HomeMy WebLinkAboutManagement Report and Recommendations CITY OF OAK PARK HEIGHTS, MINNESOTA
MANAGEMENT REPORT AND RECOMMENDATIONS
DECEMBER 31, 1984
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City of Oak Park Heights, Minnesota
Management Report, Page 2
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.
Since 1978, State aids and local property taxes (used to finance the General and
Special Revenue Funds of the City of Oak Park Heights) and their percent to total reve-
nue for these funds, 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
1983 149,391 19.75 482,084 63.72
1984 152,742 17.41 543,573 61.97
The preceding data indicates that the City has been required to rely on increased
property taxes to fund the increased levels and costs of providing City services. State
aids have not increased significantly over the past several years as follows:
Description 1978 1979 1980 1981 1982 1983 1984
Local government aid $ 77,434 $ 77,434 $ 79,564 $ 75,994 $ 68,950 $ 82,324 $ 94,074
Homestead credits 9,442 10,710 20,174 28,487 35,291 49,840 46,887
Police aid 8,381 8,127 9,037 9,751 10,263 10,720 11,284
Diseased tree 8,113 11,913 15,016 -0- 3,576 -0- -0-
Other 3,376 2,965 431 10,704 4,345 6,507 497
Totals $106,746 $111,149 $124,222 $124,936 $122,425 $149,391 $152,742
Change $ 4,403 $ 13,073 $ 714 $ (2,511) $ 26,966 $ 3,351
Percent Change 4.12% 11.76% .57% (2.01$ 22.03% 2.24%
The above increase in local government aid is partially the result of a change in
policy regarding "other State aids ". Attached machinery aid and reduced assessment aid
have been eliminated and included in the local government aid allocations. These aids
totaled $6,100 for the City of Oak Park Heights in 1983.
City of Oak Park Heights, Minnesota
Management Report, Page 3
The following schedules and graphs reflect the combined revenue of the General and
Special Revenue Funds for 1984 and 1983. Additional detail on the revenue is presented
in Statements 7 and 9 of the 1984 Annual Financial Report.
Increase
Description 1984 1983 (Decrease)
General property taxes $ 543,573 $ 482,084 $ 61,489
Intergovernmental:
State 152,742 149,391 3,351
Federal 40,217 37,548 2,669
Licenses and permits 15,967 16,808 (841)
Charges for services 33,318 33,221 97
Interest on investments 49,681 24,798 24,883
All other revenue 41,608 12,655 28,953
Total $ 877,106 $ 756,505 $120,601
19B4 1983
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Property Taxes
® Federal Revenue
All Other
State Revenue
City of Oak Park Heights, Minnesota
Management Report, Page 4
Total expenditures of the General and Special Revenue Funds increased in 1984 as
compared to 1983. Expenditures for 1984 and 1983 are as follows by major classifica-
tion.
Increase
Description 1984 1983 (Decrease)
Current expenditures:
General government $ 154,095 $ 131,768 $ 22,327
Public safety 227,844 204,955 22,889
Streets and highways 60,414 62,900 (2,486)
Sanitation 74,652 63,814 10,838
Recreation 79,938 74,714 5,224
Capital outlay 9,820 13,793 (3,973)
Totals $ 606,763 $ 551,944 $ 54,819
A graphic illustration of the above expenditures as a percent of total expenditures
is presented below.
1984 1963
299 a
13
14%
25% 23%
129Z
12%
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X .:
38% 37%
General Gov'nt
® Public Safety
Streets & Hwy s
Sanitation
❑ Recreation
19 Capital Outlay
City of Oak Park Heights, Minnesota
Management Report, Page 5
Condensed Combined Financial Statements
The Condensed Combined Financial Statements of the City are presented in Statements
1 through 5 of the 1984 Annual Financial Report. The following comments relate to these
Financial Statements of the City.
Cash And Investments
December 31, Increase
Description 1984 1983 (Decrease)
Clerk's balance:
Checking account (overdraft) $ (1,170) $ (1,670) $ 500
Investments 1,570,777 1,870,257 (299,480)
Petty cash 50 50
Totals $1,5 $1,8 $(298,980)
The December 31, 1984 and 1983 checking account overdrafts are book overdrafts only
and do not reflect bank overdrafts. These balances are a result of the City's policy of
depositing cash in interest bearing accounts in order to maximize investment earnings on
City monies not needed for current expenditures. During 1984, the City maintained an
average negative book balance in the checking account of $3,000. This balance and other
factors allowed the City to earn $192,800 of interest on investments during 1984 repre-
senting a $40,000 increase over 1983. Investments at December 31, 1984 and 1983 were as
follows:
December 31,
1984 1983
Investment Description Yiel Balance Yield Balance
Certificate of Deposit 9.75% $ 155,000
Certificate of Deposit 9.9% $ 220,000 9.65 255,000
Certificate of Deposit 9.85 127,000 9.50 100,000
Certificate of Deposit 9.65 290,000 9.40 329,400
Certificate of Deposit 9.75 189,000 9.45 309,750
Certificate of Deposit 9.65 230,700 9.75 100,000
Certificate of Deposit 9.50 330,000 9.70 240,000
Certificate of Deposit 8.75 103,200 10.00 328,000
Repurchase Agreement 7.55 80,877 8.25 53,107
Totals $ 1,570,777 $ 1,870,257
City of Oak Park Heights, Minnesota
Management Report, Page 6
The overall decrease in cash and investments was the result of the payment of amounts
to fund the City's bond defeasance program. A further discussion of the effects of the
defeasance program is presented on page 11 of this report.
Security For Deposits /Depositories
Minnesota statutes (MS 118) requires City Council approval of depositories and that
certain levels of pledged security be maintained for deposits which are not insured
and /or guaranteed by the Federal government. Audit tests disclosed that the City of Oak
Park Heights was in full compliance with such statutes at December 31, 1984.
Due From (To) Other Funds
During the course of the year end audit, certain adjustments are required to correct
codings of receipts and /or disbursements. Some of these adjustments are recorded
directly through the accounting records. Others are adjusted on trial balances and
therefore require City action to approve and record such adjustments. Interfund cash
adjustments to be approved by the City Council are as follows:
Fund
No. Fund Description Due From Due To
402 Brekke Park Improvements $ 818.78
702 Enterprise Fund $ 818.78
To adjust coding of
SAC charge remittance.
The above adjustment requires City Council approval.
In addition to the above adjustment, various other adjustments have been recorded on
year end trial balances. These adjustments must be recorded to effect proper beginning
balances for the 1985 records of the City. This is of particular importance with the
pending computer conversion for accounting records. We are available to assist the City
in recording the above adjustments.
City of Oak Park Heights, Minnesota
Management Report, Page 7
Due From Other Governmental Units
December 31, Increase
Description 1984 1983 (Decrease)
State share - prison utility
construction $ -0- $ 7,190 $ (7,190)
Fines 745 671 74
Revenue sharing allocation 9,698 10,172 (474)
MWCC final cost allocation 22,378 8,817 13,561
City of Stillwater - construction costs -O- 1 1,295 (11,295)
Totals $ 32,821 $ 38,145 $ (5,324)
All of the above amounts are currently collectible.
Taxes Receivable - Delinquent
Taxes Receivable - Delinquent consist of taxes levied in the previous six years by
the City but not collected by the County and remitted to the City.
The collection rate on property taxes was approximately 99% for 1984 as compared to
a 1983 rate of 100 %. Property tax collections were as follows for 1984 and 1983:
1984 1983
Delinquent taxes - January 1 $ 15,622 $ 16,175
Current levy 696,639 605,259
Total collectible 712,261 621,434
Receipts:
Property owners 635,680 542,446
State 54,883 63,366
Total receipts 6 605,812
Delinquent taxes - December 31 $ 21,698 $ 15,622
Total collections as a percent of
current levy 99% 100%
City of Oak Park Heights, Minnesota
Management Report, Page 8
The above schedule indicates that the City is realizing an excellent collection rate
for property taxes. The schedule also indicates that State paid homestead credits are
decreasing as a percent of total levy as follows:
Collectible
1984 1983
Property tax levy $ 696,639 $ 605,259
Homestead collections 54,883 63,366
Percent 7.88% 10.47%
The decrease in the State paid property tax is partially the result of overall
increased taxes from the school district, the county and other taxing districts. As the
total levy increases, more households meet the maximum homestead credit allowance and
therefore the portion of property taxes paid by property owners increases (i.e. the
State paid portion has a ceiling, whereas the property owner paid portion does not).
Special Assessments Receivable
Special assessments receivable consisted of the following types and amounts at:
December 31, Increase
Description 1984 1983 (Decrease)
Delinquent $ 20,644 $ 8,195 $ 12,449
Due from County 13,953 3,166 10,787
Deferred 314,643 323,405 (8,762)
Special deferred -
Council action 14,800 14,800
Totals $364,040 $334,766 $ 29,274
City of Oak Park Heights, Minnesota
Management Report, Page 9
Delinquent special assessments have been as follows for the past several years.
Percent
Delinquent Increase Increase
December 31, Assessments (Decrease) (Decrease)
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
1983 8,195 (19,080) (30.05)
1984 13,850 5,655 69.01
The change in delinquent assessments receivable over the past two years was as
follows:
1984 1983
Delinquent balance - January 1 $ 8,195 $ 27,275
Add:
Current installments 93,917 59,286
Amount collectible 102,112 86,561
Less collections:
Current 85,506 56,847
Delinquent 2,234 21,636
Total collections 87,740 78,483
Adjustments (522) 117
Delinquent balance - December 31 $ 13,850 $ 8,195
Percent of current levy collected 93.42% 95.88%
The amount reported as "Special Deferred" consists of an assessment which has been
deferred pending future connection to the sanitary sewer line. This amount was deferred
by City Council Resolution 84 -1 -1. The resolution does not stipulate the amount of
interest to be collected upon connection. We recommend that the City clarify the
interest terms for this (and future) special assessment deferrals.
City of Oak Park Heights, Minnesota
Management Report, Page 10
Fixed Assets
The City currently does not maintain detailed records nor accounting controls over
general fixed assets. This is not uncommon to suburban Minnesota cities. The effect,
however, is that the control over movable assets is diminished. Additionally, docu-
mented information for insurance claims may not be readily available.
The cost of a complete fixed asset system may be prohibitive for the entire City at
this time. Accumulation of fixed asset records for various departments, however, could
be accomplished at a lesser cost and all departments could eventually be phased in. The
task would require research into accounting records and physical identification of cer-
tain movable assets. The benefit of such an effort would be greater safeguarding of
City assets. The City is currently reviewing internal computer capability options. The
City is in the process of acquiring a system capable of maintaining fixed asset records.
Although implementation of this feature would be a lower priority, we recommend that the
City consider the benefits of establishing computerized fixed asset inventory and
accounting records for the City's fixed assets at a future date.
Compensated Absences Payable
Compensated Absences Payable consist of employee benefits for vacation and severance
pay which are vested by the employee and for which payment is probable. Severance pay
benefits are payable to the City's police employees who have been with the City in
excess of 10 years. These employees have vested severance pay which totaled $12,403 and
$8,819 at December 31, 1984 and 1983 respectively. Also included in the accrual for
compensated absences is vacation pay benefits for all City employees of $1,987 at
December 31, 1983 and $1,211 at December 31, 1984.
City of Oak Park Heights, Minnesota
Management Report, Page 11
Bonds Payable
Bond Issues _
Special Special Revenue
Assessments District Bonds Totals
Balance - January 1, 1984 $ 1,300,000 $ 205,000 $ 180,000 $ 1,685,000
Principal Payments (155,000) (5,000) (10,000) (170,000)
Bond Defeasance Program (805,000) (805,000)
Balance - December 31, 1984 $ 340,000 $ 200,000 $ 170,000 $ 710,000
Detail of outstanding bond issues are contained in Exhibits 2 and 3 of the 1984
Annual Financial Report. As shown above, outstanding debt decreased by 58% during 1984
from $1,685,000 to $710,000.
During 1984, the City effected a bond defeasance program whereby $805,000 of the
special assessment bonds were placed in escrow along with adequate cash balances to
assure timely debt retirement. This program substantially reduced the debt of the City
and allowed the City to eliminate debt restrictions on approximately $300,000 of cash
for other City Council designated purposes.
Fund Equity
December 31, Increase
Fund Group 1984 1983 (Decrease)
Fund balance:
General $ 579,612 $ 453,507 $126,105
Special Revenue 71,098 58,314 12,784
Debt Service 2,456 1,591 865
Capital Project (54,302) 10,941 (65,243)
Special Assessment:
Construction 48,553 78,423 (29,870)
Debt Service 554,239 254,240 299,999
Totals 1,201,656 857,016 344,640
Retained earnings:
Enterprise 393,916 348,692 45,224
Totals - All Funds $1,595,572 $1,205,708 $389,864
The primary increase in equity was caused by the 1984 Bond Defeasance Program of the
City. That program required the payment of approximately $600,000 to retire $805,000 of
debt. The various causes for other equity changes are discussed in the following sec-
tion of this report.
City of Oak Park Heights, Minnesota
Management Report, Page 12
General Fund
The financial statements for the General Fund are presented in Statements 6 and 7 of
the City's 1984 Annual Financial Report. The fund balance of the General Fund was
$579,612 at December 31, 1984 representing a $126,105 increase during 1984. This
increase was the result of the following:
• Budgeted increase. The City budgeted revenue in
excess of anticipated expenditures and transfers out. $ 40,000
• Actual revenue exceeded budgeted revenue:
Licenses and permits $ 3,109
Fines and forfeits 9,633
Interest on investments 32,748
Sale of property 23,000
Other 11 68,501
• Budgeted expenditures less (greater) than
actual expenditures.
General government 10,999
Public safety (3,171)
Recreation 4,611
Other 1,940
Contingency 12,179 26,558
• Unbudgeted transfers out to Special Assessment Fund. (8,954)
Net increase in fund balance for 1984 $ 126,105
Details of the above amounts are presented in Statement 7 of the Annual Financial
Report. The fund balance of the General Fund has increased over the past several years.
The schedule below reflects the fund balances for the past nine 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
1983 453,507 152,508
1984 579,612 126,105
City of Oak Park Heights, Minnesota
Management Report, Page 13
The City has achieved a sound fund balance level for its General Fund. This level
is adequate to meet several required needs as follows:
° Timing in receipt of major revenue sources. Property taxes are primarily
received by the City in July and December. Additionally, major State aids
(local government aid and homestead credits) are received in six monthly
installments starting in July. A majority of expenditures are incurred
evenly throughout the year yet two of the major funding sources are not
available until after one -half of the operating cycle has elapsed. Cities
must therefore maintain a reserve balance to fund the delivery of basic ser-
vices for the six months of the year prior to receiving these major revenue
sources.
• Cities are often under statutory restrictions which regulate the amount of
property taxes which can be levied for an operating year. Additionally,
there are self- imposed restrictions on the amount of property taxes which a
city is willing to tax its citizens in light of increasing school district,
county, and other taxing authority increases. Property tax revenue is
therefore (oftentimes) a limited financing source for cities. Additionally,
full collection of these property taxes is not assured. Delinquent property
taxes reduce the amount available for expenditure during the current
operating cycle.
• Intergovernmental revenue. The Federal government, the State government and
other local units of government are addressing budget shortfalls. Solutions
to their budget problems are often directly passed through to cities.
Intergovernmental revenues historically have been a primary funding source
for delivery of basic services by Minnesota cities. As these aids are
reduced, the overall revenue available to fund expenditures is impaired.
The receipt of major revenues available for the City to finance basic services are
limited and are not received in a timely manner (i.e. they do not match the City's
operating expenditure cycle). Additionally, as described above, necessary expenditure
levels are often affected by factors which are beyond the City's direct control. For
these reasons, cities must maintain operating reserve balances in their General Fund.
The reserve balance must be maintained at a level which will:
• Assure the continuing ability to provide basic services during temporary periods
of economic crisis (such as high inflation rates).
• Meet cash flow timing differences.
• Be adequate and available to meet emergency and /or unanticipated expenditures.
° Be adequate to offset intergovernmental revenue shortfalls on a short -term basis
(i.e. when cuts are made after the operating budget for the City is
established).
• Be available to provide supplemental financing for other City projects
(optional).
City of Oak Park Heights, Minnesota
Management Report, Page 14
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 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 $350,000 computed as follows:
1985 Budgeted Levy (Includes Homestead Credit) $ 600,000
1985 Anticipated Local Government Aid 100,000
Total $ 700,000
Minimum Required Cash -Flow
Reserve (One -Half of Total) $ 350,000
The City has demonstrated that a financially sound General Fund is attainable
through prudent fiscal planning. The City has met its cash flow required reserve and
also has approximately $230,000 of other General Fund reserves to fulfill the various
other reserve requirements as described in this report. One option available to the
City is to formalize the reserve policy of the City through designations of General Fund
reserve balances. The first and foremost reserve would be the cash flow reserve of
$350,000 which should be reviewed (and adjusted) periodically. Other reserves could be
designated for compensated absences, construction fund deficits, equipment replacement,
etc. Desgination of reserve balances, while not required, may assist the City in
defining (formalizing) the reserve requirements of the City.
City of Oak Park Heights, Minnesota
Management Report, Page 15
Without this 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 to monitor this reserve balance. An
adequate reserve structure will enable the City to retain its financial independence and
integrity during the present change in economic environment.
Special Revenue Fund
The financial statements for the Revenue Sharing Fund are presented in Statements 8
and 9 of the City's 1984 Annual Financial Report. A summary of the Revenue Sharing
transactions from inception through December 31, 1984 is as follows:
Prior
Years 1984 Total
Revenue:
Revenue sharing entitlements $453,506 $ 40,217 $493,723
Interest on investments 36,640 5,933 42,573
Total revenue $490,146 $ 46,150 536,296
Expenditures:
Professional and consultant
services $ 2,616 2,616
Park land acquisition 78,578 78,578
Playground equipment 6,648 $ 4,141 10,789
Land easement 5,750 5,750
Police vehicles - equipment 50,158 50,158
Park fencing 23,052 405 23,457
Fire protection 3,498 3,498
Youth service bureau 14,708 3,000 17,708
Shade trees 16,380 16,380
Valley View Park improvement 50,945 50,945
Office equipment 8,706 8,706
Public works vehicles 27,650 27,650
City hall expansion 75,000 75,000
Sanitation and waste 67,000 25,000 92
Other 1,143 820 1,963
Total expenditures $431,832 $ 33,366 465,198
Balance - December 31, 1984 $ 71,098
City of Oak Park Heights, Minnesota
Management Report, Page 16
In 1983, the Revenue Sharing Regulations were amended to require recipients to
comply with the administrative requirements of the Revenue Sharing Handicapped
Regulations which were previously deferred. The requirements which effect the City of
Oak Park Heights are as follows:
Requirement Deadline
• Publish a statement that recipient does not January 17, 1984
discriminate against handicapped persons.
• Conduct a self- evaluation. October 17, 1984
• Make necessary nonstructural changes to assure October 17, 1984
program accessibility.
• Prepare a transition plan where structural October 17, 1984
changes are necessary.
The City has substantially complied with terms of the revised regulations. It has
been determined by the City that no structural changes are necessary.
With regard to other compliance areas, the City apparently did not meet one tech-
nical publishing requirement related to the budget process. We recommend that the City
continue efforts to meet all regulations on a timely basis.
Current pending Federal legislation indicates that Revenue Sharing may be curtailed
or eliminated. We recommend that the City anticipate the effects of such legislation
and prepare plans for substitute financing of expenditures which have been funded by
Revenue Sharing (or plan to eliminate programs for which adequate funding is no longer
available). The City's last Revenue Sharing audit was for the year ended December 31,
1982. A compliance audit will be required for 1985 to be submitted in 1986.
City of Oak Park Heights, Minnesota
Management Report, Page 17
Debt Service Funds
The financial statements for the City's Debt Service Fund is presented in Statements
10 and 11 of the 1984 Annual Financial Report. Debt Service Funds are governmental type
funds used to account for the accumulation of resources to provide payment of principal
and interest on general debt. The City has one general debt bond outstanding, Storm
Sewer Bonds of 1982.
These bonds were issued to provide financing for the Storm Sewer District construc-
tion. 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, 1984 $ 2,456
Additions:
Future scheduled tax levies 503,783
Total 506,242
Deductions:
Debt requirements:
Principal 200,000
Interest 238,530
Total 438,530
Projected Fund Balance $ 67,712
Normal Projected Fund Balance -
5% of debt requirements $ 21,900
The above projection indicates that this fund will have adequate cash to meet bonded
debt payments. The original projection from last year indicated that periodic cash flow
deficiencies would occur throughout the term of the issue (i.e. bond payments were due
one month preceding tax remittances). This situation will continue until this fund
builds a reserve balance (from tax collections over 95% of levied taxes) to compensate
for this one month timing difference.
City of Oak Park Heights, Minnesota
Management Report, Page 18
Capital Project Funds
The financial statements for the Capital Project Funds are presented in Statements
12 and 13 of the City's 1984 Annual Financial Report. The City had three Capital
Project Funds at December 31, 1984.
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 City Hall
Expansion and Curb Recreation Retrofit 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
1983 20,000 2,500 22,500
1984 20,000 2,500 22,500
Total transfers 70,000 120,000 21,075 211,075
Sale of property 9,414 9,414
Donation 750 750
Interest allocated to
specific functions 13,619 2,621 $ 13,752 29,992
Total revenue and
other sources 93,033 120,000 24,446 13,752 251,231
Expenditures and Other Uses:
Transfers out:
Municipal building
expansion (91,438) (91,438)
Direct expenditures (1,595) (70,602) (21,946) (13,752) (107,895)
Sub -total $ -0- $ 49,398 $ 2,500 $ -0- 51,898
Add:
Unallocated interest earnings 1.789
Fund balance - December 31, 1984 $ 53,687
City of Oak Park Heights, Minnesota
Management Report, Page 19
Storm Sewer Drainage Improvement
This fund was created in 1982 to account for storm drainage improvements which were
approved for construction during 1982. Costs incurred through December 31, 1984 total
$233,957. This project is financed by the $205,000 Storm Sewer Bonds of 1982. Activity
of this fund from inception to December 31, 1984 is as follows:
Bond proceeds $ 181,482
Interest on investments 5,976
Other City participation 11,295
Other 172
Total amount available 198,925
Construction Costs:
Contractor 183,935
Engineering 37,561
Legal 5,339
Other 7,122
Total 233,957
Fund Balance (Deficit) - December 31, 1984 $ (35,032)
Options to fund the above deficit had been presented to the City as follows:
1. Negotiate a supplemental bond issue.
2. Sell an internal bond issue.
3. Finance deficit through a transfer or loan from the City's Closed Bond Fund.
On December 10, 1984, the City approved the third option. This was effected by the
adoption of Resolution 84- 12 -40, which stipulates an interest rate of 10% per annum on
the interfund loan. This loan will be repaid from the proceeds of supplemental tax
levies (on the Storm Sewer Improvement District only) to be collected in 1985 and 1986.
These levies were approved by the City Council on October 9, 1984 in the amount of
$21,650 for each year. 'These tax proceeds (when collected) should be receipted to this
construction fund to provide the financing to retire the interfund loan.
City of Oak Park Heights, Minnesota
Management Report, Page 20
Brekke Park Improvement
During 1984, the City established this fund to effect park improvements. The
financing and expenditures to date have been as follows:
Financing sources:
Transfer from General Fund $ 100,000
Interest on investments 165
Total $ 100,165
Expenditures:
Contractor 157,226
Engineering 13,288
Legal and other 2,608
Total 173,122
Fund balance (deficit) - December 31, 1984 $ (72,957)
This fund's LAWCON grant application was denied. To temporarily finance a portion
of the above deficit, the City loaned $22,100 to this fund from the Closed Sinking Fund.
A permanent revenue source to finance the entire deficit (including loan repayment) has
been established through the General Fund 1985 operating budget. We recommend that the
1985 appropriation be reviewed upon project completion to assure full funding of this
project. This review should be incorporated into the 1986 budget process.
Special Assessment Funds
The combining financial statements for the Special Assessment Funds are presented in
Statements 14 and 15 of the City's 1984 Annual Financial Report. A Special Assessment
Fund is organized to account for both the construction and financing of assessable
improvement projects.
During 1982, the City prepared a "Special Assessment Debt Service Study ". The cash
flow schedules were computer generated which allowed for presentation of various
optional schedules. The report should be used to monitor actual results versus pro-
jected results. The reports should be updated in the future when actual results vary
materially from projected results.
City of Oak Park Heights, Minnesota
Management Report, Page 21
Special Assessment Debt Service Funds are established by bond sale resolutions and
must legally exist during the period the bonds are outstanding. During that period,
these funds collect revenues to pay the principal and interest on bonds in a timely
manner. The primary sources of revenue for these funds is special assessments charged
to benefiting property owners and general debt tax levies. The assessments recover
construction costs over the term of the assessment roll plus interest at specified
rates. In addition, these funds commonly collect revenue from interest on investments,
general property taxes, and other designated sources. All monies of the Special
Assessment Debt Service Funds are committed to debt retirement until the City's obliga-
tion is satisfied. These monies are not available for any other City purpose until debt
maturity.
The combination of the various projected revenue sources along with the scheduled
debt service payments formed the basis for the financial projections contained in the
Special Assessment Debt Service Study. The study was prepared based on assumption of
various collection rates for tax levies and special assessments and interest on invest-
ments. Actual collection rates on taxes were 98 %, 100% and 99% for 1982 through 1984
respectively. The following schedule compares the actual cash balance to the projected
cash balance as of December 31, 1984.
Cash and Investment
Balance Final
12/31/84 Variance Bond
Debt Service Account Actual Projected Favorable Maturity
G.O. Storm Sewer Bonds of 1971 $ 30,762 $ 26,018(2) $ 4,744 1991
G.O. Improvement Bonds of 1976 71,365 62,654(
8,711 1986
(1) The projected balance is based on:
7% Investment Rate
90% Collection on Assessments
Full Cancellation of Property Taxes
(2) The projected balance is based on:
7% Investment Rate
95% Collection Rate on Assessments
95% Collection Rate on Taxes
City of Oak Park Heights, Minnesota
Management Report, Page 22
As shown above, the actual cash balances are exceeding the projected balance, at the
above projection assumptions. The favorable variances are due to:
• Tax collection rates greater than 95 %.
• Interest earnings higher than projected.
• Assessment collections in excess of 90% and 95 %.
We recommend that the City, on an annual basis, compare and monitor the projected
cash position contained in the report to actual cash balances. Variances between actual
and projected balances should be analyzed to determine the reasons for the variance (and
to take action if required).
Improvement Bonds of 1982
The Improvement Bonds of 1982 were sold to finance water and sewer improvements for
the City's Anderson /Lindquist project. The project was assessed in 1983. A comparison
of estimated to actual assessments is as follows:
Estimated roll per bond resolution $ 127,000
Roll adopted 90,400
Under assessed to estimated roll $ 36,600
The under assessment caused a projected shortfall for this fund. The City has
addressed this situation by the approval of a supplemental tax levy which is to be
collected in 1985. This 1985 supplemental tax levy should completely resolve the pro-
jected shortfall of this fund. We recommend that the City continue to monitor this fund
to assure full and timely funding for all debt payments.
City of Oak Park Heights, Minnesota
Management Report, Page 23
Closed Bond Fund
During 1984, the City established the Closed Bond Fund. Initial funding for this
fund was provided through the residual balances of closed (or defeased) special
assessment bond funds of the City. A summary of transactions for 1984 is as follows:
Financial sources:
Transfers in:
G.O. Bonds of 1967 and 1968 $ 431,460
G.O. Bonds of 1977 72,292
G.O. Bonds of 1978 and 1979 108,343
Interest on investments 3,819
Total $ 615,914
The assets of this fund were as follows at December 31, 1984.
Cash and investments $ 446,687
Accounts receivable 6,932
Interfund loans receivable:
Storm Sewer Improvement of 1982 28,800
Brekke Park Improvements 22,100
Special assessments receivable 111,538
Refund payable (143)
Total $ 615,914
The purpose of the Closed Bond Fund is to receive residual balances of closed spe-
cial assessment bonds. Amounts on hand at December 31, 1984 are available for use at
the Council's discretion.
City of Oak Park Heights, Minnesota
Management Report, Page 24
Special Assessment Construction Accounts
The financial statements for these funds are presented in Statements 14 and 15 of
the 1984 Annual Financial Report. The City maintained the following construction funds
during 1984 and 1983.
Fund Balance (Deficit)
December 31, Increase
Description 1984 1983 (Decrease)
Interim Construction $ ( 3,123) $ (4,190) $ 1,067
Completed Construction 89,773 90,252 (479)
Prison Utilities -0- (7,856) 7,856
1979 Utilities -0- 7,097 (7,097)
1982 Water and Sewer (34,856) (28,969) (5,887)
1983 Improvements (3,269) 22,089 (25,358)
58th & 59th Street
Improvements 28 -0- 28
Totals $ 48,553 $ 78,423 $ (29,870)
Completed Construction
This fund was established in 1977 by closing several construction accounts to one
account. This account has a fund balance of $89,773 at December 31, 1984. The fund
balance is composed of the following assets:
Cash - Adjusted $ 31,286
Special Assessments Receivable 58,487
Total $ 89,773
A summary of transactions in this fund from inception (1977) through December 31,
1984 is as follows:
Prior
Years 1984 Total
FINANCIAL SOURCES:
Transfers In /(Out) - Unbonded
Construction Projects:
• Swager #2 -5 $ 30,019 $ 30,019
• Port of Sunnyside 28,256 28,256
• Valley View Storm Sewer $ 9,693 9,693
• Prison Utilities (17,340) (17,340)
• Other 768 768
Interest on Investments 6,356 5,293 11,649
Interest on Assessments 30,900 3,127 34,027
Other 1,601 1,601
Total Financial Sources 97,132 1,541 98,673
EXPENDITURES - Professional Services 6,880 2,020 8,900
REMAINING BALANCE $ 90,252 $ (479) $ 89,773
The remaining balance is available to be used by the City for Council designated
purposes.
City of Oak Park Heights, Minnesota
Management Report, Page 25
Prison Utilities
This project was completed at December 31, 1981. The accumulated deficit of this
fund was eliminated through a transfer from the Completed Construction Fund in 1984.
1979 Utilities
The 1979 Utilities special assessment fund was created in 1979 to account for costs
related to various utility improvements. This fund was closed pursuant to Council
action in 1984 through a transfer to the Completed Construction Fund.
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.
A summary of the financial activities of this fund (compared to original budget)
from inception to December 31, 1984) is as follows:
Original
Budget
(1982) Actual Variance
FINANCIAL RESOURCES:
• Bond Proceeds $ 143,616 $ 143,616
• Interest on Investments -0- 7,915 $ 7,915
• Reimbursements:
• NSP -0- 80,633 80,633
• Junker -0- 26,389 26,389
Total Financial Resources 143,616 258,553 114,937
CONSTRUCTION COSTS:
• Contractor:
• Sanitary Sewer 40,620 47,171 6,551
• Watermain 64,300 86639 22,339
• Restoration 19,000 22,892 3,892
• NSP - Storm Sewer -0- 67,855 67,855_-_
• Junker -0- 23,292 23,292
Total Contractor 123,920 247,849 123,929
• Engineer 12,392 34,924 22,532
• Other Costs 7,304 10,636 3,332
Total Costs 143,616 293,409 149,793
FUND BALANCE (DEFICIT) -
December 31, 1984 $ -0- $ (34,856) $ (34,856)
City of Oak Park Heights, Minnesota
Management Report, Page 26
The scope of this project was expanded (after bonding was complete) to include the
following additional projects:
NSP petitioned improvement $ 80,000
Developer petitioned improvement 26,000
Change order to original project 17,000
Total $ 123,000
The petitioned improvements have been charged directly to the petitioners. The
change order and other (unbonded) expenditures, however, do not have a source of
financing. The special assessments of this project are fully committed to the related
debt service account (see previous comments) and therefore are unavailable to fund this
construction deficit. One alternative is a transfer from the City's Closed Bond Fund.
City Council authorization is required to effect this transfer. We recommend that the
City approve a method of financing this construction fund deficit during 1985.
1983 Improvements
The 1983 Improvements were financed by the $80,000 G.O. Improvement Bonds of 1983
which were sold in December, 1983. Activity of this fund for 1983 and 1984 is as
follows:
Bond proceeds $ 70,550
Interest on investments 1,310
Total available to fund
construction costs $ 71,860
Construction costs 75,129
Fund balance (deficit) $ (3,269)
The above project was completed and assessed at December 31, 1984. The deficit
should be eliminated (effectively closing the fund) through a transfer from the Closed
Bond Fund in 1985. Council action is required to effect this transfer.
58th & 59th Street Improvements
This project was substantially completed during 1984. Financing was provided
through direct charges to the developer. The fund balance represents $28 of interest.
Additional expenditures incurred in 1985 will be billed directly to the developer.
City of Oak Park Heights, Minnesota
Management Report, Page 27
Enterprise Fund
The financial statements for the Enterprise Fund (Water and Sewer Utilities) are
presented in Statements 16, 17 and 18 of the City's 1984 Annual Financial Report.
Condensed comparative operating statements of income and expense for the utility opera-
tions excluding depreciation on contributed assets of the City are as follows:
Water Department
1984 1983
Amount Percent Amount Percent
Revenue:
Customer billings and other $ 74,044 100.00% $ 66,716 100.00%
Operating expenses:
Contractual services 33,953 45.86 19,618 29.41
Administrative and
personnel charges 15,000 20.26 15,000 22.48
Other 2,876 3.88 3,899 5.84
Total operating expenses 51,829 70.00 38,517 57.73
Net income before
depreciation 22,215 30.00% 28,199 42.27%
Depreciation - purchased
assets 7,669 7,669
Net operating income $ 14,546 $ 20,530
The increase in contractual services was caused by the repairs made to Well #1.
Revenue increased as a result of a rate increase effected in the latter part of 1983.
Sewer Department
1984 1983
Amount Percent Amount Percent
Revenue:
Customer billings and other $110,717 100.00% $ 87,559 100.00%
Operating expenses:
MWCC 52,960 47.84 57,531 65.71
Other contractual services 13,100 11.83 6,494 7.42
Administrative charges 15,000 13.54 15,000 17.13
Other 776 .70 602 .68
Total operating expenses 81,836 73.91 79,627 90.94
Net income before
depreciation 28,881 26.09% 7,932 9.06%
Depreciation - purchased
assets 2,189 2,189
Net operating income $ 26,692 $ 5,743
City of Oak Park Heights, Minnesota
Management Report, Page 28
The increase in revenue is the direct result of a 25% rate increase which was
effected in October, 1983. The increase in contractual expenses was the result of
increased sewer main breaks.
The single largest expense of the Sewer Operations is the contractual services of
the Metropolitan Waste Control Commission (MWCC). The MWCC charges comprise approxima-
tely 65% of sewer expenses. 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
MWCC with regard to sanitary sewer operations. A summary of MWCC charges is as follows:
MWCC Billings
80000
70000
60000
50000
40000
30000
20000
10000
0 N
1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985
-10000 _.__.._.... - _......... __.
MWCC Estimated ® MWCC Actual
City of Oak Park Heights, Minnesota
Management Report, Page 29
The MWCC 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 operations. The Metropolitan Waste Control
Commission billings for the period 1974 through 1985 (see graph) were as follows:
Estimated Final
Year Billings Billings
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 47,736
1983 66,348 43,970
1984 75,338 Not available
1985 71,879 Not available
Note: The bracketed figures above indicate payments from the MWCC.
There are two basic factors which contribute to increased billings from the MWCC.
The first is changes in use of the system. The estimated decreased usage for 1985 over
1984 for the City of Oak Park Heights is 8.33% (from 120 to 110 million gallons). The
second factor which effects the billings from MWCC is their increased cost to process
gallonage. Their cost to process (per million gallons) increased from an estimated $753
for 1983 to an estimated $787 for 1984. This represents an increase of 4.4 %. The com-
bination of these factors decreased the City's estimated cost in 1985 by 4.8 %. As the
system gains users, the increased usage part of overall increases should be offset by
the billings to new users. The per unit portion of the increase, however, must be borne
in full by existing users or be subsidized by overall City operations.
City of Oak Park Heights, Minnesota
Management Report, Page 30
The City must maintain an adequate level of income to:
• Offset MWCC expenses (and other City expenses).
• Meet bonded debt requirements ($22,000 to $29,000 per year).
• Provide for capital replacement.
• Establish a means of paying for emergency or unanticipated expenses such as
major repairs.
We concur with the City's efforts to commission rate studies and recommend that
annual rate reviews continue to be a standard procedure for the City.
Internal Accounting Controls
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 1984, disclosed no material deficiencies in the City's system of
internal controls not identified in this report or past reports to the City Council.
As part of our examination, we made a study and evaluation of the
system of internal accounting control of the City of Oak Park Heights to
the extent we considered necessary to evaluate the system, as required by
generally accepted auditing standards. The purpose of our study and eva-
luation was to determine the nature, timing and extent of the auditing
procedures necessary for the expression of an opinion on the City's finan-
cial statements. Our study was more limited than would be necessary to
express an opinion on the system of internal accounting control taken as a
whole or on any of the categories of controls identified.
The City of Oak Park Heights is responsible for establishing and main-
taining a system of internal accounting control. The objective of inter-
nal accounting control is to provide reasonable, but not absolute,
assurance as to the safeguarding of assets against loss from unauthorized
use or disposition, and the reliability of financial records for preparing
financial statements and maintaining accountability for assets. The con-
cept of reasonable assurance recognizes that the cost of a system of
internal accounting control should not exceed the benefits derived and
also recognizes that the evaluation of these factors necessarily requires
estimates and judgments by management.
There are inherent limitations that should be recognized in con-
sidering the potential effectiveness of any system of internal accounting
control. In the performance of most control procedures, errors can result
from misunderstanding of instructions, mistakes of judgment, carelessness,
or other personal factors. Control procedures whose effectiveness depends
upon segregation of duties can be circumvented by collusion. Similarly,
control procedures can be circumvented intentionally by management either
with respect to the execution and recording of transactions or with
respect to the estimates and judgments required in the preparation of
financial statements.
City of Oak Park Heights, Minnesota
Management Report, Page 31
Also, projection of any evaluation of the system to future periods is
subject to the risk that the procedures may become inadequate because of
changes in conditions and that the degree of compliance with the proce-
dures may deteriorate.
Our study and evaluation made for the limited purpose described in the
first paragraph would not necessarily disclose all material weaknesses in
the system. Accordingly, we do not express an opinion on the system of
internal accounting control of the City of Oak Park Heights taken as a
whole. However, our study and evaluation disclosed that a substantial
portion of the accounting process is performed by a single employee.
Ideal conditions call for segregation of duties to establish a system of
internal testing of procedures performed. Additionally, our evaluation
disclosed that the City does not maintain a system of control over fixed
assets. These conditions are common to cities of this size. Any modifi-
cation of internal controls in these areas must be viewed from a
cost /benefit perspective.
These conditions were considered in determining the nature, timing,
and extent of the audit tests to be applied in our examination of the
December 31, 1984 financial statements, and this report does not affect
our report on the financial statements dated February 8, 1985.
This report is intended solely for the use of the City of Oak Park
Heights and should not be used for any other purpose.
Council Resolutions
During the course of our audit, it was disclosed that several resolutions adopted by
the City Council had not been typed. These records are the permanent documentation
describing Council action. Currently, the City attorney's office types a number of
resolutions. When the City implements the new computer system (word processing portion)
some resolutions may be typed in -house on a more timely basis. Subsequent review by the
City attorney could be effected prior to finalizing the resolutions. We recommend that
the City develop internal procedures whereby resolutions are typed on a timely basis.
City of Oak Park Heights, Minnesota
Management Report, Page 32
Computer System
The City is nearing completion of the computer acquisition program. Most applica-
tions are anticipated to be operational in 1985.
The conversion from reliance on both manual systems and service bureau systems to an
automated in -house system requires a revamping of internal control procedures. A par-
tial listing of areas to review is as follows:
• Input controls. Including input authorization, changes to input data, input
error detection controls, etc.
• Process controls. Including validation of data prior to processing, error
detection features of systems, periodic tests of system functions, etc.
• Output controls. Including tests of output for accuracy, distribution of
output controls, retention of output system, etc.
• Program controls. System to assure that existing programs are not altered
without authorization and that authorized program changes are affected and
that all programs (and all changes thereto) are properly, completely and
accurately implemented.
• System security. To assure only authorized use to the system and to safe-
guard data that would otherwise be lost through error (or disaster such as
fire).
• Development of user manuals.
• Scheduling of systems user priority.
• Segregation of duties.
The above areas should be (and are being) addressed by the City to assure a success-
ful implementation of the overall system. These features will better assure safe-
guarding of City interests and overall integrity of the system.
City of Oak Park Heights, Minnesota
Management Report, Page 33
Summary
The following listing is a summary of the items which should be recorded, investi-
gated and /or resolved during 1985.
• Continue to monitor legislative actions which can affect the financing of City
government. (Page 1)
• Approve transfer of interfund receivables and record other audit adjustments in
the accounting records of the City. (Page 6)
• Review the benefits of establishing computerized fixed asset records. (Page 10)
• Continue efforts to monitor and maintain adequate reserve balances in the City's
General Fund. (Pages 12 - 15)
• Continue to review revenue sharing requirements and internal procedures to
comply. (Pages 15 - 16)
° Effect repayment terms for the interfund loan from Closed Bond Fund to Storm
Sewer Drainage Improvement Fund. (Page 19)
° Continue efforts to monitor the projected financial position of the City's
various Special Assessment Debt Service Funds and provide supplemental financing
for the 1982 Improvement Bond Fund. (Pages 20 - 22)
° Review financing requirements of the various Special Assessment Construction
Funds and close those funds for which projects have been completed.
(Pages 24 - 26)
° Continue efforts to review utility rates as reported in the City's "Water and
Sewer Rate Study ". (Pages 27 - 30)
• Review resolution transcribing system. (Page 31)
• Continue efforts to review internal computer systems and review corresponding
internal controls effected. (Page 32)
Respectfully submitted,
A g" • l • 6i1 _a 1.T
VOTO, REARDON, TAUTGES & CO., LTD.
Certified Public Accountants
March 21, 1985