HomeMy WebLinkAboutManagement Report and Recommendations CITY OF OAK PARK HEIGHTS, MINNESOTA
MANAGEMENT REPORT AND RECOMMENDATIONS
DECEMBER 31, 1982
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City of Oak Park Heights
Management Report, Page 2
Over the past several years, we have analyzed trends in the financing of local
government in Minnesota and how these trends are changing. The changes now taking place
are substantial. The financing of Minnesota local government in the 1980's will be
substantially different from that of the 1970's. These changes must be addressed by
those charged with the responsibility for City operations. This Report has been prepared
to identify major changes and to communicate this information to City Councils and
Administrators to assist in the future financial management and planning of the City.
Minnesota cities (general government operations) are financed by two primary revenue
sources. These are State aids and local property taxes. State aids paid to Minnesota
cities can be classified under two primary categories; (1) tax -levy related aids; and,
(2) local government aid (i.e. per capita aid).
State tax -levy related aids (primarily homestead credits) are aids to individual
property owners rather than aids to cities. City Councils certify the City tax levy
each October. Once certified, the County Auditor tabulates that portion which is to be
paid by the State (i.e. homestead credits and other tax -levy related credits) and the
remaining balance which is to be paid by property owners. These tax -levy related State
aids (deducted from certified tax levies) do not increase or decrease the amount of
revenue a City will receive. They only pro -rate the certified tax levies between the
State and property owners. Accordingly, when a City Council adopts its annual operating.
budget, it will generally estimate one amount for local property taxes which includes
the tax -levy related State aids.
The second primary revenue source for financing the general government operations of
a Minnesota city is local government State aid. This aid is paid to Minnesota cities in
addition to the tax -levy related State aids. Local government aid does represent addi-
tional revenue to Minnesota cities. Certified property tax levies and local government
aid generally represent the majority of revenue available to finance the general govern-
ment operations of a Minnesota city. More important, these revenues are controlled by
State Statutes and are subject to the ability of the State to meet these commitments.
City of Oak Park Heights
Management Report, Page 3
During the 1970's, the State introduced levy limitations for local property taxes
and increases in State aids to local government units in an effort to limit the local
property tax burden in this State. This State policy became effective with the payable
1972 property taxes. The effect of this State policy was to limit property tax
increases, as follows:
1. Percent increases (1981 over 1971):
A. Total property taxes levied by all
Minnesota Local Government Units 83% Increase
B. Total State property tax credits paid
to local government units. 317% Increase
C. Property taxes paid by property owners. 50% Increase
2. Percent increase in the Consumer Price
Index (C.P.I. -U, Minneapolis - St. Paul
Area) October, 1971 to October, 1981 136% Increase
As illustrated above, the State policy of the 1970's did indeed limit local property
tax increases in the State of Minnesota. This was the direct result of local levy limi-
tations and increases in State aids paid to local government units by the State.
The preceding data reflects property taxes and related State aids from 1971 to 1981.
The trend of limited local property taxes was reversed in 1982. The following schedule
reflects a one year change of 24%, as follows:
($1,000 of Dollars) %
STATE -WIDE TOTALS 1981 1982 CHANGE CHANGE
School Districts $ 850,256 $ 1,099,683 $ 249,427 29.34%
Counties 549,366 617,565 68,199 12.41%
Cities 343,049 381,904 38,855 11.33%
Fiscal Disparities 46,775 65,020 18,245 39.01%
Tax Increments 22,489 35,141 12,652 56.26%
Townships 41,173 46,707 5,534 13.44%
Special Districts 51,030 59,062 8,032 15.74%
Total Taxes Levied 1,904,138 2,305,082 400,944 21.06%
State Credits Deducted from
Taxes Levied:
Homestead Credits 447,233 495,706 48,473 10.84%
Agricultural Credits 70,457 86,946 16,489 23.40%
Other Credits 13,927 17,063 3,136 22.52%
Total State Credits 531,617 599,715 68,098 12.81%
Net Taxes Paid By Property
Owners $ 1,372,521 $ 1,705,367 $ 332,846 24.25%
City of Oak Park Heights
Management Report, Page 4
The above comparison of 1981 and 1982 tax levies clearly indicates a significant
change in financing Minnesota local government. Prior to 1982, property taxes paid by
property owners (after deducting homestead and other credits) increased by less than
4 -1/4% per year (1972 through 1981). The 1982 increase alone totaled 24 -1/4 %. The
largest part of this increase can be attributed to a change in State policy relating to
the financing of local education.
Minnesota City and County tax levies are controlled by State levy limitation
statutes. Minnesota School District tax levies (for general education costs) are
controlled by State Foundation Aid Program calculations. Prior to 1982, the State
(through education aids paid to local school districts) financed approximately 550 of
these costs. The remaining 45% was financed by local property taxes. This formula was
changed in computing the 1982 property taxes such that local property taxes provided 550
of this revenue while State education aids provided 450 of the total revenue. State
budget proposals for 1984 decreases the State portion to 40% with local property taxes
providinq 600 of this revenue. The change in State policy was a primary cause of
increased local property taxes in 1982 and is indicative of future trends.
State -wide credits deducted from taxes levied increased by $68,098,000 or 12.81% for
1982 over 1981. This, however, is misleading. These amounts represent credits deducted
from taxes levied. Prior to 1981, these amounts were entirely paid to local government.
During 1982, however, the State did not reimburse local government for the full amount
of these credits even though these credits were deducted from property taxes levied by
local government. Actual State payments for these credits to local government units
except school districts were reduced (from the amounts deducted from property taxes
levied) as follows:
Reduction
Aid Amount Percent
Homestead Credits $40,802,526 16.45%
Reduced Assessment Credits 1,173,911 14.03%
Wetlands Credits 119,532 6.49%
Native Prairie Credits 13,843 22.84%
Total Reduction $42,109,812 16.30%
City of Oak Park Heights
Management Report, Page 5
As a consequence of the above reductions (to local government except school
districts) 1982 property tax related State aid payments actually decreased from 1981
levels. More important, this decrease represents "lost revenue" to the local government
units. This factor has been viewed by a bond rating agency as a limiting factor in the
ability of Minnesota cities to retire bonded debt. This situation can severely and
adversely affect the individual bond ratings of all Minnesota cities.
The above reductions represent "lost revenue" from tax -levy related State aids.
This was not the only "lost revenue" for Minnesota cities in 1982. The State also
reduced local government State aid to Minnesota cities, counties and towns, as follows:
City of
State Total Oak Park Heights
Amount Percent Percent
Year (in 1,000's) Change Amount Change
1981- Actual $ 249,716 1.69% $ 75,994 (4.49 %)
1982 - Certified 270,725 8.41% 82,324 8.33%
1982 °- Actual 235,077 (13.17 %) 68,950 (16.25 %)
The above reduction of $35.6 million ($270,725,464 certified to and budgeted by
local government; less $235,076,945 actually paid to local government) when added to the
$42.1 million reduction in tax -levy related State aids represents "total lost revenue"
of $77.7 million for 1982. These combined reductions represent approximately 7% of the
total 1982 certified tax levies for Minnesota Cities, Counties and Towns. The City of
Oak Park Heights portion of this "lost revenue" totaled approximately $19,000.
The State of Minnesota (as part of its policy of limiting local property tax
increases) also adopted a policy of sharing its tax revenues with local government and
local taxpayers in the form of aids and credits. The State's primary source of revenue
are income taxes (both corporate and personal) and sales taxes. These financial resour-
ces comprise over 75% of the State's non - dedicated operating revenue for the State's
General Fund. Total State revenues increased by approximately 3% (each year) during the
City of Oak Park Heights
Management Report, Page 6
State's 1980 and 1981 fiscal years, while State commitments were increasing at a much
larger rate and inflation was at 11% and 12 %. This imbalance (to over - simplify) is the
State budget crisis.
The State of Minnesota has taken several actions to resolve its budget problem. A
large part of these actions have been to pass the State's problem on to local government
as evidenced by the 1982 increases in local property taxes (primarily local School
Districts) and decreases in property tax related State aids. Current proposals now
being considered indicate that the State will continue to reduce its commitments and
obligations to local government and local taxpayers to resolve the State budget problem.
One indicator of the financial strength or independence of a governmental unit
(including the State of Minnesota) is the level of fund balance or reserve balance of
the general fund. Reserve balances are especially necessary during periods of high
inflation and /or poor economic growth. Without adequate reserve balances, a governmen-
tal unit may be unable to respond to economic conditions. With adequate reserve
balances, adverse economic factors are more manageable.
The undesignated /unrestricted fund balance of the General Fund of the State of
Minnesota (according to published and audited Annual Financial Reports), was as follows
for the past four years:
Undesignated
Fund Balance (Deficit)
(In 1,000's of Dollars)
Date Amount Change
June 30, 1979 $ 234,486 -
June 30, 1980 (16,965) $(251,451)
June 30, 1981 (73,044) (56,079)
June 30, 1982 (705,268) (632,224)
City of Oak Park Heights
Management Report, Page 7
Minnesota State Statutes governing State finances required "balanced budgets" at the
end of each biennium (i.e. June 30, 1979, 1981, 1983, etc.). The State's current
operating budget (fiscal year ended June 30, 1983) indicates revenues in excess of
expenditures totaling approximately $600,000,000 to eliminate most of the June 30, 1982
accumulated deficit of $705,268,000. A portion of this "improvement" has been at the
expense of local government as detailed in this Report. An additional portion of such
"improvement" has or will be accomplished by what has come to be known as "shifting"
(i.e. delaying payment of existing obligations and /or advanced recognition of future
revenue). The following is a tabulation of certain major "shifts" and estimates of
their effect upon the State's June 30, 1983 fund balance.
• LOCAL GOVERNMENT AID - Change in payment dates
from March to July through December of each
year ($265,073,300 @ 25 %) $ 66,300,000
• RENTERS CREDITS AND SENIOR CITIZEN AND DISABLED
TAXPAYERS CREDITS - Change in payment dates from
pre -July to post -June of each year (Estimate) 100,000,000
• SCHOOL DISTRICT PROPERTY TAXES -
1. Hold back 15% of tax levy related State
aids until after June 30, 1983 (State
Estimate) 49,700,000
2. Advance recognition of 1983 local property
taxes with a corresponding decrease in State
aid payments (State Estimates including
increased holdback from 10% to 15 %) for
Education Aids) 233,000,000
Total $449,000,000
The "shifting" concept as it relates to aids and credits has the effect of deficit
financing when one considers the State and all units of local government within the
State as a group. The use of this concept at the levels shown cannot continue
indefinitely. The use of "shifting" prolongs but does not resolve the State's budget
problem.
City of Oak Park Heights
Management Report, Page 8
The means of financing the cost of services provided by local government in
Minnesota is a complex process. The public policy of collecting taxes at the State
level to finance services being provided at the local level tends to increase the
complexity. Remembering the basic purpose or function of local government may help to
understand the concept better.
The basic function of local government is to collect financial resources (i.e.
taxes) and to expend these resources to provide services deemed necessary and beneficial
to the local community. From a financial viewpoint, it matters little how these ser-
vices are financed (i.e., through taxation at the State level or by direct taxation by
the local government unit). It matters only that these services are adequately
financed and that they are financed on a current and timely basis. Should the available
financial resources decrease (as is now happening), the level and /or cost of services
must also decrease or alternative financial resources must be obtained. State and local
government cannot expend financial resources which do not exist (i.e., which have not
been taxed). To do so is deficit financing.
1981 and 1982 have been pivotal years for Minnesota local government units. The
purpose of this Report is to detail the changes which have occurred and to offer a
perspective of the meaning of these changes. This however, does not present a solution
to the situation. The State of Minnesota has determined a solution to their budget
situation. A large part of the State's solution has been to pass the problem on to
local government, as follows:
A. Reduced local government aid to Cities, Counties and Towns and
reduced education aids to local School Districts.
B. Reduced or frozen homestead credits and other tax -levy related aids
and credits.
C. "Lost Revenue" to local government in the form of tax -levy related
credits to property owners which are not paid to local government
units.
D. "Lost Revenue" to local government in the form of local government
aid reductions after local budgets are adopted and often during the
late months of a budget year.
City of Oak Park Heights
Management Report, Page 9
The effect of these State "solutions" is increased property taxes to maintain the
same or reduced levels of service. These property tax increases are especially burden-
some on homestead property owners because the State will be paying a lesser propor-
tionate amount of property taxes on homestead property.
It is now left to local government to determine a final and lasting solution.
Options available to local government fall into two primary categories.
1. Decrease the cost and /or level of services now being provided.
2. Determine and utilize alternative financial resources.
A final and lasting solution should and will probably be a combination of factors in
the above primary categories. Determining the level and degree of each factor are the
critical choices facing all elected and appointed local government officials. These
choices have not and will not be easy.
Local governments possess the ability and authority to reduce the level of services
below that now being provided. However, local government has only limited authority to
increase its financial resources to finance those services and levels of service deemed
necessary. The present levy limitations on Minnesota Cities plus decreasing State aids
will become extremely restrictive. An easing of the levy limitation restrictions seems
necessary as an alternative to severe reductions in .levels of services now being pro-
vided by Minnesota Cities and Counties. Without additional financial resources (i.e.
authority), the only option available to Minnesota Cities will be to decrease the cost
and /or level of services being provided. To obtain these additional financial
resources, the State must be induced to ease the present levy limitation. restrictions.
City of Oak Park Heights
Management Report, Page 10
Minnesota local government now knows that it will bear a major share of the respon-
sibility for solving the current State budget situation. Having this knowledge helps to
define the problem facing your City and all Minnesota local government. All local
government elected and appointed officials must address the questions of:
1. Which local services must be continued and at what levels?
2. How may local government improve the efficiency of providing
local services?
3. Which local services are to be eliminated or diminished?
4. What additional taxing authority can be obtained to
finance those local services deemed necessary and
beneficial?
5. What alternative financial resources can be utilized to
finance those local services deemed necessary and
beneficial?
Fortunately for the citizens and local taxpayers of the City of Oak Park Heights,
the past financial management of your City has been prudent and in accordance with your
financial structure and available financial resources. Except for the effects of the
State budget situation, your City has expended its financial resources only as they have
been made available and you have retained operating reserves at sufficient levels to
provide financial security, independence and integrity. Having these reserve balances
should provide the City additional time to address the effects of the State budget
situation. Without such reserve balances, the City would be caught in a position of
responding quickly (and without adequate preparation time) to the effects of the State
budget situation.
General And Special Revenue Funds
The General and Special Revenue Funds of the City are maintained to account for the
current and capital outlay expenditures common to all cities. Current financial
reporting standards allow a city to reasonably compare its financial operations with
other similar cities and also with its own prior year's financial operations.
City of Oak Park Heights
Management Report, Page 11
Since 1978, State aids and local property taxes (used to finance the General Fund of
the City of Oak Park Heights) were as follows:
State Aids Property Taxes
Year Amount Percent Amount Percent
1978 $106,746 21.60% $211,577 42.85%
1979 111,149 22.74 219,802 44.97
1980 124,222 25.27 276,402 56.23
1981 124,936 20.53 386,515 63.50
1982 122,425 18.28 423,843 63.28
The above State aids are detailed as follows:
Description 1978 1979 1980 1981 1982
Local government aid $ 77,434 $ 77,434 $ 79,564 $ 75,994 $ 68,950
Homestead credits 9,442 10,710 20,174 28,487 35,291
Police aid 8,381 8,127 9,037 9,751 10,263
Diseased tree 8,113 11,913 15,016 -0- 3,576
Other 3,376 2,965 431 10,704 4,345
Totals $106,746 $111,149 $124,222 $124,936 $122,425
Change $ 4,403 $ 13,073 $ 714 $ (2,511)
Percent Change 4.12% 11.76% .570 (2.01 %)
Local government aid has decreased in 1981 and 1982 because of State actions to
resolve the State budget problem. Proposals now under consideration by the Minnesota
State Legislature indicate that these aids (for the City of Oak Park Heights) " may
increase" for 1983 and 1984.
Homestead credits increased because of additional homestead housing units plus
increases in the maximum credit from $325 to $650 per housing unit.
City of Oak Park Heights
Management Report, Page 12
The following schedules and graphs reflect the combined revenue of the General and
Special Revenue Funds for 1982 and 1981. Additional detail on the revenue is presented
in Statements 7 and 9 of the 1982 Annual Financial Report.
Increase
Description 1982 1981 (Decrease)
General Property Taxes $ 423,843 $ 386,515 $ 37,328
Intergovernmental:
State 122,425 124,936 (2,511)
Federal 42,650 57,420 (14,770)
Licenses and Permits 12 16,263 (4,205)
Charges for Services 39 329 39,032
Interest on Investments 20 11,151 9,727
All Other Revenue 8,612 12,087 (3,475)
Total $ 669,827 $ 608,701 $ 61,126
1982 1981
State State
18.28% 20
Federal
6.37%
Property Federal `�1 Property
Taxes 9.43% Taxes
All Other
63.28% 63.50%
12.07% All
Other
6 .54%
City of Oak Park Heights
Management Report, Page 13
Total expenditures of the General and Special Revenue Funds remained almost unchanged
for 1982 as compared to 1981. Expenditures for 1982 and 1981 are as follows by major
classification. Detail of these expenditures are presented in Statements 7 and 9 of the
1982 Annual Financial Report.
Increase
Description 1982 1981 (Decrease)
Current Expenditures:
General Government $ 134,061 $ 161,276 $(27,215)
Public Safety 189,877 170,733 19
Streets and Highways 48,442 43,928 4,514
Sanitation 58,362 63,586 (5,224)
Recreation 74,355 55,218 19,137
Capital Outlay 29,813 39,047 (9,,234)
Totals $ 534,910 $ 533,788 $ 1,122
A graphic illustration of the above expenditures on a percent of total expenditures
is presented below.
1982 1981
Recreation Recreation
13.90% 10.34/0
Streets
Streets and
and Highways
Highways Public 8.23% Public
9.06% Safety Capital Safety
35.50% Outlay 31.99
Capital 5.57% 7.32%
Outlay
Sanitation
Sanitation 11.91%
10.91%
General Government
General Government 30.21%
25.06%
City of Oak Park Heights
Management Report, Page 14
Condensed Combined Financial Statements
The Condensed Combined Financial Statements o" the City are presented in Statements
1 through 5 of the 1982 Annual Financial Report. The following continents relate to these
Financial Statements of the City.
Cash And Investments
December 31, Increase
Description 1982 1981 (Decrease)
Clerk's balance:
Checking account (overdraft) $ (68,089) $ (4,232) $ (63,857)
Investments 1,923,610 1,454,785 468,825
Petty cash 50 50
Totals $1,855,571 $1,450,603 $ 404,968
The December 31, 1982 and 1981 checking account overdrafts are book overdrafts only
and do not reflect bank overdrafts. These balances are a result of the City's policy of
maximum investment of City monies not needed for current expenditures. During 1982, the
City maintained an average negative book balance in checking of $9,600. This balance
and other factors allowed the City to earn $183,000 of interest on investments during
1982. Investments at December 31, 1982 and 1981 were as follows:
December 31,
1982 1981
Yield Balance Yield Balance
Certificates of Deposit 10.37% $ 300,000 16.25% $ 141,160
Certificates of Deposit 8.75 115,000 15.75 133,000
Certificates of Deposit 9.00 300,000 16.00 117,000
Certificates of Deposit 8.37 100,000 13.00 274,500
Certificates of Deposit 8.15 422,500 16.87 326,000
Certificates of Deposit 9.00 272,000 12.75 144,000
Certificates of Deposit 8.80 360,000 12.37 249,000
Repurchase Agreement 7.97 54,110 11.25 64,074
Savings Account 5.25 6,051
Totals $ 1,923,610 $ 1,454,785
The interest earned decreased by $14,000 in 1982 but this was due to investment
yields on Certificates of Deposit in 1982 ranging from 16.78% to 8.15% as compared to a
1981 range of 18.25% to 12.37 %. We concur with the City's method of investing monies
and recommend that the City continue to monitor its policies and procedures on investing
available cash balances. The City should continue to monitor the market conditions and
change investment strategies and policies as deemed appropriate.
City of Oak Park Heights
Management Report, Page 15
Security For Deposits
Security for deposits are presented in Exhibit 5 of the 1982 Annual Financial
Report. An analysis of collateral requirements and actual collateral pledged showed the
City to have sufficient collateral at all despositories at December 31, 1982.
Due From (To) Other Funds
The Schedule of Interfund Audit Adjustments below presents a detailed explanation of
cash transfers necessary to adjust the City's individual cash balances at December 31,
1982.
Fund Due From Due To
Fund Title No. Other Funds Other Funds
Swager's 8th Addition 516 $ 3,252.10
General Fund 101 $ 3,252.10
To record the write off
of engineering charges
per Council authorization.
G.O. Bonds of 1967 and 1968 501 2,826.72
Completed Construction 510 2,826.72
To reclassify assess-
ment prepayment.
Totals $ 6,078.82 $ 6,078.82
These adjustments should be recorded on the City's financial records in 1983 upon
approval by the City Council. We recommend that the these transfers be recorded as
early as possible so that the cash balances, and thus interest earnings, will not be
distorted for 1983.
The City's financial accounting records have been adjusted for most of the December
31, 1982 year -end closing adjustments. However, additional adjustments should be made
to the City's financial records. We recommend that the City record the additional
adjustments needed so that the City's financial accounting records are in agreement with
the City's 1982 Annual Financial Report.
City of Oak Park Heights
Management Report, Page 16
Due From Other Governmental Units
December 31, Increase
Description 1982 1981 (Decrease)
State share - prison utility
construction $ 7,191 $ 7,191
Fines 420 $ 420
Revenue sharing allocation 9,203 11,148 (1,945)
MWCC final cost allocation 5,445 5,445
State withheld payments 32,338 (32,338)
Totals $ 22,259 $ 50,677 $(28,418)
Included in the preceding schedule are withheld State aid payments of $32,338 at
December 31, 1981. 1981 was the first year in recent history that such aid payments
were not paid within the appropriate revenue year. During 1982, the City received its
1982 State aid payments alloted but the amount actually received was less than the ori-
ginal amount. This is the second year in a row that the City has not received the
amount originally alloted by the State. This decrease in aids is one reason the City
must maintain adequate reserves.
Due From Developers
December 31, Increase
Description 1982 1981 (Decrease)
General Fund:
Cost reimbursement $ 654 $ 3,120 $ (2,466)
Special Assessment Fund:
Brekke Heights #2 243 243
57th Street Improvements 1,288 788 500
Sunview Improvements 3,280 3,280
Swagers - 8th Addition 2,618 (2,618)
Developers Deposit Fund:
Cost reimbursement 964 4,734 (3,770)
Deposits payable (1,040) (846) (194)
Totals $ 5,389 $ 13,937 $ (8,548)
All of the above amounts are currently collectible. The amounts due on Brekke
Heights ($243), 57th Street Improvements ($1,288) and Sunv:iew ($3,280) have been
receivable since December 31, 1981. The City has prepared billings periodically during
1982 to effect collection. The City is currently preparing a monthly billing in an
attempt to obtain receipt of the balances.
City of Oak Park Heights
Management Report, Page 17
Delays in the receipt of these monies should be monitored. The financing of these
projects requires that the City use cash reserves not designated for these purposes.
The City must receive these monies on a timely basis to avoid adverse effects on the
cash flow position of other City funds. Failure to receive monies from developers
before these costs are paid by the City has an adverse affect on the interest earnings
of other funds by reducing the total monies available for investment. The City should
establish a policy whereby the developer puts cash on deposit with the City or provide a
letter of credit equal to 100% to 150% of the estimated project cost. This policy will
help eliminate the potential cash overdrafts and the problems encountered with collec-
tion of developer balances.
Connection Charges Receivable
Connection charges receivable represents sewer and water hook -up charges to property
owners. The $30,109 balance at December 31, 1982 represents a $1,800 decrease during
1982. Two of the connection charges receivable at December 31, 1982, comprise 96% of
the total receivable. One of these connection charges, $5,263, is being paid in annual
installments with interest added. The other amount totaled $23,645 at December 31, 1982
and no collection terms have yet been established. This amount relates to 1976
connections. The City has referred collection of this amount to the City attorney.
Taxes Receivable - Net
The amount of taxes due from the County at December 31, 1982 totaled $59,799. This
amount has increased by over $59,000 from the December 31, 1981 balance. The increase
is due to the County's being unable to summarize tax receipts by local taxing authority
in time to remit such amounts in December (the normal time of receipt). The County did
advance to the City in December an estimated amount of total collections to be remitted.
In January, 1983, the City received the balance of the County remittance and the proper
detail to allow distribution to individual City funds.
City of Oak Park Heights
Management Report, Page 18
Delinquent taxes receivable at year end equaled $16,175. This is an increase of
$4,300 from December 31, 1981. Tax collections in 1982 totaled 98.1% of the 1981/82
levy as compared to a 98.9% collection rate on the 1980/81 levy.
This increased delinquency rate was not entirely caused by property owners. The
State of Minnesota is delinquent on its portion of the certified levy (i.e. homestead
credits). Certified levies are sent to the County each year for collection. The State
portion of homestead credit is subtracted from the levy to be spread to property owners.
The portion subtracted for 1982, however, was not fully paid by the State. This reduced
aid amounted to over $5,800 for the City of Oak Park Heights. This amount is a per-
manent loss to the City. The percent of taxes collected of 98.1% above would have been
approximately 99.2% had the State paid its portion in full.
Special Assessments Receivable
Special assessments receivable consisted of the following:
December 31, Increase
Description 1982 1981 (Decrease)
Delinquent $ 27,275 $ 16,356 $ 10,919
Due from County 1,502 188 1,314
Deferred 259,294 331,944 (72,650)
Totals $288,071 $348,488 $(60,417)
Delinquent special assessments have been as follows for the past several years.
Delinquent Percent
December 31, Assessments Increase Increase
1978 $ 5,867
1979 7,368 $ 1,501 25.58%
1980 12,177 4,809 65.26
1981 16,356 4,179 34.31
1982 27,275 10,919 66.76
City of Oak Park Heights
Management Report, Page 19
The current year increase was the result of a lower collection rate and a higher
amount of assessments spread for collection as follows:
Increase
1982 1981 (Decrease)
Delinquent Balance - January 1 $ 16,356 $ 12,177 $ 4,179
Add: Current installment 90 66,287 24,011
Total 106,654 78,464 28,190
Less: Collections 79,147 63,029 6,118
Adjustments 232 (921) 1,153
Delinquent Balance - December 31 $ 27,278 $ 16,356 $ 10,919
Collections as a percent of
Current Installment 87.6 %, 95.1%
Since 1978, the City has experienced increases in delinquent assessments receivable
as reflected above. One of the major factors affecting this is increased assessment
volume. This, coupled with a decreasing collection rate, is the cause for increased
delinquent assessments. A solid collection rate is essential for the City's debt ser-
vice funds to maintain adequate cash balances in order to meet debt service payments on
a timely basis.
The City has detailed records indicating the specific parcels responsible for these
delinquencies. We recommend that those records be reviewed and analyzed and that a sum-
marized listing be prepared to tabulate the major parcels involved. This listing should
then be made available to the City Council and Administration to determine further
action to be taken.
The City has the ability to accept prepayments on deferred assessments receivable.
The City performs this function while Washington County collects payments on current
assessments levied for collection. The City accepts prepayments equal to the amount of
deferred assessment receivable not spread for collection. The City however should not
accept prepayments of the ensuing year's installment after cutoff date established by
the County. The acceptance of prepayments after cutoff causes unneccessary accounting
complexities. We recommend that the City cease the collection of prepayments at the
City after the County cutoff date for the ensuing year's levy.
City of Oak Park Heights
Management Report, Page 20
Washington County has experienced difficulties in the maintenance and distribution
of assessment receivable information. This situation has increased the procedures
required by City personnel and audit staff in determining assessment revenue and
receivable balances. Assessment accounts are a major area of effort in the year end
closing process. Without timely and accurate information from the County (in its
collection agency capacity) the internal control system of the City must compensate for
such deficiencies in the County system.
The County has been asked to address this situation and take action to convert
systems to achieve:
° More timely availability of assessment information.
° Better quality of assessment information.
The County is in a transition period and has not yet converted its data processing
systems as stated above. During this transition period, the City must carefully monitor
(test) the information provided by the new systems. Any deficiencies noted should be
promptly brought to the attention of the County for corrective measures. This will aid
in the success of that system. The improved County system should be designed to better
serve the cities in Washington County. A successful conversion should directly reduce
the amount of time and effort required by City personnel in the year end closing
process. We recommend that the City perform such internal tests of the new system to
correct errors and to gain reliance thereon.
Bonds Payable
Bond Issues
Special Special Revenue
Assessments District Bonds Totals
Balance °- January 1, 1982 $ 1,385,000 $ 200,000 $ 1,585,000
New Issues 205,000 $ 165,000 370,000
Principal Payments (175,000) (10,000) (185,000)
Balance - December 31, 1982 $ 1,415,000 $ 165,000 $ 190,000 $ 1,770,000
City of Oak Park Heights
Management Report, Page 21
In 1982, the City issued bonds to finance Sewer and Water Extensions ($205,000) and
Storm Sewer Improvements ($165,000). The Sewer and Water Extensions are to be financed
by special assessments and scheduled deferred tax levies. The Storm Sewer Improvements
are to be financed by scheduled deferred tax levies. These tax levies are to be levied
on a certain portion of the City versus the entire City of Oak Park Heights. In 1982,
the City Council passed ordinance number 1600 establishing a special storm sewer
district. It is the property within this district that these tax levies will be levied
against. The first tax levy for this bond is scheduled for 1983 with collection in 1984.
Fund Equity
December 31, Increase
Fund Group 1982 1981 (Decrease)
Fund balance:
General $ 300,999 $ 182,939 $118,060
Special Revenue 69,529 78,747 (9,218)
Debt Service 20,782 -0- 20,782
Capital Project 203,584 21,764 181,820
Special Assessment:
Construction 113,406 46,361 67,045
Debt Service 139,393 36,413 102,980
Totals 847,693 366,224 481,469
Retained earnings:
Enterprise 280,153 242,611 37,542
Totals - All Funds $1,127,846 $ 608,835 $519,011
As shown above, the financial position of the various funds of the City increased by
$519,011 during 1982. Most of this equity is committed for specified purposes, and not
available for appropriation by the City.
The fund balance of the Federal Revenue Sharing Fund has been appropriated to
finance the 1983 Budget for the Revenue Sharing Fund as detailed later in this Report.
The fund balance of the Capital Project Fund - Capital Improvements Fund is also
appropriated or designated at December 31, 1982. These amounts are also detailed later
in this Report. The fund balance of the Special Assessment Fund is committed for debt
retirement and /or construction costs. The retained earnings of the Water and Sewer
Utilites is committed to finance working capital needs, bond payments and fixed assets.
City of Oak Park Heights
Management Report, Page 22
General Fund
The financial statements for the General Fund are presented in Statements 6 and 7 of
the City's 1982 Annual Financial Report. The fund balance of the General Fund was
$300,999 at December 31, 1982 representing a $118,060 increase during 1982. This
increase was the result of the following:
• Budgeted increase. The City budgeted revenue in
excess of anticipated expenditures and transfers out. $ 70,000
• Actual revenue exceeded budgeted revenue. 14,427
® Budgeted expenditures exceeded actual expenditures. 33,633
Net increase in fund balance for 1982 $ 118,060
Details of the above amounts are presented in Statement 7 of the Annual Financial
Report. The fund balance of the General Fund has increased by $173,352 over the past
two years. The schedule below reflects the fund balances for the past seven years:
Year Ended Fund Increase
December 31, Balance (Decrease)
1976 $239,503
1977 268,754 $ 29,251
1978 225,943 (42,811)
1979 186,836 (39,107)
1980 127,647 (59,189)
1981 182,939 55,292
1982 300,999 118,060
The increases in 1982 and 1981 are the direct result of the City adopting surplus
budgets and favorable actual results compared to budget. These increases are necessary
for the City to attain its required minimum reserve balances.
The level of the fund balance of the City's General Fund is one indicator of the
financial strength or independence of a City. This often becomes critical during
periods of high inflation, decreasing State aids, and poor economic growth. Without
adequate reserves, a City may be unable to respond to external factors. With adequate
reserves, these external factors are more manageable by the City.
City of Oak Park Heights
Management Report, Page 23
Past reports to the City have indicated that fund balance reserves in the City's
General Fund are required for sound financial management of the City. A summary of
reasons for maintaining General Fund reserves are as follows:
1. Cash flow requirements. The City receives two major funding
sources after one -half of the calendar year has elapsed.
Property taxes are primarily received in July and December.
Major State aids (local government aid and homestead credits)
are received in six monthly installments starting in July.
The City does not have the ability to only incur expenditures
in the second half of the calendar year. Most expenditures
are incurred evenly throughout the year on salaries and other
operating expenditures. The timing of major revenue does not
therefore meet the needs of the City to fund expenditures from
January through June.
2. Emergency and /or unanticipated expenditures. The diverse
nature of a City's operations are such that unforeseen events
require financial flexibility. Natural disasters, lawsuits,
unexpected capital outlay requirements and preliminary funding
for vital improvements must be financed on a current and
timely basis. General Fund reserves allow the City to meet
such costs and preserve the well being of its taxpayers.
3. Reduction in shared intergovernmental aids. At the present
time, the State is involved in a budget crisis and the Federal
government is involved in a tax reduction program. Although
the effects of these situations are constantly changing, it
appears likely that past trends of increasing aids to cities
(by both State and Federal governments) will not continue. It
appears likely that this trend will be reversed with a larger
portion of the cost of City government being financed by reve-
nue raised locally rather than at the State or Federal levels.
The City's ability to convert to greater self reliance will be
enhanced through the maintenance of adequate General Fund
reserves.
The above three areas must be considered in the City's financial planning
objectives.
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.
City of Oak Park Heights
Management Report, Page 24
The reserve requirement to deal with unforeseen intergovernmental revenue reductions
is also difficult to quantify. State and Federal legislation dealing with shared aids
is somewhat unpredictable. The City must strive to remain current on the effects of
changing legislation and budget such aids accordingly. A reserve balance in the City's
General Fund will mitigate the adverse effects of aid reductions which are received
after expenditure budget commitments are made.
The City's minimum cash flow reserve requirement is measurable. For the City of Oak
Park Heights, the minimum required surplus is $308,500 computed as follows:
After the Change
in Timing of
State Aid Payments
1983 Budgeted Levy (Includes Homestead
Credit) $ 537,000
1983 Anticipated Local Government Aid 80,000
Total $ 617,000
Minimum Required Cash -Flow
Reserve (One -Half of Total) $ 308,500
The increases in the fund balance of the General Fund has brought the City within
$7,500 of the minimum cash flow reserve requirement. An appropriate level of operating -
reserve for the City's General Fund should be adequate to:
• Meet the minimum cash flow needs of the General Fund.
• Provide a source of funding for emergency and /or unanticipated expenditures.
• Provide a means of dealing with further State and Federal aid cut - backs.
Without an adequate General Fund reserve, the independence and autonomy of the City
may be impaired. The City of Oak Park Heights has taken actions over the past several
years to improve the financial position of its General Fund. We commend the City for
these actions and encourage the City to continue these efforts. An adequate reserve
structure will enable the City to retain its financial independence and integrity during
the present change in economic environment.
City of Oak Park Heights
Management Report, Page 25
Special Revenue Fund
The financial statements for the Revenue Sharing Fund are presented in Statements 8
and 9 of the City's 1982 Annual Financial Report. A summary of the Revenue Sharing
transactions from inception through December 31, 1982 is as follows:
Prior
Years 1982 Total
Revenue:
Revenue sharing entitlements $373,308 $ 42,650 $415,958
Interest on investments 24,478 7,545 32,023
Total revenue $397,786 $ 50,195 447,981
Expenditures:
Park land acquisition $ 78,578 78,578
Playground equipment 6,648 6,648
Land easement 5,750 5,750
Police vehicles - equipment 33,843 $ 8,975 42,818
Park fencing 23,052 23,052
Fire protection 3,498 3,498
Youth service bureau 9,028 2,680 11,708
Shade trees 16,380 16,380
Valley View Park improvement 50,945 50,945
Office equipment 5,412 5,412
Public works vehicles 10,031 17,619 27,650
City hall expansion 75,000 75
Sanitation and waste 30,000 30,000
Other 874 139 1,013
Total expenditures $319,039 $ 59,413 378,452
Balance - December 31, 1982 $ 69,529
The City Council approved the 1983 Revenue Sharing Budget on September 27, 1982.
The Budget adopted was for various departments within the City. The items approved are
as follows:
Youth Service Bureau $ 3,000
Street Sweepers 30,000
Sanitation and Waste 37,000
Police Squad Car 10,000
Playground Equipment 11,500
Total $ 91,500
City of Oak Park Heights
Management Report, Page 26
The rules and regulations of the Federal Office of Revenue Sharing include a
requirement that the financial records of a City receiving $25,000 or more of Revenue
Sharing grants per year, be audited and that the City obtain a "compliance audit ". A
copy must be sent to the Office of Revenue Sharing. The City is required to have a
compliance audit for the year ended December 31, 1982. This audit must be completed and
submitted to the Office of Revenue Sharing by August 31, 1983. We recommend that the
City Council authorize the special compliance audit to be performed and completed in
1983 to meet the Federal requirement.
Debt Service Funds
The financial statements for the City's Debt Service Fund is presented in Statements
10 and 11 of the 1982 Annual Financial Report. Debt Service Funds are governmental type
funds used to account for the accumulation of principal and interest on general debt.
The City had one general debt bond, Storm Sewer Bonds of 1982, outstanding at December
31, 1982.
These bonds were issued to provide financing for the Storm Sewer District
construction. The City Council established this district in October, 1982 per City
ordinance 1600. A projection of the final fund position based on scheduled levies and
debt requirements is as follows:
Fund Balance - December 31, 1982 $ 20,782
Additions:
Future scheduled tax levies 486,999
Total 507,781
Deductions:
Debt requirements:
Principal 205,000
Interest 279,035
Total 484,035
Projected Fund Balance $ 23,746
Normal Projected Fund Balance -
5% of debt requirements $ 24,200
City of Oak Park Heights
Management Report, Page 27
Capital Project Funds
The financial statements for the Capital Project Funds are presented in Statements
12 and 13 of the City's 1982 Annual Financial Report. The City had one Capital Project
Fund at December 31, 1981 and added a second such fund in 1982.
Capital Improvements Fund
The Capital Improvements Fund was established in 1978 to account for monies set
aside for capital improvements as follows:
Municipal
Building Sealcoat
Expansion and Curb Recreation Total
Revenue and Other Sources:
Transfers from General Fund:
1978 through 1980 $ 70,000 $ 40,000 $ 7,500 $ 117,500
1981 20,000 2,500 22,500
1982 20,000 6,075 26,075
Total transfers 70,000 80,000 16,075 166,075
Sale of property 9,414 9,414
Donation 750 750
Interest allocated to
Municipal Building 13,619 13,619
Total revenue and
other sources 93,033 80,000 16,825 189,858
Expenditures and Other Uses:
Transfers out:
Municipal building
expansion (91,438) (91,438)
Direct expenditures (1 (46,908) (15,427) (63,930)
Sub -total $ -0- $ 33,092 $ 1,398 34,490
Add:
Interest earnings to date 22,007
Less:
Interest allocated to
Municipal Building (13,619)
Sub -total 8,388
Fund balance - December 31, 1982 $ 42,878
The remaining balance of $42,878 at December 31, 1982 is designated for sealcoating
($33,092); recreation ($1,398); and, unallocated interest earnings ($8,388).
The unallocated interest earnings of $8,388 at December 31, 1982 can be designated
or appropriated at the discretion of the City Council.
City of Oak Park Heights
Management Report, Page 28
Storm Sewer Drainage Improvement
This fund was created in 1982 to account for possible storm drainage improvements
which were approved for construction during 1982. Costs incurred through December 31,
1982 total $21,895. This project is financed by the $205,000 Storm Sewer Bonds of 1982.
Activity of this fund from inception to December 31, 1982 is as follows:
Bond proceeds $ 181,482
Interest on investments 1,119
Total amount available 182,601
Construction Costs:
Engineering 15,051
Legal 3,999
Other 2,845
Total 21,895
Fund Balance - December 31, 1982 160,706
Less: Committed Contract - December 31, 1982 156,043
Adjusted Fund Balance $ 4,663
The City should monitor this project through completion to insure that construction
costs are adequately financed and provide supplemental financing if needed.
Special Assessment Funds
The financial statements for the Special Assessment Funds are presented in
Statements 14 and 15 of the City's 1982 Annual Financial Report. A Special Assessment
Fund is organized to account for both the construction and financing of assessable
improvement projects.
Special Assessment Debt Service Accounts
During 1982, the City had prepared a "Special Assessment Debt Service Study ". The
projections contained in that report were compiled by DE LA HUNT VOTO & CO. The cash
flow schedules were computer generated which allowed for presentation of various
optional schedules. The reports should be updated in the future when actual results
vary materially from projected results. The schedules prepared can be used to monitor
actual results versus projected results.
City of Oak Park Heights
Management Report, Page 29
The purpose of the debt service financial projection is to provide the City Council
and Administration data on which to base decisions. The current economic climate
requires detailed analysis of all significant phases of a City's operations. The
Special Assessment Debt Funds of the City of Oak Park Heights, Minnesota account for
bonded debt which totaled $1,375,000 at December 31, 1982.
We recommend that the City, on an annual basis, compare and monitor the projected
cash position contained in the Special Report to actual cash balances. Variances
between actual and projected balances should be analyzed to determine the reasons for
the variance. When the projections are no longer accurate the City should have the
Special Assessment Debt Service Study updated.
Special Assessment Construction Accounts
The financial statements for these funds are presented in Statements 14 and 15 of
the 1982 Annual Financial Report. The City maintained the following construction funds
during 1982 and 1981.
Fund Balance (Deficit)
December 31, Increase
Description 1982 1981 (Decrease)
Completed Construction $ 89,210 $ 83,934 $ 5,276
Prison Utilities (11,603) (10,303) (1,300)
1979 Utilities (23,713) (27,270) 3,557
57th Street Improvement -0- -0- -0-
Swager's 8th Addition -0- -0- -0-
1982 Water and Sewer 59,512 -0- 59,512
Totals $ 113,406 $ 46,361 $ 67,045
All of the above construction projects were completed in a prior year except for the
1982 Water and Sewer Improvements.
Ci'cy of Oak Park Heights
Management Report, Page 30
Completed Construction
This fund was established in 1977 by closing several construction accounts to one
account. This account has a fund balance $89,210 at December 31, 1982. That fund
balance is composed of the following assets:
Cash - Adjusted $ 19,056
Connection Charges Receivable 23,647
Special Assessments Receivable 46,507
Total $ 89,210
Prison Utilities
This project was completed at December 31, 1981. The deficit of $11,603 consisted
of oversizing of pipe and other minor costs not billed to the State of Minnesota. This
fund also has a receivable from the State of $7,191. The City is in contact with the
State in an attempt to collect the full balance of the receivable at December 31, 1982.
The City has provided financing of the fund deficit of $11,603 by a budgeted cash
transfer from the General Fund in 1983 of $12,000. We recommend that this account be
closed at December 31, 1983 with the remaining net assets being transferred to the
Completed Construction account. Council action is required to effect this account
closing and related transfer of assets.
1979 Utilities
The 1979 Utilities special assessment fund was created in 1979 to account for costs
related to various utility improvements. A summary of the financial activity of this
improvement is as follows:
Financing provided:
Special assessments and other charges $ 96,982
Interest on special assessments 9,052
Cash tranfers from Water and Sewer Utilities 27,583
Total 133,617
Construction costs:
Sunview $ 24,247
Valley View (storm sewer) 105,323
Other 27,760 157,330
Fund balance (deficit) - December 31, 1982 $(23,713)
City of Oak Park Heights
Management Report, Page 31
The above deficit is the result of the Valley View project being insufficiently
financed. Project costs totaled $105,323 while assessments and other charges totaled
$72,175 leaving a deficit for this project of $33,148. A summary of construction costs
by project compared to financing provided is as follows:
Assessments
and Additional
Construction Direct Financing
Project Costs Charges Required
Sunview $ 24,247 $ 24,247 $ -0-
Valley View 105,323 72,175 33,148
Other 27,760 27,760 -0-
Totals $156,330 $123,851 $ 33,148
Special Assessment Interest and Adjustments 9,959
1983 Budgeted Transfer 28,000
Fund Balance After 1983 Budgeted Transfer $ 4,811
The City has provided additional financing of this fund by a budgeted cash transfer
of $28,000 from the General Fund in 1983. We recommend that this account be closed at
December 31, 1983 with the remaining net assets being ransferred to the Completed
Construction account. Council action is required to effect this account closing and
related transfer of assets.
57th Street Improvement
This construction fund was created in 1980 to account for the 57th Street
Improvement Project. This project is 100% financed by the developer. The assets of
this fund at December 31, 1982 include a cash overdraft of $1,288 and an equal amount
due from the developer financing this project. We recommend that the City monitor this
project to assure timely billing and collection of the balance due from the developer
during 1983.
City of Oak Park Heights
Management Report, Page 32
Swager's 8th Addition
This construction fund was created in 1980 to account for costs incurred by the City
in the Swager's 8th Addition which are billable to the developer. The assets of this
fund at December 31, 1982 include a cash overdraft of $3,252 and a $3,252 amount due from
the General Fund to finance the write off of the developers receivable. This write off
of the balance was approved by the City Council in January, 1983.
1982 Sewer and Water Improvement
The Sewer and Water Improvement Fund was established in 1982 to account for the
Anderson /Lindquist Water and Sewer Extensions. The project is being financed by develo-
pers and the $165,000 Improvement Bonds of 1982. Activity of this fund is as follows:
Bonds proceeds $ 143,616
Interest on investments 5,547
Total amount available 149,163
Construction Costs:
Contractor 66,122
Engineer 20,602
Other 2,827
Total 89,651
Fund Balance - December 31, 1982 59,512
Less: Committed Contracts 157,772
Adjusted Undesignated Fund Balance (Deficit) -
December 31, 1982 $ (98,260)
The above adjusted undesignated fund balance (deficit) is the direct result of
expending City money on the developer's share of project costs (prior to receiving
payment from the developer). The collection of monies from the developers is extremely
important to the City. It is to the City's advantage to obtain financing of construc-
tion costs (bonding or developer advance payment) before expending such monies. We
recommend that the City develop policies and procedures with respect to developers pro-
jects to insure timely receipt of the monies in relation to when the City pays costs
incurred on behalf of the developer.
City of Oak Park Heights
Management Report, Page 33
Special Assessment Construction Accounts
Special assessment construction activity has increased in 1982 with the awarding of
bids on the Water and Sewer Improvement and the Storm Sewer Drainage Improvement. This
will require the City to increase financial accounting control over construction
projects. During 1982 the City did increase these controls by establishing:
• Project construction files containing:
1. Summary of costs incurred.
2. Copies of appropriate construction invoices.
3. Council minutes approving project.
4. Publications relating to project.
5. Bond resolutions financing the project.
6. Other applicable data.
• An interim construction fund to account for preliminary
project costs prior to final approval.
We recommend that the City keep current the above two items in order to be able to
provide information as requested by City Council in a timely and efficient manner. The
City should continue its efforts to increase accounting controls and monitor special
assessment construction activity.
Enter prise Fund
The financial statements for the Enterprise Fund (Water and Sewer Utilities) are
presented in Statements 17 and 18 of the City's 1982 Annual Financial Report. Condensed
comparative operating statements of income and expense for the utility operations
excluding depreciation on contributed assets of the City are as follows:
Ci';-:y of Oak Park Heights
Management Report, Page 34
Water Department
1982 1981
Amount Percent Amount Percent
Income:
Customer billings and other $ 63,431 100.00% $ 51,265 100.00%
Operating expenses:
Contractual services 17,026 26.84 14,969 29.20
Administrative and
personnel charges 15,000 23.65 11,031 21.51
Other 2,685 4.23 2,629 5.13
Total operating expenses 34,711 54.72 28,629 55.84
Net income before
depreciation 28,720 45.28% 22,636 44.16%
Depreciation - machinery and
equipment 5,312 3,359
Net operating income $ 23,408 $ 19,277
Sewer Department
1982 1981
Amount Percent Amount Percent
Sales:
Customer billings and other $ 74,863 100.00% $ 51,391 100.00%
Operating expenses:
M.W.C.C. 51,109 68.27 54,433 105.92
Administrative charges 15,000 20.04 4,936 9.60
Other 4,405 5.88 5,041 9.81
Total operating expenses 70,514 94.19 64,410 125.33
Net income (loss) before
depreciation 4,349 5.81% (13,019) (25.33 %)
Depreciation - machinery and
equipment 2,115 133
Net operating income (loss) $ 2,234 $(13,152)
The increase in sales in 1982 is due to the City rate increase approved in the
fourth quarter of 1982. The City is currently in the process of having utility rates
reviewed by the City's engineering firm. This study should be used to determine if
rates are covering costs incurred. We recommend that the City continue the review of
utility rates on a periodic basis and increase rates as needed.
City of Oak Park Heights
Management Report, Page 35
The operating expense item which has the most impact on operations is not under
direct City control. Sewer line user charges are determined by the Metropolitan Waste
Control Commission (M.W.C.C.).
The M.W.C.C. bills the City annually on an estimated basis. These estimated
billings are adjusted at a later date and the City is billed the additional amount or
given a refund. These estimated billings vary from year to year and may cause material
variances in annual profits or losses of the sewer operating account. The M.W.C.C.
billings for the period 1973 through 1983 were as follows:
Estimated Final
Year Billings Billings
1973 $ (5,886) $ (1,803)
1974 (3,825) 258
1975 (1,954) 6,641
1976 4,682 11,698
1977 13,903 9,949
1978 20,387 8,723
1979 26,202 34,090
1980 19,257 34,197
1981 39,492 34,048
1982 56,553 Not available
1983 66,348 Not available
Note: The bracketed figures above indicate payments from the M.W.C.C.
The unbracketed figures above indicate payments to the M.W.C.C.
City of Oak Park Heights
Management Report, Page 36
A graphic illustration of the estimated to final billings shows how drastically the
charges from M.W.C.C. vary from estimated to actual and between years.
65—
60—
55—
Final Estimated
Billing Billing
50-
0
Q
4
0 45_
0
0
40—
Q) 35—
q3 .
30—
U
U
3 25-
20— ' s
z,
15°
10— _
5— £_
a is
5
k
0 r ;,
(5)-
1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983
City of Oak Park Heights
Management Report, Page 37
The M.W.C.C. charges comprise approximately 68% of sewer expenses (excluding contri-
buted asset depreciation). The City must set rates at levels adequate to pay for the
pass through cost or provide funding from other City funds. In view of this financial
structure and arrangement, the City's ability to exercise control over its sewer opera-
tions is limited. The City could be construed to be acting only as an agent for the
M.W.C.C. with regard to sanitary sewer operations.
Internal Accounting Controls
Our examination included a review of the City's system of internal control. A
system of internal control comprises the plan of organization and all of the coordinate
methods and measures adopted within a City to safeguard its assets; check the accuracy
and reliability of its accounting data; promote operational efficiency; and insure
adherence to Council policies and various Federal, State and local statutes. An
accounting system is a part of the overall system of internal_ control and it is the
means by which information is accumulated, recorded, classified, summarized and
reported. The prime purpose of any accounting system is to provide complete and
accurate financial information: (1) in proper form, (2) on a timely basis and, (3) cost
efficiently.
Current auditing standards require an auditor to communicate any material weaknesses
in internal accounting controls directly to City Council and /or City Administrators.
Our examination for 1982, disclosed no material deficiencies in the City's system of
internal accounting controls not identified in this report or past reports to the City
Council.
Ci of Oak Park Heights
Management Report, Page 38
Financial Management Requirements
Over the past several years, the financial management requirements for all Cities
have increased tremendously. Today, a completely new financial environment exists for
Minnesota Cities as compared to the 1970'x. The changing financial environment is
detailed in our Special Report - Financing Minnesota Local Government in the 1980's.
Also, over the past several years, the City of Oak Park Heights has taken substan-
tial action to meet the challenges of this new financial environment by improving its
internal financial accounting, cash management, budgetary, and, overall financial mana-
gement systems. The benefits of these actions and the revised City policies and proce-
dures are now starting to be realized by the City. Some of these benefits are as
follows:
® Increased investment interest earnings.
® Improved and more timely collections of developers billings.
® Improved reserve balances in the General Fund of the City.
® Improved projected financial positions of the Special Assessment -
Debt Service Accounts.
® Improved and more timely financing of the Special Assessment -
Construction Projects.
® Improved budgetary controls on the operating funds of the City.
We commend the City for these past efforts; congratulate the City on achieving the
benefits; and, encourage the City to continue its efforts toward addressing the con-
tinuing changes of the new financial environment.
City of Oak Park Heights
Management Report, Page 39
Summary
The following is a summary of the items to be recorded, investigated and /or resolved
during 1983. Additional explanations for each of these items can be found in the pre-
ceding sections of this report.
Prepare financial projections based on continued State aid reductions.
(Pages 1 through 10)
° Approve and record interfund cash transfers to effect the interfund audit and
year -end closing adjustments at December 31, 1982. (Page 15)
° Review procedures with regard to the collection of adequate deposits from
developers. (Pages 16 and 17)
Monitor the property tax collection rate. (Pages 17 and 18)
® Monitor the special assessment collection rate and the corresponding effects on
the special assessment debt service accounts. (Pages 18 through 20)
° Monitor the assessment information provided by the County to gain reliance on
the new system being implemented. (Page 20)
° Continue City efforts toward developing and maintaining an adequate General
Fund reserve balance. (Pages 23 and 24)
® Authorize the special compliance audit for the Federal Revenue Sharing Fund for
the year ended December 31, 1982. (Page 26)
Continue to monitor the projected financial position of the special assessment
debt service funds. (Pages 28 and 29)
Continue to monitor the financial position of the Special Assessment
Construction Accounts of the City and close completed construction accounts.
(Pages 29 through 33)
• Continue to monitor the financial operations of the Water and Sewer Operating
Accounts to assure adequate financing for these Utility Operations.
(Pages 34 and 35)
• Continue efforts to maintain, monitor and improve the financial accounting and
financial management systems of the City to assure the availability and accuracy
of information by which to manage the financial operations of the City.
(Page 38)
Respectfully submitted,
DE LA HUNT VOTO & CO., LTD.
Certified Public Accountants
May 9, 1983