CITY OF REVERE,
MASSACHUSETTS
Notes to General Purpose Financial Statements
June 30, 1998
(1)
Definition of Reporting Entity
The general purpose financial statements present information on the City of Revere, Massachusetts (the “primary government”) and its component units as required by generally accepted accounting principles. Component units are included in the City’s reporting entity because of the significance of their operational or financial relationships with the City. The inclusion of component units in the City’s general purpose financial statements does not affect their legal standing.
The component units provide services entirely or almost entirely to the City or otherwise exclusively or almost exclusively to its benefit. Although legally separate, all component units have been reported as if they were part of the primary government; a method of inclusion known as blending. The component units include the City’s Retirement System (“System”) and the Revere Business Development Corporation (RBDC). The Revere Housing Authority is not presented in the accompanying financial statements because it does not meet the criteria for inclusion.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The financial condition and results of operations of the City’s funds are presented as of and for the year ended June 30, 1998, except for the System, which is presented as of and for the year ended December 31, 1997 and the RBDC, which is presented as of and for the year ended September 30, 1997. The accounting policies of the City conform with generally accepted accounting principles (“GAAP”), except that the City does not maintain, and therefore does not report, a general fixed assets account group.
(b) Fund Accounting
The operations of the City are recorded in the following fund types and account group:
Governmental Fund
Types
Governmental funds are used to account for the City’s expendable financial resources and related liabilities. The measurement focus is upon determination of changes in financial position. The following are the City’s governmental fund types:
· General Fund - The general fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund.
CITY OF
REVERE, MASSACHUSETTS
Notes to General Purpose Financial Statements
June 30, 1998
· Special Revenue Funds - Special revenue funds are used to account for the proceeds of specific revenue sources (other than expendable trusts or major capital projects) that are legally restricted to specified purposes.
· Capital Project Funds - Capital project funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities. Such resources are derived principally from proceeds of general obligation bonds and from federal and state grants.
Fiduciary Fund Types
· Trust and Agency Funds - Fiduciary funds are used to account for assets held by the City in a trustee capacity or as an agent. Trust funds include expendable trust funds and pension trust funds. Expendable trust funds are accounted for similar to governmental funds. Pension trust funds are reported on the accrual basis of accounting. Agency funds are custodial in nature and do not involve measurement of results of operations.
Account Group
· General Long-term Obligations Account Group - This account group is used to account for all long-term obligations of the City.
(c) Basis of Accounting
The modified accrual basis of accounting is followed by governmental funds, expendable trust funds, and agency funds. Under the modified accrual basis of accounting, revenues are recorded when they become measurable and available to pay liabilities of the current period. Revenues not considered available are recorded as deferred revenues. Expenditures are recorded when the liability is incurred except for (1) interest on general long-term obligations, which is recorded when due, and (2) the noncurrent portion of compensated absences and judgments and claims, which are recorded in the general long-term obligations account group.
In applying the susceptible to accrual concept to intergovernmental revenues, there are essentially two types of revenues. In one, monies must be expended on the specific purpose or project before any amounts will be paid to the City; therefore, revenues are recognized based upon the expenditures incurred. In the other, monies are virtually unrestricted and are usually revocable only for failure to comply with prescribed compliance requirements. These resources are reflected as revenues at the time of receipt or earlier if the susceptible to accrual criteria are met.
CITY OF REVERE,
MASSACHUSETTS
Notes to General Purpose Financial Statements
June 30, 1998
Property taxes are recognized as revenue in the year for which taxes have been levied, provided they are collected within 60 days after year-end. Special assessments are recorded as revenue in the year the individual installments are due. Licenses and permits, fines and forfeitures, and miscellaneous revenues are recorded as revenues when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned.
The accrual basis of accounting is used by the pension trust fund.
(d) Encumbrances and Continuing Appropriations
Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of funds are recorded in order to reserve that portion of the applicable appropriation, is employed in governmental funds. Open encumbrances at year-end are reported as reservations of fund balances. Encumbrances do not constitute expenditures or liabilities, except for budgetary purposes.
Certain unexpended and unencumbered appropriations for incomplete projects are carried over to succeeding years. Such continuing appropriations are accounted for similar to encumbrances.
(e) Compensated Absences
Employees are granted sick and vacation leave in varying amounts. Upon retirement, termination, or death, certain employees are compensated for unused sick and vacation leave (subject to certain limitations) at specified payment rates established by contract, regulation or policy. The amount of sick and vacation costs which are not due and payable is recorded in the general long-term obligations account group. The amount recorded is the unused days earned at the current rate of pay.
(f) Total Columns
Total columns on the general purpose financial statements are captioned “Memorandum only” to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position, results of operations or changes in financial position in conformity with generally accepted accounting principles. Such data are not comparable to a consolidation.
CITY OF REVERE,
MASSACHUSETTS
Notes to General Purpose Financial Statements
June 30, 1998
(3)
Property Taxes
Real and personal property taxes are based on values assessed as of each January 1 and are normally due on a quarterly basis beginning August 1st. By law, all taxable property in the Commonwealth must be assessed at 100% of fair cash value. Taxes due and unpaid after the respective due dates are subject to interest and penalties. The City has an ultimate right to foreclose on property for which taxes have not been paid. Property taxes levied are recorded as receivables in the fiscal year of the levy.
A statewide tax limitation statute known as “Proposition 2-1/2” limits the property tax levy to an amount equal to 2-1/2% of the value of all taxable property in the City. A secondary limitation is that no levy in a fiscal year may exceed the preceding year’s allowable tax levy by more than 2-1/2%, plus taxes levied on certain property newly added to the tax rolls. Certain Proposition 2-1/2 taxing limitations can be overridden by a City-wide referendum vote.
(4)
Budgetary Basis of Accounting
The City must establish its property tax rate each year so that the resulting property tax levy will comply with the limits required by Proposition 2-1/2 and also constitute that amount which will equal the sum of (a) the aggregate of all annual appropriations for expenditures and transfers, plus (b) provision for the prior fiscal year’s deficits, if any, less (c) the aggregate of all non-property tax revenue and transfers projected to be received by the City, including available surplus funds.
The budgets for all departments and operations of the City, except that of public schools, are prepared under the direction of the Mayor. The School Department budget is prepared under the direction of the School Committee. Original and supplemental appropriations are acted upon by City Council vote.
The City’s General Fund budget is prepared on a basis other than generally accepted accounting principles (“GAAP”). The “actual” results column of the Statement of Revenues and Expenditures - Budgetary Basis is presented on a “budget basis” to provide a meaningful comparison with the budget. The major differences between the budget and GAAP bases are that:
(a) Budgeted revenues are recorded when cash is received, except for real estate and personal property taxes, which are recorded as revenue when levied (budget), as opposed to when susceptible to accrual (GAAP).
(b) Encumbrances and continuing appropriations are recorded as the equivalent of expenditures (budget), as opposed to a reservation of fund balance (GAAP).
CITY OF REVERE,
MASSACHUSETTS
Notes to General Purpose Financial Statements
June 30, 1998
(c) Certain activities and transactions are presented in separate funds (GAAP), rather than as a component of the General Fund (budget).
In addition, there are certain differences in classifications between revenues, expenditures and transfers.
The following reconciliation summarizes the differences between budget and GAAP basis accounting principles for the year ended June 30, 1998, (in thousands):
Revenue
Expenditures
Transfers
As
reported on a budgetary basis
$ 78,747
79,199
642
Adjustment of property tax and other
revenues to a modified accrual basis
1,739
––
––
Adjustment for encumbrances, continuing
appropriations and accruals
––
512
––
Reclassification of transactions that are
presented in separate fund
––
––
175
As
reported on a GAAP basis
$ 80,486
79,711
467
(5)
Cash and Investments
State and local statutes place certain limitations on the nature of deposits and investments available to the City. Deposits (including demand deposits, term deposits and certificates of deposit) in any one financial institution may not exceed certain prescribed levels without collateralization by the financial institutions involved. Investments can also be made in securities issued by or unconditionally guaranteed by the U.S. government or agencies that have a maturity of less than one year from the date of purchase, repurchase agreements guaranteed by the U.S. government or agencies that have a maturity of less than one year from the date of purchase, repurchase agreements guaranteed by such securities with maturity dates of no more than 90 days from the date of purchase, and units in the Massachusetts Municipal Depository Trust (“MMDT”).
In addition, the City’s Pension Trust Fund has additional investment powers, most notably the ability to invest in common stocks, corporate bonds and other specified investments.
CITY OF REVERE,
MASSACHUSETTS
Notes to General Purpose Financial Statements
June 30, 1998
(a) Deposits
The following summary presents the amount of City deposits which are fully insured or collateralized with securities held by the City or its agent in the City’s name (Category 1), those deposits which are collateralized with securities held by the pledging financial institution’s trust department or agent in the City’s name (Category 2), and those deposits which are not collateralized (Category 3) at June 30, 1998 (in thousands).
Bank
balance Total
Category
bank Carrying
1
2
3
balance amount
Cash
$ 326
11,576 11,902 8,663
Total $ 326 11,576 11,902 8,663
(b) Investments
The City categorizes investments according to the level of risk assumed by the City. Category 1 includes investments that are insured, registered or held by the City’s agent in the City’s name. Category 2 includes uninsured and unregistered investments held by the counterparty’s trust department or agent in the City’s name. Category 3 includes uninsured and unregistered investments held by the counterparty, its trust department or its agent, but not in the City’s name. Deferred compensation plan and pension plan funds are not categorized because they are managed investment pools (in thousands).
Carrying
amount
Category
Not Market
1
2
3 categorized value
MMDT
$ — —
—
1,312
1,312
Deferred compensation plan
— —
—
4,108
4,108
Pension Trust fund
— —
— 49,312 49,312
Totals $ — — — 54,732 54,732
The composition of the City’s investments fluctuates depending primarily on the timing of real estate tax receipts, proceeds from borrowings, collections of state and federal aid, and capital outlays throughout the year.
CITY OF REVERE,
MASSACHUSETTS
Notes to General Purpose Financial Statements
June 30, 1998
(6)
Pension Plan
In 1998, the City adopted the provisions of GASB No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 27, Accounting for Pensions by State and Local Governmental Employers. The adoption of these new standards resulted in a change in the content of financial statement required disclosures and required supplemental information.
(a) Plan Description
The City contributes to the Revere Retirement System (“System”), a cost-sharing, multiple-employer, defined benefit public employee retirement system that acts as the investment and administrative agent for the City. The System covers eligible employees of the City, except school teachers, and eligible employees of the Revere Housing Authority. Public school teachers are covered by the Commonwealth of Massachusetts Teachers’ Retirement System (TRS) to which the City of Revere does not contribute. The Commonwealth of Massachusetts funds TRS benefits to the extent funding is not provided through employee contributions.
Instituted in 1940, the System is a member of the Massachusetts Contributory System and is governed by Chapter 32 of the Massachusetts General Laws. Membership in the System is mandatory immediately upon the commencement of employment for all permanent, full-time employees.
The System provides for retirement allowance benefits up to a maximum of 80% of a member’s highest three-year average annual rate of regular compensation. Benefit payments are based upon a member’s age, length of creditable service, level of compensation and group classification. Members joining the System after January 1, 1979, were subject to a cap of $30,000 on the level of compensation upon which their benefits were calculated. Effective December 21, 1990, the $30,000 cap was removed.
Members of both systems become vested after 10 years of creditable service. A retirement allowance may be received upon reaching age 65 or upon attaining 20 years of service. The systems also provide for early retirement at age 55 if a Participant (1) has a record of 10 years of creditable service, (2) was on the City payroll on January 1, 1978, (3) voluntarily left City employment on or after that date, and (4) left accumulated annuity deductions in the fund. Active members contribute between 5% and 9% of their gross regular compensation depending on the date upon which their membership began. Members hired after December 31, 1978 must contribute an additional 2% of regular compensation in excess of $30,000.
The System also provides death and disability benefits.
CITY OF REVERE,
MASSACHUSETTS
Notes to General Purpose Financial Statements
June 30, 1998
The Revere Retirement System issues a publicly available financial report that can be obtained by contacting Revere City Hall.
(b) Funding Policy and Contribution Requirements
The System’s funding policy is governed by Section 22D of Chapter 32 of the Massachusetts General Laws. Accordingly, the City of Revere is required to fund each year the actuarially determined normal cost plus an amount to amortize the unfunded liability for retirees and active employees by June 30, 2007 and June 30, 2024, respectively. The Commonwealth of Massachusetts currently reimburses the System on a quarterly basis for the portion of benefit payments owing to cost-of-living increases granted after the implementation of Proposition 2-1/2.
The City’s contribution to the System for the calendar year December 31, 1998, 1997 and 1996 were $5,857,000, $5,680,000 and $5,367,649, respectively.
(c) Post-Retirement Benefits
All retired employees eligible for pension benefits receive certain post-retirement benefits including major health and life insurance. Benefits received and costs borne by retirees are consistent with those of active employees. The City’s cost of these post-retirement benefits for fiscal 1998 was approximately $1,488,969.33, which was accounted for on a pay-as-you-go basis.
(7)
Short-term and Long-Term Obligations
Under state law and by authorization of the City Council, the City is authorized to borrow on a temporary basis to fund capital project costs incurred prior to obtaining permanent financing through issuance of bond anticipation notes (BAN). Temporary loans are general obligations of the City and carry maturity dates which are limited by statute. Temporary borrowings are recorded as liabilities in the Capital Projects fund. As of June 30, 1998, there were no temporary borrowings outstanding.
CITY OF REVERE,
MASSACHUSETTS
Notes to General Purpose Financial Statements
June 30, 1998
The following is a summary of changes in long-term debt for the year ended June 30, 1998 (in thousands):
Interest
June 30,
June 30,
rates
1997 Additions Retirements 1998
General
Obligation Bonds:
Senior Center, serial maturities
through 6/30/03
4.75% $ —
400
—
400
MWRAI/I Phase II
0.00%
—
426
—
426
School and RESCO; improve-
ments, serial maturities through
6/15/12
3.6% to 6.125%
4,400
—
300
4,100
School construction, serial
maturities through 6/15/08
6.3% to 7%
1,025
—
100
925
Schools, water and improvements,
serial maturities, Series A
through 6/15/16
4.6% to 6.5%
8,015
—
525
7,490
Equipment, serial maturities,
Series B through 6/30/01
4.875%
1,000
—
250
750
Massachusetts Water Pollution
Abatement Trust, serial
maturities through 2/1/15
4.0% to 5.7% 782
—
27
755
MWRA, serial maturities
through 5/15/00
0.00%
223
—
74
149
15,445
826
1,276
14,995
Other
long-term obligations:
Compensated absences*
2,916
—
572
2,344
Judgments and claims (note 10)
2,563 1,729
435
3,857
$ 20,924 2,555 2,283 21,196
* (activity shown net)
CITY OF REVERE,
MASSACHUSETTS
Notes to General Purpose Financial Statements
June 30, 1998
In June 1996, the City entered into a loan agreement with the Massachusetts Water Pollution Abatement Trust (MWPAT) to borrow $863,853 to finance certain wastewater capital improvements. Remaining scheduled loan repayments are $1,191,754 including interest. The City expects to receive $213,113 of interest subsidies from the MWPAT over the life of the loan. Thus, the net debt service cost remaining to the City is $978,641. Since the City is legally obligated for the total remaining amount of debt, such amount has been recorded in the accompanying financial statements.
Annual requirements to amortize all general obligation bonds outstanding as of June 30, 1998, including interest, are as follows (in thousands):
Interest
Year ending June 30
Principal
Gross Subsidy Net Total
1999
$ 1,443
772
(21) 751 2,194
2000
1,445
701
(20) 681 2,126
2001
1,371
638
(19) 619 1,990
2002
1,098
574
(18) 556 1,654
2003 through 2017
9,638 3,352 (135) 3,217 12,855
$ 14,995 6,037 (213) 5,824 20,819
The Commonwealth of Massachusetts has approved school construction assistance to the City. The assistance program which is administered by the School Building Assistance Bureau (SBAB) provides resources for future debt service of general obligation school bonds outstanding. These resources are subject to annual appropriation by the state legislature and the City’s compliance with certain reporting requirements. During 1998, the City received $24,874 of such assistance. Assuming satisfactory audit results and annual appropriations by the state legislature, $198,990 will be received annually for fiscal years 1999 through 2005.
The City is subject to a dual level general debt limit; the normal debt limit and the double debt limit. Such limits are equal to 2-1/2% and 5%, respectively, of the valuation of taxable property in the City as last equalized by the Commonwealth’s Department of Revenue. Debt may be authorized up to the normal debt limit without state approval. Authorizations under the double debt limit, however, require the approval of the Commonwealth’s Emergency Finance Board. Additionally, there are many categories of general obligation debt which are exempt from the debt limit but are subject to other limitations.
As of June 30, 1998, the City may issue $42,173,922 additional general obligation debt under the normal debt limit. The City has $13,265,000 of debt exempt from the debt limit.
CITY OF REVERE,
MASSACHUSETTS
Notes to General Purpose Financial Statements
June 30, 1998
Authorized and unissued debt at June 30, 1998 is as follows (in thousands):
Roughan’s Point flood damage
$ 2,555
Solid waste project
1,590
$ 4,145
The City pays assessments which include debt service payments to other local governmental units providing services within the City’s boundaries (commonly referred to as overlapping debt). The primary overlapping debt relates to the Massachusetts Bay Transportation Authority (MBTA) and the Massachusetts Water Resources Authority (MWRA). The following summary sets forth the long-term debt of each entity at June 30, 1998, the estimated share of such debt being serviced by the City, and the total of its share of estimated indirect debt.
City’s
Long-term
City’s
estimated
debt
estimated
indirect
outstanding
share
debt
(unaudited)
(unaudited)
(unaudited)
MBTA
$ 3,210,730,000
2.09%
67,104,257
MWRA:
Water
517,604,000
1.99%
10,315,257
Sewer
2,957,117,000
2.05%
60,569,469
Regional
schools
370,000
21.22%
78,514
$ 6,685,821,000
138,067,497
CITY OF REVERE,
MASSACHUSETTS
Notes to General Purpose Financial Statements
June 30, 1998
(8)
Operating Transfers
Operating transfers constitute the transfer of resources from the fund that receives the resources to the fund that utilizes them. Operating transfers during the year were as follows:
Transfers in (out)
Special Capital Expendable
General
Revenue Projects Trust
Source
of operating transfer:
Receipts reserved for appropriation
$ 455,500 (455,500)
—
—
Federal grants
40,910
(40,910)
—
—
Revolving funds
(1,931)
1,931
—
—
Trust actuaries
(42,017)
—
—
42,017
Community development
14,530
— (14,530)
—
$ 466,992 (494,479) (14,530) 42,017
(9) Deferred Compensation Plan
The City has a deferred compensation plan created in accordance with Section 457 of the Internal Revenue Code. The Plan, available to all City employees, permits them to defer a portion of their current salary to future years. The deferred compensation is not available to the participants until termination, retirement, death or unforeseeable emergency.
In accordance with Section 457 of the Internal Revenue Code, all amounts of compensation deferred under the Plan, all property and rights purchased with such amounts, and all income attributable to such amounts, property or rights are (until made available to the employee or other beneficiary) solely the property and rights of the City (without being restricted to the provisions of benefits under the Plan) subject only to the claims of the City’s general creditors.
Participants’ rights created under the Plan are equivalent to those of general creditors of the City and only in an amount equal to the fair market value of the deferred account maintained with respect to each participant. Plan assets have been used for no purpose other than to pay benefits. In addition, the City believes that it is unlikely that it will use the assets to satisfy the claims of general creditors in the future. The City records the plan assets and the related liability to plan participants as an agency fund.
CITY OF REVERE,
MASSACHUSETTS
Notes to General Purpose Financial Statements
June 30, 1998
The Plan allows its participants to direct their contributions among several publicly traded mutual funds and other pooled investment vehicle