HomeMy Public PortalAboutWatertown MA FS12 Final_201302121610023633 TOWN OF WATERTOWN, MASSACHUSETTS
Annual Financial Statements
For the Year Ended June 30, 2012
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
MANAGEMENT'S DISCUSSION AND ANALYSIS 3
BASIC FINANCIAL STATEMENTS:
Government-Wide Financial Statements:
Statement of Net Assets 11
Statement of Activities 12
Fund Financial Statements:
Governmental Funds:
Balance Sheet 13
Reconciliation of Total Governmental Fund Balances to
Net Assets of Governmental Activities in the Statement
of Net Assets 14
Statement of Revenues, Expenditures, and Changes
in Fund Balances 15
Reconciliation of the Statement of Revenues, Expenditures,
and Changes in Fund Balances of Governmental Funds to
the Statement of Activities 16
Statement of Revenues and Other Sources, and Expenditures
and Other Uses - Budget and Actual - General Fund 17
Proprietary Funds:
Statement of Net Assets 18
Statement of Revenues, Expenses, and Changes in Fund
Net Assets 19
Statement of Cash Flows 20
Fiduciary Funds:
Statement of Fiduciary Net Assets 21
Statement of Changes in Fiduciary Net Assets 22
Notes to Financial Statements 23
REQUIRED SUPPLEMENTARY INFORMATION:
Schedule of Funding Progress 50
OTHER SUPPLEMENTARY INFORMATION:
Schedule of Revenues and Expenditures, and Other Uses -
Budget and Actual - Water Enterprise Fund 51
Schedule of Revenues and Expenditures, and Other Uses -
Budget and Actual - Sewer Enterprise Fund 52
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 June 30, 2012, and for
the year then ended, (except for the Watertown Contributory Retirement System which
is as of and for the year ended December 31, 2011) 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's management. Our responsibility is to
express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America, 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, as of June 30, 2012 (except for the Watertown Contributory
Retirement System which is as of and for the year ended December 31, 2011), and
the respective changes in financial position and, where applicable, cash flows 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.
In accordance with Government Auditing Standards, we have issued our report
dated February 1, 2013 on our consideration of the Town of Watertown's internal
Additional Offices:
Greenfield,MA• Ellsworth,ME• Nashua,NH • Manchester,NH
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 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.
Accounting principles generally accepted in the United States of America require
that management's discussion and analysis and Schedule of Funding Progress be
presented to supplement the basic financial statements. Such information, although
not a part of the basic financial statements, is required by the Governmental
Accounting Standards Board, who considers it to be an essential part of financial
reporting for placing the basic financial statements in an appropriate operational,
economic, or historical context. We have applied certain limited procedures to the
required supplementary information in accordance with auditing standards generally
accepted in the United States of America, which consisted of inquiries of manage-
ment about the methods of preparing the information and comparing the information
for consistency with management's responses to our inquiries, the basic financial
statements, and other knowledge we obtained during our audit of the basic financial
statements. We do not express an opinion or provide any assurance on the infor-
mation because the limited procedures do not provide us with evidence sufficient to
express an opinion or provide any assurance.
Our audit was conducted for the purpose of forming opinions on the financial state-
ments that collectively comprise the Town's basic financial statements. The infor-
mation appearing on pages 51 and 52 is presented for purposes of additional analy-
sis and are not a required part of the basic financial statements. Such information is
the responsibility of management and was derived from and relates directly to the
underlying accounting and other records used to prepare the financial statements.
The information has been subjected to the auditing procedures applied in the audit
of the financial statements and certain additional procedures, including comparing
and reconciling such information directly to the underlying accounting and other
records used to prepare the financial statements or to the financial statements
themselves, and other additional procedures in accordance with auditing standards
generally accepted in the United States of America. In our opinion, the information is
fairly stated in all material respects in relation to the financial statements as a whole.
February 1, 2013
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, 2012.
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 finan-
cial 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 activi-
ties 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 gov-
ernment'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 deci-
sions. 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, enter-
prise 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 is
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 accompa-
nying notes, this report also presents certain required supplementary information
which is required to be disclosed by accounting principles generally 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 liabil-
ities by $ 93,924,430 (i.e., net assets), a change of$ 594,381 in comparison
to the prior year.
• As of the close of the current fiscal year, governmental funds reported com-
bined ending fund balances of$ 27,602,429, a change of$ 5,227,013 in
comparison to the prior year.
• At the end of the current fiscal year, unassigned fund balance for the general
fund was $ 9,630,553, a change of $ 2,697,064 in comparison to the prior
year.
• Total long-term debt (i.e., bonds payable) at the close of the current fiscal
year was $ 43,092,868, a change of $ (1,607,449) 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.
Governmental Business-Type
Activities Activities Total
2012 2011 2012 2011 2012 2011
Current and other assets $ 40,025 $ 36,026 $ 17,039 $ 17,932 $ 57,064 $ 53,958
Capital assets 101,632 101,697 6,053 4,315 107,685 106,012
Total assets 141,657 137,723 23,092 22,247 164,749 159,970
Long-term liabilities outstanding 55,635 51,432 3,677 3,733 59,312 55,165
Other liabilities 10,978 10,998 534 477 11,512 11,475
Total liabilities 66,613 62,430 4,211 4,210 70,824 66,640
Net assets:
Invested in capital assets, net 66,365 64,529 5,293 4,414 71,658 68,943
Restricted 5,905 5,291 - - 5,905 5,291
Unrestricted 2,774 5,473 13,588 13,623 16,362 19,096
Total net assets $ 75,044 $ 75,293 $ 18,881 $ 18,037 $ 93,925 $ 93,330
5
CHANGES IN NET ASSETS
Governmental Business-Type
Activities Activities Total
2012 2011 2012 2011 2012 2011
Revenues:
Program revenues:
Charges for services $ 7,464 $ 6,935 $ 14,210 $ 13,929 $ 21,674 $ 20,864
Operating grants and
contributions 14,356 13,938 - - 14,356 13,938
Capital grants and
contributions 890 2,450 243 - 1,133 2,450
General revenues:
Property taxes(including
penalties and interest) 75,112 71,409 - - 75,112 71,409
Excises 3,250 3,268 - - 3,250 3,268
Penalties and interest on
taxes 2,855 2,780 - - 2,855 2,780
Grants and contributions
not restricted to specific
programs 8,652 8,877 - - 8,652 8,877
Investment income 67 99 23 35 90 134
Other 2,868 1,261 8 9 2,876 1,270
Total revenues 115,514 111,017 14,484 13,973 129,998 124,990
Expenses:
General government 5,546 5,492 - - 5,546 5,492
Public safety 18,894 18,441 - - 18,894 18,441
Education 45,519 44,843 - - 45,519 44,843
Public works 9,731 9,387 - - 9,731 9,387
Human services 1,080 1,072 - - 1,080 1,072
Culture and recreation 4,109 4,964 - - 4,109 4,964
Employee benefits 29,797 29,115 - - 29,797 29,115
Intergovernmental 2,207 2,143 - - 2,207 2,143
Interest on long-term debt 1,313 1,530 - - 1,313 1,530
Miscellaneous 125 68 - - 125 68
Water services - - 4,053 4,078 4,053 4,078
Sewer services - - 7,029 6,313 7,029 6,313
Total expenses 118,321 117,055 11,082 10,391 129,403 127,446
Change in net assets
before transfers (2,807) (6,038) 3,402 3,582 595 (2,456)
Transfers in (out) 2,558 2,496 (2,558) (2,496) - -
Change in net assets (249) (3,542) 844 1,086 595 (2,456)
Net assets-beginning of 75,293 78,835 18,037 16,951 93,330 95,786
Net assets-end of year $ 75,044 $ 75,293 $ 18,881 $ 18,037 $ 93,925 $ 93,330
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 $ 93,924,430, a change of$ 594,381 from the prior year.
The largest portion of net assets $ 71,657,919 reflects our investment in capital
assets (e.g., land, buildings, machinery, 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 $ 5,904,849 represents resources that are
subject to external restrictions on how they may be used. The remaining balance
of unrestricted net assets $ 16,361,662 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$ (249,253). Key elements of this change are as follows:
General fund operations, as discussed further
in Section D $ 4,174,171
Nonmajor funds - accrual basis 3,062,797
Depreciation expense in excess of principal
debt service (938,705)
Accrued other post-emplyment benefits (6,162,028)
MSBA receipt (913,208)
Other GAAP accruals 527,720
Total $ (249,253)
Business-type activities. Business-type activities for the year resulted in a
change in net assets of$ 843,634. Key elements of this change are as follows:
Water operations $ 410,545
Sewer operations 433,089
Total $ 843,634
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 information
on near-term inflows, outflows, and balances of spendable resources.
7
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.
As of the end of the current fiscal year, governmental funds reported combined
ending fund balances of$ 27,602,429, a change of$ 5,227,013 in comparison to
the prior year. Key elements of this change are as follows:
General fund operating results $ 4,174,171
Nonmajor fund deficit 1,052,842
Total $ 5,227,013
The general fund is the chief operating fund. At the end of the current fiscal year,
unassigned fund balance of the general fund was $ 9,630,553, while total fund
balance was $ 17,494,342. As a measure of the general fund's liquidity, it may be
useful to compare both unassigned fund balance and total fund balance to total
general fund expenditures. Refer to the table below.
% of
Total General
General Fund 6/30/12 6/30/11 Change Fund Expenditures
Unassigned fund balance $ 9,630,553 $ 6,933,489 $ 2,697,064 9.3%
Total fund balance 17,494,342 13,320,171 4,174,171 17.0%
The total fund balance of the general fund changed by $ 4,174,171 during the
current fiscal year. Key factors in this change are as follows:
Revenue surplus $ 1,051,663
Appropriation turnbacks by departments 1,850,170
Property tax collection exceeding net tax levy 954,488
Current year encumbrances to be spent in the subsequent
year, over prior year encumbrances to be sent in the
current year 451,068
Use of free cash as a funding source (1,750,000)
Change in stabilization 1,707,076
Other reclassifications (90,294)
Total $ 4,174,171
8
Included in the total general fund balance are the Town's stabilization accounts
with the following balances:
6/30/12 6/30/11 Change
Stabilization $ 1,224,655 $ 1,213,615 $ 11,040
Capital Project Stabilization 1,501,623 557,865 943,758
OPEB Stabilization 1,077,724 1,075,446 2,278
Unfunded Pension Stabilization 750,000 - 750,000
Total $ 4,554,002 $ 2,846,926 $ 1,707,076
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 $ 13,588,072, a change of $ (35,039) 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.
E. GENERAL FUND BUDGETARY HIGHLIGHTS
Differences between the original budget and the final amended budget resulted
in an overall change in appropriations of $ 1,210,000. Major reasons for these
amendments include:
• $ 562,499 increase in the Town Council Reserve Fund
• $ 34,100 increase in other general government appropriations
• $ (400) decrease in intergovernmental appropriations
• $ 12,000 increase in culture and recreation
• $ 601,801 increase in transfers
Of this increase, $ 179,403 was funded from property taxes, $ 3,044 from PILOT,
$ 1,009,733 from miscellaneous revenues, $ 34,100 from transfers from other
funds, and a $ (16,280) reduction in state aid.
F. CAPITAL ASSET AND DEBT ADMINISTRATION
Capital assets. Total investment in capital assets for governmental and business-
type activities at year-end amounted to $ 107,685,453 (net of accumulated depre-
ciation), a change of $ 1,673,417 from the prior year. This investment in capital
assets includes land, buildings and system, improvements, and machinery and
equipment.
9
Major capital asset events during the current fiscal year included the following:
• Victory Field improvements of $ 2,079,121
• Ongoing street and sidewalk improvements of $ 2,579,857
• Water mains of $ 773,208
Additional information on capital assets can be found in the Notes to the Financial
Statements.
Change in credit rating. The Town of Watertown maintains an "AaY rating from
Moody's for general obligation debt.
Lonq-term debt. At the end of the current fiscal year, total bonded debt out-
standing was $ 43,092,868, all of which was backed by the full faith and credit
of the government.
Additional information on long-term debt can be found in the Notes to the 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
10
TOWN OF WATERTOWN,MASSACHUSETTS
STATEMENT OF NET ASSETS
JUNE 30,2012
Governmental Business-Type
Activities Activities Total
ASSETS
Current:
Cash and short-term investments $ 30,023,856 $ 13,518,679 $ 43,542,535
Investments 2,586,278 - 2,586,278
Receivables,net of allowance for uncollectibles:
Property taxes 1,025,179 1,025,179
Excises 261,153 - 261,153
User fees - 3,519,992 3,519,992
Charges for services 10,647 - 10,647
Intergovernmental 913,208 913,208
Other assets 52,500 52,500
Noncurrent:
Receivables,net of allowance for uncollectibles:
Property taxes 375,589 375,589
Intergovernmental 4,566,040 4,566,040
Other assets 210,000 210,000
Capital assets:
Land and construction in progress 7,818,748 - 7,818,748
Other capital assets,net
of accumulated depreciation 93,813,400 6,053,305 99,866,705
TOTAL ASSETS 141,656,598 23,091,976 164,748,574
LIABILITIES
Current:
Warrants payable 1,699,249 - 1,699,249
Accounts payable 165,612 165,612
Accrued liabilities 1,082,711 - 1,082,711
Tax refunds payable 730,764 32,098 762,862
Taxes paid in advance 77,890 - 77,890
Notes payable 1,250,000 1,250,000
Other current liabilities 373,927 - 373,927
Current portion of long-term liabilities:
Bonds payable 5,485,000 502,424 5,987,424
Compensated absences 113,451 - 113,451
Noncurrent:
Bonds payable,net of current portion 33,880,000 3,225,444 37,105,444
Compensated absences,net of current portion 2,155,564 - 2,155,564
Accrued other post-employment benefits 19,598,501 451,509 20,050,010
TOTAL LIABILITIES 66,612,669 4,211,475 70,824,144
NET ASSETS
Invested in capital assets, net of related debt 66,365,490 5,292,429 71,657,919
Restricted for:
Grants and other statutory restrictions 4,561,699 - 4,561,699
Permanent funds:
Nonexpendable 985,986 985,986
Expendable 357,164 - 357,164
Unrestricted 2,773,590 13,588,072 16,361,662
TOTAL NET ASSETS $ 75,043,929 $ 18,880,501 $ 93,924,430
See notes to financial statements.
11
TOWN OF WATERTOWN,MASSACHUSETTS
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30,2012
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 $ 5,545,581 $ 928,788 $ 212,001 $ 890,374 $ (3,514,418) $ $ (3,514,418)
Public safety 18,893,963 3,163,201 339,455 - (15,391,307) (15,391,307)
Education 45,519,517 2,373,906 13,188,290 (29,957,321) (29,957,321)
Public works 9,730,870 130,092 104,288 (9,496,490) (9,496,490)
Health and human services 1,079,958 87,373 200,816 (791,769) (791,769)
Culture and recreation 4,108,935 780,798 311,235 (3,016,902) (3,016,902)
Employee benefits 29,797,601 - - (29,797,601) (29,797,601)
Intergovernmental 2,207,333 (2,207,333) (2,207,333)
Interest 1,312,808 (1,312,808) (1,312,808)
Miscellaneous 124,849 - - - (124,849) (124,849)
Total Governmental Activities 118,321,415 7,464,158 14,356,085 890,374 (95,610,798) - (95,610,798)
Business-Type Activities:
Water services 4,053,665 5,758,022 - - 1,704,357 1,704,357
Sewer services 7,028,812 8,452,225 243,000 1,666,413 1,666,413
Total Business-Type Activities 11,082,477 14,210,247 - 243,000 3,370,770 3,370,770
Total $ 129,403,892 $ 21,674,405 $ 14,356,085 $ 1,133,374 (95,610,798) 3,370,770 (92,240,028)
General Revenues and Transfers:
Property taxes 75,112,132 - 75,112,132
Excises 3,250,168 3,250,168
Penalties,interest and other taxes 2,854,453 2,854,453
Grants and contributions not restricted
to specific programs 8,651,423 - 8,651,423
Investment income 66,830 23,192 90,022
Miscellaneous 2,868,376 7,835 2,876,211
Transfers,net 2,558,163 (2,558,163) -
Total general revenues and transfers 95,361,545 (2,527,136) 92,834,409
Change in Net Assets (249,253) 843,634 594,381
Net Assets:
Beginning of year 75,293,182 18,036,867 93,330,049
End of year $ 75,043,929 $ 18,880,501 $ 93,924,430
See notes to financial statements.
12
TOWN OF WATERTOWN, MASSACHUSETTS
GOVERNMENTALFUNDS
BALANCE SHEET
JUNE 30, 2012
Nonmajor Total
Governmental Governmental
General Funds Funds
ASSETS
Cash and short-term investments $ 20,027,392 $ 9,996,464 $ 30,023,856
Investments 1,224,655 1,361,623 2,586,278
Receivables:
Property taxes 1,570,557 - 1,570,557
Excises 381,594 - 381,594
Departmental 56,555 - 56,555
TOTAL ASSETS $ 23,260,753 $ 11,358,087 $ 34,618,840
LIABILITIES AND FUND BALANCES
Liabilities:
Warrants payable $ 1,699,249 $ - $ 1,699,249
Accounts payable 165,612 - 165,612
Accrued liabilities 710,263 - 710,263
Deferred revenues 2,008,706 - 2,008,706
Tax refunds payable 730,764 - 730,764
Taxes paid in advance 77,890 77,890
Notes payable - 1,250,000 1,250,000
Other liabilities 373,927 - 373,927
TOTAL LIABILITIES 5,766,411 1,250,000 7,016,411
Fund Balances:
Nonspendable - 985,986 985,986
Restricted - 8,410,994 8,410,994
Committed 4,609,526 3,082,342 7,691,868
Assigned 3,254,263 - 3,254,263
Unassigned 9,630,553 (2,371,235) 7,259,318
TOTAL FUND BALANCES 17,494,342 10,108,087 27,602,429
TOTAL LIABILITIES AND FUND BALANCES $ 23,260,753 $ 11,358,087 $ 34,618,840
See notes to financial statements.
13
TOWN OF WATERTOWN, MASSACHUSETTS
RECONCILIATION OF TOTAL GOVERNMENTAL FUND
BALANCES TO NET ASSETS OF GOVERNMENTAL
ACTIVITIES IN THE STATEMENT OF NET ASSETS
JUNE 30, 2012
Total governmental fund balances $ 27,602,429
• Capital assets used in governmental activities are not financial
resources and, therefore, are not reported in the funds. 101,632,148
• Revenues are reported on the accrual basis of accounting
and are not deferred until collection. 1,672,568
• 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. 5,741,748
• In the statement of activities, interest is accrued on outstanding
long-term debt, whereas in governmental funds interest is not
reported until due. (372,448)
• Long-term liabilities, including bonds payable, are not due and
payable in the current period and, therefore, are not reported
in the governmental funds. (61,232,516)
Net assets of governmental activities $ 75,043,929
See notes to financial statements.
14
TOWN OF WATERTOWN, MASSACHUSETTS
GOVERNMENTALFUNDS
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
FOR THE YEAR ENDED JUNE 30,2012
Nonmajor Total
Governmental Governmental
General Funds Funds
Revenues:
Property taxes $ 75,093,524 $ $ 75,093,524
Excise taxes 3,266,136 3,266,136
Penalties, interest and other taxes 2,854,453 - 2,854,453
Charges for services 2,920,617 2,963,428 5,884,045
Intergovernmental 18,603,549 5,591,506 24,195,055
Licenses and permits 208,173 - 208,173
Departmental - 398,901 398,901
Fines and forfeitures 981,606 - 981,606
Investment income 61,570 5,260 66,830
Contributions - 616,035 616,035
Miscellaneous 1,753,092 1,115,283 2,868,375
Total Revenues 105,742,720 10,690,413 116,433,133
Expenditures:
Current:
General government 4,120,000 884,345 5,004,345
Public safety 14,706,360 1,768,753 16,475,113
Education 34,139,940 6,116,106 40,256,046
Public works 7,791,041 2,946,679 10,737,720
Health and human services 856,921 133,874 990,795
Culture and recreation 2,775,489 2,567,804 5,343,293
Pension 17,596,557 - 17,596,557
Employee benefits 12,201,043 12,201,043
Miscellaneous 124,849 124,849
Debt service 6,549,189 6,549,189
Intergovernmental 2,207,333 - 2,207,333
Total Expenditures 103,068,722 14,417,561 117,486,283
Excess(deficiency)of revenues
over expenditures 2,673,998 (3,727,148) (1,053,150)
Other Financing Sources(Uses):
Bond issuance - 3,722,000 3,722,000
Transfers in 3,037,263 1,976,844 5,014,107
Transfers out (1,537,090) (918,854) (2,455,944)
Total Other Financing Sources(Uses) 1,500,173 4,779,990 6,280,163
Change in fund balance 4,174,171 1,052,842 5,227,013
Fund Equity, at Beginning of Year 13,320,171 9,055,245 22,375,416
Fund Equity,at End of Year $ 17,494,342 $ 10,108,087 $ 27,602,429
See notes to financial statements.
15
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, 2012
NET CHANGES IN FUND BALANCES-TOTAL GOVERNMENTAL FUNDS $ 5,227,013
• 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 6,056,932
Depreciation (6,121,705)
• 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. (5,927)
• 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. (913,208)
• 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 5,183,000
Issuance of debt (3,722,000)
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. 53,381
• 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 207,789
OPEB liability (6,162,028)
CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ (249,253)
See notes to financial statements.
16
TOWN OF WATERTOWN, MASSACHUSETTS
GENERALFUND
STATEMENT OF REVENUES AND OTHER SOURCES,AND EXPENDITURES AND OTHER USES-BUDGET AND ACTUAL
FOR THE YEAR ENDED JUNE 30,2012
Budgeted Amounts Variance with
Final Budget
Original Final Actual Positive
Budget Budget Amounts (Negative)
Revenues and Other Sources:
Property taxes $ 73,959,633 $ 74,139,036 $ 74,139,036 $
Excise taxes 3,255,000 3,255,000 3,266,136 11,136
Interest,penalties,and other taxes 2,774,900 2,777,944 2,854,453 76,509
Charges for services 2,401,356 2,401,356 2,920,617 519,261
Intergovernmental 9,603,482 9,587,202 9,790,992 203,790
Licenses and permits 205,000 205,000 208,173 3,173
Fines and forfeitures 885,000 885,000 981,606 96,606
Interest earnings 100,000 100,000 46,295 (53,705)
Miscellaneous 548,466 1,558,199 1,753,092 194,893
Transfers in 3,503,163 3,537,263 3,537,263 -
Other sources 1,750,000 1,750,000 1,750,000 -
Total Revenues and Other Sources 98,986,000 100,196,000 101,247,663 1,051,663
Expenditures and Other Uses:
General government 4,973,538 4,785,942 4,422,369 363,573
Public safety 14,892,670 14,913,163 14,623,706 289,457
Education 34,140,000 34,140,000 34,139,940 60
Public works 8,908,650 8,632,860 7,821,723 811,137
Health and human services 886,221 933,709 862,284 71,425
Culture and recreation 2,772,059 2,825,058 2,799,853 25,205
Employee benefits 22,104,240 21,356,655 21,128,265 228,390
Debt service 7,163,595 6,603,595 6,549,189 54,406
Intergovernmental 2,211,777 2,211,377 2,207,333 4,044
Miscellaneous 64,750 64,750 62,277 2,473
Transfers out 868,500 3,728,891 3,728,891 -
Total Expenditures and Other Uses 98,986,000 100,196,000 98,345,830 1,850,170
Excess of revenues and other sources
over expenditures and other uses $ - $ - $ 2,901,833 $ 2,901,833
See notes to financial statements.
17
TOWN OF WATERTOWN, MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF NET ASSETS
JUNE 30,2012
Business-Type Activities-Enterprise Funds
Water Sewer
Fund Fund Total
ASSETS
Current:
Cash and short-term investments $ 3,597,219 $ 9,921,460 $ 13,518,679
User fees, net of allowance for uncollectibles 1,360,259 2,159,733 3,519,992
Total current assets 4,957,478 12,081,193 17,038,671
Noncurrent:
Capital assets:
Other capital assets, net
of accumulated depreciation 3,108,226 2,945,079 6,053,305
Total noncurrent assets 3,108,226 2,945,079 6,053,305
TOTAL ASSETS 8,065,704 15,026,272 23,091,976
LIABILITIES
Current:
Refunds payable 32,098 - 32,098
Current portion of long-term liabilities:
Bonds payable 248,212 254,212 502,424
Total current liabilities 280,310 254,212 534,522
Noncurrent:
Bonds payable 2,040,876 1,184,568 3,225,444
Accrued other post-employment benefits 314,169 137,340 451,509
Total noncurrent liabilities 2,355,045 1,321,908 3,676,953
TOTAL LIABILITIES 2,635,355 1,576,120 4,211,475
NET ASSETS
Invested in capital assets, net of related debt 1,463,597 3,828,832 5,292,429
Unrestricted 3,966,752 9,621,320 13,588,072
TOTAL NET ASSETS $ 5,430,349 $ 13,450,152 $ 18,880,501
See notes to financial statements.
18
TOWN OF WATERTOWN, MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS
FOR THE YEAR ENDED JUNE 30,2012
Business-Type Activities-Enterprise Funds
Water Sewer
Fund Fund Total
Operating Revenues:
Charges for services $ 5,758,022 $ 8,452,225 $ 14,210,247
Other 7,835 - 7,835
Total Operating Revenues 5,765,857 8,452,225 14,218,082
Operating Expenses:
Personnel expenses 873,552 347,459 1,221,011
Non-personnel 463,290 768,371 1,231,661
Intergovernmental assessments 2,658,769 5,542,951 8,201,720
Depreciation 20,666 332,643 353,309
Total Operating Expenses 4,016,277 6,991,424 11,007,701
Operating Income 1,749,580 1,460,801 3,210,381
Nonoperating Revenues(Expenses):
Intergovernmental revenue - 243,000 243,000
Investment income 6,445 16,747 23,192
Interest expense (37,388) (37,388) (74,776)
Total Nonoperating Revenues(Expenses), Net (30,943) 222,359 191,416
Income Before Transfers 1,718,637 1,683,160 3,401,797
Transfers:
Transfers out (1,308,092) (1,250,071) (2,558,163)
Change in Net Assets 410,545 433,089 843,634
Net Assets at Beginning of Year 5,019,804 13,017,063 18,036,867
Net Assets at End of Year $ 5,430,349 $ 13,450,152 $ 18,880,501
See notes to financial statements.
19
TOWN OF WATERTOWN, MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30,2012
Business-Type Activities-Enterprise Funds
Water Sewer
Fund Fund Total
Cash Flows From Operating Activities:
Receipts from customers and users $ 5,749,981 $ 8,459,827 $ 14,209,808
Payments to vendors and employees (1,235,439) (1,069,785) (2,305,224)
Payments to other governments (2,658,769) (5,542,951) (8,201,720)
Net Cash Provided By Operating Activities 1,855,773 1,847,091 3,702,864
Cash Flows From Noncapital Financing Activities:
Transfers out (1,308,092) (1,250,071) (2,558,163)
Intergovernmental receipt 243,000 243,000
Net Cash(Used For)Noncapital Financing Activities (1,308,092) (1,007,071) (2,315,163)
Cash Flows From Capital and Related Financina Activities:
Acquisition and construction of capital assets,net of disposals (987,765) (1,103,734) (2,091,499)
Proceeds from issuance of bonds and notes - 297,000 297,000
Interest expense (37,388) (37,388) (74,776)
Principal payments on bonds and notes (248,636) (194,813) (443,449)
Net Cash(Used for)Capital and Related Financing Activities (1,273,789) (1,038,935) (2,312,724)
Cash Flows From Investinq Activities:
Investment income 6,445 16,747 23,192
Net Cash Provided By Investing Activities 6,445 16,747 23,192
Net Change in Cash and Short-Term Investments (719,663) (182,168) (901,831)
Cash and Short-Term Investments, Beginning of Year 4,316,882 10,103,628 14,420,510
Cash and Short-Term Investments, End of Year $ 3,597,219 $ 9,921,460 $ 13,518,679
Reconciliation of Operatina Income to Net Cash
Provided by Operating Activities:
Operating income $ 1,749,580 $ 1,460,801 $ 3,210,381
Adjustments to reconcile operating income to net
cash provided by operating activities:
Depreciation 20,666 332,643 353,309
Changes in assets and liabilities:
User fees (15,876) 7,602 (8,274)
Other liabilities 101,403 46,045 147,448
Net Cash Provided By Operating Activities $ 1,855,773 $ 1,847,091 $ 3,702,864
See notes to financial statements.
20
TOWN OF WATERTOWN, MASSACHUSETTS
FIDUCIARY FUNDS
STATEMENT OF FIDUCIARY NET ASSETS
JUNE 30, 2012
Pension
Trust Fund Private
(As of Purpose Agency
December 31, 2011) Trust Funds Funds
ASSETS
Cash and short-term investments $ 250,655 $ 304,636 $ (46,433)
Investments 91,937,745 22,536 -
Accounts receivable 256,866 - 180,283
Total Assets 92,445,266 327,172 133,850
LIABILITIES AND NET ASSETS
Deferred revenue - - 180,283
Other liabilities 11,460 - (46,433)
Total Liabilities 11,460 - 133,850
NET ASSETS
Total net assets held in trust for
pension benefits and other purposes $ 92,433,806 $ 327,172 $ -
See notes to financial statements.
21
TOWN OF WATERTOWN, MASSACHUSETTS
FIDUCIARY FUNDS
STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS
FOR THE YEAR ENDED JUNE 30, 2012
Pension
Trust Fund Private
(For the Year Ended Purpose
December 31, 2011) Trust Funds
Additions:
Contributions:
Employers $ 8,965,000 $ -
Other systems and Commonwealth of Massachusetts 329,731 -
Plan members 2,498,070 -
Other 55,630 13,620
Total contributions 11,848,431 13,620
Investment Income:
Change in fair value of investments (656,722) 858
Less: management fees (487,491) -
Net investment income (1,144,213) 858
Total additions 10,704,218 14,478
Deductions:
Benefit payments to plan members and beneficiaries 10,796,547 -
Refunds to plan members 185,515 -
Administrative expenses 317,263 -
Other 139,671 23,629
Total deductions 11,438,996 23,629
Net increase (734,778) (9,151)
Net assets:
Beginning of year 93,168,584 336,323
End of year $ 92,433,806 $ 327,172
See notes to financial statements.
22
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
generally accepted accounting principles (GAAP) as applicable to govern-
mental 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. Governmental activities, which normally are supported by
taxes and intergovernmental revenues, are reported separately from
business-type activities, which rely to a significant extent on fees and
charges for support.
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
23
and contributions that are restricted to meeting the operational or capital
requirements of a particular function or segment. Taxes and other items
not properly included among program revenues are reported instead as
general 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 is the proprietary fund and fiduciary fund financial statements. Reve-
nues are recorded when earned and expenses are recorded when a liabil-
ity 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 eligi-
bility requirements imposed by the provider have been met. As a general
rule, the effect of interfund activity has been eliminated from the govern-
ment-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 considers
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 con-
sidered 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.
24
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 stand-
ards do not conflict with or contradict guidance of the Governmental
Accounting Standards Board. Governments also have the option of
following subsequent private-sector guidance for their business-type
activities and enterprise funds, subject to this same limitation. The gov-
ernment 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 pension trust fund accounts for the activities of the Employees
Contributory Retirement System, which accumulates resources for
pension benefit payments to qualified employees.
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.
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
25
the general fund. Certain special revenue, proprietary, and fiduciary 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 portion of
this pool is reflected on the combined financial statements under the cap-
tion "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.
Investments for the Contributory Retirement System and Trust Funds
consist of marketable securities, bonds, and short-term money market
investments. Investments are carried at market value.
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 2012 tax levy reflected an excess capacity of $ 6,291.
G. Capital Assets
Capital assets, which include property, plant, equipment, and infra-
structure assets (for enterprise funds only) 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 esti-
mated 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.
26
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 pro-
jects are constructed. Interest incurred during the construction phase of
capital assets of business-type activities is included as part of the capital-
ized value of the assets constructed.
Property, plant, and equipment 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 Obligations
In the government-wide financial statements, and proprietary fund types in
the fund financial statements, long-term debt, and other long-term obliga-
tions are reported as liabilities in the applicable governmental activities,
business-type activities, or proprietary fund type statement of net assets.
J. Fund Eauity
Fund equity at the governmental fund financial reporting level is classified
as "fund balance". Fund equity for all other reporting is classified as "net
assets".
Fund Balance - Generally, fund balance represents the difference
between the current assets and current liabilities. The Town reserves
those portions of fund balance that are legally segregated for a specific
future use or which do not represent available, spendable resources
and therefore, are not available for appropriation or expenditure.
27
Unassigned fund balance indicates that portion of fund balance that is
available for appropriation in future periods.
The Town's fund balance classification policies and procedures are as
follows:
1) Nonspendable funds are either unspendable in the current form
(i.e., inventory or prepaid items) or can never be spent (i.e., per-
petual care).
2) Restricted funds are used solely for the purpose in which the fund
was established. In the case of special revenue funds, these funds
are created by statute or otherwise have external constraints on
how the funds can be expended.
3) Committed funds are reported and expended as a result of motions
passed by the highest decision making authority in the government
(i.e., Town Council).
4) Assigned funds are used for specific purposes as established by
management. These funds, which include encumbrances, have
been assigned for specific goods and services ordered but not yet
paid for. This account also includes fund balance (free cash) voted
to be used in the subsequent fiscal year.
5) Unassigned funds are available to be spent in future periods.
When an expenditure is incurred that would qualify for payment from multi-
ple fund balance types, the Town uses the following order to liquidate
liabilities: restricted, committed, assigned, and unassigned.
Net Assets - Net assets represent the difference between assets and lia-
bilities. Net assets invested in capital assets, net of related debt, consist of
capital assets, net of accumulated depreciation, reduced by the outstand-
ing balances of any borrowing used for the acquisition, construction or
improvement of those assets. Net assets are reported as restricted when
there are limitations imposed on their use either through the enabling
legislation adopted by the Town or through external restrictions imposed
by creditors, grantors, or laws or regulations of other governments. All
other net assets are reported as unrestricted.
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.
28
2. Stewardship, Compliance, and Accountability
A. Budaetary 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 1 st. 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. Budaetary 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. Budpet/GAAP Reconciliation
The budgetary data for the general is based upon accounting principles 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 budgetary accounting
principles to provide a meaningful comparison to budgetary data.
29
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.
Revenues Expenditures
and Other and Other
General Fund Financinq Sources Financing Uses
Revenues/Expenditures
(GAAP basis) $ 105,742,720 $ 103,068,722
Other financing sources/uses
(GAAP basis) 3,037,263 1,537,090
Subtotal (GAAP Basis) 108,779,983 104,605,812
Adjust tax revenue to accrual basis (954,488) -
Reverse beginning of year
appropriation carryforwards
from expenditures - (1,303,195)
Add end-of-year appropriation
carryforwards from expenditures - 1,754,263
To record use of free cash 1,750,000 -
To reverse the effect of non-
budgeted State contributions
for teachers retirement (8,812,557) (8,812,557)
To remove unbudgeted
stabilization fund 484,725 2,191,801
To reverse other non-budgeted
reclassifications - (90,294)
Budgetary basis $ 101,247,663 $ 98,345,830
D. Deficit Fund Equity
The following funds had deficits as of June 30, 2012:
Special revenue funds:
Community Partnerships $ 2,068
Academic Support 666
Coord Family Community Engagement 24,142
Early Childhood Development 1,386
LEP Title III 3,964
SPED 94-142 406,564
SPED Professional Development 1,085
Teacher Quality 14,803
(continued)
30
(continued)
Title 1 29,889
Pep Grant 48,464
WHYP Grant 46,964
Ed Jobs 10,961
Title III LEP carryover 1,764
Green Community Street Lights Grant 96,413
MAPC DPH Grant 1,540
FY12 Supp & Incentive Grant 47,044
Organized Crime Drug Revolving 87,819
Capital project funds
Victory Field Renovation 1,191,616
Chapter 90 Orchard St. & Main St. 354,023
Chapter 90 Pavement Management 60
$ 2,371,235
The deficits in these funds will be eliminated through future departmental
revenues, bond proceeds, and transfers from other funds.
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 and Contributory Retirement System's
(the System) deposits may not be returned. Massachusetts General Law
Chapter 44, Section 55, limits the Town's deposits "in a bank or trust com-
pany 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 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 company." The Town and
System do not have a deposit policy for custodial credit risk.
As of June 30, 2012 and December 31, 2011, $ 26,775,834 and none of
the Town's and System's bank balances of $ 46,378,792 and $ 508,555,
respectively, were exposed to custodial credit risk as uninsured or
uncollateralized.
31
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
General Law, Chapter 44, Section 55, limits the Town's investments to
the top rating issued by at least one nationally recognized statistical rating
organization (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.):
Rating
Minimum Exempt as of
Fair Legal From Year End
Investment TVDe Value Rating Disclosure Aaa
U.S. Treasury notes $ 798 N/A $ - $ 798
Corporate equities 19 N/A 19 -
Mutual funds 513 N/A 513 -
Federal agency securities 1,279 - 1,279
Total investments $ 2,609 $ 532 $ 2,077
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
collateral 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
thousands):
Minimum Exempt
Fair Legal From
Investment TVDe Value Rating Disclosure
Corporate equities $ 13,040 N/A $ 13,040
Pooled domestic equities 12,000 N/A 12,000
Pooled international equities 12,425 12,425
Pooled global equity funds 13,520 13,520
Pooled domestic fixed income 18,406 N/A 18,406
Pooled global fixed income 2,558 2,558
Pooled alternative 3,157 3,157
Pooled real estate 8,656 N/A 8,656
PRIT Absolute 7,208 7,208
PRIT*fund 968 968
Total investments $ 91,938 $ 91,938
32
*Fair value is the same as the value of the pool share. The Pension Reserves Investment
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
System do not have policies for custodial credit risk.
All of the Town's investments of $ 2,608,814 are exposed to custodial
credit risk exposure because the related securities are uninsured, unreg-
istered and/or held by the Town's brokerage firm, which is also the Coun-
terparty to these securities. The Town manages this custodial credit risk
with SIPC, excess SIPC, and by maintaining investments in the Town's
name.
All of the System's investments of$ 91,937,745 are exposed to custodial
credit risk because the related securities are uninsured, unregistered
and/or held by the System's brokerage firm, which is also the Counter-
party to the securities. The System manages this risk with investing in
PRIT, having Securities Investor Protection Corporation (SIPC), excess
SIPC coverage and because the assets are 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:
% of
Total
Investment Issuer Amount Investments
Federal National Mtg. Assn. $ 791,418 30%
Federal Home Loan Mtg. Corp. 379,159 15%
Total $ 1,170,577
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.
33
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 and System do not have a
formal investment policy that limits investment maturities as a means of
managing its exposure to fair value losses arising from increasing interest
rates.
Information about the sensitivity of the fair values of the Town's investments
to market interest rate fluctuations is as follows:
Investment Maturities (in Years)
Fair Less More
Investment TVDe Value Than 1 1-5 6-10 Than 10
Debt Related Securities:
U.S. Treasury notes $ 798 $ - $ 798 $ - $ -
Federal agency securities 1,279 553 509 169 48
Total $ 2,077 $ 553 $ 1,307 $ 169 $ 48
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 and System
do not have policies for foreign currency risk.
5. Taxes Receivable
Real estate and personal property taxes are levied and based on values
assessed on January 1 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.
34
Taxes receivable at June 30, 2012 consist of the following (in thousands):
Property Taxes:
Real Estate
2012 $ 991
2011 (68)
Prior (2)
921
Personal Property
2012 48
2011 24
2010 15
2009 5
2008 3
Prior 1
96
Tax Liens 418
Deferred Taxes 136
Total Property Taxes $ 1,571
Excise Taxes:
Motor Vehicle Excise
2012 $ 225
2011 58
2010 33
2009 31
2008 31
378
Boat Excise 4
Total Excise Taxes $ 382
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-Tvpe
Property taxes $ 170 $ -
Excises $ 120 $ -
Utilities $ - $ 138
Other $ 46 $ -
35
7. Intergovernmental Receivables
This balance represents reimbursements requested from Federal and State
agencies for expenditures incurred in fiscal 2012, 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:
2013 $ 913,208
2014 913,208
2015 913,208
2016 913,208
2017 - 2019 1,826,416
Total $ 5,479,248
8. Capital Assets
Capital asset activity for the year ended June 30, 2012 was as follows (in
thousands):
Beginning Ending
Balance Increases Decreases Balance
Governmental Activities:
Capital assets, being depreciated:
Buildings and improvements $ 105,321 $ 3,189 $ - $ 108,510
Machinery, equipment, and furnishings 4,648 532 - 5,180
Infrastructure 41,494 9,959 - 51,453
Vehicles 8,764 570 (416) 8,918
Total capital assets, being depreciated 160,227 14,250 (416) 174,061
Less accumulated depreciation for:
Buildings and improvements (37,868) (3,932) - (41,800)
Machinery, equipment, and furnishings (1,830) (633) - (2,463)
Infrastructure (28,296) (1,020) - (29,316)
Vehicles (6,548) (537) 416 (6,669)
Total accumulated depreciation (74,542) (6,122) 416 (80,248)
Total capital assets, being depreciated, net 85,685 8,128 - 93,813
Capital assets, not being depreciated:
Land 7,629 - - 7,629
Construction in progress 8,383 189 (8,382) 190
Total capital assets, not being depreciated 16,012 189 (8,382) 7,819
Governmental activities capital assets, net $ 101,697 $ 8,317 $ (8,382) $ 101,632
36
Beginning Ending
Balance Increases Decreases Balance
Business-Type Activities:
Capital assets, being depreciated:
Machinery, equipment, and furnishings $ 1,718 $ 257 $ - $ 1,975
Infrastructure 10,874 3,083 - 13,957
Vehicles 947 - - 947
Total capital assets, being depreciated 13,539 3,340 - 16,879
Less accumulated depreciation for:
Machinery, equipment, and furnishings (1,235) (126) - (1,361)
Infrastructure (8,905) (119) - (9,024)
Vehicles (333) (108) - (441)
Total accumulated depreciation (10,473) (353) - (10,826)
Total capital assets, being depreciated, net 3,066 2,987 - 6,053
Capital assets, not being depreciated:
Construction in progress 1,249 - (1,249) -
Total capital assets, not being depreciated 1,249 - (1,249) -
Business-type activities capital assets, net $ 4,315 $ 2,987 $ (1,249) $ 6,053
Depreciation expense was charged to functions of the Town as follows (in
thousands):
Governmental Activities:
General government $ 215
Public safety 1,035
Education 2,252
Public works 1,689
Health and human services 87
Culture and recreation 844
Total depreciation expense - governmental activities $ 6,122
Business-Type Activities:
Water $ 21
Sewer 332
Total depreciation expense - business-type activities $ 353
9. Warrants and Accounts Pavable
Warrants payable represent 2012 expenditures paid by July 15, 2012.
Accounts payable represent 2012 expenditures paid after July 15, 2012.
37
10. Accrued Liabilities
This balance consists primarily of salaries earned but unpaid at June 30, 2012,
accrued interest on bonds, 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, 2012 receivable balances, except real and personal
property taxes that are accrued for subsequent 60-day collections.
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.
13. Lonq-Term Debt
A. General Obligation Bonds
The Town issues general obligation bonds to provide funds for the acquisi-
tion and construction of major capital facilities. General obligation bonds
have been issued for both governmental and business-type activities.
General obligation bonds currently outstanding are as follows:
Amount
Serial Outstanding
Maturities Interest as of
Governmental Activities: Through Rate(s) % 6/30/12
Municipal purpose FY 98 8/15/17 2.40% $ 2,362,200
Municipal purpose FY 99 8/15/17 2.40% 4,429,000
General obligation bonds 8/15/17 2.40% 2,141,800
General obligation bonds 3/15/18 3.33% 300,000
General obligation bonds 11/1/19 3.36% 445,000
General obligation bonds 11/1/24 3.98% 10,090,000
General obligation bonds 11/1/20 4.23% 1,220,000
General obligation bonds 7/15/28 4.00% 9,905,000
General obligation bonds 2/15/30 3.31% 4,750,000
General obligation bonds 6/15/27 1.80% 3,722,000
Total Governmental Activities: $ 39,365,000
38
Amount
Serial Outstanding
Maturities Interest as of
Business-Tvpe Activities: Throuah Rate(s) % 6/30/12
Sewer
Sewer bond (MWRA) 5/15/13 0.00% $ 58,828
Sewer bond (MWRA) 5/15/15 0.00% 182,952
General obligation bond 3/15/24 3.33% 900,000
Sewer bond (MWRA) 5/15/17 0.00% 297,000
Total Sewer: $ 1,438,780
Amount
Serial Outstanding
Maturities Interest as of
Business-Tvpe Activities: Throuah Rate(s) % 6/30/12
Water
Water bond (MWRA) 5/15/20 0.00% $ 1,389,088
General obligation bond 3/15/24 3.33% 900,000
Total Water: $ 2,289,088
Total Business-Type Activities: $ 3,727,868
B. Future Debt Service
The annual payments to retire all general obligation long-term debt
outstanding as of June 30, 2012 are as follows:
Governmental Principal Interest Total
2013 $ 5,485,000 $ 1,293,161 $ 6,778,161
2014 4,034,000 1,159,520 5,193,520
2015 3,964,000 1,045,709 5,009,709
2016 3,750,000 925,451 4,675,451
2017 3,348,000 812,195 4,160,195
2018 -2022 10,574,000 2,693,621 13,267,621
2023 -2027 6,580,000 981,706 7,561,706
2028 -2031 1,630,000 96,650 1,726,650
Total $ 39,365,000 $ 9,008,013 $ 48,373,013
Business-Tvpe Principal Interest Total
2013 $ 502,848 $ 70,125 $ 572,973
2014 444,020 64,125 508,145
2015 444,020 59,325 503,345
2016 383,036 54,075 437,111
2017 383,036 48,450 431,486
2018 - 2022 1,270,908 154,125 1,425,033
2023 - 2025 300,000 19,050 319,050
Total $ 3,727,868 $ 469,275 $ 4,197,143
39
C. Chancies in General Lona-Term Liabilities
During the year ended June 30, 2012, the following changes occurred in
long-term liabilities (in thousands):
Equals
Total Total Less Long-Term
Balance Balance Current Portion
7/1/11 Additions Reductions 6/30/12 Portion 6/30/12
Governmental Activities
Bonds payable $ 40,826 $ 3,722 $ (5,183) $ 39,365 $ (5,485) $ 33,880
Other:
Compensated absences 2,477 - (208) 2,269 (113) 2,156
Accrued other post-
employment benefits 13,436 6,163 - 19,599 - 19,599
Totals $ 56,739 $ 9,885 $ (5,391) $ 61,233 $ (5,598) $ 55,635
Business-Tvoe Activities
Bonds payable $ 3,874 $ 297 $ (443) $ 3,728 $ (503) $ 3,225
Other:
Accrued other post-
employment benefits 302 150 - 452 - 452
Totals $ 4,176 $ 447 $ (443) $ 4,180 $ (503) $ 3,677
14. 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.
15. Governmental Funds - Balances
Fund balances are segregated to account for resources that are either not
available for expenditure in the future or are legally set aside for a specific
future use.
The Town implemented GASB Statement No. 54 (GASB 54), Fund Balance
Reporting and Governmental Fund Type Definitions, which enhances the
usefulness of fund balance information by providing clearer fund balance
classifications that can be more consistently applied and by clarifying existing
governmental fund type definitions.
40
The following types of fund balances are reported at June 30, 2012:
Nonspendable - Represents amounts that cannot be spent because they
are either (a) not in spendable form or (b) legally or contractually required to
be maintained intact. This fund balance classification includes general fund
reserves for prepaid expenditures and nonmajor governmental fund reserves
for the principal portion of permanent trust funds.
Restricted - Represents amounts that are restricted to specific purposes by
constraints imposed by creditors, grantors, contributors, or laws or regulations
of other governments, or constraints imposed by law through constitutional
provisions or enabling legislation. This fund balance classification includes
general fund encumbrances funded by bond issuances, various special
revenue funds, and the income portion of permanent trust funds.
Committed - Represents amounts that can only be used for specific pur-
poses pursuant to constraints imposed by formal action of the Town's highest
level of decision-making authority. This fund balance classification includes
general fund encumbrances for non-lapsing, special article appropriations and
stabilization funds.
Assigned - Represents amounts that are constrained by the Town's intent to
use these resources for a specific purpose. This fund balance classification
includes general fund encumbrances that have been established by various
Town departments for the expenditure of current year budgetary financial
resources upon vendor performance in the subsequent budgetary period.
Unassigned - Represents amounts that are available to be spent in future
periods.
Following is a breakdown of the Town's fund balances at June 30, 2012:
Nonmajor Total
General Governmental Governmental
Fund Funds Funds
Nonspendable
Nonexpendable permanent funds $ - $ 985,986 $ 985,986
Total Nonspendable - 985,986 985,986
Restricted
Bonded projects - 2,561,699 2,561,699
Special revenue funds - 5,492,131 5,492,131
Expendable permanent funds - 357,164 357,164
Total Restricted - 8,410,994 8,410,994
(continued)
41
(continued)
Nonmajor Total
General Governmental Governmental
Fund Funds Funds
Committed
Stabilization 4,554,002 - 4,554,002
Continuing appropriations 55,524 - 55,524
Capital project funds - 3,082,342 3,082,342
Total Committed 4,609,526 3,082,342 7,691,868
Assigned
Encumbrances 1,754,263 - 1,754,263
Reserved for expenditures 1,500,000 - 1,500,000
Total Assigned 3,254,263 - 3,254,263
Unassigned 9,630,553 (2,371,235) 7,259,318
Total Unassigned 9,630,553 (2,371,235) 7,259,318
Total Fund Balances $ 17,494,342 $ 10,108,087 $ 27,602,429
16. General Fund Unassiqned Fund Balance
The unassigned 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
potential tax refunds, which is not recognized under UMAS.
The following summarizes the specific differences between GAAP basis and
budgetary basis of reporting the general fund unassigned fund balance:
GAAP basis balance $ 9,630,553
Tax refund estimate 730,764
Statutory (UMAS) Balance $ 10,361,317
17. Commitments and Continqencies
Outstandinq Leqal Issues - There are several pending legal issues 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 finan-
cial statements taken as a whole.
42
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.
18. Post-Employment Healthcare and Life Insurance Benefits
Other Post-Employment Benefits
GASB Statement 45, Accounting and Financial Reporting by Employers for
Post-Employment Benefits Other Than Pensions, 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 state-
ment 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.
A. Plan Description
In addition to providing the pension benefits described, the Town pro-
vides post-employment healthcare and life insurance benefits for retired
employees through the Town's plan. The benefits, benefit levels,
employee contributions, and employer contributions are governed by
Chapter 32 of the Massachusetts General Laws. As of June 30, 2011
the actuarial valuation date, approximately 792 retirees and 796 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. Fundinq 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.
43
D. Annual OPEB Costs and Net OPEB Obligation
The Town's fiscal 2012 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 actu-
arial liability over a period of thirty years. The following table shows the com-
ponents of the Town's annual OPEB cost for the year ending June 30, 2012,
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, 2011.
Annual Required Contribution (ARC) $ 10,337,248
Interest on net OPEB obligation 480,850
Adjustment to ARC (426,672)
Annual OPEB cost 10,391,426
Contributions made (4,079,987)
Increase in net OPEB obligation 6,311,439
Net OPEB obligation - beginning of year 13,738,571
Net OPEB obligation - end of year $ 20,050,010
The Town's annual OPEB cost, the percentage of annual OPEB cost
contributed to the plan, and the net OPEB obligation were as follows:
Percentage of
Annual OPEB OPEB Net OPEB
Fiscal year ended Cost Cost Contributed Obliqation
2012 $ 10,391,426 39% $ 20,050,010
2011 $ 9,911,519 42% $ 13,738,571
2010 $ 7,707,842 48% $ 7,946,627
2009 $ 7,352,363 47% $ 3,920,363
E. Funded Status and Funding Progress
The funded status of the plan as of June 20, 2011, the date of the most
recent actuarial valuation was as follows:
Actuarial accrued liability (AAL) $ 154,097,543
Actuarial value of plan assets -
Unfunded actuarial accrued liability (UAAL) $ 154,097,543
Funded ratio (actuarial value of plan assets/AAL) 0%
Covered payroll (active plan members) $ 51,273,922
UAAL as a percentage of covered payroll 301%
44
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 determined
regarding the funded status of the plan and the annual required contribu-
tions 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 supple-
mentary information following the Notes to the 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.
The Town has established an OPEB stabilization fund that reflects a
balance of$ 1,077,724 at June 30, 2012.
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 accrued
liabilities and the actuarial value of assets, consistent with the long-term
perspective of the calculations.
In the June 30, 2011 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 assump-
tions 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 8 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 pay-
ment increases at a rate of 4%.
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
45
the Watertown Contributory Retirement System (WCRS), a cost sharing,
multiple-employer defined benefit PERS. Eligible employees must partic-
ipate in the WCRS. The pension plan provides pension benefits, deferred
allowances, and death and disability benefits. Chapter 32 of the Massa-
chusetts 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 Sys-
tem issues a separate report to the Commonwealth's Public Employee
Retirement Administration Commission.
Membership of each plan consisted of the following at December 31, 2011:
Retirees and beneficiaries receiving benefits 407
Terminated plan members entitled to but not yet
receiving benefits 122
Active plan members 508
Total 1,037
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 earnings
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's 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%
2011 $ 8,608,733 100%
2012 $ 8,965,000 100%
46
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 at fair
value in accordance 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 (a) (b) (b-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%
01/01/08 $ 97,038 $ 140,549 $ 43,511 69.0% $ 24,655 176.5%
The Schedule of Funding Progress following the Notes to the Financial
Statements 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
$ 66.5 million was calculated. The actuarial assumptions included (a)
8% investment 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 (8.00%) and accounting for deposits and disburse-
ments 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, 2011, the
47
unfunded actuarially accrued liability is being amortized over 11 years
using an open group method.
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
participant'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 2012, the Commonwealth of Massachusetts contributed
$ 8,812,557 to the MTRS on behalf of the Town. This is included in the
education expenditures and intergovernmental revenues in the general fund.
20. 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.
21. Implementation of New GASB Standards
The GASB has issued Statement 68 Accounting and Financial Reporting for
Pensions, which is required to be implemented in fiscal year 2015. Manage-
ment's current assessment is that this pronouncement will have a significant
48
impact on the Town's basic financial statements by recognizing as a liability
and expense, the Town's applicable portion of the Town's actuarially accrued
liability.
49
TOWN OF WATERTOWN, MASSACHUSETTS
SCHEDULE OF FUNDING PROGRESS
REQUIRED SUPPLEMENTARY INFORMATION
June 30,2012
(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 ll 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 u (b) (b-a) (a/b) b-a/c
06/30/11 $ - $ 154,097,543 $ 154,097,543 0.0% $ 51,273,922 300.5%
06/30/09 $ - $ 118,381,044 $ 118,381,044 0.0% $ 42,074,967 281.4%
See Independent Auditors'Report.
50
TOWN OF WATERTOWN, MASSACHUSETTS
SCHEDULE OF REVENUES AND EXPENDITURES,
AND OTHER USES-BUDGET AND ACTUAL
WATER ENTERPRISE FUND
FOR THE YEAR ENDED JUNE 30,2012
Actual Variance
Original Revised (Budgetary Favorable
Budget Budget Basis (Unfavorable)
Revenues:
Current service charges $ 5,552,680 $ 5,552,680 $ 5,730,645 $ 177,965
Interest income - - 6,445 6,445
Total Revenues 5,552,680 5,552,680 5,737,090 184,410
Expenditures:
Personnel services 782,616 807,571 770,186 37,385
Supplies and materials 295,136 275,178 268,587 6,591
Charges and services 2,638,812 2,658,770 2,658,770 -
Capital outlay 207,000 207,000 205,958 1,042
Other 321,024 296,069 286,024 10,045
Transfers out 1,308,092 1,308,092 1,308,092 -
Total Expenditures and Other Uses 5,552,680 5,552,680 5,497,617 55,063
Excess of Revenues over Expenditures
and Other Uses $ - $ - $ 239,473 $ 239,473
See Independent Auditors'report.
51
TOWN OF WATERTOWN, MASSACHUSETTS
SCHEDULE OF REVENUES AND EXPENDITURES,
AND OTHER USES-BUDGET AND ACTUAL
SEWER ENTERPRISE FUND
FOR THE YEAR ENDED JUNE 30,2012
Actual Variance
Original Revised (Budgetary Favorable
Budget Budget Basis (Unfavorable)
Revenues:
Current service charges $ 8,762,498 $ 8,762,498 $ 8,443,837 $ (318,661)
Interest income - - 16,747 16,747
Total Revenues 8,762,498 8,762,498 8,460,584 (301,914)
Expenditures:
Personnel services 347,498 357,923 301,414 56,509
Supplies and materials 378,478 378,478 365,185 13,293
Charges and services 5,591,351 5,591,351 5,542,951 48,400
Capital outlay 962,900 952,475 940,698 11,777
Other 232,200 232,200 232,200 -
Transfers out 1,250,071 1,250,071 1,250,071 -
Total Expenditures and Other Uses 8,762,498 8,762,498 8,632,519 129,979
Excess of Revenues over Expenditures $ - $ - $ (171,935) $ (171,935)
and Other Uses
See Independent Auditors'report.
52