2013 Management ReportManagement Report
for
City of New Hope
Hennepin County, Minnesota
December 31, 2013
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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, 2013. 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
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 14, 2014
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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,
GAS,U.S.OM
OVERNMENT UDITING TANDARDS AND THE FFICE OF ANAGEMENT
TATES OF MERICA
B(OMB)CA-133
ANDUDGET IRCULAR
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, 2013, and the related notes to the financial statements. 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 U.S. 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, 2013:
We have 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
requirements that could have a direct and material effect on each major federal program.
We reported no deficiencies in the internal controls over compliance and its operation that we
consider to be material weaknesses in our testing of major federal programs.
We reported no findings based on our testing of the City’s compliance with Minnesota laws and
regulations.
-1-
F-UPYFR
OLLOWP ON RIOREARINDINGS AND ECOMMENDATIONS
As a part of our audit of the City’s financial statements for the year ended December 31, 2013, we
performed procedures to follow-up on the findings and recommendations that resulted from our prior year
audit. Minnesota Statutes § 471.425 requires the prompt payment of local government bills within a
standard period of 35 days from the receipt of goods or services, or the invoice for goods or services, for
cities with governing bodies that meet at least monthly. In the prior year, 1 of 25 disbursements tested
was not paid within the required time period. All disbursements tested in the current year were paid
within the required 35-day time period, and no finding was reported for this requirement.
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.
AEMJ
CCOUNTING STIMATES AND ANAGEMENT UDGMENTS
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management’s knowledge and experience about past and current events and assumptions about
future events. Certain accounting estimates are particularly sensitive because of their significance to the
financial statements and because of the possibility that future events affecting them may differ
significantly from those expected. The most sensitive estimates affecting the financial statements were:
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.
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.
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 basic financial statements taken as a whole.
The financial statement disclosures are neutral, consistent, and clear.
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.
-2-
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 14, 2014.
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.
OM
THERATTERS
With respect to the supplemental information accompanying the financial statements and the separately
issued Schedule of Expenditures of Federal Awards, 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 supplemental
information and Schedule of Expenditures of Federal Awards to the underlying accounting records used
to prepare the basic financial statements or to the basic financial statements themselves.
With respect to the introductory and statistical sections accompanying the financial statements, our
procedures were limited to reading this other information and, in doing so, we did not identify any
material inconsistencies with the audited financial statements.
-3-
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 Fund, 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.
PT
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 economic conditions have resulted in reductions to
other revenue sources such as state aids and fees generated from property development or redevelopment.
Despite these conditions, property taxes levied by Minnesota cities increased a record low 0.9 percent
state-wide for 2012, and 2.27 percent for 2013. Almost one-third of Minnesota cities kept their 2013 levy
at the same level as the previous year, while another 13 percent reduced their levies for 2013.
Economic conditions have also had a profound effect on the tax base of Minnesota cities with state-wide
taxable market values declining each of the last four levy years, including average decreases of
8.8 percent and 4.5 percent for taxes payable in 2012 and 2013, respectively. There is optimism that this
trend is reversing, as the market value decline for the 2013 levy year was the smallest of the past four
years. However, since the assessed valuation used for levying property taxes is based on values from the
previous fiscal year (e.g. the market value for taxes payable in 2013 is based on estimated values as of
January 1, 2012), taxable market value improvement has lagged behind recent upturns in the housing
market and the economy in general.
The City’s taxable market value decreased 11.4 percent for taxes payable in 2012 and 8.0 percent for
taxes payable in 2013. 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
$–
2004200520062007200820092010201120122013
-4-
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 9.5 percent and 7.0 percent for taxes
payable in 2012 and 2013, 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
$–
2004200520062007200820092010201120122013
The following table presents the average tax rates applied to New Hope residents for each of the last two
levy years, along with comparative state-wide and metro area rates. The general increase in rates reflects
both the increased reliance of local governments on property taxes and the recent decline in tax capacities.
Rates exressed as a ercentae of net tax caacit
ppgpy
All CitiesSeven-County
State-WideMetro AreaCity of New Hope
20122013
2012201320122013
Averae tax rate
g
58.855.2
Cit 48.846.3 43.4 46.1
y
49.548.2
Count 48.546.8 45.0 47.1
y
32.332.8
School27.3 28.5 28.5 30.3
10.510.2
Secial taxin 7.26.8 8.7 9.4
pg
151.1146.4
Total127.2 133.0 125.6 132.9
The City’s portion, as well as the total of the tax capacity rates for New Hope residents has been higher
than the state-wide and metro area averages in recent years. The City’s rate has been above average since
it began using annual levies rather than special assessment bonds to finance street and park
improvements.
The increase in the City’s portion of the tax capacity rate for 2013 was due to the combination of a levy
increase and the continued decline in market values of property within the City’s taxing jurisdiction.
-5-
FB
G
OVERNMENTAL UNDALANCES
The following table summarizes the changes in the fund balances of the City’s governmental funds during
the year ended December 31, 2013, presented both by fund balance classification and by fund:
Governmental Funds Change in Fund Balance
Fund Balance
as of December 31,Increase
(Decrease)
20132012
Fund balances of overnmental funds
g
Total b classification
y
Nonspendable15,484$ 14,925$ 559$
Restricted5,550,819 5,657,606 (106,787)
d 5,165,1924,511,073 (654,119)
Committe
Assigned 6,533,8688,204,338 1,670,470
Unassigned5,567,933 5,080,812 487,121
$ 22,452,40323,849,647$ 1,397,244$
Total – governmental funds
fund
Total by
General5,583,417$ 5,095,737$ 487,680$
pment Authority Special Revenue4,326,022 4,989,473 (663,451)
Economic Develo
HRA Construction Capital Project1,443,302 1,319,423 123,879
Street Infrastructure Capital Project3,908,890 2,158,764 1,750,126
Temporary Financing Capital Project3,130,125 3,082,536 47,589
HRA Bonds Debt Service3,815,654 4,073,402 (257,748)
Nonmajor funds1,642,237 1,733,068 (90,831)
$ 22,452,40323,849,647$ 1,397,244$
Total – governmental funds
In total, the fund balances of the City’s governmental funds increased by $1,397,244 during the year
ended December 31, 2013. Most of the increase was in the assigned fund balances category, which was
$1,670,470 higher than the previous year. Fund balance assigned for street improvements in the Street
Infrastructure Capital Project Fund increased by $1,750,126, as property taxes and state aid received
exceeded capital outlay expenditures in that fund. The $654,119 decrease in the committed fund balances
category was primarily due to development activity funded through the Economic Development Authority
Special Revenue Fund.
-6-
FRAE
G
OVERNMENTAL UNDS EVENUENDXPENDITURES
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
the 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 the City’s operation. 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.
Governmental Funds Revenue per Capita
With State-Wide Averages by Population Class
City of New Hope
State-Wide
December 31, 2012201120122013
Year
20,48620,76420,764
Poulation10,000–20,00020,000–100,000
p
$ 443428$ 459$
ert taxes382$ 416$
Pro
py
6568 25
Tax increments44 46
2121 21
Franchise and other taxes36 30
158 9
Secial assessments54 62
p
1218 13
Licenses and ermits24 35
p
4178 215
Interovernmental revenues279 138
g
7575 76
Chares for services81 83
g
3245 25
Other58 50
$ 704741$ 843$
Total revenue958$ 860$
In total, the City’s governmental fund revenues for 2013 were $17,511,811, an increase of $2,897,220
(19.8 percent) from the prior year. On a per capita basis, the City received $843 in governmental fund
revenue for 2013, an increase of $139 from the prior year. Revenue from property taxes was $16 per
capita higher than last year, mainly due to an increase of approximately $342,000 in the City’s levy. The
largest increase was in intergovernmental revenue, which was $174 per capita higher than last year due to
the City utilizing over $4.1 million of municipal state aid for street improvements in 2013. These
increases were partially offset by a $40 per capita decline in tax increment revenue due to the
decertification of three city tax increment districts in 2012.
-7-
The expenditures of governmental funds will also vary from state-wide averages and from year-to-year,
based on the City’s circumstances. Expenditures are classified into three types as follows:
Current
– These are typically the general operating type expenditures occurring on an annual
basis, and are primarily funded by general sources such as taxes and intergovernmental revenues.
Capital Outlay and Construction
– These expenditures do not occur on a consistent basis, more
typically fluctuating significantly from year-to-year. Many of these expenditures are
project-oriented, and are often funded by specific sources that have benefited from the
expenditure, such as special assessment improvement projects.
Debt Service
– Although the expenditures for debt service may be relatively consistent over the
term of the respective debt, the funding source is the important factor. Some debt may be repaid
through specific sources such as special assessments or redevelopment funding, while other debt
may be repaid with general property taxes.
The City’s expenditures per capita of its governmental funds for the past three years, together with
state-wide averages, are presented in the following table:
Governmental Funds Expenditures per Capita
With State-Wide Averages by Population Class
State-WideCity of New Hope
December 31, 2012201120122013
Year
20,48620,76420,764
Poulation10,000–20,00020,000–100,000
p
Current
General governmen$ 7576$ 76$
t$ 84101$
Public safety
286290 287
241229
Public works 5753 60
92105
Culture and recreation 7776 78
8695
All other 1514 28
9275
$ 510509$ 529$
$ 595605$
Caital outla
py
$ 370351$ 204$
and construction313$ 221$
Debt service
Principal$ 1649$ 16$
$ 103135$
Interest and fiscal 1817 15
3946
$ 3466$ 31$
$ 142181$
The City’s total governmental funds expenditures were $15,876,040 for 2013, a decrease of $3,124,118
(16.4 percent) from the prior year. Current expenditures were $19 per capita higher than the previous
year, mainly due to increased development costs (reported in “all other” above) in the City’s Economic
Development Authority Special Revenue Fund. Capital outlay expenditures were $166 per capita lower in
2013 despite an increase in street improvement capital outlay, as the City spent almost $4.7 million on the
acquisition and rehabilitation on the old “K-Mart site” in 2012. Scheduled debt service payments were $3
per capita lower than last year.
-8-
F
G
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 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 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
$–
20092010201120122013
Fund BalanceCash BalanceExpenditures and Transfers Out
The City’s General Fund cash and investment balance at December 31, 2013 was $5,505,946, an increase
of $462,529 from last year. The General Fund total fund balance at December 31, 2013 was $5,583,417,
which was an increase of $487,680 from the previous year, as compared to a budget that projected no
change in fund balance. Unassigned fund balance at year-end was $5,567,933, which represents
approximately 53.1 percent of annual expenditures and transfers out based on 2013 levels. By
comparison, unassigned fund balance at the end of the previous year represented 49.4 percent of
expenditures and transfers out.
As the graph illustrates, the City has generally been able to maintain healthy cash and fund balance levels
in recent years. 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
reductions 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. Property
taxes comprise almost 73 percent of the fund’s total annual revenue. Approximately half of these
revenues are received by the City in June/July and the rest in November/December. Consequently, the
City needs to have adequate cash reserves to finance its everyday operations between these payments.
-9-
The following chart reflects the City’s General Fund revenue sources for 2013 compared to budget:
General Fund Revenue
Budget to Actual
Millions
$–
$1 $2 $3 $4 $5 $6 $7 $8
Property Taxes
Franchise Taxes
Licenses and Permits
Intergovernmental
Charges for Services
Fines
Other
BudgetActual
Total General Fund revenue for 2013 was $10,718,358, which was $227,886 (2.2 percent) higher than the
final budget. Intergovernmental revenue was over budget by $132,309, due to the City receiving a small
amount of local government aid (LGA) and several other small grants that were not budgeted. Charges for
services were over budget by $161,084, mainly due to higher than anticipated charges for building plan
reviews, rental housing inspections, police services and false alarms, and recreation programs.
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, and shows the
virtual elimination of general state aid revenue in recent years.
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
$–
Property TaxesIntergovernmentalOther
20092010201120122013
Total General Fund revenue for 2013 was $503,601 (4.9 percent) higher than the prior year. Property tax
revenue was $380,565 higher than the prior year, mainly due to a levy increase. Intergovernmental
revenue increased $26,362 due to the City receiving more miscellaneous state and federal grants than last
year. Revenues from other sources were $96,674 higher than the prior year, with increases in revenues
from building permits and various service charges as discussed above.
-10-
The following graphs illustrate the components of General Fund spending for 2013 compared to budget:
General Fund Expenditures
Budget to Actual
Millions
$–
$1 $2 $3 $4 $5 $6 $7
General Government
Public Safety
Public Works
Culture and Recreation
BudgetActual
Total General Fund expenditures for 2013 were $10,306,354, which was $461,691 (4.3 percent) under the
final budget. Public safety expenditures were $344,832 under budget, primarily due to police salaries and
fire service charges not increasing as much as anticipated. Culture and recreation expenditures were also
under budget by $146,983, mainly in parks department salaries and swimming pool costs.
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
$–
General GovernmentPublic SafetyPublic WorksCulture and Recreation
20092010201120122013
Total General Fund expenditures increased by $123,158 (1.2 percent) from the previous year, with the
majority of the increase ($112,131) in public works. The increase in public works was primarily in
salaries and central garage charges for street maintenance.
-11-
ENTERPRISE FUNDS OVERVIEW
The City maintains a number of enterprise funds to account for services the City provides that are
financed primarily through fees charged to those utilizing the service. This section of the report provides
you with an overview of the financial trends and activities of the City’s enterprise funds.
EFFP
NTERPRISEUNDSINANCIAL OSITION
The following table summarizes the changes in the financial position of the City’s enterprise funds during
the year ended December 31, 2013, presented both by classification and by fund:
Enterrise Funds Chane in Financial Position
pg
Net Position
as of December 31,Increase
Decrease
20132012
()
Net osition of enterrise funds
pp
Total b classification
y
ital assets14,142,276$ 12,843,624$ 1,298,652$
Net investment in cap
Restricted300,000 150,000 150,000
Unrestricted3,397,270 3,530,929 133,659
()
$ 16,524,55317,839,546$ 1,314,993$
Total – enterprise funds
Total b fund
y
Sewer Utility$ 2,264,4822,381,281$ 116,799$
4,721,8196,118,043 1,396,224
Water Utility
Golf Course714,395 387,948 326,447
Ice Arena3,751,274 3,697,902 53,372
5,251,6104,664,922 586,688
Storm Water()
Street Lighting 200,792209,631 8,839
$ 16,524,55317,839,546$ 1,314,993$
Total – enterrise funds
p
In total, the total net position of the City’s enterprise funds increased by $1,314,993 during the year ended
December 31, 2013. The net investment in enterprise capital assets increased $1,298,652, with the largest
factor being significant capital improvements in the Water Utility Fund financed in part with a transfer of
$1,000,000 from the Storm Water Fund. The $300,000 restricted net position represents cash required to
be restricted for the future payment of the City’s energy conservation lease revenue bonds. Unrestricted
net position declined by $133,659, with the largest decrease in the Storm Water Fund due to the transfer
discussed above.
-12-
UF
S
EWERTILITY UND
The following graph presents five years of operating results for the City’s sewer utility operation.
Information for fiscal year 2009 is based on an estimated split of the City’s water and sewer operations,
which were reported in a single fund during that year.
Sewer Utility Operating Results
Year Ended December 31,
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$–
20092010201120122013
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Sewer Utility Fund ended 2013 with a total net position of $2,381,281, of which $2,238,598
represents the net investment in sewer collection system capital assets, and $142,683 is unrestricted. Net
position increased in the current year by $116,799.
Operating revenue in the Sewer Utility Fund for 2013 was $2,443,094, an increase of $67,073
(2.8 percent) from the previous year.
Operating costs for 2013 were $2,279,155, an increase of $91,951 (4.2 percent) from the prior year,
mainly due to increases in maintenance costs and central garage chargebacks.
-13-
UF
W
ATERTILITYUND
The following graph presents five years of operating results for the City’s water utility operation.
Information for fiscal year 2009 is based on an estimated split of the City’s water and sewer operations,
which were reported in a single fund during that year.
Water Utility Operating Results
Year Ended December 31,
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$–
$(500,000)
20092010201120122013
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Water Utility Fund ended 2013 with a total net position of $6,118,043, of which $4,103,275
represents the net investment in water distribution system capital assets, and $2,014,768 is unrestricted.
Water Utility Fund net position increased $1,396,224 in 2013.
Operating revenue in the Water Utility Fund for 2013 was $3,460,008, a decrease of $72,341
(2.0 percent) from the prior year. Water consumption was down 8.2 percent in 2013, mainly due to a less
irrigation usage caused by a wet spring and short summer compared to the prior year.
Operating costs for 2013 were $3,139,338, a decrease of $447,003 (12.5 percent) from the prior year. The
largest decreases were in water purchases ($121,217), and supplies for system maintenance ($242,687).
-14-
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,
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$–
$(50,000)
20092010201120122013
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Golf Course Fund ended 2013 with a total net position of $714,395, an increase of $326,447 from the
prior year. Of this, $646,293 represents the net investment in golf course capital assets, leaving $68,102 in
unrestricted net position.
Golf Course Fund operating revenue for 2013 was $259,221, a decrease of $30,227 (10.4 percent), which
is attributable to a decrease in the number of rounds played due to unfavorable weather.
Operating expenses were $259,695, which was a decrease of $28,762 (10.0 percent) from the prior year,
mainly due to lower salaries and benefits.
The overall increase in net position was primarily attributable to a transfer of $348,301 into the Golf
Course Fund from another City Fund that was closed in 2013.
-15-
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,
$1,000,000
$800,000
$600,000
$400,000
$200,000
$–
$(200,000)
20092010201120122013
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Ice Arena Fund ended 2013 with a total net position of $3,751,274, an increase of $53,372 from the
prior year. Of this, $3,273,624 represents the net investment in arena capital assets, $300,000 is restricted
for debt service, and $177,650 is unrestricted.
Ice Arena Fund operating revenue for 2013 was $725,211, an increase of $30,509 (4.4 percent) from the
prior year, mainly due to more revenue from ice-time rental to area school districts than last year.
Operating expenses were $899,697, which was $186,677 (26.2 percent) higher than the prior year due to
increases in maintenance costs and depreciation.
-16-
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
$–
20092010201120122013
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Storm Water Fund ended 2013 with a total net position of $4,664,922, a decrease of $586,688 from
the prior year. Of this, $3,880,486 represents the net investment in storm water collection system capital
assets, leaving $784,436 in unrestricted net position.
Storm Water Fund operating revenues for 2013 were $963,167, an increase of $14,517 (1.5 percent) from
the previous year.
Operating expenses were $731,735, an increase of $355,746 (94.6 percent), mainly in repair costs and
central garage chargebacks.
The Storm Water Fund transferred out $1,020,400 in 2013 to support General Fund operations and
finance water utility infrastructure improvements, which resulted in the overall decrease to net position.
-17-
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,
$165,000
$150,000
$135,000
$120,000
$105,000
$90,000
$75,000
$60,000
$45,000
$30,000
$15,000
$–
20092010201120122013
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Street Lighting Fund ended 2013 with an unrestricted net position of $209,631, an increase of $8,839
from the prior year.
Street Lighting Fund operating revenues for 2013 were $125,604, an increase of $1,207 (1.0 percent)
from the previous year.
Operating expenses were $117,518, which was $12,797 (12.2 percent) higher than the previous year due
primarily to an increase in electric utility costs.
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GOVERNMENT-WIDE FINANCIAL STATEMENTS
In addition to fund-based information, the current reporting model for governmental entities also requires
the inclusion of two government-wide financial statements designed to present a clear picture of the City
as a single, unified entity. These government-wide financial statements provide information on the total
cost of delivering services, including capital assets and long-term liabilities.
SNP
TATEMENT OF ETOSITION
The Statement of Net Position essentially tells you what your city owns and owes at a given point in time,
the last day of the fiscal year. Theoretically, net position represents the resources the City has leftover to
use for providing services after its debts are settled. However, those resources are not always in spendable
form, or there may be restrictions on how some of those resources can be used. Therefore, net position is
divided into three components: net investment capital assets, restricted, and unrestricted.
The following table presents the components of the City’s net position as of December 31, 2013 and 2012
for governmental activities and business-type activities:
As of December 31,
Increase
Decrease
20132012
()
Netosition
p
Governmental activities
Net investment in caital assets 30,509,373$ 26,793,142$ 3,716,231$
p
Restricted1,619,394 1,619,696 302
()
Unrestricted23,704,592 22,746,207 958,385
Totalovernmental activities55,833,359 51,159,045 4,674,314
g
Business-te activities
yp
ital assets 14,142,276 12,843,624 1,298,652
Net investment in cap
Restricted300,000 150,000 150,000
Unrestricted2,496,008 2,735,144239,136
()
Total business-te activities16,938,284 15,728,768 1,209,516
yp
$ 66,887,81372,771,643$ 5,883,830$
Total net osition
p
The City’s total net position at December 31, 2013 was $5,883,830 higher than the beginning of the year.
Governmental activities net position increased $4,674,314 in total, mainly due to street infrastructure
capital asset additions financed with state aid. Business-type activities net position increased $1,209,516,
as outlined in the discussion of enterprise fund operations earlier in this report.
-19-
A
S
TATEMENT OF CTIVITIES
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 net position of the City for the years ended December 31, 2013
and 2012:
2013
2012
Prora
gm
ExensesRevenuesNet ChaneNet Chane
pgg
Net (expense) revenue
Governmental activities
$ 520,2571,837,194$ $ 1,316,937$ 1,371,929
General government()()
1,133,3396,238,779 (5,105,440) (4,015,052)
Public safety
4,321,7241,790,669 2,531,055 (1,492,102)
Public works
698,2221,946,243 (1,248,021) (1,254,227)
Culture and recreation
61,734431,332 (369,598) (320,249)
Economic development
289,009– (289,009) (407,744)
Interest on long-term debt
Business-type activities
2,443,2022,310,604 132,598 155,583
Sewer utility
3,495,9673,215,714 280,253 68,484
()
Water utility
269,904262,894 7,010 2,239
()
Golf course
252
1,007,185957,784 49,401 ()
Ice arena
1,175,283768,610 406,673 542,602
Storm water
125,604117,518 8,086 19,676
Street lighting
$ 15,252,42120,166,350$ (4,913,929) (8,214,417)
(expense) revenue
Total net
General revenues
10,472,49510,066,553
perty taxes and tax increments
Pro
440,149438,834
Franchise taxes
47,66249,005
grants and contributions
Unrestricted
486,979206,166
gs
Unrestricted investment earnin
69,32137,201
posal of assets
Gain on dis
Total general revenues10,797,759 11,516,606
$ 3,302,1895,883,830$
Change in net position
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.
-20-
LEGISLATIVE UPDATES
Despite an improving economy, the 2013 Legislature faced the familiar prospect of having to address a
significant projected deficit in order to adopt a balanced budget for the next biennium. The November
2012 financial forecast projected a deficit of $1.1 billion in the state General Fund for the 2014–2015
biennium, which was revised down to a $627 million deficit in the February 2013 forecast. Even with this
challenge, there was an expectation that with one political party holding the Governor’s office and
majorities in both the House and Senate, this biennial budget agreement would be reached more quickly
and easily than the previous one, which featured numerous vetoes, a special session, and the longest
shutdown of non-essential state government services in Minnesota history. While in the end there was no
special session or government shutdown, the 2013 session still stretched until the final day allowable
under the state constitution, with the last bill passed at midnight.
The following is a summary of recent legislative activity affecting the finances of Minnesota cities in
2013 and into the future:
Local Government Aid (LGA)
– The state-wide LGA appropriation for fiscal 2013 was set to
increase about 2.8 percent to $426.4 million. However, the 2012 Legislature froze 2013 LGA
payments at 2012 levels for cities with a population of 5,000 or more. For cities with populations
below 5,000, 2013 LGA was the greater of their 2012 aid or the amount they would have received for
2013 under existing law.
The 2013 Legislature completely overhauled the LGA formula for fiscal year 2014 and thereafter,
creating a three-tiered formula that includes separate “need factor” calculations for cities with
populations under 2,500, between 2,500 and 10,000, or over 10,000. The new formula simplifies the
LGA calculation, and is designed to reduce the volatility of the LGA distribution by limiting the
amount it may decline in a given year. Under the new formula, each city’s LGA distribution for 2014
will be no less than their 2013 LGA. Beginning in 2015, any reduction to a city’s LGA distribution
will be limited to the lesser of $10 per capita, or 5 percent of their previous year net tax levy. For
cities that gain under the new formula, the increases will be distributed proportionate to their unmet
need, as determined by the new “need factor” calculations. The state-wide LGA appropriation is
$507.6 million for fiscal 2014, $509.1 million for 2015, and $511.6 million for fiscal 2016 and
thereafter.
Levy Limits
– A levy limit for city property tax levies payable in 2014 was established for all cities
with populations exceeding 2,500. The levy limit base is the certified levy (excluding special levies)
plus the certified LGA for taxes payable in fiscal 2012 or 2013, whichever is greater, increased by 3
percent. The levy limit is equal to the base, less the city’s certified LGA for fiscal 2014. Levies for
special purposes such as debt service, abatements, or voter-approved purposes, are not subject to this
limitation.
Market Value Definitions
– A number of levy, tax, spending, debt, and similar limits that had
previously been computed based on “market value” or “taxable market value” must now be computed
based on “estimated market value.” This change was enacted to eliminate the effects of the homestead
market value exclusion established in 2011.
Levy Authority for Watershed Management Plan
– Cites are granted the authority to levy taxes
to provide funding for the implementation of a comprehensive watershed management plan.
Tax Status of Leased Tax-Exempt Property
– Tax-exempt property owned by a political
subdivision and held under a lease for a term of at least one year, or under a contract for the purchase
thereof, is considered to be the property of the person holding it for all purposes of taxation. This
change makes the tax treatment of leased property owned by local governments consistent with leased
property owned by the federal government.
-21-
Tax Increment Financing (TIF)
– A number of changes and clarifications were made to rules
governing the use of TIF, including:
The prohibition on using tax increments for improvements or equipment primarily of a
decorative or aesthetic nature, or with costs twice as high due to the selection of materials or
designs compared to more commonly used improvements or equipment, is eliminated.
The four-year rule originally applying to TIF Districts certified between January 1, 2005 and
April 20, 2009 is extended through December 31, 2016.
Development authorities may elect to reduce the original net tax capacity of qualifying TIF
districts for the effects of the homestead market value exclusion that replaced the homestead
tax credit program.
Taxes paid by captured tax capacity of TIF districts that are attributable to the new general
education levy authorized by the 2013 Legislature, will be paid to the school district that
imposes the levy.
Park Dedication Fees
– A clarification was made to define the basis on which a city calculates a
park dedication fee charged to a developer in lieu of dedicating land for park usage. The fee must be
calculated on the fair market value of the land as annually determined by the city based on tax
valuation or other relevant data. The new law also provides a method for resolving valuation disputes
through negotiation or the use of independent appraisals of land in the same land use category.
Host Community Economic Development Grants
–A new program was created that will provide
grants for the acquisition and improvement of publicly owned capital assets for metro-area cities that
host waste disposal facilities. No local matching funds are required.
Change to Small Cities Development Block Grants
–The Minnesota Department of Employment
and Economic Development is now allowed to provide a forgivable loan through the Small Cities
Development Block Grant Program directly to a private enterprise. The city in which the private
enterprise is located is no longer required to submit an application, only a resolution of support.
Wastewater and Stormwater Funding
– Several changes were made to wastewater and stormwater
grant and loan programs administered by the Public Facilities Authority. The changes include
expanded eligibility for some programs, and increased grant or loan ceilings for others.
Sales Tax Exemption
– Cities are exempted from paying sales tax on qualifying purchases, effective
for purchases made on or after January 1, 2014. This exemption does not include purchases of goods
or services to be used as inputs to goods or services cities provide to the public that are generally
provided by a private business, such as liquor stores, golf courses, marinas, or fitness centers.
Cities with a population over 500 will be required to include a property tax savings report along with
its proposed 2013 payable 2014 property tax levy certification, with the amount of sales or use taxes
paid or estimated to have been paid in fiscal 2012. Cities must also discuss the savings resulting from
the sales tax exemption at their fall truth-in-taxation public hearings.
Organized Solid Waste Collection
– The process for imposing the city-organized collection of solid
waste was streamlined and better defined. The previous 180-day process for cities to adopt organized
collection of solid waste was eliminated. The process now begins with a 60-day period in which cities
may negotiate with collectors currently operating in the city, thereby giving them the first opportunity
to develop a proposal for organized collection. If the 60-day negotiation period ends without an
agreement, a city may continue the process by passing a resolution to form a committee to study the
methods of organizing collection and make recommendations. A city must provide public notice and
hold at least one public hearing before deciding to implement organized collection.
-22-
Pensions
– An omnibus pension bill was passed that made a number of changes to both state-wide
pension plans and single employer relief associations, including:
Changes to the Public Employees Retirement Association (PERA) General Plan:
The “average salary” for determining surviving spouse and dependent benefits was
o
redefined.
A number of clarifications were made to what constitutes “salary” for plan purposes.
o
Changes were made to the level of annual post-retirement adjustments, which will
o
vary based on the funding level of the plan.
Changes to the PERA Police and Fire Plan:
Increases employee contribution rate from 9.6 percent of salary to 10.2 percent for
o
fiscal 2014, and 10.8 percent for fiscal 2015 and thereafter.
Increases employer contribution rate from 14.4 percent of salary to 15.3 percent for
o
fiscal 2014, and 16.2 percent for fiscal 2015 and thereafter.
A 20-year proportional vesting period was established for new hires beginning in
o
2014, under which the member becomes 50 percent vested after 10 years, and vests
an additional 5 percent annually until fully vested at 20 years.
The retirement annuity formula calculation was changed to incorporate the effect of
o
the new 20-year vesting period, and a new cap of 33 years on allowable service time
included in the annuity calculation.
The early retirement reduction factor was increased from the current 2.4 percent per
o
year to 5 percent, phased in over a 5-year period beginning July 1, 2014.
Changes were made to the level of annual post-retirement adjustments, which will
o
vary based on the funding level of the plan.
Changes to single employer relief associations:
The threshold of assets at which police relief associations and salaried or volunteer
o
fire relief associations must prepare financial statements and have them audited by an
independent auditor was raised from $200,000 to $500,000.
Volunteer firefighter relief associations are now required to pay a supplemental
o
survivor benefit whenever it pays a survivor benefit, regardless of whether it is
authorized in the association bylaws.
Any change to the interest rate paid during the deferral period of lump-sum service
o
pensions must be approved by the governing body of the city or independent
firefighting corporation to which the association is related.
In addition, a new supplemental state aid was created to provide funding for pension plans. An annual
allotment of $15.5 million will be distributed among the PERA Police and Fire Plan ($9 million),
municipal volunteer firefighter associations ($5.5 million allocated based on proportionate share of
fire state aid), and the Minnesota State Retirement System State Patrol Plan ($1 million).
Expansion of Debt Authority
– Several changes were made to expand the allowable uses of certain
types of debt, including:
Home rule charter city or statutory city capital notes are allowed to be used for the purchase
of application development services and training related to the use of computer hardware and
software.
Capital improvement program (CIP) bonds are allowed to be used for expenditures incurred
before the adoption of the CIP, if the expenditures are included in the plan.
Street reconstruction bonds are allowed to be used for bituminous overlay projects, which
previously had not been included in the definition of reconstruction.
-23-
Authorized Investments
– The list of authorized investments for cities was expanded to include:
revenue obligations issued by local governments without levy authority that are rated AA or better;
short-term (13 month maturity or less) obligation issued by a school district that is either rated in the
highest credit rating category or covered by the State of Minnesota Credit Enhancement Program; and
short-term (18 month maturity or less) guaranteed investment contracts when the issuer’s or
guarantor’s short-term debt is rated in the highest rating category, even if their long-term debt is rated
below the top two rating categories.
Elections
–The Legislature passed an omnibus elections policy bill that made a number of changes
and clarifications to election requirements, including:
Establishing “no excuse” absentee balloting;
Increasing the time for counting absentee ballots from 4 days prior to the election to 7;
Reducing the number of people a voter may vouch for in a polling place from 15 to 8;
Eliminating the requirement to have at least one telecommunications device for deaf voter
registration in every city of the first, second, or third class;
Requiring that the municipal clerk designated to administer absentee ballots also be
responsible for the administration of a “ballot board”;
Reducing the number of election judges required in a precinct for elections other than a
general election from 4 to 3, for precincts with more than 500 voters; and allowing the
minimum number of three election judges for all elections including general elections for
precincts with less than 500 registered voters;
Modifying the vote differentials requiring publically funded recounts to 0.25 percent in
elections where more than 50,000 votes are cast, and 0.5 percent for elections in which
between 400 and 50,000 votes are cast;
Amending the time period in which cities are prohibited from holding a special election from
the first 40 days following a general election to the first 56 days;
Increasing the number of days’ notice a city clerk must provide to a county auditor before
holding a municipal election from 67 to 74 days; and
Establishing a pilot program and task force for the use of electronic rosters of voters.
Alternative Bid Publication for Projects Funded by Special Assessments
– A technical change
was made to eliminate duplicative publication requirements for projects funded with special
assessments. The definition of “recognized industry trade journal” was broadened to include websites
or electronic publications, thereby eliminating circumstances that were forcing cities utilizing an
alternative electronic publication method to also publish written notice for certain projects.
Met Council Allocated Costs
– A change was made to allow cities that are allocated costs by the
Met Council to request the cost be deferred, or to be paid over time on a payment schedule with
interest as agreed to by the Met Council.
Liquor Licensing
– An omnibus liquor bill was passed that made several changes to liquor licensing
and distribution. Among the changes are: authorizing cities with municipal liquor operations to issue
brewer taproom licenses that allow consumption on the premises or adjacent to malt liquor breweries;
authorizing cities to issue brewers a license for off-sale of malt liquor packaged by the brewer;
providing for the sale of malt-liquor educator licenses that will allow malt liquor tastings and
education to be conducted similar to wine tastings; and allowing micro-distilleries to provide product
samples on site.
Tax-Exempt Holding Period for Development Property
– The tax exempt holding period for
city-owned land held for development is increased from 9 to 15 years for property acquired between
January 1, 2000 and December 31, 2010, or for property located in a city outside of the metro area
with a population under 20,000.
-24-
Citizen Contact Information Classified as Private Data
–Citizen contact information submitted to
cities in order to receive certain notifications or to subscribe to the city’s electronic publications, such
as phone numbers or email addresses, is now classified as private data. The names of people on such
lists remain public information.
Criminal History and Background Checks
–Cities are authorized to perform criminal history
checks on applicants for: city employment, volunteer positions, or a license that does not otherwise
subject the applicant to a criminal history check. Such criminal history checks may not be substituted
for statutorily mandated background checks.
Background checks are now required for all fire department applicants, and are allowed for current
fire department employees. The fire chief is also required to perform criminal history record checks
of applicants.
-25-
ACCOUNTING AND AUDITING UPDATES
GASBSN.67–FRPP–A
TATEMENT OINANCIAL EPORTING FOR ENSION LANS AN MENDMENT OF
GASBSN.2550
TATEMENTOS AND
The primary objective of this statement is to improve financial reporting by state and local government
pension plans. GASB Statement No. 67 replaces the requirements of GASB Statement Nos. 25 and 50 for
pension plans that are administered through trusts or equivalent arrangements that meet the following
criteria: contributions from employers and nonemployer contributing entities to the pension plan and
earnings on those contributions are irrevocable; pension plan assets are dedicated to providing pensions to
plan members in accordance with the benefit terms; and pension plan assets are legally protected from the
creditors of employers, nonemployer contributing entities, and the pension plan administrator. If the plan
is a defined benefit pension plan, plan assets also are legally protected from creditors of the plan
members. The requirements of GASB Statement Nos. 25 and 50 remain applicable to pension plans that
are not administered through trusts covered by the scope of this statement and to defined contribution
plans that provide post-employment benefits other than pensions.The statement makes a number of
changes in the financial statement presentation, measurement, and required disclosures relating to the
reporting of these types of pension plans. This statement is effective for financial statements for fiscal
years beginning after June 15, 2013. Earlier application is encouraged.
GASBSN.68–AFRP–
TATEMENT OCCOUNTING AND INANCIAL EPORTING FOR ENSIONS AN
AGASBSN.2750
MENDMENT OF TATEMENTOS AND
The primary objective of this statement is to improve accounting and financial reporting by state and local
governments for pensions.This statement replaces the requirements of GASB Statement Nos. 27 and 50,
as they relate to pensions that are provided through pension plans administered as trusts or equivalent
arrangements that meet certain criteria (as described earlier for GASB Statement No. 67). The
requirements of GASB Statement Nos. 27 and 50 remain applicable for pensions that are not covered by
the scope of this statement.
This statement establishes standards for measuring and recognizing liabilities, deferred outflows of
resources, deferred inflows of resources, and expense/expenditures. In addition, this statement details the
recognition and disclosure requirements for employers with liabilities (payables) to a defined benefit
pension plan and for employers whose employees are provided with defined contribution pensions. This
statement also addresses circumstances in which a nonemployer entity has a legal requirement to make
contributions directly to a pension plan. This statement is effective for financial statements for fiscal years
beginning after June 15, 2014. Earlier application is encouraged.
Included in this statement are major changes in how employers that participate in cost-sharing pension
plans, such as the Teachers’ Retirement Association (TRA) and PERA, account for pension benefit
expenses and liabilities. In financial statements prepared using the economic resources measurement
focus and accrual basis of accounting (government-wide and proprietary funds), a cost-sharing employer
that does not have a special funding situation is required to recognize a liability for its proportionate share
of the net pension liability of all employers with benefits provided through the pension plan. A
cost-sharing employer is required to recognize pension expense and report deferred outflows of resources
and deferred inflows of resources related to pensions for its proportionate share of collective pension
expense and collective deferred outflows of resources and deferred inflows of resources related to
pensions. In addition, the effects of (1) a change in the employer’s proportion of the collective net pension
liability and (2) differences during the measurement period between the employer’s contributions and its
proportionate share of the total of contributions from employers included in the collective net pension
liability are required to be determined. These effects are required to be recognized in the employer’s
pension expense in a systematic and rational manner over a closed period equal to the average of the
expected remaining service lives of all active and inactive employees that are provided with pensions
through the pension plan.
-26-
SN.69–GCDG
GASB
TATEMENT OOVERNMENTOMBINATIONS AND ISPOSALS OF OVERNMENT
O
PERATIONS
This statement provides accounting and financial reporting guidance, including disclosure requirements,
for government combinations and disposals of government operations. Government combinations include
mergers, acquisitions, and transfers of operations. Included within the scope of this statement are
combinations of governmental entities, or combinations of governmental entities with nongovernmental
entities (such as a nonprofit entity), as long as the new or continuing organization is a government. This
statement does not apply to combinations in which a government acquires an organization that continues
to exist as a separate entity, or acquires an equity interest in an organization that remains legally separate
from the acquiring government. A disposal of operations occurs when a government either transfers or
sells specific operations. The provisions of this statement are effective for financial statements for periods
beginning after December 15, 2013. Earlier application is encouraged.
CRFG
HANGES TO EQUIREMENTS FOR EDERALRANTS
In December 2013, the U.S. Office of Management and Budget (OMB) issued “Uniform Administrative
Requirements, Cost Principles, and Audit Requirements for Federal Audits,” which supersedes all or parts
of eight OMB circulars; consolidating federal cost principles, administrative principles, and audit
requirements in one document. The “Super Circular” includes a number of significant changes to the
federal Single Audit process, including an increase in dollar threshold for requiring a Single Audit,
changes to the thresholds and process used for determining major programs, a reduction in the percentage
of expenditures required to be covered by a Single Audit, revised criteria for determining low-risk
auditees, and an increase in the threshold for reporting questioned costs. The draft version of this
guidance also included proposed reductions in the number of compliance requirements to be tested in a
Single Audit, but final guidance on those changes will not be available until an updated compliance
supplement is issued in 2014.
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