 182,850 46,265 1,294,503

Fund BalancesNonspendable:

Assets held for resale 527,994 - - - - 527,994Prepaids 10,182 - - - - 10,182

Restricted:Roads - 3,307,253 461,870 - - 3,769,123Debt service - - - - 83,156 83,156Library - - - - 349,805 349,805Drug law enforcement - - - - 475,462 475,462Capital projects - - - - 432,036 432,036Garbage and rubbish

collection - - - 312,218 - 312,218Committed:

Pension actuarial requiredcontribution 2,762,592 - - - - 2,762,592

Compensated absences 491,773 - - - - 491,773Budget stabilization 2,196,305 - - - - 2,196,305Operating reserve 966,374 - - - - 966,374Emergency reserve 219,630 - - - - 219,630

Assigned:Capital projects - - - - 531,881 531,881Debt service - - - - 291 291

Unassigned 1,700,849 - - - - 1,700,849

Total fundbalances 8,875,699 3,307,253 461,870 312,218 1,872,631 14,829,671

Total liabilitiesand fundbalances $ 9,830,536 $ 3,398,984 $ 480,690 $ 495,068 $ 1,918,896 $ 16,124,174



Governmental FundsReconciliation of Balance Sheet to the Statement of Net Position

June 30, 2013

Fund Balance Reported in Governmental Funds $ 14,829,671

Amounts reported for governmental activities in the statementof net position are different because:

Capital assets used in governmental activities are not financialresources and are not reported in the funds 21,635,046

Amounts on deposit with the Insurance Authority (MMRMA)are not reported as fund assets 360,315

Investments in joint ventures are not financial resources and arenot reported in the funds (652,971)

Special assessment, personal property tax, and otherreceivables are expected to be collected over several yearsand are not available to pay for current year expenditures 315,424

Bonds payable obligations are not due and payable in thecurrent period and are not reported in the funds (3,959,315)

Accrued interest is not due and payable in the current periodand is not reported in the funds (41,544)

Long-term portion of uninsured losses is not reported in thefunds (90,851)

Employee compensated absences are payable over a longperiod of years and do not represent a claim on currentfinancial resources; therefore, they are not reported as fundliabilities (491,773)

Debt issuance costs are an expenditure in the governmentalfunds and are capitalized and amortized over the life of therelated debt in the governmental activities 78,580

Other postemployment benefit obligation in governmentalactivities is not reported in the funds (906,628)

Net pension obligation in governmental activities is notreported in the funds (911,056)

Internal service funds are included as part of governmentalactivities 758,348

Net Position of Governmental Activities $ 30,923,246



Governmental FundsStatement of Revenue, Expenditures, and

Changes in Fund BalancesYear Ended June 30, 2013

General Fund

Major Streets

Fund

Local Streets

Fund

Garbage and

Rubbish

Collection

Fund

Other

Nonmajor

Governmental

Funds

Total

Governmental

Funds

RevenueProperty taxes $ 9,205,572 $ - $ - $ - $ 3,002,848 $ 12,208,420Licenses and permits 1,224,857 - - - - 1,224,857Federal grants 29,451 - - - 203,980 233,431State-shared revenue and grants 3,163,777 1,437,923 507,950 - 15,362 5,125,012Charges for services 784,201 - - 1,938,326 1,794 2,724,321Fines and forfeitures 2,079,983 - - - 119,986 2,199,969Investment income 37,853 3,390 977 126 3,267 45,613Rental income 76,196 - - - 158,044 234,240Other:

Special assessments - - - - 61,118 61,118Local donations 24,110 - - - 10 24,120

Other miscellaneous income 202,354 - - 2,249 52,313 256,916

Total revenue 16,828,354 1,441,313 508,927 1,940,701 3,618,722 24,338,017

ExpendituresCurrent:

General government 5,350,549 - - - 5,320 5,355,869District court - - - - 18,290 18,290Public safety 11,835,885 - - - 538,278 12,374,163Public works 133,024 925,447 1,753,284 1,708,275 928,414 5,448,444Community and economic

development 401,364 - - - 194,376 595,740Recreation and culture 562,710 - - - 742,566 1,305,276

Capital outlay - - - - 153,183 153,183Debt service:

Principal - - - - 125,000 125,000Interest on long-term debt - - - - 171,594 171,594

Total expenditures 18,283,532 925,447 1,753,284 1,708,275 2,877,021 25,547,559

Excess of Revenue (Under) OverExpenditures (1,455,178) 515,866 (1,244,357) 232,426 741,701 (1,209,542)

Other Financing Sources (Uses)Transfers in - - 625,000 - 300,813 925,813

Transfers out (297,000) (625,000) - - (997,980) (1,919,980)

Total other financing(uses) sources (297,000) (625,000) 625,000 - (697,167) (994,167)

Net Change in Fund Balances (1,752,178) (109,134) (619,357) 232,426 44,534 (2,203,709)

Fund Balances - Beginning of year 10,627,877 3,416,387 1,081,227 79,792 1,828,097 17,033,380

Fund Balances - End of year $ 8,875,699 $ 3,307,253 $ 461,870 $ 312,218 $ 1,872,631 $14,829,671



Governmental FundsReconciliation of the Statement of Revenue, Expenditures,

and Changes in Fund Balances of Governmental Fundsto the Statement of Activities

Year Ended June 30, 2013

Net Change in Fund Balances - Total Governmental Funds $ (2,203,709)

Amounts reported for governmental activities in the statementof activities are different because:

Governmental funds report capital outlays as expenditures; however, in thestatement of activities, these costs are allocated over their estimated usefullives as depreciation:

Capital outlay 2,328,444

Depreciation expense (1,860,622)

Net book value of assets disposed of (89,118)

Revenue is recorded in the statement of activities when earned; it is notreported in the funds until collected or collectible within 60 days of year end (436,859)

Transfer of capital assets into the Internal Service Fund is an expense in thestatement of activities, but not in the governmental funds (561,188)

Bond discounts and costs from the issuance of debt. Governmental funds reportdiscounts and issuance costs as expenditures when received rather thancapitalizing and amortizing the discount and issuance costs (4,082)

Repayment of bond principal is an expenditure in the governmental funds, butnot in the statement of activities (where it reduces long-term debt) 234,934

Interest expense is reported in the statement of activities when a liability isincurred; it is reported in the governmental funds only when payment is due 1,356

Decrease in accumulated employee sick and vacation pay and other similarexpenses reported in the statement of activities do not require the use ofcurrent resources, and therefore are not reported in the fund statementsuntil they come due for payment 58,671

Change in estimated general liability and workers' compensation claims arerecorded when incurred in the statement of activities 113,222

Change in investment in joint ventures is not recorded in the governmentalfunds (1,698,421)

Change in other postemployment benefit obligation is recorded when incurredin the statement of activities 334,331

Change in net pension obligation is recorded when incurred in the statement ofactivities 687,608

Internal service funds are included as part of governmental activities 758,348

Change in Net Position of Governmental Activities $ (2,337,085)



Proprietary FundsStatement of Net Position

June 30, 2013

Enterprise

Fund

Governmental

Activities

Water and

Sewer

Internal Service

Fund

AssetsCurrent assets:

Cash and cash equivalents (Note 3) $ 3,452,177 $ 257,159Investments (Note 3) 6,975,346 -Customer receivables - Net of allowance for doubtful accounts of $44,149 2,882,189 -Due from other funds 165,517 -

Prepaid expenses 4,700 -

Total current assets 13,479,929 257,159

Noncurrent assets:Restricted assets (Note 5) 19,850 -Investment in Southeast Macomb Sanitary District (Note 15) 6,556,263 -Capital assets - Net (Note 4) 39,249,066 712,263

Other assets 34,619 -

Total noncurrent assets 45,859,798 712,263

Total assets 59,339,727 969,422

LiabilitiesCurrent liabilities:

Accounts payable 1,999,104 40,122Due to other funds - 165,517Accrued liabilities and other 160,844 5,435

Current portion of long-term debt (Note 7) 852,579 -

Total current liabilities 3,012,527 211,074

Noncurrent liabilities:Compensated absences (Note 7) 15,171 -Long-term debt - Net of current portion (Note 7) 10,918,026 -

Total noncurrent liabilities 10,933,197 -

Total liabilities 13,945,724 211,074

Net PositionNet investment in capital assets 27,478,461 712,263Restricted for debt service 19,850 -

Unrestricted 17,895,692 46,085

Total net position $ 45,394,003 $ 758,348



Proprietary FundsStatement of Revenue, Expenses, and Changes in Net Position


Enterprise

Fund

Governmental

Activities

Water and

Sewer

Internal Service

Fund

Operating RevenueWater sales $ 2,118,024 $ -Sewage disposal charges 5,265,721 -Charges for services 4,547,202 952,946

Interest and penalty charges 352,346 -

Total operating revenue 12,283,293 952,946

Operating ExpensesWater purchases 1,192,462 -Sewage treatment 4,375,670 -Operation and maintenance 725,688 382,218General and administration 1,600,122 232,607

Depreciation 1,317,055 157,402

Total operating expenses 9,210,997 772,227

Operating Income 3,072,296 180,719

Nonoperating Revenue (Expense)Investment income 110,943 -Interest expense (312,019) -

(Loss) gain on sale of assets (15,543) 16,438

Total nonoperating (expense) revenue (216,619) 16,438

Income - Before contributions and transfers 2,855,677 197,157

Capital Contributions 165,545 561,191

Transfers from Other Funds 994,167 -

Change in Net Position 4,015,389 758,348

Net Position - Beginning of year 41,378,614 -

Net Position - End of year $ 45,394,003 $ 758,348



Proprietary FundsStatement of Cash Flows


Enterprise

Fund

Governmental

Activities

Water and

Sewer

Internal Service

Fund

Cash Flows from Operating ActivitiesReceipts from customers $ 12,233,810 $ 952,946Payments to suppliers (5,630,414) (363,565)Payments to employees (1,221,347) (205,703)

Other payments (5,303) -

Net cash provided by operating activities 5,376,746 383,678

Cash Flows from Noncapital Financing Activities - Scrap metal sales 7,315 -

Cash Flows from Capital and Related Financing ActivitiesProceeds from issuance of debt 1,245,129 -Receipt of capital grants 165,545 -Proceeds from sales of capital assets - 29,299Purchase of capital assets (8,043,633) (155,818)Principal and interest paid on capital debt (989,854) -

Transfers from other funds 994,167 -

Net cash used in capital and related financing activities (6,628,646) (126,519)

Cash Flows from Investing ActivitiesInterest received on investments 110,943 -

Proceeds from sale and maturity of investments (2,026,451) -

Net cash used in investing activities (1,915,508) -

Net (Decrease) Increase in Cash and Cash Equivalents (3,160,093) 257,159

Cash and Cash Equivalents - Beginning of year 6,612,270 -

Cash and Cash Equivalents - End of year $ 3,452,177 $ 257,159

Reconciliation of Operating Income to Net Cash from Operating ActivitiesOperating income $ 3,072,296 $ 180,719Adjustments to reconcile operating income to net cash from operating activities:

Depreciation 1,317,055 157,402Changes in assets and liabilities:

Receivables 2,115,504 -Investment in joint venture (2,170,290) -Prepaid and other assets 1,883 -Accounts payable 1,010,049 40,122

Accrued and other liabilities 30,249 5,435

Net cash provided by operating activities $ 5,376,746 $ 383,678

Noncash Investing, Capital, and Financing Activities - During the year ended June 30, 2013, capital assets constructedduring the 8 1/2 Mile Relief Drain Drainage District project, with an estimated value of $27,682, were contributed to the City.The construction was fully financed with debt issued on behalf of the City.

The Internal Service Fund received capital contributions from other funds in the amount of $561,191.



Fiduciary FundsStatement of Net Position

June 30, 2013

Pension and

Other

Employee

Benefit Trust

Funds Agency Funds

AssetsCash and cash equivalents (Note 3) $ 1,256,681 $ 40,866Investments (Note 3):

U.S. government securities 3,735,121 -U.S. government agency securities 1,176,838 -Equity securities 24,868,667 -Corporate bonds 6,632,970 -Mutual funds 9,890,334 -Municipal bonds 166,276 -

Receivables - Accrued interest 72,748 -

Total assets 47,799,635 $ 40,866

LiabilitiesAccounts payable 59,032 $ 2,501

Accrued liabilities and other - 38,365

Total liabilities 59,032 $ 40,866

Net Position Held in Trust for Pension and OtherEmployee Benefits $ 47,740,603



Fiduciary FundsStatement of Changes in Net Position


Pension and

Other

Employee

Benefit Trust

Funds

AdditionsInvestment income:

Interest and dividends $ 1,661,877Net increase in fair value of investments 2,991,459

Investment-related expenses (296,797)

Net investment income 4,356,539

Contributions:Employer 6,026,635

Employee 167,735

Total contributions 6,194,370

Total additions 10,550,909

DeductionsBenefit payments 6,063,419Health insurance premiums 2,931,660

Administrative expenses 4,624

Total deductions 8,999,703

Net Increase in Net Position Held in Trust 1,551,206

Net Position - Beginning of year 46,189,397

Net Position - End of year $ 47,740,603



Component UnitsStatement of Net Position

June 30, 2013

Downtown

Development

Authority

Economic

Development

Authority Total

Assets - Cash and cash equivalents (Note 3) $ 124,306 $ 375,429 $ 499,735

LiabilitiesAccounts payable 17,955 - 17,955

Accrued liabilities and other 984 467 1,451

Total liabilities 18,939 467 19,406

Net Position - Unrestricted $ 105,367 $ 374,962 $ 480,329



Program Revenues

Expenses

Charges for

Services

Operating

Grants and

Contributions

Functions/Programs

Downtown Development Authority - Communityenrichment/development and interest on long-termdebt $ 147,217 $ - $ 3,950

Economic Development Authority 9,047 - -

Total governmental activities $ 156,264 $ - $ 3,950

General revenue:Property taxes

Interest and other investment earnings

Total general revenue

Change in Net Position

Net Position - Beginning of year

Net Position - End of year


Component UnitsStatement of Activities


Net (Expense) Revenue and Changes in Net Position

Downtown

Development

Authority

Economic

Development

Authority Total

$ (143,267) $ - $ (143,267)- (9,047) (9,047)

(143,267) (9,047) (152,314)

97,574 - 97,574219 461 680

97,793 461 98,254

(45,474) (8,586) (54,060)

150,841 383,548 534,389

$ 105,367 $ 374,962 $ 480,329

26


Notes to Financial StatementsJune 30, 2013

Note 1 - Summary of Significant Accounting Policies

The accounting policies of the City of Eastpointe, Michigan (the "City") conform toaccounting principles generally accepted in the United States of America (GAAP) asapplicable to governmental units. The following is a summary of the significantaccounting policies used by the City of Eastpointe, Michigan:

Reporting Entity

The City of Eastpointe, Michigan operates with the council-manager form ofgovernment. It is governed by a City Council consisting of a mayor and four councilmembers who are elected at large to overlapping four-year terms. In accordance withthe provisions of the City Charter, the City Council appoints, among others, the citymanager, who reports directly to the City Council. The city manager is responsible forthe administration of the affairs of the City, except those affairs that are theresponsibility of other appointed officials. The finance director is appointed by the citymanager and is responsible for the administration of the financial affairs of the City,including keeping the supervision of accounts, collections of taxes, and the custody anddisbursement of City funds.

The accompanying financial statements present the City and its component units,entities for which the City is considered to be financially accountable. Although blendedcomponent units are legal separate entities, in substance, they are part of the City'soperations. Each discretely presented component unit is reported in a separate columnin the government-wide financial statements to emphasize that it is legally separate fromthe City.

Blended Component Units

The City of Eastpointe Building Authority (the "Building Authority"), an entity legallyseparate from the City, is governed by a three-member board appointed by the CityCouncil. For financial reporting purposes, the Building Authority is reported as if it werea part of the City's operations because its purpose is to finance and construct buildingsfor the City. The operations of the Building Authority are reported as nonmajor debtservice and capital projects funds.

Discretely Presented Component Units

The City of Eastpointe Downtown Development Authority (the "Authority") wascreated to correct and prevent deterioration in the downtown district, encouragehistorical preservation, and to promote economic growth within the downtown district.The Authority's governing body, which consists of nine individuals, is selected by the citymanager and approved by the City Council. In addition, the Authority's budget is subjectto approval by the City Council.

27



Note 1 - Summary of Significant Accounting Policies (Continued)

The City of Eastpointe Economic Development Corporation (the "EDC") was created toprovide means and methods for the encouragement and assistance of industrial andcommercial enterprises in relocating, purchasing, constructing, improving, or expandingwithin the City so as to provide needed services and facilities of such enterprises to theresidents of the City. The EDC's governing body, which consists of nine individuals, isselected by the city manager and approved by the City Council.

The City has excluded the Housing Commission from this report since the City does nothave the ability to impose its will.

Government-wide and Fund Financial Statements

The government-wide financial statements (i.e., the statement of net position and thestatement of activities) report information on all of the nonfiduciary activities of the City(the primary government) and its discretely presented component units. The effect ofinterfund activity has been removed from these statements. Governmental activities,normally supported by taxes and intergovernmental revenue, are reported separatelyfrom business-type activities, which rely to a significant extent on fees and charges forsupport. Likewise, the primary government is reported separately from certain legallyseparate component units for which the primary government is financially accountable.

The statement of activities demonstrates the degree to which the direct expenses of agiven function (governmental activities) or identifiable activity (business-type activities)are offset by program revenue. Direct expenses are those that are clearly identifiablewith a specific function or activity. Program revenue includes (1) charges to customersor applicants who purchase, use, or directly benefit from goods, services, or privilegesprovided by a given function or activity and (2) grants and contributions that arerestricted to meeting the operational or capital requirements of a particular function oractivity. Taxes and other revenue items properly excluded from program revenue arereported as general revenue.

Separate financial statements are provided for governmental funds, the proprietary fund,and fiduciary funds, even though the latter are excluded from the government-widefinancial statements. Major individual governmental funds and the major individualenterprise fund are reported as separate columns in the fund financial statements.

The City reports the following major governmental funds:

General Fund - The General Fund is the City's primary operating fund. It accounts forall financial resources of the general government, except those required to beaccounted for in another fund.

Major Streets Fund - The Major Streets Fund accounts for maintenance andimprovement activities for streets designated as "major" within the City. Funding isprovided primarily through state-shared gas and weight taxes.

28




Local Streets Fund - The Local Streets Fund accounts for maintenance andimprovement activities from streets designated as "local" within the City. Funding isprovided primarily through state-shared gas and weight taxes.

Garbage and Rubbish Collection Fund - The Garbage and Rubbish Collection Fundaccounts for waste collection services provided to residents. Funding is providedprimarily through user charges.

The City reports the following major enterprise fund:

Water and Sewer Fund - The Water and Sewer Fund accounts for the activities of thewater distribution system and sewage and storm water collection system. Funding isprovided primarily through user charges.

Additionally, the City reports the following fund types:

Internal Service Fund - The Internal Service Fund accounts for major machinery andequipment purchases and maintenance provided to other departments of thegovernment on a cost reimbursement basis.

Pension and Other Employee Benefit Trust Funds - The Pension and OtherEmployee Benefit Trust Funds account for the activities of the employee benefit plans,which accumulate resources for pension and other postemployment benefit paymentsto qualified employees.

Agency Funds - The agency funds account for assets held by the City in a trusteecapacity or as an agent for individuals, organizations, or other governments.

Measurement Focus, Basis of Accounting, and Financial StatementPresentation

The government-wide financial statements are reported using the economic resourcesmeasurement focus and the accrual basis of accounting, as are the proprietary fund andfiduciary fund financial statements. Revenue is recorded when earned and expenses arerecorded when a liability is incurred, regardless of the timing of related cash flows.Property taxes are recognized as revenue in the year for which they are levied. Grantsand similar items are recognized as revenue as soon as all eligibility requirementsimposed by the provider have been met.

29




Governmental fund financial statements are reported using the current financialresources measurement focus and the modified accrual basis of accounting. Revenue isrecognized in the accounting period in which it becomes susceptible to accrual - that is,when it becomes both measurable and available. Revenue is considered to be availableif it is collected within the current period or soon enough thereafter to pay liabilities ofthe current period, generally collected within 60 days of the end of the current fiscalperiod. Revenue susceptible to accrual includes property taxes, intergovernmentalrevenue, special assessments, licenses, charges for services, and interest. All otherrevenue items are considered to be available only when cash is received by the City.Expenditures generally are recorded when a liability is incurred, as under accrualaccounting. However, debt service expenditures, expenditures relating to compensatedabsences, and claims and judgments are recorded only when payment is due. When anexpense has been incurred for purposes for which both restricted and unrestricted netposition is available, it is the City's policy to first apply restricted resources. When anexpense is incurred for purposes for which amounts in any of the unrestricted fundbalance classifications could be used, it is the City's policy to spend funds in this order:committed, assigned, and unassigned.

As a general rule, the effect of interfund activity has been eliminated from thegovernment-wide financial statements. Exceptions to this general rule are chargesbetween the City's water and sewer function and various other functions of the City.Eliminations of these charges would distort the direct costs and program revenuereported for the various functions concerned.

Amounts reported as program revenue included (1) charges to customers or applicantsfor goods, services, or privileges provided, (2) operating grants and contributions, and(3) capital grants and contributions, including special assessments. Internally dedicatedresources are reported as general revenue rather than as program revenue. Likewise,general revenue includes all taxes.

Proprietary funds distinguish operating revenue and expenses from nonoperating items.Operating revenue and expenses generally result from providing services in connectionwith a proprietary fund's principal ongoing operations. The principal operating revenueof the City's proprietary funds relates to charges to customers for sales and services.The Water and Sewer Fund also recognizes the portion of tap fees intended to recovercurrent costs (e.g., labor and materials to hook up new customers) as operatingrevenue. The portion intended to recover the cost of the infrastructure is recognized asnonoperating revenue. Operating expenses for proprietary funds include the cost ofsales and services, administrative expenses, and depreciation on capital assets. Allrevenue and expenses not meeting this definition are reported as nonoperating revenueand expenses.

30




Property Tax Revenue

Property taxes are levied on each July 1 on the taxable valuation of property as of thepreceding December 31. Taxes are considered delinquent on March 1 of the followingyear, at which time penalties and interest are assessed.

The City's 2012 tax is levied and collectible on July 1, 2012 and is recognized as revenuein the year ended June 30, 2013 when the proceeds of the levy are budgeted andavailable for the financing of operations.

The 2012 taxable valuation of the City totaled $464 million (a portion of which is abatedand a portion of which is captured by the DDA), on which taxes levied consisted of12.1754 mills for operating purposes, 2.0000 mills for library services, 7.0000 mills forpublic safety, and 4.4348 mills for debt service. This resulted in approximately $5.6million for operating, $926,000 for library services, $3.2 million for public safety, and$2.0 million for debt service. These amounts are recognized in the respective GeneralFund, Special Revenue Fund, and Debt Service Fund financial statements as tax revenue.

Assets, Liabilities, and Net Position or Equity

Cash and Investments - Cash and cash equivalents include cash on hand, demanddeposits, and short-term investments with a maturity of three months or less whenacquired. Investments are stated at fair value. Pooled investment income from theGeneral Fund, special revenue funds, debt service funds, and capital projects funds isgenerally allocated to each fund using a weighted average.

Receivables and Payables - In general, outstanding balances between funds arereported as "due to/from other funds." Any residual balances outstanding between thegovernmental activities and the business-type activities are reported in the government-wide financial statements as "internal balances." There were no balances outstandingbetween funds or the governmental and business-type activities at June 30, 2013.

All trade and property tax receivables are shown as net of allowance for uncollectibleamounts. Properties are assessed as of December 31. These taxes are billed on July 1of the following year and become a lien on December 1. These taxes are dueSeptember 1 with the final collection date of February 28 before they are added to thecounty tax rolls.

Prepaid Items - Certain payments to vendors reflect costs applicable to future fiscalyears and are recorded as prepaid items in both the government-wide and fund financialstatements.

31




Restricted Assets - The City has amounts on deposit with the Macomb County DrainCommission for use in the Lake St. Clair Clean Water Initiative that have been classifiedas restricted assets. In addition, the City's governmental activities have unspent bondproceeds which are restricted for construction.

Capital Assets - Capital assets, which include property, buildings, equipment, andinfrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported inthe applicable governmental or business-type activities column in the government-widefinancial statements. Capital assets are defined by the City as assets with an initialindividual cost of more than $5,000 and an estimated useful life in excess of one year.Such assets are recorded at historical cost or estimated historical cost if purchased orconstructed. Donated capital assets are recorded at estimated fair market value at thedate of donation.

Capital assets are depreciated using the straight-line method over the following usefullives:

Infrastructure 25 yearsWater and sewer distribution systems 40 yearsBuilding and building improvements 20 yearsMachinery and equipment 5 to 7 years

Assets Held for Sale - The assets held for sale in the General Fund consist of realproperty purchased for resale. The City purchases the property through the taxreversion process in Macomb County and resells the property for commercial orresidential development.

Compensated Absences - It is the City's policy to permit employees to accumulateearned but unused sick and vacation pay benefits. A liability is recorded when incurredin the government-wide financial statements and the proprietary fund financialstatements. A liability for these amounts is reported in governmental funds only whenthey have matured or come due for payment - generally when an individual'semployment has terminated as of year end.

Long-term Obligations - In the government-wide financial statements and theproprietary 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 position. Bondpremiums and discounts, issuance costs, and the deferred amount on refunding aredeferred 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 anddeferred amount on refunding. Bond issuance costs are reported as deferred chargesand amortized over the term of the related debt.

32




In the fund financial statements, governmental fund types recognize bond premiums anddiscounts, as well as bond issuance costs during the current period. The face amount ofdebt issued is reported as other financing sources. Premiums received on debtissuances are reported as other financing sources while discounts are reported as otherfinancing uses. Issuance costs are reported as debt service expenditures.

Pension and Other Postemployment Benefit Costs - The City offers both pensionand retiree healthcare benefits to retirees. The City receives an actuarial valuation tocompute the annual required contribution (ARC) necessary to fund the obligation overthe remaining amortization period. In the governmental funds, pension and OPEB costsare recognized as contributions are made.

For the government-wide statements and proprietary funds, the City reports the fullaccrual cost equal to the current year required contribution, adjusted for interest and"adjustment to the ARC" on the beginning of year underpaid amount, if any.

Fund Equity - In the fund financial statements, governmental funds report the followingcomponents of fund balance:

Nonspendable: Amounts that are not in spendable form or are legally orcontractually required to be maintained intact

Restricted: Amounts that are legally restricted by outside parties, constitutionalprovisions, or enabling legislation for use for a specific purpose

Committed: Amounts that have been formally set aside by the City Council for usefor specific purposes. Commitments are made and can be rescinded only viaresolution of the City Council.

Assigned: Intent to spend resources on specific purposes expressed by thegoverning body or the finance director, who is authorized by resolution approvedby the governing body to make assignments

Unassigned: Amounts that do not fall into any other category above. This is theresidual classification for amounts in the General Fund and represents fund balancethat has not been assigned to other funds and has not been restricted, committed,or assigned to specific purposes in the General Fund. In other governmental funds,only negative unassigned amounts are reported, if any, and represent expendituresincurred for specific purposes exceeding the amounts previously restricted,committed, or assigned to those purposes.

33




The City has adopted a fiscal management plan which contains fund balancerequirements for the General Fund. The requirements are based on average revenuesfor the preceding five years and create a budget stabilization reserve of 10 percent, anoperating reserve of 4.4 percent, and an emergency reserve of 1 percent. This isdeemed to be the prudent amount to maintain the City’s ability to meet obligations asthey come due throughout the year. Any use of the reserve funds must be approved bythe City Council and include a repayment plan.

Use of Estimates - The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenue and expenses during theperiod. Actual results could differ from those estimates.

Accounting and Reporting Change - During the year, the City adopted GASBStatement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflowsof Resources, and Net Position. The statement incorporates deferred outflows ofresources and deferred inflows of resources, as defined by GASB Concepts StatementNo. 4, into the definitions of the required components of the residual measures of netposition, formerly net assets. The statement also provides a new statement of netposition format to report all assets, deferred outflows of resources, liabilities, deferredinflows of resources, and net position. Since the City has no deferred outflows orinflows until the adoption of GASB No. 65 (see Note 16), the only impact of theadoption of GASB No. 63 on the City's financial statements is a change in terminologyfrom "net assets" to "net position."

Note 2 - Stewardship, Compliance, and Accountability

State Construction Code Act - The City oversees building construction, inaccordance with the State's Construction Code Act, including inspection of buildingconstruction and renovation to ensure compliance with the building codes. The Citycharges fees for these services. Beginning January 1, 2000, the law requires thatcollection of these fees be used only for construction code costs, including an allocationof estimated overhead costs. A summary of the current year activity and the cumulativesurplus or shortfall generated since January 1, 2000 is as follows:

34



Note 2 - Stewardship, Compliance, and Accountability (Continued)

Cumulative shortfall - July 1, 2012 $ (3,806,782)

Building permit revenue 262,802Related expenses:

Direct costs $ 84,990

Estimated indirect costs 217,642 302,632

Current year shortfall (39,830)

Cumulative shortfall - June 30, 2013 $ (3,846,612)

Note 3 - Deposits and Investments

Michigan Compiled Laws Section 129.91 (Public Act 20 of 1943, as amended) authorizeslocal governmental units to make deposits and invest in the accounts of federally insuredbanks, credit unions, and savings and loan associations that have offices in Michigan. TheCity is allowed to invest in bonds, securities, and other direct obligations of the UnitedStates or any agency or instrumentality of the United States; repurchase agreements;bankers’ acceptances of United States banks; commercial paper rated within the twohighest classifications, which matures not more than 270 days after the date of purchase;obligations of the State of Michigan or its political subdivisions, which are rated asinvestment grade; and mutual funds composed of investment vehicles that are legal fordirect investment by local units of government in Michigan.

The Employees' Retirement System, the Employees' Death Benefit Fund, and theRetiree Health Care Fund are also authorized by Michigan Public Act 314 of 1965, asamended, to invest in certain reverse repurchase agreements, stocks, diversifiedinvestment companies, annuity investment contracts, real estate leased to publicentities, mortgages, real estate (if the trust fund's assets exceed $250 million), debt orequity of certain small businesses, certain state and local government obligations, andcertain other specified investment vehicles.

35



Note 3 - Deposits and Investments (Continued)

The City's cash and investments are subject to several types of risk, which are examinedin more detail below:

Custodial Credit Risk of Bank Deposits - Custodial credit risk is the risk that in theevent of a bank failure, the City's deposits may not be returned to it. The City does nothave a deposit policy for custodial credit risk. At year end, the City had $7,177,950 ofbank deposits (certificates of deposit, checking, and savings accounts) that wereuninsured and uncollateralized. The City believes that due to the dollar amounts of cashdeposits and the limits of FDIC insurance, it is impractical to insure all deposits. As aresult, the City evaluates each financial institution with which it deposits funds andassesses the level of risk of each institution; only those institutions with an acceptableestimated risk level are used as depositories. The City held deposits in five financialinstitutions as of June 30, 2013.

Interest Rate Risk - Interest rate risk is the risk that the value of investments willdecrease as a result of a rise in interest rates. The City's investment policy does notrestrict investment maturities, other than commercial paper, which can only bepurchased with a 270-day maturity.

At year end, the average maturities of investments are as follows:

Investment Fair Value

Weighted

Average

Maturity

(Years)

Primary GovernmentU.S. government agency securities $ 4,523,886 1.26Municipal bonds 3,900,213 0.59

Commercial paper 1,499,401 0.23

Total $ 9,923,500

Fiduciary FundsU.S. government obligations $ 3,735,121 6.91U.S. government agency securities 1,176,838 20.37Corporate bonds 6,632,970 9.78

Municipal bonds 166,276 21.45

Total $ 11,711,205

36




Credit Risk - State law limits investments in commercial paper to the top two ratingsissued by nationally recognized statistical rating organizations. The City has noinvestment policy that would further limit its investment choices. As of year end, thecredit quality ratings of debt securities are as follows:

Investment Fair Value Rating Rating Organization

Primary GovernmentU.S. government agency securities $ 4,523,885 AA+ Standard & Poor'sMunicipal bonds 101,302 AAA Standard & Poor'sMunicipal bonds 255,505 AA+ Standard & Poor'sMunicipal bonds 1,133,075 AA Standard & Poor'sMunicipal bonds 1,006,230 AA- Standard & Poor'sMunicipal bonds 403,288 A+ Standard & Poor'sMunicipal bonds 85,717 A Standard & Poor'sMunicipal bonds 660,054 SP-1 Standard & Poor'sMunicipal bonds 255,043 Not rated Standard & Poor'sCommercial paper 499,893 A-1 Standard & Poor's

Commercial paper 999,508 A-1+ Standard & Poor's

Total $ 9,923,500

Fiduciary FundsU.S. government obligations $ 3,735,121 AAA Standard & Poor'sU.S. government agency securities 1,176,838 AAA Standard & Poor'sCorporate bonds 773,529 AAA Standard & Poor'sCorporate bonds 259,371 AA+ Standard & Poor'sCorporate bonds 679,491 AA Standard & Poor'sCorporate bonds 128,215 AA- Standard & Poor'sCorporate bonds 656,618 A+ Standard & Poor'sCorporate bonds 679,435 A Standard & Poor'sCorporate bonds 1,000,175 A- Standard & Poor'sCorporate bonds 827,369 BBB+ Standard & Poor'sCorporate bonds 913,432 BBB Standard & Poor'sCorporate bonds 691,260 BBB- Standard & Poor'sCorporate bonds 24,075 Not rated Standard & Poor'sMunicipal bonds 63,257 AA+ Standard & Poor's

Municipal bonds 103,019 AA Standard & Poor's

Total $ 11,711,205

Concentration of Credit Risk - The City places no limit on the amount it may invest inany one issuer. The City has not invested more than 5 percent of its portfolio with anyone issuer.

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The City's fiduciary funds subject to Michigan Public Act 314 of 1965, as amended, arelimited by law in that investments in any one issuer (other than the U.S. government)may not exceed 5 percent of total investments. At June 30, 2013, there were noinvestments in any one issuer (other than the U.S. government) that exceeded 5percent of total investments for the fiduciary funds.

Note 4 - Capital Assets

Capital asset activity of the City's governmental and business-type activities was asfollows:

Governmental Activities

Balance July 1, 2012 Reclassifications Additions Disposals

Balance June 30, 2013

Capital assets not being depreciated:Land $ 1,187,835 $ - $ - $ - $ 1,187,835Construction in progress - - 151,424 - 151,424

Subtotal 1,187,835 - 151,424 - 1,339,259

Capital assets being depreciated:Infrastructure: Roads 18,712,004 - 1,888,163 - 20,600,167 Sidewalks 7,122,300 - 191,437 - 7,313,737Buildings and improvements 15,596,276 - 39,765 - 15,636,041Machinery and equipment 7,858,943 870,731 213,473 (1,646,707) 7,296,440

Subtotal 49,289,523 870,731 2,332,838 (1,646,707) 50,846,385

Accumulated depreciation:Infrastructure: Roads 9,968,869 - 678,255 - 10,647,124 Sidewalks 3,828,339 - 269,329 - 4,097,668Buildings and improvements 8,478,485 - 539,882 - 9,018,367Machinery and equipment 6,384,135 705,214 530,558 (1,544,731) 6,075,176

Subtotal 28,659,828 705,214 2,018,024 (1,544,731) 29,838,335

Net capital assets being depreciated 20,629,695 165,517 314,814 (101,976) 21,008,050

Net capital assets $ 21,817,530 $ 165,517 $ 466,238 $ (101,976) $ 22,347,309

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Note 4 - Capital Assets (Continued)

Business-type Activities

Balance July 1, 2012 Reclassifications Additions Disposals

Balance June 30, 2013

Capital assets not being depreciated -Construction in progress $ - $ - $ 6,373 $ - $ 6,373

Capital assets being depreciated:Utility system 48,540,055 - 8,064,941 - 56,604,996Buildings and improvements 373,978 - - - 373,978Machinery and equipment 1,405,569 (870,731) - (111,769) 423,069

Subtotal 50,319,602 (870,731) 8,064,941 (111,769) 57,402,043

Accumulated depreciation:Utility system 16,210,437 - 1,274,143 - 17,484,580Buildings and improvements 312,482 - 3,374 - 315,856Machinery and equipment 1,113,502 (705,214) 39,538 (88,912) 358,914

Subtotal 17,636,421 (705,214) 1,317,055 (88,912) 18,159,350

Net capital assets being depreciated 32,683,181 (165,517) 6,747,886 (22,857) 39,242,693

Net capital assets $ 32,683,181 $ (165,517) $ 6,754,259 $ (22,857) $ 39,249,066

Depreciation expense was charged to programs of the primary government as follows:

Governmental activities:General government $ 1,208,144Public safety 318,478Public works 17,984Judicial 126,823Recreation and culture 189,193

Internal Service Fund 157,402

Total governmental activities $ 2,018,024

Business-type activities - Water and sewer $ 1,317,055

Construction Commitments - The City has active construction projects at year endas follows:

Spent to Date

Remaining

Commitment

2012 State Revolving Fund program $ 2,922,532 $ 1,782,9022011 and 2012 CDBG projects 321,694 618,019Capital improvement projects 180,560 25,300Water main replacement and sewer repair 2,933,624 2,022,840

Other major and local street projects 24,030 302,920

Total $ 6,382,440 $ 4,751,981

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Note 5 - Restricted Assets

The City's business-type activities have $19,850 in funds held by the Macomb CountyDrain Commission on behalf of the City to be used for the Lake St. Clair Clean WaterInitiative, including related debt service. In addition, the City's governmental activitieshave unspent bond proceeds of $334,042, which are restricted for construction.

Note 6 - Interfund Receivables, Payables, and Transfers

The composition of interfund balances is as follows:

Fund Transferred From Fund Transferred To Amount

General Fund Nonmajor governmental funds $ 297,000

Major Streets Fund Local Streets Fund 625,000

Nonmajor governmental funds Nonmajor governmental funds 3,813

Water and Sewer Fund 994,167

Total nonmajorgovernmental funds 997,980

Total $ 1,919,980

The transfer from the nonmajor governmental funds into the Water and Sewer Fundrepresents the transfer of property tax revenue restricted for debt service expenseincurred by the Water and Sewer Fund. All other transfers provided funding for capitalprojects, capital acquisitions, and debt service.

Note 7 - Long-term Debt

The City issues bonds to provide for the acquisition and construction of major capitalfacilities. General obligation bonds are direct obligations and pledge the full faith andcredit of the City. County contractual agreements and installment purchase agreementsare also general obligations of the government. Other long-term obligations includecompensated absences and certain risk liabilities.

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Note 7 - Long-term Debt (Continued)

Long-term obligation activity can be summarized as follows:

InterestRate Ranges

PrincipalMaturityRanges

BeginningBalance Additions Reductions

EndingBalance

Due WithinOne Year

Governmental Activities

General obligation bond:Building AuthorityMaturing through 2033

4.25% -4.375%

$130,000 -$280,000 $ 4,055,000 $ - $ (125,000) $ 3,930,000 $ 130,000

Unamortized premium on issuance 30,837 - (1,522) 29,315 1,523

Total bonds payable 4,085,837 - (126,522) 3,959,315 131,523

Energy grant participation agreement N/A$567 -$8,987 108,412 - (108,412) - -

Accumulated compensated absences 550,445 - (58,672) 491,773 60,369Uninsured losses (Note 9) 187,492 - (96,641) 90,851 -

Total governmental activities $ 4,932,186 $ - $ (390,247) $ 4,541,939 $ 191,892

InterestRate Ranges

PrincipalMaturityRanges

BeginningBalance Additions Reductions

EndingBalance

Due WithinOne Year

Business-type Activities

County Drain Contract:Lake St. Clair Clean Water Initiative:

Amount of issue - $12,503,481Maturing through 2030 Various

$177,406 -$727,665 $ 8,321,854 $ - $ (550,149) $ 7,771,705 $ 564,893

8 1/2 Mile Relief Drain:Amount of issue - $3,091,679 Maturing through 2030 2.50%

$115,723 -$179,289 2,853,775 27,682 (127,686) 2,753,771 127,686

Revenue bonds:

2013 Clean Water Revolving Fund:

Amount of issue - $4,020,000 $160,000 - - - - - -Maturing through 2033 2.50% $250,000 - 1,245,129 - 1,245,129 160,000

Total bonds payable 11,175,629 1,272,811 (677,835) 11,770,605 852,579

Accumulated compensated absences 16,606 - (1,435) 15,171 -

Total business-type activities $ 11,192,235 $ 1,272,811 $ (679,270) $ 11,785,776 $ 852,579

Annual debt service requirements to maturity for the above bond obligations andcontracts are as follows (other than unamortized premium on issuance andcompensated absences):

Governmental Activities Business-type Activities

Years EndingJune 30 Principal Interest Total Principal Interest Total

2014 $ 130,000 $ 166,175 $ 296,175 $ 852,579 $ 298,666 $ 1,151,2452015 135,000 160,544 295,544 867,794 280,430 1,148,2242016 140,000 154,700 294,700 898,143 261,318 1,159,4612017 145,000 148,644 293,644 921,480 241,578 1,163,0582018 155,000 142,269 297,269 946,599 221,278 1,167,877

2019-2023 865,000 605,731 1,470,731 5,120,771 766,810 5,887,5812024-2028 1,060,000 401,906 1,461,906 2,867,835 305,146 3,172,981

2029-2033 1,300,000 146,563 1,446,563 2,070,275 29,216 2,099,491

Total $ 3,930,000 $ 1,926,532 $ 5,856,532 $ 14,545,476 $ 2,404,442 $ 16,949,918

41



Note 7 - Long-term Debt (Continued)

Commitments - The City received a Clean Water State Revolving Fund loan from theState of Michigan during the year. The scheduled payments related to the 2013 CleanWater Revolving Fund are included in the annual debt service requirements table above.However, as of June 30, 2013, the City had only drawn down $1,245,129 of the$4,020,000 approved loan amount, which is recorded as debt at year end. Thedifference in the principal outstanding between the debt service requirements table andthe debt recorded in the business-type activities is $2,774,871.

Defeased Debt - In prior years, the City defeased certain bonds by placing City fundsor proceeds from new bonds in an irrevocable trust to provide for all future debtservice payments on the old bonds. Accordingly, the trust accounts' assets and liabilitiesfor the defeased bonds are not included in the basic financial statements. At June 30,2013, $895,000 of bonds outstanding are considered defeased.

County Contractual Obligations - The above contractual obligations to the Countyare the result of the County issuance of bonds on the City’s behalf and othercommunities involved in the Lake St. Clair Clean Water Initiative Project and the 8 1/2Mile Drain Relief Project. The City has pledged to raise property taxes, to the extentpermitted by law, as necessary to fund the obligations to repay the County. Theremaining principal and interest to be paid on the bonds total $12,951,476. During thecurrent year, total property taxes levied to fund debt obligations of the City were$2,053,449. Total principal and interest paid by the City for County-issued debt totaled$993,992.

Note 8 - Deferred Revenue

Governmental funds report deferred revenue in connection with receivables forrevenue that is not considered to be available to liquidate liabilities of the currentperiod. Governmental funds also defer revenue recognition in connection withresources that have been received but not yet earned. At the end of the current fiscalyear, the various components of deferred revenue are as follows:

Governmental Funds

Unavailable Unearned

Special assessments $ 15,576 $ -Other miscellaneous charges 194,978 -

Personal property taxes 104,870 -

Total $ 315,424 $ -

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Note 9 - Risk Management

The City is exposed to various risks of loss related to property loss, torts, errors andomissions, and employee injuries (workers' compensation), as well as medical benefitsprovided to employees. The City has purchased commercial insurance for medicalbenefits and workers' compensation; settled claims relating to the commercial insurancehave not exceeded the amount of insurance coverage in any of the past three fiscalyears. The City participates in the Michigan Municipal Risk Management Authority riskpool for claims other than medical benefits.

The Michigan Municipal Risk Management Authority (the "Authority") risk pool programoperates as a claims servicing pool for amounts up to member retention limits, andoperates as a common risk-sharing management program for losses in excess ofmember retention amounts. Although premiums are paid annually to the Authority thatthe Authority uses to pay claims up to the retention limits, the ultimate liability for thoseclaims remains with the City.

The City is self-funded for claims up to a retention amount, at which time the City'sreinsurance coverage begins. The City estimates the liability for claims that have beenincurred through the end of the year, including both those claims that have beenreported as well as those that have not been reported.

Changes in the estimated liability for the past two fiscal years were as follows:

General Liability, Auto,

and Property

2013 2012

Estimated liability - Beginning of year $ 187,492 $ 248,260

Estimated claims incurred, including changes inestimates 6,151 (37,037)

Claim payments (102,792) (23,731)

Estimated liability - End of year $ 90,851 $ 187,492

Note 10 - Defined Benefit Pension Plan

Plan Description - The City of Eastpointe Employees' Retirement System is theadministrator of a single-employer public employees' retirement system, establishedpursuant to collective bargaining agreements and death benefits to plan members andtheir beneficiaries. At June 30, 2012, the date of the most recent actuarial valuation,membership consisted of 200 retirees and beneficiaries currently receiving benefits, 18terminated employees entitled to benefits but not yet receiving them, and 109 currentactive employees.

43



Note 10 - Defined Benefit Pension Plan (Continued)

Contributions - Employer contributions to the plan are recognized when due and theemployer has made a formal commitment to provide the contributions. During theyear, certain plan members were required to contribute 5 percent of their coveredwages. Police and fire employees hired prior to July 1, 2010 are required to contribute5 percent of covered wages to the pension plan. Effective January 1, 2013, generalemployees with less than 20 years of credited service with the City and who opted notto enter into the City's defined contribution plan are required to contribute 5 percent oftheir covered wages to the pension plan. Benefits and refunds are recognized when dueand payable in accordance with the terms of the plan. Please refer to Note 1 for furthersignificant accounting policies.

Funding Policy - The obligation to contribute to and maintain the system for theseemployees was established by negotiation with the City's collective bargaining units. Thefunding policy provides for periodic employer contributions at actuarially determinedrates. Administrative costs of the plan are financed through investment earnings.

Annual Pension Cost - For the year ended June 30, 2013, the City's annual pensioncost was $1,890,674 for the plan. The annual required contribution was $1,853,513.The City contributed $2,578,282 during the year.

Three-year Trend Information

Fiscal Year Ended June 30

2013 2012 2011

Annual pension cost (APC) $ 1,890,674 $ 2,722,721 $ 2,760,442Percentage of APC contributed %136.0 %99.0 %99.0Net pension obligation $ 911,056 $ 1,598,664 $ 1,571,022

44




Funded Status and Funding Progress - The schedule of funding progress, presentedas required supplemental information following the notes to the financial statements,presents multi-year trend information about whether the actuarial value of plan assets isincreasing or decreasing over time relative to the actuarial accrued liability of benefits.The funding status for the three most recent years is as follows:

Fiscal Year Ended June 30

2012 2011 2010

Actuarial value of assets $ 43,180,412 $ 45,568,140 $ 46,396,079Actuarial accrued liability (AAL)

(entry age) $ 69,874,999 $ 67,799,307 $ 67,010,652Unfunded AAL (UAAL) $ 26,694,587 $ 22,231,167 $ 20,614,573Funded ratio %61.8 %67.2 %69.2Covered payroll $ 7,633,276 $ 8,694,192 $ 9,095,795UAAL as a percentage of covered

payroll %349.7 %255.7 %226.6

Actuarial Methods and Assumptions - The annual required contribution wasdetermined as part of an actuarial valuation at June 30, 2011, using the individual entryage actuarial cost method. Significant actuarial assumptions used include (a) an 8 percentinvestment rate of return, (b) projected salary increases of 3.5 percent to 6.5 percentper year, and (c) no cost of living adjustments. Both (a) and (b) include an inflationcomponent of 3.5 percent. The actuarial value of assets was determined usingtechniques that smooth the effects of short-term volatility over a five-year period. Theunfunded actuarial liability is being amortized as a level percentage of payroll over anopen period of 30 years for police and fire employees and as a level dollar amount overa closed period of 28 years for general employees.

Reserves - As of June 30, 2013, the plan's legally required reserves are as follows:

Reserve for retired benefit payments $ 41,809,216Reserve for employees' contributions 167,735

45




This valuation's computed contributions and actual funding are summarized as follows:

Pension Plan

Annual required contribution (recommended) $ 1,853,513Interest on prior year's net pension obligation 127,893

Less adjustment to the annual required contribution (90,732)

Annual pension cost 1,890,674

Amounts contributed - Contributions 2,578,282

Change in pension obligation (687,608)

Net pension obligation:

Beginning of year 1,598,664

End of year $ 911,056

Note 11 - Defined Contribution Pension Plan

The City provides pension benefits to eligible employees through a defined contributionplan. The plan covers police and fire employees hired after July 1, 2010. Generalemployees had the option of entering into the plan effective January 1, 2013. In a definedcontribution plan, benefits depend solely on amounts contributed to the plan plusinvestment earnings. Certain police and fire employees are eligible to participate fromthe date of employment and general employees are eligible to participate beginningJanuary 1, 2013. As established by city ordinance and collective bargaining agreements,the City contributes 4 percent of the employees' base wages. Employee contributionsinto the plan are not required. All contributions plus interest allocated to the employee'saccount are fully vested after five years of service.

The current year contribution was calculated based on covered payroll of $1,059,048,resulting in an employer contribution of $59,861 and employee contributions of$33,274.

Note 12 - Other Postemployment Benefits

Plan Description - The City provides retiree healthcare benefits to eligible employeesand their spouses. Benefits are provided to police, fire, and general employee groups. Asof July 1, 2012, the date of the most recent actuarial valuation, the plan had 298members including employees in active service, terminated employees not yet receivingbenefits, and retired employees and beneficiaries currently receiving benefits.

46



Note 12 - Other Postemployment Benefits (Continued)

This is a single employer defined benefit plan administered by the City. Benefits areprovided under collective bargaining agreements. The plan does not issue a separatestand-alone financial statement. Administrative costs are paid by the plan throughemployer contributions.

Funding Policy - The collective bargaining agreements currently do not require acontribution from employees. The City has no obligation to make contributions inadvance of when the insurance premiums are due for payment (in other words, this maybe financed on a "pay-as-you-go" basis). However, as shown below, the City has madecontributions to advance-fund these benefits, as determined by the City Council throughannual budget resolutions.

Funding Status and Funding Progress - For the year ended June 30, 2013, the Cityhas estimated the cost of providing retiree healthcare benefits through thePostretirement Healthcare Plan through actuarial valuations as of July 1, 2012. Thevaluation computes an annual required contribution, which represents a level of fundingthat, if paid on an ongoing basis, is projected to cover normal costs each year andamortize any unfunded actuarial liabilities over a period not to exceed 30 years.

This valuation's computed contribution and actual funding are summarized as follows:

PostretirementHealthcare

Plan

Annual required contribution (recommended)* $ 3,101,027Interest on the prior year's net OPEB obligation 99,277

Less adjustment to the annual required contribution (66,205)

Annual OPEB cost 3,134,099

Amounts contributed - Payments of current premiums andadvance funding (3,468,430)

Decrease in net OPEB obligation (334,331)

OPEB obligation - Beginning of year 1,240,959

OPEB obligation - End of year $ 906,628

* The required contribution is expressed to the City as a percentage of payroll.

47




The annual OPEB cost, the percentage contributed to the plan, and the net OPEBobligation for the plan for the current year and the previous two years are as follows:

Fiscal Year

Ended

Annual OPEB

Costs

Percentage

OPEB Costs

Contributed

Net OPEB

Obligation

6/30/11 $ 2,875,300 95.0 $ (1,483,203)6/30/12 2,878,899 108.0 (1,240,959)6/30/13 3,134,099 110.0 (906,628)

The funding progress of the plan is as follows:

Actuarial

Valuation

Date

Actuarial

Value of

Assets

(a)

Actuarial

Accrued

Liability (AAL)

(b)

Unfunded

AAL (UAAL)

(b-a)

Funded

Ratio

(Percent)

(a/b)

Covered

Payroll

(c)

UAAL as a

Percentage

of Covered

Payroll

6/30/08 $ 2,250,959 $ 44,937,892 $ 42,686,933 5.0 $ 9,733,198 438.67/01/10 3,024,566 40,611,638 37,587,072 7.4 9,095,795 413.27/01/12 4,044,508 46,053,879 42,009,371 8.8 7,633,276 550.3

Actuarial Methods and Assumptions - Actuarial valuations of an ongoing plan involveestimates of the value of reported amounts and assumptions about the probability ofoccurrence of events far into the future. Examples include assumptions about futureemployment, mortality, and the healthcare cost trend. Amounts determined regardingthe funded status of the plan and the annual required contributions of the employer aresubject to continual revision as actual results are compared with past expectations andnew estimates are made about the future. The schedule of funding progress, presentedas required supplemental information following the notes to the financial statements,presents multiyear trend information about whether the actuarial value of the assets ofthe postretirement healthcare plan is increasing or decreasing over time relative to theactuarial accrued liabilities for benefits of the plans.

Projections of benefits for financial reporting purposes are based on the substantive plan(the plan as understood by the employer and the plan members) and include the typesof benefits provided at the time of each valuation and the historical pattern of sharing ofbenefit costs between the employer and plan members to that point. The actuarialmethods and assumptions used include techniques that are designed to reduce theeffects of short-term volatility in actuarial accrued liabilities and the actuarial value ofassets, consistent with the long-term perspective of the calculations.

48




In the July 1, 2012 actuarial valuation, the entry age actuarial cost method was used. Theactuarial assumptions included an 8.0 percent investment rate of return (net ofadministrative expenses), which is a blended rate of the expected long-term investmentreturns on plan assets and on the employer's own investments calculated based on thefunded level of the plan at the valuation date, and an annual healthcare cost trend rate of9 percent initially, grading down to 4 percent over the next 10 years. Both ratesincluded a 4 percent inflation assumption. The actuarial value of assets was determinedusing techniques that spread the effects of short-term volatility in the market value ofinvestments over a five-year period. The UAAL is being amortized as a level percentageof projected payroll on an open basis. The remaining amortization period at July 1, 2012was 30 years.

Note 13 - Employees' Death Benefit Fund

The Employees' Death Benefit Fund was established by City Ordinance on October 13,1958 for the purpose of providing death benefits for employees who elect to participatein the plan. Prior year contributions from the City and plan members have beendetermined to be sufficient to fully fund the plan at June 30, 2013. Benefits at date ofdeath are payable to designated beneficiaries in varying amounts. The obligation tocontribute and maintain the plan was established by negotiation with the City's collectivebargaining units.

Note 14 - Pension and Other Employee Benefit Trust Funds

The following are condensed financial statements for the individual pension plans andpostemployment healthcare plans:

Employees'

Retirement

System

Employees'

Death Benefit

Retiree

Health Care Total

AssetsCash and cash equivalents $ 1,014,278 $ 20,657 $ 221,746 $ 1,256,681Investments:

U.S. government obligations 3,735,121 - - 3,735,121U.S. government agency securities 1,176,838 - - 1,176,838Equity securities 23,525,275 34,158 1,309,234 24,868,667Corporate bonds 6,608,895 24,075 - 6,632,970Mutual funds 5,726,551 991,001 3,172,782 9,890,334Municipal bonds 166,276 - - 166,276

Receivables - Accrued interest 72,748 - - 72,748

Total assets 42,025,982 1,069,891 4,703,762 47,799,635

Liabilities - Accounts payable 49,032 10,000 - 59,032

Net Position - Held in trust forpension and other employeebenefits $ 41,976,950 $ 1,059,891 $ 4,703,762 $ 47,740,603

49



Note 14 - Pension and Other Employee Benefit Trust Funds (Continued)

Employees'

Retirement

System

Employees'

Death Benefit

Retiree

Health Care Total

AdditionsInvestment income (loss):

Interest and dividends $ 1,567,684 $ - $ 94,193 $ 1,661,877Net adjustment to fair value

of investments 2,835,421 87,999 68,039 2,991,459

Less investment expenses (277,126) - (19,671) (296,797)

Net investment income 4,125,979 87,999 142,561 4,356,539

Employer contributions 2,578,282 - 3,448,353 6,026,635

Employee contributions 167,735 - - 167,735

Total additions 6,871,996 87,999 3,590,914 10,550,909

DeductionsBenefit payments 6,009,419 54,000 - 6,063,419Health insurance premiums - - 2,931,660 2,931,660

Administrative expenses 1,124 3,500 - 4,624

Total deductions 6,010,543 57,500 2,931,660 8,999,703

Change in Net Position 861,453 30,499 659,254 1,551,206

Net Position - Beginning of year 41,115,497 1,029,392 4,044,508 46,189,397

Net Position - End of year $ 41,976,950 $ 1,059,891 $ 4,703,762 $ 47,740,603

Note 15 - Joint Ventures

The City is a member of the Southeast Macomb Sanitary District, which providessewage to participating municipalities in Macomb County, Michigan. Other membersinclude the cities of Roseville and St. Clair Shores, Michigan. The City appoints onemember to the joint venture's governing board, who then approves the annual budgets.The City's equity interest of $6,556,263 is recorded in the Water and Sewer Fundfinancial statements and within the business-type activities column in the statement ofnet position.

Complete financial statements for the Southeast Macomb Sanitary District can beobtained from the administrative offices at 20001 Pleasant Avenue, Box 286, St. ClairShores, Michigan 48080. The City is not aware of any circumstances that would causean additional benefit or burden to the participating governments in the near future.

50



Note 15 - Joint Ventures (Continued)

The City is a member of the South Macomb Disposal Authority (the "Authority"), whichprovides refuse disposal services to participating municipalities in Macomb County,Michigan. Other members include the cities of Center Line, Roseville, St. Clair Shores,and Warren, Michigan. The City appoints one member to the joint venture's governingboard, who then approves the annual budgets. The City's equity interest in theAuthority's operating reserve of $130,663 is recorded within the governmental activitiescolumn of the statement of net position. The City has also recorded a payable due tothe Authority in the amount of $1,085,463, which represents the estimated portion offuture postclosure care costs that the City is obligated to pay in connection with certainclosed landfills owned by the Authority. The payable is recorded as an adjustment tothe equity interest in the Authority within the governmental activities column of thestatement of net position. Therefore, at June 30, 2013, the City has a negative equityinvestment in the Authority in the amount of $954,800.

Complete financial statements for the South Macomb Disposal Authority can beobtained from the administrative offices at 20001 Pleasant Avenue, Box 286, St. ClairShores, Michigan 48080. The City is not aware of any circumstances that would causean additional benefit or burden to the participating governments in the near future.

The City is a member of the South East Regional Emergency Services Authority(SERESA), which provides dispatching services of emergency police, fire, and emergencymedical services throughout member communities. Other members include the cities ofRoseville and St. Clair Shores, Michigan. The City appoints one member to the jointventure's governing board, who then approves the annual budgets. The City's equityinterest in SERESA of $301,829 is recorded within the governmental activities column ofthe statement of net position.

Complete financial statements for the South East Regional Emergency Services Authoritycan be obtained from the administrative offices at 18961 Common Road, Roseville,Michigan 48066. The City is not aware of any circumstances that would cause anadditional benefit or burden to the participating governments in the near future.

The City is a member of the Roseville Eastpointe Recreation Authority (RARE), which isresponsible for administrating recreation programs and senior activities in its respectivecommunities. The other member is the City of Roseville. The City appoints twomembers to the joint venture's governing board, who then approves the annual budgets.In addition, the board selects one additional representative from either participatingcommunity for a two-year term position. The City does not record an equity interest inRARE, since upon withdrawal, the member is not entitled to the return of any credit forproperty or money that was transferred to or paid to RARE.

51



Note 15 - Joint Ventures (Continued)

Complete financial statements for the Roseville Eastpointe Recreation Authority can beobtained from the administrative offices at 18185 Sycamore Street, Roseville, Michigan48066. The City is not aware of any circumstances that would cause an additionalbenefit or burden to the participating governments in the near future.

Note 16 - Upcoming Accounting Pronouncements

In March 2012, the GASB issued Statement No. 65, Items Previously Reported as Assetsand Liabilities, which is required to be implemented for financial statements for periodsbeginning after December 15, 2012. Statement No. 65 establishes accounting andfinancial reporting standards that reclassify, as deferred outflows and inflows ofresources, certain items that were previously reported as assets and liabilities. Thisstatement also provides other financial reporting guidance related to the impact of thefinancial statement elements deferred outflows of resources and deferred inflows ofresources. Statement No. 65 will be implemented by the City in the year ending June30, 2014.

In June 2012, GASB Statement No. 67, Financial Reporting for Pension Plans, was issuedby the Governmental Accounting Standards Board. This new standard, which replacesthe requirements of GASB Statement No. 25, Financial Reporting for Defined BenefitPension Plans and Note Disclosures for Defined Contribution Plans, and No. 50, PensionDisclosures, establishes standards for financial reporting that outline the basic frameworkfor separately issued pension plan financial reports and specifies the required approachto measuring the liability of employer(s) and certain nonemployer contributing entities,about which information is required to be disclosed. GASB Statement No. 67 isrequired to be adopted for years beginning after June 15, 2013. For the City ofEastpointe, Michigan, this standard will be adopted in the year ending June 30, 2014.

In June 2012, the GASB issued Statement No. 68, Accounting and Financial Reporting forPensions. Statement No. 68 requires governments providing defined benefit pensions torecognize their unfunded pension benefit obligation as a liability for the first time and tomore comprehensively and comparably measure the annual costs of pension benefits.This net pension liability that will be recorded on the government-wide, proprietary,and discretely presented component units statements will be computed differently thanthe current unfunded actuarial accrued liability, using specific parameters set forth bythe GASB. The statement also enhances accountability and transparency throughrevised note disclosures and required supplemental information (RSI). The City iscurrently evaluating the impact this standard will have on the financial statements whenadopted. The provisions of this statement are effective for financial statements for theyear ending June 30, 2015.

52

Required Supplemental Information

53


Required Supplemental InformationBudgetary Comparison Schedule - General Fund


Original Budget Amended Budget Actual

Variance with

Amended Budget

RevenueProperty taxes $ 9,121,906 $ 9,139,406 $ 9,205,572 $ 66,166Licenses and permits 854,000 1,073,000 1,224,857 151,857Federal grants - 21,850 29,451 7,601State-shared revenue and grants 3,064,445 3,120,445 3,163,777 43,332Charges for services 1,011,580 853,080 784,201 (68,879)Fines and forfeitures 1,970,724 1,970,724 2,079,983 109,259Investment income 150,000 150,000 37,853 (112,147)Rental income 12,000 34,500 76,196 41,696

Other 70,000 261,040 226,464 (34,576)

Total revenue 16,254,655 16,624,045 16,828,354 204,309

Expenditures - CurrentGeneral government:

City Council 45,818 45,818 39,451 6,367City manager 463,966 463,966 465,988 (2,022)Finance 634,492 637,550 592,698 44,852Assessing 331,409 316,072 298,798 17,274City clerk and elections 239,199 241,399 232,752 8,647Law 158,800 233,800 218,309 15,491General operating 2,171,888 2,174,454 2,127,091 47,363

Judicial 1,272,469 1,272,469 1,117,759 154,710

Total general government 5,318,041 5,385,528 5,092,846 292,682

Public safety 14,493,903 12,730,642 11,835,885 894,757Public works 81,339 141,339 133,024 8,315

Recreation and culture 558,432 588,523 562,710 25,813

Total expenditures 20,451,715 18,846,032 17,624,465 1,221,567

Excess of Expenditures Over Revenue (4,197,060) (2,221,987) (796,111) 1,425,876

Other Financing Uses - Transfers out (297,000) (402,000) (297,000) 105,000

Net Change in Fund Balance (4,494,060) (2,623,987) (1,093,111) 1,530,876

Fund Balance - Beginning of year 10,732,205 10,732,205 10,732,205 -

Fund Balance - End of year $ 6,238,145 $ 8,108,218 $ 9,639,094 $ 1,530,876

54


Required Supplemental InformationBudgetary Comparison Schedule - Major Special Revenue Funds

Major StreetsYear Ended June 30, 2013

Original Budget

Amended

Budget Actual

Variance with

Amended

Budget

RevenueState-shared revenue and grants $ 1,415,000 $ 1,415,000 $ 1,437,923 $ 22,923

Investment income 10,000 10,000 3,390 (6,610)

Total revenue 1,425,000 1,425,000 1,441,313 16,313

Expenditures - Current - Public works 1,882,278 1,882,278 925,447 956,831

Other Financing Uses - Transfers out (1,250,000) (1,250,000) (625,000) 625,000

Net Change in Fund Balance (1,707,278) (1,707,278) (109,134) 1,598,144


Fund Balance - End of year $ 1,709,109 $ 1,709,109 $ 3,307,253 $ 1,598,144

55



Local StreetsYear Ended June 30, 2013

Original Budget

Amended

Budget Actual

Variance with

Amended

Budget

RevenueState-shared revenue and grants $ 499,035 $ 499,035 $ 507,950 $ 8,915

Investment income 2,500 2,500 977 (1,523)

Total revenue 501,535 501,535 508,927 7,392

Expenditures - Current - Public works 2,584,726 2,584,726 1,753,284 831,442

Other Financing Sources - Transfers in 1,250,000 1,250,000 625,000 (625,000)

Net Change in Fund Balance (833,191) (833,191) (619,357) 213,834


Fund Balance - End of year $ 248,036 $ 248,036 $ 461,870 $ 213,834

56



Garbage and Rubbish CollectionYear Ended June 30, 2013

Original Budget

Amended

Budget Actual

Variance with

Amended

Budget

RevenueCharges for services $ 1,781,856 $ 1,821,856 $ 1,938,326 $ 116,470Investment income 2,000 2,000 126 (1,874)

Other 2,000 2,000 2,249 249

Total revenue 1,785,856 1,825,856 1,940,701 114,845

Expenditures - Current - Public works 1,750,594 1,774,608 1,708,275 66,333

Net Change in Fund Balance 35,262 51,248 232,426 181,178

Fund Balance - Beginning of year 79,792 79,792 79,792 -

Fund Balance - End of year $ 115,054 $ 131,040 $ 312,218 $ 181,178

57


Required Supplemental InformationRetirement System Schedule of Funding Progress

and Employer ContributionsYear Ended June 30, 2013

The schedule of funding progress is as follows:

Actuarial

Valuation Date

Actuarial

Value of

Assets

(a)

Actuarial

Accrued

Liability (AAL)

(b)

Unfunded

AAL (UAAL)

(b-a)

Funded Ratio

(Percent)

(a/b)

Covered

Payroll

(c)

UAAL as a

Percentage of

Covered

Payroll

6/30/07 $ 49,964,926 $ 59,481,086 $ 9,516,160 84.0 $ 9,392,368 101.36/30/08 50,448,315 62,522,948 12,074,633 80.7 10,294,149 117.36/30/09 48,368,055 67,624,394 19,256,339 71.5 10,218,230 188.56/30/10 46,396,079 67,010,652 20,614,573 69.2 9,095,795 226.66/30/11 45,568,140 67,799,307 22,231,167 67.2 8,694,192 255.76/30/12 43,180,412 69,874,999 26,694,587 61.8 7,633,276 349.7

The schedule of employer contributions is as follows:

Fiscal Year Ended

Annual

Required

Contribution *

Percentage

Contributed

6/30/08 $ 1,686,748 100.06/30/09 1,786,080 100.06/30/10 2,071,959 100.06/30/11 2,724,753 100.06/30/12 2,690,550 100.06/30/13 1,853,513 100.0

* The required contribution is expressed to the City as a percentage of payroll.

The information presented above was determined as part of the actuarial valuations at the datesindicated. Additional information as of June 30, 2012, the latest actuarial valuation, follows:

Valuation date June 30, 2012Actuarial cost method Individual entry ageAmortization method Level percent open - Police and fire

Level dollar amount closed - GeneralRemaining amortization period 30 years - Police and fire

27 years - GeneralAsset valuation method 5-year smoothed marketActuarial assumptions:

Investment rate of return 8.0%Projected salary increases 3.5%-7.0%*Includes inflation at 3.5%Cost of living adjustments None

58


Required Supplemental InformationRetiree Healthcare System Schedule of Funding Progress

and Employer ContributionsYear Ended June 30, 2013

The schedule of funding progress is as follows:

Actuarial

Valuation Date

Actuarial

Value of

Assets

(a)

Actuarial

Accrued

Liability (AAL)

(b)

Unfunded

AAL (UAAL)

(b-a)

Funded Ratio

(Percent)

(a/b)

Covered

Payroll

(c)

UAAL as a

Percentage of

Covered

Payroll

6/30/08 $ 2,250,959 $ 44,937,892 $ 42,686,933 5.0 $ 9,733,198 438.67/1/10 3,024,566 40,611,638 37,587,072 7.4 9,095,795 413.27/1/12 4,044,508 46,053,879 42,009,371 8.8 7,633,276 550.3

The schedule of employer contributions is as follows:

Fiscal Year Ended

Annual

OPEB Cost

Percentage

Contributed

6/30/09 $ 3,277,616 77.06/30/10 3,175,927 81.06/30/11 2,875,300 95.06/30/12 2,878,899 108.06/30/13 3,134,099 110.0

The information presented above was determined as part of the actuarial valuations at the datesindicated. Additional information as of July 1, 2012, the latest actuarial valuation, follows:

Valuation date July 1, 2012Actuarial cost method Individual entry ageAmortization method Level percent of payrollRemaining amortization period 30 yearsAsset valuation method Market valueActuarial assumptions:

Investment rate of return 8.0%Projected salary increases 4%-7%*Includes inflation at 4%Cost of living adjustments NoneValuation healthcare cost trend rate 9 percent, grading down to

4 percent over 10 years

59


Note to Required Supplemental InformationYear Ended June 30, 2013

Budgetary Information - The City is legally subject to the budgetary control requirements ofState of Michigan P.A. 621 of 1978 (the Uniform Budgeting Act). The following statementsrepresent a brief synopsis of the major provisions of this act:

1. Budgets must be adopted for the General Fund and special revenue funds.

2. The budgets must be balanced. The balanced budget may include a contribution to orappropriation from fund balance.

3. The budgets must be amended when necessary.

4. Debt cannot be entered into unless permitted by law.

5. Expenditures cannot exceed budget appropriations.

6. Expenditures cannot be made unless authorized in the budget.

7. A public hearing must be held before budget adoptions.

The City adopts its budget by budgetary center (activity/department), which is in accordancewith the State's legal requirement and is the level of classification detail at which expendituresmay not legally exceed appropriations.

The City follows these procedures in establishing the budget reflected in the financialstatements:

1. The city manager, on or before 60 days prior to the commencement of the fiscal andbudgetary year (July 1), shall prepare and submit to the City Council a complete itemizedproposed budget before the next fiscal year.

2. A public hearing on the budget shall be held before its final adoption, at such time and placeas the City Council shall direct, and notice of the public hearing shall be published at least 10days in advance thereof by the clerk.

3. The City Council shall, on or before 30 days prior to the commencement of the next fiscalyear, adopt a budget for the ensuing fiscal year.

The annual budget is prepared by the city manager and adopted by the City Council; subsequentamendments are approved by the City Council. Budgeted amounts of the revenue andexpenditures presented for the General Fund and special revenue funds are as amended by theCity Council. Budget appropriations lapse at year end; encumbrances are not included asexpenditures. The amount of encumbrances outstanding at June 30, 2013 has not beencalculated. During the current year, the budget was amended in a legally permissible manner. Acomparison of the budget with statements of actual revenue and expenditures, including budgetvariances, for the General Fund and major special revenue funds is presented in the requiredsupplemental information. A comparison of actual results of operations to the nonmajor specialrevenue funds' budgets as adopted by the City Council is available at the City offices forinspection. The budget has been prepared in accordance with accounting principles generallyaccepted in the United States of America.

60


Note to Required Supplemental Information (Continued)Year Ended June 30, 2013

Reconciliations of the budgetary comparison schedules to the fund-based statement of changesin fund balance are as follows:

Total

Revenue

Total

Expenditures

OtherFinancing

Uses

Change in

Fund Balance

General Fund:Amounts per operating

statement $ 16,828,354 $ 18,283,532 $ 297,000 $ (1,752,178)Tax Reversion Fund budgeted

separate from the GeneralFund - (659,067) - 659,067

Amounts per budget statement $ 16,828,354 $ 17,624,465 $ 297,000 $ (1,093,111)

Excess of Expenditures Over Appropriations in Budgeted Funds - During the year, theCity did not incur any significant expenditures that were in excess of the amounts budgeted.

61

Other Supplemental Information

62


Special Revenue Funds Debt Service Funds

Library

Drug Law

Enforcement

Community

Development

Block Grant

Library - J

Tinor

Reading

Memorial

Library Fund

Building

Authority

Chapter 20

Drain Debt

Assets

Cash and cash equivalents $ 344,098 $ 470,219 $ - $ 19,042 $ 8,244 $ 291 $ 83,461Receivables:

Special assessments - - - - - - -Due from other

governmental units - 6,300 - - - - -Restricted assets - - - - - - -

Total assets $ 344,098 $ 476,519 $ - $ 19,042 $ 8,244 $ 291 $ 83,461

Liabilities and FundBalances

LiabilitiesAccounts payable $ 6,470 $ 1,057 $ - $ - $ - $ - $ 305Accrued liabilities and

other 15,109 - - - - - -Deferred revenue - - - - - - -

Total liabilities 21,579 1,057 - - - - 305

Fund BalancesRestricted:

Debt service - - - - - - 83,156Library 322,519 - - 19,042 8,244 - -Drug law enforcement - 475,462 - - - - -Capital projects - - - - - - -

Assigned:Capital projects - - - - - - -

Debt service - - - - - 291 -

Total fund balances 322,519 475,462 - 19,042 8,244 291 83,156

Total liabilities andfund balances $ 344,098 $ 476,519 $ - $ 19,042 $ 8,244 $ 291 $ 83,461

63

Other Supplemental InformationCombining Balance Sheet

Nonmajor Governmental FundsJune 30, 2013

Capital Projects Funds

Capital

Improvement

Equipment

Replacement

Building

Authority

Construction

District Court

Building

Total

Nonmajor

Governmental

Funds

$ 515,758 $ 8,922 $ 3,985 $ 94,244 $ 1,548,264

23,640 - - - 23,640

- 6,650 - - 12,950- - 334,042 - 334,042

$ 539,398 $ 15,572 $ 338,027 $ 94,244 $ 1,918,896

$ - $ 7,513 $ - $ 235 $ 15,580

- - - - 15,10915,576 - - - 15,576

15,576 7,513 - 235 46,265

- - - - 83,156- - - - 349,805- - - - 475,462- - 338,027 94,009 432,036

523,822 8,059 - - 531,881- - - - 291

523,822 8,059 338,027 94,009 1,872,631

$ 539,398 $ 15,572 $ 338,027 $ 94,244 $ 1,918,896

64


Special Revenue Funds Debt Service Funds

Library

Drug Law

Enforcement

Community

Development

Block Grant

Library - J

Tinor

Reading

Memorial

Library

Trust

Building

Authority

Chapter 20

Drain Debt

RevenueProperty taxes $ 933,553 $ - $ - $ - $ - $ - $ 2,069,295Federal grants - 9,604 194,376 - - - -State-shared revenue and

grants 15,362 - - - - - -Charges for services 1,794 - - - - - -Fines and forfeitures 37,695 82,291 - - - - -Investment income 351 590 - 23 - - 310Rental income - - - - - - -Other - - - - 10 - -

Total revenue 988,755 92,485 194,376 23 10 - 2,069,605

ExpendituresCurrent:

General government - - - - - - -District court - - - - - - -Public safety - 187,259 - - - - -Public works - - - - - 324 928,090Community and economic

development - - 194,376 - - - -Recreation and culture 742,566 - - - - - -

Capital outlay - - - - - - -Debt service - - - - - 296,594 -

Total expenditures 742,566 187,259 194,376 - - 296,918 928,090

Excess of Revenue Over(Under) Expenditures 246,189 (94,774) - 23 10 (296,918) 1,141,515

Other Financing Sources (Uses)Transfers in - - - - - 297,000 -Transfers out (3,813) - - - - - (994,167)

Total other financing(uses) sources (3,813) - - - - 297,000 (994,167)

Net Change in Fund Balances 242,376 (94,774) - 23 10 82 147,348

Fund Balances (Deficit) -Beginning of year 80,143 570,236 - 19,019 8,234 209 (64,192)

Fund Balances - End of year $322,519 $ 475,462 $ - $ 19,042 $ 8,244 $ 291 $ 83,156

65

Other Supplemental InformationCombining Statement of Revenue, Expenditures,

and Changes in Fund Balances (Deficit)Nonmajor Governmental Funds


Capital Projects Funds

Capital

Improvement

Equipment

Replacement

Building

Authority

Construction

District Court

Building

Total

Nonmajor

Governmental

Funds

$ - $ - $ - $ - $ 3,002,848- - - - 203,980

- - - - 15,362- - - - 1,794- - - - 119,986

1,186 53 662 92 3,267- 158,044 - - 158,044

61,118 - 3,323 48,990 113,441

62,304 158,097 3,985 49,082 3,618,722

- 5,320 - - 5,320- - - 18,290 18,290- 351,019 - - 538,278- - - - 928,414

- - - - 194,376- - - - 742,566

61,495 91,688 - - 153,183- - - - 296,594

61,495 448,027 - 18,290 2,877,021

809 (289,930) 3,985 30,792 741,701

- 3,813 - - 300,813- - - - (997,980)

- 3,813 - - (697,167)

809 (286,117) 3,985 30,792 44,534

523,013 294,176 334,042 63,217 1,828,097

$ 523,822 $ 8,059 $ 338,027 $ 94,009 $ 1,872,631

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Pension Trust Funds

Employees'

Retirement

System

Employees'

Death Benefit

Retiree Health

Care

Total Pension

Trust Funds

AssetsCash and cash equivalents $ 1,014,278 $ 20,657 $ 221,746 $ 1,256,681Investments:

U.S. government securities 3,735,121 - - 3,735,121U.S. government agency securities 1,176,838 - - 1,176,838Equity securities 23,525,275 34,158 1,309,234 24,868,667Corporate bonds 6,608,895 24,075 - 6,632,970Mutual funds 5,726,551 991,001 3,172,782 9,890,334Municipal bonds 166,276 - - 166,276

Receivables - Accrued interest 72,748 - - 72,748

Total assets 42,025,982 1,069,891 4,703,762 47,799,635

LiabilitiesAccounts payable 49,032 10,000 - 59,032

Refundable deposits, bonds, etc. - - - -

Total liabilities 49,032 10,000 - 59,032

Net Position Held in Trust for Pensionand Other Employee Benefits $ 41,976,950 $ 1,059,891 $ 4,703,762 $ 47,740,603

67

Other Supplemental InformationCombining Statement of Net Position

Fiduciary FundsJune 30, 2013

Agency Funds

Cash and

Performance

Bonds Tax Collection

Total Agency

Funds

$ 39,365 $ 1,501 $ 40,866

- - -- - -- - -- - -- - -- - -- - -

$ 39,365 $ 1,501 $ 40,866

$ 1,000 $ 1,501 $ 2,50138,365 - 38,365

$ 39,365 $ 1,501 $ 40,866

68


Other Supplemental InformationCombining Statement of Changes in Net Position

Fiduciary Funds - Pension and Other Employee Benefit Trust FundsYear Ended June 30, 2013

Employees'

Retirement

System

Employees'

Death Benefit

Retiree Health

Care Total

AdditionsInvestment income (loss):

Interest and dividends $ 1,567,684 $ - $ 94,193 $ 1,661,877Net increase in fair value of

investments 2,835,421 87,999 68,039 2,991,459Investment-related expenses (277,126) - (19,671) (296,797)

Total investment income 4,125,979 87,999 142,561 4,356,539

Contributions: Employer 2,578,282 - 3,448,353 6,026,635

Employee 167,735 - - 167,735

Total contributions 2,746,017 - 3,448,353 6,194,370

Total additions 6,871,996 87,999 3,590,914 10,550,909

DeductionsBenefit payments 6,009,419 54,000 - 6,063,419Health insurance premiums - - 2,931,660 2,931,660

Administrative expenses 1,124 3,500 - 4,624

Total deductions 6,010,543 57,500 2,931,660 8,999,703

Net Increase in Net Position Held inTrust 861,453 30,499 659,254 1,551,206

Net Position Held in Trust for Pensionand Other Employee Benefits -Beginning of year 41,115,497 1,029,392 4,044,508 46,189,397

Net Position Held in Trust for Pensionand Other Employee Benefits - End of year $ 41,976,950 $ 1,059,891 $ 4,703,762 $ 47,740,603

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New Financial Report with Supplemental Information June 30, 20137C4055DF... · 2016. 11. 8. ·...

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