Review the Comprehensive annual financial report (CAFR) you obtained.

4. Were any of the government's enterprise funds "profitable" during the year? If so for what has the government done with the earnings? Has it transferred them to the general fund?

5. Does the government have revenue bonds outstanding that are related to business-type activities? If so, for what activities?

6. Do the financial statements include a statement of cash flows for propriety funds? In how many categories are the cash flows presented? Is the statement on a direct or indirect basis?

Textbook:

1. Granof,M.H.&Khumawala,S.B.(2011). Government and Non-for-profit accounting: Concepts and practices.(5thed.) Hoboken, NJ: Wiley & Sons.

Comprehensive Annual Financial Report City of Middletown Connecticut Fiscal Year Ended June 30, 2015 Office of the Director of Finance Comprehensive Annual Financial Report of the City of Middletown Connecticut FISCAL YEAR ENDED JUNE 30, 2015 Carl Erlacher, CPA Director of Finance and Revenue Services CITY OF MIDDLETOWN, CONNECTICUT COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS JUNE 30, 2015 Introductory Section List of Principal Officials Organization of Middletown Government Letter of Transmittal Certificate of Achievement for Excellence in Financial Reporting Page i ii iii-xi xii Financial Section Independent Auditors' Report Management's Discussion and Analysis 1-3 4-11 Basic Financial Statements Exhibit I II III IV V VI VII VIII IX Government-Wide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Governmental Funds: Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balances Proprietary Funds: Statement of Net Position Statement of Revenues, Expenses and Changes in Fund Net Position Statement of Cash Flows Fiduciary Funds Statement of Net Position Statement of Changes in Plan Net Position - Pension Trust Funds Notes to the Financial Statements 12 13 14-15 16-17 18 19 20 21 22 23-59 Required Supplementary Information RSI-1 RSI-2 RSI-3 RSI-4 RSI-5 RSI-6 General Fund: Schedule of Revenues and Other Financing Sources Schedule of Expenditures and Other Financing Uses Pension Trust Fund: Schedule of Changes in Net Pension Liability and Related Ratios Schedule of Employer Contributions Schedule of Investment Returns Schedule of the City's Proportionate Share of Net Pension Liability Teachers Retirement Plan 60 61-62 63 64 65 66 Exhibit Page Supplemental, Combining and Individual Fund Statements and Schedules A-1 A-2 B-1 B-2 B-3 General Fund: Comparative Balance Sheet Report of Tax Collector 67 68 Nonmajor Governmental Funds: Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances Special Revenue Funds: Combining Schedule of Revenues and Expenditures - Actual and Budget 69-71 72-74 75-77 C Capital Projects Fund: Schedule of Project Authorizations and Expenditures 78 D-1 D-2 D-3 Internal Service Funds: Combining Statement of Net Position Combining Statement of Revenues, Expenses and Changes in Net Position Combining Statement of Cash Flows 79 80 81 E Agency Funds: Combining Statement of Changes in Assets and Liabilities 82 Statistical Section Table 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Financial Trends: Net Position by Component Change in Net Position Fund Balances, Governmental Funds Changes in Fund Balances, Governmental Funds Revenue Capacity: Assessed Value and Estimated Actual Value of Taxable Property Direct and Overlapping Property Tax Rates Principal Property Taxpayers Property Tax Levies and Collections Debt Capacity: Ratios of Outstanding Debt by Type Schedule of Debt Limitation Legal Debt Margin Information Demographic and Economic Statistics: Demographic Statistics Principal Employers Operating Information: Miscellaneous Statistical Data 83 84 85 86 87 88 89 90 91 92 93 94 95 96-98 Introductory Section PRINCIPAL OFFICIALS City of Middletown, Connecticut ELECTED OFFICIALS Daniel T. Drew, Mayor Quentin Phipps, Treasurer Elizabeth Santangelo (D) Registrar of Voters Janice A. Gionfriddo (R) Registrar of Voters COMMON COUNCIL Eugene P. Nocera Thomas J. Serra Mary A. Bartolotta Gerald E. Daley Robert P. Santangelo Carl R. Chisem Robert Blanchard Grady L. Faulkner, Jr. Sebastian N. Giuliano Philip J. Pessina Deborah A. Kleckowski Linda Salafia BOARD OF EDUCATION Vincent Loffredo, Chairman Sheila C. Daniels, Vice-Chair Anita Dempsey White Christopher Drake Deborah Cain Franca Biales, Secretary Marilyn S. Dunkley Linda Szynkowica Cheryl A. P. McClellan Dr. Patricia Charles, Superintendent of Schools DIRECTORS Town Clerk Director of Finance and Revenue Services Chief of Fire Chief of Police Director of Health Acting Director Recreation and Community Services Director of Public Works Director of Water and Sewer Director of Human Resources Director of Human Relations Director of Parking General Counsel Tax Assessor Planning Conservation and Development Russell Library Director i Linda Bettencourt Carl Erlacher Robert Kronenberger William McKenna Joseph A. Havlicek, MD Deborah Stanley William Russo Guy P. Russo Kathy Morey Faith M. Jackson Geen Thazhampallath Brigham Smith Damon Braasch Michiel Wackers Arthur S. Meyers City of Middletown Organization of Governance Electors Registrars of Voters 2 Board of Assessment Appeals (3) Treasurer Deputy Mayor Common Council 12 Mayor Board of Ed. 9 Commissions and Committees with Council Members Only Economic Development Finance and Government Operations Insurance and Claims Middletown Resource Recovery Commission to ECRRA General Counsel Commission Public Safety Public Works & Facilitates Commission P&Z Commission Probate Judge Commissions, Boards, and Committees with Council Members Board of Health Citizens Advisory Committee Clean Energy Taskforce Contract Compliance Board Harbor Improvement Agency IT Advisory Committee Melilli Task Force Middletown Commission on Arts and Culture Recreation & Community Services Parking Advisory Retirement Board Youth Services Bureau Advisory Board Water Pollution Control Authority Staff Units/ Department Arts & Culture Central Communications Emergency Management Finance and Revenue Services Fire Health Human Relations Information Systems General Counsel Library Recreation and Community Services Parking Department Human Resources Planning, Conservation, and Development Police Public Works Tax Assessor Town Clerk Water and Sewer Boards, Commissions, Committees, and Agencies Affirmative Action Monitoring Committee Board of Ethics Board of Health Cable Advisory Committee Clean Energy Task Force Committee Concerning People with Disabilities Connecticut River Valley Planning Commission Conservation Commission Contract Compliance Board Enterprise Zone Harbor Improvement Agency Housing Authority Human Relations Commission Housing Code Citation Hearing Officer City Org Chart Rev. 12-7-2015 IT Advisory Committee Juvenile Review Board Long Hill Estate Melilli Task Force Middletown Commission on the Arts Middletown Housing Partnership Trust Middletown Preservations and Design Review Middletown School Readiness Committee Municipal Agent for the Elderly Recreation & Community Services Parking Commission Parking Violation Hearing Officers Planning & Zoning Citation Hearing Officer Public Safety Telecommunications ii Records Management Commission Redevelopment Agency Resource Recycling Advisory Council Retirement Board Riverfront Development Committee Russell Library Board of Trustees Sanitary Disposal District Commission Standardization & Specification Committee Transit District Urban Forestry Commission Walter C. Jones Fund Water Pollution Control Authority Youth Services Advisory Board Zoning Board of Appeals December 29, 2015 Honorable Mayor and Common Council City of Middletown Middletown, Connecticut I am pleased to submit the Comprehensive Annual Financial Report (CAFR) of the City of Middletown (the City) for the fiscal year ended June 30, 2015. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data are accurate in all material respects; and are reported in a manner to present fairly the financial position and results of operations of the City. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included. The CAFR is presented in three sections: introductory, financial and statistical. The introductory section includes this transmittal letter, the City's organizational chart and a list of principal officials. The financial section includes the management's discussion and analysis (MD&A), basic financial statements, required supplementary information, and the combining and individual fund statements and schedules, as well as the auditors' report. The statistical section includes selected financial and demographic information, generally presented on a multi-year basis. The City is required to undergo an annual single audit in conformity with the provisions of the Federal Single Audit Act and U.S. Office of Management and Budget Circular A-133, \"Audits of States, Local Governments and Non-Profit Organizations.\" Information related to this single audit, including the schedule of expenditures of federal awards, findings and recommendations, and auditors' reports on the internal control over financial reporting and compliance with applicable laws and regulations are issued under separate cover and are not included in this report. The City is also required to undergo a State single audit. Information related to this State single audit will be issued separately. The Eastern Connecticut Regional Resource Recovery Authority (ECRRA) and Long Hill Estate Authority have been included as discretely presented component units in the City's report in accordance with generally accepted accounting principles. As more fully explained in Note 12, ECRRA is a regional authority formed to provide solid waste disposal and resource recovery system. At June 30, 2015, Middletown is the only member. The Long Hill Estate Authority was established by ordinance to operate and maintain the former Wadsworth/Cenacle property. The Authority is a public body politic and corporate formed in accordance with Connecticut General Statutes. iii GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the MD&A. This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City of Middletown's MD&A can be found immediately following the report of the independent auditors. Profile of the City Middletown was settled in 1650 and incorporated as a Town in 1651. The City and Town were consolidated in 1923 and the 1st and 2nd taxing districts and two school districts were consolidated in 1959. The City covers an area of 42.9 square miles located on the west bank of the Connecticut River, fifteen miles south of Hartford. The City is traversed by Interstate 91 and State Highways Number 9, 17, 66, 72, 155, 157 and 217. Bus transportation linking Middletown with other communities is provided by commercial companies as is an intra-city bus service. Freight service is provided by Conrail, light shipping up the Connecticut River and various motor common carriers. The City operates under a Charter first granted in 1874 and subsequently revised. The most recent revision became effective November 4, 2014. The City is governed by a strong Mayor and twelvemember Common Council. The Mayor is the chief executive officer of the City. In addition to the City's line departments, there is a Sanitary District Commission, Water and Sewer Commission, a Parking Authority and a Housing Authority. A director of Finance administers the financial affairs of the City. The City provides a full range of services, which include; general government services such as finance, personnel, City and Town clerk, legal; public safety, which includes fire and police protection; public works for the management, care and maintenance of all public buildings, public roadways, City vehicles and various construction activities; water treatment and distribution; sanitary sewer for the collection and treatment of wastewater, sanitation for the solid waste disposal, which includes recycling; and education, which is under the control of the elected Board of Education, operates the eleven school elementary and secondary education system with a capacity of 6,029. City of Middletown Economic Development The City of Middletown economic development division exists within the Department of Planning, Conservation and Development. Its mission is to stimulate development in the City, assist City businesses in expanding, attracting businesses from outside of Middletown all in an effort to grow the tax base, facilitate job creation and generally improve the quality of life for Middletown residents and businesses. Approach Economic development is built on relationships and partnerships. The City's efforts are supported by engaging partners such as: The Middlesex County Chamber of Commerce, Connecticut's largest Downtown Business District Middletown Small Business Development Center State of Connecticut Department of Economic and Community Development State of Connecticut Department of Labor Workforce Alliance iv Wesleyan University Middlesex Community College Eversource Energy Commercial Brokers, Property Owners and Developers Connecticut Economic Resources Center The City also builds relationships by being members of professional groups such as the Connecticut Planning Association and the Connecticut Economic Developers Association among others. These partnerships help us by providing services to City businesses that help them grow. They also bring in leads for businesses considering moving into Middletown. Business Retention and Expansion National surveys show the vast majority of new investment and jobs in any community come from existing businesses, entrepreneurs and start-ups. Few come from outside the community (Chart 1). Chart 1 New Investment and Jobs Outside Co.s 7% Starts Ups 9% Existing 84% Source: Conway Data, Various surveys Given these data, City staff invests most of its time with existing businesses and start-ups. Staff visits existing businesses on a continuing basis to determine how the City can help them grow. For entrepreneurs, staff works with our partners to help them with typical start-up issues such as business plans, hiring and marketing. The City uses its service provider network to help businesses with utility, real estate and training, among others. Middletown owns a former factory building which serves as a low-cost incubator for small businesses. The 165,000 sf building currently houses 25 businesses which, together, have 100 employees. In the FY ending June 30, 2015, rents from the building totaled more than $402,000, of which $200,000 is returned to the General Fund. v Business Recruitment The City also engages in recruiting businesses from outside the region. Our partners like the Chamber of Commerce, State agencies and commercial brokers and property owners bring businesses to the City where we actively try to address their location needs. Once they have decided to invest in Middletown, we make our land use approval processes as easy as possible to give them a smooth transition here. The staff regularly reaches out to site selection consultants, corporate real estate professionals and brokers to inform them of development opportunities in Middletown. Easy Development Processes Middletown has built a reputation across the State for being a community which it is easy to work with. To that end, on our website, for example, we have: Nearly all development related applications and procedures Link to our GIS system Link to the Tax Assessor's database Studies and reports of the City of Middletown for public reading A business guide published bi-annually Records of City proceedings going back decades Information on City development incentives Links to partners and assistance providers Links to available commercial and industrial properties Staff from all departments that approve projects meets as a team with project developers prior to their submitting applications to show them how their project can get approved. vi Growing the Tax Base The City of Middletown continues to grow the tax base through marketing available land and buildings and reclaiming brownfields for redevelopment. The City of Middletown leverages Federal, State and Foundation grants with City and private sector financing to fund various economic development initiatives such as environmental assessments, brownfield clean and open space purchasing. This is a list of grants and their source since 2005. Most are for planning, environmental assessment and remediation. Year Total Federal State Other 2014 $3,828,225 $414,475 $3,413,750 2013 $573,004 $419,044 2012 $598,165 $598,165 2011 $880,276 $380,276 $450,000 $50,000 2010 $875,228 $854,428 $10,000 $10,800 2009 $20,468,342 $19,933,942 $530,000 $4,400 2008 $927,345 $407,345 $520,000 2007 $487,490 $487,490 2006 $682,094 $417,094 2005 $661,146 $658,989 $154,000 $265,000 $2,157.80 Over the last ten years, the City has invested, or will invest, $24.6M, $5.2M, $221,000, in Federal, State and Foundation grants respectively. Results The City's economic development efforts have yielded positive results over the last 11 years as seen in the following charts. Positive growth in new square footage 2.2% CAGR in new taxable grand list 3.5% CAGR in property tax revenues Minimal increases in the mill rate vii New Construction (Sq Ft) by Year 450000 400000 350000 300000 250000 Res Comm 200000 Ind 150000 100000 50000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Major projects over the last several years include: WinWholesale: 200,000 sf, warehouse Electrical Wholesalers: 30,000 sf, office ModSpace: 15,100 sf, office/warehouse A&A Office Supply: 12,000 sf, Corporate HQ, distribution Jarvis Products: 20,000 sf, manufacturing expansion FedEx Ground Package Systems, Inc. has proposed and received all local approvals for a 535,000 sf distribution hub on the former site of Aetna's office building. The company proposes to create more than 500 new jobs. Net Taxable Grand List (000s) 4000 2.3% Compound Annual Growth Rate Reval. Yr. 3500 3000 Reval. Yr. 2500 2000 1500 1000 500 0 2005 2006 2007 2008 2009 viii 2010 2011 2012 2013 2014 Property Tax Revenues (000s) 120000 3.3% Compound Annual Growth Rate 100000 80000 60000 40000 20000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Note: These do not include Nonmajor Governmental Funds. The steady growth in the grand list has kept mill rate increases to a minimum. 45 Mill Rate 40 Reval. Yr. 0.3% Compound Annual Growth Rate Reval. Yr. 35 30 25 20 15 10 5 0 2005 2006 2007 2008 2009 ix 2010 2011 2012 2013 2014 Major Projects/Studies The City of Middletown continues to uncover new development opportunities. They include: Riverfront: The State of Connecticut awarded the City $2.6 million to assess and clean up property along the Connecticut River. The goal is to create a 1.5 mile long riverfront park with amenities and housing. The park will bring in visitors from all over the region. Downtown: The City approved a 93-unit, market rate apartment and commercial project in downtown. Construction has started and is scheduled to be complete late in 2016. Downtown sites: The City is facilitating discussions between developers and owners of underutilized properties downtown. The plan is to create more housing, population and income downtown. Recruiting: Businesses continue to find Middletown an attractive place to invest. The City has successfully recruited several new businesses. They include a mix of retailers and restaurants downtown, start-ups and manufacturers. Department Focus The Department of Finance and Revenue Service has completed the process of implementing an ADMINS Unified Community software system for all City departments including the Board of Education. This system has been implemented over time and includes programs for budgeting, purchasing, payables, receivables, payroll and general ledger. The staff continues to strive to automate many aspects of the department and continues to work with user departments to implement positive changes which will benefit the entire City. Financial Information The Department of Finance is organized into six divisions: Administration, Accounting and Budgeting, Purchasing, Payroll, Tax Collection, Debt and Cash Management. The City's accounting system is an automated, integrated financial management system comprising payroll, accounts payable, general ledger, and budgetary control. It is organized and operated on a fund basis. Each fund is a distinct and self-balancing accounting entity. Internal Controls All financial transactions are subject to pre-audit before processing as well as to an annual post-audit by an independent auditing firm selected by the City Council. Financial policies and procedures prescribed by the Director of Finance for the various departments are monitored by the Accounting and Budgeting Division of the Department. All internal control evaluations occur within the above framework. We believe that the City's internal accounting controls adequately safeguard assets and provide reasonable assurance of proper recording of financial transactions. Budgetary Controls In addition, the City maintains budgetary controls. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City Council. x Activities of the general fund and certain special revenue funds are included in the annual appropriated budget. Project-length financial plans are adopted for the other special revenue funds and capital projects funds. The level of budgetary control (that is, the level at which expenditures cannot legally exceed the appropriated amount) is made at the sub-function level by the encumbrance of estimated purchase amounts prior to the release of purchase orders to vendors. Purchase orders which result in an overrun of sub-function balances are not released until additional appropriations are made available. Open encumbrances are reported in funds statements as reservation of fund balance at June 30, 2015. Other Information Independent Audit The City Charter requires an annual audit of the books of account, financial records and transactions of all administrative departments of the City by independent certified public accountants selected by the City Council. This requirement has been complied with and the auditors' report has been included in this report. Certificate of Achievement The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Middletown for its comprehensive annual financial report for the fiscal year ended June 30, 2014. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to program standards. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. Acknowledgment The preparation of this report on a timely basis could not be accomplished without the efficient and dedicated services of the entire staff of the Finance Department. I should like to express my appreciation to all members of the Department who assisted and contributed to its preparation. I should also like to thank the Mayor, the Finance and Government Operations Commission, the members of the City Council, and the Finance Department's Staff for their interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. Respectfully submitted, Carl R. Erlacher, CPA Director of Finance and Revenue Services xi xii Financial Section 29 South Main Street P.O. Box 272000 West Hartford, CT 06127-2000 Tel 860.561.4000 Fax 860.521.9241 blumshapiro.com Independent Auditors' Report To the Honorable Mayor and Members of the Common Council City of Middletown, Connecticut Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the discretely presented component units, each major fund and the aggregate remaining fund information of the City of Middletown, Connecticut, as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the City of Middletown, Connecticut's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements 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. Auditors' 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 of 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 auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider 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 opinion 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. 1 Blum, Shapiro & Company, P.C. An independent member of Baker Tilly International 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 discretely presented component units, each major fund and the aggregate remaining fund information of the City of Middletown, Connecticut, as of June 30, 2015 and the respective changes in financial position and, where applicable, cash flows thereof, for the year then ended in accordance with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note 15 to the financial statements, during the fiscal year ended June 30, 2015, the City adopted new accounting guidance, GASB Statement No. 68, Accounting and Financial Reporting for Pensions. The net position of the City has been restated to recognize the net pension asset required in implementing GASB No. 68. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 4 through 11, the budgetary comparison information on pages 60 through 62 and the pension schedules on pages 63 through 66 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, which 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 management 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 information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Middletown, Connecticut's basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and schedules are fairly stated in all material respects in relation to the basic financial statements as a whole. 2 The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and, accordingly, we do not express an opinion or provide any assurance on them. We also previously audited, in accordance with auditing standards generally accepted in the United States of America, the basic financial statement of the City of Middletown, Connecticut as of and for the year ended June 30, 2014 (not presented herein), and have issued our report thereon dated December 23, 2014, which contained unmodified opinions on the respective financial statements of the governmental activities, the discretely presented component units, each major fund and the aggregate remaining fund information. The accompanying General Fund balance sheet and Internal Service Fund statements as of June 30, 2014 are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and related directly to the underlying accounting and other records used to prepare the 2014 financial statements. The accompanying General Fund balance sheet and Internal Service Fund statements have been subjected to the auditing procedures applied in the audit of the 2014 basic financial statements and certain additional procedures including comparing and reconciling such information directly to the underlying accounting and other records used to prepare those financial statements or to those financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the General Fund balance sheet and Internal Service Fund statements are fairly stated in all material respects in relation to the basic financial statements as a whole for the year ended June 30, 2014. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 29, 2015 on our consideration of the City of Middletown, Connecticut'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 the City of Middletown, Connecticut's internal control over financial reporting and compliance. West Hartford, Connecticut December 29, 2015 3 CITY OF MIDDLETOWN, CONNECTICUT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2015 This discussion and analysis of the City of Middletown, Connecticut's (City) financial performance is provided by management to provide an overview of the City's financial activities for the fiscal year ended June 30, 2015. Please read this MD&A in conjunction with the transmittal letter and the City's financial statements, Exhibits I to IX. FINANCIAL HIGHLIGHTS Net position of the City's governmental activities increased by $4.2 million, or 1.2 percent. During the year, the City had expenses that were $4.2 million less than the $204.0 million generated in tax and other revenues for governmental programs. Total cost of all of the City's programs was $199.8 million with no new programs added this year. The General Fund reported a fund balance this year of $26.6 million. The resources available for appropriation exceeded budgetary estimates by $12.7 million for the General Fund. Expenditures were kept within spending limits. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of a series of financial statements. The statement of net position and the statement of activities (Exhibits I and II, respectively) provide information about the activities of the City as a whole and present a longer-term view of the City's finances. Fund financial statements are presented in Exhibit III to IX. For governmental activities, these statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the City's operations in more detail than the government-wide statements by providing information about the City's most significant funds. The remaining statements provide financial information about activities for which the City acts solely as a trustee or agent for the benefit of those outside of the government. Government-Wide Financial Statements The analysis of the City as a whole begins on Exhibit I and II. The statement of net position and the statement of activities report information about the City as a whole and about its activities for the current period. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the City's net position and changes in them. The City's net position, the difference between assets and liabilities, are one way to measure the City's financial health, or financial position. Over time, increases or decreases in the City's net position is one indicator of whether its financial health is improving or deteriorating. The reader needs to consider other non-financial factors, however, such as changes in the City's property tax base and the condition of the City's capital assets, to assess the overall health of the City. 4 In the statement of net position and the statement of activities, we divide the City into two types of activities: Governmental activities - Most of the City's basic services are reported here, including education, public safety, public works, human resources, culture and recreation, employee benefits and insurance, and general administration. Property taxes, charges for services, and state and federal grants finance most of these activities. Component units - The City includes two separate legal entities in its report; the Eastern Connecticut Resource Recovery Authority (ECRRA), and the Long Hill Estate Authority. Although legally separate, these \"component units\" are important because the City is financially accountable for them. Fund Financial Statements The fund financial statements begin with Exhibit III and provide detailed information about the most significant funds - not the City as a whole. Some funds are required to be established by Charter. However, the City Council establishes many other funds to help control and manage financial activities for particular purposes (like the Fire District, Water Fund, Sewer Fund and Sanitation Fund) or to show that it is meeting legal responsibilities for using grants, and other money (like grants received from the Clean Water Fund, Block Grants and Special Education Grants). The City's funds are divided into three categories; governmental, proprietary and fiduciary. Governmental funds (Exhibits III and IV) - Most of the City's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. The relationship (or differences) between governmental activities (reported in the statement of net position and the statement of activities) and governmental funds is described in a reconciliation included with the fund financial statements. Proprietary funds (Exhibits V, VI and VII) - When the City charges customers for the services it provides, whether to outside customers or to other units of the City, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the statement of net position and the statement of activities. Internal service funds (the component of proprietary funds) are used to report activities that provide services for the City's other programs and activities - such as the City's Medical, Workers Compensation and Property and Liability Funds. Fiduciary funds (Exhibits VIII and IX) - The City is the trustee, or fiduciary, for its employees' pension plans. All of the City's fiduciary activities are reported in separate statements of fiduciary net position and changes in fiduciary net position. These activities are excluded from the City's other financial statements because the City cannot use these assets to finance its operations. The City is responsible for ensuring that the assets reported in these funds are used for their intended purposes. 5 GOVERNMENT-WIDE FINANCIAL ANALYSIS The City's combined net position increased from a year ago from $347.7 million to $351.9 million. The analysis below focuses on the net position (Table 1) and changes in net position (Table 2) of the City's governmental activities. TABLE 1 NET POSITION (In Thousands) Governmental Activities 2015 2014 Current assets Capital assets, net of accumulated depreciation Total assets $ Difference between projected and actual earnings for pensions 142,848 371,940 514,788 $ 120,749 364,966 485,715 14,462 Long-term liabilities outstanding Other liabilities Total liabilities 156,730 18,111 174,841 577 1,890 2,467 Net Position: Net investment in capital assets Restricted Unrestricted $ Total Net Position - 267,645 1,289 83,008 Difference of assumption changes for pensions Difference between expected and actual experiences for pensions Total deferred inflows of resources 126,401 11,587 137,988 289,881 1,323 56,523 351,942 $ 347,727 Net position of the City's governmental activities increased by 1.2 percent ($351.4 million compared to $347.7 million). Capital assets increased by $6.9 million while long-term liabilities increased by $30.3 million. The City's aggressive debt repayment philosophy results in the rapid payment for capital asset additions. 6 TABLE 2 CHANGE IN NET POSITION (In Thousands) Governmental Activities 2015 2014 Revenues: Program revenues: Charges for services $ Operating grants and contributions Capital grants and contributions General revenues: Property taxes Grants and contributions not restricted to specific programs Unrestricted investment earnings Other general revenues Total revenues 116,763 9,828 143 4,701 204,017 106,714 9,284 302 5,932 187,051 Program expenses: General government Public safety Public works Health and human services Culture and recreation Employee benefits and insurance Education Sewer Water Sanitation Interest on long-term debt Total program expenses 18,740 26,917 10,128 1,502 5,740 14,908 109,091 4,885 4,038 1,685 2,168 199,802 19,747 29,048 11,758 802 5,809 16,586 106,256 4,778 4,445 1,857 2,347 203,433 Increase (Decrease) in Net Position 4,215 Net Position at Beginning of Year, as Restated 20,915 48,566 3,101 $ (16,382) 347,727 Net Position at End of Year $ 351,942 17,905 44,949 1,965 364,109 $ 347,727 The City's total revenues were $204.0 million. The total cost of all programs and services was $199.8 million. Our analysis below considers the operations of governmental activities. Governmental Activities More than 57.2 percent of the revenues were derived from property taxes, followed by 23.8 percent from operating grants, then 10.2 percent from charges for services. 7 Major revenue factors included: Property tax revenues recorded for fiscal year 2015 reflects an increase in the City's tax rate and virtually no change in the total assessed value of all taxable property. Operating Grants and contributions increased by 3.6 million mainly attributable to increased education grants received from the State of Connecticut. Capital grants increased by 1.1 million, which is mainly due to the Clean Water Projects under construction. For governmental activities, more than 54.6 percent of the City's expenses relate to education, 13.5 percent relate to public safety, general government (9.4 percent), employee benefits and insurance (7.5 percent), and public works (5.1 percent). Major expense factors include: Decreases in total program expenses is attributable to a decrease in public safety expenses mainly due to a decrease in accruals for various liabilities including pensions. The cost of education services increased due to accrual basis changes in compensated absences, other post-employment benefits. CITY FUNDS FINANCIAL ANALYSIS Governmental Funds As the City completed the year, its governmental funds (as presented in the balance sheet - Exhibit III) reported a combined fund balance of $45.8 million, which is an increase from last year's total of $22.0 million. The fund balance for the Capital Project's Fund increased by $14.9 million dollars due to bond issuance of 32.3 million in the current fiscal year. General Fund Budgetary Highlights Tax collections were favorable by $2.6 million primarily due to increased delinquent tax collections. Charges for services were favorable by $921 thousand with the majority of this coming from increased activity with police extra duty. Under the intergovernmental section, the City experienced a favorable revenue variance of $3.6 million which included larger than budgeted receipts from various state and federal agencies. One of the areas of unfavorable budget variances was in interest revenues by $22 thousand due to lower than expected interest rates. The aforementioned items, when combined with the planned use of fund balance to minimize the annual tax impact to City residents, resulted in completing the June 30, 2015 year with an unassigned fund balance of $21.8 million. The City continues to experience a variety of favorable events, most related to a planned expenditure cut back, that favorably impacted expenses during the fiscal year. 8 These events include: General government Public safety Public works Parks and recreation Other (in thousands) $ 508 100 56 182 266 Total $ 1,112 The City's General Fund balance of $26.6 million reported on Exhibit III differs from the General Fund's budgetary fund balance of $25.7 million. This is principally because budgetary fund balance includes $.9 million of outstanding encumbrances at year end which are reported as expenditures for budgetary purposes. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At June 30, 2015, the City had $371.9 million invested in a broad range of capital assets, including land, buildings, park facilities, vehicles and equipment, roads, bridges, and water and sewer lines Table 3. TABLE 3 CAPITAL ASSETS AT YEAR-END (Net of Depreciation) (In Millions) Governmental Activities 2015 2014 Land Infrastructure Buildings and improvements Machinery, equipment and building contents Construction in progress $ 18.7 135.2 146.6 11.9 59.5 $ 18.2 139.5 153.2 12.0 42.1 Total $ 371.9 $ 365.0 The City capital assets increase for 2015 is mainly attributable to clean water projects and other various projects throughout the City. More detailed information about the City's capital assets is presented in Notes 1 and 5 to the financial statements. 9 Long-Term Debt At June 30, 2015, the City had $90.6 million in bonds outstanding versus $70.9 million last year, an increase of 27.8 percent - as shown in Table 4. TABLE 4 OUTSTANDING DEBT, at Year-End (In Millions) Governmental Activities 2015 2014 General Obligation Bonds $ 90.6 $ 70.9 The City's general obligation bond rating continues to carry a AA+ rating with Standard & Poor's Rating Services. The State limits the amount of general obligation debt that towns can issue based on formula determined under State Statutes based on type of debt and tax base. The City's outstanding general obligation debt is significantly below this $787 million state-imposed limit. Other obligations include accrued vacation pay and sick leave. More detailed information about the City's long-term liabilities is presented in Note 7 to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The unemployment rate for the City is currently 5.7 percent compared with the prior year of 5.8 percent. The appropriation for expenditures totaled $173.8 million in the adopted budget for the 2015-2016 fiscal year representing an increase of 3.81 percent compared to the final amended budget for fiscal year ended June 30, 2015. The City is anticipating using $3.8 million of assigned General Fund fund balance to balance budgeted operations for the 2015-2016 fiscal year. The City's elected and appointed officials considered many factors when establishing the tax mill rate of 39.6 for the adopted budget for the 2015-2016 fiscal year. There was an increase of .4% from the mill rate established for the 2015-2016 fiscal year. The City, while cautiously optimistic, is quite concerned about the State of Connecticut budget and the impact balancing the State budget may have on the City. Approximately one-fourth of the City's budget revenues are derived from revenues received from the State of Connecticut. The vast majority of the State revenues come to the City in the form of Educational Cost Sharing Grants (ECS) which provide a direct subsidy to the local school system. This is a difficult year for the State of Connecticut due to shortfalls in State revenues resulting from the current state of our economy. Section 52 of Public Act 02-1 allows the Governor, on or after October 1, 2002, to reduce certain allotments, including grants to municipalities, by up to 5 percent. Any State reduction over $750,000 would result in a budget revenue shortfall and would reduce the City's undesignated General Fund fund balance and/or increase the property tax rate in the fiscal year 2015. 10 CONTACTING THE CITY'S FINANCIAL MANAGEMENT This financial report is designed to provide citizens, taxpayers, customers, investors and creditors with a general overview of the City's finances and to show the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Finance Department, City of Middletown, 245 DeKoven Drive, Middletown, Connecticut 06457. 11 Basic Financial Statements EXHIBIT I CITY OF MIDDLETOWN, CONNECTICUT STATEMENT OF NET POSITION JUNE 30, 2015 (In Thousands) Primary Government Governmental Activities Assets: Cash and cash equivalents Investments Receivables, net Inventories Net pension asset Other assets Restricted assets: Cash and cash equivalents Investments Capital assets: Assets not being depreciated Assets being depreciated, net Total assets $ 67,781 1,215 17,470 32 56,350 Component Units Long Hill ECRRA Estate $ 3,022 $ 4,016 519 115 2 310 7,399 11,134 78,153 293,787 514,788 Deferred Outflows of Resources: Difference between projected and actual earnings for pensions 48,715 74,596 636 14,462 Liabilities: Accounts and other payables Unearned revenue Note payable Noncurrent liabilities: Due within one year Due in more than one year Total liabilities 10,728 2,489 4,894 17,605 139,125 174,841 9,689 49,253 66,187 273 1,890 2,467 - - 267,645 Deferred Inflows of Resources: Difference of assumption changes for pensions Difference between expected and actual experiences for pensions Total deferred inflows of resources 7,245 24 249 907 577 Net Position: Net investment in capital assets Restricted for: Debt service Trust purposes: Expendable Nonexpendable Unrestricted 7,399 74 1,215 83,008 Total Net Position $ 351,942 103 $ 8,409 The accompanying notes are an integral part of the financial statements 12 363 $ 363 EXHIBIT II CITY OF MIDDLETOWN, CONNECTICUT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 (In Thousands) Net (Expense) Revenue and Changes In Net Assets Functions/Programs Primary Government: Governmental activities: General government Public safety Public works Health and human resources Culture and recreation Employee benefits and insurance Education Sewer Water Sanitation Interest on long-term debt Charges For Services Expenses 18,740 26,917 10,128 1,502 5,740 14,908 109,091 4,885 4,038 1,685 2,168 $ $ 199,802 $ 20,915 $ Component Units: ECRRA Long Hill Estate $ 24,242 578 $ 29,708 557 $ Total Component Units $ 24,820 $ 30,265 $ Total Primary Government - Governmental Activities $ 3,011 2,013 320 Primary Governmental Program Revenues Operating Grants And Contributions $ 1,183 7 49 864 703 619 5,994 6,430 1,825 Capital Grants And Contributions $ 28 3,031 Governmental Activities $ 42 46,463 48,566 $ $ - $ Component Units 3,101 (15,729) (23,693) (6,770) (1,453) (4,131) (14,908) (62,009) 1,109 2,392 140 (2,168) Long Hill Estate ECRRA $ (127,220) $ - - 5,466 6 6 (15) - 5,466 General revenues: Property taxes Grants and contributions not restricted to specific programs Unrestricted investment earnings Miscellaneous Total general revenues 116,763 9,828 143 4,701 131,435 623 1 623 1 Change in net position Net Position at Beginning of Year, as Restated 4,215 347,727 6,089 2,320 Net Position at End of Year $ The accompanying notes are an integral part of the financial statements 13 351,942 $ 8,409 (15) (14) 377 $ 363 EXHIBIT III CITY OF MIDDLETOWN, CONNECTICUT BALANCE SHEET - GOVERNMENTAL FUNDS JUNE 30, 2015 (In Thousands) Debt Service General Capital Projects Nonmajor Total Governmental Governmental Funds Funds ASSETS Cash and cash equivalents Investments Receivables, net Due from other funds Inventories $ Total Assets $ 22,583 $ 81 $ 5,103 8,166 7,149 $ 4,604 21,871 $ 1,215 5,255 32 35,852 $ 81 $ 11,753 $ 51,684 1,215 14,962 8,166 32 28,373 $ 76,059 2,477 $ 356 2,489 5,322 9,852 8,166 4,894 2,489 25,401 469 4,839 32 3,724 18,972 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES Liabilities: Accounts and other payables Due to other funds Note payable Unearned revenue Total liabilities $ 4,915 Deferred Inflows of Resources: Unavailable revenue - property taxes $ - 2,460 $ 7,810 4,894 15,164 4,370 Fund Balances: Nonspendable Restricted Committed Assigned Unassigned Total fund balances Total Liabilities, Deferred Inflows of Resources and Fund Balances 4,915 $ 4,741 21,826 26,567 81 (3,411) (3,411) (146) 22,582 32 3,805 18,972 4,741 18,269 45,819 35,852 $ 81 $ 11,753 $ 28,373 $ 76,059 81 $ (Continued on next page) 14 EXHIBIT III CITY OF MIDDLETOWN, CONNECTICUT BALANCE SHEET - GOVERNMENTAL FUNDS (CONTINUED) JUNE 30, 2015 (In Thousands) Reconciliation of the Balance Sheet - Governmental Funds to the Statement of Net Position: Amounts reported for governmental activities in the statement of net position (Exhibit I) are different because of the following: Fund balances - total governmental funds $ 45,819 Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds: Governmental capital assets Less accumulated depreciation Net capital assets $ 622,015 (250,075) 371,940 Other long-term assets and deferred outflows of resources are not available to pay for current-period expenditures and, therefore, are not recorded in the funds: Net pension asset Property tax receivables greater than 60 days Interest receivable on property taxes Interest receivable on water, sewer and sanitation Change in deferred outflows related to expected and actual experience 56,350 4,839 1,953 555 14,462 Internal service funds are used by management to charge the costs of risk management to individual funds. The assets and liabilities of the internal service funds are reported with governmental activities in the statement of net position. 8,444 Long-term liabilities, including bonds payable and deferred inflows of resources, are not due and payable in the current period and therefore, are not reported in the funds: Bonds and notes payable Interest payable on bonds and notes Compensated absences OPEB obligation Bond premium Change in deferred inflows related to assumption changes Change in deferred inflows related to investment gains or losses (90,559) (862) (7,220) (42,470) (8,842) (577) (1,890) $ Net Position of Governmental Activities (Exhibit I) The accompanying notes are an integral part of the financial statements 15 351,942 EXHIBIT IV CITY OF MIDDLETOWN, CONNECTICUT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (In Thousands) Debt Service General Revenues: Property taxes Licenses and permits Intergovernmental Charges for services Investment income Miscellaneous Total revenues $ Expenditures: Current: General government Public safety Public works Health and human resources Culture and recreation Employee benefits and insurance Education Sewer Water Sanitation Capital outlay Debt service: Principal retirement Interest and fiscal charges Total expenditures $ $ $ 1,530 286 1,816 - 9,233 14,337 5,020 1,495 5,283 17,380 82,531 105 9,255 Total Governmental Funds $ 24,454 14,942 124 1,508 50,283 1,026 10,378 115,731 652 60,931 19,711 176 5,720 202,921 20,988 4,876 4,014 1,672 3,612 10,364 24,715 5,020 1,543 5,701 17,380 103,519 4,876 4,014 1,672 22,743 48 418 19,131 135,279 Other Financing Sources (Uses): Bond and serial notes Bond premium Transfers in Transfers out Total other financing sources (uses) 12,647 2,543 15,295 19,131 47,032 12,647 2,543 216,737 15,543 Excess (Deficiency) of Revenues over Expenditures (15,295) (17,315) 3,251 (13,816) (67) 32,235 1,155 (2,180) (1,025) 32,302 5,287 17,006 (16,927) 37,668 32,302 5,287 553 (14,680) (8,840) Net Change in Fund Balances 15,298 15,298 6,703 $ 3 14,920 2,226 23,852 19,864 Fund Balances at Beginning of Year Fund Balances at End of Year 106,476 652 34,947 4,769 52 3,926 150,822 Nonmajor Governmental Funds Capital Projects 78 (18,331) 20,356 21,967 26,567 $ 81 (Continued on next page) 16 $ (3,411) $ 22,582 $ 45,819 EXHIBIT IV CITY OF MIDDLETOWN, CONNECTICUT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS (CONTINUED) FOR THE YEAR ENDED JUNE 30, 2015 (In Thousands) Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities: Amounts reported for governmental activities in the statement of activities (Exhibit II) are different because: Net change in fund balances - total governmental funds (Exhibit IV) $ 23,852 Governmental funds report capital outlays as expenditures. In the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense: Capital outlay Depreciation expense 20,426 (13,392) The statement of activities reports losses arising from the trade-in of existing capital assets to acquire new capital assets. Conversely governmental funds do not report any gain or loss on a trade-in of capital assets. (60) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds, and revenues recognized in the funds are not reported in the statement of activities: Property tax receivable - accrual basis change Property tax interest and lien revenue - accrual basis change Water, sewer, sanitation interest receivable - accrual change Change in deferred outflows related to expected and actual experience Change in deferred inflows related to assumption changes Change in deferred inflows related to investment gains or losses 751 282 92 14,462 (577) (1,890) The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction has any effect on net position. Also, governmental funds report the effect of premiums amortized and deferred in the statement of activities. The details of these differences in the treatment of long-term debt and related items are as follows: Bond principal payments Issuance of bonds and notes Premium on bonds 12,646 (32,300) (5,287) Change in net pension asset (12,025) 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 OPEB obligation Bond premium amortization Accrued interest (258) (5,330) 625 (250) Internal service funds are used by management to charge costs to individual funds. The net revenue of certain activities of internal services funds is reported with governmental activities. Change in Net Position of Governmental Activities (Exhibit II) 2,448 $ The accompanying notes are an integral part of the financial statements 17 4,215 EXHIBIT V CITY OF MIDDLETOWN, CONNECTICUT STATEMENT OF NET POSITION - PROPRIETARY FUND JUNE 30, 2015 (In Thousands) Governmental Activities Internal Service Fund Assets: Cash and cash equivalents $ 16,097 Liabilities: Current liabilities: Accounts and other payables Unpaid claims - current Total current liabilities 14 2,877 2,891 Noncurrent liabilities: Unpaid claims - noncurrent Total liabilities 4,762 7,653 Net Position: Unrestricted $ The accompanying notes are an integral part of the financial statements 18 8,444 EXHIBIT VI CITY OF MIDDLETOWN, CONNECTICUT STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION - PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30, 2015 (In Thousands) Governmental Activities Internal Service Fund Operating Revenues: Charges for services Other Total operating revenues $ Operating Expenses: Benefit payments Administration Insurance Total operating expenses 29,122 2,279 31,401 7,385 1,055 20,460 28,900 Operating Income 2,501 Nonoperating Revenue: Income on investments 26 Income Before Transfers 2,527 Transfers Out (79) Change in Net Position 2,448 Net Position at Beginning of Year 5,996 Net Position at End of Year $ The accompanying notes are an integral part of the financial statements 19 8,444 EXHIBIT VII CITY OF MIDDLETOWN, CONNECTICUT STATEMENT OF CASH FLOWS - PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30, 2015 (In Thousands) Governmental Activities Internal Service Fund Cash Flows from Operating Activities: Interfund services provided or used Cash received for insurance reimbursements Cash paid to vendors Net cash used in operating activities $ Cash Flows from Noncapital Financing Activities: Transfers to other funds 29,122 2,279 (28,490) 2,911 (79) Cash Flows from Investing Activities: Income on investments 26 Net Increase in Cash and Cash Equivalents 2,858 Cash and Cash Equivalents at Beginning of Year 13,239 Cash and Cash Equivalents at End of Year $ Reconciliation of Operating Income to Net Cash Provided by Operating Activities: Operating income Adjustments to reconcile operating loss to net cash used in operating activities: Increase in vouchers and other payables Net Cash Provided by Operating Activities 16,097 $ 2,501 410 $ The accompanying notes are an integral part of the financial statements 20 2,911 EXHIBIT VIII CITY OF MIDDLETOWN, CONNECTICUT STATEMENT OF NET POSITION - FIDUCIARY FUNDS JUNE 30, 2015 (In Thousands) Trust Funds Assets: Cash and cash equivalents Investments: Certificate of deposits U.S. government bonds and securities Corporate bonds Common stock Mutual funds Receivables: Accrued investment income $ 8,219 Agency Funds $ 2,656 37 107,715 52,538 167,418 51,958 503 Total assets 388,351 256 Total liabilities Net Position: Held in Trust for Employee Benefits $ $ 256 Liabilities: Vouchers and other payables Due to student groups and others $ $ 388,095 The accompanying notes are an integral part of the financial statements 21 2,693 2,693 2,693 EXHIBIT IX CITY OF MIDDLETOWN, CONNECTICUT STATEMENT OF CHANGES IN NET POSITION - FIDUCIARY FUNDS PENSION TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (In Thousands) Trust Funds Additions: Contributions: Employer Plan members Other Total contributions $ Investment income: Net appreciation in fair value of investments Interest and dividends Total investment gain Investment fees Net investment income 11,019 2,609 190 13,818 4,276 7,297 11,573 (1,092) 10,481 Total additions 24,299 Deductions: Benefits Other Total deductions 22,998 10 23,008 Net Increase 1,291 Net Position at Beginning of Year 386,804 Net Position at End of Year $ The accompanying notes are an integral part of the financial statements 22 388,095 CITY OF MIDDLETOWN, CONNECTICUT NOTES TO FINANCIAL STATEMENTS June 30, 2015 (IN THOUSANDS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Middletown, Connecticut (the City) have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant policies of the City are described below. A. Reporting Entity The City was incorporated in 1651. Its legal authority is derived from a Charter granted in 1874 that has been subsequently revised, most recently in 2008. The City operates under a Council-Mayor form of government. Services provided include education, water, sewer, refuse, streets and drainage, recreation and parks, police and fire, planning and zoning, community development and human resources. Discretely Presented Component Units The Eastern Connecticut Resource Recovery Authority (ECRRA) has been included in the City's reporting as a proprietary fund type in accordance with GAAP. As more fully explained in Note 11, ECRRA is a regional authority formed to provide solid waste disposal and