2010 Management ReportManagement Report
for
City of New Hope
Hennepin County, Minnesota
December 31, 2010
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, 2010. The purpose of this
report is to provide comments resulting from our audit process and to communicate information relevant
to city finances in Minnesota. We have organized this report into the following sections:
Audit Summary
Funding Cities in Minnesota
Governmental Funds Overview
Financial Trends and Conditions of Selected Funds
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.
This report is intended solely for the information and use of those charged with governance of the City,
management, and those who have responsibility for oversight of the financial reporting process and is not
intended to be, and should not be, used by anyone other than these specified parties.
May 12, 2011
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.
ORUASGAU
URESPONSIBILITY NDERUDITING TANDARDS ENERALLY CCEPTED IN THE NITED
SA,AU.S.O
GAS,
OVERNMENT UDITING TANDARDS
TATES OF MERICAND THE FFICE OF
MB(OMB)CA-133
ANAGEMENT AND UDGETIRCULAR
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, 2010. 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 OMB Circular A-133, as well as certain information related to the planned scope
and timing of our audit. We have communicated such information to you verbally and in our audit
engagement letter. Professional standards also require that we communicate the following information
related to our audit.
PSTA
LANNEDCOPE AND IMING OF THE UDIT
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
.
AOF
UDITPINION AND INDINGS
Based on our audit of the City’s financial statements for the year ended December 31, 2010:
We have issued an unqualified opinion on the City’s financial statements.
We noted no matters involving the City’s internal control over financial reporting that we
consider 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.
We noted no matters involving the internal control over compliance and its operation that we
consider to be material weaknesses in our testing of major federal programs.
The results of our tests indicate that the City has complied, in all material respects, with the
requirements applicable to each major federal program.
We reported no findings based on our testing of the City’s compliance with Minnesota laws and
regulations.
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OR
THERECOMMENDATIONS
We offer the following observations and recommendations for the continued improvement of the City’s
internal controls over financial reporting:
During our audit, we noted that the journal entries initiated and posted to the City’s general ledger
by its contracted financial consultant are not being reviewed and approved by city management.
The use of a contracted professional accounting service does not change the fact that the City
Council and management are ultimately responsible for the City’s financial transactions and the
accuracy of its financial records. Appropriate review and approval controls should be maintained
over adjustments and transactions initiated by consultants, just as with those initiated by an
employee. We recommend that a member of management, such as the City Manager, review and
document approval of all journal entries initiated by the City’s financial consultants.
One important element of internal accounting control is an adequate segregation of duties such
that no individual has responsibility to execute a transaction, has physical access to the related
assets, and has the responsibility or authority to record the transaction. One city employee has
access to all parts of the transaction cycle related to utility receipts and credit memos. The City
has a mitigating control in place requiring department manager approval of utility credit memos,
which is being followed for all credit memos presented for review. However, the review
procedure does not include a control whereby the manager verifies that all credit memos entered
into the utility billing system have been presented for review. We recommend that the manager
responsible for this review process also cross-check the credit memos approved to a report of all
credit memos processed from the utility billing system.
As part of our audit process, management provided us with descriptions of the internal control
policies and procedures in place at the City, which we review and test to assure they are
implemented and functioning as designed. We noted that in some cases, in particular the
procedures for performing the year-end closing of the City’s general ledger, policies and
procedures are not documented in writing. Implied or verbal policies and procedures are subject
to greater variation of meaning and the likelihood of misinterpretation increases when a policy is
not written. A lack of documentation may also impair management’s ability to communicate
control procedures to those responsible for their performance or to monitor control performance
effectively. Therefore, we recommend that the City establish written internal control policies and
procedures for all relevant areas, including the year-end closing process.
SAP
IGNIFICANT CCOUNTING OLICIES
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.
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.
CUM
ORRECTED AND NCORRECTEDISSTATEMENTS
Professional standards require us to accumulate all known and likely misstatements identified during the
audit, other than those that are trivial, and communicate them to the appropriate level of management.
Where applicable, management has corrected all such misstatements. In addition, none of the
misstatements detected as a result of audit procedures and corrected by management, when applicable,
were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as
a whole.
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AEMJ
CCOUNTING STIMATES AND ANAGEMENT UDGMENTS
Accounting estimates are an integral part of the basic 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 as
follows:
Value of Land Held for Resale
– These assets are stated at the lower of cost or net realizable
value based on management’s estimates.
Depreciation
– Management’s estimates of depreciation expense are based on the estimated
useful lives of the assets.
Net Other Post-Employment Benefit (OPEB) Liabilities
– Actuarial estimates of the net OPEB
obligation is based on eligible participants, estimated future health insurance premiums, and
estimated retirement dates.
We evaluated the key factors and assumptions used by management in the areas discussed above in
determining that they are reasonable in relation to the financial statements taken as a whole.
DEPA
IFFICULTIES NCOUNTERED IN ERFORMING THE UDIT
We encountered no significant difficulties in dealing with management in performing and completing our
audit.
DWM
ISAGREEMENTSITHANAGEMENT
For purposes of this report, professional standards define a disagreement with management as 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.
MR
ANAGEMENTEPRESENTATIONS
We have requested certain representations from management that are included in the management
representation letter dated May 12, 2011.
MCWOIA
ANAGEMENTONSULTATIONS ITH THERNDEPENDENTCCOUNTANTS
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.
OAFI
THERUDIT INDINGS OR SSUES
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.
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FUNDING CITIES IN MINNESOTA
L
EGISLATION
The following is a summary of significant legislative activity passed in calendar year 2010 affecting the
finances of Minnesota cities:
Local Government Aid and Market Value Homestead Credit
– The 2009 legislative session
ended without an agreement on how to address significant projected state budget deficits for the 2009
and 2010 fiscal years. The Governor vetoed the budget bill proposed by the Legislature and balanced
the budget using his power of unallotment. The Governor’s unallotment plan included delays in the
payment of state revenues to school districts, and a reduction in appropriations to other state
programs, including local government aid (LGA) and market value homestead credit (MVHC) to
Minnesota cities. The unallotments included reductions of approximately $128 million to calendar
year 2010 LGA and MVHC, calculated at 7.64 percent of the total calendar year 2009 aggregated
levy and LGA of the city, not to exceed $55 per capita. Cuts were to be first taken from LGA and
then from MVHC, as necessary. Cities with populations below 1,000 and below the state-wide
average tax base per capita were exempted from these cuts.
The February 2010 state budget forecast predicted an additional shortfall of $994 million for the
remainder of the 2010–2011 biennium. The 2010 Legislature passed a supplemental budget bill in
April that addressed roughly $312 million of the additional shortfall. The bill reduced fiscal 2010
LGA and MVHC for cities by an additional $52.5 million, calculated at 3.43 percent of the total 2010
aggregated levy, LGA, and taconite aid of the city, not to exceed $28 per capita. These cuts were to
be first taken from MVHC and then from LGA, as necessary. Cities with populations below 1,000
exempted from previous LGA and MVHC cuts were included in this round of cuts.
The April 2010 supplemental budget bill also reduces city LGA and MVHC for fiscal 2011 by
$56.5 million. About $25.4 million of this reduction is a permanent extension of the MVHC portion
of the cuts originally made through the Governor’s unallotments. The Legislature also made a
permanent reduction of $31.1 million to the state’s annual LGA appropriation for cities, beginning in
2011.
In May 2010, the Minnesota Supreme Court issued a ruling on a lawsuit overturning the Governor’s
unallotment of funding to a state special nutrition program. The decision, which applied only to the
cuts to this specific program, called into question all of the Governor’s July 2009 unallotments. In a
one-day special session in May, the 2010 Legislature took action to ratify the majority of the
Governor’s 2010 unallotments, and dealt with the remaining projected shortfall.
Levy Limitations
– A 2008 law limited general operating property tax levy increases for cities with
populations over 2,500 to an inflationary increase based on the state determined implicit price deflator
(IPD) to a maximum of 3.9 percent annually for the next three calendar years.Modifications were
made in subsequent legislative sessions to allow cities subject to levy limitation to declare “special
levies” to replace the LGA and MVHC losses described above. The 2010 Legislature also established
a floor of zero percent for the inflationary increase, so levies would not be reduced in the event of
IPD deflation. The Governor’s proposal to extend levy limits was not adopted by the
2010 Legislature, and levy limits remain set to expire after the 2011 tax year. However, the extension
of levy limits is expected to be revisited by the 2011 Legislature.
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State Stimulus/Jobs Bill
– This jobs creation bill included a number of provisions that applied to
cities, including:
Authority for local governments to finance energy conservation improvements and collect
repayments as special assessments at the request of the property owner.
Creation of a new “compact development” type of tax increment financing (TIF) district.
Expanded authority to use TIF for general economic development for one year.
Expanded authority to use excess TIF to finance new private development.
Expanded authority for certain cities to use TIF for housing replacement in response to the
foreclosure crisis.
Interest Rates on Awards and Judgments
– The 2010 Legislature exempted government entities
from a 2009 law change that increased the required interest rate on awards and judgments over
$50,000 to 10 percent, returning the rate to the pre-2009 maximum of the greater of 4 percent or the
secondary market rate of one year U.S. Treasury bills as determined in December each year.
Pension Funding and Sustainability
– The 2010 Legislature made a number of changes to improve
the sustainability of state-wide pension plans, including those administered by the Public Employees
Retirement Association (PERA). Among the changes to the Public Employee Retirement Fund
Coordinated Plan were required increases to the employer and employee contribution rates of
0.25 percent of salary each, effective January 1, 2011. Public Employee’s Police and Fire Fund
employee and employer contribution rates also increased 0.2 percent and 0.3 percent of salary,
respectively, effective January 1, 2011.
SOIIC
TATEUTLOOK AND MPORTANCE OF NTERNALONTROLS
The state of Minnesota has experienced a series of major budget shortfalls and a steadily deteriorating
financial condition in recent years. Local governments and other entities dependent on the state for
funding have, in turn, had to deal with the resulting state aid cuts, holdbacks, and unallotments. For the
fiscal year 2010–2011 biennium, the state budget was balanced using several large accounting “shifts”
and one-time federal stabilization funds that greatly reduced the amount of actual aid reductions
necessary. The accounting shifts included delaying state aid payments to and accelerating property tax
revenue recognition of Minnesota school districts, essentially utilizing cash “borrowed” from the districts
to help balance the state budget. The state intends to pay these shifts back when it has the financial
ability.
Current state budget projections for 2011–2012 predict further significant shortfalls that will need to be
addressed. Realistically, the state has already used up most of the accounting shifts available for this
purpose, and additional federal assistance cannot be counted on. The economy, while showing some
signs of recovery, is unlikely to turn around quickly enough to solve the state’s budget issues in the
short-term. All of this adds up to a period of continued financial uncertainty and a strong likelihood of
further funding cuts for Minnesota municipalities.
These circumstances have resulted in a sustained cycle of budget reductions for most Minnesota cities.
Among our clients, we have seen numerous examples of staffing cuts and reassignments that have
potentially weakened internal controls by reducing the segregation of accounting duties or delaying the
performance of key control procedures. Unfortunately, the economic downturn has also placed additional
financial strain on many individuals, elevating the risk of fraud and theft. Recent communications from
the Minnesota Office of the State Auditor have reported a substantial increase in incidents of fraud and
theft involving local governments reported to their office recently. A sound system of internal controls is
critical to safeguarding city assets and assuring that accurate and timely financial information is available
to manage the City. When faced with difficult budgetary decisions, we encourage our clients to remain
mindful of these factors and to continue to make sound financial controls a top priority.
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T
P
ROPERTYAXES
Minnesota cities rely heavily on local property tax levies to support their governmental fund activities. In
recent years this dependence has been heightened, as revenue from state aids and fees related to new
development have dwindled due to the struggling economy. This has placed added pressure on local
taxpayers already beset by higher unemployment, lower property values, and tighter credit markets. As a
result, municipalities in general are experiencing increases in tax delinquencies, abatements, and
foreclosures. This instability has led to significant fiscal challenges for many local governments, and
increased the investing public’s concerns about the security of the municipal debt market.
Property values within Minnesota cities experienced an average increase of 1.5 percent for taxes payable
in 2009 and an average decrease of 3.0 percent for those payable in 2010, reflecting the weak housing
market and economic recession experienced in recent years. In comparison, the City’s market value
decreased 1.1 percent and 5.9 percent in 2009 and 2010, respectively. It is important to remember that the
2010 market value is based on estimated values as of January 1, 2009, and the housing market is still
experiencing difficult times.
The following graph shows the City’s changes in taxable market value over the past 10 years:
Taxable Market Value
$1,800,000,000
$1,500,000,000
$1,200,000,000
$900,000,000
$600,000,000
$300,000,000
r
2001200220032004200520062007200820092010
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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 the City’s 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 decreased 0.7 percent and 5.8 percent for taxes
payable in 2009 and 2010, respectively.
The following graph shows the City’s change in tax capacities over the past 10 years:
Local Tax Capacity
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
r
2001200220032004200520062007200820092010
The following table presents the average tax rates applied to city residents for each of the last two levy
years, along with comparative state-wide and metro-area rates. The general increase in rates reflects both
the increased reliance of local governments on property taxes and the recent decline in tax capacities
previously discussed.
Rates expressed as a percentage of net tax capacit
y
All CitiesSeven-County
State-WideMetro AreaCity of New Hope
20092010
2009201020092010
Averae tax rate
g
Cit 39.236.9 33.7 36.0 46.041.3
y
Count 41.039.3 34.7 36.8 42.640.4
y
School22.0 23.0 22.1 24.0 28.627.2
Special taxing5.5 5.9 5.9 6.5 8.57.4
Total103.7 109.1 96.4 103.3 125.7116.3
The City’s portion, as well as the total of the tax capacity rates for New Hope residents has been higher
than the state-wide and metro area averages in recent years. The City’s rate has been above average since
it began using annual levies rather than special assessment bonds to finance street and park
improvements. The increase in the City’s levy for 2010 was to offset the loss of LGA and MVHC state
aid as described earlier in this report.
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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. Governmental funds include the General Fund, special revenue, debt service, and
capital projects funds. We have also included the most recent comparative state-wide averages available
from the Office of the State Auditor. The reader needs to consider the effect of inflation and other known
changes or differences when comparing this data. Also, certain data on these tables may be classified
differently than how they appear on 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 your city. We intend for this type of comparative and trend
information to complement, rather than duplicate, information in the Management’s Discussion and
Analysis. An inherent difficulty in presenting per capita information is the accuracy of the population
count, which for most years is based on estimates.
GFR
OVERNMENTAL UNDS EVENUE
The amounts received from the typical major sources of revenue will naturally vary between cities based
on their particular situation. This would include the City’s stage of development, location, size and
density of its population, property values, services it provides, and other attributes. The following table
presents the City’s revenue per capita of its governmental funds for the past three years, together with
state-wide averages:
Governmental Funds Revenue per Capita
With State-Wide Averages by Population Class
State-Wide
City of New Hope
December 31, 2009
Year200820092010
Population2,500–10,00010,000–20,00020,000–100,00020,86020,71820,339
Property taxes367$ 365$ 391$
$ 403387$ 427$
Tax increments46 62 59 7588 69
Franchise and other taxes23 34 36 2121 21
ecial assessments86 47 62
Sp 810 13
Licenses and permits21 19 27
1120 12
Intergovernmental revenues284 273 168 6850 87
Charges for services82 80 77 5654 67
Other81 76 61 5057 35
Total revenue990$ 956$ 881$ $ 691687$ 732$
Total revenue in the City’s governmental funds for 2010 was $14,883,370, an increase of $567,250, or
4.0 percent, from the previous year. The City’s governmental funds revenue for fiscal 2010 was $732 on
a per capita basis, up $41 per capita from last year. The City’s general property tax levy revenue went up
by $24 per capita, as the City increased its general levy for 2010 to make up for state aid reductions.
Intergovernmental revenue increased by $19 per capita due to the City earning about $556,000 of federal
grant revenue for road improvements this year. Revenue from other sources decreased by $15 per capita,
mainly due to a decline of about $386,000 in investment income.
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FE
G
OVERNMENTAL UNDS XPENDITURES
The expenditures of governmental funds will 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 which are often funded by specific sources that have benefited from the
expenditure, such as special assessment improvement projects.
Debt Service
– Although the expenditures for the 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
state-wide averages, are presented in the following table:
Governmental Funds Expenditures per Capita
With State-Wide Averages by Population Class
State-Wide
City of New Hope
December 31, 2009
Year
200820092010
Poulation2,500–10,00010,000–20,00020,000–100,000
p20,86020,71820,339
Curren
t
General government
$ 107120$ 79$ $ 8393$ 93$
Public safety
233217 241 286282 285
Public works
106112 82 3640 49
Culture and recreation
8161 86 8281 79
All other
8181 96 –– 9
$ 609591$ 584$ $ 487496$ 514$
ital outla
Capy
and construction336$ 325$ 267$ $ 55117$ 128$
Debt service
Principal
$ 135196$ 126$
$ 4339$ 25$
Interest and fiscal
5173 39
1317 13
$ 188268$ 165$
$ 5656$ 38$
The City’s total governmental funds expenditures were $13,850,564 for 2010, an increase of $1,455,937,
or 11.8 percent, from the prior year. The largest increase was in capital outlay expenditures, which were
$73 higher per capita in 2010. The City spent about $985,000 more on street infrastructure projects than
the previous year, mainly due to the reconstruction of Winnetka Avenue, which was partially funded with
a federal grant. Current operating costs also increased $30 per capita in 2010. General government
expenditures were up $10 per capita, mainly in salaries and contracted services. Public works costs,
mainly street maintenance salaries and supplies, were also $13 per capita higher than last year.
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FINANCIAL TRENDS AND CONDITIONS OF SELECTED FUNDS
GF
ENERALUND
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 culture
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:
General Fund Financial Position
Year Ended December 31,
$11,000,000
$10,000,000
$9,000,000
$8,000,000
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
r
20062007200820092010
Fund BalanceCash BalanceExpenditures and Operating Transfers Out
The City’s General Fund cash and investment balance at December 31, 2010 was $4,355,041, an increase
of $444,445 from last year. The General Fund total fund balance at December 31, 2010 was $4,591,600,
an increase of $237,249 from the previous year. Unreserved fund balance at year-end was $4,527,847,
which represents approximately 44.5 percent of annual expenditures and transfers out based on 2010
levels. By comparison, unreserved fund balance at the end of the previous year represented 45.6 percent
of expenditures and transfers out. All but $188,522 of the year-end unreserved fund balance is designated
for working capital in accordance with city policy.
Over the last few years, the City has generally been able to maintain stable cash and fund balance levels,
despite significant legislative cuts to state aid. This is an important factor because a government, like any
organization, requires a certain amount of equity to operate. Generally, the amount of equity required
typically increases as the size of the operation increases.
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 can be 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.
-10-
The following chart reflects the City’s General Fund revenue sources for 2010 compared to budget:
General Fund Revenue
Budget to Actual
Other
Fines
Charges for Services
Intergovernmental
Licenses and Permits
Franchise Taxes
Property Taxes
r
Millions
BudgetActual
Total General Fund revenue for 2010 was $9,701,993, which was $36,563 (0.4 percent) higher than the
final budget. Property tax revenue was $62,750 under budget due to abatements and delinquencies.
Intergovernmental revenue was over budget by $99,718 due to a forest protection grant that was not
anticipated in the budgeted. Charges for governmental services were over budget by $160,134, mainly
due to a $74,600 pilot agreement fee received and an increase in recreation program fees. Revenue from
court fines were $62,239 less than projected. Investment income (included in “Other” above) was also
under budget by $93,453 due to declines in investment market values.
The following graph presents the City’s General Fund revenue sources for the last five years. The graph
reflects the City’s reliance on property taxes and other local sources of revenue.
General Fund Revenue by Source
Year Ended December 31,
$8,000,000
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
r
Property TaxesIntergovernmentalOther
20062007200820092010
Total General Fund revenue for 2010 was $23,475 (0.2 percent) lower than the prior year. Property tax
revenue increased $519,873 from the prior year due to the previously discussed increase in the City’s
general tax levy. Intergovernmental revenues were $736,181 lower than last year, mainly due to
reductions of almost $687,000 in LGA and MVHC. Other revenue increased $192,833, mainly due to
increases in franchise taxes ($89,997) and charges for services ($127,280).
-11-
The following graphs illustrate the components of General Fund spending for 2010 compared to budget:
General Fund Expenditures
Budget to Actual
Culture and Recreation
Public Works
Public Safety
General Government
r
Millions
BudgetActual
Total General Fund expenditures for 2010 were $9,950,521, which was $201,435 (2.0 percent) under the
final budget. Public safety expenditures were $148,737 under budget, primarily due to police and police
reserve salaries and benefits not increasing as much as anticipated. Culture and recreation expenditures
were under budget by $69,526, as tree removal costs (salaries and benefits) in the parks department were
lower than expected. Public works expenditures exceeded budget by $84,768, but this was offset by
unbudgeted grant proceeds related to the Emerald Ash Borer Grant Program.
The following graph illustrates the City’s General Fund expenditures by function over the last five years:
General Fund Expenditures by Function
Year Ended December 31,
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
r
General GovernmentPublic SafetyPublic WorksCulture and
Recreation
20062007200820092010
Total General Fund expenditures increased by $411,417, or about 4.3 percent. General government and
public works expenditures increased by $398,106 and 249,720, respectively, both primarily due to
changes in the City’s method of budgeting and allocating salaries and benefits. Labor costs are now
allocated to the various city departments based on the actual hours employees work in each department,
rather than using preset labor pool allocations, as in the past.
-12-
UF
W
ATERTILITYUND
The following graph presents five years of operating results for the City’s water utility operation.
Information for the fiscal years 2006 through 2009 is based on an estimated split of the City’s water and
sewer operations, which were reported in a single fund during those years.
Water Utility Operating Results
Year Ended December 31,
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
r
$(500,000)
20062007200820092010
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Water Utility Fund ended 2010 with net assets of $3,030,170, of which $2,561,908 represents the
fund’s investment in water distribution system capital assets, and $468,262 is unrestricted net assets. The
City elected to begin accounting for its water and sewer enterprise operations in separate funds in 2010.
A transfer of $1,427,361 from the Water Utility Fund to the Sewer Utility Fund has been reported in 2010
to reflect the transfer of the City’s sewer related net assets to a separate new fund. Excluding this
transfer, Water Utility Fund net assets increased $474,905 in 2010.
Operating revenue in the Water Utility Fund for 2010 was $3,047,304, an increase of $216,001
(7.6 percent) from the previous year. The increase was due to the City adopting a new tiered water rate
system to incent water conservation, as required by state law. Water rates were increased a minimum of
5.2 percent for monthly usage.
Operating costs for 2010 were $2,807,197, a decrease of $318,291 from the prior year. Most of this
decrease was due to a $295,894 decline in the cost of water purchased due to a consumption decrease of
9.1 percent.
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UF
S
EWERTILITY UND
The following graph presents five years of operating results for the City’s sewer utility operation.
Information for the fiscal years 2006 through 2009 is based on an estimated split of the City’s water and
sewer operations, which were reported in a single fund during these years.
Sewer Utility Operating Results
Year Ended December 31,
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
r
$(500,000)
20062007200820092010
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Sewer Utility Fund ended 2010 with net assets of $1,808,905, of which $1,308,743 represents the
investment in sewer collection system capital assets, and $500,162 is unrestricted net assets. Excluding
the $1,427,361 transfer to establish this fund, net assets increased $381,554 in 2010.
Operating revenue in the Sewer Utility Fund for 2010 was $2,292,300, an increase of $12,658
(0.6 percent) from the previous year. The City increased sewer rates 4.8 percent for 2010, but the
increase was offset by a decrease in usage.
Operating costs for 2010 were $1,862,007, a decrease of $178,191 from the prior year. Sewer disposal
charges paid to the Metropolitan Council Environmental Services decreased by $177,837.
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CF
G
OLFOURSEUND
The following graph presents five years of operating results for the City’s Golf Course Fund:
Golf Course Fund
Year Ended December 31,
$450,000
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
r
$(50,000)
$(100,000)
20062007200820092010
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Golf Course Fund ended 2010 with net assets of $398,629, a decrease of $28,109 from the prior year.
Of this, $721,367 represents the investment in capital assets, leaving a ($322,738) deficit in unrestricted
net assets.
Golf Course Fund operating revenue for 2010 was $305,558, a decrease of $39,922 (11.6 percent), mainly
due to a decrease in the number of rounds played. Operating expenses were $318,389, a decrease of
$17,427 from the prior year. Costs were reduced in all areas, including personnel, supplies and
maintenance, utility costs, and depreciation.
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AF
I
CERENA UND
The following graph presents five years of operating results for the City’s Ice Arena Fund:
Ice Arena Fund
Year Ended December 31,
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
r
$(100,000)
$(200,000)
20062007200820092010
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Ice Arena Fund ended 2010 with net assets of $3,486,482, an increase of $46,767 from the prior year.
Of this, $3,074,801 represents the investment in capital assets, leaving $411,681 of unrestricted net assets.
Ice Arena Fund operating revenue for 2010 was $741,266, an increase of $17,790 (2.5 percent) from the
prior year, with the increase coming mainly from increased ice rental to area school districts. Operating
expenses were $697,321, which was $17,045 higher than the prior year. The largest increase was in
internal charges from the Central Garage Internal Service Fund for use of city vehicles, which was
$14,256 higher than last year.
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WF
S
TORMATERUND
The following graph presents five years of operating results for the City’s Storm Water Fund:
Storm Water Fund
Year Ended December 31,
$1,000,000
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
r
20062007200820092010
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Storm Water Fund ended 2010 with net assets of $4,035,217, an increase of $772,021 from the prior
year. Of this, $2,322,586 represents the investment in storm water collection system capital assets,
leaving $1,712,631 in unrestricted net assets.
Storm Water Fund operating revenues for 2010 were $943,883, an increase of $10,055 (1.1 percent) from
the previous year. Operating expenses were $347,152, an increase of $30,936, mainly due to higher
repair and maintenance costs.
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LF
S
TREETIGHTINGUND
The following graph presents five years of operating results for the City’s Street Lighting Fund:
Street Lighting Fund
Year Ended December 31,
$160,000
$145,000
$130,000
$115,000
$100,000
$85,000
$70,000
$55,000
$40,000
$25,000
$10,000
$(5,000)
$(20,000)
20062007200820092010
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Street Lighting Fund ended 2010 with unrestricted net assets of $163,939, an increase of $19,640
from the prior year.
Street Lighting Fund operating revenues for 2010 were $121,647, a decrease of $27,692 from the
previous year. Operating expenses were $104,099, which was $22,932 lower than the previous year due
to a decrease in electric utility costs of $21,807.
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-WFS
G
OVERNMENTIDEINANCIAL TATEMENTS
The City’s financial statements include fund-based information that focuses on budgetary compliance,
and the sufficiency of the City’s current assets to finance its current liabilities. The Governmental
Accounting Standards Board (GASB) Statement No. 34 reporting model also requires the inclusion of
two government-wide financial statements designed to present a clear picture of the City as a single,
unified entity. These government-wide statements provide information on the total cost of delivering
services, including capital assets and long-term liabilities of the City’s governmental activities.
Statement of Net Assets
The Statement of Net Assets essentially tells you what your city owns and owes at a given point in time,
the last day of the fiscal year. Theoretically, net assets represent the resources the City has leftover to use
for providing services after its debts are settled. However, those resources are not always in spendable
form, or there may be restrictions on how some of those resources can be used. Therefore, the Statement
of Net Assets divides the net assets into three components: net assets invested in capital assets, net of
related debt; restricted net assets; and unrestricted net assets.
The following table presents the components of City’s net assets as of December 31, 2010 and 2009, for
governmental activities and business-type activities:
As of December 31,Increase
(Decrease)
20102009
Net assets
Governmental activities
Invested in capital assets,
t$ 16,411,45416,495,175$ 83,721$
net of related deb
Restricted4,572,601 6,730,905 (2,158,304)
Unrestricted26,678,018 21,875,703 4,802,315
governmental activities47,745,794 45,018,062 2,727,732
Total
Business-type activities
Invested in capital assets,
net of related debt 9,395,0689,989,405 594,337
Unrestricted2,541,156 1,650,590 890,566
ype activities12,530,561 11,045,658 1,484,903
Total business-t
$ 56,063,72060,276,355$ 4,212,635$
Total net assets
The City’s total net assets at December 31, 2010 were $4,212,635 higher than the beginning of the year.
Governmental activities net assets increased $2,727,728 in total, mainly due to positive operating results
in the governmental funds. Business-type net assets increased $1,484,903, mainly due to improved
operating results in the Water Utility and Sewer Utility Funds.
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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 assets. 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 net assets of the City for the years ended December 31, 2010
and 2009:
2010
2009
Program
ExpensesRevenuesNet ChangeNet Change
Net (expense) revenue
Governmental activities
$ 1,264,4312,552,425$ (1,287,994)$ (978,544)$
General government
463,9515,864,775 (5,400,824) (5,848,371)
Public safety
1,528,9571,625,959 (97,002) (1,050,622)
Public works
616,8011,899,105 (1,282,304) (1,517,847)
Culture and recreation
139,882192,431 (52,549) –
Economic development
252,224 (252,224)– (275,532)
Interest on long-term debt
Business-type activities
3,354,2122,915,757 438,455 (54,513) *
Water utility
y 2,292,3001,928,845 363,455 (54,513) *
Sewer utilit
313,941346,345 (32,404) (23,329)
Golf course
741,266712,153 29,113 29,936
Ice arena
1,173,364430,899 742,465 666,838
Storm water
ghting 121,647104,099 17,548 22,356
Street li
$ 12,010,75218,825,017$ (6,814,265) (9,084,141)
Total net (expense) revenue
General revenues
10,023,08010,139,235
Property taxes and tax increments
438,744430,494
Franchise taxes
902,44279,529
Unrestricted grants and contributions
gs 750,799354,712
Unrestricted investment earnin
22,930 –
Gain on disposal of assets
Total general revenues
12,115,06511,026,900
$ 3,030,9244,212,635$
Change in net assets
*This represents half of the 2009 net change for the combined water and sewer activity of $109,026.
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. 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. This is critical given the
current downward pressures on the general revenue sources.
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ACCOUNTING AND AUDITING UPDATES
GASBSN.54–FBRGFT
TATEMENT OUNDALANCEEPORTING AND OVERNMENTAL UNDYPE
D
EFINITIONS
The objective of this statement is to enhance the usefulness of fund balance information by providing
clearer fund balance classifications that can be more consistently applied and by clarifying the existing
governmental fund type definitions. This statement establishes fund balance classifications
(nonspendable, restricted, committed, assigned, and unassigned) that comprise a hierarchy based
primarily on the extent to which a government is bound to observe constraints imposed upon the use of
the resources reported in governmental funds. The definitions of the general, special revenue, capital
projects, debt service, and permanent fund types are clarified by the provisions in this statement; which
could necessitate changes in fund structure, particularly for existing special revenue funds. Elimination of
the reserved component of fund balance in favor of a restricted classification will enhance the consistency
between information reported in the government-wide statements and information in the governmental
fund financial statements and avoid confusion about the relationship between reserved fund balance and
restricted net assets. The requirements of this statement are effective for financial statements for periods
beginning after June 15, 2010.
GASBSN.60–AFRSC
TATEMENT OCCOUNTING AND INANCIAL EPORTING FOR ERVICEONCESSION
A
RRANGEMENTS
This statement provides accounting and financial reporting guidance for governments that participate as
either a transferor or an operator in a service concession arrangement (SCA). SCAs are arrangements
whereby a government transfers the rights to operate one of its capital assets to a third party operator
(either a private party or another government) for consideration, with the operator then being
compensated from the fees or charges collected in connection with the operation of the asset. To qualify
as an SCA, an arrangement must meet all of the following criteria: 1) the transferor must convey to the
operator both the right and the obligation to use one of its capital assets to provide services to the public;
2) the operator must provide significant consideration to the transferor; 3) the operator must be
compensated from the fees or charges it collects from third parties; 4) the transferor must have the ability
to either determine, modify, or approve what services are to be provided to whom at what price; and
5) the transferor must retain a significant residual interest in the service utility of the asset. This statement
provides guidance to governments that are party to an SCA for reporting the assets, obligations, and flow
of revenues that result from the arrangement; along with the required financial statement disclosures. The
requirements of this statement must be implemented for fiscal year ending December 31, 2012, with
earlier implementation encouraged.
GASBSN.61–TFRE:O
TATEMENT OHEINANCIALEPORTING NTITYMNIBUS
This statement amends the current guidance in GASB Statement No. 14, “The Financial Reporting
Entity,” for identifying and presenting component units. This statement changes the fiscal dependency
criterion for determining component units. Potential component units that meet the fiscal dependency
criterion for inclusion in the financial reporting entity under existing guidance will only be included if
there is also “financial interdependency” (an ongoing relationship of potential financial benefit or burden)
with the primary government. This statement also clarifies the types of relationships that are considered
to meet the “misleading to exclude” criterion for inclusion as a component unit; changes the criteria for
blending component units; gives direction for the determination and disclosure of major component units;
and adds a requirement to report an explicit, measurable equity interest in a discretely presented
component unit in a statement of position prepared using the economic resources measurement focus.
The requirements of this statement must be implemented for fiscal year ending June 30, 2013, with earlier
implementation encouraged.
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