HomeMy WebLinkAboutManagement Report and Recommendations C= OF OAK PARK BEIGHTS, MINNESOTA
'PORT,
AND WATIOM
DECEMBER 31, 1989
CITY OF OAK PARK HEIGHTS, MINNESOTA
MANAGEM REPORT AND RE(-QMMENDATIONS
TABLE OF CONTENTS
PaL-e
Transmittal Page 1
General and Special Revenue Fundy - Summary data and analysis 4
of 1989 revenue and expenditures compared to prior periods
fombined Financial Star, gm�n q (Balance Sheet AnalysisA - A look at
changes in various accounts such as cash, investments and receivables 9
Individual Fund/Fund Type An ?a - Review of significant changes in
fund balances and other matters:
• General Fund 19
• Debt Service Funds 24
• Capital Project Funds 30
® Enterprise Fund 34
Internal Control Re ;IM 39
Summary of Recommendationa 40
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City of Oak Park Heights, Minnesota
Management Report, Page 2
The City has achieved and continues to maintain several significant and favorable financial
indicators through current actions and past prudent planning. A summary of favorable indicators
and controls are as follows:
1. The fund balance of the General Fund increased by $40,000 in 1989. This increase
was achieved after a budgeted transfer to the Capital Improvements Fund of $150,000
to partially finance the Municipal Building Expansion Project, As discussed in a later
section of this report, the General Fund is in a sound financial position at December 31,
1989,
2, Interest on investments increased from $219,000 for 1988 to over $286,000 for 1989
representing a $67,000 or 31% increase over 1988.
3. The Enterprise Fund increased retained earnings by over $116,000. 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 , r�i 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 f fi5gallv sound City with the financial ability to
manage planned growth. We congratulate the City on an exceptionally favorable 1989.
1989 LEGISLATIVE ACTIONS
The 1989 Legislature approved several changes in the property tax system and state aid
distribution system. The table below summarizes the dollar impact of these changes.
State Totals For Cities
1990 Percent
Increase/(Decrease) Increase
1988 1989 _ 1990 over 1989 (Decrease)
Local Governmental Aid $297,037,000 $376,376,000 $331,725,000 ($44,651,000) (11.86)%
Homestead and Agricultural Aid 111,873,000 106,308,000 143,523,000 37,215,000 35.01%
Tax Base Equalization Aid 0 0 19,521.000 19,521,000
Totals $408.910,000 $482.684,000 $494,769,000 $12,085,000 2.50%
City of Oak Park Heights, Minnesota
Management Report, Page 3
Statewide Local Government Aid (LGA) initially increased by approximately $30 million for
1990. However, after the effect of the aid transfer for education (1989 Special Legislation
Session) of $74.7 million, LGA will decrease $44 million from the 1989 level. The aid transfer to
school districts is a method of increasing the State financial support for education while decreasing
financial support for cities. The aid transfer for a city is an amount equal to 3.4 % of its adjusted
net tax capacity. Cities received increased property tax levy authority to replace aid transfer.
Property tax related state aids for the City of Oak Park Heights have been as follows:
City of Oak Park Hei . qhts
1985 1986 1987 1988 1989 1990
Local Governmental Aid $99,652 $99,656 $99,522 $99,521 $101,527 $0
Homestead and Agricultural Aid54,771 58,242 63,033 71,050 75,082 0
Tax Base Equalization Aid 0 0 0 0 0 0
Totals $154,423 $157,898 $162,555 $170,571 $176,609 $0
*Net of aid transfer for education of $242,034
A graph of the above tables is as follows:
$110,000 r. ® A $500,000
$100,000 - $450,000
$90,000 - '■ �- $400,000
$80,000 - $350,000
$70,000 - ®$300,000 LGA
$60,000
- �- $250,000 0 Homestead Credit
$50,000
$40,000 - $200,000 , ® ®Statewide Totals (in 1,000)
$30,000 - $150,000
$20,000 - -- $100,000
$10,000 _ - $50,000
$0 7 $o
1985 1986 1987 1988 1989 1990
City of Oak Park Heights, Minnesota
Management Report, Page 4
Homestead and Agricultural Credit Aid (HACA) is the replacement of the old Homestead
Credit programs. For payable 1990, HACA is computed as follows:
Payable 1989 Gross Taxes $1,009,248
Less:
Payable 1989 Tax Rate x Payable 1990 Net Tax Capacity x .9767
(.1441 x $6,829,551 x .9767) (961.2081
Initial 1990 HACA 48,040
Less:
Aid transfer (48.040)
1990 HACA $_0_
Beginning with Payable 1991, HACA payments will reflect increases in the consumer price
index and increases in the number of households.
Tax Base Equalization Aid, (which is new for 1990), is a program that targets aid to low tax
base cities. Tax Base Equalization Aid will work similar to HACA whereby the county auditor will
deduct the aid from the amount of taxes certified by the city. Payments of Tax Base Equalization
Aid will be made on July 20 and December 15, 1990 from the Department of Revenue. The City
of Oak Park Heights is not scheduled to receive Tax Base Equalization Aid in 1990.
In addition to changes in the state aid structure, the 1989 legislature repealed all City levy limits
beginning with payable 1992. However, the State Legislature will have the opportunity to change
and/or repeal this action during its 1990 and 1991 sessions.
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.
City of Oak Park Heights, Minnesota
Management Report, Page 5
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 follow since 1980:
State Aids Property Taxes All Other � Total Revenue
Year Amount Percent Amount Percent Amount Percent Amount Percent
1980 $124,222 25% $276,402 56% $89,933 19% $490,557 100
1981 124,936 21% 386,515 63% 97,250 16% 608,701 100°10
1982 122,425 18% 423,843 63% 123,559 19% 669,827 100
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 19% 913,523 100
1987 183,194 18% 681,636 68% 132,538 14% 997,368 100%
1988 194,072 17% 804,441 70 152,137 13 % 1,150,650 100
1989 199,513 16% 868,420 68% 210,945 16% 1,278,878 100
1990B 24,425 2% 1,108,430 83% 196,765 15% 1,329,620 100%
A graph of State aids and property taxes for the City is as follows:
General and Special Revenue Funds
$1,200,000 - $1,200,000
$1,000,000 - $1,000,000
$800,000 - - $800,000
$600,000 a .$600,000
$400,000 $400,000
200 000
$ 200,000 r''' ,
$0 MM, $0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990E
Other Revenue 0 State Aids ® Property Taxes
The preceding data indicates that the City will be required to rely solely on increased property
taxes to fund the increased levels and costs of providing City services.
City of Oak Park Heights, Minnesota
Management Report, Page 6
State aids have consisted of the following for the past eight years (with 1990 budget):
1990
Description 1982 1983 1984 1985 1986 1987 1988 1989 Budget
Local government aid $68,950 $82,324 $94,074 $99,652 $99,656 $99,522 $99,521 $101,527 SO
Homestead credits 35,291 49,840 46,887 45,775 51,793 59,636 67,760 72,498 0
Police aid 10,263 10,720 11,284 11,669 16,892 21,161 23,856 24,863 24,425
Other 7,921 6,507 0 899 0 2,875 2,935 625 0
Totals $122,425 $149,391 5152,2 $157,995 $168,341 $183,194 5194,072 $199.513 $24,425
Change ($2.511) $26,966 $2.854 55.750 $10.346 $14.853 S10.878 55.441 (5175.088)
% Change ( 295) 22 % 2% 4% 7% 9% 6 % 3% (88%)
A. graph of State aids for the past nine years (with the 1990 budget) is presented below:
Aids _. . .
$200,000
State
M
$180,000 f?
X.
$160,000
$140,000 ` As,:•:::::»>' ::s:E:E's:: ? >: : # r;: >:::: >»
$ 120, 000
$100,000
$80,000 a
$60,000
$40,000
$20,000 - -
$0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
Budget
Other State Aids ❑ Homestead Credit M Local Gov't Aid
The preceding schedule and graph indicate that local government aid had been frozen for the
City for several years. The 1990 budget reflects the elimination of LG.As and Homestead Credits
due to the new State legislation regarding State aids for Minnesota cities. The State has completely
eliminated (property -tax related) stated aid to /for the City of Oak Park Heights for 1990 and
(apparently) future years.
City of Oak Park Heights, Minnesota
Management Report, Page 7
Local property taxes are levied by the City each October for collection in the subsequent year.
However, this tax levy jLnQj entirely paid by the property owners. A part of each annual tax levy
is /was paid by the State (HACA and equalization aid) and from the fiscal disparities pool. Current
tax revenue (by payor) was as follows for the past four years including 1990 budgeted.
1990
Payor 1986 1987 1988 1989 Budget
Local taxpayor $692,312 $748,233 $877,014 $958,384 $1,198,139
State homestead credits 58,242 63,033 71,050 75,082 0
Fiscal disparities - net X28 (18,589) (24,333) (24,120) (41,146)
Totals $722,273 $792,677 $923,731 $1,009,346 $1,156,993
As the above data illustrates, the portion of the City tax levy being financed by the State
(through homestead credits) has been eliminated for 1990. Shown on a basis of percents, current
tax collections (by payor) were as follows for the past four years including 1990 budgeted.
1990
Payor 1986 1987 1988 1989 Budget
Local taxpayor 95.86% 94.40%, 94.94% 94.95% 103.56%
State homestead credits 8.06% 7.95% 7.69% 7.44% 0.00%
Fiscal disparities - net (3.92 %) (2.35 %) (2.63 %) (2.39 %) (3.56 %)
Totals 100.00% 100.00% 100.00% 100.00% 100.00%
Local property taxpayers (i.e. property located within the City of Oak Park Heights) pay more
than the actual amount levied by the City because of fiscal disparities. The above amounts and
percents are indicative that the City of Oak Park Heights is a "net loser" under the fiscal disparity
program. The City contributes more tax base to the fiscal disparity "pool" than it receives in tax
benefit.
City of Oak Park Heights, Minnesota
Management Report, Page 8
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 1989 Annual Financial Report.
1990
Description 1987 1988 1989 Budget
. General property takes $681,636 $804,441 $868,420 $1,108,430
Special assessments 0 0 4,451 0
Intergovernmental:
State 183,194 194,072 199,513 24,425
Federal 641 0 0 0
County 1,215 481 6,401 0
Licenses and permits 18,882 22,682 20,187 19,965
Charges for services 35,493 48,452 67,334 96,000
Interest on investments 38,658 45,043 53,348 40,000
All other 37,649 35,479 59,224 40
Totals $997,368 $1,150,650 $1,278,878 51,329,620
$1,200,000
$1,100,000 - -
$1,000,000 - -- - -- - - -
$900,000 - 1987
$800,000
$700,000 - - -- 1988
$600,000
$500,000 pg �, 1989
$400,000 1990B
$300,000
$200,000 ••• - - --
$100,000
$O ue,w,auuewwiuwywW w °�•
Property Taxes Intergovern- Licenses and Charges for All Other
mental Permits Services
City of Oak Park Heights, Minnesota
Management Report, Page 9
Total expenditures of the General and Special Revenue Funds increased by 16% in 1989 over
1988. Expenditures (by major classification) for the past three years were as follows:
1990
Description 1987 1988 1989 Budget
Current expenditures:
General government $210,609 $257,214 $255,945 $299,775
Public safety 327,380 358,184 414,777 543,045
Streets and highways 55,555 72,221 78,654 85,300
Sanitation 124,719 143,567 185,484 219,000
Recreation 92,831 104,229 113,262 137250
Capital outlay 40,062 20,301 62,931 8,875
Totals $851,156 $955,716 $1,111,053 $1,293,245
A graphic illustration of the above expenditures is presented below:
$550,000
$500,000
$450,000 _ --
$400,000 1987
$350,000 - -- .-
za E3 1988
$300,000
$250,000 M 1989
$200,000
$150,000 ® 1990B
$100,000
$50,000
$0
General Public Streets & Sanitation Recreation Capital
Government Safety Highways Outlay
.COMBINED FINANCIAL STATEMENTS,
The Combined Financial Statements of the City are presented in Statements 1 through 5 of the
1989 Annual Financial Report. The following comments relate to these financial statements of the
City.
City of Oak Park Heights, Minnesota
Management Report, Page 10
Cash and Inves
December 31, Increase
Description 1989 1988 (Decrease)
Checking account ($6,971) ($12,792) ($5,821)
Investments 3,203,799 3,371,007 167,208
Petty cash 50 50
Totals $3,196,878 $3,358,265 $161,387
The December 31, 1989 and 1988 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 1989, the City maintained an average negative book balance in the
checking account of $11,600 indicating a sound cash - management program. The City earned
$286,200 of interest on investments during 1989 compared to $219,400 in 1988. This increase is
primarily the result of increased rates available during the early months of 1989. Investments at
December 31, 1989 and 1988 were as follows:
December 31,
1989 1988
Investment Description Yield Balance Yield Balance
Certificate of Deposit 8.30% $587,800 8.90% $630,000
Certificate of Deposit 8.25% 884,000 8.60% 143,000
Certificate of Deposit 8.20% 500,000 8.50% 440,000
Certificate of Deposit 8.15% 417,000 8.35% 472,328
Certificate of Deposit 7.95% 689,000 8.15% 515,700
Certificate of Deposit 8.10% 1,140,000
Money Market 6.25% 125,999 5.40% 29,979
Totals $3,203,799 $3,371,007
Security for Denosits/Denositories,
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, 1989.
City of Oak Park Heights, Minnesota
Management Report, Page 11
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 Descrin_ tion From To
101 General $ 4,657.90
510 Completed Construction Fund 900.32
i 518 G.O. Improvement Bonds of 1982 1,019.46
I 702 Utility 862.27
521 G.O. Improvement Bonds of 1987 $ 7,439.95
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 1990 records of the City.
We are available to assist the City in adjusting the computer balances.
Due from Other Governmental Unit
December 31 Increase
Description 1989 1988 (Decrease)
Fines $3,595 $2,100 ($1,495)
Gravel tax 317 317
Totals $3,912 $2,417 ($1,495)
All of the above amounts are currently collectible.
City of Oak Park Heights, Minnesota
Management Report, Page 12
Due from Developers
December 31, Increase
Description 1989 1988 (Decrease)
Developers Deposit Fund;
Cost reimbursement $4,244 $1,798 $2,446
TIF Fund:
Cost reimbursement 2,746 0 2,746
Totals $6,990 $1,798 $5,192
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.
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.
1989 1988 1987 1986
Delinquent taxes - January 1 $21,293 $29,641 $26,716 $15,762
Current levy 1,009,248 923,731 792,677 722273
Total collectible 1,030,541 953,372 819,393 738,035
Receipts:
Property owners 909,575 843,848 726,303 652,959
State 76,081 71,050 63,449 58,360
Total receipts 985,656 914,898 789,752 711,319
Adjustments:
Abatements (14,052) (17,181)
Delinquent taxes - December 31 $30,833 $21,293 $29,641 $26,716
Total collections as a percent of current levy 98% 99% 100% 98%
The adjustments to delinquent taxes receivable consist of abatements of property taxes as a
result of adjustments to market valuations.
City of Oak Park Heights, Minnesota
Management Report, Page 13
As shown above, tax collection rates have averaged 99% over the past four years representing
an excellent/solid collection rate for the City. This financial indicator (i.e. property tax collection
rate) is one of the major criteria used by the City's rating agency when the City is rated for bonding
purposes.
Special Assessments Receivable
Special assessments receivable consisted of the following types and amounts:
December 31, Increase
Description 1989 1988 (Decrease)
Delinquent $101,058 $12,408 $88,650
Due from County 9,582 9,582
Deferred 408,607 717,569 (308,962)
Special Defend 14,800 14,800
Totals $534,047 $744,777 ($210,730)
Deferred special assessments consist of the remaining principal installments on assessment
rolls. These assessments are generally collectible over a time period consistent with the debt
payment schedule of the related bond issue.
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%
1989 101,058 88,650 714%
City of Oak Park Heights, Minnesota
Management Report, Page 14
The change in delinquent assessments receivable over the past three years was as follows:
1989 1988 1987
Delinquent balance - January 1 $12,408 $10,781 $10,882
Adds
Current installments 210,918 30,286 _ 40,260
Amount collectible 223,326 ® 41,067 51,142
Less collections:
Current 113,895 27,685 38,170
Delinquent 7,184 918 2,140
Total collections 121,079 28,603 40,310
Adjustments (1,189) (56) (51)
Delinquent balance - December 31 $101,058 $12,408 $10,781
Current collections as a percent of current levy 54% 91% 95%
Total collections as a percent of current levy 57% 94% 100%
The above schedule indicates that the City had a poor collection rate for special assessments in
1989. This financial indicator (i.e. special assessment collection rate) is also one of the major
criteria used by the City's rating agency when the City is rated for bonding purposes. This poor
collection rate is attributable to the Swager's 9th addition improvement project which was financed
by the Improvement Bonds of 1987. A schedule of the 1989 assessment activity for this fund is as
follows:
City of Oak Park Heights, Minnesota
Management Report, Page 15
Bonds of All Other
1987 Funds Total
Delinquent balance - January 1, 1989 $0 $12,408 $12,408
Add:
Current installments 183,648 27,270 210,918
Amount collectible 183,648 39,678 223,326
Less collections:
Current 87,956 25,939 113,895
Delinquent 0 7,184 7,184
Total collections 87,956 33,123 121,079
Adjustments 0 (1,189) (1,189)
Delinquent balance - December 31, 1989 $95,692 $5,36 $101,058
Current collections as a percent of current levy 48% 95% 54%
Total collections as a percent of current levy 48% 121% 57%
As clearly shown above, the poor special assessment collection rate for 1989 is entirely the
result of the single project financed by the Bonds of 1987. Delinquent assessments on this project
account for 95% of all special assessment delinquencies at December 31, 1989. In fact,
delinquencies on all other projects actually decreased in 1989. See later comments relating to the
Improvement Bonds of 1987.
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.
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 a system at the City. 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 of assisting the City in establishing a fixed asset
accounting/inventory system.
Cgm oensated 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 $36,202 and $31,337 at December 31, 1989
and 1988 respectively. Also included in the accrual for compensated absences is vacation pay
benefits for all City employees of $2,267 at December 31, 1989 and $2,110 at December 31,
1988.
City of Oak Park Heights, Minnesota
Management Report, Page 17
Bonds Payable
Bond Issues
Special Special Revenue
Assessments District Bonds Totals
Balance - January 1, 1989 $1,159,000 $180,000 $110,000 $1,449,000
Principal payments (234,000) (10,000) (15,000) (259,000)
Balance - December 31, 1989 $925,000 $170,000 $95,000 $1,190,000
Retirement Schedule:
1990 $234,000 $10,000 $15,000 $259,000
1991 239,000 10,000 20,000 269,000
1992 229,000 10,000 20,000 259,000
1993 223,000 10,000 20,000 253,000
1994 10,000 20,000 30,000
1995 -1999 60,000 60,000
2000- 2003 60,000 60,000
Total $925,000 $170,000 $95,000 $1,190,000
As shown on the above schedule, substantially all (90 %) of the City's bonded debt is
scheduled to be retired by December 31, 1993 (i.e., four years). The majority ($925,000 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 under Improvement Bonds of 1987.
Detail of outstanding bond issues are contained in Exhibits 2 and 3 of the 1989 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. At December 31, 1989, the escrow agent held
City of Oak Park Heights, Minnesota
Management Report, Page 18
approximately $1,000 of interest earnings in excess of the minimum balance. The City should
consider withdrawing this excess in 1990.
Fund Equity
December 31, Increase
Fund Grout) 1989 1988 (Decrease)
General $910,630 $870,705 $39,925
Debt Service 521,243 500,064 21,179
Capital Projects 971,475 1,268,163 (296,688)
Totals 2,403,348 2,638,932 (235,584)
Retained earnings:
Enterprise ... 785,756 116,965
Totals $3,306,069 $3,424,688 __JS118,619)
As shown above, all fund groups of the City are in a positive financial position. The decreased
fund balance of the City's Capital Project Funds was a planned decrease for the Municipal Building
Expansion Project (i.e. $450,000 was expended on this project in 1989). The various causes for
equity changes are discussed in the following section of this report.
City of Oak Park Heights, Minnesota
Management Report, Page 19
INDIVIDUAL FI.JND/FUND TYPE ANALYSIS
General Fund
The financial statements for the General Fund are presented in Statements 6 and 7 of the City's
1989 Annual Financial Report. The fund balance of the General Fund was $910,630 at December
31, 1989 representing an $39,925 increase during 1989 as follows:
Actual Revenue Greater Than
(Less Than) Budgeted Revenue:
• General property taxes ($20,822)
• Intergovernmental 8,296
• Licenses and permits 1,742
• Fines and forfeits 3,176
• Interest on investments 16,348
• Charges for current services 3,834
• Refunds and reimbursements 19,423
• Other 7,276 $39,273
Budgeted Expenditures Less Than
(In Excess Of) Actual Expenditures:
• General government $13,202
• Public safety 3,715
• Streets and highways 11,796
• Sanitation (4,984)
• Recreation 6,425
• Contingency 11,323 41,477
Budgeted decrease in fund balance (40,825)
Net increase in fund balance for 1989 $39,925
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.
City of Oak Park Heights, Minnesota
Management Report, Page 20
w' Cash flow timinz differences.
Expenditures are incurred somewhat W- Emerzencv or unanticipate&
evenl throughout the year. Property gxDgr gL iJULM Examples include natural
taxes & State aids are not received disasters, law suits, comparable worth
until the second half of the year. A implementation and premature breakdown
reserve of one half of such revenues of vital equipment.
is therefore recommended.
W -1 1 , 11 - 0 —1
Reasons for
Reserves
w Capital outlay replacement.
Internal escrow for purchases which w ,Special Citv Council PLroiects,
can
may exceed amounts available in Preliminary studies, interfund loans
c are
any single budget cycle. This may and minor improvement projects are
also be accomplished through transfers examples of reserve uses.
to dedicated replacement funds.
governmental revenue cutbacks,
The Cit is vulnerable to le actions at
both the Federal & State level. Federal funding
to local government has been substantially
curtailed in recent years. Annual adjustment of
Local Government Aid & Homestead Credit
formulas is a constant threat.
The fund balance of the General Fund has increased over the past several years. The schedule
below reflects the fund balances for the past thirteen 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
1989 910,630 39,925
City of Oak Park Heights, Minnesota
Management Report, Page 21
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 $199,400 at December 31, 1989 representing 15% of the 1990
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. Prudent fiscal management leads to the conclusion that a reserve
balance in the City's General Fund will mitigate the adverse effects of aid reductions.
The State of Minnesota is apparently developing a unique view of what constitutes prudent
fiscal management for Minnesota cities. Currently, the Minnesota Department of Revenue is
seeking options for reducing LGA and HACA for 1990 and future years as a method of reducing
the State's budget shortfall. One method that is under consideration for cutting aids is based upon
city reserve balances. Presumably, cities with "large" reserve balances would experience "large"
aid cuts. The City of Oak Park Heights has been put into a unique position. The State has reduced
its (property tax related) state aids to zero. Unless special action is taken by the State; the City of
Oak Park Heights cannot lose any additional state aids. Effectively, the City of Oak Park Heights
is now independent of future state actions.
We recommend that the City wron gly onnose this method of targeting aid reductions to cities
for the following reasons:
1. The proposed targeting would penalize those cities which do practice sound fiscal
management.
2. The proposed targeting would encourage less responsible fiscal management. This would
result in financial crisis for individual cities and ultimately affect the bond ratings of all
Minnesota cities including the City of Oak Park Heights.
3. The targeting program would be virtually impossible to administer on a fair and equitable
basis because financial management practices and fund structures are not consistent or
easily comparable among cities. What may appear to be a low reserve balance of a city's
General Fund may be an adequate reserve balance for such city. Examples are as follows:
City of Oak Park Heights, Minnesota
Management Report, Page 22
• Transferring monies from the General Fund to other funds for capital acquisitions or
anticipated acquisitions.
• The use of Special Revenue funds to account for basic services such as police, fire and
other.
• The use of an Internal Service fund for compensated absences.
• The reservation of General Fund Balance for cash flow, compensated absences, etc.
• Transferring of reserved balance amounts to other City funds.
4. Many cities have established reserve policies and made significant fiscal management
decisions based on the established/targeted reserve policy. The effectiveness of such
planning and fiscal management would be severely hampered (if not destroyed) by reserve
balance "raiding" by the State.
5. The State is possibly seeking to pass its financial crisis on to local government. This
would be a temporary solution to apparently poor fiscal management at the State level.
6. The potentially lost reserve balance could diminish the City's bond rating and potentially
deplete a City's reserve balance pledged to secure debt service requirements.
The State has made significant attempts to improve the "equitable distribution" of State Aids to
cities over the past two years. The success of the action to date is questionable. The proposed
action to "raid" reserve balances of cities would be a clear message that the objective of the State is
not equity among cities. The objective would be to control the local decision making process as it
relates to financial matters. This would result in an erosion of the independence and effectiveness
of city government. More important, such actions could eventually effect the bond audit ratings of
all Minnesota cities.
City of Oak Park Heights, Minnesota
Management Report, Page 23
Favorable bond rating indicator. Avoids temporary overdrafts
prior to major receipts.
I
City may study effects of
Supplements revenues revenue cuts before gradual
with , investment earnings. program reductions.
"I ..........
Benefits of
Reserves
w - Provides the City
greater options to deal
or pro
Provides resources
Provides resources
w- Pr9v' projects or with unexpected events.
for minor or
y reports. for 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 $554,200 computed as follows:
1990 Budgeted Levy (includes homestead credit) $ 1,108,430
1990 Anticipated Local Government Aid 0
Total $ 1,108,430
Minimum Required Cash Flow Reserve
(one-half of total) $ 554,200
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
$356,000 of other General Fund reserves to fulfill the various other reserve requirements.
City of Oak Park Heights, Minnesota
Management Report, Page 24
During 1987, the City adopted Resolution 87 -10 -42 establishing General Fund reserves/
designations for cash flow, contingent employee benefits and general contingency based upon
formulas for each category. At December 31, 1989, the General Fund balance was designated as
follows:
Designated fore
Cash flow $ 554,200
Contingent employee benefits 87,100
General contingency 199.40Q
Subtotal 840,700
Undesignated 69.93-Q
Total fund balance $ 910,630
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 1989 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 1989 as follows:
Fund Balance
December 31, Increase
Fund 1989 1988 (Decrease)
G.O. Storm Sewer Improvement Bonds of 19717 $31,523 $34,178 ($2,655)
Storm Sewer Bonds of 1982 8,672 7,640 1,032
Improvement Bonds of 1982 54,952 59,762 (4,810)
G.O. Bonds of 1983 38,649 37,297 1,352
G.O. Improvement Bonds of 1987 387,447 361,187 _ 26,260
Totals $521,243 $500,064 $21,179
City of Oak Park Heights, Minnesota
Management Report, Page 25
Debt Service Funds may have one or a combination of the following revenue sources pledged
to retire debt as follows:
• PrODertv 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 incrementleconomic development districts.
• Capitalized I nterest 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.
• 5-pecial 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).
Special Assessment and General Obligation Debt funds are combined in the City's Debt Service
Fund type. 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 26
Decemb 31, 1989 Final
Fund Defected Deferred Remaining Maturity
Fund Description Balance Revenues Taxes Total Debt Service Date
General Debt:
Storm Sewer Bonds of 1982 $8,672 $881 $329,375 e $338,928 $313,668 12/1/03
Sub -total 8,672 881 329,375 338,928 313,668
Special Assessment Debt:
Storm Sewer Bonds of 1971 31,523 587 12,000 44,110 21,140 5/1/91
Improvement Bonds of 1982 54,952 23,944 24,000 102,896 96,413 8/1/93
Improvement Bonds of 1983 38,649 9,773 48,422 41,103 2/1/93
Improvement Bonds of 1987 387,447 424,959 . 812,406 914,460 12/1/93
Sub -total 512,571 459,263 . 36,000 1,007,834 1,073,116 .
Totals -All Debt Service Funds $521,243 $460,144 $365,375 $1.346.762 $1,386,784
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 Droiection of the
final fund position based on scheduled levies and debt requirements is as follows:
Fund Balance ® December 31, 1989 $ 8,672
Additions:
Future scheduled tax levies @ 100% 329,375
Total 338,047
Deductions:
Debt requirements:
Principal 170,000
Interest 143,668
Total 313,668
Projected Fund Balance $ 24,379
Normal Projected Fund Balance
5% of debt requirements $ 15,700
City of Oak Park Heights, Minnesota
Management Report, Page 27
The above projection indicates that this fund will have adequate assets to meet bonded debt
requirements over the schedule term of this bond issue.
Special Assessment Debt Service Fund
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 98 %, 100 %, 99 %, and 98% for 1986 through 1989 respectively. The following schedule
compares the actual cash balance to the projected cash balance as of December 31, 1989.
Cash and
Investment Balance Final
December 31, 1989 Bond
Fund Actual Projected Variance Maturity
G.O. Storm Sewer Bonds of 1971 $31,523 $27,023 $4,500 1991
G.O. Improvement Bonds of 1982 54,952 34,110 20,842 1993
G.O. Improvement Bonds of 1983 38,649 26,742 11,907 1993
G.O. Improvement Bonds of 1987 387,447 334,702 52,745 1993
City of Oak Park Heights, Minnesota
Management Report, Page 28
Storm Sewer Bonds of 1971
The positive projected variance for the Storm Sewer Bonds of 1971 reflects a nominal variance
at December 31, 1989. Final maturity of this bond issue is May 1, 1991. Existing plus future
scheduled assets ($43,523) for these bonds will be more that sufficient to meet future bond
requirements (principal and interest) of $21,140 at December 31, 1989.
Imp_ rovement 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 ($102,896) approximately equals future bond
requirements (principal and interest) of $96,413 at December 31, 1989. However, such future
assets include special deferred assessments totaling $14,800. Such assessments have been given a
special deferment meaning that they ffg n t currently collectible.
This special deferred assessment relates to a parcel owned by a senior citizen. The deferment
(of payment) could extend beyond 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 ($48,422) approximately equals future bond
requirements (principal and interest) of $41,103 at December 31, 1989.
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.
A Debt Service Study Update for this bond issue was prepared in May, 1989. That Special
Report and analysis indicated that this bond issue was adequately financed at December 31, 1988
City of Oak Park Heights, Minnesota
Management Report, Page 29
jubju 4 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 December 31, 1989) totaled $455,870 representing
approximately 50% of the total assessment roll and creating a substantial cash balance for this
fund. However, the 1989 current installment was $183,648, of which $87,956 or 48% was
collected leaving $95,692 or 52% delinquent at December 31, 1989.
Normally, assessments are payable over a specified number of years at a specked interest rate.
The assessments for these bonds are payable over five years at 8 1/2% interest, However, these
assessments are being prepaid as individual parcels are being developed and/or sold (i.e.
mortgaged). Prepayments to date (December 31, 1989) have been as follows:
Year Parcels Amount
1987 14 $ 128,240
1988 18 167,569
1989 22 160.061
Totals 54 $ 455,870
The remaining assessments to be collected include delinquent assessments totalling $95,700
plus future installments (1990 through 1993) totaling $329,300. These assessments are
committed/appropriated to provide financing to retire the Improvement Bonds of 1987. If
remaining amounts are not received by 1993; the City will be required to commit reserve balances
(i.e. Closed Bond Fund or another source) to temporarily finance the scheduled bond payments.
The City does have sufficient balances available for such purpose at December 31, 1989.
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.
City of Oak Park Heights, Minnesota
Management Report, Page 30
_Qpital Project Ftmda
The financial statements for the Capital Project Funds are presented in Statements 10 and 11 of
the City's 1989 .Annual Financial Report. Pursuant to changes in reporting standards, the Capital
Project Fund type includes special assessment projects. The fund balances (deficits) of the Capital
Project Funds were as follows at December 31, 1989 and 1988:
December 31, Increase
Fund 1989 1988 (mac)
Closed Bond Fund $736,718 $873,999 ($137,281)
Capital Improvements Fund 144,961 245,069 (100,108)
Completed Construction 6,815 71,923 (65,108)
Swagar's 9th Utilities 82,981 83,005 (24)
River Hills Utility 0 (5,833) 5,833
TIF Interim Construction 0 0
Totals $971,475 $1,268,163. ($296,688)
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 31
Prior
Years 1988 1989 Total
Financing Sources:
General property taxes $1,658 $149 $1,807
Special assessments 68,311 15,947 $13,891 98,149
Interest on investments 129,422 63,545 55,268 248,235
Interfund interest 7,413 7,413
Connection charges 57,616 19,210 16,443 93,269
Transfers in:
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 $823,979_ $98,851 $85,602 1,008,432
Financing Uses:
Professional services $2,751 $1,446 $783 4,980
Transfers out:
Sewer and Water Bonds of 1982 (construction) 40,364 40,364
G. O. Bonds of 1983 (construction) 4,270 4,270
General Fund 22,100 22,100
Capital Improvements Fund 200,000 200,000
Total financing uses - $47,385 $1,446 $222,883 271,714
Fund balance - December 31, 1989 $736,718
As shown above, the fund balance of the Closed Bond Fund decreased by $137,300 during
1989. This decrease was a planned or budgeted decrease, as follows:
Planned Decreases:
• Transfers Out:
• General Fund $ (22,100)
• Capital Improvement Fund (200,000)
Total Planned Decrease $(222,100)
Other Increases - Net:
• Interest Earnings $ 55,300
• Special Assessment and Connection Charges 30,300
• Other (800) 84,800
Net Decrease $ (137,300)
The purpose of the Closed Bond Fund is to receive residual balances of closed special
assessment bonds. Amounts on hand at December 31, 1989 are available for use at the Council's
discretion. City policy regarding the allowable use of such monies include the following areas:
City of Oak Park Heights, Minnesota
Management Report, Page 32
• 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).
- Capital Improvement.i..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:
Street Municipal Building Expansion
Reconstruction Unallocated Current Prior Sealcoat Recreation Total
Revenue and Other Sources:
Transfers from General Fund
1978 through 1980 $70,000 $40,000 $7,500 $117,500
1 20,000 2,500 22,500
198 20,000 6,075 26,075
1982
1983 20,000 2,500 22,500
1984 20,000 2,500 22,500
5 20,000 2,500 22,500
1985 $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
1989 $100,000 20,000 30,000 150,000
Transfer from Closed Bond Fund 200,000 200.E
Total transfers 150,000 4,500 300,000 70,000 220,000 150,575 895,9 414
Sale of property 9,414
20,750 20,750
Donation
Interest earnings 86,149 31,387 2,621 120,157
1989 Budget reallocation (150,000) (41,675) 191,675 0
Total revenue and other sources 0 48,974 491,675 110,801 220,000 173,946 1,045,396
Expenditures and Other Uses:
Transfers out
Municipal building expansion (91,438) (91,438)
Direct expenditures (468,401) (19363) a (187,994) w (133,239) (808,997)
Fund balance - December 31, 1989 0 48,974 23,274 0 32,006 40,707 144,961
1990 Budget: 47,000 47,000
Transfer in
Available for 1990 $0 548.974 523.274 $0 579.006 $40.707 S191,961
The City is in the process of expanding the City Hall at an approximate cost of $475,000. As
shown above, the City has designated $291,675 for this purpose of capital improvement monies
plus $200,000 from the Closed Bond Fund for a total of $491,675.
City of Oak Park Heights, Minnesota
Management Report, Page 33
Completed Construction (510)
This fund was established in 1977 by closing several construction accounts to one account.
This account has a fund balance of $6,815 at December 31, 1989. A summary of transactions in
this fund from inception (1977) through December 31, 1989 is as follows:
Prior
Years 1988 1989 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 21,016 $4,702 $4,401 30,119
Assessments 99,197 9,660 6,628 115,485
Other 2,673 2,673
Total Financial Resources 91,351 14,362 11,029 116,742
EXPENDITURES 29,500 4,290 76,137 109,927
REMAINING BALANCE $61,851 $10,072 ($65,108) $6,815
During 1989, the City used the available fund balance of the Completed Construction Fund as
"temporary" financing for the County Seat Estates project. Construction costs through December
31, 1989 totalled $76,137 as shown above. This project is expected to be assessed (100 %) in
1990. Accordingly, the "temporary" period will include the construction period (1989 and 1990);
plus the assessment collection period, which has not been determined. The City should assess this
project over a "reasonably" short period at an interest rate at or above its anticipated investment
yield, subject to state statutory requirements.
w is 9th Addition
This project was complete at December 31, 1989. Financing was provided by the G.O.
Improvement Bonds of 1987. This project was assessed in September of 1988 and substantially
completed at December 31, 1989, with a remaining balance of approximately $83,000. We
recommend this fund be closed to the related Debt Service Fund effective June 30, 1990. Such
fund closing and related cash transfer will avoid any potential "arbitrage" problems and help the
City of Oak Park Heights, Minnesota
Management Report, Page 34
situation relating to delinquent special assessments related to this project (See previous comments
under Improvement Bonds of 1987).
River Hills I..Jtility
Preliminary expenditures totaling $20,698 were incurred in 1988 and 1989. These costs were
reimbursed in 1989. The City anticipates that this project will be started in 1990. Financing terms
have yet to be determined.
Croix Mall
This fund was established in 1989 to account for the St. Croix Mall TIF project. Expenditures
totalling $26,695 (primarily consulting fees) through December 31, 1989 are fully reimbursable
from the developer.
Enterprise Fund
The financial statements for the Enterprise Fund (Water and Sewer Utilities) are presented in
Statements 12, 13 and 14 of the City's 1989 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:
City of Oak Park Heights, Minnesota
Management Report, Page 35
Water Department
1989 1988
Amount Percent Amount Percent
Revenue:
Customer billings and other $126,127 100.00%, $124,429 100.00%
Operating expenses:
Contractual services 38,602 30.61% 28,020 22.52%
Administrative and personnel charges 19,000 15.06% 18,125 14.57%
Other 6,014 4.77% 10,235 8.23%
Total operating expenses 63,616 50.44% 56,380 45.32%
Net income before depreciation 62,511 49.56% 68,049 54.68%
Depreciation - purchased assets 7,810 7,467
Net operating income $54,701 $60,582
$140,000 Water Operating
Revenue & Expense
$120,000
$100,000 Profit IN All Other Expenses
$80,000 El Contractual Services
$60,000
Operating Revenue
$40,000
$20,000 q
$0 -
1984 1985 1986 1987 1988 1989
N
City of Oak Park Heights, Minnesota
Management Report, Page 36
Sewer Departmenj
1989 1988
Amount Percent Amount Percent
Revenue;
Customer billings and other $178,801 100.00% $170,896 a 100.00%
Operating expenses:
MWCC 129,557 72.46% 101,837 59.59%
Other contractual services 21,542 12.05% 19,468 11.39%
Administrative and personnel charges 19,000 10.63% 18,125 10.61%
Other 194 0.11% 750 0.44%
170,293 95.25 % 140,180 82.03%
Net income before depreciation 8,508 4.75% 30,716 17.97%
Depreciation - purchased assets 2,365 2,018
Net operating income � $6,143 $28,698
$180 000 Sewer Operating ( lower profit
Revenue & Expense ''
$160,000
$ 140,000 - - - - -- - - - -- __ - __ - - -�
$120,000 e :::=`::`:`` All Other Expenses
0
$100,000 MWCC
$80,000
Operating Revenue
9
60 000
$ 40 , 0 0 0
W0 a
$
2
O 0,N
$0
1984 1985 1986 1987 1988 1989
As shown in the above schedules and graphs; the Water Utility continues to reflect "adequate"
operating profits. However; the Sewer Utility has reflected decreasing operating profits over the
past two years. The sewer operating profits have diminished primarily due to the MWCC costs
which have increased substantially over the past two years.
City of Oak Park Heights, Minnesota
Management Report, Page 37
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;
$140,000
MWCC Billings
$120,000 _
$100,000
$80,000
$60,000
$40,000 000
$ 20,000
so . . . . . . . . . . . . . - I I . - ,, .... . :�_-
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
MWCC Estimated 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 1990 (see graph) were as follows:
City of Oak Park Heights, Minnesota
Management Report, Page 38
Estimated Actual
Percent Percent
Year Amount ,h Amount Change
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 3.06 118,951
1989 108,742 10.80 Not Available
1990 132,368 10.80 Not Available
NOTE: The bracketed figures above indicate payments from the MWCC.
There are two basic factors which affect billings from the MWCC. The first is changes in use
of the system. The estimated usage increased from 137 million gallons for 1989 to 145 million
gallons for 1990. The second factor which affects the billings from MWCC is their cost to process
gallonage. Their cost to process (per million gallons) increased for 1990 to $903 from $859 for
1989. The 1990 cost to process increased 5.12% to $903. The combination of these factors
increased the City's estimated cost in 1990 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. Water rates (for 1989) appear adequate.
However; sewer rates (for 1989) have = kept pace with the increasing MWCC charges which
have increased to over 70% of total sewer charges to customers.
City of Oak Park Heights, Minnesota
Management Report, Page 39
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 Incre
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
1989 778,373 116,608 902,721 116,965
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. During 1989 the City Council took formal action to document and appropriate a
portion of this balance ($661,765)for the Water Tower Improvements.
INTERNA ACC OT JNTING 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 1989 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.
City of Oak Park Heights, Minnesota
Management Report, Page 40
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
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, 1989
financial statements and this report does not affect our report on the financial
statements dated February 5, 1990.
This report is intended solely for the use of the City of Oak Park Heights and
should not be used for any other purpose.
SUMMARY
The following listing is a summary of the items which should be recorded, investigated and/or
resolved during 1990.
• Determine and stipulate the specific terms for special assessment deferrals. (Page 15)
• Strongly oppose the State's method of targeting aid reductions to Cities. (Page 21)
• Continue to monitor the General Fund reserve balance. (Page 24)
• Closely monitor future collections of special assessments relating to the Improvement
Ponds of 1987. (Page 29)
City of Oak Park Heights, Minnesota
Management Report, Page 41
® Assess the County Seat Estates Project over a "reasonably" short period at an interest
rate at or above its anticipated investment yield. (Page 33)
® Close the Swager's 9th Addition Fund to the related Debt Service Fund. (Page 33
® Continue annual reviews of MWCC billings. (Page 38)
Respectfully submitted,
a
VOTO, TAUTGES, REDPATH & CO., LTD.
Certified Public Accountants
February 23, 1990