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Home My WebLink About2015 Annual Town Report TOWN OF NORTH ANDOVER MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2015 North Andover Town Hall Board of Selectmen Town Manager Front row: Rosemary C. Smedile, Andrew Maylor (Town Mgr), Tracy M. Watson Back row: Richard M. Vaillancourt, Phil DeCologero, Donald B. Stewart TOWN OF NORTH ANDOVER, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2015 Prepared by: Lyne M. Savage, Finance Director/Town Accountant TOWN OF NORTH ANDOVER, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2015 TABLE OF CONTENTS Introductory Section .........................................................................................................................................................1 Letter of transmittal ......................................................................................................................................................3 Organizational chart .....................................................................................................................................................8 Principal town officials ..................................................................................................................................................9 Certificate of achievement for excellence in financial reporting .................................................................................10 Distinguished budget presentation award ..................................................................................................................11 Financial Section ...........................................................................................................................................................13 Independent auditor’s report ......................................................................................................................................15 Management’s discussion and analysis ....................................................................................................................17 Basic financial statements .........................................................................................................................................26 Statement of net position ........................................................................................................................................ 27 Statement of activities ............................................................................................................................................28 Governmental funds – balance sheet ....................................................................................................................30 Reconciliation of the governmental funds balance sheet total fund balances to the statement of net position ..... 31 Governmental funds – statement of revenues, expenditures and changes in fund balances ............................... 32 Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of activities .........................................................................................................................33 Proprietary funds – statement of net position .........................................................................................................34 Proprietary funds – statement of revenues, expenses and changes in net position ..............................................35 Proprietary funds – statement of cash flows ..........................................................................................................36 Fiduciary funds – statement of fiduciary net position .............................................................................................37 Fiduciary funds – statement of changes in fiduciary net position ...........................................................................38 Notes to basic financial statements ........................................................................................................................39 Required supplementary information .........................................................................................................................70 General fund budgetary comparison schedule ......................................................................................................71 Schedule of revenues, expenditures and changes in fund balance – general fund – budget and actual .......... 72 Pension plan schedules .........................................................................................................................................74 Schedule of the Town’s proportionate share of the net pension liability ............................................................75 Schedule of Town contributions .........................................................................................................................76 Schedule of the special funding amounts of the net pension liability .................................................................77 Other postemployment benefit plan schedules ......................................................................................................79 Other postemployment benefit plan schedule of funding progress and schedule of employer contributions .... 80 Other postemployment benefit plan actuarial methods and assumptions ..........................................................81 Notes to required supplementary information ........................................................................................................82 Combining and individual fund statements ................................................................................................................85 Nonmajor governmental funds ...............................................................................................................................86 Nonmajor governmental funds – combining balance sheet ...............................................................................88 Nonmajor governmental funds – combining statement of revenues, expenditures, and changes in fund balances .............................................................................................................................................................92 Agency fund ...........................................................................................................................................................95 Agency fund – statement of changes in assets and liabilities ............................................................................96 Statistical Section ..........................................................................................................................................................97 Net position by component – last ten years ...............................................................................................................98 Changes in net position – last ten years ....................................................................................................................99 Fund balances, governmental funds – last ten years ..............................................................................................101 Changes in fund balances, governmental funds – last ten years ............................................................................102 Assessed value and actual value of taxable property by classification and tax rates – last ten years ....................103 Principal taxpayers – current year and nine years ago ...........................................................................................104 Property tax levies and collections – last ten years .................................................................................................105 Ratios of outstanding debt and general bonded debt – last ten years ....................................................................106 Direct and overlapping governmental activities debt – as of June 30, 2015. ..........................................................107 Computation of legal debt margin – last ten years ..................................................................................................108 Demographic and economic statistics – last ten years ............................................................................................109 Principal employers (excluding Town) – current year and nine years ago ..............................................................110 Full-time equivalent Town employees – last ten years ............................................................................................111 Operating indicators by function/program – last ten years ......................................................................................112 Capital asset statistics by function/program – last ten years ...................................................................................115 Additional Information ..................................................................................................................................................117 Enterprise funds – schedule of revenues, expenses and changes in net position – budgetary basis – budget and actual ....................................................................................................................................................118 Introductory Section Introductory Section Town of North Andover, Massachusetts 1 Comprehensive Annual Financial Report This page intentionally left blank. Town of North Andover, Massachusetts 2 Comprehensive Annual Financial Report Town of North Andover 120 Main Street North Andover, Massachusetts 01845 (978) 688-9523 FAX (978) 688-9522 Letter of Transmittal Letter of transmittal November 30, 2015 To Members of the Board of Selectmen and Citizens of the Town of North Andover: At the close of each fiscal year, state law requires the Town of North Andover to publish a complete set of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP), and that are audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the Comprehensive Annual Financial Report (CAFR) of the Town of North Andover, Massachusetts, for the fiscal year ending 2015 for your review. This report consists of management’s representations concerning the finances of the Town of North Andover. Consequently, management assumes full responsibility for the completeness and reliability of all the information presented in this report. To provide a reasonable basis for making these representations, management of the Town of North Andover has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the Town of North Andover’s financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the Town of North Andover’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements for the fiscal year ended June 30, 2015, are fairly presented in conformity with GAAP. The Town of North Andover’s financial statements have been audited by Powers & Sullivan, LLC, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the Town of North Andover for the fiscal year ended June 30, 2015, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the Town of North Andover’s financial statements for the fiscal year ended June 30, 2015, are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report. The independent audit of the financial statements of the Town of North Andover was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal Town of North Andover, Massachusetts 3 Comprehensive Annual Financial Report requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the Town of North Andover’s separately issued Single Audit Report. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement that analysis and should be read in conjunction with it. The Town of North Andover’s MD&A can be found immediately following the report of the independent auditors. Profile of the Town The Town of North Andover is located in Essex County, approximately 24 miles north of Boston. The Town is 26.63 square miles and lies along the banks of the Merrimack River and is surrounded by the Towns of Boxford, Andover, Middleton, North Reading, and the Cities of Lawrence, Methuen and Haverhill. The settlement of the Town began in 1640 and was incorporated as Andover in 1646. The community was split into the North Parish (now North Andover) and South Parish (now Andover) in 1709 and North Andover was incorporated as a separate entity in 1855. Although North Andover contains several Commercial Office Parks, the Town has retained a rural character and contains over 3,000 acres of preserved open space and farmland. North Andover is served by the following interstates: Route 495, Route 125, Route 133 and Route 114. North Andover is a thriving community with an excellent school system, efficient services and a strong commitment to its citizens. As of the 2010 U.S Census the Town’s population is 28,382. North Andover is governed by an open Town Meeting form of government, a five-member Board of Selectmen and a Town Manager pursuant to a Home Rule Charter that went into effect in 1986. Town Meeting is defined as the Legislative body, Board of Selectmen as the Executive body and the Town Manager as the chief administrative officer. In accordance with Chapter 2 “the legislative powers of the town shall be exercised by a town meeting open to all registered voters of the town”. As defined in Chapter 3 “the Board of Selectmen shall serve as the chief goal-setting and policy-making agency of the town and, as such, shall not normally administer the day-to-day affairs of the town, but shall instead regularly direct the Town Manager to help it in carrying out its administrative duties, and make recommendations to the town meeting relating to actions required to be taken by that body.” As defined in Chapter 4 “the Town Manager shall be the chief administrative officer of the town and shall be responsible for administering and coordinating all employees, activities and departments placed by general law, this charter or by-law under the control of the Board of Selectmen and of the Town Manager.” The School Committee has general charge and superintendence of the public schools of the Town. The School Committee is comprised of five members elected at large. The School Committee has the power to select and terminate a superintendent of schools, along with all the powers and duties given to school committees by the laws of the Commonwealth. The School Committee is responsible for establishing educational goals and policies for the schools consistent with the laws of the Commonwealth and standards established by the Commonwealth. In addition to being shaped and influenced by the Town’s elected officials and appointed staff, Town policy and programs are impacted by the actions of the Town’s Boards and Commissions. The size, responsibility and source of authority of the Town’s Boards and Commissions vary. With the exception of those members who derive their appointments as a result of their position in Town government and the Town Charter mandating their membership, the Board of Selectmen and Town Manager appoint members in accordance with the Town Charter or Massachusetts General Law. The Town provides a full array of high quality services to the general public, including: full-time police and fire protection; schools for grades pre- kindergarten through 12, (one pre-kindergarten, five elementary, one middle, one senior high, and one regional vocational technical high school); solid waste disposal and recycling; street maintenance and snow removal; public health and natural resource protection; community development and Town of North Andover, Massachusetts 4 Comprehensive Annual Financial Report planning; elder, youth and veteran services; a full service library; and various parks, playgrounds, conservation lands, and recreational programs. The Town also operates its own water supply, purification, and distribution system, and provides sanitary waste disposal via connections to a regional treatment facility (Greater Lawrence Sanitary District). During the summer months the Town operates Steven’s Pond, a family and youth oriented recreation area located off Pleasant Street, which includes recreational and instructional swimming, shaded picnic tables, volleyball, horseshoe pits and a children’s playground. The Merrimack Valley Regional Transit Authority (“MVRTA”) provides bus coverage for certain routes around the Town with connections to the surrounding communities within the Merrimack Valley area. The MVRTA also provides a commuter bus service directly to and from the Town and Boston. The Town of North Andover is committed to a high degree of community responsiveness, providing high quality services to its citizens, and conducting all its affairs in a professional manner. Factors Affecting Economic Condition The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the Town of North Andover operates. Local economy Although North Andover is most well-known for its residential friendly neighborhoods and rich natural beauty, the Town also has a well-balanced mix of commercial development situated in three distinct areas. The Downtown/Historic Mill district is centered on Main and High Streets and serves the local community with small retail and office space as well as providing a mix of fast food and full service restaurants. This district is also home to a large mix-use mill complex that houses larger companies, rental housing, manufacturing, restaurants and offices. North Andover is bisected by two state highways that connect to an interstate highway. These two corridors, which comprise the other commercial districts, boast three industrial parks that serve larger national and international businesses. The state highways also provide a mix of regional commercial and retail businesses that serve residents and neighboring communities. Located at the intersection of the two state highways, on a 220- acre campus, is Merrimack College with over 3,000 students. The college was recently ranked as one of the nation’s best regional liberal arts colleges. Long-term financial planning The Town of North Andover is committed to maintaining a solid financial position in all economies and the “AA+” bond rating from Standard and Poor’s along with their “Positive Outlook” designation is indicative of that. The Town’s financial actions are generally guided by a number of formal financial policies and strengthened by long range planning tools such as a five year Capital Improvement Program, Five Year Financial Forecast, pay-as-you go financing strategies and long-term planning for all liabilities including pension and health insurance reserves. Given a number of years of reduced state aid in the first decade of this century, followed by only modest growth since that time, the Town has been able to minimize the impact to municipal and school services through a combination of prudent budgeting, user fee adjustments, strong tax collections, modification of employee health benefits and continued property growth. Over the last few years the Town has been able to make transfers from Free Cash into existing reserves as well as establish and fund new reserve accounts such as the Capital Stabilization Fund, OPEB Reserve Fund, and the Special Education (SPED) Stabilization Fund. As of June 30, 2015, the Stabilization Fund undesignated fund balance is $4,208,044, the Capital Stabilization Fund balance is $455,124, and the OPEB Stabilization Fund undesignated fund balance is $1,007,937. Town of North Andover, Massachusetts 5 Comprehensive Annual Financial Report The Town is currently managing approximately $51.7 million worth of long-term debt. This indebtedness consists of approximately $35.9 million of general obligation bonds. Approximately $7.3 million or 14.1% of the $51.7 million is scheduled to be paid by the end of fiscal 2016 and the remaining $44.4 million by fiscal 2034. Approximately $15.8 million is self-supporting through enterprise fund revenues. The Town of North Andover has enhanced its revenue flexibility by establishing enterprise funds and many other user supported programs. This has allowed the Town to shift the operating costs to the users of certain services so that little or no tax support goes towards providing these services. By doing so, the Town is able to provide the maximum tax dollars available to all other services. In May 2004 Town Meeting adopted an article which established the Revenue/Fixed Cost Review Committee whose main purpose is to advise the Town Manager and other Town officials on projected revenues, other financial sources and fixed costs to facilitate the annual budget development process. Additionally, the Audit Committee assists the Town Manager with the selection of the independent auditor, oversight of the audit process, and resolution of audit findings. Cash management policies and practices It is the policy of the Town of North Andover to comply with the laws of the Commonwealth of Massachusetts regarding the investment of public funds while achieving the highest return with the maximum security and meeting the daily cash flow demands of the Town. As of June 30, 2015, general fund cash and cash equivalents totaled $19.5 million, while the balance of cash and cash equivalents for all funds totaled $50.2 million. Risk management The Town of North Andover manages its risk through premium based coverage with commercial insurance carriers. With the move from the Town’s self-insured health plan to the Group Insurance Commission (GIC) the Town has further reduced their risk related to health insurance claims. The Town is exposed to various risks of loss related to general liability, property and casualty, workers’ compensation and unemployment compensation claims. Buildings and property are fully insured against fire, theft and natural disaster to the extent that losses exceed the Town’s deductible per incident. These deductibles vary by type of incident, none of which exceed $25,000. Pension and other post-employment benefits The Town of North Andover contributes to the Essex Regional Retirement System (ERRS) who manages retirement benefits for all employees other than those covered by the Massachusetts Teachers’ Retirement System. ERRS recently reported that the Net Pension Liability (NPL) for the pension plan increased from $304.7 million as of December 31, 2013, to $339.6 million as of December 31, 2014, using an estimated 8% annual return on funds. This follows an increase in NPL of more than 18% from January 1, 2010 to December 31, 2013. North Andover’s share of this liability is determined annually based on payroll cost and as of December 31, 2014, was approximately 14.76% which extrapolates to an unfunded liability of $49.7 million. The Town of North Andover also provides postretirement health care benefits for certain retirees and their dependents. There were 380 retired employees receiving these benefits, which are financed on a pay-as-you-go basis for its unfunded liability. For Fiscal 2015, the Town obtained an update to the July 1, 2013, actuarial valuation using roll forward procedures that resulted in an unfunded liability of $86,667,740 for the year ended June 30, 2015, which reflects an increase of $62,367 from the June 30, 2014 liability. The primary reason for the minimal increase was the continued positive effect of migrating all employees and retirees to the Group Insurance Town of North Andover, Massachusetts 6 Comprehensive Annual Financial Report Commission (GIC) health insurance plans in January 2014. The unfunded liability in the fiscal year just prior to the moving to the GIC exceeded 100 million dollars. The Town established an Other Postemployment Benefit Stabilization (OPEB) fund in 2014, to date it has been funded with $1 million. In addition, in May 2015 the Town Meeting approved an OPEB Trust Fund and funded that account with $500,000 with a transfer in fiscal 2016 from the health insurance internal service fund. The Town will continue to contribute to these funds based on the Financial Reserve Policy as amended in February 2015. Additional information on the Town of North Andover’s pension and post-employment benefits can be found in the notes to the financial statements. Annual budget process and controls The Town Manager is responsible for preparing and presenting the budget to the Board of Selectmen and the Finance Committee. The Selectmen review all requests and Town wide issues and present a budget to Town Meeting for approval. A nine member Finance Committee reviews the budget and makes its independent recommendations to Town Meeting. The level of budgetary control is established by Town Meeting and this approval defines the level at which expenditures may not exceed appropriations. The Town Accountant is responsible for ensuring all payroll and invoices are within the budgetary control level before authorizing payment. Additional appropriations may be approved at subsequent Town Meetings. These controls ensure compliance with the budget approved by residents at Town Meeting. Awards and Acknowledgements The Town is committed to reporting information in a transparent and professional manner following accepted best practices. As evidence of this the town has complied with the standards set forth by the Government Finance Officers Association of the United States and Canada and been awarded both the Distinguished Budget Presentation Award and Comprehensive Annual Financial Report Award for the past three consecutive years beginning with fiscal 2012. The preparation of this report would not have been possible without the efficient and dedicated services of the Finance and Accounting department staffs. We would like to express our appreciation to all the members of the departments who assisted and contributed to the preparation of this report. Credit must also be given to the Board of Selectmen, Finance Committee and Audit Committee for their unfailing support for maintaining the highest standards of professionalism in the management of the Town of North Andover’s finances. Respectfully submitted, Andrew W. Maylor Lyne M. Savage Town Manager Finance Director/Town Accountant Town of North Andover, Massachusetts 7 Comprehensive Annual Financial Report Comprehensive Annual Financial Report 8 Organizational Chart Organizational chart Town of North Andover, Massachusetts Principal Town Officials Principal town officials Elected Officials Board of Selectmen Tracy M. Watson, Chairman Phil DeCologero, Clerk Rosemary Connelly Smedile Donald B. Stewart Richard M Vaillancourt Town Moderator Mark DiSalvo School Committee Brian Gross, Chair Andrew McDevitt, Vice Chair Stan Limpert, Clerk David Torrisi, Member Zora Warren, Member Appointed Officials – by School Committee Superintendent Jennifer Price Appointed Officials – by Board of Selectmen Town Manager Andrew W. Maylor Town Accountant Lyne M. Savage Fire Chief Andrew Melnikas Police Chief Paul J. Gallagher Town Counsel Urbelis & Fieldsteel, LLP Appointed Officials – by Town Manager Assistant Town Manager/Purchasing Raymond Santilli Community Development Director Eric Kfoury Conservation Administrator Jennifer A Hughes Director of Elder Services Irene M. O’Brien Finance Director Lyne M. Savage Facilities Director Steve Foster Human Resources Cathy J. Darby Inspector of Building Gerald A. Brown Library Director Kathleen Keenan Public Works Director Bruce D. Thibodeau Public Health Director Susan Y. Sawyer Town Clerk Joyce A. Bradshaw Town Treasurer Jennifer A. Yarid Town Planner Vacant Veterans Director Edward V. Mitchell Youth Services Director Richard Gorman Town of North Andover, Massachusetts 9 Comprehensive Annual Financial Report Certificate of achievement for excellence in financial reporting Town of North Andover, Massachusetts 10 Comprehensive Annual Financial Report Distinguished budget presentation award Town of North Andover, Massachusetts 11 Comprehensive Annual Financial Report This page intentionally left blank. Town of North Andover, Massachusetts 12 Comprehensive Annual Financial Report Financial Section Financial Section Town of North Andover, Massachusetts 13 Comprehensive Annual Financial Report This page intentionally left blank. Town of North Andover, Massachusetts 14 Comprehensive Annual Financial Report Independent Auditor’s Report Independent auditor’s report To the Honorable Board of Selectmen Town of North Andover, Massachusetts Report on the Financial Statements 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 Town of North Andover, Massachusetts, as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the Town’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. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an 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. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Town of North Andover, Massachusetts, 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. Town of North Andover, Massachusetts 15 Comprehensive Annual Financial Report Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of 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 Town of North Andover, Massachusetts’ basic financial statements. The introductory section, combining and individual fund statements, statistical section, and additional information are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund statements 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 fund statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory section, statistical section and additional information 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 30, 2015, on our consideration of the Town of North Andover, Massachusetts’ internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters.The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance.That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Town of North Andover, Massachusetts’ internal control over financial reporting and compliance. November 30, 2015 Town of North Andover, Massachusetts 16 Comprehensive Annual Financial Report Management’s Discussion and Analysis Management’s discussion and analysis Town of North Andover, Massachusetts 17 Comprehensive Annual Financial Report Management’s Discussion and Analysis As management of the Town of North Andover, we offer readers of these financial statements this narrative overview and analysis of the financial activities for the year ended June 30, 2015. We encourage readers to consider the information presented in this report. All amounts, unless otherwise indicated, are expressed in whole dollars. The Governmental Accounting Standards Board (GASB) is the authoritative standard setting body that provides guidance on how to prepare financial statements in conformity with generally accepted accounting principles (GAAP) for states and local governmental entities. Users of these financial statements (such as investors, rating agencies and management) rely on the GASB to establish consistent reporting standards for all governments in the United States. This consistent application is the only way users (including citizens, the media, legislators and others) can assess the financial condition of one government compared to others. Financial Overview The assets and deferred outflows of resources of the Town of North Andover exceeded the liabilities and deferred inflows of resources at the close of the most recent year by $93.5 million (net position). In 2015, the Town implemented GASB Statement #68, Accounting and Financial Reporting for Pensions. Financial statement changes include the recognition of a $49.7 million net pension liability, pension expense and deferred inflows of resources. The financial statements also recognized a revision of beginning net position to reflect the net pension liability at the beginning of the year (see note 16). The notes to the basic financial statements and the required supplementary information were expanded to include additional required schedules and disclosures. At the close of the current year, the Town’s general fund reported a fund balance of $13.9 million, an increase of $3.8 million in comparison with the prior year. Total fund balance represents 16% of general fund expenditures. The Town’s governmental debt (short-term and long-term combined) increased by $3.4 million during the current year. This change was due to the issuance of $8.7 million of long-term debt, offset by $4.7 million in principal payments on long-term debt, and a $600,000 decrease in short-term debt outstanding. The Town’s business-type debt (short-term and long-term combined) decreased by $3.2 million during the current year. This change was due to the issuance of $1 million of long-term debt, offset by $4.2 million in principal payments. In order to take advantage of favorable interest rates, the Town issued $1,070,000 of general obligation refunding bonds on June 15, 2015. The transaction resulted in an economic gain of $158,000 and a reduction of $180,000 in future debt service payments. Town of North Andover, Massachusetts 18 Comprehensive Annual Financial Report Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the Town of North Andover’s basic financial statements. These basic financial statements comprise of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of finances, in a manner similar to private-sector business. Thestatement of net position presents information on all assets, deferred outflows of resources, liabilities, and deferred inflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position is improving or deteriorating. Thestatement of activities presents information showing how the government’s net position changed during the most recent year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities include general government, public safety, education, public works, health and human services, culture and recreation, support services, and interest. The business-type activities include the activities of the water, sewer, and Osgood Hill Estate operations. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Fund accounting is used to ensure and demonstrate compliance with finance-related legal requirements. All of the funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds.Governmental funds are used to account for essentially the same functions reported as governmental activities in the governmental-wide financial statements. However, unlike the government-wide financial statements, governmental fund statements focus on near-term inflows of spendable resources, as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The Town of North Andover adopts an annual appropriated budget for its general fund. A budget to actual schedule has been provided for the general fund to demonstrate compliance with this budget. Town of North Andover, Massachusetts 19 Comprehensive Annual Financial Report Proprietary funds. The Town maintains two types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government- wide financial statements. The Town uses enterprise funds to account for its water, sewer, and Osgood Hill Estate operations, all of which are considered to be major funds. The Town of North Andover adopts annual appropriated budgets for each enterprise fund. A budget to actual schedule has been provided, as additional information, to demonstrate compliance with these budgets. TheInternal Service fund is used to account for the financing of services provided by one department to other departments or governmental units. This fund is used to account for risk-financing activities related to active employees’ and retirees’ health insurance. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the Town’s own programs. The accounting used for fiduciary funds is much like that used for propriety funds. Private-purpose trust funds and agency funds are reported and combined into a single, aggregate presentation in the fiduciary fund financial statements under the captions “private purpose trust funds” and “agency funds,” respectively. Notes to the basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Government-wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. North Andover’s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $93.5 million at the close of 2015. Net position includes $151.6 million as the net investment in capital assets (e.g., land, buildings and building improvements, machinery and equipment and infrastructure); less any related debt used to acquire those assets that are still outstanding. The Town uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the investment in its capital assets is reported net of its related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the net position, $9.2 million, represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net positionhas a year-end deficit balance of $67.4 million. The primary reason for this deficit balance is the recognition of the $49.3 million OPEB liability and the $49.7 million net pension liability. At the end of the current year, the Town is able to report positive balances in two of the three categories of net position, for the Town as a whole and for its governmental activities. Its business-type activities report positive balances in all categories. The governmental activity and business-type activity components of the Town are presented on the following pages. Town of North Andover, Massachusetts 20 Comprehensive Annual Financial Report Governmental Activities. The Town of North Andover’s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources for governmental activities by $45 million at the close of 2015. 2014 2015(As Revised) Assets: Current assets……………………………………………………$46,373,719 $44,473,557 Capital assets…………………………………………………… 139,763,991 134,996,739 Total assets…………………………………………………186,137,710179,470,296 Deferred Outflows of Resources: Deferred charges on refunding………………………………… 230,563135,258 Liabilities: Current liabilities (excluding debt)……………………………… 8,384,461 8,852,949 Noncurrent liabilities (excluding debt)………………………… 96,109,682 90,997,702 Current debt……………………………………………………… 4,857,786 5,294,425 Noncurrent debt………………………………………………… 31,674,706 27,872,574 Total liabilities………………………………………………141,026,635133,017,650 Deferred Inflows of Resources: Deferred inflows of resources related to pensions…………… -209,218 Net Position: Net investment in capital assets………………………………… 108,245,924 106,117,880 … 8,473,982 9,444,583 Restricted……………………………………………………… Unrestricted……………………………………………………… (71,682,791) (68,879,254) Total net position……………………………………………$45,037,115$ 46,683,209 Program Revenues: Charges for services……………………………………………$7,071,850 $7,010,301 Operating grants and contributions…………………………… 16,630,896 18,994,028 … 1,080,649 1,807,772 Capital grants and contributions……………………………… General Revenues: Real estate and personal property taxes……………………… 63,877,139 62,195,623 Tax liens…………………………………………………………… 698,405 570,085 Motor vehicle and other excise taxes………………………… 4,957,476 4,673,160 Penalties and interest on taxes………………………………… 390,837 501,903 Payments in lieu of taxes……………………………………… 1,975,835 2,008,020 Community preservation taxes……………………………..…… 1,466,141 1,433,013 Grants and contributions not restricted to specific programs…………………………………………… 2,368,601 2,279,506 Unrestricted investment income………………………………… 206,490 241,618 Gain on sale of capital assets…………………………………… 175,692 - Total revenues………………………………………………100,900,011101,715,029 Expenses: General government…………………………………………… 3,682,360 3,685,321 Public safety……………………………………………………… 15,498,592 15,242,286 Education………………………………………………………… 69,182,129 70,591,546 Public works……………………………………………………… 7,659,238 6,719,915 Health and human services…………………………………… 2,420,603 2,228,573 Culture and recreation……………………………………… 2,530,792 1,453,223 Support services………………………………………………… 1,914,306 1,444,333 Interest…………………………………………………………… 1,004,030 1,025,900 Total expenses………………………………………………103,892,050102,391,097 Excess (deficiency) before transfers…………………………… (676,068)(2,992,039) Transfers…………………………………………………………… 1,345,945 832,290 … 156,222(1,646,094) Change in net position……………………………………… Net position, beginning of year (as revised)…………………46,683,20946,526,987 Net position, end of year…………………………………………$45,037,115$ 46,683,209 Town of North Andover, Massachusetts 21 Comprehensive Annual Financial Report The 2014 governmental activities net position has been revised to reflect the implementation of GASB Statement #68 and the associated net pension liability totaling $48,002,805. As a result, previously reported net position of $94,686,014 has been revised to $46,683,209. The governmental expenses totaled $103.9 million of which $24.8 million (24%) was directly supported by program revenues consisting of charges for services, operating and capital grants and contributions. General revenues totaled $76.1 million, primarily coming from property taxes, motor vehicle excise, payments in lieu of taxes, community preservation taxes and non-restricted state aid. The governmental net position decreased by $1.6 million during the current year. This decrease was due to several offsetting factors. Governmental net position decreased by $5.0 million due to an increase in the other postemployment benefits liability. This decrease was offset by positive general fund operating results totaling $2.2 million and the recognition of $1.1 million in capital grants. Business-type Activities. The Town of North Andover’s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources for business-type activities by $48.4 million at the close of 2015. 2014 2015(As Revised) Assets: Current assets………………………………………………………$11,333,438 $11,074,453 Noncurrent assets (excluding capital)…………………………… 476,636 577,484 Capital assets……………………………………………………… 56,349,158 56,976,623 Total assets…………………………………………………… 68,628,56068,159,232 Deferred Outflows of Resources: Deferred charges on refunding…………………………………… 141,043102,663 Liabilities: Current liabilities (excluding debt)……………………………… 413,186 361,174 Noncurrent liabilities (excluding debt)…………………………… 3,619,158 3,465,942 Current debt………………………………………………………… 2,529,601 3,240,133 Noncurrent debt…………………………………………………… 13,277,633 15,770,161 … 22,837,41019,839,578 Total liabilities……………………………………………… Deferred Inflows of Resources: Deferred inflows of resources related to pensions…………… -7,031 Net Position: Net investment in capital assets………………………………… 43,397,442 42,012,200 Unrestricted………………………………………………………… 5,017,844 3,919,993 Total net position………………………………………………$48,415,286$ 45,932,193 Town of North Andover, Massachusetts 22 Comprehensive Annual Financial Report 2014 2015(As Revised) Program Revenues: Charges for services………………………………………………$11,048,263 $10,520,803 Operating grants and contributions……………………………… 112,149 122,529 Total revenues………………………………………………… 10,643,33211,160,412 Expenses: Water………………………………………………………………… 3,463,307 3,200,373 Sewer……………………………………………………………… 3,481,106 3,238,708 Osgood Hill ………………………………………………………… 386,961 344,001 Total expenses………………………………………………… 6,783,0827,331,374 Excess (deficiency) before transfers…………………………… 3,829,0383,860,250 Transfers……………………………………………………………… (832,290)(1,345,945) Change in net position………………………………………… 3,027,9602,483,093 …45,932,19342,904,233 Net position, beginning of year (as revised)………………… Net position, end of year……………………………………………$48,415,286$45,932,193 The 2014 business-type activities net position has been revised to reflect the implementation of GASB Statement #68 and the associated net pension liability totaling $1,613,124. As a result, previously reported net position of $47,545,317 has been revised to $45,932,193. Business-type net position of $43.4 million represents the net investment in capital assets and $5.0 million is unrestricted. The Town’s business-type activities net position increased by $2.5 million in the current year. The water enterprise fund net position increased by $1.2 million. This increase was due to debt service principal payments exceeding depreciation expense by $602,000, as well as $727,000 of positive budgetary results. During the year, the fund earmarked $600,000 for water treatment plant technology upgrades that will occur in fiscal 2016. The sewer enterprise fund net position increased by $1.2 million. This increase was due to debt service principal payments exceeding depreciation expense by $837,000, as well as $539,000 of positive operating results. The Osgood Hill enterprise fund net position increased by $75,000 which was primarily due to positive budgetary results. Financial Analysis of the Governmental Funds As noted earlier, the Town uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the Town of North Andover’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Town of North Andover’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the year. As of the end of the current year, governmental funds reported combined ending fund balances of $29.2 million, of which $13.9 million is for the general fund, $6.5 million is for the community preservation fund, $4.4 million is for municipal capital project funds, and $4.3 million is for nonmajor governmental funds. Cumulatively there was an increase of $5.0 million in fund balances from the prior year. Town of North Andover, Massachusetts 23 Comprehensive Annual Financial Report The general fund is the chief operating fund. At the end of the current year, unassigned fund balance of the general fund totaled $13.0 million, while total fund balance was $13.9 million. $693,000 of fund balance was restricted for debt service while $293,000 has been assigned for encumbrances. Total fund balance represents 16% of general fund expenditures. The Town’s general fund increased by $3.8 million in 2015. This was due to $1.5 million of better than anticipated revenue collections, such as tax liens, motor vehicle and other excise taxes, penalties and interest on taxes, intergovernmental revenues, and departmental receipts. Also contributing to the increase was various underspent appropriations of $1.3 million; and a $1.0 million transfer from the health insurance internal service fund to the OPEB stabilization fund which is reported as a component of general fund unassigned fund balance. The community preservation fund decreased by $281,000 in 2015, which is due to timing differences between the receipt and expenditure of surcharge and state grant revenues. The highway chapter 90 fund recognized revenues and expenditures totaling $1.3 million and accordingly did not reflect a net change in fund balance at year-end. The municipal capital project fund increased by $955,000 in 2015 which is primarily due to a timing difference between the receipt and expenditure of bond proceeds. The nonmajor governmental funds increased by $487,000 in 2015, which is due to a timing difference between the receipt and expenditure of bond proceeds, as well as state and federal grant funds. General Fund Budgetary Highlights The original 2015 approved budget for the General Fund authorized $86.4 million in appropriations and other amounts to be raised. This includes $366,000 of encumbrances and continuing appropriations carried forward from the prior year. Capital Asset and Debt Administration Capital Assets. In conjunction with the annual operating budget, the Town annually prepares a capital budget for the upcoming year and a five-year Capital Improvement Plan (CIP) that is used as a guide for future capital expenditures. The Town’s investment in capital assets for its governmental and business-type activities as of June 30, 2015, amounts to $196.1 million(net of accumulated depreciation). This investment in capital assets includes land, construction in progress, land improvements, buildings and building improvements, machinery and equipment, library books, vehicles, a water treatment plant, pump stations, a reservoir, and other infrastructure. The Town invested $11.9 million for capital asset additions in 2015. The major governmental capital asset events during the current year include various improvements to Town buildings in connection with the facilities master plan, improvements to McEvoy field, as well as various sidewalk and roadway improvements. The major business-type capital asset events during the current year consisted of improvements to water and sewer pump stations, the purchase of a sewer utility truck, a new HVAC system, as well as window and roof repairs at the Stevens Estate. Town of North Andover, Massachusetts 24 Comprehensive Annual Financial Report Debt Administration. Outstanding gross long-term governmental debt, as of June 30, 2015, totaled $36.5 million, an increase of $4 million from the prior year. This was due to the issuance of general obligation bonds and premiums totaling $8.7 million, and principal payments totaling $4.7 million. There was no outstanding governmental short-term debt as of year-end. Outstanding gross long-term debt of the water enterprise fund, as of June 30, 2015, totaled $7.9 million, a decrease of $1.5 million from the prior year. This was due to principal payments totaling $1.5 million. Outstanding gross long-term debt of the sewer enterprise fund, as of June 30, 2015, totaled $7.9 million, a decrease of $1.7 million. This was due to principal payments totaling $1.7 million, $1 million of proceeds from refunding bonds and the refunding of $1 million of existing debt. In order to take advantage of favorable interest rates, the Town issued $1,070,000 of general obligation refunding bonds on June 15, 2015. $1,030,000 of general obligation bonds were advance refunded by placing the proceeds of the refunding bonds in an irrevocable trust to provide for all future debt service payments of the refunded bonds. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the statement of net position. The reacquisition price exceeded the net carrying amount of the old debt by $44,513. This advance refunding was undertaken to reduce total debt service payments over the next 13 years by $179,588 and resulted in an economic gain of $157,945. At June 30, 2015, $1,030,000 of bonds outstanding from the advance refunding is considered defeased. Please refer to notes 4, 7 and 8 to the basic financial statements for further discussion of the major capital and debt activity. Requests for Information This financial report is designed to provide a general overview of the Town of North Andover’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Finance Director, Town Hall, 120 Main Street, North Andover, Massachusetts 01845. Town of North Andover, Massachusetts 25 Comprehensive Annual Financial Report Basic Financial Statements Basic financial statements Town of North Andover, Massachusetts 26 Comprehensive Annual Financial Report STATEMENT OF NET POSITION JUNE 30, 2015 Primary Government GovernmentalBusiness-type ActivitiesActivitiesTotal ASSETS CURRENT: Cash and cash equivalents……………………………………$ 38,054,907 $ 8,290,713 $ 46,345,620 Investments…………………………………………………… -714,597 714,597 Receivables, net of allowance for uncollectibles: y taxes………………… 1,071,052-1,071,052 Real estate and personal propert Tax and utility liens………………………………………… 2,355,20271,8652,427,067 Motor vehicle and other excise taxes…………………… 608,834-608,834 User char ges……………………………………………… - 2,870,012 2,870,012 Community preservation…………………………………… 20,734-20,734 Departmental and other…………………………………… 639,720-639,720 Intergovernmental………………………………………… 1, 100,848761,443 1,862,291 Tax foreclosures……………………………………………… 655,028 - 655,028 g capital deposit……………………………………… -492,202 492,202 Workin Total current assets…………………………………… 11,333,43846,373,719 57,707,157 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental………………………………………… - 476,636 476,636 Capital assets, nondepreciable……………………………… 25,760,6856,838,38232,599,067 Capital assets, net of accumulated depreciation…………… 114,003,30649,510,776163,514,082 Total noncurrent assets………………………………… 139,763,99156,825,794196,589,785 TOTAL ASSETS…………………………………………………… 186,137,71068,159,232254,296,942 DEFERRED OUTFLOWS OF RESOURCES Deferred charges on refunding……………………………… 135,258102,663237,921 LIABILITIES CURRENT: Warrants payable……………………………………………… 1,995,460224,6442,220,104 Accrued payroll………………………………………………… 3,013,229-3,013,229 Tax refunds payable…………………………………………… 2,020,000-2,020,000 Accrued interest………………………………………………… 297,045131,542428,587 Other liabilities………………………………………………… 77,567-77,567 Liabilities due depositors……………………………………… 106,160-106,160 Compensated absences……………………………………… 875,00057,000932,000 Bonds payable………………………………………………… 4,857,786 7,387,3872,529,601 Total current liabilities………………………………… 13, 2,942,787242,247 16,185,034 NONCURRENT: Compensated absences……………………………………… 668,00037,000705,000 Other postemployment benefits……………………………… 47,339,0461,965,67949,304,725 y…………………………………………… 48,102,6361,616,47949,719,115 Net pension liabilit Bonds payable………………………………………………… 31,674,70613,277,63344,952,339 Total noncurrent liabilities……………………………… 127,784,38816,896,791144,681,179 TOTAL LIABILITIES……………………………………………… 141,026,63519,839,578160,866,213 DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources related to pensions………… 209,2187,031216,249 NET POSITION Net investment in capital assets………………………………… 108,245,92443,397,442151,643,366 Restricted for: Debt service……………………………………………………-- Community preservation……………………………………… 6,978,784-6,978,784 Permanent funds: Expendable……….………………………………………… 729,799-729,799 Nonexpendable…………………………………………… 29,257-29,257 Gifts and grants………………………………………………… 736,142 - 736,142 … (71,682,791)5,017,844(66,664,947) Unrestricted……………………………………………………… TOTAL NET POSITION……………………………………………$ 45,037,115 $ 48,415,286 $ 93,452,401 See notes to basic financial statements. Town of North Andover, Massachusetts27Comprehensive Annual Financial Report STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2015 Program Revenues OperatingCapital Charges forGrants andGrants andNet (Expense) ExpensesServicesContributionsContributionsRevenue Functions/Programs Primary Government: Governmental Activities: General government……………… $ 3,682,360 $ 620,811 $ 301,041 $ - $ (2,760,508) Public safety………………………… 15,498,592 2,943,349 290,289 - (12,264,954) … 69,182,129 3,304,534 15,410,239 - (50,467,356) Education………………………… … 7,659,238 87,231 45,465 497,030 (7,029,512) Public works……………………… Health and human services……… 2,420,603 113,284 446,188 - (1,861,131) Culture and recreation……………… 2,530,792 2,641 124,775 583,619 (1,819,757) Support services…………………… 1,914,306 - - - (1,914,306) … 1,004,030 - 12,899 - (991,131) Interest…………………………… Total Governmental Activities… 103,892,050 7,071,850 16,630,896 1,080,649 (79,108,655) Business-Type Activities: Water………………………………… 3,463,307 5,550,719 15,705 - 2,103,117 … 3,481,106 5,014,766 95,427 - 1,629,087 Sewer……………………………… … 386,961 482,778 1,017 - 96,834 Osgood Hill……………………… Total Business-Type Activities… 7,331,374 11,048,263 112,149 - 3,829,038 … $ 111,223,424 $ 18,120,113 $ 16,743,045 $ 1,080,649 $ (75,279,617) Total Primary Government…… See notes to basic financial statements.(Continued) Town of North Andover, Massachusetts28Comprehensive Annual Financial Report STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2015 Primary Government GovernmentalBusiness-Type ActivitiesActivitiesTotal Changes in net position: Net (expense) revenue from previous page……$ (79,108,655)$ 3,829,038 $ (75,279,617) General revenues: Real estate and personal property taxes, net of tax refunds payable………………… 63,877,139 - 63,877,139 Tax liens………………………………………… 698,405 - 698,405 Motor vehicle and other excise taxes……… 4,957,476 - 4,957,476 Penalties and interest………………………… 390,837 - 390,837 Payments in lieu of taxes…………………… 1,975,835 - 1,975,835 Community preservation taxes……………… 1,466,141 - 1,466,141 Grants and contributions not restricted to specific programs…………………………… 2,368,601 - 2,368,601 Unrestricted investment income……………… 206,490 - 206,490 Gain on sale of capital assets………………… 175,692 - 175,692 Transfers, net…………………………………… 1,345,945 (1,345,945) - Total general revenues and transfers………… 77,462,561 (1,345,945) 76,116,616 Change in net position……………………… (1,646,094) 2,483,093 836,999 Net Position: Beginning of year (as revised)……………… 46,683,209 45,932,193 92,615,402 End of year……………………………………$ 45,037,115 $ 48,415,286 $ 93,452,401 (Concluded) Town of North Andover, Massachusetts29Comprehensive Annual Financial Report GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2015 MunicipalNonmajorTotal CommunityHighwayCapitalGovernmentalGovernmental GeneralPreservationChapter 90ProjectsFundsFunds ASSETS Cash and cash equivalents……………………………… … $ 19,537,168$ 6,521,502$ $ 5,182,096- $ 3,724,179$ 34,964,945 Investments……………………………………………… … ----714,597714,597 Receivables, net of uncollectibles: Real estate and personal property taxes……………… 1,071,052--- 1,071,052- Tax liens………………………………………………… 2,355,202--- 2,355,202- Motor vehicle and other excise taxes………………… 608,834----608,834 Community preservation……………………………… -20,734---20,734 Departmental and other………………………………… 606,453---33,267639,720 Intergovernmental……………………………………… 454,000-1,239,649-67,7941,761,443 Tax foreclosures…………………………………………… 655,028----655,028 Due from other funds……………………………………… 504,976----504,976 TOTAL ASSETS…………………………………………… $ 25,338,713$ 6,996,236$ 1,239,649$ 5,182,096 $ 4,539,837$ 43,296,531 LIABILITIES Warrants payable……………………………………… $ 1,138,843$ 17,452 $ $ 785,689- $ 51,899 $ 1,993,883 Accrued payroll………………………………………… 2,870,160 - - - 143,069 3,013,229 Tax refunds payable…………………………………… 2,020,000--- 2,020,000- Liabilities due depositors……………………………… 106,160----106,160 Other liabilities…………………………………………… 77,567----77,567 Due to other funds……………………………………… - 504,976---504,976 … 6,212,73017,452504,976785,689194,9687,715,815 TOTAL LIABILITIES……………………………………… DEFERRED INFLOWS OF RESOURCES Unavailable revenues…………………………………… 5,185,574474,734734,673-33,2676,428,248 FUND BALANCES Nonspendable…………………………………………… ----29,25729,257 Restricted………………………………………………… 693,3986,504,050 4,396,407-4,282,34515,876,200 Assigned………………………………………………… 293,410----293,410 Unassigned……………………………………………… 12,953,601--- 12,953,601- … 13,940,4096,504,050 4,396,407-4,311,60229,152,468 TOTAL FUND BALANCES……………………………… TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES……………… $ 25,338,713$ 6,996,236$ 1,239,649$ 5,182,096 $ 4,539,837$ 43,296,531 See notes to basic financial statements. Town of North Andover, Massachusetts30Comprehensive Annual Financial Report RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET POSITION JUNE 30, 2015 Total governmental fund balances…………………………………………………………………………$ 29,152,468 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the funds……………………………………………………… 139,763,991 Accounts receivable are not available to pay for current-period expenditures and, therefore, are unavailable in the funds………………………………………… 6,428,248 Certain changes in the net pension liability are required to be included in pension expense over future periods. These changes are reported as deferred outflows of resources or (deferred inflows of resources) related to pensions………………………………… (209,218) Internal service funds are used by management to account for unemployment, health insurance activities. The assets and liabilities of the internal service funds are included in the governmental activities in the statement of net position…………………… 3,580,587 In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until due……………………………… (297,045) Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds. Bonds payable……..……………………………………………………………………………… (36,532,492) Deferred charges on refunding……..…………………………………………………………… 135,258 … (47,339,046) Other postemployment benefits………………………………………………………………… Net pension liability………………………………………………………………………………… (48,102,636) … (1,543,000) Compensated absences………………………………………………………………………… Net effect of reporting long-term liabilities………………………………………………… (133,381,916) …$ 45,037,115 Net position of governmental activities………………………………………………………………… See notes to basic financial statements. Town of North Andover, Massachusetts31Comprehensive Annual Financial Report GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2015 MunicipalNonmajorTotal CommunityHighwayCapitalGovernmentalGovernmental GeneralPreservationChapter 90ProjectsFundsFunds REVENUES: Real estate and personal property taxes, net of tax refunds…………………………… $ 64,109,047 $ - $ - $ - $ - $ 64,109,047 Tax and utility liens……………………………… 311,317 - - - - 311,317 Payments in lieu of taxes……………………… 1,833,933 - - - 141,902 1,975,835 Community preservation taxes………………… - 1,467,987 - - - 1,467,987 Motor vehicle and other excise taxes………… 4,627,106 - - - - 4,627,106 Charges for services…………………………… 942,044 - - - 3,522,639 4,464,683 Penalties and interest on taxes……………… 493,863 - - - - 493,863 Licenses and permits…………………………… 265,382 - - - 478,890 744,272 Fines and forfeitures…………………………… 92,863 - - - - 92,863 Intergovernmental……………………………… 14,874,030 498,619 1,294,887 123,530 3,642,295 20,433,361 Departmental and other………………………… 1,719,496 - - - 132,223 1,851,719 Contributions…………………………………… - - - - 624,725 624,725 Investment income …………………………… 148,861 37,946 - - 19,683 206,490 TOTAL REVENUES…………………… 89,417,942 2,004,552 1,294,887 123,530 8,562,357 101,403,268 EXPENDITURES: Current: General government………………………… 2,178,390 - - 6,471,718 205,602 8,855,710 Public safety………………………………… 9,582,393 - - 4,581 716,695 10,303,669 Education…………………………………… 43,046,508 - - 7,117,120- 50,163,628 Public works………………………………… 5,335,369 - 1,294,887 730,488 18,200 7,378,944 Health and human services………………… 1,195,496 - - - 497,568 1,693,064 Culture and recreation……………………… 895,875 2,285,150 - - 86,760 3,267,785 Support Services…………………………… 1,713,705 - - 79,346 - 1,793,051 Pension benefits…………………………… 8,326,021 - - - 8,326,021- Property and liability insurance…………… 293,178 - - - - 293,178 Employee benefits…………………………… 9,663,907 - - - - 9,663,907 State and county charges……………………… 436,946 - - - - 436,946 Debt service: Principal……………………………………… 4,583,967 - - - - 4,583,967 Interest……………………………………… 980,877 - - - - 980,877 TOTAL EXPENDITURES……………… 88,232,632 2,285,150 1,294,887 7,286,133 8,641,945 107,740,747 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………… 1,185,310 (280,598) - (7,162,603) (79,588) (6,337,479) OTHER FINANCING SOURCES (USES): Issuance of bonds……………………………… - - - 7,967,257 397,743 8,365,000 Issuance of refunding bonds…………………… 68,526 - - - - 68,526 Premium from issuance of bonds…………… 291,987 - - - - 291,987 Payments to refunded bond escrow agent…… (68,427) - - - - (68,427) Sale of capital assets…………………………… - - - - 300,041 300,041 Transfers in……………………………………… 2,576,648 - - 150,000 73,500 2,800,148 Transfers out…………………………………… (223,500) - - - (204,453) (427,953) TOTAL OTHER FINANCING SOURCES (USES)…………………… 2,645,234 - - 8,117,257 566,831 11,329,322 NET CHANGE IN FUND BALANCES…………… 3,830,544 (280,598) - 954,654 487,243 4,991,843 FUND BALANCES AT BEGINNING OF YEAR………………………………………… 10,109,865 6,784,648 - 3,441,753 3,824,359 24,160,625 FUND BALANCES AT END OF YEAR………… $ 13,940,409 $ 6,504,050 $ - $ 4,396,407 $ 4,311,602 $ 29,152,468 See notes to basic financial statements. Town of North Andover, Massachusetts32Comprehensive Annual Financial Report RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2015 Net change in fund balances - total governmental funds…………………………………………… …$ 4,991,843 Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital outlay……………………………………………………………………………………10,763,688 Depreciation expense……………………………………………………………………………(5,872,087) Net effect of reporting capital assets…………………………………………………… 4,891,601 In the Statement of Activities, only the gain (loss) on the sale of capital assets is reported, whereas in the governmental funds the entire proceeds of the sale are reported as financial resources. As a result, the change in net position differs from the change in fund balance by the cost of the capital assets sold………………………………… (124,349) Revenues in the Statement of Activities that do not provide current financial resources are unavailable in the Statement of Revenues, Expenditures and Changes in Fund Balances. Therefore, the recognition of revenue for various types of accounts receivable (i.e., real estate and personal property, motor vehicle excise, etc.) differ between the two statements. This amount represents the net change in unavailablerevenue…………………………………………………………… (678,949) The issuance of long-term debt (e.g., bonds and leases) provides current financial resources to governmental funds, while the repayment of the principal of long- term debt consumes the financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. Issuance of bonds………………………………………………………………………………(8,365,000) …(68,526) Issuance of refunding bonds………………………………………………………………… Premium from issuance of bonds………………………………………………………………(291,987) …50,458 Amortization of premium from issuance of bonds………………………………………… Payments to refunded bond escrow agent……………………………………………………68,427 …4,583,967 Debt service principal payments…………………………………………………………… Net effect of reporting long-term debt………………………………………………… (4,022,661) 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. …(69,000) Net change in compensated absences accrual…………………………………………… Net change in accrued interest on long-term debt……………………………………………21,694 Net change in other postemployment benefits………………………………………………(5,014,149) Net change in deferred outflow/(inflow) of resources related to pensions…………………(209,218) …(99,831) Net change in net pension liability…………………………………………………………… Amortization of deferred charges on refunding………………………………………………(98,135) Net effect of recording long-term liabilities and amortizing deferred losses……… (5,468,639) Internal service funds are used by management to account for health insurance and workers' compensation activities. … (1,234,940) The net activity of internal service funds is reported with governmental activities…… Change in net position of governmental activities………………………………………………………$ (1,646,094) See notes to basic financial statements. Town of North Andover, Massachusetts33Comprehensive Annual Financial Report PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2015 Governmental Business-type Activities - Enterprise FundsActivities Health Insurance Osgood Internal Service WaterSewerHillTotalFund ASSETS CURRENT: Cash and cash equivalents………………………………………$ 4,532,507 $ 3,512,459 $ 245,747 $ 8,290,713 $ 3,089,962 Receivables, net of allowance for uncollectibles: User fees……………………………………………………… 1,470,741 1,399,271 - 2,870,012 - Utility liens…………………………………………………… 52,853 19,012 - 71,865 - Intergovernmental…………………………………………… - 100,848 - 100,848 - … - - - - 492,202 Working capital deposit……………………………………… Total current assets……………………………………… 6,056,101 5,031,590 245,747 11,333,438 3,582,164 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental…………………………………………… - 476,636 - 476,636 - Capital assets, nondepreciable………………………………… 1,982,535 123,762 4,732,085 6,838,382 - … 26,887,049 21,424,864 1,198,863 49,510,776 - Capital assets, net of accumulated depreciation…………… Total noncurrent assets………………………………… 28,869,584 22,025,262 5,930,948 56,825,794 - TOTAL ASSETS…………………………………………………… 34,925,68527,056,852 6,176,695 68,159,2323,582,164 DEFERRED OUTFLOWS OF RESOURCES Deferred charges on refunding………………………………… 14,767 87,896 - 102,663 - LIABILITIES CURRENT: Warrants payable………………………………………………… 195,055 23,138 6,451 224,644 1,577 Accrued interest………………………………………………… 39,782 91,760 - 131,542 - Compensated absences………………………………………… 35,000 22,000 - 57,000 - … 1,090,276 1,439,325 - 2,529,601 - Bonds payable………………………………………………… Total current liabilities…………………………………… 1,360,113 1,576,223 6,451 2,942,787 1,577 NONCURRENT: … 21,000 16,000 - 37,000 - Compensated absences……………………………………… Other postemployment benefits………………………………… 1,185,348 780,331 - 1,965,679 - Net pension liability……………………………………………… 1,151,505 464,974 - 1,616,479 - Bonds payable…………………………………………………… 6,767,502 6,510,131 - 13,277,633 - Total noncurrent liabilities………………………………… 9,125,355 7,771,436 - 16,896,791 - … 10,485,468 9,347,659 6,451 19,839,578 1,577 TOTAL LIABILITIES……………………………………………… DEFERRED INFLOWS OF RESOURCES … 5,008 2,023 - 7,031 - Deferred inflows of resources related to pensions………… NET POSITION Net investment in capital assets…………………………………… 21,944,217 15,522,277 5,930,948 43,397,442 - Unrestricted………………………………………………………… 2, 2,272,789505,759 239,296 5,017,844 3,580,587 TOTAL NET POSITION……………………………………………$ 24,449,976 $ 17,795,066 $ 6,170,244 $ 48,415,286 $ 3,580,587 See notes to basic financial statements. Town of North Andover, Massachusetts34Comprehensive Annual Financial Report PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2015 Governmental Business-type Activities - Enterprise Funds Activities Health Insurance Osgood Internal Service WaterSewerHillTotalFund OPERATING REVENUES: Employee contributions………………………………………… $ $ - $ - $ - $ - 2,373 Charges for services……………………………………………… 5,526,689 4,987,787 482,778 10,997,254 - Penalties and interest…………………………………………… 24,03026,979-51,009- TOTAL OPERATING REVENUES …………………………… 5,550,719 482,7785,014,766 11,048,263 2,373 OPERATING EXPENSES: Cost of service and administration……………………………… 2,150,602 670,089 293,057 3,113,748 - GLSD assessment………………………………………………… - 1,543,296 - 1,543,296 - Repairs and maintenance……………………………………… 210,025 6,56678,271 294,862 - Depreciation……………………………………………………… 862,945 837,373 87,338 1,787,656 - Employee benefits………………………………………………… - - - - 242,849 TOTAL OPERATING EXPENSES …………………………… 3,223,572 3,129,029 386,961 6,739,562242,849 OPERATING INCOME (LOSS)……………………………… 2,327,147 1,885,737 95,817 4,308,701 (240,476) NONOPERATING REVENUES (EXPENSES): Investment income……………………………………………… 15,705 1,01711,966 28,688 5,536 Interest expense………………………………………………… (239,735) (352,077) (591,812)- - Intergovernmental………………………………………………… - 83,461 - 83,461 - TOTAL NONOPERATING REVENUES (EXPENSES), NET…………………………… (224,030) (256,650) 1,017 (479,663) 5,536 INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS…………………………………………… 2,103,117 1,629,087 96,834 3,829,038 (234,940) CAPITAL CONTRIBUTIONS AND TRANSFERS: Capital Contributions……………………………………………… - 26,250- 26,250 - Transfers out……………………………………………………… (900,710) (423,863) (47,622) (1,372,195) (1,000,000) TOTAL CAPITAL CONTRIBUTIONS AND TRANSFERS… (900,710) (423,863) (21,372) (1,345,945) (1,000,000) CHANGE IN NET POSITION………………………………… 1,202,407 1,205,224 75,462 2,483,093 (1,234,940) NET POSITION AT BEGINNING OF YEAR (AS REVISED)…… 23,247,569 16,589,842 6,094,782 45,932,193 4,815,527 NET POSITION AT END OF YEAR……………………………… $ 24,449,976 $ 17,795,066 $ 6,170,244 $ 48,415,286 $ 3,580,587 See notes to basic financial statements. Town of North Andover, Massachusetts35Comprehensive Annual Financial Report PROPRIETARY FUNDS STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2015 Business-type Activities - Enterprise FundsGovernmental Activities- Health Insurance OsgoodInternal Service WaterSewerHillTotalFund CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and users……………………………………………$ 5,457,892 $ 5,080,687 $ 482,778 $ 11,021,357 $ 2,373 Payments to vendors…………………………………………………………… (1 (1,835,458),222,996) (176,581) (3,235,035) - … (952,135) (384,892) (132,987) (1,470,014) - Payments to employees……………………………………………………… Payments for interfund services used………………………………………… - - - -(176,956) NET CASH FROM OPERATING ACTIVITIES…………………………………… 3,282,761 2,860,337 173,210 6,316,308 (174,583) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers out……………………………………………………………………… (900,710) (423,863) (47,622) (1,372,195) (1,000,000) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from the issuance of refunding bonds……………………………… - 1,001,474 1,001,474 - Capital contributions……………………………………………………………… - - 26,250 26,250 - Acquisition and construction of capital assets………………………………… (550,067) (583,874) (26,250) (1,160,191) - Principal payments on bonds………………………………………………… … (1,464,696) (1,674,815) - (3,139,511) - Payment to refunded bond escrow agent……………………………………… - (964,404) - (964,404) - Interest expense………………………………………………………………… (268,714)(235,855) - (504,569) - NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES……… (2,250,618) (2,490,333) - (4,740,951) - CASH FLOWS FROM INVESTING ACTIVITIES: Investment income……………………………………………………………… 15,705 11,966 1,017 28,688 5,536 NET CHANGE IN CASH AND CASH EQUIVALENTS………………………… 147,138 (41,893) 126,605 231,850 (1,169,047) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR………………… 4,385,369 3,554,352 119,142 8,058,863 4,259,009 … $ 4,532,507 $ 3,512,459 $ 245,747 $ 8,290,713 $ 3,089,962 CASH AND CASH EQUIVALENTS AT END OF YEAR……………………… RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income (loss)………………………………………………………… $ 2,327,147 $ 1,885,737 $ 95,817 $ 4,308,701 $ (240,476) Adjustments to reconcile operating income (loss) to net cash from operating activities: Depreciation…………………………………………………………………… 862,945 837,373 87,338 1,787,656 - Deferred (outflows)/inflows related to pensions…………………………… 5,008 2,023 - 7,031- Changes in assets and liabilities: User fees…………………………………………………………………… (104,090) 40,796 - (63,294) - Utility liens………………………………………………………………… 11,263 25,125 - -36,388 Working capital deposit…………………………………………………… - - - -69,055 Warrants payable………………………………………………………… 89,504 (5,945)3,051 86,610(3,162) Accrued compensated absences………………………………………… 6,000 2,000 (4,000) 4,000 - Other postemployment benefits………………………………………… 82,594 63,267 - 145,861 - Net pension liability………………………………………………………… 2,390 965 -3,355- Total adjustments……………………………………………………… 955,614 974,600 77,393 2,007,607 65,893 …$ 3,282,761 $ 2,860,337 $ 173,210 $ 6,316,308 $ (174,583) NET CASH FROM OPERATING ACTIVITIES………………………………… NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES: Intergovernmental debt service subsidy (MCWT)……………………………$ - $ 100,619 $ - $ 100,619 $ - Net change in deferred charges………………………………………………… 11,528 26,852 -38,380- See notes to basic financial statements. Town of North Andover, Massachusetts36Comprehensive Annual Financial Report FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2015 Private PurposeAgency Trust FundsFunds ASSETS CURRENT: Cash and cash equivalents………………………………… …$ 104,258 $ 3,773,141 LIABILITIES Warrants payable……………………………………………… - 822 Liabilities due depositors…………………………………… … - 3,772,319 TOTAL LIABILITIES……………………………………………… - 3,773,141 NET POSITION Held in trust for other purposes………………………………$ 104,258 $ - See notes to basic financial statements. Town of North Andover, Massachusetts37Comprehensive Annual Financial Report FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION YEAR ENDED JUNE 30, 2015 Private Purpose Trust Funds ADDITIONS: Contributions: Private donations………………………………………………$12,419 Net investment income: Interest………………………………………………………… 103 TOTAL ADDITIONS………………………………………… 12,522 CHANGE IN NET POSITION……………………………… 12,522 NET POSITION AT BEGINNING OF YEAR…………………… 91,736 NET POSITION AT END OF YEAR……………………………$ 104,258 See notes to basic financial statements. Town of North Andover, Massachusetts38Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Notes to basic financial statements The accompanying basic financial statements of the Town of North Andover, Massachusetts (Town) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board (GASB) is the recognized standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described herein. A. Reporting Entity The Town is a municipal corporation that is governed by an elected Board of Selectmen (Board). For financial reporting purposes, the Town has included all funds, organizations, account groups, agencies, boards, commissions and institutions. TheTown has also considered all potential component units for which it is financially accountable as well as other organizations for which the nature and significance of their relationship with the Town are such that exclusion would cause the basic financial statements to be misleading or incomplete. As required by GAAP, these basic financial statements present the Town (the primary government) and its component units. It has been determined that there are no component units that meet the requirements for inclusion in the Town’s financial statements. Joint Venture A joint venture is an organization (resulting from a contractual arrangement) that is owned, operated and governed by two or more participants as a separate and specific activity subject to joint control in which the participants retain an ongoing financial interest or ongoing financial responsibility. Joint control means that no single participant has the ability to unilaterally control the financial or operating policies of the joint venture. The Town participates in the following joint ventures with other municipalities to pool resources and share the costs, risks, and rewards of providing goods and services to venture participants directly, or for the benefit of the general public or specified recipients. Greater Lawrence Sanitary District (GLSD) GLSD operates a wastewater treatment plant for five member communities and is located within the Town. The GLSD is governed by a seven member board consisting of one appointed representative from the Town. The Town is indirectly liable for the GLSD’s debt and other expenditures and is assessed annually for its share of operating and capital costs. For the year ended June 30, 2015, the Town’s assessment totaled $1,543,296. Separate financial statements may be obtained by writing to the Treasurer of the GLSD at 240 Charles Street, North Andover, MA 01845. Greater Lawrence Regional Technical Vocational School (GLRTVS) The Town is a member of the GLRTVS that serves the members’ students seeking an education in academic and technical. The GLRTVS is governed by a seven member school committee consisting of one elected representative from the Town. The Town is indirectly liable for the GLRTVS’ debt and other expenditures and is assessed annually for its share of operating and capital costs. For the year ended June 30, 2015, the Town’s assessment totaled $297,571. Separate financial statements may be obtained by writing to the Treasurer of the GLRTVS at 57 River Road, Andover, MA 01810. Town of North Andover, Massachusetts 39 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The government-wide financial statements (i.e., statement of net position and the statement of changes in net position) report information on all of the non-fiduciary activities of the primary government and its component units. Governmental activities, which are primarily supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which are supported primarily by user fees and charges. Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Nonmajor funds are aggregated and displayed in a single column. Major Fund Criteria Major funds must be reported if the following criteria are met: If the total assets, deferred outflows of resources, liabilities, deferred inflows of resources, revenues, or expenditures/expenses of an individual governmental or enterprise fund are at least 10 percent of the corresponding element (assets, deferred outflows of resources, liabilities, deferred inflows of resources, etc.) for all funds of that category or type (total governmental or total enterprise funds), and If the total assets, deferred outflows of resources, liabilities, deferred inflows of resources, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5 percent of the corresponding element for all governmental and enterprise funds combined. Additionally, any other governmental or enterprise fund that management believes is particularly significant to the basic financial statements may be reported as a major fund. Fiduciary funds are reported by fund type. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Real estate and personal property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The statement of activities demonstrates the degree to which the direct expenses of a particular function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include the following: Charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment. Town of North Andover, Massachusetts 40 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 Grants and contributions that are restricted to meeting the operational requirements of a particular function or segment. Grants and contributions that are restricted to meeting the capital requirements of a particular function or segment. Taxes and other items not identifiable as program revenues are reported as general revenues. For the most part, the effect of interfund activity has been removed from the government-wide financial statements. However, the effect of interfund services provided and used between functions is not eliminated as the elimination of these charges would distort the direct costs and program revenues reported for the functions affected. Fund Financial Statements Governmentalfund financial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., measurable and available). Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences, claims and judgments which are recognized when the obligations are expected to be liquidated with current expendable available resources. Real estate and personal property tax revenues are considered available if they are collected within 60 days after year-end. Investment income is susceptible to accrual. Other receipts and tax revenues become measurable and available when the cash is received and are recognized as revenue at that time. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria is met. Expenditure driven grants recognize revenue when the qualifying expenditures are incurred and all other grant requirements are met. The following major governmental funds are reported: Thegeneral fund is the primary operating fund. It is used to account for all financial resources, except those that are required to be accounted for in another fund. Thecommunity preservation fund is a special revenue fund used to account for the 3% local real estate tax surcharge on nonexempt property (and matching state trust fund distribution) that can be used for open space, historic resource and affordable housing purposes. Property exempt from the surcharge consists of the first $100,000 of all residential property and also property owned by low income seniors with a low or moderate income as defined by Massachusetts Department of Revenue (DOR) guidelines. Disbursements from this fund must originate from the Community Preservation Committee and be approved by Town Meeting. Thehighway chapter 90 fund is a capital projects fund used to account for activities reimbursed through the State’s Chapter 90 highway improvement program. Themunicipal capital projects fund is used to account for the acquisition of non-school related capital assets that are funded through both appropriations and borrowings. Town of North Andover, Massachusetts 41 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 The nonmajor governmental funds consist of other special revenue, capital projects and permanent funds that are aggregated and presented in the nonmajor governmental funds column on the governmental funds financial statements. The following describes the general use of these fund types: Thespecial revenue fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than permanent funds or capital projects. Thecapital projects fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets of the governmental funds. Thepermanent fund is used to account for and report financial resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the governmental programs. Proprietaryfund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary funds principle ongoing operations. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. The following major proprietary funds are reported: Thewater enterprise fund is used to account for the water activities. Thesewer enterprise fund is used to account for the sewer activities. TheOsgood Hill enterprise fund is used to account for the operation of Osgood Hill Estate activities. Additionally, the following proprietary fund type is reported: Theinternal service fund is used to account for the financing of services provided by one department to other departments or governmental units. This fund is used to account for risk financing activities related to employees’ health insurance. Fiduciary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting, except for agency funds which have no measurement focus. Fiduciary funds are used to account for assets held in a trustee capacity for others that cannot be used to support the governmental programs. The following fiduciary fund types are reported: Theprivate-purpose trust fund is used to account for trust arrangements that exclusively benefit individuals, private organizations, or other governments. Some of these trusts have donor restrictions and trustee policies that do not allow the endowment portion and any unrealized appreciation to be spent. The donor restrictions and trustee policies only allows the trustees to authorize spending of the realized investment earnings. The Town’s educational scholarship trusts are accounted for in this fund. Town of North Andover, Massachusetts 42 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 Theagency fund is used to account for assets held in a custodial capacity. Such assets consist primarily of performance bonds and bid deposits. Agency funds do not present the results of operations or have a measurement focus. D. Cash and Investments Government-Wide and Fund Financial Statements Cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with an original maturity of three months or less from the date of acquisition. Investments are carried at fair value. E. Accounts Receivable Government-Wide and Fund Financial Statements The recognition of revenue related to accounts receivable reported in the government-wide financial statements and the proprietary funds and fiduciary funds financial statements are reported under the accrual basis of accounting. The recognition of revenue related to accounts receivable reported in the governmental funds financial statements are reported under the modified accrual basis of accounting. Real Estate, Personal Property Taxes and Tax Liens st Real estate and personal property taxes are levied and based on values assessed on January 1 of every year. Assessed values are established by the Board of Assessor’s for 100% of the estimated fair market value. Taxes stststst , November 1, February 1 and May 1 and are subject to penalties and interest if they are are due on August 1 not paid by the respective due date. Real estate tax liens are processed one year after the close of the valuation year on delinquent properties and are recorded as receivables in the year they are processed. Real estate receivables are secured via the tax lien process and are considered 100% collectible. Accordingly, an allowance for uncollectibles is not reported. Personal property taxes cannot be secured through the lien process. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. Motor Vehicle Excise Motor vehicle excise taxes are assessed annually for each vehicle registered and are recorded as receivables in the year of the levy. The Commonwealth is responsible for reporting the number of vehicles registered and the fair values of those vehicles. The tax calculation is the fair value of the vehicle multiplied by $25 per $1,000 of value. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. Town of North Andover, Massachusetts 43 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 Community Preservation Surcharges Community preservation surcharges are levied annually at a rate of 3% of resident’s real estate tax bills with exemptions for the first $100,000 of residential property and property owned by qualified persons with low income and seniors (60+) with low or moderate income defined by DOR guidelines. The surcharge is due with the real estate tax on August 1st, November 1st, February 1st and May 1st and are subject to penalties and interest if they are not paid by the respective due date. Overdue surcharges are included on the tax liens processed on delinquent real estate taxes. Surcharges are recorded as receivables in the year of the levy. Since the receivables are secured via the lien process, these accounts are considered 100% collectible and therefore do not report an allowance for uncollectibles. Water and Sewer User Charges and Utility Liens User fees are levied monthly based on individual meter readings and are subject to penalties and interest if they are not paid by the respective due date. Water and sewer liens are processed approximately six months after the end of the year and are included as a lien on the property owner’s tax bill. Water and sewer charges and liens are recorded as receivables in the year of the levy. Since the receivables are secured via the lien process, these accounts are considered 100% collectible and therefore do not report an allowance for uncollectibles. Departmental and Other Departmental and other receivables consist primarily of amounts due from ambulance charges and police details. These receivables are recorded when the applicable service has been performed. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. Intergovernmental Various federal and state grants for operating and capital purposes are applied for and received annually. For non-expenditure driven grants, receivables are recorded as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred and all other grant requirements are met. These receivables are considered 100% collectible and therefore do not report an allowance for uncollectibles. F. Inventories Government-Wide and Fund Financial Statements Inventories are recorded as expenditures at the time of purchase. Such inventories are not material in total to the government-wide and fund financial statements, and therefore are not reported. Town of North Andover, Massachusetts 44 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 G. Capital Assets Government-Wide and Proprietary Fund Financial Statements Capital assets, which include land, land improvements, buildings and improvements, machinery and equipment, library books, vehicles, infrastructure (e.g., roads, treatment plants, pump stations ,sewer mains and similar items) and construction-in-progress, are reported in the applicable governmental or business-type activity column of the government-wide financial statements and in the proprietary fund financial statements. Capital assets are recorded at historical cost, or at estimated historical cost, if actual historical cost is not available. Donated capital assets are recorded at the estimated fair market value at the date of donation. Except for the capital assets of the governmental activities column in the government-wide financial statements, construction period interest is capitalized on constructed capital assets. All purchases and construction costs in excess of $10,000 are capitalized at the date of acquisition or construction, respectively, with expected useful lives of greater than one year. Capital assets (excluding land) are depreciated on a straight-line basis. The estimated useful lives of capital assets are as follows: Estimated Useful Life Capital Asset Type(in years) Land improvements…………………………… 20-30 Buildings and improvements………………… 7-50 Machinery and equipment…………………… 3-20 … 10 Library books………………………………… Vehicles………………………………………… 5 Treatment plants……………………………… 10-40 Pump stations…………………………………… 20-40 … 20-40 Reservoirs…………………………………… Infrastructure…………………………………… 20-60 The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized and are treated as expenses when incurred. Improvements are capitalized. Governmental Fund Financial Statements Capital asset costs are recorded as expenditures in the acquiring fund in the year of the purchase. H. Deferred Outflows/Inflows of Resources Government-Wide Financial Statements (Net Position) In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will notbe recognized as an outflow of resources (expense/ expenditure) until then. The Town has reported deferred charges on refunding in this category. Town of North Andover, Massachusetts 45 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will notbe recognized as an inflow of resources (revenue) until that time. The Town has reported deferred inflows of resources related to pensions in this category. Governmental Fund Financial Statements In addition to liabilities, the governmental funds balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents assets that have been recorded in the governmental fund financial statements but the revenue is not available and so will not be recognized as an inflow of resources (revenue) until it becomes available. The Town has reported unavailable revenues from property taxes in this category. I. Interfund Receivables and Payables During the course of its operations, transactions occur between and within individual funds that may result in amounts owed between funds. Government-Wide Financial Statements Transactions of a buyer/seller nature between and within governmental funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of net position as “internal balances”. Fund Financial Statements Transactions of a buyer/seller nature between and within funds are not eliminated from the individual fund statements. Receivables and payables resulting from these transactions are classified as “Due from other funds” or “Due to other funds” on the balance sheet. J. Interfund Transfers During the course of its operations, resources are permanently reallocated between and within funds. These transactions are reported as transfers in and transfers out. Government-Wide Financial Statements Transfers between and within governmental funds are eliminated from the governmental activities in the statement of net position. Any residual balances outstanding between the governmental activities and business- type activities are reported in the statement of activities as “Transfers, net”. Fund Financial Statements Transfers between and within funds are not eliminated from the individual fund statements and are reported as transfers in and transfers out. Town of North Andover, Massachusetts 46 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 K. Net Position and Fund Equity Government-Wide Financial Statements (Net Position) Net position reported as “net investment in capital assets” includes capital assets, net of accumulated depreciation, less the principal balance of outstanding debt used to acquire capital assets. Unspent proceeds of capital related debt are not considered to be capital assets. Net position is reported as restricted when amounts that are not available for appropriation or are legally restricted by outside parties for a specific future use. Net position has been “restricted for” the following: “Debt service” represents amounts accumulated from the Massachusetts School Building Authority (MSBA) to reduce school construction excluded debt service costs over the life of the loans. “Community preservation” represents amounts restricted for the purpose of acquiring land for conservation, recreational, and affordable housing purposes. “Permanent funds – expendable” represents the amount of realized and unrealized investment earnings of donor restricted trusts. The donor restrictions and trustee policies only allows the trustees to approve spending of the realized investment earnings that support governmental programs. “Permanent funds - nonexpendable” represents the endowment portion of donor restricted trusts that support governmental programs. “Gifts and grants” represents restrictions placed on assets from outside parties. Sometimes the Town will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the Town’s policy to consider restricted – net position to have been depleted before unrestricted – net position is applied. Fund Financial Statements (Fund Balances) Governmental fund balances are classified as nonspendable, restricted, committed, assigned, or unassigned based on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. The governmental fund balance classifications are as follows: “Nonspendable” fund balance includes amounts that cannot be spent because they are either not in spendable form or they are legally or contractually required to be maintained intact. “Restricted” fund balance includes amounts subject to constraints placed on the use of resources that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or that are imposed by law through constitutional provisions or enabling legislation. Town of North Andover, Massachusetts 47 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 “Committed” fund balance includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority. Town Meeting is the highest level of decision-making authority for the government that can, by adoption of an article prior to the end of the year, commit fund balance. Once adopted, the limitation imposed by the article remains in place until a similar action is taken to remove or revise the limitation. “Assigned” fund balance includes amounts that are constrained by the Town’s intent to be used for specific purposes, but are neither restricted nor committed. Town Meeting may assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year’s appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment. “Unassigned” fund balance includes the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund. The Town’s spending policy is to spend restricted fund balance first, followed by committed, assigned and unassigned fund balance. Most governmental funds are designated for one purpose at the time of their creation. Therefore, any expenditure from the fund will be allocated to the applicable fund balance classifications in the order of the aforementioned spending policy. The general fund and certain other funds may have more than one purpose. L. Long-term debt Government-Wide and Proprietary Fund Financial Statements Long-term debt is reported as liabilities in the government-wide and proprietary fund statement of net position. Material bond premiums and discounts are deferred and amortized over the life of the bonds using the straight- line method. Bonds payable are reported net of the applicable bond premium or discount. Governmental Fund Financial Statements The face amount of governmental funds long-term debt is reported as other financing sources. Bond premiums and discounts, as well as issuance costs, are recognized in the current period. Bond premiums are reported as other financing sources and bond discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual bond proceeds received, are reported as general government expenditures. M. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Essex Regional Retirement System and the Massachusetts Teachers Retirement System and additions to/deductions from the Systems fiduciary net position have been determined on the same basis as they are reported by the Systems. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. N. Investment Income Excluding the permanent funds, investment income derived from major and nonmajor governmental funds is legally assigned to the general fund unless otherwise directed by Massachusetts General Law (MGL). Town of North Andover, Massachusetts 48 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 O. Compensated Absences Employees are granted vacation and sick leave in varying amounts based on collective bargaining agreements, state laws and executive policies. Compensated absence liabilities related to both governmental and business- type activities are normally paid from the funds reporting payroll and related expenditures. Compensated absences are reported in governmental funds only if they have matured. Government-Wide and Proprietary Fund Financial Statements Vested or accumulated vacation and sick leave are reported as liabilities and expensed as incurred. Governmental Fund Financial Statements Vested or accumulated vacation and sick leave, which will be liquidated with expendable available financial resources, are reported as expenditures and fund liabilities upon maturity of the liability. P. Use of Estimates Government-Wide and Fund Financial Statements The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the year. Actual results could vary from estimates that were used. Q. Total Column Government-Wide Financial Statements The total column presented on the government-wide financial statements represents consolidated financial information. Fund Financial Statements The total column on the fund financial statements is presented only to facilitate financial analysis. Data in this column is not the equivalent of consolidated financial information. R. Appropriation Deficits A general fund appropriation deficit was reported in public works relating to snow and ice costs. This deficit will be raised in the subsequent year tax levy. Town of North Andover, Massachusetts 49 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 NOTE 2 - CASH AND INVESTMENTS A cash and investment pool is maintained that is available for use by all funds. Each fund type's portion of this pool is displayed on the balance sheet as "Cash and Cash Equivalents.” The deposits and investments of the trust funds are held separately from those of other funds. Statutes authorize the investment in obligations of the U.S. Treasury, agencies, and instrumentalities, certificates of deposit, repurchase agreements, money market accounts, bank deposits and the State Treasurer's Investment Pool (Pool). The Treasurer may also invest trust funds in securities, other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the Commonwealth. In addition, there are various restrictions limiting the amount and length of deposits and investments. The Pool meets the criteria of an external investment pool. The Pool is administered by the Massachusetts Municipal Depository Trust (MMDT), which was established by the Treasurer of the Commonwealth who serves as Trustee. The fair value of the position in the Pool is the same as the value of the Pool shares. Custodial Credit Risk – Deposits In the case of deposits, this is the risk that in the event of a bank failure, the Town’s deposits may not be returned to it. The Town’s policy is to minimize custodial credit risk by only investing in highly rated banks, which is determined through the utilization of a bank rating service. At year-end, the carrying amount of deposits totaled $44,616,926 and the bank balance totaled $45,824,001. Of the bank balance, $2,905,235 was covered by Federal Depository Insurance, $30,228,837 was covered by the Depositor’s Insurance Fund, $12,555,656 was collateralized and $134,273 was exposed to custodial credit risk because it was uninsured and uncollateralized. Interest Rate Risk The Town’s investment policy limits investment maturities to one year as a means of managing its exposure to fair value losses arising from increasing interest rates. The Town participates in MMDT, which maintains a cash portfolio and a short-term bond fund with combined average maturities of approximately three months. As of June 30, 2015, the Town had the following investments and maturities: Maturities Investment TypeFair Value1-5 Years6-10 Years Debt Securities Bond Mutual Funds………………………………$97,752 $ -$ 97,752 Repurchase Agreements………………………… 920,000 920,000 - Total Debt Securities......................................... $920,0001,017,752 $97,752 Other Investments Equity Mutual Funds......................................... 616,845 Money Market Mutual Funds…………………… 10,132 MMDT……………………………………………… 4,675,961 Total Investments..............................................$6,320,690 Town of North Andover, Massachusetts 50 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 Custodial Credit Risk – Investments For an investment, this is the risk that, in the event of a failure by the counterparty, the Town will not be able to recover the value of its investments or collateral security that are in the possession of an outside party. The Town did not have investments that were exposed to custodial credit risk. The Town’s policy to minimize custodial credit risk is to obtain from brokerage houses and broker/dealers 1) audited financial statements, 2) proof of National Association of Security Dealers certification, 3) a statement that the dealer has read the Town’s investment policy and will comply with it and 4) be in business for no less than five years and have a minimum capitalization of $10 million. Credit Risk Standard and Poor’s Investors Service rated the $97,752 of bond mutual funds AA. The $920,000 of repurchase agreements and $4,675,961 of MMDT deposits were unrated. The Town’s investment policy limits investments in debt securities to U.S. Treasuries and U.S. Agency Obligations, which are AA rated and like-kind investments that are fully collateralized. Concentration of Credit Risk The Town limits the amount the Town may invest in any one issuer to 10%. The Town does not have investments in corporate bonds or equity securities and therefore does not have exposure to concentration of credit risk. NOTE 3 - RECEIVABLES At June 30, 2015, receivables for the individual major and non-major governmental funds including the applicable allowances for uncollectible accounts are as follows: Allowance GrossforNet AmountUncollectiblesAmount Receivables: Real estate and personal property taxes………………………$1,211,052 $(140,000) $1,071,052 Tax liens………………………………………………………… 2,355,202 - 2,355,202 Motor vehicle and other excise taxes………………………… 1,012,834 (404,000) 608,834 Community preservation surcharges………………………… 20,734 - 20,734 … 955,179 (315,459) 639,720 Departmental and other……………………………………… Intergovernmental……………………………………………… 1,761,443 - 1,761,443 Total………………………………………………………………$7,316,444 $(859,459) $6,456,985 At June 30, 2015, receivables for the water and sewer enterprise funds are as follows: Allowance GrossforNet AmountUncollectiblesAmount Receivables: User charges……………………………………………………$2,870,012 $- $2,870,012 Utility liens………………………………………………………… 71,865 - 71,865 Intergovernmental……………………………………………… 577,484 - 577,484 $3,519,361$- $3,519,361 Town of North Andover, Massachusetts 51 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 Governmental funds report unavailable revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. At the end of the current year, the various components of unavailable revenue reported in the governmental funds were as follows: Other General Governmental FundFundsTotal Receivable and other asset type: Real estate and personal property taxes………………………$960,057 $- $960,057 Tax liens………………………………………………………… 2,355,202 - 2,355,202 Motor vehicle and other excise taxes………………………… 608,834 - 608,834 Community preservation surcharges………………………… - 20,734 20,734 Departmental and other………………………………………… 606,453 33,267 639,720 Intergovernmental (highway construction assistance)……… - 734,673 734,673 Intergovernmental (CPA state match)………………………… - 454,000 454,000 Tax foreclosures………………………………………………… 655,028 - 655,028 Total………………………………………………………………$5,185,574 $1,242,674 $6,428,248 NOTE 4 - CAPITAL ASSETS Capital asset activity for the year ended June 30, 2015, is as follows: BeginningEnding Governmental Activities: BalanceIncreasesDecreasesBalance Capital assets not being depreciated: Land…………………………………………………$22,158,954 $- $(13,541) $22,145,413 Construction in progress…………………………… 3,272,828 3,446,648 (3,104,204) 3,615,272 Total capital assets not being depreciated…… 25,431,782 3,446,648 (3,117,745) 25,760,685 Capital assets being depreciated: Land improvements………………………………… 3,257,450 1,684,782 - 4,942,232 Buildings and building improvements…………… 139,424,761 6,074,741 (445,552) 145,053,950 Machinery and equipment………………………… 9,359,638 313,826 - 9,673,464 Library books……………………………………… 4,422,940 94,259 - 4,517,199 Vehicles……………………………………………… 6,011,804 476,024 (248,371) 6,239,457 Infrastructure……………………………………… 39,931,375 1,777,612 - 41,708,987 Total capital assets being depreciated……… 202,407,968 10,421,244 (693,923) 212,135,289 Less accumulated depreciation for: Land improvements………………………………… (2,459,396) (134,561) - (2,593,957) Buildings and improvements.……………………… (55,952,072) (3,357,895) 334,744 (58,975,223) Machinery and equipment………………………… (6,158,560) (656,899) - (6,815,459) Library books……………………………………… (4,092,371) (49,354) - (4,141,725) Vehicles.…………………………………………… (3,676,891) (359,786) 248,371 (3,788,306) Infrastructure……………………………………… (20,503,721) (1,313,592) - (21,817,313) Total accumulated depreciation……………… (92,843,011) (5,872,087) 583,115 (98,131,983) Total capital assets being depreciated, net………… 109,564,957 4,549,157 (110,808) 114,003,306 Total governmental activities capital assets, net……$134,996,739$7,995,805 $(3,228,553) $139,763,991 Town of North Andover, Massachusetts 52 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 EndingEnding Business-Type Activities: BalanceIncreasesDecreasesBalance Capital assets not being depreciated: Land…………………………………………………$6,097,262 $- $- $6,097,262 … 741,120 - - 741,120 Construction in progress………………………… … 6,838,382 - - 6,838,382 Total capital assets not being depreciated… Capital assets being depreciated: Land improvements………………………………… 232,105 - - 232,105 … 2,408,397 479,104 - 2,887,501 Buildings and improvements…………………… … 2,685,373 18,915 - 2,704,288 Machinery and equipment……………………… … 569,243 76,779 (52,999) 593,023 Vehicles…………………………………………… Treatment plants…………………………………… 16,573,234 - - 16,573,234 Pump stations……………………………………… 4,573,935 447,698 - 5,021,633 Reservoirs…………………………………………… 1,477,296 - - 1,477,296 Infrastructure……………………………………… 55,312,425 137,695 - 55,450,120 Total capital assets being depreciated……… 83,832,008 1,160,191 (52,999) 84,939,200 Less accumulated depreciation for: Land improvements………………………………… (128,206) (9,619) - (137,825) Buildings and improvements……………………… (963,277) (106,540) - (1,069,817) Machinery and equipment………………………… (1,332,952) (145,032) - (1,477,984) Vehicles.…………………………………………… (403,602) (38,561) 52,999 (389,164) Treatment plants…………………………………… (11,153,768) (422,656) - (11,576,424) Pump stations……………………………………… (2,466,052) (108,656) - (2,574,708) Reservoirs…………………………………………… (1,278,222) (20,471) - (1,298,693) Infrastructure……………………………………… (15,967,688) (936,121) - (16,903,809) Total accumulated depreciation……………… (33,693,767) (1,787,656) 52,999 (35,428,424) Total capital assets being depreciated, net………… 50,138,241 (627,465) - 49,510,776 Total business-type activities capital assets, net……$56,976,623 $(627,465) $- $56,349,158 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General government……………………………………………$312,632 Public safety…………………………………………………… 561,541 Education……………………………………………………… 2,953,670 Public works…………………………………………………… 1,700,072 Human services……………………………………………… 147,863 Culture and recreation………………………………………… 196,309 Total depreciation expense - governmental activities…………$5,872,087 Business-Type Activities: …$862,945 Water………………………………………………………… Sewer…………………………………………………………… 837,373 Osgood Hill……………………………………………………… 87,338 Total depreciation expense - business-type activities…………$1,787,656 Town of North Andover, Massachusetts 53 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 NOTE 5 - INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS Interfund receivables and payables totaled $504,976 as of June 30, 2015 and consisted entirely of amounts due to the general fund from the highway chapter 90 fund. The outstanding balance resulted from the time lag between the dates that reimbursable expenditures are incurred and reimbursements from the Massachusetts Highway Department are received. Interfund transfers for the year ended June 30, 2015, are summarized as follows: Operating Transfers In: MunicipalNonmajor GeneralCaptialGovernmental Operating Transfers Out:FundProjectsFundsTotal General Fund…………………………………$- $150,000 $73,500 $223,500 (1) Nonmajor Governmental Funds…………… 204,453 - - 204,453 (2) Water Enterprise Fund……………………… 900,710 - - 900,710 (3) Sewer Enterprise Fund……………………… 423,863 - - 423,863 (3) Osgood Hill Enterprise Fund………………… 47,622 - - 47,622 (3) Health Insurance Internal Service Fund…… 1,000,000 - - 1,000,000 (4) Total……………………………………………$2,576,648$150,000 $73,500 $2,800,148 (1) Budgeted transfers from the general fund to the municipal capital projects fund and the nonmajor school capital projects fund. (2) Budgeted transfers to the general fund from available funds. (3) Budgeted transfers to the general fund for indirect costs. (4) Voted transfer from the health insurance internal service fund to the OPEB stabilization fund. NOTE 6 – LEASES Operating Lease The Town entered into a commercial lease for office space for the Schools Business Office. The original lease was extended and currently expires November 30, 2016. The future minimum lease payments are as follows: Governmental Activities Years Ending June 30, 2016………………………………………………$85,199 2017……………………………………………… 28,125 Total………………………………………………$113,324 Town of North Andover, Massachusetts 54 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 NOTE 7 - SHORT-TERM FINANCING Short-term debt may be authorized and issued to fund the following: Current operating costs prior to the collection of revenues through issuance of revenue or tax anticipation notes (RANS or TANS). Capital project costs and other approved expenditures incurred prior to obtaining permanent financing through issuance of bond anticipation notes (BANS) or grant anticipation notes (GANS). Short-term loans are general obligations and carry maturity dates that are limited by statute. Interest expenditures and expenses for short-term borrowings are accounted for in the general fund and enterprise funds, respectively. Details related to the short-term debt activity for the year ended June 30, 2015, are as follows: RateBeginningEnding TypePurpose(%)Due DateBalanceAdditionsReductionsBalance BANFacilities master plan……… 0.456/18/2015$660,000 $- $660,000 $ - NOTE 8 - LONG-TERM DEBT State law permits the Town, under the provisions of Chapter 44, Section 10, to authorize indebtedness up to a limit of 5% of its equalized valuation. Debt issued in accordance with this section of the law is designated as being "inside the debt limit.” In addition, however, a Town may authorize debt in excess of that limit for specific purposes. Such debt, when issued, is designated as being "outside the debt limit.” In order to take advantage of favorable interest rates, the Town issued $1,070,000 of general obligation refunding bonds on June 15, 2015. $1,030,000 of general obligation bonds were advance refunded by placing the proceeds of the refunding bonds in an irrevocable trust to provide for all future debt service payments of the refunded bonds. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the statement of net position. The reacquisition price exceeded the net carrying amount of the old debt by $44,513. This amount is being netted against the new debt and amortized over the life of the refunding debt, which is the same as the remaining life of the refunded debt. This advance refunding was undertaken to reduce total debt service payments over the next 13 years by $179,588 and resulted in an economic gain of $157,945. At June 30, 2015, $1,030,000 of bonds outstanding from the advance refunding is considered defeased. Town of North Andover, Massachusetts 55 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 Details related to the outstanding indebtedness at June 30, 2015, and the debt service requirements are as follows: Bonds Payable – Governmental Funds OriginalInterest MaturitiesLoanRateBeginningEnding ProjectThroughAmount(%)BalanceAdditionsReductionsBalance Municipal Purpose Loan of 2004………………… 201612,705,555 2.00 - 5.00$355,498 $ $315,000- $40,498 Municipal Purpose Loan of 2005………………… 20258,205,261 3.00 - 4.0081,887 81,887- - Municipal Purpose Loan of 2007………………… 2016406,805 3.60 - 4.5079,900 39,950- 39,950 Municipal Purpose Loan of 2008………………… 20281,486,026 4.00 - 4.40604,368 190,038- 414,330 Land Acquisition - Refunding…………………… 20182,960,000 3.00 - 4.001,295,000 305,000- 990,000 Municipal Purpose Loan of 2008 - Refunding… 20199,540,000 3.00 - 4.004,325,000 960,000- 3,365,000 Municipal Purpose Loan of 2009………………… 20297,122,134 2.75 - 5.004,229,542 - 549,777 3,679,765 Municipal Purpose Loan of 2010………………… 20294,171,222 2.25 - 4.002,860,000 - 250,000 2,610,000 Municipal Purpose Loan of 2011………………… 20214,365,353 2.00 - 3.752,857,500 - 502,500 2,355,000 Municipal Purpose Loan of 2012………………… 20293,255,348 2.00 - 2.502,517,602 - 364,701 2,152,901 Municipal Purpose Loan of 2013………………… 2022926,199 2.00 - 3.00747,110 - 178,460 568,650 Municipal Purpose Loan of 2014 - Refunding… 20264,010,000 2.00 - 3.254,010,000 - 380,000 3,630,000 Municipal Purpose Loan of 2014………………… 20348,181,497 2.00 - 3.258,181,497 - 532,249 7,649,248 Municipal Purpose Loan of 2015 - Refunding… 202868,526 2.00 - 4.00- 68,526 - 68,526 Municipal Purpose Loan of 2015………………… 20358,365,000 2.00 - 4.00- 8,365,000 - 8,365,000 Sub-total…………………………………………… 32,144,904 8,433,526 4,649,562 35,928,868 Unamortized premium…………………………… 362,095 291,987 50,458 603,624 Total governmental bonds payable……………… $32,506,999$8,725,513 $4,700,020 $36,532,492 Debt service requirements for principal and interest for Governmental bonds payable in future years are as follows: YearPrincipalInterestTotal 2016…………$4,785,625 $1,031,689 $5,817,314 2017………… 4,614,038 962,1135,576,151 2018………… 4,418,368 815,9555,234,323 2019………… 2,843,567 681,8683,525,435 2020………… 2,219,240 587,7762,807,016 2021………… 2,079,236 520,4852,599,721 2022………… 1,721,736 458,8542,180,590 2023………… 1,663,718 403,4412,067,159 2024………… 1,668,749 349,0922,017,841 2025………… 1,580,400 302,9771,883,377 … 1,250,399 259,6741,510,073 2026……… 2027………… 1,115,023 221,1871,336,210 … 1,098,771 184,5111,283,282 2028……… 2029………… 1,084,998 149,6161,234,614 … 680,000 115,309795,309 2030……… 2031………… 685,000 96,064781,064 … 695,000 75,781770,781 2032……… 2033………… 700,000 54,019754,019 … 700,000 32,094732,094 2034……… 2034………… 325,000 10,156335,156 Totals………$35,928,868 $7,312,661 $43,241,529 Town of North Andover, Massachusetts 56 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 Bonds Payable – Water Enterprise Fund OriginalInterest MaturitiesLoanRateBeginningEnding ProjectThroughAmount(%)BalanceAdditionsReductionsBalance Municipal Purpose Loan of 2003………………… 2015$4,401,970 2.30 - 4.00$135,902 $- $135,902 $- Municipal Purpose Loan of 2004 - Refunding… 2016985,438 2.00 - 4.20189,499 - 95,000 94,499 Municipal Purpose Loan of 2005………………… 20162,942,000 3.00 - 4.00243,202 - 243,202 - Municipal Purpose Loan of 2007………………… 2016815,000 3.60 - 4.50163,000 - 81,500 81,500 MCWT……………………………………………… 20285,532,288 2.004,104,234 - 256,585 3,847,649 Municipal Purpose Loan of 2008………………… 20181,000,000 3.70 - 5.0 0400,000 - 100,000 300,000 Municipal Purpose Loan of 2008 - Refunding… 20181,888,108 3.00 - 4.00160,000 - 40,000 120,000 Municipal Purpose Loan of 2009………………… 2019450,000 2.75 - 5.00225,000 - 45,000 180,000 Municipal Purpose Loan of 2010………………… 20302,025,000 2.25 - 4.001,510,000 - 150,000 1,360,000 Municipal Purpose Loan of 2011………………… 2021225,000 2.00 - 3.75157,500 - 22,500 135,000 Municipal Purpose Loan of 2012………………… 20221,175,000 2.00 - 2.50940,000 - 117,500 822,500 Municipal Purpose Loan of 2013………………… 2022795,000 2.00 - 3.00707,890 - 86,540 621,350 Municipal Purpose Loan of 2014 - Refunding… 2016119,056 2.00 - 3.25119,056 - 59,528 59,528 Municipal Purpose Loan of 2014……………… … 2024267,191 2.00 - 3.25267,191 - 31,439 235,752 Total Water Enterprise bonds payable………… $9,322,474 $- $1,464,696 $7,857,778 Debt service requirements for principal and interest for Water Enterprise fund bonds and notes payable in future years are as follows: YearPrincipalInterestTotal …$1,090,276 $192,003 $1,282,279 2016……… 2017………… 860,037 162,6341,022,671 2018………… 860,432 139,129999,561 2019………… 721,077 115,857836,934 2020………… 627,255 98,111725,366 2021………… 607,983 84,023692,006 2022………… 591,328 70,943662,271 2023………… 388,108 57,973446,081 2024………… 394,191 49,064443,255 2025………… 378,397 39,708418,105 2026………… 384,729 30,777415,506 2027………… 391,188 21,717412,905 2028………… 397,777 12,528410,305 2029………… 65,000 6,600 71,600 2030………… 100,000 4,000104,000 Totals………$7,857,778 $1,085,065 $8,942,843 Town of North Andover, Massachusetts 57 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 Bonds Payable – Sewer Enterprise Fund OriginalInterest MaturitiesLoanRateBeginningEnding ProjectThroughAmount(%)BalanceAdditionsReductionsBalance MCWT……………………………………………… 2021$7,356,555 3.70 - 5.40$2,577,280 $- $523,826 $2,053,454 Municipal Purpose Loan of 2003………………… 20184,091,216 2.30 - 3.7034,095 - 34,095 - Municipal Purpose Loan of 2005………………… 20161,979,739 3.00 - 4.00159,911 - 159,911 - Municipal Purpose Loan of 2007………………… 2016720,000 3.60 - 4.50187,100 - 93,550 93,550 Municipal Purpose Loan of 2008………………… 20283,925,290 3.70 - 5.002,855,634 - 1,169,961 1,685,673 Municipal Purpose Loan of 2008 - Refunding… 20191,156,892 3.00 - 4.00460,456 - 110,223 350,233 Municipal Purpose Loan of 2010………………… 20223,830,001 2.75 - 5.002,220,001 - 330,000 1,890,001 Municipal Purpose Loan of 2010 - Refunding… 2020250,000 2.25 - 3.50150,000 - 25,000 125,000 Municipal Purpose Loan of 2012………………… 2022 2.00 - 2.5062,40078,000 - 7,800 54,600 Municipal Purpose Loan of 2013 - Refunding… 20181,145,000 2.00 - 3.00899,999 245,000- 654,999 Municipal Purpose Loan of 2014 - Refunding… 2016 2.00 - 3.2580,94480,944 40,472- 40,472 Municipal Purpose Loan of 2015 - Refunding… 20281,001,474 2.00 - 4.00 1,001,474- 1,001,474- Total Sewer Enterprise bonds payable………… $9,687,820 $ 1,001,474$2,739,838 $7,949,456 Debt service requirements for principal and interest for Sewer Enterprise fund bonds and notes payable in future years are as follows: YearPrincipalInterestTotal 2016…………$1,439,325 $279,229 $1,718,554 2017………… 1,142,982 233,587 1,376,569 2018………… 1,158,652 188,043 1,346,695 2019………… 968,313 142,967 1,111,280 2020………… 907,081 105,050 1,012,131 … 657,082 73,269 730,351 2021……… 2022………… 507,081 51,701 558,782 2023………… 214,282 32,973 247,255 2024………… 209,251 24,141 233,392 2025………… 204,601 19,956 224,557 2026………… 194,601 15,660 210,261 2027………… 184,977 9,822 194,799 2028………… 161,228 4,272 165,500 Totals………$7,949,456 $1,180,670 $9,130,126 The Sewer Enterprise Fund is scheduled to be subsidized by the Massachusetts Clean Water Trust (MCWT) on a periodic basis for principal in the amount of $577,484 and interest costs of $236,363. Thus, net MCWT loan repayments, including interest, are scheduled to be $1,524,409. The principal subsidies are guaranteed and therefore a $577,484 intergovernmental receivable has been reported in the proprietary fund financial statements. Since the Town is legally obligated for the total amount of the debt, such amounts have been recorded in the accompanying basic financial statements. The 2015 principal and interest subsidies totaled $99,509 and $84,571, respectively. Town of North Andover, Massachusetts 58 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 The Town is subject to various debt limits by statute and may issue additional general obligation debt under the normal debt limit. At June 30, 2015, the Town had the following authorized and unissued debt. PurposeAmount …$75,000 Revenue billing system………………………………… Fire chief vehicle…………………………………………… 4,727 … 775,598 Energy efficiency improvements to buildings………… Sewer utility truck………………………………………… 75,683 Total…………………………………………………………$931,008 Changes in Long-term Liabilities During the year ended June 30, 2015, the following changes occurred in long-term liabilities: BeginningEndingDue within BalanceAdditionsReductionsBalanceOne Year Governmental Activities: Long-term bonds………………………$32,144,904 $8,433,526 $(4,649,562) $35,928,868 $4,785,625 Unamortized premium………………… 362,095 291,987 (50,458) 603,624 72,161 Bonds payable, net…………………… 32,506,999 8,725,513(4,700,020) 36,532,4924,857,786 Other postemployment benefits……… 42,324,897 7,849,900(2,835,751) 47,339,046 - Compensated absences……………… 1,474,000 873,000 (804,000) 1,543,000 875,000 Net Pension Liability………………… 48,002,805 99,831 48,102,636- - Total governmental……………………$124,308,701 $17,548,244 $(8,339,771) $133,517,174 $5,732,786 BeginningEndingDue within BalanceAdditionsReductionsBalanceOne Year Business-Type Activities: Long-term bonds………………………$19,010,294 $1,001,474 $(4,204,534) $15,807,234 $2,529,601 … 1,819,818 228,353 (82,492) 1,965,679 - Other postemployment benefits…… Compensated absences……………… 90,000 61,000 (57,000) 94,000 57,000 Net Pension Liability………………… 1,613,124 3,355 1,616,479- - Total business-type……………………$22,533,236 $1,294,182 $(4,344,026) $19,483,392 $2,586,601 The governmental activities long-term liabilities are generally liquidated by the general fund and the business-type activities long-term liabilities are generally liquidated by the applicable enterprise fund. NOTE 9 – GOVERNMENTAL FUND BALANCE CLASSIFICATIONS GASB 54 provides for two major types of fund balances, which are nonspendable and spendable. Nonspendable fund balances are balances that cannot be spent because they are not expected to be converted to cash or they are legally or contractually required to remain intact. Examples of this classification are prepaid items, inventories, and principal (corpus) of an endowment fund. The Town has reported principal portions of endowment funds as nonspendable. Town of North Andover, Massachusetts 59 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 In addition to the nonspendable fund balance, GASB 54 has provided a hierarchy of spendable fund balances, based on a hierarchy of spending constraints. Restricted: fund balances that are constrained by external parties, constitutional provisions, or enabling legislation. Committed: fund balances that contain self-imposed constraints of the government from its highest level of decision making authority. Assigned: fund balances that contain self-imposed constraints of the government to be used for a particular purpose. Unassigned: fund balance of the general fund that is not constrained for any particular purpose Massachusetts General Law Ch.40 §5B allows for the establishment of stabilization funds for one or more different purposes. The creation of a fund requires a two-thirds vote of the legislative body and must clearly define the purpose of the fund. Any change to the purpose of the fund along with any additions to or appropriations from the fund requires a two-thirds vote of the legislative body. At year end the balance of the general stabilization fund, capital stabilization fund, and OPEB stabilization fund was $4,208,044, $455,124, and $1,007,937, respectively. All three stabilization funds are reported as unassigned fund balance within the general fund. The Town has classified its fund balances with the following hierarchy. MunicipalNonmajorTotal Community CapitalGovernmentalGovernmental GeneralPreservationProjectsFundsFunds FUND BALANCES Nonspendable: Permanent fund principal…………………….$- $- $- $29,257 $29,257 Restricted for: Municipal federal and state grants…………… - - - 105,860 105,860 Receipts reserved for appropriations………… - - - 146,481 146,481 … - - - 562,478 562,478 Municipal revolving funds…………………… Education revolving funds…………………… - - - 298,582 298,582 School lunch funds…………………………… - - - 35,114 35,114 Other special revenue funds………………… - - - 1,090,413 1,090,413 … - - - 1,031,649 1,031,649 Affordable housing trust fund……………… Other trust funds……………………………… - - - 243,721 243,721 Education capital projects…………………… - - - 38,248 38,248 Other permanent funds………………………… - - - 729,799 729,799 Debt service…………………………………… 693,398 - - - 693,398 CPA fund………………………………………… - 6,504,050 - - 6,504,050 Municipal capital projects……………………… - - 4,396,407 - 4,396,407 Assigned to: Encumbrances: General government…………………………… 30,433 - - - 30,433 Public safety…………………………………… 52,287 - - - 52,287 Education……………………………………… 64,968 - - - 64,968 … 99,169 - - - 99,169 Public works………………………………… Support services……………………………… 43,664 - - - 43,664 Employee benefits……………………………… 2,889 - - - 2,889 Unassigned……………………………………….. 12,953,601 - - - 12,953,601 TOTAL FUND BALANCES…………………………….$13,940,409 $6,504,050 $4,396,407 $4,311,602 $29,152,468 Town of North Andover, Massachusetts 60 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 NOTE 10 - RISK FINANCING The Town is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the Town carries commercial insurance. The Town participates in a premium-based workers’ compensation plan for its active and retired employees. The amount of claim settlements has not exceeded insurance coverage in any of the three preceding years. Health Insurance In 2013 the Town joined the Commonwealth of Massachusetts’ group insurance plan which is a premium based health insurance plan. Since that time the internal service fund has accounted for residual health insurance claims. As of June 30, 2015, there was no remaining liability for incurred but not reported claims; changes in the reported liability since July 1, 2013, are as follows: Current Year Balance atClaims and Beginning ofChanges inClaimsBalance at YearEstimatePaymentsYear-End Year 2014…………………$686,000 $6,968,000 $(7,654,000) $- NOTE 11 - PENSION PLAN The Town is a member of the Essex Regional Retirement System (ERRS), a cost-sharing multiple-employer defined benefit pension plan covering eligible employees of the 47 member units. The system is administered by five board members (Board) on behalf of all current employees and retirees except for current teachers and retired teachers. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the plan. The audited financial report may be obtained by visiting http://www.essexregional.com. The Town is a member of the Massachusetts Teachers’ Retirement System (MTRS), a cost-sharing multi- employer defined benefit plan. MTRS is managed by the Commonwealth of Massachusetts (Commonwealth) on behalf of municipal teachers and municipal teacher retirees. The Commonwealth is a nonemployer contributor and is responsible for 100% of the contributions and future benefit requirements of the MTRS. The MTRS covers certified teachers in cities (except Boston), towns, regional school districts, charter schools, educational collaboratives and Quincy College. The MTRS is part of the Commonwealth’s reporting entity and the audited financial report may be obtained by visiting http://www.mass.gov/osc/publications-and-reports/financial-reports/. Special Funding Situation The Commonwealth is a nonemployer contributor and is required by statute to make 100% of all actuarially determined employer contributions on behalf of the Town to the MTRS. Therefore, the Town is considered to be in a special funding situation as defined by GASB Statement No. 68, Accounting and Financial Reporting for Pensions and the Commonwealth is a nonemployer contributor in MTRS. Since the Town does not contribute directly to MTRS, there is no net pension liability to recognize. The total of the Commonwealth provided contributions have been allocated based on each employer’s covered payroll to the total covered payroll of employers in MTRS as of the measurement date of June 30, 2014. The Town’s portion of the collective pension expense, contributed by the Commonwealth, of $4,566,906 is reported in the general fund as intergovernmental revenue and pension expense in the current fiscal year. The portion of the Commonwealth’s collective net pension liability associated with the Town is $65,734,720 as of the measurement date. Town of North Andover, Massachusetts 61 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 Benefits Provided Both Systems provide retirement, disability, survivor and death benefits to plan members and beneficiaries. Massachusetts Contributory Retirement System benefits are, with certain minor exceptions, uniform from system to system. The System provides for retirement allowance benefits up to a maximum of 80% of a member's highest three-year average annual rate of regular compensation. For persons who became members on or after April 2, 2012, average salary is the average annual rate of regular compensation received during the five consecutive years that produce the highest average, or, if greater, during the last five years (whether or not consecutive) preceding retirement. Benefit payments are based upon a member's age, length of creditable service, level of compensation, and group classification. Members become vested after ten years of creditable service. There were no changes in benefit terms that affected the measurement of the total pension liability at December 31, 2014. Employees who resign from service and who are not eligible to receive a retirement allowance or are under the age of 55 are entitled to request a refund of their accumulated total deductions. Survivor benefits are extended to eligible beneficiaries of members whose death occurs prior to or following retirement. Cost-of-living adjustments granted between 1981 and 1997 and any increase in other benefits imposed by the Commonwealth’s state law during those years are borne by the Commonwealth and are deposited into the pension fund. Cost-of-living adjustments granted after 1997 must be approved by the Board and are borne by the System. Contributions Chapter 32 of the MGL governs the contributions of plan members and member units. Active plan members are required to contribute to the System at rates ranging from 5% to 9% of gross regular compensation with an additional 2% contribution required for compensation exceeding $30,000. The percentage rate is keyed to the date upon which an employee's membership commences. The member units are required to pay into the ERRS a legislatively mandated actuarial determined contribution that is apportioned among the employers based on active current payroll. The Town’s proportionate share of the required contribution equaled its actual contribution for the year ended December 31, 2014 was $3,759,115, 19.99% of covered payroll, actuarially determined as an amount that, when combined with plan member contributions, is expected to finance the costs of benefits earned by plan members during the year, with an additional amount to finance any unfunded accrued liability. Pension Liabilities At June 30, 2015, the Town reported a liability of $49,719,115 for its proportionate share of the net pension liability. The net pension liability was measured as of December 31, 2014, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of January 1, 2014. Accordingly, update procedures were used to roll forward the total pension liability to the measurement date. The Town’s proportion of the net pension liability was based on a projection of the Town’s long-term share of contributions to the pension plan relative to the projected contributions of all participating members. At December 31, 2014, the Town’s proportion was 14.7%, which did not change from its proportion measured at December 31, 2013. Pension Expense For the year ended June 30, 2015, the Town recognized pension expense of $4,078,550. At June 30, 2015, the Town reported deferred inflows of resources related to pensions of $216,249, from the net difference between projected and actual investment earnings on pension plan investments. Since the System performs an actuarial valuation bi-annually, there are not reported differences between expected and actual experience or a change of assumptions as of December 31, 2014. Town of North Andover, Massachusetts 62 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 The Town’s deferred outflows of resources related to pensions will be recognized in pension expense as follows: Year ended June 30: 2016………………………………………………$54,062 2017……………………………………………… 54,062 2018……………………………………………… 54,062 2019……………………………………………… 54,063 Total………………………………………………$216,249 Actuarial Assumptions The total pension liability in the January 1, 2014 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement that was updated to December 31, 2014: Valuation date…………………………………… January 1, 2014 Actuarial cost method…………………………… Entry Age Normal Cost Method. Amortization method…………………………… Closed - Approximate level percent of payroll. … 20 years for the fresh start base Remaining amortization period……………… … Market value adjusted by accounts payable and receivables Asset valuation method……………………… adjusted to phase in over 5 years investment gains or losses above or below the expected rate of investment return. The actuarial value of assets must be no less than 90% of the adjusted market value nor more than 110% of the adjusted market value. Projected salary increases……………………… Select and Ultimate. 7.5% year one, 6.5% year two, 6% year three, 5.5% year four, 5% year five, 3.75% ultimate rate. Cost of living adjustments……………………… 3.0% of the first $13,000 of a member's retirement allowance is assumed to be granted every year. Rates of retirement……………………………… Varies based upon age for general employees, police and fire employees. Rates of disability………………………………… Disability is assumed to be 45% ordinary and 55% accidental for Group 1 and 2 and 10% ordinary and 90% accidental for Group 4. Mortality Rates: Pre-Retirement……………………… The RP-2000 mortality table (sex-distinct) projected with scale BB and Generational Mortality. During employment the healthy employee mortality table is used. Post-employment the healthy annuitant table is used. … The RP-2000 mortality table for healthy annuitants (sex-distinct) Disabled Retiree………………… projected with scale BB and Generational Mortality set-forward by 2 years. Death is assumed to be due to the same cause as the disability 40% of the time. Investment rate of return/Discount rate……… 8.00% per year Town of North Andover, Massachusetts 63 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 Investment policy The pension plan’s policy in regard to the allocation of invested assets is established by PRIT and the Board. Plan assets are managed on a total return basis with a long-term objective of achieving a fully funded status for the benefits provided through the pension plan. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of January 1, 2014 are summarized in the following table: Long-Term ExpectedTarget Asset ClassReal Rate of ReturnAllocation Core Bonds…………………………… 0.97%13.00% Value-Added Bonds………………… 3.80%10.00% Large Cap Equities………………… 4.61%14.50% Mid/ Small Cap Equities…………… 4.85%3.50% International Equities………………… 5.10%16.00% Emerging Markets Equities………… 6.31%6.00% Private Equity………………………… 6.55%10.00% Real Estate…………………………… 3.40%10.00% Timber/ Natural Resources………… 3.64%4.00% Hedge Funds………………………… 3.64%9.00% Cash/ Portfolio Completion………… 0.00%4.00% Rate of return For the year ended December 31, 2014, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expense, was 8.48%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Discount rate The discount rate used to measure the total pension liability was 8.00%. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate and that contributions will be made at rates equal to the actuarially determined contribution rated. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the net pension liability to changes in the discount rate The following presents the net pension liability, calculated using the discount rate of 8.00%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (7.00%) or 1-percentage-point higher (9.00%) than the current rate: Current 1% DecreaseDiscount1% Increase (7.00%)(8.00%)(9.00%) The Town's proportionate share of the net pension liability……………$61,457,493 $49,719,115 $40,279,815 Town of North Andover, Massachusetts 64 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 NOTE 12 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Plan Description – The Town of North Andover administers a single-employer defined benefit healthcare plan (the “Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the Town’s group health insurance plan, which covers both active and retired members. Chapter 32B of the MGL assigns authority to establish and amend benefit provisions of the plan. Benefit provisions are negotiated between the Town and the unions representing Town employees and are renegotiated each bargaining period. The Retiree Health Plan does not issue a publicly available financial report. Funding Policy – Contribution requirements are also negotiated between the Town and union representatives. The required contribution is based on a pay-as-you-go financing requirement. The Town contributes a variable portion of the cost of current-year premiums, which varies by plan, for eligible retired plan members and their spouses. Plan members receiving benefits contribute the remaining portion of their premium costs. For 2015, the Town contributed $2.9 million to the plan. Annual OPEB Cost and Net OPEB Obligation – The Town’s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45.The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The components of the Town’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the Town’s net OPEB obligation are summarized in the following table: Annual required contribution……………………………………$7,973,330 Interest on net OPEB obligation……………………………… 1,986,512 Adjustment to annual required contribution………………… (1,881,589) … 8,078,253 Annual OPEB Cost (expense)……………………………… … (2,918,243) Contributions made…………………………………………… … 5,160,010 Increase in net OPEB obligation…………………………… … 44,144,715 Net OPEB obligation - beginning of year…………………… …$49,304,725 Net OPEB obligation - end of year………………………… The Town’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2015 and the two preceding years was as follows: Percentage of YearAnnual Annual OPEBNet OPEB EndedOPEB CostCost ContributedObligation 6/30/2015$8,078,253 36%$49,304,725 6/30/20148,433,756 32%44,144,715 6/30/201310,748,052 30%38,415,248 Town of North Andover, Massachusetts 65 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 Funded Status and Funding Progress – As of July 1, 2013, the actuarial accrued liability for benefits was $86.6 million, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was $44 million, and the ratio of the UAAL to the covered payroll was 197 percent. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions – Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the July 1, 2013, actuarial valuation, actuarial liabilities were determined using the projected unit credit cost method. The actuarial assumptions included a 4.5% investment return assumption, which is based on the expected yield on the assets of the Town, calculated based on the funded level of the plan at the valuation date, a 3% inflation rate assumption, and an annual health care trend rate of 9% initially, graded to 5% over 8 years. The UAAL is being amortized with a level percentage of pay over a 30 year period on an open basis. The remaining amortization period at June 30, 2015, is 30 years. NOTE 13 – COMMITMENTS The Town has entered into, or is planning to enter into, contracts totaling approximately $1,000,000 for energy efficiency improvements to Town buildings. NOTE 14 – CONTINGENCIES The Town participates in a number of Federal award programs. These programs are subject to financial and compliance audits. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time, although the Town expects such amounts, if any, to be immaterial. Various legal actions and claims are pending against the Town. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not always predictable. Although the amount of liability, if any, at June 30, 2015, cannot be ascertained, management believes any resulting liability should not materially affect the financial position of the Town at June 30, 2015. Town of North Andover, Massachusetts 66 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 NOTE 15 – SUBSEQUENT EVENTS Management has evaluated subsequent events through November 30, 2015, which is the date the financial statements were available to be issued. NOTE 16 – REVISION OF NET POSITION PREVIOUSLY REPORTED Beginning net position of governmental activities, business-type activities and each applicable enterprise fund has been revised to reflect the implementation of GASB Statement #68. The revised balances are summarized in the following table: 6/30/14 Previously6/30/14 ReportedImplementationRevised Balancesof GASB #68Balances Government-Wide Financial Statements Governmental activities………………………$94,686,014 $(48,002,805) $46,683,209 Business-type activities……………………… 47,545,317 (1,613,124) 45,932,193 Total……………………………………………$142,231,331$(49,615,929) $92,615,402 Proprietary Fund Financial Statements Water enterprise………………………………$24,396,684 $(1,149,115) $23,247,569 Sewer enterprise……………………………… 17,053,851 (464,009) 16,589,842 Osgood Hill enterprise……………………… 6,094,782 - 6,094,782 Total……………………………………………$47,545,317 $(1,613,124) $45,932,193 NOTE 17 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During 2015, the following GASB pronouncements were implemented: GASB Statement #67, Financial Reporting for Pension Plans; GASB Statement #68, Accounting and Financial Reporting for Pensions; and GASB Statement #71 Pension Transition for Contributions Made Subsequent to the Measurement Date. Financial statement changes include the recognition of a net pension liability, pension expense and deferred outflows/inflows of resources depending on the nature of the change each year. The financial statements also recognized a restatement of the beginning net position to reflect the net pension liability at the beginning of the year. The notes to the basic financial statements and the required supplementary information were expanded to include additional required schedules and disclosures. GASB Statement #69, Governmental Combinations and Disposals of Government Operations. This pronouncement did not impact the basic financial statements. The following GASB pronouncements will be implemented in the future: The GASB issued Statement #72, Fair Value Measurement and Application, which is required to be implemented in 2016. Town of North Andover, Massachusetts 67 Comprehensive Annual Financial Report Notes to Basic Financial Statements Year Ended June 30, 2015 The GASB issued Statement #73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. The provisions of this Statement are effective for 2016—except those provisions that address employers and governmental non-employer contributing entities for pensions that are not within the scope of Statement 68, which is required to be implemented in 2017. The GASB issued Statement #74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, which is required to be implemented in 2017. The GASB issued Statement #75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which is required to be implemented in 2018. The GASB issued Statement #76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, which is required to be implemented in 2016. The GASB issued Statement #77, Tax Abatement Disclosures, which is required to be implemented in 2017. Management is currently assessing the impact the implementation of these pronouncements will have on the basic financial statements. Town of North Andover, Massachusetts 68 Comprehensive Annual Financial Report This page intentionally left blank. Town of North Andover, Massachusetts 69 Comprehensive Annual Financial Report Required Supplementary Information Required supplementary information Town of North Andover, Massachusetts 70 Comprehensive Annual Financial Report General Fund Budgetary Comparison Schedule The General Fund is the general operating fund of the Town. It is used to account for all the financial resources, except those required to be accounted for in another fund. General fund budgetary comparison schedule Town of North Andover, Massachusetts 71 Comprehensive Annual Financial Report GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2015 Budgeted Amounts AmountsCurrent Year Carried forwardInitialOriginalFinal From Prior YearBudgetBudgetBudget REVENUES: Real estate and personal property taxes, net of tax refunds……………………………………………$ - $ 64,501,682 $ 64,501,682 $ 64,501,682 Tax liens………………………………………………………… - - - - Payments in lieu of taxes…………………………………… 1,863,665- 1,863,665 1,863,665 Motor vehicle and other excise taxes……………………… 4,170,000- 4,170,000 4,170,000 Char ges for services………………………………………… - 880,000 880,000 880,000 Penalties and interest on taxes…………………………… … - 312,000 312,000 312,000 Licenses and permits……………………………………… … - 250,550 250,550 250,550 Fines and forfeitures………………………………………… - 113,000 113,000 113,000 Intergovernmental……………………………………………… - 10,157,642 10,157,642 10,157,642 Departmental and other……………………………………… - 1,126,780 1,126,780 1,126,780 Investment income…………………………………………… - 130,000 130,000 130,000 TOTAL REVENUES…………………………………… - 83,505,319 83,505,319 83,505,319 EXPENDITURES: Current: Generalgovernment……………………………………… 11,008 2,336,446 2,347,454 2,277,385 Public safety………………………………………………… 48,806 9,982,596 10,031,402 9,731,924 Education…………………………………………………… 36,005 42,685,800 42,721,805 43,117,760 Public works………………………………………………… 160,897 4,484,636 4,645,533 5,305,330 Health and human services……………………………… 2,402 1,221,135 1,223,537 1,221,344 Culture and recreation…………………………………… 1,014 942,646 943,660 943,660 Support services…………………………………………… 104,130 1,704,357 1,808,487 1,771,853 Pension benefits…………………………………………… - 3,759,115 3,759,115 3,759,115 Property and liability insurance…………………………… - 422,925 422,925 369,385 Employee benefits………………………………………… 2,224 11,060,357 11,062,581 10,645,039 State and county charges…………………………………… - 460,309 460,309 460,309 Debt service: Principal…………………………………………………… - 4,733,155 4,733,155 4,583,967 Interest……………………………………………………… - 1,143,457 1,143,457 1,116,347 TOTAL EXPENDITURES……………………………… 366,486 84,936,934 85,303,420 85,303,418 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES……………………………………… (366,486) (1,431,615) (1,798,101) (1,798,099) OTHER FINANCING SOURCES (USES): Premium from issuance of bonds…………………………… - - - - Transfers in…………………………………………………… - 1,576,648 1,576,648 1,576,648 Transfers out…………………………………………………… - (1,061,500) (1,061,500) (1,061,500) TOTAL OTHER FINANCING SOURCES (USES)… - 515,148 515,148 515,148 NET CHANGE IN FUND BALANCE…………………………… (366,486) (916,467) (1,282,953) (1,282,951) BUDGETARY FUND BALANCE, Beginning of year…………… - 8,025,928 8,025,928 8,025,928 BUDGETARY FUND BALANCE, End of year…………………$ (366,486) $ 7,109,461 $ 6,742,975 $ 6,742,977 See notes to required supplementary information. Town of North Andover, Massachusetts72Comprehensive Annual Financial Report ActualAmountsVariance BudgetaryCarried ForwardTo Final AmountsTo Next YearBudget $ 64,307,345 $ $ (194,337)- 311,317 311,317- 1,833,933 - (29,732) 4,627,106 457,106- 942,044 - 62,044 493,863 181,863- 265,382 - 14,832 92,863 - (20,137) 10,307,124 149,482- 1,718,048 591,268- 110,398 - (19,602) 85,009,423 1,504,104- 2,176,843 30,433 70,109 9,582,393 52,287 97,244 43,046,508 64,968 6,284 5,335,369 99,169 (129,208) 1,195,496 - 25,848 895,875 - 47,785 1,713,705 43,664 14,484 3,759,115 - - 293,178 - 76,207 9,663,907 2,889 978,243 436,946 - 23,363 4,583,967 - - 980,877 135,470- 293,41083,664,179 1,345,829 (293,410)1,345,244 2,849,933 -291,987 291,987 -1,576,648 - -(1,061,500) - -807,135 291,987 (293,410)2,152,379 3,141,920 -8,025,928 - $ 10,178,307 $ (293,410) $ 3,141,920 Town of North Andover, Massachusetts73Comprehensive Annual Financial Report Pension Plan Schedules The Schedule of the Town’s Proportionate Share of the Net Pension Liability presents multi-year trend information on the Town’s net pension liability and related ratios. The Schedule of Contributions presents multi-year trend information on the Town’s required and actual contributions to the pension plan and related ratios. The Schedule of the Special Funding Amounts of the Net Pension Liability for the Massachusetts Teachers Contributory Retirement System presents multi-year trend information on the liability and expense assumed by the Commonwealth of Massachusetts on behalf of the City along with related ratios. These schedules are intended to present information for ten years. Until a ten year trend is compiled, information is presented for those years for which information is available. Pension plan schedules Town of North Andover, Massachusetts 74 Comprehensive Annual Financial Report SCHEDULE OF THE TOWN'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY ESSEX REGIONAL RETIREMENT SYSTEM December 31, 2014 … 14.655% Town's proportion of the net pension liability (asset)………………… Town's proportionate share of the net pension liability (asset)………$49,719,115 Town's covered employee payroll (*)……………………………………$18,809,056 Net pension liability as a percentage of covered-employee payroll……………………………………………………………………… 264.34% Plan fiduciary net position as a percentage of the total pension liability……………………………………………………… 52.27% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. *Covered employee payroll as reported in the January 1, 2014 funding valuation report. See notes to required supplementary information. Town of North Andover, Massachusetts75Comprehensive Annual Financial Report SCHEDULE OF TOWN CONTRIBUTIONS ESSEX REGIONAL RETIREMENT SYSTEM 2014 Actuarially determined contribution (a)…………………$3,759,115 Contributions in relation to the actuarially determined contribution……………………………… 3,759,115 Contribution deficiency (excess)……………………$- …$18,809,056 Covered-employee payroll (*)………………………… Contributions as a percentage of covered- employee payroll……………………………………… 19.99% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. (a) Based on the results of the January 1, 2014 actuarial valuation (including assumptions and methods) which determined budgeted appropriations for fiscal 2015. *Covered employee payroll as reported in the January 1, 2014 funding valuation report. See notes to required supplementary information. Town of North Andover, Massachusetts76Comprehensive Annual Financial Report SCHEDULE OF THE SPECIAL FUNDING AMOUNTS OF THE NET PENSION LIABILITY MASSACHUSETTS TEACHERS' RETIREMENT SYSTEM The Commonwealth of Massachusetts is a nonemployer contributor and is required by statute to make all actuarially determined employer contributions on behalf of the member employers which creates a special funding situation. Since the Town does not contribute directly to MTRS, there is no net pension liability to recognize. This schedule discloses the Commonwealth's 100% share of the collective net pension liability that is associated with the Town; the portion of the collective pension expense as both a revenue and pension expense recognized by the Town; and the Plan's fiduciarynet position as a percentage of the total liability. Commonwealth's Town's Expense 100% Share of the and Revenue Net Pension Recognized for Plan Fiduciary Net Liability thePosition as a Associated with Commonwealth's Percentage of the the TownSupportTotal Liability Fiscal Year 2015$65,734,720$4,566,90661.64% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. Town of North Andover, Massachusetts77Required Supplementary Information This page intentionally left blank. Town of North Andover, Massachusetts 78 Comprehensive Annual Financial Report Other Postemployment Benefit Plan Schedules Other postemployment benefit plan schedules The Schedule of Funding progress compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. The Schedule of Employer Contributions compares, overtime, the annual required contributions to the actual contributions made. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. Town of North Andover, Massachusetts 79 Comprehensive Annual Financial Report OTHER POSTEMPLOYMENT BENEFIT PLAN SCHEDULE OF FUNDING PROGRESS AND SCHEDULE OF EMPLOYER CONTRIBUTIONS Schedule of Funding Progress Actuarial AccruedUAAL as a ActuarialLiability (AAL)UnfundedPercentage ActuarialValue ofProjectedAALFundedCoveredof Covered ValuationAssetsUnit Credit(UAAL)RatioPayrollPayroll Date(A)(B)(B-A)(A/B)(C)((B-A)/C) 07/01/13$ $86,605,373- $86,605,373 0.0%$43,951,748 197.0% 07/01/12 - 100,068,844 100,068,8440.0% 41,265,503 242.5% 07/01/10 - 118,595,377 118,595,3770.0% 39,329,676 301.5% 07/01/08 125,963,157-125,963,1570.0% 39,189,469321.4% Schedule of Employer Contributions Annual Actual YearRequiredContributionsPercentage EndedContributionMadeContributed 6/30/15$7,973,330 $2,918,243 36.6% 6/30/14 8,342,451 2,704,28932.4% 6/30/13 10,674,564 3,252,186 30.5% 6/30/1212,141,886 4,184,95634.5% 6/30/1112,441,414 3,839,40830.9% 6/30/1011,241,110 4,346,87638.7% 6/30/0910,964,622 3,978,10936.3% The Town implemented GASB Statement No. 45 for the year ended June 30, 2009. Information for prior years is not available. See notes to required supplementary information. Town of North Andover, Massachusetts80Comprehensive Annual Financial Report OTHER POSTEMPLOYMENT BENEFIT PLAN ACTUARIAL METHODS AND ASSUMPTIONS Actuarial Methods: … July 1, 2013 Valuation date………………………………………… Actuarial cost method…………………………………… Projected Unit Credit Amortization method…………………………………… Level percentage of pay over thirty years based on an open group. … 30 years, open basis Remaining amortization period……………………… Actuarial Assumptions: … 4.5% Investment rate of return……………………………… Inflation rate assumption………………………………… 3.0% … 9.0% graded to 5.0% over 8 years Medical/drug cost trend rate………………………… Plan Membership: … 380 Current retirees, beneficiaries, and dependents…… Current active members………………………………… 747 Total………………………………………………………1,127 See notes to required supplementary information. Town of North Andover, Massachusetts81Comprehensive Annual Financial Report Notes to Required Supplementary Information Year Ended June 30, 2015 NOTE A - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Notes to required supplementary information 1. Budgetary Information Municipal Law requires the Town to adopt a balanced budget that is approved by Town Meeting. The Finance Committee presents an annual budget to Town Meeting, which includes estimates of revenues and other financing sources and recommendations of expenditures and other financing uses. Town Meeting, which has full authority to amend and/or reject the budget or any individual line item, adopts the expenditure budget by majority vote. Increases or transfers between departments subsequent to the approval of the annual budget, requires majority Town Meeting approval via a supplemental appropriation. The majority of the Town’s appropriations are non-continuing which lapse at the end of each year. Others are continuing appropriations for which the governing body has authorized that an unspent balance from a prior year be carried forward and made available for spending in the current year. These carry forwards are included as part of the subsequent year’s original budget. Generally, expenditures may not exceed the legal level of spending authorized for an appropriation account. However, the Town is statutorily required to pay debt service, regardless of whether such amounts are appropriated. Additionally, expenditures for disasters, natural or otherwise, and final judgments may exceed the level of spending authorized by majority vote of the Town Meeting. The Town adopts an annual budget for the general fund in conformity with the guidelines described above. The original 2015 approved budget for the general fund authorized $86.4 million in appropriations and other amounts to be raised. The Town Accountant’s office has the responsibility to ensure that budgetary control is maintained on an individual line item appropriation account basis. Budgetary control is exercised through the Town’s accounting system. 2. Budgetary - GAAP Reconciliation For budgetary financial reporting purposes, the Uniform Municipal Accounting System basis of accounting (established by the Commonwealth of Massachusetts) is followed, which differs from the GAAP basis of accounting. A reconciliation of budgetary-basis to GAAP-basis results for the general fund for the year ended June 30, 2015, is presented below: Net change in fund balance - budgetary basis…………………………………………$2,152,379 Perspective difference: Activity of the stabilization funds recorded in the general fund for GAAP………………………………………………………………… 1,876,463 Basis of accounting differences: Net change in recording 60 day receipts…………………………………………… 219,702 Net change in recording tax refunds payable……………………………………… (418,000) Recognition of revenue for on-behalf payments…………………………………… 4,566,906 Recognition of expenditures for on-behalf payments……………………………… (4,566,906) Net change in fund balance - GAAP basis……………………………………………$3,830,544 Town of North Andover, Massachusetts 82 Comprehensive Annual Financial Report Notes to Required Supplementary Information Year Ended June 30, 2015 NOTE B – PENSION PLAN A. Schedule of the Town’s Proportionate Share of the Net Pension Liability The Schedule of the Town’s Proportionate Share of the Net Pension Liability details the Town’s allocated percentage of the net pension liability (asset), the Town’s proportionate share of the net pension liability, and the Town’s covered employee payroll. It also demonstrates the Town’s net position as a percentage of the Town’s pension liability and the Town’s net pension liability as a percentage of the Town’s covered payroll. B. Schedule of Town’s Contributions Governmental employers are required to pay an annual appropriation as established by PERAC. The Town’s appropriation includes the amounts to pay the pension portion of each member’s retirement allowance, an amount to amortize the actuarially determined unfunded liability to zero in accordance with the system’s funding schedule, and additional appropriations in accordance with adopted early retirement incentive programs. The Town’s appropriations are payable on July 1 and January 1. The Town may choose to pay the entire appropriation in July at a discounted rate. Accordingly, actual Town contributions may be less than the “total appropriation”. The pension fund appropriation is allocated to the Town based on covered payroll. C. Schedule of the Special Funding Amounts of the Net Pension Liabilities The Commonwealth of Massachusetts is a nonemployer contributor and is required by statute to make all actuarially determined employer contributions on behalf of the member employers which creates a special funding situation. Since the Town does not contribute directly to MTRS, there is no net pension liability to recognize. This schedule discloses the Commonwealth's 100% share of the collective net pension liability that is associated with the Town; the portion of the collective pension expense as both revenue and pension expense recognized by the Town; and the Plan's fiduciary net position as a percentage of the total liability. D. Changes of Assumptions - None E. Changes of Plan Provisions - None NOTE C – OTHER POSTEMPLOYMENT BENEFITS PLAN The Town administers a single-employer defined benefit healthcare plan (“The Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the Town’s group health insurance plan, which covers both active and retired members. Additionally, retired teachers and their spouses receive health insurance through the Group Insurance Commission of the Commonwealth of Massachusetts (GIC). Each participating municipality is assessed for the governmental share of health and life insurance premiums paid on behalf of its teacher retirees by the state. The Town currently finances its other postemployment benefits (OPEB) on a pay-as-you-go basis. As a result, the funded ratio (actuarial value of assets expressed as a percentage of the actuarial accrued liability) is 0%. In accordance with Governmental Accounting Standards, the Town has recorded its OPEB cost equal to the actuarially determined annual required contribution (ARC) which includes the normal cost of providing benefits for the year and a component for the amortization of the total unfunded actuarial accrued liability of the plan. The Schedule of Funding Progress presents multi-year trend information which compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. The Schedule of Employer Contributions compares, overtime, the annual required contributions to the actual contributions made. Town of North Andover, Massachusetts 83 Comprehensive Annual Financial Report Notes to Required Supplementary Information Year Ended June 30, 2015 Projections of benefits for financial reporting purposes are based on the substantive plan and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. Town of North Andover, Massachusetts 84 Comprehensive Annual Financial Report Combining and Individual Fund Statements Combining and individual fund statements Town of North Andover, Massachusetts 85 Comprehensive Annual Financial Report Nonmajor Governmental Funds Nonmajor governmental funds Special Revenue Funds Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. Municipal Federal and State Grants – This fund is used to account for grant funds received from state and federal governments which are designated for specific non-school related programs. Education Federal and State Grants – This fund is used to account for grant funds received from state and federal governments which are designated for specific education related programs. Receipts Reserved for Appropriation – This fund is used to account for receipts from a specific revenue source that by law is accounted for separately from the general fund and must be spent by appropriation. Municipal Revolving Funds – This fund is used to account for various municipal department’s revolving funds established in accordance with MGL Chapter 44, Section 53E ½ and other applicable statutes. Education Revolving Funds – This fund is used to account for the school department’s revolving funds established in accordance with MGL Chapter 44, Section 53E ½ and Chapter 71. School Lunch Funds – This fund is used to account for all cafeteria activities and is funded by user charges, federal and state grants, and commodities received. Other Special Revenue Funds – This fund is used to account for the activity of donated funds, gifts, and public safety details. Affordable Housing Trust Fund – This fund is used to account for activities relating to the preservation and creation of affordable housing in the Town. Other Trust Funds – This fund is used to account for activities of conservation and public safety trust funds. Capital Projects Funds Capital projects funds are used to account for the acquisition and construction of major capital facilities other than those financed by proprietary funds and trust funds. Education Capital Projects – This fund is used to account for the acquisition of school related capital assets that are funded through both appropriations and borrowings. Town of North Andover, Massachusetts 86 Comprehensive Annual Financial Report Permanent Funds Permanent funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support governmental programs. Permanent Funds Principal – This fund is used to account for all non-library related gifts, bequests and contributions for which only earnings may be expended to benefit the Town. Library Permanent Funds – This fund is used to account for gifts, bequests and contributions held for which only earnings may be expended for purposes specified by the donor in relation to library activities. Town of North Andover, Massachusetts 87 Comprehensive Annual Financial Report NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2015 Special Revenue Funds MunicipalEducationReceipts Municipal Federal andFederal andReserved forRevolving State GrantsState GrantsAppropriationFunds ASSETS Cash and cash equivalents………………..…………$106,284 $ 62,791$ 146,481$ 594,750 Investments…………………………………………… … - - - - Receivables, net of uncollectibles: Departmental and other………………………… … ---33,267 Intergovernmental…………………………………… - 67,794 - - TOTAL ASSETS………………………………………$106,284 $ 130,585$ 146,481$ 628,017 LIABILITIES …$ 424 $ 7,356$ -$ 32,272 Warrants payable………………………………… Accrued payroll……………………………………… - 123,229 - - TOTAL LIABILITIES…………………………………… 424 130,585 - 32,272 DEFERRED INFLOWS OF RESOURCES … - - - 33,267 Unavailable revenues…………………………… FUND BALANCES Nonspendable……………………………………… - - - - … 105,860 - 146,481 562,478 Restricted………………………………………… TOTAL FUND BALANCES…………………………… 105,860 - 146,481 562,478 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES…………$106,284 $ 130,585$ 146,481$ 628,017 Town of North Andover, Massachusetts88Comprehensive Annual Financial Report Special Revenue Funds EducationSchoolOtherAffordableOther RevolvingLunchSpecial RevenueHousingTrust FundsFundsFundsTrust FundFundsSubtotal $ 3 17,470$ $1,091,60846,718 $1,031,649$243,721 $3,641,472 - - - - - - ----- 33,267 - - - - - 67,794 $ 3 17,470$ $1,091,60846,718 $1,031,649$243,721 $3,742,533 $ 1 0,652$ $- $1,195 -$ -$ 51,899 8 ,236 11,604 - - - 143,069 1 8,888 11,604 1,195 - - 194,968 - - - - - 33,267 - - - - - - 2 98,582 35,114 1,090,4131,031,649 243,721 3,514,298 2 98,582 35,114 1,090,4131,031,649 243,721 3,514,298 $ 3 17,470$ $1,091,60846,718 $1,031,649$243,721 $3,742,533 (Continued) Town of North Andover, Massachusetts89Comprehensive Annual Financial Report NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2015 Capital Project FundsPermanent Funds Total EducationPermanent LibraryNonmajor CapitalFundsPermanentGovernmental ProjectsPrincipalFundsSubtotalFunds ASSETS Cash and cash equivalents………………..…………$38,248 $ 29,257$ 15,202$ 44,459$ 3,724,179 Investments………………………………………… … - - 714,597 714,597 714,597 Receivables, net of uncollectibles: Departmental and other………………………… …---- 33,267 Intergovernmental………………………………… - - - - 67,794 …$38,248 $ 29,257$ 729,799$ 759,056$ 4,539,837 TOTAL ASSETS…………………………………… LIABILITIES Warrants payable…………………………………$- $ -$ -$ -$ 51,899 Accrued payroll…………………………………… - - - - 143,069 TOTAL LIABILITIES………………………………… - - - - 194,968 DEFERRED INFLOWS OF RESOURCES Unavailable revenues…………………………… - - - - 33,267 FUND BALANCES Nonspendable……………………………………… - 29,257 - 29,257 29,257 … 38,248 - 729,799 729,799 4,282,345 Restricted………………………………………… TOTAL FUND BALANCES………………………… 38,248 29,257 729,799 759,056 4,311,602 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES………$38,248 $ 29,257$ 729,799$ 759,056$ 4,539,837 (Concluded) Town of North Andover, Massachusetts90Comprehensive Annual Financial Report This page intentionally left blank. Town of North Andover, Massachusetts 91 Comprehensive Annual Financial Report NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2015 Special Revenue Funds MunicipalEducationReceiptsMunicipal Federal andFederal andReserved forRevolving State GrantsState GrantsAppropriationFunds REVENUES: Payments in lieu of taxes………………………………………$- $ $- $-- Charges for services…………………………………………… -- - 569,666 … --55,51875,893 Licensesand permits………………………………………… Intergovernmental……………………………………………… 182,734 3,226,656 - - … ---47,772 Departmental and other……………………………………… Contributions…………………………………………………… 540- 377,285- … 93--- Investment income…………………………………………… … 183,3673,226,65655,5181,070,616 TOTAL REVENUES…………………………………… EXPENDITURES: Current: … 3,496-41,77616,944 General government……………………………………… Public safety………………………………………………… 112,536- 596,454- Education…………………………………………………… - 3,234,409-- Public works………………………………………………… ---1,154 … 42,760- 408,319- Human services…………………………………………… Culture and recreation……………………………………… 28,699--- … 187,4913,234,40941,7761,022,871 TOTAL EXPENDITURES…………………………… EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………………………… (4,124)(7,753)13,74247,745 OTHER FINANCING SOURCES (USES): Issuance of bonds and notes………………………………… - - - - Sale of capital assets…………………………………………… ---- … ---- Transfers in…………………………………………………… Transfers out…………………………………………………… ---- TOTAL OTHER FINANCING SOURCES (USES)…… ---- NET CHANGE IN FUND BALANCES…………………………… (4,124)(7,753)13,74247,745 FUND BALANCES AT BEGINNING OF YEAR………………… 109,9847,753132,739514,733 FUND BALANCES AT END OF YEAR…………………………$105,860 $ $146,481- $562,478 Town of North Andover, Massachusetts92Comprehensive Annual Financial Report Special Revenue Funds EducationSchoolOtherAffordableOther RevolvingLunchSpecial RevenueHousingTrust FundsFundsFundsTrust FundFundsSub-total $- $ $141,902- $ $- $141,902- 1,807,5601,142,9732,440- 3,522,639- 347,479--- 478,890- --58,937 173,968-3,642,295 7,960-15,79160,700 132,223- 104,207-122,977- 605,009- ---5,9723146,379 2,267,2061,142,973342,04766,672174,2828,529,337 --134,0929,294 205,602- --1,779-5,926716,695 2,113,1101,139,64146,338- 6,533,498- --17,046--18,200 --46,489- 497,568- --19,498--48,197 2,113,1101,139,641265,2429,2945,9268,019,760 154,0963,33276,80557,378168,356509,577 ------ --300,041- 300,041- ------ (61,350) (143,103)-- (204,453)- (61,350)-156,938--95,588 92,7463,332233,74357,378168,356605,165 205,83631,782856,670974,27175,3652,909,133 $298,582 $35,114 $1,090,413$1,031,649 $243,721 $3,514,298 (Continued) Town of North Andover, Massachusetts93Comprehensive Annual Financial Report NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2015 Capital Project FundsPermanent Funds Total EducationPermanent LibraryNonmajor CapitalFundsPermanentGovernmental ProjectsPrincipalFundsSub-totalFunds REVENUES: Payments in lieu of taxes…………………………………………$- $ $- $- $141,902- Charges for services……………………………………………… -- - - 3,522,639 Licenses and permits…………………………………………… - - - - 478,890 Intergovernmental………………………………………………… - - - - 3,642,295 … - ---132,223 Departmental and other……………………………………… Contributions……………………………………………………… - 19,716-19,716624,725 Investment income……………………………………………… - 13,2624213,30419,683 … - 4232,97833,0208,562,357 TOTAL REVENUES…………………………………… EXPENDITURES: Current: General government………………………………………… - - - - 205,602 Public safety…………………………………………………… - ---716,695 … 583,622 ---7,117,120 Education…………………………………………………… Public works…………………………………………………… - ---18,200 Human services……………………………………………… ----497,568 Culture and recreation………………………………………… - -38,56338,56386,760 … 583,622 -38,56338,5638,641,945 TOTAL EXPENDITURES……………………………… EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………………………… (583,622) 42(5,585)(5,543)(79,588) OTHER FINANCING SOURCES (USES): Issuance of bonds and notes…………………………………… 397,743 ---397,743 Sale of capital assets…………………………………………… ----300,041 Transfers in……………………………………………………… 73,500 ---73,500 Transfers out……………………………………………………… - ---(204,453) TOTAL OTHER FINANCING SOURCES (USES)……… 471,243 ---566,831 NET CHANGE IN FUND BALANCES…………………………… (112,379) 42(5,585)(5,543)487,243 FUND BALANCES AT BEGINNING OF YEAR………………… 150,627 29,215735,384764,5993,824,359 …$38,248 $29,257 $729,799 $759,056 $4,311,602 FUND BALANCES AT END OF YEAR………………………… (Concluded) Town of North Andover, Massachusetts94Comprehensive Annual Financial Report Agency Fund Agency fund This fund is used to account for assets held by the Town in a trustee capacity or as an agent for individuals, private organizations, and other governmental units. The majority of the assets in the agency fund relate to conservation, highway and planning board bid deposits as well as student activity deposits. Town of North Andover, Massachusetts 95 Comprehensive Annual Financial Report AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES YEAR ENDED JUNE 30, 2015 BeginningEnd of YearAdditionsDeletionsof Year ASSETS CURRENT: Cash and cash equivalents…………………$4,158,338 $4,600,537 $(4,985,734) $3,773,141 LIABILITIES Warrants payable……………………………$- $822$- $822 Guaranteed deposits……………………… 3,502,582 1,116,503 (1,333,196) 3,285,889 Other deposits……………………………… 383,838 1,237,705(1,384,931) 236,612 Student Activities…………………………… 271,9182,245,507(2,267,607)249,818 TOTAL LIABILITIES……………………………$4,158,338 $4,600,537 $(4,985,734) $3,773,141 Town of North Andover, Massachusetts96Comprehensive Annual Financial Report Statistics Section Statistical Section Statistical Section This part of the comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the Town’s overall financial health. Financial Trends These schedules contain trend information to help the reader understand how the Town’s financial performance and well-being have changed over time. Revenue Capacity These schedules contain information to help the reader assess the Town’s most significant local revenue source, the property tax. Debt Capacity These schedules present information to help the reader assess the affordability of the Town’s current levels of outstanding debt and the Town’s ability to issue additional debt in the future. Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the Town’s financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the Town’s financial report relates to the services the Town provides and the activities it performs. SOURCES: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The Town implemented GASB Statement 34 in 2003; schedules presenting government-wide information include information beginning in that year. Town of North Andover, Massachusetts 97 Comprehensive Annual Financial Report -- 2015 -- 2014 $ - 693,398 293,410 12,953,601 $13,940,409 $ - - - 29,257 15,182,802 - $15,212,059 -- 2013 $ - 762,324 366,486 8,981,055 $10,109,865 $ - - - 29,215 14,021,545 - $14,050,760 -- Comprehensive Annual Financial Report 2012 $ - 896,040 173,989 6,618,601 $7,688,630 $ - - - 29,200 9,705,816 (193,926) $9,541,090 - 2011 $ - 964,966 411,861 5,412,549 $6,789,376 $ - - - 29,184 11,714,886 - $11,744,070 $ 2010 - 1,033,892 184,314 3,455,866 $4,674,072 $- - - - 29,134 10,315,497 - $10,344,631 $1,369,510 101 Last Ten Years 2009 658,689 - - - $2,028,199 $29,111 9,055,517 3,163,123 459,616 - - - $12,707,367 $1,422,665 Fund Balances, Governmental Funds 2008 168,993 - - - $1,591,658 $29,028 9,953,042 2,107,039 447,756 - - - $12,536,865 $1,927,584 2007 1,684,514 - - $3,612,098 $1,619,701 6,917,728 1,532,240 531,528 - - $10,601,197 - - $1,670,515 2006 2,799,586 - - - $4,470,101 $584,112 5,607,342 3,369,779 533,644 - - - $10,094,877 4,590,078 - 4,201,047 (5,833,628) 426,611 $5,606,023$(779,193) - - … … … …… ………… Special revenue funds…………Capital projects funds…………Permanent funds……………… ssigned……………………………… Restricted……………………………AUnassigned…………………………… -Reserved………………………………$426,777Unreserved, reported in:Nonspendable………………………… -Restricted……………………………Unassigned…………………………… - Reserved………………………………$1,015,945Unreserved………………..………… General FundTotal general fund………………………All Other Governmental FundsTotal all other governmental funds……The Town implemented GASB 54 in year 2011, fund balances prior to year 2011 have been reported in the pre-GASB 54 format. Town of North Andover, Massachusetts Assessed Value and Actual Value of Taxable Property by Classification and Tax Rates Last Ten Years Assessed and Actual Values and Tax Rates TotalTotalTotal ResidentialResidentialCommercialIndustrialPersonalCommercialCommercialDirectTown Yea rValueTax RateValueValuePropertyValueTax RateRateValue 20063,743,701,112$ 11.14$ 240,357,988$ 175,698,300$ 81,016,630$ 497,072,918$ 13.47$ 11.41$ 4,240,774,030$ 2007(1)4,113,245,116$ 10.45$ 286,085,303$ 174,371,400$ 77,931,290$ 538,387,993$ 12.63$ 10.70$ 4,651,633,109$ 20084,001,584,703$ 11.40$ 283,789,944$ 167,088,600$ 82,002,220$ 532,880,764$ 13.78$ 11.68$ 4,534,465,467$ 20093,910,976,509$ 11.76$ 280,591,491$ 163,741,100$ 99,814,430$ 544,147,021$ 16.69$ 12.36$ 4,455,123,530$ 2010(1)3,670,178,348$ 12.74$ 286,494,949$ 168,247,500$ 108,138,260$ 562,880,709$ 17.69$ 13.40$ 4,233,059,057$ 20113,563,558,199$ 13.52$ 283,140,851$ 162,024,800$ 112,827,760$ 557,993,411$ 18.63$ 14.21$ 4,121,551,610$ 20123,586,332,274$ 13.92$ 278,839,111$ 158,456,800$ 121,400,010$ 558,695,921$ 19.16$ 14.63$ 4,145,028,195$ 2013(1)3,713,065,744$ 13.72$ 278,124,243$ 161,446,600$ 116,997,715$ 556,568,558$ 18.85$ 14.39$ 4,269,634,302$ 20143,652,658,906$ 14.41$ 276,804,384$ 155,524,200$ 123,301,890$ 555,630,474$ 19.45$ 15.08$ 4,208,289,380$ 20153,745,570,341$ 14.39$ 277,858,269$ 147,834,600$ 123,012,880$ 548,705,749$ 20.29$ 15.14$ 4,294,276,090$ Total Assessed Value by Classification Total Assessed Value by Classification Year Ended June 30, 2014 Year Ended June 30, 2015 3% 3%3% 4% 7% 6% 87% 87% ResidentialCommercialIndustrialPersonal Property ResidentialCommercialIndustrialPersonal Property Commercial Value as % of Total Value 18.0% 16.0% 14.0% 12.0% 10.0% 2006200720082009201020112012201320142015 (1) Revaluation year. Source: Assessor's Department, Town of North Andover All property in the Commonwealth of Massachusetts is assessed at 100% of fair cash value. Note: Chapter 59, Section 21C of the Massachusetts General Laws, known as "Proposition 2 1/2", imposes 2 separate limits on the annual tax levy of the Town. The primary limitation is that the tax levy cannot exceed 2 1/2 percent of the full and fair cash value. The secondary limitation is that the tax levy cannot exceed the maximum levy limit for the preceding year as determined by the State Commissioner of Revenue by more than 2 1/2 percent, subject to an exception for property added to the tax rolls and for certain substantial valuation increases other than as part of a general revaluation. The secondary limit may be exceeded in any year by a majority vote of the voters, however it cannot exceed the primary limitation. Town of North Andover, Massachusetts103Comprehensive Annual Financial Report alue 0.00%0.00%0.00% 0.00%0.00%0.00%0.00%5.47% V Assessed Total Taxable Percentage of 2006 30.60%60.35%70.24%11.42%21.34%40.56%50.44%80.22%90.21% 100.09% ------- 4,033,7009,763,4009,294,300 Comprehensive Annual Financial Report 27,110,00015,640,70010,881,50063,891,50060,137,80025,207,80019,836,900 aluationRank V $$$$$$$$245,797,600 $ $ $ $ $ $ $ $ $ $ ------- alue 1.30%1.08%0.92%0.36%0.48%0.38%0.32%0.31%0.22%0.16%5.54% V AssessedAssessed Total Taxable Percentage of 123456789 10 2015 ------- 9,234,2006,691,600 53,769,99044,382,06037,808,04015,000,00019,754,35015,779,40013,249,14012,841,500 aluationRank 104 V Assessed $228,510,280 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Principal Taxpayers Totals Current Year and Nine Years Ago UtilityUtility Retail OfficeOfficeOfficeOffice Type Office Par Property Office Park ApartmentsApartments Shopping MallManufacturing Co-op Housing Office/ManufacturingOffice/Manufacturing Congregate Care/Nursing Home Name AIMCO (Royal Crest)National GridEdgewood Retirement CommunityMansur InvestmentDelta/Delta Realty TrustOzzy PropertiesWood Ridge HomesRCG North Andover MillsEaglewood PropertiesNorth Andover 2004NAM Partners LimitedT.J. Flatley Co.Lucent TechnologiesMass ElectricJefferson Equity PartnersBF No, Andover Office ParkD & L Andover Prop. LLCSource: Official Statement for Sale of Bonds Town of North Andover, Massachusetts First Year Current Tax Collections Last Ten Years Real Estate Tax Levy Real Estate Tax Levies vs. First Year Collections 2006200720082009201020112012201320142015 0 90,000,00080,000,00070,000,00060,000,00050,000,00040,000,00030,000,00020,000,00010,000,000 110,000,000100,000,000 Millions 17.37% 2015 216,876,700 4,337,534,000 $ $ $ 15.40% 2014 222,309,300 4,446,186,000 931,008 $ $ 36,746,119$ 179,199,573 13.82% 2013 222,309,300 4,446,186,000 1,124,027 $ $ 33,116,011$ 188,069,262 Comprehensive Annual Financial Report 16.60% 2012 223,017,205 4,460,344,100 182,659 $ $ 30,545,849$ 191,580,792 23.44% 2011 223,017,205 4,460,344,100 1,970,568 $ $ 35,050,079$ 185,996,558 19.49% 2010 245,651,910 4,913,038,200 6,688,916 $ $ 45,590,789$ 170,737,500 108 Last Ten Years 22.76% 2009 245,651,910 4,913,038,200 Computation of Legal Debt Margin 44,477,844 3,391,000 $ $ $ 197,783,066 24.77% 2008 232,448,425 4,648,968,500 45,804,952 10,111,025 $ $ $ 189,735,933 24.23% 2007 232,448,425 4,648,968,500 44,809,719 12,765,223 $ $ $ 174,873,483 2006 48,332,581 7,993,738 $ $ $ 176,122,106 165,987,361 28.59% 52,713,614 13,747,450 …… … … Debt Limit -5% of Equalized Valuation……… 232,448,425Less: Outstanding debt applicable to limit……… Authorized and unissued debt……………Legal debt margin……………………………Total debt applicable to the limit as a percentage of debt limit………………Source: Official Statement for Sale of Bonds Equalized Valuation…………………………… 4,648,968,500 Town of North Andover, Massachusetts Demographic and Economic Statistics Last Ten Years Per Capita PopulationPersonalPersonalMedianUnemployment YearEstimatesIncomeIncomeAgeRate 200627,3901,080,264,953$$ 39,440 374.1% 200727,4121,102,755,288$$ 40,229 373.9% 200827,5661,131,129,553$$ 41,034 374.6% 200927,7531,161,578,875$$ 41,854 377.7% 201028,3521,210,382,515$$ 42,691 377.3% 201128,3521,234,590,165$$ 43,545 375.9% 201228,3521,259,281,969$$ 44,416 375.2% 201328,3521,284,467,608$$ 45,304 375.2% 201428,4221,313,380,620$$ 46,210 375.7% 201528,4221,339,670,970$$ 47,135 374.6% Source:Commonwealth of Mass, Division of Local Services, Executive Office of Labor and Workforce Development. Median age is based on most recent census data. Town of North Andover, Massachusetts109Comprehensive Annual Financial Report t Total Town Employmen Percentage of k 2006 n/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/a 45042%23091%30061%37551%50032%60012%54022%30071%25081%200101% EmployeesRan t Comprehensive Annual Financial Report n/an/an/an/an/an/a 2%1%1%1%1%1%1%1%1%1% Total Town Employmen Percentage of k 2015 n/an/an/an/an/an/an/an/an/an/an/an/a 67514002350334542505225620571858170915010 EmployeesRan 110 Current Year and Nine Years Ago Principal Employers (excluding Town) of Nature Business Higher EducationGrocery StoreShoe ManufacturingHeathcareManufacturingUtility ServicesNewspaperEducationHealthcareGrocery StoreManufacturingChemical ManufacturingElectronic ControlsPlastics ManufacturingManufacturingContractor r Employe Merrimack CollegeDemoulas Supermarkets, Inc.Converse, IncEdgewood Retirement CommunityWatts RegulatorsNational Grid (formely Mass Electic)Lawrence Eagle TribuneBrooks SchoolGenesis HealthcareStop & ShopLucent TechnoligiesBorden ChemicalA.E.G SchneiderSweetheart PlasticsMorton International IncSolectron CorpSource: Massachusetts Department of Workforce Development Town of North Andover, Massachusetts 01 2723151148 1134796 62934925 2172117 146 62934925 2172117 146 72334929 2142113 146 Comprehensive Annual Financial Report 64134827 2152114 146 64934421 s 2142114 146 53633427 2142113 146 111 53243424 2142113 146 Last Ten Years 52141317 2142112 146 Full-Time Equivalent Town Employee 63153221 2142113 146 2006200720082009201020112012201320142015 … … … … … … … … … … … … … … … … … … … … s k r o w c i l b u Town…………………………………………Public Safety………………………………School………………………………………PCommunity services………………………Support Services …………………………Library…………………….…………………Total …………………………………………Source: Annual Budget Report, School Dept Full-Time Equivalents Town of North Andover, Massachusetts 0385594522483277714641947 001189830 889097552145330803759270680 155 5022128204459146 2325 4 35 ,,,,,,,,, 872162 2 12 21 (continued) 7746 279502775989742154317892376339 824538 248153983214983621009287 21284448147 334 6 421720723 ,,,,, , ,, 262212 88 21 9612001312618677744694449 280075665 88599218324563903686148894 595 35223492944491453264437 ,,,,,,,,, 882161312 21 7746 273430431811940972427045988353 7834538 50681209518983638434816 21744481442153 331519956 ,,,,,,,,, 261212 881 21 Comprehensive Annual Financial Report 54916500408614779824566657 26119384 8876964823245639843589854954 55 3222387194448143296234 ,,,,,,,, 87261212 21 7945 295564793358338280485609884566 9824438 56891977129914310642981 22744481414362 313019796 ,,,,,,,,, 2161332 88 21 18802676382752473984606201 39648220 97691182244133844340348715 5569 2231671845481414176266 70 ,,,,,,,, 78261312 21 670708963aaaaaaaaaaaaa70290345 ///////////// 112 88 681104820392568 nnn nnnnnnnnnn 33714192 5737358 ,,,,,,, 21412 76 21 Last Ten Years 448855aaaaaaaaaaaaa30514 208474 ///////////// 087478551802142 10 nnnnnnnnnnnnn 3237714308226 44 ,,,,,, 762522 21 Operating Indicators by Function/Program - 087073141aaaaaaaaaaaaa 0161556 ///////////// 9281530899859935 nnn nnnnnnnnn/an/an/ann/an/an/ann/an/an/a 221 31 1 01 8 14 3 90 37 ,,,,,,,, 214122 77 200620072008200920102011201220132014201521 … … … … ……… … ……… …… …… … ……… … ……. … …… …… . … . … … …… …… … … … … ……. …… … … … … ……… …… … … … … ……… …… … … … … ……… …… … … … … ……… …… … … … … ……… …… … … … … ……… …… … s… … t ……… …… … n … i … ………a …… … l … … p ……… …… … … …m ……… …… …o … … c ……… …… …l … … a ……… …… … … m … i e ……… …… … n u … a ………c …… … f s … ………o ……e … …r y R l ……… …… i e y d … b l m …i…… … n a cm … a s m …… Feu n a ss e … n t R r o e F hmbulance Calls……………………………………… i s i ll s t t c h gaFA oe a ta t s r t rn i ei iir wo BMarriages…………………………………………………DDogs licensed……………………………………………Business Certificates……………………………………New Voter Registrations…………………………………SCondominiums……………………………………………MTThree Family………………………………………………Four-e ight Family…………………………………………Vacant land………………………………………………Residential/Commercial…………………………………Commerical buildings and land…………………………Industrial buildings and land……………………………Chapter 61 - Forestry Property…………………………Chapter 61A - Farm Property……………………………Chapter 61B - Recreational Land………………………Exempt buildings and land………………………………Public Utilities………………………………………………n/an/an/aUtilities valued by State…………………………………Complaints Issued…………………………………..ASummons/Hearings………………………………………CParking tickets issued……………………………………TIncidents Passport Applications……………………………………Personal Property Accounts…………………………… Population……………………………………………………Registered Voters, Annual Town Election…………………Town ClerkAssessorsPoliceFire Function/ProgramPublic Safety General Government Town of North Andover, Massachusetts - 30171001995306 391884288686 42622328311165625758 02141 5535831220845434184 ,,,,,,,,,,,, 347980680199 12225 193,799 (continued) 15 3755657718223510175713149 5 62321790 184005038107348845 65332221 2829403613275 ,,,,,,,,,,,,, 3498661 680600 11236 7 1 - 42177262340113 0394542849312 412438833444593237 119185 440721225064890209 4 ,,,,,,,,,,,, , 3478836495197 111825 1 - 1889 2596346752669526824589 2 1222268 29762569899206916 32222 7738675163235 ,,,,,,,,,,,,, 2487441 817696 12125 0 2 Comprehensive Annual Financial Report - 17195767586022 5813815997137 072422738456800882 427106 43362225272247253 5 ,,,,,,,,,,,, , 2458614463183 111125 2 - 1623 7480320499746281475493 371248 21717350376366167 331229 46150928400 ,,,,,,,,,,, 2447943 5684 1125 - 671863638807656 44530390382 0724211093557401769 8850 432612229030883 67 ,,,,,,,,,,, 24943838969 1224 212,970 - 145 59059166283167283245499 113 4341157 84549342698405043 331128 45506923159 ,,,,,,,,,,, 243323 82849 11225 Last Ten Years 201,961 213,598 - 121001733273408 145091454601 094488219636711729 088082 533611256712360 663 ,,,,,,,,,,, , 247430127633 112025 2 Operating Indicators by Function/Program -- 178 0 8 16 416759839913813948 6 245 1 471 4354 9261078887 12 5 1 761 1 94890543 39 ,,,,,,,,,,, 2112 4 32 0 606 20062007200820092010201120122013201420151122 4 220,477 … …… … … … …… …… …… …… . … … … …… . … … …… … ) … s … … … … n … … o… … … i t … … c… … … e … … … … … p s s … … …d … n ir …/ …a … … s t c …i … a … … l m … r P … … … e … & p … … … / s s … s t s …r i r w e … le m … e ri u d l … v e a … o e P H r … H …t y h sd n d ra s r le e t o a a p t r a m sl cl C i l T e e/ o tr D y s r r l e r l s n a e a Dr kl e ( r b u l i e o c oa ki L t w o oHf p e h o r me i c A r s SCarbon Monoxide Detectors…………………………FLiquid Gas Storage Permits…………………………Open Air Burning Permits……………………………Oil Burner Install Permits……………………………Sprinkler Inspections…………………………………Underground Tank Installation………………………Underground Tank Removals………………………Food Est. (related permits& reviews) ………………S F e F c b i l Permits/certificates issuedPermits issued……………………………………………Plan reviews………………………………………………OCommercial PermitsProfessional PermitsHome delivered meals served…………………………Outreach Case ManagementCommunity EducationRecreationTransportation Inspections m b u u Building DepartmentPPlanningBoard of HealthCouncil on AgingProgram attendance…………………………………………NCirculation ……………………………………………………PC & Internet Use……………………………………………Reference Questions…………………………………………Inte r-Library Loans Function/ProgramEducationHuman ServicesLibraries Town of North Andover, Massachusetts 464 30 8763 0 6821 , 3 3. 3 12530 4 9310 68 26 , 0 3 . 3 984 91 0975 0 7711 , 2 3. 2 (concluded) 44848 1 9592 68 03 , 6 3 . 2 Comprehensive Annual Financial Report 648 10 5165 2 6891 , 0 2. 3 62365 4 4977 67 96 , 8 2 . 2 15a1 1 / 173 7 n 63 7 . 2 29 114 3 6 6 9 . 2 Last Ten Years 5 6 4 2 1 8 . 2 Operating Indicators by Function/Program 9 8 9 9 6 9 . 2006200720082009201020112012201320142015 2 … … … … … … … … … … ) s n o l l a g n o i l l i m n i ( n o i t p m u s n o c y l i a MembershipsSummer ProgramsOverall ServicesService connections…………………………………….……DSource: Various Town Departments and Annual Town ReportN/A: Information not available Function/ProgramYouth & Recreation ServicesSewerWater Town of North Andover, Massachusetts 31251185097201196 1 41 1991913 5 1 , 1 312a51185097201196 / 411 199913 n 5 1 , 1 312a51185097201196 / 411 199913 n 5 1 , 1 312a51185097201196 / 411 199913 n 5 1 , 1 Comprehensive Annual Financial Report 312a5118097201196 / 41 199913 n 1 312a5118997201196 / 41 189913 n 1 1,511 312a51187997201196 / 481 189913 n 4 1 , 1 1,489 115 312a51179897201196 / Last Ten Years 147891913 n 14 , 1 312a51177897201196 / 147891913 n 14 , 1 Capital Asset Statistics by Function/Program 12a511216 / 138799901139 n 147 2006200720082009201020112012201320142015 1,475 … … …… …… …… …… … … … ………… … ………… s l … ……… o … o ……… h s l … c …… o s … o …… y h r … c …… a t s ss … n nn e el oo … ii d tt ms d aa i ee tt l h SSem c ffff a oooo e rrrr b eeee c bbbb i l mmmm b uuuu u Number of Buildings………………NNSchool administration building……NNNumber of high schools……………Water mains (miles)………………Fire hydrants………………………Sanitary sewers (miles)……………Storm sewers (miles)………………Playground s…………………………17Parks…………………………………Playgrounds - Acreage……………Parks - Acreage……………………PBall fields……………………………Tennis courts………………………Source: Various Town DepartmentsN/A: Information not available Function/ProgramGeneral GovernmentPoliceFireEducationPublic WorksCulture and Recreation Town of North Andover, Massachusetts This page intentionally left blank. Town of North Andover, Massachusetts 116 Comprehensive Annual Financial Report Additional Information Additional Information Town of North Andover, Massachusetts 117 Comprehensive Annual Financial Report ENTERPRISE FUND SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGETARY BASIS - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2015 Water Fund Amounts ActualCarriedVariance Original FinalBudgetaryForward ToTo Final BudgetBudgetAmountsNext YearBudget OPERATING REVENUES: Charges for services ………………………………………………………………$ 4,958,500 $ 4,958,500 $ 5,433,859 $ - $ 475,359 Penalties and interest……………………………………………………………… 22,100 22,100 24,030 - 1,930 TOTAL OPERATING REVENUES …………………………………….……… 4,980,600 4,980,600 5,457,889 477,289- OPERATING EXPENSES: Cost of service and administration………………………………………………… 2,542,642 2,542,642 2,264,637 37,888 240,117 GLDS assessment……………………………………………………………..…… - - - - - TOTAL OPERATING EXPENSES …………………………………….……… 2,542,642 2,542,642 2,264,637 37,888 240,117 OPERATING INCOME (LOSS)…………………………………………..…… 2,437,958 2,437,958 3,193,252 (37,888) 717,406 NONOPERATING REVENUES (EXPENSES): Investment income………………………………………………………………… 12,000 12,000 15,705 - 3,705 Interest expense…………………………………………………………………… (240,943) (240,943) (235,853) 5,090- Debt service - principal……………………………………………………………… (1,465,450) (1,465,450) (1,464,698) - 752 TOTAL NONOPERATING REVENUES (EXPENSES), NET………………………………………..…… (1,694,393) (1,694,393) (1,684,846) - 9,547 INCOME (LOSS) BEFORE TRANSFERS…………………..………………… 743,565 743,565 1,508,406 (37,888) 726,953 TRANSFERS: Transfers out………………………………………………………………………… (1,500,710) (1,500,710) (1,500,710) - - TOTAL OPERATING TRANSFERS………………………………….………… (1,500,710) (1,500,710) (1,500,710) - - CHANGE IN NET POSITION…………………………………………………… (757,145) (757,145) 7,696 (37,888) 726,953 NET POSITION AT BEGINNING OF YEAR……………………………..………… 2,820,122 2,820,122 2,820,122 - - NET POSITION AT END OF YEAR……………………………………………………$ 2,062,977 $ 2,062,977 $ 2,827,818 $ (37,888) $ 726,953 Town of North Andover, Massachusetts118Comprehensive Annual Financial Report Sewer FundOsgood Hill Fund AmountsAmounts Actual CarriedVarianceActual CarriedVariance OriginalFinal BudgetaryForward ToTo Final Original Final BudgetaryForward ToTo Final BudgetBudgetAmountsNext YearBudgetBudgetBudgetAmountsNext YearBudget $ 4,688,187 $ 4,688,187 $ 5,053,707 $ $ 365,520- $ 2 92,720$ 2 92,720$ 482,778 $ -$ 190,058 23,264 23,264 26,979 - 3,715 - - - - - 4,711,451 4,711,451 5,080,686 369,235- 2 92,720 2 92,720 4 82,778 - 1 90,058 714,064 714,064 643,035 13,111 57,918 2 45,749 2 45,749 303,623 - (57,874) 1,655,000 1,655,000 1,543,296 111,704- - - - - - 2,369,064 2,369,064 2,186,331 13,111 169,622 2 45,749 2 45,749 3 03,623 - ( 57,874) 2,342,387 2,342,387 2,894,355 (13,111) 538,857 4 6,971 4 6,971 1 79,155 - 1 32,184 7,000 7,000 11,853 4,853- - - 1,017 - 1,017 (281,013) (281,013) (267,604) 13,409- - - - - - (1,675,925) (1,675,925) (1,675,925) - - - - - - - (1,949,938) (1,949,938) (1,931,676) 18,262- - - 1,017 - 1,017 392,449 392,449 962,679 (13,111) 557,119 4 6,971 4 6,971 1 80,172 - 1 33,201 (423,863) (423,863) (423,863) - - (47,622) (47,622) ( 47,622) - - (423,863) (423,863) (423,863) - - (47,622) ( 47,622) ( 47,622) - - (31,414) (31,414) 538,816 (13,111) 557,119 ( 651) ( 651) 1 32,550 - 133,201 1,767,239 1,767,239 1,767,239 - - 1 05,006 1 05,006 105,006 - - $ 1,735,825 $ 1,735,825 $ 2,306,055 $ (13,111) $ 557,119 $ 1 04,355$ 1 04,355$ 2 37,556 $ - $ 133,201 Town of North Andover, Massachusetts119Comprehensive Annual Financial Report TOWN OF NORTH ANDOVER, MASSACHUSETTS MANAGEMENT LETTER JUNE 30, 2015 To the Honorable Board of Selectmen Town of North Andover, Massachusetts: In planning and performing our audit of the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Town of North Andover, Massachusetts’ (the “Town”) as of and for the year ended June 30, 2015, in accordance with auditing standards generally accepted in the United States of America, we considered the Town’s internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Town’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Town’s internal control. However, during our audit we became aware of matters that are opportunities for strengthening internal controls and enhancing operating efficiency. The memorandum that accompanies this letter summarizes our comments and suggestions concerning those matters. We will review the status of these comments during our next audit engagement. We have already discussed these comments and suggestions with various Town personnel, and will be pleased to discuss them in further detail at your convenience, to perform any additional study of these matters, or to assist you in implementing the recommendations. This communication is intended solely for the information and use of management of the Town of North Andover, Massachusetts, and is not intended to be and should not be used by anyone other than these specified parties. The Town of North Andover’s written response to the matters identified in our audit has not been subjected to the audit procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. November 30, 2015 TOWN OF NORTH ANDOVER, MASSACHUSETTS MANAGEMENT LETTER JUNE 30, 2015 TABLE OF CONTENTS PAGE Integration of Accounts Receivable Software .................................................................................................. 1 Management of Student Activity Funds ........................................................................................................... 1 Police Detail and Ambulance Receivables ...................................................................................................... 2 Implement a Point-of-Sale (POS) System at Osgood Estates ........................................................................ 2 Government Accounting Standards Board (GASB) Statements ..................................................................... 3 Integration of Accounts Receivable Software Integration of Accounts Receivable Software Comment We previously indicated that the Town should consider eliminating the use of a stand-alone accounts receivable system and shift toward an integrated system. An integrated system would provide greater efficiencies as well as real-time, up-to-date data for important management decisions. We recommended that the Town perform a review of the current accounting system and consider implementing an integrated system. Current Status The Town began the process of implementing a new accounting system as of July 1, 2015. The implementation is anticipated to be completed by December of 2016 and will include integrated modules for general ledger accounting and reporting, payroll, permits, taxes, tax title and utility billing. Management of Student Activity Funds Management of Student Activity Funds Comment Massachusetts General Law (MGL), Chapter 71, Section 47 requires that school districts maintain student activity funds in accordance with guidelines issued by the Department of Elementary and Secondary Education (DESE). In 2014 the DESE published a comprehensive manual titled Agreed-Upon Procedures and Audit Guidelines – Student Activity Funds. Within each section of the manual is the DESE Policy Guidance, the MGL Requirement and DESE’s explanation of what type of policies, internal controls and audit procedures should be implemented in order to be in compliance with the law. These guidelines can be found on the DESE website at the following address: http://www.doe.mass.edu/finance/accounting One of the MGL requirements is that an annual audit of the student activities be completed and that at least once every three years the procedures should be performed by an outside independent auditor if student activity balances exceed $25,000. The DESE manual provides guidance on the acceptable methods and timing of the audit. Current Status The School Department has contracted to have an independent audit of the student activity funds performed for the period ending June 30, 2015. The audit is tentatively scheduled for January 2016. 1 Police Detail and Ambulance Receivables Police Detail and Ambulance Receivables Comment We previously indicated that the Town did not record the monthly commitment, collection, and abatement of police detail and ambulance activity against the corresponding receivable balances maintained on the general ledger. An adjustment had historically been recorded at year-end to balance with the police department and ambulance billing agent’s records. Recording the police detail and ambulance activity against the receivable account and reconciling the balance on a monthly basis provides a better check and balance than what has historically existed. Current Status The Town has implemented procedures to record and reconcile both police detail activity and the ambulance activity on a monthly basis. Implement a Point-of-Sale (POS) System at Osgood Estates Implement a Point-of-Sale (POS) System at Osgood Estates Comment We believe that the Town can enhance internal controls over the receipt collection process at Osgood Estates by utilizing a point of sale (POS) system similar to the systems utilized by private wedding venues, restaurants, and other organizations. A POS system would allow the Osgood Estates to collect, record, and monitor both cash and credit card receipts during hosted events in real time. A POS system can also enhance control over different areas of event operations such as inventory control, event scheduling, reporting, and analysis. For example, a POS system would enable tracking of inventory quantities on-hand, enable cashiers to process transactions quickly and efficiently, allow managers to maintain tight controls over transactions by providing a structured reconciliation process, as well as generate sales reports by register, batch, and receipt number. Recommendation We recommend that the Town implement a point-of-sale (POS) system at the Osgood Estates in an effort to improve controls over the receipt collection process, as well as to further enhance the Estate’s overall control environment. We also recommend that the Osgood Estates improve the current level of controls over liquor inventory. Through either the utilization of a POS system or another process the Town should implement procedures to adequately track the balance of liquor inventory on-hand, as well as perform monthly spot checks of actual inventory on-hand to the underlying records. 2 Government Accounting Standards Board (GASB) Statements Government Accounting Standards Board (GASB) Statements Comment The GASB has issued new pronouncements that will significantly affect the accounting and reporting requirements for Other Postemployment Benefits (OPEB). These new standards will start to phase in during 2017 and will substantially impact the Town’s financial statements and will also affect the requirements for accumulating the necessary data to meet the reporting requirements. The new standards that have been issued and their effective dates are as follows: The GASB issued Statement #74, Financial Reporting for Postemployment Benefit Plans Other Than Pensions, which is required to be implemented in 2017. The GASB issued Statement #75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which is required to be implemented in 2018. See below for a brief summary of these new standards: GASB #74 and #75 will substantially change the reporting for other postemployment benefit liabilities and expenses. Changes in the other postemployment benefits liability will be immediately recognized as other postemployment benefits expense or reported as deferred outflows/inflows of resources depending on the nature of the changes. Substantial changes to methods and assumptions used to determine actuarial information for GAAP reporting purposes will be required. Employers will report in their financial statements a net other postemployment benefit liability (asset) determined annually as of the measurement date. Net other postemployment benefit liability (asset) equals the total other postemployment benefit liability for the plan net of the plan net position. The other postemployment benefit liability is the actuarial present value of projected benefits attributed to past service. The plan net position is the accumulated plan assets net of any financial statement liabilities of the plan. The Town should expect to record significant OPEB liabilities in the future. While these GASB’s do not go into effect until 2017 and 2018, we wanted to make the Town aware of the impact that these new standards will have on financial statement reporting and disclosures. 3