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Reset Form Michigan Department of Treasury 496 (02/06) Auditing Procedures Report Issued under P.A. 2 of 1968, as amended and P.A. 71 of 1919, as amended. Local Unit of Government Type County City Local Unit Name Twp Fiscal Year End Village Other County 3/31/06 LIVINGSTON CHARTER TOWNSHIP OF BRIGHTON Opinion Date Date Audit Report Submitted to State 6/1/06 8/1/06 We affirm that: We are certified public accountants licensed to practice in Michigan. NO YES We further affirm the following material, “no” responses have been disclosed in the financial statements, including the notes, or in the Management Letter (report of comments and recommendations). Check each applicable box below. (See instructions for further detail.) 1. All required component units/funds/agencies of the local unit are included in the financial statements and/or disclosed in the reporting entity notes to the financial statements as necessary. 2. There are no accumulated deficits in one or more of this unit’s unreserved fund balances/unrestricted net assets (P.A. 275 of 1980) or the local unit has not exceeded its budget for expenditures. 3. The local unit is in compliance with the Uniform Chart of Accounts issued by the Department of Treasury. 4. The local unit has adopted a budget for all required funds. 5. A public hearing on the budget was held in accordance with State statute. 6. The local unit has not violated the Municipal Finance Act, an order issued under the Emergency Municipal Loan Act, or other guidance as issued by the Local Audit and Finance Division. 7. The local unit has not been delinquent in distributing tax revenues that were collected for another taxing unit. 8. The local unit only holds deposits/investments that comply with statutory requirements. 9. The local unit has no illegal or unauthorized expenditures that came to our attention as defined in the Bulletin for Audits of Local Units of Government in Michigan, as revised (see Appendix H of Bulletin). 10. There are no indications of defalcation, fraud or embezzlement, which came to our attention during the course of our audit that have not been previously communicated to the Local Audit and Finance Division (LAFD). If there is such activity that has not been communicated, please submit a separate report under separate cover. 11. The local unit is free of repeated comments from previous years. 12. The audit opinion is UNQUALIFIED. 13. The local unit has complied with GASB 34 or GASB 34 as modified by MCGAA Statement #7 and other generally accepted accounting principles (GAAP). 14. The board or council approves all invoices prior to payment as required by charter or statute. 15. To our knowledge, bank reconciliations that were reviewed were performed timely. If a local unit of government (authorities and commissions included) is operating within the boundaries of the audited entity and is not included in this or any other audit report, nor do they obtain a stand-alone audit, please enclose the name(s), address(es), and a description(s) of the authority and/or commission. I, the undersigned, certify that this statement is complete and accurate in all respects. We have enclosed the following: Enclosed Not Required (enter a brief justification) Financial Statements The letter of Comments and Recommendations Other (Describe) Certified Public Accountant (Firm Name) Telephone Number PFEFFER, HANNIFORD & PALKA, P.C. 810-229-5550 Street Address City 225 E. GRAND RIVER, SUITE 104 Authorizing CPA Signature John M. Pfeffer, CPA BRIGHTON Printed Name Digitally signed by John M. Pfeffer, CPA DN: cn=John M. Pfeffer, CPA, c=US, o=Pfeffer, Hanniford & Palka, P.C. Date: 2006.08.01 12:25:07 -04'00' JOHN M. PFEFFER, CPA State MI Zip 48116 License Number 1101010018 CHARTER TOWNSHIP OF BRIGHTON REPORT ON AUDIT OF FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED MARCH 31, 2006 PFEFFER, HANNIFORD & PALKA Certified Public Accountants CHARTER TOWNSHIP OF BRIGHTON TOWNSHIP OFFICIALS Supervisor – H.E. “Bud” Prine Clerk - Ann Bollin Treasurer - Geri Harmon BOARD OF TRUSTEES Ann Bollin Cathy Doughty Geri Harmon Thomas Murphy H.E. “Bud” Prine J. Michael Slaton Timothy Winship TOWNSHIP ATTORNEY John K. Harris Harris & Literski TOWNSHIP AUDITORS Pfeffer, Hanniford & Palka Certified Public Accountants PFEFFER, HANNIFORD & PALKA Certified Public Accountants TABLE OF CONTENTS PAGE NUMBER INDEPENDENT AUDITORS' REPORT MANAGEMENT DISCUSSION AND ANALYSIS 9 BASIC FINANCIAL STATEMENTS GOVERNMENT - WIDE FINANCIAL STATEMENTS Statement of Net Assets Statement of Activities FUND FINANCIAL STATEMENTS Balance Sheet - Governmental Funds Reconciliation of Statement of Net Assets of Governmental Funds to the Balance Sheet Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Statement of Net Assets - Proprietary Funds Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Funds Statement of Cash Flows - Proprietary Funds Statement of Assets and Liabilities - Fiduciary Funds 17 18 20 21 22 23 24 25 26 27 NOTES TO FINANCIAL STATEMENTS 29 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Schedules of Pension Funding Progress (Unaudited) 48 49 PFEFFER, HANNIFORD & PALKA Certified Public Accountants TABLE OF CONTENTS PAGE NUMBER SUPPLEMENTARY INFORMATION COMBINING FINANCIAL STATEMENTS All Special Revenue Funds - Combining Balance Sheet All Enterprise Funds - Combining Balance Sheet All Agency Funds - Combining Balance Sheet All Special Revenue Funds - Combining Statement of Revenues, Expenditures and Changes in Fund Balances All Debt Service Funds - Combining Statement of Revenues, Expenditures and Changes in Fund Balances All Enterprise Funds - Combining Statement of Revenues, Expenses and Changes in Retained Earnings All Enterprise Funds - Combining Statement of Cash Flows 52 54 55 56 57 58 59 INDIVIDUAL FUNDS GENERAL FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Statement of Revenues - Budget and Actual Statement of Expenditures - Budget and Actual PARKS AND RECREATION FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance BUILDING DEPARTMENT FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Statement of Revenues - Budget and Actual BUDGET STABILIZATION FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual PFEFFER, HANNIFORD & PALKA Certified Public Accountants 62 63 64 65 72 73 75 76 77 79 80 TABLE OF CONTENTS PAGE NUMBER LIQUOR LAW ENFORCEMENT FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual ROAD IMPROVEMENT FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual STREET IMPROVEMENT FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual WOODLAND LAKE AQUATICS FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual CLARK LAKE AQUATICS FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual SUBDIVISION PAVING FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual STREETLIGHT FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual SANITATION FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual PFEFFER, HANNIFORD & PALKA Certified Public Accountants 82 83 85 86 88 89 91 92 94 95 97 98 100 101 103 104 TABLE OF CONTENTS PAGE NUMBER WOODLAND LAKE DEBT SERVICE FUND Statement of Revenues, Expenditures and Changes in Fund Balance WATER DEBT SERVICE FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual BUILDING AUTHORITY FUND Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual WATER FUND Balance Sheet Statement of Revenues, Expenses and Changes in Retained Earnings Statement of Cash Flows 106 108 109 111 112 114 115 116 SEWER FUND Balance Sheet Statement of Fund Equity Statement of Revenues and Expenses Statement of Cash Flows 118 119 120 121 TRUST AND AGENCY FUND Balance Sheet 123 CURRENT TAX COLLECTION FUND Balance Sheet 125 CONSTRUCTION ESCROW FUND Balance Sheet 127 PFEFFER, HANNIFORD & PALKA Certified Public Accountants June 1, 2006 Board of Trustees Charter Township of Brighton 4363 Buno Road Brighton, Michigan 48116 INDEPENDENT AUDITORS' REPORT Honorable Board of Trustees: We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Charter Township of Brighton, as of and for the year ended March 31, 2006, which collectively comprise the Charter Township of Brighton’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Charter Township of Brighton’s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Charter Township of Brighton, as of March 31, 2006, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. The Management’s Discussion and Analysis and other required supplementary information on pages 9 through 14 and 48 through 49 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. As discussed in Note 14, the Township’s sewer special assessments are considerably less than the debt obligation. The financial statements do not include any adjustments relating to the amounts and classification of liabilities that might be necessary if the Charter Township of Brighton is not able to meet its obligations as they come due. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Charter Township of Brighton’s basic financial statements. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplementary information, such as the combining and individual fund statements, have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The supplementary information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and accordingly, we express no opinion on them. PFEFFER, HANNIFORD & PALKA Certified Public Accountants MANAGEMENT DISCUSSION AND ANALYSIS PFEFFER, HANNIFORD & PALKA Certified Public Accountants Management Discussion and Analysis March 31, 2006 Within this section of the Charter Township of Brighton’s annual financial report, the Township’s management is providing a narrative discussion and analysis of the financial activities of the Township for the fiscal year ended March 31, 2006. This narrative discusses and analyzes the activity within the context of the accompanying financial statements and disclosures following this section. The discussion focuses on the Township’s primary government and, unless otherwise noted, component units reported separately from the primary government are not included. Overview of the Financial Statements Management’s Discussion and Analysis introduces the Township’s basic financial statements. The basic financial statements include government-wide financial statements, fund financial statements, and notes to the financial statements. The Township also includes in this report additional information to supplement the basic financial statements. Government-wide Financial Statements The Township’s annual reports include two government-wide financial statements. These statements provide both long-term and short-term information about the Township’s overall status. Financial reporting at this level uses a perspective similar to that found in the private sector with its basis in full accrual accounting and elimination or reclassification of internal activities. The first of these government-wide statements is the Statement of Net Assets. This is the Township-wide statement of position presenting information that includes all the Township’s assets and liabilities, with the difference reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Township as a whole is improving or deteriorating. Evaluation of the overall health of the Township may extend to various non-financial factors as well. The second government-wide statement is the Statement of Activities which reports how the Township’s net assets changed during the current fiscal year. The design of this statement is to show the financial reliance of the Township’s distinct activities or functions on the revenues generated by the Township. Both government-wide financial statements distinguish governmental activities of the Township that are principally supported by taxes and revenue sharing from the business-type activities that are intended to recover all or a significant portion of their costs through user fees and charges. Governmental activities include such activities as general government, public safety, and planning and zoning departments. Business-type activities include water & sewer system operations. Fiduciary activities such as tax collection are not included in the government-wide statements since these assets are not available to fund Township programs. The Township’s financial reporting includes all the funds of the Township (primary government) and, additionally, organizations for which the Township is accountable (component units). Fund Financial Statements A fund is an accountability unit used to maintain control over resources segregated for specific activities or objectives. The Township uses funds to ensure and demonstrate compliance with finance-related laws and regulations. Within the basic financial statements, fund financial statements focus on the Township’s most significant funds rather than the Township as a whole. Major funds are separately reported while all others are combined into a single, aggregated presentation. Individual fund data for non-major funds is provided in the combining statements later in this report. -9- The Township has three kinds of funds: Governmental funds are reported in the financial statements and encompass essentially the same functions as governmental activities in the government-wide financial statements except with a different focus on the financial activity. These statements report short-term fiscal accountability focusing on the use of spendable resources and balances of these resources available at the end of the year. They are useful in evaluating annual financing requirements of governmental programs and the commitment of spendable resources for the near-term. Since the focus of the government-wide financial statements includes a long-term view, a reconciliation of these fund balances has been completed to detail it’s relation to net assets. Proprietary funds are reported in the fund financial statements and are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises - where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes. Fiduciary funds are reported in the fiduciary fund financial statements, but are excluded from the government-wide statements. Fiduciary fund financial statements report resources that are not available to fund Township activities. Notes to the financial statements The accompanying notes to the financial statements provide information essential to a full understanding of both the government-wide and fund financial statements. Other information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information. Other supplementary information includes detail by fund for receivables, payables, transfers, and payments within the reporting entity. Major funds are reported in the basic financial statements as discussed. Combining and individual statements and schedules for non-major funds are presented in a subsequent section of this report. -10- Financial Analysis of the Township as a Whole The Township’s net assets at the end of the fiscal year were $30,408,660. This is a $13,531 increase over last year’s net assets of $30,395,129. The following tables provide a summary of the Township’s financial activities and changes in net assets: Summary of Net Assets Governmental Activities 3/31/05 3/31/06 Current and other assets Capital assets $ 11,467,460 4,396,641 $ Business - Type Activities 3/31/06 3/31/05 9,096,682 4,565,892 $ 17,878,656 29,115,396 $ 18,758,563 29,669,663 Total assets 15,864,101 13,662,574 46,994,052 48,428,226 Other liabilities Long-term liabilities 2,543,452 3,620,000 409,789 3,865,000 1,796,041 24,490,000 1,910,882 25,510,000 6,163,452 4,274,789 26,286,041 27,420,882 2,396,641 7,304,008 2,320,892 7,066,893 4,625,396 16,082,615 4,159,663 16,847,681 9,387,785 $ 20,708,011 $ 21,007,344 Total liabilities Net assets: Invested in capital assets, net of related debt Unrestricted Total net assets PFEFFER, HANNIFORD & PALKA Certified Public Accountants $ 9,700,649 $ Total 3/31/06 3/31/05 $ 29,346,106 33,512,037 $ 27,855,245 34,235,555 62,858,153 62,090,800 4,339,493 28,110,000 2,320,671 29,375,000 32,449,493 31,695,671 7,022,037 23,386,623 6,480,555 23,914,574 $ 30,408,660 $ 30,395,129 -11- Summary of Changes in Net Assets Business - Type Activities 3/31/06 3/31/05 Governmental Activities 3/31/05 3/31/06 REVENUES Program revenues Charges for services Operating contributions Capital contributions General revenues State shared revenues Property taxes Interest Gain on sale of assets Other $ Total revenues Expenses General government Public safety Recreation Public works/roads Interest on long-term debt Water and sewer systems Total expenses Changes in net assets before special item Special item - contingent liability Changes in net assets and special item Beginning net assets Ending net assets PFEFFER, HANNIFORD & PALKA Certified Public Accountants $ 944,214 537,560 $ 979,986 134,390 $ 814,916 $ 751,534 498,681 2,068,332 1,213,243 869,739 392,925 959,629 275,007 1,178,380 815,501 334,261 988,313 1,022,468 269,062 25 387 5,192,317 3,711,580 2,301,935 3,842,721 1,930,798 164,617 61,226 255,884 166,928 1,833,913 131,732 59,403 421,348 174,596 2,601,268 2,788,990 2,601,268 2,788,990 2,579,453 2,620,992 2,612,864 293,000 (2,300,000) 293,000 (299,333) 1,053,731 (299,333) 1,053,731 312,864 1,383,588 9,387,785 8,004,197 21,007,344 19,953,613 9,387,785 $ 20,708,011 $ 21,007,344 9,700,649 $ Total 3/31/06 3/31/05 $ 1,759,130 537,560 498,681 $ 1,731,520 134,390 2,068,332 1,213,243 869,739 1,381,238 959,629 275,032 1,178,380 815,501 1,356,729 7,494,252 7,554,301 1,930,798 164,617 61,226 255,884 166,928 2,601,268 1,833,913 131,732 59,403 421,348 174,596 2,788,990 5,180,721 5,409,982 2,313,531 2,144,319 (2,300,000) 269,449 293,000 13,531 2,437,319 30,395,129 27,957,810 $ 30,408,660 $ 30,395,129 -12- The governmental funds saw a significant increase in cash and cash equivalents in the governmental funds due to the sale of land in the Township. Substantial increase in liabilities were also present at March 31, 2006 pertaining to the environmental remediation litigation. With both this contingency and sale of Township property, the Township was still able to increase its net assets by $312,864. The business-type activities reported a decrease in net assets of $299,333. Revenues have decreased significantly from the prior fiscal year due to capital contributions from new connections and assessments. Financial Analysis of the Township’s Major Funds The Township’s General Fund increased its cash and cash equivalents by $1,302,950 yet reported expenditures over revenues of $1,044,875. This is primarily due to the collection of outstanding receivables and large accrual for an unpaid contingent liability totaling $2,300,000. The Township’s other governmental major fund, the Water Debt Service Fund, had revenues over expenditures totaling $967,110. This fund account for the sale of Township land earmarked for use in the Township’s participation in the Livingston Community Water Authority. The deficit in this fund was remedied with the sale of this land. The Township’s only major business-type fund, the Sewer Fund, reported a decrease in net assets of $295,415 and a decrease in cash and equivalents of $108,519. This system is fairly new in operations and is still adding users to its system. General Fund Budgetary Highlights The General Fund adopted its budget prior to the fiscal year in accordance with Public Act 493 of 2000. Total expenditures exceeded budgeted appropriations by $1,677,651 primarily due to the unbudgeted contingent liability booked pertaining to the environmental remediation litigation. Several immaterial budget amendments were made during the year to bring the budget closer to economic reality. Capital Asset and Debt Administration The governmental funds sold $1,024,200 of land during the year in both the General Fund and the Water Debt Service Fund. The General also finished the construction of the fence for the cemetery with the project totaling $21,200. The governmental funds issued no debt during the year, but paid $100,000 of principal on the bonds associated with the Township hall. No principal payments were required during the year for the bonds outstanding for the Township’s participation in the Livingston Community Water Authority. A total of $3,620,000 remains for all governmental fund debt. The business-type activities made $301,382 of improvement to their sewage treatment facility with funds held in the county’s construction funds. The sewage treatment facility is virtually complete and expects a tapering off of construction in future periods. The business-type funds sold $17,900,000 of bonds to partially defease the original series 2000. This refunding reduced total debt service payments over the next 14 years by nearly $1,053,000 with a present value of approximately $748,000. Total debt outstanding on business-type activities totaled $24,490,000 at fiscal year end. -13- Economic Conditions and Future Activities The Township anticipates some resolution or progress to be made in regards to the environmental remediation project with the State of Michigan. The Township is also continuing its efforts to add new users onto its sewage treatment facility. Currently, the business-type funds are not self-sufficient. However, by adding new users onto its system, future borrowings from the General Fund may not be necessary. Contacting the Township’s Financial Management This report is designed to provide a general overview of the Township’s financial position and comply with finance-related regulations. If you have any further questions about this report or request additional information please contact the Township manager at (810) 229-0550 or located at 4363 Buno Road, Brighton, Michigan 48114. -14- BASIC FINANCIAL STATEMENTS PFEFFER, HANNIFORD & PALKA Certified Public Accountants GOVERNMENT - WIDE FINANCIAL STATEMENTS PFEFFER, HANNIFORD & PALKA Certified Public Accountants CHARTER TOWNSHIP OF BRIGHTON STATEMENT OF NET ASSETS MARCH 31, 2006 Primary Government BusinessGovernmental type Activities Activities Total ASSETS ASSETS Cash and cash equivalents Cash and cash equivalents - restricted Receivables Taxes State shared revenues Intergovernmental Accounts Special assessments Prepaid expenditures Inventory Bond issuance - net of amortization Capital assets - net of depreciation $ 8,835,815 80,513 201,387 1,755,405 42,842 3,007,530 $ 8,878,657 3,007,530 4,396,641 3,000 585,643 13,648,508 12,646 73,060 505,427 29,115,396 80,513 201,387 1,758,405 585,643 14,191,436 64,058 73,060 505,427 33,512,037 15,864,101 46,994,052 62,858,153 83,593 42,581 68,113 49,165 2,300,000 94,540 178,133 42,581 68,113 1,750,666 2,300,000 542,928 51,412 Total assets $ LIABILITIES LIABILITIES Accounts payable Accrued wages/taxes Accrued interest payable Intergovernmental payable Contingent liability Bonds payable Current Noncurrent Total liabilities 1,701,501 140,000 3,480,000 1,465,000 23,025,000 1,605,000 26,505,000 6,163,452 26,286,041 32,449,493 2,396,641 7,304,008 4,625,396 16,082,615 7,022,037 23,386,623 9,700,649 $ 20,708,011 $ 30,408,660 NET ASSETS NET ASSETS Invested in capital assets, net of related debt Unrestricted Total net assets $ The notes are an integral part of the financial statements. PFEFFER, HANNIFORD & PALKA Certified Public Accountants -17- CHARTER TOWNSHIP OF BRIGHTON STATEMENT OF ACTIVITIES FOR THE YEAR ENDED MARCH 31, 2006 Program Revenues Functions/Programs Governmental activities General government Public works Recreation Roads Public safety Cemetery Interest on long-term debt Total governmental activities Business-type activities Sewer system Water system Total business-type activities Total Expenses $ (1,930,798) (166,485) (61,226) (68,829) (164,617) (20,570) (166,928) Charges for Services $ 765,929 172,117 Operating Contributions Capital Contributions $ $ 6,168 537,560 (2,579,453) 944,214 537,560 (2,454,828) (146,440) 745,416 69,500 494,817 3,864 (2,601,268) 814,916 498,681 $ (5,180,721) $ 1,759,130 $ 537,560 $ 498,681 General revenues Property taxes State shared revenues Interest income Rental income Franchise fees Gain on sale of assets Other income Total general revenues Changes in net assets before special item Special item – Contingent liability reversal Changes in net assets and special item Net assets, April 1, 2005 Net assets, March 31, 2006 The notes are an integral part of the financial statements. PFEFFER, HANNIFORD & PALKA Certified Public Accountants Net (Expenses) Revenues and Changes in Net Assets BusinessGovernmental type Activities Total Activities $ (1,164,869) 5,632 (61,226) 474,899 (164,617) (20,570) (166,928) $ $ (1,164,869) 5,632 (61,226) 474,899 (164,617) (20,570) (166,928) (1,097,679) (1,097,679) 869,739 1,213,243 392,925 86,500 167,834 959,629 20,673 (1,214,595) (73,076) (1,214,595) (73,076) (1,287,671) (1,287,671) 25 869,739 1,213,243 1,381,238 86,500 167,834 959,629 20,698 3,710,543 988,338 4,698,881 2,612,864 (299,333) 2,313,531 988,313 (2,300,000) (2,300,000) 312,864 (299,333) 13,531 9,387,785 21,007,344 30,395,129 $ 9,700,649 $20,708,011 $30,408,660 PFEFFER, HANNIFORD & PALKA Certified Public Accountants -18- FUND FINANCIAL STATEMENTS PFEFFER, HANNIFORD & PALKA Certified Public Accountants CHARTER TOWNSHIP OF BRIGHTON BALANCE SHEET GOVERNMENTAL FUNDS MARCH 31, 2006 General Water Debt Service Fund Other Nonmajor Funds Total ASSETS ASSETS Cash and cash equivalents Receivables Taxes Special assessments State shared revenues Due from other funds Prepaid expenditures Total assets $ 5,737,493 $ 852,441 $ 2,245,881 $ 80,513 46,165 10,653 80,513 542,928 201,387 1,755,405 51,412 $ 2,845,627 $ 11,467,460 $ 2,984 39,553 11,937 100,000 542,928 201,387 1,709,240 40,759 $ 7,769,392 $ $ 80,609 $ 852,441 8,835,815 LIABILITIES AND FUND BALANCE LIABILITIES Accounts payable Accrued interest payable Accrued wages and absences Matured bonds payable Due to other funds Contingent liability Deferred revenues 28,560 30,644 Total liabilities 2,460,418 FUND BALANCES Unreserved Reserved Debt service Public works 666,355 3,155,333 1,531,433 6,840,407 647,839 823,881 647,839 2,179,272 8,312,127 2,845,627 $ 11,467,460 823,881 5,308,974 $ The notes are an integral part of the financial statements. PFEFFER, HANNIFORD & PALKA Certified Public Accountants 28,560 5,308,974 Total fund balance Total liabilities and fund balances 511,881 83,593 68,113 42,581 100,000 49,165 2,300,000 511,881 49,165 2,300,000 -20- 7,769,392 823,882 $ 852,441 $ $ CHARTER TOWNSHIP OF BRIGHTON RECONCILIATION OF STATEMENT OF NET ASSETS OF GOVERNMENTAL FUNDS TO THE BALANCE SHEET MARCH 31, 2006 Amounts reported for governmental activities in the Statement of Net Assets are different because: Total fund balance per balance sheet $ 8,312,127 Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds: Historical cost Depreciation Capital assets, net of depreciation Some liabilities are not due and payable in the current period and therefore are not reported in the funds. These include: Bonds payable (long-term portion) Deferred revenues on special assessments was recognized as revenue in the government-wide statements. Assessments are income as they are assessed. Net assets of governmental activities 4,396,641 (3,520,000) 511,881 $ 9,700,649 The notes are an integral part of the financial statements. PFEFFER, HANNIFORD & PALKA Certified Public Accountants $ 6,292,389 (1,895,748) -21- CHARTER TOWNSHIP OF BRIGHTON STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED MARCH 31, 2006 General Water Debt Service Fund Other Nonmajor Funds Total REVENUES REVENUES Taxes Special assessments Intergovernmental – state Licenses and permits Rental income Charges for services Interest Cable franchise fees Contingent liability Miscellaneous $ $ $ 134,375 6,236 393,509 86,500 372,420 285,084 167,834 5,000 20,673 172,117 78,487 29,354 1,019,200 3,014,257 EXPENDITURES General government Public works Public safety Recreation Cemetery Road improvements/maintenance Debt service Contingency 1,048,554 1,469,195 56,846 89,562 61,226 31,240 51,063 Excess of revenues over (under) expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers (out) Total other financing sources (uses) Excess of revenues over (under) expenditures and other financing sources (uses) FUND BALANCE, APRIL 1, 2005 $ The notes are an integral part of the financial statements. -22- 869,739 134,375 1,213,243 393,509 86,500 544,537 392,925 167,834 1,024,200 20,673 784,724 4,847,535 373,691 109,639 37,026 1,842,886 166,485 126,588 61,226 31,240 68,829 277,519 2,300,000 81,444 17,766 196,075 4,059,132 81,444 734,197 (1,044,875) 967,110 50,527 (27,238) (196,074) 246,648 (50,574) 246,648 (246,648) (196,074) 196,074 2,300,000 Total expenditures PFEFFER, HANNIFORD & PALKA Certified Public Accountants $ 1,207,007 Total revenues FUND BALANCE, MARCH 31, 2006 869,739 (1,240,949) 967,110 6,549,923 (143,229) 5,308,974 $ 823,881 4,874,773 246,601 (27,238) 1,932,671 $ 2,179,272 8,339,365 $ 8,312,127 CHARTER TOWNSHIP OF BRIGHTON RECONCILIATION OF STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED MARCH 31, 2006 Amounts reported for governmental activities in the Statement of Activities are different because: Net change in fund balances - governmental funds $ Governmental funds report capital outlay as expenditures. However, in the Statement of Activities the cost of these assets is allocated over their useful lives as depreciation expense. The amount by which capital outlays exceeded depreciation is as follows: Capital outlay Depreciation expense Net capital assets $ (27,238) 11,200 (126,471) (115,271) Governmental funds record the sale of assets as revenues for the amount of the proceeds. However, in the Statement of Activities this amount is reported as a gain or loss on disposal by subtracting the net book value of asset sold: Net book value of sold assets (53,980) Repayment of bond and contracts payable is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Assets. Repayment of: Bonds payable 100,000 Principal received on special assessments are income as they are levied annually for governmental funds, but they are income when they are levied for the Statement of Activities. Special assessments levied Principal collected on assessments Net Change in net assets of governmental activities The notes are an integral part of the financial statements. PFEFFER, HANNIFORD & PALKA Certified Public Accountants -23- 537,650 (128,297) 409,353 $ 312,864 CHARTER TOWNSHIP OF BRIGHTON STATEMENT OF NET ASSETS PROPRIETARY FUNDS MARCH 31, 2006 Sewer Fund Nonmajor Fund Water Fund Total ASSETS Current assets Cash and cash equivalents Receivables Accounts Special assessments Due from other funds Prepaid expenses Inventory Bond issuance costs - net of amortization of $33,695 $ 3,013,666 $ 36,706 $ 3,050,372 546,994 12,646,868 3,000 12,287 73,060 505,427 38,649 1,001,640 16,801,302 1,077,354 17,878,656 Capital assets Land Utility systems 1,394,414 30,654,522 617 43,824 1,395,031 30,698,346 Net 32,048,936 44,441 32,093,377 (2,972,770) (5,211) (2,977,981) Capital assets, net 29,076,166 39,230 29,115,396 Total assets 45,877,468 1,116,584 46,994,052 10,104 658,551 70,151 24,490,000 14,285 1,042,950 24,389 1,701,501 70,151 24,490,000 25,228,806 1,057,235 26,286,041 4,586,166 16,062,496 39,230 20,119 4,625,396 16,082,615 59,349 $ 20,708,011 Total assets Less accumulated depreciation 359 585,643 13,648,508 3,000 12,646 73,060 505,427 LIABILITIES Current liabilities Accounts payable Due to other funds New connections - escrow funds Bonds payable Total liabilities NET ASSETS Net assets Invested in capital assets Unrestricted Total net assets $ 20,648,662 The notes are an integral part of the financial statements. PFEFFER, HANNIFORD & PALKA Certified Public Accountants -24- $ CHARTER TOWNSHIP OF BRIGHTON STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED MARCH 31, 2006 Nonmajor Fund Water Fund Sewer Fund OPERATING REVENUES Utility billings Other revenues $ Total operating revenues 740,717 4,699 $ 69,500 745,416 OPERATING EXPENSES Sludge removal Personnel and temporary services Telephone Per diems Contracted services Utilities Water purchases Depreciation Amortization Repairs and maintenance Supplies Postage Miscellaneous Professional fees Permit fees Insurance 11,347 2,934 4,059 560 221,727 78,921 Operating income (loss) NON-OPERATING REVENUES Interest income - special assessments Interest income - cash and equivalents Interest (expense) Miscellaneous income (expense) $ 810,217 4,699 814,916 1,106 3,490 2,196 48,548 8,847 63 181 614 1,405 150 1,417 11,347 2,934 4,059 560 232,114 78,921 55,804 855,649 33,695 30,933 33,103 181 1,720 4,895 2,346 49,965 1,318,262 79,964 1,398,226 10,387 55,804 1,096 854,553 33,695 22,086 33,040 Total operating expenses 69,500 Total (572,846) (10,464) (583,310) 833,974 85,206 (1,136,566) 66,476 2,657 (66,476) 25 900,450 87,863 (1,203,042) 25 Total non-operating revenues (expenses) (217,386) 2,682 (214,704) Loss before capital contribution (790,232) (7,782) (798,014) 431,983 62,834 3,864 435,847 62,834 494,817 3,864 498,681 (295,415) (3,918) (299,333) CAPITAL CONTRIBUTIONS Tap-in fees collected Inventory contribution Total capital contributions Change in net assets NET ASSETS, APRIL 1, 2005 20,944,077 NET ASSETS, MARCH 31, 2006 PFEFFER, HANNIFORD & PALKA Certified Public Accountants $ 20,648,662 -25- $ 63,267 21,007,344 59,349 $ 20,708,011 CHARTER TOWNSHIP OF BRIGHTON STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED MARCH 31, 2006 Sewer Fund CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Cash received from customers Cash payments to suppliers Cash payments to employees/temporary services Cash (used in) interfund transactions $ Net cash provided by (used in) operating activities CASH AND CASH EQUIVALENTS, APRIL 1, 2005 174,836 (66,476) 112,224 85,206 2,657 (108,519) (6,464) 3,122,185 $ $ 3,013,666 (572,846) 43,170 $ 36,706 $ (10,464) 854,553 33,695 1,096 25 (39,148) (1,490) (27,401) 6,250 (10,226) (217) 5,245 (16,624) 1,388 Total adjustments PFEFFER, HANNIFORD & PALKA Certified Public Accountants 3,864 (426,904) Net increase (decrease) in cash and cash equivalents The notes are an integral part of the financial statements. (121,345) (150,033) CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Interest earned Net cash and cash equivalents from (used in) operating activities 68,496 (81,897) (107,944) (139,122) 431,983 (2,556,566) 1,986,834 Net cash and cash equivalents from (used in) capital and related financing activities RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES Operating income (loss) Adjustments to reconcile operating income (loss) to net cash from (used in) operating activities Depreciation Amortization Other income Changes in assets and liabilities (Increase) in accounts receivable (Increase) in due from other funds (Increase) in due from county delinquents Decrease in due from county construction funds (Increase) in inventory (Increase) in prepaid expenses (Decrease) increase in accounts payable (Decrease) increase in due to other funds Increase in new connection escrow $ 233,179 CASH FLOWS FROM (USED IN) CAPITAL AND RELATED FINANCING ACTIVITIES Bond issuance costs Tap-in fees collected Payment on bonds Special assessment collections Payment on interfund loan Payment to county construction fund CASH AND CASH EQUIVALENTS, MARCH 31, 2006 924,712 (671,415) (3,494) (16,624) Nonmajor Fund Water Fund (7,549) 416 (19) 3,510 (108,360) 806,025 $ 233,179 (110,881) $ (121,345) Totals $ 993,208 (753,312) (3,494) (124,568) 111,834 (139,122) 435,847 (2,556,566) 2,161,670 (66,476) (150,033) (314,680) 87,863 (114,983) 3,165,355 $ $ 3,050,372 (583,310) 855,649 33,695 25 (46,697) (1,074) (27,401) 6,250 (10,226) (236) 8,755 (124,984) 1,388 695,144 $ 111,834 PFEFFER, HANNIFORD & PALKA Certified Public Accountants -26- CHARTER TOWNSHIP OF BRIGHTON STATEMENT OF ASSETS AND LIABILITIES FIDUCIARY FUNDS MARCH 31, 2006 Trust and Agency Current Tax Construction Escrow Totals ASSETS Cash $ 141,482 $ 6,199 $ 39,703 $ 187,384 $ 192 141,290 $ 6,199 $ 1,348 38,355 $ 7,739 179,645 $ 141,482 $ 6,199 $ 39,703 $ 187,384 LIABILITIES LIABILITIES Due to other funds Due to others Total liabilities The notes are an integral part of the financial statements. PFEFFER, HANNIFORD & PALKA Certified Public Accountants -27- NOTES TO FINANCIAL STATEMENTS PFEFFER, HANNIFORD & PALKA Certified Public Accountants CHARTER TOWNSHIP OF BRIGHTON NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of the Township conform to generally accepted accounting principles applicable to state and local governments. The more significant accounting policies of the Township are described below. A. BASIC FINANCIAL STATEMENTS In accordance with GASB Statement No. 34 - Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments, the basic financial statements include both government-wide and fund financial statements. The government-wide financial statements (Statement of Net Assets and Statement of Activities) report on the Township as a whole, excluding fiduciary activities. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. All activities, both governmental and business-type, are reported in the government-wide financial statements using the economic resources measurement focus and the accrual basis of accounting, which includes long-term assets and receivables as well as long-term debt and obligations. The government-wide financial statements focus more on the sustainability of the Township as an entity and the change in aggregate financial position resulting from the activities of the fiscal period. Generally, the effect of interfund activity has been removed from the government-wide financial statements. Net interfund activity and balances between governmental activities and business-type activities are shown in the government-wide financial statements. The government-wide Statement of Net Assets reports all financial and capital resources of the Township (excluding fiduciary funds). It is displayed in a format of assets less liabilities equals net assets, with the assets and liabilities shown in order of their relative liquidity. Net assets are required to be displayed in three components: 1) invested in capital assets, net of related debt, 2) restricted, and 3) unrestricted. Invested in capital assets, net of related debt is capital assets net of accumulated depreciation and reduced by outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted net assets are those with constraints placed on their use by either: 1) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations or other governments, or 2) imposed by law through constitutional provisions or enabling legislation. All net assets not otherwise classified as restricted, are shown as unrestricted. Generally the Township would first apply restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. PFEFFER, HANNIFORD & PALKA Certified Public Accountants -29- CHARTER TOWNSHIP OF BRIGHTON NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The Government-Wide Statement of Activities demonstrates the degree to which both direct and indirect expenses of the various functions and programs of the Township are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or identifiable activity. Indirect expenses for administrative overhead are allocated among the functions and activities using a full cost allocation approach and are presented separately to enhance comparability of direct expenses between governments that allocate direct expenses and those that do not. Interest on general long-term debt is not allocated to the various functions. Program revenues include: 1) charges to customers or users who purchase, use or directly benefit from goods, services or privileges provided by a particular function or program and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or program. Taxes, unrestricted investment income and other revenues not identifiable with particular functions or programs are included as general revenues. The general revenues support the net costs of the functions and programs not covered by program revenues. Also, part of the basic financial statements are fund financial statements for governmental funds and proprietary funds. The focus of the fund financial statements is on major funds, as defined by GASB Statement No. 34. Although this reporting model sets forth minimum criteria for determination of major funds (a percentage of assets, liabilities, revenues, or expenditures/expenses of fund category and of the governmental and enterprise funds combined), it also gives governments the option of displaying other funds as major funds. Other non-major funds, are combined in a single column on the fund financial statements. The Township reports the following major governmental funds: The General Fund is the Township’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 Water Debt Service Fund accounts for the activities related to the debt service for the Township’s participation in an area Water Authority. The Township reports the following major enterprise fund: The Sewer Fund accounts for the activities associated with operating the Township’s sewage treatment facility. PFEFFER, HANNIFORD & PALKA Certified Public Accountants -30- CHARTER TOWNSHIP OF BRIGHTON NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) B. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING The governmental fund financial statements are prepared on a current financial resources measurement focus and modified accrual basis of accounting. To conform to the modified accrual basis of accounting, certain modifications must be made to the accrual method. These modifications are outlined below: A. Revenue is recorded when it becomes both measurable and available (received within 60 days after year-end). Revenue considered susceptible to accrual includes: property taxes, sales and use taxes, transient occupancy taxes, licenses, fees and permits, intergovernmental revenues, charges for services, fines, forfeits and penalties, and interest. B. Expenditures are recorded when the related fund liability is incurred. Principal and interest on general long-term debt are recorded as fund liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early in the following year. C. Disbursements for the purchase of capital assets providing future benefits are considered expenditures. Bond proceeds are reported as another financing source. With this measurement focus, operating statements present increases and decreases in net current assets and unreserved fund balance as a measure of available resources. This is the traditional basis of accounting for governmental funds and also is the manner in which these funds are normally budgeted. This presentation is deemed most appropriate to: 1) demonstrate legal and covenant compliance, 2) demonstrate the sources and uses of liquid resources, and 3) demonstrate how the Township’s actual revenues and expenditures conform to the annual budget. Since the governmental funds financial statements are presented on a different basis than the governmental activities column of the government-wide financial statements, a reconciliation is provided immediately following each fund statement. These reconciliations briefly explain the adjustments necessary to transform the fund financial statements into the governmental activities column of the government-wide financial statements. PFEFFER, HANNIFORD & PALKA Certified Public Accountants -31- CHARTER TOWNSHIP OF BRIGHTON NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The proprietary funds financial statements are prepared on the same basis (economic resources measurement focus and accrual basis of accounting) as the government-wide financial statements. Therefore, most lines for the total enterprise funds on the proprietary funds financial statements will directly reconcile to the business-type activities column on the government-wide financial statements. Because the enterprise funds are combined into a single business-type activities column on the government-wide financial statements, certain interfund activities between these funds are eliminated in the consolidation for the government-wide financial statements, but are included in the fund columns in the proprietary funds financial statements. Enterprise funds account for operations where the intent of the Township is that the costs of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. Under GASB Statement No. 34, enterprise funds are also required for any activity whose principal revenue sources meet any of the following criteria: 1) any activity that has issued debt backed solely by the fees and charges of the activity, 2) if the cost of providing services for any activity, including capital costs such as depreciation or debt service, must legally be recovered through fees and charges of the activity, or 3) it is the policy of the Township to establish activity fees or charges to recover the cost of providing services, including capital costs. On the proprietary funds financial statements, operating revenues are those that flow directly from the operations of the activity, i.e. charges to customers or users who purchase or use the goods or services of that activity. Operating expenses are those that are incurred to provide those goods or services. Nonoperating revenues and expenses are items such as investment income and interest expense that are not a result of the direct operations of the activity. Under GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the Township has elected for proprietary funds not to apply Financial Accounting Standards Board statements issued after November 30, 1989. Fiduciary funds account for assets held by the Township in a trustee or agency capacity on behalf of others and, therefore, are not available to support Township programs. Fiduciary funds are not included in the government-wide financial statements as they are not an asset of the Township available to support Township programs. The Township currently maintains an agency fund to account for the monies collected and paid on behalf of developer’s escrow accounts. PFEFFER, HANNIFORD & PALKA Certified Public Accountants -32- CHARTER TOWNSHIP OF BRIGHTON NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. CAPITAL ASSETS Under GASB Statement No. 34, all capital assets, whether owned by governmental activities or business-type activities, are recorded and depreciated in the government-wide financial statements. No long-term capital assets or depreciation are shown in the governmental funds financial statements. Capital assets, including public domain infrastructure (e.g., roads, bridges, sidewalks and other assets that are immovable and of value only to the Township) are defined as assets with an initial, individual cost of more than $5,000) and an estimated useful life greater than one year. Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at the estimated fair market value at the date of donation. Real property are considered capital assets regardless of initial cost. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. Capital assets are depreciated using the straight-line method over the following estimated useful lives: Buildings, structures and improvements Utility plant Machinery and equipment Infrastructure 5 to 50 years 5 to 50 years 2 to 40 years 25 to 50 years Capital assets transferred between funds are transferred at their net book value (cost less accumulated depreciation), as of the date of the transfer. D. ACCRUED COMPENSATED ABSENCES The Township has recorded a liability for compensated absences of its employees. The policies regarding compensated absences are outlined in the Township’s “Rules of Employment”. E. BUDGETARY DATA The board of trustees follow the procedures as outlined in the Uniform Budgeting Manual for Local Units of Government in Michigan in the establishment of the various annual budgets. The Township manager prepares the annual budgets through information received by the clerk. The proposed budget is then submitted for discussion and approved by the entire Township board. The budget is approved by activity rather than line item. If and when it becomes necessary to amend certain amounts in the budget, a proposal outlining the desired changes is made to and approved by the Township board at any of their regular meetings. Budget appropriations made, but not expended by year end, will lapse with the fiscal year end. For the year ended March 31, 2006, expenditures exceeded appropriations in several line items. PFEFFER, HANNIFORD & PALKA Certified Public Accountants -33- CHARTER TOWNSHIP OF BRIGHTON NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) F. PROPERTY TAXES The Township’s property taxes are levied and become a lien on each December 1st based on the taxable valuation of property located in the Township as of the preceding December 31st. These taxes are due on February 14, with the final collection date of February 28. The Township recognized the amount levied December 1, 2005 as revenue for the year ended March 31, 2006. The 2005 adjusted taxable value totaled $ 949,473,689. Taxes levied consisted of .9103 mills for township operating purposes. The delinquent real property taxes of Charter Township of Brighton are purchased by Livingston County. The county sells tax notes, the proceeds of which will be used to pay the Township for these property taxes. G. MANAGEMENT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. H. INVESTMENTS Investments are stated at lower of cost or market. I. CASH EQUIVALENTS For purposes of the statement of cash flows, demand deposits and short-term investments with a maturity date of three months or less when acquired are considered to be cash equivalents. J. RISK MANAGEMENT The township is exposed to various risks of loss pertaining to property loss, torts, errors and omissions and employee injuries (workers’ compensation), as well as medical benefits provided to employees. The township has purchased commercial insurance for these claims. Settled claims related to the commercial insurance have not exceeded the amount of insurance coverage in any of the past three fiscal years. PFEFFER, HANNIFORD & PALKA Certified Public Accountants -34- CHARTER TOWNSHIP OF BRIGHTON NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) K. INVENTORIES AND PREPAID ITEMS Inventories are valued at cost. Cost is determined using the first-in, first-out method. Inventory consists of expendable supplies held for consumption. Inventories are capitalized under the consumption method, whereby expenditures are capitalized as inventory until used. L. CAPITALIZATION OF INTEREST A portion of the interest cost incurred on capital projects is capitalized on assets that require a period of time for construction or to otherwise prepare them for their intended use. Such amounts are amortized over the useful lives of the assets. M. INCOME TAXES As a governmental agency, the Township is exempt from both federal income taxes and Michigan Single Business Tax. NOTE 2 - DESCRIPTION OF REPORTING ENTITY In accordance with Governmental Accounting Standards Board (GASB) statement number 39, all funds, agencies, and activities of Charter Township of Brighton as the primary government have been included in the financial statements. Several potential component units have been evaluated under the criteria established by GASB statement number 39 and determined not to be component units based on financial independence and accountability. PFEFFER, HANNIFORD & PALKA Certified Public Accountants -35- CHARTER TOWNSHIP OF BRIGHTON NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 NOTE 3 - CHANGES IN CAPITAL ASSETS A summary of changes in governmental fund capital assets is as follows: Balance 4/01/05 Land Buildings and improvements Vehicles and equipment Construction in progress $ Accumulated depreciation Net book value 738,097 5,417,748 169,324 10,000 Additions $ $ 53,980 21,200 11,200 21,200 6,335,169 32,400 (75,180) (1,769,277) (126,471) $ 4,565,892 Related debt $ (94,071) Balance 3/31/06 Deletions $ 684,117 5,438,948 169,324 6,292,389 (1,895,748) $ (75,180) 4,396,641 (2,000,000) Investment in capital assets net of related debt $ 2,396,641 Depreciation expense in charged to the following activities in the governmental fund portion of Statement of Activities as follows: General government $ Public safety (fire) 38,029 Cemetery 530 $ PFEFFER, HANNIFORD & PALKA Certified Public Accountants 87,912 126,471 -36- CHARTER TOWNSHIP OF BRIGHTON NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 NOTE 3 - CHANGES IN CAPITAL ASSETS (continued) A summary of proprietary fund type property and equipment at March 31, 2006 is as follows: Water Fund Balance 4/01/05 Improvements Plant and collection system $ 43,824 Less accumulated depreciation Net Land Additions Retirements $ (4,115) Sewer Fund Balance 3/31/06 $ $ 43,824 (1,096) $ 39,709 $ $ 617 $ (1,096) Improvements Plant and collection system $ Less accumulated depreciation Net Land 43,824 Additions $ $ $ 38,613 $ $ 617 Balance 3/31/06 Retirements $ $ 43,824 30,353,140 301,382 30,654,522 (2,122,332) (855,649) (2,977,981) $ 28,274,632 $ $ $ PFEFFER, HANNIFORD & PALKA Certified Public Accountants 1,395,031 (554,267) $ (5,211) Total Balance 4/01/05 Balance 4/01/05 $ $ 27,720,365 $ $ -37- 1,395,031 Additions $ $ 30,353,140 301,382 (2,118,217) (854,553) $ 28,234,923 $ $ $ 1,394,414 Balance 3/31/06 Retirements (553,171) $ 30,654,522 (2,972,770) $ $ 27,681,752 $ $ 1,394,414 CHARTER TOWNSHIP OF BRIGHTON NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 NOTE 4 - INTERFUND RECEIVABLE AND PAYABLE BALANCES Interfund balances are generally short-term loans in nature. However, on August 28, 2002 the Township’s General Fund loaned the Water Fund $1,506,000 in order to hook up water services with the City of Brighton’s water system. This 15 year loan is being charged 6% with no debt service requirements until its maturity in 2017. The Water Fund will repay the loan to the general fund with special assessments collected and monies from water system operations. All other interfund receivable/payables are expected to be collected during the next fiscal year. NOTE 5 - EMPLOYEES’ RETIREMENT SYSTEM - DEFINED BENEFIT PLAN The Township switched pension plans from Manulife (a defined contribution plan) to the Municipal Employee’s Retirement System (MERS) (a defined benefit plan) effective March 15, 1998. The Township transferred $107,975 from Manulife to MERS. The following describes the MERS plan: Plan Description The Township is in an agent multi-employer-defined benefit pension plan with the Municipal Employees’ Retirement System (MERS), administered by the State of Michigan. Total Township payroll for the year ended March 31, 2006 was $769,963. MERS was organized pursuant to Section 12a of Act No. 156, Public Acts of 1851, (MSA 5.333(a); MCLA 46.12a), as amended, State of Michigan. MERS is regulated under Act No. 220 of the Public Acts of 1996, applicable sections of which have been approved by the State Pension Commission. Each member contributes five percent of his or her annual compensation. The percentage is selected by the member’s municipality. Any percent from 0 percent to 10 percent, in 0.1 percent increments, may be selected. If a member leaves the employ of the municipality, or dies, without a retirement allowance or other benefit payable on his or her account, his or her accumulated contributions will be refunded to same, if living, or to the nominated beneficiary. Benefits vest after 6 or more years of service, with rights to a deferred benefit commencing at age 60 (age 50 or 55 in certain cases). The Local Unit makes monthly contributions based on the annual actuarial valuations. Total contributions for the township for the year ended March 31, 2006 was $102,837. PFEFFER, HANNIFORD & PALKA Certified Public Accountants -38- CHARTER TOWNSHIP OF BRIGHTON NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 NOTE 5 - EMPLOYEES’ RETIREMENT SYSTEM - DEFINED BENEFIT PLAN (continued) At January 1, 2005, the unfunded pension benefit obligation was $146,129, determined as follows: Actuarial Accrued Liability Retirees and beneficiaries currently receiving benefits $ Terminated employees not yet receiving benefits (vested and non-vested) 334,970 282,284 Current employees Accumulated employee contributions including allocated investment income 95,549 Employer financed 262,184 Total actuarial accrued liability 974,987 Net assets available for benefits at actuarial value 828,858 Unfunded actuarial accrued liability $ 146,129 The Township’s annual required contribution was $43,412 as of December 31, 2004. The combined change in the pension benefit obligation resulting from benefit changes, if any, and revisions in actuarial assumptions is 0.053632. Total covered payroll for participants was $655,799. No information was currently available for the plan year ending December 31, 2005. NOTE 6 - LONG-TERM DEBT The following is a summary of the governmental fund long-term debt for the year: 1. Building Authority Bonds Payable, dated May 1, 1999, to finance construction costs of new fire station and the remodeling of township hall. Payable in annual installments ranging from $110,000 to $195,000 at its maturity in 2019, plus interest in semi-annual installments of 3.75% graduating to 5.00% at maturity. 2. Capital Improvement Bonds payable, dated November 1, 2003, to finance construction costs related to the new water distribution system. Payable in annual installments ranging from $40,000 to $115,000 at its maturity in 2028, plus interest in semi-annual installments of 2.75% graduating to 4.75% at maturity. PFEFFER, HANNIFORD & PALKA Certified Public Accountants -39- CHARTER TOWNSHIP OF BRIGHTON NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 NOTE 6 - LONG-TERM DEBT (continued) The changes in governmental fund long-term debt are as follows: Balance 4/01/05 BONDS PAYABLE Building Authority Bonds, Series 1999 $ 2,000,000 Capital Improvement Bonds, Series 2003 Total Bonds Payable Payments & Deductions Additions $ $ 100,000 1,620,000 $ 3,620,000 Balance 3/31/06 $ 1,900,000 1,620,000 $ $ 100,000 $ 3,520,000 The following is a schedule of principal and interest payments to service the governmental fund long-term debt of the Township: Bonds Payable Principal Interest 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010 2010 - 2011 20