HomeMy Public PortalAbout06-21-2011 Financials TOWN OF WATERTOWN, MASSACHUSETTS
Annual Financial Report
For the Year Ended June 30, 2010
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
MANAGEMENT'S DISCUSSION AND ANALYSIS 3
BASIC FINANCIAL STATEMENTS:
Governmental-Wide Financial Statements:
Statement of Net Assets 10
Statement of Activities 11
Fund Financial Statements:
Governmental Funds:
Balance Sheet 12
Reconciliation of Total Governmental Fund Balances to
Net Assets of Governmental Activities in the Statement
of Net Assets 13
Statement of Revenues, Expenditures, and Changes
in Fund Balances 14
Reconciliation of the Statement of Revenues, Expenditures,
and Changes in Fund Balances of Governmental Funds to
the Statement of Activities 15
Statement of Revenues and Other Sources, and Expenditures
and Other Uses - Budget and Actual - General Fund 16
Proprietary Funds:
Statement of Net Assets 17
Statement of Revenues, Expenses, and Changes in Fund
Net Assets 18
Statement of Cash Flows 19
Fiduciary Funds:
Statement of Fiduciary Net Assets 20
Statement of Changes in Fiduciary Net Assets 21
Notes to Financial Statements 22
PAGE
REQUIRED SUPPLEMENTARY INFORMATION:
Schedule of Funding Progress 46
OTHER SUPPLEMENTARY INFORMATION:
Schedule of Revenues and Expenditures, and Other Uses -
Budget and Actual - Water Enterprise Fund 47
Schedule of Revenues and Expenditures, and Other Uses -
Budget and Actual - Sewer Enterprise Fund 48
I
MELANSON HEATH & COMPANY, PC
CERTIFIED PUBLIC ACCOUNTANTS
MANAGEMENT ADVISORS
10 New England Business Center Drive • Suite 107
Andover, MA 01810-1096
(978) 749-0005 • Fax(978) 749-0006
www.melansonheath.com
INDEPENDENT AUDITORS' REPORT
To the Town Manager and Town Council
Town of Watertown, Massachusetts
We have audited the accompanying financial statements of the governmental activi-
ties, the business-type activities, each major fund, and the aggregate remaining fund
information of the Town of Watertown, Massachusetts, as of and for the year ended
June 30, 2010, (except for the Watertown Contributory System which is as of and for
the year-ended December 31, 2009), which collectively comprise the Town's basic
financial statements as listed in the table of contents. These financial statements
are the responsibility of the Town of Watertown's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in all mate-
rial respects, the respective financial position of the governmental activities, the
business-type activities, each major fund, and the aggregate remaining fund infor-
mation of the Town of Watertown as of June 30, 2010, (except for the Watertown
Contributory System which is as of and for the year-ended December 31, 2009),
and the respective changes in financial position and cash flows, where applicable,
thereof and the respective budgetary comparison for the General Fund for the year
then ended in conformity with accounting principles generally accepted in the United
States of America.
Additional Offices:
Greenfield,MA• Ellsworth,ME• Nashua,NH• Manchester,NH
The management's discussion and analysis, appearing on the following pages and
the supplementary information appearing on page 46 are not a required part of the
basic financial statements but are supplementary information required by accounting
principles generally accepted in the United States of America. We have applied
certain limited procedures, which consisted principally of inquiries of management
regarding the methods of measurement and presentation of the required supple-
mentary information. However, we did not audit the information and express no
opinion on it.
In addition, the schedules appearing on pages 47 and 48 are presented for purposes
of additional analysis and are not a required part of the basic financial statements of
the Town of Watertown, Massachusetts. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial statements and, in
our opinion, is fairly presented in all material respects in relation to the basic finan-
cial statements taken as a whole.
In accordance with Government Auditing Standards, we have also issued a report
dated June 8, 2011 on our consideration of the Town's internal control over financial
reporting and on our tests of its compliance with certain provisions of laws,
regulations, contracts and grant agreements and other matters. The purpose of that
report is to describe the scope of our testing of internal control over financial
reporting and compliance and the results of that testing, and not to provide an
opinion on the internal control over financial reporting or on compliance. That report
is an integral part of an audit performed in accordance with Government Auditing
Standards and should be considered in assessing the results of our audit.
Andover, Massachusetts
June 8, 2011
2
MANAGEMENT'S DISCUSSION AND ANALYSIS
As management of the Town of Watertown, we offer readers this narrative overview
and analysis of the financial activities of the Town of Watertown for the fiscal year
ended June 30, 2010.
A. OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the basic
financial statements. The basic financial statements are comprised of three com-
ponents: (1) government-wide financial statements, (2) fund financial statements,
and (3) notes to financial statements. This report also contains other supple-
mentary information in addition to the basic financial statements themselves.
Government-wide financial statements. The government-wide financial state-
ments are designed to provide readers with a broad overview of our finances in
a manner similar to a private-sector business.
The statement of net assets presents information on all assets and liabilities, with
the difference between the two reported as net assets. Over time, increases or
decreases in net assets may serve as a useful indicator of whether the financial
position is improving or deteriorating.
The statement of activities presents information showing how the government's
net assets changed during the most recent fiscal year. All changes in net assets
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., uncollected taxes and earned but unused vacation leave).
Both of the government-wide financial statements distinguish functions that are
principally supported by taxes and intergovernmental revenues (governmental
activities) from other functions that are intended to recover all or a significant
portion of their costs through user fees and charges (business-type activities).
The governmental activities include general government, education, public safety,
public works, human services, recreation, and libraries. The business-type
activities include water and sewer activities.
Fund financial statements. A fund is a grouping of related accounts that is
used to maintain control over resources that have been segregated for specific
activities or objectives. Fund accounting is used to ensure and demonstrate
compliance with finance-related legal requirements. All of the funds can be
divided into three categories: governmental funds, proprietary funds and
fiduciary funds.
3
Governmental funds. Governmental funds are used to account for essentially
the same functions reported as governmental activities in the government-wide
financial statements. However, unlike the government-wide financial statements,
governmental fund financial statements focus on near-term inflows and outflows
of spendable resources, as well as on balances of spendable resources available
at the end of the fiscal year. Such information may be useful in evaluating a
government's near-term financing requirements.
Because the focus of governmental funds is narrower than that of the government-
wide financial statements, it is useful to compare the information presented for
governmental funds with similar information presented for governmental activities
in the government-wide financial statements. By doing so, readers may better
understand the long-term impact of the government's near-term financing decisions.
Both the governmental fund balance sheet and the governmental fund statement of
revenues, expenditures and changes in fund balances provide a reconciliation to
facilitate this comparison between governmental funds and governmental activities.
An annual appropriated budget is adopted for the general fund. A budgetary
comparison statement has been provided for the general fund to demonstrate
compliance with this budget.
Proprietary funds. Proprietary funds are maintained as follows:
Enterprise funds are used to report the same functions presented as business-
type activities in the government-wide financial statements. Specifically, enterprise
funds are used to account for water and sewer operations.
Proprietary funds provide the same type of information as the business-type
activities reported in the government-wide financial statements, only in more
detail. The proprietary fund financial statements provide separate information for
the water and sewer operations, both of which are considered to be major funds.
Fiduciary funds. Fiduciary funds are used to account for resources held for the
benefit of parties outside the government. Fiduciary funds are not reflected in the
government-wide financial statements because the resources of those funds are
not available to support the Town's own programs. The accounting used for fidu-
ciary funds is much like that used for proprietary funds.
Notes to financial statements. The notes provide additional information that
are essential to a full understanding of the data provided in the government-wide
and fund financial statements.
Other information. In addition to the basic financial statements and accom-
panying notes, this report also presents certain required supplementary
information which is required to be disclosed by accounting principles gen-
erally accepted in the United States of America.
4
B. FINANCIAL HIGHLIGHTS
• As of the close of the current fiscal year, the total of assets exceeded liabili-
ties by $ 95,785,932 (i.e., net assets), a change of$ 1,823,379 in comparison
to the prior year.
• As of the close of the current fiscal year, governmental funds reported com-
bined ending fund balances of$ 26,965,985, a change of$ (3,327,498) in
comparison to the prior year.
• At the end of the current fiscal year, unreserved fund balance for the general
fund was $ 6,676,593, a change of $ 1,527,609 in comparison to the prior
year.
• Total bonds payable at the close of the current fiscal year was $ 50,624,270,
a change of$ 2,027,947 in comparison to the prior year.
C. GOVERNMENT-WIDE FINANCIAL ANALYSIS
The following is a summary of condensed government-wide financial data for the
current and prior fiscal years (in thousands).
Governmental Business-Type
Activities Activities Total
2010 2009 2010 2009 2010 2009
Current and other assets $ 41,436 $ 46,157 $ 18,092 $ 14,487 $ 59,528 $ 60,644
Capital assets 98,709 89,723 3,471 3,600 102,180 93,323
Total assets 140,145 135,880 21,563 18,087 161,708 153,967
Long-term liabilities outstanding 50,849 52,367 4,039 2,606 54,888 54,973
Other liabilities 10,461 4,723 573 309 11,034 5,032
Total liabilities 61,310 57,090 4,612 2,915 65,922 60,005
Net assets:
Invested in capital assets, net 61,350 43,449 4,594 926 65,944 44,375
Restricted 4,220 5,635 - - 4,220 5,635
Unrestricted 13,265 29,706 12,357 14,246 25,622 43,952
Total net assets $ 78,835 $ 78,790 $ 16,951 $ 15,172 $ 95,786 $ 93,962
5
CHANGES IN NET ASSETS
Governmental Business-Type
Activities Activities Total
2010 2009 2010 2009 2010 2009
Revenues:
Program revenues
Charges for services $ 6,544 $ 6,015 $ 13,759 $ 12,767 $ 20,303 $ 18,782
Operating grants and
contributions 11,136 12,829 - - 11,136 12,829
Capital grants and
contributions - - 249 - 249 -
General revenues:
Property taxes (including
penalties and interest) 71,354 68,479 - - 71,354 68,479
Excises 3,116 3,444 - - 3,116 3,444
Grants and contributions
not restricted to specific
programs 9,416 10,314 - - 9,416 10,314
Investment income 324 688 44 51 368 739
Miscellaneous 2,152 1,270 - - 2,152 1,270
Total revenues 104,042 103,039 14,052 12,818 118,094 115,857
Expenses:
General government 5,429 4,754 - - 5,429 4,754
Public safety 17,367 19,496 - - 17,367 19,496
Education 43,090 41,746 - - 43,090 41,746
Public works 4,552 11,402 - - 4,552 11,402
Health and human services 1,135 1,063 - - 1,135 1,063
Culture and recreation 3,750 3,734 - - 3,750 3,734
Employee benefits 26,865 28,318 - - 26,865 28,318
Intergovernmental 2,173 2,081 - - 2,173 2,081
Interest 1,671 1,687 - - 1,671 1,687
Miscellaneous 60 67 - - 60 67
Water services - - 4,122 3,807 4,122 3,807
Sewer services - - 6,056 5,521 6,056 5,521
Total expenses 106,092 114,348 10,178 9,328 116,270 123,676
Change in net assets
before transfers (2,050) (11,309) 3,874 3,490 1,824 (7,819)
Transfers in (out) 2,095 2,350 (2,095) (2,350) - -
Increase(decrease) in net assets 45 (8,959) 1,779 1,140 1,824 (7,819)
Net assets-beginning of year,
as restated 78,790 87,749 15,172 14,032 93,962 101,781
Net assets-end of year $ 78,835 $ 78,790 $ 16,951 $ 15,172 $ 95,786 $ 93,962
6
As noted earlier, net assets may serve over time as a useful indicator of a gov-
ernment's financial position. At the close of the most recent fiscal year, total net
assets were $ 95,785,932, a change of$ 1,823,379 from the prior year.
The largest portion of net assets $ 65,943,981 reflects our investment in capital
assets (e.g., land, buildings, machinery and equipment, and infrastructure), less
any related debt used to acquire those assets that is still outstanding. These
capital assets are used to provide services to citizens; consequently, these
assets are not available for future spending. Although the investment in capital
assets is reported net of related debt, it should be noted that the resources needed
to repay this debt must be provided from other sources, since the capital assets
themselves cannot be used to liquidate these liabilities.
An additional portion of net assets $ 4,219,571 represents resources that are
subject to external restrictions on how they may be used. The remaining balance
of unrestricted net assets $ 25,622,380 may be used to meet the government's
ongoing obligations to citizens and creditors.
Governmental activities. Governmental activities for the year resulted in a
change in net assets of$ 44,787. Key elements of this change are as follows:
General fund operations $ 1,409,039
Nonmajor funds - accrual basis 4,149,274
Depreciation expense in excess of principal debt service (284,220)
Accrued other post-employment benefits (3,942,673)
MSBA receipt (982,370)
Other GAAP accruals (304,263)
Total $ 44,787
Business-type activities. Business-type activities for the year resulted in a
change in net assets of$ 1,778,592, primarily due to unspent appropriations
and increase in water and sewer rates.
D. FINANCIAL ANALYSIS OF THE GOVERNMENT'S FUNDS
As noted earlier, fund accounting is used to ensure and demonstrate compliance
with finance-related legal requirements.
Governmental funds. The focus of governmental funds is to provide informa-
tion on near-term inflows, outflows and balances of spendable resources.
Such information is useful in assessing financing requirements. In particular,
unreserved fund balance may serve as a useful measure of a government's net
resources available for spending at the end of the fiscal year.
7
As of the end of the current fiscal year, governmental funds reported combined
ending fund balances of $ 26,965,985, a change of$ (3,327,498) in comparison
to the prior year. Key elements of this change are as follows:
Governmental
Funds
General fund operating results $ 1,409,039
Nonmajor fund deficit (4,736,537)
Total $ (3,327,498)
The general fund is the chief operating fund. At the end of the current fiscal year,
unreserved fund balance of the general fund was $ 6,676,593 while total fund
balance was $ 10,454,234. As a measure of the general fund's liquidity, it may be
useful to compare both unreserved fund balance and total fund balance to total
fund expenditures. Unreserved fund balance represents 7 percent of total
general fund expenditures, while total fund balance represents 11 percent of that
same amount.
The total fund balance of the general fund changed by $ 1,409,039 during the
current fiscal year. Key factors in this change are as follows:
Governmental
Funds
Revenue deficit $ (73,104)
Appropriation turnbacks by department 3,055,605
Property tax collection exceeding net tax levy 89,275
Current year encumbrances to be spent in the subsequent
year, over prior year encumbrances to be spent in the
current year 1,320,117
Use of free cash as funding source (2,250,000)
Other reclassifications (732,854)
Total $ 1,409,039
Proprietary funds. Proprietary funds provide the same type of information
found in the business-type activities reported in the government-wide financial
statements, but in more detail.
Unrestricted net assets of the enterprise funds at the end of the year amounted to
$ 12,357,176, a change of $ (1,889,445) in comparison to the prior year. Total net
assets of the enterprise funds at the end of the year amounted to $ 16,951,076, a
change of $ 1,778,592 in comparison to the prior year. Other factors concerning
the finances of proprietary funds have already been addressed in the entity-wide
discussion of business-type activities.
8
E. GENERAL FUND BUDGETARY HIGHLIGHTS
There were no changes between the original budget and the final amended
budget.
F. CAPITAL ASSET AND DEBT ADMINISTRATION
Capital assets. Total investment in capital assets for governmental and business-
type activities at year end amounted to $ 102,180,180 (net of accumulated depreci-
ation), a change of $ 8,856,403 from the prior year. This investment in capital
assets includes land, buildings and improvements, machinery and equipment,
vehicles, construction in progress, and infrastructure.
Major capital asset events during the current fiscal year included:
• Ongoing police station construction
• Ongoing street and sidewalk improvements
• Vehicles for the police department
Chanqe in credit ratinq,. The Town of Watertown maintains an "Aa3" rating
from Moody's for general obligation debt.
Long-term debt. At the end of the current fiscal year, total bonded debt out-
standing was $ 50,624,270, all of which was backed by the full faith and credit of
the government.
Additional information on capital assets and long-term debt can be found in the
notes to financial statements.
REQUESTS FOR INFORMATION
This financial report is designed to provide a general overview of the Town of
Watertown's finances for all those with an interest in the government's finances.
Questions concerning any of the information provided in this report or requests
for additional financial information should be addressed to:
Town Manager
Town of Watertown, Massachusetts
149 Main Street
Watertown, Massachusetts 02472
9
TOWN OF WATERTOWN, MASSACHUSETTS
STATEMENT OF NET ASSETS
JUNE 30,2010
Governmental Business-Type
Activities Activities Total
ASSETS
Current:
Cash and short-term investments $ 28,902,776 $ 14,251,203 $ 43,153,979
Investments 2,602,823 - 2,602,823
Receivables,net of allowance for uncollectibles:
Property taxes 1,079,737 1,079,737
Excises 213,000 - 213,000
User fees - 3,840,803 3,840,803
Charges for services 26,283 - 26,283
Intergovernmental 982,370 - 982,370
Refinancing incentive 52,500 - 52,500
Noncurrent:
Receivables,net of allowance for uncollectibles:
Property taxes 384,816 - 384,816
Intergovernmental 6,876,583 - 6,876,583
Refinancing incentive 315,000 - 315,000
Capital assets:
Land and construction in progress 26,294,152 152,994 26,447,146
Other capital assets, net
of accumulated depreciation 72,415,122 3,317,912 75,733,034
TOTAL ASSETS 140,145,162 21,562,912 161,708,074
LIABILITIES
Current:
Warrants payable 1,551,161 - 1,551,161
Accounts payable 319,372 - 319,372
Accrued liabilities 960,431 - 960,431
Refunds payable 1,881,280 34,581 1,915,861
Other current liabilities 245,560 - 245,560
Current portion of long-term liabilities:
Bonds payable 5,386,000 537,954 5,923,954
Accrued employee benefits 117,943 - 117,943
Noncurrent:
Bonds payable, net of current portion 40,826,000 3,874,316 44,700,316
Accrued employee benefits, net of current portion 2,240,917 - 2,240,917
OPEB liability 7,781,642 164,985 7,946,627
TOTAL LIABILITIES 61,310,306 4,611,836 65,922,142
NET ASSETS
Invested in capital assets, net of related debt 61,350,081 4,593,900 65,943,981
Restricted for:
Grants and other statutory restrictions 2,878,398 - 2,878,398
Permanent funds:
Nonexpendable 970,961 970,961
Expendable 370,212 - 370,212
Unrestricted 13,265,204 12,357,176 25,622,380
TOTAL NET ASSETS $ 78,834,856 $ 16,951,076 $ 95,785,932
See notes to financial statements.
10
TOWN OF WATERTOWN,MASSACHUSETTS
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30,2010
Program Revenues Net(Expenses)Revenues and Changes in Net Assets
Operating Capital Business-
Charges for Grants and Grants and Governmental Type
Expenses Services Contributions Contributions Activities Activities Total
Governmental Activities:
General government $ 5,429,138 $ 932,947 $ 195,458 $ $ (4,300,733) $ $ (4,300,733)
Public safety 17,366,879 2,659,974 138,203 (14,568,702) (14,568,702)
Education 43,090,377 2,086,216 10,529,354 (30,474,807) (30,474,807)
Public works 4,551,803 122,528 8,025 (4,421,250) (4,421,250)
Health and human services 1,135,126 78,370 191,006 (865,750) (865,750)
Culture and recreation 3,750,012 663,736 74,122 (3,012,154) (3,012,154)
Employee benefits 26,865,012 - - (26,865,012) (26,865,012)
Intergovernmental 2,173,444 (2,173,444) (2,173,444)
Interest 1,670,448 (1,670,448) (1,670,448)
Miscellaneous 59,999 - - (59,999) (59,999)
Total Governmental Activities 106,092,238 6,543,771 11,136,168 (88,412,299) - (88,412,299)
Business-Type Activities:
Water services 4,121,884 5,566,067 - 1,444,183 1,444,183
Sewer services 6,056,544 8,192,865 249,480 2,385,801 2,385,801
Total Business-Type Activities 10,178,428 13,758,932 - 249,480 3,829,984 3,829,984
Total $ 116,270,666 $ 20,302,703 $ 11,136,168 $ 249,480 (88,412,299) 3,829,984 (84,582,315)
General Revenues and Transfers:
Property taxes 68,858,443 - 68,858,443
Excises 3,116,493 3,116,493
Penalties,interest and other taxes 2,495,638 2,495,638
Grants and contributions not restricted
to specific programs 9,415,842 - 9,415,842
Investment income 323,621 44,051 367,672
Miscellaneous 2,151,606 - 2,151,606
Transfers,net 2,095,443 (2,095,443) -
Total general revenues and transfers 88,457,086 (2,051,392) 86,405,694
Change in Net Assets 44,787 1,778,592 1,823,379
Net Assets:
Beginning of year,as restated 78,790,069 15,172,484 93,962,553
End of year $ 78,834,856 $ 16,951,076 $ 95,785,932
See notes to financial statements.
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TOWN OF WATERTOWN, MASSACHUSETTS
GOVERNMENTALFUNDS
BALANCE SHEET
JUNE 30,2010
Nonmajor Total
Governmental Governmental
General Funds Funds
ASSETS
Cash and short-term investments $ 14,993,848 $ 13,908,928 $ 28,902,776
Investments - 2,602,823 2,602,823
Receivables:
Property taxes 1,637,331 - 1,637,331
Excises 391,150 391,150
Charges for service 91,272 - 91,272
TOTAL ASSETS $ 17,113,601 $ 16,511,751 $ 33,625,352
LIABILITIES AND FUND BALANCES
Liabilities:
Warrants payable $ 1,551,161 $ - $ 1,551,161
Accounts payable 319,372 319,372
Accrued liabilities 542,241 542,241
Deferred revenues 2,119,753 2,119,753
Tax refunds payable 1,881,280 1,881,280
Other liabilities 245,560 245,560
TOTAL LIABILITIES 6,659,367 - 6,659,367
Fund Balances:
Reserved for:
Encumbrances 2,027,641 4,419,622 6,447,263
Expenditures 1,750,000 - 1,750,000
Perpetual(nonexpendable)permanent funds - 970,961 970,961
Unreserved:
Undesignated,reported in:
General fund 6,676,593 - 6,676,593
Special revenue funds - 6,136,806 6,136,806
Capital project funds 4,614,150 4,614,150
Permanent funds - 370,212 370,212
TOTAL FUND BALANCES 10,454,234 16,511,751 26,965,985
TOTAL LIABILITIES AND FUND BALANCES $ 17,113,601 $ 16,511,751 $ 33,625,352
See notes to financial statements.
12
TOWN OF WATERTOWN, MASSACHUSETTS
RECONCILIATION OF TOTAL GOVERNMENTAL FUND
BALANCES TO NET ASSETS OF GOVERNMENTAL
ACTIVITIES IN THE STATEMENT OF NET ASSETS
JUNE 30, 2010
Total governmental fund balances $ 26,965,985
• Capital assets used in governmental activities are not financial
resources and, therefore, are not reported in the funds. 98,709,274
• Revenues are reported on the accrual basis of accounting
and are not deferred until collection. 1,703,836
• Noncurrent assets, including MSBA reimbursements for
contracted assistance projects, are not receivable in the
current period and, therefore, are not reported in the
governmental funds. 8,226,453
• In the statement of activities, interest is accrued on outstanding
long-term debt, whereas in governmental funds interest is not
reported until due. (418,190)
• Long-term liabilities, including bonds payable, are not due and
payable in the current period and, therefore, are not reported
in the governmental funds. (56,352,502)
Net assets of governmental activities $ 78,834,856
See notes to financial statements.
13
TOWN OF WATERTOWN, MASSACHUSETTS
GOVERNMENTALFUNDS
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
FOR THE YEAR ENDED JUNE 30,2010
Nonmajor Total
Governmental Governmental
General Funds Funds
Revenues:
Property taxes $ 68,959,411 $ $ 68,959,411
Excise taxes 3,225,342 3,225,342
Penalties,interest and other taxes 2,495,637 - 2,495,637
Charges for services 2,466,282 2,935,274 5,401,556
Intergovernmental 18,501,279 2,669,791 21,171,070
Licenses and permits 196,538 - 196,538
Departmental - 55,094 55,094
Fines and forfeitures 913,770 - 913,770
Investment income 224,310 99,311 323,621
Contributions - 363,310 363,310
Miscellaneous 671,488 1,480,119 2,151,607
Total Revenues 97,654,057 7,602,899 105,256,956
Expenditures:
Current:
General government 4,077,110 578,287 4,655,397
Public safety 14,314,230 9,433,411 23,747,641
Education 32,927,685 6,279,385 39,207,070
Public works 6,864,790 1,940,586 8,805,376
Health and human services 851,697 176,706 1,028,403
Culture and recreation 2,648,391 316,026 2,964,417
Pension 15,613,103 - 15,613,103
Employee benefits 11,251,909 11,251,909
Miscellaneous 59,999 59,999
Debt service 6,625,138 6,625,138
Intergovernmental 2,173,444 - 2,173,444
Total Expenditures 97,407,496 18,724,401 116,131,897
Excess(deficiency)of revenues
over expenditures 246,561 (11,121,502) (10,874,941)
Other Financing Sources(Uses):
Bond issuance - 5,452,000 5,452,000
Transfers in 3,234,505 1,797,965 5,032,470
Transfers out (2,072,027) (865,000) (2,937,027)
Total Other Financing Sources(Uses) 1,162,478 6,384,965 7,547,443
Change in fund balance 1,409,039 (4,736,537) (3,327,498)
Fund Equity,at Beginning of Year 9,045,195 21,248,288 30,293,483
Fund Equity,at End of Year $ 10,454,234 $ 16,511,751 $ 26,965,985
See notes to financial statements.
14
TOWN OF WATERTOWN, MASSACHUSETTS
RECONCILIATION OF THE STATEMENT OF REVENUES
EXPENDITURES, AND CHANGES IN FUND BALANCES OF
GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2010
NET CHANGES IN FUND BALANCES -TOTAL GOVERNMENTAL FUNDS $ (3,327,498)
• Governmental funds report capital outlays as expenditures. However,
in the Statement of Activities the cost of those assets is allocated
over their estimated useful lives and reported as depreciation expense:
Capital outlay purchases 14,434,903
Depreciation (5,449,220)
• Revenues in the Statement of Activities that do not provide current
financial resources are fully deferred in the Statement of Revenues,
Expenditures and Changes in Fund Balances. Therefore, the
recognition of revenue for various types of accounts receivable
(i.e., real estate and personal property, motor vehicle excise, etc.)
differ between the two statements. This amount represents the
net change in deferred revenue. (233,005)
• Some revenues reported in the Statement of Activities, such as
MSBA reimbursements for contracted assistance, do not provide
current financial resources and therefore, are not reported as
revenues in the governmental funds. (982,370)
• The issuance of long-term debt(e.g., bonds and leases)provides
current financial resources to governmental funds,while the
repayment of the principal of long-term debt consumes the financial
resources of governmental funds. Neither transaction, however,
has any effect on net assets:
Repayments of debt 5,165,000
Issuance of debt (5,452,000)
Deferred charges on refunding amortization (52,500)
• In the statement of activities, interest is accrued on outstanding
long-term debt,whereas in governmental funds interest is not
reported until due. (210,310)
• Some expenses reported in the Statement of Activities do not require
the use of current financial resources and therefore, are not reported
as expenditures in the governmental funds.
Compensated absences 94,460
OPEB liability (3,942,673)
CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 44,787
See notes to financial statements.
15
TOWN OF WATERTOWN, MASSACHUSETTS
GENERALFUND
STATEMENT OF REVENUES AND OTHER SOURCES,AND EXPENDITURES AND OTHER USES-BUDGET AND ACTUAL
FOR THE YEAR ENDED JUNE 30,2010
Budgeted Amounts Variance with
Final Budget
Original Final Actual Positive
Budget Budget Amounts (Negative).
Revenues and Other Sources:
Property taxes $ 68,870,136 $ 68,870,136 $ 68,870,136 $
Excise taxes 3,255,000 3,255,000 3,225,342 (29,658)
Interest, penalties,and other taxes 2,535,087 2,535,087 2,495,637 (39,450)
Intergovernmental 10,589,035 10,589,035 10,497,053 (91,982)
Licenses and permits 205,000 205,000 196,538 (8,462)
Charges for services 2,381,802 2,381,802 2,466,282 84,480
Fines and forfeitures 885,000 885,000 913,770 28,770
Interest earnings 525,000 525,000 224,310 (300,690)
Miscellaneous 387,600 387,600 671,488 283,888
Transfers in 3,234,505 3,234,505 3,234,505 -
Other sources 2,250,000 2,250,000 2,250,000
Total Revenues and Other Sources 95,118,165 95,118,165 95,045,061 (73,104)
Expenditures and Other Uses:
General government 5,305,154 5,305,154 4,249,557 1,055,597
Public safety 14,461,915 14,461,915 14,337,469 124,446
Education 32,927,708 32,927,708 32,927,685 23
Public works 8,330,634 8,330,634 7,570,353 760,281
Health and human services 875,678 875,678 853,957 21,721
Culture and recreation 2,722,642 2,722,642 2,655,428 67,214
Employee benefits 19,772,798 19,772,798 18,983,347 789,451
Debt service 6,783,584 6,783,584 6,625,138 158,446
Intergovernmental 2,251,870 2,251,870 2,173,444 78,426
Miscellaneous 79,950 79,950 79,950 -
Transfers out 1,606,232 1,606,232 1,606,232 -
Total Expenditures and Other Uses 95,118,165 95,118,165 92,062,560 3,055,605
Excess of revenues and other sources
over expenditures and other uses $ - $ - $ 2,982,501 $ 2,982,501
See notes to financial statements.
16
TOWN OF WATERTOWN, MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF NET ASSETS
JUNE 30, 2010
Business-Type Activities-Enterprise Funds
Water Sewer
Fund Fund Total
ASSETS
Current:
Cash and short-term investments $ 3,359,373 $ 10,891,830 $ 14,251,203
User fees, net of allowance for uncollectibles 1,472,170 2,368,633 3,840,803
Total current assets 4,831,543 13,260,463 18,092,006
Noncurrent:
Capital assets:
Land and construction in progress 91,859 61,135 152,994
Other capital assets, net
of accumulated depreciation 1,041,064 2,276,848 3,317,912
Total noncurrent assets 1,132,923 2,337,983 3,470,906
TOTAL ASSETS 5,964,466 15,598,446 21,562,912
LIABILITIES
Current:
Refunds payable 34,581 - 34,581
Current portion of long-term liabilities:
Bonds payable - 537,954 537,954
Total current liabilities 34,581 537,954 572,535
Noncurrent:
Bonds payable - 3,874,316 3,874,316
OPEB Liability 115,945 49,040 164,985
Total noncurrent liabilities 115,945 3,923,356 4,039,301
TOTAL LIABILITIES 150,526 4,461,310 4,611,836
NET ASSETS
Invested in capital assets, net of related debt 1,791,064 2,802,836 4,593,900
Unrestricted 4,022,876 8,334,300 12,357,176
TOTAL NET ASSETS $ 5,813,940 $ 11,137,136 $ 16,951,076
See notes to financial statements.
17
TOWN OF WATERTOWN, MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS
FOR THE YEAR ENDED JUNE 30,2010
Business-Type Activities-Enterprise Funds
Water Sewer
Fund Fund Total
Operating Revenues:
Charges for services $ 5,566,067 $ 8,192,865 $ 13,758,932
Total Operating Revenues 5,566,067 8,192,865 13,758,932
Operating Expenses:
Personnel expenses 819,493 363,093 1,182,586
Non-personnel 330,899 390,919 721,818
Intergovernmental assessments 2,807,488 5,149,170 7,956,658
Depreciation 164,004 153,362 317,366
Total Operating Expenses 4,121,884 6,056,544 10,178,428
Operating Income 1,444,183 2,136,321 3,580,504
Nonoperating Revenues(Expenses):
Intergovernmental revenue - 249,480 249,480
Investment income 13,537 30,514 44,051
Total Nonoperating Revenues(Expenses), Net 13,537 279,994 293,531
Income Before Transfers 1,457,720 2,416,315 3,874,035
Transfers:
Transfers in 167,000 223,575 390,575
Transfers out (1,332,553) (1,153,465) (2,486,018)
Change in Net Assets 292,167 1,486,425 1,778,592
Net Assets at Beginning of Year,as restated 5,521,773 9,650,711 15,172,484
Net Assets at End of Year $ 5,813,940 $ 11,137,136 $ 16,951,076
See notes to financial statements.
18
TOWN OF WATERTOWN,MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30,2010
Business-Type Activities-Enterprise Funds
Water Sewer
Fund Fund Total
Cash Flows From Ooeratina Activities:
Receipts from customers and users $ 5,276,426 $ 7,999,525 $ 13,275,951
Payments to vendors and employees (1,251,061) (729,127) (1,980,188)
Payments to other governments (2,807,488) (5,149,170) (7,956,658)
Net Cash Provided By Operating Activities 1,217,877 2,121,228 3,339,105
Cash Flows From Noncapital Financina Activities:
Transfers in 167,000 223,575 390,575
Transfers out (1,332,553) (1,153,465) (2,486,018)
Other non operating income 5,734 249,478 255,212
Net Cash(Used For)Noncapital Financing Activities (1,159,819) (680,412) (1,840,231)
Cash Flows From Capital and Related Financina Activities:
Acquisition and construction of capital assets, net of disposals (121,784) (66,339) (188,123)
Proceeds from issuance of bonds and notes 2,041,280 2,041,280
Principal payments on bonds and notes (303,333) (303,333)
Net Cash(Used for)Provided By Capital and
Related Financing Activities (121,784) 1,671,608 1,549,824
Cash Flows From Investina Activities:
Investment income 13,537 30,514 44,051
Net Cash Provided By Investing Activities 13,537 30,514 44,051
Net Change in Cash and Short-Term Investments (50,189) 3,142,938 3,092,749
Cash and Short-Term Investments, Beginning of Year 3,409,562 7,748,892 11,158,454
Cash and Short-Term Investments, End of Year $ 3,359,373 $ 10,891,830 $ 14,251,203
Reconciliation of Ooeratina Income to Net Cash
Provided by Operatina Activities:
Operating income $ 1,444,183 $ 2,136,321 $ 3,580,504
Adjustments to reconcile operating income to net
cash provided by operating activities:
Depreciation 164,004 153,399 317,403
Changes in assets and liabilities:
User fees (318,488) (193,340) (511,828)
Other liabilities (71,822) 24,848 (46,974)
Net Cash Provided By Operating Activities $ 1,217,877 $ 2,121,228 $ 3,339,105
See notes to financial statements.
19
TOWN OF WATERTOWN, MASSACHUSETTS
FIDUCIARY FUNDS
STATEMENT OF FIDUCIARY NET ASSETS
JUNE 30, 2010
Pension
Trust Fund Private
(As of Purpose Agency
December 31, 2009). Trust Funds Funds
ASSETS
Cash and short-term investments $ 405,178 $ 321,446 $ (18,195)
Investments 80,722,347 24,081 -
Accounts receivable 206,815 - 183,403
Total Assets 81,334,340 345,527 165,208
LIABILITIES AND NET ASSETS
Deferred revenue - - 183,403
Other liabilities 59,685 (18,195)
Total Liabilities 59,685 - 165,208
NET ASSETS
Total net assets held in trust for
pension benefits and other purposes $ 81,274,655 $ 345,527 $ -
See notes to financial statements.
20
TOWN OF WATERTOWN, MASSACHUSETTS
FIDUCIARY FUNDS
STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS
FOR THE YEAR ENDED JUNE 30, 2010
Pension
Trust Fund Private
(For the Year Ended Purpose
December 31, 2009) Trust Funds
Additions:
Contributions:
Employers $ 7,682,371 $ -
Other systems and Commonwealth of Massachusetts 515,837 -
Plan members 2,611,712 -
Other 28,532 189,902
Total contributions 10,838,452 189,902
Investment Income:
Increase in fair value of investments 10,033,189 564
Less: management fees (492,410) -
Net investment income 9,540,779 564
Total additions 20,379,231 190,466
Deductions:
Benefit payments to plan members and beneficiaries 9,951,833 -
Refunds to plan members 100,319 -
Administrative expenses 148,992 -
Other 280,427 20,392
Total deductions 10,481,571 20,392
Net increase 9,897,660 170,074
Net assets:
Beginning of year 71,376,995 175,453
End of year $ 81,274,655 $ 345,527
See notes to financial statements.
21
TOWN OF WATERTOWN, MASSACHUSETTS
Notes to Financial Statements
1. Summary of Siqnificant Accountinq Policies
The accounting policies of the Town of Watertown (the Town) conform to gen-
erally accepted accounting principles (GAAP) as applicable to governmental
units. The following is a summary of the more significant policies:
A. Reporting Entitv
The government is a municipal corporation governed by an elected Town
Council. As required by generally accepted accounting principles, these
financial statements present the government and applicable component
units for which the government is considered to be financially accountable.
Blended Component Units - Blended component units are entities that are
legally separate, but are so related that they are, in substance, the same
as the primary government, providing services entirely or almost entirely
for the benefit of the primary government. The Watertown Contributory
Retirement System which was established to provide retirement benefits
primarily to employees and their beneficiaries. The System is presented
using the accrual basis of accounting and is reported as a pension trust
fund in the fiduciary fund financial statements. Additional financial infor-
mation of the System can be obtained by contacting the System located
at 149 Main Street, Watertown, Massachusetts 02472.
B. Government-Wide and Fund Financial Statements
Government-Wide Financial Statements
The government-wide financial statements (i.e., the statement of net assets
and the statement of changes in net assets) report information on all of the
nonfiduciary activities of the primary government. For the most part, the
effect of interfund activity has been removed from these statements. Gov-
ernmental activities, which normally are supported by taxes and intergov-
ernmental revenues, are reported separately from business-type activities,
which rely to a significant extent on fees and charges for support.
The statement of activities demonstrates the degree to which the direct
expenses of a given function or segment are offset by program revenues.
Direct expenses are those that are clearly identifiable with a specific func-
tion or segment. Program revenues include (1) charges to customers or
applicants who purchase, use, or directly benefit from goods, services, or
privileges provided by a given function or segment and (2) grants and con-
tributions that are restricted to meeting the operational or capital require-
ments of a particular function or segment. Taxes and other items not
22
properly included among program revenues are reported instead as
general revenues.
Fund Financial Statements
Separate financial statements are provided for governmental funds, propri-
etary funds and fiduciary funds, even though the latter are excluded from
the government-wide financial statements. Major individual governmental
funds and major individual enterprise funds are reported as separate col-
umns in the fund financial statements.
C. Measurement Focus, Basis of Accounting, and Financial Statement
Presentation
Government-Wide Financial Statements
The government-wide financial statements are reported using the eco-
nomic resources measurement focus and the accrual basis of accounting,
as are the proprietary fund and fiduciary fund financial statements. Reve-
nues are recorded when earned and expenses are recorded when a liability
is incurred, regardless of the timing of related cash flows. Property taxes
are recognized as revenues in the year for which they are levied. Grants
and similar items are recognized as revenue as soon as all eligibility
requirements imposed by the provider have been met. As a general rule,
the effect of interfund activity has been eliminated from the government-
wide financial statements.
Amounts reported as program revenues include (1) charges to customers
or applicants for goods, services, or privileges provided, (2) operating
grants and contributions, and (3) capital grants and contributions, includ-
ing special assessments. Internally dedicated resources are reported as
general revenues rather than as program revenues. Likewise, general
revenues include all taxes and excises.
Fund Financial Statements
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 measur-
able and available. Revenues are considered to be available when they
are collectible within the current period or soon enough thereafter to pay
liabilities of the current period. For this purpose, the government consid-
ers property tax revenues to be available if they are collected within
60 days of the end of the current fiscal period. All other revenue items
are considered to be measurable and available only when cash is received
by the government. Expenditures generally are recorded when a liability is
incurred, as under accrual accounting. However, debt service expendi-
tures, as well as expenditures related to compensated absences and
claims and judgments, are recorded only when payment is due.
23
The government reports the following major governmental funds:
• The general fund is the government's primary operating fund.
It accounts for all financial resources of the general government,
except those required to be accounted for in another fund.
Proprietary funds distinguish operating revenues and expenses from non-
operating items. Operating 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 the enterprise fund are charges to customers for sales and
services. Operating expenses for enterprise funds include the cost of
sales and services, administrative expenses and depreciation on capital
assets. All revenues and expenses not meeting this definition are
reported as nonoperating revenues and expenses.
Private-sector standards of accounting and financial reporting issued prior
to December 1, 1989 generally are followed in both the government-wide
and proprietary fund financial statements to the extent that those stan-
dards do not conflict with or contradict guidance of the Governmental
Accounting Standards Board. Governments also have the option of follow-
ing subsequent private-sector guidance for their business-type activities
and enterprise funds, subject to this same limitation. The government has
elected not to follow subsequent private-sector guidance.
The government reports the following major proprietary funds:
• The water fund is used to report the Town's water enterprise fund
operations.
• The sewer fund is used to report the Town's sewer enterprise fund
operations.
The private-purpose trust fund is used to account for trust arrangements,
other than those properly reported in the pension trust fund or permanent
fund, under which principal and investment income exclusively benefit
individuals, private organizations, or other governments.
The agency funds account for fiduciary assets is held by the Town in a
custodial capacity as an agency on behalf of others.
D. Cash and Short-Term Investments
Cash balances from all funds, except those required to be segregated by
law, are combined to form a consolidation of cash. Cash balances are
invested to the extent available, and interest earnings are recognized in
the General Fund. Certain special revenue, proprietary, and fiduciary
24
funds segregate cash, and investment earnings become a part of those
funds.
Deposits with financial institutions consist primarily of demand deposits,
certificates of deposits, and savings accounts. A cash and investment
pool is maintained that is available for use by all funds. Each fund's por-
tion of this pool is reflected on the combined financial statements under
the caption "cash and short-term investments". The interest earnings
attributable to each fund type are included under investment income.
For purpose of the statement of cash flows, the proprietary funds consider
investments with original maturities of three months or less to be short-
term investments.
E. Investments
State and local statutes place certain limitations on the nature of deposits
and investments available. Deposits in any financial institution may not
exceed certain levels within the financial institution. Non-fiduciary fund
investments can be made in securities issued by or unconditionally guar-
anteed by the U.S. Government or agencies that have a maturity of one
year or less from the date of purchase and repurchase agreements guar-
anteed by such securities with maturity dates of no more than 90 days
from the date of purchase.
F. Property Tax Limitations
Legislation known as "Proposition 2'/2" has limited the amount of revenue
that can be derived from property taxes. The prior fiscal year's tax levy
limit is used as a base and cannot increase by more than 2.5 percent
(excluding new growth), unless an override is voted. The actual fiscal
year 2010 tax levy reflected an excess capacity of$ 24,716.
G. Capital Assets
Capital assets, which include property, plant, equipment, and infrastruc-
ture assets are reported in the applicable governmental or business-type
activities columns in the government-wide financial statements. Capital
assets are defined by the government as assets with an initial individual
cost of more than $ 15,000 and an estimated useful life in excess of two
years. Such assets are recorded at historical cost or estimated historical
cost if purchased or constructed. Donated capital assets are recorded at
estimated fair market value at the date of donation.
The costs of normal maintenance and repairs that do not add to the value
of the asset or materially extend assets' lives are not capitalized.
Major outlays for capital assets and improvements are capitalized as
projects are constructed. Interest incurred during the construction phase
25
of capital assets of business-type activities is included as part of the
capitalized value of the assets constructed.
Property, plant and equipment of the primary government is depreciated
using the straight-line method over the following estimated useful lives:
Assets Years
Buildings 40
Building improvements 20
Infrastructure 20 - 50
Vehicles 5
Office equipment 5
Computer equipment 5
H. Compensated Absences
It is the government's policy to permit employees to accumulate earned
but unused vacation and sick pay benefits. All vested sick and vacation
pay is accrued when incurred in the government-wide, proprietary, and
fiduciary fund financial statements. A liability for these amounts is reported
in governmental funds only if they have matured, for example, as a result of
employee resignations and retirements.
1. Lonq-Term Obliqations
In the government-wide financial statements, and proprietary fund types
in the fund financial statements, long-term debt, and other long-term obli-
gations are reported as liabilities in the applicable governmental activities,
business-type activities, or proprietary fund type statement of net assets.
J. Fund Equitv
In the fund financial statements, governmental funds report reservations
of fund balance for amounts that are not available for appropriation or are
legally restricted by outside parties for use for a specific purpose. Desig-
nations of fund balance represent tentative management plans that are
subject to change.
K. Use of Estimates
The preparation of basic financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosures for contingent assets and liabilities at the date of the basic
financial statements, and the reported amounts of the revenues and
expenditures/expenses during the fiscal year. Actual results could vary
from estimates that were used.
26
2. Stewardship, Compliance, and Accountability
A. Budqetary Information
During the fiscal year, the Town Manager submits to the Town Council
an operating budget for the proposed expenditures for the fiscal year
commencing the following July 1st. The budget, as enacted by the Town
Council, also establishes that certain appropriations are to be funded by
particular revenues. The original budget is amended during the fiscal
year as required by changing conditions. Formal budgetary integration is
employed as a management control device during the year for the General
Fund. Although formal budgetary integration is not employed for Special
Revenue Funds, effective budgetary control is alternatively achieved
through provisions of the Massachusetts General Laws and the Town's
Code of Ordinances.
Departments are limited to the line items as voted. Certain items may
exceed the line item budget as approved if it is for an emergency and for
the safety of the general public. These items are limited by the Massachu-
setts General Laws and must be raised in the next year's tax rate.
Formal budgetary integration is employed as a management control
device during the year for the General Fund and Proprietary Funds.
Effective budgetary control is achieved for all other funds through
provisions of the Massachusetts General Laws.
At year-end, appropriation balances lapse, except for certain unexpended
capital items and encumbrances which will be honored during the subse-
quent year.
B. Budqetary Basis
The General Fund final appropriation appearing on the "Budget and
Actual" page of the fund financial statements represents the final amended
budget after all reserve fund transfers and supplemental appropriations.
C. Budget/GAAP Reconciliation
The budgetary data for the general fund is based upon accounting prin-
ciples that differ from generally accepted accounting principles (GAAP).
Therefore, in addition to the GAAP basis financial statements, the results
of operations of the general fund are presented in accordance with budg-
etary accounting principles to provide a meaningful comparison with
budgetary data.
The following is a summary of adjustments made to the actual revenues
and other sources, and expenditures and other uses, to conform to the
budgetary basis of accounting.
27
Revenues Expenditures
and Other and Other
General Fund Financinq Sources Financing Uses
Revenues/Expenditures (GAAP basis) $ 97,654,057 $ 97,407,496
Other financing sources/uses
(GAAP basis) 3,234,505 2,072,027
Subtotal (GAAP Basis) 100,888,562 99,479,523
Adjust tax revenue to accrual basis (89,275) -
Reverse beginning of year appropriation
carryforwards from expenditures - (474,745)
Add end of year appropriation
carryforwards to expenditures - 1,794,862
To reverse the effect of non-budgeted
State contributions for teachers retirement (8,004,226) (8,004,226)
Recognize other sources and uses 2,250,000 To reverse non-budgeted reclassifications - (732,854)
Budgetary basis $ 95,045,061 $ 92,062,560
D. Deficit Fund Equity
The following funds had deficits as of June 30, 2010:
Nonmaior Governmental Funds:
Kindergarten $ (28,376)
Academic support $ (4,080)
SPED circuit breaker $ (230,805)
Universal Pre-K $ (2,649)
LEP Title III $ (3,947)
Perkins OC Ed $ (4,721)
SPED 94-142 $ (456,890)
SPED professional development $ (105)
Teacher Quality Title II $ (30,765)
Title 1 $ (47,931)
Title I carryover $ (11,257)
Organized Crime Drug EFT $ (83,351)
The deficits in these funds will be eliminated through future departmental
revenues and transfers from other funds.
28
3. Cash and Short-Term Investments
Custodial Credit Risk- Deposits. Custodial credit risk is the risk that in the
event of a bank failure, the Town's deposits may not be returned. Massa-
chusetts General Law Chapter 44, Section 55, limits the Town's deposits "in
a bank or trust company or banking company to an amount not exceeding
sixty percent of the capital and surplus of such bank or trust company or
banking company, unless satisfactory security is given to it by such bank or
trust company or banking company for such excess."
Massachusetts General Law Chapter 32, Section 23, limits the Contributory
Retirement System's deposits "in a bank or trust company to an amount not
exceeding ten percent of the capital and surplus of such bank or trust com-
pany." The Town and System do not have a deposit policy for custodial
credit risk.
As of June 30, 2010, and December 31, 2009, $ 24,727,412 and $ 818,164
of the Town's and System's bank balances of$ 48,530,800 and $ 1,172,650,
was exposed to custodial credit risk as uninsured, uncol lateral ized, and collat-
eral held by pledging bank's trust department not in the Town's name.
4. Investments
A. Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not
fulfill its obligation to the holder of the investment. For short-term invest-
ments that were purchased using surplus revenues, Massachusetts Gen-
eral Law, Chapter 44, Section 55, limits the Town's investments to the top
rating issued by at least one nationally recognized statistical rating organ-
ization (NRSROs).
Presented below (in thousands) is the actual rating as of year end for each
investment of the Town. (All federal agency securities have an implied
credit rating of AAA.):
Exempt Rating as of
Fair From Year End
Investment Tvpe Value Disclosure AAA
U.S. Treasury notes $ 1,260 $ - $ 1,260
Corporate equities 33 33 -
Federal agency securities 1,033 - 1,033
Mutual funds 301 301 -
Total investments $ 2,627 $ 334 $ 2,293
29
Massachusetts General Law, Chapter 32, Section 23, limits the invest-
ment of System funds, to the extent not required for current disburse-
ments, in the PRIT Fund or in securities, other than mortgages or collat-
eral loans, which are legal for the investment of funds in savings banks
under the laws of the Commonwealth, provided that no more than the
established percentage of assets, is invested in any one security.
Presented below is the actual rating as of year end of the System (in thou-
sands):
Exempt
Fair From
Investment Tvae Value Disclosure
Corporate equities $ 15,805 $ 15,805
Pooled domestic equity funds 3,249 3,249
Pooled international equity funds 7,812 7,812
Pooled domestic fixed income funds 14,117 14,117
Pooled alternative investments 3,174 3,174
Pooled real estate funds 5,314 5,314
PRIT* 31,251 31,251
Total investments $ 80,722 $ 80,722
*Fair value is the same as the value of the pool share. The Pension Reserves Invest-
ment Trust was created under Massachusetts General Law, Chapter 32, Section 22, in
December 1983. The Pension Reserves Investment Trust is operated under contract
with a private investment advisor, approved by the Pension Reserves Investment
Management Board. The Pension Reserves Investment Management Board shall
choose an investment advisor by requesting proposals from advisors and reviewing such
proposals based on criteria adopted under Massachusetts General Law, Chapter 30B.
B. Custodial Credit Risk
The custodial credit risk for investments is the risk that, in the event of the
failure of the counterparty (e.g., broker-dealer) to a transaction, a govern-
ment will not be able to recover the value of its investment or collateral
securities that are in the possession of another party. The Town and Sys-
tem does not have policies for custodial credit risk.
Of the Town's investment in U.S. Treasury Notes of$ 1,260,062, and
Federal Agency Securities of $ 1,033,363, the government has a custodial
credit risk exposure of$ 2,293,425 because the related securities are unin-
sured, unregistered and held by the Town's brokerage firm, which is also
the Counterparty to these securities. The Town manages this risk with
SIPC and excess SIPC coverage.
All of the System's investment in pooled funds of$ 64,918,883, are sub-
ject to a custodial credit risk exposure because the related securities are
uninsured, unregistered and held by the System's brokerage firm, which is
30
also the Counterparty to these securities. The System manages this risk
with investing in PRIT, having SIPC, excess SIPC and assets being held
in separately identifiable trust accounts.
C. Concentration of Credit Risk
The Town places no limit on the amount the Town may invest in any one
issuer. Investments in any one issuer (other than U.S. Treasury securities
and mutual funds) that represent 5% or more of total investments are as
follows:
Federal National Mtg. Assn. $ 405,947 15.5%
Federal Home Loan Mtg. Corp. 412,143 15.7%
Federal Home Loan Bank 208,001 7.9%
Massachusetts General Law Chapter 32, Section 23 limits the amount the
System may invest in any one issuer or security type, with the exception of
the PRIT Fund. The System does not have an investment in one issuer
greater than 5% of total investments.
D. Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will
adversely affect the fair value of an investment. Generally, the longer
the maturity of an investment, the greater the sensitivity of its fair value to
changes in market interest rates. The Town does not have formal invest-
ment policies that limit investment maturities as a means of managing
their exposure to fair value losses arising from increasing interest rates.
Information about the sensitivity of the fair values of the Town's invest-
ments to market interest rate fluctuations is as follows (in thousands):
Investment Maturities (in Years)
Fair Less More
Investment Tvr)e Value Than 1 1-5 6-10 Than 10
Debt Related Securities:
U.S. Treasury notes $ 1,260 $ 102 $ 1,158 $ - $ -
Federal agency securities 1,033 255 624 147 7
Total $ 2,293 $ 357 $ 1,782 $ 147 $ 7
E. Foreign Currencv Risk
Foreign currency risk is the risk that changes in foreign exchange rates
will adversely affect the fair value of an investment. The Town does not
have policies for foreign currency risk.
31
5. Taxes Receivable
Real estate and personal property taxes are levied and based on values
assessed on January 1 st of every year. Assessed values are established by
the Board of Assessor's for 100% of the estimated fair market value. Taxes
are due on a quarterly basis and are subject to penalties and interest if they
are not paid by the respective due date. Real estate and personal property
taxes levied are recorded as receivables in the fiscal year they relate to.
Fourteen days after the due date for the final tax bill for real estate taxes, a
demand notice may be sent to the delinquent taxpayer. Fourteen days after
the demand notice has been sent, the tax collector may proceed to file a lien
against the delinquent taxpayers' property. The Town has an ultimate right
to foreclose on property for unpaid taxes. Personal property taxes cannot be
secured through the lien process.
Taxes receivable at June 30, 2010 consist of the following (in thousands):
Property Taxes:
Real Estate
2010 $ 1,026
Prior (4)
1,022
Personal Property
2010 17
2009 10
2008 13
2007 & prior 21
61
Tax Liens 427
Deferred Taxes 124
Tax Possessions 3
Total Property Taxes $ 1,637
Excise Taxes:
Motor Vehicle Excise
2010 $ 163
2009 63
2008 42
2007 40
2006 40
2005 34
382
Boat Excise 9
Total Excise Taxes: $ 391
32
6. Allowance for Doubtful Accounts
The receivables reported in the accompanying entity-wide financial state-
ments reflect the following estimated allowances for doubtful accounts (in
thousands):
Governmental Business-Type
Property taxes $ 173 $ -
Excises 178 -
Userfees - 109
Charges for service 65 -
7. Intergovernmental Receivables
This balance represents reimbursements requested from Federal and State
agencies for expenditures incurred in fiscal 2010, as well as funding to be
provided by the Massachusetts School Building Authority for reimbursement
of approved school capital project expenditures. Future receipt of MSBA
payments are as follows:
2011 $ 982,370
2012 982,370
2013 982,370
2014 982,369
2015 982,369
2016-2019 2,947,105
Total $ 7,858,953
33
8. Capital Assets
Capital asset activity for the year ended June 30, 2010 was as follows (in
thousands):
Beginning Ending
Balance Increases Decreases Balance
Governmental Activities:
Capital assets, being depreciated:
Buildings and improvements $ 91,493 $ 39 $ - $ 91,532
Machinery, equipment, and furnishings 2,734 463 (139) 3,058
Infrastructure 36,744 2,653 - 39,397
Vehicles 8,202 98 (129) 8,171
Total capital assets, being depreciated 139,173 3,253 (268) 142,158
Less accumulated depreciation for:
Buildings and improvements (30,449) (3,698) - (34,147)
Machinery, equipment, and furnishings (1,189) (383) 139 (1,433)
Infrastructure (27,060) (873) - (27,933)
Vehicles (5,864) (495) 129 (6,230)
Total accumulated depreciation (64,562) (5,449) 268 (69,743)
Total capital assets, being depreciated, net 74,611 (2,196) - 72,415
Capital assets, not being depreciated:
Land 7,629 - - 7,629
Construction in progress 7,483 12,569 (1,387) 18,665
Total capital assets, not being depreciated 15,112 12,569 (1,387) 26,294
Governmental activities capital assets, net $ 89,723 $ 10,373 $ (1,387) $ 98,709
Beginning Ending
Balance Increases Decreases Balance
Business-Type Activities:
Capital assets, being depreciated:
Machinery, equipment, and furnishings $ 1,648 $ 30 $ - $ 1,678
Infrastructure 10,294 580 - 10,874
Vehicles 904 - - 904
Total capital assets, being depreciated 12,846 610 - 13,456
Less accumulated depreciation for:
Machinery, equipment, and furnishings (1,013) (107) - (1,120)
Infrastructure (8,705) (94) - (8,799)
Vehicles (103) (116) - (219)
Total accumulated depreciation (9,821) (317) - (10,138)
Total capital assets, being depreciated, net 3,025 293 - 3,318
Capital assets, not being depreciated:
Construction in progress 575 141 (563) 153
Total capital assets, not being depreciated 575 141 (563) 153
Business-type activities capital assets, net $ 3,600 $ 434 $ (563) $ 3,471
34
Depreciation expense was charged to functions of the Town as follows (in
thousands):
Governmental Activities:
General government $ 357
Public safety 493
Education 2,176
Public works 1,502
Culture and recreation 823
Heath and human services 98
Total depreciation expense - governmental activities $ 5,449
Business-Type Activities:
Water $ 164
Sewer 153
Total depreciation expense - business-type activities $ 317
9. Warrants Pavable
Warrants payable represent 2010 expenditures paid by July 15, 2010 as
permitted by law.
10. Accrued Liabilities
This balance consists primarily of salaries earned but unpaid at June 30,
2010 and other accrued liabilities.
11. Deferred Revenue
Governmental funds report deferred revenue in connection with receivables
for revenues that are not considered to be available to liquidate liabilities of
the current period.
The balance of the General Fund deferred revenues account is equal to the
total of all June 30, 2010 receivable balances. The Town's statutory "allow-
ance for abatements and exemptions" (overlay) account, with a balance of
$ 2,123,729 has been reclassified to deferred revenue for reporting purposes.
12. Tax Refunds Pavable
This balance consists of an estimate of refunds due to property taxpayers
for potential abatements. These cases are currently pending with the state
Appellate Tax Board.
35
13. Notes Payable
The following summarizes activity in notes payable during fiscal year 2010:
Balance Balance
Beginning New End of
of Year Issues Maturities Year
Bond anticipation $ 350,000 $ - $ (350,000) $ -
Total $ 350,000 $ - $ (350,000) $ -
14. Lonq-Term Debt
A. General Obligation Bonds
The Town issues general obligation bonds to provide funds for the acqui-
sition and construction of major capital facilities. General obligation bonds
currently outstanding are as follows:
Amount
Serial Outstanding
Maturities Interest as of
Governmental Activities: Throuqh Rate(s) % 6/30/10
Municipal purpose FY 98 8/15/17 2.40% $ 3,233,200
Municipal purpose FY 99 8/15/17 2.40% 6,030,750
General obligation bonds 8/15/17 2.40% 2,226,050
General obligation bonds 3/15/18 3.33% 400,000
General obligation bonds 11/1/19 3.36% 1,445,000
General obligation bonds 11/1/24 3.98% 11,690,000
General obligation bonds 11/1/20 4.23% 2,000,000
General obligation bonds 7/15/28 4.00% 13,735,000
General obligation bonds 2/15/30 3.31% 5,452,000
Total Governmental Activities: $ 46,212,000
Amount
Serial Outstanding
Maturities Interest as of
Business-Twe Activities: Throuqh Rate(s) % 6/30/10
Sewer bond (MWRA) 5/15/11 0.00% $ 94,506
Sewer bond (MWRA) 5/15/13 0.00% 176,484
Sewer bond (MWRA) 5/15/15 0.00% 304,920
Sewer bond (MWRA) 5/15/20 0.00% 1,736,360
General obligation bond 3/15/24 3.33% 2,100,000
Total Business-Type Activities: $ 4,412,270
36
B. Future Debt Service
The annual payments to retire all general obligation long-term debt
outstanding as of June 30, 2010 are as follows:
Governmental Principal Interest Total
2011 $ 5,386,000 $ 1,521,661 $ 6,907,661
2012 5,183,000 1,365,020 6,548,020
2013 5,018,000 1,201,667 6,219,667
2014 3,574,000 1,074,482 4,648,482
2015 3,524,000 969,871 4,493,871
2016-2020 12,802,000 3,332,391 16,134,391
2021-2025 7,675,000 1,513,514 9,188,514
2026-2030 3,050,000 308,964 3,358,964
Total $ 46,212,000 $ 11,287,570 $ 57,499,570
Business-Type Principal Interest Total
2011 $ 537,954 $ 79,088 $ 617,042
2012 443,448 74,775 518,223
2013 443,448 70,125 513,573
2014 384,620 64,125 448,745
2015 384,620 59,325 443,945
2016-2020 1,618,180 213,000 1,831,180
2021-2025 600,000 62,700 662,700
Total $ 4,412,270 $ 623,138 $ 5,035,408
C. Chancies in General Lonci-Term Liabilities
During the year ended June 30, 2010, the following changes occurred in
long-term liabilities (in thousands):
Equals
Total Total Less Long-Term
Balance Balance Current Portion
7/1/09 Additions Reductions 6/30/10 Portion 6/30/10
Governmental Activities
Bonds payable $ 45,925 $ 5,452 $ (5,165) $ 46,212 $ (5,386) $ 40,826
Compensated absences 2,453 - (94) 2,359 (118) 2,241
OPEB liability 3,839 3,943 - 7,782 - 7,782
Totals $ 52,217 $ 9,395 $ (5,259) $ 56,353 $ (5,504) $ 50,849
Equals
Total Total Less Long-Term
Balance Balance Current Portion
7/1/09 Additions Reductions 6/30/10 Portion 6/30/10
Business-tvpe Activities
Bonds payable $ 2,674 $ 2,041 $ (303) $ 4,412 $ (538) $ 3,874
OPEB liability 81 84 - 165 - 165
Totals $ 2,755 $ 2,125 $ (303) $ 4,577 $ (538) $ 4,039
37
D. Advance and Current Refundincis
Prior Year
In fiscal year 2009, the Town of Watertown defeased various bond issues
by creating separate irrevocable trust funds. The proceeds from the new
issuance of the general obligation bonds were used to purchase U.S. gov-
ernment securities, and those securities were deposited in an irrevocable
trust with an escrow agent to provide debt service payments until the
refunded bonds are retired on August 15, 2011. For financial reporting
purposes, the debt has been considered defeased and therefore removed
as a liability from the Town of Watertown's balance sheet. As of June 30,
2010, the principal amount of defeased debt outstanding but removed
from the governmental activities and business-type activities was
$ 1,750,000.
15. Restricted Net Assets
The accompanying entity-wide financial statements report restricted net assets
when external constraints from grantors or contributors are placed on net
assets.
Permanent fund restricted net assets are segregated between nonexpend-
able and expendable. The nonexpendable portion represents the original
restricted principal contribution, and the expendable represents accumulated
earnings which are available to be spent based on donor restrictions.
16. Reserves of Fund Equity
"Reserves" of fund equity are established to segregate fund balances which
are either not available for expenditure in the future or are legally set aside for
a specific future use.
The following types of reserves are reported at June 30, 2010:
Reserved for Encumbrances - An account used to segregate that portion of
fund balance committed for expenditure of financial resources upon vendor
performance.
Reserved for Expenditures - Represents the amount of fund balance appro-
priated to be used for expenditures in the subsequent year budget.
Reserved for Perpetual Funds - Represents the principal of the nonexpend-
able trust fund investments. The balance cannot be spent for any purpose;
however, it may be invested and the earnings may be spent.
38
17. General Fund Undesiqnated Fund Balance
The undesignated general fund balance reported on the balance sheet is
stated in accordance with generally accepted accounting principles (GAAP),
which differs in certain respects from the Massachusetts Uniform Municipal
Accounting System (UMAS). The following paragraphs summarize the major
differences.
The accompanying financial statements include an estimate for future poten-
tial tax refunds, which is not recognized under UMAS.
The following summarizes the specific differences between GAAP basis and
statutory basis of reporting the general fund undesignated fund balance:
GAAP basis balance $ 6,676,593
Tax refund estimate 1,881,280
Statutory (UMAS) Balance $ 8,557,873
18. Commitments and Continqencies
Outstandinq Lawsuits - There are several pending lawsuits in which the Town is
involved. The Town's management is of the opinion that the potential future
settlement of such claims would not materially affect its financial statements
taken as a whole.
Grants - Amounts received or receivable from grantor agencies are subject to
audit and adjustment by grantor agencies, principally the federal government.
Any disallowed claims, including amounts already collected, may constitute a
liability of the applicable funds. The amount of expenditures which may be
disallowed by the grantor cannot be determined at this time, although the
Town expects such amounts, if any, to be immaterial.
19. Contributory Retirement Svstem
The Town follows the provisions of GASB Statement No. 27, Accounting
for Pensions for State and Local Government Employees, (as amended by
GASB 50) with respect to the employees' retirement funds.
A. Plan Description and Contribution Information
Substantially all employees of the Town (except teachers and administra-
tors under contract employed by the School Department) are members of
the Watertown Contributory Retirement System (WCRS), a cost sharing,
multiple employer-defined benefit PERS. Eligible employees must
participate in the WCRS. The pension plan provides pension benefits,
deferred allowances, and death and disability benefits. Chapter 32 of
39
the Massachusetts General Laws establishes the authority of the WCRS
Retirement Board. Chapter 32 also establishes contribution percentages
and benefits paid. The WCRS Retirement Board does not have the
authority to amend benefit provisions. As required by Massachusetts
General Laws, the System issues a separate report to the Common-
wealth's Public Employee Retirement Administration Commission.
Membership of each plan consisted of the following at December 31, 2009:
Retirees and beneficiaries receiving benefits 408
Terminated plan members entitled to but not yet
receiving benefits 146
Active plan members 527
Total 1,081
Number of participating employers 2
Employee contribution percentages are specified in Chapter 32 of the
Massachusetts General Laws. The percentage is determined by the
participant's date of entry into the system. All employees hired after
January 1, 1979 contribute an additional 2% on all gross regular earn-
ings over the rate of $ 30,000 per year. The percentages are as follows:
Before January 1, 1975 5%
January 1, 1975 - December 31, 1983 7%
January 1, 1984 - June 30, 1996 8%
Beginning July 1, 1996 9%
Employers are required to contribute at actuarially determined rates as
accepted by the Public Employee Retirement Administration Commission
(PERAC). The Town Schedule of Employer Contributions is as follows:
Schedule of Emplover Contributions:
Year Ended Annual Required Percentage
June 30 Contribution Contributed
2000 $ 4,586,000 100%
2001 $ 4,244,346 100%
2002 $ 4,586,000 100%
2003 $ 5,296,038 100%
2004 $ 5,422,000 100%
2005 $ 5,551,000 100%
2006 $ 6,602,724 100%
2007 $ 6,770,135 100%
2008 $ 7,276,020 100%
2009 $ 7,422,874 100%
2010 $ 7,682,371 100%
40
B. Summary of Significant Accounting Policies
Basis of Accountinq - Contributory retirement system financial statements
are prepared using the accrual basis of accounting. Plan member contri-
butions are recognized in the period in which the contributions are due.
Employer contributions 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.
Method Used to Value Investments - Investments are reported in accord-
ance with PERAC requirements.
C. Funded Status and Funding Progress
The information presented below is from the Watertown Contributory
Retirement System's most recent valuation (in thousands).
Actuarial UAAL as
Accrued a Percent-
Actuarial Liability Unfunded age of
Actuarial Value of (AAL) - AAL Funded Covered Covered
Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll
Date La) LbJ Lb-a a/b b-a /c
01/01/10 $ 89,433 $ 155,963 $ 66,530 57.3% $ 25,403 261.9%
01/01/09 $ 78,515 $ 144,634 $ 66,119 54.3% $ 25,266 261.7%
The Schedule of Funding Progress following the notes to financial state-
ments presents multi-year trend information about the actuarial value of
plan assets relative to the actuarial accrued liability for benefits.
D. Actuarial Methods and Assumptions
The annual required contribution for the current year was determined as
part of the actuarial valuation using the entry age normal actuarial cost
method. Under this method an unfunded actuarial accrued liability of$ 66.1
million was calculated. The actuarial assumptions included (a) 8% invest-
ment rate of return and (b) a projected salary increase of 4.5% per year.
Liabilities for cost of living increases have been assumed at an annual
increase of 3%, on the first $ 12,000 of benefit payments. The actuarial
value of assets is determined by projecting the market value of assets as
of the beginning of the prior plan year with the assumed rate of return
during that year (8%) and accounting for deposits and disbursements with
interest at the assumed rate of return. An adjustment is then applied to
recognize the difference between the actual investment return and expected
return over a five-year period. As of December 31, 2009, the unfunded
actuarially accrued liability is being amortized over 9 years using an open
group method which assumes a 5% per year increase in payroll.
41
E. Teachers
As required by State statutes, teachers of the Town are covered by the
Massachusetts Teachers Retirement System (MTRS). The MTRS is
funded by contributions from covered employees and the Commonwealth
of Massachusetts. The Town is not required to contribute.
All persons employed on at least a half-time basis, who are covered under
a contractual agreement requiring certification by the Board of Education
are eligible, and must participate in the MTRS.
Based on the Commonwealth of Massachusetts' retirement laws, employ-
ees covered by the pension plan must contribute a percentage of gross
earnings into the pension fund. The percentage is determined by the par-
ticipant's date of entry into the system and gross earnings, up to $ 30,000,
as follows:
Before January 1, 1975 5%
January 1, 1975 - December 31, 1983 7% *
January 1, 1984 - June 30, 1996 8% *
July 1, 1996 - June 30, 2001 9% *
Beginning July 1, 2001 11%
*Effective January 1, 1990, all participants hired after January 1,
1979, who have not elected to increase to 11%, contribute an
additional 2% of salary in excess of $ 30,000.
In fiscal year 2010, the Commonwealth of Massachusetts contributed
$ 8,004,226 to the MTRS on behalf of the Town. This is included in the
education expenditures and intergovernmental revenues in the general
fund.
20. Post-Employment Health Care and Life Insurance Benefits
The Town implemented GASB Statement 45, Accounting and Financial
Reporting by Employers for Post-Employment Benefits Other Than Pensions.
Statement 45 requires governments to account for other post-employment
benefits (OPEB), primarily healthcare, on an accrual basis rather than on a
pay-as-you-go basis. The effect is the recognition of an actuarially required
contribution as an expense on the statement of revenues, expenses, and
changes in net assets when a future retiree earns their post-employment
benefits, rather than when they use their post-employment benefit. To the
extent that an entity does not fund their actuarially required contribution, a
post-employment benefit liability is recognized on the Statement of Net Assets
over time.
42
A. Plan Description
In addition to providing the pension benefits described, the Town provides
post-employment health care and life insurance benefits for retired employ-
ees through the Town's plan. The benefits, benefit levels, employee contri-
butions and employer contributions are governed by Chapter 32 of the
Massachusetts General Laws. As of June 30, 2009, the actuarial valua-
tion date, approximately 767 retirees and 764 active employees meet the
eligibility requirements. The plan does not issue a separate financial report.
B. Benefits Provided
The Town provides medical, prescription drug, mental health/substance
abuse and life insurance to retirees and their covered dependents. All
active employees who retire from the Town and meet the eligibility criteria
will receive these benefits.
C. Funding Policv
Retirees contribute 20% for HMO and PPO Plans, 40% for indemnity plans
and 10% for Teachers retired before July 1, 2009, respectively, as deter-
mined by the Town. The Town contributes the remainder of the health
plan costs on a pay-as-you-go basis.
D. Annual OPEB Costs and Net OPEB Obligation
The Town's fiscal 2010 annual OPEB expense is calculated based on the
annual required contribution of the employer (ARC), an amount actuarially
determined in accordance with the parameters of GASB Statement No. 45.
The ARC represents a level of funding that, if paid on an ongoing basis, is
projected to cover the normal cost per year and amortize the unfunded
actuarial liability over a period of thirty years. The following table shows
the components of the Town's annual OPEB cost for the year ending
June 30, 2010, the amount actually contributed to the plan, and the change
in the Town's net OPEB obligation based on an actuarial valuation as of
June 30, 2009.
Annual Required Contribution (ARC) $ 7,683,909
Interest on net OPEB obligation 137,212
Adjustment to ARC (113,279)
Annual OPEB cost 7,707,842
Contributions made (3,681,578)
Increase in net OPEB obligation 4,026,264
Net OPEB obligation - beginning of year 3,920,363
Net OPEB obligation - end of year $ 7,946,627
43
The Town's annual OPEB cost, the percentage of annual OPEB cost
contributed to the plan, and the net OPEB obligation were as follows:
Annual Percentage of
OPEB OPEB Net OPEB
Fiscal year ended Cost Cost Contributed Obliqation
2010 $ 7,707,842 48% $ 7,946,627
2009 $ 7,352,363 47% $ 3,920,363
The Town's net OPEB obligation as of June 30, 2010 is recorded as a
noncurrent liability in the government-wide Statement of Net Assets.
E. Funded Status and Funding Progress
The funded status of the plan as of June 30, 2009, the date of the most
recent actuarial valuation was as follows:
Actuarial accrued liability (AAL) $ 118,381,044
Actuarial value of plan assets -
Unfunded actuarial accrued liability (UAAL) $ 118,381,044
Funded ratio (actuarial value of plan assets/AAL) 0%
Covered payroll (active plan members) $ 42,074,967
UAAL as a percentage of covered payroll 281%
Actuarial valuations of an ongoing plan involve estimates of the value of
reported amount and assumptions about the probability of occurrence of
events far into the future. Examples included assumptions about future
employment, mortality, and the healthcare cost trend. Amounts deter-
mined regarding the funded status of the plan and the annual required
contributions of the employer are subject to continual revision as actual
results are compared with past expectations and new estimates are made
about the future. The schedule of funding progress, presented as required
supplementary information following the notes to financial statements, pre-
sents multiyear trend information that shows whether the actuarial value of
plan assets is increasing or decreasing over time relative to the actuarial
accrued liabilities for benefits.
F. Actuarial Methods and Assumptions
Projections of benefits for financial reporting purposes are based on the
plan as understood by the Town and the plan members and include the
types of benefits provided at the time of each valuation and the historical
pattern of sharing of benefit costs between the Town and plan members
to that point. The actuarial methods and assumptions used include tech-
niques that are designed to reduce short-term volatility in actuarial
44
accrued liabilities and the actuarial value of assets, consistent with the
long-term perspective of the calculations.
In the June 30, 2009 actuarial valuation the projected unit credit cost
method was used. The actuarial value of assets was not determined
as the Town has not advance funded its obligation. The actuarial
assumptions included a 3.5% investment rate of return and an initial
annual healthcare cost trend rate of 9% which decreases to a 5% long-
term rate for all healthcare benefits after ten years. The amortization
costs for the initial UAAL is a level percentage of payroll for a period of
30 years, on a closed basis. This has been calculated assuming the
amortization payment increases at a rate of 4.5%.
21. Risk Manaqement
The Town is exposed to various risks of loss related to torts; theft of, damage
to and destruction of assets; errors and omissions; and natural disasters for
which the government carries commercial insurance. There were no significant
reductions in insurance coverage from the previous year and have been no
material settlements in excess of coverage in any of the past three fiscal years.
22. Beginninq Fund Balance Net Assets Reclassification
The beginning (July 1, 2009) fund balances of the Town have been restated
as follows:
Governmental Sewer
Activities Fund
As previously reported $ 76,540,069 $ 11,900,711
To reclassify bonds payable 2,250,000 (2,250,000)
As restated $ 78,790,069 $ 9,650,711
45
TOWN OF WATERTOWN,MASSACHUSETTS
SCHEDULE OF FUNDING PROGRESS
REQUIRED SUPPLEMENTARY INFORMATION
June 30,2010
(Unaudited)
Employees'Retirement System
Actuarial UAAL as
Accrued a Percent-
Actuarial Liability Unfunded age of
Actuarial Value of (AAL)- AAL Funded Covered Covered
Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll
Date (a) (b) (b-a) (a/b LC) b-a/c
01/01/10 $ 89,432,797 $ 155,963,135 $ 66,530,338 57.3% $ 25,403,413 261.9%
01/01/09 $ 78,514,694 $ 144,633,508 $ 66,118,814 54.3% $ 25,266,728 261.7%
01/01/08 $ 97,038,107 $ 140,549,411 $ 43,511,304 69.0% $ 24,654,987 176.5%
01/01/06 $ 77,395,170 $ 130,484,841 $ 53,089,671 59.3% $ 22,327,190 237.8%
01/01/04 $ 72,563,856 $ 120,699,469 $ 48,135,613 60.1% $ 21,673,650 222.1%
01/01/02 $ 70,633,407 $ 111,494,385 $ 40,860,978 63.4% $ 19,735,159 207.0%
01/01/01 $ 66,804,435 $ 100,876,281 $ 34,071,846 66.2% $ 19,379,204 175.8%
01/01/00 $ 67,485,797 $ 93,900,795 $ 26,414,998 71.9% $ 18,231,939 144.9%
01/01/99 $ 56,172,432 $ 90,052,933 $ 33,880,501 62.4% $ 15,732,197 215.4%
01/01/98 $ 54,266,762 $ 76,162,713 $ 21,895,951 71.3% $ 15,673,535 139.7%
Other Post-Employment Benefits
Actuarial UAAL as
Accrued a Percent-
Actuarial Liability Unfunded age of
Actuarial Value of (AAL)- AAL Funded Covered Covered
Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll
Date (a) (b) (b-a) (a/b LC) b-a/c
06/30/09 $ - $ 118,381,044 $118,381,044 0.0% $ 42,074,967 281.4%
46
TOWN OF WATERTOWN, MASSACHUSETTS
SCHEDULE OF REVENUES AND EXPENDITURES,
AND OTHER USES-BUDGET AND ACTUAL
WATER ENTERPRISE FUND
FOR THE YEAR ENDED JUNE 30,2010
Actual Variance
Original Revised (Budgetary Favorable
Budget Budget Basis (Unfavorable)
Revenues:
Current service charges $ 6,169,137 $ 6,169,137 $ 6,103,165 $ (65,972)
Interest income 10,000 10,000 13,537 3,537
Total Revenues 6,179,137 6,179,137 6,116,702 (62,435)
Expenditures:
Personnel services 773,637 773,637 760,748 12,889
Supplies and materials 273,038 273,038 248,980 24,058
Charges and services 2,807,909 2,807,909 2,807,488 421
Capital outlay 242,000 242,000 194,327 47,673
Other 116,513 116,513 116,513 -
Transfers out 1,966,040 1,966,040 1,966,040 -
Total Expenditures and Other Uses 6,179,137 6,179,137 6,094,096 85,041
Excess of Revenues over Expenditures
and Other Uses $ - $ - $ 22,606 $ 22,606
See Independent Auditors'report.
47
TOWN OF WATERTOWN, MASSACHUSETTS
SCHEDULE OF REVENUES AND EXPENDITURES,
AND OTHER USES-BUDGET AND ACTUAL
SEWER ENTERPRISE FUND
FOR THE YEAR ENDED JUNE 30,2010
Actual Variance
Original Revised (Budgetary Favorable
Budget Budget Basis (Unfavorable)
Revenues:
Current service charges $ 9,805,434 $ 9,805,434 $ 9,551,365 $ (254,069)
Interest income - - 30,514 30,514
Total Revenues 9,805,434 9,805,434 9,581,879 (223,555)
Expenditures:
Personnel services 340,264 340,264 338,245 2,019
Supplies and materials 364,784 364,784 298,777 66,007
Charges and services 5,214,175 5,214,175 5,149,170 65,005
Capital outlay 962,900 962,900 888,101 74,799
Other 269,846 269,846 269,846 -
Transfers out 2,653,465 2,653,465 2,653,465 -
Total Expenditures and Other Uses 9,805,434 9,805,434 9,597,604 207,830
Excess of Revenues over Expenditures $ - $ - $ (15,7251 $ (15,7251
and Other Uses
See Independent Auditors'report.
48