Preliminary Official Statement and Notice of Sale Dated June 7, 2018
PRELIMINARY OFFICIAL STATEMENT AND NOTICE OF SALE DATED JUNE 7, 2018
Rating: See “Rating” herein. S&P Global Ratings: AA New Issue In the opinion of Locke Lord LLP, Bond Counsel, based upon an analysis of existing law and assuming, among other matters, compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”). Interest on the Bonds will not be included in computing the alternative minimum taxable income of individuals or, except as described herein, corporations. Under existing law, interest on the Bonds is exempt from Massachusetts personal income taxes, and the Bonds are exempt from Massachusetts personal property taxes. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See “Tax Exemption” herein. The Bonds will not be designated as “qualified tax-exempt obligations” for purposes of Section 265(b)(3) of the Code.
CITY OF SALEM, MASSACHUSETTS $14,900,000* GENERAL OBLIGATION MUNICIPAL PURPOSE LOAN OF 2018 BONDS DATED DUE Date of Delivery June 15 (as shown below)
The Bonds are issuable only in fully registered form, registered in the name of Cede & Co., as Bondowner and nominee for The Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository for the Bonds. Purchases of the Bonds will be made in book-entry form, in the denomination of $5,000 or any integral multiple thereof. See "THE BONDS - Book-Entry Transfer System" herein. Principal of the Bonds will be paid on June 15 of the years in which the Bonds mature. Interest on the Bonds will be payable semiannually on June 15 and December 15, commencing December 15, 2018, until maturity or redemption prior to maturity. Principal and semiannual interest on the Bonds will be paid by U. S. Bank National Association, Boston, Massachusetts, as Paying Agent. So long as DTC or its nominee, Cede & Co., is the Bondowner, such payments will be made directly to such Bondowner. Disbursement of such payments to the DTC Participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of the DTC Participants and Indirect Participants, as more fully described herein. The Bonds are subject to redemption prior to their stated maturity dates, as described herein. The Bonds will be valid general obligations of the City of Salem, Massachusetts, and will be payable as to both principal and interest from taxes that may be levied upon all the property within the territorial limits of the City, subject to the limit imposed by Chapter 59, Section 21C of the General Laws. ______MATURITIES, AMOUNTS*, RATES, PRICES OR YIELDS AND CUSIPS Due Principal Interest Price or Cusip Due Principal Interest Price or Cusip June 15 Amount* Rate Yield 794199 June 15 Amount* Rate Yield 794199 2019$ 1,095,000 % % 2034$ 235,000 % % 2020 1,105,000 2035 245,000 2021 1,110,000 2036 250,000 2022 1,115,000 2037 255,000 2023 900,000 2038 265,000 2024 510,000 2039 270,000 2025 505,000 2040 285,000 2026 510,000 2041 300,000 2027 525,000 2042 310,000 2028 560,000 2043 325,000 2029 445,000 2044 350,000 2030 440,000 2045 360,000 2031 470,000 2046 370,000 2032 495,000 2047 385,000 2033 505,000 2048 405,000 ______THE BONDS ARE OFFERED FOR SALE AT 11:00 A.M. EASTERN TIME ON WEDNESDAY, JUNE 13, 2018, AT HILLTOP SECURITIES INC., 54 CANAL STREET 3RD FLOOR, BOSTON, MASSACHUSETTS IN THE CASE OF SEALED PROPOSALS AND IN THE CASE OF ELECTRONIC PROPOSALS, VIA PARITY, IN THE MANNER SET FORTH IN THE NOTICE OF SALE. REFERENCE IS MADE TO THE NOTICE OF SALE DATED JUNE 7, 2018 FOR THE CONDITIONS OF SUCH SALE. The Bonds are offered subject to the final approving opinion of Locke Lord LLP, Boston, Massachusetts, Bond Counsel, as aforesaid, and to certain other conditions referred to herein and in the Notice of Sale. Hilltop Securities Inc., Boston, Massachusetts has acted as Financial Advisor to the City with respect to the Bonds. The Bonds in definitive form will be delivered to the successful bidder at DTC, or its custodial agent, on or about June 27, 2018 for settlement in federal funds. ______*Preliminary, subject to change. This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under shallno circumstances this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in jurisdictionwould be in which such offer, solicitation, or sale unlawful prior to registration or qualification under the securities laws of any such jurisdiction. TABLE OF CONTENTS
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SUMMARY STATEMENT 3 Abatements and Overlay 44 NOTICE OF SALE 4 State Equalized Valuation 45 Exhibit 1 – Form of Issue Price Certificates 9 Tax Collections 45 Tax Titles and Possessions 46 PRELIMINARY OFFICIAL STATEMENT: Taxes Outstanding 46 THE BONDS: Sale of Tax Receivables 46 Description of the Bonds 15 Taxation to Meet Deficits 46 Redemption Provisions 15 Tax Limitations 47 Record Date 16 Unused Levy Capacity 48 Book-Entry Transfer System 16 Pledged Taxes 48 Authorization of the Bonds and Use of Proceeds 18 Community Preservation Act 49 Principal Payments By Purpose 20 Tax Exemption 20 CITY FINANCES: Risk of Future Legislative Changes and/or Court Decisions 21 The Budget and Appropriation Process 50 Rating 22 Operating Budget Trends 50 Security and Remedies 22 Education Reform 51 Opinion of Bond Counsel 24 Revenues 51 Financial Advisory Services of Annual Audits 53 Hilltop Securities Inc. 24 Financial Statements 53 Continuing Disclosure 24 Combined Balance Sheets - Fiscal Year Ending: June 30, 2017 54 THE CITY OF SALEM, MASSACHUSETTS: June 30, 2016 55 General 25 June 30, 2015 56 Principal Executive Officers 25 Comparative Statement of Revenues and Historical Information 25 Expenditures (General Fund) 2013-2017 57 Municipal Services 25 Unassigned General Fund Balance and Free Cash 62 Transportation 26 Stabilization Fund 62 Cultural and Historical Facilities 26 Retirement Stabilization Fund 62 Development and Investment 28 Investment of City Funds 63 Downtown Development 28 Tax Increment Financing for Development Districts 63 North River Canal Corridor Redevelopment 29 Waterfront Development 29 INDEBTEDNESS: Residential Development 31 General Information on Debt Authorization Institutional and Commercial Development in Other Areas 31 And Legal Limits 64 Public Infrastructure Projects 32 Types of Obligations 64 Transportation Projects 32 Direct Debt Summary 66 Parks and Recreation Projects 33 Authorized Unissued Debt 66 Other City Projects and Initiatives 34 Key Debt Ratios 67 Planning 36 Coverage of Qualified Debt Service 67 Parks and Recreation 37 Annual Debt Service Requirements 68 Community Preservation Projects 38 Overlapping Debt 69 Public School Enrollments 38 Contractual Obligations 69 Population Trends 38 Retirement Systems 70 Age, Income and Wealth Levels 39 City of Salem Contributory Retirement System 71 Labor Force, Employment and Unemployment Rate 39 Other Post-Employment Benefits 72 Employment by Industry 39 Collective Bargaining 73 Largest Employers 40 LITIGATION 73 Building Permits 40 Housing Values 41 APPENDIX A – AUDITED FINANCIAL STATEMENTS AS OF JUNE 30, 2017 PROPERTY TAXATION: Tax Levy Computation 42 APPENDIX B – PROPOSED FORM OF LEGAL OPINION Assessed and Equalized Valuations 43 Classification of Property 43 APPENDIX C – PROPOSED FORM OF CONTINUING Largest Taxpayers 44 DISCLOSURE CERTIFICATE
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The Preliminary Official Statement is not to be construed as a contract or agreement between the City and the purchasers or holders of any of the Bonds. Any statements made in this Preliminary Official Statement involving matters of opinion, whether or not expressly so stated, are intended merely as opinion and not as representations of fact. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Preliminary Official Statement nor any sale of the bonds described herein shall, under any circumstances, create any implication that there has been no change in the affairs of the City of Salem, since the date hereof.
2 SUMMARY STATEMENT
The information set forth below is qualified in its entirety by the information and financial statements appearing elsewhere in the Official Statement.
Date of Sale: Wednesday, June 13, 2018, 11:00 A.M. (E.T.).
Location of Sale: Hilltop Securities Inc., 54 Canal Street, 3rd Floor, Boston, Massachusetts 02114.
Issuer: City of Salem, Massachusetts.
Issue: $14,900,000* General Obligation Municipal Purpose Loan of 2018 Bonds, see "THE BONDS - Book-Entry Transfer System" herein.
Preliminary Official Statement Dated: June 7, 2018.
Dated Date of the Bonds: Date of delivery.
Principal Due: Serially June 15, 2019 through June 15, 2048, as detailed herein.
Redemption: The Bonds are subject to redemption prior to their stated maturity dates, as described herein.
Purpose and Authority: The Bonds are authorized for various municipal purposes under Chapter 44, Sections 7 and 8 of the Massachusetts General Laws as detailed herein.
Security of the Bonds: The Bonds are valid general obligations of the City of Salem, and, to the extent not paid from other sources, the Bonds are payable from taxes which may be levied upon all taxable property within the territorial limits of the City, subject to the limit imposed by Chapter 59, Section 21C of the General Laws.
Credit Rating: S&P Global Ratings has assigned a rating of AA to the Bonds.
Bond Insurance: The City has not contracted for the issuance of any policy of municipal bond insurance or any other credit enhancement facility.
Basis of Award: Lowest True Interest Cost (TIC), as of the dated date. BIDS MUST INCLUDE A PREMIUM OF AT LEAST $105,000.
Tax Exemption: Refer to "THE BONDS - Tax Exemption" herein and Appendix B, "Proposed Form of Legal Opinion of Bond Counsel".
Continuing Disclosure: Refer to "THE BONDS - Continuing Disclosure" herein and Appendix C, "Proposed Form of Continuing Disclosure Certificate".
Bank Qualification: The Bonds will not be designated by the City as "qualified tax-exempt obligations" for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended.
Paying Agent: U. S. Bank National Association, Boston, Massachusetts.
Bond Counsel: Locke Lord LLP, Boston, Massachusetts.
Financial Advisor: Hilltop Securities Inc., Boston, Massachusetts.
Delivery and Payment: It is expected that delivery of the Bonds in book-entry only form will be made to The Depository Trust Company, or to its custodial agent, on or about June 27, 2018 against payment in federal funds.
Issuer Official: Questions concerning the Official Statement should be addressed to Kathleen McMahon, City Treasurer, City of Salem, Massachusetts telephone (978) 619-5635 or Peter Frazier, Managing Director, Hilltop Securities Inc., Boston, Massachusetts Telephone (617) 619-4409. ______*Preliminary, subject to change.
3 NOTICE OF SALE CITY OF SALEM, MASSACHUSETTS $14,900,000* GENERAL OBLIGATION MUNICIPAL PURPOSE LOAN OF 2018 BONDS
The City of Salem, Massachusetts (the “City”) will receive sealed and electronic (as described herein) proposals until 11:00 A.M., Eastern Time, Wednesday, June 13, 2018, for the purchase of the following described $14,900,000* General Obligation Municipal Purpose Loan of 2018 Bonds of the City (the "Bonds"):
$14,900,000* General Obligation Municipal Purpose Loan of 2018 Bonds payable June 15 of the years and in the amounts as follows:
Due Principal Due Principal June 15 Amount * June 15 Amount*
2019 $ 1,095,000 2034 **$ 235,000 2020 1,105,000 2035 ** 245,000 2021 1,110,000 2036 ** 250,000 2022 1,115,000 2037 ** 255,000 2023 900,000 2038 ** 265,000 2024 510,000 2039 ** 270,000 2025 505,000 2040 ** 285,000 2026 510,000 2041 ** 300,000 2027 525,000 2042 ** 310,000 2028 560,000 ** 2043 ** 325,000 2029 445,000 ** 2044 ** 350,000 2030 440,000 ** 2045 ** 360,000 2031 470,000 ** 2046 ** 370,000 2032 495,000 ** 2047 ** 385,000 2033 505,000 ** 2048 ** 405,000 ______*Preliminary, subject to change. **Callable Maturities. May be combined into one, two or three Term Bonds.
The Bonds will be dated as of their delivery date. Principal of the Bonds will be payable June 15 of the years in which the Bonds mature. Interest will be payable on June 15 and December 15 of each year until maturity, commencing December 15, 2018.
The Bonds will be issued by means of a book-entry system with no physical distribution of the Bonds made to the public. One certificate for each maturity of the Bonds will be issued to The Depository Trust Company, New York, New York ("DTC"), and immobilized in its custody. Ownership of the Bonds in principal amounts of $5,000 or integral multiples thereof will be evidenced by a book-entry system with transfers of ownership effected on the records of DTC and its participants pursuant to rules and procedures established by DTC and its participants. The winning bidder, as a condition to delivery of the Bonds, shall be required to deposit the Bonds with DTC, registered in the name of Cede & Co. Interest and principal on the Bonds will be payable to DTC or its nominee as registered owner of the Bonds. Transfer of principal and interest payments to participants of DTC will be the responsibility of DTC. Transfer of principal and interest payments to beneficial owners will be the responsibility of such participants and other nominees of beneficial owners. The City will not be responsible or liable for maintaining, supervising or reviewing the records maintained by DTC, its participants or persons acting through such participants.
The original Bonds to be immobilized at DTC will be prepared under the supervision of Hilltop Securities Inc. and their legality will be approved by Locke Lord LLP, Boston, Massachusetts, whose opinion will be furnished to the original purchaser without charge.
Principal of and semi-annual interest on the Bonds will be paid by U. S. Bank National Association, Boston, Massachusetts, as Paying Agent. So long as DTC or its nominee, Cede & Co., is the bondowner, such payments will be made directly to DTC. The disbursement of such payments to DTC participants is the responsibility of DTC, and the disbursement of such payments to the beneficial owners is the responsibility of the DTC participants and indirect participants, as more fully described herein.
The Bonds are subject to redemption prior to their stated maturity dates, as described herein. 4 Bonds maturing on or prior to June 15, 2027 shall not be subject to redemption prior to their stated maturity dates. Bonds maturing on and after June 15, 2028 shall be subject to redemption prior to maturity, at the option of the City, on or after June 15, 2027, either in whole or in part at any time, and if in part, by lot within a maturity, at the par amount of the Bonds to be redeemed plus accrued interest to the redemption date.
For Bonds maturing on June 15, 2028 and thereafter, bidders may specify that all of the principal amount of such Bonds in any two or more consecutive years may, in lieu of maturing in each such year, be combined to comprise one maturity of term bonds scheduled to mature in the latest of the combined years, and shall be subject to mandatory redemption prior to maturity at par as described above, in each of the years and in the principal amounts specified in the foregoing maturity schedule. Bidders may specify no more than three maturities of term bonds.
Bidders shall state the rate or rates of interest per annum which the Bonds are to bear in a multiple of 1/20 or 1/8 of one percent, but shall not state (a) more than one interest rate for any Bonds having a like maturity, (b) any interest rate which exceeds the interest rate stated for any other Bonds by more than 3 percent or (c) any coupon rate greater than 5.0%. No bid of less than par plus a premium of at least $105,000 will be considered. The bid should reflect the premium required plus accrued interest.
As between proposals which comply with this Notice of Sale, the award will be to the bidder who offers to purchase all the Bonds at the lowest net effective interest rate to the City. Such interest rate shall be determined on a true interest cost (TIC) basis, which shall mean that rate which, as of June 27, 2018, discounts semiannually all future payments on account of principal and interest to the price bid, not including interest accrued to date of delivery, which accrued interest shall be paid by the successful bidder. In the event there is more than one proposal specifying the lowest such rate, the Bonds will be awarded to the bidder whose proposal is selected by the City Treasurer by lot among all such proposals.
The City reserves the right to change the maturity schedule after the determination of the winning bid by increasing or decreasing the amount of each maturity by such amounts as may be necessary to structure the debt service on each purpose of the Bonds to be as close to equal on an annual basis as practicable. The dollar amount bid for the Bonds by the winning bidder will be adjusted, if applicable, to reflect changes in the dollar amount of the amortization schedule. Any price that is adjusted will reflect changes in the dollar amount of the underwriter’s discount and original issue premium, but will not change the per bond underwriter’s discount (net of insurance premium, if any) provided in such bid. Nor will it change the interest rate specified for each maturity. Any such adjustments will be communicated to the winning bidder by 4 P.M. on the day of the sale.
Bids must be submitted either:
(a) In a sealed envelope marked “Proposal for Bonds” and addressed to Ms. Kathleen McMahon, Treasurer, City of Salem, Massachusetts c/o Hilltop Securities Inc., 54 Canal Street, 3rd Floor, Boston, Massachusetts 02114. Proposals by telegram delivered as specified above will be accepted. Signed blank bid forms may be faxed to (617) 619-4411 prior to submitting bids, and actual bids may be telephoned to Hilltop Securities Inc., telephone (617) 619-4400 at least one-half hour prior to the 11:00 a.m. sale and after receipt of the faxed bid form by Hilltop Securities Inc. Hilltop Securities Inc. will act as agent for the bidder, but neither the City nor Hilltop Securities Inc. shall be responsible for any errors in connection with bids submitted in this manner.
(b) Electronically via Parity in accordance with this Notice of Sale. To the extent any instructions or directions set forth in Parity conflict with this Notice of Sale, the terms of this Notice of Sale shall control. For further information about Parity, potential bidders may contact the Financial Advisor to the City or Ideal at 40 West 23rd Street, 5th Floor, New York, NY 10010 (212) 404-8102.
The award of the Bonds to the winning bidder will not be effective until the bid has been approved by the Treasurer and the Mayor of the City.
The right is reserved to reject any or all proposals and to reject any proposal not complying with this Notice of Sale and, so far as permitted by law, to waive any irregularity with respect to any proposal.
An electronic bid made in accordance with this Notice of Sale shall be deemed an offer to purchase the Bonds in accordance with the terms provided in this Notice of Sale and shall be binding upon the bidder as if made by a signed and sealed written bid delivered to the City.
The City has not contracted for the issuance of any policy of bond insurance for the Bonds. If the Bonds qualify for issuance of any such policy or commitment therefor, any purchase of such insurance or commitment shall be at the sole option and expense of the bidder. Proposals shall not be conditioned upon the issuance of any such policy or 5 commitment. Any failure of the Bonds to be so insured or of any such policy or commitment to be issued shall not in any way relieve the purchaser of its contractual obligations arising from the acceptance of its proposal for the purchase of the Bonds. Should the bidder purchase municipal bond insurance, all expenses associated with such policy or commitment will be borne by the successful bidder, except for the fee paid to S&P Global Ratings for a rating on the Bonds. Any such fee paid to S&P Global Ratings would be borne by the City.
It shall be a condition to the obligation of the successful bidder to accept delivery of and pay for the Bonds that, contemporaneously with or before accepting the Bonds and paying therefor, it shall be furnished, without cost, with (a) the approving opinion of the firm of Locke Lord LLP, Boston, Massachusetts, substantially in the form presented in Appendix B to the Preliminary Official Statement dated June 7, 2018; (b) a certificate in form satisfactory to said firm, dated as of the date of delivery of the Bonds and receipt of payment therefor, to the effect that there is no litigation pending or, to the knowledge of the signer or signers thereof, threatened affecting the validity of the Bonds or the power of the City to levy and collect taxes to pay them, (c) a certificate of the City Treasurer to the effect that, to the best of his knowledge and belief, both the Preliminary Official Statement as of its date and as of the date of sale and the Final Official Statement as of its date and as of the date of delivery of the Bonds do not contain any untrue statement of a material fact and do not omit to state a material fact necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading, and (d) a Continuing Disclosure Certificate in the form presented in Appendix C to the Preliminary Official Statement.
The successful bidder shall assist the City in establishing the issue price of the Bonds and shall execute and deliver to the City on the Closing Date an “issue price” or similar certificate, in the applicable form set forth in Exhibit 1 to this Notice of Sale, setting forth the reasonably expected initial offering prices to the public or the sales price of the Bonds together with the supporting pricing wires or equivalent communications, or, if applicable, the amount bid, with such modifications as may be appropriate or necessary, in the reasonable judgment of the successful bidder, the City and Bond Counsel. All actions to be taken by the City under this Notice of Sale to establish the issue price of the Bonds may be taken on behalf of the City by Hilltop Securities Inc. (the “Financial Advisor”) and any notice or report to be provided to the City may be provided to the Financial Advisor.
Competitive Sale Requirements. If the competitive sale requirements (“competitive sale requirements”) set forth in Treasury Regulation § 1.148-1(f)(3)(i) (defining “competitive sale” for purposes of establishing the issue price of the Bonds) have been satisfied, the City will furnish to the successful bidder on the Closing Date a certificate of the Financial Advisor, which will certify each of the following conditions to be true:
1. The City has disseminated this Notice of Sale to potential underwriters in a manner that is reasonably designed to reach potential underwriters;
2. All bidders had an equal opportunity to bid;
3. The City received bids from at least three underwriters of municipal bonds who have established industry reputations for underwriting new issuances of municipal bonds; and
4. The City awarded the sale of the Bonds to the bidder who submitted a firm offer to purchase the Bonds at the highest price (or lowest interest cost), as set forth in this Notice of Sale.
Any bid submitted pursuant to this Notice of Sale shall be considered a firm offer for the purchase of the Bonds, as specified in the bid. Unless a bidder notifies the City prior to submitting its bid by facsimile (fax number: 617- 619-4411) or by telephone to the Financial Advisor (617-619-4400) or in its bid submitted via Parity, that it will not be an “underwriter” (as defined below) of the Bonds, by submitting its bid, each bidder shall be deemed to confirm that it has an established industry reputation for underwriting new issuances of municipal bonds. Unless the bidder has notified the City that it will not be an “underwriter” (as defined below) of the Bonds, in submitting a bid, each bidder is deemed to acknowledge that it is an “underwriter” that intends to reoffer the Bonds to the public.
In the event that the competitive sale requirements are not satisfied, the City shall so advise the successful bidder.
Failure to Meet the Competitive Sale Requirements – Option A – The Successful Bidder Intends to Reoffer the Bonds to the Public and the 10% test to apply. If the competitive sale requirements are not satisfied and the successful bidder intends to reoffer the Bonds to the public, the successful bidder, at its option, may use the first price at which 10% of a maturity of the Bonds (the “10% test”) is sold to the public as the issue price of that maturity, applied on a maturity-by- maturity basis, of the Bonds. The successful bidder shall advise the Financial Advisor if any maturity of the Bonds satisfies the 10% test as of the date and time of the award of the Bonds. The City will not require bidders to comply with 6 the “hold-the-offering-price rule” set forth in the applicable Treasury Regulations and therefore does not intend to use the initial offering price to the public as of the Sale Date of any maturity of the Bonds as the issue price of that maturity.
If the competitive sale requirements are not satisfied, then until the 10% test has been satisfied as to each maturity of the Bonds or all of the Bonds are sold to the public, the successful bidder agrees to promptly report to the Financial Advisor the prices at which the unsold Bonds of each maturity have been sold to the public, which reporting obligation shall continue, whether or not the Closing Date has occurred, until the 10% test has been satisfied for each maturity of the Bonds or until all the Bonds of a maturity have been sold. The successful bidder shall be obligated to report each sale of Bonds to the Financial Advisor until notified in writing by the City or the Financial Advisor that it no longer needs to do so.
By submitting a bid and if the competitive sale requirements are not met, each bidder confirms that: (i) any agreement among underwriters, any selling group agreement and each retail distribution agreement (to which the bidder is a party) relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each underwriter, each dealer who is a member of the selling group, and each broker-dealer that is a party to such retail distribution agreement, as applicable, to report the prices at which it sells to the public the unsold Bonds of each maturity allotted to it until it is notified by the successful bidder that either the 10% test has been satisfied as to the Bonds of that maturity or all Bonds of that maturity have been sold to the public, if and for so long as directed by the successful bidder and as set forth in the related pricing wires and (ii) any agreement among underwriters relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each underwriter that is a party to a retail distribution agreement to be employed in connection with the initial sale of the Bonds to the public to require each broker-dealer that is a party to such retail distribution agreement to report the prices at which it sells to the public the unsold Bonds of each maturity allotted to it until it is notified by the successful bidder or such underwriter that either the 10% test has been satisfied as to the Bonds of that maturity or all Bonds of that maturity have been sold to the public if and for so long as directed by the successful bidder or such underwriter and as set forth in the related pricing wires.
Sales of the Bonds to any person that is a related party to an underwriter shall not constitute sales to the public for purposes of this Notice of Sale. Further, for purposes of this Notice of Sale:
1. “Public” means any person other than an underwriter or a related party,
2. “Underwriter” means (A) any person that agrees pursuant to a written contract with the City (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the public), and
3. A purchaser of any of the Bonds is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (i) at least 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (ii) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (iii) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other).
Failure to Meet the Competitive Sale Requirements – Option B – The Successful Bidder Intends to Reoffer the Bonds to the Public and Agrees to Hold the Price of the Maturities of Bonds for Which the 10% Test in Option A Is Not Met as of the Sale Date. The successful bidder may, at its option, notify the Financial Advisor in writing, which may be by email (the “Hold the Price Notice”), not later than 4:00 p.m. on the Sale Date, that is it has not sold 10% of the maturities of the Bonds listed in the Hold the Price Notice (the “Unsold Maturities”) and that the successful bidder will not offer the Unsold Maturities to any person at a price that is higher than the initial offering price to the public during the period starting on the Sale and ending on either of (i) the close of the fifth business day after the Sale Date or (ii) the date on which the successful bidder has sold at least 10% of the Unsold Maturity to the public at a price that is no higher than the initial offering price to the public. If the successful bidder delivers a Hold the Price Notice to the Financial Advisor, the successful bidder must provide to the Issuer on or before the Closing Date, in addition to the certification described in Option A above, evidence that each underwriter of the Bonds, including underwriters in an underwriting syndicate or selling group, has agreed in writing to hold the price of the Unsold Maturities in the manner described in the preceding sentence.
7 Failure to Meet the Competitive Sale Requirements and/or the Successful Bidder Does Not Intend to Reoffer the Bonds to the Public – Option C. If the successful bidder has purchased the Bonds for its own account and will not distribute or resell the Bonds to the public, then, whether or not the competitive sale requirements were met, the reoffering price certificate will recite such facts and identify the price or prices at which the purchase of the Bonds was made.
It is anticipated that CUSIP identification numbers will be printed on the Bonds. The City assumes no responsibility for any CUSIP Service Bureau or other charge that may be imposed for the assignment of such numbers.
Additional information concerning the City and the Bonds is contained in the Preliminary Official Statement dated June 7, 2018, to which prospective bidders are directed. The Preliminary Official Statement is provided for informational purposes only and is not a part of this Notice of Sale. Said Preliminary Official Statement is deemed final by the City except for the omission of the reoffering price(s), interest rate(s), and the identity of the underwriter(s), and any other pertinent terms of the Bonds depending on such matters, but is subject to change without notice to completion or amendment in a Final Official Statement. Copies of the Preliminary Official Statement may be obtained from Hilltop Securities Inc., 54 Canal Street, Boston, Massachusetts 02114 (Telephone: 617-619-4400). Within seven (7) business days following the award of the Bonds in accordance herewith, 15 copies of the Final Official Statement will be available from the Hilltop Securities Inc. to the successful bidder for use in reoffering the Bonds. Upon request, additional copies will be provided at the expense of the requester.
The Bonds will not be designated as “qualified tax-exempt obligations” for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986 as amended.
In order to assist bidders in complying with Rule 15c2-12(b)(5) promulgated by the Securities and Exchange Commission, the City will undertake to provide annual reports and notices of certain significant events. A description of this undertaking is set forth in the Preliminary Official Statement.
The Bonds in definitive form will be delivered to The Depository Trust Company or the offices of its custodial agent on or about June 27, 2018 for settlement in federal funds.
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CITY OF SALEM, MASSACHUSETTS /s/ Kathleen McMahon, Treasurer
June 7, 2018
8 EXHIBIT 1
[Issue Price Certificate for Use If the Competitive Sale Requirements Are Met]
City of Salem, Massachusetts $14,900,000* General Obligation Municipal Purpose Loan of 2018 Bonds dated June 27, 2018
ISSUE PRICE CERTIFICATE AND RECEIPT
The undersigned, on behalf of ______(the “Successful Bidder”), hereby certifies as set forth below with respect to the sale of the above-captioned obligations (the “Bonds”) of the City of Salem, Massachusetts (the “Issuer”).
1. Reasonably Expected Initial Offering Prices.
(a) As of the Sale Date, the reasonably expected initial offering prices of the Bonds to the Public by the Successful Bidder are the prices listed in Schedule A (the “Expected Offering Prices”). The Expected Offering Prices are the prices for the Maturities of the Bonds used by the Successful Bidder in formulating its bid to purchase the Bonds. Attached as Schedule B is a true and correct copy of the bid provided by the Successful Bidder to purchase the Bonds. (b) The Successful Bidder was not given the opportunity to review other bids prior to submitting its bid. (c) The bid submitted by the Successful Bidder constituted a firm offer to purchase the Bonds. 2. Defined Terms. (a) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate Maturities. (b) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter. The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (c) Sale Date means the first day on which there is a binding contract in writing for the sale of a Maturity of the Bonds. The Sale Date of the Bonds is June 13, 2018. (d) Underwriter means (i) any person, including the Successful Bidder, that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public).
3. Receipt. The Successful Bidder hereby acknowledges receipt of the Bonds and further acknowledges receipt of all certificates, opinions, and other documents required to be delivered to the Successful Bidder, before or simultaneously with the Bonds, which certificates, opinions, and other documents are satisfactory to the Successful Bidder.
The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents the Successful Bidders interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Locke Lord LLP in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds.
Dated: ______, 2018 [NAME OF SUCCESSFUL BIDDER]
By: ______Name: Title: *Preliminary, subject to change.
9 SCHEDULE A
EXPECTED OFFERING PRICES
(To Be Attached)
SCHEDULE B
COPY OF SUCCESSFUL BIDDER’S BID
(To Be Attached)
10 EXHIBIT 1 – OPTION A
[Issue Price Certificate for Use If the Competitive Sale Requirements Are Not Met and the Hold the Price Rule Is Not Used] City of Salem, Massachusetts $14,900,000* General Obligation Municipal Purpose Loan of 2018 Bonds dated June 27, 2018 ISSUE PRICE CERTIFICATE AND RECEIPT
The undersigned, on behalf of ______, (the “[Successful Bidder][Representative]”), on behalf of itself [and [NAMES OF OTHER UNDERWRITERS]] hereby certifies as set forth below with respect to the sale and issuance of the above- captioned obligations (the “Bonds”) of the City of Salem, Massachusetts (the “Issuer”). 1. Sale of the Bonds. As of the date of this certificate, [except as set forth in following paragraph,] for each Maturity of the Bonds, the first price at which at least 10% of such Maturity of the Bonds was sold to the Public is the respective price listed in Schedule A. [Only use the next paragraph if the 10% test has not been met or all of the Bonds have not been sold for one or more Maturities of Bonds as of the Closing Date.] For each Maturity of the Bonds as to which no price is listed in Schedule A, as set forth in the Notice of Sale for the Bonds, until at least 10% of each such Maturity of the Bonds is sold to the Public (the “10% test”) or all of the Bonds are sold to the Public, the [Successful Bidder][Representative] agrees to promptly report to the Issuer’s financial advisor, Hilltop Securities Inc. (the “Financial Advisor”) the prices at which the unsold Bonds of each Maturity have been sold to the Public, which reporting obligation shall continue after the date hereof until the 10% test has been satisfied for each Maturity of the Bonds or until all the Bonds of a Maturity have been sold. The [Successful Bidder][Representative] shall continue to report each sale of Bonds to the Financial Advisor until notified by email or in writing by the State or the Financial Advisor that it no longer needs to do so. 2. Defined Terms. (a) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate Maturities. (b) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter. The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (c) Underwriter means (i) any person, including the [Successful Bidder][Representative], that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public). 3. Receipt. The [Successful Bidder][Representative] hereby acknowledges receipt of the Bonds and further acknowledges receipt of all certificates, opinions, and other documents required to be delivered to the [Successful Bidder][Representative], before or simultaneously with the Bonds, which certificates, opinions, and other documents are satisfactory to the [Successful Bidder][Representative]. The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents the [Successful Bidder][Representative]’s interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Locke Lord LLP in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds. Dated: ______, 2018 [SUCCESSFUL BIDDER][REPRESENTATIVE] By: ______Name: Title: *Preliminary, subject to change.
11 SCHEDULE A SALE PRICES (To be Attached)
12 EXHIBIT 1 – OPTION B
[Issue Price Certificate for Use If the Competitive Sale Requirements Are Not Met and the Hold the Price Rule Is Used]
City of Salem, Massachusetts $14,900,000* General Obligation Municipal Purpose Loan of 2018 Bonds dated June 27, 2018
ISSUE PRICE CERTIFICATE AND RECEIPT
The undersigned, on behalf of ______(the (“[Successful Bidder][Representative]”), on behalf of itself [and [NAMES OF OTHER UNDERWRITERS] ]hereby certifies as set forth below with respect to the sale and issuance of the above- captioned obligations (the “Bonds”) of the City of Salem, Massachusetts (the “Issuer”). 1. Sale of the Bonds. As of the date of this certificate, [except as set forth in following paragraph,] for each Maturity of the Bonds, the first price at which at least 10% of such Maturity of the Bonds was sold to the Public is the respective price listed in Schedule A.
[Only use the next paragraph if the 10% test has not been met as of the Sale Date.] For each Maturity of the Bonds as to which no price is listed in Schedule A (the “Unsold Maturities”), as set forth in the Notice of Sale for the Bonds, the [Successful Bidder][Representative] and any other Underwriter did not [and will not] reoffer the Unsold Maturities at a price higher than the initial offering price to the public until the earlier of (i) ______, 20__ or (ii) the date on which the [Successful Bidder][Representative] or any other Underwriter sold at least 10% of each Unsold Maturity at a price that is no higher than the initial offering price to the Public. 2. Defined Terms.
(a) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate Maturities. (b) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter. The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (c) Underwriter means (i) any person, including the [Successful Bidder][Representative], that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public).
3. Receipt. The [Successful Bidder][Representative] hereby acknowledges receipt of the Bonds and further acknowledges receipt of all certificates, opinion and other documents required to be delivered to the [Successful Bidder][Representative], before or simultaneously with the delivery of the Bonds, which certificates, opinions and other documents are satisfactory to the [Successful Bidder][Representative].
The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents the [Successful Bidder’s][Representative’s] interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Locke Lord LLP in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds. Dated: ______, 2018 [SUCCESSFUL BIDDER][REPRESENTATIVE] By: ______Name: Title:
*Preliminary, subject to change.
13 SCHEDULE A
SALE PRICES
(To be Attached)
14 PRELIMINARY OFFICIAL STATEMENT CITY OF SALEM, MASSACHUSETTS $14,900,000* GENERAL OBLIGATION MUNICIPAL PURPOSE LOAN OF 2018 BONDS
This Official Statement is provided for the purpose of presenting certain information relating to the City of Salem, Massachusetts (the “City”), in connection with the sale of $14,900,000* aggregate principal amount of its General Obligation Municipal Purpose Loan of 2018 Bonds (the "Bonds"). The information contained herein has been furnished by the City, except information attributed to another governmental agency or official as the source.
THE BONDS
Description of the Bonds
The Bonds will be dated as of their delivery date and will bear interest payable semiannually on June 15 and December 15 of each year until maturity, commencing December 15, 2018. The Bonds shall mature on June 15 of the years and in the principal amounts as set forth on the cover page of this Official Statement.
The Bonds are issuable only in fully registered form, without coupons, and, when issued, will be registered in the name of Cede & Co., as Bondowner and nominee for The Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository for the Bonds. Purchases of the Bonds will be made in book-entry form, in the denomination of $5,000 or any integral multiple thereof. Purchasers will not receive certificates representing their interests in Bonds purchased. So long as Cede & Co. is the Bondowner, as nominee of DTC, references herein to the Bondowners or registered owners shall mean Cede & Co., as aforesaid, and shall not mean the Beneficial Owners (as defined herein) of the Bonds. (See "Book-Entry Transfer System" herein.)
Principal of and semiannual interest on the Bonds will be paid by U. S. Bank National Association, Boston, Massachusetts, as Paying Agent. So long as DTC or its nominee, Cede & Co., is the Bondowner, such payments will be made directly to such Bondowner. Disbursements of such payments to the DTC participants are the responsibility of DTC and disbursements of such payments to the beneficial owners are the responsibility of the DTC participants and the indirect participants, as more fully described herein.
The Bonds are subject to redemption prior to their stated maturity dates, as described herein.
Redemption Provisions
Optional Redemption
Bonds maturing on or prior to June 15, 2027 shall not be subject to redemption prior to their stated maturity dates. Bonds maturing on and after June 15, 2028 shall be subject to redemption prior to maturity, at the option of the City, on or after June 15, 2027, either in whole or in part at any time, and if in part, by lot within a maturity, at the par amount of the Bonds to be redeemed, plus accrued interest to the redemption date.
Mandatory Redemption
Term bonds, if any, shall be subject to mandatory redemption commencing on June 15 of the first year which has been combined to form such term bonds and continuing on June 15 in each year thereafter until the stated maturity date of any such term bonds. The amount redeemed or paid at maturity in any year shall be equal to the principal amount for that year set forth in the schedule contained in the Notice of Sale dated June 7, 2018 relating to the Bonds. Principal amounts to be redeemed in any year by mandatory redemption shall be redeemed at par (without premium), plus accrued interest to the redemption date, and shall be selected by lot from among the Bonds then subject to redemption. The City Treasurer may credit against any mandatory redemption requirement term bonds which have been purchased and cancelled by the City or have been redeemed and not theretofore applied as a credit against any mandatory redemption requirement.
*Preliminary, subject to change.
15 Notice of Redemption
Notice of any redemption of Bonds, prior to their dates of maturity, specifying the Bonds (or the portions thereof) to be redeemed shall be mailed to DTC not more than 60 days nor less than 30 days prior to the redemption date. Any failure on the part of DTC to notify the Direct Participants of the redemption or failure on the part of DTC’s Participants, Indirect Participants or of a nominee of a Beneficial Owner having received notice from a DTC Participant or otherwise to notify the Beneficial Owners shall not affect the validity of the redemption.
Record Date
The record date for each payment of interest is the last business day of the month preceding the interest payment date, however if such date is not a business day, the record date will be the following business day provided that, with respect to overdue interest, the Paying Agent may establish a special record date. The special record date may not be more than twenty (20) days before the date set for payment. The Paying Agent will mail notice of a special record date to the Bondowners at least ten (10) days before the special record date.
Book-Entry Transfer System
The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued in fully-registered form registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One-fully registered certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and each such certificate will be deposited with DTC.
DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated securities. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.
Purchases of securities deposited with DTC must be made by or through Direct Participants, which will receive a credit for such securities on DTC's records. The ownership interest of each actual purchaser of each security deposited by DTC ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the securities deposited by DTC are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the securities deposited with DTC, except in the event that use of the book-entry system for such securities is discontinued.
To facilitate subsequent transfers, all securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the securities deposited with DTC; DTC's records reflect only the identity of the Direct Participants to whose accounts such securities
16 are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Redemption notices shall be sent to DTC. If less than all of a maturity is being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to securities deposited with DTC unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer of such securities or its paying agent as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts such securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Principal and interest payments on securities deposited with DTC will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the issuer of such securities or its paying agent, on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC (nor its nominee), the issuer of such securities or its paying agent, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the issuer of such securities or its paying agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the securities deposited with DTC at any time by giving reasonable notice to the issuer of such securities or its paying agent. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered to Beneficial Owners.
The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, physical certificates will be printed and delivered to Beneficial Owners.
The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof.
17 Authorization of the Bonds and Use of Proceeds
The following sets forth the principal amounts issued and authorized, dates of City approval, purposes and statutory authorizations for the current offering of Bonds:
Bond Anticipation Amount Originally Statutory Purpose This Issue* Notes Outstanding (1) Authorized Date of Authorization Reference Planning - Blaney Street Pier & Terminal (City match) $ 100,000 $ - $ 550,000 6/25/2015 44 7(1) Police GPS units for vehicles 30,000 - 40,000 6/25/2015 44 7(1) Old Town Hall Roof Restoration 50,000 - 60,000 6/27/2016 44 7(1) Bike Path Design/ Construction 2,500 - 25,000 6/27/2016 44 7(7) Bike Path Master Plan Upgrades 100,000 - 100,000 6/27/2016 44 7(1) Canal Street Roadway & Bike Path Improvements 1,200,000 25,000 1,200,000 6/27/2016 44 7(1) Canal Street Roadway & Bike Path Improvements 2 - - 1,200,000 6/27/2016 44 7(1) Citywide Traffic Calming Improvements 60,000 3,600 100,000 6/27/2016 44 7(1) Citywide Traffic Calming Improvements 2 - - 100,000 6/27/2016 44 7(1) Essex Street Roadway Improvements 75,000 30,000 75,000 6/27/2016 44 7(1) Essex Street Roadway Improvements 2 - - 75,000 6/27/2016 44 7(1) First/ Swampscott Road Intersection Improvement/Design 100,000 7,000 100,000 6/27/2016 44 7(1) First/ Swampscott Road Intersection Improvement/Design 2 - - 100,000 6/27/2016 44 7(1) Seawall at Collins Cove 100,000 - 100,000 6/27/2016 44 7(1) South Salem Walk & Downtown Walk Boston 30,000 - 50,000 6/27/2016 44 7(1) Inflatable Boat & Motor 24,967 7,000 25,000 6/27/2016 44 7(1) Inflatable Boat & Motor 2 - - 25,000 6/27/2016 44 7(1) Annual Life Cycle Management 75,000 12,000 75,000 6/27/2016 44 7(1) Annual Life Cycle Management 2 - - 75,000 6/27/2016 44 7(1) Fiber Optic Network Phase II 500,000 - 700,000 6/27/2016 44 7(1) Telephone System Replacement 350,000 240,000 494,297 6/27/2016 44 7(1) Telephone System Replacement 2 - - 494,297 6/27/2016 44 7(1) Basketball Court Renovations 30,000 - 30,000 6/27/2016 44 7(1) Memorial Park Pillars & Fencing Phase II 25,000 - 25,000 6/27/2016 44 7(1) Playground Upgrades 35,000 - 35,000 6/27/2016 44 7(1) Historic Wrought Iron Fence - Salem Commons 50,000 15,000 50,000 6/27/2016 44 7(1) Historic Wrought Iron Fence - Salem Commons 2 - - 50,000 6/27/2016 44 7(1) Dickson Memorial Chapel Restoration 50,000 - 50,000 6/27/2016 44 7(1) Forest River Conservation Area Improvements 24,675 - 25,000 6/27/2016 44 7(1) Furnace & Hot Water Replacement (Police) 10,000 - 121,465 6/27/2016 44 7(1) License Plate Readers 27,515 - 27,584 6/27/2016 44 7(1) Roof Replacement (Police) 600,000 13,000 600,000 6/27/2016 44 7(1) Roof Replacement (Police) 2 - - 600,000 6/27/2016 44 7(1) Public Services Ford F150 50,692 51,000 (2) 51,000 6/27/2016 44 7(1) Public Services International Dump Truck (Sander) 162,006 163,000 (3) 163,000 6/27/2016 44 7(1) Response Vehicle (Fire Chief) 45,000 35,000 45,000 6/27/2016 44 7(1) Response Vehicle (Fire Chief) 2 - - 45,000 6/27/2016 44 7(1) Parking - Ford F150 20,125 20,125 20,125 6/27/2016 44 7(1) Marked Cruisers 90,061 90,398 (4) 90,398 6/27/2016 44 7(1) K9 Cruiser 17,807 17,807 17,807 6/27/2016 44 7(1) 29 Passenger Bus 58,438 61,000 (5) 61,000 6/27/2016 44 7(1) 42 Passenger Bus 88,483 92,000 (6) 92,000 6/27/2016 44 7(1) 77 Passenger Bus 89,000 95,000 (7) 95,000 6/27/2016 44 7(1) Traffic Signal Upgrades 25,000 - 25,000 6/27/2017 & 12/12/2017 44 7(1) Utility Pole Replacement 25,000 - 25,000 6/27/2017 & 12/12/2017 44 7(1) First Swampscott Road Intersection Improvements 50,000 - 350,000 6/27/2017 & 12/12/2017 44 7(1) Forest River Park & Pool Design/Improveme nts 50,000 - 50,000 6/27/2017 & 12/12/2017 44 7(1) Loring & Lafayette Improvements 150,000 - 150,000 6/27/2017 & 12/12/2017 44 7(1)
*Preliminary, subject to change.
Continued to following page. 18 Continued from previous page.
Bond Anticipation Amount Originally Statutory Purpose This Issue* Notes Outstanding (1) Authorized Date of Authorization Reference
McGrath Park Additional Assessment $ 200,000 $ - $ 200,000 6/27/2017 & 12/12/2017 44 7(7) Roads & Sidewalks 800,000 - 800,000 6/27/2017 & 12/12/2017 44 7(1) IT Annual Inventory (City) 75,000 - 75,000 6/27/2017 & 12/12/2017 44 7(9) IT Community Cameras (Police) 17,000 - 30,000 6/27/2017 & 12/12/2017 44 7(1) IT Document Management System 191,000 - 191,000 6/27/2017 & 12/12/2017 44 7(7) IT Facilities Assessment Software 146,000 - 146,000 6/27/2017 & 12/12/2017 44 7(7) Library HVAC Upgrades 80,000 - 80,000 6/27/2017 & 12/12/2017 44 7(1) Library Structural Upgrades 50,000 - 100,000 6/27/2017 & 12/12/2017 44 7(1) Basketball Court Renovations 100,000 - 100,000 6/27/2017 & 12/12/2017 44 7(1) Betram Field Schematic Design Phase II 99,500 - 100,000 6/27/2017 & 12/12/2017 44 7(7) Playground Updates 15,000 - 25,000 6/27/2017 & 12/12/2017 44 7(1) Ryan Brennan Memorial Skate Park 10,000 - 125,000 6/27/2017 & 12/12/2017 44 7(1) Salem Common Fence 75,000 - 150,000 6/27/2017 & 12/12/2017 44 7(1) Winter Island Function Hall/Accessibili ty Upgrades 25,000 - 166,000 6/27/2017 & 12/12/2017 44 7(1) Parking Equipment/Kiosks 75,250 - 72,250 6/27/2017 & 12/12/2017 44 7(1) Traffic Signal Communication Upgrades 47,000 - 47,000 6/27/2017 & 12/12/2017 44 7(1) Historic Cemetery Restoration 150,000 - 215,000 6/27/2017 & 12/12/2017 44 7(11) Lafayette Park Restoration 25,000 - 25,000 6/27/2017 & 12/12/2017 44 7(1) Police Dive Equipment 65,328 - 65,328 6/27/2017 & 12/12/2017 44 7(1) Police Fire Alarm Replacement 25,000 - 25,000 6/27/2017 & 12/12/2017 44 7(1) School Districtwie Computer Replacement 25,000 - 75,000 6/25/2015 44 7(1) School Replacement of Buildings & Grounds Equipment 5,000 - 75,000 6/25/2015 44 7(1) Annual Life Cycle Management (Schools) 200,000 50,000 200,000 6/27/2016 44 7(1) Annual Life Cycle Management (Schools) 2 - - 200,000 6/27/2016 44 7(1) Bentley School HVAC Equipment 25,000 - 25,000 6/27/2016 44 7(1) High School HVAC Upgrades 50,000 - 50,000 6/27/2016 44 7(1) IT Annual Inventory (School) 150,000 - 150,000 6/27/2017 & 12/12/2017 44 7(9) Bentley School Roof Replacement 51,882 - 51,882 6/27/2017 & 12/12/2017 44 7(1) Water System Upgrade - Valves & Hydrants 1,000,000 - 2,500,000 6/25/2015 44 8(5) Water Distribution System Improvements 1,145,000 400,000 1,145,000 6/27/2016 44 8(5) Outlook Ave Drainage Improvements 15,000 - 175,000 6/27/2016 44 7(1) Water System Flushing, Valve Maintenance, Leak Detection & GIS Admin 150,000 - 400,000 6/27/2016 44 8(7C) Water Transmission System - Salem PS & Booster Station 150,000 - 150,000 6/27/2016 44 8(7C) Water - Salem PS & Booster Station 25,000 - 150,000 6/27/2017 44 8(7A) Water - Essex Street Improvements 175,000 - 175,000 6/27/2017 44 8(5) Sewer Pump Station 3,339,731 50,000 7,500,000 6/25/2015 44 8(14) Sewer Pump Station 2 - - 7,500,000 6/25/2015 44 8(14) Sewer System Flushing, Valve Maintenance, Leak Detection & GIS Admin 400,000 130,000 400,000 6/27/2016 44 7(1) Sewer System Flushing, Valve Maintenance, Leak Detection & GIS Admin 2 - 400,000 6/27/2016 44 7(1) Swampscott Road Sewer Pump Station UST 100,000 41,000 100,000 6/27/2016 44 7(1) Swampscott Road Sewer Pump Station UST 2 - 100,000 6/27/2016 44 7(1) MS4 Compliance/Illicit Connectioin Removal (Sewer) 576,040 15,000 750,000 6/27/2016 44 7(1) MS4 Compliance/Illic it Connectioin Removal (Sewer) 2 - - 750,000 6/27/2016 44 7(1) Canal Street Sewer Upgrades Phase II 300,000 - 15,000,000 6/27/2016 44 7(1) Sewer - Essex Street Improvements 175,000 - 175,000 6/27/2017 44 7(1)
$ 14,900,000 $ 1,663,930 ______*Preliminary, subject to change. (1) Payable June 28, 2018. To be retired with proceeds of this issue. (2) To be retired, in part, with proceeds of this issue and in part with $308 unspent note proceeds. (3) To be retired, in part, with proceeds of this issue and in part with $994 unspent note proceeds. (4) To be retired, in part, with proceeds of this issue and in part with $337 unspent note proceeds. (5) To be retired, in part, with proceeds of this issue and in part with $2,562 unspent note proceeds. (6) To be retired, in part, with proceeds of this issue and in part with $3,517 unspent note proceeds. (7) To be retired, in part, with proceeds of this issue and in part with $6,000 unspent note proceeds.
19 Principal Payments By Purpose*
Year General* School* Water* Sewer* Total* 2019 $ 807,347 $ 71,882 $ 75,000 $ 140,771 $ 1,095,000 2020 825,000 75,000 80,000 125,000 1,105,000 2021 835,000 80,000 85,000 110,000 1,110,000 2022 850,000 80,000 80,000 105,000 1,115,000 2023 635,000 65,000 85,000 115,000 900,000 2024 305,000 25,000 80,000 100,000 510,000 2025 295,000 25,000 80,000 105,000 505,000 2026 295,000 25,000 80,000 110,000 510,000 2027 300,000 25,000 85,000 115,000 525,000 2028 310,000 30,000 100,000 120,000 560,000 2029 255,000 5,000 60,000 125,000 445,000 2030 255,000 - 60,000 125,000 440,000 2031 270,000 - 65,000 135,000 470,000 2032 285,000 - 70,000 140,000 495,000 2033 290,000 - 70,000 145,000 505,000 2034 10,000 - 70,000 155,000 235,000 2035 5,000 - 80,000 160,000 245,000 2036 5,000 - 80,000 165,000 250,000 2037 5,000 - 80,000 170,000 255,000 2038 5,000 - 85,000 175,000 265,000 2039 - - 90,000 180,000 270,000 2040 - - 90,000 195,000 285,000 2041 - - 100,000 200,000 300,000 2042 - - 100,000 210,000 310,000 2043 - - 105,000 220,000 325,000 2044 - - 115,000 235,000 350,000 2045 - - 120,000 240,000 360,000 2046 - - 125,000 245,000 370,000 2047 - - 130,000 255,000 385,000 2048 - - 135,000 270,000 405,000
$ 6,842,347 $ 506,882 $ 2,660,000 $ 4,890,771 $ 14,900,000
______*Preliminary, subject to change.
Tax Exemption
In the opinion of Locke Lord LLP, Bond Counsel to the City (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, among other matters, compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”). Bond Counsel is of the further opinion that interest on the Bonds will not be included in computing the alternative minimum taxable income of Bondholders who are individuals or, except as described herein, corporations. Bond Counsel expresses no opinion regarding any other federal tax consequences arising with respect to the ownership or disposition of, or the accrual or receipt of interest on the Bonds. The Bonds will not be designated as “qualified tax-exempt obligations” for purposes of Section 265(b)(3) of the Code.
For taxable years that began before January 1, 2018, interest on the Bonds owned by a corporation (other than an S corporation, a qualified mutual fund, a real estate investment trust, a real estate mortgage investment conduit, or a financial asset securitization investment trust) will be included in such corporation’s adjusted current earnings for purposes of computing the alternative minimum taxable income of such corporation. The alternative minimum tax on corporations has been repealed for taxable years beginning on or after January 1, 2018.
The Code imposes various requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. Failure to comply with these requirements may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The City has covenanted to comply with such requirements to ensure that interest on the Bonds will not be included in federal gross income. The opinion of Bond Counsel assumes compliance with these requirements. 20 Bond Counsel is also of the opinion that, under existing law, interest on the Bonds is exempt from Massachusetts personal income taxes, and the Bonds are exempt from Massachusetts personal property taxes. Bond Counsel has not opined as to other Massachusetts tax consequences arising with respect to the Bonds. Prospective Bondholders should be aware, however, that the Bonds are included in the measure of Massachusetts estate and inheritance taxes, and the Bonds and the interest thereon are included in the measure of certain Massachusetts corporate excise and franchise taxes. Bond Counsel expresses no opinion as to the taxability of the Bonds or the income therefrom or any other tax consequences arising with respect to the Bonds under the laws of any state other than Massachusetts. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix B hereto.
To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and is exempt from Massachusetts personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is either the reasonably expected initial offering price to the public or the first price at which a substantial amount of such maturity of the Bonds is sold to the public, as applicable. The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Bondholders should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase such Bonds in the original offering to the public at the reasonably expected initial offering price or, if applicable, the first price at which a substantial amount of such Bonds is sold to the public.
Bonds purchased, whether at original issuance or otherwise, for an amount greater than the stated principal amount to be paid at maturity of such Bonds, or, in some cases, at the earlier redemption date of such Bonds (“Premium Bonds”), will be treated as having amortizable bond premium for federal income tax purposes and Massachusetts personal income tax purposes. No deduction is allowable for the amortizable bond premium in the case of obligations, such as the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, a Bondholder’s basis in a Premium Bond will be reduced by the amount of amortizable bond premium properly allocable to such Bondholder. Holders of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.
Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds.
Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from Massachusetts personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect the federal or state tax liability of a Bondholder. Among other possible consequences of ownership or disposition of, or the accrual or receipt of interest on, the Bonds, the Code requires recipients of certain social security and certain railroad retirement benefits to take into account receipts or accruals of interest on the Bonds in determining the portion of such benefits that are included in gross income. The nature and extent of all such other tax consequences will depend upon the particular tax status of the Bondholder or the Bondholder’s other items of income, deduction, or exclusion. Bond Counsel expresses no opinion regarding any such other tax consequences, and Bondholders should consult with their own tax advisors with respect to such consequences.
Risk of Future Legislative Changes and/or Court Decisions
Legislation affecting tax-exempt obligations is regularly considered by the United States Congress and may also be considered by the Massachusetts legislature. Court proceedings may also be filed, the outcome of which could modify the tax treatment of obligations such as the Bonds. There can be no assurance that legislation enacted or proposed, or actions by a court, after the date of issuance of the Bonds will not have an adverse effect on the tax status of interest on the Bonds or the market value or marketability of the Bonds. These adverse effects could result, for example, from changes to federal or state income tax rates, changes in the structure of federal or state income taxes (including replacement with another type of tax), or repeal (or reduction in the benefit) of the exclusion of interest on the Bonds from gross income for federal or state income tax purposes for all or certain taxpayers.
For example, H.R. 1, signed into law on December 22, 2017, reduces the corporate tax rate, modifies individual tax rates, eliminates many deductions, and raises the income threshold above which the individual alternative minimum tax is 21 invoked, among other things. These changes may increase, reduce or otherwise change the financial benefits of owning state and local government bonds. Additionally, Bondholders should be aware that future legislative actions (including federal income tax reform) may retroactively change the treatment of all or a portion of the interest on the Bonds for federal income tax purposes for all or certain taxpayers. In all such events, the market value of the Bonds may be affected and the ability of Bondholders to sell their Bonds in the secondary market may be reduced. The Bonds are not subject to special mandatory redemption, and the interest rates on the Bonds are not subject to adjustment, in the event of any such change in the tax treatment of interest on the Bonds.
Investors should consult their own financial and tax advisors to analyze the importance of these risks.
Rating
S&P Global Ratings has assigned a rating of AA to the Bonds. Said rating only reflects the rating agency’s views and is subject to revision or withdrawal, which could affect the market price of the Bonds.
Security and Remedies
Full Faith and Credit. General obligation bonds and notes of a Massachusetts city or town constitute a pledge of its full faith and credit. Payment is not limited to a particular fund or revenue source. Except for "qualified bonds" as described below (see “TYPES OF OBLIGATIONS - Serial Bonds and Notes” under “INDEBTEDNESS”) and setoffs of state distributions as described below (see "Use of State Distributions to Pay Debt Service" below), no provision is made by the Massachusetts statutes for priorities among bonds and notes and other general obligations, although the use of certain moneys may be restricted.
Tax Levy. The Massachusetts statutes direct the municipal assessors to include annually in the tax levy for the next fiscal year "all debt and interest charges matured and maturing during the next fiscal year and not otherwise provided for [and] all amounts necessary to satisfy final judgments." Specific provision is also made for including in the next tax levy payment of rebate amounts not otherwise provided for and payment of notes in anticipation of federal or state aid if the aid is no longer forthcoming.
The total amount of a tax levy is limited by statute. However, the voters in each municipality may vote to exclude from the limitation any amounts required to pay debt service on indebtedness incurred before November 4, 1980. Local voters may also vote to exempt specific subsequent bond issues from the limitation. (See "Tax Limitations" under "PROPERTY TAXATION" below.) In addition, obligations incurred before November 4, 1980 may be constitutionally entitled to payment from taxes in excess of the statutory limit.
No Lien. Except for taxes on the increased value of certain property in designated development districts which may be pledged for the payment of debt service on bonds issued to finance economic development projects within such districts, no provision is made for a lien on any portion of the tax levy or any other monies of the City to secure particular bonds or notes or bonds and notes generally (or judgments on bonds or notes) in priority to other claims. Provision is made, however, for borrowing to pay judgments, subject to the General Debt Limit. (See "Debt Limits" under “INDEBTEDNESS” below.) Subject to the approval of the State Director of Accounts for judgments above $10,000, judgments may also be paid from available funds without appropriation and included in the next tax levy unless other provision is made.
Court Proceedings. Massachusetts cities and towns are subject to suit on their general obligation bonds and notes and courts of competent jurisdiction have power in appropriate proceedings to order payment of a judgment on the bonds or notes from lawfully available funds or, if necessary, to order the city or town to take lawful action to obtain the required money, including the raising of it in the next annual tax levy, within the limits prescribed by law. (See "Tax Limitations" under "PROPERTY TAXATION" below.) In exercising their discretion as to whether to enter such an order, the courts could take into account all relevant factors including the current operating needs of the city or town and the availability and adequacy of other remedies. The Massachusetts Supreme Judicial Court has stated in the past that a judgment against a municipality can be enforced by the taking and sale of the property of any inhabitant. However, there has been no judicial determination as to whether this remedy is constitutional under current due process and equal protection standards.
Restricted Funds Massachusetts statutes also provide that certain water, gas and electric, community antenna television system, telecommunications, sewer, parking meter and passenger ferry, community preservation and affordable housing receipts may be used only for water, gas and electric, community antenna television system, telecommunications, sewer, parking, mitigation of ferry service impacts, and community preservation and affordable housing purposes, respectively; accordingly, moneys derived from these sources may be unavailable to pay general obligation bonds and notes issued for other purposes. A city or town that accepts certain other statutory provisions may establish an enterprise fund for a utility, 22 health care, solid waste, recreational or transportation facility and for police or fire services; under those provisions any surplus in the fund is restricted to use for capital expenditures or reduction of user charges. In addition, subject to certain limits, a city or town may annually authorize the establishment of one or more revolving funds in connection with use of certain revenues for programs that produce those revenues; interest earned on a revolving fund is treated as general fund revenue. A city or town may also establish an energy revolving loan fund to provide loans to owners of privately-held property in the city or town for certain energy conservation and renewable energy projects, and may borrow to establish such a fund. The loan repayments and interest earned on the investment of amounts in the fund shall be credited to the fund. Also, the annual allowance for depreciation of a gas and electric plant or a community antenna television and telecommunications system is restricted to use for plant or system renewals and improvements, for nuclear decommissioning costs, and costs of contractual commitments, or, with the approval of the State Department of Telecommunications and Energy, to pay debt incurred for plant or system reconstruction or renewals. Revenue bonds and notes issued in anticipation of them may be secured by a prior lien on specific revenues. Receipts from industrial users in connection with industrial revenue financings are also not available for general municipal purposes.
State Distributions. State grants and distributions may in some circumstances be unavailable to pay general obligation bonds and notes of a city or town in that the State Treasurer is empowered to deduct from such grants and distributions the amount of any debt service paid on “qualified bonds” (See “Serial Bonds and Notes” under “INDEBTEDNESS-TYPES OF OBLIGATIONS” below) and any other sums due and payable by the city or town to the Commonwealth or certain other public entities, including any unpaid assessments for costs of any public transportation authority (such as the Massachusetts Bay Transportation Authority (“MBTA”) or a regional transit authority) of which it is a member, for costs of the Massachusetts Water Resources Authority (“MWRA”) if the city or town is within the territory served by the Authority, for any debt service due on obligations issued to the Massachusetts School Building Authority (“MSBA”), or for charges necessary to meet obligations under the Commonwealth’s Water Pollution Abatement or Drinking Water Revolving Loan Programs, including such charges imposed by another local governmental unit that provides wastewater collection or treatment services or drinking water services to the city or town.
If a city or town is (or is likely to be) unable to pay principal or interest on its bonds or notes when due, it is required to notify the State Commissioner of Revenue. The Commissioner shall in turn, after verifying the inability, certify the inability to the State Treasurer. The State Treasurer shall pay the due or overdue amount to the paying agent for the bonds or notes, in trust, within three days after the certification or one business day prior to the due date (whichever is later). This payment is limited, however, to the estimated amount otherwise distributable by the Commonwealth to the city or town during the remainder of the fiscal year (after the deductions mentioned in the foregoing paragraph). If for any reason any portion of the certified sum has not been paid at the end of the fiscal year, the State Treasurer shall pay it as soon as practicable in the next fiscal year to the extent of the estimated distributions for that fiscal year. The sums so paid shall be charged (with interest and administrative costs) against the distributions to the city or town.
The foregoing does not constitute a pledge of the faith and credit of the Commonwealth. The Commonwealth has not agreed to maintain existing levels of state distributions, and the direction to use estimated distributions to pay debt service may be subject to repeal by future legislation. Moreover, adoption of the annual appropriation act has sometimes been delayed beyond the beginning of the fiscal year and estimated distributions which are subject to appropriation may be unavailable to pay local debt service until they are appropriated.
Bankruptcy. Enforcement of a claim for payment of principal or interest on general obligation bonds or notes would be subject to the applicable provisions of federal bankruptcy laws and to the provisions of other statutes, if any, hereafter enacted by the Congress or the Massachusetts legislature extending the time for payment or imposing other constraints upon enforcement insofar as the same may be constitutionally applied. Massachusetts municipalities are not generally authorized by the Massachusetts General Laws to file a petition for bankruptcy under federal bankruptcy laws. In cases involving significant financial difficulties faced by a single city, town or regional school district, however, the Commonwealth has enacted special legislation to permit the appointment of a fiscal overseer, finance control board or, in the most extreme cases, a state receiver. In a limited number of these situations, however, such special legislation has also authorized the filing of federal bankruptcy proceedings, with the prior approval of the Commonwealth. In each case where such authority was granted, it expired at the termination of the Commonwealth’s oversight of the financially distressed city, town or regional school district. To date, no such filings have been approved or made.
23 Opinion of Bond Counsel
The unqualified approving opinion as to the validity of the Bonds will be rendered by Locke Lord LLP, Boston, Massachusetts, Bond Counsel. The opinion will be dated the date of original delivery of the Bonds and will speak only as of such date.
Except as to matters expressly set forth in their opinion, the scope of engagement of Bond Counsel does not extend to passing upon or assuming responsibility for the accuracy or adequacy of any statement made in this Official Statement, and they make no representation that they have independently verified the same other than matters expressly set forth as their opinion
Financial Advisory Services of Hilltop Securities Inc.
Hilltop Securities Inc., Boston, Massachusetts serves as financial advisor to the City of Salem, Massachusetts.
Continuing Disclosure
In order to assist the initial purchaser in complying with Rule 15c2-12(b)(5) promulgated by the Securities and Exchange Commission (the “Rule”), the City will covenant for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City by not later than 270 days after the end of each fiscal year (the “Annual Report”), and to provide notices of the occurrence of certain significant events. The covenants will be contained in a Continuing Disclosure Certificate, the proposed form of which is provided in Appendix C. The Certificate will be executed by the signers of the Bonds, and incorporated by reference in the Bonds.
In the past five years, the City believes that it has complied, in all material respects, with its previous undertakings to provide annual reports and notices of significant events in accordance with the Rule. Aside from the City, there are no obligated persons with respect to the Bonds.
24 CITY OF SALEM, MASSACHUSETTS
General
The City of Salem, Massachusetts, which was incorporated as a Town in 1630 and became a City on March 23, 1836, is situated on the Massachusetts coast, 16 miles northeast of Boston. The City has a population of approximately 40,407 and occupies a land area of approximately 8 square miles. Salem has operated under the Plan B form of government, with a mayor and an eleven-person City Council, since 1915.
The Massachusetts Institute for Social and Economic Research ("MISER") estimated a 12 percent level of population growth from 1990 to 2010. Approximately 1,000 residential housing units were added to the City's housing stock from 2000 to 2005. Infrastructure development to serve this population growth currently includes Massachusetts highway projects, federal funding for drainage and flood control projects and a multi-modal transportation (bus and train) center.
Principal Executive Officers
The following table sets forth the principal executive officers of the City, all of whom, except for the Mayor and the President of the City Council, are appointed:
Title Name First Took Office Term Expires Mayor Kimberley L. Driscoll January 2, 2006 December 31, 2021 President, City Council Beth Girard January 1, 2018 January 1, 2019 Finance Director Laurie Giardella October 2, 2017 January 31, 2020 Treasurer Kathleen McMahon December 27, 2010 January 31, 2019 Collector Bonnie Celi March 11, 2004 January 31, 2021 City Clerk Cheryl LaPointe July 15, 2004 November 9, 2018 City Solicitor Elizabeth Rennard January 10, 2006 Indefinite Asst. Finance Director Nina Bridgman January 22, 2004 March 31, 2020
Historical Information
Salem was originally founded in 1626 by Roger Conant and a group of settlers from the Cape Ann area. In 1630, the area was incorporated into a town; and the name of Salem from “Sholem,” meaning “peace” in the Hebrew language, was adopted. Salem is perhaps best remembered as the site of the infamous witchcraft hysteria that swept the colonies in the late 17th century. Early in the 18th century, Salem was a thriving commercial port. The protected harbor encouraged trade, but industrial development occurred slowly. During this time, shipbuilding and allied industries were well established and trading with the West Indies and European ports was extensive. This commercial expansion brought about a cultural expansion in the life of the town. The depression following the War of 1812 seriously affected the economy of Salem. Thereafter, the opening of the Erie Canal brought serious new trade competition; and with the building of larger vessels, trading was limited because the harbor was not deep enough to accommodate the larger vessels. As the level of commerce decreased, the growth of industry increased. In 1848, a large cotton mill was established; and after the Civil War several tanneries, shoe and paint factories were founded in Salem. A fire destroyed a large part of the industrial district in 1914, but the area was again built up as a thriving industrial center.
Among the many sites of historical interest are the Crowninshield-Bentley House, House of Seven Gables, Pierce-Nichols House, Pickering House, Pingree House, The Peabody-Essex Museum, Pioneer Village, Ropes Mansion House, the Witch House, and the Salem Maritime National Historical site which was the first national historic site in the United States.
Municipal Services
The City provides general governmental services for the territory within its boundaries, including police and fire protection; collection and disposal of garbage and rubbish (for residential properties); public education, including vocational-technical education at the high school level; street maintenance; certain water services, through the Salem and Beverly Water Supply Board; certain sewage disposal services, through the South Essex Sewerage District; and parks and recreational facilities.
Approximately 95 percent of the City is connected to the sewerage system; the entire area of the City is served by the municipal water system.
25 The Salem Housing Authority is responsible for managing 1,462 units of low income housing for the City. Buildings are either owned by the Authority, or are part of the rental subsidy program or the voucher program. Of the 1,462 units, 715 are included in 12 elderly developments, nine family developments and one handicapped-accessible family development. These units are owned and operated by the Authority.
Transportation
The principal highways serving the City are State Routes 1A, 107, and 114, all of which provide immediate access to Routes 1 and 128 and other major highways serving the greater Boston area. The City is a member municipality of the Massachusetts Bay Transportation Authority Commuter Railroad, which provides freight and passenger service. In addition, a number of established bus and truck lines provide residents and industries with local and long distance service to the Downtown. Salem has a navigable harbor with a 30+-foot federal channel. The City is served by Logan International Airport in Boston, and there are commercial air facilities in the nearby municipalities of Danvers and Beverly.
Cultural and Historical Facilities
The City has numerous facilities of cultural and/or historical significance. These facilities contribute to making Salem a unique place that appeals to residents and attracts visitors. The visitor-based economy is important in Salem and contributes jobs and tax revenue for the City of Salem.
Proctor’s Ledge: In 2017, the City constructed a memorial to honor the 18 victims of the Salem Witch Trials who were executed at Proctor’s Ledge in 1692. The memorial, designed by Martha Lyon Landscape Architecture and constructed by The Patio Company, includes a landscaped slope down from the ledge where the executions are believed to have taken place and a semi-circular area for quiet contemplation surrounded by a granite block wall. The memorial was dedicated on July 19, 2017 on the 325th anniversary of the second day of executions held at the Ledge. This project was completed in 2017, funded with $179,140 in FY16 Community Preservation Act funds.
El Punto Urban Art Museum: Twenty years ago, North Shore CDC produced two murals which have long been points of pride in the Point neighborhood. In 2015, North Shore CDC worked with the Point Neighborhood Association, the City of Salem and Salem-raised and South Florida-based artist Ruben Ubiera on a crosswalk mural project. In 2017, North Shore CDC worked with 12 artists to create 15 large-scale outdoor murals and 12 large-scale wall murals within North Shore CDC’s office. In September 2017, the CDC secured permission from National Grid to paint a long wall on Peabody Street and invited 20 local artists to paint small murals.
By creating a walkable, curated arts district within three blocks with dozens of murals in the Point Neighborhood, the district will be readily accessible to all that downtown Salem already has to offer to over a million tourists per year. Bringing a fraction of those visitors to the Point neighborhood stands to be a transformative economic development boom to immigrant-owned businesses. It will also begin to break down the invisible barriers between the Point Neighborhood and the rest of Salem by creating a beautiful, walkable destination within the Point Neighborhood for people to visit.
Peabody Essex Museum (PEM): In 2003, the PEM undertook the largest museum addition in America. The $125 million expansion allows them to showcase their extensive collection of Oceanic and Asiatic art for the first time. The PEM houses a broad spectrum of artifacts representing centuries of Essex County life and industry, as well as treasures from across the world brought to the region by early navigators. The PEM consists of a downtown campus, four National Historic landmarks and several properties on the National Register of Historic Places, as well as the Yin Yu Tang, the only complete Qing Dynasty house outside China. The PEM enjoys an attendance of approximately 250,000 visitors per year. See the section on Downtown Development for an overview of PEM’s expansion project.
The Salem Maritime National Historic Site and Derby Wharf Lighthouse: This 9.2-acre site, operated by the National Park Service, (NPS) is comprised of several buildings, including the original Customs House, as well as several wharves and homes. The NPS has restored the wharves and buildings. The Friendship, a full size replica of one of Salem's historic trading ships is berthed at the site that was built in 2000. This $6 million project was 75 percent federally-funded and has become a major cultural attraction and educational tool. In 2010, the NPS completed the relocation of the historic Pedrick’s Warehouse from Marblehead to Derby Wharf and installed a pile supported dock adjacent to the building in order to facilitate interpretive display of historic maritime functions.
The House of the Seven Gables: The House of the Seven Gables was made famous by Nathaniel Hawthorne's novel of the same name. The site is a complex of the actual house occupied by Hawthorne and several adjacent historic structures. The House of Seven Gables received the prestigious designation of "Museum" status in 2008 and has been designated a National Historic Landmark District. 26 Salem Witch Museum: The Salem Witch Museum commemorates the famous witch trials that occurred in 1692 through an audio visual presentation. Life-size stage settings, lighting and historically accurate narration, recreate the afflicted girls, the trials and the executions of the Salem Witch Trials.
The Witch House: The Witch House was the home of one of the famous Witch Trial judge, Jonathan Corwin. The Witch House is operated by the City of Salem and is an excellent example of 17th century architecture.
Witch Dungeon Museum: The Witch Dungeon Museum provides a live re-enactment of the Witch Trials for visitors to the City. The presentation is adapted from the 1692 transcripts and re-enacted by professional actors.
The First Church: The First Church, located on Essex Street, was founded in 1629 and is one of the oldest, continuing Protestant congregations in North America and the first to be governed by congregational polity, a central feature of Unitarian Universalism.
Chestnut Street: Chestnut Street is a National Historic Landmark consisting of a group of homes of notable architectural significance. The homes are primarily old mansions built by Salem's successful sea captains during the early 19th century.
Pickering House: The Pickering House is the oldest house in America to be continuously occupied by the same family.
Pioneer Village: Pioneer Village, situated in Forest River Park, is a living-history Museum that depicts life in Salem in 1630. Guides in historical costumes show visitors how early Puritans lived. The site contains a thatched cottage, historic gardens, wigwams, and animals.
The Old Burying Point: Located on Charter Street, this is the oldest burying ground in Salem. The site contains the graves of a Mayflower passenger and witchcraft trial judge John Hawthorne, and is adjacent to the Salem Witch Trial Memorial.
Winter Island Park: Operated by the City of Salem, Winter Island is a former U. S. Coast Guard Air and Sea Rescue Station located on Salem Harbor. The site is a seasonal recreation site with RV and tent spaces. The site also has a beach, boat launch, wind surfing, scuba diving, picnic areas and a snack bar. Historic Fort Pickering and Fort Pickering Light are located within the site. Winter Island is now the home of “Sail Salem”, a community sailing program that provides free sailing lessons to Salem children.
Salem Wax Museum of Witches and Seafarers: The Wax Museum, opened in July of 1993, features a multi-media presentation and realistic wax figures depicting pirate and witch stories of Salem's past. The Wax Museum also offers hands-on children's activities.
Salem Witch Trials Memorial: The Salem Witch Trials Memorial was dedicated on August 5, 1992 to commemorate the 300th anniversary of the now famous Salem Witch Trials of 1692. The memorial is located adjacent to the Charter Street Burial Ground. The Memorial was restored with a rededication ceremony on September 9, 2012.
Heritage Trail: The many cultural and historic facilities in Salem are connected by the Heritage Trail. Known locally as the “Red Line”, it leads to world-renowned museums and historic homes, as well as to restaurants offering simple fare to gourmet meals, full service hotels, inns and bed and breakfasts.
Salem Common: Salem Common has been public land since Salem's early days. Its eight acres were originally a swampy area with several ponds and small hills. Salem's military heritage begins in 1636, when the first muster occurred on Salem Common. Today, the National Guard traces its roots to that first muster. Needing a place for regular military drills, it was voted in 1714 by the commoners to be "forever kept as a training field for the use of Salem".
Baker’s Island Lighthouse: The tower is located on the north end of the island. The lighthouse was automated in 1972. In 2016, Essex Heritage began to offer season tours to the island.
Fort Lee: This American Revolution fort was built in 1776 and was added to the National Register of Historic Places in 1994.
The Phillips House: The Phillips House is the only home on historic Chestnut Street open to the public, and it provides a glimpse into the private world of the Phillips family during the early decades of the twentieth century.
27 Ye Olde Pepper Candy Company: This is America’s Oldest Candy Company, dating back to 1806, when an English woman, Mrs. Spencer, was shipwrecked and landed in Salem. Mrs. Spencer was assisted financially by residents, and what resulted was the first candy made and sold commercially in America and carried around the world by sea captains and their crew.
Development and Investment
Salem has experienced over $1 billion of investment in recent years throughout the city. Three geographic areas of focus are downtown, the North River Canal Corridor, and the Waterfront.
Downtown Development
A number of vacant and underutilized properties have been redeveloped into mixed-use residential/commercial buildings. The downtown alone has seen over $110 million in private investment from projects such as the Laundry Building, The Distillery, Old Police Station Redevelopment, Bluestone Alley, 10 Federal Street, the Salem News Building, Latitudes in the old Tompkins Furniture Building, the Old Salem Jail, Commonwealth Diagnostics, and the Hotel Salem. New projects continue to be proposed, permitted, and get under construction as described below.
Superior Court and County Commissioners Buildings: The Governor signed legislation in January 2017 to transfer ownership of these two iconic properties to the Salem Redevelopment Authority (SRA). DCAMM is undertaking a warm mothballing project in the fall 2017 to maintain the properties while the SRA works to identify a redevelopment project.
Washington and Dodge Street Redevelopment: This 237,000 square foot, $50 million project includes a mixed-use development with 52 residential units, a 113 room Hampton Inn branded hotel, ground floor retail, 215 parking spaces, associated landscaping, and pedestrian and transportation improvements. Construction will begin in spring of 2018 after a redesign of the project has been approved by local boards. When completed, this project will dramatically increase the footprint of Salem’s downtown. The City was awarded a state grant in the amount of $3.36 million for infrastructure improvements to support this proposed project.
District Court Redevelopment: The District Court building will be transferred to the SRA in accordance with legislation passed by the Legislature for the purpose of redevelopment. The SRA solicited development proposals through a RFP process in 2015 and selected Diamond Sinacori as the designated developer. As of October 2017, the project is undergoing permitting. The project is projected to cost approximately $26 million.
Peabody Essex Museum (PEM): In 2017, the PEM began construction of a 40,000 gross square foot expansion. It will include three floors of state-of-the-art galleries, a secondary entrance to the museum and a full basement for mechanical and electrical equipment. This project is slated to be complete in 2019 and is said to cost approximately $49 million.
90 Washington Street: The three-story building will be redeveloped as office space with ground floor retail. The City has entered into a 20-year lease for the office space to accommodate personnel currently located in other leased premises. Construction is expected to be completed in spring 2018.
Old Salem Jail Complex Redevelopment: The first phase was completed in 2010, which includes 23 housing units, a restaurant, and a jail exhibit. Phase 2 includes an additional 13 housing units in a new building for a total project cost of approximately $11 million. Phase 2 began construction in summer 2016.
Hotel Salem: In 2015, Lark Hotels purchased the “Newmark Building” on Essex Street for the purpose of converting it to a 44 room high-end boutique hotel with a rooftop restaurant and basement lounge. The $7.4 million project is fully permitted and open to guests. The City supported this project with a five year TIF valued at approximately $353,000.
Commonwealth Diagnostics International (CDI): In 2016, CDI established its headquarters at 39 Norman Street after making an approximately $5.1M investment in the purchase and renovation of the building. The business is expected to add potentially up to 100 new full-time equivalent jobs by 2021.
The Merchant: In 2016, a new 11 room Lark Properties boutique hotel opened in the renovated historic Joshua Ward House in downtown Salem.
28 J. Michael Ruane Judicial Center and Probate and Family Court: At the end of 2011, the new courthouse opened. This $106 million court expansion in downtown Salem continues to have a significant positive economic impact on the downtown and the City. The $60 million Probate and Family Court Renovation component of the judicial complex was completed in 2017.
MBTA Station Improvements and New Garage: The new MBTA garage opened October 2014. The $37 million MBTA commuter rail station and parking garage provides an enhanced station and approximately 700 parking spaces for commuters, residents, and visitors.
275-281 Essex Street: The development includes the conversion of the four-story, 30,000 square foot former C.F. Tompkins Furniture Building into a mixed-use retail/residential development with 3 retail units on the ground floor and 20 residential condos on the upper floors.
North River Canal Corridor Redevelopment
A second area undergoing transformation is the North River Canal Corridor, known as Blubber Hollow, adjacent to downtown. Formerly the region’s whaling and then tannery center, the neighborhood has more than $70 million in pending development. Guided by a community-based plan, the City changed the zoning to encourage development. The pending private investments will transform the largely vacant and contaminated sites into a vibrant mix of residences, offices, and retail uses. Specific projects are:
9 South Mason Street: The project involves redevelopment of industrial and residential land located between Mason Street and Commercial Street in the North River Canal Corridor district. The plans total 4 buildings and 29 dwelling units, including the rehabilitation and expansion of an existing two-story concrete industrial building; expansion of a three-story residential building; and construction of two new townhouse style buildings. Permitting was completed in 2017.
Riverview Place: Located on the former Salem Suede site, Riverview Place consists of the demolition of the old tannery and construction of 130 residential rental units and 5,540 square feet of commercial space. Local approvals have been secured.
Grove Street Apartments (formerly known as Legacy Apartments): This project consists of 129 residential apartments and re-use of an existing 17,000 square foot commercial office building. It was approved by the Planning Board in 2012 and amended in 2015 to meet MEPA requirements. In July 2015 the project received a MEPA certificate and Superseding Order of Condition. Environmental remediation and demolition of some on-site structures is underway.
Gateway Center: Local permitting was completed in August 2016 for the development of a 3.48-acre parcel located at the corner of Bridge Street and Boston Street to include a mixed-use building with a commercial/retail and 117 housing units and a free-standing building that will house the City’s Community Life Center (CLC). Construction of the CLC began in 2017.
Flynn Tan Site (70-92 ½ Boston Street): The Planning Board approved a new medical office building with 40,000 square feet in 2014; however, the project has not moved forward. In September 2016 the Planning Board approved a mixed-use development containing 50 housing units and a retail space. The Flynn Tan property is a 1.98-acre site containing vacant industrial buildings and land along Boston Street, a major entrance corridor into Salem and within the new North River Canal Corridor (NRCC) Neighborhood Mixed Use District. Construction began in 2017.
28 Goodhue Street: Now known as North River Apartments, this mixed-use project on the site of a former factory was completed in 2014. The development includes 44 residential condominiums, 6,000 square feet of commercial retail space and on-site parking. Construction was completed and the building is occupied.
Waterfront Development
Key changes also are rapidly occurring along Salem’s shoreline, creating rare waterfront development opportunities.
289 Derby Street: The Salem City Council approved a $1.4 million bond order to acquire property located at 289 Derby St. for the purpose of constructing a downtown waterfront park. The City also applied for and received $100,000 in CPC funding for design/soft costs and selected CBA Landscape Architects following a Designer Selection process. The City completed a robust public design process and has received construction bids for the project to be funded by a combination of sources including MA Gateways Cities funds and MA Seaport Economic funds. The goal is to complete the Chapter 91 permitting process and begin park construction in November 2017. Estimated completion is summer 2018. 29 Salem Harbor Power Station/Footprint Power: Demolition of the coal plant is complete and construction of the new natural gas facility is underway. A new state-of-the-art, 630-megawatt gas-fired plant is being constructed and is scheduled to be completed in December 2017. The new plant will be developed on one-third of the site, opening up the remaining two- thirds of the 63-acre waterfront property to re-development opportunities. The new plant will be operational in 2017.
Port of Salem Expansion (Salem Wharf): This $20 million project calls for construction of a multi-purpose commercial wharf facility with supporting utilities and amenities for cruise ships, commercial fishing, transient, and charter vessels. A terminal building, harbor walk, dredging, and landside improvements are part of the project. During the project’s first phase undertaken in 2011, the City completed utility installation, seawall construction, base paving and installation of an interim ferry terminal. In 2012 and 2013, a combination of state and federal Ferry Boat Discretionary (FBD) Funds enabled the City to construct the second phase of the project, which consisted of the first 260 feet of pier, wave fence and a portion of the seawall, install a gangway and ramp system, install utilities and begin dredging. The City has completed Phase 3 which includes final paving, landscaping, lighting and construction of the harbor walk. In addition, the City has converted the adjoining deep-water dock owned by Footprint Power into a cruise port, and constructed a connecting walkway to the parking lot and terminal building at Blaney Street. Since construction of the cruise port, Salem has received visits from a number of cruise ships. At present, Footprint is utilizing the pier for construction purposes and this limits the number of cruise ship visits. Once the plant is completed, the Port of Salem will be able to host a full schedule of ship visits. In 2015, the City completed dredging and construction of an 11-slip commercial marina at Blaney Street. Construction of the Salem Wharf is close to completion. It implements an important recommendation and goal of the City’s Municipal Harbor Plan by creating a multi-use commercial wharf facility with deep water access for ocean-going vessels. As a result of construction, the Port of Salem is now a full service commercial and industrial port.
South River Dredge: The maintenance dredging for the South River Channel was last performed by the US Army Corps of Engineers (USACE) in 1967. In February of 2008, the USACE dredged the Federal Navigation Channel into Salem Harbor, the Federal Anchorage Basin off Derby Wharf, and the approach to the South River Channel but stopped short of the South River Channel because of contaminated sediment that exceeded the state levels for open ocean disposal were encountered. Since then, the City obtained $155,000 from the Governor’s Seaport Advisory Council for sediment testing, bathometric survey work, cost analysis for dredge disposal options, and preliminary design and engineering of the dredge footprint for the South River Channel and the South River Basin (area west of the Congress Street Bridge). In 2012, the City received an additional $275,000 from the Seaport Council to finish the design, engineering and permitting stage of the dredge project. The City’s consultant, Apex, has prepared a Draft Environmental Impact Report and Notice of Intent. Upon the Army Corps of Engineers’ final determination of the suitability of the confined aquatic disposal (CAD) cell material for offshore disposal, the City will submit both documents to the appropriate regulatory agencies. Once completed, the dredging will provide direct access to downtown Salem for deeper drafting vessels, transient boats, and dingy boats, which will encourage increased boating activity and support economic development.
Salem Ferry: The Salem to Boston Ferry, currently in its twelfth successful season, is an alternative transportation option connecting two great cities. Named the Nathaniel Bowditch after the founder of modern maritime navigation and Salem’s native son, the ferry is a high-speed catamaran that carries 149 passengers, is entirely ADA accessible and makes the trip from Salem to Boston – where it docks at Long Wharf – in less than an hour. The City of Salem and the Massachusetts Bay Transportation Association (MBTA) have an agreement which allows commuters to purchase a pass that can be used both on the Ferry commuter runs and on the commuter train, strengthening the Ferry’s viability as a transportation choice for daily commuters. The City of Salem is one of only a few municipalities to own a ferry vessel, which it purchased with a grant from the Massachusetts Executive Office of Transportation.
South River Harborwalk: The City secured $1,336,000 from the Governor’s Seaport Advisory Council for construction of the South River Harborwalk. The City has contributed $267,200 of Community Development Block Grant (CDBG) funds for its required 20% match, totaling $1.6 million. On July 15, 2010 the South River Harborwalk was completed and unveiled to the public. The Harborwalk is a fully accessible public walkway with pedestrian amenities such as benches, lighting and landscaping along the southern and western banks of the South River Basin.
Port Security Grants (Installation of Wireless Surveillance Cameras/Infrastructure): The Governor’s Seaport Advisory Council submitted and obtained a Port Security Grant from the US Homeland Security Department on behalf of the Ports of Salem and Gloucester for $518,320 to begin implementing security features within each Port to address federal mandates. With the help of the Salem Police Department, the City installed fourteen wireless surveillance cameras around critical waterfront infrastructure in August 2010. The City will continue to work to comply with federal Homeland Security mandates as the Port of Salem continues to grow.
McCabe Marina: The City received a $500,000 grant from the State Public Access Board to reconstruct the public boat launch at McCabe Marine. Construction was completed in July 2010. 30 Residential Development in Other Areas of Salem
North Shore Community Development Coalition (NSCDC) Properties: The NSCDC has invested $18.9 million in renovating 77 affordable housing units in Salem since 2016. In 2017, the CDC began the permitting process to develop two new affordable housing buildings with a total of 46 units at a project cost of $19 million.
Clark Avenue Cluster Subdivision: The proposed plan for a 26-lot residential subdivision with approximately 1.95 acres of public open space is fully permitted and currently under construction. There is no scheduled date for completion.
Osborne Hills Subdivision (Strongwater Crossing): Currently under construction, Strongwater Crossing Subdivision is a cluster development project that includes the construction of 131 single-family homes on approximately 162 acres of land. Approximately 93 acres of the project will be permanently protected open space. The project represents one of the largest subdivisions built in Salem in recent history. Due to its size, this subdivision is being completed in phases. There is no scheduled date for completion.
Witch Hill: The construction of 23 single family homes along the extension of an existing roadway is underway. There is no scheduled date for completion.
St. Joseph’s Church Redevelopment: Located on the site of the former St. Joseph’s Church that was closed in 2004, this affordable housing development is a key revitalization project for the Point Neighborhood and will provide much-needed housing for the City. Phase 1 of the project is complete and includes a new building with 51 affordable housing units, commercial space, and a community room.
Eaton Place/Former Elks Lodge (17 North Street): With Planning Board Site Plan Approval in December 2009 to add a third and fourth floor, the former assembly hall’s conversion into six residential condominiums was completed with special care to restore the structure’s historic appearance.
50 Palmer Street: This project by the Salem Harbor Community Development Corporation (CDC) included the demolition of the existing structure and the construction of a new three-story residential structure with a footprint of 7,300 square feet. The new structure is complete and consists of 15 units of affordable rental housing for low and moderate income households. This project was funded using a partnership of private and public sources, including funds from the City.
Institutional and Commercial Development in Other Areas of Salem
Salem enjoys a mix of businesses and markets. Markets for Salem businesses include the local population, the large tourist trade of over 1 million visitors, Salem State University, the North Shore Medical Center, and the J. Michael Ruane Judicial Center. Salem State University with its 10,000 students and large employment base generated over $104 million for the City of Salem in direct and indirect spending, which is derived directly from employee salaries and benefits, purchased goods and services, and student spending. The North Shore Medical Center is expanding its facilities in Salem, and in 2017, the Family and Probate Court renovation project was completed marking the completion of the overall court complex on Federal Street.
Large commercial and industrial development, prominent in the Highland Avenue, Swampscott Road and Vinnin Square areas, is strong. Salem’s industrial park on Technology Way houses large companies such as Salem Glass and Thermal Circuits. On Swampscott Road, a 170,000 square foot vacant building was converted to commercial condominiums and is now home to 9 businesses relocating or expanding in Salem. A number of significant national retailers such as Staples, WalMart, Home Depot, Target, Pep Boys and Petsmart are located in these areas. The City also is home to Shetland Park, a 900,000 square foot business park abutting downtown, which houses more than 70 businesses.
North Shore Medical Center (NSMC): NSMC is redeveloping a portion of their existing hospital campus in order to better serve the surrounding community by consolidating existing uses, improving access and circulation around the hospital, and constructing a new state-of-the-art emergency services department. The project consists of 113,585 square feet of new building space, 119,734 square feet of interior renovations, parking and driveway reconfigurations, landscape and hardscape improvements, and utility infrastructure modifications to support this use.
A&J King Expansion: In 2017, A&J King Artisan Bakers opted to expand its business operations in Salem by leasing approximately 7,400 square feet of space at 131-135 Boston Street. The new space provides more capacity for production and office activities, which will allow the company to acquire new commercial accounts, and will allow them to convert the existing production area at their Central Street location in Downtown Salem to additional café space. As a
31 result, A&J King plans to hire an additional 15 full-time employees and 16 part-time employees. A&J King’s investment in the new space exceeds $860,000 and the City invested in a five year TIF in support of the project, valued at over $41,00.
Salem State University: Changes to the physical campus since 2007 are profound. Nearly 760,000 square feet of new construction and renovations have been completed or are underway, bringing state-of-the-art academic and student life spaces to campus. Through the support of the Commonwealth of Massachusetts and generous donors, combined with resources of the university’s operating budget, over $250 million has been invested in campus improvements. Highlights of these changes include the Frederick E. Berry Library and Learning Commons, the Sophia Gordon Center for Creative and Performing Arts, the Harold E. and Marilyn J. Gassett Fitness Center, athletic fields and courts, and two residence halls that provide accommodations for nearly 900 students. Efforts are currently underway to secure the Commonwealth’s support for a new science facility to meet the strong demand for science, health care, and technology programming.
Lafayette Street and West Avenue: The project includes the construction of a three-story, 24,388 square foot mixed use commercial building with retail on the first floor and offices on the upper floors. An existing two-family home on the site will remain in its current use. The project will be completed in November 2017.
U.S. Biological Corporation: This Corporation completed the construction of a new $3 million, 50,000 square foot headquarters building on Technology Way with the plan to have 28 new jobs within five years.
Endicott School (110 Boston Street): The former Endicott School sits on a .53-acre lot along Boston Street, a major entrance-corridor into Salem with direct access to Route 128. After a competitive RFP process, the property was sold for $350,000 to a nonprofit organization, Children’s Friend, who relocated their office from another location in Salem. The City also negotiated a PILOT Agreement with the agency.
Public Infrastructure Projects
The City works throughout Salem to improve infrastructure to meet the needs of residents, businesses, and visitors.
Transportation Projects
Boston and Bridge Complete Streets Infrastructure Improvements: The City received $3.5M in FY2016 MassWorks Infrastructure Grant Program funding, for “Complete Streets” streetscape improvements along Bridge Street, between Boston and Flint Street. An additional $250,000 in grant funds was awarded to this project from MassWorks that was expended in fiscal year 2017. Construction is slated to begin in 2018.
Canal Street Improvements: The improvements include reconstruction of the roadway pavement, curbing and sidewalks. Wheelchair ramps and appropriate pedestrian crossings will be added to improve pedestrian safety. Additional pedestrian improvement such as street trees and curb extensions will be incorporated. Drainage and other utility improvement will be made, the road crown will be adjusted to provide a consistent cross slope, and repair of settled locations will be done.
Washington and Dodge Street Public Infrastructure Improvements: The City received a $2.5 million grant through the State MassWorks program to fund infrastructure improvements associated with the proposed mixed-use development to be constructed at Washington and Dodge Streets. Due to increased construction costs, the City was awarded an additional $825,000 for this project. Construction was completed in early 2017.
Grove Street Improvements: The City received a $1,250,000 grant for improvement to Grove Street to support the proposed housing and mixed use developments in the North River Canal Corridor. The project is complete.
Improvement of the Essex Street Pedestrian Mall: The City invested in the redesign and improvement of the pedestrian mall in the heart of downtown. Phase 2 improvements to make the mall more pedestrian friendly and to improve the aesthetics were completed in fall, 2013. Phase 3, which includes the renovation of the fountain at Washington Street, was completed in October 2014.
1A Bridge Street Improvement Project: The major reconstruction of 1A Bridge Street is complete, including roadway reconstruction, new sidewalks and crosswalks, landscaping and period lights.
Lafayette Street Improvements: Funded through a Public Works Economic Development (PWED) grant, construction was completed in the fall of 2012. Improvements include the installation of traffic signals at the Harbor/Lafayette Street intersection and the Lafayette/Washington Street intersection, new sidewalks, new crosswalks and curbing, period lights,
32 new bus shelters and new benches along Lafayette Street. The $1 million grant was matched with approximately $200,000 in GDBG funding.
Salem/Beverly Transportation Project/Bridge Street Bypass Road: The Salem-Beverly Transportation Project is a multi- phase roadway project that provides improved vehicular access between Salem and Beverly. The Bridge Street Bypass Road, a component of this project, was completed in 2008, reducing congestion and providing a multi-use pathway for pedestrians and bicyclists.
North Street Improvement Project: Reconstruction of North Street, including roadway, sidewalk, signalization and period lighting was completed.
Derby/Congress Traffic Lights: This intersection was redesigned to increase pedestrian safety. Installation of traffic lights for pedestrian and vehicle safety and traffic circulation was completed.
Congress/Peabody/Ward Street Intersection: Reconstruction of the intersection was completed in November 2009. The work included the reconfiguration of the entire intersection to provide a more organized roadway for both vehicular and pedestrian safety. The reconfiguration of the intersection was facilitated by the demolition and remediation of the former 61 Ward Street property. These changes have minimized the crossing distance for pedestrians and greatly improved the traffic movement for vehicles entering and exiting the intersection. Pedestrian improvements include striped crosswalks, handicap ramps, and a pocket park that was created as a result of the reconfiguration. The pocket park consists of concrete and stone paver walkways, landscaping beds, trees, and seating areas.
Parks and Recreation Projects
Mary Jane Lee Park Renovation: In 2017, construction was completed on the renovation of Mary Jane Lee Park. This project completed the renovation of the park that began with the construction of a new splash pad in 2015. The project was supported by CPA funds as well as a $400,000 PARC grant from the Commonwealth.
Lafayette Park Renovation: Lafayette Park is currently being renovated to include upgraded walkways, lights, and benches, a new irrigation system, and a tree plan with an appropriate mix of sun and shade. The project is funded through $100,000 in CPA, $162,000 CDBG, and $25,000 CIP.
McGlew Park Renovation: In 2016, the Executive Office of Energy and Environmental Affairs awarded the City a $400,000 Parkland Acquisitions and Renovations for Communities (PARC) grant to renovate McGlew Park. The park is currently under construction and is anticipated to be largely complete by December of 2017 with final work to be finished in the spring of 2018.
Forest River Conservation Area Trails: In 2015, the City was awarded a $53,200 Recreational Trails Program Grant from the Department of Conservation and Recreation to upgrade the trails. Completed this year, the project has resulted in an improved main trunk trail that is usable throughout the year and accessible to people of all abilities. The project received additional funding through CIP ($25,000) and the Conservation Commission ($12,500).
Winter Island: Salem was awarded a PARC grant in the amount of $192,404 for a scenic multi-use trail on Winter Island bordering Cat Cove. Improvements include interpretive signage, native plantings, installation of site amenities and improvements to the boat launch parking area. The trail was completed in summer 2016. The Salem Community Preservation Commission has funded the first two phases of the restoration of Fort Pickering. These improvements include substantial clearing of invasive species and restoration historic masonry walls and gated entrances. A grant from Mass Historic funded a digital survey which was completed in summer 2016. The City will seek to fund future phases with CPC funds.
Mary Jane Lee Park Splash Pad: The City was awarded a $200,000 grant from the “Our Common Backyards” program for a splash pad at Mary Jane Lee Park located in our densest neighborhood. The splash pad was completed in time for the 2015 season and was a significant success. The remainder of the park is being improved through four sources-- $400,000 PARC grant, $100,000 CDBG, $80,075 CPA, and $60,000 CIP. Construction will be completed by June 2017.
Remond Park: Improvements to the old bridge abutment on Bridge Street Neck have been funded by the State to create a new park. Construction is complete.
33 Bertram Field: A complete renovation of Bertram Field football stadium and track was completed, including a synthetic turf surface expansion of the track to regulation size and installation of a resilient surface. Cost of the project is $1.9 million and was partially funded with a Massachusetts PARC grant in the amount $400,000.
Salem Common Fence: In 2017, the City completed Phase III of the Salem Common Restoration Project. The City was awarded $68,000 in CPA funds and also utilized $100,000 of CIP funds to restore thirteen fence sections and three bollards. The Common fence is a significant historical feature of this municipal property and $150,000 of CIP funding has been secured for another round of restoration.
Fort Avenue/Szetela Lane Redevelopment: This City-owned site at the intersection of Fort Avenue and Szetela Lane consists of five parcels containing approximately 2.13 acres. The property now contains an easement for the natural gas pipeline supplying the Footprint Power Plant. The City intends to improve the site with a new multi-use path connection, greenspace, and possibly parking, utilizing funds secured through the easement agreement.
Open Space & Recreation Plan Update: The City recently completed its 2015 update to its Open Space and Recreation Plan. The Plan establishes long-term goals for the preservation, continued protection and maintenance of open space and recreational areas in the City. Completion of the Plan maintains the City’s eligibility to apply for grants through the Commonwealth’s PARC program. The City has received PARC grants in the past for Peabody Street Park, Furlong Park, Bertram Field, Chadwick Lead Mills, Splaine Park, and McGlew Park.
Splaine Park: The City was awarded a $420,946 grant from the Commonwealth through the PARC program to upgrade Splaine Park. Completed in 2014, improvements to the park include the construction of a stone dust bike/walking path along the park perimeter, the enhancement of the main entrance, the construction of play structures, the installation of a new baseball field and irrigation system, and the rebuilding of the bleachers and dugouts. Additional funding included $574,826 CIP and $190,071.60 CDBG.
Furlong Park: The City received a $500,000 Parkland Acquisition and Renovation for Communities (PARC) Grant from the State Division of Conservation Services for the restoration of Furlong Park. The 5.5 acre park is located along the North River and contains a baseball field, tennis court, playground, and basketball court. As part of the project these features were renovated and additions to the park included construction of a car top boat launch and stabilization of the eroded embankment that borders the North River. Environmental remediation work was funded with a separate state grant. Park renovations are now complete.
Peabody Street Park: In July 2010, construction was completed on a new City park along Peabody Street. Previously an abandoned lot, the City of Salem was awarded a $200,000 EPA Brownfields Cleanup Grant in May 2007 and an Urban Self Help grant in the amount of $469,110 to fund its cleanup and revitalization. The City provided a 20% match.
High Street Playground: In Spring, 2010, the City installed a new play structure and fence in this neighborhood playground, utilizing Community Development Block Grant funds.
Other City Projects and Initiatives
The City pursues additional opportunities to make physical improvements, increase efficiencies, and improve the community.
Charter Street Cemetery: In 2017, the City received a $125,000 Massachusetts Cultural Council Facilities Fund grant for the full restoration of Charter Street Cemetery. In addition, the project is funded by $260,000 of CPA funds and $218,000 Capital Improvement Project funds for a total of $600,000. The restoration work will be completed in 2018.
Dickson Memorial Chapel: The City was awarded $70,000 from the Massachusetts Historical Commission’s Massachusetts Preservation Project Fund (MPPF) for the restoration of Dickson Memorial Chapel. A total of $226,000 has been allocated to the first restoration phase of the chapel which was completed in 2017.
Urban Forestry: A tree committee was formed to renew Salem’s dedication to its urban forestry. A pilot neighborhood tree inventory was completed in 2016, and the City secured a $30,000 DCR Urban Forestry Challenge Grant to fund a citywide tree inventory, management plan, and cost estimates for implementation of the management plan. The City is providing a $30,000 match through CIP.
34 Public Art: Over the past four years, the City has been working to increase the amount and quality of public art. Partly in response to public demand, this initiative is being pursued to support the City’s identity as an arts and cultural destination. The physical presence of public works of art further supports the City’s efforts to leverage the arts for economic development purposes. A Master Plan for Public Art was completed in 2013; a Public Art Commission was established in 2014 and a full-time public Art Planner was hired in 2014 to spearhead new initiatives. The City currently manages a program to transform utility boxes into works of art. In May 2012, a mural by an internationally renowned artist was installed on the exterior of the downtown parking garage, and in November 2015 another renowned artist turned two crosswalks into works of art in the Point neighborhood which received an award from the Massachusetts Chapter of the American Planning Association. In addition to these activities, the City supports the annual Salem Arts Festival and hosts a Mural Slam. The festival draws thousands of participants into downtown in early June.
In late spring of 2017 a call for works was distributed for “Celebrating the Urban Environment” resulting in three locations for public art in the downtown.
The Public Art Commission and the Public Art Planner collaborate with organizations throughout the year bringing more art to public spaces. In 2016 they collaborated with Salem Sound Coastwatch’s “DrainArt” program to bringing awareness through painted murals that everything that goes into our storm drains ends up in the ocean. Efforts in the spring of 2017 resulted in a painted stair project at the middle school to bring awareness to the impact pollution has on the oceans.
Artists Row: Artists’ Row, five stalls originally built as a marketplace, is located across from Old Town Hall and Derby Square. This area is at the heart of the city and continues to be an important public plaza and pedestrian way. In the spring of 2015, the City initiated the Creative Entrepreneur Program to utilize the four stalls as maker/gallery space from May to October.
In 2015, the City of Salem hired the Cecil Group to provide recommendations for the enhancement of Artists’ Row. Using the recommendations of the study, in spring of 2017, the Public Art Planner worked with a group of graphic design students from Lesley University to re-brand Artists’ Row. The scope included changing the paint colors of the stalls, new doors and windows for better visibility and new graphics for signage on the walls to the entrance of Artists’ Row. The project was approved by the Salem Redevelopment Authority and completed in the fall of 2017.
Old Town Hall: The Old Town Hall is a beautiful federal style building located in the heart of downtown Salem. Old Town Hall is the crowning jewel of Derby Square and the earliest surviving municipal structure in Salem (dating from 1816-17). Our venue is a two-story, brick structure featuring Palladian windows, carved wood details, antique chandeliers, decorative columns and wooden floors. The building is owned and managed by the City of Salem which programs both non-profit and private events. Old Town Hall is the summer/fall home to the Salem Museum, presenting hundreds of stories of Salem’s rich past and History Alive, a performance of the re-enactment of the trial of Bridget Bishop accused of witch craft. During the winter and spring, the building hosts musical performances, weddings, and civic events such as the Salem Arts Festival art exhibit. The City received a $20,000 Cultural Facilities grant from the state, which was matched with local CPA and C.I.P. funds for window restoration and repair. The restoration work was completed in early 2016.
EPA Brownfields grant: The City with the City of Peabody received a $950,000 federal grant to be utilized for a revolving loan fund to clean up contaminated sites.
Universal Steel site: This brownfields site was taken by the City for tax title in 2012. Through a coordinated effort with EPA, DEP, and MassDevelopment, the site has been remediated and paved and was used for temporary parking during the construction of the MBTA garage. The City solicited proposals for redevelopment in order to put the site back on the tax rolls and received a proposal from the adjacent commercial business, F.W. Webb Company, to build a new warehouse and commercial showroom. The project has received local approvals.
LED Streetlight Conversion: In 2016, the City completed the conversion of 3,000 overhead streetlights to LED fixtures. This project will result in $194,000 annual cost savings and 1.2 million kilowatt hours in annual energy savings.
Working Cities Challenge: The City successfully implemented a $100,000 grant from the Boston Federal Reserve Bank to improve the quality of life through economic development initiatives in the Point neighborhood. A second grant to further this initiative has been recently awarded.
North Street Fire Station: The City was awarded a $65,000 Massachusetts Historical Commission MPPF grant in June, 2013 for exterior repairs and restoration to the North Street Fire Station.
35 City Hall Handicapped Access: Utilizing American Recovery and Reinvestment Act funding, the City was able to move forward with significant handicap accessibility improvements at City Hall. These improvements include a new elevator addition with entrance lobby and restroom upgrades. The elevator was open for use in 2010.
Redevelopment of 5 Broad Street: In March 2010, a reuse feasibility study was completed for a city-owned building located at 5 Broad Street. The building, which currently houses the City’s Council on Aging, was declared as surplus property by the City Council. The City hired consultants to examine the redevelopment potential for this property in preparation for its future sale. Proceeds from the sale of this building will be used to off-set the cost of a new senior center.
Salem Main Streets Program: In July 2007, the City, in collaboration with the Salem Chamber of Commerce and the Salem Partnership, revived the Salem Main Streets program. The program works to support the revitalization of downtown Salem as a vibrant year-round retail, dining and cultural destination through business recruitment, retention, and the promotion of downtown Salem. The program has continued to support business recruitment and retention while adding an annual downtown arts festival and a weekly farmers market.
Salem Affordable Housing Trust Fund: The City adopted an ordinance to create a municipal housing trust fund in October, 2006. Through negotiations with a developer, the Trust Fund received $50,000 and additional funds are expected from negotiated contributions from other large development projects. The Trust held its first meeting in March, 2007 and has developed a set of goals and strategies to increase affordable housing opportunities in Salem. In 2009, the Trust provided $25,000 to HAWC toward construction of a shelter for abused parents and children. The remainder of the funds was provided to the St. Joseph’s redevelopment project for assistance with designated units of affordable housing.
Destination Salem: Salem continues to market sale as a premier, year-round travel destination. The City continues its funding commitment to destination Salem through its annual allocation of hotel/motel tax revenue.
Planning
The City’s investments are guided and informed by planning studies including the following:
Imagine Salem: The first phase of this citywide visioning project will be completed in fall 2017. The plan’s vision statement and guiding principles will inform the development of a subsequent action agenda.
Downtown Salem Historic Resource Inventory: In 2016, the City was awarded $37,100 in Massachusetts Historical Commission Survey and Planning Grants to fund expanded staff support for the Salem Historical Commission and to update the downtown historic resource inventory.
Salem Artists’ Row Framework Plan: Completed in late 2015, this Plan lays out a vision and action steps to enhance this core area of the downtown.
Salem Housing Needs and Demand Analysis: Completed in July 2015 by the Metropolitan Area Planning Council, this analysis identifies the need for an additional 1,900 to 2,725 units of housing by 2030.
Vision and Action Plan for the Point Neighborhood in Salem 2013 – 2020: This Plan outlines a vision to improve the quality of life in the Point neighborhood and an action agenda that the City of Salem and community partners will work together to implement over a seven-year period from 2013 to 2020. This Plan is a product of a year-long grassroots, neighborhood-level visioning process.
Public Art Master Plan: In recognition of the value that public art can bring to the cultural aesthetic and economic vitality of the community, the City completed a master plan for public art in partnership with the Peabody Essex Museum and the Salem Partnership, funded through the National Endowment for the Arts.
Greenlawn Cemetery: The City was awarded a $4,000 Massachusetts Historical Commission Survey and Planning Grant in March 2013 to prepare a National Register of Historic Places nomination form for the Greenlawn Cemetery, and the Cemetery has since been nominated to the National Register.
Salem Downtown Renewal Plan: In January 2012 the Department of Housing and Community Development approved a major plan change to the City’s urban renewal plans, creating a consolidated plan, the “Salem Downtown Renewal Plan”, which updates goals and objective and design guidelines. This new plan will be in effect for thirty years.
36 Winter Island Master Plan: The City utilized grant funds to undertake a Master Plan for the renovation and redevelopment of Winter Island Park. The City, with its consultant The Cecil Group, conducted a six month public planning process and completed the final report in 2011. The City is now seeking funding to implement the plan’s recommendations. See below for recent state grant award.
Bridge Street Neck Neighborhood Revitalization Plan: This neighborhood master plan for the Bridge Street Neck area was completed in August 2009. The City was awarded technical assistance funds from the regional planning agency, MAPC, to undertake implementation of one of the key recommendations of the plan, creation of a mixed use district.
Salem Harbor Plan Update: The update of the City’s Municipal Harbor Plan, created in 2000, was approved by the EOEEA in 2008. The City worked with a consultant and the Salem Harbor Plan Implementation Committee to update the plan. The Plan outlines a 10-year strategy for port development which guides the future use and character of the Port of Salem.
Parks and Recreation
Winter Island: Salem was awarded a Parks and Conservation Partnership grant in the amount of $192,404 for a scenic multi-use trail on Winter Island bordering Cat Cove, Improvements include interpretive signage, native plantings, installation of site amenities and improvements to the boat launch parking area.
Mary Jane Lee Park Splash Pad: The City was awarded a $200,000 grant from the “Our Common Backyards” program for a splash pad at Mary Jane Lee Park located in our densest neighborhood. The splash pad was completed in time for the 2015 season and was a significant success. The remainder of the park is being improved through four sources-- $400,000 PARC grant, $100,000 CDBG, $80,075 CPA, and $60,000 CIP. Construction will be completed by June 2017.
Bertram Field: A complete renovation of Bertram Field football stadium and track was completed, including a synthetic turf surface expansion of the track to regulation size and installation of a resilient surface. Cost of the project is $1.9 million and was partially funded with a Massachusetts PARC grant in the amount $400,000.
Salem Common Fence: The City was awarded a $62,000 Massachusetts Historical Commission MPPF Grant in 2014 for the restoration of the Salem Common Fence, continuing the phasing of improvements to this historically significant fence at Salem Common. In addition, the project was awarded $100,000 in local CPA funds, and ab additional $113,000 in City funding for a total project budget of $275,000. Construction on this phase of the project was completed and additional funding secured from CPA to continue incremental improvements.
Fort Avenue/Szetela Lane Redevelopment: This City-owned site at the intersection of Fort Avenue and Szetela Lane consists of five parcels containing approximately 2.13 acres. A Phase II and Phase III environmental assessment were completed and the City will be improving the site as a park.
Bicycling Accommodations: The City is proposing to undertake a demonstration project for protected bike lanes on Lafayette Street in accordance with Vision 2020. The City and the Salem Bike Path Committee continue to be committed to extending the Salem Bike Path to downtown Salem via an extension of the former Boston & Maine Railroad ROW at Canal Street, behind Gardner Mattress and all the businesses on Broadway Street, and a portion of the MBTA’s active and abandoned railroad ROW. This extension has been engineered as part of the Canal Street Roadway reconstruction project and the city is seeking to secure funding in order to construct it in the near future.
Open Space & Recreation Plan Update: The City has recently submitted an updated Open Space and Recreation Plan to the State for approval. The Plan establishes long-term goals for the preservation, continued protection and maintenance of open space and recreational areas in the City. Completion of the Plan makes the City eligible to apply for grants through the State PARC program. The City has been successful in the past and has received grants for Peabody Street Park, Furlong Park, Bertram Field, Lead Mills acquisition of open space, and Splaine Park.
Furlong Park: The City received a $500,000 Parkland Acquisition and Renovation for Communities (PARC) Grant from the State Division of Conservation Services for the restoration of Furlong Park. The 5.5 acre park is located along the North River and contains a baseball field, tennis court, playground, and basketball court. As part of the project these features were renovated and additions to the park included construction of a car top boat launch and stabilization of the eroded embankment that borders the North River. Environmental remediation work was funded with a separate state grant. Park renovations are now complete.
37 Community Preservation Projects
The Community Preservation Act (CPA) was adopted by Salem voters in November, 2012. It established a local dedicated fund for the purpose of undertaking open space, historic preservation, outdoor recreation and community housing projects. It is financed by a voter-approved property tax surcharge along with annual matching funds from the statewide CPA Trust Fund. In fiscal year 2014 projects totaling $709,623 were recommended by the Community Preservation Committee (CPC) and approved by Council; in fiscal year 2015 projects totaling $730,975 were recommended by the CPC and approved by Council; fiscal year 2016 projects totaling $824,790 recommended by the CPC and approved by Council. Projects include North Shore CDC housing acquisition assistance, Salem Public Library renovations, Salem Common Fence restoration, Old Town Hall window restoration, Choate Statue restoration, Winter Island scenic trail, 15 Ward Street pocket park creation, Community Gardens improvements, Driver and Patten Parks improvements, Harbor and Lafayette Homes, Council Chamber artwork restoration, Greenlawn Cemetery Chapel restoration, Charter Street Burial Ground Improvement, House of the Seven Gables roof project, Hamilton hall window restoration, Forest River Conservation Area trail upgrades, McGlew Park redesign, Mary Jane Lee Park improvements, Camp Naumkeag rehabilitation plan, and Bates Elementary School playground construction, Boston Street housing acquisition, Emmerton House preservation, Proctor’s Ledge memorial, Salem Willows pavilions restoration, Forest River bathrooms improvements, Forest River Pool conditions assessment, Ryan Brennan Memorial Skate Park renovation, Mack Park bathrooms improvements, Bentley Academy Charter School playground installation and Collins Cove Playground renovation. In fiscal year 2017 projects totaling $744,500 were recommended by the Community Preservation Committee and approved by Council. Projects include 289 Derby Street design/permitting, Nathaniel Hawthorne Statue restoration, Charter Street Cemetery restoration, House of the Seven Gables Turner-Ingersoll Mansion roof replacement, Ryan Brennan Memorial Skate Park renovation, Palmer Cove assessment and concept plan, Saltonstall School Playground, and Lafayette Park renovation.
Public School Enrollments
The following table presents actual enrollments in the City’s public schools from 2013/14 through 2017/18.
Actual 2013/14 2014/15 2015/16 2016/17 2017/18
Pre-K and K 486 491 398 481 485 Elementary (Grades 1-5) 2,142 1,812 1,626 1,813 1,826 Middle (Grades 6-8) 620 869 824 830 824 High School Grades 9-12) 1,143 1,086 949 994 1,022 Sped-out of District 67 73 66 26 9 Total 4,458 4,331 3,863 4,144 4,166
______Source: Superintendent of Schools.
The City of Salem is a member of the Essex North Shore Agricultural and Technical School District which has 17 member communities and takes tuition students from approximately 41 non-member communities. Approximately 170 City of Salem students attend the school. The City also has two new charter schools: the Bentley Academy Charter School and the New Liberty Charter School.
Population Trends
2010 2000 1990 41,340 40,407 38,091
______Source: Federal Bureau of the Census.
On the basis of the 2010 Federal census, the City has a population density of approximately 5,103 persons per square mile.
38 Income Levels and Population
Salem Massachusetts United States Median Family Income 2010 $56,979 $81,165 $51,144 2000 55,635 61,664 50,046 1990 40,777 44,367 35,225 Per Capita Income 2010 $30,949 $33,966 $27,334
______Source: Federal Bureau of the Census.
Labor Force, Employment and Unemployment Rate
According to the Massachusetts Department of Employment and Training, in March 2018, the City had a total labor force of 24,435, of whom 23,496 were employed and 939 were unemployed, or 3.8% unemployed. The Commonwealth, for the same period, had an unadjusted unemployment rate of 3.8%.
The following table sets forth the City's average labor force and unemployment rates for calendar years 2013 through 2017 and the unemployment rate for the Commonwealth and country as a whole for the same period:
City of Salem Massachusetts United States Year Labor Force Unemployment Rate Unemployment Rate Unemployment Rate 2017 24,032 3.8 % 3.7 % 4.4 % 2016 23,774 3.9 3.9 4.9 2015 23,633 4.9 4.9 5.3 2014 23,776 5.8 5.8 6.2 2013 23,484 6.8 7.1 7.4
______Source: Massachusetts Department of Employment and Training. Data based upon place of residence, not place of employment.
Employment by Industry
Salem has a diversified service, trade and manufacturing economic base. Due to the reclassification the U.S. Department of Labor now uses the North American Industry Classification System (NAICS) as the basis for assignment and tabulation of economic data by industry.
The table below sets forth the trend in employment in the City:
Calendar Year Average Industry 2012 2013 2014 2015 2016
Construction 690 714 743 786 820 Manufacturing 683 754 809 778 758 Trade, Transportation and Utilities 2,831 2,850 2,782 2,691 2,664 Information 155 171 182 208 196 Financial Activities 706 696 708 676 671 Professional and Business Services 1,177 1,208 1,247 1,191 1,371 Education and Health Services 8,360 8,129 8,518 8,294 8,129 Leisure and Hospitality 2,697 2,791 2,886 2,961 3,021 Other Services 999 872 882 918 909 Public Administration 1,222 1,103 1,114 1,124 1,127 Total Employment 19,520 19,288 19,871 19,627 19,666
Number of Establishments 1,292 1,318 1,368 1,410 1,454 Average Weekly Wages 853 897 913 933 938 Total Wages $ 865,523,260 $ 899,712,116 $ 943,941,851 $ 952,059,514 $ 959,796,823
______SOURCE: Massachusetts Department of Employment and Training. Data based upon place of employment, not place of residence. 39 Largest Employers
The following table sets forth the largest employers in Salem, including the City itself, as of June, 2018:
Number Name Nature of Business of Employees North Shore Medical Center Health Care 3,116 Commonwealth of Massachusetts Offices State Government 2,735 City of Salem Municipal Government 1,462 Salem State University Higher Education 1,465 Market Basket Food Market 110 Salem Five Savings Bank Banking 195 Grosvenor Park Nursing Center Health Care 177 Peabody Essex Museum Cultural/Tourism 250 Excelitas Technologies Corp. Manufacturing 200 Salem YMCA Social Service Agency 185 Home Depot Retail 145 Salem Glass Retail 120 Hawthorne Hotel Lodging 165 Leahy Behavioral Health Health Care 118 Jacqueline’s Gourmet Cookies Manufacturing 115 Groom Construction Service 120 Wal-Mart Retail 110 Shaw’s Supermarket Food Market 111 Thermal Circuits Manufacturer 101 Crosby’s Marketplace Food Market 98 Target Retail 110 TJ Maxx Retail 101 Waterfront Hotel Lodging 49 Harbor Sweets Retail 98 Finz Sea Food & Grill Restaurant 74 US Post Office Postal 70 ______Source: City website.
Building Permits
The following table sets forth the trend in the number of building permits issued and the estimated dollar value of new construction and alterations. Permits are filed for both private construction and for City projects.
Fiscal Totals Year No. Value
2018 (1) 1,087$ 66,408,740 2017 (2) 1,338 146,187,260 2016 1,495 57,260,125 2015 1,477 35,264,666 2014 1,107 31,974,181 2013 948 80,762,776 ______Source: Report of the Building Inspector. (1) As of May 23, 2018. (2) Includes a permit valued at approximately $30 million for the South Essex Sewerage District.
40 Housing Values - Specified Owner-Occupied (One Unit, Detached or Attached)
Following is a summary of housing values for the City of Salem vs. Essex County and the Commonwealth compiled from latest available census figures:
Salem Essex County Massachusetts No. % of Total No. % of Total No. % of Total
Less than $100,000 287 3.1 % 4,880 2.6 % 49,369 3.1 % $100,000 - $199,000 768 8.4 15,335 8.3 189,878 11.8 $200,000 - $299,999 2,810 30.7 41,247 22.3 389,385 24.3 $300,000 - 499,999 4,568 49.9 78,886 42.6 627,185 39.1 $500,000 - $999,999 620 6.8 38,719 20.9 291,521 18.2 $1,000,000 or more 100 1.1 5,918 3.2 57,135 3.6 Total 9,153 100.0 % 184,985 100.0 % 1,604,473 100.0 %
Medium Value 320,400$ 362,300$ 343,500$
______Source: U.S. Department of Commerce (2011).
41 PROPERTY TAXATION
The principal revenue source of the City is the tax on real and personal property. The amount to be levied in each year is the amount appropriated or required by law to be raised for municipal expenditures less estimated receipts from other sources and less appropriations voted from available funds. The total amount levied is subject to certain limits prescribed by law; for a description of those limits, see "Tax Limitations," herein.
The estimated receipts for a fiscal year from sources other than the property tax may not exceed the actual receipts during the preceding fiscal year from the same sources unless approved by the State Commissioner of Revenue. Excepting special funds, the use of which is otherwise provided for by law, the deduction for appropriations voted from funds on hand for a fiscal year cannot exceed the "free cash" as of the beginning of the prior fiscal year as certified by the State Director of Accounts plus up to nine months' collections and receipts on account of earlier years' taxes after that date. Subject to certain adjustments, free cash is surplus revenue less uncollected overdue property taxes from earlier years.
Although an allowance is made in the tax levy for abatements (see "Abatements and Overlay," herein), no reserve is generally provided for uncollectible real property taxes. Since some of the levy is inevitably not collected, this creates a cash deficiency which may or may not be offset by other items (see "Taxation to Meet Deficits," herein).
Tax Levy Computation
The following table illustrates the manner in which the tax levy was determined for the following fiscal years:
Fiscal Fiscal Fiscal Fiscal Fiscal 2018 2017 2016 2015 2014 Gross Amount to be Raised: Appropriations $ 153,885,529 $ 145,186,794 $ 141,201,803 $ 135,020,195 $ 136,120,848 Other Local Expenditures 1,625,879 1,033,519 1,061,165 807,153 650,888 State and County Assessments 8,947,490 8,068,331 7,113,027 6,365,908 5,658,953 Overlay Reserve 705,771 575,714 612,697 688,559 817,809 Total Gross Amount to be Raised 165,164,669 154,864,358 149,988,692 142,881,815 143,248,498
Offsets: Estimated Receipts from State (1) 30,950,090 30,861,980 30,236,153 29,841,331 28,912,834 Estimated Receipts - Local 33,834,961 32,541,959 32,121,813 30,879,549 30,708,866 Available Funds Appropriated: Free Cash 6,332,180 3,185,870 3,303,705 609,853 4,658,702 Other Available Funds 367,656 135,600 310,211 92,324 471,892 Free Cash & Other Revenue Used to Reduce the Tax Rate 3,811,657 2,538,398 2,816,347 2,400,452 1,514,995 Total Offsets 75,296,544 69,263,807 68,788,229 63,823,509 66,267,289
Net Amount to be Raised (Tax Levy)$ 89,868,125 $ 85,600,551 $ 81,200,463 $ 79,058,306 $ 76,981,209
Assessed Valuation (000) $ 5,067,583 $ 4,710,256 $ 4,534,080 $ 4,208,675 $ 3,962,936 Tax Rate per $1,000: Residential $15.38 $15.86 $15.67 $16.41 $16.73 Commercial/Industrial/Personal $29.97 $29.99 $29.55 $30.99 $32.05 ______Source: Board of Assessors. (1) Estimated by the State Department of Revenue and required by law to be used in setting the tax rate. Actual state aid payments may vary upward or downward from said estimates.
42 Assessed and Equalized Valuations
Property is classified for the purpose of taxation according to its use. The legislature has in substance created three classes of taxable property: (1) residential real property, (2) open space land, and (3) all other (commercial, industrial and personal property). Within limits, cities and towns are given the option of determining the share of the annual levy to be borne by each of the three categories. The share required to be borne by residential real property is at least 50 per cent of its share of the total taxable valuation; the effective rate for open space must be at least 75 per cent of the effective rate for residential real property; and the share of commercial, industrial and personal property must not exceed 175 percent of their share of the total valuation. A city or town may also exempt up to 20 percent of the valuation of residential real property (where used as the taxpayer’s principal residence) and up to 10 percent of the valuation of commercial real property (where occupied by certain small businesses). Property may not be classified in a city or town until the State Commissioner of Revenue certifies that all property in the city or town has been assessed at its fair cash value. Such certification must take place every three years, or pursuant to a revised schedule as may be issued by the Commissioner.
Related statutes provide that certain forest land, agricultural or horticultural land (assessed at the value it has for these purposes) and recreational land (assessed on the basis of its use at a maximum of 25 percent of its fair cash value) are all to be taxed at the rate applicable to commercial property. Land classified as forest land is valued for this purpose at five percent of fair cash value but not less than ten dollars per acre.
Valuation of real and personal property in Salem is established by the Board of Assessors. (A professional revaluation of all real and personal property in the City to full and fair cash value was completed for use in fiscal year 2016.)
The following table sets forth the trend in the City's assessed and equalized valuations:
Assessed Valuations (1) Official Assessed Valuation Fiscal Real Personal Equalized as a Percent of Year Property Property Total Valuation (2) Equalized
2018 $4,864,787,577 $202,795,500 $5,067,583,077 $4,790,270,400 105.8% 2017 4,526,571,659 183,684,630 4,710,256,289 4,790,270,400 98.3 2016(3) 4,390,013,751 144,065,880 4,534,079,631 4,232,985,800 107.1 2015 4,074,392,176 134,283,680 4,208,675,856 4,232,985,800 99.4 2014 3,802,934,126 160,002,170 3,962,936,296 4,256,808,900 93.1 ______(1) Local assessed valuations are determined annually as of January 1 and are used for the fiscal year beginning on the next July 1. (2) Source: Massachusetts Department of Revenue - Equalized valuations is established as of January 1 of even-numbered years for the next two years. (3) Revaluation year.
Classification of Property
The following is a breakdown of the City's assessed valuations for the following fiscal years:
2018 2017 2016 (1) Property Type Amount % of Total Amount % of Total Amount % of Total
Residential $ 4,249,989,014 83.9 %$ 3,939,139,060 83.6 %$ 3,802,708,194 83.9 % Commercial 483,778,163 9.5 478,990,259 10.2 479,297,217 10.6 Industrial 131,020,400 2.6 108,442,340 2.3 108,008,340 2.4 Personal 202,795,500 4.0 183,684,630 3.9 144,065,880 3.2 Total $ 5,067,583,077 100.0 $ 4,710,256,289 100.0 %$ 4,534,079,631 100.0 %
______Source: Board of Assessors. (1) Revaluation year.
43 Largest Taxpayers
The following table lists the largest taxpayers in the City based upon assessed valuations and taxes assessed for fiscal 2018, all of whom are current on their tax payments:
Total Assessed % of Valuation for Tax Levy Fiscal 2018 Name Nature of Business Fiscal 2018 Fiscal 2018 Total Levy New England Power Co Utility $ 69,810,060 $ 2,092,208 2.33 % Mass Electric Utility 38,307,500 1,148,076 1.28 National Grid Utility 34,648,590 1,038,418 1.16 Algonquin Gas Transmission Co Utility 31,471,900 943,213 1.05 Shetland Properties Industrial & Commercial 29,259,100 876,895 0.98 Footprint Power Salem (1) Power Plant/Industrial 25,860,000 775,024 0.86 Bell Fund V Apartments 48,930,600 752,553 0.84 Highlander Plaza Commercial Property 23,565,500 706,258 0.79 Hawthorne Commons Apartments 31,739,600 488,155 0.54 Princeton Crossing Apartments Apartments 30,785,000 473,473 0.53 Second Pickwick Trust Commercial Property 15,370,200 460,645 0.51 Vinnin Square Apartments LLC Apartments 27,388,700 421,238 0.47 RCG, total properties Apartments & Commercial 15,157,200 368,437 0.41 Home Depot Commercial Property 11,336,000 339,740 0.38 New Creek II LLC/Ballard Group Commercial Property 9,030,200 270,635 0.30 Commando North Shore LLC Commercial Property 8,808,800 264,000 0.29 Rt 107 Salem Assoc-Walmart bld Commercial & Personal Property 8,118,070 243,299 0.27 Verizon New England Utility 7,047,500 211,214 0.24 Kernwood Country Club Commercial Property 6,284,885 188,358 0.21 Maritimes & Northeast Pipeline Commercial 6,088,900 182,484 0.20 Total$ 479,008,305 $ 12,244,322 13.62 %
______Source: Board of Assessors. (1) Footprint Power acquired the Salem Harbor Station power plant from Dominion Energy Inc. in early August, 2012. Footprint has ended the coal plant’s operation and is in process of razing the facility. The entire 65-acre site will be cleaned up. Footprint Power is in the process of building a natural gas-fired plant that will produce cleaner energy than the coal-burning plant that has operated since the 1950’s. Footprint is partnering with Toyota Tsusho in development of the new plant. It is expected that the new plant will utilize approximately one-third of the existing site, creating opportunities for additional uses and development of the property. The Commonwealth passed legislation that assures the City at least $4.75 million in revenue (property tax and supplemental state aid) through 2019 to mitigate any financial impact during the transition period. In December 2014, the City and Footprint entered into a payment in lieu of taxes agreement (PILOT) and a Community Benefits Agreement. The PILOT agreement is in effect through fiscal 2032 and provides specific amounts to be paid annually to the City ranging from $4.75 million through 2019 and then escalates annually to $6,759,869 in 2032. The Community Benefits Agreement provides additional sums to the City for waterfront planning, off-site emissions reduction, sustainable initiatives, public safety training, workforce retraining, pavement management and repair, Harbormaster and communications enhancements, community preservation, and Salem School and public art programs. The value of the contributions over the life of the agreement is expected to exceed $4.4 million.
Abatements and Overlay
The City is authorized by law to increase each tax levy by an amount approved by the State Commissioner of Revenue as an "overlay" to provide for tax abatements. If abatements are granted in excess of the applicable overlay, the resultant "overlay deficit" is required to be added to the next tax levy. Abatements are granted where exempt real or personal property has been assessed or where taxable real or personal property has been overvalued or disproportionately valued. The assessors may also abate uncollectible personal property taxes. They may abate real and personal property taxes on broad grounds (including inability to pay) with the approval of the State Commissioner of Revenue, but uncollected real property taxes are ordinarily not written off until they become municipal "tax titles" by purchase at the public sale or by taking, at which time the tax is written off in full by reserving the amount of the tax and charging surplus.
An abatement granted after a tax payment has been made is accounted for as a refund on the books of the City. Any balance in the overlay account in excess of the amount of the warrant remaining to be collected or abated is transferred to a reserve fund to be used for extraordinary or unforeseen expenses. 44 The following table sets forth the amount of the overlay reserve for the last five fiscal years and actual abatements granted against each levy as of June 30, 2017.
Overlay Reserve Abatements Balance Fiscal Net Dollar As a % of Granted Through Remaining as of Year Tax Levy (1) Amount Net Levy June 30, 2017 June 30, 2017 2017 $85,024,837 $575,714 0.68% $391,960 $183,754 2016 80,587,766 612,697 0.76 311,538 271,159 2015 79,058,306 688,559 0.87 370,976 317,583 2014 76,163,400 817,809 1.07 340,551 477,258 2013 74,913,307 974,015 1.30 368,468 605,547 ______(1) Net of overlay reserve for abatements.
State Equalized Valuation
In order to determine appropriate relative values for the purposes of certain distributions to and assessments upon cities and towns, the Commissioner of Revenue biennially makes a redetermination of the fair cash value of the taxable property in each municipality. This is known as the “equalized value”. The following table sets forth the trend in equalized valuations of the City.
January 1, Valuation
2016 $ 4,790,270,400 2014 4,232,985,800 2012 4,256,808,900 2010 4,568,374,700 2008 5,168,060,200 2006 4,923,330,400 2004 4,223,735,800 2002 3,184,867,500
Tax Collections
The City has accepted a statute providing for quarterly tax payments; under the statute, preliminary tax payments are due on August 1 and January 1, with payment of the actual tax bill (after credit is given for the preliminary payments) in installments on February 1 and May 1 if actual bills are mailed by December 31. Interest accrues on delinquent taxes at the rate of 14 percent per annum.
The table below compares the trend in the City's net tax collections with its net tax levies (gross tax levy less overlay reserve for abatements):
Collections During Collections as of Fiscal Year Payable June 30, 2017 Fiscal Total Net Dollar % of Dollar % of Year Tax Levy Tax Levy (1) Amount Net Levy (2)(3) Amount Net Levy (2)(3) 2017$ 85,600,551 $ 85,024,837 $ 85,083,251 100.1 %$ 85,920,973 101.1 % 2016 81,200,463 80,587,766 80,580,642 100.0 81,590,839 101.2 2015 79,058,306 78,369,747 78,566,256 100.3 79,673,376 101.7 2014 76,981,209 76,163,400 76,015,353 99.8 76,015,891 99.8 2013 75,887,322 74,913,307 73,666,104 98.3 73,668,489 98.3 ______(1) Net after deduction of overlay. (2) Actual dollar collections net of refunds. Does not include abatements, proceeds of tax titles or tax possessions attributable to each levy or other non-cash credits. (3) Collections for the current fiscal year are comparable to previous fiscal years.
45 Tax Titles and Possessions
Lien. Real property (land and buildings) is subject to a lien for the taxes assessed upon it, subject to any paramount federal lien and subject to bankruptcy and insolvency laws. (In addition, real property is subject to a lien for certain unpaid municipal charges or fees.) If the property has been transferred, an unenforced lien expires on the fourth December 31 after the end of the fiscal year to which the tax relates. If the property has not been transferred by the fourth December 31, an unenforced lien expires upon a later transfer of the property. Provision is made, however, for continuation of the lien where it could not be enforced because of a legal impediment.
Personal Liability. The persons against whom real or personal property taxes are assessed are personally liable for the tax (subject to bankruptcy and insolvency laws). In the case of real property, this personal liability is effectively extinguished by sale or taking of the property as described below.
Taking and Sale. Massachusetts law permits a municipality either to sell by public sale (at which the municipality may become the purchaser) or to take real property for nonpayment of taxes. In either case the property owner can redeem the property by paying the unpaid taxes, with interest and other charges, but if the right of redemption is not exercised within six months (which may be extended for additional year in the case of certain installment payments) it can be foreclosed by petition to the Land Court. Upon foreclosure, a tax title purchased or taken by the municipality becomes a "tax possession" and may be held and disposed of in the same manner as other land held for municipal purpose.
Uncollectible real property taxes are ordinarily not written off until they become municipal tax titles (either by purchase at the public sale or by taking), at which time the tax is written off in full by reserving the amount of tax and charging surplus. The City of Salem generally takes real property into tax title for nonpayment of taxes within two years.
Taxes Outstanding
The following table presents a five-year history of aggregate overdue property taxes and tax liens outstanding:
Aggregate Overdue As of Property Taxes at Tax Liens June 30 FY End (1) Outstanding (2) Total
2017 $1,129,135 $1,011,430 $2,140,565 2016 1,061,713 1,472,605 2,534,318 2015 1,070,589 1,560,822 2,631,411 2014 1,089,378 1,808,167 2,897,545 2013 962,575 1,736,150 2,698,725 ______Source: City Collector. (1) For five prior fiscal years. Excludes tax titles, tax possessions and abated taxes; includes taxes in litigation, if any. (2) Includes tax deferrals.
Sale of Tax Receivables
Legislation enacted in 1996 authorizes public sale by cities and towns of delinquent property tax receivables, either individually or in bulk. The City does not expect to utilize this option at the present time.
Taxation to Meet Deficits
As noted elsewhere (see “Abatements and Overlay” herein) overlay deficits, i.e. tax abatements in excess of the overlay included in the tax levy to cover abatements, are required to be added to the next tax levy. It is generally understood that revenue deficits, i.e. those resulting from non-property tax revenues being less than anticipated, are also required to be added to the tax levy (at least to the extent not covered by surplus revenue).
Amounts lawfully expended since the prior tax levy and not included therein are also required to be included in the annual tax levy. The circumstances under which this can arise are limited since municipal departments are generally prohibited from incurring liabilities in excess of appropriations except for major disasters, mandated items, contracts in aid of housing and renewal projects and other long-term contracts. In addition, utilities must be paid at established rates and certain established salaries, e.g. civil service, must legally be paid for work actually performed, whether or not covered by appropriations.
46 Cities and towns are authorized to appropriate sums, and thus to levy taxes, to cover deficits arising from other causes, such as “free cash” deficits arising from a failure to collect taxes. This is not generally understood, however, and it has not been the practice to levy taxes to cover free cash deficits. Except to the extent that such deficits have been reduced or eliminated by subsequent collections of uncollected taxes (including sales of tax titles and tax possessions), lapsed appropriations, non-property tax revenues in excess of estimates, other miscellaneous items or funding loans authorized by special act, they remain in existence.
Tax Limitations
Chapter 59, Section 21C of the General Laws, also known as Proposition 2½, imposes two separate limits on the annual tax levy of a city or town.
The primary limitation is that the tax levy cannot exceed 2½ percent of the full and fair cash value. If a city or town exceeds the primary limitation, it must reduce its tax levy by at least 15 percent annually until it is in compliance, provided that the reduction can be reduced in any year to not less than 7½ percent by majority vote of the voters, or to less than 7½ percent by two-thirds vote of the voters.
For cities and towns at or below the primary limit, a secondary limitation is that the tax levy cannot exceed the maximum levy limit for the preceding fiscal year as determined by the State Commissioner of Revenue by more than 2½ percent, subject to exceptions for property added to the tax rolls or property which has had an increase, other than as part of a general revaluation, in its assessed valuation over the prior year’s valuation.
This “growth” limit on the tax levy may be exceeded in any year by a majority vote of the voters, but an increase in the secondary or growth limit under this procedure does not permit a tax levy in excess of the primary limitation, since the two limitations apply independently. In addition, if the voters vote to approve taxes in excess of the “growth” limit for the purpose of funding a stabilization fund, such increased amount may only be taken into account for purposes of calculating the maximum levy limit in each subsequent year if the board of selectmen of a town or the city council of a city votes by a two-thirds vote to appropriate such increased amount in such subsequent year to the stabilization fund.
The applicable tax limits may also be reduced in any year by a majority vote of the voters.
The State Commissioner of Revenue may adjust any tax limit “to counterbalance the effects of extraordinary, non-recurring events which occurred during the base year”.
Proposition 2½ further provides that the voters may exclude from the taxes subject to the tax limits and from the calculation of the maximum tax levy (a) the amount required to pay debt service on bonds and notes issued before November 4, 1980, if the exclusion is approved by a majority vote of the voters, and (b) the amount required to pay debt service on any specific subsequent issue for which similar approval is obtained. Even with voter approval, the holders of the obligations for which unlimited taxes may be assessed do not have a statutory priority or security interest in the portion of the tax levy attributable to such obligations. It should be noted that Massachusetts General Laws Chapter 44, Section 20 requires that the taxes excluded from the levy limit to pay debt service on any such bonds and notes be calculated based on the true interest cost of the issue. Accordingly, the Department of Revenue limits the amount of taxes which may be levied in each year to pay debt service on any such bonds and notes to the amount of such debt service, less a pro rata portion of any original issue premium received by the city or town that was not applied to pay costs of issuance.
Voters may also exclude from the Proposition 2½ limits the amount required to pay specified capital outlay expenditures or for the city or town’s apportioned share for certain capital outlay expenditures by a regional governmental unit. In addition, the city council of a city, with the approval of the mayor if required, or the board of selectmen or the town council of a town may vote to exclude from the Proposition 2½ limits taxes raised in lieu of sewer or water charges to pay debt service on bonds or notes issued by the municipality (or by an independent authority, commission or district) for water or sewer purposes, provided that the municipality’s sewer or water charges are reduced accordingly.
In addition, Proposition 2½ limits the annual increase in the total assessments on cities and towns by any county, district, authority, the Commonwealth or any other governmental entity (except regional school districts, the MWRA and certain districts for which special legislation provides otherwise) to the sum of (a) 2½ percent of the prior year’s assessments and (b) “any increases in costs, charges or fees for services customarily provided locally or for services subscribed to at local option”. Regional water districts, regional sewerage districts and regional veterans districts may exceed these limitations under statutory procedures requiring a two-thirds vote of the district’s governing body and either approval of the local appropriating authorities (by two-thirds vote in districts with more than two members or by majority vote in two-member districts) or approval of the registered voters in a local election (in the case of two-member districts). Under Proposition 2½ any State law to take 47 effect on or after January 1, 1981 imposing a direct service or cost obligation on a city or town will become effective only if accepted or voluntarily funded by the city or town or if State funding is provided. Similarly, State rules or regulations imposing additional costs on a city or town or laws granting or increasing local tax exemptions are to take effect only if adequate State appropriations are provided. These statutory provisions do not apply to costs resulting from judicial decisions.
The City has been in full compliance with Proposition 2 1/2 since its inception. To date the City has not passed any general budget overrides or debt exclusions.
Unused Levy Capacity (1)
The following table sets forth the trend in the City's tax levies, levy limits and unused levy capacity under Proposition 2 1/2:
For Fiscal Year (1) 2018 2017 2016 2015 2014 Primary Levy Limit (2) $ 126,689,577 $ 117,756,407 $ 113,351,991 $ 105,216,896 $ 99,073,407 Prior Fiscal Year Levy Limit 90,563,116 86,548,205 83,270,410 80,587,733 77,955,293 2.5% Levy Growth 2,264,078 2,163,705 2,081,760 2,014,693 1,948,882 Current Fiscal Year New Growth (3) 2,494,362 1,851,206 1,196,035 667,984 683,558 Current Fiscal Year Override - - - - - Growth Levy Limit 95,321,556 90,563,116 86,548,205 83,270,410 80,587,733 Debt Exclusions - - - - - Tax Levy Limit 95,321,556 90,563,116 86,548,205 83,270,410 80,587,733 Tax Levy 89,868,125 85,600,551 81,200,463 79,058,306 76,981,209 Unused Levy Capacity (4) $ 5,453,431 $ 4,962,565 $ 5,347,742 $ 4,212,104 $ 3,606,524
Unused Primary Levy Capacity (5) $ 31,368,021 $ 27,193,291 $ 26,803,786 $ 21,946,486 $ 18,485,674
______(1) Source: Massachusetts Department of Revenue. (2) 2.5% of assessed valuation. (3) Allowed increase for new valuations – certified by the Department of Revenue. (4) Tax Levy Limit less Tax Levy. (5) Primary Levy Limit less Growth Levy Limit.
Pledged Taxes
Taxes on the increased value of certain property in designated development districts may be pledged for the payment of costs of economic development projects within such districts and may therefore be unavailable for other municipal purposes. (See “Tax Increment Financing for Development Districts” below). The City has not created any such district.
48 Community Preservation Act
The Massachusetts Community Preservation Act (the “CPA”) permits cities and towns that accept its provisions to levy a surcharge on its real property tax levy, dedicate revenue (other than state or federal funds), and to receive state matching funds for (i) the acquisition, creation, preservation, rehabilitation and restoration of land for recreational use, open space, and affordable housing and (ii) the acquisition, preservation, rehabilitation and restoration of historic resources. The provisions of the CPA must be accepted by the voters of the city or town at an election after such provisions have first been accepted by either a vote of the legislative body of the city or town or an initiative petition signed by 5% of its registered voters.
A city or town may approve a surcharge of up to 3% (but not less than 1% under certain circumstances) and may make an additional commitment of funds by dedicating revenue other than state or federal funds, provided that the total funds collected do not exceed 3% of the real property tax levy, less any exemptions adopted (such as an exemption for low- income individuals and families and for low and moderate-income senior citizens, an exemption for $100,000 of the value of each taxable parcel of residential real property or $100,000 of the value of each taxable parcel of class three, commercial property, and class four, industrial property as defined in Chapter 59, Section 2A of the General Laws, and an exemption for commercial and industrial properties in cities and towns with classified tax rates). In the event that the municipality shall no longer dedicate all or part of the additional funds to community preservation, the surcharge on the real property tax levy of not less than 1% shall remain in effect, provided that any such change must be approved pursuant to the same process as acceptance of the CPA. The surcharge is not counted in the total taxes assessed for the purpose of determining the permitted levy amount under Proposition 2½ (see “Tax Limitations” under “PROPERTY TAX” above). A city or town may revoke its acceptance of the provisions of the CPA at any time after 5 years from the date of such acceptance and may change the amount of the surcharge or the exemptions to the surcharge at any time, including reducing the surcharge to 1% and committing additional municipal funds as outlined above, provided that any such revocation or change must be approved pursuant to the same process as acceptance of the CPA.
Any city or town that accepts the provisions of the CPA will receive annual state matching grants to supplement amounts raised by its surcharge and dedication of revenue. The state matching funds are raised from certain recording and filing fees of the registers of deeds. Those amounts are deposited into a state trust fund and are distributed to cities and towns that have accepted the provisions of the CPA, which distributions are not subject to annual appropriation by the state legislature. The amount distributed to each city and town is based on a statutory formula and the total state distribution made to any city or town may not exceed 100% of the amount raised locally by the surcharge on the real property tax levy.
The amounts raised by the surcharge on taxes, the dedication of revenue and received in state matching funds are required to be deposited in a dedicated community preservation fund. Each city or town that accepts the provisions of the CPA is required to establish a community preservation committee to study the community preservation needs of the community and to make recommendations to the legislative body of the city or town regarding the community preservation projects that should be funded from the community preservation fund. Upon the recommendations of the committee, the legislative body of the city or town may appropriate amounts from the fund for permitted community preservation purposes or may reserve amounts for spending in future fiscal years, provided that at least 10% of the total annual revenues to the fund must be spent or set aside for open space purposes, 10% for historic resource purposes and 10% for affordable housing purposes.
The CPA authorizes cities and towns that accept its provisions to issue bonds and notes in anticipation of the receipt of surcharge and dedicated revenues to finance community preservation projects approved under the provisions of the CPA. Bonds and notes issued under the CPA are general obligations of the city or town and are payable from amounts on deposit in the community preservation fund. In the event that a city or town revokes its acceptance of the provisions of the CPA, the surcharge shall remain in effect until all contractual obligations incurred by the city or town prior to such revocation, including the payment of bonds or notes issued under the CPA, have been fully discharged.
The City adopted the Community Preservation Act on November 6, 2012 and voted an additional 1% tax levy for this purpose. The surcharge was effective for real estate tax bills issued as of January 1, 2014.
The City received $524,359 of CPA surcharges and $169,707 of state matching grants in fiscal year 2015. The City received $553,652 of CPA surcharge and $155,406 of state matching grants in fiscal year 2016. The City received $582,723 of CPA surcharge and $114,479 of state matching grants in fiscal year 2017.
49 CITY FINANCES
The Budget and Appropriation Process
Within 170 days after the annual organization of the city government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without a recommendation of the Mayor, the City Council may not increase any item or make an appropriation for a purpose not included in the proposed budget (except by a two-thirds vote in case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the City Council). If the City Council fails to act on any item of the proposed budget within 45 days, that item takes effect.
If the Mayor does not make a timely budget submission, provision is made for preparation of a budget by the City Council. Provision is also made for supplementary appropriations upon recommendation of the Mayor. Water and sewer department expenditures are required to be included in the budget adopted by the City Council. The school budget is limited to the amount appropriated by the City Council, but the school committee retains full power to allocate the funds appropriated.
Under certain circumstances and subject to certain limits and requirements, the city council of a city, upon the recommendation of the Mayor, may transfer amounts appropriated for the use of the department (except for a municipal light department or a school department) to another appropriation for the same department or for the use of any other department.
Commencing September 1, 1992, the City established enterprise funds in accordance with Chapter 44, Section 531F 1/2, of the General Laws for the City's water and sewer services.
City department heads are generally required to submit their budget requests to the Mayor between January 1, and December 1. This does not apply to the school department, which must submit its requests in time for the Mayor to include them in his submission to the City Council.
Mandatory items, such as state assessments, the overlay for abatements, abatements in excess of overlays, principal and interest not otherwise provided for and final judgments are included in the tax levy whether or not included in the budget. Revenues are not required to be set forth in the budget but estimated non-tax revenues are taken into account by the assessors in fixing the tax levy.
Operating Budget Trends
The following table sets forth the City's operating budgets for fiscal years 2014 through 2018 and the proposed fiscal year 2019:
Proposed Fiscal 2019 Fiscal 2018 Fiscal 2017 Fiscal 2016 Fiscal 2015 Fiscal 2014
General Government$ 6,985,567 $ 6,625,465 $ 6,317,771 $ 5,487,393 $ 5,354,857 $ 4,802,367 Public Safety 21,913,868 20,970,298 20,462,901 19,491,454 19,170,700 18,966,567 Public Works & Facilities 4,497,293 3,958,934 4,151,095 3,816,437 3,765,086 3,609,902 Human Services 1,602,027 1,518,428 1,429,502 1,329,231 1,277,825 1,227,257 Education 57,628,889 56,807,831 55,041,847 53,145,269 54,461,543 52,553,423 Municipal Insurance 338,556 317,907 356,282 298,001 284,018 317,375 Culture and Recreation 2,893,638 2,827,690 2,639,151 2,559,596 2,520,109 2,433,767 Employee Benefits 26,547,171 25,751,790 24,446,982 24,241,752 23,772,182 23,386,271 Debt Service 7,727,786 6,607,193 6,121,143 5,566,455 4,636,539 5,040,047 Assessments 11,342,438 11,380,594 10,420,617 9,674,400 8,743,181 7,589,487 Transfers out of the General Fund 3,848,570 3,028,434 3,014,380 3,912,757 1,600,257 2,023,257 Subtotal $ 145,325,803 $ 139,794,564 $ 134,401,671 $ 129,522,745 $ 125,586,297 $ 121,949,720 Enterprise Funds: Water, Sewer and Trash (1) 16,834,494 15,674,551 14,936,984 14,580,641 14,563,060 14,244,982 Total $ 162,160,297 $ 155,469,115 $ 149,338,655 $ 144,103,386 $ 140,149,357 $ 136,194,702
______(1) Includes assessments by Salem/Beverly Water Board and South Essex Sewerage District.
50 Education Reform
State legislation known as the Education Reform Act of 1993, as amended, imposes certain minimum expenditure requirements on municipalities with respect to funding for education and related programs, and may affect the level of state aid to be received for education. The requirements are determined on the basis of formulas affected by various measures of wealth and income, enrollments, prior levels of local spending and state aid, and other factors. The City has routinely exceeded its spending requirements as mandated by the Education Reform Act since its inception.
Revenues
Property Taxes: Property taxes are a major source of revenue for the City. The total amount levied is subject to certain limits prescribed by law; for a description of those limits see “PROPERTY TAXATION – Tax Limitations,” herein.
State Distributions: In addition to grants for specified capital purposes (some of which are payable over the life of the bonds issued for the projects), the Commonwealth provides financial assistance to cities and towns for current purposes. Payments to cities and towns are derived primarily from a percentage of the State’s personal income, sales and use, and corporate excise tax receipts, together with the net receipts from the State Lottery. A municipality’s state aid entitlement is based on a number of different formulas, of which the “schools” and “lottery” formulas are the most important. Both of the major formulas tend to provide more state aid to poorer communities. The formulas for determining a municipality’s state aid entitlement are subject to amendment by the state legislature and, while a formula might indicate that a particular amount of state aid is owed, the amount of state aid actually paid is limited to the amount appropriated by the state legislature. The state annually estimates state aid, but the actual state aid payments may vary from the estimate.
In the fall of 1986, both the State Legislature (by statute, repealed as of July 1, 1999) and the voters (by initiative petition) placed limits on the growth of state tax revenues. Although somewhat different in detail, each measure essentially limited the annual growth in state tax revenues to an average rate of growth in wages and salaries in the Commonwealth over the three previous calendar years. If not amended, the remaining law could restrict the amount of state revenues available for state aid to local communities.
The following table sets forth state aid distributions to the City, based on estimates published by the Massachusetts Department of Revenue, for the current (estimated) and last five fiscal years:
Fiscal Aid to Other Total Year Education Aid State Aid
2018 (est.) $21,736,742 $8,292,124 $30,028,868 2017 21,600,633 8,290,562 29,891,195 2016 21,348,402 7,751,075 29,099,477 2015 21,231,627 3,198,017 29,429,644 2014 20,879,448 7,068,228 27,947,676 2013 21,413,628 7,404,530 28,818,158 ______Source: Massachusetts Department of Revenue.
State School Building Assistance Program: Under its school building assistance program, the Commonwealth provides grants to cities, towns and regional school districts for school construction projects. Until July 26, 2004, the State Board of Education was responsible for approving grants for school projects and otherwise administering the program. Grant amounts ranged from 50% to 90% of approved project costs. Municipalities generally issued bonds to finance the entire project cost, and the Commonwealth disbursed the grants in equal annual installments over the term of the related bonds.
Pursuant to legislation which became effective on July 26, 2004, the state legislature created the MSBA (the “Authority”) to finance and administer the school building assistance program. The Authority has assumed all powers and obligations of the Board of Education with respect to the program. In addition to certain other amounts, the legislation dedicates a portion of Commonwealth sales tax receipts to the MSBA to finance the program.
Projects previously approved for grants by the State Board of Education are entitled to receive grant payments from the Authority based on the approved project cost and reimbursement rate applicable under the prior law. The MSBA has paid and is expected to continue to pay the remaining amounts of the grants for such projects either in annual installments to reimburse debt service on bonds issued by the municipalities to finance such projects, or as lump sum payments to contribute to the defeasance of such bonds. 51 Projects on the priority waiting list as of July 1, 2004 are also entitled to receive grant payments from the Authority based on the eligible project costs and reimbursement rates applicable under the prior law. With limited exceptions, the MSBA is required to fund the grants for such projects in the order in which they appear on the waiting list. Grants for any such projects that have been completed or substantially completed have been paid and are expected to continue to be paid by the Authority in lump sum payments, thereby eliminating the need for the MSBA to reimburse interest expenses that would otherwise be incurred by the municipalities to permanently finance the Authority’s share of such project costs. Interest on debt issued by municipalities prior to July 1, 2004 to finance such project costs, and interest on temporary debt until receipt of the grant, is included in the approved costs of such projects. Grants for any such projects that have not yet commenced or that are underway have been and are expected to continue to be paid by the MSBA as project costs are incurred by the municipality pursuant to a project funding agreement between the MSBA and the municipality, eliminating the need for the municipality to borrow even on a temporary basis to finance the MSBA’s share of the project costs in most cases.
The range of reimbursement rates for new project grant applications submitted to the MSBA on or after July 1, 2007 has been reduced to between 40% and 80% of approved project costs. The MSBA promulgated new regulations with respect to the application and approval process for projects submitted after July 1, 2007. The MSBA expects to pay grants for such projects as project costs are incurred pursuant to project funding agreements between the MSBA and the municipalities. None of the interest expense incurred on debt issued by municipalities to finance their portion of the costs of new projects will be included in the approved project costs eligible for reimbursement.
Motor Vehicle Excise Tax: An excise is imposed on the registration of motor vehicles (subject to exemptions) at a uniform rate $25 per $1,000 of valuation. Valuations are determined by a statutory formula based on manufacturer’s list price and year of manufacture. Bills not paid when due bear interest at 12 percent per annum. Provision is also made for notification of the registrar of motor vehicles, which will not renew the vehicle registration or the driver’s license of its owner until the tax is paid. The following table presents the five-year history of motor vehicle excise tax receipts of the City:
Fiscal Year Receipts 2017 $4,705,201 2016 4,470,364 2015 4,329,429 2014 4,184,796 2013 3,481,507 ______Source: City Auditor.
Water and Sewer Rates and Services: The City purchases all of its water from the Salem/Beverly Water Board, a small percentage of water is outside the public system and is from underground wells. Total daily volume is approximately 13,134,000 metered gallons and at peak usage 8,150,000 metered gallons, 52.1% consumed by the City of Salem and 47.9% by the City of Beverly. Sewer services are provided to approximately 97% of its citizens by the South Essex Sewerage District, of which it is a member, together with Danvers, Peabody, Marblehead, Beverly and a portion of Middleton.
The current water rates, effective August 1, 2016, are $2.98 per 100 cubic feet of metered water for residential, with a minimum rate for each quarter of $28.90 per 1,000 cubic feet, and $4.04 per 100 cubic feet for non-residential. The Water Board is authorized to treat and provide 12.44 million gallons of water per day by a registration and permit granted by the Massachusetts Department of Environmental Protection. The Cities of Salem and Beverly own the pumping and distribution stations of the Water Board, and all real property is owned as joint tenants.
The current sewer rates, effective August 1, 2016, are $6.08 per 100 cubic feet for residential users and, for non- residential users, $9.21 per 100 cubic feet up to 25,000 cubic feet per month and $11.79 per 100 cubic feet for greater than 25,000 cubic feet. Total daily volume is estimated at 4,200,000 gallons of sewage for the 83 miles of pipes in the City system.
See “INDEBTEDNESS – Overlapping Debt,” below.
52 Room Occupancy Tax: Under this tax, local governments may tax the provision of hotel, motel and lodging house rooms at a rate not to exceed six percent (6%) of the cost of renting such rooms. The tax is paid by the operator of the hotel, motel or lodging house to the State Commissioner of Revenue, who in turn pays the tax back to the municipality in which the rooms are located in quarterly distributions. The City levies 5% of the cost of renting such rooms, and revenue to the City in fiscal 2016 from this tax was $560,960 and in fiscal 2017 room occupancy tax revenue was $663,968.
Local Option Meals Tax: On April 22, 2010, the City adopted the local meals excise tax to be effective July 1, 2010. The local meals excise tax is a 0.75% tax on the gross receipts of a vendor from the sale of restaurant meals. The tax is paid by the vendor to the State Commissioner of Revenue, who in turn pays the tax to the municipality in which the meal was sold. The meals tax revenue to the City in fiscal year 2016 was $980,941 and in fiscal year 2017 this revenue was $1,019,605.
Annual Audits
The financial statements of the City for the fiscal year ending June 30, 2017 are set forth as Appendix A and have been audited by the firm of Powers & Sullivan, Certified Public Accountants, of Wakefield, Massachusetts.
Their report speaks only to the matters expressly set forth therein. The auditors have not been engaged to review this Official Statement or to perform audit procedures regarding the post-audit period, nor have the auditors been requested to give their consent to the inclusion of their report. Except as stated in their report, the auditors have not been engaged to verify the financial information set out in the City’s financial statements and are not passing upon and do not assume responsibility for the sufficiency, accuracy or completeness of the financial information presented in those statements.
Financial Statements
Set forth on the following pages are Governmental Funds Balance Sheets for the fiscal years ended June 30, 2017, June 30, 2016 and June 30, 2015 and Statements of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds for fiscal years 2013 through 2017. Said statements have been extracted from City’s audited financial statements and combined for presentation purposes.
53 CITY OF SALEM, MASSACHUSETTS GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2017 (1) Community City Warf Capital Nonmajor Total Preservation Project City Improvement Governmental Governmental General Funds Fund Grants Fund Funds Funds ASSETS Cash and cash equivalents $ 16,793,872 $ 1,101,456 $ 531,057 $ 2,812,212 $ 2,071,200 $ 6,945,729 $ 30,255,526 Investments 5,295,319 - - - - 6,683,298 11,978,617 Receivables, net of uncollectibles: Real estate and personal property taxes 1,129,134 8,000 - - - - 1,137,134 Tax liens 1,422,126 - - - - - 1,422,126 Motor vehicle and other excise taxes 629,528 - - - - - 629,528 Departmental and other - - - - - 156,117 156,117 Intergovernmental 2,021,243 88,408 - 1,974,440 - 4,725,150 8,809,241 Loans - - - 250,000 - 321,025 571,025 Due from other funds - - - - - 57,700 57,700 TOTAL ASSETS $ 27,291,222 $ 1,197,864 $ 531,057 $ 5,036,652 $ 2,071,200 $ 18,889,019 $ 55,017,014 LIABILITIES Warrants Payable $ - $ - $ - $ 896,755 $ 730,782 $ 2 $ 1,627,539 Accrued liabilities 1,530,606 - - - - - 1,530,606 Accrued payable 6,089,004 - - 30,296 - 252,340 6,371,640 Tax refunds payable 146,567 - - - - - 146,567 Due to other funds - - - - - 57,700 57,700 Notes payable - - - 948,500 2,427,930 - 3,376,430 TOTAL LIABILITIES $ 7,766,177 $ - $ - $ 1,875,551 $ 3,158,712 $ 310,042 $ 13,110,482 DEFERRED INFLOWS OF RESOURCES Unavailable revenue 4,537,501 96,407 - 250,000 - 568,795 5,452,703 FUND BALANCES Nonspendable - - - - - 2,206,224 2,206,224 Restricted - 1,101,457 531,057 2,911,101 - 15,845,058 20,388,673 Assigned 468,894 - - - - - 468,894 Unassigned 14,518,650 - - - (1,087,512) (41,100) 13,390,038 TOTAL FUND BALANCES 14,987,544 1,101,457 531,057 2,911,101 (1,087,512) 18,010,182 36,453,829 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES $ 27,291,222 $ 1,197,864 $ 531,057 $ 5,036,652 $ 2,071,200 $ 18,889,019 $ 55,017,014 (1) Extracted from the City's audited financial statements
54 CITY OF SALEM, MASSACHUSETTS GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2016 (1) Community City Warf Capital Nonmajor Total Preservation Project City Improvement Governmental Governmental General Funds Fund Grants Fund Funds Funds ASSETS Cash and cash equivalents $ 14,892,902 $ 1,026,502 $ 298,980 $ 3,237,874 $ 2,750,468 $ 6,309,411 $ 28,516,137 Investments 5,829,541 - - - - 5,857,245 11,686,786 Receivables, net of uncollectibles: - Real estate and personal property taxes 1,105,900 9,504 - - - - 1,115,404 Tax liens 1,867,658 - - - - - 1,867,658 Motor vehicle and other excise taxes 618,654 - - - - - 618,654 Departmental and other - - - - - 122,689 122,689 Intergovernmental 2,673,245 106,681 680,562 2,357,566 - 3,854,031 9,672,085 loans - - - - - 337,808 337,808 Due from other funds - - - 73,686 - - 73,686 TOTAL ASSETS $ 26,987,900 $ 1,142,687 $ 979,542 $ 5,669,126 $ 2,750,468 $ 16,481,184 $ 54,010,907 LIABILITIES Warrants Payable $ - $ 19,800 $ 74,886 $ 79,411 $ 77,287 $ 89,896 $ 341,280 Accrued liabilities 928,510 - - - - - 928,510 Accrued payable 5,969,234 - - 26,379 - 178,394 6,174,007 Tax refunds payable 849,003 - - - - - 849,003 Due to other funds - - - - - 73,686 73,686 Notes payable - - 928,000 1,339,000 900 - 2,267,900 TOTAL LIABILITIES $ 7,746,747 $ 19,800 $ 1,002,886 $ 1,444,790 $ 78,187 $ 341,976 $ 10,634,386 DEFERRED INFLOWS OF RESOURCES Unavailable revenue 5,642,298 116,185 - - - 877,023 6,635,506 FUND BALANCES Nonspendable - - - - - 2,176,969 2,176,969 Restricted - 1,006,702 - 4,224,336 2,672,281 13,085,216 20,988,535 Assigned 661,246 - - - - 661,246 Unassigned 12,937,609 - (23,344) - - 12,914,265 TOTAL FUND BALANCES 13,598,855 1,006,702 (23,344) 4,224,336 2,672,281 15,262,185 36,741,015 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES$ 26,987,900 $ 1,142,687 $ 979,542 $ 5,669,126 $ 2,750,468 $ 16,481,184 $ 54,010,907 (1) Extracted from the City's audited financial statements
55 CITY OF SALEM, MASSACHUSETTS GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2015 (1) Community City Warf Scholl Capital Nonmajo r Total Preservation Project Capital Improvement Governmental Governmental General Funds Fund Projects Fund Funds Funds ASSETS Cash and cash equivalents$ 14,114,082 $ 865,433 $ 3,066,624 $ 1,375,862 $ 2,411,235 $ 7,529,944 $ 29,363,180 Investments 5,695,623 - - - - 6,552,468 12,248,091 Receivables, net of uncollectibles: - Real estate and personal property taxes 1,070,589 12,451 - - - - 1,083,040 Tax liens 1,878,765 - - - - - 1,878,765 Motor vehicle and other excise taxes 481,176 - - - - - 481,176 Departmental and other - - - - - 90,609 90,609 Intergovernmental 3,265,677 123,920 - 2,334,793 - 1,645,021 7,369,411 Loans - - - - - 334,969 334,969 Due from other funds - - - - - 200,714 200,714 TOTAL ASSETS $ 26,505,912 $ 1,001,804 $ 3,066,624 $ 3,710,655 $ 2,411,235 $ 16,353,725 $ 53,049,955 LIABILITIES Warrants Payable $ - $ 61,375 $ - $ 1,076,964 $ 201,841 $ 1,220,575 $ 2,560,755 Accrued liabilities 1,418,275 - - - - - 1,418,275 Accrued payable 6,343,788 - - - - 216,008 6,559,796 Tax refunds payable 548,452 - - - - - 548,452 Due to other funds - - - - - 200,714 200,714 Notes payable - - 3,000,000 3,188,299 2,657,153 - 8,845,452 TOTAL LIABILITIES $ 8,310,515 $ 61,375 $ 3,000,000 $ 4,265,263 $ 2,858,994 $ 1,637,297 $ 20,133,444 DEFERRED INFLOWS OF RESOURCES Unavailable revenue 6,065,257 136,370 - - - 995,934 7,197,561 FUND BALANCES Nonspendable - - - - - 2,151,087 2,151,087 Restricted - 804,059 66,624 - - 11,569,407 12,440,090 Committed 412,192 - - - - - 412,192 Assigned 558,880 - - - - - 558,880 Unassigned 11,159,068 - - (554,608) (447,759) - 10,156,701 TOTAL FUND BALANCES 12,130,140 804,059 66,624 (554,608) (447,759) 13,720,494 25,718,950 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES $ 26,505,912 $ 1,001,804 $ 3,066,624 $ 3,710,655 $ 2,411,235 $ 16,353,725 $ 53,049,955 (1) Extracted from the City's audited financial statements
56 CITY OF SALEM GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2017 (1) Community City Grant Capital Nonmajor Total Preservation Warf City Improvement Governmental Governmental General Fund Fund Grants Fund Funds Funds REVENUES: Real estate and personal property taxes, net of tax refunds $ 90,142,571 $ 582,723 $ - -$ -$ $- $ 90,725,294 Tax liens 763,080 - - - - - 763,080 Motor vehicle and other excise taxes 4,300,898 - - - - - 4,300,898 Hotel/motel and meals taxes 1,683,573 - - - - - 1,683,573 Charges for services 2,777,857 - - 8,687 - 6,960 2,793,504 Penalties and interest on taxes 460,601 1,385 - - - 4,106 466,092 Payments in lieu of taxes 1,082,164 - - - - - 1,082,164 Licenses and permits 509,915 - - - - - 509,915 Fines and forfeitures 823,329 - - - - - 823,329 Intergovernmental 44,878,077 114,479 819,438 10,359,290 4 90,000 12,813,312 69,474,596 Departmental and other 3,302,414 - - 242,969 80,000 2,946,795 6,572,178 Contributions - - - - - 228,567 228,567 Investment income 295,907 487 - 16 - 827,664 1,124,074 TOTAL REVENUES 151,020,386 699,074 819,438 10,610,962 5 70,000 16,827,404 180,547,264
EXPENDITURES Current: General government 7,765,468 - - 838,930 2,212,817 242,635 11,059,850 Public safety 20,092,249 - - 2,380,955 1,116,982 64,628 23,654,814 Education 58,499,630 - - 608,137 243,186 12,606,059 71,957,012 Public works 4,850,394 - 265,037 5,130,200 1,897,457 1,801,094 13,944,182 Community development - - - 80,000 - 1,255,264 1,335,264 Health and human services 1,371,737 - - 4,249,124 - 216,264 5,837,125 Community preservation - 604,319 - - - - 604,319 Culture and recreation 2,056,471 - - 97,128 90,543 273,453 2,517,595 Pension benefits 23,610,047 - - - - - 23,610,047 Employee benefits 14,108,736 - - - - - 14,108,736 State and county charges 7,946,729 - - - - - 7,946,729 Debt service: - Principal 3,728,127 - - - 24,234 - 3,752,361 Interest 1,810,439 - - - - - 1,810,439 TOTAL EXPENDITURES 145,840,027 604,319 265,037 13,384,474 5,585,219 16,459,397 182,138,473 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 5,180,359 94,755 554,401 (2,773,512) (5,015,219) 368,007 (1,591,209) OTHER FINANCING SOURCES (USES): Issuance of bonds - - - - 665,000 - 665,000 Issuance of refunding bonds 3,312,000 - - - - - Premium from issuance of bonds 7,220 - - - - 510,389 517,609 Premium from issuance of refunding bonds 464,866 - - - - - Payments to refunded bond escrow agent (3,735,364) - - - - - Capital lease financing - - - - 590,426 - 590,426 Transfers in 2,687,231 - - 1,648,085 - 2,926,246 7,261,562 Transfers out (6,527,632) - - (178,808) - (1,065,526) (7,771,966) TOTAL OTHER FINANCING SOURCES (USES (3,791,679) - - 1,469,277 1,255,426 2,371,109 1,262,631
NET CHANGE IN FUND BALANCES 1,388,689 94,755 554,401 (1,313,235) (3,759,793) 2,747,997 (287,186) FUND BALANCES AT BEGINNING OF YEAR 13,598,855 1,006,702 (23,344) 4,224,336 2,672,281 15,262,185 36,741,015 FUND BALANCES AT END OF YEAR $ 14,987,544 $ 1,101,457 $ 531,057 $ 2,911,101 $ (1,087,512) $ 18,010,182 $ 36,453,829
(1) Extracted from the City's audited financial statements.
57 CITY OF SALEM GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2016 (1) Community City Grant Capital Nonmajor Total Preservation Warf City Improvement Governmental Governmental General Fund Fund Grants Fund Funds Funds REVENUES: Real estate and personal property taxes, net of tax refunds$ 84,741,658 $ 551,920 -$ -$ -$ $ - $ 85,293,578 Tax liens 534,521 - - - - - 534,521 Motor vehicle and other excise taxes 4,057,235 - - - - - 4,057,235 Hotel/motel and meals taxes 1,541,901 - - - - - 1,541,901 Charges for services 1,727,188 - - 10,463 - 315,240 2,052,891 Penalties and interest on taxes 493,211 1,488 - - - 2,785 497,484 Payments in lieu of taxes 1,322,806 - - - - - 1,322,806 Licenses and permits 535,226 - - - - - 535,226 Fines and forfeitures 882,008 - - - - - 882,008 Intergovernmental 41,183,433 155,406 973,553 9,501,134 534,093 12,577,947 64,925,566 Departmental and other 2,989,056 - - 318,535 - 3,898,238 7,205,829 Contributions - - - - - 221,193 221,193 Investment income 458,607 244 - 23 - 448 459,322 TOTAL REVENUES 140,466,850 709,058 973,553 9,830,155 534,093 17,015,851 169,529,560
EXPENDITURES Current: General government 6,779,722 - - 472,725 729,110 191,725 8,173,282 Public safety 19,198,635 - - 1,397,292 923,520 37,465 21,556,912 Education 58,654,848 - - 180,956 554,892 11,657,525 71,048,221 Public works 4,131,090 - 1,063,521 2,653,210 3,293,730 2,710,003 13,851,554 Community development - - - 1,999 - 1,031,602 1,033,601 Health and human services 1,261,064 - - 4,947,846 25,451 132,170 6,366,531 Community preservation - 506,415 - - - - 506,415 Culture and recreation 2,014,308 - - 101,682 165,964 290,683 2,572,637 Pension benefits 20,151,894 - - - - - 20,151,894 Employee benefits 13,529,621 - - - - - 13,529,621 State and county charges 7,061,663 - - - - - 7,061,663 Debt service: - Principal 3,500,000 - - - - - 3,500,000 Interest 1,637,798 - - - 3,061 - 1,640,859 TOTAL EXPENDITURES 137,920,643 506,415 1,063,521 9,755,710 5,695,728 16,051,173 170,993,190 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 2,546,207 202,643 (89,968) 74,445 (5,161,635) 964,678 (1,463,630) OTHER FINANCING SOURCES (USES): Issuance of bonds - - - - 6,475,829 3,997,532 10,473,361 Premium from issuance of bonds 606,548 - - - - - 606,548 Capital lease financing - - - - 1,805,846 - 1,805,846 Transfers in 2,736,607 - - 1,952,531 - 90,430 4,779,568 Transfers out (4,420,647) - - (115,479) - (643,502) (5,179,628) TOTAL OTHER FINANCING SOURCES (USES) (1,077,492) - - 1,837,052 8,281,675 3,444,460 12,485,695 NET CHANGE IN FUND BALANCES 1,468,715 202,643 (89,968) 1,911,497 3,120,040 4,409,138 11,022,065 FUND BALANCES AT BEGINNING OF YEAR 12,130,140 804,059 66,624 2,313,839 (447,759) 10,853,047 25,719,950 FUND BALANCES AT END OF YEAR $ 13,598,855 $ 1,006,702 $ (23,344) $ 4,225,336 $ 2,672,281 $ 15,262,185 $ 36,742,015
(1) Extracted from the City's audited financial statements.
58 CITY OF SALEM GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2015 (1) Community City Grant School Capital Nonmajor Total Preservation Warf Capital Improvement Governmental Governmental General Fund Fund Projects Fund Funds Funds REVENUES: Real estate and personal property taxes, net of tax refunds$ 82,382,558 $ 523,187 $ - $ - $ - $ - $ 82,905,745 Tax liens 638,365 - - - - - 638,365 Motor vehicle and other excise taxes 3,945,343 - - - - - 3,945,343 Hotel/motel and meals taxes 1,362,357 - - - - - 1,362,357 Charges for services 1,997,227 - - - - 14,629 2,011,856 Penalties and interest on taxes 437,538 1,173 - - - 4,733 443,444 Payments in lieu of taxes 1,043,782 - - - - - 1,043,782 Licenses and permits 504,857 - - - - - 504,857 Fines and forfeitures 1,167,426 - - - - - 1,167,426 Intergovernmental 37,231,526 169,707 2,207,009 2,032,967 200,000 17,894,699 59,735,908 Departmental and other 2,622,117 - - - - 2,924,536 5,546,653 Contributions - - - - - 317,814 317,814 Investment income 263,815 228 - - - 290,317 554,360 TOTAL REVENUES 133,596,911 694,295 2,207,009 2,032,967 200,000 21,446,728 160,177,910
EXPENDITURES Current: General government 6,823,887 53,505 - - 1,408,307 1,129,717 9,415,416 Public safety 18,659,469 - - - 360,609 1,097,496 20,117,574 Education 59,430,902 - - 3,191,930 291,031 10,709,642 73,623,505 Public works 6,093,656 - 2,140,385 - 2,557,562 3,896,975 14,688,578 Community development - - - - - 1,800,308 1,800,308 Health and human services 1,242,013 - - - 66,498 5,171,131 6,479,642 Community preservation - 356,518 - - - - 356,518 Culture and recreation 2,028,893 - - - 60,543 556,456 2,645,892 Pension benefits 16,923,249 - - - - - 16,923,249 Employee benefits 13,490,299 - - - - - 13,490,299 State and county charges 6,015,427 - - - - - 6,015,427 Debt service: - Principal 2,900,000 - - - - 35,000 2,935,000 Interest 1,523,616 - - - 34,225 907 1,558,748 TOTAL EXPENDITURES 135,131,411 410,023 2,140,385 3,191,930 4,778,775 24,397,632 170,050,156 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (1,534,500) 284,272 66,624 (1,158,963) (4,578,775) (2,950,904) (9,872,246) OTHER FINANCING SOURCES (USES): Issuance of bonds - - - - 5,980,000 - 5,980,000 Premium from issuance of bonds 700,157 - - - - - 700,157 Capital lease financing - - - - 351,762 - 351,762 Transfers in 2,750,624 - - - - 948,759 3,699,383 Transfers out (2,787,078) - - - (111,098) (791,471) (3,689,647) TOTAL OTHER FINANCING SOURCES (USES) 663,703 - - - 6,220,664 157,288 7,041,655 NET CHANGE IN FUND BALANCES (870,797) 284,272 66,624 (1,158,963) 1,641,889 (2,793,616) (2,830,591) FUND BALANCES AT BEGINNING OF YEAR 13,000,937 519,787 - 604,355 (2,089,648) 16,514,110 28,549,541 FUND BALANCES AT END OF YEAR $ 12,130,140 $ 804,059 $ 66,624 $ (554,608) $ (447,759) $ 13,720,494 $ 25,718,950
(1) Extracted from the City's audited financial statements.
59 CITY OF SALEM, MASSACHUSETTS GOV ERNM ENT A L FUNDS ST A T EM ENT OF REV ENUES, EXPENDIT URES AND CHANGES IN FUND BALANCES JUNE 30, 2014(1)
Community School Capital Nonmajor Total Preservation Capital Improvement Governmental Governmental General Funds Projects Fund Funds Funds REV ENUES Real estate and personal property taxes, net of tax refunds $ 78,974,753 $ 474,601 $ - $ - $ - $ 79,449,354 Tax liens 491,336 - - - - 491,336 Motor vehicle and other excises 3,799,179 - - - - 3,799,179 Hotel/motel and meals tax 1,319,418 - - - - 1,319,418 Charges for services 1,431,771 482 - - 158,346 1,590,599 Penalties and interest on taxes 453,971 - - - 3,505 457,476 Payment in lieu of taxes 1,321,060 - - - - 1,321,060 Licenses and permits 505,129 - - - - 505,129 Fines and forfeitures 1,208,544 - - - - 1,208,544 Intergovernmental 41,105,747 - 5,954,797 - 17,141,029 64,201,573 Departmental and other 447,891 - - - 3,253,046 3,700,937 Contributions - - - - 502,878 502,878 Investment Income 264,168 54 - - 1,113,613 1,377,835 TOTAL REVENUES 131,322,967 475,137 5,954,797 - 22,172,417 159,925,318
EXPENDIT URES Current: General government $ 5,908,450 $ - $ - $ 484,061 $ 377,448 $ 5,908,450 Public safety 19,004,724 - - 285,927 635,824 19,926,475 Education 55,649,134 - 9,956,053 514,862 10,176,104 76,296,153 Public w orks 3,424,419 - - 3,447,438 2,941,031 9,812,888 Community development - - - - 1,629,209 1,629,209 Health and human services 1,323,046 - - - 4,204,575 5,527,621 Community preservation - 5,350 - - - 5,350 Culture and recreation 1,968,386 - - 96,541 650,416 2,715,343 Pension benefits 20,402,625 - - - - 20,402,625 Employee benefits 14,255,543 - - - - 14,255,543 State and county charges 5,776,828 - - - - 5,776,828 Debt Service: - Principal 3,038,598 - - - 35,000 3,073,598 Interest 1,535,847 - - - 922 1,536,769 TOTAL EXPENDITURES 132,287,600 5,350 9,956,053 4,828,829 20,650,529 167,728,361
EXCESS ( DEFICIENCY) OF REV ENUES OV ER EXPENDITURES (964,633) 469,787 (4,001,256) (4,828,829) 1,521,888 (7,803,043)
OTHER FINANCING SOURCES (USES): Issuance of bonds - - 4,890,000 1,790,000 - 6,680,000 Issuance of refunding bonds 2,509,500 - - - - 2,509,500 Premium from issuance of bonds 329,258 - - - - 329,258 Premium from issuance of refunding bonds 468,525 - - - - 468,525 Payments to refunded bond escrow agent (2,688,613) - - - - (2,688,613) Capital lease financing - - - 284,000 - 284,000 Transfers in 4,711,141 50,000 - 200,000 1,757,143 6,718,284 Transfers out (4,087,402) - - - (977,664) (5,065,066) TOTAL OTHER FINANCING SOURCES (USES) 1,242,409 50,000 4,890,000 2,274,000 779,479 9,235,888 NET CHANGE IN FUND BALANCES 277,776 519,787 888,744 (2,554,829) 2,301,367 1,432,845 FUND BALANCES AT BEGINNING OF YEAR 12,723,161 - (284,389) 465,181 14,212,743 27,116,696 FUND BALANCES AT END OF YEAR $ 13,000,937 $ 519,787 $ 604,355 $ (2,089,648) $ 16,514,110 $ 28,549,541 ______(1) Extracted from the City's audited financial statements.
60 CITY OF SALEM, MASSACHUSETTS GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES JUNE 30, 2013(1) School Nonmajor Total Capital Governmental Governmental General Projects Funds Funds REVENUES Real estate and personal property taxes, net of tax refunds $ 77,018,965 $ - $ - $ 77,018,965 Tax liens 352,743 - - 352,743 Motor vehicle and other excises 3,113,058 - - 3,113,058 Hotel/motel and meals tax 1,224,849 - - 1,224,849 Charges for services 1,990,257 - 139,545 2,129,802 Penalties and interest on taxes 396,661 - 2,650 399,311 Payment in lieu of taxes 1,462,692 - - 1,462,692 Licenses and permits 484,184 - - 484,184 Fines and forfeitures 1,230,762 - - 1,230,762 Intergovernmental 57,540,213 22,493,602 19,439,619 99,473,434 Departmental and other 459,515 - 3,957,980 4,417,495 Contributions - - 347,271 347,271 Investment Income 113,370 - 715,604 828,974 TOTAL REVENUES 145,387,269 22,493,602 24,602,669 192,483,540
EXPENDITURES Current: General government $ 6,014,975 $ - $ 1,018,896 $ 7,033,871 Public safety 17,820,345 - 1,783,468 19,603,813 Education 53,767,839 29,282,741 10,498,388 93,548,968 Public works 3,578,976 - 4,626,969 8,205,945 Community development - - 4,603,651 4,603,651 Health and human services 1,210,656 - 4,369,506 5,580,162 Culture and recreation 1,898,562 - 772,361 2,670,923 Pension benefits 19,771,148 - - 19,771,148 Employee benefits 13,326,634 - - 13,326,634 State and county charges 5,141,397 - - 5,141,397 Debt Service: Principal 19,380,915 - 73,085 19,454,000 Interest 1,813,501 - 2,616 1,816,117 TOTAL EXPENDITURES 143,724,948 29,282,741 27,748,940 200,756,629 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 1,662,321 (6,789,139) (3,146,271) (8,273,089) OTHER FINANCING SOURCES (USES): Issuance of bonds and notes - 7,795,160 3,447,500 11,242,660 Premium from issuance of bonds 191,693 - - 191,693 Capital Lease Financing 41,502 - 472,500 514,002 Transfers in 4,399,463 - 943,864 5,343,327 Transfers out (4,107,817) - (647,366) (4,755,183) TOTAL OTHER FINANCING SOURCES (USES) 524,841 7,795,160 4,216,498 12,536,499 NET CHANGE IN FUND BALANCES 2,187,162 1,006,021 1,070,227 4,263,410 FUND BALANCES AT BEGINNING OF YEAR, AS RESTATED 10,535,999 (1,290,410) 13,607,697 22,853,286 FUND BALANCES AT END OF YEAR $ 12,723,161 $ (284,389) $ 14,677,924 $ 27,116,696 ______(1) Extracted from the City's audited financial statements.
61 Unassigned General Fund Balance and Free Cash
Under Massachusetts law an amount known as “free cash” is certified as of the beginning of each fiscal year by the State Bureau of Accounts and this, together with certain subsequent tax receipts, is used as the basis for subsequent appropriations from available funds, which are not required to be included in the annual tax levy. The following table sets forth the trend in unassigned general fund balances and Free Cash as certified by the Bureau of Accounts:
Unassigned Certified General Fund Balance Free Cash For For Fiscal Year Ending Fiscal Year Beginning YearJune 30 (1) July 1 2017$ 14,518,650 $ 4,922,937 2016 12,937,609 5,380,858 2015 11,159,068 4,949,767 2014 11,998,002 3,349,683 2013 11,663,494 5,498,710
______(1) Source: Audited financial statements.
Stabilization Fund
The City has maintained a stabilization fund since fiscal 1986 that is accounted for in the Trust Funds. Funded by annual appropriations, the Stabilization Fund plus interest income may be appropriated at any City Council meeting for any project for which the City can appropriate funds. The following table presents the trend in Stabilization Fund balances:
As of Stabilization June 30 Fund Balance
2017 $6,037,015 2016 5,331,963 2015 5,440,226 2014 5,173,812 2013 3,438,799 ______Source: City Treasurer.
Retirement Stabilization Fund
On February 14, 2008 the City established a second Stabilization Fund for the funding of retirement buyouts for both City and School employees. The City expects that this fund will grow so that if there are any unanticipated retirements the City will be able to fund the unanticipated costs within the fund instead of using the general fund appropriations to fund unanticipated retirement payouts of active employees within the department that has the unanticipated retirement. This will allow departments to backfill vacancies in a timely manner without having to request a supplemental appropriation by the Council to their salary line. The balance of this fund as of June 30, 2017 was $483,705.
62 Investment of City Funds
All funds of the City, except for trust funds and funds of the Salem Retirement System are invested in accordance with Section 55 of Chapter 44 of the Massachusetts General Laws. This statute permits investment of available revenue funds and bond and note proceeds in term deposits and certificates of deposit of banks and trust companies, in obligations issued or unconditionally guaranteed by the federal government or an agency thereof with a maturity of one year or less, in repurchase agreements secured by federal or federal agency securities, with a maturity of 90 days or less, in participation units in the Massachusetts Municipal Depository Trust (“MMDT”), or in shares in SEC-registered money market funds with the highest possible rating from at least one nationally recognized rating organization.
MMDT is an investment pool created by the Commonwealth. The State Treasurer is the sole trustee, and the funds are managed under contract by an investment firm under the supervision of the State Treasurer. According to the State Treasurer the MMDT’s investment policy is designed to maintain an average weighted maturity of 90 days or less and is limited to high- quality, readily marketable fixed income instruments, including U.S. Government obligations and highly-rated corporate securities with maturities of one year or less.
MMDT funds, unless otherwise provided by the donor, may be invested in accordance with Section 54 of Chapter 44 which permits a broader range of investments than Section 55, including any notes or notes that are legal, investments for savings banks in the Commonwealth. The restrictions imposed by Sections 54 and 55 do not apply to city and town retirement systems. A breakdown of City investments may be obtained from the City Treasurer.
Tax Increment Financing for Development Districts
Under recent legislation, cities and towns are authorized to establish development districts to encourage increased residential, industrial and commercial activity. All or a portion of the taxes on growth in assessed value in such districts may be pledged and used solely to finance economic development projects pursuant to the city or town’s development program for the district. This includes pledging such “tax increments” for the payment of bonds issued to finance such projects. As a result of any such pledge, tax increments raised from new growth properties in development districts are not available for other municipal purposes. Tax increments are taken into account in determining the total taxes assessed for the purpose of calculating the maximum permitted tax levy under Proposition 2 ½ (see “Tax Limitations” under “PROPERTY TAXATION” herein.)
The City has not established any development districts.
63 INDEBTEDNESS
General Information on Debt Authorization and Legal Limit
Notes and notes including refunding notes are generally authorized on behalf of the City by vote of two-thirds of all the members of the City Council with the approval of the Mayor. Provision is made for a referendum on the filing of a petition bearing the requisite number of signatures. Borrowings for certain purposes require state administrative approval. When serial bonds or notes have been authorized, bond anticipation notes may be issued by the officers authorized to issue the serial bonds or notes Temporary loans in anticipation of certain state and county reimbursements are generally authorized by majority vote but provision is made for temporary loans in anticipation of current revenues and federal grants and for other purposes in certain circumstances without City Council authorization.
The general debt limit of the City consists of a normal debt limit and a double debt limit. The normal debt limit is 5 percent of the valuation of taxable property as last equalized by the State Department of Revenue. The City can authorize debt up to this amount without State approval. It can authorize debt up to twice this amount (the double debt limit) with the approval of the State’s Municipal Finance Oversight Board. Based on the City's equalized valuation of $4,790,270,400 effective January 1, 2016, its normal debt limit is $239,513,520 and its double debt limit is $479,027,040. (See "Authorized Unissued Debt and Prospective Financing," herein.)
There are many categories of general obligation debt which are exempt from and do not count against the General Debt Limit. Among others, these exempt categories include revenue anticipation notes and grant anticipation notes; emergency loans; loans exempted by special laws; certain school bonds, sewer bonds, bonds for water, gas, electric and telecommunication systems, solid waste disposal facility bonds and economic development bonds supported by tax increment financing; and subject to special debt limits, bonds for housing, urban renewal and economic development (subject to various debt limits). Revenue bonds are not subject to these debt limits. The General Debt Limit and the special debt limit for water bonds apply at the time the debt is authorized. The other special debt limits generally apply at the time the debt is incurred.
The amount borrowed in each fiscal year by the issue of revenue anticipation notes is limited to the tax levy of the prior fiscal year, together with the net receipts in the prior fiscal year from the motor vehicle excise and certain payments made by the Commonwealth in lieu of taxes. The fiscal year ends on June 30. Notes may mature in the following fiscal year, and notes may be refunded into the following fiscal year to the extent of the uncollected, unabated current tax levy and certain other items, including revenue deficits, overlay deficits, final judgments and lawful unappropriated expenditures, which are to be added to the next tax levy, but excluding deficits arising from a failure to collect taxes of earlier years. (See "PROPERTY TAXATION – Taxation to Meet Deficits," herein.) In any event, the period from an original borrowing to its final maturity cannot exceed one year.
Types of Obligations
General Obligations - Massachusetts cities and towns are authorized to issue general obligation indebtedness of the following types:
Serial Bonds and Notes. These are generally required to be payable in annual principal amounts beginning no later than the end of the next fiscal year commencing after the date of issue and ending within the terms permitted by law. A level debt service schedule, or a schedule that provides for a more rapid amortization of principal than level debt service, is permitted. The principal amounts of certain economic development bonds supported by tax increment financing may be payable in equal, diminishing or increasing amounts beginning within 5 years after the date of issue. The maximum terms of serial bonds and notes vary from one year to 40 years, depending on the purpose of the issue. The maximum terms permitted are set forth in the statutes. In addition, for many projects, the maximum term may be determined in accordance with useful life guidelines promulgated by the State Department of Revenue. Serial bonds and notes may be issued for the purposes set forth in the statutes. In addition, serial bonds and notes may be issued for any other public work improvement or asset not specifically listed in the Statutes that has a useful life of at least 5 years. Bonds or notes may be made callable and redeemed prior to their maturity, and a redemption premium may be paid. Refunding bonds or notes may be issued subject to the maximum applicable term measured from the date of the original bonds or notes and must produce present value savings over the debt service of the refunded bonds. Generally, the first required annual payment of principal of the refunding bonds cannot be later than the first principal payment of any of the bonds or notes being refunded thereby, however, principal payments made before the first principal payment of any of the bonds or notes being refunded thereby may be in any amount.
Serial bonds may be issued as “qualified bonds” with the approval of the state Municipal Finance Oversight Board composed of the State Treasurer, the State Auditor, the Attorney General and the Director of Accounts, (“MFOB) subject to such conditions and limitations (including restrictions on future indebtedness) as may be required by the MFOB. Qualified bonds 64 may mature not less than 10 nor more than 30 years from their dates and are not subject to the amortization requirements described above. The State Treasurer is required to pay the debt service on qualified bonds and thereafter to withhold the amount of the debt service paid by the State from state aid or other state payments; administrative costs and any loss of interest income to the State are to be assessed upon the city or town.
Tax Credit Bonds or Notes. Subject to certain provisions and conditions, the officers authorized to issue bonds or notes may designate any duly authorized issue of bonds or notes as “tax credit bonds” to the extent such bonds and notes are otherwise permitted to be issued with federal tax credits or other similar subsidies for all or a portion of the borrowing costs. Tax credit bonds may be made payable without regard to the annual installments required by any other law, and a sinking fund may be established for the payment of such bonds. Any investment that is part of such a sinking fund may mature not later than the date fixed for payment or redemption of the applicable bonds.
Bond Anticipation Notes. These generally must mature within two years of their original dates of issuance but may be refunded from time to time for a period not to exceed ten years from their original dates of issuances, provided that (except for notes issued for certain school projects that have been approved for state school construction aid) for each year that the notes are refunded beyond the second year they must be paid in part from revenue funds in an amount at least equal to the minimum annual payment that would have been required if the bonds had been issued at the end of the second year. The maximum term of bonds issued to refund bond anticipation notes is measured from the date of the original issue of the notes, (except for certain school projects).
Revenue Anticipation Notes. These are issued to meet current expenses in anticipation of taxes and other revenues. They must mature within one year but, if payable in less than one year, may be refunded from time to time up to one year from the original date of issue. (Such notes may be extended beyond fiscal year end in an amount not exceeding current receivables). The City has not borrowed in anticipation of current revenue in the last five fiscal years.
Grant Anticipation Notes. These are issued for temporary financing in anticipation of federal grants and state and county reimbursements. Generally they must mature within two years, but may be refunded from time to time as long as the municipality remains entitled to the grant or reimbursement.
Revenue Bonds - Cities and towns may issue revenue bonds for solid waste disposal facilities and for projects financed under the Commonwealth's Clean Water or Drinking Water Revolving Loan Programs and for certain economic development projects supported by tax increment financing. In addition to general obligation bonds and notes, cities and towns having electric departments may issue electric revenue bonds, and notes in anticipation of such bonds, subject to the approval of the State Department of Telecommunications and Energy.
65 Direct Debt Summary (1) Projected as of June 30, 2018
Long-Term Indebtedness Within the General Debt Limit: School $ 4,892,000 General 19,210,000 Parking Garage 815,000 Golf Course 30,000 Sewer 7,755,000 Total Within the General Debt Limit $ 32,702,000
Outside the General Debt Limit: Schools (2) 19,585,000 Water 15,034,539 General 625,000 Sewer 725,000 Total Outside the General Debt Limit 35,969,539 Bonds dated June 27, 2018 14,900,000 *
Total Long-Term Indebtedness 83,571,539
Short-Term Indebtedness State Aid Anticipation Notes Outstanding (3) 948,500 Bond Anticipation Notes Outstanding (3) 1,663,930 To be retired with Bond proceeds (1,650,212) To be retired with unspent Note proceeds (13,718) To be retired with grant receipts (946,215) New Money State Aid Anticipation Notes to be issued concurrent with the Bonds (4) 600,000
Total Short-Term Indebtedness After These Issues (4) 602,285 Total Current Indebtedness After These Issues $ 84,173,824 ______*Preliminary, subject to change. (1) Principal amount only. Excludes lease and installment purchase obligations, overlapping debt, unfunded pension liability and other post-employment benefit liability. (2) As of June 30, 2018, the unpaid balance of state school construction grants payable over the life of outstanding school debt is approximately $1,465,648. Said grant payments are applicable to both principal and interest. (3) Payable June 28, 2018. (4) To be payable June 28, 2019.
Authorized Unissued Debt
Following delivery of the Bonds, the City will have approximately $34.54 million authorized but unissued debt for various school, water, sewer and miscellaneous capital purposes.
66 Key Debt Ratios
The following table sets forth the ratio of debt to assessed and equalized valuation and per capita debt ratios at the end of the most recent fiscal years. The table considers the principal amount of general obligation bonds of the City of Salem only. The table does not deduct anticipated state grant payments applicable to the principal amount of outstanding bonds or debt that may be supported in whole, or in part, by non-tax revenues. (See "Direct Debt Summary," above).
As of June 30 2017 2016 2015 2014 2013
Amount (1) $75,200,663 $68,818,468 $61,536,000 $57,346,303 $51,040,422 Per Capita Debt (2) $1,819 $1,665 $1,489 $1,387 $1,235 Percent of Assessed Valuation (3) 1.60% 1.57% 1.46% 1.45% 1.30% Percent of Equalized Valuation (4) 1.57% 1.63% 1.45% 1.36% 1.21% Per Capita Debt as a Percent of Per Capita Income (2) 5.88% 5.38% 4.81% 4.48% 3.99%
______(1) Excludes lease and installment purchase obligations, overlapping debt, unfunded pension liability and unfunded post-employment benefits liability. (2) Source: U.S. Department of Commerce, Bureau of the Census - Latest applicable actuals or estimates. (3) Source: Board of Assessors - Assessed valuation as of the prior January 1. (4) Source: Massachusetts Department of Revenue. (Equalized valuation in effect for that fiscal year.)
Coverage of Qualified Debt Service
It is projected that state aid distributions from the Commonwealth to the City will provide ample coverage of qualified debt service throughout the term of bonds issued pursuant to M.G.L. C.44A.
The following table presents qualified debt service, projected state aid and the coverage ratio of total state aid to qualified debt service.
Coverage Ratio Fiscal Qualified Total Total State Aid to Year Debt Service (1) State Aid (2) Qualified Debt Service 2019$ 4,361,744 $ 30,217,266 6.93 2020 4,258,506 30,217,266 7.10 2021 3,247,406 30,217,266 9.31 2022 2,985,306 30,217,266 10.12 2023 2,936,006 30,217,266 10.29 2024 2,694,206 30,217,266 11.22 2025 2,657,459 30,217,266 11.37 2026 2,386,150 30,217,266 12.66 2027 2,107,000 30,217,266 14.34 2028 2,090,053 30,217,266 14.46 2029 1,897,344 30,217,266 15.93 2030 1,713,019 30,217,266 17.64 2031 1,666,619 30,217,266 18.13 2032 1,566,544 30,217,266 19.29 2033 1,517,619 30,217,266 19.91 2034 1,345,219 30,217,266 22.46 2035 731,200 30,217,266 41.33 2036 723,506 30,217,266 41.77 2037 719,344 30,217,266 42.01 2038 723,781 30,217,266 41.75 2039 722,044 30,217,266 41.85 2040 724,116 30,217,266 41.73 2041 715,463 30,217,266 42.23 2042 725,903 30,217,266 41.63 2043 514,153 30,217,266 58.77 Total$ 45,729,711 $ 755,431,650
______(1) Total principal and interest on outstanding qualified debt projected as of June 30, 2018. (2) Includes total state aid available for coverage. State aid is based on the City’s fiscal 2018 Cherry Sheet. The State aid figures above no longer reflect school building assistance grants as such grants are no longer paid by the Commonwealth; they are now paid by the Massachusetts School Building Authority. Therefore, such payments no longer constitute “distributable aid” of the Commonwealth under the Qualified Bond Act. 67 Annual Debt Service Requirements
The following table sets forth the required principal and interest payments on outstanding general obligation bonds of the City of Salem projected as of June 30, 2018:
Fiscal Outstanding (1) This Issue MSBA Net Cumulative % of Year Principal Interest Prinicpal (2) Interest (3) Grants Debt Service Principal Retired
2019 $ 6,434,490 $ 2,452,830 $ 1,095,000 648,150 $ (732,824) $ 9,897,646 9.0 % 2020 6,461,904 2,200,578 1,105,000 621,225 (732,824) 9,655,883 18.1 2021 5,349,367 1,959,941 1,110,000 571,500 - 8,990,808 25.8 2022 4,841,880 1,749,728 1,115,000 521,550 - 8,228,158 32.9 2023 4,859,443 1,549,465 900,000 471,375 - 7,780,283 39.8 2024 4,727,058 1,351,650 510,000 430,875 - 7,019,583 46.1 2025 4,759,726 1,163,635 505,000 407,925 - 6,836,286 52.4 2026 3,977,447 1,002,117 510,000 385,200 - 5,874,764 57.7 2027 3,375,224 872,884 525,000 362,250 - 5,135,358 62.4 2028 3,120,000 761,978 560,000 338,625 - 4,780,603 66.8 2029 2,540,000 664,981 445,000 313,425 - 3,963,406 70.4 2030 2,280,000 581,056 440,000 293,400 - 3,594,456 73.6 2031 2,270,000 501,760 470,000 273,600 - 3,515,360 76.9 2032 2,140,000 426,488 495,000 252,450 - 3,313,938 80.1 2033 2,130,000 355,300 505,000 230,175 - 3,220,475 83.2 2034 2,005,000 285,159 235,000 207,450 - 2,732,609 85.9 2035 1,430,000 228,422 245,000 196,875 - 2,100,297 87.9 2036 1,250,000 186,634 250,000 185,850 - 1,872,484 89.7 2037 995,000 150,644 255,000 174,600 - 1,575,244 91.2 2038 600,000 123,781 265,000 163,125 - 1,151,906 92.2 2039 620,000 102,044 270,000 151,200 - 1,143,244 93.3 2040 645,000 79,116 285,000 139,050 - 1,148,166 94.4 2041 660,000 55,463 300,000 126,225 - 1,141,688 95.6 2042 695,000 30,903 310,000 112,725 - 1,148,628 96.8 2043 505,000 9,153 325,000 98,775 - 937,928 97.8 2044 - - 350,000 84,150 - 434,150 98.2 2045 - - 360,000 68,400 - 428,400 98.6 2046 - - 370,000 52,200 - 422,200 99.1 2047 - - 385,000 35,550 - 420,550 99.5 2048 - - 405,000 18,225 - 423,225 100.0 $ 68,671,539 $ 18,845,710 $ 14,900,000 $ 7,936,125 $ (1,465,648) $ 108,887,726
______(1) Excludes short term debt, lease and installment purchase obligations, overlapping debt, unfunded pension liability and unfunded post-employment benefits liability. (2) Preliminary, subject to change. (3) Interest estimated at 4.50%.
68 Overlapping Debt (1)
The following are the principal entities whose indebtedness is chargeable to the City or payable from taxation of property within the City:
Outstanding Salem’s Bonded Debt Fiscal 2018 as of 6/30/17 Assessment MBTA (2) $5,656,191,000 $ 926,437 South Essex Sewerage District (3) 30,884,110 4,613,320 Essex North Shore Agricultural and Technical School District (4) 30,360,000 2,414,672 ______(1) Dollar assessment is based upon total net operating expenses, inclusive of debt service where applicable. (2) SOURCE: MBTA (“MBTA”). Debt as of June 30, 2017. The MBTA is comprised of cities and towns in the Greater Boston area. The Commonwealth pays approximately 90 percent of the debt service on MBTA bonds. It has also been state practice in recent years to absorb enough of the net cost of service of the MBTA to assure that the total assessments on the cities and towns within the territory of the MBTA will not exceed 102 1/2 percent of the prior year's assessments. The remainder of the net cost of service is assessed on those cities and towns. (3) Source: South Essex Sewerage District (“SESD”) Treasurer’s Office. The City is a member of the SESD, a joint venture with the Cities of Beverly and Peabody and the Towns of Danvers and Marblehead, for the operation of a sewage treatment and disposal facility and related works. The members share in overseeing the operations of the SESD. Each member is responsible for its proportionate share of the operational costs of the SESD. Debt as of June 30, 2017. (4) Source: Treasurer, Essex North Shore Agricultural and Technical School District. Debt as of June 30, 2017; assessment is for fiscal 2017. The operating expenses of regional school districts, including debt service when applicable, are apportioned among the member municipalities in accordance with the agreements establishing the districts, subject to the provisions of the Education Reform Act of 1993.
In addition to the above, the City is a member of the Salem-Beverly Water Board, which is not authorized to issue debt. Improvements and capital projects are financed by debt issuance of the individual city.
Contractual Obligations
Municipal contracts are generally limited to currently available appropriations. A city or town generally has authority to enter into contracts for the exercise of any of its corporate powers for any period of time deemed to serve its best interests, but generally only when funds are available for the first fiscal year; obligations for succeeding fiscal years generally are expressly subject to availability and appropriation of funds. Municipalities have specific authority in relatively few cases to enter long-term contractual obligations that are not subject to annual appropriation, including contracts for refuse disposal and sewage treatment and disposal. Municipalities may also enter into long-term contracts in aid of housing and renewal projects. There is implied authority to make other long-term contracts required to carry out authorized municipal functions, such as contracts to purchase water from private water companies.
Municipal contracts relating to solid waste disposal facilities may contain provisions requiring the delivery of minimum amounts of waste and payments based thereon and requiring payments in certain circumstances without regard to the operational status of the facilities.
Municipal electric departments have statutory power to enter into long-term contracts for joint ownership and operation of generating and transmission facilities and for the purchase or sale of capacity, including contracts requiring payments without regard to the operational status of the facilities.
Pursuant to the Home Rule Amendment to the Massachusetts Constitution, cities and towns may also be empowered to make other contracts and leases.
The City is currently a party in the following significant contracts:
Contract 2018 Term of Expiration 2017 Actual Budgeted Vendor Purpose Contract Date Cost Cost
School Bus NRT Bus, Inc. Transportation 3 Years 6/30/2018$ 442,800 $ 480,880 Solid Waste Collection Waste Management and Transportation 10 Years 6/30/2025$ 1,810,940 $ 1,917,000 69 The City also has three 3-year contracts for various equipment leases. The first 3-year equipment lease is for $351,762 and expires July 12, 2018 and has a principal and interest payment in fiscal 2018 of $124,437. The second 3-year equipment lease is for $360,000 and will expire July 15, 2018. The fiscal 2018 principal and interest payment will be $121,355. The third 3-year equipment lease is for $87,782 and will expire July 1, 2019. The fiscal 2018 principal and interest is $19,543, the lease will expire in July, 2020. In addition, the City has entered into a $1,118,688 7-year equipment lease with TD Bank for LED street light conversion. The lease will expire July 15, 2022 and the fiscal 2018 principal and interest payment is $177,416. ______Source:City Treasurer.
RETIREMENT SYSTEMS
The Massachusetts General Laws provide for the establishment of contributory retirement systems for state employees, for teachers and for county, city and town employees other than teachers. Teachers are assigned to a separate statewide teachers’ system and not to the city and town systems. For all employees other than teachers, this law is subject to acceptance in each city and town. Substantially all employees of an accepting city or town are covered. If a town has a population of less than 10,000 when it accepts the statute, its non-teacher employees participate through the county system and its share of the county cost is proportionate to the aggregate annual rate of regular compensation of its covered employees. In addition to the contributory systems, cities and towns provide non-contributory pensions to a limited number of employees, primarily persons who entered service prior to July 1, 1937 and their dependents. The Public Employee Retirement Administration Commission (“PERAC”) provides oversight and guidance for and regulates all state and local retirement systems.
The obligations of a city or town, whether direct or through a county system, are contractual legal obligations and are required to be included in the annual tax levy. If a city or town, or the county system of which it is a member, has not established a retirement system funding schedule as described below, the city or town is required to provide for the payment of the portion of its current pension obligations which is not otherwise covered by employee contributions and investment income. “Excess earnings,” or earnings on individual employees’ retirement accounts in excess of a predetermined rate, are required to be set aside in a pension reserve fund for future, not current, pension liabilities. Cities and towns may voluntarily appropriate to their system’s pension reserve fund in any given year up to five percent of the preceding year’s tax levy. The aggregate amount in the fund may not exceed ten percent of the equalized valuation of the city or town.
If a city or town, or each member city and town of a county retirement system, has accepted the applicable law, it is required to annually appropriate an amount sufficient to pay not only its current pension obligations, but also a portion of its future pension liability. The portion of each such annual payment allocable to future pension obligations is required to be deposited in the pension reserve fund. The amount of the annual city or town appropriation for each such system is prescribed by a retirement system funding schedule which is periodically reviewed and approved by PERAC. Each system’s retirement funding schedule is designed to reduce the unfunded actuarial pension liability of the system to zero by not later than June 30, 2030, with annual increases in the scheduled payment amounts of not more than 4.5 percent. The funding schedule must provide that payments in any year of the schedule are not less than 95 percent of the amount appropriated in the previous fiscal year. City, town and county systems which have an approved retirement funding schedule receive annual pension funding grants from the Commonwealth for the first 16 years of such funding schedule.
Pursuant to recent legislation, a system (other than the state employee’s retirement system and the teacher’s retirement system) which conduct an actuarial valuation as of January 1, 2009, or later, may establish a revised schedule which reduces the unfunded actuarial liability to zero by not later than June 30, 2040, subject to certain conditions. If the schedule is so extended under such provision and a later updated valuation allows for the development of a revised schedule with reduced payments, the revised schedule shall be adjusted to provide that the appropriation for each year shall not be less than that for such year under the prior schedule, thus providing for a shorter schedule rather than reduced payments.
City, town and county systems may choose to participate in the Pension Reserves Investment Trust Fund (the “PRIT Fund”), which receives additional state funds to offset future pension costs of participating state and local systems. If a local system participates in the PRIT Fund, it must transfer ownership and control of all assets of its system to the Pension Reserves Investment Management Board, which manages the investment and reinvestment of the PRIT Fund. Cities and towns with systems participating in the PRIT Fund continue to be obligated to fund their pension obligations in the manner described above. The additional state appropriations to offset future pension liabilities of state and local systems participating in the PRIT Fund are required to total at least 1.3 percent of state payroll. Such additional state appropriations are deposited in the PRIT Fund and shared by all participating systems in proportion to their interests in the assets of the PRIT Fund as of July 1 for each fiscal year. 70 Cost-of-living increases for each local retirement system may be granted and funded only by the local system, and only if it has established a funding schedule. Those statutory provisions are subject to acceptance by the local retirement board and approval by the local legislative body, which acceptance may not be revoked.
City of Salem Contributory Retirement System
The City contributes to the City of Salem Contributory Retirement System (“SCRS”), a multiple employer, defined benefit pension plan established under Chapter 32 of the General Laws. The Plan is administered by the City and is part of the reporting entity. Substantially all full-time employees of the City participate in SCRS, except teachers and certain administrative employees of the School Department who participate in a contributory retirement plan administered by the Massachusetts Teachers Retirement Board to which the City does not contribute.
As indicated below, as of January 1, 2016 the date of the latest preliminary actuarial valuation, the SCRS funded ratio was 53.32% percent:
Actuarial Accrued Liability $269,283,853 Actuarial Valuation of Assets (143,576,242) Unfunded Actuarial Accrued Liability $125,707,611
The actuarial assumptions in the figures above reflect an investment rate of return of 7.50%.
The amortization of the City’s unfunded pension benefit obligation as of the January 1, 2016 valuation is shown below.
Total Unfunded Amortization Actuarial Fiscal Year Amortization of Remaining Total Plan Accrued Liability Total Plan Ended Employer of ERI Unfunded Cost: at Beginning of Cost % June 30 Normal Cost Liability Liability (2)+(3)+(4) Fiscal Year Increase 2017$ 2,621,983 $ 262,825 $ 9,642,922 $ 12,527,730 $ 130,336,425 4.40 % 2018 2,724,235 273,780 10,174,893 13,172,908 129,462,979 5.15 2019 2,830,449 285,228 10,735,635 13,851,313 127,940,378 5.15 2020 2,940,778 297,191 11,329,687 14,567,655 125,688,478 5.15 2021 3,055,379 309,692 11,949,664 15,314,735 122,619,446 5.15 2022 3,174,418 322,754 12,606,272 16,103,444 118,637,098 5.15 2023 3,298,067 317,033 13,317,671 16,932,771 113,636,177 5.15 2024 3,426,501 331,300 14,047,008 17,804,809 107,501,584 5.15 2025 3,559,906 346,209 14,815,642 18,721,757 100,107,522 5.15 2026 3,698,472 361,789 15,625,666 19,685,927 91,316,597 5.15 2027 3,842,400 378,069 16,479,284 20,699,753 80,978,827 5.15 2028 3,991,893 395,082 17,378,815 21,765,790 68,930,585 5.15 2029 4,147,168 412,861 18,326,699 22,886,728 54,993,440 5.15 2030 4,308,446 431,439 19,325,510 24,065,395 38,972,922 5.15 2031 4,475,958 450,879 20,206,291 25,133,128 20,657,170 4.44 2032 4,649,944 - - 4,649,944 - Notes: -Fiscal 2017 contribution set at a budgeted amount. -Recommended contributions are assumed to be paid July 1. -Item (2) reflects 3.5% growth in payroll as well as a 0.15% adjustment to total normal cost to reflect the effects of mortality improvements due to generational mortality assumption. -Projected normal cost does not reflect the future impact of pension reform for future hires. -Item (3) reflects level dollar amortization of 2010 ERI through fiscal 2022 and increasing (4.50% per year) ______SOURCE: January 1, 2016 Actuarial Valuation of the Salem Contributory Retirement System, The Segal Company.
71 The annual required contributions of the City to the retirement system for the last six fiscal years are as follows:
Fiscal year Contributory
2017 $10,360,727 2016 9,899,531 2015 10,023,491 2014 9,563,173 2013 9,167,161 2012 8,800,867 ______Source: City Auditor.
Under recent legislation, cost of living increases for each local retirement system would be granted and funded only by the local system and only if it has established a funding schedule. These statutory provisions have been accepted by the Retirement Board with the approval of the City Council, which acceptance may not be revoked. The current funding schedule amortizes the unfunded actuarial accrued liability to zero by fiscal 2031.
The foregoing data does not include the retirement system costs or liabilities of any larger entity of which the City is a constituent part and for which it is assessed a share of expenses.
Other Post-Employment Benefits (‘OPEB’)
In addition to pension benefits, cities and towns may provide retired employees with health care and life insurance benefits. The portion of the cost of such benefits paid by cities or towns is generally provided on a pay-as-you-go basis. The pay-as- you-go cost to the City for such benefits in recent years has been as follows:
Fiscal Year Benefit Costs
2018 (budgeted)$ 4,237,974 2017 4,005,485 2016 4,043,432 2015 4,089,600 2014 4,092,845 2013 2,343,544
The Governmental Accounting Standards Board (“GASB”) Statement Nos. 43 and 45, require public sector entities to report the future costs of these non-pension, post-employment benefits in their financial statements. These accounting standards do not require pre-funding the payment of these costs as the liability for such costs accrues, but the basis applied by the standards for measurement of costs and liabilities for these benefits is conservative if they continue to be funded on a pay-as- you-go basis and will result in larger yearly cost and liability accruals than if such benefits were pre-funded in a trust fund in the same manner as traditional pension benefits. Cities and towns that choose to self-insure all or a portion of the cost of the health care benefits they provide to employees and retirees may establish a trust fund for the purpose of paying claims. In addition, cities and towns may establish a trust fund for the purpose of pre-funding other post-employment liability in the same manners traditional pension benefits.
Segal and Company has performed an actuarial valuation of the City’s other post-employment benefit liability. The report, as of December 31, 2013, estimated the unfunded accrued liability at between approximately $72.7 million and $108.8 million (based on a pre-funded basis at an 7.75% interest rate vs. pay-as-you-go basis at a 4.75% interest rate, respectively) and annual required contribution at between approximately $6.6 million and $8.9 million (based on a pre-funded basis at an 7.75% interest rate vs. pay-as-you-go basis at a 4.75% interest rate, respectively).
The City has established an OPEB Trust Fund and the balance in the fund as of June 30, 2017 was $2,050,356.
72 COLLECTIVE BARGAINING
City employees (other than managerial and confidential employees) are entitled to join unions and to bargain collectively on questions of wages, hours and other terms and conditions of employment. The City has approximately 1,233 full-time employees, including those in the School Department. Approximately 90 percent belong to unions or other collective bargaining groups as shown below:
Number of Contract Employee Category Represented by Employees Expires (1) School Teachers Salem Teachers Union 519 8/31/2019 Para Professional Union Para Teachers Union 166 8/31/2019 School Laborers, Clerks and Cafeteria AFSCME Local 294 123 6/30/2018 Fire Fighters International Assoc. of Firefighters 172 87 6/30/2020 Laborers and Clerks AFSCME Local 1818 85 6/30/2017 (non-school) Police Patrolmen Police Patrolmen's Association 77 6/30/2017 Police Superior Officers Police Superior Officers Association 26 6/30/2020 School Administrators School Administrators Union 38 8/31/2019 Total 1,121
______Source: City Auditor. (1) Expired contracts are currently in negotiations.
LITIGATION
At present there are cases pending in various courts throughout the Commonwealth in which the City is a defendant. In the opinion of the City Solicitor, there is no litigation either pending or threatened that is likely to result, either individually or in the aggregate, in final judgments against the City that would materially affect its financial position or its ability to pay its obligations. ______
CITY OF SALEM, MASSACHUSETTS /s/ Kathleen McMahon, City Treasurer
June 7, 2018
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CITY OF SALEM MASSACHUSETTS
COMPREHENSIVE ANNUAL FINANCIAL REPORT
For the Fiscal Year Ended June 30, 2017
Kimberley L. Driscoll, Mayor Sarah A. Stanton, Finance Director
Prepared by the City of Salem Finance Department
On the Cover – Morning Glory Bed and Breakfast – Picture curtesy of Destination Salem
Salem Garden Tour
CITY OF SALEM, MASSACHUSETTS
COMPREHENSIVE ANNUAL FINANCIAL REPORT
For the Year Ended June 30, 2017
Prepared by Finance Department This page intentionally left blank. CITY OF SALEM, MASSACHUSETTS
COMPREHENSIVE ANNUAL FINANCIAL REPORT
JUNE 30, 2017
TABLE OF CONTENTS
Introductory Section ...... A-1 Letter of Transmittal ...... A-3 Organizational Chart ...... A-23 Principal Executive Officers ...... A-24 Certificate of Achievement for Excellence in Financial Reporting ...... A-25 Distinguished Budget Presentation Award ...... A-26 Financial Section ...... A-27 Independent Auditor’s Report ...... A-29 Management’s Discussion and Analysis ...... A-31 Basic Financial Statements ...... A-40 Statement of net position ...... A-41 Statement of activities ...... A-42 Governmental funds – balance sheet ...... A-44 Reconciliation of the governmental funds balance sheet total fund balances to the statement of net position ..... A-45 Governmental funds – statement of revenues, expenditures and changes in fund balances ...... A-46 Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of activities ...... A-47 Proprietary funds – statement of net position ...... A- 48 Proprietary funds – statement of revenues, expenses and changes in net position ...... A-49 Proprietary funds – statement of cash flows ...... A-50 Fiduciary funds – statement of fiduciary net position ...... A-51 Fiduciary funds – statement of changes in fiduciary net position ...... A-52 Notes to basic financial statements ...... A-53 Required Supplementary Information ...... A-96 General fund budgetary comparison schedule ...... A-97 General fund schedule of revenues, expenditures and changes in fund balance – budget and actual ...... A-99 Pension Plan Schedules – Retirement System ...... A- 104 Schedule of changes in the net pension liability and related ratios ...... A-105 Schedule of City’s contributions ...... A-106 Schedule of investment returns ...... A-107 Pension Plan Schedules – City ...... A-108 Schedule of the City’s proportionate share of the net pension liability ...... A-109 Schedule of City contributions ...... A-110 Schedule of the special funding amounts of the net pension liability ...... A-111 Other postemployment benefit plan schedules ...... A-112 Schedule of City’s net OPEB liability and related ratios ...... A-113 Schedule of City contributions ...... A-114 Schedule of investment returns ...... A-115 Schedule of funding progress and employer contributions ...... A-116 Actuarial methods and assumptions ...... A- 117 Notes to required supplementary information ...... A-118 Combining and Individual Fund Statements ...... A-123 Nonmajor governmental funds ...... A-124 Nonmajor governmental funds – combining balance sheet ...... A-125 Nonmajor governmental funds – combining statement of revenues, expenditures, and changes in fund balances ...... A-128 Private purpose trust funds ...... A-131 Private purpose trust funds – combining statement of net position ...... A-132 Private purpose trust funds – combining statement of changes in net position ...... A-133 Agency fund ...... A-134 Agency fund – statement of changes in assets and liabilities ...... A-135 Statistical Section ...... A- 137 Net position by component – last ten years ...... A-138 Changes in net position – last ten years ...... A-139 Fund balances, governmental funds – last ten years ...... A-140 Changes in fund balances, governmental funds – last ten years ...... A-141 Assessed value and actual value of taxable property by classification and tax rates – last ten years ...... A-142 Principal taxpayers – current year and nine years ago ...... A-143 Property tax levies and collections – last ten years ...... A-144 Ratios of outstanding debt by type – last ten years ...... A-145 Ratios of general bonded debt outstanding – last ten years ...... A-146 Direct and overlapping governmental activities debt – as of June 30, 2017 ...... A-147 Computation of legal debt margin – last ten years ...... A-148 Demographic and economic statistics – last ten years ...... A-149 Principal employers (excluding City) – current year and nine years ago...... A-150 Full-time equivalent City employees by function – last ten years ...... A-151 Operating indicators by function/program – last ten years ...... A-152 Capital asset statistics by function/program – last ten years ...... A-153 Free cash and stabilization fund balances – last ten years ...... A-154 Introductory Section
Salem Willows Park
The Salem Willows offers beautiful shaded seaside grounds, scenic ocean views, public pier, and band stand for concerts, picnic areas, beaches, children’s rides, activities and many eateries. One of Salem’s treasurers, this park has a fascinating history.
Salem Willows is renowned for the European white willow trees planted here in 1801 to form a shaded walk for patients convalescing at the old smallpox hospital. Later the area became a park. During the first half of the 20th century, Restaurant Row on the park's north shore served fresh seafood favored by locals and visitors alike. A carousel with carved flying horses was another special attraction at Salem Willows, which then, as now, operated as an entertainment center. Visitors still flock here during the summer to enjoy the sunshine, the arcade and the park's ample picnic grounds and recreational facilities.
Salem Art Scenes This page intentionally left blank. Introductory Section
City of Salem, Massachusetts A-1 Comprehensive Annual Financial Report This page intentionally left blank.
City of Salem, Massachusetts A-2 Comprehensive Annual Financial Report City of Salem, Massachusetts Finance Department 93 Washington Street Salem, MA 01970 Ph. 978.745.9595 Ext 5625 Fax 978.741.3348 [email protected]
December 21, 2017
Letter of Transmittal
Sarah A. Stanton, Finance Director
To the Honorable Mayor, Members of the City Council and Citizens of the City of Salem, Massachusetts:
At the close of each fiscal year, state law requires the City of Salem to publish a complete set of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) that are audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the Comprehensive Annual Financial Report (CAFR) of the City of Salem, Massachusetts, for the fiscal year ending June 30, 2017, for your review.
This report consists of management’s representations concerning the finances of the City. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City’s financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements for the fiscal year ended June 30, 2017, are fairly presented in conformity with GAAP.
The City of Salem’s financial statements have been audited by Powers & Sullivan, LLC, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2017, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City’s financial statements for the fiscal year ended June 30, 2017, are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report.
The independent audit of the financial statements of the City was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: 978-745-9595 EXT. 5626 - FAX: 978-741-3348
A-3 special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City of Salem’s separately issued Single Audit Report.
GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement that analysis and should be read in conjunction with it. The City’s MD&A can be found immediately following the report of the independent auditors.
Profile of the City
The City of Salem, which was incorporated as a town in 1630 and became a city on March 23, 1836, is situated on the Massachusetts coast, 16 miles northeast of Boston. The City has a population of 41,340 and occupies a land area of approximately 8 square miles. The second city in the Commonwealth to be incorporated, it is the Shire City of Essex County. Salem has operated under the Plan B form of government, with a mayor and an eleven-person City Council, seven elected from wards, and four at-large, since 1915.
The Mayor is elected for four years in November of unevenly-numbered years. The Mayor is the administrative head of the City and chairman ex-officio of the School Committee, the Board of Library Trustees, and the Board of Trust Fund Commissioners. The Mayor acts with the City Council and School Committee to carry out City business. The Mayor appoints her office staff, the City Solicitor, and the Assistant City Solicitor without City Council confirmation. The appointments of most City department heads, and members of the various boards and commissions, however, require City Council confirmation. The Mayor has the right to veto any order, resolution, or ordinance passed by the Council. However, a veto may be overturned by a two-thirds vote of all councilors. After reviewing and revising estimates prepared by department heads, the Mayor submits the budget to the City Council for final action. The Mayor approves all municipal payrolls, vouchers, contracts and instruments; and recommends bond issues, legislations and orders to the City Council; and represents the City with other levels of government. As the general administrator of all City departments, the Mayor is consulted by department heads pertaining to the City’s welfare.
The City Council is primarily the legislative branch of the City government. As the legislative body, the Council confirms appointments made by the Mayor and appropriates all monies necessary to City operation. It can approve, disapprove, or reduce the amount of appropriations, but not add to the appropriation. The Council receives orders of recommendation by the Mayor and petitions from the public, and acts on them after committee study. The City Council also has the power to enact the Ordinances and other regulations. A majority of the City Council constitutes a quorum, and the affirmative vote of a majority of all the members of the Council is necessary for the adoption of any motion resolution, or ordinance. In some instances, adoption by a two-thirds vote of the members is required by statute.
The City provides general governmental services for the territory within its boundaries, including police and fire protection, disposal of garbage and rubbish (for residential properties); public education, including vocational- technical education at the high school level; street maintenance; certain water services, through the Salem and Beverly Water Supply Board; certain sewerage disposal services, through the South Essex Sewerage District; and parks and recreational facilities. Approximately 95% of the City is connected to the sewerage system; the entire area of the City is served by the municipal water system. Both the Salem and Beverly Water Supply Board and the South Essex Sewerage District qualify as joint ventures. Accordingly, the City’s equity interest in both entities has been included in the City’s basic financial statements. The Salem Housing Authority is responsible for managing 1,922 units of low income housing for the City. Buildings are either owned by the Authority, or are part of the Section 8 Housing Choice Voucher Program. Of the 1,922 units, 715 are public housing, 211 are designated for families, and 465 are for elderly housing.” These units are owned and operated by the Authority. The Salem Housing Authority does not meet the criteria to be considered a component unit of the City. The
SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: 978-745-9595 EXT. 5626 - FAX: 978-741-3348
A-4 principal highways serving the City are state Routes 1A, 107, and 114, all of which provide immediate access to Routes 1 and 128 and other major highways serving the greater Boston area. The City is a member municipality of the Massachusetts Bay Commuter Railroad, which provides passenger and freight service.
Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without recommendation of the Mayor, the City Council may not increase any item or make an appropriation for a purpose not included in the proposed budget (except by a two-thirds vote in case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the City Council, pursuant to state statute). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect. The amount raised on the tax recapitulation sheet approved by the Department of Revenue for fiscal year 2017 totaled approximately $155 million, which includes Real & Personal Property tax revenue, State Revenues, MSBA Revenue, local revenues, transfers in of approximately $1,140,000 from Receipts Reserved Harbormaster, Witch House and Golf Course (to reduce tax rate), other receipts reserved transfers, and approximately $1.32 million of indirect costs from the Water & Sewer Enterprise funds. These revenues cover general fund budgeted expenses and deficits raised including snow and ice, school lunch, health insurance trust, and to fund the Retirement Anticipation Fund and Capital Improvement Projects Fund. These also include enterprise fund expenses.
The City includes the Salem Contributory Retirement System (the System) in its financial reporting since the City represents approximately 85% of the members of the System. The System was established to provide retirement benefits to its members, including employees and beneficiaries of the City of Salem, the Salem-Beverly Water Supply Board, the Salem Housing Authority, the South Essex Sewerage District, and the Essex Technical High School. Per the Pension Reserves Investment Management Board July 2016 report, the market value of the System’s assets totaled $139 million with 98% of the funds invested in the State’s Pension Reserve Investment Trust’s (PRIT) Core Fund.
Factors Affecting Economic Condition
The City of Salem is a historic waterfront community that has a rich cultural heritage, known worldwide for its architecture, maritime history, literary prominence, and witchcraft hysteria. For this reason, tourism is one of the City’s major industries, accommodating almost one million visitors each year.
Salem originated as one of the earliest landing sites of the English colonists, and went on to rise as the first major port in the United States, opening up the East Indian trade. In its heyday, Salem was known as a thriving hub of American commerce and was the home of Nathaniel Hawthorne. Salem is well known for the infamous Salem Witchcraft Trials of 1692, when nineteen people were convicted for the crime of witchcraft and were put to their deaths.
The City's golden years have left her modern inhabitants with architectural treasures, fine museums, and a sparkling literary heritage. Equally important, the development of Salem has produced a rich ethnic history, to which people of all races, creeds, colors and origins have contributed over the generations. Long a trading, manufacturing and retail center, Salem has been making a slow, and sometimes painful, transition to a service- based economy. The City today serves as the home of Salem State University, the North Shore Medical Center, the Essex County District Superior and Probate Courts, and Registry of Deeds, the world-famous Peabody Essex Museum, and a host of banks and other financial institutions. It is the educational, medical, legal, cultural and banking hub of the North Shore. Salem also boasts an impressive collection of historically significant residential structures that are always in high demand. The uniqueness of these historic homes, coupled with a growing downtown condominium market, has helped boost home sales prices in Salem.
SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: 978-745-9595 EXT. 5626 - FAX: 978-741-3348
A-5 Private and Public Development-FY15-Today The City has numerous facilities of continuing cultural and/or historical significance:
Peabody-Essex Museum: In 2003, the Peabody Essex Museum (“PEM”) undertook the largest museum addition in America. The $125 million expansion allows them to showcase their extensive collection of Oceanic and Asiatic art for the first time. The PEM houses a broad spectrum of artifacts representing centuries of Essex County life and industry, as well as treasures from across the world brought to the region by early navigators. The PEM consists of a downtown campus, four National Historic landmarks and several properties on the National Register of Historic Places, as well as the Yin Yu Tang, the only complete Qing Dynasty house outside China. The PEM enjoys an attendance of approximately 250,000 visitors per year. See the section on Economic Development for overview of PEM’s expansion project.
The Salem Maritime National Historic Site and Derby Wharf Lighthouse: This 9.2 acre site, operated by the National Park Service, (“NPS”) is comprised of several buildings, including the original Customs House, as well as several wharves and homes. The NPS has restored the wharves and buildings. The Friendship, a full size replica of one of Salem's historic trading ships is berthed at the site. This $6 million project was 75 percent federally- funded and has become a major cultural attraction and educational tool. The National Park Service has recently relocated the historic Pedrick’s Warehouse from Marblehead to Derby Wharf and installed a pile supported dock adjacent to the building in order to facilitate interpretive display of historic maritime functions.
The House of the Seven Gables: The House of the Seven Gables was made famous by Nathaniel Hawthorne's novel of the same name. The site is a complex of the actual house occupied by Hawthorne and several adjacent historic structures. The House of Seven Gables received the prestigious designation of "Museum" status in 2008 and has been designated a National Historic Landmark District.
Salem Witch Museum: The Salem Witch Museum commemorates the famous witch trials that occurred in 1692 through an audio visual presentation. Life-size stage settings, lighting and historically accurate narration recreate the afflicted girls, the trials and the executions of the Salem Witch Trials.
The Witch House: The Witch House was the home of one of the famous Witch Trial judges, Jonathan Corwin. The Witch House is operated by the City of Salem and is an excellent example of 17th century architecture. The site recently received interior and exterior improvements for handicapped accessibility and historic preservation.
Witch Dungeon Museum: The Witch Dungeon Museum provides a live re-enactment of the Witch Trials for visitors to the City. The presentation is adapted from the 1692 transcripts and re-enacted by professional actors.
The First Church: The First Church, located on Essex Street, was founded in 1629 and is one of the oldest, continuing Protestant congregations in North America and the first to be governed by congregational polity, a central feature of Unitarian Universalism.
Chestnut Street: Chestnut Street is a National Historic Landmark consisting of a group of homes of notable architectural significance. The homes are primarily old mansions built by Salem's successful sea captains during the early 19th century.
Pickering House: The Pickering House is the oldest house in America to be continuously occupied by the same family.
Pioneer Village: Pioneer Village, situated in Forest River Park, is a living-history Museum that depicts life in Salem in 1630. Guides in historical costumes show visitors how early Puritans lived. The site contains a thatched cottage, historic gardens, wigwams, and animals.
SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: 978-745-9595 EXT. 5626 - FAX: 978-741-3348
A-6 The Old Burying Point: Located on Charter Street, this is the oldest burying ground in Salem. The site contains the graves of a Mayflower passenger and witchcraft trial judge John Hawthorne, and is adjacent to the Salem Witch Trial Memorial. In 2016, the City completed the restoration of several headstones and tombstones developed a landscape plan for the site’s restoration.
Winter Island Park: Operated by the City of Salem, Winter Island is a former U. S. Coast Guard Air and Sea Rescue Station located on Salem Harbor. The site is a seasonal recreation site with RV and tent spaces. The site also has a beach, boat launch, wind surfing, scuba diving, picnic areas and a snack bar. Historic Fort Pickering and Fort Pickering Light are located within the site. Winter Island is now the home of “Sail Salem”, a community sailing program that provides free sailing lessons to Salem children.
Salem Wax Museum of Witches and Seafarers: The Wax Museum, opened in July of 1993, features a multi- media presentation and realistic wax figures depicting pirate and witch stories of Salem's past. The Wax Museum also offers hands-on children's activities.
Salem Witch Trials Memorial: The Salem Witch Trials Memorial was dedicated on August 5, 1992 to commemorate the 300th anniversary of the now famous Salem Witch Trials of 1692. The memorial is located adjacent to the Charter Street Burial Ground. The 20-year old Memorial has now been restored with a rededication ceremony on September 9, 2012.
Heritage Trail: The many cultural and historic facilities in Salem are connected by the Heritage Trail. Known locally as the “Red Line”, it leads to world-renowned museums and historic homes, as well as to restaurants offering simple fare to gourmet meals, full service hotels, inns and bed and breakfasts.
Salem Common: Salem Common has been public land since Salem's early days. Its eight acres were originally a swampy area, with several ponds and small hills. Salem's military heritage begins in 1636, when the first muster occurred on Salem Common. Today, the National Guard traces its roots to that first muster. Needing a place for regular military drills, it was voted in 1714 by the commoners to be "forever kept as a training field for the use of Salem". In 2016, the City completed Phase III of the historic fence’s restoration.
Baker’s Island Lighthouse: The tower is located on the north end of the island. The lighthouse was automated in 1972. The island is closed to the general public and is best seen by boat.
Fort Lee: This American Revolution fort was built in 1776 and was added to the National Register of Historic Places in 1994.
The Phillips House: The Phillips House is the only home on historic Chestnut Street open to the public, and it provides a glimpse into the private world of the Phillips family during the early decades of the twentieth century.
Ye Olde Pepper Candy Companie: This is America’s Oldest Candy Company, dating back to 1806, when an English woman, Mrs. Spencer, was shipwrecked and landed in Salem. Mrs. Spencer was assisted financially by residents, and what resulted was the first candy made and sold commercially in America and carried around the world by sea captains and their crew.
The tourist attractions described above are included to illustrate the continuously growing tourist economy. These attractions provide jobs and tax revenue for the City of Salem.
SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: 978-745-9595 EXT. 5626 - FAX: 978-741-3348
A-7 Public and Non-Profit Development Projects
Salem experienced new growth of approximately $350 million in new development since 2003. This includes:
• The J. Michael Ruane Judicial Center opened at the end of 2011. This $106 million court expansion in downtown Salem continues to have a significant positive economic impact on the downtown and the City. • MBTA Station Improvements and New Garage: The new MBTA garage opened October 2014. The $37 million MBTA commuter rail station and parking garage provides an enhanced station and approximately 700 parking spaces for commuters, residents, and visitors. • Remond Park: Improvements to the old bridge abutment on Bridge Street Neck have been funded by the State to create a new park. Construction is complete. • The Peabody Essex Museum is planning a 40,000 gross square feet expansion. It will include three floors of state-of-the-art galleries, a secondary entrance to the museum and a full basement for mechanical and electrical equipment. Construction began in 2017. • St. Joseph’s Church Redevelopment: Located on the site of the former St. Joseph’s Church that was closed in 2004, this affordable housing development is a key revitalization project for the Point Neighborhood and will provide much-needed housing for the City. Phase 1 of the project is complete and includes a new building with 51 affordable housing units, commercial space, and a community room.
In addition, in 2017 the North Shore Medical Center began redevelopment of a portion of their existing hospital campus in order to better serve the surrounding community by consolidating existing uses, improving access and circulation around the hospital, and constructing a new state-of-the-art emergency services department. As proposed, the Project consists of 119,735 square feet of new building space, 119,734 square feet of interior renovations, parking and driveway reconfigurations, landscape and hardscape improvements, and utility infrastructure modifications to support this use.
Downtown Redevelopment
A number of vacant and underutilized properties have been redeveloped into mixed-use residential/commercial buildings. The downtown alone has seen over $40 million in private investment from projects such as the Laundry Building, The Distillery, Old Police Station Redevelopment, Bluestone Alley, 10 Federal Street, the Salem News Building, Latitudes in the old Tompkins Furniture Building and the Old Salem Jail. New projects continue to be proposed and permitted, as described below.
90 Washington Street: The three-story building will be redeveloped as office space with ground floor retail. The City of Salem has entered into a 20-year lease for the office space to accommodate personnel currently located in other leased premises. Construction began in spring 2017 and is expected to be completed in spring 2018.
District Court Redevelopment: The District Court building will be transferred to the Salem Redevelopment Authority (SRA) in accordance with recent legislation passed by the Legislature for the purpose of redevelopment. The SRA solicited development proposals through a RFP process in 2015 and selected Diamond Sinacori as the designated developer. The SRA and Diamond Sinacori executed a Land Disposition Agreement in January 2017, and the project is in the permitting process.
Washington and Dodge Street Redevelopment: This 160,000-square foot, $50 million project includes a mixed- use development with 64 residential units, proposed hotel with approximately 100 rooms, commercial space, 212 parking spaces, associated landscaping, and pedestrian and transportation improvements. Construction begins in fall 2016. When completed, this project will dramatically increase the footprint of Salem’s downtown. The City
SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: 978-745-9595 EXT. 5626 - FAX: 978-741-3348
A-8 was awarded a state grant in the amount of $3.36 million for infrastructure improvements to support this proposed project
The Merchant: A new Lark Properties hotel opened in 2016 in the historic Joshua Ward House in downtown Salem.
The Hotel Salem: A 44-room boutique hotel is planned for the Newmark Building located on the Essex Street Pedestrian Mall. The project has received approval from the Salem Redevelopment Authority. It will include loft style and micro rooms, a basement lounge with bowling alley, roof deck restaurant, and high-end fixtures and furnishings. It will be a catalyst for further economic development activity on the pedestrian mall.
Old Salem Jail Complex Redevelopment: The first phase was completed in 2010, which includes 23 housing units, a restaurant, and a jail exhibit. Phase 2 includes an additional 13 housing units in a new building for a total project cost of approximately $11 million. Phase 2 began construction in summer 2016.
Salem News Building: This major redevelopment project in Salem’s downtown includes the renovation of two buildings and construction of a new building at 155 Washington Street, 26 New Derby and 31 Front Street. The project retains approximately 6,000 square feet of existing retail use and adds an additional 7,500 square feet of new retail, and includes the construction of 31 new residential units. Construction is complete, and Tavern in the Square restaurant opened in June 2009.
275-281 Essex Street: The development includes the conversion of the four-story, 30,000 square foot former C.F Tompkins Furniture Building into a mixed-use retail/residential development with 3 retail units on the ground floor and 20 residential condos on the upper floors.
Old Police Station Redevelopment: In March 2004, the SRA transferred ownership of the Old Police Station to Heritage Plaza Enterprises and construction was completed in the fall of 2006. All of the units were under agreement months before the project was due to be completed. The $3 million project includes 14 residential condominium units with parking on-site.
Derby Lofts (former Laundry Building): The Derby Lofts project includes the renovation of the 100 year old, four- story industrial building, known as the Laundry Building, into a mixed-use residential and retail development. The project consists of 14,000 square feet of first floor retail and 54 luxury residential units on the upper floors. The project cost approximately $14 million and was completed in 2006.
10 Federal Street: The owners of 10 Federal Street constructed three-stories of additional office space on top of their existing two-story downtown office building. The additional space allowed the District Attorney’s Office to relocate to the space and remain in downtown Salem. The construction began in 2005 and is complete. The project cost was approximately $10 million.
Bluestone Alley: The Blue Stone Alley project at 7 Crombie Street redeveloped the former Salem Mission into 17 artist live/work condominium spaces. The redevelopment was a “gentle renovation” of the building that integrated many of the historic characteristics of the building. Construction was completed in 2006. The project cost was approximately $3.3 million.
Old Town Hall: The City manages this building and programs both non-profit and private events, such as musical performances and weddings, in this historic space. The City received a $20,000 Cultural Facilities grant from the state, which was matched with local CPA and C.I.P. funds for window restoration and repair. The restoration work was completed in early 2016.
SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: 978-745-9595 EXT. 5626 - FAX: 978-741-3348
A-9 North River Canal Corridor Redevelopment
A second area undergoing transformation is the North River Canal Corridor, known as Blubber Hollow, adjacent to downtown. Formerly the region’s whaling and then tannery center, the neighborhood has more than $70 million in pending development. Guided by a community-based plan, the City changed the zoning to encourage development. The pending private investments will transform the largely vacant and contaminated sites into a vibrant mix of residences, offices, and retail uses. Specific projects are:
9 South Mason Street: The project involves redevelopment of industrial and residential land located between Mason Street and Commercial Street in the North River Canal Corridor district. The plans total 4 buildings and 29 dwelling units, including the rehabilitation and expansion of an existing two-story concrete industrial building; expansion of a three-story residential building; and construction of two new townhouse style buildings. The project was permitted in 2016.
28 Goodhue Street: Now known as North River Apartments, this mixed-use project on the site of a former factory was completed in 2014. The development includes 44 residential condominiums, 6,000 square feet of commercial retail space and on-site parking. Construction is complete and the building is occupied.
Riverview Place: Located on the former Salem Suede site, Riverview Place consists of the demolition of the old tannery and construction of 130 residential rental units and 5,540 square feet of commercial space. Local approvals are secured.
Gateway Center: Local permitting was completed in August 2016 for the development of a 3.48-acre parcel located at the corner of Bridge Street and Boston Street to include a mixed-use building with a commercial/retail and 117 housing units and a free-standing building that will house the City’s Community Life Center. Construction of the Community Life Center will begin in the summer of 2017.
Grove Street Apartments (formerly known as Legacy Apartments): This project consists of 129 residential apartments and re-use of an existing 17,000 square foot commercial office building. It was approved by the Planning Board in 2012 and amended in 2015 to meet MEPA requirements. In July 2015, the project received a MEPA certificate and Superseding Order of Condition. Environmental remediation and demolition of some on-site structures was completed.
Flynn Tan Site (70-92 ½ Boston Street): The Planning Board approved a new medical office building with 40,000 square feet in 2014; however, the project has not moved forward. In September 2016, the Planning Board approved a mixed-use development containing 50 housing units and a retail space. The Flynn Tan property is a 1.98-acre site containing vacant industrial buildings and land along Boston Street, a major entrance corridor into Salem and within the new North River Canal Corridor (NRCC) Neighborhood Mixed Use District.
Waterfront Development
Key changes also are rapidly occurring along Salem’s shoreline, creating rare waterfront development opportunities.
289 Derby Street: In 2016, the City Council approved a $1.4 million bond order to acquire property located at 289 Derby St. for the purpose of constructing a downtown waterfront park. Design is underway during summer 2017.
Salem Harbor Power Station/Footprint Power: Demolition of the coal plant is complete and construction of the new natural gas facility is underway. A new state-of-the-art, 630-megawatt gas-fired plant is being constructed and is scheduled to be completed in December 2017. The new plant will be developed on one-third of the site,
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A-10 opening up the remaining two-thirds of the 63-acre waterfront property to re-development opportunities. The new plant will be operational in 2017.
Port of Salem Expansion (Salem Wharf): This $20 million project calls for construction of a multi-purpose commercial wharf facility with supporting utilities and amenities for cruise ships, commercial fishing, transient, and charter vessels. A terminal building, harbor walk, dredging, and landside improvements are part of the project. During the project’s first phase undertaken in 2011, the City completed utility installation, seawall construction, base paving and installation of an interim ferry terminal. In 2012 and 2013 a combination of state and federal Ferry Boat Discretionary (FBD) Funds enabled the City to construct the second phase of the project, which consisted of the first 260 feet of pier, wave fence and a portion of the seawall, install a gangway and ramp system, install utilities and begin dredging. The City has completed Phase 3 which includes final paving, landscaping, lighting and construction of the harbor walk. In addition, the City has made improvements to the adjoining deep-water dock owned by Footprint Power, and constructed a connecting walkway between Footprint’s dock and the City’s Blaney Street pier. Since construction of the cruise port, Salem has received visits from a number of cruise ships. At present, Footprint is utilizing the pier for construction purposes and this limits the number of cruise ships visits. Once the plant is completed, the Port of Salem will be able to host a full schedule of ship visits. This past year, the City completed dredging and construction of an 11-slip Commercial Marina at Blaney St. The Marina began operating this past summer and is home to 7 marine businesses. Construction of the Salem Wharf is close to completion. It implements an important recommendation and goal of the City’s Municipal Harbor Plan by creating a multi-use commercial wharf facility with deep water access for ocean-going vessels. As a result of its construction, the Port of Salem is now a full service commercial and industrial port.
South River Dredge: The maintenance dredging for the South River Channel was last performed by the US Army Corps of Engineers (USACE) in 1967. In Feb 2008, the USACE dredged the Federal Navigation Channel into Salem Harbor, the Federal Anchorage Basin off Derby Wharf, and the approach to the South River Channel but stopped short of the South River Channel because contaminated sediment that exceed the state levels for open ocean disposal were encountered. Since then, the City obtained $155,000 from the Governor’s Seaport Advisory Council for sediment testing, bathometric survey work, cost analysis for dredge disposal options, and preliminary design and engineering of the dredge footprint for the South River Channel and the South River Basin (area west of the Congress Street Bridge). In 2012, the City received an additional $275,000 from the Seaport Council to finish the design, engineering and permitting stage of the dredge project. The City’s consultant, Apex, has prepared a Draft Environmental Impact Report and Notice of Intent. Upon the Army Corps of Engineers’ final determination of the suitability of the CAD cell material for offshore disposal, the City will submit both documents to the appropriate regulatory agencies. Once completed, the dredging will provide direct access to downtown Salem for deeper drafting vessels, transient boats, and dingy boats, which will encourage increased boating activity and support economic development.
Salem Ferry: The Salem to Boston Ferry, currently in its eleventh successful season, is an alternative transportation option connecting two great cities. Named the Nathaniel Bowditch after the founder of modern maritime navigation and Salem’s native son, the ferry is a high-speed catamaran that carries 149 passengers, is entirely ADA accessible and makes the trip from Salem to Boston – where it docks at Long Wharf – in less than 45 minutes. The City of Salem and the Massachusetts Bay Transportation Association (MBTA) have an agreement which allows commuters to purchase a pass that can be used both on the Ferry commuter runs and on the commuter train, strengthening the Ferry’s viability as a transportation choice for daily commuters. The City of Salem is one of only a few municipalities to own a ferry vessel, which it purchased with a grant from the Massachusetts Executive Office of Transportation.
South River Harborwalk: The City secured $1,336,000 from the Governor’s Seaport Advisory Council for construction of the South River Harborwalk. The City has contributed $267,200 of Community Development Block Grant (CDBG) for its required 20% match, totaling $1.6 million. On July 15, 2010 the South River
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A-11 Harborwalk was completed and unveiled to the public. The Harborwalk is a fully accessible public walkway with pedestrian amenities such as benches, lighting and landscaping along the southern and western banks of the South River Basin.
Port Security Grants (Installation of Wireless Surveillance Cameras/Infrastructure): The Governor’s Seaport Advisory Council submitted and obtained a Port Security Grant from the US Homeland Security Department on behalf of the Ports of Salem and Gloucester for $518,320 to begin implementing security features within each Port to address federal mandates. With the help of the Salem Police Department, the City installed fourteen wireless surveillance cameras around critical waterfront infrastructure in August 2010. The City will continue to work to comply with federal Homeland Security mandates as the Port of Salem continues to grow.
McCabe Marina: The City received a $500,000 grant from the State Public Access Board to reconstruct the public boat launch at McCabe Marine. Construction was completed in July 2010.
Public Infrastructure Projects
Canal Street Improvements: The improvements include reconstruction of the roadway pavement, curbing and sidewalks. Wheelchair ramps and appropriate pedestrian crossings will be added to improve pedestrian safety. Additional pedestrian improvement such as street trees and curb extensions will be incorporated. Drainage and other utility improvement will be made, the road crown will be adjusted to provide a consistent cross slope, and repair of settled locations will be done.
Boston and Bridge Public Infrastructure Improvements: The City received a $3.5 million in FY2016 through the State MassWorks Program to fund “Complete Streets” streetscape improvements along Bridge Street, between Boston and Flint Street. Construction is slated to begin in summer of 2017.
Grove Street Improvements: The City received a $1,250,000 grant for improvement to Grove Street to support the proposed housing and mixed use developments in the North River Canal Corridor. The project is complete.
Washington and Dodge Street Public Infrastructure Improvements: The City received a $2.5 million grant through the State MassWorks program to fund infrastructure improvements associated with the proposed 160,000 square foot mixed-use development on Washington and Dodge Streets. Due to increased construction costs, the City was awarded an additional $825,000 for this project. Construction will be completed in the first half of 2017.
Improvement of the Essex Street Pedestrian Mall: The City invested in the redesign and improvement of the pedestrian mall in the heart of downtown. Phase 2 improvements to make the mall more pedestrian friendly and to improve the aesthetics were completed in fall, 2013. Phase 3, which includes the renovation of the fountain at Washington Street, was completed in October 2014.
1A Bridge Street Improvement Project: The major reconstruction of 1A Bridge Street is complete, including roadway reconstruction, new sidewalks and crosswalks, landscaping and period lights.
Lafayette Street Improvements: Funded through a Public Works Economic Development (PWED) grant, construction was completed in the fall of 2012. Improvements include the installation of traffic signals at the Harbor/Lafayette Street intersection and the Lafayette/Washington Street intersection, new sidewalks, new crosswalks and curbing, period lights, new bus shelters and new benches along Lafayette Street. The $1 million grant was matched with approximately $200,000 in CDBG funding.
Salem/Beverly Transportation Project/Bridge Street Bypass Road: The Salem-Beverly Transportation Project is a multi-phase roadway project that provides improved vehicular access between Salem and Beverly. The Bridge
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A-12 Street Bypass Road, a component of this project, was completed in 2008, reducing congestion and providing a multi-use pathway for pedestrians and bicyclists.
North Street Improvement Project: Reconstruction of North Street, including roadway, sidewalk, signalization and period lighting was completed.
Derby/Congress Traffic Lights: This intersection was redesigned to increase pedestrian safety. Installation of traffic lights for pedestrian and vehicle safety and traffic circulation was completed.
Congress/Peabody/Ward Street Intersection: Reconstruction of the intersection was completed in November 2009. The work included the reconfiguration of the entire intersection to provide a more organized roadway for both vehicular and pedestrian safety. The reconfiguration of the intersection was facilitated by the demolition and remediation of the former 61 Ward Street property. These changes have minimized the crossing distance for pedestrians and greatly improved the traffic movement for vehicles entering and exiting the intersection. Pedestrian improvements include striped crosswalks, handicap ramps, and a pocket park that was created as a result of the reconfiguration. The pocket park consists of concrete and stone paver walkways, landscaping beds, trees, and seating areas.
Residential Development
Clark Avenue Cluster Subdivision: The proposed plan for a 26-lot residential subdivision is fully permitted.
Osborne Hills Subdivision (Strongwater Crossing): Currently under construction, Strongwater Crossing Subdivision is a cluster development project that includes the construction of 131 single-family homes on approximately 162 acres of land. Approximately 93 acres of the project will be permanently protected open space. The project represents one of the largest subdivisions built in Salem in recent history. Due to its size, this subdivision is being completed in phases. There is no scheduled date for completion.
Witch Hill: The construction of 23 single family homes along the extension of an existing roadway is underway. There is no scheduled date for completion.
Eaton Place/Former Elks Lodge (17 North Street): With Planning Board Site Plan Approval in December 2009 to add a third and fourth floor, the former assembly hall’s conversion into six residential condominiums was completed with special care to restore the structure’s historic appearance.
50 Palmer Street: This project by the Salem Harbor Community Development Corporation (CDC) included the demolition of the existing structure and the construction of a new three-story residential structure with a footprint of 7,300 square feet. The new structure is complete and consists of 15 units of affordable rental housing for low and moderate income households. This project was funded using a partnership of private and public sources, including funds from the City.
Commercial Development
Salem enjoys a mix of businesses and markets. Markets for Salem businesses include the local population, the large tourist trade of over 1 million visitors, Salem State University, the North Shore Medical Center, and the J. Michael Ruane Judicial Center. Salem State University with its 10,000 students and large employment base generated over $104 million for the City of Salem in direct and indirect spending, which is derived directly from employee salaries and benefits, purchased goods and services, and student spending. The North Shore Medical Center will be expanding its facilities in Salem, and the Probate Court is currently under construction and when complete will represent the completion of the J. Michael Ruane Judicial Center.
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A-13 Large commercial and industrial development, prominent in the Highland Avenue, Swampscott Road and Vinnin Square areas, is strong. Salem’s industrial park on Technology Way houses large companies such as Salem Glass and Thermal Circuits. On Swampscott Road, a 170,000 square foot vacant building was converted to commercial condominiums and is now home to 9 businesses relocating or expanding in Salem. A number of significant national retailers such as Staples, WalMart, Home Depot, Target, Pep Boys and Petsmart are located in these areas. The City also is home to Shetland Park, a 900,000 square foot business park abutting downtown, which houses more than 70 businesses.
Lafayette Street and West Avenue: The project includes the construction of a three-story 24,388 square foot mixed use commercial building with retail on the first floor and offices on the upper floors. An existing two-family home on the site will remain in its current use.
U.S. Biological completed the construction of a new $3 million, 50,000 square foot headquarters building on Technology Way with the plan to have 28 new jobs within five years.
Endicott School (110 Boston Street): The former Endicott School sits on a .53-acre lot along Boston Street, a major entrance-corridor into Salem with direct access to Route 128. After a competitive RFP process, the property was sold for $350,000 to a nonprofit organization, Children’s Friend, who relocated their office from another location in Salem. The City also negotiated a PILOT Agreement with the agency.
Leggs Hill Road YMCA: The project was approved by the Planning Board in 2007; construction of the 88,000 square foot YMCA facility is complete.
319 Highland Avenue: Highland Avenue is the major commercial corridor in Salem with a mix of shopping and dining options. However, this area had long lacked a gas service station. 319 Highland Avenue is the site of the former Moose Lodge. Construction of an Irving Gas Station with a Blue Canoe Convenience Store, North Shore Bank, and a Subway Restaurant was completed in 2007. In coordination with this project, Mass Highway undertook improvements to the Highland Avenue and Swampscott Road Intersection, which included a right turn lane and cueing of the lights. Now MassDOT is undertaking a study for transportation improvements for this corridor in coordination with the Cities of Salem and Lynn.
Other City Initiatives
LED Streetlight Conversion: In 2016, the City completed the conversion of 3,000 overhead streetlights to LED fixtures. This project will result in $194,000 annual cost savings and 1.2 million kilowatt hours in annual energy savings.
Urban Forestry: A tree committee was formed to renew Salem’s dedication to its urban forestry. A pilot neighborhood tree inventory was completed in 2016, and the City received a DCR Urban Forestry Challenge Grant to fund a citywide tree inventory, management plan, and cost estimates for implementation of the management plan in 2017.
Working Cities Challenge: The City successfully implemented a $100,000 grant from the Boston Federal Reserve Bank to improve the quality of life through economic development initiatives in the Point neighborhood. A second grant to further this initiative has been recently awarded.
EPA Brownfields grant: The City with the City of Peabody received a $950,000 federal grant to be utilized for a revolving loan fund to clean up contaminated sites.
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A-14 Universal Steel site: This brownfields site was taken by the City for tax title in 2012. Through a coordinated effort with EPA, DEP, and MassDevelopment, the site has been remediated and paved and was used for temporary parking during the construction of the MBTA garage. The City solicited proposals for redevelopment in order to put the site back on the tax rolls and received a proposal from the adjacent commercial business, F.W. Webb Company, to build a new warehouse and commercial showroom.
North Street Fire Station: The City was awarded a $65,000 Massachusetts Historical Commission MPPF grant in June, 2013 for exterior repairs and restoration to the North Street Fire Station, which are substantially complete.
Public Art: Over the past four years, the City has been working to increase the amount and quality of public art. Partly in response to public demand, this initiative is being pursued to support the City’s identity as an arts and cultural destination. The physical presence of public works of art further supports the City’s efforts to leverage the arts for economic development purposes. A Master Plan for Public Art was completed in 2013; Council adopted an ordinance to establish a Public Art Commission in 2014 and the City’s first full-time public Art Planner was hired in 2014 to spearhead new initiatives. The City currently manages a program to transform utility boxes into works of art. In May 2012, a mural by an internationally renowned artist was installed on the exterior of the downtown parking garage, and in November 2015 another renowned artist turned two crosswalks into works of art in the Point neighborhood, which received an award from the Massachusetts Chapter of the American Planning Association. In addition to these activities, the City supports the annual arts festival which draws thousands of participants into downtown in early June.
City Hall Handicapped Access: Utilizing American Recovery and Reinvestment Act funding, the City was able to move forward with significant handicap accessibility improvements at City Hall. These improvements include a new elevator addition with entrance lobby and restroom upgrades. The elevator was open for use in 2010.
Redevelopment of 5 Broad Street: In March 2010, a reuse feasibility study was completed for a city-owned building located at 5 Broad Street. The building, which currently houses the City’s Council on Aging, was declared as surplus property by the City Council. The City hired consultants to examine the redevelopment potential for this property in preparation for its future sale. Proceeds from the sale of this building will be used to off-set the cost of a new senior center.
Salem Main Streets Program: In July 2007, the City, in collaboration with the Salem Chamber of Commerce and the Salem Partnership, revived the Salem Main Streets program. The program works to support the revitalization of downtown Salem as a vibrant year-round retail, dining and cultural destination through business recruitment, retention, and the promotion of downtown Salem. The program has continued to support business recruitment and retention while adding an annual downtown arts festival and a weekly farmers market.
Salem Affordable Housing Trust Fund: The City adopted an ordinance to create a municipal housing trust fund in October, 2006. Through negotiations with a developer, the Trust Fund received $50,000 and additional funds are expected from negotiated contributions from other large development projects. The Trust held its first meeting in March, 2007 and has developed a set of goals and strategies to increase affordable housing opportunities in Salem. In 2009, the Trust provided $25,000 to HAWC toward construction of a shelter for abused parents and children. The remainder of the funds was provided to the St. Joseph’s redevelopment project for assistance with designated units of affordable housing.
Destination Salem: Salem continues to market sale as a premier, year-round travel destination. The City continues its funding commitment to destination Salem through its annual allocation of hotel/motel tax revenue.
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A-15 Planning
Salem Artists’ Row Framework Plan: Completed in late 2015, this Plan lays out a vision and action steps to enhance this core area of the downtown.
Salem Housing Needs and Demand Analysis: Completed in July 2015 by the Metropolitan Area Planning Council, this analysis identifies the need for an additional 1,900 to 2,725 units of housing by 2030.
Vision and Action Plan for the Point Neighborhood in Salem 2013 – 2020: This Plan outlines a vision to improve the quality of life in the Point neighborhood and an action agenda that the City of Salem and community partners will work together to implement over a seven-year period from 2013 to 2020. This Plan is a product of a year-long grassroots, neighborhood-level visioning process.
Public Art Master Plan: In recognition of the value that public art can bring to the cultural aesthetic and economic vitality of the community, the City completed a master plan for public art in partnership with the Peabody Essex Museum and the Salem Partnership, funded through the National Endowment for the Arts.
Greenlawn Cemetery: The City was awarded a $4,000 Massachusetts Historical Commission Survey and Planning Grant in March 2013 to prepare a National Register of Historic Places nomination form for the Greenlawn Cemetery, and the Cemetery has since been nominated to the National Register.
Salem Downtown Renewal Plan: In January 2012 the Department of Housing and Community Development approved a major plan change to the City’s urban renewal plans, creating a consolidated plan, the “Salem Downtown Renewal Plan”, which updates goals and objective and design guidelines. This new plan will be in effect for thirty years.
Winter Island Master Plan: The City utilized grant funds to undertake a Master Plan for the renovation and redevelopment of Winter Island Park. The City, with its consultant The Cecil Group, conducted a six month public planning process and completed the final report in 2011. The City is now seeking funding to implement the plan’s recommendations. See below for recent state grant award.
Bridge Street Neck Neighborhood Revitalization Plan: This neighborhood master plan for the Bridge Street Neck area was completed in August 2009. The City was awarded technical assistance funds from the regional planning agency, MAPC, to undertake implementation of one of the key recommendations of the plan, creation of a mixed use district.
Salem Harbor Plan Update: The update of the City’s Municipal Harbor Plan, created in 2000, was approved by the EOEEA in 2008. The City worked with a consultant and the Salem Harbor Plan Implementation Committee to update the plan. The Plan outlines a 10 year strategy for port development which guides the future use and character of the Port of Salem.
Parks and Recreation
Proctor’s Ledge Memorial: In July 2017, the City completed the Proctor’s Ledge Memorial at the site where the hangings occurred during the Salem Witch Trials of 1692.
Mary Jane Lee Park Renovation: In June 2017, The City completed the renovation of the park that had begun with the construction of a new splash pad in 2015. The project is supported by CPA funds as well as a $400,000 PARC grant from the Commonwealth.
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A-16 McGlew Park Renovation: The Executive Office of Energy and Environmental Affairs awarded the City a $400,000 Parkland Acquisitions and Renovations for Communities (PARC) grant to renovate McGlew Park. Construction will begin in 2017.
Lafayette Park Renovation: In 2017, the City completed plans for upgrades to Lafayette Park. Construction will begin in 2017.
Winter Island: Salem was awarded a Parks and Conservation Partnership grant in the amount of $192,404 for a scenic multi-use trail on Winter Island bordering Cat Cove. Improvements include interpretive signage, native plantings, installation of site amenities and improvements to the boat launch parking area.
Mary Jane Lee Park Splash Pad: The City was awarded a $200,000 grant from the “Our Common Backyards” program for a splash pad at Mary Jane Lee Park located in our densest neighborhood. The splash pad was completed in time for the 2015 season and was a significant success. The remainder of the park is being improved through four funding sources—$400,000 PARC grant, $100,000 CDBG, $85,075 CPA, and $60,000 CIP. Construction will be completed by June 2017.
Bertram Field: A complete renovation of Bertram Field football stadium and track was completed, including a synthetic turf surface expansion of the track to regulation size and installation of a resilient surface. Cost of the project is $1.9 million and was partially funded with a Massachusetts PARC grant in the amount $400,000.
Salem Common Fence: The City was awarded a $62,000 Massachusetts Historical Commission MPPF Grant in 2014 for the restoration of the Salem Common Fence, continuing the phasing of improvements to this historically significant fence at Salem Common. In addition, the project was awarded $100,000 in local CPA funds, and an additional $113,000 in City funding for a total project budget of $275,000. Construction on this phase of the project was completed and additional funding secured from CPA to continue incremental improvements.
Fort Avenue/Szetela Lane Redevelopment: This City-owned site at the intersection of Fort Avenue and Szetela Lane consists of five parcels containing approximately 2.13 acres. A Phase II and Phase III environmental assessment were completed and the City will be improving the site as a park.
Bicycling Accommodations: The City is proposing to undertake a demonstration project for protected bike lanes on Lafayette Street in accordance with Vision 2020. The City and the Salem Bike Path Committee continue to be committed to extending the Salem Bike Path to downtown Salem via an extension of the former Boston & Maine Railroad ROW at Canal Street, behind Gardner Mattress and all the businesses on Broadway Street, and a portion of the MBTA’s active and abandoned railroad ROW. This extension has been engineered as part of the Canal Street Roadway reconstruction project and the city is seeking to secure funding in order to construct it in the near future.
Open Space & Recreation Plan Update: The City has recently submitted an updated Open Space and Recreation Plan to the State for approval. The Plan establishes long-term goals for the preservation, continued protection and maintenance of open space and recreational areas in the City. Completion of the Plan makes the City eligible to apply for grants through the State PARC program. The City has been successful in the past and has received grants for Peabody Street Park, Furlong Park, Bertram Field, Lead Mills acquisition of open space, and Splaine Park.
Splaine Park: The City was awarded a $420,946 grant from the State through the PARC program to upgrade Splaine Park. Improvements to the park include the construction of a stone dust bike/walking path along the park perimeter, the enhancement of the two main entrances, the construction of play structures, the installation of a
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A-17 new baseball field and irrigation system, and the rebuilding of the bleachers and dugouts. Construction is complete.
Furlong Park: The City received a $500,000 Parkland Acquisition and Renovation for Communities (PARC) Grant from the State Division of Conservation Services for the restoration of Furlong Park. The 5.5 acre park is located along the North River and contains a baseball field, tennis court, playground, and basketball court. As part of the project these features were renovated and additions to the park included construction of a car top boat launch and stabilization of the eroded embankment that borders the North River. Environmental remediation work was funded with a separate state grant. Park renovations are now complete.
Peabody Street Park: In July 2010, construction was completed on a new City park along Peabody Street. Previously an abandoned lot, the City of Salem was awarded a $200,000 EPA Brownfields Cleanup Grant in May 2007 and an Urban Self Help grant in the amount of $469,110 to fund its cleanup and revitalization. The City provided a 20% match.
High Street Playground: In Spring, 2010, the City installed a new play structure and fence in this neighborhood playground, utilizing Community Development Block Grant funds.
Community Preservation Projects
The Community Preservation Act (CPA) was adopted by Salem voters in November, 2012. It established a local dedicated fund for the purpose of undertaking open space, historic preservation, outdoor recreation and community housing projects. It is financed by a voter-approved property tax surcharge along with annual matching funds from the statewide CPA Trust Fund. In FY14 projects totaling $709,623 were recommended by the Community Preservation Committee (CPC) and approved by Council; in FY15 projects totaling $730,975 were recommended by the CPC and approved by Council; in Fy16 projects totaling $824,790. Projects include North Shore CDC housing acquisition assistance, Salem Public Library renovations, Salem Common Fence restoration, Old Town hall window restoration, Choate Statue restoration, Winter Island scenic trail, 15 Ward Street pocket park creation, Community Gardens improvements, Driver and Patten Parks improvements, Harbor and Lafayette Homes, Council Chamber artwork restoration, Greenlawn Cemetery Chapel restoration, Charter Street Burial Ground improvements, House of the & Gables roof project, Hamilton Hall window restoration, Forest River Conservation Area trail assessment, McGlew Park redesign, Mary Jane Lee Park improvements, Camp Naumkeag rehabilitation plan, Bates Elementary School playground construction, Boston Street housing acquisition, Emmerton House preservation, Proctor’s Ledge memorial, Salem Willows pavilions restoration, Forest River bathrooms improvements, Forest River Pool conditions assessment, Ryan Brennan Memorial Skate Park renovation, Mack Park bathrooms improvements, Bentley Academy Charter School playground installation and Collins Cove Playground renovation .
Workforce Statistics
According to the Massachusetts Executive Office of Labor and workforce Development, in July of 2016, the City had a labor force of 24,104, of whom, 23,009 were employed and 1,033, or 4.3%, were unemployed. The Commonwealth, at the same time, had an unemployment rate of 4.0%.
Financial Planning and Forecasting
In fiscal year 2009, the City modified its budget format to improve upon its content and layout. The goal was to have a comprehensive budget that would allow an average person to read and comprehend the budget and budget process of the City. It also was modeled after several budgets that were submitted and approved for the Government Financial Officer’s Association (GFOA) “Distinguished Budget Presentation Award”. The new model
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A-18 included more narrative, including goals and objectives of each department, financial forecasts, policies and glossary of financial terms. It required a significant amount of work for all department heads and especially the finance division, who had to ensure all the materials were pulled together timely for submission to both the City Council and the GFOA. As a result of our efforts, the City has been awarded the GFOA’s “Distinguished Budget Presentation Award” for fiscal years 2009 through 2017.
Included in the budget was the City’s Five Year Financial Forecast. This is the ninth year that such a forecast has been completed. This forecast acts as a useful tool to the Mayor and Council to better identify “budget busters” on the expenditure side and to also determine whether forecasted revenue growth is adequate for future expenses. Also included in the budget was the City’s Five Year Capital Improvement Plan (CIP) for the purpose of planning and maintaining the City’s capital and infrastructure. The CIP includes policies on debt service and capital improvement budgeting.
As part of the fiscal year 2018 CIP, the City has authorized over $8 million in general and enterprise fund capital projects.
Health Insurance
The City continues to explore options to contain the rising cost of health care for City employees/retirees. In fiscal year 2006, the City Council accepted the provisions of Massachusetts General Law (M.G.L.) chapter 32B, section 18, a Massachusetts statute requiring all Medicare-eligible retirees who are currently on self-insured plans to move from self-insured coverage to a fully insured Medicare supplement plan. This provision saved the City approximately $700,000 in fiscal 2007 and continues to realize savings for the City. This is a major cost saving initiative that will insure that all retirees over the age of 65 are treated consistently, while also providing greater control of costs associated with the City’s Healthcare Insurance.
The City has used many different approaches to keep the cost of health insurance affordable as it relates to the overall budget of the City, including the procurement of new health care providers, modifications of existing plans, and collective bargaining to modify the employee/employer apportionment of costs. However, the most significant approach was enacted in FY2012 with the City Council’s adoption of the Municipal Health Care Reform Act (the Act).
As part of the Act, the City was allowed to enter into the State’s Group Insurance Commission (GIC), which resulted in significant short term savings ($1.5 million in FY13), and long term savings for the City. In fact, the City was able to reduce its long term liability, also known as “other postemployment benefits” (OPEB) by $26 million dollars, from $171 million in 2010 to $143 million in 2015, per the City’s OPEB liability report performed by the Segal Company, the City’s contracted actuary.
The savings to the City employees and retirees come from lower premiums, an increase in City’s contribution to PPO plans from 65% to 70%. The City also has agreed to pay all administrative fees for any person who wishes to enroll in a flexible spending account, which allows for pre-tax payments for certain medical costs, prescriptions, and some over the counter medications.
Pension Assessment
During fiscal year 2009, the Salem Contributory Retirement Board moved all available funds into the State’s Public Reserve Investment Trust (PRIT) to take advantage of its higher returns and lower administrative fees. Because of its size, the PRIT can diversify assets for maximum possible return. The Retirement Board shifted these assets voluntarily to the PRIT after a complete analysis and a vote of the Retirement Board.
SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: 978-745-9595 EXT. 5626 - FAX: 978-741-3348
A-19 The City includes the Salem Contributory Retirement System (the System) in its financial reporting since the City represents approximately 82% of the members of the System. The System was established to provide retirement benefits to its members, including employees and beneficiaries of the City of Salem, the Salem-Beverly Water Supply Board, the Salem Housing Authority, the South Essex Sewerage District, and the Essex North Shore Agricultural and Technical High School District. Per the Pension Reserves Investment Management Board July 2016 report, the market value of the System’s assets totaled $139 million, with 98% of the funds invested in the State’s Pension Reserve Investment Trust’s (PRIT) Core Fund.
The Salem Contributory Retirement Board completed its most recent actuarial valuation summary for January 1, 2016. The next actuarial valuation will take place in January 2018. The study was performed by the Segal Company and a preliminary report was delivered to the Retirement Board in July of 2016. The study reported that the actuarial value of the system’s assets, as of January 1, 2016, had increased to $143.6 million, while the system’s unfunded liability increased by $11.5 million to $125.7 million. The Board maintains a funding schedule which will fully amortize the existing unfunded liability by June 30, 2031, with amortization payments that increase 4.5% per year. The total fiscal 2018 City share of 82% amounted to $10,933,812.
Other Significant Financial Matters
The Salem Harbor Power Station is the City’s largest taxpayer. The power plant in August of 2012 changed ownership from Dominion Energy to Footprint Power LLC.
As of September 2016, Footprint Power has nearly completed all demolition of all existing structures and undertaken any necessary environmental remediation. Footprint has begun constructing a state-of-the-art 630 megawatt gas-fired plant on a portion of the site and will open the remaining two-thirds of the 63 –acre waterfront property to private and public development opportunities.
From a revenue perspective, at the end of FY2011, the City’s tax agreement with Dominion expired. Prior to this date, the City received a total payment from Dominion Energy in the amount of $4.75 million for FY2011, $3 million in tax dollars within the tax levy and $1.75 million dollars designated as a “host fee” accounted for as miscellaneous non-recurring revenues.
In FY2011, Dominion announced major operational changes shutting down two of their power generating units due to market conditions and regulatory challenges at the state level. Due to the implementation of state regulations impacting its operations, during the FY2012 budget process, the Massachusetts Legislature adopted a proposal to ensure that Salem taxpayers will not be overly burdened by lost revenues from the power plant through 2019. Chapter 68 of the Acts of 2011, Section 33 states that “…the municipality shall be entitled to reimbursement for the difference between the amount called for….prior to the full or partial decommissioning or the change in operating status of the facility.” This legislation postpones the financial impact of the loss of a major taxpayer. More importantly, it allows the City to work toward replacing the lost revenues and planning for an appropriate reuse of the site.
As of December 2014, the City has negotiated, and the City Council approved, an 18 year PILOT agreement with Footprint Power LLC. This agreement will utilize the “hold harmless agreement” of $4.75 million from the State during construction through 2019, with payments increasing steadily as the plan becomes up and running. A graduated escalation factor will result in the City receiving over $99,242,000 for the duration of the contract, or $5.5 million a year; a 16% increase over the current tax level collected. In addition to the negotiated PILOT agreement, the City was able to draft and finalize a community benefits agreement which will provide the City and School District with over $4.4 million in additional funding.
SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: 978-745-9595 EXT. 5626 - FAX: 978-741-3348
A-20 Financial Policy
The City has set a goal to fund the Stabilization fund in the amount of 5% of the City’s current operating budget, or roughly $7.2 million. As of June 30, 2017, the balance in the City’s Stabilization fund is $6.037 million. The target date to have the Stabilization Fund fully funded is projected to occur by fiscal year 2020. The Stabilization fund shall be funded by appropriations from free cash (available funds), operating budget appropriations when available, and other one-time non-recurring revenues that become available for appropriation per Massachusetts General Law.
In fiscal 2008, the City established a second Stabilization fund (Retirement Stabilization Fund) for the funding of retirement buyouts for both City and School employees. As of June 30, 2017, the balance of this account was $729,000. During the fiscal 2017 budget process, all department heads were asked if they anticipated any retirements and to calculate the estimated cost of each person’s buyout for fiscal 2018. The goal of the Retirement Stabilization Fund is to pay for any unanticipated retirements from this Fund instead of using general fund appropriations. This will allow the departments to backfill vacancies in a timely manner without having to request a supplemental appropriation by the Council.
In fiscal 2011, the City adopted Massachusetts General Law Chapter 32B, Section 20, establishing the “Other Postemployment Benefits (OPEB) Liability Trust Fund” as a local option. This fund gives communities a mechanism to reduce the unfunded actuarial liability of health care and other post-employment benefits. The City currently has $2.18 million in the account. Future appropriations will be made to this fund in accordance to financial policies of the Finance Department of the City.
Free cash is the remaining unrestricted funds from operations of the previous fiscal year including unexpended free cash from the previous year, actual receipts in excess of revenue estimates shown on the tax rate recapitulation sheet, and unspent amounts in budget line-items. Unpaid property taxes and certain deficits reduce the amount that can be certified as free cash. The calculation of free cash is based on the balance sheet as of June 30th, which is submitted by the community's auditor, accountant, or comptroller. Free cash is not available for appropriation until certified by the Massachusetts Director of Accounts. Free cash is the term used for a community’s funds that are available for appropriation. Once free cash is certified, it is available for appropriation by City Council. The balance for free cash has been certified subsequent to year end at $4.9 million.
Free cash may be used for any lawful municipal purpose and provides communities with flexibility to fund additional appropriations after the tax rate has been set. Free cash balances do not carry forward to the next fiscal year (July 1st). The certification expires on June 30th at the end of the fiscal year.
The City’s policy is to use free cash for reserves, capital, and special uses in accordance with the policies set forth by the Mayor and Finance Director. Once free cash is certified by the Director of Accounts, any drawdown of the Stabilization Fund from the prior fiscal year shall be replenished from the certified free cash if the free cash exceeds such drawdown. Once any drawdown of Stabilization funds are replenished, allocation of the remaining free cash shall be as follows;
• 20% of any free cash available after funding a prior year drawdown will also be allocated from free cash to Stabilization Fund up to the goal of stabilization fund equaling 5% of the current operating budget of the City. • 20% of any free cash available after funding a prior year drawdown of Stabilization fund will also be allocated to the Capital Improvement Fund for funding Capital and • 5% of any free cash available after funding any drawdown will be allocated to the OPEB Liability Trust Fund (beginning in FY2012).
SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: 978-745-9595 EXT. 5626 - FAX: 978-741-3348
A-21 Any free cash available after funding the above may be used to augment trust funds related to fringe benefits and unfunded liabilities related to employee benefits, including Workers' Compensation Fund, Unemployment Fund, and any health benefits payable through Police and Fire operating budgets (111f settlements). Free cash available may also be used to augment general fund appropriations for expenses that increased due to extraordinary and/or unforeseen events as detailed by the department head of the affected budget.
Awards and Acknowledgements
The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement of Excellence in Financial Reporting to the City of Salem for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2016. In order to receive this prestigious award, a government had to publish an easily readable and efficiently organized CAFR that satisfied both generally accepted accounting principles and applicable legal requirements.
A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate.
The GFOA also awarded a Distinguished Budget Presentation Award to the City of Salem for its budget document for the fiscal year beginning July 1, 2016. The GFOA established the Distinguished Budget Award in 1984 to encourage and assist state and local governments to prepare budget documents of the very highest quality that reflect both the guidelines established by the National Advisory Council on State and Local Budgeting and the GFOA’s recommended practices on budgeting and then to recognize individual governments that succeed in achieving that goal.
Documents submitted to the Budget Awards Program are reviewed by selected members of the GFOA professional staff and by outside reviewers with experience in public-sector budgeting.
The preparation of both the CAFR and the Distinguished Budget Presentation Award would not have been possible without the efficient and dedicated services of the Finance Department’s staff. We would like to express our appreciation to all the members of the departments who assisted and contributed to the preparation of this report. Credit must also be given to the City Council and Mayor for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Salem’s finances.
Respectfully submitted,
Sarah A. Stanton Finance Director
SALEM CITY HALL - 93 WASHINGTON STREET - SALEM, MA 01970-3592 TELEPHONE: 978-745-9595 EXT. 5626 - FAX: 978-741-3348
A-22 Organizational Chart
City of Salem, Massachusetts A-23 Comprehensive Annual Financial Report Principal Executive Officers
Principal Executive Officers
TITLE NAME FIRST TOOK OFFICE TERM EXPIRES
Mayor Kimberley L. Driscoll 1/2/2006 12/31/2021 President, City Council Elaine Milo 1/1/2016 12/31/2017 Finance Director* Laurie A. Giardella 9/14/2017 1/31/2020 Treasurer Kathleen McMahon 12/27/2010 1/31/2019 Collector Bonnie Celi 3/11/2004 1/31/2018 City Clerk Cheryl LaPointe 7/15/2004 11/9/2018 City Solicitor Elizabeth Rennard 1/10/2006 Indefinite Assistant Finance Director Nina Bridgman 1/22/2004 1/31/2018
The City’s current Finance Director took office subsequent to the fiscal year end.
City of Salem, Massachusetts A-24 Comprehensive Annual Financial Report Certificate of Achievement for Excellence in Financial Reporting
City of Salem, Massachusetts A-25 Comprehensive Annual Financial Report The Government Finance Officers Association of the United States and Canada (GFOA) presented a Distinguished Budget Presentation Award to the City of Salem, Massachusetts for the Annual Budget beginning July 1, 2016. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, as an operational guide, as a financial plan, and as a communication device.
Distinguished Budget Presentation Award
City of Salem, Massachusetts A-26 Comprehensive Annual Financial Report Financial Section
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City of Salem, Massachusetts A-28 Comprehensive Annual Financial Report Independent Auditor’s Report
To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of and for the year ended June 30, 2017 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2016), and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
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, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of June 30, 2017 (except for the Salem Contributory Retirement System which is as of December 31, 2016), and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.
A-29 Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Salem’s basic financial statements. The introductory, combining and individual fund statements and statistical sections are presented for the purpose of additional analysis and are not a required part of the basic financial statements.
The combining and individual fund statements are the responsibility of management and were derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund statements are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated December 21, 2017 on our consideration of the City of Salem, Massachusetts’ internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Salem, Massachusetts’ internal control over financial reporting and compliance.
December 21, 2017
A-30 Management’s Discussion and Analysis Management’s Discussion and Analysis
City of Salem, Massachusetts A-31 Comprehensive Annual Financial Report Management’s Discussion and Analysis
As management of the City of Salem, we offer readers of these financial statements this narrative overview and analysis of the financial activities for the year ended June 30, 2017. We encourage readers to consider the information presented in this report in conjunction with additional information that we have furnished in our letter of transmittal.
The Governmental Accounting Standards Board (GASB) is the authoritative standard setting body that provides guidance on how to prepare financial statements in conformity with generally accepted accounting principles (GAAP). Users of these financial statements (such as investors and rating agencies) rely on the GASB to establish consistent reporting standards for all governments in the United States. This consistent application is the only way users (including citizens, the media, legislators and others) can assess the financial condition of one government compared to others.
Overview of the Financial Statements
This discussion and analysis is intended to serve as an introduction to the City of Salem’s basic financial statements. The basic financial statements consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.
Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of finances, in a manner similar to private-sector business.
The statement of net position presents information on all assets and liabilities, and deferred inflows/outflows of resources, with the difference between them reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position is improving or deteriorating.
The statement of activities presents information showing how the government’s net position changed during the most recent year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future periods (e.g., uncollected taxes and earned but unused vacation leave).
Both of the government-wide financial statements distinguish functions that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities include general government, public safety, education, public works, community development, health and human services, community preservation, culture and recreation and interest. The business-type activities include the activities of water and sewer, the municipal golf course, and trash disposal.
The government-wide financial statements include not only the City of Salem itself (known as the primary government), but also a legally separate public employee retirement system for which the City of Salem is financially accountable. Financial information for this component unit is reported separately within the fiduciary fund statements.
Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Fund accounting is used to ensure and
City of Salem, Massachusetts A-32 Comprehensive Annual Financial Report demonstrate compliance with finance-related legal requirements. All of the funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds.
Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund statements focus on near-term inflows of spendable resources, as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating a government’s near-term financing requirements.
Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.
The City of Salem adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided as required supplementary information to demonstrate compliance with this budget.
Proprietary funds. The City maintains two types of proprietary funds.
Enterprise funds are used to report the same functions presented as business-type activities in the government- wide financial statements. The City uses enterprise funds to account for its water and sewer activities, trash disposal, and for the operation of the municipal golf course.
The internal service fund is used to account for the financing of services provided by one department to other departments or governmental units. The internal service fund is now used to account for funds set aside by the City to help offset health insurance costs of employees that were highly impacted from the switch to the GIC (Group Insurance Commission).
Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds.
The fiduciary fund financial statements provide separate information for the pension and other postemployment benefit (OPEB) trust funds of the City. Private-purpose trust funds and agency funds are reported and combined into a single, aggregate presentation in the fiduciary funds financial statements under the captions “private purpose trust funds” and “agency funds”, respectively.
Notes to the basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements.
Government-wide Financial Analysis
Governmental Activities
As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. The City of Salem’s governmental assets and deferred outflows exceeded liabilities and deferred inflows by $49.8 million at the close of 2017. This represents a decrease of $4.1 million from the prior year.
City of Salem, Massachusetts A-33 Comprehensive Annual Financial Report Net position of $176.3 million reflects the City’s net investment in capital assets (e.g., land, buildings, infrastructure, machinery, and equipment, less any related debt used to acquire those assets that are still outstanding). The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the investment in its capital assets is reported net of its related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.
An additional portion of the governmental net position, $10.1 million, represents resources that are subject to external restrictions on how they may be used. The balance of unrestricted net position has a year-end deficit of $136.6 million. The primary reason for this deficit balance is the recognition of other postemployment benefit liabilities totaling $56.6 million and a net pension liability of $108.0 million, in accordance with recent requirements of Governmental Auditing Standards Board (GASB). The net pension liability was recorded in accordance with GASB Statements #67, #68 and #71. This requires the Salem Contributory Retirement System (System) to obtain a biannual actuarial valuation of the System’s liability to pay pension benefits to retirees and beneficiaries. The City funds a portion of the net pension liability annually as part of the required appropriation to the System. For fiscal year 2017, the City continues to follow GASB Statement #45. Accordingly, to calculate the estimated other postemployment benefit (OPEB) liabilities, the City is required to obtain a biannual actuarial valuation of the City’s liability to pay other postemployment benefits to current employees and retirees. The City is allowed to amortize the unfunded liability, which is currently estimated to be approximately $150.6 million, over 30 years. Since there is no legal obligation to fund the liability at this time, the City has opted to continue to fund the majority of its other postemployment benefits on a pay-as-you go basis. As a result, the City is required to record the difference between the current year pay-as-you go cost and the current year actuarial determined cost plus interest on any prior unfunded liability as an expense in the full accrual financial statements. This difference totaled $7.5 million for governmental activities for 2017. The City has begun the process of pre-funding a portion of the liability by establishing an irrevocable trust which, as of June 30, 2017, has a balance of $2.2 million and is reported within the fiduciary funds in the City’s financial statements.
2017 2016
Assets: Current assets…………………………………………$ 53,195,099 $ 51,804,803 Noncurrent assets (excluding capital)……………… 1,827,647 2,225,911 Capital assets………………………………………… 225,387,645 220,388,173 Total assets……………………………………… 280,410,391 274,418,887
Deferred Outflows of Resources…………………… 14,320,057 7,559,761
Liabilities: Current liabilities (excluding debt)………………… 13,305,526 11,368,650 Noncurrent liabilities (excluding debt)……………… 176,457,284 163,582,171 Current debt…………………………………………… 8,117,443 6,913,357 Noncurrent debt……………………………………… 43,218,056 46,089,814 Total liabilities…………………………………… 241,098,309 227,953,992
Deferred Inflows of Resources……………………… 3,797,960 55,222
Net Position: Net investment in capital assets…………………… 176,335,671 171,154,357 Restricted……………………………………………… 10,103,927 9,234,701 Unrestricted…………………………………………… (136,605,419) (126,419,624)
Total net position……………………………… $ 49,834,179 $ 53,969,434
City of Salem, Massachusetts A-34 Comprehensive Annual Financial Report GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pensions Plans, was implemented this year. This standard added Note disclosures and Required Supplemental Information for the City’s OPEB Trust fund. Its sister standard, GASB Statement No. 75, Accounting and Financial Reporting for Postemployment benefits Other Than Pensions, is required to be implemented in FY2018. This standard will affect the financial statements themselves by requiring the City to record its OPEB assets, liabilities, and deferred financial statement elements for the first time.
Overall governmental net position decreased during 2017 by $4.1 million. Of this decrease, $5.6 million is directly related to the increase in the net pension liability and a $7.5 million increase in the OPEB liability. Operating grants have increased due to a change in on-behalf payments associated with the Massachusetts Teachers’ Retirement System which have been recorded in accordance with new GASB pension standards. The governmental expenses totaled $183 million of which $72.1 million (39%) was directly supported by program revenues consisting of charges for services, operating and capital grants, and contributions. Education expenses increased due to MTRS on-behalf payments increasing by $3.0 million. Public work expenses decreased mainly due to landfill liability estimate changes and transfer station cleanup costs recorded in the prior fiscal year.
2017 2016
Program revenues: Charges for services…………………………………$ 9,640,495 $ 8,485,074 Operating grants and contributions………………… 54,915,403 52,223,253 Capital grants and contributions…………………… 7,576,188 7,213,351 General Revenues: Real estate and personal property taxes………… 90,118,638 84,802,453 Community preservation taxes……………………… 590,722 561,424 Motor vehicle and other excise taxes……………… 4,311,772 4,194,711 Nonrestricted grants………………………………… 7,218,934 6,881,968 Unrestricted investment income…………………… 1,134,074 459,322 Other revenues……………………………………… 3,868,235 4,145,949 Total revenues…………………………………… 179,374,461 168,967,505
Expenses: General government………………………………… 12,327,559 11,788,264 Public safety………………………………………… 32,046,642 29,707,698 Education……………………………………………… 114,049,284 105,955,199 Public works………………………………………… 10,846,604 12,627,503 Community development…………………………… 1,335,941 1,033,601 Health and human services………………………… 6,714,390 6,793,390 Community preservation…………………………… 456,019 80,610 Culture and recreation……………………………… 3,576,595 3,585,339 Interest………………………………………………… 1,646,278 1,313,435 Total expenses………………………………… 182,999,312 172,885,039
Excess (Deficiency) before transfers……………… (3,624,851) (3,917,534)
Transfers………………………………………………… (510,404) (400,060)
Change in net position………………………………… (4,135,255) (4,317,594)
Net position, beginning of year…………..………… 53,969,434 58,287,028
Net position, end of year………………………………$ 49,834,179 $ 53,969,434
City of Salem, Massachusetts A-35 Comprehensive Annual Financial Report Business-type Activities
For the City’s business-type activities, assets and deferred outflows exceeded liabilities and deferred inflows by $13 million at the close of 2017.
2017 2016
Assets: Current assets……………………………………… $ 15,356,724 $ 14,014,842 Capital assets………………………………………… 35,582,439 33,760,168 Total assets……………………………………… 50,939,163 47,775,010
Deferred Outflows of Resources…………………… 372,709 195,596
Liabilities: Current liabilities (excluding debt)………………… 1,770,009 2,142,421 Noncurrent liabilities (excluding debt)……………… 4,499,777 4,306,157 Current debt………………………………………… 3,074,784 2,251,468 Noncurrent debt……………………………………… 28,838,329 27,415,426 Total liabilities…………………………………… 38,182,899 36,115,472
Deferred Inflows of Resources……………………… 99,248 1,443
Net Position: Net investment in capital assets…………………… 8,865,191 8,280,350 Unrestricted…………………………………………… 4,164,534 3,573,341
Total net position……………………………… $ 13,029,725 $ 11,853,691
Business-type net position of $8.9 million (68%) represents net investment in capital assets. The remaining $4.2 million (32%) is available to be used for the ongoing operation of the City’s water, sewer, trash and municipal golf course activities. There was an overall increase of $1.2 million in net position reported in connection with the enterprise funds.
The water and sewer enterprise fund’s net position of $8.3 million (70.4%) represents the net investment in capital assets, while $3.4 million (29.6%) is unrestricted. The water and sewer enterprise experienced a net increase of $1.2 million in net position from the prior year. The fund pays annual assessments to the Salem Beverly Water Supply Board and to the South Essex Sewerage District, which totaled $2.5 million and $4.5 million, respectively. Combined, these assessments represent 64.9% the fund’s operating expenses for 2017. The increase was primarily due to a decrease in assessments for fiscal year 2017.
The unrestricted balance includes the City’s $1.1 million equity interest in the South Essex Sewerage District.
The golf course enterprise fund’s net position of $524,000 represents the net investment in capital assets, while $218,000 is unrestricted. The golf course’s net position decreased by $87,000 primarily due to an increase in the Other Postemployment Benefits liability.
The City’s trash enterprise fund operates on a trash fee that is set with full knowledge that the revenue will not be sufficient to cover the cost of operations. The City budgets for a subsidy from the general fund equal to the estimated cash basis deficit in the fund at year end. At year-end a $2.1 million transfer was made from the
City of Salem, Massachusetts A-36 Comprehensive Annual Financial Report general fund to subsidize for the budgeted deficit. As of June 30, 2017, the trash fund had unrestricted net position totaling $501,000.
2017 2016
Program revenues: Charges for services……………………………… $ 14,923,349 $ 14,687,976
Expenses: Cost of service and administration……………… 5,863,708 5,326,724 District assessment……………………………… 6,553,363 7,858,326 Depreciation………………………………………… 1,144,456 1,054,659 Interest……………………………………………… 696,192 748,250 Total expenses………………………………… 14,257,719 14,987,959
Excess (Deficiency) before transfers…………… 665,630 (299,983)
Transfers……………………………………………… 510,404 400,060
Change in net position……………………………… 1,176,034 100,077
Net position, beginning of year…………………… 11,853,691 11,753,614
Net position, end of year……………………………$ 13,029,725 $ 11,853,691
Financial Analysis of the Government’s Funds
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.
Governmental funds. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the year.
In accordance with generally accepted accounting standards, the City reports the components of fund balance as nonspendable, restricted, committed, assigned and unassigned, based on restrictions on spending. Additionally, the City’s stabilization funds are reported within the general fund as unassigned.
As of the end of the current year, governmental funds reported combined ending fund balances of $36.5 million of which $15.0 million is reported in the general fund, $1.1 million in the community preservation fund, $531,000 is reported in the city wharf project fund, $2.9 million is reported in the city grants fund, a deficit of $1.1 million is reported in the capital improvement fund and $18 million is reported in the nonmajor governmental funds. Cumulatively there was a decrease of $287,000 in fund balances from the prior year.
The general fund is the City’s chief operating fund. At the end of the current year, unassigned fund balance of the general fund totaled $14.5 million, while total fund balance was $15.0 million. The general fund balance increased by $1.4 million in 2017. The increase is the result of positive budgetary results.
The Community Preservation fund had an ending restricted fund balance at June 30, 2017, of $1.1 million. These funds are attributable to the City’s acceptance of the Community Preservation Act, which allows the City to
City of Salem, Massachusetts A-37 Comprehensive Annual Financial Report impose up to a 1% surcharge on property taxes and to receive matching State grant funds for specified uses related to the acquisition, creation, preservation and support of open space, historical resources, land for recreational use and community housing. This is the third year that the City has operated the Community Preservation fund and the second year that the City received a contribution from the state toward the operation of this fund.
The City wharf project fund includes improvements to the City’s harborwalk, docks, walkways, and pier construction. Project expenditures totaled $265K, while state capital grant reimbursements totaled $819,000 during 2017.
The city grants fund is used to account for non-school related activity specifically financed by federal, state, and other grants which are designated for special programs. The ending restricted fund balance at June 30, 2017, was $2.9 million. Total fund balance decreased by $1.3 million in 2017, due to a $3.6 million increase in current year expenditures.
The capital improvement funds are used to account for the projects in the City’s capital improvement plan that specifically relate to City improvements for roads and fields. The fund had a year-end fund balance of deficit of $1.1 million. This fund recognized $665,000 in bond proceeds and $590,000 in capital lease proceeds as funding sources for ongoing projects.
Cumulatively, nonmajor governmental funds had a net increase of $2.7 million. This represents the activity of other nonmajor capital projects, grants, and permanent trust funds. The 2017 increase was almost entirely the result of bond and grant proceeds recognized for school capital projects.
General Fund Budgetary Highlights
The City’s final general fund operating budget included $141.9 million in total current year appropriations to be funded with $135.9 million in estimated receipts and transfers in and approximately $4.9 million in available funds.
The $4.7 million increase between the original budget and the final amended budget was due to several council orders issued throughout the year to appropriate available funds. The most notable components of this increase include an additional $3.3 million in available funds appropriated to fund stabilization reserves, capital improvements, other postemployment benefits trust, pension reserves and various additional appropriations. The actual general fund revenues came in $3.3 million higher than budgeted. The City does not budget revenue for tax liens which totaled $763,000. Additionally, motor vehicle and other excise taxes and charges for services reported budgetary surpluses of $801,000 and $1.0 million, respectively.
The City’s general fund reported expenditures and encumbrances less than appropriations by a net of approximately $1.6 million. The budget was overspent by $852,000 for the removal of snow and ice. This over- expenditure is allowed under state law.
On a budgetary basis, the general fund ended the year with a net increase of $356,000.
Capital Asset and Debt Administration
Capital Assets. The City’s investment in capital assets for its governmental and business-type activities as of June 30, 2017, amounts to $261.0 million (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, buildings and land improvements, equipment, vehicles and infrastructure related to governmental and business-type activities. The City’s total investment in capital assets for the current year totaled $14.2 million for governmental activities and $3.0 million for business-type activities.
City of Salem, Massachusetts A-38 Comprehensive Annual Financial Report Major governmental additions included ongoing upgrades to the Collins and Saltonstall school buildings, roadway improvements and improvements to the City wharf.
Capital improvements for business-type activities were mainly for water infrastructure including water main improvements and infrastructure related to the South River Basin, Forest Street, and Canal Street drainage projects and the Folly Hill water tank project.
Debt Administration. Outstanding long-term debt of the governmental activities, as of June 30, 2017, totaled $48.0 million.
The Commonwealth of Massachusetts is obligated to provide school construction assistance for approved school projects through a grant program administered by the MSBA. The assistance is paid to offset a portion of principal and interest on debt issued to finance approved school construction costs. At June 30, 2017, the City has recorded a receivable from the MSBA totaling $4.4 million, which represents anticipated future reimbursements of approved construction costs on projects completed under this MSBA program.
The City issued $4 million in general obligation bonds during fiscal year 2017, of which $3.3 million related to a debt refunding in 2017, to finance various governmental capital projects. The City also issued bond and state grant anticipation notes totaling $3.4 million.
Outstanding debt of the water and sewer, and golf enterprise funds totaled $31.2 million and $95,000 respectively, and funded various repairs, maintenance and infrastructure projects. This includes new debt issued in 2017 for water and sewer improvements of $4.6 million, of which $1.5 million related to a debt refunding in 2017.
Please refer to notes 4, 6, 7 and 8 in the financial statements for further discussion of the major capital and debt activity.
Requests for Information
This financial report is designed to provide a general overview of the City of Salem’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Finance Director, City Hall, 93 Washington Street, Salem, Massachusetts 01970.
City of Salem, Massachusetts A-39 Comprehensive Annual Financial Report Basic Financial Statements Basic Financial Statements
City of Salem, Massachusetts A-40 Comprehensive Annual Financial Report STATEMENT OF NET POSITION
JUNE 30, 2017
Primary Government
Governmental Business-type Activities Activities Total ASSETS CURRENT: Cash and cash equivalents……………………………… $ 30,318,958 $ 11,211,952 $ 41,530,910 Investments………………………………………………… 11,978,617 - 11,978,617 Receivables, net of allowance for uncollectibles: Real estate and personal property taxes…………… 1,137,134 - 1,137,134 Tax liens………………………………………………… 1,422,126 - 1,422,126 Motor vehicle and other excise taxes………………… 629,528 - 629,528 User fees………………………………………………… - 2,917,814 2,917,814 Trash fees……………………………………………… - 95,151 95,151 Departmental and other……………………………… 156,117 - 156,117 Intergovernmental……………………………………… 7,420,167 - 7,420,167 Loans…………………………………………………… 132,452 - 132,452 Investment in joint venture………………………………… - 1,131,807 1,131,807 Total current assets…………………………………… 53,195,099 15,356,724 68,551,823
NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental……………………………………… 1,389,074 - 1,389,074 Loans.…………………………………………………… 438,573 - 438,573 Capital assets, non depreciable………………………… 9 ,497,004 228,208 9,725,212 Capital assets, net of accumulated depreciation……… 215,890,641 35,354,231 251,244,872 Total noncurrent assets………………………………… 227,215,292 35,582,439 262,797,731
TOTAL ASSETS……………………………………………… 280,410,391 50,939,163 331,349,554
DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding…………………………… 57,388 - 57,388 Deferred outflows of resources related to pensions…… 14,262,669 372,709 14,635,378
TOTAL DEFERRED OUTFLOWS OF RESOURCES…… 14,320,057 372,709 14,692,766
LIABILITIES CURRENT: Warrants payable………………………………………… 1,627,539 897,629 2,525,168 Accrued liabilities………………………………………… 1,530,606 458,217 1,988,823 Accrued payroll…………………………………………… 6,371,640 20,305 6,391,945 Tax refunds payable……………………………………… 146,567 - 146,567 Accrued interest…………………………………………… 377,518 246,254 623,772 Capital lease obligations………………………………… 530,871 121,460 652,331 Landfill closure……………………………………………… 1,125,000 - 1,125,000 Compensated absences………………………………… 1,472,655 26,144 1,498,799 Workers' compensation…………………………………… 123,130 - 123,130 Notes payable……………………………………………… 3,376,430 636,000 4,012,430 Bonds payable……………………………………………… 4,741,013 2,438,784 7,179,797 Total current liabilities………………………………… 21,422,969 4,844,793 26,267,762
NONCURRENT: Capital lease obligations………………………………… 1,719,409 104,956 1,824,365 Landfill closure………………………..…………………… 1,125,000 - 1,125,000 Compensated absences………………………………… 7,607,995 39,620 7,647,615 Other postemployment benefits………………………… 56,605,130 1,531,888 58,137,018 Net pension liability………………………………………… 108,041,285 2,823,313 110,864,598 Workers' compensation…………………………………… 1,358,465 - 1,358,465 Bonds payable……………………………………………… 43,218,056 28,838,329 72,056,385 Total noncurrent liabilities……………………………… 219,675,340 33,338,106 253,013,446
TOTAL LIABILITIES…………………………………………… 241,098,309 38,182,899 279,281,208
DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources related to pensions……… 3,797,960 99,248 3,897,208
NET POSITION Net investment in capital assets…………………………… 176,335,671 8,865,191 185,200,862 Restricted for: Loans……………………………………………………… 571,025 - 571,025 Permanent funds: Expendable……….…………………………………… 4,637,410 - 4,637,410 Nonexpendable………………………………………… 2,206,224 - 2,206,224 Grants and gifts…………………………………………… 2,689,268 - 2,689,268 Unrestricted…………………………………………………… ( 136,605,419) 4,164,534 (132,440,885)
TOTAL NET POSITION……………………………………… $ 49,834,179 $ 13,029,725 $ 62,863,904
See notes to basic financial statements.
City of Salem, Massachusetts A-41 Comprehensive Annual Financial Report STATEMENT OF ACTIVITIES
YEAR ENDED JUNE 30, 2017
Program Revenues
Operating Capital Charges for Grants and Grants and Net (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Primary Government: Governmental Activities: General government……………… $ 12,327,559 $ 3,908,114 $ 498,961 $ 146,594 $ (7,773,890) Public safety……………………… 32,046,642 3,257,068 1,041,359 1,790,799 (25,957,416) Education…………………………… 114,049,284 807,217 46,915,053 1,295,566 (65,031,448) Public works……………………… 10,846,604 191,766 286,569 4,256,527 (6,111,742) Community development………… 1,335,941 133,964 1,289,533 - 87,556 Health and human services……… 6,714,390 130,407 4,577,029 - (2,006,954) Community preservation………… 456,019 - - 86,702 (369,317) Culture and recreation…………… 3,576,595 1,211,959 167,281 - (2,197,355) Interest……………………………… 1,646,278 - 139,618 - (1,506,660)
Total Governmental Activities… 182,999,312 9,640,495 54,915,403 7,576,188 (110,867,226)
Business-Type Activities: Water and Sewer…………………… 10,787,708 13,312,357 - - 2,524,649 Golf Course………………………… 552,606 749,590 - - 196,984 Trash………………………………… 2,917,405 861,402 - - (2,056,003)
Total Business-Type Activities… 14,257,719 14,923,349 - - 665,630
Total Primary Government………$ 197,257,031 $ 24,563,844 $ 54,915,403 $ 7,576,188 $ (110,201,596)
See notes to basic financial statements. (Continued)
City of Salem, Massachusetts A-42 Comprehensive Annual Financial Report STATEMENT OF ACTIVITIES (Continued)
YEAR ENDED JUNE 30, 2017
Primary Government
Governmental Business-Type Activities Activities Total Changes in net position: Net (expense) revenue from previous page…………… $ (110,867,226) $ 665,630 $ (110,201,596) General revenues: Real estate and personal property taxes, net of tax refunds payable………………………… 90,118,638 - 90,118,638 Community preservation taxes……………………… 590,722 - 590,722 Tax liens……………………………………………… 317,548 - 317,548 Motor vehicle and other excise taxes……………… 4,311,772 - 4,311,772 Hotel/motel and meals taxes………………………… 1,683,573 - 1,683,573 Penalties and interest on taxes……………………… 466,092 - 466,092 Payments in lieu of taxes…………………………… 1,082,164 - 1,082,164 Grants and contributions not restricted to specific programs…………………………………… 7,218,934 - 7,218,934 Unrestricted investment income…………………… 1,134,074 - 1,134,074 Miscellaneous………………………………………… 318,858 - 318,858 Transfers, net …………………………………………… (510,404) 510,404 -
Total general revenues and transfers………………… 106,731,971 510,404 107,242,375
Change in net position……………………………… (4,135,255) 1,176,034 (2,959,221)
NET POSITION: Beginning of year……………………………………… 53,969,434 11,853,691 65,823,125
End of year………………………………………………$ 49,834,179 $ 13,029,725 $ 62,863,904
(Concluded)
City of Salem, Massachusetts A-43 Comprehensive Annual Financial Report GOVERNMENTAL FUNDS BALANCE SHEET
JUNE 30, 2017
Community City Wharf Capital Nonmajor Total Preservation Project City Improvement Governmental Governmental General Funds Fund Grants Fund Funds Funds ASSETS Cash and cash equivalents…………………………… $ 16,793,872 $ 1,101,456 $ 531,057 $ 2,812,212 $ 2,071,200 $ 6,945,729 $ 30,255,526 Investments……………………………………………… 5,295,319 - - - - 6,683,298 11,978,617 Receivables, net of uncollectibles: Real estate and personal property taxes………… 1,129,134 8,000 - - - - 1,137,134 Tax liens……………………………………………… 1,422,126 - - - - - 1,422,126 Motor vehicle and other excise taxes……………… 629,528 - - - - - 629,528 Departmental and other…………………………… - - - - - 156,117 156,117 Intergovernmental…………………………………… 2,021,243 88,408 - 1,974,440 - 4,725,150 8,809,241 Loans………………………………………………… - - - 250,000 - 321,025 571,025 Due from other funds…………………………………… - - - - - 57,700 57,700
TOTAL ASSETS…………………………………………$ 27,291,222 $ 1,197,864 $ 531,057 $ 5,036,652 $ 2,071,200 $ 18,889,019 $ 55,017,014
LIABILITIES Warrants payable……………………………………$-$ - $ - $ 896,755 $ 730,782 $ 2 $ 1,627,539 Accrued liabilities…………………………………… 1,530,606 - - - - - 1,530,606 Accrued payroll……………………………………… 6,089,004 - - 30,296 - 252,340 6,371,640 Tax refunds payable………………………………… 146,567 - - - - - 146,567 Due to other funds…………………………………… - - - - - 57,700 57,700 Notes payable………………………………………… - - - 948,500 2,427,930 - 3,376,430
TOTAL LIABILITIES…………………………………… 7,766,177 - - 1,875,551 3,158,712 310,042 13,110,482
DEFERRED INFLOWS OF RESOURCES Unavailable revenue………………………………… 4,537,501 96,407 - 250,000 - 568,795 5,452,703
FUND BALANCES Nonspendable……………………………………… - - - - - 2,206,224 2,206,224 Restricted…………………………………………… - 1,101,457 531,057 2,911,101 - 15,845,058 20,388,673 Assigned……………………………………………… 468,894 - - - - - 468,894 Unassigned…………………………………………… 14,518,650 - - - (1,087,512) (41,100) 13,390,038
TOTAL FUND BALANCES…………………………… 14,987,544 1,101,457 531,057 2,911,101 (1,087,512) 18,010,182 36,453,829
TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES………… $ 27,291,222 $ 1,197,864 $ 531,057 $ 5,036,652 $ 2,071,200 $ 18,889,019 $ 55,017,014
See notes to basic financial statements.
City of Salem, Massachusetts A-44 Comprehensive Annual Financial Report RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET POSITION
JUNE 30, 2017
Total governmental fund balances……………………………………………………………………… $ 36,453,829
Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the funds…………………………………………………… 225,387,645
Accounts receivable are not available to pay for current-period expenditures and, therefore, are deferred in the funds………………………………………… 5,452,703
Certain changes in the net pension liability are required to be included in pension expense over future periods. These changes are reported as deferred outflows of resources or (deferred inflows of resources) related to pensions…………………………… 10,464,709
Internal service funds are used by management to account for health insurance activities.
The assets and liabilities of the internal service funds are included in the governmental activities in the statement of net position……………………………… 63,432
In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until due……………………………… (377,518)
Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds
Bonds payable…………………………………………………………………………………… (47,959,069) Deferred charge on refunding…………………………………………………………………… 57,388 Landfill closure…………………………………………………………………………………… (2,250,000) Workers' compensation………………………………………………………………………… (1,481,595) Capital leases…………………………………………………………………………………… (2,250,280) Compensated absences………………………………………………………………………… (9,080,650) Other postemployment benefits………………………………………………………………… (56,605,130) Net pension liability……………………………………………………………………………… (108,041,285)
Net effect of reporting long-term liabilities……………………………………………… (227,610,621)
Net position of governmental activities………………………………………………………………… $ 49,834,179
See notes to basic financial statements.
City of Salem, Massachusetts A-45 Comprehensive Annual Financial Report GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
YEAR ENDED JUNE 30, 2017
Community City Grant Capital Nonmajor Total Preservation Wharf Improvement Governmental Governmental General Funds Fund City Grants Fund Funds Funds REVENUES: Real estate and personal property taxes, net of tax refunds…………………………………………$ 90,142,571 $ 582,723 $ - $ - $ - $ - $ 90,725,294 Tax liens……………………………………………………… 763,080 - - - - - 763,080 Motor vehicle and other excise taxes……………………… 4,300,898 - - - - - 4,300,898 Hotel/motel and meals taxes……………………………… 1,683,573 - - - - - 1,683,573 Charges for services………………………………………… 2,777,857 - - 8,687 - 6,960 2,793,504 Penalties and interest on taxes…………………………… 460,601 1,385 - - - 4,106 466,092 Payments in lieu of taxes…………………………………… 1,082,164 - - - - - 1,082,164 Licenses and permits……………………………………… 509,915 - - - - - 509,915 Fines and forfeitures………………………………………… 823,329 - - - - - 823,329 Intergovernmental…………………………………………… 44,878,077 114,479 819,438 10,359,290 490,000 12,813,312 69,474,596 Departmental and other…………………………………… 3,302,414 - - 242,969 80,000 2,946,795 6,572,178 Contributions………………………………………………… - - - - - 228,567 228,567 Investment income………………………………………… 295,907 487 - 16 - 837,664 1,134,074
TOTAL REVENUES…………………………………… 151,020,386 699,074 819,438 10,610,962 570,000 16,837,404 180,557,264
EXPENDITURES: Current: General government……………………………………… 7,765,468 - - 838,930 2,212,817 242,635 11,059,850 Public safety……………………………………………… 20,092,249 - - 2,389,955 1,116,982 64,628 23,663,814 Education………………………………………………… 58,499,630 - - 608,137 243,186 12,606,059 71,957,012 Public works……………………………………………… 4,850,394 - 265,037 5,130,200 1,897,457 1,801,094 13,944,182 Community development………………………………… - - - 80,000 - 1,255,941 1,335,941 Health and human services……………………………… 1,371,737 - - 4,249,124 - 216,264 5,837,125 Community preservation………………………………… - 604,319 - - - - 604,319 Culture and recreation…………………………………… 2,056,471 - - 97,128 90,543 273,895 2,518,037 Pension benefits………………………………………… 23,610,047 - - - - - 23,610,047 Employee benefits………………………………………… 14,108,736 - - - - - 14,108,736 State and county charges………………………………… 7,946,729 - - - - - 7,946,729 Debt service: Principal…………………………………………………… 3,728,127 - - - 24,234 - 3,752,361 Interest…………………………………………………… 1,810,439 - - - - - 1,810,439
TOTAL EXPENDITURES……………………………… 145,840,027 604,319 265,037 13,393,474 5,585,219 16,460,516 182,148,592
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………… 5,180,359 94,755 554,401 (2,782,512) (5,015,219) 376,888 (1,591,328)
OTHER FINANCING SOURCES (USES): Issuance of bonds…………………………………………… - - - - 665,000 - 665,000 Issuance of refunding bonds……………………………… 3,312,000 - - - - - 3,312,000 Premium from issuance of bonds………………………… 7,229 - - - - 510,389 517,618 Premium from issuance of refunding bonds……………… 464,866 - - - - - 464,866 Payments to refunded bond escrow agent……………… (3,735,364) - - - - - (3,735,364) Capital lease financing……………………………………… - - - - 590,426 - 590,426 Transfers in…………………………………………………… 2,687,231 - - 1,648,085 - 2,926,246 7,261,562 Transfers out………………………………………………… (6,527,632) - - (178,808) - (1,065,526) (7,771,966)
TOTAL OTHER FINANCING SOURCES (USES)… (3,791,670) - - 1,469,277 1,255,426 2,371,109 1,304,142
NET CHANGE IN FUND BALANCES……………………… 1,388,689 94,755 554,401 (1,313,235) (3,759,793) 2,747,997 (287,186)
FUND BALANCES AT BEGINNING OF YEAR…………… 13,598,855 1,006,702 (23,344) 4,224,336 2,672,281 15,262,185 36,741,015
FUND BALANCES AT END OF YEAR………………………$ 14,987,544 $ 1,101,457 $ 531,057 $ 2,911,101 $ (1,087,512) $ 18,010,182 $ 36,453,829
See notes to basic financial statements.
City of Salem, Massachusetts A-46 Comprehensive Annual Financial Report RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES
YEAR ENDED JUNE 30, 2017
Net change in fund balances - total governmental funds…………………………………………………… $ (287,186)
Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense.
Capital outlay…………………………………………………………………………………………… 14,234,566 Depreciation expense………………………………………………………………………………… (9 ,235,094)
Net effect of reporting capital assets………………………………………………………… 4,999,472
Revenues in the Statement of Activities that do not provide current financial resources are fully deferred in the Statement of Revenues, Expenditures and Changes in Fund Balances. Therefore, the recognition of revenue for various types of accounts receivable (i.e., real estate and personal property, motor vehicle excise, etc.) differ between the two statements. This amount represents the net change in deferred revenue……………………………………………………………………… (1,182,803)
The issuance of long-term debt (e.g., bonds and leases) provides current financial resources to governmental funds, while the repayment of the principal of long- term debt consumes the financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities.
Capital lease principal payments……………………………………………………………………… 551,370 Capital lease issuance………………………………………………………………………………… (590,426) Issuance of refunding debt……………………..……………………………………………………… (3,312,000) Premium from issuance of bonds payable…………………………………………………………… (517,618) Premium from issuance of refunding bonds payable……………………………………………… (464,866) Payment to Refunded bond escrow agent…………………………………………………………… 3,735,364 Amortization of deferred charge on refunding……………………………………………………… (17,397) Issuance of bonds……………………………………………………………………………………… (665,000) Refunding bond issue costs…………………………………………………………………………… (125,364) Amortization of premium on debt……………………………………………………………………… 373,325 Debt service principal payments……………………………………………………………………… 3,752,361
Net effect of reporting long-term debt………………………………………………………… 2,719,749
Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds.
Net change in compensated absences accrual…………………………………………………… ( 137,502) Net change in workers' compensation……………………………………………………………… (59,900) Net change in accrued interest on long-term debt………………………………………………… (42,487) Net change in other postemployment benefits……………………………………………………… (7,470,971) Net change in deferred outflow/(inflow) of resources related to pensions……………………… 3,034,955 Net change in net pension liability…………………………………………………………………… (5,678,521)
Net effect of recording long-term liabilities and amortizing deferred losses……………… (10,354,426)
Internal service funds are used by management to account for health insurance activities.
The net activity of internal service funds is reported with Governmental Activities……………… (30,061)
Change in net position of governmental activities……………………………………………………………… $ (4,135,255)
See notes to basic financial statements.
City of Salem, Massachusetts A-47 Comprehensive Annual Financial Report PROPRIETARY FUNDS STATEMENT OF NET POSITION
JUNE 30, 2017
Business-type Activities - Enterprise Funds
Governmental Activities - Water and Golf Internal Service Sewer Course Trash Total Funds ASSETS CURRENT: Cash and cash equivalents…………………………………$ 9,911,280 $ 500,259 $ 800,413 $ 11,211,952 $ 63,432 Receivables, net of allowance for uncollectibles: User fees…………………………………………………… 2,917,814 - - 2,917,814 - Trash fees………………………………………………… - - 95,151 95,151 - Investment in joint venture………………………………… 1,131,807 - - 1,131,807 -
Total current assets…………………………………… 13,960,901 500,259 895,564 15,356,724 63,432
NONCURRENT: Capital assets, non depreciable…………………………… 110,141 118,067 - 228,208 - Capital assets, net of accumulated depreciation………… 34,758,661 595,570 - 35,354,231 -
Total noncurrent assets………………………………… 34,868,802 713,637 - 35,582,439 -
TOTAL ASSETS………………………………………………… 48,829,703 1,213,896 895,564 50,939,163 63,432
DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pensions……… 372,709 - - 372,709 -
LIABILITIES CURRENT: Warrants payable…………………………………………… 897,629 - - 897,629 - Accrued liabilities…………………………………………… 191,054 - 267,163 458,217 - Accrued payroll……………………………………………… 17,942 - 2,363 20,305 - Accrued interest……………………………………………… 245,536 718 - 246,254 - Capital lease obligations…………………………………… 65,167 56,293 - 121,460 - Compensated absences…………………………………… 17,668 8,476 - 26,144 - Notes payable………………………………………………… 636,000 - - 636,000 - Bonds payable……………………………………………… 2,423,784 15,000 - 2,438,784 -
Total current liabilities………………………………… 4,494,780 80,487 269,526 4,844,793 -
NONCURRENT: Capital lease obligations…………………………………… 67,083 37,873 - 104,956 - Compensated absences…………………………………… 39,620 - - 39,620 - Other postemployment benefits obligation………………. 1,134,005 273,173 124,710 1,531,888 - Net pension liability……………….………………………… 2,823,313 - - 2,823,313 - Bonds payable……………………………………………… 28,758,329 80,000 - 28,838,329 -
Total noncurrent liabilities……………………………… 32,822,350 391,046 124,710 33,338,106 -
TOTAL LIABILITIES…………………………………………… 37,317,130 471,533 394,236 38,182,899 -
DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pensions……… 99,248 - - 99,248 -
NET POSITION Net investment in capital assets……………………………… 8,340,720 524,471 - 8,865,191 - Unrestricted……………………………………………………… 3,445,314 217,892 501,328 4,164,534 63,432
TOTAL NET POSITION…………………………………………$ 11,786,034 $ 742,363 $ 501,328 $ 13,029,725 $ 63,432
See notes to basic financial statements.
City of Salem, Massachusetts A-48 Comprehensive Annual Financial Report PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
YEAR ENDED JUNE 30, 2017
Business-type Activities - Enterprise Funds
Governmental Activities - Water and Golf Internal Service Sewer Course Trash Total Funds OPERATING REVENUES: Charges for services …………………………… $ 13,312,357 $ 749,590 $ 861,402 $ 14,923,349 $ -
OPERATING EXPENSES: Cost of services and administration …………… 2,474,549 471,754 2,917,405 5,863,708 - District Assessment……………………………… 6,553,363 - - 6,553,363 - Depreciation……………………………………… 1,069,413 75,043 - 1,144,456 - Employee benefits ……………………………… - - - - 30,061
TOTAL OPERATING EXPENSES ………… 10,097,325 546,797 2,917,405 13,561,527 30,061
OPERATING INCOME (LOSS)……………… 3,215,032 202,793 (2,056,003) 1,361,822 (30,061)
NONOPERATING REVENUES (EXPENSES): Interest expense………………………………… (690,383) (5,809) - (696,192) -
TOTAL NONOPERATING REVENUES (EXPENSES), NET…………… (690,383) (5,809) - (696,192) -
INCOME (LOSS) BEFORE TRANSFERS… 2,524,649 196,984 (2,056,003) 665,630 (30,061)
TRANSFERS: Transfers in………………………………………… - 518,027 2,118,620 2,636,647 - Transfers out……………………………………… (1,324,095) (802,148) - (2,126,243) -
TOTAL TRANSFERS………………………… (1,324,095) (284,121) 2,118,620 510,404 -
CHANGE IN NET POSITION………………… 1,200,554 (87,137) 62,617 1,176,034 (30,061)
NET POSITION AT BEGINNING OF YEAR……… 10,585,480 829,500 438,711 11,853,691 93,493
NET POSITION AT END OF YEAR……………… $ 11,786,034 $ 742,363 $ 501,328 $ 13,029,725 $ 63,432
See notes to basic financial statements.
City of Salem, Massachusetts A-49 Comprehensive Annual Financial Report PROPRIETARY FUNDS STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2017
Business-type Activities - Enterprise Funds
Governmental Activities - Water and Golf Internal Service Sewer Course Trash Total Funds
CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and users……………………………………………$ 13,261,095 $ 749,590 $ 863,348 $ 14,874,033 $- Payments to vendors…………………………………………………………… (8,492,304) (224,318) (2,834,060) (11,550,682) - Payments to employees………………………………………………………… (767,570) (225,009) (53,621) (1,046,200) - Payments for interfund services used………………………………………… - - - - (30,061)
NET CASH FROM OPERATING ACTIVITIES…………………………………… 4,001,221 300,263 (2,024,333) 2,277,151 (30,061)
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers in………………………………………………………………………… - 518,027 2,118,620 2,636,647 - Transfers out……………………………………………………………………… (1,324,095) (802,148) - (2,126,243) -
NET CASH FROM NONCAPITAL FINANCING ACTIVITIES…………………… (1,324,095) (284,121) 2,118,620 510,404 -
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from the issuance of bonds and notes……………………………… 3,788,250 - - 3,788,250 - Premium from the issuance of bonds and notes……………………………… 651,799 - - 651,799 - Acquisition and construction of capital assets………………………………… (3,314,282) (36,000) - (3,350,282) - Principal payments on bonds and notes………………………………………… (1,844,805) (37,639) - (1,882,444) - Principal payments on capital lease obligations……………………………… (63,306) (42,148) - (105,454) - Interest expense………………………………………………………………… (1,000,047) (6,704) - (1,006,751) -
NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES……… (1,782,391) (122,491) - (1,904,882) -
NET CHANGE IN CASH AND CASH EQUIVALENTS…………………………… 894,735 (106,349) 94,287 882,673 (30,061)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR………………… 9,016,545 606,608 706,126 10,329,279 93,493
CASH AND CASH EQUIVALENTS AT END OF YEAR………………………… $ 9,911,280 $ 500,259 $ 800,413 $ 11,211,952 $ 63,432
RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES:
Operating income (loss)………………………………………………………… $ 3,215,032 $ 202,793 $ (2,056,003) $ 1,361,822 $ (30,061) Adjustments to reconcile operating income (loss) to net cash from operating activities: Depreciation…………………………………………………………………… 1,069,413 75,043 - 1,144,456 - Deferred (outflows)/inflows of resources related to pensions…………… (79,308) - - (79,308) - Changes in assets and liabilities: User fees…………………………………………………………………… (51,262) - - (51,262) - Trash fees………………………………………………………………… - - 1,946 1,946 - Investment in joint venture………………………………………………… (409,893) - - (409,893) - Accrued liabilities…………………………………………………………… 32,217 - 9,267 41,484 - Accrued payroll…………………………………………………………… 4,677 - 513 5,190 - Other postemployment benefits………………………………………… 65,113 22,736 19,944 107,793 - Accrued compensated absences………………………………………… 6,842 (309) - 6,533 - Net pension liability………………………………………………………… 148,390 - - 148,390
Total adjustments……………………………………………………… 786,189 97,470 31,670 915,329 -
NET CASH FROM OPERATING ACTIVITIES……………………………………$ 4,001,221 $ 300,263 $ (2,024,333) $ 2,277,151 $ (30,061)
NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES: Proceeds of refunded debt……………………………………………………… 1,463,000 - - 1,463,000 - Payment to escrow agent………………………………………………………… (1,463,000) - - (1,463,000) -
See notes to basic financial statements.
City of Salem, Massachusetts A-50 Comprehensive Annual Financial Report FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION
JUNE 30, 2017
Other Postemployment Private Pension Benefits Purpose Agency Trust Fund (1) Trust Fund Trust Funds Fund ASSETS Cash and cash equivalents……………………………………… $ 2,584,302 $ 6,597 $ 204,831 $ 652,922 Investments: Corporate bonds……………………………………………… - - 328,738 - Equity securities………………………………………………… - - 809,684 - Equity mutual funds…………………………………………… - 1,637,742 - - Fixed income mutual funds…………………………………… - 544,960 98,635 - Mutual funds…………………………………………………… - - 21,651 - PRIT……………………………………………………………… 147,768,466 - - - Capital assets, net of accumulated depreciation……………… 88,281 - - -
TOTAL ASSETS……………………………………………………… 150,441,049 2,189,299 1,463,539 652,922
LIABILITIES Warrants payable………………………………………………… 790 - - - Liabilities due depositors………………………………………… - - - 652,922
TOTAL LIABILITIES…………………………………………………… 790 - - 652,922
NET POSITION Restricted for pensions…………………………………………… 150,440,259 - - - Restricted for OPEB……………………………………………… - 2,189,299 - - Held for other purposes…………………………………………… - - 1,463,539 -
Total Net Position………………………………………………$ 150,440,259 $ 2,189,299 $ 1,463,539 $ -
(1) The Pension Trust Fund is as of December 31, 2016.
See notes to basic financial statements.
City of Salem, Massachusetts A-51 Comprehensive Annual Financial Report FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
YEAR ENDED JUNE 30, 2017
Other Postemployment Private Pension Benefits Purpose Trust Fund (1) Trust Fund Trust Funds ADDITIONS: Contributions: Employer contributions………………………………………………………………$ 12,527,730 $ 269,044 $ - Employer contribution to pay for OPEB benefits………………………………… -4,267,124 - Plan member contributions………………………………………………………… 4,311,175 - - Retirement benefits - reimbursement of 91A overearnings…………………… - - - Retirement benefits - 3(8)c contributions from other systems………………… 198,591 - - Retirement benefits - transfers from other systems……………………………… 431,438 - - Retirement benefits - state COLA reimbursements……………………………… 241,473 Private donations…………………………………………………………………… - - 29,127
Total contributions……………………………………………………………… 17,710,407 4,536,168 29,127
Net investment income: Net change in fair value of investments…………………………………………… 6,734,232 115,481 137,180 Investment income………………………………………………………………… 4,069,114 55,287 982
Total investment income………………………………………………………… 10,803,346 170,768 138,162
Less: investment expense………………………………………………………… (757,071) - -
Net investment income……………………………………………………………… 10,046,275 170,768 138,162
TOTAL ADDITIONS……………………………………………………………… 27,756,682 4,706,936 167,289
DEDUCTIONS: Administration………………………………………………………………………… 263,091 - - Retirement benefits - transfers to other systems………………………………… 526,234 - - Retirement benefits and refunds…………………………………………………… 15,122,226 - - Educational scholarships…………………………………………………………… - - 38,825 Housing subsidies…………………………………………………………………… - - 30,613 Depreciation………………………………………………………………………… 3,125 - - OPEB benefits……………………………………………………………………… - 4,267,124 -
TOTAL DEDUCTIONS…………………………………………………………… 15,914,676 4,267,124 69,438
CHANGE IN NET POSITION…………………………………………………… 11,842,006 439,812 97,851
NET POSITION AT BEGINNING OF YEAR………………………………………… 138,598,253 1,749,487 1,365,688
NET POSITION AT END OF YEAR……………………………………………………$ 150,440,259 $ 2,189,299 $ 1,463,539
(1) The Pension Trust Fund is for the year ended December 31, 2016.
See notes to basic financial statements.
City of Salem, Massachusetts A-52 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Notes to basic financial statements The accompanying basic financial statements of the City of Salem, Massachusetts (the City) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board (GASB) is the recognized standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described herein.
A. Reporting Entity
The City is a Massachusetts municipal corporation with a Mayor-Council form of government. The Mayor is elected at large for a four-year term. The City Council is comprised of eleven members elected for two-year terms from seven wards and four at-large.
For financial reporting purposes, the City has included all funds, organizations, agencies, boards, commissions and institutions. The City has also considered all potential component units for which it is financially accountable as well as other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the basic financial statements to be misleading or incomplete. As required by GAAP, these basic financial statements present the City (the primary government) and its component units. One entity has been included as a component unit in the reporting entity, because of the significance of its operational and/or financial relationship.
Component Unit Presented as a Fiduciary Fund – The following component unit is presented as a Fiduciary Fund of the primary government due to the nature and significance of relationship between the City and the component unit.
The Salem Contributory Retirement System (the System) was established to provide retirement benefits to City employees, the Salem Housing Authority employees, the South Essex Sewerage District employees, the Salem- Beverly Water Supply Board employees, the North Shore Regional Vocational School employees and their beneficiaries. The System is governed by a five-member board comprised of the Finance Director (ex-officio), two members elected by the System’s participants, one member appointed by the Mayor and one member appointed by the other board members. The System is presented using the accrual basis of accounting and is reported as a pension trust fund in the fiduciary fund financial statements.
The System did issued a separate GAAP based audited financial statement along with a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth of Massachusetts’ (Commonwealth) Public Employee Retirement Administration Commission (PERAC). These reports may be obtained by contacting the System located at 20 Central Street, Suite 110, Salem, Massachusetts 01970.
Joint Ventures – The following are joint ventures of the City.
The City is a member of the South Essex Sewerage District (the District), a joint venture with the Cities of Salem and Beverly and the Towns of Danvers and Marblehead, for the operation of a septage disposal facility. The members share in overseeing the operations of the District. Each member is responsible for its proportionate share of the operational costs of the District, which are paid in the form of assessments. As of June 30, 2017, the City’s equity interest in the operations of the District totaled $1.1 million, which is recorded in the Water and Sewer Enterprise Fund. Complete financial statements for the District can be obtained by contacting them at 50 Fort Avenue, Salem, MA 01970.
The City is a member of the Salem-Beverly Water Supply Board (Water Board), a joint venture with the City of Beverly for the operation of a water distribution system. The City does not have an equity interest in the Salem-
City of Salem, Massachusetts A-53 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Beverly Water Supply Board. The annual assessment from the Water Board for the year ended June 30, 2017, totaled approximately $2,501,000. Complete financial information for the Water Board can be obtained by contacting them at 50 Arlington Avenue, Beverly, MA 01915.
The City is a member of the Essex Technical High School that serves the members’ students seeking an education in academic, technical and agriculture studies. The members’ share in the operations of the Essex Technical High School and each member is responsible for its proportionate share of the operational and capital cost of the Essex Technical High School, which are paid in the form of assessments. The City does not have an equity interest in the Essex Technical High School and the 2017 assessment was $2,266,000.
B. Government-Wide and Fund Financial Statements
Government-Wide Financial Statements
The government-wide financial statements (i.e., statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its component units. Governmental activities, which are primarily supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which are supported primarily by user fees and charges.
Fund Financial Statements
Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Nonmajor funds are aggregated and displayed in a single column.
Major Fund Criteria
Major funds must be reported if the following criteria are met:
• If the total assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues, or expenditures/expenses of an individual governmental or enterprise fund are at least 10% of the corresponding element (assets and deferred outflows of resources, liabilities and deferred inflows of resources, etc.) for all funds of that category or type (total governmental or total enterprise funds), and
• If the total assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5% of the corresponding element for all governmental and enterprise funds combined.
Additionally, any other governmental or enterprise fund that management believes is particularly significant to the basic financial statements may be reported as a major fund.
Internal service funds and fiduciary funds are reported by fund type.
C. Measurement Focus, Basis of Accounting and Financial Statement Presentation
Government-Wide Financial Statements
The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are
City of Salem, Massachusetts A-54 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017 recorded when the liabilities are incurred. Real estate and personal property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.
The statement of activities demonstrates the degree to which the direct expenses of a particular 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 the following:
• Charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment.
• Grants and contributions that are restricted to meeting the operational requirements of a particular function or segment.
• Grants and contributions that are restricted to meeting the capital requirements of a particular function or segment.
Taxes and other items not identifiable as program revenues are reported as general revenues.
For the most part, the effect of interfund activity has been removed from the government-wide financial statements. However, the effect of interfund services provided and used between functions is not eliminated as the elimination of these charges would distort the direct costs and program revenues reported for the functions affected.
Fund Financial Statements
Governmental fund financial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., when measurable and available). Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with current expendable available resources.
Real estate and personal property tax revenues are considered available if they are collected within 60 days after year-end. Investment income is susceptible to accrual. Other receipts and tax revenues become measurable and available when the cash is received and are recognized as revenue at that time.
Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria is met. Expenditure driven grants recognize revenue when the qualifying expenditures are incurred and all other grant requirements are met.
The following major governmental funds are reported:
The general fund is the primary operating fund. It is used to account for all financial resources, except those that are required to be accounted for in another fund.
The community preservation fund is a special revenue fund used to account for the accumulation of resources for the acquisition, creation, preservation and support of open space, historic resources, and community housing.
City of Salem, Massachusetts A-55 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
The City is allowed to impose a surcharge on property taxes and to receive matching state funds for these specified uses.
The city wharf project fund is used to account for the fourth phase of the wharf project which includes improvements to the harborwalk, docks, walkways and pier construction.
The city grants fund is used to account for non-school related activity specifically financed by federal, state, and other grants which are designated to specific programs.
The capital improvement fund is used to account for the City’s capital projects related to their capital improvement plan for City related projects.
The nonmajor governmental funds consist of other special revenue, capital projects and permanent funds that are aggregated and presented in the nonmajor governmental funds column on the governmental funds financial statements. The following describes the general use of these fund types:
The special revenue fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than permanent funds or capital projects.
The capital projects fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets of the governmental funds.
The permanent fund is used to account for and report financial resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the governmental programs.
Proprietary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred.
Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary funds principal ongoing operations. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.
The following major proprietary funds are reported:
The water and sewer enterprise fund is used to account for the City’s water and sewer activities.
The golf course enterprise fund is used to account for the golf course activities.
The trash enterprise fund is used to account for the solid waste disposal activities.
Additionally, the following proprietary fund type is reported:
The internal service fund is used to account for the financing of services provided by one department to other departments or governmental units. This fund is used to account for risk financing activities related to retirees’ health insurance.
Fiduciary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting except for the agency fund, which has no measurement focus. Fiduciary
City of Salem, Massachusetts A-56 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017 funds are used to account for assets held in a trustee capacity for others that cannot be used to support the governmental programs.
The following fiduciary fund types are reported:
The pension trust fund is used to account for the activities of the System, which accumulates resources to provide pension benefits to eligible retirees and their beneficiaries.
The other postemployment benefit trust fund is used to accumulate resources to provide funding for future other postemployment benefits (OPEB) liabilities.
The private-purpose trust fund is used to account for trust arrangements that exclusively benefit individuals, private organizations, or other governments. Some of these trusts have donor restrictions and trustee policies that do not allow the endowment portion and any unrealized appreciation to be spent. The donor restrictions and trustee policies only allow the trustees to authorize spending of the realized investment earnings. The City’s educational scholarships and housing subsidy trust funds are accounted for in this fund.
The agency fund is used to account for assets held in a purely custodial capacity. The City’s agency funds consist primarily of payroll withholdings, police and fire details, escrow deposits and unclaimed property.
D. Cash and Investments
Government-Wide and Fund Financial Statements
Cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with an original maturity of three months or less from the date of acquisition.
Investments are carried at fair value. The fair values were determined by the closing price for those securities traded on national stock exchanges and at the average bid-and-asked quotation for those securities traded in the over-the-counter market. Investments that do not have an established market are reported at estimated fair values.
E. Fair Value Measurements
The City reports required types of financial instruments in accordance with the fair value standards. These standards require an entity to maximize the use of observable inputs (such as quoted prices in active markets) and minimize the use of unobservable inputs (such as appraisals or valuation techniques) to determine fair value. Fair value standards also require the government to classify these financial instruments into a three-level hierarchy, based on the priority of inputs to the valuation technique or in accordance with net asset value practical expedient rules, which allow for either Level 2 or Level 3 depending on lock up and notice periods associated with the underlying funds.
Instruments measured and reported at fair value are classified and disclosed in one of the following categories:
Level 1 – Quoted prices are available in active markets for identical instruments as of the reporting date. Instruments, which are generally included in this category, include actively traded equity and debt securities, U.S. government obligations, and mutual funds with quoted market prices in active markets.
Level 2 – Pricing inputs are other than quoted in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies.
City of Salem, Massachusetts A-57 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Certain fixed income securities, primarily corporate bonds, are classified as Level 2 because fair values are estimated using pricing models, matrix pricing, or discounted cash flows.
Level 3 – Pricing inputs are unobservable for the instrument and include situations where there is little, if any, market activity for the instrument. The inputs into the determination of fair value require significant management judgment or estimation.
In some instances the inputs used to measure fair value may fall into different levels of the fair value hierarchy and is based on the lowest level of input that is significant to the fair value measurement.
Market price is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Instruments with readily available active quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. It is reasonably possible that change in values of these instruments will occur in the near term and that such changes could materially affect amounts reported in these financial statements. For more information on the fair value of the City’s financial instruments, see Note 2 – Cash and Investments.
F. Accounts Receivable
Government-Wide and Fund Financial Statements
The recognition of revenue related to accounts receivable reported in the government-wide financial statements and the proprietary funds and fiduciary funds financial statements are reported under the accrual basis of accounting. The recognition of revenue related to accounts receivable reported in the governmental funds financial statements are reported under the modified accrual basis of accounting.
Real Estate, Personal Property Taxes, Tax Liens and Tax Foreclosures
Real estate and personal property taxes are levied and based on values assessed on January 1st of every year. Assessed values are established by the Board of Assessor’s for 100% of the estimated fair market value. Taxes are due on August 1st, November 1st, February 1st and May 1st and are subject to penalties and interest if they are not paid by the respective due date. Real estate and personal property taxes levied are recorded as receivables in the year of the levy.
The City has the ability to process real estate tax liens on delinquent properties. Tax liens are processed once a year following the first quarter of the following year. Liens are recorded as receivables in the year they are processed.
Real estate receivables which have been secured via the tax lien process are considered 100% collectible. Accordingly, an allowance for uncollectibles is not reported.
Personal property taxes cannot be secured through the lien process. The allowance for uncollectibles is estimated based on historical trends and specific account analysis.
Motor Vehicle and Other Excise Taxes
Motor vehicle excise taxes are assessed annually for each vehicle registered and are recorded as receivables in the year of the levy. The Commonwealth is responsible for reporting the number of vehicles registered and the fair values of those vehicles. The tax calculation is the fair value of the vehicle multiplied by $25 per $1,000 of value. Boat excise taxes are assessed annually for each boat registered and are recorded as receivables in the
City of Salem, Massachusetts A-58 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017 year of the levy. The Commonwealth is responsible for reporting the number of boats registered and the fair value of those boats. The tax calculation is the fair value of the boat multiplied by $10 per $1,000 of value.
The allowance for uncollectibles is estimated based on historical trends and specific account analysis.
User Fees
Water and Sewer user fees are levied monthly based on individual meter readings and are subject to penalties and interest if they are not paid by the respective due date. Unbilled user fees are estimated at year-end and are recorded as revenue in the current period. The City abides by a strict policy for unpaid user fees which includes liening any unpaid balance plus interest to the corresponding real estate tax bills.
Trash user fees are levied monthly based on the number of units located on the property. The monthly per unit fee collected is $26.50 for commercial and $18 for residential. Collection from any one property shall not exceed $120 per month. Unpaid trash fees are subject to interest and demand fees; any fees not paid within thirty (30) days may be liened to the property in the following years’ real estate bill.
Since the receivables are secured via either a shut off or lien process, these accounts are considered 100% collectible and therefore do not report an allowance for uncollectibles.
Departmental and Other
Departmental and other receivables consist primarily of grant proceeds, fire detail fees and investment funds of the retirement system received after year end that are recorded as receivables in the year accrued.
The allowance of uncollectibles is estimated based on historical trends and specific account analysis.
Intergovernmental
Various federal and state grants for operating and capital purposes are applied for and received annually. For non-expenditure driven grants, receivables are recorded as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred and all other grant requirements are met.
These receivables are considered 100% collectible and therefore do not report an allowance for uncollectibles.
Loans
Loan receivables are comprised of funds advanced to small businesses and developers under various Urban Development Action Grants (UDAG) and Community Development Block Grants (CDBG). The City loans funds to owners of commercial and residential properties for the purpose of rehabilitating these properties. The City receives funding for these loans from the U.S Department of Housing and Urban Development (HUD) under Community Development Block Grant (CDBG) programs for the City. These loans are repaid to the City under various terms and conditions stipulated by each loan agreement. The loan repayments may be used by the City for any eligible activity relevant to the community development program.
City of Salem, Massachusetts A-59 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
G. Inventories and Prepaid Items
Government-Wide and Fund Financial Statements
Inventories are recorded as expenditures at the time of purchase. Inventories are not material in total to the government-wide and fund financial statements, and therefore are not reported.
Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased.
H. Capital Assets
Government-Wide and Proprietary Fund Financial Statements
Capital assets, which include land, land improvements, buildings and improvements, machinery and equipment, and infrastructure (e.g., roads, water mains, sewer mains, and similar items), are reported in the applicable governmental or business-type activity column of the government-wide financial statements, and the proprietary fund financial statements. Capital assets are recorded at historical cost, or at estimated historical cost, if actual historical cost is not available. Donated capital assets, donated works of art, historical treasures and similar assets; and capital assets received in service concession arrangements are recorded at acquisition value. Except for the capital assets of the governmental activities column in the government-wide financial statements, construction period interest is capitalized on constructed capital assets.
All purchases and construction costs in excess of $25,000 are capitalized at the date of acquisition or construction, respectively, with expected useful lives of greater than one year. This excludes vehicles, which will all be capitalized.
Capital assets (excluding land and construction in progress) are depreciated on a straight-line basis. The estimated useful lives of capital assets are as follows: Estimated Useful Life Capital Asset Type (in years)
Land improvements…………………………… 20-30 Buildings and improvements…………….…… 40 Equipment……………………………………… 5-10 Vehicles………………………………………… 5-15 Infrastructure…………………………………… 15-80
The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized and are treated as expenses when incurred. Improvements are capitalized.
Governmental Fund Financial Statements
Capital asset costs are recorded as expenditures in the acquiring fund in the year of the purchase.
City of Salem, Massachusetts A-60 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
I. Deferred Outflows/Inflows of Resources
Government-Wide Financial Statements (Net Position)
In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/ expenditure) until then. The City reported a deferred charge on refunding and deferred outflows related to pensions under this category.
In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City reported deferred inflows related to pensions under this category.
Governmental Fund Financial Statements
In addition to assets and liabilities, the balance sheet will sometimes report separate sections for deferred inflows and outflows of resources. These separate financial statement elements represent either an acquisition or consumption of fund balance that applies to a future period(s) and so will not be recognized until that time. The City has recorded unavailable revenue as deferred inflows of resources in the governmental funds balance sheet. Unavailable revenue is recognized as revenue in the conversion to the government-wide (full accrual) financial statements. The City did not have any deferred outflows of resources at year-end.
J. Interfund Receivables and Payables
During the course of its operations, transactions occur between and within individual funds that may result in amounts owed between funds.
Government-Wide Financial Statements
Transactions of a buyer/seller nature between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of net position as “internal balances”.
Fund Financial Statements
Transactions of a buyer/seller nature between and within funds are not eliminated from the individual fund statements. Receivables and payables resulting from these transactions are classified as “Due from other funds” or “Due to other funds” on the balance sheet.
K. Interfund Transfers
During the course of its operations, resources are permanently reallocated between and within funds. These transactions are reported as transfers in and transfers out.
City of Salem, Massachusetts A-61 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Government-Wide Financial Statements
Transfers between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of activities as “Transfers, net”.
Fund Financial Statements
Transfers between and within funds are not eliminated from the individual fund statements and are reported as transfers in and transfers out.
L. Net Position and Fund Equity
Government-Wide Financial Statements (Net position)
Net position reported as “net investment in capital assets” includes capital assets, net of accumulated depreciation, less the principal balance of outstanding debt used to acquire capital assets. Unspent proceeds of capital related debt are not considered to be capital assets. Outstanding debt related to future reimbursements from the state’s school building program is not considered to be capital related debt. Net position is reported as restricted when amounts are not available for appropriation or are legally restricted by outside parties for a specific future use.
Net position has been “restricted for” the following:
“Loans” represents community development outstanding loan receivable balances which are funded through the Community Development Block Grant program. The loan repayments are subject to various restrictions which are imposed by the grantors.
“Permanent funds - expendable” represents the amount of realized and unrealized investment earnings of donor restricted trusts. The donor restrictions and trustee policies only allow the trustees to approve spending of the realized investment earnings that support governmental programs.
“Permanent funds - nonexpendable” represents the endowment portion of donor restricted trusts that support governmental programs.
“Grants and gifts” represents assets that have restrictions placed on them from outside parties.
Sometimes the City will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted – net position to have been depleted before unrestricted – net position is applied.
Fund Financial Statements (Fund Balances)
Governmental fund equity is classified as fund balance. Fund balance is further classified as follows:
“Nonspendable” fund balance includes amounts that cannot be spent because they are either not in spendable form or they are legally or contractually required to be maintained intact.
City of Salem, Massachusetts A-62 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
“Restricted” fund balance includes amounts subject to constraints placed on the use of resources that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or that are imposed by law through constitutional provisions or enabling legislation.
“Committed” fund balance includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority. An order of the City Council is the highest level of decision making authority that can commit or rescind funds for a specific purpose. Once voted, the limitation imposed by the order remains in place until the funds are used for their intended purpose or an order is taken to rescind the commitment.
“Assigned” fund balance includes amounts that are constrained by the City’s intent to be used for specific purposes, but are neither restricted nor committed. The City Finance Director has the authority to assign fund balance. Funds are assigned when the City has an obligation to purchase goods or services from the current years’ appropriation.
“Unassigned” fund balance includes the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund.
Sometimes the City will fund outlays for a particular purpose from different components of fund balance. In order to calculate the amounts to report as restricted, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. When different components of fund balance can be used for the same purpose, it is the City’s policy to consider restricted fund balance to have been depleted first, followed by assigned fund balance. Unassigned fund balance is applied last.
M. Long-term debt
Government-Wide and Proprietary Fund Financial Statements
Long-term debt is reported as liabilities in the government-wide and proprietary fund statement of net position. Material bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method.
Governmental Fund Financial Statements
The face amount of governmental funds long-term debt is reported as other financing sources. Bond premiums and discounts, as well as issuance costs, are recognized in the current period. Bond premiums are reported as other financing sources and bond discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual bond proceeds received, are reported as general government expenditures.
N. Pensions
For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of both the Salem Contributory Retirement System and the Massachusetts Teachers Retirement System and additions to/deductions from the Systems fiduciary net position have been determined on the same basis as they are reported by the Systems. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.
City of Salem, Massachusetts A-63 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
O. Investment Income
Excluding the permanent funds, investment income derived from major and nonmajor governmental funds is legally assigned to the general fund unless otherwise directed by Massachusetts General Law (MGL). Investment income of the enterprise funds is voluntarily assigned to the general fund.
P. Compensated Absences
Employees are granted vacation and sick leave in varying amounts based on collective bargaining agreements, state laws and executive policies. Compensated absence liabilities related to both governmental and business- type activities are normally paid from the funds reporting payroll and related expenditures.
Government-Wide and Proprietary Fund Financial Statements
Vested or accumulated vacation and sick leave are reported as liabilities and expensed as incurred.
Governmental Fund Financial Statements
Vested or accumulated vacation and sick leave, which will be liquidated with expendable available financial resources, are reported as expenditures and fund liabilities upon maturity of the liability.
Q. Fund Deficits and Appropriation Deficits
Individual fund deficits existed at June 30, 2017, in the capital improvement fund and the highway grant fund. The deficits will be funded through long-term borrowing, capital grants and grant proceeds in 2018.
Actual expenditures exceeded appropriations for snow and ice removal by $852,000, in FY2017 which will be raised in FY2018. Due to the unusual magnitude of snow and ice removal costs in 2015, the state has allowed communities to raise the 2015 deficits over 3 years. At the end of FY2017 $662,000, of the FY2015 deficit will be raised in FY2018. Massachusetts General Laws allows communities to overspend their snow and ice removal appropriation line; however, deficits must be raised in the subsequent year.
R. Use of Estimates
Government-Wide and Fund Financial Statements
The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the year. Actual results could vary from estimates that were used.
S. Total Column
Government-Wide Financial Statements
The total column presented on the government-wide financial statements represents consolidated financial information.
City of Salem, Massachusetts A-64 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Fund Financial Statements
The total column on the fund financial statements is presented only to facilitate financial analysis. Data in this column is not the equivalent of consolidated financial information.
NOTE 2 – CASH AND INVESTMENTS
A cash and investment pool is maintained that is available for use by all funds. Each fund type's portion of this pool is displayed on the balance sheet as "cash and cash equivalents". The deposits and investments of the trust funds are held separately from those of other funds.
Statutes authorize the investment in obligations of the U.S. Treasury, agencies, and instrumentalities, certificates of deposit, repurchase agreements, money market accounts, bank deposits and the State Treasurer's Investment Pool (the Pool). The Treasurer and Trust Fund Commission may also invest trust funds in securities, other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth; provided, that not more than 15% of any trust fund may be invested in bank stocks and insurance company stocks, and not more than 15% of any trust fund can be invested in the stock of any one bank or insurance company.
The Pool meets the criteria of an external investment pool. The Pool is administered by the Massachusetts Municipal Depository Trust (MMDT), which was established by the Treasurer of the Commonwealth who serves as Trustee. The fair value of the position in the Pool is the same as the value of the Pool shares. The City Treasurer is the custodian of funds held in the Other Postemployment Benefit (OPEB) Trust Fund. As of June 30, 2017, $2,189,299, from the OPEB Trust Fund is included within the City’s cash and investments balances in the following disclosures.
The System participates in the Pension Reserve Investment Trust (PRIT), which meets the criteria of an external investment pool. PRIT is administered by the Pension Reserves Investment Management Board, which was established by the Treasurer of the Commonwealth of Massachusetts who serves as Trustee. The fair value of the position in the PRIT is the same as the value of the PRIT shares.
The System also has expanded investment powers which are governed by Chapter 32 of the general laws of the Commonwealth and by the regulations issued by the Public Employee Retirement Administration Commission (PERAC). The existing law provides that Systems will invest in securities other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth.
Custodial Credit Risk – Deposits
In the case of deposits, this is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. The City does not have a formal deposit policy for custodial credit risk. At year-end, the carrying amount of deposits totaled $41,774,792 and the bank balance totaled $43,644,442. Of the bank balance, $3,989,714 was covered by Federal Depository Insurance, $11,979,353 was covered by the Share Insurance Fund, $7,138,656 was covered by the Depositors Insurance Fund, $17,880,319 was collateralized and $2,656,400 was exposed to custodial credit risk because it was uninsured and uncollateralized.
The System does not have a formal deposit policy for custodial credit risk. At year-end, the carrying amount of deposits totaled $249,772 and the bank balance totaled $568,069. The entire bank balance was covered by Federal Depository Insurance.
City of Salem, Massachusetts A-65 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Investments
As of June 30, 2017, the City had the following investments:
Maturity Investment Type Fair Value Under 1 Year 1-5 Years 6-10 Years
Debt Securities: U.S. Treasury Notes…………………………………...……$ 1,197,322 $ 301,160 $ 896,162 $ - U.S. Government Securities……………………………… 1,753,190 - 1,753,190 - Corporate Bonds...... 3,061,819 389,643 1,950,886 721,290
Total Debt Securities...... 6,012,331 $ 690,803 $ 4,600,238 $ 721,290
Other Investments: Equity Securities...... 5,710,520 Equity Mutual Funds………………………………………… 2,977,090 Mutual Funds………………………………………………… 129,611 Fixed Income Mutual Funds……………………………… 590,475 Money Market Mutual Funds……………………………… 545,916 MMDT………………………………………………………… 74,552
Total Investments...... $ 16,040,495
As of December 31, 2016, the System had the following investments:
Maturity Fair Value Under 1 Year Investment Type Repurchase Agreements…………………………………$ 2,334,530 $ 2,334,530
Other Investments: Alternative Investments...... 122,707 Pension Reserve Investment Trust (PRIT)……………… 147,645,759
Total Investments...... $ 150,102,996
The City participates in MMDT which is unrated. MMDT maintains a cash portfolio and a short-term bond portfolio with combined average maturities of approximately 3 months.
The System participates in PRIT which is unrated. The effective weighted duration rate for PRIT investments ranged from 0.45 to 22.60 years.
Custodial Credit Risk – Investments
For an investment, this is the risk that, in the event of a failure by the counterparty, the City will not be able to recover the value of its investments or collateral security that are in the possession of an outside party. The Citywide investment policy, as well as the investment policy specifically for OPEB funds, addresses custodial credit risk by requiring all securities not held directly by the City to be held in the City’s name and tax identification number by a third party custodian approved by the Treasurer and evidenced by safekeeping receipts showing individual CUSIP numbers for each security. The City’s investments, $3,061,819 of corporate bonds, $1,197,322 of U.S. Treasury Notes, $1,753,190 of Government Sponsored Enterprises and $5,710,520 of equity securities are covered by this policy.
City of Salem, Massachusetts A-66 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
The System’s investments are not subject to custodial credit risk as all of the securities are insured or registered, and held by its agents in the name of the Salem Contributory Retirement Board.
Interest Rate Risk
The City has a formal investment policy limiting investment maturities up to one year as a means of managing its exposure to fair value losses arising from increasing interest rates. The System does not have a formal investment policy related to interest rate risk.
Credit Risk
The City has not adopted a formal policy related to Credit Risk. The investment ratings are as follows:
Government Corporate Sponsored Bonds Enterprises
AA+…………$-$ 1,753,190 A…………… 1,048,186 - A-…………… 476,408 - BBB+………… 1,053,350 - BBB………… 277,542 - BBB-………… 203,208 -
$ 3,061,819 $ 1,753,190
The System has not adopted a formal policy related to Credit Risk. The alternate investment mutual funds, real estate mutual fund investments and PRIT are unrated.
Concentration of Credit Risk
The City restricts investments to no more than 5% in any one issuer. The City did not have more than 5% of its investments in any one individual security.
The retirement system places no limit on the amount the government may invest in any one issuer. The System did not have more than 5% of its investments in any one individual security.
Fair Value Measurement
The City holds investments that are measured at fair value on a recurring basis. Because investing is not a core part of the City’s mission, the City determines that the disclosures related to these investments only need to be disaggregated by major type. The City chooses a tabular format for disclosing the levels within the fair value hierarchy.
The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs.
City of Salem, Massachusetts A-67 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
The following table presents financial assets at June 30, 2017, that the City measures fair value on a recurring basis, by level, within the fair value hierarchy:
Fair Value Measurements Using Quoted Prices in Active Markets for Other Significant Identical Observable Unobservable June 30, Assets Inputs Inputs Investment Type 2017 (Level 1) (Level 2) (Level 3)
Debt Securities: U.S. Government Treasuries…………………………………$ 1,197,322 $ 1,197,322 $ - $ - Government Sponsored Enterprises………………………… 1,753,190 1,753,190 - - Corporate Bonds……………………………………………… 3,061,819 - 3,061,819 -
Total debt securities…………………………………………… 6,012,331 2,950,512 3,061,819 -
Other investments: Equity Securities……………………………………………… 5,710,520 5,710,520 - - Equity Mutual Funds………………………………………… 2,977,090 2,977,090 - - Mutual Funds…………………………………………………… 129,611 129,611 - - Money Market Mutual Funds………………………………… 545,916 545,916 - - Fixed Income Mutual Funds………………………………… 590,475 590,475 - -
Total other investments………………………..……………… 9,953,612 9,953,612 - -
Total investments measured at fair value…………………… 15,965,943 $ 12,904,124 $ 3,061,819 $ -
Investments measured at amortized cost:
MMDT…………………………………………………………… 74,552
Total investments………………………………………… $ 16,040,495
U.S. government treasuries and government sponsored enterprises, equity securities, equity mutual funds, mutual funds, corporate bond mutual funds, money market mutual funds classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Corporate bonds classified in Level 2 of the fair value hierarchy are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices.
MMDT investments are valued at amortized cost. Under the amortized cost method, an investment is valued initially at its cost and adjusted for the amount of interest income accrued each day over the term of the investment to account for any difference between the initial cost and the amount payable at its maturity. If amortized cost is determined not to approximate fair value, the value of the portfolio securities will be determined under procedures established by the Advisor.
The retiree pension defined benefit plan holds significant amounts of investments that are measured at fair value on a recurring basis. Because investing is a key part of the plan’s activities, the plan shows greater disaggregation in its disclosures. The plan chooses a tabular format for disclosing the levels within the fair value hierarchy.
City of Salem, Massachusetts A-68 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
The following table presents financial assets at December 31, 2016, that the System measures fair value on a recurring basis, by level, within the fair value hierarchy:
Fair Value Measurements Using Quoted Prices in Active Markets for Other Significant Identical Observable Unobservable December 31, Assets Inputs Inputs Investment Type 2016 (Level 1) (Level 2) (Level 3)
Alternative Investments……………………………………… $ 122,707 $ - $ - $ 122,707 Repurchase Agreements…………………………………… 2,334,530 - - 2,334,530
Total investments measured at fair value…………………… 2,457,237 $ - $ - $ 2,457,237
Investments measured at net asset value:
PRIT…………………………………………………………… 147,645,759
Total investments………………………………………… $ 150,102,996
Alternative investments and repurchase agreements classified in level 3 are valued using either a discounted cash flow or market comparable company’s technique.
PRIT Investments are valued using the net asset value (NAV) method. This investment pool was established by the Treasurer of the Commonwealth of Massachusetts, who serves as Trustee. PRIT is administered by the Pension Reserves Investment Management Board (PRIM). The fair values of the positions in each investment Pool are the same as the value of each Pool’s shares. The System does not have the ability to control any of the investment decisions relative to its funds in PRIT.
NOTE 3 – RECEIVABLES
At June 30, 2017, receivables for the individual major governmental funds, non-major governmental funds and internal service funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows:
Allowance Gross for Net Amount Uncollectibles Amount Receivables: Real estate and personal property taxes…………… $ 1,137,134 $ - $ 1,137,134 Tax liens………………………………………………… 1,422,126 - 1,422,126 Motor vehicle and other excise taxes………………… 796,773 (167,245) 629,528 Departmental and other……………………………… 156,117 - 156,117 Intergovernmental……………………………………… 8,809,241 - 8,809,241 Loans…………………………………………………… 571,025 - 571,025 Total…………………………………………………… $ 12,892,416 $ (167,245) $ 12,725,171
City of Salem, Massachusetts A-69 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
At June 30, 2017, receivables for the water and sewer and trash enterprise funds consist of the following:
Allowance Gross for Net Amount Uncollectibles Amount Receivables: Water and sewer user fees…………………………… $ 2,917,814 $ - $ 2,917,814 Trash fees………………………………………………… 95,151 - 95,151 Total…………………………………………………… $ 3,012,965 $- $ 3,012,965
Governmental funds report deferred inflows of resources in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. At the end of the current year, the various components of deferred inflows of resources for unavailable revenue reported in the governmental funds were as follows:
Other General Governmental Fund Funds Total Receivable type: Real estate and personal property taxes………………$ 464,604 $ 7,999 $ 472,603 Tax liens………………………………………………… 1,422,126 - 1,422,126 Motor vehicle and other excise taxes………………… 629,528 - 629,528 Departmental and other………………………………… - 156,117 156,117 Intergovernmental……………………………………… 2,021,243 180,061 2,201,304 Loans……………………………………………………… - 571,025 571,025 Total………………………………………………………$ 4,537,501 $ 915,202 $ 5,452,703
City of Salem, Massachusetts A-70 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
NOTE 4 – CAPITAL ASSETS
Capital asset activity for the year ended June 30, 2017, was as follows:
Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: Land…………………………………………………… $ 6,330,757 $ 1,400,000 $ - $ 7,730,757 Construction in progress……………………………… 996,403 769,844 - 1,766,247
Total capital assets not being depreciated…… 7,327,160 2,169,844 - 9,497,004
Capital assets being depreciated: Land improvements…………………………………… 13,269,708 972,200 (10,258) 14,231,650 Buildings and improvements………………………… 235,646,258 2,689,412 - 238,335,670 Equipment……………………………………………… 13,656,689 759,022 (125,850) 14,289,861 Infrastructure………………………………………… 78,245,204 6,498,549 (24,952) 84,718,801 Vehicles………………………………………………… 5,350,812 1,155,848 (609,381) 5,897,279
Total capital assets being depreciated………… 346,168,671 12,075,031 (770,441) 357,473,261
Less accumulated depreciation for: Land improvements…………………………………… (4,120,540) (523,992) 10,109 (4,634,423) Buildings and improvements………………………… (78,777,987) (5,398,283) - (84,176,270) Equipment……………………………………………… (7,938,574) (895,773) 125,850 (8,708,497) Infrastructure………………………………………… (38,457,278) (2,015,698) 24,952 (40,448,024) Vehicles………………………………………………… (3,813,279) (401,348) 599,221 (3,615,406)
Total accumulated depreciation………………… (133,107,658) (9,235,094) 760,132 (141,582,620)
Total capital assets being depreciated, net…………… 213,061,013 2,839,937 (10,309) 215,890,641
Total governmental activities capital assets…………… $ 220,388,173 $ 5,009,781 $ (10,309) $ 225,387,645
Beginning Ending Balance Increases Decreases Balance Water and Sewer Activities: Capital assets not being depreciated: Land…………………………………………………… $ 110,141 $ - $ - $ 110,141
Capital assets being depreciated: Buildings and improvements………………………… 119,975 - - 119,975 Equipment……………………………………………… 296,290 - - 296,290 Vehicles………………………………………………… 423,701 - - 423,701 Infrastructure…………………………………………… 43,598,794 2,873,411 - 46,472,205
Total capital assets being depreciated………… 44,438,760 2,873,411 - 47,312,171
Less accumulated depreciation for: Buildings and improvements………………………… (88,474) ( 5,728) - (94,202) Equipment……………………………………………… (260,976) (25,065) - (286,041) Vehicles………………………………………………… (195,420) (65,222) - (260,642) Infrastructure…………………………………………… (10,939,227) (973,398) - (11,912,625)
Total accumulated depreciation………………… (11,484,097) (1,069,413) - (12,553,510)
Total capital assets being depreciated, net……………… 32,954,663 1,803,998 - 34,758,661
Total water and sewer activities capital assets…………$ 33,064,804 $ 1,803,998 $ - $ 34,868,802
City of Salem, Massachusetts A-71 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Beginning Ending Balance Increases Decreases Balance Golf Course Activities: Capital assets not being depreciated: Land…………………………………………………… $ 118,067 $ - $ - $ 118,067
Capital assets being depreciated: Land improvements…………………………………… 312,852 36,000 - 348,852 Buildings and improvements………………………… 453,988 - - 453,988 Vehicles………………………………………………… - 57,316 - 57,316 Equipment……………………………………………… 691,471 - - 691,471
Total capital assets being depreciated………… 1,458,311 93,316 - 1,551,627
Less accumulated depreciation for: Land improvements…………………………………… (311,051) (2, 101) - (313,152) Buildings and improvements………………………… (195,488) (11, 000) - (206,488) Vehicles………………………………………………… (5,732) - (5,732) Equipment……………………………………………… (374,475) (56, 210) - (430,685)
Total accumulated depreciation………………… (881,014) (75, 043) - (956,057)
Total capital assets being depreciated, net……………… 577,297 18,273 - 595,570
Total golf course activities capital assets……………… $ 695,364 $ 18,273 $ - $ 713,637
In the fiduciary activities, the Retirement System owns a condominium, which is being depreciated on a straight- line basis over 40 years. The historical cost of the condominium was $125,000; accumulated depreciation through December 31, 2016, totals $36,719, for a net book value of $88,281.
Depreciation expense was charged to functions/programs of the primary government as follows:
Governmental Activities: General government………………………………………………………… $536,467 Public safety………………………………………………………………… 741,136 Education……………………………………………………………………… 4,997,158 Public works………………………………………………………………… 2,685,823 Health and human services………………………………………………… 14,766 Culture and recreation……………………………………………………… 259,744
Total depreciation expense - governmental activities………………………… $9,235,094
Business-Type Activities: Water and Sewer………………………………………………………………$1,069,413 Golf Course…………………………………………………………………… 75,043
Total depreciation expense - business-type activities…………………………$1,144,456
Fiduciary Activities: Pension Trust………………………………………………………………… $3,125
City of Salem, Massachusetts A-72 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
NOTE 5 – INTERFUND TRANSFERS AND BALANCES
Interfund transfers for the year ended June 30, 2017, are summarized as follows:
Transfers In:
Water and City Trash Golf Course Sewer Nonmajor General Grants Enterprise Enterprise Enterprise Governmental Transfers Out: Fund Fund Fund Fund Fund Funds Total
General Fund…………………………… $ - $ 1,236,566 $ 2,118,620 $ 518,027 $ - $ 2,654,419 $ 6,527,632 (1) City Grants Fund………………………… 14,790 164,018 - - - - 178,808 (2) Nonmajor Governmental Funds………… 546,198 247,501 - - - 271,827 1,065,526 (3) Golf Course Enterprise Fund………….. 802,148 - - - - - 802,148 (4) Water and Sewer Enterprise Fund…… 1,324,095 - - - 1,464,097 - 2,788,192 (5)
Total……………………………………… $ 2,687,231 $ 1,648,085 $ 2,118,620 $ 518,027 $ 1,464,097 $ 2,926,246 $ 11,362,306
(1) Transfer from general fund to city grants fund to fund capital projects; to trash enterprise fund for the City's subsidized portion; transfer from general fund to golf enterprise fund to reimburse for amounts raised by taxation; transfer from general fund to nonmajor governmental funds to fund capital projects.
(2) Transfer from city grants fund to general fund to close out old grant funds; transfers within city grant funds.
(3) Transfer from other governmental funds to the general fund for their share of indirect costs; transfer to city grants funds to fund capital projects; transfers within nonmajor governmental funds to reallocate resources.
(4) Transfers from the golf course enterprise fund to the general fund as voted by the City council to fund related operations.
(5) Transfer from the water and sewer enterprise fund to the general fund for their share of indirect costs.
The City’s interfund balances at June 30, 2017, consisted of $57,700 in balances within the nonmajor governmental funds representing interfund borrowings for cash flow purposes.
NOTE 6 – CAPITAL AND OPERATING LEASES
Capital Leases
The City has entered into lease agreements as lessee for financing the acquisition of various vehicles and equipment for governmental activities. These lease agreements qualify as capital leases for accounting purposes and therefore, have been recorded at the present value of their future minimum lease payments as of the inception date. The City has also entered into a new capital lease agreements for golf and turf equipment recorded in business-type activities.
City of Salem, Massachusetts A-73 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
The assets acquired through capital leases are as follows:
Governmental Business-type Activities Activities Asset: Machinery and equipment…………………………………$205,252 $ 447,254 Vehicles…………………………………………………….. 1,586,189 57,316 Infrastructure………...……………………………………… 1,240,594 - Less: accumulated depreciation………………………… (459,752) (205,206)
Total………………………………………………………$ 2,572,283 $ 299,364
The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2017, were as follows:
Governmental Business-type Years Ending June 30: Activities Activities
2018………………………………………………………$ 569,446 $ 127,239 2019……………………………………………………… 575,400 88,598 2020……………………………………………………… 328,991 19,543 2021……………………………………………………… 284,199 - 2022……………………………………………………… 270,838 - 2023……………………………………………………… 268,047 - 2024……………………………………………………… 87,972 -
Total minimum lease payments……………………… 2,384,893 235,380
Less: amounts representing interest………………… (134,613) (8,964)
Present value of minimum lease payments………… $ 2,250,280 $ 226,416
Operating Leases
The City leases office space for the City Hall Annex under an operating lease that began in March 2013 and has been extended through 2018. The City made twelve lease payments for the year ended June 30, 2017, totaling $396,506 which is reported as general government expenditures in the general fund.
NOTE 7 – SHORT-TERM FINANCING
Short-term debt may be authorized and issued to fund the following:
• Current operating costs prior to the collection of revenues through issuance of revenue or tax anticipation notes (RANS or TANS).
• Capital project costs and other approved expenditures incurred prior to obtaining permanent financing through issuance of bond anticipation notes (BANS), state aid anticipation notes (SAANS) or grant anticipation notes (GANS).
City of Salem, Massachusetts A-74 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Short-term loans are general obligations and carry maturity dates that are limited by statute. Interest expenditures and expenses for short-term borrowings are accounted for in the general fund and enterprise funds, respectively.
Details related to the short-term debt activity for the year ended June 30, 2017, are as follows:
Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose (%) Due Date 2016 Issued Redeemed 2017
Governmental Activities
SAAN Municipal Purpose……… 1.50% 06/28/18 $ - $ 948,500 $ - $ 948,500 BAN Municipal Purpose……… 1.60% 11/17/17 - 2,427,930 - 2,427,930 SAAN Municipal Purpose……… 1.08% 06/30/17 2,267,000 - (2,267,000) - BAN Municipal Purpose……… 1.50% 01/31/17 900 - (900) -
Sub-total governmental notes…………………… 2,267,900 3,376,430 (2,267,900) 3,376,430
Business-type Activities
BAN Municipal Purpose……… 1.60% 11/17/17 - 50,000 - 50,000 BAN Municipal Purpose……… 1.60% 11/17/17 - 586,000 - 586,000
Sub-total business-type notes…………………… - 636,000 - 636,000
Total notes payable...... …………………………$ 2,267,900 $ 4,012,430 $ (2,267,900) $ 4,012,430
Subsequent to year end the City rolled the BANs that matured on November 17, 2017, into a new BAN totaling $3,063,930, with a 2.00% interest rate, which matures on January 31, 2018.
NOTE 8 – LONG-TERM DEBT
Under the provisions of Chapter 44, Section 10, Municipal Law authorizes indebtedness up to a limit of 5% of the equalized valuation. Debt issued in accordance with this section of the law is designated as being "inside the debt limit". In addition, however, debt may be authorized in excess of that limit for specific purposes. Such debt, when issued, is designated as being "outside the debt limit".
Details related to the outstanding general obligation indebtedness at June 30, 2017, and the debt service requirements are reported in the following tables.
City of Salem, Massachusetts A-75 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Bonds Payable Schedule – Governmental Activities
Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount (%) 2016 Issued Redeemed 2017
Municipal Purpose Bonds of 2007…………………… 2028 $ 8,319,497 3.75-5.00% $ 4,420,000 $ - $ (4,015,000) $ 405,000 Municipal Purpose Refunding Bonds of 2010……… 2020 8,113,000 2.00-5.00% 3,251,000 - (766,000) 2,485,000 Municipal Purpose Bonds of 2010…………………… 2026 5,219,000 3.00-5.00% 2,630,000 - (380,000) 2,250,000 Municipal Purpose Bonds of 2013…………………… 2043 15,143,598 2.63-4.00% 13,920,000 - (520,000) 13,400,000 Municipal Purpose Bonds of 2014…………………… 2034 6,680,000 3.00-4.00% 6,100,000 - (300,000) 5,800,000 Municipal Purpose Refunding Bonds of 2014……… 2025 2,509,500 3.00-4.00% 2,375,000 - (345,000) 2,030,000 Municipal Purpose Bonds of 2015…………………… 2035 4,860,000 2.50-4.00% 5,405,000 - (565,000) 4,840,000 Municipal Purpose Bonds of 2016…………………… 2036 5,731,361 2.50-4.00% 5,731,361 - (471,361) 5,260,000 Municipal Purpose Bonds of 2017…………………… 2036 5,407,000 3.00-4.00% 4,742,000 665,000 - 5,407,000 Municipal Purpose Refunding Bonds of 2017……… 2037 3,312,000 3.00-4.00% - 3,312,000 - 3,312,000
Total Governmental bonds payable………………………………………………………………………… 48,574,361 3,977,000 (7,362,361) 45,189,000
Unamortized premiums on bonds…………………………………………………………………………… 2,160,910 982,484 (373,325) 2,770,069
Total outstanding bonds payable reported in governmental activities……………………………………$ 50,735,271 $ 4,959,484 $ (7,735,686) 47,959,069
Less unamortized premiums on bonds…………………………………………………………………………………………………………………………………… (2,770,069)
Total future payments of bonds reported in governmental activities……………………………………………………………………………………………………$ 45,189,000
Debt service requirements for governmental bonds are as follows:
Year Principal Interest Total
2018…………………… $ 4,282,000 $ 1,634,731 $ 5,916,731 2019…………………… 4,190,000 1,483,545 5,673,545 2020…………………… 4,200,000 1,309,772 5,509,772 2021…………………… 3,060,000 1,151,597 4,211,597 2022…………………… 2,625,000 1,029,698 3,654,698 2023…………………… 2,630,000 916,320 3,546,320 2024…………………… 2,465,000 806,302 3,271,302 2025…………………… 2,480,000 705,050 3,185,050 2026…………………… 2,055,000 618,527 2,673,527 2027…………………… 1,830,000 551,453 2,381,453 2028…………………… 1,792,000 491,348 2,283,348 2029…………………… 1,335,000 440,068 1,775,068 2030…………………… 1,230,000 397,168 1,627,168 2031…………………… 1,230,000 355,593 1,585,593 2032…………………… 1,200,000 314,745 1,514,745 2033…………………… 1,215,000 274,533 1,489,533 2034…………………… 1,215,000 233,468 1,448,468 2035…………………… 905,000 1 98,573 1,103,573 2036…………………… 830,000 1 71,265 1,001,265 2037…………………… 695,000 1 46,148 841,148 2038…………………… 600,000 1 23,784 723,784 2039…………………… 620,000 1 02,044 722,044 2040…………………… 645,000 79,11 7 724,117 2041…………………… 660,000 55,47 3 715,473 2042…………………… 695,000 30,91 4 725,914 2043…………………… 505,000 9,15 4 514,154
Total…………………… $ 45,189,000 $ 13,630,390 $ 58,819,390
City of Salem, Massachusetts A-76 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
The Commonwealth has approved school construction assistance to the City. The assistance program, which is administered by the MSBA, provides resources for future debt service of general obligation school bonds outstanding. During 2017, $733,000 of such assistance was received. Approximately $2,198,000 will be received in future years of which $177,000 represents reimbursement of long-term interest costs, and $2,021,000 represents reimbursement of approved construction costs. Accordingly, a $2,021,000 intergovernmental receivable and corresponding deferred inflow of resources have been reported in the governmental fund financial statements. The deferred inflow of resources has been eliminated in the conversion to the government-wide financial statements and reported as net position.
The MSBA has modified the method of funding for new projects in the school building assistance program. Under the new program, the assistance is paid to support the State’s share of eligible construction costs as they are incurred, therefore eliminating the need for the City to fund the State’s share through long-term debt. The Saltonstall and Collins School projects are being partially funded through this program. As of June 30, 2017, the City has recorded an intergovernmental receivable totaling $4.4 million, which represents the State’s 78.23% share of eligible construction costs incurred to date that have not yet been reimbursed. The MSBA has performed final audits on the City’s construction costs and final reimbursements of $3,892,750 have been received in July 2017.
In order to take advantage of favorable interest rates, the City issued $4,775,000 of General Obligation Refunding Bonds on November 17, 2016. The proceeds of the refunding bonds along with the bond premiums and City funds were used to advance refund $5,210,000 of general obligation bonds by placing the proceeds of the refunding bonds and additional City funds in an irrevocable trust to provide for all future debt service payments on the refunded bonds. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the statement of net positon. This advance refunding was undertaken to reduce total debt service payments over the next 10 years by $435,000 and resulted in an economic gain of $525,324. At June 30, 2017, $5,210,000 of bonds outstanding from the advance refunding are considered defeased.
Bonds Payable Schedule – Water and Sewer Enterprise Fund
Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount (%) 2016 Issued Redeemed 2017
Water Project - MCWT………………………….…… 2027 $ 2,330,656 2.00% $ 1,398,468 $ - $ (114,805) $ 1,283,663 Water Project………………………….……………… 2028 3,250,503 3.75-5.00% 1,925,000 - (1,765,000) 160,000 Sewer Improvements………………………………… 2030 1,690,000 3.00-5.00% 1,200,000 - (95,000) 1,105,000 Water System Tanks and Improvements………… 2031 8,464,000 3.00-5.00% 5,760,000 - (540,000) 5,220,000 Water System Improvements………………………… 2033 1,412,402 2.63-4.00% 1,250,000 - (55,000) 1,195,000 Sewer Improvements………………………………… 2033 1,435,000 2.63-4.00% 1,260,000 - (60,000) 1,200,000 Sewer Improvements………………………………… 2034 3,900,000 3.00-4.00% 3,625,000 - (145,000) 3,480,000 Sewer Improvements………………………………… 2035 2,300,000 2.50-4.00% 2,185,000 - (115,000) 2,070,000 Sewer Improvements………………………………… 2036 2,650,000 2.00-5.00% 2,650,000 - (140,000) 2,510,000 Water Improvements………………………………… 2025 3,600,000 2.00-5.00% 3,600,000 - (415,000) 3,185,000 Sewer Improvements………………………………… 2036 2,950,000 3.00-4.00% 1,010,750 1,939,250 - 2,950,000 Water Improvements………………………………… 2036 4,095,000 3.00-4.00% 2,882,000 1,213,000 - 4,095,000 Water Refunding Bonds of 2017…………………… 2028 1,463,000 4.00% - 1,463,000 - 1,463,000
Total Water and Sewer bonds payable……………………………………………………………………… 28,746,218 4,615,250 (3,444,805) 29,916,663
Unamortized premiums on bonds…………………………………………………………………………… 788,037 651,799 (174,386) 1,265,450
Total outstanding bonds payable reported in water and sewer………………………………………… $ 29,534,255 $ 5,267,049 $ (3,619,191) $ 31,182,113
Less unamortized premiums on bonds ………………………………………………………………….…………………………………………………………….… (1,265,450)
Total future payments on bonds reported in water and sewer funds……………………………………………………………………………………………………$ 29,916,663
City of Salem, Massachusetts A-77 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Debt service requirements for the water and sewer enterprise fund are as follows:
Year Principal Interest Total
2018………………$ 2,232,124 $ 1,088,737 $ 3,320,861 2019……………… 2,229,490 1,011,770 3,241,260 2020……………… 2,246,904 923,206 3,170,110 2021……………… 2,274,367 830,494 3,104,861 2022……………… 2,201,880 738,131 2,940,011 2023……………… 2,219,443 646,919 2,866,362 2024……………… 2,252,058 554,754 2,806,812 2025……………… 2,279,726 463,478 2,743,204 2026……………… 1,922,447 383,595 2,306,042 2027……………… 1,545,224 321,437 1,866,661 2028……………… 1,328,000 270,632 1,598,632 2029……………… 1,205,000 224,913 1,429,913 2030……………… 1,050,000 183,687 1,233,687 2031……………… 1,040,000 145,816 1,185,816 2032……………… 940,000 1 11,444 1,051,444 2033……………… 915,000 80 ,470 995,470 2034……………… 790,000 51 ,391 841,391 2035……………… 525,000 29,547 554,547 2036……………… 420,000 19,428 439,428 2037……………… 300,000 - 300,000
Total………………$ 29,916,663 $ 8,079,849 $ 37,996,512
Bonds Payable Schedule – Golf Course Enterprise Fund
Original Interest Outstanding Outstanding Maturities Loan Rate at June 30, at June 30, Project Through Amount (%) 2016 Issued Redeemed 2017
Golf Course Clubhouse Refunding of 2010………… 2017 $ 172,000 2.00-5.00% $ 19,000 $ - $ (19,000) $ - Golf Course Equipment of 2016……………………… 2024 113,639 2.00-5.00% 113,639 - (18,639) 95,000
Total Golf Course Enterprise bonds payable…………………………...……………………………………………………………………$ 132,639 $ - $ (37,639) $ 95,000
Debt service requirements for the golf course enterprise fund are as follows:
Year Principal Interest Total
2018………………$ 15,000 $ 4,075 $ 19,075 2019……………… 15,000 3,550 18,550 2020……………… 15,000 2,875 17,875 2021……………… 15,000 2,125 17,125 2022……………… 15,000 1,375 16,375 2023……………… 10,000 750 10,750 2024……………… 10,000 250 10,250
Total………………$ 95,000 $ 15,000 $ 110,000
City of Salem, Massachusetts A-78 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
The City is subject to various debt limits by statute and may issue additional general obligation debt under the normal debt limit. At June 30, 2017, the City had the following authorized and unissued debt:
Purpose Amount
School Construction and Equipment…… $ 5,460,504 Water Systems Improvements...... 2,915,264 Capital Projects...... 15,176,676 Senior Center Construction……………… 4,994,136 CIP Projects Water and Sewer……...... 17,720,000 Transfer Station…………………………… 1,605,500 Derby Street Land Taking……………..... 1,400,000
Total……………………………………… $ 49,272,080
Changes in Long-term Liabilities
During the year ended June 30, 2017, the following changes occurred in long-term liabilities:
Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities: Long-term bonds………………… $ 48,574,361 $ 3,977,000 $ (7,362,361) $ 45,189,000 $ 4,282,000 Add: unamortized premium…… 2,160,910 982,484 (373,325) 2,770,069 459,013 Total bonds payable………… 50,735,271 4,959,484 (7,735,686) 47,959,069 4,741,013 Capital leases……………………… 2,211,224 590,426 (551,370) 2,250,280 530,871 Compensated absences………… 8,943,148 2,109,311 (1,971,809) 9,080,650 1,472,655 Landfill closure…………………… 2,250,000 - - 2,250,000 1,125,000 Workers' compensation……..…… 1,421,695 180,756 (120,856) 1,481,595 123,130 Other postemployment benefits… 49,134,159 11,953,143 (4,482,172) 56,605,130 - Net pension liability……………… 102,362,764 8,322,087 (2,643,566) 108,041,285 -
Total governmental activity long-term liabilities……………… $ 217,058,261 $ 28,115,207 $ (17,505,459) $ 227,668,009 $ 7,992,669
Business-Type Activities: Capital leases………………………$ 274,554 $ 57,316 $ (105,454) $ 226,416 $ 121,460 Long-term bonds………………… 28,878,857 4,615,250 (3,482,444) 30,011,663 2,247,124 Add: unamortized premium…… 788,037 651,799 (174,386) 1,265,450 191,660 29,666,894 5,267,049 (3,656,830) 31,277,113 2,438,784 Compensated absences………… 59,231 31,233 (24,700) 65,764 26,144 Other postemployment benefits… 1,424,095 161,788 (53,995) 1,531,888 - Net pension liability……………… 2,674,923 416,140 (267,750) 2,823,313 -
Total business-type activity long-term liabilities……………… $ 34,099,697 $ 5,933,526 $ (4,108,729) $ 35,924,494 $ 2,586,388
Compensated absence, workers’ compensation and other postemployment liabilities related to both governmental and business-type activities are normally paid from the funds reporting payroll and related expenditures, which consist of the general fund and the sewer, water, golf, and trash enterprise funds.
City of Salem, Massachusetts A-79 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
NOTE 9 – GOVERNMENTAL FUND BALANCE CLASSIFICATIONS
The City classifies fund balances according to the constraints imposed on the use of the resources. There are two major types of fund balances, which are nonspendable and spendable.
Nonspendable fund balances are balances that cannot be spent because they are not expected to be converted to cash or they are legally or contractually required to remain intact. Examples of this classification are prepaid items, inventories, and principal (corpus) of an endowment fund. The City has reported principal portions of endowment funds as nonspendable.
Spendable fund balances are classified based on a hierarchy of spending constraints.
• Restricted: fund balances that are constrained by external parties, constitutional provisions, or enabling legislation.
• Committed: fund balances that contain self-imposed constraints of the government from its highest level of decision making authority.
• Assigned: fund balances that contain self-imposed constraints of the government to be used for a particular purpose.
• Unassigned: fund balance of the general fund that is not constrained for any particular purpose and the deficit fund balances for other funds that would otherwise be restricted, committed, or assigned.
The City of Salem’s spending policy is to spend restricted fund balance first, followed by committed, assigned and unassigned fund balance. Most governmental funds are designated for one purpose at the time of their creation. Therefore, any expenditure from the fund will be allocated to the applicable fund balance classifications in the order of the aforementioned spending policy. The general fund and certain other funds may have more than one purpose.
Massachusetts General Law Ch.40 §5B allows for the establishment of Stabilization funds for one or more different purposes. The creation of a fund requires a two-thirds vote of the legislative body and must clearly define the purpose of the fund. Any change to the purpose of the fund along with any additions to or appropriations from the fund requires a two-thirds vote of the legislative body. At year end the balances of the General Stabilization Fund and the Retirement Stabilization Fund totaled $6.0 million and $729k, respectively and are reported as unassigned fund balance within the general fund.
City of Salem, Massachusetts A-80 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
As of June 30, 2017, the governmental fund balances consisted of the following:
GOVERNMENTAL FUNDS
Community City Wharf Capital Nonmajor Total Preservation Project City Improvement Governmental Governmental General Fund Fund Grants Funds Funds Funds
FUND BALANCES Nonspendable: Permanent fund principal…………$- $ - $ - $ - $ - $ 2,206,224 $ 2,206,224 Restricted for: Community preservation fund…… - 1,101,457 - - - - 1,101,457 City grant funds…………………… - - - 2,911,101 - - 2,911,101 City Wharf Project………………… - - 531,057 - - - 531,057 City revolving funds………………… - - - - - 826,698 826,698 School capital projects…………… - - - - - 4,928,614 4,928,614 School lunch………………………… - - - - - 342,369 342,369 School revolving funds…………… - - - - - 489,112 489,112 School grant funds………………… - - - - - 1,924,172 1,924,172 Donations and gifts………………… - - - - - 780,031 780,031 Receipts reserved………………… - - - - - 1,712,272 1,712,272 Community development grants… - - - - - 26,165 26,165 Other capital projects……………… - - - - - 178,215 178,215 Cemetery fund……………………… - - - - - 2,613,736 2,613,736 Human services fund……………… - - - - - 1,421,521 1,421,521 Other permanent funds…………… - - - - 602,153 602,153 Assigned to: General government……………… 192,291 - - - - - 192,291 Public safety………………………… 64,050 - - - - - 64,050 Education…………………………… 106,554 - - - - - 106,554 Public works………………………… 39,309 - - - - - 39,309 Human services…………………… 20,723 - - - - - 20,723 Culture and recreation…………… 20,967 - - - - - 20,967 Short term interest………………… 25,000 - - - - - 25,000 Unassigned…………………………… 14,518,650 - - - (1,087,512) (41,100) 13,390,038
TOTAL FUND BALANCES…………… $ 14,987,544 $ 1,101,457 $ 531,057 $ 2,911,101 $ (1,087,512) $ 18,010,182 $ 36,453,829
NOTE 10 – RISK FINANCING
The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the City carries commercial insurance. The amount of claim settlements has not exceeded insurance coverage in any of the previous three years.
The City participates in premium-based health care plans for its active employees and retirees through the State’s Group Insurance Commission.
Workers’ Compensation
Workers’ compensation claims incurred prior to July 1, 2008 are administered by the City and are funded on a pay-as-you-go basis from annual appropriations. The estimated future workers’ compensation liability is based on history and injury type. At June 30, 2017, the amount of the liability for workers’ compensation claims totaled $1,481,595.
City of Salem, Massachusetts A-81 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Changes in the reported liability since July 1, 2015, are as follows:
Current Year Balance at Claims and Beginning of Changes in Claim Balance at Current the Year Estimate Payments Year-End Portion
Year 2016…… $ 854,030 $ 680,225 $ (112,560) $ 1,421,695 $ 112,306 Year 2017…… 1,421,695 180,756 (120,856) 1,481,595 123,130
NOTE 11 – PENSION PLAN
Plan Description
The City is a member of the City of Salem Contributory Retirement System (System), a cost-sharing, multiple- employer defined benefit pension plan covering eligible employees of the member units. The System is administered by the City of Salem Retirement Board on behalf of all current employees and retirees except for current teachers and retired teachers. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the plan.
The City is a member of the Massachusetts Teachers’ Retirement System (MTRS), a cost-sharing multiple- employer defined benefit pension plan. MTRS is managed by the Commonwealth of Massachusetts (Commonwealth) on behalf of municipal teachers and municipal teacher retirees. The Commonwealth is a nonemployer contributor and is responsible for 100% of the contributions and future benefit requirements of the MTRS. The MTRS covers certified teachers in cities (except Boston), towns, regional school districts, charter schools, educational collaboratives and Quincy College. The MTRS is part of the Commonwealth’s reporting entity and the audited financial report may be obtained by visiting http://www.mass.gov/osc/publications-and- reports/financial-reports/.
Special Funding Situation
The Commonwealth is a nonemployer contributor and is required by statute to make 100% of all actuarially determined employer contributions on behalf of the City to the MTRS. Therefore, the City is considered to be in a special funding situation as defined by GASB Statement No. 68, Accounting and Financial Reporting for Pensions and the Commonwealth is a nonemployer contributor in MTRS. Since the City does not contribute directly to MTRS, there is no net pension liability to recognize. The total of the Commonwealth provided contributions have been allocated based on each employer’s covered payroll to the total covered payroll of employers in MTRS as of the measurement date of June 30, 2016. The City’s portion of the collective pension expense, contributed by the Commonwealth, of $13,244,953 is reported in the general fund as intergovernmental revenue and pension benefits in the current year. The portion of the Commonwealth’s collective net pension liability associated with the City is $129,844,131 as of the measurement date.
Benefits Provided
Both Systems provide retirement, disability, survivor and death benefits to members and beneficiaries. Massachusetts Contributory Retirement System benefits are, with certain minor exceptions, uniform from system to system. The Systems provides for retirement allowance benefits up to a maximum of 80% of a member’s highest three-year average annual rate of regular compensation. For persons who became members on or after April 2, 2012, average salary is the average annual rate of regular compensation received during the five consecutive years that produce the highest average, or, if greater, during the last five years (whether or not
City of Salem, Massachusetts A-82 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017 consecutive) preceding retirement. Benefit payments are based upon a member’s age, length of creditable service, level of compensation, and group classification. Members become vested after ten years of creditable service.
Employees who resign from service and who are not eligible to receive a retirement allowance or are under the age of 55 are entitled to request a refund of their accumulated total deductions. Survivor benefits are extended to eligible beneficiaries of members whose death occurs prior to or following retirement.
Cost-of-living adjustments granted between 1981 and 1997 and any increase in other benefits imposed by the Commonwealth’s state law during those years are borne by the Commonwealth and are deposited into the pension fund. Cost-of-living adjustments granted after 1997 must be approved by the Board and are borne by the System. There were no changes in benefit terms that effected the measurement of the total pension liability at December 31, 2016.
At December 31, 2016, the System’s membership consists of the following:
Active members…………………………………………………… 1,036 Inactive members………………………………………………… 106 Retirees and beneficiaries currently receiving benefits……… 577
Total……………………………………………………………… 1,719
Contributions
Chapter 32 of the MGL governs the contributions of plan members and member units. Active plan members are required to contribute to the System at rates ranging from 5% to 9% of gross regular compensation with an additional 2% contribution required for compensation exceeding $30,000. The percentage rate is keyed to the date upon which an employee's membership commences. The member units are required to pay into the System a legislatively mandated actuarial determined contribution. The total member units’ contribution for the year ended December 31, 2016, was $12,527,730, 27.33% of covered payroll, actuarially determined as an amount that, when combined with plan member contributions, is expected to finance the costs of benefits earned by plan members during the year, with an additional amount to finance any unfunded accrued liability. The City’s proportionate share of the required contribution equaled its actual contribution for the year ended June 30, 2017, and totaled $10,513,908.
Pension Liabilities
The components of the net pension liability of the participating member units at June 30, 2017, were as follows:
Total pension liability…………………………… $ 281,283,635
The pension plan's fiduciary net position……… (150,440,259)
The net pension liability………………………… $ 130,843,376
The pension plan's fiduciary net position as a percentage of the total pension liability…… 53.48%
At June 30, 2017, the City reported a liability of $110,864,598 for its proportionate share of the net pension liability. The net pension liability was measured as of December 31, 2016, and the total pension liability used to
City of Salem, Massachusetts A-83 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017 calculate the net pension liability was determined by an actuarial valuation as of January 1, 2016. Accordingly, update procedures were used to roll forward the total pension liability to the measurement date.
The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating members. At December 31, 2016, the City’s proportion was 84.73%, which increased from its 84.67% proportion measured at December 31, 2015.
Pension Expense
For the year ended June 30, 2017, the City recognized a pension expense of $13,061,110. At June 30, 2017, the City reported deferred outflows of resources related to pensions of $5,820,996, and reported deferred inflows of resources related to pensions of $3,778,686.
The balances of deferred outflows and inflows at June 30, 2017, consist of the following:
Deferred Deferred Outflows Inflows Deferred category of Resources of Resources Total
Differences between expected and actual experience………$-$ (3,778,686) $ (3,778,686) Difference between projected and actual earnings…………… 5,820,996 - 5,820,996 Changes of assumptions……………………………………… 8,378,808 - 8,378,808 Changes in proportion…………………………………………… 435,574 (118,522) 317,052
Total Deferred Outflows/(Inflows) of Resources………………$ 14,635,378 $ (3,897,208) $ 10,738,170
The City’s deferred outflows of resources related to pensions will be recognized in pension expense as follows:
Year ended June 30:
2018……………………………………………… $ 3,254,028 2019……………………………………………… 3,254,028 2020……………………………………………… 2,957,418 2021……………………………………………… 1,272,696
Total……………………………………………… $ 10,738,170
City of Salem, Massachusetts A-84 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Actuarial Assumptions
The total pension liability in the January 1, 2016, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement that was updated to December 31, 2016:
Valuation date……………………………… January 1, 2016
Actuarial cost method…………………… Entry Age Normal Cost Method.
Amortization method……………………… Increasing at 4.5% per year for 2002 and 2003 ERI and remaining unfunded liability and level dollar amortization for 2010 ERI.
Remaining amortization period…………… As of July 1, 2016, 6 years remaining on 2010 ERI, 15 years remaining on the 2002 and 2003 ERI and the remaining unfunded liability.
Asset valuation method…………………… The difference between the expected return on an actuarial basis and actual investment return on a market value basis is recognized over a five-year period.
Inflation rate………………………………… 3.50%
Projected salary increases……………… Varies by length of service with ultimate rates of 4.25% for Group 1, 4.50% for Group 2 and 4.75% for Group 4.
Cost of living adjustments………………… 3.00% for first $12,000 of retirement income.
Rates of retirement………………………… Varies based upon age for public employees, police and fire employees, hazardous occupation employees, and officers and inspectors of the State Police.
Rates of disability………………………… For general employees, it was assumed that 45% of all disabilities are ordinary (55% are service connected). For police and fire employees, 10% of all disabilities are assumed to be ordinary (90% are service connected).
Mortality Rates: Pre-Retirement……………… RP-2000 Employee Mortality Table projected generationally using Scale BB2D from 2009.
Healthy Retiree……………… RP-2000 Healthy Annuitant Mortality Table projected generationally using Scale BB2D from 2009.
Disabled Retiree……………… RP-2000 Healthy Annuitant Mortality Table projected generationally using Scale BB2D from 2009.
Investment rate of return/Discount rate… 7.5%, net of pension plan investment expense, including inflation.
City of Salem, Massachusetts A-85 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Investment Policy
The pension plan’s policy in regard to the allocation of invested assets is established by PRIT. Plan assets are managed on a total return basis with a long-term objective of achieving a fully funded status for the benefits provided through the pension plan.
The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of January 1, 2016, are summarized in the following table:
Target Long-Term Expected Asset Class Allocation Real Rate of Return
Large Cap Equities…………………………………… 14.5% 4.00% Small/Mid Cap Equities……………………………… 3.5% 4.25% International Equities………………………………… 16.0% 4.33% Emerging International Equities……………………… 6.0% 6.11% Core Bonds…………………………………………… 5.0% 0.50% 20+ Year Treasury STRIPS (a)……………………… 5.0% 0.25% Treasury Inflation Protected Securities (TIPS)……… 3.0% 0.25% High-Yield Bonds……………………………………… 1.5% 2.25% Bank Loans…………………………………………… 1.5% 2.50% Emerging Market Debt (External)…………………… 1.0% 2.25% Emerging Market Debt (Local Currency)…………… 2.0% 3.00% Private Debt…………………………………………… 4.0% 5.56% Private Equity…………………………………………… 10.0% 6.00% Real Estate……………………………………………… 10.0% 3.00% Timberland……………………………………………… 4.0% 2.50% Hedge Funds and Portfolio Completion…………… 13.0% 2.98% Total/Total Fund Expected Return…………………… 100.00%
Rate of Return:
For the year ended December 31, 2016, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expense, was 7.41%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested.
Discount Rate:
The discount rate used to measure the total pension liability was 7.5%. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate and that contributions will be made at rates equal to the actuarially determined contribution rated. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.
City of Salem, Massachusetts A-86 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Sensitivity of the Net Pension Liability to Changes In the Discount Rate:
The following presents the net position liability, calculated using the discount rate of 7.5%, as well as what the net position liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.5%) or 1- percentage-point higher (8.5%) than the current rate:
Current 1% Decrease Discount 1% Increase (6.5%) (7.5%) (8.5%)
The City's proportionate share of the net pension liability……$ 137,015,634 $ 110,864,598 $ 88,669,595
The Retirement System's total net pension liability………… $ 161,707,064 $ 130,843,376 $ 104,648,641
Changes in Assumptions
None.
Changes in Plan Provisions
None.
NOTE 12 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS
Plan Description – The City of Salem administers a single-employer defined benefit healthcare plan (“Plan”). The Plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s participation in the Group Insurance Commission of the Commonwealth of Massachusetts (GIC), which covers both active and retired members. Chapter 32b of the MGL assigns authority to establish and amend benefit provisions of the plan. The Retiree Health Plan does not issue a publicly available financial report. Benefit provisions are negotiated between the City and unions representing City employees and are renegotiated each bargaining period. The employer’s share for life insurance is 65% while the retiree is responsible for 35%. Regarding health insurance, these rates are dependent upon the individual’s date of retirement. The rates range from 10% to 35% for the retiree’s co-payment of the total premium, and 65% to 90% for the City.
Funding Policy
Contribution requirements are also negotiated between the City and union representatives. The required contribution is based on a pay-as-you-go financing requirement. The City contributes 70% of the cost of current- year premiums for retirees in active plans, 65% for those in senior plans and 90% for retired teachers. The City contributes 50% for surviving spouses. Plan members receiving benefits contribute the remainder of their premium costs. For 2017, the City’s age adjusted contribution to the plan totaled approximately $4.5 million. For the year ended June 30, 2017, the City’s average contribution rate was 14.61% of covered payroll.
The Commonwealth of Massachusetts passed special legislation that has allowed the City to establish a postemployment benefit trust fund and to enable the City to begin pre-funding its other postemployment benefits (OPEB) liabilities. The City has named the Health Care Security Board of Trustees (HCSBT) as Trustees of the OPEB Fund and as such has authorized the OPEB Trust Funds to be invested entirely in the State Retirement Benefits Trust Fund (SRBT Fund). Massachusetts General Law directs the HSCBT to invest the SRBT Fund in the Pension Reserves Investment Trust (PRIT) Fund. The Trustees have adopted a trust agreement detailing
City of Salem, Massachusetts A-87 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017 their duties and responsibilities as Trustees. The PRIT Fund is subject to oversight by the Pension Reserves Investment management Board (PRIM) Board. A nine member Board of Trustees governs the PRIM Board. The Board of Trustees has the authority to employ an Executive Director, outside investment managers, custodians, consultants, and others as it deems necessary to formulate policies and procedures and to take such other actions as necessary and appropriate to manage the assets of the PRIT fund.
During 2017, the City pre-funded future OPEB liabilities totaling approximately $269,000, by contributing funds to the OPEB fund in excess of the pay-as-you-go required contribution. These funds are reported within the City’s Fiduciary Fund financial statements. As of June 30, 2017, the balance of this fund totaled $2.2 million.
Rate of Return - The annual money-weighted rate of return on OPEB plan investments was 9.08%. The money- weighted rate of return expresses investment performance, net of OPEB plan investment expense, adjusted for the changing amounts actually invested.
Plan Membership – The following table represents the Plan’s membership at June 30, 2017:
Active participants………………………………………… 822 Retired participants………………………………………… 968
Total participants…………………………………………… 1,790
Components of OPEB Liability – The following table represents the components of the other postemployment benefits liability as of June 30, 2017:
Total OPEB liability………………………………… $ 159,840,752 Less: OPEB plan's fiduciary net position………… (2,189,299)
Net OPEB liability……………………………………$ 157,651,453
The OPEB plan's fiduciary net position as a percentage of the total OPEB liability……… 1.37%
Significant Actuarial Methods Assumptions – The following actuarial methods and assumptions were used to determine the total other postemployment benefit liability in the June 30, 2016, actuarial valuation, applied to all periods included in the measurement date that was updated to June 30, 2017 to be in compliance with GASB Statement # 74:
Valuation date……………………… June 30, 2016
Actuarial cost method……………… Entry Age Normal - Level percentage of payroll
Asset valuation method…………… Market value
Amortization method………………… Payments increasing at 3.5%
Remaining amortization period…… 30 years open
Inflation rate………………………… 3.5%
City of Salem, Massachusetts A-88 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Discount rate………………………… 3.58% as of June 30, 2017 and 2.85% as of June 30, 2016
Investment rate of return…………… 7.50%
Salary increases…………………… Service-related increases for Group 1 (excluding Teachers) and Group 2 employees: 6.00% decreasing over 9 years to an ultimate level of 4.25%
Service-related increases for Group 4 members: 7.00% decreasing over 5 years to an ultimate level of 4.75%
Service-related increases for Teachers: 7.50% decreasing over 20 years to an ultimate level of 4.00%
Healthcare cost trend rates:
Non-Medicare*……………………… 6.3% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year
Medicare Supplement*…………… 0.4% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year
Medicare Advantage*……………… 8.9% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year
Part B premium…………………… 5.00%
Contributions………………………… Non-Medicare and Medicare retiree contributions are expected to increase with the respective medical trends shown above.
Mortality tables:
Pre-Retirement (Non-Teachers)…… RP-2000 Employee Mortality Table projected generationally from 2009 with Scale BB2D
Healthy (Non-Teachers)…………… RP-2000 Healthy Annuitant Mortality Table projected generationally from 2009 with Scale BB2D
Disabled (Non-Teachers)…………… RP-2000 Healthy Annuitant Mortality Table projected generationally from 2015 with Scale BB2D Pre-Retirement (Teachers)………… RP-2014 White Collar Employee Mortality Table projected generationally with Scale MP-2016
Healthy (Teachers)………………… RP-2014 White Collar Healthy Annuitant Mortality Table projected generationally with Scale MP-2016
Disabled (Teachers)………………… RP-2014 Healthy Annuitant Mortality Table set forward 4 years projected generationally with Scale BB from 2014
*Trends reflect known increases.
City of Salem, Massachusetts A-89 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Investment Policy – The City’s policy in regard to the allocation of invested assets is established and may be amended by the Council by a majority vote of its members. The OPEB plan’s assets are managed on a total return basis with a long-term objective of achieving and maintaining a fully funded status for the benefits provided through the plan.
The long-term expected rate of return on OPEB plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage and by adding expected inflation and subtracting expected investment expenses and a risk margin.
The target allocation and projected arithmetic real rates of return for each major asset class, after deducting inflation, but before investment expenses, used in the derivation of the long-term expected investment rate of return assumption are summarized below:
Long-term Expected Long-term Expected Asset Class Asset Allocation Real Rate of Return
Domestic equity……………………………………. 18% 6.44% International developed markets equity…………… 16% 7.40% International emerging markets equity…………… 6% 9.42% Core fixed income…………………………………… 12% 2.02% High-yield fixed income…………………………… 10% 4.43% Real estate…………………………………………… 10% 5.00% Commodities………………………………………… 4% 4.43% Hedge fund, GTAA, Risk parity…………………… 13% 3.75% Private equity………………………………………… 11% 10.47%
100%
Discount Rate- The City’s Net Other Postemployment Benefits liability was determined based on the index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher as of June 30, 2017 as reported by the Bond Buyer’s 20 bond index. Because the current assets in the OPEB Trust and the City’s funding policy to contribute $200,000 per year are insufficient to pay projected benefits, the Bond Buyer’s 20 bond index was used.
Sensitivity of the Net OPEB Liability to Changes in the Discount Rate – The following table presents the net OPEB liability calculated using the discount rate of 3.58%, as well as what the net OPEB liability would be if it were calculated using a discount rate that is 1 percentage point lower (2.58%) or 1 percentage point higher (4.58%) than the current rate.
Current 1% Decrease Discount Rate 1% Increase (2.58%) (3.58%) (4.58%)
Net OPEB liability…… $ 185,535,428 $ 157,651,453 $ 135,686,914
City of Salem, Massachusetts A-90 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rate – The following table presents the net OPEB liability calculated using a healthcare cost trend rate that is 1 percentage point lower or 1 percentage point higher than the current rate.
1% Decrease Current 1% Increase in Trend Rates Trend Rates in Trend Rates
Net OPEB liability…… $ 133,228,751 $ 157,651,453 $ 189,613,441
The City’s Annual OPEB Cost and Net OPEB Obligation – The City’s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement #45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s net OPEB obligation are summarized in following table:
Annual required contribution……………………………………$ 12,039,407 Interest on net OPEB obligation……………………………… 1,809,985 Adjustments to annual required contribution………………… (1,734,461) Annual OPEB cost (expense)…………………………… 12,114,931
Contributions made (including retired teachers)…………… (4,536,167)
Increase in net OPEB obligation……………………………… 7,578,764
Net OPEB obligation-beginning of year……………………… 50,558,254
Net OPEB obligation-end of year………………………………$ 58,137,018
The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2017 and the prior two years was as follows:
Percentage of Year Annual Annual OPEB Net OPEB Ended OPEB Cost Cost Contributed Obligation
6/30/2017 $ 12,114,931 37% $ 58,137,018 6/30/2016 9,358,722 49% 50,558,254 6/30/2015 11,679,191 48% 45,806,700
Funded Status and Funding Progress – As of June 30, 2016, the most recent actuarial valuation date, the actuarial accrued liability for benefits totaled $152 million, of which $1.7 million was funded, resulting in a funded ratio of 1.15%. The annual covered payroll was approximately $82.3 million and the ratio of UAAL to covered payroll was 182.8%.
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future.
City of Salem, Massachusetts A-91 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.
Actuarial Methods and Assumptions – Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
In the June 30, 2016, actuarial valuation, actuarial liabilities were determined using the entry age normal actuarial cost method. The actuarial assumptions included a 3.58% discount rate, which is based on the expected yield on the assets of the Trust at an investment return assumption of 7.5%, calculated based on the funded level of the plan at the valuation date, and an annual medical/drug cost trend rates listed below. The UAAL is being amortized over a closed 30 year period, with amortization payments increasing at 3.5% per year. The asset valuation method used is market value. The remaining amortization period at June 30, 2016, is 30 years.
Healthcare cost trend rates:
Non-Medicare*……………………… 6.3% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year
Medicare Supplement*…………… 0.4% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year
Medicare Advantage*……………… 8.9% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year
Part B premium…………………… 5.00%
* Trends reflect known increases.
NOTE 13 – MAJOR TAXPAYER
The Salem Harbor Power Station is the City’s largest taxpayer. The power plant in August of 2012 changed ownership from Dominion Energy to Footprint Power LLC.
From a revenue perspective, at the end of FY2011, the City’s tax agreement with Dominion expired. Prior to this date, the City received a total payment from Dominion Energy in the amount of $4.75 million for FY2011, $3 million in tax dollars within the tax levy and $1.75 million dollars designated as a “host fee” accounted for as miscellaneous non-recurring revenues.
In FY2011, Dominion announced major operational changes shutting down two of their power generating units due to market conditions and regulatory challenges at the state level. Due to the implementation of state regulations impacting its operations, during the FY2012 budget process, the Massachusetts Legislature adopted a proposal to ensure that Salem taxpayers will not be overly burdened by lost revenues from the power plant through 2017. Chapter 68 of the Acts of 2011, Section 33 states that “…the municipality shall be entitled to reimbursement for the difference between the amount called for….prior to the full or partial decommissioning or
City of Salem, Massachusetts A-92 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017 the change in operating status of the facility.” This legislation postpones the financial impact of the loss of a major taxpayer. More importantly, it allows the City to work toward replacing the lost revenues and planning for an appropriate reuse of the site.
As of December 2014, the City has negotiated, and the City Council approved, an 18 year PILOT agreement with Footprint Power LLC. This agreement will utilize the “hold harmless agreement” of $4.75 million from the State during construction through 2019, with payments increasing steadily as the plan becomes up and running. A graduated escalation factor will result in the City receiving over $99,242,000 for the duration of the contract, or $5.5 million a year; a 16% increase over the current tax level collected. In addition to the negotiated PILOT agreement, the City was able to draft and finalize a community benefits agreement which will provide the City and School District with over $4.4 million in additional funding.
Footprint Power has nearly completed the demolition of all existing structures and undertaken any necessary environmental remediation. Footprint has begun constructing a state-of-the-art 630 megawatt gas-fired plant on a portion of the site and will open the remaining two-thirds of the 63 acre waterfront property to private and public development opportunities.
NOTE 14 – LANDFILL CLOSURE
State and federal laws and regulations require the City to construct a final capping system on its inactive landfill site, the Salem Transfer Station, when it stops accepting waste and to perform certain maintenance and monitoring functions at the site after closure. The City has stopped accepting waste at the site and the site is closed. The City is the owner and permittee of the Salem Transfer Station site. During 2016, the City discontinued its relationship with the long-time operator of the site and has approved a final plan for the City to cap the site and to construct a new transfer station on the site. As a result, the City has issued bonds for $644,000 and has authorized and unissued debt for $1,605,500. The City recorded a liability of $2.25 million in the entity-wide financial statements for the total estimated post closure costs. Actual costs may be higher due to inflation, changes in technology, or changes in applicable laws, regulations or agreements.
NOTE 15 – COMMITMENTS
The City has various commitments related to the construction projects which will be financed through long-term borrowing. These projects include $5.5 million for school construction, $2.9 million for water system improvements, $1.6 million for the transfer station, $1.4 million for Derby St. land taking, $5 million for senior center construction, $27.1 million for water and sewer projects and $5.8 million for various other capital projects.
In fiscal year 2015, the City entered into an agreement with Alternative Therapies Group, Inc. (ATG), a Massachusetts not for profit Corporation, on April 14th 2014. Alternative Therapies Group, Inc. wanted to locate a registered marijuana dispensary in the City.
Per the agreement, in the first two years ATG shall pay the City annually a sum equal to 1.25% of the total gross annual sales. Such payments shall be made annually at the end of the first 12 months of operations and the end of the first 24 months of operations. In the third year of operations and for all subsequent years, unless renegotiated, ATG shall pay the City annually a sum of 3.0% of the total gross annual sales. The City received its first payment in fiscal year 2016, totaling $82,000, and its second payment in fiscal year 2017, totaling $248,000.
In fiscal year 2017, the City entered into a Community Benefits Agreement with North Shore Medical Center (NSMC) that consists of support for a broad range of City needs and programs. The agreement, which is in addition to the regular annual payment in lieu of taxes that the hospital provides to the City, comes as NSMC is
City of Salem, Massachusetts A-93 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017 undergoing a significant campus consolidation and expansion project. The agreement is intended to address and mitigate the disruption and impact that the project will have on the City. Under the terms of the agreement, NSMC will provide approximately $1.7 million over the next seven years for various City endeavors. Additionally, NSMC will allow attendees at sporting events at Salem’s Bertram Field to utilize NSMC’s parking lot at 55 Highland Avenue for event parking on evenings and weekends; NSMC will work collaboratively with the City on the design and implementation of a South Salem Commuter Rail stop; and NSMC will maintain its current support for ongoing community public health programs and activities in the City, including the current annual payment in lieu of taxes of $125,000.
NOTE 16 – CONTINGENCIES
The City participates in a number of federal award programs. Although the grant programs have been audited in accordance with the provisions of the Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, these programs are still subject to financial and compliance audits. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time, although it is expected such amounts, if any, to be immaterial.
Various legal actions and claims are pending. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not always predictable. Although the amount of the liability, if any, at June 30, 2017, cannot be ascertained, management believes any resulting liability should not materially affect the financial position at June 30, 2017.
NOTE 17 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through December 21, 2017, which is the date the financial statements were available to be issued.
NOTE 18 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS
During 2017, the following GASB pronouncements were implemented:
• GASB Statement #74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. The basic financial statements, related notes and required supplementary information were updated to be in compliance with this pronouncement.
• GASB Statement #77, Tax Abatement Disclosures. This pronouncement did not impact the basic financial statements.
• GASB Statement #78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans. This pronouncement did not impact the basic financial statements.
• GASB Statement #80, Blending Requirements for Certain Component Units – an amendment of GASB Statement #14. This pronouncement did not impact the basic financial statements.
• GASB Statement #82, Pension Issues – an amendment of GASB Statements #67, #68, and #73. The basic financial statements and related notes were updated to be in compliance with this pronouncement.
The following GASB pronouncements will be implemented in the future:
City of Salem, Massachusetts A-94 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2017
• The GASB issued Statement #75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which is required to be implemented in 2018.
• The GASB issued Statement #81, Irrevocable Split-Interest Agreements, which is required to be implemented in 2018.
• The GASB issued Statement #83, Certain Asset Retirement Obligations, which is required to be implemented in 2019.
• The GASB issued Statement #84, Fiduciary Activities, which is required to be implemented in 2020.
• The GASB issued Statement #85, Omnibus 2017, which is required to be implemented in 2018.
• The GASB issued Statement #86, Certain Debt Extinguishment Issues, which is required to be implemented in 2018.
• The GASB issued Statement #87, Leases, which is required to be implemented in 2021.
Management is currently assessing the impact the implementation of these pronouncements will have on the basic financial statements.
City of Salem, Massachusetts A-95 Comprehensive Annual Financial Report Required Supplementary Information Required Supplementary Information
City of Salem, Massachusetts A-96 Comprehensive Annual Financial Report General Fund Budgetary Comparison Schedule General fund budgetary comparison schedule
The General Fund is the general operating fund of the City. It is used to account for the entire City’s financial resources, except those required to be accounted for in another fund.
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City of Salem, Massachusetts A-98 Comprehensive Annual Financial Report GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2017
Budgeted Amounts
Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget REVENUES: Real estate and personal property taxes, net of tax refunds……………………………… $- $ 89,674,837 $ 89,674,837 $ 89,674,837 $ 89,339,967 $ - $ (334,870) Tax liens…………………………………………… - - - - 763,080 - 763,080 Motor vehicle and other excise taxes…………… - 3,500,000 3,500,000 3,500,000 4,300,898 - 800,898 Hotel/motel tax and meals taxes………………… - 1,534,500 1,534,500 1,534,500 1,683,573 - 149,073 Charges for services……………………………… - 1,750,000 1,750,000 1,750,000 2,777,857 - 1,027,857 Penalties and interest on taxes…………………… - 410,000 410,000 410,000 460,601 - 50,601 Payments in lieu of taxes………………………… - 1,200,000 1,200,000 1,200,000 1,082,164 - (117,836) Licenses and permits……………………………… - 500,000 500,000 500,000 509,915 - 9,915 Fines and forfeitures……………………………… - 1,000,000 1,000,000 1,000,000 823,329 - (176,671) Intergovernmental………………………………… - 31,251,206 31,251,206 31,251,206 31,633,124 - 381,918 Departmental and other…………………………… - 2,650,000 2,650,000 2,650,000 3,300,744 - 650,744 Investment income………………………………… - 160,000 160,000 160,000 263,963 - 103,963
TOTAL REVENUES…………………… - 133,630,543 133,630,543 133,630,543 136,939,215 - 3,308,672
EXPENDITURES: Current: General government City Council Personnel………………………………… - 141,700 141,700 141,700 141,700 - - Non - Personnel………………………… - 31,950 31,950 49,650 48,126 - 1,524 Total……………………………………… - 173,650 173,650 191,350 189,826 - 1,524
Mayor Personnel………………………………… - 371,338 371,338 371,338 369,898 - 1,440 Non - Personnel………………………… - 179,000 179,000 179,000 170,454 6,300 2,246 Total……………………………………… - 550,338 550,338 550,338 540,352 6,300 3,686
Finance/Auditing Personnel………………………………… - 289,602 289,602 289,602 279,627 - 9,975 Non - Personnel………………………… 22,326 46,220 68,546 68,546 27,138 23,100 18,308 Total……………………………………… 22,326 335,822 358,148 358,148 306,765 23,100 28,283
Purchasing Personnel………………………………… - 113,213 113,213 113,213 111,704 - 1,509 Non - Personnel………………………… - 19,550 19,550 19,550 17,506 - 2,044 Fixed Costs……………………………… - 61,012 61,012 61,012 61,011 - 1 Total……………………………………… - 193,775 193,775 193,775 190,221 - 3,554
Assessors Personnel………………………………… - 298,040 298,040 298,040 295,679 - 2,361 Non - Personnel………………………… 2,000 24,200 26,200 26,200 21,489 2,000 2,711 Total……………………………………… 2,000 322,240 324,240 324,240 317,168 2,000 5,072
Treasurer Personnel………………………………… - 240,460 240,460 240,460 222,595 - 17,865 Non - Personnel………………………… - 99,154 99,154 121,654 118,455 - 3,199 Total……………………………………… - 339,614 339,614 362,114 341,050 - 21,064
Collector Personnel………………………………… - 222,255 222,255 222,255 217,093 - 5,162 Non - Personnel………………………… - 7,900 7,900 7,900 6,233 - 1,667 Total……………………………………… - 230,155 230,155 230,155 223,326 - 6,829
Solicitor Personnel………………………………… - 273,780 273,780 273,780 272,883 - 897 Non - Personnel………………………… 2,933 62,300 65,233 65,234 53,471 - 11,763 Total……………………………………… 2,933 336,080 339,013 339,014 326,354 - 12,660
(continued)
City of Salem, Massachusetts A-99 Comprehensive Annual Financial Report GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2017
Budgeted Amounts
Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget
Human Resources Personnel………………………………… - 252,023 252,023 252,023 244,412 - 7,611 Non - Personnel………………………… - 31,450 31,450 31,450 (36,159) - 67,609 Total……………………………………… - 283,473 283,473 283,473 208,253 - 75,220
Data Processing Personnel………………………………… - 789,146 789,146 789,146 732,417 - 56,729 Non - Personnel………………………… - 33,405 33,405 33,405 12,718 - 20,687 Fixed Costs……………………………… 55,000 753,473 808,473 808,473 622,641 126,889 58,943 Total……………………………………… 55,000 1,576,024 1,631,024 1,631,024 1,367,776 126,889 136,359
City Clerk Record Maintenance Personnel………………………………… - 279,580 279,580 279,580 271,132 - 8,448 Non - Personnel………………………… - 8,700 8,700 8,700 2,648 9,002 (2,950) Total……………………………………… - 288,280 288,280 288,280 273,780 9,002 5,498
Elections & Registrations Personnel………………………………… - 121,879 121,879 123,879 112,351 - 11,528 Non - Personnel………………………… - 93,425 93,425 91,425 81,366 - 10,059 Total……………………………………… - 215,304 215,304 215,304 193,717 - 21,587
Conservation Commission Personnel………………………………… - 30,002 30,002 30,002 28,864 - 1,138 Non - Personnel………………………… - 649 649 649 641 - 8 Total……………………………………… - 30,651 30,651 30,651 29,505 - 1,146
Subdivision, Planning, and Zoning Board Personnel………………………………… - 30,248 30,248 30,081 26,699 - 3,382 Non - Personnel………………………… - 3,000 3,000 5,167 5,031 - 136 Total……………………………………… - 33,248 33,248 35,248 31,730 - 3,518
Board of Appeals Non - Personnel………………………… - 400 400 400 358 - 42
Planning Department Personnel………………………………… - 418,695 418,695 418,695 400,598 - 18,097 Non - Personnel………………………… 24,000 44,020 68,020 103,020 69,943 20,000 13,077 Total……………………………………… 24,000 462,715 486,715 521,715 470,541 20,000 31,174
Public Property/Building Maintenance Fixed Costs……………………………… - 701,227 701,227 701,227 681,862 5,000 14,365 .
Market and Tourism………………………… 3,750 244,775 248,525 248,525 243,943 - 4,582
Total General Government…………………… 110,009 6,317,771 6,427,780 6,504,981 5,936,527 192,291 376,163
(continued)
City of Salem, Massachusetts A-100 Comprehensive Annual Financial Report GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2017
Budgeted Amounts
Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget
Public safety Police Personnel………………………………… - 9,656,861 9,656,861 9,596,861 9,415,433 - 181,428 Non - Personnel………………………… 24,844 666,720 691,564 833,254 789,956 28,660 14,638 Total……………………………………… 24,844 10, 323,581 10,348,425 10,430,115 10,205,389 28,660 196,066
Fire Personnel………………………………… - 8,334,892 8,334,892 8,334,892 8,136,129 - 198,763 Non - Personnel………………………… 18,153 341,728 359,881 420,661 377,615 13,164 29,882 Total……………………………………… 18,153 8,676,620 8,694,773 8,755,553 8,513,744 13,164 228,645
Building, Plumbing, Gas Inspections Personnel………………………………… - 447,666 447,666 457,996 401,735 - 56,261 Non - Personnel………………………… - 23,300 23,300 12,970 12,883 - 87 Total……………………………………… - 470,966 470,966 470,966 414,618 - 56,348
Electrical Inspection and Maintenance Personnel………………………………… - 357,069 357,069 358,369 345,140 - 13,229 Non - Personnel………………………… 36,675 357,800 394,475 393,175 344,730 - 48,445 Total……………………………………… 36,675 714,869 751,544 751,544 689,870 - 61,674
Harbormaster Personnel………………………………… - 227,865 227,865 227,865 217,051 - 10,814 Non - Personnel………………………… 5,973 74,000 79,973 79,973 50,473 22,226 7,274 Total……………………………………… 5,973 301,865 307,838 307,838 267,524 22,226 18,088
Total Public Safety……………………………… 85,645 20, 487,901 20,573,546 20,716,016 20,091,145 64,050 560,821
Education School…………………………………… 265,888 55,041,847 55,307,735 56,167,700 55,805,059 106,554 256,087 NSRS/Charter/Choice…………………… - 2,331,662 2,331,662 2,273,662 2,266,130 - 7,532 Total Education……………….………………… 265,888 57, 373,509 57,639,397 58,441,362 58,071,189 106,554 263,619
Public Works Public Services Personnel………………………………… - 1,925,145 1,925,145 1,925,145 1,866,133 - 59,012 Non - Personnel………………………… - 804,340 804,340 804,340 731,138 - 73,202 Total……………………………………… - 2,729,485 2,729,485 2,729,485 2,597,271 - 132,214
Engineering Personnel………………………………… - 84,703 84,703 84,703 84,451 - 252 Non - Personnel………………………… - 6,200 6,200 6,200 5,278 - 922 Total……………………………………… - 90,903 90,903 90,903 89,729 - 1,174
Snow and Ice Personnel………………………………… - 50,000 50,000 50,000 77,268 - (27,268) Non - Personnel………………………… - 408,935 408,935 408,935 1,233,964 - (825,029) Total……………………………………… - 458,935 458,935 458,935 1,311,232 - (852,297)
Parking Garage Personnel………………………………… - 684,700 684,700 684,700 609,332 - 75,368 Non - Personnel………………………… 7,708 217,072 224,780 224,780 174,044 39,309 11,427 Total……………………………………… 7,708 901,772 909,480 909,480 783,376 39,309 86,795
Total Public Works……………………………… 7,708 4,181,095 4,188,803 4,188,803 4,781,608 39,309 (632,114)
(continued)
City of Salem, Massachusetts A-101 Comprehensive Annual Financial Report GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2017
Budgeted Amounts
Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget
Health and Human Services Board of Health Personnel………………………………… - 396,845 396,845 396,845 384,120 - 12,725 Non - Personnel………………………… - 16,500 16,500 19,000 15,807 500 2,693 Total……………………………………… - 413,345 413,345 415,845 399,927 500 15,418
Council on Aging Personnel………………………………… - 350,397 350,397 367,397 317,423 17,000 32,974 Non - Personnel………………………… 2,125 37,950 40,075 43,075 34,643 3,000 5,432 Total……………………………………… 2,125 388,347 390,472 410,472 352,066 20,000 38,406
Veterans Services Personnel………………………………… - 105,101 105,101 105,101 105,048 - 53 Non - Personnel………………………… 321 522,709 523,030 523,030 517,081 223 5,726 Total……………………………………… 321 627,810 628,131 628,131 622,129 223 5,779
Total Health and Human Services…………… 2,446 1,429,502 1,431,948 1,454,448 1,374,122 20,723 59,603
Culture and Recreation Library Personnel………………………………… - 986,102 986,102 980,102 952,507 - 27,595 Non - Personnel………………………… 9,300 295,082 304,382 310,382 279,061 20,967 10,354 Total……………………………………… 9,300 1,281,184 1,290,484 1,290,484 1,231,568 20,967 37,949
Parks and Recreation Personnel………………………………… - 272,757 272,757 272,757 254,519 - 18,238 Non - Personnel………………………… 250 222,310 222,560 222,560 202,641 - 19,919 Total……………………………………… 250 495,067 495,317 495,317 457,160 - 38,157
Golf Course Personnel………………………………… - 283,441 283,441 283,441 247,436 - 36,005 Non - Personnel………………………… 45,000 186,880 231,880 274,027 271,047 - 2,980 Total……………………………………… 45,000 470,321 515,321 557,468 518,483 - 38,985
Witch House Personnel………………………………… - 103,327 103,327 103,327 98,974 - 4,353 Non - Personnel………………………… - 63,480 63,480 63,480 62,576 - 904 Total……………………………………… - 166,807 166,807 166,807 161,550 - 5,257
Historical Commission Personnel………………………………… - 8,853 8,853 8,853 8,707 - 146 Non - Personnel………………………… - 900 900 900 709 - 191 Total……………………………………… - 9,753 9,753 9,753 9,416 - 337
Winter Island Personnel………………………………… - 154,819 154,819 154,819 154,477 - 342 Non - Personnel………………………… - 44,300 44,300 44,300 42,876 - 1,424 Total……………………………………… - 199,119 199,119 199,119 197,353 - 1,766
Pioneer Village Non - Personnel………………………… - 16,900 16,900 16,900 16,701 - 199
Total Culture and Recreation……………… 54,550 2,639,151 2,693,701 2,735,848 2,592,231 20,967 122,650
(continued)
City of Salem, Massachusetts A-102 Comprehensive Annual Financial Report GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2017
Budgeted Amounts
Amounts Current Year Actual Amounts Carried forward Initial Original Final Budgetary Carried Forward Variance From Prior Year Budget Budget Budget Amounts To Next Year To Final Budget Debt service: Principal………………………………………… - 3,790,000 3,790,000 3,790,000 3,765,766 - 24,234 Interest…………………………………………… - 1,626,291 1,626,291 1,626,291 1,607,703 - 18,588 Short Term Interest…………………………… 135,000 201,049 336,049 353,548 326,855 25,000 1,693 Capital Lease Payment………………………… - 503,803 503,803 503,803 503,803 - - Total……………………………………… 135,000 6,121,143 6,256,143 6,273,642 6,204,127 25,000 44,515
State and county charges………………………… - 8,068,331 8,068,331 8,038,331 7,946,729 - 91,602
Pension benefits Contributory Retirement……………………… - 9,960,727 9,960,727 10,360,727 10,344,806 - 15,921 Non-Contributory Retirement………………… - 41,417 41,417 20,308 20,288 - 20 Total……………………………………………… - 10,002,144 10,002,144 10,381,035 10,365,094 - 15,941
Workmen's Compensation………………………… - 428,500 428,500 428,500 404,569 - 23,931
Unemployment Compensation…………………… - 425,000 425,000 425,000 331,820 - 93,180
Group Insurance…………………………………… - 12,554,604 12,554,604 12,823,647 12,257,069 - 566,578
Medicare…………………………………………… - 1,036,734 1,036,734 1,115,843 1,115,278 - 565
Municipal Insurance……………………………… - 356,282 356,282 346,282 330,724 - 15,558
TOTAL EXPENDITURES……………… 661,246 131,421,667 132,082,913 133,873,738 131,802,232 468,894 1,602,612
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………… (661,246) 2,208,876 1,547,630 (243,195) 5,136,983 (468,894) 4,911,284
OTHER FINANCING SOURCES (USES): Premium from issuance of bonds and notes…… - - - - 7 ,229 - 7,229 Transfers in………………………………………… - 2,617,493 2,617,493 3,259,641 3,287,231 - 27,590 Transfers out……………………………………… - (5,133,000) (5,133,000) (8,065,180) (8,075,579) - (10,399)
TOTAL OTHER FINANCING SOURCES (USES)………………… - (2,515,507) (2,515,507) (4,805,539) (4,781,119) - 24,420
NET CHANGE IN FUND BALANCE………………… (661,246) (306,631) (967,877) (5,048,734) 355,864 (468,894) 4,935,704
BUDGETARY FUND BALANCE, Beginning of year…………………………………… - 7,923,299 7,923,299 7,923,299 7,923,299 - -
BUDGETARY FUND BALANCE, End of year……… $ (661,246) $ 7,616,668 $ 6,955,422 $ 2,874,565 $ 8,279,163 $ (468,894) $ 4,935,704
(concluded) See notes to required supplementary information.
City of Salem, Massachusetts A-103 Comprehensive Annual Financial Report Pension Plan Schedules – Retirement System Pension Plan Schedules – Retirement System
The Pension Plan’s Schedule of Changes in the Net Pension Liability presents multi-year trend information on the net pension liability and related ratios.
The Pension Plan’s Schedule of Contributions presents multi-year trend information on the required and actual contributions to the pension plan and related ratios.
The Pension Plan’s Schedule of Investment Returns presents multi-year trend information on the money-weighted investment return on retirement assets, net of investment expense.
These schedules are intended to present information for ten years. Until a ten year trend is compiled, information is presented for those years for which information is available.
City of Salem, Massachusetts A-104 Comprehensive Annual Financial Report SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS SALEM CONTRIBUTORY RETIREMENT SYSTEM
December 31, December 31, December 31, 2014 2015 2016 Total pension liability: Service cost………………………………………………………………… $ 5,854,030 $ 6,097,323 $ 6,350,728 Interest……………………………………………………………………… 18,557,934 19,386,667 20,274,843 Differences between expected and actual experience………………… - - (5,574,549) Changes in assumptions…………………………………………………… - - 12,360,928 Changes in benefit terms…………………………………………………… - - - Benefit payments, including refunds of employee contributions……… (14,146,676) (13,777,134) (14,776,958)
Net change in total pension liability……………………………………………… 10,265,288 11,706,856 18,634,992
Total pension liability, beginning………………………………………………… 240,676,498 250,941,786 262,648,642
Total pension liability, ending (a)…………………………………………………$ 250,941,786 $ 262,648,642 $ 281,283,634
Plan fiduciary net position: Member contributions……………………………………………………… $ 3,939,454 $ 4,121,728 $ 4,311,175 Employer contributions……………………………………………………… 11,942,341 12,181,169 12,527,730 Net investment income (loss)……………………………………………… 9,022,647 659,962 10,046,275 Retirement benefits and refunds…………………………………………… (14,146,676) (13,777,134) (14,776,958) Administrative expenses and depreciation……………………………… (242,294) (238,374) (266,216)
Net increase (decrease) in fiduciary net position……………………………… 10,515,472 2,947,351 11,842,006
Fiduciary net position at beginning of year…………………………………..… 123,879,403 135,650,902 138,598,253
Adjustment to include members transferred from Essex Agricultural and Technical School (c)…………………………… 1,256,027 - -
Fiduciary net position at end of year (b)…………………………………..…… $ 135,650,902 $ 138,598,253 $ 150,440,259
Net pension liability - ending (a) - (b)…………………………………………$ 115,290,884 $ 124,050,389 $ 130,843,375
Plan fiduciary net position as a percentage of the total pension liability……………………………………………………………… 54.06% 52.77% 53.48%
Covered-employee payroll……………………………………………………… $ 40,399,678 $ 42,015,665 $ 45,841,256
Net pension liability as a percentage of covered-employee payroll……………………………………………………………………… 285.38% 295.25% 285.43%
Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available.
(c) Essex Agricultural and Technical School merged with Northshore Regional Vocational Technical School in 2014. As a result of this merger, 39 active and inactive members of Essex Agricultural and Technical School were transferred from Essex Regional Retirement System to Salem Contributory Retirement System and the annuity savings fund balances of those members, totaling $1,256,027, were also transferred. The 2014 total pension liability and fiduciary net position have been amended to include the liabilities and assets of these members that were transferred subsequent to year end.
See notes to required supplementary information.
City of Salem, Massachusetts A-105 Comprehensive Annual Financial Report SCHEDULE OF CONTRIBUTIONS SALEM CONTRIBUTORY RETIREMENT SYSTEM
December 31, December 31, December 31, 2014 2015 2016
Actuarially determined contribution…………………… $ 11,942,341 $ 12,013,685 $ 12,527,730 Contributions in relation to the actuarially determined contribution…………………………… (11,942,341) (12,181,169) (12,527,730)
Contribution deficiency (excess)…… $-$ (167,484) $ -
Covered-employee payroll….……………………………$ 40,399,678 $ 42,015,665 $ 45,841,256
Contributions as a percentage of covered- employee payroll…………………………………… 29.56% 28.99% 27.33%
Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available.
See notes to required supplementary information.
City of Salem, Massachusetts A-106 Comprehensive Annual Financial Report SCHEDULE OF INVESTMENT RETURNS SALEM CONTRIBUTORY RETIREMENT SYSTEM
December 31, December 31, December 31, 2014 2015 2016
Annual money-weighted rate of return, net of investment expense……………… 7.58% 0.51% 7.41%
Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available.
The annual money-weighted rate of return has been calculated by the Pension Reserves Investment Management Board (PRIM).
See notes to required supplementary information.
City of Salem, Massachusetts A-107 Comprehensive Annual Financial Report Pension Plan Schedules – City Pension Plan Schedules – City
The Schedule of the City’s Proportionate Share of the Net Pension Liability presents multi-year trend information on the City’s net pension liability and related ratios.
The Schedule of City Contributions presents multi-year trend information on the City’s required and actual contributions to the pension plan and related ratios.
The Schedule of the Special Funding Amounts of the Net Pension Liability for the Massachusetts Teachers Contributory Retirement System presents multi-year trend information on the liability and expense assumed by the Commonwealth of Massachusetts on behalf of the City along with related ratios.
These schedules are intended to present information for ten years. Until a ten year trend is compiled, information is presented for those years for which information is available.
City of Salem, Massachusetts A-108 Comprehensive Annual Financial Report SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY SALEM CONTRIBUTORY RETIREMENT SYSTEM
December 31, December 31, December 31, 2014 2015 2016
City's proportion of the net pension liability (asset)………………… 84.01% 84.67% 84.73%
City's proportionate share of the net pension liability (asset)…… $ 96,851,803 $ 105,037,687 $ 110,864,598
City's covered employee payroll………...……………………………$ 32,603,305 $ 33,907,437 $ 88,669,595
Net pension liability as a percentage of covered-employee payroll………………………………………………………………… 297.06% 309.78% 125.03%
Plan fiduciary net position as a percentage of the total pension liability………………………………………………… 54.06% 52.77% 53.48%
Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available.
See notes to required supplementary information.
City of Salem, Massachusetts A-109 Comprehensive Annual Financial Report SCHEDULE OF CITY CONTRIBUTIONS SALEM CONTRIBUTORY RETIREMENT SYSTEM
June 30, June 30, June 30, 2015 2016 2017
Actuarially determined contribution…………………… $ 10,121,621 $ 10,071,175 $ 10,513,908 Contributions in relation to the actuarially determined contribution…………………………… (10,121,621) (10,238,659) (10,513,908)
Contribution deficiency (excess)…… $ - $ (167,484) $ -
Covered-employee payroll……………………………… $ 32,603,305 $ 33,907,437 $ 88,669,595
Contributions as a percentage of covered- employee payroll…………………………………… 31.04% 30.20% 11.86%
Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available.
See notes to required supplementary information.
City of Salem, Massachusetts A-110 Comprehensive Annual Financial Report SCHEDULE OF THE SPECIAL FUNDING AMOUNTS OF THE NET PENSION LIABILITY MASSACHUSETTS TEACHERS' RETIREMENT SYSTEM
The Commonwealth of Massachusetts is a nonemployer contributor and is required by statute to make all actuarially determined employer contributions on behalf of the member employers which creates a special funding situation. Since the City does not contribute directly to MTRS, there is no net pension liability to recognize. This schedule discloses the Commonwealth's 100% share of the collective net pension liability that is associated with the City; the portion of the collective pension expense as both a revenue and pension expense recognized by the City; and the Plan's fiduciary net position as a percentage of the total liability.
Commonwealth's City's Expense 100% Share of the and Revenue Net Pension Recognized for Plan Fiduciary Net Liability the Position as a Associated with Commonwealth's Percentage of the Year the City Support Total Liability
2017………………………………… $ 129,844,131 $ 13,244,953 52.73% 2016………………………………… 125,868,567 10,209,061 61.43% 2015………………………………… 97,197,542 6,752,780 61.64%
Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available.
See notes to required supplementary information.
City of Salem, Massachusetts A-111 Comprehensive Annual Financial Report Other Postemployment Benefit Plan Schedules Other postemployment benefit plan schedules
GASB #74 Schedules
The Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Radios presents multi-year trend information on the Plan’s net other postemployment benefit liability and related ratios.
The Schedule of the City’s Contributions presents multi-year trend information on the City’s actual contributions to the other postemployment benefit plan and related ratios.
The Schedule of Investment Returns presents multi-year trend information on the money-weighted investment return on the Plan’s other postemployment assets, net of investment expense.
GASB #45 Schedules
The Schedule of Funding Progress compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets.
The Schedule of Employer Contributions presents multi-year trend information for required and actual contributions relating to the plan.
The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported.
City of Salem, Massachusetts A-112 Comprehensive Annual Financial Report SCHEDULE OF CHANGES IN THE CITY'S NET OPEB LIABILITY AND RELATED RATIOS OTHER POSTEMPLOYMENT BENEFIT PLAN
June 30, 2017
Total OPEB Liability Service Cost…………………………………………………………$ 8,252,716 Interest……………………………………………………………… 5,052,006 Changes of benefit terms……………………………………..…… - Differences between expected and actual experience………… - Changes of assumptions………………………………………… (20,326,073) Benefit payments……………………………………………...…… (4,267,124) Net change in total OPEB liability………………………………… (11,288,475) Total OPEB liability- beginning……………………………..…… 171,129,227 Total OPEB liability- ending (a)……………………………………$ 159,840,752
Plan fiduciary net position Contributions- employer ……………………………..…………… $ 4,536,168 Net investment income………………………...………………… 170,768 Benefit payments……………………………...…………………… (4,267,124) Net change in plan fiduciary net position………………………… 439,812 Plan fiduciary net position- beginning…………………………..… 1,749,487 Plan fiduciary net position- ending (b)…………………………… $ 2,189,299
City's net OPEB liability- ending (a)-(b)……………………… $ 157,651,453
Plan fiduciary net position as a percentage of the total OPEB liability………………………..……………………… 1.37%
Covered-employee payroll………………………………..……… $ 82,395,392
City's net OPEB liability as a percentage of covered-employee payroll…………………………..………… 191%
Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available.
See notes to required supplementary information.
City of Salem, Massachusetts A-113 Comprehensive Annual Financial Report SCHEDULE OF CITY CONTRIBUTIONS OTHER POSTEMPLOYMENT BENEFIT PLAN
June 30, 2017
Actuarially determined contribution…………………………………$ 12,039,407 Contributions in relation to the actuarially determined contribution…………………………………………… (4,536,167)
Contribution deficiency (excess)…………………………………… $ 7,503,240
Covered-employee payroll……………………………………………$ 82,395,392
Contributions as a percentage of covered- employee payroll…………………………………………………… 14.61%
Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available.
See notes to required supplementary information.
City of Salem, Massachusetts A-114 Comprehensive Annual Financial Report SCHEDULE OF INVESTMENT RETURNS OTHER POSTEMPLOYMENT BENEFIT PLAN
June 30, 2017
Annual money-weighted rate of return, net of investment expense……………………………………… 9.08%
Note: This schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available.
See notes to required supplementary information.
City of Salem, Massachusetts A-115 Comprehensive Annual Financial Report OTHER POSTEMPLOYMENT BENEFIT PLAN SCHEDULE OF FUNDING PROGRESS AND EMPLOYER CONTRIBUTIONS
Schedule of Funding Progress
Actuarial Accrued UAAL as a Actuarial Liability (AAL) Unfunded Percentage Actuarial Value of Projected AAL Funded Covered of Covered Valuation Assets Unit Credit (UAAL) Ratio Payroll Payroll Date (A) (B) (B-A) (A/B) (C) ((B-A)/C)
6/30/2016 $ 1,749,487 $ 152,335,852 $ 150,586,365 1.15% $ 82,395,392 182.8% 12/31/2013 803,651 109,605,701 108,802,050 0.73% 65,100,000 167.1% 12/31/2011 - 145,033,856 145,033,856 0.00% 50,103,473 289.5% 12/31/2009 - 171,447,034 171,447,034 0.00% 52,107,612 329.0%
Schedule of Employer Contributions
Annual Actual Percentage of Year Required Contributions the ARC Ended Contribution (ARC) Made Contributed
2017 $ 12,039,407 $ 4,536,167 38% 2016 8,874,011 4,607,168 52% 2015 11,311,746 5,396,396 48% 2014 10,799,677 5,342,584 49% 2013 10,003,723 4,681,685 47% 2012 9,555,726 4,419,491 46% 2011 11,374,693 5,916,957 52%
See notes to required supplementary information.
City of Salem, Massachusetts A-116 Comprehensive Annual Financial Report OTHER POSTEMPLOYMENT BENEFIT PLAN ACTUARIAL METHODS AND ASSUMPTIONS
Actuarial Methods:
Valuation date…………………………………………… June 30, 2016 Actuarial cost method………………………………… Entry Age Normal - Level percentage of payroll Amortization method…………………………………… Payments increasing at 3.5% Remaining amortization period………………………… 30 years open
Actuarial Assumptions:
Investment rate of return……………………………… 7.50% Discount rate…………………………………………… 3.58% Inflation rate……………………………………………… 3.50% Projected salary increases…………………………… Service-related increases for Group 1 (excluding Teachers) and Group 2 employees: 6.00% decreasing over 9 years to an ultimate level of 4.25%
Service-related increases for Group 4 members: 7.00% decreasing over 5 years to an ultimate level of 4.75%
Service-related increases for Teachers: 7.50% decreasing over 20 years to an ultimate level of 4.00%
Medical trend rate: Non-Medicare*……………………………………… 6.3% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year
Medicare Supplement*…………………………… 0.4% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year
Medicare Advantage*……………………………… 8.9% for 1 year then 8.5% decreasing by 0.5% for 7 years to an ultimate level of 5.0% per year
Part B premium…………………………………… 5.00%
Plan Membership:
Current retirees, beneficiaries, and dependents…… 968 Current active members……………………………… 822
Total……………………………………..……………… 1,790
* Trend reflects known increases.
See notes to required supplementary information.
City of Salem, Massachusetts A-117 Comprehensive Annual Financial Report Notes to Required Supplementary Information Year Ended June 30, 2017
NOTE A – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Notes to required supplementary information 1. Budgetary Information
Within 170 days after the annual organization of the City government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the year beginning on the next July 1. The City Council may make appropriations for the recommended purposes and may reduce or reject any item. Without a recommendation of the Mayor, the Council may not make any appropriation for a purpose not included in the proposed budget, except by a two-thirds vote in the case of the failure of the Mayor to recommend an appropriation for such a purpose within 7 days after a request from the Council. The Council may not increase any item without the recommendation of the Mayor (except as provided by legislation, recommendation of the school committee or regional district school committee and by two-thirds vote of the Council, provided that such increase does not cause the total annual budget to exceed the property tax limitations). If the Council fails to act on any item of the proposed budget within 45 days, that item takes effect.
City department heads are generally required to submit their budget requests to the Mayor between January 1, March 1, and December 1. This does not apply to the school department, which must submit its request in time for the Mayor to include it in the submission to the Council.
If the Mayor does not make a timely budget submission, provision is made for preparation of a budget by the Council. Provision is also made for supplementary appropriations upon recommendation of the Mayor. Water and Sewer department expenditures are included in the budgets adopted by City Council.
Under recent legislation, the City Council on the recommendation of the Mayor may transfer during May and June, and the first fifteen days of July, any amount appropriated for the use of any department to the appropriation for any other department, provided that no such transfer may be made from any appropriation for a school department, regional school district, or municipal light department.
The majority of appropriations are non-continuing which lapse at the end of each year. Others are continuing appropriations for which the governing body has authorized that an unspent balance from a prior year be carried forward and made available for spending in the current year. These carry forwards are included as part of the subsequent year’s original budget.
Generally, expenditures may not exceed the legal level of spending (salaries, expenses and capital) authorized for an appropriation account. However, the payment of debt service is statutorily required, regardless of whether such amounts are appropriated. Additionally, expenditures for disasters, natural or otherwise, and final judgments may exceed the level of spending authorized by two-thirds majority vote of the City Council.
An annual budget is adopted for the general fund in conformity with the guidelines described above. The original 2017 approved budget authorized approximately $137.2 million in appropriations and other amounts to be raised. During the year, increases to the original budget were approved totaling approximately $4.7 million. The most notable components of this increase include an additional $4.1 million in available funds (free cash) appropriated to fund stabilization reserves, capital improvements, other postemployment benefits trust, pension reserves and various additional appropriations.
The Finance Department has the responsibility to ensure that budgetary control is maintained. Budgetary control is exercised through the accounting system.
City of Salem, Massachusetts A-118 Comprehensive Annual Financial Report Notes to Required Supplementary Information Year Ended June 30, 2017
2. Budgetary - GAAP Reconciliation
For budgetary financial reporting purposes, the Uniform Municipal Accounting System basis of accounting (established by the Commonwealth) is followed, which differs from the GAAP basis of accounting. A reconciliation of budgetary-basis to GAAP-basis results for the general fund for the year ended June 30, 2017, is presented below:
Net change in fund balance - budgetary basis………………………………………………… $ 355,864
Perspective differences: Reclassification of enterprise fund expenditures budgeted in the general fund…………… 473,683 Reclassification of enterprise fund transfers budgeted in the general fund………………… (473,683) Activity of the Salem Community Charter School……………………………………………. (86,312) Activity of the Bentley Charter School………………………………………………………… (203,334) Activity of the stabilization funds recorded in the general fund for GAAP………………………………………………………………………… 656,992
Basis of accounting differences: Net change in revenues in recording 60 day receipts………………………...……………… 100,168 Net change in revenues in recording tax refunds payable……………………………...…… 702,436 Net difference in recognition of expenditures………………………………………………… (137,125)
Net change in fund balances - GAAP basis…………………………………………………… $ 1,388,689
3. Appropriation Deficits
During 2017, expenditures exceeded budgeted appropriations for snow and ice removal. This over expenditure is allowable under Massachusetts General Law. The City will fund this deficit in the next fiscal year.
NOTE B – PENSION PLAN
Pension Plan Schedules – Retirement System
A. Schedule of Changes in the Net Pension Liability and Related Ratios
The Schedule of Changes in the Net Pension Liability and Related Ratios includes the detailed changes in the System’s total pension liability, changes in the System’s net position, and the ending net pension liability. It also demonstrates the plan’s net position as a percentage of the total pension liability and the net pension liability as a percentage of covered payroll.
Since the System performs an actuarial valuation bi-annually, there are no reported amounts for the changes in benefit terms, differences between expected and actual experience and changes in assumptions as of December 31, 2016.
B. Schedule of Contributions
Governmental employers are required to pay an annual appropriation as established by PERAC. The appropriation includes the amounts to pay the pension portion of each member’s retirement allowance, an amount to amortize the actuarially determined unfunded liability to zero in accordance with the system’s funding schedule, and additional appropriations in accordance with adopted early retirement incentive programs. The
City of Salem, Massachusetts A-119 Comprehensive Annual Financial Report Notes to Required Supplementary Information Year Ended June 30, 2017 appropriations are payable on July 1 and January 1. Employers may choose to pay the entire appropriation in July at a discounted rate. Accordingly, actual employer contributions may be less than the “total appropriation”. The appropriations are allocated amongst employers based on an actuarial valuation.
C. Schedule of Investment Return
The money weighted rate of return is calculated as the internal rate of return on pension plan investments, net of pension plan investment expense. A money weighted rate of return expresses investment performance, net of pension plan investment expense, adjusted for the changing amounts actually invested. Inputs to the money weighted rate of return calculation are determined monthly.
Pension Plan Schedules - City
A. Schedule of the City’s Proportionate Share of the Net Pension Liability
The Schedule of the City’s Proportionate Share of the Net Pension Liability details the allocated percentage of the net pension liability (asset), the proportionate share of the net pension liability, and the covered employee payroll. It also demonstrates the net position as a percentage of the pension liability and the net pension liability as a percentage of covered payroll.
B. Schedule of City’s Contributions
Governmental employers are required to pay an annual appropriation as established by PERAC. The appropriation includes the amounts to pay the pension portion of each member’s retirement allowance, an amount to amortize the actuarially determined unfunded liability to zero in accordance with the system’s funding schedule, and additional appropriations in accordance with adopted early retirement incentive programs. The appropriations are payable on July 1 and January 1. The City may choose to pay the entire appropriation in July at a discounted rate. Accordingly, actual contributions may be less than the “total appropriation”.
C. Schedule of the Special Funding Amounts of the Net Pension Liabilities
The Commonwealth of Massachusetts is a nonemployer contributor and is required by statute to make all actuarially determined employer contributions on behalf of the member employers which creates a special funding situation. Since the City does not contribute directly to MTRS, there is no net pension liability to recognize. This schedule discloses the Commonwealth's 100% share of the collective net pension liability that is associated with the City; the portion of the collective pension expense as both revenue and pension expense recognized by the City; and the Plan's fiduciary net position as a percentage of the total liability.
D. Changes in Assumptions
None.
E. Changes in Plan Provisions
None.
City of Salem, Massachusetts A-120 Comprehensive Annual Financial Report Notes to Required Supplementary Information Year Ended June 30, 2017
NOTE C – OTHER POSTEMPLOYMENT BENEFITS
The City administers a single-employer defined benefit healthcare plan (“The Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the City’s participation in the Group Insurance Commission of the Commonwealth of Massachusetts (GIC) which covers both active and retired members.
The Other Postemployment Benefit Plan
A. Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios
The Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios presents multi-year trend information on changes in the Plan’s total OPEB liability, changes in the Plan’s net position, and ending net OPEB liability. It also demonstrates the Plan’s net position as a percentage of the total liability and the Plan’s net other postemployment benefit liability as a percentage of covered employee payroll.
B. Schedule of the City’s Contributions
The Schedule of the City’s Contributions includes the City’s annual required contribution to the Plan, along with the contribution made in relation to the actuarially determined contribution and the covered employee payroll. The City is not required to fully fund this contribution. It also demonstrates the contributions as a percentage of covered payroll.
C. Schedule of Investment Returns
The Schedule of Investment Returns includes the money-weighted investment return on the Plan’s other postemployment assets, net of investment expense.
The City
The City currently finances its other postemployment benefits (OPEB) on a pay-as-you-go basis. As a result, the funded ratio (actuarial value of assets expressed as a percentage of the actuarial accrued liability) is 1.15%. In accordance with Governmental Accounting Standards, the City has recorded its OPEB cost equal to the actuarial determined annual required contribution (ARC) which includes the normal cost of providing benefits for the year and a component for the amortization of the total unfunded actuarial accrued liability of the plan.
Projections of benefits for financial reporting purposes are based on the substantive plan and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
A. Schedule of Funding Progress
The Schedule of Funding Progress presents multi-year trend information which compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets.
B. Schedule of Employer Contributions
The Schedule of Employer Contributions presents multi-year trend information for the City’s required and actual contributions relating to the plan.
City of Salem, Massachusetts A-121 Comprehensive Annual Financial Report Notes to Required Supplementary Information Year Ended June 30, 2017
C. Schedule of Actuarial Methods and Assumptions
The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported.
D. Changes in Assumptions
The discount rate was lowered from 4.75% to 3.58%
Mortality assumptions, enrollment assumptions, and the trend on medical costs were updated.
The cost method was changed from the Projected Unit Credit cost method to the Entry Age Normal cost method.
E. Changes in Plan Provisions
None
City of Salem, Massachusetts A-122 Comprehensive Annual Financial Report Combining and Individual Fund Statements Combining and Individual Fund Statements
City of Salem, Massachusetts A-123 Comprehensive Annual Financial Report Nonmajor governmental funds Nonmajor Governmental Funds
Special Revenue Funds
Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes.
School Grants Fund – This fund is used to account for the educational programs specifically financed by federal, state, and other grants which are designated for specific programs.
Community Development Grants Fund – This fund is used to account for community development activity specifically financed by federal, state, and other grants which are designated for specific programs.
School Lunch Fund – This fund is used to account for all cafeteria activities and is funded by user charges, federal and state grants and commodities received.
Highway Grants Fund – This fund is used to account for construction, reconstruction and improvements to roadways, streets and sidewalks. Funding is provided primarily by grants.
Donations and Gifts Fund – This fund is used to account for gifts which have been accepted by the City to be used for the purpose specified by the donor.
Receipts Reserved Fund – This fund is used to account for receipts reserved for appropriation.
City Revolving Accounts Fund – This fund is used to account for non-school related revolving funds specifically allowed by the laws of the Commonwealth of Massachusetts. These funds are expended for purposes specified by the enabling statute.
School Revolving Accounts Fund – This fund is used to account for school related revolving funds specifically allowed by the laws of the Commonwealth of Massachusetts. These funds are expended for purposes specified by the enabling statutes.
Capital Project Funds
School Capital Projects- This fund is used to account for school capital projects.
Other Funds – This fund is used to account for various capital projects not reported as major funds.
Permanent Funds
Permanent funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support governmental programs.
Cemetery Fund – This fund is used to account for cemetery perpetual care contributions and expenditures.
Human Service Fund – This fund is used to account for various contributions associated with human service activities.
Other Funds – This fund is used to account for various contributions associated with governmental programs.
City of Salem, Massachusetts A-124 Comprehensive Annual Financial Report NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET
JUNE 30, 2017
Special Revenue Funds
Community School Development School Highway Donations Grants Grants Lunch Grants and Gifts ASSETS Cash and cash equivalents……………………………$ 1,841,923 $ - $ 307,430 $ - $ 338,622 Investments…………………………………………… - - - - 441,767 Receivables, net of uncollectibles: Departmental and other…………………………… - - - - - Intergovernmental………………………………… 203,448 45,965 - 94,019 - Loans………………………………………………… - 186,833 - - - Due from other funds………………………………… - - 57,700 - -
TOTAL ASSETS……………………………………… $ 2,045,371 $ 232,798 $ 365,130 $ 94,019 $ 780,389
LIABILITIES Accrued payroll………………………………………$ 121,197 $ 5,566 $ 22,761 $ - $ 358 Due to other funds………………………………… - 14,234 - 43,466 -
TOTAL LIABILITIES………………………………… 121,199 19,800 22,761 43,466 358
DEFERRED INFLOWS OF RESOURCES Unavailable revenue……………………………… - 186,833 - 91,653 -
FUND BALANCES Nonspendable……………………………………… - - - - - Restricted…………………………………………… 1,924,172 26,165 342,369 - 780,031 Unassigned………………………………………… - - - (41,100) -
TOTAL FUND BALANCES…………………………… 1,924,172 26,165 342,369 (41,100) 780,031
TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES……………………………$ 2,045,371 $ 232,798 $ 365,130 $ 94,019 $ 780,389
(Continued)
City of Salem, Massachusetts A-125 Comprehensive Annual Financial Report NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET
JUNE 30, 2017
Special Revenue Funds
City School Receipts Revolving Revolving Reserved Accounts Accounts Subtotal ASSETS Cash and cash equivalents…………………………………………………… $ 1,712,272 $ 826,986 $ 591,282 $ 5,618,515 Investments…………………………………………………………………… - - - 441,767 Receivables, net of uncollectibles: Departmental and other…………………………………………………… 156,117 - - 156,117 Intergovernmental…………………………………………………………… - - - 343,432 Loans………………………………………………………………………… -134,192 - 321,025 Due from other funds………………………………………………………… - - - 57,700
TOTAL ASSETS……………………………………………………………… $ 1,868,389 $ 961,178 $ 591,282 $ 6,938,556
LIABILITIES Accrued payroll……………………………………………………………… $-$ 288 $ 102,170 $ 252,340 Due to other funds…………………………………………………………… - - - 57,700
TOTAL LIABILITIES…………………………………………………………… - 288 102,170 310,042
DEFERRED INFLOWS OF RESOURCES Unavailable revenue………………………………………………………… 156,117 134,192 - 568,795
FUND BALANCES Nonspendable……………………………………………………………… - - - - Restricted…………………………………………………………………… 1,712,272 826,698 489,112 6,100,819 Unassigned…………………………………………………………………… - - - (41,100)
TOTAL FUND BALANCES…………………………………………………… 1,712,272 826,698 489,112 6,059,719
TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES…………………………………………………$ 1,868,389 $ 961,178 $ 591,282 $ 6,938,556
City of Salem, Massachusetts A-126 Comprehensive Annual Financial Report Capital Project Funds Permanent Funds Total School Nonmajor Capital Human Governmental Projects Other Subtotal Cemetery Service Other Subtotal Funds
$ 546,896 $ 178,215 $ 725,111 $ 276,389 $ 103,049 $ 222,665 $ 602,103 $ 6,945,729 - - - 3,475,370 1,539,646 1,226,515 6,241,531 6,683,298
------156,117 4,381,718 - 4,381,718 - - - - 4,725,150 ------321,025 ------57,700
$ 4,928,614 $ 178,215 $ 5,106,829 $ 3,751,759 $ 1,642,695 $ 1,449,180 $ 6,843,634 $ 18,889,019
$-$ - $ - $ - $ - $ - $ - $ 252,340 ------57,700
------310,042
------568,795
- - - 1,138,023 221,174 847,027 2,206,224 2,206,224 4,928,614 178,215 5,106,829 2,613,736 1,421,521 602,153 4,637,410 15,845,058 ------(41,100)
4,928,614 178,215 5,106,829 3,751,759 1,642,695 1,449,180 6,843,634 18,010,182
$ 4,928,614 $ 178,215 $ 5,106,829 $ 3,751,759 $ 1,642,695 $ 1,449,180 $ 6,843,634 $ 18,889,019
(Concluded)
City of Salem, Massachusetts A-127 Comprehensive Annual Financial Report NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
YEAR ENDED JUNE 30, 2017
Special Revenue Funds
Community School Development School Highway Donations Grants Grants Lunch Grants and Gifts REVENUES: Charges for services………………………………………… $ 6,960 $ - $ - $ - $ - Penalties and interest on taxes……………………………… - - - - - Intergovernmental…………………………………………… 7,146,051 1,053,317 2,081,447 1,128,148 - Departmental and other……………………………………… 34,141 119,244 - - - Contributions…………………………………………………… 16,939 - - - 143,868 Investment income…………………………………………… - 48 - - 21,555
TOTAL REVENUES…………………………………… 7,204,091 1,172,609 2,081,447 1,128,148 165,423
EXPENDITURES: Current: General government……………………………………… - - - - 5,396 Public safety………………………………………………… - - - - 20,894 Education…………………………………………………… 7,004,793 - 2,094,173 - 81,887 Public works………………………………………………… - - - 1,182,438 - Community development………………………………… - 1,187,215 - - - Health and human services……………………………… - - - - 33,048 Culture and recreation……………………………………… - - - - 17,129
TOTAL EXPENDITURES……………………………… 7,004,793 1,187,215 2,094,173 1,182,438 158,354
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES………………………… 199,298 (14,606) (12,726) (54,290) 7,069
OTHER FINANCING SOURCES (USES): Premium from issuance of refunding bonds……………… - - - - - Transfers in…………………………………………………… 11,866 - - - 10,000 Transfers out…………………………………………………… (11,864) - - - -
TOTAL OTHER FINANCING SOURCES (USES)…… 2 - - - 10,000
NET CHANGE IN FUND BALANCES………………………… 199,300 (14,606) (12,726) (54,290) 17,069
FUND BALANCES AT BEGINNING OF YEAR……………… 1,724,872 40,771 355,095 13,190 762,962
FUND BALANCES AT END OF YEAR……………………… $ 1,924,172 $ 26,165 $ 342,369 $ (41,100) $ 780,031
City of Salem, Massachusetts A-128 Comprehensive Annual Financial Report Special Revenue Funds Capital Project Funds
City School School Receipts Revolving Revolving Capital Reserved Accounts Accounts Subtotal Projects Other Subtotal
$- $ - $ - $ 6,960 $ - $ - $ - 4,106 - - 4,106 - - - 30,000 68,370 2,080 11,509,413 1,084,336 219,563 1,303,899 1,103,928 695,410 939,182 2,891,905 - 54,890 54,890 - 5,089 - 165,896 - - - - 779 354 22,736 - - -
1,138,034 769,648 941,616 14,601,016 1,084,336 274,453 1,358,789
- 237,239 - 242,635 - - - - 33,629 - 54,523 - - - - - 3,417,190 12,598,043 8,016 - 8,016 34,100 29,411 - 1,245,949 - 227,390 227,390 - 68,726 - 1,255,941 - - - - 118,270 - 151,318 - - - - 256,766 - 273,895 - - -
34,100 744,041 3,417,190 15,822,304 8,016 227,390 235,406
1,103,934 25,607 (2,475,574) (1,221,288) 1,076,320 47,063 1,123,383
510,389 - - 510,389 - - - - - 2,904,380 2,926,246 - - - (780,898) - (272,764) (1,065,526) - - -
(270,509) - 2,631,616 2,371,109 - - -
833,425 25,607 156,042 1,149,821 1,076,320 47,063 1,123,383
878,847 801,091 333,070 4,909,898 3,852,294 131,152 3,983,446
$ 1,712,272 $ 826,698 $ 489,112 $ 6,059,719 $ 4,928,614 $ 178,215 $ 5,106,829
(Continued)
City of Salem, Massachusetts A-129 Comprehensive Annual Financial Report NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
YEAR ENDED JUNE 30, 2017
Permanent Funds Total Nonmajor Human Governmental Cemetery Service Other Subtotal Funds REVENUES: Charges for services…………………………………………$-$ - $ - $ - $ 6,960 Penalties and interest on taxes……………………………… - - - - 4,106 Intergovernmental…………………………………………… - - - - 12,813,312 Departmental and other……………………………………… - - - - 2,946,795 Contributions………………………………………………… 17,100 - 45,571 62,671 228,567 Investment income…………………...……………………… 420,486 160,822 233,620 814,928 837,664
TOTAL REVENUES…………………………………… 437,586 160,822 279,191 877,599 16,837,404
EXPENDITURES: Current: General government……………………………………… - - - - 242,635 Public safety………………………………………………… - - 10,105 10,105 64,628 Education…………………………………………………… - - - - 12,606,059 Public works………………………………………………… 188,261 - 139,494 327,755 1,801,094 Community development………………………………… - - - - 1,255,941 Health and human services……………………………… - 64,946 - 64,946 216,264 Culture and recreation……………………………………… - - - - 273,895
TOTAL EXPENDITURES……………………………… 188,261 64,946 149,599 402,806 16,460,516
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES………………………… 249,325 95,876 129,592 474,793 376,888
OTHER FINANCING SOURCES (USES): Premium from issuance of refunding bonds……………… - - - - 510,389 Transfers in…………………………………………………… - - - - 2,926,246 Transfers out………………………………………………… - - - - (1,065,526)
TOTAL OTHER FINANCING SOURCES (USES)…… - - - - 2,371,109
NET CHANGE IN FUND BALANCES………………………… 249,325 95,876 129,592 474,793 2,747,997
FUND BALANCES AT BEGINNING OF YEAR……………… 3,502,434 1,546,819 1,319,588 6,368,841 15,262,185
FUND BALANCES AT END OF YEAR………………………$ 3,751,759 $ 1,642,695 $ 1,449,180 $ 6,843,634 $ 18,010,182
(Concluded)
City of Salem, Massachusetts A-130 Comprehensive Annual Financial Report Private Purpose Trust Funds Private purpose trust funds
Trust Fund Commissioners – This fund is used to account for trusts held by the City to benefit individuals and is administered by the City’s Board of Trust Fund Commissioners.
Scholarship Funds – This fund is used to account for scholarships held by the City to benefit individuals.
City of Salem, Massachusetts A-131 Comprehensive Annual Financial Report PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF NET POSITION
JUNE 30, 2017
Private Purpose Trust Funds
Trust Fund Scholarship Commissioners Funds Total ASSETS Cash and cash equivalents………………………………… $ 85,686 $ 119,145 $ 204,831 Corporate bonds……………………………………………… 328,738 - 328,738 Equity securities……………………………………………… 809,684 - 809,684 Fixed income mutual funds…………………………………… 98,635 - 98,635 Mutual funds…………………………………………………… 21,651 - 21,651
TOTAL ASSETS………………………………………………… 1,344,394 119,145 1,463,539
NET POSITION Held in trust for other purposes………………………………$ 1,344,394 $ 119,145 $ 1,463,539
City of Salem, Massachusetts A-132 Comprehensive Annual Financial Report PRIVATE PURPOSE TRUST FUNDS COMBINING STATEMENT OF CHANGES IN NET POSITION
YEAR ENDED JUNE 30, 2017
Private Purpose Trust Funds
Trust Fund Scholarship Commissioners Funds Total ADDITIONS: Contributions: Private donations…………………………………………… $ 1,627 $ 27,500 $ 29,127
Net investment income: Net change in fair value of investments…………………… 137,180 - 137,180 Interest………………………………………………………… 95 887 982
Total Net Investment Income……………………………… 137,275 887 138,162
TOTAL ADDITIONS……………………………………… 138,902 28,387 167,289
DEDUCTIONS: Educational scholarships…………………………………… 10,925 27,900 38,825 Housing subsidies…………………………………………… 30,613 - 30,613
TOTAL DEDUCTIONS…………………………………… 41,538 27,900 69,438
CHANGE IN NET POSITION…………………………… 97,364 487 97,851
NET POSITION AT BEGINNING OF YEAR………………… 1,247,030 118,658 1,365,688
NET POSITION AT END OF YEAR……………………………$ 1,344,394 $ 119,145 $ 1,463,539
City of Salem, Massachusetts A-133 Comprehensive Annual Financial Report Agency fund Agency Fund
This fund is used primarily to account for payroll withholdings, police and fire details, escrow deposits and unclaimed property.
City of Salem, Massachusetts A-134 Comprehensive Annual Financial Report AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES
YEAR ENDED JUNE 30, 2017
Beginning End of Year Additions Deletions of Year ASSETS CURRENT: Cash and cash equivalents………………$ 612,207 $ 63,190,224 $ (63,149,509) $ 652,922
LIABILITIES Liabilities due depositors…………………$ 612,207 $ 63,190,224 $ (63,149,509) $ 652,922
City of Salem, Massachusetts A-135 Comprehensive Annual Financial Report This page intentionally left blank.
City of Salem, Massachusetts A-136 Comprehensive Annual Financial Report Statistical Section
Winter Island
During the 1930's, the United States Coast Guard created a Search & Rescue Base here on Winter Island Park. The Frigate USS Essex was built and launched in 1799 from this location. It served General George Washington in the U.S. Navy. The three bunkers located in historic Fort Pickering once stored ammunition as early as the Civil War. Winter Island had Salem's first tavern and first shipyard. A fort was erected as early as 1643. In 1867, the War department "turned over" to the city "for public use" the part of the island not occupied by the fort, until it should be wanted for defense. On December 28, 1928, Salem's Park Department took formal possession of the island. The fort was renamed Fort Pickering, after Colonel Timothy Pickering, Secretary of State and War in Washington's Cabinet.
Winter Island is located at 50 Winter Island Road in Salem, Massachusetts. It offers RV and Tent Camping May 1 to Nov 1, a public boat ramp that is open year round, Waikiki Beach a public beach with lifeguards, seasonal dinghy rack spaces, and a camp and gift store. Picnic areas can be rented May 1 through Nov 1. Winter Island offers a walking tour where you can see the historic Fort Pickering Lighthouse and is a stop along the Salem Trolley Tour. A function hall is available for year round rentals and is a great place for weddings and more! Go to www.salem.com Recreation Department for more information. This page intentionally left blank. Statistical Section
This part of the comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health.
Financial Trends
• These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time.
Revenue Capacity
• These schedules contain information to help the reader assess the City’s most significant local revenue source, the property tax.
Debt Capacity
• These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future.
Demographic and Economic Information
• These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place.
Operating Information
• These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs.
SOURCES: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year.
City of Salem, Massachusetts A-137 Comprehensive Annual Financial Report Net Position By Component
Last Ten Years
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Governmental activities Net investment in capital assets…………… $ 139,683,360 $ 147,373,757 $ 147,313,749 $ 144,887,020 $ 147,692,495 $ 169,750,602 $ 170,092,864 $ 172,084,606 $ 171,154,358 $ 176,335,671 Restricted……………………………………… 6,948,839 6,968,580 6,892,267 10,562,103 11,197,635 12,499,976 14,383,949 12,047,560 9,234,701 10,103,927 Unrestricted…………………………………… (6,668,493) (13,473,169) (17,907,226) (17,992,385) (21,617,069) (22,562,824) (116,481,627) (125,845,138) (126,419,624) (136,605,419)
Total governmental activities net position………$ 139,963,706 $ 140,869,168 $ 136,298,790 $ 137,456,738 $ 137,273,061 $ 159,687,754 $ 67,995,186 $ 58,287,028 $ 53,969,435 $ 49,834,179
Business-type activities Net investment in capital assets…………… $ 8,836,475 $ 6,939,001 $ 8,245,799 $ 8,248,186 $ 8,605,165 $ 9,562,558 $ 8,511,138 $ 8,744,920 $ 8,280,350 $ 8,865,191 Unrestricted…………………………………… 5,647,967 6,371,380 3,920,927 4,366,232 4,085,318 4,857,190 6,184,586 3,008,694 3,573,341 4,164,534
Total business-type activities net position…… $ 14,484,442 $ 13,310,381 $ 12,166,726 $ 12,614,418 $ 12,690,483 $ 14,419,748 $ 14,695,724 $ 11,753,614 $ 11,853,691 $ 13,029,725
Primary government Net investment in capital assets…………… $ 148,519,835 $ 154,312,758 $ 155,559,548 $ 153,135,206 $ 156,297,660 $ 179,313,160 $ 178,604,002 $ 180,829,526 $ 179,434,708 $ 185,200,862 Restricted……………………………………… 6,948,839 6,968,580 6,892,267 10,562,103 11,197,635 12,499,976 14,383,949 12,047,560 9,234,701 10,103,927 Unrestricted…………………………………… (1,020,526) (7,101,789) (13,986,299) (13,626,153) (17,531,751) (17,705,634) (110,297,041) (122,836,444) (122,846,283) (132,440,885)
Total primary government net position…………$ 154,448,148 $ 154,179,549 $ 148,465,516 $ 150,071,156 $ 149,963,544 $ 174,107,502 $ 82,690,910 $ 70,040,642 $ 65,823,126 $ 62,863,904
GASB 68 was implemented in 2015 and the net pension liability was recorded which changed the 2014 net position for the first time.
City of Salem, Massachusetts A-138 Comprehensive Annual Financial Report Changes in Net Position
Last Ten Years
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Expenses Governmental activities: General government…………………………………………$ 10,598,174 $ 10,914,012 $ 10,865,152 $ 11,702,186 $ 11,904,711 $ 10,574,021 $ 10,080,121 $ 12,503,170 $ 11,788,264 $ 12,327,559 Public safety………………………………………………… 28,262,847 27,421,538 26,755,783 27,989,181 26,551,919 27,832,445 29,879,444 29,652,698 29,707,698 32,046,642 Education……………………………………………………… 75,874,227 79,410,738 83,743,843 86,938,434 91,261,655 95,924,303 100,837,487 100,997,380 105,955,199 114,049,284 Public works………………………………………………… 6,846,006 6,705,986 6,820,639 8,894,659 5,952,380 8,848,271 9,092,995 11,878,911 12,627,503 10,846,604 Community development…………………………………… 1,567,381 2,093,618 3,226,360 1,845,141 1,530,786 1,347,731 1,304,481 1,569,281 1,033,601 1,335,941 Health and human services………………………………… 5,904,063 6,226,498 6,622,114 5,930,089 6,001,130 6,140,975 5,788,579 6,850,201 6,793,390 6,714,390 Community preservation…………………………………… (A) (A) (A) (A) (A) (A) 5 ,350 356,518 80,610 456,019 Culture and recreation……………………………………… 3,293,415 3,228,906 3,169,224 2,997,090 3,219,315 3,429,452 3,589,253 3,277,578 3,585,339 3,576,595 Interest………………………………………………………… 2,503,461 2,396,187 1,888,315 1,582,033 1,544,887 1,277,709 1,328,888 1,349,443 1,313,435 1,646,278
Total government activities expenses…………………………… 134,849,574 138,397,483 143,091,430 147,878,813 147,966,783 155,374,907 161,906,598 168,435,180 172,885,039 182,999,312
Business-type activities: Water and sewer services…………………………………… 9,790,421 11,488,868 11,796,038 10,752,161 10,921,100 11,169,816 11,241,391 12,386,557 11,694,630 10,787,708 Golf course…………………………………………………… 386,099 278,007 399,023 363,625 438,613 465,210 466,834 472,708 531,307 552,606 Parking………………………………………………………… 936,826 905,834 844,615 991,722 1,042,610 1,052,780 968,159 (B) (B) (B) Trash…………………………………………………………… 3,230,500 2,558,263 2,573,421 2,617,948 2,744,963 2,648,564 2,373,876 2,448,400 2,762,022 2,917,405
Total business type activities expenses………………………… 14,343,846 15,230,972 15,613,097 14,725,456 15,147,286 15,336,370 15,050,260 15,307,665 14,987,959 14,257,719
Total primary government expenses………………………………$ 149,193,420 $ 153,628,455 $ 158,704,527 $ 162,604,269 $ 163,114,069 $ 170,711,277 $ 176,956,858 $ 183,742,845 $ 187,872,998 $ 197,257,031
Program Revenues Governmental activities: Education charges for services…………………………… $ 1,586,525 $ 1,473,880 $ 1,370,250 $ 1,277,950 $ 1,271,626 $ 1,171,221 $ 1,275,125 $ 1,036,778 $ 1,224,683 $ 807,217 Public Safety charges for services………………………… 2,378,961 2,456,341 2,074,324 2,115,452 2,212,295 2,780,253 2,237,189 2,712,983 2,289,056 3,257,068 Other charges for services………………………………… 1,602,847 1,693,333 1,824,040 1,744,351 1,872,305 2,264,412 2,345,324 4,762,457 4,971,335 5,576,210 Operating grants and contributions………………………… 41,168,760 43,744,124 46,352,034 51,358,511 47,872,700 49,028,512 50,489,073 46,826,741 52,223,253 54,915,403 Capital grant and contributions……………………………… 9,615,336 8,762,642 4,135,374 5,197,515 5,699,571 30,643,446 8,496,589 5,050,922 7,213,351 7,576,188
Total government activities program revenues...……………… 56,352,429 58,130,320 55,756,022 61,693,779 58,928,497 85,887,844 64,843,300 60,389,881 67,921,678 72,132,086
Business-type activities: Charges for services - Water and Sewer………………… 10,874,482 11,753,147 12,122,111 12,810,031 12,609,726 13,692,023 13,086,639 13,288,556 13,043,867 13,312,357 Charges for services - Golf………………………………… 570,142 547,301 589,345 548,805 648,916 697,232 705,341 724,052 805,227 749,590 Charges for services - Parking……………………………… 1,651,032 1,694,708 2,038,235 2,333,478 2,274,470 2,580,262 2,510,838 (B) (B) (B) Charges for services - Trash...... 908,577 720,193 740,511 692,089 675,916 684,262 678,607 689,982 838,882 861,402 Capital grants and contributions………………………. 49,707 43,796 41,820 39,804 - - 2,887,131 102,518 - -
Total business-type activities program revenues...……………… 14,053,940 14,759,145 15,532,022 16,424,207 16,209,028 17,653,779 19,868,556 14,805,108 14,687,976 14,923,349
Total primary government program revenues……………………$ 70,406,369 $ 72,889,465 $ 71,288,044 $ 78,117,986 $ 75,137,525 $ 103,541,623 $ 84,711,856 $ 75,194,989 $ 82,609,654 $ 87,055,435
Net (Expense)/Revenue Governmental activities……………………………………………$ (78,497,145) $ (80,267,163) $ (87,335,408) $ (86,185,034) $ (89,038,286) $ (69,487,063) $ (97,063,298) $ (108,045,299) $ (104,963,361) $ (110,867,226) Business-type activities…………………………………………… (289,906) (471,827) (81,075) 1,698,751 1,061,742 2,317,409 4,818,296 (502,557) (299,983) 665,630
Total primary government net expense………………………… $ (78,787,051) $ (80,738,990) $ (87,416,483) $ (84,486,283) $ (87,976,544) $ (67,169,654) $ (92,245,002) $ (108,547,856) $ (105,263,344) $ (110,201,596)
General Revenues and other Changes in Net Position Governmental activities: Real estate and personal property taxes, net of tax refunds payable…………………………………$ 63,230,976 $ 66,672,653 $ 69,067,349 $ 71,828,412 $ 72,073,381 $ 76,770,134 $ 79,012,963 $ 82,444,144 $ 84,802,453 $ 90,118,638 Community Preservation Taxes…………………………… (A) (A) (A) (A) (A) (A) 486,797 535,637 561,424 590,722 Tax liens……………………………………………………… 752,178 527,492 234,353 510,973 795,443 589,138 563,353 708,963 523,414 317,548 Motor vehicle and other excise taxes……………………… 3,286,119 2,978,961 3,092,527 3,181,247 3,131,334 3,052,229 3,890,099 3,929,230 4,194,711 4,311,772 Hotel/motel tax……………………………………………… 373,655 324,622 294,214 955,092 1,161,007 1,224,849 1,319,418 1,362,357 1,541,901 1,683,573 Penalties and interest on taxes…………………………… 353,952 412,572 437,361 438,487 490,242 399,311 457,958 443,444 497,484 466,092 Payments in lieu of taxes…………………………………… 1,229,435 1,320,945 1,307,078 1,319,079 1,440,186 1,462,692 1,321,060 1,043,782 1,322,806 1,082,164 Grants and contributions not restricted to specific programs…………………………………………… 9,163,777 8,064,486 6,583,118 6,404,395 8,220,908 6,610,413 6,775,827 7,182,509 6,881,968 7,218,934 Unrestricted investment income…………………………… 462,275 (35,188) 435,769 1,095,518 103,015 828,974 1,377,835 554,360 459,322 1,134,074 Miscellaneous………………………………………………… 168,417 203,848 250,681 358,720 453,416 375,872 344,538 122,979 260,344 318,858 Transfers……………………………………………………… (26,013) 702,234 1,062,580 1,251,059 985,677 588,144 1,653,218 9,736 (400,060) (510,404)
Total governmental activities……………………………………… 78,994,771 81,172,625 82,765,030 87,342,982 88,854,609 91,901,756 97,203,066 98,337,141 100,645,767 106,731,971
Business-type activities: Transfers……………………………………………………… 26,013 (702,234) (1,062,580) (1,251,059) (985,677) (588,144) (1,653,218) (9,736) 400,060 510,404
Total primary government…………………………………………$ 79,020,784 $ 80,470,391 $ 81,702,450 $ 86,091,923 $ 87,868,932 $ 91,313,612 $ 95,549,848 $ 98,327,405 $ 101,045,827 $ 107,242,375
Changes in Net Position Governmental activities……………………………………………$ 497,626 $ 905,462 $ (4,570,378) $ 1,157,948 $ (183,677) $ 22,414,693 $ 139,768 $ (9,708,158) $ (4,317,594) $ (4,135,255) Business-type activities…………………………………………… (263,893) (1,174,061) (1,143,655) 447,692 76,065 1,729,265 3,165,078 (512,293) 100,077 1,176,034
Total primary government…………………………………………$ 233,733 $ (268,599) $ (5,714,033) $ 1,605,640 $ (107,612) $ 24,143,958 $ 3,304,846 $ (10,220,451) $ (4,217,517) $ (2,959,221)
(A) In 2014 the City approved and established the Community Preservation Fund. (B) In 2015 the City reclassified the parking fund to a governmental activity.
City of Salem, Massachusetts A-139 Comprehensive Annual Financial Report Fund Balances, Governmental Funds
Last Ten Years
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
General Fund Reserved…………………………………… $ 220,608 $ 372,027 $ 421,825 $ - $ - $ - $ - $ - $ - $ - Unreserved………………………………… 1,321,397 749,849 1,211,094 ------Assigned…………………………………… - - - 589,894 985,737 1,059,667 1,002,935 558,880 661,246 468,894 Unassigned………………………………… - - - 8,405,585 9,550,262 11,663,494 11,998,002 11,159,068 12,937,609 14,518,650
Total general fund………………………………$ 1,542,005 $ 1,121,876 $ 1,632,919 $ 8,995,479 $10,535,999 $ 12,723,161 $ 13,000,937 $ 11,717,948 $ 13,598,855 $ 14,987,544
All Other Governmental Funds Reserved…………………………………… $ 1,650,597 $ 1,688,851 $ 1,689,176 $- $ - $ - $ - $ - $ - $ - Unreserved, reported in: Special revenue funds……………….. 3,768,323 5,602,931 5,819,702 ------Capital projects funds………………… 2,806,105 (537,848) 3,969,207 ------Permanent funds……………………… 3,291,512 2,678,043 2,783,655 ------Nonspendable……………………………… - - - 1,707,276 2,074,097 2,074,989 2,074,987 2,151,087 2,176,969 2,206,224 Restricted…………………………………… - - - 11,329,632 14,344,418 12,942,168 15,563,265 12,440,090 20,988,535 19,857,614 Unassigned………………………………… - - - (665,295) (4,101,228) (623,622) (2,089,648) (1,002,367) (23,344) (128,661)
Total all other governmental funds……………$ 11,516,537 $ 9,431,977 $ 14,261,740 $ 12,371,613 $ 12,317,287 $ 14,393,535 $ 15,548,604 $ 13,588,810 $ 23,142,160 $ 21,935,177
Note: The City implemented GASB 54 in 2011, fund balances prior to 2011 have been reported in the pre-GASB 54 format.
City of Salem, Massachusetts A-140 Comprehensive Annual Financial Report Changes in Fund Balances, Governmental Funds Last Ten Years 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Revenues: Real estate and personal property taxes, net of tax refunds………………………………………… $ 63,376,714 $ 66,717,968 $ 68,747,759 $ 71,754,816 $ 72,202,064 $ 77,018,965 $ 79,449,354 $ 82,905,745 $ 85,828,099 $ 91,488,374 Motor vehicle and other excise taxes……………………… 3,427,889 3,154,642 3,007,759 3,180,552 3,203,122 3,113,058 3,799,179 3,945,343 4,057,235 4,300,898 Intergovernmental……………………………………………… 39,569,976 42,962,129 44,150,857 51,562,915 50,048,535 84,640,597 49,698,445 49,811,556 51,544,933 66,303,024 Departmental and other……………………………………… 10,086,572 9,382,460 8,511,803 9,656,996 10,366,488 12,049,109 11,097,377 13,036,554 14,259,338 14,159,322 Investment income…………………………………………… 462,585 (32,923) 436,686 1,096,747 129,773 828,974 1,377,835 554,360 459,322 1,134,074 Commonwealth school construction grants………………… 17,324,905 13,130,784 7,095,272 4,310,837 4,310,837 4,310,837 3,695,128 3,171,572 3,171,572 3,171,572 On-behalf pension payments by the Commonwealth (A)… 7,511,889 8,277,958 8,602,216 9,290,000 9,695,000 10,522,000 10,808,000 6,752,780 10,209,061 -
Total Revenue………………………………………… 141,760,530 143,593,018 140,552,352 150,852,863 149,955,819 192,483,540 159,925,318 160,177,910 169,529,560 180,557,264
Expenditures: General government………………………………………… 4,512,126 5,284,403 5,062,768 5,678,376 6,039,335 6,351,699 6,218,639 8,285,799 7,404,363 11,059,850 Public safety…………………………………………………… 15,945,719 16,452,689 16,147,666 17,129,546 17,807,607 18,207,275 19,627,830 19,936,450 19,682,270 23,663,814 Education……………………………………………………… 47,293,548 48,101,995 49,491,944 51,429,439 50,076,848 53,168,217 54,548,503 63,150,832 60,044,184 71,957,012 Public works…………………………………………………… 3,338,981 3,718,860 3,255,769 3,573,118 2,831,181 5,338,674 5,230,942 7,137,934 7,530,669 13,944,182 Community development…………………………………… 1,567,381 2,402,149 3,413,203 1,933,227 1,757,053 1,322,586 1,629,209 1,544,509 1,033,601 1,335,941 Health and human services………………………………… 5,306,444 5,339,094 6,158,089 5,927,137 5,538,621 5,580,162 5,446,188 6,424,227 6,341,080 5,837,125 Community Preservation……………………………………… ------(B) 5,350 (B) 356,518 506,415 (B) 604,319 Culture and recreation………………………………………… 2,135,563 2,395,536 2,320,698 2,152,872 3,367,206 2,468,723 2,368,401 2,264,401 2,347,889 2,518,037 Pension benefits………………………………..……………… 15,180,985 16,206,240 16,770,835 17,707,823 18,538,274 19,771,148 20,402,625 16,923,249 20,151,894 23,610,047 Massachusetts teachers' retirement (A)…………………… 7,511,889 8,277,958 8,602,216 9,290,000 9,695,000 10,522,000 10,808,000 6,752,780 10,209,061 - Employee benefits…………………………………………… 11,570,087 11,805,651 11,077,682 11,751,691 13,122,992 13,326,634 14,255,543 13,490,299 13,529,621 14,108,736 State and county charges…………………………………… 5,933,670 6,302,025 6,655,890 6,445,380 6,390,908 5,141,397 5,776,828 6,015,427 7,061,663 7,946,729 Capital outlay…………………………...……………………… 12,930,767 13,552,655 4,654,814 6,194,898 11,752,488 38,287,997 16,665,809 13,273,983 10,251,982 14,234,566 Debt service Principal……………………………………………………… 6,620,000 4,559,497 5,385,000 7,550,000 4,717,000 (C) 19,454,000 3,073,598 2,935,000 3,500,000 3,752,361 Interest……………………………………………………… 2,622,389 2,568,643 2,087,028 1,851,117 1,761,551 1,816,117 1,536,769 1,558,748 1,640,859 1,810,439
Total Expenditures…………………………………………… 142,469,549 146,967,395 141,083,602 148,614,624 153,396,064 200,756,629 167,594,234 170,050,156 171,235,551 196,383,158
Excess of revenues over (under) expenditures…………… (709,019) (3,374,377) (531,250) 2,238,239 (3,440,245) (8,273,089) (7,668,916) (9,872,246) (1,705,991) (15,825,894)
Other Financing Sources (Uses) Issuance of debt……………………………………………… 3,930,000 - 4,589,000 630,000 3,900,938 11,242,660 6,680,000 5,980,000 10,473,361 665,000 Premium from issuance of bonds…………………………… 84,840 - 575,986 1,167,420 1,059 191,693 421,355 700,157 606,548 517,618 Issuance of refunding bonds………………………………… -3,785,000 11,043,000 4,589,000 - - 2,509,500 - - 3,312,000 Premium from issuance of refunding bonds………………… ------262,818 - - 464,866 Payments to refunded bond escrow agent………………… - - (8,512,000) - - - (2,709,130) - - (3,735,364) Refunding bonds redeemed………………………………… -(3,785,000) (2,930,000) (4,589,000) ------Capital lease financing……………………………………… 394,779 167,454 43,500 185,715 38,765 514,002 284,000 351,762 1,805,846 590,426 Transfers in…………………………………………………… 4,508,229 5,228,530 6,160,597 5,137,447 5,184,894 5,343,327 6,718,284 3,699,383 4,779,568 7,261,562 Transfers out…………………………………………………… (4,534,242) (4,526,296) (5,098,017) (3,886,388) (4,199,217) (4,755,183) (5,065,066) (3,689,647) (5,179,628) (7,771,966)
Total other financing sources (uses)……………………………… 4,383,606 869,688 5,872,066 3,234,194 4,926,439 12,536,499 9,101,761 7,041,655 12,485,695 1,304,142
Net change in fund balance……………………………………… $ 3,674,587 $ (2,504,689) $ 5,340,816 $ 5,472,433 $ 1,486,194 $ 4,263,410 $ 1,432,845 $ (2,830,591) $ 10,779,704 $ (14,521,752)
Debt service as a percentage of noncapital expenditures……… 7.13% 5.34% 5.48% 6.60% 4.57% 13.09% 3.05% 2.87% 3.19% 3.05% (C) (A) The Commonwealth is legally obligated to fund the Salem teachers retirement. Therefore the revenue and expenditure has been recorded in accordance with GASB 24. (B) In 2014 the City approved and established the Community Preservation Fund. (C) The City received a $15.8 million grant from the Commonwealth to pay down $15.6 million in school debt issued in 2013.
City of Salem, Massachusetts A-141 Comprehensive Annual Financial Report Assessed Value and Actual Value of Taxable Property by Classification and Tax Rates
Last Ten Years
Assessed and Actual Values and Tax Rates Total Total Total Residential Residential Commercial Industrial Personal Commercial Commercial Direct City Year Value Tax Rate Value Value Property Value Tax Rate Rate Value
2008 $ 4,008,575,509 $ 11.67 $ 449,128,612 $ 134,872,400 $ 212,904,820 $ 796,905,832 $ 22.11 $ 13.40 $ 4,805,481,341 2009 3,753,889,412 12.92 446,457,904 133,318,180 177,993,390 757,769,474 24.54 14.87 4,511,658,886 2010 (1) 3,527,110,563 14.01 432,747,534 127,061,700 207,643,630 767,452,864 26.93 16.32 4,294,563,427 2011 3,361,382,273 15.05 417,668,102 123,342,500 213,577,900 754,588,502 29.08 17.62 4,115,970,775 2012 3,291,268,444 15.63 410,704,364 118,044,040 153,768,900 682,517,304 29.81 18.07 3,973,785,748 2013 (1) 3,227,554,748 16.38 420,436,783 116,029,720 163,211,490 699,677,993 31.46 19.07 3,927,232,741 2014 3,265,724,508 16.73 421,704,398 115,505,220 160,002,170 697,211,788 32.05 19.43 3,962,936,296 2015 3,523,220,734 16.41 449,496,402 101,675,040 134,283,680 685,455,122 30.99 18.78 4,208,675,856 2016 (1) 3,802,708,194 15.67 479,297,217 108,008,340 144,065,880 731,371,437 29.55 17.91 4,534,079,631 2017 3,802,708,194 15.86 478,990,259 108,442,340 183,684,630 771,117,229 29.99 18.24 4,573,825,423
Total Assessed Value by Classification Year Ended June 30, 2016 Total Assessed Value by Classification Year Ended June 30, 2017
3.18% 4.02% 2.38% 2.37% 10.57% 10.47%
83.87% 83.14%
Residential Commercial Industrial Personal Property
Commercial Value as % of Total Value 18.5%
18.0%
17.5%
17.0%
16.5%
16.0%
15.5%
15.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (1) Revaluation year. Source: Assessor's Department, City of Salem All property in the Commonwealth of Massachusetts is assessed at 100% of fair cash value.
Note: Chapter 59, Section 21C of the Massachusetts General Laws, known as "Proposition 2 1/2", imposes 2 separate limits on the annual tax levy of the City. The primary limitation is that the tax levy cannot exceed 2 1/2 percent of the full and fair cash value. The secondary limitation is that the tax levy cannot exceed the maximum levy limit for the preceding year as determined by the State Commissioner of Revenue by more than 2 1/2 percent, subject to an exception for property added to the tax rolls and for certain substantial valuation increases other than as part of a general revaluation. The secondary limit may be exceeded in any year by a majority vote of the voters, however it cannot exceed the primary limitation.
City of Salem, Massachusetts A-142 Comprehensive Annual Financial Report Principal Taxpayers
Current Year and Nine Years Ago
2017 2008 Percentage of Percentage of Total Taxable Total Taxable Nature of Assessed Assessed Assessed Assessed Name Business Valuation Rank Value Valuation Rank Value
New England Power Co./Boston Gas Personal & Industrial $47,896,180 1 1.05% $24,520,050 3 0.51%
Mass Electric Personal Property $37,920,190 2 0.83% $21,899,450 4 0.46%
National Grid Personal & Industrial $41,122,890 3 0.90% - 0.00%
Shetland Properties Industrial & Commercial $27,840,600 4 0.61% $29,315,600 2 0.61%
Highlander Plaza Commercial Property $23,518,100 5 0.51% 21,728,900 5 0.45%
Algonquin Gas Transmission Personal Property $25,606,200 6 0.56% - 0.00%
Salem Station LLC Apartments $41,112,900 7 0.90% $40,027,860 6 0.83%
RCG, Total Properties Apartments & Commercial $24,273,890 8 0.53% - 0.00%
Princeton Crossing Apartments Apartments $30,648,700 9 0.67% $30,981,000 8 0.64%
Hawthorne Commons Apartments $30,902,600 10 0.68% 28,417,500 9 0.59%
Dominion Personal & Industrial Property - 0.00% $219,732,050 1 4.57%
Totals $330,842,250 7.2% $416,622,410 8.7%
Source: Board of Assessors
City of Salem, Massachusetts A-143 Comprehensive Annual Financial Report Property Tax Levies and Collections
Last Ten Years
Percent of Less Percent of Delinquent Total Total Tax Total Abatements & Net Current Net Levy Tax Tax Collections to Year Tax Levy Exemptions Tax Levy Tax Collections Collected Collections Collections Net Tax Levy
2008 $ 64,399,664 $ 565,307 $ 63,834,357 $ 63,225,112 99.0% $ 609,245 $ 63,834,357 100.0% 2009 67,095,914 514,742 66,581,172 66,300,317 99.6% 280,855 66,581,172 100.0% 2010 (1) 70,082,325 612,829 69,469,496 68,292,880 98.3% 1,176,616 69,469,496 100.0% 2011 72,532,237 402,324 72,129,913 70,936,056 98.3% 1,193,857 72,129,913 100.0% 2012 71,788,367 360,622 71,427,745 70,558,172 98.8% 869,573 71,427,745 100.0% 2013 (1) 74,879,216 420,829 74,458,387 73,069,108 98.1% 1,389,279 74,458,387 100.0% 2014 76,981,209 337,606 76,643,603 75,905,195 99.0% 738,408 76,643,603 100.0% 2015 79,058,306 354,811 78,703,495 78,006,777 99.1% 696,718 78,703,495 100.0% 2016 (1) 81,200,463 341,538 80,858,925 80,580,642 99.7% 278,283 80,858,925 100.0% 2017 85,600,551 364,920 85,235,631 84,518,157 99.2% - 84,518,157 99.2%
(1) Revaluation Year Source: Massachusetts Department of Revenue; Board of Assessors
City of Salem, Massachusetts A-144 Comprehensive Annual Financial Report Ratios of Outstanding Debt by Type
Last Ten Years
Business-type Activities Governmental Activities Total Primary Government
General General Total Percentage Percentage U. S. Census Personal Assessed Obligation Capital Obligation Capital Outstanding Per of Personal of Assessed Year Population Income Value Bonds Leases Bonds Leases Debt Capita Income Value
2008 40,407 $ 1,129,467,691 $ 4,805,481,341 $ 7,624,241 $ - $ 55,704,497 $ 675,954 $ 64,004,692 $ 1,584 5.67% 1.33% 2009 41,421 1,180,967,527 4,511,658,886 7,250,908 - 51,145,000 530,771 58,926,679 1,423 4.99% 1.31% 2010 41,361 1,202,841,984 4,294,563,427 12,949,102 - 50,387,000 317,032 63,653,134 1,539 5.29% 1.48% 2011 41,361 1,226,898,824 4,115,970,775 15,665,280 - 44,581,526 384,965 60,631,771 1,466 4.94% 1.47% 2012 41,340 1,250,801,415 3,973,785,748 16,762,802 - 43,629,929 245,703 60,638,434 1,467 4.85% 1.53% 2013 41,654 1,285,525,748 3,927,232,741 16,670,824 - 35,291,962 619,317 52,582,103 1,262 4.09% 1.34% 2014 41,340 1,301,351,782 3,962,936,296 18,825,303 105,047 39,943,717 626,059 59,500,126 1,439 4.57% 1.50% 2015 42,544 1,282,020,896 4,208,675,856 19,935,000 257,054 43,473,824 698,595 64,364,473 1,513 5.02% 1.53% 2016 42,544 1,083,723,312 4,534,079,631 29,666,894 274,554 50,735,271 2,211,224 82,887,943 1,948 7.65% 1.83% 2017 42,544 1,445,049,504 4,573,825,423 31,277,113 226,416 47,959,069 2,250,280 81,712,878 1,921 5.65% 1.79%
Source: Audited Financial Statements, U. S. Census
City of Salem, Massachusetts A-145 Comprehensive Annual Financial Report Ratios of General Bonded Debt Outstanding
Last Ten Years
Total Primary Government
General Percentage Percentage U. S. Census Personal Assessed Obligation Per of Personal of Assessed Year Population Income Value Bonds Capita Income Value
2008 40,407 $ 1,129,467,691 $ 4,805,481,341 $ 63,328,738 $ 1,567 5.61% 1.32% 2009 41,421 1,180,967,527 4,511,658,886 58,395,908 1,410 4.94% 1.29% 2010 41,361 1,202,841,984 4,294,563,427 63,336,102 1,531 5.27% 1.47% 2011 41,361 1,226,898,824 4,115,970,775 60,246,806 1,457 4.91% 1.46% 2012 41,340 1,250,801,415 3,973,785,748 60,392,731 1,461 4.83% 1.52% 2013 41,654 1,285,525,748 3,927,232,741 51,962,786 1,247 4.04% 1.32% 2014 41,340 1,301,351,782 3,962,936,296 58,769,020 1,422 4.52% 1.48% 2015 42,544 1,282,020,896 4,208,675,856 63,408,824 1,490 4.95% 1.51% 2016 42,544 1,083,723,312 4,534,079,631 80,402,165 1,890 7.42% 1.77% 2017 42,544 1,445,049,504 4,573,825,423 79,236,182 1,862 5.48% 1.73%
Source: Audited Financial Statements, U. S. Census
City of Salem, Massachusetts A-146 Comprehensive Annual Financial Report Direct and Overlapping Governmental Activities Debt
As of June 30, 2017
Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable (1) Debt
Overlapping debt: Essex North Shore Agricultural & Tech School District…… $ 29,720,000 18.81% $ 5,590,332
Direct debt: Capital Lease Obligations……………………………………… 2,250,280 General Governmental Debt ………………………………… 47,959,069
City total direct debt………………………………………… 50,209,349
Total direct and overlapping debt…………………………………… $ 55,799,681
Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of the overlapping governments that is borne by the taxpayers of the Town. This process recognizes that, when considering the government's ability to issue and repay long-term debt, the entire debt burden borne by the property taxpayers should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government.
(1) The percentage applicable for the North Shore Regional Vocational School District is based on the number of students attending from the City of Salem as a percentage of all students at the Regional School.
Source: Treasurer and North Shore Regional Vocational School District
City of Salem, Massachusetts A-147 Comprehensive Annual Financial Report Computation of Legal Debt Margin
Last Ten Years
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Equalized Valuation………………………… $ 5,168,060,200 $ 5,168,060,200 $ 4,568,374,700 $ 4,568,374,700 $ 4,256,808,900 $ 4,256,808,900 $ 4,191,566,000 $ 4,191,566,000 $ 4,757,173,700 $ 4,757,173,700
Debt Limit -5% of Equalized Valuation…… $ 258,403,010 $ 258,403,010 $ 228,418,735 $ 228,418,735 $ 212,840,445 $ 212,840,445 $ 209,578,300 $ 209,578,300 $ 237,858,685 $ 237,858,685
Less:
Outstanding debt applicable to limit………… 12,004,000 12,004,000 10,884,900 16,669,700 14,905,000 19,976,500 23,966,500 30,306,500 32,996,153 36,040,315 Authorized and unissued debt……………… 28,769,240 28,769,240 11,128,240 13,725,802 72,303,161 46,646,035 36,905,041 28,415,041 60,521,980 49,272,080
Legal debt margin…………………………… $ 217,629,770 $ 217,629,770 $ 206,405,595 $ 198,023,233 $ 125,632,284 $ 146,217,910 $ 148,706,759 $ 150,856,759 $ 144,340,552 $ 152,546,290
Total debt applicable to the limit as a percentage of debt limit……………… 15.78% 15.78% 9.64% 13.31% 40.97% 31.30% 29.04% 28.02% 39.32% 35.87%
Source: Audited Financial Statements; Statement of Indebtedness; and the Massachusetts Department of Revenue, Bureau of Local Assessment.
City of Salem, Massachusetts A-148 Comprehensive Annual Financial Report Demographic and Economic Statistics
Last Ten Years
Per Capita Population Personal Personal Median School Unemployment Year Estimates Income Income Age Enrollment Rate
2008 40,407 $ 1,129,467,691 $ 27,952 36.4 4,404 4.9% 2009 41,421 1,180,967,527 28,511 36.4 4,474 9.7% 2010 41,361 1,202,841,984 29,082 36.7 4,647 9.6% 2011 41,361 1,226,898,824 29,663 36.5 4,647 9.2% 2012 41,340 1,250,783,040 30,256 37.6 4,541 8.2% 2013 41,654 1,285,525,748 30,862 36.5 4,501 7.6% 2014 41,340 1,301,351,782 31,479 39.2 4,478 6.2% 2015 42,544 1,282,020,896 30,134 38.4 4,222 5.6% 2016 42,544 1,083,723,312 25,473 38.2 3,949 4.7% 2017 42,544 1,445,049,504 33,966 39.1 4,144 3.7%
Note: Per Capita Personal Income based on 2010 U.S Census Source: Massachusetts Department of Revenue, Division of Local Services; U.S. Census Bureau
City of Salem, Massachusetts A-149 Comprehensive Annual Financial Report Principal Employers
Current Year and Nine Years Ago
2017 2008 Nature Percentage of Percentage of of Total City Total City Employer Business Employees Rank Employment Employees Rank Employment
North Shore Medical Center Healthcare 3,116 1 12.8% 2,875 1 12.7%
Commonwealth of Massachusetts State Government 2,735 2 11.3% 568 3 -
Salem State University Higher Education 1,465 3 6.0% 1,500 2 6.6%
City of Salem Municipal Government 1,462 4 6.0% - -
Peabody Essex Museum Cultural/Tourism 250 5 1.0% 271 5 1.2%
Excelitas Technologies Technology 200 6 0.8% 0.0%
Salem Five Savings Banking 195 7 0.8% 210 7 0.9%
Salem YMCA Social Service Agency 185 8 0.8% 0.0%
Grosvenor Park Nursing Center Health Care 177 9 0.7% 214 6 0.9%
Hawthorne Hotel Lodging 165 10 0.7% 200 8 0.9%
9,950 41.0% 5,838 23.3%
Source: The City Planning Department
City of Salem, Massachusetts A-150 Comprehensive Annual Financial Report City of Salem, Massachusetts
Full-time Equivalent City Employees by Function
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Function General government…………………… 36 35 35 35 35 35 37 38 56 65 Public safety……………………………… 185 187 191 190 194 203 210 211 210 214 Education………………………………… 753 752 752 752 776 890 841 841 1,008 860 Public works……………………………… 40 37 38 39 40 39 41 41 58 60 Engineering……………………………… 3 1 1 1 1 1 1 1 3 4 Health and human services…………… 17 14 17 15 14 15 14 13 15 16 Culture and recreation…………………… 21 22 22 23 23 23 24 24 25 25
Total ……………………………………… 1,054 1,048 1,056 1,054 1,083 1,206 1,167 1,169 1,376 1,242
Source: Various City Departments
City of Salem, Massachusetts A-151 Comprehensive Annual Financial Report Operating Indicators by Function/Program
Last Ten Years
Function/Program 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
General government Marriage recordings………………………………… 306 276 243 381 321 324 365 338 337 352 Birth recordings……………………………………… 1,712 1,614 1,774 1,599 1,433 1,452 1,566 1,659 1,539 1,560 Death recordings……………………………………… 520 535 557 492 436 484 560 605 520 474 Police Physical arrests……………………………………… 2,502 2,502 2,072 2,629 1,627 1,307 1,597 2,509 2,455 1,320 Motor vehicle violations……………………………… 6,604 191 6,631 10,309 8,497 6,161 7,936 8,660 6,267 5,764 Police personnel and officers………………………… 85 85 87 89 93 99 100 103 101 110 Fire Inspections…………………………………………… 886 886 935 1,077 973 1,307 1,192 1,545 2,047 1,470 Emergency responses……………………………… 6,330 17 6,409 6,079 5,952 6,161 6,292 6,752 7,054 7,116 Fire personnel and officers…………………………… 81 81 79 83 90 86 88 88 88 88 Education Number of students…………………………………… 4,404 4,474 4,647 4,585 4,541 4,501 4,478 4,222 3,949 3,831 Number of graduates………………………………… 254 273 283 246 240 275 275 271 211 228 Number of teachers…………………………………… 479 479 488 507 517 540 542 571 521 464 Water Service connections………………………………… 11,701 11,737 11,719 11,719 11,719 11,729 11,827 9,833 9,998 10,136 Consumption in gallons……………………………… 2,123 1,994 2,103 2,025 1,921 1,934 1,898 1,898 1,612 1,504 Daily consumption (MG)……………………………… 5.80 5.44 6.00 6.00 5.26 5.30 5.00 4.00 5.20 4 Sewer Service connections………………………………… 11,701 11,727 11,709 11,706 11,719 11,719 11,807 9,813 9,988 9,881 Health and human services Number of persons using COA transportation…… 18,678 15,526 16,076 16,908 19,630 16,170 12,698 14,704 11,479 12,575 Libraries Volumes in circulation………………………………… 148,752 145,634 143,512 148,634 158,011 162,486 168,263 172,628 163,038 177,858 Total volumes borrowed……………………………… 514,708 538,184 508,507 508,293 493,315 471,416 430,391 397,810 353,800 356,973
Source: Various City Departments; Massachusetts Department of Education
City of Salem, Massachusetts A-152 Comprehensive Annual Financial Report Capital Asset Statistics by Function/Program
Last Ten Years
Function/Program 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
General government Number of buildings………………………… 2 222222222 Police Number of stations………………………… 1 111111111 Fire Number of stations………………………… 4444444444 Education Number of elementary schools…………… 73877777777 Number of middle schools………………… 1111111111 Number of high schools…………………… 11711111111 Public Works Water mains (miles)………………………… 108 102 102 102 102 102 102 102 102 102 Health and human services Number of personnel……………………… 17 17 17 15 14.7 14.7 13.8 13.8 21 21 Culture and recreation Parks and playgrounds…………………… 35 35 35 35 35 35 35 35 35 35 Park and playground (acreage)…………… 230 230 230 230 230 230 230 230 230 230 Conservation land (acreage)……………… 128 128 128 128 128 128 128 128 128 128 Railroad right of way (acreage)…………… 89 89 89 89 89 89 89 89 89 89 Public beaches……………………………… 7 777777777 Ball fields…………………………………… 13 13 13 13 13 13 13 13 13 13 Tennis courts………………………………… 10 10 10 10 10 10 10 10 10 10
Source: Various City Departments, Manual of the City Government
City of Salem, Massachusetts A-153 Comprehensive Annual Financial Report Free Cash and Stabilization Fund Balances
Last Ten Years
Free Stabilization Year Cash Fund
FY2017…………………………… $ 4,922,937 $ 6,037,015
FY2016…………………………… $ 5,380,858 $ 5,531,963
FY2015…………………………… $ 4,949,767 $ 5,440,226
FY2014…………………………… $ 3,349,683 $ 5,173,812
FY2013…………………………… $ 5,498,710 $ 3,438,799
FY2012…………………………… $ 2,525,829 $ 3,453,722
FY2011…………………………… $ 3,249,238 $ 2,736,777
FY2010…………………………… $ 750,607 $ 1,913,913
FY2009…………………………… $ 1,261,200 $ 1,489,907
FY2008…………………………… $ 1,114,950 $ 648,947
Source: City Records
City of Salem, Massachusetts A-154 Comprehensive Annual Financial Report PROPOSED FORM OF LEGAL OPINION APPENDIX B
(Date of Delivery)
Kathleen McMahon, Treasurer City of Salem Salem, Massachusetts
$14,900,000* City of Salem, Massachusetts General Obligation Municipal Purpose Loan of 2018 Bonds Dated June 27, 2018
We have acted as bond counsel to the City of Salem, Massachusetts (the “City”) in connection with the issuance by the City of the above-referenced bonds (the “Bonds”). In such capacity, we have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion.
As to questions of fact material to our opinion we have relied upon representations and covenants of the City contained in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation.
Based on our examination, we are of the opinion, under existing law, as follows:
1. The Bonds are valid and binding general obligations of the City and, except to the extent they are paid from other sources, the principal of and interest on the Bonds are payable from taxes which may be levied upon all taxable property in the City, subject to the limit imposed by Chapter 59, Section 21C of the General Laws.
2. Interest on the Bonds is excluded from the gross income of the owners of the Bonds for federal income tax purposes. In addition, interest on the Bonds is not a specific preference item for purposes of the federal individual alternative minimum tax. Interest on the Bonds is included in computing a corporation’s adjusted current earnings for taxable years beginning before January 1, 2018. In rendering the opinions set forth in this paragraph, we have assumed compliance by the City with all requirements of the Internal Revenue Code of 1986, as amended that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, and continue to be, excluded from gross income for federal income tax purposes.
* Preliminary, subject to change. B-1 The City has covenanted to comply with all such requirements. Failure by the City to comply with certain of such requirements may cause interest on the Bonds to become included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. We express no opinion regarding any other federal tax consequences arising with respect to the Bonds.
3. Interest on the Bonds is exempt from Massachusetts personal income taxes and the Bonds are exempt from Massachusetts personal property taxes. We express no opinion regarding any other Massachusetts tax consequences arising with respect to the Bonds or any tax consequences arising with respect to the Bonds under the laws of any state other than Massachusetts.
This opinion is expressed as of the date hereof, and we neither assume nor undertake any obligation to update, revise, supplement or restate this opinion to reflect any action taken or omitted, or any facts or circumstances or changes in law or in the interpretation thereof, that may hereafter arise or occur, or for any other reason.
The rights of the holders of the Bonds and the enforceability of the Bonds may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted to the extent constitutionally applicable, and their enforcement may also be subject to the exercise of judicial discretion in appropriate cases.
LOCKE LORD LLP
B-2 APPENDIX C
PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE
This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the City of Salem, Massachusetts (the “Issuer”) in connection with the issuance of its $14,900,0001 General Obligation Municipal Purpose Loan of 2018 Bonds dated June 27, 2018 (the “Bonds”). The Issuer covenants and agrees as follows:
SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Issuer for the benefit of the Owners of the Bonds and in order to assist the Participating Underwriters in complying with the Rule.
SECTION 2. Definitions. For purposes of this Disclosure Certificate the following capitalized terms shall have the following meanings:
“Annual Report” shall mean any Annual Report provided by the Issuer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.
“MSRB” shall mean the Municipal Securities Rulemaking Board as established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934, or any successor thereto or to the functions of the MSRB contemplated by this Disclosure Certificate. Filing information relating to the MSRB is set forth in Exhibit A attached hereto.
“Obligated Person” shall mean the Issuer.
“Owners of the Bonds” shall mean the registered owners, including beneficial owners, of the Bonds.
“Participating Underwriter” shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.
“Rule” shall mean Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
SECTION 3. Provision of Annual Reports.
(a) The Issuer shall, not later than 270 days after the end of each fiscal year, provide to the MSRB an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in
1 Preliminary, subject to change.
C-1 Section 4 of this Disclosure Certificate; provided that the audited financial statements of the Issuer may be submitted when available separately from the balance of the Annual Report.
(b) If the Issuer is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the Issuer shall send a notice to the MSRB in a timely manner, in substantially the form attached as Exhibit B.
SECTION 4. Content of Annual Reports. The Issuer's Annual Report shall contain or incorporate by reference the following:
(a) quantitative information for the preceding fiscal year of the type presented in the Issuer's Official Statement dated June 13, 2018 relating to the Bonds regarding (i) the revenues and expenditures of the Issuer relating to its operating budget, (ii) capital expenditures, (iii) fund balances, (iv) property tax information, (v) outstanding indebtedness and overlapping debt of the Issuer, (vi) pension obligations of the Issuer, and (vii) other post-employment benefits liability of the Issuer, and
(b) the most recently available audited financial statements of the Issuer, prepared in accordance with generally accepted accounting principles, with certain exceptions permitted by the Massachusetts Uniform Municipal Accounting System promulgated by the Department of Revenue of the Commonwealth. If audited financial statements for the preceding fiscal year are not available when the Annual Report is submitted, the Annual Report will include unaudited financial statements for the preceding fiscal year and audited financial statements for such fiscal year shall be submitted when available.
Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the Issuer or related public entities, which (i) are available to the public on the MSRB internet website or (ii) have been filed with the Securities and Exchange Commission. The Issuer shall clearly identify each such other document so incorporated by reference.
SECTION 5. Reporting of Significant Events.
(a) The Issuer shall give notice, in accordance with the provisions of this Section 5, of the occurrence of any of the following events with respect to the Bonds:
1. Principal and interest payment delinquencies.
2. Non-payment related defaults, if material.
3. Unscheduled draws on debt service reserves reflecting financial difficulties.
4. Unscheduled draws on credit enhancements reflecting financial difficulties.
5. Substitution of credit or liquidity providers, or their failure to perform.
6. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other
C-2 material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds.
7. Modifications to rights of the Owners of the Bonds, if material.
8. Bond calls, if material, and tender offers.
9. Defeasances.
10. Release, substitution or sale of property securing repayment of the Bonds, if material.
11. Rating changes.
12. Bankruptcy, insolvency, receivership or similar event of the Obligated Person.*
13. The consummation of a merger, consolidation, or acquisition involving an Obligated Person or the sale of all or substantially all of the assets of the Obligated Person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material.
14. Appointment of a successor or additional trustee or the change of name of a trustee, if material.
(b) Upon the occurrence of a Listed Event, the Issuer shall, in a timely manner not in excess of ten (10) business days after the occurrence of the event, file a notice of such occurrence with the MSRB.
SECTION 6. Transmission of Information and Notices. Unless otherwise required by law, all notices, documents and information provided to the MSRB shall be provided in electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB.
SECTION 7. Termination of Reporting Obligation. The Issuer's obligations under this Disclosure Certificate shall terminate upon the prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Issuer shall give notice of such termination in the same manner as for a Listed Event under Section 5(b).
* As noted in the Rule, this event is considered to occur when any of the following occur: (i) the appointment of a receiver, fiscal agent or similar officer for the Obligated Person in a proceeding under the U.S. Bankruptcy Code or in any proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Obligated Person, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or (ii) the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Obligated Person.
C-3
SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Issuer may amend this Disclosure Certificate and any provision of this Disclosure Certificate may be waived if such amendment or waiver is permitted by the Rule, as evidenced by an opinion of counsel expert in federal securities law (which may include bond counsel to the Issuer), to the effect that such amendment or waiver would not cause the Disclosure Certificate to violate the Rule. The first Annual Report filed after enactment of any amendment to or waiver of this Disclosure Certificate shall explain, in narrative form, the reasons for the amendment or waiver and the impact of the change in the type of information being provided in the Annual Report.
If the amendment provides for a change in the accounting principles to be followed in preparing financial statements, the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information in order to provide information to investors to enable them to evaluate the ability of the Issuer to meet its obligations. To the extent reasonably feasible, the comparison shall also be quantitative. A notice of the change in the accounting principles shall be sent to the MSRB.
SECTION 9. Default. In the event of a failure of the Issuer to comply with any provision of this Disclosure Certificate any Owner of the Bonds may seek a court order for specific performance by the Issuer of its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not constitute a default with respect to the Bonds, and the sole remedy under this Disclosure Certificate in the event of any failure of the Issuer to comply with this Disclosure Certificate shall be an action for specific performance of the Issuer's obligations hereunder and not for money damages in any amount.
C-4 SECTION 10. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Owners of the Bonds from time to time, and shall create no rights in any other person or entity.
Date: June 27, 2018 CITY OF SALEM, MASSACHUSETTS
By: Treasurer
Mayor
Finance Director/City Auditor
[EXHIBIT A: Filing Information for the MSRB] [EXHIBIT B: Form of Notice of Failure to File Annual Report]
C-5 THIS PAGE INTENTIONALLY LEFT BLANK PROPOSAL FOR BONDS Ms. Kathleen McMahon, Treasurer June 13, 2018 City of Salem, Massachusetts c/o Hilltop Securities Inc. 54 Canal Street, 3rd Floor Boston, Massachusetts 02114 Dear Ms. McMahon: For $14,900,000* City of Salem, Massachusetts, General Obligation Municipal Purpose Loan of 2018 Bonds, as further described in your Notice of Sale dated June 7, 2018, which Notice of Sale is hereby made a part of this proposal, we bid...... and accrued interest to date of delivery for each $100 par value of bonds, bearing interest at the rate or rates per annum as follows:
Year Rate Year Rate 2019 % 2034 ** % 2020 2035 ** 2021 2036 ** 2022 2037 ** 2023 2038 ** 2024 2039 ** 2025 2040 ** 2026 2041 ** 2027 2042 ** 2028 ** 2043 ** 2029 ** 2044 ** 2030 ** 2045 ** 2031 ** 2046 ** 2032 ** 2047 ** 2033 ** 2048 ** **TERM BONDS (Optional – No more than three Term Bonds.)
First Year of Mandatory Redemption Year of Maturity Interest Rate
The undersigned hereby acknowledges receipt of the Preliminary Official Statement referred to in the aforementioned Notice of Sale.
Syndicate Manager
Syndicate Manager Address Telephone: Fax:
The following is our computation of the net interest cost and percent true interest cost calculated in accordance with the Notice of Sale, is for informational purposes only, and is subject to verification prior to award. Gross Interest Cost $______Underwriter's Premium $______Net Interest Cost $______Bid must include a premium of at least $105,000 Percent True Interest Cost ______(four decimals)
Hilltop Securities Inc. would be pleased to assist you in entering your bid on these Bonds if you will mail or fax your signed bid form in advance and telephone figures about one-half hour before the time of sale. The City and Hilltop Securities Inc. are not responsible for errors in bids submitted in this manner. TELEPHONE (6l7) 619-4400 FAX (617) 619-4411 HILLTOP SECURITIES INC. *Preliminary, subject to change.