HomeMy WebLinkAboutManagement Report CITY HEIGHTS, M1 T
MANAGEMENT REPORT
December 31, 2000
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Management Report Report Summary
REPORT SUMMARY
Several reports are issued in conjunction with the audit. A very brief summary is as
follows:
1 1,1 1 1 1 o
Required Reports
Annual Financial Report (AFR) • Financial statements • Unqualified ("clean")
• Footnotes opinion on the General
• Supplemental information Purpose Financial
Statements
Report on Compliance and Internal Results of testing • No compliance findings
Control • Internal controls over • No reportable conditions
financial reporting in internal control. In
• Compliance with laws, prior years, the City
regulations, contracts and corrected the lack of
grants segregation of duties.
State Legal Compliance Report • Results of testing certain No findings
provisions of Minnesota
Statutes
Discretionary Reports
Management Report Intended to be primary working tool • See page 3 and 4 of this
for City Council report for Executive
• Comparisons and trend Summary
analysis
• Available strategies to
address long-term financial
planning
• Outside factors influencing
the City, such as State
funding
• Policies and procedures
Management Report
Executive Summary
EXECUTIVE SUMMARY
Several areas highlighted for your reference include the followi
The City's property tax collection rate continues tobe very strong (A9%for
2O0O). Page 5
(9 The City has minor delinquent special assessment balances, which iothe
result ofvery good collection rates (99.6% for 2000). Page 9
(9 The General Fund balance increase of$89,O2O during 20Q0iso result of
positive budget variances io both revenues and expenditures.
When the General Fund reserve component for contingent employee benefits
�
was established, a conservative approach was taken in which unamount
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i
equal to all vacation leave, all severance and twenty-five percent of the sick
|
leave balance was deemed the appropriate reserve onuoont � lliato/]/has
i
' mhonmthat this level of reserve im not required. VVe recommend the City
consider amending this reserve component toanamount equal tu50Y�of
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vacation leave, |O0Y6of severance and 0%of sick leave.
The General Fund b u1 December 3l,%U00 was not sufficient tofulfill
all the reserve requirements per City policy. The contingency reserve was Page 27
$07,000 less than the amount desired byCity policy.
� We recommend the City consider an alternate approach tofunding for
General Fund capital outlay. Page 29
The Economic Development Fund does not have the resources to repay the
iuterfzud loan o[$260,000 between this fund and the Capital Revolving
Fund. Additioou|6y if the mu]e of the Bell property were to happen, the
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proceeds may not bo sufficient to make full repayment. Based ouexisting
Management Report
Executive Summary
assets, this fund can repay approximately $65,000. VVe recommend the City Page 32
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consider forgiving the balance of the $26O,00Oio1orOuud loan between the
i
Economic Development Fund and the Capital Revolvi Fund.
!
The Central Business District Fund has aobntcrfbod loan of$ll,|l3 payable i
! �
to the Economic Development Fund. We recommend the Citydoterouknedbm 9oQe 51 �
likelihood of this fund recei revenues sufficient for repayment ofthis
loan.
/ .
(D A oftb�i8Uk��uudrctabu�d (�66l��5)im to |
! ^ ' - �
- _
addkkx`u\ of debt service mm the Bonds ofi993should
connection charge revenue not besufficient. This designation was made in i
\993 based on existing conditions of the Connection Charge Funds. We
recommend the Cdvr�duu�d�m to 9au�M3 |
' ~ �~ |
Variances exist bm the number of gallons of sewage billed hv the City and !
processed hvMCES. Wemcouooendthe City determine the nature ofthese Page 67
variances. !
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Prior to t implementation o[GASB]4, t City should adopt apolic
regarding fixed assets. Page 73
0 City's accomplishments.
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Items to consider for changes iu policies and planning.
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Management Report
Combined Balance Sheet
COMBINED ALANCE SHEET
The Combined Financial Statements of the City are presented in Statements 1 through 5
of the 2000 annual Financial Deport. The following comments relate to these financial
statements of the City.
Property Taxes
Property taxes receivable 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 rate on property
taxes remains strong as illustrated below.
1997 1998 1999 2000
Delinquent taxes - January 1 $18,196 $10,947 $16,863 $23,980
Current levy 1,394,918 1,524,047 1,409,400 1,440,200
Total collectible 1,413,114 1,534,994 1,426,263 1,464,180
Receipts:
Current 1,386,466 1,541,155 1,394,993 1,426,390
Delinquent 4,194 5,726 4,296 13,454
Total receipts 1,390,660 1,546,881 1,399,289 1,439,844
Adjustments (11,507) 28,750 (2,994) (2,220)
Delinquent taxes - December 31 $10,947 $16,863 $23,980 $22,116
Current collection as a percent of current levy 99.4% 99.2% 99.0% 99.0%
Total collections as a percent of current levy 99.7% 101.5% 99.3% 100.0%
Management Report Combined Balance Sheet
The negative adjustments to property taxes receivable consist of abatements of property
taxes as a result of market valuation adjustments. The adjustments for 1997 include
abatement for 1995 and 1996. The County records were not previously available to adjust the
delinquent taxes for these years. The positive adjustments to property taxes consist of
additions recorded at Washington County.
As shown on the previous page, tax collection rates have averaged 100% over the past
four years representing an excellent collection rate for the City. This financial indicator (i.e.,
property tax collection rate) is one of the criteria used by the City's bond rating agency.
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Management Report
Combined Balance Sheet
Tax Levies and Tax Rates
A comparison of values for taxes payable 2000 and taxes payable 2001 is as
follows:
Increase (Decrease)
1999 2000 2001 Amount Percent
Tax capacity values:
Real estate $6,240,081 $6,571,300 $7,262,903 $691,603
Personal property 114,675 120,574 120,220 (354)
Subtotal 6,354,756 6,691,874 7,383,123 691,249
Fiscal disparity contribution (547,378) (784,872) (918,385) (133,513)
Fiscal disparity distribution 299,919 298,275 343,723 45,448
Captured tax increment (30,380) - -
Total $6,076,917 $6,205,277 $6,808,461 $603,184 9.7%
Tax capacity rates 23.728 23.620 23.692 0.072 0.3%
7
Tax levy $1,409,400 $1,440,200 $1,588,435 $148,235 10.3%
The City portion of the property tax on a typical property for 2000 and 2001 is as follows:
Increase
Property 2000 2001 Amount Percent
$150,000 homestead $467 $469 $2 0.4%
$500,000 commercial 3,661 3,672 11 0.3%
Management Report Combined Balance Sheet
Fiscal Dbsparities
The fiscal disparities statute provides a means of spreading a portion of the taxable
valuation of commercial/industrial real property to various taxing authorities within the
defined metropolitan area. The valuation "shared" is a portion of commercial/industrial
property valuation growth since 1971, Current tax revenue (by payer) was as follows for the
past four years including 2001 budgeted:
2001
Payer 1997 1998 1999 2000 Budgeted
Local taxpayer $1,497,143 $1,598,450 $1,484,525 $1,555,236 $1,723,574
State credits (HACA) 74,329 74,464 74,983 79,583 79,603
Fiscal disparities:
Contribution (175,450) (151,989) (166,175) (185,551) (215,970)
Distribution 73,225 77,615 91,050 70,515 80,831
Totals $1,469,247 $1,598,540 $1,484,383 1 $1,519,783 $1,668,038
Shown on a basis of percents, current tax collections (by payer) were as follows for the
past four years including 2001 budgeted.
2001
Payer 1997 --- 1998 1999 2000 Budgeted
Local taxpayer 101.9% 100.0% 100.0% 102.4% 103.3%
State credits (HACA) 5.1% 4.7% 5.1% 5.2% 4.8%
Fiscal disparities:
Contribution (11.9%) (9.5%) (11.2%) (12.2%) (12.9%)
Distribution 5.0% 4.8% 6.1% 4.6% 4.8%
Totals 100.1% 100.0% 100.0% 100.0% 100.0%
EEO.
Management Report
Combined Balance Sheet
Local property taxpayers (i.e., those whose property is located within the City of Oak
Park Heights) pay more than the actual amount levied by the City because of fiscal
disparities. The amounts and percents on the previous page 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 benefits.
Special Assessments Receivable
Special assessments receivable consisted of the following types and amounts:
December 31, Increase
Description 1999 2000 (Decrease)
Delinquent $4,704 $4,161 ($543)
Due from County 23,187 417 (22,770)
Deferred 1,809,155 1,543,456 (265,699)
Totals $1,837,046 $1,548,034 ($289,012)
Delinquent special assessments receivable consist of amounts which have been spread for
collection in 2000 and prior years but have not been collected at December 31, 2000. The
City has minor delinquent balances which is the result of very good collection rates (99.6%
for 2000).
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.
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Management Report
Combined Balance Sheet
Bonds Payable
The City had four bond issues outstanding during 2000° A summary of the 2000 activity
of each bond issue is as follows:
General
Obligation General General
Storm Sewer Crossover Obligation Obligation
Refunding Refunding Improvement Improvement
Bonds Bonds Bonds Bonds
of 1992 of 1993 of 1995 of 1998 Totals
Balance - January 1, 2000 $25,000 $810,000 $720,000 $1,850,000 $3,405,000
Principal payments 25,000 95,000 120,000 150,000 390
Balance - December 31, 2000 $0 $715,000 $600,000 $1,700,000 $3,015,000
Detail of outstanding bond issues is contained in Exhibit 2 of the 2000 Annual Financial
Report,
A summary of the City's bond issues is as follows:
Maturity
Bond Issue Repayment Source Date
Bonds of 1992 Property taxes 12/l/00
Bonds of 1993 Connection charges 12/1/06
Bonds of 1995 Property taxes and special assessments 12/1/05
]fonds of 1998 Special assessments and connection charges 12/1/13
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BEEF
Management Report
General Fund
GENERAL FUND
The General Fund of the City is maintained to account for expenditures common to all
cities (general government, public safety, public works, recreation and community
development). A history of major revenue sources that support the General Fund are as
follows
Property Taxes State Aids All Other Total Revenue
Year Amount Percent Amount Percent Amount Percent Amount Percent
1992 $1,121,894 73% $69,172 4% $349,717 24% $1,540,783 100%
1993 1,241,127 71% 87,874 5% 413,444 24% 1,742,445 100%
1994 1,232,906 68% 118,768 7% 465,964 25% 1,817,638 100%
1995 1,354,677 68% 124,860 6% 520,466 26% 2,000,003 100%
1996 1,390,443 66% 119,274 6% 581,850 28% 2,091,567 100%
1997 1,387,227 65% 137,951 6% 619,874 29% 2,145,052 100%
1998 1,479,490 69% 133,484 6% 529,143 25% 2,142,117 100%
1999 1,333,194 62% 139,875 7% 674,762 31% 2,147,831 100%
2000 1,405,002 62% 145,514 6% 712,026 32% 2,262,542 100%
2001* 1,589,035 66% 145,481 6% 668,030 28% 2,402,546 100%
Budgeted
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Management Report
General Fund
A. graph of property taxes, state aids, and other revenue for the General Fund is as follows:
$1,800,000
General Fund
$1,600,000 - Revenue by Source
$1,400,000
$1,200,000 - ❑State Aids
$1,000,000 i ❑ Other Revenue
$800,000 ❑ Prope Taxes
$600,000 - T
$400,000 -
$200,000
$0 - - 17- [E - C _ C =-
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Budget
State .Aids
State aids of the General Fund have consisted of the following for the past six years (with
2001 budget):
2001
State Aid 1995 1996 1997 1998 1999 2000 Budget
H.A.C.A. $76,615 $67,063 $73,065 $74,464 $74,983 $79,583 $79,603
LGA - - - - - 4,878 4,878
Local performance aid - - 4,186 5,133 4,884 - -
Police aid 48,245 52,211 44,900 51,198 56,409 57,013 59,000
Other state revenue - - - 2,689 3,599 4,040 2,000
Snowplowing - - 15,800 - - - -
Totals $124,860 $119,274 $137,951 $133,484 $139,875 $145,514 $145,481
Change ($5,586) $18,677 ($4,467) $6,391 $5,639 ($33)
% Change (4 0 /.) 16% (3 0 %) 5% 4% 0%
As shown above, state aids have been fairly constant for the past four years.
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Management Report
General Fund
Other General Fund Revenue
Other revenue of the General Fund have consisted of the following for the past five years
(with 2001 budget):
2001
Description 1996 1997 1998 1999 2000 Budget_
Licenses and permits $156,181 $204,986 $125,678 $227,693 $314,527 $245,280
Charges for services:
Refuse collection 103,444 87,830 - - - -
Refuse charge - Junker settlement - - 28,887 25,718 27,655 28,000
Enterprise 98,850 102,100 63,525 80,655 99,400 95,300
Tax increment administration fee - - 27,009 7,253 3,450 10,000
Construction/engineering fee - - - 56,632 - 45,000
Other 2,674 2,456 26,910 23,767 18,092 26,300
Inspections 25,611 24,150 40,468 36,122 45,018 30,000
Fines and forfeits 56,545 60,682 60,183 58,886 56,326 66,400
Earnings on investments 56,468 55,885 45,848 36,970 48,363 50,000
Other 82,077 81,785 110,635 121,066 99,195 71,750
Total $581,850 $619,874 $529,143 $674,762 $712,026 $668,030
Refuse Collection
Prior to 1998, the City accounted for refuse collection in the General Fund, Beginning in
1998, this activity is reported in the Enterprise Fund which also accounts for the water and
sewer operations. The General Fund transferred $84,000 to the Enterprise Fund during 2000
to subsidize refuse collection operations,
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Management Report
General Fund
Effective January 1, 1998, the City council authorized an additional charge of $6.50 per
quarter. This additional charge is effective for five years. This surcharge was designed to
recover a 1996 court judgment and other costs of approximately $140,000 related to the
landfill lawsuit. Surcharge revenue has been as follows:
Year Amount
1998 $28,887
1999 25,718
2000 27,655
Total $82,260
Administrative Fee - Enterprise
Prior to 1998, the General Fund received an administrative fee from the Water and Sewer
Utility Fund. This fee was designed to reimburse the General Fund for labor and overhead
costs incurred.
Beginning in 1998, the City eliminated the labor portion of the administrative fee and
began allocating actual labor costs directly to the Water and Sewer Utility Fund. The reduced
administrative fee is designed to reimburse the General Fund for overhead costs only.
Management Report
General Fund
Administrative Fee ® Capital PrQiects
The City's General Fund incurs costs related to capital improvement projects. These
costs include staff time, supplies, and other overhead items. The City established a 1 1 /2%
administrative fee to recover these costs effective January 1, 1999. The administrative fee is
charged to a project with the corresponding revenue receipted in the General Fund. The fee
is charged at project inception and is based on the contract awarded. During 2000, no new
projects were started, and therefore no administrative fees charged.
Budget Versus Actual Comparison
The fund balance of the General Fund was $1,280,101 at December 31, 2000 representing
a $89,020 increase during 2000. The following schedule illustrates the change in fund
balance on a budget variance basis.
2000
Favorable
(Unfavorable) 2001
Budget Actual Variance Budget
Revenue:
General property taxes:
Current and delinquent $1,380,800 $1,380,499 ($301) $1,529,035
Payment in lieu of taxes 45,000 23,359 (21,641) 60,000
Other taxes - 1,144 1,144 -
Total general property taxes 1,425,800 1,405,002 (20,798) 1,589,035
Intergovernmental 185,511 180,243 (5,268) 161,231
Licenses and permits 241,535 314,527 72,992 245,280
Charges for services 212,700 193,615 (19,085) 234,600
Fines and forfeits 63,150 56,326 (6,824) 66,400
Earnings on investments 52,500 48,363 (4,137) 50,000
Refunds and reimbursements 57,000 59,691 2,691 56,000
Donations and contributions - 250 250 -
Sale of property - 4,525 4,525 -
Total revenue 2,238,196 2,262,542 24,346 2,402,546
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Management Report
General fund
2000
Favorable
(Unfavorable) 2001
Budget Actual Variance Budget
Expenditures
General government:
Mayor and council $61,900 $49,895 $12,005 $58,650
City administrator 213,650 222,253 (8,603) 238,400
Legal 30,000 23,617 6,383 31,500
General management and building 66,675 67,484 (809) 74,950
Elections 4,800 3,919 881 800
Finance 150,100 150,385 (285) 164,025
Computer system 15,300 14,327 973 25,800
Audit 15,120 12,044 3,076 12,500
Insurance 151,300 160,461 (9,161) 167,795
Assessing 17,000 17,085 (85) 17,000
Planning and zoning 30,000 32,082 (2,082) 29,500
Engineering 30,000 23,528 6,472 30,000
General contingency 12,000 10,867 1,133 32,000
Total general government 797,845 787,947 9,898 882,920
Public safety:
Police department 788,485 768,520 19,965 814,025
Building inspections 88,590 91,779 (3,189) 106,830
Fire protection 82,000 83,740 (1,740) 81,105
Animal control 925 1,529 (604) 900
Total public safety 960,000 945,568 14,432 1,002,860
Public works:
Street maintenance 27,480 43,309 (15,829) 31,725
Snow removal 69,750 59,607 10,143 70,800
Street lighting 45,000 41,824 3,176 46,000
Arborist 13,925 11,734 2,191
Tree removal and planting 15,000 14,005 995 28,925
Total public works 171,155 170,479 676 177,450
Recreation:
Parks, playgrounds and rinks 108,290 87,189 21,101 115,595
Community development 104,430 99,864 4,566 112,700
Total expenditures 2,141,720 2,091,047 50,673 2,291,525
Revenue over (under) expenditures 96,476 171,495 75,019 111,021
Other finnancing sources (uses):
Operating transfers fi•om Capital Project Fund 15,000 15,000 - -
Operating transfers to Enterprise Fund (83,475) (87,475) (4,000) (83,000)
Operating transfers to Capital Project Fund (10,000) (10,000)
Total other financing sources (uses) (68,475) (82,475) (14,000) (83,000)
Net increase (decrease) in fund balance $28,001 89,020 $61,019 28,021
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Management Report
General Fund
As shown on the previous page, the General Fund balance increased by $89,020 as the
result of positive budget variances with both revenue and expenditures as follows:
Budget Actual Variance
Revenue/transfers in $2,253,196 $2,277,542 $24,346
Expenditures/transfers out 2,225,195 2,188,522 36,673
Increase in fund balance $28,001 $89,020 $61,019
A summary of the significant budget variances is as follows:
Revenue:
Property Taxes — The 2000 budget anticipated greater PILOT than the amount
actually received.
License and permits — This budget variance relates to VSSA, three permits taken out
in 2000 and the City budgeted for two.
Charles for services — The budget variance is primarily reduced administrative
charges to TIF and construction funds. The budget anticipated fees for well
construction and water looping that have been delayed.
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Management Report
General Fund
Expenditures:
General 2overnment:
Mayor and Council — The budget variance related to not hiring a lobbyist that was
budgeted.
City administrator — The budget variance relates to unbudgeted salary increases.
Public safety - The positive variance is primarily the result of less than expected use
of attorneys.
Recreation — The positive variance is primarily due to planned repairs to park
facilities which were not completed.
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Management Report
General Fund
General Fund Reserves
The fund balance of the General Fund increased in 2000. The schedule below reflects the
General Fund balance for the past ten years:
Year Ended Fund Increase
December 31, Balance (Decrease)
1991 $1,001,051
1992 1,013,422 $12,371
1993 1,106,882 93,460
1994 1,197,835 90,953
1995 1,280,597 82,762
1996 1,312,593 31,996
1997 1,246,347 (66,246)
1998 1,186,663 (59,684)
1999 1,191,081 4,418
2000 1,280,101 89,020
The 1997 decrease in fund balance was the result of the council decision to use fund
balance rather than levy taxes for the Bonds of 1995. The 1998 decrease in fund balance was
a budgeted decrease,
Fund Balance
$1,500,000
$1,400,000
$1,300,000
$1,200,000 -!,
$1,100,000 — 0 —Actiml Fuud Balaice 1
$1,000,000 - 6 Dcs ed Fond Balance
$900,000
$800,000
$700,000
$600,000 - - - - -- - --
1994 1995 1996 1997 1998 1999 2000
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Management Report
General Fund
Deserve balances are an important component of City financial management. When
evaluating the adequacy of reserve balances, there are a number of important factors that
must be considered. Several areas to consider are illustrated as follows:
Need ®r Reserve Balances
Cash Flow l
Timing Difference J
Intergovernmental ( Capital Outlay l
Revenue Cutbacks , l Replacement J
Emergency or I special Projects J
Unanticipated t
Expenditures
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Management Report
General Fund
merits of eerves
Favorable bond
rating indicator Supplements revenues
with investment income
Provides resources Avoids temporary
for minor projects < overdrafts prior
or feasibility reports to major receipts
s . s
Provides the City Avoids overburdening
greater options to deal of annual budgets for
with unexpected events certain capital outlay
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Management Report
General Fund
In 1987, the City adopted Resolution 87-10-42 establishing General Fund reserves/
designations for cash flow, employee benefits and general contingency based upon formulas
for each category. At December 31, 1999 and 2000, the General Fund balance was reserved
or designated as follows:
General Fund Balance
December 31,
1999 2000
Designated for:
Cash flow $733,000 $807,000
Contingent employee benefits 135,153 161,090
General contingency 285,526 273,682
Capital improvement 12,011 12,011
Employee insurance benefits 25,391 26,318
Subtotal - designated 1,191,081 1,280,101
Undesignated ---- -- -
Total fund balance $1,191,081 $1,280,101
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Management Report
General Fund
,Cash Flow Reserve
Property taxes and state aids account for approximately 69% of the revenue of the
General Fund. Property taxes and state aids are not received until July and December of each
year (i.e., the second half of the year). As a result, the City is required to have sufficient
reserves at the beginning of the year to fund operations of the first half of the year. For the
City of Oak Park Heights, the recommended cash flow reserve is $807,000, computed as
follows:
Cash Flow Reserve
2001 tax levy $1,529,519
2001 budgeted I-TACA & LGA 84,481
Total $1,614,000
Recommended reserve (one-half of tax levy and state aids) $807,000
EM.
Management Report
General Fund
The following graph of monthly General Fund cash balances illustrates the impact of
receiving property taxes and state aids in the second half of the year:
$1,400,000 -,1 General Fund Monthly Cash Balances
j
$1,200,000 1 '
$1,000,000
$800,000 $794,000
deer
$600,000
v
$400,000 ! - --
$200,000
- -_ 1/31/00 2/28/00 3/31/00 4/30/00 $379,086 1$1024,963 8/31/00 9/30/00 10Y31/(0 - 1 ./30 /(0 - 12/31/00
$0 /1 /00 1 5/31/00 6/30/00 I 7/31/0)
- $898810 5764,512 "5691788 $673956 $1,302,780
OSencsl 1$1,172,789 $1,060,735 1 $928,473 5(97221 5595563 5469029 - -
As shown above, the cash balance decreased $794,000 between January 1 and June 30,
illustrating the need for the cash flow reserve. We recommend the City continue to monitor
the cash flow needs of the General Fund.
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Management Report
General Fund
Contingen Benefit Reserve
The employee benefits reserve is computed based upon accrued, but unpaid, employee
benefits as follows:
Employee Benefits Reserve
December 31,
Employee Benefit 1999 2000
Vacation leave carryover $34,494 $46,552
Severance 68,463 76,866
Unused sick leave 32,196 37,672
Total $135,153 $161,090
The reserve for unused sick leave is 25% of the remaining balance after deducting the
portion that qualifies as severance. The purpose of this reserve is to provide funds in the
event that a temporary employee is required while a permanent employee is on sick leave.
El
Management Report
General Fund
This reserve was established to recognize the actual/potential liability for vacation and
sick leave. When the reserve was established, a conservative approach was taken in which an
amount equal to all vacation leave, all severance and twenty-five percent of the sick leave
balance was deemed the appropriate reserve amount. History has shown that this level of
reserve is not required. We recommend the City consider amending this reserve component
to an amount equal to 50% of vacation leave, 100% of severance and 0% of sick leave. A
summary of this reserve if amended would be as follows:
Current Proposed
Policy Recommendation Reduction
Vacation leave $46,552 $23,276 $23,276
Severance 76,866 76,866 -
Sick leave 37,672 - 37,672
$161,090 $100,142 $60,948
Management Report
General Fund
General Continunev Reserve
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. Currently, the City of Oak Park Heights has set this reserve equal to 15%
of the General Fund operating budget subject to availability of such amounts, as follows:
General Contingency Reserve
December 31,
Description 1999 2000
Ensuing Year's Budget $2,253,195 $2,402,525
Reserve Amount @ 15% $338,000 $360,000
Amount available @ December 31 $285,526 $273,682
As shown above, the fund balance available at December 31, 2000 is less than the amount
needed to fulfill the contingency reserve requirement.
AM
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Management Report General Fund
Capital Improvements Reserve
TIF districts do not benefit from increases in the tax capacity rate. The "excess TIP
related to the increased tax rate is required by statute to be allocated to the General Fund.
These funds have been designated for street reconstruction activities. The "excess TIP
collected in 1998 and 1999 has not yet been transferred to the Street Reconstruction Fund and
is therefore shown as designated at December 31, 2000.
Employee Health Insurance Reserve,
The City self insures for a portion of employee health insurance. During 1998, the City
adopted resolution 98-04-33 establishing a General Fund designation for employee insurance
benefits. This designation is equal to 20% of the total possible City cost for employee health,
dental and life benefits. The remaining 80% is included in the annual budget.
"ANN
-----------
•
M
Management Report
General Fund
�_qaipment Replacement Funding
Currently the City budgets annually for capital outlay in the General Fund as items are
needed. A summary of General Fund capital outlay for the past several years is as follows:
Year Amount
1995 $61,604
1996 34,645
1997 52,018
1998 32,005
1999 40,055
2000 32,591
2001 budget 21,500
As shown above, capital outlay has fluctuated from year to year. An alternative approach
to capital outlay funding would be to establish an Equipment Replacement Fund. Funding
would be provided by an annual transfer from the General Fund. The benefit of this approach
is to smooth out capital outlay budgeting. An example of this approach is as follows:
Equipment
Capital Replacement
Year Outlay Approach Difference
1 $15,000 $45,000 $30,000
2 60,000 45,000 (15,000)
3 25,000 45,000 20,000
4 80,000 45,000 (35,000)
Total $180,000 $180,000 $0
We recommend that the City consider establishing an Equipment Replacement Fund.
•
Management Report
Special Revenue Funds
SPECIAL REVENUE FUNDS
Special Revenue Funds are a classification of funds to account for revenues (and
expenditures related thereto) segregated by City policy, Federal or State statutes for specific
purposes. The City maintained two Special Revenue Funds during 2000.
Forfeiture and Seizure Fund
This fund was established in 1991 to account for property forfeited pursuant to MS
609.531. A summary of the financial activity of this fund from inception is as follows:
Prior
Years 2000 Total
Revenue:
Earnings on investments $2,817 $912 $3,729
Confiscated property 41,691 20,602 62,293
Reimbursements 1,680 - 1,680
Sale of municipal property 1,305 562 1,867
Total $47,493 $22,076 69,569
Expenditures:
Public safety:
Materials and supplies $14,046 $610 14,656
Contractual services 1,688 433 2,121
Capital outlay 27,635 - 27,635
Total $43,369 $1,043 44,412
Fund balance - December 31, 2000 $25,157
The use of these funds is restricted by MS 609.531 subd. 5 to "supplement the agency's
operating fund or similar fund for use in law enforcement.
AN=
Management Report
Special Revenue Funds
Economic Development Fund
This fund was established in 1998 to account for the activity of the Oak Park Heights
Economic Development Authority. A summary of the financial activity of this fund is as
follows:
Prior
Years 2000 Total
Revenue:
Earnings on investments $9,067 $4,567 $13,634
Interftmd loan interest 313 800 1,113
Refunds and reimbursements 2,531 - 2,531
Sale of municipal property 76 - 76
Total revenue $11,987 $5,367 17,354
Expenditures:
Community development:
Materials and supplies $457 $ - 457
Contractual services 27,274 1,465 28,739
Interfund loan interest 30,000 20,000 50,000
Capital outlay 121,500 - 121,500
Total expenditures $179,231 $21,465 200,696
Fund balance (deficit) - December 31, 2000 ($183,342)
Management Report Special Revenue Funds
The 1998 expenditures consist primarily of the Bell property purchase. The City
demolished the building in 1999 and is marketing the property as a business and industrial
site. The estimated value of the property is approximately $124,500 (61,000 square feet
$2.04 per square foot).
The fund deficit is funded by a $260,000 interfund loan fi•om the Capital Revolving Fund.
This fund does not have the resources to repay the interfund loan. Additionally, if the sale of
the Bell Property were to happen, the proceeds may not be sufficient to make full repayment.
Based on existing assets, this fund can repay approximately $65,000. We recommend the
City consider forgiving the balance of the interfund loan. If a sale of the Bell property
occurred, the proceeds would then be receipted in the Capital Revolving Fund.
M
Management Report
Debt Service Funds
DEBT SERVICE FUNDS
The combining financial statements for the Debt Service Funds are presented in
Statements 10 and 11 of the 2000 Annual Financial Report. Debt Service Funds are a type of
governmental fiend to account for the accumulation of resources for the payment of interest
and principal on debt (other than Enterprise Fund debt). The City maintained four Debt
Service Funds during 2000 as follows:
Fund Balance
December 31, Increase
Fund 1999 2000 (Decrease)_
G.O. Refunding Bonds of 1992 (Storm Sewer) $31,458 $ - ($31,458)
G.O. Revenue Bonds of 1991 /Crossover Refunding Bonds of 1993 282,630 299,691 17,061
G.O. Improvement Bonds of 1995 221,869 195,986 (25,883)
G.O. Improvement Bonds of 1998 57,458 31,596 (25,862)
'Totals $593,415 $527,273 ($66,142)
Management Report Debt Service Funds
Storm Sewer Refunding Bonds of 1992
These bonds were issued to provide financing for the Storm Sewer District construction.
The bonds were retired in 2000 and the remaining fund balance of $6,959 was transferred to
the Capital Revolving Fund.
Water and Sewer Refunding Bonds of 1993
The Water and Sewer Revenue Bonds of 1991 were issued to provide financing for Phase
I of the City's Annexation Area Extended (A.A.E.) Trunk facility improvements. The City
established special area connection charges to provide for the retirement of these bonds and
for financing additional trunk facilities in this area. These bonds were refinanced by the
Refunding Bonds of 1993 to reduce interest costs by approximately $95,000 over the
remaining term of these bond issues.
During 1999, the City transferred $135,000 from the A.A.E. Connection Charge Funds to
this Debt Service Fund for this bond issue. This cash transfer (along with special
assessments and other assets committed to these bonds) will be sufficient to meet the 2001
and 2002 scheduled debt payments.
Future (2000 through 2004) projected cash transfers are as follows:
Sanitary Water
Year Sewer Works Total
2001 $20,000 $120,000 $140,000
2002 20,000 125,000 145,000
2003 30,000 135,000 165,000
2004 5,000 50,000 55,000
Totals $75,000 $430,000 $505,000
o ® o
0
Management Report
Debt Service Funds
A projection of cash flow of the Water and Sewer refunding Bonds of 1993 assuming
cash transfers from the Connection Charge Fund is as follows:
City of Oak Park heights, Minnesota
Projection of Cashflow
Water and Sewer Refunding Bonds of 1993
Total
Cash Balance Property Special Other Investment Projected Debt Other Cash Balance
Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31
2001 $300,106 $0 $0 $140,000 $14,592 $154,592 $134,825 $0 $319,873
2002 319,873 0 0 145,000 15,592 160,592 150,325 0 330,140
2003 330,140 0 0 165,000 16,260 181,260 149,805 0 361,595
2004 361,595 0 0 55,000 17,412 72,412 158,805 0 275,202
2005 275,202 0 0 0 12,918 12,918 166,805 0 121,315
2006 121,315 0 0 0 5,688 5,688 78,900 0 48,103
2007 48,103 0 0 0 2,405 2,405 0 0 50,508
Total $0 $0 $505,000 $84,867 $589,867 $839,465 $0
Assumptions
Special assessment collection rate .................... 95 %
Property tax collection rate ............................... 99%
Investment interest rate .... ............................... 5.00%
Negative interest charged to funds? ...... no
As shown above, this fund has a projected surplus of $50,508 upon final bond maturity.
This projection is devendent on sufficient transfers from the Connection Charge Fund.
Management Report
Debt service Funds
G. O. Imp rovement Bonds of 1995
This bond was issued to provide financing for the first phase of the street reconstruction
project. This bond will be repaid by a combination of special assessments and property taxes.
A projection of cash flow of the Improvement Bonds of 1995 is as follows:
City of Oak Park Heights, Minnesota
Projection of Cashflow
General Obligation Improvement Bonds of 1995
Total
Cash Balance Property Special Other Investment Projected Debt Other Cash Balance
Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31
2001 $195,157 $59,400 $43,629 $0 $10,067 $113,096 $148,740 $0 $159,513
2002 159,513 59,400 41,488 0 8,349 109,237 143,280 0 125,470
2003 125,470 59,400 39,348 0 6,713 105,461 137,700 0 93,231
2004 93,231 59,400 37,208 0 5,169 101,777 132,000 0 63,008
2005 63,008 59,400 35,067 0 3,731 98,198 126,000 0 35,206
Total $297,000 $196,740 $0 $34,029 $527,769 $687,720 $0
Assumptions
Special assessment collection rate .................... 95%
Property tax collection rate . ............................... 99%
Investment interest rate .... ............................... 5.00%
Negative interest charged to funds ? .................. no
As shown above, this fund is projected to have a surplus of $35,206 upon final bond
maturity. This projection is dependent on levying the scheduled property taxes (or providing
alternative financing) and experiencing a special assessment collection rate of 95 %.
•
Management Report
Debt Service Funds
G. O. Improvement Bonds of 1998
This bond was issued in 1998 to provide financing for Kern Center and Phase Three of
the 58 t1i Street improvement. This bond is scheduled to be repaid by special assessments and
connection charges. The assessment rolls for both projects were adopted in 1999.
A projection of cash flow of the Improvement Bonds of 1998 is as follows:
City of Oak Park Heights, Minnesota
Projection of Cashflow
General Obligation Improvement Bonds of 1998
Total
Cash Balance Property Special Other Investment Projected Debt Other Cash Balance
Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31
2001 $31,596 $0 $137,825 $0 $1,515 $139,340 $219,787 $0 ($48,851)
2002 (48,851) 0 133,331 0 0 133,331 214,163 0 (129,683)
2003 (129,683) 0 128,836 0 0 128,836 208,462 0 (209,309)
2004 (209,309) 0 124,342 0 0 124,342 177,688 0 (262,655)
2005 (262,655) 0 119,848 0 0 119,848 172,812 0 (315,619)
2006 (315,619) 0 115,353 0 0 115,353 167,813 0 (368,079)
2007 (368,079) 0 110,859 0 0 110,859 162,687 0 (419,907)
2008 (419,907) 0 106,365 0 0 106,365 157,500 0 (471,042)
2009 (471,042) 0 101,871 0 0 101,871 152,250 0 (521,421)
2010 (521,421) 0 97,376 0 0 97,376 146,938 0 (570,983)
2011 (570,983) 0 92,882 0 0 92,882 141,562 0 (619,663)
2012 (619,663) 0 88,388 0 0 88,388 136,125 0 (667,400)
2013 (667,400) 0 83,893 0 0 83,893 130,625 0 (714,132)
2014 (714,132) 0 79,399 0 0 79,399 0 0 (634,732)
Total $0 $1,520,569 $0 $1,515 $1,522,084 $2,188,412 $0
Assumptions
Special assessment collection rate ................... 95%
Property tax collection rate . ............................... 99%
Investment interest rate ..... ............................... 5.00%
Negative interest charged to funds ? .................. no
•
Management Report
Debt Service Funds
As shown above, this Debt Service Fund will require connection charge revenue to
finance the debt service. The following projection of cash flow includes the minimum
amount of connection charge revenue to maintain a positive cash balance.
City of oak Park Heights, Minnesota
Projection of Cashflow
General Obligation Improvement Bonds of 1998
Total
Cash Balance Property Special Other Investment Projected Debt Other Cash Balance
Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31
2001 $31,596 $0 $137,825 $55,000 $1,744 $194,569 $219,787 $0 $6,378
2002 6,378 0 133,331 75,000 604 208,935 214,163 0 1,150
2003 1,150 0 128,836 80,000 402 209,238 208,462 0 1,926
2004 1,926 0 124,342 55,000 481 179,823 177,688 0 4,061
2005 4,061 0 119,848 50,000 592 170,440 172,812 0 1,689
2006 1,689 0 115,353 55,000 521 170,874 167,813 0 4,750
2007 4,750 0 110,859 50,000 683 161,542 162,687 0 3,605
2008 3,605 0 106,365 50,000 656 157,021 157,500 0 3,126
2009 3,126 0 101,871 50,000 663 152,534 152,250 0 3,410
2010 3,410 0 97,376 50,000 710 148,086 146,938 0 4,558
2011 4,558 0 92,882 45,000 780 138,662 141,562 0 1,658
2012 1,658 0 88,388 50,000 690 139,078 136,125 0 4,611
2013 4,611 0 83,893 42,000 840 126,733 130,625 0 719
2014 719 0 79,399 0 1,028 80,427 0 0 81,147
Total $0 $1,520,569 $707,000 $10,394 $2,237,963 $2,188,412 $0
Assumptions
Special assessment collection rate .................... 95%
Property tax collection rate . ............................... 99%
Investment interest rate ..... ............................... 5.00%
Negative interest charged to funds ? .................. no
•
Management Report
Capital Project Funds
CAPITAL PROJECT FUNDS
The financial statements for the Capital Project Funds are presented in Statements 12 and
13 of the City's 2000 Annual Financial Report. The fund balance (deficits) of the Capital
Project Funds were as follows at December 31, 1999 and 2000:
December 31, Increase
Fund 1999 2000 (Decrease)
Capital Revolving Fund $335,428 $438,392 $102,964
Budgeted Projects and Equipment Revolving Fund 35,715 53,834 18,119
57th Street/Oakgreen extension 23,396 30,632 7,236
Osgood/Highway 36 Intersection (7,666) - 7,666
Superamerica/Valvoline Oil 681 1,311 630
Park Development 385,245 302,359 (82,886)
St. Croix Mall (TIF) 94,966 91,663 (3,303)
Street Reconstruction 336,347 334,855 (1,492)
East Oaks Swager 95 - (95)
Deep Well #3 - (1,153) (1,153)
Renewal and Replacement 1,451,052 1,599,177 148,125
Central Business District (12,770) (12,866) (96)
Brekke Park Memorial 362 777 415
AAE - Kern Center (29,835) 30 29,865
AAE - Brackey West - Oak Park Pond (22,390) (22,417) (27)
AAE - Brackey West - Outlots A & B 23,219 22,336 (883)
AAE - 58th Street Improvement - Phase 111 93,202 32,452 (60,750)
AAE - First Student - 3,099 3,099
AAE - Boutwells Landing - - -
AAE - Sanitary Sewer Connection 309,470 362,829 53,359
AAE - Water Connection 215,433 280,662 65,229
AAE - Storm Sewer Connection 444,921 541,815 96,894
Totals $3,676,871 $4,059,787 $382,916
-JEW
•
Management Report Capital Project Funds
Capital Revolving Fund.
During 1984, the City established the Capital Revolving Fund (formerly Closed Bond
Fund). Initial financing for this fund was provided through the residual balances of closed (or
defeased) special assessment Debt Service Funds of the City.
A summary of transactions for 1999 and 2000 is as follows:
Capital Revolving Fund
Description 1999 2000
Financial resources:
Special assessments $322,927 $100,609
General property taxes - 16
Earnings on investments 4,100 6,268
Connection charges:
East Oaks 8,553 12,560
Other 150 -
Interfund loan interest 20,000 20,000
Sale of property 250 -
Transfers in:
AAE - Storm Sewer 50,000 50,000
Total financial resources 405,980 189,453
Financial uses:
Expenditures 124,835 25,450
Transfers out:
57th Street/Oakgreen extension 300,000 68,000
Total financial uses 424,835 93,450
Increase (decrease) in fund balance (18,855) 96,003
Fund balance - January 1 354,283 335,428
Residual equity transfer - 6,961
Fund balance - December 31 $335,428 $438,392
-low
•
Management Report
Capital Project Funds
In addition to the fund balance on the previous page, this fund has future assets as
follows:
• Assessments receivable of $241,000 relating to the 58th Street Improvement Project
and the Brackey West /Stillwater Ford utility and street improvements.
• This fund provided financing of the storm sewer portion of the High School Road
improvement ($360,000 transfer) which is being repaid by future storm sewer
connections.
• The amount remaining to be repaid is $20,000 at December 31, 2000.
• This fiend has an interfund receivable from the Economic Development Fund of
$260,000. The collection of this receivable does not appear likely. See comments on
page 32.
A summary of existing and future assets is as follows:
Existing assets (cash and investments) $178,357
Future assets:
Interfund loan 260,000
Storm sewer repayment 20,000
Assessments - existing rolls 241,000
Subtotal 699,357
Less interfund loan write -off (195,000)
Plus value of Bell property 150,000
Total $654,357
a
•
Management Report
Capital Project Funds
Budgeted Projects and Equipment Revolving Fund
The Budgeted Projects and Equipment Revolving Fund (formerly Capital Improvements
Fund) was established in 1978 to account for monies set aside for various capital
improvements. A schedule of activity for 1999 and 2000 is as follows:
Description 1999 2000
Financial resources:
Earnings on investments $4,069 $2,254
Donations/other 1,112 21,171
Transfers in:
General Fund 19,000 5,000
Enterprise Fund 15,000 5,750
Total financial resources 39,181 34,175
Financial uses:
Expenditures:
Public works vehicles 70,511 -
St. Croix Sport Facility 15,000 -
Unallocated:
Other 1,352 1,056
Transfers out:
St. Croix Spoil Facility - 15,000
Total financial uses 86,863 16,056
Increase (decrease) in fund balance (47,682) 18,119
Fund balance - January 1 83,397 35,715
Fund balance - December 31 $35,715 $53,834
Management Report
Capital Project Funds
This fund is budgeted annually by the City Council in conjunction with the City's budget
process. As part of such process, the City allocates the monies in this fund to specific
projects and/or programs. Such allocation/designations were as follows at December 31,
2000:
Balance Balance
Purpose 12/31/99 Revenues Expenditures 12/31/00
Sealcoat/crack seat $46,113 $5,000 $ - $51,113
Recreation 1,524 1,471 (556) 2,439
Land acquisition 5,000 - - 5,000
Perro Creek 7,180 7,180
St. Croix Valley Hockey Arena - - (15,000) (15,000)
Vehicles (30,010) 5,750 a (24,260)
Trees - 19,700 - 19,700
Unallocated 5,908 2,254 (500) 7,662
Totals $35,715 $34,175 ($16,056) $53,834
During 1996, the City approved a pledge of $200,000 to the St. Croix Sport Facility
Commission. A summary of the activity related to this pledge is as follows:
Year Payments Balance
Beginning balance $200,000
1998 $50,000 150,000
1999 15,000 135,000
2000 15,000 120,000
The remaining amount will be paid in annual installments of $15,000.
•
Management Report
Capital Project Funds
57 th Street/Oakgreen Extension
This fund accounts for costs associated with the extension of 57 Street from City Hall to
Oakgreen. This project is being financed by transfers from the Capital Revolving Fund. A
summary of financial activity to date is as follows:
Revenues and other sources:
Earnings on investments $2,006
Sale of property 15,158
Transfer from Capital Revolving Fund 588,000
Total revenues and other sources 605,164
Expenditures and other uses:
Land acquisition 190,659
Contractor 255,833
Engineer 95,583
Legal and fiscal 6,354
Other 26,103
Total expenditures and other uses 574,532
Fund balance - December 31, 2000 $30,632
The City is awaiting the final billing on this project which is estimated to be within the
fund balance of $30,632.
Osgood/Ilighwav 36 Intersection
This fund accounted for costs associated with the intersection improvements at Osgood
and Highway 36. This fund was closed in 2000 by a transfer of $7,666 from the Street
Reconstruction Fund.
MW
... ..... .. IIIIJIM
•
anagement Report
Capital Project Funds
SuperamericaNalvoline Oil
This fund accounts for the escrow deposits associated with the development agreement
with Superamerica/Valvoline Oil. The City does not anticipate any City costs associated with
this project.
Park 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 $302,359 at December 31, 2000, as
follows:
Prior
Years 2000 Total
Financing sources:
Park fees $315,100 $7,700 $322,800
Earnings on investments 87,956 22,160 110,116
Donations and contributions 4,777 160 4,937
Total financing sources $407,833 $30,020 437,853
Financing uses:
Professional services $22,588 $1,594 24,182
Park signs - 15,902 15,902
Valley View Park bridge 65,616 65,616
Trail paving - 29,794 29,794
Total financing uses $22,588 $112,906 135,494
Fund balance - December 31, 2000 $302,359
Management Report
Capital Project Funds
A summary of park dedication fees is as follows:
Park
Development Fee
AAE Area:
Autumn Ridge - Phase 1 $11,700
Autumn Ridge - Phase 11 4,294
Autumn Ridge - Phase 111 11,250
Brackey Addition 98,735
Haase Addition 25,795
River Hills 12,150
Wal-Mart 36,750
Brackey - Oak Park Pond 28,823
Brackey - Outlots A & B 9,047
Subtotal 238,544
All Other:
East Oaks - Swager 10,400
Valley View Estates - 1 18,140
Valley View Estates - 11 12,580
Valley View Estates - IV 7,700
Stillwater Ford 21,036
Other 14,400
Subtotal 84,256
Total $322,800
The above balance at December 31, 2000 has not been designated for any specific project.
--am
•
Management Reporfi W
Capital Project Funds
St. Croix Fall (TIF)
This fund was established in 1989 to account for the St. Croix Mall TIF project.
Additionally, this fund accounted for the City's 58th Street and Osgood avenue Improvement
Project. The City entered into a development agreement with Matson Center, Inc., whereby
60% of the tax increment generated is paid to the developer as reimbursement for land
acquisition and site improvement costs. The maximum amount of developer assistance is
$847,770. During 1995, the City adopted resolution 95 -03-12 modification No. I to the 1989
St. Croix Mall Tax Increment flan. This modification provided for street reconstruction
costs to be included in the tax increment financing plan.
The following schedule summarizes the past financial activity for this project:
Prior
Years 2000 "Totals
Financial resources:
T.I.F. taxes $1,072,901 $ - $1,072,901
Earnings on investments 26,173 5,879 32,052
'Total financial resources $1,099,074 $5,879 1,104,953
Financial uses:
Construction costs:
58th Street/Osgood improvement project $150,078 $ - 150,078
Professional fees 19,260 1,065 20,325
Contractual services 862 - 862
Developer assistance 643,255 - 643,255
Administrative charge 34,262 3,450 37,712
Transfer out:
General Fund (investment interest) 10,591 - 10,591
Street reconstruction 145,800 - 145,800
Central Business District - 4,667 4,667
Total financial uses $1,004,108 $9,182 1,013,290
Fund balance - December 31, 2000 $91,663
e
ESE
Management Report
Capital Project Funds
This district was decertified in 1999. The City adopted resolution #99-06-28 providing
for the remaining balance to be carried forward for a period of eighteen months. The
remaining fund balance will be used for development efforts by Andersen Corporation at the
St. Croix Mall.
Street Reconstruction
This fund was established to account for the first phase of the street reconstruction
program. A summary of financial activity is as follows:
Prior
Years 2000 Total
Financial resources:
Bond proceeds $1,062,456 $ - $1,062,456
Earnings on investments 63,155 20,454 83,609
Refunds and reimbursements 10,000 - 10,000
Transfers in:
St. Croix Mall TIF 145,800 - 145,800
Budgeted projects and equipment revolving 352,718 - 352,718
Renewal and replacement 15,854 - 15,854
Total financial resources $1,649,983 $20,454 1,670,437
Financial uses:
Project costs $1,313,636 $14,280 1,327,916
Residual equity transfer (7,666)
Fund balance - December 31, 2000 $334,855
The City combined all street reconstruction monies during 1998 by transferring the street
reconstruction portion of the Budgeted Projects and Equipment Revolving Fund to this fund.
These monies will provide partial financing for the next phase of street reconstruction.
•
Management Report
Capital Project Funds
Deep Well 93
This fund was established in 2000 to account for costs associated with the construction of
Deep Well #3. A summary of financial activity is as follows:
Financial resources:
Earnings on investments $4
Transfer from Renewal /Replacement Fund 59,000
Total financial resources 59,004
Financial uses:
Contractor $15,709
Engineer 37,944
Legal 2,469
Other 4,035
Total financial uses 60,157
Fund balance m December 31, 2000 ($1,153)
,e
Management Report
Capital Project Funds
Renewal and Replacement
This fund was established in 1994 for the purpose of creating a reserve balance for partial
financing of future costs to renew and/or replace existing utility systems. This partial
financing will be required as these systems are replaced because it is anticipated the City will
be unable to assess 100% of such replacements.
Initial funding was provided by a transfer of $574,378 from the Water and Sewer Utility
Fund. This transfer represented depreciation charges accumulated since 1969. Annually
thereafter, additional transfers equal to depreciation on contributed assets are to be
transferred.
A summary of the financial activity from inception is as follows:
Prior
Years 2000 Total
Financial sources:
Transfer from water and sewer utility:
Initial (1994) $574,378 $ - $574,378
Annual 604,028 118,028 722,056
Earnings on investments 288,500 90,678 379,178
Total financial sources $1,466,906 $208,706 1,675,612
Financial uses:
Flouride system $ m $1,581 1,581
Transfer out:
Deep Well 43 59,000 59,000
Street reconstruction 15,854 - 15,854
Total financial uses $15,854 $60,581 76,435
Fund balance - December 31, 2000 $1,599,177
Management Report
Capital Project Funds
Central Business District
This fund was established in 1999 to account for costs associated with the Central
Business District. This project is in its initial stages, with initial financing provided by a
$ 10,000 transfer from the General Fund, a $10,000 interfund loan from the Economic
Development Fund and planning assistance from property owners.
1999 2000
Financial sources:
Met Council grant $ - $9,497
Earnings on investments 25 21
Contributions:
VSSA 2,500 -
Nolde 500 -
Other - 3,500
Transfer from General Fund 10,000 5,000
Transfer from TIF Fund - 4,667
Total financial sources 13,025 22,685
Financial uses:
Professional services 25,482 21,981
Interfund loan interest 313 800
Total financial uses 25,795 22,781
Increase (decrease) in fund balance (12,770) (96)
Fund balance - January I (12,770)
Fund balance - December 31 ($12,770) ($12,866)
The fund deficit is currently financed by an interfund loan from the Economic
Development Fund. We recommend the City determine the likelihood of repayment on the
interfund loan.
ZZa — ge"m"ent Report
Capital Project Funds
Brekke Park Memorial
This fund was established in 1999 to account for the donations received for Brekke Park.
Annexation Area Extended (AA.E.)
In response to development projects from non-resident property owners, the City
developed a plan of action to provide trunk utility services (water, sanitary sewer, and storm
sewer) to properties annexed to the City after July 28, 1988. The Annexation Area Extended
includes approximately 950 acres of property generally south of State Highway 36 between
Oakgreen Avenue (on the east) and State Highway 5 (on the west).
Kern Center
This fund accounts for costs associated with the Kern Business Center (Phase I and 11).
This project is being financed by the 1998 G.O. Improvement Bonds. A summary of
financial activity to date is as follows:
Revenue and other sources:
Bond proceeds $995,983
Earnings on investments 37,575
Transfer fi•om Sanitary Sewer Connection Fund 20,200
Transfer from Water Connection Fund 35,200
Transfer from Storm Sewer Connection Fund 44,600
Total revenue and other sources 1,133,558
Expenditures and other uses:
Contractor 831,502
Engineer 156,009
Legal and fiscal 19,344
Other 126,673
Total expenditures and other uses 1,133,528
Fund balance - December 31, 2000 $30
Management Report
Capital Project Funds
This project is complete and was assessed in 1999. The amount of the assessment roll
was $560,000. In addition to the assessment, there are connection charges related to this
project. A summary of the connection charges is as follows:
Sanitary sewer $214,376
Water 373,048
Storm sewer 472,640
Total $1,060,064
These connection charges have the following commitments:
® A portion of the connection charges are committed to pay debt service on the Bonds
of 1998.
* Several of the properties in this area currently have septic systems. These properties
are not required to connect (and pay) for six years (by 2005).
AM
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Management Report
Capital Project Funds
racket' West ® Oak Park Ponca
This fund has a deficit of $22,417 at December 31, 2000. This deficit will be eliminated
by a transfer from the 13rackey West — ®utlot A & 13 Fund.
Ilrackey West ® Outlot A &
This fund has a fund balance of $22,336 at December 31, 2000 which will be used to
fund the deficit in 13rackey ®®ak Park Pond Fund.
AAE m 58th Street Improvements ® Phase III
This fund accounts for costs associated with the extension of 54th Street from Wal -Mart
to ®akgreen Avenue. This project is being financed by the 1994 G.O. Improvement Ponds.
A summary of financial activity to date is as follows:
Revenues:
Bond proceeds $945,808
Earnings on investments 44,816
Total revenues 990,624
Expenditures:
Contractor 706,222
Engineer 129,876
Legal and fiscal 7,175
Land acquisition 75,682
Other 39,217_
Total expenditures 958,172
Fund balance - December 31, 2000 $32,452
This project is anticipated to be completed in 2001.
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Management Report
Capital Project Funds
E -- Boutwells Lan
This fund was established in 1999 to account for expenditures associated with the
developer agreement with `Talley Senior Service Alliance. ley points of the developer
agreement are as follows:
® All improvements reimbursed by the developer.
® Dedicating to the City 23.11 acres for park land as follows:
- - -- - -- - - -- - --
13.08 Parkland
4.89 Wetland
5.14 Westerly wetland complex
2,3.11
Park dedication fees of $341,500 or equivalent park improvements including $80,000
towards the development of a park shelter as follows:
1. Estimated rough grading cost within greater park $120,000
2. Estimated cost to stub utilities 2,000
3. Estimated cost for walking path within greater park 32,000
4. Estimated cost for bituminous, concrete curb, Class 5, and
grading of parking lot near tot lot 23,000
5. Light standards within tot lot parking lot and play area 6,000
6. Tot lot playground facility and grading for play area 20,000
7. Twenty foot bituminous fire land 7,000
8. Estimated watershed district permit fees 500
9. Sodding in greater park 19,000
10. Seeding in greater park 14,000
11. Sodding near tot lot park 16,000
12. Seeding near tot lot park 2,000
13. Park shelter building - allowance 80,000
Total $341,500
—INU
Management Report
Capital Project Funds
Our understanding of the status of the park improvements is that they are
substantially complete except for the park shelter.
® Connection charges for Phase I as follows:
Budgeted
Sanitary sewer $139,131.30 Received 1998
Water 241,522.30 Received 1998
Storm sewer 305,968.40 Received 1998
Total $686,622.00_
* An amendment to the developer agreement includes the following:
* VSSA purchases 58 Street right-of-way for $82,328.
* City has opportunity to purchase additional parkland (4,56 acres) for $278,546
(Linear Park).
A summary of the financial activity is as follows:
Actual Budget
Revenues:
Developer reimbursement $1,538,080 $2,330,760
Expenditures:
Contractor 1,270,891 1,942,300
Engineer 231,471 -
Legal 2,768 388,460
Other 32,950 -
Total expenditures 1,538,080 2,330,760
Fund balance - December 31, 2000 $0 $0
Management Report
Capital Project Funds
Sanitary Sewer Connection Charge Fund
A summary of the finonoim}activity of this fund from inception iaaafollows:
Prim
Years 2000 Total
Revenue:
Special assessments $7,161 $5,841 $13
Earnings ooinvestments 50,527 21,703 72,230
Connection charges:
River Hills ) stand 2nd 39,725 - 39,725
Highway 36 10,551 - 10,551
Wal-Mart 38,751 - 38,751
|SD#834 201,373 ' 201
Bruoboy 25,447 - 25,447
8mckey West - Oak Park Pond 45,461 - 45,461
Bcuoboy West -0utlutoA &B 6,052 - 6,052
Autumn Ridge lst 2nd and 3rd 65,547 - 65,547
Haase addition 3,186 - 3,186
Valley Senior Service Alliance 139,131 - 139,I31
0d/r - 66,015 66,015
Total revenue $632,912 $93.559 726
Expenditures:
Transfer to debt service $132,500 *28,000 152,500
Kern Center - 20,200 20,200
School District improvements 160,000 - 160,000
River Hills iat 30,942 - 30,942
Total expenditures $323,442 $40,200 363,642
'
Fund balance - December 3l,20O0 *362,829
Management Report
Capital Project Funds
Water Connection Charge Fund
A stunmary of the financial activity of this fund from inception is as follows:
Prior
Years 2000 Total
Revenue:
Special assessments $12,434 $10,140 $22,574
Earnings on investments 71,040 20,716 91,756
Connection charges:
River Hills 1st and 2nd 64,798 - 64,798
Highway 36 18,352 - 18,352
Wal-Mart 67,088 - 67,088
ISD #834 405,341 - 405,341
Brackey 44,260 - 44,260
Brackey West - Oak Park Pond 78,917 - 78,917
Brackey West - Outlots A & B 10,506 - 10,506
Autumn Ridge 1st, 2nd and 3rd 103,372 - 103,372
Haase addition 5,542 - 5,542
Valley Senior Service Alliance 241,522 - 241,522
Other - 184,573 184,573
Total revenue $1,123,172 $215,429 1,338,601
Expenditures:
Transfer to debt service $733,000 $115,000 848,000
School District improvements 145,000 - 145,000
River Hills 1st 29,739 - 29,739
Kern Center - 35,200 35,200
Total expenditures $907,739 $150,200 1,057,939
Fund balance - December 31, 2000 $280,662
Management ReDO[f
Capital Project Funds
Stor�S��n���m�ne�� Charge �
A summary ofthe financial activity of this fund from incept iaamfollows:
Prim
Ynuo 3000 To4u|
�_�
Revenue:
Special assessments $15,456 $13,018 $28,474
Earnings ouinvestments 62 32,932 95,274
Connection charges:
River Hills l stand 2nd 50,411 - 50,411
Highway 36 23,252 - 23,253
Wa 68 - 68,511
l8D#834 289,348 ' 289,348
Bruokuy 56 - 56,079
BrookeyVVeai - OokpodcPuud 90,974 - 99,974
Dzuokoy West -(}ntlNu/\& B 13,310 - I3,310
Autumn Ridge lst, 2nd and 3rd 124,046 - 124,046
Haase addition 7,021 - 7,021
\/uUcy Senior Service Alliance 305 - 305,968
Other - 145,544 145,544
Total revenue $1,115,719 $191,494 1,307,213
Bzpooddurca:
Transfer 0o revolving capital $200 $50,000 250,000
Kern Center - 44,600 44,600
Wal-Mart 41,232 - 41,232
Storm drainage report 9,910 - 9,910
River Hills lut 13,757 - 13,757
Valley Point 2nd 17,211 - 17,211
School district improvement 289,348 - 289,348
Brookoyudditiuo 99,340 - 90,340
Total expenditures $670 $94.600 765,3V8
'
Fund balance - December 3|,%0OO $541,815
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Management Report
Capital Project Funds
Connection Charge Fund Commitments
The fund balance at December 31, 2000 is committed for future debt service payments for
the Refunding Bonds of 1993. Such future commitments (cash transfers) are as follows:
Future Transfers to 1993 Bonds Debt Service Fund
Sanitary Water
Year Sewer Works Total
2001 $20,000 $120,000 $140,000
2002 20,000 125,000 145,000
2003 30,000 135,000 165,000
2004 5,000 50,000 55,000
Totals $75,000 $430,000 $505,000
As shown above, the A.A.E. Connection Charge balances at December 31, 2000 represent
sufficient amounts to meet the sanitary sewer debt commitments for 2001 through 2004 and
the water works debt service commitments for 2001 and 2002.
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Management Report
Capital Project Funds
This fund is also committed For future debt service payments on the Bonds of 1998. Such
future commitments (cash transfer) are as follows:
Future Transfers to 1998 Bond Debt Service Fund
Sanitary Water Storm
Year Sewer Works Sewer Total
2001 $27,775 $9,625 $17,600 $55,000
2002 37,875 13,125 24,000 75,000
2003 40,400 14,000 25,600 80,000
2004 27,775 9,625 17,600 55,000
2005 25,250 8,750 16,000 50,000
2006 27,775 9,625 17,600 55,000
2007 25,250 8,750 16,000 50,000
2008 25,250 8,750 16,000 50,000
2009 25,250 8,750 16,000 50,000
2010 25,250 8,750 16,000 50,000
2011 22,725 7,875 14,400 45,000
2012 25,250 8,750 16,000 50,000
2013 21,210 7,350 13,440 42,000
Total $357,035 $123,725 $226,240 $707,000
Additional commitments of the Connection Charge Funds include transfers to the
Devolving Capital Fund as repayment for the $360,000 transfer to the High School Road
Improvement Fund. This commitment was $20,000 at December 31, 2000.
__mm
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Management Report
Capital Project Funds
Based on existing developer agreements, the Connection Charge Funds are scheduled to
receive the following future connection charges as development occurs:
Future Connection Charges
Sanitary Water Storm
Sewer Works Water Total
Brackey Addition - Outlot A and B $62,611 $108,953 $138,040 $309,604
Haase Addition ® Outlot A and B 34,036 59,228 75,040 168,304
Kern Center (1998 Bonds) 189,334 324,251 410,816 924,401
Total $285,981 $492,432 $623,896 $1,402,309
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Management Report
Capital Project Funds
An analysis of the commitments of the connection charge funds is as follows:
Sanitary Water Storm
Sewer Works Water Total
Fund balance - December 31, 2000 $362,829 $280,662 $541,815 $1,185,306
Future connection charges 285,981 492,432 623,896 1,402,309
Subtotal 648,810 773,094 1,165,711 2,587,615
Debt service commitments:
Bonds of 1993 (75,000) (450,000) - (525,000)
Bonds of 1998 (357,035) (123,725) (226,240) (707,000)
Repayment commitment - - 20,000 --- 20,000
Uncommitted $216,775 $199,369 $959,471 $1,375,615
As shown above, connection charges should be sufficient to fund the debt service
requirement. The City has designated a portion ($661,765) of the retained earnings of the
Utility Fund to provide additional financing for the 1993 Bonds if needed. There is sufficient
fund balance in the Sanitary Sewer Connection Charge Fund for the debt service
commitments of these bonds. The fund balance of the Waterworks Connection Charge Fund
is about $170,000 less than the debt service commitment ($450,000 less $280,662).
Therefore, we recommend the City consider reducing the Utility Fund designation from
$661,765 to $200,000.
rq =ke
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Management Report
Enterprise Fund
ENTERPRISE FUND
The financial statements for the Enterprise Fund (Water, Sewer and Sanitation Utilities)
are presented in Statements 14, 15 and 16 of the City's 2000 Annual Financial Report.
Condensed comparative operating statements of income and expense for the utility operations
of the City are as follows:
Water Department
1999 20
Amount Percent Amount Percent
Revenue:
Customer billings and other $299,430 100.00% $331,354 100.00%
Operating expenses:
Personal services 112,133 37.45% 100,854 30.44%
Contractual services 45,886 15.32% 56,101 16.93%
Administrative and personnel charges 19,550 6.53% 30,970 9.35%
Other 7,146 2.39% 13,342 4.03%
Depreciation:
On purchased assets 9,285 3.10% 10,313 3.11%
On contributed assets 61,908 20.68% 65,693 19.83%
Total operating expenses 255,908 85.47% 277,273 83.68%
Net operating income (loss) $43,522 14.53% $54,081 16.32%
E R I S -
Management Report
Enterprise Fund
A chart of income from operation is as follows:
$350,000
Water Operating
$300,000 Revenue & Expense
I
$250,000
O Depreciation
$200,000 =All Other Expenses
Contractual Services
$150,000 OPersonal Services
Operating Revenue
$100,000 - --
i
$50,000
$0
19961997.._.____.___ 1998 � 1999 2000
As shown above, the water department incurred losses in 1997 and 1994. The City had a
study performed and increased water rates based on the study's results.
Management Report
Enterprise Fund
Sewer Department
1999 2000
Amount Percent Amount Percent
Revenue:
Customer billings and other $356,652 100.00% $400,721 100.00%
Operating expenses:
Personal services 123,039 34.50% 115,134 28.73%
MCES 250,780 70.32% 247,776 61.83%
Other contractual services 8,684 2.43% 28,084 7.01%
Administrative and personnel charges 40,025 11.22% 43,000 10.73%
Other 2,228 0.62% 3,328 0.83%
Depreciation:
On purchased assets 2,420 0.68% 2,186 0.55%
On contributed assets 47,317 13.27% 52,335 13.06%
Total operating expenses 474,493 133.04% 491,843 122.74%
Net operating income (loss) ($117,841) (33.04%) ($91,122) (22.74%)
The largest component of operating expenses is the processing charge from MCES. The
MCES charges are based on gallons of sewage processed. An analysis of gallons pumped by
the City, billed by MCES and billed by the City to customers is as follows:
1999 2000
Gallons of water pumped by the City 233 million 209 million
Gallons of sewage processed by MCES 199 million 207 million
Gallons of sewage billed by City to customers 160 million 167 million
The gallons billed to customers is an estimate based on total revenue divided by
the per 1,000 gallon charge
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Management Report
Enterprise Fund
It is expected that the number of gallons of water pumped by the City would exceed the
gallons of sewage processed by MCES because not all water pumped ends up in the sanitary
sewer system (primarily due to lawn sprinkling). However, the gallons of sewage billed by
the City in theory should more closely correspond to gallons of sewage processed by VICES.
This difference may be the result of one or a combination of the following factors:
I. ICES estimates of sewage processed is incorrect.
2. Inflow/infiltration of ground water into sanitary sewer lines.
3. Gallon charge for residential may be too low. The residential charge is based on
winter quarter usage. Increased usage in other quarters is assumed to be the result of
lawn sprinkling.
4. Sump pumps putting water into the sanitary sewer system.
S. Interconnection issues between cities.
We recommend the City determine the nature of the gallonage differences and adjust the
billing method if appropriate.
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Management Report
Enterprise Fund
A chart of income from operations is as follows:
$600,000
Sewer operating
Revenue & Expense
$500,000 --
$400,000 i— �— -
O Depreciation
O Personal Services
$300,000 =All Oflrer Expenses
r MCES
—�
$200,000 Operating Revenue
-- -- —-
$100,000
$0 —.
1996 1997 1998 1999 2000 2001
Management Report
Enterprise Fund
As shown on the previous pages, the sewer operating account incurred losses for 1998,
1999 and 2000 of $49,941, $117,841 and $91,122, respectively. The City revised rates
effective January 1, 1999 and January 1, 2001 as follows:
Monthly Rate Monthly Rate Monthly Rate
Effective Effective Effective
Type of Charge 01/01/99 04/01/00 01/01/01
Water:
Base fee $7.05 $7.50 $7.50
Charge per 1,000 gallons for:
Usage between 6,000 and 16,000 gallons $1.10 $1.17 $1.17
Usage between 17,000 and 33,000 gallons $1.38 $1.47 $1.47
Usage in excess of 33,000 gallons $1.65 $1.76 $1.76
Sewer:
Base fee $11.55 $12.45 $13.20
Charge per 1,000 gallons for
usage in excess of 5,000 gallons $2.15 $2.32 $2.46
The City implemented monthly utility billings effective January 1, 1999.
Management Report
Enterprise Fund
Sanitation
The City began charging for refuse collection in 1488. Prior to 1998, this activity was
accounted for iuthe General Fund. The City moved this activity tothe Enterprise Fund
during 1440. Refuse collection revenue as opexceut of refuse collection
expenditures/expense imoafollows:
Refuse Transfer
Refuse Collection Revenue xou from Net
Collection Expenditures/ Net Percent of General Income
`yooz Revoone Eopcuuuu Cost Expenditures Fund (Lnuo)
-� -
General Fund:
1992 $66,076 $251,121 ($185,045) 26% $ - $ -
1993 103,039 297,452 (194,413) 35% - -
1994 108,310 326,926 (218,616) 33% - -
1995 110,021 334,053 (2 33% - -
1996 103,444 326,036 (222,59 32% - -
1997 87,830 298,842 (211,0 29% - -
Enterprise Fund:
1098 93,014 309,051 ( 30% 190,400 ( 25 , 637 )
iVyo 71,585 169,210 (97,6 42% 65,000 (3
2000 87 175,164 (87,730) 50% 84,000 (2,730)
2001 100 175 (75,000) 57% 83,000 8.000
( ' ) Budgeted amounts, does not include $6.50 surcharge, $28,000 which is accounted for in the
General Fund
The 1944 loss was funded 6vfund balance. A transfer to the "All Funds" reserve account
of$23,000 was cancelled to cover this loss.
As shown above, the net cost of sanitation act has decreased fi $224,032 in 1995
t0$75,00U budgeted for 20Ul.
Management Report
Enterprise Fund
Storm Sewer Operating
The City created the stormwater utility during 1999. A monthly fee (effective October 1,
1999) was established at $1 per household and $10 per acre for commercial properties. The
fee for vacant residential property is 50 cents per month and undeveloped commercial
property is $1.50 an acre per month. A condensed operating statement of income and
expense for this fund is as follows:
Storm Sewer
1999 2000
Amount Percent Amount Percent
Revenue:
Customer billings $13,628 100.00% $55,359 100.00%
Expenses:
Personal services 345 2.53% 37,971 68.59%
Contractual services 753 5.53% 9,934 17.94%
Materials and supplies 251 1.84% 969 1.75%
Other - 0.00% 11,250 20.32%
Total operating expenses 1,349 9.90% 60,124 108.61%
Net operating income (loss) $12,279 90.10% ($4,765) (8.61%)
Management Report
Other Matters
OTHER MATTERS
GASB 34 — the reporting model
In June, 1999, GASB issued Statement No. 34, Basic Financial Statements — and
Management's Discussion and Analysis —for State and Local Governments. The statement
is the most comprehensive governmental accounting rule ever developed. This new
accounting rule will significantly change how state and local governments report their
financial activity to the public. In general, the new standards make government financial
reporting more like the private sector. To understand the impact of the new statement, it is
helpful to highlight the current differences between private sector and government financial
reporting:
* Governmental reporting focuses on groupings of various funds that segregate
resources for specific activities. In the private sector, even the most complex business
is presented as a single reporting entity;
* The private sector's financial reporting focuses on earnings and changes in total
business resources, including long-term assets and liabilities. This contrasts to
government's more short-term focus on current resources available for appropriation
and spending; and,
* The budget functions more as a financial plan in the private sector; whereas in
government the budget is more important in demonstrating compliance by comparing
actual financial results to the budget.
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Management Report
Other Matters
The most significant changes
Although the new GASB requirements are numerous, the major changes include:
Reporting on the major individual funds as opposed to the aggregation of fund
groups;
Comparison of actual financial results to both the original and amended budgets,
Requiring infrastructure asset reporting and additional "government ®wide" financial
statements on a totally different basis of accounting. This means the 66 checkbook"
basis of accounting at the fund level would remain alongside the new and different
entity -wide statements, which would include long-term assets and liabilities, and
® requiring a narrative analysis of the government's financial activities.
Implementation
- - - -- - -- - - -- -- - - -- -
The City of Oak Park Heights will be required to implement GASB 34 for the year ending
December 31, 2004.
The implementation of GASB 34 will be a major effort for the City and cannot be
completed in a short time frame. Therefore, we recommend the City begin the process of
implementing GASB 34 as soon as possible. Our firm will be offering a series of
implementation seminars which will address the issues specific to implementing GASB 34.
One of the first implementation issues will be regarding fixed assets. As such, the City
should develop a policy regarding capitalization thresholds for fixed assets.
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Management Report
Other Matters
Tax Increment District Reporting
The 1995 legislature transferred the responsibility for State oversight of tax increment
financing (reporting and compliance) from the Department of Revenue to the Office of the
State Auditor (OSA). Since that law change, the OSA has increased staffing to allow for
increased compliance testing and analysis. Responsibilities of the OSA include the
following:
"Desk review" of annually submitted tax increment reporting forms. The forms are
reviewed for completeness, consistency of information reported, and potential legal
compliance issues. The required decertification date is monitored.
® Conducting random audits of tax increment districts.
Tax increment financing education.
The OSA's audit procedures include a detail review of transactions from the inception of
a City's tax increment financing district. Common legal compliance issues identified by the
OSA include:
Documentation of expenditures:
• Administrative
• Other
Commingling of TIF revenue with non -TIF revenue.
Transfers and related authorization and reporting issues.
Potential overpayment of increment.
TIF plan budget issues
Various other compliance areas related to District formation and subsequent
administration.
b We are recommending that cities review their "readiness" for a potential OSA audit of
TIF districts and, if appropriate, modify practices to assure compliance.
NM
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Management Report
Other Matters
Abatement
The 1997 Legislature passed a tax abatement statute that allows cities greater flexibility in
funding economic development efforts. The abatement statute, by comparison to tax
increment financing statutes, is far less restrictive but also may tend to produce less revenue
than an expanding tax increment district. Tax abatement allows the political subdivision to
designate a portion of the tax capacity to be taken out of the tax base on a per parcel basis.
The property tax revenue produced by the properties excluded from the tax base is paid
directly to the city. The city is in control of designating its own portion to be abated.
Additionally, the city may petition the county and school district to participate in tax
abatement. They may decline participation if the use of the proceeds is not consistent with
their vision and objectives. Additionally, use of the abatement system increases the overall
tax capacity rate of taxing authorities because the tax base is reduced by parcels designated
for abatement.
The tax abatement may be used if the use of the funding is in the public interest because it
provides one of the following:
* Increase or preserve tax base
* Provide employment opportunities
* Acquisition or construction of public facilities
* Improvement of blighted areas
* Improved access for services to residents
* To finance public improvements
* Phase-in a property tax increase resulting from an increase of 50% or more in one
year in the estimated market value of a parcel.
NOWNEW
IN
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Management Report Other Matters
Duration of term
The maximum term of the abatement is ten years if the city (or town), county, and school
district all participate. If one or more entities decline, the maximum term is 15, under
legislation passed in 2000. However, the Department of Revenue has advised that if two
entities approve an abatement, each must deliver a written request to the other requesting
extension to 15 years.
Restrictions and Limitations
A political subdivision may not enter into an abatement agreement pertaining to a parcel
of property which is located in a tax increment financing district.
In any year the total amount of property taxes abated by a political subdivision may not
exceed the greater of (1) five percent of the current levy by that political subdivision, or (2)
$100,000.
If an abatement has been granted to a parcel of property and the period of the abatement
has expired, the political subdivision may not grant another abatement on that parcel for eight
years after the expiration of the first abatement. This prohibition does not apply to
improvements added after and is not subject to the first abatement.
Management Report
Other Matters
There is a series of statutory requirements to meet prior to approving abatement,
including public hearings. If the City uses the abatement option, we recommend that
compliance systems are implemented including:
* Summarize resolution authorizing abatement
* Track abatement collections and delinquencies separate from other property taxes
0 Document uses of abatement
* Designate unspent balances to assure final disposition in accordance with the
authorizing resolution
Arbitrage Rebate
With respect to municipal bonds, arbitrage is defined as a city's profit from borrowing
funds in the tax exempt market and investing those funds in the taxable market. Federal tax
law prohibits this type of transaction. A governmental bond will maintain its tax exempt
status if the issuer complies with the requirements of the Internal Revenue Code. The
Internal Revenue Code relative to arbitrage has two major compliance areas: 1) arbitrage
restriction requirements; and, 2) arbitrage rebate requirements. Arbitrage restriction
requirements describe the circumstances in which investments in materially higher yielding
securities is allowed without compromising the tax-exempt status of the bond issue.
Arbitrage rebate requirements describe what to do with profits earned on investments subject
to arbitrage restriction requirements.
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Management Report
Other Matters
Arbitrage Restriction
A common misunderstanding of arbitrage is that bond proceeds may be invested at
market rates provided that any profits are rebated to the federal government. Not so.
Generally, arbitrage may be earned on tax-exempt bond proceeds only if an exception is
permitted.
A summary of exceptions to yield restrictions are as follows:
1. Three Year Temporary Period for Proiect Fund: The regulations provide for a three
year temporary period during which the proceeds of an issue may be invested in
higher yielding investments without causing bonds to be arbitrage bonds. The three
year temporary period applies only if at the date of issuance the issuer "reasonably
expects" that:
(i) within six months the issuer will incur substantial binding obligation to a third
party to expend at least 5 percent of the net sale proceeds on capital projects;
(ii) completion of the capital projects and allocation of the net sale proceeds to
expenditures will proceed with due diligence; and,
(iii) within three years the issuer will spend at least 85 percent of the net sale
proceeds on capital projects.
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Management Report
Other Matters
2. Reserve Fund: The regulations provide for "reasonably required" reserve fund in
which the issuer may invest sale proceeds or replacement proceeds without yield
restriction. A reasonably required reserve fund cannot exceed the least of the
following:
(i) 10 percent of the principal amount of the issue
(ii) maximum annual debt service on the issue
(iii) 125 percent of the average annual debt service on the issue
Regulation 1.148- 5(c)(3)(i)(E) allows a reserve fund to exceed the amount determined
by the above three -part test if it complies with the following:
(i) the portion that exceeds the three -part test cannot be invested materially above
the bond yield. The issuer can use yield reduction payments to comply with this rule.
(ii) any portion in excess of 10 percent of the principal amount of the issue must
come from revenues, rather than sale proceeds.
3. Minor portion: Section 148(e) permits an issuer to arbitrage the lesser of $100,000 or
5 percent of sale proceeds as a de minimus minor portion of the issue. For bonds
issued after 1986, the minor portion is in addition to a reasonably required reserve
fund.
As previously stated, the above exceptions are from yield restriction, not from rebate.
Therefore, any amounts earned in excess of the bond yield are subject to rebate.
Ew- 0.
Management Report Other Matters
Arbitrage Rebate
In general, any profits earned on investments subject to arbitrage are required to be
rebated to the federal government. However, there are several exceptions to the rebate
requirement, which are as follows:
1. Small Issuer Exception: Section 148(f)(4)(D) establishes an exception from rebate
requirement for an issue meeting the following requirements:
(i) the issuer must have general taxing powers
(ii) the bonds must be governmental bonds and not private activity bonds
(iii) at least 95 percent of the proceeds must be used for local government
activities of the issuer or of governmental units located within the issuer's boundaries.
(iv) on the date of issuance, the issuer must reasonably expect that it will not issue
more than $5 million aggregate amount of governmental bonds during the current
calendar year, together with issues in that year by related entities that are subject to
aggregation with the issuer.
A common misunderstanding of the small issuer exception is that an issuer that
qualifies for this exception is not subject to any arbitrage compliance. Not so. The
small issuer exception is an exception from rebate, not from arbitrage rules. As such,
a small issuer will need to establish a temporary period for project fund investments
and determine that the reserve fund is reasonably required. For profits earned after
the expiration of the temporary period and on profits earned on amounts in a reserve
fund that exceed what is reasonably required, yield reduction payments (YRP's) are
required to be made.
-am
•
Management Report
Other Matters
2. Proiect Fund Spending Exceptions: A project fund is exempt from rebate if it meets
either a six-month spending exception, an eighteen-month spending exception, or a
two-year spending exception.
(i) The six-month exception applies to any type of tax exempt bond. This
exception requires an issuer to spend 100 percent of the proceeds within six months.
(ii) The eighteen-month exception can apply to any type of bond for a capital
project, including industrial development bonds or qualified mortgage bonds. The
eighteen-month exception requires expenditure of proceeds within eighteen months
on the following schedule:
6 months — 15 percent
12 months — 60 percent
18 months — 100 percent
(iii) The two year exception can be used only for construction issues. To qualify as
a construction issue, the following requirements must be met:
(a) the issuer must reasonably expect that at least 75 percent of available
construction proceeds of the issue will be used for construction expenditures
(b) the construction expenditures must be on property that is owned by a
governmental unit or a 501(c)(3) organization
(c) the bonds must be governmental bonds
Management Report
Other Matters
The regulations define construction expenditures as capital expenditures that are
allocable to the cost of real property (buildings) or constructed personal property
(equipment). Construction expenditures do not include expenditures for acquisition
of land. The two year exception requires expenditure of proceeds within two years on
the following schedule:
6 months - -10 percent
12 months — 45 percent
18 months — 75 percent
24 months —100 percent
3) Bona Fide Debt Service Fund (BDSF) Exception. Regulations define a BDSF as a
fund that is used primarily to achieve a proper matching of revenues within each bond
year and that it is depleted at least once each bond year, except for a reasonable
carryover amount not to exceed the greater of. 1) the earnings on the fund for the
immediately preceding bond year; or, 2) one-twelfth of the principal and interest
payments on the issue for the immediately preceding bond year. Earnings of a BDSF
are exempt from rebate.
•
Management Report
Other letters
Penalties for NoncomDliance
The IRS has two options available for failure to comply with the rebate requirement:
® Taxing interest on the issue, or,
Assessing a penalty against the issuer.
Failure to pay the correct rebate when required will cause the bonds to be arbitrage bonds,
unless the IRS determines the failure was not caused by willful neglect and the issuer pays a
penalty. For governmental bonds, the penalty is equal to 50 percent of the rebate amount not
paid plus interest on the amount not paid. The penalty is automatically waived if the rebate
amount plus interest is paid within 180 days after discovery of the failure, unless failure was
due to willful neglect.
Management Report
Other matters
Did the Municipality issue more than $5
REBATE EXEMPTION CHART
million of calend r year bonds in a
calendar year?
Debt Servme Fund Project Fund € Debt Service Ftmd Project Fuud
Does the Debt Service Fated r Was ta: bond issued a�
for a pual Does the Debt Service Fnnd Are proceeds romaunng
qualify as a "Bona Fide Debt L project? balance exceed the amount
Servme Fraud?" - - --- - -- --- - --' allowed fora "reasonably after the expiration of the
...... .........� three year temporary?
....... -„ roquared" reserve fiend?
Yes No
............._k.....
Yes No -- - A. at least 7580 of
available constmcnoit Only exempt if ! Yes No Yes No
proceeds to be us ad for spent within sax
Is the issue a fixed rate, long -term All earmngs smce mcop ran me coloame non on property months
Governmental issue? (Private subject to rebate, only excess is owned by tic b Yield reduction Yield
Activity Bonds not eligible) payable. governmental unit? -- - --, Yield
payments are reduction coon
No P re ncnou payment
J
regained ou payment
Yes r_ ._ tl! amounts". calculation calculation
excess of is required is not
Yen No -- _ Portion of issue related to ineximu n, rcgwred
Proceeds (or construction cotutmetion may be ear". it allowed
portion) spent as follows? (11 szfew ed for purposes of for reasonably
Were tho bonds issued after 2 -yew test (bafiucafon - regained teserve Or invest m GO
11 /l0 /8R? 6 months 10' /0 Municipal Bonds
12 months 45% elected poor to i.�siwuce)
l8 months 75 1 6 - -- - - - _ - At earnings since
24 mouths 10080 uiception aro exempt Or yield restrict
Yes No .._. - .. .. from rebate
Yes No
Proceeds spent as follows?
Y
Debt service fund as Did issuer formally elect .
Earnings are exempt from W._r_c_nll le,"'d --rat Cor
exempt from rebate to adopt new ndesv rebate or reg
mreme t, (
ri i D ot a;mmblc rermuege n m en <e.: 6 mouths 15%
n
ofs ° >orme�;nw, or, Yes - 12 months 60% i
r
(2) a
_._ - do uuwaus emounnot _. .. lR months 100 ",o t
... cee<h glh I �cr of l °o of We 1
Yes No Yes co $250000
All --gs an
Iwn ly i tsn momma ( exempt
_.- _. -..a - -_- ( front rebate qtw ment No
i No
All deposits to the debt scarce fin fund Did the debt service red earn mine
`, al cot Cor
after
11/10/88 are exempt from [b. $100,000 (rat anissne - - issue ` — "_ - - - Was penalty elected m heu of p) r .,oueblc retmvage not
r _ -� rebate (elected prior to issuance) of s'6 ofine =sue, oc
rebate basis) during the Lend year? Yes 1 -__ _ -- ��, -- (2) ode uuwuu: amount not
- . - - All earuwgs Since rAmgthe te.<r uC3o Itt ;
Yes rC250000,
N0 ".cap me €
- Lw t by the 18th mouth?
Penalty must be paid as follows' - subject to nbatc - -- -- - - -- -- -
Yes No - -- - - - cepnouwaled life ofi
All oa .,
I - - - -- � ".rags for
L5% 5% Nullity each 6 months ou Payable within 0 entire ssue are
No
Most include debt service fiend Deb[ service fwad as exempt from m
aomt of proceeds no[ expended days of 6anmdh j subject to rebate. €
eararugs in rebate computation rebate. I on time j wuuversary.
(1) municipality call elect to comply with either a 24 or 19 month spend down.