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2021 New Hope Mgmt Rpt Management Report for City of New Hope, Minnesota December 31, 2021 THIS PAGE INTENTIONALLY LEFT BLANK 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 May 31, 2022 C E R T I F I E D A C C O U N T A N T S P UBLIC PRINCIPALS Thomas A. Karnowski, CPA Paul A. Radosevich, CPA William J. Lauer, CPA James H. Eichten, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA/CMA Jaclyn M. Huegel, CPA Kalen T. Karnowski, CPA Malloy, Montague, Karnowski, Radosevich & Co., P.A. 5353 Wayzata Boulevard • Suite 410 • Minneapolis, MN 55416 • Phone: 952-545-0424 • Fax: 952-545-0569 • www.mmkr.com Standard Letterhead-r2.qxp_167639 Letterhead-RV1 9/7/18 6:34 PM Page 1 THIS PAGE INTENTIONALLY LEFT BLANK -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, and 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 t o 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 May 31, 2022. 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. THIS PAGE INTENTIONALLY LEFT BLANK -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 $30,000,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Local Tax Capacity The following table presents the average tax rates applied to city residents for each of the last three levy years: 2019 2020 2021 Average tax rate City 68.0 66.1 62.6 County 41.8 41.1 38.2 School 29.9 26.4 25.5 Special taxing 8.9 8.4 10.0 Total 148.6 142.0 136.3 Rates Expressed as a Percentage of Net Tax Capacity City of New Hope Both the City portion of the tax rate and the overall tax rate for New Hope residents declined for the 2021 levy year, due to the increasing taxable market value of property within the City. -6- GOVERNMENTAL FUND BALANCES The following table summarizes the changes in the fund balances of the City’s governmental funds during the year ended December 31, 2021, presented both by fund balance classification and by major fund. 2021 2020 Change Fund balances of governmental funds Total by classification Nonspendable 49,680$ 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 and Street Infrastructure Funds in 2021. An increase 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 $2,474,751 (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 $558,280 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 personnel 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 $593,795 higher than the prior year, mainly in salaries and services related to the aquatic center opening and an increase in recreation programs. -12- ENTERPRISE FUNDS OVERVIEW The City maintains several enterprise funds to account for services the City provides that are financed primarily through fees charged to those utilizing the service. This section of the report provides you with an overview of the financial trends and activities of the City’s enterprise funds, which include the Sewer Utility, Water Utility, Golf Course, Ice Arena, Storm Water, and Street Lighting funds. ENTERPRISE FUNDS FINANCIAL POSITION The following table summarizes the changes in the financial position of the City’s enterprise funds during the year ended December 31, 2021, presented both by classification and by fund: 2021 2020 Change Net position of enterprise funds Total by classification Net investment in capital assets 22,607,046$ 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 in 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 $323,652 (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-19 restrictions in 2021. Operating expenses were $92,948 (9.6 percent) higher than the prior year, mainly due to legal and financial services 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 $474,445, 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 $2,953 (2.2 percent) higher than the previous year, mainly due to an increase in utilities expense. THIS PAGE INTENTIONALLY LEFT BLANK -19- GOVERNMENT-WIDE FINANCIAL STATEMENTS In addition to fund-based information, the current reporting model for governmental entities also requires the inclusion of two government-wide financial statements designed to present a clear picture of the City as a single, unified entity. These government-wide financial statements provide information on the total cost of delivering services, including capital assets and long-term liabilities. STATEMENT OF NET POSITION The Statement of Net Position essentially tells you what the City owns and owes at a given point in time, the last day of the fiscal year. Theoretically, net position represents the resources the City has leftover to use for providing services after its debts are settled. However, those resources are not always in spendable form, or there may be restrictions on how some of those resources can be used. Therefore, net position is divided into three components: net investment in capital assets, restricted, and unrestricted. The following table presents the components of the City’s net position as of December 31, 2021 and 2020, for governmental activities and business-type activities: 2021 2020 Change Net position Governmental activities Net investment in capital assets 34,985,781$ 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 t o 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 pr oceeds 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.