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Escanaba reviews audit report

ESCANABA — Members of the Escanaba City Council reviewed the city’s audit results for its 2015-16 fiscal year during a work session held Wednesday morning.

Audit Manager Michael Sparling, a CPA with financial services firm Rehmann, said the city’s audit for the 2015-16 fiscal year was largely clean; because of this, the firm offered an unmodified opinion of Escanaba’s financial statements.

Sparling noted this opinion, which indicates Escanaba’s financial statements conformed with generally-accepted accounting principles (GAAP), was the best possible outcome for the city.

“That’s the best opinion you can get,” he said.

There were still some minor issues with Escanaba’s audit. Sparling said material weaknesses noted by Rehmann included the fact that material audit adjustments had been required to reconcile some of Escanaba’s financial statement accounts, non-compliance with the EDA Revolving Loan Fund Award Termination, and the city’s reliance on auditors to produce GAAP financial statements.

However, Sparling also noted none of these material weaknesses were particularly glaring. The first consisted of small accounting changes over the past few years, the second had been resolved with the Department of Commerce, and the last was essentially a technicality — most small cities rely on auditors for this function.

“We have to report it, but we can still give an unmodified opinion on the financial statements,” he said of the last of these material weaknesses.

In other business, the board heard a summary of the current status of pension funding for the Municipal Employees’ Retirement System (MERS) and Escanaba Public Safety retirement plans from City Treasurer Robert Valentine. Both plans have been closed to new city employees; Valentine said this has required the city to increase their contributions toward these plans in the short term, but that he expects funding for the plans to stabilize in the future.

The report began with a look at Escanaba Public Safety’s retirement plan, which, as of June 30, 2015, was 83.55 percent funded. This percentage dropped to 80.43 percent as of June 30, 2016, leaving the city with an unfunded liability of $6,419,494. (The city’s unfunded liability for this retirement plan has been as high as $9,655,357, which was the case as of June 30, 2012.)

Valentine said the unfunded liability’s increase in 2016 was due to investments not meeting their assumed rate of return that year. As this can vary from year to year, he said the increase was not necessarily indicative of what future unfunded liabilities for this plan could look like.

The report also contained estimates of what could happen if the city’s investments overperform, underperform, or match their assumptions in the next several years. If these investments perform as they are expected to, the city’s unfunded liability for the Public Safety retirement plan could fall to $4,144,190 in 2026.

“The end result of that is basically, I think, a downward trajectory from here,” Valentine said.

Escanaba’s unfunded liability for the MERS retirement plan was $14,791,429 as of Dec. 31, 2015. The plan was 59 percent funded that year; in contrast, it had been 63 percent funded in both 2014 and 2013.

Looking towards the future, Valentine said he expects the city’s contributions to MERS to rise for the next several years and to start decreasing in the early 2020s.

“The MERS plan isn’t going to start descending the hill before 2023,” he said.

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