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HomeMy WebLinkAbout2015 Annual Financial Report City of Livonia, Michigan Financial Report with Supplemental Information November 30, 2015 City of Livonia, Michigan Contents Report Letter 1-3 Management's Discussion and Analysis 4-10 Basic Financial Statements Government-wide Financial Statements: Statement of Net Position 11-12 Statement of Activities 13-14 Fund Financial Statements: Governmental Funds: Balance Sheet 15 Reconciliation of the Balance Sheet to the Statement of Net Position 16 Statement of Revenue, Expenditures, and Changes in Fund Balances 17 Reconciliation 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 19-20 Statement of Revenue, Expenses, and Changes in Net Position 21 Statement of Cash Flows 22-23 Fiduciary Funds: Statement of Fiduciary Net Position 24 Statement of Changes in Fiduciary Net Position - Pension and Other Employee Benefits Trust Funds 25 Component Units: Statement of Net Position 26 Statement of Activities 27-28 Notes to Financial Statements 29-64 City of Livonia, Michigan Contents (Continued) Required Supplemental Information 65 Budgetary Comparison Schedule - General Fund 66-68 Budgetary Comparison Schedule - Refuse Disposal System 69 Pension System - Schedule of Investment Returns 70 Pension System - Schedule of Changes in the City Net Pension Asset and Related Ratios 71 Pension System - Schedule of City Contributions 72-73 Retiree Health and Disability Benefits Plan - Schedule of Funding Progress 74 Note to Required Supplemental Information 75 Other Supplemental Information 76 Nonmajor Governmental Funds: Combining Balance Sheet 77-79 Combining Statement of Revenue, Expenditures, and Changes in Fund Balances 80-82 Fiduciary Funds: Combining Statement of Net Position 83-84 Combining Statement of Changes in Fiduciary Net Position 85 plante 74Nrt Moran,igh Plante27400 Northwestern Highway P.O.Box 307 moran Southfield 48007 Tel::248.352.2552,2500 Fax:248.352.0018 elantemoran.com Independent Auditor's Report To the Honorable Mayor and Members of the City Council City of Livonia, Michigan Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Livonia, Michigan (the "City"), as of and for the year ended November 30, 2015 and the related notes to the financial statements, which collectively comprise the City of Livonia, 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 in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit.We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates 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 for our audit opinions. • ' „ �;LO��M� ArinNGL ND k::q'G:i IN DI IV7 f Mg I To the Honorable Mayor and Members of the City Council City of Livonia, Michigan Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Livonia, Michigan as of November 30, 2015 and the respective changes in its financial position and, where applicable, cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 18 to the basic financial statements, in fiscal year 2015, the City adopted Governmental Accounting Standards Board (GASB) Statement No. 68,Accounting and Financial Reporting for Pensions, which establishes accounting and financial reporting standards for defined benefit pensions provided to the employees of governmental employers through pension plans. Our opinion is not modified with respect to this matter. Other Matters Required Supplemental Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and required supplemental information, as identified in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, which considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplemental information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial 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 limited procedures 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 collectively comprise the City of Livonia, Michigan's basic financial statements. The other supplemental information, as identified in the table of contents, is presented for the purpose of additional analysis and is not a required part of the basic financial statements. The other supplemental information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures 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 other records 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 United States of America. In our opinion, the other supplemental information is fairly stated in all material respects in relation to the basic financial statements as a whole. 2 To the Honorable Mayor and Members of the City Council City of Livonia, Michigan Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 5, 2016 on our consideration of the City of Livonia, Michigan's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City of Livonia, Michigan's internal control over financial reporting and compliance. AV94, April 5, 2016 3 City of Livonia, Michigan Management9s Discussion and Analysis Overview of the Financial Statements The City of Livonia, Michigan's (the "City") 2015 annual report consists of four parts: (1) management's discussion and analysis, (2) basic financial statements, (3) required supplemental information, and (4) other supplemental information that presents combining statements for nonmajor governmental funds, proprietary funds, and fiduciary funds. The basic financial statements include two kinds of statements that present different views of the City. The first two statements are government-wide financial statements that are intended to provide longer- term information about the City's overall financial status. The remaining statements are fund financial statements that focus on individual parts of the City's government, reporting the City's operations in more detail than the government-wide financial statements. Government-wide Financial Statements The government-wide financial statements report information about the City as a whole using accounting methods similar to those used by private sector companies. The statement of net position includes all of the City's assets, liabilities, deferred inflows, and deferred outflows. All of the current year's revenue and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government-wide statements report the City's net position and how they have changed. Net position, the difference between the City's assets/deferred outflows and liabilities/deferred inflows, is one way to measure the City's financial health or position. The government-wide financial statements of the City are divided into three categories: • Government Activities - Most of the City's basic services are included here, such as the police, fire, public works, parks departments, and general administration. Property taxes, state-shared revenue, and charges for services provide most of the funding for these activities. • Business-type Activities - The City charges fees to customers to cover the costs of certain services it provides. The City's water and sewer system, golf course operations, and nonfederal senior housing are treated as business-type activities. • Component Units - The City includes three other entities in its report, the Plymouth Road Development Authority, the Economic Development Corporation, and the Livonia Brownfield Redevelopment Authority. Although legally separate, these "component units" are important because the City is financially accountable for them, including debt, which is issued on behalf of the authorities by the City. 4 City of Livonia, Michigan Management9s Discussion and Analysis (Continued) Fund Financial Statements The fund financial statements provide more detailed information about the City's most significant funds - not the City as a whole. Funds are accounting tools that the City uses to keep track of specific sources of funding and spending for particular purposes. Some funds are required by state law and bond covenants. Other funds are established to control and manage money for particular purposes. The City has three kinds of funds: • Governmental Funds - Most of the City's basic services are included in governmental funds, which focus on how cash and other financial assets that can be converted to cash, flow in and out, and the balance left at year end that is available for spending. The governmental fund statements provide a detailed short-term view that helps you determine if there are more or fewer financial resources available to spend in the near future to finance the City's programs. • Proprietary Funds - Services that are intended to be entirely self-supporting by customer fees are generally reported in proprietary funds. Proprietary fund statements, like government-wide statements, provide both short- and long-term financial information. • Fiduciary Funds - The City is responsible for ensuring that the assets in these funds are used for their intended purposes. We exclude these activities from the government-wide financial statements because the City cannot use these assets to finance its operations. 5 City of Livonia, Michigan Management9s Discussion and Analysis (Continued) The City as a Whole In a condensed format, the table below shows a comparison of the net position as of November 30, 2015 to the prior year. Summary Condensed Statement of Net Position (in millions of dollars) Governmental Activities Business-type Activities Total 2015 2014* 2015 2014* 2015 2014* Assets Current and other assets $ 72.4 $ 62.0 $ 29.1 $ 32.9 $ 101.5 $ 94.9 Capital assets 187.7 184.9 83.9 78.9 271.6 263.8 Total assets 260.1 246.9 1 13.0 1 11.8 373.1 358.7 Deferred Outflows of Resources Bond refunding loss being amortized - - 0.1 0.1 0.1 0.1 Deferred outflows related to pensions 9.8 0.7 - 10.5 - Total deferred outflows 9.8 - 0.8 0.1 10.6 0.1 Liabilities Current liabilities 6.9 6.7 5.2 5.1 12.1 11.8 Long-term liabilities 50.7 54.5 12.0 14.5 62.7 69.0 Total liabilities 57.6 61.2 17.2 19.6 74.8 80.8 Net Position Net investment in capital assets 154.0 149.3 72.6 67.6 226.6 216.9 Restricted 27.9 26.3 1.4 1.0 29.3 27.3 Unrestricted 30.4 10.1 22.6 23.7 53.0 33.8 Total net position $ 212.3 $ 18s.7 $ 96.6 $ 92.3 $ 308.9 $ 278.0 The 2014 figures above have not been restated to reflect the impact of GASB 68, which was implemented in 2015. City of Livonia - Net Position The City's assets/deferred outflows exceed its liabilities at the end of the fiscal year by $308.9 million (net position). However, a major portion (73 percent) of the City's net position represents its investments in capital assets (i.e., land, roads, infrastructure, buildings, and equipment) less any related debt used to acquire or construct these assets. The City uses these physical assets to provide services to its citizens. These assets are illiquid and not available for future spending. Unrestricted net position of the City's governmental activities increased from $10.1 million at November 30, 2014 to $30.4 million at the end of this year. The amount represents the part of net position that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements. The large increase was due to the implementation of GASB 68, which is discussed further below. 6 City of Livonia, Michigan Management9s Discussion and Analysis (Continued) Furthermore, the City is able to report positive balances in all three categories of net position, both for the City as a whole, as well as for its separate governmental and business-type activities. The following table shows the changes in net position during the current year and as compared to the prior year: Summary Condensed Statement of Changes in Net Position (in millions of dollars) Governmental Activities Business-type Activities Total 2015 2014* 2015 2014* 2015 2014* Revenue Program revenue: Charges for services $ 18.1 $ 17.5 $ 37.0 $ 34.8 $ 55.1 $ 52.3 Operating grants and contributions 8.8 9.2 - - 8.8 9.2 Capital grants and contributions 1.6 3.2 3.4 0.4 5.0 3.6 General revenue: Property taxes 54.0 53.5 - - 54.0 53.5 State-shared revenue 9.0 8.3 - - 9.0 8.3 Rental income and fees 2.7 2.8 - - 2.7 2.8 Interest 0.1 0.3 0.1 0.1 0.2 0.4 Transfer and miscellaneous 0.2 0.3 - 0.1 0.2 0.4 Total revenue 94.5 95.1 40.5 35.4 135.0 130.5 Program Expenses General government 10.3 9.7 - - 10.3 9.7 Public safety 40.3 37.7 - - 40.3 37.7 Public works 24.5 28.5 - - 24.5 28.5 Community and economic development 1.1 1.2 - - 1.1 1.2 Recreation and culture 12.4 12.8 - - 12.4 12.8 Interest on long-term debt 1.5 1.6 - - 1.5 1.6 Water and sewer - - 34.6 31.7 34.6 31.7 Golf course - - 1.8 1.8 1.8 1.8 Housing - - 1.2 1.2 1.2 1.2 Total expenses 90.1 91.5 37.6 34.7 127.7 126.2 Extraordinary Item - - - (2.5) - (2.5) Change in Net Position 4.4 3.6 2.9 (1.8) 7.3 1.8 Net Position-Beginning of year 185.7 182.1 92.3 94.1 278.0 276.2 Impact of GASB Statement No.68** 22.2 - 1.4 - 23.6 - Net Position-End of year $ 212.3 $ 18S.7 $ 96.6 $ 92.3 $ 308.9 $ 278.0 The 2014 figures above have not been restated to reflect the impact of GASB 68,which was implemented in 2015. The implementation of GASB 68 required an adjustment to beginning of year net position,which is discussed in Note 18. 7 City of Livonia, Michigan Management9s Discussion and Analysis (Continued) Governmental Activities In reviewing governmental activities in the above table, it can be noted that revenue decreased by $.06 million and expenses decreased by $1.4 million. The change in revenue is primarily attributable to the receipt of one-time supplemental road funding from the State of Michigan. The significant factors impacting expenses were increased public safety spending on personnel and equipment and reduced public works expenses due to a one-time settlement cost for a sanitary sewer overflow event that was expensed in 2014. Business-type Activities The City has three business-type activities. These include the water and sewer system, the operating fund for the Fox Creek, Idyl Wyld, and Whispering Willows golf courses, and nonfederal senior housing at Silver Village and Newburgh Village. The following table shows the operating income (loss) before contributions, transfers, and interest for each of these activities in the current and prior year: (In thousands of dollars) Water and Sewer Golf Courses Housing 2015 2014 2015 2014 2015 2014 Operating Revenue $ 33,851 $ 31,843 $ 1,747 $ 1,536 $ 1,388 $ 1,389 Operating Expenses3( 4,192) (31,346) (1,790 (1,797 1,169) (1,212 Operating Income (Loss) 1___C341) $ 497C43) $ C261) $ 219 $ 177 The operating income (loss) of the Water and Sewer Fund declined between 2014 and 2015. Units of water sold actually increased by 2 percent, but water loss increased at a higher percentage, resulting in the cost of water purchases rising faster than revenue from water sales. The golf course operating loss also decreased as a result of the better weather conditions in the 2015 golf season compared to 2014, resulting in a 12 percent increase in greens fee revenue. Capital Assets and Debt Distribution At the end of fiscal year 2015, the City has $485.2 million invested, before depreciation, in a wide range of capital assets, including land, buildings, infrastructure, public safety equipment, computer equipment and water and sewer lines. Debt of $33.7 million related to the construction of the above-mentioned capital assets is reported as a liability in the governmental activities in the statement of net position. 8 City of Livonia, Michigan Management9s Discussion and Analysis (Continued) Debt related to the water and sewer system totaling $11.3 million is recorded as a liability in the business-type activities in the statement of net position. This debt represents construction of and improvements to existing water and sewer lines and senior housing rental facilities. Significant additions to capital assets during fiscal year 2015 include $9.3 million invested in the construction of infrastructure and improvements to roads, $1.9 million invested in equipment and vehicles, and $7.5 million in water and sewer system infrastructure. Significant disposals of capital assets during fiscal year 2015 included the disposal of vehicles and equipment with a total cost of$1.9 million. The City's Funds The fund financial statements begin on page 15 and provide detailed information on the most significant governmental funds - not the City as a whole. Funds are created to help manage money for special purposes, as well as to show accountability for certain activities, such as special property tax millages. The City's major governmental funds for 2015 include the General Fund and Refuse Disposal Fund. The City's governmental funds reported a combined fund balance of $42.7 million. This is an increase of approximately $3.6 million for the year. The increase was caused primarily by spending constraint in the General Fund and capital improvement projects which began in 2015 but will not be completed until 2016. General Fund Budgetary Highlights Over the course of the year, the City administration and City Council monitor and amend the budget, primarily to prevent expenditures in excess of budget, as required by the State of Michigan Budget Act. The final amended budget included nearly the same total revenue and expenditures as the original adopted budget. Actual General Fund revenue was approximately $232,000 below the final budget. Shortfalls were experienced as a result of fewer vacant home inspections ($137,000), reduced transfers from the Refuse Fund ($400,000), and reduced transfers of 911 fees to the General Fund ($900,000). These shortfalls were offset by better than anticipated revenue for personal property tax loss reimbursement ($421,000), licenses and permits ($384,000) and court fines ($529,000). Actual General Fund expenditures were approximately$433,000 below the final budget. Nearly all departments held expenditures below the final budget. Current Economic Conditions The City continues to maintain positive fund balances in each of its funds. However, concerns arise when considering the revenue and expenses that the City is facing in upcoming years. 9 City of Livonia, Michigan Management9s Discussion and Analysis (Continued) The majority of the City's revenue base is constrained by factors outside the City's control. Property taxes, state-shared revenue, and interest income total 75 percent of the City's total governmental activities revenue. Revenues are beginning to slowly increase after many years of reductions. Property assessments are projected to increase in fiscal year 2016. State-shared revenue is projected to increase slightly in fiscal year 2016. On the expense side, aging infrastructure and delayed capital improvement projects will require additional funding in coming years. Staff reductions, unpaid furlough days, and increased employee cost-sharing for medical expenses, among other measures, have been implemented in previous years to reduce expenses to the level of available revenue. We are committed to living within our means, although the result may be diminished programs and service response capabilities. Contacting the City's Financial Management The financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with a general overview of the City's finances and to show the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the director of finance at the City of Livonia, 33000 Civic Center Drive, Livonia, Michigan 48154. 10 City of Livonia, Michigan Statement of Net Position November 30, 2015 Primary Government Governmental Business-type Component Activities Activities Total Units Assets Cash and investments $ 47,944,051 $ 11,244,595 $ 59,188,646 $ 495,246 Accounts receivable: Taxes 193,076 - 193,076 330,717 Customers - 13,449,306 13,449,306 - Workers'compensation 17,367 - 17,367 - Due from other governmental units 4,194,283 - 4,194,283 - VEBA 196,828 - 196,828 - Other accounts receivable 4,467,428 1,108,460 5,575,888 - Special assessments 286,021 557,178 843,199 40 Allowance for doubtful accounts - (2,083) (2,083) - Due from primary government - - - 1 1,1 12 Inventory, prepaid expenditures,and deposits 6,579,393 768,804 7,348,197 117,468 Restricted assets(Note 7) - 1,352,260 1,352,260 - Net pension asset(Note 13) 8,464,623 615,878 9,080,501 - Capital assets(Note 4): Nondepreciable capital assets 34,931,913 10,71 1,200 45,643,1 13 474,448 Depreciable capital assets-Net 152,805,286 73,201,774 226,007,060 3,136,389 Total assets 260,080,269 1 13,007,372 373,087,641 4,565,420 Deferred Outflows of Resources Bond refunding loss being amortized - 61,961 61,961 - Deferred outflows related to pensions 9,825,056 714,862 10,539,918 - Total deferred outflows of resources 9,825,056 776,823 10,601,879 - Liabilities Accounts payable 3,978,189 1,440,723 5,418,912 278,540 Due to other governmental units 28,458 3,271,619 3,300,077 - Due to component units 1 1,1 12 - 1 1,1 12 - Accrued liabilities and other 2,308,956 168,432 2,477,388 10,151 Unearned revenue 565,833 50,636 616,469 - Bonds and deposits - 242,232 242,232 - Noncurrent liabilities(Note 6): Due within one year: Compensated absences 2,986,918 247,008 3,233,926 - Current portion of long-term debt 2,075,000 1,140,000 3,215,000 525,000 Due in more than one year: Compensated absences 9,027,074 254,899 9,281,973 - Landfill closure and postclosure 633,707 - 633,707 - Net OPEB obligation 4,377,416 192,082 4,569,498 - Long-term debt 31,660,000 10,147,585 41,807,585 1,125,000 Total liabilities 57,652,663 17,155,216 74,807,879 1,938,691 The Notes to Financial Statements are an Integral Part of this Statement. I I City of Livonia, Michigan Statement of Net Position (Continued) November 30, 2015 Primary Government Governmental Business-type Component Activities Activities Total Units Net Position Net investment in capital assets $ 154,002,199 $ 72,687,350 $ 226,689,549 $ 1,960,837 Restricted for: Community recreation 3,437,975 - 3,437,975 - Municipal refuse 3,083,964 - 3,083,964 - Street, roads,and sidewalks 6,004,310 - 6,004,310 - Library 1,380,773 - 1,380,773 - Public safety communication 4,308,266 - 4,308,266 - Grants 48,894 - 48,894 - Street lighting 273,513 - 273,513 - Adjudicated forfeitures 1,799,639 - 1,799,639 - Community transit 634,590 - 634,590 - Ordinance requirements - 1,352,260 1,352,260 - Capital improvements 6,900,468 - 6,900,468 - Unrestricted 30,378,071 22,589,369 52,967,440 665,892 Total net position $212,252,662 $ 96,628,979 $308,881,641 $ 2,626,729 The Notes to Financial Statements are an Integral Part of this Statement. 12 City of Livonia, Michigan Program Revenue Operating Grants Capital Grants Charges for and and Expenses Services Contributions Contributions Functions/Programs Primary government: Governmental activities: General government $ 10,260,100 $ 3,397,095 $ - $ Public safety 40,299,715 8,582,862 660,013 - Public works 24,483,198 1,497,781 7,473,206 1,442,656 Community and economic development 1,136,1 16 281,003 482,896 - Recreation and culture 12,387,389 4,372,047 204,716 1 13,828 Interest on long-term debt 1,528,021 - - - Total governmental activities 90,094,539 18,130,788 8,820,831 1,556,484 Business-type activities: Water and sewer 34,647,109 33,850,898 - 3,420,897 Housing 1,176,791 1,388,509 - Golf course 1,790,035 1,747,294 - Total business-type activities 37,613,935 36,986,701 3,420,897 Total primary government $ 127,708,474 $ 55,1 17,489 $ 8,820,831 $ 4,977,381 Component units: Plymouth Road Development Authority $ 2,063,032 $ - $ - $ - Brownfield Redevelopment Authority 246,795 Total component units $ 2,309,827 $ - $ - $ - General revenue: Property taxes State-shared revenue Investment income Cable franchise fees Other miscellaneous income Gain on sale of fixed assets Total general revenue Transfers Change in Net Position Net Position-Beginning of year-As restated(Note 18) Net Position-End of year The Notes to Financial Statements are an Integral Part of this Statement. 13 Statement of Activities Year Ended November 30, 2015 Net(Expense) Revenue and Changes in Net Position Primary Government Governmental Business-type Component Activities Activities Total Units $ (6,863,005) $ $ (6,863,005) $ (31,056,840) (31,056,840) (14,069,555) (14,069,555) (372,217) (372,217) (7,696,798) (7,696,798) (1,528,021) (1,528,021) (61,586,436) (61,586,436) 2,624,686 2,624,686 211,718 211,718 (42,741) (42,741) 2,793,663 2,793,663 (61,586,436) 2,793,663 (58,792,773) - (2,063,032) (246,795) - - (2,309,827) 54,009,902 54,009,902 1,144,262 8,977,884 - 8,977,884 - 84,844 53,612 138,456 285 2,703,920 - 2,703,920 - 224,663 - 224,663 - 9,625 9,625 - 66,001,213 63,237 66,064,450 1,144,547 (52,600) 52,600 - - 4,362,177 2,909,500 7,271,677 (1,165,280) 207,890,485 93,719,479 301,609,964 3,792,009 $ 212,252,662 $ 96,628,979 $ 308,881,641 $ 2,626,729 14 City of Livonia, Michigan Governmental Funds Balance Sheet November 30, 2015 Major Special Revenue Fund Refuse Disposal General Fund System Nonmajor Funds Total Assets Cash and investments $ 10,915,675 $ 5,188,843 $ 27,471,198 $ 43,575,716 Receivables: Property taxes receivable 110,122 39,913 43,041 193,076 Special assessments receivable - - 286,021 286,021 Workers'compensation 17,367 - 17,367 Due from other governmental units 2,096,932 - 2,097,351 4,194,283 VEBA 196,828 - - 196,828 Other 2,282,631 75,967 475,672 2,834,270 Due from other funds(Note 5) 105,567 - - 105,567 Inventory,prepaid expenses,and deposits 310,911 - 727,938 1,038,849 Total assets $ 16,036,033 $ 5,304,723 $ 31,101,221 $ 52,441,977 Liabilities Accounts payable $ 1,370,332 $ 1,544,825 $ 1,063,032 $ 3,978,189 Due to other governmental units - - 28,458 28,458 Due to component units(Note 5) 1 1,1 12 - - 1 1,1 12 Due to other funds(Note 5) - - 105,567 105,567 Accrued and other liabilities 1,925,456 42,227 219,217 2,186,900 Unearned revenue - - 565,833 565,833 Total liabilities 3,306,900 1,587,052 1,982,107 6,876,059 Deferred Inflows of Resources-Unavailable revenue 1,333,328 38,982 1,494,396 2,866,706 Fund Balances Nonspendable-Inventory and prepaid assets 310,91 1 - 727,938 1,038,849 Restricted: Streets.roads,and sidewalks - - 5,224,806 5,224,806 Adjudicated forfeitures - - 1,799,639 1,799,639 Capital improvements - - 5,916,510 5,916,510 Community recreation - - 3,426,908 3,426,908 Municipal refuse - 3,678,689 - 3,678,689 Street lighting - - 273,513 273,513 Library - - 1,369,377 1,369,377 Public safety communication - - 3,985,949 3,985,949 Community transit - - 627,545 627,545 Committed-Cable access television - - 1,136,024 1,136,024 Assigned: Capital improvements - - 1,767,261 1,767,261 Golf course capital improvements 474,077 474,077 Court building improvements - 953,324 953,324 Unassigned 11,084,894 - (58,153) 11,026,741 Total fund balances 11,395,805 3,678,689 27,624,718 42,699,212 Total liabilities,deferred inflows of resources,and fund balances $ 16,036,033 $ 5,304,723 $ 31,101,221 $ 52,441,977 The Notes to Financial Statements are an Integral Part of this Statement. 15 City of Livonia, Michigan Governmental Funds Reconciliation of the Balance Sheet to the Statement of Net Position November 30, 2015 Total Fund Balances of Governmental Funds $ 42,699,212 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and are not reported in the funds 187,737,199 Certain receivables are expected to be collected over several years, including special assessments, delinquent personal property taxes, and grants 1,633,158 Net pension asset is not a financial resource in the current year and is not reported in the funds 8,464,623 Certain changes in pension plan net position are reported as deferred outflows of resources in the statement of net position, but are not reported in the funds 9,825,056 Grants and other receivables that are collected after year end, such that they are not available to pay bills outstanding as of year end, are not recognized in the funds 2,866,706 The liability for compensated absences is recorded when incurred in the statement of activities (8,961,651) Landfill closure and postclosure liability is not due and payable in the current period and is not reported in the funds (633,707) Long-term liabilities are not due and payable in the current period and are not reported in the funds (33,735,000) Net OPEB obligation is not due and payable in the current period and is not reported in the funds (4,377,416) Accrued interest payable (122,053) The Internal Service Fund (self-insurance) is included as part of the governmental activities 6,856,535 Net Position of Governmental Activities $ 212,252,662 The Notes to Financial Statements are an Integral Part of this Statement. 16 City of Livonia, Michigan Governmental Funds Statement of Revenue, Expenditures, and Changes in Fund Balances Year Ended November 30, 2015 Major Special Revenue Fund Total Refuse Disposal Governmental General Fund System Nonmajor Funds Funds Revenue Property taxes $ 30,983,776 $ 11,633,491 $ 11,485,432 $ 54,102,699 Licenses and permits 2,348,818 - - 2,348,818 Federal revenue 118,892 - 1,141,894 1,260,786 State and local revenue 8,690,011 150,584 7,830,167 16,670,762 Charges for services 3,719,676 141,340 4,792,223 8,653,239 Fines and forfeitures 4,527,404 - 1,271,523 5,798,927 Interest 35,259 3,731 34,476 73,466 Other revenue: Special assessments - - 1,442,906 1,442,906 Other miscellaneous income 3,243,276 19,305 667,714 3,930,295 Total revenue 53,667,112 11,948,451 28,666,335 94,281,898 Expenditures Current: General government 8,555,153 - - 8,555,153 Public safety 34,896,258 - 688,799 35,585,057 Public works 3,429,653 11,272,735 13,553,836 28,256,224 Community and economic development 545,637 - 590,479 1,136,1 16 Recreation and culture 1,521,366 - 8,823,608 10,344,974 Employee benefits,insurance,and other I,1 15,547 - - I,1 15,547 Capital outlay - - 2,130,857 2,130,857 Debt service - - 3,447,758 3,447,758 Total expenditures 50,063,614 11,272,735 29,235,337 90,571,686 Excess of Revenue Over(Under)Expenditures 3,603,498 675,716 (569,002) 3,710,212 Other Financing(Uses)Sources Face value of debt issue - - 2,050,000 2,050,000 Transfers in(Note 5) - - 9,541,036 9,541,036 Transfers out(Note 5) (3,558,919) - (6,034,717) (9,593,636) Payment to bond refunding escrow agent - - (2,082,610) (2,082,610) Total other financing(uses)sources (3,558,919) - 3,473,709 (85,210) Net Change in Fund Balances 44,579 675,716 2,904,707 3,625,002 Fund Balances-Beginning of year 11,351,226 3,002,973 24,720,011 39,074,210 Fund Balances-End of year $ 11,395,805 $ 3,678,689 $ 27,624,718 $ 42,699,212 The Notes to Financial Statements are an Integral Part of this Statement. 17 City of Livonia, Michigan Governmental Funds Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year Ended November 30, 2015 Net Change in Fund Balances -Total Governmental Funds $ 3,625,002 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures; however, in the statement of activities,these costs are allocated over their estimated useful lives as depreciation: Capital outlay 11,494,180 Depreciation expense (8,590,344) Loss on disposal of fixed assets (1 15,439) Certain revenue reported in the statement of activities is recorded in the governmental funds as unavailable revenue 66,626 Decrease in net pension asset and related deferred outflows related to pensions reported in the statement of activities does not require the use of current resources, and therefore, is not reported in the fund statements until it comes due for payment (3,875,417) Bond proceeds provide financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net position (2,050,000) Repayment of bond principal is an expenditure in the governmental funds, but not in the statement of activities (where it reduces long-term debt) 3,995,000 Interest expense is recorded when incurred in the statement of activities 7,347 Net decrease in accumulated employee sick and vacation pay is recorded when incurred in the statement of activities 167,264 Increase in landfill liability is recorded when incurred in the statement of activities (21,324) Increase in net OPEB obligation is recorded when incurred in the statement of activities (657,276) Internal service funds are included as part of governmental activities 316,558 Change in Net Position of Governmental Activities $ 4,362,177 The Notes to Financial Statements are an Integral Part of this Statement. 18 City of Livonia, Michigan Proprietary Funds Statement of Net Position November 30, 2015 Major Enterprise Governmental Funds Nonmajor Enterprise Funds Activities Total Enterprise Internal Service Water and Sewer Housing Golf Course Funds Fund Assets Current assets: Cash and investments $ 10,456,996 $ 529,915 $ 257,684 $ 11,244,595 $ 4,368,335 Accounts receivable: Customers 13,449,306 - - 13,449,306 - Other 1,093,880 2,765 11,815 1,108,460 - Allowance for doubtful accounts - - (2,083) (2,083) - Inventory,prepaid expenses,and deposits 768,804 - - 768,804 5,540,544 Total current assets 25,768,986 532,680 267,416 26,569,082 9,908,879 Noncurrent assets: Restricted assets(Note 7) 1,352,260 - - 1,352,260 - Special assessment receivables 557,178 - 557,178 Net pension asset(Note 13) 558,244 57,634 - 615,878 - Capital assets(Note 4): Nondepreciable capital assets 5,544,914 1,583,798 3,582,488 10,71 1,200 - Depreciable capital assets-Net 69,028,409 3,285,409 887,956 73,201,774 - Total noncurrent assets 77,041,005 4,926,841 4,470,444 86,438,290 - Total assets 102,809,991 5,459,521 4,737,860 113,007,372 9,908,879 Deferred Outflows of Resources Bond refunding loss being amortized 61,961 - - 61,961 - Deferred outflows related to pensions 647,965 66,897 714,862 Total deferred outflows 709,926 66,897 - 776,823 - Liabilities Current liabilities: Accounts payable 1,327,337 32,382 81,004 1,440,723 - Due to other governmental units 3,271,619 - - 3,271,619 - Accrued liabilities and other 147,740 16,253 4,439 168,432 - Unearned revenue 50,636 - - 50,636 Bonds and deposits 96,895 145,337 - 242,232 Compensated absences-Due within one year 218,080 23,244 5,684 247,008 - Current portion of Tong-term debt 1,140,000 - - 1,140,000 - Total current liabilities 6,252,307 217,216 91,127 6,560,650 - Noncurrent liabilities: Compensated absences-Due in more than one year 145,578 80,463 28,858 254,899 Net OPEB obligation 192,082 - - 192,082 - Long-term debt-Net of current portion(Note 6) 10,147,585 - - 10,147,585 3,052,344 Total noncurrent liabilities 10,485,245 80,463 28,858 10,594,566 3,052,344 Total liabilities 16,737,552 297,679 119,985 17,155,216 3,052,344 The Notes to Financial Statements are an Integral Part of this Statement. 19 City of Livonia, Michigan Proprietary Funds Statement of Net Position (Continued) November 30, 2015 Major Enterprise Governmental Funds Nonmajor Enterprise Funds Activities Total Enterprise Internal Service Water and Sewer Housing Golf Course Funds Fund Net Position Net investment in capital assets $ 63,347,699 $ 4,869,207 $ 4,470,444 $ 72,687,350 $ - Restricted-Ordinance requirements 1,352,260 - - 1,352,260 - Unrestricted 22,082,406 359,532 147,431 22,589,369 6,856,535 Total net position $ 86,782,365 $ 5,228,739 $ 4,617,875 $ 96,628,979 $ 6,856,535 The Notes to Financial Statements are an Integral Part of this Statement. 20 City of Livonia, Michigan Proprietary Funds Statement of Revenue, Expenses, and Changes in Net Position Year Ended November 30, 2015 Major Enterprise Fund Nonmajor Enterprise Funds Total Enterprise Internal Service Water and Sewer Housing Golf Course Funds Fund Operating Revenue Customer billings $ 31,936,575 $ $ $ 31,936,575 $ Fines and forfeitures 1,833,888 1,833,888 Service connections 31,413 31,413 Greens fees - 1,529,553 1,529,553 Golf cart fees 118,000 118,000 - City contributions - - 11,235,458 Rental income - 1,388,349 4,000 1,392,349 - Other revenue 49,022 160 95,741 144,923 - Total operating revenue 33,850,898 1,388,509 1,747,294 36,986,701 11,235,458 Operating Expenses Cost of water 11,582,736 - - 11,582,736 - Cost of sewage disposal 14,052,103 14,052,103 System maintenance and operation 5,020,659 5,020,659 General and administrative 725,043 725,043 - Reinsurance charges and claims - - - - 10,930,028 Salaries and wages 461,643 150,239 611,882 - Supplies 22,812 209,937 232,749 Other services and charges - 524,223 1,327,306 1,851,529 Depreciation 2,811,061 160,813 102,553 3,074,427 - Total operating expenses 34,191,602 1,169,491 1,790,035 37,151,128 10,930,028 Operating(Loss)Income (340,704) 219,018 (42,741) (164,427) 305,430 Nonoperating Revenue(Expenses) Investment income(loss) 53,031 1,046 (465) 53,612 11,128 Interest expense (455,507) (7,300) - (462,807) - Gain on sale of assets 300 8,425 900 9,625 - Total nonoperating (expenses)revenue (402,176) 2,171 435 (399,570) 11,128 (Loss)Income-Before contributions and transfers (742,880) 221,189 (42,306) (563,997) 316,558 Capital Contributions from Developers and Grants Capital grants 2,605,946 - 2,605,946 - Special assessments 454,715 454,715 Capital contributions 360,236 360,236 Total capital contributions from developers and grants 3,420,897 - 3,420,897 Transfers In(Note 5) - - 52,600 52,600 - Change in Net Position 2,678,017 221,189 10,294 2,909,500 316,558 Net Position-Beginning of year-As restated (Note 18) 84,104,348 5,007,550 4,607,581 93,719,479 6,539,977 Net Position-End of year $ 86,782,365 $ 5,228,739 $ 4,617,875 $ 96,628,979 $ 6,856,535 The Notes to Financial Statements are an Integral Part of this Statement. 21 City of Livonia, Michigan Proprietary Funds Statement of Cash Flows Year Ended November 30, 2015 Major Enterprise Fund Nonmajor Enterprise Funds Total Enterprise Internal Service Water and Sewer Housing Golf Course Funds Fund Cash Flows from Operating Activities Receipts from customers $ 32,951,600 $ 1,388,374 $ 1,747,275 $ 36,087,249 $ 11,882,057 Payments to suppliers (27,068,259) (542,693) (1,494,613) (29,105,565) (12,603,058) Payments to employees (3,859,692) (451,095) (150,024) (4,460,811) - Claims paid (2,500,000) - - (2,500,000) (3,000,000) Other payments (419,896) - - (419,896) - Net cash(used in)provided by operating activities (896,247) 394,586 102,638 (399,023) (3,721,001) Cash Flows from Noncapital Financing Activities-Net transfers from other funds - - 52,600 52,600 Cash Flows from Capital and Related Financing Activities Issuance of bonds 5,701,019 - - 5,701,019 - Receipt of capital grants 2,605,946 - - 2,605,946 - Special assessment collections 7,690 - - 7,690 Proceeds from sales of capital assets 300 8,425 901 9,626 Net purchases of capital assets (8,230,590) (48,617) - (8,279,207) - Principal and interest paid on long-term debt (5,712,256) (443,749) - (6,156,005) - Net cash(used in)provided by investing activities (5,627,891) (483,941) 901 (6,110,931) - Cash Flows from Investing Activities Interest(loss)received on investments 53,031 1,046 (465) 53,612 11,128 Net sales(purchases)of investments 3,436,906 44,154 (77,837) 3,403,223 1,703,483 Net cash provided by(used in) investing activities 3,489,937 45,200 (78,302) 3,456,835 1,714,611 Net(Decrease)Increase in Cash and Cash Equivalents (3,034,201) (44,155) 77,837 (3,000,519) (2,006,390) Cash and Cash Equivalents- Beginning of year 9,615,209 309,112 51,005 9,975,326 4,039,104 Cash and Cash Equivalents- End of year $ 6,581,008 $ 264,957 $ 128,842 $ 6,974,807 $ 2,032,714 Balance Sheet Classification of Cash and Cash Equivalents Cash and investments $ 10,456,996 $ 529,915 $ 257,684 $ 11,244,595 $ 4,368,335 Restricted assets(Note 7) 1,352,260 - - 1,352,260 - Less investments (5,228,248) (264,958) (128,842) (5,622,048) (2,335,621) Total cash and cash equivalents $ 6,581,008 $ 264,957 $ 128,842 $ 6,974,807 $ 2,032,714 The Notes to Financial Statements are an Integral Part of this Statement. 22 City of Livonia, Michigan Proprietary Funds Statement of Cash Flows (Continued) Year Ended November 30, 2015 Major Enterprise Fund Nonmajor Enterprise Funds Total Enterprise Internal Service Water and Sewer Housing Golf Course Funds Fund Reconciliation of Operating(Loss)Income to Net Cash from Operating Activities Operating(loss)income $ (340,704) $ 219,018 $ (42,741) $ (164,427) $ 305,430 Adjustments to reconcile operating(loss) income to net cash from operating activities: Depreciation 2,811,061 160,813 102,553 3,074,427 - Changes in assets and liabilities: Receivables (899,298) (135) (19) (899,452) - Inventories (115,329) - - (115,329) - Prepaid and other assets (110,020) - - (110,020) (1,026,431) Accounts payable 541,577 4,342 42,630 588,549 - Estimated claims liability (2,500,000) - - (2,500,000) (3,000,000) Accrued and other liabilities 25,167 (2,606) 215 22,776 - Other assets (419,896) - - (419,896) Net pension asset 759,160 80,051 - 839,211 - Deferred outflows of resources (647,965) (66,897) - (714,862) - Net cash(used in) provided by operating activities $ (896,247) $ 394,586 $ 102,638 $ (399,023) $ (3,721,001) During the year ended November 30,2015,the City received$360,236 of donated lines reported as capital assets in the Water and Sewer Fund. The Notes to Financial Statements are an Integral Part of this Statement. 23 City of Livonia, Michigan Fiduciary Funds Statement of Fiduciary Net Position November 30, 2015 Pension and Other Employee Benefits Agency Funds Assets Cash and cash equivalents (Note 3) $ 698,572 $ 10,943,746 Investments (Note 3): U.S.government securities 16,932,716 - Collateralized mortgage obligations 9,097,723 - Common stock 142,719,467 - Corporate bonds 22,333,576 - Real estate investment trust 11,204,006 - Foreign bonds 3,353,413 - Mutual funds 103,072,633 - Securities lending collateral pool - Mutual funds 3,835,277 - Accounts receivable 9,772 - Due from agency funds 1,006,854 47,541 Total assets 314,264,009 $10,991,287 Liabilities Accounts payable 1,247,067 $ - Due to other governmental units 22,533 6,273,458 Due to primary government 196,828 - Due to fiduciary/agency funds - 1,054,395 Accrued and other liabilities - 3,663,434 Amounts due to broker under securities lending agreement 3,997,649 - Total liabilities 5,464,077 $10,991,287 Net Position Held in Trust for Pension and Other Employee Benefits $ 308,799,932 The Notes to Financial Statements are an Integral Part of this Statement. 24 City of Livonia, Michigan Fiduciary Funds Statement of Changes in Fiduciary Net Position - Pension and Other Employee Benefits Trust Funds Year Ended November 30, 2015 Pension and Other Employee Benefits Additions Investment income: Interest and dividends $ 10,673,726 Net change in fair value of investments (4,266,121) Less investment expenses (881,376) Net investment income 5,526,229 Contributions: Employer 7,520,840 Employee 925,576 Total contributions 8,446,416 Total additions 13,972,645 Deductions Pension benefit payments 16,017,300 Medical benefit payments 5,490,021 Refunds of contributions 206,488 Administrative expenses 242,468 Total deductions 21,956,277 Net Decrease in Net Position Held in Trust (7,983,632) Net Position Held in Trust for Pension and Other Employee Benefits - Beginning of year 316,783,564 Net Position Held in Trust for Pension and Other Employee Benefits - End of year $308,799,932 The Notes to Financial Statements are an Integral Part of this Statement. 25 City of Livonia, Michigan Component Units Statement of Net Position November 30, 2015 Economic Plymouth Road Brownfield Development Development Redevelopment Corporation Authority Authority Total Assets Cash and cash equivalents $ 23,739 $ 448,681 $ 22,826 $ 495,246 Accounts receivable - 65,481 265,276 330,757 Due from primary government 1 1,1 12 - 1 1,1 12 Prepaid expenses 117,468 117,468 Capital assets(Note 4): Nondepreciable capital assets 474,448 474,448 Depreciable capital assets-Net - 3,136,389 - 3,136,389 Total assets 23,739 4,253,579 288,102 4,565,420 Liabilities Accounts payable - 66,319 212,221 278,540 Accrued and other liabilities 10,151 - 10,151 Noncurrent liabilities: Due within one year 525,000 525,000 Due in more than one year - 1,125,000 - 1,125,000 Total liabilities - 1,726,470 212,221 1,938,691 Net Position Net investment in capital assets - 1,960,837 - 1,960,837 Unrestricted 23,739 566,272 75,881 665,892 Total net position $ 23,739 $ 2,527,109 $ 75,881 $ 2,626,729 The Notes to Financial Statements are an Integral Part of this Statement. 26 City of Livonia, Michigan Program Revenue Operating Capital Grants Charges for Grants and and Expenses Services Contributions Contributions Functions/Programs Economic Development Corporation- General government $ - $ - $ - $ - Plymouth Road Development Authority: Community and economic development 1,975,754 - - - Interest on long-term debt 87,278 - - - Total Plymouth Road Development Authority 2,063,032 - - - Brownfield Redevelopment Authority- Community and economic development 246,795 - - - Total component units $ 2,309,827 $ - $ - $ - General revenue: Property taxes Interest Total general revenue Change in Net Position Net Position - Beginning of year Net Position - End of year The Notes to Financial Statements are an Integral Part of this Statement. 27 Component Units Statement of Activities Year Ended November 30, 2015 Net(Expense) Revenue and Changes in Net Position Economic Plymouth Road Brownfield Development Development Redevelopment Corporation Authority Authority Total (1,975,754) - (1,975,754) (87,278) - (87,278) (2,063,032) - (2,063,032) (246,795) (246,795) (2,063,032) (246,795) (2,309,827) - 835,768 308,494 1,144,262 19 254 12 285 19 836,022 308,506 1,144,547 19 (1,227,010) 61,711 (1,165,280) 23,720 3,754,119 14,170 3,792,009 $ 23,739 $ 2,527,109 $ 75,881 $ 2,626,729 28 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note I - Summary of Significant Accounting Policies The following is a summary of the significant accounting policies used by the City of Livonia, Michigan: Reporting Entity The City of Livonia, Michigan (the "City") is governed by an elected seven-member council. The City's administration operates under the overall direction of an elected mayor. The accompanying financial statements present the City and its component units, entities for which the City is considered to be financially accountable. Although blended component units are legal separate entities, in substance, they are part of the City's operations. Each discretely presented component unit is reported in a separate column in the government-wide financial statements to emphasize that it is legally separate from the City (see discussion below for description). Blended Component Units - The Municipal Building Authority of Livonia is governed by a board that is appointed by the mayor. Although it is legally separate from the City, it is reported as if it were part of the primary government because its primary purpose is to finance and construct the City's public buildings. The operations of the Municipal Building Authority are reported as a nonmajor Debt Service Fund. The District Court Funds of District No. 16 are reported within the Trust and Agency Funds. Although it is legally separate from the City, it is reported as if it were part of the primary government because of the fiduciary relationship it has with the City. Discretely Presented Component Units - The Economic Development Corporation (the "EDC") was created to provide means and methods for the encouragement and assistance of industrial and commercial enterprises in relocating, purchasing, constructing, improving, or expanding within the City so as to provide needed services and facilities of such enterprises to the residents of the City. The EDC's governing body, which consists of eight individuals, is selected by the mayor and approved by the City Council. Internally prepared financial statements for the EDC can be obtained from the City of Livonia Finance Department at 33000 Civic Center Drive, Livonia, MI 48154. The Plymouth Road Development Authority was created to encourage additional economic activity and growth in the Plymouth Road business district. The Plymouth Road Development Authority's governing body, which consists of 12 individuals, is selected by the mayor and approved by the City Council. Internally prepared financial statements for the Plymouth Road Development Authority can be obtained from the City of Livonia Finance Department at 33000 Civic Center Drive, Livonia, MI 48154. 29 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note I - Summary of Significant Accounting Policies (Continue The Brownfield Redevelopment Authority was created, pursuant to Public Act 381 of 1996, to promote revitalization of environmentally distressed areas within the 36-square mile boundary of the City. The Brownfield Redevelopment Authority is funded primarily by property tax revenue captures. The Brownfield Redevelopment Authority is governed by a nine-member board that is designated by the mayor and appointed by the City Council. The City has excluded the Housing Commission from this report. Even though the City appoints the Housing Commission's directors, it does not have the ability to impose its will. Accounting and Reporting Principles The City follows accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. Accounting and financial reporting pronouncements are promulgated by the Governmental Accounting Standards Board. Report Presentation Governmental accounting principles require that financial reports include two different perspectives - the government-wide perspective and the fund-based perspective. The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. The government-wide financial statements are presented on the economic resources measurement focus and the full accrual basis of accounting. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The statements also present a schedule reconciling these amounts to the modified accrual-based presentation found in the fund-based statements. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenue includes: (1) charges to customers or applicants for goods, services, or privileges provided; (2) operating grants and contributions; and (3) capital grants and contributions, including special assessments. Taxes and other items not properly included among program revenue are reported instead as general revenue. For the most part, the effect of interfund activity has been removed from these statements. Exceptions to this general rule are charges between 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 revenue reported for the various functions concerned. 30 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note I - Summary of Significant Accounting Policies (Continue Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Fund Accounting The City accounts for its various activities in several different funds in order to demonstrate accountability for how we have spent certain resources - separate funds allow us to show the particular expenditures that specific revenues were used for. The various funds are aggregated into three broad fund types: Governmental Funds include all activities that provide general governmental services that are not business-type activities. This includes the General Fund, special revenue funds, debt service funds, capital project funds, and permanent funds. The City reports the following funds as "major" governmental funds: • The General Fund is the primary operating fund because it accounts for all financial resources used to provide general government services, other than those specifically assigned to another fund; • The Refuse Disposal Fund accounts for the operations of the refuse disposal activities of the City. Funding is provided primarily through a local dedicated property tax levy Proprietary Funds include enterprise funds (which provide goods or services to users in exchange for charges or fees) and internal service funds (which provide goods or services to other funds of the City). The City reports the following funds as "major" enterprise funds: • The Water and Sewer Fund accounts for the activities of the water and sewer distribution system and sewage collection system. Funding is provided primarily through user charges. • The City's Internal Service Fund is used to fund general, workers' compensation, and employee healthcare liability claims to purchase insurance that provides excess general liability coverage for City employees and property. The fund is financed primarily by charges to the various departments of the City. Fiduciary Funds include amounts held in a fiduciary capacity for others. These amounts will not be used to operate our government's programs. Activities that are reported as fiduciary include: • Pension and Other Employee Benefits Trust Fund, which accounts for the activities of employee benefit plans that accumulate resources for pension and other postemployment benefit payments to qualified employees. 31 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note I - Summary of Significant Accounting Policies (Continue The City of Livonia Employees' Retirement System and the City of Livonia Health and Disability Plan have been blended into the City's financial statements. These systems are governed by a five-member pension board that includes three individuals chosen by the City Council and/or mayor. The systems are reported as if they were part of the primary government because of the fiduciary responsibility that the City retains relative to the operations of each system. The operations of the Employees' Retirement System and the City of Livonia Health and Disability Plan are reported as a Pension and Other Employee Benefits Fiduciary Fund. • Agency Funds, which account for assets held by the City in a trustee capacity. Agency Funds are custodial in nature (assets equal liabilities) and do not involve the measurement of results of operations. Interfund Activity: During the course of operations, the City has activity between funds for various purposes. Any residual balances outstanding at year end are reported as due from/to other funds and advances to/from other funds. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Balances between the funds included in governmental activities (i.e., the governmental and internal service funds) are eliminated so that only the net amount is included as internal balances in the governmental activities column. Similarly, balances between the funds included in business-type activities (i.e., the enterprise funds) are eliminated so that only the net amount is included as internal balances in the business-type activities column. Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements, these amounts are reported at gross amounts as transfers in/out. While reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in the governmental activities column. Similarly, balances between the funds included in business-type activities are eliminated so that only the net amount is included as transfers in the business-type activities column. Basis of Accounting The governmental funds use the current financial resources measurement focus and the modified accrual basis of accounting. This basis of accounting is intended to better demonstrate accountability for how the government has spent its resources. 32 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note I - Summary of Significant Accounting Policies (Continue Expenditures are reported when the goods are received or the services are rendered. Capital outlays are reported as expenditures (rather than as capital assets) because they reduce the ability to spend resources in the future; conversely, employee benefit costs that will be funded in the future (such as pension and retiree healthcare-related costs, or sick and vacation pay) are not counted until they come due for payment. In addition, debt service expenditures, claims, and judgments are recorded only when payment is due. Revenues are not recognized until they are collected, or collected soon enough after the end of the year that they are available to pay for obligations outstanding at the end of the year. For this purpose, the City considers amounts collected within 60 days of year end to be available for recognition. The following major revenue sources meet the availability criterion: state-shared revenue, state gas and weight tax revenue, district court fines, and interest associated with the current fiscal period. Conversely, special assessments and federal grant reimbursements will be collected after the period of availability; receivables have been recorded for these, along with a "deferred inflow of resources." Proprietary funds and fiduciary funds use the economic resources measurement focus and the full accrual basis of accounting. Revenue is recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Specific Balances and Transactions Cash, Cash Equivalents, and Investments - Cash and cash equivalents include cash on hand, demand deposits, and short-term investments with a maturity of three months or less when acquired. Investments are stated at fair value. Pooled investment income from the Investment Agency Fund is generally allocated to each fund using a weighted average balance for the principal held for each fund on a daily basis. Receivables and Payables - In general, outstanding balances between funds are reported as "due to/from other funds." Any residual balances outstanding between the governmental activities and the business-type activities are reported in the government- wide statements as "internal balances." All trade and property tax receivables are shown as net of allowance for uncollectible amounts. Inventories and Prepaid Items - Inventories are valued at cost, on a first-in, first-out basis. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future fiscal years and are recorded as prepaid items in both government-wide and fund financial statements. Restricted Assets - The revenue bonds of the Enterprise Funds require amounts to be set aside for a bond reserve. These amounts have been classified as restricted assets. 33 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note I - Summary of Significant Accounting Policies (Continue Capital Assets - Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities column in the government-wide financial statements. Capital assets are defined by the City as assets with an initial individual 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 or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Infrastructure, buildings, equipment, and vehicles are depreciated using the straight-line method over the following useful lives: Capital Asset Class Lives Infrastructure 33 to 40 years Road rights 33 years Buildings and improvements 20 to 50 years Machinery, equipment, and vehicles 2 to 20 years Water and sewer distribution systems 50 years Long-term Obligations - In the government-wide financial statements and the proprietary fund types in the fund financial statements, long-term debt and other long- term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund-type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method; bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are expensed at the time they are incurred. In the fund financial statements, governmental fund types recognize bond issuances as an "other financing source," as well as bond premiums and discounts. The General Fund and debt service funds are generally used to liquidate governmental long-term debt. 34 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note I - Summary of Significant Accounting Policies (Continue Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position and/or balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expense/ expenditure) until then. The City reports bond refunding loss being amortized as a deferred outflow of resources. The City also reports deferred outflows of resources related to the defined benefit pension plan. The deferred outflows of resources related to the defined benefit pension plan are reported in the government-wide financial statements, the Water and Sewer Fund, and the Housing Fund. The deferred outflows of resources result from the variance between the plan's actual investment earnings compared to the plan's assumed investment earnings. In addition to liabilities, the statement of net position and/or balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources (revenue) until that time. The City has one item that qualifies for reporting in this category. Unavailable revenue is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenue from various sources shown in Note 16. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Net Position Flow Assumption Sometimes the City will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the government's policy to consider restricted net position to have been depleted before unrestricted net position is applied except as noted below. 35 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note I - Summary of Significant Accounting Policies (Continue Fund Balance Flow Assumption Sometimes the City will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City's policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. The exception to this are the Community Recreation Fund and Capital Improvement Fund, which apply unrestricted fund balance first. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. This is true for all funds except the Community Recreation Fund and Capital Improvement Fund. As noted above, the policy for these funds is to use unrestricted funds first; therefore, the order of spending is unassigned, restricted, committed, and assigned. Fund Balance Policies Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The City itself can establish limitations on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance). The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the City's highest level of decision-making authority. The City Council is the highest level of decision-making authority for the City that can, by adoption of an ordinance prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the ordinance remains in place until a similar action is taken (the adoption of another ordinance) to remove or revise the limitation. Amounts in the assigned fund balance classification are intended to be used by the City for specific purposes but do not meet the criteria to be classified as committed. The City Council has by resolution authorized the finance director to assign fund balance. The City Council may also assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year's appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment. 36 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note I - Summary of Significant Accounting Policies (Continue Property Tax Revenue Property taxes are levied on each July I and December I on the taxable valuation of property as of the preceding December 31. These taxes are due on September 14 and February 14, respectively. Taxes are considered delinquent on March 1, at which time penalties and interest are assessed. The City's 2014 tax is levied and collectible on December 1, 2014 and is recognized as revenue in the year ended November 30, 2015, when the proceeds of the levy are budgeted and available for the financing of operations. The 2014 taxable valuation of the City totaled $3.94 billion. Properties in the Plymouth Road Development Authority (PRDA) are assessed a millage of 2.0000 on July 1. The 2015 taxable valuation of PRDA totaled $452 million. The millages levied by the City and the resulting revenue are as follows: Approximate Revenue Purpose Millage Rate (in 000s) Operating purposes 4.0447 $ 15,607 Police and fire 0.8088 3,121 Police and fire and snow 1.2134 4,682 Library 0.8088 3,113 Refuse and recycling 3.0246 1 1,633 Industrial development 0.0129 50 Roads, sidewalks, and trees 0.8893 3,423 Recreation 0.7855 3,024 Public safety 1.7000 6,560 Culture and senior services 0.2500 965 Transit and capital improvement 0.5000 1,925 Plymouth Road Development Authority 2.0000 841 Total 16.0380 $ 54,944 These amounts are recognized in the respective General, Special Revenue, Debt Service, and Plymouth Road Development Authority Funds financial statements as tax revenue. The delinquent real property taxes of the City are purchased by Wayne County (the "County"). The County sells tax notes, the proceeds of which are used to pay the City for these property taxes. Wayne County remitted its purchased delinquent real property taxes in June 2015. Wayne County delinquent real property taxes have been recorded as revenue in the current year. 37 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note I - Summary of Significant Accounting Policies (Continue Pension - The City offers a defined benefit pension plan to its employees. The City records a net pension asset for the difference between the total pension liability calculated by the actuary and the pension plan's fiduciary net position. For purposes of measuring the net pension asset, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the City of Livonia Employees' Retirement System and additions to/deductions from the pension plan's fiduciary net position have been determined on the same basis as they are reported by the pension plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Other Postemployment Benefit Costs - The City offers retiree healthcare benefits to retirees. The City receives an actuarial valuation to compute the annual required contribution (ARC) necessary to fund the obligation over the remaining amortization period. In the governmental funds, pension and OPEB costs are recognized as contributions are made. For the government-wide statements and proprietary funds, the City reports the full accrual 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. Compensated Absences (Vacation Leave, Sick Leave, and Comp Time) - It is the City's policy to permit employees to accumulate earned but unused sick and vacation pay benefits as well as comp time. Under the City's policy, employees earn benefits based on time of service with the City. All vacation and sick pay as well as comp time are accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only for employee terminations as of year end. All other accrued compensated absences are reported in the government-wide financial statements; generally the funds that report each employee's compensation (the General Fund and Water and Sewer Fund, primarily) are used to liquidate obligation. Proprietary Funds Operating Classification - Proprietary funds distinguish operating revenue and expenses from nonoperating items. Operating revenue and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the Water and Sewer Fund and internal service funds are charges to customers for sales and services. The Water and Sewer Fund also recognizes as operating revenue the portion of tap fees intended to recover the cost of connecting new customers to the system. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenue and expenses not meeting this definition are reported as nonoperating revenue and expenses. 38 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note I - Summary of Significant Accounting Policies (Continued) Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Note 2 - Stewardship, Compliance, and Accountability Construction Code Fees - The City oversees building construction in accordance with the State's Construction Code Act, including inspection of building construction and renovation, to ensure compliance with the building codes. The City charges fees for these services. The law requires that collection of these fees be used only for construction code costs, including an allocation of estimated overhead costs. A summary of the current year activity and the cumulative surplus or shortfall generated since January 1, 2000 is as follows: Cumulative shortfall at December 1, 2014 $ (795,180) Current year building permit revenue 2,157,910 Related expenses: Direct costs $ 1,330,526 Estimated indirect costs 395,321 1,725,847 Current year net revenue 432,063 Cumulative shortfall at November 30, 2015 $ (363,1 17) Note 3 - Deposits and Investments Michigan Compiled Laws Section 129.91 (Public Act 20 of 1943, as amended) authorizes local governmental units to make deposits and invest in the accounts of federally insured banks, credit unions, and savings and loan associations that have offices in Michigan. The law also allows investments outside the state of Michigan when fully insured. The local unit is allowed to invest in bonds, securities, and other direct obligations of the United States or any agency or instrumentality of the United States; repurchase agreements; bankers' acceptances of United States banks; commercial paper rated within the two highest 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 as investment grade; and mutual funds composed of investment vehicles that are legal for direct investment by local units of government in Michigan. 39 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 3 - Deposits and Investments (Continued) The Pension Trust Fund and Retiree Health Care Fund are also authorized by Michigan Public Act 314 of 1965, as amended, to invest in certain reverse repurchase agreements, stocks, diversified investment companies, annuity investment contracts, real estate leased to public entities, mortgages, real estate (if the trust fund's assets exceed $250 million), debt or equity of certain small businesses, certain state and local government obligations, and certain other specified investment vehicles. The City has designated six banks for the deposit of its funds. The investment policy adopted by the City Council in accordance with Public Act 196 of 1997 has authorized investment in bonds and securities of the United States government and bank accounts and CDs. The City's deposits and investment policies are in accordance with statutory authority. As permitted by state statutes and under the provisions of a securities lending authorization agreement, the City of Livonia Employees' Retirement System (the "System") lends securities to broker-dealers and banks for the collateral that will be returned for the same securities in the future. The System's custodial bank manages the securities lending program and receives cash as collateral. Borrowers are required to deliver collateral for each loan equal to not less than 100 percent of the market value of the loaned securities. During the year ended November 30, 2015, only United States currency was received as collateral. The City then converts that cash received as collateral into other investments. The System imposed a limit of $4 million during the fiscal year on the amount of loans made on its behalf by the custodial bank. There were no failures by any borrowers to return loaned securities or pay distributions thereon during the fiscal year. Moreover, there were no losses during the fiscal year resulting from a default of the borrowers or custodial bank. The System and the borrower maintain the right to terminate all securities lending transactions on demand. The cash collateral received on each loan was invested, together with the cash collateral of other lenders, in an investment pool. The average duration of such investment pools as of November 30, 2015 was one day because the loans are terminable on demand; their duration did not generally match the duration of the investments made with cash collateral. On November 30, 2015, the System had no credit risk exposure to borrowers. The collateral held (cost basis) and the fair market value of the underlying securities on loan for the System as of November 30, 2015 were $3,997,649 and $3,835,277, respectively. The City's cash and investments are subject to several types of risk, which are examined in more detail below: 40 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 3 - Deposits and Investments (Continued) Custodial Credit Risk of Bank Deposits - Custodial credit risk is the risk that in the event of a bank failure, the City's deposits may not be returned to it. The City does not have a deposit policy for custodial credit risk. At year end, the City had $41,109,573 of bank deposits (certificates of deposit and checking and savings accounts) that were uninsured and uncollateral ized. In addition, the District Court, a component unit, had $672,693 of bank deposits (checking and savings accounts and certificates of deposit) that were uninsured and uncollateral ized. The City believes that due to the dollar amounts of cash deposits and the limits of FDIC insurance, it is impractical to insure all deposits. As a result, the City evaluates each financial institution with which it deposits funds and assesses the level of risk of each institution; only those institutions with an acceptable estimated risk level are used as depositories. Interest Rate Risk - Interest rate risk is the risk that the value of investments will decrease as a result of a rise in interest rates. The City's investment policy does not restrict investment maturities, other than commercial paper which can only be purchased with a 270-day maturity. At year end, the City had the following investments and maturities: Primary Government Fair Value 0 to 5 Years 6 to 10 Years Over 10 Years U.S.agency securities $ 20,284,394 $ 20,284,394 $ - $ - Municipal bonds 2,860,424 2,860,424 - - U.S.Treasury securities 4,022,1 12 4,022,1 12 - - Commercial paper 997,625 997,625 Total $ 28,164,555 $ 28,164,555 $ - $ - City of Livonia Employees'Retirement System Fair Value 0 to 5 Years 6 to 10 Years Over 10 Years Corporate bonds $ 15,383,713 $ 4,928,513 $ 7,069,866 $ 3,385,334 Foreign bonds 2,244,743 672,480 1,362,779 209,484 U.S.agency securities 7,272,844 353,930 89,393 6,829,521 U.S.Treasury securities 2,786,136 212,078 445,808 2,128,250 Collateralized mortgage obligations 5,937,342 133,305 55,460 5,748,577 Total $ 33,624,778 $ 6,300,306 $ 9,023,306 $ 18,301,166 City of Livonia Retiree Health and Disability Benefits Plan Fair Value 0 to 5 Years 6 to 10 Years Over 10 Years Corporate bonds $ 6,949,863 $ 2,814,132 $ 3,079,857 $ 1,055,874 Foreign bonds 1,108,670 581,409 450,621 76,640 U.S.agency securities 3,163,904 117,658 13,642 3,032,604 U.S.Treasury securities 3,709,832 1,057,751 1,089,028 1,563,053 Collateralized mortgage obligations 3,160,381 97,700 25,209 3,037,472 Total $ 18,092,650 $ 4,668,650 $ 4,658,357 $ 8,765,643 41 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 3 - Deposits and Investments (Continued) Credit Risk - State law limits investments in commercial paper to the top two ratings issued by nationally recognized statistical rating organizations. The City has no investment policy that would further limit its investment choices. As of year end, the credit quality ratings of debt securities (other than the U.S. government) are as follows: Rati ng Investment Fair Value Rating Organization Primary Government Bank investment pools $ 21 1,265 AI/PI Moody's Bank investment pools 1,352,260 A2/P I Moody's Bank investment pools 68,874 A3/P2 Moody's U.S. agencies securities 20,284,394 AA+ S&P Municipal bonds 2,860,424 AA- S&P U.S.Treasury securities 4,022,1 12 AA+ S&P Commercial paper 997,625 A-I S&P Total $ 29,796,954 Fiduciary Funds Corporate bond $ 2,909,613 AAA S&P Corporate bond 509,262 AA S&P Corporate bond 3,779,600 A S&P Corporate bond 12,332,575 BBB S&P Corporate bond 1,105,389 BB S&P Corporate bond 516,092 B S&P Corporate bond 1,181,045 NR S&P Foreign bonds 779,666 AA S&P Foreign bonds 1,330,422 A S&P Foreign bonds 722,571 BBB S&P Foreign bonds 406,952 BB S&P Foreign bonds 1 13,802 NR S&P U.S. agencies securities 268,985 A S&P U.S. agencies securities 10,167,763 NR S&P U.S.treasury securities 6,495,968 NR S&P Collateralized mortgage obligations 1,416,328 AAA S&P Collateralized mortgage obligations 1,167,385 AA S&P Collateralized mortgage obligations 2,181,500 A S&P Collateralized mortgage obligations 612,563 BBB S&P Collateralized mortgage obligations 3,719,947 NR S&P Total $ 51,717,428 42 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 4 - Capital Assets Capital asset activity of the City's governmental and business-type activities was as follows: Balance Governmental Activities Balance November 30, December I,2014 Reclassifications Additions Disposals 2015 Capital assets not being depreciated: Land $ 34,858,329 $ $ - $ (17,617) $ 34,840,712 Construction in progress 78,241 (166,337) 179,297 91,201 Subtotal 34,936,570 (166,337) 179,297 (17,617) 34,931,913 Capital assets being depreciated: Infrastructure 112,341,532 9,224,293 121,565,825 Road rights 20,139,353 60,811 20,200,164 Buildings and improvements 108,530,842 - 103,519 (19,378) 108,614,983 Equipment and vehicles 33,604,821 166,337 1,926,260 (1,918,247) 33,779,171 Subtotal 274,616,548 166,337 11,314,883 (1,937,625) 284,160,143 Accumulated depreciation: Infrastructure 49,322,843 - 3,223,895 52,546,738 Road rights 8,979,620 581,235 9,560,855 Buildings and improvements 44,207,492 2,381,783 (4,264) 46,585,011 Equipment and vehicles 22,094,362 2,403,431 (1,835,540) 22,662,253 Subtotal 124,604,317 - 8,590,344 (1,839,804) 131,354,857 Net capital assets being depreciated 150,012,231 166,337 2,724,539 (97,821) 152,805,286 Net capital assets $ 184,948,801 $ - $ 2,903,836 $ (115,438) $ 187,737,199 Balance Business-type Activities Balance Disposals and November 30, December I,2014 Reclassifications Additions Adjustments 2015 Capital assets not being depreciated: Land $ 5,164,436 $ - $ - $ - $ 5,164,436 Construction in progress 4,288,083 (6,004,741) 7,259,482 3,940 5,546,764 Subtotal 9,452,519 (6,004,741) 7,259,482 3,940 10,711,200 Capital assets being depreciated: Water and sewer distribution 132,288,088 6,004,741 277,011 - 138,569,840 Buildings and building improvements 9,403,888 - - 9,403,888 Machinery and equipment 2,135,197 247,395 (15,197) 2,367,395 Vehicles 1,804,315 324,980 (27,978) 2,101,317 Land improvements 2,916,044 - - 2,916,044 Subtotal 148,547,532 6,004,741 849,386 (43,175) 155,358,484 Accumulated depreciation: Water and sewer distribution 67,954,235 - 2,650,996 70,605,231 Buildings and building improvements 4,990,510 186,946 - 5,177,456 Machinery and equipment 1,978,514 71,575 3,401 2,053,490 Vehicles 1,469,887 120,751 (28,961) 1,561,677 Land improvements 2,714,697 44,159 2,758,856 Subtotal 79,107,843 - 3,074,427 (25,560) 82,156,710 Net capital assets being depreciated 69,439,689 6,004,741 (2,225,041) (17,615) 73,201,774 Net capital assets $ 78,892,208 $ - $ 5,034,441 $ (13,675) $ 83,912,974 43 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 4 - Capital Assets (Continue Component Units-Plymouth Balance Balance Road Development December 1, November 30, Authority 2014 Additions Disposals 2015 Capital assets not being depreciated - Land $ 474,448 $ - $ - $ 474,448 Capital assets being depreciated -Land improvements 15,703,227 - (3,507,439) 12,195,788 Accumulated depreciation- Land improvements 10,816,817 777,854 (2,535,272) 9,059,399 Net capital assets being depreciated 4,886,410 (777,854) (972,167) 3,136,389 Net capital assets $ 5,360,858 $ (777,854) $ (972,167) $ 3,610,837 Depreciation expense was charged to programs of the primary government as follows: Governmental activities: General government $ 686,136 Public safety 1,567,849 Public works 4,409,379 Recreation and culture 1,926,980 Total governmental activities $ 8,590,344 Business-type activities: Water and sewer $ 2,81 1,061 Golf course 102,553 Newburgh and Silver Village 160,813 Total business-type activities $ 3,074,427 Construction Commitments - The City has active construction projects at year end. At year end, the City's commitments with contractors are as follows: Remaining Spent to Date Commitment Street and sidewalk projects $ 14,995,315 $ 1,205,001 Drain and sewer projects 12,598,833 5,513,217 Equipment - 145,349 Police improvements 61,733 213,268 Community recreation center improvements - 100,000 44 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note S - Interfund Receivables, Payables, and Transfers Receivable Fund Payable Fund Amount Due to/from Other Funds General Fund Nonmajor governmental funds $ 105,567 VEBA Fund Investment Administration Agency Fund 673,570 Employees' Retirement System Investment Administration Fund Agency Fund 333,284 Court Volunteer Work Program Agency Fund Court Bond Agency Fund 26,091 Court Civil Drug Agency Fund Court Bond Agency Fund 4,730 Court Depository Agency Fund Court Bond Agency Fund 16,720 Total $ 1,159,962 Receivable Fund Payable Fund Amount Due to/from Primary Government and Component Units Plymouth Road Development Authority General Fund $ 1 1,1 12 These balances result from the time lag between the dates that goods and services are provided or reimbursable expenditures occur, transactions are recorded in the accounting system, and payments between funds are made. Interfund transfers reported in the fund financial statements are comprised of the following: Transfer Out Transfer In Amount General Fund Nonmajor governmental funds $ 3,506,319 Golf Course Fund 52,600 Total General Fund 3,558,919 Nonmajor governmental funds Nonmajor governmental funds 6,034,717 Total $ 9,593,636 45 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note S - Interfund Receivables, Payables, and Transfers (Continued) Transfer of unrestricted resources to finance capital projects and general obligation debt service in accordance with budgetary authorizations The majority of transfers are for gas and weight tax revenue from the Major Streets Fund to the Local Streets Fund and from these funds to the Road and Sidewalk Fund in accordance with Act 51. Most of the remaining transfers relate to debt service. Note 6 - Long-terra Debt The City issues bonds to provide for the acquisition and construction of major capital facilities. General obligation bonds are direct obligations and pledge the full faith and credit of the City. County contractual agreements are also general obligations of the City. Special assessment bonds provide for capital improvements that benefit specific properties, and will be repaid from amounts levied against those properties benefited from the construction. In the event that a deficiency exists because of unpaid or delinquent special assessments at the time a debt service payment is due, the City is obligated to provide resources to cover the deficiency until other resources (such as tax sale proceeds or a re-assessment of the City) are received. Revenue bonds involve a pledge of specific income derived from the acquired or constructed assets to pay debt service. 46 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 6 - Long-terra Debt (Continue Long-term debt activity can be summarized as follows: Principal Interest Rate Maturity Beginning Ending Due Within Ranges Ranges Balance Additions Reductions Balance One Year Governmental Activities Building Authority Bonds: 2005 MBA Refunding Bonds: Amount of issue-$3,730,000 Maturing through 2025 4.00%-4.25% - $ 2,305,000 $ - $ (2,305,000) $ - $ - 2007 MBA Refunding Bonds: Amount of issue-$31,025,000 $1,525,000- Maturing through 2030 4.00%-4.75% $1,705,000 25,950,000 - (1,445,000) 24,505,000 1,525,000 2008 MBA Court Construction Bonds: Amount of issue-$8,500,000 $260,000- Maturing through 2033 4.00%-5.25% $580,000 7,425,000 - (245,000) 7,180,000 260,000 2015 MBA Refunding Bonds: Amount of issue-$2,050,000 $175,000- Maturing through 2025 2.47% $300,000 - 2,050,000 - 2,050,000 290,000 Total governmental activity debt 35,680,000 2,050,000 (3,995,000) 33,735,000 2,075,000 Other long-term obligations: General liability claims,workers' compensation and health insurance claims(Note 8) 2,405,745 646,599 - 3,052,344 - Provision for claims 3,000,000 - (3,000,000) - - Landfill closure and postclosure liability 612,383 21,324 - 633,707 - OPEB liability 3,720,140 657,276 - 4,377,416 - Compensated absences 9,128,912 2,875,403 (3,042,667) 8,961,648 2,986,918 Total governmental activities $ 54,547,180 $ 6,250,602 $(10,037,667) $ 50,760,1 15 $ 5,061,918 Compensated absences attributable to the governmental activities will be liquidated primarily by the General Fund. The claims liability will generally be liquidated through the City's self-insurance internal service funds. That fund will finance the payment of those claims by charging the other funds based on management's assessment of the relative insurance risk that should be assumed by individual funds. The net OPEB obligation will be liquidated from the funds that the individual employee's salaries are paid from, generally the General Fund. 47 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 6 - Long-terra Debt (Continued) Principal Interest Rate Maturity Beginning Ending Due Within Ranges Ranges Balance Additions Reductions Balance One Year Business-type Activities Building Authority Bonds: 2007 MBA Refunding Bonds: Amount of issue-$3,380,000 Maturing through 2015 4.00% - $ 435,000 $ - $ (435,000) $ - $ Water Supply and Wastewater System Bonds: 2013 State of Michigan Clean Water Program State Revolving Loan: Amount of issue-$3,620,000 $125,000- Maturing through 2034 2.00% $220,000 2,749,705 666,025 (125,000) 3,290,730 145,000 2014 State of Michigan Drinking Water Program Revolving Loan: Amount of issue-$3,552,013 $145,000- Maturing through 2036 2.50% $235,000 3,006,861 545,152 (145,000) 3,407,013 150,000 2015 State of Michigan Drinking Water Program Revolving Loan Amount of issue-$7,104,415 $355,000- Maturing 355,000-Maturing through 2040 2.50% $570,000 319,842 319,842 2015 Water Supply and Wastewater Refunding Bonds: Amount of issue-$4,170,000 $820,000- Maturing through 2020 1.90% $840,000 - 4,170,000 - 4,170,000 820,000 2005 Water Supply and Wastewater System Revenue Bonds: Amount of issue-$4,885,000 Maturing through 2020 3.75%-5.00% - 2,300,000 - (2,300,000) - - 2006 Water Supply and Wastewater System Revenue Refunding Bonds: Amount of issue-$4,110,000 Maturing through 2020 3.75%-5.00% _ 2,655,000 - (2,655,000) - - Total business-type activity debt 11,146,566 5,701,019 (5,660,000) 11,187,585 1,115,000 County contractual obligations: State Revolving Fund Loan- N.Huron Valley/Rouge Valley Wastewater Control System Amount of issue-$14,428,703 Maturing through 2021 2.25% $25,000 125,000 - (25,000) 100,000 25,000 Other long-term obligations: Provision for claims 2,500,000 - (2,500,000) - - OPEB liability 163,414 28,668 192,082 - Compensated absences 524,454 216,560 (239,107) 501,907 247,008 Total business-type activities $ 14,459,434 $ 5,946,247 $(8,424,107) $ 11,981,574 $ 1,387,008 48 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 6 - Long-terra Debt (Continue Principal Interest Rate Maturity Beginning Ending Due Within Ranges Ranges Balance Additions Reductions Balance One Year Component Unit Activities 2006 Downtown Development Refunding Bonds: Amount of issue-$4,470,000 $500,000- Maturing through 2018 4.25%-5.00% $570,000 $ 2,150,000 $ - $ (500,000) $ 1,650,000 $ 525,000 Annual debt service requirements to maturity for the above bonds and note obligations are as follows: Governmental Activities Business-type Activities* Component Unit Activities Years Ending November 30 Principal Interest Total Principal Interest Total Principal Interest Total 2016 $ 2,075,000 $ 1,413,976 $ 3,488,976 $ 1,1 15,000 $ 276,816 $ 1,391,816 $ 525,000 $ 65,100 $ 590,100 201 7 2,160,000 ,322,037 3,482,037 1,419,415 224,826 1,644,241 555,000 38,100 593,100 2018 2,230,000 1,238,095 3,468,095 1,200,427 179,215 1,379,642 570,000 12,1 13 582,1 13 2019 2,160,000 1,153,006 3,313,006 1,165,000 155,519 1,320,519 - - - 2020 2,165,000 1,061,642 3,226,642 1,170,000 124,204 1,294,204 - - - 2021-2025 11,015,000 3,893,670 14,908,670 1,785,000 464,009 2,249,009 - - - 2026-2030 10,275,000 1,587,522 11,862,522 2,000,000 322,347 2,322,347 - - - 2031-2035 1,655,000 133,219 1,788,219 1,332,743 90,067 1,422,810 - - - Total $ 33,735,000 $ 1 1,803,167 $ 45,538,167 $ 1 1,187,585 $ 1,837,003 $ 13,024,588 $ 1,650,000 $ 115,313 $ 1,765,313 * State of Michigan Clean Water Program State Revolving Loan and Drinking Water Program Revolving Fund Loan principal and interest reported above are based on amounts drawn as of November 30,2015. Revenue Bond - The City has pledged substantially all revenue of the Water and Sewer Fund, net of operating expenses, to repay the above water and sewer revenue bonds. Proceeds from the bonds provided financing for improvements to the water and sewer system. The bonds are payable solely from the net revenue of the water and sewer system. The remaining principal and interest to be paid on the bonds total approximately $13.1 million. During the current year, net revenue of the system was approximately $5.7 million compared to the annual debt requirements of approximately$1.9 million. During fiscal year 2013, the City was approved for a State of Michigan Clean Water Program State Revolving Loan in the amount of$3,620,000. Proceeds from the loan are to provide for the acquisition and construction of additions, extensions, and improvements to the water supply and wastewater system of the City of Livonia. As of November 30, 2015, the City drew down $3,415,730 of the authorized debt amount. The project is still ongoing and the City expects to draw down the full amount in 2016. 49 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 6 - Long-terra Debt (Continue During fiscal year 2015, the City was approved for a State of Michigan Drinking Water Program Revolving Fund Loan in the amount of$7,104,415. Proceeds from the loan are to provide for the purchase, acquisition, construction, improvement, enlargement, extension, and repair of public improvements to the water supply and wastewater system of the City of Livonia. During the year, the City drew down $319,942 of the authorized debt amount. The project is still ongoing and the City expects to draw down the full amount before principal payments begin in 2017. No Commitment Debt - The City has issued Industrial Development Revenue Bonds and Economic Development Corporation Bonds under state law which authorizes municipalities under certain circumstances to acquire and lease industrial sites, buildings, and equipment and lease them to third parties. The revenue bonds issued are payable solely from the net revenue derived from the respective leases and are not a general obligation of the City. After these bonds are issued, all financial activity is taken over by the paying agent. The bonds and related lease contracts are not reflected in the City's financial statements. Information regarding the status of each bond issue, including possible default, must be obtained from the paying agent or other knowledgeable source. The aggregate original issue amount was $83,667,000. Advance Refundings - During the year, the City issued $2,050,000 in Building Authority Bonds with an average interest rate of 2.47 percent. The proceeds of these bonds were used to advance refund $2,025,000 of outstanding Building Authority bonds with an average interest rate of 4.14 percent. The net proceeds of $2,054,792 (after payment of $34,208 in underwriting fees, insurance, and other issuance costs) plus an additional $39,000 of Debt Service Fund monies were used to purchase U.S. government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the original bonds. As a result, the bonds are considered to be defeased and the liability for the bonds has been removed from the governmental activities. The advance refunding reduced total debt service payments over the next 10 years by $1 17,576, which represents an economic gain of$105,196. 50 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 6 - Long-terra Debt (Continued) During the year, the City also issued $4,170,000 in Water Supply and Wastewater System Revenue Bonds with an average interest rate of 1.90 percent. The proceeds of these bonds were used to advance refund $4,170,000 of outstanding Water Supply and Wastewater System Revenue Bonds with an average interest rate of 4.22 percent. The net proceeds of $4,250,522 (after payment of $53,041 in underwriting fees, insurance, and other issuance costs) plus an additional $133,563 of Debt Service and Reserve Fund monies were used to purchase U.S. government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the original bonds. As a result, the bonds are considered to be defeased and the liability for the bonds has been removed from the governmental activities. The advance refunding reduced total debt service payments over the next five years by$187,239, which represents an economic gain of$174,442. Note 7 - Restricted Assets Business-type Activities - In accordance with the provisions of the Water Supply and Wastewater System Revenue bonds, the City is required to set aside monies in a bond reserve account. At November 30, 2015, the City set aside $1,352,260 of cash and cash equivalents to comply with these requirements. Note 8 - Risk Management The City is exposed to various risks of loss related to property loss, torts, errors and omissions, and employee injuries (workers' compensation), as well as medical benefits provided to employees. The City has purchased commercial insurance for medical benefits and workers' compensation and participates in the Michigan Municipal Risk Management Authority(the "Authority"). The Michigan Municipal Risk Management Authority risk pool program operates as a claims servicing pool for amounts up to member retention limits and operates as a common risk-sharing management program for losses in excess of member retention amounts. Although premiums are paid annually to the Authority that the Authority uses to pay claims up to the retention limits, the ultimate liability for those claims remains with the City. 51 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 8 - Risk Management (Continued) The City estimates the liability for general liability, workers' compensation, and medical claims that have been incurred through the end of the fiscal year, including claims that have been reported as well as those that have not yet been reported. These estimates are recorded in the Self-insurance Internal Service Fund. The estimated liability for property loss, general liability, workers' compensation, and medical claims is recorded within the governmental activities column in the statement of net position. Changes in the estimated liability for the past two fiscal years were as follows: General Liability Workers'Compensation Medical Claims 2015 2014 2015 2014 2015 2014 Estimated liability- Beginning of year $ 1,415,198 $ 865,747 $ 577,161 $ 800,674 $ 413,386 $ 448,305 Estimated claims incurred,including changes in estimates 2,317,916 1,299,154 708,798 238,915 9,970,274 10,906,740 Claim payments (2,297,682) (749,703) (362,142) (462,428) (9,690,565) (10,941,659) Estimated liability-End of year $ 1,435,432 $ 1,415,198 $ 923,817 $ 577,161 $ 693,095 $ 413,386 Note 9 - Defined Contribution Pension Plan The City of Livonia Employees' Retirement System Defined Contribution Plan is administered by the City of Livonia Employees' Retirement System and the City of Livonia. The plan was established under Section 401(a) of the Internal Revenue Code for the following employees: • General employee members -All members hired on or after March 17, 1997 • Police lieutenant and sergeant members - All members hired on or after December 8, 1997 • Police officer members -All members hired on or after November 24, 1998 • Firefighter members -All members hired on or after July 1, 1998 In addition, the plan covers all employees electing to transfer from the City's defined benefit pension plan (see Note 10). 52 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 9 - Defined Contribution Pension Plan (Continued) In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. As established by the City through collective bargaining agreements, the City contributes a percentage of employees' earnings as follows: Employees Transferring from the New Employees Hired After the Defined Benefit Pension Plan Effective Dates Noted Above Employer Employee Employer Employee Contribution Contribution Contribution Contribution General 13% 3.1%to 3.66% 8% 3.1%to 3.66% Police lieutenants and sergeants 13% 5.21% 11% 5.21% Police 13% 5% 11% 5% Fire 13% 3.56% 11% 3.56% The employee contribution percentages noted above represent the minimum required contribution. Employees are permitted to contribute additional amounts up to the maximum allowed by law. The City's contributions for each employee (plus interest allocated to the employee's account) are fully vested after four years of service. In accordance with the above requirements, the City contributed $2,341,367 during the current year and employees contributed $875,460. Note 10 - Pension Plan Description Plan Description - The City of Livonia Employees' Retirement System administers the City of Livonia Employees' Retirement System (the "System") - a single-employer defined benefit pension plan that provides retirement, disability, and death benefits to the following employees of the City unless they elected to transfer to the City's 401(a) defined contribution pension plan (see Note 9): • General employee members - All members hired prior to March 17, 1997 and their beneficiaries • Police lieutenant and sergeant members - All members hired prior to December 8, 1997 and their beneficiaries • Police officer members - All members hired prior to November 24, 1998 and their beneficiaries • Firefighter members -All members hired prior to July 1, 1998 and their beneficiaries 53 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 10 - Pension Plan Description (Continue Management of the plan is vested in the System board of trustees, which consists of five members - the mayor or mayor's designated administrative representative, a member of the City Council to be selected by the Council, a member of the Civil Service Commission, a police or fire member to be elected by the police and fire members, and a member of any retirement plan established by City ordinance who is not a police or fire member to be elected by the members of any retirement plan established by City ordinance other than police and fire members. Employees Covered by Benefit Terms - At November 30, 2015, the following employees were covered by the benefit terms: Inactive plan members or beneficiaries currently receiving benefits 544 Inactive plan members entitled to but not yet receiving benefits 19 Active plan members 116 . Total employees covered by the plan 679 Benefits Provided - The System provides retirement, disability, and death benefits as follows: General Members: Eligible after 30 years of service regardless of age, or age 55 with 10 years of service. Permanent part-time general members need only 10 calendar years of membership instead of 10 years of credited service. Pension amount is 2.5 percent of the member's average final compensation (AFC) times years of credited service (maximum is 75 percent of AFC). Police Officers, Sergeants and Lieutenants: Eligible after 25 years of service regardless of age, or age 52 with 10 years of service. (Age 50 with 10 years but less than 25 years of service - early retirement with reduced benefit of '/z percent per month below age 52.) Pension amount is 2.8 percent of the member's average final compensation (AFC) times the first 24 years of credited service, plus 7.8 percent of AFC for the 25th year of credited service (maximum is 75 percent of AFC). Police Command: Eligible after 27 years of service regardless of age, or age 50 with 10 years of service. (Age 48 with 10 years but less than 27 years of service - early retirement with reduced benefit of '/z percent per month below age 50.) Pension amount is 2.8 percent of the member's average final compensation (AFC) times the years of credited service (maximum is 75 percent of AFC). Fire Members: Eligible after 27 years of service regardless of age, or age 52 with 10 years of service. (Age 50 with 10 years but less than 27 years of service - early retirement with reduced benefit of '/z percent per month below age 52.) Pension amount is 2.8 percent of the member's average final compensation (AFC) times the years of credited service (maximum is 75 percent of AFC). 54 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 10 - Pension Plan Description (Continue Average Final Compensation (AFC) is the average of the highest annual compensation received during any three years of service contained within the 10 years of service immediately preceding retirement, including base salary, longevity, shift differential, paid time off, holiday pay, and payment of accumulated vacation time up to the limits established by the respective bargaining agreements. In addition, merit pay is included for police members and paramedic/EMT or ALS bonuses are included for firefighters. Benefit terms provide for annual cost of living adjustments to each member's retirement allowance subsequent to the member's retirement date. The monthly adjustments vary between $20 and $250 depending on year of retirement and amount of years past retirement. Plan members are eligible for disability retirement upon termination of City employment by reason of total and permanent disability after completing at least 10 full years of credited service, except that in the event of a duty disability, the 10-year service requirement is waived. Special age and service requirements apply in the calculation of the disability benefit provided. Contributions - Article 9, Section 24 of the State of Michigan constitution requires that financial benefits arising on account of employee service rendered in each year be funded during that year. Accordingly, the System board of trustees retains an independent actuary to determine the annual contribution. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by plan members during the year with an additional amount to finance any unfunded accrued liability. Contribution requirements of plan members are established and may be amended by the board of trustees in accordance with the City Charter, union contracts, and plan provisions. For the year ended November 30, 2015, the average active member contribution rate ranged from 2.55 to 7.30 percent of annual pay. The funding policy provides for periodic employer contributions at actuarially determined rates. Note I I - Pension Plan Reserves In accordance with plan documents, the following reserves are required to be set aside within the pension plan: The pension reserve fund (retiree reserve) is to be computed annually by the actuary as the present value of estimated benefit payments for all current retirees. The amounts reserved may be used solely to pay monthly retiree benefit payments. The pension savings fund (employee reserve) is credited as employee contributions are received throughout the year; the System maintains a record of the amount contributed by each employee, and credits interest annually at a rate of 4 percent. For any employee who terminates before vesting in the pension plan, their balance is returned to them; for those who stay until retirement, the balance is transferred into the retiree reserve. 55 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note I I - Pension Plan Reserves (Continued) The pension accumulation fund (employer reserve) account is used to account for the residual net position balance in the pension plan after funding the above two reserves. The balances of the reserve accounts at November 30, 2015 are as follows: Required Reserve Amount Funded Pension reserve fund $ 141,149,999 $ 141,149,999 Pension savings fund 7,454,751 7,454,751 Pension accumulation fund N/A 67,913,768 Note 12 - Defined Benefit Pension Plan Investments - Policy and Rate of Return Investment Policy - The System's policy in regard to the allocation of invested assets is established and may be amended by the System board of trustees by a majority vote of its members. It is the policy of the System board of trustees to pursue an investment strategy that manages risk through the prudent diversification of the portfolio across a broad selection of distinct asset classes. The System's investment policy discourages the use of cash equivalents, except for liquidity purposes, and aims to refrain from dramatically shifting asset class allocations over short time spans. The following was the System's adopted asset allocation policy as of November 30, 2015: Asset Class Target Allocation Domestic equity 45 % International equity 5 U.S. Core fixed income 30 Global fixed income 5 High yield fixed income 5 Real estate 10 Rate of Return - For the year ended November 30, 2015, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expense, was 1.40 percent. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. 56 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 13 - Net Pension Asset of the City The components of the net pension asset of the City at November 30, 2015 were as follows: Total pension liability $ 207,438,016 Plan fiduciary net position (216,518,517) City's net pension asset $ (9,080,501) Plan fiduciary net position as a percentage of the total pension liability 104.4 % The City has chosen to use November 30, 2015 as its measurement date for the net pension asset. The November 30, 2015 reported net pension asset was determined using a measure of the total pension liability and the pension net position as of November 30, 2015. The November 30, 2015 total pension liability was determined by an actuarial valuation performed as of that date. Changes in the net pension asset during the measurement year were as follows: Increase (Decrease) Net Pension Total Pension Plan Net Liability Changes in Net Pension Asset Liability Position (Asset) Balance at November 30, 2014 $202,434,682 $226,054,863 $ (23,620,181) Service cost 1,530,027 - 1,530,027 Interest 15,607,024 - 15,607,024 Differences between expected and actual experience (673,125) - (673,125) Changes in assumptions 4,763,196 - 4,763,196 Contributions - Employer - 2,158,913 (2,158,913) Contributions - Employee - 386,983 (386,983) Net investment income - 4,353,881 (4,353,881) Benefit payments, including refunds (16,223,788) (16,223,788) - Administrative expenses - (212,335) 212,335 Net changes 5,003,334 (9,536,346) 14,539,680 Balance at November 30, 2015 $207,438,016 $216,518,517 $ (9,080,501) Assumption Changes - The mortality rate assumption was changed from the 1983 Group Annuity Mortality Table to the RP 2000 Combined Healthy Mortality Table projected to 2014. This change was the result of an experience study conducted by the plan during the year ended November 30, 2015. 57 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 13 - Net Pension Asset of the City (Continue Pension Expense and Deferred Outflows of Resources Related to Pensions For the year ended November 30, 2015, the City recognized pension expense of $6,158,675. At November 30, 2015, the City reported deferred outflows of resources related to pensions from the following sources: Deferred Outflows of Resources Net difference between projected and actual earnings on pension plan investments $ 10,539,918 Amounts reported as deferred outflows of resources related to pensions will be recognized in pension expense as follows: Years Ending November 30 Amount 2016 $ 2,634,980 2017 2,634,980 2018 2,634,980 2019 2,634,978 Actuarial Assumptions - The total pension liability in the November 30, 2015 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 4.0 % Salary increases 11.9 -4.0 % Average, including inflation Investment rate of return 8.0 % Net of pension plan investment expense, including inflation Mortality rates were based on the RP 2000 Mortality Table projected to 2014. The actuarial assumptions used in the November 30, 2015 valuation were based on the results of an actuarial experience study for the period from December 1, 2008 through November 30, 2014. Discount Rate - The discount rate used to measure the total pension liability was 8.0 percent. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current contribution rate and that City contributions will be made at rates equal to the difference between actuarially determined contribution rates and the employee rate. 58 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 13 - Net Pension Asset of the City (Continue Projected Cash Flows Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense, and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Sensitivity of the Net Pension Liability (Asset) to Changes in the Discount Rate - The following presents the net pension liability (asset) of the City, calculated using the discount rate of 8.0 percent, as well as what the City's net pension liability (asset) would be if it were calculated using a discount rate that is I percentage point lower (7.0 percent) or I percentage point higher (9.0 percent) than the current rate: I Percent Current I Percent Decrease Discount Rate Increase (7.0%) (8.0%) (9.0%) Net pension liability (asset) of the City $ 10,122,623 $ (9,080,501) $ (25,586,946) Note 14 - Other Posternployment Benefits The City of Livonia Retiree Health and Disability Benefits Plan Plan Description - Effective November 4, 1998, the City created the City of Livonia Retiree Health and Disability Benefits Plan (the "VEBA"). The plan provides medical and healthcare benefits, including hospitalization and disability benefits, for the welfare of all retirees and their spouses and eligible dependents. At November 30, 2014, the date of the most recent actuarial valuation, membership consisted of 547 active participants, 651 retired participants, and 34 inactive vested participants. 59 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 14 - Other Posternployrnent Benefits (Continue Eligibility - Most retirees of the defined benefit pension plan and the defined contribution pension plan and their beneficiaries and future retirees who complete 10 years or more of credited service are eligible. Effective December 1, 2009, certain newly hired employees receive a health reimbursement account instead of being eligible for the VEBA. As of November 30, 2012, the plan began to provide Health Reimbursement Savings Accounts (HRSA) to all new hires in lieu of the VEBA medical benefits. Contributions - Employer contributions to the trust are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits are recognized when due and payable in accordance with the terms of the plan. The obligation to contribute to and maintain the System for these employees was established by negotiation with certain bargaining units, including general and administrative employees. These employees are required to make a contribution of 2 percent beginning December 1, 2006. The funding policy provides for periodic employer contributions at actuarially determined rates. Administrative costs of the plan are financed through investment earnings. Funding Progress - For the year ended November 30, 2015, the City has estimated the cost of providing retiree healthcare benefits through an actuarial valuation as of November 30, 2013. The valuation computes an annual required contribution which represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities over a period not to exceed 30 years. This valuation's computed contribution and actual funding are summarized as follows: Annual required contribution (recommended) $ 5,907,902 Interest on the prior year's net OPEB obligation 310,684 Less adjustment to the annual required contribution (170,713) Annual OPEB cost 6,047,873 Contributions to VEBA (5,361,926) Increase in net OPEB obligation 685,947 OPEB obligation - Beginning of year 3,883,551 OPEB obligation - End of year $ 4,569,498 60 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 14 - Other Postemployment Benefits (Continue The annual OPEB costs, the percentage contributed to the plan, and the net OPEB obligation for the current and two preceding years were as follows: Percentage Fiscal Year Annual OPEB OPEB Costs Net OPEB Ended Costs Contributed Obligation 11/30/13 $ 7,163,583 89.9 $ 3,093,848 11/30/14 7,177,792 89.0 3,883,554 11/30/15 6,047,873 88.7 4,569,498 The funding progress of the plan as of the most recent valuation date and two preceding dates is as follows (in 000s): Actuarial Actuarial UAAL as a Actuarial Value of Accrued Unfunded Funded Ratio Covered Percentage Valuation Assets* Liability AAL(UAAL) (Percent) Payroll of Covered Date (a) (AAL) (b) (b-a) (a/b) (c) Payroll 11/30/12 $ 65,667 $ 169,363 $ 103,696 38.8 $ 30,964 334.9 11/30/13 74,550 160,552 86,002 46.4 30,560 281.4 11/30/14 83,134 159,855 76,721 52.0 31,408 244.3 Valued using the five-year"smoothed funding" market value Actuarial Methods and Assumptions -Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplemental information following the notes to financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. 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 types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. 61 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 14 - Other Postemployment Benefits (Continued) In the November 30, 2014 actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included an 8 percent investment rate of return (net of administrative expenses), which is a blended rate of the expected long-term investment returns on plan assets and on the employer's own investments calculated based on the funded level of the plan at the valuation date, and an annual healthcare cost rate of 6 percent for fiscal year 2015, 5.5 percent for the following year, and 4.75 percent thereafter. Both rates included a 4 percent inflation assumption. The actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the market value of investments over a five-year period. The UAAL is being amortized as a level percentage of projected payroll on an open basis, over 30 years. Note 15 - Pension and Other Employee Benefit Trust Funds The following are condensed financial statements for the City's defined benefit plan (see Notes 10 through 13) and the postemployment healthcare plan (see Note 14). The plans do not issue separate financial statements. Employees' Retirement System VEBA Statement of Net Position Cash and investments $221,059,139 $ 92,188,244 Other assets 336,165 680,461 Liabilities 4,876,786 587,291 Net position $216,518,5 18 $ 92,281,414 Statement of Changes in Net Position Investment income $ 4,353,881 $ 1,172,348 Contributions 2,545,897 5,900,519 Benefit payments (16,017,300) (5,490,021) Other decreases (418,823) (30,133) Change in Net Position $ (9,536,345) $ 1,552,713 62 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 16 - Deferred Inflows of Resources At the end of the current fiscal year, the various components of deferred inflows of resources are as follows: Governmental Funds Property taxes, special assessments, and other receivables - Unavailable $ 1,023,560 State sources - Unavailable 1,413,781 911 surcharge revenue - Unavailable 322,319 Grant revenue - Unavailable 107,046 Total deferred inflows $ 2,866,706 Note 17 - Upcoming Accounting Pronouncements In February 2015, the Governmental Accounting Standards Board issued GASB Statement No. 72, Fair Value Measurement and Application. The requirements of this statement will enhance comparability of financial statements among governments by requiring measurement of certain assets and liabilities at fair value using a consistent and more detailed definition of fair value and acceptable valuation techniques. This statement also will enhance fair value application guidance and related disclosures in order to provide information to financial statement users about the impact of fair value measurements on a government's financial position. GASB Statement No. 72 is required to be adopted for years beginning after June 15, 2015. The City is currently evaluating the impact this standard will have on the financial statements when adopted during the City's 2016 fiscal year. In June 2015, the GASB issued two new standards addressing accounting and financial reporting by state and local governments for postemployment benefits other than pensions (OPEB). GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, addresses reporting by OPEB plans whereas GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, addresses accounting and reporting by employer governments that provide OPEB benefits to their employees. Along with the currently required statement of fiduciary net position and statement of changes in fiduciary net position, OPEB plans will now be required to include in the financial statements more extensive footnote disclosures and required supplemental information related to the measurement of the OPEB liabilities for which assets have been accumulated. In addition, the City will, after adoption of GASB Statement No. 75, recognize on the face of the financial statements its net OPEB liability. The City is currently evaluating the impact these standards will have on the financial statements when adopted. GASB Statement No. 74 is effective for the City's 2017 fiscal year whereas GASB Statement No. 75 is effective one year later. 63 City of Livonia, Michigan Notes to Financial Statements November 30, 2015 Note 17 - Upcoming Accounting Pronouncements (Continued In August 2015, the GASB issued Statement No. 77, Tax Abatement Disclosures. This statement will require governments to disclose in their financial statements information related to tax abatement agreements. The City is currently evaluating the impact this standard will have on the financial statements when adopted during the City's 2017 fiscal year. Note 113 - Change in Accounting During the current year, the City adopted Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions. As a result, the government-wide statements and the proprietary funds now include an asset for our overfunded legacy costs. Some of the changes in this net pension asset will be recognized immediately as part of the pension expense measurement, and part will be deferred and recognized over future years. Refer to the pension footnote for further details. This change does not impact the General Fund or any other governmental fund. As a result of implementing this statement, the beginning net position of governmental activities, business-type activities, Water and Sewer Fund, and Housing Fund has been restated as follows: Governmental Business-type Water and Activities Activities Sewer Housing Net position -November 30, 2014-As previously reported $ 185,725,389 $ 92,264,393 $ 82,786,947 $ 4,869,865 Adjustment for implementation of GASB Statement No. 68 22,165,096 1,455,086 1,317,401 137,685 Net position -November 30, 2014-As restated $ 207,890,485 $ 93,719,479 $ 84,104,348 $ 5,007,550 Note 19 - Subsequent Events Refunding bonds in the amount of $6,180,000 were issued in March 2016 and the proceeds were used to refund a portion of the 2008 MBA Court Construction Bonds, which had an ending balance of$7,180,000 at November 30, 2015. 64 Required Supplemental Information 65 City of Livonia, Michigan Required Supplemental Information Budgetary Comparison Schedule - General Fund Year Ended November 30, 2015 Variance with Original Budget Final Budget Actual Final Budget Revenue Property Taxes $ 30,994,273 $ 30,994,273 $ 30,983,776 $ (10,497) Licenses and Permits Business 154,800 154,800 145,859 (8,941) Nonbusiness 1,810,200 1,810,200 2,202,959 392,759 Total licenses and permits 1,965,000 1,965,000 2,348,818 383,818 Intergovernmental Revenue State and local 8,406,132 8,406,132 8,690,011 283,879 Federal 229,200 229,200 118,892 (110,308 Total intergovernmental revenue 8,635,332 8,635,332 8,808,903 173,571 Charges for Services 4,045,574 4,045,574 3,719,676 (325,898) Interest and Rents 2,471,102 2,471,102 2,444,151 (26,951) Fines and Forfeitures 3,998,000 3,998,000 4,527,404 529,404 Miscellaneous Revenue Sale of fixed assets 50,000 50,000 130,900 80,900 Other miscellaneous 1,739,601 1,739,601 703,484 (1,036,1 17) Total miscellaneous revenue 1,789,601 1,789,601 834,384 (955,217) Total revenue $ 53,898,882 $ 53,898,882 $ 53,667,1 12 $ (231,770) Expenditures General Government Legislative: City Council $ 341,624 $ 341,624 $ 330,228 $ 11,396 City Clerk 510,589 476,589 476,498 91 Elections 272,751 177,751 176,347 1,404 Total legislative 1,124,964 995,964 983,073 12,891 judicial 2,998,122 2,998,122 2,989,219 8,903 Executive-Mayor's office 412,578 412,578 392,346 20,232 Human resources: Labor relations 93,000 49,000 48,831 169 Civil service 637,766 596,766 595,908 858 Total human resources 730,766 645,766 644,739 1,027 66 City of Livonia, Michigan Required Supplemental Information Budgetary Comparison Schedule - General Fund (Continued) Year Ended November 30, 2015 Variance with Original Budget Final Budget Actual Final Budget Expenditures (Continued) General Government(Continued) Financial administration: Accounting $ 212,467 $ 200,467 $ 195,964 $ 4,503 Assessing 506,634 462,634 462,151 483 Finance 370,818 304,818 304,433 385 Independent audit 34,374 34,374 34,221 153 Board of Review 4,606 4,606 3,100 1,506 Treasurer 534,161 491,161 490,485 676 Information systems 972,271 972,271 967,899 4,372 Total financial administration 2,635,331 2,470,331 2,458,253 12,078 Other activities: Legal 595,539 617,739 617,235 504 Utilities and supplies 631,589 565,589 565,265 324 Acquisition of land 2,500 2,500 - 2,500 Dues and subscriptions 42,000 42,000 40,873 1,127 Total other activities 1,271,628 1,227,828 1,223,373 4,455 Total general government 9,173,389 8,750,589 8,691,003 59,586 Public Safety Police: Traffic bureau 1,135,279 1,146,265 1,145,721 544 Administration 2,454,496 2,193,999 2,192,942 1,057 Data processing 861,403 778,286 774,217 4,069 Detective bureau 2,445,550 2,545,664 2,545,342 322 Automotive service 585,000 457,381 449,818 7,563 Communications/Records bureau 691,424 692,950 692,433 517 Crossing guards 60,984 54,508 54,364 144 School liaison 409,515 388,160 387,888 272 Office of emergency preparedness 170,495 176,187 176,152 35 Reserve police 303,638 313,315 313,253 62 Patrol bureau 11,582,243 12,004,251 12,003,432 819 Intelligence bureau 1,880,577 1,829,638 1,828,040 1,598 Total police 22,580,604 22,580,604 22,563,602 17,002 Fire: Administration 934,349 938,619 937,318 1,301 Firefighting 12,002,004 12,000,234 11,995,823 4,411 Fire prevention 647,335 644,835 644,201 634 Total fire 13,583,688 13,583,688 13,577,342 6,346 67 City of Livonia, Michigan Required Supplemental Information Budgetary Comparison Schedule - General Fund (Continued) Year Ended November 30, 2015 Variance with Original Budget Final Budget Actual Final Budget Expenditures (Continued) Public Safety(Continued) Protective inspection: Building Code Board of Appeals $ 1,420 $ 1,420 $ 915 $ 505 Inspection 1,278,385 1,185,385 1,184,865 520 Total protective inspection 1,279,805 1,186,805 1,185,780 1,025 Other protective-Traffic commission 2,034 2,034 2,028 6 Total public safety 37,446,131 37,353,131 37,328,752 24,379 Public Works Public services-Highways,streets,and maintenance: Engineering 58,232 326,644 321,753 4,891 Parks maintenance 1,387,446 1,207,1 10 1,205,570 1,540 Administration 1 199,568 195,754 3,814 Equipment maintenance 91,945 (150,751) (159,406) 8,655 Building maintenance 1,085,760 844,431 841,072 3,359 Street lighting 298,949 244,238 243,718 520 Maintenance-streets 532,464 783,557 781,192 2,365 Total public works 3,454,797 3,454,797 3,429,653 25,144 Parks and Recreation and Cultural Parks and recreation: Administration 288,804 307,404 307,216 188 Recreation facilities 34,424 27,124 27,085 39 Recreation athletics 94,778 83,478 83,383 95 Total parks and recreation 418,006 418,006 417,684 322 Cultural: Senior services 492,344 464,344 462,523 1,821 Greenmead and cultural 715,734 697,734 695,234 2,500 Total cultural 1,208,078 1,162,078 1,157,757 4,321 Total parks and recreation and cultural 1,626,084 1,580,084 1,575,441 4,643 Community and Economic Development City Planning Commission 589,700 504,835 504,636 199 Zoning Board of Appeals 48,867 48,867 41,001 7,866 Total community and economic development 638,567 553,702 545,637 8,065 Employee Benefits, Insurance,and Other 1,550,475 2,209,975 2,052,047 157,928 Total expenditures $ 53,889,443 $ 53,902,278 $ 53,622,533 $ 279,745 68 City of Livonia, Michigan Required Supplemental Information Budgetary Comparison Schedule - Major Special Revenue Funds Refuse Disposal System Year Ended November 30, 2015 Variance with Amended Amended Original Budget Budget Actual Budget Revenue Property taxes $ 11,641,293 $ 11,641,293 $ 11,633,491 $ (7,802) State-shared revenue and grants - - 150,584 150,584 Charges for services 150,200 150,200 141,340 (8,860) Interest 25,000 25,000 3,731 (21,269) Miscellaneous revenue 15,000 15,000 19,305 4,305 Total revenue 11,831,493 11,831,493 11,948,451 116,958 Expenditures-Sanitation 12,123,862 12,123,862 11,272,735 851,127 Net Change in Fund Balance (292,369) (292,369) 675,716 968,085 Fund Balance -Beginning of year 3,002,973 3,002,973 3,002,973 - Fund Balance-End of year $ 2,710,604 $ 2,710,604 $ 3,678,689 $ 968,085 69 City of Livonia, Michigan Required Supplemental Information Pension System Schedule of Investment Returns 2015 2014 Annual money-weighted rate of return - Net of investment expense 1.4 % 9.6 % 70 City of Livonia, Michigan Required Supplemental Information Pension System Schedule of Changes in the City Net Pension Asset and Related Ratios 2015 2014 Total Pension Liability Service cost $ 1,530,027 $ 1,647,392 Interest 15,607,024 15,516,271 Changes in benefit terms - - Differences between expected and actual experience (673,125) 401,554 Changes in assumptions 4,763,196 - Benefit payments, including refunds (16,223,788) (16,520,444) Net Change in Total Pension Liability 5,003,334 1,044,773 Total Pension Liability- Beginning of year 202,434,682 201,389,909 Total Pension Liability- End of year $207,438,016 $202,434,682 Plan Fiduciary Net Position Contributions - Employer $ 2,158,913 $ 3,634,058 Contributions - Member 386,983 400,503 Net investment income 4,353,881 20,367,342 Administrative expenses (212,335) (194,367) Benefit payments, including refunds (16,223,788) (16,520,444) Net Change in Plan Fiduciary Net Position (9,536,346) 7,687,092 Plan Fiduciary Net Position - Beginning of year 226,054,863 218,367,771 Plan Fiduciary Net Position - End of year $216,518,517 $226,054,863 City's Net Pension Asset- Ending $ (9,080,501) $ (23,620,181) Plan Fiduciary Net Position as a Percent of Total Pension Liability 104.38 % 111.67 % Covered Employee Payroll $ 9,070,569 $ 9,312,278 City's Net Pension Asset as a Percent of Covered Employee Payroll (100.1)% (253.6)% 71 City of Livonia, Michigan 2015 2014 2013 2012 Actuarially determined contribution $ 2,158,913 $ 3,634,058 $ 2,082,219 $ 747,1 19 Contributions in relation to the actuarially determined contribution 2,158,913 3,634,058 2,082,219 747,119 Contribution Deficiency $ - $ - $ - $ - Covered Employee Payroll $ 9,070,569 $ 9,312,278 $ 9,870,211 $ 11,282,045 Contributions as a Percentage of Covered Employee Payroll 23.8 % 39.0 % 21.1 % 6.6 % Notes to Schedule of City Contributions Actuarial valuation information relative to the determination of contributions: Valuation date Actuarially determined contribution rates are calculated as of November 30, two years prior to the end of the fiscal year in which the contributions are reported. Covered employee payroll is as of November 30 of the current fiscal year Methods and assumptions used to determine contribution rates: Actuarial cost method Aggregate Amortization method N/A Remaining amortization period Future working lifetime Asset valuation method 5-year smoothed market Inflation 4.0% Salary increases 11.9- 4.0%, including inflation Investment rate of return 8.0% 1983 Group Annuity(changed to RP 2000 Combined Healthy Mortality Table projected to 2014 beginning with November 30, Mortality 2015 valuation) 72 Required Supplemental Information Pension System Schedule of City Contributions Last Ten Fiscal Years 2011 2010 2009 2008 2007 2006 $ 12,455,231 $ 13,799,848 $ 15,854,893 $ 16,054,563 $ 15,657,398 $ 16,134,618 73 City of Livonia, Michigan Required Supplemental Information Retiree Health and Disability Benefits Plan Schedule of Funding Progress Year Ended November 30, 2015 The schedule of funding progress is as follows (000s omitted): Actuarial Actuarial Accrued UAAL as a Value of Liability(AAL) Unfunded Funded Ratio Covered Percentage of Actuarial Assets* Entry Age AAL(UAAL) (Percent) Payroll Covered Valuation Date (a) (b) (b-a) (a/b) (c) Payroll 11/30/09 $ 57,845 $ 137,822 $ 79,977 42.0 % $ 36,981 216.3 % 11/30/10 60,361 153,223 92,862 39.4 34,062 272.6 11/30/11 62,491 156,260 93,769 40.0 32,871 285.3 11/30/12 65,667 169,363 103,696 38.8 30,964 334.9 11/30/13 74,550 160,552 86,002 46.4 30,560 281.4 11/30/14 83,134 159,855 76,721 52.0 31,408 244.3 Valued using the five-year"smoothing funding" market value Schedule of Employer Contributions Actuarial Valuation Annual Required Percentage Fiscal Year Ended Date Contribution* Contributed 11/30/10 11/30/08 $ 6,155,752 92 % 1 1/30/11 1 1/30/09 6,639,053 92 11/30/12 11/30/10 7,259,781 91 11/30/13 1 1/30/1 1 7,078,024 91 1 1/30/14 1 1/30/12 7,066,283 90 11/30/15 11/30/13 5,907,902 91 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 dates indicated. Additional information as of November 30, 2014, the latest actuarial valuation, is as follows: Amortization method Level percent, open Remaining amortization period 30 years Asset valuation method Five-year smoothed market Actuarial assumptions: Investment rate of return 8.00% Projected annual premium increase 6%for this year, 5.5%for next year, and 4.75%thereafter 74 City of Livonia, Michigan Note to Required Supplemental Information Year Ended November 30, 2015 Reconciliation of Budgeted Amounts to Basic Financial Statements - The budgetary comparison schedules for the General Fund and Major Special Revenue Fund are presented on the same basis of accounting used in preparing the adopted budget. The following is a reconciliation of the budgetary comparison schedule to the governmental funds (statement of revenue, expenditures, and changes in fund balances): Total Expenditures General Fund: Amounts per operating statement $ 50,063,614 Operating transfers budgeted as revenue and expenditures 3,558,919 Amounts per budget statement $ 53,622,533 Budgetary Information - Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for the General Fund and all special revenue funds except that operating transfers and debt proceeds have been included in the "revenue" and "expenditures" categories, rather than as "other financing sources (uses)." All annual appropriations lapse at fiscal year end; encumbrances are not included as expenditures. During the year, the budget was amended in a legally permissible manner. The City follows these procedures in establishing the budgetary data reflected in the financial statements: I. On or before September 15, the mayor submits to the City Council a proposed operating budget for the fiscal year commencing the following December I. The operating budget includes proposed expenditures and the means of financing them. 2. Public hearings are conducted to obtain citizen comments. 3. As provided for by the City Charter, not later than November 1, the City Council shall adopt the budget through the passage of a budget resolution and transmit the budget to the mayor. Not later than November 15, the mayor shall either approve or disapprove the adopted budget, in whole or in part. 4. The legislative budget is adopted at a functional level for the General Fund and at the fund level for other governmental and proprietary funds. The budget document presents information by fund, function, department, and line items. Management may amend the budget at the detail level within the legislative summary constraints. Appropriations that exceed the summary budget constraints require City Council approval. 75 Other Supplemental Information 76 City of Livonia, Michigan Special Revenue Funds Major Community SAD Street Cable Streets Local Streets Recreation Grants Lighting Television Assets Cash and investments $ 1,667,559 $ 2,445,168 $ 4,190,592 $ 59,778 $ 271,191 $ 1,150,094 Receivables: Taxes - - 11,331 - - - Special assessments - - - - Due from other governmental units 1,661,879 295,478 - 137,488 - - Other 13,970 - - 5,908 2,322 - Prepaid expenses - - - Total assets $3,343,408 $2,740,646 $4,201,923 $ 203,174 $ 273,513 $1,150,094 Liabilities Accounts payable $ 102,359 $ - $ 135,367 $ 28,017 $ - $ 2,135 Due to other governmental units - - - - Due to other funds - 105,567 - Accrued liabilities and other 62,748 20,696 11,935 Unearned revenue 565,833 - - Total liabilities 102,359 - 763,948 154,280 - 14,070 Deferred Inflows of Resources-Unavailable revenue 766,974 - 11,067 107,047 - - Fund Balances Nonspendable - - - Restricted: Streets,roads,and sidewalks 2,474,075 2,740,646 - - - - Adjudicated forfeitures - - Capital improvements - Community recreation 3,426,908 Street lighting - - - - 273,513 - Library - Public safety communication Community transit - Committed-Cable access television 1,136,024 Assigned: Capital improvements - Golf course capital improvements Court building improvements Unassigned (58,153) - - Total fund balances 2,474,075 2,740,646 3,426,908 (58,153) 273,513 1,136,024 Total liabilities,deferred inflows of resources,and fund balances 3,343,408 2,740,646 4,201,923 203,174 273,513 1,150,094 77 Other Supplemental Information Combining Balance Sheet Nonmajor Governmental Funds November 30, 2015 Special Revenue Funds Debt Service Funds Municipal Building Public Safety Adjudicated Community Roads and 2005 MBA 2007 MBA 2015 MBA Authority Library Communication Forfeitures Transit Sidewalks Refunding Refunding Refunding and Other $ 1,499,982 $ 3,894,115 $ 1,771,327 $ 686,017 $ 556,849 $ - $ - $ - $ - 11,668 - - 7,213 12,829 - - - - - - 2,506 415,754 37,718 - - - - - - $1,51 1,650 $ 4,309,869 $1,809,045 $ 695,736 $ 569,678 $ $ $ $ $ 30,794 $ 1,603 $ 9,406 $ 11,178 $ 544,818 $ - $ - $ - $ - - - - 28,458 - 100,083 - - 21,510 2,245 - - - - 130,877 1,603 9,406 61,146 547,063 - - - - 11,396 322,317 - 7,045 12,530 - - - - - 10,085 1,799,639 - - - - - - 1,369,377 - - - - - - - - - 3,985,949 - - - - - - - - 627,545 1,369,377 3,985,949 1,799,639 627,545 10,085 - - - - 1,511,650 4,309,869 1,809,045 695,736 569,678 78 City of Livonia, Michigan Other Supplemental Information Combining Balance Sheet (Continued) Nonmajor Governmental Funds November 30, 2015 Capital Projects Funds Total Golf Course Nonmajor Capital Capital Special Court Building Governmental Improvement Improvement Assessments Improvements Funds Assets Cash and investments $ 474,077 $ 6,865,871 $ 985,254 $ 953,324 $ 27,471,198 Receivables: Taxes - - - - 43,041 Special assessments 286,021 286,021 Due from other governmental units - 2,097,351 Other - - - - 475,672 Prepaid expenses - 727,938 - - 727,938 Total assets $ 474,077 $ 7,593,809 $ 1,271,275 $ 953,324 $ 31,101,221 Liabilities Accounts payable $ - $ 58,843 $ 138,512 $ - $ 1,063,032 Due to other governmental units - - 28,458 Due to other funds - - - - 105,567 Accrued liabilities and other 219,217 Unearned revenue - - 565,833 Total liabilities - 58,843 138,512 - 1,982,107 Deferred Inflows of Resources-Unavailable revenue - - 256,020 - 1,494,396 Fund Balances Nonspendable 727,938 - 727,938 Restricted: Streets,roads,and sidewalks - - - - 5,224,806 Adjudicated forfeitures - - - - 1,799,639 Capital improvements - 5,039,767 876,743 - 5,916,510 Community recreation - - 3,426,908 Street lighting - - - - 273,513 Library - - - - 1,369,377 Public safety communication 3,985,949 Community transit - - - - 627,545 Committed-Cable access television - - - - 1,136,024 Assigned: Capital improvements - 1,767,261 - - 1,767,261 Golf course capital improvements 474,077 - - 474,077 Court building improvements - 953,324 953,324 Unassigned - - - - (58,153) Total fund balances 474,077 7,534,966 876,743 953,324 27,624,718 Total liabilities,deferred inflows of resources,and fund balances 474,077 7,593,809 1,271,275 953,324 31,101,221 79 City of Livonia, Michigan Special Revenue Funds Community SAD Street Cable Major Streets Local Streets Recreation Grants Lighting Television Revenue Property taxes $ - $ $ 3,023,791 $ - $ $ Federal revenue 117,027 - 901,506 State and local revenue 5,523,650 1,832,529 82,118 - - - Charges for services - - 3,921,103 Fines and forfeitures - - - - Interest 4,888 1,733 4,430 50 - 626 Other revenue: Special assessments - - - 1,21 1,849 - Miscellaneous income - - 90,679 - 556,780 Total revenue 5,645,565 1,834,262 7,122,121 901,556 1,211,849 557,406 Expenditures Current: Public safety - - - 130,661 - - Public works 5,282,785 1,308,495 - - 1,161,211 - Community and economic development - - - 590,479 - - Recreation and culture - - 4,486,687 - - 411,196 Capital outlay - - Debt service: Principal retirement Interest and other - - - - - - Total expenditures 5,282,785 1,308,495 4,486,687 721,140 1,161,211 411,196 Excess of Revenue Over(Under)Expenditures 362,780 525,767 2,635,434 180,416 50,638 146,210 Other Financing Sources(Uses) Face value of debt issue - - - - - - Transfers in - 1,210,677 Transfers out (1,210,677) (1,475,000) (2,745,382) - - - Payment to bond refunding escrow agent Total other financing(uses)sources (1,210,677) (264,323) (2,745,382) - - - Net Change in Fund Balances (847,897) 261,444 (109,948) 180,416 50,638 146,210 Fund Balances-Beginning of year 3,321,972 2,479,202 3,536,856 (238,569) 222,875 989,814 Fund Balances-End of year $ 2,474,075 $ 2,740,646 $ 3,426,908 $ (58,153)$ 273,513 $ 1,136,024 80 Other Supplemental Information Combining Statement of Revenue, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds Year Ended November 30, 2015 Special Revenue Funds Debt Service Funds Municipal Building Public Safety Adjudicated Community Roads and 2005 MBA 2007 MBA 2015 MBA Authority and Library Communication Forfeitures Transit Sidewalks Refunding Refunding Refunding Other $ 3,1 13,496 $ - $ - $ 773,819 $ 3,423,360 $ - $ - $ - $ - - 123,361 - - 205,265 - - 140,020 46,585 - - - - 44,800 668,554 - 65,309 - - - - - 55,284 - 572,535 - - - - - - 622 2,668 1,244 501 3,056 - - - - 4,100 - 2,925 9,180 4,050 - - - - 3,423,567 671,222 700,065 988,829 3,477,051 - - - - - 213,019 345,119 - - - - - 5,801,345 - - - - 3,161,745 - - 763,980 - - - - - - 145,309 - - - 280,000 1,445,000 - 245,000 - - - - - 51,725 1,067,375 - 358,658 3,161,745 213,019 345,119 909,289 5,801,345 331,725 2,512,375 - 603,658 261,822 458,203 354,946 79,540 (2,324,294) (331,725) (2,512,375) - (603,658) - - - - - - - 2,050,000 - 1,475,000 331,725 2,512,375 32,610 603,658 - - - (2,082,610) - 1,475,000 331,725 2,512,375 - 603,658 261,822 458,203 354,946 79,540 (849,294) - - - - 1,107,555 3,527,746 1,444,693 548,005 859,379 - - - - $ 1,369,377 $ 3,985,949 $ 1,799,639 $ 627,545 $ 10,085 $ $ $ $ 81 City of Livonia, Michigan Other Supplemental Information Combining Statement of Revenue, Expenditures, and Changes in Fund Balances (Continued) Nonmajor Governmental Funds Year Ended November 30, 2015 Capital Projects Funds Golf Course Total Nonmajor Capital Capital Special Court Building Governmental Improvement Improvement Assessments Improvements Funds Revenue Property taxes $ - $ 1,150,966 $ - $ - $ 11,485,432 Federal revenue - 1,141,894 State and local revenue - - - - 7,830,167 Charges for services 92,457 4,792,223 Fines and forfeitures - - - 643,704 1,271,523 Interest 344 3,893 9,624 797 34,476 Other revenue: Special assessments - - 231,057 - 1,442,906 Miscellaneous income - - - - 667,714 Total revenue 92,801 1,154,859 240,681 644,501 28,666,335 Expenditures Current: Public safety - - - - 688,799 Public works 13,553,836 Community and economic development 590,479 Recreation and culture - - - - 8,823,608 Capital outlay 177,358 1,611,623 196,567 - 2,130,857 Debt service: Principal retirement - - - - 1,970,000 Interest and other - - - - 1,477,758 Total expenditures 177,358 1,61 1,623 196,567 - 29,235,337 Excess of Revenue Over(Under)Expenditures (84,557) (456,764) 44,114 644,501 (569,002) Other Financing Sources(Uses) Face value of debt issue - - - 2,050,000 Transfers in - 3,374,991 - - 9,541,036 Transfers out - - - (603,658) (6,034,717) Payment to bond refunding escrow agent - - - - (2,082,610) Total other financing(uses)sources - 3,374,991 - (603,658) 3,473,709 Net Change in Fund Balances (84,557) 2,918,227 44,114 40,843 2,904,707 Fund Balances-Beginning of year 558,634 4,616,739 832,629 912,481 24,720,011 Fund Balances-End of year $ 474,077 $ 7,534,966 $ 876,743 $ 953,324 $ 27,624,718 82 City of Livonia, Michigan Pension Trust Funds Agency Funds Employees' Investment Retirement Total Pension Administration Special Trust System VEBA Trust Funds Fund Fund Assets Cash and cash equivalents $ 514,579 $ 183,993 $ 698,572 $ 1,170,332 $ 2,251,456 Investments: U.S.government securities 10,058,980 6,873,736 16,932,716 - - Collateralized mortgage obligations 5,937,342 3,160,381 9,097,723 - - Common stock 106,073,533 36,645,934 142,719,467 - - Corporate bonds 15,383,713 6,949,863 22,333,576 - - Real estate investment trust 10,953,209 250,797 11,204,006 -Foreign bonds 2,244,743 1,108,670 3,353,413 - - Mutual funds 66,057,763 37,014,870 103,072,633 - - Securities lending collateral pool- Mutual funds 3,835,277 - 3,835,277 - - Accounts receivable 2,881 6,891 9,772 - - Due from agency funds 333,284 673,570 1,006,854 - Total assets 221,395,304 92,868,705 314,264,009 $ 1,170,332 $2,251,456 Liabilities Accounts payable 856,604 390,463 1,247,067 $ - $ - Due to other governmental units 22,533 - 22,533 - - Due to primary government - 196,828 196,828 - Due to fiduciary/agency funds - - 1,006,854 Accrued liabilities and other liabilities - - 163,478 2,251,456 Amounts due to broker under securities lending agreement 3,997,649 - 3,997,649 - - Total liabilities 4,876,786 587,291 5,464,077 $ 1,170,332 $2,251,456 Net Position Held in Trust for Pension and Other Employee Benefits $ 216,518,518 $ 92,281,414 $ 308,799,932 83 Other Supplemental Information Combining Statement of Net Position Fiduciary Funds November 30, 2015 Agency Funds Court Historical Art Court Volunteer Commission Commission Undistributed Depository Court Bond Work Court Civil Total Agency Fund Fund Tax Fund Fund Fund Program Drug Fund Funds $ 294,383 $ 70,966 $ 5,734,755 $ 521,983 $ 218,582 $ 449,230 $ 232,059 $ 10,943,746 - - - 16,720 - 26,091 4,730 47,541 $ 294,383 $ 70,966 $ 5,734,755 $ 538,703 $ 218,582 $ 475,321 $ 236,789 $ 10,991,287 5,734,755 538,703 - - - 6,273,458 47,541 - - 1,054,395 294,383 70,966 - - 171,041 475,321 236,789 3,663,434 $ 294,383 $ 70,966 $ 5,734,755 $ 538,703 $ 218,582 $ 475,321 $ 236,789 $ 10,991,287 84 City of Livonia, Michigan Other Supplemental Information Combining Statement of Changes in Fiduciary Net Position Fiduciary Funds Year Ended November 30, 2015 Employees' Retirement System VEBA Total Additions Investment income: Interest and dividends $ 6,731,793 $ 3,941,933 $ 10,673,726 Net change in fair value of investments (1,756,030) (2,510,091) (4,266,121) Less investment related expenses (621,882) (259,494) (881,376) Net investment income 4,353,881 1,172,348 5,526,229 Contributions: Employer 2,158,914 5,361,926 7,520,840 Employee 386,983 538,593 925,576 Total contributions 2,545,897 5,900,519 8,446,416 Total additions-Net 6,899,778 7,072,867 13,972,645 Deductions Pension benefit payments 16,017,300 - 16,017,300 Medical benefit payments - 5,490,021 5,490,021 Refunds of contributions 206,488 - 206,488 Administrative expenses 212,335 30,133 242,468 Total deductions 16,436,123 5,520,154 21,956,277 Net(Decrease) Increase in Net Position Held in Trust (9,536,345) 1,552,713 (7,983,632) Net Position Held in Trust for Pension and Other Employee Benefits -Beginning of year 226,054,863 90,728,701 316,783,564 Net Position Held in Trust for Pension and Other Employee Benefits - End of year $216,518,518 $ 92,281,414 $308,799,932 85 City of Livonia, Michigan Federal Awards Supplemental Information November 30, 201 S City of Livonia, Michigan Contents Independent Auditor's Reports: Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 1 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 2-3 Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance 4-5 Schedule of Expenditures of Federal Awards 6-7 Reconciliation of Basic Financial Statements Federal Revenue with Schedule of Expenditures of Federal Awards 8 Notes to Schedule of Expenditures of Federal Awards 9-10 Schedule of Findings and Questioned Costs 11-12 Summary Schedule of Prior Audit Findings 13 plante 74Nrt Moran,igh Plante27400 Northwestern Highway P.O.Box 307 moran Southfield 48007 Tel::248.352.2552,2500 Fax:248.352.0018 elantemoran.com Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 Independent Auditor's Report To the City Council City of Livonia, Michigan We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Livonia, Michigan (the "City") as of and for the year ended November 30, 2015 and the related notes to the financial statements, which collectively comprise the City's basic financial statements. We issued our report thereon dated April 5, 2016, which contained unmodified opinions on the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information. Our audit was conducted for the purpose of forming opinions on the financial statement that collectively comprise the basic financial statements. We have not performed any procedures with respect to the audited financial statements subsequent to April 5, 2016. The accompanying schedule of expenditures of federal awards and reconciliation of financial statements federal revenue with schedule of expenditures of federal awards are presented for the purpose of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. 2)t ot�, P L L C April 5, 2016 Praxitys A'" i7"? GA.OISA[.ALI..IAIV{',I::bI f All l"I is ii P:[lI f_l10;'r plante 74Nrt Moran,igh Plante27400 Northwestern Highway P.O.Box 307 moran Southfield 48007 Tel::248.352.2552,2500 Fax:248.352.0018 elantemoran.com Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor's Report To Management and the City Council City of Livonia, Michigan We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Livonia, Michigan (the "City") as of and for the year ended November 30, 2015 and the related notes to the financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated April 5, 2016. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City of Livonia, Michigan's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying schedule of findings and questioned costs, we identified a certain deficiency in internal control that we consider to be a material weakness. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiency described in the accompanying schedule of findings and questioned costs as Finding 2015-001 to be a material weakness. Praxity A'" i7"? MOUAI Ildi�l.1"INIII:IgI IIAIV,i To Management and the City Council City of Livonia, Michigan Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Livonia, Michigan's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. City of Livonia, Michigan's Response to Finding The City of Livonia, Michigan's response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The City of Livonia, Michigan's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. 2totf PLLC April 5, 2016 3 plante 74Nrt Moran,igh Plante27400 Northwestern Highway P.O.Box 307 moran Southfield 48007 Tel::248.352.2552,2500 Fax:248.352.0018 elantemoran.com Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance Independent Auditor's Report To the City Council City of Livonia, Michigan Report on Compliance for Each Major Federal Program We have audited the City of Livonia, Michigan's (the "City") compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended November 30, 2015. The City of Livonia, Michigan's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of the City of Livonia, Michigan's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City of Livonia, Michigan's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the City of Livonia, Michigan's compliance. Praxitys A'" i7"? GA.OISA[.ALI..IAIUML 01 4 N 0 1 l"I N[)LM 1 fP`WN To the City Council City of Livonia, Michigan Opinion on Each Major Federal Program In our opinion, the City of Livonia, Michigan complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended November 30, 2015. Report on Internal Control Over Compliance Management of the City of Livonia, Michigan is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City of Livonia, Michigan's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. April 5, 2016 5 City of Livonia, Michigan Schedule of Expenditures of Federal Awards Year Ended November 30, 2015 Pass-through CFDA Entity Identifying Award Federal Federal Agency/Pass-through Agency/Program Title Number Number Amount Expenditures U.S.Department of Agriculture-Food Distribution Cluster- Passed through the Wayne Metropolitan Community Services Agency- Emergency Food Assistance Program(Food Commodities) 10.569 N/A $ 66,002 $ 66,002 U.S.Department of Housing and Urban Development: Community Development Block Grant: Program year 2015-B05 MC-26-0015 14.218 N/A 323,905 180,442 Program year 2014-B05 MC-26-0014 14.218 N/A 328,256 312,937 Total CDBG Entitlement Grants 493,379 Passed through the Michigan State Housing Development Authority- HOME Investment Partnership Program-Program year 2003 14.239 M-2002-5068 277,200 625 Passed through Wayne County-HOME Investment Partnership Program-Home Consortium Funds 14.239 N/A 226,000 96,564 Total U.S. Department of Housing and Urban Development 590,568 U.S.Department of Justice: Federal Equitable Sharing Program 16.922 N/A 123,058 123,058 Drug Enforcement Administration Task Force I6.unknown N/A 6,387 6,387 U.S.Marshals-Detroit Fugitive Apprehension Task Force I6.unknown N/A 15,825 15,825 Bulletproof Vest Partnership Program 16.607 2014 BUBX 7,664 7,664 Passed through Wayne County: 2012 Edward Byrne Memorial Justice Assistance Grant 16.738 DJ-BX-0730 10,161 9,769 2013 Edward Byrne Memorial Justice Assistance Grant 16.738 H4084-MI-DJ 10,693 1,150 Total Passed through Wayne County 10,919 Passed through Michigan State Police: 2012 Edward Byrne Memorial Justice Assistance Grant 16.738 DJ-BX-0109 15,000 15,000 Total JAG Program 25,919 Total U.S. Department of Justice 178,853 See Notes to Schedule of Expenditures of Federal Awards. 6 City of Livonia, Michigan Schedule of Expenditures of Federal Awards (Continued) Year Ended November 30, 2015 Pass-through CFDA Entity Identifying Award Federal Federal Agency/Pass-through Agency/Program Title Number Number Amount Expenditures U.S.Department of Transportation: Highway Planning&Construction Cluster-Passed through the Michigan Department of Transportation-Highway Planning and Construction-Levan-School craft to North of 5 Mile 20.205 HKO090 $ 114,250 $ 114,250 Highway Safety Cluster-Passed through the Michigan Office of Highway Safety-State and Community Highway Safety- Belt Enforcement 20.600 PT-13-17 18,375 18,375 Federal Transit Cluster-Passed through the Southeast Michigan Council of Governments-Livonia Community Transit Grant 20.500 N/A 213,594 850 Total U.S. Department of Transportation 133,475 U.S.Environmental Protection Agency- Passed through the Michigan Department of Environmental Quality: Drinking Water State Revolving Fund Cluster-Capitalization Grants for Drinking Water State Revolving Funds 66.468 7355-01 3,775,000 201,189 Drinking Water State Revolving Fund Cluster-Capitalization Grants for Drinking Water State Revolving Funds 66.468 7356-01 9,050,000 2,326,890 Total U.S. Environmental Protection Agency 2,528,079 U.S.Department of Homeland Security: Passed through the Michigan Department of State Police- 2015 Emergency Management Performance Grant 97.042 N/A 55,640 55,640 Total federal awards $3,552,617 See Notes to Schedule of Expenditures of Federal Awards. 7 City of Livonia, Michigan Reconciliation of Basic Financial Statements Federal Revenue with Schedule of Expenditures of Federal Awards Year Ended November 30, 201 S Revenue from federal sources -As reported on financial statements (includes all funds) $ 1,260,786 Add value of loans received 2,528,079 Less other nonfederal reimbursements recorded as federal revenue (118,892) Add value of noncash assistance 66,002 Add change in unavailable revenue (196,120) Revenue earned in excess of expenditures (303) Other differences 13,065 Federal expenditures per the schedule of expenditures of federal awards $ 3,552,617 8 City of Livonia, Michigan Notes to Schedule of Expenditures of Federal Awards Year Ended November 30, 201 S Note I - Basis of Presentation The accompanying schedule of expenditures of federal awards (the "Schedule") includes the federal grant activity of the City of Livonia, Michigan under programs of the federal government for the year ended November 30, 2015. The information in this Schedule is presented in accordance with the requirements of the Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Because the Schedule presents only a selected portion of the operations of City of Livonia, Michigan, it is not intended to, and does not, present the financial position, changes in net assets, or cash flows of the City of Livonia, Michigan. Note 2 - Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the same basis of accounting. Such expenditures are recognized following, as applicable, either the cost principles in OMB Circular A-133, Cost Principles for A-87, or the cost principles contained in Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. Pass-through entity identifying numbers are presented where available. Note 3 - Noncash Assistance The value of the noncash assistance received was determined in accordance with the provisions of OMB Circular A-133. Summary of Noncash Assistance - The grantee received the following noncash assistance during the year ended November 30, 2015 that is included on the schedule of expenditures of federal awards: CFDA Federal Program Number Description Amount U.S. Department of Agriculture - Passed through Wayne Metropolitan Community Services Agency 10.569 USDA Food Distribution $ 66,002 9 City of Livonia, Michigan Notes to Schedule of Expenditures of Federal Awards Year Ended November 30, 201 S Note 4 - Subrecipient Awards Of the federal expenditures presented in the Schedule, federal awards were provided to subrecipients as follows: Amount Provided to Federal Program Title CFDA Number Subrecipients Community Development Block Grant 14.218 $ 6,150 10 City of Livonia, Michigan Schedule of Findings and Questioned Costs Year Ended November 30, 201 S Section 1 - Summary of Auditor's Results Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: • Material weakness(es) identified? X Yes No • Significant deficiency(ies) identified that are not considered to be material weaknesses? Yes X None reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: • Material weakness(es) identified? Yes X No • Significant deficiency(ies) identified that are not considered to be material weaknesses? Yes X None reported Type of auditor's report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of Circular A-133? Yes X No Identification of major programs: CFDA Numbers Name of Federal Program or Cluster 14.218 Community Development Block Grant 66.468 Drinking Water State Revolving Fund Cluster- Capitalization Grants for Drinking Water State Revolving Funds Dollar threshold used to distinguish between type A and type B programs: $300,000 Auditee qualified as low-risk auditee? Yes X No II City of Livonia, Michigan Schedule of Findings and Questioned Costs (Continued) Year Ended November 30, 201 S Section 11 - Financial Statement Audit Findings Reference Number Finding 2015-001 Finding Type - Material weakness Criteria - Management's goal was to accurately record all adjustments for the fund level and government-wide statements. Condition - journal entries were necessary to adjust various account balances in order to properly state them as of November 30, 2015. Context - Four entries were made to various funds to reflect current year activity. The adjustments affected liabilities, expenses, receivables, revenue, deferred inflows of resources, assets, and investment gains and included: a reduction to the Water and Sewer Fund receivable and revenue to correct a calculation error; an increase to liabilities and expenditures in the Roads and Sidewalks Fund to accrue an invoice amount incurred during the fiscal year; a reduction to revenue and an increase to deferred inflows of resources in the General Fund for service billings not received within the period of availability; and a reduction to investments and unrealized gain recorded in the Pension Fund related to a calculation error. Cause - For certain financial statement accounts, the City did not have a system in place to ensure that year-end balances agree to detail and are properly stated. Effect - As a result of these four transactions not being completely recorded, several account balances required adjustment as of November 30, 2015. The financial statements were misstated prior to the auditor proposing the entries. Recommendation - The City should develop controls to ensure that all appropriate journal entries are made so that ending balances are correct. Views of Responsible Officials and Planned Corrective Actions - The City concurs with the recommendation and will put a process in place to address the issue. Section 111 - Federal Program Audit Findings None 12 City of Livonia, Michigan Summary Schedule of Prior Audit Findings Year Ended November 30, 201 S Planned Prior Year Original Finding Corrective Finding Number Federal Program Description Status Action 2014-002 Home Consortium The original SEFA Fully corrected N/A Funds Program - provided by the City of CFDA#14.239 Livonia, Michigan as and Federal Transit part of the audit did Cluster- CDFA not include the correct #20.500 amount of expenditures related to the Home Consortium Funds Program and the Federal Transit Cluster. 13 plante 74Nrt Moran,igh Plante27400 Northwestern Highway P.O.Box 307 moran Southfield 48007 Tel::248.352.2552,2500 Fax:248.352.0018 elantemoran.com April 5, 2016 To the Mayor and Members of the City Council City of Livonia, Michigan We have audited the financial statements of the City of Livonia, Michigan (the "City") as of and for the year ended November 30, 2015 and have issued our report thereon dated April 5, 2016. Professional standards require that we provide you with the following information related to our audit which is divided into the following sections: Section I - Required Communications with Those Charged with Governance Section 11 - Other Recommendations and Related Information Section III - Legislative and Informational Items Section I includes information that current auditing standards require independent auditors to communicate to those individuals charged with governance. We will report this information annually to the City Council of the City of Livonia. Section 11 presents recommendations related to internal control, procedures, and other matters noted during our current year audit. These comments are offered in the interest of helping the City in its efforts toward continuous improvement, not just in the areas of internal control and accounting procedures, but also in operational or administrative efficiency and effectiveness. Section III contains updated legislative and informational items that we believe will be of interest to you. We would like to take this opportunity to thank the City's staff for the cooperation and courtesy extended to us during our audit. Their assistance and professionalism are invaluable. This report is intended solely for the use of the City Council and management of the City and is not intended to be and should not be used by anyone other than these specified parties Praxity �;LO��M� AU ANGL ND k::q'G:i IN DI IV7 f Mg I To the Mayor and Members of the City Council April 5, 2016 City of Livonia, Michigan We welcome any questions you may have regarding the following communications and we would be willing to discuss any of these or other questions that you might have at your convenience. Very truly yours, Plante & Moran, PLLC Frank W. Audia Marie L. Stiegel 2 Section 1 - Required Communications with Those Charged with Governance Our Responsibility Under U.S. Generally Accepted Auditing Standards As stated in our engagement letter dated January 20, 2016, our responsibility, as described by professional standards, is to express an opinion about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement. As part of our audit, we considered the internal control of the City. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures specifically to identify such matters. Our audit of the City's financial statements has also been conducted in accordance with Government Auditing Standards, issued by the Comptroller General of the United States. Under Government Auditing Standards, we are obligated to communicate certain matters that come to our attention related to our audit to those responsible for the governance of the City, including compliance with certain provisions of laws, regulations, contracts, grant agreements, certain instances of error or fraud, illegal acts applicable to government agencies, and significant deficiencies in internal control that we identify during our audit. Toward this end, we issued a separate letter dated April 5, 2016 regarding our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to you in our letter regarding planning matters on January 22, 2016. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City are described in Note I to the financial statements. As described in Note 18, the City adopted Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions. The objective of GASB Statement No. 68 is to improve accounting and financial reporting by state and local governments for pensions. 3 Section 1 - Required Communications with Those Charged with Governance (Continued) We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements are as follows: • Incurred but not reported amounts related to the City's self-insured medical claims, workers' compensation, and general liability • Unbilled water and sewer receivables • The collectibility of any delinquent receivables, including property taxes and utility billing • The landfill closure and postclosure liability • In the Employees' Retirement System, the value of the SAS equity real estate investment trust (the "REIT") managed by the Seminole Companies • Pension actuarial total liability(actuarial methods and assumptions) Management's estimate of the various incurred but not reported amounts and unbilled water and sewer receivables is based on historical information. All delinquent receivables are considered collectible by the City finance department based on past history. Also, the City won a court case related to a significant outstanding receivable recorded in the Water and Sewer Fund that is collateralized with a security interest in the customer's real property. As such, no allowances for uncollectible amounts have been recorded. The landfill liability is calculated by the City's engineering department. We evaluated the key factors and assumptions used to develop the estimates in determining that they are reasonable in relation to the financial statements taken as a whole. Management has reported the SAS equity real estate investment trust at an amount provided by the Seminole Companies. We obtained audited financial statements for the investment fund itself as of December 31, 2014 and performed various procedures to evaluate the calculations and assumptions used by REIT management for the unaudited quarterly reports and member equity statements received since the date of the audit. We also performed limited analytical procedures on the revenue and expenses reported by REIT from January 1, 2015 to November 30, 2015. We performed these procedures on the data used by management to develop the estimate to determine that it is reasonable in relation to the financial statements taken as a whole. 4 Section 1 - Required Communications with Those Charged with Governance (Continued) During the current year, the City was required to report additional pension disclosures, record a net pension asset, and record deferred outflows related to pensions in accordance with GASB Statement No. 68. Based on our review of the actuarial study performed in connection with these requirements, we noted that the methods and assumptions used in the actuarial study are reasonable in relation to the financial statements taken as a whole. The disclosures in the financial statements are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Disagreements with Management For the purpose of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. The attached schedule summarizes uncorrected misstatements of the financial statements which were requested to be recorded. Management has determined that their effects are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. Management has corrected all other misstatements. Significant Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, business conditions affecting the City, and business plans and strategies that may affect the risks of material misstatement with management each year prior to our retention as the City's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition of our retention. Management Representations We have requested certain representations from management that are included in the management representation letter dated April 5, 2016. 5 Section 1 - Required Communications with Those Charged with Governance (Continued) Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the City's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. 6 Section 11 - Other Recommendations and Related Information As part of our audit, we offer the following comments in the interest of helping the City in its efforts toward continuous improvement, not just in the areas of internal control and accounting procedures, but also in operational or administrative efficiency and effectiveness. General Fund Like other Metro Detroit local governments, the City experienced General Fund revenue declines from 2008 to 2011 as a result of significant property tax-related events and changes caused by the recession that impacted the nation and this region. The City has reacted by reducing the City's General Fund expenditures during that time period and by also enacting two voter-approved millages in 201 1. As a result, the City was able to maintain its General Fund fund balance during this very difficult and continually challenging period for local governments. For the year ended November 30, 2015, General Fund revenue exceeded General Fund expenditures by approximately $45,000 as actual spending in the General Fund was approximately $280,000 less than budget while actual revenue in the General Fund was approximately$232,000 less than budget. The City's financial management practices through the economic downturn have been critical to preserving the financial health of the City's General Fund. While the overall economy continues to improve as reflected by lower unemployment and increased home sale activity, these trends do not directly translate into better financial times for Michigan local units of government and the City of Livonia. Even as property values rise, it will likely take many years for taxable value to return to its historical peak as growth on existing property is limited by the State's constitution to the lesser of inflation or 5 percent. State-shared revenue funding levels are still significantly below the levels from more than a decade ago. Given the overriding challenges that exist with the Michigan municipal finance model at a macro level which we have discussed a number of times with the City, we continue to encourage all of our governmental clients, including the City of Livonia, to consider these structural limitations as part of its annual budget process. Public Safety Millage and Cultural/Senior Services Millage Expiration Dates As a reminder, the City, through a vote of the people, enacted two dedicated millages in 201 1 as part of its fiscal sustainability plan. The City's public safety and cultural/senior services millages of 1.7000 and .2500 mills, respectively, expired after the 2015 tax year levy and their renewals will be on the August 2016 ballot. These millages provided approximately $7,700,000 in tax revenue during fiscal year 2015 within the General Fund to specifically support public safety and cultural/senior service expenditures. These millages provide an important funding source to allow the City to continue to provide the current level of service and, as noted above, have been a key to the City's ability to maintain a healthy fund balance during these very difficult economic times for Michigan local governments. The expenditures related to just public safety in the General Fund exceeded $37 million for the year ended November 30, 2015. 7 Section 11 - Other Recommendations and Related Information (Continued) Street Funding The renewal of the road improvement millage in August 2012 has allowed the City to stabilize the fund balance of its road funds (Major Streets, Local Streets, and Roads and Sidewalks Funds). In 2014, the State provided various one-time supplemental funds that helped to increase the total fund balance of these three funds to $6.7 million in 2014. There were some additional supplemental funds provided by the State in 2015; however, the level of spending required on roads in 2015 exceeded revenue and the fund balance of these funds was reduced to $5.2 million with fund balance in the Roads and Sidewalks Special Revenue Fund (the fund where the City's dedicated road millage is reported) down to approximately $10,000. The State of Michigan's challenges with road funding are well documented. The level of Act 51 monies from the State of Michigan has not kept pace with the needs of the State's infrastructure system. Legislation was passed in 2015 that promises some additional road funding to cities like Livonia in the coming years. Even with the City's dedicated millage and some additional promised revenue from the State in coming years, it will remain a challenge to continue to maintain and improve the City's road system. Legacy Costs - Pension Legacy costs and the challenge of funding them continue to be a topic of discussion. GASB pronouncements of late have placed even more focus on the net long-term liability arising from these benefit promises. The City's defined benefit pension system is 104 percent funded as of November 31, 2015. To the extent that you have been able to make some gains in terms of your funded status, some changes to assumptions may result in the funding level decreasing which may result in higher contributions going forward. For example, as of the November 30, 2015 valuation, the pension system mortality tables were updated to show that people are living longer. Also, investment performance can impact the amount of future employer contributions to the system. At previous points in the past, the defined benefit pension system was greater than 100 percent funded and for a number of years, employer contributions to the pension system were not actuarially required. In fiscal years 2012 through 2015, the City was once again required to make contributions to the defined benefit pension plan for the first time since 2003. The Employees' Retirement System recognized contributions from the City of approximately $747,000 in 2012, $2.1 million in 2013, $3.6 million in 2014, and $2.2 million in 2015. During fiscal year 2016, the required contribution will be approximately$857,000. As noted above, because there are a variety of factors that impact the calculation and estimates made by the City's actuary, including investment performance, life expectancy, number of retirees, etc., future contributions by the City may be required and should be considered for budget and long-term financial planning purposes. Beginning with the City's November 30, 2015 year end, GASB Statement No. 68, Accounting and Financial Reporting for Pensions, significantly revised the employer's accounting and reporting requirements for pensions. 8 Section 11 - Other Recommendations and Related Information (Continued) Employers providing defined benefit pensions to their employees began to recognize their unfunded or overfunded pension benefit as a liability or asset for the first time, and began to measure the costs of pension benefits as the employees' service is rendered, rather than as the employer funds the benefit. As a result, the City recorded a net pension asset of approximately $9.1 million as well as related deferred outflows of resources of $10.5 million on the government-wide statement of net position. Legacy Costs - Retiree Health Care The City has been actuarially funding the growing liability associated with postemployment health care for many years, ahead of the accounting standards and, as a result, has been able to accumulate as of November 30, 2015 approximately $92 million in net assets for these costs. According to the most recent actuarial valuation (November 30, 2014), the plan is approximately 52.0 percent funded. While the City has been completing these actuarial valuations and making an annual contribution for many years, the VEBA plan has used an amortization period (40 years) that is somewhat longer than what is allowed under the current financial reporting standards (30 years). Using this longer period has resulted in the City's contributions being less than the actuarially calculated annual required contribution (ARC) under the current financial reporting standards. As a result, since the adoption of GASB Statement No. 45 in 2009, the City has been required to record a liability for the difference between the ARC and what the City actually contributes to the VEBA. As of November 30, 2015, that liability is now over $192,000 in the Water and Sewer Fund and approximately$4.4 million in the government-wide financial statements. In June 2015, the GASB issued two new standards addressing accounting and financial reporting by state and local governments for postemployment benefits other than pensions (OPEB, which refers to retiree healthcare). GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, addresses reporting by OPEB plans whereas GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, addresses accounting and reporting by employer governments that provide OPEB benefits to their employees. Along with the currently required statement of fiduciary net position and statement of changes in fiduciary net position, OPEB plans will now be required to include in the financial statements more extensive footnote disclosures and required supplementary information related to the measurement of the OPEB liabilities for which assets have been accumulated. In addition, the City will, after adoption of GASB 75, recognize on the face of the financial statements its net OPEB liability. The City is currently evaluating the impact these standards will have on the financial statements when adopted. GASB 74 is effective for the City's November 30, 2017 fiscal year whereas GASB 75 is effective one year later. 9 Section 11 - Other Recommendations and Related Information (Continued) Legacy Cost Impact -When Both New Pension and OPEB Standards are Fully Implemented A pro forma of how the reporting of the GASB Statement No. 68 net pension asset and deferred outflows impacts the City's government-wide net position and how GASB Statement No. 75 net OPEB liability is expected to impact the City's government-wide net position is shown below: 1 1.30.15 with 1 1.30.15 Without 1 1.30.15 as Pension Asset and Pension Asset or Reported with Estimated OPEB OPEB Liability Pension Asset Liability Net position: Net investment in capital assets $ 226,627,588 $ 226,627,588 $ 226,627,588 Restricted 29,224,652 29,224,652 29,224,652 Unrestricted 33,408,982 53,029,401 (19,122,101) Total net position $ 289,261,222 $ 308,881,641 $ 236,730,139 This pro-forma indicates that City will still have a positive total net position but a significant negative unrestricted net position. This generally means that the City has successfully funded the total cost of government services provided to date. The fact that the unrestricted portion is negative indicates that legacy costs earned to date have not been funded; this is offset by the capital assets that have been funded in advance of their use. When viewed from a combined perspective, the residents have paid the cost of services received in total. We are happy to continue to work with the City and its actuarial firm over the next several years to ensure smooth implementation of this new standard. Water and Sewer Fund Based on our testing of the City's utility billing system data for the year ended November 30, 2015, units of water sold in fiscal year 2015 increased approximately 2.5 percent from 2014. There were decreases from 2013 to 2014 and from 2012 to 2013 of 9.5 and 13.7 percent, respectively. Despite the overall reduction in units sold since 2012, the City's Water and Sewer Fund reported an operating income and income before capital contributed from developers and grants in 2013 and 2014 after having reported losses from fiscal years 2009 through 2012. There was a slight operating loss in 2015 of approximately $341,000 and a loss before capital contributions of approximately $743,000. We are encouraging the City and other local units to continue to monitor the rate-making methodology of the City's supplier of water and sewer services and to consider the impact of changes made to the City's rate structure. 10 Section 11 - Other Recommendations and Related Information (Continued) The Water and Sewer Fund revenue bonds include several covenants, including a requirement to maintain a debt service coverage ratio of at least 100 percent on a prospective basis. This means that the City must set its customer rates such that the City plans to generate sufficient revenue to pay for the required debt service in addition to the normal operating costs of the system, such as purchases of service from the Detroit Water and Sewerage Department (DWSD) and Wayne County, employee compensation, and other operational costs. Using realistic assumptions of future activity, the City's budget for the Water and Sewer Fund does, in fact, plan to cover all necessary costs. During our review of the aged trial balance as of November 30, 2015, we noted that there were a significant number of customer accounts with balances over 120 days past due. We encourage the City to monitor this data and continue its collection practices, including application of penalties on past due balances where appropriate. II Section 111 - Legislative and Informational Items Revenue Sharing The FY 2017 governor's budget recommendation includes $1.3 billion for revenue sharing broken down as follows: Governor's FY 2016 2017 FY 2016 Forecasted Recommended Description Budget Actual Budget Constitutionally required $783.8 M $752.1 M $781.5 M payments CVTRS 243.0 M 243.0 M 243.0 M CVTRS - One-time payments 5.8 M 5.8 M 0 M County revenue sharing 171.8 M 171.8 M 172.2 M County incentive program 42.9 M 42.9 M 43.0 M Fiscally distressed community 5.0 M 5.0 M 5.0 M rants Competitive grants 11.0 M Total $1,252.4 M $1,220.6 M $1,255.7 It should be noted that the governor's budget notes a 3.9 percent increase in constitutional revenue sharing, but as you can see above, the 2016 budget included $783.8 million which never materialized and was adjusted downward as sales tax revenue failed to come in as projected. As a result, the 3.9 percent increase is comparing the lower estimate of$752.1 million to the 2017 budget of$781.5 million. If you compared the 2017 budget to the 2016 budget, there is actually a decrease in this line item. The FY 2017 budget also includes the "City, Village, and Township Revenue Sharing" (CVTRS) which was established in FY 2015 and that number remains flat at $243 million. Each community's overall increase will vary as each has a different mix of constitutional and CVTRS. In order to receive the CVTRS payments in FY 2017, qualified local units will once again need to comply with the same best practices as they did last year: - A citizen's guide to local finances with disclosure of unfunded liabilities - Performance dashboard - Debt service report - Two-year budget projection The "one-time" additional CVTRS payments that existed in the 2015 and 2016 budgets are not in the governor's 2017 budget. If the payments are not reinstated in the final 2017 budget, approximately 100 townships will no longer benefit from these CVTRS payments, leaving only 34 of the state's 1,240 townships in the CVTRS allocation. 12 Section 111 - Legislative and Informational Items (Continued) Personal Property Tax In August 2014, Michigan voters put the last piece of personal property tax reform in place. As a result, personal property taxes will be reduced in two respects: I. Small Taxpayer Exemption Loss (STEL) - Small taxpayers with total personal property within a taxing unit valued at less than $80,000 true cash value are able to sign an affidavit exempting this personal property from taxation. This exemption began with the 2014 tax billings. 2. Beginning with 2016 tax filings, an affidavit can be filed to exempt eligible property used in a manufacturing process that was purchased either prior to 2006 or after December 31, 2012. For 2014 and 2015, all communities were qualified to be reimbursed for losses related to debt millages and lost TIF capture arising from the STEL. Only cities were reimbursed for the balance of the Small Taxpayer Exemption Loss. However, for 2016, the legislation is generally intended to fully reimburse all local units of government for revenue losses that result from all exempt personal property. The changes include creation of a new Local Community Stabilization Authority (LCSA) that will receive money from two sources: • Use Tax: The legislation includes specific amounts of the use tax that will be diverted from the State's General Fund to the new LCSA; and • Essential Services Assessment: Manufacturers will pay a "local community essential services assessment" to the LCSA based on the value of their exempt manufacturing property. The rate is set at 2.4 mills for a property's first five years; then 1.25 mills for the next five; then 0.9 mills thereafter. Please keep in mind that if these two sources do not generate sufficient revenue for 100 percent of the losses, there could be a potential for something less than full reimbursement. Local Community Stabilization Authority Revenue - As noted above, eligible communities began receiving reimbursements for certain lost personal property taxes. The State agency making those reimbursements is the Local Community Stabilization Authority (LCSA). These reimbursements should NOT be reported on the financial statements with property taxes; instead, they should be included with other intergovernmental revenue from the State (state shared revenue, grants, and other). The State has created a new account number for the revenue, 573, and titled it "Local Community Stabilization Share Appropriation". As always, communities should follow the State's guidance related to the Uniform Chart of Accounts. The State Department of Treasury will compute the reimbursements and are scheduled to make the payments by October 20 of each year. The State will compare the total current year Taxable Value of Commercial and Industrial Personal Property to the value as of 2013 (the year before PPT reform). 13 Section 111 - Legislative and Informational Items (Continued) The exception is for TIFs, which still require action on the part of the community- see below. TIF Authority Personal Property Tax Reimbursement Forms Due lune 15 The two forms created by the Treasury for reimbursement of TIF plans for Small Parcel Exemption Losses are available on the Treasury's website under Local Government Services/ Forms/Instructions/Local Government Officials Forms. The forms are: - Form 5176 - Non-Brownfield Authorities (to be used for DDAs, LDFAs, CIAs, etc.) - Form 5176BR- Brownfield Authorities Authorities can only receive reimbursement for the Small Parcel Exemption Loss to the extent the exemption actually causes revenue loss. In the case where an Authority has "negative capture" overall and would not have any tax increment revenue regardless of the Small Parcel Exemption Loss, they are not eligible for any reimbursement. Therefore, one step on the form requires the estimated 2015 tax increment revenue for all property by class to be provided. Since Brownfield Authorities cannot have negative capture, that step is omitted from the Form 5176BR. New Rules Governing Management of Federal Programs The Office of Management and Budget (OMB) has issued significant reforms to the compliance requirements that must be followed by non-federal entities receiving federal funding. All entities receiving federal dollars will need to understand the changes made as a result of these reforms and may be required to make changes to internal procedures, processes, and controls. These reforms impact three key areas of federal grants management: I. Audit Requirements - For fiscal years beginning on or after January 1, 2015, the threshold for obtaining a federal awards audit will increase from the current threshold of $500,000 of annual federal spending to $750,000. There will also be significant changes to the criteria for qualifying as a low-risk auditee and a reduction in the number of major programs required to be tested for some clients. The City has historically been above the current $500,000 threshold as well as the new higher$750,000 threshold. 2. Cost Principles - Effective for all federal awards received on or after December 26, 2014, the grant reforms related to cost principles go into effect. Not only were certain changes made to allowable costs under this new guidance, but there were significant changes in the area of time and effort reporting and indirect costs. Applicable changes to the City's federal grants were subject to testing in 2015. 3. Administrative Requirements - Also effective for all federal awards received on or after December 26, 2014, non-federal entities receiving federal funding must adhere to new rules related to administering federal awards. Most notably, these requirements may impact the City's procurement systems, including maintaining written conflict of interest policies and disclosures. Applicable changes to the City's federal grants were subject to testing in 2015. 14 Section 111 - Legislative and Informational Items (Continued) These revisions are clearly the most significant changes to occur to federal grants management in recent history. Entities receiving federal funding will need to carefully digest these changes. Plante & Moran, PLLC has been on the cutting edge of these reforms, offering our clients free webinars, implementation checklists, and other tools to aid in implementation. The implementation date has passed and the City will need to continue to ensure that the implementation of the new regulations is occurring. Plante & Moran, PLLC has many experts in this area and we welcome any questions or needs you may have in this area. PA 298 of 2012 - Act 51 Performance Audits Public Act 298 of 2012 allows the Michigan Department of Transportation (MDOT) to conduct performance audits and make investigations of the disposition of all Act 51 state funds received by county road commissions, cities, and villages. The act states that these audits will be conducted by either an independent CPA or an employee of MDOT; however, recent communications sent to all cities, villages, and road commissions from MDOT indicate that you will need to have your CPA conduct the performance audit. Based on this communication, the City will need a performance audit for its fiscal year ending November 30, 2016. These procedures will be focused on evaluating the procedures the City puts in place to ensure it complies with the requirements of Public Act 51, and we will issue a separate report for this engagement. We are currently in the process of writing programs to address the key compliance areas. It is not clear to us whether this will be an annual requirement, but we will keep you apprised as additional information is provided by the State. A key aspect of the compliance testing will focus on support for allocated costs. Recent communication from MDOT stated that MDOT auditors have determined that because time cards support, as a fundamental accounting record, the amounts billed for labor, equipment, and materials, that cost allocations plans are not acceptable and therefore labor costs must be based on actual time, which can be verified by signed and approved time cards. Given the October 1, 2015 commencement of the audit time period, we encourage you to review your documentation methods to ensure compliance with this critical aspect. Administrative Charges The services provided by employees that are traditionally charged to the General Fund (Treasury, Finance, HR, etc.) oftentimes significantly benefit other funds. As a result, it is a fairly common practice to charge administrative fees to the other funds. Administrative fees can take many forms such as Interfund Allocations, Chargebacks, Payment In Lieu of Taxes to other funds (such as a golf course), etc. While the practice of charging for administrative services provided to water and sewer funds, streets (see item above), TIF districts, and such may certainly be justified, there seems to be a heightened focus lately on the methodology and amount of charges. Given the fact that many cost allocation methodologies were implemented many years ago, it would be prudent to revisit your current methodology and the related inputs to ensure that any administrative charges are fully substantiated. 15 Section 111 - Legislative and Informational Items (Continued) Proposed Legislation House Bill 4213 of 2015 - This bill would change the calculation of taxable value to eliminate inflation adjustments in years in which state equalized value does not increase by at least inflation. Currently, the taxable value of a specific parcel can increase each year by the lesser of inflation or 5 percent. Under this bill, the state equalized value would have to increase by inflation as well, otherwise the parcel value stays at the prior year taxable value. House Bill 4201 of 2015 - This one sentence bill would establish a requirement that at least 75 percent of the proceeds of a county millage shall be expended within the city, village, or township where it was collected. House Bill 4909 of 2015 - Commonly referred to as "Dark Stores" legislation, this bill would prohibit negative use restrictions that do not allow occupancy or use that is otherwise lawful. An example would be a term in a commercial lease that prevents the owner from leasing the property to another retailer. This bill would also require a plan for re-lease, reuse, redevelopment, or sale of the property in the event of a vacancy. 16 Attachment ®lent:City of Livonia,Michigan Y/E: 11/30/2015 SUM MARY OF UNRECORDED POSSIBLE ADJUSTMENTS TheeffectofmisstatemeMeand classification errors id,mified would be to increase(decrease)thereportedam—in the fi nancialstat—mcategories id.mified below. Deferred Deferred Long-term Outflows of Currern Long-term Inflows of Net Income Ref# Descripd—f Miostat—m Currern Assets Assets Resourc Liabilities Liabilities Resourc Equity R-en Ep— Statememlmpact FACTUAL MISSTATEMENTS: Al A2 UDGMENTALADJUSTMENTS: BI Business-type actwites and Water and Sewer Fund- To adjust December 2015 and January 2016 unbilled water and sewer r-.-.to actual $ 1 13,324 $ 1 13,324 $ 1 13,324 PROJECTED ADJUSTMENTS: c1 $ $ $ $ $ $ $ Total $ 113,324 $ $ $ $ $ $ $ 113,324 $ $ 113,324 PASSED DISCLOSURES: DI Governmental activities-The cur—portion ofliabilities recorded in the self-insurance funds has rot been broken out on the g---wide statemerns. 17