HomeMy Public PortalAboutWatertown MA FS13 Final_201411251446353948 TOWN OF WATERTOWN, MASSACHUSETTS
Annual Financial Statements
For the Year Ended June 30, 2013
Town of Watertown, Massachusetts
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
MANAGEMENT'S DISCUSSION AND ANALYSIS 4
BASIC FINANCIAL STATEMENTS:
Government-Wide Financial Statements:
Statement of Net Position 12
Statement of Activities 13
Fund Financial Statements:
Governmental Funds:
Balance Sheet 14
Reconciliation of Total Governmental Fund Balances to
Net Position of Governmental Activities in the Statement
of Net Position 15
Statement of Revenues, Expenditures, and Changes
in Fund Balances 16
Reconciliation of the Statement of Revenues, Expenditures,
and Changes in Fund Balances of Governmental Funds to
the Statement of Activities 17
Statement of Revenues and Other Sources, and Expenditures
and Other Uses - Budget and Actual - General Fund 18
Proprietary Funds:
Statement of Net Position 19
Statement of Revenues, Expenses, and Changes in Fund
Net Position 20
Statement of Cash Flows 21
Fiduciary Funds:
Statement of Fiduciary Net Position 22
Statement of Changes in Fiduciary Net Position 23
Notes to Financial Statements 24
REQUIRED SUPPLEMENTARY INFORMATION:
Schedule of Funding Progress 52
OTHER SUPPLEMENTARY INFORMATION:
Schedule of Revenues and Expenditures, and Other Uses -
Budget and Actual - Water Enterprise Fund 53
Schedule of Revenues and Expenditures, and Other Uses -
Budget and Actual - Sewer Enterprise Fund 54
MELANSON HEATH & COMPANY. PC
CERTIFIED PUBLIC ACCOUNTANTS
MANAGEMENT ADVISORS
INDEPENDENT AUDITORS' REPORT
To the Town Manager and Town Council
Town of Watertown, Massachusetts
Report on the Financial Statements
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, MA, as of and for the year ended June 30,
2013, (except for the Watertown Contributory Retirement System which is as of and
for the year ended December 31, 2012), and the related notes to the financial state-
ments, which collectively comprise the Town of Watertown's basic financial state-
ments as listed in the Table of Contents.
Management's Responsibility for the Financial Statements
The Town's management is responsible for the preparation and fair presentation
of these financial statements in accordance with accounting principles generally
accepted in the United States of America; this includes the design, implementation,
and maintenance of internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatement, whether due to
fraud or error.
Auditor's Responsibility
Our responsibility is to express opinions on these financial statements based on
our audit. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America and the standards applicable to financial
audits contained in Government Auditing Standards, issued by the Comptroller
General of the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures in the financial statements. The procedures selected depend on the
auditor's judgment, including the assessment of the risks of material misstatement of
the financial statements, whether due to fraud or error. In making those risk assess-
102 Perimeter Road 149 Hanover Street 10 New England Business Center Drive,Suite 107 • 51 Davis Street,Suite 1 P.O.Box 646
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ments, the auditor considers internal control relevant to the entity's preparation and
fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opin-
ion on the effectiveness of the entity's internal control.Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of significant accounting estimates made
by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinions.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material
respects, the respective financial position of the governmental activities, the business-
type activities, each major fund, and the aggregate remaining fund information of the
Town of Watertown, as of June 30, 2013, (except for the Watertown Contributory
Retirement System which is as of and for the year ended December 31, 2012), 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 accordance with accounting principles generally accepted in the United States of
America.
Other Matters
Required Supplementary Information
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.
2
Other Information
Our audit was conducted for the purpose of forming opinions on the financial
statements that collectively comprise the Town's basic financial statements. The
accompanying supplementary information appearing on pages 53 through 54 is
presented for purposes of additional analysis and is 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.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report
dated February 28, 2014 on our consideration of the Town's internal control over
financial reporting and on our tests of its compliance with certain provisions of laws,
regulations, contracts, and grant agreements and other matters. The purpose of that
report is to describe the scope of our testing of internal control over financial
reporting and compliance and the results of that testing, and not to provide an
opinion on internal control over financial reporting or on compliance. That report is
an integral part of an audit performed in accordance with Government Auditing
Standards in considering Town's internal control over financial reporting and
compliance.
Andover, Massachusetts
February 28, 2014
3
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, 2013.
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 Position presents information on all assets and liabilities,
with the difference between the two reported as net position. Over time, increases
or decreases in net position 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 Town's net
position changed during the most recent fiscal year. All changes in net position
are reported as soon as the underlying event giving rise to the change occurs,
regardless of the timing of related cash flows. Thus, revenues and expenses are
reported in this statement for some items that will only result in cash flows in
future fiscal periods (e.g., 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.
4
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.
5
B. FINANCIAL HIGHLIGHTS
• As of the close of the current fiscal year, the total of assets exceeded liabil-
ities by $93,162,102 (i.e., net position), a change of$(499,828) in comparison
to the prior year.
• As of the close of the current fiscal year, governmental funds reported com-
bined ending fund balances of$29,000,305, a change of$1,397,876 in
comparison to the prior year.
• At the end of the current fiscal year, unassigned fund balance for the general
fund was $11,963,412, a change of$1,255,135 in comparison to the prior
year.
• Total long-term debt (i.e., bonds payable) at the close of the current fiscal
year was $38,605,020, a change of $(4,487,848) 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.
NET POSITION
Governmental Business-Type
Activities Activities Total
2013 2012 2013 2012 2013 2012
Current and other assets $ 43,889 $ 39,762 $ 18,581 $ 17,039 $ 62,470 $ 56,801
Capital assets 100,576 101,632 6,641 6,053 107,217 107,685
Total assets 144,465 141,394 25,222 23,092 169,687 164,486
Long-term liabilities outstanding 58,130 55,635 4,708 3,677 62,838 59,312
Other liabilities 13,062 10,978 625 534 13,687 11,512
Total liabilities 71,192 66,613 5,333 4,211 76,525 70,824
Net position:
Net investment in capital assets 68,928 66,365 5,365 5,293 74,293 71,658
Restricted 5,598 5,905 - - 5,598 5,905
Unrestricted (1,253) 2,511 14,524 13,588 13,271 16,099
Total net position $ 73,273 $ 74,781 $ 19,889 $ 18,881 $ 93,162 $ 93,662
6
CHANGES IN NET POSITION
Governmental Business-Type
Activities Activities Total
2013 2012 2013 2012 2013 2012
Revenues:
Program revenues:
Charges for services $ 8,285 $ 7,464 $ 14,716 $ 14,210 $ 23,001 $ 21,674
Operating grants and
contributions 14,257 14,356 - - 14,257 14,356
Capital grants and
contributions 1,532 890 - 243 1,532 1,133
General revenues:
Property taxes(including
penalties and interest) 77,558 75,112 - - 77,558 75,112
Excises 3,617 3,250 - - 3,617 3,250
Penalties and interest on
taxes 3,084 2,855 - - 3,084 2,855
Grants and contributions
not restricted to specific
programs 9,045 8,652 - - 9,045 8,652
Investment income 73 67 16 23 89 90
Other 1,902 2,868 10 8 1,912 2,876
Total revenues 119,353 115,514 14,742 14,484 134,095 129,998
Expenses:
General government 5,498 5,546 - - 5,498 5,546
Public safety 19,664 18,894 - - 19,664 18,894
Education 48,448 45,519 - - 48,448 45,519
Public works 9,740 9,731 - - 9,740 9,731
Human services 1,111 1,080 - - 1,111 1,080
Culture and recreation 4,234 4,109 - - 4,234 4,109
Employee benefits 31,044 29,797 - - 31,044 29,797
Intergovernmental 2,329 2,207 - - 2,329 2,207
Interest on long-term debt 1,251 1,261 - - 1,251 1,261
Miscellaneous 175 125 - - 175 125
Water services - - 4,344 4,053 4,344 4,053
Sewer services - - 6,757 7,029 6,757 7,029
Total expenses 123,494 118,269 11,101 11,082 134,595 129,351
Change in net position
before transfers (4,141) (2,755) 3,641 3,402 (500) 647
Transfers in (out) 2,633 2,558 (2,633) (2,558) - -
Change in net position (1,508) (197) 1,008 844 (500) 647
Net position-beginning of
year(as restated) 74,781 74,978 18,881 18,037 93,662 93,015
Net assets-end of year $ 73,273 $ 74,781 $ 19,889 $ 18,881 $ 93,162 $ 93,662
7
As noted earlier, net position 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
position was $93,162,102, a change of$(499,828) from the prior year.
The largest portion of net position $74,292,732 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 position $5,598,355 represents resources that are
subject to external restrictions on how they may be used. The remaining balance
of unrestricted net position $13,271,015 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 position of $(1,508,075). Key elements of this change are as
follows:
General fund operations, as discussed further
in Section D $ 3,572,061
Victory Field Renovation fund - accrual basis 16,320
Nonmajor funds - accrual basis 2,939,169
Depreciation expense in excess of principal
debt service (868,954)
Accrued other post-emplyment benefits (6,490,732)
MSBA receipt (913,208)
Other GAAP accruals 237,269
Total $ (1,508,075)
Business-tvae activities. Business-type activities for the year resulted in a
change in net position of$1,008,247. Key elements of this change are as follows:
Water operations $ 266,097
Sewer operations 742,150
Total $ 1,008,247
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.
8
Governmental funds. The focus of governmental funds is to provide information
on near-term inflows, outflows, and balances of spendable resources.
Such information is useful in assessing financing requirements. In particular,
unreserved fund balance may serve as a useful measure of a government's net
resources available for spending at the end of the fiscal year.
As of the end of the current fiscal year, governmental funds reported combined
ending fund balances of$29,000,305, a change of$1,397,876 in comparison to
the prior year. Key elements of this change are as follows:
General fund operating results $ 3,572,061
Streets, sidewalks repair fund deficit (956,091)
Victory Field Renovation fund deficit (8,660)
Nonmajor fund deficit (1,209,434)
Total $ 1,397,876
The general fund is the chief operating fund. At the end of the current fiscal year,
unassigned fund balance of the general fund was $11,963,412, while total fund
balance was $21,066,403. 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 6/30/13 6/30/12 Chance Fund Expenditures
Unassigned fund balance* $ 11,963,412 $ 10,708,277 $ 1,255,135 11.2%
Total fund balance $ 21,066,403 $ 17,494,342 $ 3,572,061 19.7%
'These figures include the Town's general stabilization funds
The total fund balance of the general fund changed by $3,572,061 during the
current fiscal year. Key factors in this change are as follows:
Revenue surplus $ 1,804,718
Appropriation turnbacks by departments 603,230
Property tax collection exceeding net tax levy 322,660
Current year encumbrances to be spent in the subsequent
year, over prior year encumbrances to be sent in the
current year 679,392
Use of free cash as a funding source (1,500,000)
Use of overlay surplus as a funding source (473,215)
Change in stabilization 2,436,328
Other reclassifications (301,052)
Total $ 3,572,061
9
Included in the total general fund balance are the Town's stabilization accounts
with the following balances:
6/30/13 6/30/12 Change
Stabilization $ 1,219,562 $ 1,224,655 $ (5,093)
Capital Project Stabilization 2,004,528 1,501,623 502,905
OPEB Stabilization 1,079,879 1,077,724 2,155
Unfunded Pension Stabilization 1,503,104 750,000 753,104
ESCO Capital Project Stabilization 473,257 - 473,257
Collective Bargaining Stabilization 710,000 - 710,000
Total $ 6,990,330 $ 4,554,002 $ 2,436,328
Proprietary funds. Proprietary funds provide the same type of information found
in the business-type activities reported in the government-wide financial state-
ments, but in more detail.
Unrestricted net position of the enterprise funds at the end of the year amounted
to $14,523,664, a change of $935,592 in comparison to the prior year.
Other factors concerning the finances of proprietary funds have already been
addressed in the entity-wide discussion of business-type activities.
E. GENERAL FUND BUDGETARY HIGHLIGHTS
Differences between the original budget and the final amended budget resulted
in an overall change in appropriations of $759,480. Major reasons for these
amendments include:
• $(1,084,177) reduction in the Town Council Reserve Fund
• $(18,130) general government appropriations and reclassifications
$105,000 increase in Public Safety appropriations
• $(451,523) decrease in Public Works appropriations
• $(74,143) decrease in Health and Human Services appropriations
• $67,011 increase in culture and recreation
• $(750,000) decrease in Employee Benefits appropriations
• $42,144 increase in debt service appropriations
• $(12) decrease in intergovernmental appropriations
• $270,520 increase in miscellaneous appropriations
• $2,652,790 increase in transfers
Of this increase, $286,357 was funded from property taxes, $473,215 from
Overlay Surplus, and a $(92) reduction in state aid.
10
F. CAPITAL ASSET AND DEBT ADMINISTRATION
Capital assets. Total investment in capital assets for governmental and business-
type activities at year-end amounted to $107,216,916 (net of accumulated depre-
ciation), a change of $(468,537) from the prior year. This investment in capital
assets includes land, buildings and system, improvements, and machinery and
equipment.
Major capital asset events during the current fiscal year included the following:
• Fire pumper purchase of $413,976
• Ongoing street and sidewalk improvements of $3,513,247
• Sewer mains of $966,438
Additional information on capital assets can be found in the Notes to the Financial
Statements.
Change in credit rating. The Town of Watertown maintained an "AA1" rating from
Standard & Poors for general obligation debt during fiscal year 2013. However, this
rating has been raised to AAA subsequent to year end. For additional information,
refer to Note 17 in the Notes to the Financial Statements.
Long-term debt. At the end of the current fiscal year, total bonded debt out-
standing was $38,605,020, 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
11
TOWN OF WATERTOWN,MASSACHUSETTS
STATEMENT OF NET POSITION
JUNE 30,2013
Governmental Business-Type
Activities Activities Total
ASSETS
Current:
Cash and short-term investments $ 35,021,274 $ 15,098,795 $ 50,120,069
Investments 2,575,698 - 2,575,698
Receivables,net of allowance for uncollectibles:
Property taxes 1,087,608 - 1,087,608
Excises 439,037 - 439,037
User fees - 3,482,270 3,482,270
Intergovernmental 913,208 - 913,208
Noncurrent:
Receivables,net of allowance for uncollectibles:
Property taxes 200,321 - 200,321
Intergovernmental 3,652,832 - 3,652,832
Capital assets:
Land and construction in progress 8,001,737 - 8,001,737
Other capital assets, net
of accumulated depreciation 92,573,976 6,641,203 99,215,179
TOTAL ASSETS 144,465,691 25,222,268 169,687,959
LIABILITIES
Current:
Warrants payable 2,324,840 - 2,324,840
Accounts payable 149,560 - 149,560
Accrued liabilities 1,249,724 - 1,249,724
Tax refunds payable 968,165 31,025 999,190
Notes payable 3,725,000 - 3,725,000
Other current liabilities 384,466 - 384,466
Current portion of long-term liabilities:
Bonds payable 4,034,000 594,020 4,628,020
Compensated absences 115,499 - 115,499
Noncurrent:
Bonds payable,net of current portion 29,846,000 4,131,000 33,977,000
Compensated absences,net of current portion 2,194,490 - 2,194,490
Accrued other post-employment benefits 26,089,233 577,475 26,666,708
DEFERRED INFLOWS OF RESOURCES 111,360 - 111,360
TOTAL LIABILITIES AND DEFERRED
INFLOWS OF RESOURCES 71,192,337 5,333,520 76,525,857
NET POSITION
Net investment in capital assets 68,927,648 5,365,084 74,292,732
Restricted for:
Grants and other statutory restrictions 4,219,132 - 4,219,132
Permanent funds:
Nonexpendable 993,686 - 993,686
Expendable 385,537 - 385,537
Unrestricted (1,252,649) 14,523,664 13,271,015
TOTAL NET POSITION $ 73,273,354 $ 19,888,748 $ 93,162,102
See notes to financial statements.
12
TOWN OF WATERTOWN,MASSACHUSETTS
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30,2013
Program Revenues Net(Expenses)Revenues and Changes in Net Position
Operating Capital Business-
Charges for Grants and Grants and Governmental Type
Expenses Services Contributions Contributions Activities Activities Total
Governmental Activities:
General government $ 5,498,044 $ 1,152,244 $ 201,083 $ $ (4,144,717) $ $ (4,144,717)
Public safety 19,663,630 3,656,498 259,518 (15,747,614) (15,747,614)
Education 48,447,464 2,347,916 13,343,178 - (32,756,370) (32,756,370)
Public works 9,740,063 176,442 104,913 1,532,139 (7,926,569) (7,926,569)
Health and human services 1,111,429 93,509 192,741 - (825,179) (825,179)
Culture and recreation 4,234,219 858,574 155,375 (3,220,270) (3,220,270)
Employee benefits 31,043,886 - - (31,043,886) (31,043,886)
Intergovernmental 2,329,458 (2,329,458) (2,329,458)
Interest 1,251,210 (1,251,210) (1,251,210)
Miscellaneous 174,662 - - - (174,662) (174,662)
Total Governmental Activities 123,494,065 8,285,183 14,256,808 1,532,139 (99,419,935) - (99,419,935)
Business-Type Activities:
Water services 4,343,932 5,961,650 - - 1,617,718 1,617,718
Sewer services 6,756,718 8,754,372 1,997,654 1,997,654
Total Business-Type Activities 11,100,650 14,716,022 - - 3,615,372 3,615,372
Total $ 134,594,715 $ 23,001,205 $ 14,256,808 $ 1,532,139 (99,419,935) 3,615,372 (95,804,563)
General Revenues and Transfers:
Property taxes 77,558,611 - 77,558,611
Excises 3,616,654 3,616,654
Penalties,interest and other taxes 3,084,024 3,084,024
Grants and contributions not restricted
to specific programs 9,045,319 - 9,045,319
Investment income 72,869 15,404 88,273
Miscellaneous 1,901,755 9,980 1,911,735
Transfers,net 2,632,628 (2,632,509) 119
Total general revenues and transfers 97,911,860 (2,607,125) 95,304,735
Change in Net Position (1,508,075) 1,008,247 (499,828)
Net Position:
Beginning of year,as restated 74,781,429 18,880,501 93,661,930
End of year $ 73,273,354 $ 19,888,748 $ 93,162,102
See notes to financial statements.
13
TOWN OF WATERTOWN, MASSACHUSETTS
GOVERNMENTALFUNDS
BALANCE SHEET
JUNE 30,2013
Streets, Victory Field Nonmajor Total
Sidewalks, Renovation Governmental Governmental
General Repair Fund Fund Funds Funds
ASSETS
Cash and short-term investments $ 24,718,509 $ 1,543,909 $ 24,724 $ 8,734,133 $ 35,021,275
Investments 1,219,562 - - 1,356,136 2,575,698
Receivables:
Property taxes 1,461,297 - - - 1,461,297
Excises 601,897 - - 601,897
Departmental 56,555 - - - 56,555
TOTAL ASSETS $ 28,057,820 $ 1,543,909 $ 24,724 $ 10,090,269 $ 39,716,722
LIABILITIES
Warrants payable $ 2,324,841 $ - $ - $ - $ 2,324,841
Accounts payable 149,560 - - 149,560
Accrued liabilities 933,276 - - 933,276
Tax refunds payable 968,165 - - 968,165
Notes payable - 2,500,000 1,225,000 3,725,000
Other liabilities 384,466 - - 384,466
TOTAL LIABILITIES 4,760,308 2,500,000 1,225,000 8,485,308
DEFERRED INFLOWS OF RESOURCES 2,231,109 - - - 2,231,109
FUND BALANCES
Nonspendable - - - 993,686 993,686
Restricted - - - 6,788,833 6,788,833
Committed 5,826,292 - - 3,311,765 9,138,057
Assigned 3,276,699 - - - 3,276,699
Unassigned 11,963,412 (956,091) (1,200,276) (1,004,015) 8,803,030
TOTAL FUND BALANCES 21,066,403 (956,091) (1,200,276) 10,090,269 29,000,305
TOTAL LIABILITIES, DEFERRED INFLOWS OF
RESOURCES AND FUND BALANCES $ 28,057,820 $ 1,543,909 $ 24,724 $ 10,090,269 $ 39,716,722
See notes to financial statements.
14
TOWN OF WATERTOWN, MASSACHUSETTS
RECONCILIATION OF TOTAL GOVERNMENTAL FUND
BALANCES TO NET POSITION OF GOVERNMENTAL
ACTIVITIES IN THE STATEMENT OF NET POSITION
JUNE 30, 2013
Total governmental fund balances $ 29,000,305
• Capital assets used in governmental activities are not financial
resources and, therefore, are not reported in the funds. 100,575,713
• Revenues are reported on the accrual basis of accounting
and are not deferred until collection. 1,726,965
• 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. 4,566,040
• In the statement of activities, interest is accrued on outstanding
long-term debt, whereas in governmental funds interest is not
reported until due. (316,447)
• Long-term liabilities, including bonds payable, are not due and
payable in the current period and, therefore, are not reported
in the governmental funds. (62,279,222)
Net position of governmental activities $ 73,273,354
See notes to financial statements.
15
TOWN OF WATERTOWN,MASSACHUSETTS
GOVERNMENTALFUNDS
STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES
FOR THE YEAR ENDED JUNE 30,2013
Streets, Victory Field Nonmajor Total
Sidewalks, Renovation Governmental Governmental
General Repair Fund Fund Funds Funds
Revenues:
Property taxes $ 77,671,450 $ $ $ $ 77,671,450
Excise taxes 3,438,770 3,438,770
Penalties,interest and other taxes 3,084,024 - 3,084,024
Charges for services 3,548,402 3,000,860 6,549,262
Intergovernmental 19,363,161 5,900,911 25,264,072
Licenses and permits 212,653 - 212,653
Departmental - 711,633 711,633
Fines and forfeitures 822,282 - 822,282
Investment income 67,089 5,779 72,868
Contributions - 483,403 483,403
Miscellaneous 669,962 1,231,795 1,901,757
Total Revenues 108,877,793 11,334,381 120,212,174
Expenditures:
Current:
General government 4,066,168 570,090 4,636,258
Public safety 15,150,144 1,840,676 16,990,820
Education 35,334,880 7,721,443 43,056,323
Public works 8,259,567 956,091 2,575,811 11,791,469
Health and human services 862,880 - - 266,875 1,129,755
Culture and recreation 2,898,692 33,660 576,764 3,509,116
Pension 18,578,910 - - 18,578,910
Employee benefits 12,464,977 12,464,977
Miscellaneous 167,629 167,629
Debt service 6,792,211 6,792,211
Intergovernmental 2,329,458 - - - 2,329,458
Total Expenditures 106,905,516 956,091 33,660 13,551,659 121,446,926
Excess(deficiency)of revenues
over expenditures 1,972,277 (956,091) (33,660) (2,217,278) (1,234,752)
Other Financing Sources(Uses):
Transfers in 3,007,509 25,000 1,537,835 4,570,344
Transfers out (1,407,725) - (529,991) (1,937,716)
Total Other Financing Sources(Uses) 1,599,784 25,000 1,007,844 2,632,628
Change in fund balance 3,572,061 (956,091) (8,660) (1,209,434) 1,397,876
Fund Equity,at Beginning of Year 17,494,342 (1,191,616) 11,299,703 27,602,429
Fund Equity,at End of Year $ 21,066,403 $ (956,091) $ (1,200,276) $ 10,090,269 $ 29,000,305
See notes to financial statements.
16
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, 2013
Net changes in fund balances -total governmental funds $ 1,397,876
• 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 5,304,552
Depreciation (6,353,954)
Loss on disposal of assets (7,033)
• 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. 54,397
• 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 position:
Repayments of debt 5,485,000
• In the statement of activities, interest is accrued on outstanding
long-term debt, whereas in governmental funds interest is not
reported until due. 56,001
• 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 (40,974)
OPEB liability (6,490,732)
Change in net position of governmental activities $ (1,508,075)
See notes to financial statements.
17
TOWN OF WATERTOWN,MASSACHUSETTS
GENERALFUND
STATEMENT OF REVENUES AND OTHER SOURCES,AND EXPENDITURES AND OTHER USES-BUDGET AND ACTUAL
FOR THE YEAR ENDED JUNE 30,2013
Budgeted Amounts Variance with
Final Budget
Original Final Actual Positive
Budget Budget Amounts (Negative)
Revenues and Other Sources:
Property taxes $ 77,062,433 $ 77,348,790 $ 77,348,790 $ -
Excise taxes 3,255,000 3,255,000 3,438,770 183,770
Interest, penalties,and other taxes 2,796,402 2,796,402 3,084,024 287,622
Charges for services 2,398,244 2,398,244 3,548,402 1,150,158
Intergovernmental 10,109,541 10,109,449 10,155,615 46,166
Licenses and permits 205,000 205,000 212,653 7,653
Fines and forfeitures 885,000 885,000 822,282 (62,718)
Interest earnings 65,000 65,000 63,976 (1,024)
Miscellaneous 476,871 476,871 669,962 193,091
Transfers in 3,507,509 3,507,509 3,507,509 -
Other sources 1,500,000 1,973,215 1,973,215 -
Total Revenues and Other Sources 102,261,000 103,020,480 104,825,198 1,804,718
Expenditures and Other Uses:
General government 5,489,805 4,387,498 4,207,623 179,875
Public safety 15,171,930 15,276,930 15,139,771 137,159
Education 35,335,000 35,335,000 35,334,880 120
Public works 8,961,930 8,510,407 8,340,378 170,029
Health and human services 976,001 901,858 870,929 30,929
Culture and recreation 2,868,704 2,935,715 2,861,058 74,657
Employee benefits 22,936,990 22,186,990 22,121,057 65,933
Debt service 6,783,342 6,825,486 6,792,211 33,275
Intergovernmental 2,239,573 2,239,561 2,329,458 (89,897)
Miscellaneous 90,000 360,520 359,370 1,150
Transfers out 1,407,725 4,060,515 4,060,515 -
Total Expenditures and Other Uses 102,261,000 103,020,480 102,417,250 603,230
Excess of revenues and other sources
over expenditures and other uses $ - $ - $ 2,407,948 $ 2,407,948
See notes to financial statements.
18
TOWN OF WATERTOWN, MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF NET POSITION
JUNE 30, 2013
Business-Type Activities- Enterprise Funds
Water Sewer
Fund Fund Total
ASSETS
Current:
Cash and short-term investments $ 5,407,066 $ 9,691,729 $ 15,098,795
User fees, net of allowance for uncollectibles 1,321,455 2,160,815 3,482,270
Total current assets 6,728,521 11,852,544 18,581,065
Noncurrent:
Capital assets:
Other capital assets, net
of accumulated depreciation 2,939,202 3,702,001 6,641,203
Total noncurrent assets 2,939,202 3,702,001 6,641,203
TOTAL ASSETS 9,667,723 15,554,545 25,222,268
LIABILITIES
Current:
Refunds payable 31,025 - 31,025
Current portion of long-term liabilities:
Bonds payable 248,636 345,384 594,020
Total current liabilities 279,661 345,384 625,045
Noncurrent:
Bonds payable 3,291,816 839,184 4,131,000
Accrued other post-employment benefits 399,800 177,675 577,475
Total noncurrent liabilities 3,691,616 1,016,859 4,708,475
TOTAL LIABILITIES 3,971,277 1,362,243 5,333,520
NET POSITION
Net investment in capital assets 1,465,614 3,899,470 5,365,084
Unrestricted 4,230,832 10,292,832 14,523,664
TOTAL NET POSITION $ 5,696,446 $ 14,192,302 $ 19,888,748
See notes to financial statements.
19
TOWN OF WATERTOWN, MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION
FOR THE YEAR ENDED JUNE 30,2013
Business-Type Activities-Enterprise Funds
Water Sewer
Fund Fund Total
Operating Revenues:
Charges for services $ 5,961,650 $ 8,754,372 $ 14,716,022
Other 9,980 - 9,980
Total Operating Revenues 5,971,630 8,754,372 14,726,002
Operating Expenses:
Personnel expenses 866,194 361,073 1,227,267
Non-personnel 348,184 611,885 960,069
Intergovernmental assessments 2,925,467 5,471,720 8,397,187
Depreciation 169,024 276,977 446,001
Total Operating Expenses 4,308,869 6,721,655 11,030,524
Operating Income 1,662,761 2,032,717 3,695,478
Nonoperating Revenues(Expenses):
Investment income 4,669 10,735 15,404
Interest expense (35,063) (35,063) (70,126)
Total Nonoperating Revenues(Expenses), Net (30,394) (24,328) (54,722)
Income Before Transfers 1,632,367 2,008,389 3,640,756
Transfers:
Transfers out (1,366,270) (1,266,239) (2,632,509)
Change in Net Position 266,097 742,150 1,008,247
Net Position at Beginning of Year 5,430,349 13,450,152 18,880,501
Net Position at End of Year $ 5,696,446 $ 14,192,302 $ 19,888,748
See notes to financial statements.
20
TOWN OF WATERTOWN,MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30,2013
Business-Type Activities-Enterprise Funds
Water Sewer
Fund Fund Total
Cash Flows From Operating Activities:
Receipts from customers and users $ 6,010,434 $ 8,753,290 $ 14,763,724
Payments to vendors and employees (1,129,820) (932,624) (2,062,444)
Payments to other governments (2,925,467) (5,471,720) (8,397,187)
Net Cash Provided By Operating Activities 1,955,147 2,348,946 4,304,093
Cash Flows From Noncapital Financing Activities:
Transfers out (1,366,270) (1,266,239) (2,632,509)
Net Cash(Used For)Noncapital Financing Activities (1,366,270) (1,266,239) (2,632,509)
Cash Flows From Capital and Related Financing Activities:
Acquisition and construction of capital assets,net of disposals - (1,033,898) (1,033,898)
Proceeds from issuance of bonds and notes 1,500,000 1,500,000
Interest expense (35,063) (35,063) (70,126)
Principal payments on bonds and notes (248,636) (254,212) (502,848)
Net Cash(Used for)Capital and Related Financing Activities 1,216,301 (1,323,173) (106,872)
Cash Flows From Investina Activities:
Investment income 4,669 10,735 15,404
Net Cash Provided By Investing Activities 4,669 10,735 15,404
Net Change in Cash and Short-Term Investments 1,809,847 (229,731) 1,580,116
Cash and Short-Term Investments, Beginning of Year 3,597,219 9,921,460 13,518,679
Cash and Short-Term Investments, End of Year $ 5,407,066 $ 9,691,729 $ 15,098,795
Reconciliation of Operating Income to Net Cash
Provided by Operatinq Activities:
Operating income $ 1,662,761 $ 2,032,717 $ 3,695,478
Adjustments to reconcile operating income to net
cash provided by operating activities:
Depreciation 169,024 276,977 446,001
Changes in assets and liabilities:
User fees 38,804 (1,082) 37,722
Other liabilities 84,558 40,334 124,892
Net Cash Provided By Operating Activities $ 1,955,147 $ 2,348,946 $ 4,304,093
See notes to financial statements.
21
TOWN OF WATERTOWN, MASSACHUSETTS
FIDUCIARY FUNDS
STATEMENT OF FIDUCIARY NET POSITION
JUNE 30, 2013
Pension
Trust Fund Private
(As of Purpose Agency
December 31, 2012) Trust Funds Funds
ASSETS
Cash and short-term investments $ 860,058 $ 353,643 $ (115,043)
Investments 103,390,523 21,442 -
Accounts receivable 966,182 - 227,414
Total Assets 105,216,763 375,085 112,371
LIABILITIES AND NET POSITION
Deferred revenue - - 227,414
Other liabilities 19,365 - (115,043)
Total Liabilities 19,365 - 112,371
NET POSITION
Total net position held in trust for
pension benefits and other purposes $ 105,197,398 $ 375,085 $ -
See notes to financial statements.
22
TOWN OF WATERTOWN, MASSACHUSETTS
FIDUCIARY FUNDS
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
FOR THE YEAR ENDED JUNE 30, 2013
Pension
Trust Fund Private
(For the Year Ended Purpose
December 31, 2012) Trust Funds
Additions:
Contributions:
Employers $ 9,585,898 $ -
Other systems and Commonwealth of Massachusetts 692,454 -
Plan members 2,761,552 -
Other 49,027 68,997
Total contributions 13,088,931 68,997
Investment Income:
Change in fair value of investments 12,107,065 522
Less: management fees (689,707) -
Net investment income 11,417,358 522
Total additions 24,506,289 69,519
Deductions:
Benefit payments to plan members and beneficiaries 11,224,016 -
Refunds to plan members 109,904 -
Administrative expenses 326,635 -
Other 82,142 21,606
Total deductions 11,742,697 21,606
Net increase 12,763,592 47,913
Net position:
Beginning of year 92,433,806 327,172
End of year $ 105,197,398 $ 375,085
See notes to financial statements.
23
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 Town 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
Position and the Statement of Activities) 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 inter-
governmental revenues, are reported separately from business-type activi-
ties, which rely to a significant extent on fees and charges for support.
The Statement of Activities demonstrates the degree to which the direct
expenses of a given function or segment are offset by program revenues.
Direct expenses are those that are clearly identifiable with a specific func-
tion or segment. Program revenues include (1) charges to customers or
applicants who purchase, use, or directly benefit from goods, services,
or privileges provided by a given function or segment and (2) grants and
contributions that are restricted to meeting the operational or capital
24
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 Town 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.
25
The Town 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.
• The streets, sidewalks repair fund reports activities related to the
repair of Town streets and sidewalks.
• The Victory Field Renovation fund reports activities related to the
renovation of Victory Field.
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.
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
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
26
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 2013 tax levy reflected an excess capacity of $27,370.
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 Town as assets
with an initial individual cost of more than $15,000 and an estimated useful
life in excess of two years. Such assets are recorded at historical cost or
estimated historical cost if purchased or constructed. Donated capital
assets are recorded at estimated fair market value at the date of donation.
The costs of normal maintenance and repairs that do not add to the value
of the asset or materially extend assets' lives are not capitalized.
Major outlays for capital assets and improvements are capitalized as pro-
jects are constructed. Interest incurred during the construction phase of
27
capital assets of business-type activities is included as part of the capital-
ized value of the assets constructed.
Capital assets are 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 Town'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 gov-
ernmental funds only if they have matured, for example, as a result of
employee resignations and retirements.
1. Lonp-Term Obliqations
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 Position.
J. Fund Equitv
Fund equity at the governmental fund financial reporting level is classified
as "fund balance". Fund equity for all other reporting is classified as "net
position".
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.
Unassigned fund balance indicates that portion of fund balance that is
available for appropriation in future periods.
28
The Town's fund balance classification policies and procedures are as
follows:
1) Nonsoendable 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) Assianed 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) Unassianed 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 Position - Net position represents the difference between assets/
deferred outflows and liabilities/deferred inflows. Net investment in capital
assets, consists of capital assets, net of accumulated depreciation, reduced
by the outstanding balances of any borrowing used for the acquisition,
construction or improvement of those assets. Net position is 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.
The remaining net position is 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.
29
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.
30
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 Financing Sources Financing Uses
Revenues/Expenditures
(GAAP basis) $ 108,877,793 $ 106,905,516
Other financing sources/uses
(GAAP basis) 3,007,509 1,407,725
Subtotal (GAAP Basis) 111,885,302 108,313,241
Adjust tax revenue to accrual basis (322,660) -
Reverse beginning of year
appropriation carryforwards
from expenditures - (1,097,307)
Add end-of-year appropriation
carryforwards from expenditures - 1,776,699
To record use of free cash 1,500,000 -
To record use of overlay surplus 473,215 To reverse the effect of non-
budgeted State contributions
for teachers retirement (9,207,546) (9,207,546)
To remove unbudgeted
stabilization fund 496,887 2,933,215
To reverse other non-budgeted
reclassifications - (301,052)
Budgetary basis $ 104,825,198 $ 102,417,250
D. Deficit Fund Eauity
The following funds had deficits as of June 30, 2013:
Special revenue funds:
Kindergarten $ (23,726)
SPED Circuit Breaker (565,913)
COORD Family Community Engagement (41,267)
Kindergarten Early Assessment (13,243)
Community Ed Umbrella (26,109)
LEP Title III (5,586)
Perkins (OC ED) (358)
(continued)
31
(continued)
Teacher Quality Title II (21,484)
Title 1 (12,065)
Title I Carryover (4,651)
WHYP (10,022)
Teaching American History (1,939)
Assistance to Firefighters Grant (4,352)
FY Support & Incentive Grant (29,225)
FY13 Training and EMD Grant (7,369)
FY13 Jail Diversion (18,845)
Capital project funds:
FY 13 Street & Sidewalk Loan (956,091)
Victory Field Renovation (1,200,276)
Ch 90-Waverly/Carroll (217,861)
$ (3,160,382)
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 for deposits is the risk that in the event of a bank failure,
the deposits may not be returned. The custodial credit risk for investments is
the risk that, in the event of a failure of the counterparty (e.g., broker-dealer)
to a transaction, a government will not be able to recover the value of its
investment or collateral securities that are in the possession of another party.
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, 2013 and December 31, 2012, $28,826,830 and $360,957 of the
Town's and System's bank balances of$52,783,624 and $1,093,978, respec-
tively, were exposed to custodial credit risk as uninsured or uncol lateral ized.
32
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 Tvpe Value Rating Disclosure Aaa
U.S. Treasury notes $ 1,048 N/A $ - $ 1,048
Corporate equities 29 N/A 29 -
Mutual funds 278 N/A 278 -
Federal agency securities 1,242 - 1,242
Total investments $ 2,597 $ 307 $ 2,290
Massachusetts General Law, Chapter 32, Section 23, limits the invest-
ment of System funds, to the extent not required for current disburse-
ments, in the PRIT Fund or in securities, other than mortgages or collat-
eral loans, which are legal for the investment of funds in savings banks
under the laws of the Commonwealth, provided that no more than the
established percentage of assets is invested in any one security.
Presented below is the actual rating as of year-end of the System (in
thousands):
Minimum Exempt
Fair Legal From
Investment Tvpe Value Rating Disclosure
Corporate equities $ 13,585 N/A $ 13,585
Pooled domestic equities 13,972 N/A 13,972
Pooled international equities 17,024 17,024
Pooled global equity funds 16,411 16,411
Pooled domestic fixed income 19,112 N/A 19,112
Pooled global fixed income 2,918 2,918
Pooled alternative 3,311 3,311
Pooled real estate 9,246 N/A 9,246
PRIT Absolute 7,811 7,811
Total investments $ 103,390 $ 103,390
33
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 $2,597,140 are exposed to custodial credit
risk exposure because the related securities are uninsured, unregistered
and/or held by the Town's brokerage firm, which is also the Counterparty 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$103,390,523 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 Counterparty 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. $ 1,019 39%
Total $ 1,019
Massachusetts General Law Chapter 32, Section 23 limits the amount the
System may invest in any one issuer or security type, with the exception of
the PRIT Fund. The System does not have an investment in one issuer
greater than 5% of total investments.
D. Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will
adversely affect the fair value of an investment. Generally, the longer
the maturity of an investment, the greater the sensitivity of its fair value
to changes in market interest rates. The Town 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.
34
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 Tvpe Value Than 1 1-5 6-10 Than 10
Debt Related Securities:
U.S. Treasury notes $ 1,048 $ 200 $ 848 $ - $ -
Federal agency securities 1,242 100 818 295 29
Total $ 2,290 $ 300 $ 1,666 $ 295 $ 29
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.
35
Taxes receivable at June 30, 2013 consist of the following (in thousands):
Property Taxes:
Real Estate
2013 $ 1,008
2012 (51)
2011 (51)
Prior (3)
903
Personal Property
2013 82
2012 32
2011 18
2010 14
2009 5
2008 3
154
Tax Liens 223
Deferred Taxes 181
Total Property Taxes $ 1,461
Excise Taxes:
Motor Vehicle Excise
2013 $ 429
2012 53
2011 29
2010 27
2009 29
2008 30
597
Boat Excise 5
Total Excise Taxes $ 602
6. Allowance for Doubtful Accounts
The receivables reported in the accompanying entity-wide financial state-
ments reflect the following estimated allowances for doubtful accounts (in
thousands):
Governmental Business-Type
Property taxes $ 173 $ -
Excises $ 163 $ -
Utilities $ - $ 122
Other $ 57 $ -
36
7. Intergovernmental Receivables
This balance represents reimbursements requested from Federal and State
agencies for expenditures incurred in fiscal 2013, 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 pay-
ments is as follows:
2014 $ 913,208
2015 913,208
2016 913,208
2017 913,208
2018 913,208
Total $ 4,566,040
8. Capital Assets
Capital asset activity for the year ended June 30, 2013 was as follows (in
thousands):
Beginning Ending
Balance Increases Decreases Balance
Governmental Activities:
Capital assets, being depreciated:
Buildings and improvements $ 108,510 $ 397 $ - $ 108,907
Machinery, equipment, and furnishings 5,180 440 - 5,620
Infrastructure 51,453 3,513 - 54,966
Vehicles 8,918 771 (1,298) 8,391
Total capital assets, being depreciated 174,061 5,121 (1,298) 177,884
Less accumulated depreciation for:
Buildings and improvements (41,800) (3,845) - (45,645)
Machinery, equipment, and furnishings (2,463) (686) - (3,149)
Infrastructure (29,316) (1,290) - (30,606)
Vehicles (6,669) (532) 1,291 (5,910)
Total accumulated depreciation (80,248) (6,353) 1,291 (85,310)
Total capital assets, being depreciated, net 93,813 (1,232) (7) 92,574
Capital assets, not being depreciated:
Land 7,629 350 - 7,979
Construction in progress 190 22 (189) 23
Total capital assets, not being depreciated 7,819 372 (189) 8,002
Governmental activities capital assets, net $ 101,632 $ (860) $ (196) $ 100,576
37
Beginning Ending
Balance Increases Decreases Balance
Business-Type Activities:
Capital assets, being depreciated:
Machinery, equipment, and furnishings $ 1,975 $ 9 $ - $ 1,984
Infrastructure 13,957 966 - 14,923
Vehicles 1,052 59 - 1,111
Total capital assets, being depreciated 16,984 1,034 - 18,018
Less accumulated depreciation for:
Machinery, equipment, and furnishings (1,361) (144) - (1,505)
Infrastructure (9,024) (205) - (9,229)
Vehicles (546) (97) - (643)
Total accumulated depreciation (10,931) (446) - (11,377)
Total capital assets, being depreciated, net 6,053 588 - 6,641
Capital assets, not being depreciated:
Construction in progress - - - -
Total capital assets, not being depreciated - - - -
Business-type activities capital assets, net $ 6,053 $ 588 $ - $ 6,641
Depreciation expense was charged to functions of the Town as follows (in
thousands):
Governmental Activities:
General government $ 241
Public safety 1,064
Education 2,262
Public works 1,949
Health and human services 91
Culture and recreation 746
Total depreciation expense - governmental activities $ 6,353
Business-Type Activities:
Water $ 169
Sewer 277
Total depreciation expense - business-type activities $ 446
9. Warrants and Accounts Pavable
Warrants payable represent 2013 expenditures paid by July 15, 2013.
Accounts payable represent 2013 expenditures paid after July 15, 2013.
38
10. Accrued Liabilities
This balance consists primarily of salaries earned but unpaid at June 30, 2013,
accrued interest on bonds, and other accrued liabilities.
11. 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.
12. 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: Throuah Rate(s) % 6/30/13
Municipal purpose FY 98 8/15/17 2.40% $ 1,940,800
Municipal purpose FY 99 8/15/17 2.40% 3,647,000
General obligation bonds 8/15/17 2.40% 1,707,200
General obligation bonds 3/15/18 3.33% 250,000
General obligation bonds 11/1/19 3.36% 345,000
General obligation bonds 11/1/24 3.98% 9,290,000
General obligation bonds 11/1/20 4.23% 1,040,000
General obligation bonds 7/15/28 4.00% 8,000,000
General obligation bonds 2/15/30 3.31% 4,405,000
General obligation bonds 6/15/27 1.80% 3,255,000
Total Governmental Activities: $ 33,880,000
39
Amount
Serial Outstanding
Maturities Interest as of
Business-Type Activities: Throuah Rate(s) % 6/30/13
Sewer
Sewer bond (MWRA) 5/15/15 0.00% $ 121,968
General obligation bond 3/15/24 3.33% 825,000
Sewer bond (MWRA) 5/15/17 0.00% 237,600
Total Sewer: 1,184,568
Amount
Serial Outstanding
Maturities Interest as of
Business-Tvae Activities: Throuah Rate(s) % 6/30/13
Water
Water bond (MWRA) 5/15/20 0.00% 1,215,452
General obligation bond 3/15/24 3.33% 825,000
Water bond (MWRA) 5/15/23 0.00% 1,500,000
Total Water: 3,540,452
Total Business-Type Activities: $ 4,725,020
B. Future Debt Service
The annual payments to retire all general obligation long-term debt
outstanding as of June 30, 2013 are as follows:
Governmental Principal Interest Total
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 3,174,000 705,658 3,879,658
2019 - 2023 9,045,000 2,309,763 11,354,763
2024 - 2028 5,645,000 719,794 6,364,794
2029 - 2033 920,000 36,763 956,763
Total $ 33,880,000 $ 7,714,853 $ 41,594,853
40
Business-Type Principal Interest Total
2014 $ 594,020 $ 64,125 $ 658,145
2015 594,020 59,325 653,345
2016 533,036 54,075 587,111
2017 533,036 48,450 581,486
2018 473,636 42,825 516,461
2019 - 2023 1,847,272 123,975 1,971,247
2024 - 2028 150,000 6,375 156,375
Total $ 4,725,020 $ 399,150 $ 5,124,170
C. Changes in General Lonp-Term Liabilities
During the year ended June 30, 2013, the following changes occurred in
long-term liabilities (in thousands):
Equals
Total Total Less Long-Term
Balance Balance Current Portion
7/1/12 Additions Reductions 6/30/13 Portion 6/30/13
Governmental Activities
Bonds payable $ 39,365 $ - $ (5,485) $ 33,880 $ (4,034) $ 29,846
Other:
Compensated absences 2,269 41 - 2,310 (116) 2,194
Accrued other post-
employment benefits 19,599 6,491 - 26,090 - 26,090
Totals $ 61,233 $ 6,532 $ (5,485) $ 62,280 $ (4,150) $ 58,130
Business-Type Activities
Bonds payable $ 3,728 $ 1,500 $ (503) $ 4,725 $ (594) $ 4,131
Other:
Accrued other post-
employment benefits 452 125 - 577 - 577
Totals $ 4,180 $ 1,625 $ (503) $ 5,302 $ (594) $ 4,708
13. Deferred Inflows of Resources
Deferred inflows of resources are the acquisition of net assets by the Town
that are applicable to future reporting periods. Deferred inflows of resources
have a negative effect on net position, similar to liabilities.
41
The following is a summary of deferred inflow of resources balances as of
June 30, 2013:
Entity-wide Basis Fund Basis
Governmental General
Activities Fund
Unearned revenue $ - $ 2,119,749
Taxes paid in advance 111,360 111,360
$ 111,360 $ 2,231,109
14. Restricted Net Position
The accompanying entity-wide financial statements report restricted net
position when external constraints from grantors or contributors are placed
on net position.
Permanent fund restricted net position is segregated between nonexpendable
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.
The following types of fund balances are reported at June 30, 2013:
Nonsr)endable - 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
42
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, 2013:
Streets, Victory Field Nonmajor Total
General Sidewalks, Renovation Governmental Governmental
Fund Repair Fund Fund Funds Funds
Nonspendable
Nonexpendable permanent funds $ $ $ $ 993,686 $ 993,686
Total Nonspendable 993,686 993,686
Restricted
Bonded projects 1,294,398 1,294,398
Special revenue funds 5,005,285 5,005,285
Expendable permanent funds 489,150 489,150
Total Restricted 6,788,833 6,788,833
Committed
NESWC/Capital project stabilization 2,004,529 - 2,004,529
OPEB stabilization 1,079,878 1,079,878
Unfunded pension stabilization 1,503,104 1,503,104
ESCO capital project stabilization 473,257 473,257
Collective bargaining stabilization 710,000 710,000
Continuing appropriations 55,524 - 55,524
Capital project funds - 3,311,765 3,311,765
Total Committed 5,826,292 3,311,765 9,138,057
Assigned
Encumbrances 1,776,699 - 1,776,699
Reserved for expenditures 1,500,000 1,500,000
Total Assigned 3,276,699 3,276,699
Unassigned
Special revenue funds - (786,154) (786,154)
Capital project funds - (956,091) (1,200,276) (217,861) (2,374,228)
General stabilization fund 1,219,562 1,219,562
General fund 10,743,850 10,743,850
Total Unassigned 11,963,412 (956,091) (1,200,276) (1,004,015) 8,803,030
Total Fund Balances $ 21,066,403 $ (956,091) $ (1,200,276) $ 10,090,269 $ 29,000,305
43
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 $ 11,963,412
Tax refund estimate 968,165
Less general stabilization (1,219,562)
Statutory (UMAS) Balance $ 11,712,015
17. Subsequent Events
Debt
Subsequent to June 30, 2013, the Town has incurred the following additional
debt:
Interest Issue Maturity
Amount Rate Date Date
General Obligation Bond $ 6,000,000 2.796% 11/07/13 04/15/33
On November 6, 2013, Standard & Poor's Ratings Services, a municipal bond
credit rating agency, upgraded the Town's long-term rating from AA+ to AAA,
the highest rating attainable. The rating agency cited the Town's very strong
economy, very strong budgetary flexibility, strong budgetary performance, with
consistent operating results in the general fund and total governmental funds,
very strong liquidity, providing very strong cash levels to cover both debt ser-
vice and expenditures, strong management conditions, with formal policy and
practices and very strong debt and contingent liabilities position, driven mostly
by the Town's low net direct debt, and plan to address its unfunded pension
and other post-employment benefits (OPEB) liabilities as positive factors.
18. Transfers
Transfers between Governmental Activities and Business-type Activities do
not offset by $119. This is due to transfers between Governmental Activities
and the Agency Funds.
44
19. Commitments and Continqencies
Outstanding 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.
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.
20. Post-Emplovment Healthcare and Life Insurance Benefits
Other Post-Emplovment 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 Position 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, 2013 the actuarial valuation
date, approximately 501 retirees and 869 active employees meet the eligi-
bility 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.
45
C. Funding Policv
Retirees contribute 20% for HMO and PPO Plans, 40% for indemnity plans
and 10% for Teachers retired before July 1, 2009, respectively, as deter-
mined by the Town. The Town contributes the remainder of the health
plan costs on a pay-as-you-go basis.
D. Annual OPEB Costs and Net OPEB Obliclation
The Town's fiscal 2013 annual OPEB expense is calculated based on
the annual required contribution of the employer (ARC), an amount
actuarially determined in accordance with the parameters of GASB
Statement No. 45. The ARC represents a level of funding that, if paid on
an ongoing basis, is projected to cover the normal cost per year and
amortize the unfunded actuarial liability over a period of thirty years.
The following table shows the components of the Town's annual OPEB
cost for the year ending June 30, 2013, 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, 2013.
Annual Required Contribution (ARC) $ 11,028,484
Interest on net OPEB obligation 701,750
Adjustment to ARC (622,683)
Annual OPEB cost 11,107,551
Contributions made (4,490,853)
Increase in net OPEB obligation 6,616,698
Net OPEB obligation - beginning of year 20,050,010
Net OPEB obligation - end of year $ 26,666,708
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
2013 $ 11,107,551 40% $ 26,666,708
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
46
E. Funded Status and Funding Progress
The funded status of the plan as of June 20, 2013, the date of the most
recent actuarial valuation was as follows:
Actuarial accrued liability (AAL) $ 163,903,670
Actuarial value of plan assets -
Unfunded actuarial accrued liability (UAAL) $ 163,903,670
Funded ratio (actuarial value of plan assets/AAL) 0%
Covered payroll (active plan members) $ 48,034,463
UAAL as a percentage of covered payroll 341.2%
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$1,079,878 at June 30, 2013.
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, 2013 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 8%, which decreases to a 5% long-term
rate for all healthcare benefits after 6 years. The amortization costs for
47
the initial UAAL is a level percentage of payroll for a period of 30 years,
on a closed basis. This has been calculated assuming the amortization
payment increases at a rate of 4%.
21. Contributory Retirement Svstem
The Town follows the provisions of GASB Statement No. 27, Accounting
for Pensions for State and Local Government Employees, (as amended by
GASB 50) with respect to the employees' retirement funds.
A. Plan Description and Contribution Information
Substantially all employees of the Town (except teachers and administra-
tors under contract employed by the School Department) are members of
the Watertown Contributory Retirement System (WCRS), a cost sharing,
multiple-employer defined benefit PERS. Eligible employees must 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, 2012:
Retirees and beneficiaries receiving benefits 402
Terminated plan members entitled to but not yet
receiving benefits 113
Active plan members 546
Total 1,061
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%
48
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%
2013 $ 9,335,898 100%
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) Lbj (b-a) (a/b LCI b-a /c
01/01/12 $ 101,677 $ 172,290 $ 70,613 59.0% $ 25,819 273.5%
01/01/11 $ 100,744 $ 159,248 $ 58,505 63.3% $ 25,004 234.0%
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%
49
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
$70.6 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, 2012, the
unfunded actuarially accrued liability is being amortized over 10 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.
50
In fiscal year 2013, the Commonwealth of Massachusetts contributed
$9,207,546 to the MTRS on behalf of the Town. This is included in the
education expenditures and intergovernmental revenues in the general fund.
22. 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 Town 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.
23. Beginninq Fund Balance Restatement
The beginning (July 1, 2012) fund balance of the Town has been restated as
follows:
Government-Wide Financial Statements:
Governmental
Activites
As previously reported $ 75,043,929
To remove bond issue costs as prescribed
by GASB 68 (262,500)
As restated $ 74,781,429
24. 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
impact on the Town's basic financial statements by recognizing as a liability
and expense, the Town's actuarially accrued liability.
51
TOWN OF WATERTOWN, MASSACHUSETTS
SCHEDULE OF FUNDING PROGRESS
REQUIRED SUPPLEMENTARY INFORMATION
June 30,2013
(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) LCI b-a/c
01/01/12 $ 101,677,187 $ 172,290,316 $ 70,613,129 59.0% $ 25,818,598 273.5%
01/01/11 $ 100,743,868 $ 159,248,369 $ 58,504,501 63.3% $ 25,004,201 234.0%
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 ll (b) (b-a) (a/b u b-a/c
06/30/13 $ - $ 163,903,670 $ 163,903,670 0.0% $ 48,034,463 341.2%
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.
52
TOWN OF WATERTOWN, MASSACHUSETTS
SCHEDULE OF REVENUES AND EXPENDITURES,
AND OTHER USES- BUDGET AND ACTUAL
WATER ENTERPRISE FUND
FOR THE YEAR ENDED JUNE 30, 2013
Actual Variance
Original Revised (Budgetary Favorable
Budget Budget Basis) (Unfavorable)
Revenues:
Current service charges $ 5,927,138 $ 5,927,138 $ 5,946,848 $ 19,710
Interest income - - 4,669 4,669
Total Revenues 5,927,138 5,927,138 5,951,517 24,379
Expenditures:
Personnel services 810,345 810,345 780,563 29,782
Supplies and materials 295,136 295,136 277,530 17,606
Charges and services 2,929,688 2,929,688 2,925,467 4,221
Capital outlay 207,000 207,000 206,693 307
Other 318,699 318,699 283,699 35,000
Transfers out 1,366,270 1,366,270 1,366,270 -
Total Expenditures and Other Uses 5,927,138 5,927,138 5,840,222 86,916
Excess of Revenues over Expenditures
and Other Uses $ - $ - $ 111,295 $ 111,295
See Independent Auditors'report.
53
TOWN OF WATERTOWN, MASSACHUSETTS
SCHEDULE OF REVENUES AND EXPENDITURES,
AND OTHER USES-BUDGET AND ACTUAL
SEWER ENTERPRISE FUND
FOR THE YEAR ENDED JUNE 30,2013
Actual Variance
Original Revised (Budgetary Favorable
Budget Budget Basis (Unfavorable)
Revenues:
Current service charges $ 8,781,796 $ 8,781,796 $ 8,702,447 $ (79,349)
Interest income - - 10,734 10,734
Total Revenues 8,781,796 8,781,796 8,713,181 (68,615)
Expenditures:
Personnel services 354,334 354,334 320,737 33,597
Supplies and materials 378,478 378,478 333,198 45,280
Charges and services 5,530,570 5,530,570 5,471,720 58,850
Capital outlay 962,900 612,900 590,591 22,309
Other 289,275 639,275 639,275 -
Transfers out 1,266,239 1,266,239 1,266,239 -
Total Expenditures and Other Uses 8,781,796 8,781,796 8,621,760 160,036
Excess of Revenues over Expenditures $ - $ - $ 91,421 $ 91,421
and Other Uses
See Independent Auditors'report.
54