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051622 Work Session Meeting Packet CITY COUNCIL WORK SESSION MEETING New Hope City Hall, 4401 Xylon Avenue North Northwood Conference Room Monday, May 16, 2022 6:00 p.m. - dinner 6:30 p.m. - meeting Mayor Kathi Hemken Council Member John Elder Council Member Andy Hoffe Council Member Michael Isenberg Council Member Jonathan London 1. CALL TO ORDER – May 16, 2022 2. ROLL CALL 11. UNFINISHED & ORGANIZATIONAL BUSINESS 11.1 Update from West Metro Fire-Rescue District 11.2 Discussion of New Hope’s Emerald Ash Borer program funding 11.3 Discuss the leasing of seven city vehicles through Enterprise Fleet Management 11.4 Update on Pool/Civic Center Park/City Hall Landscaping projects by Stantec Engineering (Improvement Project Nos. 995/941/994) 11.5 Review 2021 Audit and Comprehensive Annual Report with Abdo 11.6 Discuss American Rescue Plan Act (ARPA) fund transfers 11.7 Discuss transfer from Park Infrastructure Fund to Ice Arena Operating Fund 11.8 Resolution calling for a closed meeting of the New Hope City Council authorized by Minn. Stat §13D.03 to discuss and consider labor negotiations strategy 12. OTHER BUSINESS 13. ADJOURNMENT I:\RFA\City Manager\2022\WMFRD\WS 051622\11.1 Q ‐ West Metro Fire‐Rescue District Update 05.16.22.docx   Request for Action  May 16, 2022    Approved by: Kirk McDonald, City Manager  Originating Department: City Manager  By: Kirk McDonald, City Manager    Agenda Title  Update from West Metro Fire‐Rescue District  Requested Action  Staff requests the City Council receive an update from Chief Larson on West Metro Fire‐Rescue District  operations. The chief will be presenting updates to both the New Hope and Crystal city councils in the month  of May. Council Member Elder serves as the New Hope council representative on the board, and Marc Berris  serves as the New Hope citizen representative on the board. The city manager also serves on the board.  Policy/Past Practice  West Metro Fire‐Rescue District was formed in 1998 as a joint powers agreement between the cities of New  Hope and Crystal. The agreement was updated and approved by both city councils in 2011 and updated in  2017 and 2019. One of the items in the board’s work plan and in the chief’s goals is for the chief to provide  periodic updates to the city councils to keep the lines of communication open between the fire district and the  two cities. The last update was provided at the February work session.     Background  Chief Larson will be discussing routine items with the City Council along with a review of the preliminary  2023 West Metro Fire‐Rescue District budget. The Fire Board also requested that the city managers ask their  respective city councils if they feel a joint work session with the Board in August is necessary. Information on  discussion items is attached.     1. Routine Items   Calls for Service Report through March 31   Food Drive   2021 Audit   Reorganization   Significant Fire     2. Preliminary 2023 West Metro Fire‐Rescue District Budget  The fire board reviewed the preliminary 2023 budget at their April meeting and have not recommended any  changes to date. Prior to the board meeting, the city managers reviewed the budget in detail with the chief  and a number of adjustments were made.     The total proposed 2023 budget is $3,031,190, which is an increase of $249,090 or 9% over the 2022 budget of  $2,782,100. The general operating budget increase is $249,090 or 11.3%, based on one additional full‐time staff  person, salaries, PERA, workers compensation insurance, health insurance, medical exams, financial services  and communications. There is a $20,000 decrease to the special revenue pension fund contribution. The  Agenda Section Work Session Item Number  11.1    Request for Action, Page 2    contributions to the budget include a $103,600 lease payment for the aerial truck (tower) and a new $70,000  lease payment for the new engines.    The costs of the budget are split between the two cities based on a cost sharing formula that includes average  number of calls over a five‐year period, population and taxable market value. Based on the 2023 preliminary  budget, New Hope’s increase is $133,594 or 9.4% (the increase for 2022 was $65,859 or 4.9%). New Hope’s  share of the total budget is $1,551,817 or 51.1950%. Crystal’s share of the budget is $1,479,373 or 48.8050%.  The average number of calls for service were greater in New Hope, which is the main factor contributing to  the higher percentage paid for the budget.    Market Values in Millions     2022 Budget 2023 Budget Change  New Hope 2,257 2,382 +125  Crystal 2,214 2,402 +188    Average Calls Over 5 Years     2022 Budget 2023 Budget Change  New Hope 965 1040 +75  Crystal 803 842  +39    The Fire Board is requesting that the city councils advise the city managers if there are any concerns with  the budget, so the city managers can report back to the Board.     The Joint Powers Agreement requires the board to approve the budget at their annual meeting scheduled for  July 8. Both city councils are required to act on the budget by August 31, either accepting the budget or  making recommendations for changes. The cost for New Hope’s portion of the Joint Powers Agreement is  included in the Fire and Emergency Management budget in the General Fund budget.    3. Discuss August 10 Tentative Joint Council/Board Work Session  There is currently a tentative joint council/board work session scheduled for August 10. During the city  council work sessions in 2012 to discuss the future of the West Metro Fire‐Rescue District (WMFRD), it was  agreed the two city councils should meet with the WMFRD Board annually to keep the lines of  communication open. Due to lack of agenda items, low attendance at these meetings and improved  communication with the Chief’s quarterly updates, this work session has been cancelled in recent years.  When the 2022 meeting schedule was approved at the December, 2021, Fire Board meeting the city managers  had recommended that the tentative work session not be scheduled, however the Crystal Council requested  that it be added back to the schedule. At the April Fire Board meeting the Board requested that the city  managers inquire whether their respective city councils feel that a joint council/board work session is  necessary and bring that information back to a future Board meeting.   Attachments:   New Hope Council Update   Preliminary 2023 West Metro Fire‐Rescue District Budget   2022 Fire Board Meeting Schedule  I:\RFA\PUBWORKS\2022\Work Session\5‐16 EAB Discussion\11.2 Q‐ EAB Budget Discussion.docx    Request for Action  May 16, 2022    Approved by: Kirk McDonald, City Manager  Originating Department: Public Works  By: Shawn Markham, Contract Manager/Forester;  Bernie Weber, Public Works Director;   Susan Rader, Parks & Recreation Director; and   Kirk McDonald, City Manager    Agenda Title  Discussion of New Hope’s Emerald Ash Borer program funding   Requested Action  Staff would like to provide the City Council an update on the Emerald Ash Borer program, specifically  related to budget needs and determine other possible funding sources for the continued need for Ash tree  removal/replacement in 2022.  Policy/Past Practice  The city of New Hope has continually sought opportunities to better the community at large, as well as make  the community a safer and better place. In the past the city of New Hope developed programs to help  manage invasive species in our community.    Background    Emerald Ash Borer:  In 2010, the New Hope City Council approved the creation and implementation of a city Emerald Ash Borer  (EAB) program. The creation of the program included increased funding to fulfill goals related to control of  the Emerald Ash Borer. Since 2010, the city’s primary focus has been the removal of boulevard ash trees and  replacement of removed Ash trees with trees of greater diversity to avoid problems associated with planting  species monocultures.    Streets Operating Budget  In 2016, the City Council increased the trees removal/replacement budget from $125,000 to $150,000 in the  2017 budget and has been continued through 2021. In 2022, a budget increase of $50,000 was approved by the  City Council, for a total of $200,000 dedicated to tree removal and replacement with a primary focus on  public Ash trees.     In 2022, staff have reported a significant increase in Emerald Ash Borer infestations throughout the city. Tree  removals and replacement cost estimates will far exceed the $200,000 budget dedicated for tree removal in  2022. Tree removal, stumping and restoration averages about $1,200/tree. Planting a tree costs $500.    As of May 1, 2022, approximately 20 infested trees have been removed this year ($24,000). The city’s  contracted tree service is currently working on approximately 55 infested, tagged trees ($66,000). In the Street  Infrastructure Project area approximately 95 infested trees are currently being removed that are outside of the  scope of the improvement project area ($114,000). 25 infested Ash trees on Boone Avenue are slated to be  Agenda Section Work Session Item Number  11.2  Request for Action, Page 2    removed shortly ($30,000). Approximately 145 boulevard trees are scheduled to be planted that were not  planted in 2020‐21 due to budget, COVID‐19, drought, and labor shortages ($72,500). 45 infested trees that  have been tagged, south of 36th Avenue, that have not sent been to a contractor for removal. ($54,000).     Based upon estimates, by the end of June 2022, expenditures will be upwards of $360,500 for tree removal  and replacement of Ash trees.    The city did receive $50,000 in grants for removing and replacing trees in 2022.    Staff estimates, at a minimum, there are 200‐300 Boulevard trees with severe infestations, that should/need to  be removed this year. ($240,000‐$360,000). The planting of trees, outside of the delayed 2020‐21 planting list,  has not been factored in additional needed funding.    Parks Operating Budget  Similar to Boulevard trees, staff have reported a significant increase in EAB infestations throughout the parks  and facilities. An inventory of all Ash trees located in parks, golf course and ice arena totals 860 trees that are  3” or larger. Using the above estimates for removal and replacement, along with the other minor tree (non‐ Ash) work identified for this year ($20,000), the costs will far exceed the $35,000 budget ($25,000 parks and  $10,000 golf) dedicated for tree removal in 2022.     To help stretch the budget, staff worked this winter to remove 41 trees, which resulted in an estimated  savings of $49,000. The stump removals will take place as staff time allows and tree replacements still need to  take place ($18,000). In addition to the in‐house removals, a tree contractor removed several trees at Hidden  Valley this winter ($12,127), and the replanting will take place later this year ($4,000).    Staff estimates that there are 54 Ash trees that still need to be removed in 2022 ($64,800), with 42 of those  being in natural areas such as Dorothy Mary Park and the east side of Northwood Park. Currently, tree  replacements are estimated at a 1:1 replacement for the majority of the non‐natural area trees ($6,000). No  new trees are currently scheduled for the natural areas, however as more trees are removed staff will look at  adding some seedlings at a later time.    Based upon estimates, an additional $100,000 is necessary for tree removal and replacement of Ash trees this  year.    Funding  Staff and Abdo are recommending $400,000 be transferred from the Streets Infrastructure Fund to the Streets  Operating budget. Project costs are adjusted on an annual basis, and it is anticipated that the deficit caused by  the transfer will be absorbed with future project adjustments.    Staff and Abdo are also recommending a $100,000 transfer from the Parks Infrastructure Fund to cover the  expenses for the identified 2022 removals and replacements in the parks, golf course and ice arena. Staff will  also plan to budget additional removal and replacement dollars in the Park Infrastructure budget over the  next several years. Each winter, staff will continue to remove some trees in‐house and each spring the  remaining Ash trees will be evaluated to determine the removals needed for the year. Similar to the Streets  Infrastructure Fund, future Parks Infrastructure projects may be adjusted to allow for the additional tree  removal and replacement expenses.  Request for Action, Page 3    If the Council is supportive of these recommendations, resolutions will be placed on the May 23, 2022 council  agenda authorizing the transfers.  Attachments   May 4, 2022, Abdo Memorandum re: Street Infrastructure Fund Transfer   May 11, 2022, Abdo Memorandum re: Parks Infrastructure Fund Transfer   April 28, 2022, correspondence to City Council re: funding and photos  I:\RFA\COMM DEV\2022\Work Session\04‐18‐22 Enterprise Vehicle Leasing\Q ‐ WS Enterprise Vehicle Leasing 05‐16‐22.docx   Request for Action  May 16, 2022    Approved by: Kirk McDonald, City Manager  Originating Department: Community Development  By: Jeff Sargent, Director of Community Development;   Tim Hoyt, Director of Police;  Bernie Weber, Director of Public Works  Agenda Title  Discuss the leasing of seven city vehicles through Enterprise Fleet Management  Requested Action  Staff requests that the City Council consider the leasing of seven vehicles through Enterprise Fleet  Management instead of purchasing new vehicles.   Policy/Past Practice  The council frequently supports the implementation of new programs within departments, especially if the  implementation improves efficiency and saves money within the department’s budget. The City Council has  recently approved leasing 14 police vehicles through Enterprise Fleet Management.  Background  On June 28, 2021, the City Council approved a resolution approving an agreement with Enterprise Fleet  Management for the lease of 14 police vehicles. Rationale for leasing the vehicles included that the city would  be able to optimize fleet management by improving average replacement time, thereby keeping the fleet up  to date with current technology. Further, the lease program would provide for budget stability with more  consistent cash outlay. Last, establishing a proactive replacement plan would maximize potential equity at  time of resale, which would reduce operational expenses.    At this time, staff requests that the City Council consider adding seven vehicles to the leased fleet of vehicles,  managed by Enterprise Fleet Management. The vehicles that will be replaced include all four community  development inspector vehicles and three public works vehicles:    Make/Model Year Mileage Department  Ford Fusion 2011 37,200 Community Development  Ford Fusion 2011 44,934 Community Development  Ford Fusion 2012 33,385 Community Development  Ford Fusion 2018 8,937 Community Development  Ford F150 2008 104,331 Public Works  Ford F350 with plow 2012 35,113 Public Works  Ford F150 2012 43,101 Public Works    The Community Development Department would like to replace the current inspection vehicles with four  Chevy Traverses. These are larger SUVs that provide more room for the inspectors and will handle better in  the snow with their 4X4 capability. They also have optimal resale value.    Agenda Section Work Session Item Number  11.3    Request for Action, Page 2    Public Works would replace the current Ford F350 with a plow with a new Ford F350 with a plow. The two  current Ford F150s would be replaced with new Ford F150s.    Enterprise has advised that it is imperative to order new vehicles before the end of March due to the  compounding of supply chain problems. If vehicles are not ordered within this timeframe, vehicles would  probably not be available for at least 18 months. Staff explained that we need to discuss and receive approval  from the council before moving forward. Being that the May work session would potentially prove too late to  order the new vehicles, City Manager Kirk McDonald authorized the Public Works Director to place the order  for the leasing of the seven new vehicles. Enterprise has provided a written letter stating that they understand  council approval is necessary and that if the council is not in agreement and does not approve, the city would  not be responsible for any vehicles ordered and the order would be cancelled (attached letter).     SAVINGS  Using very conservative estimates, Enterprise put together a cost analysis that indicates that the city would  save $114,400 over a 4‐year time frame if the city chose to lease the seven vehicles in question rather than  purchasing new vehicles. This estimate includes maintenance costs, fuel costs, resale values of the current  vehicles and estimated purchase prices for new vehicles. A chart generated by Enterprise has been attached  to further break down this cost savings. A representative from Enterprise will also be in attendance to answer  questions of the council regarding the program.    Vicki Holthaus from Abdo analyzed the cost savings numbers as well and provided the attached memo  outlining various aspects of the program and how it effects the city financially. In summary, Abdo believes  that the resale value of the vehicles should be excluded and a true cost savings over a 4‐year period (using  Enterprise’s numbers) is $39,400. Abdo also evaluated the cash flow analysis provided by Enterprise and  noted modifications that may be made for city management and Council to more precisely evaluate the  performance that may be expected from the proposed leases.  Further, Abdo highlighted components of the  contract that are of particular importance and should be understood and managed through the practices  outlined in the memo.  At this time, Abdo cannot conclude that the program will yield savings to the city as  elements of the program and assumptions have not been experienced.  Abdo suggests that program  performance should be evaluated for units within a department, and different departments may experience  varying levels of performance based on the nature of the vehicles, wear, and tear. With that said, Abdo  recommends that the city should proceed with the leasing of the vehicles, as the information available at this  time indicates that the city will save $39,400 on the transaction.    Pertaining to the question of whether the city can lease vehicles without obtaining multiple bids, the city  attorney has confirmed that Enterprise and the financing of leased vehicles falls under the “cooperative  purchasing” exception of the Uniform Municipal Contracting Law state statute. In June, 2021 the City Council  approved the leasing arrangement for 14 police vehicles and Chief Hoyt feels the program is working well.  Recommendation  Although Abdo cannot conclude at this time that the city will see financial savings by leasing the vehicles over  the life of the program, staff has had multiple conversations and recommends that the city lease the seven  vehicles in question. Abdo also recommends that the city should proceed, as the initial numbers indicate that  the city will save $39,400 on the transaction. The key factors in making this recommendation are the  maintenance savings and quick turnaround on vehicles being maintained, the reliability that new vehicles    Request for Action, Page 3    will give the drivers and the open‐ended nature of the contract lease agreement. At any time, should the city  realize that leasing vehicles is not cost effective, the city would have the option to end the lease and purchase  vehicles on its own.    Next Steps  If the City Council is supportive of leasing the seven vehicles in question, the lease agreement will be placed  on a future agenda. If the Council does not want to pursue the leasing option at this time, staff will contact  Enterprise and cancel the current order.  Attachments   Enterprise cost analysis   Enterprise Cancel Letter   Abdo Memo    7 36-48 5000 $4,450.00 $53,400.00 $75,000.00 $98,000.00 Year 1 Lease payment total $53,400.00$75,000.00Year 2 Total Lease Payments$53,400.00Year 3 Total Lease Payments$53,400.00Year 4 Total Lease Payments$53,400.00Estimated Equity on Leased Units$98,000.00Total Spend on 7 vehicles$40,600.00-$21,600.00225,000.00$ 7 1 ton, half ton, Suv $ 70,000.00 $225,000.00$70,000.00$155,000.00 $155,000.00Net Cash Outlay on Leasing vehicles$40,600.00$114,400.00*lease length of terms subject to change to maximize resale value on Leased units*Payments and vehicle pricing are estimatedCity of New Hope: Lease Vs. Purchase AnalysisNet Cash Savings of Leasing vs. PurchaseResale Value on owned unitsBudget Needed for 2022 to LeaseTotal Cash Outlay Net Cash Outlay owning vehiclesCash OutLay neededResale Value on owned unitsCash PurchaseEnterprise Equity LeasesTerm (Months)Estimated Annual MileageMonthly Cost (Lease Rate) for quantity*Annual CostResale Estimate for Owned VehiclesAME not includedLeased Equity Vehicle at termQuantityPaying Cash Amount Quantity Type Equity in Resale MEMO TO: KIRK MCDONALD FROM: VICKI HOLTHAUS, ABDO FINANCIAL SOLUTIONS SUBJECT: ENTERPRISE LEASE PROGRAM UPDATE DATE: MAY 10, 2022 BACKGROUND In 2021, the city received a proposal from Enterprise to lease patrol vehicles. The City elected to move forward with the program, leasing the eight (8) vehicles ordered for 2021, and including the six vehicles that were scheduled for 2022 replacement (due to supply chain issues). The city also opted to move the units to the maintenance program offered through Enterprise. To date, the Police Department has experienced excellent customer service and expedited turnaround time on repair and maintenance for their units. Initial positive response to the program has encouraged Management to evaluate additional lease options with Enterprise. Management requested a quote for the lease of four Chevy Traverse vehicles for Community Development. Enterprise responded with a 10-year cash flow analysis for the replacement of the four community development units, as well as three public works vehicles. The analysis prepared by Enterprise indicates a $114,400 savings will be realized by moving seven units into the program. The analysis includes $75,000 of estimated resale on the units that are being replaced. The city has implemented a practice of retaining the resale on existing units when turning them over to leases. Removing the resale on the existing units from the analysis also provides a closer look at the cash flow performance for the acquisition and sale of the leased units. For that reason, we would exclude the estimated resale from the evaluation, netting a net cash savings for the lease of seven vehicles at $39,400. Cash flow savings is inherent when switching from pay-as-you-go cash acquisition to financing. For this reason, we will explore other elements of the lease program, with guidance on practices the city may wish to implement to ensure continued success with the program. Before exploring these elements, it may be helpful to explain the contract documents that are referenced in this memo. The Master Lease Agreement was executed in June of 2021 and provides the over-arching program terms, including amounts due to or from the city at lease termination. Each time the city enters into a new lease, an Open-End (Equity) Lease Schedule is signed, and provides the lease term, delivery price and other fees. (Low Cost) Acquisition At the June 21, 2021, meeting a representative from Enterprise was present to review their lease program and the cash flow analysis completed for the City of New Hope. One of the primary value points explained by the representative was Enterprise’s volume purchasing power and the lower acquisition cost they deliver to customers. With each unit procured through the lease program, New Hope will receive a quote. The city received a quote of $30,000 for each 2023 Chevrolet Traverse to be leased for Community Development. This quote is higher than the state bid for these units; however, it was noted that the 2023 pricing is not available and Enterprise will revise the pricing upon availability. A subsequent Lease Schedule will be provided for each unit, detailing the delivered price. Recommended procedure: evaluate each Open-End (Equity) Lease Rate Quote and Open-End (Equity) Lease Schedule to ensure the delivery price meets or beats the price through cooperative purchasing. (Low Interest) Financing Another commonly expressed point of value from leasing programs is low-cost financing, yet New Hope has traditionally paid cash for vehicle acquisitions. Lease schedules executed to-date (for patrol vehicles) carry an interest rate per month of 0.354 to 0.427. These financing costs are incorporated into the cash flow analysis provided by Enterprise. It is noteworthy that the finance costs associated with the lease agreements for the city’s fleet must be evaluated within the larger mechanics of the program (acquisition, resale, and maintenance savings) and the city does not yet have experience with all aspects of value within this program, due to the short period of time under lease. Recommended procedure: evaluate each Open-End (Equity) Lease Schedule to confirm the interest rate and other fees (sales tax, delivery fees, other) for reasonableness and accuracy. Vehicle Resale (Performance, Investment Management) Enterprise uses market data to determine when it is advantageous to replace fleet vehicles. Some customers may experience shorter replacement timelines by moving to a lease program and this may help to ensure that more repair costs over the life of a vehicle are covered under warranty. The Master Equity Lease Agreement (MLA) provides the overarching contract terms between the city and Enterprise. City Management should seek to familiarize themselves with several provisions of this agreement. One component of the contract that is noteworthy is section 3c. of the Rent and Other Charges which spells out the reconciliation that is required between the city and Enterprise upon termination of the lease. The proceedings at termination are further explained by Enterprise as follows: “There are two scenarios that take place when we sell a vehicle on behalf of the city. Scenario 1 is when the wholesale value is greater than the book value causing a gain on sale. In this scenario, the lessor is to pay the lessee the difference aka the gain. Scenario 2 is when the wholesale value is less than the book value causing a loss on the sale. In this case, the lessee is to pay the lessor the difference aka the loss. We take a conservative approach in structuring the leases and your account team will monitor the wholesale value compared to the book value on an annual basis to ensure that the leases trend toward scenario 1.” Further illustrated: *Illustration provided by Enterprise The ten-year cash flow analysis provided is assumed to take this conservative approach in projecting the resale value of the seven units proposed for lease. For the three (patrol) units acquired in 2021, the Lease Schedule details a ($400) Service Charge and Reduced Book Value at Lease Termination (ranging from $5,037 - $6,316). These are costs due at lease termination, which may be offset by sale proceeds as illustrated in Scenario 1 above. Recommended procedure: evaluate the resale offering at the end of each Open-End (Equity) Lease Schedule to confirm performance. Analyze the total costs for the lease program compared to resale profits to the city. Maintenance Program As indicated earlier, the city has moved several patrol units into the Enterprise Fleet Maintenance program and has experienced positive, qualitative aspects. Customer service has been excellent and vehicle repair turnaround time improved. At this time, we are unable to provide a quantitative analysis on the maintenance program’s performance due to the limited period of time the units have been managed by Enterprise. Recommended procedure: evaluate the life-cycle maintenance costs for the unit and compare to historic averages for maintenance costs per unit under central garage management. SUMMARY We have evaluated the cash flow analysis provided by Enterprise and noted modifications that may be made for Management and Council to more precisely evaluate the performance that may expected from the proposed leases. Further, we have highlighted components of the contract that are of particular importance and should be understood and managed through the practices outlined above. At this time, we cannot conclude that the program will yield savings to the city as elements of the program and assumptions have not been experienced. Program performance should be evaluated for units within a department, and different departments may experience varying levels of performance based on the nature of the vehicles, wear, and tear. We are happy to answer additional questions that you may have and assist in ongoing evaluation of the program and the value it can provide for the city. I:\RFA\P&R\Pool and Civic Center Pk Projects\2022\Stantec Addendum\May WS\11.4 Q ‐ May Landscaping, Pool and Park Update.docx        Request for Action  May 16, 2022    Approved by: Kirk McDonald, City Manager  Originating Department: Parks & Recreation  By: Susan Rader, Director    Agenda Title  Update on Pool/Civic Center Park/City Hall Landscaping projects by Stantec Engineering (Improvement  Project Nos. 995/941/994)  Requested Action  Staff requests that the City Council receive an update on the pool, Civic Center Park and city hall landscaping  construction projects. City engineer, Dan Boyum will be in attendance.   Policy/Past Practice  Past policy and practice has been to provide the Council with updates on projects and receive input and  feedback.  Background  The city began discussing plans for the pool, Civic Center Park and city hall landscaping in January 2017  when the City Council approved the new police station/city hall being located on the former pool site. In June  2018, an agreement was approved with Stantec to provide engineering and planning services for the pool,  Civic Center Park and city hall landscaping projects.    On December 10, 2018, the City Council approved plans and specifications and authorized advertisement for  bids. All five contracts were approved on March 25, 2019, and several of the contracts are complete:   Demolition of theater, shelter building, hockey rink and city hall (complete)   Theater and picnic shelter (complete)   Skatepark (complete)   Aquatic Park (complete – closeout will be placed on May 23, 2022 agenda)   Park amenities, parking lots and landscaping for the city hall and park  Update  Donlar Contract (Aquatic Park)  Change Order #11 and all remaining punchlist items have been completed. A resolution approving the final  payment to Donlar Construction Company will be on the May 23, 2022 Council agenda.    Sunram Contract (Park amenities, parking lots and landscaping for the city hall and park)  Staff and the city engineer met with Ryan Sunram and several of his sub‐contractors on May 4 to discuss  outstanding punchlist items and a timeline for completion. Punchlist items included the parking lot ponding  issue in front of the police department entrance, minor concrete repair, replacement of some plantings,  flagpole electrical issue, camera fiber for the skatepark cameras and park turf restoration. The sub‐contractors  indicated that they would check their schedules and communicate with Sunram on when they would be able  to be on site to finish the necessary work items.    Agenda Section Work Session Item Number  11.4    Request for Action, Page 2  Since the May 4 meeting, the bituminous contractor has tentatively scheduled the parking lot patch for the  week of May 16, the concrete sawcut and seal repairs were completed last week, the plantings under  warranty have been replaced, and the flagpole and fiber issues are expected to be taken care of in the next  few weeks.     The turf restoration continues to be the most challenging work remaining. After taking some additional soil  tests this spring and comparing them with previous soil tests, Sunram will be developing a plan for seed  planting to take place before the middle of June.    Additional Engineering Costs (Addendum #4):  As we are nearing the completion of the projects, staff would also like to discuss an additional addendum for  Stantec. When Addendum #3 was approved in May 2020, it was felt that the time identified to finish the  projects was adequate. However, since May 2020, several unforeseen issues have caused the completion of a  couple of the projects to be delayed, and Stantec staff reached the maximum for their budget mid‐summer  last year. Since then, they have not been charging the city.     Since Stantec staff did not have any control over the project delays, staff feels that an additional addendum  should be approved to cover the extra time that they have worked. The completion (or almost completion) of  all of the projects wouldn’t have been possible without the engineering and project management that they  have provided.      Due to Covid‐19, the opening of the aquatic park was delayed from June 2020 until June 2021. As the facility  was not used until 2021, there were several items that were addressed during and after the season in addition  to several punchlist items.     The extra effort continued in 2021 and 2021 related to coordination with contractors working in the park,  meeting with contractors as they updated their schedules, dealing with some of the weather issues last year  that delayed grass growth, and continuing to work with the contractor on ongoing project items and  punchlist items.    A Scope of Services was approved on June 25, 2018 with Stantec that included engineering services for the  design and construction of the contracts for the demolition of the park buildings and current city hall, city  hall landscaping, city hall and pool parking lots, Civic Center Park amenities, pool, outdoor theater and  skatepark. The services included preliminary survey/field investigation, schematic design, design –  construction documents, bidding, construction survey, construction management and administration,  construction materials testing, record plan/base map and Infraseek update, and necessary progress meetings.  At that time, the schedule identified construction starting spring of 2019, with an anticipated completion in  the late summer of 2020.    On December 10, 2018, the City Council approved Addendum #1 for the additional services required for  design of the pool due to the soil corrections, the expanded theatre costs and the park alternates, including  the picnic shelter, trail lighting, the northwest loop of trail with lighting, and dressing room space. The  addendum was approved with the understanding that an additional addendum addressing the construction  management services would need to be completed once the project alternates had been decided once bids  were received.      Request for Action, Page 3  Following the selection of the alternates and the award of contracts, Addendum #2 was approved on May 13,  2019, to cover the construction management services for the additional items that were identified in  December 2018.    Addendum #3 was approved May 26, 2020 for additional engineering services necessary on the projects  including restaking for the park/parking lot contractor, coordination with and field staking for Xcel, deck  pour analysis, delay claim/winter construction analysis/CenterPoint permit items, and the design and  construction administration for the storm water chamber. Some of these additional services were reimbursed  by contractors (restaking and deck pour analysis).     Date of Agreement  Amount  June 25, 2018 Scope of Services $1,737,839.23  December 10, 2018 Addendum #1 $180,991.97  May 13, 2019 Addendum #2 $179,067.13  May 26, 2020 Addendum #3  Reimbursed by Contractors  $214,774.03  ($46,126.50)  Total to date  $2,266,545.86  May 2022 Addendum #4 $44,935.08  TOTAL  $2,311,480.94    If Council is supportive of an additional addendum, a resolution will be placed on the May 23, 2020 council  agenda.    Project Costs  Previously, staff had estimated a shortfall of almost $300,000 between all five of the project contracts (pool,  park and city hall landscaping, performance center, skate park and city hall demolition) primarily due to the  additional $270,000 that was spent on the removal of poor soils and importing of sand for the pool area. Staff  is still projecting a shortfall, but due to the additional interest received and not paying several of the  incentives, it will be much less than the estimated $300,000.     In November 2019, Vicki Holthaus provided a memo outlining various funding options for project overages.  At the time, her recommendation was to record a one‐time transfer from the Temporary Financing Fund to  cover any overage on the projects. But she advised that the project overage should be recalculated once all of  the projects were final and the transfer recorded at that time. The recommendation has remained unchanged.    The projected balance:  Fund Balance as of 12/31/21 $605,760.00  2022 costs to date ($27,329.36)  Funds reserved for debt services ($400,338.63)  Donlar remaining (CO #11 and retainage) ($18,482.70)  Sunram remaining (60% outstanding work and  retainage)  ($140,417.78)  City purchase items remaining ($26,289.67)  Stantec Addendum #4 ($44,935.08)      Projected Balance ($52,033.22)    Request for Action, Page 4    The City Council will be kept updated on the progress of the remaining project.  Attachments   Stantec Letter re: Addendum #4    Stantec Consulting Services Inc. 733 Marquette Avenue, Suite 1000 Minneapolis, MN 55402 May 10, 2022 File:193804335,193804336,193804337,193804338,193804646 Attention: Kirk McDonald City Manager City of New Hope 4401 Xylon Avenue North New Hope, MN 55428 Reference: Addendum #4 – Additional Engineering Construction Management Services for City Hall Landscaping, Streetscaping, Parking Lots, Pool, and the Civic Center Park Improvements Dear Kirk, The construction management and administration on the pool, Civic Center Park, and city hall landscaping projects have continued beyond the time frame for completion anticipated in Addendum #3 that was processed in May 2020. At that time, we were anticipating completion of work in 2020. Work on the above referenced projects lingered into 2021 and is nearing completion and closeout in 2022. Additional Costs to Date The additional costs as of May 6, 2022 that went beyond those costs identified in Addendum #3 are related to construction management and administration services that include construction survey, construction observation, construction administration, and record plan/base map work. The total of these costs for the projects are shown below: Table 1 – Additional Costs to Date Project Amount 193804335 – City Hall Landscaping, Streetscaping, Parking Lots, and Civic Center Park Improvements $21,300.58 193804337 – Outdoor Pool $15,134.50 Total Additional Costs to Date $36,435.08 Estimated Remaining Costs for Closeout The pool project is planned to be closed out in May 2022. The landscaping, streetscaping, parking lots, and Civic Center Park Improvements is working toward closeout this summer, with remaining punch list work being scheduled at this time and anticipated to be completed in June. We have estimated our remaining costs for closeout of the two projects as follows: May 10, 2022 Mr. Kirk McDonald Page 2 of 2 Reference: Addendum #4 – Additional Engineering Construction Management Services for City Hall Landscaping, Streetscaping, Parking Lots, Pool, and the Civic Center Park Improvements Table 2 – Estimated Remaining Costs Project Amount 193804335 – City Hall Landscaping, Streetscaping, Parking Lots, and Civic Center Park Improvements $7,000.00 193804337 – Outdoor Pool $1,500.00 Total Estimated Remaining Costs $8,500.00 Addendum #4 Addendum #4 is a summary of Table 1 and Table 2 as shown below: Table 3 – Addendum #4 Project Amount 193804335 – City Hall Landscaping, Streetscaping, Parking Lots, and Civic Center Park Improvements $28,300.58 193804337 – Outdoor Pool $16,634.50 Total – Addendum #4 $44,935.08 If you have any questions or require further information, please call me at (612) 712-2021. Sincerely, STANTEC CONSULTING SERVICES INC. Dan D. Boyum, P.E. The undersigned hereby consents to the Addendum #4 Contract as noted above and attached to Stantec Consulting Services Inc. City of New Hope CC: Jeff Sargent, Susan Rader, Bernie Weber, Valorie Leone – New Hope; Stacy Woods – City Attorney. I:\RFA\City Manager\2022\Audit\WS 051622\Q ‐ Review 2021 Audit with Abdo 051622.docx   Request for Action  May 16, 2022    Approved by: Kirk McDonald, City Manager  Originating Department: City Manager  By: Kirk McDonald, City Manager    Agenda Title  Review 2021 Audit and Comprehensive Annual Financial Report with Abdo  Requested Action  Staff requests to review the 2021 audit and Comprehensive Annual Financial Report with the City Council.  Representatives from Abdo will be present and facilitate the review. The audit will then be officially  presented by Bill Lauer of MMKR to the Council at the May 23, 2022 council meeting. Once the audit is  accepted by the Council, it will be forwarded to the State of Minnesota to comply with all applicable state  requirements.  Policy/Past Practice  The policy and past practice over the past several years has been to present the preliminary audit documents  to the City Council at a work session for review and discussion before the audit is formally presented at a  City Council meeting.  Background  Included in your packet, please find:  • Management report  • Special purpose audit report  • Preliminary comprehensive annual financial report (CAFR) for the fiscal year ending December 31, 2021.     2021 was a somewhat unique year for the city budget due to the Federal funding received in both 2020 and  2021. In 2021 the city received $1,142,381 in American Rescue Plan Act (ARPA) funding, which is noted under  Intergovernmental Revenue for 2021. In 2020 the city received $1,641,664 in CARES funding, which was  transferred out of the 2021 budget for capital improvements at the public works facility, resulting in a  $252,343 decrease in the overall fund balance.    Total general fund expenses were under budget by $773,618 due primarily to personnel changes in the police  department and lower costs at the swimming pool due to a shortage of lifeguards and pool operating costs  being lower than anticipated. Total general fund revenues were over budget by $649,775 primarily due to the  ARPA funding that was received. The overall increase to fund balance before transfers out was $773,618 +  $649,775 = $1,383,393 (including ARPA). When the CARES funding from 2020 is transferred out in the  amount of $1,642,533, the fund balance decreased by $252,343.    The total net position of the city’s enterprise funds (sewer/water/storm water/street lighting/golf course/ice  arena) increased by $2,840,485, with the increase spread across all funds.     As noted in the Management Report, MMKR issued an unmodified opinion and reported no deficiencies in  internal control that they consider material weaknesses, no instances of noncompliance and they reported no  Agenda Section Work Session Item Number  11.5    Request for Action, Page 2    findings. They reported they encountered no significant difficulties in dealing with management in  performing and completing the audit. Staff will be coordinating with Abdo to submit an application for the  2021 Excellence in Achievement for Financial Reporting Certificate.     Staff is recommending the Council officially accept the audit at the May 23 council meeting.    The following attachments are being sent electronically and hard copies will be available at the work session.  Attachments   Management Report   Special Purpose Audit Report   Comprehensive Annual Financial Report    Management Report for City of New Hope, Minnesota December 31, 2021 To the City Council and Management City of New Hope, Minnesota We have prepared this management report in conjunction with our audit of the City of New Hope, Minnesota’s (the City) financial statements for the year ended December 31, 2021. We have organized this report into the following sections:  Audit Summary  Governmental Funds Overview  Enterprise Funds Overview  Government-Wide Financial Statements  Legislative Updates  Accounting and Auditing Updates We would be pleased to further discuss any of the information contained in this report or any other concerns that you would like us to address. We would also like to express our thanks for the courtesy and assistance extended to us during the course of our audit. The purpose of this report is solely to provide those charged with governance of the City, management, and those who have responsibility for oversight of the financial reporting process comments resulting from our audit process and information relevant to city finances in Minnesota. Accordingly, this report is not suitable for any other purpose. Minneapolis, Minnesota INSERT DATE -1- AUDIT SUMMARY The following is a summary of our audit work, key conclusions, and other information that we consider important or that is required to be communicated to the City Council, administration, or those charged with governance of the City. OUR RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA, GOVERNMENT AUDITING STANDARDS, AND TITLE 2 U.S. CODE OF FEDERAL REGULATIONS (CFR) PART 200, UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND AUDIT REQUIREMENTS FOR FEDERAL AWARDS (UNIFORM GUIDANCE) 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 as of and for the year ended December 31, 2021. Professional standards require that we provide you with information about our responsibilities under auditing standards generally accepted in the United States of America, Government Auditing Standards, the Uniform Guidance, as well as certain information related to the planned scope and timing of our audit. We have communicated such information to you verbally, in our audit engagement letter, and in a separate letter dated May 5, 2022. Professional standards also require that we communicate the following information related to our audit. PLANNED SCOPE AND TIMING OF THE AUDIT We performed the audit according to the planned scope and timing previously discussed and coordinated in order to obtain sufficient audit evidence and complete an effective audit. AUDIT OPINION AND FINDINGS Based on our audit of the City’s financial statements for the year ended December 31, 2021:  We issued an unmodified opinion on the City’s basic financial statements.  We reported no deficiencies in the City’s internal control over financial reporting that we considered to be material weaknesses.  The results of our testing disclosed no instances of noncompliance required to be reported under Government Auditing Standards.  We reported that the Schedule of Expenditures of Federal Awards is fairly stated, in all material respects, in relation to the basic financial statements.  The results of our tests indicate that the City has complied, in all material respects, with the types of compliance requirements that could have a direct and material effect on each of its major federal programs.  We reported no deficiencies in the City’s internal controls over compliance that we considered to be material weaknesses with the types of compliance requirements that could have a direct and material effect on each of its major federal programs.  We reported no findings based on our testing of the City’s compliance with Minnesota laws and regulations. -2- SIGNIFICANT ACCOUNTING POLICIES 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 of the notes to basic financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year ended December 31, 2021. 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 AND MANAGEMENT JUDGMENTS 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:  Depreciation – Management’s estimates of depreciation expense are based on the estimated useful lives of the assets.  Compensated Absences – Management’s estimate is based on current rates of pay; vacation, wellness, personal, and sick leave balances; and the likelihood that accrued sick leave will ultimately be paid at termination.  Pension and Other Post-Employment Benefit (OPEB) Liabilities – The City has recorded liabilities and activity for pension benefits and other OPEB. These obligations are calculated using actuarial methodologies described in Governmental Accounting Standards Board Statement Nos. 68 and 75. These actuarial calculations include significant assumptions, including projected changes, healthcare insurance costs, investment returns, retirement ages, proportionate share, and employee turnover. We evaluated the key factors and assumptions used by management to develop these accounting estimates in determining that they are reasonable in relation to the basic financial statements taken as a whole. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The disclosures included in the notes to the basic financial statements related to OPEB and pension benefits are particularly sensitive, due to the materiality of the liabilities, and the large and complex estimates involved in determining the disclosures. The financial statement disclosures are neutral, consistent, and clear. DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT We encountered no significant 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. There were no misstatements detected as a result of audit procedures that were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole. -3- DISAGREEMENTS WITH MANAGEMENT For purposes of this report, 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. MANAGEMENT REPRESENTATIONS We have requested certain representations from management that are included in the management representation letter dated INSERT DATE. 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 City’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 City’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 MATTERS We applied certain limited procedures to the management’s discussion and analysis (MD&A) and the pension and OPEB-related required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the supplemental information accompanying the financial statements and the separately issued Schedule of Expenditures of Federal Awards, which are not RSI. With respect to this supplementary information, 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 supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the introductory and statistical sections, which accompany the financial statements, but are not RSI. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. -4- GOVERNMENTAL FUNDS OVERVIEW This section of the report provides you with an overview of the financial trends and activities of the City’s governmental funds, which includes the General, special revenue, debt service, and capital project funds. These funds are used to account for the basic services the City provides to all of its citizens, which are financed primarily with property taxes. The governmental fund information in the City’s financial statements focuses on budgetary compliance and the sufficiency of each governmental fund’s current assets to finance its current liabilities. PROPERTY TAXES Minnesota cities rely heavily on local property tax levies to support their governmental fund activities. For the 2020 fiscal year, local ad valorem property tax levies provided 40.9 percent of the total governmental fund revenues for cities over 2,500 in population, and 36.5 percent for cities under 2,500 in population. Total property taxes levied by all Minnesota cities for taxes payable in 2021 increased 4.0 percent compared to the prior year, and 5.9 percent for taxes payable in 2022. The total tax capacity value of property in Minnesota cities increased about 6.3 percent for the 2021 levy year. The tax capacity values used for levying property taxes are based on the assessed market values for the previous fiscal year (e.g., tax capacity values for taxes levied in 2021 were based on assessed market values as of January 1, 2020), so the trend of change in these tax capacity values lags somewhat behind the housing market and economy in general. The City’s taxable market value increased 10.4 percent for taxes payable in 2020 and 7.7 percent for taxes payable in 2021. The following graph shows the City’s changes in taxable market value over the past 10 years: $– $300,000,000 $600,000,000 $900,000,000 $1,200,000,000 $1,500,000,000 $1,800,000,000 $2,100,000,000 $2,400,000,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Taxable Market Value -5- Tax capacity is considered the actual base available for taxation. It is calculated by applying the state’s property classification system to each property’s market value. Each property classification, such as commercial or residential, has a different calculation and uses different rates. Consequently, a city’s total tax capacity will change at a different rate than its total market value, as tax capacity is affected by the proportion of its tax base that is in each property classification from year-to-year, as well as legislative changes to tax rates. The City’s tax capacity increased 11.0 percent for taxes payable in 2020 and 8.1 percent for taxes payable in 2021. The following graph shows the City’s change in tax capacities over the past 10 years: $– $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Local Tax Capacity The following table presents the average tax rates applied to city residents for each of the last three levy years: 2019 2020 2021 Average tax rate City 68.0 66.1 62.6 County 41.8 41.1 38.2 School 29.9 26.4 25.5 Special taxing 8.9 8.4 10.0 Total 148.6 142.0 136.3 Rates Expressed as a Percentage of Net Tax Capacity City of New Hope Both the City portion of the tax rate and the overall tax rate on New Hope residents declined for the 2021 levy year, due to the increasing taxable market value of property within the City. -6- GOVERNMENTAL FUND BALANCES The following table summarizes the changes in the fund balances of the City’s governmental funds during the year ended December 31, 2021, presented both by fund balance classification and by major fund. 2021 2020 Change Fund balances of governmental funds Total by classification Nonspendable 49,680$ 24,499$ 25,181$ Restricted 9,779,064 9,016,306 762,758 Committed 4,520,972 4,639,390 (118,418) Assigned 9,059,040 6,993,400 2,065,640 Unassigned 6,646,030 6,781,656 (135,626) Total governmental funds 30,054,786$ 27,455,251$ 2,599,535$ Total by fund General 8,673,743$ 8,926,086$ (252,343)$ Economic Development Authority Special Revenue 4,212,479 4,320,456 (107,977) HRA Construction Capital Projects 5,955,136 5,379,088 576,048 Street Infrastructure Capital Projects 1,156,367 250,697 905,670 HRA Bonds Debt Service (1,978,033) (2,119,802) 141,769 Nonmajor funds 12,035,094 10,698,726 1,336,368 Total governmental funds 30,054,786$ 27,455,251$ 2,599,535$ as of December 31, Governmental Funds Change in Fund Balance Fund Balance In total, the fund balances of the City’s governmental funds increased by $2,599,535 during the year ended December 31, 2021. The increase in restricted fund balances is primarily attributable to the improvement in the financial position of the City’s HRA Construction Funds in 2021. Increases in resources accumulated for street improvements in the Street Improvement Capital Projects Fund and for improvement of the City’s public works facility in the (nonmajor) Public Works Facility CIP Capital Projects Fund contributed to the increase in assigned fund balances. -7- GOVERNMENTAL FUNDS REVENUE AND EXPENDITURES The following table presents the per capita revenue of the City’s governmental funds for the past three years, along with state-wide averages. We have included the most recent comparative state-wide averages available from the Office of the State Auditor to provide a benchmark for interpreting the City’s data. The amounts received from the typical major sources of governmental fund revenue will naturally vary between cities based on factors such as a city’s stage of development, location, size and density of its population, property values, services it provides, and other attributes. It will also differ from year-to-year, due to the effect of inflation and changes in its operation. Also, certain data in these tables may be classified differently than how they appear in the City’s financial statements in order to be more comparable to the state-wide information, particularly in separating capital expenditures from current expenditures. We have designed this section of our management report using per capita data in order to better identify unique or unusual trends and activities of the City. We intend for this type of comparative and trend information to complement, rather than duplicate, information in the MD&A. An inherent difficulty in presenting per capita information is the accuracy of the population count, which for most years is based on estimates. Year 2019 2020 2021 Population 10,000–20,000 20,000–100,000 22,376 21,986 21,986 Property taxes 517$ 537$ 680$ 762$ 794$ Tax increments 33 44 59 87 96 Franchise and other taxes 60 46 43 44 44 Special assessments 39 54 9 11 6 Licenses and permits 39 46 14 18 18 Intergovernmental revenues 367 273 176 195 148 Charges for services 89 91 62 45 81 Other 69 69 70 35 18 Total revenue 1,213$ 1,160$ 1,113$ 1,197$ 1,205$ Governmental Funds Revenue per Capita With State-Wide Averages by Population Class City of New HopeState-Wide December 31, 2020 In total, the City’s governmental fund revenues for 2021 were $26,512,462, an increase of $201,422 (0.8 percent) from the prior year, or $8 more per capita than the prior year. Property tax revenue was $32 per capita higher than last year, due to an increase in the City’s levy. Intergovernmental revenue was $47 per capita lower than last year, mainly due to a decrease of about $511,000 in federal award revenue related to coronavirus relief recognized in the 2021 compared to the prior year, and a one-time youth-sports grant of $250,000 received from Hennepin County in 2020 for the aquatic park facility. Charges for services were $36 per capital higher than the prior year, primarily due to an increase of about $678,000 in park and recreation rental and program fees, due to the opening of the aquatic park in 2021 and the resumption of recreation programs that were cancelled or greatly reduced in 2020 because of the pandemic. Revenue from “other” sources, as presented above, were $17 per capita lower than the prior year, mainly due to a decrease in investment earnings from a decline in market performance and available interest rates. -8- The expenditures of governmental funds will also vary from state-wide averages and from year-to-year, based on the City’s circumstances. Expenditures are classified into three types as follows:  Current – These are typically the general operating type expenditures occurring on an annual basis, and are primarily funded by general sources, such as taxes and intergovernmental revenues.  Capital Outlay and Construction – These expenditures do not occur on a consistent basis, more typically fluctuating significantly from year-to-year. Many of these expenditures are project-oriented, and are often funded by specific sources that have benefited from the expenditure, such as special assessment improvement projects.  Debt Service – Although the expenditures for debt service may be relatively consistent over the term of the respective debt, the funding source is the important factor. Some debt may be repaid through specific sources, such as special assessments or redevelopment funding, while other debt may be repaid with general property taxes. The City’s expenditures per capita of its governmental funds for the past three years, together with comparative state-wide averages, are presented in the following table: Year 2019 2020 2021 Population 10,000–20,000 20,000–100,000 22,376 21,986 21,986 Current 140$ 118$ 85$ 94$ 98$ 288 320 377 380 391 122 112 80 84 86 112 95 91 93 120 108 104 23 59 61 Total current 770 749 656 710 756 Capital outlay and construction 429 331 1,009 394 210 Debt service 149 91 43 87 116 42 33 61 81 78 Total debt service 191 124 104 168 194 Total expenditures 1,390$ 1,204$ 1,769$ 1,272$ 1,160$ Principal Interest and fiscal General government Public safety Public works Culture and recreation Governmental Funds Expenditures per Capita With State-Wide Averages by Population Class City of New Hope All other State-Wide December 31, 2020 The City’s total governmental funds expenditures were $25,483,895 for 2021, a decrease of $2,474,7581 (8.9 percent) from the prior year, or $112 per capita. Current expenditures increased $46 per capita, mainly in police (public safety) supplies and services, and culture and recreation expenditures due to the opening of the aquatic center and resumption of recreation programs in 2021 as previously discussed. Capital outlay expenditures decreased $184 per capita, due to less street improvement construction and completion of the majority of the new park/pool project in 2020. Debt service expenditures increased $26 per capita, due to new debt issued in recent years to finance the city hall and aquatic park improvement projects. -9- GENERAL FUND The City’s General Fund accounts for the financial activity of the basic services provided to the community. The primary services included within this fund are the administration of the municipal operation, police and fire protection, building inspection, streets and highway maintenance, and parks and recreation. The graph below illustrates the change in the General Fund financial position over the last five years. We have also included a line representing annual expenditures and operating transfers out to reflect the change in the size of the General Fund operation over the same period. 2017 2018 2019 2020 2021 Fund Balance $6,888,655 $7,180,951 $7,139,703 $8,926,086 $8,673,743 Cash Balance (Net)$6,750,104 $6,992,743 $7,187,781 $8,819,883 $8,578,067 Exp & Trans Out $13,290,729 $13,652,053 $14,337,748 $14,130,989 $16,845,891 $– $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 $16,000,000 $18,000,000 General Fund Financial Position Year Ended December 31, The total fund balance of the City’s General Fund decreased $252,343 in 2021, as compared to a breakeven budget. Unassigned fund balance was $8,624,063 at the end of fiscal year 2021, which represents approximately 51.2 percent of annual expenditures and transfers out based on 2021 levels. This is an important factor because a government, like any organization, requires a certain amount of equity to operate. A healthy financial position allows the City to avoid volatility in tax rates; helps minimize the impact of state funding changes; allows for the adequate and consistent funding of services, repairs, and unexpected costs; and is a factor in determining the City’s bond rating and resulting interest costs. Maintaining an adequate fund balance has become increasingly important given the fluctuations in state funding for cities in recent years. A trend that is typical to Minnesota local governments, especially the General Fund of cities, is the unusual cash flow experienced throughout the year. The City’s General Fund cash disbursements are made fairly evenly during the year, other than the impact of seasonal services, such as snowplowing, street maintenance, and park activities. Cash receipts of the General Fund are quite a different story. Taxes comprise about 67.6 percent of the fund’s total annual revenue. Approximately half of these revenues are received by the City in July and the rest in December. Consequently, the City needs to have adequate cash reserves to finance its everyday operations between these payments. -10- The following graph reflects the City’s General Fund revenue sources for 2021 compared to budget: $– $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 $11 Property Taxes Franchise Taxes Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Other Millions General Fund Revenue Budget to Actual Budget Actual Total General Fund revenue for 2021 was $16,136,076, which was $649,775 (4.2 percent) higher than the final budget. Intergovernmental revenue exceeded budget by $1,113,189, due to the City not amending its budget for the federal American Recovery Program Act award recognized in the current year. Charges for services were $325,558 under budget, mainly due to revenues from the first year of operations of the new aquatic center not reaching projections. The following graph presents the City’s General Fund revenues by source for the last five years. The graph reflects the City’s reliance on property taxes and other local sources of revenue. Property Taxes Intergovernmental Other 2017 $9,541,667 $1,177,400 $2,867,879 2018 $9,971,064 $1,332,638 $2,315,213 2019 $10,297,018 $1,342,543 $2,324,664 2020 $10,422,823 $3,161,645 $1,993,616 2021 $10,914,572 $2,603,365 $2,618,139 $– $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 $11,000,000 General Fund Revenue by Source Year Ended December 31, Total General Fund revenue for 2021 was $557,992 (3.6 percent) higher than the prior year. Property tax revenue increased $491,749 due to a levy increase and reduced delinquencies. Intergovernmental revenues were $556,280 less than 2020, primarily due to less federal award revenue recognized in 2021 compared to 2020. Revenue from other sources increased $624,523 from last year, mainly in charges for services as noted above. -11- The following graph illustrates the components of General Fund spending for 2021 compared to budget: $– $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 General Government Public Safety Public Works Culture and Recreation Millions General Fund Expenditures Budget to Actual Budget Actual Total General Fund expenditures for 2021 were $15,203,358, which was $773,618 (4.6 percent) under budget. Public safety expenditures were $529,627 under budget, primarily in police personal services, as several positions were vacant during the year. Culture and recreation expenditures were $288,598 under budget, mainly in swimming pool personnel and other service costs due to a shortage of lifeguards and pool operational costs being lower than anticipated. The following graph illustrates the City’s General Fund expenditures by function over the last five years: General Government Public Safety Public Works Culture and Recreation 2017 $1,767,879 $7,868,754 $1,435,256 $2,068,840 2018 $1,788,108 $8,107,759 $1,491,045 $2,015,141 2019 $1,904,447 $8,482,568 $1,564,148 $2,032,585 2020 $2,063,407 $8,409,878 $1,622,046 $2,035,658 2021 $2,148,125 $8,772,777 $1,653,003 $2,629,453 $– $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 General Fund Expenditures by Function Year Ended December 31, Total General Fund expenditures were $1,072,369 (7.6 percent) higher than the previous year. Public safety expenditures increased $362.899, mainly due to new body cameras purchased in 2021 and increases in other police supplies and charges. Culture and recreation expenditures were $593,795 higher than the prior year, mainly in salaries and services related to the aquatic center opening and increase in recreation programs. -12- ENTERPRISE FUNDS OVERVIEW The City maintains several enterprise funds to account for services the City provides that are financed primarily through fees charged to those utilizing the service. This section of the report provides you with an overview of the financial trends and activities of the City’s enterprise funds, which include the Sewer Utility, Water Utility, Golf Course, Ice Arena, Storm Water, and Street Lighting funds. ENTERPRISE FUNDS FINANCIAL POSITION The following table summarizes the changes in the financial position of the City’s enterprise funds during the year ended December 31, 2021, presented both by classification and by fund: 2021 2020 Change Net position of enterprise funds Total by classification Net investment in capital assets 22,607,046$ 20,127,288$ 2,479,758$ Restricted – 1,560,053 (1,560,053) Unrestricted 6,953,260 4,792,042 2,161,218 Total enterprise funds 29,560,306$ 26,479,383$ 3,080,923$ Total by fund Sewer Utility 5,977,582$ 5,030,413$ 947,169$ Water Utility 9,767,495 8,678,102 1,089,393 Golf Course 716,948 615,689 101,259 Ice Arena 4,087,498 3,663,197 424,301 Storm Water 8,536,338 8,051,028 485,310 Street Lighting 474,445 440,954 33,491 Total enterprise funds 29,560,306$ 26,479,383$ 3,080,923$ Enterprise Funds Change in Financial Position Net Position as of December 31, In total, the net position of the City’s enterprise funds increased by $3,080,923 during the year ended December 31, 2021, with the increase spread across all funds. The net investment in enterprise capital assets increased $2,479,758, mainly due to the relationship between the repayment of outstanding capital-related debt and depreciation recognized on the related capital assets. The $1,560,053 decrease of restricted net position represents the use of cash previously held in an escrow account in the Ice Arena Fund to finance a portion of the early retirement of the City’s energy conservation lease revenue bonds, the remainder of which were refunded with the proceeds of the City’s 2021A Tax Abatement Bonds in the current year. Unrestricted net position increased by $2,161,218, mainly due to positive operating results in the Sewer Utility, Water Utility, and Storm Water funds. -13- SEWER UTILITY FUND The following graph presents five years of operating results for the City’s Sewer Utility Fund: 2017 2018 2019 2020 2021 Oper Rev $2,899,257 $3,154,709 $3,380,075 $3,712,613 $3,906,809 Oper Exp $2,420,994 $2,684,030 $2,843,056 $3,119,273 $2,868,543 Oper Inc (Loss)$478,263 $470,679 $537,019 $593,340 $1,038,266 $– $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 Sewer Utility Operating Results Year Ended December 31, The Sewer Utility Fund ended 2021 with a total net position of $5,977,582, of which $3,959,576 represents the net investment in sewer collection system capital assets, leaving an unrestricted balance of $2,018,006. Net position increased $947,169 in the current year. Operating revenue in the Sewer Utility Fund for 2021 increased $194,196 (5.2 percent) from the previous year, which primarily reflects a 5.0 percent rate increase implemented for the year. Operating costs for 2021 were $250,730 (8.0 percent) less than last year, mainly in personnel services (full- time salaries and benefits). -14- WATER UTILITY FUND The following graph presents five years of operating results for the City’s Water Utility Fund: 2017 2018 2019 2020 2021 Oper Rev $3,994,122 $4,391,025 $4,387,321 $5,139,616 $5,545,731 Oper Exp $3,462,858 $4,029,601 $3,720,072 $4,178,233 $4,677,022 Oper Inc (Loss)$531,264 $361,424 $667,249 $961,383 $868,709 $– $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 $5,000,000 $5,500,000 $6,000,000 Water Utility Operating Results Year Ended December 31, The Water Utility Fund ended 2021 with a total net position of $9,767,495 of which $6,105,544 represents the net investment in water distribution system capital assets, leaving an unrestricted balance of $3,661,951. The Water Utility Fund net position increased $1,089,393 in 2021. Operating revenue in the Water Utility Fund for 2021 increased $406,115 (7.9 percent) from the prior year, which reflects a 5.0 percent rate increase implemented for the year, along with an increase in consumption due in part to higher irrigation usage. Operating costs for 2021 were $498,789 (11.9 percent) more than the prior year, mainly due to increases in water purchased due to higher consumption and personnel services (full-time salaries and benefits). -15- GOLF COURSE FUND The following graph presents five years of operating results for the City’s Golf Course Fund: 2017 2018 2019 2020 2021 Oper Rev $273,247 $274,735 $282,323 $401,666 $450,307 Oper Exp $335,983 $309,757 $327,422 $324,994 $358,282 Oper Inc (Loss)$(62,736) $(35,022) $(45,099) $76,672 $92,025 $(100,000) $(50,000) $– $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 Golf Course Fund Year Ended December 31, The Golf Course Fund ended 2021 with a total net position of $716,948, an increase of $101,259. Of this, $423,730 represents the net investment in golf course capital assets, leaving $293,218 in unrestricted net position. Golf Course Fund operating revenue for 2021 increased $48,641 (12.1 percent) from the prior year, mainly due to an increase in rounds played. Operating expenses were $33,288 (10.2 percent) higher than the prior year due to the increased activity. -16- ICE ARENA FUND The following graph presents five years of operating results for the City’s Ice Arena Fund: 2017 2018 2019 2020 2021 Oper Rev $811,661 $825,531 $852,765 $560,316 $883,968 Oper Exp $951,444 $942,466 $953,352 $966,868 $1,059,816 Oper Inc (Loss)$(139,783) $(116,935) $(100,587) $(406,552) $(175,848) $(500,000) $(300,000) $(100,000) $100,000 $300,000 $500,000 $700,000 $900,000 $1,100,000 Ice Arena Fund Year Ended December 31, The Ice Arena Fund ended 2021 with a total net position of $4,087,498, an increase of $424,301. Of this, $4,469,909 represents the net investment in ice arena capital assets, leaving an unrestricted deficit net position of $382,411. Ice Arena Fund operating revenue for 2021 increased $323,625 (57.8 percent) from the prior year, primarily from an increase in ice rental fees and event ticket sales, due to the relaxation of COVID restrictions in 2021. Operating expenses were $92,948 (9.6 percent) higher than the prior year, mainly due to legal and financial services for related to the debt issuance and refunding discussed previously. -17- STORM WATER FUND The following graph presents five years of operating results for the City’s Storm Water Fund: 2017 2018 2019 2020 2021 Oper Rev $1,082,348 $1,139,007 $1,190,058 $1,259,707 $1,321,518 Oper Exp $834,963 $738,307 $874,407 $886,021 $890,301 Oper Inc (Loss)$247,385 $400,700 $315,651 $373,686 $431,217 $– $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 $1,100,000 $1,200,000 $1,300,000 $1,400,000 Storm Water Fund Year Ended December 31, The Storm Water Fund ended 2021 with a total net position of $8,536,338, an increase of $485,310. Of this, $7,297,553 represents the net investment in storm water collection system capital assets, leaving an unrestricted net position of $1,238,785. Storm Water Fund operating revenues for 2021 increased $61,811 (4.9 percent) from the previous year, mainly due to a 5.0 percent rate increase implemented in 2021. Operating expenses were $4,280 (0.5 percent) higher than last year. -18- STREET LIGHTING FUND The following graph presents five years of operating results for the City’s Street Lighting Fund: 2017 2018 2019 2020 2021 Oper Rev $137,491 $144,582 $152,975 $161,866 $170,656 Oper Exp $101,625 $119,198 $116,612 $133,159 $136,112 Oper Inc (Loss)$35,866 $25,384 $36,363 $28,707 $34,544 $– $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 Street Lighting Fund Year Ended December 31, The Street Lighting Fund ended 2021 with a total net position of $475,445, an increase of $33,491. Of this, $350,734 represents the net investment in street lighting capital assets, leaving an unrestricted net position of $123,711. Street Lighting Fund operating revenue for 2021 increased $8,790 (5.4 percent) from the previous year, which reflects a 5.0 percent rate increase implemented this year. Operating expenses were $2,953 (2.2 percent) higher than the previous year, mainly due to an increase in utilities expense. -19- GOVERNMENT-WIDE FINANCIAL STATEMENTS In addition to fund-based information, the current reporting model for governmental entities also requires the inclusion of two government-wide financial statements designed to present a clear picture of the City as a single, unified entity. These government-wide financial statements provide information on the total cost of delivering services, including capital assets and long-term liabilities. STATEMENT OF NET POSITION The Statement of Net Position essentially tells you what the City owns and owes at a given point in time, the last day of the fiscal year. Theoretically, net position represents the resources the City has leftover to use for providing services after its debts are settled. However, those resources are not always in spendable form, or there may be restrictions on how some of those resources can be used. Therefore, net position is divided into three components: net investment in capital assets, restricted, and unrestricted. The following table presents the components of the City’s net position as of December 31, 2021 and 2020, for governmental activities and business-type activities: 2021 2020 Change Net position Governmental activities Net investment in capital assets 34,985,781$ 31,359,813$ 3,625,968$ Restricted 8,598,311 7,740,859 857,452 Unrestricted 23,427,177 19,716,696 3,710,481 Total governmental activities 67,011,269 58,817,368 8,193,901 Business-type activities Net investment in capital assets 22,607,046 20,127,288 2,479,758 Restricted – 1,560,053 (1,560,053) Unrestricted 6,455,200 4,534,420 1,920,780 Total business-type activities 29,062,246 26,221,761 2,840,485 Total net position 96,073,515$ 85,039,129$ 11,034,386$ As of December 31, The City’s total net position at December 31, 2021 increased $11,034,386 from the previous year-end. Governmental activities net position increased by $8,193,901 overall. The increase in net investment in capital assets is mainly due to current year capital asset additions, which were purchased or constructed for without the issuance of new bonds. The increase in restricted net position was mainly due to an increase in tax increment revenues in the HRA Construction Capital Projects Fund, which are restricted for economic development, and an increase in resources restricted for future debt service. The increase in unrestricted net position was mainly due to the fund balance increases in governmental funds discussed earlier in this report. Business-type activities net position increased $2,840,485, as outlined in the discussion of enterprise fund operations. -20- STATEMENT OF ACTIVITIES The Statement of Activities tracks the City’s yearly revenues and expenses, as well as any other transactions that increase or reduce total net position. These amounts represent the full cost of providing services. The Statement of Activities provides a more comprehensive measure than just the amount of cash that changed hands, as reflected in the fund-based financial statements. This statement includes the cost of supplies used, depreciation of long-lived capital assets, and other accrual-based expenses. The following table presents the change in the net position of the City for the years ended December 31, 2021 and 2020: 2020 Program Expenses Revenues Net Change Net Change Governmental activities General government 1,152,633$ 732,897$ (419,736)$ (2,625,356)$ Public safety 7,764,051 1,223,110 (6,540,941) (7,793,816) Public works 4,295,427 1,160,082 (3,135,345) (2,478,347) Culture and recreation 3,095,760 1,033,750 (2,062,010) (1,668,452) Economic development 1,434,986 – (1,434,986) (1,274,098) Interest on long-term debt 1,518,351 – (1,518,351) (1,570,807) Business-type activities Sewer utility 2,973,301 3,907,284 933,983 709,422 Water utility 4,813,286 5,913,176 1,099,890 1,301,409 Golf course 368,659 473,597 104,938 107,722 Ice arena 1,095,343 930,688 (164,655) (414,420) Storm water 991,031 1,446,022 454,991 382,884 Street lighting 135,899 170,656 34,757 28,596 Total net (expense) revenue 29,638,727$ 16,991,262$ (12,647,465) (15,295,263) General revenues Property taxes and tax increments 19,476,109 18,740,097 Franchise taxes 962,395 958,162 Unrestricted grants and contributions 3,155,397 2,497,630 Unrestricted investment earnings 17,650 918,772 Gain on sale of capital assets 70,300 22,000 Total general revenues 23,681,851 23,136,661 Change in net position 11,034,386$ 7,841,398$ 2021 Net (expense) revenue One of the goals of this statement is to provide a side-by-side comparison to illustrate the difference in the way the City’s governmental and business-type operations are financed. The table clearly illustrates the dependence of the City’s governmental operations on general revenues, such as property taxes and unrestricted grants. It also shows that, for the most part, the City’s business-type activities are generating sufficient program revenues (service charges and program-specific grants) to cover expenses. The difference in the net change in general government was mainly due a loss on disposal of capital assets in 2020 related to the old City Hall building and improvements. The difference in the net change in public safety was primarily due to an improvement in the funding level of the statewide PERA Public Employees Police and Firefighter pension plan recognized in 2021. -21- LEGISLATIVE UPDATES As the first year of the fiscal biennium, the primary focus of the 2021 Minnesota legislative session would typically have been the development of the state’s fiscal year (FY) 2022–2023 biennial budget. Positive news on the state’s budget forecast entering the session, with projections for the end of the FY 2020–2021 biennium improving from a $2.4 billion shortfall predicted in a May 2020 special pandemic budget projection to a $940.0 million surplus predicted in the February 2021 budget and economic forecast, was expected to ease the budget process and relieve the pressure to make budget cuts during an already uncertain time. However, given the significant events of the preceding year, including the COVID-19 pandemic and death of George Floyd, the focus of the regular session shifted to legislation responding to the pressing issues that resulted from those events. The business of setting a biennial budget was ultimately not addressed until a June special session that ended in the early morning hours of July 1st. The following is a brief summary of legislative changes from the 2021 session or previous legislative sessions potentially impacting Minnesota cities. American Rescue Plan (ARP) Act – The federal ARP Act, signed into law in March 2021, provided federal economic recovery funding for federal, state, and local government responses to the COVID-19 pandemic. Minnesota local governments received approximately $2.1 billion in funding under the ARP Act, including $644.0 million awarded to 21 large cities (over 50,000 population) and $377.0 million awarded to cities and towns with a population below 50,000, with half distributed in FY 2021 and half in FY 2022. Local governments can use ARP Act funding in four broad categories: responding to public health and economic impacts; providing premium pay to essential workers; providing general government services to the extent of revenue loss; or investments in water, sewer, and broadband infrastructure. Potential State Aid Enhancements – The 2021 Legislature increased state general fund base spending by approximately $1.3 billion. Included are funding increases for several programs potentially of benefit to Minnesota cities, including:  A one-time appropriation of $5.5 million for supplemental aid to cities for FY 2022, to offset losses of local government aid (LGA) for 96 cities under the current formula. It is expected the Legislature will review and consider updating the LGA formula during the 2022 session.  Annual appropriations of $1.8 million for the Greater Minnesota Business Development Public Infrastructure Grant Program, intended to bolster local economic growth by providing grant assistance to cities for public infrastructure needed to create and retain jobs.  Annual appropriations of $2.5 million for local community childcare grants, intended to assist local communities to increase the number of childcare providers to support economic development.  Allocating a total of $70.0 million from the state’s ARP Act funds over the biennium ($35.0 million per year) to fund the Border-to-Border Broadband Grant Program, which provides grants to local governments for enhancing broadband availability.  Annual allocations of $4.5 million for reimbursements to local governments for firefighter training and education costs.  Annual allocations of $2.9 million for reimbursement to local governments for peace officer training costs.  A one-time appropriation of $18.0 million for FY 2022 to the small cities assistance account to provide additional road repair funding for cities under 5,000 population. Truth-in-Taxation Changes – Effective for property taxes payable in 2023 and thereafter, county auditors will be required to prepare a new statement for inclusion in its parcel-specific truth-in-taxation notices that contains summary budget information for the county, cities, and school districts for which they spread and collect tax levies. Cities with a population greater than 500 will be required to compile and provide current and proposed summary budget information to the county auditor, based on the summary budget information cities are required to submit each year to the Minnesota state auditor. -22- Tax Base Change for Low-Income Rental Property – Effective for assessment years 2022 and 2023, the first-tier limit for class 4d low-income rental property is reduced from $174,000 to $100,000, with class rates remaining at 0.75 percent on the first $100,000 and 0.25 percent on the remaining balance. The tier limit will once again be adjusted annually after assessment year 2023. Local Sales Tax Projects Defined – Minnesota cities are authorized to include up to five capital projects in proposals for local sales taxes. The definition of a capital project for this purpose was updated to include: a single building or structure, including associated infrastructure; improvements within a single park or recreation area, or; a contiguous trail. Tax Increment Financing (TIF) Flexibility – The Legislature enacted several measures that provide additional flexibility for TIF spending, including:  Allowing unobligated TIF to be used to provide loans, interest rate subsidies, or other assistance to private developers for the construction or substantial rehabilitation of buildings and ancillary facilities, if doing so will create jobs. Transfer authority expires on December 31, 2022, and all transferred increment must be spent by December 31, 2025, or returned to the TIF district.  Allowing TIF districts that have elected to increase pooling by 10 percent to use the increment for owner-occupied housing that meets the requirements of a housing TIF district, in addition to current low-income rental housing.  Providing three-year extensions of the five-year and six-year rules for redevelopment districts created after December 31, 2017, but before June 30, 2020, thereby extending their duration.  Creating a three-city pilot program, giving temporary authority to transfer unobligated housing TIF district increment to the cities affordable housing trust funds. Sales and Use Tax Refund Process – Effective for purchases made after June 30, 2021, cities and other local governments are allowed to utilize a streamlined process to secure a sales tax refund on construction materials purchased by a contractor on behalf of the city for construction, remodeling, expansion, or improvement of public safety facilities owned by local governments, such as police and fire stations. The process also applies to materials used in related facilities, such as access roads, lighting, sidewalks, and utility components. Under the process, local governments would continue to initially pay sales tax on these materials, but would then be allowed to file for a refund of the sales tax paid. Contractors would be required to provide the local government with the information necessary to file for the refund. Fire Protection Special Taxing District Authority – Effective for property tax levies payable in 2023 and thereafter, the current law giving emergency medical districts taxing authority is expanded to include fire protection districts. Two or more local units of government are now permitted to establish a special taxing district to provide fire protection, emergency medical services, or both. The special taxing district will have authority to levy property taxes to finance district operations, spread either across the entire district at a set rate, or allocated to each participating jurisdiction based on factors, such as population or service calls. Districts will also have authority to issue debt related to the function of the district. The property tax and debt issuance authority also apply to existing districts established prior to June 30, 2021. Open Meeting Law – The Legislature made several pandemic-related changes to the Open Meeting Law, including removing the statutory cap of three times per year for elected officials to utilize a medical exception for attending meetings remotely between January 1, 2021, and July 1, 2021, and removing the requirement for elected officials participating in public meetings remotely, due to military service or medical exceptions, to disclose their remote locations. The law changes also updated the definition of “interactive technology” to replace “interactive television” throughout the text of the Open Meeting Laws, and added requirements for public bodies meeting remotely to enable remote participation by the public free of charge and enable public comment from remote locations, when practical. -23- ACCOUNTING AND AUDITING UPDATES The following is a summary of Governmental Accounting Standards Board (GASB) standards expected to be implemented in the next few years. Due to the COVID-19 pandemic, the GASB has delayed the original implementation dates of these and other standards as described below. GASB Statement No. 87, Leases A lease is a contract that transfers control of the right to use another entity’s nonfinancial asset as specified in the contract for a period of time in an exchange or exchange-like transaction. Examples of nonfinancial assets include buildings, land, vehicles, and equipment. Any contract that meets this definition should be accounted for under the leases guidance, unless specifically excluded in this statement. Governments enter into leases for many types of assets. Under the previous guidance, leases were classified as either capital or operating depending on whether the lease met any of the four tests. In many cases, the previous guidance resulted in reporting lease transactions differently than similar nonlease financing transactions. The goal of this statement is to better meet the information needs of users by improving accounting and financial reporting for leases by governments. It establishes a single model for lease accounting based on the principle that leases are financings of the right to use an underlying asset. This statement increases the usefulness of financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. Under this statement, a lessee is required to recognize a lease liability and an intangible right to use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities. To reduce the cost of implementation, this statement includes an exception for short-term leases, defined as a lease that, at the commencement of the lease term, has a maximum possible term under the lease contract of 12 months (or less), including any options to extend, regardless of their probability of being exercised. Lessees and lessors should recognize short-term lease payments as outflows of resources or inflows of resources, respectively, based on the payment provisions of the lease contract. The requirements of this statement are effective for reporting periods beginning after June 15, 2021. -24- GASB Statement No. 91, Conduit Debt Obligations The primary objectives of this statement are to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. This statement achieves those objectives by clarifying the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issuer; establishing standards for accounting and financial reporting of additional commitments and voluntary commitments extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures. A conduit debt obligation is defined as a debt instrument having all of the following characteristics:  There are at least three parties involved: (1) an issuer, (2) a third party obligor, and (3) a debt holder or a debt trustee.  The issuer and the third party obligor are not within the same financial reporting entity.  The debt obligation is not a parity bond of the issuer, nor is it cross-collateralized with other debt of the issuer.  The third party obligor or its agent, not the issuer, ultimately receives the proceeds from the debt issuance.  The third party obligor, not the issuer, is primarily obligated for the payment of all amounts associated with the debt obligation (debt service payments). This statement also addresses arrangements, often characterized as leases, that are associated with conduit debt obligations. In those arrangements, capital assets are constructed or acquired with the proceeds of a conduit debt obligation and used by third party obligors in the course of their activities. This statement requires issuers to disclose general information about their conduit debt obligations, organized by type of commitment, including the aggregate outstanding principal amount of the issuers’ conduit debt obligations and a description of each type of commitment. Issuers that recognize liabilities related to supporting the debt service of conduit debt obligations also should disclose information about the amount recognized and how the liabilities changed during the reporting period. The requirements of this statement are effective for reporting periods beginning after December 15, 2021. Earlier application is encouraged. -25- GASB Statement No. 92, Omnibus 2020 The objectives of this statement are to enhance comparability in accounting and financial reporting and to improve the consistency of authoritative literature by addressing practice issues that have been identified during implementation and application of certain GASB Statements. This statement addresses a variety of topics and includes specific provisions about the following:  The effective date of Statement No. 87, Leases, and Implementation Guide No. 2019-3, Leases, for interim financial reports.  Reporting of intra-entity transfers of assets between a primary government employer and a component unit defined benefit pension plan or defined benefit other post-employment benefit (OPEB) plan.  The applicability of Statements No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, as amended, and No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, to reporting assets accumulated for post-employment benefits.  The applicability of certain requirements of Statement No. 84, Fiduciary Activities, to post-employment benefit arrangements.  Measurement of liabilities (and assets, if any) related to asset retirement obligations in a government acquisition.  Reporting by public entity risk pools for amounts that are recoverable from reinsurers or excess insurers.  Reference to nonrecurring fair value measurements of assets or liabilities in authoritative literature.  Terminology used to refer to derivative instruments. The requirements of this statement are effective for fiscal years beginning after June 15, 2021. Earlier application is encouraged. GASB Statement No. 96, Subscription-Based Information Technology Arrangements This statement provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users (governments). This statement (1) defines a SBITA; (2) establishes that a SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. To the extent relevant, the standards for SBITAs are based on the standards established in Statement No. 87, Leases, as amended. An SBITA is defined as a contract that conveys control of the right to use another party’s (an SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction. Under this statement, a government generally should recognize a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability. This statement provides an exception for short-term SBITAs with a maximum possible term under the SBITA contract of 12 months, including any options to extend, regardless of their probability of being exercised. Subscription payments for short-term SBITAs should be recognized as outflows of resources. This statement requires a government to disclose descriptive information about its SBITAs other than short-term SBITAs, such as the amount of the subscription asset, accumulated amortization, other payments not included in the measurement of a subscription liability, principal and interest requirements for the subscription liability, and other essential information. The requirements of this statement are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. -26- GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans—an Amendment of GASB Statement No. 14 and No. 84, and a Supersession of GASB Statement No. 32 The primary objectives of this statement are to (1) increase consistency and comparability related to the reporting of fiduciary component units in circumstances in which a potential component unit does not have a governing board and the primary government performs the duties that a governing board typically would perform; (2) mitigate costs associated with the reporting of certain defined contribution pension plans, defined contribution OPEB plans, and employee benefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduciary component units in fiduciary fund financial statements; and (3) enhance the relevance, consistency, and comparability of the accounting and financial reporting for Internal Revenue Code Section 457 deferred compensation plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through those plans. The requirements of this statement that (1) exempt primary governments that perform the duties that a government board typically performs from treating the absence of a governing board the same as the appointment of a voting majority of a governing board in determining whether they are financially accountable for defined contribution pension plans, defined contribution OPEB plans, or other employee benefit plans, and (2) limit the applicability of the financial burden criterion in paragraph 7 of Statement 84 to defined benefit pension plans and defined benefit OPEB plans that are administered through trusts that meet the criteria in paragraph 3 of Statement 67 or paragraph 3 of Statement 74, respectively, are effective immediately. The requirements of this statement that are related to the accounting and financial reporting for Section 457 plans are effective for fiscal years beginning after June 15, 2021. For purposes of determining whether a primary government is financially accountable for a potential component unit, the requirements of this statement that provide that for all other arrangements, the absence of a governing board be treated the same as the appointment of a voting majority of a governing board if the primary government performs the duties that a governing board typically would perform, are effective for reporting periods beginning after June 15, 2021. Earlier application of those requirements is encouraged and permitted by requirement as specified within this statement. GASB Statement No. 98, The Annual Comprehensive Financial Report This statement establishes the term annual comprehensive financial report and its acronym ACFR. That new term and acronym replace instances of comprehensive annual financial report and its acronym in generally accepted accounting principles for state and local governments. This statement was developed in response to concerns raised by stakeholders that the common pronunciation of the acronym for comprehensive annual financial report sounds like a profoundly objectionable racial slur. This statement’s introduction of the new term is founded on a commitment to promoting inclusiveness. The requirements of this statement are effective for fiscal years ending after December 15, 2021. Earlier application is encouraged. Preliminary Draft -ix- I:\RFA\City Manager\2022\ARPA\WS 051622\11.6 Q ‐ Discuss ARPA Fund Transfers.docx    Request for Action  May 16, 2022    Approved by: Kirk McDonald, City Manager  Originating Department: City Manager  By: Kirk McDonald, City Manager    Agenda Title  Discuss American Rescue Plan Act (ARPA) Fund Transfers  Requested Action  Staff recommends that the City Council have a discussion regarding the use of the American Rescue Plan Act  (ARPA) funding received in 2021 and to be received in 2022.  Policy/Past Practice  It is the policy and past practice for staff to discuss financial transfers with and receive approval from the City  Council before transfers are completed.  Background  Per the attached memorandum from Abdo, the city completed the Federal single audit process in May, 2022,  and an unmodified opinion was issued. In 2021, the city received $1,142,382 in ARPA funding. Now that the  Federal audit is completed, staff and Abdo are recommending that the funds be transferred out of the general  fund balance as follows:    1. Transfer $100,000 to the Economic Development Authority Fund for the Curbside Appeal Program  (program and funding discussed at previous work sessions and at May 9 EDA meeting).    2. Transfer $200,000 to the Information Technology Fund for new police department records  management system (to be implemented in 2022/23 in conjunction with other cities).    3. Transfer remaining $842,382 to the Public Works Facility Fund for future facility improvements  (discussed at previous work sessions and included in long‐term financial plan so bonding is not  necessary).    It is anticipated that the city will be receiving the second ARPA distribution in an estimated amount of  $1,106,158 in 2022, and staff and Abdo are recommending that those funds be transferred to the Public Works  Facility Fund upon receipt of the funds.     If the City Council is in agreement with these recommendations, a resolution transferring the funds will be  placed on the May 23 council agenda for consideration.  Attachments   May 4, 2022 Abdo Memo   November 30, 2021 Abdo Memo    Agenda Section Work Session Item Number  11.6  I:\RFA\P&R\ARENA\2022\Fund Transfer\WS Discuss\11.7 Q ‐ Transfer from Park Infrastructure Fund to Ice Arena Operating Fund.docx    Request for Action  May 16, 2022    Approved by: Kirk McDonald, City Manager  Originating Department: City Manager  By: Kirk McDonald, City Manager and   Susan Rader, Parks & Recreation Director    Agenda Title  Discuss Transfer from Park Infrastructure Fund to Ice Arena Operating Fund  Requested Action  Staff requests to briefly discuss the annual transfer from the park infrastructure fund to the ice arena  operating fund for debt service purposes. The transfer is included in the approved 2022 tax levy and budget.  If the Council is supportive, a resolution authorizing the transfer would be presented at the May 23 council  meeting.   Policy/Past Practice  In 2017, the City Council reviewed the financial operations of the ice arena and agreed to increase the park  infrastructure tax levy to make annual transfers to the ice arena operating fund to provide for the required  debt service payments on the 2011A bonds and ongoing capital needs of the facility. The bonds were  refinanced in February 2021, to achieve a savings in interest costs, with the understanding that the debt  service would continue to be paid with a transfer from the park infrastructure fund to the ice arena operating  fund.  Background  Staff and Abdo are recommending that the Council approve a $500,000 transfer from the park infrastructure  fund to the ice arena fund for ice arena debt service and capital improvements. The long‐term financial plan  that was reviewed with the Council in November 2021 included annual transfers from the park infrastructure  fund to the ice arena fund to provide funding for the outstanding debt at the facility. The 2022 budget and tax  levy approved by the Council in December 2021 included the usual 5% increase in the park infrastructure tax  levy and $500,000 for ice arena debt service. A transfer is recommended so the funds can be transferred to the  appropriate fund.     At the June 19, 2017 work session, staff and Abdo reviewed the financial operations of the ice arena and  reported that the current cash generated from ice arena operations was not adequate to provide for the  required debt service payments on the 2011A bonds or the ongoing capital outlay needs of the facility. It was  noted that many of the ice arenas in neighboring communities receive funding form internal transfer or tax  levies (Champlin, Coon Rapids, Maple Grove, Plymouth and Rogers). The recommendations presented  included considering increasing the park infrastructure and/or general fund tax levy so annual transfers  could be made and implementing a long‐term financing plan for all parks and recreation facilities/equipment.  The City Council agreed that the ice arena is an important community asset and a valuable recreational  facility, and supported making the needed capital improvements and adopting a plan to make the required  debt service payment to ensure the ongoing viability of the operation.    Agenda Section Work Session Item Number  11.7    Request for Action, Page 2    Beginning with the 2017 budget, the park infrastructure fund tax levy has been increased incrementally over  the last five years by $100,000 to achieve the goal of setting aside $500,000 per year for the required debt  service. With the 2022 budget, there is no additional increase in the park infrastructure fund for ice arena debt  service and capital needs, as the final increase was implemented in 2021.  Attachments   2022 Budget Excerpts   2021 Excerpt Long‐Term Financial Plan   February 22, 2021 Bond Refinancing RFA   May 17, 2021 Excerpt Work Session Minutes   May 18, 2020 Excerpt Work Session Minutes   May 20, 2019 Excerpt Work Session Minutes   May 21, 2018 Excerpt Work Session Minutes   June 19, 2017 Excerpt Work Session Minutes        I:\RFA\HR & Admin Svcs\Human Resources\2022\2022 Worksessions\Closed Meeting of 05162022 to Discuss Labor Negotiations.docx    Request for Action  May 16, 2022    Approved by: Kirk McDonald, City Manager  Originating Department: HR & Admin Services  By: Rich Johnson, Director    Agenda Title  Resolution calling for a closed meeting of the New Hope City Council authorized by Minn. Stat §13D.03 to  discuss and consider labor negotiations strategy  Requested Action  Staff requests the opportunity to discuss labor negotiations strategy with the City Council.  The city has  collective bargaining agreements with each of the following: police officers (LELS #77), police supervisors  (LELS #273), and the International Union of Operating Engineers (Local #49). Each of these agreements expire  December 31, 2022. Staff has held meetings with each of these groups to negotiate successor agreements and  would like to discuss these negotiations with the City Council.    Policy/Past Practice  As per Minnesota State Statute 13D.03 Subd. 1(b), the city is authorized to hold a closed meeting to consider  labor negotiation strategies or developments or discuss and review labor negotiation proposals conducted  pursuant to the Public Employment Labor Relations Act set out in Minnesota State Statutes 179A.01 through  179A.25.  It is staff’s intention to share information with Council as well as request their input which will be  helpful in upcoming negotiations.  Please remember that this is confidential information and not for public  disclosure.  Attachment   Resolution     Agenda Section Work Session Item Number  11.8          City of New Hope    Resolution No. 2022‐    Resolution calling for a closed meeting of the New Hope City Council authorized  by Minn. Stat §13D.03 to discuss and consider labor negotiations strategy    WHEREAS, Minn. Stat § 1313.03 Subd. 1(b) authorizes and permits the New Hope City Council, by a majority  vote taken in a public meeting, to hold a closed meeting to consider labor negotiation strategies or  developments or discussion and review of labor negotiation proposals conducted pursuant to the  Public Employment Labor Relations Act set out in Minn. Stat §§ 1.79A.01 through 179A.25, and    WHEREAS, the city of New Hope is currently in the process of developing new labor strategies and reviewing  its current labor strategies and policies to negotiate new labor contracts with the following city  employee groups:    1. LELS #77 ‐ Police Officers  2. LELS #273 ‐ Police Supervisors  3. IUOE #49 – Ice Arena Maintenance Operator, Maintenance Workers, Mechanic    WHEREAS, a closed meeting of the New Hope City Council is necessary to consider new labor strategies or  developments and to consider, discuss and review existing labor contracts and new labor contract  proposals from the city employee groups referenced above, and    WHEREAS, a closed meeting is also necessary in that public disclosure of the information to be discussed at the  closed meeting would damage the cityʹs position in the labor negotiation process.    NOW, THEREFORE, BE IT RESOLVED,  by the City Council of the city of New Hope as follows:    1. That a closed meeting of the New Hope City Council shall be held on May 16, 2022, during an adjournment  of the regularly scheduled work session of the New Hope City Council, in the Northwood conference room.  2. That the purpose of the meeting shall be the discussion of labor contract negotiations for employment  contracts for 2023 and beyond.  3. That said meeting shall not be open to the public.  4. That the New Hope City Clerk is hereby directed to tape record the meeting at the cityʹs expense and  preserve the tape recording for a minimum period of three (3) years. Further, the City Clerk shall make the  tape recording available to the public after all labor contracts are signed by the city.  5. That the New Hope City Clerk shall prepare a written roll of the City Council members and all other persons  present at the closed meeting and make said roll available for public inspection upon adjournment of the  closed meeting.    Adopted by the City Council of the city of New Hope, Hennepin County, Minnesota, this 16th day of May, 2022.       Mayor    Attest:      City Clerk