Appendix A Table

NOTE A – BASIS OF FINANCIAL INFORMATION

The Comparative Operating Statements in Appendix A, which represent approximately 95% of Ecorse's entire operations, include:

  • General Fund.

  • Combined Major and Local Streets Funds – these two funds have been combined as the services and fiscal distress discussions are similar in nature.

  • Water and Sewer Fund.

  • Police and Fire Pension Plan.

After an exhaustive search, a copy of the 1981 audited financial statements could not be located. As such, certain of the 1981 Comparative Operating Statements could not be presented.

The Comparative Operating Statements were derived from the audited financial statements for the respective period. Adjustments have been incorporated into the financial statements for restatements (generally errors observed in subsequent audits) and other matters, including:

  • The Federal Revenue Sharing grant has been presented as having been received directly in the General Fund as the grant was used for General Fund purposes. Actually, the grant was recorded in a separate Special Revenue Fund and amounts periodically transferred to the General Fund.

  • The Comprehensive Employment Training Act (CETA) grant has also been presented as having been received by the General Fund as it was used for General Fund purposes.

Throughout the early to mid-1980s, there were many restatements discovered by outside auditors in the succeeding year. A restatement is generally an error observed in the prior years financial statements. The accounting personnel and related systems were such that errors were often not detected for a long time or were difficult to discover.

NOTE B – GENERAL FUND

Recognizing that Ecorse would likely lose its dispute relating to the Police and Fire Pension Plan and other litigation, provisions were charged to operations. Generally, these amounts have been charged to the general 'government', as follows:

 

 

Provision

Balance At June 30

1982

 

$166,000

$166,000

1983

 

422,000

588,000

1984

 

463,000

1,051,000

The 1984 financial statements refers to $816,000 related to the delinquent Pension Plan contributions. It is difficult to ascertain the final disposition of this accrual based upon a review of the 1985 financial statements. However, it appears that the following occurred:

  • Ecorse restated its June 30, 1984 General Fund equity as the accrued liabilities were overstated by $182,595. The treatment of restating the prior year financial statements for this matter is incorrect. However, the Comparative Operating Statements have not been corrected for this matter as the effect on the statements cannot readily be determined.

  • The accrued liabilities at June 30, 1985 declined to $219,502 and are no longer include a reference to delinquent Pension Plan contributions.

  • Included within the accruals at June 30, 1985 is an amount of $543,189 relating to a portion of a retroactive pay increase for Police labor settlements during the year.

Overall, it appears that the accrual established, in part, for delinquent Pension Plan contributions was ultimately used for retroactive pay increases in 1985. As a result, the potential exists that the General Fund deficit of $2,311,535 at June 30, 1985 may have been understated by as much as $1.0 million. However, as the delinquent Pension contributions were addressed through the issuance of the judgment bonds in the fall of 1985, the General Fund equity at June 30, 1986 is unaffected.

In 1983 and prior, health insurance and certain other fringe benefit costs were charged to the 'general government' line item. By 1983, these costs exceeded $895,000. Subsequent to 1983, these costs were distributed to the various operating departments.

NOTE C – WATER AND SEWER FUND

The significant decrease in revenues in the 1982 fiscal year resulted from the significant decline in water usage by major commercial customers. Water usage is the basis for billing water and sewer services.

Water and sewer costs, however, did not decline in proportion to the reduced billings due to the method of billing costs based on estimates by the Detroit Water and Sewer Department (DWSD). The DWSD billing method was challenged by Ecorse resulting in the resolution of the matter through a Consent Agreement in June, 1984.

Water and sewer rate increases were instituted for the 1981, 1983 and 1984 fiscal years. In doing so, repairs to the water and sewer system began in the 1982 and 1983 fiscal years, as reflected in the sharp increase in 'supplies, maintenance and utilities'. However, by 1984, repairs were suspended as substantially all of the Water and Sewer Fund's cash had been transferred to the General Fund for operating purposes.

NOTE D – POLICE AND FIRE PENSION PLAN

The following is a comparison of the actuarially determined liabilities and the related assets of the Police and Fire Pension Plan as prepared by an outside actuary as of December 31, 1986, December 31, 1983 and June 30, 1980 (in thousands):

 

1986

1983

1980

Actuarial accrued liabilities

$15,817

$11,100

$9,300

Pension Plan assets used by the actuary

(5,132)

(2,048)

(1,313)

UNFUNDED ACTUARIAL ACCRUEDLIABILITIES

$10,685

$9,052

$7,987

The 1980 actuarial report used an assumption of 6.0% for investment return. The 1983 and 1986 actuarial reports used a 7.0% investment return assumption. This change in assumptions has lowered the actuarial accrued liabilities for 1983 and 1986 otherwise reflected by an indeterminable amount.