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Home My WebLink About2015 Management Report CITY OF OAK PARK HEIGHTS, MINNESOTA AUDIT MANAGEMENT LETTER December 31, 2015 To the Honorable Mayor and Members of the City Council City of Oak Park Heights, Minnesota We have completed the 2015 audit of the City of Oak Park Heights, Minnesota and have issued our report thereon. Our Independent Auditor’s Report is included in the City’s Annual Financial Report. This Management Letter provides a summary of audit results along with comparisons and trend analysis of financial results. Thank you for the opportunity to serve the City. We are available to discuss this report with you. REDPATH AND COMPANY, LTD. St. Paul, Minnesota April 19, 2016 City of Oak Park Heights, Minnesota Audit Management Letter Report Summary Report Summary Several reports are issued in conjunction with the audit. A brief summary is as follows: Report Name Elements of Report Overview Annual Financial Report (AFR) Financial statements Unmodified (“clean”) opinion on the Financial Footnotes Statements Required supplementary information Statistical information Report on Internal Control and on Results of testing No findings of Compliance and Other Matters Internal controls over financial noncompliance reporting Internal control finding Compliance with laws, resulting in a prior period regulations, contracts and adjustment. grants State Legal Compliance Report Results of testing certain No findings of provisions of Minnesota noncompliance Statutes Audit Management LetterIntended to be a working tool for City Council Comparisons and trend analysis Outside factors influencing City financial reporting Policies and procedures 2 City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts A NALYSIS OF S ELECTED A CCOUNTS Summary of Financial Activity The schedule below presents a condensed financial summary of all funds: Increase (Decrease) inFund Balance/ Revenue ExpendituresFund Balance/Net and Otherand OtherTransfersNetPosition FundSourcesUses(Net)Position12/31/15 1General$5,732,281$3,474,680($1,527,875)$729,726$4,632,533 Special Revenue Funds: 2Forfeiture and Seizure2,7549,9623,000(4,208)9,096 3Economic Development1,233 - - 1,23333,252 4TIF District #1184,590148,109 - 36,48186,341 5TIF District #21,01329,790 - (28,777)(406,043) Debt Service Funds: 6Bonds of 2008921430,417430,00050495,999 7Bonds of 2009327140,858140,000(531)19,741 8G.O. CIP Refunding Bonds of 2012A29,799104,758 - (74,959)4,941,725 9Bonds of 2014742,248250,100411,314903,4621,164,719 Capital Project Funds: 10Capital Revolving9,64879,199 - (69,551)26,189 11Budgeted Projects and Equipment Revolving19,848152,565593,842461,1252,422,997 12Street Reconstruction145,6263,947,41193,386(3,708,399)1,682,041 13City Hall Improvements7015,814 - (5,113)92,799 14Park Development4,7913,000 - 1,791661,464 15Moelter Park5,30220,186(97,100)(111,984)396,237 16Renewal and Replacement22,21426,058179,929176,0853,204,223 17Storm Sewer Renewal/Replacement973 - 263,800264,773440,719 18Sanitary Sewer Connection 33,821 - - 33,821454,428 19Water Connection163,163 - - 163,163612,759 20Storm Sewer Connection31,951 - - 31,951999,175 21Water Tower Rehabilitation49,0317340,47989,437368,605 22Well Rehabilitation94914,7369,006(4,781)127,719 23Sewer Rehabilitation367 - 1,9382,30553,177 Enterprise Funds: 24Water1,976,983491,730(363,544)1,121,7096,522,729 25Sanitary Sewer1,250,559744,554(174,442)331,5633,294,614 26Storm Sewer84,41359,951(3,733)20,729177,004 27 Total$10,495,506$10,133,951$0$361,555$32,114,242 3 City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts Property Taxes A summary of property tax activity for the past five years is as follows: 20112012201320142015 Tax levy certified$3,964,704$4,228,062$4,538,193$4,784,896$5,022,731 Plus excess tax increment - 1,86211,23819,06322,148 Less market value homestead credit deduction(93,934) - - - - Net levy3,870,7704,229,9244,549,4314,803,9595,044,879 Receipts: Current property taxes3,819,2204,176,1254,515,2024,730,3425,029,814 Delinquent property taxes92,2695,82033,252(176,758)(6,734) Total receipts3,911,4894,181,9454,548,4544,553,5845,023,080 Adjustments(9,361)(30,356) - ($289,042)($21,976) Increase (decrease) in delinquent taxes receivable(50,080)17,623977(38,667)(177) Delinquent taxes - January 1132,81482,734100,357101,33462,667 Delinquent taxes - December 31$82,734$100,357$101,334$62,667$62,490 Current collection as a percent of current levy98.7%98.7%99.2%98.5%99.7% Total collections as a percent of current levy101.1%98.9%100.0%94.8%99.6% The City has experienced property tax abatements for the past two years. These abatements reduced property revenue as follows: 20152014 Current and delinquent tax collections$5,053,681$4,836,243 Payment in lieu of tax73,25173,245 Non-levy collections - 75 Reduction for property tax abatements(21,976)(289,042) Total property tax revenue reported in the financial statements$5,104,956$4,620,521 4 City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts Tax Levies, Tax Rates and Tax Capacity A comparison of values for taxes payable in 2012 through 2016 is as follows: 20122013201420152016 Taxable market value$643,608,300$663,496,300$640,880,000$689,680,000$710,998,000 Tax capacity values: Real estate$10,095,639$10,257,139$10,165,672$10,715,786$10,998,502 Personal property90,84095,16895,59089,89693,894 Subtotal10,186,47910,352,30710,261,26210,805,68211,092,396 Tax increment - (108,254)(126,677)(185,870)(187,904) Fiscal disparity contribution(2,336,411)(2,346,765)(2,467,230)(2,214,196)(2,292,994) Fiscal disparity distribution405,806392,002386,218415,839388,319 Total$8,255,874$8,289,290$8,053,573$8,821,455$8,999,817 Tax capacity rates51.710 54.898 59.400 56.803 57.725 Tax levy$4,228,062$4,538,193$4,784,896$5,022,731$5,191,593 5 City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts A schedule of tax capacity by classification is as follows: CITY OF OAK PARK HEIGHTS 20142015 Percent ofPercent of AmountCity TotalAmountCity Total Real estate: Agricultural$1,0690.0% $1,1720.0% Seasonal1,2350.0% 1,5200.0% Residential homestead1,660,30216.2% 1,954,15418.1% Residential nonhomestead1,173,27811.4% 1,324,77512.2% Commercial/industrial3,418,90233.3% 3,280,23230.4% Public utility3,904,92038.1% 4,148,06338.4% Railroad5,9660.1% 5,8700.1% Total real estate10,165,67299.1% 10,715,78699.2% Personal property95,5900.9% 89,8960.8% Total tax capacity$10,261,262100.0% $10,805,682100.0% As shown above, the City’s major tax payer (Xcel Energy) is 38.40% of total tax capacity. Tax Capacity by Property Class -2015 Personal Property 0.8% Public Utility 38.4% Residential Homestead 18.1% Residential Nonhomestead 12.2% Commercial/Industrial 30.5% 6 City of Oak Park Heights, Minnesota Audit Management Letter General Fund G ENERAL F UND The General Fund of the City is maintained to account for expenditures common to all cities (general government, public safety, public works, and parks and recreation). A ten- year history of major revenue sources that support the General Fund are as follows: (1) Property TaxesState AidsAll OtherTotal Revenue YearAmountPercentAmountPercentAmountPercentAmountPercent 2006$2,423,24677%$92,3703%$633,05720%$3,148,673100% 20072,687,730 79%181,233 5%547,531 16%3,416,494 100% 20083,156,807 82%120,701 3%592,538 15%3,870,046 100% 20093,134,378 82%249,822 7%439,143 11%3,823,343 100% 20103,305,004 79%180,174 4%673,969 17%4,159,147 100% 20113,583,487 87%75,860 2%468,768 11%4,128,115 100% 20124,245,360 90%69,677 1%423,580 9%4,738,617 100% 20134,433,202 90%86,775 2%388,469 8%4,908,446 100% 20144,620,521 89%79,354 2%481,640 9%5,181,515 100% 20155,104,956 89%135,133 2%492,192 9%5,732,281 100% (1) Since 2010, the General Fund has levied property taxes which have been transferred out to Debt Service Funds. Those levies were $608,000 $559,000, and $548,000 for the years ended December 31, 2015, 2014, and 2013, respectively. Major Revenue Sources -2015 State Aids 2% All Other 9% Property Taxes 89% 7 City of Oak Park Heights, Minnesota Audit Management Letter General Fund A graph of property taxes, state aids, and other revenue for the General Fund is as follows: $5,200,000 $5,000,000 $4,800,000 General Fund $4,600,000 Revenue by Source $4,400,000 $4,200,000 $4,000,000 $3,800,000 State Aids $3,600,000 All Other $3,400,000 $3,200,000 Property Taxes $3,000,000 Property Taxes without Debt $2,800,000 Levy $2,600,000 $2,400,000 $2,200,000 $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $ - 2006200720082009201020112012201320142015 State Aids State aids of the General Fund have consisted of the following for the past seven years: State Aid2009201020112012201320142015 Market value homestead credit$ - $ - $ - $ - $ - $ - $ - LGA - - - - - - - Police aid69,39258,93063,27861,24270,03176,83978,435 Utility valuation transition aid178,390102,947 - - - - - Small cities grant - - - - - - 54,188 Other state revenue2,04018,29712,5828,43516,7442,5152,510 Totals$249,822$180,174$75,860$69,677$86,775$79,354$135,133 Change($69,648)($104,314)($6,183)$17,098($7,421)$55,779 % Change(28%)(58%)(8%)25% (9%)70% 8 City of Oak Park Heights, Minnesota Audit Management Letter General Fund Other General Fund Revenue Other revenue of the General Fund has consisted of the following for the past seven years: Description2009201020112012201320142015 Licenses and permits$100,074$197,181$131,081$163,986$90,910$137,543$125,704 Charges for services: (1) Enterprise64,40066,42069,4253,8304,1804,2484,242 Other9,89077,38618,12713,698300,22380,618144,399 Fines and forfeits70,10258,36557,86255,02351,36056,53764,515 (2) Earnings on investments 55,43950,67541,37836,791(23,982)73,41218,621 (3) Other139,238223,942150,895140,940135,864105,353112,930 Total$439,143$673,969$468,768$414,268$558,555$457,711$470,411 (1) Beginning in 2012, an administrative fee is charged only to the Storm Sewer Fund. As a result, the transfers from Water and Sewer to the Renewal and Replacement Fund were increased $64,047. Transfers were made in 2014 that were similar to 2013 and 2012. (2) Earnings on investments is negative in 2013 due to a market value adjustment. Although the City holds its investments to maturity and will receive par value at maturity, accounting standards require the City to report its investments at market value at year-end. The change in market value for 2013 resulted in an adjustment of $185,738. (3) The significant increase in other charges for services from 2012 to 2013 occurred because the City received a $207,600 closing fee when Presbyterian Homes refinanced their conduit debt agreement 9 City of Oak Park Heights, Minnesota Audit Management Letter General Fund Budget Versus Actual Comparison The General Fund balance increased by $729,000. Charges for services revenue exceeding budget resulted in higher than anticipated revenue. Expenditures in most City departments were also less than budgeted. A summary is as follows: 2015 Favorable (Unfavorable) BudgetActualVariance Revenue: General property taxes: Current and delinquent$5,022,731$5,053,681$30,950 Abatement of proptery taxes- (21,976) (21,976) Payment in lieu of taxes70,00073,2513,251 Total general property taxes5,092,7315,104,95612,225 Intergovernmental83,040156,90973,869 Licenses and permits51,830125,70473,874 Charges for services54,398148,64194,243 Fines and forfeits45,00064,51519,515 Earnings on investments - 18,62118,621 Refunds and reimbursements75,000108,38533,385 Donations and contributions - 4,5504,550 Other - - - Total revenue5,401,9995,732,281330,282 10 City of Oak Park Heights, Minnesota Audit Management Letter General Fund 2015 Favorable (Unfavorable) BudgetActualVariance Expenditures: General government: Mayor and council$103,055$89,489$13,566 City administration281,735278,9682,767 Legal 30,00044,881(14,881) General management and building 176,260142,85833,402 Elections 1,3001,456(156) Finance 277,308180,33696,972 Computer system 44,10036,7267,374 Audit 29,50030,555(1,055) Insurance 380,192354,93925,253 Assessing 23,50022,716784 Planning and zoning 32,00035,035(3,035) Engineering 27,85024,3103,540 General contingency 16,8838,2298,654 Total general government1,423,6831,250,498173,185 Public safety: Police department 1,322,5761,282,76839,808 Building inspections 107,28498,5768,708 Fire protection 230,238227,1473,091 Civil defense3,6009752,625 Animal control 1,6501,365285 Capital outlay - - - Total public safety1,665,3481,610,83154,517 Public works: Street maintenance 81,37564,56716,808 Snow removal 202,00079,726122,274 Sanitation203,650199,7713,879 Street lighting 76,00066,9359,065 Arborist 18,90012,5356,365 Tree removal and planting 35,00035,473(473) Total public works616,925459,007157,918 Recreation: Parks, playgrounds and rinks 171,168154,34416,824 Total expenditures3,877,1243,474,680402,444 Revenue over expenditures1,524,8752,257,601732,726 Other financing sources (uses): Sale of property - - - Transfers to Debt Service Fund - - - Transfers to Capital Project Fund(608,000)(608,000) - Transfers to Enterprise Fund(916,875)(916,875) - Transfers to Nonmajor Governmental Fund - (3,000)(3,000) Total other financing sources (uses)(1,524,875)(1,527,875)(3,000) Net increase (decrease) in fund balance$0$729,726$729,726 11 City of Oak Park Heights, Minnesota Audit Management Letter General Fund Transfers to other funds for 2015 included the following amounts: Fund20152014 Street Reconstruction353,600$ 343,295$ Storm Sewer Renewal/Replacement84,00081,628 Debt Service - 2008 Bonds430,000420,000 Debt Service - 2009 Bonds140,000139,000 Debt Service - 2014 Bonds38,000 - Budgeted Projects Fund479,275359,950 Forfeiture and Seizure Fund3,000 - $1,527,875$1,343,873 12 City of Oak Park Heights, Minnesota Audit Management Letter General Fund General Fund Reserves The fund balance of the General Fund increased in 2015. The schedule below reflects the General Fund balance for the past five years: Year EndedFundIncrease December 31,Balance(Decrease) 2011$3,261,561$287,764 20123,669,633408,072 20133,514,371(155,262) 20143,902,807388,436 20154,632,533729,726 $5,000,000 $4,500,000 $4,000,000 $3,500,000 Actual Fund Balance $3,000,000 Minimum Fund Balance per policy $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 20112012201320142015 13 City of Oak Park Heights, Minnesota Audit Management Letter General Fund Reserve balances are an important component of City financial management. When evaluating the adequacy of reserve balances, there are a number of important factors that must be considered. Several areas to consider are illustrated as follows: Need for Reserve Balances Benefits of Reserve Balances Cash Flow Timing Favorable bond rating Supplements revenues Difference indicatorwith investment income Intergovernmental Capital Outlay Revenue Cutbacks Replacement Avoids temporary Provides resources for overdrafts prior to major minor projects or receipts feasibility reports Avoids overburdening Provides the City of annual budgets for greater options to deal Emergency or certain capital outlay Specialwith unexpected events Unanticipated Projects Expenditures 14 City of Oak Park Heights, Minnesota Audit Management Letter General Fund The City’s current fund balance policy was adopted on November 15, 2011. The purpose of the policy is to establish appropriate fund balance levels for each fund that is primarily supported by property tax revenues or user fees. The City’s fund balance policy states the City will maintain funds for the following: Compensated absences Cash flow Contingencies The compensated absences reserve is an amount equal to 50% of accumulated vacation leave and 100% of that portion of sick leave that would be payable under the City’s severance pay policy. Assigned Fund Balance For Employee Benefits December 31, Employee Benefit20142015 Vacation leave carryover (50%)$48,174$49,753 Severance110,423115,366 Total$158,597$165,119 Rounded amount$165,000 15 City of Oak Park Heights, Minnesota Audit Management Letter General Fund Cash Flow Reserve Property taxes and related state aids have accounted for 80% to 85% of the revenue of the General Fund in recent years. Property taxes and the majority of state aid are not received until July and December of each year (i.e., the second half of the year). As a result, the City is required to have sufficient reserves at the beginning of the year to fund operations of the first half of the year. The City’s fund balance policy states that its cash flow reserve should be equal to 45-55% of the subsequent year’s budgeted operating expenditures. The recommended cash flow reserve is $2,370,000, computed as follows: Cash Flow Reserve 2016 tax levy $5,191,593 Less transfers out which occur after taxes are received(450,700) $4,740,893 Reserve amount @ 50%$2,370,000 16 City of Oak Park Heights, Minnesota Audit Management Letter General Fund The following graph of monthly General Fund cash balances illustrates the impact of receiving property taxes and state aids in the second half of the year: $4,400,000 General Fund Monthly Cash Balances $4,200,000 $4,000,000 $3,800,000 $3,600,000 $3,400,000 $3,200,000 $3,000,000 $2,800,000 $1,739,000 $2,600,000 decrease $2,400,000 $2,200,000 $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 12/31/20141/31/20152/28/20153/31/20154/30/20155/31/20156/30/20157/31/20158/31/20159/30/201510/31/201511/30/201512/31/2015 Cash $3,455,566$3,172,642$2,992,216$2,746,014$2,502,177$2,234,807$1,716,876$3,509,560$3,254,814$2,965,926$2,854,094$2,713,308$4,194,065 As shown above, the cash balance decreased $1,739,000 between January 1 and June 30, illustrating the need for the cash flow reserve. 17 City of Oak Park Heights, Minnesota Audit Management Letter General Fund General Contingency Reserve The amount of General Fund reserve required to meet emergency and/or unanticipated expenditures is not readily quantifiable. Rather, the level of this requirement must be established by the City based on the history of the City and the philosophy of "adequate" reserve coverage. The City’s fund balance policy states this amount should be 10-15% of the subsequent year’s General Fund budgeted expenditures, computed as follows: General Contingency Reserve December 31, Description20142015 Ensuing year's budget$5,401,999$5,648,560 Reserve amount @ 15%$810,000$847,000 18 City of Oak Park Heights, Minnesota Audit Management Letter General Fund General Fund Balance Summary In summary, the fund balance of the General Fund at December 31, 2015, was as follows: General Fund Balance Constraint December 31, 20142015 Nonspendable: Prepaid items$80,806$57,602 Restricted: Small Cities Grant - 54,188 Assigned for: Employee benefits159,000165,000 Unassigned: Cash flow reserve2,293,0002,370,000 General contingency reserve810,000847,000 Snow Plow reserve - 122,272 Remaining balance560,0011,016,471 Subtotal - unassigned3,663,0014,355,743 Total fund balance$3,902,807$4,632,533 19 City of Oak Park Heights, Minnesota Audit Management Letter Special Revenue Funds S PECIAL R EVENUE F UNDS Special Revenue Funds are a classification of funds to account for revenues (and expenditures related thereto) segregated by City policy, Federal or State statutes for specific purposes. The City maintained three Special Revenue Funds during 2015. Forfeiture and Seizure Fund This fund was established in 1991 to account for property forfeited pursuant to MS 609.531. A summary of the financial activity of this fund from inception is as follows: Prior Years2015Total Revenue: Intergovernmental $9,825$ - $9,825 Earnings on investments16,3669916,465 Reimbursements8,601 - 8,601 Confiscated property179,5382,655182,193 Sale of municipal property5,046 - 5,046 Transfer from General Fund - 3,0003,000 Total revenue$219,376$5,754$225,130 Expenditures: Public safety: Materials and supplies$76,604$9,316$85,920 Contractual services28,35264628,998 Capital outlay101,116 - 101,116 Total expenditures$206,072$9,962216,034 Fund balance - December 31, 2015$9,096 The use of these funds is restricted by MS 609.531 subd. 5 to "supplement the agency's operating fund or similar fund for use in law enforcement." 20 City of Oak Park Heights, Minnesota Audit Management Letter Special Revenue Funds Economic Development Fund This fund was established in 1998 to account for the activity of the Oak Park Heights Economic Development Authority. A summary of the financial activity of this fund is as follows: Prior Years2015Total Revenue: Earnings on investments$35,989$232$36,221 Interfund loan interest1,113 - 1,113 Refunds and reimbursements2,5311,0013,532 Sale of municipal property76 - 76 Transfer from Capital Revolving Fund410,000 - 410,000 Total revenue$449,709$1,233450,942 Expenditures: Community development: Materials and supplies$645$ - 645 Contractual services45,914 - 45,914 Interfund loan interest70,000 - 70,000 Capital outlay290,018 - 290,018 Transfer to Capital Revolving Fund11,113 - 11,113 Total expenditures$417,690$0417,690 Fund balance - December 31, 2015$33,252 During 1998, the City purchased the Bell property and demolished the building in 1999. In prior years, this fund had a deficit that was funded by a $260,000 interfund loan from the Capital Revolving Fund. This fund did not have the resources to repay the interfund loan. Therefore, the interfund loan was forgiven. If a sale of the Bell property occurs, the proceeds should be receipted in the Capital Revolving Fund. During 2010, the City purchased property on Osgood Avenue, with the intent to resell the property. The purchase was funded by a $150,000 transfer from the Capital Revolving Fund. 21 City of Oak Park Heights, Minnesota Audit Management Letter Special Revenue Funds This was not a loan from the Capital Revolving Fund, but the intent is to transfer back sales proceeds to the Capital Revolving Fund once the property is sold. TIF District #1 Fund This fund was established in 2012 to account for Tax Increment District 1-1 (Oakgreen Commons). A summary of the financial activity of this fund from inception is as follows: Prior Years2015Total Revenue: Tax increment$258,627$184,251$442,878 Investment income289339628 Transfer in from TIF #25,049 - 5,049 Total revenue$263,965$184,590448,555 Expenditures: General government: TIF note payment$212,770$148,109360,879 Other 1,335 - 1,335 Total expenditures$214,105$148,109362,214 Fund balance - December 31, 2015$86,341 The City issued a TIF Note in the principal sum of $1,200,000. The TIF Note is payable solely from “available” tax increment revenue. Available tax increment revenue is an amount equal to 80% of tax increment revenue received by the City. The City has no obligation on the note after February 21, 2026. 22 City of Oak Park Heights, Minnesota Audit Management Letter Special Revenue Funds TIF District #2 Fund This fund was established in 2014. A summary of the financial activity is as follows: Prior Years2015Total Revenue: Investment income$12$13$25 Refunds and reimbursements - 1,0001,000 Total revenue$12$1,0131,025 Expenditures: Land purchase$341,710$ - 341,710 Other 30,51929,79060,309 Transfer to TIF #15,049 - 5,049 Total expenditures$377,278$29,790407,068 Fund balance - December 31, 2015($406,043) The fund deficit was financed by an internal loan from the General Fund. 23 City of Oak Park Heights, Minnesota Audit Management Letter Debt Service Funds D EBT S ERVICE F UNDS Debt Service Funds are a type of governmental fund to account for the accumulation of resources for the payment of interest and principal on debt (other than Enterprise Fund debt). The City maintained three Debt Service Funds during 2015. 24 City of Oak Park Heights, Minnesota Audit Management Letter Debt Service Funds Capital Improvement Bonds of 2008/2012A The bond was issued to finance construction of City Hall. The repayment of the bond issue is being funded by property tax levies. Taxes for 2009-2011 were levied in the Debt Service Fund. A $410,000 property tax was levied in the General Fund for 2013 and was transferred into the Debt Service Fund. In 2012, the Crossover Refunding Bonds of 2012A were issued to refund the 2008 Bonds on December 15, 2016. The refunding resulted in a debt service savings of $404,000. A schedule of actual and projected tax levies (per the bond resolution) and debt payments are as follows: Cash and CurrentTotalCash and Current Assets BalancePropertyBondInvestmentProjectedDebtAssets Balance YearJanuary 1TaxesProceedsInterestReceiptsPaymentsDecember 31 2008$ - $ - $242,303$7,457$249,760$122,513$127,247 2009127,247336,292 - 3,250339,542380,02586,764 201086,764392,805 - 1,656394,461391,65089,575 201189,575400,902 - 1,556402,458392,52599,508 201299,508400,0005,191,2835,1975,596,480403,0305,292,958 20135,292,958410,000 - (7,988)402,012521,6775,173,293 20145,173,293420,000 - 45,662465,662526,7765,112,179 20155,112,179430,000 - 30,720460,720535,1755,037,724 20165,037,724440,000 - 23,097463,0975,402,75898,063 201798,063410,000 - 701410,701409,75899,006 201899,006420,000 - 722420,722418,658101,070 2019101,070430,000 - 747430,747432,25899,559 202099,559440,000 - 762440,762445,45894,863 202194,863460,000 - 761460,761458,25897,366 202297,366475,000 - 790475,790470,658102,498 2023102,498490,000 - 841490,841492,658100,681 2024100,681505,000 - 860505,860509,05897,483 202597,483520,000 - 880520,880539,95878,405 202678,405535,000 - 815535,815560,05854,162 202754,162550,000 - 714550,714569,29435,582 202835,582575,000 - 659575,659597,57613,665 Total$9,039,999$5,433,586$119,859$14,593,444$14,579,779 Assumptions Property tax collection rate.....................................100% Investment interest rate...........................................0.50% Negative interest charged to funds?.....................no 25 City of Oak Park Heights, Minnesota Audit Management Letter Debt Service Funds Capital Improvement Bonds of 2009 The bond was issued as additional financing for construction of City Hall. The repayment of the bond is being funded by property tax levies. Taxes are levied in the General Fund and then transferred into the Debt Service Fund. A schedule of actual and projected tax levies (per the bond resolution) and debt payments are as follows: Cash and CurrentTransfers/TotalCash and Current Assets BalancePropertyBondInvestmentProjectedDebtAssets Balance YearJanuary 1TaxesProceedsInterestReceiptsPaymentsDecember 31 2009$ - $ - $21,582$1,357$22,939$7,588$15,351 201015,351122,000 - 720122,720130,3507,721 20117,721134,000 - 492134,492129,15013,063 201213,063136,000 - 460136,460132,65016,873 201316,873138,000 - 133138,133135,76019,246 201419,246139,000 - 586139,586138,56020,272 201520,272140,000 - 327140,327140,85819,741 201619,741142,000 - 389142,389142,67819,452 201719,452143,000 - 397143,397144,11418,735 201818,735144,000 - 397144,397150,08413,048 201913,048145,000 - 350145,350155,3263,072 Total$1,383,000$21,582$5,608$1,410,190$1,407,118 Assumptions Property tax collection rate................................100% Investment interest rate....................................1.00% Negative interest charged to funds?..................no 26 City of Oak Park Heights, Minnesota Audit Management Letter Debt Service Funds Capital Improvement Bonds of 2014A The bond was issued as financing for the 2015 street reconstruction project. The repayment of the bond is being funded by property tax levies and special assessments. Taxes are levied in the General Fund and then transferred into the Debt Service Fund. Assessments are levied in the Debt Service Fund. The data provided by the City’s fiscal advisor regarding the proposed manner of repayment for the Bonds from special assessments contained miscalculations which will lead to a shortage in the funding necessary to pay the bonds. A settlement was reached to which the City’s fiscal advisor paid the City $180,000 to cover a portion of that deficit. A schedule of actual and projected tax and assessment levies (per the bond resolution) and debt payments are as follows: City of Oak Park Heights, Minnesota Projection of Cashflow Capital Improvement Bonds of 2014A Bond Cash and CurrentTransfers/ProceedsTotalCash and Current Assets BalancePropertySpecialand OtherInvestmentProjectedDebtAssets Balance YearJanuary 1TaxesAssessmentsReceiptsInterestReceiptsPaymentsDecember 31 2014$ - $ - $218,041$87,054$2,021$307,116$45,859$261,257 2015261,257411,314381,071359,0122,1651,153,562250,1001,164,719 20161,164,719139,000135,145 - 492274,637481,800957,556 2017957,556141,000118,419 - 460259,879473,800743,635 2018743,635142,000114,424 - 133256,557465,800534,392 2019534,392144,000110,430 - 586255,016432,800356,608 2020356,608145,000106,436 - 327251,763425,300183,071 2021183,071147,000102,442 - 327249,769392,80040,040 202240,040149,00098,448 - 608248,056385,800(97,704) 2023(97,704)150,00094,453 - - 244,453353,800(207,051) 2024(207,051)152,00090,459 - - 242,459344,050(308,642) 2025(308,642)153,00037,760 - - 190,760319,300(437,182) Total$1,873,314$1,607,528$446,066$7,119$3,934,027$4,371,209 Assumptions Special assessment collection rate....................100% Property tax collection rate................................100% Investment interest rate....................................1.00% Negative interest charged to funds?..................no 27 City of Oak Park Heights, Minnesota Audit Management Letter Capital Project Funds C APITAL P ROJECT F UNDS A summary of the financial activity of the Capital Project Funds for the year ended December 31, 2015 is as follows: 28 City of Oak Park Heights, Minnesota Audit Management Letter Capital Project Funds Budgeted Projects and Equipment Revolving Fund The Budgeted Projects and Equipment Revolving Fund (formerly Capital Improvements Fund) was established in 1978 to account for monies set aside for various capital improvements. This fund is budgeted annually by the City Council in conjunction with the City's budget process. As part of such process, the City allocates the monies in this fund to specific projects and/or programs. Such allocation/designations were as follows at December 31, 2015: FundRevenuesFund BalanceandBalance Purpose12/31/14TransfersExpenditures12/31/15 1Sealcoat/crack seal$181,602$ - $79,109$102,493 2Mill and overlay - 100,000 - 100,000 3Fire station - 100,000 - 100,000 4Municipal building256,61215,000 - 271,612 5Recreation: 6 Park and trail improvements174,57635,000 - 209,576 7 Trail maintenance84,30010,000 - 94,300 8 Park building maintenance117,00050,000 - 167,000 9 Brekke Park memorial fund394 - - 394 10Computers56,28621,70020,32057,666 11Document imaging - - - - 12Vehicles: 13 Police125,88239,375 - 165,257 14 Public works152,91664,66727,684189,899 15 Building official238 - - 238 16Furniture and equipment: 17 General - - - - 18 Building inspections - - - - 19 Police 346 - - 346 20Trees86,3735,95019,84072,483 21Emerald ash borer120,000 - - 120,000 22Public works equipment215,216113,000 - 328,216 23Police radio equipment38,0803,000 - 41,080 24Police computer equipment15,1265,000 - 20,126 25Backup software7,5007,5005,6129,388 26Coalition of utility cities16,000 - - 16,000 27Civil defense16,000 - - 16,000 28Meter change out92,20026,100 - 118,300 29Generator replacement7,0003,500 - 10,500 30Unallocated198,22513,898 - 212,123 Totals$1,961,872$613,690$152,565$2,422,997 29 City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Funds E NTERPRISE F UNDS Enterprise funds account for water, sanitary sewer and storm sewer operations. Water Utility Fund A chart of income from operations for the past seven years is as follows: $900,000 Water Operating Revenue & Expense $800,000 $700,000 $600,000 Depreciation Transfer Out $500,000 All Other Expenses Contractual Services Personal Services $400,000 Operating Revenue $300,000 $200,000 $100,000 $- 2009201020112012201320142015 30 City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Funds Sewer Utility Fund A chart of income from operations for the past seven years is as follows: $1,000,000 Sewer Operating Revenue & Expense $900,000 $800,000 $700,000 Depreciation $600,000 Transfer Out Personal Services $500,000 All Other Expenses MCES Operating Revenue $400,000 $300,000 $200,000 $100,000 $- 2009201020112012201320142015 31 City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Funds The City’s water and sewer rates for the past seven years are as follows: Monthly RateQuarterly Rate EffectiveEffectiveEffectiveEffectiveEffectiveEffectiveEffectiveEffective Type of Charge01/01/0807/01/0901/01/1001/01/1101/01/1201/01/1301/01/1401/01/15 Water: Base fee$24.35$28.31$28.31$29.91$30.70$30.70$30.70$38.19 Charge per 1,000 gallons for: Usage between 15,000 and 50,000 gallons$1.62$1.96$1.96$2.48$2.55$2.55$2.55$3.05 Usage between 50,000 and 99,000 gallons$2.22$2.68$2.68$2.97$3.05$3.05$3.05$3.55 Usage between 99,000 and 200,000 gallons$2.67$3.23$3.23$3.81$3.92$3.92$3.92$4.42 Usage in excess of 200,000 gallons$2.67$3.23$3.91$4.61$4.74$4.74$4.74$5.24 Sewer: Base fee$49.95$54.28$56.99$60.41$62.10$66.00$66.00$66.00 Charge per 1,000 gallons for: Usage between 15,000 and 50,000 gallons$3.40$3.70$4.07$4.31$4.43$4.60$4.80$4.90 Usage in excess of 50,000 gallons$3.40$3.70$4.50$4.77$4.90$4.90$5.20$5.30 32 City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Funds Storm Sewer Utility Fund The City created the stormwater utility during 1999. A monthly fee (effective October 1, 1999) was established at $1 per household and $10 per acre for commercial properties. The fee for vacant residential property is 50 cents per month and undeveloped commercial property is $1.50 an acre per month. A chart of income from operation for the past seven years is as follows: $100,000 Storm Sewer Operating Revenue & Expense $90,000 $80,000 $70,000 $60,000 Transfer Out All Other Expenses Contractual Services $50,000 Personal Services Operating Revenue $40,000 $30,000 $20,000 $10,000 $- 2009201020112012201320142015 33 City of Oak Park Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance C OMMUNICATION W ITH T HOSE C HARGED W ITH G OVERNANCE We have audited the financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of the City of Oak Park Heights, Minnesota (the City) for the year ended December 31, 2015. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated December 29, 2015. Professional standards also require that we communicate to you the following information related to our audit. Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. As described in Notes 7 and 18 to the financial statements, the City implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions – an Amendment of GASB Statement No. 27 for the year ended December 31, 2015. The most significant effect of this standard is that it required the City to record its proportionate share of the net pension liability of defined benefit pension plans, as well as related deferred inflows and outflows of resources. These items are only reported on full-accrual financial statements. The liability was initially recorded by restating beginning net position. It should be noted that the City’s contribution requirements to pension plans have not changed as a result of this standard. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. 34 City of Oak Park Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were management’s estimation of 1) the net pension liability and pension related deferred inflows and outflows of resources and, 2) the revenue recognition of MNDOT assistance relating to the bridge project. We evaluated the key factors and assumptions used to develop these estimates in determining that they are reasonable in relation to the financial statements taken as a whole. The pension estimates are based on actuarial studies. The City has several agreements with the State that details the financial assistance to be provided to the City of Oak Park Heights relating to the Bridge Project. The revenue recognition of this financial assistance has been delayed pending receipt of revenue. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosure affecting the financial statements pertained to the City’s commitment to relocate portions of its utility infrastructure along Highway 36 (Note 10A) and Note 7 – Defined Benefit Pension Plans and Note 18 – Change in Accounting Principle. The disclosures in the financial statements are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no difficulties in dealing with management in performing and completing our audit. 35 City of Oak Park Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. There were no uncorrected misstatements that have an effect on our opinion on the financial statements. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated April 19, 2016. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the governmental unit’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. 36 City of Oak Park Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the governmental unit’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Information in Documents Containing Audited Financial Statements With respect to the supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. Closing This information is intended solely for the information and use of the City Council and Management of the City of Oak Park Heights, Minnesota and is not intended to be, and should not be, used by anyone other than these specified parties. 37