HomeMy WebLinkAboutManagement Report and Recommendations CITY OF OAK PARK HEIGHTS, MINNESOTA
MANAGEME REPORT AND RECOMMENDATIONS
DECEMBER 31, 1985
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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 All Other
Year Amount Percent Amount percent Amount Percent
1978 $106,746 21.60% $211,577 42.85% $104,831 35.55%
1979 111,149 22.74 219,802 44.97 157,815 32.29
1980 124,222 25.27 276,402 56.23 89,933 18.50
1981 124,936 20.53 386,515 63.50 97,250 15.97
1982 122,425 18.28 423,843 63.28 123,559 18.44
1983 149,391 19.75 482,084 63.72 125,030 16.53
1984 152,245 17.41 543,573 61.97 181,288 20.62
1985 157,995 18.83 559,613 63.49 163,771 17.68
A graph of State aids and property taxes for the City is as follows:
Benerei & SMial Revenue funds
[$6MOO.000
$500,000
$400,000 f
$300,000
$200,000 = r
$100,000
`,
$0
1978 1979 1980 198 1982 1983 1984 1985
F M State Aids ® Property Taxes
City of Oak Park Heights, Minnesota
Management Report, Page 3
The City's tax base consists primarily of the NSP power plant. As such, the
homestead credit has less overall effect on the portion of certified levies paid by pro-
perty owners.
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 consisted of the following over the past several years:
Description 1979 1980 1981 1982 1983 1984 1985
Local government aid $ 77,434 $ 79,564 $ 75,994 $ 68,950 3 82,324 $ 94,074 $ 99,652
Homestead credits 10,710 20,174 28,487 35,291 49,840 46,887 45,775
Police aid 8,127 9,037 9,751 10,263 10,720 11,284 11,669
Diseased tree 11,913 15,016 -0- 3,576 -0- -0- -0-
Other 2,965 431 10,704 4,345 6,507 -0- 899
Totals $111,149 $124,222 $124,936 $122 $149 $152,245 $157,995
Change $ 4,403 $_13 073 $ 714 $ (2,511 $ 26 $ 2 $ 5,750
Percent Change 4.12% 11.76% .57% (2.01 % 22.03% 1.91% 3.78%
leneral & Special Revenue Funds
1979 to l9$S
$100,000
$90,000
$80,00
$ 70,000
$60,000
$50,000
$40,000
$30,000
$20,000 ;
$10,000
to
1979 1980 1981 1982 1983 1984 1985
E Locai Govt Aid ® Homestead Credit M State - Other
City of Oak Park Heights, Minnesota
Management Report, Page 4
The following schedules and graphs reflect the combined revenue of the General and
Special Revenue Funds for the past three years. Additional detail on the revenue is
presented in Statements 7 and 9 of the 1985 Annual Financial Report.
Description 1985 _ 1984 1983
General property taxes $ 559,613 $ 543,573 $ 482,084
Intergovernmental:
State 157,995 152,245 149,391
Federal 38,207 40,217 37,548
County 452 497
Licenses and permits 15,569 15,967 16,808
Charges for services 33,068 33,318 33,221
Interest on investments 43,997 49,681 24,798
All other revenue 32,478 41,608 12,655
Total $ 881,379 $ 877,106 $ 756,505
6eneral & SWIal Revenue Funds
$600.000
$500,000
f
$400,000 t�
300.0013
$200,000
ia` #J
$100,000
ErA
$0
Property Taxes State Revenue Federal Reven All Other
E m 1983 El 1984 0 1985
r
City of Oak Park Heights, Minnesota
Management Report, Page 5
Total expenditures of the General and Special Revenue Funds increased in 1985 as
compared to 1984. Expenditures for the past three years are as follows by major classi-
fication.
Description 1985 1984 1983
Current expenditures:
General government $ 176,495 $ 154,095 $ 131,768
Public safety 258,079 227,844 204,955
Streets and highways 70,352 60,414 62,900
Sanitation 75,169 74,652 63,814
Recreation 85,002 79,938 74,714
Capital outlay 14,312 9,820 13,793
Totals $ 679, $ 606,763 $ 551,944
A graphic illustration of the above expenditures as a percent of total expenditures
is presented below.
General & SIlmial Revenue Funds- Expenditures
M'000
$250,000
$200,000'
$150,000
$100,000
$50,000
$0
General Public Streets & Sanitation Recreation Capital
Gaut Safe t Highwa Outlay
19W 10 1984 1985
City of Oak Park Heights, Minnesota
Management Report, Page 6
Condensed Combined Financial Statements
The Condensed Combiaed Financial Statements of the City are presented in Statements
1 through 5 of the 1985 Annual Financial Report. The following comments relate to these
Financial Statements of the City.
Cash And Investments
December 31, Increase
Description 1985 1984 (Decrease
Clerk's balance:
Checking account (overdraft) $ (6,144) $ (1,170) $ (4,974)
Investments 1,952,591 1,570,777 381,814
petty cash 50 50
Totals $1,946,497 $1 ,569,657 $ 376,840
The December 31, 1985 and 1984 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 1985, the City maintained an
average negative book balance in the checking account of $9,000. The City earned
$131,100 of interest on investments compared to $193,000 in 1984. This decrease is pri-
marily the result of less monies available to be invested because of the payment of
$602,088 in November, 1984 to fund the City's bond defeasance program. Additionally,
investment yields were generally lower in 1985 as compared to 1984, as shown below.
Investments at December 31, 1985 and 1984 were as follows:
December 31,
1985 1984
Investment Description Yield Balance Yield Balance
Certificate of Deposit 8.00 $ 246,000 9.9% $ 220,000
Certificate of Deposit 8.00 348,000 9.85 127,000
Certificate of Deposit 8.10 221,000 9.65 290,000
Certificate of Deposit 7.95 117,700 9.75 189,000
Certificate of Deposit 7.95 418,000 9.65 230,700
Certificate of Deposit 8.00 166,000 9.50 330,000
Certificate of Deposit 8.05 363,400 8.75 103,200
Repurchase Agreement 6.10 72,493 7.55 80,877
Totals $ 1,952,593 $ 1,570,777
City of Oak Park Heights, Minnesota
Management Report, Page 7
Security For Deposits /Depositories
Minnesota statutes (MS 118) requires City Council approval of Tepositories 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, 1985.
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
101 General $ 1,773.50
500 Closed Bond Fund $ 317.47 8,246.32
502 Storm Sewer Improvement Bond of 1971 87.14 28.98
506 G.O. Bonds of 1976 393.38
510 Completed Construction 472.90 1,210.91
518 G.O. Improvement Bonds of 1982 544.81 887.30
519 G.O. Improvement Bonds of 1983 8,542.10
558 1982 Sewer and Water 1,763.70
702 Utility 126.09
902 Developers Deposits 151.60
To reallocate assessment collections
101 General 44.37
301 Storm Drainage Improvements 1,955.07
403 G.O. Storm Sewer Bonds 1,886.61
500 Closed Bond Fund 9.26
502 Storm Sewer Improvement Bonds of 1971 61.64
506 G.O. Bonds of 1976 25.11
513 Valley View Storm Sewer 71.92
To reallocate tax collections
403 G.O. Storm Sewer Bonds 2,880.00
500 Closed Bond Fund 2,880.00
To record interest on interfund loan
The above adjustment requires City Council approval.
City of Oak Park Heights, Minnesota
Management Report, Page 8
In addition to the above adjustments, various other adjustments have been recorded
on year end trial balances. These adjustments must be recorded to effect proper
beginning balances for the 1986 records of the City. This is of particular importance
with the pending computer conversion for accounting records.
Due From Other Governmental Units
December 31, Increase
Description _1 1984 ( Decrease )
Fines $ ^ 1,680 $ 745 935
Revenue sharing allocation 9,498 9,698 (200)
MWCC final cost allocation 6,626 22,378 (15,752
Totals $ 17,804 $ 32,821 $(15,017
All of the above amounts are currently collectible. The increase in fines
receivable reflects a change in allocation procedures at the County. Additionally, the
City has increased the size of the police department. Revenue from fines increased by
89% over the prior year.
The decrease in the MWCC final cost allocation has a negative impact on the MWCC
expense of the City (see later commentary).
Taxe 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 101% for 1985 as compared to
a 1984 rate of 99 %. Property tax collections were as follows for 1985 and 1984:
City of Oak Park Heights, Minnesota
Management Report, Page 9
1985 1984 1983 1982
Delinquent taxes - January 1 $ 21,698 $ 15,622 $ 16,175 $ 11,835
Current levy 722,719 696,639 605,259 521,081
Total collectible 744,417 712,261 621,434 532,916
Receipts:
Property owners 673,518 635,680 542,446 467,464
State 55,137 54,883 63,366 43,408
Total receipts 728,655 690,563 6 05,812 510,872
Unadjusted balance 15,762 21,698 15,622 22,044
Homestead credit loss (5,869
Delinquent taxes - December 31 $ 15,762 $ 21,698 $ 15,622 $ 16,175
Total collections as a percent
of current levy 101% 99% 100% 98%/99%
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 have
decreased as a percent of total levy as follows:
Collectible
1985 1984 1983
Property tax levy $ 722,719 $ 696,639 $ 605,259
Homestead collections 55,138 54,883 63,366
Percent 7.63% 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 1985 1984 (Decrease)
Delinquent $ 12,020 $ 13,850 $ (1,830)
Due from County 4,247 13,953 (9,706)
Deferred 209,459 314,348 (104,889)
Special deferred - Council action 14,800 14,800 -0-
Totals $240,526 $356,951 $(116,425
City of Oak Park Heights, Minnesota
Management Report, Page 10
Delinquent special assessments have been as follows for the past several years.
Percent
Delinquent Increase Increase
De cembe r 31, As s e ssmen ts ( Decrease ) ( Decrease )
--- 778 $ 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
1985 12,020 (1,830) (13.21)
The change in delinquent assessments receivable over the past three years was as
follows:
1985 _1_ 984 1983
Delinquent balance - January 1 $ 13,850 $ 8,195 $ 27,275
Add:
Current installments 69,510 _ 93,917 59,286
Amount collectible 83,360 102,112 86,561
Less collections:
Current 64,533 85,506 56,847
Delinquent 6,471 _ 2,234 21,636
Total collections 71,0 87,740 78,483
Adjustments _ ( 336) (522 117
Delinquent balance - December 31 $ 12,020 $ 13,850 $ 8,195
Current collections as a percent
of current levy 92.84% 91.04% 95.88%
Total collections as a percent
of current levy 102.15% 93.42% 132.38%
The above schedule indicates that the City is maintaining sound collection rates.
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 (if any). 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 11
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 has acquired a system capable of maintaining fixed asset records. Although imple-
mentation 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.
Co mpensated Abs 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 $13,570 and
$12,403 at December 31, 1985 and 1984 respectively. Also included in the accrual for
compensated absences is vacation pay benefits for all City employees of $1,211 at
December 31, 1984 and $1,717 at December 31, 1985.
City of Oak Park Heights, Minnesota
Management Report, Page 12
Bonds Payable
_ Bond Issues
Special Special Revenue
As sessments District Bo nds Totals
Balance - January 1, 1985 $ 340,000 $ 200,000 $ 170,000 $ 710,000
Principal Payments (54,000 (5 (15,000 T (74,000 )
Balance - December 31, 1985 $ 286, $ 195,000 $ 155,000 $ 636,000
Detail of outstanding bond issues are contained in Exhibits 2 and 3 of the 1985
Annual Financial Report. As shown above, outstanding debt decreased by 11% during 1985
from $710,000 to $636,000. A comparable decrease of $74,000 or 12% is scheduled for
1986.
Fund Equity
December 31, Increase
Fund Group 1985 1984 ( Decrease )
Fund balance:
General $ 656,865 $ 579,612 $ 77,253
Special Revenue 33,029 71,098 (38,069)
Debt Service 4,141 2,456 1,685
Capital Project 65,600 (54,302) 119,902
Special Assessment:
Construction 91,590 48,553 43,037
Debt Service 709,221 554,239 154,982
Totals 1,560,446 1,201,656 358,790
Retained earnings:
Enterprise 458,555 393,916 64,
Totals - All Funds $2,019,001 $1,595,572 $423,429
The various causes for other equity changes are discussed in the following section
of this report.
City of Oak Park Heights, Minnesota
Management Report, Page 13
General Fund
The financial statements for the General Fund awe presented in Statements 6 and 7 of
the City's 1985 Annual Financial Report. The fund balance of the General Fund was
$656,865 at December 31, 1985 representing a $77,253 increase during 1985. This
increase was the result of the following:
• Actual revenue exceeded budgeted revenue
General property taxes $ 5,388
Intergovernmental 1,972
Licenses and permits 1,834
Fines and forfeits 11,630
Interest on investments 19,832
Charges for current services 1,068
Sale of property 1,525
Other 728 43,977
• Budgeted expenditures less (greater) than
actual expenditures
General government (6,201)
public safety 769
Street and highways (2,508)
Sanitation 5,331
Recreation 4,056
Other 168
Contingency 31,947 33,562
• Fund Escrow Account (286
Net increase in fund balance for 1985 $ 77,253
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 ten 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
1985 656,865 77,253
City of Oak Park Heights, Minnesota
Management Report, Page 14
The city has achieved and maintained a sound fund balance level for its General
Fund. This level is adequate to meet several required needs as follows:
Reserve for Cash Flow
( timing difference between
expenditure dates and
major revenue receipts )
Reserve for
Emergency/
Unanticipated Reserve for
Expenditures Capital Outlay
Replacement
ADEQUATE
GENERAL FUND
RESERVE BALANCE
Reserve for Reserve for
Intergovernmental Special City
Revenue Reductions Council Projects
City of Oak Park Heights, Minnesota
Management Report, Page 15
The amount of General Fund reserve required to meet emergency and /or unanticipated
expenditures is not readily quantifiable. Father, 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 $370,000 computed as follows:
1986 Budgeted Levy (Includes Homestead Credit) $ 640,000
1986 Anticipated Local Government Aid 100,000
Total $ 740,000
Minimum Required Cash -Flow
Reserve (One -Half of Total) $ 370,000
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 $285,000 of other General Fund reserves to fulfill the various
other reserve requirements as described in this report.
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.
City of Oak Park Heights, Minnesota
Management Report, Page 16
The City may benefit from adopting a formal policy on required reserve balances of,
the General Fund. Such a policy would allow for measurement criteria of the various
reserve requirements. We recommend that the City consider the adoption of such a policy
in 1986.
Special Revenue Fund
The financial statements for the Revenue Sharing Fund are presented in Statements 8
and 9 of the City's 1985 Annual Financial Report. A summary of the Revenue Sharing
transactions from inception through December 31, 1985 is as follows:
Prior
Years 1985 Total
Revenue:
Revenue sharing entitlements $493,723 $ 38,207 $531,930
Interest on investments 42,573 _ 4,165 46,738
Total revenue $536,296 $ 42,372 578,668
Expenditures:
Professional and consultant
services $ 2,616 2,616
park land acquisition 78,578 78,578
Playground equipment 10,789 10,789
Land easement 5,750 5,750
Police vehicles - equipment 50,158 $ 10,697 60,855
park fencing 23,457 23,457
Fire protection 3,498 3,498
Youth service bureau 17,708 3,000 20,708
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 92,000 66,500 158,500
Other 1,963 244 2,207
Total expenditures $465,198 $ 80,441 545,639
Balance - December 31, 1985 $ 33,029
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
De bt Service Funds
The financial statements for the City's Debt Service Fund is presented in Statements
10 and 11 of the 1985 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 proj of the final fund position based on scheduled levies and debt
requirements is as follows:
Fund Balance - December 31, 1985 $ 4,141
Additions:
Future scheduled tax levies _ 434,414
Total 438,55
Deductions:
Debt requirements:
Principal 195,000
Interest 218
Total 413,703
Projected Fund Balance $ 24,852
Normal Projected Fund Balance -
5% of debt requirements $ 20,700
The above projection indicates that this fund will have adequate assets to meet
bonded debt payments. The original projection from 1983 indicated that periodic cash
flow deficiencies would occur throughout the term of the issue (i.e. bond payments were
due one month pr eceding 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 9985 Annual Financial Report. The City had three Capital
Project Funds at December 31, 1985.
Capital Improvements Fund (401
The Capital Improvements Fund was established in 1978 to account for monies set
aside for capital improvements as follows:
Municipal
Building
Expansion/
Retrofit Se alcoat Recreation Total
Revenue and Other Sources:
Transfers from General Fund:
1978 through 1980 $ 70,000 $ 40,000 $ 7,500 $ 197,500
1981 20,000 2,500 22,500
1982 20,000 6,075 26,075
7983 20,000 2,500 22,500
1984 20,000 2,500 22,500
1985 20,000 2,500 22,500
Total transfers 70,000 140,000 23,575 233,575
Sale of property 9,414 9,414
Donation 750 750
Interest allocated to
specific functions 27,371 2 ,629 29,9
Total revenue and
other sources 106,785 940,000 26,946 273,731
Expenditures and Other Uses:
Transfers out:
Municipal building expansion (91,438) (91,438)
Direct expenditures (15,347 (95,684 (21,946 (1 32,977 )
Sub -total $ -0- $ 44,316 $ 5,000 49,316
Add:
Unallocated interest earnings 6,435
Fund balance - December 31, 1985 $ 55,7
The above balance is committed for future programs as shown above. The 1986 General
Fund operating budget specifies an additional transfer of $104,500, as follows:
• Sealcoat $ 20,000
• Recreation 30,000
• Street Reconstruction 50,000
• Unallocated 4,500
Total $ 104,500
City of Oak Park Heights, Minnesota
Management Report, Page 19
Storm Sewer Drainage Improvement (403)
This fund was created in 1982 to account for storm drainage improvements which were
approved for construction during 1982. Costs incurred through December 31, 1985 total
$240,777. This project is financed by the $205,000 Storm Sewer Bonds of 1982. Activity
of this fund from inception to December 31, 1985 is as follows:
General property taxes $ 19,724
Homestead credit 1,652
Bond proceeds 181,482
Interest on investments 6,036
Other City participation 11,295
Other 172
Total amount available 220,361
Construction Costs:
Contractor 183,935
Engineering 41,501
Legal 5,339
Other 10,002
Total 240,777
Fund balance (deficit) - December 31, 1985 $ (20,416
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 to
be repaid from the proceeds of supplemental tax levies on the Storm Sewer
District.
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 are receipted to this construction fund to
provide the financing to retire the interfund loan. The above deficit should be
completely financed in 1986.
City of Oak Park Heights, Minnesota
Management Report, Page 20
Brekke Park Improvement (402
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 $ 190,000
Interest on investments 185
Total $ 190,185
Expenditures:
Contractor 163,647
Engineering 16,996
Legal and other 7,221
Total 187,864
Fund balance (deficit) - December 31, 1984 $ 2,321
This fund's LAWCON grant application was denied. The result of this denial was a
fund deficit of $2,321 at December 31, 1985. To temporarily finance a portion of this
deficit, the City loaned $22,100 to this fund from the Closed Bond Fund. A permanent
revenue source to finance the entire deficit (including loan repayment) was established
through the General Fund 1985 operating budget. We recommend that upon project conclu-
sion, the remaining balance of this fund be returned to the City's General Fund.
EDP System (404
The City established this fund in 1985 to account for all computer acquisition
costs. Financing for this fund was provided by a budgeted transfer of $50,000 from the
General Fund in 1985. Financing and expenditures (to date) have been as follows:
Financing sources:
Transfer from General Fund $ 50,000
Interest on investments 1,103
Total $ 51,103
Expenditures:
Hardware 16,646
Software 5,275
Facility changes (electrical) 1,134
Other costs 104
Total 23,159
Fund balance - December 31, 1985 $ 27,944
City of Oak Park Heights, Minnesota
Management Report, Page 21
As of December 31, 1985, most hardware purchases had been made. During 1986, addi-
tional software and implementation costs will be incurred. Upon full for substantially
full) implementation of the system, we recommend that this fund be closed to the City's
General Fund.
Special Assessment Funds
The combining financial statements for the Special Assessment Funds are presented in
Statements 14 and 15 of the City's 1985 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.
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.
City of Oak Park Heights, Minnesota
Management Report, Page 22
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 %, 99% and 99% for 1982 through
1985 respectively. The following schedule compares the actual cash balance to the pro-
jected cash balance as of December 31, 1985.
Cash and Investment
Balance Final
12/31/85 variance Bond
Debt Service Account Actual Projected Favorable Maturity
G.O. Storm Sewer Bonds of 1971 $ 30,614 $ 24,748(2) $ 5,866 1991
G.O. Improvement Bonds of 1976 72,554 47,714(1) 24,840 1986
( 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
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 %.
• Supplemental tax levies.
The 1982 Special Assessment Debt Service Study was prepared based upon December 31,
1981 audited balances; plus 1982 actual major transactions; plus projections of future
transactions to the final maturity of each bond issue. This data is now four years old.
Additionally, the following events have occurred:
• The Improvement Bonds of 1967 and 1968 ($1,315,000) were officially defeased in
November, 1984.
• The Improvement Bonds of 1977, 1978 and 1979 have been fully retired.
City of Oak Park Heights, Minnesota
Management Report, Page 23
• The Improvement Bonds of 1982 have been added to the outstanding debt of the
City. This bond issue was not included in the original study because the
assessment rolls related to this bond issue had not been adopted at the time the
original study was performed.
• The Closed Bond Fund has been created to accumulate balances remaining after
final payment or defeasance of the individual bond issues.
Accordingly, we recommend an update of the 1982 Special Report to be completed in
1986.
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 was
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.
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 from inception is as
follows:
City of Oak Park Heights, Minnesota
Management Report, Page 24
Financing sources:
General property taxes $ 1,225
Special assessments 8,485
Interest on investments 43,009
Interfund interest 4,533
Connection charges 18,809
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
Sewer and Water Bonds of 1982 1,764
Total financing sources $ 689,920
Financing uses:
Transfers out:
Sewer and Water Bonds of 1982 (construction) 40,364
G.O. Improvement Bonds of 1983 (construction) 4,270
Total financing uses 44,634
Fund Balance - December 31, 1985 $ 645,286
The purpose of the Closed Bond Fund is to receive residual balances of closed spe-
cial assessment bonds. Amounts on hand at December 31, 1985 are available for use at
the Council's discretion. We recommend that the City review the existing and projected
cash balance of this fund and establish City policy regarding the allowable use of such
monies. Several areas to consider are:
• Temporary funding of other debt service fund deficits.
• Supplemental financing of construction deficits.
• Full financing of minor construction projects.
• Supplemental financing of replacement of systems (water and sewer) which had
been previously assessed.
City of Oak Park Heights, Minnesota
Management Report, Page 25
Special Assessment Construction Accounts
The financial statements for these funds are presented in Statements 14 and 15 of
the 1985 Annual Financial Report. The City maintained the following construction funds
during 1985 and 1984.
Fund Balance (Deficit)
December 31, Increase
Description 1985 1984 ( Decrease )
Interim Construction $ (520) $ (3,123) $ 2,603
Completed Construction 92,110 89,773 2,337
1982 Water and Sewer -0- (34,856) 34,856
1983 Improvements -0- (3,269) 3,269
58th 6 59th Street
Improvements -0- 28 (28
Totals $ 91,590 $ 48,553 $ 43,037
Completed Construction (510
This fund was established in 1977 by closing several construction accounts to one
account. This account has a fund balance of $92,110 at December 31, 1985. The fund
balance is composed of the following net assets at December 31, 1984 and 1985.
December 31,
1985 1984
Cash and investments $ 45,612 $ 31,286
Due from other funds 473
Special Assessments Receivable 47,248 58,499
Due to other funds (1,211)
Refund payable (12 (12
Totals $ 92,110 $ 89,773
City of Oak Park Heights, Minnesota
Management Report, Page 26
A summary of transactions in this fund from inception (1977) through December 31,
1985 is as follows:
Prior
Yea 1985 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 11,649 $ 2,775 14,424
Interest on Assessments 34,027 4,628 38,655
Other 1,601 635 2,236
Total Financial Sources 98,673 8,038 106,711
EXPENDITURES - Professional Services 8,900 5,7 01 14 ,601
REMAINING REMAINING BALANCE $ 89,773 $ 2,337 $ 92 ,110
The remaining balance is available to be used by the City for Council designated
purposes.
198 Se wer and Water Improvement (558)
The Sewer and Water Improvement Fund was established in 1982 to account for the
Anderson /Lindquist Water and Sewer Extensions. The project was financed by developers
and the $165,000 Improvement Bonds of 1982. The accumulated deficit of this fund was
eliminated through a transfer from the closed bond fund in 1985.
1983 Improvements (559)
The 1983 Improvements were financed by the $80,000 G.O. Improvement Bonds of 1983
which were sold in December, 1983. This project was completed and assessed at December
31, 1984. The deficit was eliminated (effectively closing the fund) through a transfer
from the Closed Bond Fund in 1985.
City of Oak Park Heights, Minnesota
Management Report, Page 27
58th & 59th Street Improvements (560)
This project was completed during 1985. Financing was provided through direct charges
to the developer and a City contribution. The fund deficit representing the City share
of the project was eliminated in 1985 through a transfer from the Enterprise Fund.
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 1985 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
1985 1984
Amount Percent Amount Pe rcent
Revenue:
Customer billings and other $ 82,757 100.00% $ 74,044 100.00%
Operating expenses:
Contractual services 26,832 32.42 33,953 45.86
Administrative and personnel charges 15,000 18.13 15,000 20.26
Other 4,316 5.22 2,876 3.88
Total operating expenses 46,148 5 5.77 5 1,829 70.00
Net income before depreciation 36,609 44.23% 22,215 30.00%
Depreciation - purchased assets 7,559 7,669
Net operating income $ 29,050 $ 14,546
Water Operating
Revenue & Expense
$90,000
$80.000
S70.000
$60,000 El Purchased Water
$50.000
® All Other Expenses
$40,000
$30,000
Operating Revenue
$20,000
$10,000
$0
1961 1962 1963 19" 1965
City of Oak Park Heights, Minnesota
Management Report, Page 28
Sewer Department
1985 1984
Amount Percent Amount Percent
Revenue:
Customer billings and other $119,060 100.00 $110,717 100.00%
Operating expenses:
MWCC 65,253 54.81 52,960 47.84
Other contractual services 8,556 7.19 13,100 11.83
Administrative charges 15,000 12.60 15,000 13.54
Other 769 .65 776 .70
Total operating expenses 89,578 75.25 81,836 73.91
Net income before depreciation 29,482 24.75% 28,881 26.09%
Depreciation - purchased assets 2,079 2,189
Net operating income $ 27,403 $ 26,692
Sewer Operating
Revenue & Expense
$ 120,000
$100,000
7 _771
$80,000 Purchased Water
Expenses
A1! r ® Other
ng
erati Revenue
$ 40,000
$20.000
$0 LM
1981 1962 1963 1981 1965
The single largest expense of the Sewer Operations is the contractual services of
the Metropolitan Waste Control Commission (MWCC). The MWCC charges comprise over 70% 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 operations 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:
City of Oak Park Heights, Minnesota
Management Report, Page 29
HWCC Billings
$90,000
r 0D0
$70,(M
+160A
fF
`�i
f
$Mflw P
$ 1 i 0 , 000 , F
1979 1980 1981 1982 1983 1984 1985 1986
16ii 11;
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 1986 (see graph) were as follows:
Estimated Actual
Percent Percent
Year Amount Change Amount Change
1974 $ (3,825) $ 258
1975 (1,954) 6,641
1976 4,682 11,698
1977 13,903 9.
1978 20,387 8,723
1979 26,202 28.52% 34,090 290.81%
1980 19,257 (26.51) 34,197 .31
1981 39,492 105.08 34,048 (.44)
1982 56,553 43.20 47,736 40.20
1983 66,348 17.32 43,970 (7.89)
1984 75,338 13.55 68,712 56.27
1985 71,879 (4.59) Not available
1986 85,742 19.29 Not available
Note: The bracketed figures above indicate payments from the MWCC.
City of Oak Park Heights, Minnesota
Management Report, Page 30
There are two basic factors which contribute to increased billings from the MWCC.
The first is changes in use of the system. The estimated increase usage for 1986 over
1985 for the City of Oak Park Heights is 15.45% (from 110 to 127 million gallons). The
second factor which effects the billings from MWCC is their cost to process gallonage.
Their cost to process (per million gallons) remained constant in 1984 and 1985 at $787.
The combination of these factors decreased the City's estimated cost in 1986 by 19.2 %.
As the system gains users, the increased usage part of overall increases should be off-
set 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.
The City must maintain an adequate level of income to:
• Offset MWCC expenses (and other City expenses).
• Meet bonded debt requirements ($22,000 to $28,000 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 1985, 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.
City of Oak Park Heights, Minnesota
Management Report, Page 31
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.
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, 1985 financial statements, and this report does not affect
our report on the financial statements dated February 15, 1986.
This report is intended solely for the use of the City of Oak Park
Heights and should not be used for any other purposes.
City of Oak Park Heights, Minnesota
Management Report, Page 32
Co mputer System
The City is nearing completion of the computer acquisition program. Most applica-
tions are anticipated to be operational in 9986.
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 control 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).
• Develop 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 1986.
• Continue to monitor legislative actions which can affect the financing of City
government. (Page 1)
• Clarify the interest terms for current and future special assessment deferrals.
(Page 10)
• Review the benefits of establishing computerized fixed asset records. (Page 11)
• Continue efforts to monitor and maintain adequate reserve balances in the City's
General Fund. (Pages 13 to 16)
• Continue to review revenue sharing requirements and anticipate program
compliance audit in 1986. (Page 16)
• Transfer remaining balance in Brekke Park Improvement Fund and EDP System Fund
to the General Fund upon project conclusion. (Pages 20 to 21)
° Review financing requirements of the various Special Assessment Construction
Funds and close those funds for which projects have been completed.
(Pages 25 to 27)
° Establish City policy regarding intended use of the existing and projected
balance of the Closed Bond Fund. (Pages 23 to 24)
° Consider an update for the Special Assessment Debt Service Study. (Page 23)
° Continue efforts to review utility rates as reported in the City's "Water and
Sewer Rate Study ". (Pages 27 to 30)
• Continue efforts to review internal computer systems and review corresponding
internal controls effected. (Page 32)
Respectfully submitted,
VOTO, REARDON, TAUTGES & CO., LTD.
Certified Public Accountants
March 27, 1986