HomeMy WebLinkAboutManagement Report and Recommendations CITY OF OAK PARK HEIGHTS, MINNESOTA
MANAGEMENT REPORT,
AND RECOMMENDATIONS_
DECEMBER 31, 1990
CITY OF OAK PARK HEIGHTS, MINNESOTA
MANAGF,MENT RE PORT AND RECOMHEND
TABLE OF CONTENTS
PaLye
Transmittal Page 1
General Fund - Summary data and analysis
of 1990 revenue and expenditures compared to prior periods 9
Combined Financial Statements Balance Sheet Analvsis) - A look at
changes in various accounts such as cash, investments and receivables 15
Individual Fund/Fund Type Analysis - Review of significant changes in
fund balances and other matters:
• General Fund 26
• Debt Service Funds 32
• Capital Project Funds 37
• Enterprise Fund 42
Internal Control Report 52
Summary of Recommendations 54
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City of Oak. Park Heights, Minnesota
Management Report, Page 2
RF NT L Q ,A TNF ACM
The State legislature has made a progression of changes in funding cities. The most
significant changes started with the 1988 legislative session and continued through the 1991
session. Appendix A of this report presents a summary of this legislation and an estimate of the
initial year impact on 1) cities - statewide; and 2) the City of Oak Park Heights.
Cities must be concerned with at least three aspects of the changes which restructure funding
as follows:
• The impact of the changes to city funding statewide compared to your City. If your
City is less favorably impacted, the ability to maintain basic service and to retain a
competitive posture with surrounding communities may erode.
• Replacement funding is critical if State aids are severely reduced. Property tax limits
coupled with State aid cutbacks could be a financially devastating combination.
• Long -range planning cannot be effective if funding levels and sources are not
stabilized. The State has needed to revitalize its financial position periodically (the last
major crisis was in 1981). The method of achieving the desired result is to pass the
financial crisis to local units of government, It becomes difficult for cities to commit to
programs when threats of funding cuts loom, especially when such cuts are made
retroactive as is the situation for 1991.
Appendix A will be updated when the 1991 legislature concludes. We will forward an
updated version to the City which will illustrate the impact of final legislation on a Statewide basis
and on the City of Oak Park Heights.
City of Oak Park Heights, Minnesota
Management Report, Page 3
The estimated effects of the 1988 through 1991 legislative changes in State -wide city funding
is as follows:
State Totals for Cities
Local Homestead and Tax Base Disparity
Government Agricultural Equalization Reduction Increase
Year _ Aid Credit Aid Aid Aid Total (Decrease)
1988 $297,037,000 $111,873,000 $408,910,000
1989 376,376,000 106,308,000 $20,853,000 503,537,000 $94,627,000
1990 317,343,000 143,523,000 $19,513,000 14,201,000 494,580,000 (8,957,000)
1991 * 299,000,000 156,550,000 19,476,000 14,500,000 489,526,000 (5,054,000)
* Preliminary (2/28/91) estimates from the Department of Revenue
A chart of the above major funding categories to all Minnesota cities is as follows:
$500,000
Total State
Funding to
Cities
$400,000
Equalization
$300,000 ®— ® Disparity
HACA
$200,000 --
LGA
$100,000
$0
1988 1989 1990 1991
City of Oak Park Heights, Minnesota
Management Report, Page 4
The 1988 through 1991 legislative changes have impacted the funding of the City of Oak Park
Heights as follows:
City of Oak Park Heights
Local Homestead and
Government Agricultural Increase
Year Aid Credit Aid Total (Decrease)
1986 $99,656 $58,242 $157,898
1987 99,522 63,033 162,555 $4,657
1988 99,521 71,050 170,571 8,016
1989 101,527 75,082 176,609 6,038
1990 0 0 0 (176,609)
1991 0 48,141 48,141 48,141
The re-instated HACA Aid for 1991 will probably be fully eliminated as a result of the current
State budget reduction. The City of Oak Park Heights has had greater State Aid cuts than the
Statewide cuts to cities as follows:
City of Oak Park Heights State (in $1,000)
$200,000 - - $500,000
$175,000 - - $450,000
- $400,000
$150,000 -
- $350,000
$125,000 - HACA
■ - $300,000
$100,000 - ...... - $250,000 Local Government Aid
K
$200,000 Statewide Aid (in 1,000)
.0
$75,000
. ; � ,�..� K ��' $150,000
$50,000 . . . ......
$100,000
$25,000 $50,000
. . . . . . . . . . . .
$0 $0
1987 1988 1989 1990 1991
City of Oak Park Heights, Minnesota
Management Report, Page 5
As clearly shown on the previous page, the City of Oak Park Heights lost 100% of its State
Aids for 1990. A nominal amount ($48,141) was re- instated for 1991 (HACA Aid). However,
this entire re- stated amount will probably = be received resulting in "lost revenue" to the City for
1991. This full amount has been "designated" in the General Fund at December 31, 1990.
The 1989 increase in Local Government Aid (LGA) resulted from a formula change in
distributing the aid. A key variable in calculating LGA is the "revenue base ". The revenue base is
a concept which has been used to calculate funding of cities for a number of years. The revenue
base consists of a city's property tax levy plus LGA. The revenue base for the City of Oak Park
Heights has been as follows:
Tax LGA Total
1988 $923,731 $99,521 $1,023,252
1989 1,009,248 101,527 1,110,775
1990 1,205,556 0 1,205,556
1991 1,199,554 0 1,199,554
The decrease in State aids will continue to impact the funding of basic governmental services.
The following section of this report illustrates the funding of basic services over the past several
years.
City of Oak Park Heights, Minnesota
Management Report, Page 6
The 1989 and 1990 State Aid cuts have been calculated on a percent of revenue base.
Additionally, the revenue base was the first factor in the realigned LGA formula as follows:
1989 1990
1. Prior year revenue base ® $1,023,456 $111,004
Expenditure /unlimited aid ratio applicable percentage x 0.00% x 1.00%
Formula aid increase $0 $1,110
11. City revenue guarantee:
1990 - (households x per household guarantee x 1.04) $652,719
1989 - (households x per household guarantee x 1.08) $677,823
Less prior year tax capacity (1,475,794) (1,649,172)
City initial aid increase (cannot be less than zero) $0 $0
III. Prior year property tax levy $923,800 $1,009,355
Less prior year fiscal disparities distribution levy (28,155) (40,117)
subtotal 895,645 969,238
Statutory percent x 20.00% ® x 20.00%
Statutory tax base increase $179,129 $193,848
I V. Maximum 15% of prior year local government aid $14,948 $15,247
V. Minimum 2% increase prior to aid transfer $1,993 $2,033
The Initial aid increase" is the lowest of the four optional calculations. Using the table on
page 5, LGA for The City of Oak Park Heights for 1989 and 1990 is determined as follows:
1989 1990
Initial aid increase $1,993 $2,033
Prior year aid 99,656 101,649
Reduction for State demographer costs (4) 0
Initial aid 101,645 103,682
Aid transfer to schools (3.4% of net tax capacity) (242,034)
1990 legislative cut (1.53% of 1990 Revenue Base) N/A
1991 legislative cut (2.052% of 1991 Revenue Base) . N/A
Final Aid * $101,645 ($138,352)
* LGA cannot be less than zero, this amount reduced HACA
City of Oak Park Heights, Minnesota
Management Report, Page 7
The aid amount established by the 1990 LGA formula is now the base LGA from which the
1991 cut has been subtracted. The 1991 aid cut is calculated as follows:
$1,199,554 Payable 1991 total tax levy
0 Initial 1991 LGA
1,199,554 1991 revenue base
2.052% Reduction percentage
$24,615 Estimated 1991 LGA/HACA cut
The above aid cut will reduce the July, 1991 State remittance of HACA to the City. The
February 25, 1991 Governor's budget proposal included a provision to cut the above amount a
second time. The second cut would reduce the December, 1991 State remittance to the City. The
Combined cut of State aids will amount to approximately $48,000.
The City of Oak Park Heights' initial 1990 aid increase was the 2% minimum. One reason for
the minimum initial aid increase is the adjustment of tax capacity values presented in H above.
The State has calculated a 12% increase in City tax capacity (from $1,475,794 to $1,649,172).
This increase prevents the City from comparing favorably with the household guarantee amount.
The 12% tax capacity increase does not indicate that property values increased by 12 %. The 1988
statutes include a provision to effectively increase tax capacities through use of an equalized sales
ratios as calculated by the Department of Revenue as follows:
(e) 'Equalized market values" are market values that have been equalized by dividing the
assessor's estimated market value for the second year prior to that in which the aid is payable
by the assessment sales ratios determined by class in the assessment sales ratio study
conducted by the Department of Revenue pursuant to section 124.2131 in the second year prior
to that in which the aid is payable. For computation of aids payable in 1989 only, if the
aggregate assessment sales ratio is less than or equal to 92 percent, the assessment sales ratios
by class shall be adjusted proportionally so that the aggregate ratio of the unequalized market
values to the equalized market values equals 92 percent; otherwise the equalized market values
shall equal the unequalized market values divided by the assessment sales ratio.
The above statute allowed for one year (1989 revenue year) in which the equalized market
values were adjusted by no greater than a 92% sales ratio.
City of Oak Park Heights, Minnesota
Management Report, Page 8
The 1990 aid calculations reflect the full sales ratio adjustment. For the City of Oak Park
Heights this resulted in the 12% adjustment in tax capacity values as reflected above.
Cities with high sales ratio percentages were not as severely affected by this legislation. High
population areas with strong markets for property sales had the greatest potential for adjustment.
GENERAL FUND
The General Fund of the City is 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 1981, State aids, local property taxes, and all other revenue (used to finance the General
Fund of the City of Oak Park Heights) and their percent to total revenue for these funds, were as
follows (including 1991 budgeted):
State Aids Property Taxes All Other Total Revenue
Year Amount Percent Amount Percent Amount Percent Amount Percent
1981* $124,936 21% $386,515 63% $97,250 16% $608,701 100%
1982* 122,425 18% 423,843 63% 123,559 19% 669,827 100%
1983* 149,391 20% 482,084 64% 125,030 17% 756,505 100%
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%
1990 25,627 2% 1,142,770 79% 280,348 18% 1,448,745 100%
1991 ** 73,665 5% 1,063,497 72% 333,010 23% 1,470,172 100%
* includes Federal Revenue Sharing
** Budgeted
City of Oak Park Heights, Minnesota
Management Report, Page 9
A graph of State aids, property taxes, and other revenue for the City is as follows:
General and Special Revenue Funds
$1,200,000 - - - $1,200,000
$1,000,000
$800 ._ _____ .___- _._.._________.___._._..__ ________.__._ -___ _.. $800,000
$600)000 $ 600,000
-_ ___.__.._- _�_.___.- .._._______- .__.._........ ., .._ . .... ..... .. .. . .. .... ....._,...... ....... M
Qom ��p� ® _ . ........ .... _, - ........ VV
$400,000 'i - \i� ::� \ii:; 9
$
Ai• •:.: 9
EL
:tiff v::
$0 $0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991
El Other Revenue State Aids — Property Taxes
-___. -_. _ . *budgeted
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 10
State aids have consisted of the following for the past eight years (with 1991 budget):
1991
Description 1983 1984 1985 1986 1987 1988 1989 1990 Budget
Local government aid $82,324 $94,074 $99,652 $99,656 $99,522 $99,521 $101,527 $0 $0
Homestead credits 49,840 46,887 45,775 51,793 59,636 67,760 72,498 578 44,465
Police aid 10,720 11,284 11,669 16,892 21,161 23,856 24,863 25,049 29,200
Other 6,507 0 899 0 2,875 2,935 625 0 0
Totals 149 $152,245 $157,995 $168,341 $183,194 $19 4,072 $199,513 $25,627 $73.665
Change 126 $2.854 55.750 $10.346 $14,853 $10,878 $5.441 ($173.886) $48,038
% Change 2 2% 2% 4% 7% 9% 6 % 3% (879' ) 24%
A graph of State aids for the past eight years (with the 1991 budget) is presented below:
$200 ;.
State A ids .,. �;;?'•' >:;�:: >: }..."�;•{
.;�' �'��•� „<,•� >�:
$180
$160,000
$140,000
$120)000 ........._.._..______
$100,000 a '.
$80,000
$40,000
$20,000
$0
1983 1984 1985 1986 1987 1988 1989 1990 1991
Budget
I E3 Other State Aids ❑ Homestead Credit Local Gov't Aid
City of Oak Park Heights, Minnesota
Management Report, Page 11
The preceding schedule and graph indicate that local government aid had been frozen for the
City for several years. The 1990 budget reflects the e, lj k6 of LGA and Homestead Credits
due to the new State legislation regarding State aids for Minnesota cities. The State has completely
eliminated (property-tax related) State aid to /for the City of Oak Park Heights for 1990. The City
was estimated to receive HACA in 1991 of approximately $48,141. The 1990 legislature approved
a reduction of 1991 LGA/HACA. This amounted to $24,615.
Local property taxes are levied by the City each October for collection in the subsequent year.
However, this tax levy 3s not 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 of the General Fund (by payor) was as follows for the past four years including 1991
budgeted.
1991
Payor 1987 1988 1989 1990 Budgeted
Local taxpayor $748,233 $877,014 $958,384 $1,198,139 $1,144,427
State homestead credits 63,033 71,050 75,082 0 44,465
Fiscal disparities:
Contribution (40,027) (50,461) (64,237) (86,873) (142,749)
Distribution 21,438 26,128 40,117 45,727 61,819
Totals $792,677 $923,731 $1,009,346 $1,156,993 $1,107,962
As the above data illustrates, the portion of the City tax levy being financed by the State
(through homestead credits) was eliminated for 1990. Shown on a basis of percents, current tax
collections (by payor) were as follows for the past four years including 1991 budgeted.
1991
Payor 1987 1988 a 1989 1990 Budgeted
Local taxpayor 94.40% 94.94% 94.95% 103.56% 103.29%
State homestead credits 7.95% 7.69% 7.44% 0.00% 4.01%
Fiscal disparities:
Contribution (5.05 %) (5.46 %) (6.36 %) (7.51 %) (12.88 %)
Distribution 2.70% 2.83% 3.97% 3.95% 5.58%
Totals 102.35% 102.63% 102.39% 103.56% 107.30%
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
City of Oak Park Heights, Minnesota
Management Report, Page 12
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.
The following schedules and graphs reflect the combined revenue of the General Fund for the
past three years including 1991 budgeted Additional detail of the revenue is presented in
Statement 7 of the 1990 Annual Financial Report.
1991
Description 1988 1989 1990 Budget
General property taxes $804,441 $868,420 $1,142,770 $1,063,497
Special assessments 0 4,451 0 0
Intergovernmental:
State 194,072 199,513 25,627 73,665
County 481 6,401 14,410 14,900
Licenses and permits 22,682 20,187 48,870 94,510
Charges for services 48,452 67,334 102,836 126,300
Interest on investments 45,043 53,348 62,064 50,000
All other 35,479 F 59,224 52,168 47,300
Totals $1,150,650 $1,278,878 $1,448,745 $1,470,172
$1,200,000
$1,100,000
$1,000,000
$900,000 01988
$800,000
$700,000 '• 1989
$600,000 :*
+Tty
$500,000 ` _... 1990
$400,000 {< 1991B
$300,000
$200,000 ;mow
$100,000
$0
Property Intergovern- Licenses and Charges for All Other
Taxes mental Permits Services
City of Oak Park Heights, Minnesota
Management Report, Page 13
Total expenditures of the General Fund increased by 8% in 1990 over 1989. Expenditures (by
major classification) for the past three years including 1991 budgeted, were as follows:
1991
Description 1988 1989 1990 Budget
- Current expenditures:
General government $257,214 $255,945 $285,328 $327,055
]Public safety 358,184 414,777 469,581 582,965
Streets and highways 72,221 78,654 71,359 87,250
Sanitation 143,567 185,484 228,675 268,000
Recreation 104,229 113,262 129,226 145,850
Capital outlay 20,301 62,931 8,925 33,600
Totals $955,716 $1,111,053 • $1,193,094 $1,444,720
A graphic illustration of the above expenditures is presented below:
$600,000
$500,000
$400,000 - - - - 1988
❑ 1989
$300,000
1990
$200,000 - = 1991B
$100,000 -
$0 -
General Public Streets & Sanitation Recreation Capital
Government Safety Highways Outlay &
Other
City of Oak Park Heights, Minnesota
Management Report, Page 14
COMBINED FINANUAL STATEMENTS
The Combined Financial Statements of the City are presented in Statements 1 through 5 of the
1990 Annual Financial Report. The following comments relate to these financial statements of the
City.
Cash and Investments
December 31. Lase
Description 1990 1989 (Decrease)
Checking account ($14,872) ($6,971) ($7,901)
Investments 3,587,727 3,203,799 383,928
Petty cash 50 50 0
Totals $3,572,905 $3,196,878 $376,027
The December 31, 1990 and 1989 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 1990, the City maintained an average negative book balance in the
checking account of $8,000 indicating a sound cash - management program. The City earned
$255,668 of interest on investments during 1990 compared to $286,161 in 1989. This decrease is
primarily the result of decreased rates available during 1990. Investments at December 31, 1990
and 1989 were as follows:
December 31,
1990 1989
Investment Description Yield Balance Yield Balance
Money Market 6.00% $90,227 6.25% $125,999
Certificate of Deposit 7.35% 567,000 7.95% 689,000
Certificate of Deposit 7.40% 770,500 8.15% 417,000
Certificate of Deposit 7.50% 724,000 8.20% 500,000
Certificate of Deposit 7.55% 430,000 8.25% 884,000
Certificate of Deposit 7.80% 306,000 8.30% 587,800
Certificate of Deposit 7.85% 700,000
Totals $3,587,727 $3,203,799
City of Oak Park Heights, Minnesota
Management Report, Page 15
5grunLv for DP posits/Depositories
Minnesota Statutes (MS 118) requires City Council approval of depositories and that certain
levels of pledged securities 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, 1990.
Due From Other (apvernmental Unitg
December 31, Increase
Description 1990 1989 (use)
Fines $2,807 $3,595 ($788)
Gravel tax 317 317 0
Totals $3,124 $3,912 ($788),
All of the above amounts are currently collectible.
Due From Developers
December 31, Increase
Description 1990 1989 (Decrease)
Developers Deposit Fund:
Cost reimbursement $3,332 $4,244 ($912)
TIF Fund:
Cost reimbursement 0 2,746 (2,746)
Totals $3,332 $6,990 ($3,658)
The amounts receivable consist of expenditures incurred on behalf of developers. City policy
is to collect in advance an amount to cover any related expenditures. Additionally, the City bills
each developer on a monthly basis to cover any costs incurred. The City has excellent policy and
procedures in this area. We commend the City for its efforts in monitoring and controlling
amounts due from developers and encourage the City to continue such efforts.
City of Oak Park Heights, Minnesota
Management Report, Page 16
Tax��, Receivable - ouent
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.
1987 1988 1989 1990
Delinquent taxes - January 1 $26,716 $29,641 $21,293 $30,833
Current levy 792,677 923,731 1,009,248 1,205,556
Total collectible 819,393 953,372 1,030,541 1,236,389
Receipts:
Current 774,069 914,738 983,758 1,177,795
Delinquent 15,683 160 1,898 13,024
-
Total receipts 789,752 914,898 985,656 1,190,819
Adjustments (17,181) (14,052) (12,112) .
Delinquent taxes - December 31 $29,641 $21,293 $30,833 $33,458
Current collection as a percent of current levy 98% 99% 97% 98%
Total collections as a percent of current levy 100% 99% 98% 99%
The adjustments to delinquent taxes receivable consist of abatements of property taxes as a
result of market valuation adjustments. A major portion of these adjustments relate to apartment
complexes within the City.
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.
City of Oak Park Heights, Minnesota
Management Report, Page 17
Special Assessment-, Receivable
Special assessments receivable consisted of the following types and amounts:
December 31, hr..rease
Description 1990 1989 (Decrease)
Delinquent $71,842 $101,058 ($29,216)
Due from County 16,068 9,582 6,486
Deferred 184,728 408,607 (223,879)
Special Deferred 14,800 14,800 0
Totals $287,438 $534,047 a ($246,609)
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) (Deemase)_
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%
1990 71,842 (29,216) (29 %)
City of Oak Park Heights, Minnesota
Management Report, Page 18
The change in delinquent assessments receivable over the past four years was as follows:
1987 1988 1989 1990
Delinquent balance - January 1 $10,882 $10,781 $12,408 $101,058
Add:
Current installments 40,260 30,286 210,918 , 136,458
Amount collectible 51,142 41,067 223,326 237,516
Less collections:
Current 38,170 27,685 113,895 104,145
Delinquent 2,140 918 7,184 61,407
Total collections 40,310 28,603 121,079 165,552
Adjustments — - (51) --- (56) (1,189) (122)
Delinquent balance - December 31 $10,781 $12,408 $101,058 m a $71,842
Current collections as a percent of current levy 95% 91% 54% 76%
Total collections as a percent of current levy 100% 94% 57% 121%
City of Oak Park Heights, Minnesota
Management Report, Page 19
The above schedule indicates that the City had a poor collection rate for special assessments in
1989 and 1990. 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 1990 assessment activity for this
fund is as follows:
1990
Bonds of All Other
1987 Funds Total
Delinquent balance - January 1, 1990 $95,692 $5,366 $101,058
Add;
Current installments 112,426 24,032 136,458
Amount collectible 208 29,398 237,516
Less collections:
Current 80,377 23,768 104,145
Delinquent 60,296 1,111 61,407
Total collections 140,673 24,879 165,552
Adjustments (3) (119) (122)
Delinquent balance - December 31, 1990 $67,442 $4,400 $71,842
Current collections as a percent of current levy 71% 99% 76%
Total collections as a percent of current levy 125% 104% 121%
As clearly shown above, the poor special assessment current collection rate for 1990 is en_ rirely
the result of the single project financed by the Bonds of 1987. Delinquent assessments on this
project account for 94% of all special assessment delinquencies at December 31, 1990.
Special assessment collection/delinquency rates is one of the prime financial indicators for a
City especially as it relates to City bonding. Such collection/delinquency rates for 1989 and 1990
have not been good. However, this situation is entirely the result of one project and one
developer. Prior to 1989, the City's special assessment collection rate averaged close to 100 %,
delinquent special assessment totaled only $12,400 at December 31, 1988. This level of
delinquency represented approximately 1% of outstanding special assessment debt at that date.
City of Oak Park Heights, Minnesota
Management Report, Page ?A
The 1989 and 1990 collection/delinquency rates are still extremely good except for those
special assessments related to the Special Assessment Bonds of 1987. The following schedule
summarizes the City's special assessment activity for 1989 and 1990.
1989 AND 1990 COMBINED,
1990
Bonds of All Other
1987 Funds Total
Delinquent balance - January 1, 1988 $0 $12,408 $12,408
Add;
Current installments 296,074 51,302 347,376
Amount collectible 296,074 63,710 359,784
Less collections:
Current 168,333 49,707 218,040
Delinquent 60,296 8295 68,591
Total collections 228,629 58,002 286,631
Adjustments (3) (1,308) , (1,311)
Delinquent balance - December 31, 1990 $67,442 $4,400 $71,842
Current collections as a percent of current levy 57% 97% 63%
Total collections as a percent of current levy 77% 113% 83%
As clearly shown above, the City's poor special assessment collection rate is entirely the result
of the project/developer financed by the Special Assessment Bonds of 1987. Other than this
project/developer, the City's special assessment collection rate continues to be high representing a
very positive financial indicator.
The City does have a potential problem with regard to the one project/developer financed by the
Special Assessment Bonds of 1987. Accordingly, our office has been assisting the City in
monitoring and analyzing this situation. A Special Report on this situation has been provided to
the City based on preliminary 1990 financial activity. This Special Report will be updated (through
March 31, 1991) and presented to the City Council.
City of Oak Park Heights, Minnesota
Management Report, Page 21
As stated on the previous page, the City has been aware of this situation and has taken action to
prevent any initial effects upon the overall financial position of the City. Such action includes the
following:
1. Special analysis, review and monitoring of this situation.
2. Alternative financial resources (committed and appropriated to the Debt Service Fund for
the 1987 Bond Issue) should the remaining special assessments not be received when
needed to meet bond payments:
A. Capital project/construction account balance of $84,600 transferred in 1990.
B. Debt service tax levy of $48,000 to be collected in 1991.
3. Continued maintenance of sufficient reserve balance in the City's Closed Bond Fund to be
used to cover any actual shortfall which may occur in the future.
4. Revised City policy relating to future single developer special assessment projects. Such
revised City policy requires increased developer commitments and assurances and should
greatly reduce this possibility of a re- occurrence of this situation.
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 speck terms for this
(and future) special assessment deferrals. See later comments relating to the Improvement Bonds
of 1982.
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.
City of Oak Park Heights, Minnesota
Management Report, Page 22
Our firm is able to assist the City in establishing a fixed asset system. We are available 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.
Compensated Abs ences 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 $38,581 and $36,202 at December 31, 1990
and 1989 respectively. Also included in the accrual for compensated absences is vacation pay
benefits for all City employees of $2,821 at December 31, 1990 and $2,266 at December 31,
1989,
City of Oak Park Heights, Minnesota
Management Report, Page 23
B Payable
Bond Issues
Special Special Revenue
Assessments District Bonds Totals
Balance - January 1, 1990 $925,000 $170,000 $95,000 $1,190,000
Bond Issued 300,000 300,000
Principal payments (234,000) . (10,000) (15,000) (259,000)
Balance - December 31, 1990 $991,000 $160,000 $80,000 $1,231,000
Retirement Schedule:
1991 $239,000 $10,000 $20,000 $269,000
1992 279,000 10,000 20,000 309,000
1993 348,000 10,000 20,000 378,000
1994 125,000 10,000 20,000 155,000
1995 10,000 10,000
1996 -2003 110,000 110,000
Total $991,000 $160,000 $80,000 $1,231,000
As shown on the above schedule, 78% of the City's bonded debt is scheduled to be retired by
December 31, 1993 (i.e., three years). A significant portion ($595,000) 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 1990 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 1990, the City withdrew $2,769 of interest
earnings in excess of the minimum balance.
City of Oak Park Heights, Minnesota
Management Report, Page 24
Fund &amity
December 31. Increase
Fund Group 1990 1989 (Decrees)
General $1,066,281 $910,630 $155,651
Debt Service 776,731 521,243 255,488
Capital Projects 929,100 971,475 (42,375)
Totals ® 2,772,112 m 2,403,348 368,764
Retained earnings:
Enterprise 1,024 899,696 124,755
Totals $3,796,563 $3,303,0 $493,519
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 relating to the St. Croix
Mall Project The various causes for equity changes are discussed in the following section of this
report.
City of Oak Park Heights, Minnesota
Management Report, Page 25
1ND TNDND TYPE ANALYSI„a
(, ieneral Fund
The financial statements for the General Fund are presented in Statements 6 and 7 of the City's
1990 Annual Financial Report. The fund balance of the General Fund was $1,066,281 at
December 31, 1990 representing an $155,651 increase during 1990 as follows:
Actual Revenue Greater Than
(Less Than) Budgeted Revenue:
• General property taxes:
Excess Levy $47,591
Other (12,673)
• Intergovernmental 15,634
• Licenses and permits 6,505
• Fines and forfeits 1,565
• Interest on investments 22,064
• Charges for current services 6,836
• Other 9,203 $96,725
Budgeted Expenditures Less Than
(In Excess Of) Actual Expenditures:
• General government 20,650
• Public safety 94,283
• Streets and highways 6,749
• Sanitation 2,625
• Recreation 8,535
• Contingency 26084 158,926
Transfer to Capital Improvements Fund (100,000)
Net increase in fund balance for 1990 $155,651
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.
The positive variance in general property revenue is due to an error in certifying the 1989/90
tax levy to Washington County. This error resulted in an excess tax levy of $48,563. The
1990 /91 tax levy was reduced by $48,563 to correct this error.
The positive variance in public safety expenditures is primarily in personal services. The City
incurred less overtime during 1990 than anticipated.
City of Oak Park Heights, Minnesota
Management Report, Page 26
or Cash flow timin
Expenditures are incurred somewhat w- Ernere=y or urw-ticipated
evenly throughout the year. Property ez"n t=s. 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 recornmended.
Reasons for
Reserves
w Capital ouday-EvIac'ement, . . ... .. . .....
Intema I escrow for purchases which • 5pecial Citv
—Couricil Proi=
- ' 7]
may exceed amounts available in Preliminary studies, interfund Lloans
_ r
any single budget cycle. 'Phis may and minor improvement projects are
also be accomplished through transfers examples of reserve uses.
to dedicated replacement funds.
w ln"r overnmen mvenu cutback
The City is vulnerable to legislative 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.
City of Oak Park Heights, Minnesota
Management Report, Page 27
The fiend 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)
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
1990 1,066,281 155,651
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 $277,800 at December 31, 1990 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.
City of Oak Park Heights, Minnesota
Management Report, Page 28
The State continues to discuss the potential targeting of aid reductions to cities with "excess"
reserve requirements. This would represent extremely poor public policy.
We recommend that the City tron ynose 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.
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.
S. 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.
City of Oak Park Heights, Minnesota
Management Report, Page 29
w Avoids temporary overdrafts
Favorable bond rating indi cator. prior to major receipts.
. . ....... ..............................
City may study effects of
Supplements revenues revenue cuts before gradual
with investment earnings. program reductions.
Benefits of
Reserves
Provides the Ci
ty
Provides resources greater options to deal
for minor projects or = with unexpected events.
feasibility reports.
Avoids overburdening
of annual budgets for
certain capital outlay.
We recommend that the City monitor the progress of the potential State actions and take
defensive measures to protect the City from further financial crisis including the following:
• Communicate to legislators the potentially devastating financial results of depleting City
reserve balances.
• Review formal reserve policies and modify levels of reported reserves if deemed
appropriate.
• Consider funding (through transfer) target functions in separate funds to further emphasize
the intended use of General Fund reserves.
City of Oak Park Heights, Minnesota
Management Report, Page 30
The City's minimum cash flow reserve requirement is measurable. For the City of Oak Park
Heights, the minimum required surplus is $554,000 computed as follows:
1991 Budgeted Levy (includes homestead credit) $1,107,962
1991 Anticipated Local Government Aid 0
Total $1,107,962
Minimum Required Cash Flow Reserve
(one -half of total) $554,000
The City has demonstrated that a financially sound General Fund is attainable through prudent
fiscal planning. The City has met its cash flow required reserve and also has approximately
$612,300 of other General Fund reserves to fulfill the various other reserve requirements.
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, 1990, the General Fund balance was designated as
follows:
Designated for
Cash flow $554,000
Contingent employee benefits 100,400
General contingency 227,800
State Aid reduction - 1991 48,141
Ensuing years' budget 48,600
Subtotal 978,941
Undesignated 87,340
Total fund balance $1,066,281
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
City of Oak Park Heights, Minnesota
Management Report, Page 31
adequate reserve structure will enable the City to retain its financial independence and integrity
during the present change in the economic environment.
Debt S ervice Fund.
The combining financial statements for the Debt Service Funds are presented in Statements 8
and 9 of the 1990 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 six Debt Service Funds during 1990 as follows:
Fund Balance
December 31, Increase
Fund 1990 1989 (Dec=se)
G.O. Storm Sewer Improvement Bonds of 1971 $28,377 $31,523 ($3,146)
Storm Sewer Bonds of 1982 10,050 8,672 1,378
Improvement Bonds of 1982 51,867 54,952 (3,085)
G.O. Improvement Bonds of 1983 32,181 38,649 (6,468)
G.O. Improvement Bonds of 1987 574,742 387,447 187,295
G.O. Improvement Bonds of 1990 79,514 0 79,514
Totals $776,731 $521,243 $255,488
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 incrementleconomic development districts.
• Capitalized 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.
City of Oak Park Heights, Minnesota
Management Report, Page 32
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.
December 31, 1990 Final
Fund Defeued Defeard Remaining Maturity
Fund Description Balance Revenues Taxes A Total Debt Service Date
General Debt;
Storm Sewer Bonds of 1982 $10,050 $837 $300,812 $311,699 $286,465 12/1/03
Sub -total 10,050 837 a 300,812 311,699 286,465
Special Assessment Debt
Storm Sewer Bonds of 1971 28,377 363 0 28,740 10,285 5/1/91
Improvement Bonds of 1982 51,867 21,788 24,000 97,655 73,350 8/1/93
Improvement Bonds of 1983 32,181 7,818 0 39,999 29,398 2/1/93
Improvement Bonds of 1987 574,742 159,317 48,000 782,059 667,070 12/1/93
Improvement Bonds of 1990 79,514 0 500 80,014 367,038 12/1/94
Sub -total 766,681 189,286 72,500 1,028,467 1,147,141
Totals -All Debt Service Funds $776,731 $190.123 $373,312 $1,340,166 $1.433,606
City of Oak Park Heights, Minnesota
Management Report, Page 33
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 pro'ea c of the
final fund position based on scheduled levies and debt requirements is as follows:
Fund Balance a December 31, 1990 $10,050
Additions:
Future Scheduled tax levies @ 100% 300,812
Total 310,862
Deductions:
Debt Requirements:
Principal 160,000
Interest 126,465
Total 286,465
Projected Fund Balance - $24,397
Normal Projected Fund Balance -
5% of debt requirements $14,300
The above projection indicates that this fund will have adequate assets to meet bonded debt
requirements over the schedule term of this bond issue.
apecial AsaaRment 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
City of Oak Park Heights, Minnesota
Management Report, Page 34
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 was
98% for 1990. The following schedule compares the actual cash balance to the projected cash
balance as of December 31, 1990.
Cash and
Investment Balance Final
December 31, 1990 Bond
Fund Actual Proiiected Variance Maturity
G.O. Storm Sewer Bonds of 1971 $28,377 $23,393 $4,984 1991
G.O. Improvement Bonds of 1982 51,867 31,320 20,547 1993
G.O. Improvement Bonds of 1983 32,181 20,372 11,809 1993
G.O. Improvement Bonds of 1987 574,742 298,429 276,313 1993
Storm Sewer Bonds of 1971
The positive projected variance for the Storm Sewer Bonds of 1971 reflects a nominal positive
variance at December 31, 1990. Final maturity of this bond issue is May 1, 1991. Existing plus
future scheduled assets ($28,740) for these bonds will be more than sufficient to meet future bond
requirements (principal and interest) of $10,285 at December 31, 1990. Upon final maturity, we
recommend the City close this fund and transfer the remaining assets to the Closed Bond Fund.
This should be accomplished at December 31, 1991.
Impr ovement 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.
City of Oak Park Heights, Minnesota
Management Report, Page 35
Existing plus future scheduled assets ($97,655) exceeds future bond requirements (principal
and interest) of $73,350 at December 31, 1990. 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 beyond the maturity of this bond issue. Accordingly, the City has been
increasing the annual tax levy for this bond issue to compensate for this special deferment.
Improvement Bonds of 1982
The positive projected variance for the Improvement Bonds of 1983 is also the result of special
assessment prepayments. Existing plus future assets ($39,999) exceeds future bond requirements
(principal and interest) of $29,398 at December 31, 1990.
Improveme Bond.5 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.
The project/developer financed by the Improvement Bonds of 1987 has proven to be
problematic for the City. The largest single element of this situation has been the uncertainty
relating to future collections which have been conditioned (by the developer) upon development
and sale of the undeveloped property. However, this situation is becoming less of a problem as
collections are being realized Our office has been assisting the City in analyzing and monitoring
this situation. A Special Report was provided to the City based upon mid -1990 actual collection.
This Special Report has been updated to March 31, 1991 and will be presented to the City Council.
Improvement Bonds of 1990
These bonds were issued to provide financing for the Valley Point 2nd Addition Project.
These bonds are scheduled to be retired entirely by capitalized interest and special assessment
collections.
City of Oak Park Heights, Minnesota
Management Report, Page 36
iii al Project �n s
The financial statements for the Capital Project Funds are presented in Statements 10 and 11 of
the City's 1990 Annual Financial Report. Pursuant to changes in reporting standards, the Capital
Project Fund type includes special assessment projects. The fund balance (deficits) of the Capital
Project Funds were as follows at December 31, 1990 and 1989:
December 31, Increase
Fund 1990 1989 (Decrease)
Closed Bond Fund $784,901 $736,718 $48,183
Capital Improvements Fund 245,832 144,961 100,871
Completed Construction 0 6,815 (6,815)
Swagar's 9th Utilities 0 82,981 (82,981)
River Hills (Heritage) Utility 0 0 0
St. Croix Mall (TIF) (125,676) 0 (125,676)
Park & Recreation Development 2,171 0 2,171
Valley Point 2nd Addition 21,872 0 21,872
Totals $929,100 $971,475 ($42,375)
City of Oak Park Heights, Minnesota
Management Report, Page 37
Clofxl Bond Fund
During 1984, the City established the Closed Bond Fund. Initial financing 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 1990 m Total
Financing Sources:
General property taxes $1,807 $1,807
Special assessments 98,149 $18,840 116,989
Interest on investments 248,235 59,120 307,355
Interfund interest 7,413 7,413
Connection charges 93,269 10,950 104,219
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
Completed Construction o 5,443 5,443
Total financing sources $1,008,432 $94,353 1,102,785
Financing Uses:
Professional services $4,980 $8,882 13,862
Construction Costs:
County Seat Estates 5,985 5,985
Valvoline Rapid Oil 31,303 31,303
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 $271,714 $46,170 317,884
Fund balance - December 31, 1990 $784,901
The Valvoline Rapid Oil Project was completed and assessed 1990. The County Seat Estates
Project is anticipated to be completed and assessed in 1991.
City of Oak Park Heights, Minnesota
Management Report, Page 38
The purpose of the Closed Bond Fund is to receive residual balances of closed special
assessment bonds. Amounts on hand at December 31, 1990 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 Closed Bond Fund was established in 1984 for the purposes as stated above. When
created, this Fund was intended to be used as a "reserve fund" for the City's capital projects.
During 1990, the City closed its Completed Construction Fund and transferred the remaining
balance to the Closed Bond Fund. This action was taken upon our recommendation. However,
the Completed Construction Fund was being used by the City to account for the construction of,
and financing for, small, unbonded projects. Such projects are now being accounted for in the
Closed Bond Fund.
The use of the Closed Bond Fund to account for small, unbonded projects appears inconsistent
with the concept of a "reserve fund ". A reserve fund is intended to collect (and hold) assets not
committed for any specific projects. Additionally, and more important, any and all
expenditure /transfers from a reserve fund should be pursuant to specific Council authorization.
The City has extremely adequate reserved balances in several City funds because it has limited (to
specific City Council authorization) the use of such monies. Accordingly, we recommend that the
City refrain from using the Closed Bond Fund for purposes of "accounting" for project or
construction costs. An Interim Construction Fund can be created and used for this purpose. We
also recommend that the City Council document (by Resolution) its intent as to appropriate
expenditures from the Closed Bond Fund. Our office is available to discuss this matter with the
City Council.
City of Oak Park Heights, Minnesota
Management Report, Page 39
Capital Improvements Fund (4011
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
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
1989 $100,000 20,000 30,000 150,000
1990 100,000 100,000
Transfer from Closed Bond Fund 200,000 200,000
Total transfers 150,000 104,500 300,000 70,000 220,000 150,575 995,075
Sale of property 9,414 9,414
Donation 1,400 25,761 27,161
Interest earnings 98,226 31,387 2,621 132,234
1989 Budget reallocation (150,000) (41,675) 191,675 0
Total revenue and other sources 0 162,451 491,675 110,801 220,000 178,957 1,163,884
Expenditures and Other Uses:
Transfers out:
Municipal building expansion (91,438) (91,438)
Direct expenditures (479,376) (19,363) (187,994) (139,881) (8826,614)
Fund balance - December 31, 1990 $0 $162,451 $12,299 $0 $32,006 $39,076 $245,832
The City Hall expansion project was substantially complete at December 31, 1990 and final
costs will be paid in 1991. After final payments, the remaining balance in this account should be
less than $7,000. We recommend that this account be closed in 1991 and that the remaining
balance be transferred to the unallocated account within this Fund.
The unallocated account had a balance of $162,451 at December 31, 1990, including a
$100,000 unallocated transfer from the General Fund at December 31, 1990. This balance is
available to be allocated at the direction of the City Council.
City of Oak Park Heights, Minnesota
Management Report, Page 40 mplPrPd _onstn?ction (510)
This fiend was established in 1977 by closing several construction accounts to one account.
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, 1990 totalled $84,149. This project is expected to be assessed (100 %) in 1991. 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. This fund was closed during
1990 and the remaining assets were transferred to the Closed Bond Fund.
Swa er's 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 completed in
1990. This fund was closed during 1990 and the remaining assets were transferred to the related
Debt Service Fund.
River Hills (HeritagO -V lih
Preliminary expenditures totaling $21,072 were incurred through December 31, 1990. These
costs were reimbursed. The City anticipates that this project will be started in 1991. Financing
will be provided by the developer under a letter of credit arrangement.
Valley Point 2nd Edition
This project was in process at December 31, 1990. Financing was provided by the $300,000
G.O. Improvement Bonds of 1990. This project is scheduled to be completed and assessed in
1991.
City of Oak Park Heights, Minnesota
Management Report, Page 41
Park and Recreation Development
This fund was established by Resolution 88 -12 -33 to account for the development of the City's
parks and recreational areas. The fund balance was $2,171 at December 31, 1990, as follows:
Financing Resources:
Donations and contributions $4,112
Interest on investments 219
Total financing sources 4,331
Financing Uses:
Professional services 2,160
Fund balance - December 31, 1990 $2,171
St. Croix Mall (TIFI
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 were fully reimbursable
from the developer, leaving a zero fund balance at December 31, 1990.
During 1990, this fund was used to account for the City's 58th Street and Osgood Avenue
Improvement Project. This Project involves street re- alignment for traffic control purposes, and is
to be financed from future incremental taxes not committed to this developer.
The City will receive its first TIF. tax collection in 1991. A portion of these taxes are
committed to be remitted to the St. Croix Mall developer with the remaining balance being used by
the City to finance other City TIF. projects. We will provide the City with an updated Special
Report on this TIF District at a later date.
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 1990 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 42
Water art?rient
1990 1989 .
Amount Percent Amount Percent
Revenue:
Customer billings and other $127,063 100.00% $126,127 100.00%
Operating expenses:
Contractual services 45,469 35.78% 38,602 30.61%
Administrative and personnel charges 28,500 22.43% 19,000 15.06%
Other 6,828 5.37% 6,014 4.77%
Total operating expenses 80,797 63.58% 63,616 50.44%
Net income before depreciation 46,266 36.42% 62,511 49.56% -
Depreciation - purchased assets 7,140 - 7,810
Net operating income $39,126 $54,701 _-
City of Oak Park Heights, Minnesota
Management Report, Page 43
As shown above, other operating expense increased $17,181 over 1989. This increase is
primarily due to an increase in the General Fund administrative charge from $19,000 in 1989 to
$28,500 in 1990. This increase was effected to provide additional financial resources for the
General Fund.
$140,000
Water Operating
Revenue & Expense ® ®
■
$120,000
■
$100,000 _ Profit
$809 All Other Expenses
/�
Contractual Services
$60,000 ° ®° Operating Revenue
$40,000
$20,000 a�'�< `. }�•: :{�;::; .,�'i � �.: >;;':• ., �..>
$0
1994 1985 1986 1987 1988 1989 1990
City of Oak Park Heights, Minnesota
Management Report, Page 44
Sewer Deponent
1990 1989
Amount Percent ® Amount Percent
Revenue:
Customer billings and other $212,448 100.00% $178,801 100.00%
Operating expenses:
MWCC 139,861 65.83% 129,557 72.46%
Other contactual services 13,190 6.21% 21,542 12.05%
Administrative and personnel charges 28,500 13.42% 19,000 10.63%
Other 208 0.10 % - 194 0.11%
181,759 85.56% 170,293 95.25%
Net income before depreciation 30,689 14,44% 8,508 4.75%
Depreciation e purchased assets 2,365 2,365
Net operating income � $28,324 $6,143
$250,000
Sewer Operating
Revenue & Expense
$200,000 - -
$150,000 ®® All Other Expenses
MWCC
$100,000 Operating Revenue
:: \Li }:•j: :$tvj j:.l•. �`,1�v'$ }'' }i�C:::: �n1 \� {C : ' •.'• • :'.:n
$ 9
SO 000 :. }::.;. } };.. ?:: ?,: :. {<. :: •.:; ::...,
= { :ii i•+•: r.:ti \'!.. ? +iYT.1: _:v}ti ?:ki.:. ':hA��
:Lti:jjj :4'• ?:4.} : \iv v'r•. i• \�:.'•: :n. ?n ?. }.: ....:
=} •}:.x; ,,{,,`"j.`.`•
' ti`ti. :v •;, .:2j:2 ?fib: , ":••.
, :u:, .J.. �: Vii.:• ; ?:�klk
. y , :l• `,�:i'av',..'r'. .,Ceti:.; . "� }� z;2. {t. tip >' �7?;�$j
1984 1985 1986 1987 1988 1989 1990
City of Oak Park Heights, Minnesota
Management Report, Page 45
The Sewer Utility had reflected decreasing operating profits in 1988 and 1989 primarily due to
the MWCC costs which have increased substantially. During 1990, the City increase water and
sewer rates. We concur with such actions and encourage the City to continue to monitor such
operations. This rate compares favorably with other communities as follows:
Residential Quarterly Billing Based
on 22,000 Gallons of Usage
Effective
Water Sewer Total Year
Chanhassen $1220 $46.05 $58.25 1986
Lino Lakes 46.40 36.00 82.40 1989
Willernie 33.13 27.50 60.63 1990
Little Canada 44.50 29.00 73.50 1987
New Brighton 16.60 31.35 47.95 1990
Mounds View 19.80 38.25 58.05 1990
Oakdale 23.31 49.62 72.93 1990
Cottage Grove 23.80 28.50 52.30 1990
South St. Paul 13.64 44.66 58.30 1990
Inver Grove Heights 26.40 27.50 53.90 1989
Oak Park Heights 20.30 33.71 54.01 1990
Woodbury 15.70 34.20 49.90 1990
Lake Elmo 27.00 n/a 27.00 1990
Mahtomedi 26.34 50.01 76.35 1990
Fridley 13.26 24.65 37.91 1988
Shoreview 19.80 32.05 51.85 1990
Also during 1990, the City began a project of changing its water metering system to a new
electronic, remote -reader system. Under the new system the City is changing all of its old water
meters. The old water meters were subject to a "water meter deposit" which has been
recorded/carried as an ongoing liability. Under the new system, the new water meters are subject
to a "water meter fee or charge ". This new "fee" or "charge" is apparently not subject to a refund
nor does it require the City to report a liability. Proper accounting for the old "water meter
deposits" is unclear. We recommend that the City obtain a legal opinion on this question so that
the accounting records of the City may be adjusted at December 31, 1991.
City of Oak Park Heights, Minnesota
Management Report, Page 46
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:
$160,000 - --- --- ----
_ _ --
MCC Billings
$140,0
$120,000
$100,000
$80,000 : . :•} }.:
.Rfgr
;L?, :`v :�}}: ''%;ti. t?n•:J :fir': ::• \•C:
$60,000 : ?,`v \::
� } t \. •';ti3: :: ':::Lv ... :tip: :r��y:
:v;:n ti+ ;; :••}:.�}.: 'iiti:: :�:ti:: ?s:i+F •�<;.i
m
$40,000
'9)4:.:: •.
:;h4ti: . \1v+: }4•t.L; ;jtii:i i4 iii lr:i
$ 9
20 000
:iii \+} \ F iirii :� .ti is
•``i::: :t >`<:i . {: �'}:i. iii :�:� \. :j;`. �4•. `^
$0
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991
MWCC Estimated ® MWCC Actual
City of Oak Park Heights, Minnesota
Management Report, Page 47
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 1991 (see graph) were as follows:
Estimated Actual
Percent Percent
Year Amount Change Amount Change
1974 ($3,825) $258
1975 (1,954) 6,641
1976 4,682 11,698
1977 13,903 9,949
1978 20,387 8,723
1979 26,202 28.52% 34,090 290.81%
1980 19,257 (26.51) 34,197 0.31
1981 39,492 105.08 34,048 (0.44)
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 1.16
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 20.25
1989 108,742 10.81 116,235 (2.28)
1990 132,368 21.73 Not Available
1991 146,388 10.59 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 145 million gallons for 1990 to 150 million
gallons for 1991. The second factor which affects the billings from the MWCC is their cost to
process gallonage. Their cost to process (per million gallons) increased for 1991 to $1,070 from
$1,013 for 1990. The combination of these factors increased the City's estimated cost in 1991 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:
City of Oak Park Heights, Minnesota
Management Report, Page 48
• Offset MWCC expenses (and other City expenses).
• Meet bonded debt requirements ($22,000 to $27,000 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
1989 778,373 116,608 899,696 113,940
1990 864,080 85,707 1,024,451 124,755
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.
City of Oak Park Heights, Minnesota
Management Report, Page 49
A summary of the combined water and sewer operations for the last four years is as follows:
1987 1988 1989 1990
Revenue:
Customer billings and other $278,100 $295,325 $304,928 $339,511
Operationg expenses:
Contractual services 125,845 149,325 189,701 198,520
Administrative and personnel charges 31,500 36,250 38,000 57,000
Other 12,827 10,985 6,208 7,036
Depreciation - purchased assets 9,447 9,485 10,175 9,505
Total operating expenses 179,b19 206,045 244,084 . 272,061
Operating income $98,481 $89,280 $60,844 $67,450
In April or May of 1991, the City will approve the sale of General Obligation Water and Sewer
Revenue Bonds in the amount of $1,250,000. This bond issue will provide financing for various
water and sewer system improvements in the "Annexation Area Extended ". Included in such
improvements is a second water tower which will benefit both the existing area of the City and the
"Annexation Area Extended ".
The existing (1980) Water and Sewer Revenue Bonds carry a debt obligation (principal and
interest) of approximately $24,000 per year through 1994. The 1991 bond issue will increase this
debt obligation, to the following levels:
Annual
Year Amount
1992 -1997 $125,000
1998 -2000 150,000
2001 -2004 160,000
2005 -2006 175,000
As clearly shown above, the bonded debt requirements of the City's Water and Sewer Utility
will increase substantially starting in 1992. The planned source of financing for the increased debt
obligation is special connection charges from the "Annexation Area Extended" plus increased
operating revenues from such growth. However, such annexation (and the related growth) may
not become a reality until 1993 or 1994. Accordingly, the City may have to provide alternative
financing for a few years. Several options are available to the City:
City of Oak Park Heights, Minnesota
Management Report, Page 50
1. Increased user rates for the existing customers of the City's Water and Sewer Utility.
2. Utilization of existing reserved balance of the Water and Sewer Operating Fund.
3. Debt service tax levies.
Each of the above options is available to the City and each has its merits and drawbacks. A
utility rate increase (for the existing customers) would require a substantial increase for a short time
period. Using this option would cause the City's rates to be artificially high (for a short time
period) and then decrease as other financing sources became a reality. This would cause the City's
utility rates to become erratic and is not recommended.
The 1991 bond issue is designed to finance only the first phase of a multi -phase project. The
existing reserved balances in the City's Water and Sewer Operating Fund are being retained to
provide non - bonded debt financing for future phases and for other purposes. Accordingly, this
option is not recommended.
The 1990/91 City tax levy totaled $1,171,962 and is detailed as follows:
Purpose Amount Percent
General Revenue $1,107,962 95%
Debt Service:
Improvement Bonds of 1982 16,000 1%
Improvement Bonds of 1987 a 48,000 4%
Total $1,171,962 100%
The above debt service tax levies for the City's 1982 and 1987 Improvement Bonds will not be
needed for 1991/92 and all future years. Accordingly, the City could continue to levy $64,000
(plus inflationary increases) for the benefit of the 1991 Water and Sewer Bonds without incurring
an actual property tax increase. Additionally, the City could decide annually whether such a tax
levy is actually needed. Use of this option would also provide partial financing for the second
water tower from the existing users of the Utility system. Use of this option appears to have the
most merits with the least drawbacks. We recommend that the City consider this option.
City of Oak Park Heights, Minnesota
Management Report, Page 51
�A?��Oj,jN'1'iNG C.ONTROL.S
Current auditing standards require an auditor to communicate any material weaknesses in
internal accounting controls directly to City Council and/or City Administrators. Our audit for
1990 disclosed no material deficiencies in the City's system of internal controls not identified in
this report or past reports to the City Council.
We have audited the general purpose financial statements of the City of Oak
Park Heights, Minnesota as of and for the year ended December 31, 1990, and
have issued our report thereon dated February 15, 1991.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the general purpose financial statements
are free of material misstatement.
In planning and performing our audit of the general purpose financial statements
of the City of Oak Park Heights, Minnesota for the year ended December 31, 1990,
we considered its internal control structure in order to determine our auditing
procedures for the purpose of expressing our opinion on the general purpose
financial statements and not to provide assurance on the internal control structure.
The management of the City of Oak Park Heights, Minnesota is responsible for
establishing and maintaining an internal control structure. In fulfilling this
responsibility, estimates and judgments by management are required to assess the
expected benefits and related costs of internal control structure policies and
procedures. The objectives of an internal control structure are to provide
management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition, and that transactions
are executed in accordance with management's authorization and recorded properly
to permit the preparation of general purpose financial statements in accordance with
generally accepted accounting principles. Because of inherent limitations in any
internal controls structure, errors or irregularities may nevertheless occur and not be
detected Also projection of any evaluation of the structure to future periods is
subject to the risk that procedures may become inadequate because of changes in
conditions or that the effectiveness of the design and operation or policies and
procedures may deteriorate.
For the purpose of this report, we have classified the significant internal control
structure policies and procedures in the following categories:
• control environment
• accounting system
• control procedures
For all of the internal control structure categories listed above, we obtained an
understanding of the design of relevant policies and procedures and whether they
have been placed in operations, and we assessed control risk.
City of Oak Park Heights, Minnesota
Management Report, Page 52
We noted certain matters involving the internal control structure and its
operation that we consider to be reportable conditions under standards established
by the American Institute of Certified Public Accountants. Reportable conditions
involve matters coming to our attention relating to significant deficiencies in the
design or operation of the internal control structure that, in our judgment, could
adversely affect the entity's ability to record, process, summarize, and report
financial data consistent with the assertions of management in the general purpose
financial statements.
However, our study and evaluation disclosed that the accounting process is
performed by a single employee. Ideal conditions can for segregation of duties to
establish a system of internal testing of procedures performed. This condition is
common to cities of this size. Any modification of internal controls in this area
must be viewed from a cost/benefit perspective.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be reportable
conditions and, accordingly, would not necessarily disclose all reportable
conditions that are also considered to be material weaknesses as defined above.
However, we believe none of the reportable conditions described above is a
material weakness.
This condition was considered in determining the nature, timing, and extent of
the audit tests to be applied in our examination of the December 31, 1990 general
purpose financial statements and this report does not affect our report on the general
purpose financial statements dated February 15, 1991.
This report is intended solely for the use of the City of Oak Park Heights and
should not be used for any other purpose.
FORFEM.7RE OF PROPERTY - PUBLIC SAFETY
The 1988 legislature passed laws which allow local police departments to seize property which
is used during a crime associated with controlled substances. There are a variety of rules and
regulations included in Minnesota Statutes Section 609.53 related to circumstances under which
property may be forfeited and procedures regarding disposition of forfeited property. There are
several areas which may impact the financial accounting records of the City, as follows:
1. Certain property may be retained by the law enforcement agency for official use by
the agency or prosecuting agency. Under certain circumstances, the City may be
required to add these assets to any fixed assets records which the City retains
including insurance of such property.
2. 70% of the money or proceeds from the sale of the forfeited property may be retained
by the City for use in its operating fund or similar fund for use in law enforcement.
Certain other amounts must be forwarded to the County Attorney or other prosecuting
agency and 10% must be forwarded to the State Treasury for crime victim and
witness account.
City of Oak Park Heights, Minnesota
Management Report, Page 53
We recommend that the City's Finance Department coordinate with the Police Department to
determine procedures to properly account for any property forfeited pursuant to the preceding
statute and that the City adopt and implement such procedures in 1991.
ST.TMMARY
The following listing is a summary of the items which should be recorded, investigated and/or
resolved during 1991.
• Determine and stipulate the specific terms for the amount of interest to be collected upon
connection (if any) and future special assessment deferrals. (Page 22)
• Strongly oppose the States proposal of aid reductions to cities with excess fund balance.
(Page 29)
• Monitor the progess of the potential State actions and take defensive measures to protect the
City from further financial crisis. (Page 30)
• Close the Storm Sewer Bonds of 1971 and transfer the remaining assets to the Closed
Bond Fund. (Page 35)
• Refrain from using the Closed Bond Fund for purposes of "accounting" for project or
construction costs. (Page 39)
• Document (by Resolution) the intent as to appropriate expenditures from the Closed Bond
Fund. (Page 39)
• Close the City Hall Expansion Project in 1991 and the remaining balance be transferred to
the unallocated account within the Capital Improvements Fund (401). (Page 40)
• Obtain legal opinion as to the proper accounting for the old "water meter deposits ". (Page
46)
• Consider a 1991/1992 tax levy for the 1991 Water Bonds. (Page 51)
• Determine procedures to properly account for any property forfeited pursuant to Statute
609.53. (Page 54)
APPENDIX A
Page 1 of 7
CITY OF OAK PARK HEIGHTS. MINNESOTA,
YEAR & INITIAL YEAR
STATUTE ESTIMATED
REFERENCE STATE LEGISLATIVE ACTION IMPACT
1991 Carlson #24 Property tax rates shifted. Increases to lower valued Tax burden shifted to
Budget Proposal homes, decreases to higher valued homes and decreases to lower cost residential
commercial properties. property classes.
Existing commercial
based tax increment
districts including
the City of Oak
Park Heights to
produce lower
revenue stream to
cities.
1991 Carlson #23 Property tax payment schedule accelerated to Cities may require
Budget Proposal three times per year. less "cash flow"
reserves
1991 Carlson #22 Levy limits for cities repealed starting with Statewide increase
Budget Proposal collectible 1992 levy. in property taxes may
reach 25% to 30 %.
Individual cities will
be effected
differently. Cities
with high State aid
reliance will have
greater tax increases.
City of Oak Park
Heights - little
impact.
1991 Carlson #21 LGA program severely reduced starting in 1992. Statewide reduction
Budget Proposal This legislation will, in effect, mandate substantial increases to cities $116
in property tax levies of cities. The alternative to increased million. City of
levies will be reductions in services and/or reserve balances. Oak Park Heights
Replacement aids may alleviate some of the financial - no impact.
pressure. Details of replacement aids subject to negotiation
with legislators and local officials.
APPENDIX A
Page 2 of 7
CITY OF OAK PARIGHTS. MINNESOTA
YEAR & INITIAL YEAR
STATUTE ESTIMATED
REFERENCE STATE LEGISLATIVE ACTION F ACT
1991 Carlson #20 Disparity Aid program completely eliminated Statewide reduction
Budget Proposal starting in 1992. This legislation will shift the burden of to cities $14 million.
property tax payments entirely to property owners. City of Oak Park
Heights - no
impact.
1991 Carlson #19 HACA program completely eliminated starting in Statewide reduction
Budget Proposal. 1992. This legislation will shift the burden of property tax to cities $162
payments entirely to property owners. Possible break to million. City of
homeowners through direct payments from the State to Oak Park Heights
refund a portion of property taxes similar to the "circuit - no impact.
breaker" program.
1991 Carlson #18 Further reductions in 1991 LGA to cities. Proposed Statewide reduction
Budget Proposal legislation to reduce LGA by a percent of the revenue base. to cities $21 million.
This cut to occur after City budgets are adopted and the City of Oak Park
operating year is substantially elapsed (decrease in the Heights reduction
December, 1991 State aid payment). The proposed $24,700.
Legislation does not provide a replacement revenue source.
If the City's LGA is insufficient, then the cut will affect
Equalization Aid, HACA and Disparity Reduction Aid, in
that order.
1991 BF 47 #17 1991 LGA initially frozen at 1990 levels, then in Statewide reduction
subsequent actions, aid was cut. The 1991 reduction is in funding to cities
designed to equal 2.052% of the City's Revenue Base. This $20.5 million. City
aid cut will first reduce LGA (decrease in the July, 1991 of Oak Park
State aid payment). If the City's LGA is insufficient, then Heights reduction
the cut will affect Equalization Aid, HACA and Disparity $24,700.
Reduction Aid, in that order.
1991 BF 47 #16 State Aid road allotments were reduced to Cities. Statewide reduction
$3.8 million. City
of Oak Park
Heights - no
impact.
APPENDIX A
Page 3 of 7
CITY OF OAK PARK HEIGH'T'S. MINNES
YEAR & INITIAL YEAR
STATUTE ESTIMATED
REFERENCE STATE LEGISLATIVE ACTION F ACT
1990 Ch. 604 #15 Levy limits for Cities repealed starting with Anticipated extension
Art. 3 Section 47 collectible 1993 levy. and delay of start
likely to result in no
impact.
1990 #14 Approved potential LGA and HACA cuts related to Estimated reduction
MS 273.1399 tax increment districts formed after April 30, 1990. in aids not calculated.
Subd. 5 Legislation designed
to discourage new
tax increment
districts.
1990 #13 Further reductions in LGA to cities. The Legislature Statewide decrease
MS 477A.013 reduced LGA by 1.53% of the revenue base. This in 1990 LGA
Subd. 7 permanent cut occurred after City budgets were adopted and $14.4 million, City
the operating year was one third elapsed. The Legislation of Oak Park
did not provide a replacement revenue source. Heights - no
impact.
1990 #12 The prior year (1990) HACA cut related to LGA is Reduction equal or
MS 273.1398 extended to also reduce 1991 HACA. HACA base greater than 1990
Subd. 2 established at 1991 levels. Subsequent increases based on HACA cut.
growth (household) and a suppressed cost of living percent.
APPENDIX A
Page 4 of 7
= OF OAK P MINNESOTA
YEAR & INITIAL YEAR
STATUTE ESTIMATED
REFERENCE STATE LEGISLATIVE ACTION IMPACT
1990 #11 Commercial property tax rates lowered. Tax burden shifted to
MS 273.13 residential and other
Subd. 24 & 32 property classes.
1990 1991 1992 1993 Existing commercial
based tax increment
Rate Rate Rate Rate districts to produce
First $100,000 of lower revenue
market value 3.30% 3.20% 3.10% 3.00% stream to cities.
Market value over Targeted to City of Oak Parks
$100,000 5.26% 4.90% eventually be 4% Heights ® 5.7%
reduction in 1991
TIF revenue
$3,200.
1990 #10 Equalization Aid limited to 12% increase over 1990 Maximum
MS 477A.013 Equalization Aid. Also Equalization Aid subject to reduction equalization aid
Subd. 5,6,7 if LGA is not sufficient to absorb cuts based on revenue established to limit
base. Equalization Aid capped Statewide at $19,485,684. future increases.
No impact on Oak
Park Heights.
1989 #9 Tax Base Equalization Aid, is a program that Statewide initial year
MS 477A.013 targets aid to low tax base cities starting in 1990. Tax Base increase in aid
Subd. 5 Equalization Aid to be administered similar to HA.CA $19.5 million. No
whereby the county auditor to deduct the aid from the impact on Oak
amount of taxes certified by the city. Payments of Tax Base Park Heights.
Equalization Aid to be made on July 20 and December 15,
1990 from the Department of Revenue.
1989 SP1 Ch 1, #8 1989 levy limits for Cities repealed starting with Anticipated extension
Art. 5 Section 51 collectible 1992 levy. In 1990 the effective date was and delay of start
extended to collectible 1993 levies. likely to result in no
impact.
APPENDIX A
Page 5 of 7
CITY OF OAK P R& HFIGHTS. MINNESOTA
YEAR & INITIAL YEAR
STATUTE ESTIMATED
REFERENCE STATE LEGISLATIVE ACTION FACT
1989 #7 Transition Aid re- termed to Homestead and Statewide HACA
MS 273.1398 Agricultural Credit Aid (HACA). The formula for reductions totalled
Subd. 2 distribution was mollified from the 1988 Transition Aid $1.9 million. City
formula for Unique Taxing Jurisdictions (UTJ) as follows: of Oak Park
Heights - no
HACA cut
Payable 1989 gross taxes of UTJ less [Payable 1989 local because LGA was
tax rate X payable 1990 net tax capacity X .9767) sufficient to
absorb entire cut.
As with the original Transition Aid the above HACA to be
distributed to local governments based on the percent of local
government levy to total UTJ levies. HACA was subject to
additional reductions if the level of local government aid was
insufficient to absorb the education aid shift and other cuts.
The education shift and the subsequent cuts were first taken
from LGA, then from Equalization Aid, then from HACA
and finally from Disparity Reduction Aid.
1989 #6 LGA initially increased for 1990 by approximately $30 Statewide 1990
MS 273.1398 million from the 1989 level. Funding transfer to school decrease in LGA
Subd. 2 districts subsequently approved. The aid transfer to school $44.6 million. City
districts is a method of increasing the State financial support of Oak Park
for education while decreasing financial support for cities. Heights decrease
The aid transfer for a city is an amount equal to 3.4% of its related to the
adjusted net tax capacity. Cities received increased property transfer to
tax levy authority to replace the aid transfer. schools of
$242,034. See #13
for additional LGA
reduction.
APPENDIX A
Page 6 of 7
CI'T'Y OF OAK. PAR HEIGHTS MINNESOTA
YEAR & INITIAL YEAR
STATUTE ESTIMATED
REFERENCE STATE LEGISLATIVE ACTION IMPACT
1989 #S LGA formula revised to reduce household guarantee Aid increases were
MS 477A.013 factor from 1.08 in 1989 to 1.04 in 1990 to reduce the subsequently entirely
Subd. 3 expenditure/unlimited ratio factor by 50 %. A 15% ceiling wiped out by shift
increase over prior year LGA factor was also added. to school districts.
Initial aid increase
for 1990 was $30
million Statewide.
City of Oak Park
Heights increase
of $2,033.
1988 #4 Taxes spread to property owners based on tax Re- measurement of
MS 273.13 capacity valuations. Taxes levied divided by tax capacity valuations were
valuations equal tax capacity rates. This is a change from the designed to have no
prior system in which taxes were spread to property owners impact on aids or
based on assessed valuations. Taxes levied divided by relative valuations.
assessed valuations equalled mill rates.
1988 #3 Cities to receive Transition Aid in lieu of homestead The freeze nature of
MS 273.1398 credits. Transaction aid to be calculated on each unique the legislation will
Subd. 2 taxing jurisdiction (UTJ) and then allocated to the local units result in a gradual
of government within the UTJ based on the proportion of decrease of HACA
local governments gross tax levy to total taxes within the in 1991 and future
UTJ as follows for 1990: years. Actual
comparisons not
available because
Gross taxes of UTJ less [46% X 2.17% X 1989 tax capacity Homestead Credit no
rate X 1988 aggregate assessment sales ratio] X UTJ net tax longer calculated on
capacity X 103 the prior method.
The above UTJ amount to be allocated to local governments
based on percent of local governments levy to total UTJ
levies. Transition Aid to be frozen at 1990 levels.
Considering growth and inflation, this freeze is a reduction
of State funding. Transition Aid was the replacement of the
Homestead Credit Program. This Transition Aid was
subsequently re- termed as Homestead Credit and
Agricultural Aid (HACA) - see #7.
APPENDIX A
Page 7 of 7
CITY-Q OAK P ARK HEIGHTL_Mj
YEAR & INITIAL YEAR
STATUTE ESTIMATED
REFERENCE STATE LEGISLATIVE ACTION IMPACT
1988 #2 Targeted Cities (primarily non -metro cities) to receive 1989 increase in
MS 273.1398 disparity reduction aid. The 1989 disparity reduction Aids to Cities State -
Subd. 3 aid to be based on 1988 gross taxes and gross tax capacity wide $54.3 million,
rates. Disparity reduction aid will be frozen at 1989 levels. City of Oak Park
Metropolitan suburban cities to receive one -half of one Heights no
percent of this aid ($300,000 of $54.3 million). increase in aids.
1988 ##1 Local government aid (LGA) formula modified to Statewide 1989 aid
MS 477A.013 reflect a per household aid factor compared to prior year tax increased $79.3
Subd. 3 capacity and tax base increase. A sales ratio percentage million, Oak Park
established the equalize tax capacity values ( a minor Heights increase
adjustment for 1989 LGA and the full adjustment for 1990 of $1,993.
LGA). Expenditure /unlimited ratio factor established as
component of LGA formula. Lower of three -part formula to
calculate initial LGA increase.