HomeMy WebLinkAboutAppendix D - Town of Reading MA - FY2018 Financial Statements TOWN OF READING, MASSACHUSETTS
Annual Financial Statements
For the Year Ended June 30, 2018
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TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
MANAGEMENT'S DISCUSSION AND ANALYSIS 5
BASIC FINANCIAL STATEMENTS:
Government-wide Financial Statements:
Statement of Net Position 16
Statement of Activities 17
Fund Financial Statements:
Governmental Funds:
Balance Sheet 19
Reconciliation of Total Governmental Fund Balances to
Net Position of Governmental Activities in the Statement
of Net Position 20
Statement of Revenues, Expenditures, and Changes
in Fund Balances 21
Reconciliation of the Statement of Revenues, Expenditures,
and Changes in Fund Balances of Governmental Funds to
the Statement of Activities 22
Statement of Revenues and Other Sources, and Expenditures
and Other Uses - Budget and Actual - General Fund 23
Proprietary Funds:
Statement of Net Position 24
Statement of Revenues, Expenses, and Changes in Fund
Net Position 25
Statement of Cash Flows 26
Fiduciary Funds:
Statement of Fiduciary Net Position 27
Statement of Changes in Fiduciary Net Position 28
Notes to the Financial Statements 29
Electric Light Plant Notes to the Financial Statements 71
PAGE
REQUIRED SUPPLEMENTARY INFORMATION:
Pension:
Schedule of Proportionate Share of the Net Pension Liability (GASB 68) 99
Schedule of Pension Contributions (GASB 68) 100
OPEB:
Schedule of Changes in Net OPEB Liability (GASB 74 and 75) 101
Schedules of Net OPEB Liability, Contributions, and
Investment Returns (GASB 74 and 75) 102
SUPPLEMENTARY INFORMATION:
Combining Balance Sheet - Nonmajor Governmental Funds 104
Combining Statement of Revenues, Expenditures, and
Changes in Fund Balances - Nonmajor Governmental Funds 108
Combining Schedule of Net Position - Nonmajor Proprietary Funds 112
Combining Schedule of Revenues, Expenses, and Changes
in Fund Net Position - Nonmajor Proprietary Funds 113
Combining Schedule of Cash Flows - Nonmajor Proprietary Funds 114
MELANSON
ACCOUNTANTS•AUDITORS
10 New England Business
Center Dr.•Suite 107
Andover,MA 01810
INDEPENDENT AUDITORS' REPORT (978)749-0005
melansonheath.com
To the Board of Selectmen Additional Offices:
Town of Reading, Massachusetts Nashua,NH
Manchester,NH
Greenfield,MA
Ellsworth,ME
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activi-
ties, the business-type activities, each major fund, and the aggregate remaining fund
information of the Town of Reading, Massachusetts, as of and for the year ended
June 30, 2018, (except for the Reading Contributory Retirement System, which is as
of and for the year ended December 31, 2017) 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
The Town's management is responsible for the preparation and fair presentation
of these financial statements in accordance with accounting principles generally
accepted in the United States of America; this includes the design, implementation,
and maintenance of internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatement, whether due to
fraud or error.
Auditors' Responsibility
Our responsibility is to express opinions on these financial statements based on
our audit. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America and the standards applicable to financial
audits contained in Government Auditing Standards, issued by the Comptroller
General of the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free 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
auditors'judgment, including the assessment of the risks of material misstatement of
the financial statements, whether due to fraud or error. In making those risk assess-
ments, the auditor considers internal control relevant to the entity's preparation and
fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an 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 manage-
ment, 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 Reading, Massachusetts, as of June 30, 2018, and the respective changes in
financial position and, where applicable, cash flows thereof and the respective budgetary
comparison for the general fund for the year then ended in accordance with accounting
principles generally accepted in the United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that
Management's Discussion and Analysis, the Pension and OPEB schedules appear-
ing on pages 99 to 102 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 proce-
dures to the required supplementary information in accordance with auditing stand-
ards 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 evidence sufficient
to express an opinion or provide any assurance.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial state-
ments that collectively comprise the Town's basic financial statements. The accom-
panying supplementary information appearing on pages 104 through 114 is
presented for purposes of additional analysis and is not a required part of the basic
financial statements. Such information is the responsibility of management and was
derived from and relates directly to the underlying accounting and other records
used to prepare the financial statements. The information has been subjected to the
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auditing procedures applied in the audit of the financial statements and certain addi-
tional procedures, including comparing and reconciling such information directly to
the underlying accounting and other records used to prepare the financial
statements or to the financial statements themselves, and other additional
procedures in accordance with auditing standards generally accepted in the United
States of America. In our opinion, the information is fairly stated in all material
respects in relation to the financial statements as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report
dated March 27, 2019 on our consideration of the Town's internal control over finan-
cial reporting and on our tests of its compliance with certain provisions of laws, regu-
lations, contracts, and grant agreements and other matters. The purpose of that
report is solely 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 effectiveness of the Town's internal control over financial reporting or
on compliance. That report is an integral part of an audit performed in accordance
with Government Auditing Standards in considering Town's internal control over
financial reporting and compliance.
March 27, 2019
3
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4
MANAGEMENT'S DISCUSSION AND ANALYSIS
As management of the Town of Reading, Massachusetts (the Town), we offer readers
this narrative overview and analysis of the financial activities of the Town for the fiscal
year ended June 30, 2018.
A. OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the basic
financial statements. The basic financial statements are comprised of three com-
ponents: (1) government-wide financial statements, (2) fund financial statements,
and (3) notes to the financial statements. This report also contains other supple-
mentary information in addition to the basic financial statements themselves.
Government-wide financial statements. The government-wide financial state-
ments are designed to provide readers with a broad overview of our finances in
a manner similar to a private-sector business.
The Statement of Net Position presents information on all assets, 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 Town's financial position
is improving or deteriorating.
The Statement of Activities presents information showing how the Town's net position
changed during the most recent fiscal year. All changes in net position are reported
as soon as the underlying event giving rise to the change occurs, regardless of the
timing of related cash flows. Thus, revenues and expenses are reported in this state-
ment for some items that will only result in cash flows in future fiscal periods (e.g.,
uncollected taxes and earned but unused vacation leave).
Both of the government-wide financial statements distinguish functions that are
principally supported by taxes and intergovernmental revenues (governmental
activities) from other functions that are intended to recover all or a significant
portion of their costs through user fees and charges (business-type activities).
The governmental activities include general government, public safety, educa-
tion, public works, facilities, health and human services, and culture and
recreation. The business-type activities include electric division operations, water
supply and distribution, sewer disposal, landfill, and stormwater 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 activi-
ties or objectives. Fund accounting is used to ensure and demonstrate compli-
ance with finance-related legal requirements. All of the funds can be divided into
three categories: governmental funds, proprietary funds, and fiduciary funds.
5
Governmental funds. Governmental funds are used to account for essentially
the same functions reported as governmental activities in the government-wide
financial statements. However, unlike the government-wide financial statements,
governmental fund financial statements focus on near-term inflows and outflows
of spendable resources, as well as on balances of spendable resources available
at the end of the fiscal year. Such information may be useful in evaluating the
Town'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 Town's near-term financing decisions. Both
the governmental funds balance sheet and the governmental funds statement of
revenues, expenditures, and changes in fund balances provide a reconciliation to
facilitate this comparison between governmental funds and governmental activities.
An annual appropriated budget is adopted for the general fund. A budgetary
comparison statement has been provided for the general fund to demonstrate
compliance with this budget.
Proprietary funds. Proprietary fund reporting focuses on the determination of
operating income, changes in net position (or cost recovery), financial position,
and cash flows. Included in the proprietary fund category are the Town's
enterprise funds.
Enterprise funds are used to report activity for which a fee is charged to external
users, and must be used when one of the following criteria are met: (1) activity is
financed with debt that is secured solely by a pledge of the net revenues from
fees and charges, (2) laws or regulations require the activity's costs of providing
services be recovered with fees and charges, and (3) the pricing policies of the
activity establish fees and charges designed to recover its costs, including capital
costs such as depreciation or debt service. The primary focus on these criteria is
on fees charged to external users. Enterprise funds are used to report the same
functions presented as business-type activities in the government-wide financial
statements, only in more detail. Specifically, enterprise funds are used to account
for electric division, water, sewer, landfill, and stormwater operations, of which
electric division, water, and sewer and operations are considered to be major
funds.
The Town does not maintain internal service funds.
Fiduciary funds. Fiduciary funds are used to account for resources held for the
benefit of parties outside the government. Fiduciary funds are not reflected in the
government-wide financial statements because the resources of those funds are
not available to support the Town's own programs. The accounting used for fidu-
ciary funds is much like that used for proprietary funds.
6
Notes to the financial statements. The notes provide additional information that
is essential to a full understanding of the data provided in the government-wide
and fund financial statements.
Other information. In addition to the basic financial statements and accom-
panying notes, this report also presents certain required supplementary infor-
mation which is required to be disclosed by accounting principles generally
accepted in the United States of America.
B. FINANCIAL HIGHLIGHTS
• As of the close of the current fiscal year, the total of assets and deferred
outflows of resources exceeded liabilities and deferred inflows of resources
by $192,323,477 (i.e., net position), a change of$10,191,287 in comparison
to the prior year.
• As of the close of the current fiscal year, governmental funds reported com-
bined ending fund balances of $32,391,135, a change of$3,815,953 in
comparison to the prior year.
• At the end of the current fiscal year, unassigned fund balance for the general
fund was $13,852,018, a change of $2,287,028 in comparison to the prior
year.
C. GOVERNMENT-WIDE FINANCIAL ANALYSIS
The following is a summary of condensed government-wide financial data for the
current and prior fiscal years:
NET POSITION
Governmental Business-Type
Activities Activities Total
2018 2017(1 2018 2017"' 2018 2017")
Current and other assets $ 41,562,429 $ 42,667,526 $ 83,436,180 $ 82,451,612 $ 124,998,609 $ 125,119,138
Capital assets 128,379,352 132,582,554 103,351,691 99,518,262 231,731,043 232,100,816
Total Assets 169,941,781 175,250,080 186,787,871 181,969,874 356,729,652 357,219,954
Deferred Outflows of Resources 7,954,088 8,846,381 4,712,612 4,908,972 12,666,700 13,755,353
Long-term liabilities 111,911,827 80,689,329 39,635,404 36,125,085 151,547,231 116,814,414
Other liabilities 8,416,315 8,286,128 9,436,400 10,043,420 17,852,715 18,329,548
Total Liabilities 120,328,142 88,975,457 49,071,804 46,168,505 169,399,946 135,143,962
Deferred Inflows of Resources 5,259,309 2,326,946 2,413,620 834,048 7,672,929 3,160,994
Net position:
Net investment in capital assets 102,926,593 101,672,301 94,747,230 89,259,199 197,673,823 190,931,500
Restricted 12,962,345 17,761,046 9,767,995 11,250,323 22,730,340 29,011,369
Unrestricted (63,580,520) (26,639,289) 35,499,834 39,366,771 (28,080,686) 12,727,482
Total Net Position $ 52,308,418 $ 92,794,058 $ 140,015,059 $ 139,876,293 $ 192,323,477 $ 232,670,351
I'I Fiscal year 2017 amounts were not restated as the Town applied GASB 75 prospectively.
7
As noted earlier, net position may serve over time as a useful indicator of the
Town's financial position. At the close of the most recent fiscal year, total net
position was $192,323,477, a change of $10,191,287 from the prior year.
The largest portion of net position, $197,673,823, reflects our investment in capital
assets (e.g., land, buildings, machinery, and equipment); less any related debt used to
acquire those assets that is still outstanding. These capital assets are used to provide
services to citizens; consequently, these assets are not available for future spending.
Although the investment in capital assets is reported net of related debt, it should be
noted that the resources needed to repay this debt must be provided from other sources,
since the capital assets themselves cannot be used to liquidate these liabilities.
An additional portion of net position, $22,730,340, represents resources that are
subject to external restrictions on how they may be used. The remaining balance
of unrestricted net position, $(28,080,686), primarily results from the Town's
unfunded net pension liability and net OPEB liability.
8
The following is a summary of condensed government-wide statement of changes
in net position financial data for the current and prior fiscal years:
CHANGES IN NET POSITION
Governmental Business-Type
Activities Activities Total
2018 20171'1 2018 2017(') 2018 2017
Revenues
Program revenues:
Charges for services $ 9,723,339 $ 8,704,119 $ 111,427,378 $ 106,630,695 $ 121,150,717 $ 115,334,814
Operating grants and
contributions 25,820,694 25,350,989 - 67,797 25,820,694 25,418,786
Capital grants and contributions 1,906,371 1,454,456 1,005,680 968,198 2,912,051 2,422,654
General revenues:
Property taxes 67,024,574 64,651,227 - - 67,024,574 64,651,227
Excises 4,345,158 4,143,498 4,345,158 4,143,498
Penalties,interest,and
other taxes 578,670 586,333 578,670 586,333
Grants and contributions not
restricted to specific programs 3,637,261 3,356,933 - - 3,637,261 3,356,933
Investment income 1,388,888 1,302,345 521,682 426,612 1,910,570 1,728,957
Other 453,117 325,689 694,309 693,772 1,147,426 1,019,461
Total Revenues 114,878,072 109,875,589 113,649,049 108,787,074 228,527,121 218,662,663
Expenses
General government 5,536,833 5,328,963 - - 5,536,833 5,328,963
Public safety 14,610,104 15,722,993 14,610,104 15,722,993
Education 76,817,852 72,790,008 76,817,852 72,790,008
Public works 8,400,180 7,156,998 8,400,180 7,156,998
Facilities 1,740,647 1,663,004 1,740,647 1,663,004
Health and Human Services 1,054,153 1,253,232 1,054,153 1,253,232
Culture and recreation 4,650,855 4,747,487 4,650,855 4,747,487
Interest on long-term debt 1,007,435 1,055,194 1,007,435 1,055,194
Intergovernmental 1,077,974 1,011,638 1,077,974 1,011,638
Electric division operations - - 91,196,214 87,127,810 91,196,214 87,127,810
Water operations 5,544,322 5,391,238 5,544,322 5,391,238
Sewer operations 6,359,280 6,070,876 6,359,280 6,070,876
Other 339,985 278,694 339,985 278,694
Total Expenses 114,896,033 110,729,517 103,439,801 98,868,618 218,335,834 209,598,135
Change in net position
before transfers (17,961) (853,928) 10,209,248 9,918,456 10,191,287 9,064,528
Transfers in(out) 2,419,770 2,384,668 (2,419,770) (2,384,668)
Change in net position 2,401,809 1,530,740 7,789,478 7,533,788 10,191,287 9,064,528
Net position-beginning of yearl') 49,906,609 91,263,318 132,225,581 132,342,505 182,132,190 223,605,823
Net position-end of year $ 52,308,418 $ 92,794,058 $ 140,015,059 $ 139,876,293 $ 192,323,477 $ 232,670,351
Fiscal year 2017 amounts were not restated as the Town applied GASB 75 prospectively.
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Governmental activities. Governmental activities for the year resulted in a change
in net position of $2,401,809. Key elements of this change are as follows:
PILOT from RMLD $ 2,419,770
Capital acquisitions net of related debt service activity
and depreciation 934,877
Decrease in net pension liability, net of related deferred
outflows/inflows of resources 531,652
Increase in net OPEB liability, net of related deferred
outflows of resources (1,917,440)
Other 432,950
Total $ 2,401,809
Business-type activities. Business-type activities for the year resulted in a
change in net position of $7,789,478. Key elements of this change and the
impact on cash flows are as follows:
Revenues and Expenses and Change in
Transfers In Transfers Out Net Position
Electric division fund $ 98,469,191 $ (93,615,984) $ 4,853,207
Water fund 7,032,005 (5,544,322) 1,487,683
Sewer fund 7,698,593 (6,359,280) 1,339,313
Nonmajor funds 449,260 (339,985) 109,275
Total $ 113,649,049 $ (105,859,571) $ 7,789,478
The change in net position for business-type activities is largely attributable to
the Town's ongoing investment in capital improvements. These amounts are
reported net of related outstanding debt obligations and are included in net posi-
tion as net investment in capital assets. Business-type activities reported net
investment in capital assets of $94,747,230, an increase of$5,488,031, or
6.15%, over the prior year.
Unrestricted net position of the business-type activities at the end of the fiscal
year amounted to $35,499,834, a change of $(3,866,937) in comparison to the
prior year. Key elements of this change are as follows:
Fund 6/30/18 6/30/17 Change
Electric division $ 19,523,546 $ 22,622,447 $ (3,098,901)
Water 6,552,073 7,861,702 (1,309,629)
Sewer 8,066,467 7,454,741 611,726
Nonmajor 1,357,748 1,427,881 (70,133)
Total $ 35,499,834 $ 39,366,771 $ (3,866,937)
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The change in unrestricted net position of the Business-type activities is mainly
attributable to the implementation of GASB Statement No. 75 with regard to the
Town's net other post-employment benefits (OPEB) liability as further discussed
in the Notes to the Financial Statements.
The change in unrestricted net position of the Sewer fund is largely attributable to
a 2.94% increase in sewer rates.
D. FINANCIAL ANALYSIS OF THE TOWN'S FUNDS
As noted earlier, fund accounting is used to ensure and demonstrate compliance
with finance-related legal requirements.
Governmental funds. The focus of governmental funds is to provide information
on near-term inflows, outflows, and balances of spendable resources.
Such information is useful in assessing financing requirements. In particular,
unassigned fund balance may serve as a useful measure of the Town's net
resources available for spending at the end of the fiscal year.
As of the end of the current fiscal year, governmental funds reported combined
ending fund balances of$32,391,135, a change of$3,815,953 in comparison to
the prior year. Key elements of this change are as follows:
General fund expenditures exceeding revenues $ (467,486)
PILOT from RMLD 2,419,770
Special revenue fund revenues exceeding expenditures 498,583
Town capital project fund expenditures
exceeding revenues (100,368)
MSBA grant revenues 1,339,079
Permanent fund revenues exceeding expenditures 126,375
Total $ 3,815,953
The general fund is the chief operating fund of the Town. At the end of the current
fiscal year, unassigned fund balance of the general fund was $13,852,018, while
total fund balance was $18,806,419. The following table reflects the trend in all
components of the general fund's fund balance:
Last Five Fiscal Years
Assigned for
Restricted Committed for Subsequent
Fiscal for Debt Stabilization Assigned for Year's Total Fund
Year Service Fund Encumbrances Expenditures Unassigned Balance
2014 $ - $ 364,628 $ 2,034,921 $ 2,050,000 $ 11,398,537 $ 15,848,086
2015 - 503,000 2,827,211 1,800,000 11,852,773 16,982,984
2016 - 503,031 2,936,996 4,646,605 ' 10,246,346 18,332,978
2017 62,468 503,000 2,855,339 1,600,000 11,564,990 16,585,797
2018 62,468 503,000 2,788,933 1,600,000 13,852,018 18,806,419
Includes$2,197,000 for subsequent year free cash appropriation to fund litigation settlement.
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As a measure of the general fund's liquidity, it may be useful to compare both
unassigned fund balance and total fund balance to total general fund
expenditures as illustrated in the table below:
% of Total
General Fund
General Fund 6/30/18 6/30/17 Change Expenditures
Unassigned fund balance $ 13,852,018 $ 11,564,990 $ 2,287,028 14.46%
Total fund balance $ 18,806,419 $ 16,585,797 $ 2,220,622 19.64%
The increase in the Town's June 30, 2018 unassigned fund balance over the prior
year is primarily due to current year actual revenues exceeded those budgeted
and actual expenditures less than budgeted, as illustrated in the budget and
actual page in the basic financial statements.
The total fund balance of the general fund changed by $2,220,622 during the
current fiscal year. Key factors in this change are as follows:
General Fund
Use of free cash and overlay surplus as a funding source $ (1,900,000)
Revenues in excess of budget 2,103,330
Expenditures less than budget 1,868,528
Expenditures of prior year encumbrances less than current
year encumbrances 115,616
Change in stabilization accounts 33,115
Other 33
Total $ 2,220,622
Included in the total general fund balance are the Town's stabilization accounts
with the following balances:
Fund Balance
6/30/18 6/30/17 Change Classification
Stabilization - general $ 1,617,451 $ 1,584,336 $ 33,115 Unassigned
Stabilization -smart growth 503,000 503,000 - Committed
Total $ 2,120,451 $ 2,087,336 $ 33,115
Proprietary funds. Proprietary funds provide the same type of information found
in the business-type activities reported in the government-wide financial state-
ments, but in more detail.
Factors concerning the finances of proprietary funds have already been addressed
in the entity-wide discussion of business-type activities.
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E. GENERAL FUND BUDGETARY HIGHLIGHTS
Differences between the original budget and the final amended budget resulted
in an overall change in appropriations of $739,210. Major reasons for these
amendments include:
• $299,000 increase for capital improvements
• $300,000 increase for snow & ice budget
• $140,210 increase for other Town operations
Of this increase, $300,000 was funded by free cash, $383,474 through the tax
levy, $100,736 from additional state aid, and $(45,000) in local receipts.
F. CAPITAL ASSET AND DEBT ADMINISTRATION
Capital assets. Total investment in capital assets for governmental and business-
type activities at year-end amounted to $231,731,043 (net of accumulated deprecia-
tion), a change of$(369,773) from the prior year. This investment in capital assets
includes land, land improvements, infrastructure, buildings and improvements,
machinery, equipment, and furnishings.
Governmental additions:
$ 1,475,169 in roadway improvements
$ 727,818 for public safety vehicles and equipment
$ 410,431 for public works vehicles
$ 185,375 in various school improvements
Business-type additions:
$ 4,272,663 in electric division infrastructure
$ 1,413,518 in sewer infrastructure
• $ 870,805 in water infrastructure and vehicles
$ 393,462 in stormwater improvements and vehicles
Additional information on capital assets can be found in Note 9 of the Notes to the
Financial Statements.
Long-term debt. At the end of the current fiscal year, total bonded debt out-
standing was $41,564,707, all of which was backed by the full faith and credit of
the Town.
Additional information on capital assets and long-term debt can be found in Note
15 of the Notes to the Financial Statements.
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G. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES
The adopted FY2019 general fund budget of $99,724,095 is an 8.00% increase
over the prior year. There was a $4.15 million override approved as part of the
FY2019 budget. The FY2019 budget is balanced.
FY2019 state aid will be $14,343,893, which represents a 1.7% percent increase
over prior year.
The tax levy for FY2019 of $73,730,299 represents a 9.3% increase over the
prior year. The FY2019 tax rate is $14.23 per thousand for residential properties
and $14.48 per thousand for commercial properties, compared to $13.87 per
thousand for residential properties and $13.92 per thousand for commercial
properties in the prior year. Overall, property values increased 6.5% to
$5,192,898,690.
For FY2019, the Select Board, acting as the Water and Sewer Commissioners, voted
not to increase water rates and sewer rates for all customers, effective for all billings
after September 10, 2018. The revenues are expected to cover all operations,
planned infrastructure improvements, and debt.
The Commonwealth passed legislation allowing Massachusetts municipalities to
pass a Local Option Meals Tax of 0.75%, with 100% of the revenue going to the
Town. Reading voted to accept this local option at their November 2010 Town
Meeting. The Town received revenue in FY2018 totaling $410,011. The FY2019
revenue budgeted for this tax is $385,000.
At the April 2012 Town Meeting, the Town voted to adopt Massachusetts General
Laws Chapter 32B, Section 20 which allows the Town to set up an irrevocable
trust for Other Post-Employment Benefits liabilities (OPEB). Currently, the funds
set aside in this trust are invested in MMDT, which invests in US Treasuries, com-
mercial paper, and very short-term bonds according to the prudent investor rule
set forth in Chapter 203C. The Town is exploring the possibility of investing the
funds in the State Retiree Benefits Trust Fund (SRBT) administered by PRIM. The
SRBT funds are invested in Pension Reserve Investment Trust (PRIT). Investment in
PRIT offers higher returns which would reduce the Town's unfunded OPEB liabil-
ity. At the April 2017 Town Meeting, the Town voted to accept the provisions of
Section 20 of Chapter 32B of MGL, as amended by Section 15 of Chapter 218 of
the Acts of 2016. This will allow the Town to move forward with the process of
investing the Town's OPEB funds with the State Retiree Benefits Trust.
14
REQUESTS FOR INFORMATION
This financial report is designed to provide a general overview of the Town of Reading's
finances for all those with an interest in the government's finances. Questions con-
cerning any of the information provided in this report or requests for additional finan-
cial information should be addressed to:
Town Accountant
Town Hall
16 Lowell Street
Reading, MA 01867
15
TOWN OF READING,MASSACHUSETTS
STATEMENT OF NET POSITION
JUNE 30,2018
Governmental Business-Type
Activities Activities Total
Assets
Current:
Cash and short-term investments $ 16,922,639 $ 33,559,555 $ 50,482,194
Investments 22,604,269 - 22,604,269
Receivables,net of allowance for uncollectibles:
Property taxes 288,229 288,229
Excises 216,294 - 216,294
User fees - 15,043,163 15,043,163
Departmental and other 536,474 - 536,474
Intergovernmental 545,298 - 545,298
Prepaid assets - 727,717 727,717
Inventory 1,439,947 1,439,947
Noncurrent:
Restricted cash and short-term equivalents 29,904,641 29,904,641
Restricted investments 2,502,561 2,502,561
Investment in associated companies - 258,596 258,596
Receivables,net of allowance for uncollectibles:
Property taxes 449,226 - 449,226
Capital assets being depreciated,net 123,062,518 93,998,975 217,061,493
Capital assets not being depreciated 5,316,834 9,352,716 14,669,550
Deferred Outflows of Resources
Related to pensions 7,205,928 3,958,491 11,164,419
Related to OPEB 748,160 754,121 1,502,281
Total Assets and Deferred Outflows of Resources 177,895,869 191,500,483 369,396,352
Liabilities
Current:
Warrants payable 1,988,876 5,602,604 7,591,480
Accrued liabilities 3,909,028 495,532 4,404,560
Unearned revenues 339,225 - 339,225
Tax refunds payable 68,108 - 68,108
Customer advances for construction - 2,149,463 2,149,463
Customer deposits - 1,155,870 1,155,870
Notes payable 1,490,000 - 1,490,000
Other current liabilities 621,078 32,931 654,009
Current portion of long-term liabilities:
Bonds and loans payable 3,968,362 2,048,512 6,016,874
Compensated absences 124,307 498,719 623,026
Noncurrent:
Bonds and loans payable,net of current portion 22,124,495 13,423,338 35,547,833
Compensated absences 1,118,764 2,760,719 3,879,483
Net pension liability 24,377,732 12,287,627 36,665,359
Net OPEB liability 60,198,167 8,616,489 68,814,656
Deferred Inflows of Resources
Related to pensions 5,099,751 2,413,620 7,513,371
Other 159,558 - 159,558
Total Liabilities and Deferred Inflows of Resources 125,587,451 51,485,424 177,072,875
Net Position
Net investment in capital assets 102,926,593 94,747,230 197,673,823
Restricted for:
Grants and other statutory restrictions 7,389,400 9,767,995 17,157,395
Permanent funds:
Nonexpendable 3,164,493 - 3,164,493
Expendable 2,408,452 - 2,408,452
Unrestricted (63,580,520) 35,499,834 (28,080,686)
Total Net Position $ 52,308,418 $ 140,015,059 $ 192,323,477
The accompanying notes are an integral part of these financial statements.
16
TOWN OF READING,MASSACHUSETTS
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30,2018
Program Revenues
Operating Capital
Charges for Grants and Grants and Net(Expenses)
Expenses Services Contributions Contributions Revenues
Governmental Activities
General government $ 5,536,833 $ 619,146 $ 234,720 $ $ (4,682,967)
Public safety 14,610,104 3,182,723 334,529 (11,092,852)
Education 76,817,852 4,828,826 24,810,623 1,339,079 (45,839,324)
Public works 8,400,180 190,844 96,020 567,292 (7,546,024)
Facilities 1,740,647 - - - (1,740,647)
Health and human services 1,054,153 68,248 293,061 (692,844)
Culture and recreation 4,650,855 833,552 51,741 (3,765,562)
Interest on long-term debt 1,007,435 - - (1,007,435)
Intergovernmental 1,077,974 - - - (1,077,974)
Total Governmental Activities 114,896,033 9,723,339 25,820,694 1,906,371 (77,445,629)
Business-Type Activities
Electric operations 91,196,214 97,206,743 - 372,680 6,383,209
Water operations 5,544,322 6,851,222 - - 1,306,900
Sewer operations 6,359,280 6,935,238 - 633,000 1,208,958
Other 339,985 434,175 - - 94,190
Total Business-Type Activities 103,439,801 111,427,378 - 1,005,680 8,993,257
Total $ 218,335,834 $ 121,150,717 $ 25,820,694 $ 2,912,051 (68,452,372)
The accompanying notes are an integral part of these financial statements. (continued)
TOWN OF READING, MASSACHUSETTS
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30,2018
(continued)
Governmental Business-Type
Activities Activities Total
Change in Net Position:
Net(Expenses)Revenues from previous page $ (77,445,629) $ 8,993,257 $ (68,452,372)
General Revenues and Transfers
Property taxes 67,024,574 - 67,024,574
Excises 4,345,158 4,345,158
Penalties,interest,and other taxes 578,670 578,670
Grants and contributions not
restricted to specific programs 3,637,261 - 3,637,261
Investment income 1,388,888 521,682 1,910,570
Other 453,117 694,309 1,147,426
Transfers, net 2,419,770 (2,419,770) -
Total General Revenues and Transfers 79,847,438 (1,203,779) 78,643,659
Change in net position 2,401,809 7,789,478 10,191,287
Net Position
Beginning of year,as restated') 49,906,609 132,225,581 182,132,190
End of year $ 52,308,418 $ 140,015,059 $ 192,323,477
see restatement footnote in notes to financial statements
The accompanying notes are an integral part of these financial statements.
18
TOWN OF READING, MASSACHUSETTS
GOVERNMENTAL FUNDS
BALANCE SHEET
JUNE 30, 2018
Nonmajor Total
General Governmental Governmental
Fund Funds Funds
Assets
Cash and short-term investments $ 7,072,315 $ 9,850,324 $ 16,922,639
Investments 17,246,043 5,358,226 22,604,269
Receivables:
Property taxes 815,882 - 815,882
Excises 332,654 - 332,654
Departmental and other 329,406 207,068 536,474
Intergovernmental - 545,298 545,298
Total Assets $ 25,796,300 $ 15,960,916 $ 41,757,216
Liabilities
Warrants payable $ 1,597,913 $ 390,963 $ 1,988,876
Accrued liabilities 3,485,300 156,012 3,641,312
Unearned revenue - 339,225 339,225
Notes payable - 1,490,000 1,490,000
Other liabilities 621,078 - 621,078
Total Liabilities 5,704,291 2,376,200 8,080,491
Deferred Inflows of Resources
Unavailable revenues 1,285,590 - 1,285,590
Fund Balances
Nonspendable - 3,164,493 3,164,493
Restricted 62,468 10,588,867 10,651,335
Committed 503,000 - 503,000
Assigned 4,388,933 - 4,388,933
Unassigned 13,852,018 (168,644) 13,683,374
Total Fund Balances 18,806,419 13,584,716 32,391,135
Total Liabilities, Deferred Inflows of Resources,
and Fund Balances $ 25,796,300 $ 15,960,916 $ 41,757,216
The accompanying notes are an integral part of these financial statements.
TOWN OF READING, MASSACHUSETTS
RECONCILIATION OF TOTAL GOVERNMENTAL FUND
BALANCES TO NET POSITION OF GOVERNMENTAL
ACTIVITIES IN THE STATEMENT OF NET POSITION
JUNE 30, 2018
Total governmental fund balances $ 32,391,135
• Capital assets used in governmental activities are not financial
resources and, therefore, are not reported in the funds. 128,379,352
• Revenues are reported on the accrual basis of accounting
and are not deferred until collection. 968,837
Deferred outflows of resources to be recognized as an increase to
pension and OPEB expense in future periods:
Related to Pensions 7,205,928
Related to OPEB 748,160
• Long-term liabilities are not due and payable in the current period and,
therefore, are not reported in the governmental funds:
Bonds payable (26,092,857)
Compensated absences (1,243,071)
Net pension liability (24,377,732)
Net OPEB liability (60,198,167)
• Deferred inflows of resources related to pensions to be recognized as a
decrease to pension expense in future periods. (5,099,751)
• Deferred inflows of resources related to gains on refunding bonds. (105,700)
• In the Statement of Activities, interest is accrued on outstanding
long-term debt, whereas in governmental funds interest is not
reported until due. (267,716)
Net position of governmental activities $ 52,308,418
The accompanying notes are an integral part of these financial statements.
20
TOWN OF READING, MASSACHUSETTS
GOVERNMENTAL FUNDS
STATEMENT OF REVENUES, EXPENDITURES,AND CHANGES IN FUND BALANCES
FOR THE YEAR ENDED JUNE 30,2018
Nonmajor Total
General Governmental Governmental
Fund Funds Funds
Revenues
Property taxes $ 66,950,236 $ $ 66,950,236
Excises 4,388,124 4,388,124
Penalties, interest,and other taxes 578,670 578,670
Departmental 2,070,060 7,391,992 9,462,052
Licenses and permits 161,084 - 161,084
Fines and forfeitures 113,136 - 113,136
Intergovernmental 19,983,990 5,675,933 25,659,923
Investment income 785,756 184,349 970,105
Contributions - 493,290 493,290
Other 276,241 177,415 453,656
Total Revenues 95,307,297 13,922,979 109,230,276
Expenditures
Current:
General government 3,982,419 257,848 4,240,267
Public safety 10,838,151 1,638,468 12,476,619
Education 49,257,277 8,357,474 57,614,751
Public works 5,508,141 759,868 6,268,009
Facilities 1,308,327 - 1,308,327
Health and human services 631,028 241,113 872,141
Culture and recreation 2,301,943 804,539 3,106,482
Employee benefits 16,005,253 - 16,005,253
Debt service 4,864,270 4,864,270
Intergovernmental 1,077,974 - 1,077,974
Total Expenditures 95,774,783 12,059,310 107,834,093
Excess(deficiency)of revenues
over(under)expenditures (467,486) 1,863,669 1,396,183
Other Financing Sources(Uses)
Transfers in 2,688,108 - 2,688,108
Transfers out - (268,338) (268,338)
Total Other Financing Sources(Uses) 2,688,108 (268,338) 2,419,770
Net change in fund balances 2,220,622 1,595,331 3,815,953
Fund Balance at Beginning of Year,
as restated 16,585,797 11,989,385 28,575,182
Fund Balance at End of Year $ 18,806,419 $ 13,584,716 $ 32,391,135
The accompanying notes are an integral part of these financial statements.
21
TOWN OF READING, MASSACHUSETTS
RECONCILIATION OF THE STATEMENT OF REVENUES,
EXPENDITURES,AND CHANGES IN FUND BALANCES OF
GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2018
Net changes in fund balances -Total governmental funds $ 3,815,953
• 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 3,139,387
Depreciation (7,342,589)
• Revenues in the Statement of Activities that do not provide current
financial resources are fully deferred in the Statement of Revenues,
Expenditures, and Changes in Fund Balances. Therefore, the
recognition of revenue for various types of accounts receivable
(i.e., real estate and personal property, excises, etc.)
differ between the two statements. This amount represents the
net change in unavailable revenue. (15,341)
• The issuance of long-term debt provides current
financial resources to governmental funds, while the repayment
of the principal of long-term debt consumes the financial
resources of governmental funds. Neither transaction, however,
has any effect on net position:
Repayments of general obligation and refunding bonds 3,800,000
• In the Statement of Activities, interest is accrued on outstanding
long-term debt, whereas in governmental funds interest is not
reported until due. This amount reflects the change in accrued interest. 41,735
• 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:
Current year amortization of premiums from issuance of general obligation
and refunding bonds 418,783
Change in tax refunds payable 27,577
Change in compensated absences (113,008)
Change in net pension liability, net of related deferred outflows and inflows of
resources 531,652
Change in net OPEB liability, net of related deferred outflows of resources (1,917,440)
• Other 15,100
Change in net position of governmental activities $ 2,401,809
The accompanying notes are an integral part of these financial statements.
22
TOWN OF READING,MASSACHUSETTS
GENERALFUND
STATEMENT OF REVENUES AND OTHER SOURCES,AND EXPENDITURES AND OTHER USES-
BUDGET AND ACTUAL
FOR THE YEAR ENDED JUNE 30,2018
Budgeted Amounts Variance with
Final Budget
Original Final Actual Positive
Budget Budget Amounts (Negative)
Revenues and Transfers
Property taxes $ 66,154,643 $ 66,538,117 $ 66,950,236 $ 412,119
Excise 4,025,000 4,040,000 4,388,124 348,124
Penalties,interest,and other taxes 575,000 540,000 578,669 38,669
Departmental 1,850,000 1,850,000 2,070,060 220,060
Licenses and permits 165,000 160,000 161,084 1,084
Fines and forfeitures 110,000 90,000 113,136 23,136
Intergovernmental 14,118,931 14,219,667 14,411,642 191,975
Investment income 180,000 180,000 752,641 572,641
Other 135,312 135,312 276,241 140,929
Transfers in 2,533,515 2,533,515 2,688,108 154,593
Total Revenues and Transfers 89,847,401 90,286,611 92,389,941 2,103,330
Expenditures
General government 4,389,495 4,478,545 4,230,476 248,069
Public safety 10,585,875 10,828,375 10,642,129 186,246
Education 43,991,391 44,529,891 44,344,440 185,451
Public works 6,728,295 6,949,295 6,264,923 684,372
Health and human services 756,825 714,609 631,352 83,257
Culture and recreation 2,353,133 2,351,633 2,274,735 76,898
Employee benefits 16,496,047 16,343,547 15,990,777 352,770
Debt service 5,057,915 4,880,915 4,861,277 19,638
Intergovernmental 1,088,425 1,109,801 1,077,974 31,827
Total Expenditures 91,447,401 92,186,611 90,318,083 1,868,528
Excess(deficiency)of revenues and transfers in
over(under)expenditures and transfers out (1,600,000) (1,900,000) 2,071,858 3,971,858
Other Financing Sources(Uses)
Use of free cash:
For operating budget support 1,200,000 1,500,000 - (1,500,000)
Use of overlay surplus for operating budget support 400,000 400,000 (400,000)
Total Other Financing Sources 1,600,000 1,900,000 - (1,900,000)
Excess of Revenues and Other
Sources over Expenditures and Other Uses $ - $ - $ 2,071,858 $ 2,071,858
The accompanying notes are an integral part of these financial statements.
23
TOWN OF READING,MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF NET POSITION
JUNE 30,2018
Business-Type Activities
Electric
Division Water Sewer Nonmajor Total
Fund Fund Fund Funds Enterprise Funds
Assets
Current:
Cash and short-term investments $ 12,411,639 $ 10,508,845 $ 9,387,352 $ 1,251,719 $ 33,559,555
User fees,net of allowance for uncollectibles 10,285,725 2,286,702 2,328,922 141,814 15,043,163
Prepaid expenses 727,717 - - - 727,717
Inventory 1,330,729 105,709 3,509 - 1,439,947
Total Current Assets 24,755,810 12,901,256 11,719,783 1,393,533 50,770,382
Noncurrent:
Restricted cash and short-term investments 29,904,641 - - - 29,904,641
Restricted investments 2,502,561 2,502,561
Investment in associated companies 258,596 - - - 258,596
Capital assets being depreciated,net 76,988,531 11,199,760 4,764,060 1,046,624 93,998,975
Capital assets not being depreciated 1,286,675 4,866,719 3,020,090 179,232 9,352,716
Total Noncurrent Assets 110,941,004 16,066,479 7,784,150 1,225,856 136,017,489
Deferred Outflows of Resources
Related to pensions 3,348,332 479,671 110,261 20,227 3,958,491
Related to OPEB 749,951 2,974 963 233 754,121
Total Assets and Deferred Outflows of Resources 139,795,097 29,450,380 19,615,157 2,639,849 191,500,483
Liabilities
Current:
Warrants payable 5,331,888 35,539 209,985 25,192 5,602,604
Accrued liabilities 420,427 72,636 2,414 55 495,532
Customer deposits 1,155,870 - - - 1,155,870
Customer advances for construction 2,149,463 - 2,149,463
Other current liabilities - - - 32,931 32,931
Current portion of long-term liabilities:
Bonds and loans payable - 1,659,239 389,273 - 2,048,512
Compensated absences 498,719 - - - 498,719
Total Current Liabilities 9,556,367 1,767,414 601,672 58,178 11,983,631
Noncurrent:
Bonds and loans payable,net of current portion - 11,219,921 2,203,417 - 13,423,338
Compensated absences 2,694,957 47,245 18,517 - 2,760,719
Net pension liability 10,781,819 1,139,620 297,759 68,429 12,287,627
Net OPEB liability 7,158,353 1,039,915 336,708 81,513 8,616,489
Total Noncurrent Liabilities 20,635,129 13,446,701 2,856,401 149,942 37,088,173
Deferred Inflows of Resources
Related to pensions 2,105,560 222,554 58,149 27,357 2,413,620
Total Liabilities and Deferred Inflows of Resources 32,297,056 15,436,669 3,516,222 235,477 51,485,424
Net Position
Net investment in capital assets 78,275,207 7,461,638 7,963,761 1,046,624 94,747,230
Restricted for:
Depreciation fund 4,003,292 - - - 4,003,292
Pension trust 5,695,996 - 5,695,996
Capital projects - - 68,707 - 68,707
Unrestricted 19,523,546 6,552,073 8,066,467 1,357,748 35,499,834
Total Net Position $ 107,498,041 $ 14,013,711 $ 16,098,935 $ 2,404,372 $ 140,015,059
The accompanying notes are an integral part of these financial statements.
24
TOWN OF READING,MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF REVENUES,EXPENSES,AND CHANGES IN FUND NET POSITION
FOR THE YEAR ENDED JUNE 30,2018
Business-Type Activities
Electric
Division Water Sewer Nonmajor Total
Fund Fund Fund Funds Enterprise Funds
Operating Revenues
Charges for services $ 96,747,035 $ 6,851,222 $ 6,935,238 $ 434,175 $ 110,967,670
Other 459,708 - - - 459,708
Total Operating Revenues 97,206,743 6,851,222 6,935,238 434,175 111,427,378
Operating Expenses
Personnel expenses - 1,678,720 633,823 212,648 2,525,191
Non-personnel expenses - 435,211 258,487 65,936 759,634
Intergovernmental 1,497,473 2,211,232 4,939,434 - 8,648,139
Depreciation 4,305,989 801,382 407,180 61,401 5,575,952
Energy purchases 69,506,184 38,861 30,152 - 69,575,197
Operating 13,228,683 - - 13,228,683
Maintenance 2,594,040 - - - 2,594,040
Total Operating Expenses 91,132,369 5,165,406 6,269,076 339,985 102,906,836
Operating income 6,074,374 1,685,816 666,162 94,190 8,520,542
Nonoperating Revenues(Expenses)
Investment income 195,459 180,783 130,355 15,085 521,682
Interest expense - (378,916) (90,204) - (469,120)
Loss on disposal of capital assets (63,845) (63,845)
Other 694,309 - - 694,309
Total Nonoperating Revenues(Expenses) 825,923 (198,133) 40,151 15,085 683,026
Income before contributions and transfers 6,900,297 1,487,683 706,313 109,275 9,203,568
Capital grants and contributions 372,680 - 633,000 - 1,005,680
Transfers out (2,419,770) - - - (2,419,770)
Change in net position 4,853,207 1,487,683 1,339,313 109,275 7,789,478
Net Position at Beginning of Year,as restated') 102,644,834 12,526,028 14,759,622 2,295,097 132,225,581
Net Position at End of Year $ 107,498,041 $ 14,013,711 $ 16,098,935 $ 2,404,372 $ 140,015,059
(')As restated for OPEB
The accompanying notes are an integral part of these financial statements.
25
TOWN OF READING,MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30,2018
Business-Type Activities
Electric
Division Water Sewer Nonmajor Total
Fund Fund Fund Funds Enterprise Funds
Cash Flows From Operating Activities
Receipts from customers and users $ 95,298,769 $ 6,835,627 $ 6,943,354 $ 445,103 $ 109,522,853
Payments to vendors and employees (89,089,325) (2,119,206) (790,657) (265,898) (92,265,086)
Customer purchase power charge adjustments 459,708 459,708
Payments to other governments (2,211,232) (4,939,434) (7,150,666)
Net cash provided by operating activities 6,669,152 2,505,189 1,213,263 179,205 10,566,809
Cash Flows From Noncapital Financing Activities
MMWEC surplus 32,412 - - - 32,412
Other 641,359 641,359
Transfer out (2,419,770) (2,419,770)
Net cash(used for)noncapital financing activities (1,745,999) - (1,745,999)
Cash Flows From Capital and Related Financing Activities
Proceeds from issuance of bonds 211,000 211,000
Principal payments on bonds (1,677,700) (347,075) (2,024,775)
Acquisition and construction of capital assets (6,513,566) (870,805) (1,700,126) (368,192) (9,452,689)
Capital grants and contributions 1,594,841 633,000 2,227,841
Interest expense (458,977) (114,801) (573,778)
Net cash(used for)capital and related financing activities (4,918,725) (3,007,482) (1,318,002) (368,192) (9,612,401)
Cash Flows From Investing Activities
(Increase)in restricted cash and investments 111,084 - 111,084
Investment income 195,459 180,783 130,355 15,085 521,682
Net cash provided by investing activities 306,543 180,783 130,355 15,085 632,766
Net change in cash and short-term investments 310,971 (321,510) 25,616 (173,902) (158,825)
Unrestricted Cash and Short Term Investments,Beginning of Year 42,005,309 10,830,355 9,361,736 1,425,621 63,623,021
Unrestricted Cash and Short Term Investments,End of Year $ 42,316,280 $ 10,508,845 $ 9,387,352 $ 1,251,719 $ 63,464,196
Reconciliation of Operating Income to Net Cash
Provided By Operating Activities
Operating income $ 6,074,374 $ 1,685,816 $ 666,162 $ 94,190 $ 8,520,542
Adjustments to reconcile operating income(loss)to net
cash provided by(used for)operating activities:
Depreciation 4,305,989 801,382 407,180 61,401 5,575,952
Changes in assets,liabilities,and deferred outflows/inflows:
User fees receivables (1,523,880) (15,595) 8,116 10,928 (1,520,431)
Inventory 216,610 (4,961) (17) - 211,632
Other assets (47,016) - - - (47,016)
Deferred outflows-related to pensions 786,746 124,783 26,457 4,155 942,141
Deferred outflows-related to OPEB (339,869) 2,974 963 233 (335,699)
Warrants payable (44,550) 110,323 4,074 69,847
Accrued liabilities (1,963,683) 4,751 4,097 4 (1,954,831)
Other liabilities 75,614 - 11,733 87,347
Net pension liability (2,294,719) (242,456) (63,336) (14,617) (2,615,128)
Net OPEB liability (11,686) 46,048 14,910 3,609 52,881
Deferred inflows-related to pensions 1,390,672 146,997 38,408 3,495 1,579,572
Net cash provided by operating activities $ 6,669,152 $ 2,505,189 $ 1,213,263 $ 179,205 $ 10,566,809
The accompanying notes are an integral part of these financial statements.
26
TOWN OF READING, MASSACHUSETTS
FIDUCIARY FUNDS
STATEMENT OF FIDUCIARY NET POSITION
JUNE 30, 2018
Pension Private
and OPEB Purpose Agency
Trust Funds Trust Funds Funds
Assets
Cash and short-term investments $ 14,545,322 $ 206,658 $ 539,803
Investments 134,972,190 4,860,269 -
Accounts receivable 153,657 - -
Other - - 903
Total Assets 149,671,169 5,066,927 540,706
Liabilities
Warrants payable - 11,893 38,847
Other liabilities - - 501,859
Total Liabilities - 11,893 $ 540,706
Net Position
Restricted for:
Pensions 141,905,918 -
OPEB 7,765,251 -
Other purposes - 5,055,034
Total Net Position $ 149,671,169 $ 5,055,034
The accompanying notes are an integral part of these financial statements.
27
TOWN OF READING, MASSACHUSETTS
FIDUCIARY FUNDS
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
FOR THE YEAR ENDED JUNE 30, 2018
Pension Private
and OPEB Purpose
Trust Funds Trust Funds
Additions
Contributions:
Employers $ 10,582,039 $ -
Plan members 3,075,199 -
Intergovernmental 397,128 -
Other 3,000 13,550
Total contributions 14,057,366 13,550
Investment Income:
Increase in fair value of investments 21,378,375 156,026
Less: management fees (681,393) -
Net investment income 20,696,982 156,026
Total Additions 34,754,348 169,576
Deductions
Benefit payments to plan members and beneficiaries 14,943,890 -
Refunds to plan members 169,838 -
Transfers to other systems 209,854 -
Administrative expenses 230,215 -
Scholarship payments - 16,170
Hospital payments - 135,168
Total Deductions 15,553,797 151,338
Net change 19,200,551 18,238
Net position restricted for pensions, OPEB, and
other purposes
Beginning of year, as restated 130,470,618 5,036,796
End of year $ 149,671,169 $ 5,055,034
The accompanying notes are an integral part of these financial statements.
28
TOWN OF READING, MASSACHUSETTS
Notes to the Financial Statements
1. Summary of Significant Accounting Policies
The accounting policies of the Town of Reading, Massachusetts (the Town) con-
form to generally accepted accounting principles (GAAP) as applicable to gov-
ernmental units. The following is a summary of the more significant policies:
A. Reporting Entity
The Town is a municipal corporation governed by an elected Board of
Selectmen. As required by generally accepted accounting principles, these
financial statements present the Town and applicable component units for
which the Town is considered to be financially accountable.
The Reading Contributory Retirement System (the System) was estab-
lished to provide retirement benefits primarily to employees and their
beneficiaries. The System is presented using the accrual basis of account-
ing and is reported as a pension trust fund in the fiduciary fund financial
statements. Detailed information about the pension plan's fiduciary net
position is available in the separately issued System financial report.
Additional financial information of the System can be obtained by con-
tacting the System located at 2 Haven Street, Unit 307, Reading,
Massachusetts 01867.
B. Government-wide and Fund Financial Statements
Government-wide Financial Statements
The government-wide financial statements (i.e., the Statement of Net
Position and the Statement of Activities) report information on all of the
nonfiduciary activities of the primary government. For the most part, the
effect of interfund activity has been removed from these statements.
Governmental activities, which normally are supported by taxes and
intergovernmental revenues, are reported separately from business-type
activities, which rely to a significant extent on fees and charges for support.
The Statement of Activities demonstrates the degree to which the direct
expenses of a given function or segment is offset by program revenues.
Direct expenses are those that are clearly identifiable with a specific func-
tion or segment. Program revenues include (1) charges to customers or
applicants who purchase, use, or directly benefit from goods, services, or
privileges provided by a given function or segment and (2) grants and
contributions that are restricted to meeting the operational or capital
requirements of a particular function or segment. Taxes and other items
29
not properly included among program revenues are reported instead as
general revenues.
Fund Financial Statements
Separate financial statements are provided for governmental funds, propri-
etary funds, and fiduciary funds, even though the latter are excluded from
the government-wide financial statements. Major individual governmental
funds and major individual enterprise funds are reported as separate col-
umns in the fund financial statements.
C. Measurement Focus, Basis of Accounting, and Financial Statement
Presentation
Government-wide Financial Statements
The government-wide financial statements are reported using the eco-
nomic resources measurement focus and the accrual basis of accounting.
Revenues are recorded when earned and expenses are recorded when a
liability is incurred, regardless of the timing of related cash flows. Property
taxes are recognized as revenues in the year for which they are levied.
Grants and similar items are recognized as revenue as soon as all eligi-
bility requirements imposed by the provider have been met. As a general
rule, the effect of interfund activity has been eliminated from the govern-
ment-wide financial statements.
Amounts reported as program revenues include (1) charges to customers
or applicants for goods, services, or privileges provided, (2) operating
grants and contributions, and (3) capital grants and contributions, includ-
ing special assessments. Internally dedicated resources are reported as
general revenues rather than as program revenues. Likewise, general
revenues include all taxes and excises.
Fund Financial Statements
Governmental fund financial statements are reported using the current
financial resources measurement focus and the modified accrual basis of
accounting. Revenues are recognized as soon as they are both measur-
able and available. Revenues are considered to be available when they
are collectible within the current period or soon enough thereafter to pay
liabilities of the current period. For this purpose, the Town considers prop-
erty tax revenues to be available if they are collected within 60 days of the
end of the current fiscal period. Revenue from grants, entitlements, and
donations is recognized when all eligibility requirements have been satis-
fied and they are measurable and available. All other revenue items are
considered to be measurable and available only when cash is received by
the Town. Expenditures generally are recorded when a liability is incurred,
as under accrual accounting. However, certain expenditures such as debt
30
service, claims and judgments, compensated absences, pension, and
OPEB are recorded only when payment is due.
The Town reports the following major governmental funds:
• The General Fund is the Town's primary operating fund. It accounts
for all financial resources of the Town, except those required to be
accounted for in another fund.
The proprietary fund financial statements are reported using the economic
resources measurement focus and the accrual basis of accounting. Under
this method, revenues are recognized when earned and expenses are
recorded when liabilities are incurred.
Proprietary funds distinguish operating revenues and expenses from non-
operating items. Operating revenues and expenses generally result from
providing services and producing and delivering goods in connection with
a proprietary fund's principal ongoing operations. The principal operating
revenues of the enterprise fund are charges to customers for sales and
services. Operating expenses for enterprise funds include the cost of
sales and services, administrative expenses, and depreciation on capital
assets. All revenues and expenses not meeting this definition are reported
as nonoperating revenues and expenses.
The Town reports the following major proprietary funds:
• The Electric Division Fund is used to report the Town's electric dis-
tribution enterprise fund operations.
• The Water Fund is used to report the Town's water enterprise fund
operations.
• The Sewer Fund is used to report the Town's sewer enterprise fund
operations.
In addition, the Town has a Stormwater Fund and a Landfill Fund which
are reported as nonmajor proprietary funds.
The fiduciary fund financial statements are reported using the economic
resources measurement focus and the accrual basis of accounting. Under
this method, revenues are recognized when earned and expenses are
recorded when liabilities are incurred.
The Town reports the following fiduciary funds:
• The Pension and OPEB Trust Funds are used to accumulate
resources for retiree pension and other post-employment benefits.
• The Private Purpose Trust Funds is used to account for hospital and
scholarship trust arrangements, under which principal and
31
investment income exclusively benefit individuals, private
organizations, or other governments.
• The Agency Funds account for fiduciary assets held by the Town in
a custodial capacity as an agent on behalf of others. This fund is
primarily used for private public safety details, student activity funds,
and developer escrow funds. Agency funds report only assets and
liabilities and, therefore, have no measurement focus.
D. Cash and Short-Term Investments
Cash balances from all funds, except those required to be segregated by
law, are combined to form a consolidation of cash. Cash balances are
invested to the extent available, and interest earnings are recognized in
the general fund. Certain special revenue, proprietary, and fiduciary funds
segregate cash, and investment earnings become a part of those funds.
Deposits with financial institutions consist primarily of demand deposits,
certificates of deposits, and savings accounts. A cash and investment pool
is maintained that is available for use by all funds. Each fund's portion of
this pool is reflected on the combined financial statements under the cap-
tion "cash and short-term investments". The interest earnings attributable
to each fund type are included under investment income.
For purpose of the statement of cash flows, the proprietary funds consider
investments with original maturities of three months or less to be short-
term investments.
E. Investments
State and local statutes place certain limitations on the nature of deposits
and investments available. Deposits in any financial institution may not
exceed certain levels within the financial institution. Non-fiduciary fund
investments can be made in securities issued by or unconditionally guar-
anteed by the U.S. Government or agencies that have a maturity of one
year or less from the date of purchase and repurchase agreements guar-
anteed by such securities with maturity dates of no more than 90 days
from the date of purchase. Municipalities having such funds in the custody
of the treasurer in an aggregate amount in excess of two hundred and fifty
thousand dollars may also invest such 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; provided, that not
more than fifteen percent of any such trust funds shall be invested in bank
stocks and insurance company stocks, nor shall more than one and one-
half percent of such funds be invested in the stock of any one bank or
insurance company.
32
Investments for the Town consist of marketable securities, bonds, and
certificates of deposit. Investments are carried at fair value, except
certificates of deposit which are reported at cost.
Investments for the Reading Contributory Retirement System, presented
in the Town's fiduciary funds, consist of investments in the State
Investment Pool (PRIT).
F. Property Tax Limitations
Legislation known as "Proposition 2'/2" limits the amount of revenue that
can be derived from property taxes. The prior fiscal year's tax levy limit is
used as a base and cannot increase by more than 2.5 percent (excluding
new growth), unless an override or debt exemption is voted. The actual
fiscal year 2018 tax levy reflected an excess capacity of $5,592.
G. Inventories
Inventories are valued at cost using the first-in/first-out (FIFO) method.
The costs of governmental fund-type inventories are recorded as expendi-
tures when purchased rather than when consumed. No significant inven-
tory balances were on hand in governmental funds.
H. Capital Assets
Capital assets, which include property, plant, equipment, and infrastructure
assets are reported in the applicable governmental or business-type
activities columns in the government-wide financial statements. Capital
assets are defined by the Town as summarized in the below table:
Minimum Minimum
Capitalization Useful
Asset Type Amount Life (Years)
Equipment $ 5,000 5
Land 10,000 N/A
Land Improvements 10,000 20
Buildings 50,000 40
Building Improvements 25,000 20
Plant (Water) (B&I) 50,000 50
Passenger Vehicles 5,000 5
Heavy Vehicular Equipment 5,000 10
Fire Apparatus 5,000 20
Equipment 5,000 10
Technology Equipment 5,000 5
Infrastructure 50,000 20
33
Such assets are recorded at historical cost or estimated historical cost if
purchased or constructed. Donated capital assets are recorded at acqui-
sition value at the date of donation.
The costs of normal maintenance and repairs that do not add to the value
of the asset or materially extend assets lives are not capitalized.
Major outlays for capital assets and improvements are capitalized as pro-
jects are constructed. Interest incurred during the construction phase of
capital assets of business-type activities is included as part of the capital-
ized value of the assets constructed.
Capital assets are depreciated using the straight-line method over the
estimated useful lives noted in the previous table.
1. Compensated Absences
It is the Town's policy to permit employees to accumulate earned but
unused vacation and sick pay benefits. All vested sick and vacation pay is
accrued when incurred in the government-wide, proprietary, and fiduciary
fund financial statements. A liability for these amounts is reported in gov-
ernmental funds only if they have matured, for example, as a result of
employee resignations and retirements.
J. Long-Term Obligations
In the government-wide financial statements, and proprietary fund types in
the fund financial statements, long-term debt, and other long-term obliga-
tions are reported as liabilities in the applicable governmental activities,
business-type activities, or proprietary fund type Statement of Net Position.
The general fund and applicable enterprise funds typically repay these
obligations.
K. Fund Equity
Fund equity at the governmental fund financial reporting level is classified as
"fund balance". Fund equity for all other reporting is classified as "net position".
Fund Balance - Generally, fund balance represents the difference between
the current assets/deferred outflows of resources and current liabilities/deferred
inflows of resources. The Town reserves those portions of fund balance that
are legally segregated for a specific future use or which do not represent
available, spendable resources and, therefore, are not available for appro-
priation or expenditure. Unassigned fund balance indicates that portion of
fund balance that is available for appropriation in future periods.
When an expenditure is incurred that would qualify for payment from multi-
ple fund balance types, the Town uses the following order to liquidate lia-
bilities: restricted, committed, assigned, and unassigned.
34
Net Position - Net position represents the difference between assets/deferred
outflows of resources and liabilities/deferred inflows of resources. Net
investment in capital assets consist of capital assets, net of accumulated
depreciation, reduced by the outstanding balances of any borrowing used
for the acquisition, construction, or improvement of those assets. Net posi-
tion is reported as restricted when there are limitations imposed on their use
either through the enabling legislation adopted by the Town or through external
restrictions imposed by creditors, grantors, or laws or regulations of other
governments. The remaining net position is reported as unrestricted.
L. Use of Estimates
The preparation of basic financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosures for contingent assets and liabilities at the date of the basic
financial statements, and the reported amounts of the revenues and
expenditures/expenses during the fiscal year. Actual results could vary
from estimates that were used.
2. Stewardship, Compliance, and Accountability
A. Budgetary Information
At the annual Town Meeting, the Finance Committee presents an operat-
ing and capital budget for the proposed expenditures of the fiscal year com-
mencing the following July 1. The budget, as enacted by Town Meeting,
establishes the legal level of control and specifies that certain appropriations
are to be funded by particular revenues. The original budget is amended
during the fiscal year at special Town Meetings as required by changing
conditions. In cases of extraordinary or unforeseen expenses, the Finance
Committee is empowered to transfer funds from the Reserve Fund (a con-
tingency appropriation) to a departmental appropriation. "Extraordinary"
includes expenses which are not in the usual line or are great or excep-
tional. "Unforeseen" includes expenses which are not foreseen as of the
time of the annual meeting when appropriations are voted.
Departments are limited to the line items as voted. Certain items may
exceed the line item budget as approved if it is for an emergency and for
the safety of the general public. These items are limited by the Massa-
chusetts General Laws and must be raised in the next year's tax rate.
Formal budgetary integration is employed as a management control
device during the year for the general fund and proprietary funds. Effective
budgetary control is achieved for all other funds through provisions of the
Massachusetts General Laws.
35
At year-end, appropriation balances lapse, except for certain unexpended
capital items and encumbrances which will be honored during the subse-
quent year.
B. Budgetary Basis
The general fund final appropriation appearing on the "Budget and Actual"
page of the fund financial statements represents the final amended budget
after all reserve fund transfers and supplemental appropriations.
C. Budget/GAAP Reconciliation
The budgetary data for the general fund is based upon accounting princi-
ples that differ from generally accepted accounting principles (GAAP).
Therefore, in addition to the GAAP basis financial statements, the results
of operations of the general fund are presented in accordance with budg-
etary accounting principles to provide a meaningful comparison to budg-
etary data.
The following is a summary of adjustments made to the actual revenues
and other sources, and expenditures and other uses, to conform to the
budgetary basis of accounting:
Revenues Expenditures
and Other and Other
General Fund Financing Sources Financing Uses
Revenues/Expenditures
(GAAP Basis) $ 95,307,297 $ 95,774,783
Other Financing Sources/Uses
(GAAP Basis) 2,688,108 -
Subtotal (GAAP Basis) 97,995,405 95,774,783
Reverse beginning of year
appropriation carryforwards
from expenditures - (2,430,089)
Add end-of-year appropriation
carryforwards to expenditures - 2,545,705
To reverse the effect of non-
budgeted State contributions for
teachers retirement (5,572,349) (5,572,349)
To record stabilization activity (33,115) -
Other - 33
Budgetary Basis $ 92,389,941 $ 90,318,083
36
D. Excess of Expenditures Over Appropriations
There were no expenditures exceeding appropriations during the current
fiscal year.
E. Deficit Fund Equity
The Town reported various special revenue and capital project funds
reflecting individual deficit account balances as of June 30, 2018. It is
anticipated that the deficits in these funds will be eliminated through future
intergovernmental and departmental revenues, bond proceeds, and trans-
fers from other funds.
3. Cash and Short-Term Investments
Custodial Credit Risk - Deposits. Custodial credit risk is the risk that in
the event of a bank failure, the Town's deposits may not be returned.
Massachusetts General Law Chapter 44, Section 55, limits the Town's
deposits "in a bank or trust company or banking company to an amount
not exceeding sixty percent of the capital and surplus of such bank or
trust company or banking company, unless satisfactory security is given to
it by such bank or trust company or banking company for such excess.
Massachusetts General Law Chapter 32, Section 23, limits the System's
deposits "in a bank or trust company to an amount not exceeding ten percent
of the capital and surplus of such bank or trust company. The Town does not
have formal deposit policies related to custodial credit risk.
As of June 30, 2018, $62,378,094 of the Town's bank balances of
$120,448,259, were exposed to custodial credit risk. However, $59,006,415 of
the Town's exposed balance was on deposit with the Massachusetts Municipal
Depository Trust (MMDT).
37
4. Investments
The following is a summary of Town's investments as of June 30, 2018, with the
exception of the Reading Contributory Retirement System's (the System)
investments presented in the Pension Trust Fund as of December 31, 2017:
Fair
Investment Type Value
Town of Reading:
Domestic corporate bonds $ 6,473,247
Foreign corporate bonds 2,045,569
Certificates of deposit 18,760,724
Equity securities 2,687,559
Total Town $ 29,967,099
Fair
Investment Type Value
Pension Trust Fund:
State Investment Pool (PRIT)* $ 134,972,190
*Fair value is the same as the value of the pool share. The Pension
Reserves Investment Trust was created under Massachusetts General Law,
Chapter 32, Section 22, in December 1983. The Pension Reserves Investment
Trust is operated under contract with a private investment advisor, approved by
the Pension Reserves Investment Board. The Pension Reserves Investment
Management Board shall choose an investment advisor by requesting proposals
from advisors and reviewing such proposals based on criteria adopted under
Massachusetts General Law, Chapter 30B.
A. Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not
fulfill its obligation to the holder of the investment. For short-term invest-
ments that were purchased using surplus revenues, Massachusetts
General Law, Chapter 44, Section 55, limits the Town's investments to
the top rating issued by at least one nationally recognized statistical rating
organization (NRSROs). The Town does not have formal investment
policies related to credit risk.
38
Presented below is the actual rating as of year-end for each investment of
the Town and System:
Average Rating
Investment Type Amount A A- Unrated
Domestic corporate bonds $ 6,473,247 $ - $ 6,473,247 $
Foreign corporate bonds 2,045,569 2,045,569 - -
State Investment Pool (PRIT) 134,972,190 - - 134,972,190
Total $ 143,491,006 $ 2,045,569 $ 6,473,247 $ 134,972,190
B. Custodial Credit Risk
The custodial credit risk for investments is the risk that, in the event of the
failure of the counterparty (e.g., broker-dealer) to a transaction, a govern-
ment will not be able to recover the value of its investment or collateral
securities that are in the possession of another party. The Town does not
have formal investment policies related to custodial credit risk.
The Town's investments are subject to custodial credit risk exposure
because the related securities are uninsured, unregistered, and/or held
by the Town's brokerage firm, which is also the Counterparty to these
securities. The Town manages this custodial credit risk by investing in
counter-party's that participate in the Securities Investor Protection
Corporation (SIPC) and excess SIPC coverages.
The System's investments are not subject to custodial credit risk as
investments in external investment pools are not exposed to custodial
credit risk because their existence is not evidenced by securities that exist
in physical or book entry form.
C. Concentration of Credit Risk
The Town places no limit on the amount the Town may invest in any one issuer.
Investments in any one issuer (other than U.S. Treasury securities,
government agency securities, and mutual funds) that represent 5% or more
of total investments are as follows:
Investment Issuer Amount
NBTC - MARS - General Fund $ 17,153,489
D. Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely
affect the fair value of an investment. Generally, the longer the maturity of an
investment, the greater the sensitivity of its fair value to changes in market
interest rates. The Town does not have formal investment policies limiting
39
investment maturities as a means of managing its exposure to fair value losses
arising from increasing interest rates.
Information about the sensitivity of the fair values of the Town's investments
to market interest rate fluctuations is as follows:
Investment Maturities (in Years)
Investment Type Amount 11-55 6-10
Debt-related Securities:
Domestic corporate bonds $ 6,473,247 $ 3,209,922 $ 3,263,325
Foreign corporate bonds 2,045,569 1,566,391 479,178
Total $ 8,518,816 $ 4,776,313 $ 3,742,503
E. Foreign Currency Risk
Foreign currency risk is the risk that changes in foreign exchange rates
will adversely affect the fair value of an investment. The Town does not
have formal investment policies related to foreign currency risk.
F. Fair Value
The Town categorizes its fair value measurements within the fair value
hierarchy established by Governmental Accounting Standards Board
Statement No. 72 Fair Value Measurement and Application (GASB 72).
The fair value hierarchy is based on the valuation inputs used to measure
the fair value of the asset. The fair value hierarchy categorized the inputs
to valuation techniques used for fair value measurement into three levels
as follows:
• Level 1 — Inputs that reflect quoted prices (unadjusted) in active
markets for identical assets or liabilities that the fund has the ability
to access at the measurement date.
• Level 2 — Inputs other than quoted prices that are observable for an
asset or liability either directly or indirectly, including inputs in
markets that are not considered to be active. Because they must
often be priced on the basis of transactions involving similar but not
identical securities or do not trade with sufficient frequency, certain
directly held securities are categorized as Level 2.
• Unobservable inputs based on the best information available, using
assumptions in determining the fair value of investments and
derivative instruments.
40
The Town has the following fair value measurements as of June 30, 2018:
Fair Value Measurements Using:
Quoted prices
in active Significant Significant
markets for observable unobservable
Fair identical assets inputs inputs
Description Value (Level 1) (Level 2) (Level 3)
Investments by fair value level:
Debt securities:
Domestic corporate bonds $ 6,473,247 $ - $ 6,473,247 $
Foreign corporate bonds 2,045,569 - 2,045,569
Equity securities 2,687,559 2,687,559 -
Total $ 11,206,375
The System has the following fair value measurements as of December 31,
2017:
Fair
Description Value
Investments measured at
the net asset value (NAV):
State investment pool (PRIT) $ 134,972,190
In instances where inputs used to measure fair value fall into different
levels in the fair value hierarchy, fair value measurements in their entirety
are categorized based on the lowest level input that is significant to the
valuation. The Town's assessment of the significance of particular inputs
to these fair value measurements requires judgement and considers
factors specific to each asset or liability.
Securities classified in Level 2 are valued using either a bid evaluation or
a matrix pricing technique. Bid evaluations may include market quotations,
yields, maturities, call features, and ratings. Matrix pricing is used to value
securities based on the securities relationship to benchmark quote prices.
Level 2 securities have non-proprietary information that was readily
available to market participants, from multiple independent sources, which
are known to be actively involved in the market.
The net asset value (NAV) per share is the amount of net assets
attributable to each share of capital stock outstanding at the close of the
period. Investments measured at the NAV for fair value are not subject to
level classification.
5. Property Taxes and Excises Receivable
Real estate and personal property taxes are levied and based on values
assessed on January 1st of every year. Assessed values are established by
41
the Board of Assessor's for 100% of the estimated fair market value. Taxes
are due on a quarterly basis and are subject to penalties and interest if they
are not paid by the respective due date. Real estate and personal property
taxes levied are recorded as receivables in the fiscal year they relate to.
The day after the due date for the final tax bill for real estate taxes, a demand
notice may be sent to the delinquent taxpayer. Fourteen days after the demand
notice has been sent the tax collector may proceed to file a lien against the
delinquent taxpayers' property. The Town has an ultimate right to foreclose on
property for unpaid taxes. Personal property taxes cannot be secured through
the lien process.
Motor vehicle excise taxes are assessed annually for every motor vehicle
and trailer registered in the Commonwealth. The Registry of Motor Vehicles
annually calculates the value of all registered motor vehicles for the purpose
of excise assessment. The amount of motor vehicle excise tax due is calcu-
lated using a fixed rate of $25 per $1,000 of value.
Property tax and excises receivables at June 30, 2018 consist of the
following:
Allowance
for
Gross Doubtful Net
Receivables Amount Accounts Amount
Property taxes:
Real estate taxes $ 244,043 $ (24,404) $ 219,639
Personal property taxes 13,356 (4,109) 9,247
Tax Liens 499,140 (49,914) 449,226
Deferred taxes 59,343 - 59,343
Total property taxes $ 815,882 $ (78,427) 737,455
Less: non-current portion (449,226)
Total current taxes receivable $ 288,229
Excises:
Motor vehicle excise $ 332,654 $ (116,360) $ 216,294
6. User Fees Receivable
The Town provides water, sewer, and stormwater services for its residents.
Bills are sent to residential customers on a quarterly basis, based on usage.
42
Receivables for water, sewer, and stormwater user charges, liens, and other
fees at June 30, 2018 consist of the following:
Allowance
Gross for Doubtful
Receivables Amount Accounts Net Amount
Water user charges $ 2,556,408 $ (322,657) $ 2,233,751
Water liens 59,357 (13,948) 45,409
Water- other 15,085 (7,543) 7,542
Total Water 2,630,850 (344,148) 2,286,702
Sewer user charges 2,609,749 (328,030) 2,281,719
Sewer liens 50,275 (12,466) 37,809
Sewer- other 18,673 (9,279) 9,394
Total Sewer 2,678,697 (349,775) 2,328,922
Stormwater user charges 149,871 (10,800) 139,071
Stormwater liens 2,743 - 2,743
Total Stormwater 152,614 (10,800) 141,814
Grand Total $ 5,462,161 $ (704,723) $ 4,757,438
7. Intergovernmental Receivables
This balance represents reimbursements requested from Federal and State
agencies for expenditures incurred in fiscal year 2018.
8. Interfund Transfers In and (Out)
The Town reports interfund transfers between many of its funds. The sum of
all transfers presented in the table agrees with the sum of interfund transfers
presented in the governmental fund financial statements. The following is an
analysis of interfund transfers made in fiscal year 2018.
43
Fund Transfers In Transfers Out
General Fund $ 2,688,108 $ - (1) (2) (3)
Nonmajor Governmental Funds:
Revolving funds - 243,338 (2) (3)
Receipts reserved for appropriation - 25,000 (2)
Major Enterprise Funds:
Electric Division fund - 2,419,770 (1)
Total $ 2,688,108 $ 2,688,108
(1) Payment in lieu of taxes(PILOT)
(2)To general fund for operating budget and appropriations
(3)To general fund for excess recreation revenues
9. Capital Assets
Capital asset activity for the year ended June 30, 2018 was as follows:
Beginning Ending
Balance Increases Decreases Balance
Governmental Activities
Capital assets,depreciable:
Land improvements $ 3,855,354 $ - $ - $ 3,855,354
Buildings and improvements 156,322,108 195,413 (139,699) 156,377,822
Machinery,equipment,and furnishings 10,964,423 1,576,546 (695,088) 11,845,881
Infrastructure 32,310,265 1,260,006 (1,706,112) 31,864,159
Total capital assets,depreciable 203,452,150 3,031,965 (2,540,899) 203,943,216
Less accumulated depreciation for:
Land improvements (1,606,230) (174,964) - (1,781,194)
Buildings and improvements (50,200,345) (4,888,468) 139,699 (54,949,114)
Machinery,equipment,and furnishings (5,567,927) (1,020,822) 695,088 (5,893,661)
Infrastructure (18,704,506) (1,258,335) 1,706,112 (18,256,729)
Total accumulated depreciation (76,079,008) (7,342,589) 2,540,899 (80,880,698)
Total capital assets,depreciable,net 127,373,142 (4,310,624) - 123,062,518
Capital assets,non-depreciable:
Land 3,981,386 - 3,981,386
Construction in progress 1,228,026 215,164 (107,742) 1,335,448
Total capital assets,non-depreciable 5,209,412 215,164 (107,742) 5,316,834
Governmental activities capital assets,net $ 132,582,554 $ (4,095,460) $ (107,742) $ 128,379,352
44
Beginning Increases Decreases Ending
Business-Type Activities
Capital assets,depreciable:
Land improvements $ 1,436,717 $ - $ - $ 1,436,717
Buildings and improvements 20,355,466 856,187 (177,223) 21,034,430
Machinery,equipment,and furnishings 37,214,889 1,837,040 (363,919) 38,688,010
Infrastructure 119,358,143 5,180,633 (1,331,617) 123,207,159
Total capital assets,depreciable 178,365,215 7,873,860 (1,872,759) 184,366,316
Less accumulated depreciation for:
Land improvements (538,965) (70,059) - (609,024)
Buildings and improvements (10,158,110) (564,448) 177,223 (10,545,335)
Machinery,equipment,and furnishings (23,711,213) (1,310,246) 363,919 (24,657,540)
Infrastructure (52,212,552) (3,631,199) 1,288,309 (54,555,442)
Total accumulated depreciation (86,620,840) (5,575,952) 1,829,451 (90,367,341)
Total capital assets,depreciable,net 91,744,375 2,297,908 (43,308) 93,998,975
Capital assets,non-depreciable:
Land 1,449,426 20,832 1,470,258
Construction in progress 6,324,461 1,762,498 (204,501) 7,882,458
Total capital assets,non-depreciable 7,773,887 1,783,330 (204,501) 9,352,716
Business-type activities capital assets,net $ 99,518,262 $ 4,081,238 $ (247,809) $ 103,351,691
Depreciation expense was charged to functions of the Town as follows:
Governmental Activities
General government $ 199,129
Public safety 548,676
Education 3,674,396
Public works 1,741,135
Facilities 22,730
Health and human services 32,854
Culture and recreation 1,123,669
Total depreciation expense - governmental activities $ 7,342,589
Business-Type Activities
Electric division $ 4,305,989
Water 801,382
Sewer 407,180
Nonmajor- Stormwater 61,401
Total depreciation expense - business-type activities $ 5,575,952
10. Deferred Outflows of Resources
Deferred outflows of resources represent the consumption of net position by
the Town that is applicable to future reporting periods. Deferred outflows of
resources have a positive effect on net position, similar to assets. Deferred
outflows of resources related to pensions and OPEB, in accordance with
GASB Statement No. 68, Accounting and Financial Reporting for Pensions—
45
an amendment of GASB Statement No. 27(GASB 68) and GASB Statement
No. 75, Accounting and Financial Reporting for Postemployment Benefits
Other Than Pensions (GASB 75) are more fully discussed in the corre-
sponding pension and OPEB notes.
11. Warrants Payable
Warrants payable represent fiscal year 2018 expenditures paid by July 15,
2018.
12. Accrued Liabilities
This balance primarily represents amounts accrued interest and other
expenditures related to fiscal year 2018 paid subsequent to July 15, 2018.
13. Tax Refunds Payable
This balance consists of an estimate of refunds due to property taxpayers for
potential abatements, pending with the state Appellate Tax Board.
14. Notes Payable
The following summarizes activity in notes payable during fiscal year 2018:
Beginning Ending
Interest Date of Date of Balance at New Balance at
Governmental Activities Rate Issue Maturity 06/30/17 Issues Maturities 06/30/18
Reading Memorial High School
repairs and additions 1.25% 06/30/17 12/15/17 $ 1,490,000 $ - $ (1,490,000) $ -
Reading Memorial High School
repairs and additions 2.00% 12/15/17 08/17/18 - 1,490,000 1,490,000
Total Governmental Activities $ 1,490,000 $ 1,490,000 $ (1,490,000) $ 1,490,000
15. Long-Term Debt
A. General Obligation Bonds
The Town issues general obligation bonds to provide funds for the acquisi-
tion and construction of major capital facilities. General obligation bonds
have been issued for both governmental and business-type activities.
General obligation bonds currently outstanding are as follows:
46
Amount
Serial Outstanding
Maturities Interest as of
Governmental Activities Through Rates % 6/30/18
RMHS Retaining Walls 11/01/20 1.26% $ 300,000
Killam Roof 02/01/22 1.83% 268,000
Birch Meadow Windows 02/01/22 1.83% 132,000
Elementary School Modular Classrooms 11/01/23 1.26% 900,000
RMHS Refunding 02/01/24 2.25% 6,765,000
Wood End Refunding -Sunset Rock 1 04/15/24 1.49% 178,790
Wood End Refunding -Sunset Rock 11 04/15/24 1.49% 263,000
Wood End School Refunding 04/15/24 1.49% 840,710
Wood End School Refunding 04/15/24 1.49% 53,800
Barrows School Refunding 04/15/24 1.49% 702,700
Library Renovation 1 11/01/24 1.26% 1,645,000
Library Renovation 11 04/15/25 1.49% 7,000,000
Roadway/Pedestrian Improvements 1 04/15/25 1.49% 700,000
Roadway/Pedestrian Improvements 11 04/15/25 1.49% 210,000
Energy Conservation 08/01/25 3.19% 2,320,000
RMHS Renovation Project 06/15/27 4.00% 1,215,000
Total Governmental Activities $ 23,494,000
Amount
Serial Outstanding
Maturities Interest as of
Business-Type Activities Through Rates % 6/30/18
MWRA Inflo/Infiltration 05/19/19 0.00% $ 38,500
MWPAT Septic Loans 08/01/20 0.00% 3,474
MWRA Sewer Bond 11/15/20 0.00% 23,430
MWRA Water System Pipeline 08/15/21 0.00% 820,000
MWRA Water System Pipeline 08/12/23 0.00% 2,407,200
Sewer Station 06/15/25 4.00% 1,905,000
Water GOB 11/01/25 1.26% 925,000
MWRA Sewer Bond 08/15/26 0.00% 189,900
MWRA Buy-in Refunding 04/15/27 1.49% 1,396,000
Water Improvements A-1 &A-2 06/15/27 4.00% 765,000
Water Main Improvements Phase 1 06/15/27 4.00% 2,025,000
MWRA Sewer Bond 08/15/27 0.00% 211,000
MWRA Buy-in 11/01/27 3.88% 3,600,000
Total Business-Type Activities $ 14,309,504
B. Future Debt Service
The annual payments to retire all general obligation long-term debt
outstanding as of June 30, 2018 are as follows:
47
Governmental Principal Interest Total
2019 $ 3,550,000 $ 908,833 $ 4,458,833
2020 3,600,000 773,414 4,373,414
2021 3,630,000 635,158 4,265,158
2022 3,565,000 496,927 4,061,927
2023 3,504,000 358,433 3,862,433
2024 - 2027 5,645,000 311,045 5,956,045
Total $ 23,494,000 $ 3,483,810 $ 26,977,810
Business-Type Principal Interest Total
2019 $ 1,925,875 $ 397,030 $ 2,322,905
2020 1,882,375 349,530 2,231,905
2021 1,882,354 302,130 2,184,484
2022 1,863,400 254,830 2,118,230
2023 1,654,400 207,830 1,862,230
2024 -2028 5,101,100 375,475 5,476,575
Total $ 14,309,504 $ 1,886,825 $ 16,196,329
C. Changes in General Long-Term Liabilities
During the year ended June 30, 2018, the following changes occurred in
long-term liabilities:
Equals
Total Total Less Long-Term
Balance Balance Current Portion
7/1/17 Additions Reductions 6/30/18 Portion 6/30/18
Governmental Activities
Bonds payable $ 27,294,000 $ $ (3,800,000) $ 23,494,000 $ (3,550,000) $ 19,944,000
Unamortized bond premiums 3,017,640 (418,783) 2,598,857 (418,362) 2,180,495
Total bonds payable 30,311,640 (4,218,783) 26,092,857 (3,968,362) 22,124,495
Accrued employee benefits 1,130,063 218,274 (105,266) 1,243,071 (124,307) 1,118,764
Net pension liability 29,565,712 - (5,187,980) 24,377,732 24,377,732
Net OPEB liability0) 57,532,568 5,656,276 (2,990,677) 60,198,167 60,198,167
Total Governmental Activities $ 118,539,983 $ 5,874,550 $ (12,502,706) $ 111,911,827 $ (4,092,669) $ 107,819,158
Equals
Total Total Less Long-Term
Balance Balance Current Portion
7/1/17 Additions Reductions 6/30/18 Portion 6/30/18
Business-Type Activities
Bonds payable $ 16,123,279 $ 211,000 $ (2,024,775) $ 14,309,504 $ (1,925,875) $ 12,383,629
Unamortized bond premiums 1,284,983 (122,637) 1,162,346 (122,637) 1,039,709
Total bonds payable 17,408,262 211,000 (2,147,412) 15,471,850 (2,048,512) 13,423,338
Accrued employee benefits 3,209,918 105,342 (55,822) 3,259,438 (498,719) 2,760,719
Net pension liability 14,902,755 - (2,615,128) 12,287,627 12,287,627
Net OPEB liability(') 8,422,541 679,521 (485,573) 8,616,489 8,616,489
Total Business-Type $ 43,943,476 $ 995,863 $ (5,303,935) $ 39,635,404 $ (2,547,231) $ 37,088,173
('AAs restated for implementation of GASB 75
48
D. Bond Authorizations
Long-term debt authorizations which have not been issued or rescinded
as of June 30, 2018 are as follows:
Date Authorized Purpose Amount
April 2013 MWRA 1/1 sewer loan $ 460,000
February 2014 Library renovations 16,345
April 2015 Birch Meadow field lighting 900,000
April 2015 MWRA sewer 1/1 633,000
December 2016 RMHS renovation project 150,921
Total $ 2,160,266
16. Deferred Inflows of Resources
Deferred inflows of resources refer to the acquisition of net position by the Town
that are applicable to future reporting periods. Deferred inflows of resources have
a negative effect on net position, similar to liabilities. Deferred inflows of resources
related to pension and OPEB will be recognized as decreases in the respective
expense in future years and is more fully described in the corresponding
pension and OPEB notes.
The following is a summary of other deferred inflows of resources balances as
of June 30, 2018:
Entity-wide Basis Fund Basis
Governmental Governmental Funds
Activities General Fund
Gains on refunding bonds $ 105,700 $ -
Unavailable revenues related to:
Outstanding receivables - 1,231,732
Taxes collected in advance 53,858 53,858
Total Deferred Inflows of Resources $ 159,558 $ 1,285,590
Gains on refunding bonds are reported in the government-wide statement of
net position in connection with the unamortized amount of gains resulting from
the refunding of long-term bonds.
Unavailable revenues are reported in the government-wide statement of net
position and governmental funds balance sheet in connection with (1)
receivables for which revenues are not considered available to liquidate
liabilities of the current year and (2) property taxes collected in advance for
periods subsequent to the reporting date.
17. Governmental Funds - Balances
Fund balances are segregated to account for resources that are either not avail-
able for expenditure in the future or are legally set aside for a specific future use.
49
The Town implemented GASB Statement No. 54, Fund Balance Reporting
and Governmental Fund Type Definitions (GASB 54), which enhances the
usefulness of fund balance information by providing clearer fund balance
classifications that can be more consistently applied and by clarifying existing
governmental fund type definitions.
The following types of fund balances are reported at June 30, 2018:
Nonspendable - Represents amounts that cannot be spent because they are
either (a) not in spendable form or (b) legally or contractually required to be
maintained intact. This fund balance classification includes governmental fund
reserves for the principal portion of permanent trust funds.
Restricted - Represents amounts that are restricted to specific purposes by
constraints imposed by creditors, grantors, contributors, or laws or regulations
of other governments, or constraints imposed by law through constitutional
provisions or enabling legislation. This fund balance classification includes
general fund restrictions for debt service, various special revenue funds,
capital project funds, and the income portion of permanent trust funds.
Committed - Represents amounts that can only be used for specific pur-
poses pursuant to constraints imposed by formal action of the Town's highest
level of decision-making authority. This fund balance classification includes
stabilization funds set aside by Town Meeting vote for future capital acqui-
sitions and improvements (now reported as part of the general fund per
GASB 54). A similar action is needed to modify or rescind a commitment.
Assigned - Represents amounts that are constrained by the Town's intent to
use these resources for a specific purpose. This fund balance classification
includes general fund encumbrances that have been established by various
Town departments for the expenditure of current year budgetary financial
resources in the subsequent budgetary period and surplus set aside to be
used in the subsequent year's budget voted by Town Meeting.
Unassigned - Represents amounts that are available to be spent in future
periods, the Town's general stabilization account, and deficit balances in
nonmajor governmental funds.
50
Following is a breakdown of the Town's fund balances at June 30, 2018:
Nonmajor Total
General Governmental Governmental
Fund Funds Funds
Nonspendable
Permanent funds:
Cemetery $ - $ 2,892,328 $ 2,892,328
Other - 272,165 272,165
Total Nonspendable - 3,164,493 3,164,493
Restricted
For high school debt service 62,468 - 62,468
Federal grants - 39,744 39,744
State grants:
Special education (circuit breaker) - 943,866 943,866
State aid to libraries - 44,214 44,214
Other - 36,756 36,756
Revolving funds:
Extended day program - 997,055 997,055
Inspection permit - 659,919 659,919
All-day kindergarten program - 590,280 590,280
School lunch - 555,665 555,665
Recreation - 307,617 307,617
RISE preschool program - 220,309 220,309
Special education tuition - 111,367 111,367
Public health clinics - 91,700 91,700
Athletic activities - 68,078 68,078
Other - 340,548 340,548
Receipts reserved for appropriation:
Sale of real estate - 611,921 611,921
Affordable housing fund - 303,597 303,597
Sale of cemetery lots - 234,339 234,339
Other - 10,797 10,797
Gifts and donations - 1,221,624 1,221,624
Permanent funds:
Cemetery - 1,967,351 1,967,351
Other - 441,101 441,101
Town capital project funds:
Library renovations - 395,514 395,514
West street road improvements - 367,156 367,156
Other - 28,349 28,349
Total Restricted 62,468 10,588,867 10,651,335
(continued)
51
(continued)
Committed
Smart growth stabilization account 503,000 - 503,000
Total Committed 503,000 - 503,000
Assigned
For encumbrances:
General government 470,843 - 470,843
Public safety 108,251 - 108,251
Education 1,703,253 - 1,703,253
Public works 395,056 - 395,056
Facilities 90,400 - 90,400
Employee benefits 21,130 - 21,130
For next year's expenditures 1,600,000 - 1,600,000
Total Assigned 4,388,933 - 4,388,933
Unassigned-operating fund 12,267,682 - 12,267,682
Unassigned-general stabilization 1,584,336 - 1,584,336
Unassigned-deficit balances - (168,644) (168,644)
Total Unassigned 13,852,018 (168,644) 13,683,374
Total Fund Balance $ 18,806,419 $ 13,584,716 $ 32,391,135
18. Reading Contributory Retirement System
The Town follows the provisions of GASB Statement No. 68, Accounting and
Financial Reporting for Pensions— an amendment of GASB Statement No. 27
(GASB 68), with respect to the employees' retirement funds.
A. Plan Description
Substantially all employees of the Town (except teachers and administrators
under contract employed by the School Department) and Reading Housing
Authority are members of the Reading Contributory Retirement System (the
System), a cost-sharing, multiple employer public employee retirement system
(PERS). Eligible employees must participate in the System. The pension
plan provides pension benefits, deferred allowances, and death and disability
benefits. Chapter 32 of the Massachusetts General Laws establishes the
authority of the System, contribution percentages and benefits paid. The
Reading Contributory Retirement Board does not have the authority to
amend benefit provisions.Additional information is disclosed in the System's
annual financial reports publicly available from the System located at
2 Haven Street, Unit 304, Reading, Massachusetts 01867.
Participant Retirement Benefits
The System provides for retirement allowance benefits up to a maximum
of 80% of a member's highest 3-year average annual rate of regular
compensation for those hired prior to April 2, 2012 and the highest 5-year
average annual rate of regular compensation for those first becoming
members of the Massachusetts System on or after that date. However, per
52
Chapter 176 of the Acts of 2011, for members who retire on or after April 2,
2012, if in the 5 years of creditable service immediately preceding retire-
ment, the difference in the annual rate of regular compensation between
any 2 consecutive years exceeds 100%, the normal yearly amount of the
retirement allowance shall be based on the average annual rate of regular
compensation received by the member during the period of 5 consecutive
years preceding retirement. Benefit payments are based upon a member's
age, length of creditable service, level of compensation and group
classification.
If a participant was a member prior to February 2012, a retirement allow-
ance may be received at any age, upon attaining 20 years of service. The
plan also provides for retirement at age 55 if the participant was a member
prior to January 1, 1978, with no minimum vesting requirements. If the par-
ticipant was a member on or after January 1, 1978 and a member of Groups 1
or 2, then a retirement allowance may be received if the participant (1) has
at least 10 years of creditable service, (2) is age 55, (3) voluntarily left
Town employment on or after that date, and (4) left accumulated annuity
deductions in the fund. Members of Group 4 have no minimum vesting
requirements, however, must be at least age 55. Groups 2 and 4 require
that participants perform the duties of the Group position for at least
12 months immediately prior to retirement.
A participant who became a member on or after April 2, 2012 is eligible
for a retirement allowance upon 10 years creditable service and reaching
ages 60 or 55 for Groups 1 and 2, respectively. Participants in Group 4
must be at least age 55. Groups 2 and 4 require that participants perform
the duties of the Group position for at least 12 months immediately prior to
retirement.
A retirement allowance consists of two parts: an annuity and a pension. A
member's accumulated total deductions and a portion of the interest they
generate constitute the annuity. The difference between the total retire-
ment allowance and the annuity is the pension. The average retirement
benefit is approximately 80-85% pension and 15-20% annuity.
Participant Refunds
Employees who resign from service and who are not eligible to receive a
retirement allowance are entitled to request a refund of their accumulated
total deductions. Members voluntarily withdrawing with at least 10 years of
service or involuntarily withdrawing, receive 100% of the regular interest
that has accrued on those accumulated total deductions. Members volun-
tarily withdrawing with less than 10 years of service get credited interest
each year at a rate of 3.00%.
53
Participants Contributions
Participants contribute a set percentage of their gross regular compensation
annually. Employee contribution percentages are specified in Chapter 32 of
the Massachusetts General Laws. The employee's individual contribution
percentage is determined by their date of entry into the system. The per-
centages are as follows:
Before January 1, 1975 5.00%
January 1, 1975 - December 31, 1983 7.00%
January 1, 1984 - June 30, 1996 8.00%
Beginning July 1, 1996 9.00%
1979 - present Additional 2.00% of salary
in excess of$30,000
Group 1 members hired on or after 6.00% with 30 or more years
April 2, 2012 of creditable service
Employer Contributions
Employers are required to contribute at actuarially determined rates as
accepted by the Public Employee Retirement Administration Commission
(PERAC).
The Town's contribution to the System for the year ended June 30, 2018
was $5,612,453 which was equal to its annual required contribution.
B. Summary of Significant Accountinq Policies
For purposes of measuring the net pension liability, deferred outflows and
deferred inflows of resources related to pensions, and pension expense,
information about the fiduciary net position of the System and additions
to/deductions from System's fiduciary net position have been determined
on the same basis as they are reported by System. For this purpose,
benefit payments (including refunds of employee contributions) are
recognized when due and payable in accordance with benefit terms.
Investments are reported at fair value.
C. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources
and Deferred Inflows of Resources Related to Pensions
At June 30, 2018, the Town reported a liability of$36,665,359 for its propor-
tionate share of the net pension liability. The net pension liability was measured
as of December 31, 2017, and the total pension liability used to calculate
the net pension liability was determined by an actuarial valuation as of
January 1, 2017 and rolled forward to December 31, 2017. 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
54
projected contributions of all participating employers, actuarially determined.
At December 31, 2017, the Town's proportion was 99.13%.
For the year ended June 30, 2018, the Town recognized pension expense of
$4,995,783. In addition, the Town reported deferred outflows of resources
and deferred (inflows) of resources related to pensions from the following
sources:
Deferred Deferred
Outflows of (Inflows)of
Resources Resources
Net difference between projected and actual investment
earnings on pension plan investments $ - $ (5,397,110)
Changes of assumptions 5,855,801 -
Changes in proportion and differences between employer
contributions and proportionate share of contributions 326,334 (353,066)
Differences between expected and actual experience 4,982,284 (1,763,195)
Total $ 11,164,419 $ (7,513,371)
Amounts reported as deferred outflows (inflows) of resources related to
pensions will be recognized in pension expense as follows:
Fiscal Year
2019 $ 2,130,197
2020 2,088,251
2021 (105,909)
2022 (1,148,700)
2023 687,209
Total $ 3,651,048
55
D. Actuarial Assumptions
The total pension liability in the December 31, 2017 actuarial valuation was
determined using the following actuarial assumptions, applied to all periods
included in the measurement:
Valuation date January 1, 2017 rolled forward to
Actuarial cost method Entry age normal cost method
Amortization method:
UAAL: Increasing dollar amount at 4.50%to
reduce the Unfunded Actuarial Accrued
Liability(UAAL)to zero on or before June
30, 2029. The annual increase in
appropriation is further limited to 5.31%
Inflation Rate 3.00%Annually
Salary increases 4.25%-6.00%for Group 1 and 4.75% -
7.00%for Group 4
Investment rate of return 7.65%, net of pension plan investment
expense, including inflation
Post-retirement cost-of- 3.00% of first$12,000
living adjustment
Mortality Rates:
Pre-retirement and RP-2014 Mortality Table with full
beneficiary mortality generational mortality improvement using
Scale MP-2014
Morality for retired RP-2014 Mortality Table
members
Target Allocations
The long-term expected rate of return on pension plan investments was
selected from a best estimate range determined using the building block
approach. Under this method, an expected future real return range (expected
returns, net of pension plan investment expense and inflation) is calculated
separately for each asset class. These ranges are combined to produce the
long-term expected rate of return by weighting the expected future real rates
of return net of investment expenses by the target asset allocation percentage
and by adding expected inflation. The target allocation and best estimates of
arithmetic real rates of return for each major class are summarized in the
following table.
56
Long-term
Target Expected
Asset Real Rate
Asset Class Allocation of Return
Global equity 40.00% 4.91%
Hedge funds & portfolio completion 13.00% 3.40%
Fixed income 12.00% 0.71%
Private equity 11.00% 6.50%
Value-added fixed income 10.00% 3.64%
Real estate 10.00% 3.70%
Timber/natural resources 4.00% 3.25%
Total 100.00%
E. Discount Rate
The discount rate used to measure the total pension liability was 7.65%.
The projection of cash flows used to determine the discount rate assumed
that the plan member contributions will be made at the current contribution
rate and that employer contributions will be made at contractually required
rates, actuarially determined. Based on those assumptions, the pension
plan's fiduciary net position was projected to be available to make all pro-
jected future benefit payments to current active and inactive plan members.
Therefore, the long-term expected rate of return on pension plan invest-
ments was applied to all periods of projected benefit payments to deter-
mine the total pension liability.
F. Sensitivity of the Proportionate Share of the Net Pension Liability to
Changes in the Discount Rate
The following presents the Town's proportionate share of the net pension
liability calculated using the discount rate of 7.65%, as well as what the
Town's proportionate share of the net pension liability would be if it were
calculated using a discount rate that is 1-percentage-point lower (6.65%)
or 1-percentage-point higher (8.65%) than the current rate:
Current
Discount 1%
1% Decrease Rate Increase
(6.65%) (7.65%) (8.65%)
$ 56,597,071 $ 36,665,359 $ 19,935,993
G. Pension Plan Fiduciary Net Position
Detailed information about the pension plan's fiduciary net position is
available in the separately issued System financial report.
57
19. Massachusetts Teachers' Retirement System (MTRS)
A. Plan Description
The Massachusetts Teachers' Retirement System (MTRS) is a public
employee retirement system (PERS) that administers a cost-sharing multi-
employer defined benefit plan, as defined in Governmental Accounting
Standards Board (GASB) Statement No. 67, Financial Reporting for
Pension Plans– an Amendment of GASB Statement No. 25 (GASB 67).
MTRS is managed by the Commonwealth on behalf of municipal teachers
and municipal teacher retirees. The Commonwealth is a nonemployer
contributor and is responsible for all contributions and future benefit require-
ments 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 does not issue a stand-alone audited financial report.
Management of MTRS is vested in the Massachusetts Teachers' Retire-
ment Board (MTRB), which consists of seven members—two elected by the
MTRS members, one who is chosen by the six other MTRB members, the
State Treasurer (or their designee), the State Auditor (or their designee), a
member appointed by the Governor, and the Commissioner of Education (or
their designee), who serves ex-officio as the Chairman of the MTRB.
B. Benefits Provided
MTRS provides retirement, disability, survivor, and death benefits to mem-
bers and their beneficiaries. Massachusetts General Laws (MGL) establish
uniform benefit and contribution requirements for all contributory PERS.
These requirements provide for superannuation retirement allowance ben-
efits up to a maximum of 80% of a member's highest three-year average
annual rate of regular compensation. For employees hired after April 1,
2012, retirement allowances are calculated on the basis of the last five
years or any five consecutive years, whichever is greater in terms of com-
pensation. Benefit payments are based upon a member's age, length of
creditable service, group creditable service, and group classification. The
authority for amending these provisions rests with the Legislature.
Members become vested after ten years of creditable service.A superannua-
tion retirement allowance may be received upon the completion of twenty years
of creditable service or upon reaching the age of 55 with ten years of service.
Normal retirement for most employees occurs at age 65. Most employees who
joined the system after April 1, 2012 cannot retire prior to age 60.
The MTRS' funding policies have been established by Chapter 32 of
the MGL. The Legislature has the authority to amend these policies.
The annuity portion of the MTRS retirement allowance is funded by
58
employees who contribute a percentage of their regular compensation.
Costs of administering the plan are funded out of plan assets.
C. Contributions
Member contributions for MTRS vary depending on the most recent date
of membership:
Membership Date % of Compensation
Before January 1, 1975 5.00%
January 1, 1975 - December 31, 1983 7.00%
January 1, 1984 - June 30, 1996 8.00%
Beginning July 1, 1996 9.00%
Beginning July 1, 2001 11.00% (for teachers who were hired after
July 1, 2001 and accept the provisions of
Chapter 114 of the Acts of 2000)
1979 - present Additional 2.00% of salary in excess of
$30,000
D. Actuarial Assumptions
The total pension liability for the June 30, 2017 measurement date was
determined by an actuarial valuation as of January 1, 2017 rolled forward
to June 30, 2017. This valuation used the following assumptions:
• (a) 7.50% investment rate of return, (b) 3.50% interest rate credited to
the annuity savings fund and (c) 3.00% cost of living increase on the
first $13,000 per year.
• Salary increases are based on analyses of past experience but range
from 4.00% to 7.50% depending on length of service.
• Experience study is dated July 21, 2014 and encompasses the period
January 1, 2006 to December 31, 2011.
Mortality rates were as follows:
Pre-retirement RPT-2014 White Collar Employees table projected
generationally with Scale MP-2016 (gender distinct).
Post-retirement RP-2014 White Collar Healthy Annuitant table projected
generationally with Scale MP-2016 (gender distinct).
Disability RP-2014 Healthy Annuitant table projected generationally with
Scale BB and a base year of 2014 set forward 4 years.
Investment assets of the MTRS are with the Pension Reserves Investment
Trust (PRIT) Fund. 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 rates of return are developed for each
59
major asset class. These ranges are combined to produce the long-term
expected rate of return by weighting the expected future rates of return by
the target asset allocation percentage. Best estimates of geometric rates of
return for each major asset class included in the PRIT Fund's target asset
allocation as of June 30, 2017 are summarized in the following table:
Target Long-Term Expected
Asset Class Allocation Real Rate of Return
Global equity 40.00% 5.00%
Portfolio completion strategies 13.00% 3.60%
Core fixed income 12.00% 1.10%
Private equity 11.00% 6.60%
Real estate 10.00% 3.80%
Value added fixed income 10.00% 3.60%
Timber/natural resources 4.00% 3.20%
Hedge funds 0.00% 3.60%
Total 100.00%
E. Discount Rate
The discount rate used to measure the total pension liability was 7.50%.
The projection of cash flows used to determine the discount rate assumed
that plan member contributions will be made at the current contribution
rates and the Commonwealth's contributions will be made at rates equal to
the difference between actuarially determined contribution rates and the
member rates. Based on those assumptions, the net position was pro-
jected 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.
F. Sensitivity Analysis
The following illustrates the sensitivity of the collective net pension liability
to changes in the discount rate. In particular, the table presents the MTRS
collective net pension liability assuming it was calculated using a single
discount rate that is 1-percentage-point lower (6.50%) or 1-percentage-
point higher (8.50%) than the current discount rate (amounts in
thousands):
1% Decrease Current Discount 1% Increase
to (6.50%) Rate (7.50%) to (8.50%)
$ 28,424,300 $ 22,885,391 $ 18,193,400
60
G. Special Funding Situation
The Commonwealth is a nonemployer contributor and is required by
statute to make all actuarial determined employer contributions on behalf
of the member employers. Therefore, these employers are considered to
be in a special funding situation as defined by GASB Statement No. 68,
Accounting and Financial Reporting for Pensions— an Amendment of
GASB Statement No. 27 (GASB 68) and the Commonwealth is a non-
employer contributing entity in MTRS. Since the employers do not con-
tribute directly to MTRS, there is no net pension liability to recognize for
each employer.
H. Town Proportions
In fiscal year 2017 (the most recent measurement period), the Common-
wealth's proportionate share of the MTRS' collective net pension liability and
pension expense that is associated with the Town was $103,216,357 and
$10,772,992, respectively, based on a proportionate share of 0.451014%.
As required by GASB 68, the Town has recognized its portion of the
Commonwealth's contribution as both a revenue and expenditure in the
general fund, and its portion of the collective pension expense as both a
revenue and expense in the governmental activities.
20. Other Post-Employment Benefits (GASB 75)
GASB Statement No. 75, Accounting and Financial Reporting for Postemploy-
ment Benefits Other Than Pensions (GASB 75), replaces the requirements of
Statement No. 45, Accounting and Financial Reporting by Employers for
Postemployment Benefits Other Than Pensions (GASB 45). The Statement
establishes standards for recognizing and measuring liabilities, deferred outflows
of resources, deferred inflows of resources, and expense/expenditures. This
Statement identifies the methods and assumptions that are required to be used
to project benefit payments, discounted projected benefit payments to their
actuarial present value, and attribute that present value to periods of employee
service.
All the following OPEB disclosures are based on a measurement date of
June 30, 2017.
A. General Information about the OPEB Plan
Plan Description
The Town provides post-employment healthcare benefits for retired
employees through the Town's plan. The Town provides health insurance
coverage through Blue Cross Blue Shield. The benefits, benefit levels,
61
employee contributions, and employer contributions are governed by
Chapter 32 of the Massachusetts General Laws.
Benefits Provided
The Town provides medical and prescription drug insurance to retirees
and their covered dependents. All active employees who retire from the
Town and meet the eligibility criteria will receive these benefits.
Plan Membership
At June 30, 2017, the following employees were covered by the benefit terms:
Inactive employees or beneficiaries
currently receiving benefit payments 620
Active employees 581
Total 1,201
B. Actuarial Assumptions and Other Inputs
The net OPEB liability was determined by an actuarial valuation as of
June 30, 2017, using the following actuarial assumptions, applied to all
periods included in the measurement, unless otherwise specified:
Inflation 2.50%
Salary increases 6.00% decreasing to 4.25% based on service
for Group 1 and Group 2; 7.00% decreasing
to 4.75% based on service for Group 4;
7.50% decreading to 4.00% based on service
for teachers
Investment rate of return 7.50%
Discount rate 7.50%
Healthcare cost trend rates Medical presription drug: 7.00% decreasing
by 0.50% to an ultimate level of 4.50% per
year
Contributions: Retiree conrtibutions are
expected to increase with medical trend
Mortality rates were based on the following:
• Pre-Retirement (Non-Teachers): RP-2014 Healthy Employee
Mortality Table projected generationally with Scale MP-2014
• Healthy (Non-Teachers): RP-2014 Healthy Annuitant Mortality Table
projected generationally with Scale MP-2014
• Disabled (Non-Teachers): RP-2014 Disabled Retiree Table
projected generationally with Scale MP-2014
62
• Pre-Retirement (Teachers): RP-2014 White Collar Employee
Mortality Table projected generationally with Scale MP-2016
• Healthy (Teachers): RP-2014 White Collar Healthy Annuitant
Mortality Table projected generationally with Scale MP-2016
• Disabled (Teachers): RP-2014 Healthy Annuitant Mortality Table set
forward 4 years projected generationally with Scale BB
The actuarial assumptions used in the valuation were based on the results
of an actuarial experience study as of June 30, 2017.
Target Allocations
The long-term expected rate of return on OPEB plan investments was deter-
mined using a building-block method in which best-estimate ranges of expected
future real rates of return (expected returns, net of investment expense and
inflation) are developed for each major asset class. These ranges are com-
bined 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 target asset allocation as of
June 30, 2017 are summarized in the following table.
Target Long-term
Asset Expected Real
Asset Class Allocation Rate of Return
Domestic equity 18.00% 6.44%
International developed markets equity 16.00% 7.40%
Hedge fund, GTAA, risk parity 13.00% 3.75%
Core fixed income 12.00% 2.02%
Private equity 11.00% 10.47%
High yield fixed income 10.00% 4.43%
Real estate 10.00% 5.00%
International emerging markets equity 6.00% 9.42%
Commodities 4.00% 4.43%
Total 100.00%
C. Discount Rate
The discount rate used to measure the net OPEB liability was 7.50%. The
projection of cash flows used to determine the discount rate assumed that
contributions from plan members will be made at the current contribution
rate.
63
Based on those assumptions, the OPEB plan fiduciary net position was
projected to be available to make all projected future benefit payments of
current plan members.
D. Net OPEB Liabilitv
The components of the net OPEB liability, measured as of June 30, 2017,
were as follows:
Total OPEB liability $ 75,292,954
Plan fiduciary net position (6,478,298)
Net OPEB liability $ 68,814,656
E. Changes in the Net OPEB Liabilitv
Increase (Decrease)
Plan
Total OPEB Fiduciary Net OPEB
Liability Net Position Liability
(a) a - b
Balances, beginning of year $ 71,500,064 $ 5,543,552 $ 65,956,512
Changes for the year:
Service cost 1,909,743 - 1,909,743
Interest 5,359,397 - 5,359,397
Contributions-employer - 4,360,996 (4,360,996)
Net investment income - 50,000 (50,000)
Benefit payments (3,476,250) (3,476,250) -
Net Changes 3,792,890 934,746 2,858,144
Balances, end of year $ 75,292,954 $ 6,478,298 $ 68,814,656
F. Sensitivity of the Net OPEB Liability to Changes in the Discount Rate
The following presents the net OPEB liability, as well as what the net
OPEB liability would be if it were calculated using a discount rate that is
one percentage-point lower (6.50%) or one percentage-point higher
(8.50%) than the current discount rate:
Current
1% Decrease Discount Rate 1% Increase
(6.50%) (7.50%) (8.50%)
$ 77,953,723 $ 68,814,656 $ 61,219,114
64
G. Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend
Rates
The following presents the net OPEB liability, as well as what the net
OPEB liability would be if it were calculated using healthcare cost trend
rates that are one percentage-point lower or one percentage-point higher
than the current healthcare cost trend rates:
Current
Healthcare
1% Cost Trend 1%
Decrease Rates Increase
$ 60,509,380 $ 68,814,656 $ 77,831,955
H. OPEB Expense and Deferred Outflows of Resources and Deferred Inflows
of Resources Related to OPEB
For the year ended June 30, 2018, the Town recognized an OPEB
expense of $6,898,386. At June 30, 2018, the Town reported deferred
outflows of resources related to OPEB from the following sources:
Deferred
Outflows of
Resources
Contributions subsequent to the
measurement date $ 1,183,125
Net difference between projected and
actual OPEB investment earnings 319,156
Total $ 1,502,281
The $1,183,125 reported as deferred outflows of resources related to
OPEB resulting from contributions subsequent to the measurement date
and before the end of the fiscal year will be included as a reduction of the
net OPEB liability in the year ended June 30, 2019.
Other amounts reported as deferred outflows of resources related to OPEB
will be recognized in OPEB expense as follows:
Year Ended June 30:
2019 $ 79,788
2020 79,788
2021 79,789
2022 79,791
Total $ 319,156
65
21. Other Post-Employment Benefits (GASB 74)
GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans
Other Than Pension Plans (OPEB) (GASB 74), replaces the requirements of
Statement No. 43, Financial Reporting for Postemployment Benefit Plans
Other Than Pension Plans. This applies if a trust fund has been established
to fund future OPEB costs. In fiscal year 2012, the Town established an
OPEB Trust Fund to provide funding for future employee health care costs.
All the following OPEB disclosures are based on a measurement date of
June 30, 2018.
A. Investments
The OPEB trust fund assets consist of amounts on deposit with the
Massachusetts Municipal Depository Trust (MMDT).
Rate of return. For the year ended June 30, 2018, the annual money-
weighted rate of return on investments, net of investment expense, was
not available. The money-weighted rate of return expresses investment
performance, net of investment expense, adjusted for the changing
amounts actually invested.
B. Actuarial Assumptions and Other Inputs
The total OPEB liability was determined by an actuarial valuation as of
June 30, 2018, using the following actuarial assumptions, applied to all
periods included in the measurement, unless otherwise specified:
Inflation 2.50%
Salary increases 6.00% decreasing to 4.25% based on service
for Group 1 and Group 2; 7.00% decreasing
to 4.75% based on service for Group 4;
7.50% decreading to 4.00% based on service
for teachers
Investment rate of return 7.50%
Discount rate 7.50%
Healthcare cost trend rates Medical presription drug: 7.00% decreasing
by 0.50% to an ultimate level of 4.50% per
year
Contributions: Retiree conrtibutions are
expected to increase with medical trend
Mortality rates were based on the following:
• Pre-Retirement: RP-2014 Healthy Employee Mortality Table
projected generationally with Scale MP-2014
66
• Healthy: RP-2014 Healthy Annuitant Mortality Table projected
generationally with Scale MP-2014
• Disabled: RP-2014 Disabled Retiree Table projected generationally
with Scale MP-2014
The actuarial assumptions used in the valuation were based on the results
of an actuarial experience study as of June 30, 2017.
Target Allocations
The long-term expected rate of return on OPEB plan investments was deter-
mined using a building-block method in which best-estimate ranges of expected
future real rates of return (expected returns, net of investment expense and
inflation) are developed for each major asset class. These ranges are com-
bined 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 target asset allocation as of
June 30, 2018 are summarized in the following table.
Target Long-term
Asset Expected Real
Asset Class Allocation Rate of Return
Domestic equity 17.50% 6.15%
International developed markets
equity 15.50% 7.11%
Hedge fund, GTAA, risk parity 13.00% 3.94%
Core fixed income 12.00% 1.68%
Private equity 12.00% 10.28%
High yield fixed income 10.00% 4.13%
Real estate 10.00% 4.90%
International emerging markets
equity 6.00% 9.41%
Commodities 4.00% 4.71%
Total 100.00%
C. Discount Rate
The discount rate used to measure the total OPEB liability was 7.50%.
The projection of cash flows used to determine the discount rate assumed
that contributions from plan members will be made at the current
contribution rate.
Based on those assumptions, the OPEB plan fiduciary net position was
projected to be available to make all projected future benefit payments of
current plan members.
67
D. Net OPEB Liability
The components of the net OPEB liability, measured as of June 30, 2018,
were as follows:
Total OPEB liability $ 79,164,345
Plan fiduciary net position (7,765,251)
Net OPEB liability $ 71,399,094
Plan fiduciary net position as a
percentage of the total OPEB liability 9.81%
E. Sensitivity of the Net OPEB Liability to Changes in the Discount Rate
The following presents the net OPEB liability, as well as what the net
OPEB liability would be if it were calculated using a discount rate that is
one percentage-point lower (6.50%) or one percentage-point higher
(8.50%) than the current discount rate:
Current
1% Decrease Discount Rate 1% Increase
(6.50%) (7.50%) (8.50%)
$ 81,109,189 $ 71,399,094 $ 63,318,204
F. Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend
Rates
The following presents the net OPEB liability, as well as what the net
OPEB liability would be if it were calculated using healthcare cost trend
rates that are one percentage-point lower or one percentage-point higher
than the current healthcare cost trend rates:
Current
Healthcare
1% Cost Trend 1%
Decrease Rates Increase
$ 61,942,094 $ 71,399,094 $ 81,674,260
22. Pension and OPEB Trust Funds
The Reading Contributory Retirement System, the Town of Reading OPEB
Trust Fund, and the Electric Division OPEB Trust Fund, are presented in a
68
single column in the accompanying fiduciary fund financial statements.
Details of the financial position and changes in net position are as follows:
Other
Pension Post
Trust Fund Electric Employment Pension
(As of Division OPEB Benefits and OPEB
December 31,2017) Trust Fund Trust Fund Trust Funds
Assets
Cash and short-term investments $ 6,780,071 $ 3,519,792 $ 4,245,459 $ 14,545,322
Investments 134,972,190 - - 134,972,190
Accounts receivable 153,657 153,657
Total Assets 141,905,918 3,519,792 4,245,459 149,671,169
Net Position
Restricted for:
Pensions 141,905,918 - - 141,905,918
OPEB - 3,519,792 4,245,459 7,765,251
Total Net Position $ 141,905,918 $ 3,519,792 $ 4,245,459 $ 149,671,169
Other
Pension Post
Trust Fund Electric Employment Pension
(for the year ended Division OPEB Benefits and OPEB
December 31,2017) Trust Fund Trust Fund Trust Funds
Additions
Contributions:
Employers $ 5,661,945 $ 1,129,116 $ 3,790,978 $ 10,582,039
Plan members 3,075,199 - - 3,075,199
Intergovernmental 397,128 397,128
Other 3,000 3,000
Total contributions 9,137,272 1,129,116 3,790,978 14,057,366
Investment Income:
Increase in fair value of investments 21,274,625 55,517 48,233 21,378,375
Less:management fees (681,393) - - (681,393)
Net investment income 20,593,232 55,517 48,233 20,696,982
Total Additions 29,730,504 1,184,633 3,839,211 34,754,348
Deductions
Benefit payments to plan members and beneficiaries 11,206,921 521,991 3,214,978 14,943,890
Refunts to plan members 169,838 - - 169,838
Transfers to other systems 209,854 209,854
Administrative expenses 230,215 230,215
Total Deductions 11,816,828 521,991 3,214,978 15,553,797
Net change 17,913,676 662,642 624,233 19,200,551
Net position restricted for pensions and OPEB
Beginning of year 123,992,242 2,857,150 3,621,226 130,470,618
End of year $ 141,905,918 $ 3,519,792 $ 4,245,459 $ 149,671,169
23. Commitments and Contingencies
Outstanding Legal Issues — On an ongoing basis, there are typically pending
legal issues in which the Town is involved. The Town's management is of the
opinion that the potential future settlement of these issues would not materi-
ally affect its financial statements taken as a whole.
Abatements - There are several cases pending before the Appellate Tax Board
in regard to alleged discrepancies in property assessments. According to Town
69
counsel, the probable outcome of these cases at the present time is indetermi-
nable, although the Town expects such amounts, if any, to be immaterial.
Grants -Amounts received or receivable from grantor agencies are subject to
audit and adjustment by grantor agencies, principally the federal government.
Any disallowed claims, including amounts already collected, may constitute
a liability of the applicable funds. The amount of expenditures which may be
disallowed by the grantor cannot be determined at this time, although the
Town expects such amounts, if any, to be immaterial.
24. Beginning Net Position/Fund Balance Restatement
The beginning (June 1, 2017) net position/fund balance of the Town of Reading
has been restated as follows:
Government-Wide Financial Statements
Business-Type Activities
Electric Nonmajor
Governmental Division Water Sewer Proprietary Total Enterprise
Activities Fund Fund Fund Funds Funds
As previously reported $ 92,794,058 $ 109,368,059 $ 13,187,494 $ - $ 17,320,740 $ 139,876,293
Reclassify Sewer fund from Nonmajor
proprietary funds - - - 14,973,794 (14,973,794) -
Implementation ofGASB750PEB (37,850,653) (6,723,225) (661,466) (214,172) (51,849) (7,650,712)
Restate governmental funds to fiduciary funds (5,036,796)
As restated $ 49,906,609 $ 102,644,834 $ 12,526,028 $ 14,759,622 $ 2,295,097 $ 132,225,581
Fund Basis Financial Statements
Fiduciary Funds
Nonmajor
Governmental Private Purpose
Funds Trust Funds
As previously reported $ 17,026,181 $ -
Restate permanent funds to private purpose
trust funds (5,036,796) 5,036,796
As restated $ 11,989,385 $ 5,036,796
70
Town of Reading, Massachusetts Municipal Light Department
Notes to Financial Statements
1. Summary of Significant Accounting Policies
The significant accounting policies of the Town of Reading Municipal Light Depart-
ment (the Department) (an enterprise fund of the Town of Reading, Massachu-
setts) are as follows:
A. Business Activity - The Department purchases electricity for distribution to
more than 68,000 residents within the towns of Reading, North Reading,
Wilmington, and Lynnfield Center.
B. Regulation and Basis of Accounting - Under Massachusetts General Laws,
the Department's electric rates are set by the Municipal Light Board. Electric
rates, excluding the purchase power fuel charge and the purchase power
capacity and transmission charge, cannot be changed more than once every
three months. Rate schedules are filed with the Massachusetts Department
of Public Utilities (DPU). While the DPU exercises general supervisory author-
ity over the Department, the Department's rates are not subject to DPU
approval. The Department's policy is to prepare its financial statements in
conformity with generally accepted accounting principles.
The proprietary fund financial statements are reported using the economic
resources measurement focus and the accrual basis of accounting. Under this
method, revenues are recognized when earned and expenses are recorded
when liabilities are incurred.
Proprietary funds distinguish operating revenues and expenses from non-
operating items. Operating revenues and expenses generally result from
providing services and producing and delivering goods in connection with a
proprietary fund's principal ongoing operations. The principal operating rev-
enues of the Department's proprietary fund are charges to customers for
electric sales and services. Operating expenses for the Department's pro-
prietary fund include the cost of sales and services, administrative expenses
and depreciation on capital assets. All revenues and expenses not meeting
this definition are reported as non-operating revenues and expenses.
C. Concentrations -The Department operates within the electric utility industry.
In 1998, the Commonwealth of Massachusetts enacted energy deregulation
legislation that restructured the Commonwealth's electricity industry to foster
competition and promote reduced electric rates. Energy deregulation created
a separation between the supply and delivery portions of electricity service
and enabled consumers to purchase their energy from a retail supplier of their
choice. Municipal utilities are not currently subject to this legislation.
71
D. Retirement Trust - The Reading Municipal Light Department Employees'
Retirement Trust (the "Pension Trust")was established by the Reading Munic-
ipal Light Board on December 30, 1966, pursuant to Chapter 64 of the General
Laws of the Commonwealth of Massachusetts.
The Pension Trust constitutes the principal instrument of a plan established
by the Municipal Light Board to fund the Department's annual required con-
tribution to the Town of Reading Contributory Retirement System (the System),
a cost-sharing, multi-employer public employee retirement system.
In accordance with Government Accounting Standards Board Statement 68
(GASB 68), the Retirement Trust was consolidated into the Business-Type
Proprietary Fund and is reflected in net position as"restricted for pension trust."
E. Other Post-Employment Benefits Trust-The Other Post-Employment Benefits
Liability Trust Fund (the "OPEB Trust") was established by the Reading
Municipal Light Board pursuant to Chapter 32B, Section 20 of the General
Laws of the Commonwealth of Massachusetts.
The OPEB Trust constitutes the principal instrument of a plan established by
the Municipal Light Board to fund the Department's annual actuarially deter-
mined OPEB contribution for future retirees.
F. Revenues - Revenues are based on rates established by the Department
and filed with the DPU. Revenues from sales of electricity are recorded on
the basis of bills rendered from monthly meter readings taken on a cycle
basis and are stated net of discounts. Recognition is given to the amount of
sales to customers which are unbilled at the end of the fiscal period.
G. Cash and Short-term Investments - For the purposes of the Statements of
Cash Flows, the Department considers unrestricted cash on deposit with
the Town Treasurer to be cash or short-term investments. For purposes of
the Statements of Net Position, both the proprietary funds and fiduciary
funds consider unrestricted and restricted investments with original maturi-
ties of three months or less to be short-term investments.
H. Investments - State and local statutes place certain limitations on the nature
of deposits and investments available. Deposits in any financial institution
may not exceed certain levels within the financial institution. Non-fiduciary
fund investments can be made in securities issued or unconditionally guar-
anteed by the U.S. Government or agencies that have a maturity of one
year or less from the date of purchase and repurchase agreements guaran-
teed by such securities with maturity dates of no more than 90 days from date
of purchase.
Investments for the Department and the Pension Trust consist of domestic
and foreign fixed income bonds which the Department intends to hold to
maturity. These investments are reported at fair market value.
72
I. Inventory - Inventory consists of parts and accessories purchased for use in
the utility business for construction, operation, and maintenance purposes and
is stated at average cost. Meters and transformers are capitalized when
purchased.
J. Capital Assets and Depreciation -Capital assets, which include property, plant,
equipment, and utility plant infrastructure, are recorded at historical cost or
estimated historical cost when purchased or constructed. Donated capital
assets are recorded at estimated fair market value at the date of the donation.
The cost of normal maintenance and repairs that do not add to the value of
the asset or materially extend asset lives are not capitalized.
Major outlays for capital assets and improvements are capitalized as they
are acquired or constructed. Interest incurred during the construction phase
of proprietary fund capital assets is included as part of the capitalized value
of the constructed asset. When capital assets are retired, the cost of the retired
asset, less accumulated depreciation, salvage value and any cash proceeds,
is charged to the Department's unrestricted net position.
Massachusetts General Laws require utility plant in service to be depreci-
ated at a minimum annual rate of 3%. To change this rate, the Department
must obtain approval from the DPU. Changes in annual depreciation rates
may be made for financial factors relating to cash flow for plant expansion,
rather than engineering factors relating to estimates of useful lives.
K. Accrued Compensated Absences - Employee vacation leave is vested annu-
ally but may only be carried forward to the succeeding year with supervisor
approval and, if appropriate, within the terms of the applicable Department
policy or union contract. Generally, sick leave may accumulate according to
union and Department contracts and policy and is paid upon normal termi-
nation at the current rate of pay. The Department's policy is to recognize
vacation costs at the time payments are made. The Department records accu-
mulated, unused, vested sick pay as a liability. The amount recorded is the
amount to be paid upon normal termination at the current rate of pay.
L. Long-Term Obligations -The proprietary fund financial statements report long-
term debt and other long-term obligations as liabilities in the Statements of
Net Position.
M. Use of Estimates-The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures for contingent assets and liabilities at the date of
the financial statements, and the reported amounts of the revenues and
expenses during the fiscal year. Actual results could vary from estimates that
were used.
N. Rate of Return - The Department's rates must be set such that earnings
attributable to electric operations do not exceed eight percent of the net cost
73
of plant. The Department's audited financial statements are prepared in
accordance with auditing standards generally accepted in the United States of
America. To determine the net income subject to the rate of return limitations,
the Department performs the following calculation. Using the net income per
the audited financial statements, the return on investment to the Town of
Reading is added back, the fuel charge adjustment is added or deducted, and
miscellaneous debits/credits (i.e., gain/loss on disposal of fixed assets, etc.)
are added or deducted, leaving an adjusted net income figure for rate of return
purposes. Investment interest income and bond principal payments are then
deducted from this figure to determine the net income subject to the rate of
return. The net income subject to the rate of return is then subtracted from the
allowable eight percent rate of return, which is calculated by adding the book
value of net plant and the investment in associated companies multiplied by
eight percent. From this calculation, the Municipal Light Board will determine
what cash transfers need to be made at the end of the fiscal year.
2. Cash and Investments
Total cash and investments as of June 30, 2018 are classified in the accom-
panying financial statements as follows:
Proprietary Fund:
Unrestricted cash and short-term investments $ 12,411,639
Restricted cash and short-term investments 29,904,641
Restricted investments 2,502,561
Fiduciary Funds:
Cash and short-term investments - OPEB Trust 3,519,792
Total cash and investments $ 48,338,633
Total cash and investments at June 30, 2018 consist of the following:
Deposits with financial institutions $ 48,338,633
Total cash and investments $ 48,338,633
Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that the fair value of an investment will be adversely
affected by changes in market interest rates. Generally, the longer the maturity
of an investment, the greater the sensitivity of its fair value to changes in market
interest rates. The Department manages its exposure to interest rate risk by
purchasing a combination of shorter term and longer-term investments and by
timing cash flows from maturities so that a portion of the portfolio is maturing or
coming close to maturity evenly over time as necessary to provide the cash flow
and liquidity needed for operations.
74
As of June 30, 2018, the Department (including the Pension Trust and OPEB
Trust) held cash and short-term investments in pooled investments with the
Massachusetts Municipal Depository Trust (MMDT), FDIC-insured savings
accounts, and 90-day FDIC-insured bank certificates of deposit. Because of their
immediate liquidity and/or short-term maturity, these funds are classified as
cash and short-term investments in the accompanying financial statements and
are not considered to be exposed to significant interest rate risk.
As of June 30, 2018, the Department and Pension Trust held investments in
domestic and foreign fixed income bonds with varying maturity dates as follows:
Proprietary
Fund
Restricted Maturity
Investments Date
Corporate bonds
AT&T Inc $ 418,601 12/01/22
General Electric Cap Corp 404,606 01/09/23
Wells Fargo & Co 402,020 08/15/23
Simon Property 372,899 06/15/27
Rabobank Nederland Bank 495,010 11/09/22
BNP Paribas 409,425 03/03/23
Total $ 2,502,561
Disclosures Relating to Credit Risk
Generally, credit risk is the risk that the issuer of an investment will not fulfill its
obligation to the holder of the investment. This is measured by the assigning of
a rating by a nationally recognized statistical rating organization. As of June 30,
2018, the Department and Pension Trust held investments in domestic and foreign
fixed income bonds with varying ratings as follows:
Proprietary
Fund
Restricted Moody's
Investment Type Investments Rating
Corporate bonds:
AT&T Inc $ 418,601 BAA2
General Electric Cap Corp 404,606 A2
Wells Fargo & Co 402,020 A3
Simon Property 372,899 A3
Rabobank Nederland Bank 495,010 BAA1
BNP Paribas 409,425 AA3
Total $ 2,502,561
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Concentration of Credit Risk
The Department follows the Town of Reading's investment policy, which does
not limit the amount that can be invested in any one issuer beyond that stipu-
lated by Massachusetts General Laws. At June 30, 2018, the Department and
Pension Trust investments were held in domestic and foreign fixed income bonds,
as detailed in the sections above. Five of the bonds each individually represent
approximately 16% of the Department's and System's total investments, while
the investment in Rabobank Nederland Bank represents approximately 20%.
Custodial Credit Risk
Custodial Credit Risk for deposits is the risk that, in the event of the failure of a
depository financial institution, the Department will not be able to recover its
deposits or will not be able to recover collateral securities that are in the pos-
session of an outside party. The custodial credit risk for investments is the risk that,
in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction,
the Department will not be able to recover the value of its investments or collateral
securities that are in the possession of another party. Massachusetts General
Laws, Chapter 44, Section 55, limits deposits"in a bank or trust company or bank-
ing company to an amount not exceeding sixty per cent of the capital and surplus
of such bank or trust company or banking company, unless satisfactory security is
given to it by such bank or trust company or banking company for such excess."
The Department follows the Massachusetts statute as written, as well as the Town
of Reading's deposit policy for custodial credit risk.
Because the Department pools its cash and short-term investments with the Town
of Reading, and bank accounts are maintained in the name of the Town, the
amount of the Department's balance exposed to custodial credit risk at June 30,
2018, cannot be reasonable determined.
As of June 30, 2018, none of the Department or Pension Trust investments were
exposed to custodial credit risk because the related securities are registered in
the Department's name.
Fair Value
The Department categorizes its fair value measurements within the fair value
hierarchy established by Governmental Accounting Standards Board Statement
No. 72 Fair Value Measurement and Application (GASB 72). The hierarchy is
based on the valuation inputs used to measure the fair value of the asset.
Level 1 inputs are quoted prices in active markets for identical assets; Level 2
inputs are significant other observable inputs; Level 3 inputs are significant unob-
servable inputs.
76
Fair Value Measurements Using:
Quoted prices
in active Significant Significant
markets for observable unobservable
identical assets inputs inputs
Description (Level 1) (Level 2) (Level 3)
Investments by fair value level:
Debt securities
Corporate bonds $ 2,502,561 $ 2,502,561 $ - $ -
Total $ 2,502,561
3. Restricted Cash and Investments
The Department's proprietary fund restricted cash and investment balances
represent the following reserves:
Cash Investments
Depreciation fund $ 4,012,622 $ -
Deferred fuel reserve 6,032,006 -
Deferred energy
conservation reserve 577,759 -
Rate stabilization 6,989,273 -
Reserve for uncollectible
accounts 200,000 -
Sick leave benefits 1,942,396 1,251,281
Hazardous waste fund 750,000 -
Customer deposits 1,155,870 -
Pension trust 4,444,715 1,251,280
Total $ 29,904,641 $ 2,502,561
The Department maintains the following reserves:
- Depreciation fund - The Department is normally required to reserve 3.0%
of capital assets each year to fund capital improvements.
- Deferred fuel reserve-The Department transfers the difference between
the customers' monthly fuel charge adjustment and actual fuel costs into
this account to be used in the event of a sudden increase in fuel costs.
- Deferred energy conservation reserve - This account is used to reserve
monies collected from a special energy charge added to customer bills.
Customers who undertake measures to conserve and improve energy
efficiency can apply for rebates that are paid from this account.
- Rate stabilization -This represents amounts set aside to help stabilize cost
increases resulting from fluctuations in purchase power costs.
- Reserve for uncollectible accounts - This account was set up to offset a
portion of the Department's bad debt reserve.
77
- Sick leave benefits - This account is used to offset the Department's actu-
arially determined compensated absence liability.
Hazardous waste fund -This reserve was set up by the Board of Com-
missioners to cover the Department's insurance deductible in the event
of a major hazardous materials incident.
- Customer deposits - Customer deposits that are held in escrow.
- Pension trust-The principal instrument of a plan established by the Munic-
ipal Light Board to fund the Department's annual required contribution to
the Town of Reading Contributory Retirement System (the System), a
cost-sharing, multi-employer public employee retirement system.Accounts
Receivable
4. Accounts Receivable
Accounts receivable consists of the following at June 30, 2018:
Customer Accounts:
Billed $ 4,316,528
Less allowances:
Uncollectible accounts (200,000)
Sales discounts (231,940)
Total billed 3,884,588
Unbilled, net 5,710,527
Total customer accounts 9,595,115
Other Accounts:
Liens and other 690,610
Total other accounts 690,610
Total net receivables $ 10,285,725
5. Prepaid Expenses
Prepaid expenses consist of the following:
Insurance and other $ 284,072
Purchase power (120,787)
NYPA prepayment fund 307,573
WC Fuel -Watson 256,859
Total $ 727,717
78
6. Inventory
Inventory comprises supplies and materials at June 30, 2018, and is valued using
the average cost method.
7. Investment in Associated Companies
Under agreements with the New England Hydro-Transmission Electric Company,
Inc. (NEH) and the New England Hydro-Transmission Corporation (NHH), the
Department has made the following advances to fund its equity requirements
for the Hydro-Quebec Phase II interconnection. The Department is carrying its
investment at fair value, reduced by shares repurchased. The Department's
equity position in the Project is less than one-half of one percent.
Investment in associated companies consists of the following, at June 30, 2018:
New England Hydro-Transmission (NEH & NHH) $ 258,596
8. Capital Assets
The following is a summary of fiscal year 2018 activity in capital assets (in
thousands):
Beginning Ending
Balance Increases Decreases Balance
Business-Type Activities:
Capital assets, being depreciated:
Structures and improvements $ 19,414 $ 856 $ - $ 20,270
Equipment and furnishings 33,592 1,364 (222) 34,734
Infrastructure 90,527 4,273 (1,006) 93,794
Total capital assets, being depreciated 143,533 6,493 (1,228) 148,798
Less accumulated depreciation for:
Structures and improvements (9,414) (540) - (9,954)
Equipment and furnishings (21,520) (1,009) 222 (22,307)
Infrastructure (37,754) (2,757) 962 (39,549)
Total accumulated depreciation (68,688) (4,306) 1,184 (71,810)
Total capital assets, being depreciated, net 74,845 2,187 (44) 76,988
Capital assets, not being depreciated:
Land 1,266 21 - 1,287
Total capital assets, not being depreciated 1,266 21 - 1,287
Capital assets, net $ 76,111 $ 2,208 $ (44) $ 78,275
79
9. Deferred Outflows of Resources
Deferred outflows of resources represent the consumption of net position by the
Department that is applicable to future reporting periods. Deferred outflows of
resources have a positive effect on net position, similar to assets. Deferred
outflows of resources related to pensions and OPEB, in accordance with GASB
Statements No. 68 and 75, are more fully discussed in the corresponding pension
and OPEB notes.
10. Accounts Payable
Accounts payable represent fiscal 2018 expenses that were paid after June 30,
2018.
11. Accrued Liabilities
Accrued liabilities consist of the following at June 30, 2018:
Accrued payroll $ 164,776
Accrued sales tax 248,952
Other 6,699
Total $ 420,427
12. Customer Deposits
This balance represents deposits received from customers that are held in escrow.
13. Customer Advances for Construction
This balance represents deposits received from vendors in advance for work
to be performed by the Department. The Department recognizes these deposits
as revenue after the work has been completed.
14. Accrued Employee Compensated Absences
Department employees are granted sick leave in varying amounts. Upon retire-
ment, normal termination, or death, employees are compensated for unused
sick leave (subject to certain limitations) at their then current rates of pay.
80
15. Long-Term Debt
Changes in General Long-Term Obligations
During the year ended June 30, 2018, the following changes occurred in long-
term obligations (in thousands):
Equals
Total Total Less Long-Term
Balance Balance Current Portion
7/1/17 Additions Reductions 6/30/18 Portion 6/30/18
Business-Type Activities
Net pension liability $ 13,076 $ - $ (2,294) $ 10,782 $ - $ 10,782
Net OPEB liability 138 7,020 - 7,158 - 7,158
Other:
Compensated absences 3,150 44 - 3,194 (499) 2,695
Subtotal -other 3,150 44 - 3,194 (499) 2,695
Totals $ 16,364 $ 7,064 $ (2,294) $ 21,134 $ (499) $ 20,635
16. Deferred Inflows of Resources
Deferred inflows of resources are the acquisition of net position by the Department
that are applicable to future reporting periods. Deferred inflows of resources have
a negative effect on net position, similar to liabilities. Deferred inflows of resources
related to pension will be recognized as expense in future years and is more
fully described in the corresponding pension note.
17. Reading Contributory Retirement System
The Department follows the provisions of GASB Statement No. 68, Accounting
and Financial Reporting for Pensions — An Amendment of GASB Statement
No. 27, with respect to the employees' retirement funds.
A. Plan Description
Substantially all employees of the Department are members of the Town of
Reading Contributory Retirement System (the System), a cost-sharing, multiple-
employer public employee retirement system (PERS). Eligible employees
must participate in the System. The pension plan provides pension benefits,
deferred allowances, and death and disability benefits. Chapter 32 of the
Massachusetts General Laws establishes the authority of the System, as well
as contribution percentages and benefits paid. The System Retirement Board
does not have the authority to amend benefit provisions. Additional infor-
mation is disclosed in the System's annual financial reports, which are publicly
available from the System's administrative offices located at Reading Town
Hall, 16 Lowell Street, Reading, Massachusetts, 01867.
81
Participant Retirement Benefits
The System provides for retirement allowance benefits up to a maximum of
80% of a member's highest 3-year average annual rate of regular com-
pensation for those hired prior to April 2, 2012 and the highest five-year
average annual rate of regular compensation for those first becoming mem-
bers of the Massachusetts System on or after that date. However, per
Chapter 176 of the Acts of 2011, for members who retire on or after April 2,
2012, if in the 5 years of creditable service immediately preceding retire-
ment, the difference in the annual rate of regular compensation between
any 2 consecutive years exceeds 100 percent, the normal yearly amount of
the retirement allowance shall be based on the average annual rate of
regular compensation received by the member during the period of 5 con-
secutive years preceding retirement. Benefit payments are based upon a
member's age, length of creditable service, level of compensation and group
classification.
If a participant was a member prior to February 2012, a retirement allow-
ance may be received at any age, upon attaining 20 years of service. The
plan also provides for retirement at age 55 if the participant was a member
prior to January 1, 1978, with no minimum vesting requirements. If the par-
ticipant was a member on or after January 1, 1978 and a member of Groups 1
or 2, then a retirement allowance may be received if the participant (1) has
at least 10 years of creditable service, (2) is age 55, (3) voluntarily left Depart-
ment employment on or after that date, and (4) left accumulated annuity
deductions in the fund. Members of Group 4 have no minimum vesting require-
ments, however, must be at least age 55. Groups 2 and 4 require that par-
ticipants perform the duties of the Group position for at least 12 months
immediately prior to retirement.
A participant who became a member on or after April 2, 2012 is eligible for a
retirement allowance upon 10 years creditable service and reaching ages 60
or 55 for Groups 1 and 2, respectively. Participants in Group 4 must be at least
age 55. Groups 2 and 4 require that participants perform the duties of the
Group position for at least 12 months immediately prior to retirement.
A retirement allowance consists of two parts: an annuity and a pension. A
member's accumulated total deductions and a portion of the interest they
generate constitute the annuity. The difference between the total retirement
allowance and the annuity is the pension. The average retirement benefit is
approximately 80-85% pension and 15-20% annuity.
Participant Refunds
Employees who resign from service and who are not eligible to receive a
retirement allowance are entitled to request a refund of their accumulated
total deductions. Members voluntarily withdrawing with at least 10 years of
service or involuntarily withdrawing, receive 100% of the regular interest that
82
has accrued on those accumulated total deductions. Members voluntarily with-
drawing with less than 10 years of service get credited interest each year at
a rate of 3%.
Participants Contributions
Participants contribute a set percentage of their gross regular compensation
annually. Employee contribution percentages are specified in Chapter 32 of
the Massachusetts General Laws. The employee's individual contribution
percentage is determined by their date of entry into the system. In addition,
all employees hired after January 1, 1979 contribute an additional 2% on all
gross regular compensation over the rate of$30,000 per year. The percent-
ages are as follows:
Before January 1 , 1975 5%
January 1, 1975 - December 31, 1983 7%
January 1, 1984 - June 30, 1996 8%
Beginning July 1, 1996 9%
For those members entering a Massachusetts System on or after April 2,
2012 in Group 1, the contribution rate will be reduced to 6% when at least
30 years of creditable service has been attained.
Employer Contributions
Employers are required to contribute at actuarially determined rates as accepted
by the Public Employee Retirement Administration Commission (PERAC).
The Department's contribution to the System for the year ended June 30, 2018
was $1,650,416 which was equal to its annual required contribution.
B. Summary of Significant Accountinq Policies
For purposes of measuring the net pension liability, deferred outflows of
resources and deferred inflows of resources related to pensions, and pen-
sion expense, information about the fiduciary net position of the System and
additions to/deductions from System's fiduciary net position have been deter-
mined on the same basis as they are reported by System. For this purpose,
benefit payments (including refunds of employee contributions)are recognized
when due and payable in accordance with benefit terms. Investments are
reported at fair value.
C. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources
and Deferred Inflows of Resources Related to Pensions
At June 30, 2018, the Department reported a liability of $10,781,819 for its
proportionate share of the System's net pension liability. The net pension
83
liability was measured as of December 31, 2017, and the total pension lia-
bility used to calculate the net pension liability was determined by an actuarial
valuation as of January 1, 2017 rolled forward to December 31, 2017. The
Department's proportion of the net pension liability was based on an actuari-
ally determined projection of the Department's long-term share of contribu-
tions to the pension plan relative to the projected contributions of all par-
ticipating employers. At December 31, 2017, the Department's proportion
was 29.15%.
For the year ended June 30, 2018, the Department recognized pension
expense of $1,533,131. In addition, the Department reported deferred out-
flows of resources and deferred inflows of resources related to pensions
from the following sources:
Deferred Deferred
Outflows of Inflows of
Resources Resources
Net differences between expected and actual
experience $ 1,465,091 $ 518,485
Changes of assumptions 1,721,957 -
Net difference between projected and actual
investment earnings on pension plan - 1,587,075
Changes in proportion and differences
between employer contributions and
proportionate share of contributions 161,284 -
Total $ 3,348,332 $ 2,105,560
Amounts reported as deferred outflows of resources and deferred inflows of
resources related to pensions will be recognized in pension expense as
follows:
Year ended June 30:
2019 $ 690,475
2020 678,142
2021 9,861
2022 (337,787)
2023 202,081
Total $ 1,242,772
D. Actuarial Assumptions
The total pension liability was determined by an actuarial valuation as of
January 1, 2017, rolled forward to the measurement date of December 31,
84
2017 using the following actuarial assumptions, applied to all periods included
in the measurement:
Valuation Date January 1, 2017
Actuarial Cost Method Entry Age Normal Cost Method
Actuarial Assumptions:
Investment rate of return 7.65%, net of pension plan investment expense,
including inflation
Projected salary increases 4.25%-6.00%for Group 1 and 4.75%-7.00%for
Group 4
Inflation rate 3.00%Annually
Post-retirement cost-of-living 3.00% of first$12,000
adjustment
Mortality rates were based on the RP-2014 Mortality Table with fully genera-
tional mortality improvement using Scale MP-2014. For disabled lives, the mor-
tality rates were based on the RP-2014 Disabled Mortality Table.
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 December 31, 2017 are summarized in
the following table:
Long-term
Target Expected
Asset Rates
Asset Class Allocation of Return
Global Equity 40.00% 4.91%
Hedge Funds & Portfolio Completetion 13.00% 3.40%
Fixed Income 12.00% 0.71%
Private Equity 11.00% 6.50%
Value-Added Fixed Income 10.00% 3.64%
Real Estate 10.00% 3.70%
Timber/Natural Resources 4.00% 3.25%
Total 100.00%
85
E. Discount Rate
The discount rate used to measure the total pension liability was 7.65%. The
projection of cash flows used to determine the discount rate assumed that
the plan member contributions will be made at the current contribution rate
and that employer contributions will be made at contractually required rates,
actuarially determined. Based on those assumptions, the pension plan's fidu-
ciary net position was projected to be available to make all projected future
benefit payments to current active and inactive 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.
F. Sensitivity of the Proportionate Share of the Net Pension Liability to
Changes in the Discount Rate
The following table presents the Department's proportionate share of the net
pension liability (asset) calculated using the current discount rate of 7.65%,
as well as what the Department's proportionate share of the net pension
liability (asset) would be if it were calculated using a discount rate that is
1 percentage-point lower (6.65%) or 1 percentage-point higher (8.65°/x) than
the current rate:
Current
1% Discount 1%
Decrease Rate Increase
(6.65%) (7.65%) (8.65%)
$ 16,642,839 $ 10,781,819 $ 5,811,342
G. Pension Plan Fiduciary Net Position
Detailed information about the pension plan's fiduciary net position is avail-
able in the separately issued System financial report.
H. Town of Readinq Municipal Light Department Employees Retirement Trust
("Pension Trust')
The Department has established an irrevocable trust for the purpose of cur-
rently funding its annual required contribution to the Town of Reading Con-
tributory Retirement System (RCRS). Annual contributions to the trust are
actuarially determined to be the net normal cost for funding the Department's
liability for pension benefits for covered employees, and both the principal
and income of the trust is restricted for the exclusive benefit of Department
employees and their beneficiaries. This Pension Trust is included in the propri-
etary fund statements in the Department's basic financial statements.
As noted in the first paragraph of this section, the Department's proportionate
share of the RCRS net pension liability was determined by an actuarial
86
valuation as of January 1, 2017 rolled forward to December 31, 2017. How-
ever, the actuarial valuation does not take into account the fiduciary net
position of the Department's Pension Trust at December 31, 2017 (the meas-
urement date). As of December 31, 2017, the value of the pension trust was
$5,695,996.
18. Other Post-Employment Benefits (GASB 75)
GASB Statement No. 75, Accounting and Financial Reporting for Postemploy-
ment Benefits Other Than Pensions, replaces the requirements of Statement
No. 45, Accounting and Financial Reporting by Employers for Postemployment
Benefits Other Than Pensions. The Statement establishes standards for recog-
nizing and measuring liabilities, deferred outflows of resources, deferred inflows
of resources, and expense/expenditures. This Statement identifies the methods
and assumptions that are required to be used to project benefit payments, dis-
counted projected benefit payments to their actuarial present value, and attrib-
ute that present value to periods of employee service.
All the following OPEB disclosures are based on a measurement date of June 30,
2017.
A. General Information about the OPEB Plan
Plan Description
The Department provides post-employment healthcare benefits for retired
employees through the Department's plan. The Department provides health
insurance coverage through Blue Cross Blue Shield. The benefits, benefit
levels, employee contributions, and employer contributions are governed by
Chapter 32 of the Massachusetts General Laws.
Benefits Provided
The Department provides medical and prescription drug insurance to
retirees and their covered dependents.All active employees who retire from
the Department and meet the eligibility criteria will receive these benefits.
Plan Membership
At June 30, 2017, the following employees were covered by the benefit terms:
Inactive employees or beneficiaries
currently receiving benefit payments 91
Active employees 87
Total 178
87
B. Actuarial Assumptions and Other Inputs
The net OPEB liability was determined by an actuarial valuation as of June 30,
2017, using the following actuarial assumptions, applied to all periods included
in the measurement, unless otherwise specified:
Inflation 2.50%
Salary increases 6.0% decreasing to 4.25% based on service for Group 1
and Group 2 7.0% decreasing to 4.75% based on service
for Group 4
7.5% decreasing to 4.00% based on service for Teachers
Investment rate of return 7.50%
Discount rate 7.50%
Healthcare cost trend rates Medical/Prescription Drug: 7.0% decreasing by 0.5%for
5 years to an ultimate level of 4.5% per year.
Contributions: Retiree contributions are expected to
increase with medical trend.
Mortality rates were based on:
• Pre-Retirement: RP-2014 Healthy Employee Table projected gener-
ationally with Scale MP-2014
• Healthy: RP-2014 Healthy Annuitant Mortality Table projected gener-
ationally with Scale MP-2014
• Disabled: RP-2014 Disabled Retiree Table projected generationally
with Scale MP-2014
The actuarial assumptions used in the valuation were based on the results
of an actuarial experience study as of June 30, 2017.
The long-term expected rate of return on OPEB plan investments was deter-
mined using a building-block method in which best-estimate ranges of expected
future real rates of return (expected returns, net of investment expense and
inflation) are developed for each major asset class. These ranges are com-
bined 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 target asset allocation as
of June 30, 2017 are summarized in the following table.
88
Target Long-term
Asset Expected Real
Asset Class Allocation Rate of Return
Domestic equity 18.00% 6.44%
International developed markets equity 16.00% 7.40%
International emerging markets equity 6.00% 9.42%
Core fixed income 12.00% 2.02%
High yield fixed income 10.00% 4.43%
Real estate 10.00% 5.00%
Commodities 4.00% 4.43%
Hedge fund, GTAA, risk parity 13.00% 3.75%
Private equity 11.00% 10.47%
Total 100.00%
C. Discount Rate
The discount rate used to measure the net OPEB liability was 7.50%. The pro-
jection of cash flows used to determine the discount rate assumed that contri-
butions from plan members will be made at the current contribution rate.
Based on those assumptions, the OPEB plan fiduciary net position was
projected to be available to make all projected future benefit payments of cur-
rent plan members.
D. Net OPEB Liabilitv
The components of the net OPEB liability, measured as of June 30, 2017,
were as follows:
Total OPEB liability $ 10,015,425
Plan fiduciary net position 2,857,072
Net OPEB liability $ 7,158,353
E. Changes in the Net OPEB Liabilitv
Increase (Decrease)
Plan
Total OPEB Fiduciary Net OPEB
Liability Net Position Liability
(a) (b) a - b
Balances at 6/30/16 $ 9,556,217 $ 2,525,842 $ 7,030,375
Changes for the year:
Service cost 245,842 - 245,842
Interest 698,939 - 698,939
Contributions-employer - 794,319 (794,319)
Net investment income - 22,484 (22,484)
Benefit payments (485,573) (485,573) -
Net Changes 459,208 331,230 127,978
Balances at 6/30/17 $ 10,015,425 $ 2,857,072 $ 7,158,353
89
F. Sensitivity of the Net OPEB Liability to Changes in the Discount Rate
The following presents the net OPEB liability, as well as what the net OPEB
liability would be if it were calculated using a discount rate that is one
percentage-point lower or one percentage-point higher than the current dis-
count rate:
Current
1% Discount 1%
Decrease Rate Increase
$ 8,129,189 $ 7,158,353 $ 6,350,695
G. Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend
Rates
The following presents the net OPEB liability, as well as what the net OPEB
liability would be if it were calculated using healthcare cost trend rates that
are one percentage-point lower or one percentage-point higher than the
current healthcare cost trend rates:
Current
Healthcare
1% Cost Trend 1%
Decrease Rates Increase
$ 6,277,032 $ 7,158,353 $ 8,113,465
H. OPEB Expense and Deferred Outflows of Resources and Deferred Inflows
of Resources Related to OPEB
For the year ended June 30, 2018, the Department recognized an OPEB
expense of $896,790. At June 30, 2018, the Department reported deferred
outflows of resources related to OPEB from the following sources:
Deferred
Outflows of
Resources
Contributions subsequent to the
measurement date $ 607,125
Net difference between projected and
actual OPEB investment earnings 142,826
Total $ 749,951
The $648,615 reported as deferred outflows of resources related to OPEB
resulting from contributions subsequent to the measurement date and before
the end of the fiscal year will be included as a reduction of the net OPEB
liability in the year ended June 30, 2019.
90
Other amounts reported as deferred outflows of resources related to OPEB
will be recognized in OPEB expense as follows:
Year Ended June 30:
2019 $ 35,706
2020 35,706
2021 35,707
2022 35,707
Total $ 142,826
19. Other Post-Employment Benefits (GASB 74)
GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans
Other Than Pension Plans (OPEB), replaces the requirements of Statement
No. 43, Financial Reporting for Postemployment Benefit Plans Other Than
Pension Plans. This applies if a trust fund has been established to fund future
OPEB costs. In fiscal year 2010, the Department established an OPEB Trust Fund
to provide funding for future employee health care costs.
All the following OPEB disclosures are based on a measurement date of June 30,
2018.
A. Investments
The OPEB trust fund assets consist of equities, fixed income, real estate,
and alternatives. (specify)
Rate of return. For the year ended June 30, 2018, the annual money-weighted
rate of return on investments, net of investment expense, was not available.
The money-weighted rate of return expresses investment performance, net
of investment expense, adjusted for the changing amounts actually invested.
B. Actuarial Assumptions and Other Inputs
The total OPEB liability was determined by an actuarial valuation as of
June 30, 2017, using the following actuarial assumptions, applied to all periods
included in the measurement, unless otherwise specified:
Inflation 2.50%
Salary increases 6.0% decreasign to 4.25% based on service
Investment rate of return 7.50%, net of OPEB plan investment expense
Discount rate 7.50%
Healthcare cost trend rates 7.0% for 2018, fluctuating 0.5%, to an ultimate
rate of 4.5% as of 2023 and later years
91
Mortality rates were based on RP-2014 Healthy Employee Mortality Table
projected generationally with Scale MP-2014 for pre-retirement. RP-2014
Healthy Annuitant Mortality Table projected generationally with Scale MP-
2014 for healthy and RP-2014 Disabled Retiree Table projected generationally
with Scale MP-2014 for disabled individuals.
The long-term expected rate of return on OPEB plan investments was deter-
mined using a building-block method in which best-estimate ranges of expected
future real rates of return (expected returns, net of investment expense and
inflation) are developed for each major asset class. These ranges are com-
bined 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 target asset allocation as
of June 30, 2018 are summarized in the following table.
Target Long-term
Asset Expected Real
Asset Class Allocation Rate of Return
Domestric equity 17.50% 6.15%
International developed markets equity 15.50% 7.11%
International emerging markets equity 6.00% 9.41%
Core fixed income 12.00% 1.68%
High-ield fixed income 10.00% 4.13%
Real estate 10.00% 4.90%
Commodities 4.00% 4.71%
Hedge fund, GTAA, risk parity 13.00% 3.94%
Private equity 12.00% 10.28%
Total 100.00%
C. Discount Rate
The discount rate used to measure the total OPEB liability was 7.50%. The
projection of cash flows used to determine the discount rate assumed that
contributions from plan members will be made at the current contribution rate.
Based on those assumptions, the OPEB plan fiduciary net position was pro-
jected to be available to make all projected future benefit payments of cur-
rent plan members. As a result, the discount rate and the investment rate of
return are the same.
92
D. Net OPEB Liability
The components of the net OPEB liability, measured as of June 30, 2018,
were as follows:
Total OPEB liability $ 10,477,535
Plan fiduciary net position 3,519,714
Net OPEB liability $ 6,957,821
Plan fiduciary net position as a
percentage of the total OPEB liability 33.59%
E. Sensitivity of the Net OPEB Liability to Changes in the Discount Rate
The following presents the net OPEB liability, as well as what the net OPEB
liability would be if it were calculated using a discount rate that is one
percentage-point lower or one percentage-point higher than the current dis-
count rate:
Current
1% Discount 1%
Decrease Rate Increase
$ 8,156,713 $ 6,957,821 $ 5,952,284
F. Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend
Rates
The following presents the net OPEB liability, as well as what the net OPEB
liability would be if it were calculated using healthcare cost trend rates that
are one percentage-point lower or one percentage-point higher than the
current healthcare cost trend rates:
Current
Healthcare
1% Cost Trend 1%
Decrease Rates Increase
$ 5,794,302 $ 6,957,821 $ 8,202,679
20. Participation in Massachusetts Municipal Wholesale Electric
Company
The Town of Reading, acting through its Light Department, is a Participant in
certain Projects of the Massachusetts Municipal Wholesale Electric Company
(MMWEC).
93
MMWEC is a public corporation and a political subdivision of the Common-
wealth of Massachusetts, created as a means to develop a bulk power supply
for its Members and other utilities. MMWEC is authorized to construct, own, or
purchase ownership interests in, and to issue revenue bonds to finance, electric
facilities (Projects). MMWEC has acquired ownership interests in electric facili-
ties operated by other entities and also owns and operates its own electric
facilities. MMWEC sells all of the capability (Project Capability) of each of its
Projects to its Members and other utilities (Project Participants) under Power
Sales Agreements (PSAs). Among other things, the PSAs require each Project
Participant to pay its pro rata share of MMWEC's costs related to the Project,
which costs include debt service on the revenue bonds issued by MMWEC to
finance the Project, plus 10% of MMWEC's debt service to be paid into a Reserve
and Contingency Fund. In addition, should a Project Participant fail to make any
payment when due, other Project Participants of that Project may be required
to increase (step-up)their payments and correspondingly their Participant's share
of that Project's Project Capability to an additional amount not to exceed 25%
of their original Participant's share of that Project's Project Capability. Project
Participants have covenanted to fix, revise, and collect rates at least sufficient
to meet their obligations under the PSAs.
MMWEC has issued separate issues of revenue bonds for each of its eight
Projects, which are payable solely from, and secured solely by, the revenues
derived from the Project to which the bonds relate, plus available funds pledged
under MMWEC's Amended and Restated General Bond Resolution (GBR)with
respect to the bonds of that Project. The MMWEC revenues derived from each
Project are used solely to provide for the payment of the bonds of any bond
issue relating to such Project and to pay MMWEC's cost of owning and
operating such Project and are not used to provide for the payment of the bonds
of any bond issue relating to any other Project.
MMWEC operates the Stony Brook Intermediate Project and the Stony Brook
Peaking Project, both fossil-fueled power plants. MMWEC has a 3.7% interest
in the W.F. Wyman Unit No. 4 plant, which is operated and owned by its majority
owner, FPL Energy Wyman IV, LLC, a subsidiary of NextEra Energy Resources
LLC, and a 4.8% ownership interest in the Millstone Unit 3 nuclear unit, oper-
ated by Dominion Nuclear Connecticut, Inc. (DNCI), the majority owner and an
indirect subsidiary of Dominion Resources, Inc. DNCI also owns and operates
the Millstone Unit 2 nuclear unit. The operating license for the Millstone Unit 3
nuclear unit extends to November 25, 2045.
A substantial portion of MMWEC's plant investment and financing program is
an 11.6% ownership interest in the Seabrook Station nuclear generating unit
operated by NextEra Energy Seabrook, LLC (NextEra Seabrook) the majority
owner and an indirect subsidiary of NextEra Energy Resources LLC. The operat-
ing license for Seabrook Station extends to March 15, 2030. NextEra Seabrook
has submitted an application to extend the Seabrook Station operating license for
an additional 20 years.
94
Pursuant to the PSAs, the MMWEC Seabrook and Millstone Project Participants
are liable for their proportionate share of the costs associated with decommission-
ing the plants, which costs are being funded through monthly Project billings.
Also, the Project Participants are liable for their proportionate share of the unin-
sured costs of a nuclear incident that might be imposed under the Price-
Anderson Act (Act). Originally enacted in 1957, the Act has been renewed several
times. In July 2005, as part of the Energy Policy Act of 2005, Congress extended
the Act until the end of 2025.
The Reading Municipal Light Department has entered into PSAs and Power
Purchase Agreements (PPAs) with MMWEC. Under both the PSAs and PPAs,
the Department is required to make certain payments to MMWEC payable solely
from Department revenues. Under the PSAs, each Participant is uncondition-
ally obligated to make payments due to MMWEC whether or not the Project(s)
is completed or operating and notwithstanding the suspension or interruption
of the output of the Project(s).
MMWEC is involved in various legal actions. In the opinion of management, the
outcome of such litigation or claims will not have a material adverse effect on
the financial position of the company.
After the July 1, 2018 principal payment, total capital expenditures amounted
to $1,499,468,000, of which $127,174,000 represents the amount associated
with the Department's Project Capability. MMWEC's debt outstanding for the
Projects from Power Supply System Revenue Bonds totals $10,680,000, of which
$182,000 is associated with the Department's share of Project Capability. After
the July 1, 2018 principal payment, MMWEC's total future debt service require-
ment on outstanding bonds issued for the Projects is $7,959,000, none of which
is anticipated to be billed to the Department in the future.
The Department has no required payments under the PSAs and PPAs.
In addition, under the PSAs, the Department is required to pay to MMWEC its
share of the Operation and Maintenance (O& M) costs of the Projects in which
it participates. The Department's total O& M costs including debt service under
the PSAs were $8,578,000 and $9,548,000 for the years ended June 30, 2018
and 2017, respectively.
21. Renewable Energy Certificates
In 2003, the Massachusetts Department of Energy and Environmental Affairs
adopted the Massachusetts Renewable Energy Portfolio Standard (RPS), a
regulation that requires Investor Owned Utilities (IOUs) to purchase mandated
amounts of energy generated by renewable resources (Green Energy) as a
percentage of their overall electricity sales. The Massachusetts RPS applies
only to IOUs, so the Department is currently exempt from this mandate.
95
Energy suppliers meet their annual RPS obligations by acquiring a sufficient
quantity of RPS-qualified renewable energy certificates (RECs) that are created
and recorded at the New England Power Pool (NEPOOL) Generation Infor-
mation System (GIS). Suppliers can purchase RECs from electricity generators
or from other utilities that have acquired RECs.
As part of its ongoing commitment to Green Energy, the Department has
entered into Purchase Power Agreements (PPAs) with Swift River Hydro LLC
and Concord Steam Corporation to purchase power generated from renewable
energy resources. These PPAs include the Department taking title to RECs,
which certify that the energy produced was the product of a renewable resource.
Because the Department is exempt from the RPS provisions, it has the option
of holding these RECs until they expire or selling them through the NEPOOL GIS.
Information regarding the Department's fiscal year 2018 REC activity and bal-
ances is as follows:
REC Sales During Fiscal 2018
Unit
Certificates Price Amount
CT Class 1 6,756 $ 12.75 $ 86,139
CT Class 1 1,875 $ 2.00 3,750
MA Class 1 1,939 $ 12.75 24,722
MA Class 1 4,503 $ 2.00 9,006
MA Class II 4,085 $ 25.00 102,125
MA Class 11 616 $ 25.00 15,400
NH/MA/CT/RI Class 1 8,286 $ 12.75 105,647
NH/MA/CT/RI Class 1 6,655 $ 2.00 13,310
NH/MA/RI Class 1 3,973 $ 12.75 50,656
Total 38,688 $ 410,7550)
(1) Sale proceeds netted against fiscal year 2018 purchased power fuel charge
REC Holdings at June 30, 2018
Banked Projected Total Estimated
Certificates Certificates Certificates Value
CT Class 1 6,888 8,631 15,519 $ 106,764
MA Class I & 11 6,837 6,995 13,832 153,626
MA/RVNH 1 5,279 14,942 20,221 79,185
MA/CT/RVNH 1 10,507 8,121 18,628 162,859
Total 29,511 38,689 68,200 $ 502,434
96
A banked REC is a REC that has been processed by the NEPOOL GIS Coor-
dinator and is in the Department's GIS account. A projected REC is the Depart-
ment's estimate of what will be received based on invoices generated by REC-
producing projects that the Department has entitlements to.
Because there is no formal accounting guidance under GAAP or IFRS for
RECs and the Department does not have a formal policy for the future
disposition of RECs, the estimated fair value of the Department's REC holdings
at June 30, 2018 are not recognized as an asset on the proprietary fund
Statements of Net Position.
22. Leases
Related Party Transaction - Property Sub-Lease
The Department is the lessor of facilities that are currently sub-leased to the
Reading Town Employees Federal Credit Union. The original sub-lease agree-
ment commenced in December 2000 and was extended by various amend-
ments through November 30, 2018. Following is the future minimum rental income
to be received by the Department under the terms of this lease for the year
ending June 30:
2019 $ 4,084
Total $ 4,084
Operating Lease - Warehouse
The Department is the lessee of a warehouse facility owned by JCM Real Estate
Trust. The original lease agreement for this facility commenced in December 1998
and was extended by various amendments through May 31, 2016. Under the
terms of the most recent lease amendment, the Department has exercised the
option to extend the lease for an additional 24 months until May 31, 2020.
Following is the future minimum rental expense to be paid by the Department for
the year ending June 30:
2019 $ 147,902
Total $ 147,902
23. Commitments and Contingencies
Outstanding Legal Issues - On an ongoing basis, there are typically pending legal
issues in which the Department is involved. The Department's management is
of the opinion that the potential future settlement of these issues would not
materially affect its financial statements taken as a whole.
97
24. Beginning Net Position Restatement and Reclassification
In fiscal year 2018, the Department implemented GASB Statement No. 75,
Accounting and Financial Reporting for Postemployment Benefits other than
Pensions. As a result of the implementation, the beginning (July 1, 2017) net
position of the Department's proprietary fund has been restated as follows:
Business-Type Activities
Proprietary
Fund
As previously reported $ 109,368,059
Implementation of GASB 75 OPEB (6,723,225)
As restated $ 102,644,834
98
TOWN OF READING,MASSACHUSETTS
SCHEDULE OF PROPORTIONATE SHARE
OF THE NET PENSION LIABILITY(GASB 68)
REQUIRED SUPPLEMENTARY INFORMATION
JUNE 30,2018
(Unaudited)
Reading Contributory Retirement System
Proportion Proportionate
of the Share of the Proportionate Share of the Plan Fiduciary Net Position
Fiscal Measurement Net Pension Net Pension Covered Net Pension Liability as a Percentage of the Total
Year Date Liabili Liabili Payroll Percentage of Covered Payroll Pension Liability
June 30,2018 December 31,2017 99.13% $ 36,665,359 $ 24,761,758 148.07% 79.32%
June 30,2017 December 31,2016 99.13% $ 44,468,467 $ 23,499,057 189.24% 73.43%
June 30,2016 December 31,2015 99.28% $ 41,172,508 $ 22,534,225 182.71% 72.17%
June 30,2015 December 31,2014 99.28% $ 25,805,701 $ 19,399,338 143.26% 79.89%
Massachusetts Teachers'Retirement System
Commonwealth of Total Net Proportionate
Massachusetts'Total Pension Share of the Plan Fiduciary
Proportion Proportionate Proportionate Share Liability Net Pension Net Position
of the Share of the of the Net Pension Associated Liability as a Percentage of
Fiscal Measurement Net Pension Net Pension Liability Associated with the Covered Percentage of the Total
Year Date Liabili Liability with the Town Town Payroll Covered Payroll Pension Liability
June 30,2018 June 30,2017 0.451014% $ $ 103,216,357 $ 103,216,357 $ 30,625,961 54.25%
June 30,2017 June 30,2016 0.440417% $ $ 98,468,028 $ 98,468,028 $ 28,969,111 52.73%
June 30,2016 June 30,2015 0.439137% $ $ 89,977,515 $ 89,977,515 $ 27,836,403 55.38%
June 30,2015 June 30,2014 0.425154% $ $ 67,583,938 $ 67,583,938 $ 26,068,000 61.64%
Schedules are intended to show information for 10 years. Additional years will be displayed as they become available
See Independent Auditors'Report.
99
TOWN OF READING, MASSACHUSETTS
SCHEDULE OF PENSION CONTRIBUTIONS(GASB 68)
REQUIRED SUPPLEMENTARY INFORMATION
JUNE 30,2018
(Unaudited)
Reading Contributory Retirement System
Contributions in
Relation to the
Contractually Contractually Contribution Contributions as
Fiscal Measurement Required Required Deficiency Covered a Percentage of
Year Date Contribution Contribution Excess Payroll Covered Payroll
June 30, 2018 December 31, 2017 $ 5,612,453 $ 5,612,453 - $ 24,761,758 22.67%
June 30, 2017 December 31, 2016 $ 5,370,991 $ 5,370,991 - $ 23,499,057 22.86%
June 30, 2016 December 31, 2015 $ 5,147,236 $ 5,147,236 - $ 22,534,225 22.84%
June 30, 2015 December 31, 2014 $ 4,925,586 $ 4,925,586 - $ 20,764,089 23.72%
Massachusetts Teachers'Retirement System
Contractually Contributions in
Required Relation to the
Contribution Contractually Contribution Contributions as
Fiscal Measurement Provided by Required Deficiency Covered a Percentage of
Year Date Commonwealth Contribution Excess Payroll Covered Payroll
June 30, 2018 June 30, 2017 $ 5,572,348 $ 5,572,348 $ - $ 30,625,961 18.19%
June 30, 2017 June 30, 2016 $ 4,952,850 $ 4,952,850 $ - $ 28,969,111 17.10%
June 30, 2016 June 30, 2015 $ 4,487,668 $ 4,487,668 $ - $ 27,836,403 16.12%
June 30, 2015 June 30, 2014 $ 3,985,303 $ 3,985,303 $ - $ 26,068,000 15.29%
Schedules are intended to show information for 10 years. Additional years will be displayed as they become available.
See Independent Auditors' Report.
100
TOWN OF READING, MASSACHUSETTS
OTHER POST-EMPLOYMENT BENEFITS (OPEB)
SCHEDULES OF CHANGES IN THE NET OPEB LIABILITY(GASB 74 and 75)
(Unaudited)
2018 2017
Total OPEB liability
Service cost $ 1,952,551 $ 1,891,090
Interest on unfunded liability-time value of money 5,655,809 5,376,453
Benefit payments, including refunds of member contributions (3,736,969) (3,476,250)
Net change in total OPEB liability 3,871,391 3,791,293
Total OPEB liability-beginning 75,292,954 71,501,661
Total OPEB liability-ending (a) 79,164,345 75,292,954
Plan fiduciary net position
Contributions-employer 4,920,094 4,360,996
Net investment income 103,828 50,000
Benefit payments, including refunds of member contributions (3,736,969) (3,476,250)
Net change in plan fiduciary net position 1,286,953 934,746
Plan fiduciary net position- beginning 6,478,298 5,543,552
Plan fiduciary net position -ending (b) 7,765,251 6,478,298
Net OPEB liability(asset) -ending (a-b) $ 71,399,094 $ 68,814,656
Schedule is intended to show information for 10 years.Additional years will be displayed as they become
available.
See notes to the Town's financial statements for summary of significant actuarial methods and
assumptions.
See Independent Auditors' Report.
101
TOWN OF READING, MASSACHUSETTS
OTHER POST-EMPLOYMENT BENEFITS(OPEB)
SCHEDULES OF NET OPEB LIABILITY,CONTRIBUTIONS,AND INVESTMENT RETURNS(GASB 74 and 75)
(Unaudited)
Schedule of Net OPEB Liability
2018 2017
Total OPEB liability $ 79,164,345 $ 75,292,954
Plan fiduciary net position (7,765,251) (6,478,298)
Net OPEB liability $ 71,399,094 $ 68,814,656
Plan fiduciary net position as a percentage of the total OPEB liability 9.81% 8.60%
Schedule of Contributions
2018 2017
Actuarially determined contribution $ 6,839,422 $ 6,479,523
Contributions in relation to the actuarially determined contribution (4,920,094) (4,360,996)
Contribution deficiency $ 1,919,328 $ 2,118,527
Schedule of Investment Returns
2018 2017
Annual money weighted rate of return, net of investment expense unavailable unavailable
Schedules are intended to show information for 10 years.Additional years will be displayed as they
become available.
See notes to Town's financial statements for summary of significant actuarial methods and
assumptions.
See Independent Auditors' Report.
102
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103
TOWN OF READING, MASSACHUSETTS
COMBINING BALANCE SHEET
NONMAJOR GOVERNMENTAL FUNDS
JUNE 30, 2018
Special Revenue Funds
Federal State Revolving
Grants Grants Funds
Assets
Cash and short-term investments $ 115,651 $ 749,103 $ 4,196,294
Investments - - -
Receivables:
Departmental and other - - 207,068
Intergovernmental 80,097 465,201 -
Total Assets $ 195,748 $ 1,214,304 $ 4,403,362
Liabilities
Warrants payable $ 38,555 $ 197,748 $ 92,479
Accrued liabilities 124,496 - 31,516
Unearned revenue - - 339,225
Notes payable - - -
Total Liabilities 163,051 197,748 463,220
Fund Balances
Nonspendable - - -
Restricted 39,744 1,024,836 3,942,538
Unassigned (7,047) (8,280) (2,396)
Total Fund Balance 32,697 1,016,556 3,940,142
Total Liabilities and Fund Balance $ 195,748 $ 1,214,304 $ 4,403,362
See Independent Auditors' Report.
104
Special Revenue Funds
Receipts Gifts and
Reserved Donations Subtotals
$ 1,160,654 $ 1,246,463 $ 7,468,165
207,068
- - 545,298
$ 1,160,654 $ 1,246,463 $ 8,220,531
$ - $ 24,839 $ 353,621
- 156,012
339,225
24,839 848,858
1,160,654 1,221,624 7,389,396
- - (17,723)
1,160,654 1,221,624 7,371,673
$ 1,160,654 $ 1,246,463 $ 8,220,531
(continued)
105
TOWN OF READING, MASSACHUSETTS
COMBINING BALANCE SHEET
NONMAJOR GOVERNMENTAL FUNDS
JUNE 30, 2018
(continued)
Capital Project Funds
Town School
Capital Capital
Project Funds Project Funds Subtotals
Assets
Cash and short-term investments $ 827,760 $ 1,339,079 $ 2,166,839
Investments - - -
Receivables:
Departmental and other - - -
Intergovernmental - - -
Total Assets $ 827,760 $ 1,339,079 $ 2,166,839
Liabilities
Warrants payable $ 36,741 $ - $ 36,741
Accrued liabilities - - -
Unearned revenue - - -
Notes payable - 1,490,000 1,490,000
Total Liabilities 36,741 1,490,000 1,526,741
Fund Balances
Nonspendable - - -
Restricted 791,019 - 791,019
Unassigned - (150,921) (150,921)
Total Fund Balance 791,019 (150,921) 640,098
Total Liabilities and Fund Balance $ 827,760 $ 1,339,079 $ 2,166,839
See Independent Auditors' Report.
106
Permanent Funds
Total
Cemetary Other Nonmajor
Trust Trust Governmental
Funds Funds Subtotals Funds
$ 187,238 $ 28,082 $ 215,320 $ 9,850,324
4,672,441 685,785 5,358,226 5,358,226
- - - 207,068
- - - 545,298
$ 4,859,679 $ 713,867 $ 5,573,546 $ 15,960,916
$ - $ 601 $ 601 $ 390,963
- - 156,012
339,225
- - 1,490,000
601 601 2,376,200
2,892,328 272,165 3,164,493 3,164,493
1,967,351 441,101 2,408,452 10,588,867
- - - (168,644)
4,859,679 713,266 5,572,945 13,584,716
$ 4,859,679 $ 713,867 $ 5,573,546 $ 15,960,916
107
TOWN OF READING, MASSACHUSETTS
COMBINING STATEMENT OF REVENUES, EXPENDITURES,
AND CHANGES IN FUND BALANCES
NONMAJOR GOVERNMENTAL FUNDS
FOR THE YEAR ENDED JUNE 30, 2018
Special Revenue Funds
Federal State Revolving
Grants Grants Funds
Revenues
Departmental $ - $ - $ 7,348,920
Intergovernmental 1,714,317 2,297,689 324,848
Investment income - - 596
Contributions - - -
Other - - 142,415
Total Revenues 1,714,317 2,297,689 7,816,779
Expenditures
Current:
General government - 24,119 221,298
Public safety 170,006 69,454 1,392,681
Education 1,400,735 1,612,600 5,186,071
Public works - 568,542 13,594
Health and human services 130,865 52,054 24,023
Culture and recreation - 44,600 644,619
Total Expenditures 1,701,606 2,371,369 7,482,286
Excess(deficiency)of revenues over
(under)expenditures 12,711 (73,680) 334,493
Other Financing Sources(Uses)
Transfers out - (243,338)
Change in fund balances 12,711 (73,680) 91,155
Fund Balances at beginning of year, as restated 19,986 1,090,236 3,848,987
Fund Balances at end of year $ 32,697 $ 1,016,556 $ 3,940,142
See Independent Auditors'Report.
108
Special Revenue Funds
Receipts Gifts and
Reserved Donations Subtotals
$ 43,072 $ - $ 7,391,992
- - 4,336,854
14,531 - 15,127
- 395,985 395,985
35,000 - 177,415
92,603 395,985 12,317,373
2,732 9,699 257,848
- 6,327 1,638,468
- 158,068 8,357,474
- - 582,136
- 14,019 220,961
- 72,684 761,903
2,732 260,797 11,818,790
89,871 135,188 498,583
(25,000) - (268,338)
64,871 135,188 230,245
1,095,783 1,086,436 7,141,428
$ 1,160,654 $ 1,221,624 $ 7,371,673
(continued)
109
TOWN OF READING, MASSACHUSETTS
COMBINING STATEMENT OF REVENUES, EXPENDITURES,
AND CHANGES IN FUND BALANCES
NONMAJOR GOVERNMENTAL FUNDS
FOR THE YEAR ENDED JUNE 30, 2018
(continued)
Capital Project Funds
Town School
Capital Capital
Project Funds Project Funds Subtotals
Revenues
Departmental $ - $ - $ -
Intergovernmental - 1,339,079 1,339,079
Investment income - - -
Contributions - - -
Other - - -
Total Revenues - 1,339,079 1,339,079
Expenditures
Current:
General government - - -
Public safety - - -
Education - - -
Public works 57,732 - 57,732
Health and human services - - -
Culture and recreation 42,636 - 42,636
Total Expenditures 100,368 - 100,368
Excess(deficiency)of revenues over
(under)expenditures (100,368) 1,339,079 1,238,711
Other Financing Sources(Uses)
Transfers out - - -
Change in fund balances (100,368) 1,339,079 1,238,711
Fund Balances at beginning of year, as restated 891,387 (1,490,000) (598,613)
Fund Balances at end of year $ 791,019 $ (150,921) $ 640,098
See Independent Auditors' Report.
110
Permanent Funds
Total
Cemetery Other Nonmajor
Trust Trust Governmental
Funds Funds Subtotals Funds
$ - $ - $ - $ 7,391,992
- - - 5,675,933
147,101 22,121 169,222 184,349
93,520 3,785 97,305 493,290
- - - 177,415
240,621 25,906 266,527 13,922,979
- - - 257,848
1,638,468
- - - 8,357,474
120,000 - 120,000 759,868
- 20,152 20,152 241,113
- - - 804,539
120,000 20,152 140,152 12,059,310
120,621 5,754 126,375 1,863,669
- - - (268,338)
120,621 5,754 126,375 1,595,331
4,739,058 707,512 5,446,570 11,989,385
$ 4,859,679 $ 713,266 $ 5,572,945 $ 13,584,716
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TOWN OF READING, MASSACHUSETTS
NONMAJOR PROPRIETARY FUNDS
COMBINING SCHEDULE OF NET POSITION
JUNE 30,2018
Business-Type Activities
Landfill Total
Closure and Stormwater Nonmajor
Postclosure Management Enterprise Funds
Assets
Current:
Cash and short-term investments $ 32,931 $ 1,218,788 $ 1,251,719
User fees, net of allowance for uncollectibles - 141,814 141,814
Total Current Assets 32,931 1,360,602 1,393,533
Noncurrent:
Capital assets being depreciated, net - 1,046,624 1,046,624
Capital assets not being depreciated - 179,232 179,232
Total Noncurrent Assets - 1,225,856 1,225,856
Deferred Outflows of Resources
Related to pensions - 20,227 20,227
Related to OPEB - 233 233
Total Assets and Deferred Outflows of Resources 32,931 2,606,918 2,639,849
Liabilities
Current:
Warrants payable - 25,192 25,192
Accrued liabilities - 55 55
Other current liabilities 32,931 - 32,931
Total Current Liabilities 32,931 25,247 58,178
Noncurrent:
Net pension liability - 68,429 68,429
Net OPEB obligation - 81,513 81,513
Total Noncurrent Liabilities - 149,942 149,942
Deferred Inflows of Resources
Related to pensions - 27,357 27,357
Total Liabilities and Deferred Inflows of Resources 32,931 202,546 235,477
Net Position
Net investment in capital assets - 1,046,624 1,046,624
Unrestricted - 1,357,748 1,357,748
Total Net Position $ - $ 2,404,372 $ 2,404,372
See Independent Auditors' Report.
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TOWN OF READING, MASSACHUSETTS
NONMAJOR PROPRIETARY FUNDS
COMBINING SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION
FOR THE YEAR ENDED JUNE 30, 2018
Business-Type Activities
Landfill Total
Closure and Stormwater Nonmajor
Postclosure Management Enterprise Funds
Operating Revenues
Charges for services $ - $ 434,175 $ 434,175
Total Operating Revenues - 434,175 434,175
Operating Expenses
Personnel expenses - 212,648 212,648
Non personnel expenses - 65,936 65,936
Depreciation - 61,401 61,401
Total Operating Expenses - 339,985 339,985
Operating income - 94,190 94,190
Nonoperating Revenues (Expenses)
Investment income - 15,085 15,085
Change in net position - 109,275 109,275
Net Position at Beginning of Year, as restated - 2,295,097 2,295,097
Net Position at End of Year $ - $ 2,404,372 $ 2,404,372
See Independent Auditors' Report.
113
TOWN OF READING, MASSACHUSETTS
NONMAJOR PROPRIETARY FUNDS
COMBINING SCHEDULE OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30,2018
Business-Type Activities
Landfill Total
Closure and Stormwater Nonmajor
Postclosure Management Enterprise Funds
Cash Flows From Operating Activities
Receipts from customers and users $ - $ 445,103 $ 445,103
Payments to vendors and employees 5,958 (259,940) (265,898)
Net cash provided by(used for)operating activities (5,958) 185,163 179,205
Cash Flows From Capital and Related Financing Activities
Acquisition of capital assets (368,192) (368,192)
Net cash(used for)capital and related financing activities (368,192) (368,192)
Cash Flows From Investing Activities
Investment income 15,085 15,085
Net cash provided by investing activities 15,085 15,085
Net change in cash and short-term investments (5,958) (167,944) (173,902)
Cash and Short Term Investments,Beginning of Year 38,889 1,386,732 1,425,621
Cash and Short Term Investments,End of Year $ 32,931 $ 1,218,788 $ 1,251,719
Reconciliation of Operating Income to Net Cash
Provided By(Used For)Operating Activities
Operating income $ $ 94,190 $ 94,190
Adjustments to reconcile operating income to net
cash provided by(used for)operating activities:
Depreciation 61,401 61,401
Changes in assets and liabilities:
User fees receivables 10,928 10,928
Deferred outflows of resources - 4,388 4,388
Warrants payable (17,691) 21,765 4,074
Accrued liabilities - 4 4
Other liabilities 11,733 - 11,733
Net OPEB obligation - 3,609 3,609
Net pension liability (14,617) (14,617)
Deferred inflows of resources 3,495 3,495
Net cash provided by(used for)operating activities $ (5,958) $ 185,163 $ 179,205
See Independent Auditors'Report.
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