HomeMy WebLinkAboutManagement Report and Recommendations CITY OF OAK PARK HEIGHTS, MINNESOTA
MANAGEMENT REPORT
AND RECOMMENDATION
DECEMBER 31, 1988
CITY OF OAK PARK HEIGHTS, MINNESOTA
MANAGEMENT REPORT AND RECOMMENDATIONS
TABLE OF CONTENTS
PaLye
Transmittal Page 1
General and Special Revenue Funds - Summary data and analysis
of 1988 revenue and expenditures compared to prior periods 6
Combined Financial Statements (Balance Sheet Analysis) - A look at
changes in various accounts such as cash, investments and receivables 10
Individual Fund/Fund Tvpe Analysis - Review of significant changes in
fund balances and other matters:
• General Fund 18
• Debt Service Funds 22
• Capital Project Funds 27
• Enterprise Fund 31
Internal Control Retort 36
Summary of Recommendations 38
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City of Oak Park Heights, Minnesota
Management Report, Page 2
The City has achieved and continues to maintain several significant financial indicators through
current actions and past prudent planning. A summary of favorable indicators and controls are as
follows:
1. The General Fund increased by $87,000 in 1988. This increase was achieved after a
transfer to the Capital Improvements Fund of $107,000. As discussed in a later section
of this report, the General Fund is in a sound financial position at December 31, 1988.
2. Interest on investments increased from $160,000 to over $219,000. The increase
reflects greater cash balances of the City and a slightly favorable upswing in interest
rates.
3. The Enterprise Fund increased retained earnings by over $129,000. The City is adding
customers and carefully monitoring rates to assure full funding for various enterprise
related needs (operations, debt, reserves, and certain capital replacements).
4. The City's financial accounting system including general ledger, utilities and payroll is
producing quality and timely financial data and reports to monitor financial performance
and to manage the City's growth.
The above listing of favorable financial indicators reflects careful planning and monitoring of
actual results to anticipated events. The result is a fiscally sound City with the financial ability to
manage planned growth. We congratulate the City on an exceptionally favorable 1988.
City of Oak Park HeigCr
hts, Minnesota
Management Report, Page 3
1988 LEGISLATIVE ACTIONS
The 1988 legislature approved sweeping changes in the property tax system and State aid
distribution structure. The changes intensify competition between local governments for State
funding. The new legislation affects the distribution of State aids to Minnesota cities. The cities
with strong tax base valuations will receive less State funding. This generally has the greatest
adverse affect on metropolitan suburban cities. As in past years, the distribution of State funding
of cities creates a rivalry between three factions: 1) Minneapolis /St. Paul; 2) non -metro cities; and,
3) metropolitan suburban cities.
The tables and graphs which are presented in the following section of this report reflect a multi-
year history of property tax versus State aid funding of the governmental operating funds of the
City. In the short term, a number of suburban metropolitan cities will receive increased State
funding of operations. As the long -term effects of the 1988 legislative actions unfold, however,
the property tax funding of operations is anticipated to increase for suburban metropolitan cities. If
the projected decreases in State funding of operations occur and if property levy limitations
continue to be restrictive, certain suburban metropolitan cities may face a budgeting dilemma.
Several new terms and concepts which are a result of the 1988 legislative session are
summarized as follows:
Prior system
Taxes spread to property owners
based on assessed valuations.
Taxes levied divided by assessed
valuations equalled mill rates.
Revised system
Taxes spread to property owners
based on tax capacity valuations.
Taxes levied divided by tax capacity
valuations equal tax capacity rates.
City of Oak Park Heights, Minnesota
Management Report, Page 4
Prior system
Homesteaded property owners
see homestead credit as a reduction
of taxes due on property tax statements
and such amounts were distributed to Revised system (after 1989)
taxing jurisdictions in which the
homestead credit reductions occurred. Homesteaded property owners will
continue to see a "homestead credit"
on property tax statements, however, these
amounts will not correlate to amounts paid
by the State to local taxing jurisdictions.
Revised system (after 1989)
Cities will receive transition aid in lieu of
homestead credits. The 1990 transition
aid will be based on 1989 property taxes
and net tax capacity rates. Transition aid will
be frozen at 1990 levels. Considering
growth and inflation, this freeze will, in fact
be a reduction of State funding.
Revised system
Targeted Cities (primarily non -metro cities)
will receive disparity reduction aid.
The 1989 disparity reduction aid will be based
on 1988 gross taxes and gross tax capacity rates.
Disparity reduction aid will be frozen at 1989 levels.
Metropolitan suburban cities receive one -half of
one percent of this aid ($300,000 of $54.3 million)
In addition to the above changes, the local government aid formula (LGA) has been revised by
1988 legislative actions. The 1989 increases in LGA vary dramatically between cities. The City of
Oak Park Heights is scheduled to receive a 29% increase in 1989 LGA. A key aspect of the
revised formula is the number of households as follows:
1988 households 1,313
Base revenue guarantee factors per household:
Initial factor $160
$150 times base 10 logorithm of households
(the greater the number of households,
the greater aid per household) 318
Total per household guarantee $478
City of Oak Park Heights, Minnesota
Management Report, Page 5
The previous per household guarantee results in a "revenue guarantee ". This revenue
guarantee is compared to the City's 1987 tax capacity to compute an "initial aid" as follows:
City revenue guarantee (households times
the per household guarantee plus 8 %) $677,823
Less 1987 City tax capacity 6,294,083
Initial aid (cannot be less than zero) Sol
The initial aid may increase if the 1988 City revenue (as increased for the applicable statutory
percent) exceeds the initially calculated amount of aid. The City of Oak Park Heights' 1989 LGA
exceeds the "initial aid" as calculated above. The following schedule is used to determine the
"formula aid increase" as follows:
1988 City revenue:
Property tax levy $923,800
Local government aid 99,656
Total 1988 City revenue 1,023,456
1989 City revenue guarantee 677,823
Statutory ratio (1988 City revenue
divided by 1989 City revenue guarantee) 1.51
The preceding statutory ratio of 1.51 results in no increase according to Minnesota Statutes
477A.013. The minimum formula aid increase is 2%. This percent increase, as applied to the
1988 City revenue, results in more of an increase than initially calculated above. The final actual
increase is as follows:
Total 1988 City revenue $1,023,456
Expenditure /unlimited aid ratio
applicable percentage (formula aid increase) x 0
1989 aid increase (minimum of 2 %) = 1,993
1988 aid 99,656
Reduction for State demographer costs (4)
1989 local government aid $101,649 I
1989 LGA percent increase 2.00%1
City of Oak Park Heights, Minnesota
Management Report, Page 6
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. Uniform financial reporting standards allow a
city to compare its financial operations with other similar cities.
Since 1980, 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 revenue for these funds,
were as follows:
State Aids Property Taxes All Other Total Revenue
Year Amount Percent Amount Percent Amount Percent Amount Percent
1980 $124,222 25% 5276,402 56% $89,933 18% $490,557 99%
1981 124,936 21% 386,515 63% 97,250 16% 608,701 100%
1982 122,425 18% 423,843 63% 123,559 18% 669,827 99%
1983 149,391 33% 182,084 40% 125,030 27% 456,505 100%
1984 152,245 17% 543,573 62% 181,288 21% 877,106 100%
1985 157,995 18% 559,613 63% 163,771 19% 881,379 100%
1986 168,341 18% 579,557 63% 165,625 18 % 913,523 99%
1987 183,194 18% 681,636 68% 132,538 13% 997,368 99%
1988 194,072 17% 804,441 70% 152,137 13% 1,150,650 100%
A graph of State aids and property taxes for the City is as follows:
General and Special Revenue Funds
$900,000 - $900,000
$800,000 $800,000
$700,000 $700,000
$600,000 $600,000
$500,000
$500,000
$400,000 • $400,000
$300,000 $300,000
xxx
$200,000
200,000
$
UO
00 000
$100,000 $100,000
$0 $0
1980 1981 1982 1983 1984 1985 1986 1987 1988
I El Other Revenue M State Aids Property Taxes I
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City of Oak Park Heights, Minnesota
Management Report, Page 7
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 1981 1982 1983 1984 1985 1986 1987 1988
Local government aid $75,994 $68,950 $82,324 $94,074 $99,652 $99,656 $99,522 $99,521
Homestead credits 28,487 35,291 49,840 46,887 45,775 51,793 59,636 67,760
Police aid 9,751 10,263 10,720 11,284 11,669 16,892 21,161 23,856
Other 10,704 7,921 6,507 0 899 0 2,875 2,935
Totals $124,936 $122,425 $149,391 $152,245 $157,995 ® $168,341 $183,194 $194,072
Change $714 ($2,511) $26,966 $2,854 55,750 $10,346 $14,853 $10,878
% Change 1% (2 %) 22% 2% 4% 7% 9% 6%
A graph of State aids for the past eight years (with the 1989 budget) is presented below:
$200,000 ate Aids -•
St _
$180,000 '
$160,000 .:: >:::: > °"
$140,000 Note "flat" LGAI
$120,000
>: >:::: >:::: >:::«:;<::<::: >::
$100, 000.
$80,000 .
$60,000
$40,000
f
$20,000
$0
1981 1982 1983 1984 1985 1986 1987 1988 1989
Budget
El Other State Aids ❑ Homestead Credit ® Local Gov't Aid I
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City of Oak Park Heights, Minnesota
Management Report, Page 8
The preceding schedule and graph indicate that local government aid has been frozen for the
City for the past two years. The 1989 budgeted amount reflects a 2% increase. Local government
aid represented 16% of 1980 total revenue versus 8% of 1988 total revenue as shown in the
previous schedules. This situation is a direct result of actions of the Minnesota State Legislature
during the same time period.
The following schedules and graphs reflect the combined revenue of the General and Special
Revenue Funds for the past three years. Additional detail of the revenue is presented in Statement
7 of the 1988 Annual Financial Report.
Description 1988 1987 1986
General property taxes $804,441 $681,636 $579,557
Intergovernmental:
S tate 194,072 183,194 168,341
Federal 641 23,857
County 481 1,215 307
Licenses and permits 22,682 18,882 22,716
Charges for services 48,452 35,493 35,031
Interest on investments 45,043 38,658 40,729
All other 35,479 37,649 42,985
Total $1,150,650 $997,368 $913,523
$800,000
$750,000 General and Special Revenue Funds
$700,000
$650,000
$600,000
$550,000
5500,000 '„ 1986
$450,000
$400,000 '` "' 1987
$350,000
$300,000
"> 1988
$250,000
$200,000
$150,000
$100,000 '.:i
«•` <
$50,000 z ;3: E'
$ 0
Property Taxes Intergovem- Licenses and Charges for All Other
mental Permits Services
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City of Oak Park Heights, Minnesota
Management Report, Page 9
Total expenditures of the General and Special Revenue Funds increased by 10.5% in 1988
over 1987. Expenditures (by major classification) for the past three years were as follows:
Description 1988 1987 1986
Current expenditures:
General government $257,214 $210,609 $206,642
Public safety 358,184 327,380 286,424
Streets and highways 72,221 55,555 53,558
Sanitation 143,567 124,719 97,266
Recreation 104,229 92,831 94,351
Capital outlay 20,301 40,062 33 ,606
Total $955,716 $851,156 $771,847
A graphic illustration of the above expenditures is presented below:
$400,000
General & Special Revenue Funds
$350,000
$300,000
$250,000 1986
X .
$200,000 '
El 1987
;or
$150,000 1988
$100,000
$50,000
g. •.
:•::.
50
General Public Safety Streets & Sanitation Recreation Capital
Government Highways Outlay
City of Oak Park Heights, Minnesota
Management Report, Page 10
COMBINED FINANCIAL STATEMENTS
The Combined Financial Statements of the City are presented in Statements 1 through 5 of the
1988 Annual Financial Report. The following comments relate to these financial statements of the
City.
Cash and Investments
December 31, Increase
Description 1988 1987 (Decrease)
Checking account (512,792) ($18,399) $5,607
Investments 3,371,007 2,998,875 372,132
Petty cash 50 50
Totals $3,358,265 $2,980,526 S377,739
The December 31, 1988 and 1987 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 1988, the City maintained an average negative book balance in the
checking account of $9,500. The City earned $219,400 of interest on investments during 1988
compared to $159,700 in 1987. This increase is primarily the result of greater monies available to
invest and slightly increased rates available. Investments at December 31, 1988 and 1987 were as
follows:
December 31,
1988 1987
Investment Description Yield Balance Yield Balance
Certificate of Deposit 8.90% $630,000 7.50% 5327,000
Certificate of Deposit 8.60% 143,000 7.50% 215,000
Certificate of Deposit 8.50% 440,000 7.05% 101,500
Certificate of Deposit 8.35% 375,000 7.15% 254,531
Certificate of Deposit 8.35% 97,328 7.45% 479,600
Certificate of Deposit 8.15% 395,000 7.00% 385,000
Certificate of Deposit 8.10% 465,000 7.30% 228,000
Certificate of Deposit 8.15% 120,700 6.75% 964,000
Certificate of Deposit 8.10% 675,000
Money Market 5.40% 29,979 5.40% 44,244
Totals $3,371,007 $2,998,875
City of Oak Park Heights, Minnesota
Management Report, Page 11
Securitv for Denosits/Depositories
Minnesota Statutes (MS 118) require 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, 1988.
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 Due
No. Fund Description From To
101 General $ 18,000.00
502 Storm Sewer Improvement Bonds of 1971 $ 6,000.00
518 G.O. Improvement Bonds of 1982 12,000.00
To reverse interfund transfer
500 Closed Bond Fund 677.67 14.69
502 Storm Sewer Improvement Bonds of 1971 128.10 6,203.87
510 Completed Construction Fund 2,980.55 84.00
518 G.O. Improvement Bonds of 1982 698.97
519 G.O. Improvement Bonds of 1983 324.37 4,537.98
702 Utility 136.69 105.81
To reallocate assessment collections
The above interfund adjustments require City Council approval. 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 1989 records of the City.
We are available to assist the City in adjusting the computer balances.
City of Oak Park Heights, Minnesota
Management Report, Page 12
Due from Other Governmental Units,
December 31, Increase
Description 1988 _ 1987 (Decrease)
Fines $2,100 $1,385 $715
Gravel tax 317 453 (136)
MWCC final cost allocation 12,750 (12,750)
Totals $2,417 $14,588 ($12,171)
All of the above amounts are currently collectible.
Due from Develoners
December 31, Increase
Description 1988 1987 (Decrease)
Developers Deposit Fund:
Cost reimbursement $1,798 _ $475 $1,323
Totals $1,798 $475 $1,323
The amounts receivable consist of expenditures incurred on behalf of developers. We
commend the City for its efforts in monitoring and controlling amounts due from developers.
City of Oak Park Heights, Minnesota
Management Report, Page 13
Taxes Receivable - Delinauent
Taxes receivable - delinquent consist of taxes levied in the previous seven years by the City but
not yet collected by the County and remitted to the City. The collection rates on property taxes
remains strong as illustrated below.
1988 1987 1986 1985
Delinquent taxes - January 1 $29,641 826,716 $15,762 $21,698
Current levy 923,731 _ 792,677 722,273 722,719
Total collectible 953,372 ® 819,393 738,035 744,417
Receipts:
Property owners 843,848 726,303 652,959 673,518
State 71,050 63,449 58,360 55,137
Total receipts 914,898 789,752 711,319 728,655
Adjustments:
Abatements (17,181) 0 0 0
Delinquent taxes - December 31 $21,293 S29,641 $26,716 $15,762
Total collections as a percent of current levy 99% 100% 98% 101%
The adjustments to delinquent taxes receivable consist of abatements of property taxes as a
result of adjustments to assessed valuations. The above abatements ($17,181) are not all 1988
abatements. Past information from the County did not provide this data annually. Current County
data is much improved and does allow for such monitoring. The above abatements were actually
made as follows:
Year Amount
1988 $3,606
1987 6,311
1986 2,811
prior years 4,453
Total $17,181
As shown above, tax collection rates have averaged 99% over the past four years representing
an excellent/solid collection rate for the City.
City of Oak Park Heights, Minnesota
Management Report, Page 14
Special Assessments Receivable
Special assessments receivable consisted of the following types and amounts:
December 31, Increase
Description 1988 1987 (Decrease)
Delinquent $12,408 $10,781 $1,627
Due from County 0 2,024 (2,024)
Deferred 717,569 125,117 592,452
Special Deferred 14,800 14,800 0
Totals $744,777 $152,722 $592,055
Deferred special assessments consist of the remaining principal installments on assessment
rolls.
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 26%
1980 12,177 4,809 65%
1981 16,356 4,179 34%
1982 27,275 10,919 67%
1983 8,195 (19,080) (70 %)
1984 13,850 5,655 69%
1985 12,020 (1,830) (13 %)
1986 10,882 (1,138) (9 %)
1987 10,781 (101) (1 %)
1988 12,408 1,627 15%
City of Oak Park Heights, Minnesota
Management Report, Page 15
The change in delinquent assessments receivable over the past three years was as follows:
® 1988 1987 1986
Delinquent balance - January 1 $10,781 $10,882 $12,020
Add:
Current installments 30,286 40,260 45,734
Amount collectible 41,067 51,142 57,754
Less collections:
Current 27,685 38,170 40,547
Delinquent 918 2,140 6,210
Total collections 28,603 40.310 ® 46,757
Adjustments (56) (51) (115)
Delinquent balance - December 31 $12,408 $10,781 $10,882
Current collections as a percent of current levy 91% 95% 89%
Total collections as a percent of current levy 94% 100% 102%
The above schedule indicates that the City is maintaining excellent collection rates for special
assessments.
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 determine and stipulate the specific terms for this
(and future) special assessment deferrals. See later comments relating to the Improvement Bonds
of 1982.
vi
City of Oak Park Heights, Minnesota
Management Report, Page 16
Fixed Assets
As discussed in prior management reports, the City does not maintain complete fixed asset
accounting records. Advantages of maintaining such a system include the following:
• Availability of insurable value amounts.
• Increased safeguarding of movable assets.
• Availability of database to determine capital equipment replacement needs.
• Improved financial reporting.
Our firm now offers the service of establishing complete fixed asset systems for cities. We are
prepared to:
1) Plan the implementation.
2) Assist in taking physical inventories.
3) Assist in defining historical or estimated historical cost.
4) Enter all such assembled data into a specialized fixed asset system for governments.
5) Generate complete fixed asset reports as of the completion date of the engagement.
Maintenance of the system for purchases, sales, disposals and transfers may be maintained on
our system or the City may require in -house systems for periodic updates. The project will require
City staff time to assist in assembling physical inventories and to edit reports. Upon request, we
will prepare an engagement letter which will include timing and estimated costs.
Compensated Absences Pavable
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 employees who have been with the City in excess of 10 years. These
employees have vested severance pay which totaled $31,337 and $28,293 at December 31, 1988
and 1987 respectively. Also included in the accrual for compensated absences is vacation pay
benefits for all City employees of $2,110 at December 31, 1988 and $2,049 at December 31,
1987.
City of Oak Park Heights, Minnesota
Management Report, Page 17
Bonds Pavable
Bond Issues
Special Special Revenue
Assessments District Bonds Totals
Balance - January 1, 1988 $1,193,000 $185,000 $125,000 51,503,000
Principal payments (34,000 (5,000), (15,000
P P Y ) ) (54,000)
Balance - December 31, 1988 $1,159,000 $180,000 $110,000 $1,449,000
Retirement Schedule:
1989 -1993 $1,159,000 $50,000 $90,000 81,299,000
1994 -1998 0 55,000 20,000 75,000
1999 -2003 0 75,000 0 75,000
Total $1,159,000 $180,000 $110,000 $1,449,000
As shown on the previous schedule, substantially all (90%) of the City's bonded debt is
scheduled to be retired by December 31, 1993 (i.e., five years). The majority ($995,000 or 77 %)
relates to one single bond issue -- the G.O. Improvement Bonds of 1987. This bond issue
financed the Swager Brothers 9th Addition which was completed and assessed in 1988. The
ability of the City to meet this repayment schedule is wholly dependent upon receipt of these
special assessments (see later comments).
Detail of outstanding bond issues are contained in Exhibits 2 and 3 of the 1988 Annual
Financial Report.
In November 1984, the City defeased the $900,000 General Obligation Sanitary Sewer
Improvement Bonds of 1967 and the $500,000 General Obligation Water and Sanitary Sewer
Improvement Bonds of 1968 by placing sufficient monies in an irrevocable trust to provide for all
future debt service payments of these bond issues. The escrow agreement between the City and
First Trust Co. states the City may annually withdraw investment earnings from the escrow
account in excess of minimum balances. During 1988, the City withdrew $2,626 of interest
earnings in excess of the minimum balance.
City of Oak Park Heights, Minnesota
Management Report, Page 18
Fund Equity
December 31, Increase
Fund Group 1988 1987 (Decrease)
Fund balance:
General $870,705 $782,771 $87,934
Debt Service 500,064 383,354 116,710
Capital Projects 1,268,163 1,142,234 125,929
Totals 2,638,932 m 2,308,359 ® 330,573
Retained earnings:
Enterprise 785,756 656,586 129,170
$3,424,688 $2,964,945 $459,743
As shown above, all fund groups of the City are in a positive financial position. The various
causes for equity changes are discussed in the following section of this report.
INDIVIDUAL FUND/FUND TYPE ANALYSIS
General Fund
The financial statements for the General Fund are presented in Statements 6 and 7 of the City's
1988 Annual Financial Report. The fund balance of the General Fund was $870,705 at December
31, 1988 representing an $87,934 increase during 1988 as follows:
Actual Revenue Greater Than
(Less Than) Budgeted Revenue:
• General property taxes ($5,864)
• Intergovernmental 6,838
• Licenses and permits 2,682
• Fines and forfeits (2,812)
• Interest on investments 12,543
• Charges for current services 1,702
• Other 7,491 $22,580
Budgeted Expenditures Less Than
(In Excess Of) Actual Expenditures:
• General government ($29,737)
• Public safety 15,843
• Streets and highways 5,576
• Sanitation 38,133
• Recreation 10,856
• Contingency 24,683 65,354
Net increase in fund balance for 1988 $87,934
City of Oak Park Heights, Minnesota
Management Report, Page 19
The General Government budget variance is generally the result of unbudgeted and /or under
budget costs, as follows:
Legal $ 11,200
Accounting/Finance 8,200
Planning/Zoning 18,500
Other - Contour Mapping 7,200
Total $ 45,100
Details of the above amounts are presented in Statement 7 of the Annual Financial Report. The
City has achieved and maintained a sound fund balance level for its General Fund.
Cash flow timina differences.,
Expenditures are incurred somewhat = Emeraencv or unanticioated
evenly throughout the year. Property 2 exgenditureSExamples include natural
taxes & State aids are not recceived
until the second half of the year. A - disasters, law suits, comparable worth
reserve of one -half of such revenues � implementation and premature breakdown _
of vital equipment.
is therefore recommended.
'I'�IIWYLIWV� " t'�I�WWtlNI "
Reasons fo
Reserves
,w outlay replacement. Special Citv Council Proiects_.
Internal escrow for purchases which Preliminary studies, interfund loans
may exceed amounts available in and minor improvement projects are
any single budget cycle. This may examples of reserve uses.
also be accomplished through tran-
sfers to dedicated replacement funds.
,- Interaovernmental revenue Jexample.
The City is vulnerable to legislative a
both the Federal & State level. The r
elimination of Revenue Sharing is on Annual analysis of Local Government Homestead Credit formulas is a cons
City of Oak Park Heights, Minnesota
Management Report, Page 20
The fund balance of the General Fund has increased over the past several years. The schedule
below reflects the fund balances for the past twelve years:
Year Ended Fund Increase
December 31, Balance (Decrease)
1977 $ 268,754 $ 29,151
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
1986 692,520 35,655
1987 782,771 90,251
1988 870,705 87,934
The amount of General Fund reserve required to meet emergency and /or unanticipated
expenditures is not readily quantifiable. Rather, the level of this requirement must be established
by the City based on the history of the City and the philosophy of "adequate" reserve coverage.
The City of Oak Park Heights has quantified this reserve requirement need by designating a general
contingency reserve equal to $160,400 at December 31, 1988 representing 15% of the 1989
General Fund operating budget.
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.
City of Oak Park Heights, Minnesota
Management Report, Page 21
Favorable bond rating indicator.
prior to major receipts Avoids temporary overdrafts
.
1VVYIYIYVVIWi�IitlYYUIIIUIVWIIIYI' YVWVWIIi! VllVi' IVIWlilldlldl' VIIUIIWYYI�WCW1�611 !ipYpdIVIVVVJii1WVVdlYlllliI VVWYIIdIIhV,
w City may study effects of
Supplements revenues revenue cuts before gradual
with investment earnings. program reductions.
�VVIYWVVVYVVYWIIJVV 'VWIIVIVVt''VW!IIGVVVIII'
IN I[ IINVll 'd'V .V'!LIYoVd'J'III'uIIYW' ' ' YIVYIIYINJYWIWV! IIIV' llYll6dJVIlVdllilillY6lll! IldiVllllolVdlfWIIW '!VI!IVIWdWV'VdVYIWiYIII IIIVUi
Benefits of
Reserves
_ Provides the City
Provides resources greater options to deal
for minor projects or with unexpected events.
feasibility reports.
Avoids overburdening
of annual budgets for
certain capital outlay.
The City's minimum cash flow reserve requirement is measurable. For the City of Oak Park
Heights, the minimum required surplus is $531,650 computed as follows:
1989 Budgeted Levy (includes homestead credit) $ 961,700
1989 Anticipated Local Government Aid 101.600
Total $ 1,063,300
Minimum Required Cash Flow Reserve
(one -half of total) $ 531,650
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
$353,000 of other General Fund reserves to fulfill the various other reserve requirements.
City of Oak Park Heights, Minnesota
Management Report, Page 22
During 1987, the City adopted Resolution 87 -10 -42 establishing General Fund reserves/
designations for cash flow, contingent employee benefits and general contingency. At December
31, 1988, the General Fund balance was designated as follows:
Designated for:
Ensuing year's budget $ 3,468
Cash flow 531,700
Contingent employee benefits 79,400
General contingency 160,400
Subtotal 774,968
Undesignated 95,737
Total fund balance $ 870,705
The City of Oak Park Heights has taken actions over the past several years to improve the
financial position of its General Fund. These actions have provided the City the ability to establish
a Capital Improvement Fund funded primarily from General Fund transfers (see later comments -
Capital Improvement Fund and Capital Replacement/Acquisition Budgeting). 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.
Debt Service Funds
The combining financial statements for the Debt Service Funds are presented in Statements 8
and 9 of the 1988 Annual Financial Report. Debt Service Funds are a type of governmental fund
to account for the accumulation of resources for the payment of interest and principal on debt (other
than Enterprise Fund debt). The City maintained five Debt Service Funds during 1988 as follows:
December 31, Increase
Fund 1988 1987 (Decrease)
G.O. Storm Sewer Improvement Bonds of 1971 $34,178 $37,387 ($3,209)
Storm Sewer Bonds of 1971 7,640 6,444 1,196
Improvement Bonds of 1982 59,762 62,243 (2,481)
G.O. Bonds of 1983 37,297 46,028 (8,731)
G.O. Improvement Bonds of 1987 361,187 231,252 129,935
Totals $500,064 $383,354 $116,710
City of Oak Park Heights, Minnesota
Management Report, Page 23
Debt Service Funds may have one or a combination of the following revenue sources pledged
to retire debt as follows:
• Property Taxes - primarily for general City benefit projects such as parks and municipal
buildings. Property taxes may also be used to fund special assessment bonds which are
not fully assessed.
• Tax Increment - pledged exclusively for tax increment/economic development districts.
• Canitalized Interest Portion of Bond Proceeds - after the sale of bonds, the project may
not produce revenue (tax increments or special assessments) for a period of one to two
years. Bonds are issued with this timing difference considered in the form of capitalized
interest.
• Special Assessments - charges to benefited properties for various improvements.
In addition to the above pledged assets, other funding sources may be received by Debt Service
Funds as follows:
• Residual project proceeds from the Capital Project Fund.
• Investment earnings.
• State or federal grants.
• Transfers from other funds.
Pledged assets may be divided into three categories: 1) recorded as fund assets with the
revenue deferred until collected (levied assessments and levied taxes); 2) actually received by the
fund and included in fund balances (collected assessments, interest, bond proceeds, etc.); and, 3)
future pledged assets not recorded as assets but intended to be collected at a future date (scheduled
property taxes and estimated tax increment collections).
New reporting standards have been implemented for the City of Oak Park Heights whereby the
special assessment fund type has been eliminated. Such funds are now combined with the City's
Debt Service Fund. The diverse nature of the type of debt included in the same fund type requires
careful analysis to determine the adequacy of the fund balance and projected fund balance. The
following schedule extracts information from several sections of the Annual Financial Report to
assist in this analysis.
City of Oak Park Heights, Minnesota
Management Report, Page 24
December 31, 1988 Final
Fund Deferred Deferred Remaining Maturity
Fund Description Balance Revenues Taxes Total Debt Service Date
General Debt:
Storm Sewer Bonds of 1982 $7,640 $577 $358,883 $367,100 $341,770 12/1/03
Sub -total 7,640 577 358,883 367,100 341,770
Special Assessment Debt:
Storm Sewer Bonds of 1971 34,178 871 18,000 53,049 32,565 5/1/91
Improvement Bonds of 1982 59,762 26,812 36,000 122,574 121,288 8/1/93
Improvement Bonds of 1983 37,297 19,314 0 56,611 53,586 2/1/93
Improvement Bonds of 1987 361,187 618,203 0 979,390 1,173,350 12/1/93
Sub -total 492,424 665,200 54,000 1,211,624 1,380,789
Totals -All Debt Service Funds $500,064 $665,777 $412,883 $1,578,724 51,722,559
Deferred revenue of the preceding schedule primarily consists of uncollected special
assessments. The preceding schedule compares outstanding debt with: 1) fund balance; and, 2)
deferred revenue. Debt Service Funds should be evaluated at least annually.
Storm Sewer Bonds of 1982
These bonds were issued to provide financing for the Storm Sewer District construction. The
City Council established this district in October, 1982 per City ordinance 1600. A protection of the
final fund position based on scheduled levies and debt requirements is as follows:
Fund Balance - December 31, 1988 $ 7,640
Additions:
Future scheduled tax levies @ 100% 358,883
Total 3 66, 523
Deductions:
Debt requirements:
Principal 180,000
Interest 1 61,770
Total 341,770
Projected Fund Balance $ 24,753
Normal Projected Fund Balance -
5% of debt requirements $ 17,100
City of Oak Park Heights, Minnesota
Management Report, Page 25
The above projection indicates that this fund will have adequate assets to meet bonded debt
requirements.
Special Assessment Debt Service Funds
During 1986, the City prepared a "Special Assessment Debt Service Study" based on
December 31, 1985 financial data. 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 projected results. The report 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 obligation 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 assumptions of various collection rates for
tax levies and special assessments and interest on investments. Actual collection rates on taxes
were 101 %, 98 %, 99% and 99% for 1985 through 1988 respectively. The following schedule
compares the actual cash balance to the projected cash balance as of December 31, 1988.
Cash and
Investment Balance Final
December 31, 1988 Bond
Fund Actual Projected Variance Maturity
G.O. Storm Sewer Bonds of 1971 $34,178 $30,933 $3,245 1991
G.O. Improvement Bonds of 1982 59,762 38,616 21,146 1993
G.O. Improvement Bonds of 1983 37,297 33,160 4,137 1993
City of Oak Park Heights, Minnesota
Management Report, Page 26
Storm Sewer Bonds of 1971
The positive projected variance for the Storm Sewer Bonds of 1971 reflects a nominal variance
at December 31, 1988. Final maturity of this bond issue is May 1, 1991. Existing plus future
scheduled assets ($53,049) for these bonds will be more than sufficient to meet future bond
requirements (principal and interest) of $32,565 at December 31, 1988.
Improvement Bonds of 1982
The positive projected variance for the Improvement Bonds of 1982 is primarily due to
prepayments of assessments. Accordingly, this positive variance is not (by itself) indicative of an
improved projected fund balance at the final maturity date (August 1, 1993) of this bond issue.
Existing plus future scheduled assets ($122,574) approximately equals future bond
requirements (principal and interest) of $121,288 at December 31, 1988. However, such future
assets include special deferred assessments totaling $14,800. Such assessments have been given a
special deferment meaning that they are not currently collectible.
This special deferred assessment relates to a parcel owned by a senior citizen. The deferment
(of payment) could extend for the life of such owner. Accordingly, the city has been increasing the
annual tax levy for this bond issue to compensate for this special deferment.
Improvement Bonds of 1983
The positive projected variance for the Improvement Bonds of 1983 is also the result of special
assessment prepayments. Existing plus future assets ($56,611) approximately equals future bond
requirements (principal and interest) of $53,586 at December 31, 1988.
Improvement Bonds of 1987
The Improvement Bonds of 1987 were issued July 1, 1987 to finance the construction of local
improvements for Swager's 9th Addition. This City project was substantially completed and
assessed in 1988. These bonds are scheduled to be retired entirely by capitalized interest and
special assessment collections.
We have prepared a Debt Service Study Update for this bond issue which has been issued
under separate cover. That Special Report and analysis indicates that this bond issue is adequately
City of Oak Park Heights, Minnesota
Management Report, Page 27
financed at December 31, 1988 subject to timely collection of special assessments and investment
interest earnings at (or above) 7% over the remaining term of this bond issue.
The Improvement Bonds of 1987 are payable over a relatively short time period (i.e., 1989
through 1993). Accordingly, the special assessments (to finance the debt payment schedule) are
also collectible over a relatively short time period (i.e., 1989 through 1993).
Prepayments of such assessments (through March, 1989) totaled $343,600 representing
approximately 38% of the total assessment roll and creating a substantial cash balance for this
fund. However, the remaining assessments (to be collected) total $679,400 representing 58% of
remaining debt payments. These assessments should be monitored carefully (by the City) for the
following reasons.
First, the underlying property is substantially owned (and/or controlled) by a single developer.
Accordingly, future assessment payments may be contingent upon actual development and /or sale
of individual lots. Home mortgage interest rates (a factor strongly affecting development) have
increased during recent months. Such an increase could limit future development which (in turn)
could limit (or delay) future assessment payments.
We recommend that the City closely monitor future collections of these special assessments.
County remittances of assessment collections include a listing of assessments paid by parcel. The
City will have this information each July and December. The City should monitor actual payments
(each July and December) against scheduled payments for this subdivision to insure full and timely
payment of these assessments.
Second, special assessments totaling $36,600 were apparently prepaid in 1988. However, the
check was "returned ". The City has taken legal action in this matter and expects full settlement in
1989. Should this settlement not occur, alternative financing will be required.
Capital Project Funds
The financial statements for the Capital Project Funds are presented in Statements 10 and 11 of
the City's 1988 Annual Financial Report. Pursuant to changes in reporting standards, the Capital
City of Oak Park Heights, Minnesota
Management Report, Page 28
Project Fund type now includes special assessment projects. The fund balances (deficits) of the
Capital Project Funds were as follows at December 31, 1988 and 1987:
December 31, Increase
Fund 1988 1987 (Decrease)
Closed Bond Fund $873,999 $776,594 ® $97,405
Capital Improvements Fund 245,069 152,033 93,036
Completed Construction 71,923 61,851 10,072
Swagar's 9th Utilities 83,005 151,756 (68,751)
River Hills Utility (5,833) 0 (5,833)
Totals $1,268,163 $1,142,234 $125,929
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:
Prior
Years 1987 1988 Total
Financing Sources:
General property taxes $1,402 $256 $149 $1,807
Special assessments 49,099 19,212 15,947 84,258
Interest on investments 82,590 46,832 63,545 192,967
Interfund interest 7,413 7,413
Connection charges 49,529 8,087 19,210 76,826
Transfers in: 0
G. O. Bonds of 1967 and 1968 345,901 345,901
G. O. Bonds of 1976 56,755 56,755
G. O. Bonds of 1977 71,179 71,179
G. O. Bonds of 1978 and 1979 83,960 83,960
Sewer and Water Bonds of 1982 1,764 1,764
Total financing sources $749,592 $74,387 $98,851 922.830
Financing Uses:
Professional services $1,178 $1,573 $1,446 4,197
Transfers out:
Sewer and Water Bonds of 1982 (construction) 40,364 40,364
G. O. Bonds of 1983 (construction) 4,270 _ 4,270
Total financing uses $45,812 $1,573 $1,446 48,831
Fund balance - December 31, 1988 $873,999
City of Oak Park Heights, Minnesota
Management Report, Page 29
The purpose of the Closed Bond Fund is to receive residual balances of closed special
assessment bonds. Amounts on hand at December 31, 1988 are available for use at the Council's
discretion. City policy regarding the allowable use of such monies include the following areas:
• 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.
• Long -term capital improvement program financing (see later comments).
The City approved a motion on February 13, 1989 to commit $500,000 from the Closed Bond
Fund for City Hall improvements. Accordingly, the above fund balance of $874,000 has been
reduced to $375,000.
Capital Improvements Fund (401)
The Capital Improvements Fund was established in 1978 to account for monies set aside for
capital improvements. A schedule of activity from inception is as follows:
Municipal
Street Building
Reconstruction Unallocated Expansion Sealcoat Recreation Total
Revenue and Other Sources: a
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
1985 20,000 2,500 22,500
1986 $50,000 $4,500 20,000 30,000 104,500
1987 50,000 20,000 30,000 100,000
1988 50,000 20,000 37,000 107,000
Total transfers 150,000 4,500 70,000 200,000 120,575 545,075
Sale of property 9,414 9,414
Donation 750 750
Interest earnings 41.191 27,371 2,621 71,183
Total revenue and other sources 150,000 45,691 106,785 200,000 123,946 626,422
Expenditures and Other Uses:
Transfers out:
Municipal building expansion (91,438) (91,438)
Direct expenditures (19,363) (159,182) (111,370) (289,915)
Fund balance - December 31, 1988 150,000 45,691 (4,016) 40,818 12,576 245,069
1989 Budget:
Reallocate (150,000) (45,691) 195,691 0
Transfer in 100.000 20,000 30,000 150.000
$0 s0 $291,675 $60,818 $42,576 $395,069
City of Oak Park Heights, Minnesota
Management Report, Page 30
The City is in the process of expanding the City Hall at an approximate cost of $600,000. As
shown above, the City has designated $291,675 for this purpose of capital improvement monies
plus $500,000 from the Closed Bond Fund for a total of $891,675. These appropriations exceed
the estimated project cost of $600,000. The City may wish to reconsider the $500,000
appropriation from the Closed Bond Fund.
Comoleted Construction (510)
This fund was established in 1977 by closing several construction accounts to one account.
This account has a fund balance of $71,923 at December 31, 1988. A summary of transactions in
this fund from inception (1977) through December 31, 1988 is as follows:
Prior
Years 198 1988 Total
FINANCIAL SOURCES:
Transfers In /(Out) - Unbonded
Construction Projects:
Swagar #2 -5 $12,502 $12,502
Port of Sunnyside (10,141) (10,141)
Valley View Storm Sewer (17,324) (17,324)
Prison Utilities (17,340) (17,340)
Other 768 768
Interest on Investments 17,656 $3,360 $4,702 25,718
Assessments 86,961 12,236 9,660 108,857
Other 2,673 2,673
Total Financial Resources 75,755 15,596 14,362 105,713
EXPENDITURES 24,748 4,752 4,290 33,790
REMAINING BALANCE $51,007 $10,844 $10,072 571,923
The remaining balance is available to be used by the City for Council designated purposes.
SWaLyer's 9th Addition
This project was in process at December 31, 1988. Financing was provided by the G.O.
Improvement Bonds of 1987. This project was assessed in September of 1988. Upon
completion, we recommend this fund be closed to the related Debt Service Fund. (See previous
comments under Improvement Bonds of 1987.)
City of Oak Park Heights, Minnesota
Management Report, Page 31
River Hills Utilitv
Preliminary expenditures totaling $5,833 were incurred in 1988. The City anticipates that this
project will be started in 1989. Financing terms have not been determined.
Entemrise Fund
The financial statements for the Enterprise Fund (Water and Sewer Utilities) are presented in
Statements 12, 13 and 14 of the City's 1988 Annual Financial Report. Condensed comparative
operating statements of income and expense for the utility operations excluding depreciation on
contributed assets of the City are as follows:
Water Department
1988 1987
Amount Percent Amount Percent_
Revenue:
Customer billings and other 8124,429 100.00% $116,151 100.00%
Operating expenses:
Contractual services 28,020 22.52% 34,703 29.88%
Administrative and personnel charges 18,125 14.57% 15,750 13.56%
Other 10,235 8.23 %n 12,260 10.56%
Total operating expenses 56,380 45.32% 62,713 54.00%
Net income before depreciation 68,049 54.68% 53,438 46.00%
Depreciation - purchased assets 7,467 7,429
Net operating income $60,582 $46,009
City of Oak Park Heights, Minnesota
C�
Management Report, Page 32
$140,000 Water Operating
iRevenue & Expense!
$120,000
$100,000
000 "006 0 0 All Other Expenses
$80,000
El Contractual Services
$60,000 .? ®®
Operating Revenue
$40,000
.............
.........
$20,000
.............
.............
$0
1984 1985 1986 1987 1988
.......... . . . . . . ............
Sewer Department
1988 1987
Amount Percent Amount Percent
Revenue:
Customer billings and other $170,896 100.00% $161,949 100.00%
Operating expenses:
MWCC 101,837 59.59% 82,469 50.92%
Other contractual services 19,468 11.39% 8,673 5.36%
Administrative and personnel charges 18,125 10.61% 15,750 9.73%
Other 750 0.44% 567 0.35%
Total operating expenses 140,180 82.03% 107,459 66.36%
Net income before depreciation 30,716 17.97% 54,490 33.64%
Depreciation - purchased assets 2,018 2,018
Net operating income 528,698 $52,472
City of Oak Park Heights, Minnesota
Management Report, Page 33
$180,000 - Sewer Operating
$160,000 Revenue & Expense
$140,000
$120,000 All Other Expenses
o $100,000 . . . . . .
............ MWCC
......... ..
$80,000 ..............
. ............ .............
................ AA Operating Revenue
.. ......... ....
................ .........
. . ........
$60,000 ............
...... .. ...... .
.............
... .........
..............
.............. ......... ... ..............
.......... ..........
... ..... ...............
............. .. .. ..............
.........
$40 . ..... ...... . ...............
. ....... ---
000
..........
..............
............
.............. ..............
.............. ............
............
$20,000 .. .....
........ ..........
...........
.............. .. .........
..............
so
1984 1985 1986 1987 1988
The single largest expense of the Sewer Operations is the contractual services of the
Metropolitan Waste Control Commission (MWCC). The MWCC charges comprise over 75% 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 34
$120,000
MWCC Billings
$100,000
$80,000. _ ::
S60,000 000
S 40 0
00
$20,000 000 >':> -
1981 1982 1983 1984 1985 1986 1987 1988 1989
El MWCC Estimated M MWCC Actual
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 1988 (see graph) were as follows:
Estimated Actual
Percent Percent
Year Amount Chance Amount Chance
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 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) 69,509 1.01
1986 85,742 19.29 72,992 5.01
1987 95,219 11.05 98,921 35.52
1988 98,135 3.06 Not Available
1989 108,742 10.80 Not Available
NOTE: The bracketed figures above indicate payments from the MWCC.
City of Oak Park Heights, Minnesota
Management Report, Page 35
There are two basic factors which affect billings from the MWCC. The first is changes in use
of the system. The estimated usage for 1989 increased from 130 million gallons for 1988 to 137
million gallons for 1989. The second factor which affects the billings from MWCC is their cost to
process gallonage. Their cost to process (per million gallons) increased for 1988 to $859 from
$839 for 1987. The 1989 cost to process increased 5.12% to $903. The combination of these
factors increased the City's estimated cost in 1989 by 10 %. 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. 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
reviews continue to be a standard procedure of the City.
The financial position of the City's Enterprise (Water and Sewer Utilities) Fund has grown
substantially over the past several years as follows:
Cash Balance Retained Earnings
December 31, Amount Increase Amount Increase
1983 $222,576 $348,692
1984 293,457 $70,881 393,916 $45,224
1985 378,492 85,035 458,555 64,639
1986 429,969 51,477 530,939 72,384
1987 557,162 127,193 656,586 125,647
1988 661,765 104,603 785,756 129,170
The above balances reflect the results of positive (profitable) operations as shown previously.
The City Council has discussed the need for a second City water tower (and related improvements)
for the past several years. The above increasing balance is partially for the purpose of such
improvements. However, the official City records (formal Council action) does not document the
purpose of this balance. We recommend that the City Council take formal action to document and
appropriate a portion of this balance for its intended purpose.
City of Oak Park Heights, Minnesota
Management Report, Page 36
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 1988 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 evaluation was to determine the
nature, timing and extent of the auditing procedures necessary for the expression of
an opinion on the City's financial 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 maintaining a
system of internal accounting control. The objective of internal 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 concept 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 valuation of these factors necessarily requires estimates and
judgments by management.
There are inherent limitations that should be recognized in considering 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 procedures 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
City of Oak Park Heights, Minnesota
Management Report, Page 37
assets. These conditions are common to cities of this size. Any modification 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, 1988
financial statements and this report does not affect our report on the financial
statements dated February 24, 1989.
This report is intended solely for the use of the City of Oak Park Heights and
should not be used for any other purpose.
Computer Svstem
The City's Finance /Administration Department has implemented all phases of the following
applications:
• Utility Accounts Receivable
• Word Processing
• General Ledger (including accounts payable, receipting and bank reconciliations)
• Payroll
The Police Department substantially implemented all phases of applications. The Police
Department is now considering the expanding of the system to have access to the State's database.
The City is currently expanding its general purpose data processing system to include electronic
meter reading to improve the efficiency of its system.
City of Oak Park Heights, Minnesota
Management Report, Page 38
SUMMARY
The following listing is a summary of the items which should be recorded, investigated and /or
resolved during 1989.
• Determine and stipulate the speck terms for special assessment deferrals. (Page 15)
• Closely monitor future collections of special assessments relating to the Improvement
Bonds of 1987. (Page 26)
• Close the Swager's 9th Addition Fund to the related Debt Service Fund. (Page 30)
• Continue annual reviews of MWCC billings. (Pages 33 to 35)
• Take action to document and appropriate a portion of the Enterprise Fund balance for its
intended purpose. (Pages 35 to 36)
Respectfully submitted,
O
VOTO, TAUTGES, REDPATH & CO., LTD.
Certified Public Accountants
May 10, 1989