Annual Report

CITY OF METHUEN, MASSACHUSETTS For The Fiscal Year Ended June 30, 2015

CITY OF METHUEN, MASSACHUSETTS /s/ Thomas J. Kelly, City Auditor Filing Date: March 26, 2016

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CITY OF METHUEN, MASSACHUSETTS General The City is located in Essex County, 11 miles east of Lowell and 27 miles northwest of Boston on the southern New Hampshire border. Established as a Town in 1725, Methuen became the City of Methuen in 1978. Methuen has an estimated population of 47,255 (2010 Federal Census) and occupies a land area of 22.4 miles. Form of Government Under a charter adopted pursuant to constitutional "home rule" powers, Methuen has a city form of government. Authority for major budgetary and administrative decisions is vested in a nine-member legislative body known as the City Council (hereinafter, the "City Council"). Two councilors are elected from each of three districts and three are elected at-large for a term of two years. The Council appoints the City Accountant for a two-year term. Effective January 1994, Methuen converted from a "manager" form of government to an elected mayor. All other positions remained the same and positions formerly appointed by the manager are now appointed by the mayor. School Department Administration is directed by a six-member School Committee elected at-large by the voters. The School Committee is empowered to appoint all School Department personnel. The mayor is chairperson of the school committee. PRINCIPAL CITY OFFICIALS

Title

Name

Selection/Term

Term Expires

Mayor City Council: Chairman - Councilor at Large Vice Chairman - Central District Councilor Councilor at Large Councilor at Large Central District Councilor East District Councilor East District Councilor West District Councilor West District Councilor

Stephen N. Zanni

Elected

December 31, 2017

Sean Fountain James Atkinson Jennifer Kannan James P. Jajuga Lisa J. Yarid Ferry Thomas Ciulla Ronald Marson George J. Kazanjian Lynn C.Vidler

Elected Elected Elected Elected Elected Elected

December 31, 2017 December 31, 2017 December 31, 2017 December 31, 2017 December 31, 2017 December 31, 2017

Elected Elected

December 31, 2017 December 31, 2017

City Auditor Treasurer/Tax Collector City Clerk

Thomas J. Kelly Ann M. Guastaferro Christine R.Touma-Conway

Appointed by Council Appointed by Mayor Appointed by Mayor

January 1, 2017 February 27, 2016 February 27, 2016

Municipal Services The City provides general governmental services for the territory within its boundaries, including police and fire protection, water and sewerage collection, solid waste collection, parks and recreation services, and public education in grades K-12. Public housing is provided through the Methuen Housing Authority. The Greater Lawrence Technical High School provides vocational and technical education for students in grades 9 through 12. The principal services provided by the County are jails and houses of correction, registries of deeds, and an agricultural school. Methuen also is a member of the Greater Lawrence Sanitary District and the Merrimack Valley Regional Transit Authority. See “INDEBTEDNESS – Overlapping Debt” for a discussion of county government.

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Education The City operates four K-8 schools and one senior high school (9-12). Since 1996, the City has issued an aggregate of $32.5 million school construction bonds and all of its school facilities have been either remodeled or reconstructed with 90% state reimbursement grants. The City is nearing completion of a new $100 million high school for which the City has issued most of its share of costs and is receiving 68.84% state reimbursement grants on eligible project costs. The following table sets forth the actual and projected trend in public school enrollments. PUBLIC SCHOOL ENROLLMENTS - OCTOBER 1

Preschool Elementary (K-4) Middle Schools (5-8) High Schools (9-12)

2011 149 2,787 2,366 1,813 7,115

Actual 2013 149 2,731 2,326 1,810 7,016

2012 148 2,784 2,312 1,845 7,089

2014 113 2,722 2,312 1,816 6,963

2015 142 2,688 2,289 1,904 7,023

Projected 2016 148 2,641 2,177 1,837 6,803

The City is a member of the Greater Lawrence Regional Vocational Technical School District. As of October 1, 2015 there were 1,490 students enrolled in the School District and of that total 288 Methuen students are enrolled at Greater Lawrence Regional Vocational High School and 89 Methuen students are enrolled in other vocational technical schools, by choice. Transportation Among Methuen’s primary assets that make it an attractive place to live and work are its central location and convenient transportation access. Interstate Routes 93 and 495 run through Methuen and the two interstates are connected in Methuen by a limited access highway, Route 213. Methuen is served by a number of public transportation carriers. The Merrimack Valley Regional Transit Authority provides bus transportation within the City as well as connections to the cities of Haverhill and Lawrence. Trombly Motor Coach Service provides bus service between Salem, New Hampshire and Methuen. Merrimack Transportation Company also provides connections from Methuen to express bus service operating between Lawrence and Boston. The City is within easy commuting distance of both Boston’s Logan International Airport and the airport in Manchester, New Hampshire. A state Park & Ride lot in the West End of the City was opened in 2001.

Neighborhood Improvements With a convenient location, newer elementary schools, access to employment, abundant parks and an overall high quality of life, Methuen continues to be an attractive community for new residents and residential development growth. The 2010 U.S. Census showed a 7.9% increase in population since 2000 to 47,255 residents. During this period, approximately 1,455 new housing units were added to Methuen’s existing housing stock for a total of 18,340 total housing units. The attraction to Methuen’s high quality of life is a direct reflection of the City’s continued investment in its schools, parks and playgrounds, historic structures, roads and infrastructure and public safety. Annually, the City invests in its Capital Improvement Plan to provide the resources necessary to manage and continue its growth. Methuen’s neighborhoods reflect its history as well as its diversity. Gifted with a largess of hand crafted stone walls, numerous buildings of architectural significance, and the rural beauty of New England farms, the City’s natural attributes are many. The housing stock is located throughout several distinct neighborhoods ranging in age from the early 1800’s to new construction. Older neighborhoods continue to experience comprehensive revitalization. The City’s Department of Economic & Community Development is extremely active in pursuing local, state, federal and private resources to address issues of affordable housing, first-time homebuyer programs, housing rehabilitation programs, crime prevention and neighborhood services. The City completed construction of a $540,000 Community Center for the Methuen Arlington Neighborhood to serve the residents of the neighborhood and expand the programs offered. The center continues to thrive and serves hundreds of children daily. In recent years, the City has obtained funds to demolish vacant/abandoned buildings in some of the neighborhoods affected by the nation’s foreclosure crisis. Methuen also appointed a local Building Safety Task Force that has successfully utilized aggressive code enforcement and regular contact with banks and property owners to preserve the strength and character of the City’s older neighborhoods.

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The community’s many attributes and investment in quality infrastructure have helped maintain a high level of residential development despite the economic woes felt throughout the nation. Since 2010, building permits for more than 470 new housing units were applied for. This new housing activity is made of both traditional single family subdivisions and special permits for condominium communities. The City’s Open Space Residential Development Special Permit has proved to be an attractive development tool for the City and has also resulted in the protection of significant open space. New housing prices have begun to recover from the fiscal crisis and Methuen is experiencing a steady increase in year over year prices. Methuen has two 18-hole golf courses for the recreational and open space enjoyment of its residents. Merrimack Valley Golf Course recently expanded and improved i t s existing golf course. The Donald Ross golf course is the most recognized golf course in the Merrimack Valley, dating back to its opening in 1920. The expansion of the course lengthened three golf holes and added seventy-five new residential dwellings along the border of the course. Sales of the homes were completed in 2015. The rehabilitation to the golf course is an estimated $5 million dollars and the new residential dwellings are valued at approximately $40 million. The golf course owners broke ground on a new 13,000 square foot clubhouse valued at $3 million. The clubhouse is now open and contains a pro shop and function hall and restaurant. A new phase of 11 homes was approved and construction is expected to begin in 2016. As a further example of the confidence of the development community in Methuen and its housing market, Toll Brothers has progressed with construction of 140 new 55 and over, single family homes in a private residential community. This project will be located on the east side of Methuen and the grand opening of the model homes occurred in January 2016. This project is on the heels of Toll Brothers’ recently completed 240-unit 55 and over housing community on the west side of Methuen in which sales far exceeded expectations. Building Permits The following table sets forth the trend in the number of building permits issued and the estimated dollar value of new construction and alterations. The estimated dollar values are builders' estimates and are generally considered to be conservative. Permits are filed and estimated valuations are shown for both private construction and City projects. Fiscal Year

No.

2016 (1) 2015 2014 2013 2012 2011

20 40 77 103 86 92

New Construction Residential Non-Residential Value No. Value $

5,348,380 9,802,031 24,719,000 37,069,240 23,967,340 29,484,010

6 4 1 4 7 6

$

2,902,451 7,014,000 317,950 4,531,000 6,856,570 6,377,201

Additions/Alterations Residential Non-Residential No. Value No. Value

No.

Total Value

920 1,421 1,254 1,223 1,218 1,120

1,046 1,618 1,491 1,482 1,455 1,349

$ 31,734,456 58,870,925 68,700,044 74,568,321 76,004,573 154,337,924

$

15,185,815 25,800,289 25,103,500 14,226,554 20,583,157 15,240,060

100 153 159 152 144 131

$

8,297,810 16,254,605 18,559,594 18,741,527 24,597,506 103,236,653 (2)

_________________ SOURCE: Building Commissioner. (1) Issued through December 29, 2015. (2) Increase attributable to the sale of the Holy Family Hospital to a private company.

Economic Development Activities The City is well established as an attractive location for business and industry with more than 1,000 establishments operating with a Methuen address. Strategic location, a competitive commercial tax rate, a coordinated development approach, a skilled and trained workforce, and a high quality of life for work and leisure combine to create an active environment for economic development. Since 2010, Methuen has been host to $275 million in private commercial investment and benefited from the creation or retention of hundreds of jobs. The Methuen economy consists of a diversified group of existing service and manufacturing businesses, complemented by new technological and retail businesses. Recognizing the need to balance growth, while making economic development a priority, the Department of Economic & Community Development is structured to offer streamlined permitting, market community resources, and improve communication between City Hall and the Methuen business community. A leader in the Merrimack Valley, Methuen has created a one-stop shopping experience within the development office that oversees the entire permitting and approval process for companies seeking to locate, relocate, or expand within the City's borders. The Department also successfully incorporates the health, inspections, conservation, energy and historic preservation needs of the City to result in comprehensive implementation of the Master Plan.

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Economic & Community Development Recent Highlights The City of Methuen, through its Department of Economic & Community Development, has been very active in recent years on economic and community development matters affecting the financial outlook of the City. The Master Plan for the community approved in 2007 remains an active document and significant progress has been made to implement this blueprint for growth. After several years of an economic downturn, the City has seen a rebound in development activity and there are multiple exciting new projects moving forward throughout the City. Major recent accomplishments include: 

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In 2015, New England Die Cutting (NEDC) purchased a 100,000 square foot industrial building on 96 Milk Street. The manufacturer relocated its 31 employees from Haverhill and intends to create an additional 26 jobs at the site in the next five years. The building had become vacant recently with the departure of the IRS as a tenant. Globus Medical, Inc. purchased 300 Griffin Brook Drive in 2015 to bring life to vacant R&D facility in the heart of the City’s premier industrial park. Globus will manufacture robotic devices to aid in spinal surgery. Immediately, it will occupy 60,000 square feet and move 13 engineering and science jobs to the site. Job growth is projected to be strong and Globus is expected to be a major employer in the City for years to come. The 65,000 square foot expansion of Century Box on Chase Street in Methuen, essentially doubling the size of the box manufacturer in terms of both size and employment, was completed in 2015 as expected. The company will create more than 100 new high-quality manufacturing jobs. The Massachusetts Office of Business Development recognized the project and awarded it $1.2 million in state Investment Tax Credits. A 54,000 square foot gateway shopping center at 2 Broadway opened for business in late 2015 with the grand opening of Save-a-Lot Supermarket. The center will include a mix of retail, restaurants, bank and neighborhood based businesses. The project will have a positive impact on the Methuen Arlington Neighborhood and create jobs for local residents. The announcement of the relocation of Jessica’s Brick Oven Bakery to Methuen occurred in 2015. Jessica’s will occupy 180,000 square feet in the former General Mills Yoplait manufacturing facility. Jessica’s will relocate 130 jobs from its current North Andover facility and is expected to permit and construct an additional 70,000 square feet of refrigerated warehouse space for additional growth and investment. Jessica’s is expected to close on the property in early 2016. Construction was completed on a 47,000 square foot medical office building opened at 386 Merrimack Street. This project is the third such building at this site and builds upon the recent success of the medical office buildings in the area. The prior buildings are at full occupancy. The $66 million reconstruction of the I-93 Rotary represents a major investment in the community that will set the stage for future business growth. The project was advertised and construction began in early 2014. The rotary project will improve traffic flow and capacity and open potential development opportunities that were previously turned away due to access issues. More than 100 acres of developable land area exists west of the rotary and there is renewed interest in potential development sites. The rotary is expected to be complete in 2017. A start-up manufacturer of gluten-free baked goods opened operations at 126 Merrimack Street utilizing 40,000 square feet of vacant industrial space. GF Solutions is expected to rapidly grow at its new location and hire 35-40 full-time positions. The City was the recipient of several grants that significantly increased funding for community development efforts. Some highlights are as follows: o A MassWorks grant of $1,250,000 was announced in Fall 2015 to provide needed infrastructure improvements to the Danton Drive/Pelham Street intersection in support the Jessica’s relocation to Danton Drive. o $150,000 for public safety improvements to the City’s baseball and softball fields. Work was completed in Summer 2014. o $186,000 renovation of the Tenney Street was completed in Spring 2014. o The City accepted another $100,000 in Gateway City Parks funding for the design of a new clubhouse at Nicholson Stadium and artificial turf on the fields. The Stadium project was the recipient of $1,000,000 in state funding and $950,000 in private donations. Additional private funding is expected in 2016. o A grant of $140,000 was received by the Attorney General’s Office to share an employee with the City of Haverhill to assist in the City’s efforts to handle its vacant and abandoned buildings. o The City accepted a $200,000 Common Backyards Grant to construct a waterpark at the Gil Avenue Playground. Work was completed in 2015.

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A grant of $70,000 was provided to the City from the Department of Energy Resources to hire a joint Energy manager with the City of Haverhill. The Energy Manager began in late 2014. A $3,000,000 renovation of the commercial space at 224 East Street was completed and converted the underutilized center to a new restaurant and retail center. AMC Theatres at The Loop completed a $9 million renovation of its space to cement its long term plans to continue as an anchor tenant at the City’s flagship commercial property. The renovation resulted in an all new theatre experience including reclining leather lounge chairs and enhanced food and drink options. Two projects were completed along the Rt. 28 Corridor. More than 9,500 square feet of new retail space resulted from more than $1.5 million in new investment. The Regency at Emerald Pines received its local approvals in 2014 and construction began in late 2014. Toll Brothers purchased the project at the end of 2012 and the Department began assisting in the redesign and rezoning of the parcels. A zoning change was approved and plans were submitted for the creation of 140 singlefamily, age restricted homes for the site. The project is now under construction and will generate more than $1.4 million in one-time revenues for the City and more than $1.2 million in annual tax revenue with minimal impact to services. The $4.6 million Nicholson Stadium renovation project was completed in 2015 and comes on the heels of the City’s $100 million dollar investment in a new high school. This project provides a new state-of-the-art outdoor athletic complex and clubhouse to complement the new high school. Since the opening of the new high school, the school department has seen a dramatic increase in its students remaining in the system for secondary school. The City, through the work of its Code Enforcement Officer, remained diligent in its efforts to combat the vacant and abandoned buildings in the City. In 2014-15, dozens of properties were returned to occupancy through increased code enforcement and receivership. The long awaited demolition of 45 Haverhill Street was one of the highlights. The City also worked closely with the historic preservation community to create an exciting new opportunity to rehabilitate the City’s historic structures. The Historic Preservation Special Permit zoning amendment was approved and will soon be put to use in preserving some of the City’s treasured assets. The first permit was issued in 2014 and the preservation of 310 Howe Street was successfully implemented in 2015. In 2015, the City was awarded funding from the Commonwealth’s Department of Housing and Community Development (DHCD) to pursue a Chapter 40R Smart Growth Overlay District for its Downtown. Long neglected and lacking new investment, the Downtown area is ripe for new growth and investment. The Mayor has prioritized redevelopment of the area for his final term in office. The 40R zoning is anticipated to allow multifamily and mixed use projects by-right in the Downtown area. o

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Currently, the City of Methuen is home to multiple commercial and industrial sites scattered throughout the community in retail centers, industrial parks, downtown, and as stand-alone facilities. In retail, Methuen has five major shopping centers. Most notable is The Loop, a $91 million dollar entertainment and retail complex opened in 2000 that was recognized nationally for its success as a “lifestyle” plaza. Formerly the vacant Methuen Mall, a municipal and regional economic development priority for many years, the Loop project now represents more than a tripling of property tax revenues from that site to approximately $1.4 million annually. The facility includes an AMC 20-screen Cineplex, a 135,000 square foot Home Depot, Super Stop & Shop, noted retailers Marshall's, The Gap, Old Navy, and numerous restaurants, including TGI Friday’s, Not Your Average Joe’s, Chuck E. Cheese, Wendy’s, Margharita’s, Chipotle and a thriving Olive Garden restaurant. The project has created more than 500 new permanent jobs and 300-400 new part-time positions, and has exceeded its retail sales expectations since its opening. Most of the retailers on-site have renewed their ten-year leases, indicating the strength of the market and confidence in the property owner and the City. AMC’s renovation highlights this confidence. The Department of Economic & Community Development staff communicates on a regular basis with Loop management. The adjacent Methuen Shopping Center consists of 160,000 square feet and houses the major stores of Market Basket and Wal-Mart, along with Sleepy’ s Mattress Store and a new spa. Since the redevelopment of this commercial area there has been a lot of activity and renewed interest along the Pleasant Valley corridor as this area continues to grow. Across from the Loop is a new restaurant under construction in 2016 called Brick House Tavern & Tap. Target remains successful at its Pleasant Valley location and the long-standing Mann Orchards Farm Store continues to be a regional commercial attraction. Another retail center, the Village Mall, located on Route 28 (Broadway) near the Salem, New Hampshire line, includes 95,496 square feet and houses some smaller retailers including Jo-Ann Fabrics, a workout facility, a Fuddrucker’s restaurant and remains fully occupied. The entire Route 28 corridor has experienced renewed interest from flexible zoning changes and positive development and traffic improvements over the New Hampshire line.

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Located on Haverhill Street adjacent to I-93 is Merrimac Plaza, consisting of 159,916 square feet, and serves as the home of Market Basket, Rite-Aid and several local, regional and national retailers. The area is also home to several food establishments restaurants, including a KFC/Taco Bell, Burger King, and Pizza Hut. The area remains an important and stable base of commercial activity for the City and is expected to create new opportunities for retail tenants when the rotary project is completed. Methuen also has four active Industrial Parks and numerous industrial sites scattered throughout the community: Aegean Industrial Park with 47 acres, Griffin Brook Park with 94 acres, Methuen Industrial Park with 130 acres, and McGrath Road Industrial Park, which lies partly in Dracut. Griffin Brook Park is home to several large businesses including MicroTouch Inc., a subsidiary of 3M, Globus Medical, MKS Instruments, Borislow Insurance and the Greater Lawrence Family Health Center. Methuen Industrial Park encompasses manufacturing, warehousing and distribution uses including Aulson, Shaws Warehouses, Graebel Van Lines and will soon be home to Jessica’s Brick oven Bakery on Danton Drive. General Mills Yoplait-Colombo closed its operation in 2015 and Jessica’s is expected to maintain the employment and investment levels at the facility. Branch Street is an office park maintained by Brooks Properties, who oversees in excess of 275,000 square feet of office space adjacent to I-93 at the Route 110 rotary. Brooks recently leased space to TD Bank and Crest Learning Collaborative occupies 50,000 square feet. Methuen is also home to a first-class hospital to serve the health care needs of the community and the region. Holy Family Hospital has continued to invest in and completed a 60,000 square foot addition to its existing facility and a 60,000 square foot medical office building to provide the space necessary to accommodate additional patients and create additional health care positions. The Holy Family Hospital is now a for-profit hospital owned by Steward Health Care System. Steward has reported consistent growth in operating income at the hospital and the hospital is expected to remain as the City’s largest employer for years to come. Additionally, Ranger Plaza, the re-development of the former Fox Nissan site, has turned an abandoned, blighted site into a critical gateway project for the City. Located on Pelham Street adjacent to Route 93, the project completed phase I attracting The Outback Restaurant, McDonald's, and Dunkin' Donuts. The original building received a $3 million facelift completed in 2012 and is now home to Comfort Home Care which has rapidly increased its employment levels to more than 400 jobs in 2015. The Cafua Management Company constructed a new Dunkin Donuts and Salem Cooperative Bank located at 280 Merrimack Street and relocated the corporate headquarters of their 300-store Dunkin Donuts operation to Methuen. An additional 25,000 square feet of retail space was completed at the site in 2015 and is actively being leased. The banking community has a strong presence in Methuen and new branches include Bank of New England, which constructed a new 3,000 square foot branch at the corner of Pelham and Cross Streets, and Enterprise Bank, which opened its 4,000 square foot branch on Broadway in the downtown. A People’s Bank location was opened at the corner of Jackson and Swan Streets. In October 2011, the Methuen Municipal Employees Federal Credit Union opened an office building on Broadway. Other large tracts of commercial and industrial-zoned land have seen interest from developers and focus from the City of Methuen. Both Lindbergh Avenue (with frontage along I-93) and Old Ferry Road have historically been home to contractors’ yards and related businesses. Combined, they represent more than 200 acres of industrial land with the potential to house in excess of 1.5 million square feet of industrial space. Lindberg Avenue became home to a new F.W. Webb plumbing supply warehouse and retail facility in 2012. The company invested $11 million to construct the 128,000 square foot building, made roadway, water and sewer infrastructure improvements, and now employs over 100 people. Deluca Fence made significant improvements to its corporate headquarters on Old Ferry Road and improved the attractiveness of the entire area in 2012. The economic and community development efforts of the City remain strong and the City prides itself on its ability to plan and execute projects that result in positive growth and change for the City. The City is excited about capitalizing on new opportunities for successful residential and commercial development as they become available.

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Industry and Commerce Methuen is primarily a residential community featuring active retail trade and growing industrial and office sectors. In 2014, 1,198 firms in the City reported to the Massachusetts Division of Employment Security. These firms employed a total of 15,258 persons and totaling over $662 million in annual wages.

Industry

2010

Construction Manufacturing Trade, Transportation and Utilities Information Financial Activities Professional and Business Services Education and Health Services Leisure and Hospitality Other Services Total Employment Number of Establishments Average Weekly Wages Total Wages

Calendar Year Average 2012 701 672 1,442 1,425 3,241 3,197 232 241 376 423 1,227 1,356 4,556 4,527 1,828 2,006 647 689 14,250 14,536

2011

723 1,418 3,176 212 373 1,209 4,511 1,869 1,558 15,049 1,064 $ 793 $ 620,581,011

1,098 $ 803 $ 637,490,247

1,120 $ 806 $ 651,941,522

2013

2014

738 1,297 3,187 231 474 1,377 4,702 2,062 506 14,574

779 1,186 3,201 243 499 1,617 5,073 2,150 510 15,258

1,139 $ 851 $ 679,082,602

1,198 $ 816 $ 662,944,513

_____________ Source: Massachusetts Department of Education and Training. Data based upon place of employment, not place of residence.

Largest Employers Methuen’s highly skilled labor force, convenient transportation network and low tax burden relative to surrounding communities provide the base for the City’s healthy business environment. The following table lists the current largest employers in Methuen, exclusive of the City itself. Nam e H o ly F a m ily H o s p ita l P o la r te c ( 1 ) T h e L o o p (2 ) 3M P a r le x C o r p o r a tio n S ha w s Market D e m o u la s /M a r k e t B a s k e t MK S Y o p la it- C o lu m b o , In c Hom e D epot C o m fo r t H o m e C a r e C e n tu r y B o x F .W . W e b b M e ta lc r a fte r s N o r th s ta r In d u s tr ie s A g r i- M a r k Mc K es s on

P r o d u c t/F u n c tio n M e d ic a l C a r e F a c ility F a b r ic s R e ta il/E n te r ta in m e n t T o u c h s c r e e n C o m p u te r P r o d u c ts C ir c u it B o a r d M a n u fa c tu r in g P e r is h a b le D is tr ib u tio n S u p e rm a rke t G a u g e In s tr u m e n ta tio n F o o d P r o c e s s in g /A d m in is tr a tio n H o m e G o o d s R e ta il V is itin g N u r s e F o ld in g B o x M a n u fa c tu r e r P lu m b in g R e ta ile r D is tr ib u tio n S h e e t M e ta ls G a s & P ip e lin e G a u g e s D a ir y P r o d u c ts P h a r m a c e u tic a l D is tr ib u tio n

A p p r o x im a te N o . o f E m p lo y e e s 1 ,3 5 0 800 800 610 550 500 330 217 190 150 150 150 120 85 75 75 63

___________________ (1) Employment figures are aggregate and reflect both full and part-time employees. (2) Retail/Entertainment facility housing numerous businesses. Employment figures are aggregate and reflect both full and part-time employees.

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The following table compares retail trade data for the City with that of the Lawrence-Haverhill, MA-N.H. Primary Metropolitan Statistical Area (of which the City is a member community) and for the Commonwealth as a whole. RETAIL SALES Lawrence PMSA (1)

Methuen Establishments: 1997 (2) 1992 1987 1982 Sales(000): 1997 1992 1987 1982 Per Capita Sales: 1997 1992 1987 1982

128 249 254 321

Massachusetts

1,326 1,926 2,207 2,226

$ 250,739 264,196 352,291 236,318

$

$6,271 6,607 8,926 6,439

26,209 38,491 38,905 47,312

3,215,587 2,451,009 2,604,625 1,324,504

$

$8,171 6,228 14,079 7,159

58,578,048 47,663,248 44,818,481 28,815,549 $9,736 7,922 7,731 5,023

_____________ SOURCE: U.S. Census of Retail Trade and State and Federal Census. (1) 1982 figures based on the Lawrence-Haverhill MA-NH PMSA which covered approximately 18 municipalities including 2 cities and 16 towns. 1987 figures based on The Lawrence- Haverhill MA-NH PMSA covers 27 municipalities including 3 cities and 24 towns. 1992 figures based on the Lawrence MA-NH PMSA which includes 23 municipalities. In addition, the 1987 Census of Retail Trade, unlike the two previous retail censuses, includes only establishments with payroll. The decline in the number of establishments for Lawrence, the Lawrence-Haverhill MA-NH PMSA and Massachusetts may be attributable to this change in classification, and not necessarily an actual decline in the number of establishments. (2) The 1997 Economic Census is the first census to present data based on the new North American Industry Classification System (NAICS). Previous census data were presented according to the Standard Industrial Classification (SIC) system developed some 60 years ago. Due to this change, comparability between census years may be limited. Source: 1997 Economic Census.

Labor Force, Employment and Unemployment Rate The following table sets forth the trend in the City’s average labor force and unemployment rates, as well as the unemployment rates for the Commonwealth and the United States.

Year 2015 (December) 2014 2013 2012 2011 2010

Labor Force 25,972 26,016 25,060 24,740 24,046 23,885

Town of Methuen Unemployment Rate 5.1 % 6.4 9.0 8.5 7.9 8.9

Massachusetts Unemployment Rate 4.7 % 5.8 7.1 6.7 6.8 7.4

United States Unemployment Rate 5.0 % 6.2 7.4 8.1 8.9 9.6

_______________ SOURCE: Commonwealth of Massachusetts Division of Employment & Training. Data based upon place of residence, not place of employment.

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Population, Income and Wealth Levels According to the 2010 Federal Census, median family income for the City was $80,739 compared with $81,165 for the Commonwealth as a whole. The 2010 per capita income was $28,533 compared with $33,966 for the Commonwealth.

Methuen Median Age: 2010 2000 1990 1980 1970

Massachusetts

39.3 37.5 35.0 32.8 31.7

United States

39.1 36.5 33.6 31.2 29.0

37.2 35.3 32.9 30.0 28.1

Median Family Income: 2010 2000 1990 1980 1970

$80,739 59,831 44,901 21,486 10,923

$81,165 61,664 44,367 21,166 10,835

$51,144 50,046 35,225 19,908 9,867

Per Capita Income: 2010 2000 1990 1980 1970

$28,533 22,305 15,598 7,002 3,228

$33,966 25,952 17,224 7,459 3,425

$27,334 21,587 14,420 7,313 3,139

___________________________

SOURCE:

Federal Census.

On the basis of the 2010 Federal Census, the City has a population density of 2,109 persons per square mile. POPULATION TRENDS 2010 47,255

2000 43,789

1990 39,990

_________________ SOURCE: Federal Census.

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1980 36,701

PROPERTY TAXATION Tax Levy Computation The principal revenue source of the City is the tax on real and personal property. The amount to be levied in each year is the amount appropriated or required by law to be raised for municipal expenditures less estimated receipts from other sources and less appropriations voted from available funds. The total amount levied is subject to certain limits prescribed by law; for a description of those limits, see “Tax Limitations” below. The estimated receipts for a fiscal year from other sources may not exceed the actual receipts during the preceding fiscal year from the same sources unless approved by the State Commissioner of Revenue. Excepting special funds the use of which is otherwise provided for by law, the deduction for appropriations voted from available funds for a fiscal year cannot exceed the “free cash” as of the beginning of the prior fiscal year as certified by the State Director of Accounts plus up to nine months’ collections and receipts on account of earlier years’ taxes after that date. Subject to certain adjustments, free cash is surplus revenue less uncollected overdue property taxes from earlier years. Although an allowance is made in the tax levy for abatements (see “Overlay” below) no reserve is generally provided for uncollectible real property taxes. Since some of the levy is inevitably not collected during the fiscal year of levy this creates a cash deficiency which may or may not be offset by other items. The table below illustrates the trend in the manner in which the tax levy is determined. TAX LEVY COMPUTATION

Total Appropriations (1) Additions: State & County Assessments Overlay Reserve Other Additions Total Additions Gross Amount to be Raised Offsets: State Aid (2) Local Estimated Receipts Available Funds: Free Cash Other Available Funds (3) Total Offsets Net Amount to be Raised (Tax Levy)

Fiscal 2012

Fiscal 2013

Fiscal 2014

Fiscal 2015

Fiscal 2016

$ 133,215,321

$ 136,522,276

$ 142,238,543

$ 148,618,486

$ 154,056,297

1,629,858 501,142 82,242 2,213,242 $ 135,428,563

1,700,816 512,075 86,244 2,299,135 $ 138,821,411

1,885,478 597,902 86,665 2,570,045 $ 144,808,588

1,449,216 474,854 103,527 2,027,597 $ 150,646,083

1,655,295 441,614 61,838 2,158,747 $ 156,215,044

$

48,625,847 20,084,395

$

$

$

$

2,150,000 70,860,242 64,568,321

640,323 $ 70,697,500 $ 68,123,911

$ $

49,335,334 20,721,843

50,592,464 21,620,084

1,050,000 485,000 $ 73,747,548 $ 71,061,040

51,338,149 21,920,837

818,576 988,964 $ 75,066,526 $ 75,579,557

51,701,627 23,154,227

500,000 1,184,404 $ 76,540,258 $ 79,674,786

_______________ (1) Includes additional appropriations from taxation voted subsequent to adoption of the annual budget but prior to setting of the tax rate. (2) Estimated by the State Department of Revenue and required by law to be used in setting the tax rate. Actual State aid payments may vary upward or downward from said estimates, and the State may withhold payments pending receipt of State and County assessments. See “Reduction of State Aid” below. (3) Transfers from other available funds, including “free cash” (see “Free Cash”), generally made as an offset to a particular appropriation item.

Assessed Valuations and Tax Levies Property is classified for the purpose of taxation according to its use. The legislature has in substance created three classes of taxable property: (1) residential real property, (2) open space land, and (3) all other (commercial, industrial and personal property). Within limits, cities and towns are given the option of determining the share of the annual levy to be borne by each of the three categories. The share required to be borne by residential real property is at least 50 per cent of its share of the total taxable valuation; the effective rate for open space must be at least 75 per cent of the effective rate for residential real property; and the share of commercial, industrial and personal property must not exceed 175 percent of their share of the total valuation. A city or town may also exempt up to 20 percent of the valuation of residential real property (where used as the taxpayer’s principal residence) and up to 10 percent of the valuation of commercial real property (where occupied by certain small businesses). Property may not be classified in a city or town until the State Commissioner of Revenue certifies that all property in the city or town has been assessed at its fair cash value. Such certification must take place every three years or pursuant to a revised schedule as may be issued by the Commissioner.

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Related statutes provide that certain forest land, agricultural or horticultural land (assessed at the value it has for these purposes) and recreational land (assessed on the basis of its use at a maximum of 25 percent of its fair cash value) are all to be taxed at the rate applicable to commercial property. Land classified as forest land is valued for this purpose at five percent of fair cash value but not less than ten dollars per acre. The following table sets forth the trend in the City’s assessed valuations, tax rates, tax levies, and tax levies per capita.

Real Estate Valuation

Fiscal Year 2016 2015 2014 2013 2012

$

Personal Property Valuation

4,644,229,614 4,472,171,916 4,156,366,086 4,107,624,398 4,271,785,414

(1)

(1)

Total Assessed Vaulation

$ 160,429,740 156,801,980 155,082,320 153,031,900 149,835,790

$

Tax Levy

4,804,659,354 4,628,973,896 4,311,448,406 4,260,656,298 4,421,621,204

$ 79,674,786 75,579,557 71,061,040 68,123,911 64,568,321

Tax Levy Per Capita (2) $

1,686 1,599 1,504 1,442 1,366

____________________

(1) (2)

Revaluation years. Based on 2010 Federal Census of 47,255.

Classification of Property The following table shows the breakdown of assessed valuations for fiscal years 2014, 2015 and 2016 by property class. Fiscal 2014 Amount % of Total

Property Type

Fiscal 2015 (1) Amount % of Total

Fiscal 2016 Amount % of Total

Residential Commercial Industrial Personal Property

$3,605,019,586 404,752,390 146,594,110 155,082,320

83.6 % 9.4 3.4 3.6

$3,900,027,882 423,670,724 148,473,310 156,801,980

84.3 % 9.2 3.2 3.4

$4,052,869,269 439,378,255 151,982,090 160,429,740

84.4 % 9.1 3.2 3.3

Total

$4,311,448,406

100.0 %

$4,628,973,896

100.0 %

$4,804,659,354

100.0 % _

_______________________________________

(1)

Revaluation year.

The table below sets forth the trend in the breakdown of the City’s tax rates. Tax Rate per $1,000 Valuation Fiscal Year

Residential Property

2016 2015 2014 2013 2012

$14.81 14.60 14.85 14.40 13.04

Commercial, Industrial & Personal Property $26.14 25.57 24.81 24.12 23.04

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Largest Taxpayers The following is a list of the largest taxpayers in the City based upon assessed valuations for fiscal 2016. All taxpayers listed below are current with their tax payments.

Name

Nature of Business

Loop Methuen Associates Inc Summit Place Investors LLC Stewart Holy Family Hospital Reef - Ind Aegean Ma LLC Merrimac Income Partners Danton Associates Pipevine MMI Real Estate Target Corporation Colonial Methuen Associates LP HD Development of Maryland Inc.

Power Center Apartments/Condos Health Care Industrial Warehouse Shopping Center Industrial Warehouse Real Estate Department Store Manufacturing/ Vacant Land Shopping Center

Total Assessed Valuations for Fiscal 2016 $

63,938,500 35,331,300 32,834,800 15,397,400 15,214,100 14,378,000 13,506,700 12,302,700 12,272,800 11,043,800 $ 226,220,100

% of 2016 Assessed Value 1.33 0.74 0.68 0.32 0.32 0.30 0.28 0.26 0.26 0.23 4.71

%

%

State Equalized Valuation In order to determine appropriate relative values for the purposes of certain distributions to and assessments upon cities and towns, the Commissioner of Revenue biennially makes a redetermination of the fair cash value of the taxable property in each municipality as of January 1 of even numbered years. This is known as the “equalized value”. The following table sets forth the trend in equalized valuations of the City.

January 1, 2014 2012 2010 2008 2006 2004 2002

State Equalized Valuation $4,606,562,400 4,716,273,800 5,001,489,700 5,599,072,900 5,156,208,600 4,088,755,700 2,770,350,300

% Change (2.3) % (5.7) (10.7) 8.6 26.1 47.6 15.0

Overlay The City is authorized by law to include in each tax levy an amount approved as reasonable by the Commissioner of Revenue for an “overlay” to provide for tax abatements. If abatements are granted in excess of the applicable overlay reserve, the resultant “overlay deficit” is required to be added to the next tax levy. An abatement granted after a tax payment has been made is accounted for as a refund on the books of the City. Any balance in the overlay account, in excess of the amount of the warrant remaining to be collected or abated, is transferred during the fiscal year to a reserve fund to be used for extraordinary or unforeseen expenses. At the end of the fiscal year, the reserves are closed to available fund balance (free cash). Abatements are granted where exempt real or personal property has been assessed or where taxable real or personal property has been overvalued or disproportionately valued. The assessors may also abate uncollectible personal property taxes. They may abate real and personal property taxes on broad grounds (including inability to pay) with the approval of the State Commissioner of Revenue.

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The table below sets forth the trend in the amount of the overlay reserve and actual abatements granted through December 31, 2015 against each levy. Fiscal Year 2016 2015 2014 2013 2012

Overlay Reserve Dollar As a % of Amount Net Levy

Net Tax Levy $

79,233,172 75,104,703 70,463,138 67,611,836 64,067,179

$

441,615 474,854 597,902 512,075 501,142

0.56 % 0.63 0.85 0.76 0.78

Abatements Granted Through December 31, 2015 $

160,222 422,808 402,969 482,078 422,756

_______________ (1) Tax levy prior to addition of overlay reserve.

Tax Collections Tax bills in the City are payable August 1, November 1, February 1, and May 1 of each fiscal year. Interest accrues on delinquent taxes currently at the rate of 14 percent per annum. Real property (land and buildings) is subject to a lien for the taxes assessed upon it (subject to any paramount federal lien and subject to bankruptcy and insolvency laws). If the property has been transferred, an unenforced lien expires on the third October 1 after the fiscal year. If the property has not been transferred by the third October 1, an unenforced lien expires upon a later transfer of the property. Provision is made, however, for continuation of the lien where it could not be enforced because of a legal impediment. The persons against whom real or personal property taxes are assessed are personally liable for the tax (subject to bankruptcy and insolvency laws). In the case of real property, this personal liability is effectively extinguished by sale or taking of the property as described below.

The table below compares the City's net tax collections with its net (gross tax levy less overlay reserve for abatements) tax levies for the following fiscal years.

Fiscal Year

Gross Tax Levy

2016 2015 2014 2013 2012 2011

$79,674,787 75,579,557 71,061,040 68,123,911 64,568,321 62,188,218

Overlay Reserve for Abatements $441,615 474,854 597,902 512,075 501,142 499,280

Net Tax Levy $79,233,172 75,104,703 70,463,138 67,611,836 64,067,179 61,688,938

Collections During Fiscal Year Payable Dollar % of Net Amount Levy

Collections as of December 31, 2015 Dollar % of Net Amount Levy

N.A. 73,593,459 69,149,628 65,660,837 62,625,695 59,976,980

$36,442,658 74,530,101 70,015,718 66,947,571 63,450,347 61,072,312

N.A. 97.99 % 98.14 97.11 97.75 97.22

45.99 % 99.23 99.37 99.02 99.04 99.00

Tax Titles and Possessions Massachusetts law permits a municipality either to sell by public sale (at which the municipality may become the purchaser) or to take real property for non-payment of taxes thereon. In either case the property owner can redeem the property by paying the unpaid taxes, with interest and other charges, but if the right of redemption is not exercised within six months (which may be extended an additional year in the case of certain installment payments) it can be foreclosed by petition to the land court. It is the policy of the City to place all properties with unpaid taxes into tax title within six months of the end of the fiscal year for which the taxes are unpaid. Upon such foreclosure, a tax title purchased or taken by the municipality becomes a "tax possession" and may be held and disposed of like any land held for municipal purposes. Uncollectible real property taxes are ordinarily not written off until they become municipal tax titles (either by purchase at the public sale or by taking), at which time the tax is written off in full by reserving the amount of tax and charging surplus.

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The following table sets forth the amount of tax titles and possessions outstanding at the end of the following fiscal years. Total Tax Titles and Possessions

Fiscal Year 2016 2015 2014 2013 2012 2011

$

2,598,339 2,921,675 2,613,902 2,640,522 2,597,353 2,311,870

Taxation to Meet Deficits As noted elsewhere (see “Overlay” above) overlay deficits, i.e. tax abatements in excess of the overlay included in the tax levy to cover abatements, are required to be added to the next tax levy. It is generally understood that revenue deficits, i.e. those resulting from non-property tax revenues being less than anticipated, are also required to be added to the tax levy (at least to the extent not covered by surplus revenue). Amounts lawfully expended since the prior tax levy and not included therein are also required to be included in the annual tax levy. The circumstances under which this can arise are limited since municipal departments are generally prohibited from incurring liabilities in excess of appropriations except for major disasters, mandated items, contracts in aid of housing and renewal projects and other long-term contracts. In addition, utilities must be paid at established rates and certain established salaries, e.g. civil service, must legally be paid for work actually performed, whether or not covered by appropriations. Cities and towns are authorized to appropriate sums, and thus to levy taxes, to cover deficits arising from other causes, such as “free cash” deficits arising from a failure to collect taxes. This is not generally understood, however, and it has not been the practice to levy taxes to cover free cash deficits. Except to the extent that such deficits have been reduced or eliminated by subsequent collections of uncollected taxes (including sales of tax titles and tax possessions), lapsed appropriations, non-property tax revenues in excess of estimates, other miscellaneous items or funding loans authorized by special act, they remain in existence.

Tax Limitations Chapter 59, Section 21C of the General Laws, also known as Proposition 2½, imposes two separate limits on the annual tax levy of a city or town. The primary limitation is that the tax levy cannot exceed 2½ percent of the full and fair cash value. If a city or town exceeds the primary limitation, it must reduce its tax levy by at least 15 percent annually until it is in compliance, provided that the reduction can be reduced in any year to not less than 7½ percent by majority vote of the voters, or to less than 7½ percent by two-thirds vote of the voters. For cities and towns at or below the primary limit, a secondary limitation is that the tax levy cannot exceed the maximum levy limit for the preceding fiscal year as determined by the State Commissioner of Revenue by more than 2½ percent, subject to exceptions for property added to the tax rolls or property which has had an increase, other than as part of a general revaluation, in its assessed valuation over the prior year’s valuation. This “growth” limit on the tax levy may be exceeded in any year by a majority vote of the voters, but an increase in the secondary or growth limit under this procedure does not permit a tax levy in excess of the primary limitation, since the two limitations apply independently. In addition, if the voters vote to approve taxes in excess of the “growth” limit for the purpose of funding a stabilization fund, such increased amount may only be taken into account for purposes of calculating the maximum levy limit in each subsequent year if the board of selectmen of a town or the city council of a city votes by a two-thirds vote to appropriate such increased amount in such subsequent year to the stabilization fund. The applicable tax limits may also be reduced in any year by a majority vote of the voters. The State Commissioner of Revenue may adjust any tax limit “to counterbalance the effects of extraordinary, non-recurring events which occurred during the base year”.

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The statute further provides that the voters may exclude from the taxes subject to the tax limits and from the calculation of the maximum tax levy (a) the amount required to pay debt service on bonds and notes issued before November 4, 1980, if the exclusion is approved by a majority vote of the voters, and (b) the amount required to pay debt service on any specific subsequent issue for which similar approval is obtained. Even with voter approval, the holders of the obligations for which unlimited taxes may be assessed do not have a statutory priority or security interest in the portion of the tax levy attributable to such obligations. It should be noted that Massachusetts General Laws Chapter 44, Section 20 requires that the taxes excluded from the levy limit to pay debt service on any such bonds and notes be calculated based on the true interest cost of the issue. Accordingly, the Department of Revenue limits the amount of taxes which may be levied in each year to pay debt service on any such bonds and notes to the amount of such debt service, less a pro rata portion of any original issue premium received by the city or town that was not applied to pay costs of issuance. Voters may also exclude from the Proposition 2½ limits the amount required to pay specified capital outlay expenditures or for the city or town’s apportioned share for certain capital outlay expenditures by a regional governmental unit. In addition, the city council of a city, with the approval of the mayor if required, or the board of selectmen or the town council of a town may vote to exclude from the Proposition 2½ limits taxes raised in lieu of sewer or water charges to pay debt service on bonds or notes issued by the municipality (or by an independent authority, commission or district) for water or sewer purposes, provided that the municipality’s sewer or water charges are reduced accordingly. In addition, Proposition 2½ limits the annual increase in the total assessments on cities and towns by any county, district, authority, the Commonwealth or any other governmental entity (except regional school districts, the MWRA and certain districts for which special legislation provides otherwise) to the sum of (a) 2½ percent of the prior year’s assessments and (b) “any increases in costs, charges or fees for services customarily provided locally or for services subscribed to at local option”. Regional water districts, regional sewerage districts and regional veterans districts may exceed these limitations under statutory procedures requiring a two-thirds vote of the district’s governing body and either approval of the local appropriating authorities (by two-thirds vote in districts with more than two members or by majority vote in two-member districts) or approval of the registered voters in a local election (in the case of two-member districts). Under Proposition 2½ any State law to take effect on or after January 1, 1981 imposing a direct service or cost obligation on a city or town will become effective only if accepted or voluntarily funded by the city or town or if State funding is provided. Similarly, State rules or regulations imposing additional costs on a city or town or laws granting or increasing local tax exemptions are to take effect only if adequate State appropriations are provided. These statutory provisions do not apply to costs resulting from judicial decisions. The City has been in full compliance with Proposition 2 1/2 since fiscal 1982 following completion of a professional revaluation of all real and personal property in the City to full value. The table below sets forth the trend in the City's tax levies and levy limits under Proposition 2 1/2. Fiscal Year 2016 2015 2014 2013 2012

Local Assessed Valuation $ (2)

(2)

4,804,659,354 4,628,973,896 4,311,448,406 4,260,656,298 4,421,621,204

Primary Levy Limit(1) $

120,116,484 115,724,347 107,786,210 106,516,407 110,540,530

Maximum Levy Limit $ 80,593,875 77,798,956 74,648,948 71,930,307 69,008,472

Under(Over) Primary Levy Limit

Actual Tax Levy $

79,674,787 75,579,557 71,061,040 68,123,911 64,568,321

$

40,441,697 40,144,790 36,725,170 38,392,496 45,972,209

Under(Over) Maximum Levy Limit $

919,088 2,219,399 3,587,908 3,806,396 4,440,151

_______________ (1) (2)

2 ½% of local assessed valuation. Revaluation years.

Sale of Tax Receivables Cities and towns are authorized to sell delinquent property tax receivables by public sale or auction, either individually or in bulk.

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Pledged Taxes Taxes on the increased value of certain property in designated development districts may be pledged for the payment of costs of economic development projects within such districts and may therefore be unavailable for other municipal purposes. The City has no such districts.

Community Preservation Act The Massachusetts Community Preservation Act (the “CPA” or the “Community Preservation Act”) permits cities and towns that accept its provisions to levy a surcharge on its real property tax levy, dedicate revenue (other than state or federal funds), and to receive state matching funds for (i) the acquisition, creation, preservation, rehabilitation and restoration of land for recreational use, open space, and affordable housing and (ii) the acquisition, preservation, rehabilitation and restoration of historic resources. The provisions of the CPA must be accepted by the voters of the city or town at an election after such provisions have first been accepted by either a vote of the legislative body of the city or town or an initiative petition signed by 5% of its registered voters. A city or town may approve a surcharge of up to 3% (but not less than 1% under certain circumstances) and may make an additional commitment of funds by dedicating revenue other than state or federal funds, provided that the total funds collected do no exceed 3% of the real property tax levy, less any exemptions adopted (such as an exemption for lowincome individuals and families and for low and moderate-income senior citizens, an exemption for $100,000 of the value of each taxable parcel of residential real property or $100,000 of the value of each taxable parcel of class three, commercial property, and class four, industrial property as defined in Chapter 59, Section 2A of the General Laws, and an exemption for commercial and industrial properties in cities and towns with classified tax rates). In the event that the municipality shall no longer dedicate all or part of the additional funds to community preservation, the surcharge on the real property tax levy of not less than 1% shall remain in effect, provided that any such change must be approved pursuant to the same process as acceptance of the CPA. The surcharge is not counted in the total taxes assessed for the purpose of determining the permitted levy amount under Proposition 2½ (see “Tax Limitations” under “PROPERTY TAXATION” above). A city or town may revoke its acceptance of the provisions of the CPA at any time after 5 years from the date of such acceptance and may change the amount of the surcharge or the exemptions to the surcharge at any time, including reducing the surcharge to 1% and committing additional municipal funds as outlined above, provided that any such revocation or change must be approved pursuant to the same process as acceptance of the CPA. Any city or town that accepts the provisions of the CPA will receive annual state matching grants to supplement amounts raised by its surcharge and dedication of revenue. The state matching funds are raised from certain recording and filing fees of the registers of deeds. Those amounts are deposited into a state trust fund and are distributed to cities and towns that have accepted the provisions of the CPA, which distributions are not subject to annual appropriation by the state legislature. The amount distributed to each city and town is based on a statutory formula and the total state distribution made to any city or town may not exceed 100% of the amount raised locally by the surcharge on the real property tax levy. The amounts raised by the surcharge on taxes, the dedication of revenue and received in state matching funds are required to be deposited in a dedicated community preservation fund. Each city or town that accepts the provisions of the CPA is required to establish a community preservation committee to study the community preservation needs of the community and to make recommendations to the legislative body of the city or town regarding the community preservation projects that should be funded from the community preservation fund. Upon the recommendations of the committee, the legislative body of the city or town may appropriate amounts from the fund for permitted community preservation purposes or may reserve amounts for spending in future fiscal years, provided that at least 10% of the total annual revenues to the fund must be spent or set aside for open space purposes, 10% for historic resource purposes and 10% for affordable housing purposes. The CPA authorizes cities and towns that accept its provisions to issue bonds and notes in anticipation of the receipt of surcharge and dedicated revenues to finance community preservation projects approved under the provisions of the CPA. Bonds and notes issued under the CPA are general obligations of the city or town and are payable from amounts on deposit in the community preservation fund. In the event that a city or town revokes its acceptance of the provisions of the CPA, the surcharge shall remain in effect until all contractual obligations incurred by the city or town prior to such revocation, including the payment of bonds or notes issued under the CPA, have been fully discharged. The City has not adopted the CPA.

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CITY FINANCES Budget Process In a city form of government, within 120 days (extended to 170 days by special legislation) after the annual organization of the city government (which is ordinarily in early January), the mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The city or town council may make appropriations for the recommended purposes and may reduce or reject any item. Without a recommendation of the mayor, the council may not make any appropriation for a purpose not included in the proposed budget, except by a two-thirds vote in case of a failure of the mayor to recommend an appropriation for such a purpose within 7 days after a request from the council. The council may not increase any item without the recommendation of the mayor (except as provided by legislation, subject to local acceptance, under which the school budget or regional school district assessment can be increased upon recommendation of the school committee or regional district school committee and by two-thirds vote of the council, provided that such increase does not cause the total annual budget to exceed property tax limitations). If the council fails to act on any item of the proposed budget within 45 days, that item takes effect. If the mayor does not make a timely budget submission, provision is made for preparation of a budget by the council. Provision is also made for supplementary appropriations upon recommendation of the mayor. Water and sewer department expenditures are included in the budget adopted by the council. Gas and electric department expenditures are customarily excluded. Under certain legislation any city or town which accepts the legislation may provide that the appropriation for the operating costs of any department may be offset, in whole or in part, by estimated receipts from fees charged for services provided by the department. It is assumed that this general provision does not alter the pre-existing power of an electric or gas department to appropriate its own receipts. As a result of an initiative law adopted in November 1980, school committees are no longer autonomous with respect to school expenditures for current purposes. The school budget is limited to the total amount appropriated by the city council, but the school committee retains full power to allocate the funds appropriated. Department heads are generally required to submit their budget requests to the mayor between November 1 and December 1. This does not apply to the school department, which must submit its request in time for the mayor to include them in the submission to the council. State and county assessments, abatements in excess of overlays, principal and interest not otherwise provided for, and final judgments are included in the tax levy whether or not included in the budget. Revenues are not required to be set forth in the budget but estimated non-tax revenues are taken into account by the assessors in fixing the tax levy.

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Budget Trends The following table sets forth the trend in operating budgets. As such, said budgets reflect neither revenues nor state and county assessments and other mandatory items. Similarly, the budgets summarized below exclude supplemental appropriations and transfers between appropriated items made during the course of the fiscal year. Fiscal 2012

Department/Organization General Government Community Development Human Services Public Works Public Safety Debt Service Employee Benefits Retirement Solid Waste & Disposal Water & Sewer Enterprise School Regional School Court Judgment Stabilization Fund Overlay County State & Miscellaneous Restricted Use

$

3,387,057 1,173,219 2,353,710 4,714,134 16,808,156 7,743,898 13,180,846 7,124,929 2,444,274 9,131,619 61,839,673 2,534,070 500,000 500,000 1,629,858 82,242 $ 135,147,685

Fiscal 2013 $

3,303,877 1,356,328 2,412,895 4,741,387 17,915,051 7,374,804 12,094,343 8,003,892 2,470,010 9,662,070 63,775,993 2,911,626 500,000 512,076 1,700,816 86,244 $ 138,821,412

Fiscal 2014 $

3,534,726 1,399,850 2,513,305 5,154,631 19,819,896 7,710,276 11,626,931 8,775,284 2,510,000 10,306,266 66,515,227 2,691,999 641,000 1,859,486 86,665 $ 145,145,542

Fiscal 2015 $

3,260,800 1,412,565 2,499,478 5,167,094 20,265,333 7,266,208 12,267,759 9,553,294 2,560,000 10,251,528 68,984,786 3,539,560 500,000 1,470,707 110,996 $ 149,110,108

Fiscal 2016 $

3,366,788 1,506,975 2,584,631 5,470,363 20,719,999 7,378,214 13,740,688 10,349,049 2,635,000 10,445,474 71,330,224 3,533,641 684,751 475,000 1,692,949 60,659 $ 155,974,405

Revenues Property Taxes: Property taxes are the major source of revenue for the City. The total amount levied is subject to certain limits prescribed by law; for a description of those limits see "PROPERTY TAXATION -- Tax Limitations" above. There is litigation in the Commonwealth claiming that the system of financing public education, with its heavy reliance on the property tax, is unconstitutional because it is based on the wealth of the municipality in which the student lives. State Distributions: In addition to grants for specified capital purposes (some of which are payable over the life of the bonds issued for the projects), the Commonwealth of Massachusetts provides financial assistance to cities and towns for current purposes. Payments to cities and towns are derived primarily from a percentage of the State’s personal income, sales and use, and corporate excise tax receipts, together with the net receipts from the State Lottery. A municipality’s state aid entitlement is based on a number of different formulas, of which the “schools” and “lottery” formulas are the most important. Both of the major formulas tend to provide more state aid to poorer communities. The formulas for determining a municipality’s state aid entitlement are subject to amendment by the state legislature and, while a formula might indicate that a particular amount of state aid is owed, the amount of state aid actually paid is limited to the amount appropriated by the state legislature. The state annually estimates state aid, but the actual state aid payments may vary from the estimate. In the fall of 1986, both the State Legislature (by statute repealed as of July 1, 1999) and the voters (by initiative petition) placed limits on the growth of state tax revenues. Although somewhat different in detail, each measure essentially limited the annual growth in state tax revenues to an average rate of growth in wages and salaries in the Commonwealth over the three previous calendar years. If not amended, the remaining law could restrict the amount of state revenues available for state aid to local communities. State School Building Assistance Program: Under its school building assistance program, the Commonwealth of Massachusetts provides grants to cities, towns and regional school districts for school construction projects. Until July 26, 2004, the State Board of Education was responsible for approving grants for school projects and otherwise administering the program. Grant amounts ranged from 50% to 90% of approved project costs. Municipalities generally issued bonds to finance the entire project cost, and the Commonwealth disbursed the grants in equal annual installments over the term of the related bonds. Pursuant to legislation which became effective on July 26, 2004, the state legislature created the Massachusetts School Building Authority (the “Authority”) to finance and administer the school building assistance program. The Authority has assumed all powers and obligations of the Board of Education with respect to the program. In addition to certain other amounts, the legislation dedicates a portion of Commonwealth sales tax receipts to the Authority to finance the program. Projects previously approved for grants by the State Board of Education are entitled to receive grant payments from the Authority based on the approved project cost and reimbursement rate applicable under the prior law. The Authority has 19

paid and is expected to continue to pay the remaining amounts of the grants for such projects either in annual installments to reimburse debt service on bonds issued by the municipalities to finance such projects, or as lump sum payments to contribute to the defeasance of such bonds. Projects on the priority waiting list as of July 1, 2004 are also entitled to receive grant payments from the Authority based on the eligible project costs and reimbursement rates applicable under the prior law. With limited exceptions, the Authority is required to fund the grants for such projects in the order in which they appear on the waiting list. Grants for any such projects that have been completed or substantially completed have been paid and are expected to continue to be paid by the Authority in lump sum payments, thereby eliminating the need for the Authority to reimburse interest expenses that would otherwise be incurred by the municipalities to permanently finance the Authority’s share of such project costs. Interest on debt issued by municipalities prior to July 1, 2004 to finance such project costs, and interest on temporary debt until receipt of the grant, is included in the approved costs of such projects. Grants for any such projects that have not yet commenced or that are underway have been and are expected to continue to be paid by the Authority as project costs are incurred by the municipality pursuant to a project funding agreement between the Authority and the municipality, eliminating the need for the municipality to borrow even on a temporary basis to finance the Authority’s share of the project costs in most cases. The maximum rate for new project grant applications submitted to the Authority on or after July 1, 2007 is 80% of approved project costs. The Authority promulgated new regulations with respect to the application and approval process for projects submitted after July 1, 2007. The Authority expects to pay grants for such projects as project costs are incurred pursuant to project funding agreements between the Authority and the municipalities. None of the interest expense incurred on debt issued by municipalities to finance their portion of the costs of new projects will be included in the approved project costs eligible for reimbursement. Motor Vehicle Excise: An excise is imposed on the registration of motor vehicles (subject to exemptions) at a uniform rate of $25 per $1,000 of valuation. The excise is collected by and for the benefit of the municipality in which the motor vehicle is customarily kept. Valuations are determined by a statutory formula based on manufacturer's list price and year of manufacture. Bills not paid when due bear interest at 12 percent per annum. Provision is also made for the non-renewal of registration and operating license by the registrar of motor vehicles. Enterprise Funds: The City of Methuen operates a combined Enterprise Fund for its provision of water and sewer services. Water services are provided to approximately 95% of the City and user fees are charged on the basis of metered consumption billed quarterly. The water rate was last increased November 2015 effective for the May 2016 billing as listed below.

Per 100 metered cubic feet 1-1000 1001-3000 3001-6000 6001 and over

Water Residential Commercial 1.62 3.55 2.37 4.00 3.12 4.45 3.87 4.90

Sewer Residential Commercial 2.15 2.25 2.45 2.55 2.75 2.85 3.05 3.15

Approximately 94% of Methuen's residents are served by the City's sanitary sewer system. Current rates were set in September 2007. The quarterly bills are determined by metered water consumption at a rate of $2.15 per 100 cubic feet for residential users and at a rate of $2.25 for every 100 cubic feet for commercial users. Other: Other major sources of revenue include licenses and permits and interest income.

Summary of Significant Accounting Policies See Appendix A.

20

Investment of City Funds Investments of funds of cities and towns, except for trust funds, are generally restricted by Massachusetts General Laws Chapter 44, §55. That statute permits investments of available revenue funds and bond and note proceeds in term deposits and certificates of deposits of banks and trust companies, in obligations issued or unconditionally guaranteed by the federal government or an agency thereof with a maturity of not more than one year, in repurchase agreements with a maturity of not more than 90 days secured by federal or federal agency securities, in participation units in the Massachusetts Municipal Depository Trust (“MMDT”), or in shares in SEC-registered money market funds with the highest possible rating from at least one nationally recognized rating organization. MMDT is an investment pool created by the Commonwealth. The State Treasurer is the sole trustee, and the funds are managed under contract by an investment firm under the supervision of the State Treasurer’s office. According to the State Treasurer the Trust’s investment policy is designed to maintain an average weighted maturity of 90 days or less and is limited to high-quality, readily marketable fixed income instruments, including U.S. Government obligations and highlyrated corporate securities with maturities of one year or less. Trust funds, unless otherwise provided by the donor, may be invested in accordance with §54 of Chapter 44, which permits a broader range of investments than §55, including any bonds or notes that are legal investments for savings banks in the Commonwealth. The restrictions imposed by §§54 and 55 do not apply to city and city retirement systems. A breakdown of current investments may be obtained from the City Treasurer. Pension funds are under the jurisdiction of the Methuen Contributory Retirement System. Investments and the retirement system are discussed in Appendix A. Audits The City's financial statements are audited by Melanson Heath, Certified Public Accounts. Reference is made to the City's audit report and copies of previous audits are available upon request from the City Auditor. The attached audit speaks only as of its date, and only to the matters expressly set forth herein. The auditors have not been engaged to review this Annual Report or to perform audit procedures regarding the post-audit period, not have the auditors been requested to give their consent to the inclusion of their report in Appendix A. Except as stated in their report, the auditors have not been engaged to verify the financial information set out in Appendix A and are not passing upon and do not assume responsibility for the sufficiency, accuracy or completeness of the financial information presented in that appendix.

Financial Statements Set forth on the following pages are Governmental Funds Balance Sheets for the fiscal years ended June 30, 2015, June 30, 2014, and June 30, 2013, and Statements of Revenues, Transfers, Expenditures and Changes in General Fund Balance for fiscal years ended June 30, 2015, June 30, 2014, June 30, 2013, June 30, 2012, and June 30, 2011. Said statements have been extracted from the audited financial statements of the City.

21

_________________________ Extracted from the City’s audited financial statements.

22

CITY OF METHUEN, MASSACHUSETTS Governmental Funds Balance Sheet June 30, 2014 (1)

General Fund

ASSETS Cash and short-term investments Receivables: Property taxes Excises Assessments Departmental and other Intergovernmental Loans Total assets

$

5,957,889

$

3,963,182 1,544,628 275,840 2,157,875 104,204 14,003,618

High School Revitalization $

5,436,450

$

481,598 5,918,048

NonMajor Governmental Funds

Total Governmental Funds

$

3,450,627

$

14,844,966

$

348,239 992,629 3,687,400 8,478,895

$

3,963,182 1,544,628 275,840 2,506,114 1,578,431 3,687,400 28,400,561

LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES (DEFICIT) Liabilities: Warrants and accounts payable Accrued liabilities Retainage payable Notes payable Other liabilities Total liabilities

$

Deferred Inflows Of Resources Fund Balances: Nonspendable Restricted Assigned Unassigned Total Fund Balances (Deficit) Total Liabilities, Deferred Inflows of Resources and Fund Balances (Deficit)

1,641,064 911,308 1,213,637 3,766,009

$

7,120,722

14,003,618

(1) Extracted from the City’s audited financial statements

23

$

-

378,275 2,738,612 3,116,887 $

1,850,148 1,904,236 30,000,000 33,754,384

(27,836,336) (27,836,336) $

5,918,048

$

549,931 111,157 5,752 666,840

$

4,041,143 1,022,465 1,904,236 30,000,000 1,219,389 38,187,233

3,821,342

10,942,064

417,056 4,205,980 (632,323) 3,990,713

417,056 4,205,980 378,275 (25,730,047) (20,728,736)

8,478,895

$

28,400,561

CITY OF METHUEN, MASSACHUSETTS Balance Sheet- Governmental Funds June 30, 2013 (1)

General ASSETS Cash and short-term investments Receivables: Property Taxes Excises Assessments Departmental and other Intergovermental Loans TOTAL ASSETS LIABILITIES AND FUND BALANCES Warrants and Accounts Payable Accrued Liabilities Retainage Payable Notes Payable Other Liabilities TOTAL LIABILITIES Deferred Inflows of Resources

$

6,156,124

High School Revitalization $

1,391,030

4,440,874 1,545,351 306,688 1,995,134 $ 14,444,171

$

5,592,503 6,983,533

$

$

1,800,830 697,796 1,210,097 3,708,723 7,493,290

5,642,271 2,084,497 15,000,000 22,726,768

Nonmajor Governmental Funds

Totals Governmental Funds

$

3,661,965

$ 11,209,119

$

336,021 1,279,838 3,161,762 8,439,586

4,440,874 1,545,351 306,688 2,331,155 6,872,341 3,161,762 $ 29,867,290

774,887 118,707 893,594

$ 8,217,988 816,503 2,084,497 15,000,000 1,210,097 27,329,085

3,299,275

10,792,565

432,817 3,975,691 (161,791) 4,246,717 8,439,586

432,817 3,975,691 711,309 543,490 (13,917,667) (8,254,360) $ 29,867,290

$

-

FUND BALANCES: Nonspendable Restricted Committed 711,309 Assigned 543,490 Unassigned 1,987,359 TOTAL FUND BALANCES 3,242,158 TOTAL LIABILITIES AND FUND BALANCES $ 14,444,171 _____________ (1) Extracted from City's audited financial statements.

24

(15,743,235) (15,743,235) $ 6,983,533

$

_________________________ Extracted from the City’s audited financial statements.

25

CITY OF METHUEN, MASSACHUSETTS GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES June 30, 2014 (1)

General Fund REVENUE Property taxes Excise taxes Local options meals tax Departmental Licenses and permits Intergovernmental Charges for services Interest from penalties Investment income Fines and forfeitures Contributions Other revenue

$

TOTAL REVENUES

71,108,736 5,269,812 726,942 2,448,899 1,218,955 62,975,284 70,448 582,975 38,777 375,548 127,554

High School Revitalization

Nonmajor Governmental Funds

$

$

25,360,157 567

10,049,319 5,696,410 1,778 231,194 241,137

Total Governmental Funds

$

71,108,736 5,269,812 726,942 2,448,899 1,218,955 98,384,760 5,766,858 582,975 40,555 375,548 231,194 369,258

144,943,930

25,360,724

16,219,838

186,524,492

25,396,226 19,320,049 82,857,539 6,401,111 2,503,547 1,199,914 1,091,089

37,453,825 -

93,194 1,798,212 11,698,806 1,513,801 5,811 430,212 602,231

25,489,420 21,118,261 132,010,170 7,914,912 2,509,358 1,630,126 1,693,320

6,574,000 1,413,119 146,756,594

37,453,825

16,142,267

6,574,000 1,413,119 200,352,686

Excess (deficiency) of Revenues Over Expenditures

(1,812,664)

(12,093,101)

77,571

(13,828,194)

OTHER FINANCING SOURCES (Uses) Transfers in (see note 22) Transfers out

1,903,818 (216,425)

(333,575)

1,903,818 (550,000)

Total Other Financing Sources and Uses Net Change in Fund Balance Fund Balance (Deficit), at Beginning of Year Fund Balance (Deficit), at End of Year

1,687,393 (125,271) 3,242,158 3,116,887

(333,575) (256,004) 4,246,717 3,990,713

1,353,818 (12,474,376) (8,254,360) (20,728,736)

EXPENDITURES Current: General Government Public Safety Education Public works Sanitation Health and human services Culture and recreation Debt service: Principal Interest TOTAL EXPENDITURES

$

(1) Extracted from City's audited financial statements.

26

(12,093,101) (15,743,235) $ (27,836,336)

$

$

CITY OF METHUEN, MASSACHUSETTS Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances June 30, 2013 (1)

General REVENUES Property taxes Excise taxes Local options meals tax Departmental Licenses and permits Intergovernmental Charges for services Interest and penalties Investment income Fines and forfeitures Contributions Other revenue Total Revenues EXPENDITURES Current: General government Public safety Education Public works Sanitation Health and human services Culture and recreation Debt service: Principal Interest Total Expenditures

$

High School Revitalization

67,371,828 4,950,006 579,748 2,294,996 1,137,181 61,497,764 79,152 511,468 30,084 348,897 314,418 $ 139,115,542

$

$

$

24,413,750 18,113,931 79,110,904 6,299,291 2,379,910 1,173,781 1,078,550

$

Nonmajor Governmental Funds

Totals Governmental Funds

26,249,318 10,369 26,259,687

$

10,289,674 5,230,800 1,419 104,646 735,528 $ 16,362,067

$

42,905,642 -

$

$

264,673 3,489,945 12,415,796 1,452,814 12,514 266,111 829,604

67,371,828 4,950,006 579,748 2,294,996 1,137,181 98,036,756 5,309,952 511,468 31,503 348,897 104,646 1,060,315 $ 181,737,296

24,678,423 21,603,876 134,432,342 7,752,105 2,392,424 1,439,892 1,908,154

6,360,000 1,360,295 140,290,412

42,905,642

18,731,457

6,360,000 1,360,295 201,927,511

Excess (deficiency) of revenues over expenditures

(1,174,870)

(16,645,955)

(2,369,390)

(20,190,215)

OTHER FINANCING SOURCES (USES) Issuance of long-term debt Proceeds of lease Transfers in Transfers out Total Other Financing Sources (Uses)

469,889 1,540,474 2,010,363

8,500,000 8,500,000

2,300,000 15,500 (215,500) 2,100,000

10,800,000 469,889 1,555,974 (215,500) 12,610,363

835,493

(8,145,955)

(269,390)

(7,579,852)

2,406,665 3,242,158

(7,597,280) $ (15,743,235)

Net change in fund balances Fund Balances, at Beginning of Year Fund Balances, at End of Year ____________________ (1) Extracted from City's audited financial statements.

$

27

$

4,516,107 4,246,717

$

(674,508) (8,254,360)

CITY OF METHUEN, MASSACHUSETTS Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances June 30, 2012 (1) High School Revitalization

Nonmajor Governmental Funds

64,412,641 4,714,524 2,090,431 1,191,807 60,465,469 72,685 407,689 10,399 236,324 199,988 $ 133,801,957

$

3,126,939 10,651 3,137,590

$

13,210,866 5,335,396 765 66,569 236,507 $ 18,850,103

$

$

$

6,430,597 -

$

$

General

Totals Governmental Funds

REVENUES Property taxes Excise taxes Departmental Licenses and permits Intergovernmental Charges for services Interest and penalties Investment income Fines and forfeitures Contributions Other revenue Total Revenues EXPENDITURES Current: General government Public safety Education Public works Sanitation Health and human services Culture and recreation Debt service: Principal Interest Total Expenditures

$

Excess (deficiency) of revenues over expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total Other Financing Sources (Uses) Net change in fund balance Fund Balances, at Beginning of Year Fund Balances, at End of Year ____________________ (1) Extracted from City's audited financial statements.

$

24,410,780 16,375,267 76,442,580 5,373,099 2,381,366 1,098,069 1,059,526

$

121,791 1,872,080 13,489,595 2,426,815 81,464 238,873 678,356

64,412,641 4,714,524 2,090,431 1,191,807 76,803,274 5,408,081 407,689 11,164 236,324 66,569 447,146 $ 155,789,650

6,560,000 1,536,297 135,236,984

6,430,597

(1,435,027)

(3,293,007)

(58,871)

(4,786,905)

1,360,523 1,360,523 (74,504)

(3,293,007)

(95,000) (95,000) (153,871)

1,360,523 (95,000) 1,265,523 (3,521,382)

2,481,169 2,406,665

28

(4,304,273) $ (7,597,280)

18,908,974

24,532,571 18,247,347 96,362,772 7,799,914 2,462,830 1,336,942 1,737,882

$

4,669,974 4,516,103

6,560,000 1,536,297 160,576,555

$

2,846,870 (674,512)

CITY OF METHUEN, MASSACHUSETTS Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances June 30, 2011 (1) High School Revitalization

Nonmajor Governmental Funds

61,711,107 4,554,563 2,127,735 1,105,078 59,289,495 71,835 340,253 21,635 193,950 227,125 $ 129,642,776

$

2,569,450 2,569,450

$

14,099,218 5,268,156 1,242 97,681 197,216 $ 19,663,513

$

$

$

6,134,466 -

$

$

General

Totals Governmental Funds

REVENUES Property taxes Excise taxes Departmental Licenses and permits Intergovernmental Charges for services Interest and penalties Investment income Fines and forfeitures Contributions Other revenue Total Revenues EXPENDITURES Current: General government Public safety Education Public works Sanitation Health and human services Culture and recreation Debt service: Principal Interest Total Expenditures

$

Excess (deficiency) of revenues over expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total Other Financing Sources (Uses) Net change in fund balance Fund Balances, at Beginning of Year Fund Balances, at End of Year ____________________ (1) Extracted from City's audited financial statements.

$

23,470,281 15,509,917 73,966,620 6,084,767 2,576,045 994,572 1,026,528

$

143,345 1,780,782 14,174,346 1,854,912 219,084 895,042

61,711,107 4,554,563 2,127,735 1,105,078 75,958,163 5,339,991 340,253 22,877 193,950 97,681 424,341 $ 151,875,739

23,613,626 17,290,699 94,275,432 7,939,679 2,576,045 1,213,656 1,921,570

6,455,000 1,825,678 131,909,408

6,134,466

19,067,511

6,455,000 1,825,678 157,111,385

(2,266,632)

(3,565,016)

596,002

(5,235,646)

2,465,682 (2,170,997) 294,685 (1,971,947)

(3,565,016)

122,372 122,372 718,374

4,453,116 2,481,169

(739,257) $ (4,304,273)

3,951,600 $ 4,669,974

2,465,682 (2,048,625) 417,057 (4,818,589) 7,665,459 2,846,870

29

$

Unassigned/Undesignated Fund Balance and Free Cash Under Massachusetts law an amount known as "free cash" is certified as of the beginning of each fiscal year by the Massachusetts Department of Revenue, Bureau of Accounts, and this, together with certain subsequent tax receipts, is used as the basis for subsequent appropriations from available funds, which are not required to be included in the annual tax levy. Subject to certain adjustments, free cash is unreserved fund balance adjusted to a cash basis. The following table sets forth the trend in Unassigned/Undesignated General Fund balance and in free cash as certified by the Bureau of Accounts.

Fiscal Year 2015 2014 2013 2012 2011

GAAP Undesignated/Unassigned General Fund Balance (1) $

3,193,646 2,738,612 1,987,359 1,082,763 1,787,974

Free Cash (July 1) $667,095 (2)(3) 1,049,383 1,255,673 799,506 989,140

_______________ (1) Reflects Unassigned Fund Balance in fiscal 2011 in accordance with GASB requirements. (2) The City expects an operating surplus in fiscal 2015, other than in regards to snow and ice. A snow and ice deficit of approximately $1.6 million was incurred in fiscal 2015, and net of anticipated future FEMA reimbursements of $500,000, the City needed to fund the net $1.1 million. The amount carried forward will be amortized in 3 equal installments of $165,389 in each of the fiscal years 2016, 2017, and 2018. (3) Enterprise fund Free Cash was certified at $2,602,176.

Stabilization Fund The City maintains a Stabilization Fund which is accounted for in the Special Revenue Funds. The Stabilization Fund plus interest income may be appropriated by a two-thirds vote of the City Council for any project. June 30

Stabilization Fund Balance

2015 (December 31) 2015 (June 30) 2014 2013 2012 2011

$2,164,219 1,891,886 1,440,341 711,309 349,119 194,956

Tax Increment Financing for Development Districts Under recent legislation, cities and towns are authorized to establish development districts to encourage increased residential, industrial and commercial activity. All or a portion of the taxes on growth in assessed value in such districts may be pledged and used solely to finance economic development projects pursuant to the city or town’s development program for the district. This includes pledging such “tax increments” for the payment of bonds issued to finance such projects. As a result of any such pledge, tax increments raised from new growth properties in development districts are not available for other municipal purposes. Tax increments are taken into account in determining the total taxes assessed for the purpose of calculating the maximum permitted tax levy under Proposition 2 ½ (see “Tax Limitations” under “PROPERTY TAXATION” above.)

30

INDEBTEDNESS Authorization Procedure and Limitations Serial bonds and notes are authorized by vote of two-thirds of all the members of the City Council. Provision is made for a referendum on the borrowing authorization if there is a timely filing of a petition bearing the requisite number of signatures. Refunding bonds and notes are authorized by the City Council. Borrowings for some purposes require State administrative approval. When serial bonds or notes have been authorized, bond anticipation notes may be issued by the officers authorized to issue the serial bonds or notes. Temporary loans in anticipation of the revenue of the fiscal year in which the debt is incurred or in anticipation of authorized federal and state aid generally may be made by the treasurer with the approval of the Mayor. Debt Limits General Debt Limit. The General Debt Limit of the City consists of a Normal Debt Limit and a Double Debt Limit. The Normal Debt Limit is 2 1/2 percent of the valuation of taxable property as last equalized by the State Department of Revenue. The City can authorize debt up to this amount without State approval. It can authorize debt up to twice this amount (the Double Debt Limit) with State administrative approval. There are many categories of general obligation debt which are exempt from and do not count against the General Debt Limit. Among others, these exempt categories include revenue anticipation notes and grant anticipation notes, emergency loans, loans exempted by special laws, certain school bonds, sewer bonds, and solid waste disposal facility bonds, and subject to special debt limits, bonds for water (limited to 10 percent of equalized valuation), housing, urban renewal, and economic development (subject to various debt limits), and electric and gas (subject to a separate limit equal to the General Debt Limit, including the same doubling provision). Industrial revenue bonds, electric revenue bonds and water pollution abatement revenue bonds are not subject to these debt limits. The General Debt Limit and the special debt limit for water bonds apply at the time debt is authorized. The other special debt limits generally apply at the time debt is incurred. Revenue Anticipation Notes. The amount borrowed in each fiscal year by the issue of revenue anticipation notes is limited to the tax levy of the prior fiscal year, together with the net receipts in the prior fiscal year from the motor vehicle excise and certain payments made by the Commonwealth in lieu of taxes. The fiscal year ends on June 30. Notes may mature in the following fiscal year, and notes may be refunded into the following fiscal year to the extent of the uncollected, unabated current tax levy and certain other items, including revenue deficits, overlay deficits, final judgments and lawful unappropriated expenditures, which are to be added to the next tax levy, but excluding deficits arising from a failure to collect taxes of earlier years. (See "Taxation to Meet Deficits" under "PROPERTY TAXATION" above.) In any event, the period from an original borrowing to its final maturity cannot exceed one year. Types of Obligations General Obligations. Massachusetts cities and towns are authorized to issue general obligation indebtedness of these types: Serial Bonds and Notes. These are generally required to be payable in equal or diminishing annual principal amounts beginning no later than the end of the next fiscal year commencing after the date of issue and ending within the terms permitted by law. A level debt service schedule, or a schedule that provides for a more rapid amortization of principal than level debt service, is permitted. The principal amounts of certain economic development bonds supported by tax increment financing may be payable in equal, diminishing or increasing amounts beginning within 5 years after the date of issue. The maximum terms of serial bonds and notes vary from one year to 40 years, depending on the purpose of the issue. The maximum terms permitted are set forth in the statutes. In addition, for many projects, the maximum term may be determined in accordance with useful life guidelines promulgated by the State Department of Revenue (“DOR”). Serial bonds and notes may be issued for the purposes set forth in the statutes. In addition, serial bonds and notes may be issued for any other public work improvement or asset not specifically listed in the Statutes that has a useful life of at least 5 years. Bonds or notes may be made callable and redeemed prior to their maturity, and a redemption premium may be paid. Refunding bonds or notes may be issued subject to the maximum applicable term measured from the date of the original bonds or notes and must produce present value savings over the debt service of the refunded bonds. Generally, the first required annual payment of principal of the refunding bonds cannot be later than the first principal payment of any of the bonds or notes being refunded thereby, however, principal payments made before the first principal payment of any of the bonds or notes being refunded thereby may be in any amount. Serial bonds may be issued as “qualified bonds” with the approval of the state Municipal Finance Oversight Board composed of the State Treasurer, the State Auditor, the Attorney General and the Director of Accounts, subject to such conditions and limitations (including restrictions on future indebtedness) as may be required by the Board. Qualified bonds may mature not 31

less than 10 nor more than 30 years from their dates and are not subject to the amortization requirements described above. The State Treasurer is required to pay the debt service on qualified bonds and thereafter to withhold the amount of the debt service paid by the State from state aid or other state payments; administrative costs and any loss of interest income to the State are to be assessed upon the city or town. Tax Credit Bonds or Notes. Subject to certain provisions and conditions, the officers authorized to issue bonds or notes may designate any duly authorized issue of bonds or notes as “tax credit bonds” to the extent such bonds and notes are otherwise permitted to be issued with federal tax credits or other similar subsidies for all or a portion of the borrowing costs. Tax credit bonds may be made payable without regard to the annual installments required by any other law, and a sinking fund may be established for the payment of such bonds. Any investment that is part of such a sinking fund may mature not later than the date fixed for payment or redemption of the applicable bonds. Bond Anticipation Notes. These generally must mature within two years of their original dates of issuance, but may be refunded from time to time for a period not to exceed five years from their original dates of issuance, provide that for each year that the notes are refunded beyond the second year they must be paid in part from revenue funds in an amount at least equal to the minimum annual payment that would have been required if the bonds had been issued at the end of the second year. For certain school projects, however, notes may be refunded from time to time for a period not to exceed seven years without having to pay any portion of the principal of the notes from revenue funds. The maximum term of bonds issued to refund bond anticipation notes is measured (except for certain school projects) from the date of the original issue of the notes. Revenue Anticipation Notes. These are issued to meet current expenses in anticipation of taxes and other revenues. They must mature within one year but, if payable in less than one year, may under the statute be refunded from time to time up to one year from the original date of issue. No such notes have been issued in the past five fiscal years. Grant Anticipation Notes. These are issued for temporary financing in anticipation of federal grants and state and county reimbursements. They must generally mature within two years but may be refunded from time to time as long as the municipality remains entitled to the grant or reimbursement. Notes in anticipation of certain state and county reimbursements may be refunded only up to two years from the original date of issue. Revenue Bonds. Cities and towns may issue revenue bonds for solid waste disposal facilities, for projects financed under the Commonwealth’s Clean Water Trust Programs and for certain economic development projects supported by tax increment financing. In addition to general obligation bonds and notes, cities and towns having electric departments may issue electric revenue bonds, and notes in anticipation of such bonds, subject to the approval of the State Department of Telecommunications and Energy. The City does not have an electric department.

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Direct Debt Summary As of June 30, 2015 Including Subsequent Issues General Obligation Bonds (1): Outstanding: MCWT (2) Landfill (3) School (4) General Water (3) Total Outstanding

$18,936,839 395,000 26,635,000 3,975,000 1,460,000 $51,401,839

Bonds dated August 6, 2015

15,000,000

Temporary Loans: Bond Anticipation Notes Outstanding (5) This Issue New Money Bond Anticipation Notes (6) Total Short Term Outstanding After This Issue

8,615,000 3,413,000 12,028,000

Total Direct Debt

$78,429,839

_______________ (1) Principal amounts only. Does not include lease and installment purchase obligations, overlapping debt, unfunded pension liability and other post-employment benefits liability. (2) Does not reflect subsidy from the Massachusetts Clean Water Trust; $18,414,803 is outside the debt limit. (3) Outside the debt limit. (4) $18,500,000 is outside the debt limit. The unpaid balance of state school construction grants payable over the life of outstanding school debt is estimated at $7,989,516 at June 30, 2015. Said grant payments are applicable to both principal and interest and are subject to annual appropriation by the State legislature. (5) Payable June 3, 2016 ($3,200,000) and August 5, 2016 ($5,415,000). (6) This issue payable August 5, 2016.

Debt Ratios The table below sets forth debt as a percentage of equalized valuation and per capita debt at the end of the following fiscal years. The table considers the principal amount of general obligation bonds of the City. The table does not deduct anticipated state grant payments applicable to the principal amount of outstanding bonds or debt that may be supported in whole, or part, by non-tax revenues. (See "Direct Debt Summary".)

Fiscal Year End

General Obligation Bonds Outstanding

Estimated Full Valuation (1)

2015 2014 2013 2012 2011

$ 51,401,839 49,618,337 57,651,701 53,981,572 61,462,876

$ 4,606,562,400 4,716,273,800 4,716,273,800 5,001,489,700 5,001,489,700

Per Capita Debt (2)

Debt as a % of Full Valuation

$1,088 1,050 1,220 1,142 1,301

1.12 % 1.05 1.22 1.08 1.23

______________ (1) 2008 state equalized valuation used for fiscal year 2010; 2010 state equalized valuation used for fiscal years 2011 and 2012; 2012 state equalized valuation used for fiscal years 2013 and 2014; 2014 state equalized valuation used for fiscal year 2015. (2) Population based on 2010 Federal Census of 47,255.

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Debt Service Requirements The following table sets forth the required principal and interest payments on outstanding general obligation bonds of the City of Methuen as of June 30, 2015, including subsequent issues. General Obligation Bonds Debt Service Requirements As of June 30, 2015

Fiscal Year 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 Total

Outstanding as of June 30, 2015 Principal Interest $

7,792,639 6,924,740 2,617,274 2,665,443 2,693,462 2,506,742 2,585,591 2,345,027 2,405,057 2,430,695 2,486,952 2,192,805 2,248,147 978,334 900,909 922,173 915,153 950,698 955,000 995,000 365,000 380,000 395,000 410,000 430,000 445,000 465,000

$

51,401,839

$

1,432,151 1,169,335 1,017,076 950,565 876,586 802,036 727,671 658,193 598,324 539,875 479,636 423,434 368,454 325,575 296,982 268,189 238,240 206,819 172,113 134,694 108,300 93,400 77,900 61,800 45,000 27,500 9,300

$ 12,109,150

Bonds dated 8/6/15 Principal Interest $

10,000 335,000 350,000 370,000 385,000 405,000 425,000 450,000 470,000 495,000 520,000 535,000 550,000 570,000 585,000 610,000 625,000 650,000 670,000 695,000 720,000 745,000 770,000 800,000 830,000 865,000 565,000 $ 15,000,000

$

$

34

329,075 577,738 570,888 555,438 537,438 518,563 498,813 478,063 456,188 433,188 409,063 386,288 367,863 351,588 334,788 317,097 298,044 277,975 257,256 235,388 212,353 188,025 162,388 135,875 106,400 73,800 39,900 11,300 9,120,775

MCWT Subsidy

MSBA $

$

(4,851,448) (3,138,068) (7,989,516)

$

$

(18,141) (17,112) (15,700) (14,484) (4,225) (3,816) (3,412) (2,992) (2,085) (81,966)

Net Debt Service $

4,684,276 5,526,633 4,524,538 4,506,962 4,473,261 4,208,524 4,213,663 3,903,291 3,907,484 3,873,757 3,870,650 3,522,527 3,519,463 2,205,496 2,102,678 2,092,459 2,061,437 2,060,493 2,034,369 2,035,081 1,380,653 1,381,425 1,380,288 1,377,675 1,381,400 1,376,300 1,379,200 576,300 $ 79,560,282

Projected Principal Payments by Purpose The following table sets forth the principal payments by purpose on outstanding debt of the City of Methuen as of June 30, 2015. General Obligation Bonds Principal Payments by Purpose As of June 30, 2015 Fiscal Year

MCWT (1)

Landfill (2)

School (3)

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 Total

$ 1,347,639 1,374,740 1,402,274 1,430,443 1,428,462 1,456,742 1,485,591 1,515,027 1,545,057 1,545,695 1,576,952 1,252,805 1,278,147 123,334 60,909 62,173 25,153 25,698 $ 18,936,839

$ 185,000 185,000 5,000 5,000 5,000 5,000 5,000 $ 395,000

$ 5,415,000 4,620,000 575,000 590,000 605,000 625,000 655,000 675,000 700,000 720,000 740,000 765,000 785,000 810,000 840,000 860,000 890,000 925,000 955,000 995,000 365,000 380,000 395,000 410,000 430,000 445,000 465,000 $ 26,635,000

General $

760,000 645,000 535,000 540,000 555,000 310,000 330,000 40,000 40,000 40,000 45,000 45,000 45,000 45,000 $ 3,975,000

Total Outstanding

Water (2) $

85,000 100,000 100,000 100,000 100,000 110,000 110,000 115,000 120,000 125,000 125,000 130,000 140,000 $ 1,460,000

$

7,792,639 6,924,740 2,617,274 2,665,443 2,693,462 2,506,742 2,585,591 2,345,027 2,405,057 2,430,695 2,486,952 2,192,805 2,248,147 978,334 900,909 922,173 915,153 950,698 955,000 995,000 365,000 380,000 395,000 410,000 430,000 445,000 465,000 $ 51,401,839

_____________ (1) Does not reflect subsidy from the Massachusetts Clean Water Trust; $18,936,839 is outside the debt limit. (2) Outside the debt limit. (3) $18,500,000 is outside the debt limit. The unpaid balance of state school construction grants payable over the life of outstanding school debt is estimated at $7,989,516 at June 30, 2015. Said grant payments are applicable to both principal and interest and are subject to annual appropriation by the State legislature.

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Coverage of Qualified Debt Service It is projected that state aid distributions from The Commonwealth of Massachusetts to the City will provide ample coverage of outstanding qualified bond debt service. The following table presents debt service on the City’s State Qualified Bonds and the coverage ratio of total state aid to projected qualified debt service.

Fiscal Year

Outstanding Qualified Bond Debt Service (1)

Bonds dated 8/6/15

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043

$

1,535,075 1,537,225 1,426,700 1,430,500 1,432,325 1,423,800 1,436,300 1,178,425 1,179,856 1,177,100 1,178,338 1,180,788 1,176,788 1,175,863 1,134,113 1,126,550 1,127,475 1,131,563 1,127,113 1,129,694 473,300 473,400 472,900 471,800 475,000 472,500 474,300

$

329,075 587,738 905,888 905,438 907,438 903,563 903,813 903,063 906,188 903,188 904,063 906,288 902,863 901,588 904,788 902,097 908,044 902,975 907,256 905,388 907,353 908,025 907,388 905,875 906,400 903,800 904,900 576,300

Total

$ 28,558,788

$

24,120,775

Total State Aid (2) $

47,416,434 48,364,763 49,332,058 50,318,699 51,325,073 52,351,575 53,398,606 54,466,578 55,555,910 56,667,028 57,800,368 58,956,376 60,135,503 61,338,213 62,564,978 63,816,277 65,092,603 66,394,455 67,722,344 69,076,791 70,458,327 71,867,493 73,304,843 74,770,940 76,266,359 77,791,686 77,791,686 79,347,520

Coverage Ratio 25.44 22.76 21.15 21.54 21.94 22.49 22.82 26.17 26.63 27.24 27.76 28.25 28.92 29.53 30.69 31.46 31.98 32.63 33.29 33.94 51.03 52.02 53.11 54.27 55.21 56.52 56.40 137.68

___________ (1) (2)

As of June 30, 2015. Includes total state aid available for coverage based on the fiscal 2015 “Cherry Sheet”. State aid is increased at a rate of 2% each year after fiscal 2015. The State aid figures above do not reflect school building assistance grants as such grants are not paid by the Commonwealth and are paid by the Massachusetts School Building Authority. Therefore, such payments do not constitute “distributable aid” of the Commonwealth under the Qualified Bond Act.

Authorized Unissued Debt and Prospective Financing The City will has approximately $12 million authorized and unissued bonds for high school construction ($7.5 million), high school athletic fields ($4.6 million), energy improvement purposes ($3.7 million), equipment ($3.4 million) and sewer purposes ($200,000). Additionally, the City has authorized the refunding of any and all bonds issued prior to February 19, 2004.

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Overlapping Debt The City of Methuen is located in Essex County and is a member of the Merrimack Valley Regional Transit Authority, the Greater Lawrence Regional Vocational Technical School District and the Greater Lawrence Sanitary District. The following table sets forth the outstanding bonded debt, exclusive of temporary loans in anticipation of bonds or current revenue, of Essex County, the Merrimack Valley Regional Transit Authority, the Greater Lawrence Regional Vocational Technical School District, and the Greater Lawrence Sanitary District and the City’s estimated gross share of such debt as of June 30, 2015 and the fiscal 2016 dollar assessment for each.

Overlapping Entity Greater Lawrence Regional Vocational Technical School District (3) Merrimack Valley Regional Transit Authority (4) Greater Lawrence Sanitary District (5)

Outstanding Debt

Methuen's Estimated Share (1)

Fiscal 2016 Dollar Assessment (2)

$ 20,905,000

16.9%

$ 3,533,641

None $ 29,566,154

N.A. 9.8%

$ 425,252 (FY 2010) $ 3,637,741

__________________ (1) (2) (3)

(4)

(5)

Estimated share based on debt service only. Estimated dollar assessment based upon total net operating expenses, inclusive (where applicable) of debt service. SOURCE: Greater Lawrence Regional Vocational Technical High School District. Cities may organize regional school districts to carry out general or specialized educational functions. Pursuant to special laws a number of cities may also participate in regional school district, primarily for vocational education. The operating expenses and debt service of regional school districts are apportioned among the member municipalities in accordance with the agreements establishing the district. The municipal share is based on the ratio of that member's pupil enrollment to the total pupil enrollment from all the member municipalities in the regional school district as of October 1 of the year proceeding the year for which the apportionment is being determined. SOURCE: Merrimack Valley Regional Transit Authority. The municipal share, of any debt outstanding, is based on a percentage furnished by the Authority as that used in the most recent assessment of the net cost of service of the Authority, including debt service and operating expenses. Shares vary from year to year. Although the Commonwealth is not bound to do so, it is anticipated that the Commonwealth will from year to year provide contract assistance to the Authority absorbing up to 50 percent of the aggregate net cost of service. The Authority currently has no authorized unissued debt. SOURCE: Greater Lawrence Sanitary District. Each member community pays for its proportionate share of the District's operating costs based upon the percent of wastewater received from each respective community. Member communities include Andover, Lawrence, Methuen and North Andover and Salem, N.H.

Contractual Obligations Obligations to make payments on account of municipal contracts are generally limited to currently available appropriations. A Massachusetts city or town has general statutory authority to enter into contracts for the exercise of any of its corporate powers for any period of time deemed to serve its best interests, but in most cases only when funds are available for the first fiscal year; obligations for succeeding fiscal years are in those cases expressly subject to availability and appropriation of funds. Specific authority exists in relatively few cases for long-term contractual obligations that are not subject to annual appropriation, including contracts for refuse disposal (20 year maximum term) and certain contracts by municipal electric departments. Municipalities may also enter into long-term contracts in aid of housing and renewal projects. There is implied authority to make other long-term contracts required to carry out authorized municipal functions, such as contracts to purchase water from private water companies. Pursuant to the Home Rule Amendment to the Massachusetts Constitution, cities and towns may also be empowered to make other contracts and leases. The City of Methuen has entered into a three year contract with three different vendors for waste disposal services: Waste Management, contract expires June 2016, picks up the waste at the transfer station, E.L. Harvey, contract expires June 2016, picks up the trash at the curbside and Wheelabrator, contract expires June 2017, disposes of the trash. The City appropriated approximately $2,635,000 for this purpose in fiscal 2016.

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RETIREMENT PLAN The Massachusetts General Laws provide for the establishment of contributory retirement systems for state employees, for teachers and for county, city and town employees other than teachers. Teachers are assigned to a separate statewide teachers’ system and not to the city and town systems. For all employees other than teachers, this law is subject to acceptance in each city and town. Substantially all employees of an accepting city or town are covered. If a town has a population of less than 10,000 when it accepts the statute, its non-teacher employees participate through the county system and its share of the county cost is proportionate to the aggregate annual rate of regular compensation of its covered employees. In addition to the contributory systems, cities and towns provide non-contributory pensions to a limited number of employees, primarily persons who entered service prior to July 1, 1937 and their dependents. The Public Employee Retirement Administration Commission (“PERAC”) provides oversight and guidance for and regulates all state and local retirement systems. The City of Methuen participates in such a system. The obligations of a city or town, whether direct or through a county system, are contractual legal obligations and are required to be included in the annual tax levy. If a city or town, or the county system of which it is a member, has not established a retirement system funding schedule as described below, the city or town is required to provide for the payment of the portion of its current pension obligations which is not otherwise covered by employee contributions and investment income. “Excess earnings,” or earnings on individual employees’ retirement accounts in excess of a predetermined rate, are required to be set aside in a pension reserve fund for future, not current, pension liabilities. Cities and towns may voluntarily appropriate to their system’s pension reserve fund in any given year up to five percent of the preceding year’s tax levy. The aggregate amount in the fund may not exceed ten percent of the equalized valuation of the city or town. If a city or town, or each member city and town of a county retirement system, has accepted the applicable law, it is required to annually appropriate an amount sufficient to pay not only its current pension obligations, but also a portion of its future pension liability. The portion of each such annual payment allocable to future pension obligations is required to be deposited in the pension reserve fund. The amount of the annual city or town appropriation for each such system is prescribed by a retirement system funding schedule which is periodically reviewed and approved by PERAC. Each system’s retirement funding schedule is designed to reduce the unfunded actuarial pension liability of the system to zero by not later than June 30, 2030, with annual increases in the scheduled payment amounts of not more than 4.5 percent. City, town and county systems which have an approved retirement funding schedule receive annual pension funding grants from the Commonwealth for the first 16 years of such funding schedule. Pursuant to Chapter 188 of the Acts of 2010, a system (other than the state employees’ retirement system and the teachers’ retirement system) which conduct an actuarial valuation as of January 1, 2009 or later, may establish a revised schedule of which reduces the unfunded actuarial liability to zero by no later than June 30, 2040, subject to certain conditions. If the schedule is so extended under such provisions and a later updated valuation allows for the development of a schedule with reduced payments, the revised schedule shall be adjusted to provide that the appropriation for each year shall not be less than that for such year under the prior schedule, thus providing for a shorter schedule rather than reduced payments. City, town and county systems may choose to participate in the Pension Reserves Investment Trust Fund (the “PRIT Fund”), which receives additional state funds to offset future pension costs of participating state and local systems. If a local system participates in the PRIT Fund, it must transfer ownership and control of all assets of its system to the Pension Reserves Investment Management Board, which manages the investment and reinvestment of the PRIT Fund. Cities and towns with systems participating in the PRIT Fund continue to be obligated to fund their pension obligations in the manner described above. The additional state appropriations to offset future pension liabilities of state and local systems participating in the PRIT Fund are required to total at least 1.3 percent of state payroll. Such additional state appropriations are deposited in the PRIT Fund and shared by all participating systems in proportion to their interests in the assets of the PRIT Fund as of July 1 for each fiscal year. Cost-of-living increases for each local retirement system may be granted and funded only by the local system, and only if it has established a funding schedule. Those statutory provisions are subject to acceptance by the local retirement board and approval by the local legislative body, which acceptance may not be revoked. In addition to the contributory systems, cities and towns provide non-contributory pensions to a limited number of employees, primarily persons who entered service prior to July 1, 1939 and their dependents. There are approximately 318 retired persons and surviving beneficiaries currently receiving pensions under the contributory and non-contributory plans, respectively.

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The following table shows the contributions to the contributory and non-contributory retirement systems by the City.

Fiscal Year Ending June 30

Contributory

2016 2015 2014 2013 2012 2011

$

10,315,513 9,520,208 8,742,619 7,971,547 7,039,074 7,021,588

NonContributory $

33,536 33,086 32,665 32,245 31,855 30,776

In addition to pension benefits, cities and towns may provide retired employees with payments for a portion of their health care and life insurance benefits. These benefit payments are generally provided on a pay-as-you-go basis. The estimated unfunded actuarial accrued liability of the contributory retirement system on January 1, 2014 was approximately $112,478,427, assuming a 7.75% investment return, according to an actuarial valuation performed by Public Employee Retirement Administration Commission (“PERAC”), and based on a total actuarial liability of $210,707,439, and assets of $98,229,012, as of said date. Chapter 697 of the Acts of 1987, which was enacted on January 12, 1988, provides for the funding of the Commonwealth's current unfunded accrued pension liability over a period not greater than 40 years. In addition, Chapter 697 contains significant financial incentives for each local governmental unit to establish its own state-approved funding schedule to eliminate its unfunded actuarial liability by June 30, 2028. Annual state pension funding grants would be provided for the first fifteen years of an approved funding schedule, beginning with the fiscal year ending June 30, 1990; the grants would be funded from designated percentages of increases in state revenues. The funding provisions for local systems are subject to local acceptance. The City of Methuen accepted a schedule (pursuant to Chapter 32 Section 22 (6A)(B) on August 28 1992 with payments beginning in fiscal year 1993. The City’s system is expected to be funded by 2032 using current level of contributions. The foregoing data do not include the retirement system costs or liabilities of any larger entity, such as the county, of which the municipality is a constituent part and for which the municipality is assessed a share of expenses. Funding Schedule (As of January 1, 2014) Fis cal Year

Norm al Cos t

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

$ 2,088,978 2,182,982 2,281,216 2,383,871 2,491,145 2,603,246 2,720,393 2,842,810 2,970,737 3,104,420 3,244,119 3,390,104 3,542,659 3,702,078 3,868,672 4,042,762 4,224,686 4,414,797 4,613,463

Amortization of UAL $

7,013,048 7,695,860 8,105,347 8,535,904 8,988,572 9,464,593 9,965,100 10,491,315 11,268,853 11,850,592 12,462,220 13,890,896 14,602,441 15,350,322 16,136,328 16,962,538 17,830,914 15,808,959

Am ortization of 2002 ERI $

192,344 201,000 210,045 219,497 239,696 250,482 261,754 273,533 285,842 298,705

Am ortization of 2003 ERI $

223,664 233,729 244,247 255,238 266,724 278,726 291,269 304,376 318,073 332,386 347,344

Am ortization of 2010 ERI $

224,210 224,210 224,210 224,210 224,210 224,210 224,210 224,210

Pens ion Holiday (1) $

68,071 71,134 74,336 77,681 81,176 84,829 88,647 92,636 96,804 101,160 105,713

Total Cos t $

9,810,315 10,608,915 11,139,401 11,696,401 12,291,523 12,906,086 13,551,373 14,228,880 14,940,309 15,687,263 16,159,396 17,281,000 18,145,100 19,052,400 20,005,000 21,005,300 22,055,600 20,223,756 4,613,463

Notes: Appropriation payments assumed to be made on July 1 of each fiscal year. Normal cost assumed to increase 4.5% per year Assumed expenses of $300,000 FY15, FY16 amounts maintained at level of current funding schedule Total appropriation increases 5% each year through FY31 with final amortization payment in FY32 (1) Permitted pursuant to the Municipal Relief Act of 2011. ______________ Source: PERAC.

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Unfunded Act. Liab. $

116,836,966 117,572,090 117,604,984 117,174,677 116,221,464 114,679,844 112,477,844 109,536,642 105,769,934 101,083,153 95,372,944 88,526,282 80,419,628 70,918,019 59,874,194 47,127,551 32,502,801 15,808,959 159,103,470

Other Post-Employment Benefits In addition to pension benefits, cities and towns may provide retired employees with health care and life insurance benefits. The portion of the cost of such benefits paid by cities and towns is generally provided on a pay-as-you-go basis. The Governmental Accounting Standards Board (“GASB”) promulgated its Statement Nos. 43 and 45, which require public sector entities to report the future costs of these non-pension, post-employment benefits in their financial statements. These accounting standards do not require pre-funding the payment of these costs as the liability for such costs accrues, but the basis applied by the standards for measurement of costs and liabilities for these benefits is conservative if they continue to be funded on a pay-as-you-go basis and will result in larger yearly cost and liability accruals than if the cost of such benefits were pre-funded in a trust fund in the same manner as traditional pension benefits. Cities and towns that choose to self-insure all or a portion of the cost of the health care benefits they provide to employees and retirees may establish a trust fund for the purpose of paying claims. In addition, cities and towns may establish a trust fund for the purpose of pre-funding other postemployment benefits liability in the same manner as traditional pension benefits. The City was required to implement the new GASB reporting requirements for other post-employment benefits beginning in fiscal year 2009. The City has contracted with the Segal Company to perform the actuarial valuation of its non-pension post-employment benefits. As of December 31, 2013, the City’s unfunded actuarial accrued liability was approximately $142,302,752 (assuming a 4.0% discount rate) and $77,635,334 (assuming an 8.0% discount rate) and the City’s net obligation for its other post-employment benefits is approximately $10,105,319 and $6,380,664, respectively. The City plans to establish a Post-Employment Trust Fund in fiscal 2016. Funding will be a combination of using Water and Sewer Funds, Stabilization Funds and an OPEB appropriation in the Fiscal Year 2016 Municipal Budget. An updated OPEB actuarial valuation report is currently underway. EMPLOYEE RELATIONS The City employs approximately 1,173 full-time workers, of whom 838 are employed by the School Department, 104 by the Police Department, 92 by the Fire Department and the balance of persons by various other departments of the City. City employees (other than managerial and confidential employees) are entitled to join unions and to bargain collectively on questions of wages, hours and other terms and conditions of employment. Of the City's 1,173 full-time employees, approximately 98% are represented by unions. The police superior officers association, police patrolmen’s association, the international association of firefighters AFL-CIO, AFSCME, Local 123, Local 1691, middle management and department heads bargaining units have settled through June 30, 2017. The teacher unions have settled contracts for fiscal 2014 through 2016. Contracts for AFSCME Unit B, Council employees and Local 175 are expired and are currently in negotiations. LITIGATION At present there are several cases pending in various courts throughout the Commonwealth where the City of Methuen is a defendant. In the opinion of the City, none of the pending litigation is likely to result, either individually or in the aggregate, in final judgments against the City that would materially affect its financial position.

_____________________________________

CITY OF METHUEN, MASSACHUSETTS /s/ Ann M. Guastaferro, City Treasurer March 26, 2016

40