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Home My WebLink About2013 Audit Managment Report CITY OF OAK PARK HEIGHTS, MINNESOTA AUDIT MANAGEMENT LETTER December 31, 2013 - This page intentionally left blank - To the Honorable Mayor and Members of the City Council City of Oak Park Heights, Minnesota We have completed the 2013 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. HLB TAUTGES REDPATH, LTD. March 31, 2014 4810 White Bear Parkway White Bear Lake, MN 55110 651.426.7000 651.426.5004 fax www.hlbtr.com Equal Opportunity Employer 100-Percent Employee-Owned HLB Tautges Redpath is a member of HLB International, a world-wide network of independent accounting firms and business advisors. - This page intentionally left blank - City of Oak Park Heights, Minnesota Audit Management Letter Report Summary Report Summary Several reports are issued in conjunction with the audit. A very brief summary is as follows: Report Name Elements of Report Overview Annual Financial Report (AFR) Financial statements Unmodified (“clean”) opinion on the Financial Footnotes Statements Required supplementary information Statistical information Report on Internal Control and on Results of testing No findings of Compliance and Other Matters Internal controls over financial noncompliance reporting Internal control finding Compliance with laws, resulting in a prior period regulations, contracts and adjustment. grants State Legal Compliance Report Results of testing certain No findings of provisions of Minnesota noncompliance Statutes Audit Management LetterIntended to be a working tool for City Council Comparisons and trend analysis Outside factors influencing City financial reporting Policies and procedures 2 City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts ASA NALYSIS OF ELECTEDCCOUNTS Summary of Financial Activity The schedule below presents a condensed financial summary of all funds: Increase (Decrease) inFund Balance/ Revenue ExpendituresFund Balance/Net and Otherand OtherTransfersNetPosition FundSourcesUses(Net)Position12/31/13 General 1$5,090,344$3,458,971($1,868,160)($236,787)$3,514,371 Special Revenue Funds: 2Forfeiture and Seizure5,2384,831 - 4077,330 3Economic Development(115)188 - (303)31,324 4TIF District #1106,17691,449 - 14,72719,331 Debt Service Funds: 5Bonds of 2008(92)412,845410,000(2,937)95,231 6Bonds of 2009133135,760138,0002,37319,246 7G.O. CIP Refunding Bonds of 2012A(7,897)108,831 - (116,728)5,078,062 Capital Project Funds: 8Capital Revolving19,191448,857536,000106,334315,876 9Budgeted Projects and Equipment Revolving(4,574)93,097455,234357,5631,541,709 10Street Reconstruction(12,896)305,250337,22519,0792,511,605 11City Hall Improvements(295)8,900 - (9,195)95,784 12Park Development(2,183)55,315 - (57,498)698,459 13Moelter Park(2,193) - - (2,193)591,613 14Renewal and Replacement(12,982)422,192262,158(173,016)4,511,854 15Storm Sewer Renewal/Replacement(2,441) - 80,18577,744482,985 16Sanitary Sewer Connection (1,530) - - (1,530)411,468 17Water Connection(1,635) - - (1,635)439,827 18Storm Sewer Connection(3,517) - - (3,517)946,208 19Water Tower Rehabilitation32,7269040,47973,115199,513 20Well Rehabilitation(400) - 13,32112,921121,007 21Sewer Rehabilitation(170) - 1,9381,76847,899 Enterprise Funds: 22Water715,952470,404(237,123)8,4255,051,083 23Sanitary Sewer831,050695,817(165,840)(30,607)2,881,858 24Storm Sewer110,92258,239(3,417)49,266120,361 Total 25$6,858,812$6,771,036$0$87,776$29,734,004 3 City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts Property Taxes A summary of property tax activity for the past five years is as follows: 20092010201120122013 Tax levy certified$3,657,865$3,754,704$3,964,704$4,228,062$4,538,193 Less market value homestead credit deduction(83,010)(92,249)(93,934) - - Net levy3,574,8553,662,4553,870,7704,228,0624,538,193 Receipts: Current property taxes3,417,6013,584,0273,819,2204,176,1254,515,202 Delinquent property taxes30,36474,11892,2695,82033,252 Total receipts3,447,9653,658,1453,911,4894,181,9454,548,454 Adjustments(59,731)(9,992)(9,361)(28,494)($11,238) Increase (decrease) in delinquent taxes receivable67,159(5,682)(50,080)17,623(21,499) Delinquent taxes - January 171,337138,496132,81482,734100,357 Delinquent taxes - December 31$138,496$132,814$82,734$100,357$78,858 Current collection as a percent of current levy95.6%97.9%98.7%98.8%99.5% Total collections as a percent of current levy96.5%99.9%101.1%98.9%100.2% During 2013, the City was notified of property tax abatements. These abatements reduced 2013 property revenue as follows: Current and delinquent tax collections$4,541,332 Payment in lieu of tax69,727 Non-levy collections5,139 Reduction for property tax abatements(182,996) Total property tax revenue reported in the financial statements$4,433,202 4 City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts Tax Levies, Tax Rates and Tax Capacity A comparison of values for taxes payable in 2010 through 2014 is as follows: 20102011201220132014 Taxable market value$682,742,100$669,938,700$643,608,300$663,496,300$640,880,000 Tax capacity values: Real estate$10,486,193$10,335,277$10,095,639$10,257,139$10,165,672 Personal property86,68192,02390,84095,16895,590 Subtotal10,572,87410,427,30010,186,47910,352,30710,261,262 Tax increment - - - (108,254)(126,677) Fiscal disparity contribution(2,492,111)(2,117,456)(2,336,411)(2,346,765)(2,467,230) Fiscal disparity distribution546,593508,498405,806392,002386,218 Total$8,627,356$8,818,342$8,255,874$8,289,290$8,053,573 Tax capacity rates43.845 45.027 51.710 54.898 59.400 Tax levy$3,754,704$3,964,704$4,228,062$4,538,193$4,784,896 5 City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts A schedule of tax capacity by classification is as follows: CITY OF OAK PARK HEIGHTS 20052013 Percent ofPercent of AmountCity TotalAmountCity Total Real estate: Agricultural$21,2840.3% $9360.0% Seasonal2,8030.0% 1,2540.0% Residential homestead2,188,76531.6% 1,622,04115.7% Residential nonhomestead719,16110.5% 1,113,68210.8% Commercial/industrial2,526,85836.6% 3,522,05834.0% Public utility1,378,24919.9% 3,990,89638.6% Railroad3,3600.0% 6,2720.1% Total real estate6,840,48098.9% 10,257,13999.2% Personal property78,4601.1% 95,1680.8% Total tax capacity$6,918,940100.0% $10,352,307100.0% As shown above, the City’s major tax payer (Xcel Energy) is 38.6% of total tax capacity. Tax Capacity by Property Class -2013 Personal Property 0.9% Residential Homestead Public Utility15.7% 38.6% Residential Nonhomestead 10.8% Commercial/Industrial 34.0% 6 City of Oak Park Heights, Minnesota Audit Management Letter General Fund GF ENERALUND The General Fund of the City is maintained to account for expenditures common to all cities (general government, public safety, public works, and parks and recreation). A ten- year history of major revenue sources that support the General Fund are as follows: (1) Property TaxesState AidsAll OtherTotal Revenue YearAmountPercentAmountPercentAmountPercentAmountPercent 20041,910,848$ 72%61,479$ 2%671,683$ 26%2,644,010$ 100% 20052,218,213 71%78,137 3%819,616 26%3,115,966 100% 20062,423,246 77%92,370 3%633,057 20%3,148,673 100% 20072,687,730 79%181,233 5%547,531 16%3,416,494 100% 20083,156,807 82%120,701 3%592,538 15%3,870,046 100% 20093,134,378 82%249,822 7%439,143 11%3,823,343 100% 20103,305,004 79%180,174 4%673,969 17%4,159,147 100% 20113,583,487 87%75,860 2%468,768 11%4,128,115 100% 20124,245,360 90%69,677 1%423,580 9%4,738,617 100% 20134,433,202 87%86,775 2%568,367 11%5,088,344 100% (1) Since 2010, the General Fund has levied property taxes which have been transferred out to Debt Service Funds. Those levies were $548,000, $536,000, and $134,000 for the years ended December 31, 2013, 2012 and 2011, respectively. Major Revenue Sources -2013 State Aids 1% All Other 9% Property Taxes 90% 7 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: $4,600,000 $4,400,000 General Fund $4,200,000 Revenue by Source $4,000,000 $3,800,000 $3,600,000 $3,400,000 State Aids $3,200,000 All Other $3,000,000 $2,800,000 Property Taxes $2,600,000 Property Taxes without Debt Levy $2,400,000 $2,200,000 $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $- 2004200520062007200820092010201120122013 State Aids State aids of the General Fund have consisted of the following for the past seven years: State Aid2007200820092010201120122013 Market value homestead credit$81,066$40,625$ - $ - $ - $ - $ - LGA27,98414,028 - - - - - Police aid66,52560,40469,39258,93063,27861,24270,031 Utility valuation transition aid - - 178,390102,947 - - - Other state revenue5,6585,6442,04018,29712,5828,43516,744 Totals$181,233$120,701$249,822$180,174$75,860$69,677$86,775 Change($60,532)$129,121($69,648)($104,314)($6,183)$17,098 % Change(33%)107% (28%)(58%)(8%)25% 8 City of Oak Park Heights, Minnesota Audit Management Letter General Fund Other General Fund Revenue Other revenue of the General Fund has consisted of the following for the past seven years: Description2007200820092010201120122013 Licenses and permits$155,820$203,041$100,074$197,181$131,081$163,986$90,910 Charges for services: (2) Enterprise 63,20062,04064,40066,42069,4253,8304,180 (3) Construction/engineering fee 12,5682,602 - - - - - Other56,78915,6789,89077,38618,12713,698300,223 Inspections - - - - - - - Fines and forfeits66,18963,60270,10258,36557,86255,02351,360 (4) Earnings on investments 93,95790,00455,43950,67541,37836,791(23,982) (1) Other91,647155,571139,238223,942150,895140,940135,864 Total$540,170$592,538$439,143$673,969$468,768$414,268$558,555 (1) The significant increase in other revenue from 2009 to 2010 occurred because the City received a $73,895 Federal Energy Efficiency and Conservation Block Grant in 2010, which is classified in this category. (2) Beginning in 2012, an administrative fee is charged only to the Storm Sewer Fund. As a result, the transfers from Water and Sewer to the Renewal and Replacement Fund were increased $64,047. Transfers were made in 2013 that were similar to 2012. (3) The significant increase in construction/engineering fees from 2012 to 2013 occurred because the City received a $207,600 closing fee when Presbyterian Homes refinanced their conduit debt agreement (4) Earnings on investments is negative in 2013 due to a market value adjustment. Although the City holds its investments to maturity and will receive par value at maturity, accounting standards require the City to report its investments at market value at year-end. The change in market value for 2013 resulted in an adjustment of $185,738. 9 City of Oak Park Heights, Minnesota Audit Management Letter General Fund Budget Versus Actual Comparison The General Fund balance decreased by $237,000. Charges for services revenue exceeding budget resulted in higher than anticipated revenue. Expenditures in most City departments were also less than budgeted. A summary is as follows: BudgetActualVariance Revenue$4,893,000$5,088,000$195,000 Expenditures3,659,0003,459,000(200,000) Revenue over expenditures1,234,0001,629,000395,000 Other financing sources (uses): Sale of property - 2,0002,000 Transfers out(1,868,000)(1,868,000) - Total other financing sources (uses)(1,868,000)(1,866,000)2,000 Net change in fund balance($634,000)($237,000)$397,000 Transfers to other funds for 2013 included the following amounts: FundAmount Capital Revolving Fund$536,000 Budgeted Projects Fund367,000 Debt Service - 2008 Bonds410,000 Debt Service - 2009 Bonds138,000 Street Reconstruction337,000 Storm Sewer Renewal/Replacement80,000 $1,868,000 10 City of Oak Park Heights, Minnesota Audit Management Letter General Fund General Fund Reserves The fund balance of the General Fund decreased in 2013. The schedule below reflects the General Fund balance for the past fifteen years: Year EndedFundIncrease December 31,Balance(Decrease) 19991,191,081$ 4,418$ 20001,280,10189,020 20011,173,118(106,983) 20021,329,229156,111 20031,694,611365,382 20041,847,608152,997 20052,103,743256,135 20062,302,502198,759 20072,515,620213,118 20082,616,370100,750 20092,720,012103,642 20102,973,797253,785 20113,261,561287,764 20123,669,633408,072 20133,514,371(236,787) 11 City of Oak Park Heights, Minnesota Audit Management Letter General Fund CǒƓķ.ğƌğƓĭĻ $4,000,000 $3,500,000 $3,000,000 Actual Fund $2,500,000 Balance Minimum Fund Balance per policy $2,000,000 $1,500,000 $1,000,000 $500,000 $0 199920002001200220032004200520062007200820092010201120122013 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: Need for Reserve Balances Benefits of Reserve Balances Cash Flow Timing Favorable bond rating Supplements revenues Difference indicatorwith investment income Intergovernmental Capital Outlay Revenue Cutbacks Replacement Avoids temporary Provides resources for overdrafts prior to major minor projects or receipts feasibility reports Avoids overburdening Provides the City of annual budgets for greater options to deal Emergency or certain capital outlay Special with unexpected events Unanticipated Projects Expenditures 12 City of Oak Park Heights, Minnesota Audit Management Letter General Fund The City’s current fund balance policy was adopted on November 15, 2011. The purpose of the policy is to establish appropriate fund balance levels for each fund that is primarily supported by property tax revenues or user fees. The City’s fund balance policy states the City will maintain funds for the following: Compensated absences Cash flow Contingencies The compensated absences reserve is an amount equal to 50% of accumulated vacation leave and 100% of that portion of sick leave that would be payable under the City’s severance pay policy. Assigned Fund Balance For Employee Benefits December 31, Employee Benefit20122013 Vacation leave carryover (50%)$40,063$42,206 Severance125,082130,507 Total$165,145$172,713 Rounded amount$173,000 13 City of Oak Park Heights, Minnesota Audit Management Letter General Fund Cash Flow Reserve Property taxes and related state aids have accounted for 80% to 85% of the revenue of the General Fund in recent years. Property taxes and the majority of state aid are not received until July and December of each year (i.e., the second half of the year). As a result, the City is required to have sufficient reserves at the beginning of the year to fund operations of the first half of the year. The City’s fund balance policy states that its cash flow reserve should be equal to 45-55% of the subsequent year’s budgeted operating expenditures. The recommended cash flow reserve is $2,125,000, computed as follows: Cash Flow Reserve 2014 tax levy $4,674,339 Less transfers out which occur after taxes are received(424,923) $4,249,416 Reserve amount @ 50%$2,125,000 14 City of Oak Park Heights, Minnesota 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: $3,800,000 General Fund Monthly Cash Balances $3,600,000 $3,400,000 $3,200,000 $3,000,000 $2,800,000 $2,268,000 $2,600,000 decrease $2,400,000 $2,200,000 $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 12/31/20121/31/20132/28/20133/31/20134/30/20135/31/20136/30/20137/31/20138/31/20139/30/201310/31/201311/30/201312/31/2013 Cash $3,609,138$3,412,787$3,207,609$2,962,393$2,685,915$2,379,062$1,340,407$3,017,950$3,058,655$2,755,147$2,568,016$2,372,613$3,643,812 As shown above, the cash balance decreased $2,268,000 between January 1 and June 30, illustrating the need for the cash flow reserve. 15 City of Oak Park Heights, Minnesota Audit Management Letter General Fund General Contingency 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. The City’s fund balance policy states this amount should be 10-15% of the subsequent year’s General Fund budgeted expenditures, computed as follows: General Contingency Reserve December 31, Description20122013 Ensuing year's budget$4,893,418$5,177,809 Reserve amount @ 15%$734,000$777,000 16 City of Oak Park Heights, Minnesota Audit Management Letter General Fund General Fund Balance Summary In summary, the fund balance of the General Fund at December 31, 2013, was as follows: General Fund Balance ConstraintDecember 31, 20122013 Nonspendable: Prepaid items$4,609$5,201 Assigned for: Employee benefits165,000173,000 Unassigned: Cash flow reserve2,060,0002,125,000 General contingency reserve734,000777,000 Remaining balance706,024434,170 Subtotal - unassigned3,500,0243,336,170 Total fund balance$3,669,633$3,514,371 17 City of Oak Park Heights, Minnesota Audit Management Letter Special Revenue Funds SRF PECIALEVENUEUNDS 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 three Special Revenue Funds during 2013. 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 Years2013Total Revenue: Intergovernmental - bulletproof vests$9,825$ - $9,825 Earnings on investments16,244(10)16,234 Reimbursements8,601 - 8,601 Confiscated property167,9425,248173,190 Sale of municipal property5,046 - 5,046 Total revenue$207,658$5,238212,896 Expenditures: Public safety: Materials and supplies$73,287$3,317$76,604 Contractual services26,3321,51427,846 Capital outlay101,116 - 101,116 Total expenditures$200,735$4,831205,566 Fund balance - December 31, 2013$7,330 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." 18 City of Oak Park Heights, Minnesota 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 Years2013Total Revenue: Earnings on investments$35,409($115)$35,294 Interfund loan interest1,113 - 1,113 Refunds and reimbursements2,531 - 2,531 Sale of municipal property76 - 76 Transfer from Capital Revolving Fund410,000 - 410,000 Total revenue$449,129($115)449,014 Expenditures: Community development: Materials and supplies$457$188645 Contractual services45,914 - 45,914 Interfund loan interest70,000 - 70,000 Capital outlay290,018 - 290,018 Transfer to Capital Revolving Fund11,113 - 11,113 Total expenditures$417,502$188417,690 Fund balance - December 31, 2013$31,324 During 1998, the City purchased the Bell property and demolished the building in 1999. In prior years, this fund had a deficit that 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 interfund loan was forgiven. If a sale of the Bell property occurs, the proceeds should be receipted in the Capital Revolving Fund. During 2010, the City purchased property on Osgood Avenue, with the intent to resell the property. The purchase was funded by a $150,000 transfer from the Capital Revolving Fund. This was not a loan from the Capital Revolving Fund, but the intent is to transfer back sales proceeds to the Capital Revolving Fund once the property is sold. 19 City of Oak Park Heights, Minnesota Audit Management Letter Special Revenue Funds TIF District #1 Fund This fund was established in 2012 to account for Tax Increment District 1-1 (Oakgreen Commons). A summary of the financial activity of this fund from inception is as follows: Prior Years2013Total Revenue: Tax increment$26,583$106,924$133,507 Investment income28(748)(720) Total revenue$26,611$106,176132,787 Expenditures: General government: TIF note payment$21,267$91,104112,371 Other 7403451,085 Total expenditures$22,007$91,449113,456 Fund balance - December 31, 2013$19,331 The City issued a TIF Note in the principal sum of $1,200,000. The TIF Note is payable solely from “available” tax increment revenue. Available tax increment revenue is an amount equal to 80% of tax increment revenue received by the City. The City has no obligation on the note after February 21, 2026. 20 City of Oak Park Heights, Minnesota Audit Management Letter Debt Service Funds DSF EBTERVICEUNDS 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 2013. 21 City of Oak Park Heights, Minnesota Audit Management Letter Debt Service Funds Capital Improvement Bonds of 2008/2012A The bond was issued to finance construction of City Hall. The repayment of the bond issue is being funded by property tax levies. Taxes for 2009-2011 were levied in the Debt Service Fund. A $410,000 property tax was levied in the General Fund for 2013 and was transferred into the Debt Service Fund. In 2012, the Crossover Refunding Bonds of 2012A were issued to refund the 2008 Bonds on December 15, 2016. The refunding resulted in a debt service savings of $404,000. A schedule of actual and projected tax levies (per the bond resolution) and debt payments are as follows: City of Oak Park Heights, Minnesota Projection of Cashflow Capital Improvement Bonds of 2008/2012A Cash and CurrentTotalCash and Current Assets BalancePropertyBondInvestmentProjectedDebtAssets Balance YearJanuary 1TaxesProceedsInterestReceiptsPaymentsDecember 31 2008$ - $ - $242,303$7,457$249,760$122,513$127,247 2009127,247336,292 - 3,250339,542380,02586,764 201086,764392,805 - 1,656394,461391,65089,575 201189,575400,902 - 1,556402,458392,52599,508 201299,508400,0005,191,2835,1975,596,480403,0305,292,958 20135,292,958410,000 - - 410,000521,6775,181,281 20145,181,281420,000 - 25,803445,803526,7765,100,308 20155,100,308430,000 - 25,416455,416535,1765,020,548 20165,020,548440,000 - 23,011463,0115,402,75880,801 201780,801410,000 - 615410,615409,75881,658 201881,658420,000 - 636420,636418,65883,636 201983,636430,000 - 660430,660432,25882,038 202082,038440,000 - 674440,674445,45877,254 202177,254460,000 - 673460,673458,25879,669 202279,669475,000 - 701475,701470,65884,712 202384,712490,000 - 752490,752492,65882,806 202482,806505,000 - 771505,771509,05879,519 202579,519520,000 - 790520,790539,95860,351 202660,351535,000 - 725535,725560,05836,018 202736,018550,000 - 624550,624569,29417,348 202817,348575,000 - 568575,568597,576(4,660) Total$9,039,999$5,433,586$101,535$14,575,120$14,579,780 Assumptions Property tax collection rate.....................................100% Investment interest rate...........................................0.50% Negative interest charged to funds?.....................no 22 City of Oak Park Heights, Minnesota Audit Management Letter Debt Service Funds Capital Improvement Bonds of 2009 The bond was issued as additional financing for construction of City Hall. The repayment of the bond is being funded by property tax levies. Taxes are levied in the General Fund and then transferred into the Debt Service Fund. A schedule of actual and projected tax levies (per the bond resolution) and debt payments are as follows: City of Oak Park Heights, Minnesota Projection of Cashflow Capital Improvement Bonds of 2009 Cash and CurrentTotalCash and Current Assets BalancePropertyBondInvestmentProjectedDebtAssets Balance YearJanuary 1TaxesProceedsInterestReceiptsPaymentsDecember 31 2009$ - $ - $21,582$1,357$22,939$7,588$15,351 201015,351122,000 - 720122,720130,3507,721 20117,721134,000 - 492134,492129,15013,063 201213,063136,000 - 460136,460132,65016,873 201316,873138,000 - 133138,133135,76019,246 201419,246139,000 - 366139,366138,56020,052 201520,052140,000 - 381140,381140,85819,575 201619,575142,000 - 388142,388142,67819,285 201719,285143,000 - 395143,395144,11418,566 201818,566144,000 - 395144,395150,08412,877 201912,877145,000 - 349145,349155,3262,900 Total$1,383,000$21,582$5,877$1,410,459$1,407,118 Assumptions Property tax collection rate................................100% Investment interest rate....................................1.00% Negative interest charged to funds?..................no 23 City of Oak Park Heights, Minnesota Audit Management Letter Capital Project Funds CPF APITALROJECTUNDS A summary of the financial activity of the Capital Project Funds for the year ended December 31, 2013 is as follows: Increase inFund InterfundFundBalance FundRevenuesExpendituresTransfersBalance12/31/2013Comments Expenditures relate to Hwy 36 Bridge Project. Capital Revolving$19,191$448,857$536,000$106,334$315,876Received transfer from General Fund See later comments. Budgeted Projects and Equipment Revolving(4,574)93,097455,234357,5631,541,709 Received transfer from General Fund. Expenditures Street Reconstruction(12,896)305,250337,22519,0792,511,605relate to 2014-2015 Street Reconstruction City Hall Improvements(295)8,900 - (9,195)95,784Accounted for construction of city hall. Park Development(2,183)55,315 - (57,498)698,459 Moelter Park(2,193) - - (2,193)591,613 Receives annual transfer from Water and Sewer. Expenditures relate to Washington County Utility Renewal and Replacement(12,982)422,192262,158(173,016)4,511,854Improvements at 62nd and Oxboro Received transfer from General Fund. Storm Sewer Renewal/Replacement(2,441) - 80,18577,744482,985 Sanitary Sewer Connection (1,530) - - (1,530)411,468 Water Connection(1,635) - - (1,635)439,827 Storm Sewer Connection(3,517) - - (3,517)946,208 Received transfer from Water fund. Water Tower Rehabilitation32,7269040,47973,115199,513 Well Rehabilitation(400) - 13,32112,921121,007Received transfer from Water fund. Received transfer from Sewer fund. Sewer Rehabilitation(170) - 1,9381,76847,899 Totals$7,101$1,333,701$1,726,540$399,940$12,915,807 24 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. 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, 2013: FundRevenuesFund BalanceandBalance Purpose12/31/12TransfersExpenditures12/31/13 1Sealcoat/crack seal$58,875$100,000$14,225$144,650 2Outdoor storage - - - - 3Municipal building226,61215,000 - 241,612 4Recreation: 5 Park and trail improvements63,88170,00029,305104,576 6 Trail maintenance64,30010,000 - 74,300 7 Park building maintenance17,00050,000 - 67,000 8 Brekke Park memorial fund394 - - 394 9Computers36,04722,80016,46242,385 10Document imaging2,8949913,885 - 11Vehicles: 12 Police60,88332,500 - 93,383 13 Public works96,24928,334 - 124,583 14 Building official238 - - 238 15Furniture and equipment: 16 General15,000(225)14,775 - 17 Building inspections78(78) - 18 Police 2,853 - 2,507346 19Trees103,0237,31495,709 20Emerald ash borer40,00040,000 - 80,000 21Public works equipment153,13579,100 - 232,235 22Police radio equipment32,5802,50035,080 23Police computer equipment5,1269,6244,62410,126 24Police in-squad video systems - - - - 25Comprehensive plan141(141) - - 26Coalition of utility cities16,000 - - 16,000 27Civil defense16,000 - - 16,000 28Software316(316) - - 29Unallocated172,521(9,429) - 163,092 30Totals$1,184,146$450,660$93,097$1,541,709 25 City of Oak Park Heights, Minnesota Audit Management Letter Capital Project Funds Connection Charge Funds Based on City estimates, the Connection Charge Funds are scheduled to receive the following future connection charges as development occurs: (1) Estimated Future Connection Charges SanitaryWaterStorm SewerWorksWaterTotal Total$50,602$262,969$41,012$354,583 (1) Estimated amounts are as of 2009. Revised estimates will be established in 2014. A summary of fund balance and estimated future connection charges is as follows: SanitaryWaterStorm SewerWorksWaterTotal Fund balance - December 31, 2013$411,468$439,827$946,208$1,797,503 Future connection charges (est.)50,602262,96941,012354,583 Uncommitted$462,070$702,796$987,220$2,152,086 26 City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Funds EF NTERPRISEUNDS Enterprise funds account for water, sanitary sewer and storm sewer operations. Water Utility Fund A chart of income from operations for the past seven years is as follows: $800,000 Water Operating Revenue & Expense $700,000 $600,000 $500,000 Depreciation Transfer Out All Other Expenses $400,000 Contractual Services Personal Services Operating Revenue $300,000 $200,000 $100,000 $0 2007200820092010201120122013 27 City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Funds Sewer Utility Fund A chart of income from operations for the past seven years is as follows: $1,000,000 Sewer Operating Revenue & Expense $900,000 $800,000 $700,000 Depreciation $600,000 Transfer Out Personal Services $500,000 All Other Expenses MCES $400,000 Operating Revenue $300,000 $200,000 $100,000 $0 2007200820092010201120122013 28 City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Funds The City’s water and sewer rates for the past seven years are as follows: Monthly RateQuarterly Rate EffectiveEffectiveEffectiveEffectiveEffectiveEffectiveEffectiveEffective Type of Charge01/01/0701/01/0801/01/0907/01/0901/01/1001/01/1101/01/1201/01/13 Water: Base fee$23.10$24.35$26.24$28.31$28.31$29.91$30.70$30.70 Charge per 1,000 gallons for: Usage between 15,000 and 50,000 gallons$1.47$1.62$1.78$1.96$1.96$2.48$2.55$2.55 Usage between 50,000 and 99,000 gallons$2.02$2.22$2.44$2.68$2.68$2.97$3.05$3.05 Usage between 99,000 and 200,000 gallons$2.43$2.67$2.94$3.23$3.23$3.81$3.92$3.92 Usage in excess of 200,000 gallons$2.43$2.67$2.94$3.23$3.91$4.61$4.74$4.74 Sewer: Base fee$49.95$49.95$51.70$54.28$56.99$60.41$62.10$66.00 Charge per 1,000 gallons for: Usage between 15,000 and 50,000 gallons$3.40$3.40$3.52$3.70$4.07$4.31$4.43$4.60 Usage in excess of 50,000 gallons$3.40$3.40$3.52$3.70$4.50$4.77$4.90$4.90 29 City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Funds Storm Sewer Utility Fund 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 chart of income from operation for the past seven years is as follows: $100,000 Storm Sewer Operating Revenue & Expense $90,000 $80,000 $70,000 $60,000 Transfer Out All Other Expenses $50,000 Contractual Services Personal Services Operating Revenue $40,000 $30,000 $20,000 $10,000 $0 2007200820092010201120122013 30 City of Oak Park Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance CWTCWG OMMUNICATIONITHHOSEHARGEDITHOVERNANCE We have audited the financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of the City of Oak Park Heights, Minnesota (the City) for the year ended December 31, 2013. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated November 8, 2013. Professional standards also require that we communicate to you the following information related to our audit. Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. As described in Note 17 to the financial statements, the City changed accounting policies by adopting statement of Governmental Accounting Standards (GASB Statements) No. 61 and 65. GASB Statement No. 61, The Financial Reporting Entity: Omnibus – An Amendment of GASB No. 14 and No. 34 modifies certain requirements for inclusion of component units in the financial reporting entity and also amends the criteria for reporting component units as if they were part of the primary government (i.e. blending). This standard had no effect on the City’s financial statements. 31 City of Oak Park Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, resulted in accounts previously presented as liabilities being reclassified as deferred inflows of resources. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were management’s estimation of 1) the market value of the City’s land held for resale; 2) the factors relating to the net OPEB obligation and, 3) the revenue recognition of MNDOT assistance relating to the bridge project. We evaluated the key factors and assumptions used to develop these estimates in determining that they are reasonable in relation to the financial statements taken as a whole. The City has several agreements with the State that details the financial assistance to be provided to the City of Oak Park Heights relating to the Bridge Project. The revenue recognition of this financial assistance has been delayed pending completion of the Project. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosure affecting the 32 City of Oak Park Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance financial statements pertained to the City’s commitment to relocate portions of its utility infrastructure along Highway 36 (Note 10A). The disclosures in the financial statements are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. We identified two known misstatements for which adjustments were not made (prepaid insurance of $14,000 and bond issuance costs of $85,000). The misstatement of bond issuance costs only affects governmental activities on Statements 1 and 2 and was recorded as an expense in 2013 to conform with new guidance effective for 2013. None of the misstatements detected as a result of audit procedures were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. 33 City of Oak Park Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance Management Representations We have requested certain representations from management that are included in the management representation letter dated March 31, 2014. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the governmental unit’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the governmental unit’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Information in Documents Containing Audited Financial Statements With respect to the supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the 34 City of Oak Park Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. Closing This information is intended solely for the information and use of the City Council and Management of the City of Oak Park Heights, Minnesota and is not intended to be, and should not be, used by anyone other than these specified parties. 35