This Preliminary Official Statement and the information contained herein are subject to completion or amendment without notice. Under no circumstances shall 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 any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. As of this date, this Preliminary Official Statement has been deemed “final” by the City for purposes of SEC Rule 15c2-12(b)(1), except for the omission of certain information permitted by SEC Rule 15c2-12(b)(1). NEW ISSUE—BOOK-ENTRYONLY † * thereof, exceptestatetaxesandongainsrealizedfromthesale,paymentorotherdispositionthereof. (2) theBondsandinterestthereonareexemptfromalltaxationbyStateofMichiganorapoliticalsubdivision be subjecttothealternativeminimumtaxundercertaincircumstancesdescribed“TAXMATTERS”herein,and the individualfederalalternativeminimumtax;however,interestpaidtocertaincorporateholdersofBondsmay described under“TAXMATTERS”herein,andinterestontheBondsisnotanitemoftaxpreferenceforpurposes existing law,(1)theinterestonBondsisexcludedfromgrossincomeforfederaltaxpurposesexceptas read theentireOfficialStatement toobtaininformationessentialthemakingofan informedinvestmentdecision. be availablefordeliverythroughDTConoraboutMay__, 2018. Underwriter by its counsel, Miller, Canfield, Paddock and Stone, P.L.C., Detroit, Michigan. It is expected that the Bonds will the for upon passed be will matters legal Certain Counsel. Bond Michigan, Troy, PLLC, Wright Dickinson of opinion legal Mandatory − BONDS “THE See on herein. forth maturing set Bonds Redemption” herein. further term as The redemption mandatory annual Redemption”. to Optional subject − are 2043* BONDS 1, “THE April See herein. described times the at and manner October 1, commencingOctober1,2018,tothebondholders ofrecordastheapplicabledateshereindescribed. Participants andIndirectParticipants,asmorefullydescribedherein.InterestwillbepayablesemiannuallyonApril 1and Direct the of responsibility the is Owners is Beneficial the Participants to payments Direct such of the disbursement to and DTC payments of responsibility such the of Disbursement bondholder. such to directly made be will payments such National Bank, Grand Rapids, Michigan (the “Paying Agent”). So long as DTC or its nominee, Cede & Co., is the bondholder, Book-Entry-Only − BONDS “THE See Bonds. System” herein. the of Owners Beneficial the mean not shall and aforesaid, as Co., Cede & mean shall owners registered or bondholders the to herein references DTC, of nominee as Bondholder, the is Co. Cede & as So long purchased. in Bonds interest beneficial their representing certificates receive not will Owners”) Bonds “Beneficial (the the in interests beneficial of Purchasers thereof. multiple integral any or $5,000 of denomination the in form only book-entry- in made be will Bonds the in interests beneficial of Purchases Bonds. the for depository securities as act will DTC York. New York, New (“DTC”), Company Trust Depository The for nominee and bondholder as Co., Cede & of name power oftheCity. to raisefundspaysuchamountsissubjectapplicableconstitutional,statutoryandcharterlimitationsonthe taxing property withinitscorporateboundariestopaysuchprincipalandinterestasthesamebecomedue.Theabilityof theCity first budget obligation, the City shall advance moneys from its general funds or levy ad valorem property taxes on all taxable credit oftheCityhavebeenpledgedforpromptpaymentprincipalandinterestonBonds.Each year, asa hall, policeheadquartersandcentralparkintheCitycostsofissuanceBonds.Thelimitedtaxfull faithand (the “Resolution”).TheBondsarebeingissuedforthepurposesofdefrayingcostsconstructiona newcity 2017 August 28, on City the of Commission City the by adopted resolution a and 34”), (“Act amended as 2001, Michigan, of by theCityofRoyalOak,CountyOakland,StateMichigan(the“City”)pursuanttoprovisionsAct34,PublicActs Dated: DateofDelivery
For anexplanation ofratings, see‘RATINGS” herein. Preliminary, subject tochange. This coverpagecontainscertaininformationforquickreference only.Itisnotasummaryofthisissue.Investorsmust The Bondswillbeofferedwhen,asandifissuedbytheCity andacceptedbytheUnderwriter,subjecttoapproving The BondsmaturingonorafterApril1,2029*aresubject tooptionalredemptionbeginningApril1,2028,*inthe Huntington The of office trust corporate designated the through paid be will Bonds the on interest and of Principal The Bonds are issuable only as fully registered bonds without coupons and, when issued, will be registeredin the The LimitedTaxGeneralObligationBonds,Series2018(CapitalImprovementBonds)(the“Bonds”)arebeingissued In theopinionofDickinsonWrightPLLC,BondCounsel,subjecttocompliancewithcertaincovenants,under LIMITED TAXGENERALOBLIGATIONBONDS,SERIES2018
PRELIMINARY OFFICIAL STATEMENT DATED MAY 4, 2018 COUNTY OFOAKLAND,STATEMICHIGAN The dateofthis Official Statementis______, 2018. (CAPITAL IMPROVEMENTBONDS)
CITY OF ROYAL OAK $31,310,000* Due: April1,asshownoninsidecover S&P GlobalRatings: Fitch Ratings: RATINGS†
AA+ AA
$31,310,000 CITY OF ROYAL OAK COUNTY OF OAKLAND, STATE OF MICHIGAN LIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2018 (CAPITAL IMPROVEMENT BONDS)
MATURITY SCHEDULE*
SERIAL BONDS
Maturity Principal Interest (April 1) Amount Rate Price CUSIP† 2019 $895,000 2020 710,000 2021 735,000 2022 765,000 2023 795,000 2024 830,000 2025 870,000 2026 915,000 2027 960,000 2028 1,005,000 2029 1,060,000 2030 1,110,000 2031 1,165,000 2032 1,225,000 2033 1,285,000 2034 1,350,000 2035 1,415,000 2036 1,490,000 2037 1,565,000 2038 1,640,000
TERM BONDS
$9,525,000 ____% Term Bonds due April 1, 2043, Price ____%, CUSIP† ____
Preliminary, subject to change. † CUSIP is a registered trademark of the American Bankers Association (the “ABA”). CUSIP data is provided by CUSIP Global Services, which is managed on behalf of the ABA by S&P Global Market Intelligence, a part of S&P Global Inc. The CUSIP numbers listed above are being provided solely for the convenience of the holders of Bonds only at the time of issuance of the Bonds and the City and the Underwriter do not make any representation with respect to such CUSIP numbers or undertake any responsibility for their accuracy now or at any time in the future. The CUSIP numbers are subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of the Bonds or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that may be applicable to all or a portion of the Bonds.
No dealer, broker, salesperson or other person has been authorized to give any information or to make any representation other than as contained in this Official Statement in connection with the offer made hereby and, if given or made such other information or representation must not be relied upon as having been authorized by the City or the Underwriter. This Official Statement and the information contained herein are subject to completion and amendment. These securities may not be sold nor may an offer to buy these securities be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
Information herein has been obtained from the City, DTC, and other sources believed to be reliable. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
Upon issuance, the Bonds will not be registered under the Securities Act of 1933, as amended, or any state securities law and will not be listed on any stock or other securities exchange. Neither the Securities and Exchange Commission nor any other federal, state, municipal or other governmental entity or agency will have passed upon the adequacy of this Official Statement, or, except for the City and the State of Michigan Department of Treasury, approved the Bonds for sale.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE CITY’S FINANCIAL RECORDS AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CITY OF ROYAL OAK
Mayor Michael C. Fournier
Commissioners Sharlan Douglas, Mayor Pro Tem Kyle DuBuc Kim Gibbs Randy LeVasseur Melanie Macey Patricia Paruch
Administration City Manager Donald E. Johnson
Director of Finance Julie Jenuwine Rudd
Clerk City Attorney Melanie Halas David Gillam
Professional Services
Bond Counsel: Dickinson Wright PLLC Troy, Michigan
Registered Municipal Advisor: Blue Rose Capital Advisors, LLC Minneapolis, Minnesota
Bond Registrar and Paying Agent: The Huntington National Bank Grand Rapids, Michigan
Underwriter: Hilltop Securities Inc. Cincinnati, Ohio
Underwriter’s Counsel: Miller, Canfield, Paddock and Stone, P.L.C. Detroit, Michigan
Auditor: Rehmann Robson LLC Troy, Michigan
TABLE OF CONTENTS
Page
INTRODUCTION ...... 1
AUTHORITY, PURPOSE AND SECURITY...... 1
ESTIMATED SOURCES AND USES OF FUNDS ...... 2
THE BONDS ...... 2 Description and Form of the Bonds ...... 2 Book-Entry-Only System ...... 3 Transfer Outside Book-Entry-Only System ...... 5 Optional Redemption ...... 5 Mandatory Redemption ...... 6 Notice of Redemption and Manner of Selection ...... 6
APPROVALS BY MICHIGAN DEPARTMENT OF TREASURY ...... 6
LITIGATION ...... 7
TAX MATTERS...... 7 General ...... 7 Tax Treatment of Accruals on Original Issue Discount Bonds ...... 8 Amortizable Bond Premium ...... 9 Future Developments ...... 9
CERTAIN LEGAL MATTERS ...... 9
RATINGS ...... 10
UNDERWRITING ...... 10
REGISTERED MUNICIPAL ADVISOR TO THE CITY ...... 11
CONTINUING DISCLOSURE ...... 11
OTHER MATTERS ...... 12
APPENDIX A: City of Royal Oak General Financial, Economic and Statistical Information APPENDIX B: Audited Financial Statements of the City for the Fiscal Year Ended June 30, 2017 APPENDIX C: Form of Approving Opinion of Bond Counsel APPENDIX D: Form of Continuing Disclosure Certificate
[THIS PAGE INTENTIONALLY LEFT BLANK]
OFFICIAL STATEMENT relating to
$31,310,000 CITY OF ROYAL OAK COUNTY OF OAKLAND, STATE OF MICHIGAN LIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2018 (CAPITAL IMPROVEMENT BONDS) INTRODUCTION
The purpose of this Official Statement, which includes the cover pages and Appendices, is to furnish information in connection with the issuance and sale by the City of Royal Oak, County of Oakland, State of Michigan (the “City”) of its Limited Tax General Obligation Bonds, Series 2018 (Capital Improvement Bonds) in the aggregate principal amount of $31,310,000* (the “Bonds”).
AUTHORITY, PURPOSE AND SECURITY
Authority. The Bonds are being issued by the City pursuant to the provisions of Act 34, Public Acts of Michigan, 2001, as amended (“Act 34”), and a resolution adopted by the City Commission of the City on August 28, 2017 (the “Resolution”).
Purpose. The Bonds are being issued for the purposes of defraying the costs of the construction of a new city hall, police headquarters and central park in the downtown area of the City (collectively, the “Civic Center Project”) and the costs of issuance of the Bonds.
The Civic Center Project is part of a larger public and private development consisting of the new approximately 32,000 square foot City Hall, the new approximately 42,000 square foot Police Headquarters building and the public park to be located in front of City Hall, all of which will be publicly owned, and a new six-story, approximately 146,000 square foot private office building to be located across the park from City Hall. The office building will be constructed, owned and operated by Central Park Development Group, a private developer. In addition, the overall downtown development will include the construction by the City of a new parking garage accommodating approximately 581 spaces. The parking garage will be financed by the issuance by the City, concurrently with the issuance of the Bonds, of the Parking System Revenue Bonds described in the next paragraph. The City anticipates that the tenants of the new office building will represent a significant number of the users of the parking garage. The entire cost of the publicly-owned Civic Center Project, including the new parking garage, will be approximately $60 million, a portion of which will be financed by the issuance by the City of the Bonds.
Concurrently with the issuance of the Bonds, the City will issue $16,500,000* in principal amount of Parking System Revenue Bonds, Series 2018 (the “Revenue Bonds”), which will be secured solely and only by the net revenues of the City’s parking system and will not be a general obligation of the City. The Revenue Bonds are being issued principally for the purpose of constructing a new parking structure to serve the Civic Center Project and the downtown area generally. The Revenue Bonds are expected to be privately placed by Hilltop Securities Inc., the Underwriter of the Bonds.
Security. The Bonds will be general obligation limited tax obligations of the City. The limited tax full faith and credit of the City have been pledged for the prompt payment of the principal of and interest on the Bonds. Each year, as a first budget obligation, the City shall advance moneys from its general funds or levy ad valorem property taxes on all taxable property within its corporate boundaries to pay such principal
Preliminary, subject to change. † For an explanation of ratings, see “RATINGS” herein.
and interest as the same become due. The ability of the City to raise funds to pay such amounts is subject to applicable constitutional, statutory and charter limitations on the taxing power of the City.
As additional security for the Bonds, the Downtown Development Authority of the City of Royal Oak (the “DDA”) has agreed, pursuant to a DDA Financing Contract (Series 2018 LTGO Bonds), dated February 12, 2018, between the DDA and the City (the “DDA Contract”), to permit the City to withhold certain tax increment revenues collected by the City and otherwise payable directly to the DDA. The City may withhold, and the DDA is otherwise obligated to pay, under the DDA Contract each fiscal year of the City, Net Tax Increment Revenues (as hereafter and in the DDA Contract defined) in the amount of $737,000 (the “DDA Payment”). Net Tax Increment Revenues consist of gross tax increment revenues due to the DDA in each fiscal year of the City, minus the operation, maintenance and administrative expenses of the DDA for the fiscal year.
The DDA Payments will continue for twenty-five (25) years beginning no later than the first fiscal year on which interest or principal is first due on the Bonds (commencing within the fiscal year ending June 30, 2019), and ending with the last debt service payment due on the Bonds in the fiscal year ending June 30, 2043, or earlier defeasance or redemption of all of the Bonds. DDA Payments will be reduced in proportion to any savings achieved upon any partial redemption of the Bonds.
Amounts collected by, or paid to, the City under the DDA Contract will be deposited in the City’s General Fund and be available to pay debt service on the Bonds and other expenses of the City.
Rights or Remedies of holders of the Bonds. The rights or remedies of holders of the Bonds may be affected by bankruptcy, insolvency, fraudulent conveyance or other laws affecting creditors’ rights generally, now existing or hereafter enacted, and by the application of general principles of equity, including those relating to equitable subordination.
ESTIMATED SOURCES AND USES OF FUNDS
SOURCES Par Amount of Bonds [Plus/Less] [Net] Original Issue [Premium/Discount] City Contribution Total Sources
USES Construction Fund Deposit Underwriter’s Discount Estimated Costs of Issuance(1) Total Uses ______(1) Includes legal fees, fees of the municipal advisor, rating agency fees, printing costs and other miscellaneous expenses relating to the issuance of the Bonds.
THE BONDS
Description and Form of the Bonds
The Bonds will be issued in book-entry-only form as one fully registered Bond per maturity, without coupons, in the aggregate principal amount for each maturity set forth on the cover page hereof and may be purchased in denominations of $5,000 or any integral multiple thereof. The Bonds will be dated as of and bear interest from their date of delivery. Interest on the Bonds shall be payable semiannually each April 1 and October 1 to maturity or early redemption, commencing October 1, 2018. Interest on the Bonds shall be
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computed using a 360-day year with twelve 30-day months, and the Bonds will mature on the dates and in the principal amounts and will bear interest at the rates as set forth on the inside cover of this Official Statement.
The corporate trust office of The Huntington National Bank, Grand Rapids, Michigan, or its successor will serve as the bond registrar and paying agent (the “Paying Agent”) for the Bonds. For a description of the payment of principal of and interest on, along with transfers and exchanges on the Bonds, which are held in the book-entry-only system, see “Book-Entry-Only System” below. In the event the Bonds cease to be held in the book-entry-only system, then interest on the Bonds shall be payable when due by check or draft to the person or entity who or which is, as of the fifteenth (15th) day of the month preceding each interest payment date (the “Record Date”), the registered owner of record, at the owner’s registered address. See “Transfer Outside Book-Entry-Only System” below.
Book-Entry-Only System
The information in this section has been furnished by The Depository Trust Company, New York, New York (“DTC”). No representation is made by the City, the Paying Agent or the Underwriter as to the completeness or accuracy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. No attempt has been made by the City, the Paying Agent or the Underwriter to determine whether DTC is or will be financially or otherwise capable of fulfilling its obligations. Neither the City nor the Paying Agent will have any responsibility or obligation to DTC Participants, Indirect Participants (both as defined below) or the persons for which they act as nominees with respect to the Bonds, or for any principal, premium, if any, or interest payment thereof.
DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities 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 Bond will be issued for each maturity of the Bonds, in the aggregate principal amount of such maturity, and 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 issues, 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 subsidiaries. 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.
Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“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
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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 Bonds 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 Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds 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 Bonds 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 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds 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.
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. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults and proposed amendments to the security documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are 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.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City 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 the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Payments of principal, interest and redemption amounts, if any, on the Bonds 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 City or the 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), Paying Agent, or City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payments of principal, interest and redemption amounts, if any, to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) are the responsibility of the City or Paying Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered.
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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, Bond certificates will be printed and delivered.
The City, the Paying Agent, and the Underwriter cannot and do not give any assurances that DTC, the Direct Participants or the Indirect Participants will distribute to the Beneficial Owners of the Bonds (i) payments of principal of or interest on the Bonds, (ii) any document representing or confirming beneficial ownership interest in the Bonds, or (iii) notices sent to DTC or Cede & Co. its nominee, as the registered owner of the Bonds, or that it will do so on a timely basis or that DTC, Direct Participants or Indirect Participants will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with the Participants are on file with DTC.
Neither the City, the Paying Agent nor the Underwriter will have any responsibility or obligation to any Direct Participant, Indirect Participant or any Beneficial Owner or any other person with respect to: (a) the Bonds; (b) the accuracy of any records maintained by DTC or any Direct Participant or Indirect Participant (c) the payment by DTC to any Participant, or by any Direct Participant or Indirect Participant to any Beneficial Owner of any amount due with respect to the principal of or interest on the Bonds; (d) the delivery by DTC to any participant, or by and Direct Participant or Indirect Participant to any Beneficial Owner of any notice which is required or permitted under the terms of the authorizing resolution for the Bonds to be given to Bondholders; (e) the selection of the Beneficial Owners to receive payment in the event of any partial redemption of the Bonds; or (f) any consent given or other action taken by DTC as Bondholder.
Transfer Outside Book-Entry-Only System
In the event the Book-Entry-Only System is discontinued, the following provisions would apply to the Bonds. The Paying Agent shall keep the registration books for the Bonds (the “Bond Register”) at its designated corporate trust office. Subject to the further conditions contained in the Resolution, the Bonds may be transferred or exchanged for one or more Bonds in different authorized denominations, upon surrender thereof at the principal corporate trust office of the Paying Agent by the registered owners or their duly authorized attorneys. Upon surrender of any Bonds to be transferred or exchanged, the Paying Agent shall record the transfer or exchange in the Bond Register and shall authenticate replacement bonds in authorized denominations. Upon surrender of any Bonds to be transferred or exchanged, the Paying Agent shall record the transfer or exchange in the Bond Register and shall authenticate replacement bonds in authorized denominations. The Paying Agent shall not be required to effect or register any transfer or exchange of any Bond which has been selected for such redemption, except the Bonds properly surrendered for partial redemption may be exchanged for new Bonds in authorized denominations equal in the aggregate to the unredeemed portion. The City and the Paying Agent shall be entitled to treat the registered owners of the Bonds, as their names appear in the Bond Register as of the appropriate dates, as the owner of such Bonds for all purposes under the Resolution. No transfer or exchange made other than as described above and in the Resolution shall be valid or effective for any purposes under the Resolution.
Optional Redemption
Bonds maturing prior to April 1, 2028 are not subject to optional redemption prior to maturity. The Bonds or portions of Bonds, in multiples of $5,000, maturing on or after April 1, 2029*, are subject to redemption prior to maturity at the option of the City in such order as the City may determine, and by lot within any maturity, on any date occurring on or after April 1, 2028*, at a redemption price of par plus accrued and unpaid interest to the date fixed for redemption.
Preliminary, subject to change.
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Mandatory Redemption
Bonds maturing on April 1, 2043* (the “Term Bonds”) are subject to mandatory redemption on each April 1 in the years and amounts set forth below at a price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.
Term Bonds Due April 1, 2043*
April 1 Amount 2039 $1,725,000 2040 1,810,000 2041 1,900,000 2042 1,995,000 2043† 2,095,000 ______† Maturity. * Preliminary, subject to change.
The principal amount of Term Bonds to be redeemed shall be reduced, in the order determined by the City, by the principal amount of the Term Bonds of the same maturity that have been previously redeemed (otherwise than as a result of a previous mandatory redemption requirement) or purchased or acquired by the City and delivered to the Paying Agent for cancellation; provided, that each such Term Bond has not previously been applied as a credit against any mandatory redemption obligation.
Notice of Redemption and Manner of Selection
Notice of redemption of any Bond shall be given not less than 30 days prior to the date fixed for redemption by mail to the registered owner at the registered address shown on the registration books kept by the Paying Agent. The Bonds shall be called for redemption in multiples of $5,000 and Bonds of denominations of more than $5,000 may be partially redeemed in the amount of $5,000 or any integral multiple thereof.
If less than all of the Bonds of any maturity shall be called for redemption prior to maturity, unless otherwise provided, the particular Bonds or portions of Bonds to be redeemed shall be selected by lot by the Paying Agent, in the principal amounts designated by the City. Any Bonds selected for redemption will cease to bear interest on the date fixed for redemption, whether presented for redemption or not, provided funds are on hand to redeem such Bonds.
So long as the book-entry-only system remains in effect, in the event of a partial redemption the Paying Agent will give notice to Cede & Co., as nominee of DTC, only, and only Cede & Co. will be deemed to be a holder of the Bonds. DTC is expected to reduce the credit balances of the applicable DTC Participants in respect of the Bonds and in turn the DTC Participants are expected to select those Beneficial Owners whose ownership interests are to be extinguished or reduced by such partial redemption, each by such method as DTC or such DTC Participants, as the case may be, deems fair and appropriate in its sole discretion.
APPROVALS BY MICHIGAN DEPARTMENT OF TREASURY
The City has received a letter from the Department of Treasury of the State of Michigan stating that it is in material compliance with the criteria of Act 34 for a municipality to be granted “qualified status.” The City may therefore proceed to issue the Bonds without further approval from the Michigan Department of Treasury.
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LITIGATION
Except as disclosed below under this heading, there is no litigation or administrative action or proceeding of any nature now pending against the City, or to the knowledge of the respective appropriate officials of the City, threatened against the City, seeking to restrain or enjoin the issuance and delivery of the Bonds, or questioning or contesting the validity of the Bonds or the proceedings or authorities under which they are authorized to be issued, sold, executed and delivered, or which would have a material adverse effect on the financial position of the City or its ability to pay the debt service on the Bonds. A certificate to such effect will be delivered to the Underwriter at the time of the original delivery of the Bonds.
On July 21, 2017, Little Tree Sushi Bar Inc., Dixie Moon Saloon LLC, The Nash Family Ltd, Partnership, M&R Realty 111 South Main, LLC, Sullivan Investment Group Limited Partnership, Third Street Properties Inc., Corp One Inc., Group 225 Inc., Corp One Property Company LLC, One Hundred Seven South Main, LLC and R&M Realty LLC (collectively, the “Plaintiffs”) filed a complaint in the Oakland County Circuit Court alleging, among many other complaints relating to the Civic Center Project, that the City exceeded its debt limit under the City Charter in 2017 and, therefore, cannot issue the Bonds. The entire complaint was dismissed, upon the City’s motion for summary judgment, on the basis that the Plaintiffs lacked standing to sue. The Plaintiffs then filed an appeal of this decision with the Michigan Court of Appeals. The Plaintiffs’ subsequent motion for reconsideration by the Circuit Court was denied, as was their motion for a stay of proceedings pending an appeal. The Plaintiffs then filed motions in the Michigan Court of Appeals for a stay pending their appeal and for expeditious hearing of their appeal, both of which were denied by the Court of Appeals. The Plaintiffs’ appeal of the Circuit Court’s ruling on the issue of standing remains pending before the Court of Appeals. See “APPENDIX A – City Debt - Legal Debt Margin” herein.
In the event that the Plaintiffs prevail in their appeal, the case will likely be remanded back to the Oakland County Circuit Court for a hearing on the merits of their claims. If the Circuit Court were to hold in favor of the Plaintiffs regarding the Bonds, the City may be precluded from paying all or a portion of the principal of and interest on the Bonds, and expose a holder of the Bonds to a potential loss of all of its investment in the Bonds. The City would appeal any such holding.
The City Attorney for the City of Royal Oak has expressed a high degree of confidence that the Supreme Court of the State of Michigan, acting reasonably, would hold in favor of the City if the Plaintiffs’ claims regarding the Bonds were ultimately heard on appeal by the Michigan Supreme Court.
A copy of the opinion of Bond Counsel relating to the validity of the Bonds and other matters is attached hereto as APPENDIX C.
The City Attorney for the City of Royal Oak represented and is continuing to represent the City with respect to the various matters before the Oakland County Circuit Court described above and before the Michigan Court of Appeals. Miller, Canfield, Paddock and Stone, P.L.C., Detroit, Michigan, which is counsel to the Underwriter in connection with the offering of the Bonds, is acting as co-counsel to the City in connection with the Plaintiffs’ appeal on the question of standing only in the Michigan Court of Appeals.
TAX MATTERS
General
In the opinion of Dickinson Wright PLLC, Bond Counsel, based on its examination of the documents described in its opinion, under existing law, the interest on the Bonds (a) is excluded from gross income for federal income tax purposes, and (b) is not an item of tax preference for purposes of the individual federal alternative minimum tax. For corporations with tax years beginning after December 31, 2017, the corporate alternative minimum tax was repealed by Public Law No. 115-97 (the “Tax Cuts and Jobs Act”) enacted on December 22, 2017, effective for tax years beginning after December 31, 2017. For tax years beginning before
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January 1, 2018, interest on the Bonds is not an item of tax preference for purposes of the corporate alternative minimum tax in effect prior to enactment of the Tax Cuts and Jobs Act; however, interest on the Bonds held by a corporation (other than an S Corporation, regulated investment company, or real estate investment trust) may be subject to the federal alternative minimum tax for tax years beginning before January 1, 2018 because of its inclusion in the adjusted current earnings of a corporate holder. The opinion set forth in clause (a) above is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be (or continue to be) excluded from gross income for federal income tax purposes. Failure to comply with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issuance of the Bonds. The City has covenanted to comply with all such requirements. Bond Counsel will express no opinion regarding other federal tax consequences arising with respect to the Bonds and the interest thereon.
Prospective purchasers of the Bonds should be aware that (i) interest on the Bonds is included in the effectively connected earnings and profits of certain foreign corporations for purposes of calculating the branch profits tax imposed by Section 884 of the Code, (ii) interest on the Bonds may be subject to a tax on excess net passive income of certain S Corporations imposed by Section 1375 of the Code, (iii) interest on the Bonds is included in the calculation of modified adjusted gross income for purposes of determining taxability of social security or railroad retirement benefits, (iv) the receipt of interest on the Bonds by life insurance companies may affect the federal tax liability of such companies, (v) in the case of property and casualty insurance companies, the amount of certain loss deductions otherwise allowed is reduced by a specific percentage of, among other things, interest on the Bonds, (vi) registered owners acquiring the Bonds subsequent to initial issuance will generally be required to treat market discount recognized under Section 1276 of the Code as ordinary taxable income, (vii) the receipt or accrual of interest on the Bonds may cause disallowance of the earned income credit under Section 32 of the Code, (viii) interest on the Bonds is subject to backup withholding under Section 3406 of the Code in the case of registered owners that have not reported a taxpayer identification number and are not otherwise exempt from backup withholding, and (ix) registered owners of the Bonds may not deduct interest on indebtedness incurred or continued to purchase or carry the Bonds, and financial institutions may not deduct that portion of their interest expense allocated to interest on the Bonds.
In the opinion of Bond Counsel, based on its examination of the documents described in its opinion, under existing law, the Bonds and the interest thereon are exempt from all taxation by the State of Michigan or a political subdivision thereof, except estate taxes and taxes on gains realized from the sale, payment or other disposition thereof.
Tax Treatment of Accruals on Original Issue Discount Bonds
For federal income tax purposes, the difference between the initial offering prices to the public (excluding bond houses and brokers) at which a substantial amount of the Bonds initially sold at a discount as shown on the inside cover page hereof (the “OID Bonds”) is sold and the amount payable at the stated redemption price at maturity thereof constitutes “original issue discount.” Such discount is treated as interest excluded from federal gross income to the extent properly allocable to each registered owner thereof. The original issue discount accrues over the term to maturity of each such OID Bond on the basis of a constant interest rate compounded at the end of each six-month period (or shorter period from the date of original issue) with straight line interpolations between compounding dates. The amount of original issue discount accruing during each period is added to the adjusted basis of such OID Bonds to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of such OID Bonds.
The Code contains certain provisions relating to the accrual of original issue discount in the case of registered owners of the OID Bonds who purchase such bonds after the initial offering of a substantial amount thereof. Registered owners who do not purchase such OID Bonds in the initial offering at the initial offering
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and purchase prices should consult their own tax advisors with respect to the tax consequences of ownership of such OID Bonds.
Amortizable Bond Premium
For federal income tax purposes, the difference between an original registered owner’s cost basis of the Bonds initially sold at a premium as shown on the inside cover page hereof (the “Original Premium Bonds”) and the amounts payable on the Original Premium Bonds other than stated interest constitutes an amortizable bond premium. The same applies with respect to any Bond, if a registered owner’s cost basis exceeds the amounts payable thereon other than stated interest (collectively with the Original Premium Bonds held by the original registered owners, “Premium Bonds”). Such amortizable bond premium is not deductible from gross income, but is taken into account by certain corporations in determining adjusted current earnings for the purpose of computing the alternative minimum tax, which may also affect liability for the branch profits tax imposed by Section 884 of the Code. The amount of amortizable bond premium allocable to each taxable year is generally determined on the basis of the registered owner’s yield to maturity determined by using the registered owner’s basis (for purposes of determining loss on sale or exchange) of such Premium Bonds and compounding at the close of each six-month accrual period. The amount of amortizable bond premium allocable to each taxable year is deducted from the registered owner’s adjusted basis of such Premium Bonds to determine taxable gain upon disposition (including sale, redemption or payment at maturity) of such Premium Bonds.
Future Developments
NO ASSURANCE CAN BE GIVEN THAT ANY FUTURE LEGISLATION OR CLARIFICATIONS OR AMENDMENTS TO THE CODE, IF ENACTED INTO LAW, WILL NOT CONTAIN PROPOSALS THAT COULD CAUSE THE INTEREST ON THE BONDS TO BE SUBJECT DIRECTLY OR INDIRECTLY TO FEDERAL OR STATE OF MICHIGAN INCOME TAXATION, ADVERSELY AFFECT THE MARKET PRICE OR MARKETABILITY OF THE BONDS, OR OTHERWISE PREVENT THE REGISTERED OWNERS FROM REALIZING THE FULL CURRENT BENEFIT OF THE STATUS OF THE INTEREST THEREON. FURTHER, NO ASSURANCE CAN BE GIVEN THAT ANY SUCH FUTURE LEGISLATION, OR ANY ACTIONS OF THE INTERNAL REVENUE SERVICE, INCLUDING, BUT NOT LIMITED TO, SELECTION OF THE BONDS FOR AUDIT EXAMINATION, OR THE AUDIT PROCESS OR RESULT OF ANY EXAMINATION OF THE BONDS OR OTHER BONDS THAT PRESENT SIMILAR TAX ISSUES, WILL NOT ADVERSELY AFFECT THE MARKET PRICE OF THE BONDS.
INVESTORS SHOULD CONSULT WITH THEIR TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THEIR ACQUISITION, HOLDING OR DISPOSITION OF THE BONDS AND THE TAX CONSEQUENCES OF THE ORIGINAL ISSUE DISCOUNT OR PREMIUM THEREON, IF ANY.
CERTAIN LEGAL MATTERS
Legal matters incident to the authorization, issuance and sale of the Bonds are subject to the approval of Dickinson Wright PLLC, Troy, Michigan, as Bond Counsel. A copy of the opinion of Bond Counsel will be provided with the Bonds, which opinion will be in substantially the form set forth in APPENDIX C. The legal fees of Bond Counsel in connection with the issuance of the Bonds are expected to be paid from proceeds of the Bonds.
Dickinson Wright PLLC and Miller, Canfield, Paddock and Stone, P.L.C. are currently representing Hilltop Securities Inc. in certain matters unrelated to the issuance of the Bonds. Both the City and Hilltop Securities Inc. have consented to these unrelated representations.
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Certain legal matters will be passed on for the Underwriter by its counsel, Miller, Canfield, Paddock and Stone, P.L.C., Detroit, Michigan.
RATINGS
Fitch Ratings, Inc. (“Fitch”) will assign, as of the date of delivery of the Bonds, its municipal bond rating of “AA” to the Bonds. S&P Global Ratings Inc. (“S&P”), will assign, as of the date of the delivery of the Bonds, its municipal bond rating of “AA+” to the Bonds. No application has been made to any other ratings service for a rating on the Bonds. The City furnished to Fitch and S&P certain materials and information in addition to that provided herein. Generally, the rating agencies base their ratings on such information and materials, and on investigations, studies and assumptions. There is no assurance that such ratings will prevail for any given period of time or that the ratings will not be revised downward or withdrawn entirely by such rating agency if, in its judgment, circumstances so warrant. Any revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. Any ratings assigned represent only the view of such rating agency. Further information is available upon request from Fitch and S&P. A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.
UNDERWRITING
Hilltop Securities Inc. is acting as the Underwriter as shown on the cover page of this Official Statement (the “Underwriter”). The Underwriter has agreed, subject to the terms of the Bond Purchase Agreement relating to the Bonds, to purchase the Bonds from the City. The Bond Purchase Agreement provides, in part, that the Underwriter, subject to certain conditions, will purchase from the City the aggregate principal amount of Bonds for a purchase price of $______, which purchase price is equal to the par amount of the Bonds, plus [net] original issue premium of $______, less Underwriter’s discount of $______. The Underwriter has further agreed to offer the Bonds to the public at the approximate initial offering prices or yields as set forth on the inside cover page of this Official Statement. The initial public offering prices of the Bonds may be changed from time to time by the Underwriter.
The Bond Purchase Agreement provides that the obligations of the Underwriter are subject to certain conditions, including, among other things, that (i) no event has occurred which impairs or threatens to impair the status of the Bonds or interest thereon as exempt from taxation in the State of Michigan and the interest on the Bonds is excluded from gross income for federal tax purposes (except as described under the heading “TAX MATTERS”, above), and (ii) proceedings relating to the Bonds are not pending or threatened by the Securities and Exchange Commission.
The Underwriter and its respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. The Underwriter and its respective affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the City for which they received or will receive customary fees and expenses.
In the ordinary course of its various business activities, the Underwriter and its respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for its own account and for the accounts of its customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the City.
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REGISTERED MUNICIPAL ADVISOR TO THE CITY
Blue Rose Capital Advisors, LLC, Minneapolis, Minnesota (the “Municipal Advisor”), has been retained by the City to provide certain financial advisory services in connection with the issuance of the Bonds, including limited assistance with the preparation of the Official Statement. The Municipal Advisor has not been engaged, nor has it undertaken, to independently verify the accuracy of the information set forth in this Official Statement. The Municipal Advisor is not a public accounting firm and has not been engaged by the City to compile, review, examine or audit any information in this Official Statement in accordance with accounting standards. The Municipal Advisor is a municipal advisor registered with the Securities and Exchange Commission and the Municipal Securities Rulemaking Board in accordance with applicable federal securities laws, and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities and therefore will not participate in the underwriting of the Bonds. The fee to be paid to the Municipal Advisor for services provided in connection with the issuance of the Bonds is contingent upon the closing of the Bonds.
The Municipal Advisor is under common ownership with HedgeStar, LLC (“HedgeStar”) and MuniPriceTracker, LLC (“MPT”). HedgeStar provides hedge accounting, fair value accounting, and valuation services for financial instruments including, but not limited to, fixed-income securities and derivatives, which services may have been used in the preparation of the City’s financial statements. MPT provides secondary market bond trading reporting services, which may be relied upon for tax compliance and trading performance evaluation by the City, or by other parties involved in the issuance, in connection with the Bonds. CONTINUING DISCLOSURE
The City has covenanted and will covenant for the benefit of the bondholders and the beneficial owners pursuant to the Resolution and Continuing Disclosure Certificate relating to the Bonds to be delivered on the date of issuance of the Bonds to the purchaser(s) thereof (the “Disclosure Certificate”), to provide or cause to be provided: (i) each year, certain financial information and operating data relating to the City for its preceding fiscal year (the “Annual Report”) by not later than the date six months after the first day of each fiscal year, commencing with the Annual Report for its fiscal year ending June 30, 2018; provided, however, that if the audited financial statements of the City are not available by such date, they will be provided when and if available, and unaudited financial statements in a format similar to the audited financial statements then most recently prepared for the City will be included in the Annual Report; and (ii) timely notices of the occurrences of certain enumerated events. Currently, the fiscal year of the City commences on July 1.
Each Annual Report will be filed with the Municipal Securities Rulemaking Board (“MSRB”) electronically through MSRB’s Electronic Municipal Market Access system (“EMMA”). If the City is unable to provide the MSRB its Annual Report by the date required, the City shall send in a timely manner, to the MSRB through EMMA, a notice of the failure to file the Annual Report by such date. The notices of the enumerated events will be filed by the City with the MSRB through EMMA. These covenants have been made by the City in order to assist the purchaser(s) of the Bonds and registered brokers, dealers and municipal securities dealers in complying with the requirements of subsection (b)(5) of Rule 15c2-12 promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the “Rule”). The information to be contained in the Annual Report, the enumerated events, the occurrence of which will require a notice, and the other terms of the Disclosure Certificate are set forth in APPENDIX D, “FORM OF CONTINUING DISCLOSURE CERTIFICATE.”
The City has filed, in the previous five years, its audited financial statements and annual disclosure information in a timely manner pursuant to the Rule. For the fiscal years ending June 30, 2014 through and including June 30, 2015, the City failed to include certain portions of its operating data as required by an undertaking entered into in 2014 in connection with a private placement of bonds. Additionally, on February 5, 2016, the City filed a late material event notice of a downgrade to its underlying rating which occurred in 2011.
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In connection with the George W. Kuhn Drain District, for which the City is an obligated party, the City failed to timely file its audited financial statements and annual disclosure information for the fiscal years ending June 30, 2011, 2012 and 2013, and failed to include certain portions of its operating data in each of the past five years.
In connection with the City’s Building Authority undertakings, for the fiscal years ending June 30, 2012 through June 30, 2015, the Building Authority failed to include certain portions of its operating data as required in the filing of its annual disclosure information.
For the City’s fiscal year ending June 30, 2016, and thereafter, the City and the City’s Building Authority have made all required filings with the MSRB on a timely basis, as well as filings to address the failures described above.
For the City’s fiscal year ended June 30, 2016 and 2017, the City timely filed the total amount of revenue sharing it collects from the State of Michigan as required pursuant to the City’s continuing disclosure undertakings. However, as originally provided the tables under “Revenues from the State of Michigan” provided a breakout of the revenue sharing based on constitutional and statutory revenue sharing. The City subsequently filed the breakout between the constitutional amounts and statutory amounts.
In the past five years there have been numerous rating changes affecting the bond insurers that have insured bonds previously issued by the City and the City’s Building Authority. Due to the widespread knowledge of these rating changes and the rating agencies’ failure to provide notices of the changes to the City and the Building Authority, material event notices were not filed by the City and the Building Authority.
The City and the Building Authority have established procedures to ensure future compliance with the filing requirements of all outstanding continuing disclosure undertakings.
OTHER MATTERS
All information contained in this Official Statement, other than that provided by the City, is subject in all respects to the complete body of information contained in the original sources thereof and no guaranty, warranty or representation is made concerning the accuracy or completeness of such information. In particular, no opinion or representation is rendered as to whether any projection will approximate actual results, and all opinions, estimates and assumptions, whether or not expressly identified as such, should not be considered statements of fact.
The City certifies that to its best knowledge and belief, this Official Statement, insofar as it pertains to the City and its economic and financial condition, respectively, is true and correct as of the date of this Official Statement, and does not contain any untrue statement of a material fact or omit to state any material fact necessary to make such statements herein, in light of the circumstances in which they are made, not misleading.
This Official Statement has been duly approved, executed and delivered by the City as of the date set forth on the front cover of this Official Statement.
CITY OF ROYAL OAK
______By: Julie J. Rudd Its: Director of Finance
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APPENDIX A
CITY OF ROYAL OAK GENERAL FINANCIAL, ECONOMIC AND STATISTICAL INFORMATION
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APPENDIX A
CITY OF ROYAL OAK GENERAL FINANCIAL, ECONOMIC AND STATISTICAL INFORMATION
CITY OF ROYAL OAK
General
The City of Royal Oak is a metropolitan Detroit suburb located in southeastern Oakland County, Michigan. The approximately 12 square mile community is located ten miles north of downtown Detroit and is home to over 59,000 residents. Royal Oak’s history dates back to the extension of the railroad line from Detroit to Pontiac. The region was organized as a township in 1832, established as a village in 1891, and chartered as a City in 1921.
Government
The City was organized as a township in 1832, as a village in 1891 and incorporated as a home rule city in 1921 under the Home Rule Cities Act, being Act 279, Public Acts of Michigan of 1909, as amended (the "Home Rule Cities Act"). The City operates under the Commission- Manager form of government. The Mayor and six commissioners are elected on a non-partisan, at large basis. The Mayor is elected for a two-year term and the Commissioners serve for four-year overlapping terms. The City Manager, City Clerk and City Attorney are appointed by the Commission for indefinite terms and serve at the pleasure of the Commission. The City Manager is the chief administrative officer of the City and is responsible for the day- to-day operation of all departments except the City Attorney’s Office and the City Clerk’s Office.
Population
City Percent of Population Increase (Decrease) 1980 US Census 70,893 - 1990 US Census 65,410 (7.7)% 2000 US Census 60,062 (8.2) 2010 US Census 57,236 (4.7) 2017 US Census (Estimate) (1) 59,801 4.5
SOURCE: US Department of Commerce - Bureau of Census (1) Source: SEMCOG Southeast Michigan Council of Governments
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CITY TAXATION AND LIMITATIONS
Property Valuations
Article IX, Section 3, of the Michigan Constitution provides that the proportion of true cash value at which property shall be assessed shall not exceed 50% of true cash value. The Michigan Legislature by statute has provided that property shall be assessed at 50% of its true cash value. The Michigan Legislature or the electorate may at some future time reduce the percentage below 50% of true cash value.
On March 15, 1994, the electors of the State approved an amendment to the Michigan Constitution permitting the Legislature to authorize ad valorem taxes on a non-uniform basis. The legislation implementing this constitution amendment added a new measure of property value known as “Taxable Value.” Since 1995, taxable property has had two valuations - State Equalized Value (“SEV”) and Taxable Value. Property taxes are levied on Taxable Value. Generally, the Taxable Value of property is the lesser of: (a) the Taxable Value of property in the immediately preceding year, adjusted for losses, multiplied by the lesser of the inflation rate, or 5%, plus additions, or (b) the property’s current SEV. Under certain circumstances, therefore, the Taxable Value of property may be different from the same property’s SEV.
When property is sold or transferred, Taxable Value is adjusted to the SEV, which under existing law is 50% of the current true cash value. The Taxable Value and SEV of new construction are equal to current SEV. The Taxable Value and SEV of existing property are also adjusted annually for additions and losses.
Responsibility for assessing taxable property rests with the local assessing officer of each township and city. Any property owner may appeal the assessment to the local assessor, the local Board of Review and ultimately to the Michigan Tax Tribunal. The City does not anticipate any material adverse effect on its financial condition as a result of any appeals currently pending.
In addition to limiting the annual increase in Taxable Value, the Michigan Constitution mandates a system of equalization for assessments. Although the assessor for each local unit of government within a county are responsible for actually assessing at 50% of true cash value, adjusted for taxable value purposes, the final SEV and taxable value are arrived at through several steps. Assessments are established initially by the municipal assessor.
Municipal assessments are then equalized to the 50% levels as determined by the County Department of Equalization. Thereafter, the State equalizes the various counties in relation to each other. SEV is important, aside from its use in determining Taxable Value for the purpose of levying ad valorem property taxes, because of its role in spreading of taxes between overlapping jurisdictions, the distribution of various State aid programs, State revenue sharing and in the calculation of debt limits.
Property that is exempt from property taxes (churches, governmental property, public schools) is not included in the SEV or Taxable Value in this Official Statement. Property granted
A-2 tax abatements under Act 198, Public Acts of Michigan, 1974, as amended, is recorded on a separate tax roll which is subject to tax abatement. The valuation of tax abated property is based upon SEV but is not included in either the SEV or Taxable Value in this Official Statement except as noted.
Property Tax
The City's annual ad valorem tax levy is limited by both statute and City Charter. Home Rule cities are allowed by the Home Rule Act to authorize, by their charters, not to exceed 20 mills (1 mill is equal to $1.00 per $1,000 of SEV) as an annual ad valorem tax levy for operating purposes. The City, by its charter, is limited to levying annually a maximum of 11 mills for municipal purposes exclusive of any levy required for the payment of principal and interest on outstanding voted bonds of the City and exclusive of any levy authorized by statute to be made beyond the charter tax limitations. The 11 mill limitation has been rolled back to 7.2031 mills due to the effect of the Headlee Amendment to the State Constitution. The City is currently levying 7.2031 mills for operating purposes and 0.2400 mills for debt service and 10.1958 for other permitted purposes. In addition, the electorate may authorize the issuance of general obligation bonds that pledge the full faith and credit and unlimited taxing power of the City.
In November 1978, the electorate of the State passed an amendment to the State Constitution (the "Amendment") which placed certain limitations on the increase of taxes by the State and any political subdivisions from currently authorized levels of taxation. The Amendment and the enabling legislation, Act 35, Public Acts of Michigan, 1979, as amended, may have the effect of reducing the maximum authorized tax rate which may be levied by a local taxing unit. Under the Amendment's millage reduction provisions, should the value of taxable property, exclusive of new construction, increase at a percentage greater than the percentage increase in the Consumer Price Index (the "CPI"), then the maximum authorized tax rate would be reduced by a factor which would result in the same maximum potential tax revenues to the local taxing unit as if the valuation of taxable property (less new construction) had grown only at the CPI instead of the higher actual growth rate. Thus, should taxable property values rise faster than consumer prices, the maximum authorized tax rate would be reduced accordingly. The Amendment does not limit taxes for the payment of principal of and interest on bonds or other evidences of indebtedness outstanding at the time the Amendment became effective or which have been approved by the electors of the State or such political subdivisions.
The Amendment has had the effect of rolling back the City’s maximum operating levy from 11.0000 to 7.1389 for the 2018/2019 fiscal year and 7.2031 for the 2017/2018 fiscal year.
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Tax Rates - Five Year History
Levied City Publicity City Recycling/Refuse Public Public July 1 Operating (1) Millage (2) Debt (3) Library (4) Services (5) Safety (6) Roads (7) Total DDA (8) 2013 7.3947 .0223 .3006 .9597 3.0129 3.4750 ----- 15.1652 1.6477 2014 7.3947 .0218 .2910 .9597 3.0129 3.9750 2.5000 18.1551 1.6477 2015 7.3695 .0212 .2770 .9564 2.6026 3.9614 2.4915 17.6796 1.6477 2016 7.2899 .0206 .2665 .9460 2.9700 3.9186 2.4645 17.8761 1.6146 2017 7.2031 .0195 .2400 .9347 2.9346 3.8719 2.4351 17.6389 1.6146
(1) The City is currently levying its maximum operating millage based upon the Amendment described above. (2) Levied annually for city publication services and is limited to a specific millage or $50,000 (whichever is lower). (3) Extra voted millage for unlimited tax general obligation bonds. (4) Extra voted millage for the Royal Oak City Library operations and debt. Expires in calendar year 2023. (5) Extra voted millage for recycling services expires in calendar year 2022. Millage for refuse services is an annual millage and is subject to the Amendment. (6) Extra voted millage for public safety services expires in calendar year 2022. (7) Extra voted millage for road maintenance and construction expires in calendar year 2024. (8) Extra voted millage only by businesses located in the City’s Downtown Development Central Business District for operations and administration.
SOURCE: City of Royal Oak
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City Wide Millages
In addition to the City's tax rates, property owners in the City must pay taxes to other units of local government. City property owners are subject to the following millage tax rates on all taxable property from local units of government for the 2017/2018 fiscal year. Property owners pay property taxes at different levels based upon the status of the property as either Principal Residence or Non-Principal property.
Fiscal Year 2017/2018 (1)
Homestead Non-Homestead Properties (2) Properties Royal Oak Public Schools 6.6965 22.2263 County of Oakland 4.0400 4.0400 Oakland County Intermediate School District 3.3079 3.3079 Oakland County Community College 1.5555 1.5555 Oakland County Parks 0.2368 0.2368 Oakland County Public Transit Authority 0.9863 0.9863 State Education Levy 6.0000 6.0000 Huron-Clinton Authority 0.2140 0.2140 Detroit Zoo 0.0980 0.0980 Detroit Institute of Arts 0.1961 0.1961 Total 23.3311 38.8609
(1) Per $1,000 of Taxable Value (2) Homestead property includes principal residences, qualified agricultural property, qualified forest property and industrial personal property, which is excluded from taxes levied for school operating purposes. Moreover, commercial personal property is exempt from a portion of taxes levied for school operating purposes.
SOURCE: City of Royal Oak
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Real Property Tax Assessments
Responsibility for assessing taxable property rests with the local assessing officer of each township and City. Any property owner may appeal the assessment to the local assessor, the local Board of Review and ultimately to the Michigan Tax Tribunal.
The Michigan Constitution also mandates a system of equalization for assessments. Although the assessors for each local unit of government within a county are responsible for actually assessing at 50% of true cash value, adjusted for Taxable Value purposes, the final SEV and Taxable Value are arrived at through several steps. Assessments are established initially by the municipal assessor. Municipal assessments are then equalized to the 50% levels as determined by the County’s Department of Equalization. Thereafter, the State equalizes the various counties in relation to each other. SEV is important, aside from its use in determining Taxable Value for the purpose of levying ad valorem property taxes, because of its role in the spreading of taxes between overlapping jurisdictions, the distribution of various State aid programs and in calculation of debt limits.
Michigan Property Tax Reform
The voters of the State approved enactment of Michigan Public Acts 153 and 154 of 2013 and Acts 80 and 86 through 93 of 2014 by referendum on August 5, 2014 (collectively, the “PPT Reform Acts”), which significantly reformed Personal Property tax in Michigan. Under the PPT Reform Acts, owners of industrial and commercial Personal Property with a total true cash value of $80,000 or less may file an affidavit claiming a Personal Property tax exemption. To be eligible for the exemption, all of the commercial or industrial Personal Property within a city or township that is owned by, leased to, or controlled by the claimant has to have an accumulated true cash value of $80,000 or less. Beginning in calendar year 2016, owners of certain manufacturing Personal Property that was either purchased after December 31, 2012, or that is at least 10 years old may claim an exemption from Personal Property tax. By 2022, all eligible manufacturing Personal Property will be at least 10 years old or purchased after December 31, 2012, so that it could be exempted from Personal Property tax. To replace personal property tax revenues lost by local governments, including cities, the PPT Reform Acts divided the existing state use tax into two components, a “state share tax” and a “local community stabilization share tax,” and established the Local Community Stabilization Authority (the “LCSA”) to administer distribution of the local community stabilization share. The Michigan Department of Treasury collects the local community stabilization share tax on behalf of the LCSA. The local community stabilization share tax revenues are not subject to the annual appropriations process and are provided to the LCSA for distribution pursuant to a statutory formula. The statutory formula is anticipated to provide 100% reimbursement to local governments for losses due to the new personal property tax exemptions. The LCSA began distributions of the local community stabilization share tax to local governments, including cities, on November 21, 2016.
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Industrial Facilities Tax Abatement The ultimate nature, extent and impact of any other future amendments to Michigan’s property tax laws on the City’s finances cannot be predicted. Purchasers of the Bonds should consult with their legal counsel and financial advisors as to the consequences of any such legislation on the market price or marketability of the Bonds, the security therefor and the operations of the City.
Act 198 provides significant property tax incentives to industry to renovate and expand aging industrial facilities and to build new industrial facilities in Michigan. Under the provisions of Act 198, qualifying cities, villages and townships may establish districts in which industrial firms are offered certain property tax incentives to encourage restoration or replacement of obsolete industrial facilities and to attract new industrial facilities.
Property owners situated in such districts pay an Industrial Facilities Tax (“IFT”) in lieu of ad valorem property taxes on plant and equipment for a period of up to 12 years. For rehabilitated plant and equipment, the IFT is determined by calculating the product of the state equalized valuation of the replacement facility in the year before the effective date of the abatement certificate multiplied by the total mills levied by all taxing units in the current year. A new plant and equipment that received its abatement certificate prior to January 1, 1994 is taxed at one-half the total mills levied by all taxing units, other than mills levied for local school district operating purposes or under the State Education Tax Act, plus one-half of the number of mills levied for local school district operating purposes in 1993. For new facility tax abatements granted after 1993, new plants and equipment are taxed at one-half of the total mills levied as ad valorem property taxes by all taxing units except mills levied under the State Education Tax Act, plus the number of mills levied under the State Education Tax Act. For new facility tax abatements granted after 1993, the State Treasurer may permit abatement of all, none or one- half of the mills levied under the State Education Tax Act. Ad valorem property taxes on land and inventory are not reduced in any way since both land and inventory are specifically excluded under Act 198. The equivalent effect of the abatements granted under Act 198 is to understate the City’s Ad Valorem Taxable Value for its fiscal year ending June 30, 2018 by $2,632,295 or 0.10%.
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SEV/Taxable Valuation – Five Year History The City’s Ad Valorem Taxable Value has increased $326,042,070 or 14.67% between 2013 and 2017 (see table following). SEV and Taxable Value does not include any value of tax-exempt property (e.g., governmental facilities, churches, public schools, etc.) or property granted tax abatements under Abatement Acts (see “CITY TAXATION AND LIMITATIONS – Industrial Facilities Tax Abatement” herein).
Assessed Year of State Fiscal State Ad Valorem % Value as of Equalization Year Ended Equalized Taxable Total Taxable Increase/ December 31, and Tax Levy June 30 Valuation (1) Valuation (1) Valuation (2) (Decrease)
2012 2013 2014 $2,320,467,120 $2,223,340,000 $2,232,847,670 1.22% 2013 2014 2015 2,496,528,450 2,268,034,710 2,277,110,800 1.98 2014 2015 2016 2,693,722,050 2,358,343,090 2,366,199,380 3.91 2015 2016 2017 2,853,811,830 2,435,802,290 2,442,069,570 3.21 2016 2017 2018 3,081,891,080 2,549,382,070 2,555,106,330 4.63 2017(3) 2018 2019 3,189,816,240 2,676,484,610 2,681,749,200 4.96
Per Capita 2017 Ad Valorem Taxable Valuation is $44,542 and Per Capita 2017 Total Taxable Valuation is $44,642 based on the City’s 2010 US Census population of 57,236. (1) See “CITY TAXATION AND LIMITATIONS - Tax Abatement” herein. (2) Includes tax abatements under Act 198. (3) Subject to state equalization.
Breakdown of the 2017 Taxable Valuation
By Use: By Class: Residential 77.44% Real Property 94.86% Industrial 1.53 Personal Property 5.14 Commercial 15.89 Total 100.00% Personal 5.14 Total 100.00%
______SOURCE: City of Royal Oak
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The following table sets forth the City’s general fund balance for the fiscal years ended June 30, 2013 through June 30, 2017.
Fiscal Year Ended General Fund - June 30, Fund Balance
2013 $10,795,085 2014 14,649,116 2015 16,956,748 2016 18,279,755 2017 22,740,782
______SOURCE: City of Royal Oak
Property Tax Collections
The City's fiscal year begins on July 1. Real and personal property taxes are due July 1 and December 1 and are payable without penalty or interest until July 31 and February 14, respectively. Property owners who have not paid their property taxes on or before July 31 and February 14, respectively, are required to pay interest and penalties on, and collection fees with respect to, such unpaid taxes.
Oakland County (the “County”) is responsible for the collection of real property taxes of the City which are delinquent as of March 1 of each fiscal year (the "Delinquent Real Property Taxes"). In recent years, the County has paid to the City all Delinquent Real Property Taxes from a tax payment fund established by the County. By law, the County receives all amounts payable to the City from the taxpayers with respect to such Delinquent Real Property Taxes. If such Delinquent Real Property Taxes remain uncollected after three years from the date on which such taxes become delinquent, the County may charge the respective amount of such taxes back to the City. The payment by the County from the City of the Delinquent Real Property Taxes as set forth above may be dependent upon the sale by the County of delinquent tax notes for that purpose, and there can be no assurance that the County will issue such delinquent tax notes or purchase such Delinquent Real Property Taxes in any fiscal year.
Delinquent Real Property Taxes collected by the County in any fiscal year in which the County does not purchase from the City such Delinquent Real Property Taxes are paid to the City as and when collected by the County on a monthly basis following such collection.
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Property Tax Collection Record – Five Year History
Collection % Collection Fiscal Collections to Plus Funding to Plus Funding to Year March 1, Year Percent June 30, Year June 30, Year Ending Tax Levy(1) Following Levy Collected Following Levy(2) Following Levy(2) 2013 $32,676,999 $32,629,339 99.85% $32,655,134 99.93% 2014 34,509,624 34,431,897 99.77 34,437,160 99.79 2015 42,085,769 41,995,560 99.79 42,000,560 99.80 2016 42,669,442 42,466,820 99.53 42,491,820 99.58 2017 45,139,864 44,013,820 97.51 45,002,509 99.70 2018 (3) 46,297,685 45,320,883 97.89 N/A N/A (1) Real and personal property taxes combined. (2) Includes collections from County Tax Payment Fund. (3) Estimated.
______SOURCE: City of Royal Oak
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REVENUES FROM THE STATE OF MICHIGAN
The City receives revenue sharing payments from the State of Michigan under the State Constitution and the State Revenue Sharing Act of 1971, as amended. The revenue sharing payments are composed of two components - a constitutional distribution and a statutory distribution as shown in the table below.
The constitutional distribution is mandated by the State Constitution and distributed on a per capita basis to townships, cities and villages. The amount of the constitutionally mandated revenue sharing component distributed to the City can vary depending on the population of the City and the receipt of sales tax revenues by the State.
The statutory distribution is authorized by legislative action and distribution is subject to annual State appropriation by the State Legislature. Statutory distributions may be reduced or delayed by Executive Order during any State fiscal year in which the Governor, with the approval of the State Legislature’s appropriations committees, determines that actual revenues will be less than the revenue estimates on which appropriations were based.
On July 14, 2017, Governor Snyder signed into law the budget for fiscal year 2018. The budget includes a constitutional revenue sharing distribution to cities, villages and townships of approximately $798.1 million. The budget continues the incentive-based revenue sharing program known as the City, Village, and Township Revenue Sharing (or “CVTRS”) program begun in fiscal year 2015, similar to the Economic Vitality Incentive Program (“EVIP”) that from fiscal year 2012 through fiscal year 2014 distributed revenue sharing to municipalities that complied with certain “best practices” such as increasing transparency. Under the fiscal year 2018 budget, approximately $243 million, the same amount appropriated in fiscal years 2016 and 2017, has been appropriated for revenue sharing to cities, villages and townships that meet requirements for accountability and transparency, including making a citizen’s guide to its finances, a performance dashboard, a debt service report and a two-year budget projection available for public viewing.
The fiscal year 2018 budget retains $5.8 million for distribution to cities, villages and townships as a one-time payment based on population and added an additional appropriation of $6.2 million for distribution to eligible cities, villages and townships as an additional one-time payment based on population. The fiscal year 2018 budget also maintains funding for the revenue sharing grant program for financially distressed communities at the level of $5 million, the same amount appropriated in fiscal years 2016 and 2017. Any portion of the CVTRS payment that the City would be eligible to receive would be subject to certain benchmarks that the City would need to meet, and there can be no assurance of what amount, if any, the City would receive under the CVTRS program. The City received revenue sharing payments of $5,282,378 in fiscal year 2017 and anticipates meeting the requirements to receive approximately $5,412,000 in state shared revenue and CVTRS payments for fiscal year 2018.
Purchasers of the Bonds should be alerted to further modifications to revenue sharing payments to Michigan local governmental units, to potential consequent impact on the City’s
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general fund condition, and to the potential impact upon the market price or marketability of the Bonds resulting from changes in revenues received by the City from the State.
The following table sets forth annual revenue sharing payments and other moneys received for the City’s general operating fund for its fiscal years ended June 30, 2013 through June 30, 2017 and the currently budgeted revenue sharing payments to be received in the fiscal year ending June 30, 2018.
Fiscal Year Constitutional Statutory Total Revenue Ended/Ending Component Component Sharing Payments June 30, 2013 (1) $4,115,000 $485,000 $4,600,000 June 30, 2014 (1) 4,293,557 654,486 4,948,043 June 30, 2015 4,360,994 674,467 5,035,461 June 30, 2016 4,398,771 674,467 5,073,238 June 30, 2017 4,607,911 674,467 5,282,378 June 30, 2018 (2) 4,691,000 721,000 5,412,000
(1) Act 63, Public Acts of Michigan, 2011, introduced the Economic Vitality Incentive Program (“EVIP”). Each city, village or township that received a FY 2010 statutory payment greater than $4,500 and fulfilled all of the specific requirements of the EVIP was eligible to receive a maximum of 67.837363% of its FY 2010 total statutory payment (rounded to the nearest dollar). The EVIP expired in 2014.
(2) Estimated by the City from the Michigan Department of Treasury Website based on Constitutional and CVTRS revenue sharing. http://www.michigan.gov/treasury
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CITY DEBT Statutory and Constitutional Debt Provisions Section 21 of Article VII of the Michigan Constitution authorizes the enactment of laws for the incorporation of cities and grants cities the power to levy taxes for public purposes, subject to statutory and constitutional limitation: "The legislature shall provide by general laws for the incorporation of cities and villages. Such laws shall limit their rate of ad valorem property taxation for municipal purposes, and restrict the powers of cities and villages to borrow money and contract debts. Each city and village is granted power to levy other taxes for public purposes, subject to limitations and prohibitions provided by the constitution or by l a w." In accordance with the foregoing, the Home Rule City Act, Act 279, Michigan Public Acts, 1909, as amended, limits the amount of debt a home rule city may have outstanding at any time. Section 4-a of the Home Rule City Act provides, in pertinent part: "Notwithstanding a charter provision to the contrary the net indebtedness incurred for all public purposes shall not exceed the greater of the following:
(a) Ten percent of the assessed value of all the real and personal property in the city.
(b) Fifteen percent of the assessed value of all the real and personal property in the city if that portion of the total amount of indebtedness incurred which exceeds 10% is or has been used solely for the construction or renovation of hospital facilities." Certain types of indebtedness are not subject to the 10% limitation of the Home Rule City Act, including: special assessment bonds, Michigan transportation fund bonds and revenue bonds, whether secured by a mortgage or not; bonds issued or contract obligations or assessments incurred to comply with an order of the Water Resources Commission of the State or a court of competent jurisdiction; obligations incurred for water supply, sewage, drainage or refuse disposal or resource recovery projects necessary to protect the public health by abating pollution; and bonds issued for construction, improvements and replacement of a combined sewer overflow abatement facility. The resources of a sinking fund pledged for the retirement of outstanding bonds shall also be excluded in computing the debt limitation. Section 517(1) of the Revised Municipal Finance Act, Act 34, Michigan Public Acts, 2001, as amended, authorizes the issuance by counties, cities, villages and townships of “capital improvement items.” Such Section 517(1) is the statutory basis on which the Bonds are being issued. The principal amount of bonds that can be issued under Section 517(1) of Act 34 is limited to 5% of the SEV of the property assessed in the municipality. See the table below under the heading “Legal Debt Margin.” In the opinion of Bond Counsel, the provision of the Home Rule City Act cited above overrides the City's Charter provision which limits City indebtedness to five percent of the "assessed valuation" (SEV) of all real and personal property in the City. Other
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limitations may apply, however, if specifically, set forth in a statute authorizing a particular kind of borrowing. Legal Debt Margin Pursuant to the statutory and constitutional debt provisions set forth above, the following table reflects the amount of additional debt the City may legally incur as of May 1, 2018, assuming issuance of the Bonds.
2017 SEV $3,081,891,080 Debt Limit 308,189,108 Debt Outstanding (1) 177,559,775 The Bonds* 31,310,000 Parking System Revenue Bonds, Series 2018* 16,250,000 Less: Exempt Obligations (43,567,775) Debt Subject to SEV Limitation 181,552,000 Additional Debt which can be legally incurred $126,637,108
Non-exempt debt outstanding as percentage of 2017 SEV 5.89%
(1) Includes all outstanding Bonds as of May 1, 2018. * Preliminary, subject to change. ______SOURCE: City of Royal Oak and the Municipal Advisory Council of Michigan.
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Debt Statement
The following table reflects a breakdown of the City's direct and overlapping debt as of May 1, 2018 including the Bonds. Bonds designated UTGO have an unlimited tax pledge, and LTGO have a limited tax pledge. Net Debt(1) Self- Per City Direct Debt Gross Supporting(2) Net Debt Capita % of SEV Capital Improvement Bonds, Series 2018 $31,310,000 $0 $31,310,000 (LTGO)(3) Parking System Revenue Bonds(4) 16,250,000 16,250,000 General Obligation Limited Tax Bonds, 7,300,000 7,300,000 Series 2017(5) Taxable Limited Tax General Obligation 102,795,000 102,795,000 Bonds, Series 2017A(6) Taxable Limited Tax General Obligation 19,940,000 19,940,000 Bonds, Series 2017B(7) Parking System Revenue Bonds, Series 12,825,000 12,825,000 2016 Capital Improvement Refunding Bonds, 15,115,000 15,115,000 Series 2016 (LTGO) (8) Capital Improvement Refunding Bonds, 1,582,000 1,582,000 Series 2014 (LTGO) (9) Capital Improvement Bonds, Series 2013 225,000 225,000 (LTGO) (10) Capital Improvement Bonds, Series 2008 510,000 510,000 (LTGO) (11) Capital Improvement Bonds, Series 2007A 400,000 400,000 (LTGO) (12) Building Authority Bonds (UTGO) (13) 2,375,000 2,375,000 Drain Bonds (LTGO) (14) 1,203,896 1,203,896 Share of County Issued Drain Bonds 13,288,879 13,288,879 Total Direct Debt 225,119,775 68,299,775 156,820,000 $2,740 5.09%
(1) Based upon the 2010 U.S. census population of 57,236 and 2017 SEV of $3,081,891,080. (2) Self-supporting debt is paid from specific revenue sources other than the general fund, but is not necessarily excluded from the City’s debt limit. (3) The Bonds. Preliminary, subject to change. (4) Preliminary, subject to change. (5) General Obligation Limited Tax Bonds, Series 2017 financed road improvements and are secured by the receipts from a road improvement millage. (6) Taxable LTGO Bonds, Series 2017A financed part of the costs of the unfunded accrued health care liability of the City’s general, police and fire retiree healthcare plan. (7) Taxable LTGO Bonds, Series 2017B financed part of the costs of the unfunded accrued pension liability of the City’s general, police and fire retiree healthcare plan. (8) Capital Improvement Refunding Bonds, Series 2016 (LTGO) are currently paid from but not secured by funds from the City’s Motor Pool Fund, Parking Fund, Water and Sewer Enterprise Fund, Downtown Development Authority Tax Increment Revenues and General Fund. (9) Capital Improvement Refunding Bonds, Series 2014 (LTGO) are currently paid from and are secured by tax receipts from an earlier library millage. (10) Capital Improvement Refunding Bonds, Series 2013 (LTGO) are currently paid from but not secured by special assessments on individual homeowners and businesses. (11)Non-callable Capital Improvement Bonds, Series 2008 (LTGO), due October 1, 2018. These bonds are currently paid from but not secured by funds from the Motor Pool Fund, Parking Fund and Water and Sewer Enterprise Fund. (12) Capital Improvement Bonds, Series 2007A (LTGO) financed City vehicles. (13) The Building Authority Bonds are a voted debt obligation. (14) The City’s portion of the 1998 North Arm Relief Drain Bonds is approximately 49.09% and is being paid by the City’s Water and Sewer Enterprise Fund. The remaining amount is being paid by neighboring municipalities through interlocal agreements with the City. ______SOURCE: City of Royal Oak and the Municipal Advisory Council of Michigan
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Net Debt(1) City Overlapping Debt (1) Gross City Share as % Net City share Per Capita % of SEV of Gross Royal Oak Public Schools $49,745,000 97.06% $48,282,497 Berkley Public Schools 60,685,000 1.87 1,134,810 Clawson Public Schools 25,427,203 0.90 228,845 Oakland County 340,879,684 4.66 15,884,993 Oakland Intermediate School District 45,495,000 4.68 2,129,166 Oakland Community College 0 0.00 0
Total Overlapping Debt $522,231,887 $67,660,311 $1,182 2.20% Total City Direct and Overlapping Debt $747,351,662 $224,480,311 $3,922 7.28%
(1) Overlapping Debt is the portion of the debt of other taxing units for which City residents are responsible. ______SOURCE: City of Royal Oak and the Municipal Advisory Council of Michigan
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CITY OF ROYAL OAK COUNTY OF OAKLAND, STATE OF MICHIGAN Schedule of Principal and Interest Payments for the City's Outstanding General Obligation Limited Tax Debt Service and Debt Service on the Bonds
The Outstanding Bonds(1) The Bonds(2) Aggregate(2) Fiscal Total New Total Debt Service Year Total Total Principal & New New Principal & Debt Due Each June 30 Principal Interest Interest Principal Interest Interest Service 5 Years Percent 2018 $7,711,363 $5,764,099 $13,475,461 - - - $13,475,461 2019 8,277,181 5,178,303 13,455,484 $895,000 $1,306,006 $2,201,005 15,656,489 2020 8,242,999 5,010,199 13,253,197 710,000 1,490,700 2,200,700 15,453,897 2021 8,187,716 4,837,402 13,025,118 735,000 1,462,300 2,197,300 15,222,418 2022 8,009,000 4,644,122 12,653,122 765,000 1,432,900 2,197,900 14,851,022 $74,659,288 26.9% 2023 8,188,000 4,427,461 12,615,461 795,000 1,402,300 2,197,300 14,812,761 2024 8,115,000 4,193,163 12,308,163 830,000 1,370,500 2,200,500 14,508,663 2025 6,610,000 3,954,416 10,564,416 870,000 1,329,000 2,199,000 12,763,416 2026 6,805,000 3,731,909 10,536,909 915,000 1,285,500 2,200,500 12,737,409 2027 6,330,000 3,505,516 9,835,516 960,000 1,239,750 2,199,750 12,035,266 66,857,515 24.1 2028 6,555,000 3,276,974 9,831,974 1,005,000 1,191,750 2,196,750 12,028,724 2029 6,795,000 3,031,875 9,826,875 1,060,000 1,141,500 2,201,500 12,028,375 2030 6,215,000 2,781,627 8,996,627 1,110,000 1,088,500 2,198,500 11,195,127 2031 6,465,000 2,527,775 8,992,775 1,165,000 1,033,000 2,198,000 11,190,775 2032 6,740,000 2,256,805 8,996,805 1,225,000 974,750 2,199,750 11,196,555 57,639,557 20.8 2033 7,025,000 1,969,219 8,994,219 1,285,000 913,500 2,198,500 11,192,719 2034 7,345,000 1,655,445 9,000,445 1,350,000 849,250 2,199,250 11,199,695 2035 7,685,000 1,315,466 9,000,466 1,415,000 781,750 2,196,750 11,197,216 2036 8,035,000 959,880 8,994,880 1,490,000 711,000 2,201,000 11,195,880 2037 8,405,000 588,007 8,993,007 1,565,000 636,500 2,201,500 11,194,507 55,980,016 20.2 2038 8,795,000 198,943 8,993,943 1,640,000 558,250 2,198,250 11,192,193 2039 - - - 1,725,000 476,250 2,201,250 2,201,250 2040 1,810,000 390,000 2,200,000 2,200,000 2041 1,900,000 299,500 2,199,500 2,199,500 2042 1,995,000 204,500 2,199,500 2,199,500 19,992,443 7.2 2043 2,095,000 104,750 2,199,750 2,199,750 2,199,750 0.8 TOTAL $156,536,258 $65,808,606 $222,344,864 $31,310,000 $23,673,706 $54,983,706 $277,328,570 277,328,570 100.0%
(1) The City of Royal Oak outstanding General Obligation Limited Tax debt as of May 1, 2018 (2) Preliminary, subject to change
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Debt History
There is no record of a default on any obligations of the City. On August 2, 2016, the City made an interest payment of $2,000 on its 2007 Energy Efficiency Bond (with a final maturity of February 1, 2017), which was one day late due to a clerical error. The interest payment was due August 1, 2016.
Short Term Financing
The City does not utilize short-term borrowing.
Lease Obligations
The City currently has no lease obligations outstanding.
Future Financings
A $6,000,000 water meter/reading technology project is currently being analyzed by the City and may be financed with water and sewer system revenue bonds.
Vacation and Sick Leave Liabilities
As of June 30, 2017, the accrued accumulated vacation, longevity, and sick leave liability was $3,921,266 across all funds.
Employees' Retirement System
The City contributes to the City of Royal Oak Retirement Plan System (the “Retirement System”), which is the administrator of a single employer defined benefit pension plan that provides pensions to vested full-time employees who were hired as full-time employees prior to July 1, 2008, and which is a closed plan for general employees.
As of June 30, 2017, the date of the most recent Retirement System report, the plan had 230 active members, 541 retirees/beneficiaries, and the plan was considered to be 72.8% funded. The City allocates the pension contribution costs to the numerous City funds based on the active members working in that fund that receive the pension benefit.
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Comparative Statement of Computed Employer Contributions Active Members Retirees & Beneficiaries Employer Contributions Valuation Payroll Annual Allowances Active Valuation % per % of General Police Weighted Date Number Total Average Increase Number Retiree $ Payroll & Water & Fire Average
6/30/2008 336 $20,459,734 $60,892 - 477 0.70 $10,386,269 50.8% $2,451,876 $4,395,643 21.8%
6/30/2009(1) 317 20,139,069 63,530 -1.6% 480 0.66 10,872,875 54.0% 2,058,401 5,158,959 25.4%
6/30/2010(1) 287 18,373,382 64,019 -8.8% 489 0.59 11,320,108 61.6% 2,658,168 5,739,910 29.9%
6/30/2011(1) 252 16,804,600 66,685 -8.5% 518 0.49 12,846,102 76.4% 2,914,594 6,599,438 37.8%
6/30/2012(1) 242 15,846,779 65,483 -5.7% 523 0.46 13,509,275 85.2% 2,669,308 6,480,707 41.6%
6/30/2013(2) 244 15,296,167 62,689 -3.5% 527 0.46 13,833,419 90.4% 2,835,608 6,891,898 46.7%
6/30/2014(1) 246 15,336,530 62,344 0.3% 536 0.46 14,369,883 93.7% 2,679,570 6,852,495 46.3%
6/30/2015(1) 240 15,312,473 63,802 -0.2% 555 0.43 14,983,560 97.9% 2,406,510 7,009,728 46.5%
6/30/2016(1) (3) 231 15,094,284 65,343 -1.4% 548 0.42 15,482,808 102.6% 315,659 5,400,763 52.4%
6/30/2017 230 15,552,925 67,621 3.0% 541 0.43 15,866,119 102.0% 208,980 5,605,336 46.7%
(1) Following changes in actuarial assumptions. (2) Actuarial assumptions revised. (3) Reflects the issuance of the Taxable Limited Tax General Obligation Bonds, Series 2017-B with proceeds of $21,427,286 deposited to the Retirement Plan. ______SOURCE: CITY OF ROYAL OAK
The System is administered through a five-member Board of Trustees, consisting of two City Commissioners, the City Manager, one general member of the System elected by the general members of the System, and one member of the System who is either a fire member or police member to be elected by the fire and police members.
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Historically, the City has made the annual employer contribution to the Retirement System required by State law, as determined by the plan’s actuary.
Contributions in Relation to the Actuarially Actuarially Contribution Contributions as a % Fiscal Year Determined Determined Deficiency Covered- of Covered-Employee June 30th Contribution Contribution (Excess) Employee Payroll Payroll 2013 $6,599,438 $6,208,560 $390,878 $15,296,167 40.6%
2014 6,480,707 6,503,436 (22,729) 15,336,530 42.4%
2015 6,891,898 7,098,292 (206,394) 15,312,473 46.4%
2016 6,852,495 7,034,692 (182,197) 15,094,284 46.6%
2017 (1) 7,009,728 28,605,368 (21,595,640) 15,552,925 183.9%
(1) Reflects issuance of $106,040,000 Taxable Limited Tax General Obligation Bonds, Series 2017-A. ______SOURCE: CITY OF ROYAL OAK
Actuarial Actuarial Net Assets Valuation Year Accrued Value of Available as a June 30, Liability Assets % of Obligation 2008 $166,957,321 $145,560,741 87.2% 2009 173,542,642 138,811,772 80.0 2010 178,656,736 132,168,268 74.0 2011 188,716,644 125,356,684 66.4 2012 190,595,000 124,013,000 65.1 2013 199,909,000 125,709,000 62.9 2014 203,770,000 130,740,000 64.2 2015 208,800,000 133,359,000 63.9 2016 214,521,000 156,145,000 72.8 2017 217,993,000 158,776,000 72.8
SOURCE: City of Royal Oak
For more information, refer to APPENDIX B – Note 11, “Employees’ Retirement System” of the Audited Financial Statements of the City for Fiscal Year Ending June 30, 2017 beginning at page 84.
Other Postemployment Benefits
The City sponsors and administers a single-employer defined benefit health care plan that provides certain post-employment health care, dental benefits and life insurance benefits for certain eligible retired employees (including their spouse and certain dependents) under the
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provisions of applicable union contracts and salary plans. The City pays nearly all the costs. Many employees may become eligible for these benefits through age and service.
At the time of the most recent other post-employment benefit (“OPEB”) actuarial valuation study dated March 8, 2017 (update to the report for the period ended June 30, 2016 to reflect the significant subsequent event of the issuance of the City’s Taxable Limited Tax General Obligation Bonds, Series 2017A), the plan had 177 active members, 435 retirees/beneficiaries, and the plan was considered 102.7% funded. The OPEB actuarial valuation study determined the actuarial accrued liability (“AAL”) for benefits was $121,508,729 and the market value of assets in the health care plan was $124,839,786, resulting in an overfunding of $3,331,057 in AAL due, in part, to the issuance of the City’s Taxable Limited Tax General Obligation Bonds, Series 2017-A totaling $106,040,000 in original par amount. in (‘000s) Actuarial Valuation Date Actuarial Accrued Unfunded Funded Covered % Covered June 30th, Value Liability (AAL) AAL Ratio Payroll Payroll 2006 - $10,411 $110,411 0.0% $20,432 540.4%
2008 $207 114,518 114,311 0.2 20,460 558.7
2010 4,814 116,791 111,977 4.1 18,373 609.5
2012 7,141 120,307 113,166 5.9 15,463 731.9
2014 8,668 128,978 120,310 6.7 13,382 899.0
2016 (1) 124,840 121,509 (3,331) 102.7 n/a n/a
(1) Reflects the issuance of the Taxable Limited Tax General Obligation Bonds, Series 2017-A with proceeds of $107,971,344 deposited to the Health Care Trust Fund. ______SOURCE: CITY OF ROYAL OAK
Commencing with the City’s fiscal year ending June 30, 2010, the City, in accordance with Governmental Accounting Standards Board (“GASB”) Statement Number 45, was required to report its liability for post-employment health care benefits on an actuarial basis.
For more information, refer to APPENDIX B – Note 12, “Other Postemployment Benefits” of Audited Financial Statements of the City for Fiscal Year Ending June 30, 2017 beginning at page 90.
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LABOR CONTRACTS Approximately 66% of the City's 453 employees are represented by labor organizations. The following table illustrates the various organizations which represent City employees, the number of members and the expiration date of the present contracts.
Number of Contract Employee Group Employees Expiration Date Clerical Staff (TPOAM) 33 6/30/19 Department Head and Deputy Department Head Association 24 6/30/19 Public Works Employees (SEIU Local 517m) 53 6/30/19 Professional and Technical Association 29 6/30/19 Royal Oak Police Officers Association 52 6/30/19 Royal Oak Police Command Officers Association 17 6/30/19 Royal Oak Detectives Association 7 6/30/19 Royal Oak Firefighters Association 53 6/30/20 Royal Oak Foremen and Supervisors Association 4 6/30/19 Court Employees 27 6/30/19 Non-Affiliated Employees (full time) Non-Affiliated Employees (part time) 154 Total 453 ______SOURCE: City of Royal Oak
ECONOMIC PROFILE General
Royal Oak’s economy is dominated by the health care, retail, professional services, and automotive parts manufacturing industries. In recent years, the city has experienced resurgence as a regional entertainment and cultural destination, a dynamic place to live, and meeting grounds for creative minds. It was recently named one of the Top 10 Most Exciting Small Cities in America by Movoto, one of Detroit’s Top 5 Suburbs for Young Professionals by Movoto, the #2 Best Suburb for Millennials in the Detroit Area by Niche.com, and the Best Place to Live in Michigan by areavibes.
Commercial
The commercial character of the city is very diverse, ranging from turn of the century retail buildings located in downtown to modern shopping plazas along Woodward Avenue. The city’s first commercial growth occurred in downtown. As development extended outward from downtown, the predominant land use became residential with the exception of the Mile Roads and the north/south connectors (Woodward Avenue, Rochester Road, Crooks Road and Main Street).
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Commercial development in the city’s one square mile downtown is geared toward a pedestrian friendly shopping and dining experience. City parking lots and structures provide visitors with a central parking location. Since 2010, more than forty creative and technology companies have opened offices downtown, including Hulu’s Detroit office, Vectorform, Crowdrise, Tome, and Ambassador, which has tripled its staff in less than a year.
A 2015 retail trade study revealed that over 198,000 people live within the city’s primary trade area. The household income of the primary trade area is over $78,000.
There is over 600,000 square feet of floor space dedicated to shopping, services, dining and entertaining in downtown Royal Oak. Over 2,500 businesses call Royal Oak home, and the city has one of the lowest office and retail vacancy rates in Southeast Michigan. The downtown’s increased popularity continues to prompt redevelopment of many sites in and around the downtown. Currently, two city-owned properties in downtown are under exclusive development agreements with private developers to bring well over 200,000 s.f. of new Class A office space to the downtown and 20,000 s.f. of ground level retail space. And opening this year is the new $20 million, 74,000 s.f. Etkin office building, which is 100% leased, and the $48 million,6-story, 120 room Hyatt Place hotel. In response to the ever-increasing development interest in downtown Royal Oak, a new 500+ space parking structure was constructed in 2017, and a 581-space structure is set to begin construction later this year
In the spring of 2011, a newly constructed 73,000 square foot, two-level entertainment facility with a state-of-the-art, 797 seat, 10 screen movie theatre (Emagine Theatre) and a 12 lane boutique bowling venue (Star Lanes) opened for business in downtown. The facility was an estimated $14 million private investment and is one of Southeast Michigan’s most popular venues.
New multiple-family residential developments continue to expand the variety of housing opportunities within the city. On ten acres of the former Normandy Oaks golf course, Robertson Bros. is building 78 townhomes and 47 single-family homes priced between $250,000 and $400,000. Its overall investment in this project is $26.5 million. On the north and south entrances to downtown, two new developments have just been approved. Singh Development is eying Summer 2018 to begin building a $40 million, four-story apartment building, and in the Fall, Billings Place, a $15 million, 65-unit building will begin construction.
These residential projects join several others that have just been completed, including a 5-story mixed-use building directly adjacent to downtown containing 48 “stacked” apartment units; the renovation of a warehouse building containing 75 “loft” style apartments; 6 new multiple-family residential buildings containing 33 “stacked” style condominiums; and nine (9) new 3-story buildings resulting in 37 “townhouse” style condominiums.
All told, there are currently 97,000 s.f. of office projects under construction, 159,000 s.f. of retail space; and 307,500 s.f. of residential (350+ units) throughout the city. Projects already approved by the city include over 260,000 s.f. of office space, 74,500+ s.f. retail, and 878,000 s.f. residential (700+ units).
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Auto-oriented commercial developments occur outside the boundaries of the downtown along the remaining commercial corridors of Main Street, Rochester Road, Crooks Road, Woodward Avenue and portions of Coolidge Highway. The City has experienced significant reinvestment in existing businesses and redevelopment of underutilized properties along its major thoroughfares with the recent local economic rebound.
Woodward Avenue has the highest daily traffic counts and is the largest commercial corridor in the City. Woodward Avenue continues to be a focal point of commercial redevelopment in the City. In 2010, an approximately 45,000 square foot, two-story, state-of- the- art fitness center (LA Fitness) opened for business. LA Fitness is located at one of the city’s most prominent intersections (Woodward and Interstate 696). In 2014, a new Burger King restaurant with drive through facility was completed. An approximately $2.3 million 3- story, 116,000 square foot self-storage facility has opened along Woodward Avenue just north of Interstate 696. Also in 2014, a new Starbucks restaurant with drive-through facility was completed near the intersection of Woodward Avenue and 13 Mile Road in proximity to Beaumont Health’s Royal Oak campus. The largest retail project in the city’s history is currently under construction on Woodward Avenue as well. Named Woodward Corners by Beaumont, the $32.8 million, 15 acre redevelopment is expected to be completed in 2019 and will feature a 40,000 sq. ft. grocery store, five commercial buildings for retail stores and restaurants, and a five-story 100-unit hotel.
The overwhelming majority of the City’s existing commercial tenant spaces are less than 3,000 square feet. However, two large scale retail establishments are located on the City’s north side. A 230,000 square foot Meijer, grocer and super center, and a 36,000 square foot English Garden, lawn and garden center, are located along Coolidge Highway, north of 14 Mile Road. Meijer just completed an approximately $7 million comprehensive interior and exterior renovation. Construction is also complete at the 125,000 s.f. Kroger Marketplace grocery store, a $25 million investment located on the southwest corner of Stephenson Highway and 12 Mile Road. Construction is currently underway with the retail outlets that front the store.
Industrial
Historically, the area south of Lincoln Avenue (10 ½ Mile Rd), adjacent to the railroad right-of-way, has developed as the industrial sector of the City. As the City developed northward, the region of 14 Mile Road and Coolidge Highway became home to additional industrial developments. Today, the region is host to a varying scale of industrial businesses with a significant focus on the resurgence of several key automotive parts manufacturers.
The intersection of Fourteen Mile Road and Coolidge Highway is now home to a new American Axle facility that employs approximately 300 skilled personnel at its 14-acre campus. The campus includes outdoor storage and a state-of-the-art 300,000 gross square foot manufacturing facility utilized for forging metal automobile parts. American Axle is a premier global leader in the design, engineering, validation and manufacturing of driveline, metal forming, powertrain, and casting technologies for automotive, commercial and industrial markets.
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The Flex-n-Gate Corporation is also located at the same key intersection. It employs approximately 300 skilled personnel at its 250,000 gross square foot metal stamping facility. The 14-acre manufacturing campus produces a wide variety of large stamped metal and welded assembly components for numerous automotive brands. Flex-N-Gate Corporation is a worldwide automotive parts supplier with 50 manufacturing facilities and 9 product development and engineering facilities throughout North America and South America. Flex-n- Gate and American Axle continue to be among the City’s significant employers.
In February 2012, Comau Incorporated reopened its shuttered, for-sale facility at the same intersection. New demand in the automotive sector has resulted in the firm investing $2,000,000 in its existing power-train facility. The newly renovated, approximately 215,000 gross square foot facility has nearly 150 skilled workers. The product line for power-train components includes machine tools, assembly centers, and test stands for engines, transmissions and crankshafts. Comau is an automotive production division of Fiat Group S.P.A. with 24 operating centers, 14 manufacturing plants and 5 research and development centers in 13 countries. Through the modest revival of the automotive industry, Comau Inc. has re-emerged as one of the City top employers and has just announced plans to increase employment and investment in its Royal Oak facility
Directly adjacent to Flex-n-Gate and American Axle is a significant facility for Consumers Energy, the state’s largest distributor of natural gas. The Royal Oak facility provides customer relation and corporate offices, and personnel and equipment to service its 136-square mile jurisdiction. The site is one of the focal points in the overall process of drawing natural gas from distant large-scale underground storage tanks and pressurizing the natural gas to accommodate the transfer from large diameter to smaller diameter pipelines for distribution through its extensive network. Consumers Energy continues to maintain its status as one of the City’s largest employers.
Recreation and Culture
Recreation and culture are an essential part of the Royal Oak community. The City offers a variety of recreational and cultural activities, which not only enhance the quality of life for residents but also attract large numbers of visitors. The City’s goal to be recognized as a destination for entertainment, recreation, and cultural opportunities has led to the establishment of a Commission for the Arts. The newly formed Commission will work hard to enhance the community’s cultural development, and continue to advance its reputation for being an entertainment destination for all of southeast Michigan.
Royal Oak sports an eclectic blend of restaurants, retail storefronts, theatres, and galleries. The recently renovated Royal Oak Music Theatre offers live music and entertainment as well as facilitating large corporate and private events. Constructed in 1922, the Baldwin Theatre continues to offer a variety of community theatre musical stage plays. The one-of-a-kind Main Art Theatre offers a diverse selection of first-run avant-garde and foreign films.
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Downtown Royal Oak also boasts a successful Farmer’s Market. The market is a source of great community pride and history. It continues to offer visitors an array of goods from fresh fruits and vegetables to handmade floral arrangements and rare antiques. Market patrons frequent numerous downtown businesses on Saturday and Sunday mornings.
Downtown Royal Oak is host to many annual community art fairs and special events including weekly summer concerts, the Holiday Magic Parade held in November, Memorial Day Parade, Oak Apple (charity) Run, Antique and Garage Sale, Spooktacular trick or treating, Clay & Glass Festival and Taste of Royal Oak, Royal Oak in Bloom (flower and plant sale), and numerous themed shopping events. The events, big or small, draw tens of thousands of visitors to downtown Royal Oak each year.
In 2018, Royal Oak will host the annual Arts, Beats, and Eats Festival for the ninth consecutive year. Arts, Beats, and Eats is an arts, music, and food festival held in downtown Royal Oak. It includes a juried fine arts show, cuisine from local restaurants, and more than 200 musical performances on 10 stages. The event attracts between 300,000 and 450,000 people to downtown Royal Oak over the Labor Day weekend to celebrate local cuisine, art and culture.
In addition to events held in downtown, the City sponsors the Outdoor Art Fair at Memorial Park every summer. Every third Saturday in August, Memorial Park and the nearby 13 Mile Road and Woodward Avenue intersection transform into the epicenter of the Woodward Dream Cruise. The Woodward Dream Cruise is the world’s largest one-day car event. The event stretches along Woodward Avenue from 8 Mile Road to downtown Pontiac and draws over 1 million spectators to celebrate the regions automotive heritage. Classic car visitors pour millions of dollars into the region’s economy during the event. Many Royal Oak businesses are a significant recipient of the economic impact of this event.
The city maintains a cooperative relationship with the Detroit Zoological Society. The zoo is located in the southwestern corner of the City at the intersection of Interstate 696 and Woodward Avenue. The zoo attracts thousands of visitors to businesses in the City every year. The zoo remains the State’s number one tourist destination. In 2016, it opened its new $21 million penguin conservation center, which redefined “state of the art” for penguin exhibits around the world. In 2017, the Zoo had over 1.5 million visitors.
The city’s recreational services include over 50 public parks, 30 baseball fields, an ice arena, public and private golf courses, a mini-course and driving range, 34 tennis courts and an indoor soccer facility. The Senior / Community Center provides recreational and outreach services to senior citizens and programs and classes for adults and children alike. Currently in the planning stages is a new 40 acre park at the former Normandy Oaks golf course, which will feature soccer fields, walking trails, and a splash pad, and a new downtown park.
All of the above activities have served as stimulus to additional residential and commercial development in the City of Royal Oak. Each help make the City an attractive and viable community for residents and visitors.
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Education The Royal Oak School District and six parochial schools educate the primary and secondary students in Royal Oak. Downtown Royal Oak is home to one of five main campuses in the Oakland Community College system. This significant campus has four buildings grouped around a full-service library, all under one roof with a two-story, center mall. The campus offers associates degrees in arts and sciences and over fifty career certificates. The campus is located on public transportation routes, close to Interstate 696 and Woodward Avenue, and provides its students with convenient parking structure located directly across the street. The OCC-Royal Oak campus is an important part of vibrant day time street life in downtown Royal Oak.
There are many institutions of higher learning in southeast Michigan that provide a trained workforce to communities like Royal Oak. These include the University of Michigan in Ann Arbor, Oakland University in Rochester, Wayne State University in Detroit, Lawrence Technological University in neighboring Southfield, and Eastern Michigan University in Ypsilanti and Eastern Michigan University in Ypsilanti.
Medical Services The City is home to the flagship hospital and campus of the Beaumont Health. Beaumont Health, a not-for-profit organization, was created in a 2014 industry merger of Beaumont Health System, Oakwood Healthcare, and Botsford Health Care. The Royal Oak campus is greater than 100 acres and is located on 13 Mile Road just west of Woodward Avenue. Beaumont Hospital - Royal Oak is a 1,070-bed tertiary facility offering comprehensive inpatient and outpatient health care services. The campus is recognized for its wide range of specialties. In 2015, U. S. New and World Report recognized Beaumont Hospital – Royal Oak as the top regional hospital in Metropolitan Detroit and the second highest regional hospital in Michigan. It also ranked Beaumont Hospital – Royal Oak nationally in 9 adult specialties.
In September 2004, the campus opened its eight level, 656,000 square foot South Tower addition. At the time of construction, the South Tower addition was the most expensive project under construction in the entire State of Michigan. The campus now employs over 7,000 health care professionals in state-of-the-art facilities. Beaumont Health is not only the City’s largest employer, but is also the largest employer in Oakland County.
Beaumont Health’s Royal Oak campus continues to experience reinvestment and expansion. In 2014, it’s $22 million Neuroscience Center opened to assist patients. The 3- story, 80,000 square foot building offers 11 hospital-based clinics specializing in neurological conditions. The final beam has been put into place on its $40 million Proton Therapy Center, the first single-room proton treatment facility in Michigan. The 2-story, 25,200 square foot facility is expected to begin assisting patients in Spring 2017. Its new $121 million Emergency Center addition is under construction and expected to be complete in Spring 2017. It will feature 125 private rooms and nearly double the size of the existing emergency facility to nearly 125,300 square feet.
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Transportation The City of Royal Oak is located along metropolitan Detroit’s historic Woodward Avenue (M-1). It is flanked by I-696 on the south and I-75 on the east, providing excellent highway access for residents and visitors alike. Royal Oak also has access to public transportation, air travel, and is continuing to implement additional pedestrian-friendly measures via its newly created Non-Motorized Transportation Plan.
Woodward Avenue’s 27 mile stretch of roadway, which parallels the original railroad connecting Detroit to Pontiac, is an important part of the history of Detroit and arguably the world. It continues to be an important focal point for Royal Oak and all of metropolitan Detroit. The City is primarily laid out on a grid like street pattern with one half mile intervals. The City of Royal Oak extends along Woodward Avenue from 10 Mile Road to 14 Mile Road. Historic Woodward Avenue provides access to the network of City streets in addition to being the City’s largest, contiguous commercial corridor. With a total of nearly 70,000 vehicles per day, Woodward Avenue is the lifeblood of Royal Oak and southeast Oakland County.
In 1956, the opening of Interstate 75 provided a new means of transportation to access the City of Royal Oak. Located along the City’s eastern boundary, I-75 provides north / south access to the City for residents and visitors. Opened in 1989, Interstate 696 provides continuous east / west access to metropolitan Detroit. Interstates 75 and 696 intersect at the City of Royal Oak’s southern border. Both interstates are among the most heavily traveled freeways in all of metropolitan Detroit. Since the completion of the freeway’s intersection, the City has become easily accessible from any location in the region. One of the City’s greatest economic assets continues to be its central location in the metropolitan region and its accessibility via major roadways, Woodward Avenue and Interstates 75 and 696.
SMART, Detroit’s regional transportation agency provides bus service along Woodward Avenue and other major thoroughfares in the City and surrounding communities. Public transportation provides an important means of delivering access to employment, shopping, education, health care and cultural opportunities for citizens of metropolitan Detroit. The City of Royal Oak also provides door-to-door transportation service for its elderly and permanent disabled citizens.
The reemergence of communities along Woodward Avenue, known as the “Woodward Corridor”, as desirable places to live, work and recreate has sparked the interest of mass transit activists. Royal Oak continues to meet and collaborate with other Woodward Corridor communities to research potential alternative forms of public transportation and redevelopment incentives to encourage transit-oriented development along Woodward Avenue.
Downtown Royal Oak is one of only four metropolitan Detroit locations to board AMTRAK for long distance passenger train service. AMTRAK service connects Royal Oak to Midwest metropolitan centers such as Chicago, Cleveland, Toledo, and beyond.
Passenger and general aviation service is available at nearby locations. Detroit Metropolitan Airport, one the nation’s busy terminals, is located only 30 miles southwest of
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the City. Detroit City Airport is located only 16 miles southeast of the City. Oakland County International Airport is located 19 miles northwest of the City and accessible via Woodward Avenue. Transportation services are available to and from all three regional airports.
Many people choose to live and visit Royal Oak because of the pedestrian scale of the City. The primary means of providing non-motorized transportation are traditional City sidewalks. Nearly every corner of the City is accessible via a public sidewalk that is diligently maintained. However, the City continues to improve its pedestrian-friendly nature through the implementation of policies established in its Non-Motorized Transportation Plan which aims to create “complete streets” in Royal Oak. Complete streets are those that are accessible to pedestrians, bicyclists, and motorists alike.
Banking Services
Banking services are provided at a variety of branch locations for the following lending institutions: Comerica Bank, Chase, Bank of America, Charter One Bank, Citizens Bank, Fifth Third Bank, Flagstar Bank, PNC Bank, TCF Bank, Michigan Education Credit Union, OUR Credit Union, and Community Choice Credit Union.
Utilities
Electricity is supplied to the City by DTE Energy Company, natural gas by Consumers Power Company, and telephone service by AT&T. The City operates its own water distribution system and purchases water from the South Oakland County Water Authority. The City also operates its own sewage collection and transmission system and purchases sewage treatment through Oakland County.
Building Permits
The following is the value of building permits issued by the City during the past five calendar years.
2017 2016 2015 2014 2013 Commercial/Other 387 382 300 203 176 Number of Permits Estimated Value $60,244,010 $85,395,264 $68,500,000 $47,600,000 $23,565,000
Residential 2,006 1,928 1,725 1,679 1,674 Number of Permits
Estimated Construction Value $61,523,865 $63,483,965 $69,941,000 $62,476,000 $59,876,000
Total Number of Permits 2,393 2,194 2,374 2,030 1,779 Estimated Construction Value $121,767,875 $167,991,000 $77,778,000 $51,609,000 $70,480,000
SOURCE: City of Royal Oak
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Ten Largest Employers (1) Number Largest Employers Product/Service Employed William Beaumont Hospital Hospital 13,298 City of Royal Oak Municipality 507 Royal Oak School District Education 462 Detroit Zoological Society Zoo 413 Consumers Energy Utility 374 Flex-N-Gate Royal Oak Automotive Supplier 355 Comau, LLC Manufacturer 315 Holiday Market Grocery Store 308 The Kroger Company Grocery Store 291 Meijer, Inc Retailer/Grocery Store 251 Total 16,574
(1) As of June 30, 2017. ______SOURCE: City of Royal Oak
Ten Largest Ad-Valorem Taxpayers (1) 2017 Total % of 2017 Taxable Total Taxable Largest Taxpayers Valuation Valuation Consumers Energy $27,932,140 1.14% DTE Electrical Company 24,519,980 1.00 WM Beaumont Hospital 9,567,600 0.35 Meijer, Inc. 8,524,140 0.39 Comcast 7,905,060 0.32 The Kroger Company 6,776,130 0.28 H2 Royal Oak, LLC 6,220,910 0.25 Garber Family Partnership 6,003,790 0.25 Woodland Gardens 5,660,270 0.23 Alidade Main North LLC 5,107,330 0.21 Total $108,217,350 4.43%
(1) As of June 30, 2017.
SOURCE: City of Royal Oak
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Summary of General Housing Characteristics
There are 28,329 housing units located within the City of Royal Oak according to the 2010 U.S. Census of Population and Housing, of which 71% are year-round homes, 29% are rental properties. A breakdown of the dwelling units is as follows:
Number of Units Total Occupied Units 28,329 Owner Occupied Housing Units 20,119 Renter Occupied Housing Units 8,210
The estimated value of owner occupied housing units is as follows:
Less than $50,000 563 $50,000 to $99,000 1,360 $100,000 to $149,999 4,105 $150,000 to $199,999 6,938 $200,000 to $299,999 5,109 $300,000 to $499,999 1,680 $500,000 or more 362 ______SOURCE: U.S. Department of Commerce – Bureau of Census
The following tables reflect the 2006-2010 American Community Survey (ACS) 5- Year Estimates, breakdown of employment by category for the City of Royal Oak and the State of Michigan as of the 2010 U.S. Census.
City of Royal Oak State of Michigan Number % of Number % of of Total of Total Occupation Workers Workers Workers Workers Management, Professional, and Related Occupations 17,072 50.6% 1,466,434 33.5% Service Occupations 4,053 12.0 784,602 18.0 Sales and Office Occupations 8,478 25.0 1,097,121 25.1 Natural Resources, Construction, Extraction and Maintenance Occupations 1,379 4.1 362,561 8.3 Production, Transportation, and Material Moving Occupations 2,869 8.3 659,067 15.1 Total 33,671 100.0% 4,369,785 100.0%
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The following table reflects employment by major industry groups for the City of Royal Oak residents and the State of Michigan in the 2010 U.S. Census:
City of Royal Oak State of Michigan Number % of Number % of of Total of Total Industry Workers Workers Workers Workers Agriculture, Forestry, Fishing, Hunting and Mining 31 0.1% 54,946 1.3% Construction 932 2.8 230,365 5.3 Manufacturing 5,231 15.5 770,715 17.6 Wholesale Trade 1,129 3.4 122,318 2.8 Retail Trade 3,405 10.1 507,530 11.6 Transportation, Warehousing and Utilities 683 2.0 181,648 4.2 Information 948 2.8 82,395 1.9 Finance, Insurance, Real Estate, and Rental and Leasing 3,370 10.0 250,855 5.7 Professional Services 5,495 16.3 383,626 8.9 Educational, Health and Social Services 7,837 23.3 1,012,153 23.2 Arts, Entertainment, Recreation, Accommodation and Food Services 2,453 7.3 397,267 9.0 Other Services 1,231 3.6 206,152 4.7 Public Administration 928 2.8 164,815 3.8 Total 33,671 100.0% 4,369,785 100.0%
______SOURCE: U.S. Department of Commerce-Bureau of Census
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Employment Rates
Reflected below are the unadjusted employment data for the calendar years 2012 through 2017 for the City, County and the State.
City of Royal Oak (1)
2012 2013 2014 2015 2016 2017 Employed 30,903 32,313 32,257 35,833 37,033 40,142 Unemployed 2,219 1,803 1,698 1,108 1,106 1,499 Labor Force 33,122 34,121 33,955 36,941 38,139 41,641 Unemployed as % of Labor Force 6.7% 5.3% 5.0% 3.0% 2.9% 3.6%
Oakland County (1)
2012 2013 2014 2015 2016 2017 Employed 565,454 577,967 588,920 603,395 616,802 620,699 Unemployed 50,751 48,816 40,945 30,145 27,843 27,402 Labor Force\ 616,205 626,783 629,865 633,540 644,645 648,101 Unemployed as % of Labor Force 8.2% 7.8% 6.5% 4.8% 4.3% 4.2%
State of Michigan (1)
2012 2013 2014 2015 2016 2017 Employed 4,184 4,346 4,432 4,518 4,615 4,680 Unemployed 517 414 380 288 223 185 Labor Force 4,701 4,760 4,812 4,806 4,838 4,865 Unemployed as % of Labor Force 11.0% 8.7% 7.9% 6.0% 4.6% 3.8%
(1) Numbers may not compute due to rounding. State numbers are in thousands. ______SOURCE: Michigan Department of Labor and Economic Growth, Labor Market Analysis Section and U.S. Department of Labor Bureau of Labor Statistics.
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APPENDIX B
Audited Financial Statements of the City for the Fiscal Year Ended June 30, 2017
The City’s audited financial statements for Fiscal Years 2016 and 2015 may be found at the following links, respectively: https://www.romi.gov/Archive.aspx?ADID=625 and https://www.romi.gov/Archive.aspx?ADID=133
[THIS PAGE INTENTIONALLY LEFT BLANK] City of Royal Oak, Michigan
Comprehensive Year Ended Annual
B-1 June 30, 2017 Financial Report
City Commission Mayor Michael Fournier
Mayor Pro Tem Sharlan Douglas
Commissioners Marie Donigan Kyle Dubuc Jeremy Mahrle Pat Paruch David Poulton Administration City Manager Donald E. Johnson
Director of Finance Assistant Finance Director/Controller Julie Rudd Anthony C. DeCamp
Prepared by the Finance Department CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Table of Contents Table of Contents
Page Page INTRODUCTORY SECTION Required Supplementary Information Employees' Retirement System 100 Letter of Transmittal 1 Other Postemployment Benefits Plan 104 GFOA Certificate of Achievement 7 Organization Chart 8 Combining and Individual Fund Financial Statements and Schedules List of Principal Officials 9 Nonmajor Governmental Funds: Combining Balance Sheet – Nonmajor Governmental Funds 110 FINANCIAL SECTION Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Governmental Funds 114 Independent Auditors’ Report 13 Schedule of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual: Management’s Discussion and Analysis 18 Major Streets Fund 117 Local Streets Fund 118 Basic Financial Statements Publicity Fund 119 Government-wide Financial Statements: Senior Citizens Program Fund 120 Statement of Net Position 31 Library Millage Fund 121 Statement of Activities 32 State Construction Code Fund 122 Fund Financial Statements: ROOTS Fund 123 Balance Sheet – Governmental Funds 34 Grants Fund 124
B-2 Reconciliation of Fund Balances of Governmental Funds Nonmajor Enterprise Funds: to Net Position of Governmental Activities 37 Combining Statement of Net Position - Nonmajor Enterprise Funds 125 Statement of Revenues, Expenditures and Changes in Fund Balances – Combining Statement of Revenues, Expenses and Changes in Fund Net Position - Governmental Funds 38 Nonmajor Enterprise Funds 127 Reconciliation of Net Changes in Fund Balances of Governmental Funds Combining Statement of Cash Flows - Nonmajor Enterprise Funds 128 to Change in Net Position of Governmental Activities 41 Internal Service Funds: Statement of Revenues, Expenditures and Changes in Combining Statement of Net Position – Internal Service Funds 130 Fund Balance - Budget and Actual: Combining Statement of Revenues, Expenses and Changes in Fund Net General Fund 42 Position – Internal Service Funds 131 Public Safety Fund 43 Combining Statement of Cash Flows – Internal Service Funds 132 Solid Waste Fund 44 Agency Funds: Community Development Block Grant Fund 45 Combining Statement of Fiduciary Assets and Liabilities – Agency Funds 135 Statement of Net Position – Proprietary Funds 46 Combining Statement of Changes in Assets and Liabilities – Agency Funds 136 Reconciliation of Net Position of Enterprise Funds to Net Position of Business-type Activities 47 Statement of Revenues, Expenses and Changes in Fund Net Position – Proprietary Funds 48 Reconciliation of Changes in Net Position of Enterprise Funds to Change in Net Position of Business-type Activities 49 Statement of Cash Flows – Proprietary Funds 50 Statement of Fiduciary Net Position 52 Statement of Changes in Fiduciary Net Position 53 Combining Statement of Net Position – Discretely Presented Component Units 54 Combining Statement of Activities – Discretely Presented Component Units 55 Notes to Financial Statements 58 CITY OF ROYAL OAK, MICHIGAN
Table of Contents
Page Component Units: Balance Sheets - Component Units 138 Reconciliation of Fund Balances of Governmental Funds to Net Position of Governmental Activities - Component Units 139 Statements of Revenues, Expenditures and Changes in Fund Balances - Component Units 140 Reconciliation of Net Changes in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities - Component Units 141 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual: Tax Incremental Financing Authority 142 Downtown Development Authority 143 Brownfield Redevelopment Authority 144
STATISTICAL SECTION (UNAUDITED)
Description of Statistical Section 147 Financial Trends: Net Position by Component 148 B-3 Changes in Net Position 150 Fund Balances - Governmental Funds 154 Changes in Fund Balances - Governmental Funds 156 Revenue Capacity: Assessed Value and Actual Value of Taxable Property 158 Property Tax Rates - Direct and Overlapping 160 Principal Property Taxpayers 162 Property Tax Levies and Collections 163 Debt Capacity: Ratios of Outstanding Debt 164 Ratios of General Bonded Debt Outstanding 166 Direct and Overlapping Governmental Activities Debt 169 Computation of Legal Debt Margin 170 Pledged Revenue Coverage 173 Demographic and Economic Information: Demographic Statistics 174 Principal Employers 176 Operating Information: Capital Asset Statistics by Function/Program 177 Operating Indicators by Function/Program 178 Authorized Full-time Employees by Function/Program 182
INTRODUCTORY SECTION B-4 Finance Department The commercial character of the city is very diverse, ranging from turn of the century retail buildings 211 South Williams Street located in downtown to modern shopping plazas along Woodward Avenue. Commercial development Royal Oak, MI 48067 in the city’s one square mile downtown is geared toward a pedestrian friendly, community oriented shopping experience and more recently office space. City parking lots and structures provide visitors with a user friendly centralized parking system.
The city offers a variety of recreational and cultural activities, which enhances the quality of life for residents and also attracts large numbers of visitors. Royal Oak has worked rigorously to earn a December 5, 2017 reputation for being an entertainment destination for all of southeast Michigan, with an eclectic blend of restaurants, retail storefronts, theatres, galleries and festival-like events. Downtown Royal Honorable Mayor, Commissioners, residents and employees of the City of Royal Oak: Oak also boasts the city owned farmer’s market. The market is a source of great community pride and history. In accordance with accounting principles generally accepted in the United States, the administration is submitting the Comprehensive Annual Financial Report (CAFR) of the City of Royal Oak, Michigan Royal Oak is host to many annual community art fairs and special events including weekly summer for the fiscal year ended June 30, 2017. The City of Royal Oak Charter and State statute require that concerts and the Woodward Dream Cruise (the world’s largest one day car event). For the eight the City of Royal Oak issue a report annually, within six months of the close of each fiscal year, on its year, the city hosted the annual Arts, Beats & Eats festival during Labor Day weekend, attracting financial position and activity, and that this report be audited by an independent firm of licensed hundreds of thousands of visitors. certified public accountants. The city’s recreational services include over 50 public neighborhood parks, 30 baseball fields, a Responsibility for both the accuracy of the data and the completeness and fairness of the public ice arena, public and private golf courses, a mini-course and driving range, 34 tennis courts presentation, including all disclosures, rests with city’s management. City management has and an indoor soccer facility. The senior / community center provides recreational and outreach established a balanced internal control framework that is designed both to protect the government’s services to senior citizens and programs and classes for adults and children alike. assets from theft, misuse, and loss and to accumulate sufficient reliable information for the preparation of the city’s financial statements in compliance with GAAP (Generally Accepted All of the above activities have served to retain better residential and commercial property values in Accounting Principles). Due to the understanding that the cost of internal controls should not the City of Royal Oak relative to the county average. The amenities help to make the city “a dynamic B-5 outweigh the benefit, the city’s internal control methods have been designed to provide reasonable balance of progressive vision and traditional values, offering an inviting, premiere and diverse assurance that the financial statements are free from material misstatements. To the best of our community for all” (city’s vision statement). knowledge and belief, the enclosed information is accurate in all material respects and is reported in a manner that fairly presents the financial position and results of operations of the various funds and Government component units of the City of Royal Oak. Royal Oak was organized as a township in 1832, as a village in 1891 and incorporated as a home rule The financial statements and supplemental schedules contained in the financial section herein have city in 1921 under the Home Rule Cities Act, being Act 279, Public Acts of Michigan of 1909, as been independently audited by Rehmann, Certified Public Accountants. The city has received an amended (the "Home Rule Cities Act"). The city operates under the council-manager form of unmodified opinion for the June 30, 2017 fiscal year’s statements. An unmodified opinion is the most government, but we call our “council” the “city commission.” The mayor and six commissioners are favorable opinion that can be issued. The auditor’s opinion does not encompass information in the elected on a non-partisan, at-large basis. The mayor is elected for a two-year term and the introductory or the statistical sections of this report. The independent auditor’s report is located commissioners serve for four-year staggered terms. The mayor is a voting member of the city prior to the MD&A (Management Discussion & Analysis) letter. commission and serves as its chairperson. The city manager, city clerk and city attorney are appointed by the commission for indefinite terms and serve at the pleasure of the commission. The Profile of the City of Royal Oak city manager is the chief administrative officer of the city and is responsible for the day to-day operation of all departments except the city attorney’s office and the city clerk’s office. The City of Royal Oak is a metropolitan Detroit suburb located in southeastern Oakland County, Michigan. The approximately 12 square mile community is located ten miles north of downtown Royal Oak is a full service city providing a wide range of services including police and fire protection, Detroit. Royal Oak’s history dates back to the extension of the railroad line from Detroit to Pontiac. construction and maintenance of streets and underground infrastructure, planning and zoning, Since the 1990's, the city has experienced resurgence as a regional entertainment destination, building inspection, and library services. In addition, the city operates water/sewer utilities, an dynamic place to live and meeting grounds for creative minds. Today, it is estimated that Royal Oak automobile parking system, recreation programs, a farmer’s market, and an ice arena as enterprise is home to approximately 59,000 residents. funds which are self supporting.
1 2 Local Economy and Demographics Fiscal Highlights
The City of Royal Oak is a mature and mostly developed community experiencing redevelopment. The city prepared a detailed budget with a four year projection to assist with the financial planning. New development is very strong this decade emphasizing in-fill and redevelopment of business The long-term financial planning that is included in Royal Oak’s budget makes general financial buildings and houses. The number of building permits issued increased slightly (4.5 percent). Building estimations by projecting the current year's budget. For each fund, a summary table shows beginning permit revenue decreased 35 percent due to a 20 percent decrease in permit rates and elimination of fund balance, estimated projected revenue, estimated projected expenditures, projected transfers, the administration fees however revenue has increased by 159 percent since the recent low in fiscal and projected ending fund balance for each of the immediate future four years. For accuracy year 2011. purpose, the FY17-18 budget was prepared less conservative than in prior years in an effort to be more accurate. The fiscal year 2017 ending general fund unassigned fund balance increased by $6.8 The city’s assessed taxable value percentage shifted slightly (0.5 percent) from industrial to million as opposed to a use of fund balance of $2.5 million originally budgeted due to the lookback of residential. For the fiscal year 2016-17, residential property is 77.5 percent of the city's assessed $6.8 million from the internal (self-insurance) funds and reversing the assignment of the OPEB taxable value, 16 percent commercial property, 1.5 percent industrial and 5 percent personal contribution recovery as this was bonded instead. The year ended with a general fund fund balance property. Currently, the industrial, commercial and residential values have vacant parcel values of $23.6 million or 52 percent of expenditures when combined with the public safety fund. However, included in these percentages. The city's office and retail vacancy rates are among the lowest in approximately $11 million is anticpated to be utilized for the Royal Oak civic center project in FY17- southeast Michigan at 5 percent and 2.2 percent respectively. In comparison, metro Detroit's office 18 which would lower fund balance to approximately 27 percent. The city combines the general vacancy rate is 10.7 percent and its retail vacancy rate is 6.2 percent. Over forty creative and fund and public safety fund when considering fund balance due to the public safety fund receiving a technology companies have located to Royal Oak since 2010, including Hulu's Detroit office, significant amount of its revenue from the general fund. The city issued $126.6 million of Vectorform, Crowdrise and Tome. There are currently three office projects in the works for OPEB/pension bonds leaving an unfunded liability of $61.6 million for the police and fire pension downtown Royal Oak that will add over 200,000 square-feet of new Class A office space and over plan. Ten year road improvement ballot language was approved by the voters in November of 2014 $100 million in private investment, in addition to the $47 million Hyatt Place Hotel currently under and currently generates $5.7 million. In September 2017, the city issued $8.5 million road bonds to construction. On Woodward Avenue near Beaumont Hospital, construction is about to begin on a $32 move up the timing of the construction schedule. These bonds will be paid off over the balance of million mixed use shopping center. the term of the 10 year millage.
Transportation opportunities are excellent in Royal Oak. Interstate 75 and 696 highways on the Long-term Financial Planning borders provide easy regional access north-south and east-west respectively. Woodward Avenue, a B-6 four-lane north-south corridor from the center of Detroit to the burgeoning northwest suburbs, offers Not only did the city prepare a four year projection during the budget preparation process, for a retail and services to the automobile shopper. Our flourishing, pedestrian-friendly downtown offers seventh year, the city administration prepared a comprehensive six-year capital improvement plan high rise loft living, clothing, restaurants and the arts to young and old. In recent years, the city has (CIP)again. The CIP was unanimously adopted by the planning commission prior to the end of the worked to incorporate sharrow (bike share lanes) on numerous major roads within the city. fiscal year budget process. Information from the capital improvement plan is also included in the budget projection. The CIP includes all of the capital projects and reports the potential sources of Households in Royal Oak have an annual medium income of approximately $65,780, which is higher funding by project for the next six years totaling nearly $140 million of city share of capital costs. than the median annual income of the United States, the State of Michigan and Southeast Oakland Due in part to the CIP process, it was identified that the city needed to develop a new strategy to County. Royal Oak’s unemployment rate for July was 2.0 percent, which compares favorably to the fund the six-year major and local street reconstruction demands and helps to coordinate water utility State's unemployment rate of 3.7 percent for the same period and represents a decrease of nearly a projects. The city commission conducts strategic planning sessions each year prior to the percentage point from last year. administration's budget preparation. Four years ago the strategic planning session identified street funding and legacy cost resolutions as major objectives to address in upcoming fiscal years. A millage ballot proposal of 2.5 mills was put on the November 4, 2014 election by the city commission. This ballot proposal was passed by voters in response to the road funding problem. Approximately $36.7 million for local road projects and $12.6 million for major road projects are in the latest CIP. In January 2017, OPEB and pension bonds were sold in the amount of $126.5 million at a rate of 4.05 percent in an effort to address 100 percent of the general employees unfunded pension and 100 percent of the police/fire/general employees unfunded retiree healthcare costs. The police and fire pension system is still open and funded at less than sixty percent and the city continues to contribute the annual required contribution.
3 4 Financial Policies Federal Grants
The city commission has financial policies covering attrition, capital assets, capital improvement The city received approximately $874,000 in federal grant revenue, mostly for the Community projects, debt management, fund balance, investments and retirement contributions. More recently Development Block Grant which is a significant decrease from prior years. the city commission adopted a new fund balance for the state construction code fund in an effort to stabilize the fund during economic downturns. The policy provides the City will maintain a state Management Discussion and Analysis. Generally accepted accounting standards require that construction code fund balance not less than 50% of budgeted expenditures but no more than 150%. management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of the MD&A letter. Internal Controls This letter of transmittal is designed to compliment and not to repeat, the MD&A and should be read Management of the city is responsible for establishing and maintaining internal controls designed to in conjunction with it. The city’s MD&A letter can be found immediately following the report of the provide reasonable assurance that the assets of the city are protected from loss, theft or misuse and independent auditor. to ensure that adequate accounting data is compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principals (GAAP). The internal control Awards and Acknowledgements is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits The Government Finance Officers Association of the United States and Canada (GFOA) awarded a likely to be derived and the valuation of costs and benefits requires estimates and judgments by Certificate of Achievement for Excellence in Financial Reporting to the City of Royal Oak for its management. Three years ago the city hired a purchasing agent position, which has helped to comprehensive annual financial report for the fiscal year ended June 30, 2016. In order to be improve asset protection and vendor entry to the financial system for improved separation of duties. awarded a Certificate of Achievement, a government must publish an easily readable and efficiently Last year the treasury department added a full-time accountant in an effort to improve upon organized comprehensive annual financial report. This report must satisfy both generally accepted separation of duties in response to years of auditors comments for improvement. accounting principles and applicable legal requirements.
All internal control evaluations occur within the above framework. We believe the city’s internal A Certificate of Achievement is valid for a period of one year only. We believe that our current accounting controls adequately safeguard assets and provide reasonable assurance of proper comprehensive annual financial report continues to meet the Certificate of Achievement Program’s recording of financial transactions. requirements and hope to receive the award for fiscal year ended June 30, 2017. We hope this B-7 comprehensive report assists its readers in understanding the city’s financial status. Budgeting Controls The preparation of this report was made possible with the dedicated assistance from Anthony The object of budgetary controls is to ensure compliance with legal provisions embodied in the city DeCamp, the city’s assistant finance director/controller, and the balance of the finance department commission’s approved budget and State requirements. staff.
Activities of the general fund and special revenue funds are included in the appropriation act adopted Respectfully submitted, Approved, prior to each fiscal year. The level of budgetary control (that is, the level at which expenditures cannot legally exceed the appropriated amount) is established by activity level in the general fund and by total fund for the special revenue funds. All of the funds’ budgets are reviewed for budget to actual variances on a monthly basis. Julie Rudd Donald E. Johnson Director of Finance City Manager Since the implementation of a new integrated financial management system in 2011, we have provided better financial information for managerial purposes and improved potential for budgetary control which includes executing some point of sale revenue recording (as opposed to monthly), easy “drill-down” capability for detail on all general ledger accounts, and increased use of encumbrance accounting.
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7 CITY OF ROYAL OAK, MICHIGAN Organization Chart As of June 30, 2017
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B-9 CITY OF ROYAL OAK, MICHIGAN Principal Officials As of June 30, 2017
City Manager Donald E. Johnson City Attorney David Gillam Director of Finance Julie Rudd Building Official Jason R. Craig City Assessor James M. Geiermann City Clerk Melanie Halas City Engineer Matt Callahan City Treasurer Sekar Bawa Assistant Finance Director/Controller Anthony C. DeCamp Court Administrator Gary Dodge Director of Community Development Timothy E. Thwing Director of Recreation and Public Services Gregory J. Rassel Fire Chief David Cummins Director of Human Resources Dennis Van de Laar Director of the Library Mary Karshner Manager of Information Systems Mike Kirby Police Chief Corrigan O'Donohue Superintendent of Recreation Tod A. Gazetti B-10
9 10 FINANCIAL SECTION B-11
11 12 Rehmann Robson
675 Robinson Rd. Jackson, MI 49203 Ph: 517.787.6503 Fx: 517.788.8111 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for rehmann.com our audit opinions.
Opinions INDEPENDENT AUDITORS' REPORT In our opinion, the financial statements referred to previously present fairly, in all material respects, December 5, 2017 the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Royal Oak, Michigan, as of June 30, 2017, and the respective changes in Honorable Mayor and City Commission financial position and, where applicable, cash flows thereof and the respective budgetary comparison Royal Oak, Michigan for the general fund and each major special revenue fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. Report on the Financial Statements Implementation of GASB Statement No. 75 We have audited the accompanying financial statements of the governmental activities, the business- type activities, the aggregate discretely presented component units, each major fund, and the As described in Note 18, the City implemented the provisions of GASB Statement No. 75, Accounting and aggregate remaining fund information of the City of Royal Oak, Michigan (the “City”), as of and for Financial Reporting for Postemployment Benefits Other Than Pensions, in the current year. the year ended June 30, 2017, and the related notes to the financial statements, which collectively Accordingly, beginning net position of the governmental activities, the business-type activities, water comprise the City’s basic financial statements as listed in the table of contents. and sewer enterprise fund, automobile parking enterprise fund, nonmajor enterprise funds, internal service funds, and the aggregate discretely presented component units were restated. Our opinion is not Management's Responsibility for the Financial Statements modified with respect to this matter.
Required Supplementary Information B-12 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 Accounting principles generally accepted in the United States of America require that the presentation of financial statements that are free from material misstatement, whether due to fraud or management’s discussion and analysis and the schedules for the pension and other postemployment error. benefit plans, listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Independent Auditors' Responsibility 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 Our responsibility is to express opinions on these financial statements based on our audit. We historical context. We have applied certain limited procedures to the required supplementary conducted our audit in accordance with auditing standards generally accepted in the United States of information in accordance with auditing standards generally accepted in the United States of America, America and the standards applicable to financial audits contained in Government Auditing Standards, which consisted of inquiries of management about the methods of preparing the information and issued by the Comptroller General of the United States. Those standards require that we plan and comparing the information for consistency with management’s responses to our inquiries, the basic perform the audit to obtain reasonable assurance about whether the financial statements are free from financial statements, and other knowledge we obtained during our audit of the basic financial material misstatement. 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 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in assurance. the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or Other Information 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 Our audit was conducted for the purpose of forming opinions on the financial statements that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the collectively comprise the City’s basic financial statements. The combining and individual fund financial effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also statements and schedules and the introductory and statistical sections are presented for purposes of includes evaluating the appropriateness of accounting policies used and the reasonableness of additional analysis and are not a required part of the basic financial statements. significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
Rehmann is an independent member of Nexia International.
CPAs & Consultants Wealth Advisors Corporate Investigators 13 14 The combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relate 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 financial statements and schedules are fairly stated, in all material respects, in relation to the basic financial statements 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, under separate cover, our report dated December 5, 2017, on our consideration of the City of Royal Oak, Michigan’s internal control over financial reporting and 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 the internal control over financial reporting or
B-13 on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control over financial reporting and compliance.
15 16 CITY OF ROYAL OAK, MICHIGAN
Management's Discussion and Analysis
As management of the City of Royal Oak, we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2017. We encourage readers to consider the information presented here in conjunction with additional information that is furnished in the financial statements and notes to the financial statements.
Financial Highlights
· Total net position $ 161,984,577 · Change in total net position 20,877,702 · Fund balances, governmental funds 45,749,207 · Change in fund balances, governmental funds 3,288,857 · Unassigned fund balance, general fund 21,321,516 · Change in fund balance, general fund 4,461,027 · Installment debt outstanding 181,605,234 · Change in installment debt 134,353,370
Overview of the Financial Statements MANAGEMENT'S DISCUSSION AND ANALYSIS This discussion and analysis is intended to serve as an introduction to the City's basic financial statements. The City’s basic financial statements comprise 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 B-14 a broad overview of the City’s finances, in a manner similar to a private-sector business.
The statement of net position presents information on all of the City’s assets, deferred outflows of resources, liabilities, and deferred inflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating.
The statement of activities presents information showing how the government’s net position changed during the most recent fiscal 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 fiscal periods (e.g., earned but unused vacation leave).
Both of the government-wide financial statements distinguish functions of the City 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 of the City include general government, public safety, public works, health and welfare, community and economic development, and recreation and culture. The business-type activities of the City include a water and sewer system, an automobile parking system, recreation activities, and a farmers’ market.
The government-wide financial statements include, not only the City itself (known as the primary government), but also a legally separate tax increment financing authority, a legally separate downtown development authority and a legally separate brownfield redevelopment authority for which the City is financially accountable. Financial information for these component units is reported separately from the financial information presented for the primary government itself. The City of Royal Oak Building Authority, although also legally separate, functions for all practical purposes as a department of the City, and therefore its activities have been included as an integral part of the primary government of the City.
17 18 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Management's Discussion and Analysis Management's Discussion and Analysis
Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that Proprietary funds provide the same type of information as the government-wide financial statements, only in more have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund detail. The proprietary fund financial statements provide separate information for the water and sewer operations and accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City its automobile parking system operations, both of which are considered to be major funds of the City. Conversely, all can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds is provided in the form of combining statements elsewhere in this Governmental funds. Governmental funds are used to account for essentially the same functions reported as report. governmental activities in government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of evaluating a government’s near-term financing requirements. 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. 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 Notes to Financial Statements. The notes provide additional information that is essential to a full understanding of the activities in the government-wide financial statements. By doing so, readers may better understand the long-term data provided in the government-wide and fund financial statements. impact of the government’s near-term financing decisions. Both the governmental funds balance sheet and the governmental funds statement of revenues, expenditures, and changes in fund balances provide a reconciliation to Other Information. In addition to the basic financial statements and accompanying notes, this report also presents facilitate this comparison between governmental funds and governmental activities. certain required supplementary information concerning the City’s progress in funding its obligation to provide pension and other postemployment benefits (OPEB) to its employees. The City maintains numerous individual governmental funds. Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures, and changes in fund balances The combining statements referred to earlier in connection with nonmajor governmental funds, nonmajor enterprise for the general fund and four other major funds: public safety, solid waste, community development block grant, and funds, internal service funds and agency funds are presented immediately following the required supplementary City capital projects. Data from the nonmajor governmental funds are combined into a single, aggregated presentation. information on pensions and OPEB. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements following the required supplementary information. The City’s discretely presented component units do not issue separate financial statements; therefore, the component
B-15 units’ fund financial statements have been included in this report. The City adopts an annual budget in accordance with the General Appropriation Act for its general fund and special revenue funds. Budgetary comparison statements or schedules have been provided for these funds to demonstrate Government-wide Financial Analysis compliance with these budgets. As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case Proprietary funds. The City maintains two different types of proprietary funds. Enterprise funds are used to report the of the City, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by same functions presented as business-type activities in the government-wide financial statements. The City maintains $161,984,577, an increase of $20,877,702, or 9.73 percent, at the close of the most recent fiscal year. numerous individual enterprise funds. The City's water and sewer operations and its automobile parking system operations are shown as major enterprise funds. Data from the nonmajor enterprise funds are combined into a single, The largest portion of the City’s net position reflects its net investment in capital assets (e.g., land, buildings, aggregated presentation. Individual fund data for each of the nonmajor enterprise funds is provided in the form of machinery, and equipment). The City uses these capital assets to provide services to residents and businesses; combining statements following the required supplementary information. consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from Internal service funds are an accounting device used to accumulate and allocate costs internally among the City’s other sources, since the capital assets themselves cannot be used to liquidate these liabilities.") various functions. The City uses internal service funds to account for its motor pool, information technology management, self-insured workers compensation, healthcare (BCBS) self-insurance and general liability/property self- An additional portion of the City’s net position (14%) represents resources that are subject to external restrictions on insurance. how they may be used. The City's unrestricted net position deficit of $109,915,935, a decrease of $69,370,990 over the previous year, occurred primarily due to City implementing GASB standard no. 75 and recording a liability for its net other postemployment benefits liability and issuing $126.6 million in bonds to fund both the OPEB liability and the general employees portions of the net pension liability.
19 20 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Management's Discussion and Analysis Management's Discussion and Analysis
Net Position Change in Net Position Governmental Activities Business-type Activities Total Governmental Activities Business-type Activities Total 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
Current and other assets $ 85,225,132 $ 84,067,208 $ 35,423,427 $ 25,259,743 $ 120,648,559 $ 109,326,951 Program revenues: Capital assets, net 171,618,669 158,005,467 130,670,361 119,284,793 302,289,030 277,290,260 Charges for services $ 16,481,627 $ 18,588,632 $ 38,690,152 $ 37,449,868 $ 55,171,779 $ 56,038,500 Total assets 256,843,801 242,072,675 166,093,788 144,544,536 422,937,589 386,617,211 Operating grants 5,128,426 5,531,956 354,180 440,016 5,482,606 5,971,972 Capital grants 1,917,700 148,372 - - 1,917,700 148,372 Deferred charge on refunding 133,880 149,983 1,115,527 1,217,587 1,249,407 1,367,570 General revenues: Deferred pension amounts 8,943,104 15,496,877 - 1,127,200 8,943,104 16,624,077 Property taxes 43,475,312 40,810,616 - - 43,475,312 40,810,616 Deferred other postemployment State shared revenues 10,037,969 9,411,377 - - 10,037,969 9,411,377 benefit amounts 1,587,621 - 179,150 - 1,766,771 - Other 1,025,550 514,225 - - 1,025,550 514,225 Total deferred outflows 10,664,605 15,646,860 1,294,677 2,344,787 11,959,282 17,991,647 Total revenues 78,066,584 75,005,178 39,044,332 37,889,884 117,110,916 112,895,062
Long-term debt outstanding 127,941,381 15,782,500 60,020,549 37,595,587 187,961,930 53,378,087 Expenses: Other liabilities 77,462,937 125,168,120 7,378,338 11,417,452 84,841,275 136,585,572 General government 10,372,611 10,233,170 - - 10,372,611 10,233,170 Total liabilities 205,404,318 140,950,620 67,398,887 49,013,039 272,803,205 189,963,659 Public safety 34,856,261 33,545,346 - - 34,856,261 33,545,346 Public works 12,216,069 11,803,571 - - 12,216,069 11,803,571 Deferred other postemployment Health and welfare 644,426 741,945 - - 644,426 741,945 benefit amounts 98,027 - 11,062 - 109,089 - Community and economic development 2,371,971 1,442,994 - - 2,371,971 1,442,994 Net position: Recreation and culture 3,953,833 4,056,345 - - 3,953,833 4,056,345 Net investment in Interest on long-term debt 1,994,475 385,521 - - 1,994,475 385,521
B-16 capital assets 162,548,501 147,194,839 86,510,191 85,228,498 249,058,692 232,423,337 Water and sewer - - 25,141,329 24,989,668 25,141,329 24,989,668 Restricted 22,841,819 22,766,807 - - 22,841,819 22,766,807 Parking - - 2,223,353 3,130,520 2,223,353 3,130,520 Unrestricted (deficit) (123,384,259) (53,192,731) 13,468,325 12,647,786 (109,915,934) (40,544,945) Recreation - - 1,927,746 2,146,622 1,927,746 2,146,622 Total net position $ 62,006,061 $ 116,768,915 $ 99,978,516 $ 97,876,284 $ 161,984,577 $ 214,645,199 Farmers market - - 531,140 516,110 531,140 516,110 Total expenses 66,409,646 62,208,892 29,823,568 30,782,920 96,233,214 92,991,812 The City’s net position increased by $20,877,702 during the current fiscal year as compared to a $19,903,250 increase in the previous year. The current year increase is mostly attributed to the early implementation of GASB 74/75, increased Change in net position, tax revenue from the various city millages and from the solid waste fund millage rate increase. before transfers 11,656,938 12,796,286 9,220,764 7,106,964 20,877,702 19,903,250 Transfers (1,155,651) 1,001,553 1,155,651 (1,001,553) - - Governmental Activities Change in net position 10,501,287 13,797,839 10,376,415 6,105,411 20,877,702 19,903,250
Governmental activities increased the City’s net position by $10,501,287 as compared to a $13,797,839 increase in the Net position: previous year, a difference of $(3,296,552) between the two years. This difference is primarily due to an increase in Beginning of year 116,768,915 102,971,076 97,876,284 91,770,873 214,645,199 194,741,949 public safety, community/economic development, interest on debt expenditures and transfers. Restatement for implementation of GASB 75 (65,264,141) - (8,274,183) - (73,538,324) - Business-type Activities End of year $ 62,006,061 $ 116,768,915 $ 99,978,516 $ 97,876,284 $ 161,984,577 $ 214,645,199
Business-type activities increased the City’s net position by $10,376,415 as compared to a $6,105,411 increase in the previous year, a difference of $4,271,004. This was primarily due to increased charges for services in water and sewer and transfers as well as a decrease in parking system expenses.
21 22 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Management's Discussion and Analysis Management's Discussion and Analysis
Expenses and Program Revenues - Governmental Activities Expenses and Program Revenues - Business-type Activities
$40,000,000 $35,000,000 $35,000,000 Expenses $30,000,000 Expenses $30,000,000 Program revenues Program revenues $25,000,000 $25,000,000
$20,000,000 $20,000,000 $15,000,000 $15,000,000 $10,000,000
$5,000,000 $10,000,000 $- General Public safety Public works Health and Community and Recreation and Interest on $5,000,000 government welfare economic culture long-term debt development $- Water and sewer Parking Recreation Farmers market
Revenues by Source - Governmental Activities Revenues by Source - Business-type Activities
.V` : V .:`VR `V0VJ%V B-17 Q .:`$V `Q` V`01HV Q .:`$V `Q` V`01HV Q Q
]V`: 1J$ $`:J Q ]V`: 1J$ $`:J Q
:]1 :C $`:J Q `Q]V` 7 :6V Q
Financial Analysis of the City's Funds
As the City completed the fiscal year, its governmental funds reported combined ending fund balances of $45,749,207. Of this, $22,936,247 million is legally restricted and/or unavailable to spend (i.e. amounts tied up in inventories), $1,491,444 is assigned for designated purposes, leaving $21,321,516 million unassigned.
23 24 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Management's Discussion and Analysis Management's Discussion and Analysis
General Fund Budgetary Highlights Water and Sewer Fund
The general fund is the chief operating fund of the City. Revenues in the general fund were $875,272 over the final Unrestricted net position of the water and sewer system at the end of the year amounted to a deficit of $1,767,433. The budget and $1,501,272 under the original budget. The increase is mostly attributed to additional property tax revenue, total increase in net position for water and sewer was $7,221,891. This increase in net position this year was mostly due fines and other miscellaneous revenue. Expenditures were $3,507,415 less than the amended budget and $763,625 less an increase in revenue related to charges for services and the look-back from the internal service funds. The deficit in than the original budget mostly due to general government personnel savings, contracted services savings and some unassigned net position was primarily due to recording the City's net other postemployment benefits obligation. capital projects far along as budgeted as well as fewer expenditures on park projects. Auto Parking Fund At the end of the current fiscal year, unassigned fund balance of the general fund was $21,321,516 while total fund balance was $22,740,782. As a measure of the general fund’s liquidity, it may be useful to compare both unassigned Unrestricted net position for the auto parking system fund amounted to $10,490,398. The total increase in net position fund balance and total fund balance to total fund expenditures and transfers out. Unassigned fund balance represents for this fund was $2,211,905 mostly due an increase in revenue related to charges for services and a decrease in 57 percent of total general fund expenditures and transfers out, while total fund balance represents 61 percent of operating expenses from the entry for GASB 75. general fund expenditures and transfers out. Capital Assets and Debt Administration The fund balance of the City’s general fund increased by $4,461,027 during the current fiscal year. The original budget included approximately $2.5 million use of fund balance. Slightly higher revenues from most all revenue sources along Capital Assets with lower than budgeted general government expenditures as well as $6.8 million in transfers related to a look-back adjustment from the city's three (self-insurance) internal service funds caused this variance. The City’s investment in capital assets for its governmental and business-type activities as of June 30, 2017, amounts to $302,289,030 (net of accumulated depreciation). This investment in capital assets includes land, buildings, Public Safety Fund improvements, machinery and equipment, park facilities, roads, highways and bridges. The total increase in the City’s investment in capital assets for the current fiscal year approximately was 9.02 percent and mostly due to construction The public safety fund has a total fund balance of $898,444, all of which is restricted for the sole use of the fund. The in process and additions to infrastructure primarily for construction of a new parking structure. net decrease in fund balance during the current year was $1,147,695. The decrease in fund balance was primarily due to the reduction in transfers from the general fund from $20 million to $18.7 million. Major capital asset costs during the current year included the continued construction of the street improvements, water
B-18 main replacement, sewer line improvements, and replacement of fleet vehicles and equipment to name some of the Solid Waste Fund projects.
The solid waste fund has a total fund balance of $6,542,830, all of which is restricted for the sole use of this fund. The Capital Assets net increase in fund balance during the current year in the solid waste fund was $374,203 as opposed to a use of fund Governmental Activities Business-type Activities Total balance of approximately $1.5 million originally budgeted. This variance was primarily due an internal service fund (self- 2017 2016 2017 2016 2017 2016 insurance) look-back transfer of approximately $400,000 and spreading the recycling cart program costs over three years as opposed to a one-time outlay. Land $ 66,774,752 $ 66,774,752 $ 9,958,656 $ 9,958,656 $ 76,733,408 $ 76,733,408 Buildings 15,074,295 15,678,840 15,063,561 15,698,856 30,137,856 31,377,696 Community Development Block Grant Fund Improvements other than buildings 1,212,974 876,216 1,141,103 1,204,964 2,354,077 2,081,180 The community development block grant fund revenue decreased by $969,914 relative to the prior year’s revenue due Machinery and equipment 6,772,034 6,057,417 472,008 271,017 7,244,042 6,328,434 to a reduction in the City's allocation for the grant during the current year. Expenditures/transfers decreased by Infrastructure 58,751,162 49,242,422 86,674,080 84,131,680 145,425,242 133,374,102 $892,718 due to a decrease in capital projects. Intangibles 55,745 - - - 55,745 - Construction in progress 22,977,707 19,375,820 17,360,953 8,019,620 40,338,660 27,395,440 City Capital Projects Fund Total $ 171,618,669 $ 158,005,467 $ 130,670,361 $ 119,284,793 $ 302,289,030 $ 277,290,260 Fund balance for the city capital projects fund increased by $1,878,933 during the year. The increase in fund balance was primarily due to proceeds from the sale of a portion of the Normandy Oaks golf course. Additional information on the City of Royal Oak’s capital assets can be found in the notes to the financial statements.
25 26 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Management's Discussion and Analysis Management's Discussion and Analysis
Long-term Debt Economic Factors and Next Year’s Budgets and Rates
At the end of the current fiscal year, the City had total debt outstanding of $187,961,930. Of this amount, $146,446,967 During the current fiscal year, unassigned fund balance in the general fund increased significantly to $21.3 million is limited general obligation debt issued by the City, which has pledged its full faith and credit for the repayment; mostly due to a lookback from the internal service funds and reversing the assignment for a potential OPEB trust dedicated revenue sources have been established for the repayment of this debt. A tax levy authorized by the residents contribution . Although the year ended with an unassigned fund balance for the general fund of approximately 57 of Royal Oak funds $2,925,000 of unlimited general obligation debt. Another $3,237,387 of the debt was obtained percent, the general fund will be closer to its target range after fiscal year 2017-2018 due to $11 million contribution through the state revolving fund and is an obligation of the City and five surrounding communities; the City's portion of toward the development of the civic center project. the debt is $3,237,387 with the remainder being paid from receipts of the other five communities. Another $15,495,880 of the debt is the City's portion of county debt issued for the benefit of the City and surrounding communities. The For the fiscal year, the quarterly water and sewer rates are $123.06 per 1,000 cubic feet for the first 2,000 cubic feet remainder of the debt is composed of vested benefits, general liability and workers compensation claims, and and $141.13 for every 1,000 cubic feet thereafter. In addition, all customers pay a $11.25 flat fee per billing period to unamortized bond discounts and premiums. recoup the city's water/sewer billing costs. The water and sewer rates increased by 1.35 percent, passing along a 2 percent Southeastern Oakland County Water Authority ("SOCWA") and a 3 percent increase from the Oakland County Outstanding Debt Water Resource Commission. Governmental Activities Business-type Activities Total 2017 2016 2017 2016 2017 2016 In addition, the building permit rates will continue to remain low as the state construction fund's personnel costs have significantly decreased for FY17-18 due to this fund contributing $3.4 million to the OPEB and pension trust funds for its Limited general obligation bonds$ 119,770,602 $ 7,167,511 $ 26,676,365 $ 14,968,491 $ 146,446,967 $ 22,136,002 share of the unfunded liabilities. Therefore, the state construction fund will not be charged principal and interest for Unlimited general obligation the OPEB and pension bonds. The balance of the city funds' personnel costs are decreased due to the anticipated savings from issuing the OPEB and pension bonds. bonds 2,925,000 3,460,000 - - 2,925,000 3,460,000 Revenue bonds - - 13,500,000 - 13,500,000 - Requests for Information State revolving fund - - 3,237,387 4,007,387 3,237,387 4,007,387 Contractual obligations - - 15,495,880 17,648,475 15,495,880 17,648,475 This financial report is designed to provide a general overview of the City of Royal Oak’s finances for all those with an Compensated absences 3,643,344 3,527,409 261,810 281,575 3,905,154 3,808,984 interest in the government’s finances. Questions concerning any of the information provided in this report or requests
B-19 General liability claims 776,160 498,430 - - 776,160 498,430 for additional financial information should be addressed to the director of finance, City of Royal Oak, 211 S. Williams Workers compensation claims 542,744 796,050 - - 542,744 796,050 Street, Royal Oak, MI 48067. Less: unamortized discount and premium 283,531 333,100 849,107 689,659 1,132,638 1,022,759 Total $ 127,941,381 $ 15,782,500 $ 60,020,549 $ 37,595,587 $ 187,961,930 $ 53,378,087
The City’s total debt increased by $134,583,843 (252 percent) during the current fiscal year, primarily due to the issuance of bonds by the city to fund the city's unfunded pension and other postemployment benefits liabilities and the issuance of revenue bonds for the construction of a new parking structure.
The City's bond ratings are as follows: Unlimited Limited Standard & Poor's AA+ AA+ Moody's NR A1 Fitch AA AA
The underlying rating reflects the City's own credit quality. Standard & Poor’s raised the City’s underlying rating in December 2013 from AA to AA+ stable based on the City's strong economy, budgetary flexibility, budgetary performance, very strong liquidity, very strong management and strong debt capacity and contingent liabilities position.
State statutes limit the amount of general obligation debt a governmental entity may issue to 10 percent of its total assessed valuation, however section 517 of Act 34 limits capital improvement bonds to 5 percent. The current legal debt limitation for the City is $143,434,325 (5 percent of $2,868,686,490 assessed valuation for purposes of capital improvement bonds). As of June 30, 2017, the City's general obligation debt amounts to 50.6 percent of the legal debt limit. Additional information on the City’s long-term debt can be found in the notes to the financial statements.
27 28 BASIC FINANCIAL STATEMENTS B-20
29 30 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Statement of Net Position Statement of Activities June 30, 2017 For the Year Ended June 30, 2017 Primary Government Program Revenues Governmental Business-type Component Activities Activities Total Units Operating Capital Net Assets Charges for Grants and Grants and (Expense) Cash and investments $ 71,029,259 $ 19,733,204 $ 90,762,463 $ 2,339,355 Functions/Programs Expenses Services Contributions Contributions Revenue Receivables, net 8,786,736 10,673,366 19,460,102 33,288 Deposits and other assets 1,271,982 - 1,271,982 50,000 Primary government Internal balances (3,917,666) 3,917,666 - - Governmental activities: Inventories 455,182 241,744 696,926 - General government $ 10,372,611 $ 7,179,495 $ 91,605 $ - $ (3,101,511) Restricted assets, cash 1,000 - 1,000 - Capital assets not being depreciated 89,752,459 27,319,609 117,072,068 2,895,755 Public safety 34,856,261 3,875,975 1,064,753 35,017 (29,880,516) Capital assets being depreciated, net 81,866,210 103,350,752 185,216,962 831,244 Public works 12,216,069 1,733,456 2,324,347 1,882,683 (6,275,583) Net other postemployment benefit asset 7,598,639 857,447 8,456,086 - Health and welfare 644,426 1,059,388 - - 414,962 Community and economic Total assets 256,843,801 166,093,788 422,937,589 6,149,642 development 2,371,971 396,907 1,205,667 - (769,397) Recreation and culture 3,953,833 2,236,406 442,054 - (1,275,373) Deferred outflows of resources Interest on long-term debt 1,994,475 - - - (1,994,475) Deferred charge on refunding 133,880 1,115,527 1,249,407 - Deferred pension amounts 8,943,104 - 8,943,104 - Total governmental activities 66,409,646 16,481,627 5,128,426 1,917,700 (42,881,893) Deferred other postemployment benefit amounts 1,587,621 179,150 1,766,771 -
Total deferred outflows of resources 10,664,605 1,294,677 11,959,282 - Business-type activities: Water and sewer 25,141,329 31,716,708 5,775 - 6,581,154 Liabilities Parking 2,223,353 3,926,728 333,374 - 2,036,749 Accounts payable 4,810,031 5,825,264 10,635,295 45,780 Recreation 1,927,746 2,558,056 10,969 - 641,279 Accrued and other liabilities 3,947,008 1,540,533 5,487,541 4,753 Farmers market 531,140 488,660 4,062 - (38,418)
B-21 Cash bonds and deposits 3,667,628 12,541 3,680,169 - Unearned revenue 3,417,574 - 3,417,574 - Total business-type activities 29,823,568 38,690,152 354,180 - 9,220,764 Long-term debt: Due within one year 7,656,497 5,425,690 13,082,187 8,000 Total primary government $ 96,233,214 $ 55,171,779 $ 5,482,606 $ 1,917,700 $ (33,661,129) Due in more than one year 120,284,884 54,594,859 174,879,743 8,112 Net pension liability 61,620,696 - 61,620,696 - Component units Total liabilities 205,404,318 67,398,887 272,803,205 66,645 Tax Increment Financing Authority$ 2,513,293 $ - $ 200,750 $ - $ (2,312,543) Downtown Development Authority (11,681) - 3,040 - 14,721 Deferred inflows of resources Brownfield Redevelopment Authority 36,751 - - - (36,751) Deferred other postemployment benefit amounts 98,027 11,062 109,089 - Total component units $ 2,538,363 $ - $ 203,790 $ - $ (2,334,573) Net position Net investment in capital assets 162,548,501 86,510,191 249,058,692 3,726,999 Restricted for: continued… Public, Educational, and Government Access ("PEG") fees 823,324 - 823,324 - Highways and streets 3,501,177 - 3,501,177 - Solid waste 6,542,830 - 6,542,830 - Recreation and culture 2,642,427 - 2,642,427 - Public safety 5,603,295 - 5,603,295 - Grants 1,141,196 - 1,141,196 - Capital projects 2,576,039 - 2,576,039 - Permanent fund: Expendable 10,531 - 10,531 - Non-expendable 1,000 - 1,000 - Unrestricted (deficit) (123,384,259) 13,468,325 (109,915,934) 2,355,998
Total net position $ 62,006,061 $ 99,978,516 $ 161,984,577 $ 6,082,997
The accompanying notes are an integral part of these financial statements.
31 32 CITY OF ROYAL OAK, MICHIGAN
Statement of Activities For the Year Ended June 30, 2017
Primary Government Governmental Business-type Component Activities Activities Total Units Changes in net position Net (expense) revenue $ (42,881,893) $ 9,220,764 $ (33,661,129) $ (2,334,573)
General revenues: Property taxes 43,475,312 - 43,475,312 3,509,453 Unrestricted state shared revenues 10,037,969 - 10,037,969 - Unrestricted investment earnings 245,423 - 245,423 19,398 Gain on sale of capital assets 97,786 - 97,786 - Miscellaneous 682,341 - 682,341 93,999 Transfers (1,155,651) 1,155,651 - -
Total general revenues and transfers 53,383,180 1,155,651 54,538,831 3,622,850
Change in net position 10,501,287 10,376,415 20,877,702 1,288,277
Net position, beginning of year, as restated 51,504,774 89,602,101 141,106,875 4,794,720
Net position, end of year $ 62,006,061 $ 99,978,516 $ 161,984,57 7 $ 6,082,997
concluded. B-22 [THIS PAGE INTENTIONALLY LEFT BLANK]
The accompanying notes are an integral part of these financial statements.
33 CITY OF ROYAL OAK, MICHIGAN
Balance Sheet Governmental Funds June 30, 2017
Community City Nonmajor Total Public Solid Development Capital Governmental Governmental General Safety Waste Block Grant Projects Funds Funds Assets Cash and investments $ 25,912,431 $ 2,222,955 $ 6,959,173 $ - $ 4,070,374 $ 13,630,150 $ 52,795,083 Receivables, net 325,652 180,708 47,388 3,394,569 451,678 1,659,626 6,059,621 Due from other governmental units 906,722 - - 289,402 - 919,916 2,116,040 Due from other funds 233,944 - - - - - 233,944 Prepaid items 2,942 - - - - - 2,942 Inventories - - - - - 206,663 206,663 Restricted assets, cash - - - - - 1,000 1,000
Total assets $ 27,381,691 $ 2,403,663 $ 7,006,561 $ 3,683,971 $ 4,522,052 $ 16,417,355 $ 61,415,293
Liabilities Accounts payable $ 621,851 $ 284,279 $ 432,778 $ 43,295 $ 1,229,167 $ 1,498,201 $ 4,109,571 Accrued and other liabilities 328,409 1,208,216 21,582 12,163 314,749 404,655 2,289,774 Due to other funds - - - 233,944 - - 233,944 Cash bonds and deposits 3,666,978 - - - - 650 3,667,628 Unearned revenue - - - 3,394,569 - 23,005 3,417,574
Total liabilities 4,617,238 1,492,495 454,360 3,683,971 1,543,916 1,926,511 13,718,491
Deferred inflows of resources
B-23 Unavailable revenue - property taxes and special assessments 23,671 12,724 9,371 - 413,947 1,487,882 1,947,595
Fund balances Nonspendable: Prepaid items 2,942 - - - - - 2,942 Inventories - - - - - 206,663 206,663 Endowment - - - - - 1,000 1,000 Restricted: PEG fees 823,324 - - - - - 823,324 Highways and streets - - - - - 3,294,514 3,294,514 Solid waste - - 6,542,830 - - - 6,542,830 Recreation and culture - - - - - 2,642,427 2,642,427 Public safety - - - - - 5,603,295 5,603,295 Grants - - - - - 1,141,196 1,141,196 Debt service - - - - - 91,486 91,486 Capital projects - - - - 2,564,189 11,850 2,576,039 Permanent fund - - - - - 10,531 10,531 Assigned: Eligible retiree bank payouts 593,000 444,000 - - - - 1,037,000 Public safety - 454,444 - - - - 454,444 Unassigned 21,321,516 - - - - - 21,321,516
Total fund balances 22,740,782 898,444 6,542,830 - 2,564,189 13,002,962 45,749,207
Total liabilities, deferred inflows of resources and fund balances $ 27,381,691 $ 2,403,663 $ 7,006,561 $ 3,683,971 $ 4,522,052 $ 16,417,355 $ 61,415,293
The accompanying notes are an integral part of these financial statements.
34 35 CITY OF ROYAL OAK, MICHIGAN
Reconciliation Fund Balances of Governmental Funds to Net Position of Governmental Activities June 30, 2017
Fund balances for governmental funds $ 45,749,207
Amounts reported for governmental activities in the statement of net position are different because:
Capital assets used in governmental activities are not financial resources, and therefore are not reported in the fund statement. Capital assets not being depreciated 89,752,459 Capital assets being depreciated, net 81,866,210 Less capital assets accounted for in internal service funds (7,144,460)
The focus of governmental funds is on short-term financing. Accordingly, some assets will not be available to pay for current-period expenditures. Those assets (such as certain receivables) are offset by deferred outflows in the governmental funds, and thus are not included in fund balance. Deferred property taxes and special assessments receivable 1,947,595
Internal service funds are used by management to charge the costs of certain activities, such as insurance and other centralized costs, to individual funds. The assets and liabilities of certain internal service funds are included in B-24 governmental activities. Total internal service fund net position 17,243,454 Internal service fund net position accounted for in business-type activities (3,917,666)
Certain liabilities, such as bonds payable, are not due and payable in the current period, and therefore are not reported in the funds. Accrued interest on bonds (1,244,058) Bonds payable (114,420,308) Unamortized bond premiums (262,451) Deferred loss on refunding 86,247 Net other postemployment benefit asset 7,118,334 Deferred outflows related to the net other postemployment benefit asset 1,487,269 Deferred inflows related to the net other postemployment benefit asset (91,831) Compensated absences (3,486,348)
Certain pension-related amounts, such as the net pension liability and deferred amounts, are not due and payable in the current period or do not represent current financial resources, and therefore are not reported in the funds. Net pension liability (61,620,696) Deferred outflows related to the net pension liability 8,943,104
Net position of governmental activities $ 62,006,061
The accompanying notes are an integral part of these financial statements.
36 37 CITY OF ROYAL OAK, MICHIGAN
Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2017
Community City Nonmajor Total Public Solid Development Capital Governmental Governmental General Safety Waste Block Grant Projects Funds Funds Revenues Taxes $ 18,277,447 $ 9,086,403 $ 6,898,567 $ - $ - $ 8,579,929 $ 42,842,346 Licenses and permits 2,172,563 11,071 - - - 3,083,112 5,266,746 Federal grants - - - 807,824 - 66,235 874,059 State grants 5,373,826 - - - - 5,191,449 10,565,275 Charges for services 2,544,046 1,375,572 257 396,907 927,691 329,259 5,573,732 Fines and forfeitures 5,378,553 - - - - 142,943 5,521,496 Interest and rentals 582,536 18,542 55,732 - 56,078 140,743 853,631 Contributions and donations - 540,000 - - 286,871 2,059,876 2,886,747 Other revenue 682,341 25,449 62,693 110,006 2,039,693 108,392 3,028,574
Total revenues 35,011,312 11,057,037 7,017,249 1,314,737 3,310,333 19,701,938 77,412,606
Expenditures Current: General government 10,649,704 - - - - 76,005 10,725,709 Public safety 646,935 30,058,536 - - - 5,406,546 36,112,017 Public works 1,322,747 - 7,044,406 - 7,434,386 10,746,652 26,548,191 Health and welfare - 675,256 - - - - 675,256 Community and economic development 550,614 - - 1,353,337 - 489,783 2,393,734
B-25 Recreation and culture 1,235,635 - - - - 2,910,151 4,145,786 Debt service: Principal payments - - - - 225,000 1,255,876 1,480,876 Interest and paying agent fees - - - - 7,763 223,357 231,120
Total expenditures 14,405,635 30,733,792 7,044,406 1,353,337 7,667,149 21,108,370 82,312,689
Revenues over (under) expenditures 20,605,677 (19,676,755) (27,157) (38,600) (4,356,816) (1,406,432) (4,900,083)
Other financing sources (uses) Transfers in 6,911,814 18,700,000 405,860 38,600 7,199,765 7,003,681 40,259,720 Transfers out (23,056,464) (170,940) (4,500) - (964,016) (7,874,860) (32,070,780)
Total other financing sources (uses) (16,144,650) 18,529,060 401,360 38,600 6,235,749 (871,179) 8,188,940
Net change in fund balances 4,461,027 (1,147,695) 374,203 - 1,878,933 (2,277,611) 3,288,857
Fund balances, beginning of year 18,279,755 2,046,139 6,168,627 - 685,256 15,280,573 42,460,350
Fund balances, end of year $ 22,740,782 $ 898,444 $ 6,542,830 $ - $ 2,564,189 $ 13,002,962 $ 45,749,207
The accompanying notes are an integral part of these financial statements.
38 39 CITY OF ROYAL OAK, MICHIGAN
Reconciliation Net Changes in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities For the Year Ended June 30, 2017
Net change in fund balances - total governmental funds $ 3,288,857
Amounts reported for governmental activities in the statement of activities are different because:
Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital assets purchased/constructed 15,583,885 Depreciation expense (2,546,842) Loss on sale of capital assets (53,624)
Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds, but rather are deferred to the following fiscal year. Net change in deferred property taxes and special assessments receivable 632,968
Bond proceeds provide current financial resources to governmental funds in the period issued, but issuing bonds increases long-term liabilities in the statement of net position. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the B-26 statement of net position. Principal payments on long-term liabilities 1,480,876
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 governmental funds. Change in accrued interest payable on long-term debt (1,181,020) Amortization of bond discount (264) Amortization of bond premium 46,806 Amortization of deferred charge on refunding (12,133) Change in the net pension liability and related deferred amounts 9,804,471 Contributions to pension funds financed through the issuance of long-term debt (17,316,850) Change in other postemployment benefit asset and related deferred amounts 96,599,964 Contributions to other postemployment benefit funds financed through the issuance of long-term debt (89,269,755) Change in compensated absences (95,765)
An internal service fund is used by management to charge the costs of certain services to individual governmental funds. The net revenue (expense) attributable to those funds is reported with governmental activities. Total change in net position of the internal service funds (5,941,227) Internal service fund change in net position accounted for in business-type activities (519,060)
Change in net position of governmental activities $ 10,501,287
The accompanying notes are an integral part of these financial statements.
40 41 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Statement of Revenues, Expenditures and Changes in Fund Balance Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund Budget and Actual - Public Safety Fund For the Year Ended June 30, 2017 For the Year Ended June 30, 2017
Actual Over Actual Over Original Final (Under) Final Original Final (Under) Final Budget Budget Actual Budget Budget Budget Actual Budget Revenues Revenues Taxes $ 17,955,000 $ 17,965,000 $ 18,277,447 $ 312,447 Taxes $ 8,933,000 $ 8,970,000 $ 9,086,403 $ 116,403 Licenses and permits 2,007,200 2,037,200 2,172,563 135,363 Licenses and permits 7,000 7,000 11,071 4,071 State grants 5,508,500 5,268,500 5,373,826 105,326 Charges for services 1,142,620 1,356,620 1,375,572 18,952 Charges for services 2,431,440 2,496,440 2,544,046 47,606 Interest and rentals 5,000 30,000 18,542 (11,458) Fines and forfeitures 4,935,000 5,135,000 5,378,553 243,553 Contributions and donations 540,000 540,000 540,000 - Interest and rentals 326,900 609,200 582,536 (26,664) Other revenue 40,000 40,000 25,449 (14,551) Other revenue 346,000 624,000 682,341 58,341 Total revenues 10,667,620 10,943,620 11,057,037 113,417 Total revenues 33,510,040 34,135,340 35,011,312 875,972 Expenditures Expenditures Current: Current: Public safety 30,738,270 30,632,640 30,058,536 (574,104) General government 11,252,980 13,623,270 10,649,704 (2,973,566) Health and welfare 1,026,890 719,270 675,256 (44,014) Public safety 653,360 653,360 646,935 (6,425)
B-27 Public works 1,275,320 1,420,320 1,322,747 (97,573) Total expenditures 31,765,160 31,351,910 30,733,792 (618,118) Community and economic development 484,340 609,840 550,614 (59,226) Recreation and culture 1,503,260 1,606,260 1,235,635 (370,625) Revenues under expenditures (21,097,540) (20,408,290) (19,676,755) 731,535
Total expenditures 15,169,260 17,913,050 14,405,635 (3,507,415) Other financing sources (uses) Transfers in 20,000,000 18,700,000 18,700,000 - Revenues over expenditures 18,340,780 16,222,290 20,605,677 4,383,387 Transfers out (105,000) (201,720) (170,940) (30,780)
Other financing sources (uses) Total other financing sources (uses) 19,895,000 18,498,280 18,529,060 (30,780) Transfers in - 6,853,390 6,911,814 58,424 Transfers out (20,883,250) (23,076,380) (23,056,464) (19,916) Net change in fund balance (1,202,540) (1,910,010) (1,147,695) 762,315
Total other financing sources (uses) (20,883,250) (16,222,990) (16,144,650) 78,340 Fund balance, beginning of year 2,046,139 2,046,139 2,046,139 -
Net change in fund balance (2,542,470) (700) 4,461,027 4,461,727 Fund balance, end of year $ 843,599 $ 136,129 $ 898,444 $ 762,315
Fund balance, beginning of year 18,279,755 18,279,755 18,279,755 -
Fund balance, end of year $ 15,737,285 $ 18,279,055 $ 22,740,782 $ 4,461,727
The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements.
42 43 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Statement of Revenues, Expenditures and Changes in Fund Balance Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - Solid Waste Fund Budget and Actual - Community Development Block Grant Fund For the Year Ended June 30, 2017 For the Year Ended June 30, 2017
Actual Over Actual Over Original Final (Under) Final Original Final (Under) Final Budget Budget Actual Budget Budget Budget Actual Budget Revenues Revenues Taxes $ 6,770,000 $ 6,810,000 $ 6,898,567 $ 88,567 Federal grants $ 1,085,570 $ 1,085,570 $ 807,824 $ (277,746) Charges for services 2,000 2,000 257 (1,743) Charges for services 350,000 385,000 396,907 11,907 Interest and rentals 28,000 56,000 55,732 (268) Other revenue - 318,730 110,006 (208,724) Other revenue 45,000 60,000 62,693 2,693 Total revenues 1,435,570 1,789,300 1,314,737 (474,563) Total revenues 6,845,000 6,928,000 7,017,249 89,249 Expenditures Expenditures Current - Current - Community and economic development 1,435,570 1,827,900 1,353,337 (474,563) Public works 8,359,940 7,329,350 7,044,406 (284,944) Revenues under expenditures - (38,600) (38,600) - Revenues over (under) expenditures (1,514,940) (401,350) (27,157) 374,193 Other financing uses Other financing sources (uses) Transfer in - 38,600 38,600 -
B-28 Transfers in - 405,850 405,860 (10) Transfers out (4,500) (4,500) (4,500) - Net change in fund balance - - - -
Total other financing sources (uses) (4,500) 401,350 401,360 (10) Fund balance, beginning of year - - - -
Net change in fund balance (1,519,440) - 374,203 374,203 Fund balance, end of year $ - $ - $ - $ -
Fund balance, beginning of year 6,168,627 6,168,627 6,168,627 -
Fund balance, end of year $ 4,649,187 $ 6,168,627 $ 6,542,830 $ 374,203
The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements.
44 45 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN Statement of Net Position Proprietary Funds Reconciliation June 30, 2017 Net Position of Enterprise Funds
Governmental to Net Position of Business-type Activities Business-type Activities - Enterprise Funds Activities June 30, 2017 Automobile Nonmajor Internal Water and Parking Enterprise Service Net position - total enterprise funds $ 96,060,850 Sewer System Funds Total Funds Assets Current assets: Amounts reported for business-type activities in the statement of net position Cash and investments $ 1,539,552 $ 15,971,468 $ 2,222,184 $ 19,733,204 $ 18,234,176 are different because: Receivables, net 8,881,269 30,810 42,545 8,954,624 611,075 Prepaid items - - - - 1,269,040 Inventories 202,782 38,962 - 241,744 248,519 Internal service funds are used by management to charge the costs of Total current assets 10,623,603 16,041,240 2,264,729 28,929,572 20,362,810 certain activities, such as insurance and other centralized costs, to
Noncurrent assets: individual funds. A portion of the net position of the internal service Due from other governmental units 1,718,742 - - 1,718,742 - funds is allocated to the enterprise funds and reported in the statement Capital assets 140,305,537 41,780,072 12,267,403 194,353,012 20,029,286 of net position. Accumulated depreciation (45,681,622) (12,171,930) (5,829,099) (63,682,651) (12,884,826) Net other postemployment benefit asset 717,922 46,508 93,017 857,447 480,305 Net position of business-type activities accounted for in Total noncurrent assets 97,060,579 29,654,650 6,531,321 133,246,550 7,624,765 governmental-type internal service funds 3,917,666
Total assets 107,684,182 45,695,890 8,796,050 162,176,122 27,987,575 Net position of business-type activities $ 99,978,516 Deferred outflows of resources Deferred charge on refunding 273,903 841,624 - 1,115,527 47,633 Deferred other postemployment benefit amounts 149,999 9,717 19,434 179,150 100,352
B-29 Total deferred outflows of resources 423,902 851,341 19,434 1,294,677 147,985
Liabilities Current liabilities: Accounts payable 1,919,865 3,802,373 103,026 5,825,264 700,460 Accrued and other liabilities 474,181 1,037,091 29,261 1,540,533 413,176 Cash bonds and deposits 250 12,291 - 12,541 - Bonds payable, due within one year 3,750,452 1,501,656 42,582 5,294,690 455,913 Other long-term liabilities, current - - - - 659,452 Compensated absences, current 89,102 29,548 12,350 131,000 78,346 Total current liabilities 6,233,850 6,382,959 187,219 12,804,028 2,307,347
Noncurrent liabilities: Bonds payable 30,753,497 22,361,816 1,348,736 54,464,049 7,840,461 Other long-term liabilities - - - - 659,452 Accrued compensated absences 88,974 29,505 12,331 130,810 78,650 Total noncurrent liabilities 30,842,471 22,391,321 1,361,067 54,594,859 8,578,563
Total liabilities 37,076,321 28,774,280 1,548,286 67,398,887 10,885,910
Deferred inflows of resources Deferred other postemployment benefit amounts 9,262 600 1,200 11,062 6,196
Net position Net investment in capital assets 72,789,934 7,281,953 6,438,304 86,510,191 6,084,198 Unrestricted (deficit) (1,767,433) 10,490,398 827,694 9,550,659 11,159,256
Total net position $ 71,022,501 $ 17,772,351 $ 7,265,998 $ 96,060,850 $ 17,243,454
The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements.
46 47 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Funds Reconciliation For the Year Ended June 30, 2017 Changes in Net Position of Enterprise Funds to Change in Net Position of Business-type Activities Governmental For the Year Ended June 30, 2017 Business-type Activities - Enterprise Funds Activities Automobile Nonmajor Internal Change in net position - total enterprise funds $ 9,857,355 Water and Parking Enterprise Service Sewer System Funds Total Funds Operating revenues Amounts reported for business-type activities in the statement of activities Charges for services $ 31,596,988 $ 3,911,291 $ 3,036,530 $ 38,544,809 $ 17,517,276 are different because: Other 119,720 15,437 10,186 145,343 750,544
Total operating revenues 31,716,708 3,926,728 3,046,716 38,690,152 18,267,820 Internal service funds are used by management to charge the costs of certain activities, such as insurance and other centralized costs, to Operating expenses individual funds. A portion of the operating income (loss) of the Salaries and benefits 541,055 (162,779) 150,025 528,301 9,869,379 internal service funds is allocated to the enterprise funds and Supplies 554,607 24,241 120,151 698,999 708,044 Water purchases 4,164,790 - - 4,164,790 - reported in the statement of activities. Sewage disposal services 12,400,772 - - 12,400,772 - Net operating loss from business-type activities accounted Other services and charges 4,244,753 976,316 1,951,928 7,172,997 2,856,184 for in governmental-type internal service funds 519,060 Depreciation 2,890,216 555,905 265,935 3,712,056 1,419,931 Change in net position of business-type activities $ 10,376,415 Total operating expenses 24,796,193 1,393,683 2,488,039 28,677,915 14,853,538
Operating income 6,920,515 2,533,045 558,677 10,012,237 3,414,282
B-30 Nonoperating revenues (expenses) Federal grants - - 216 216 - Interest income 5,775 44,261 14,815 64,851 - Contributions and donations - 289,113 - 289,113 - Interest expense (770,365) (871,211) (23,137) (1,664,713) (162,328) Gain on sale of capital assets - - - - 151,410
Total nonoperating revenues (expenses) (764,590) (537,837) (8,106) (1,310,533) (10,918)
Income before transfers 6,155,925 1,995,208 550,571 8,701,704 3,403,364
Transfers Transfers in 2,477,976 217,970 103,820 2,799,766 705,834 Transfers out (1,412,010) (1,273) (230,832) (1,644,115) (10,050,425)
Net transfers 1,065,966 216,697 (127,012) 1,155,651 (9,344,591)
Change in net position 7,221,891 2,211,905 423,559 9,857,355 (5,941,227)
Net position, beginning of year, as restated 63,800,610 15,560,446 6,842,439 86,203,495 23,184,681
Net position, end of year $ 71,022,501 $ 17,772,351 $ 7,265,998 $ 96,060,850 $ 17,243,454
The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements.
48 49 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Statement of Cash Flows Statement of Cash Flows Proprietary Funds Proprietary Funds For the Year Ended June 30, 2017 For the Year Ended June 30, 2017
Governmental Governmental Business-type Activities - Enterprise Funds Activities Business-type Activities - Enterprise Funds Activities Automobile Nonmajor Internal Automobile Nonmajor Internal Water and Parking Enterprise Service Water and Parking Enterprise Service Sewer System Funds Total Funds Sewer System Funds Total Funds Cash flows from operating activities Reconciliation of operating income to net Receipts from customers $ 32,067,108 $ 3,904,465 $ 3,111,595 $ 39,083,168 $ - cash provided by operating activities Internal activity - receipts from Operating income $ 6,920,515 $ 2,533,045 $ 558,677 $ 10,012,237 $ 3,414,282 other funds - - - - 17,517,276 Adjustments to reconcile operating Other operating receipts 119,720 15,437 10,186 145,343 750,544 income to net cash provided by Payments to vendors (21,872,691) (1,187,133) (1,969,458) (25,029,282) (3,811,440) (used in) operating activities - Payments to employees (2,803,447) 224,540 (507,031) (3,085,938) (11,525,967) Depreciation 2,890,216 555,905 265,935 3,712,056 1,419,931 Changes in assets and liabilities: Net cash provided by (used in) Receivables, net (77,447) (7,176) 75,065 (9,558) (544,259) operating activities 7,510,690 2,957,309 645,292 11,113,291 2,930,413 Prepaid items - - - - (306,789) Inventories 16,353 (29,661) - (13,308) 22,864 Cash flows from noncapital financing activities Long-term receivables 2,040,130 - - 2,040,130 - Federal operating grants - - 216 216 - Due from other governmental units (1,492,563) - - (1,492,563) - Contributions and donations - 289,113 - 289,113 - Accounts payable (524,122) (156,915) (26,402) (707,439) 303,242 Transfers from other funds 2,477,976 217,970 103,820 2,799,766 705,834 Accrued and other liabilities 89,880 949,189 17,536 1,056,605 (429,855) Transfers to other funds (1,412,010) (1,273) (230,832) (1,644,115) (10,050,425) Cash bonds and deposits - 350 - 350 - Other long-term liabilities - - - - 24,424
B-31 Net cash provided by (used in) noncapital Accrued compensated absences (12,726) (7,978) 939 (19,765) 20,170 financing activities 1,065,966 505,810 (126,796) 1,444,980 (9,344,591) Net pension liability and deferred amounts (3,344,861) (943,962) (375,481) (4,664,304) (1,643,217) Cash flows from capital and related Net other postemployment benefit financing activities asset and deferred amounts 1,005,315 64,512 129,023 1,198,850 649,620 Purchase of capital assets (5,540,139) (5,771,779) (46,488) (11,358,406) (2,094,661) Proceeds from issuance of long-term debt - 13,737,122 - 13,737,122 - Net cash provided by (used in) Principal paid on long-term debt (3,320,140) (729,492) - (4,049,632) (226,118) operating activities $ 7,510,690 $ 2,957,309 $ 645,292 $ 11,113,291 $ 2,930,413 Interest paid on long-term debt (774,817) (842,374) (23,137) (1,640,328) (140,554) Proceeds from sale of capital assets - - - - 196,357 Noncash noncapital financing activities Contributions to pension and other Net cash provided by (used in) capital postemployment benefit funds financed and related financing activities (9,635,096) 6,393,477 (69,625) (3,311,244) (2,264,976) throughthe issuance of long-term debt $ 10,747,934 $ 695,659 $ 1,391,318 $ 12,834,911 $ 7,167,649
Cash flows from investing activities concluded. Interest received on investments 5,775 44,261 14,815 64,851 -
Net change in cash and investments (1,052,665) 9,900,857 463,686 9,311,878 (8,679,154)
Cash and investments balances, beginning of year 2,592,217 6,070,611 1,758,498 10,421,326 26,913,330
Cash and investments balances, end of year $ 1,539,552 $ 15,971,468 $ 2,222,184 $ 19,733,204 $ 18,234,176
continued…
The accompanying notes are an integral part of these financial statements.
50 51 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Statement of Fiduciary Net Position Statement of Changes in Fiduciary Net Position Fiduciary Funds Fiduciary Funds June 30, 2017 For the Year Ended June 30, 2017
Pension and Other Pension and Other Employee Benefit Agency Employee Benefit Trust Funds Funds Trust Funds Assets Additions Cash and investments $ 7,262,778 $ 484,532 Contributions: Retirement investments, at fair value: Employer $ 147,989,291 Mutual funds 165,333,869 - Plan members 952,984 Equities 33,290,350 - Plan members' buybacks 111,902 Money market funds 11,384,324 - Total contributions 149,054,177 Government obligations 62,184,158 - Other assets 8,109,945 - Investment earnings: Receivables, net 106,376 - Net change in fair value of investments 18,243,330 Interest 193,355 Total assets 287,671,800 $ 484,532 Dividends 2,583,817 Other investment revenues 22,819 Liabilities Total investment gain 21,043,321 Accounts payable 374,108 - Less investment expenses 837,863 Undistributed receipts - 172,480 Net investment gain 20,205,458
B-32 Accrued and other liabilities 3,103 - Due to City of Berkley - 30,665 Total additions 169,259,635 Due to other governmental units - 320 Bonds and deposits - 281,067 Deductions Benefits 23,044,102 Total liabilities 377,211 $ 484,532 Refund of contributions 688,075 Administrative expenses 96,160 Net position Restricted for pension and other postemployment benefits $ 287,294,589 Total deductions 23,828,337
Change in net position 145,431,298
Net position, beginning of year 141,863,291
Net position, end of year $ 287,294,589
The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements.
52 53 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Combining Statement of Net Position Combining Statement of Activities Discretely Presented Component Units Discretely Presented Component Units June 30, 2017 For the Year Ended June 30, 2017
Tax Tax Increment Downtown Brownfield Increment Downtown Brownfield Financing Development Redevelopment Financing Development Redevelopment Authority Authority Authority Total Authority Authority Authority Total Assets Expenses Cash and investments $ 2,029,750 $ 133,503 $ 176,102 $ 2,339,355 Tax Increment Financing Authority $ 2,513,293 $ - $ - $ 2,513,293 Receivables, net 32,031 551 706 33,288 Downtown Development Authority - (11,681) - (11,681) Prepaid items 50,000 - - 50,000 Brownfield Redevelopment Authority - - 36,751 36,751 Capital assets not being depreciated 2,895,755 - - 2,895,755 Capital assets being depreciated, net 831,244 - - 831,244 Total expenses 2,513,293 (11,681) 36,751 2,538,363
Total assets 5,838,780 134,054 176,808 6,149,642 Program revenues Operating grants and contributions 200,750 3,040 - 203,790 Liabilities Accounts payable 45,601 179 - 45,780 Net revenue (expense) (2,312,543) 14,721 (36,751) (2,334,573) Accrued and other liabilities 3,907 846 - 4,753 Long-term debt: General revenues Due within one year 6,184 1,816 - 8,000 Property taxes 3,339,996 49,752 119,705 3,509,453 Due in more than one year 6,266 1,846 - 8,112 Unrestricted investment earnings 16,985 988 1,425 19,398
B-33 Miscellaneous revenue 93,999 - - 93,999 Total liabilities 61,958 4,687 - 66,645 Total general revenues 3,450,980 50,740 121,130 3,622,850 Net position Investment in capital assets 3,726,999 - - 3,726,999 Change in net position 1,138,437 65,461 84,379 1,288,277 Unrestricted 2,049,823 129,367 176,808 2,355,998 Net position, beginning of year, as restated 4,638,385 63,906 92,429 4,794,720 Total net position $ 5,776,822 $ 129,367 $ 176,808 $ 6,082,997 Net position, end of year $ 5,776,822 $ 129,367 $ 176,808 $ 6,082,997
The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements.
54 55 NOTES TO FINANCIAL STATEMENTS B-34
56 57 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Brownfield Redevelopment Authority. The Brownfield Redevelopment Authority ("BRA") is authorized by the state legislature, to help cleanup contaminated properties using property tax capture. The Reporting Entity authority’s governing body, which consists of nine individuals, is selected by the Mayor and approved by the City Commission. The BRA is expected to provide a financial benefit to the City. The Authority The City of Royal Oak, the "City", operates under the council/manager form of government. The City is uses the modified accrual basis of accounting. The component unit does not issue separate financial governed by an elected seven-member commission, including an elected mayor, which appoints the City statements. Manager who oversees the administration and operations of the City. Joint Ventures The accompanying financial statements present the government and its component units, entities for which the government is considered to be financially accountable. Although blended component units are The City is a member of the Southeastern Oakland County Resource Recovery Authority, which consists of legally separate entities, in substance, they are part of the government's operations. The discretely 14 municipalities in Oakland County and provides refuse collection and disposal services for the benefit of presented component units are reported in a separate column in the government-wide financial member municipalities. The City appoints one member of the joint venture's governing board, which statements to emphasize that they are legally separate from the government (see discussion below for approves the annual budget. The participating communities provide funding for its operations. During description). the year ended June 30, 2017, the City expensed approximately $4,781,000 of payments made to the Authority. Complete financial statements for the Southeastern Oakland County Resource Recovery Blended Component Units. The individual component units set forth below are included as a part of the Authority can be obtained from the administrative offices at 3910 Webster Road, Royal Oak, Michigan primary government due to the significance of their operational and financial relationships with the City. 48073.
Building Authority. A Board that is appointed by the City Commission governs the Building Authority. The City is also a member of the Southeastern Oakland County Water Authority, which provides a water Although it is legally separate from the City, the Authority is reported as if it were part of the primary supply system serving 11 member municipalities in Oakland County. The City appoints one member of the government because its sole business activity is acquiring and leasing property to the City. Activity in joint venture's governing board, which approves the annual budget. The participating communities the fund, at this time, includes the repayment of ice arena bonds issued to construct a second rink, provide funding for its operations. During the year ended June 30, 2017, the City expensed approximately B-35 which is combined with the ice arena enterprise fund for inclusion in the City's financial statements; $4,165,000 of payments made to the Authority. Complete financial statements for the Southeastern the repayment of general obligation bonds related to the construction of a courthouse; the repayment Oakland County Water Authority can be obtained from the administrative offices at 3910 Webster Road, of general obligation bonds related to the construction of a parking deck which is combined with the Royal Oak, Michigan 48073. automobile parking system enterprise fund for inclusion in the City’s financial statements; the repayment of fire improvement bonds related to the construction of two fire stations, the renovation Government-wide and Fund Financial Statements of one fire station, and for the purchase of various fire apparatus and equipment; and the recognition of expenditures for the renovation of the library and the repayment of the related general obligation The government-wide financial statements (i.e., the statement of net position and the statement of bonds. activities) report information on all of the nonfiduciary activities of the primary government and its component units. Governmental activities, which normally are supported by taxes and intergovernmental Discretely Presented Component Units. The component units column in the government-wide financial revenues, are reported separately from business-type activities, which rely to a significant extent on fees statements includes the financial data of the City's other component units. They are reported in a and charges for support. Likewise, the primary government is reported separately from certain legally separate column to emphasize that they are legally separate from the City. The following component separate component units for which the primary government is financially accountable. units are included in the reporting entity because the officials of the primary government are financially accountable. The component units do not report separately. Financial accountability is defined as the The statement of activities demonstrates the degree to which the direct expenses of a given function or appointment of a voting majority of the component unit's Board, and either (a) the ability to impose the segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a will of the primary government, or (b) the possibility that the component unit will provide a financial specific function or segment. Program revenues include 1) charges to customers or applicants who benefit to or impose a financial burden on the primary government. purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital Downtown Development Authority and Tax Increment Financing Authority. The Downtown requirements of a particular function or segment. Taxes and other items not properly included among Development Authority and the Tax Increment Financing Authority were created to correct and prevent program revenues are reported instead as general revenues. deterioration in the downtown district, encourage historical preservation, and to promote economic growth within the downtown district. The authorities share the same governing body, consisting of 11 Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary individuals who are selected by the City Manager and then approved by the City Commission. In funds, even though the latter are excluded from the government-wide financial statements. Major addition, the authorities' budgets are subject to approval by the City Commission. The authorities are individual governmental funds and major individual enterprise funds are reported as separate columns in expected to provide a financial benefit to the City. The authorities use the modified accrual basis of the fund financial statements. accounting. The component units do not issue separate financial statements.
58 59 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
Measurement Focus, Basis of Accounting and Financial Statement Presentation The government reports the following major proprietary funds:
The government-wide financial statements are reported using the economic resources measurement focus The water and sewer fund accounts for the activities of the water distribution system and the sewage and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements, collection system. except for agency funds which do not have a measurement focus. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. The automobile parking system fund accounts for the operation and maintenance of the City-owned Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items parking lots and structures. are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Additionally, the government reports the following fund types: Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both Special revenue funds are used to account for and report the proceeds of specific revenue sources that measurable and available. Revenues are considered to be available when they are collectible within the are restricted or committed to expenditure for specified purposes other than debt service or capital current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the projects. government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period, except reimbursement-based grants which use a one year period. Expenditures The debt service fund is used to account for and report financial resources that are restricted, generally are recorded when a liability is incurred, as under accrual accounting. However, debt service committed, or assigned to expenditure for principal and interest. expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. 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 Property taxes, intergovernmental revenues, franchise taxes, licenses, and interest associated with the capital facilities and other capital assets. current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the The permanent fund is used to account for the resources that are permanently restricted to the extent B-36 current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other that only earnings, and not principal, may be used for the benefit of the government or its citizenry. revenue items are considered to be measurable and available only when cash is received by the government. Enterprise funds account for those operations that are financed and operated in a manner similar to private business or where the City has decided that the determination of revenues earned, costs The government reports the following major governmental funds: incurred and/or net income is necessary for management accountability.
The general fund is the government's primary operating fund. It accounts for all financial resources of Internal service funds are used to account for information systems services, fleet management the general government, except those accounted for and reported in another fund. services, workers' compensation insurance coverage, medical self-insurance, and general liability provided to other departments on a cost-reimbursement basis. The public safety fund accounts for the collection of a separate tax millage, in addition to general fund budgeted amounts, that are used to fund police, fire, and emergency medical services. The agency funds are used to account for monies held by the City in a trustee capacity or as an agent for individuals, private organizations and other governments, specifically funds from district court fines The solid waste fund accounts for the collection of a separate tax millage that is used to fund refuse and costs, property tax collection, and miscellaneous agencies like performance bonds, and collection and disposal. contributions for the ROOTS Foundation and Historical Commission’s Starr House.
The community development block grant fund accounts for grants received from the U.S. Department Two trust funds account for the activities of the City of Royal Oak Retirement System, which of Housing and Urban Development. accumulates resources for pension benefit payments to qualified employees, and the City of Royal Oak Retiree Health Care Plan, which accumulates resources to pay other postemployment benefits (OPEB), The city capital projects fund is used to account for and report financial resources that are restricted, in this case health benefits for qualified retirees. committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes where the amounts are reasonably equivalent in value to the interfund services provided and other charges between the government’s water and sewer function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned.
60 61 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, Inventories and Prepaid Items or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather All inventories are valued at cost using the first-in, first-out method. Inventories of governmental funds than as program revenues. Likewise, general revenues include all taxes. are recorded as expenditures when consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating government-wide and fund financials. revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of Restricted Assets the proprietary funds relate to charges to customers for sales and services. The water and sewer fund also recognizes as operating revenue the portion of tap fees intended to recover the cost of connecting Certain revenues and resources of the City are classified as restricted assets on the statement of net new customers to the system. Operating expenses for enterprise funds and internal service funds include position because their use is limited. Permanent fund restricted assets are restricted by a legal the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues endowment. and expenses not meeting this definition are reported as nonoperating revenues and expenses. Capital Assets When both restricted and unrestricted resources are available for use, it is the government’s policy to use restricted resources first, then unrestricted resources as they are needed. Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or businessVtype activities Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Equity columns in the governmentVwide financial statements. The government defines capital assets as assets with an initial, individual cost of more than $10,000 and an estimated useful life in excess of three years. Deposits and Investments Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated acquisition cost at the date of donation. Cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term B-37 investments with original maturities of three months or less from the date of acquisition. Investments are The costs of normal maintenance and repairs that do not add to the value of the asset or materially reported at fair value. extend assets lives are not capitalized.
State statutes authorize the government to deposit in the accounts of federally insured banks, credit Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest unions, and savings and loan associations, and to invest in obligations of the U.S. Treasury, certain incurred during the construction phase of capital assets of businessVtype activities, if any, is included as commercial paper, repurchase agreements, bankers’ acceptances, and mutual funds composed of part of the capitalized value of the assets constructed. During the year, no interest was capitalized as otherwise legal investments. The State’s Pension Investment Act, as amended, authorizes the pension part of the cost of assets under construction. trust fund to invest in common stocks, real estate, and various other investment instruments, subject to certain limitations. Property, plant, and equipment is depreciated using the straight-line method over the following estimated useful lives: Receivables and Payables Years Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as "due to/from other funds." Any residual balances outstanding Buildings and renovations 25-45 between governmental activities and business-type activities are reported in the government-wide Improvements 10-20 financial statements as "internal balances." Infrastructure 40-50 Vehicles 3-10 All trade and property tax receivables are shown net of an allowance for uncollectible amounts. Equipment 5-15 Intangibles 3-10 Property taxes are levied as of July 1st on property values assessed as of the same date. The City bills twice a year, on July 1st and December 1st. The July bill, which contains the school, community college and most of the City levy, is due without interest by July 31st, although taxpayers may pay the bill in two installments provided half the bill is paid by July 31st. The second half is due without penalty by October 31st. The December bill, which typically contains the county levy and a small City levy, is payable without interest by the following February 14th. The bills are considered past due on March 1st, at which time the applicable property is subject to lien, and penalties and interest are assessed.
62 63 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
Deferred Outflows of Resources Fund Balances
In addition to assets, the statement of financial position will sometimes report a separate section for The fund balance classifications are reported primarily on the extent to which a government is bound to deferred outflows of resources. This separate financial statement element, deferred outflows of observe constraints imposed on the use of the resources reported in governmental funds. The fund resources, represents a consumption of net position that applies to a future period(s) and so will not be balances are classified as nonspendable, restricted, committed, assigned, and unassigned. recognized as an outflow of resources (expense/expenditure) until then. The City reports deferred outflows of resources for change in expected and actual investment returns, assumptions, and benefits Nonspendable fund balance represents amounts that are not in a spendable form. In the fund financial provided in its pension and other postemployment benefit plans as well as for the deferred charge on statements, governmental funds report restrictions on fund balances for amounts that are legally refunding. A deferred refunding charge results from the difference in the carrying value of refunded debt restricted by outside parties for a specific purpose. Committed fund balance is reported for amounts that and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the can only be used for specific purposes pursuant to constraints imposed by formal action of the City refunded or refunding debt. Commission (the City’s highest level of decision-making authority). A formal resolution of the City Commission is required to establish, modify, or rescind a fund balance commitment. Assigned fund Compensated Absences balance consists of amounts that are constrained by the City’s intent to be used for specific purposes but are neither restricted nor committed. By resolution, the City Commission has transferred the authority to It is the government's policy to permit employees to accumulate earned but unused sick and vacation pay assign fund balance to the Finance Director. Unassigned fund balance is the residual classification for the benefits. All vacation pay, longevity pay, and a portion of sick pay is accrued when incurred in the general fund. government-wide and proprietary financial statements. Sick pay limits are based on the employee’s union contract. A liability for these amounts is reported in governmental funds only if they have matured, for The City's general fund fund balance policy is to maintain unassigned fund balance at ten percent, but no example, as a result of employee resignations and retirements. more than twenty-five percent, of budgeted expenditures.
Long-term Obligations When the government incurs an expenditure for purposes for which various fund balance classifications can be used, it is the government's policy to use restricted fund balance first, then committed, assigned, B-38 In the government-wide financial statements, and proprietary fund types in the fund financial statements, and finally unassigned fund balance. long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and Pensions and Other Postemployment Benefits discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are For purposes of measuring the net pension liability, net other postemployment benefit asset, deferred expensed in the year of issuance. outflows of resources and deferred inflows of resources related to pension and other postemployment benefit plans, and pension and other postemployment benefit expenses, information about the fiduciary In the fund financial statements, governmental fund types recognize bond premiums and discounts, as net position of the Plans and additions to/deductions from the Plans' fiduciary net position have been well as bond issuance costs, during the current period. The face amount of the debt issued is reported as determined on the same basis as they are reported by the Plans. For this purpose, benefit payments other financing sources. Premiums received on debt issuances are reported as other financing sources (including refunds of employee contributions) are recognized when due and payable in accordance with while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not the benefit terms. Investments are reported at fair value. withheld from the actual debt proceeds received, are reported as debt service expenditures.
Deferred Inflows of Resources
In addition to liabilities, the statement of financial 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 reports deferred inflows of resources for change in expected and actual investment returns, assumptions, and benefits provided in its other postemployment benefit plan. The governmental funds also report unavailable revenues, which arises only under a modified accrual basis of accounting, from property taxes and special assessments receivable. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available.
64 65 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
2. BUDGETARY INFORMATION 4. DEPOSITS AND INVESTMENTS
Annual budgets are adopted on a basis consistent with generally accepted accounting principles for the State of Michigan statutes authorize the City to invest in bonds and other direct and certain indirect general fund and all special revenue funds. All annual appropriations lapse at fiscal year end, except for obligations of the US Treasury; certificates of deposit, savings accounts, deposit accounts, or depository those approved by the City Commission. The legal level of budgetary control is the activity level. receipts of a financial institution, but only if the financial institution is a member of the Federal Deposit Insurance Corporation, or National Credit Union Administration; and commercial paper must be rated Department heads submit requests for appropriations to the City Manager so that a budget may be within the two highest classifications established by not less than two standard rating services. The City is prepared. The proposed budget is presented to the City Commission for review. The Commission holds also authorized to invest in U.S. government or federal agency obligation repurchase agreements, public hearings, and a final budget must be prepared and adopted no later than June 30th.The bankers’ acceptances of U.S. banks, and mutual funds comprised of investments as outlined above. The appropriated budget is prepared by fund, activity, (e.g. general government, public safety, etc.) and City Retirement System is allowed to invest in corporate stocks and bonds. department. Budget amendments are submitted for Commission approval on a quarterly basis. The Commission makes supplemental budgetary appropriations throughout the year mostly a result of the mid- The City’s investment policy allows for all of these types of investments. Investments of the City of Royal year review. Oak Retirement System are subject to a number of restrictions as to type, quality and concentration of investments. Retirement System investments are held in a trust fund invested by SEI Investments Encumbrance accounting is employed in governmental funds. Encumbrances (e.g., purchase orders, Company. Retiree healthcare investments are held in a trust fund by Fifth Third Bank. contracts) outstanding at year end lapse, therefore do not constitute expenditures or liabilities because commitments will be reappropriated and honored during the subsequent year. The City did not have any At year-end the City's deposits and investments were reported in the basic financial statements in the significant encumbrances at year-end. following categories:
3. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Primary Component Government Units Totals Expenditures in Excess of Appropriations B-39 Statement of Net Position For the year ended June 30, 2017, the City incurred expenditures in certain budgeted funds which were in Cash and investments $ 90,762,463 $ 2,339,355 $ 93,101,818 excess of the amount appropriated, as follows: Restricted assets (endowments cash) 1,000 - 1,000
Budget Actual 90,763,463 2,339,355 93,102,818 Appropriation Expenditure Variance Local streets fund - Statement of Fiduciary Net Position Public works $ 6,860,550 $ 6,945,409 $ 84,859 Pension and OPEB trust funds: Cash and investments 7,262,778 - 7,262,778 Deficit Fund Equity Retirement investments 280,302,646 - 280,302,646 Agency funds - The Water and Sewer fund reported a deficit in unrestricted net position in the amount of $1,767,434 at Cash and investments 484,532 - 484,532 June 30, 2017. The fund had total net position of $71,022,501, as well as a positive working capital reserve at year end. 288,049,956 - 288,049,956
The Recreation Administration fund reported a deficit in unrestricted net position in the amount of Total $ 378,813,419 $ 2,339,355 $ 381,152,774 $592,006 at June 30, 2017. The fund had total net position of $2,560,233, as well as a positive working capital reserve at year end.
66 67 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
Deposits and investments Credit Risk. State law limits investments to specific government securities, certificates of deposits and Bank deposits (checking and savings accounts, bank accounts with qualified financial institutions, commercial paper with specific maximum maturities certificates of deposit) $ 100,845,027 and ratings when purchased, bankers acceptances of specific financial institutions, qualified mutual funds Investments: and qualified external investments. Commercial paper must be rated within the two highest classifications Equities: established by not less than two standard rating services. The City’s investment policy does not have Large cap domestic equities 19,171,064 specific limits in excess of state law on investment credit risk. The City's investments in mutual funds, Small and mid cap equities 4,662,315 government obligations and money market funds were not rated. Developed international equities 7,056,157 Emerging markets equities 2,400,814 Custodial Credit Risk – Deposits. Custodial credit risk is the risk that in the event of a bank failure, the Money market funds 11,384,324 City’s deposits may not be returned. State law does not require and the City does not have a policy for Bond mutual funds 19,267,711 deposit custodial credit risk. As of June 30, 2017, $97,917,855 of the City’s bank balance of $101,174,881 Equity mutual funds 88,756,396 was exposed to custodial credit risk because it was uninsured and uncollateralized. Real estate mutual funds 8,109,945 Other mutual funds 57,309,762 Custodial Credit Risk – Investments. As of June 30, 2017, the City's pooled investments consisted of Government obligations 62,184,158 equities, mutual funds, government obligations and money market funds totaling $280,302,646. For Cash on hand 5,101 investments, custodial credit risk is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession Total $ 381,152,774 of an outside party. The City’s investment policy requires that investment securities be held in third-party safekeeping by a designated institution and that the safekeeping agent follow the procedure of delivery Investment and Deposit Risk vs. payment. As of June 30, 2017, none of the City’s investments were exposed to risk since the securities are held in the City’s name by the counterparty. Interest Rate Risk. Interest rate risk is the risk that the value of investments will decrease as a result of a B-40 rise in interest rates. State law limits investment maturities for commercial paper to no more than 270 Concentration of Credit Risk. Concentration of credit risk is the risk of loss attributed to the magnitude of days after date of purchase. The City’s investment policy does not have specific limits in excess of state the City’s investment in a single issuer. State law limits allowable investments but does not limit law on investment maturities as a means of managing its exposure to fair value losses arising from concentration of credit risk as identified in the list of authorized investments in the summary of increasing interest. The City's weighted average maturity dates for bond mutual funds are disclosed significant accounting policies. The City’s investment policy does not have specific limits in excess of below: state law on concentration of credit risk. All investments held at year end are reported above.
Weighted Fair Value Measurements. The City categorizes the fair value measurements of its investments within the Average fair value hierarchy established by generally accepted accounting principles. Level 1 inputs are quoted Fair Value Maturity (Years) prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs – other than quoted prices – included within Level 1 that are observable for the asset or liability, either directly or indirectly. Bond mutual funds: Finally, Level 3 inputs are unobservable and are based on estimates and assumptions. These levels are SEI Emerging Markets Debt $ 8,398,472 9.24 determined by the management's review of the type and substance of investments held by the City. Vanguard Total Bond Market 8,781,056 8.40 Templeton Global Total Return 2,088,183 3.80 The City had the following recurring fair value measurements as of June 30, 2017: Money market funds - SEI Daily Income Govt Fund 11,384,324 1.10 Level 1 Level 2 Level 3 Total Government obligations Federated Government Obligations Fund 62,184,158 1.07 Equities $ 33,290,350 $ - $ - $ 33,290,350 Money market funds - 11,384,324 - 11,384,324 Total $ 30,652,035 Bond mutual funds 19,267,711 - - 19,267,711 Equity mutual funds 88,756,396 - - 88,756,396 Real estate mutual funds - - 8,109,945 8,109,945 Other mutual funds 38,019,407 19,290,355 - 57,309,762 Government obligations 62,184,158 - - 62,184,158
Total investments at fair value $ 241,518,022 $ 30,674,679 $ 8,109,945 $ 280,302,646
68 69 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
5. RECEIVABLES Interfund transfers between the funds within the primary government were as follows:
Receivables are comprised of the following at year end: Transfers In Community Not Expected Development to be Collected Transfers Out General Public Safety Solid Waste Block Grant Governmental Business-type Component Within One Activities Activities Units Year General fund $ - $ 18,700,000 $ - $ - Public safety fund - - - - Accounts $ 1,174,693 $ 9,036,139 $ - $ - Solid waste fund - - - - Loans 3,394,569 - - 3,394,569 City capital projects 53,627 - - - Taxes (current) 49,486 - - - Nonmajor governmental funds 4,777 - - - Taxes (delinquent) 67,054 - 60,928 - Water and sewer fund - - - - Special assessments 1,889,816 - - 1,044,235 Automobile parking system fund - - - - Intergovernmental 2,116,040 1,718,742 - 1,718,742 Nonmajor enterprise funds - - - - Interest and other 279,575 21,558 9,379 - Internal service funds 6,853,410 - 405,860 38,600 Less: allowance for uncollectibles (184,497) (103,073) (37,019) - $ 6,911,814 $ 18,700,000 $ 405,860 $ 38,600 $ 8,786,736 $ 10,673,366 $ 33,288 $ 6,157,546 Transfers In 6. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS Nonmajor City Capital Governmental Water & Sewer Automobile B-41 The composition of interfund balances as of June 30, 2017, was as follows: Transfers Out Projects Funds Fund Parking System
Due from Due to General fund $ - $ 4,353,464 $ - $ - Other Funds Other Funds Public safety fund - 65,940 - - Solid waste fund - 4,500 - - General $ 233,944 $ - City capital projects - 910,389 - - Community development block grant - 233,944 Nonmajor governmental funds 7,001,366 685,848 35,525 - Water and sewer fund 399 4,500 1,407,111 - $ 233,944 $ 233,944 Automobile parking system fund - 1,273 - - Nonmajor enterprise funds 198,000 32,832 - - In addition, an interfund balance existed between governmental activities and business-type activities in Internal service funds - 944,935 1,035,340 217,970 the amount of $3,917,666. This resulted from the allocation of a portion of internal service fund net position of governmental-type internal service funds to business-type activities. $ 7,199,765 $ 7,003,681 $ 2,477,976 $ 217,970
The outstanding balances between funds result mainly from the time lag between the dates that interfund goods and services are provided or reimbursable expenditures occur, transactions are recorded in the accounting system, and payments between funds are made. All interfund balances are expected to be collected within one year.
70 71 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
Transfers In 7. CAPITAL ASSETS Nonmajor Enterprise Internal Primary Government Transfers Out Funds Service Funds Total Capital asset activity for the current year was as follows: General fund $ - $ 3,000 $ 23,056,464 Public safety fund - 105,000 170,940 Beginning Ending Solid waste fund - - 4,500 Balance Additions Disposals Transfers Balance City capital projects - - 964,016 Governmental Activities Nonmajor governmental funds - 147,344 7,874,860 Capital assets, Water and sewer fund - - 1,412,010 not being depreciated: Automobile parking system fund - - 1,273 Land $ 66,774,752 $ - $ - $ - $ 66,774,752 Nonmajor enterprise funds - - 230,832 Construction in progress 19,375,820 15,835,582 - (12,233,695) 22,977,707 Internal service funds 103,820 450,490 10,050,425 86,150,572 15,835,582 - (12,233,695) 89,752,459
$ 103,820 $ 705,834 $ 43,765,320 Capital assets, being depreciated: Buildings 30,761,481 - (87,645) - 30,673,836 Transfers are used to: (1) move unrestricted revenues collected in the general fund to finance various Improvements other programs accounted for in other funds in accordance with budgetary authorizations; (2) move revenues than buildings 4,622,968 39,094 - 377,450 5,039,512 from the fund that is required to collect them to the fund that is required or allowed to expend them; and Machinery and equipment 21,986,366 1,803,870 (1,283,733) 584,033 23,090,536 (3) move receipts restricted to or allowed for debt service from the funds collecting the receipts to the Infrastructure 114,022,425 - (53,627) 11,208,504 125,177,302 debt service funds as debt service payments become due. Intangibles 354,608 - - 63,708 418,316 B-42 171,747,848 1,842,964 (1,425,005) 12,233,695 184,399,502 During the year, the City transferred funds primarily to: (1) move unrestricted revenues from the general fund to finance activities of the public safety fund and other nonmajor funds (2) transfer resources to the Less accumulated depreciation for: capital projects fund to finance ongoing construction and (3) transfer unrestricted funds from the excess Buildings (15,082,641) (604,545) 87,645 - (15,599,541) working capital reserve in internal service funds to refund the City funds originally charged. Improvements other than buildings (3,746,752) (89,630) 9,844 - (3,826,538) Machinery and equipment (15,928,949) (1,618,498) 1,228,945 - (16,318,502) Infrastructure (64,780,003) (1,646,137) - - (66,426,140) Intangibles (354,608) (7,963) - - (362,571) (99,892,953) (3,966,773) 1,326,434 - (102,533,292)
Total capital assets being depreciated, net 71,854,895 (2,123,809) (98,571) 12,233,695 81,866,210
Governmental activities capital assets, net $ 158,005,467 $ 13,711,773 $ (98,571) $ - $ 171,618,669
72 73 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
Beginning Ending Depreciation expense was charged to functions/programs of the primary government as follows: Balance Additions Disposals Transfers Balance Business-type Activities Depreciation of governmental activities by function Capital assets, General government $ 444,943 not being depreciated: Public safety 253,163 Land $ 9,958,656 $ - $ - $ - $ 9,958,656 Public works 1,546,186 Construction in progress 8,019,620 14,840,369 - (5,499,036) 17,360,953 Recreation and culture 302,550 17,978,276 14,840,369 - (5,499,036) 27,319,609 Capital assets held by the government's internal service funds are charged to the various functions based on Capital assets, being depreciated: their usage of the assets 1,419,931 Buildings 30,428,365 46,487 - - 30,474,852 Improvements other Total depreciation expense - governmental activities $ 3,966,773 than buildings 1,453,612 - - - 1,453,612 Machinery and equipment 1,627,998 210,768 - 36,160 1,874,926 Depreciation of business-type activities by function Infrastructure 127,769,860 - (2,723) 5,462,876 133,230,013 Water and sewer $ 2,890,216 161,279,835 257,255 (2,723) 5,499,036 167,033,403 Parking 555,905 Ice arena 108,226 Less accumulated depreciation for: Recreation 87,765 Buildings (14,729,509) (681,782) - - (15,411,291) Farmers market 69,944 Improvements other than buildings (248,648) (63,861) - - (312,509) Total depreciation expense - business-type activities $ 3,712,056 Machinery and equipment (1,356,981) (45,937) - - (1,402,918) B-43 Infrastructure (43,638,180) (2,920,476) 2,723 - (46,555,933) Construction Commitments (59,973,318) (3,712,056) 2,723 - (63,682,651) The City has active construction projects as of June 30, 2017. The projects include infrastructure Total capital assets improvements. At year end, the City’s commitments with contractors are as follows: being depreciated, net 101,306,517 (3,454,801) - 5,499,036 103,350,752 Remaining Business-type activities Spent to Date Commitment capital assets, net $ 119,284,793 $ 11,385,568 $ - $ - $ 130,670,361 Buildings $ 8,543,392 $ 6,191,018 Roads 11,327,905 4,109,371 Water projects 2,131,476 2,275,752 Sewer projects 4,017,520 239,084 Sidewalks 2,855,316 768,987
Total $ 28,875,609 $ 13,584,212
Oakland County has a major contract on the George W. Kuhn project. Of the amount spent to date, approximately $38,946,000 is attributable to the City.
74 75 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
Discretely Presented Component Units 8. LONG-TERM DEBT
Beginning Ending The City issues bonds to provide for the acquisition and construction of major capital facilities, as well as Balance Additions Disposals Balance to finance unfunded pension and other postemployment liabilities. General obligation bonds are direct Component Unit - TIFA obligations and pledge the full faith and credit of the City. County contractual agreements are also Capital assets, not being depreciated - general obligations of the City. Bond and contractual obligation activity and other long-term liabilities can Land $ 2,895,755 $ - $ - $ 2,895,755 be summarized as follows:
Capital assets, being depreciated: Beginning Ending Due Within Improvements other Balance Additions Deductions Balance One Year than buildings 1,609,877 - - 1,609,877 Infrastructure 439,529 - - 439,529 Governmental Activities 2,049,406 - - 2,049,406 Bonds payable $ 10,627,511 $ 113,775,085 $ (1,706,994) $ 122,695,602 $ 5,125,299 Unamortized discount (264) - 264 - - Less accumulated depreciation for: Unamortized premium 333,364 - (49,833) 283,531 49,746 Improvements other Compensated absences 3,527,409 2,355,387 (2,239,452) 3,643,344 1,822,000 than buildings (785,968) (18,568) - (804,536) General liability claims 498,430 543,232 (265,502) 776,160 388,080 Infrastructure (338,379) (75,247) - (413,626) Workers compensation 796,050 66,122 (319,428) 542,744 271,372 (1,124,347) (93,815) - (1,218,162) Total governmental Total capital assets activities $ 15,782,500 $ 116,739,826 $ (4,580,945) $ 127,941,381 $ 7,656,497 being depreciated, net 925,059 (93,815) - 831,244 B-44 Business-type Activities Component unit - TIFA Bonds payable, contractual capital assets, net $ 3,820,814 $ (93,815) $ - $ 3,726,999 obligations and State revolving fund $ 36,624,353 $ 26,334,911 $ (4,049,632) $ 58,909,632 $ 5,217,015 Unamortized premium 689,659 237,122 (77,674) 849,107 77,675 Compensated absences 281,575 177,850 (197,615) 261,810 131,000
Total business-type activities $ 37,595,587 $ 26,749,883 $ (4,324,921) $ 60,020,549 $ 5,425,690
Component Units Compensated absences $ 16,618 $ 9,638 $ (10,144) $ 16,112 $ 8,000
Internal service funds predominantly serve the governmental funds. Accordingly, long-term liabilities for them are included as part of the above totals for governmental activities. At year end, $156,996 of internal service funds compensated absences is included in the above amounts. Also, for the governmental activities, claims and judgments and compensated absences are generally liquidated by the general fund.
Pledged Revenues
Parking. The City has pledged future parking revenues, net of specified operating expenses, to repay $13.5 million in parking revenue bonds issued in December 2016. Proceeds from the bonds provided financing for the construction of the Parking Structure. The bonds are payable solely from electric customer net revenues and are payable through October 2031. Annual principal and interest payments on the bonds are expected to require less than 14% of net revenues. The total principal and interest paid for the current year and total customer net revenues were $137,363 and $1,000,824 respectively.
76 77 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
Governmental activities - bonds payable Business-type activities bonds payable, contractual obligations 2007 Capital Improvements Bonds; $2,645,000 at issuance; payable in annual installments and State revolving fund of $185,000 to $260,000; interest payable semi-annually at 4.00% through October 2019 $ 605,000 Business-type activities - bonds payable 2008 Capital Improvement Bonds; $11,825,000 at issuance; payable in annual installments * 2008 Capital Improvement Bonds; $7,250,000 at issuance; payable in annual installments of $430,000 to $900,000; interest payable semi-annually at 4.00% to 6.25% through of $225,000 to $585,000; interest payable semi-annually at 4.00% to 6.25% through October 2018 55,000 October 2018 $ 645,000
2012 Building Authority Refunding Bonds; $4,965,000 at issuance; payable in annual * 2008 Capital Improvement Bonds; $3,270,000 at issuance; payable in annual installments installments of $490,000 to $620,000; interest payable semi-annually at 2.00% to 3.00% of $100,000 to $265,000; interest payable semi-annually at 4.00% to 6.25% through through September 2021 2,925,000 October 2018 290,000
2013 Capital Improvement Bonds; $1,127,000 at issuance; payable in annual installments 2016 Capital Improvement Refunding Bonds; $2,510,000 at issuance; payable in annual of $225,000 to $226,000; interest payable semi-annually at 1.38% through October 2018 450,000 installments of $130,000 to $310,000; interest payable semi-annually at 3.50% to $4.30% through May 2026 2,280,000 2014 Capital Improvement Refunding Bonds; $2,053,000 at issuance; payable in annual installments of $232,000 to $283,000; interest payable semi-annually at 2.30% through 2016 Capital Improvement Refunding Bonds; $4,926,473 at issuance; payable in annual June 2023 1,582,000 installments of $71,368 to $533,000; interest payable semi-annually at 4.00% to 6.25% through October 2028 4,855,103 2016 Court Building Authority Refunding Bonds; $3,258,678 at issuance; payable in annual installments of $381,876 to $447,570; interest payable semi-annually at 4.00% to 4.75% 2016 Capital Improvement Refunding Bonds; $2,225,596 at issuance; payable in annual through May 2024 2,876,702 B-45 installments of $71,368 to $533,000; interest payable semi-annually at 4.00% to 6.25% through October 2018 2,193,051 2016 Capital Improvement Refunding Bonds; $432,933 at issuance; payable in annual installments of $30,904 to $45,557; interest payable semi-annually at 4.00% to 6.25% 2016 Parking Building Authority Refunding Bonds; $3,941,422 at issuance; payable in annual through October 2028 426,815 installments of $366,124 to $410,000; interest payable semi-annually at 4.00% to 4.375% through October 2026 3,578,298 2017 Series A Other Postemployment Benefits Bonds; $95,290,341 at issuance; payable in annual installments of $2,916,043 to $6,618,383; interest payable semi-annually at 2016 Series B Parking Bonds; $13,500,000 at issuance; payable in annual installments 1.163% to 4.524% through October 2037 95,290,341 of $675,000 to $1,165,000; interest payable semi-annually at 3.700% through October 2031 13,500,000 2017 Series B Pension Bonds; $18,484,744 at issuance; payable in annual installments of $566,134 to $1,285,035; interest payable semi-annually at 1.163% to 4.524% through 2017 Series A Other Postemployment Benefits Bonds; $10,749,659 at issuance; payable in October 2037 18,484,744 annual installments of $328,957 to $746,617; interest payable semi-annually at 1.163% to 4.524% through October 2037 10,749,659 Total governmental activities bonds payable $ 122,695,602 2017 Series B Pension Bonds; $2,085,254 at issuance; payable in annual installments of $63,866 to $144,967; interest payable semi-annually at 1.163% to 4.524% through October 2037 2,085,254
40,176,365
78 79 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
Business-type activities - contractual obligations Defeased bonds * 1997 Garfield Drain Refunding Bonds; $1,710,691 at issuance; payable in annual installments of $40,623 to $135,411; interest payable semi-annually at 5.00% to 5.125% In previous years, the City defeased capital improvement bonds by placing the proceeds of the new bonds through October 2017 $ 135,411 in an irrevocable trust account to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the City’s * 2000 George W. Kuhn Drainage District, Series A; $5,176,386 at issuance; payable in annual financial statements. At June 30, 2017, $7,005,000 of defeased bonds remain outstanding. installments of $202,655 to $324,248; interest payable semi-annually at 2.50% through April 2022 1,543,073 Annual debt service requirements to maturity for the above obligations are as follows:
* 2000 George W. Kuhn Drainage District, Series C; $23,797,479 at issuance; payable in annual Governmental Activities Business-type Activities installments of $932,213 to $1,489,514; interest payable semi-annually at 2.50% through Year Ended April 2024 9,691,248 June 30, Principal Interest Principal Interest
* 2000 George W. Kuhn Drainage District, Series D; $659,403 at issuance; payable in annual 2018 $ 5,125,299 $ 4,834,478 $ 5,217,015 $ 1,868,226 installments of $27,503 to $40,531; interest payable semi-annually at 2.50% through 2019 5,658,439 4,277,683 5,256,546 1,662,229 April 2024 255,541 2020 5,551,655 4,164,726 5,388,592 1,516,165 2021 5,469,681 4,042,469 5,513,240 1,382,468 * 2000 George W. Kuhn Drainage District, Series F; $446,776 at issuance; payable in annual 2022 5,612,611 3,903,849 4,821,570 1,244,339 installments of $20,265 to $26,860; interest payable semi-annually at 1.63% through 2023-2027 24,697,130 17,164,018 17,519,646 4,260,227 April 2026 216,553 2028-2032 28,084,744 12,427,344 10,399,055 1,973,842 2033-2037 34,592,623 5,830,300 3,902,379 657,716 * 2016 Drain Refunding Bonds; $2,156,828 at issuance; payable in annual installments of 2038 7,903,420 178,775 891,589 20,167 B-46 $154,887 to $314,115; interest payable semi-annually at 4.25% to 4.38% through October 2024 1,861,531 $ 122,695,602 $ 56,823,642 $ 58,909,632 $ 14,585,379
* 2007 George W. Kuhn Drainage District, Series G; $519,081 at issuance; payable in annual No Commitment Debt. Excluded from the governmental activity debt are bonds issued under Act No. 38, installments of $22,057 to $29,410; interest payable semi-annually at 1.63% through Public Acts of Michigan, 1969, as amended, to provide a method to enable nonprofit private hospitals to April 2028 305,861 construct health care facilities. Also, revenue bonds issued by the Economic Development Corporation to acquire and lease property to third parties are excluded. The revenue bonds issued are payable solely * 2008 George W. Kuhn Drainage District, Series H; $7,450,000 at issuance; payable in annual from the net revenue derived from the hospital operations and the EDC leases and are not a general installments of $88,229 to $141,167; interest payable semi-annually at 2.50% through obligation of the City. After these bonds are issued, all financial activity is taken over by the paying April 2029 1,486,662 agent. The bonds and related lease contracts are not reflected in the City's financial statements. Information regarding the status of each bond issue, including possible default, must be obtained from the paying agent or other knowledgeable source. 15,495,880
Obligations for George W. Kuhn Project. The City is a participating community in the George W. Kuhn Business-type activities - State revolving fund drain project. The project is administered by the Oakland County Drain Commission and financed through 1998 North Arm Relief Drain Revenue Bonds; $13,877,387 at issuance; payable in the sale of drain bonds, draw downs from the State of Michigan revolving fund, federal and state grants, annual installments of $575,000 to $822,387; interest payable semi-annually at 2.25% and contributions from Oakland County. The City and 13 other local communities are obligated for the through October 2020 3,237,387 payment of principal and interest of the outstanding debt. It is currently anticipated that the City’s obligation at the end of construction will be approximately $38,946,000 with an interest rate of 1.63- Total business-type activities bonds payable, contractual obligations 4.38%. As of June 30, 2017, the City’s obligation is $16,295,469 in principal. and State revolving fund $ 58,909,632
* Debt related to financing George W. Kuhn Drainage District capital improvements project.
80 81 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
9. RISK MANAGEMENT Changes in the reported liability for the fiscal years 2016 and 2017 are as follows:
The government is exposed to various risks of loss related to property loss, torts, errors and omissions, Current-Year and employee injuries (workers’ compensation), as well as medical benefits provided to employees. The Liability at Claims and Liability at City participates in the Michigan Municipal Risk Management Authority for general property and liability Beginning of Changes in Claim End of claims. Fiscal Year Year Estimates Payments Year
The Michigan Municipal Risk Management Authority risk pool program operates as a common risk-sharing 2016 $ 1,015,259 $ 128,645 $ (347,854) $ 796,050 management program for local units of government in Michigan. Member premiums are used to purchase 2017 796,050 66,122 (319,428) 542,744 commercial excess insurance coverage and to establish a member loss fund. The loss fund is used to pay the member’s self-insured retention portion of claims. The City maintains multiple health care insurance programs, one of which is a self-insurance program with Blue Cross Blue Shield. The self-insurance program is accounted for in an internal service fund (medical The City has a $250,000 per occurrence self-insured retention for liability claims and $15,000,000 per self-insurance fund). The program is administered by a third party administrator who provides claims occurrence of excess liability insurance coverage. Coverage limits, retentions and deductibles for other review and processing services. Premiums are paid into the internal service fund by all other funds based types of coverage vary. All coverage is on an occurrence basis except for a stop loss policy which is on a on actuarial and management estimates. These premiums are available to pay health care claims, claim claims paid basis. The stop loss policy limits the maximum total self-insured retention payments in any reserves, stop loss coverage, prescriptions and administrative costs. one fiscal year to $885,000. Settlements have not exceeded coverages for each of the past three fiscal years. Health care liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. A stop loss coverage policy covers annual individual claims in excess of Changes in the reported liability for the fiscal years 2016 and 2017 are as follows: $100,000. Liabilities include an amount for claims that have been incurred but not reported (IBNR). Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including Current-Year frequency and amount of pay-outs and other economic and social factors. B-47 Liability at Claims and Liability at Beginning of Changes in Claim End of Changes in the reported liability for the fiscal years 2016 and 2017 are as follows: Fiscal Year Year Estimates Payments Year Current-Year 2016 $ 609,590 $ 131,627 $ (242,787) $ 498,430 Liability at Claims and Liability at 2017 498,430 543,232 (265,502) 776,160 Beginning of Changes in Claim End of Fiscal Year Year Estimates Payments Year The City was unable to obtain workers compensation insurance at a cost it considered to be economically justifiable. Therefore, the City utilizes the workers compensation fund, an internal service fund, to 2016 $ 530,092 $ 9,061,145 $ (8,840,398) $ 750,839 account for and finance its uninsured risks of loss related to employee work related accidents. 2017 750,839 8,991,722 (9,491,561) 251,000
Liabilities of the fund are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNRs). The result of the process to estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation, changes in legal doctrines, and damage awards. Accordingly claims are reevaluated periodically to consider the effects of inflation, recent claim settlement trends (including frequency and amount of pay-outs), and other economic and social factors. The estimate of the claims liability also includes amounts for incremental claim adjustment expenses related to specific claims and other claim adjustment expenses regardless of whether allocated to specific claims. Estimated recoveries, for example from salvage or subrogation, are another component of the claims liability estimate. An excess coverage insurance policy covers individual claims in excess of $450,000. Settlements have not exceeded coverage for each of the past three fiscal years.
82 83 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
10. CONTINGENT LIABILITIES Benefits Provided. Eligible employees who retire with minimum age and years of service requirements are entitled to annual retirement benefits, payable in monthly installments for life, in an amount equal to a Litigation. Various lawsuits are pending against the City, some of which are for substantial amounts. On percentage of their final average compensation times years of credited service. The Plan is closed to all the basis of opinions and information furnished by the City Attorney and Risk Manager, it is the judgment general employees as of June 30, 2008 and remains open for all police and fire employees. Regular service of City management that the ultimate liabilities, if any, resulting from such lawsuits have been retirement benefits are available to employee groups as follows: adequately accrued as a part of general liability claims (see Note 9). TPOAM (formerly AFSCME), executive department heads, department heads and deputies, technical Grants. Amounts received or receivable from grantor agencies are subject to audit and adjustment by and professional, supervisors and police service aides - age 50 with 25 years of service, age 55 with 20 grantor agencies, primarily the federal government. Any disallowed claims, including amounts already years of service or age 60 with 5 years of service. collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures, which may be disallowed by the grantor, cannot be determined at this time although the City expects such SEIU 517 - 30 years of service regardless of age, age 50 with 25 years of service, age 55 with 20 years amounts to be immaterial. of service or age 60 with 5 years of service.
11. EMPLOYEES' RETIREMENT SYSTEM Fire employees, police command, police officers and detectives - 25 years of service regardless of age or age 55 with 10 years of service. General Information about the Pension Plan Final Average Compensation (FAC) is the highest two consecutive years out of the last ten for general Plan Description. The City contributes to the City of Royal Oak Retirement System, which is the employees. For police and fire employees, FAC is the highest two consecutive years out of the last ten administrator of a single-employer defined benefit pension plan that covers all full-time employees of the hired before May 30, 2012 and September 30, 2009 respectively and for those hired after FAC is based on City. The System provides retirement, disability and death benefits to plan members and their the highest three consecutive years out of the last ten. Deferred retirement benefits vest after five years beneficiaries; it does not provide for cost of living benefit adjustments. Management of the System is of service for general employees and ten years of service for police and fire employees. Deferred benefits vested in the Retirement Board of the City of Royal Oak, which consists of five members: two members of are not paid until the years of service and age requirements are met. B-48 the City Commission that are appointed by and serve at the pleasure of the City Commission, the City Manager of the City, one general member of the System that is elected by the general members and one Contributions. The obligation to contribute to the System for these employees was established by City fire or police member of the System that is elected by the fire and police members. The System is ordinance and through negotiations with the employees' collective bargaining units. Employees are included in the City's financial statements as a pension trust fund. Separate financial statements are not required to contribute 3.0 to 7.0 percent of gross wages. The funding policy provides for periodic issued for the Plan. employer contributions at actuarially determined rates.
Method Used to Value Investments. Plan investments are reported at fair value. Short-term investments Bargaining Unit / Benefit Contribution are reported at cost, which approximates fair value. Securities traded on national or international Employee Group Multiplier Percentage Maximum FAC exchanges are valued at the last reported sales price at current exchange rates. Investments that do not have established market values are reported at estimated fair values as determined by the custodian Executive Department Head 2.0%-2.5% 5.0% 80% under the direction of the Retirement Board with the assistance of a valuation service. SEIU AFL-CIO Local 517M 2.2%-2.5% 7.0% 75% Department Heads and Deputies 2.2%-2.5% 5.0% 80% Rate of Return. For the year ended June 30, 2017, the annual money-weighted rate of return on pension 44th District Court 2.2%-2.5% 4.0% 75% plan investments, net of pension plan investment expense, was 13.09 percent. The money-weighted rate Professional and Technical 2.2%-2.5% 5.0% 80% of return expresses investment performance, net of investment expense, adjusted for the changing TPOAM (formerly AFSCME) 2.2%-2.5% 4.5% 80% amounts actually invested. Foreman and Supervisors 2.2%-2.5% 7.0% 80% Judges 2.0%-2.5% 3.0% 75% Police Service Aides 2.2%-2.5% 4.0% 80% Police Officers 2.5%-2.8% 6.0% 80% Fire Fighters 2.5%-2.8% 6.0% 75% Police Command 2.8% 6.0% 80% Detectives 2.8% 6.0% 75% Police and Fire Department Heads 2.8% 6.0% 75%
During the year ended June 30, 2017, the City issued pension obligation bonds to finance the net pension liability attributable to the closed portion of the plan. Total additional contributions were $21,427,826.
84 85 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
Membership. At June 30, 2017 (the date of the most recent actuarial report), membership consisted of: The actuarial assumptions used in the June 30, 2016 valuation were based on the results of an actuarial experience study for the period 2006 through 2012. Retirees and beneficiaries currently receiving benefits 548 The long-term expected rate of return on pension plan investments was determined using a building-block Terminated employees entitled to method in which best-estimates of expected future real rates of return (expected returns, net of pension benefits but not yet receiving them 25 plan investment expense and inflation) are developed for each asset class. These ranges are combined to Current full-time employees 231 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 Total members 804 rates of return for each major asset class included in the pension plan’s target asset allocation as of June 30, 2017, and the final investment return assumption, are summarized in the following table: Reserves. In accordance with the Plan policy, the City establishes reserves for various purposes. The reserves are adjusted annually based on recommendations from the City's actuaries. The policy for Expected creating and adjusting reserves was established and can be amended by the Plan Board of Trustees. A Long-term Money- summary of the Plan reserves at June 30, 2017 is as follows: Target Expected Real Weighted Rate Asset Class Allocation Rate of Return of Return Reserve / Group Balance World equity 19.00% 6.83% 1.30% Police and fire members benefit fund $ 97,456,316 Core fixed income 13.00% 4.04% 0.53% General members benefit fund 92,129,118 Opportunistic income fund 12.00% 3.39% 0.41% Undistributed investment income fund (34,614,549) Large cap index 20.00% 5.50% 1.10% Dynamic asset allocation 8.00% 7.82% 0.63% Net Pension Liability. The City's net pension liability was measured as of June 30, 2017 and the total Small cap 8.00% 5.50% 0.44% B-49 pension liability used to calculate the net pension liability was determined by an actuarial valuation as of Emerging markets debt 6.00% 6.25% 0.38% June 30, 2016 rolled forward to June 30, 2017. Core property 5.00% 4.80% 0.24% Emerging markets equity 5.00% 7.17% 0.36% Actuarial Assumptions. The total pension liability was determined by an actuarial valuation as of June 30, High yield 4.00% 5.32% 0.21% 2016 using the following actuarial assumptions, applied to all periods included in the measurement: 100.00% 5.60%
Inflation 3.0 percent Inflation 2.50% Salary increases 3.0-5.9 percent, average, including inflation Risk adjustments -0.35% Investment rate of return 7.75 percent, net of pension plan investment expense, including inflation Investment rate of return 7.75% Mortality rates RP-2000 projected 20 years Health Life Mortality, set forward 10 years for Disabled Life Mortality Discount Rate. The discount rate used to measure the total pension liability was 7.75%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that City contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on these 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.
86 87 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
Total Pension Plan Fiduciary Net Pension Pension Expense and Deferred Outflows of Resources Related to Pensions. For the year ended June 30, Liability Net Position Liability 2017, the City recognized pension expense of $12,283,380. At June 30, 2017, the City reported deferred (a) (b) (a) - (b) outflows of resources related to pensions from the following sources:
Balances at June 30, 2016 $ 210,669,256 $ 124,994,849 $ 85,674,407 Deferred Changes for the year: Outflows of Service cost 2,517,235 - 2,517,235 Resources Interest 15,789,346 - 15,789,346 Differences between expected and Difference between expected and actual experience $ 3,622,413 actual experience 3,951,131 - 3,951,131 Net difference between projected and actual earnings Employer contributions - 28,605,368 (28,605,368) on pension plan investments 5,320,691 Employee contributions - 952,984 (952,984) Employee service purchases - 111,902 (111,902) Total $ 8,943,104 Net investment income (loss) - 16,766,006 (16,766,006) Benefit payments, including Amounts reported as deferred outflows of resources related to pension will be recognized in pension refunds of employee contributions (16,388,754) (16,388,754) - expense as follows: Administrative expense - (71,470) 71,470 Other changes 53,367 - 53,367 Year Ended Net changes 5,922,325 29,976,036 (24,053,711) June 30, Amount
Balances at June 30, 2017 $ 216,591,581 $ 154,970,885 $ 61,620,696 2018 $ 4,878,961 2019 3,976,317 B-50 Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net 2020 1,401,230 pension liability of the City, calculated using the discount rate of 7.75 percent, as well as what the City’s 2021 (1,313,404) net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.75 percent) or 1-percentage-point higher (8.75 percent) than the current rate: Total $ 8,943,104
Current 1% Decrease Discount Rate 1% Increase (6.75%) (7.75%) (8.75%)
City's net pension liability $ 83,879,379 $ 61,620,696 $ 42,680,920
Pension Plan Fiduciary Net Position. Detailed information about the pension plan's fiduciary net position is provided in Note 13.
88 89 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
12. OTHER POSTEMPLOYMENT BENEFITS Net OPEB Liability
General Information about the OPEB Plan The City's net OPEB liability was measured as of June 30, 2017, and the total OPEB liability used to calculate the net OPEB asset was determined by an actuarial valuation as of June 30, 2016. Plan Description. The City administers a defined-benefit other postemployment benefits plan (the "Retiree Health Fund" or RHF), established under State of Michigan Public Act 149 of 1999. All divisions of Actuarial Assumptions. The total OPEB asset in the June 30, 2016 valuation was determined using the the plan are closed to new hires in years 2006 to 2009, based on bargaining unit/group. The City following actuarial assumptions, applied consistently to all periods included in the measurement, unless Commission has the authority to establish and amend the benefit terms. otherwise specified:
Benefits Provided. The City provides postemployment health and dental care benefits, as per the Inflation 2.75% requirements of union contracts, for certain retirees and their dependents. The benefits vary depending Salary increases 3.5% to 5.9%, including inflation on a retiree’s years of service and the union contract under which they retired. The City includes pre- Investment rate of return 7.75%, net of OPEB plan investment expense, Medicare retirees and their dependents in its insured health care plan, with no contribution required by including inflation the participants. The City purchases Medicare supplemental insurance for retirees eligible for Medicare. Retirement age Experience-based tables that are specific to the type of eligibility condition Employees Covered by Benefit Terms. At June 30, 2016, the following employees were covered by the Healthcare cost trend rate 9.0% and gradually decreasing to an ultimate benefit terms: trend rate of 3.0% Aging factors Based on the 2013 SOA Study "Health Care Costs - Inactive employees/beneficiaries receiving benefits 435 From Birth to Death" Inactive employees entitled to but not yet receiving benefits 1 Active employees 177 Mortality rates were based on the RP-2000 Mortality Table, projected 20 years (multiplied by 110%), rates set-forward 10 years for disabled members. B-51 Total membership 613 The actuarial assumptions used in the June 30, 2016 valuation were based on the results of an actuarial Significant Accounting Policies. The plan is included in the City's financial statements combined with the experience study for the period 2006 through 2012. pension plan as the pension and other employee benefit trust fund. A stand-alone financial report has not been issued. The Plan’s financial statements are prepared using information as of June 30, 2017. The plan’s financial statements include contributions received and benefits paid through that date. At June 30, 2017, there were no investments in any one organization in excess of five percent of net position available for benefits.
Plan member contributions are recognized in the period in which the contributions are due. Employer contributions to the plan are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Administrative costs are financed through investment earnings.
Contributions. Public Act 149 authorizes the City Commission to establish and amend contribution requirements of the plan members. Annual contribution rates are actuarially determined. Active service members and retired members or their beneficiaries are not required to contribute to the plan. For the year ended June 30, 2017, the City contributed $119,383,923. During the year ended June 30, 2017, the City issued other postemployment benefit bonds to finance the net pension liability attributable to the closed portion of the plan. Total additional contributions were $107,971,563.
Rate of Return. For the year ended June 30, 2017, the annual money-weighted rate of return on investments, net of investment expense, was 5.73%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested.
90 91 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
The long-term expected rate of return on OPEB plan investments was determined using a building-block ChangesintheNetOPEBAsset. The components of the change in the net OPEB asset are summarized as method in which best-estimate ranges of expected future real rates of return (expected returns, net of follows: 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 weighting the expected future real rates of Total OPEB Plan Fiduciary Net OPEB return by the target asset allocation percentage and by adding expected inflation. Best estimates of Liability Net Position Asset arithmetic real rates of return for each major asset class included in the OPEB plan’s target asset (a) (b) (a) - (b) allocation as of June 30, 2017 are summarized in the following table: Balances at June 30, 2016 $ 121,508,728 $ 16,868,442 $ 104,640,286 Long-term Money- Target Expected Real Weighted Rate Changes for the year: Asset Class Allocation Rate of Return of Return Service cost 733,901 - 733,901 Interest on total OPEB asset 9,160,807 - 9,160,807 Domestic fixed income 15.00% 2.50% 0.38% Differences between expected and Domestic equity 45.00% 7.50% 3.38% actual experience (192,395) - (192,395) International equity 20.00% 8.50% 1.70% Employer contributions - 119,383,923 (119,383,923) Private equity 10.00% 8.00% 0.80% Net investment income - 3,439,452 (3,439,452) Real estate 10.00% 4.50% 0.45% Benefit payments (7,343,423) (7,343,423) - Administrative expense - (24,690) 24,690 100.00% 6.71% Net changes 2,358,890 115,455,262 (113,096,372)
Inflation 2.75% Balances at June 30, 2017 $ 123,867,618 $ 132,323,704 $ (8,456,086) Risk adjustments -1.71% B-52 The City's net OPEB asset is presented in the government-wide statement of net position as follows: Investment rate of return 7.75% Governmental activities $ 7,598,639 Discount Rate. The discount rate used to measure the total OPEB asset was 7.75%. The projection of cash Business-type activities 857,447 flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that City contributions will be made at rates equal to the difference Total net OPEB asset $ 8,456,086 between actuarially determined contribution rates and the member rate. Based on those assumptions, the OPEB plan’s fiduciary net position was projected to be available to make all projected future benefit Sensitivity of the Net OPEB (Asset) Liability to Changes in the Discount Rate. The following presents the payments of current plan members. Therefore, the long-term expected rate of return on OPEB plan net OPEB (asset) liability of the City, calculated using the discount rate of 7.75%, as well as what the investments was applied to all periods of projected benefit payments to determine the total OPEB asset. City’s net OPEB (asset) liability would be if it were calculated using a discount rate that is 1% lower (6.75%) or 1% higher (8.75%) than the current rate:
Current 1% Decrease Discount Rate 1% Increase (6.75%) (7.75%) (8.75%)
City's net OPEB (asset) liability$ 4,624,547 $ (8,456,086) $ (19,545,688)
92 93 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
Sensitivity of the Net OPEB (Asset) Liability to Changes in the Healthcare Cost Trend Rate Assumption. 13. FINANCIAL STATEMENTS FOR INDIVIDUAL PENSION AND OTHER POSTEMPLOYMENT BENEFIT FUNDS The following presents the net OPEB (asset) liability of the City, as well as what the City’s net OPEB (asset) liability would be if it were calculated using healthcare cost trend rates that are 1% lower (8.0% Plan Net Position decreasing to 2.0%) or 1% higher (10.0% decreasing to 4.0%) than the current healthcare cost trend rates: Pension Trust Retiree Health Fund Trust Fund Total Healthcare 1% Decrease Cost Trend 1% Increase Assets (8.0% Rates (9.0% (10.0% Cash and investments $ 836,307 $ 6,426,471 $ 7,262,778 Decreasing to Decreasing to Decreasing to Retirement investments, at fair value: 2.0%) 3.0%) 4.0%) Mutual funds 135,177,100 30,156,769 165,333,869 Equities - 33,290,350 33,290,350 City's net OPEB (asset) liability$ (20,312,005) $ (8,456,086) $ 5,257,618 Money market funds 11,384,324 - 11,384,324 Government obligations - 62,184,158 62,184,158 Pension Plan Fiduciary Net Position. Detailed information about the OPEB plan’s fiduciary net position is Other assets 7,841,523 268,422 8,109,945 available in the combining statements for the pension and other postemployment benefit trust funds in Receivables, net 77,781 28,595 106,376 Note 13. Total assets 155,317,035 132,354,765 287,671,800 OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB Liabilities Accounts payable 343,799 30,309 374,108 For the year ended June 30, 2017, the City recognized OPEB expense of $4,629,869. At June 30, 2017, the Accrued and other liabilities 2,351 752 3,103 City reported deferred outflows of resources related to OPEB from the following sources: B-53 Total liabilities 346,150 31,061 377,211 Net Deferred Deferred Deferred Outflows Net position Outflows of Inflows of (Inflows) of Restricted for: Resources Resources Resources Employees' pension benefits 154,970,885 - 154,970,885 Other postemployment benefits - 132,323,704 132,323,704 Difference between expected and actual experience $ - $ (109,089) $ (109,089) Net difference between projected and actual Total net position $ 154,970,885 $ 132,323,704 $ 287,294,589 earnings on OPEB plan investments 1,766,771 - 1,766,771
Total $ 1,766,771 $ (109,089) $ 1,657,682
Amounts reported as deferred outflows of resources related to OPEB will be recognized in OPEB expense as follows:
Year Ended June 30, Amount
2018 $ 358,387 2019 415,910 2020 441,693 2021 441,692
Total $ 1,657,682
Payable to the OPEB Plan. At June 30, 2017, the City had no amount payable to the OPEB plan.
94 95 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements Notes to Financial Statements
Changes in Plan Net Position 14. DEFINED CONTRIBUTION PENSION PLAN Pension Trust Retiree Health Fund Trust Fund Total A Defined Contribution Plan has been established for all new hires of the following bargaining units as of the respective dates: Additions Contributions: City Employee Employer $ 28,605,368 $ 119,383,923 $ 147,989,291 Bargaining Unit Date Contribution Contribution Plan members 952,984 - 952,984 Plan members' buyback 111,902 - 111,902 Executive department heads May 1, 2008 7% 5% Department heads and deputies July 1, 2008 7% 5% Total contributions 29,670,254 119,383,923 149,054,177 Technical and professional July 1, 2007 7% 5% Foreman and supervisors July 1, 2006 7% 5% Investment earnings: SEIU July 1, 2006 7% 5% Net change in fair value of investments 15,052,537 3,190,793 18,243,330 AFSCME July 1, 2006 7% 5% Interest 19,404 173,951 193,355 Dividends 2,421,589 162,228 2,583,817 Uniformed groups (police and fire) do not have a defined contribution plan for their new hires. Instead, Other investment revenues 22,819 - 22,819 they increased their contribution rate to the defined benefit plan for all their employees, existing and new hires. Total investment gain 17,516,349 3,526,972 21,043,321 Less: investment expense 750,343 87,520 837,863 Plan Description and Funding Requirements. The Defined Contribution Plan is established by the City and administered by ICMA-RC (International City/County Management Association - Retirement Corporation), Net investment gain 16,766,006 3,439,452 20,205,458 for new hire members of the City’s six bargaining groups listed above. On June 30, 2017, there were 80 B-54 plan members. Plan members contribute a percentage of their annual covered payroll and the City Total additions 46,436,260 122,823,375 169,259,635 provides a percentage match as noted in the table above. Plan provisions and contribution requirements are established by contract. Total contributions for the year ended June 30, 2017, were $189,245 by the Deductions employees and $273,258 by the City. Benefits 15,700,679 7,343,423 23,044,102 Refund of contributions 688,075 - 688,075 15. NET INVESTMENT IN CAPITAL ASSETS Administrative expenses 71,470 24,690 96,160 The composition of net investment in capital assets as of June 30, 2017, was as follows: Total deductions 16,460,224 7,368,113 23,828,337 Governmental Business-type Component Change in net position 29,976,036 115,455,262 145,431,298 Activities Activities Units
Net position, beginning of year 124,994,849 16,868,442 141,863,291 Capital assets: Capital assets not being depreciated $ 89,752,459 $ 27,319,609 $ 2,895,755 Net position, end of year $ 154,970,885 $ 132,323,704 $ 287,294,589 Capital assets being depreciated, net 81,866,210 103,350,752 831,244 171,618,669 130,670,361 3,726,999 Related debt: General obligation bonds 122,695,602 40,176,365 - Contractual obligations - 15,495,880 - State revolving fund - 3,237,387 - Less: amounts owed from other communities - (1,648,129) - Less: pension and OPEB bonds (113,775,085) (12,834,913) - Bond premium 283,531 849,107 - Deferred charge on refunding (133,880) (1,115,527) - 9,070,168 44,160,170 -
Net investment in capital assets $ 162,548,501 $ 86,510,191 $ 3,726,999
96 97 CITY OF ROYAL OAK, MICHIGAN
Notes to Financial Statements
16. TAX ABATEMENTS
The City received reduced property tax revenues during 2017 as a result of industrial facilities tax exemptions (IFT's) and brownfield redevelopment agreements entered into by the City.
The IFT's were entered into based upon the Plant Rehabilitation and Industrial Development Districts Act, (known as the Industrial Facilities Exemption), PA 198 of 1974, as amended. IFT's provide a tax incentive to manufacturers to enable renovation and expansion of aging facilities, assist in the building of new facilities, and to promote the establishment of high tech facilities. Properties qualifying for IFT status are taxed at 50% of the millage rate applicable to other real and personal property in the City. The abatements amounted to approximately $56,000 in reduced tax revenues for 2017.
Brownfield redevelopment agreements are intended to reimburse taxpayers that remediate environmental contamination on their properties. These agreements were entered into based upon the Brownfield Redevelopment Act, PA 381 of 1996, as amended. Under this act, a municipality may create a brownfield redevelopment authority to develop and implement brownfield projects. Tax increment financing may be used as a tool for property redevelopment. The abatements amounted to approximately $120,000 in REQUIRED SUPPLEMENTARY INFORMATION reduced City tax revenues for 2017.
17. SUBSEQUENT EVENT
On September 12, 2017, the City issued $8,500,000 of Limited Tax General Obligation bonds to finance all
B-55 or part of the capital costs of maintaining, repairing, constructing and reconstructing roads and right-of- ways in the City. The bonds are payable annually over a 7 year period beginning on April 1, 2018 with interest charged on the outstanding balance at 2.10%.
18. RESTATEMENTS
For the year ended June 30, 2017, the City implemented GASB Statement 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans and GASB Statement 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. GASB 75 eliminated the existing net other postemployment benefits obligation (an amount representing the cumulative deficiency of actual plan contributions compared to the actuarially-calculated annual required contribution) and replaced it with the net other postemployment liability (an amount representing the full actuarial accrued liability of the plan, less the resources held in trust). This resulted in a decrease in net position as of July 1, 2016 of $65,264,141 for governmental activities (including $4,872,554 for internal service funds), Business-type activities net position decreased by $8,274,183 ($126,132 in the Automobile Parking fund, $7,191,471 in the water/sewer fund, and $956,580 in nonmajor enterprise funds). Beginning net position of component units was increased by $132,002.
98 99 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Required Supplementary Information Required Supplementary Information Employees' Retirement System Employees' Retirement System
Schedule of Changes in the City's Net Pension Liability and Related Ratios Schedule of the Net Pension Liability
Plan Net Net Pension Fiscal Year Ended June 30, Position as Liability as 2017 2016 2015 2014 Fiscal Year Percentage of Percentage of Change in total pension liability Ended Total Pension Plan Net Net Pension Total Pension Covered Covered Service cost $ 2,517,235 $ 2,542,348 $ 2,555,924 $ 2,485,567 June 30, Liability Position Liability Liability Payroll Payroll Interest 15,789,346 15,445,529 15,214,726 15,021,782 Changes of benefit terms - - 96,556 - 2014$ 202,772,124 $ 139,312,849 $ 63,459,275 68.7%$ 15,296,167 414.87% Differences between expected 2015 206,080,854 136,325,204 69,755,650 66.2% 15,391,242 453.22% 2016 210,669,256 124,994,849 85,674,407 59.3% 15,845,062 540.70% and actual experience 3,951,131 2,710,293 903,595 - 2017 216,591,581 154,970,885 61,620,696 71.5% 16,079,024 383.24% Benefit payments, including refunds of member contributions (16,388,754) (16,109,768) (15,462,071) (14,643,773) Note: GASB 67 was implemented in fiscal year 2014. This schedule is being built prospectively. Ultimately, 10 Other changes 53,367 - - - years of data will be presented. Net change in total pension liability 5,922,325 4,588,402 3,308,730 2,863,576
Total pension liability, beginning 210,669,256 206,080,854 202,772,124 199,908,548
Total pension liability, ending (a) 216,591,581 210,669,256 206,080,854 202,772,124
Change in plan fiduciary net position B-56 Contributions - employer 28,605,368 7,034,692 7,098,292 6,539,504 Contributions - member 952,984 1,157,297 981,785 1,603,847 Net investment income (loss) 16,766,006 (3,312,904) 4,465,722 21,788,939 Employee service purchases 111,902 - - - Benefit payments, including refunds of member contributions (16,388,754) (16,109,768) (15,462,070) (14,644,935) Administrative expense (71,470) (99,672) (71,374) (49,691) Net change in plan fiduciary net position 29,976,036 (11,330,355) (2,987,645) 15,237,664
Plan fiduciary net position, beginning 124,994,849 136,325,204 139,312,849 124,075,185
Plan fiduciary net position, ending (b) 154,970,885 124,994,849 136,325,204 139,312,849
City's net pension liability, ending (a)-(b) $ 61,620,696 $ 85,674,407 $ 69,755,650 $ 63,459,275
Plan fiduciary net position as a percentage of the total pension liability 71.55% 59.33% 66.15% 68.70%
Covered payroll $ 16,079,024 $ 15,845,062 $ 15,391,242 $ 15,296,167
City's net pension liability as a percentage of covered payroll 383.24% 540.70% 453.22% 414.87%
Note: GASB 67 was implemented in fiscal year 2014. This schedule is being built prospectively. Ultimately, 10 years of data will be presented.
100 101 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Required Supplementary Information Required Supplementary Information Employees' Retirement System Employees' Retirement System
Schedule of Contributions Schedule of Investment Returns
Contributions Fiscal Year in Relation to Contributions Ending Annual Fiscal Year Actuarially the Actuarially Contribution as Percentage June 30, Return (1) Ending Determined Determined Deficiency Covered of Covered June 30, Contribution Contribution (Excess) Payroll Payroll 2014 17.98% 2015 3.24% 2014$ 6,480,707 $ 6,503,436 $ (22,729) $ 15,296,16 7 42.5% 2016 -2.39% 2015 6,891,898 7,098,292 (206,394) 15,391,242 46.1% 2017 13.09% 2016 6,852,495 7,034,692 (182,197) 15,845,062 44.4% 2017 7,178,082 28,605,368 (21,427,286) 16,079,024 177.9% (1) Annual money-weighted rate of return, net of investment expenses
Note: GASB 67 was implemented in fiscal year 2014. This schedule is being built prospectively. Ultimately, 10 Note: GASB 67 was implemented in fiscal year 2014. This schedule is being built prospectively. Ultimately, 10 years of data will be presented. years of data will be presented.
Notes to Schedule of Contributions
Valuation Date June 30, 2015 (for determination of employer contributions for the 2017 fiscal year) Notes Actuarially determined contribution rates are calculated as of June 30, 2015, which is 12 months prior to the beginning of the fiscal year in which contributions are B-57 reported.
Methods and assumptions used to determine contribution rates: Actuarial cost method Entry-age normal Amortization method General: Level dollar amount, closed Police and Fire: Level percent of payroll, closed Remaining amortization period General: 23 years, closed Police and Fire: 28 years, closed Asset valuation method 4-year smooth market Inflation 3.00% Salary increases 3.0% - 5.9% Investment rate of return 7.75% Retirement age Experience-based table of rates that are specific to the type of eligibility condition. Last updated for the 2013 valuation pursuant to an experience study of the period 2006 - 2012. Mortality RP-2000 projected 20 years (multiplied by 110%) Healthy Life Mortality, set-forward 10 years for Disabled Life Mortality.
102 103 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Required Supplementary Information Required Supplementary Information Other Postemployment Benefits Plan Other Postemployment Benefits Plan
Schedule of Changes in Net OPEB Asset and Related Ratios Schedule of the Net OPEB Asset
Fiscal Year Plan Net Net OPEB Ended Position as Asset as June 30, 2017 Fiscal Year Percentage of Percentage of Ending Total OPEB Plan Net Total OPEB Covered Covered Total OPEB liability June 30, Liability Position Net OPEB Asset Liability Payroll Payroll Service cost $ 733,901 Interest on total OPEB liability 9,160,807 2017$ 123,867,618 $ 132,323,704 $ (8,456,086) 106.83%$ 14,971,828 -56.48% Difference between expected and actual experience (192,395) Benefit payments (7,343,423) Note: GASB 74 was implemented in fiscal year 2017. This schedule is being built prospectively. Ultimately, 10 years Net change in total OPEB liability 2,358,890 of data will be presented.
Total OPEB liability, beginning of year 121,508,728
Total OPEB liability, end of year 123,867,618
Plan fiduciary net position Employer contributions 119,383,923 OPEB plan net investment income 3,439,452 Benefit payments (7,343,423) Administrative expense (24,690) B-58 Net change in plan fiduciary net position 115,455,262
Plan fiduciary net position, beginning of year 16,868,442
Plan fiduciary net position, end of year 132,323,70 4
Net OPEB asset $ (8,456,086)
Plan fiduciary net position as a percentage of total OPEB liability 106.83%
Covered payroll $ 14,971,828
Net OPEB asset as a percentage of covered payroll -56.48%
Note: GASB 74 was implemented in fiscal year 2017. This schedule is being built prospectively. Ultimately, 10 years of data will be presented.
104 105 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Required Supplementary Information Required Supplementary Information Other Postemployment Benefits Plan Other Postemployment Benefits Plan
Schedule of Contributions Schedule of Investment Returns
Actual Fiscal Year Contribution Ending Annual Fiscal Year Actuarially Contribution as Percentage June 30, Return (1) Ending Determined Actual Deficiency Covered of Covered June 30, Contribution Contribution (Excess) Payroll Payroll 2017 5.73%
2017$ 11,412,360 $ 119,383,923 $ (107,971,563) $ 14,971,828 797.39% (1) Annual money-weighted rate of return, net of investment expenses
Note: GASB 74 was implemented in fiscal year 2017. This schedule is being built prospectively. Ultimately, 10 years Note: GASB 74 was implemented in fiscal year 2017. This schedule is being built prospectively. Ultimately, 10 years of data will be presented. of data will be presented.
Notes to Schedule of Contributions
Valuation Date June 30, 2016 Notes Actuarially determined contribution amounts are calculated as of June 30 of even numbered years. The valuation date is 12 months prior to the fiscal year end of odd numbered fiscal years and 24 months prior to the fiscal year end of even numbered fiscal years.
Methods and assumptions used to determine contribution rates for 2017 (Based on the June 30, 2014 Valuation): B-59 Actuarial cost method Entry-age normal Amortization method Level dollar, closed Remaining amortization period 23 years Asset valuation method Market value Inflation 2.75% Salary increases 3.0% to 5.9%, including inflation Investment rate of return 7.75%, net of OPEB plan investment expense, including inflation Retirement age Experience-based table of rates that are specific to the type of eligibility condition Mortality RP-2000 Mortality Table, projected 20 years (multiplied by 110%), rates set- forward 10 years for disabled members Health care trend rates 9.0% trend for the first year, gradually decreasing to 3.0% in year 10 Aging factors Based on the 2013 SOA Study "Health Care Costs - From Birth to Death" Expenses Investment expenses are net of the investment returns; administrative expenses are included in the premium costs Other information There were no benefit changes during the year
106 107 COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES B-60
108 109 CITY OF ROYAL OAK, MICHIGAN
Combining Balance Sheet Nonmajor Governmental Funds June 30, 2017
Special Revenue Funds Special Revenue Funds Senior State Total Nonmajor Major Local Citizens Library Construction Special Revenue Streets Streets Publicity Program Millage Code ROOTS Grants Funds Assets Cash and investments $ 1,276,677 $ 2,667,819 $ 19,574 $ 644,399 $ 1,559,671 $ 5,617,264 $ 515,907 $ 1,215,434 $ 13,516,745 Receivables, net 47,671 19,307 3,103 32,583 9,325 24,272 2,038 44,124 182,423 Due from other governmental units 694,147 225,769 ------919,916 Inventories 184,337 22,326 ------206,663 Restricted assets, cash ------
Total assets $ 2,202,832 $ 2,935,221 $ 22,677 $ 676,982 $ 1,568,996 $ 5,641,536 $ 517,945 $ 1,259,558 $ 14,825,747
Liabilities Accounts payable $ 42,371 $ 1,280,769 $ - $ 34,212 $ 32,246 $ 7,454 $ 19,136 $ 82,013 $ 1,498,201 Accrued and other liabilities 17,783 287,951 708 12,089 42,643 30,787 - 12,694 404,655 Cash bonds and deposits ------650 650 Unearned revenue ------23,005 23,005
B-61 Total liabilities 60,154 1,568,720 708 46,301 74,889 38,241 19,136 118,362 1,926,511
Deferred inflows of resources Unavailable revenue - property taxes and special assessments - 8,002 67 - 3,072 - - - 11,141
Fund balances Nonspendable: Inventories 184,337 22,326 ------206,663 Endowment ------Restricted 1,958,341 1,336,173 21,902 630,681 1,491,035 5,603,295 498,809 1,141,196 12,681,432
Total fund balances 2,142,678 1,358,499 21,902 630,681 1,491,035 5,603,295 498,809 1,141,196 12,888,095
Total liabilities, deferred inflows of resources and fund balances $ 2,202,832 $ 2,935,221 $ 22,677 $ 676,982 $ 1,568,996 $ 5,641,536 $ 517,945 $ 1,259,558 $ 14,825,747
continued…
110 111 CITY OF ROYAL OAK, MICHIGAN
Combining Balance Sheet Nonmajor Governmental Funds June 30, 2017
Capital Projects Debt Total Nonmajor Service Special Permanent Governmental Fund Assessments Fund Funds Assets Cash and investments $ 91,121 $ 11,798 $ 10,486 $ 13,630,150 Receivables, net 1,237 1,475,921 45 1,659,626 Due from other governmental units - - - 919,916 Inventories - - - 206,663 Restricted assets, cash - - 1,000 1,000
Total assets $ 92,358 $ 1,487,719 $ 11,531 $ 16,417,355
Liabilities Accounts payable $ - $ - $ - $ 1,498,201 Accrued and other liabilities - - - 404,655 Cash bonds and deposits - - - 650 Unearned revenue - - - 23,005
B-62 Total liabilities - - - 1,926,511
Deferred inflows of resources Unavailable revenue - property taxes and special assessments 872 1,475,869 - 1,487,882
Fund balances Nonspendable: Inventories - - - 206,663 Endowment - - 1,000 1,000 Restricted 91,486 11,850 10,531 12,795,299
Total fund balances 91,486 11,850 11,531 13,002,962
Total liabilities, deferred inflows of resources and fund balances $ 92,358 $ 1,487,719 $ 11,531 $ 16,417,355
concluded.
112 113 CITY OF ROYAL OAK, MICHIGAN
Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended June 30, 2017
Special Revenue Funds Special Revenue Funds Senior State Total Nonmajor Major Local Citizens Library Construction Special Revenue Streets Streets Publicity Program Millage Code ROOTS Grants Funds Revenues Taxes $ - $ 5,714,548 $ 47,730 $ - $ 2,197,664 $ - $ - $ - $ 7,959,942 Licenses and permits 202,259 - - - - 2,831,445 - 49,408 3,083,112 Federal grants ------66,235 66,235 State grants 3,588,464 1,167,127 - 141,690 158,489 - - 135,679 5,191,449 Charges for services - - - 256,743 59,255 - - 13,261 329,259 Fines and forfeitures - - - - 2,257 - - 140,686 142,943 Interest and rentals 2,743 14,536 157 4,042 14,213 35,550 3,349 7,319 81,909 Contributions and donations 94,731 - - 48,222 3,445 - 71,838 53,633 271,869 Other revenue 30,129 4,576 - - 8,339 64,798 - 550 108,392
Total revenues 3,918,326 6,900,787 47,887 450,697 2,443,662 2,931,793 75,187 466,771 17,235,110
Expenditures Current: General government - - 76,005 - - - - - 76,005
B-63 Public safety - - - - - 5,118,492 7,243 280,811 5,406,546 Public works 3,801,007 6,945,409 ------10,746,416 Community and economic development ------489,783 489,783 Recreation and culture - - - 784,041 2,079,695 - 46,412 - 2,910,148 Debt service: Principal payments - - - - 239,000 - - - 239,000 Interest and paying agent fees - - - - 41,883 - - - 41,883
Total expenditures 3,801,007 6,945,409 76,005 784,041 2,360,578 5,118,492 53,655 770,594 19,909,781
Revenues over (under) expenditures 117,319 (44,622) (28,118) (333,344) 83,084 (2,186,699) 21,532 (303,823) (2,674,671)
Other financing sources (uses) Transfers in 693,359 4,434,820 27,730 397,870 263,480 183,500 15,000 420,459 6,436,218 Transfers out (2,226,141) (3,616,779) - (4,500) - (4,500) (41,559) (134,344) (6,027,823)
Total other financing sources (uses) (1,532,782) 818,041 27,730 393,370 263,480 179,000 (26,559) 286,115 408,395
Net change in fund balances (1,415,463) 773,419 (388) 60,026 346,564 (2,007,699) (5,027) (17,708) (2,266,276)
Fund balances, beginning of year 3,558,141 585,080 22,290 570,655 1,144,471 7,610,994 503,836 1,158,904 15,154,371
Fund balances, end of year $ 2,142,678 $ 1,358,499 $ 21,902 $ 630,681 $ 1,491,035 $ 5,603,295 $ 498,809 $ 1,141,196 $ 12,888,095
continued…
114 115 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Combining Statement of Revenues, Expenditures and Changes in Fund Balances Schedule of Revenues, Expenditures and Changes in Fund Balance Nonmajor Governmental Funds Budget and Actual - Major Streets Fund For the Year Ended June 30, 2017 For the Year Ended June 30, 2017 Capital Projects Actual Over Debt Total Nonmajor Original Final (Under) Final Service Special Permanent Governmental Fund Assessments Fund Funds Budget Budget Actual Budget Revenues Revenues Taxes $ 619,987 $ - $ - $ 8,579,929 Licenses and permits $ 153,000 $ 153,000 $ 202,259 $ 49,259 Licenses and permits - - - 3,083,112 State grants 3,786,000 3,536,000 3,588,464 52,464 Federal grants - - - 66,235 Interest and rentals 7,000 7,000 2,743 (4,257) State grants - - - 5,191,449 Contributions and donations 909,000 94,000 94,731 731 Charges for services - - - 329,259 Other revenue 20,000 31,900 30,129 (1,771) Fines and forfeitures - - - 142,943 Interest and rentals 598 58,166 70 140,743 Total revenues 4,875,000 3,821,900 3,918,326 96,426 Contributions and donations 55 1,787,952 - 2,059,876 Other revenue - - - 108,392 Expenditures Total revenues 620,640 1,846,118 70 19,701,938 Current - Public works 5,029,920 4,653,720 3,801,007 (852,713) Expenditures Current: Revenues over (under) expenditures (154,920) (831,820) 117,319 949,139 General government - - - 76,005
B-64 Public safety - - - 5,406,546 Other financing sources (uses) Public works - 236 - 10,746,652 Community and economic development - - - 489,783 Transfers in - 162,410 693,359 530,949 Recreation and culture - - 3 2,910,151 Transfers out (47,350) (2,482,350) (2,226,141) (256,209) Debt service: Principal payments 1,016,876 - - 1,255,876 Total other financing sources (uses) (47,350) (2,319,940) (1,532,782) 787,158 Interest and paying agent fees 181,474 - - 223,357 Net change in fund balance (202,270) (3,151,760) (1,415,463) 1,736,297 Total expenditures 1,198,350 236 3 21,108,370 Fund balance, beginning of year 3,558,141 3,558,141 3,558,141 - Revenue over (under) expenditures (577,710) 1,845,882 67 (1,406,432) Fund balance, end of year $ 3,355,871 $ 406,381 $ 2,142,678 $ 1,736,297 Other financing sources (uses) Transfers in 567,463 - - 7,003,681 Transfers out - (1,847,037) - (7,874,860)
Total other financing sources (uses) 567,463 (1,847,037) - (871,179)
Net change in fund balances (10,247) (1,155) 67 (2,277,611)
Fund balances, beginning of year 101,733 13,005 11,464 15,280,573
Fund balances, end of year $ 91,486 $ 11,850 $ 11,531 $ 13,002,962
concluded.
116 117 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Schedule of Revenues, Expenditures and Changes in Fund Balance Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - Local Streets Fund Budget and Actual - Publicity Fund For the Year Ended June 30, 2017 For the Year Ended June 30, 2017
Actual Over Actual Over Original Final (Under) Final Original Final (Under) Final Budget Budget Actual Budget Budget Budget Actual Budget Revenues Revenues Taxes $ 5,618,000 $ 5,645,000 $ 5,714,548 $ 69,548 Taxes $ 46,500 $ 47,150 $ 47,730 $ 580 State grants 1,231,000 1,231,000 1,167,127 (63,873) Interest and rentals 150 150 157 7 Interest and rentals 5,000 5,000 14,536 9,536 Other revenue 1,600,000 - 4,576 4,576 Total revenues 46,650 47,300 47,887 587
Total revenues 8,454,000 6,881,000 6,900,787 19,787 Expenditures Current - Expenditures General government 73,070 77,770 76,005 (1,765) Current - Public works 14,054,000 6,860,550 6,945,409 84,859 Revenues over (under) expenditures (26,420) (30,470) (28,118) 2,352
Revenues over (under) expenditures (5,600,000) 20,450 (44,622) (65,072) Other financing uses Transfers in 22,500 27,730 27,730 - Other financing sources (uses)
B-65 Issuance of long-term debt 5,600,000 - - - Net change in fund balance (3,920) (2,740) (388) 2,352 Transfers in - 3,797,630 4,434,820 637,190 Transfers out - (4,378,000) (3,616,779) (761,221) Fund balance, beginning of year 22,290 22,290 22,290 -
Total other financing sources (uses) 5,600,000 (580,370) 818,041 1,398,411 Fund balance, end of year $ 18,370 $ 19,550 $ 21,902 $ 2,352
Net change in fund balance - (559,920) 773,419 1,333,339
Fund balance, beginning of year 585,080 585,080 585,080 -
Fund balance, end of year $ 585,080 $ 25,160 $ 1,358,499 $ 1,333,339
118 119 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Schedule of Revenues, Expenditures and Changes in Fund Balance Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - Senior Citizens Program Fund Budget and Actual - Library Millage Fund For the Year Ended June 30, 2017 For the Year Ended June 30, 2017
Actual Over Actual Over Original Final (Under) Final Original Final (Under) Final Budget Budget Actual Budget Budget Budget Actual Budget Revenues Revenues State grants $ 137,810 $ 137,810 $ 141,690 $ 3,880 Taxes $ 2,156,000 $ 2,175,000 $ 2,197,664 $ 22,664 Charges for services 236,500 251,500 256,743 5,243 State grants 133,000 154,000 158,489 4,489 Interest and rentals 2,400 2,400 4,042 1,642 Charges for services 64,500 64,500 59,255 (5,245) Contributions and donations 47,430 47,430 48,222 792 Fines and forfeitures 3,500 3,500 2,257 (1,243) Interest and rentals 8,200 8,200 14,213 6,013 Total revenues 424,140 439,140 450,697 11,557 Contributions and donations 3,000 3,000 3,445 445 Other revenue 6,500 6,500 8,339 1,839 Expenditures Current - Total revenues 2,374,700 2,414,700 2,443,662 28,962 Recreation and culture 829,370 850,670 784,041 (66,629) Expenditures Revenues over (under) expenditures (405,230) (411,530) (333,344) 78,186 Current - Recreation and culture 2,154,840 2,397,170 2,079,695 (317,475) Other financing sources (uses) Debt service:
B-66 Transfers in 350,000 397,870 397,870 - Principal payments 239,000 239,000 239,000 - Transfers out (4,500) (4,500) (4,500) - Interest and paying agent fees 42,000 42,000 41,883 (117)
Total other financing sources (uses) 345,500 393,370 393,370 - Total expenditures 2,435,840 2,678,170 2,360,578 (317,592)
Net change in fund balance (59,730) (18,160) 60,026 78,186 Revenues over (under) expenditures (61,140) (263,470) 83,084 346,554
Fund balance, beginning of year 570,655 570,655 570,655 - Other financing sources Transfers in 20,000 263,470 263,480 10 Fund balance, end of year $ 510,925 $ 552,495 $ 630,681 $ 78,186 Net change in fund balance (41,140) - 346,564 346,564
Fund balance, beginning of year 1,144,471 1,144,471 1,144,471 -
Fund balance, end of year $ 1,103,331 $ 1,144,471 $ 1,491,035 $ 346,564
120 121 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Schedule of Revenues, Expenditures and Changes in Fund Balance Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - State Construction Code Fund Budget and Actual - ROOTS Fund For the Year Ended June 30, 2017 For the Year Ended June 30, 2017
Actual Over Actual Over Original Final (Under) Final Original Final (Under) Final Budget Budget Actual Budget Budget Budget Actual Budget Revenues Revenues Licenses and permits $ 1,794,000 $ 2,794,500 $ 2,831,445 $ 36,945 Interest and rentals $ 2,200 $ 2,200 $ 3,349 $ 1,149 Interest and rentals 10,000 23,500 35,550 12,050 Contributions and donations 102,100 128,720 71,838 (56,882) Other revenue 40,000 60,000 64,798 4,798 Total revenues 104,300 130,920 75,187 (55,733) Total revenues 1,844,000 2,878,000 2,931,793 53,793 Expenditures Expenditures Current: Current - Public safety 250 8,210 7,243 (967) Public safety 1,871,090 5,190,140 5,118,492 (71,648) Recreation and culture 158,260 173,030 46,412 (126,618)
Revenues over (under) expenditures (27,090) (2,312,140) (2,186,699) 125,441 Total expenditures 158,510 181,240 53,655 (127,585)
Other financing sources (uses) Revenues over (under) expenditures (54,210) (50,320) 21,532 71,852 Transfers in - 183,480 183,500 20
B-67 Transfers out (4,500) (4,500) (4,500) - Other financing sources (uses) Transfers in 15,000 15,000 15,000 - Total other financing sources (uses) (4,500) 178,980 179,000 20 Transfers out (30,000) (43,720) (41,559) (2,161)
Net change in fund balance (31,590) (2,133,160) (2,007,699) 125,461 Total other financing sources (uses) (15,000) (28,720) (26,559) (2,161)
Fund balance, beginning of year 7,610,994 7,610,994 7,610,994 - Net change in fund balance (69,210) (79,040) (5,027) 74,013
Fund balance, end of year $ 7,579,404 $ 5,477,834 $ 5,603,295 $ 125,461 Fund balance, beginning of year 503,836 503,836 503,836 -
Fund balance, end of year $ 434,626 $ 424,796 $ 498,809 $ 74,013
122 123 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Schedule of Revenues, Expenditures and Changes in Fund Balance Combining Statement of Net Position Nonmajor Enterprise Funds Budget and Actual - Grants Fund June 30, 2017 For the Year Ended June 30, 2017 Total Actual Over Nonmajor Original Final (Under) Final Arts, Beats Recreation Ice Farmers Enterprise & Eats Administration Arena Market Funds Budget Budget Actual Budget Assets Revenues Current assets: Licenses and permits $ 60,000 $ 60,000 $ 49,408 $ (10,592) Cash and investments $ 64,249 $ 509,500 $ 1,007,053 $ 641,382 $ 2,222,184 Federal grants 89,550 210,750 66,235 (144,515) Receivables, net 258 30,198 3,949 8,140 42,545 State grants 26,800 117,800 135,679 17,879 Total current assets 64,507 539,698 1,011,002 649,522 2,264,729 Charges for services 17,000 17,000 13,261 (3,739) Noncurrent assets: Fines and forfeitures 90,000 90,000 140,686 50,686 Capital assets - 4,471,882 5,210,198 2,585,323 12,267,403 Interest and rentals 2,100 2,100 7,319 5,219 Accumulated depreciation - (1,319,643) (3,362,268) (1,147,188) (5,829,099) Contributions and donations 44,500 51,500 53,633 2,133 Net other postemployment benefits Other revenue - - 550 550 asset - 77,796 15,221 - 93,017 Total noncurrent assets - 3,230,035 1,863,151 1,438,135 6,531,321 Total revenues 329,950 549,150 466,771 (82,379) Total assets 64,507 3,769,733 2,874,153 2,087,657 8,796,050
Expenditures Deferred outflows of resources Current: Deferred other postemployment Public safety 381,100 543,730 280,811 (262,919) benefits amounts - 16,254 3,180 - 19,434
B-68 Community and economic development 100,000 551,000 489,783 (61,217) Liabilities Total expenditures 481,100 1,094,730 770,594 (324,136) Current liabilities: Accounts payable - 19,238 62,458 21,330 103,026 Accrued and other liabilities - 24,224 3,680 1,357 29,261 Revenues over (under) expenditures (151,150) (545,580) (303,823) 241,757 Bonds payable, due within one year - 35,485 7,097 - 42,582 Compensated absences, current - 10,936 986 428 12,350 Other financing sources (uses) Total current liabilities - 89,883 74,221 23,115 187,219 Transfers in 10,000 421,130 420,459 (671) Transfers out - (134,350) (134,344) (6) Noncurrent liabilities: Bonds payable - 1,123,947 224,789 - 1,348,736 Accrued compensated absences - 10,920 984 427 12,331 Total other financing sources (uses) 10,000 286,780 286,115 (665) Total noncurrent liabilities - 1,134,867 225,773 427 1,361,067
Net change in fund balance (141,150) (258,800) (17,708) 241,092 Total liabilities - 1,224,750 299,994 23,542 1,548,286
Fund balance, beginning of year 1,158,904 1,158,904 1,158,904 - Deferred inflows of resources Deferred other postemployment benefits amounts - 1,004 196 - 1,200 Fund balance, end of year $ 1,017,754 $ 900,104 $ 1,141,196 $ 241,092 Net position Investment in capital assets - 3,152,239 1,847,930 1,438,135 6,438,304 Unrestricted (deficit) 64,507 (592,006) 729,213 625,980 827,694
Total net position $ 64,507 $ 2,560,233 $ 2,577,143 $ 2,064,115 $ 7,265,998
124 125 CITY OF ROYAL OAK, MICHIGAN
Combining Statement of Revenues, Expenses and Changes in Fund Net Position Nonmajor Enterprise Funds For the Year Ended June 30, 2017
Total Nonmajor Arts, Beats Recreation Ice Farmers Enterprise & Eats Administration Arena Market Funds Operating revenues Charges for services $ 369,481 $ 600,975 $ 1,587,063 $ 479,011 $ 3,036,530 Other - - 537 9,649 10,186
Total operating revenues 369,481 600,975 1,587,600 488,660 3,046,716
Operating expenses Salaries and benefits 67,541 73,613 13,122 (4,251) 150,025 Supplies - 16,189 75,495 28,467 120,151 Other services and charges 196,494 216,322 1,093,777 445,335 1,951,928 Depreciation - 87,765 108,226 69,944 265,935
Total operating expenses 264,035 393,889 1,290,620 539,495 2,488,039
Operating income (loss) 105,446 207,086 296,980 (50,835) 558,677
Nonoperating revenues (expenses) Federal grants - - - 216 216
B-69 Interest income 1,442 3,188 6,339 3,846 14,815 Interest expense - (19,281) (3,856) - (23,137)
Total nonoperating revenues (expenses) 1,442 (16,093) 2,483 4,062 (8,106)
Income (loss) before transfers 106,888 190,993 299,463 (46,773) 550,571
Transfers Transfers in 9,730 63,930 22,770 7,390 103,820 Transfers out (198,000) - (32,832) - (230,832)
Net transfers (188,270) 63,930 (10,062) 7,390 (127,012)
Change in net position (81,382) 254,923 289,401 (39,383) 423,559
Net position, beginning of year, as restated 145,889 2,305,310 2,287,742 2,103,498 6,842,439
Net position, end of year $ 64,507 $ 2,560,233 $ 2,577,143 $ 2,064,115 $ 7,265,998
126 127 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Combining Statement of Cash Flows Combining Statement of Cash Flows Nonmajor Enterprise Funds Nonmajor Enterprise Funds For the Year Ended June 30, 2017 For the Year Ended June 30, 2017
Total Total Nonmajor Nonmajor Arts, Beats Recreation Ice Farmers Enterprise Arts, Beats Recreation Ice Farmers Enterprise & Eats Administration Arena Market Funds & Eats Administration Arena Market Funds Cash flows from operating activities Reconciliation of operating income (loss) Receipts from customers $ 369,618 $ 636,677 $ 1,586,018 $ 519,282 $ 3,111,595 to net cash provided by (used in) operating activities: Other operating receipts - - 537 9,649 10,186 Operating income (loss) $ 105,446 $ 207,086 $ 296,980 $ (50,835) $ 558,677 Payments to vendors (196,494) (117,487) (1,167,969) (487,508) (1,969,458) Adjustments to reconcile operating income (loss) Payments to employees (67,541) (387,002) (42,198) (10,290) (507,031) to net cash provided by (used in) operating activities: Depreciation - 87,765 108,226 69,944 265,935 Net cash provided by (used in) Changes in assets and liabilities: operating activities 105,583 132,188 376,388 31,133 645,292 Receivables, net 137 35,702 (1,045) 40,271 75,065 Accounts payable - 11,329 (24,025) (13,706) (26,402) Cash flows from noncapital Accrued and other liabilities - 14,926 2,689 (79) 17,536 financing activities Unearned revenue - - - - - Federal operating grants - - - 216 216 Accrued compensated absences - 820 78 41 939 Transfers from other funds 9,730 63,930 22,770 7,390 103,820 Net pension liability Transfers to other funds (198,000) - (32,832) - (230,832) and deferred amounts - (329,135) (31,843) (14,503) (375,481) Net other postemployment benefit Net cash provided by (used in) noncapital asset and deferred amounts - 103,695 25,328 - 129,023 financing activities (188,270) 63,930 (10,062) 7,606 (126,796) Net cash provided by (used in)
B-70 Cash flows from capital and related operating activities $ 105,583 $ 132,188 $ 376,388 $ 31,133 $ 645,292 financing activities Purchase of capital assets - - - (46,488) (46,488) Noncash noncapital financing activities Interest paid on long-term debt - (19,281) (3,856) - (23,137) Contributions to other pension and other postemployment benefit funds financed through Net cash provided by (used in) noncapital the issuance of long-term debt $ - $ 1,159,432 $ 231,886 $ - $ 1,391,318 financing activities - (19,281) (3,856) (46,488) (69,625) concluded. Cash flows from investing activities Interest received on investments 1,442 3,188 6,339 3,846 14,815
Net change in cash and investments (81,245) 180,025 368,809 (3,903) 463,686
Cash and investments balances, beginning of year 145,494 329,475 638,244 645,285 1,758,498
Cash and investments balances, end of year $ 64,249 $ 509,500 $ 1,007,053 $ 641,382 $ 2,222,184
continued…
128 129 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Combining Statement of Net Position Combining Statement of Revenues, Expenses and Changes in Fund Net Position Internal Service Funds Internal Service Funds June 30, 2017 For the Year Ended June 30, 2017
Information Workers Medical Liability Information Workers Medical Liability Systems Motor Pool Compensation Self-Insurance Insurance Total Systems Motor Pool Compensation Self-Insurance Insurance Total Assets Current assets: Operating revenues Cash and investments $ 2,120,648 $ 9,569,052 $ 2,013,960 $ 3,587,104 $ 943,412 $ 18,234,176 Charges for services $ 1,745,788 $ 4,297,195 $ 717,271 $ 9,830,463 $ 926,559 $ 17,517,276 Receivables, net 8,502 44,981 8,054 14,319 535,219 611,075 Other revenue 15,200 149,516 18,430 29,772 537,626 750,544 Prepaid items - - - 1,269,040 - 1,269,040 Inventories - 248,519 - - - 248,519 Total operating revenues 1,760,988 4,446,711 735,701 9,860,235 1,464,185 18,267,820 Total current assets 2,129,150 9,862,552 2,022,014 4,870,463 1,478,631 20,362,810 Operating expenses Noncurrent assets: Salaries and benefits 185,392 612,897 79,368 8,991,722 - 9,869,379 Capital assets 1,934,267 18,095,019 - - - 20,029,286 Supplies 57,951 650,093 - - - 708,044 Accumulated depreciation (1,235,640) (11,649,186) - - - (12,884,826) Other services and charges 613,648 579,935 134,462 2,127 1,526,012 2,856,184 Net other postemployment Depreciation 139,223 1,280,708 - - - 1,419,931 benefits asset 61,729 418,576 - - - 480,305 Total noncurrent assets 760,356 6,864,409 - - - 7,624,765 Total operating expenses 996,214 3,123,633 213,830 8,993,849 1,526,012 14,853,538
Total assets 2,889,506 16,726,961 2,022,014 4,870,463 1,478,631 27,987,575 Operating income (loss) 764,774 1,323,078 521,871 866,386 (61,827) 3,414,282
Deferred outflows of resources Nonoperating revenues (expenses) Deferred charge on refunding - 47,633 - - - 47,633 Interest expense (15,424) (146,904) - - - (162,328) Deferred other postemployment Gain on sale of capital assets - 151,410 - - - 151,410 benefits amounts 12,897 87,455 - - - 100,352 Total nonoperating revenue (expenses) (15,424) 4,506 - - - (10,918) Total deferred outflows of resources 12,897 135,088 - - - 147,985 B-71 Income (loss) before transfers 749,350 1,327,584 521,871 866,386 (61,827) 3,403,364 Liabilities Current liabilities: Transfers Accounts payable 130,998 472,115 75,837 21,510 - 700,460 Transfers in 105,640 600,194 - - - 705,834 Accrued and other liabilities 49,908 112,268 - 251,000 - 413,176 Transfers out - (27,275) (2,104,050) (5,181,440) (2,737,660) (10,050,425) Bonds payable, due within one year 28,388 427,525 - - - 455,913 Other long-term liabilities, current - - 271,372 - 388,080 659,452 Net transfers 105,640 572,919 (2,104,050) (5,181,440) (2,737,660) (9,344,591) Compensated absences, current 30,974 47,372 - - - 78,346 Total current liabilities 240,268 1,059,280 347,209 272,510 388,080 2,307,347 Change in net position 854,990 1,900,503 (1,582,179) (4,315,054) (2,799,487) (5,941,227)
Noncurrent liabilities: Net position, beginning of year, as restated 876,153 6,907,951 2,985,612 8,913,007 3,501,958 23,184,681 Bonds payable 899,158 6,941,303 - - - 7,840,461 Other long-term liabilities - - 271,372 - 388,080 659,452 Net position, end of year $ 1,731,143 $ 8,808,454 $ 1,403,433 $ 4,597,953 $ 702,471 $ 17,243,454 Accrued compensated absences 31,038 47,612 - - - 78,650 Total noncurrent liabilities 930,196 6,988,915 271,372 - 388,080 8,578,563
Total liabilities 1,170,464 8,048,195 618,581 272,510 776,160 10,885,910
Deferred inflows of resources Deferred other postemployment benefits amounts 796 5,400 - - - 6,196
Net position Net investment in capital assets 698,627 5,385,571 - - - 6,084,198 Unrestricted 1,032,516 3,422,883 1,403,433 4,597,953 702,471 11,159,256
Total net position $ 1,731,143 $ 8,808,454 $ 1,403,433 $ 4,597,953 $ 702,471 $ 17,243,454
130 131 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Combining Statement of Cash Flows Combining Statement of Cash Flows Internal Service Funds Internal Service Funds For the Year Ended June 30, 2017 For the Year Ended June 30, 2017
Information Workers Medical Liability Information Workers Medical Liability Systems Motor Pool Compensation Self-Insurance Insurance Total Systems Motor Pool Compensation Self-Insurance Insurance Total Cash flows from operating activities Internal activity - receipts from Reconciliation of operating income (loss) other funds $ 1,745,788 $ 4,297,195 $ 717,271 $ 9,830,463 $ 926,559 $ 17,517,276 to net cash provided by (used in) Other operating receipts 15,200 149,516 18,430 29,772 537,626 750,544 operating activities: Payments to vendors (625,620) (1,042,380) (62,643) (301,744) (1,779,053) (3,811,440) Operating income (loss) $ 764,774 $ 1,323,078 $ 521,871 $ 866,386 $ (61,827) $ 3,414,282 Payments to employees (540,288) (1,161,444) (332,674) (9,491,561) - (11,525,967) Adjustments to reconcile operating income to net cash provided by (used in) Net cash provided by (used in) operating activities: operating activities 595,080 2,242,887 340,384 66,930 (314,868) 2,930,413 Depreciation 139,223 1,280,708 - - - 1,419,931 Changes in assets and liabilities: Cash flows from noncapital Receivables, net (4,593) (20,470) 2,189 9,386 (530,771) (544,259) financing activities Prepaid items - - - (306,789) - (306,789) Transfers from other funds 105,640 600,194 - - - 705,834 Inventories - 22,864 - - - 22,864 Transfers to other funds - (27,275) (2,104,050) (5,181,440) (2,737,660) (10,050,425) Accounts payable 50,572 185,254 69,630 (2,214) - 303,242 Accrued and other liabilities (4,649) 74,633 - (499,839) - (429,855) Net cash provided by (used in) Other long-term liabilities - - (253,306) - 277,730 24,424 noncapital financing activities 105,640 572,919 (2,104,050) (5,181,440) (2,737,660) (9,344,591) Accrued compensated absences 11,934 8,236 - - - 20,170 Cash flows from capital and related Net pension liability and financing activities deferred amounts (449,726) (1,193,491) - - - (1,643,217) Purchase of capital assets (10,664) (2,083,997) - - - (2,094,661) Net other postemployment Principal paid on long-term debt - (226,118) - - - (226,118) benefits asset and deferred Interest paid on long-term debt (13,127) (127,427) - - - (140,554) amounts 87,545 562,075 - - - 649,620 B-72 Proceeds from sale of capital assets - 196,357 - - - 196,357 Net cash provided by (used in) Net cash provided by (used in) capital operating activities $ 595,080 $ 2,242,887 $ 340,384 $ 66,930 $ (314,868) $ 2,930,413 and related financing activities (23,791) (2,241,185) - - - (2,264,976) Noncash noncapital financing activities Net change in cash and investments 676,929 574,621 (1,763,666) (5,114,510) (3,052,528) (8,679,154) Contributions to other pension and other postemployment benefit funds financed through Cash and investments balances, the issuance of long-term debt $ 925,249 $ 6,242,400 $ - $ - $ - $ 7,167,649 beginning of year 1,443,719 8,994,431 3,777,626 8,701,614 3,995,940 26,913,330 concluded. Cash and investments balances, end of year $ 2,120,648 $ 9,569,052 $ 2,013,960 $ 3,587,104 $ 943,412 $ 18,234,176
continued…
132 133 CITY OF ROYAL OAK, MICHIGAN
Combining Statement of Fiduciary Assets and Liabilities Agency Funds June 30, 2017
Tax 44th District Agency Collection Fund Court Total Assets Cash and investments $ 97,086 $ 69,168 $ 318,278 $ 484,532
Liabilities Undistributed receipts $ 8,574 $ 41,370 $ 122,536 $ 172,480 Due to City of Berkley - - 30,665 30,665 Due to other governmental units 320 - - 320 Bonds and deposits 88,192 27,798 165,077 281,067
Total liabilities $ 97,086 $ 69,168 $ 318,278 $ 484,532 B-73
134 135 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Combining Statement of Changes in Assets and Liabilities Combining Statement of Changes in Assets and Liabilities Agency Funds Agency Funds For the Year Ended June 30, 2017 For the Year Ended June 30, 2017
Balance Balance Balance Balance July 1, June 30, July 1, June 30, 2016 Additions Deductions 2017 2016 Additions Deductions 2017 Agency Fund Totals - All Agency Funds Assets Assets Cash and investments $ 89,888 $ 149,825 $ (142,627) $ 97,086 Cash and investments $ 534,809 $ 9,407,467 $ (9,457,744) $ 484,532
Liabilities Liabilities Undistributed receipts $ 120 $ 141,698 $ (133,244) $ 8,574 Undistributed receipts $ 158,438 $ 4,294,704 $ (4,280,662) $ 172,480 Due to other governmental units 200 1,380 (1,260) 320 Due to the City of Berkley 45,988 338,593 (353,916) 30,665 Bonds and deposits 89,568 148,428 (149,804) 88,192 Due to other governmental units 200 1,380 (1,260) 320 Bonds and deposits 330,183 50,006,477 (50,055,593) 281,067 Total liabilities $ 89,888 $ 291,506 $ (284,308) $ 97,086 Total liabilities $ 534,809 $ 54,641,155 $ (54,691,432) $ 484,532
Tax Collection Fund concluded. Assets Cash and investments $ 83,870 $ 7,333,025 $ (7,347,727) $ 69,168 B-74
Liabilities Undistributed receipts $ 32,713 $ 341,312 $ (332,655) $ 41,370 Bonds and deposits 51,157 49,770,936 (49,794,295) 27,798
Total liabilities $ 83,870 $ 50,112,249 $ (50,126,951) $ 69,168
44th District Court Assets Cash and investments $ 361,051 $ 1,924,617 $ (1,967,390) $ 318,278
Liabilities Undistributed receipts $ 125,605 $ 3,811,694 $ (3,814,763) $ 122,536 Due to the City of Berkley 45,988 338,593 (353,916) 30,665 Bonds and deposits 189,458 87,113 (111,494) 165,077
Total liabilities $ 361,051 $ 4,237,400 $ (4,280,173) $ 318,278
continued…
136 137 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Balance Sheets Reconciliation Component Units Fund Balances of Governmental Funds June 30, 2017 to Net Position of Governmental Activities Component Units Tax June 30, 2017 Increment Downtown Brownfield Total Financing Development Redevelopment Component Tax Authority Authority Authority Units Increment Downtown Brownfield Total Assets Financing Development Redevelopment Component Cash and investments $ 2,029,750 $ 133,503 $ 176,102 $ 2,339,355 Authority Authority Authority Units Receivables, net 32,031 551 706 33,288 Prepaid items 50,000 - - 50,000 Fund balances for component units $ 2,038,380 $ 133,013 $ 176,808 $ 2,348,201
Total assets $ 2,111,781 $ 134,054 $ 176,808 $ 2,422,643 Amounts reported for component units in the statement of net position are different because: Liabilities Accounts payable $ 45,601 $ 179 $ - $ 45,780 Capital assets used in governmental activities are Accrued and other liabilities 3,907 846 - 4,753 not financial resources, and therefore are not reported in the fund statement. Total liabilities 49,508 1,025 - 50,533 Capital assets, net of accumulated depreciation 3,726,999 - - 3,726,999 Deferred inflows of resources Unavailable revenue - property taxes 23,893 16 - 23,909 The focus of governmental funds is on short-term available financing. Accordingly, some assets B-75 Fund balances will not be available to pay for current-period Nonspendable 50,000 - - 50,000 expenditures. Those assets (such as certain Unassigned 1,988,380 133,013 176,808 2,298,201 receivables) are offset by deferred inflows in the governmental funds, and thus are not included Total fund balances 2,038,380 133,013 176,808 2,348,201 in the fund balance. Unavailable property taxes receivable 23,893 16 - 23,909 Total liabilities, deferred inflows of resources and fund balances $ 2,111,781 $ 134,054 $ 176,808 $ 2,422,643 Certain liabilities, such as bonds payable, are not due, and payable in the current period, and therefore are not reported in the funds. Compensated absences (12,450) (3,662) - (16,112)
Net position for component units $ 5,776,822 $ 129,367 $ 176,808 $ 6,082,997
138 139 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Statements of Revenues, Expenditures and Changes in Fund Balances Reconciliation Component Units Net Changes in Fund Balances of Governmental Funds For the Year Ended June 30, 2017 to Change in Net Position of Governmental Activities Component Units Tax For the Year Ended June 30, 2017 Increment Downtown Brownfield Total Financing Development Redevelopment Component Tax Authority Authority Authority Units Increment Downtown Brownfield Total Revenues Financing Development Redevelopment Component Taxes $ 3,341,503 $ 49,927 $ 119,705 $ 3,511,135 Authority Authority Authority Units Interest and rentals 16,985 988 1,425 19,398 Contributions and donations 200,750 3,040 - 203,790 Net change in fund balances - component units $ 1,072,709 $ 16,184 $ 84,379 $ 1,173,272 Other revenues 93,999 - - 93,999 Amounts reported for component units in the Total revenues 3,653,237 53,955 121,130 3,828,322 statement of activities are different because:
Expenditures Governmental funds report capital outlays as expenditures. Current - However, in the statement of activities, the cost of Community and economic development 2,580,528 37,771 36,751 2,655,050 those assets is allocated over their estimated useful lives and reported as depreciation expense. Change in fund balances 1,072,709 16,184 84,379 1,173,272 Depreciation expense (93,815) - - (93,815)
Fund balances, beginning of year 965,671 116,829 92,429 1,174,929 Revenues in the statement of activities that do not provide current financial resources are not reported B-76 Fund balances, end of year $ 2,038,380 $ 133,013 $ 176,808 $ 2,348,201 as revenues in the funds, but rather are deferred to the following fiscal year. (1,507) (175) - (1,682)
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 governmental funds. Change in compensated absences 440 66 - 506 Change in the net pension liability and the related deferred amounts 160,610 49,386 - 209,996
Change in net position of component units $ 1,138,437 $ 65,461 $ 84,379 $ 1,288,277
140 141 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN
Schedule of Revenues, Expenditures and Changes in Fund Balance Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - Tax Increment Financing Authority Budget and Actual - Downtown Development Authority For the Year Ended June 30, 2017 For the Year Ended June 30, 2017
Actual Over Actual Over Original Final (Under) Final Original Final (Under) Final Budget Budget Actual Budget Budget Budget Actual Budget Revenues Revenues Taxes $ 3,140,000 $ 3,340,000 $ 3,341,503 $ 1,503 Taxes $ 50,000 $ 56,000 $ 49,927 $ (6,073) Interest and rentals 11,000 11,000 16,985 5,985 Interest and rentals 500 500 988 488 Contributions and donations 115,000 193,300 200,750 7,450 Contributions and donations - 3,040 3,040 - Other revenue - 92,000 93,999 1,999 Total revenues 50,500 59,540 53,955 (5,585) Total revenues 3,266,000 3,636,300 3,653,237 16,937 Expenditures Expenditures Community and economic development 50,500 59,540 37,771 (21,769) Community and economic development 3,683,850 3,768,290 2,580,528 (1,187,762) Net change in fund balance - - 16,184 16,184 Net change in fund balance (417,850) (131,990) 1,072,709 1,204,699 Fund balance, beginning of year 116,829 116,829 116,829 - Fund balance, beginning of year 965,671 965,671 965,671 - Fund balance, end of year $ 116,829 $ 116,829 $ 133,013 $ 16,184
B-77 Fund balance, end of year $ 547,821 $ 833,681 $ 2,038,380 $ 1,204,699
142 143 CITY OF ROYAL OAK, MICHIGAN
Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - Brownfield Redevelopment Authority For the Year Ended June 30, 2017
Actual Over Original Final (Under) Final Budget Budget Actual Budget Revenues Taxes $ 25,620 $ 118,630 $ 119,705 $ 1,075 Interest and rentals 500 500 1,425 925
Total revenues 26,120 119,130 121,130 2,000
Expenditures Community and economic development 26,120 119,130 36,751 (82,379)
Net change in fund balance - - 84,379 84,379 STATISTICAL SECTION
Fund balance, beginning of year 92,429 92,429 92,429 -
Fund balance, end of year $ 92,429 $ 92,429 $ 176,808 $ 84,379 B-78
144 145 CITY OF ROYAL OAK, MICHIGAN
Statistical Section Table of Contents
This part of the City’s 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.
Contents Page 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. 148
Revenue Capacity These schedules contain trend information to help the reader assess the factors affecting the City’s ability to generate its property taxes. 158
Debt Capacity These schedules contain trend 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. 164
Demographic and These schedules offer demographic and economic indicators to Economic Information help the reader understand the environment within which the City’s financial activities take place and to help make B-79 comparisons over time and with other governments. 178
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. 179
Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual Financial Report for the relevant year.
146 147 CITY OF ROYAL OAK, MICHIGAN Schedule 1 UNAUDITED Financial Trends Net Position by Component Last Ten Fiscal Years (accrual basis of accounting)
Fiscal Year Ended June 30 Fiscal Year Ended June 30 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Governmental activities: Net investment in capital assets $ 118,921,341 $ 119,486,155 $ 121,736,526 $ 120,155,093 $ 122,759,313 $ 124,348,655 $ 126,120,881 $ 132,341,007 $ 147,194,839 $ 162,548,501 Restricted 24,253,884 14,365,234 15,097,992 15,782,199 15,573,852 21,020,880 17,742,703 22,551,701 22,766,807 22,841,819 Unrestricted (deficit) 4,242,843 14,347,188 9,385,03 4 3,434,111 (741,153) (904,202) 5,117,615 (51,921,632) (53,192,731) (123,384,259) Total governmental activities net position 147,418,068 148,198,577 146,219,552 139,371,403 137,592,012 144,465,333 148,981,199 102,971,076 116,768,915 62,006,061
Business-type activities: Net investment in capital assets 61,366,065 61,051,630 64,238,153 67,776,260 68,690,716 71,310,977 74,792,125 78,110,713 85,228,498 86,510,191 Restricted 2,653 2,653 ------Unrestricted 10,061,309 15,584,666 12,260,677 13,490,313 16,926,698 18,986,638 19,884,780 13,660,160 12,647,786 13,468,325 Total business-type activities net position 71,430,027 76,638,949 76,498,830 81,266,573 85,617,414 90,297,615 94,676,905 91,770,873 97,876,284 99,978,516
Primary government: Net investment in capital assets 180,287,406 180,537,785 185,974,679 187,931,353 191,450,029 195,659,632 200,913,006 210,451,720 232,423,337 249,058,692 Restricted 24,256,537 14,367,887 15,097,992 15,782,199 15,573,852 21,020,880 17,742,703 22,551,701 22,766,807 22,841,819 Unrestricted (deficit) 14,304,152 29,931,854 21,645,711 16,924,424 16,185,545 18,082,436 25,002,395 (38,261,472) (40,544,945) (109,915,934) Total primary government net position $ 218,848,095 $ 224,837,526 $ 222,718,382 $ 220,637,976 $ 223,209,426 $ 234,762,948 $ 243,658,104 $ 194,741,949 $ 214,645,199 $ 161,984,577 B-80
Note: GASB statement 68 was implemented in fiscal year 2015, and prior years were not restated. Note: GASB statement 75 was implemented in fiscal year 2017, and prior years were not restated.
148 149 CITY OF ROYAL OAK, MICHIGAN Schedule 2 UNAUDITED Financial Trends Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting)
Fiscal Year Ended June 30 Fiscal Year Ended June 30 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Expenses Governmental activities: General government $ 9,081,988 $ 9,178,697 $ 10,658,475 $ 8,904,081 $ 9,235,905 $ 8,685,580 $ 8,823,978 $ 9,017,535 $ 10,233,170 $ 10,372,611 Public safety 24,228,222 25,340,432 27,808,076 27,846,183 26,655,378 27,661,032 29,807,897 29,965,336 33,545,346 34,856,261 Public works 11,647,910 12,008,559 11,323,281 11,568,038 11,501,518 11,471,347 11,870,834 13,295,707 11,803,571 12,216,069 Health and welfare 602,645 720,452 1,045,227 1,578,078 1,228,451 1,206,154 1,235,631 834,244 741,945 644,426 Community and economic development 2,301,776 1,382,073 1,855,557 1,829,671 1,914,032 1,384,747 1,381,937 1,444,432 1,442,994 2,371,971 Recreation and culture 4,212,541 4,101,371 3,988,900 4,012,061 3,497,548 3,465,650 3,612,171 3,762,240 4,056,345 3,953,833 Interest on long-term debt 784,438 720,676 697,975 674,965 616,539 536,155 445,709 431,845 385,521 1,994,475 Total governmental activities expenses 52,859,520 53,452,260 57,377,491 56,413,077 54,649,371 54,410,665 57,178,157 58,751,339 62,208,892 66,409,646 Business-type activities: Water and sewer 16,457,830 17,426,976 19,727,621 22,677,293 22,473,658 22,905,058 22,560,736 23,658,591 24,989,668 25,141,329 Parking 2,325,819 2,665,056 3,105,564 3,176,310 3,081,880 3,117,172 2,968,028 2,857,366 3,130,520 2,223,353 Recreation 1,960,279 1,866,341 1,788,792 1,676,691 2,159,028 2,229,831 2,195,258 2,229,514 2,146,622 1,927,746 Farmers market 327,228 344,946 350,918 365,470 380,262 383,635 426,141 471,484 516,110 531,140 Total business-type activities expenses 21,071,156 22,303,319 24,972,895 27,895,764 28,094,828 28,635,696 28,150,163 29,216,955 30,782,920 29,823,568 Total primary government expenses 73,930,676 75,755,579 82,350,386 84,308,841 82,744,199 83,046,361 85,328,320 87,968,294 92,991,812 96,233,214
Program Revenues B-81 Governmental activities: General government 4,786,182 5,032,372 4,985,949 4,450,270 5,045,872 5,607,879 5,723,862 5,862,692 7,009,130 7,179,495 Public safety 2,302,388 1,981,677 2,376,002 2,492,540 2,753,964 3,534,643 4,151,795 4,563,491 5,474,015 3,875,975 Public works 550,375 496,673 458,669 519,279 490,576 1,176,769 942,340 1,802,601 2,395,568 1,733,456 Health and welfare 865,648 959,100 934,114 959,793 955,698 1,054,639 1,053,817 891,010 1,108,659 1,059,388 Community and economic development 383,077 249,152 226,376 281,061 381,889 427,787 516,728 380,257 478,678 396,907 Recreation and culture 1,494,866 1,644,549 1,559,571 2,131,507 2,155,539 1,921,743 2,001,488 2,031,676 2,122,582 2,236,406 Charges for services 10,382,536 10,363,523 10,540,681 10,834,450 11,783,538 13,723,460 14,390,030 15,531,727 18,588,632 16,481,627 Operating grants and contributions 3,930,593 3,186,231 3,576,342 3,859,876 4,673,144 4,596,773 4,852,240 4,232,338 5,531,956 5,128,426 Capital grants and contributions 1,163,612 873,030 626,971 455,132 277,644 81,630 299,977 162,263 148,372 1,917,700 Total governmental activities program revenues 15,476,741 14,422,784 14,743,994 15,149,458 16,734,326 18,401,863 19,542,247 19,926,328 24,268,960 23,527,753 Business-type activities: Water and sewer 20,989,462 20,039,667 21,429,384 25,940,143 27,426,573 26,532,412 25,349,015 25,772,888 30,672,689 31,716,708 Parking 2,516,001 2,570,487 2,659,002 2,985,064 3,444,725 3,348,553 3,492,617 3,806,662 3,921,394 3,926,728 Recreation 1,850,882 1,747,139 1,779,515 1,764,707 2,053,167 2,326,020 2,189,652 2,275,535 2,373,123 2,558,056 Farmers market 290,194 295,731 309,329 350,632 372,646 393,081 477,974 495,244 482,662 488,660 Charges for services 25,646,539 24,653,024 26,177,230 31,040,546 33,297,111 32,600,066 31,509,258 32,350,329 37,449,868 38,690,152 Operating grants and contributions 5,090 6,870 617,778 617,198 501,299 747,570 634,047 635,612 440,016 354,180 Capital grants and contributions 719,412 2,753,092 70,713 - - 150,919 - - - - Total business-type activities program revenues 26,371,041 27,412,986 26,865,721 31,657,744 33,798,410 33,498,555 32,143,305 32,985,941 37,889,884 39,044,332 Total primary government program revenues 67,494,321 66,488,794 41,609,715 77,847,748 83,829,847 84,500,484 83,194,810 85,262,598 99,608,712 101,262,23 7
Net (Expense)/Revenue Governmental activities (37,382,779) (39,029,476) (42,633,497) (41,263,619) (37,915,045) (36,008,802) (37,635,910) (38,825,011) (37,939,932) (42,881,893) Business-type activities 5,299,885 5,109,667 1,892,826 3,761,980 5,703,582 4,862,859 3,993,142 3,768,986 7,106,964 9,220,764 Total primary government net expense (32,082,894) (33,919,809) (40,740,671) (37,501,639) (32,211,463) (31,145,943) (33,642,768) (35,056,025) (30,832,968) (33,661,129)
continued…
150 151 CITY OF ROYAL OAK, MICHIGAN Schedule 2 UNAUDITED Financial Trends Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting)
Fiscal Year Ended June 30 Fiscal Year Ended June 30 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General Revenues and Other Changes in Net Position Governmental activities: Property taxes $ 27,578,249 $ 27,744,049 $ 28,573,79 7 $ 26,152,857 $ 25,576,233 $ 34,016,290 $ 32,605,336 $ 39,990,26 4 $ 40,810,616 $ 43,475,312 State-shared revenues 9,251,499 8,873,213 8,228,312 8,280,285 8,392,881 8,542,746 9,043,725 8,953,377 9,411,377 10,037,969 Unrestricted investment earnings 2,068,262 998,889 449,343 300,004 254,940 153,669 184,685 72,513 119,498 245,423 Gain on sale of capital assets - - - - 28,303 - 14,246 31,381 57,705 97,786 Reimbursements 676,770 ------Miscellaneous 287,712 1,562,187 862,817 477,906 478,914 287,116 663,855 316,812 337,022 682,341 Transfers 689,516 631,647 2,540,203 (795,582) 1,568,859 (117,698) (360,071) 2,380,968 1,001,553 (1,155,651) Total governmental activities 40,552,008 39,809,985 40,654,472 34,415,470 36,300,130 42,882,123 42,151,776 51,745,315 51,737,771 53,383,180 Business-type activities: Unrestricted investment earnings 368,647 147,023 228,934 182,910 159,675 - - - - - Gain on sale of capital assets ------26,077 272 - - Miscellaneous 28,197 583,880 278,324 27,271 56,443 - - - - - Transfers (689,516) (631,647) (2,540,203) 795,582 (1,568,859) 117,698 360,071 (2,380,968) (1,001,553) 1,155,651 Total business-type activities (292,672) 99,256 (2,032,945) 1,005,763 (1,352,741) 117,698 386,148 (2,380,696) (1,001,553) 1,155,651 Total primary government 40,259,336 39,909,241 38,621,527 35,421,233 34,947,389 42,999,821 42,537,924 49,364,619 50,736,218 54,538,831
Change in Net Position B-82 Governmental activities 3,169,229 780,509 (1,979,025) (6,848,149) (1,614,915) 6,873,321 4,515,866 12,920,304 13,797,839 10,501,287 Business-type activities 5,007,213 5,208,923 (140,119) 4,767,743 4,350,841 4,980,557 4,379,290 1,388,290 6,105,411 10,376,415 Total primary government $ 8,176,442 $ 5,989,432 $ (2,119,144) $ (2,080,406) $ 2,735,926 $ 11,853,878 $ 8,895,156 $ 14,308,59 4 $ 19,903,250 $ 20,877,702
concluded.
152 153 CITY OF ROYAL OAK, MICHIGAN Schedule 3 UNAUDITED Financial Trends Fund Balances - Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting)
Fiscal Year Ended June 30 Fiscal Year Ended June 30 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
General fund Nonspendable $ 129,315 $ 131,224 $ 164,319 $ - $ - $ 37,402 $ - $ 10,974 $ 11,007 $ 2,942 Restricted - - - - 445,542 529,726 644,917 768,682 695,389 823,324 Assigned - - - 1,300,000 3,075,000 2,950,000 2,855,000 3,092,000 3,092,000 593,000 Unassigned 8,232,519 9,675,674 6,721,096 5,221,748 4,374,352 7,391,788 11,149,199 13,085,091 14,481,359 21,321,516 Total general fund 8,361,834 9,806,898 6,885,415 6,521,748 7,894,894 10,908,916 14,649,116 16,956,747 18,279,755 22,740,782
All other governmental funds Nonspendable 405,082 1,000 1,000 157,957 156,209 179,085 147,066 172,509 190,679 207,663 Restricted, reported in: Special revenue funds 15,105,248 14,189,386 15,339,796 15,178,562 14,145,088 14,456,669 16,225,088 20,856,866 21,133,319 19,224,262 Debt service funds 1,385,001 34,911 30,222 33,163 37,897 102,301 108,875 109,435 101,733 91,486 Capital projects funds 278,527 163,965 246,066 402,587 118,466 189,317 606,395 633,802 698,261 2,576,039 B-83 Permanent fund 21,158 10,278 9,924 9,930 10,034 10,347 10,362 10,407 10,464 10,531 Assigned - - - - - 2,277,340 3,101,828 2,317,454 2,046,139 898,444 Total all other governmental funds 17,195,016 14,399,540 15,627,008 15,782,199 14,467,694 17,215,059 20,199,614 24,100,473 24,180,595 23,008,425
Total governmental funds $ 25,556,850 $ 24,206,438 $ 22,512,423 $ 22,303,947 $ 22,362,588 $ 28,123,975 $ 34,848,730 $ 41,057,220 $ 42,460,350 $ 45,749,207
154 155 CITY OF ROYAL OAK, MICHIGAN Schedule 4 UNAUDITED Financial Trends Changes in Fund Balances - Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting)
Fiscal Year Ended June 30 Fiscal Year Ended June 30 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenues Taxes $ 27,791,32 7 $ 27,894,711 $ 28,247,608 $ 26,381,439 $ 25,741,88 4 $ 32,657,46 4 $ 33,040,10 4 $ 40,327,885 $ 40,812,298 $ 42,842,346 Licenses and permits 2,561,656 2,455,968 2,926,558 2,691,023 3,468,967 4,231,944 4,838,254 5,346,516 6,629,135 5,266,746 Federal grants 2,907,622 1,787,930 1,830,199 2,001,554 3,117,674 2,536,488 2,216,600 1,840,046 1,677,378 874,059 State grants 9,661,102 9,261,154 8,676,226 8,703,584 8,774,561 9,021,184 9,492,853 9,675,169 10,362,532 10,565,275 Charges for services 3,735,014 3,806,309 3,688,251 4,281,063 4,168,570 5,303,604 4,973,544 5,606,654 6,513,571 5,573,732 Fines and forfeitures 4,396,589 4,175,074 3,929,759 4,129,803 4,010,892 4,057,370 4,425,958 4,546,629 5,399,533 5,521,496 Interest and rentals 2,304,081 1,320,563 675,657 498,883 499,497 525,311 557,892 465,430 571,454 853,631 Contributions and donations 1,541,430 1,811,555 1,736,650 1,255,738 1,486,024 1,338,658 2,077,707 1,272,088 2,217,097 2,886,747 Other revenue 964,482 1,562,187 862,817 477,906 478,914 408,205 884,467 583,449 876,644 3,028,574 Total revenues 55,863,303 54,075,451 52,573,725 50,420,993 51,746,983 60,080,228 62,507,379 69,663,866 75,059,642 77,412,606
Expenditures General government 8,630,729 9,004,224 8,925,132 8,331,615 8,807,176 7,999,871 8,195,123 8,805,147 10,259,300 10,725,709 Public safety 24,646,113 25,414,070 26,624,516 24,534,124 23,449,671 24,773,584 26,703,494 30,347,526 31,858,670 36,112,01 7 Public works 13,086,601 14,057,676 13,873,005 12,460,296 13,506,755 13,547,204 14,049,998 18,827,277 24,544,700 26,548,191 Health and welfare 597,709 712,703 688,640 765,013 708,524 769,483 805,658 858,501 735,301 675,256 Community and economic development 2,307,383 1,405,210 1,864,821 1,843,800 1,901,247 1,426,415 1,413,899 1,416,767 1,396,557 2,393,734 B-84 Recreation and culture 3,986,566 3,912,795 3,670,704 3,549,926 3,223,250 3,262,250 3,602,859 3,815,200 4,042,879 4,145,786 Debt service: Principal payments 830,000 865,000 910,000 945,000 985,000 1,020,000 1,095,000 1,356,000 1,423,000 1,480,876 Interest and paying agent fees 776,549 710,111 689,500 666,865 609,981 520,597 437,427 401,704 399,159 231,120 Bond issuance costs ------32,838 - - Total expenditures 54,861,650 56,081,789 57,246,318 53,096,639 53,191,604 53,319,404 56,303,458 65,860,960 74,659,566 82,312,689
Revenue over (under) expenditures 1,001,653 (2,006,338) (4,672,593) (2,675,646) (1,444,621) 6,760,824 6,203,921 3,802,906 400,076 (4,900,083)
Other financing sources (uses) Issuance of long-term debt - - - - - 4,965,000 1,127,000 2,053,000 3,258,578 - Premium on issuance of long-term debt - - - - - 292,966 - - 153,451 - Payment to refunded bond escrow agent - - - - - (5,060,000) - (2,020,162) (3,353,620) - Transfers in 3,445,684 6,058,933 9,250,201 7,427,440 5,898,961 20,175,143 21,563,760 25,286,037 31,612,692 40,259,720 Transfers out (2,693,004) (5,403,007) (6,271,623) (4,960,270) (4,376,101) (21,392,144) (22,169,926) (22,913,344) (30,668,047) (32,070,780) Proceeds from sale of assets ------53 - - Total other financing sources (uses) 752,680 655,926 2,978,578 2,467,170 1,522,860 (1,019,035) 520,834 2,405,584 1,003,054 8,188,940
Net change in fund balances $ 1,754,333 $ (1,350,412) $ (1,694,015) $ (208,476) $ 78,239 $ 5,741,789 $ 6,724,755 $ 6,208,490 $ 1,403,130 $ 3,288,857
Debt service as a percentage of noncapital expenditures 3.10% 2.98% 3.01% 3.17% 3.18% 3.18% 2.90% 2.98% 3.03% 2.57%
156 157 CITY OF ROYAL OAK, MICHIGAN Schedule 5 UNAUDITED Revenue Capacity Information Assessed Value and Actual Value of Taxable Property Last Ten Fiscal Years
Direct Tax Taxable Value Tax Fiscal IFT Real and Total Rate Total as a % of Year Year Residential Commercial Industrial Personal Personal Tax Taxable Value (mills) SEV SEV
2007 2008$ 1,875,049,470 $ 378,328,500 $ 56,432,540 $ 124,894,29 0 $ 4,931,860 $ 2,439,636,660 11.4366$ 3,119,200,310 78.2% 2008 2009 1,889,916,570 393,623,270 58,732,400 113,121,190 4,893,960 2,460,287,390 11.4333 2,991,369,550 82.2% 2009 2010 1,859,817,935 413,633,900 57,320,450 111,014,890 4,908,820 2,446,695,995 11.6860 2,813,076,355 87.0% 2010 2011 1,688,549,090 403,781,590 54,329,690 116,007,990 5,712,590 2,268,380,950 11.7131 2,468,153,760 91.9% 2011 2012 1,648,632,770 396,588,890 43,977,480 119,051,890 14,124,730 2,222,375,760 11.7250 2,349,535,700 94.6% 2012 2013 1,626,988,850 391,226,770 41,045,340 137,095,330 9,577,040 2,205,933,330 15.2011 2,344,988,010 94.1% 2013 2014 1,671,311,400 379,835,840 36,914,920 135,277,840 9,507,670 2,232,847,670 15.1652 2,329,974,790 95.8% 2014 2015 1,724,404,970 375,365,660 36,935,510 131,328,570 9,076,090 2,277,110,800 18.1551 2,505,604,540 90.9% 2015 2016 1,799,260,920 378,983,060 37,730,500 142,368,610 7,856,290 2,366,199,380 17.6807 2,693,722,050 87.8% 2016 2017 1,879,373,700 393,810,370 39,070,030 123,548,190 5,724,260 2,441,526,550 17.8761 2,868,686,490 85.1%
Note: Under Michigan law, the revenue base is referred to as "Taxable Value." This amount represents assessed value (50% of true cash value), limited for each property
B-85 be the lower of 5% or inflation. Source: City Assessor's records.
158 159 CITY OF ROYAL OAK, MICHIGAN Schedule 6 UNAUDITED Revenue Capacity Information Property Tax Rates - Direct and Overlapping Last Ten Fiscal Years
Total Overlapping Taxes Direct City Taxes - Millage Rates ($1 per 1,000) (1) Overlapping Taxes Tax Rate Royal Oak Schools Total (4) Interme Oakland Downtown General Operating Solid Waste Operating Public Total County State Before School Tax Rate Library diate Commu School Tax Rate Development Safety Roads Voted Debt Direct Taxes Education School Non- for Non- Tax Fiscal Operating School nity P.R.E. (3) for P.R.E. Authority Charter Publications Refuse-State Refuse-Voted Operating Taxes (2) Tax (SET) Taxes P.R.E. (3) P.R.E. Year Year District College (DDA) (5)
2007 2008 7.3947 0.0214 2.0164 0.7500 0.9597 n/a n/a 0.2944 11.4366 5.2361 3.3690 1.5844 6.0000 27.6261 7.6057 22.7100 35.2318 50.3361 1.6831 2008 2009 7.3947 0.0213 2.0164 0.7500 0.9597 n/a n/a 0.2912 11.4333 5.3361 3.3690 1.5844 6.0000 27.7228 7.4095 22.7100 35.1323 50.4328 1.6477 2009 2010 7.3947 0.0216 2.0164 0.9965 0.9597 n/a n/a 0.2971 11.6860 5.3361 3.3690 1.5844 6.0000 27.9755 7.3521 22.7100 35.3276 50.6855 1.6477 2010 2011 7.3947 0.0234 2.0164 0.9965 0.9597 n/a n/a 0.3224 11.7131 5.3361 3.3690 1.5844 6.0000 28.0026 7.7312 22.7100 35.7338 50.7126 1.6477 2011 2012 7.3947 0.0239 2.0164 0.9965 0.9597 n/a n/a 0.3338 11.7250 5.3361 3.3690 1.5844 6.0000 28.0145 7.7312 22.7100 35.7457 50.7245 1.6477 2012 2013 7.3947 0.0225 2.0164 0.9965 0.9597 3.475 n/a 0.3363 15.2011 5.3361 3.3690 1.5844 6.0000 31.4906 7.7300 22.7100 39.2206 54.2006 1.6477 2013 2014 7.3947 0.0223 2.0164 0.9965 0.9597 3.475 n/a 0.3006 15.1652 5.3361 3.3690 1.5844 6.0000 31.4547 7.7300 22.7500 39.1847 54.2047 1.6477 2014 2015 7.3947 0.0218 2.0164 0.9965 0.9597 3.975 2.5000 0.2910 18.1551 5.9461 3.3690 1.5844 6.0000 35.0546 7.1928 22.7500 42.2474 57.8046 1.6477 2015 2016 7.3695 0.0223 2.0095 0.5931 0.9564 3.961 2.4915 0.2770 17.6807 5.8448 3.3633 1.5819 6.0000 34.4707 7.3842 22.7466 41.8549 57.2173 1.6409 2016 2017 7.2899 0.0206 1.9877 0.9823 0.9460 3.919 2.4645 0.2665 17.8761 5.7850 3.3398 1.5707 6.0000 34.5716 7.2911 22.7363 41.8627 57.3079 1.6146
Notes: (1) "VJV`:C ]V`: 1J$ I1CC:$V 1JHC%RV .V .:` V` Q]V`: 1J$ `: V8 %.V`V :`V 1Q 'V`%V `: V7 QJV `: V 1 :% .Q`1 Michigan law restricts the maximum millage that may be levied by the City without a vote of our residents, as follows: Tax Fiscal General Operating Solid Waste Operating Library Voted Year Year Charter Publications Refuse-State Refuse-Voted Operating Debt 2016 2017 7.2899 0.0206 1.9877 0.9823 0.9460 no limit not to exceed B-86 $50,000 / year (2) County Rate includes Oakland County, Oakland County Park, Oakland County Public Transit Authority, Huron Clinton Metropolitan Park Authority and, starting in 2008, the Detroit Zoo Authority rates. (3) Royal Oak Schools serve 98.98% of the taxable value of the city. Berkley and Clawson school districts serve the remaining area. (4) A homeowner's Principal Residence Exemption (P.R.E.) grants up to 18 mills of school tax relief to qualified homeowners (Public Act 15 of 2003, MCL 211.7cc as amended). It is administered by the local assessor and affects the local tax bill. An independent state homestead property tax credit (MCL 206.508 et seq.) to qualified homeowners and renters is administered directly by the Michigan Department of Treasury as additional property tax relief. (5) The DDA tax rate applies only to parcels within the approved Downtown District. It is in addition to all other applicable property tax rates. Source: City Assessor's records. 160 161 CITY OF ROYAL OAK, MICHIGAN Schedule 7 CITY OF ROYAL OAK, MICHIGAN Schedule 8 UNAUDITED UNAUDITED Revenue Capacity Information Revenue Capacity Information Principal Property Taxpayers Property Tax Levies and Collections Current Year and Nine Years Ago Last Ten Fiscal Years Assessment Year Collected within the Total Collections to Date 2008 2017 Fiscal Year of the Levy Percentage Percentage Taxes Levied Collections in Taxpayer Taxable Value Rank of Total Taxable Value Rank of Total Fiscal for the Fiscal Percent of Subsequent Percent of Tax Year Year Year Amount (1) Levy Years Amount Levy Consumers Energy Company $ 9,636,920 6 0.99%$ 27,932,140 1 1.14% DTE Electric Company 24,131,770 1 0.40% 24,519,980 2 1.00% 2007 2008$ 27,941,762 $ 27,684,282 99.07%$ 23,752 $ 27,708,034 99.16% WM Beaumont Hospital 15,069,880 3 0.99% 9,567,600 3 0.35% 2008 2009 27,871,925 27,828,147 99.84% 3,855 27,832,002 99.85% Meijer, Inc. 7,592,030 9 0.31% 8,524,140 4 0.39% 2009 2010 28,304,183 28,177,662 99.55% 105,667 28,283,329 99.92% Comcast 7,905,060 5 0.32% 2010 2011 26,338,079 26,314,425 99.91% 23,302 26,337,727 99.99% The Kroger Company 6,776,130 6 0.28% 2011 2012 25,685,056 25,656,002 99.88% 13,746 25,669,748 99.94% H2 Royal Oak, LLC 6,220,910 7 0.25% 2012 2013 32,676,999 32,629,339 99.85% 25,795 32,655,134 99.93% Garber Family Partnership 6,003,790 8 0.25% 2013 2014 34,509,624 34,431,897 99.77% 5,263 34,437,160 99.79% Woodland Gardens 5,660,270 9 0.23% Alidade Main North LLC 5,107,330 10 0.21% 2014 2015 42,085,769 41,995,560 99.79% 5,000 42,000,560 99.80% Sprint Holdings/Form Tech 23,664,650 2 0.97% 2015 2016 42,669,442 42,466,820 99.53% 25,000 42,491,820 99.58% Amber Equities 14,535,200 4 0.60% 2016 2017 44,457,247 44,292,016 99.63% 3,927 44,295,943 99.64% Co-op Services 9,562,570 7 0.39% National City Bank 8,047,980 8 0.33% (1): The amount collected within the fiscal year includes delinquent real taxes turned over to Oakland Woodland Gardens 5,612,700 10 0.23% County on March 1 of every year for collection. Flex-N-Gate 13,784,850 5 0.57% B-87 Source: City Treasurer's records. Total taxable value of ten largest taxpayers 131,638,550 5.77% 108,217,350 4.43% Total taxable value of all other taxpayers 2,307,998,110 94.60% 2,333,309,200 95.57% Total taxable value of all taxpayers $ 2,439,636,660 100.00%$ 2,441,526,550 100.00% Source: City Assessor 162 163 CITY OF ROYAL OAK, MICHIGAN Schedule 9 UNAUDITED Debt Capacity Information Ratios of Outstanding Debt Last Ten Fiscal Years Fiscal Year Ended June 30, Fiscal Year Ended June 30, 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Governmental Activities General obligation bonds $ 19,625,000 $ 19,850,000 $ 18,610,000 $ 17,335,000 $ 16,005,000 $ 14,670,478 14,302,563 $ 12,634,354 $ 10,960,611 $ 122,979,133 Business-type Activities General obligation bonds 21,047,387 30,132,387 28,317,387 26,437,387 24,957,387 23,147,426 21,597,831 15,475,000 15,658,150 41,025,472 Loans and contractual obligations 29,946,268 30,149,462 29,280,006 27,504,922 25,650,523 23,739,452 21,778,969 24,281,284 21,655,862 18,733,267 Total 50,993,655 60,281,849 57,597,393 53,942,309 50,607,910 46,886,878 43,376,800 39,756,284 37,314,012 59,758,739 Total debt of the City $ 70,618,655 $ 80,131,849 $ 76,207,393 $ 71,277,309 $ 66,612,910 $ 61,557,356 $ 57,679,363 $ 52,390,638 $ 48,274,623 $ 182,737,872 Total personal income $ 3,014,174,700 $ 2,736,407,910 $ 2,801,990,961 $ 2,859,295,677 $ 2,863,438,788 $ 3,169,998,966 $ 3,316,943,085 $ 3,365,977,560 $ 3,508,809,444 $ 3,744,166,724 Ratio of total debt to personal income 2.34% 2.93% 2.72% 2.49% 2.33% 1.94% 2.58% 1.56% 1.38% 4.88% Total population 54,903 54,365 56,133 57,281 54,903 59,478 59,485 59,016 58,716 59,006 Total debt per capita $1,286 $1,474 $1,358 $1,244 $1,213 $1,035 $970 $888 $822 $3,097 B-88 Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. Source: City Finance Department 164 165 CITY OF ROYAL OAK, MICHIGAN Schedule 10 UNAUDITED Debt Capacity Information Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years Business-type Governmental Activities Activities Governmental Limited Tax Limited Tax Debt as a Governmental General Obligation Tax Supported Less Pledged Debt General Obligation Net General Percentage of Debt per Fiscal Year Bonds (LTGO) Bonds (UTGO) Service Funds Bonds (LTGO) Bonded Debt Taxable Value Taxable Value Population Capita 2008 $ 12,785,000 $ 7,065,000 $ 1,385,001 $ 21,047,387 $ 39,512,386 $ 2,439,636,660 1.62% 54,903 720 2009 11,910,000 6,700,000 34,911 30,132,387 48,707,476 2,460,287,390 1.98% 54,365 896 2010 11,020,000 6,315,000 30,222 28,317,387 45,622,165 2,446,695,995 1.86% 56,133 813 2011 10,090,000 5,915,000 33,163 26,437,387 42,409,22 4 2,268,380,950 1.87% 57,281 740 2012 9,175,478 5,495,000 37,897 24,957,387 39,589,968 2,222,375,760 1.78% 57,364 690 2013 9,705,478 4,965,000 176,120 23,147,426 37,641,78 4 2,205,933,330 1.71% 59,478 633 2014 9,827,563 4,475,000 108,875 21,597,831 35,791,519 2,232,847,670 1.21% 59,485 455 2015 8,659,354 3,975,000 109,435 15,475,000 27,999,919 2,277,110,800 1.23% 59,016 474 2016 7,500,611 3,460,000 101,733 15,658,150 26,517,028 2,366,199,380 1.12% 58,716 452 2017 120,054,133 2,925,000 91,486 41,025,472 163,913,119 2,441,526,550 6.71% 59,006 2,778 Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. B-89 166 167 CITY OF ROYAL OAK, MICHIGAN Schedule 11 UNAUDITED Debt Capacity Information Direct and Overlapping Governmental Activities Debt June 30, 2017 Net Debt % of Taxable Government Unit Gross Self-Supporting Net Capita Value Direct Debt - City of Royal Oak $ 182,737,872 $ 37,641,318 $ 145,096,554 $2,471 6.13% City share as Net Overlapping Debt: Gross (1) % of Gross (1) City Share Royal Oak School District $ 26,260,000 96.91%$ 25,448,566 Berkley School District 60,685,000 1.84% 1,116,604 Clawson School District 25,414,485 93.00% 23,635,471 Oakland County at large 372,198,081 4.61% 17,158,332 Oakland Intermediate School District 45,495,000 4.63% 2,106,419 Oakland County Community College 820,000 4.65% 38,130 B-90 Total Overlapping Debt 530,872,566 69,503,521 1,183.72 2.94% Total Direct and Overlapping Debt $ 713,610,438 $ 214,600,075 $3,655 9.07% (1) Overlapping debt information obtained from Municipal Advisory Committee of Michigan Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the city. This schedule estimates the portion of outstanding debt of those overlapping governments that is borne by the residents and businesses of the City of Royal Oak. This process recognizes that, when considering the government's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every tax payer is a resident, and therefore responsible for repaying the debt, of each overlapping government. 168 169 CITY OF ROYAL OAK, MICHIGAN Schedule 12 UNAUDITED Debt Capacity Information Computation of Legal Debt Margin Last Ten Fiscal Years As of June 30 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Valuation base State equalized valuation - excluding IFT values $ 3,114,268,450 $ 2,986,475,590 $ 2,808,167,535 $ 2,462,441,170 $ 2,349,535,700 $ 2,335,410,970 $ 2,320,467,120 $ 2,496,528,450 $ 2,685,865,760 $ 2,862,962,230 Plus: equivalent valuation of Act 198 exemptions 4,931,860 4,893,960 4,908,820 5,712,590 14,124,730 9,577,040 9,507,670 9,076,090 7,856,290 5,724,260 Total valuation $ 3,119,200,310 $ 2,991,369,550 $ 2,813,076,355 $ 2,468,153,760 $ 2,363,660,430 $ 2,344,988,010 $ 2,329,974,790 $ 2,505,604,540 $ 2,693,722,050 $ 2,868,686,490 Legal debt limitation - 10% of total valuation $ 311,920,031 $ 299,136,955 $ 281,307,636 $ 246,815,376 $ 236,366,043 $ 234,498,801 $ 232,997,479 $ 250,560,454 $ 269,372,205 $ 286,868,649 Calculation of debt subject to limit: Debt outstanding 70,918,655 76,207,393 71,277,309 66,612,910 66,612,910 61,696,839 57,679,363 52,390,638 48,274,623 182,737,872 Less: bonds not subject to limit (43,878,655) (46,396,849) (44,452,393) (26,437,387) (38,897,910) (35,986,839) (33,001,356) (29,925,435) (25,246,458) (37,641,318) Net debt subject to limit 27,040,000 29,810,544 26,824,916 40,175,523 27,715,000 25,710,000 24,678,007 22,465,203 23,028,165 145,096,554 Additional debt which can be legally incurred $ 284,880,031 $ 269,326,411 $ 254,482,720 $ 206,639,853 $ 208,651,043 $ 208,788,801 $ 91,820,733 $ 102,815,024 $ 246,344,040 $ 141,772,095 Non-exempt debt as a percent of debt limit 8.67% 9.97% 9.54% 16.28% 11.73% 10.96% 21.18% 8.97% 8.55% 50.58% Source: City Finance Department Note: B-91 Section 21 of Article VII of the Michigan Constitution authorizes the enactment of laws for the incorporation of cities and grants cities the power to levy taxes for public purposes, subject to statutory and constitutional limitation: “The legislature shall provide by general laws for the incorporation of cities and villages. Such laws shall limit their range of ad valorem property taxation for municipal purposes, and restrict the powers of cities and villages to borrow money and contract debts. Each city and village is granted power to levy other taxes for public purposes, subject to limitations and prohibitions provided by the constitution or by law.” In accordance with the foregoing, the Home Rule City Act, Act 279, Michigan Public Acts, 1909, as amended, limits the amount of debt a home rule city may have outstanding at any time. Section 4-a of the Home Rule City Act provides, in pertinent part: “Notwithstanding a charter provision to the contrary the net indebtedness incurred for all public purposes shall not exceed the greater of the following: (a) Ten percent of the assessed value of all the real and personal property in the city. (b) Fifteen percent of the assessed value of all the real and personal property in the city if that portion of the total amount of indebtedness incurred which exceeds 10% is or has been used solely for the construction or renovation of hospital facilities.” "The provision of the Home Rule City Act cited above overrides the city’s charter provision which limits city indebtedness to five percent of the “assessed valuation” (SEV) of all real and personal property in the city. Other limitations may apply, however, if specifically set forth in a statute authorizing a particular kind of borrowing. Certain types of indebtedness are not subject to the 10% limitation of the Home Rule City Act, including: special assessment bonds, Michigan transportation fund bonds and revenue bonds, whether secured by a mortgage or not; bonds issued or contract obligations or assessment incurred to comply with an order of the Water Resources Commission of the State or a court of competent jurisdiction; obligations incurred for water supply, sewage, drainage, or refuse disposal or resource recovery projects necessary to protect the public 170 171 CITY OF ROYAL OAK, MICHIGAN Schedule 12 CITY OF ROYAL OAK, MICHIGAN Schedule 13 UNAUDITED UNAUDITED Debt Capacity Information Debt Capacity Information Pledged Revenue Coverage Computation of Legal Debt Margin Last Ten Fiscal Years Last Ten Fiscal Years Water/Sewer Bonds and Contractual Obligations Water & Sewer Less: Applicable Net Revenue Pursuant to the statutory and constitutional debt provisions set forth above, the following table reflects the amount of additional debt Operating Operating Available for Debt Service Requirement the city may legally incur as of May 2017. Fiscal Year Revenue Expenses (1) Debt Service Principal Interest Total Coverage 10% SEV 5% SEV* 2008$ 21,114,411 $ 14,800,538 $ 6,313,873 $ 1,914,068 $ 360,767 $ 2,274,835 278% 2009 20,683,908 14,911,446 5,772,462 2,443,181 414,129 2,857,310 202% FY 16-17 State Equalized Value (SEV) $ 2,868,686,490 $ 2,868,686,490 2010 21,751,452 16,101,596 5,649,856 2,681,982 1,246,379 3,928,361 144% Debt limit 286,868,649 143,434,325 2011 25,940,143 18,970,691 6,969,452 2,758,597 1,228,393 3,986,990 175% Debt outstanding 182,737,872 182,737,872 2012 27,426,573 19,275,416 8,151,157 2,829,400 1,151,522 3,980,922 205% Less: exempt obligations (37,641,318) (164,251,316) 2013 26,532,412 19,739,321 6,793,091 2,911,071 1,063,927 3,974,998 171% Debt subject to SEV limitation 144,819,776 18,209,778 2014 25,349,015 19,365,128 5,983,887 2,985,482 988,274 3,973,756 151% Additional debt which may be legally incurred 142,048,873 125,224,547 2015 25,772,888 20,325,789 5,447,099 3,075,921 910,921 3,986,842 137% 2016 30,672,689 21,910,527 8,762,162 3,160,487 799,770 3,960,257 221% Non-exempt debt outstanding as a percentage of SEV 5.05% 0.63% 2017 31,596,988 21,905,977 9,691,011 3,320,140 774,817 4,094,957 237% * In accordance with the Revised Municipal Finance Act Parking Revenue Bonds Parking Less: Applicable Net Revenue Operating Operating Available for Debt Service Requirement Fiscal Year Revenue Expenses (1) Debt Service Principal Interest Total Coverage 2017 3,926,728 2,925,904 1,000,824 - 137,363 137,363 729% B-92 Note: (1) Operating expenses net of depreciation and amortization. Source: City Finance Department 172 173 CITY OF ROYAL OAK, MICHIGAN Schedule 14 UNAUDITED Demographic and Economic Information Demographic Statistics Last Ten Fiscal Years Total Fiscal Year Number of Per Capita Personal Royal Oak (5) Michigan (5) Ended June Households Population Personal Income Median School Labor Unemployment Labor Unemployment 30 (1) (1) Income (2) ($000) Age (3) Enrollment (4) Force Rate Force (000) Rate 2008 28,674 54,903 54,900 3,014,175 39.9 5,270 34,503 4.4% 4,976 8.3% 2009 28,601 54,365 50,334 2,736,408 40.1 5,489 33,082 8.2% 4,889 13.6% 2010 27,639 56,133 49,917 2,801,991 40.6 5,528 33,222 8.4% 4,852 13.8% 2011 28,169 57,281 49,917 2,859,296 39.1 5,470 32,861 6.7% 4,749 11.1% 2012 28,216 57,364 49,917 2,863,439 40.5 5,172 33,122 6.7% 4,701 11.0% 2013 29,342 59,478 53,297 3,169,999 37.8 5,163 34,121 5.3% 4,760 8.7% 2014 29,399 59,485 55,761 3,316,943 37.8 5,171 33,955 5.0% 4,812 7.9% 2015 29,192 59,016 57,035 3,365,978 37.8 4,900 36,941 3.0% 4,806 6.0% 2016 29,122 58,716 59,759 3,508,809 37.8 4,053 38,139 2.9% 4,838 4.6% 2017 29,016 59,006 63,454 3,744,167 39.8 * 41,641 3.6% 4,865 3.8% Source: B-93 (1) U.S. Census and SEMCOG (2) 2008-2010 U.S. Department of Commerce, Bureau of Economic Analysis, Regional Bearfacts for Oakland County, MI. 2011-2012 Estimated using last year available. (3) Retail Coach estimate (4) Royal Oak Schools Fall enrollment count. (estimate, excludes Alternative Education) (5) Retail Coach estimate (6) Bureau of Labor Statistics, June 2017 Estimates * Unavailable for current fiscal year 174 175 CITY OF ROYAL OAK, MICHIGAN Schedule 15 CITY OF ROYAL OAK, MICHIGAN Schedule 16 UNAUDITED UNAUDITED Demographic and Economic Information Operating Information Principal Employers Capital Asset Statistics by Function/Program Current Year and Nine Years Ago Last Ten Fiscal Years 2008 2017 Function / Program 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General Government Percentage Percentage City hall 1111 1 1 1 1 1 1 Company Name Product/Service Employees Rank of Total Employees Rank of Total Courthouse 1111 1 1 1 1 1 1 William Beaumont Hospital Hospital 8,700 1 25.22% 13,298 1 31.94% Police City of Royal Oak Municipality 339 3 0.98% 507 2 1.22% Police stations 1111 1 1 1 1 1 1 Marked patrol vehicles 29 29 27 20 20 26 24 26 26 29 Royal Oak School District Education 639 2 1.85% 462 3 1.11% Other police vehicles 16 16 13 15 15 15 25 24 24 24 Detroit Zoological Society Zoo 208 8 0.60% 413 4 0.99% Fire Fire stations 3333 3 3 3 33 3 Consumers Energy Utility 220 6 0.64% 374 5 0.90% Fire response vehicles 8888 8 8 8 8 8 8 Ambulance vehicles 4444 4 4 4 4 4 4 Flex-N-Gate Royal Oak Automotive supplier 200 9 0.58% 355 6 0.85% Mobile command center 1110 0 0 0 00 0 Comau LLC Manufacturer 0.00% 315 7 0.76% Other fire vehicles * * * * * * 10 10 10 10 Holiday Market Grocery store 160 10 0.46% 308 8 0.74% Public Parking Spaces 3,424 3,678 3,678 3,678 3,678 3,678 3,730 3,815 3,815 3,465 Kroger Grocery store 260 4 0.75% 291 9 0.70% Decks 1,532 1,532 1,532 1,532 1,532 1,532 1,532 1,532 1,532 1,532 Lots 1,092 1,244 1,380 1,380 1,380 1,380 1,380 1,473 1,473 1,195 Meijer, Inc. Retailer/grocery store 250 5 0.72% 251 10 0.60% Streets 750 766 766 766 766 766 818 810 810 738 Meters 1,950 2,010 2,151 2,151 2,210 2,210 2,203 2,203 2,203 1,352 Form Tech Industries LLC 214 7 0.62% - Total 11,190 32.43% 16,574 39.80% Parks and Recreation Community center 2222 2 2 2 2 2 2 B-94 Number of parks 50 50 50 50 50 50 50 51 51 51 Park acreage 310 310 310 310 310 310 310 352 352 352 Golf courses/holes 2 / 9 ea. 2 / 9 ea. 2 / 9 ea. 2 / 9 ea. 2 / 9 ea. 2 / 9 ea. 2 / 9 ea. 1 / 9 ea. 1 / 9 ea. 1 / 9 ea. Indoor ice skating surfaces 2222 2 2 2 2 2 2 Tennis courts 33 33 33 33 33 32/ 1 32/1 31/2 31/2 31/2 Sources: Royal Oak Finance Department pickle pickle pickle pickle pickle Library Branches 1111 1 1 1 1 1 1 Collection -number of items 153,499 175,713 185,301 177,803 181,523 181,474 186,223 184,362 179,393 162,945 Public computers 36 36 36 47 44 44 38 38 37 36 Roads and Sidewalks Miles of major streets 64.40 64.40 64.40 64.40 64.40 63.96 63.96 63.96 63.96 63.96 Miles of local streets 148.27 148.27 148.27 148.27 148.27 148.24 148.41 148.41 148.63 148.63 Miles of sidewalk 420 420 420 420.5 420.6 421.3 422 423 423 425 Utilities Water Miles of water main 215 215.50 215.50 217.00 217 217.60 218 219 219 219 Miles of sewer 357 357.70 357.70 358.50 359 358.65 359 361 361 362 Number of hydrants 2,064 2,070 2,070 2,111 2,115 2,127 2,138 2,138 2,138 2,159 Forestry Number of trees in rights-of-way 23,121 23,121 23,121 20,781 22,048 20,541 20,262 27,149 26,456 18,983 Source: City Departments Note: * Information not available 176 177 CITY OF ROYAL OAK, MICHIGAN Schedule 17 UNAUDITED Operating Information Operating Indicators by Function/Program Last Ten Fiscal Years Fiscal Year Ending June 30 Function / Program 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Election data (calendar year) Registered voters 47,881 47,374 48,167 48,167 #("# 49,080 49,124 48,202 48,898 * Elections held 3111 " 12 2 3 * Voters (at the polls or absentee) 35,357 8,553 7,456 7,456 "#%& 12,555 23,734 12,305 35,350 * Percent voting 73.8% 17.7% 15.5% 15.5% 70.6% 25.6% 48.3% 25.5% 72.3% * Vital Records (calendar year) Birth 5,975 8,404 5,053 5,070 $('" 5,072 5,384 5,958 6,703 * Death 2,046 2,017 1,870 1,823 %(" 1,767 1,435 1,763 1,693 * District Court (calendar year) Number of court cases by judges/magistrates 17,615 15,879 17,263 15,636 14,701 13,140 15,223 '(%( 32,027 !("'% Number of traffic tickets disposed 24,626 20,692 18,797 13,906 "'"% 12,835 ##($ $($ 25,158 !!"( Number of criminal cases disposed 4,376 3,354 4,743 4,503 (%' 3,913 " # #!%( 2,604 !#$% Number of civil cases disposed 3,138 3,288 3,358 3,024 !'&( 2,945 !$% !"#( 3,254 #$# Number of parking tickets disposed 91,226 77,403 87,650 98,003 (&#!$ 93,388 ($%#" (" $ 92,658 '!' Assessing Parcels (tax / calendar year) 27,867 27,754 27,632 27,608 !&%# 27,641 27,693 27,791 27,857 27,904 Documents processed (prior to 2008 PTAs only) 3,344 1,254 1,194 4,479 #% 4,284 9,561 8,190 11,849 15,209 B-95 Building and Safety Permits issued 1,289 564 1,636 1,741 1,601 1,779 2,030 2,374 2,194 2,402 Estimated permit value ($000) $53,075 $6,859 $34,772 $30,539 $33,116 $70,480 $81,609 $77,778 $167,991 $121,953 Police (calendar year, 2009 through June 30) Calls for service 32,140 31,602 31,111 29,887 37,297 40,744 44,616 48,051 46,563 * Group A offenses 3,616 3,242 2,949 2,963 2,601 2,305 2,205 2,320 2,309 * Group B offenses 2,590 2,478 2,199 1,948 1,179 1,271 1,228 1,296 1,333 * Traffic violations issued 20,934 17,212 15,221 13,659 13,035 12,317 14,147 13,178 16,003 * Parking violations issued 79,776 86,322 88,830 97,391 93,661 96,385 92,454 86,955 75,627 * Fire Fire runs 1,869 1,532 1,625 1,806 1,824 2,020 2,158 2,277 2,179 2,121 Emergency medical runs 3,951 3,828 3,537 3,711 3,898 3,993 3,789 3,778 3,976 3,883 Inspections 271 291 513 435 515 448 464 590 611 702 Human Resources Employment applications - full & part-time 329 548 332 333 822 1,007 901 1,142 688 2,374 Hires, position changes, retirements, terminations 61 49 78 202 107 154 290 383 176 322 Workers' comp. claims filed - medical & indemnity 83 64 66 61 61 63 57 41 44 50 Health insurance enrollees - Employees 300 287 293 242 254 266 225 242 245 321 Health insurance enrollees - Retirees 380 379 391 408 438 440 420 434 431 461 Source: City Departments continued… Note: * Information not available 178 179 CITY OF ROYAL OAK, MICHIGAN Schedule 17 UNAUDITED Operating Information Operating Indicators by Function/Program Last Ten Fiscal Years Fiscal Year Ending June 30 Function / Program 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Library (The library was closed for eight months in FY 2006 during remodeling.) Cardholders - new registrations 4,415 4,860 4,620 4,064 3,677 3,648 3,667 3,697 3,634 3,785 Cardholders - total registrations 25,771 28,166 30,700 31,762 32,262 32,367 30,855 32,914 33,140 24,317 Circulation - number of transactions 360,333 405,067 423,356 455,847 451,097 405,101 393,843 378,252 372,934 403,009 Number of visitors 481,986 618,279 653,482 651,552 572,957 519,595 341,951 213,784 347,223 369,996 Number of computer uses 97,482 77,910 65,858 64,075 74,560 66,234 55,699 42,871 36,782 38,387 Number of programs/events offered 435 549 532 510 704 521 483 439 425 513 Number of program/event attendees 13,180 15,862 14,664 16,172 16,323 15,441 14,093 10,885 13,518 15,503 Parks and recreation Ice rental and other use (hours per calendar year) 7,496 7,820 7,459 7,511 * 7,888 7,932 8,087 8,193 8,300 Recreation program participants 15,756 16,208 16,548 16,560 16,600 16,688 16,320 16,055 16,222 16,300 Golf Course Rounds of Golf - Normandy Oaks 17,230 16,136 14,224 10,275 9,5369,1278,432000 Rounds of Golf - Royal Oak 27,140 26,017 24,354 17,970 17,340 16,240 16,187 20,760 18,225 18,700 Senior Programs Senior activity sessions 3,794 3,879 4,019 4,147 4,176 4,214 3,994 3,981 3,888 3,742 Senior activity participants 93,275 95,832 96,549 90,641 95,742 87,787 84,614 74,266 72,007 73,472 Senior meals served on-site and delivered 42,168 34,010 34,496 28,208 24,052 13,429 11,378 11,340 10,839 10,563 Senior transportation trips 18,120 18,690 16,755 15,249 14,101 12,611 12,571 13,559 12,863 13,095 B-96 Senior AGE program - Service Hours 24,000 24,000 19,675 24,000 24,000 24,000 24,000 24,000 24,000 24,000 Senior ROSES program in-home support jobs 2,045 2,542 2,617 3,164 3,839 2,090 2,073 2,074 2,066 2,081 Public Works / Engineering Miles of street resurfaced 2.11 3.00 3.38 2.60 2.52 2.33 1 1 5.61 6.50 Square feet of sidewalk - removed & replaced 22,364 31,000 43,465 29,583 242,330 299,618 365,765 287,645 500,991 330,551 Square feet of sidewalk - new 9,973 1,000 2,069 1,100 1,989 19,363 23,533 18,952 14,256 55,994 Curbside refuse collected (tons) 28,690 24,939 23,587 23,226 22,780 22,145 20,717 29,341 23,565 24,444 Curbside compost collected (tons) 10,829 10,432 10,337 9,943 7,770 7,730 11,143 11,115 10,551 7,089 Curbside recyclables collected (tons) 3,415 3,654 3,754 3,940 3,908 4,690 3,655 3,906 4,035 4,229 Leaf collection (tons) 5,125 3,643 3,256 10,340 3,677 3,330 3,550 3,260 unavailable 2,397 Feet of watermain - replaced 8,373 9,765 6,048 8,270 5,323 10,160 10,127 11,838 9,709 13,532 Feet of watermain - new 1,160 2,333 2,527 499 892 840 0 2,781 1,174 4,883 Feet of sewer - replaced 1,625 1,967 0 0 006 0635 0 785 Feet of sewer - new 2,155 989 0 0 801 801 3,265 2 0 5,703 Utilities - Water and Sewer Number of customers billed 23,873 23,894 23,892 23,907 23,912 23,929 23,264 23,159 23,646 24,335 Water units purchased (100 cubic feet) 293,807,500 278,193,100 260,659,900 266,638,900 275,758,400 262,629,400 250,522,400 247,902,200 253,900,000 247,413,200 Water units billed (100 cubic feet) 288,715,060 261,780,300 247,389,000 264,545,100 248,509,201 246,613,100 233,014,700 215,800,400 228,319,400 242,515,739 Wastewater units disposed (100 cubic feet) 293,592,500 277,958,800 264,178,600 266,435,300 275,555,200 262,378,200 232,943,600 215,790,000 228,296,800 239,653,661 Source: City Departments concluded. Note: * Information not available 180 181 CITY OF ROYAL OAK, MICHIGAN Schedule 18 UNAUDITED Operating Information Authorized Full-time Employees by Function/Program Last Ten Fiscal Years Fiscal Year Ending June 30, Function/Program 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 44th District Court/Probation 22 22 22 20 20 20 20 22 27 28 Administrative Services City of Manager 2 2 2 2 2 3 3 5 5 5 Attorney 5 4 4 3 3 3 4 4 4 3 City Clerk 4 4 5 4 4 4 5 5 5 5 Royal Oak, Human Resources 4 4 4 2 2 2 2 3 3 3 Building 11 11 8 5 5 5 6 11 11 11 Michigan Code Enforcement 5 4 6 4 2 2 5 5 5 5 Engineering 10 10 10 7 9 7 7 8 13 13 Planning 5 5 4 4 4 3 4 3 4 4 Block Grant 3 2 1 1 1 1 1 - - - Housing 2 1 2 1 1 - - 1 1 1 Finance Group 6 6 6 6 5 5 5 6 6 7 Assessing 4 4 4 4 3 3 3 4 4 4 Purchasing 1 1 ------Treasurer 5 5 4 4 4 4 3 3 3 4 Water Billing 2 1 1 1 1 1 1 1 1 1 Information Systems 6 4 4 4 4 4 4 4 4 5 Single Audit Economic Development ------1 1 1 Year Ended B-97 Subtotal 75 68 65 51 49 46 52 63 68 71 Act June 30, 2017 Library 13 13 12 12 11 10 9 8 8 Compliance Public Safety Police 107 103 98 82 77 81 96 97 98 98 Fire 63 63 62 56 56 56 56 56 56 56 Subtotal 170 166 160 138 133 137 152 153 154 154 Recreation & Public Services Public Service Parks & Forestry 8 8 8 2 8 7 7 7 7 7 CH Building Maintenance 2 2 2 2 2 2 2 2 2 2 Highway 16 14 14 - - - - - 2 2 Motor Pool 12 11 11 10 9 9 9 9 9 9 Electrical 1 1 1 1 - - - - 1 1 Solid Waste 1 1 2 15 13 14 14 14 14 14 Water Maintenance 9 9 8 12 8 7 7 7 8 8 Water Meter Services 6 6 6 5 5 4 4 4 4 4 Sewer Maintenance 9 9 8 9 8 7 7 7 7 7 Auto Parking 3 3 3 3 3 3 3 3 3 3 Recreation 2 2 2 2 2 2 2 2 2 2 Ice Arena 1 1 1 1 ------Senior Services 2 2 2 2 1 1 1 1 1 1 Subtotal 72 69 68 64 59 56 56 56 59 59 Total 352 338 327 285 272 269 290 303 316 320 Note: Positions are authorized budget positions as approved in the original budget. Source: City Finance Department 182 Rehmann Robson CITY OF ROYAL OAK, MICHIGAN 675 Robinson Rd. Jackson, MI 49203 Ph: 517.787.6503 Table of Contents Fx: 517.788.8111 rehmann.com Page INDEPENDENT AUDITORS' REPORT ON THE Independent Auditors’ Report on the Schedule of Expenditures SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS of Federal Awards Required by the Uniform Guidance 1 REQUIRED BY THE UNIFORM GUIDANCE Schedule of Expenditures of Federal Awards 2 December 5, 2017 Notes to Schedule of Expenditures of Federal Awards 3 Honorable Mayor and City Commission City of Royal Oak, Michigan Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters We have audited the financial statements of the governmental activities, the business-type activities, Based on an Audit of Financial Statements Performed in the aggregate discretely presented component units, each major fund, and the aggregate remaining Accordance with Government Auditing Standards 4 fund information of the City of Royal Oak, Michigan (the "City"), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City's Independent Auditors’ Report on Compliance for basic financial statements. We issued our report thereon dated December 5, 2017, which contained the Major Federal Program and on Internal Control unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming over Compliance Required by the Uniform Guidance 6 opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional Schedule of Findings and Questioned Costs 9 analysis as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and is B-98 Summary Schedule of Prior Audit Findings 11 not a required part of the basic financial statements. The 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 schedule of expenditures of federal awards is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators 1 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2017 1. BASIS OF PRESENTATION CFDA Passed Total Federal Federal Agency / Cluster / Program Title Number Through Subawards Expenditures The accompanying schedule of expenditures of federal awards (the “Schedule”) includes the federal U.S. Department of Housing and Urban Development grant activity of the City of Royal Oak, Michigan (the “City”) under programs of the federal Community Development Block Grant/Entitlement Grant 14.218 Direct $ 18,000 $ 807,824 government for the year ended June 30, 2017. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform U.S. Department of Justice Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Bulletproof Vest Partnership Grant 16.607 Direct - 5,088 Guidance). Because the Schedule presents only a selected portion of the operations of the City, it is not intended to and does not present the financial position, changes in net position or cash flows of U.S. Department of Transportation the City. Safe Communities - Strategic Traffic Enforcement 20.600 MSP - 15,786 U.S. Department of Homeland Security 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Hazard Mitigation Grant Program 97.039 MSP - 10,344 Expenditures reported on the Schedule are reported on the modified accrual basis of accounting, Homeland Security Grant Program - Training Grant 97.067 OAK - 1,143 which is described in Note 1 to the City's financial statements. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of Total U.S. Department of Homeland Security - 11,487 expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the Total Expenditures of Federal Awards $ 18,000 $ 840,185 Schedule, if any, represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. Pass-through entity identifying numbers are presented where available. B-99 For purposes of charging indirect costs to federal awards, the City has not elected to use the 10 percent de minimis cost rate as permitted by §200.414 of the Uniform Guidance. 3. OTHER FEDERAL REVENUE The City expended federal funds that were passed-through and administered by the Michigan Department of Agriculture ("MDOA"), the Secret Service, and the Federal Bureau of Investigations ("FBI"). The MDOA pass-through funds, which will be included in the State of Michigan’s single audit and identified as CFDA #10.572 and #10.576, were for Project Fresh in the amount of $216. The Secret Service pass-through funds were for the Southeastern Michigan Financial Crimes Task Force project in the amount of $22,484. The FBI pass-through funds were for the FBI Special Detail project in the amount of $11,390. 4. PASS-THROUGH AGENCIES The City receives certain federal grants as subawards from non-federal entities. Pass-through entities, where applicable, have been identified in the Schedule with an abbreviation, defined as follows: Abbreviation Pass-through Agency Name MSP Michigan State Police OAK Oakland County, Michigan See notes to schedule of expenditures of federal awards. 2 3 Rehmann Robson 675 Robinson Rd. Jackson, MI 49203 Compliance and Other Matters Ph: 517.787.6503 Fx: 517.788.8111 As part of obtaining reasonable assurance about whether the City’s financial statements are free from rehmann.com material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING material effect on the determination of financial statement amounts. However, providing an opinion on AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS compliance with those provisions was not an objective of our audit, and accordingly, we do not express PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. December 5, 2017 Purpose of this Report Honorable Mayor and City Commission City of Royal Oak, Michigan The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the We have audited, in accordance with the auditing standards generally accepted in the United States of City’s internal control or on compliance. This report is an integral part of an audit performed in America and the standards applicable to financial audits contained in Government Auditing Standards accordance with Government Auditing Standards in considering the entity’s internal control and issued by the Comptroller General of the United States, the financial statements of the governmental compliance. Accordingly, this communication is not suitable for any other purpose. activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Royal Oak, Michigan (the "City"), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated December 5, 2017. B-100 Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators 4 5 Rehmann Robson 675 Robinson Rd. Jackson, MI 49203 Opinion on the Major Federal Program Ph: 517.787.6503 Fx: 517.788.8111 In our opinion, the City complied, in all material respects, with the types of compliance requirements rehmann.com referred to above that could have a direct and material effect on its major federal program for the year ended June 30, 2017. INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE FOR THE MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Other Matters December 5,2017 The results of our auditing procedures disclosed an instance of noncompliance, which is required to be reported in accordance with the Uniform Guidance and which is described in the accompanying Honorable Mayor and City Commission schedule of findings and questioned costs as item 2017-001. Our opinion on the major federal program City of Royal Oak, Michigan is not modified with respect to this matter. Report on Compliance for the Major Federal Program The City’s response to the noncompliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The City’s response was not subjected to the We have audited the compliance of the City of Royal Oak, Michigan (the "City") with the types of auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on it. compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on the City’s major federal program for the year ended June 30, 2017. The City’s major Report on Internal Control Over Compliance federal program is identified in the summary of auditors’ results section of the accompanying schedule of findings and questioned costs. Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing Management’s Responsibility our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on the major federal program to determine B-101 Management is responsible for compliance with federal statutes, regulations, and the terms and the auditing procedures that are appropriate in the circumstances for the purpose of expressing an conditions of its federal awards applicable to its federal programs. opinion on compliance for the major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion Independent Auditors’ Responsibility on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. Our responsibility is to express an opinion on compliance for the City’s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of A deficiency in internal control over compliance exists when the design or operation of a control over compliance in accordance with auditing standards generally accepted in the United States of America; compliance does not allow management or employees, in the normal course of performing their the standards applicable to financial audits contained in Government Auditing Standards, issued by the assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance Comptroller General of the United States; and the requirements of Title 2 U.S. Code of Federal requirement of a federal program on a timely basis. A material weakness in internal control over Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we that there is a reasonable possibility that material noncompliance with a type of compliance plan and perform the audit to obtain reasonable assurance about whether noncompliance with the requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. types of compliance requirements referred to above that could have a direct and material effect on a A significant deficiency in internal control over compliance is a deficiency, or a combination of major federal program occurred. An audit includes examining, on a test basis, evidence about the deficiencies, in internal control over compliance with a type of compliance requirement of a federal City’s compliance with those requirements and performing such other procedures as we considered program that is less severe that a material weakness in internal control over compliance, yet important necessary in the circumstances. enough to merit attention by those charged with governance. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of the City’s compliance. Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators 6 7 CITY OF ROYAL OAK, MICHIGAN Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material Schedule of Findings and Questioned Costs For the Year Ended June 30, 2017 weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, SECTION I - SUMMARY OF AUDITORS’ RESULTS we identified a deficiency in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as item 2017-001, that we consider to be a significant Financial Statements deficiency. Type of auditors’ report issued: Unmodified The City’s response to the internal control over compliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The City’s response was not subjected Internal control over financial reporting: to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on it. Material weakness(es) identified? yes Xno Significant deficiency(ies) identified? yes X none reported Purpose of this Report Noncompliance material to financial statements yes Xno The purpose of this report on internal control over compliance is solely to describe the scope of our noted? testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Federal Awards Internal control over major programs: Material weakness(es) identified? yes Xno B-102 Significant deficiency(ies) identified? X yes none reported Type of auditors’ report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? X yes no Identification of major programs: CFDA Number Name of Federal Program or Cluster 14.218 Community Development Block Grant Cluster Dollar threshold used to distinguish between Type A and Type B programs: $ 750,000 Auditee qualified as low-risk auditee? X yes no SECTION II – FINANCIAL STATEMENT FINDINGS None reported. 8 9 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings For the Year Ended June 30, 2017 For the Year Ended June 30, 2017 SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 2016-001 - Disposition of Real Property 2017-001 - Reporting of Accrued Expenditures in CAPER (Repeat) Condition. The City sold real property that was acquired originally with CDBG funds, and did not obtain disposition instructions from the awarding agency prior to the sale of the assets. As a result, the City did not Finding Type. Immaterial Noncompliance; Significant Deficiency in Internal Control over Compliance ascertain what should be done with the sale proceeds in advance of the sale. The City received input from (Reporting). HUD following the audit. This finding was adequately resolved. Program. Community Development Block Grant (CDBG) (CFDA# 14.218); U.S. Department of Housing and Urban 2016-002 - Written Policies Required by the Uniform Guidance Development (HUD). The Uniform Guidance requires a non-federal entity that has expended federal awards for a grant awarded on Criteria. The PR-26 report is submitted as part of the Consolidated Annual Performance Evaluation Report or after December 26, 2014 to have written policies pertaining to: 1) Payments (draws of federal funds and (CAPER). This report should include all expenditures for the program year, including accrued expenditures. how to minimize the time lapsing between the receipt of federal funds and the disbursement to contractors/employees/subrecipients) (§200.302(6)); and 2) Allowability of costs charged to federal programs Condition. Certain expenditures incurred and requested by the City during the year were not included in the (§200.302(7)). Although the City had processes in place to cover these areas, there were no formal written PR-26 report, and as a result, the PR-26 did not agree to the underlying accounting records. policies covering payments and allowability of costs until after the end of the fiscal year. The City implemented written policies over these areas during the fiscal year, and has deferred implementation of Cause. This condition appears to be the result of an oversight when reporting expenditures. procurement standards as allowed. This finding was adequately resolved. Effect. As a result of this condition, the City's PR-26 report did not agree to the underlying accounting records. 2016-003 - Reporting of Accrued Expenditures in CAPER B-103 Questioned Costs. No costs have been questioned as a result of this finding. The PR-26 report is submitted as part of the Consolidated Annual Performance Evaluation Report (CAPER). This report should include all expenditures for the program year, including accrued expenditures. The final Recommendation. We recommend that management prepare required reports in accordance with the expenditure draw for fiscal year 2016 expenditures was not included in the PR-26 report, and as a result, the requirements of grant agreements, including the reporting instructions for such grants. PR-26 did not agree to the underlying accounting records. This matter was repeated as finding 2017-001. View of Responsible Officials. In the future, staff will reconcile the dollar amount prior to submittal of the year-end report to HUD. A written reminder and instructions have been included in the electronic folder associated with the year-end report. 10 11 Rehmann Robson 675 Robinson Rd. Jackson, MI 49203 Ph: 517.787.6503 Page 2 Fx: 517.788.8111 rehmann.com Qualitative Aspects of the City’s Significant Accounting Practices Significant Accounting Policies INDEPENDENT AUDITORS’ COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City is included in Note 1 to the financial statements. December 5, 2017 As described in Note 18 to the financial statements, the City changed accounting policies related to accounting for postemployment benefit plans by adopting Statement of Governmental Accounting Honorable Mayor and City Commission Standards Board (GASB Statement) No. 75, Accounting and Financial Reporting for Postemployment City of Royal Oak, Michigan Benefits Other Than Pensions. The cumulative effect of the accounting change as of the beginning of the year is reported in the proprietary funds statement of revenues, expenses, and changes in fund net We have audited the financial statements of the governmental activities, the business-type activities, position, and government-wide statement of activities. the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Royal Oak, Michigan (the “City”) as of and for the year ended No matters have come to our attention that would require us, under professional standards, to inform June 30, 2017, and have issued our report thereon dated December 5, 2017. Professional standards you about (1) the methods used to account for significant unusual transactions and (2) the effect of require that we advise you of the following matters relating to our audit. significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Our Responsibility in Relation to the Financial Statement Audit Significant Accounting Estimates As communicated in our engagement letter dated July 25, 2017, our responsibility, as described by professional standards, is to form and express opinions about whether the financial statements that Accounting estimates are an integral part of the financial statements prepared by management and are have been prepared by management with your oversight are fairly presented, in all material respects, based on management’s current judgments. Those judgments are normally based on knowledge and in conformity with accounting principles generally accepted in the United States of America. Our audit experience about past and current events and assumptions about future events. Certain accounting B-104 of the financial statements does not relieve you or management of your respective responsibilities. estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain current judgments. reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over The most sensitive accounting estimates affecting the financial statements were: financial reporting as a basis for designing 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 Management’s estimate of the useful lives of depreciable capital assets is based on the over financial reporting. Accordingly, as part of our audit, we considered the internal control of the length of time it is believed that those assets will provide some economic benefit in the City solely for the purpose of determining our audit procedures and not to provide any assurance future. concerning such internal control. Management’s estimate of the accrued compensated absences is based on current hourly We are also responsible for communicating significant matters related to the audit that are, in our rates and policies regarding payment of sick and vacation banks. professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to Management’s estimate of the allowance for uncollectible receivable balances is based on communicate to you. past experience and future expectation for collection of various account balances. We have provided our findings regarding internal control over financial reporting and compliance noted Management’s estimate of the insurance claims incurred but not reported is based on during our audit in a separate letter to you dated December 5, 2017. In addition, we noted certain information provided by the entity’s third party administrators and subsequent claims other matters which are included in Attachment A to this letter. activity. Planned Scope and Timing of the Audit The assumptions used in the actuarial valuations of the pension and other postemployment benefits plans are based on historical trends and industry standards. We performed the audit according to the planned scope and timing previously communicated to you in our engagement letter and in our meeting about planning matters on October 9, 2017. We evaluated the key factors and assumptions used to develop these estimates and determined that they are reasonable in relation to the basic financial statements taken as a whole and in relation to the Compliance with All Ethics Requirements Regarding Independence applicable opinion units. The engagement team, others in our firm, as appropriate, and our firm has complied with all relevant ethical requirements regarding independence. Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators Page 3 Page 4 Significant Difficulties Encountered During the Audit period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting We encountered no significant difficulties in dealing with management relating to the performance of records used to prepare the financial statements or to the financial statements themselves. the audit. Upcoming Changes in Accounting Standards Uncorrected and Corrected Misstatements Generally accepted accounting principles (GAAP) are continually changing in order to promote the For purposes of this communication, professional standards require us to accumulate all known and usability and enhance the applicability of information included in external financial reporting. While it likely misstatements identified during the audit, other than those that we believe are trivial, and would not be practical to include an in-depth discussion of every upcoming change in professional communicate them to the appropriate level of management. Further, professional standards require us standards, Attachment B to this letter contains a brief overview of recent pronouncements of the to also communicate the effect of uncorrected misstatements related to prior periods on the relevant Governmental Accounting Standards Board (GASB) and their related effective dates. Management is classes of transactions, account balances or disclosures, and the financial statements as a whole and responsible for reviewing these standards, determining their applicability, and implementing them in each applicable opinion unit. In addition, professional standards require us to communicate to you all future accounting periods. material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. None of the misstatements detected as a result of audit procedures and This information is intended solely for the use of the governing body and management of the City of corrected by management were material, either individually or in the aggregate, to the financial Royal Oak, Michigan and is not intended to be and should not be used by anyone other than these statements taken as a whole. specified parties. Disagreements with Management Very truly yours, For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the City’s financial statements or the auditors’ report. No such disagreements arose during the course of the audit. B-105 Representations Requested from Management We have requested certain written representations from management, which are included in Attachment C to this letter. Management’s Consultations with Other Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters. Other Significant Matters, Findings, or Issues In the normal course of our professional association with the City, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the City’s auditors. Other Information in Documents Containing Audited Financial Statements Our responsibility for the supplementary information accompanying the financial statements, as described by professional standards, is to evaluate the presentation of the supplementary information in relation to the financial statements as a whole and to report on whether the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole. We made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN Attachment A - Comments and Recommendations Attachment B – Upcoming Changes in Accounting Standards / Regulations For the June 30, 2017 Audit For the June 30, 2017 Audit During our audit, we became aware of certain other matters that are opportunities for strengthening The following pronouncements of the Governmental Accounting Standards Board (GASB) have been released internal control and/or improving operating efficiency. This memorandum summarizes our comments and recently and may be applicable to the City in the near future. We encourage management to review the recommendations regarding those matters. Our consideration of the City's internal control over financial following information and determine which standard(s) may be applicable to the City. For the complete reporting is described in our report, dated December 5, 2017, issued in accordance with Government text of these and other GASB standards, visit www.gasb.org and click on the “Standards & Guidance” tab. If Auditing Standards. This memorandum does not affect that report or our report dated December 5, 2017, you have questions regarding the applicability, timing, or implementation approach for any of these on the financial statements of the City of Royal Oak, Michigan. standards, please contact your audit team. CDBG Rehabilitation Loan Software (repeat comment) GASB 81 Irrevocable Split-Interest Agreements Effective 12/15/2017 (your FY 2018) The City uses an ancillary software system to account for its outstanding CDBG rehabilitations loans. We noted that a significant amount of manual calculations must be made to the system-generated reports in This standard addresses the accounting for split-interest agreements for which the government serves as order to determine an accurate amount for financial reporting purposes. Not only is this process time- the intermediary and/or the beneficiary. It requires governments to record assets, liabilities, and deferred consuming for City personnel, but the amount of manual adjustments and calculations exposes the City to inflows of resources at the inception of the agreement when serving as intermediary, or when the an increased risk of error. Additionally, significant time is needed by the auditors to test the balance. We government controls the present service capacity of a beneficial interest. We do not expect this standard recommend that management review this reporting system for efficiency and procedures to more to have any significant effect on the City. accurately track the loans, loan payments and loan write-offs to avoid possible misstatements in the future. GASB 83 Certain Asset Retirement Obligations Outstanding Engineering and Building Performance Bonds (repeat comment) Effective 06/15/2019 (your FY 2019) B-106 During testing of performance bonds for Engineering and Building projects, it was noted that the City has This standard addresses accounting and financial reporting for certain asset retirement obligations--legally significant outstanding performance bonds which are greater than five years old. We recommend that the enforceable liabilities associated with the retirement of a tangible capital asset. We do not expect this City review the process for keeping these bonds on their books, perform an annual review of the balance standard to have any significant effect on the City. and aging of these accounts, ensure that appropriate documentation for each bond outstanding is being retained, and consider escheating outstanding amounts deemed unlikely to be claimed to the State. GASB 84 Fiduciary Activities Effective 12/15/2019 (your FY 2020) This standard establishes new criteria for determining how to report fiduciary activities in governmental financial statements. The focus is on whether the government is controlling the assets, and who the beneficiaries are. Under this revised standard, certain activities previously reported in agency funds may be reclassified in future periods. Due to the number of specific factors to consider, we will continue to assess the degree to which this standard may impact the City. GASB 85 Omnibus 2017 Effective 06/15/2018 (your FY 2018) This standard includes a variety of small technical revisions to previously issued GASB statements. We do not expect this standard to have any significant effect on the City. A1 B1 CITY OF ROYAL OAK, MICHIGAN CITY OF ROYAL OAK, MICHIGAN Attachment B – Upcoming Changes in Accounting Standards / Regulations Attachment C – Management Representations For the June 30, 2017 Audit For the June 30, 2017 Audit GASB 86 Certain Debt Extinguishment Issues The following pages contain the written representations that we requested from management. Effective 06/15/2018 (your FY 2018) This standard provides guidance for reporting the in-substance defeasance of outstanding debt obligations using existing resources. Qualifying transactions will remove both the assets placed into trust and the related debt obligation from the government's statement of net position. We do not expect this standard to have any significant effect on the City. GASB 87 Leases Effective 12/15/2020 (your FY 2021) This standard establishes a single model for reporting all leases (including those previously classified as operating and capital). Lessees will now report offsetting intangible lease assets and lease liabilities equal to the present value of future lease payments. Lessors will report offsetting lease receivables and deferred inflows of resources. B-107 B2 C1 Finance Department 211 S Williams Street RoyalOal< Royal Oak, MI 48067 o 6. Related party relationships and transactions have been appropriately accounted for and Life Now Playing 248.246.3030 disclosed in accordance with the requirements of u.s. GAAP. For the purposes of this letter, related parties mean members of the governing body; board members; administrative officials; immediate families of administrative officials, board members, and members of the governing body; and any companies affiliated with or owned by such individuals. December 5, 2017 7. All events subsequent to the date of the financial statements and for which U.S. GAAP requires adjustment or disclosure have been adjusted or disclosed. Rehmann Robson The effects of all known actual or possible litigation and claims have been accounted for and 675 Robinson Road 8. Jackson, MI 49203 disclosed in accordance with U.S. GAAP. 9. With regard to items reported at fair value: a. The underlying assumptions are reasonable and they appropriately reflect management's This representation letter is provided in connection with your audit of the financial statements intent and ability to carry out its stated courses of action. of the governmental activities, the business-type activities, the aggregate discretely presented b. The measurement methods and related assumptions used in determining fair value are component units, each major fund, and the aggregate remaining fund information of the City appropriate in the circumstances and have been consistently applied. c. The disclosures related to fair values are complete, adequate, and in conformity with U.S. of Royal Oak, Michigan (the "City"), as of and for the year ended June 30, 2017, and the GAAP . related notes to the financial statements, for the purpose of expressing opinions on whether d. There are no subsequent events that require adjustments to the fair value measurements the basic financial statements present fairly, in all material respects, the financial position, and disclosures included in the financial statements. results of operations, and cash flows, where applicable, and the respective budgetary 10. All component units, as well as joint ventures with an equity interest, are included and other comparison for the general fund and each major special revenue fund of the City in joint ventures and related organizations are properly disclosed. conformity with accounting principles generally accepted for governments in the United 11. All funds and activities are properly classified. States of America (U.S. GAAP). 12. All funds that meet the quantitative criteria in GASB Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, and Certain representations in this letter are described as being limited to matters that are material. GASB Statement No. 37, Basic Financial Statements-and Management's Discussion and B-108 Items are considered material, regardless of size, if they involve an omission or misstatement of Analysis-for State and Local Governments: Omnibus, for presentation as major are identified accounting information that, in the light of surrounding circumstances, makes it probable that the and presented as such and all other funds that are presented as major are considered important judgment of a reasonable person relying on the information would be changed or influenced by the to financial statement users. omission or misstatement. 13. All components of net position and fund balance classifications have been properly reported. 14. All revenues within the statement of activities have been properly classified as program We confirm that, having made such inquiries as we considered necessary for the purpose of revenues, general revenues, contributions to term or permanent endowments, or contributions appropriately informing ourselves as of December 5, 2017: to permanent fund principal. Financial Statements 15. All expenses have been properly classified in or allocated to functions and programs in the statement of activities, and allocations, if any, have been made on a reasonable basis. 1. We have fulfilled our responsibilities, as set out in the terms of the audit engagement letter 16. All interfund and intra-entity transactions and balances have been properly classified and dated July 25, 2017, for the preparation and fair presentation of the financial statements of the reported. various opinion units referred to above in accordance with U.S. GMP. We have reviewed, 17. Deposit and investment risks have been properly and fully disclosed. approved, and taken responsibility for the financial statements and related notes. 18. Capital assets, including infrastructure assets, are properly capitalized, reported, and if 2. We have reviewed and approved the various adjusting journal entries that were proposed by you applicable, depreciated. for recording in our books and records and reflected in the financial statements. 19. All required supplementary information is measured and presented within the prescribed 3. We acknowledge our responsibility for the design, implementation, and maintenance of internal guidelines. control relevant to the preparation and fair presentation of financial statements that are free 20. We believe that the actuarial assumptions and methods used to measure pension and other from material misstatement, whether due to fraud or error. postemployment benefit liabilities and costs for financial accounting purposes are appropriate 4. We acknowledge our responsibility for the design, implementation, and maintenance of internal in the circumstances. control to prevent and detect fraud. 5. Significant assumptions used by us in making accounting estimates, including those measured at Information Provided fair value, are reasonable. 21. We have provided you with: a. Access to all information, of which we are aware that is relevant to the preparation and fair presentation of the financial statements of the various opinion units referred to above, such as records, documentation, meeting minutes, and other matters; www.romLgov www.romi.gov 36. With respect to the supplementary information accompanying the financial statements: a. We acknowledge our responsibility for the presentation of the supplementary information in b. Additional information that you have requested from us for the purpose of the audit; and accordance with accounting principles generally accepted in the United States of America. c. Unrestricted access to persons within the entity from whom you determined it necessary to b. We believe the supplementary information, including its form and content, is fairly obtain audit evidence. presented in accordance with accounting principles generally accepted in the United States 22. All transactions have been recorded in the accounting records and are reflected in the financial of America. statements. c. The methods of measurement or presentation have not changed from those used in the 23. We have disclosed to you the results of our assessment of the risk that the financial statements prior period. may be materially misstated as a result of fraud . d. We believe the significant assumptions or interpretations underlying the measurement 24. We have no knowledge of any fraud or suspected fraud that affects the entity and involves: or presentation of the supplementary information, and the basis for our assumptions and a. Management; interpretations, are reasonable and appropriate in the circumstances. b. Employees who have significant roles in internal control; or c. Others where the fraud could have a material effect on the financial statements. Required Supplementary Information 25. We have no knowledge of any allegations of fraud, or suspected fraud, affecting the entity's financial statements communicated by employees, former employees, vendors, regulators, or 37. With respect to the required supplementary information accompanying the financial others. statements: 26. We are not aware of any pending or threatened litigation and claims whose effects should be a. We acknowledge our responsibility for the presentation of the required supplementary considered when preparing the financial statements and we have not consulted legal counsel information in accordance with accounting principles generally accepted in the United concerning litigation or claims. States of America. 27. We have disclosed to you the identity of the entity's related parties and all the related party b. We believe the required supplementary information, including its form and content, is relationships and transactions of which we are aware. measured and fairly presented in accordance with accounting principles generally accepted 28. There have been no communications from regulatory agencies concerning noncompliance with in the United States of America. or deficiencies in accounting, internal control, or financial reporting practices. c. The methods of measurement or presentation have not changed from those used in the 29. The government has no plans or intentions that may materially affect the carrying value or prior period. classification of assets and liabilities. d. We believe the significant assumptions or interpretations underlying the measurement 30. We have disclosed to you all guarantees, whether written or oral, under which the government or presentation of the required supplementary information, and the basis for our B-109 is contingently liable. assumptions and interpretations, are reasonable and appropriate in the circumstances. 31 . We have identified and disclosed to you the laws, regulations, and provisions of contracts and grant agreements that could have a direct and material effect on financial statement amounts, Uniform Guidance (2 CFR 200) including legal and contractual provisions for reporting specific activities in separate funds. 32. There are no: 38 . With respect to federal awards, we represent the following to you: a. Violations or possible violations of laws or regulations, or provisions of contracts or grant a. We are responsible for understanding and complying with and have complied with the agreements whose effects should be considered for disclosure in the financial statements or requirements of the Uniform Guidance. as a basis for recording a loss contingency, including applicable budget laws and regulations. b. We are responsible for the preparation and presentation of the schedule of expenditures of b. Unasserted claims or assessments that our lawyer has advised are probable of assertion and federal awards in accordance with the Uniform Guidance. must be disclosed in accordance with GASB-62, Codification of Accounting and Financial c. We believe the schedule of expenditures of federal awards, including its form and content, Reporting Guidance Contained in Pre-November 30, 1989 FA sa and A/CPA Pronouncements. is fairly presented in accordance with the Uniform Guidance. c. Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by d. The methods of measurement or presentation have not changed from those used in the prior GASB-62. period. 33. The government has satisfactory title to all owned assets, and there are no liens or e. We believe the significant assumptions or interpretations underlying the measurement or encumbrances on such assets nor has any asset or future revenue been pledged as collateral, presentation of the schedule of expenditures of federal awards, and the basis for our except as disclosed to you. assumptions and interpretations, are reasonable and appropriate in the circumstances. f. We are responsible for including the auditor's report on the schedule of expenditures of 34. We have complied with all aspects of grant agreements and other contractual agreements that federal awards in any document that contains the schedule and that indicates that the would have a material effect on the financial statements in the event of noncompliance. auditor has reported on such information. 35 . We have disclosed to you all significant estimates and material concentrations known to g. When the schedule of expenditures of federal awards is not presented with the audited management that are required to be disclosed in accordance with GASB-62. Significant financial statements, management will make the audited financial statemen'ts readily estimates are estimates at the balance sheet date that could change materially within the next available to the intended users of the schedule of expenditures of federal awards no later year. Concentrations refer to volumes of business, revenues, available sources of supply, or than the date of issuance by the entity of the schedule of expenditures of federal awards markets or geographic areas for which events could occur that would significantly disrupt and the auditor's report thereon. normal finances within the next year. h. We have, in accordance with the Uniform Guidance, identified in the schedule of expenditures of federal awards, expenditures made during the audit period for all awards provided by federal agencies in the form of grants, federal cost-reimbursement contracts, Supplementary Information in Relation to the Financial Statements as a Whole loans, loan guarantees, property (including donated surplus property), cooperative www.romi.gov www.romi.gov agreements, interest subsidies, food commodities, direct appropriations, and ot her assistance. i. We are responsible for complying with the requirements of laws, regulations, and the v. We are responsible for and have accurately prepared the summary schedule of prior audit provisions of contracts and grant agreements related to each of our federal programs and findings to include all findings required to be included by the Uniform Guidance, and we have identified and disclosed to you the requirements of laws, regulations, and the have provided you with all information on the st atus of the follow-up on prior audit findings provisions of contracts and grant agreements that are considered to have a direct and by federal awarding agencies and pass-through entities, including all management decisions. material effect on each major federal program; and we have complied, in all material w. We have disclosed to you the findings received and related corrective actions taken for respects, with these requirements. previous audits, attestation engagements, and internal or external monitoring that directly j. We have provided to you our interpretations of any compliance requirements that have relate to the objectives of the compliance audit, including findings received and corrective varying interpretations. actions taken from the end of the period covered by the compliance audit to the date of the k. We are responsible for establishing and maintaining effective internal control over auditor's report. compliance requirements applicable to federal programs that provide reasonable assurance x. We are responsible for and have accurately completed the appropriate sections of the Data that we are managing our federal awards in compliance with laws, regulations, and the Collection Form as required by the Uniform Guidance, and we are responsible for preparing provisions of contracts and grant agreements that could have a material effect on our and implementing a correction action plan for each audit finding. federal programs. Also , no changes have been made in the internal control system to the y. We have disclosed all contracts or other agreements with service organizations and date of this letter that might significantly affect internal control, including any corrective disclosed to you all communications from these service organizations relating to action taken with regard to significant deficiencies, including material weaknesses, noncompliance at the organizations. reported in the schedule of findings and questioned costs. z. We have reviewed, approved, and taken responsibility for the financial statements and l. We have made available to you all contracts and grant agreements (including amendments, related notes. if any) and any other correspondence with federal agencies or pass-through entities relating aa. We have disclosed to you the nature of any subsequent events that provide additional to federal programs. evidence with respect to conditions that existed at the end of the reporting period that m. We have received no requests from a federal agency to audit one or more specific programs affect noncomplia,nce during the reporting period. as a major program . ~ n. We have identified and disclosed to you all amounts questioned and any known noncompliance with the requirements of federal awards, including the results of other audits or program reviews. We also know of no instances of noncompliance occurring subsequent to the end of the period audited. o. We have charged costs to federal awards in accordance with applicable cost principles, including amounts claimed or used for matching determined in accordance with relevant B-110 guidelines in the Uniform Guidance. p. We have made available to you all documentation related to the compliance requirements, including information related to federal program financial reports and claims for advances and reimbursements. q. Federal program financial reports and claims for advances and reimbursements are supported by the books and records from which the basic financial statements have been prepared (and are prepared on a basis consistent with the schedule of expenditures of federal awards). r. The copies of federal program financial reports provided to you are true copies of the reports submitted, or electronically transmitted, to the respective federal agency or pass through entity, as applicable. s. We have monitored subrecipients to determine if they have expended pass-through assistance in accordance with applicable laws and regulations and have met the requirements of the Uniform Guidance. t . We have issued management decisions timely after the receipt of subrecipients' auditor reports that identified noncompliance with laws, regulations, or the provisions of contracts or grant agreements, and have ensured that the subrecipients have taken the appropriate and timely corrective action on findings. u. We have considered the results of subrecipients' audits and have made any necessary adjustments to our own books and records. www.romi.gov www.romi.gov APPENDIX C Form of Approving Opinion of Bond Counsel [THIS PAGE INTENTIONALLY LEFT BLANK] 2600 W EST B IG B EAVER R OAD, S UITE 300 T ROY, MI 48084-3312 T ELEPHONE: (248) 433-7200 F ACSIMILE: (844) 670-6009 http://www.dickinsonwright.com R OBERT L. S CHWARTZ [email protected] (248) 433-7546 ______, 2018 City of Royal Oak County of Oakland State of Michigan Ladies and Gentlemen: We have acted as bond counsel to the City of Royal Oak, County of Oakland, State of Michigan (the "City") in connection with the issuance by the City of $______Limited Tax General Obligation Bonds, Series 2018 (Capital Improvement Bonds), dated the date of delivery (the "Bonds"). We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon certified proceedings and other certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. 1. The Bonds are valid and legally binding obligations of the City. 2. The full faith and credit of the City have been pledged for the payment of the principal of and interest on the Bonds when due. The principal of and interest on the Bonds are payable as a first budget obligation of the City from its general funds. Taxes imposed by the City for payment of such principal and interest are subject to constitutional, statutory and charter limitations. 3. The Bonds and the interest thereon are exempt from all taxation by the State of Michigan or a political subdivision thereof, except estate taxes and taxes on gains realized from the sale, payment, or other disposition thereof. 4. The interest on the Bonds (a) is excluded from gross income for federal income tax purposes and (b) is not an item of tax preference for purposes of the individual federal alternative minimum tax (“AMT”); however, during tax years beginning before January 1, 2018, interest on the Bonds held by a corporation (other than an S corporation, regulated investment company, or real estate investment trust) may be subject to federal AMT because of its inclusion in the adjusted current earnings of a corporate holder. The opinion set forth in clause (a) above is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be (or continue to be) excluded from gross income for federal income tax purposes. Failure to comply with certain of such requirements could cause the interest on the Bonds to be so included in gross income retroactive to the date of issuance of the Bonds. The City has covenanted to comply with all such requirements. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. It is understood that the rights of the holders of the Bonds and the enforceability thereof 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 that their enforcement also may be subject to the exercise of judicial discretion in appropriate cases. C-1 D ICKINSON W RIGHT PLLC City of Royal Oak ______, 2018 Page 2 This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Respectfully, DICKINSON WRIGHT PLLC C-2 APPENDIX D Form of Continuing Disclosure Certificate [THIS PAGE INTENTIONALLY LEFT BLANK] CONTINUING DISCLOSURE CERTIFICATE $______CITY OF ROYAL OAK COUNTY OF OAKLAND, STATE OF MICHIGAN LIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2018 (CAPITAL IMPROVEMENT BONDS) This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the City of Royal Oak, Michigan (the “City”) in connection with the issuance of its Limited Tax General Obligation Bonds, Series 2018 (Capital Improvement Bonds) (the “Bonds”). The City covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. (a) This Disclosure Certificate is being executed and delivered by the City for the benefit of the Bondholders and the Beneficial Owners and in order to assist the Participating Underwriters in complying with subsection (b)(5) of the Rule. (b) In consideration of the purchase and acceptance of any and all of the Bonds by those who shall hold the Bonds or shall own beneficial ownership interests therein from time to time, this Disclosure Certificate shall be deemed to be and shall constitute a contract between the City and the Bondholders and Beneficial Owners from time to time of the Bonds, and the covenants and agreements herein set forth to be performed by or on behalf of the City shall be for the benefit of the Bondholders and Beneficial Owners of any and all of the Bonds. Section 2. Definitions. The following capitalized terms have the following meanings: “1934 Act” means the Securities Exchange Act of 1934, as amended. “Annual Report” means any Annual Report of the City provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Beneficial Owner” means any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including any person holding Bonds through nominees, depositories or other intermediaries). “Bondholder” means the registered owner of any Bonds. “Dissemination Agent” means the City or any successor Dissemination Agent appointed in writing by the City and which has filed with the City a written acceptance of such appointment. “EMMA” means the Electronic Municipal Market Access system of the MSRB. As of the date of this Disclosure Certificate, the EMMA internet website address is http://www.emma.msrb.org. “GAAP” means generally accepted accounting principles, as such principles are prescribed, in part, by the Financial Accounting Standards Board and modified by the Governmental Accounting Standards Board and in effect from time to time. “Listed Events” means any of the events listed in Section 5(a) of this Disclosure Certificate. D-1 “MSRB” means the Municipal Securities Rulemaking Board established in accordance with the provisions of Section 15B(b)(1) of the 1934 Act. As of the date of this Disclosure Certificate, the address and telephone and telecopy numbers of the MSRB are as follows: Municipal Securities Rulemaking Board 1900 Duke Street, Suite 600 Alexandria, Virginia 22314 Tel: (703) 797-6600 Fax: (703) 797-6700 “Official Statement” means the final Official Statement for the Bonds dated ______, 2018. “Participating Underwriters” means any of the original underwriters of the Bonds required to comply with the Rule in connection with the primary offering of the Bonds. “Rule” means Rule 15c2-12 (17 CFR Part 240, § 240.15c2-12) promulgated by the SEC pursuant to the 1934 Act, as the same may be amended from time to time, together with all interpretive guidance or other official interpretations or explanations thereof that are promulgated by the SEC. “SEC” means the United States Securities and Exchange Commission. “Securities Counsel” means legal counsel expert in federal securities law. “State” means the State of Michigan. Section 3. Provision of Annual Reports. (a) Each year, the City shall provide, or shall cause the Dissemination Agent to provide, not later than the date six months after the end of the City’s fiscal year, commencing with the City’s Annual Report for its fiscal year ending June 30, 2018, to the MSRB an Annual Report for the fiscal year then ended which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than fifteen (15) business days (or such lesser number of days as is acceptable to the Dissemination Agent) prior to said date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). Currently, the City’s fiscal year commences on July 1. In each case, the Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by specific reference other information as provided in Section 4 of this Disclosure Certificate; provided, however, that if the audited financial statements of the City are not available by the deadline for filing the Annual Report, they shall be provided when and if available, and unaudited financial statements in a format similar to the audited financial statements then most recently prepared for the City shall be included in the Annual Report. (b) If the City is unable to provide to the MSRB an Annual Report of the City by the date required in subsection (a), the City shall file a notice, in a timely fashion, with the MSRB, in substantially the form containing the information shown on attached Exhibit A. (c) If the City’s fiscal year changes, the City shall file written notice of such change with the MSRB, in substantially the form containing the information shown on attached Exhibit B. (d) Whenever any Annual Report or portion thereof is filed as described above, it may be attached to a cover sheet in substantially the form attached as Exhibit C. (e) If the Dissemination Agent is other than the City, the Dissemination Agent shall file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided. D-2 (f) In connection with providing the Annual Report, the Dissemination Agent (if other than the City) is not obligated or responsible under this Disclosure Certificate to determine the sufficiency of the content of the Annual Report for purposes of the Rule or any other state or federal securities law, rule, regulation or administrative order. Section 4. Content of Annual Reports. The City’s Annual Report shall contain or include by reference the following: (a) The audited financial statements of the City for its fiscal year immediately preceding the due date of the Annual Report. (b) An update of the financial information and operating data relating to the City of the same nature as that contained in the following tables in the Official Statement: Page (1) Tax Rates – Five-Year History A-4 (2) City Wide Millages A-5 (3) SEV/Taxable Valuation – Five-Year History A-8 (4) General Fund Balance A-9 (5) Property Tax Collection Record – Five Year History A-10 (6) Revenue Sharing from the State of Michigan A-12 (7) Legal Debt Margin A-14 (8) Debt Statement – City Direct Debt A-15 (9) Debt Statement – City Overlapping A-16 (10) Ten Largest Employers A-30 (11) Ten Largest Ad-Valorem Taxpayers A-30 The City’s financial statements shall be audited and prepared in accordance with GAAP with such changes as may be required from time to time in accordance with State law. Any or all of the items listed above may be included by specific reference to other documents available to the public on the MSRB’s internet website or filed with the SEC. The City shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. (a) The City covenants to provide, or cause to be provided, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not in excess of ten (10) business days after the occurrence of the event and in accordance with the Rule: (1) Principal and interest payment delinquencies; D-3 (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 material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; (7) Modifications to rights of security holders, if material; (8) Bond calls, if material; (9) Defeasances; (10) Release, substitution, or sale of property securing repayment of the securities, if material; (11) Rating changes; (12) Tender offers; (13) Bankruptcy, insolvency, receivership or similar event of the obligated person; (14) 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; and (15) Appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) Whenever the City obtains knowledge of the occurrence of a Listed Event described in subsection (a)(2), (7), (8), (10), (14) or (15), the City shall as soon as possible determine if such Listed Event would be material under applicable federal securities laws. The City covenants that its determination of materiality will be made in conformance with federal securities laws. (c) If the City determines that (i) a Listed Event described in subsection (a)(1), (3), (4), (5), (6), (9), (11), (12) or (13) has occurred or (ii) the occurrence of a Listed Event described in subsection (a)(2), (7), (8), (10), (14) or (15) would be material under applicable federal securities laws, the City shall cause a notice of such occurrence to be filed with the MSRB within ten (10) business days of the occurrence of the Listed Event, together with a cover sheet in substantially the form containing the information shown on attached Exhibit D. In connection with providing a notice of the occurrence of a Listed Event described in subsection (a)(9), the City shall include in the notice explicit disclosure as to whether the Bonds have been escrowed to maturity or escrowed to call, as well as appropriate disclosure of the timing of maturity or call. (d) In connection with providing a notice of the occurrence of a Listed Event, the Dissemination Agent (if other than the City), solely in its capacity as such, is not obligated or responsible under this D-4 Disclosure Certificate to determine the sufficiency of the content of the notice for purposes of the Rule or any other state or federal securities law, rule, regulation or administrative order. (e) The City acknowledges that the “rating changes” referred to in subsection (a)(11) above may include, without limitation, any change in any rating on the Bonds or other indebtedness for which the City is liable. (f) The City acknowledges that it is not required to provide a notice of a Listed Event with respect to credit enhancement when the credit enhancement is added after the primary offering of the Bonds, the City does not apply for or participate in obtaining such credit enhancement, and such credit enhancement is not described in the Official Statement. Section 6. Mandatory Electronic Filing with EMMA. All filings with the MSRB under this Disclosure Certificate shall be made by electronically transmitting such filings through the EMMA Dataport at http://www.emma.msrb.org as provided by the amendments to the Rule adopted by the SEC in Securities Exchange Act Release No. 59062 on December 5, 2008. Section 7. Termination of Reporting Obligation. (a) The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance or the prior redemption or payment in full of all of the Bonds. If the City’s obligation to pay a portion of the principal of and interest on the Bonds is assumed in full by some other entity, such entity shall be responsible for compliance with this Disclosure Certificate in the same manner as if it were the City, and the City shall have no further responsibility hereunder. (b) This Disclosure Certificate, or any provision hereof, shall be null and void in the event that the City (i) receives an opinion of Securities Counsel, addressed to the City, to the effect that those portions of the Rule, which require such provisions of this Disclosure Certificate, do not or no longer apply to the Bonds, whether because such portions of the Rule are invalid, have been repealed, amended or modified, or are otherwise deemed to be inapplicable to the Bonds, as shall be specified in such opinion, and (ii) files notice to such effect with the MSRB. Section 8. Dissemination Agent. The City, from time to time, may appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. Section 9. Amendment; Waiver. (a) Notwithstanding any other provision of this Disclosure Certificate, this Disclosure Certificate may be amended, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (i) if the amendment or waiver relates to the provisions of Section 3(a), (b), (c), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, a change in law or a change in the identity, nature or status of the City, or type of business conducted by the City; (ii) this Disclosure Certificate, as so amended or taking into account such waiver, would, in the opinion of Securities Counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and D-5 (iii) the amendment or waiver does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Bondholders. (b) In the event of any amendment to, or waiver of a provision of, this Disclosure Certificate, the City shall describe such amendment or waiver in the next Annual Report and shall include an explanation of the reason for such amendment or waiver. In particular, if the amendment results in a change to the annual financial information required to be included in the Annual Report pursuant to Section 4 of this Disclosure Certificate, the first Annual Report that contains the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of such change in the type of operating data or financial information being provided. Further, if the annual financial information required to be provided in the Annual Report can no longer be generated because the operations to which it related have been materially changed or discontinued, a statement to that effect shall be included in the first Annual Report that does not include such information. (c) If the amendment results in a change to the accounting principles to be followed in preparing financial statements as set forth in Section 4 of this Disclosure Certificate, the Annual Report for the year in which the change is made shall include 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 such differences and the impact of the changes on the presentation of the financial information. To the extent reasonably feasible, the comparison shall also be quantitative. A notice of the change in accounting principles shall be filed by the City or the Dissemination Agent (if other than the City) at the written direction of the City with the MSRB. Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 11. Failure to Comply. In the event of a failure of the City or the Dissemination Agent (if other than the City) to comply with any provision of this Disclosure Certificate, any Bondholder or Beneficial Owner may bring an action to obtain specific performance of the obligations of the City or the Dissemination Agent (if other than the City) under this Disclosure Certificate, but no person or entity shall be entitled to recover monetary damages hereunder under any circumstances, and any failure to comply with the obligations under this Disclosure Certificate shall not constitute a default with respect to the Bonds. Notwithstanding the foregoing, if the alleged failure of the City to comply with this Disclosure Certificate is the inadequacy of the information disclosed pursuant hereto, then the Bondholders and the Beneficial Owners (on whose behalf a Bondholder has not acted with respect to this alleged failure) of not less than a majority of the aggregate principal amount of the then outstanding Bonds must take the actions described above before the City shall be compelled to perform with respect to the adequacy of such information disclosed pursuant to this Disclosure Certificate. Section 12. Duties of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters, the Bondholders and the Beneficial Owners, and shall create no rights in any other person or entity. D-6 Section 14. Transmission of Information and Notices. Unless otherwise required by law or this Disclosure Certificate, and, in the sole determination of the City or the Dissemination Agent, as applicable, subject to technical and economic feasibility, the City or the Dissemination Agent, as applicable, shall employ such methods of information and notice transmission as shall be requested or recommended by the herein- designated recipients of such information and notices. Section 15. Additional Disclosure Obligations. The City acknowledges and understands that other State and federal laws, including, without limitation, the Securities Act of 1933, as amended, and Rule 10b-5 promulgated by the SEC pursuant to the 1934 Act, may apply to the City, and that under some circumstances, compliance with this Disclosure Certificate, without additional disclosures or other action, may not fully discharge all duties and obligations of the City under such laws. Section 16. Governing Law. This Disclosure Certificate shall be construed and interpreted in accordance with the laws of the State, and any suits and actions arising out of this Disclosure Certificate shall be instituted in a court of competent jurisdiction in the State. Notwithstanding the foregoing, to the extent this Disclosure Certificate addresses matters of federal securities laws, including the Rule, this Disclosure Certificate shall be construed and interpreted in accordance with such federal securities laws and official interpretations thereof. CITY OF ROYAL OAK By:______Julie J. Rudd Its: Director of Finance Dated: ______, 2018 D-7 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of City: City of Royal Oak, County of Oakland, State of Michigan Name of Bond Issue: Limited Tax General Obligation Bonds, Series 2018 (Capital Improvement Bonds) Date of Bonds: May __, 2018 NOTICE IS HEREBY GIVEN that the City of Royal Oak has not provided an Annual Report with respect to the above-named Bonds as required by Section 3 of its Continuing Disclosure Certificate with respect to the Bonds. The City of Royal Oak anticipates that the Annual Report will be filed by ______. CITY OF ROYAL OAK By: ______ Its ______ Dated: ______ D-8 EXHIBIT B NOTICE OF CHANGE IN CITY’S FISCAL YEAR Name of City: City of Royal Oak, County of Oakland, State of Michigan Name of Bond Issue: Limited Tax General Obligation Bonds, Series 2018 (Capital Improvement Bonds) Date of Bonds: May __, 2018 NOTICE IS HEREBY GIVEN that the City of Royal Oak’s fiscal year has changed. Previously, the City of Royal Oak’s fiscal year ended on ______. It now ends on ______. CITY OF ROYAL OAK By: ______ Its ______ Dated: ______ D-9 EXHIBIT C ANNUAL REPORT COVER SHEET This cover sheet and the attached Annual Report or portion thereof should be filed electronically with the Municipal Securities Rulemaking Board through the EMMA Dataport at http://www.emma.msrb.org pursuant to Securities and Exchange Commission Rule 15c2-12(b)(5)(i)(a) and (B). City’s Name: City of Royal Oak City’s Six-Digit CUSIP Number(s): 780464 or Nine-Digit CUSIP Number(s) to which the attached Annual Report relates: Number of pages of the attached Annual Report or portion thereof: Name of Bond Issue to which the attached Annual Limited Tax General Obligation Bonds, Series 2018 Report relates: (Capital Improvement Bonds) Date of such Bonds: May __, 2018 I hereby represent that I am authorized by the City or its agent to distribute this information publicly: Signature: Name: Title: Employer: City of Royal Oak Address: 211 S. Williams Street City, State, Zip Code: Royal Oak, MI 48067 Voice Telephone Number: D-10 EXHIBIT D EVENT NOTICE COVER SHEET This cover sheet and the attached Event Notice should be filed electronically with the Municipal Securities Rulemaking Board through the EMMA Dataport at http://www.emma.msrb.org pursuant to Securities and Exchange Commission Rule 15c2 12(b)(5)(i)(c) and (D). City’s and/or Other Obligated Person’s Name: City of Royal Oak City’s Six Digit CUSIP Number(s): 780464 or Nine Digit CUSIP Number(s) to which the attached Event Notice relates:______Number of pages of the attached Event Notice:______Description of the attached Event Notice (Check One): 1. Principal and interest payment delinquencies 2. Non-Payment related defaults 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 material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security 7. Modifications to rights of securities holders 8. Bond calls 9. Defeasances 10. Release, substitution, or sale of property securing repayment of the securities 11. Rating changes 12. Tender offers 13. Bankruptcy, insolvency, receivership or similar event of an obligated person 14. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of an 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 15. Appointment of a successor or additional trustee, or the change of name of a trustee 16. Failure to provide annual financial information as required 17. Other material event notice (specify) I hereby represent that I am authorized by the City or its agent to distribute this information publicly: Signature: ______Name: ______Title: ______Employer: City of Royal Oak Address: : 211 S. Williams Street City, State, Zip Code: : Royal Oak, MI 48067 Voice Telephone Number: : Please format the Event Notice attached to this cover sheet in 10 point type or larger. Contact the MSRB at (202) 223-9503 with questions regarding this form or the dissemination of this notice. D-11 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] CITY OF ROYAL OAK, COUNTY OF OAKLAND, STATE OF MICHIGAN • LIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2018 (CAPITAL IMPROVEMENT BONDS)