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Michigan Department of Treasury 496 (02/06)
Auditing Procedures Report Issued under P.A. 2 of 1968, as amended and P.A. 71 of 1919, as amended.
Local Unit of Government Type Local Unit Name County
County City Twp Village Other Fiscal Year End Opinion Date Date Audit Report Submitted to State
We affirm that:
We are certified public accountants licensed to practice in Michigan.
We further affirm the following material, “no” responses have been disclosed in the financial statements, including the notes, or in the Management Letter (report of comments and recommendations).
YES
NO
Check each applicable box below. (See instructions for further detail.)
1. All required component units/funds/agencies of the local unit are included in the financial statements and/or disclosed in the reporting entity notes to the financial statements as necessary.
2. There are no accumulated deficits in one or more of this unit’s unreserved fund balances/unrestricted net assets (P.A. 275 of 1980) or the local unit has not exceeded its budget for expenditures.
3. The local unit is in compliance with the Uniform Chart of Accounts issued by the Department of Treasury.
4. The local unit has adopted a budget for all required funds.
5. A public hearing on the budget was held in accordance with State statute. 6. The local unit has not violated the Municipal Finance Act, an order issued under the Emergency Municipal Loan Act, or
other guidance as issued by the Local Audit and Finance Division.
7. The local unit has not been delinquent in distributing tax revenues that were collected for another taxing unit.
8. The local unit only holds deposits/investments that comply with statutory requirements.
9. The local unit has no illegal or unauthorized expenditures that came to our attention as defined in the Bulletin for Audits of Local Units of Government in Michigan, as revised (see Appendix H of Bulletin).
10. There are no indications of defalcation, fraud or embezzlement, which came to our attention during the course of our audit that have not been previously communicated to the Local Audit and Finance Division (LAFD). If there is such activity that has not been communicated, please submit a separate report under separate cover.
11. The local unit is free of repeated comments from previous years.
12. The audit opinion is UNQUALIFIED.
13. The local unit has complied with GASB 34 or GASB 34 as modified by MCGAA Statement #7 and other generally accepted accounting principles (GAAP).
14. The board or council approves all invoices prior to payment as required by charter or statute.
15. To our knowledge, bank reconciliations that were reviewed were performed timely.
If a local unit of government (authorities and commissions included) is operating within the boundaries of the audited entity and is not included in this or any other audit report, nor do they obtain a stand-alone audit, please enclose the name(s), address(es), and a description(s) of the authority and/or commission. I, the undersigned, certify that this statement is complete and accurate in all respects.
We have enclosed the following: Enclosed Not Required (enter a brief justification)
Financial Statements
The letter of Comments and Recommendations
Other (Describe)
Certified Public Accountant (Firm Name) Telephone Number
Street Address City State Zip
Authorizing CPA Signature Printed Name License Number
City of South Lyon, Michigan Financial Report
June 30, 2007
Mayor John Doyle, Jr.
City Council Ray Dryer, Mayor Pro Tem
Glenn Kivell
Erin Kopkowski
Patricia Maida
Ron Morelli
Harvey Wedell
City Administration
City Manager Rodney L. Cook City Clerk/Treasurer Julie C. Zemke Police Chief Lloyd Collins Fire Chief Craig Kaska Water and Wastewater Treatment Superintendent Robert Martin Department of Public Works Superintendent Steve Renwick Director of Community and Economic Development Kristen Cunningham Building/Zoning Inspector Joe Veltri Building Inspector Michael Jakubowski Bookkeeper Lori Mosier
City of South Lyon, Michigan
Contents
Report Letter 1-2
Management’s Discussion and Analysis 3-7
Basic Financial Statements
Government-wide Financial Statements: Statement of Net Assets 8 Statement of Activities 9-10
Fund Financial Statements: Governmental Funds: Balance Sheet 11 Reconciliation of the Balance Sheet to the Statement of Net Assets 11 Statement of Revenue, Expenditures, and Changes in Fund Balances 12 Reconciliation of the Statement of Revenue, Expenditures, and
Changes in Fund Balances of Governmental Funds to the Statement of Activities 13
Proprietary Fund - Enterprise Fund - Water and Sewer Fund: Statement of Net Assets 14 Statement of Revenues, Expenses, and Changes in Net Assets 15 Statement of Cash Flows 16
Notes to Financial Statements 17-38
Required Supplemental Information 39
Budgetary Comparison Schedule - General Fund 40
Budgetary Comparison Schedule - Major Special Revenue Fund - Capital Improvements Fund 41
Other Supplemental Information 42
Schedule of Expenditures - General Fund 43-44
City of South Lyon, Michigan
Contents (Continued)
Other Supplemental Information (Continued)
Nonmajor Governmental Funds: Combining Balance Sheet - Special Revenue Funds and Debt Service Funds
(Combined) 45
Combining Statement of Revenue, Expenditures, and Changes in Fund Balances - Special Revenue Funds and Debt Service Funds (Combined) 46
Combining Balance Sheet - Nonmajor Special Revenue Funds 47
Combining Statement of Revenue, Expenditures, and Changes in Fund Balances - Nonmajor Special Revenue Funds 48-49
Schedule of Expenditures by Activity - Major and Local Road Funds 50
Combining Balance Sheet - Nonmajor Debt Service Funds 51
Combining Statement of Revenue, Expenditures, and Changes in Fund Balances - Nonmajor Debt Service Funds 52
Summary of Debt Service Activity - Assets, Liabilities, and Fund Balances 53-54
Summary of Debt Service Activity - Revenue, Expenditures, and Changes in Fund Balances 55-56
Schedule of Operating Expenses - Enterprise Fund - Water and Sewer Fund 57-58
Statistical Information 59
Schedule of Taxes Levied, Collected, and Returned Delinquent - 2006 Tax Roll 60
Continuing Disclosure Undertaking 61-64
1
Independent Auditor’s Report
To the Members of the City Council City of South Lyon, Michigan
We have audited the accompanying financial statements of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of South Lyon, Michigan as of and for the year ended June 30, 2007, which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of South Lyon, Michigan’s management. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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 discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of South Lyon, Michigan as of June 30, 2007 and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The management’s discussion and analysis and budgetary comparisons are not a required part of the basic financial statements but are supplemental information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management, regarding the methods of measurement and presentation of the required supplemental information. However, we did not audit the information and express no opinion on it.
2
To the Members of the City Council City of South Lyon, Michigan Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of South Lyon, Michigan’s basic financial statements. The accompanying other supplemental information and statistical section, as identified in the table of contents, are presented for the purpose of additional analysis and are not required parts of the basic financial statements. The other supplemental information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The statistical section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on it.
September 11, 2007
City of South Lyon, Michigan Management’s Discussion and Analysis
3
Our discussion and analysis of the City of South Lyon, Michigan’s (the “City”) financial performance provides an overview of the City’s financial activities for the fiscal year ended June 30, 2007. Please read it in conjunction with the City’s financial statements.
Financial Highlights
As discussed in further detail in this management’s discussion and analysis, the following represents the most significant financial highlights for the year ended June 30, 2007:
• Revenues exceeded expenditures in the General Fund, thus raising fund balance by approximately $213,000. This was due primarily to all city departments making an effort to control expenditures and generally dealing with the declining Michigan economy.
• Total net assets related to the City’s governmental activities increased by approximately $730,000.
Using this Annual Report
This annual report consists of a series of financial statements. The statement of net assets and the statement of activities provide information about the activities of the City as a whole and present a longer-term view of the City’s finances. This longer-term view uses the accrual basis of accounting so that it can measure the cost of providing services during the current year, and whether the taxpayers have funded the full cost of providing government services.
The fund financial statements present a short-term view; they tell us how the taxpayer’s resources were spent during the year, as well as how much is available for future spending. Fund financial statements also report the City’s operations in more detail than the government-wide financial statements by providing information about the City’s most significant funds.
City of South Lyon, Michigan Management’s Discussion and Analysis (Continued)
4
The City of South Lyon as a Whole
The following table shows, in a condensed format, the net assets as of June 30, 2007 and 2006 (in thousands):
TABLE 1
2007 2006 2007 2006 2007 2006
AssetsCurrent assets 9,481$ 8,919$ 9,495$ 9,881$ 18,976$ 18,800$ Noncurrent assets 24,783 25,215 33,559 33,121 58,342 58,336
Total assets 34,264 34,134 43,054 43,002 77,318 77,136
LiabilitiesCurrent liabilities 1,723 1,936 1,237 1,399 2,960 3,335 Long-term liabilities 2,117 2,504 16,391 16,948 18,508 19,452
Total liabilities 3,840 4,440 17,628 18,347 21,468 22,787
Net AssetsInvested in capital assets -
Net of related debt 22,274 22,333 16,393 15,418 38,667 37,751 Restricted 1,710 1,767 7,516 7,849 9,225 9,616 Unrestricted 6,440 5,594 1,517 1,388 7,958 6,982
Total net assets 30,424$ 29,694$ 25,426$ 24,655$ 55,850$ 54,349$
Total ActivitiesGovernmental
ActivitiesBusiness-type
The City’s combined net assets increased 2.7 percent from a year ago - increasing from $54,348,884 to $55,849,819. Net assets of both the governmental and business-type activities increased during the year. This is an indication that the taxpayers and users of City services paid the full cost of providing those services in the current year. This measurement is one of the goals of full accrual financial statement presentation.
Unrestricted net assets, the part of net assets that can be used to finance day-to-day operations, did not change significantly for the governmental activities. The current level of unrestricted net assets related to governmental activities is a surplus of $6,440,386.
City of South Lyon, Michigan Management’s Discussion and Analysis (Continued)
5
The following table shows the changes of the net assets during the years ended June 30, 2007 and 2006 (in thousands):
TABLE 2
2007 2006 2007 2006 2007 2006
Net Assets - Beginning of year 29,694$ 24,087$ 24,655$ 24,526$ 54,349$ 48,613$
RevenueProgram revenue:
Charges for services 803 779 2,114 2,082 2,917 2,861 Operating grants and contributions 609 682 - - 609 682 Capital grants and contributions 5 4,534 295 472 300 5,006
General revenue:Property taxes 4,478 4,795 988 331 5,466 5,126 State-shared revenue 843 850 - - 843 850 Interest 412 257 376 246 788 503 Transfers and other revenue 25 53 (25) (53) - -
Total revenue 7,175 11,950 3,748 3,078 10,923 15,028
Program ExpensesGeneral government 1,293 1,328 - - 1,293 1,328 Public safety 2,583 2,655 - - 2,583 2,655 Public works 1,946 1,565 - - 1,946 1,565 Community and economic
development 155 347 - - 155 347 Cultural and recreation 312 273 - - 312 273 Interest on long-term debt 156 175 - - 156 175 Water and sewer - - 2,977 2,949 2,977 2,949
Total program expenses 6,445 6,343 2,977 2,949 9,422 9,292
Change in Net Assets 730 5,607 771 129 1,501 5,736
Net Assets - End of year 30,424$ 29,694$ 25,426$ 24,655$ 55,850$ 54,349$
TotalGovernmental Business-type
Activities Activities
Governmental Activities
The City’s total governmental revenues decreased by approximately $4.8 million, due to a decrease in dedicated roads during the current year.
City of South Lyon, Michigan Management’s Discussion and Analysis (Continued)
6
Business-type Activities
The City’s business-type activities consist of the Water and Sewer Fund. We provide water distribution and sewage treatment to residents from our water supply and treatment facility. The 2005 year was drier than 2006. This condition, along with larger than expected utility costs, electricity and natural gas, resulted in increased expenses, together with decreased usage that resulted in less revenue to operate the system. Water and sewage treatment rates charged to customers were increased in November 2006. The increased rates were not sufficient to cover costs.
The City of South Lyon’s Funds
Our analysis of the City’s major funds begins on page 11, following the government-wide financial statements. The fund financial statements provide detailed information about the most significant funds, not the City as a whole. The South Lyon City Council creates funds to help manage money for specific purposes, as well as to show accountability for certain activities, such as major and local road maintenance and debt service. The City’s major funds for 2007 include the General Fund, the Capital Improvements Fund, the Building Authority Fund, and the Water and Sewer Fund.
The General Fund pays for most of the City’s governmental services. The most significant is the police department, which incurred expenses of approximately $2,138,000 in 2007. Other government services accounted for in the General Fund include general government, the department of public works, the fire department, and recreation.
General Fund Budgetary Highlights
Over the course of the year, the City amended the budget on four occasions to account for changes made necessary due to unanticipated events or situations requiring increased expenditures for operational and capital expenditures.
City departments overall stayed below budget. The City maintained total expenditures $278,000 below budget.
Capital Asset and Debt Administration
At the end of 2007, the City had approximately $58,300,000 invested in a broad range of capital assets, including buildings, police and fire equipment, and water and sewer lines. In addition, the City has invested significantly in roads within the City.
City of South Lyon, Michigan Management’s Discussion and Analysis (Continued)
7
The water and wastewater treatment department made major investments during the 2006-2007 fiscal year as a result of the ongoing construction of the new wastewater treatment plant. To date, approximately $18,297,000 of new construction costs have been capitalized related to the treatment plant, including $431,000 during the 2006-2007 fiscal year. The construction is being financed by a loan from the State of Michigan Revolving Fund that will be paid over 20 years beginning in October 2006.
Economic Factors and Next Year’s Budgets and Rates
The City’s budget for next year takes into consideration another potential decrease in state-shared revenues; however, given our healthy fund balance, we do not anticipate any reductions in service levels based on potential revenue reductions. Over the years, the City has had the flexibility to adjust various ad valorem tax rates as necessary and as determined by Headlee, Truth in Taxation, and Proposal A. The state-wide Tax Reform Acts limit growth in taxable value to inflation or 5 percent, whichever is less. Inflation rates in recent years have only been in the range of 1.6 percent to 3.2 percent.
Due to the continuing residential growth within the City’s corporate boundaries, our taxable tax base has continued to increase between $15,000,000 and $28,000,000 annually. Additionally, as existing homes are sold, their taxable value becomes “uncapped” at the time of exchange and is increased to the higher state equalized value. After the exchange, the annual limitations required by the Headlee Amendment and Proposal A begin to apply from that date forward; however, when there are exchanges, the City may experience an increase in taxable value on those properties.
Contacting the City’s Management
This financial report is intended to provide our citizens, taxpayers, customers, and investors with a general overview of the City’s finances and to show the City’s accountability for the money it receives. If you have questions about this report or need additional information, we welcome you to contact the city manager’s office.
City of South Lyon, Michigan
The Notes to Financial Statements are an Integral Part of this Statement. 8
Statement of Net Assets June 30, 2007
Primary Government
Governmental Activities
Business-type Activities Total
Component Unit - Downtown
Development Authority
AssetsCash and cash equivalents (Note 3) 8,907,866$ 710,934$ 9,618,800$ 120,170$ Receivables (Note 4) 899,649 711,010 1,610,659 - Internal balances (493,570) 493,570 - - Inventories - 948 948 - Prepaid costs and other assets 167,510 63,120 230,630 - Restricted assets (Note 1) - 7,515,549 7,515,549 - Capital assets (Note 5):
Not being depreciated 3,207,804 147,317 3,355,121 - Depreciable - Net 21,574,982 33,411,661 54,986,643 -
Total assets 34,264,241 43,054,109 77,318,350 120,170
LiabilitiesAccounts payable 111,302 256,871 368,173 - Accrued and other liabilities 342,142 205,482 547,624 - Deferred revenue (Note 4) 534,060 - 534,060 - Long-term debt (Note 7):
Due within one year 735,240 775,000 1,510,240 - Due in more than one year 2,117,283 16,391,151 18,508,434 -
Total liabilities 3,840,027 17,628,504 21,468,531 -
Net AssetsInvested in capital assets -
Net of related debt 22,274,083 16,392,827 38,666,910 - Restricted (Note 11) 1,709,745 7,515,549 9,225,294 - Unrestricted 6,440,386 1,517,229 7,957,615 120,170
Total net assets 30,424,214$ 25,425,605$ 55,849,819$ 120,170$
City of South Lyon, Michigan
The Notes to Financial Statements are an Integral Part of this Statement. 9
Program Revenues
Expenses
Functions/ProgramsPrimary government:
Governmental activities:General government 1,293,402$ 486,401$ - $ - $ Public safety 2,582,893 74,250 - - Public works 1,946,341 93,768 493,900 5,183 Community and economic development 155,408 148,797 115,478 - Cultural and recreation 311,883 - - - Interest on long-term debt 156,168 - - -
Total governmental activities 6,446,095 803,216 609,378 5,183
Business-type activities - Water and sewer 2,976,389 2,113,667 - 294,872
Total primary government 9,422,484$ 2,916,883$ 609,378$ 300,055$
Component unit - Downtown DevelopmentAuthority 40,172$ - $ - $ - $
General revenues:Property taxesState-shared revenuesInterest Transfers
Total general revenues
Change in Net Assets
Net Assets - July 1, 2006
Net Assets - June 30, 2007
Charges for
Services
Operating
Grants and
Contributions
Capital Grants
and
Contributions
10
Statement of Activities Year Ended June 30, 2007
Net (Expense) Revenue and Changes in Net Assets
Primary Government
Governmental
Activities
Business-type
Activities Total
Component
Unit
(807,001)$ - $ (807,001)$ - $ (2,508,643) - (2,508,643) - (1,353,490) - (1,353,490) -
108,867 - 108,867 - (311,883) - (311,883) - (156,168) - (156,168) -
(5,028,318) - (5,028,318) -
- (567,850) (567,850) -
(5,028,318) (567,850) (5,596,168) -
- - - (40,172)
4,478,235 988,202 5,466,437 47,137 843,492 - 843,492 - 411,575 375,599 787,174 4,918
25,470 (25,470) - -
5,758,772 1,338,331 7,097,103 52,055
730,454 770,481 1,500,935 11,883
29,693,760 24,655,124 54,348,884 108,287
30,424,214$ 25,425,605$ 55,849,819$ 120,170$
City of South Lyon, Michigan
The Notes to Financial Statements are an Integral Part of this Statement.
11
Governmental Funds Balance Sheet June 30, 2007
General
Fund
Special Revenue
Fund - Capital
Improvements
Fund
Debt Service
Fund - Building
Authority Fund
Other
Nonmajor
Governmental
Funds
Total
Governmental
Funds
AssetsCash and cash equivalents (Note 3) 3,136,402$ 3,643,138$ 199,966$ 1,928,360$ 8,907,866$ Receivables (Note 4):
Customers 152,670 - - - 152,670 South Lyon Community Schools - - 534,060 - 534,060 Other governmental units 131,076 743 - 81,100 212,919
Due from other funds (Note 6) 125,818 - - - 125,818 Other current assets 155,998 - - 11,512 167,510
Total assets 3,701,964$ 3,643,881$ 734,026$ 2,020,972$ 10,100,843$
LiabilitiesAccounts payable 47,580$ 58,230$ - $ 5,492$ 111,302$ Accrued and other liabilities 126,434 - - 5,897 132,331 Due to other funds (Note 6) - 595,455 - 23,933 619,388 Due to other governmental units 4,436 - - - 4,436 Cash bonds and deposits 185,591 - - - 185,591 Deferred revenue (Note 4) - - 534,060 - 534,060
Total liabilities 364,041 653,685 534,060 35,322 1,587,108
Fund Balances Reserved for future cemetery expenditures - - - 618,249 618,249 Unreserved - Reported in:
General Fund 3,218,774 - - - 3,218,774 Special Revenue Funds - 2,811,125 - 1,263,600 4,074,725 Debt Service Funds - - 199,966 37,626 237,592
Unreserved - Designated for subsequentyear's expenditures:
General Fund 119,149 - - - 119,149 Special Revenue Funds - 179,071 - 66,175 245,246
Total fund balances 3,337,923 2,990,196 199,966 1,985,650 8,513,735
Total liabilities and fund balances 3,701,964$ 3,643,881$ 734,026$ 2,020,972$ 10,100,843$
Reconciliation of the Balance Sheet to the Statement of Net Assets June 30, 2007
Fund Balance - Total Governmental Funds 8,513,735$
24,782,786 (19,784)
(2,852,523)
Net Assets - Governmental Activities 30,424,214$
Amounts reported for governmental activities in the statement of net assets are different because:
Capital assets used in governmental activities are not financial resources and are not reported in the funds
Long-term liabilities are not due and payable in the current period and are not reported in the fundsAccrued interest on long-term liabilities is not reported in the funds
City of South Lyon, Michigan
The Notes to Financial Statements are an Integral Part of this Statement. 12
Governmental Funds Statement of Revenue, Expenditures, and
Changes in Fund Balances Year Ended June 30, 2007
General
Fund
Special Revenue
Fund - Capital
Improvements
Fund
Debt Service
Fund - Building
Authority Fund
Other
Nonmajor
Governmental
Funds
Total
Governmental
Funds
RevenuesProperty taxes 3,429,438$ 785,681$ 215,999$ 47,117$ 4,478,235$ Federal sources - 5,183 - 39,448 44,631 State sources 843,492 - - 493,900 1,337,392 Local sources - - 182,282 - 182,282 Licenses and permits 80,770 - - - 80,770 Charges for services 311,577 - - 54,000 365,577 Fines and forfeitures 34,380 - - - 34,380 Interest and other 391,421 164,839 17,391 101,661 675,312
Total revenues 5,091,078 955,703 415,672 736,126 7,198,579
ExpendituresGeneral government 1,225,947 - - - 1,225,947 Public safety 2,622,596 - - - 2,622,596 DPW, cemetery, and road improvements 849,677 271,747 - 813,757 1,935,181 Cultural and recreation 179,752 - - - 179,752
Debt service - - 401,413 95,140 496,553
Total expenditures 4,877,972 271,747 401,413 908,897 6,460,029
Excess of Revenues Over (Under) Expenditures 213,106 683,956 14,259 (172,771) 738,550
Other Financing Sources (Uses)Operating transfers in from other funds (Note 6) - 39,448 - 215,176 254,624 Operating transfers out to other funds (Note 6) - (189,706) - (39,448) (229,154)
Total other financing sources (uses) - (150,258) - 175,728 25,470
Net Change in Fund Balances 213,106 533,698 14,259 2,957 764,020
Fund Balances - July 1, 2006 3,124,817 2,456,498 185,707 1,982,693 7,749,715
Fund Balances - June 30, 2007 3,337,923$ 2,990,196$ 199,966$ 1,985,650$ 8,513,735$
City of South Lyon, Michigan
The Notes to Financial Statements are an Integral Part of this Statement. 13
Governmental Funds Reconciliation of the Statement of Revenue, Expenditures,
and Changes in Fund Balances of Governmental Funds to the Statement of Activities
Year Ended June 30, 2007
Net Change in Fund Balances - Total Governmental Funds 764,020$
Amounts reported for governmental activities in the statement of activities are different because:
Governmental funds report capital outlays as expenditures;in the statement of activities, these costs are allocated overtheir estimated useful lives as depreciation (317,244)
Disposed property and equipment are not recorded in the fund-based statements (114,759)
Repayment of bond principal is an expenditure in thegovernmental funds, but not in the statement of activities(where it reduces long-term debt) 373,489
Change in accrued interest on long-term debt is not recordedin the governmental funds 2,933
Decrease in accumulated employee sick and vacation pay isrecorded when earned in the statement of activities 22,015
Change in Net Assets of Governmental Activities 730,454$
City of South Lyon, Michigan
The Notes to Financial Statements are an Integral Part of this Statement. 14
Proprietary Fund Enterprise Fund - Water and Sewer Fund
Statement of Net Assets June 30, 2007
AssetsCurrent assets:
Cash and cash equivalents (Note 3) 710,934$ Customer receivables (Note 4) 711,010 Due from other funds (Note 6) 595,455 Other current assets 63,120
Total current assets 2,080,519
Noncurrent assets:Other long-term assets 948 Restricted assets (Note 1) 7,515,549 Capital assets (Note 5) 33,558,978
Total noncurrent assets 41,075,475
Total assets 43,155,994
LiabilitiesAccounts payable 256,871 Accrued and other liabilities 205,482 Due to other funds (Note 6) 101,885 Current portion of long-term debt (Note 7) 775,000
Total current liabilities 1,339,238
Long-term debt - Net of current portion (Note 7) 16,391,151
Total liabilities 17,730,389
Net AssetsInvestment in capital assets - Net of related debt 16,392,827 Restricted 7,515,549 Unrestricted 1,517,229
Total net assets 25,425,605$
City of South Lyon, Michigan
The Notes to Financial Statements are an Integral Part of this Statement. 15
Proprietary Fund Enterprise Fund - Water and Sewer Fund
Statement of Revenue, Expenses, and Changes in Net Assets Year Ended June 30, 2007
Operating RevenuesWater sales 660,356$ Sewage disposal 862,118 Refuse collection 445,759 Billing and collection charges 83,226 Hydrant rental 25,050 Penalties assessed 22,850
Total operating revenues 2,099,359
Operating ExpensesPersonnel services:
Salaries and wages 569,176 Fringe benefits 312,910
Equipment repairs and maintenance 133,386 Public utilities 404,917 Refuse collection 445,429 Depreciation and amortization 755,693 Other services and charges 119,189 Supplies 195,350 Insurance 40,312 Other 27
Total operating expenses 2,976,389
Operating Loss (877,030)
Nonoperating RevenueProperty taxes 988,202 Interest income 375,599 Other income 14,308
Total nonoperating revenue 1,378,109
Income - Before other financing uses and capital contributions 501,079
Other Financing Uses - Operating transfers out (Note 6) (25,470)
Capital Contributions 294,872
Change in Net Assets 770,481
Net Assets - July 1, 2006 24,655,124
Net Assets - June 30, 2007 25,425,605$
City of South Lyon, Michigan
The Notes to Financial Statements are an Integral Part of this Statement. 16
Proprietary Fund Enterprise Fund - Water and Sewer Fund
Statement of Cash Flows Year Ended June 30, 2007
Cash Flows from Operating ActivitiesReceipts from customers 2,007,275$ Payments to suppliers (1,505,108) Payments to employees (897,317) Internal activity - Payments to other funds (4,324)
Net cash used in operating activities (399,474)
Cash Flows from Capital and Related Financing ActivitiesCollection of customer assessments 294,872 Proceeds from long-term debt 217,990 Principal and interest paid on long-term debt (1,166,598) Property tax revenue received 988,202 Operating transfers to Debt Service Funds (25,470) Purchase of capital assets (780,877)
Net cash used in capital and relatedfinancing activities (471,881)
Cash Flows from Investing Activities - Interest received on investments 389,907
Net Decrease in Cash and Cash Equivalents (481,448)
Cash and Cash Equivalents - July 1, 2006 8,707,931
Cash and Cash Equivalents - June 30, 2007 8,226,483$
Balance Sheet Classification of Cash and Cash EquivalentsCash and cash equivalents 710,934$ Restricted assets (Note 11) 7,515,549
Total 8,226,483$
Reconciliation of Operating Loss to Net Cash fromOperating Activities
Operating loss (877,030)$ Adjustments to reconcile operating loss to net cash from
operating activities:Depreciation and amortization 755,693 Changes in assets and liabilities:
Receivables (52,018) Prepaid and other assets (40,066) Accounts payable (166,498) Accrued and other liabilities (15,231) Due to other funds (4,324)
Net cash used in operating activities (399,474)$ There were no noncash transactions during the year ended June 30, 2007.
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
17
Note 1 - Summary of Significant Accounting Policies
The accounting policies of the City of South Lyon, Michigan (the “City”) conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. The following is a summary of the significant accounting policies:
Reporting Entity
The City is governed by an elected seven-member council. The accompanying financial statements present the City of South Lyon, Michigan and its component unit, an entity for which the City is considered to be financially accountable. The 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 and separate financial statements are not issued for the component unit.
The South Lyon Building Authority is governed by a board that is appointed by the City Council. 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 acquire and lease property to the City.
Discretely Presented Component Unit
a. The Downtown Development Authority (DDA) of the City is reported in a separate column to emphasize that it is legally separate from the City. The DDA was created in an effort to correct and prevent the deterioration of the downtown district, encourage historical preservation, and to promote economic growth within the downtown district. The DDA’s governing body, which consists of nine individuals, is appointed by the city manager and confirmed by the City Council. In addition, the DDA’s budget is subject to approval by the City Council. The DDA does not issue a separate financial report.
b. The Economic Development Corporation (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 residents of the City. The EDC’s governing body consists of seven individuals who are appointed by the City Council. The EDC had no activity during the fiscal year ended June 30, 2007, and has no financial resources as of June 30, 2007. Accordingly, there is no financial information for the EDC included in these financial statements.
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
18
Note 1 - Summary of Significant Accounting Policies (Continued)
Government-wide and Fund Financial Statements
The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component unit. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, normally supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from the Downtown Development Authority, a legally separate component unit for which the primary government is financially accountable.
The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include: (1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment; and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenue.
Separate financial statements are provided for governmental funds and the proprietary fund. Major individual governmental funds and the major individual Enterprise Fund are reported as separate columns in the fund financial statements.
Measurement Focus, Basis of Accounting, and Financial Statement Presentation
The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenue is recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
19
Note 1 - Summary of Significant Accounting Policies (Continued)
Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized as soon as it is both measurable and available. Revenue is considered to be available if it is collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, expenditures relating to compensated absences, and claims and judgments are recorded only when payment is due.
Property taxes, special assessments, state-shared revenue, charges for services, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenue of the current fiscal period. Sales taxes collected and held by the State at year end on behalf of the City also are recognized as revenue. All other revenue items, such as fines and permits, are considered to be available only when cash is received by the City.
The City reports the following major governmental funds:
General Fund - The General Fund is the City’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.
Capital Improvements Fund - The Capital Improvements Fund is used to account for special tax levies and other resources used for the development of various capital assets acquired or constructed by the City.
Building Authority Fund - The Building Authority Fund is used primarily to account for transactions between the City and South Lyon Community Schools in relation to the joint administration building and debt service for other Building Authority projects.
The City reports the following major proprietary fund:
Enterprise Fund - Water and Sewer Fund - The Water and Sewer Fund accounts for the activities of the water distribution system and sewage collection system.
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
20
Note 1 - Summary of Significant Accounting Policies (Continued)
As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges between the government’s water and sewer function and various other functions of the government. Eliminations of these charges would distort the direct costs and program revenues reported for the various functions concerned.
Proprietary funds distinguish operating revenue and expenses from nonoperating items. Operating revenue and expenses generally result from providing services in connection with a proprietary fund’s principal ongoing operations. The principal operating revenue of our proprietary fund relates to charges to customers for sales and services. The Water and Sewer Fund also recognizes the portion of tap fees intended to recover current costs (e.g., labor and materials to hook up new customers) as operating revenue. The portion intended to recover the cost of the infrastructure is recognized as nonoperating revenue. Operating expenses for proprietary 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.
Assets, Liabilities, and Net Assets or Equity
Bank Deposits 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.
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 financial statements as “internal balances.” No allowance for uncollectible accounts had been recorded, as the City believes all receivables will be collected.
Property Taxes - Property taxes are levied on each July 1 on the taxable valuation of property as of the preceding December 31. Taxes are due on September 15 with the final collection date of February 28 before they are added to the delinquent county tax rolls.
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
21
Note 1 - Summary of Significant Accounting Policies (Continued)
The 2006 taxable valuation of the City totaled approximately $396.4 million, on which ad valorem taxes levied consisted of 11.2500 mills for the City’s operating purposes and 2.5000 mills for water and sewer debt service. The ad valorem taxes levied raised approximately $4.5 million for City operations and approximately $988,000 for water and sewer debt service. These amounts are recognized in the respective General Fund, Special Revenue Funds, Debt Service Funds, and Enterprise Fund financial statements as taxes receivable or as tax revenue.
Prepaid Items - 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 - Restricted assets consist of cash and cash equivalents held for water and wastewater system improvements and equipment replacement. Included in this amount is a portion of water and sewer tap-in fees required by local ordinance to be restricted for improvements. Restricted tap-in fees totaled approximately $295,000 for the year ended June 30, 2007.
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 $1,000 and a useful life of greater than 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.
Interest incurred during the construction of capital assets of business-type activities is included as part of the capitalized value of the assets constructed.
Roads, buildings, equipment, and vehicles are depreciated using the straight-line method over their estimated useful lives:
Wastewater treatment plant and equipment 10 to 40 yearsWater treatment plant and equipment 10 to 40 yearsUtility system, buildings, and improvements 17 to 40 yearsRoads and sidewalks 20 to 25 yearsBuildings and improvements 15 to 40 yearsOther tools, furniture, and equipment 5 to 15 years
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
22
Note 1 - Summary of Significant Accounting Policies (Continued)
Compensated Absences (Vacation and Sick Leave) - It is the City’s policy to permit employees to accumulate earned but unused sick and vacation pay benefits. Under the City’s policy, employees earn sick and vacation time based on time of service with the City. All vacation and sick pay is accrued when incurred in the government-wide financial statements. The noncurrent portion (the amount estimated to be used in subsequent fiscal years) for governmental funds is maintained separately and represents a reconciling item between the fund and government-wide presentations.
Long-term Obligations - In the government-wide financial statements and the proprietary fund type in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund-type statement of net assets. On the governmental fund financial statements, the face amount of debt issued is reported as other financing sources.
Fund Equity - In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change.
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 reporting period. Actual results could differ from those estimates.
Note 2 - Stewardship, Compliance, and Accountability
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 have been included in the “revenue” and “expenditures” categories, rather than as “other financing sources (uses).”
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
23
Note 2 - Stewardship, Compliance, and Accountability (Continued)
The annual budget is prepared by the City manager and submitted to the City Council at its meeting nearest the third Monday in April of each year. The budget is adopted by the City Council no later than the second regular City Council meeting in May. Subsequent amendments are approved by the City Council. Amendments may be made by the City Council up until the last day of the fiscal year. The budget has been adopted on an activity basis; expenditures at this level in excess of amounts budgeted are a violation of Michigan law.
Unexpended appropriations lapse at year end. The amount of encumbrances outstanding at June 30, 2007 has not been calculated. During the current year, the budget was amended in a legally permissible manner.
A comparison of the actual results of operations to the budgeted amounts (at the level of control adopted by the City Council) for the General Fund and Major Special Revenue Funds is presented as required supplemental information. Information comparing other Special Revenue Funds activity to the respective budgets can be obtained at City Hall.
During the year, the City did not incur significant expenditures in excess of the amounts budgeted.
Note 3 - Deposits and Investments
Michigan Compiled Laws, Section 129.91, 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 City 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’ acceptance 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.
The City has designated three banks for the deposit of City 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, bank accounts and CDs, and such obligations, bonds, and securities as permitted by the statutes of the State of Michigan.
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
24
Note 3 - Deposits and Investments (Continued)
The City’s cash and investments are subject to custodial credit risk, which is examined in more detail below:
Custodial Credit Risk of Bank Deposits - Custodial credit risk is the risk that in the event of 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 approximately $16.9 million of bank deposits (checking and savings accounts) that were uninsured and uncollateralized. The component unit has approximately $15,000 of bank deposits that were uninsured and uncollateralized. The City believes that due to the dollar amounts of cash deposits and the limits of FDIC insurance, it is impractical to insure all deposits. As a result, the City evaluates each financial institution with which it deposits funds and assesses the level of risk of each institution; only those institutions with an acceptable estimated risk level are used as depositories.
Note 4 - Receivables
The City’s receivables of governmental and business activities are as follows:
General
Fund
Capital
Improvements
Fund
1996 Building
Authority Fund
Nonmajor
and Other
Funds
Total
Governmental
Activities
Total Business-
type Activities
Receivables:Customers 152,670$ - $ - $ - $ 152,670$ 711,010$ Intergovernmental 131,076 743 - 81,100 212,919 - South Lyon Community Schools - - 534,060 - 534,060 -
Total receivables 283,746$ 743$ 534,060$ 81,100$ 899,649$ 711,010$
Governmental Activities
The City considers all receivables to be collectible and has not recorded an allowance for doubtful accounts.
Governmental funds report deferred revenue in connection with receivables for revenue that is not considered to be available to liquidate liabilities of the current period. Governmental funds and governmental activities also defer revenue recognition in connection with resources that have been received but not yet earned. At the end of the current fiscal year, deferred revenue consists of payments not yet earned or received from South Lyon Community Schools (the “Schools”) in relation to the lease agreement between the City and the Schools.
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
25
Note 4 - Receivables (Continued)
In a prior year, the South Lyon Building Authority, in cooperation with the City and the Schools, constructed a joint administrative building. The City entered into a lease agreement with the South Lyon Building Authority relating to the use of the administrative building. In addition, the Schools entered into a lease agreement with the City to sublease a portion of the building. Under the terms of these agreements, the City’s and the Schools’ rental payments will equal an amount sufficient to pay the debt service requirements and other related costs. The rental payments by the City and the Schools are based on the amount of allocated space utilized by each entity. As of June 30, 2007, the City’s and the Schools’ estimated share of the debt service was 41.95 percent and 58.05 percent, respectively.
Ownership of the land will be transferred at no cost to the Schools upon full payment and retirement of the bonds and the receipt of all rental payments by the City. However, the City has met the requirement to record the building as a capital lease and has accordingly recorded 41.95 percent of the cost and the debt balance in governmental activities. As of June 30, 2007, the estimated future minimum lease payments to be received by the City from the Schools are as follows:
2008 148,608$
2009 151,220
2010 150,495
2011 152,381
Total 602,704
Less portion representing interest (68,644)
Net 534,060$
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
26
Note 5 - Capital Assets
Capital asset activity of the primary government’s governmental and business-type activities was as follows:
Balance
July 1, 2006 Additions
Disposals and
Adjustments
Balance
June 30, 2007
Depreciable
Life - Years
Governmental Activities
Capital assets not being depreciated - Land 3,310,563$ - $ (102,759)$ 3,207,804$ -
Capital assets being depreciated:Roads and sidewalks 20,073,302 588,308 - 20,661,610 20-25Buildings and improvements 6,508,771 153,535 (12,000) 6,650,306 15-40Other tools, furniture, and equipment 2,921,854 152,070 - 3,073,924 5-15
Subtotal 29,503,927 893,913 (12,000) 30,385,840
Accumulated depreciation:Roads and sidewalks 4,043,427 870,109 - 4,913,536 Buildings and improvements 1,313,732 222,820 - 1,536,552 Other tools and equipment 2,242,542 118,228 - 2,360,770
Subtotal 7,599,701 1,211,157 - 8,810,858
Net capital assets being depreciated 21,904,226 (317,244) (12,000) 21,574,982
Net capital assets 25,214,789$ (317,244)$ (114,759)$ 24,782,786$
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
27
Note 5 - Capital Assets (Continued)
Balance
July 1, 2006 Additions
Disposals and
Adjustments
Balance
June 30, 2007
Depreciable
Life - Years
Business-type Activities
Capital assets not being depreciated:Land 147,317$ - $ - $ 147,317$ -
Construction in progress 18,275,457 938,608 19,214,065 - -
Total capital assets notbeing depreciated 18,422,774 938,608 19,214,065 147,317
Capital assets being depreciated:Wastewater treatment plant and equipment 14,005,622 18,302,754 - 32,308,376 10-40Water treatment plant and equipment 2,625,807 12,418 - 2,638,225 10-40Utility system, buildings, and improvements 9,922,582 974,435 - 10,897,017 17-40Other tools, furniture, and equipment 692,789 178,325 - 871,114 5-10
Subtotal 27,246,800 19,467,932 - 46,714,732
Accumulated depreciation 12,548,416 754,655 - 13,303,071
Net capital assets being depreciated 14,698,384 18,713,277 - 33,411,661
Net capital assets 33,121,158$ 19,651,885$ 19,214,065$ 33,558,978$
Depreciation expense was charged to programs of the primary government as follows:
Governmental activities:General government 114,755$ Public safety 76,970 Public works 965,443 Recreation and culture 53,989
Total governmental activities 1,211,157$
Business-type activities - Enterprise Fund - Water and Sewer Fund 754,655$
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
28
Note 6 - Interfund Balances and Operating Transfers
The composition of interfund receivables and payables balances is as follows:
General Fund:
Water and Wastewater Fund 101,885$ Major Road Fund 20,413 Local Road Fund 3,520
Total General Fund 125,818
Enterprise Fund - Water and Sewer Fund - Capital
Improvement Fund 595,455
Total interfund receivables 721,273$
Interfund balances represent routine and temporary cash flow assistance. The composition of operating transfers is as follows:
Operating Transfer Out Operating Transfer In Amount
Special Revenue Funds:Capital Improvements Fund Local Road Fund 189,706$
Community DevelopmentBlock Grant Fund Capital Improvements
Fund 39,448
Total transfers out of SpecialRevenue Funds 229,154
Enterprise Funds - Water and Sewer Fund 2000 G.O. Water Bonds
Fund 25,470
Total operating transfers 254,624$
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
29
Note 6 - Interfund Balances and Operating Transfers (Continued)
The transfer from the Enterprise - Water and Sewer Fund to the Debt Service Fund provides for debt payments. Transfers from the Capital Improvements Fund and the Community Development Block Grant Fund to the governmental funds provide for capital improvements.
Note 7 - Long-term 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. Installment purchase agreements are also general obligations of the government.
Long-term obligation activity can be summarized as follows:
Due WithinJuly 1, 2006 Additions Reductions June 30, 2007 One Year
Governmental ActivitiesGeneral obligation bonds:
1996 Building Authority Bonds 1,120,000$ - $ (200,000)$ 920,000$ 210,000$ 1999 Building Authority Bonds 1,015,000 - (60,000) 955,000 60,000 2005 Building Authority Bonds 355,000 - (20,000) 335,000 25,000
Compensated absences 365,835 - (22,015) 343,820 343,820 Installment purchase agreements:
2000 fire truck installment contract 232,192 - (53,489) 178,703 56,420
2006 dumptruck installment contract 160,000 - (40,000) 120,000 40,000
Total governmental activities 3,248,027$ - $ (395,504)$ 2,852,523$ 735,240$
Business-type ActivitiesGeneral obligation debt:
2000 Unlimited Tax Water Bonds 1,040,000$ - $ (80,000)$ 960,000$ 85,000$ 2003 State of Michigan Revolving
Fund Loan 16,663,161 217,990 (675,000) 16,206,151 690,000
Total business-type activities 17,703,161$ 217,990$ (755,000)$ 17,166,151$ 775,000$
Note: The change in compensated absences is the net change to the liability during the year ended June 30, 2007.
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
30
Note 7 - Long-term Debt (Continued)
Other information concerning long-term debt obligations is as follows:
Outstanding Final Original Debt Interest Payment Maturity PaymentPrincipal June 30, 2007 Rate Date Ranges
Governmental ActivitiesGeneral obligation bonds:
1996 Building Authority Bonds 2,650,000$ 920,000$ 5.00% 05/01/2011 $210,000-$250,0001999 Building Authority Bonds 1,370,000 955,000 4.70%-5.20% 05/01/2019 $60,000-$100,0002005 Building Authority Bonds 380,000 335,000 3.50%-4.10% 05/01/2019 $25,000-$35,000
Installment purchase agreements:2000 fire truck installment contract 500,000 178,703 5.48% 06/01/2010 $56,420-$62,7712006 dumptruck installment contract 200,000 120,000 3.75% 04/01/2010 $40,000
Total governmental activities -Excluding compensatedabsences 5,100,000$ 2,508,703
Compensated absences 343,820
Total governmental activities 2,852,523$
Business-type ActivitiesGeneral obligation debt:
2000 Unlimited Tax Water Bonds 1,400,000$ 960,000$ 4.50% - 5.20% 09/01/2015 $85,000-$130,0002003 State of Michigan Revolving
Fund Loan 16,206,151 16,206,151 2.50% 10/01/2025 $678,845-$1,055,966
Total business-type activities 17,606,151$ 17,166,151$
The City has entered into an agreement with the State of Michigan to borrow up to $17,250,000 from the State Revolving Fund in order to pay for the capital improvements to the City’s waste-water treatment plant. Interest payments on the loan began in October 2003. The loan principal will be repaid over 20 years in annual installments that began in October 2006. As of June 30, 2007, the outstanding loan balance is $16,206,151.
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
31
Note 7 - Long-term Debt (Continued)
Annual debt service requirements to maturity for the City’s long-term obligations, except compensated absences, are as follows:
Fiscal YearEnding
June 30 Principal Interest Total Principal Interest Total
2008 391,420$ 121,836$ 513,256$ 775,000$ 433,441$ 1,208,441$ 2009 414,510 102,548 517,058 768,845 412,103 1,180,948 2010 432,773 82,542 515,315 803,866 392,079 1,195,945 2011 345,000 61,548 406,548 828,421 367,260 1,195,681 2012 100,000 44,673 144,673 852,976 343,561 1,196,537 2013 100,000 40,010 140,010 872,642 319,120 1,191,762 2014 110,000 35,285 145,285 902,197 293,815 1,196,012 2015 115,000 30,095 145,095 926,752 267,584 1,194,336 2016 120,000 24,535 144,535 956,196 240,361 1,196,557 2017 120,000 18,655 138,655 845,751 215,838 1,061,589 2018 125,000 12,775 137,775 865,306 194,205 1,059,511 2019 135,000 6,635 141,635 889,749 171,961 1,061,710 2020 - - - 909,304 149,229 1,058,533 2021 - - - 933,748 125,885 1,059,633 2022 - - - 958,192 101,930 1,060,122 2023 - - - 982,635 77,364 1,059,999 2024 - - - 1,007,079 52,187 1,059,266 2025 - - - 1,031,523 26,399 1,057,922 2026 - - - 1,055,969 - 1,055,969
Total 2,508,703$ 581,137$ 3,089,840$ 17,166,151$ 4,184,322$ 21,350,473$
Governmental Activities Business-type Activities
Total interest incurred related to governmental activities for the year approximated $184,000. Total interest incurred related to business-type activities for the year approximated $412,000.
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 workers’ compensation, medical, health, life, and disability claims, and participates in the Michigan Municipal League Liability and Property pool for claims relating to general law enforcement, emergency medical, public errors and omissions, and auto liabilities. Settled claims relating to the commercial insurance have not exceeded the amount of insurance coverage in any of the past three fiscal years.
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
32
Note 8 - Risk Management (Continued)
The Michigan Municipal League Liability and Property pool program operates as a common risk-sharing management program for local units of government in Michigan; member premiums are used to purchase commercial excess insurance coverage and to pay member claims in excess of deductible amounts.
Note 9 - Defined Benefit Pension Plans
Plan Description The City participates in the Michigan Municipal Employees’ Retirement System (MERS), an agent multiple-employer defined benefit pension plan that covers substantially all employees of the City. The system provides retirement, disability, and death benefits to plan members and their beneficiaries. MERS issues a publicly available financial report that includes financial statements and required supplementary information for the system. That report may be obtained by writing to the system at 1134 Municipal Way, Lansing, MI 48197. Funding Policy The obligation to contribute to and maintain the system for these employees was established by resolution of the City Council and negotiation with the competitive bargaining unit representing union employees. The plan does not require a contribution from employees. The employer contribution ranges from 10.62 percent to 14.71 percent of gross compensation based on the employee’s classification. Pension benefits are based on 2.25 percent of the five-year final average compensation, with a maximum of 80 percent of final average compensation for all employees. Deferred retirement benefits vest after 10 years of service, but are not paid until the date retirement would have occurred had the member remained an employee.
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
33
Note 9 - Defined Benefit Pension Plans (Continued)
Annual Pension Costs For the year ended June 30, 2007, the City’s annual pension cost amounted to $319,995. The City’s required contribution was equal to the annual pension cost as determined by the actuarial valuation. The annual required contribution was determined as part of an actuarial valuation at December 31, 2004, using the entry age normal cost actuarial funding method. Significant actuarial assumptions used include (a) an 8.0 percent investment rate of return, (b) projected salary increases of 4.5 percent to 12.90 percent per year, and (c) no cost of living adjustments. Both (a) and (b) include an inflation component of 4.5 percent. The actuarial value of assets was determined using techniques that smooth the effects of short-term volatility over a five-year period. The unfunded liability is being amortized as a level percentage of payroll on a closed basis. Three-year Trend Information
Fiscal Year Ended June 302007 2006 2005
Annual pension costs (APC) 319,995$ 289,540$ 222,228$ Percentage of APC contributed 100% 100% 100%Net pension obligation - $ - $ - $
Actuarial Valuation as of December 312006 2005 2004
Actuarial value of assets 5,645,947$ 5,109,827$ 4,712,758$ Actuarial accrued liability
(AAL) (entry) 7,484,995$ 6,936,238$ 6,300,434$ Unfunded AAL (UAAL) 1,839,048$ 1,826,411$ 1,587,676$ Funded ratio 75.4% 73.7% 74.8%Covered payroll 2,697,025$ 2,580,549$ 2,520,438$ UAAL as a percentage of
covered payroll 68.2% 70.8% 63.0%
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
34
Note 10 - Joint Ventures
The City is a member of the Resource Recovery and Recycling Authority of Southwest Oakland County (RRRASOC) and the South Lyon Area Recreation Council (SLARC). RRRASOC is incorporated by the Cities of Farmington, Farmington Hills, Novi, South Lyon, Southfield, Walled Lake, and Wixom and the Charter Township of Lyon. SLARC is incorporated by the City of South Lyon and the Charter Townships of Lyon and Green Oak. The City appoints one member to each of the joint ventures’ governing boards, which then approve the annual budgets. The joint ventures receive their operating revenue from member contributions and miscellaneous income. During the current year, the City contributed the following amounts:
Entity Contribution
RRRASOC 14,809$ SLARC 28,032
The City is unaware of any circumstances that would cause an additional benefit or burden to the participating governments in the near future. Complete financial statements for RRRASOC can be obtained from RRRASOC’s office at 20000 West 8 Mile Road, Southfield, Michigan 48075, and for SLARC at SLARC’s office at 318 W. Lake Street, South Lyon, MI 48178.
Note 11 - Restricted Net Assets
Net assets have been restricted for the following purposes:
Governmental Business-typeRestricted for Activities Activities
Road improvements 803,888$ -$ Law enforcement 50,016 - Cemetery 618,249 - Debt service 237,592 - Water and sewer replacement - 5,781,107 State Revolving Fund loan - 1,734,442
Total 1,709,745$ 7,515,549$
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
35
Note 12 - 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 shortfall generated since January 1, 2000 is as follows:
Building permit revenue 105,292$
Related expenses:Direct costs (241,596) Estimated indirect costs (10,702)
Total construction code expenses (252,298)
Shortfall (147,006)
Cumulative shortfall - July 1, 2006 (518,787)
Cumulative shortfall - June 30, 2007 (665,793)$
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
36
Note 13 - Capital Improvements Fund Expenditures
The expenditures of the Capital Improvements Fund for the year ended June 30, 2007 are as follows:
Professional services:South West Rail Connector 44,522$ Chester and Ridge sidewalk 213 Wells Street parking lot 1,341 Orchard Ridge sidewalk 12,661 Local Street project 79,900 Streetscape 75,485
Total professional services 214,122$
Construction:Cemetery addition 4,467 Chester and Ridge sidewalk 446 Orchard Ridge sidewalk 39,705 Streetscape 1,947 South Lyon Community Schools 11,060
Total construction 57,625
Total community maintenanceand development expenditures 271,747$
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
37
Note 14 - Segment Information
The City maintains one Enterprise Fund that provides water and sewer services and refuse collection service. Segment information for the year ended June 30, 2007 is as follows:
Water and Sewer
Refuse Collection
Assets:Current 2,080,189$ 330$ Noncurrent 41,075,475 -
Total assets 43,155,664 330 Liabilities:
Current 1,339,238 - Noncurrent 16,391,151 -
Total liabilities 17,730,389 -
Net assets:
Invested in capital assets - 16,392,827 -
Net of related debtRestricted 7,515,549 - Unrestricted 1,516,899 330
Total net assets 25,425,275$ 330$
Condensed Statement of Net Assets
Water andSewer
Refuse Collection
Operating revenues 1,653,600$ 445,759$ Operating expenses 2,530,960 445,429
Operating (loss) income (877,360) 330 Nonoperating revenue 1,378,109 -
Other financing uses (25,470) - Capital contributions 294,872 -
Changes in net assets 770,151 330
Net assets - July 1, 2006 24,655,124 -
Net assets - June 30, 2007 25,425,275$ 330$
Condensed Statement of Revenues, Expenses, and Changes in Net Assets
City of South Lyon, Michigan Notes to Financial Statements
June 30, 2007
38
Note 14 - Segment Information (Continued)
Condensed Statement of Cash Flows
Water andSewer
RefuseCollection
Cash flows from operating activities (399,804)$ 330$ Cash flows from capital and related financing
activities (471,881) - Cash flows from investing activities 389,907 -
Net (decrease) increase in cash and cash equivalents (481,778) 330
Cash and cash equivalents - July 1, 2006 8,707,931 -
Cash and cash equivalents - June 30, 2007 8,226,153$ 330$
Note 15 - Other Postemployment Benefits
The City provides health care benefits to all full-time employees upon retirement in accordance with labor contracts. Currently, three retirees are eligible. The City provides a monthly stipend to be used to supplement the insurance cost for postemployment health care benefits. The expense is recognized by the City as the payments to the employees are made; during the year, this amounted to approximately $9,000.
Upcoming Reporting Change - The Governmental Accounting Standards Board has recently released Statement Number 45, Accounting and Reporting by Employers for Postemployment Benefits Other than Pensions. The new pronouncement provides guidance for local units of government in recognizing the cost of retiree health care, as well as any other postemployment benefits (other than pensions). The new rules will cause the government-wide financial statements to recognize the cost of providing retiree health care coverage over the working life of the employee, rather than at the time the health care premiums are paid. The new pronouncement is effective for the year ending June 30, 2009.
City of South Lyon, Michigan
40
Required Supplemental Information Budgetary Comparison Schedule - General Fund
Year Ended June 30, 2007
Variancewith
Original Amended AmendedBudget Budget Actual Budget
RevenueProperty taxes 3,384,973$ 3,384,973$ 3,429,438$ 44,465$ State-shared revenue 878,800 878,800 843,492 (35,308) Licenses and permits 100,000 100,000 80,770 (19,230) Charges for services 311,000 311,000 311,577 577
Fines and forfeitures 37,500 37,500 34,380 (3,120) Interest 125,000 140,000 206,401 66,401 Other:
DTE settlement - - 74,760 - Sundry - - 54,232 - Police - - 33,345 - Rentals - - 8,280 - Board of appeals - - 6,951 - Refunds for cost of arrests - - 6,525 - Miscellaneous - - 927 -
Total other 149,000 223,761 185,020 (38,741)
Total revenue 4,986,273 5,076,034 5,091,078 15,044
ExpendituresGeneral government 1,252,600 1,305,600 1,225,947 (79,653) Police 2,174,428 2,174,428 2,138,474 (35,954) Fire 510,409 510,409 481,937 (28,472) Ambulance 5,560 5,560 2,185 (3,375) Cemetery 84,300 84,300 75,689 (8,611) DPW 866,042 866,042 773,988 (92,054) Parks and recreation 112,630 112,630 92,922 (19,708) Senior transportation 50,000 50,000 50,000 - Historical depot 41,800 41,800 36,830 (4,970)
Total expenditures 5,097,769 5,150,769 4,877,972 (272,797)
Excess of Revenue Over (Under)Expenditures (111,496) (74,735) 213,106 287,841
Fund Balance - July 1, 2006 3,124,817 3,124,817 3,124,817 -
Fund Balance - June 30, 2007 3,013,321$ 3,050,082$ 3,337,923$ 287,841$
City of South Lyon, Michigan
41
Required Supplemental Information Budgetary Comparison Schedule - Major Special Revenue Fund
Capital Improvements Fund Year Ended June 30, 2007
Variancewith
Original Amended AmendedBudget Budget Actual Budget
RevenueProperty taxes 793,116$ 793,116$ 785,681$ (7,435)$ Grants 297,234 39,448 44,631 5,183 Interest and other 60,000 130,000 164,839 34,839
Total revenue 1,150,350 962,564 995,151 32,587
ExpendituresProfessional services 212,700 217,900 214,122 (3,778)
Construction expense 541,385 158,060 57,625 (100,435) Transfers to other funds 230,000 232,000 189,706 (42,294)
Total expenditures 984,085 607,960 461,453 (146,507)
Excess of Revenue Over Expenditures 166,265 354,604 533,698 179,094
Fund Balance - July 1, 2006 2,456,498 2,456,498 2,456,498 -
Fund Balance - June 30, 2007 2,622,763$ 2,811,102$ 2,990,196$ 179,094$
City of South Lyon, Michigan
43
Public Safety
General
Government Police Fire Ambulance
ExpendituresSalaries and wages 497,159$ 1,313,099$ 18,361$ - $ Salaries and wages - Mechanic - - - - Reimbursement of mechanic wages - - - - Fringe benefits:
Payroll taxes and insurance 206,223 528,214 28,175 - Uniforms - 16,104 8,369 - Education and training 1,950 2,960 8,826 -
Total fringe benefits 208,173 547,278 45,370 -
Operating expense 21,594 14,481 10,109 - Office supplies 5,695 4,309 11,267 - Printing 4,226 - - - Publishing 4,998 - - - Professional services 22,550 8,963 - - Contractual services 81,162 - - - Audit 38,069 - - - Planning consultant 5,500 - - - Elections 7,980 - - - Legal fees 65,604 28,823 - - Dues and memberships 12,704 396 3,018 - Telephone 5,345 14,254 10,200 - Conference and travel 6,817 49 - - Insurance and bonds 39,681 22,251 15,768 51 Utilities 19,486 14,367 9,730 2,134 Maintenance:
Building 9,830 6,998 13,783 - General - 13,938 11,251 - Vehicle 3,694 12,517 19,454 - Radio - 1,864 4,134 -
Gas and oil - 23,321 4,663 - Sundry 3,993 132 - - Community promotions 130,488 - - - Capital improvements - 61,245 - - Land beautification 11,124 - - - Equipment purchases 1,444 3,563 13,455 - Computer purchases 3,822 - - - Capital expenditures - - - - Land improvements - - - - Recycling charges 14,809 - - - Debt service principal - - 53,489 - Debt service interest - - 7,868 - Ammunition - 2,860 - - South Lyon Firefighters Association - - 194,453 - Radio dispatching - 43,766 10,514 - Equipment rental - - 25,050 - Traffic and street lights - - - -
Total expenditures 1,225,947$ 2,138,474$ 481,937$ 2,185$
44
Other Supplemental Information Schedule of Expenditures
General Fund Year Ended June 30, 2007
Community Maintenanceand Development
Parks and Senior Historical
Cemetery Public Works Recreation Transportation Depot 2007 2006
19,621$ 180,273$ 48,752$ - $ - $ 2,077,265$ 2,003,276$ - 32,077 - - - 32,077 20,864 - (32,077) - - - (32,077) (20,864)
9,936 153,024 14,589 - - 940,161 850,526 - 5,536 - - - 30,009 34,767 - 1,809 - - - 15,545 17,455
9,936 160,369 14,589 - - 985,715 902,748
7,327 36,978 11,218 - - 101,707 111,729 - 1,120 - - - 22,391 21,694 - - - - - 4,226 4,443 - - - - - 4,998 4,483
33,623 3,081 - - - 68,217 70,381 - - - - - 81,162 99,251 - - - - - 38,069 38,744 - - - - - 5,500 7,150 - - - - - 7,980 6,858 - - - - - 94,427 79,052 - - - - - 16,118 15,731 - 2,590 - - - 32,389 28,524 - 188 - - - 7,054 7,321
412 16,330 605 - 767 95,865 98,233 650 25,309 149 50,000 8,795 130,620 143,475
- 36,240 - - 2,128 68,979 54,879 483 - 1,490 - 4,712 31,874 20,143 - 134,329 - - - 169,994 121,317 - - - - - 5,998 8,896 - 32,983 - - - 60,967 58,043 - - - - 117 4,242 8,775 - - - - 6,341 136,829 104,476 - - - - 8,841 70,086 59,662 - - - - - 11,124 10,619
3,637 11,752 16,119 - - 49,970 26,360 - - - - - 3,822 4,465 - - - - - - 33,055 - 11,659 - - 5,129 16,788 78,962 - - - - - 14,809 16,958 - - - - - 53,489 50,710 - - - - - 7,868 9,425 - - - - - 2,860 2,327 - - - - - 194,453 181,201 - - - - - 54,280 51,905 - 20,000 - - - 45,050 45,050 - 100,787 - - - 100,787 84,221
75,689$ 773,988$ 92,922$ 50,000$ 36,830$ 4,877,972$ 4,674,542$
Culture and Recreation
Year Ended June 30
City of South Lyon, Michigan
45
Other Supplemental Information Nonmajor Governmental Funds
Special Revenue Funds and Debt Service Funds (Combined) Combining Balance Sheet
Year Ended June 30, 2007
SpecialRevenue
FundsDebt Service
Funds
TotalNonmajor
Governmental Funds
Assets
Cash and cash equivalents 1,890,734$ 37,626$ 1,928,360$ Due from other governmental units 81,100 - 81,100 Other current assets 11,512 - 11,512
Total assets 1,983,346$ 37,626$ 2,020,972$
Liabilities and Fund Balances
LiabilitiesAccounts payable 5,492$ - $ 5,492$ Accrued and other liabilities 5,897 - 5,897 Due to other funds 23,933 - 23,933
Total liabilities 35,322 - 35,322
Fund BalancesReserved for future cemetery
expenditures 618,249 - 618,249 Unreserved:
Designated 66,175 - 66,175 Undesignated 1,263,600 37,626 1,301,226
Total fund balances 1,948,024 37,626 1,985,650
Total liabilities and fund balances 1,983,346$ 37,626$ 2,020,972$
City of South Lyon, Michigan
46
Other Supplemental Information Nonmajor Governmental Funds
Special Revenue Funds and Debt Service Funds (Combined) Combining Statement of Revenue, Expenditures,
and Changes in Fund Balances Year Ended June 30, 2007
TotalSpecial Debt Nonmajor
Revenue Service GovernmentalFunds Funds Funds
RevenuesProperty taxes 47,117$ - $ 47,117$ Federal sources 39,448 - 39,448 State sources 493,900 - 493,900 Charges for services 54,000 - 54,000 Interest and other 97,643 4,018 101,661
Total revenues 732,108 4,018 736,126
ExpendituresCommunity maintenance and development:
Professional services:Major Street Paving Program - Whipple Street improvements 56,157 - 56,157 Local Street Paving Program - Whipple Street improvements 24,725 - 24,725 Other 4,956 - 4,956
Construction:Major Street Paving Program - Whipple Street improvements 148,260 - 148,260 Local Street Paving Program - Whipple Street improvements 101,049 - 101,049
Street routine maintenance 331,713 - 331,713 Traffic services 24,351 - 24,351 Snow plowing 100,660 - 100,660 Drainage and backsloping 21,886 - 21,886
Total community maintenanceand development 813,757 - 813,757
Capital outlay 40,000 - 40,000 Interest and fiscal charges 6,000 49,140 55,140
Total expenditures 859,757 49,140 908,897
Excess of Expenditures Over Revenues (127,649) (45,122) (172,771)
Other Financing Sources (Uses)Operating transfers in 189,706 25,470 215,176 Operating transfers out (39,448) - (39,448)
Total other financing sources 150,258 25,470 175,728
Net Change in Fund Balances 22,609 (19,652) 2,957
Fund Balances - July 1, 2006 1,925,415 57,278 1,982,693
Fund Balances - June 30, 2007 1,948,024$ 37,626$ 1,985,650$
City of South Lyon, Michigan
47
Other Supplemental Information Combining Balance Sheet
Nonmajor Special Revenue Funds June 30, 2007
TotalNonmajor
Community Cemetery Special
Major Local Development Equipment Drug Land Perpetual Revenue
Road Road Block Grant Replacement Forfeiture Acquisition Care Funds
Assets
Cash and cash equivalents 621,977$ 124,621$ - $ 202,514$ 50,016$ 273,357$ 618,249$ 1,890,734$ Due from other governmental units 56,005 25,095 - - - - - 81,100 Other current assets 6,078 5,434 - - - - - 11,512
Total assets 684,060$ 155,150$ - $ 202,514$ 50,016$ 273,357$ 618,249$ 1,983,346$
Liabilities and Fund Balances
LiabilitiesAccounts payable 3,883$ 1,609$ - $ - $ - $ - $ - $ 5,492$ Accrued and other liabilities 2,803 3,094 - - - - - 5,897 Due to other funds 20,413 3,520 - - - - - 23,933
Total liabilities 27,099 8,223 - - - - - 35,322
Fund BalancesReserved for future cemetery
expenditures - - - - - - 618,249 618,249 Unreserved:
Designated for subsequent year's expenditures - 27,675 - 38,500 - - - 66,175
Undesignated 656,961 119,252 - 164,014 50,016 273,357 - 1,263,600
Total fund balances 656,961 146,927 - 202,514 50,016 273,357 618,249 1,948,024
Total liabilities and
fund balances 684,060$ 155,150$ - $ 202,514$ 50,016$ 273,357$ 618,249$ 1,983,346$
City of South Lyon, Michigan
48
Community
Major Local Development EquipmentRoad Road Block Grant Replacement
Revenues
Property taxes - $ - $ - $ - $
Federal sources - - 39,448 -
State sources 341,071 152,829 - -
Charges for services - - - 54,000
Metro Authority 22,677 - - - Interest and other 29,385 5,027 - 8,122
Total revenues 393,133 157,856 39,448 62,122
Expenditures
Community maintenance and development:
Professional services:
Major Street Paving Program - Whipple Street improvements 56,157 - - -
Local Street Paving Program - Whipple Street improvements - 24,725 - -
Other 2,478 2,478 - -
Construction:
Major Street Paving Program - Whipple Street improvements 148,260 - - -
Local Street Paving Program - Whipple Street improvements - 101,049 - - Street routine maintenance 180,198 151,515 - - Traffic services 19,010 5,341 - - Snow plowing 57,981 42,679 - - Drainage and backsloping 10,900 10,986 - -
Total community maintenance
and development 474,984 338,773 - -
Capital outlay and debt service - - - 40,000
Interest - - - 6,000
Total expenditures 474,984 338,773 - 46,000
Excess of Revenues Over (Under) Expenditures (81,851) (180,917) 39,448 16,122
Other Financing Sources (Uses)Operating transfers in - 189,706 - - Operating transfers out - - (39,448) -
Total other financing sources (uses) - 189,706 (39,448) -
Net Change in Fund Balances (81,851) 8,789 - 16,122
Fund Balances - July 1, 2006 738,812 138,138 - 186,392
Fund Balances - June 30, 2007 656,961$ 146,927$ - $ 202,514$
49
Other Supplemental Information Nonmajor Special Revenue Funds
Combining Statement of Revenue, Expenditures, and Changes in Fund Balances
Year Ended June 30, 2007
Total
Cemetery Nonmajor
Drug Land Perpetual Special RevenueForfeiture Acquisition Care Funds
- $ 47,117$ - $ 47,117$
- - - 39,448
- - - 493,900
- - - 54,000
- - - 22,677 1,319 10,913 20,200 74,966
1,319 58,030 20,200 732,108
- - - 56,157
- - - 24,725
- - - 4,956
- - - 148,260
- - - 101,049 - - - 331,713 - - - 24,351 - - - 100,660 - - - 21,886
- - - 813,757
- - - 40,000
- - - 6,000
- - - 859,757
1,319 58,030 20,200 (127,649)
- - - 189,706 - - - (39,448)
- - - 150,258
1,319 58,030 20,200 22,609
48,697 215,327 598,049 1,925,415
50,016$ 273,357$ 618,249$ 1,948,024$
City of South Lyon, Michigan
50
Other Supplemental Information Schedule of Expenditures by Activity
Major and Local Road Funds Year Ended June 30, 2007
Major Road Fund Street Drainage
Professional Street Routine Traffic Snow and Services Construction Maintenance Services Plowing Backsloping Total
Wages and salaries - $ - $ 73,603$ 2,780$ 26,916$ 6,544$ 109,843$ Fringe benefits - - 38,338 1,520 14,240 3,274 57,372 Operating expense - - 935 3,171 16,825 1,082 22,013 Professional services -
Whipple Street 56,157 - - - - - 56,157 Other 2,478 - - - - - 2,478 Traffic signals - - - 11,539 - - 11,539 Repairs and maintenance - - 47,782 - - - 47,782 Equipment rental - - 19,138 - - - 19,138 Insurance - - 402 - - - 402 Construction - Whipple Street - 148,260 - - - - 148,260
Total expenditures 58,635$ 148,260$ 180,198$ 19,010$ 57,981$ 10,900$ 474,984$
Local Road Fund
Wages and salaries - $ - $ 47,447$ 2,662$ 21,608$ 6,324$ 78,041$ Fringe benefits - - 24,705 1,435 11,427 3,155 40,722 Operating expense - - 466 1,244 9,644 1,507 12,861 Professional services - Whipple
Street 24,725 - - - - - 24,725 Other 2,478 - - - - - 2,478 Repairs and maintenance - - 63,837 - - - 63,837 Equipment rental - - 15,000 - - - 15,000 Insurance - - 60 - - - 60 Construction - Whipple Street - 101,049 - - - - 101,049
Total expenditures 27,203$ 101,049$ 151,515$ 5,341$ 42,679$ 10,986$ 338,773$
City of South Lyon, Michigan
51
Other Supplemental Information Nonmajor Debt Service Funds
Combining Balance Sheet June 30, 2007
1991 Special Assessment
2000 General Obligation
Water Bonds
Total Nonmajor Debt Service
Funds
Assets - Cash and cash equivalents 16,408$ 21,218$ 37,626$
Fund Balances - Unreserved - Undesignated 16,408$ 21,218$ 37,626$
City of South Lyon, Michigan
52
Other Supplemental Information Nonmajor Debt Service Funds
Combining Statement of Revenue, Expenditures, and Changes in Fund Balances
Year Ended June 30, 2007
1991 Special Assessment
2000 General Obligation
Water Bonds
Total Nonmajor
Debt Service Funds
Revenues - Interest and other 391$ 3,627$ 4,018$
Expenditures - Interest and fiscal charges - 49,140 49,140
Excess of Revenues Over (Under)Expenditures 391 (45,513) (45,122)
Other Financing Sources - Transfers in - 25,470 25,470
Net Change in Fund Balances 391 (20,043) (19,652)
Fund Balances - July 1, 2006 16,017 41,261 57,278
Fund Balances - June 30, 2007 16,408$ 21,218$ 37,626$
City of South Lyon, Michigan
53
1996 Building Authority
1999 Building Authority
2005 Building Authority
Total Building Authority Fund
Assets
Cash and cash equivalents 161,023$ 38,943$ - $ 199,966$ Due from other funds - - - - Due from other governmental units 534,060 - - 534,060
Total assets 695,083$ 38,943$ - $ 734,026$
Liabilities and Fund Balances
Liabilities - Deferred revenue 534,060$ - $ - $ 534,060$
Fund Balances - Unreserved - Undesignated 161,023 38,943 - 199,966
Total liabilities and fund balances 695,083$ 38,943$ - $ 734,026$
Major Debt Service Fund
54
Other Supplemental Information Summary of Debt Service Activity
Assets, Liabilities, and Fund Balances Year Ended June 30, 2007
EnterpriseFund Debt
1991 Special Assessment
2000 General Obligation
Water Bonds
2003 State Revolving Fund
Loan Total
16,408$ 21,218$ 1,176,837$ 1,414,429$ - - 595,455 595,455 - - - 534,060
16,408$ 21,218$ 1,772,292$ 2,543,944$
- $ - $ - $ 534,060$
16,408 21,218 603,609 841,201
16,408$ 21,218$ 603,609$ 1,375,261$
Nonmajor Debt Service Funds
City of South Lyon, Michigan
55
1996 Building
Authority
1999 Building
Authority
2005 Building
Authority
Total Building
Authority Fund
Revenues
Property taxes 106,031$ 109,968$ - $ 215,999$ Local sources 148,797 - 33,485 182,282 Interest 15,884 1,507 - 17,391
Total revenue 270,712 111,475 33,485 415,672
ExpendituresDebt principal payments 200,000 60,000 20,000 280,000 Interest and fiscal charges 56,325 51,603 13,485 121,413
Total expenditures 256,325 111,603 33,485 401,413
Excess of Revenue Over (Under) Expenditures 14,387 (128) - 14,259
Other Financing Sources (Uses)Operating transfers in - - - - Operating transfers out - - - -
Total other financingsources (uses) - - - -
Net Change in Fund Balances 14,387 (128) - 14,259
Fund Balances - July 1, 2006 146,636 39,071 - 185,707
Fund Balances - June 30, 2007 161,023$ 38,943$ - $ 199,966$
Major Debt Service Fund
56
Other Supplemental Information Summary of Debt Service Activity
Revenue, Expenditures, and Changes in Fund Balances Year Ended June 30, 2007
EnterpriseFund Debt
1991 Special
Assessment
2000 General
Obligation Water
Bonds
2003 State Revolving
Fund Loan Total
- $ - $ 988,144$ 1,204,143$ - - - 182,282
391 3,627 - 21,409
391 3,627 988,144 1,407,834
- - - 280,000 - 49,140 411,598 582,151
- 49,140 411,598 862,151
391 (45,513) 576,546 545,683
- 25,470 - 25,470 - - (1,843,683) (1,843,683)
- 25,470 (1,843,683) (1,818,213)
391 (20,043) (1,267,137) (1,272,530)
16,017 41,261 1,870,746 2,113,731
16,408$ 21,218$ 603,609$ 841,201$
Nonmajor Debt Service Funds
City of South Lyon, Michigan
57
Water Distribution Water Wastewater
System Repair System
Personnel services:Salaries and wages 145,973$ 41,858$ 340,943$ Fringe benefits 119,658 16,726 163,306
Total personnel services 265,631 58,584 504,249
Equipment repairs and maintenance:Equipment maintenance 13,956 26,096 5,217 Building maintenance 40,375 - 39,521
Total equipment repairs and maintenance 54,331 26,096 44,738
Public utilities:Gas 3,477 - 16,741 Electric 103,842 - 274,450 Telephone 4,395 - 2,012
Total public utilities 111,714 - 293,203
Refuse collection - - - Depreciation 307,760 - 442,929 Amortization - - 1,038
Total depreciation and amortization 307,760 - 443,967
Other services and charges:Professional services 34,812 - 41,288 Municipal service charge 21,000 - 21,000
Total other services and charges 55,812 - 62,288
Supplies:Office 678 - 678 Operating 50,291 1,656 134,413 Computer 2,567 - 2,567
Total supplies 53,536 1,656 137,658
Insurance 16,730 - 23,582 Other 10 - 17
Total operating expenses 865,524$ 86,336$ 1,509,702$
Activity
58
Other Supplemental Information Enterprise Fund - Water and Sewer Fund
Schedule of Operating Expenses Year Ended June 30, 2007
Sanitary Sewer Solid Waste Sewer Repair Collection Construction 2007 2006
40,402$ - $ - $ 569,176$ 575,713$ 13,220 - - 312,910 305,611
53,622 - - 882,086 881,324
8,221 - - 53,490 67,734 - - - 79,896 95,603
8,221 - - 133,386 163,337
- - - 20,218 56,727 - - - 378,292 306,929 - - - 6,407 7,517
- - - 404,917 371,173
- 445,429 - 445,429 442,001 - - 3,966 754,655 737,172 - - - 1,038 1,038
- - 3,966 755,693 738,210
1,089 - - 77,189 67,968 - - - 42,000 42,000
1,089 - - 119,189 109,968
- - - 1,356 1,487 2,500 - - 188,860 186,212
- - - 5,134 1,836
2,500 - - 195,350 189,535
- - - 40,312 38,896 - - - 27 14,457
65,432$ 445,429$ 3,966$ 2,976,389$ 2,948,901$
Year Ended June 30
Activity
City of South Lyon, Michigan
60
Schedule of Taxes Levied, Collected, and Returned Delinquent - 2006 Tax Roll
June 30, 2007
Final Levy Taxes CollectedReturned
Delinquent Percent
Collected
Taxable Value: $407,069,390
City of South Lyon 6,009,144$ 5,792,449$ 216,695$ 96.39 Specials 5,439 2,018 3,421 37.10 Downtown Development Authority 50,162 37,983 12,179 75.72 Administration fee 108,541 104,619 3,922 96.39 Oakland Community College 623,065 603,807 19,258 96.91 South Lyon Community Schools 4,681,164 4,493,527 187,637 95.99 State education 2,375,830 2,298,758 77,072 96.76 Oakland County 3,162,872 3,057,956 104,916 96.68
Total 17,016,217$ 16,391,117$ 625,100$ 96.33
City of South Lyon, Michigan
61
Continuing Disclosure Undertaking Fiscal Year July 1, 2006 - June 30, 2007
A. Taxable Value - Fiscal Year 2007-2008 $407,069,390
B. Taxable Value by Use and Class - Fiscal Year 2007-2008:
Use Taxable Value
Percent ofTaxable Value SEV
Percent ofSEV
Commercial 34,833,650$ 8.56 46,204,680$ 9.93 Industrial 6,429,030 1.58 9,548,550 2.05 Residential 350,969,270 86.22 394,630,410 84.83 Personal 14,837,440 3.64 14,837,440 3.19
Total 407,069,390$ 100.00 465,221,080$ 100.00
Class
Real property 392,231,950$ 96.36 450,383,640$ 96.81 Personal property 14,837,440 3.64 14,837,440 3.19
Total 407,069,390$ 100.00 465,221,080$ 100.00
F. & G. Property Tax Rates by Governmental Unit - Fiscal Year 2007-2008
City of South Lyon Rate City of South Lyon Rate
General operation 8.5800 Huron Clinton Authority .2146Capital improvements 2.0000 Oakland County 4.4315Building Authority .2700 Intermediate schools 3.3690Building Authority - Land .2800 Oakland Community College 1.5844Land acquisition .1200Debt service - Sewer G.O. 2.5000
South Lyon Community Schools 18.0000State education 6.0000
South Lyon school debt 8.5000
Total City of South Lyon 13.7500 Total by governmental units 57.1596
District library 1.0338Library debt .2763
City of South Lyon, Michigan
62
Continuing Disclosure Undertaking (Continued) Fiscal Year July 1, 2006 - June 30, 2007
H. Property Tax Collections - Fiscal Year 2006-2007 (as of 6-30-07) - 96.33% for Fiscal Year Ending 2007: In Process of Collection
I. 10 Largest Taxpayers - Fiscal Year 2006-2007
TaxpayerPrincipal Product
or Service Taxable Value
Colonial Hunt Club (Phase V) Co-op 21,102,070$ Colonial Acres Development (Phases I-IV) Co-op 11,448,310 Michigan Seamless Tube Tubular mill 4,179,180 Brookdale Assoc. LTD Partners Rental properties 3,648,530 Detroit Edison Utility 3,316,490 J&R Management Rental properties 2,654,980 Charleston Park Singh LLC Subdivision 2,612,540 Brookwood Farms LLC Rental properties 2,324,410 Wolverine Property Invest. Mobile homes park 2,201,910 Gateway Commons Development Commercial/office 1,948,570
Total 55,436,990$
J. Distributable Aid - State-shared Revenue - Fiscal Year 2006-07: $843,492
K. Legal Debt Margin
The following table reflects the amount of additional debt the City may legally incur as of June 30, 2007:
Debt limit (1) 46,522,108$ Debt outstanding 19,674,854$ Less exempt debt (2) - 19,674,854
Legal debt margin 26,847,254$ (1) 10 percent of the City’s $465,221,080 SEV for the fiscal year ended June 30, 2008. See
“Property Valuations” herein. (2) See “Statutory and Constitutional Debt Provisions” herein.
Source: Municipal Advisory Council of Michigan and the City of South Lyon
City of South Lyon, Michigan
63
Continuing Disclosure Undertaking (Continued) Fiscal Year July 1, 2006 - June 30, 2007
Debt Statement
The following table reflects a breakdown of the City’s direct and overlapping debt as of June 30, 2007.
To the extent necessary, the City may levy taxes on all taxable property within its boundaries without limitation as to rate or amount to pay the principal of and interest due on the bonds in the following table, which are designated as “UT.” However, the City’s ability to levy tax to pay the debt service on the bonds, which are designated as “LT,” is subject to applicable charter, statutory, and constitutional limitations.
City Direct Debt Gross Self-supporting Net
General obligation bonds -Dated September 1, 2000 (UT) 960,000$ - $ 960,000$
Building Authority bonds:Dated June 9, 2005 (LT) 335,000 - 335,000 Dated July 1, 1999 (LT) 955,000 - 955,000 Dated September 1, 1996 (LT) 920,000 534,060 (1) 385,940
Subtotal 2,210,000 534,060 1,675,940
State Revolving Fund Loan - Dated March 27, 2003 (UT) 16,206,151 - 16,206,151
Installment purchase obligations:Dated June 7, 2000 (LT) 178,703 - 178,703 Dated November 28, 2005 (LT) 120,000 - 120,000
298,703 - 298,703
Total 19,674,854$ 534,060$ 19,140,794$
Per capita net City direct debt (2) 1,907.21$ Percent of net direct debt to SEV (3) 4.11%
City of South Lyon, Michigan
64
Continuing Disclosure Undertaking (Continued) Fiscal Year July 1, 2006 - June 30, 2007
Overlapping Debt (4) Gross
City's Share as Percent of
Gross Net
South Lyon Schools 211,795,000$ 21.86 46,298,387$ Oakland County 681,047,871 0.64 4,358,706 Oakland Intermediate School District 55,185,000 0.64 353,184 Oakland Community College 8,995,000 0.64 57,568 Salem-South Lyon District Library 1,545,000 54.84 847,278
Totals 958,567,871$ 51,915,123$ Per capita net overlapping debt (2) 5,172.89$ Percent of net overlapping debt to SEV (3) 11.16%
Per capita net direct and overlapping debt (2) 7,080.10$ Percent of net direct and overlapping debt to SEV (3) 15.27% (1) Represents 58.05 percent of the 1996 Building Authority Bonds, which is being paid by the South
Lyon Schools
(2) Based on the City’s 2000 Census population of 10,036
(3) Based on $465,221,080, which is the City’s SEV for the fiscal year ended June 30, 2006
(4) Overlapping debt is the portion of another taxing unit’s debt for which property taxpayers of the City are liable in addition to debt issued by the City.
Source: Municipal Advisory Council of Michigan and the City of South Lyon
September 11, 2007
To the Honorable Mayor and Members of the City Council City of South Lyon 335 South Warren South Lyon, MI 48178 Dear Mayor and Council Members: We have recently completed our audit of the financial statements of the City of South Lyon for the year ended June 30, 2007. As part of our audit, and in addition to our audit report, we have the following comments and recommendations for your consideration.
Financial Results/Plans
The City’s General Fund fund balance increased in the current year from approximately $3,125,000 to $3,338,000. The City of South Lyon continues to be in a position to withstand the very difficult financial climate that exists today because of the City’s diligence and foresight over many years. As we know you are well aware, the 2007-2008 fiscal year will continue to be challenging, and we encourage the City to continue to closely monitor this year’s budget.
New Auditing Standards
New auditing rules effective December 15, 2006 have resulted in some changes in the communications that we are required to provide following our audit. These rules require us to more formally communicate matters we note about your accounting procedures and internal controls. While we have always provided our observations in these areas as part of our audit, we are now required to tell you about more items than we may have in the past and to communicate them in writing.
The new auditing standards (Statement on Auditing Standards Number 112, referred to as SAS 112) require us to inform you about any matters noted in your accounting procedures or internal controls that the new auditing standards define as a significant deficiency. The new threshold for a significant deficiency is a low one - a significant deficiency is any flaw that creates more than a remote risk of errors in your financial statements that could matter to a user of the statements. Matters that may be immaterial to the financial statements still may be classified by the new auditing standards as a significant deficiency. For example, the requirements of SAS 112 go so far as to classify certain journal entries proposed by your auditor as a significant deficiency.
To the Honorable Mayor and Members of the City Council City of South Lyon 2 September 11, 2007 We are also required to communicate these matters to more people. In the past, we have provided our comments and observations as part of a meeting or discussion at the end of our work directly to management. Under these new rules, we are obligated to communicate these matters in writing to all individuals involved in overseeing strategic direction and accountability for your operations, including the board of trustees, in addition to our communications with management. This communication is intended to comply with the requirements of the new auditing standards.
In planning and performing our audit of the financial statements of the City of South Lyon as of and for the year ended June 30, 2007, in accordance with auditing standards generally accepted in the United States of America, we considered the City’s internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion 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 would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. However, as discussed below, we identified a deficiency in internal control that we consider to be a significant deficiency.
A control deficiency 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 misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control. We consider the following deficiency to be a significant deficiency in internal control:
• Journal entries were required during the audit to ensure the financial statement presentation was in conformity with generally accepted accounting principles in relation to the preparation of capital assets. Capital asset schedules should be maintained throughout the year with special care given to ensure that assets are not depreciated for more than their original carrying value. Historically, capital asset schedules for business-type funds (Water and Sewer) have been maintained by Plante & Moran, PLLC. These schedules should be maintained during the year by client staff with adjustments related to additions, disposals, and depreciation expense made throughout the year.
It should be noted that the quality and thoroughness of the financial records for the City of South Lyon continue to be at a high level.
To the Honorable Mayor and Members of the City Council City of South Lyon 3 September 11, 2007 Upcoming Auditing Standards Effective December 15, 2007, in time for next year’s audit, several additional audit standards will be implemented. These standards will require the auditors to perform significant additional procedures related to the City’s internal controls. This is an excellent opportunity to review the controls that are in place at the City and create internal documentation regarding the design of the internal control environment. As always, Plante & Moran, PLLC is available to assist you in implementing the new standards. Water and Sewer Rates Despite recently raising customer rates, water and sewer operations still did not charge an amount sufficient to cover operating costs, resulting in an operational cash flow deficit of approximately $400,000. This is the third time in the past four years that the system has incurred a cash flow deficit. We encourage the City to continue reviewing the current rate structure and make additional changes if necessary. Revenue Sharing
The future of the State’s revenue-sharing program continues to be directly tied to the condition of the State’s budget. Reductions to statutory revenue sharing started in 2001 as shortfalls began occurring in the State’s budget. The State’s budget shortfalls continue to be significant. The magnitude of the State’s deficit has become even more pronounced after the State’s January and May 2007 revenue estimating conferences. According to economists, Michigan is still approximately $1.8 billion short of the revenue needed to cover basic services for the State’s upcoming fiscal year 2007/2008 budget. It is not completely clear whether the State’s fiscal year 2006/2007 budget has been completely balanced as well. The outcome of other matters will also impact revenue sharing and those matters include:
• Future of County Participation in Statutory Revenue Sharing - In 2004, the State terminated payment of statutory revenue sharing to counties (which was approximately $182 million) but allowed counties to move their operating tax levy to July from December. Counties are required to deposit the additional monies from the earlier levy into a “reserve fund” which is to be used by the counties to replace lost statutory revenue sharing in future years. The question that remains is when the reserve funds established by counties are depleted, will counties come back into the “revenue sharing formula” and to what extent? Will the size of the statutory pot grow to accommodate counties or will there be a shift of the same monies from cities, villages, and Citys to the counties?
• Statutory Revenue Sharing Formula Expires in 2007 - Legislative action is required on this Act for appropriations to continue into 2008 and beyond.
To the Honorable Mayor and Members of the City Council City of South Lyon 4 September 11, 2007 Changes to Michigan’s Tax Structure - The Michigan single business tax has been eliminated effective December 31, 2007, which will result in the loss of $1.9 billion from the State’s budget in 2008. In June 2007, a replacement for the single business tax - called the new Michigan business tax - was approved by the legislature. More details on this new tax structure are included below. In the overview, the plan creates a new tax structure for Michigan businesses, provides further personal property tax relief to business taxpayers, and is forecasted by the State to generate about the same revenue ($1.9 billion) as the single business tax. Technical corrections on this recently passed law are still pending and the law is lengthy and complex. The true financial impact on the State’s budget is hard to predict. Rumors on further changes to Michigan’s tax structure continue to circulate around Lansing as the legislature continues their work on the State’s fiscal year 2007/2008 budget and solving the estimated $1.8 billion deficit that exists.
As introduced, the governor’s budget for fiscal year 2007/2008 includes a revenue-sharing increase of $27 million to be distributed using the three-part formula currently contained in the revenue-sharing act (taxable value per capita, population/unit type, and yield equalization) with an additional $14.5 million for public safety funding. While specific details have not been announced yet, communities would only be eligible for the increase if they can demonstrate service sharing with other local governments.
While the debate is in process and all indications point to a very busy September for the legislature, there still remain considerably more questions than answers regarding long-term funding of statutory revenue sharing. Decisions still remain on the ultimate funding level for revenue sharing for the State’s fiscal years 2006/2007 and 2007/2008. Local governments may need to react with budget amendments when these final decisions are made by the State.
The table below details state-shared revenue for the City since 2000 broken out by statutory and constitutional portions.
State Fiscal Year Statutory Constitutional Total Decrease from 2001
2000 $ 358,310 $ 439,193 $ 797,503 $ N/A 2001 408,590 651,258 1,059,848 - 2002 353,377 657,891 1,011,268 (48,580) 2003 298,002 669,031 967,033 (92,815) 2004 207,361 661,763 869,124 (190,724) 2005 182,096 677,555 859,651 (200,197) 2006 161,056 688,835 849,891 (209,957) 2007 149,300 677,664 826,964 (232,884)
2008* 144,111 682,853 826,964 (232,884) *Estimated
To the Honorable Mayor and Members of the City Council City of South Lyon 5 September 11, 2007 If the State were to eliminate the statutory portion of revenue sharing (as the constitutional portion cannot be modified without a change to the State’s constitution), the City has $144,111 at risk in its General Fund budget based on 2008 estimated funding levels. In light of the current environment, we strongly encourage local governments to be conservative when budgeting or projecting the revenue-sharing line item.
New Cable Franchise Legislation The governor signed cable franchise legislation (House Bill 6456) into law effective January 1, 2007. The new law (Public Act 480 of 2006) creates the “Uniform Video Services Local Franchise Act,” which provides a statewide framework for franchising agreements instead of individual community agreements. This Act requires video service providers to obtain a local franchise, good for 10 years, from the franchising entity (the local unit of government). As part of the local franchise, the provider is required to pay an annual video service provider fee, not to exceed 5 percent of gross revenue, as well as an annual fee for the costs of the PEG access facilities, not to exceed 2 percent of gross revenue. The Act allows providers to terminate the current franchise contracts before their expiration date in order to enter into this new local franchise agreement under the statewide framework. Local units of government will be impacted in the following ways: • Under the Act, no additional fees or charges other than those stipulated under the Act may be
written into the local franchise agreements.
• To the extent existing cable franchise agreements provided more funding than provided for under the new Act, municipalities will see reduced fees from these new local franchise agreements.
• A credit, based on annual maintenance fees paid for use of public rights of way, to video service providers is allowed under the Act. This credit could eliminate or significantly reduce any revenue the local unit might receive under the bill’s franchise fee.
• Audits of the video service providers’ calculation of gross revenue is limited to once every two years.
It is expected that local governments will receive their first payment under the new Act beginning in May 2007 or shortly thereafter. We strongly encourage you to review this payment compared to payments previously received and follow up with your provider as required. Subsequent to the passage of the Act, amendments have been proposed in both the House and the Senate (House Bill 5047 and Senate Bill 636) to clarify language about the ability of local governments to receive PEG fees.
To the Honorable Mayor and Members of the City Council City of South Lyon 6 September 11, 2007
Property Assessment Cap
As you recall, Proposal A limits the growth in taxable value to the lesser of inflation or 5 percent. The inflation factor for this calculation is published by the State Tax Commission and is:
Year Percentage
2007 3.7 2006 3.3
2005 2.3 2004 2.3
2003 1.5 2002 3.2 2001 3.2 2000 1.9 1999 1.6 1998 2.7 1997 2.8
As indicated above, growth in existing property taxes can be significantly limited due to Proposal A. This factor should be considered when the City is involved in long-term financial planning. Property Tax Legislation A series of House bills were introduced in 2007 dealing with the treatment of the uncapping of value on sale or transfer of property. With the passage of Proposal A in 1994, changes to the taxable value of an individual property are limited to the lesser of the rate of inflation or 5 percent - until the property is sold or transferred. The difference between the capped taxable value amount and state equalized value at the time of transfer is referred as the “uncapped” value or the “pop-up” value. As several published studies and reports have demonstrated, the treatment of “uncapped” values or the “pop-up” amount when a property is transferred or sold as growth on existing property subject to the Headlee rollback calculation has resulted in continued downward pressure on millage rates. This treatment is due to definitional changes made to the General Property Tax Act in 1994.
The three bills in the package are House Bills 4440, 4441, and 4442 and would propose to do the
following:
• House Bill 4440 - This bill establishes an 18-month moratorium on the “pop-up” or
“uncapping” of taxable value to state equalized value at the time of sale or transfer of a property. Property sales or transfers occurring in the timeframe of the moratorium would continue to pay property taxes at the previous taxable value amount. The “pop-up” or “uncapping” of taxable value would be delayed until the property was sold or transferred in later years.
To the Honorable Mayor and Members of the City Council City of South Lyon 7 September 11, 2007 • House Bill 4441 - This bill increases the real estate transfer tax by .10 percent and earmarks
the money to be returned to local government for potential loss in revenue occurring from House Bill 4440.
• House Bill 4442 - This bill would change the General Property Tax Act to exempt the “pop-
up” or “uncapped” value from the Headlee rollback calculation. If this legislation were enacted, increases in taxable value resulting from property sales or transfers would be treated as “additions” to taxable value or new growth versus growth on existing property.
House Bills 4440 and 4441 passed the House on March 14 (HB 4440 has been assigned to the Senate Finance Committee). House Bill 4442 has not been voted on yet in the House. The bills are not tie barred. 911 Surcharge Sunset Extended Local governments receiving monies under the Emergency Service Enabling Act to support 911 operations faced the potential elimination or change in the funding formula at December 31, 2006. To allow further analysis of this issue, the sunset of the Act was extended one year to December 31, 2007 (Public Act 249 of 2006). Municipal Finance Act Revisions The Municipal Finance Act was amended several years ago. Communities are now required to submit a filing once a year with the Michigan Department of Treasury. The old 10-day “exemption from prior approval” process has been eliminated and is replaced with this qualification process. This filing will serve as a pre-approval for future debt issues. The current filing is due within six months following the end of the City’s year ended June 30, 2007 and is good for one year thereafter. The City should consider the need to file a qualifying statement for the Downtown Development Authority.
To the Honorable Mayor and Members of the City Council City of South Lyon 8 September 11, 2007 Funding of Postemployment Benefit Obligations As mentioned in previous years, the Governmental Accounting Standards Board has released Statement Number 45, Accounting and Reporting by Employers for Postemployment Benefits Other Than Pensions. The pronouncement provides guidance for local units of government in recognizing the cost of retiree health care benefits. The intent of the new rules is to recognize the cost of providing retiree health care coverage over the working life of the employee, rather than at the time the health care premiums are paid. These new rules will apply to the government-wide financial statements, rather than the individual fund level. As a result, the City will need to continue to budget for contributions to a pre-funding plan. For many communities, the funding of postemployment benefits is the most significant financial challenge they will face in coming years. The statement, as previously mentioned, will be effective for the City’s fiscal year ending June 30, 2009. The City will need to perform an actuarial valuation during the fiscal year ending June 30, 2008 to provide an estimate as to what these annual costs may amount to. The cost of health care currently paid each year as premiums become due has been increasing and the trend is expected to continue. We would like to thank the city council, Rod Cook, Julie Zemke, Lori Mosier, and other departmental staff for the courtesy and cooperation extended to us during the audit. We appreciate the continued opportunity to serve as your auditors for the City. We would be happy to answer any questions you have regarding the annual financial report or the above comments and recommendations at your convenience.
Very truly yours, Plante & Moran, PLLC
Leslie J. Pulver
Brian J. Camiller