HomeMy WebLinkAboutManagement Report December 31, 2002 CITY OF OAK PARK HEIGHTS, MINNESOTA
MANAGEMENT REPORT
December 31, 2002
Tautges Redpath, Ltd.
Certified Public Accountants and Consultants
To the Honorable Mayor and
Members of the City Council
City of Oak Park Heights, Minnesota
We have completed the 2002 audit of the City of Oak Park Heights, Minnesota and
have issued our report thereon. Our Independent Auditor's Report is included in the City's
_ Annual Financial Report. This Management Report is prepared to offer the City an
independent review of:
• Comparisons and trend analysis of financial results.
• Available strategies to address long -term financial planning.
• Policies, procedures and systems.
0 Outside factors influencing the City such as State funding and changes in financial
accounting and reporting standards.
An Executive Summary with page references to the areas discussed is on page three of
this report. Thank you for the opportunity to serve the City. We are available to discuss this
report with you.
March 13, 2003
L/0.
HLB TAUTGES REDPATH, LTD.
Certified Public Accountants
4810 White Bear Parkway, White Bear Lake, Minnesota 55110, USA Telephone: 651 426 7000 Fax: 651 426 5004
.•. HLB Tautges Redpath, Ltd. is a member of ® International. A world -wide organization of accounting firms and business advisers
Management Report
Report Summary
REPORT SUMMARY
Several reports are issued in conjunction with the audit. A very brief summary is as
follows:
R eport of -•. O verview
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.
_ • Compliance with laws,
regulations, contracts and
grants
State Legal Compliance Report • Results of testing certain • One finding —
provisions of Minnesota deficiencies in collateral
Statutes for deposits.
Discretionary Reports
Management Report Intended to be a working tool for • See page 3 of this report
City Council for Executive Summary
• Comparisons and trend
analysis
• 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 following:
O The City's property tax collection rate continues to be very strong Page 4
(95.8% for 2002).
O The Governor's state budget may result in possible state aid reductions
in 2003 and thereafter. Page 6
O The City has minor delinquent special assessment balances, which is the
result of very good collection rates (97.6% for 2002). Page 10 .—
O The General Fund balance increase of $156,000 during 2002 is a result
of favorable budget variances in expenditures. Page 17
H The General Fund balance at December 31, 2002 was not sufficient to
fulfill all the reserve requirements per City policy. The contingency Page 26
reserve was $141,000 less than the amount per City policy.
O During 2002, the City refunded the Bonds of 1993 which resulted in a
debt service savings of $17,000 over the next four years. Page 31
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Management Report
Combined Balance Sheet
COMBINED BALANCE SHEET
The Combined Financial Statements of the City are presented in Statements 1 through 5
of the 2002 Annual Financial Report. 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.
1999 2000 2001 2002
Delinquent taxes - January 1 $16,863 $23,980 $22,116 $24,199
Current levy* 1,409,400 1,440,200 1,588,435 1,967,579
Total collectible 1,426,263 1,464,180 1,610,551 1,991,778
Receipts:
Current* 1,394,993 1,426,390 1,566,938 1,904,488
Delinquent 4,296 13,454 16,563 (18,789)
Total receipts 1,399,289 1,439,844 1,583,501 1,885,699
Adjustments
J (2,994) (2,220) (2,851) (85,905)
Delinquent taxes - December 31 $23,980 $22,116 $24,199 $20,174
Current collection as a percent of current levy 99.0% 99.0% 98.6% 96.8%
Total collections as a percent of current levy 99.3% 100.0% 99.7% 95.8%
*2002 - includes State of Minnesota market value homestead credit of $100,985.
Management Report
Combined Balance Sheet
During 2002, the taxable valuation of the St. Croix Mall was reduced resulting in
abatements of unpaid taxes on this property, and the repayment by the City of taxes collected
in prior years.
As shown on the previous page, tax collection rates have averaged 98.7% over the past
four years representing an excellent collection rate for the City.
Market Value Homestead Credit
A new credit is applied to Residential Homestead property beginning in 2002. The credit
is .40% of the market value to a maximum of $304, reduced by $9 per $10,000 of market
value over $76,000. A $76,000 homestead receives the maximum credit of $304 and
$414,000 homestead receives $0.
This credit proportionately reduces the tax for each taxing district, including the county,
based on each district's share of the total tax. The credit is paid by the State of Minnesota in
two installments (October and December).
For 2002, the City received $100,985 of Market Value Homestead Credit.
Management Report
Co mbined Balance Sheet
Possible 2003 Aid Loss
The Governor's proposed budget for the 2004 -2005 biennium includes cuts in LGA and
MVHC. The budget as proposed, would cut an estimated $100,734 of State aid from the the
.� City of Oak Park Heights in 2003.
The 2003 aid cut is equal to the lesser of 9.3% of revenue base (certified levy plus general
state aids) or 5% of total City revenues (total governmental fund revenues, except for bond
.. proceeds and local intergovernmental grants). For the City of Oak Park Heights, the aid cut
is calculated as follows:
Calculation of Potential Aid Loss
$1,908,220 2003 levy (excludes $84,783 of MVHC)
$15,951 Local government aid
84,783 Market value homestead credit (estimated)
A 2,008,954 Subtotal
Aid Loss is x 9.3%
the Lesser of $186,833
_ A,BorC
$3,874,384 2000 Revenues
B x 5.0%
$193,719
C $100,734 2003 Market value homestead credit and LGA
Management Report
Combined Balance Sheet
Tax Levies, Tax Rates and Tax Capacity
A comparison of values for taxes payable in 2001, 2002 and 2003 is as follows:
2001 2002 2003
Market value $324,581,100 $349,905,900 $406,640,800
Tax capacity values:
Real estate $7,249,830 $5,085,897 $5,895,692
Personal property 120,220 77,543 78,851
Subtotal 7,370,050 5,163,440 5,974,543
Fiscal disparity contribution (918,384) (611,097) (657,651)
Fiscal disparity distribution 343,723 221,368 253,076
Total $6,795,389 $4,773,711 $5,569,968
Tax capacity rates 23.692 41.741 35.799
Tax levy $1,588,435 $1,967,579 $1,993,003
A.
Management Report
Combined Balance Sheet
A schedule of "Pay 2002 Tax Capacity by Classification" is as follows:
Percent of
City Total
Real estate:
Ag nonhomestead 668 0.0%
Seasonal recreational 3,030 0.1%
Residential homestead 1,612,779 31.2%
Residential nonhomestead single unit 87,495 1.7%
Residential nonhomestead 1 -3 units 24,694 0.5%
Residential nonhomestead apartments 401,150 7.8%
Total residential nonhomestead 513,339 9.9%
Commercial 1,548,609 30.0%
Industrial 5,612 0.1%
_ Railroad 2,154 0.0%
Total ch 1,556,375 30.1%
Public utility 223,954 4.3%
Public utility elec gen machinery 1,056,146 20.5%
Public utility other machinery 119,606 2.3%
Total utility 1,399,706 27.1%
Total real estate 5,085,897 98.5%
Personal property 77,543 1.5%
Total tax capacity 5,163,440 100.0%
Tax Capacity by Property Class
Residential Homestead 31.2 % Total GI 30.1%
Seasonal Recreational 0.1
As Nonhomestead 0.0° /. Total Residential
Nonhomestead 10.0%
Personal Property 1.5% Taal Utility 27.1 Yo
Management Report
Combined Balance Sheet
Fixed Assets
Beginning in 2004, the City will be required to include infrastructure assets on its balance --
sheet. Infrastructure assets consist primarily of streets. Additionally, the City will be
required to report depreciation on all of its fixed assets. Currently, only fixed assets of the —�
Utility Funds are required to report depreciation.
During 2001, City staff took the first step towards implementation of this requirement by
adopting a fixed asset policy. Among other things, the policy established the capitalization
threshold for most assets at $5,000 as of January 1, 2002. In other words, for an item to be
capitalized and depreciated over its useful life, the item must cost at least $5,000. Items
under this amount are expensed in the year of purchase.
This policy change was applied retroactively for the general fixed assets account group
resulting in a reduction of general fixed assets of $233,684. The policy change was applied
prospectively for Enterprise Fund assets. Additional steps to be taken include:
• Inventory and valuation of infrastructure assets
• Calculation of prior accumulated depreciation
Management Report
Combined Balance Sheet
Special Assessments Receivable
-- Special assessments receivable consisted of the following types and amounts:
December 31, Increase
Description 2001 2002 (Decrease)
.- Delinquent $197 $6,267 $6,070
Deferred 1,205,984 1,190,879 (15,105)
Due from County 7,817 3,824 (3,993)
Totals $1,213,998 $1,200,970 ($13,028)
Delinquent special assessments receivable consist of amounts which have been spread for
collection in 2002 and prior years but have not been collected at December 31, 2002. The
City has minor delinquent balances which is the result of very good collection rates (97.6%
for 2002).
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
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Bonds Payable
The City had four bond issues outstanding during 2002. A summary of the 2002 activity
of each bond issue is as follows:
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General
Obligation General General General
Crossover Obligation Obligation Obligation
Refunding Refunding Improvement Refunding
Bonds Bonds Bonds Bonds
of 1993 of 2002 of 1998 of 2001 Totals
Balance - January 1, 2002 $615,000 $ - $1,550,000 $490,000 $2,655,000 ^
Bonds issued - 510,000 - 510,000
Principal payments (615,000) - (150,000) (130,000) (895,000)
Balance - December 31, 2002 $0 $510,000 $1,400,000 $360,000 $2,270,000
Detail of outstanding bond issues is contained in Exhibit 2 of the 2002 Annual Financial
Report.
A summary of the City's bond issues is as follows:
Maturity
Bond Issue Repayment Source Date
Bonds of 1998 Special assessments and connection charges 12/1/13
Bonds of 2001 Property taxes and special assessments 12/1/05
Bonds of 2002 Connection charges 12/1/06
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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
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 1,524 66% 142,292 6% 631,284 28% 2,297,876 100%
2002 1,748,634 71% 160,381 6% 566,938 23% 2,475,953 100%
2003* 1,946,003 (1) 78% 72,991 3% 482,730 19% 2,501,724 100%
* Budgeted
Includes MVHC of $84,783.
2002 Actual
State Aids 6%
Other 23%
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Property Taxes 71 %
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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:
$2,000,000
General Fund
Revenue by Source
$1,800,000
$1,600,000 - --
$1,400,000 - -- -
$1,200,000 _ -- - - --- �Staupids
■ Other Revenue
$1,000,000 — -- -- — - ■ Property Taxes
$800,000 - --
$600.000
$400,000
$200,000
$0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Budget
Management Report
General Fund
State Aids
- State aids of the General Fund have consisted of the following for the past six years (with
2003 budget):
2003
State Aid 1997 1998 1999 2000 2001 2002 Budget
H.A.C.A $73,065 $74,464 $74,983 $79,583 $79,603 $ - $
Market value homestead credit - - - - - 97,935
LGA - - - 4,878 4,878 4,881 15,951
Local performance aid 4,186 5,133 4,884 - - - -
Police aid 44,900 51,198 56,409 57,013 53,650 55,525 55,000
Other state revenue - 2,689 3,599 4,040 4,161 2,040 2,040
Snowplowing 15,800 - - - - - -
Totals $137,951 $133,484 $139,875 $145,514 $142,292 $160,381 $72,991
Change ($4,467) $6,391 $5,639 ($3,222) $18,089 ($87,390)
% Change (3 %) 5% 4% (2 %) 13% (54 %)
(o Does not include market value homestead credit for 2003 estimated at $84,783.
Other General Fund Revenue
Other revenue of the General Fund have consisted of the following for the past five years
(with 2003 budget):
2003
Description 1998 1999 2000 2001 2002 Budget
Licenses and permits $125,678 $227,693 $314,527 $213,651 $183,596 $166,050
Charges for services:
Refuse charge - Junker settlement 28,887 25,718 27,655 28,422 28,460 -
Enterprise 63,525 80,655 99,400 95,300 89,780 87,205
Tax increment administration fee 27,009 7,253 3,450 452 - -
Construction /engineering fee - 56,632 - - 2,083 -
'� Other 26,910 23,767 18,092 30,097 23,706 12,000
Inspections 40,468 36,122 45,018 43,047 44,064 43,700
Fines and forfeits 60,183 58,886 56,326 63,655 63,211 67,000
Earnings on investments 45,848 36,970 48,363 48,559 32,052 30,000
+ Other 110,635 121,066 99,195 108,101 99,986 76,775
Total $529,143 $674,762 $712,026 $631,284 $566,938 $482,730
Management Report
General Fund _
Refuse Charge — Junker Settlement
Effective January 1, 1998, the City council authorized an additional refuse charge of
$6.50 per quarter. This additional charge was effective for five years and ended December
31, 2002. 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
2001 28,422
2002 28,460
Total $139,142
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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.
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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
administrative fee is designed to reimburse the General Fund for overhead costs only.
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Management Report
General Fund
Administrative Fee - Capital Proiects
-i 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' /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 2002, two
projects were charged a total of $2,083 for administrative fees.
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Budget Versus Actual Comuarison
The fund balance of the General Fund was $1,329,000 at December 31, 2002 representing
a $156,000 increase during 2002. The following schedule illustrates the change in fund
balance on a budget variance basis.
2002
Favorable
(Unfavorable) 2003
Budget Actual Variance Budget
Revenue:
General property taxes:
Current and delinquent $1,752,244 $1,730,944 ($21,300) $1,931,003
Payment in lieu of taxes 23,000 16,431 (6,569) 15,000
Othertaxes - 1,259 1,259 -
Total general property taxes 1,775,244 1,748,634 (26,610) 1,946,003
Intergovernmental 182,981 180,858 (2,123) 90,591
Licenses and permits 179,010 183,596 4,586 166,050
Charges for services 172,763 188,093 15,330 142,905
Fines and forfeits 66,400 63,211 (3,189) 67,000
Earnings on investments 30,000 32,052 2,052 30,000
Refunds and reimbursements 61,500 69,074 7,574 59,175
Donations and contributions - 100 100 -
.r Sale of property 10,200 10,335 135 -
Total revenue 2,478,098 2,475,953 (2,145) 2,501,724
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Management Report
General Fund
2002
Favorable
(Unfavorable) 2003
Budget Actual Variance Budget
Expenditures
General government:
Mayor and council $69,100 $61,589 $7,511 $75,940
City administrator 171,975 161,279 10,696 165,005
Legal 27,500 22,345 5,155 28,500 ,
General management and building 77,170 63,583 13,587 75,800
Elections 8,000 5,520 2,480 250
Finance 168,395 169,083 (688) 172,635
Computer system 22,300 17,771 4,529 22,000
Audit 13,000 12,044 956 13,000
Insurance 207,340 202,147 5,193 233,770
Assessing 18,000 17,386 614 18,500
Planning and zoning 29,500 29,356 144 29,500
Engineering 20,000 19,860 140 27,000
General contingency 8,935 3,356 5,579 10,000
Total general government 841,215 785,319 55,896 871,900
Public safety:
Police department 818,485 802,247 16,238 850,565
Building inspections 111,020 107,390 3,630 110,125
Fire protection 91,890 87,847 4,043 95,280
Animal control 1,150 1,655 (505) 1,650
Total public safety 1,022,545 999,139 23,406 1,057,620
Public works:
Street maintenance 37,175 28,477 8,698 41,070
Snow removal 68,500 36,859 31,641 67,300
Street lighting 45,000 42,153 2,847 48,000
Arborist 13,925 11,848 2,077 12,905
Tree removal and planting 15,000 15,000 - 16,100 -.
Total public works 179,600 134,337 45,263 185,375
Recreation:
Parks, playgrounds and rinks 89,970 87,932 2,038 101,155
Community development 115,485 112,240 3,245 114,130 ^
Total expenditures 2,248,815 2,118,967 129,848 2,330,180
Revenue over expenditures 229,283 356,986 127,703 171,544
Other financing sources (uses):
Operating transfers to Enterprise Fund (88,500) (88,500) - (88,500)
Operating transfers to Capital Project Fund (112,375) (112,375) - (83,000)
Total other financing sources (uses) (200,875) (200,875) 0 (171,500)
Net increase in fund balance $28,408 $156,111 $127,703 $44
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Management Report
General Fund
As shown on the previous page, the General Fund balance increased by $156,000 as the
result of positive budget variances primarily relating to expenditures as follows:
Budget Actual Variance
Revenue /transfers in $2,478,000 $2,476,000 ($2,000)
Expenditures /transfers out 2,450,000 2,320,000 130,000
Increase in fund balance $28,000 $156,000 $128,000
A summary of the significant budget variances is as follows:
Revenue:
Property Taxes — The 2002 budget did not anticipate the repayment of taxes due to
the reduction of the St. Croix Mall taxable valuation ($62,500).
Expenditures:
General government:
Citv Administrator — The positive budget variance relates to a vacant position
($11,000).
General manaizement and buildine — The positive budget variance relates to fewer
contractual services expenditures than expected ($14,000).
Public Safety - The positive variance is primarily the result of salaries less than
expected ($16,000).
Public Works — The positive variance is primarily the result of fewer snow removal
expenditures than expected ($32,000).
Management Report
General Fund
General Fund — Long Term Commitments
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
2001 15,000 105,000
2002 15,000 90,000
The remaining amount will be paid in annual installments of $15,000.
Management Report
General Fund
General Fund Reserves
The fund balance of the General Fund increased in 2002. The schedule below reflects the
General Fund balance for the past ten years:
Year Ended Fund Increase
^ December 31, Balance (Decrease)
1992 $1,013,422
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
2001 1,173,118 (106,983)
2002 1,329,229 156,111
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. The 2001 decrease was the result of unfavorable budget variances for
both revenues and expenditures.
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Management Report
General Fund
Fund Balance
$1,600,000 —
$1,500,000
$1,400,000
$1,300,000 1
$1,200,000
t Actual Fund Balance
$1, 100,000 —a— Desired Fund Balance
$1,000,000 - --
$900,000 —
$800,000 -
$700,000 - - --
$600,000 -
1995 1996 1997 1998 1999 2000 2001 2002
Reserve 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:
e.
Cash Fbw Tlmirg Favorable bond rating Supplements revenues
Difference indicator with Investment income
Intergovernmental Capital Outlay
Revenue Cutbacks Replacement
Provides resources for Avoids temporary
minor projects or overdrafts prior to major .r.
feasibility reports receipts
Provides the City Avoids overburdening ....
greater optbns to deal of annual budgets for
Emegency or Special with unexpected events C~ capital outlay
UnantlGpaled Projects
Expenditures
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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. The formula for the designation for contingent employee benefits was
amended by the City Council on December 11, 2001. At December 31, 2001 and 2002, the
General Fund balance was reserved or designated as follows:
General Fund Balance
December 31,
2001 2002
Designated for:
Cash flow $956,000 $973,000
Contingent employee benefits 104,161 122,365
General contingency 112,957 233,864
Subtotal - designated 1,173,118 1,329,229
Undesignated - -
Total fund balance $1,173,118 $1,329,229
Management Report
General Fund
Cash Flow Reserve
Property taxes and related state aids account for approximately 75% of the revenue of the
General Fund. Property taxes and local government aid are not received until July and
December of each year (i.e., the second half of the year). Market value homestead credit is
not received until October and December of each 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 $973,000,
computed as follows:
Cash Flow Reserve
2003 tax levy (includes market value homestead credit aid) $1,931,003 ...
2003 budgeted LGA 15,951
Total $1,946,954
Recommended reserve (one -half of tax levy and state aids) $973,000
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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:
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Sl,aoo,000
Ge neral Fund Mo nthly C ash Bal
- - - -- - -- - .
... S1,200,000 — — --
- S1,00o,000 - -- - -- - --
$800,000 - - --
-------- 5769,000
decrease
-"� $600,000 -
5400,000
5200,000 — - --
...� so
1/1/2003 1/31/2003 2/28/2003 1 3/1/2003 1 4/30/2003 1 5/31/2003 6/30/2003 7/31/2003 8/31/2003 960/2003 10/31/2003 11/3012003 12/3112003
Inseri.1 $1,142,000 1 $1,042,000 5877,000 I $747,000 I 5616,000 I S479,000 5373,000 $1,147,000 $927,000 5755,000 $714,000 S605,000 1 $1,322,000
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As shown above, the cash balance decreased $769,000 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
Contingent EmDlovee Benefit Reserve
The employee benefits reserve is computed based upon accrued, but unpaid, employee
benefits as follows:
Employee Benefits Reserve
December 31,
Employee Benefit 2001 2002
Vacation leave carryover $24,067 $26,889
Severance 80,094 95,476
Total $104,161 $122,365
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. The City amended this reserve component to an amount equal to 50%
of vacation leave, 100% of severance and 0% of sick leave.
Management Report
General Fund
General Contingencv 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
Description 2002 2003
Ensuing year's budget $2,587,790 $2,501,680
Reserve amount @ 15% $388,000 $375,000
Amount available @ December 31 $112,957 $233,864
As shown above, the fund balance available at December 31, 2002 is less than the amount
needed to fulfill the contingency reserve requirement.
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 2002. .�
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 2002 Total ra
Revenue:
Intergovernmental - bulletproof vests $ - $7,170 $7,170
Earnings on investments 4,974 945 5,919
Reimbursements 1,861 1,150 3,011
Confiscated property 66,822 13,595 80,417
Sale of municipal property 2,517 - 2,517
Total $76,174 $22,860 99,034
Expenditures:
Public safety:
Materials and supplies $15,343 $1,218 16,561
Contractual services 3,288 929 4,217
Capital outlay 40,376 8,680 49,056
Total $59,007 $10,827 69,834
Fund balance - December 31, 2002 $29,200 ..
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."
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Management Report
Special Revenue Funds
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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 2002 Total
Revenue:
Earnings on investments $17,173 $1,993 $19,166
Interfund loan interest 1,113 - 1,113
Refunds and reimbursements 2,531 - 2,531
Sale of municipal property 76 - 76
Transfer from Capital Revolving Fund 260,000 - 260,000
Total revenue $280,893 $1,993 282,886
Expenditures:
_ Community development:
Materials and supplies $457 $ - 457
Contractual services 29,139 535 29,674
Interfund loan interest 70,000 - 70,000
Capital outlay 121,500 - 121,500
Transfer to Capital Revolving Fund 11,113 - 11,113
Total expenditures $232,209 $535 232,744
Fund balance - December 31, 2002 $50,142
Management Report
Special Revenue Funds
During 1998, the City purchased the Bell property. 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 was funded by a $260,000 interfund loan from the Capital Revolving
Fund. This fund did not have the resources to repay the interfund loan. Therefore, the City
forgave the interfund loan. If a sale of the Bell property occurs, the proceeds should be
receipted in the Capital Revolving Fund.
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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 2002 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 three Debt
Service Funds during 2002 as follows:
Fund Balance
December 31, Increase
Fund 2001 2002 (Decrease)
G.O. Crossover Refunding Bonds of 1993 / Refunding Bonds of 2002 $325,406 $331,985 $6,579
G.O. Improvement Bonds of 1995 /Refunding Bonds of 2001 182,841 147,162 (35,679)
G.O. Improvement Bonds of 1998 121,372 108,984 (12,388)
Totals $629,619 $588,131 ($41,488)
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Management Report
Debt Service Funds
Water and Sewer Refunding Bonds of 1993 / Refunding Bonds of 2002
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 ?ver the .�
remaining term of these bond issues. During 2002, the bonds were again refinanced by the
Refunding Bonds of 2002 to reduce interest costs by an additional $17,000.
During 2002, the City transferred $145,000 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 2003
through 2005 scheduled debt payments. Arm
Future (2003 through 2004) projected cash transfers are as follows:
Sanitary Water
Year Sewer Works Total
2003 $30,000 $135,000 $165,000
2004 5,000 50,000 55,000
Totals $35,000 $185,000 $220,000
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Management Report
Debt Service Funds
A projection of cash flow of the Water and Sewer Refunding Bonds of 1993 / Refunding
Bonds of 2002 assuming cash transfers from the Connection Charge Fund is as follows:
City of Oak Park Heights, Minnesota
Projection of Cashtlow
Water and Sewer Refunding Bonds of 2002
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Total
Cash Balance Property Special Investment Projected Debt Other Cash Balance
Year January 1 Taxes Assessments Transfers Interest Receipts Payments Disbursements December 31
2003 $325,406 $ $ $165,000 $9,667 $174,667 $146,356 $ $353,717
2004 353,717 55,000 10,566 65,566 158,323 260,960
2005 260,960 - 7,513 7,513 165,323 103,150
2006 103,150 - 2,915 2,915 66,722 39,343
Total $0 $0 $220,000 $30,661 $250,661 $536,724 $0
1
Assumptions
Special assessment collection rate .................... 95%
Property tax collection rate . ............................... 99%
Investment interest rate ..... ............................... 3.00%
Negative interest charged to funds ? .................. no
As shown above, this fund has a projected surplus of $39,343 upon final bond maturity.
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This projection is dependent on sufficient transfers from the Connection Charge Fund.
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Management Report
Debt Service Funds
G.O. Refunding Bonds of 2001,
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
.a
taxes.
A projection of cash flow of the Refunding Bonds of 2001 is as follows:
City of Oak Park Heights, Minnesota
Projection of Cashflow
General Obligation Refunding Bonds of 2001 .�
Total
Cash Balance Property Special Other Investment Projected Debt Other Cash Balance
Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31 V►
2003 $146,009 $61,380 $32,677 $ $4,666 $98,723 $135,763 $ $108,969
2004 108,969 61,380 30,900 3,575 95,855 132,325 72,499
2005 72,499 61,380 29,122 2,543 93,045 113,575 51,969 At
Total $184,140 $92,699 $0 $10,784 $287,623 $381,663 $0
Air
Assumptions
Special assessment collection rate .................... 95%
Property tax collection rate . ............................... 99%
Investment interest rate ..... ............................... 3.00% `
Negative interest charged to funds ? .................. no
As shown above, this fund is projected to have a surplus of $51,969 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 %.
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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` 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.
r. 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
v
2003 $115,378 $ $115,659 $80,000 $3,569 $199,228 $208,462 $ $106,144
2004 106,144 111,625 55,000 3,320 169,945 177,688 98,401
2005 98,401 107,590 50,000 3,093 160,683 172,812 86,272
2006 86,272 103,555 55,000 2,762 161,317 167,813 79,776
2007 79,776 99,521 50,000 2,575 152,096 162,687 69,185
2008 69,185 95,486 50,000 2,279 147,765 157,500 59,450
2009 59,450 91,452 50,000 2,009 143,461 152,250 50,661
2010 50,661 87,417 50,000 1,769 139,186 146,938 42,909
2011 42,909 83,382 45,000 1,547 129,929 141,562 31,276
2012 31,276 79,348 50,000 1,235 130,583 136,125 25,734
2013 25,734 75,313 30,000 1,043 106,356 130,625 1,465
2014 1,465 71,278 - 579 71,857 - 73,322
Total $0 $1,121,626 $565,000 $25,780 $1,712,406 $1,754,462 $0
Assumptions
Special assessment collection rate .................... 95%
Property tax collection rate ............................... 99%
Investment interest rate. .. ..... .. ............... 3.00%
Negative interest charged to funds ? .................. no
V
As shown above, this Debt Service Fund will require connection charge revenue to
finance the debt service.
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 2002 Annual Financial Report. The fund balance (deficits) of the Capital
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Project Funds were as follows at December 31, 2001 and 2002:
December 31, Increase
Fund 2001 2002 (Decrease)
Capital Revolving $258,296 $344,630 $86,334
Budgeted Projects and Equipment Revolving 47,618 174,255 126,637
Superamerica/Valvoline Oil 1,960 2,425 465
Park Development 320,406 329,474 9,068
Street Reconstruction 367,317 382,430 15,113
Deep Well #3 (668) - 668
Renewal and Replacement 1,830,661 2,039,446 208,785
Central Business District (190) (190) -
Brekke Park Memorial 824 216 (608)
AAE - Kern Center 8,260 4,660 (3,600)
AAE - 58th Street Improvement - Phase 111 4,201 - (4,201)
AAE - Oak Park Station Phase II - -
AAE - Sanitary Sewer Connection 357,804 307,599 (50,205)
AAE - Water Connection 203,804 145,243 (58,561)
AAE - Storm Sewer Connection 554,867 644,246 89,379
Totals $3,955,160 $4,374,434 $419,274
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Management Report
Ca pital Proj ect 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 2001 and 2002 is as follows:
Capital Revolving Fund
Description 2001 2002
Financial resources:
General property taxes $26 $9
Special assessments 94,034 88,957
Earnings on investments 12,331 11,242
Interfund loan interest 20,000 -
Transfers in:
AAE - Storm Sewer 20,000 -
Total financial resources 146,391 100,208
Financial uses:
Expenditures 60,521 13,874
_ Transfers out:
Economic Development 260,000 -
57th Street /Oakgreen extension 5,966 -
Total financial uses 326,487 13,874
Increase (decrease) in fund balance (180,096) 86,334
Fund balance - January 1 438,392 258,296
Fund balance - December 31 $258,296 $344,630
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 $85,000 relating to the 58th Street Improvement Project
and the Brackey West /Stillwater Ford utility and street improvements.
Management Report
Capital Project Funds
Budgeted Protects 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 2001 and 2002 is as follows:
Description 2001 2002
Financial resources:
Earnings on investments $2,063 $5,953
Donations 500 93,700
Refunds and reimbursements 1,352 14,888
Transfers in:
General Fund 30,275 112,375
Enterprise Fund 15,400 7,600
Total financial resources 49,590 234,516
Financial uses:
y
Expenditures:
Sealcoat /crackfilling 54,760 59,870
Vehicles - 25,821
"— Furniture and equipment - 5,579
Computers - 6,200
Recreation - 10,409
Unallocated:
Other 1,046 -
Total financial uses 55,806 107,879
Increase (decrease) in fund balance (6,216) 126,637
Fund balance - January 1 53,834 47,618
Fund balance - December 31 $47,618 $174,255
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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,
2002:
Balance Balance
Purpose 12/31/2001 Revenues Expenditures 12/31/2002
Sealcoat /crack seal $13,195 $60,000 ($59,870) $13,325
Recreation:
Park building - 80,000 - 80,000 --
Other 12,495 17,388 (10,409) 19,474
Computers - 6,200 (6,200) -
Vehicles:
Police - 26,500 (25,821) 679
Public works - 15,375 - 15,375
Furniture and equipment: .�
Community and development - 500 (135) 365
Building inspections - 500 - 500
Police - 7,700 (5,444) 2,256
Streets - 200 - 200
Trees 19,700 14,200 - 33,900
Unallocated 2,228 5,953 - 8,181
Totals $47,618 $234,516 ($107,879) $174,255
Superamerica /Valvoline 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.
Management Report
Capital Project Funds
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 $329,474 at December 31, 2002, as
R= follows:
Prior
Years 2002 Total
Financing sources:
Park fees $322,800 $ - $322,800
Earnings on investments 128,514 13,131 141,645
Donations and contributions 4,937 - 4,937
Total financing sources $456,251 $13,131 469,382
Financing uses:
Professional services $24,533 $ - 24,533
Park signs 15,902 - 15,902
_ Valley View Park bridge 65,616 - 65,616
Trail paving 29,794 - 29,794
Playground equipment - 4,063 4,063
Total financing uses $135,845 $4,063 139,908
Fund balance - December 31, 2002 $329,474
Management Report
Capital Project Funds
A summary of park dedication fees is as follows:
Park
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Development Fee
AAE Area:
Autumn Ridge - Phase I $11,700
Autumn Ridge - Phase II 4,294
Autumn Ridge - Phase III 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 - I 18,140
Valley View Estates - II 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, 2002 has not been designated for any specific
project.
Management Report
C apital Project Funds
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 2002 Total
Financial resources:
Bond proceeds $1,062,456 $ - $1,062,456
Earnings on investments 104,060 15,113 119,173
Refunds and reimbursements 10,000 - 10,000
-- Transfers in:
General Fund 12,011 - 12,011
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 $1,702,899 $15,113 1,718,012
Financial uses:
Project costs $1,327,916 $ - 1,327,916
Residual equity transfer (7,666)
Fund balance - December 31, 2002 $382,430
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 #3
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:
Prior —
Years 2002 Total
Financial resources:
Earnings on investments $25 $1 $26
Transfer from Renewal /Replacement Fund 60,129 - 60,129
Total financial resources 60,154 $1 60,155 _
Financial uses:
Contractor $15,709 ($729) $14,980 _
Engineer 37,944 62 38,006
Legal 2,469 - 2,469
Other 4,700 - 4,700
Total financial uses $60,822 ($667) 60,155 —
Fund balance - December 31, 2002 $0
This project was canceled and the fund was closed at December 31, 2002.
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 2002 Total
Financial sources:
Transfer from water and sewer utility:
Initial (1994) $574,378 $ - $574,378
Annual 857,332 145,947 1,003,279
Earnings on investments 476,515 75,241 551,756
Total financial sources $1,908,225 $221,188 2,129,413
Financial uses:
Flouride system $1,581 $ - 1,581
Lift station repair - 11,804 11,804
Other - 599 599
Transfer out:
Deep Well #3 60,129 - 60,129
Street reconstruction 15,854 - 15,854
Total financial uses $77,564 $12,403 89,967
Fund balance - December 31, 2002 $2,039,446
Management Report
Capital Pro Funds
Central Business District
This fund was established in 1999 to account for costs associated with the Central
Business District.
Prior
Years 2002 Total
Financial sources:
Met Council grant $9,497 $ - $9,497 _
Earnings on investments 1,799 - 1,799
Contributions:
VSSA 2,500 - 2,500
Nolde 500 - 500
Other 3,500 - 3,500
Transfer from General Fund 15,000 - 15,000
Transfer from Economic Development Fund 11,113 - 11,113
Transfer from TIF Fund 4,667 - 4,667
Total financial sources $48,576 $0 48,576
Financial uses:
Professional services 47,653 - 47,653
Interfund loan interest 1,113 - 1,113
Total financial uses $48,766 $0 48,766
Fund balance - December 31, 2002 ($190) _
Management Report
Capital Project Funds
Brekke Park Memorial
This fund was established in 1999 to account for the donations received for Brekke Park.
The fund balance was $216 at December 31, 2002.
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Kern Center
This fund accounts for costs associated with the Kern Business Center (Phase I and II).
This project is being financed by the 1998 G.O. Improvement Bonds. A summary of
financial activity to date is as follows:
Phase I and II 55th Street Total
Revenue and other sources:
Bond proceeds $995,983 $ - $995,983
Earnings on investments 38,680 - 38,680
Reimbursements 12,695 48,720 61,415
Transfer from Sanitary Sewer Connection Fund 20,200 - 20,200
Transfer from Water Connection Fund 35,200 - 35,200
.. Transfer from Storm Sewer Connection Fund 44,600 - 44,600
Total revenue and other sources 1,147,358 48,720 1,196,078
Expenditures and other uses:
Contractor 831,502 35,812 867,314
Engineer 168,713 13,869 182,582
Legal and fiscal 21,090 57 21,147
Other 120,335 40 120,375
Total expenditures and other uses 1,141,640 49,778 1,191,418
Fund balance - December 31, 2002 $5,718 ($1,058) $4,660
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 estimated future connection charges is as follows:
Sanitary sewer $151,044
Water 262,830
Storm sewer 333,000
Total $746,874
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).
Management Report
Capital Project Funds
AAE - 58th Street Improvements - Phase III
This fund accounts for costs associated with the extension of 58th Street from Wal -Mart
to Oakgreen Avenue. This project is being financed by the 1998 G.O. Improvement Bonds.
A summary of financial activity to date is as follows:
Revenues:
Bond proceeds $945,808
Earnings on investments 46,213
Total revenues 992,021
Expenditures:
Contractor 730,687
Engineer 142,835
Legal and fiscal 10,261
Land acquisition 75,682
Other 30,822
Total expenditures 990,287
Residual equity transfer (1,734)
Fund balance - December 31, 2002 $0
The project was completed and the fund was closed in 2002.
Management Report
Capital Project Funds
AAE — Boutwells Landing
This fund was established in 1999 to account for expenditures associated with the
developer agreement with Valley Senior Service Alliance.
A summary of the financial activity is as follows:
Actual Budget
Revenues: '-'
Developer reimbursement $1,574,045 $2,330,760
Expenditures:
Contractor 1,281,235 1,942,300
Engineer 260,753 -
Legal 31,732 388,460 -�
Other 325 -
Total expenditures 1,574,045 2,330,760
Fund balance - December 31, 2002 $0 $0 ^
Management Report
Capital Project Funds
AAE — Oak Park Station Phase I
�- This fund was established in 2002 to account for expenditures associated with the Oak
Park Station commercial site development.
A summary of the financial activity is as follows:
Actual Budget
Revenues:
Developer reimbursement $135,143 $173,250
Expenditures:
Contractor 101,361 115,500
Engineer 32,925 54,250
Legal 612 1,500
Other 245 2,000
Total expenditures 135,143 173,250
Fund balance - December 31, 2002 $0 $0
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Management Report
Capital Proje Funds
Sanitary Sewer Connection Charge Fund
A summary of the financial activity of this fund from inception is as follows:
Prior
Years 2002 Total
Revenue:
Special assessments $18,441 $ - $18,441
Earnings on investments 94,851 15,039 109,890
Connection charges: --
River Hills 1st and 2nd 39,725 - 39,725
Highway 36 10,551 - 10,551
Wal -Mart 38,751 - 38,751
ISD #834 201,373 - 201,373
Brackey 25,447 - 25,447
Brackey West - Oak Park Pond 45,461 - 45,461
Brackey West - Outlots A & B 6,052 - 6,052
Autumn Ridge 1st, 2nd and 3rd 65,547 - 65,547
Haase addition 3,186 - 3,186
Valley Senior Service Alliance 139,131 - 139,131
Kern Center - 40,432 40,432
Other 80,705 - 80,705
Total revenue $769,221 $55,471 824,692
Expenditures:
Transfer to debt service $200,275 $57,875 258,150
Kern Center 20,200 - 20,200
School District improvements 160,000 - 160,000
River Hills 1st 30,942 - 30,942
60th Street sanitary sewer - 47,801 47,801
Total expenditures $411,417 $105,676 517,093
Fund balance - December 31, 2002 $307,599
Management Report
Capital Project Funds
Water Connection Charge Fund
A summary of the financial activity of this fund from inception is as follows:
Prior
Years 2002 Total
Revenue:
Special assessments $32,015 $ - $32,015
Earnings on investments 109,544 9,188 118,732
Connection charges:
River Hills 1 stand 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
Kern Center - 70,376 70,376
Other 210,111 - 210,111
Total revenue $1,391,368 $79,564 1,470,932
Expenditures:
Transfer to debt service $977,625 $138,125 1,115,750
School District improvements 145,000 - 145,000
River Hills 1st 29,739 - 29,739
Kern Center 35,200 - 35,200
Total expenditures $1,187,564 $138,125 1,325,689
Fund balance - December 31, 2002 $145,243
Management Report
Capital Project Funds
Storm Sewer Connection Charge Fund
A summary of the financial activity of this fund from inception is as follows:
Prior
Years 2002 Total
Revenue:
Special assessments $40,594 $ - $40,594
Earnings on investments 129,252 24,307 153,559
Connection charges:
River Hills 1st and 2nd 50,411 - 50,411
Highway 36 23,253 - 23,253
Wal -Mart 68,511 - 68,511
ISD #834 289,348 - 289,348
Brackey 56,079 - 56,079
Brackey West - Oak Park Pond 99,974 - 99,974
Brackey West - Outlots A & B 13,310 - 13,310
Autumn Ridge 1 st, 2nd and 3rd 124,046 - 124,046
Haase addition 7,021 - 7,021
Valley Senior Service Alliance 305,968 - 305,968
Kern Center - 89,072 89,072
Other 177,918 - 177,918
Total revenue $1,385,685 $113,379 1,499,064
Expenditures:
Transfer to Revolving Capital Fund $270,000 $ - 270,000
Transfer to Debt Service Fund 17,600 24,000 41,600
Long Lake storm sewer 27,820 - 27,820
Kern Center 44,600 - 44,600 --
Wal -Mart 41,232 - 41,232
Storm drainage report 9,910 - 9,910
River Hills 1st 13,757 - 13,757 ...,
Valley Point 2nd 17,211 - 17,211
School district improvement 289,348 - 289,348
Brackey addition 99,340 - 99,340
Total expenditures $830,818 $24,000 854,818
Fund balance - December 31, 2002 $644,246
Management Report
Capital Project Funds
Connection Charge Fund Commitments
The fund balance at December 31, 2002 is committed for future debt service payments for
the Refunding Bonds of 1993. Such future commitments (cash transfers) are as follows:
Future Transfers to 2002 Refunding Bonds Debt Service Fund
Sanitary Water
Year Sewer Works Total
.. 2003 $30,000 $135,000 $165,000
2004 5,000 50,000 55,000
Totals $35,000 $185,000 $220,000
Fund balance $307,599 $145,253 $452,852
As shown above, the Connection Charge balances at December 31, 2002 represent
sufficient amounts to meet the sanitary sewer debt commitments for 2003 and 2004 and the
water works debt service commitments for 2003 and a portion of 2004.
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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
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 15,150 5,250 9,600 30,000 �.
Total $285,325 $98,875 $180,800 $565,000
Management Report
Capital Project Funds
i
Based on City estimates, the Connection Charge Funds are scheduled to receive the
following future connection charges as development occurs:
Estimated Future Connection Charges
Sanitary Water Storm
Sewer Works Water Total
McKean West Townhomes / McKean Square* $85,221 $118,680 $187,915 $391,816
,..� Brackey Addition - Outlot A and B 139,230 242,250 307,020 688,500
Kern Center (1998 Bonds)* 151,044 262,830 333,000 746,874
Central Business District 171,990 299,250 379,260 850,500
Total $547,485 $923,010 $1,207,195 $2,677,690
*Development in progress
An analysis of the commitments of the connection charge funds is as follows:
Sanitary Water Storm
Sewer Works Water Total
Fund balance - December 31, 2002 $307,599 $145,243 $644,246 $1,097,088
_ Future connection charges 547,485 923,010 1,207,195 2,677,690
Subtotal 855,084 1,068,253 1,851,441 3,774,778
Debt service commitments:
Bonds of 1993/2002 (35,000) (185,000) - (220,000)
Bonds of 1998 (285,325) (98,875) (180,800) (565,000)
Subtotal 534,759 784,378 1,670,641 2,989,778
Available for new well - (784,378) - (784,378)
Uncommitted $534,759 $0 $1,670,641 $2,205,400
As shown above, connection charges should be sufficient to fund the debt service
.., requirement. The City has designated a portion ($200,000) of the retained earnings of the
Utility Fund to provide additional financing for the 1993/2002 Bonds if needed. There is
Management Report
Capital Project Funds
sufficient fund balance in the Sanitary Sewer Connection Charge Fund for the debt service
commitments of these bonds.
The Area and Connection charge fee was established in 1990 and was based on the
"Report on Municipal Services to the Annexation Area Extended" dated August 1989,
prepared by Bonestroo, Rosene, Anderlik and Associates, Inc. That report based the fee on
the following costs:
Storm sewer $1,579,500 --
Sanitary sewer 1,092,500
Water system:
Well 350,000
Water tower 687,500
Lines 776,250
Total $4,485,750
As shown above, the Area and Connection charge fee included an amount for a third well.
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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 2002 Annual Financial Report.
Condensed comparative operating statements of income and expense for the utility operations
of the City are as follows:
Water Department
2001 2002
Amount Percent Amount Percent
Revenue:
Customer billings and other $344,030 100.00% $321,700 100.00
Operating expenses:
Personal services 129,710 37.70% 123,603 38.42%
... Contractual services 70,063 20.37% 114,967 35.74%
Administrative and personnel charges 30,200 8.78% 27,540 8.56%
Other 4,740 1.38% 6,387 1.99%
Depreciation:
On purchased assets 10,411 3.03% 11,039 3.43%
On contributed assets 72,062 20.95% 75,603 23.50%
Total operating expenses 317,186 92.21% 359,139 111.64%
Net operating income (loss) $26,844 7.79% ($37,439) (11.64 %)
Management Report
Enterprise Fund
A chart of income from operation is as follows:
$400,000
Water Operating ....
$350,000 Revenue & Expense
$300,000 — ^
$250,000 M Depreciation
M All Other Expenses
$200,000 - - - - M Contractual Services
O Personal Services
$150,000 -- - -- - _ t Operating Revenue
$100.000
$50,000 - — -- - - -- -
$0
1997 1998 1999 2000 2001 2002
As shown above, the water department incurred losses in 1997 and 1998. The City had a
study performed and increased water rates based on the study's results. The City incurred a
loss in 2002, primarily due to decreased customer billings as a result of lower water sales
caused by an unusually wet summer. The City increased water rates effective January 1,
2003.
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Management Report
Enterprise Fund
Sewer Department
2001 2002
Amount Percent Amount Percent
Revenue:
Customer billings and other $481,751 100.00% $514,929 100.00%
Operating expenses:
Personal services 98,193 20.38% 80,064 15.55%
MCES 243,670 50.58% 257,783 50.06%
Other contractual services 32,259 6.70% 52,334 10.16%
Administrative and personnel charges 43,860 9.10% 40,560 7.88%
Other 3,187 0.66% 2,435 0.47%
Depreciation:
On purchased assets 2,761 0.57% 2,804 0.54%
On contributed assets 63,214 13.12% 70,344 13.66%
Total operating expenses 487,144 101.11% 506,324 98.32%
Net operating income (loss) ($5,393) (1.11 %) $8,605 1.68%
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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 - - - --
Depreciation
Personal Services
$300,000 — - - M All Other Expenses
O MCES
Operating Revenue
$200,000 -- .-.
$100,000 - — -
$0
1997 1998 1999 2000 2001 2002
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Management Report
Enterprise Fund
As shown on the previous pages, the sewer operating account incurred losses for 1997
through 2001. The sewer operating account has net income of $8,605 for 2002. The City
revised rates as follows:
Monthly Rate Monthly Rate Monthly Rate Monthly Rate Monthly Rate
Effective Effective Effective Effective Effective
Type of Charge 01/01/99 04/01/00 01 /01 /01 01/01/02 01/01/03
Water:
Base fee $7.05 $7.50 $7.50 $7.50 $7.80
Charge per 1,000 gallons for:
Usage between 6,000 and 16,000 gallons $1.10 $1.17 $1.17 $1.17 $1.25
Usage between 17,000 and 33,000 gallons $1.38 $1.47 $1.47 $1.47 $1.57
... Usage in excess of 33,000 gallons $1.65 $1.76 $1.76 $1.76 $1.88
Sewer:
Base fee $11.55 $12.45 $13.20 $14.00 $14.85
Charge per 1,000 gallons for
.� usage in excess of 5,000 gallons $2.15 $2.32 $2.46 $2.61 $2.77
The City implemented monthly utility billings effective January 1, 1999.
Management Report
Enterprise Fund
Sanitation
The City began charging for refuse collection in 1988. Prior to 1998, this activity was
accounted for in the General Fund. The City moved this activity to the Enterprise Fund
during 1998. Refuse collection revenue as a percent of refuse collection
expenditures /expense is as follows:
Refuse Transfer
Refuse Collection Revenue as a from Net
Collection Expenditures/ Net Percent of General Income
Year Revenue Expenses Cost Expenditures Fund (Loss) --
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 (224,032) 33% - -
1996 103,444 326,036 (222,592) 32% - -
1997 87,830 298,842 (211,012) 29% - -
Enterprise Fund:
1998 93,014 309,051 (216,037) 30% 190,400 (25,637)
1999 71,585 169,210 (97,625) 42% 65,000 (32,625)
2000 87,434 175,164 (87,730) 50% 84,000 (3,730)
2001 97,575 184,179 (86,604) 53% 83,000 (3,604)
2002 98,030 182,575 (84,545) 54% 88,500 3,955
2003 97,400 185,840 (88,440) 52% 88,500 60 �-
The 1999 loss was funded by fund balance. A transfer to the "All Funds" reserve account
of $23,000 was cancelled to cover this loss.
As shown above, the City subsidy of sanitation activity has decreased from $224,032 in
1995 to $88,500 budgeted for 2003.
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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
2001 2002
Amount Percent Amount Percent
Revenue:
Customer billings $56,913 100.00% $62,992 100.00%
Expenses:
Personal services 40,193 70.62% 27,757 44.06%
Contractual services 4,512 7.93% 23,576 37.43%
Materials and supplies 1,033 1.82% 1,065 1.69%
Administrative and personnel charges 5,300 9.31% 4,800 7.62%
Total operating expenses 51,038 89.68% 57,198 90.80%
Net operating income $5,875 10.32% $5,794 9.20%
Financial Analysis and
Management Considerations
Other Matte
OTHER MATTERS
Development Fees and Permits '~
During 2001, the Minnesota legislature passed various statute sections affecting
development related fees and permits. Changes include:
• Annual reporting to the State on development revenues and related expenses. The
initial reporting form was due April 1, 2003. (M.S. 1613.685)
• New restrictions on fees for permits or approvals required under an official control
established pursuant to the Municipal Planning Act.
• Effective since January 1, 2002: fees must be prescribed by ordinance, as "fair,
reasonable, and proportionate to the actual cost of the service for which the fee is
imposed."
• Also effective for January 1, 2002: "A municipality shall adopt management and
accounting procedures to ensure that fees are maintained and used only for the
purpose for which they are collected." --
If not already done, we recommend the City review its policies and procedures with "
regard to Development Fees and Permits to help assure compliance with State Statutes.
New Fraud Standard — SAS 99
Statement on Auditing Standards (SAS) 99, Consideration of Fraud in a Financial
Statement Audit, has been issued and will be required for audits of periods beginning on or
after December 15, 2002.
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Financial Analysis and
Management Considerations
Other Matters
SAS 99 does not change the auditor's responsibility to obtain reasonable assurance that
the financial statements are free of material misstatement, including material misstatement
._ due to fraud. The reason the new SAS was issued was to increase the likelihood that the
auditor will detect material misstatement in the financial statements due to fraud by
—� increasing the amount and nature of required procedures.
SAS 99 is a comprehensive, far- reaching audit standard which is expected to significantly
change the way auditor's approach and perform audits. The bottom line is that SAS 99
expects auditors to perform more work in every audit in both identifying and responding to
the risk of material misstatement due to fraud. Implementation of SAS 99 will require
r additional time to complete an audit.
For the City of Oak Park Heights, SAS 99 will be required for the audit of the year ending
December 31, 2003.
An overview of SAS 99 is as follows:
Information Gathering Phase:
• A required brainstorming session among the audit team members to discuss the
potential for material misstatement due to fraud.
• An increased emphasis on inquiry as an audit procedure that increases the likelihood
of fraud detection.
o Required management inquiries, many of which are new.
-. o Required inquiries of "others" within the entity (i.e., non - accounting personnel).
• Expanded use of analytical procedures to gather information used to identify risks of
the material misstatement due to fraud.
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Financial Analysis and
Management Considerations
Other Matters
• The consideration of other information, such as client acceptance and continuance
Procedures, during the information- gatherin phase.
Identifying and Assessing Fraud Risks
• Required to presume that improper revenue recognition is a fraud risk.
• Required tests in response to the risk of management override of controls.
• Examining journal entries and other adjustments.
• Retrospective review of accounting estimates.
• Business rationale for significant unusual transactions.
Responding to Assessed Risks: .
• Assignment of personnel and supervision should be commensurate with the auditor's
assessment of the risks of material misstatement due to fraud.
• The auditor should consider management's selection and application of significant
accounting principles.
• Auditors are required to incorporate an element of unpredictability in audit procedure
from year to year. s
Evaluating Audit Evidence
• Assessing risks of material misstatement due to fraud throughout the audit. r
• Evaluating whether analytical procedures performed as substantive tests or in the
overall review stage of the audit indicate a previously unrecognized risk of material
misstatement due to fraud.
• Evaluating the risks of material misstatement due to fraud at or near the completion
fieldwork. p of
• Responding to misstatements that may be the result of fraud. r
Financial Analysis and
Management Considerations
-- Other Matters
Required Auditor Documentation
• The discussion among engagement personnel in planning the audit regarding the
�. susceptibility of the entity's financial statements to material misstatement due to
fraud, including how and when the discussion occurred, the audit team members who
participated, and the subject matter discussed.
• The procedures performed to obtain information necessary to identify and assess the
risks of material misstatement due to fraud.
• Specific risks of material misstatement due to fraud that were identified, and a
description of the auditor's response to those risks.
• If the auditor has not identified in a particular circumstance, improper revenue
recognition as a risk of material misstatement due to fraud, the reasons supporting the
auditor's conclusion.
• The results of the procedures performed to further address the risk of management
override of controls.
• Other conditions and analytical relationships that caused the auditor to believe that
additional auditing procedures or other responses were required and any further
responses the auditor concluded were appropriate, to address such risks or other
conditions.
• The nature of the communications about fraud made to management, the audit
committee, and others.
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