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Audit Management Letter
CITY OF OAK PARK HEIGHTS, MINNESOTA AUDIT MANAGEMENT LETTER December 31, 2004 IN ge Re a°fig ° , ,. ct. Certified Public Acr.;ountalli.s C;4. w;1.IIl:alfls To the Honorable Mayor and Members of the City Council City of Oak Park Heights, Minnesota We have completed the 2004 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 Letter provides a summary of audit results along with comparisons and trend analysis of financial results. Thank you for the opportunity to serve the City. We are available to discuss this report with you. March 14, 2005 �m HLB TAUTGES REDPATH, LTD. Certified Public Accountants 44110 White uoar Parkway Whitt) form I � ko, N innocola 55110 WA M i /1100 051 4 %G',, o' I ax www.IIII)Iccoiu 1303 South Proutage fioad Suite 1I 13 IIdShuds, K11110':Va Y)0;1:1 (i`.,1 /18040( 651 4K500 lax 4B laul,es riedpath, 1.1d is i niemhw ()I NM w „I, Intermiliounl, a wool -wid : ofgwli/aUun of ar,counthiq (aims rind husinu;;s mjvivanm Audit Management Letter Report Summary REPORT SUMMARY Several reports are issued in conjunction with the audit. A very brief summary is as follows: Re port of •• O verview Required Reports Annual Financial Report (AFR) • Financial statements • Unqualified ( "clean ") • Footnotes opinion on the Financial • Required supplementary Statements information • Statistical information Report on Internal Control and on Results of testing • No compliance findings Compliance and Other Matters • 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 compliance finding provisions of Minnesota Statutes Discretionary Reports Management Letter 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 finding • Policies and procedures City of Oak Park Heights, Minnesota Audit Management Letter Executive Summary EXECUTIVE SUMMARY Several areas highlighted for your reference include the following: The City's property tax collection rate continues to be strong (98.6% for 2004) . Page 8 The City has minor delinquent special assessment balances, which is the result of good collection rates (99.6% for 2004). Page 11 The General Fund balance increase of $152,977 during 2004 is a result of favorable budget variances in revenues. Page 17 The General Fund balance at December 31, 2004 was sufficient to fulfill all the reserve requirements per City policy. Page 22 The four utility operations all reported operating income for 2004. I Page 46 City of O ak Park Heights, Minnesota Audit Management Letter Accounting Standards - GASB 34 — The Reporting Model ACCOUNTING STANDARDS - GASB 34 ®THE REPORTING MODEL In 1999, the Governmental Accounting Standards Board (GASB) issued Statement No. 34, Basic Financial Statements — and IVlanagement's Discussion and Analysis —for State and Local Governments. This accounting standard is the most comprehensive governmental accounting rule ever developed. This accounting standard significantly changes the way state and local governments report their financial activity. In general, GASB 34 moves government financial reporting more in line with the private sector. To understand the impact of GASB 34, 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. City of O ak Park Heights, Minnes Audit Management Letter Accounting Standards - GASB 34 — The Reporting Model The most significant changes Although GASB 34 requirements are numerous, the major changes include: ® Reporting on the individual major funds rather than fund types; ® Comparison of actual financial results to both the original and amended budgets; ® Requiring infrastructure reporting and additional "government- wide" financial statements on the accrual basis of accounting. w Requiring a narrative analysis of the government's financial activities. City of O ak Park Heights, • Audit Management Letter Accounting Standards - GASB 34 - The Reporting Model Statement of Activities One of the new financial statement presentations required by GASB 34 is the Statement of Activities. This schedule presents the net cost of providing various activities and the extent to which these activities are funded by property taxes. Program Revenues Net (Expense) Revenue and Operating Capital Changes in Net Assets Charges For Grants and Grants and Governmental Business -Type Functions /Proerznrts Expenses Services Contributions C'orinibutions Activities Activities Total Bldg pennhs, tiacs, State pollee aid, Ncm,,sessolcnl roll.! Attnrite C'hnrg;. +n I I Bayport inspection I Safe and Sober I interest Dill eai >tiog Enterprise Fonda charge gnat rolls Government actvi ties "' General government $832,609 $124,073 $250 $ ($708,286) $ _ ($08,286) Public safety 1,155,243 480,163 67,377 (607,703) ( 07,703) Public works 602,111 344,397 731 212,635 (44,348) (44,348) Parks and recreation 123,737 - - (123,737) (123,737) Interest on loner term debt 67,365 - - - (67,365) (67,365) Total government activities 2,781,065 948,633 68,358 212,635 (1,551,439) 0 (1,551,439) `,tcKcan Squarc Business -type activities: Jcittuper _ Water 323,527 388,198 relntborscment 32,843 97,514 97,514 Sanitary sewer 517,595 577,253 25,863 85,521 85,521 Sanitation 167,258 96,909 - (70,349) (70,349) Storm sewer 41,082 70,878 - - 29,796 29,796 Total business -type activities 1,049,462 1,133,238 0 58,706 0 142,482 142,482 Total $3,830,527 $2,081,871 $68,358 $271,341 (1,551,439) 142,482 (1,408,957) General revenues: General property taxes 1,979,288 - 1,979,288 Grants and contributions not restricted to specific programs 3,060 - 3,060 Unrestricted investment earnings 199,737 19,148 218,885 Other 29,125 - 29,125 Transfers 90,423 (90,423) - Total general revenues and transfers 2,301,633 (71,275) 2,230,358 Change in net assets 750,194 71,207 821,401 Net assets - beginning 17,828,506 6,409,857 24,238,363 Net assets - ending $18,578,700 $6,481,064 $25,059,764 The change in net assets is primarily due to the following: $233,770 Increase in find balance 357,503 Developer reimbursement recorded as revenue, cost was capitalized. t6 t,457 Assessment roll recorded as revenue, cost was capitalized. (2,536) Other items $750,194 0) Includes General Fund, Special Revenue, Debt Service and Capital Project Funds. City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts ANALYSIS OF SELECTED ACCOUNTS Suinmary of Financial Activity The schedule below presents a condensed financial summary of all funds: All Funds Financial Summary - 2004 Increase (Decrease) in Fund Balance/ Revenue Expenditures Fund Balance/ Net and Other and Other Transfers Net Assets Fund Sources Uses (Net) Assets 12/31/2004 General $2,644,010 $2,177,713 ($313,300) $152,997 $1,847,608 Special Revenue Funds: Forfeiture and Seizure 11,472 15,262 (3,790) 28,843 Economic Development 1,441 468 - 973 52,324 Debt Service Funds: Bonds of 1998 118,289 177,687 55,000 (4,398) 113,144 Bondsof2002 9,476 158,322 55,000 (93,846) 267,018 Bonds of 2001 95,054 132,325 - (37,271) 74,532 Capital Project Funds: Capital Revolving 125,993 184,542 - (58,549) 365,080 Budgeted Projects and Equipment Revolving 27,951 126,096 249,700 151,555 396,079 SA / Valvoline Oil (2,761) - - (2,761) - Park Development 8,871 8,871 324,075 Street Reconstruction 11,108 - 11,108 405,774 Renewal and Replacement 61,689 154,023 215,712 2,407,576 Brekke Park Memorial 6 - 6 229 Water Tower Rental 8,349 - 8,349 8,349 Boutwells Landing 5,780 5,780 - - McKean Square 357,503 357,503 Oak Park Station - Phase I 10,958 10,958 - Sanitary Sewer Connection 20,037 - (32,775) (12,738) 393,247 Water Connection 22,118 - (59,625) (37,507) 216,035 Storm Sewer Connection 45,240 92,581 (17,600) (64,941) 865,290 Enterprise Funds: Water 430,615 323,527 (93,193) 13,895 3,482,438 Sanitary Sewer 612,690 517,595 (82,430) 12,665 2,950,716 Sanitation 96,909 167,258 88,500 18,151 (34,558) Storm Sewer 70,878 41,082 (3,300) 26,496 82,468 Total $4,793,676 $4,488,699 $0 $304,977 $14,246,267 City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts 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. 2001 2002 2003 2004 Tax levy certified $1,588,435 $1,967,579 $1,993,003 $2,054,070 Less market value homestead credit - (100,985) (88,486) (88,534) Net levy 1,588,435 1,866,594 1,904,517 1,965,536 Receipts: Current property taxes 1,566,938 1,803,503 1,891,046 1,938,726 Delinquent property taxes 16,563 (18,789) 12,386 12,016 Total receipts 1,583,501 1,784,714 1,903,432 1,950,742 Adjustments (2,851) (85,905) 10,293 (4,714) Increase (decrease) in delinquent taxes receivable 2,083 (4,025) 11,378 10,080 Delinquent taxes - January 1 22,116 24,199 20,174 31,552 Delinquent taxes - December 31 $24,199 $20,174 $31,552 $41,632 Current collection as a percent of current levy 98.6% 96.8% 99.3% 98.6% Total collections as a percent of current levy 99.7% 90.7% 95.5% 99.2% ( ' ) For 2003 and 2004, MVHC was not paid by the State to the City. 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. Audit Management Letter Analysis of Selected Accounts Tax Levies, Tax Rates and Tax Capacity A comparison of values for taxes payable in 2003, 2004 and 2005 is as follows: 2003 2004 2005 Market value $406,640,800 $447,871,200 $499,070,200 Tax capacity values: Real estate $5,895,692 $6,363,354 $6,840,470 Personal property 78,851 82,573 78,460 Subtotal 5,974,543 6,445,927 6,918,930 Fiscal disparity contribution (657,651) (798,048) (954,578) Fiscal disparity distribution 253,076 313,675 341,985 Total $5,569,968 $5,961,554 $6,306,337 Tax capacity rates 35.799 34.382 36.488 Tax levy $1,993,003 $2,054,070 $2,293,825 City o f O P H Minnes Audit Management Letter Analysis of Selected Accounts A schedule of "Pay 2005 Tax Capacity by Classification" is as follows: CITY OF OAK PARKS HEIGHTS 2005 2002 Percent of Percent of Amount City Total Amount City Total Real estate: Agricultural $21,284 0.3% $668 0.0% Seasonal 2,803 0.0% 3,030 0.1% Residential homestead 2,188,765 31.6% 1,612,779 31.2% Residential nonhomestead 719,161 10.4% 513,339 9.9% Commercial /industrial 2,526,858 36.5% 1,554,221 30.1% Public utility 1,378,249 19.9% 1,399,706 27.1% Railroad 3,360 0.0% 2,154 0.0% Total real estate 6,840,480 98.9% 5,085,897 98.5% Personal property 78,460 1.1% 77,543 1.5% Total tax capacity $6,918,940 100.0% $5,163,440 100.0% i Tax Capacity by Property Class - 2005 Agricultural 0 3%. Public Utility 19 9% RcsWcntril Humcstcad 31 6% I Cummcretal /Industual 36 5 �'_"�', .. ' °' Residential Nunhum stead 10.4% City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts Special Assessments Receivable Special assessments receivable consisted of the following types and amounts: December 31, Increase Description 2003 2004 (Decrease) Delinquent $634 $2,838 $2,204 Deferred 973,853 873,062 (100,791) Due from County 4,029 34,679 30,650 Totals $978,516 $910,579 ($67,937) Delinquent special assessments receivable consist of amounts which have been spread for collection in 2004 and prior years but have not been collected at December 31, 2004. The City has minor delinquent balances which is the result of very good collection rates (99.6% for 2004). 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. City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts Bonds Pavable The City had three bond issues outstanding during 2004. A summary of the 2004 activity of each bond issue is as follows: General General General Obligation Obligation Obligation Improvement Refunding Refunding Bonds Bonds Bonds of 1998 of 2001 of 2002 "Totals Balance - January 1, 2004 $1,250,000 $235,000 $375,000 $1,860,000 Bonds issued - - - - Principal payments (125,000) (125,000) (150,000) (400,000) Balance - December 31, 2004 $1,125,000 $110,000 $225,000 $1,460,000 Detail of outstanding bond issues is contained in Note 5 of the 2004 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 City of Oak Park Heights, Minnesota Audit Management Letter 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, and parks and recreation). 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 1,524,300 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 1,859,203 71% 60,410 2% 706,210 27% 2,625,823 100% 2004 1,910,848 72% 61,479 2% 671,683 26% 2,644,010 100% 2005* 2,220,325 79% 59,640 2% 513,313 19% 2,793,278 100% *Budgeted 2004 Actual State Aids 2% Other 26% i ' i Property Taxes 72% i City of Oak Park Heights, Minnesota Audit Management Letter General Fund A graph of property taxes, state aids, and other revenue for the General Fund is as follows: $2.400,000 - - - - --- -- - -- -- - - -- -- - - -- -- - -- - - $2,200.000 - - - - -- -_ -- ---- -- -- _ -- -- -- -- -_- - -- - - - - General Fund $2,000,000 Revenue by Source 'S 1,800,000 - - - - - -- $1,600.000 - -- - - $1,400,000 - - - - - -- - - -- - - a stMeA,as mil( -Other Revenue $1,200,000 - -- --- --- - ---- - -- --- -- -- - ---- - - - - -- -- - -- ®- Pjoperty Taxes $1.000.000 - - ---- - ---- -- - --------- -- --- - - - - -- - $800.000 $600,000 - --- - --- - -- --- - - -_ - -- -- -- _ - - - -- - $400,000 - -- --- - - - --- - - - -- - -- -- - - - -- -- -- --- - -- --- - - - $200.000 -- - -- - - -- -- - --_- - -- - - - -- --- -- -- -_ - --- - - -- -- -- -- - -- 5 3 J $0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 It ]get Mate Aids State aids of the General Fund have consisted of the following for the past six years (with 2005 budget): 2005 State Aid 1999 2000 2001 2002 2003 2004 Budget H.A.CA. $74,983 $79,583 $79,603 $ - $ - $ - $ Market value homestead credit - - - 97,935 LGA - 4,878 4,878 4,881 Local performance aid 4,884 - - - - - Police aid 56,409 57,013 53,650 55,525 58,370 58,419 57,600 Other state revenue 3,599 4,040 4,161 2,040 2,040 3,060 2,040 Totals $139,875 $145,514 $142,292 $160,381 $60,410 $61,479 $59,640 Change $5,639 ($3,222) $18,089 ($99,971) $1,069 ($1,839) % Change 4% (2 %) 13% (62 %) 2% (3 %) Audit Management Letter General Fund Other General Fund Revenue Other revenue of the General Fund has consisted of the following for the past five years (with 2005 budget): 2005 Description 2000 2001 2002 2003 2004 Budget Licenses and permits $314,527 $213,651 $183,596 $313,273 $304,594 $172,355 Charges for services: Refuse charge - Junket- settlement 27,655 28,422 28,460 52 - - Enterprise 99,400 95,300 89,780 87,205 90,860 94,140 Tax increment administration fee 3,450 452 - - Construction /engineering fee - - 2,083 14,613 - - Other 18,092 30,097 23,706 18,455 8,929 10,000 Inspections 45,018 43,047 44,064 88,751 50,337 42,480 Fines and forfeits 56,326 63,655 63,211 61,146 78,274 66,000 Earnings on investments 48,363 48,559 32,052 32,067 39,188 31,000 Other 99,195 108,101 99,986 90,648 99,501 97,338 Total $712,026 $631,284 $566,938 $706,210 $671,683 $513,313 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 administrative fee is designed to reimburse the General Fund for overhead costs only. City of O ak Park Heights, Minnesota Audit Management Letter General Fund Administrative Fee - Capital Projects 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 2004 there were no administrative fees charged to individual projects. Budget Versus Actual Comparison, The fund balance of the General Fund was $1,847,608 at December 31, 2004 representing a $152,997 increase during 2004. The following schedule illustrates the change in fund balance on a budget variance basis. 2004 Favorable (Unfavorable) 2005 Budget Actual Variance Budget Revenue: General property taxes: Current and delinquent $1,904,203 $1,893,204 ($10,999) $2,205,325 Payment in lieu of taxes 15,000 17,209 2,209 15,000 Other taxes - 435 435 - Total general property taxes 1,919,203 1,910,848 (8,355) 2,220,325 Intergovernmental 81,778 70,362 (11,416) 94,378 Licenses and permits 181,815 304,594 122,779 172,355 Charges for services 146,860 150,126 3,266 146,620 Fines and forfeits 69,000 78,274 9,274 66,000 Earnings on investments 28,000 39,188 11,188 31,000 Refunds and reimbursements 60,900 88,860 27,960 56,600 Donations and contributions - 250 250 - Other - 1,508 1,508 6,000 Total revenue 2,487,556 2,644,010 156,454 2,793,278 City of Oak Park Heights, Minnesota Audit Management Letter General Fund 2004 Favorable (Unfavorable) 2005 Budget Actual Variance Budget Expenditures: General government: Mayor and council $63,990 $54,371 $9,619 $82,240 City administration 177,710 172,868 4,842 185,675 Legal 30,000 17,823 12,177 30,000 General management and building 63,375 77,813 (14,438) 73,600 Elections 5,790 5,006 784 340 Finance 159,950 157,083 2,867 165,980 Computer system 20,000 9,380 10,620 21,000 Audit 14,500 16,498 (1,998) 15,000 Insurance 250,3.50 235,559 14,791 262,025 Assessing 18,700 18,126 574 19,100 Planning and zoning 29,150 23,317 5,833 58,800 Engineering 27,000 14,673 12,327 27,000 General contingency 9,150 6,764 2,386 15,150 Total general government 869,665 809,281 60,384 955,910 Public safety: Police department 880,155 852,871 27,284 925,600 Building inspections 134,785 137,711 (2,926) 119,675 Fire protection 118,185 118,183 2 122,490 Animal control 1,900 1,044 856 1,900 Total public safety 1,135,025 1,109,809 25,216 1,169,665 Public works: Street maintenance 45,010 41,403 3,607 40,350 Snow removal 61,900 53,477 8,423 87,100 Street lighting 48,000 47,446 554 52,000 Arborist 15,305 11,967 3,338 - Tree removal and planting 13,450 16,150 (2,700) 30,430 Total public works 183,665 170,443 13,222 209,880 Recreation: Parks, playgrounds and rinks 110,395 88,180 22,215 116,940 Total expenditures 2,298,750 2,177,713 121,037 2,452,395 Revenue over expenditures 188,806 466,297 277,491 340,883 Other financing sources (uses): Transfers to Capital Project Fund (99,800) (224,800) (125,000) (252,380) Transfers to Enterprise Fund (88,500) (88,500) - (88,503) Total other financing sources (uses) (188,300) (313,300) (125,000) (340,883) Net increase in fund balance $506 $152,997 $152,491 $0 Audit Management Letter General Fund As shown on the previous page, the General Fund balance increased by $152,997 as the result of positive budget variances primarily relating to expenditures as follows: Budget Actual Variance Revenue /transfers in $2,487,556 $2,644,010 $156,454 Expenditures /transfers out 2,487,050 2,491,013 (3,963) Increase in fund balance $506 $152,997 $152,491 General Fund — Lone 'Perm 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 2003 15,000 75,000 2004 15,000 60,000 The remaining amount will be paid in annual installments of $15,000. Audit Management Letter General Fund General Fund Reserves The fund balance of the General Fund increased in 2004. The schedule below reflects the General Fund balance for the past ten years: Year Ended Fund Increase December 31, Balance (Decrease) 1993 $1,106,882 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 2003 1,694,611 365,382 2004 1,847,608 152,997 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 variances in both revenue and expenditures. The 2004 increase was the result of favorable budget variances for revenues (see page 18). Audit Management Letter General Fund Fund Balance $2,000,000 $1,800,000 - `'- -- $1,600,000 - -- - $1,400,000 --*—Actual Fund Balance ..�°° 1 Desircd Fund Balanec $1,200,000 — -- $1,000,000 - $800,000 - - $600,000 - 1997 1998 1999 2000 2001 2002 2003 2004 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: F Nee fclEr:Reserve'.Ba1e Cash Flow Timing 7 Favorable bond ratio " <''. •.` ".� \� ' Supplements revenues ^• Difference :: - '�i�: �x`�..::, : `. �::f'` ": < . ,.:: .. ; „' • °: indicator with investment income r. Inter ovemmental Ca RalOuila V. 9 ,,.. ., Capital n e utbacks a lacemeot :., ; '!`r : •'.:. d'�,, ;; 1 v A rdr ol fts t noPto major Provides resources fo ' �' ,''• ;''!'!�,,. �. \,:•':� minor projects or .;:y oe a p / .' feasibtlity reports receipts a:l y!. '. . a n Avoids overbu r de m •.:,•� :, - .,,:;;,,, �.... .,..,,.: , :., "ti - ° � Provides the City g of annual budgets for ,,, :,.. :,<.; •.. ;.:. .` deal certain ca "% reatero lions to Vii;; �;'.r` Emergency or - - g p capital outlay P 33 Spa cial S with unexpected e Unanticipated vents 7 c: Prate s Expen a' City of Oak Park Heights, • Audit Management Letter 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, 2003 and 2004, the General Fund balance was reserved or designated as follows: General Fund Balance December 31, 2003 2004 Designated for: Cash flow $996,000 $1,147,000 Contingent employee benefits 128,458 133,961 General contingency 368,000 419,000 Subtotal - designated 1,492,458 1,699,961 Undesignated 202,153 147,647 Total fund balance $1,694,611 $1,847,608 City of Oak Park Heights, Minnesota Audit Management Letter 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 $1,147,000, computed as follows: Cash Flow Reserve 2005 tax levy (includes market value homestead credit aid) $2,293,825 Recommended reserve (one -half of tax levy and state aids) $1,147,000 MIMI • Audit Management Letter 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: General Fund Monthly Cash Balances $2,000,000 - - - - - - - - -- - -- -- - -- - - - - - -- $1,600,000 -- - -- - -- - -- - - - - -- - --- - --- $1,400,000 — - -- -- r� - - - --- $948,000 .S ,u $1,200,000 - -- .. __ - _______- __ decrease a — — — I I � !, $900,000 t , %. _- -- -- >. I � $600,000 $400,000 $zoo,o00 /1/2004 1/31/2004 2/28/2004 3/31/2004 4/30/2004 5/31/2004 1, 6/30/2004 7/312004 8/31/2004 9/30/2004 10/3112004 11/30/2004 I ?/31/2004 I® Series I S1,665,000 j S1,53C,,336 51,479,076 j SI,312,098 51,181,505 j 51,005,264 .5817,453 51,718,088 51,655,950 51,503,488 51,425,098 ($1,322,837 $1,910,848 As shown above, the cash balance decreased $848,000 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. City of O ak Park Heights, Minnesota Audit Management Letter General Fund Contingent Emplovee Benefit Reserve The employee benefits reserve is computed based upon accrued, but unpaid, employee benefits as follows: Employee Benefits Reserve December 31, Employee Benefit 2003 2004 Vacation leave carryover $25,741 $24,949 Severance 102,717 109,012 Total $128,458 $133,961 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 had 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. City of O ak Park Heights, Minnesota Audit Management Letter General Fund General Contin2encv 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 2003 2004 Ensuing year's budget $2,455,150 $2,793,275 Reserve amount @ 15% $368,000 $419,000 City of O ak Park Heights, Minnesota Audit Management Letter 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 2004. 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 2004 Total Revenue: Intergovernmental - bulletproof vests $7,170 $ - $7,170 Earnings on investments 6,905 917 7,822 Reimbursements 3,473 556 4,029 Confiscated property 84,539 9,999 94,538 Sale of municipal property 5,046 - 5,046 Total revenue $107,133 $11,472 118,605 Expenditures: Public safety: Materials and supplies $17,922 $9,208 27,130 Contractual services 5,544 516 6,060 Capital outlay 51,034 5,538 56,572 Total expenditures $74,500 $15,262 89,762 Fund balance - December 31, 2004 $28,843 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." Audit Management Letter 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 2004 Total Revenue: Earnings on investments $20,765 $1,441 $22,206 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 $284,485 $1,441 285,926 Expenditures: Community development: Materials and supplies $457 $ - 457 Contractual services 30,064 468 30,532 Interfund loan interest 70,000 - 70,000 Capital outlay 121,500 - 121,500 Transfer to Capital Revolving Fund 11,113 - 11,113 Total expenditures $233,134 $468 233,602 Fund balance - December 31, 2004 $52,324 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. „,„ w,........w.,.... City of Oak Park Heights, Minnesota Audit Management Letter Debt Service Funds DEBT SERVICE FUNDS The financial statements for the Debt Service Funds are presented in Statements 15 and 16 of the 2004 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 2004 as follows: Fund Balance December 31, Increase Fund 2003 2004 (Decrease) G.O. Crossover Refunding Bonds of 1993 / Refunding Bonds of 2002 $360,864 $267,018 ($93,846) G.O. Improvement Bonds of 1995 /Refunding Bonds of 2001 111,803 74,532 (37,271) G.O. Improvement Bonds of 1998 117,542 113,144 (4,398) Totals $590,209 $454,694 ($135,515) IRefundin2 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 over 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. • Audit Management Letter Debt Service Funds A projection of cash flow of the Water and Sewer Refunding Bonds of 1993 / Refunding Bonds of 2002 is as follows: City of Oak Park Heights, Minnesota Projection of Cashllow Water and Sewer Refunding Bonds of 2002 Total Cash Balance Property Special Investment Projected Debt Other Cash Balance Year January 1 Taxes Assessments Transfers Interest Receipts Payments Disbursements December 31 2005 $262,232 $ $ $ $2,471 $2,471 $165,323 $ $99,380 2006 99,380 934 934 66,722 33,592 2007 33,592 336 336 - 33,928 Total $0 $0 $0 $3,741 $3,741 $232,045 $0 Assumptions Special assessment collection rate .................... 95% Property tax collection rate . ............................... 99% Investment interest rate ..... ............................... 1.00% Negative interest charged to funds ? .................. no As shown above, this fund is projected to have a surplus of $33,000 at final bond maturity in 2006. City of Oak Park Heights, Minnesota Audit Management Letter 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 taxes. A projection of cash flow of the Refunding Bonds of 2001 is as follows: City of Oak Park Heights, Minnesota Projection of Cash now 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 2005 $71,754 $ - $26,446 $15,000 $693 $42,139 $113,575 $ - $318 Total $0 $26,446 $15,000 $693 $42,139 $113,575 $0 Assumptions Special assessment collection rate .................... 95% Property tax collection rate . ............................... 99% Investment interest rate ..... ............................... 1.00"/ Negative interest charged to funds ? .................. no This fund will require a transfer of approximately $15,000 from the General Fund in 2005. Audit Management Letter 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. A projection of cash flow of the Improvement Bonds of 1998 is as follows: City of Oak Park Heights, Minnesota Projection of Cashtlow 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 2005 $77,560 $ $107,590 $50,000 $823 $158,413 $172,812 $ $63,161 2006 63,161 103,555 55,000 689 159,244 167,813 54,592 2007 54,592 99,521 50,000 607 150,128 162,687 42,033 2008 42,033 95,486 50,000 488 145,974 157,500 30,507 2009 30,507 91,452 50,000 380 141,832 152,250 20,089 2010 20,089 87,417 50,000 284 137,701 146,938 10,852 2011 10,852 83,382 45,000 195 128,577 141,562 (2,133) 2012 (2,133) 79,348 50,000 77 129,425 136,125 (8,833) 2013 (8,833) 75,313 30,000 2 105,315 130,625 (34,143) 2014 (34,143) 71,278 - - 71,278 - 37,135 Total $0 $894,342 $430,000 $3,545 $1,327,887 $1,368,312 $0 Assumptions Special assessment collection rate .................... 95% Property tax collection rate . ............................... 99% Investment interest rate ..... ............................... 1.00% Negative interest charged to funds ? .................. no As shown above, this Debt Service Fund will require connection charge revenue to finance the debt service. City of Oak Park Heights, Minnesota Audit Management Letter Capital Project Funds CAPITAL PROJECT FUNDS The fund balance (deficits) of the Capital Project Funds were as follows at December 31, 2003 and 2004: December 31, Increase Fund 2003 2004 (Decrease) Capital Revolving $423,629 $365,080 ($58,549) Budgeted Projects and Equipment Revolving 244,524 396,079 151,555 Superamerica /Valvoline Oil 2,761 - (2,761) Park Development 315,204 324,075 8,871 Street Reconstruction 394,666 405,774 11,108 Renewal and Replacement 2,191,864 2,407,576 215,712 Brekke Park Memorial 223 229 6 Water Tower Rental - 8,349 8,349 McKean Square - - - Boutwells Landing - - - AAE - Oak Park Station Phase I - - - AAE - Sanitary Sewer Connection 405,985 393,247 (12,738) AAE - Water Connection 253,542 216,035 (37,507) AAE - Storm Sewer Connection 930,231 865,290 (64,941) Totals $5,162,629 $5,381,734 $219,105 • Will • Audit Management Letter Capital Project Funds Capital Revolvinu 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 2003 and 2004 is as follows: Capital Revolving Fund Description 2003 2004 Financial resources: General property taxes $12 $ - Special assessments 83,880 114,503 Earnings on investments 11,349 11,490 Refimds and reimbursements 77 - Total financial resources 95,318 125,993 Financial uses: Contractual services 16,319 22,346 Lighting and pathway project - 162,196 Total financial uses 16,319 184,542 Increase (decrease) in fund balance 78,999 (58,549) Fund balance - January 1 344,630 423,629 Fund balance - December 31 $423,629 $365,080 The lighting and pathway project was assessed in 2004. The assessment will be collected over a period of three years. City of Oak Park Heights, Minnesota Audit Management Letter 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 2003 and 2004 is as follows: Description 2003 2004 Financial resources: Earnings on investments $5,874 $7,159 Donations 2,605 250 Refunds and reimbursements 5,750 20,542 Sale of equipment 8,188 - Transfers in: General Fund 108,975 224,800 Enterprise Fund 9,900 24,900 Total financial resources 141,292 277,651 Financial uses: Expenditures: Sealcoat /crackfilling - 79,814 Vehicles 38,108 31,514 Furniture and equipment 22,634 2,836 Computers 10,008 6,674 Recreation - - Other 273 5,258 Total financial uses 71,023 126,096 Increase in fund balance 70,269 151,555 Fund balance - January 1 174,255 244,524 Find balance - December 31 $244,524 $396,079 City of Oak Park Heights, • Audit Management Letter 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 fiend to specific projects and /or programs. Such allocation /designations were as follows at December 31, 2004: Balance Balance Purpose 12/31/2003 Revenues Expenditures 12/31/2004 Sealcoat /crack seal $48,325 $110,792 ($82,766) $76,351 Outdoor storage - 15,000 - 15,000 Recreation: Park building 80,000 20,000 - 100,000 Other 24,474 17,600 - 42,074 Computers 17,992 37,300 (6,674) 48,618 Vehicles: Police 10,477 27,000 (28,436) 9,041 Public works 15,557 14,900 (3,078) 27,379 Furniture and equipment: Finance - 500 (500) - Community and development 365 - - 365 Building inspections 500 - - 500 Police 3,202 250 (2,577) 875 Streets 200 - - 200 Trees 39,377 19,750 (2,065) 57,062 Parks machinery and equipment (10,000) 10,000 - - Unallocated 14,055 4,559 - 18,614 Totals $244,524 $277,651 ($126,096) $396,079 City of Oak Park Heights, Minnesota Audit Management Letter 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 $324,075 at December 31, 2004, as follows: Prior Years 2004 Total Financing sources: Park fees $342,400 $ - $342,400 Earnings on investments 151,910 8,871 160,781 Donations and contributions 4,937 - 4,937 Total financing sources $499,247 $8,871 508,118 Financing uses: Professional services $28,533 $ - 28,533 Park signs 15,902 - 15,902 Valley View Park bridge 65,616 - 65,616 Trail paving 29,794 - 29,794 Playground equipment /benches 44,198 - 44,198 Total financing uses $184,043 $0 184,043 Fund balance - December 31, 2004 $324,075 City of Oak Park Heights, Minnesota Audit Management Letter Capital Project Funds A summary of park dedication fees is as follows: Park 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 Hom 4 Me 19,600 Other 14,400 Subtotal 103,856 Total $342,400 The above balance at December 31, 2004 has not been designated for any specific project. City of Oak Park Heights, Minnesota Audit Management Letter Capital 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 2004 Total Financial resources: Bond proceeds $1,062,456 $ - $1,062,456 Earnings on investments 131,409 11,108 142,517 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 $1,730,248 $11,108 1,741,356 Financial uses: Project costs $1,327,916 $ - 1,327,916 Residual equity transfer (7,666) Fund balance - December 31, 2004 $405,774 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. City of O ak Park Heights, Minnesota Audit Management Letter Capital Project Funds Renewal and Renlacement This find was established in 1994 for the purpose of creating a reserve balance for partial financing of fixture 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 2004 Total Financial sources: Transfer from water and sewer utility: Initial (1994) $574,378 $ - $574,378 Annual 1,151,945 154,023 1,305,968 Earnings on investments 616,112 61,689 677,801 Total financial sources $2,342,435 $215,712 2,558,147 Financial uses: Well No. 1 maintenance $43,266 $ - 43,266 Flouride system 1,581 - 1,581 Lift station repair 29,142 - 29,142 Other 599 - 599 Transfer out: Deep Well #3 60,129 - 60,129 Street reconstruction 15,854 - 15,854 Total financial uses $150,571 $ - 150,571 Fund balance - December 31, 2004 $2,407,576 City of O ak Park Heights, Minnesota Audit Management Letter Capital Project Funds Brekke Park Memorial This fund was established in 1999 to account for the donations received for Brekke Park. The fiend balance was $229 at December 31, 2004. Sanitary Sewer Connection Charlie Fund A summary of the financial activity of this fund from inception is as follows: Prior Years 2004 Total Revenue: Special assessments $27,059 $8,618 $35,677 Earnings on investments 122,110 11,419 133,529 Connection charges: River Hills I st 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 53,311 - 53,311 Brackey West - Oak Park Pond 45,461 - 45,461 Brackey West - Outlots A & B 16,161 - 16,161 Autumn Ridge 1 st, 2nd and 3rd 65,547 - 65,547 Haase addition 3,186 - 3,186 Valley Senior Service Alliance 224,352 - 224,352 Kern Center 68,474 - 68,474 Hom 4 Me Corp. 2,293 - 2,293 Commercial Partners (Kohls) 64,155 - 64,155 Other 14,690 - 14,690 Total revenue $997,199 $20,037 1,017,236 Expenditures: Transfer to debt service $328,550 $32,775 361,325 Kern Center 20,200 - 20,200 School District improvements 160,000 160,000 River Hills I st 30,942 30,942 60th Street sanitary sewer 51,522 - 51,522 Total expenditures $591,214 $32,775 623,989 Fund balance - December 31, 2004 $393,247 moo of Oak Park Heights, Minnesota Audit Management Letter Capital Project Funds Water Connection CharLye Fund A summary of the financial activity of this fund from inception is as follows: Prior Years 2004 Total Revenue: Special assessments $47,016 $15,001 $62,017 Earnings on investments 126,734 7,117 133,851 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 162,444 - 162,444 Brackey West - Oak Park Pond 96,509 - 96,509 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 360,203 - 360,203 Kern Center 119,173 - 119,173 Hom 4 Me Corp. 3,990 - 3,990 Commercial Partners (Kohls) 111,625 - 111,625 Other 25,538 - 25,538 Total revenue $1,728,231 $22,118 1,750,349 Expenditures: Transfer to debt service $1,264,750 $59,625 1,324,375 School District improvements 145,000 - 145,000 River Hills 1st 29,739 - 29,739 Kern Center 35,200 - 35,200 Total expenditures $1,474,689 $59,625 1,534,314 Fund balance - December 31, 2004 $216,035 City of Oak Park Heights, Minnesota Audit Management Letter Capital Project Funds Storm Sewer Connection Charl4e Fund A summary of the financial activity of this fiend from inception is as follows: Prior Years 2004 Total Revenue: Special assessments $59,580 $18,987 $78,567 Earnings on investments 179,216 26,253 205,469 Connection charges: River Hills 1 st 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 117,511 - 117,511 Brackey West - Oak Park Pond 122,262 - 122,262 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 491,883 - 491,883 Kern Center 150,896 - 150,896 Hom 4 Me Corp. 5,057 - 5,057 Commercial Partners (Kohls) 191,470 - 191,470 Other 34,374 - 34,374 Total revenue $1,928,149 $45,240 1,973,389 Expenditures: Transfer to Revolving Capital Fund $270,000 $ - 270,000 Transfer to Debt Service Fund 67,200 17,600 84,800 Long Lake storm sewer 27,820 - 27,820 Kern Center 44,600 - 44,600 Kern Center pond expansion - 92,581 92,581 Wal -Mart 41,232 - 41,232 Storm drainage report 9,910 9,910 River Hills I st 13,757 - 13,757 Valley Point 2nd 17,211 - 17,211 School district improvement 289,348 - 289,348 Brackey addition 99,340 - 99,340 AUAR fees 117,500 - 117,500 Total expenditures $997,918 $110,181 1,108,099 Fund balance - December 31, 2004 $865,290 City of Oak Park Heights, MEMO Minnesota Audit Management Letter Capital Project Funds This fund is 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 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 $217,150 $75,250 $137,600 $430,000 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 Haase Addition $36,330 $63,200 $80,030 $179,560 Kern Center 120,280 209,270 265,000 594,550 Oakgreen Village (Phase I and II 92,610 161,120 203,990 457,720 Total $249,220 $433,590 $549,020 $1,231,830 City of Oak Park Heights, Minnesota Audit Management Letter 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, 2004 $393,247 $216,035 $865,290 $1,474,572 Future connection charges (est.) 249,220 433,590 549,020 1,231,830 Subtotal 642,467 649,625 1,414,310 2,706,402 Debt service commitments: Bonds of 1998 (217,150) (75,250) (137,600) (430,000) Project commitments: Kern Center pond - - (250,000) (250,000) Subtotal 425,317 574,375 1,026,710 2,026,402 Available for new well - (574,375) - (574,375) Uncommitted $425,317 $0 $1,026,710 $1,452,027 As shown above, connection charges should be sufficient to fund the debt service requirement. 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, Audit Management Letter Enterprise Fund ENTERPRISE FUND The enterprise fund accounts for the operations of four departments - water, sanitary sewer, storm sewer and sanitation. Presented below is history of net income by department. Net Income By Year Sanitary Storm Year Water Sewer Sanitation Sewer Total 2004 $13,895 $12,665 $18,151 $26,496 $71,207 2003 117,821 87,935 5,457 36,789 248,002 2002 41,573 81,542 3,955 5,794 132,864 2001 41,643 (5,994) (3,604) 5,875 37,920 2000 65,051 (80,152) (255) (4,765) (20,121) 1999 49,552 (111,811) (32,625) 12,279 (82,605) 1998 (31,669) (38,145) (25,637) - (95,451) 1997 11,294 50,550 - - 61,844 1996 26,964 (6,551) - - 20,413 1995 54,581 (2,359) - - 52,222 1994 (302,719) (198,539) - - (501,258) 1993 73,349 40,156 -- - 113,505 City of O ak Park Heights, Minnesota Audit Management Letter Enterprise Fund Condensed comparative operating statements of income and expense for the utility operations of the City are as follows: Water Department 2003 2004 Amount Percent Amount Percent Revenue: Customer billings and other $386,301 100.00% $388,198 100.00% Operating expenses: Personal services 121,253 31.39% 124,486 32.07% Contractual services 72,253 18.70% 70,862 18.25% Administrative and personnel charges 23,275 6.03% 24,565 6.33% Other 8,936 2.31% 8,839 2.28% Depreciation 89,603 23.20% 94,415 24.32% Total operating expenses 315,320 81.63% 323,167 83.25% Operating income $70,981 18.37% $65,031 16.75% City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Fund A chart of income from operation is as follows: $450,000 - Water $400,000 Operating -- — Revenue & $350,000 Expense $300,000 - — Depreciation $250,000 - = All Other Expenses ©Contr<actual Services $200,000 f = Personal Services 1 Operating Revenue $150,000 - $loo,o00 -- - $50,000 - - $0 1999 2000 2001 2002 2003 2004 The water department incurred a loss in 1998, as a result, 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 and January 1, 2004. City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Fund Sewer Department 2003 2004 Amount Percent Amount Percent Revenue: Customer billings and other $540,587 100.00% $576,903 100.00% Operating expenses: Personal services 81,489 15.07% 90,064 15.61% MCES 274,430 50.77% 267,705 46.40% Other contractual services 42,154 7.80% 38,054 6.60% Administrative and personnel charges 41,840 7.74% 44,275 7.67% Other 3,561 0.66% 2,556 0.44% Depreciation 73,617 13.62% 74,581 12.93% Total operating expenses 517,091 95.66% 517,235 89.65% Operating income $23,496 4.34% $59,668 10.35% A chart of income from operations is as follows: $700,000 - - - - -- Sewer Operating $600,000 ! - -- - - - - - Revenue & Expense $500,000 1 - -- - — -" - - EM Depreciation $400,000 — - - - - -— - Personal Services Expenses =All Other Ex i P $300,000 j -- - - -- - — D MCES A-- Operating Revenue I $200,000 — $100,000 - -- — -- - $0 1999 2000 2001 2002 2003 2004 a City of Oak Park Heights, Minnes Audit Management Letter Enterprise Fund As shown on the previous pages, the sewer operating account incurred losses for 1999 through 2001. The sewer operating account has net income of $60,018 for 2004. The City revised rates as follows: Monthly Rate Monthly Rate Monthly Rate Monthly Rate Monthly Rate Monthly Rate Monthly Rate Effective Effective Effective Effective Effective Effective Effective Type of Charge 01/0l/99 04/01/00 01 /01 /01 01/01/02 01/01/03 01/01/04 01/01/05 Water: Base fee S7.05 $7.50 S7.50 S7 50 57.50 S7.50 S7 50 Charge per 1,000 gallons for Usage between 6,000 and 16,000 gallons 51.10 S1.17 51.17 S 1.17 51 25 $1.34 51.34 Usage between 17,000 and 33,000 gallons S 1.38 S 1.47 51 47 S I.47 S 1 57 51.63 S 1.76 Usage in excess of 33,000 gallons S1.65 51.76 S1.76 51.76 St 88 S201 52.11 Sever: Base fee S11.55 S12.45 513.20 S1400 51435 S15.70 S1665 Charge per 1,000 gallons for usage in excess of 5,000 gallons S2.15 52.32 S2.46 S261 S2 77 S3.00 S3 40 The City implemented monthly utility billings effective January 1, 1999. City of O ak Park Heights, Minnesota Audit Management Letter 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 97,970 181,013 (83,043) 54% 88,500 5,457 2004 96,909 167,258 (70,349) 58% 88,500 18,151 1 City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Fund A chart of income from operation is as follows: $200,000 Sanitation $180,000 = - -- - .— Operating Revenue & $160,000 '- Expense $140,000 - -- $120,000 - - Refuse Collection $100,000 - - © Refuse venue Collection nd Revenue e Expenditures $80,00() $60,000 - $40,000 l $20,000 1999 2000 2001 2002 2003 2004 City of O ak Park Heights, Minnesota Audit Management Letter 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 2003 2004 Amount Percent Amount Percent Revenue: Customer billings $68,568 100.00% $71,226 100.00% Expenses: Personal services 11,070 16.14% 15,572 21.86% Contractual services 15,011 21.89% 19,633 27.56% Materials and supplies 498 0.73% 687 0.96% Administrative and personnel charges 5,200 7.58% 5,190 7.29% Total operating expenses 31,779 46.34% 41,082 57.67% Operating income $36,789 53.66% $30,144 42.33% City of Oak Park Heights, Minnes Audit Management Letter Enterprise Fund A chart of income from operation is as follows: $80,000 - - ----------- Storm Sewer $70,000 7 Operating Revenue & Expense $60,000 - -- - $50,000 - - - ® All Other Expenses $40,000 O Contractual Services D Personal Services - $30,000 Operating Revenue - - $20,000 $10,000 - - $0 2000 2001 2002 2003 2004 City of O ak Park Heights, • Audit Management Letter Internal Control INTERNAL CONTROL A separate internal control report has been issued in conjunction with the audit. The report cited no reportable conditions.