Somerville FY2017 CAFR — File 205316

CITY OF SOMERVILLE MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2017 Joseph A. Curtatone, Mayor Edward Bean, Finance Director Prepared by the City of Somerville Finance Department

On the Cover – Prospect Hill Monument The Old Powder House as it stood in 1935 atop the hill at Nathan Tufts Park, overlooking Powder House Square. Photo by Rie Lowenstein

CITY OF SOMERVILLE, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2017 Prepared by the City of Somerville Finance Department

CITY OF SOMERVILLE, MASSACHUSETTS COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2017 TABLE OF CONTENTS Introductory Section ......................................................................................................................................................... 1  Letter of Transmittal ..................................................................................................................................................... 2  Certificate of Achievement for Excellence in Financial Reporting .............................................................................. 14  Organizational Chart .................................................................................................................................................. 15  Principal Officials ........................................................................................................................................................ 16  Financial Section ........................................................................................................................................................... 17  Independent Auditor’s Report ..................................................................................................................................... 19  Management’s Discussion and Analysis .................................................................................................................... 21  Basic Financial Statements ........................................................................................................................................ 32  Statement of Net Position ....................................................................................................................................... 33  Statement of Activities ............................................................................................................................................ 34  Governmental Funds – Balance Sheet .................................................................................................................. 36  Reconciliation of the Governmental Funds Balance Sheet Total Fund Balances to the Statement of Net Position .................................................................................................................................. 37  Governmental Funds – Statement of Revenues, Expenditures and Changes in Fund Balances ......................... 38  Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of the Governmental Funds to the Statement of Activities .......................................................................................... 39  Proprietary Funds – Statement of Net Position ...................................................................................................... 40  Proprietary Funds – Statement of Revenues, Expenses and Changes in Net Position ........................................ 41  Proprietary Funds – Statement of Cash Flows ...................................................................................................... 42  Fiduciary Funds – Statement of Fiduciary Net Position ......................................................................................... 43  Fiduciary Funds – Statement of Changes in Fiduciary Net Position ...................................................................... 44  Notes to Basic Financial Statements ..................................................................................................................... 45  Required Supplementary Information ........................................................................................................................ 84  Schedule of Revenues, Expenditures and Changes in Fund Balance – General Fund – Budget and Actual ...... 85  Pension Plan Schedules – Retirement System .......................................................................................................... 89  Schedule of Changes in the Net Pension Liability and Related Ratios ................................................................. 90  Schedule of Contributions ...................................................................................................................................... 91 

Schedule of Investment Return .............................................................................................................................. 92  Pension Plan Schedules - City ................................................................................................................................... 93  Schedule of the City’s Proportionate Share of the Net Pension Liability ............................................................... 94  Schedule of City Contributions ............................................................................................................................... 95  Schedule of the Special Funding Amounts of the Net Pension Liability ................................................................ 96  Other Postemployment Benefits Plan Schedules ...................................................................................................... 97  Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios ................... 98  Other Postemployment Benefit Plan Schedule of City Contributions .................................................................... 99  Other Postemployment Benefit Plan Schedule of Investment Returns ............................................................... 100  Other Postemployment Benefits Plan Schedule of Funding Progress and Employer Contributions ................... 101  Other Postemployment Benefit Plan Actuarial Methods and Assumptions ......................................................... 102  Notes to Required Supplementary Information ........................................................................................................ 103  Combining and Individual Fund Statements ........................................................................................................ 107  Nonmajor Governmental Funds ....................................................................................................................... 108  Nonmajor Governmental Funds – Combining Balance Sheet ...................................................................... 110  Nonmajor Governmental Funds – Combining Statement of Revenues, Expenditures, and Changes in Fund Balances ......................................................................................................................................... 114  Agency Fund ..................................................................................................................................................... 117  Agency Fund – Statement of Changes in Assets and Liabilities .................................................................. 118  Statistical Section ..................................................................................................................................................... 119  Net Position by Component – Last Ten Years ..................................................................................................... 120  Changes in Net Position – Last Ten Years .......................................................................................................... 121  Fund Balances, Governmental Funds – Last Ten Years ..................................................................................... 122  Changes in Fund Balances, Governmental Funds – Last Ten Years .................................................................. 123  Assessed Value and Actual Value of Taxable Property by Classification and Tax Rates – Last Ten Years ................................................................................................................................................ 124  Principal Taxpayers – Current Year and Nine Years Ago .................................................................................... 125  Property Tax Levies and Collections – Last Ten Years ....................................................................................... 126  Ratios of Outstanding Debt and General Bonded Debt – Last Ten Years .......................................................... 127  Computation of Legal Debt Margin – Last Ten Years .......................................................................................... 128  Direct and Overlapping Governmental Activities Debt ......................................................................................... 129  Demographic and Economic Statistics – Last Ten Years .................................................................................... 130  Principal Employers (Excluding City) – Current Year and Nine Years Ago ......................................................... 131  Full-Time Equivalent City Employees – Last Ten Years ...................................................................................... 132  Operating Indicators by Function/Program – Last Ten Years .............................................................................. 133  Capital Asset Statistics by Function/Program – Last Ten Years .......................................................................... 134 

Introductory Section Assembly Square Marketplace is a power center and mixed-use development located in Assembly Square. It includes premium retail outlets, restaurants, residential space, state-of-the-art office and research space, and development space. Photo by Rie Lowenstein

City of Somerville, Massachusetts 1 Comprehensive Annual Financial Report Introductory Section

City of Somerville, Massachusetts 2 Comprehensive Annual Financial Report City of Somerville, Massachusetts Joseph A. Curtatone MAYOR Letter of Transmittal December 20, 2017 We are pleased to submit to you the Comprehensive Annual Financial Report (CAFR) of the City of Somerville (City) for the year ended June 30, 2017. The CAFR is prepared by the City's Finance Department, and is intended to provide information regarding the financial position of the City. This report is prepared in accordance with U.S. generally accepted accounting principles (GAAP) and meets all requirements of state finance law of the Commonwealth of Massachusetts. The responsibility for the accuracy, completeness, and fairness of the data presented, including disclosures, rests with the City. City management believes this report is accurate in all material respects and is presented in a manner which impartially sets forth the financial position and results of operations of the City. Management is also responsible for establishing and maintaining internal accounting controls designed to provide reasonable, but not absolute, assurance that these financial statements are complete and accurate in their presentation. The Commonwealth of Massachusetts, through Chapter 190 of the Acts of 1982, requires that the City undergo an annual audit performed by a firm of independent public accountants. The City has selected Powers & Sullivan, LLC, to perform the June 30, 2017, audit. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Somerville for the year ended June 30, 2017, are free of material misstatements. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Somerville’s financial statements for the year ended June 30, 2017, are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report. The independent audit of the financial statements of the City of Somerville was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City of Somerville’s separately issued Single Audit Report. The City’s Single Audit report for the year ended June 30, 2017, included no instances of significant violations of the applicable laws and regulations reported. Generally accepted accounting principles require that management provide a narrative introduction, overview and analysis to accompany the basic

City of Somerville, Massachusetts 3 Comprehensive Annual Financial Report financial statements in the form of an MD&A. This letter of transmittal is designed to complement the MD&A where the financial analysis is now presented. The City’s MD&A can be found immediately following the independent auditor’s report from Powers & Sullivan, LLC. GENERAL PROFILE Somerville is a city located in Middlesex County, Massachusetts, just two miles north of Boston. Occupying slightly more than four square miles and with a population of 80,318, including thriving immigrant communities from all over the world, Somerville is the most densely populated community in New England and one of the most ethnically diverse cities in the nation. Rich in both history and culture, the City boasts numerous intriguing historical sites, community spaces, businesses, and restaurants. Somerville was first settled in 1630 as a part of Charlestown, and was established as a town in 1842, when it was separated from the urbanizing Charlestown because it was still largely rural. Somerville was officially incorporated as a City in 1872 due to its growing population and increasing industrialization. By the early 1900s, Somerville itself had become a densely packed urban area. As a part of Charlestown, areas existing in modern-day Somerville were critical military positions in the American Revolution. The historic Powder House - now considered one of the most distinct pre- Revolutionary structures in Massachusetts - housed gunpowder for Revolutionary soldiers during the war. During British invasion, Somerville (then Charlestown) was part of the route ridden by Paul Revere on his famous "Midnight Ride." Finally, and most notably, Prospect Hill was the site of the raising of the first Grand Union Flag, under the orders of General George Washington, on January 1, 1776. Today, Somerville is an eclectic mix of blue-collar families, young professionals, growing and established families, college students, and recent immigrants from countries as varied as Brazil, Haiti, and Nepal. There are more than 50 spoken languages in Somerville schools. With a large immigrant population, Somerville celebrates its diversity through numerous events celebrating cultural traditions and holidays. Somerville is a diverse, dense, walkable, community. Given the City’s convenient location near numerous educational institutions, including three of the nation’s leading institutions of higher learning, Tufts, Harvard, and MIT, it comes as no surprise that college and graduate students make up almost one- fifth of the population. Somerville is defined by its city squares. Its large number of squares help mark neighborhood boundaries while also featuring bustling businesses and entertainment centers. The primary business districts of the city are Assembly Square, Davis Square, and Union Square. Additionally, Ball Square, Teele Square, and Magoun Square are popular destinations with their own history and unique storefronts. Each offers a mix of ethnic restaurants, bars, shops and small businesses to fit every taste and occasion. The City shares its southern border with Cambridge and the MBTA Red Line connects Davis Square to Cambridge and Boston.

City of Somerville, Massachusetts 4 Comprehensive Annual Financial Report Somerville has a mayor-city council form of municipal government. The Board of Aldermen consists of 4 at-large (city-wide) positions and 7 ward representatives. Somerville has received national recognition as a model of innovation and efficiency for their 311 customer service helpline and SomerStat, a data-driven style of managing government services. Somerville was also the first community in Massachusetts to employ both a 311 customer service help line and a Connect-CTY mass outreach (reverse 911) program. QUALITY OF LIFE Somerville is home to a thriving arts community. Regular arts-related events, such as the annual "ArtBeat" festival, occur throughout the year. In addition, numerous galleries and music clubs showcase the talents of residents and others. Two major art studios, the Brickbottom Artists Building and the Joy Street Studios, are located in former industrial buildings in the Brickbottom District of the city. The Somerville Theatre, located in Davis Square, houses the Somerville branch of the Museum of Bad Art and plays host to the Independent Film Festival of Boston each spring. The Somerville Arts Council and Somerville Open Studios both host annual events involving the community in homegrown arts. The Somerville Public Schools (SPS) is a richly diverse school district that ranks as one of the top- performing urban districts in the Commonwealth. MCAS scores have continued to rise in the past several years and the district has maintained extraordinary overall growth, exceeding most other Massachusetts school districts. Somerville High School, a fully comprehensive high school that offers a rigorous core curriculum and one of the best Career and Technical Education (CTE) programs in the state, is the only MA urban high school to earn a Level I state accountability rating for five straight years. The district 4- year graduation rate has steadily improved while the drop-out rate has continued to decline to a current all-time low of 1.9%. SPS emphasizes supporting the “whole child” through a data-informed, collaborative system of support, and programs that ensure that every student has the opportunity to grow and succeed. A strong core curriculum is supplemented with equally strong visual and performing arts, world language, health and wellness, and technology programs, as well as a plethora of extra-curricular activities. Recent investments in pre-K and afterschool programming help lay a solid educational foundation for students, and partnerships play a critical role in providing SPS students with the support they need to succeed in a global economy. Partners such as Biogen, Teen Empowerment, Groundwork Somerville, Breakthrough Greater Boston, Enroot, Citizen Schools, and others provide Somerville students with continuous hands- on support and opportunities for real-world connections and learning. The City has also overhauled its youth programs by hiring new directors, and reinstating lost programs and services. Programs include the SomerTime Day Camp, the Mayor's Summer Jobs Program, and a partnership with Teen Empowerment, the nationally known non-profit organization, to establish a broad-based teen leadership program. In 2008, the City of Somerville was selected by the America's Promise Alliance as one of the top 100 communities in the U.S. for youth programming and learning opportunities. Alternative transportation is also important to Somerville residents. The City was acknowledged by the National Association of City Transportation Officials as an affiliate member for its commitment to sustainable transportation initiatives. Additionally, the League of American Bicyclists ranked Somerville the number one city on the East coast and seventh in the nation in terms of bike commuting share in their 2016 annual report. The 2015 report showed an incredible 53.2% of all commuting trips made by bicycle, transit or walking – a metric which is only expected to increase with the extension of the MBTA’s Green Line through Somerville in the coming years. With its bright development future featuring new, mixed-use development projects, and innovative local government management, Somerville has been recognized as "the best run City in the Commonwealth" by the Boston Globe magazine. The National Civic League recognized Somerville as an All-America City in 2009 for outstanding civic accomplishments in innovation, inclusiveness, civic engagement, and cross

City of Somerville, Massachusetts 5 Comprehensive Annual Financial Report sector collaboration to address pressing local challenges. In 2015, Somerville again received this award for engaging and supporting vulnerable boys and young men. ECONOMIC DEVELOPMENT Through the Mayor’s Office of Strategic Planning and Community Development (OSPCD), the City of Somerville has taken the lead role in planning and implementing major economic projects designed to increase the City’s tax base and create new jobs. Several major economic development activities are described below. Assembly Square Assembly Square is Somerville’s largest commercial and industrial district and is among a short list of sites with the greatest potential for development in the Metro Boston Area. Assembly Square is a 145- acre district located at the northeast corner of the City on the Boston border. Source: u/vanhoosear on Flickr Its location, less than 2.5 miles from downtown Boston and just two miles from Kendall Square in Cambridge, and existing transportation infrastructure make it one of the premier development sites in New England. Assembly Square is directly accessible from Interstate 93 and State Route 28. In December 2011, the MBTA commenced construction of the MBTA’s Orange Line in Assembly Square station and opened the station to riders in September of 2014. Assembly Square contains more than five acres of waterfront open space located along the banks of the Mystic River. To capitalize on these strengths, the City has undertaken an aggressive planning and redevelopment effort designed to convert this former industrial district to a transit-oriented, mixed-use “urban village”, using smart growth principles to maximize development potential. In May 2011, the developer Federal Realty Investment Trust (FRIT), the State, and the City entered into a Tri-Party Agreement that acts as the document binding each party to certain requirements which includes District Increment Financing (DIF) and the State’s commitment to fund the Orange Line T Station. To date, the DIF captured increment has significantly exceeded debt service payment amounts with an anticipated fund balance of $9 million by the end FY2020 to be used for infrastructure improvements. In 2013, FRIT completed the acquisition of the twelve-acre parcel that was to have been developed and occupied by IKEA in the original plans for Assembly Row. In December of 2013, Partners Healthcare announced its intention to consolidate its operations scattered across more than a dozen offices in and around Boston together under one roof at Assembly Square on the former IKEA property. Partners, the state’s largest health system and biggest private employer, started moving employees into the new 750,000 square feet office building. A subsequent phase of Partners’ development is expected to result another 400,000 square feet of retail and commercial space within the building. A new network of roadways, storm water conduit, Blocks 1, 2, 3, and 4, the Orange Line Transit Station, and the 5+-acre waterfront park have been completed along with the administrative building for Partners Healthcare with adjoining garage. The following projects are currently under construction: FRIT development block 5 (a multistory, mixed-use building consisting of 155 hotel rooms, 104 residential

City of Somerville, Massachusetts 6 Comprehensive Annual Financial Report units, 22,000 square-feet of retail/commercial use) and block 6 (a mixed-use structure with 471 residential units, 40,000 square feet of retail/commercial use and structured parking for 671 vehicles). Union Square Union Square is the City’s second largest business district, known throughout the region as a multi-ethnic arts and dining destination. In 2004, the City worked with neighborhood residents, businesses, and property owners to create “Union Square Main Streets,” a non-profit community organization based on the National Main Street Center’s successful downtown revitalization model. In the past few years, the City has received a $415,000 grant from ArtPlace America as well as a $460,000 grant to fund the creation of “ArtFarm for Social Innovation” on the site of a former waste transfer station; a $42,000 grant for strategic planning for the development of city-owned properties in Union Square; over $1,000,000 in new state and federal Brownfields funding for parcels in the area; the initiation of a Saturday farmers market partially funded by a Robert Wood Johnson Grant, and the construction of two small urban parks. The City has completed both a $24 million new elementary school at the edge of Union Square and a $21 million reconstruction of Somerville Avenue between Union and Porter Squares. In January 2015, a Full Funding Grant Agreement between the MBTA and the US Department of Transportation Federal Transportation Administration was signed. Under this FFGA, federal dollars have been committed to fund approximately one half of the Green Line Extension Project. In April 2009, the Board of Aldermen approved rezoning of the Union Square and Boynton Yards areas. The City has been working with the community on the development of a new transportation plan for Union Square. Conceptual plans were developed in 2012 and seek to balance traffic flow in the context of quality of life, future development, greater design goals, and the introduction of MBTA light rail. The project will see the reconstruction of two major arterials through the square, continuation of the newly separated Somerville Avenue storm and sanitary sewer lines, and significant expansion of the public plaza. A new Neighborhood plan was also adopted by the City’s Planning Board in May of 2016 as an amendment and implementation appendix to SomerVision. In 2012, the City initiated a multi-year comprehensive planning process with goal of transforming Union Square back to its historic prominence as a major employment center. The centerpiece of this effort entails concentrate new, mixed-used development around the new Union Square transit stop that will come along with the expansion of the MBTA Green Line. In 2012, the City and the Somerville Redevelopment Authority (SRA) approved the Union Square Urban Revitalization Plan that identified seven distinct parcels for major redevelopment. In 2014, the SRA selected Union Square Station Associates (US2) as the master developer for Union Square. A robust community planning process resulted in the Union Square Neighborhood Plan in 2016. Union Square was rezoned in 2017 to reflect the goals of the plan. The Somerville Planning Board approved US2’s Coordinated Development Special Permit in December of 2017, which entitles US2’s 2.3 million square foot development program that includes housing, retail, office and lab space. Concurrently, the City has been working with the community on the development of a new transportation plan for Union Square. Conceptual plans were developed in 2012 and seek to balance traffic flow in the context of quality of life, future development, greater design goals, and the introduction of MBTA light rail. The project will see the reconstruction of two major arterials through the square, continuation of the newly separated Somerville Avenue storm and sanitary sewer lines, and significant expansion of the public plaza. A new Neighborhood plan was also adopted by the City’s Planning Board in May of 2016 as an amendment and implementation appendix to SomerVision.

City of Somerville, Massachusetts 7 Comprehensive Annual Financial Report In the fall of 2017, the administration submitted to the Board of Aldermen for their approval a DIF financing plan for $141 million in infrastructure and streetscape projects that will both help alleviate existing flooding issues for two-thirds of the city as well as unlock development potential in the district. In December of 2017, the Board of Alderman approved the DIF financing plan as well as the first phase of projects, which includes a $63 million authorization for Somerville Ave water, sewer and streetscape work. Boynton Yards & Inner Belt/Brickbottom The extension of the Green Line into Union Square has generated new interest in Boynton Yards; the transit stop lies in the northwest corner of the 35-acre district. In April 2009, the Board of Aldermen approved a rezoning of this important development area and much of Boynton Yards is now located in a Transit Oriented District (TOD), which allows for maximum density and building heights. The City contracted with Parsons Brinckerhoff to conduct a transportation and utility study of Boynton Yards as the first step in creating a new road network and utility infrastructure to support more intense commercial development. The study envisions significant long-term public and private investments in infrastructure allowing for transformational change in Boynton Yards. Through the focal point of the proposed MBTA Green Line Union Square Station, Boynton Yards and Union Square will develop a cohesive identity and become a regional destination for art, shopping and dining. The Inner Belt is a 160-acre manufacturing and warehouse district that is anticipated to transition to higher-end office and biotechnology uses. An off-ramp which was constructed as part of the Central Artery Project (the “Big Dig”) has improved regional automobile access to Inner Belt. To facilitate Inner Belt’s transition to higher-end uses, the City approved a significant privately-financed infrastructure investment to connect Inner Belt to the fiber optic loop around Boston and Cambridge. The location of this major communications node makes Inner Belt a very competitive location for technology-oriented businesses along with proximity to nearby Kendall Square in Cambridge. This district will benefit dramatically from the planned McGrath Highway Boulevard Project. The City has completed a formal study and is looking to undertake design work and environmental review associated with the long-term conversion of the elevated McCarthy overpass into an at-grade boulevard with “complete streets” style bicycle and pedestrian accommodations. Established employers, including ABM Industries, the Angelica Corporation, and the Cambridge Health Alliance continue to provide employment opportunities in Somerville. In addition, the City has seen the installation of two sizeable internet data centers and associated investment in the physical facility and equipment at 50 and 70 Inner Belt Road. The City, working through OSPCD, has completed various studies, including a planning study that identified public actions necessary to facilitate transformation of this district to office and biotechnology uses. Access studies were completed in 2005 to predict the impact of economic development on traffic patterns in the Inner Belt. The City has been taking preliminary steps, with the assistance of Greenberg/CBT consultants to develop a comprehensive plan for the area. The Greenberg/CBT scoping study identified a build out potential of 2.5 million square feet of Lab/R&D, 3 million square feet of office, 200,000 square feet of retail space, 200-450 hotel rooms, and 3,000 residential units. Davis Square Davis Square is one of the City’s most vibrant central business districts. This commercial center is located in close proximity to nearby Tufts University and has an MBTA Red Line subway station. The combination of this district’s location and public transit access has resulted in strong demand for office, retail, restaurant and entertainment uses. Consequently, Davis Square has limited vacancy in the retail and

City of Somerville, Massachusetts 8 Comprehensive Annual Financial Report office market segments. Davis Square has become a regional dining and entertainment destination with some of the Boston area’s finest restaurants, nightclubs, and live entertainment venues. The residential neighborhood surrounding Davis Square has seen dramatic increases in property values and rents, which has resulted in considerable new investment and condominium conversion. Future plans in Davis Square will focus on strategic infill development, streetscape updates or rehabilitation projects to enhance the already vibrant community. In May of 2014, the Mayors of Somerville, Cambridge, Boston, Quincy & Braintree launched the Life Sciences Corridor Initiative to promote the robust life sciences sector which has developed along the Red Line, including Davis Square. Together, the five cities represent over 460 companies within the life sciences industry, all connected through the MBTA Red Line. City-Wide Economic Evolution Somerville has seen strong developments in the local innovation economy including one of the first on- speculation office buildings in the region in many years in Assembly Square. Partners Healthcare has finished construction on a $280 million, 1.1 million square-foot administrative space which will house 4,500 employees and provide employment and career-development opportunities for Somerville residents. Office space in the Assembly Square Neighborhood has garnered interest from software, technology, and healthcare companies and has filled over 60,000 square feet of space to date. Across the City, cleantech incubator Greentown Labs relocated in 2012 to a 33,000 square-foot location near Union Square, growing from hosting four companies in 2007 to more than forty today. The location offers a prototyping lab, co-located office space, machine and electronics shops, and a developing community of startups looking to rapidly grow and progress new products in the clean energy industry. 2016 saw the breaking ground on an expansion projects that will more than double the incubator’s space to 93,000 square feet – enabling Greentown to serve as a global player for cleantech innovation. Transportation Improvements As mentioned, the City secured funding for a new Assembly Square Orange Line station using a combination of federal, state and private funding. The station was opened for use in September of 2014, the first new MBTA station since 1987. While the Assembly Square station promises to support critical smart-growth economic development, the MBTA’s light rail Green Line Extension (GLX) through Somerville will, along with existing Red Line service, bring rapid transit to 85% of residents – thereby significantly improving the city’s air quality, connectivity, and economic opportunity. Opening of the first three stations (Updated Lechemere, Washington St, and Union Square) is up first in the schedule and the remaining four stations (Gilman, Lowell St, Ball Square, and College Ave) will follow. Source: u/Pi.1415926535 on Wikipedia

City of Somerville, Massachusetts 9 Comprehensive Annual Financial Report Major Infrastructure Projects The City is currently planning or undertaking multiple streetscape and roadway improvement projects which will increase multimodal mobility and continue to bring an infrastructure network built in the early 1900s into the 21st century. These projects include a full-depth reconstruction of Beacon St (One of the most heavily-trafficked stretches of road in the region by bicycle commuters), a streetscape and utility update in Davis Square, Central Broadway Streetscape upgrades, major Union Square utility work, and roadway improvements in Ball and Gilman Squares to prepare for the Green Line Extension. Altogether, these projects will continue to make Somerville one of the most bike and pedestrian-friendly communities in the Northeast while updating an underground infrastructure network built primarily in the 1800’s. Financial Summary The City continues to be in sound financial condition as demonstrated by the financial statements and schedules included in this report. Throughout the year, the City maintained a strong cash and investment position and once again did not issue any tax anticipation notes. General Fund Balances and Cash Position Under Massachusetts law an amount known as "free cash" is certified as of the beginning of each fiscal year by the State Bureau of Accounts. “Free cash” together with certain subsequent tax receipts are used as the basis for subsequent appropriations from available funds. These funds are not required to be included in the annual tax levy. The City’s certified “free cash” for fiscal year 2017 is $11,621,352. The following table sets forth the recent trend in Free Cash for the City. Free Cash (July 1) 2017 $11,621,352 2016 10,833,988 2015 11,512,278 2014 10,651,386 2013 10,637,719 2012 7,846,054 2011 7,646,537

City of Somerville, Massachusetts 10 Comprehensive Annual Financial Report Stabilization Funds The City maintains several stabilization funds. Funded by an appropriation, the Stabilization Funds plus interest income may be appropriated at any Board of Aldermen meeting for any municipal purpose. The following table lists the Stabilization Funds balances for the following years. Stabilization Fund Balance 2017 $34,162,355 2016 28,852,284 2015 23,682,116 2014 15,495,452 2013 11,922,271 2012 12,476,965 2011 11,662,056 Capital Financing and Debt Management In conjunction with the operating budget, the City annually prepares a capital budget for the upcoming fiscal year and a ten–year Capital Investment Table that is used as a guide for capital expenditures in future years. The Capital Investment Plan for FY18 through FY27 has an estimated cost of $490 million. Financing for the current-year portion of the capital plan is appropriated on a project-by-project basis. The City issues its debt in accordance with the life of the asset. In addition, the City has funded a portion of its Capital Improvement Program on a “pay-as-you-go” basis out of current revenues. The City’s General Obligation (GO) outstanding bonded debt as of June 30, 2017, totaled $106.7 million. The following table sets forth debt as a percentage of assessed valuation and per capita debt at the end of the last five fiscal years. The table considers the principal amount of GO bonds of the City only and does not deduct anticipated state grant payments applicable to the principal amount of outstanding bonds or debt that may be supported in wh ole, or part, by non-tax revenues. Year End General Obligation Bonds Outstanding Local Assessed Valuation Per Capita Debt Bonds as a % of Assessed Valuation 2017 $106,688,839 $12,660,529,500 $1,312 0.84 2016 104,244,459 11,198,774,270 1,298 0.93 2015 95,151,544 10,492,225,280 1,206 0.91 2014 96,283,023 9,445,672,400 1,222 1.02 2013 97,615,491 8,595,335,050 1,275 1.14 2012 90,422,762 8,390,572,190 1,186 1.08 2011 81,971,701 8,297,876,320 1,079 0.99

City of Somerville, Massachusetts 11 Comprehensive Annual Financial Report Property Valuations Based on valuations of all real and personal property as of January 1, 2016, the total value of all property in the City is $12.7 billion. Professional reevaluations of all property in the City to full and fair cash value in compliance with Massachusetts law were mostly recently completed for use in 2014. The next reevaluation will be completed in 2016. The City conducts an interim year adjustment on values annually. The table below sets forth the trend in the City's assessed valuations, tax rates, tax levies, and tax levies per capita for the following years. Fisc al Year Real Estate Valuation Personal Property Valuation Assessed Valuation Tax Rate Per $1,000 Valuation Tax Levy Tax Levy Per Capita Resid. All other 2017 $12,409,326,300 $251,203,200 $12,660,529,500 $11.67 $18.81 $136,071,683 1,675 2016 10,974,792,900 223,981,370 11,198,774,270 12.53 20.18 129,147,863 1,608 2015 10,276,528,400 215,696,880 10,492,225,280 12.61 20.38 122,165,461 1,548 2014 9,246,622,500 199,049,900 9,445,672,400 12.66 21.51 116,126,060 1,473 2013 8,409,496,900 185,838,150 8,595,335,050 13.42 22.38 109,923,036 1,446 2012 8,212,040,400 178,531,790 8,390,572,190 13.09 21.85 104,829,090 1,383 2011 8,132,444,500 165,431,820 8,297,876,320 12.71 21.21 100,548,992 1,327 Pension Liability Generally accepted accounting principles (GAAP) require the City to perform an actuarial valuation to determine the pension benefit obligation at least biennially, with an actuarial update to the date twelve months after that biennial valuation. The most recent actuarial valuation of the City was completed as of January 1, 2017. The total unfunded pension benefit obligation applicable to the City's employees was $140,166,391 at December 31, 2016. Total pension benefit obligation $392,656,092 Net Position available for benefits, at market value (242,801,289) Unfunded pension benefit obligation $149,854,803 The City is currently on a funding schedule that will amortize its unfunded pension liability by June 30, 2033. Current law allows funding out as far as 2040. 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.

City of Somerville, Massachusetts 12 Comprehensive Annual Financial Report The annual required contributions of the City to the retirement system for the 2011 through 2017 fiscal years are as follows: Year Contributory Non- Contributory 2017 $13,711,675 $121,197 2016 13,304,274 119,000 2015 12,324,940 255,023 2014 11,457,093 234,769 2013 11,084,135 231,999 2012 10,985,945 283,996 2011 10,830,988 333,431 Other Post-Employment Benefits (OPEB) Liability 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 pay-as-you-go costs to the City for such benefits in recent years have been as follows: Year Amount 2017 $9,258,566 2016 8,533,496 2015 9,645,790 2014 9,044,970 2013 10,402,192 2012 10,036,871 2011 10,200,914 The City obtained a new actuarial valuation for the City’s OPEB liability as of June 30, 2016. The City had an unfunded actuarial liability (UAL) that totaled $301,834,818 on a pay-as-you-go 4.0% basis and $178,480,760 on a full prefunding 7.5% basis. The City's annual required contribution (ARC) totaled $21,086,425 on a pay-as-you-go basis and $13,138,247 on a full prefunding basis. INDEPENDENT AUDIT The City’s financial records, books of accounts, and financial transactions are audited each year by an independent firm of certified public accountants. The City’s annual audit was performed by the independent public accounting firm of Powers & Sullivan, LLC. The independent auditors’ report on the basic financial statements for the year ended June 30, 2017 is included herein.

City of Somerville, Massachusetts 13 Comprehensive Annual Financial Report AWARDS AND ACKNOWLEDGEMENTS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Somerville for its comprehensive annual financial report since fiscal year 2012, five years in a row that the City has achieved this prestigious award. Additionally, the City’s FY14, FY15, and FY16 annual operating budgets received the Distinguished Budget Presentation Award. And In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report or budget. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current Comprehensive Annual Financial Report continues to meet Certificate of Achievement Program’s requirements and will be submitting it to the GFOA to determine its eligibility for another certificate. MOVING FORWARD The City will continue the necessary work of growing our commercial tax base. The long-term outlook for Somerville remains very strong as long as we continue to manage our resources wisely. Both our bond rating and our development prospects have been buttressed by the City’s effort to develop comprehensive and coordinated plans to make the most of coming transit improvements and new investments in retail, commercial and residential growth. While no community can be fully insulated from continued turbulence in the national and regional economies, Somerville is well positioned to preserve its high level of municipal services while preparing for future economic development. We are governing in the present with an eye on our future. Sincerely, Mayor Joseph A. Curtatone

City of Somerville, Massachusetts 14 Comprehensive Annual Financial Report Certificate of Achievement for Excellence in Financial Reporting

City of Somerville, Massachusetts 15 Comprehensive Annual Financial Report Organizational Chart Organizational Chart

City of Somerville, Massachusetts 16 Comprehensive Annual Financial Report City Government Joseph A. Curtatone, Mayor Edward Bean, Finance Director Ida Cody, Deputy City Auditor Michael Mastrobuoni, Budget Manager Board of Aldermen William A White Jr, President, At-large Katjana Ballantyne, Vice President, Ward 7  John M Connolly, At-large Mary Jo Rossetti, At-large Dennis M Sullivan, At-large Matthew McLaughlin, Ward 1 Maryann M Heuston, Ward 2 Robert J McWatters, Ward 3 Tony G Lafuente, Ward 4 Mark Niedergang, Ward 5 Lance L Davis, Ward 6 Principal Officials

Financial Section The Somerville City Hall (which formerly served as Somerville High School) is a historic municipal building at 93 Highland Avenue in Somerville, Massachusetts. Built in 1852 and enlarged several times, it has served as the City's first high school, first public library, and only city hall. Photo taken by Rie Lowenstein

City of Somerville, Massachusetts 17 Comprehensive Annual Financial Report Financial Section

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City of Somerville, Massachusetts 19 Comprehensive Annual Financial Report Independent Auditor’s Report To the Honorable Mayor and Board of Alderman City of Somerville, Massachusetts Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Somerville, Massachusetts, as of and for the year ended June 30, 2017, (except for the Somerville Contributory Retirement System which is as of and for the year ended December 31, 2016), and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as the evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Somerville, Massachusetts, as of June 30, 2017 (except for the Somerville Contributory Retirement System which is as of December 31, 2016), and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

City of Somerville, Massachusetts 20 Comprehensive Annual Financial Report Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Somerville’s basic financial statements. The introductory section, combining and individual fund statements, and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund statements, as listed in the table of contents, are the responsibility of management and were derived from and relates directly to the underlining accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 20, 2017, on our consideration of the City of Somerville, Massachusetts’ internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Somerville’s internal control over financial reporting and compliance. December 20, 2017

City of Somerville, Massachusetts 21 Comprehensive Annual Financial Report Management’s Discussion and Analysis Management’s Discussion and Analysis

City of Somerville, Massachusetts 22 Comprehensive Annual Financial Report Management’s Discussion and Analysis As management of the City of Somerville, we offer readers of these financial statements this narrative overview and analysis of the financial activities for the year ended June 30, 2017. We encourage readers to consider the information presented in this report in conjunction with additional information that we have furnished in our letter of transmittal. The Governmental Accounting Standards Board (GASB) is the authoritative standard setting body that provides guidance on how to prepare financial statements in conformity with generally accepted accounting principles (GAAP). Users of these financial statements (such as investors and rating agencies) rely on the GASB to establish consistent reporting standards for all governments in the United States. This consistent application is the only way users (including citizens, the media, legislators and others) can assess the financial condition of one government compared to others. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City of Somerville’s basic financial statements. The City of Somerville’s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. The approach focuses on both the City as a whole (government-wide) and the fund financial statements. The government-wide financial statements provide both long-term and short-term information about the City as a whole. The fund financial statements focus on the individual parts of the City government, reporting the City’s operations in more detail than the government-wide statements. Both presentations (government-wide and fund) allow the user to address relevant questions, broaden the basis of comparison and enhance the City’s accountability. An additional part of the basic financial statements are the notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City of Somerville’s finances, in a manner similar to a private-sector business. The statements provide both short-term and long-term information about the City’s financial position, which assists in assessing the City’s economic position at the end of the year. The statements are prepared using the full accrual basis of accounting. All revenues and expenses connected with the year are considered even if the cash involved has not been received or disbursed. The government-wide financial statements include two statements: The statement of net position presents information on all of the City of Somerville’s assets and deferred outflows and liabilities and deferred inflows, with the difference between them reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City of Somerville is improving or deteriorating. The statement of activities presents information showing how the government’s net position changed during the most recent year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City of Somerville that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Somerville include general government, public safety, education, public works, community development, human services, community preservation, culture and

City of Somerville, Massachusetts 23 Comprehensive Annual Financial Report recreation, and interest. The business-type activities include water, sewer, the Veteran’s Memorial Ice Rink and Dilboy Stadium. Fund financial statements - A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Somerville, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Somerville can be divided into three categories: governmental funds, proprietary funds and fiduciary funds. Governmental funds - Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Somerville maintains seventeen individual governmental funds. Information is presented separately for the general fund, the strategic planning and community development fund and the capital projects fund in the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances. Data for certain governmental funds are combined into a single aggregated presentation under the caption nonmajor governmental funds. The City of Somerville adopts an annual appropriated budget for its general fund. A budget to actual schedule has been provided as required supplementary information for the general fund to demonstrate compliance with this budget. Proprietary funds. Proprietary funds provide the same information shown as business-type activities in the government wide financial statements, only in more detail. The City uses proprietary funds to account for its water, sewer, Veteran’s Memorial Ice Rink and Dilboy Stadium operations. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City of Somerville’s own programs. The accounting used for fiduciary funds records transactions using the flow of economic resources measurement focus and the accrual basis of accounting. The fiduciary fund financial statements provide information for the pension and Other Postemployment Benefits trust funds and the private purpose trust funds. All other fiduciary funds are combined into a single, aggregate presentation in the fiduciary fund financial statements under the caption agency funds. GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pensions Plans, was implemented this year. This standard added Note disclosures and Required Supplemental Information for the City’s OPEB Trust fund. Its sister standard, GASB Statement No. 75, Accounting and Financial Reporting for Postemployment benefits Other Than Pensions, is required to be implemented in 2018. This standard will affect

City of Somerville, Massachusetts 24 Comprehensive Annual Financial Report the financial statements themselves by requiring the City to record its OPEB assets, liabilities, and deferred financial statement elements for the first time. The City established an Other Postemployment Benefits Trust Fund (OPEB) to account for funds set aside to help offset future post-retirement benefits for retirees. These activities are excluded from the City’s government-wide financial statements because the City cannot use these assets to finance its operations. At year end, the balance in the OPEB trust fund was $1.8 million. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City of Somerville’s budgetary basis of accounting and information regarding other postemployment benefits paid by the City. Required supplementary information can be found after the notes to the financial statements. Government-wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. The City of Somerville’s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $57.2 million at the close of 2017, which was a decrease of $4.6 million from the prior year. Net position of $174.4 million reflects its investment in capital assets (e.g., land, buildings, infrastructure, machinery, and equipment); less any related debt used to acquire those assets that are still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the investment in its capital assets is reported net of its related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of net position, $26.8 million, represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position has a year-end deficit of $144.0 million. The primary reason for this deficit balance is the recognition of the Pension and OPEB liabilities. At year-end, the City is able to report positive balances in two of three categories of net position, for the City as a whole and for its governmental activities. Its business-type activities report positive balances in both applicable categories. The governmental activity and business-type activity components are presented on the following pages. As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the City of Somerville, governmental liabilities and deferred inflows of resources exceeded assets and deferred outflows of resources by $11.1 million and the business-type assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $68.3 million at the close of the most recent year. Governmental Activities The City of Somerville’s liabilities and deferred inflows of resources exceeded assets and deferred outflows of resources by $11.1 million at the close of 2017.

City of Somerville, Massachusetts 25 Comprehensive Annual Financial Report 2017 2016 Assets Current assets………………………………………… $ 152,104,713 $ 130,004,820 Noncurrent assets (excluding capital)……………… 3,517,440 6,015,394 Capital assets………………………………………… 232,316,828 227,538,281 Total assets………………………………………… 387,938,981 363,558,495 Deferred Outflows of Resources Deferred outflows related to pensions……………… 22,591,390 17,851,554 Deferred charges on refunding……………………… 338,362 459,437 Total deferred outflows………………………… 22,929,752 18,310,991 Liabilities Current liabilities (excluding debt)…………………… 9,443,777 10,119,384 Noncurrent liabilities (excluding debt)……………… 269,713,756 251,672,579 Current debt…………………………………………… 46,653,925 33,661,197 Noncurrent debt……………………………………… 93,812,752 86,118,168 Total liabilities…………………………………… 419,624,210 381,571,328 Deferred Inflows of Resources Deferred inflows related to pensions………………… 2,357,303 48,336 Net Position Net investment in capital assets……………………… 128,346,108 130,183,221 Restricted……………………………………………… 26,765,236 26,765,034 Unrestricted…………………………………………… (166,224,124) (156,698,433) Total net position………………………………… $ (11,112,780) $ 249,822 The largest portion of the City of Somerville’s net position, $128.3 million, reflects its investment in capital assets (e.g., land, buildings, machinery, and equipment) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to its citizens; consequently, these assets are not available for future spending. Although the City of Somerville’s investment in its capital assets is reported net of related debt, it should be noted that resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City of Somerville’s net position, $26.8 million, represents resources that are subject to external restrictions on how they may be used. These include funds for street improvement (Chapter 90), community development projects to be funded by future federal reimbursements, outstanding loan balance authorized under various housing and urban development federal grants, expendable and nonexpendable funds and grants and gifts. The City has $98.9 million of positive unrestricted net position excluding the recorded liabilities for the other postemployment benefits obligation and the net pension liability which is in a deficit balance. Those liabilities ($126.6 million for OPEB and $138.5 million net pension liability) are long-term in nature, and will not be funded from the $166.2 million deficit of unrestricted net position at June 30, 2017. The City began the process of pre- funding a portion of the OPEB liability in 2013 by establishing an irrevocable trust which, as of June 30, 2017, has a balance of $1.8 million and is reported within the Fiduciary Funds in the City’s financial statements. Included within the noncurrent assets (excluding capital) is $3.5 million in future school construction reimbursement grants.

City of Somerville, Massachusetts 26 Comprehensive Annual Financial Report Long-term liabilities include $93.8 million in general obligation bonds; $3.6 million in compensated absence liabilities for unused vacation, special leave, and enhanced longevity benefits payable; $1.0 million in future year workers’ compensation benefits payable; $138.5 million in future pension benefits; and $126.6 million in future other postemployment benefits. Governmental activities net position decreased by $11.4 million in 2017. 2017 2016 Program Revenues Charges for services………………………………… $ 26,958,884 $ 23,373,674 Operating grants and contributions………………… 59,892,628 52,059,008 Capital grants and contributions……………………… 2,039,456 4,302,653 General Revenues Real estate and personal property taxes…………… 135,251,425 127,658,573 Tax liens………………………………………………. 201,283 297,772 Motor vehicle and other excise taxes……………… 9,316,095 9,288,744 Penalties and interest on taxes……………………… 729,944 801,173 Payments in lieu of taxes…………………………. 1,248,682 829,780 Community preservation taxes……………………… 1,664,815 1,546,198 Nonrestricted grants and contributions……………… 25,455,469 24,429,136 Unrestricted investment income……………………… 496,273 303,517 Gain on sale of capital assets……………………… 2,031,564 - Miscellaneous revenues……………………………… 184,008 308,206 Total revenues…………………………………… 265,470,526 245,198,434 Expenses General government………………………………… 34,076,945 32,270,976 Public safety…………………………………………… 58,162,944 54,345,466 Education……………………………………………… 132,958,254 124,740,381 Public works…………………………………………… 31,017,581 28,957,827 Community development…………………………… 9,696,020 5,177,605 Human services……………………………………… 244,417 178,570 Community Preservation…………………………… 1,522,282 347,016 Culture and recreation……………………………… 5,245,975 4,787,187 Interest………………………………………………… 3,563,654 2,956,192 Total expenses…………………………………… 276,488,072 253,761,220 Excess (Deficiency) before transfers………………… (11,017,546) (8,562,786) Transfers………………………………………………… (345,056) 948,090 Change in net position………………………………… (11,362,602) (7,614,696) Net position at beginning of year…………………… 249,822 7,864,518 Net position at end of year…………………………… $ (11,112,780) $ 249,822 The primary reasons for the $11.4 million decrease relate to the $12.5 million and $5.6 million increases in the City’s OPEB liability and net pension liability, offset by a net increase of $2.6 million in deferred outflows and deferred inflows of resources related to pensions, and the recognition of $2.0 million of capital grants.

City of Somerville, Massachusetts 27 Comprehensive Annual Financial Report Real estate tax revenue increased $7.6 million due to new tax base growth and the proposition 2 ½ budgetary increase. General government expenses increased by $1.8 million which was primarily the result of increases in overall budgeted operational and payroll costs. Education expenses increased by $8.2 million, this increase is due to an increase in on-behalf payments associated with the Massachusetts Teachers’ Retirement System, as well as an increase in the School’s operating budget. Public works expenses increased by $2.1 million, this increase relates directly to an increase in snow and ice removal costs and other operational costs of the Department. Community Development expenses increased $4.5 million as a result of increased activity in the various loan programs and other program related costs. Business-type Activities The following summarizes the key financial components of the City’s Business-type Activities: 2017 2016 Assets Current assets………………………………………… $ 32,705,597 $ 23,164,206 Capital assets…………………………………………… 56,750,067 53,069,746 Total assets………………………………………… 89,455,664 76,233,952 Deferred Outflows of Resources Deferred outflows related to pensions……………… 278,430 185,229 Liabilities Current liabilities (excluding debt)…………………… 271,664 1,940,807 Noncurrent liabilities (excluding debt)………………… 2,151,817 2,457,645 Current debt…………………………………………… 10,802,790 2,203,383 Noncurrent debt………………………………………… 8,147,921 8,290,711 Total liabilities……………………………………… 21,374,192 14,892,546 Deferred Inflows of Resources Deferred inflows related to pensions………………… 29,053 501 Net Position Net investment in capital assets……………………… 46,081,442 43,810,782 Unrestricted……………………………………………… 22,249,407 17,715,352 Total net position………………………………… $ 68,330,849 $ 61,526,134 Business-type net position of $46.1 million represents investments in capital assets net of related debt. The remaining $22.2 million is available to be used for the ongoing operation of the City’s water, Veteran’s Memorial Ice Rink, Dilboy Stadium, and sewer activities. There was an overall increase of $6.8 million in net position reported in connection with the enterprise funds.

City of Somerville, Massachusetts 28 Comprehensive Annual Financial Report 2017 2016 Program Revenues Charges for services…………………………………… $ 36,406,067 $ 33,413,924 General Revenues Unrestricted investment income……………………… 160,353 142,354 Total revenues……………………………………… 36,566,420 33,556,278 Expenses Water…………………………………………………… 11,166,299 10,211,295 Sewer…………………………………………………… 18,106,483 17,099,159 Veteran's Memorial Ice Rink………………………… 679,098 721,990 Dilboy Stadium……………………………………….. 154,881 136,199 Total expenses…………………………………… 30,106,761 28,168,643 Excess (Deficiency) before transfers………………… 6,459,659 5,387,635 Transfers…………………………………………………… 345,056 (948,090) Change in net position…………………………………… 6,804,715 4,439,545 Net position at beginning of year……………………… 61,526,134 57,086,589 Net position at end of year……………………………… $ 68,330,849 $ 61,526,134 The water enterprise fund net position increased $2.6 million. This is primarily due to an increase in water rates coupled with an increase in consumption which led to an increase in related revenue, the fact that principal payments on debt exceed depreciation on capital assets and the funds ability to maintain a minimal increase in overall operating costs. The sewer enterprise fund net position increased by $4.0 million. This is primarily due to an increase in sewer rates, the fact that principal payments on debt exceeded depreciation on capital assets and the funds ability to maintain a minimal increase in overall operating costs. The Veterans Memorial Ice Rink enterprise fund net position increased by $107 thousand. This is the result of an operational subsidy from the general fund and the fact that user fee revenues decreased. The Dilboy Stadium enterprise fund net position increased by $45 thousand. This is primarily the way this fund is designed to operate. User fees are designed to cover operational and capital related costs of operations. Financial Analysis of the Government’s Funds As noted earlier, the City of Somerville uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. Governmental funds. The focus of the City of Somerville’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Somerville’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the year. At the end of the current year, the City of Somerville’s governmental funds combined ending balances totaled $90.0 million, of which positive balances of $60.6 million was reported in the general fund, $14.3 million in the Strategic Planning and Community Development fund, and $26.5 million in the nonmajor governmental funds.

City of Somerville, Massachusetts 29 Comprehensive Annual Financial Report The capital projects fund reported a deficit of $11.4 million. Cumulatively, there was an increase in the governmental funds of $13.3 million in fund balance from prior year. This is due to $39.0 million of BAN’s outstanding at year end. The general fund is the chief operating fund of the City of Somerville. At the end of the current year unassigned fund balance of the general fund totaled $20.2 million and was comprised of two components: an unreserved fund balance of $16.1 million and a rainy day stabilization fund of $4.1 million. Assigned fund balance, which represents amounts, designated for the 2018 budget, and amounts that have been reserved for the use of liquidating prior purchase orders, contracts, and ongoing capital articles, totaled $5.9 million. Committed fund balance, which represents the City’s various use-specific stabilization funds and the health claims trust, totaled $34.5 million. As a measure of the general fund’s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total expenditures. At year-end unassigned fund balance equaled 8.8% of total general fund expenditures, while total fund balance equaled 26.1% of the same amount. Please see Note 9 for further details. The City’s general fund increased $6 million in the current year. The change was primarily due to positive budgetary results, and increase in the accrual for 60 day receipts, a decrease in the accrual for Appellate Tax Board cases due to the various tele-com cases being settled, and the receipt of a $952 thousand bond premium. The City’s Strategic Planning and Community Development fund balance increased by $451 thousand. The fund operates on a grant drawdown basis and the results of operations are primarily the result of the timing of the expenditure of grant allotments. The City’s capital projects funds increased by $3.5 million. The increase is due to the net effect of $11.8 million of capital expenditures on current and prior year’s projects offset by the issuance of $12.3 million in bonds and the receipt of a $1.4 million bond premium. General Fund Budgetary Highlights There was an $8 million increase between the original budget and the final amended budget. The increase was primarily attributable to transfers to various stabilization funds and the net of other increases/decreases in various departmental budgets. Capital Asset and Debt Administration Capital assets. The City of Somerville’s investment in capital assets for its governmental activities as of June 30, 2017, amounts to $232.3 million (net of accumulated depreciation) and its business-type activities amounted to $56.5 million (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, land improvements, books and periodicals, buildings and improvements, machinery and equipment, vehicles, and infrastructure. The net increase in the City’s investment in capital assets for the current year governmental assets was $4.8 million and business-type assets was $3.4 million. Major capital asset events during the year included the following: • Investments made to improve and expand the buildings of the School department; • Land improvements to various City parks; • A variety of infrastructure investments in the street, sidewalk, water and sewer systems and; • Various departmental vehicle and equipment acquisitions.

City of Somerville, Massachusetts 30 Comprehensive Annual Financial Report In conjunction with the operating budget, the City annually prepares a capital budget for the upcoming year and a five-year Capital Improvement Plan (CIP) that is used as a guide for future capital expenditures. Additional information on the City’s capital assets may be found in Note 4 to the financial statements. Long-term debt. At the end of the current year, the City of Somerville had total governmental bonded debt outstanding of $96.7 million. Additionally, the City reported governmental short-term borrowing of $39.0 million related to the High School Construction, the Union Square Revitalization Plan, road reconstruction and improvement projects, various school projects, and various other projects around the City. During 2017, the City’s governmental long-term debt increased $4.9 million. This change is due to the net effect of the current year issuance of Municipal Purpose bonds for various governmental projects offset by principal payments during the year. The sewer, water and rink enterprise funds have outstanding long-term debt totaling $1.5 million, $6.4 million, and $2.1 million, respectfully, at year end. Other than the Rink, all enterprise fund debt is fully supported by the rates and does not rely on a general fund subsidy. Standard & Poor’s have assigned a rating of AA+ and Moody’s have assigned a rating of Aa1 to the City’s bonds. The Commonwealth of Massachusetts is obligated to provide school construction grants for approved school projects. The grants are paid annually to support future interest expense on school construction related long-term debt and the construction costs funded by that debt. At June 30, 2017, the City is scheduled to receive $1.7 million of future interest grants and $6.7 million of capital grants. The payment schedule for the Commonwealth is structured to match the debt service expenditures. Beginning in 2005, the Commonwealth changed the method for funding the school building assistance program. Under the new program, the assistance is paid to support construction costs and reduce the total debt service of the City. Through the end of 2017, the City has recorded capital grant proceeds totaling $3.6 million, from the MSBA, related to the Somerville High School project, which is equal to 75.29% of approved construction costs submitted for reimbursement. The City anticipates receiving an additional $1.5 million of grant proceeds in 2018. See Notes 7 & 8 for further debt information. Economic Factors and Next Year’s Budgets and Rates • According to the U.S. Census Bureau, the median household income of the City for the period 2012 – 2016, was $78,673 compared with $70,954 for the Commonwealth and $55,322 for the nation. The per capita income was $36,229, compared with $36,441 for the Commonwealth and $28,555 for the nation. • The unemployment rate for the City of Somerville as of October 2017 is approximately 2.2%, which is a .3% year-over-year increase from a rate of 1.9% in August 2016. This compares favorably to the state’s average seasonally-adjusted unemployment rate of 3.3% and the national average of 4.1%. • According to the City’s Board of Assessors, for 2017, the average single family parcel in the City is valued at $633,000; the average two-family home is valued at $683,000; the average 2017 commercial and industrial property is valued at $1,672,000. All compared favorably with state and national property values.

City of Somerville, Massachusetts 31 Comprehensive Annual Financial Report Requests for Information This financial report is designed to provide a general overview of the City of Somerville’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Director of Finance, City Hall, 93 Highland Ave, Somerville, Massachusetts 02143.

City of Somerville, Massachusetts 32 Comprehensive Annual Financial Report Basic Financial Statements Basic Financial Statements

STATEMENT OF NET POSITION JUNE 30, 2017 Governmental Business-type Activities Activities Total ASSETS CURRENT: Cash and cash equivalents………………………………… $ 117,847,627 $ 21,288,396 $ 139,136,023 Receivables, net of allowance for uncollectibles: Real estate and personal property taxes……………… 1,795,183 - 1,795,183 Tax liens…………………………………………………… 851,508 - 851,508 Motor vehicle excise tax………………………………… 176,902 - 176,902 User fees…………………………………………………… - 11,417,201 11,417,201 Departmental and other…………………………………… 3,087,757 - 3,087,757 Intergovernmental………………………………………… 10,020,323 - 10,020,323 Loans……………………………………………………… 18,325,413 - 18,325,413 Total current assets……………………………………… 152,104,713 32,705,597 184,810,310 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental………………………………………… 3,517,440 - 3,517,440 Other postemployment benefits asset……………………… - 297,281 297,281 Capital assets, net of accumulated depreciation: Nondepreciable…………………………………………… 53,391,868 22,244 53,414,112 Depreciable………………………………………………… 178,924,960 56,430,542 235,355,502 Total noncurrent assets…………………………………… 235,834,268 56,750,067 292,584,335 TOTAL ASSETS………………………………………………… 387,938,981 89,455,664 477,394,645 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions……………………… 22,591,390 278,430 22,869,820 Deferred charges on refunding……………………………… 338,362 - 338,362 Total deferred outflows of resources…………………… 22,929,752 278,430 23,208,182 LIABILITIES CURRENT: Warrants payable……………………………………………… 3,953,868 157,366 4,111,234 Accrued payroll………………………………………………… 1,857,337 46,968 1,904,305 Tax refunds payable………………………………………… 862,000 - 862,000 Accrued interest……………………………………………… 863,400 65,630 929,030 Payroll withholdings…………………………………………… 1,033,916 - 1,033,916 Abandoned property………………………………………… 374,997 - 374,997 Compensated absences……………………………………… 159,509 1,700 161,209 Workers' compensation……………………………………… 338,750 - 338,750 Notes payable………………………………………………… 39,043,332 9,000,000 48,043,332 Bonds payable………………………………………………… 7,610,593 1,802,790 9,413,383 Total current liabilities…………………………..………… 56,097,702 11,074,454 67,172,156 NONCURRENT: Compensated absences……………………………………… 3,604,691 61,800 3,666,491 Workers' compensation……………………………………… 1,016,250 - 1,016,250 Other postemployment benefits……………………………… 126,632,887 383,554 127,016,441 Net pension liability…………………………………………… 138,459,928 1,706,463 140,166,391 Bonds payable………………………………………………… 93,812,752 8,147,921 101,960,673 Total noncurrent liabilities…………………………...…… 363,526,508 10,299,738 373,826,246 TOTAL LIABILITIES……………………………………………… 419,624,210 21,374,192 440,998,402 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions………………………… 2,357,303 29,053 2,386,356 NET POSITION Net investment in capital assets………………………………… 128,346,108 46,081,442 174,427,550 Restricted for: Streets………..………………………………………………… 3,205,981 - 3,205,981 Community Development…………………………………… 1,148,368 - 1,148,368 Loans…………………………………………………………… 18,325,413 - 18,325,413 Permanent funds: Expendable……….………………………………………… 159,213 - 159,213 Nonexpendable…………………………………………… 433,126 - 433,126 Other specific purposes……………………………………… 3,493,135 - 3,493,135 Unrestricted………………………………………………………… (166,224,124) 22,249,407 (143,974,717) TOTAL NET POSITION………………………………………… $ (11,112,780) $ 68,330,849 $ 57,218,069 See notes to basic financial statements. Government Primary City of Somerville, Massachusetts 33 Comprehensive Annual Financial Report

STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2017 Operating Capital Charges for Grants and Grants and Net (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Primary Government: Governmental Activities: General government…………………… $ 34,076,945 $ 10,828,065 $ 3,611,794 $ - $ (19,637,086) Public safety……………………………… 58,162,944 11,648,005 567,768 - (45,947,171) Education………………………………… 132,958,254 3,251,770 46,466,462 1,598,709 (81,641,313) Public works.......................................... 31,017,581 496,483 2,059,979 70,282 (28,390,837) Community development……………… 9,696,020 - 6,297,670 - (3,398,350) Human services………………………… 244,417 330,971 224,806 - 311,360 Community Preservation……………… 1,522,282 - 4,630 370,465 (1,147,187) Culture and recreation…………………… 5,245,975 403,590 107,536 - (4,734,849) Interest…………………………………… 3,563,654 - 551,983 - (3,011,671) Total Governmental Activities……… 276,488,072 26,958,884 59,892,628 2,039,456 (187,597,104) Business-Type Activities: Water …………………………………… 11,166,299 13,945,725 - - 2,779,426 Sewer……………………………………… 18,106,483 21,673,233 - - 3,566,750 Veteran's Memorial Ice Rink…………… 679,098 587,035 - - (92,063) Dilboy Stadium…………………………… 154,881 200,074 - - 45,193 Total Business-Type Activities……… 30,106,761 36,406,067 - - 6,299,306 Total Primary Government……………$ 306,594,833 $ 63,364,951 $ 59,892,628 $ 2,039,456 $ (181,297,798) See notes to basic financial statements. (Continued) Program Revenues City of Somerville, Massachusetts 34 Comprehensive Annual Financial Report

STATEMENT OF ACTIVITIES (Continued) YEAR ENDED JUNE 30, 2017 Governmental Business-Type Activities Activities Total Changes in net position: Net (expense) revenue from previous page…………………………$ (187,597,104) $ 6,299,306 $ (181,297,798) General revenues: Real estate and personal property taxes, net of tax refunds payable……………………………………… 135,251,425 - 135,251,425 Tax and utility liens………………………………………………… 201,283 - 201,283 Motor vehicle and other excise taxes…………………………… 9,316,095 - 9,316,095 Penalties and interest on taxes…………………………………… 729,944 - 729,944 Payments in lieu of taxes………………………………………… 1,248,682 - 1,248,682 Community preservation taxes…………………………………… 1,664,815 - 1,664,815 Grants and contributions not restricted to specific programs………………………………………………… 25,455,469 - 25,455,469 Unrestricted investment income………………………………… 496,273 160,353 656,626 Gain (Loss) on disposal of capital assets………………………… 2,031,564 - 2,031,564 Miscellaneous……………………………………………………… 184,008 - 184,008 Transfers, net …………………………………………………………… (345,056) 345,056 - Total general revenues and transfers………………………………… 176,234,502 505,409 176,739,911 Change in net position…………………………………………… (11,362,602) 6,804,715 (4,557,887) Net Position Beginning of year………………………………………………… 249,822 61,526,134 61,775,956 End of year……………………………………………………………$ (11,112,780) $ 68,330,849 $ 57,218,069 See notes to basic financial statements. (Concluded) Government Primary City of Somerville, Massachusetts 35 Comprehensive Annual Financial Report

GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2017 Strategic Planning & Capital Nonmajor Total Community Projects Governmental Governmental General Development Fund Funds Funds ASSETS Cash and cash equivalents…………………………………… $ 67,674,601 $ - $ 27,658,970 $ 22,514,056 $ 117,847,627 Receivables, net of uncollectibles: Real estate and personal property taxes………………… 1,795,183 - - - 1,795,183 Tax liens……………………………………………………… 851,508 - - - 851,508 Motor vehicle excise taxes………………………………… 176,902 - - - 176,902 Departmental and other…………………………………… 3,061,585 - - 26,172 3,087,757 Intergovernmental…………………………………………… 8,498,625 1,148,368 - 3,890,770 13,537,763 Loans………………………………………………………… - 15,335,829 - 2,989,584 18,325,413 Due from other funds…………………………………………… - - - 1,371,806 1,371,806 TOTAL ASSETS…………………………………………………$ 82,058,404 $ 16,484,197 $ 27,658,970 $ 30,792,388 $ 156,993,959 LIABILITIES Warrants payable…………………………………………… $ 3,832,741 $ - $ - $ 121,127 $ 3,953,868 Accrued payroll……………………………………………… 1,585,313 13,343 652 258,029 1,857,337 Tax refunds payable………………………………………… 862,000 - - - 862,000 Payroll withholdings………………………………………… 1,033,916 - - - 1,033,916 Abandoned property………………………………………… 374,997 - - - 374,997 Due to other funds…………………………………………… - 1,057,482 - 314,324 1,371,806 Notes payable……………………………………………… - - 39,043,332 - 39,043,332 TOTAL LIABILITIES…………………………………………… 7,688,967 1,070,825 39,043,984 693,480 48,497,256 DEFERRED INFLOWS OF RESOURCES Unavailable revenue………………………………………… 13,733,570 1,148,368 - 3,602,618 18,484,556 FUND BALANCES Nonspendable……………………………………………… - - - 433,126 433,126 Restricted…………………………………………………… - 14,265,004 - 26,063,164 40,328,168 Committed…………………………………………………… 34,533,997 - - - 34,533,997 Assigned……………………………………………………… 5,907,817 - - - 5,907,817 Unassigned…………………………………………………… 20,194,053 - (11,385,014) - 8,809,039 TOTAL FUND BALANCES…………………………………… 60,635,867 14,265,004 (11,385,014) 26,496,290 90,012,147 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES………………… $ 82,058,404 $ 16,484,197 $ 27,658,970 $ 30,792,388 $ 156,993,959 See notes to basic financial statements. City of Somerville, Massachusetts 36 Comprehensive Annual Financial Report

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET POSITION YEAR ENDED JUNE 30, 2017 Total governmental fund balances……………………………………………………………………………… $ 90,012,147 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the funds……………………………………………………………… 232,316,828 Accounts receivable are not available to pay for current-period expenditures and, therefore, are unavailable in the funds……………………………………………… 18,484,556 Certain changes in the net pension liability are required to be included in pension expense over future periods. These changes are reported as deferred outflows of resources or (deferred inflows of resources) related to pensions………………………………….. 20,234,087 In the statement of activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until due……………………………………… (863,400) Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds: Bonds payable……………………………………………………………………………………………… (101,423,345) Workers compensation…………………………………………………………………………………… (1,355,000) Compensated absences…………………………………………………………………………………… (3,764,200) Other postemployment benefits…………………………………………………………………………… (126,632,887) Net pension liability………………………………………………………………………………………… (138,459,928) Net effect of reporting long-term liabilities………………………………………………………… (371,635,360) In the statement of activities, deferred charges on refunding are reported as a deferred outflow of resources and are amortized over the shorter of the remaining life of the refunding bonds or refunded bonds. In governmental funds, these changes are expensed when the refunding bonds are issued……………………………………………………… 338,362 Net position of governmental activities…………………………………………………………………………… $ (11,112,780) See notes to basic financial statements. City of Somerville, Massachusetts 37 Comprehensive Annual Financial Report

GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2017 Strategic Planning & Capital Nonmajor Total Community Projects Governmental Governmental General Development Fund Funds Funds REVENUES: Real estate and personal property taxes, net of tax refunds…………………………………………………………… $ 134,759,721 $ - $ - $ - $ 134,759,721 Tax liens……….………………………………………………………………… 392,962 - - - 392,962 Motor vehicle and other excise taxes………………………………………… 9,297,090 - - - 9,297,090 Payments in lieu of taxes……………………………………………………… 1,248,682 - - - 1,248,682 Intergovernmental……………………………………………………………… 65,262,079 10,138,587 803,627 15,057,356 91,261,649 Departmental and other………………………………………………………… 20,835,081 - 404,376 7,999,205 29,238,662 Community preservation taxes………………………………………………… - - - 2,085,496 2,085,496 Contributions……………………………………………………………………… 380,501 - - 240,887 621,388 Investment income……………………………………………………………… 457,948 8,383 - 34,579 500,910 Miscellaneous…………………………………………………………………… 134,582 - - - 134,582 TOTAL REVENUES……………………………………………………… 232,768,646 10,146,970 1,208,003 25,417,523 269,541,142 EXPENDITURES: Current: General government………………………………………………………… 19,167,204 - 2,265,584 2,423,943 23,856,731 Public safety………………………………………………………………… 40,492,885 - - 757,248 41,250,133 Education……………………………………………………………………… 65,062,143 - 3,313,819 14,070,437 82,446,399 Public works…………………………………………………………………… 24,698,789 - 1,937,858 1,849,197 28,485,844 Community development…………………………………………………… - 9,696,020 - - 9,696,020 Human services……………………………………………………………… - - - 244,417 244,417 Culture and recreation……………………………………………………… 3,057,850 - 4,331,985 207,596 7,597,431 Pension benefits……………………………………………………………… 28,429,418 - - - 28,429,418 Employee benefits…………………………………………………………… 24,274,992 - - - 24,274,992 Claims and judgments……………………………………………………… 53,800 - - - 53,800 Community preservation…………………………………………………… - - - 2,314,179 2,314,179 State and county charges……………………………………………………… 13,532,201 - - - 13,532,201 Debt service: Principal……………………………………………………………………… 7,455,123 - - - 7,455,123 Interest………………………………………………………………………… 3,639,566 - - - 3,639,566 TOTAL EXPENDITURES………………………………………………… 229,863,971 9,696,020 11,849,246 21,867,017 273,276,254 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………………………………………… 2,904,675 450,950 (10,641,243) 3,550,506 (3,735,112) OTHER FINANCING SOURCES (USES): Issuance of debt………………………………………………………………… - - 12,335,000 - 12,335,000 Premium from issuance of bonds……………………………………………… 952,000 - 1,419,349 598,829 2,970,178 Sale of capital assets…………………………………………………………… - - - 2,120,152 2,120,152 Transfers in……………………………………………………………………… 4,631,838 - 397,551 507,531 5,536,920 Transfers out……………………………………………………………………… (2,537,535) - - (3,344,441) (5,881,976) TOTAL OTHER FINANCING SOURCES (USES)…………………… 3,046,303 - 14,151,900 (117,929) 17,080,274 NET CHANGE IN FUND BALANCES…………………………………………… 5,950,978 450,950 3,510,657 3,432,577 13,345,162 FUND BALANCES AT BEGINNING OF YEAR………………………………… 54,684,889 13,814,054 (14,895,671) 23,063,713 76,666,985 FUND BALANCES AT END OF YEAR……………………………………………$ 60,635,867 $ 14,265,004 $ (11,385,014) $ 26,496,290 $ 90,012,147 See notes to basic financial statements. City of Somerville, Massachusetts 38 Comprehensive Annual Financial Report

RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2017 Net change in fund balances - total governmental funds…………………………………………………… $ 13,345,162 Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital outlay…………………………………………………………………………………………… 13,805,058 Depreciation expense………………………………………………………………………………… (8,937,922) Net effect of reporting capital assets………………………………………………………… 4,867,136 In the Statement of Activities, only the gain on the sale of capital assets is reported, whereas in the governmental funds the entire proceeds of the sale are reported as financial resources. As a result, the change in net position differs from the change in fund balance by the book value of the capital assets sold………………………………… (88,589) Revenues in the Statement of Activities that do not provide current financial resources are unavailable in the Statement of Revenues, Expenditures and Changes in Fund Balances. Therefore, the recognition of revenue for various types of accounts receivable (i.e., real estate and personal property, motor vehicle excise, etc.) differ between the two statements. This amount represents the net change in unavailable revenue………………………………………………………………… (6,102,179) The issuance of long-term debt (e.g., bonds and leases) provides current financial resources to governmental funds, while the repayment of the principal of long- term debt consumes the financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. Issuance of debt………………………………………………………………………………………… (12,335,000) Premium from issuance of bonds…………………………………………………………………… (2,970,178) Debt service principal payments……………………………………………………………………… 7,455,123 Amortization of bond premiums……………………………………………………………………… 177,075 Amortization of deferred charge on refunding……………………………………………………… (121,075) Net effect of reporting long-term debt………………………………………………………… (7,794,055) Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds. Net change in compensated absences accrual…………………………………………………… 128,500 Net change in accrued interest on long-term debt………………………………………………… 19,911 Net change in workers' compensation accrual……………………………………………………… (91,000) Net change in postemployment benefits liability…………………………………………………… (12,515,275) Net change in deferred (inflow) of resources related to pensions………………………………… (2,308,967) Net change in deferred outflow of resources related to pensions………………………………… 4,739,836 Net change in net pension liability…………………………………………………………………… (5,563,082) Net effect of recording long-term liabilities…………………………….…………………… (15,590,077) Change in net position of governmental activities……………………………………………………………… $ (11,362,602) See notes to basic financial statements. City of Somerville, Massachusetts 39 Comprehensive Annual Financial Report

PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2017 Business-Type Activities - Enterprise Funds Veterans Memorial Dilboy Water Sewer Ice Rink Stadium Total ASSETS CURRENT: Cash and cash equivalents…………………………………$ 9,853,049 $ 11,150,440 $ 96,554 $ 188,353 $ 21,288,396 Receivables, net of allowance for uncollectibles: User fees………………………………………………… 4,252,054 7,165,147 - - 11,417,201 Total current assets………………………………… 14,105,103 18,315,587 96,554 188,353 32,705,597 NONCURRENT: Other postemployment benefits asset…………………… - 297,281 - - 297,281 Capital assets, non depreciable…………………………… - 22,244 - - 22,244 Capital assets, net of accumulated depreciation………… 31,394,277 21,986,873 3,049,392 - 56,430,542 Total noncurrent assets……………………………… 31,394,277 22,306,398 3,049,392 - 56,750,067 TOTAL ASSETS………………………………………………… 45,499,380 40,621,985 3,145,946 188,353 89,455,664 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions…………………… 198,764 79,666 - - 278,430 LIABILITIES CURRENT: Warrants payable…………………………………………… 20,230 137,107 29 - 157,366 Accrued payroll……………………………………………… 27,326 12,991 3,475 3,176 46,968 Accrued interest…………………………………………… 26,338 17,504 21,788 - 65,630 Compensated absences…………………………………… 1,600 100 - - 1,700 Notes payable……………………………………………… 3,800,000 5,200,000 - - 9,000,000 Bonds payable……………………………………………… 1,302,739 305,051 195,000 - 1,802,790 Total current liabilities……………………………… 5,178,233 5,672,753 220,292 3,176 11,074,454 NONCURRENT: Compensated absences…………………………………… 47,100 14,700 - - 61,800 Other postemployment benefits…………………………… 383,554 - - - 383,554 Net pension liability………………………………………… 1,218,198 488,265 - - 1,706,463 Bonds payable……………………………………………… 5,062,870 1,175,051 1,910,000 - 8,147,921 Total noncurrent liabilities…………………………… 6,711,722 1,678,016 1,910,000 - 10,299,738 TOTAL LIABILITIES…………………………………………… 11,889,955 7,350,769 2,130,292 3,176 21,374,192 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions……………………… 20,740 8,313 - - 29,053 NET POSITION Net investment in capital assets……………………………… 25,192,328 19,944,722 944,392 - 46,081,442 Unrestricted……………………………………………………… 8,595,121 13,397,847 71,262 185,177 22,249,407 TOTAL NET POSITION…………………………………………$ 33,787,449 $ 33,342,569 $ 1,015,654 $ 185,177 $ 68,330,849 See notes to basic financial statements. City of Somerville, Massachusetts 40 Comprehensive Annual Financial Report

PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2017 Business-Type Activities - Enterprise Funds Veterans Memorial Dilboy Water Sewer Ice Rink Stadium Total OPERATING REVENUES: Charges for services …………………………………………… $ 13,945,725 $ 21,673,233 $ 587,035 $ 200,074 $ 36,406,067 OPERATING EXPENSES: Cost of services and administration …………………………… 9,832,433 17,564,492 504,662 154,881 28,056,468 Depreciation……………………………………………………… 1,233,674 487,002 85,898 - 1,806,574 TOTAL OPERATING EXPENSES ………………………… 11,066,107 18,051,494 590,560 154,881 29,863,042 OPERATING INCOME (LOSS)…………………………… 2,879,618 3,621,739 (3,525) 45,193 6,543,025 NONOPERATING REVENUES (EXPENSES): Investment income……………………………………………… 19,915 140,182 128 128 160,353 Interest expense………………………………………………… (100,192) (54,989) (88,538) - (243,719) TOTAL NONOPERATING REVENUES (EXPENSES), NET………………………… (80,277) 85,193 (88,410) 128 (83,366) INCOME (LOSS) BEFORE TRANSFERS……………………………………………… 2,799,341 3,706,932 (91,935) 45,321 6,459,659 TRANSFERS: Transfers in……………………………………………………… 458,705 974,748 199,000 - 1,632,453 Transfers out……………………………………………………… (631,696) (655,701) - - (1,287,397) TOTAL OPERATING TRANSFERS……………………… (172,991) 319,047 199,000 - 345,056 CHANGE IN NET POSITION……………………………… 2,626,350 4,025,979 107,065 45,321 6,804,715 NET POSITION AT BEGINNING OF YEAR……………………… 31,161,099 29,316,590 908,589 139,856 61,526,134 NET POSITION AT END OF YEAR……………………………… $ 33,787,449 $ 33,342,569 $ 1,015,654 $ 185,177 $ 68,330,849 See notes to basic financial statements. City of Somerville, Massachusetts 41 Comprehensive Annual Financial Report

PROPRIETARY FUNDS STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2017 Veterans Memorial Dilboy Water Sewer Ice Rink Stadium Total CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and users…………………………………………… $ 13,921,258 $ 21,161,818 $ 587,035 $ 200,074 $ 35,870,185 Payments to vendors……………………………………………………………… (9,068,239) (17,526,541) (321,728) (61,843) (26,978,351) Payments to employees………………………………………………………… (1,097,540) (430,983) (189,313) (95,699) (1,813,535) NET CASH FROM OPERATING ACTIVITIES…………………………………… 3,755,479 3,204,294 75,994 42,532 7,078,299 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers in………………………………………………………………………… 458,705 974,748 199,000 - 1,632,453 Transfers out……………………………………………………………………… (631,696) (655,701) - - (1,287,397) NET CASH FROM NONCAPITAL FINANCING ACTIVITIES…………………… (172,991) 319,047 199,000 - 345,056 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Issuance of debt…………………………………………………………………… 5,460,000 5,200,000 - - 10,660,000 Acquisition and construction of capital assets………………………………… (1,929,751) (3,651,632) - - (5,581,383) Principal payments on bonds and notes………………………………………… (1,888,042) (1,330,341) (185,000) - (3,403,383) Interest expense…………………………………………………………………… (106,472) (57,036) (89,925) - (253,433) NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES……… 1,535,735 160,991 (274,925) - 1,421,801 CASH FLOWS FROM INVESTING ACTIVITIES: Investment income………………………………………………………………… 19,915 140,182 128 128 160,353 NET CHANGE IN CASH AND CASH EQUIVALENTS……………………..…… 5,138,138 3,824,514 197 42,660 9,005,509 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR………………… 4,714,911 7,325,926 96,357 145,693 12,282,887 CASH AND CASH EQUIVALENTS AT END OF YEAR………………………… $ 9,853,049 $ 11,150,440 $ 96,554 $ 188,353 $ 21,288,396 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income (loss)………………………………………………………… $ 2,879,618 $ 3,621,739 $ (3,525) $ 45,193 $ 6,543,025 Adjustments to reconcile operating income (loss) to net cash from operating activities: Depreciation…………………………………………………………………… 1,233,674 487,002 85,898 - 1,806,574 Deferred outflows (inflows) related to pensions:…………………………… (41,730) (22,919) - - (64,649) Changes in assets and liabilities: User fees…………………………………………………………………… (24,467) (511,415) - - (535,882) Warrants payable…………………………………………………………… (41,517) (7,266) (4,048) (1,599) (54,430) Accrued payroll……………………………………………………………… (9,543) 1,106 (2,331) (1,062) (11,830) Accrued compensated absences………………………………………… (2,400) (9,700) - - (12,100) Other postemployment benefits…………………………………………… (438,953) (480,971) - - (919,924) Net pension liability………………………………………………………… 200,797 126,718 - - 327,515 Total adjustments……………………………………………………… 875,861 (417,445) 79,519 (2,661) 535,274 NET CASH FROM OPERATING ACTIVITIES…………………………………… $ 3,755,479 $ 3,204,294 $ 75,994 $ 42,532 $ 7,078,299 See notes to basic financial statements. Business-Type Activities - Enterprise Funds City of Somerville, Massachusetts 42 Comprehensive Annual Financial Report

FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2017 Other Postemployment Private Pension Benefits Trust Purpose Agency Trust Funds (1) Fund Trust Funds Funds ASSETS CURRENT: Cash and cash equivalents……………………………………… $ 5,423,121 $ 1,821,275 $ 95,116 $ 637,342 Investments: Bond mutual funds…………………………………………… 65,233,177 - - - Real estate and alternative investment mutual funds…… 22,144,293 - - - Equity mutual funds…………………………………………… 22,745,873 - - - Equity securities……………………………………………… 127,362,526 - - - Interest and dividends…………………………………………… 2,838 - - - Receivables, net of allowance for uncollectibles: Intergovernmental…………………………………………… 23,003 - - - TOTAL ASSETS……………………………………………………… 242,934,831 1,821,275 95,116 637,342 LIABILITIES Warrants payable………………………………………………… 133,542 - - - Accrued liabilities………………………………………………… - - - 72,686 Liabilities due depositors………………………………………… - - - 564,656 TOTAL LIABILITIES………………………………………………… 133,542 - - 637,342 NET POSITION Restricted for pensions…………………………………………… 242,801,289 - - - Restricted for OPEB benefits…………………………………… - 1,821,275 - - Held in trust for other purposes………………………………… - - 95,116 - TOTAL NET POSITION……………………………………… $ 242,801,289 $ 1,821,275 $ 95,116 $ - (1) As of December 31, 2016 See notes to basic financial statements. City of Somerville, Massachusetts 43 Comprehensive Annual Financial Report

FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION YEAR ENDED JUNE 30, 2017 Other Postemployment Private Pension Benefits Trust Purpose Trust Funds (1) Fund Trust Funds ADDITIONS: Contributions: Employer contributions to trust………………………………….. $ 14,659,434 $ 1,000,000 $ - Employee…………………………………………………………… 6,719,692 - - Employer contributions to fund OPEB benefits………………… - 9,258,566 - Private donations…………………………………………………… - - 5,954 Total contributions……………………………………………… 21,379,126 10,258,566 5,954 Net investment income (loss): Net change in fair value of investments………………………… 4,988,117 - - Interest……………………………………………………………… 4,999,258 7,507 329 Total investment income (loss)……………………………… 9,987,375 7,507 329 Less: investment expense………………………………………… (1,189,888) - - Net investment income (loss)…………………………………… 8,797,487 7,507 329 Intergovernmental………………………………………………… 422,632 - - Transfers from other systems…………………………………… 1,321,861 - - TOTAL ADDITIONS…………………………………………… 31,921,106 10,266,073 6,283 DEDUCTIONS: Administration……………………………………………………… 434,364 - - Transfers to other systems………………………………………… 1,894,472 - - Payment of benefits and refunds………………………………… 26,285,115 - - OPEB benefits……………………………………………………… - 9,258,566 - Educational scholarships………………………………………… - - 1,000 TOTAL DEDUCTIONS………………………………………… 28,613,951 9,258,566 1,000 NET INCREASE (DECREASE) IN NET POSITION………… 3,307,155 1,007,507 5,283 NET POSITION AT BEGINNING OF YEAR………………………… 239,494,134 813,768 89,833 NET POSITION AT END OF YEAR………………………………… $ 242,801,289 $ 1,821,275 $ 95,116 (1) For the year ended December 31, 2016 See notes to basic financial statements. City of Somerville, Massachusetts 44 Comprehensive Annual Financial Report

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 45 Comprehensive Annual Financial Report NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Notes to Basic Financial Statements The accompanying basic financial statements of the City of Somerville, Massachusetts (City) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board (GASB) is the recognized standard-setting body for establishing governmental accounting and financial reporting principles. The significant City accounting policies are described herein. A. Reporting Entity The City is a municipal corporation that is governed by an elected Mayor and an eleven member Board of Alderman (Board). For financial reporting purposes, the City has included all funds, organizations, agencies, boards, commissions and institutions. The City has also considered all potential component units for which it is financially accountable as well as other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the basic financial statements to be misleading or incomplete. As required by GAAP, these basic financial statements present the City (primary government) and its component units. One entity has been included as a component unit in the reporting entity, because of the significance of its operational and/or financial relationship. Component Unit Presented as a Fiduciary Fund – The following component unit is presented as a Fiduciary Fund of the primary government due to the nature and significance of relationship between the City and the component unit: The Somerville Contributory Retirement System (System) was established to provide retirement benefits to City employees, the City Housing Authority employees, and their beneficiaries. The System is governed by a five-member board comprised of the City Auditor (ex-officio), two members elected by the System’s participants, one member appointed by the Mayor and one member appointed by the Board members. The System is presented using the accrual basis of accounting and is reported as a pension trust fund in the fiduciary fund financial statements. Availability of Financial Information for Component Units The System did not issue a separate audited financial statement. The System issues a publicly available unaudited financial report in accordance with guidelines established by the Commonwealth of Massachusetts’ (Commonwealth) Public Employee Retirement Administration Commission (PERAC). That report may be obtained by contacting the System located at 50 Evergreen Avenue, Somerville, Massachusetts 02145. B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The government-wide financial statements (i.e., statement of net position and the statement of changes in net position) report information on all of the non-fiduciary activities of the primary government and its component units. Governmental activities are primarily supported by taxes and intergovernmental revenues. Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 46 Comprehensive Annual Financial Report governmental funds are reported as separate columns in the fund financial statements. Non-major funds are aggregated and displayed in a single column. Major Fund Criteria Major funds must be reported if the following criteria are met: • If the total assets and deferred outflows, liabilities and deferred inflows, revenues, or expenditures/expenses of an individual governmental fund are at least 10 percent of the corresponding element (assets and deferred outflows, liabilities and deferred inflows, etc.) for all funds of that category or type (total governmental funds), and • If the total assets and deferred outflows, liabilities and deferred inflows, revenues, or expenditures/expenses of the individual governmental funds are at least 5 percent of the corresponding element for all governmental funds combined. Additionally, any other governmental fund that management believes is particularly significant to the basic financial statements may be reported as a major fund. Internal service funds and fiduciary funds are reported by fund type. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Real estate and personal property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The statement of activities demonstrates the degree to which the direct expenses of a particular function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include the following: • Charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment. • Grants and contributions that are restricted to meeting the operational requirements of a particular function or segment. • Grants and contributions that are restricted to meeting the capital requirements of a particular function or segment. Taxes and other items not identifiable as program revenues are reported as general revenues. For the most part, the effect of interfund activity has been removed from the government-wide financial statements. However, the net effect of interfund services provided and used between functions is not eliminated, as the elimination of these charges would distort the direct costs and program revenues reported for the functions affected.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 47 Comprehensive Annual Financial Report Fund Financial Statements Governmental fund financial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., measurable and available). Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, and claims and judgments, are recorded only when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long-term debt and acquisitions under capital leases are reported as other financing sources. Real estate and personal property tax revenues are considered available if they are collected within 60 days after year-end. Investment income is susceptible to accrual. Other receipts and tax revenues become measurable and available when the cash is received and are recognized as revenue at that time. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria is met. Expenditure driven grants recognize revenue when the qualifying expenditures are incurred and all other grant requirements are met. The following major governmental funds are reported: The general fund is the primary operating fund. It is used to account for all financial resources, except those that are required to be accounted for in another fund. The strategic planning and community development fund is used to account for grant activities of the Office of Strategic Planning and Community Development. The capital projects fund is used to account for activities associated with constructing and acquiring assets for both general city-wide and school construction projects. The nonmajor governmental funds consist of other special revenue, capital projects and permanent funds that are aggregated and presented in the nonmajor governmental funds column on the governmental funds financial statements. The following describes the general use of these fund types: The special revenue fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than permanent funds or capital projects. The capital projects fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets of the governmental funds. The permanent fund is used to account for and report financial resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the governmental programs. Proprietary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 48 Comprehensive Annual Financial Report proprietary funds principal ongoing operations. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. The following major proprietary funds are reported: The water enterprise fund is used to account for financial activity that occurs as a result of the ongoing operations within the water department. The sewer enterprise fund is used to account for the financial activity that occurs as a result of the ongoing operations within the sewer department. The Veterans Memorial Ice Rink enterprise fund is used to account for financial activity that occurs as a result of the ongoing operation of the Veteran’s Memorial Ice Rink and the second auxiliary rink. The Dilboy Field enterprise fund is used to account for financial activity that occurs as a result of the ongoing operations of the Dilboy Stadium. Fiduciary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Fiduciary funds are used to account for assets held in a trustee capacity for others that cannot be used to support the governmental programs. The following fiduciary fund types are reported: The pension trust fund is used to account for the activities of the System, which accumulates resources to provide pension benefits to eligible retirees and their beneficiaries. The other postemployment benefits trust fund is a fund being used to accumulate resources to provide funding for future other postemployment benefits (OPEB) liabilities. The private-purpose trust fund is used to account for trust arrangements that exclusively benefit individuals, private organizations, or other governments. Some of these trusts have donor restrictions and trustee policies that do not allow the endowment portion and any unrealized appreciation to be spent. The donor restrictions and trustee policies only allows the trustees to authorize spending of the realized investment earnings. The City’s educational scholarship trusts are accounted for in this fund. The agency fund is used to account for assets held in a purely custodial capacity. D. Cash and Investments Government-Wide and Fund Financial Statements Cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with an original maturity of three months or less from the date of acquisition. Investments are carried at fair value. E. Fair Value Measurements The City reports required types of financial instruments in accordance with the fair value standards. These standards require an entity to maximize the use of observable inputs (such as quoted prices in active markets) and minimize the use of unobservable inputs (such as appraisals or valuation techniques) to determine fair value. Fair value standards also require the government to classify these financial instruments into a three-level hierarchy, based on the priority of inputs to the valuation technique or in accordance with net asset value practical

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 49 Comprehensive Annual Financial Report expedient rules, which allow for either Level 2 or Level 3 depending on lock up and notice periods associated with the underlying funds. Instruments measured and reported at fair value are classified and disclosed in one of the following categories: Level 1 – Quoted prices are available in active markets for identical instruments as of the reporting date. Instruments, which are generally included in this category, include actively traded equity and debt securities, U.S. government obligations, and mutual funds with quoted market prices in active markets. Level 2 – Pricing inputs are other than quoted in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Certain fixed income securities, primarily corporate bonds, are classified as Level 2 because fair values are estimated using pricing models, matrix pricing, or discounted cash flows. Level 3 – Pricing inputs are unobservable for the instrument and include situations where there is little, if any, market activity for the instrument. The inputs into the determination of fair value require significant management judgment or estimation. In some instances the inputs used to measure fair value may fall into different levels of the fair value hierarchy and is based on the lowest level of input that is significant to the fair value measurement. Market price is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Instruments with readily available active quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. It is reasonably possible that change in values of these instruments will occur in the near term and that such changes could materially affect amounts reported in these financial statements. For more information on the fair value of the City’s financial instruments, see Note 2 – Cash and Investments. F. Accounts Receivable Government-Wide and Fund Financial Statements The recognition of revenue related to accounts receivable reported in the government-wide financial statements and the fiduciary funds financial statements are reported under the accrual basis of accounting. The recognition of revenue related to accounts receivable reported in the governmental funds financial statements are reported under the modified accrual basis of accounting. Real Estate, Personal Property Taxes and Tax Liens Real estate and personal property taxes are levied and based on values assessed on January 1st of every year. Assessed values are established by the Board of Assessors for 100% of the estimated fair market value. Taxes are due on August 1st, November 1st, February 1st and May 1st and are subject to penalties and interest if they are not paid by the respective due date. Real estate and personal property taxes levied are recorded as receivables in the year of the levy. Real estate tax liens are processed six months after the close of the valuation year on delinquent properties and are recorded as receivables in the year they are processed. Real estate receivables are secured via the tax lien process and are considered 100% collectible. Accordingly, an allowance for uncollectibles is not reported.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 50 Comprehensive Annual Financial Report Personal property taxes cannot be secured through the lien process. The allowance of uncollectibles is estimated based on historical trends and specific account analysis. Motor Vehicle Excise Motor vehicle excise taxes are assessed annually for each vehicle registered in the City and are recorded as receivables in the year of the levy. The Commonwealth is responsible for reporting the number of vehicles registered and the fair values of those vehicles. The tax calculation is the fair value of the vehicle multiplied by $25 per $1,000 of value. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. Water and Sewer User fees are levied monthly based on individual meter readings and are subject to penalties and interest if they are not paid by the respective due date. Water and Sewer liens are processed in December of every year and included as a lien on the property owner’s tax bill. Water and Sewer charges and liens are recorded as receivables in the year of the levy. Since the receivables are secured via the lien process, these accounts are considered 100% collectible and therefore do not report an allowance for uncollectibles. Departmental and Other Departmental and other receivables consist primarily of parking fines and are recorded as receivables in the year accrued. The allowance of uncollectibles is estimated based on historical trends and specific account analysis. Intergovernmental Various federal and state grants for operating and capital purposes are applied for and received annually. For non-expenditure driven grants, receivables are recorded as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred and all other grant requirements are met. These receivables are considered 100% collectible and therefore do not report an allowance for uncollectibles. Loans The Office of Strategic Planning and Community Development administers loan programs that provide housing assistance to residents and capital needs assistance for small businesses. Upon issuance, a receivable is recorded for the principal amount of the loan. Loan receivables are secured via the lien process and are considered 100% collectible. Accordingly, an allowance for uncollectibles is not reported. G. Inventories Government-Wide and Fund Financial Statements Inventories are recorded as expenditures at the time of purchase. Such inventories are not material in total to the government-wide and fund financial statements, and therefore are not reported.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 51 Comprehensive Annual Financial Report H. Capital Assets Government-Wide Fund Financial Statements Capital assets, which include land, construction in progress, land improvements, books and periodicals, buildings and improvements, machinery and equipment, vehicles, and infrastructure (e.g., roads, water mains, sewer mains, and similar items), are reported in the applicable governmental activity column of the government-wide financial statements. Capital assets are recorded at historical cost, or at estimated historical cost, if actual historical cost is not available. Donated capital assets, donated works of art, historical treasurers and similar assets, and capital assets received in service concession arrangements are recorded at acquisition value. Construction period interest is capitalized on constructed capital assets except for the capital assets of the governmental activities column in the government-wide financial statements. All purchases and construction costs in excess of $50,000 are capitalized at the date of acquisition or construction, respectively, with expected useful lives of greater than one year. Capital assets (excluding land) are depreciated on a straight-line basis. The estimated useful lives of capital assets are as follows: Estimated Useful Life (in years) Land improvements…………………………… 20-40 Books and periodicals………………………… 10 Buildings and improvements………………… 20-40 Machinery and equipment…………………… 5-10 Vehicles………………………………………… 5-15 Infrastructure…………………………………… 10-50 Capital Asset Type The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized and are treated as expenses when incurred. Improvements are capitalized. Governmental Fund Financial Statements Capital asset costs are recorded as expenditures in the acquiring fund in the year of the purchase. I. Deferred Outflows/Inflows of Resources Government-Wide Financial Statements (Net Position) In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/ expenditure) until then. The City reported deferred charges on refunding and deferred outflows related to pensions in this category. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City reported deferred inflows related to pensions in this category.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 52 Comprehensive Annual Financial Report Governmental Fund Financial Statements In addition to liabilities, the governmental funds balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents assets that have been recorded in the governmental fund financial statements but the revenue is not available and so will not be recognized as an inflow of resources (revenue) until it becomes available. The City has recorded unavailable revenue as deferred inflows of resources in the governmental funds balance sheet. J. Unavailable Revenue Unavailable revenue at the governmental fund financial statement level represents billed receivables that do not meet the availability criterion in accordance with the current financial resources measurement focus and the modified accrual basis of accounting. Unavailable revenue is recognized as revenue in the conversion to the entity-wide (full accrual) financial statements. K. Interfund Receivables and Payables During the course of its operations, transactions occur between and within individual funds that may result in amounts owed between funds. Government-Wide Financial Statements Transactions of a buyer/seller nature between and within governmental funds and internal service funds are eliminated from the governmental activities in the statement of Net Position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of Net Position as “internal balances”. Fund Financial Statements Transactions of a buyer/seller nature between and within funds are not eliminated from the individual fund statements. Receivables and payables resulting from these transactions are classified as “Due from other funds” or “Due to other funds” on the balance sheet. L. Interfund Transfers During the course of its operations, resources are permanently reallocated between and within funds. These transactions are reported as operating transfers in and operating transfers out. Government-Wide Financial Statements Operating transfers between and within governmental funds are eliminated from the governmental activities in the statement of activities. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of activities as “Transfers, net”. Fund Financial Statements Operating transfers between and within funds are not eliminated from the individual fund statements and are reported as operating transfers in and operating transfers out.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 53 Comprehensive Annual Financial Report M. Net Position and Fund Equity Government-Wide Financial Statements (Net Position) Net position reported as “net investment in capital assets” includes capital assets, net of accumulated depreciation, less the principal balance of outstanding debt used to acquire capital assets. Unspent proceeds of capital related debt are not considered to be capital assets. Outstanding debt related to future reimbursements from the state’s school building program is not considered to be capital related debt. Net position is reported as restricted when amounts that are not available for appropriation or are legally restricted by outside parties for a specific future use. Net position has been “restricted for” the following: “Streets” represents amounts committed by the Commonwealth for the repair and/or construction of streets. “Community Development” represents amounts committed by the Federal Department of Housing and Urban Development (HUD) for various community development projects. “Loans” represents community development outstanding loans receivable balances. “Permanent funds – nonexpendable” represents the endowment portion of donor restricted trusts that support governmental programs. “Permanent funds – expendable” represents the amount of realized and unrealized investment earnings of donor restricted trusts. The donor restrictions and trustee policies only allows the trustees to approve spending of the realized investment earnings that support governmental programs. “Other specific purposes” represents restrictions placed on assets from outside parties, such as federal and state grants. Sometimes the City will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted – net position to have been depleted before unrestricted – net position is applied. Fund Financial Statements (Fund Balances) Governmental fund balances are classified as nonspendable, restricted, committed, assigned, or unassigned based on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. The governmental fund balance classifications are as follows: “Nonspendable” fund balance includes amounts that cannot be spent because they are either not in spendable form or they are legally or contractually required to be maintained intact. “Restricted” fund balance includes amounts subject to constraints placed on the use of resources that is either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or that are imposed by law through constitutional provisions or enabling legislation.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 54 Comprehensive Annual Financial Report “Committed” fund balance includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority. Approval by the Board of Alderman is the highest level of decision-making authority for the government that can, by approval of a council order prior to the end of the year, commit fund balance. Once adopted, the limitation imposed by the order remains in place until a similar action is taken to remove or revise the limitation. “Assigned” fund balance includes amounts that are constrained by the City’s intent to be used for specific purposes, but are neither restricted nor committed. The City Finance Director has the authority to assign fund balance. Funds are assigned when the City has an obligation to purchase goods or services from the current years’ appropriation. Assignments generally only exist temporarily. Additional action does not have to be taken for the removal of an assignment. “Unassigned” fund balance includes the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund. The general fund is the only fund that that can report a positive unassigned fund balance amount. The City’s spending policy is to spend restricted fund balance first, followed by committed, assigned and unassigned fund balance. Most governmental funds are designated for one purpose at the time of their creation. Therefore, any expenditure from the fund will be allocated to the applicable fund balance classifications in the order of the aforementioned spending policy. The general fund and certain other funds may have more than one purpose. N. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Somerville Contributory Retirement System and the Massachusetts Teachers Retirement System and additions to/deductions from the Systems fiduciary net position have been determined on the same basis as they are reported by the Systems. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. O. Long-term debt Government-Wide and Proprietary Fund Financial Statements Long-term debt is reported as a liability in the government-wide statement of Net Position. Material bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Governmental Fund Financial Statements The face amount of governmental funds long-term debt is reported as other financing sources. Bond premiums and discounts, as well as issuance costs, are recognized in the current period. Bond premiums are reported as other financing sources and bond discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual bond proceeds received, are reported as general government expenditures.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 55 Comprehensive Annual Financial Report P. Investment Income Excluding the permanent funds, investment income derived from major and nonmajor governmental funds is legally assigned to the general fund unless otherwise directed by Massachusetts General Law (MGL). Investment income of the proprietary funds is retained in the respective enterprise fund. Q. Compensated Absences Employees are granted vacation and sick leave in varying amounts based on collective bargaining agreements, state laws and executive policies. Government-Wide Financial Statements Vested or accumulated vacation and sick leave are reported as liabilities and expensed as incurred. Governmental Fund Financial Statements Vested or accumulated vacation and sick leave, which will be liquidated with expendable available financial resources, are reported as expenditures and fund liabilities. R. Use of Estimates Government-Wide and Fund Financial Statements The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the year. Actual results could vary from estimates that were used. S. Individual Fund Deficits At June 30, 2017, the Capital Projects Fund reports a fund deficit of $11.4 million. This deficit will be funded with available funds and future bond proceeds. T. Total Column Government-Wide Financial Statements The total column presented on the government-wide financial statements represents consolidated financial information. Fund Financial Statements The total column on the fund financial statements is presented only to facilitate financial analysis. Data in this column is not the equivalent of consolidated financial information.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 56 Comprehensive Annual Financial Report NOTE 2 - CASH AND INVESTMENTS A cash and investment pool is maintained that is available for use by all funds. Each fund type's portion of this pool is displayed on the balance sheet as "Cash and Cash Equivalents". The deposits and investments of the trust funds are held separately from those of other funds. Statutes authorize the investment in obligations of the U.S. Treasury, agencies, and instrumentalities, certificates of deposit, repurchase agreements, money market accounts, bank deposits and the State Treasurer's Investment Pool (Pool). In addition, there are various restrictions limiting the amount and length of deposits and investments. The Pool meets the criteria of an external investment pool. The Pool is administered by the Massachusetts Municipal Depository Trust (MMDT), which was established by the Treasurer of the Commonwealth who serves as Trustee. The fair value of the position in the Pool is the same as the value of the Pool shares. The MMDT maintains a cash portfolio and a short-term bond fund with combined average maturities of approximately 3 months. The City Treasurer is the custodian of funds held in the Other Postemployment Benefit (OPEB) Trust Fund. As of June 30, 2017, $1.8 million of the OPEB Trust Fund is included within the City’s cash and investments. Custodial Credit Risk – Deposits In the case of deposits, this is the risk that in the event of a bank failure, the City of Somerville’s deposits may not be returned to it. The City’s investment policy states that safety, liquidity and yield are the most important attributes when deciding on which financial institutions to deposit funds with. These guidelines are intended to further the objective of securing the highest return that is consistent with the safety principal while meeting the daily cash requirements of the City. The Treasurer also subscribes to a bank rating service to assist in the determination of which banks to place deposits with. At year-end, the carrying amount of deposits totaled $135,680,472 and the bank balance totaled $140,567,097. Of the bank balance, $2,585,564 was covered by Federal Depository Insurance, $15,712,548 was covered by the Depositors Insurance Fund, $7,844,068 was covered by Share Insurance Fund, $113,778,354 was collateralized, and $646,563 was exposed to custodial credit risk because it was uninsured and uncollateralized. At December 31, 2016, carrying amount of deposits for the System totaled $4,983,824, and the bank balance totaled $5,429,576. The entire bank balance of the System was covered by Federal Depository Insurance and is collateralized. Investments As of June 30, 2017, the City of Somerville had the following investments: Other Investments MMDT………………………………………………$ 6,009,284

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 57 Comprehensive Annual Financial Report As of December 31, 2016, the System had the following investments: Fair Value Under 1 Year 1-5 Years 6-10 Years Over 10 Years Rating Investment Type Debt Securities (1) Loomis Sayles Fixed Income Fund …………$ 65,233,177 $ 13,307,568 $ 24,984,307 $ 14,873,164 $ 12,068,138 Aaa / NR Other Investments Equity Mutual Funds (Domestic)....................... 10,774,696 Equity Mutual Funds (International).................. 11,971,177 Equities…………………………………………… 127,362,526 Real Estate and Alternative Mutual Funds…… 22,144,293 Money Market Mutual Funds…………………… 439,297 Total Investments...........................................$ 237,925,166 Maturity (1) The maturities and ratings of the fixed income mutual funds are representative of the average maturities of the underlying investments of each fund. Custodial Credit Risk – Investments For an investment, this is the risk that, in the event of a failure by the counterparty, the City will not be able to recover the value of its investments or collateral security that are in the possession of an outside party. The City does not have investments that are subject to custodial credit risk. The City’s investment policy states that no more than 20% of the City’s investments should be invested in a single financial institution with the exception of U.S. Treasuries or Agencies and the State Treasurer’s Investment Pool (MMDT). Of the System’s $127,362,526, in equity securities, the System has custodial credit risk exposure of $127,362,526, because the related securities are uninsured, unregistered and held by the counterparty. The System has not adopted a formal investment policy to manage custodial credit risk. Interest Rate Risk The City’s investment policy limits the maturities of investments in the following ways; up to one year from date of purchase for U.S. Treasuries or Agencies, Certificates of Deposit limited to one year terms, Repurchase Agreements not to exceed 90 days. These limits do not apply to fully insured deposits. The System does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk The City has not adopted a formal policy related to credit risk. The City does not have any debt securities as of June 30, 2017. The City’s investment in MMDT is unrated. The System has not adopted a formal policy related to credit risk. The System’s investment in Fixed Income Mutual Funds have ratings that range from Aaa to not rated and their Money Market Mutual Funds are not rated. Concentration of Credit Risk The City places no limit on the amount the government may invest in any one issuer.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 58 Comprehensive Annual Financial Report The System is not invested more than 5% in any one issuer. The System has not adopted a formal policy related to the amount that may be invested in any one issuer. Fair Market Value of Investments The City holds investments that are measured at fair value on a recurring basis. Because investing is not a core part of the City’s mission, the City determines that the disclosures related to these investments only need to be disaggregated by major type. The City chooses a narrative format for the fair value disclosures The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. The City has the following recurring fair value measurements as of June 30, 2017: MMDT investments of $6.0 million are valued at amortized cost. Under the amortized cost method, an investment is valued initially at its cost and adjusted for the amount of interest income accrued each day over the term of the investment to account for any difference between the initial cost and the amount payable at its maturity. If amortized cost is determined not to approximate fair value, the value of the portfolio securities will be determined under procedures established by the Advisor. Retirement System The retiree pension defined benefit plan holds significant amounts of investments that are measured at fair value on a recurring basis. Because investing is a key part of the plan’s activities, the plan shows greater disaggregation in its disclosures. The plan chooses a tabular format for disclosing the levels within the fair value hierarchy. The System categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The System has the following recurring fair value measurements as of December 31, 2016: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Investments by fair value level Debt securities Fixed Income Mutual Funds…………………$ 65,233,177 $ 65,233,177 $ - $ - Other investments Equity securities……………………………… 127,362,526 127,362,526 - - Real Estate investment trusts……………… 22,144,293 - - 22,144,293 Money market mutual funds………………… 439,297 439,297 - - Equity mutual funds………………………… 22,745,873 22,745,873 - - Total other invesments……………………… 172,691,989 150,547,696 - 22,144,293 Total investments by fair value level………$ 237,925,166 $ 215,780,873 $ - $ 22,144,293 Fair Value Measurements Using Investment Type

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 59 Comprehensive Annual Financial Report Fixed income mutual funds, equity securities, money market mutual funds, and equity mutual funds classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Real estate investment trusts are classified in Level 3 are valued using either a discounted cash flow or market comparable companies technique. NOTE 3 – RECEIVABLES At June 30, 2017, receivables for the individual major governmental funds and non-major funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Real estate and personal property taxes…… $ 1,950,239 $ (155,056) $ 1,795,183 Tax liens………………………………………… 851,508 - 851,508 Motor vehicle excise taxes…………………… 1,631,041 (1,454,139) 176,902 Departmental and other………………………… 13,978,988 (10,891,231) 3,087,757 Intergovernmental……………………………… 13,537,763 - 13,537,763 Loans…………………………………………… 18,325,413 - 18,325,413 Total…………………………. $ 50,274,952 $ (12,500,426) $ 37,774,526 At June 30, 2017, receivables for the enterprise funds, including the applicable allowances for uncollectible accounts, are as follows: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Sewer.............................................................. $ 7,165,147 $ - $ 7,165,147 Water.............................................................. 4,252,054 - 4,252,054 Total…………………………. $ 11,417,201 $ - $ 11,417,201 Governmental funds report unavailable revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. At the end of the current year, the various components of unavailable revenue reported in the governmental funds were as follows: Non-Major General Community Governmental Fund Development Funds Total Receivable type: Real estate and personal property taxes…… $ 1,144,950 $ - $ - $ 1,144,950 Tax liens………………………………………… 851,508 - - 851,508 Motor vehicle excise…………………………… 176,902 - - 176,902 Departmental and other………………………… 3,061,585 - 396,637 3,458,222 Intergovernmental……………………...……… 8,498,625 1,148,368 3,205,981 12,852,974 Total………………………… $ 13,733,570 $ 1,148,368 $ 3,602,618 $ 18,484,556

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 60 Comprehensive Annual Financial Report NOTE 4 – CAPITAL ASSETS Capital asset activity for the year ended June 30, 2017 was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: Land……………………………………………………$ 37,082,399 $ - $ - $ 37,082,399 Construction in progress…………………………… 5,977,097 11,238,305 (905,933) 16,309,469 Total capital assets not being depreciated…… 43,059,496 11,238,305 (905,933) 53,391,868 Capital assets being depreciated: Land improvements………………………………… 41,138,786 697,945 - 41,836,731 Books and periodicals……………………………… 2,626,489 - - 2,626,489 Buildings and improvements……………………… 206,411,317 996,271 (5,097,435) 202,310,153 Machinery and equipment………………………… 10,275,330 191,857 - 10,467,187 Vehicles……………………………………………… 15,383,860 484,636 (167,612) 15,700,884 Infrastructure………………………………………… 46,885,083 1,101,977 - 47,987,060 Total capital assets being depreciated………… 322,720,865 3,472,686 (5,265,047) 320,928,504 Less accumulated depreciation for: Land improvements………………………………… (14,452,628) (1,586,914) - (16,039,542) Books and periodicals……………………………… (2,519,872) (42,982) - (2,562,854) Buildings and improvements……………………… (76,358,080) (5,079,527) 5,008,846 (76,428,761) Machinery and equipment………………………… (7,876,565) (508,676) - (8,385,241) Vehicles……………………………………………… (9,192,083) (819,002) 167,612 (9,843,473) Infrastructure………………………………………… (27,842,852) (900,821) - (28,743,673) Total accumulated depreciation……………… (138,242,080) (8,937,922) 5,176,458 (142,003,544) Total capital assets being depreciated, net…………… 184,478,785 (5,465,236) (88,589) 178,924,960 Total governmental activities capital assets, net…… $ 227,538,281 $ 5,773,069 $ (994,522) $ 232,316,828

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 61 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Business-Type Activities: Water Capital assets not being depreciated: Construction in progress…………………………… $ 116,945 $ - $ (116,945) $ - Capital assets being depreciated: Buildings……………………………………………… 16,087 - - 16,087 Machinery and equipment………………………… 5,267,964 - - 5,267,964 Vehicles……………………………………………… 462,918 - - 462,918 Infrastructure………………………………………… 36,857,248 1,929,751 - 38,786,999 Total capital assets being depreciated………… 42,604,217 1,929,751 - 44,533,968 Less accumulated depreciation for: Buildings……………………………………………… (9,248) (804) - (10,052) Machinery and equipment………………………… (2,392,292) (360,665) - (2,752,957) Vehicles……………………………………………… (410,968) (35,400) - (446,368) Infrastructure………………………………………… (9,093,509) (836,805) - (9,930,314) Total accumulated depreciation……………… (11,906,017) (1,233,674) - (13,139,691) Total water capital assets being depreciated, net…… 30,698,200 696,077 - 31,394,277 Total water activities capital assets, net……………… $ 30,815,145 $ 696,077 $ (116,945) $ 31,394,277 Beginning Ending Balance Increases Decreases Balance Business-Type Activities: Sewer Capital assets not being depreciated: Construction in progress…………………………… $ 274,824 $ 22,244 $ (274,824) $ 22,244 Capital assets being depreciated: Vehicles……………………………………………… 434,092 - - 434,092 Infrastructure………………………………………… 32,367,660 3,629,388 - 35,997,048 Total capital assets being depreciated………… 32,801,752 3,629,388 - 36,431,140 Less accumulated depreciation for: Vehicles……………………………………………… (223,565) (34,924) - (258,489) Infrastructure………………………………………… (13,733,700) (452,078) - (14,185,778) Total accumulated depreciation……………… (13,957,265) (487,002) - (14,444,267) Total sewer capital assets being depreciated, net…… 18,844,487 3,142,386 - 21,986,873 Total sewer activities capital assets, net……………… $ 19,119,311 $ 3,164,630 $ (274,824) $ 22,009,117

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 62 Comprehensive Annual Financial Report Beginning Ending Balance Increases Decreases Balance Business-Type Activities: Rink Capital assets being depreciated: Buildings Improvements…………………………… $ 3,435,934 $ - $ - $ 3,435,934 Less accumulated depreciation for: Buildings Improvements…………………………… (300,644) (85,898) - (386,542) Total rink activities capital assets, net………………… $ 3,135,290 $ (85,898) $ - $ 3,049,392 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General government…………………………………………………… $ 781,181 Public safety……………………………………………………………… 585,500 Education………………………………………………………………… 4,783,030 Public works……………………………………………………………… 1,581,138 Culture and recreation…………………………………………………… 1,207,073 Total depreciation expense - governmental activities…………………… $ 8,937,922 Business-Type Activities: Water……………………………………………………………………… $ 1,233,674 Sewer……………………………………………………………………… 487,002 Rink………………………………………………………………………… 85,898 Total depreciation expense - business-type activities…………………… $ 1,806,574 NOTE 5 – INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The City’s interfund balances at June 30, 2017, consisted of $1,371,806 in balances within the non-major governmental funds which represent interfund borrowings for short-term cash flow needs. Interfund transfers for the year ended June 30, 2017, are summarized as follows: Capital Nonmajor Veteran's General Projects Governmental Memorial Operating Transfers Out: Fund Fund Funds Sewer Ice Rink Water Total General Fund………………………$ - $ 397,551 $ 507,531 $ 974,748 $ 199,000 $ 458,705 $ 2,537,535 (1) Nonmajor Governmental Funds… 3,344,441 - - - - 3,344,441 (2) Sewer Enterprise Fund…………… 655,701 - - - - - 655,701 (3) Water Enterprise Fund…………… 631,696 - - - - - 631,696 (3) Total……………………………… $ 4,631,838 $ 397,551 $ 507,531 $ 974,748 $ 199,000 $ 458,705 $ 7,169,373 Transfers In: (1) Represents budgeted transfers out of the general fund various capital projects, a subsidy transfer to the Veteran’s Memorial Ice Rink, and contributions to the water and sewer stabilization funds. (2) Represents a transfer from the parking receipts reserve fund and the bond issuance expense fund to the general fund, along with various other non-major projects. (3) Represents the transfer of indirect costs to the general fund.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 63 Comprehensive Annual Financial Report NOTE 6 – OPERATING LEASES Operating Leases The City leases two police sub-stations under several non-cancelable operating leases. The total cost of these leases for the year ended June 30, 2017, was approximately $43,800 and is reported as public safety expenditures in the basic financial statements. The Police sub-station leases were renewed through February of 2018. NOTE 7 – SHORT-TERM FINANCING Short-term debt may be authorized and issued to fund the following: • Current operating costs prior to the collection of revenues through issuance of revenue or tax anticipation notes (RANS or TANS). • Capital project costs and other approved expenditures incurred prior to obtaining permanent financing through issuance of bond anticipation notes (BANS) or grant anticipation notes (GANS). Short-term loans are general obligations and carry maturity dates that are limited by statute. Interest expenditures and expenses for short-term borrowings are accounted for in the general fund and capital projects fund, respectively. Details related to the short-term debt activity for the year ended June 30, 2017, is as follows: Governmental Activities Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose (%) Due Date 2016 Issued Redeemed 2017 BAN Municipal Purpose……………………… 1.25 10/14/16 $ 18,168,551 $ - 18,168,551 $ - BAN Municipal Purpose……………………… 2.00 06/09/17 25,631,449 - 25,631,449 - BAN Municipal Purpose……………………… 2.00 06/08/18 - 39,043,332 - 39,043,332 Total Short-Term Debt……………………………………………… $ 43,800,000 $ 39,043,332 $ 43,800,000 $ 39,043,332 Enterprise Activities Balance at Balance at Rate June 30, Renewed/ Retired/ June 30, Type Purpose (%) Due Date 2016 Issued Redeemed 2017 BAN Water Repairs…………………………… 2.00 06/09/17 $ 500,000 $ - $ 500,000 $ - BAN Sewer Repairs…………………………… 2.00 06/09/17 500,000 - 500,000 - BAN Nunziato Field Stormwater Project…… 2.00 06/09/17 200,000 - 200,000 - BAN Sewer Main Repairs……………………… 2.00 06/08/18 - 1,500,000 - 1,500,000 BAN Water Main Repairs……………………… 2.00 06/08/18 - 2,500,000 - 2,500,000 BAN Cedar Street Water Repairs…………… 2.00 06/08/18 - 1,300,000 - 1,300,000 BAN Cedar Street Sewer Repairs…………… 2.00 06/08/18 - 3,000,000 - 3,000,000 BAN Nunziato Field Stormwater Project…… 2.00 06/08/18 - 700,000 - 700,000 Total……………………………………………………$ 1,200,000 $ 9,000,000 $ 1,200,000 $ 9,000,000

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 64 Comprehensive Annual Financial Report NOTE 8 - LONG-TERM DEBT Under the provisions of Chapter 44, Section 10, Municipal Law authorizes indebtedness up to a limit of 5% of the equalized valuation. Debt issued in accordance with this section of the law is designated as being "inside the debt limit". In addition, however, debt may be authorized in excess of that limit for specific purposes. Such debt, when issued, is designated as being "outside the debt limit". On June 1, 2017, the City issued $12,335,000 of general obligation bonds for various governmental projects. The full $12.3 million of bond proceeds was recognized in the governmental funds. Details related to the general obligation bonds outstanding at June 30, 2017, and the debt service requirements are as follows: Bonds Payable Schedule – Governmental Funds Interest Outstanding Outstanding Original Maturities Rate at June 30, at June 30, Project Borrowing Through (%) 2016 Issued Redeemed 2017 Municipal Purpose - August 16, 2006 (Refunding)…$ 11,230,000 2018 3.5% - 5.0% $ 3,850,000 $ - $ 2,610,000 $ 1,240,000 Municipal Purpose - August 15, 2006……………….. 3,795,000 2027 4.0% - 4.1% 2,730,000 - 345,000 2,385,000 MSBA - February 12, 2008…………………………… 7,282,102 2033 7.1% - 8.0% 6,189,787 - 364,105 5,825,682 Municipal Purpose - February 1, 2009……………… 3,030,000 2028 3.6% - 4.0% 2,015,000 - 330,000 1,685,000 Municipal Purpose - February 15, 2010……………… 2,272,000 2028 2.0% - 5.0% 1,789,000 - 161,000 1,628,000 Municipal Purpose - April 1, 2010 (Refunding)……… 13,407,000 2022 2.0% - 5.0% 9,051,500 - 1,511,500 7,540,000 Municipal Purpose - June 15, 2010………………..… 6,705,000 2029 2.0% - 5.0% 5,450,000 - 450,000 5,000,000 Municipal Purpose - February 23, 2011……………… 5,020,000 2025 2.0% - 5.0% 3,320,000 - 330,000 2,990,000 Municipal Purpose - May 17, 2013………………..… 15,750,000 2042 2.0% - 5.0% 15,045,000 - 365,000 14,680,000 Municipal Purpose - October 9, 2013……………….. 13,940,000 2033 2.0% - 5.0% 10,225,000 - 570,000 9,655,000 MSBA - September 25, 2013………………………… 6,250,000 2043 2.00% 5,818,964 - 215,518 5,603,446 Municipal Purpose - October 15, 2015……………… 8,603,000 2038 2.125% - 5.0% 8,603,000 - 203,000 8,400,000 Municipal Purpose - October 5, 2016……………….. 17,771,000 2039 2.0 - 4.0% 17,771,000 - - 17,771,000 Municipal Purpose - June 1, 2017………………..…… 1,235,000 2042 3.0 - 5.0% - 12,335,000 - 12,335,000 Total bonds payable……………………………………………………………………………………………… 91,858,251 12,335,000 7,455,123 96,738,128 Add: unamortized premium……………………………………………………………………………………… 1,892,114 2,970,178 177,075 4,685,217 Total…………………………………………………………………………………………………………………$ 93,750,365 $ 15,305,178 $ 7,632,198 $ 101,423,345

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 65 Comprehensive Annual Financial Report Debt service requirements for principal and interest for Governmental and Enterprise bonds payable in future years are as follows: Governmental Funds Year Principal Interest Total 2018……………… $ 7,101,623 $ 2,905,536 $ 10,007,159 2019……………… 6,015,623 2,662,706 8,678,329 2020……………… 5,925,623 2,448,797 8,374,420 2021……………… 6,285,622 2,248,909 8,534,531 2022……………… 6,446,622 2,020,867 8,467,489 2023……………… 4,921,622 1,778,127 6,699,749 2024……………… 4,759,622 1,615,162 6,374,784 2025……………… 4,644,622 1,456,726 6,101,348 2026……………… 4,384,622 1,305,872 5,690,494 2027……………… 4,499,622 1,175,811 5,675,433 2028……………… 4,409,622 1,055,821 5,465,443 2029……………… 3,779,622 944,412 4,724,034 2030……………… 3,694,622 865,782 4,560,404 2031……………… 3,144,622 788,163 3,932,785 2032……………… 3,214,622 704,362 3,918,984 2033……………… 3,314,624 614,586 3,929,210 2034……………… 3,050,517 523,201 3,573,718 2035……………… 2,365,517 450,975 2,816,492 2036……………… 2,140,517 392,971 2,533,488 2037……………… 2,200,517 332,528 2,533,045 2038……………… 2,270,517 269,968 2,540,485 2039……………… 1,905,517 212,352 2,117,869 2040……………… 1,960,517 159,916 2,120,433 2041……………… 2,015,517 105,756 2,121,273 2042……………… 2,070,517 50,045 2,120,562 2043……………… 215,518 4,310 219,828 Total……………… $ 96,738,128 $ 27,093,656 $ 123,831,784 Bonds Payable Schedule – Enterprise Funds Interest Outstanding Outstanding Original Maturities Rate at June 30, at June 30, Project Borrowing Through (%) 2016 Issued Redeemed 2017 MWRA Notes……………………………………………$ 7,584,424 2018 0.0% $ 284,413 $ - $ 189,608 $ 94,805 Municipal Purpose August 15, 2006………………..… 1,500,000 2017 4.0% 150,000 - 150,000 - Municipal Purpose - December 15, 2009…………… 4,400,000 2019 2.0% 1,460,000 - 490,000 970,000 Municipal Purpose - February 15, 2010……………… 1,910,000 2030 2.0% - 5.0% 1,241,000 - 109,000 1,132,000 Municipal Purpose - April 1, 2010 (Refunding)……… 262,000 2022 2.0% - 5.0% 151,500 - 26,500 125,000 Municipal Purpose - February 23, 2013……………… 424,000 2020 2.0% - 5.0% 210,000 - 50,000 160,000 MWRA Notes…………………………………………… 1,336,000 2022 0.0% 801,600 - 133,600 668,000 MWRA Notes…………………………………………… 1,242,340 2016 0.0% 869,638 - 124,234 745,404 MWRA Notes…………………………………………… 875,000 2025 0.0% 787,500 - 87,500 700,000 MWRA Notes…………………………………………… 138,000 2021 0.0% 138,000 - 27,600 110,400 MWRA Notes…………………………………………… 1,660,000 2027 0.0% - 1,660,000 - 1,660,000 Total Water Enterprise……………………………………………………………………...…………………… 6,093,651 1,660,000 1,388,042 6,365,609 Municipal Purpose - March 15,2004………………… 1,229,551 2016 4.0% - - - - Municipal Purpose - August 15, 2006……………….. 2,070,000 2027 4.0% 1,065,000 - 105,000 960,000 Municipal Purpose - April 1, 2010 (Refunding)……… 419,000 2022 2.0% - 5.0% 242,000 - 42,000 200,000 MWRA Notes…………………………………………… 1,616,450 2017 0.0% 323,290 - 323,290 - MWRA Notes…………………………………………… 800,256 2019 0.0% 480,153 - 160,051 320,102 Total Sewer Enterprise………………………………………………………...………………………………… 2,110,443 - 630,341 1,480,102 Rink Enterprise Debt - October 9, 2013……………… 13,940,000 2027 2.0% - 5.0% 2,290,000 - 185,000 2,105,000 Total…………………………………………………………………………………………………………………$ 10,494,094 $ 1,660,000 $ 2,203,383 $ 9,950,711

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 66 Comprehensive Annual Financial Report Water Enterprise Fund Year Principal Interest Total 2018……………… $ 1,302,739 $ 50,640 $ 1,353,379 2019……………… 1,187,934 44,315 1,232,249 2020……………… 702,934 39,115 742,049 2021……………… 647,934 34,165 682,099 2022……………… 624,334 30,435 654,769 2023……………… 460,734 26,105 486,839 2024……………… 333,500 23,200 356,700 2025……………… 333,500 20,400 353,900 2026……………… 246,000 17,400 263,400 2027……………… 246,000 14,400 260,400 2028……………… 80,000 11,200 91,200 2029……………… 100,000 8,000 108,000 2030……………… 100,000 4,000 104,000 Total……………… $ 6,365,609 $ 323,375 $ 6,688,984 Sewer Enterprise Fund Year Principal Interest Total 2018……………… $ 305,051 $ 44,576 $ 349,627 2019……………… 305,051 38,976 344,027 2020……………… 145,000 33,176 178,176 2021……………… 145,000 27,776 172,776 2022……………… 140,000 22,076 162,076 2023……………… 95,000 16,129 111,129 2024……………… 95,000 12,234 107,234 2025……………… 105,000 8,134 113,134 2026……………… 75,000 4,435 79,435 2027……………… 70,000 1,444 71,444 Total……………… $ 1,480,102 $ 208,956 $ 1,689,058 Rink Enterprise Fund Year Principal Interest Total 2018……………… $ 195,000 $ 83,250 $ 278,250 2019……………… 200,000 75,350 275,350 2020……………… 205,000 69,044 274,044 2021……………… 215,000 61,363 276,363 2022……………… 190,000 51,238 241,238 2023……………… 200,000 41,488 241,488 2024……………… 210,000 31,238 241,238 2025……………… 220,000 20,488 240,488 2026……………… 230,000 11,394 241,394 2027……………… 240,000 3,900 243,900 Total……………… $ 2,105,000 $ 448,750 $ 2,553,750

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 67 Comprehensive Annual Financial Report The Massachusetts Water Resource Authority (MWRA) operates an Infiltration/Inflow Financial Assistance Program for community owned collection systems. For each community approved for the project, financial assistance received from the MWRA consists of a non-interest bearing loan. At June 30, 2017, the outstanding principal amount of these loans totaled $4.3 million. The imputed interest on these loans is immaterial and has not been recognized by the City. The Commonwealth has approved school construction assistance. The assistance program, which is administered by the Massachusetts School Building Authority (MSBA), provides resources for future debt service of general obligation school bonds outstanding. During 2017, $3,548,000 of such assistance was received. Approximately $6,919,000 will be received in future years. Of this amount, approximately $1,651,000 represents reimbursement of long-term interest costs, and approximately $5,268,000 represents reimbursement of approved construction costs. Accordingly, a $5,268,000 intergovernmental receivable and corresponding unavailable revenue have been reported in governmental fund financial statements. The unavailable revenue has been recognized as revenue in the conversion to the government-wide financial statements. Beginning in 2005, the Commonwealth changed the method for funding the school building assistance program. Under the new program, the assistance is paid to support construction costs and reduce the total debt service of the City. Through the end of 2017, the City has recorded capital grant proceeds totaling $13.8 million related to the East Somerville Community School and $3.6 million related to the Somerville High School project, from the MSBA, which is equal to 80% and 75.29%, respectively, of approved construction costs submitted for reimbursement. The City anticipates receiving an additional $1.4 million related to the East Somerville Community School project and $120.4 million related to the Somerville High School project. Accordingly, a $3.0 million intergovernmental receivable and corresponding deferred inflow of resources - unavailable revenue has been reported in the governmental fund financial statements. This receivable relates to expenditures incurred during 2017 and submitted for reimbursement from the MSBA. The unavailable revenue has been recognized as revenue in the conversion to the government-wide financial statements. The City is subject to various debt limits by statute and may issue additional general obligation debt under the normal debt limit.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 68 Comprehensive Annual Financial Report At June 30, 2017, the City had the following authorized and unissued debt: Purpose Amount Central Hill Memorial Park………………………………………………$ 450,000 Veterans Memorial Ice Rink…………………………………………… 950 Street Resurfacing……………………………………………………… 15,979 Public Safety Building Repairs…..…………………………………… 56,200 East Somerville Community School Remodeling…………………… 10,422,563 Morse-Kelley Park Renovations……………………………………… 2,445 Departmental Equipment (Radio)……………………………………… 23,000 ISD Office Renovations………………………………………………… 15,000 Park Constructions……………………………………………………… 500,000 Various School and City Building Improvements…………………… 1,000,000 Departmental Equipment (Ladder Truck)…………………………… 1,000 Recreation Dept. Vehicle……………………………………………… 15,000 Network Infrastructure Replacement………………………………… 1,000 MWRA Infiltration & Inflow……………………………………………… 90 DPW Equipment Replacement/ Street Sweeper…………………… 876 DPW Salt Shed.………………………………………………………… 29,000 High School Feasibility Study & Schematic Design………………… 1,053,417 Computer Hardware & Software……………………………………… 455,000 Citywide Bicycle & Pedestrian Upgrades…………………………… 30,000 Street & Sidewalk Repairs……………………………………………… 1,400,000 ADA Accessibility - Curb Ramp Installation and Improvements.…… 578,465 ADA Accessibility Building Improvements.…………………………… 300,000 West Branch Library Design & Engineering………………………… 275,000 DPW Snow Removal Equipment.……………………………………… 9,425 Powderhouse Square Rotary Traffic Signal Improvements………… 250,000 Engine 7 Roof Replacement…………………………………………… 120,000 IT Server Upgrade……………………………………………………… 603,998 LED Light Conversion.………………………………………………… 2,475,000 Union Square Streetscape & Utility Early Action Project.…………… 2,200,000 Fire Station Engine 3…………………………………………………… 835,000 Hybrid DPW Refuse Tracks…………………………………………… 250,000 Building Assessment/ Preventative Maintenance…………………… 262,000 Cedar Street Water Repairs…………………………………………… 2,227,500 Cedar Street Sewer Repairs…………………………………………… 5,197,500 Nunziato Field Stormwater Project…………………………………… 700,000 Lincoln Park Renovation……………………………………………… 9,425,000 Sidewalk Improvements………………………………………………… 3,350,000 Beacon Street Reconstruction………………………………………… 1,500,000 East Broadway Streetscape…………………………………………… 175,000 West Branch Library Rehabilitation…………………………………… 3,385,000 Winter Hill Schoolyard & Nunziato Fields…………………………… 275,000 Sewer Main Rehabilitation & Replacement…………………………… 2,500,000 Water Main Rehabilitation & Replacement…………………………… 4,200,000 Fire Pumper……………………………………………………………… 544,182 DPW Capital Equipment & Vehicles…………………………………… 1,245,340 MBTA Green Line Extenstion………………………………………… 50,000,000 High School Feasibility Study………………………………………… 192,000 U8 Winter Hill Community School Soccer Field……………………… 375,000 Building Assessment/ Preventative Maintenance Plan……………… 410,000 ADA Accessibility Building Improvements.…………………………… 500,000 High School Construction……………………………………………… 255,982,705 Winter Hill Community Innovation School Repairs…………………… 3,968,259 Streets, Sidewalks, and ADA Ramp Improvements………………… 2,700,000 Total………………………………………………………………………$ 372,482,894

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 69 Comprehensive Annual Financial Report Calculation of Net Investment in Capital Assets Governmental Business-Type Activities Activities Capital assets, net of accumulated depreciation…………………… $ 232,316,828 $ 56,452,786 Outstanding principal of related debt: Long-term debt…………………………………………………… (101,423,345) (9,950,711) Short-term debt…………………………………………………… (39,043,332) (9,000,000) Add: Deferred charges on refunding………………………………… 338,362 - Unspent proceeds of capital debt……………………………… 27,658,970 8,579,367 Noncapital-related debt (1)……………………………………… 8,498,625 - Net investment in capital assets……………………………………… $ 128,346,108 $ 46,081,442 (1) School construction grant financing. Changes in Long-term Liabilities During the year ended June 30, 2017, the following changes occurred in long-term liabilities: Balance Balance June 30, June 30, Current 2016 Additions Reductions 2017 Portion Governmental Activities: Long-Term Bonds……..……………………… $ 91,858,251 $ 12,335,000 $ (7,455,123) $ 96,738,128 $ 7,101,623 Add: Unamortized Premium………………… 1,892,114 2,970,178 (177,075) 4,685,217 508,970 Total Bonds Payable…………………………… 93,750,365 15,305,178 (7,632,198) 101,423,345 7,610,593 Workers' Compensation……………………… 1,264,000 505,910 (414,910) 1,355,000 338,750 Other Postemployment Benefits……………… 114,117,612 21,702,998 (9,187,723) 126,632,887 - Net Pension Liability…………………………… 132,896,846 19,107,824 (13,544,742) 138,459,928 - Compensated Absences……………………… 3,892,700 54,079 (182,579) 3,764,200 159,509 Total………………………………………………$ 345,921,523 $ 56,675,989 $ (30,962,152) $ 371,635,360 $ 8,108,852 Balance Balance June 30, June 30, Current 2016 Additions Reductions 2017 Portion Business-Type Activities: Long-Term Bonds……………………………… $ 10,494,094 $ 1,660,000 $ (2,203,383) $ 9,950,711 $ 1,802,790 Other Postemployment Benefits…………...… 1,006,197 448,200 (1,070,843) 383,554 - Net Pension Liability…………………………… 1,378,948 494,448 (166,933) 1,706,463 - Compensated Absences……………………… 75,600 3,100 (15,200) 63,500 1,700 Total………………………………………………$ 12,954,839 $ 2,605,748 $ (3,456,359) $ 12,104,228 $ 1,804,490 The long-term liabilities will be liquidated in the future by the general fund and enterprise funds.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 70 Comprehensive Annual Financial Report NOTE 9 – GOVERNMENTAL FUND BALANCE CLASSIFICATIONS Massachusetts General Law Ch.40 §5B allows for the establishment of Stabilization funds for one or more different purposes. The creation of a fund requires a two-thirds vote of the legislative body and must clearly define the purpose of the fund. Any change to the purpose of the fund along with any additions to or appropriations from the fund requires a two-thirds vote of the legislative body. At year end the balance of the Rainy Day Stabilization fund if $4.1 million and reported as unassigned fund balance within the general fund. The City’s remaining stabilization funds are for specific purposes and have been reported as committed within the general fund. GASB 54 provides for two major types of fund balances, which are Nonspendable and Spendable. Nonspendable fund balances are balances that cannot be spent because they are not expected to be converted to cash or they are legally or contractually required to remain intact. Examples of this classification are prepaid items, inventories, and principal (corpus) of an endowment fund. The City has reported principal portions of endowment funds as Nonspendable. In addition to the Nonspendable fund balance, GASB 54 has provided a hierarchy of Spendable fund balances, based on a hierarchy of spending constraints. • Restricted: fund balances that are constrained by external parties, constitutional provisions, or enabling legislation. • Committed: fund balances that contain self-imposed constraints of the government from its highest level of decision making authority. • Assigned: fund balances that contain self-imposed constraints of the government to be used for a particular purpose. • Unassigned: fund balance of the general fund that is not constrained for any particular purpose

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 71 Comprehensive Annual Financial Report As of June 30, 2017, the fund balances consisted of the following: Strategic Planning & Capital Nonmajor Total Community Projects Governmental Governmental General Development Funds Funds Funds FUND BALANCES Nonspendable: Permanent fund principal……………………………………………$ - $ - $ - $ 433,126 $ 433,126 Restricted for: Strategic planning & community development…………………… - 14,265,004 - - 14,265,004 School special revenue funds……………………………………… - - - 726,236 726,236 School federal grants………………………………………………… - - - 106,539 106,539 School state & private grants ……………………………………..… - - - 2,836,603 2,836,603 City federal grant funds……………………………………..……… - - - 6,107 6,107 City state grant funds……………………………………..………… - - - 410,934 410,934 City revolving funds………………………………………….……… - - - 115,017 115,017 City receipts reserved……………………………………..………… - - - 4,936,375 4,936,375 City Private grants……………………………………..…………… - - - 297,029 297,029 School lunch………………………………………….……………… - - - 871,194 871,194 Community preservation………………………………………….… - - - 9,701,333 9,701,333 Other special revenue funds………………………………………… - - - 5,896,584 5,896,584 Other permanent funds……………………………….……………… - - - 159,213 159,213 Committed to: Health claims………………………………………………………… 16,289,127 - - - 16,289,127 Max-Pak stabilization fund………………………………………… 20,222 - - - 20,222 East Somerville stabilization fund………………………………… 103,239 - - - 103,239 Street Tree stabilization fund……………………………………… 12,820 - - - 12,820 Alpine Restaurant stabilization fund……………………………… 2,526 - - - 2,526 Rockwell Restaurant stabilization fund…………………………… 9,105 - - - 9,105 Capital Projects stabilization fund………………………………… 4,499,444 - - - 4,499,444 Construction stabilization fund……………………………………… 2,115,326 - - - 2,115,326 Traffic Safety stabilization fund……………………………………… 398,423 - - - 398,423 Mitigation stabilization fund………………………………………… 232,809 - - - 232,809 270 Cedar Street LLC stabilization fund…………………………… 1,009 - - - 1,009 Workforce Training stabilization fund……………………………… 414 - - - 414 Bicycle stabilization fund…………………………………..………… 2,197 - - - 2,197 Linwood Street sidewalk improvement stabilization fund………… 11,823 - - - 11,823 Davis Square traffic and Sign stabilization fund………………… 286 - - - 286 Trash transfer station stabilization fund…………………………… 148,988 - - - 148,988 Salary and wage stabilization fund………………………………… 5,648,388 - - - 5,648,388 Open space improvement stabilization fund……………………… 95,277 - - - 95,277 Union square revitalization stabilization fund……………………… 172,075 - - - 172,075 Facility construction & renovation stabilization fund……………… 3,011,598 - - - 3,011,598 Street reconstruction & resurfacing stabilization fund…………… 1,508,663 - - - 1,508,663 Millbrook stabilization………………………………………………… 47,945 - - - 47,945 Elmwood stabilization………………………………………………… 12,564 - - - 12,564 377 Broadway stabilization………………………………………… 4,316 - - - 4,316 Infiltration/Inflow stabilization……………………………………… 185,413 - - - 185,413 Assigned to: General government………………………………………………… 970,720 - - - 970,720 Public safety………………………………………………………… 276,808 - - - 276,808 Education……………………………………………………………… 674,470 - - - 674,470 Public works………………………………………..………………… 1,877,285 - - - 1,877,285 Culture and recreation……………………………………………… 107,701 - - - 107,701 Employee benefits…………………………………………………… 833 - - - 833 Free cash used for the 2018 budget………………….…………… 2,000,000 - - - 2,000,000 Unassigned……………………………………………………………… 20,194,053 - (11,385,014) - 8,809,039 TOTAL FUND BALANCES (DEFICIT)……………………………………$ 60,635,867 $ 14,265,004 $ (11,385,014) $ 26,496,290 $ 90,012,147

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 72 Comprehensive Annual Financial Report NOTE 10 – RISK FINANCING The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the City carries commercial insurance. The City participates in premium-based health care plans for its active employees and retirees through the Group Insurance Commission. Claims have not exceeded insurance coverage for the last three years. The City is self-insured for its workers’ compensation activities. These activities are accounted for in the General Fund. Workers’ compensation claims are administered in house and are funded on a pay-as-you-go basis from annual appropriations. The estimated future workers’ compensation liability is based on history and injury type. At June 30, 2017, the amount of the liability for workers’ compensation claims totaled $1,355,000. Changes in the reported liability since July 1, 2015, are as follows: Current Year Balance at Claims and Beginning of Changes in Claims Balance at Year Estimate Payments End of Year 2016………………………$ 1,255,000 $ 385,995 $ (376,995) $ 1,264,000 2017……………………… 1,264,000 505,910 (414,910) 1,355,000 NOTE 11 - PENSION PLAN Plan Descriptions The City is a member of the Somerville Contributory Retirement System (System), a cost-sharing multiple- employer defined benefit pension plan covering eligible employees of the 2 member units. The System is administered by five board members (Board) on behalf of all current employees and retirees except for current teachers and retired teachers. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the plan. The System is a component unit and is reported as a pension trust fund in the fiduciary fund financial statements. See Note 1 for more information. The City is a member of the Massachusetts Teachers’ Retirement System (MTRS), a cost-sharing multi-employer defined benefit plan. MTRS is managed by the Commonwealth of Massachusetts (Commonwealth) on behalf of municipal teachers and municipal teacher retirees. The Commonwealth is a nonemployer contributor and is responsible for 100% of the contributions and future benefit requirements of the MTRS. The MTRS covers certified teachers in cities (except Boston), towns, regional school districts, charter schools, educational collaboratives and Quincy College. The MTRS is part of the Commonwealth’s reporting entity and the audited financial report may be obtained by visiting http://www.mass.gov/osc/publications-and-reports/financial-reports/. Special Funding Situation The Commonwealth is a nonemployer contributor and is required by statute to make 100% of all actuarially determined employer contributions on behalf of the City to the MTRS. Therefore, the City is considered to be in a special funding situation as defined by GASB Statement No. 68, Accounting and Financial Reporting for Pensions and the Commonwealth is a nonemployer contributor in MTRS. Since the City does not contribute directly to MTRS, there is no net pension liability to recognize. The total of the Commonwealth provided contributions have been allocated based on each employer’s covered payroll to the total covered payroll of employers in MTRS as of the measurement date of June 30, 2016. The City’s portion of the collective pension expense, contributed by the

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 73 Comprehensive Annual Financial Report Commonwealth, of $14,596,546 is reported in the general fund as intergovernmental revenue and pension benefits in the current fiscal year. The portion of the Commonwealth’s collective net pension liability associated with the City is $143,094,195 as of the measurement date. Benefits Provided Both Systems provide retirement, disability, survivor and death benefits to plan members and beneficiaries. Massachusetts Contributory Retirement System benefits are, with certain minor exceptions, uniform from system to system. The Systems provide retirement allowance benefits up to a maximum of 80% of a member's highest three-year average annual rate of regular compensation. For persons who became members on or after April 2, 2012, average salary is the average annual rate of regular compensation received during the five consecutive years that produce the highest average, or, if greater, during the last five years (whether or not consecutive) preceding retirement. Benefit payments are based upon a member's age, length of creditable service, level of compensation, and group classification. Members become vested after ten years of creditable service. There were no reported changes in pension benefit terms that effect measurement of the total pension liability as of December 31, 2016. Employees who resign from service and who are not eligible to receive a retirement allowance or are under the age of 55 are entitled to request a refund of their accumulated total deductions. Survivor benefits are extended to eligible beneficiaries of members whose death occurs prior to or following retirement. Cost-of-living adjustments granted between 1981 and 1997 and any increase in other benefits imposed by the Commonwealth’s state law during those years are borne by the Commonwealth and are deposited into the pension fund. Cost-of-living adjustments granted after 1997 must be approved by the Board and are borne by the System. At December 31, 2016, the SCRS membership consists of the following: Active members…………………………………………………… 1,190 Inactive members………………………………………………… 446 Retirees and beneficiaries currently receiving benefits……… 879 Total……………………………………………………………… 2,515 Contributions Chapter 32 of the MGL governs the contributions of plan members and member units. Active plan members are required to contribute at rates ranging from 5% to 9% of gross regular compensation with an additional 2% contribution required for compensation exceeding $30,000. The percentage rate is keyed to the date upon which an employee's membership commences. The member units are required to pay into the SCRS a legislatively mandated actuarial determined contribution that is apportioned among the employers based on active current payroll. The total member units’ contribution for the year ended December 31, 2016 was $14,659,434, 20.52% of covered payroll, actuarially determined as an amount that, when combined with plan member contributions, is expected to finance the costs of benefits earned by plan members during the year, with an additional amount to finance any unfunded accrued liability. The City’s proportionate share of the required contribution was $13,711,675 which equaled its actual contribution.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 74 Comprehensive Annual Financial Report Pension Liabilities The components of the net pension liability of the participating member units at June 30, 2017, were as follows: Total pension liability…………………………… $ 392,656,092 The pension plan's fiduciary net position…… (242,801,289) The net pension liability………………………… $ 149,854,803 The pension plan's fiduciary net postion as a percentage of the total pension liability…… 61.84% At June 30, 2017, the City reported a liability of $140,166,391 for its proportionate share of the net pension liability. The net pension liability was measured as of December 31, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of January 1, 2016. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating members. At December 31, 2016, the City’s proportion was 93.53%, which changed from its proportion measured at December 31, 2015, of 93.70%. Pension Expense For the year ended June 30, 2017, the City recognized a pension expense of $17,106,753. At June 30, 2017, the City reported deferred outflows of resources related to pensions of $22,869,820, and deferred inflows of resources related to pensions of $2,386,355. The balances of deferred outflows and inflows at June 30, 2017 consist of the following: Deferred Deferred Outflows Inflows Deferred Category of Resources of Resources Total Differences between expected and actual experience………… $ - $ (2,190,396) $ (2,190,396) Changes of assumptions…………………………………………… 2,088,412 - 2,088,412 Difference between projected and actual earnings……………… 20,781,408 - 20,781,408 Changes in proportionate share of contributions………………… - (195,960) (195,960) Total Deferred Outflows/(Inflows) of Resources…………………$ 22,869,820 $ (2,386,356) $ 20,483,464 The deferred outflows of resources related to pensions will be recognized in pension expense as follows: Year ended June 30: 2018………………………………………………$ 6,603,667 2019……………………………………………… 6,603,666 2020……………………………………………… 5,448,365 2021……………………………………………… 1,827,766 Total………………………………………………$ 20,483,464

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 75 Comprehensive Annual Financial Report Actuarial Assumptions The total pension liability in the January 1, 2017, actuarial valuation was determined using the following actuarial assumptions: Valuation date……………………………………January 1, 2017 Actuarial cost method……………………………Individual Entry Age Normal Cost Method. Amortization method……………………………Payments increasing at 3.5% Remaining amortization period…………………Increasing amortization at 3.5% of unfunded actuarial accrued liability over 16 years completed by June 30, 2033, 2 years by June 30, 2019 for the 2002 Early Retirement Incentive, and 3 years by June 30, 2020 for 2003 Early Retirement Incentive. Asset valuation method…………………………The actuarial value of assets is determined using a five-year smoothing of asset returns greater than or less than the assumed rate of return, with a 20% corridor. Inflation rate………………………………………4.00% Projected salary increases………………………It is assumed that salaries including longevity will increase at a rate of 3.00% per year. Cost of living adjustments………………………2.5% of the first $13,000 of retirement income. Rates of retirement………………………………Varies based upon age for general employees, police and fire employees. Rates of disability…………………………………For general employees, it was assumed that 40% of all disabilities are ordinary (60% are service connected). For police and fire employees, 10% of all disabilities are assumed to be ordinary (90% are service connected). Mortality Rates: Pre-Retirement………………………The RP-2014 Blue Collar Mortality Table projected generationally with a Scale MP-2015. Healthy Retiree………………………Groups 1 & 2, the RP-2014 Blue Collar Mortality Table set forward five years for males and three years for females. Group 4, the RP-2014 Blue Collar Mortality Table set forward three years fro males and six years fro females, fully generational. Disabled Retiree……………………The RP-2000 Mortality Table set forward two years for all disabled members only projected generationally with Scale MP-2015. Investment rate of return/Discount rate……… 8.00%, compounded annual rate Investment policy The pension plan’s policy in regard to the allocation of invested assets is established and may be amended by the Board. Plan assets are managed on a total return basis with a long-term objective of achieving and maintaining a fully funded status for the benefits provided through the pension plan.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 76 Comprehensive Annual Financial Report The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of January 1, 2016, are summarized in the following table: Target Long-Term Expected Asset Class Allocation Real Rate of Return Cash……………………………………………… 0%-10% 2.75% Equities - Large Cap……………………………… 45%-65% 9.00% Equities - Small Cap……………………………… 0%-10% 9.00% Equities - Multi Cap……………………………… 0%-5% 9.00% Fixed Income - Investment Grade……………… 35%-45% 5.50% Fixed Income - Below Investment Grade……… 3%-7% 6.00% Real Estate………………………………………… 0%-15% 7.50% Venture Capital…………………………………… 0%-5% 9.00% International……………………………………… 0%-15% 8.00% Emerging Markets………………………………… 0%-3% 9.00% Foreign Bonds…………………………………… 0%-1% 5.00% Rate of return For the year ended December 31, 2016, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expense, was 3.73%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Discount rate The discount rate used to measure the total pension liability at June 30, 2017, was 8.00%, which changed from 8.25% at June 30, 2016. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate and that contributions will be made at rates equal to the actuarially determined contribution rate. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the net pension liability to changes in the discount rate The following presents the net pension liability, calculated using the discount rate of 8.00%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (7.00%) or 1-percentage-point higher (9.00%) than the current rate: Current 1% Decrease Discount 1% Increase (7.00%) (8.00%) (9.00%) The City's proportionate share of the net pension liability…………………… $ 176,500,252 $ 140,166,391 $ 109,081,244 System total net pension liability………………………$ 188,700,109 $ 149,854,804 $ 116,621,039

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 77 Comprehensive Annual Financial Report Noncontributory Retirement Allowance – The City pays the entire retirement allowance for certain retirees who are eligible for noncontributory benefits and are not members of the System. The general fund expenditure for 2017 totaled $121,000. Changes in Assumptions The discount rate has changed from 8.25% to 8.00%. Annual rates of withdrawal prior to retirement have been adjusted based on experience, for both general employees and police and fire employees. Annual rate of mortality tables used have been updated. The assumed annual retirement rates for those hired prior to April 2, 2012, have been updated. The assumed annual retirement rates for those hired on or after April 2, 2012, have been updated. The assumed annual rates of disability for both general employees and police and fire employees have been updated. The annual amount of administrative expenses has been increased to $450,000, and is expected to increase at 4% per year. Changes in Plan Provisions The maximum amount of pension benefits subject to a cost of living increase has been raised from $12,000 to $13,000. NOTE 12 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Plan Description – The City of Somerville administers a single-employer defined benefit healthcare plan (“Plan”). The Plan provides health, dental and life insurance for eligible retirees and their spouses through a single- employer defined Other Postemployment Benefit (OPEB) plan. The Plan is administered through the Group Insurance Commission (GIC) as of January 1, 2012. The Plan provides lifetime healthcare and life insurance for eligible retirees and their spouses through the City’s group health, life and GIC health plans which covers both active and retired members. Chapter 32b, Section 19, of the MGL, and an agreement between the City and the Public Employee Committee (PEC) which is subject to renegotiation at the end of each contract period provides the authority to establish and amend benefit provisions of the Plan. The Plan does not issue a publicly available financial report. The employers share is based on the type of plan the employee/retiree is enrolled in. For all HMO and PPO plans, the employer contributes 80% of the premium and for all indemnity plans, the employer contributes 75% of the premium. The City’s assessment of the employer’s share by the GIC, for retired teachers, for 2017 totaled $2,819,000. Funding Policy – Contribution requirements are also negotiated between the City and the PEC. The required contribution is based on a pay-as-you-go financing requirement. The City contributes 80% of the premium for all HMO and PPO plans and 75% of the premium for all indemnity plans per the Chapter 32b, Section 19 PEC Agreement and the retiree’s will contribute the remaining 20% for all HMO and PPO plans and 25% for all indemnity plans. For 2017, the City’s benefit payments totaled $9,258,566, and the City contributed another $1.0 million to the OPEB Trust fund. For the year ended June 30, 2017, the City’s average contribution rate was 12.63% of covered-employee payroll. Plan members are not required to contribute to the Plan.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 78 Comprehensive Annual Financial Report The Commonwealth of Massachusetts passed special legislation that has allowed the City to establish a postemployment benefit trust fund and to enable the City to raise taxes necessary to begin pre-funding its OPEB liabilities. During 2017, the City pre-funded future OPEB liabilities by contributing $1,000,000 of funds to the Other Postemployment Benefit Fund in excess of the pay-as-you-go required contribution. These funds are reported within the Fiduciary Funds financial statements. As of June 30, 2017, the balance of this fund totaled $1.8 million. The annual money-weighted rate of return on OPEB plan investments was 0.92%. The money-weighted rate of return expresses investment performance, net of OPEB plan investment expense, adjusted for the changing amounts actually invested. Plan Membership – The following table represents the Plan’s membership at June 30, 2017: Active members……………………………………………… 1,719 Inactive employees or beneficiaries currently receiving benefits………………………………………… 1,676 Total…………………………………………………………… 3,395 Components of OPEB Liability – The following table represents the components of the Plan’s OPEB liability as of June 30, 2017: Total OPEB liability……………………………………………$ 304,074,941 Less: OPEB plan's fiduciary net position…………………… (1,821,275) Net OPEB liability………………………………………………$ 302,253,666 The OPEB plan's fiduciary net position as a percentage of the total OPEB liability……………… 0.60% Significant Actuarial Methods and Assumptions – The total OPEB liability in the June 30, 2016 actuarial valuation was determined by using the following actuarial assumptions, applied to all periods including the measurement date that was updated to June 30, 2017, to be in accordance with GASB #74.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 79 Comprehensive Annual Financial Report Valuation date……………………………………… June 30, 2017 Actuarial cost method…………………………… Individual Entry Age Normal Asset valuation method…………………………… Market Value Single equivalent discount rate…………………… 3.75% per year, net of investment expenses Healthcare cost trend rate………………………… 6.0% decreasing by 0.5% each year to 4.5% for periods starting in 2017 Participation………………………………………… 95% of future retiree teachers are assumed to participate in the retiree medical plan, 95% of future non-teacher retires are expected to participate in the retiree medical plan and 100% of future retirees are expected to elect life insurance. Marital Status……………………………………… 60% of male employees and 50% of female employees are assumed to have a covered spouse at retirement. Wives are assumed to be three years younger than their husbands. Pre-Retirement mortality………………………… RP-2014 Blue Collar Mortality with Scale MP-2015, fully generational. Post-Retirement mortality………………………… Group 1 and 2 is represented by the RP-2014 Blue Collar Mortality Table set forward 5 years for males and 3 years for females, fully generational. Group 4 is represented by the RP-2014 Blue Collar Mortality Table set forward 3 years for males and 6 years for females, fully generational. Disabled mortality………………………………… Group 1 and 2 is represented by the RP-2000 Mortality Table set forward 6 years. Group 4 is represented by the RP-2000 Mortality Table set forward 2 years. Investment policy The City’s policy in regard to the allocation of invested assets is established and may be amended by the Board of Aldermen by a majority vote of its members. The OPEB plan’s assets are managed on a total return basis with a long-term objective of achieving and maintaining a fully funded status for the benefits provided through the OPEB plan. The long-term real rate of return on OPEB investments was determined using the City’s investment policy. The long-term expected rate of return on OPEB plan investments was determined using a building-block method in which best-estimate ranges of expected future real of returns (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return of by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Currently, the Plan is holding 100% of its trust fund assets in cash, which has an expected return of 0.0%. The City is expected to develop a long-term investment policy in the future. Discount Rate – The discount rate was selected based on a projection of employer and employee contributions, benefit payments (with and without subsidy), expenses and the long term expected rate of return on trust assets. Based on these assumptions, the OPEB’s plan’s Fiduciary Net Position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on OPEB plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability. Sensitivity of the net position liability to changes in the discount rate – The following table presents the net other postemployment benefit liability and service cost, calculated using the discount rate of 3.75%, as well as what the net other postemployment benefit liability and service cost would be if it were calculated using a discount rate that is 1-percentage-point lower 2.75% or 1-percentage-point higher 4.75% than the current rate.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 80 Comprehensive Annual Financial Report Current 1% Decrease Discount Rate 1% Increase (2.75%) (3.75%) (4.75%) Net OPEB liability…………………………… $ 356,104,376 $ 302,253,666 $ 259,824,708 Sensitivity of the net position liability to changes in the healthcare trend – The following table presents the net other postemployment benefit liability and service cost, calculated using the current healthcare trend rate of 6.00%, as well as what the net other postemployment benefit liability and service cost would be if it were calculated using a healthcare trend rate that is 1-percentage-point lower (5.00%) or 1-percentage-point higher (7.00%). 1% Decrease Current Trend 1% Increase (5.00%) (6.00%) (7.00%) Net OPEB liability…………………………… $ 253,770,398 $ 302,253,666 $ 365,627,543 Annual OPEB Cost and Net OPEB Obligation – The City’s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement #45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s net OPEB obligation are summarized in the table that follows: Annual Required Contribution………………………………… $ 21,086,425 Interest on existing net OPEB obligation……………………… 4,604,952 Adjustments to annual required contribution………………… (3,837,460) Annual OPEB cost (expense)……………………………… 21,853,917 Contributions made……………………………………………… (10,258,566) Increase in net OPEB obligation……………………………… 11,595,351 Net OPEB obligation-beginning of year……………………… 115,123,809 Net OPEB obligation-end of year………………………………$ 126,719,160 The sewer fund is reporting an other postemployment benefits asset in the amount of $297,281 as the result of a $500,000 contribution to the OPEB Trust in 2017. The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2017 and the previous two years was as follows: Year Annual Annual OPEB Net OPEB Ended OPEB Cost Cost Contributed Obligation 6/30/2017 $ 21,853,917 47% $ 126,719,160 6/30/2016 20,854,172 41% 115,123,809 6/30/2015 20,365,492 47% 102,803,133

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 81 Comprehensive Annual Financial Report Funded Status and Funding Progress As of June 30, 2016, the most recent actuarial valuation date, the actuarial value of assets totaled $813,768, the actuarial accrued liability for benefits was $302.6 million and $301.8 million of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was $149.2 million, and the ratio of the UAAL to the covered payroll was 202.3 percent. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions - Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the June 30, 2016, actuarial valuation, actuarial liabilities were determined using the projected unit credit cost method. The actuarial assumptions included a 4.0% investment return assumption, which is based on the expected yield on the assets of the City, calculated based on the funded level of the plan at the valuation date, projected salary increases of 4.0% per year, and an annual medical/drug cost trend rate of 6% initially, graded to 4.5% over 4 years, and an inflation rate of 6% initially, graded to 4.5% over 4 years. The UAAL is being amortized over a 30 year open period, with amortization payments increasing at 4% per year. The remaining amortization period at June 30, 2017, is 30 years. NOTE 13 - COMMITMENTS The City has entered into an agreement with Wheelabrator Saugus, Inc. to direct the acceptable waste it collects to a transfer station. The City is charged a flat rate per ton that is subject to increase annually equal to but not to exceed any average net increase in the Consumer Price Index for Urban Wage Earners. There are no minimum tonnage requirements that the City must comply with. The School Department has entered into an agreement with S. P. & R. Transportation, Inc. to provide for the transportation of its students. The contract bears an annual cost of approximately $2.3 million and expires on June 30, 2019. The City has entered into, or is planning to enter into, contracts totaling approximately $513.9 million. The Union Square streetscape and utility improvements, Somerville High School reconstruction, new fire and police stations, and various street and sidewalk projects throughout the City are some of the major projects that the City will be completing.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 82 Comprehensive Annual Financial Report NOTE 14 - CONTINGENCIES The City participates in a number of federal award programs. Although the grant programs have been audited in accordance with the provisions of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards through June 30, 2017, these programs are still subject to financial and compliance audits. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time, although it is expected such amounts, if any, to be immaterial. Various legal actions and claims are pending. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not always predictable. Although the amount of liability, if any, at June 30, 2017, cannot be ascertained, management believes any resulting liability should not materially affect the financial position at June 30, 2017. NOTE 15 – SUBSEQUENT EVENTS Management has evaluated subsequent events through December 20, 2017, which is the date the financial statements were available to be issued. NOTE 16 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During 2017, the following GASB pronouncements were implemented: • GASB Statement #74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. The basic financial statements, related notes and required supplementary information were updated to be in compliance with this pronouncement. • GASB Statement #77, Tax Abatement Disclosures. This pronouncement did not impact the basic financial statements. • GASB Statement #78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans. This pronouncement did not impact the basic financial statements. • GASB Statement #80, Blending Requirements for Certain Component Units – an amendment of GASB Statement #14. This pronouncement did not impact the basic financial statements. • GASB Statement #82, Pension Issues – an amendment of GASB Statements #67, #68, and #73. The basic financial statements and related notes were updated to be in compliance with this pronouncement. The following GASB pronouncements will be implemented in the future: • The GASB issued Statement #75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which is required to be implemented in 2018. • The GASB issued Statement #81, Irrevocable Split-Interest Agreements, which is required to be implemented in 2018. • The GASB issued Statement #83, Certain Asset Retirement Obligations, which is required to be implemented in 2019.

Notes to Basic Financial Statements Year Ended June 30, 2017 City of Somerville, Massachusetts 83 Comprehensive Annual Financial Report • The GASB issued Statement #84, Fiduciary Activities, which is required to be implemented in 2020. • The GASB issued Statement #85, Omnibus 2017, which is required to be implemented in 2018. • The GASB issued Statement #86, Certain Debt Extinguishment Issues, which is required to be implemented in 2018. • The GASB issued Statement #87, Leases, which is required to be implemented in 2021. Management is currently assessing the impact the implementation of these pronouncements will have on the basic financial statements.

City of Somerville, Massachusetts 84 Comprehensive Annual Financial Report Required Supplementary Information Required Supplementary Information

Amounts Current Year Actual Amounts Variance Carried forward Initial Original Final Budgetary Carried Forward To Final From Prior Year Budget Budget Budget Amounts To Next Year Budget REVENUES: Real estate and personal property taxes, net of tax refunds…………………………………………… $ - $ 134,362,677 $ 134,362,677 $ 134,362,677 $ 134,169,221 $ - $ (193,456) Tax liens……………………………………………………… - - - - 392,962 - 392,962 Motor vehicle and other excise taxes……………………… - 9,590,848 9,590,848 9,590,848 9,297,090 - (293,758) Payments in lieu of taxes…………………………………… - 808,000 808,000 808,075 1,248,682 - 440,607 Intergovernmental…………………………………………… - 49,976,226 49,976,226 49,976,226 50,665,533 - 689,307 Departmental and other……………………………………… - 20,471,199 20,471,199 20,471,124 20,835,081 - 363,957 Investment income…………………………………………… - 210,000 210,000 210,000 325,743 - 115,743 Miscellaneous………………………………………………… - - - - 37,404 - 37,404 TOTAL REVENUES……………………………………… - 215,418,950 215,418,950 215,418,950 216,971,716 - 1,552,766 EXPENDITURES: GENERAL GOVERNMENT Board of Alderman Salaries……………………………………………………… - 455,923 455,923 455,923 456,473 - (550) Expenses…………………………………………………… 251 40,660 40,911 40,865 38,866 - 1,999 TOTAL……………………………………………………… 251 496,583 496,834 496,788 495,339 - 1,449 Clerk of Committees Salaries……………………………………………………… - 74,244 74,244 74,244 73,134 - 1,110 Expenses…………………………………………………… - 1,000 1,000 1,000 - - 1,000 TOTAL……………………………………………………… - 75,244 75,244 75,244 73,134 - 2,110 Executive Office Salaries……………………………………………………… - 3,086,820 3,086,820 3,086,820 2,908,521 - 178,299 Expenses…………………………………………………… 135,215 657,667 792,882 792,839 644,727 118,946 29,166 Special Items………………………………………………… - 216,500 216,500 216,500 183,166 1,098 32,236 Capital……………………………………………………… 54,010 225,000 279,010 276,644 157,112 85,615 33,917 TOTAL……………………………………………………… 189,225 4,185,987 4,375,212 4,372,803 3,893,526 205,659 273,618 Auditor's Office Salaries……………………………………………………… - 790,935 790,935 790,935 751,685 - 39,250 Expenses…………………………………………………… 125,555 112,325 237,880 237,101 124,211 110,829 2,061 TOTAL……………………………………………………… 125,555 903,260 1,028,815 1,028,036 875,896 110,829 41,311 Grants Management Salaries……………………………………………………… - 149,299 149,299 149,299 148,779 - 520 Expenses…………………………………………………… 10,000 5,776 15,776 5,776 3,489 - 2,287 TOTAL……………………………………………………… 10,000 155,075 165,075 155,075 152,268 - 2,807 Purchasing Salaries……………………………………………………… - 395,044 395,044 395,044 325,033 - 70,011 Expenses…………………………………………………… 285 38,050 38,335 38,050 26,346 - 11,704 TOTAL……………………………………………………… 285 433,094 433,379 433,094 351,379 - 81,715 Assessing Salaries……………………………………………………… - 538,953 538,953 527,780 521,653 - 6,127 Expenses…………………………………………………… - 121,890 121,890 133,063 114,708 - 18,355 TOTAL……………………………………………………… - 660,843 660,843 660,843 636,361 - 24,482 Treasurer's/Collector's Office Salaries……………………………………………………… - 662,214 662,214 662,214 607,001 - 55,213 Expenses…………………………………………………… 30,632 264,990 295,622 274,962 241,827 2,768 30,367 TOTAL……………………………………………………… 30,632 927,204 957,836 937,176 848,828 2,768 85,580 Law Department Salaries……………………………………………………… - 696,862 696,862 671,862 667,774 - 4,088 Expenses…………………………………………………… 75,745 175,275 251,020 686,020 639,321 43,023 3,676 TOTAL……………………………………………………… 75,745 872,137 947,882 1,357,882 1,307,095 43,023 7,764 Personnel Department Salaries……………………………………………………… - 796,646 796,646 796,646 785,940 - 10,706 Expenses…………………………………………………… 20,858 318,700 339,558 327,813 174,679 23,280 129,854 Special Items………………………………………………… - 60,000 60,000 60,000 30,854 - 29,146 TOTAL……………………………………………………… 20,858 1,175,346 1,196,204 1,184,459 991,473 23,280 169,706 (Continued) GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2017 Budgeted Amounts City of Somerville, Massachusetts 85 Comprehensive Annual Financial Report

Amounts Current Year Actual Amounts Variance Carried forward Initial Original Final Budgetary Carried Forward To Final From Prior Year Budget Budget Budget Amounts To Next Year Budget GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2017 Budgeted Amounts Information Technology Salaries……………………………………………………… - 733,595 733,595 710,300 626,580 - 83,720 Expenses…………………………………………………… 75,977 1,593,934 1,669,911 1,659,143 1,342,262 268,435 48,446 TOTAL……………………………………………………… 75,977 2,327,529 2,403,506 2,369,443 1,968,842 268,435 132,166 Communications Salaries……………………………………………………… - 335,596 335,596 335,596 330,749 - 4,847 Expenses…………………………………………………… - 23,125 23,125 23,125 19,237 2,079 1,809 TOTAL……………………………………………………… - 358,721 358,721 358,721 349,986 2,079 6,656 City Clerk Salaries……………………………………………………… - 431,782 431,782 431,782 427,585 - 4,197 Expenditures………………………………………………… 6,097 153,737 159,834 158,558 130,253 13,522 14,783 TOTAL……………………………………………………… 6,097 585,519 591,616 590,340 557,838 13,522 18,980 Elections Salaries……………………………………………………… - 506,774 506,774 475,197 409,946 - 65,251 Expenditures………………………………………………… - 120,145 120,145 120,145 97,201 - 22,944 Capital……………………………………………………… - - 31,577 - 24,077 7,500 TOTAL……………………………………………………… - 626,919 626,919 626,919 507,147 24,077 95,695 Licensing Committee Salaries……………………………………………………… - 10,800 10,800 10,800 9,000 - 1,800 Community Development Salaries……………………………………………………… - 4,367,226 4,367,226 4,367,226 4,087,598 - 279,628 Expenses…………………………………………………… 75,745 960,718 1,036,463 1,100,735 755,846 276,958 67,931 Capital……………………………………………………… - - - - - - - TOTAL……………………………………………………… 75,745 5,327,944 5,403,689 5,467,961 4,843,444 276,958 347,559 Veterans Benefits Salaries……………………………………………………… - 121,294 121,294 121,294 120,795 - 499 Expenses…………………………………………………… - 634,035 634,035 634,035 562,224 90 71,721 TOTAL……………………………………………………… - 755,329 755,329 755,329 683,019 90 72,220 Building Insurance Expenses…………………………………………………… - 460,058 460,058 460,058 398,067 - 61,991 Person and Property Insurance Expenditures………………………………………………… - 175,000 175,000 65,000 53,800 - 11,200 Contingency Account Expenses…………………………………………………… - 1,302,835 1,302,835 190,132 132,209 - 57,923 Total General Government…………………………………… 610,370 21,815,427 22,425,797 21,596,103 19,128,651 970,720 1,496,732 PUBLIC SAFETY Police Department Salaries……………………………………………………… - 15,221,614 15,221,614 17,443,056 16,916,919 - 526,137 Expenses…………………………………………………… 22,530 667,616 690,146 646,399 490,519 67,952 87,928 Special Items………………………………………………… - 51,314 51,314 51,314 43,200 - 8,114 TOTAL……………………………………………………… 22,530 15,940,544 15,963,074 18,140,769 17,450,638 67,952 622,179 Fire Department Salaries……………………………………………………… - 16,645,304 16,645,304 16,645,304 15,820,464 2,350 822,490 Expenses…………………………………………………… 7,776 458,600 466,376 465,027 363,036 41,819 60,172 Special Items………………………………………………… - 2,500 2,500 2,500 924 - 1,576 TOTAL……………………………………………………… 7,776 17,106,404 17,114,180 17,112,831 16,184,424 44,169 884,238 Emergency Management Salaries……………………………………………………… - 20,747 20,747 20,747 20,747 - - Expenses…………………………………………………… - 5,700 5,700 5,700 5,491 - 209 TOTAL……………………………………………………… - 26,447 26,447 26,447 26,238 - 209 Animal Control Salaries……………………………………………………… - 104,581 104,581 104,581 103,594 - 987 Expenses…………………………………………………… 1,149 19,050 20,199 20,169 10,661 3,186 6,322 TOTAL……………………………………………………… 1,149 123,631 124,780 124,750 114,255 3,186 7,309 Traffic and Parking Salaries……………………………………………………… - 2,561,292 2,561,292 2,561,292 2,503,714 - 57,578 Expenses…………………………………………………… 229,734 1,543,701 1,773,435 1,764,775 1,624,005 92,618 48,152 Capital……………………………………………………… - - - 50,629 - 50,629 - TOTAL……………………………………………………… 229,734 4,104,993 4,334,727 4,376,696 4,127,719 143,247 105,730 (Continued) City of Somerville, Massachusetts 86 Comprehensive Annual Financial Report

Amounts Current Year Actual Amounts Variance Carried forward Initial Original Final Budgetary Carried Forward To Final From Prior Year Budget Budget Budget Amounts To Next Year Budget GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2017 Budgeted Amounts Board of Health Salaries……………………………………………………… - 2,062,712 2,062,712 2,062,712 1,855,958 - 206,754 Expenses…………………………………………………… 125,935 471,942 597,877 715,027 636,340 18,254 60,433 TOTAL……………………………………………………… 125,935 2,534,654 2,660,589 2,777,739 2,492,298 18,254 267,187 Total Public Safety……………………………………………… 387,124 39,836,673 40,223,797 42,559,232 40,395,572 276,808 1,886,852 EDUCATION Operational………………………………………………… 569,554 65,420,081 65,989,635 65,891,347 65,062,143 674,470 154,734 PUBLIC WORKS Administration Salaries……………………………………………………… - 621,347 621,347 621,347 547,378 - 73,969 Expenses…………………………………………………… 76,460 921,600 998,060 846,752 648,151 102,399 96,202 TOTAL……………………………………………………… 76,460 1,542,947 1,619,407 1,468,099 1,195,529 102,399 170,171 Electrical Salaries……………………………………………………… - 344,924 344,924 344,924 312,680 - 32,244 Expenses…………………………………………………… 61,669 233,500 295,169 286,036 223,611 28,576 33,849 TOTAL……………………………………………………… 61,669 578,424 640,093 630,960 536,291 28,576 66,093 Engineering Salaries……………………………………………………… - 178,757 178,757 178,757 160,928 - 17,829 Expenses…………………………………………………… 63,046 255,588 318,634 299,812 201,324 86,585 11,903 TOTAL……………………………………………………… 63,046 434,345 497,391 478,569 362,252 86,585 29,732 Snow Removal Expenses…………………………………………………… - 1,286,000 1,286,000 2,379,140 2,199,792 - 179,348 Highway Salaries……………………………………………………… - 2,320,697 2,320,697 2,559,997 2,399,320 - 160,677 Expenses…………………………………………………… 239,167 1,353,095 1,592,262 1,480,473 1,141,208 113,526 225,739 TOTAL……………………………………………………… 239,167 3,673,792 3,912,959 4,040,470 3,540,528 113,526 386,416 Sanitation Expenditures………………………………………………… 370,005 5,675,208 6,045,213 5,474,435 5,050,258 10,902 413,275 Building and Grounds Salaries……………………………………………………… - 2,161,895 2,161,895 2,161,895 2,137,550 - 24,345 Expenditures………………………………………………… 930,988 8,989,531 9,920,519 9,287,212 6,781,153 1,535,297 970,762 TOTAL……………………………………………………… 930,988 11,151,426 12,082,414 11,449,107 8,918,703 1,535,297 995,107 School Custodians Salaries……………………………………………………… - 1,865,892 1,865,892 1,865,892 1,772,276 - 93,616 Expenses…………………………………………………… - 888,502 888,502 888,502 887,904 - 598 TOTAL……………………………………………………… - 2,754,394 2,754,394 2,754,394 2,660,180 - 94,214 Total Public Works……………………………………………… 1,741,335 27,096,536 28,837,871 28,675,174 24,463,533 1,877,285 2,334,356 CULTURE AND RECREATION Library Salaries……………………………………………………… - 1,781,994 1,781,994 1,781,994 1,778,861 - 3,133 Expenses…………………………………………………… - 339,911 339,911 339,911 332,466 - 7,445 Capital……………………………………………………… - - - - - - - TOTAL……………………………………………………… - 2,121,905 2,121,905 2,121,905 2,111,327 - 10,578 Recreation and Youth Programs Salaries……………………………………………………… - 698,571 698,571 698,571 652,104 - 46,467 Expenses…………………………………………………… 13,670 461,550 475,220 469,745 294,419 107,701 67,625 TOTAL……………………………………………………… 13,670 1,160,121 1,173,791 1,168,316 946,523 107,701 114,092 Total Culture and Recreation………………………………… 13,670 3,282,026 3,295,696 3,290,221 3,057,850 107,701 124,670 (Continued) City of Somerville, Massachusetts 87 Comprehensive Annual Financial Report

Amounts Current Year Actual Amounts Variance Carried forward Initial Original Final Budgetary Carried Forward To Final From Prior Year Budget Budget Budget Amounts To Next Year Budget GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2017 Budgeted Amounts OTHER Pension Benefits Pension Benefits…………………………………………… - 13,711,675 13,711,675 13,711,675 13,711,675 - - Non-Contributory Pension………...……………………… - 121,265 121,265 121,265 121,197 - 68 Total Pension Benefits………………………………………… - 13,832,940 13,832,940 13,832,940 13,832,872 - 68 Employee Benefits Health and Life Insurance………………………………… 1,212 23,689,393 23,690,605 23,690,226 23,230,601 833 458,792 Worker's Compensation…………………………………… - 818,743 818,743 818,743 803,539 - 15,204 Unemployment Compensation…………………………… - 125,000 125,000 125,000 114,205 - 10,795 Total Employee Benefits……………………………………… 1,212 24,633,136 24,634,348 24,633,969 24,148,345 833 484,791 Debt and Interest Debt Principal…………..…………………………………… - 7,107,292 7,107,292 7,465,915 7,455,123 - 10,792 Debt Interest…………………………………………..…… - 3,640,774 3,640,774 3,640,774 3,639,566 - 1,208 TOTAL……………………………………………………… - 10,748,066 10,748,066 11,106,689 11,094,689 - 12,000 State and County Charges State & County……………………………………………… - 14,035,001 14,035,001 14,035,001 13,532,201 - 502,800 Total Other……………………………………………………… 1,212 63,249,143 63,250,355 63,608,599 62,608,107 833 999,659 TOTAL EXPENDITURES………………………………… 3,323,265 220,699,886 224,023,151 225,620,676 214,715,856 3,907,817 6,997,003 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………… (3,323,265) (5,280,936) (8,604,201) (10,201,726) 2,255,860 (3,907,817) 8,549,769 OTHER FINANCING SOURCES (USES): Premium from issuance of bonds…………………………… - - - - 952,000 - 952,000 Transfers in…………………………………………………… - 2,579,936 2,579,936 4,492,347 4,564,316 - 71,969 Transfers out…………………………………………………… - (199,000) (199,000) (6,587,535) (6,587,535) - - TOTAL OTHER FINANCING SOURCES (USES)…… - 2,380,936 2,380,936 (2,095,188) (1,071,219) - 1,023,969 NET CHANGE IN FUND BALANCE…………………………… (3,323,265) (2,900,000) (6,223,265) (12,296,914) 1,184,641 (3,907,817) 9,573,738 BUDGETARY FUND BALANCE, Beginning of year………… - 18,321,554 18,321,554 18,321,554 18,321,554 - - BUDGETARY FUND BALANCE, End of year………………… $ (3,323,265) $ 15,421,554 $ 12,098,289 $ 6,024,640 $ 19,506,195 $ (3,907,817) $ 9,573,738 See notes to required supplementary information. (Concluded) City of Somerville, Massachusetts 88 Comprehensive Annual Financial Report

City of Somerville, Massachusetts 89 Comprehensive Annual Financial Report Pension Plan Schedules – Retirement System Pension Plan Schedules – Retirement System The Pension Plan’s Schedule of Changes in the Net Pension Liability presents multi-year trend information on the net pension liability and related ratios. The Pension Plan’s Schedule of Contributions presents multi-year trend information on the required and actual contributions to the pension plan and related ratios. The Pension Plan’s Schedule of Investment Return presents multi-year trend information on the money-weighted investment return on retirement assets, net of investment expense. These schedules are intended to present information for ten years. Until a ten year trend is compiled, information is presented for those years for which information is available.

December 31, December 31, December 31, 2016 2015 2014 Total pension liability: Service cost…………………………………………………………… $ 8,007,754 $ 8,007,754 $ 7,699,763 Interest………………………………………………………………… 30,159,556 31,265,848 29,232,338 Changes in benefit terms……………………………………………… - - - Differences between expected and actual experience…………… (2,943,803) - - Changes in assumptions……………………………………………… 2,806,740 - - Benefit payments, including refunds of employee contributions… (28,179,587) (26,374,021) (24,693,645) Interest on benefit payments………………………………………… - (1,066,370) - Net change in total pension liability…………………………………… 9,850,660 11,833,211 12,238,456 Total pension liability, beginning………………………………………… 382,805,432 370,972,221 358,733,765 Total pension liability, ending (a)……………………………………… $ 392,656,092 $ 382,805,432 $ 370,972,221 Plan fiduciary net position: Member contributions………………………………………………… $ 7,560,253 $ 7,044,521 $ 6,233,959 Employer contributions………………………………………………… 14,659,434 14,199,527 13,812,101 Net investment income (loss)………………………………………… 8,831,845 454,830 12,996,452 Retirement benefits and refunds……………………………………… (27,275,655) (24,855,194) (24,693,645) Administrative expenses……………………………………………… (468,722) (397,417) (380,845) Net increase (decrease) in fiduciary net position……………………… 3,307,155 (3,553,733) 7,968,022 Fiduciary net position at beginning of year…………………………… 239,494,134 243,047,867 235,079,845 Fiduciary net position at end of year (b)……………………………… $ 242,801,289 $ 239,494,134 $ 243,047,867 Net pension liability - ending (a) - (b)…………………………………$ 149,854,803 $ 143,311,298 $ 127,924,354 Plan fiduciary net position as a percentage of the total pension liability………………………………………………………… 61.84% 62.56% 65.52% Covered-employee payroll……………………………………………… $ 71,454,475 $ 69,167,008 $ 66,506,738 Net pension liability as a percentage of covered-employee payroll…………………………………………………………………… 209.72% 207.20% 192.35% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SOMERVILLE CONTRIBUTORY RETIREMENT SYSTEM AND RELATED RATIOS SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY City of Somerville, Massachusetts 90 Comprehensive Annual Financial Report

December 31, December 31, December 31, 2016 2015 2014 Actuarially determined contribution…………………… $ 14,659,434 $ 14,199,527 $ 13,147,710 Contributions in relation to the actuarially determined contribution……………………………… 14,659,434 14,199,527 13,147,710 Contribution deficiency (excess)……………………$ - $ - $ - Covered-employee payroll………………………………$ 71,454,475 $ 69,167,008 $ 66,506,738 Contributions as a percentage of covered- employee payroll……………………………………… 20.52% 20.53% 19.77% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SOMERVILLE CONTRIBUTORY RETIREMENT SYSTEM SCHEDULE OF CONTRIBUTIONS City of Somerville, Massachusetts 91 Comprehensive Annual Financial Report

December 31, December 31, December 31, 2016 2015 2014 Annual money-weighted rate of return, net of investment expense…………………………… 3.73% 1.04% 5.63% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SOMERVILLE CONTRIBUTORY RETIREMENT SYSTEM SCHEDULE OF INVESTMENT RETURN City of Somerville, Massachusetts 92 Comprehensive Annual Financial Report

City of Somerville, Massachusetts 93 Comprehensive Annual Financial Report Pension Plan Schedules – City Pension Plan Schedules - City The Schedule of the City’s Proportionate Share of the Net Pension Liability presents multi-year trend information on the City’s net pension liability and related ratios. The Schedule of City Contributions presents multi-year trend information on the City’s required and actual contributions to the pension plan and related ratios. The Schedule of the Special Funding Amounts of the Net Pension Liability for the Massachusetts Teachers Contributory Retirement System presents multi-year trend information on the liability and expense assumed by the Commonwealth of Massachusetts on behalf of the City along with related ratios. These schedules are intended to present information for ten years. Until a ten year trend is compiled, information is presented for those years for which information is available.

December 31, December 31, December 31, 2016 2015 2014 City's proportion of the net pension liability (asset)…………………… 93.53% 93.70% 93.74% City's proportionate share of the net pension liability (asset)…………$ 140,166,391 $ 134,275,794 $ 119,918,981 City's covered employee payroll…………………………………………$ 71,454,475 $ 69,167,008 $ 66,506,738 Net pension liability as a percentage of the City's covered employee payroll………………………………………………………… 196.16% 194.13% 180.31% Plan fiduciary net position as a percentage of the total pension liability……………………………………………………… 61.84% 62.56% 65.52% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SOMERVILLE CONTRIBUTORY RETIREMENT SYSTEM OF THE NET PENSION LIABILITY SCHEDULE OF THE CITY'S PROPORTIONATE SHARE City of Somerville, Massachusetts 94 Comprehensive Annual Financial Report

June 30, June 30, June 30, 2016 2015 2014 Actuarially determined contribution…………………… $ 13,711,675 $ 13,304,274 $ 12,324,940 Contributions in relation to the actuarially determined contribution……………………………… 13,711,675 13,304,274 12,324,940 Contribution deficiency (excess)……………………$ - $ - $ - Covered-employee payroll………………………………$ 71,454,475 $ 69,167,008 $ 66,506,738 Contributions as a percentage of covered- employee payroll……………………………………… 19.19% 19.24% 18.53% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SOMERVILLE CONTRIBUTORY RETIREMENT SYSTEM SCHEDULE OF CITY CONTRIBUTIONS City of Somerville, Massachusetts 95 Comprehensive Annual Financial Report

Fiscal Year Commonwealth's 100% Share of the Net Pension Liability Associated with the City City's Expense and Revenue Recognized for the Commonwealth's Support Plan Fiduciary Net Position as a Percentage of the Total Liability 2017 $ 143,094,195 $ 14,596,546 52.73% 2016 129,500,617 10,503,653 55.38% 2015 102,638,916 7,130,818 61.64% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF THE SPECIAL FUNDING AMOUNTS OF THE NET PENSION LIABILITY MASSACHUSETTS TEACHERS' RETIREMENT SYSTEM The Commonwealth of Massachusetts is a nonemployer contributor and is required by statute to make all actuarially determined employer contributions on behalf of the member employers which creates a special funding situation. Since the City does not contribute directly to MTRS, there is no net pension liability to recognize. This schedule discloses the Commonwealth's 100% share of the collective net pension liability that is associated with the City; the portion of the collective pension expense as both a revenue and pension expense recognized by the City; and the Plan's fiduciary net position as a percentage of the total liability. City of Somerville, Massachusetts 96 Comprehensive Annual Financial Report

City of Somerville, Massachusetts 97 Comprehensive Annual Financial Report Other Postemployment Benefit Plan Schedules Other Postemployment Benefits Plan Schedules The Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios presents multi-year trend information on changes in the Plan’s total OPEB liability, changes in the Plan’s net position, and ending net OPEB liability. It also demonstrates the Plan’s net position as a percentage of the total liability and the Plan’s net other postemployment benefit liability as a percentage of covered employee payroll. The Schedule of the City’s Contributions presents multi-year trend information on the City’s actual contributions to the other postemployment benefit plan and related ratios. The Schedule of Investment Return presents multi-year trend information on the money-weighted investment return on the Plan’s other postemployment assets, net of investment expense. The Schedule of Funding progress compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. The Schedule of Employer Contributions presents multiyear trend information for required and actual contributions relating to the plan. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported.

June 30, 2017 Total OPEB Liability Service Cost…………………………………………………………$ 11,768,411 Interest……………………………………………………………… 11,159,515 Changes of benefit terms……………………………………..…… - Differences between expected and actual experience………… - Changes of assumptions………………………………………… - Benefit payments……………………………………………...…… (9,258,566) Net change in total OPEB liability………………………………… 13,669,360 Total OPEB liability- beginning……………………………..…… 290,405,580 Total OPEB liability- ending (a)……………………………………$ 304,074,940 Plan fiduciary net position Contributions- employer ……………………………..…………… $ 10,258,566 Net investment income………………………...………………… 7,507 Benefit payments……………………………...…………………… (9,258,566) Net change in plan fiduciary net position………………………… 1,007,507 Plan fiduciary net position- beginning…………………………..… 813,767 Plan fiduciary net position- ending (b)…………………………… $ 1,821,274 City's net OPEB liability- ending (a)-(b)……………………… $ 302,253,666 Plan fiduciary net position as a percentage of the total OPEB liability………………………..……………………… 0.60% Covered-employee payroll………………………………..……… 166,971,893 City's net OPEB liability as a percentage of covered-employee payroll…………………………..………… 181.0% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF CHANGES IN THE CITY'S NET OPEB LIABILITY AND RELATED RATIOS OTHER POSTEMPLOYMENT BENEFIT PLAN City of Somerville, Massachusetts 98 Comprehensive Annual Financial Report

June 30, 2017 Actuarially determined contribution…………………………………$ 21,086,425 Contributions in relation to the actuarially determined contribution…………………………………………… (10,258,566) Contribution deficiency (excess)…………………………………… $ 10,827,859 Covered-employee payroll……………………………………………$ 166,971,893 Contributions as a percentage of covered- employee payroll…………………………………………………… 12.63% Note: this schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF CITY CONTRIBUTIONS OTHER POSTEMPLOYMENT BENEFIT PLAN City of Somerville, Massachusetts 99 Comprehensive Annual Financial Report

June 30, 2017 Annual money-weighted rate of return, net of investment expense……………………………………… 0.92% Note: This schedule is intended to present information for 10 years. Until a 10-year trend is compiled, information is presented for those years for which information is available. See notes to required supplementary information. SCHEDULE OF INVESTMENT RETURNS OTHER POSTEMPLOYMENT BENEFIT PLAN City of Somerville, Massachusetts 100 Comprehensive Annual Financial Report

Actuarial UAAL as a Actuarial Accrued Unfunded Percentage Actuarial Value of Liability (AAL) AAL Funded Covered of Covered Valuation Assets Projected Unit Credit (UAAL) Ratio Payroll Payroll Date (A) (B) (B-A) (A/B) (C) ((B-A)/C) 6/30/2016 $ 813,768 $ 302,648,586 $ 301,834,818 0.27% $ 149,233,169 202.3% 6/30/2014 - 285,255,653 285,255,653 0.00% 112,256,322 254.1% 6/30/2012 - 300,478,458 300,478,458 0.00% 84,899,992 353.9% Annual Actual Year Required Contributions Percentage Ended Contribution Made Contributed 6/30/2017 $ 21,086,425 10,258,566 49% 6/30/2016 20,168,818 8,533,496 42% 6/30/2015 19,751,604 9,645,790 49% See notes to required supplementary information. OTHER POSTEMPLOYMENT BENEFIT PLAN SCHEDULE OF FUNDING PROGRESS AND EMPLOYER CONTRIBUTIONS Schedule of Employer Contributions Schedule of Funding Progress City of Somerville, Massachusetts 101 Comprehensive Annual Financial Report

Actuarial Methods: Valuation date………………………………………… June 30, 2016 Actuarial cost method………………………………… Projected Unit Credit Amortization method………………………………… Amortization payments increasing at 4%, open Remaining amortization period……………………… 30 years as of June 30, 2016 Actuarial Assumptions: Investment rate of return…………………………… 4%, pay-as-you-go scenario Medical/drug cost trend rate………………………… 6% graded to 4.5% over 4 years Inflation rate…………………………………………… 6% graded to 4.5% over 4 years Projected salary increases ………………………… 4% Plan Membership: Current retirees and beneficiaries………………… 1,676 Current active members…………………………… 1,719 Total…………………………………………………… 3,395 See notes to required supplementary information. OTHER POSTEMPLOYMENT BENEFIT PLAN ACTUARIAL METHODS AND ASSUMPTIONS City of Somerville, Massachusetts 102 Comprehensive Annual Financial Report

Notes to Required Supplementary Information Year Ended June 30, 2017 City of Somerville, Massachusetts 103 Comprehensive Annual Financial Report NOTE A - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Notes to Required Supplementary Information A. Budgetary Information Municipal Law requires the adoption of a balanced budget that is approved by the Mayor and the Board. The Mayor presents an annual budget to the Board, which includes estimates of revenues and other financing sources and recommendations of expenditures and other financing uses. The Board, which has full authority to amend and/or reject the budget or any line item, adopts the expenditure budget by majority vote. Increases or transfers between and within departments subsequent to the approval of the annual budget, requires majority Board approval via a supplemental appropriation or Board order. The majority of appropriations are non-continuing which lapse at the end of each year. Others are continuing appropriations for which the governing body has authorized that an unspent balance from a prior year be carried forward and made available for spending in the current year. These carry forwards are included as part of the subsequent year’s original budget. Generally, expenditures may not exceed the legal level of spending (salaries, expenses and capital) authorized for an appropriation account. However, the payment of debt service is statutorily required, regardless of whether such amounts are appropriated. Additionally, expenditures for disasters, natural or otherwise, and final judgments may exceed the level of spending authorized by two-thirds majority vote of the Board. An annual budget is adopted for the general fund in conformity with the guidelines described above. The original 2017 approved budget authorized $224.2 million in appropriations and other amounts to be raised. During 2017, the Board also increased appropriations by approximately $8 million. The City Auditor’s Office has the responsibility to ensure that budgetary control is maintained. Budgetary control is exercised through the accounting system. B. Budgetary - GAAP Reconciliation For budgetary financial reporting purposes, the Uniform Municipal Accounting System basis of accounting (established by the Commonwealth) is followed, which differs from the GAAP basis of accounting. A reconciliation of budgetary-basis to GAAP-basis results for the general fund for the year ended June 30, 2017, is depicted below: Excess (deficiency) of revenues and other financing sources (uses) over expenditures - budgetary basis………………………$ 1,184,641 Perspective difference: Unemployment insurance trust recorded in the general fund for GAAP………………………………………………… 57,866 Stabilization funds recorded in the general fund for GAAP……………… 4,117,971 Basis of accounting differences: Net change in recording 60-day receipts accrual………………………… 174,500 Net change in recording tax refunds payable……………………………… 416,000 Recognition of revenue for on-behalf payments........…………………… (14,596,546) Recognition of expenditures for on-behalf payments........……………… 14,596,546 Excess (deficiency) of revenues and other financing sources (uses) over expenditures - GAAP basis………………………… $ 5,950,978

Notes to Required Supplementary Information Year Ended June 30, 2017 City of Somerville, Massachusetts 104 Comprehensive Annual Financial Report NOTE B – PENSION PLAN Pension Plan Schedules – Retirement System A. Schedule of Changes in the Net Pension Liability and Related Ratios The Schedule of Changes in the Net Pension Liability and Related Ratios includes the detailed changes in the systems total pension liability, changes in the systems net position, and the ending net pension liability. It also demonstrates the plan’s net position as a percentage of the total pension liability and the net pension liability as a percentage of covered payroll. B. Schedule of Contributions Governmental employers are required to pay an annual appropriation as established by PERAC. The total appropriation includes the amounts to pay the pension portion of each member’s retirement allowance, an amount to amortize the actuarially determined unfunded liability to zero in accordance with the system’s funding schedule, and additional appropriations in accordance with adopted early retirement incentive programs. The total appropriations are payable on July 1 and January 1. Employers may choose to pay the entire appropriation in July at a discounted rate. Accordingly, actual employer contributions may be less than the “total appropriation”. The pension fund appropriations are allocated amongst employers based on covered payroll. C. Schedule of Investment Return The money weighted rate of return is calculated as the internal rate of return on pension plan investments, net of pension plan investment expense. A money weighted rate of return expresses investment performance, net of pension plan investment expense, adjusted for the changing amounts actually invested. Inputs to the money weighted rate of return calculation are determined monthly. Pension Plan Schedules - City A. Schedule of the City’s Proportionate Share of the Net Pension Liability The Schedule of the City’s Proportionate Share of the Net Pension Liability details the allocated percentage of the net pension liability (asset), the proportionate share of the net pension liability, and the covered employee payroll. It also demonstrates the net position as a percentage of the pension liability and the net pension liability as a percentage of covered payroll. B. Schedule of City Contributions Governmental employers are required to pay an annual appropriation as established by PERAC. The appropriation includes the amounts to pay the pension portion of each member’s retirement allowance, an amount to amortize the actuarially determined unfunded liability to zero in accordance with the system’s funding schedule, and additional appropriations in accordance with adopted early retirement incentive programs. The appropriations are payable on July 1 and January 1. The City may choose to pay the entire appropriation in July at a discounted rate. Accordingly, actual contributions may be less than the “total appropriation”. The pension fund appropriation is allocated to the City based on covered payroll. C. Schedule of the Special Funding Amounts of the Net Pension Liability The Commonwealth of Massachusetts is a nonemployer contributor and is required by statute to make all actuarially determined employer contributions on behalf of the member employers which creates a special funding

Notes to Required Supplementary Information Year Ended June 30, 2017 City of Somerville, Massachusetts 105 Comprehensive Annual Financial Report situation. Since the City does not contribute directly to MTRS, there is no net pension liability to recognize. This schedule discloses the Commonwealth's 100% share of the collective net pension liability that is associated with the City; the portion of the collective pension expense as both revenue and pension expense recognized by the City; and the Plan's fiduciary net position as a percentage of the total liability. D. Changes in Assumptions The discount rate has changed from 8.25% to 8.00%. Annual rates of withdrawal prior to retirement have been adjusted based on experience, for both general employees and police and fire employees. Annual rate of mortality tables used have been updated. The assumed annual retirement rates for those hired prior to April 2, 2012, have been updated. The assumed annual retirement rates for those hired on or after April 2, 2012, have been updated. The assumed annual rates of disability for both general employees and police and fire employees have been updated. The annual amount of administrative expenses has been increased to $450,000, and is expected to increase at 4% per year. E. Changes in Plan Provisions The maximum amount of pension benefits subject to a cost of living increase has been raised from $12,000 to $13,000. NOTE C - OTHER POSTEMPLOYMENT BENEFITS The City administers a single-employer defined benefit healthcare plan (“the Plan”). The plan provides lifetime healthcare and life insurance for eligible retirees and their spouses through the City’s health and life insurance plans, which covers both active and retired members, including teachers. The Other Postemployment Benefit Plan Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios The Schedule of Changes in the City’s Net Other Postemployment Benefit Liability and Related Ratios presents multi-year trend information on changes in the Plan’s total OPEB liability, changes in the Plan’s net position, and ending net OPEB liability. It also demonstrates the Plan’s net position as a percentage of the total liability and the Plan’s net other postemployment benefit liability as a percentage of covered employee payroll. Schedule of the City’s Contributions The Schedule of the City’s Contributions includes the City’s annual required contribution to the Plan, along with the contribution made in relation to the actuarially determined contribution and the covered employee payroll. The City is not required to fully fund this contribution. It also demonstrates the contributions as a percentage of covered payroll.

Notes to Required Supplementary Information Year Ended June 30, 2017 City of Somerville, Massachusetts 106 Comprehensive Annual Financial Report Schedule of Investment Return The Schedule of Investment Return includes the money-weighted investment return on the Plan’s other postemployment assets, net of investment expense. The City The Town currently finances its other postemployment benefits (OPEB) on a hybrid of pay-as-you-go and setting aside monies in an OPEB Trust. As a result, the funded ratio (actuarial value of assets expressed as a percentage of the actuarial accrued liability) is .27%. In accordance with Governmental Accounting Standards, the Town has recorded its OPEB cost equal to the actuarial determined annual required contribution (ARC) which includes the normal cost of providing benefits for the year and a component for the amortization of the total unfunded actuarial accrued liability of the plan. Projections of benefits for financial reporting purposes are based on the substantive plan and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. Schedule of Funding Progress The Schedule of Funding Progress presents multiyear trend information which compares, over time, the City’s actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. Schedule of Employer Contributions The Schedule of Employer Contributions presents multiyear trend information for the City’s required and actual contributions relating to the plan. Schedule of Actuarial Methods and Assumptions The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported.

City of Somerville, Massachusetts 107 Comprehensive Annual Financial Report Combining and Individual Fund Statements Combining and Individual Fund Statements

City of Somerville, Massachusetts 108 Comprehensive Annual Financial Report Nonmajor Governmental Funds Nonmajor Governmental Funds Special Revenue Funds Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. School Special Revenue Funds – accounts for the activity of the school department’s revolving funds established in accordance with MGL Chapter 44, Section 53E ½. School Federal Grants – accounts for grant funds received from the federal government that are designated for specific education programs. School State & Private Grants – This fund is used to account for receipts from a specific revenue source that by law is accounted for separately from the general fund and must be spent by appropriation. City Federal Grants – accounts for grant funds received from the federal government that are designated for specific programs, excluding school education grants which are accounted for in the School Federal Grants Special Revenue Fund. City State Grants – accounts for grant funds received from the Commonwealth that are designated for specific programs, excluding school education grants which are accounted for in the School State Grants Special Revenue Fund. Highway Improvement Funds – accounts for construction, reconstruction and improvements to roadways, streets, and sidewalks. Funding is provided primarily by grants. City Revolving Funds – excluding the school department, accounts for the activity of revolving funds established in accordance with MGL Chapter 44, Section 53E ½. Receipts Reserved – accounts for receipts that are designated to fund and supplement specific operating budgets of departments. City Private Grants – accounts for non-school related activity financed by private grants designated for specific programs. School Lunch – accounts for the activity of the school lunch program. Revenues include State and Federal reimbursements for meals served. Other Special Revenue Funds – accounts for the activity of gifts received and miscellaneous departmental special revenue funds. Community Preservation Fund – accounts for funds held for uses restricted by law for community preservation purposes. These funds are attributable to the City’s acceptance of the Community Preservation Act, which allows the City to impose up to a 3% surcharge on property taxes and to receive matching state grant funds for specified uses related to the acquisition, creation, preservation and support of open space, historic resources, land for recreational use and community housing.

City of Somerville, Massachusetts 109 Comprehensive Annual Financial Report Permanent Funds Permanent funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support governmental programs. Permanent Funds Principal – This fund is used to account for the non-expendable portion of gifts, bequests and contributions for which only earnings may be expended to benefit the City. Expendable Permanent Funds – This fund is used to account for the spendable portion of gifts, bequests and contributions held for which only earnings may be expended for purposes specified by the donor.

School School School City City Special Revenue Federal State & Private Federal Grant State Grant Funds Grants Grant Funds Funds ASSETS Cash and cash equivalents………………..…………$ 849,569 $ 151,139 $ 1,516,892 $ 7,108 $ 415,310 Departmental and other…………………………… - - - - - Intergovernmental………………………………… - - - - - Loans……………………………………………… - - - - - Due from other funds………………………………… - - 1,371,806 - - TOTAL ASSETS……………………………………… $ 849,569 $ 151,139 $ 2,888,698 $ 7,108 $ 415,310 LIABILITIES Warrants payable………………………………… $ 591 $ 1,803 $ 416 $ - $ - Accrued payroll…………………………………… 122,742 42,797 51,679 1,001 4,376 Due to other funds………………………………… - - - - - TOTAL LIABILITIES…………………………………… 123,333 44,600 52,095 1,001 4,376 DEFERRED INFLOWS OF RESOURCES Unavailable revenue……………………………… - - - - - FUND BALANCES Nonspendable……………………………………… - - - - - Restricted…………………………………………… 726,236 106,539 2,836,603 6,107 410,934 TOTAL FUND BALANCES…………………………… 726,236 106,539 2,836,603 6,107 410,934 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES…………$ 849,569 $ 151,139 $ 2,888,698 $ 7,108 $ 415,310 NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2017 Special Revenue Funds City of Somerville, Massachusetts 110 Comprehensive Annual Financial Report

Highway City City School Other Improvement Revolving Receipts Private Lunch Special Revenue Community Funds Funds Reserved Grants Funds Funds Preservation Subtotal $ - $ 152,985 $ 4,936,375 $ 297,029 $ 888,295 $ 4,114,303 $ 8,592,712 $ 21,921,717 - - - - - - 26,172 26,172 3,520,305 - - - - - 370,465 3,890,770 - - - - - 1,788,926 1,200,658 2,989,584 - - - - - - - 1,371,806 $ 3,520,305 $ 152,985 $ 4,936,375 $ 297,029 $ 888,295 $ 5,903,229 $ 10,190,007 $ 30,200,049 $ - $ 27,529 $ - $ - $ - $ 78 $ 90,710 $ 121,127 - 10,439 - - 17,101 6,567 1,327 258,029 314,324 - - - - - - 314,324 314,324 37,968 - - 17,101 6,645 92,037 693,480 3,205,981 - - - - - 396,637 3,602,618 - - - - - - - - - 115,017 4,936,375 297,029 871,194 5,896,584 9,701,333 25,903,951 - 115,017 4,936,375 297,029 871,194 5,896,584 9,701,333 25,903,951 $ 3,520,305 $ 152,985 $ 4,936,375 $ 297,029 $ 888,295 $ 5,903,229 $ 10,190,007 $ 30,200,049 (Continued) Special Revenue Funds City of Somerville, Massachusetts 111 Comprehensive Annual Financial Report

Total Permanent Expendable Nonmajor Funds Permanent Governmental Principal Funds Subtotal Funds ASSETS Cash and cash equivalents………………..…………… $ 433,126 $ 159,213 $ 592,339 $ 22,514,056 Departmental and other……………………………… - - - 26,172 Intergovernmental…………………………………… - - - 3,890,770 Loans…………………………………………………… - - - 2,989,584 Due from other funds…………………………………… - - - 1,371,806 TOTAL ASSETS………………………………………… $ 433,126 $ 159,213 $ 592,339 $ 30,792,388 LIABILITIES Warrants payable………………………………………$ - $ - $ - $ 121,127 Accrued payroll……………………………………… - - - 258,029 Due to other funds…………………………………… - - - 314,324 TOTAL LIABILITIES……………………………………… - - - 693,480 DEFERRED INFLOWS OF RESOURCES Unavailable revenue………………………………… - - - 3,602,618 FUND BALANCES Nonspendable………………………………………… 433,126 - 433,126 433,126 Restricted……………………………………………… - 159,213 159,213 26,063,164 TOTAL FUND BALANCES……………………………… 433,126 159,213 592,339 26,496,290 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES……………$ 433,126 $ 159,213 $ 592,339 $ 30,792,388 (Concluded) NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2017 Permanent Funds City of Somerville, Massachusetts 112 Comprehensive Annual Financial Report

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School School School City City Special Revenue Federal State & Private Federal Grant State Grant Funds Grants Grant Funds Funds REVENUES: Intergovernmental……………………………………………………$ - $ 4,062,574 $ 3,882,982 $ 559,549 $ 737,982 Departmental and other…………………………………………… 2,620,547 - - - 97,852 Community Preservation…………………………………………… - - - - - Contributions………………………………………………………… 8,947 - - - - Investment income………………………………………………… - - - - - TOTAL REVENUES………………………………………… 2,629,494 4,062,574 3,882,982 559,549 835,834 EXPENDITURES: Current: General government…………………………………………… - - - 13,788 420,021 Public safety……………………………………………………… - - - 71,538 400,060 Education………………………………………………………… 3,003,197 4,104,911 3,755,709 - - Public works……………………………………………………… - - - 247,606 - Human services………………………………………………… - - - 225,558 5,817 Culture and recreation…………………………………………… - - - 89 49,259 Community Preservation………………………………………… - - - - - TOTAL EXPENDITURES…………………………………… 3,003,197 4,104,911 3,755,709 558,579 875,157 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES……………………………… (373,703) (42,337) 127,273 970 (39,323) OTHER FINANCING SOURCES (USES): Premium from issuance of bonds………………………………… - - - - - Sale of capital assets……………………………………………… - - - - - Transfers in…………………………………………………………… - - - 109 7,422 Transfers out………………………………………………………… - (48) (1) (11,229) (23,541) TOTAL OTHER FINANCING SOURCES (USES)………… - (48) (1) (11,120) (16,119) NET CHANGE IN FUND BALANCES………………………………… (373,703) (42,385) 127,272 (10,150) (55,442) FUND BALANCES AT BEGINNING OF YEAR……………………… 1,099,939 148,924 2,709,331 16,257 466,376 FUND BALANCES AT END OF YEAR……………………………… $ 726,236 $ 106,539 $ 2,836,603 $ 6,107 $ 410,934 Special Revenue Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2017 City of Somerville, Massachusetts 114 Comprehensive Annual Financial Report

Highway City City School Other Improvement Revolving Receipts Private Lunch Special Revenue Community Funds Funds Reserved Grants Funds Funds Preservation Sub-total $ 1,399,284 $ - $ - $ 92,555 $ 2,303,130 $ 818,642 $ 1,200,658 $ 15,057,356 - 1,127,074 2,096,387 - 631,223 1,426,122 - 7,999,205 - - - - - - 2,085,496 2,085,496 - - 740 - - 231,200 - 240,887 - - - - - 20,390 12,292 32,682 1,399,284 1,127,074 2,097,127 92,555 2,934,353 2,496,354 3,298,446 25,415,626 - 969,098 - 53,802 - 967,234 - 2,423,943 - 2,871 - - - 282,779 - 757,248 - - - - 3,155,456 51,164 - 14,070,437 1,399,284 21,390 - - - 180,917 - 1,849,197 - - - 4,916 - 8,126 - 244,417 - 92,482 - 13 - 65,753 - 207,596 - - - - - - 2,314,179 2,314,179 1,399,284 1,085,841 - 58,731 3,155,456 1,555,973 2,314,179 21,867,017 - 41,233 2,097,127 33,824 (221,103) 940,381 984,267 3,548,609 - - - - - 598,829 - 598,829 - - 2,120,152 - - - - 2,120,152 - (1,719) - - - 1,719 500,000 507,531 - (34,330) (3,272,520) (148) - (2,624) - (3,344,441) - (36,049) (1,152,368) (148) - 597,924 500,000 (117,929) - 5,184 944,759 33,676 (221,103) 1,538,305 1,484,267 3,430,680 - 109,833 3,991,616 263,353 1,092,297 4,358,279 8,217,066 22,473,271 $ - $ 115,017 $ 4,936,375 $ 297,029 $ 871,194 $ 5,896,584 $ 9,701,333 $ 25,903,951 (Continued) Special Revenue Funds City of Somerville, Massachusetts 115 Comprehensive Annual Financial Report

Total Permanent Expendable Nonmajor Funds Permanent Governmental Principal Funds Sub-total Funds REVENUES: Intergovernmental……………………………………………… $ - $ - $ - $ 15,057,356 Departmental and other………………………………………… - - - 7,999,205 Community Preservation……………………………………… - - - 2,085,496 Contributions…………………………………………………… - - - 240,887 Investment income……………………………………………… - 1,897 1,897 34,579 TOTAL REVENUES……………………………………… - 1,897 1,897 25,417,523 EXPENDITURES: Current: General government………………………………………… - - - 2,423,943 Public safety………………………………………………… - - - 757,248 Education……………………………………………………… - - - 14,070,437 Public works………………………………………………… - - - 1,849,197 Human services……………………………………………… - - - 244,417 Culture and recreation……………………………………… - - - 207,596 Community Preservation…………………………………… - - - 2,314,179 TOTAL EXPENDITURES………………………………… - - - 21,867,017 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES…………………………… - 1,897 1,897 3,550,506 OTHER FINANCING SOURCES (USES): Premium from issuance of bonds……………………………… - - - 598,829 Sale of capital assets…………………………………………… - - - 2,120,152 Transfers in……………………………………………………… - - - 507,531 Transfers out…………………………………………………… - - - (3,344,441) TOTAL OTHER FINANCING SOURCES (USES)…… - - - (117,929) NET CHANGE IN FUND BALANCES…………………………… - 1,897 1,897 3,432,577 FUND BALANCES AT BEGINNING OF YEAR………………… 433,126 157,316 590,442 23,063,713 FUND BALANCES AT END OF YEAR……………………………$ 433,126 $ 159,213 $ 592,339 $ 26,496,290 (Concluded) Permanent Funds NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2017 City of Somerville, Massachusetts 116 Comprehensive Annual Financial Report

City of Somerville, Massachusetts 117 Comprehensive Annual Financial Report Agency Fund Agency Fund This fund is segregated from the general fund to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governmental units, etc.

Beginning End of Year Additions Deletions of Year ASSETS CURRENT: Cash and cash equivalents………………………….…$ 1,052,254 $ 5,685,745 $ (6,100,657) $ 637,342 LIABILITIES Accrued liabilities……………………………………… $ 116,723 $ 122,283 $ (166,320) $ 72,686 Liabilities due depositors……………………………… 935,531 5,563,462 (5,934,337) 564,656 TOTAL LIABILITIES……………………………………… $ 1,052,254 $ 5,685,745 $ (6,100,657) $ 637,342 AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES YEAR ENDED JUNE 30, 2017 City of Somerville, Massachusetts 118 Comprehensive Annual Financial Report

Statistical Section The Somerville District Courthouse, a division of the Massachusetts Court System, holds trials in its three courtrooms. Photo taken by Rie Lowenstein

City of Somerville, Massachusetts 119 Comprehensive Annual Financial Report Statistical Section Statistical Section This part of the comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. Financial Trends • These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time. Revenue Capacity • These schedules contain information to help the reader assess the City’s most significant local revenue source, the property tax. Debt Capacity • These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future. Demographic and Economic Information • These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place. Operating Information • These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the City provided services and the activities it performs. SOURCES: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year.

2008 2009 2010 2011 2012 2013 2014 (1) 2015 2016 2017 Governmental activities Net investment in capital assets………………$ 112,716,973 $ 114,071,426 $ 114,146,078 $ 117,701,275 $ 126,834,901 $ 136,813,615 $ 135,597,852 $ 132,766,621 $ 130,183,221 $ 128,346,108 Restricted……………………………………… 23,920,569 19,464,156 24,114,249 25,126,498 22,775,093 24,157,523 23,001,973 25,063,900 26,765,034 26,765,236 Unrestricted…………………………………… 32,910,522 22,052,332 3,369,141 (1,130,225) (18,721,004) (23,786,300) (145,351,160) (149,966,003) (156,698,433) (166,224,124) Total governmental activities net assets…………… $ 169,548,064 $ 155,587,914 $ 141,629,468 $ 141,697,548 $ 130,888,990 $ 137,184,838 $ 13,248,665 $ 7,864,518 $ 249,822 $ (11,112,780) Business-type activities Net investment in capital assets………………$ 4,762,242 $ 7,539,882 $ 16,039,555 $ 20,025,113 $ 24,078,204 $ 29,794,495 $ 35,084,760 $ 39,855,221 $ 43,810,782 $ 46,081,442 Unrestricted…………………………………… 17,892,482 20,821,058 19,409,168 21,059,957 23,647,858 21,220,544 19,069,553 17,231,368 17,715,352 22,249,407 Total business-type activities net assets……………$ 22,654,724 $ 28,360,940 $ 35,448,723 $ 41,085,070 $ 47,726,062 $ 51,015,039 $ 54,154,313 $ 57,086,589 $ 61,526,134 $ 68,330,849 Primary government Net investment in capital assets………………$ 117,479,215 $ 121,611,308 $ 130,185,633 $ 137,726,388 $ 150,913,105 $ 166,608,110 $ 170,682,612 $ 172,621,842 $ 173,994,003 $ 174,427,550 Restricted……………………………………… 23,920,569 19,464,156 24,114,249 25,126,498 22,775,093 24,157,523 23,001,973 25,063,900 26,765,034 26,765,236 Unrestricted…………………………………… 50,803,004 42,873,390 22,778,309 19,929,732 4,926,854 (2,565,756) (126,281,607) (132,734,635) (138,983,081) (143,974,717) Total primary government net position………………$ 192,202,788 $ 183,948,854 $ 177,078,191 $ 182,782,618 $ 178,615,052 $ 188,199,877 $ 67,402,978 $ 64,951,107 $ 61,775,956 $ 57,218,069 Note: In 2008, the City reclassified capital assets related to the water and sewer enterprise funds from the governmental capital assets. (1) = Unrestricted net position has been revised to reflect the implementation of GASB Statements #67, #68, and #71. Net Position By Component Last Ten Years City of Somerville, Massachusetts 120 Comprehensive Annual Financial Report

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Expenses Governmental activities: General government…………………………………………………… $ 22,192,789 $ 23,220,232 $ 21,779,285 $ 21,655,742 $ 22,124,384 $ 25,892,120 $ 27,028,141 $ 30,201,124 $ 32,270,976 $ 34,076,945 Public safety…………………………………………………………… 54,178,926 53,444,548 52,328,325 45,903,858 52,391,661 51,377,022 52,091,080 52,579,803 54,345,466 58,162,944 Education……………………………………………………………… 102,347,605 110,053,080 108,803,922 108,813,913 113,396,259 113,753,374 121,176,505 114,802,360 124,740,381 132,958,254 Public works…………………………………………………………… 30,054,802 27,101,081 24,973,616 23,346,672 23,631,860 25,203,877 26,974,196 33,520,992 28,957,827 31,017,581 Commmunity development…………………………………………… 8,021,636 9,504,292 6,014,349 7,491,176 5,225,117 5,092,521 5,399,251 5,730,544 5,177,605 9,696,020 Human services………………………………………………………… 22,475 122,641 18,802 9,560 316,137 288,766 227,030 229,633 178,570 244,417 Community preservation……………………………………………… - - - - - - 56,770 77,672 347,016 1,522,282 Culture and recreation………………………………………………… 969,173 4,159,278 4,566,066 3,880,264 4,160,530 4,695,015 3,868,022 4,948,901 4,787,187 5,245,975 Interest…………………………………………………………………… 3,003,452 2,865,682 2,713,563 2,282,434 2,306,520 2,858,173 3,178,533 2,913,723 2,956,192 3,563,654 Total government activities expenses………………………………………… 220,790,858 230,470,834 221,197,928 213,383,619 223,552,468 229,160,868 239,999,528 245,004,752 253,761,220 276,488,072 Business-type activities: Water…………………………………...……………………………… 7,111,413 7,920,756 6,863,013 9,034,024 8,366,003 9,222,940 9,120,695 9,779,632 10,211,295 11,166,299 Sewer…………………………………………………………………… 11,554,303 12,979,914 13,245,282 14,185,999 14,803,664 15,303,668 15,811,901 16,312,337 17,099,159 18,106,483 Veteran's memorial ice rink…………………………………………… - - - - 337,456 522,392 584,995 750,644 721,990 679,098 Dilboy stadium………………………………………………………… - - - - 132,312 147,794 217,761 160,855 136,199 154,881 Total business-type activities expenses……………………………………… 18,665,716 20,900,670 20,108,295 23,220,023 23,639,435 25,196,794 25,735,352 27,003,468 28,168,643 30,106,761 Total primary government expenses…………………………………………… $ 239,456,574 $ 251,371,504 $ 241,306,223 $ 236,603,642 $ 247,191,903 $ 254,357,662 $ 265,734,880 $ 272,008,220 $ 281,929,863 $ 306,594,833 Program Revenues Governmental activities: General government charges for services…………………………… $ 2,683,805 $ 2,613,510 $ 3,929,772 $ 5,111,948 $ 5,645,000 $ 4,716,640 $ 6,078,676 $ 14,874,314 $ 9,341,536 $ 10,828,065 Public safety charges for services…………………………………… 13,782,939 11,279,366 11,653,283 11,168,627 10,402,613 10,743,269 9,504,549 9,701,430 9,726,266 11,648,005 Education charges for services……………………………………… 1,287,818 1,289,836 1,523,386 2,773,301 2,888,195 2,620,430 2,744,125 2,854,004 3,025,441 3,251,770 Other charges for services…………………………………………… 1,163,619 1,638,308 1,511,902 2,464,581 2,318,541 2,009,294 1,234,865 1,200,251 1,280,431 1,231,044 General government operating grants and contributions…………… 1,112,730 1,065,242 1,142,773 2,190,637 2,241,945 2,208,949 2,275,935 3,306,728 2,318,143 3,611,794 Public safety operating grants and contributions…………………… 1,979,862 2,073,664 1,582,812 984,665 583,597 733,021 1,035,751 787,168 734,344 567,768 Education operating grants and contributions……………………… 46,931,033 48,503,731 47,963,393 46,517,454 46,478,286 47,121,192 49,332,811 38,046,566 41,967,740 46,466,462 Public works operating grants and contributions…………………… 867,986 865,255 816,657 20,000 149,243 1,201,182 1,030,318 1,151,440 932,462 2,059,979 Community development operating grants and contributions……… 14,267,545 7,104,189 9,596,234 6,754,407 5,677,368 6,544,448 5,331,152 7,445,467 5,244,967 6,297,670 Other operating grants and contributions…………………………… 566,590 1,173,232 1,101,023 1,375,021 1,012,441 991,642 1,028,356 957,692 861,352 888,955 Education capital grants and contributions…………………………… - 1,021,427 - - - 12,653,757 1,686,711 9,685 2,212,282 1,598,709 Other capital grants and contributions………………………………… - - - 1,300,151 1,014,340 951,439 365,429 991,751 2,090,371 440,747 Total government activities program revenues...……………………………… 84,643,927 78,627,760 80,821,235 80,660,792 78,411,569 92,495,263 81,648,678 81,326,496 79,735,335 88,890,968 Business-type activities: Water charges for services…………………………………………… 9,198,012 9,826,242 9,968,139 11,499,958 11,972,625 11,878,296 11,952,312 11,923,024 13,249,816 13,945,725 Sewer charges for services…………………………………………… 15,191,936 14,849,185 15,654,243 15,631,262 17,139,421 17,012,055 17,055,541 17,304,880 19,298,052 21,673,233 Veteran's memorial ice rink charges for services…………………… - - - - 270,626 377,422 530,583 579,538 638,822 587,035 Dilboy stadium charges for services………………………………… - - - - 90,527 147,000 110,200 181,942 227,234 200,074 Other capital grant and contributions………………………………… - - - - 1,322,550 - 654,755 - - - Total business-type activities program revenues...…………………………… 24,389,948 24,675,427 25,622,382 27,131,220 30,795,749 29,414,773 30,303,391 29,989,384 33,413,924 36,406,067 Total primary government program revenues………………………………… $ 109,033,875 $ 103,303,187 $ 106,443,617 $ 107,792,012 $ 109,207,318 $ 121,910,036 $ 111,952,069 $ 111,315,880 $ 113,149,259 $ 125,297,035 Net (Expense)/Program Revenue Governmental activities………………………………………………………… $ (136,146,931) $ (151,843,074) $ (140,376,693) $ (132,722,827) $ (145,140,899) $ (136,665,605) $ (158,350,850) $ (163,678,256) $ (174,025,885) $ (187,597,104) Business-type activities………………………………………………………… 5,724,232 3,774,757 5,514,087 3,911,197 7,156,314 4,217,979 4,568,039 2,985,916 5,245,281 6,299,306 Total primary government net (expense)/program revenue………………… $ (130,422,699) $ (148,068,317) $ (134,862,606) $ (128,811,630) $ (137,984,585) $ (132,447,626) $ (153,782,811) $ (160,692,340) $ (168,780,604) $ (181,297,798) General Revenues and other Changes in Net Position Governmental activities: Real estate and personal property taxes……………………………… $ 86,835,733 $ 91,192,133 $ 96,029,743 $ 100,266,040 $ 102,516,625 $ 109,373,661 $ 113,520,645 $ 120,408,453 $ 127,658,573 $ 135,251,425 Tax and utility liens……………………………………………………… - - - - - 465,853 968,105 416,809 297,772 201,283 Motor vehicle and other excise taxes………………………………… 4,976,795 4,190,680 4,414,024 5,067,456 6,773,737 7,299,012 7,639,442 8,609,432 9,288,744 9,316,095 Penalties and interest on taxes………………………………………… 821,535 695,914 982,668 1,266,600 860,457 1,070,330 1,121,504 858,956 801,173 729,944 Payments in lieu of taxes……………………………………………… 314,262 158,827 163,644 398,281 192,334 182,347 285,596 304,688 829,780 1,248,682 Community Preservation surtax……………………………………… - - - - - - 1,323,320 1,430,721 1,545,198 1,664,815 Grants and contributions not restricted……………………………… 32,519,533 38,521,736 23,777,003 24,479,415 22,936,689 23,120,989 23,374,357 25,642,432 24,429,136 25,455,469 Unrestricted investment income……………………………………… 1,605,434 1,096,779 584,028 419,721 320,878 258,370 238,031 292,212 303,517 496,273 Gain on disposal of assets…………………………………………… 1,780 7,838 8,635 9,355 - - - 2,031,564 2,031,564 2,031,564 Miscellaneous…………………………………………………………… 2,010,382 2,019,017 458,502 884,039 61,023 115,049 278,074 113,230 308,206 184,008 Transfers, net…………………………………………………………… - - - - 670,598 1,075,842 526,840 217,176 949,090 (345,056) Total governmental activities…………………………………………………… 129,085,454 137,882,924 126,418,247 132,790,907 134,332,341 142,961,453 149,275,914 160,325,673 168,442,753 176,234,502 Business-type activities: Tax and utility liens……………………………………………………… 1,589,910 1,609,372 1,413,910 1,562,666 - - - - - - Unrestricted investment income……………………………..………… 695,919 322,087 159,786 162,484 155,276 146,840 152,624 163,536 142,354 160,353 Transfers………………………………………………………………… - - - - (670,598) (1,075,842) (526,840) (217,176) (948,090) 345,056 Total business-type activities…………………………………………………… 2,285,829 1,931,459 1,573,696 1,725,150 (515,322) (929,002) (374,216) (53,640) (805,736) 505,409 Total primary government general revenues and other changes in net position………………………………………………… $ 131,371,283 $ 139,814,383 $ 127,991,943 $ 134,516,057 $ 133,817,019 $ 142,032,451 $ 148,901,698 $ 160,272,033 $ 167,637,017 $ 176,739,911 Changes in Net Position Governmental activities………………………………………………………… $ (7,061,477) $ (13,960,150) $ (13,958,446) $ 68,080 $ (10,808,558) $ 6,295,848 $ (9,074,936) $ (3,352,583) $ (5,583,132) $ (11,362,602) Business-type activities………………………………………………………… 8,010,061 5,706,216 7,087,783 5,636,347 6,640,992 3,288,977 4,193,823 2,932,276 4,439,545 6,804,715 Total primary government changes in net position…………………………… $ 948,584 $ (8,253,934) $ (6,870,663) $ 5,704,427 $ (4,167,566) $ 9,584,825 $ (4,881,113) $ (420,307) $ (1,143,587) $ (4,557,887) Note: Prior to 2012, Veteran's Memorial Ice Rink and Dilboy Stadium activity was accounted for in a special revenue fund. Last Ten Years Changes in Net Position City of Somerville, Massachusetts 121 Comprehensive Annual Financial Report

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General Fund Reserved……………………………$ 12,484,743 $ 14,740,399 $ 15,210,735 $ - $ - $ - $ - $ - $ - $ - Unreserved………………..……… 17,701,780 11,952,907 12,687,703 - - - - - - - Committed………………………… - - - 18,712,499 21,929,103 24,171,167 25,038,098 30,065,350 33,354,136 34,533,997 Assigned…………………………… - - - 10,242,471 5,948,451 5,890,549 5,976,724 6,460,233 5,823,265 5,907,817 Unassigned………………………… - - - 11,745,190 13,735,197 17,005,198 15,520,425 13,692,118 15,507,488 20,194,053 Total general fund…………………… $ 30,186,523 $ 26,693,306 $ 27,898,438 $ 40,700,160 $ 41,612,751 $ 47,066,914 $ 46,535,247 $ 50,217,701 $ 54,684,889 $ 60,635,867 All Other Governmental Funds Reserved……………………………$ 13,552,469 $ 12,276,896 $ 13,423,104 $ - $ - $ - $ - $ - $ - $ - Unreserved, reported in: Special revenue funds……… 9,163,103 17,964,768 20,226,857 - - - - - - - Capital projects funds……… 119,927 (59,498) 6,678,591 - - - - - - - Permanent funds…………… 216,731 217,881 163,066 - - - - - - - Nonspendable…………………… - - - 433,126 433,126 433,126 433,126 433,126 433,126 433,126 Restricted………………………… - - - 32,172,936 23,955,913 24,039,762 29,105,031 32,953,447 36,444,641 40,328,168 Unassigned………………………… - - - (42,349) (7,897,251) (8,830,687) (11,138,192) (15,052,796) (14,895,671) (11,385,014) Total all other governmental funds… $ 23,052,230 $ 30,400,047 $ 40,491,618 $ 32,563,713 $ 16,491,788 $ 15,642,201 $ 18,399,965 $ 18,333,777 $ 21,982,096 $ 29,376,280 Note: The City implemented GASB 54 in 2011, fund balances prior to 2011 have been reported in the pre-GASB 54 format. Last Ten Years Fund Balances, Governmental Funds City of Somerville, Massachusetts 122 Comprehensive Annual Financial Report

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenues: Real estate and personal property taxes………………… $ 85,100,033 $ 89,398,919 $ 95,031,409 $ 98,921,096 $ 102,575,530 $ 109,391,564 $ 113,427,599 $ 120,742,247 $ 127,359,478 $ 134,759,721 Tax liens……………………………………………………… 870,517 1,165,496 1,078,578 1,161,723 1,297,050 1,118,479 847,582 654,405 606,130 392,962 Motor vehicle and other excise taxes……………………… 5,007,547 4,531,602 4,563,267 4,894,601 6,762,048 7,206,904 7,759,040 8,596,756 9,345,084 9,297,090 Payments in lieu of taxes…………………………………… 314,262 158,827 163,644 398,281 192,334 182,347 285,596 304,688 829,780 1,248,682 Intergovernmental…………………………………………… 95,212,975 89,793,239 83,710,418 85,293,814 83,228,489 95,364,763 88,757,484 75,012,124 77,436,920 91,261,649 Departmental and other……………………………………… 21,760,536 22,282,936 23,300,994 23,946,046 23,732,924 22,579,819 22,368,780 31,314,092 26,795,775 29,238,662 Community preservation taxes……………………………… - - - - - - 1,323,320 2,335,638 2,375,654 2,085,496 Contributions………………………………………………… 1,273,574 160,049 1,162,345 1,354,249 1,361,020 1,126,151 256,094 3,044,440 757,874 621,388 Investment income…………………………………………… 1,605,434 1,096,779 584,028 419,721 320,878 238,620 238,031 292,212 308,289 500,910 Miscellaneous………………………………………………… 1,700,000 12,270,901 312,803 229,144 71,679 102,500 268,687 113,209 205,935 134,582 Total Revenue………………………………………… 212,844,878 220,858,748 209,907,486 216,618,675 219,541,952 237,311,147 235,532,213 242,409,811 246,020,919 269,541,142 Expenditures: General government………………………………………… 11,832,794 12,284,477 11,345,329 12,623,157 12,679,343 16,705,382 17,643,136 19,760,973 21,121,725 22,099,097 Public safety………………………………………………… 33,422,270 31,952,078 31,850,195 30,938,872 36,463,494 37,408,954 37,020,112 38,187,360 38,861,329 41,113,649 Education……………………………………………………… 58,150,030 61,298,672 60,033,670 63,007,532 63,303,388 65,203,861 68,950,650 71,696,093 76,278,689 78,217,082 Public works………………………………………………… 24,166,057 20,701,397 19,162,374 19,461,296 19,831,102 21,203,002 23,213,680 30,173,419 24,285,794 26,189,372 Community development…………………………………… 4,807,530 9,503,292 6,015,349 5,142,819 5,225,117 5,092,521 5,399,251 6,731,292 4,752,888 8,904,122 Human services……………………………………………… 3,682 108,906 2,681 7,095 312,548 288,766 224,330 229,633 178,570 244,417 Culture and recreation……………………………………… 1,994,251 1,841,688 2,596,786 2,397,542 2,413,694 2,853,452 1,792,055 716,322 2,624,181 3,004,178 Pension benefits……………………………………………… 24,027,834 25,601,417 25,028,473 25,986,011 27,154,941 28,472,130 29,482,862 19,710,963 23,927,384 28,429,418 Employee benefits…………………………………………… 25,804,216 29,525,454 28,046,345 28,783,865 27,555,222 20,642,529 23,240,442 23,167,986 23,240,346 24,274,992 Claims and judgments……………………………………… - - - - 124,666 87,190 149,138 237,987 99,590 53,800 Community preservation…………………………………… - - - - - - 56,770 77,672 771,733 2,314,179 State and county charges…………………………………… 9,083,059 9,628,426 9,815,484 10,990,847 10,922,689 11,189,172 11,854,949 12,569,633 12,740,178 13,532,201 Capital outlay………………………………………………… 19,917,387 6,947,220 6,576,020 9,937,843 35,537,453 28,892,038 12,164,916 14,038,651 18,695,120 13,805,058 Debt service: Principal…………………………………………………… 5,503,616 5,003,735 6,048,976 6,799,951 7,473,552 6,921,187 6,971,599 7,968,384 7,110,623 7,455,123 Interest…………………………………………………… 2,836,481 2,615,224 2,802,736 2,404,731 2,494,542 2,871,080 2,890,706 3,016,183 2,866,743 3,639,566 Total Expenditures…………………………………… 221,549,207 217,011,986 209,324,418 218,481,561 251,491,751 247,831,264 241,054,596 248,282,551 257,554,893 273,276,254 Excess of revenues over (under) expenditures…………… (8,704,329) 3,846,762 583,068 (1,862,886) (31,949,799) (10,520,117) (5,522,383) (5,872,740) (11,533,974) (3,735,112) Other Financing Sources (Uses) Issuance of bonds and notes………………………..……… 13,713,522 - 10,695,000 6,305,000 15,750,000 13,940,000 6,250,000 8,603,000 17,771,000 12,335,000 Issuance of refunding bonds……………………………… - - 15,129,000 - - - - - - - Premium from issuance of bonds…………………..……… 62,957 - 10,000 422,348 353,483 96,302 962,253 - 930,391 2,970,178 Premium from issuance of refunding bonds.……………… - - 682,609 - - - - - - - Payments to refunded bond escrow agent……………. - - (15,811,609) - - - - - - - Sale of capital assets…………………………………………… 1,780 7,838 8,635 9,355 16,384 12,549 9,387 - - 2,120,152 Transfers in…………………………………………………… 6,091,842 2,211,567 3,295,179 5,278,835 12,298,802 4,599,007 5,578,902 4,828,239 3,753,592 5,536,920 Transfers out………………………………………………… (6,091,842) (2,211,567) (3,295,179) (5,278,835) (11,628,204) (3,523,165) (5,052,062) (3,942,233) (2,805,502) (5,881,976) Total other financing sources (uses)………………… 13,778,259 7,838 10,713,635 6,736,703 16,790,465 15,124,693 7,748,480 9,489,006 19,649,481 17,080,274 Net change in fund balance…………………………………… $ 5,073,930 $ 3,854,600 $ 11,296,703 $ 4,873,817 $ (15,159,334) $ 4,604,576 $ 2,226,097 $ 3,616,266 $ 8,115,507 $ 13,345,162 Debt service as a percentage of noncapital expenditures……… 4.14% 3.63% 4.37% 4.41% 4.62% 4.47% 4.31% 4.69% 4.18% 4.28% Last Ten Years Changes in Fund Balances, Governmental Funds City of Somerville, Massachusetts 123 Comprehensive Annual Financial Report

Assessed and Actual Values and Tax Rates Total Total Total Residential Residential Commercial Industrial Personal Commercial Commercial Direct City Year Value Tax Rate Value Value Property Value Tax Rate Rate (2) Value 2008 7,343,629,210 $ 10.95 $ 851,069,790 $ 259,298,300 $ 138,332,790 $ 1,248,700,880 $ 17.97 $ 11.97 $ 8,592,330,090 $ 2009 (1) 7,178,108,247 $ 11.71 $ 826,175,153 $ 260,306,700 $ 144,604,120 $ 1,231,085,973 $ 19.25 $ 12.81 $ 8,409,194,220 $ 2010 7,017,857,230 $ 12.30 $ 820,005,970 $ 274,302,300 $ 149,114,320 $ 1,243,422,590 $ 20.44 $ 13.53 $ 8,261,279,820 $ 2011 7,027,712,955 $ 12.71 $ 831,013,262 $ 273,718,283 $ 165,431,820 $ 1,270,163,365 $ 21.21 $ 14.01 $ 8,297,876,320 $ 2012 7,099,067,112 $ 13.09 $ 836,954,788 $ 276,018,500 $ 178,531,790 $ 1,291,505,078 $ 21.85 $ 14.44 $ 8,390,572,190 $ 2013 7,293,246,502 $ 13.42 $ 843,242,898 $ 273,007,500 $ 185,838,150 $ 1,302,088,548 $ 22.38 $ 14.78 $ 8,595,335,050 $ 2014 (1) 7,894,327,349 $ 12.66 $ 1,020,307,151 $ 331,988,000 $ 199,049,900 $ 1,551,345,051 $ 21.51 $ 14.11 $ 9,445,672,400 $ 2015 8,909,186,864 $ 12.61 $ 1,055,713,836 $ 311,627,700 $ 215,696,880 $ 1,583,038,416 $ 20.38 $ 13.78 $ 10,492,225,280 $ 2016 9,546,993,086 $ 12.53 $ 1,108,832,814 $ 318,967,000 $ 223,981,370 $ 1,651,781,184 $ 20.18 $ 13.66 $ 11,198,774,270 $ 2017 10,814,213,402 $ 11.67 $ 1,255,256,698 $ 339,856,200 $ 251,203,200 $ 1,846,316,098 $ 18.81 $ 12.71 $ 12,660,529,500 $ (1) Revaluation year. (2) The direct rate is the weighted average of the residential and commercial tax rates. Source: Assessor's Department, City of Somerville All property in the Commonwealth of Massachusetts is assessed at 100% of fair cash value. Note: Chapter 59, Section 21C of the Massachusetts General Laws, known as "Proposition 2 1/2", imposes 2 separate limits on the annual tax levy of the City. The primary limitation is that the tax levy cannot exceed 2 1/2 percent of the full and fair cash value. The secondary limitation is that the tax levy cannot exceed the maximum levy limit for the preceding year as determined by the State Commissioner of Revenue by more than 2 1/2 percent, subject to an exception for property added to the tax rolls and for certain substantial valuation increases other than as part of a general revaluation. The secondary limit may be exceeded in any year by a majority vote of the voters, however it cannot exceed the primary limitation. Assessed Value and Actual Value of Taxable Property by Classification and Tax Rates Last Ten Years 85% 10% 3% 2% Total Assessed Value by Classification Year Ended June 30, 2017 Residential Commercial Industrial Personal Property 85% 10% 3% 2% Total Assessed Value by Classification Year Ended June 30, 2016 Residential Commercial Industrial Personal Property 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Commercial Value as % of Total Value City of Somerville, Massachusetts 124 Comprehensive Annual Financial Report

Percentage of Percentage of Total Taxable Total Taxable Nature of Assessed Assessed Assessed Assessed Name Business Valuation Rank Value Valuation Rank Value Street Retail Inc Commercial 243,428,900 $ 1 2.58% - $ - - NSTAR Electric Co Electric Company 79,025,760 $ 2 0.84% 54,794,010 $ 3 0.64% FR Assembly Square LLC Shopping Mall 75,341,000 $ 3 0.80% 62,391,000 $ 1 0.73% Twin City Plaza LLC Retail Mall 51,025,000 $ 4 0.54% 55,126,300 $ 2 0.64% SRI Assembly Row B6 LLC Retail 56,333,900 $ 5 0.60% - $ - 0.00% NSTAR Gas Co Electric Company 38,882,490 $ 6 0.41% - $ - - I-93 Somerville LLC Retail 38,156,100 $ 7 0.40% 37,000,000 $ 4 - CRP 70 Inner Belt LLC Telecom 35,568,300 $ 8 0.38% 30,684,700 $ 6 - GAHC3 Somerville MOB LLC Professional Building 35,181,900 $ 9 0.37% - $ - - National Tax Search LLC Trustee Office Building 34,553,600 $ 10 0.37% 23,658,800 $ 8 - Kadima Medical Properties LLC Professional Building - $ - - 32,698,600 $ 5 0.38% IKEA Property Inc Commercial Land - $ - - 23,934,000 $ 7 0.28% FR Sturtevant Street LLC Retail - $ - - 19,668,400 $ 9 0.23% Clarendon Hills Towers Association Apartments - $ - - 31,787,100 $ 10 0.37% Totals $687,496,950 7.28% $371,742,910 3.26% Source: Official Statement for Sale of Bonds Principal Taxpayers Current Year and Nine Years Ago 2017 2008 City of Somerville, Massachusetts 125 Comprehensive Annual Financial Report

(3) Percent of (2) Less (2) First Year Percent of Delinquent Total Total Tax Total Abatements & Net Current Net Levy Tax Tax Collections to Year Tax Levy Exemptions Tax Levy Tax Collections Collected Collections Collections Net Tax Levy 2008 88,230,603 $ 740,520 $ 87,490,083 $ 86,635,835 $ 99.02% 932,119 $ 87,567,954 $ 100.09% 2009 (1) 92,502,692 $ 1,235,728 $ 91,266,964 $ 91,213,775 $ 99.94% 56,154 $ 91,269,929 $ 100.00% 2010 96,493,032 $ 1,372,905 $ 95,120,127 $ 94,988,009 $ 99.86% 128,204 $ 95,116,213 $ 100.00% 2011 100,548,992 $ 463,464 $ 100,085,528 $ 98,703,495 $ 98.62% 1,377,979 $ 100,081,474 $ 100.00% 2012 104,765,287 $ 1,088,607 $ 103,676,680 $ 102,975,339 $ 99.32% 696,871 $ 103,672,210 $ 100.00% 2013 109,923,036 $ 799,886 $ 109,123,150 $ 108,407,664 $ 99.34% 711,174 $ 109,118,838 $ 100.00% 2014 (1) 116,112,597 $ 1,416,537 $ 114,696,060 $ 113,841,400 $ 99.25% 860,377 $ 114,701,777 $ 100.00% 2015 122,165,461 $ 1,697,496 $ 120,467,965 $ 120,376,618 $ 99.92% 814,136 $ 121,190,754 $ 100.60% 2016 129,147,863 $ 1,680,095 $ 127,467,768 $ 126,428,749 $ 99.18% 558,205 $ 126,986,954 $ 99.62% 2017 136,071,683 $ 1,709,004 $ 134,362,679 $ 133,730,789 $ 99.53% - $ 133,730,789 $ 99.53% (1) Revaluation year. (2) Includes tax liens. (3) If the actual abatements and exemptions are lower than the estimate the actual collections can exceed the net levy. Source: Assessor's Department, City of Somerville Property Tax Levies and Collections Last Ten Years 0 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 90,000,000 100,000,000 110,000,000 120,000,000 130,000,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Millions Real Estate Tax Levies vs. First Year Collections Last Ten Years Real Estate Tax Levy First Year Current Tax Collections City of Somerville, Massachusetts 126 Comprehensive Annual Financial Report

General Percentage Percentage U. S. Census Personal Assessed Obligation Capital Per of Personal of Assessed Year Population Income Value Bonds Leases Capita Income Value 2008 75,620 2,093,461,649 $ 8,592,330,090 $ 68,811,515 $ - $ 910 $ 3.56% 0.87% 2009 75,656 2,136,347,437 $ 8,409,194,220 $ 63,807,780 $ - $ 843 $ 2.99% 0.76% 2010 75,754 2,463,292,818 $ 8,261,279,820 $ 69,122,803 $ - $ 912 $ 2.81% 0.84% 2011 75,965 2,519,556,983 $ 8,297,876,320 $ 68,627,852 $ - $ 903 $ 2.72% 0.83% 2012 76,267 2,580,164,990 $ 8,390,572,190 $ 76,177,493 $ - $ 999 $ 2.95% 0.91% 2013 76,589 2,642,879,641 $ 8,595,335,050 $ 84,360,426 $ - $ 1,101 $ 3.19% 0.98% 2014 78,804 2,773,699,578 $ 9,445,672,400 $ 84,481,455 $ - $ 1,072 $ 3.05% 0.89% 2015 78,901 2,832,656,005 $ 10,492,225,280 $ 82,313,356 $ - $ 1,043 $ 2.91% 0.78% 2016 80,318 2,941,198,848 $ 11,198,774,270 $ 93,750,365 $ - $ 1,167 $ 3.19% 0.84% 2017 81,322 3,037,524,044 $ 12,660,529,500 $ 101,423,345 $ - $ 1,247 $ 3.34% 0.80% General Total Percentage Percentage Obligation Capital Debt Per of Personal of Assessed Year Bonds Leases Outstanding Capita Income Value 2008 12,926,533 $ - $ 81,738,048 $ 1,081 $ 3.90% 0.95% 2009 15,380,835 $ - $ 79,188,615 $ 1,047 $ 3.71% 0.94% 2010 15,377,277 $ - $ 84,500,080 $ 1,115 $ 3.43% 1.02% 2011 13,343,849 $ - $ 81,971,701 $ 1,079 $ 3.25% 0.99% 2012 14,245,269 $ - $ 90,422,762 $ 1,186 $ 3.50% 1.08% 2013 13,258,968 $ - $ 97,619,394 $ 1,275 $ 3.69% 1.14% 2014 11,801,568 $ - $ 96,283,023 $ 1,222 $ 3.47% 1.02% 2015 12,838,188 $ - $ 95,151,544 $ 1,206 $ 3.36% 0.91% 2016 10,494,094 $ - $ 104,244,459 $ 1,298 $ 3.54% 0.93% 2017 9,950,711 $ - $ 111,374,056 $ 1,370 $ 3.67% 0.88% (1) Prior to 2008, water and sewer enterprise long-term debt activity was accounted for in the general fund. Source: Audited Financial Statements, U. S. Census, Division of Local Services Ratios of Outstanding Debt and General Bonded Debt Last Ten Years Governmental Activities Business-type Activities (1) Total Primary Government City of Somerville, Massachusetts 127 Comprehensive Annual Financial Report

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Equalized Valuation……………………… 9,612,275,100 $ 9,139,060,000 $ 9,139,060,000 $ 9,226,665,200 $ 9,226,665,200 $ 9,237,328,000 $ 9,237,328,000 $ 10,446,575,400 $ 12,444,120,100 $ 12,444,120,100 $ Debt Limit -5% of Equalized Valuation… 480,613,755 $ 456,953,000 $ 456,953,000 $ 461,333,260 $ 461,333,260 $ 461,866,400 $ 461,866,400 $ 522,328,770 $ 622,206,005 $ 622,206,005 $ Less: Outstanding debt applicable to limit… 74,634,995 73,888,615 83,900,079 81,671,701 90,422,762 97,619,394 96,283,023 95,151,544 104,244,459 111,374,056 Authorized and unissued debt………… 30,514,133 30,868,133 24,070,363 79,179,716 62,907,004 50,103,233 27,875,515 23,156,766 46,509,649 372,482,894 Legal debt margin………………………… 375,464,627 $ 352,196,252 $ 348,982,558 $ 300,481,843 $ 308,003,494 $ 314,143,773 $ 337,707,862 $ 404,020,460 $ 471,451,897 $ 138,349,055 $ Total debt applicable to the limit as a percentage of debt limit………… 21.88% 22.93% 23.63% 34.87% 33.24% 31.98% 26.88% 22.65% 24.23% 77.76% Source: Official Statement for Sale of Bonds Computation of Legal Debt Margin Last Ten Years City of Somerville, Massachusetts 128 Comprehensive Annual Financial Report

Estimated Estimated Share of Debt Percentage Overlapping City of Somerville, Massachusetts Outstanding Applicable Debt Debt repaid with property taxes MWRA Water………………………………………………………………$ 2,084,311,000 3.28% $ 68,365,401 MWRA Sewer…………………………………………………………… 3,690,804,000 3.41% 125,856,416 Massachusetts Bay Transportation Authority………………………… 5,656,191,000 3.12% 176,473,159 Subtotal, overlapping debt………………………………………………………………………….…………………… 370,694,976 City direct debt…………………………………………………………………………………………………………… 101,423,345 Total direct and overlapping debt……………………………………………………………………………………… $ 472,118,321 Source: City of Somerville, Auditing Department and related organizations. Direct and Overlapping Governmental Activities Debt As of June 30, 2017 Note: Overlapping governments are those that coincide, at least in part, with geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the taxpayers of City. This process recognizes that, when considering the government's ability to issue and repay long-term debt, the entire debt burden borne by the property taxpayers should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government. City of Somerville, Massachusetts 129 Comprehensive Annual Financial Report

Per Capita Population Personal Personal Median Unemployment Year Estimates Income Income Age Rate 2008 75,620 2,093,461,649 $ 27,684 $ 31.1 3.8% 2009 75,656 2,136,347,437 $ 28,238 $ 31.1 6.3% 2010 75,754 2,463,292,818 $ 32,517 $ 31.4 6.4% 2011 75,965 2,519,556,983 $ 33,167 $ 31.4 5.2% 2012 76,267 2,580,164,990 $ 33,831 $ 31.4 4.9% 2013 76,589 2,642,879,641 $ 34,507 $ 31.4 5.2% 2014 78,804 2,773,699,578 $ 35,197 $ 31.3 3.7% 2015 78,901 2,832,656,005 $ 35,901 $ 31.3 3.3% 2016 80,318 2,941,198,848 $ 36,619 $ 31.3 2.4% 2017 81,322 3,037,524,044 $ 37,352 $ 31.3 3.3% Source: U. S. Census, Division of Local Services, Executive Office of Labor and Workforce Development Median age is based on most recent census data. Demographic and Economic Statistics Last Ten Years City of Somerville, Massachusetts 130 Comprehensive Annual Financial Report

Nature Percentage of Percentage of of Total City Total City Employer Business Employees Rank Employment Employees Rank Employment Partners Healthcare Health Care 3,900 1 14.1% - - - ABM Industries Janitorial Services 2,000 2 7.2% - - - Cambridge Health Alliance Health Care 1,014 3 3.7% 771 1 3.5% Angelica Corporation Laundry 412 4 1.5% 546 2 2.5% J&S Electric Company Building Equipment 525 5 1.9% - - - Market Basket Grocery Store 372 6 1.3% 275 5 1.3% Rogers Foam Corporation Foam Products 400 7 1.4% - - - Super Stop & Shop Grocery Store 300 8 1.1% - - - FormLabs Scientific Research 300 9 1.1% - - - Royal Hospital Services Incorporated Office Supplies 260 10 0.9% - - - Ames Safety Envelope Envelopes & Printing - - - 400 3 1.8% Star Market / Shaw's Supermarkets Grocery - - - 400 4 1.8% MBTA Railroad Maintenance - - - 275 6 1.3% Gentle Giant Local Trucking - - - 250 7 1.1% Target Retail - - - 200 8 0.9% Share Group Non-Profit Telemarketing - - - 196 9 0.9% United Parcel Service Package Delivery Service - - - 180 10 0.8% Totals 9,483 34.2% 3,493 16.0% Source: Massachusetts Department of Workforce Development Principal Employers (Excluding City) Current Year and Nine Years Ago 2017 2008 City of Somerville, Massachusetts 131 Comprehensive Annual Financial Report

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Full-Time Equivalents City…………………………………………… 721 712 708 670 675 696 714 729 736 755 School………………………………………… 847 853 823 843 845 892 908 923 929 937 Total ………………………………………… 1,568 1,564 1,531 1,513 1,520 1,587 1,622 1,652 1,665 1,692 Source: Finance Committee Report Full-Time Equivalent City Employees Last Ten Years City of Somerville, Massachusetts 132 Comprehensive Annual Financial Report

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General Government: Registered Voters……………………………… 44,483 42,759 42,937 43,633 45,987 47,484 47,454 45,655 51,319 51,362 Births…………………………………………… 827 885 873 922 962 957 974 863 838 639** Marriages………………………………………… 595 602 586 553 503 591 548 513 590 511** Deaths…………………………………………… 410 393 459 441 420 410 517 589 561 454** Dogs licensed…………………………………… 981 1,120 1,289 1,595 1,967 1,790 2,127 1,780 2,053 1,812** Business Certificates…………………………… 451 471 466 445 451 425 483 318 307 218** Fire: Total Fires……………………………………… 239 134 98 156 279 476 377 431 429 412* Structure Fires………………………………… 75 59 42 44 60 107 56 258 321 212* Vehicle Fires………………………………… 19 17 16 16 15 24 14 24 14 17* Other Fires…………………………………… 145 58 40 96 204 345 307 149 94 183* Civilian Deaths………………………………………… 0 0 0 3 1 0 0 0 0 0* Injuries………………………………………… 2 1 24 41 22 5 1 0 8 3* Fire Service Deaths………………………………………… 0 0 0 0 0 0 0 0 0 0* Injuries………………………………………… 112 84 76 81 44 71 38 17 29 28* Dollar Loss……………………………………… 2,981,170 $ 2,211,115 $ 2,258,000 $ 3,019,600 $ 2,438,000 $ 5,850,000 $ 1,559,364 $ 663,875 $ 3,601,500 $ $1,941,579* Police: Violent crime total……………………………… 283 282 226 259 258 178 206 183 198 137** Murder and nonnegligent manslaughter…… 2 3 0 1 0 0 1 0 0 2** Forcible rape………………………………… 20 7 14 17 22 17 10 8 15 7** Robbery……………………………………… 112 104 77 90 84 51 58 40 48 35** Aggravated assault…………………………… 149 168 135 151 152 110 137 135 135 93** Property crime total…………………………… 2,336 1,970 2,028 1,760 1,752 1,552 1,253 1,695 1,239 817** Burglary……………………………………… 453 493 514 416 349 430 192 305 207 124** Larceny-theft………………………………… 1,633 1,314 1,336 1,193 1,270 1,021 949 1,257 931 628** Motor vehicle theft…………………………… 250 163 178 151 133 101 112 133 101 65** Traffic and Parking: Tickets Issued…………………………………… 207,915 189,878 158,995 152,381 149,844 144,919 128,449 140,974 137,973 94,057** Inspectional: Building Permit Count………………………… 1,718 1,507 1,736 1,627 1,682 1,775 1,775* 2,166 2,034 1,744** Education: Total enrollment………………………………… 4,890 4,877 4,842 4,855 4,877 4,922 4,940 4,987 4,931 4,950 Library:+ Total Circulation………………………………… 425,743 499,205 501,095 466,304 448,579 415,666 411,566 387,222 396,812 396,812* Total Holdings…………………………………… 185,847 185,611 183,791 185,930 192,229 194,451 200,522 205,045 211,941 211,941* Registered users……………………………… 27,447 27,939 27,663 27,826 27,934 28,017 29,611 29,351 33,500 34,395 NA - Information not available + Denotes fiscal year reporting schedule, * Denotes estimates based on prior year data, ** Denotes year-to-date Source: Elections Dept, City Clerk, Fire Dept, Police Dept, T&P Dept, ISD, Mass DoE, MBoLC Operating Indicators by Function/Program Last Ten Years City of Somerville, Massachusetts 133 Comprehensive Annual Financial Report

Function 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Fire: Fire stations………………………… 5 5 5 5 5 5 5 5 5 5 Emergency vehicles………………… 8 8 8 8 8 8 8 8 8 8 Police: Stations……………………………… 3 3 3 2 2 3 3 3 3 3 Public works: Streets (miles)……………………… 105.64 106.15 106.17 106.17 106.17 108.97 115.11 119.7 119.7 119.7 Electric: Streetlights………………………… 3,986 4,006 4,006 4,006 4,032 4,032 4,032 4,056 4,056 4,056 Sewer: Sanitary sewers (miles)…………… 68 68 68 68 68 68 68 68 68 68 Storm sewers (miles)……………… 35 35 35 35 35 35 35 35 35 35 Library: Main library………………………… 1 1 1 1 1 1 1 1 1 1 Number of branches……………… 2 2 2 2 2 2 2 2 2 2 Parks and recreation: City Parks Number of Parks…………………… 40 41 41 41 43 43 43 43 69 69 Acreage……………………………… 48.18 49.27 49.27 49.27 51.35 51.35 51.35 51.35 58.3 58.3 DCR Parks in Somerville Number of Parks…………………… 6 6 6 6 6 6 6 6 8 8 Acreage……………………………… 77.5 77.5 77.5 77.5 77.5 77.5 77.5 77.5 81.3 81.3 Other Open and Public Space Number of Spaces………………… 28 28 28 28 28 28 28 28 10 11 Acreage……………………………… 50.34 50.34 50.34 50.34 50.34 50.34 50.34 50.34 19.3 25 Water: Water mains (miles)………………… 125 125 125 125 125 125 125 125 125 125 Fire hydrants………………………… 1,508 1,508 1,523 1,523 1,523 1,523 1,550 1,555 1,555 1,555 Education: Elementary schools………………… 10 9 9 9 9 10 10 10 10 10 High school………………………… 1 1 1 1 1 1 1 1 1 1 NA - Information not available Source: Various City Departments Last Ten Years Capital Asset Statistics by Function/Program City of Somerville, Massachusetts 134 Comprehensive Annual Financial Report