2015 Management Report
Management Report
for
City of New Hope
Hennepin County, Minnesota
December 31, 2015
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To the City Council and Management
City of New Hope, Minnesota
We have prepared this management report in conjunction with our audit of the City of New Hope,
Minnesota’s (the City) financial statements for the year ended December 31, 2015. 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 17, 2016
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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
OVERNMENTUDITING TANDARDS
TATES OF MERICA AND
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, 2015, 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 and Government Auditing Standards, 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, 2015:
We issued an unmodified opinion on the City’s basic financial statements. Our report included a
paragraph emphasizing that the City implemented Governmental Accounting Standards Board
(GASB) Statement No. 68, Accounting and Financial Reporting for Pensions—an amendment of
GASB Statement No. 27, and GASB Statement No. 71, Pension Transition for Contributions
Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68,during
the year ended December 31, 2015. Our opinion was not modified with respect to this matter.
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 no findings based on our testing of the City’s compliance with Minnesota laws and
regulations.
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.
The City implemented GASB Statement Nos. 68 and 71 during the year ended December 31, 2015. These
statements provide new guidance on accounting and financial reporting for pensions accounted for in the
financial statements of plan employers. Implementation of these standards resulted in an adjustment to the
beginning equity reported in the City’s government-wide and proprietary fund financial statements, as
described in Note 5 of the notes to basic financial statements. The application of remaining policies was
not changed during the year ended December 31, 2015.
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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.
Other Post-Employment Benefit (OPEB) and Pension Liabilities
– The City has recorded
liabilities and activity for OPEB and pension benefits. These obligations are calculated using
actuarial methodologies described in GASB Statement Nos. 45 and 68. These actuarial
calculations include significant assumptions, including projected changes, healthcare insurance
costs, investment returns, retirement ages, proportionate share, and employee turnover.
We evaluated the key factors and assumptions used by management 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.
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.
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MR
ANAGEMENTEPRESENTATIONS
We have requested certain representations from management that are included in the management
representation letter dated May 17, 2016.
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
We applied certain limited procedures to Management’s Discussion and Analysis and the pension and
OPEB-related required supplementary information (RSI) that supplements the basic financial statements.
Our procedures consisted of inquiries of management regarding the methods of preparing the information
and comparing the information for consistency with management’s responses to our inquiries, the basic
financial statements, and other knowledge we obtained during our audit of the basic financial statements.
We did not audit the RSI and do not express an opinion or provide any assurance on the RSI.
We were engaged to report on the combining and individual fund financial statements and schedules
accompanying the financial statements which are not RSI. With respect to this supplementary
information, we made certain inquiries of management and evaluated the form, content, and methods of
preparing the information to determine that the information complies with accounting principles generally
accepted in the United States of America, the method of preparing it has not changed from the prior
period, and the information is appropriate and complete in relation to our audit of the financial statements.
We compared and reconciled the supplementary information to the underlying accounting records used to
prepare the financial statements or to the financial statements themselves.
We were not engaged to report on the introductory and statistical sections which accompany the financial
statements but are not RSI. We did not audit or perform other procedures on this other information and
we do not express an opinion or provide any assurance on it.
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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, which include the General, special revenue, debt service, and capital project funds.
These funds are used to account for the basic services the City provides to all of its citizens, which are
financed primarily with property taxes. The governmental fund information in the City’s financial
statements focuses on budgetary compliance, and the sufficiency of each governmental fund’s current
assets to finance its current liabilities.
PT
ROPERTYAXES
Minnesota cities rely heavily on local property tax levies to support their governmental fund activities.
For the 2014 fiscal year, local ad valorem property tax levies provided 39.0 percent of the total
governmental fund revenues for cities over 2,500 in population, and 35.5 percent for cities under 2,500 in
population. Property tax levies certified by Minnesota cities for 2015 increased about 4.0 percent over
2014, compared to an increase of 1.6 percent the prior year. A one-year levy limit imposed on cities over
2,500 in population for the 2014 levy year was lifted for the 2015 levy year.
The total market value of property in Minnesota cities increased about 8.5 percent for the 2015 levy year,
following a modest increase of 1.1 percent for levy year 2014 and a four-year trend of declining market
values for levy years 2010 through 2013. Market values showed increases across all property categories
for 2015, with gains in the market values of residential homestead properties (10.0 percent) and
non-homestead residential properties (9.7 percent) outpacing the market value gain of
commercial/industrial properties (2.2 percent). Because 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 2015 is
based on estimated values as of January 1, 2014), market value improvement has lagged behind recent
upturns in the housing market and the economy in general.
The City’s taxable market value increased 0.9 percent for taxes payable in 2014 and 8.0 percent for taxes
payable in 2015. 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
$–
2006200720082009201020112012201320142015
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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 was virtually unchanged (increasing 0.01 percent)
for taxes payable in 2014 and increased 7.6 percent for taxes payable in 2015.
The following graph shows the City’s change in tax capacities over the past 10 years:
Local Tax Capacity
$24,000,000
$21,000,000
$18,000,000
$15,000,000
$12,000,000
$9,000,000
$6,000,000
$3,000,000
$–
2006200720082009201020112012201320142015
The improvement in property tax capacities contributed to decreases to the overall state-wide and metro
area tax rates for 2015. The following table presents the average tax rates applied to city residents for
each of the last two levy years, along with comparative state-wide and metro area rates.
Rates expressed as a percentage of net tax capacity
All CitiesSeven-County
State-WideMetro AreaCity of New Hope
20142015
2014201520142015
Average tax rate
56.058.6
City48.8 46.9 46.0 43.4
County47.6 44.7 46.6 42.9 46.449.9
School28.9 27.1 30.9 28.3 33.234.8
Special taxing7.3 6.9 9.5 8.8 10.611.3
Total132.6 125.6 133.0 123.4 146.2154.6
The City’s portion of the tax rate has been higher than average in recent years due to the City’s practice of
utilizing annual levies rather than special assessment bonds to finance street and park improvements.
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GFB
OVERNMENTAL UNDALANCES
The following table summarizes the changes in the fund balances of the City’s governmental funds during
the year ended December 31, 2015, presented both by fund balance classification and by fund:
Governmental Funds Change in Fund Balance
Fund Balance
as of December 31,Increase
(Decrease)
20152014
Fund balances of governmental funds
Total by classification
Nonspendable16,765$ 16,005$ 760$
Restricted8,069,238 5,687,949 2,381,289
Committed5,431,288 4,771,304 659,984
Assigned5,496,484 7,839,792 (2,343,308)
Unassigned5,837,291 5,670,497 166,794
$ 23,985,54724,851,066$ 865,519$
Total – governmental funds
Total by fund
General6,080,412$ 5,821,294$ 259,118$
Economic Development Authority Special Revenue5,236,971 4,581,009 655,962
HRA Construction Capital Project5,612,741 5,399,698 213,043
Street Infrastructure Capital Project768,047 3,264,052 (2,496,005)
Temporary Financing Capital Project2,966,752 3,028,957 (62,205)
HRA Bonds Debt Service(226,356) (134,792) (91,564)
Nonmajor funds4,412,499 2,025,329 2,387,170
$ 23,985,54724,851,066$ 865,519$
Total – governmental funds
In total, the fund balances of the City’s governmental funds increased by $865,519 during the year ended
December 31, 2015.
Restricted fund balances increased $2,381,289, which primarily reflects unspent reconstruction bond
proceeds restricted for capital improvements in the (nonmajor) 2016 Street Improvement Project Capital
Projects Fund.
Committed fund balances increased $659,984. The majority of this increase was in the Economic
Development Authority Special Revenue Fund due to the transfer of land sale proceeds from the HRA
Construction Capital Projects Fund.
Assigned fund balances decreased $2,343,308, primarily due to the planned spend-down of accumulated
resources for street improvement projects in the Street Infrastructure Capital Projects Fund.
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GFRAE
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
201320142015
YearDecember 31, 2014
Population2,500–10,00010,000–20,00020,000–100,00020,90420,81220,812
$ 467456$ 487$
Property taxes427$ 396$ 427$
Tax increments26 37 46 2624 21
2121 21
Franchise and other taxes32 42 37
59 2
Special assessments59 51 64
Licenses and permits28 27 41 1713 19
39214 65
Intergovernmental revenues298 264 166
8076 77
Charges for services105 82 90
2925 34
Other66 72 65
$ 684838$ 726$
Total revenue1,041$ 971$ 936$
In total, the City’s governmental fund revenues for 2015 were $15,121,729, an increase of $898,471
(6.3 percent) from the prior year. On a per capita basis, the City received $726 in governmental fund
revenue for 2015, an increase of $42 from the prior year. Property tax revenue was $20 per capita higher
than last year due to an increase in the City’s levy. Revenue from intergovernmental sources was $26 per
capita higher than last year, mainly due to the City allocating about $359,000 of local government aid
(LGA), which is typically recorded in the General Fund, to the Water Enterprise Fund in 2014 to finance
a portion of an emergency well project.
-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
City of New Hope
State-Wide
201320142015
YearDecember 31, 2014
Population2,500–10,00010,000–20,00020,000–100,00020,90420,81220,812
Current
$ 8075$ 81$
General government$ 104131$ 87$
307285 330
Public safety 237248 254
119121 114 5960 64
Public works
8577 89
Culture and recreation 10186 92
All other 8969 98 1428 24
650655 645 545525 588
Capital outlay
144203 394
and construction357 278 276
Debt service
Principal 163180 115 1716 19
1015 12
Interest and fiscal 4054 34
2731 31
203234 149
$ 716759$ 1,013$
Total expenditures1,246$ 1,131$ 1,070$
The City’s total governmental funds expenditures were $21,091,549 for 2015, an increase of $6,174,135
(41.4 percent) from the prior year. On a per capita basis, the City’s governmental fund expenditures of
$1,013 represented an increase of $297 from last year. The majority of the increase was in capital outlay
and construction expenditures, which were $250 per capita higher than last year due to significant street
infrastructure and economic development projects completed in 2015. Current expenditures were also
$43 per capita higher than last year, mainly in public safety and economic development (reported in “all
other” above) costs.
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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 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,
$12,000,000
$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
$–
20112012201320142015
Fund BalanceCash BalanceExpenditures and Transfers Out
The City’s General Fund cash and investment balance at December 31, 2015 was $5,919,870, an increase
of $156,241 from last year. The General Fund total fund balance at December 31, 2015 was $6,080,412,
an increase of $259,118 from the previous year, as compared to a break-even budget. Unassigned fund
balance at year-end was $6,063,647, which represents approximately 51.1 percent of annual expenditures
and transfers out based on 2015 levels. By comparison, unassigned fund balance at the end of the
previous year represented 51.4 percent of expenditures and transfers out.
As the graph illustrates, the City has generally been able to maintain healthy cash and fund balance levels
as the volume of financial activity has grown. 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 about 70 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 2015 compared to budget:
General Fund Revenue
Budget to Actual
Property Taxes
Franchise Taxes
Licenses and Permits
Intergovernmental
Charges for Services
Fines
Other
$1 $2 $3 $4 $5 $6 $7 $8 $9
$–
Millions
BudgetActual
Total General Fund revenue for 2015 was $11,914,740, which was $97,110 (0.8 percent) higher than the
final budget. Intergovernmental revenue exceeded budget by $135,210, mainly in state police and street
maintenance aids, and other local grants. Service charges were also $77,155 higher than projected,
primarily in charges for rental housing inspections and police services. Revenues from fines and
forfeitures, which vary from year-to-year, were below budget by $133,728.
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.
General Fund Revenue by Source
Year Ended December 31,
$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
$–
Property TaxesIntergovernmentalOther
20112012201320142015
Total General Fund revenue for 2015 was $766,615 (6.9 percent) higher than the prior year. Property tax
revenue was $379,634 higher than the prior year due to a levy increase. Intergovernmental revenue
increased $437,234, primarily due to the City allocating a portion of its 2014 LGA to the Water
Enterprise Fund. Revenues from all other sources were $50,253 lower than the prior year.
-10-
The following graphs illustrate the components of General Fund spending for 2015 compared to budget:
General Fund Expenditures
Budget to Actual
General Government
Public Safety
Public Works
Culture and Recreation
$1 $2 $3 $4 $5 $6 $7 $8
$–
Millions
BudgetActual
Total General Fund expenditures for 2015 were $11,629,622, which was $437,008 (3.6 percent) under
budget. Expenditures were under budget across all of the categories shown above. Public safety
expenditures were $161,643 under budget, primarily in police and planning/zoning salaries. Public works
expenditures were $100,281 under budget, mainly in street maintenance costs. Culture and recreation
expenditures were under budget by $112,127, mainly in the parks department.
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
20112012201320142015
Total General Fund expenditures increased by $549,913 (5.0 percent) from the previous year. Public
safety expenditures were $332,903 higher, mainly due to increases in police salaries and purchased
services. Public works expenditures were $102,835 higher than last year, primarily in street maintenance
services and other charges. Culture and recreation expenditures were $107,023 higher than last year,
mainly in salaries and purchased services.
-11-
ENTERPRISE FUNDS OVERVIEW
The City maintains several enterprise funds to account for services the City provides that are financed
primarily through fees charged to those utilizing the service. This section of the report provides you with
an overview of the financial trends and activities of the City’s enterprise funds, which includes the Sewer
Utility, Water Utility, Golf Course, Ice Arena, Storm Water, and Street Lighting funds.
EFFP
NTERPRISEUNDSINANCIAL OSITION
The following table summarizes the changes in the financial position of the City’s enterprise funds during
the year ended December 31, 2015, presented both by classification and by fund:
Enterprise Funds Change in Financial Position
Net Position
as of December 31,Increase
(Decrease)
20152014 Restated
Net position of enterprise funds
Total by classification
Net investment in capital assets16,087,559$ 14,757,333$ 1,330,226$
Restricted627,939 455,000 172,939
Unrestricted209,839 2,165,672 (1,955,833)
$ 17,378,00516,925,337$ (452,668)$
Total – enterprise funds
Total by fund
Sewer Utility2,589,144$ 2,632,302$ (43,158)$
Water Utility4,547,538 5,315,608 (768,070)
Golf Course666,302 621,333 44,969
Ice Arena3,550,063 3,551,498 (1,435)
Storm Water5,310,492 5,021,281 289,211
Street Lighting261,798 235,983 25,815
$ 17,378,00516,925,337$ (452,668)$
Total – enterprise funds
The unrestricted net position of the City’s enterprise funds as of the end of 2014 have been restated in the
table above to reflect a $670,659 decrease caused by the implementation of Governmental Accounting
Standards Board (GASB) Statement No. 68, which created deficits in the unrestricted portions of several
enterprise funds.
The net positions of the enterprise funds also decreased $452,668 from operations during the year ended
December 31, 2015. The net investment in enterprise capital assets increased $1,330,226, primarily due to
the amount of internally financed utility infrastructure additions constructed during the year. The
$627,939 restricted net position represents cash held in an escrow account in the Ice Arena Fund for the
future payment of the City’s energy conservation lease revenue bonds. Unrestricted net position declined
by $1,955,833, primarily due to current year operating results in the Water Utility Fund, which included
an assessment of about $1.68 million paid to the Golden Valley – Crystal – New Hope Joint Water
Commission (JWC) for the City’s share of capital improvements.
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SUF
EWERTILITY UND
The following graph presents five years of operating results for the City’s Sewer Utility Fund.
Sewer Utility Operating Results
Year Ended December 31,
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$–
20112012201320142015
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Sewer Utility Fund ended 2015 with a total net position of $2,589,144, of which $3,147,562
represents the net investment in sewer collection system capital assets, leaving an unrestricted deficit
balance of $558,418. Net position decreased $43,158 in the current year.
Operating revenue in the Sewer Utility Fund for 2015 was $2,468,638, an increase of $54,156
(2.2 percent) from the previous year due to a rate increase implemented for 2015.
Operating costs for 2015 were $2,447,426, an increase of $510,818 (26.4 percent) from the prior year, as
personnel costs, purchased services, and disposal charges paid to Metropolitan Council Environmental
Services all increased significantly.
-13-
WUF
ATERTILITYUND
The following graph presents five years of operating results for the City’s Water Utility Fund.
Water Utility Operating Results
Year Ended December 31,
$5,000,000
$4,500,000
$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)
$(1,000,000)
$(1,500,000)
20112012201320142015
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Water Utility Fund ended 2015 with a total net position of $4,547,538, of which $4,810,927
represents the net investment in water distribution system capital assets, leaving an unrestricted deficit
balance of $263,389. Water Utility Fund net position decreased $768,070 in 2015.
Operating revenue in the Water Utility Fund for 2015 was $3,576,643, an increase of $4,352 (0.1 percent)
from the prior year.
Operating costs for 2015 were $4,522,667, a decrease of $31,421 (0.7 percent) from the prior year, with
cost of goods sold remaining unusually high due to the previously mentioned emergency water source
capital assessment paid to the JWC.
.
-14-
GCF
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)
$(100,000)
20112012201320142015
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Golf Course Fund ended 2015 with a total net position of $666,302, an increase of $44,969. Of this,
$624,681 represents the net investment in golf course capital assets, leaving $41,621 in unrestricted net
position.
Golf Course Fund operating revenue for 2015 was $272,314, an increase of $28,817 (11.8 percent)
attributable to an increase in the number of rounds played.
Operating expenses were $290,507, which was $7,715 (2.6 percent) lower than the prior year.
The majority of the increase in Golf Course Fund net position during 2015 is due to capital asset
contributions of $47,796 received from the City’s governmental funds.
-15-
IAF
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
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$–
$(100,000)
$(200,000)
20112012201320142015
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Ice Arena Fund ended 2015 with a total net position of $3,550,063, a decrease of $1,435. Of this,
$3,166,842 represents the net investment in arena capital assets, and $627,939 is restricted for debt
service, leaving an unrestricted deficit balance of $244,718.
Ice Arena Fund operating revenue for 2015 was $748,886, a decrease of $26,898 (3.5 percent) from the
prior year, mainly due to less revenue from ice time rental to area hockey associations and school districts
than last year.
Operating expenses were $821,786, which was $12,188 (1.5 percent) higher than the prior year, mainly
due to increased personnel costs.
-16-
SWF
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
$–
20112012201320142015
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Storm Water Fund ended 2015 with a total net position of $5,310,492, an increase of $289,211. Of
this, $4,337,547 represents the net investment in storm water collection system capital assets, leaving
$972,945 in unrestricted net position.
Storm Water Fund operating revenues for 2015 were $981,723, an increase of $33,186 (3.5 percent) from
the previous year, mainly due to a rate increase implemented in 2015.
Operating expenses were $690,536, an increase of $172,951 (33.4 percent), primarily due to higher
personnel, engineering, and contracted maintenance costs.
-17-
SLF
TREETIGHTINGUND
The following graph presents five years of operating results for the City’s Street Lighting Fund:
Street Lighting Fund
Year Ended December 31,
$135,000
$120,000
$105,000
$90,000
$75,000
$60,000
$45,000
$30,000
$15,000
$–
20112012201320142015
Operating Revenue
Operating Expenses
Operating Income (Loss)
The Street Lighting Fund ended 2015 with an unrestricted net position of $261,798, an increase of
$25,815 from the prior year.
Street Lighting Fund operating revenues for 2015 were $128,890, an increase of $5,830 (4.7 percent)
from the previous year.
Operating expenses were $105,471, which was $5,965 (6.0 percent) higher than the previous year due
primarily to an increase in electric utility costs.
-18-
GOVERNMENT-WIDE FINANCIAL STATEMENTS
In addition to fund-based information, the current reporting model for governmental entities also requires
the inclusion of two government-wide financial statements designed to present a clear picture of the City
as a single, unified entity. These government-wide financial statements provide information on the total
cost of delivering services, including capital assets and long-term liabilities.
SNP
TATEMENT OF ETOSITION
The Statement of Net Position essentially tells you what your city owns and owes at a given point in time,
the last day of the fiscal year. Theoretically, net position represents the resources the City has leftover to
use for providing services after its debts are settled. However, those resources are not always in spendable
form, or there may be restrictions on how some of those resources can be used. Therefore, net position is
divided into three components: net investment in capital assets, restricted, and unrestricted.
The following table presents the components of the City’s net position as of December 31, 2015 and 2014
for governmental activities and business-type activities:
As of December 31,Increase
(Decrease)
20152014 Restated
Net position
Governmental activities
Net investment in capital assets 27,549,276$ 26,305,906$ 1,243,370$
Restricted5,917,848 5,680,117 237,731
Unrestricted14,623,043 16,912,952 (2,289,909)
Total governmental activities48,090,167 48,898,975 (808,808)
Business-type activities
Net investment in capital assets 16,087,559 14,757,333 1,330,226
Restricted627,939 455,000 172,939
Unrestricted(825,297) 1,128,048 (1,953,345)
Total business-type activities15,890,201 16,340,381 (450,180)
$ 65,239,35663,980,368$ (1,258,988)$
Total net position
The City’s government-wide unrestricted net position as of the end of 2014 has been restated in the table
above to reflect a $6,888,265 decrease caused by the implementation of GASB Statement No. 68, which
reduced governmental activities net position by $6,217,606, and business-type activities net position by
$670,659.
Total net position decreased $1,258,988 during the 2015 fiscal year.
Governmental activities net position decreased $808,808. The decrease in unrestricted net position and
increase in the net investment in capital assets are primarily the result of utilizing available resources to
finance a portion of significant capital improvement projects.
Business-type activities net position decreased $450,180, as outlined in the discussion of enterprise fund
operations earlier in this report.
-19-
SA
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, 2015
and 2014:
20152014
Program
ExpensesRevenuesNet ChangeNet Change
Net (expense) revenue
Governmental activities
$ 445,6301,700,133$ (1,254,503)$ (1,313,475)$
General government
1,402,4157,258,504 (5,856,089) (5,485,638)
Public safety
780,2224,229,077 (3,448,855) (2,036,648)
Public works
799,1032,223,152 (1,424,049) (1,496,659)
Culture and recreation
83,695655,093 (571,398) (1,571,260)
Economic development
10,525269,284 (258,759) (140,321)
Interest on long-term debt
Business-type activities
2,468,6382,458,724 9,914 437,618
Sewer utility
3,849,3664,584,929 (735,563) (613,679)
Water utility
287,056291,695 (4,639) (49,551)
Golf course
870,374880,581 (10,207) (33,223)
Ice arena
1,012,599713,218 299,381 390,377
Storm water
128,890105,452 23,438 23,500
Street lighting
$ 12,138,51325,369,842$ (13,231,329) (11,888,959)
Total net (expense) revenue
General revenues
10,270,64710,562,638
Property taxes and tax increments
438,541442,556
Franchise taxes
179,537600,030
Unrestricted grants and contributions
356,212367,117
Unrestricted investment earnings
Total general revenues11,972,341 11,244,937
$ (644,022)(1,258,988)$
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.
The net change in the public works function reflects increased road improvement costs in 2015. The net
change in the economic development function included a significant loss on the sale of land for economic
development in the previous year. The change in unrestricted grants is mainly due to the change in
utilization of LGA from year-to-year.
-20-
LEGISLATIVE UPDATES
Despite the 2015 legislative session beginning with a projected budget excess of $1.87 billion for the
2016–2017 biennium, the most favorable budget forecast in over a decade, little was accomplished during
the regular legislative session due to partisan disagreement. The regular session adjourned without the
Legislature bringing forth a number of significant funding bills, including the Omnibus Legacy Bill
(funding for outdoor heritage, clean water, parks and trails, arts, and cultural heritage) and a bonding bill
for capital projects. The Governor subsequently vetoed a number of other funding bills, including the
Omnibus E–12 Education Bill due to the Legislature not addressing his demand for a universal preschool
provision. Eventually, a one-day special session produced funding bills for E–12 education, jobs and
energy, Legacy programs, environment and agriculture, and capital investment.
The following is a summary of recent legislation affecting Minnesota cities in 2015 and into the future:
Local Government Aid (LGA)
– The 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 simplified the LGA calculation, and reduced the volatility of the LGA distribution by
limiting the amount it may decline in a given year. Beginning in 2015, any reduction to a city’s
calculated 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 was $516.9 million for fiscal 2015, and is $519.4 million for fiscal
2016 and thereafter.
Sales Tax Exemption
– Cities (both home-rule and statutory) were exempted from paying sales tax
on qualifying purchases, effective for purchases made on or after January 1, 2014. Purchases of goods
or services by an exempt local government for a publicly-provided liquor store, gas or electric utility,
golf course, marina, campground, café, laundromat, solid waste hauling or recycling operation, or
landfill will remain taxable.
The 2014 Legislature extended the definition of tax exempt local government to include all special
district; city, county, or township instrumentalities; economic development authorities; housing and
redevelopment authorities; and all joint power boards or organizations. However, the effective date of
this expanded exemption list was delayed until January 1, 2017 by the 2015 Legislature.
Omnibus Bonding Bill
– The Legislature approved a scaled-down Omnibus Bonding Bill during the
special session, authorizing approximately $370 million in capital improvements. Included in the
funding approved was $172.5 million for transportation infrastructure, $23.5 million for flood hazard
mitigation, $10 million for Public Financing Agency (PFA) grants to municipalities for wastewater
infrastructure, and $1.5 million to the Metropolitan Council for inflow and infiltration improvement
grants to metro area cities.
Legacy Funding
– The Legacy bill included $9.25 million annually to finance grants for city water
infrastructure improvements through the PFA. It also included $17.25 million annually to fund
“SCORE” block grants to counties for recycling and waste reduction (a portion of which is passed
through to cities) and $1 million of annual funding for a new grant program to establish or improve
recycling programs in non-metro area cities.
Broadband Initiative
– The Omnibus Jobs and Energy Bill passed in the special session included
$10.6 million to finance the Border-to-Border Broadband Grant Program, a one-time appropriation
available until June 30, 2017.
-21-
Municipal State-Aid Streets
– Included in the Omnibus Transportation Bill were annual funding
allocations for municipal state-aid streets of $107.7 million for fiscal 2016 and $178.1 million for
fiscal 2017, which represents an increase of approximately $41 million over the previous biennium.
Small Cities Assistance Account
– A one-time appropriation of $12.5 million was provided to create
a new Small Cities Assistance Account to assist with construction and maintenance of roads located
within eligible cities, defined as a statutory or home-rule charter city that does not receive municipal
state aid street financing (generally those with a population under 5,000). The aid will be distributed
to eligible cities biannually in each year funds are available based on the following formula: 5 percent
equally to all eligible cities; 35 percent allocated proportionately on each city’s share of lane miles to
the total for all eligible cities; 35 percent allocated proportionately on each city’s population to the
total for all eligible cities; and 25 percent allocated proportionately on each city’s state-aid adjustment
factor to the total for all eligible cities.
Workforce Housing Grant Program
– The Omnibus Jobs and Energy Bill included annual funding
of $2 million for fiscal 2016 and 2017 for a new Workforce Housing Grant Program. Eligible cities
can use the grants to develop “market rate residential rental property” to serve employees of
businesses located in the eligible project areas. The maximum grant award may not exceed 25 percent
of the rental housing development project cost; and awards must be matched by a local unit of
government, business, or nonprofit organization with $1 for each $2 of grant funding.
Automated License Plate Reader (ALPR) Policy
– Law enforcement agencies that utilize ALPRs
are required to establish policies governing their use that are consistent with statutory guidelines. The
Legislature placed limitations on the type of data that can be collected using ALPRs, and clarified the
circumstances under which that data is considered public or private. A limitation of 60 days was
established for the retention of data collected by ALPR not related to an active criminal investigation.
Standards were established for the sharing of ALPR data between law enforcement agencies.
Elections
– The Elections Omnibus Bill made numerous changes to elections administration laws,
including requirements for filing fees for statutory cities, ballot formatting and marking, absentee
ballots, and election recounts.
Energy Conservation Measures
– The Uniform Municipal Contracting Law was amended to add
water metering devices that increase efficiency to the definition of energy conservation measures,
enabling municipalities to enter into guaranteed energy savings contracts for the use of water
metering devices.
Responsible Contractor Requirement
– The “responsible contractor” law enacted by the 2014
Legislature became effective on January 1, 2015. Contractors who bid on public contracts in excess of
$50,000 are now required to certify that they are a “responsible bidder” in order to be awarded a
contract as the lowest responsible bidder or best value alternative. The 2015 Legislature made several
clarifications and modifications to the law, including: exempting design professionals and materials
suppliers from the requirements; making motor carriers subject to the requirements and establishing a
separate verification standard for them; excluding tax increment financing revenue from the value of
a construction contract under the law; and allowing general contractors to submit bids without
obtaining verification from all subcontractors that bid on the project (the successful prime contractor
must submit a supplemental verification under oath prior to the execution of the contract).
Appraisal Requirements for Eminent Domain
– Effective July 1, 2015, the appraisal requirements
for the acquisition of property by eminent domain are changed to require the acquiring entity to
obtain at least one appraisal for the property proposed to be acquired only if the acquisition value is
greater than $25,000. For acquisitions less than $25,000, the acquiring entity may obtain a minimum
damage acquisition report in lieu of an appraisal.
-22-
Firefighter Employment Provisions and Volunteer Benefits
– The Omnibus Public Safety Finance
and Policy Bill made a number of changes related to firefighters, including: allowing relief
association dues as a voluntarily payroll deduction, allowing volunteer firefighters to be paid less
frequently than every 31 days, requiring the licensure of all full-time firefighters by the State Board of
Firefighter Training and Education, and expanding “continued employer health insurance benefits” to
include dependents of volunteer firefighters killed in the line of duty.
Police and Firefighter Retirement Supplemental State Aid
– The volunteer firefighter portion of
the Police and Firefighter Retirement Supplemental State Aid Program was made permanent. The
minimum obligation of municipalities to an associated relief association special fund is now reduced
by the amount of both fire state aid and police and firefighter retirement supplemental state aid. Police
and firefighter retirement supplemental state aid is also added to the calculation of the exception to
municipal ratification requirement for lump-sum plans.
Pensions
– A number of changes to the pension plans administered by the Public Employees
Retirement Association (PERA) were adopted, effective June 30, 2015, including:
The future interest rate actuarial assumption for the PERA General Plan and PERA
Police and Fire Plan are changed from 8.5 percent to 8.0 percent for actuarial valuations
prepared after June 30, 2015.
The refund repayment interest rate and prior service credit purchase payment
determination rate for the PERA General Plan and PERA Police and Fire Plan are also
changed from 8.5 percent to 8.0 percent.
The CPI-based post-retirement adjustment mechanism for the PERA Police and Fire Plan
is replaced with a flat 2.5 percent increase when the plan reaches a 90 percent funding
level.
The contribution stabilizer mechanisms applicable to the PERA General Plan are revised,
broadening the factors the plan’s Board of Trustees may consider before recommending
an increase in the plan contribution rates.
Definitions of salary, termination of service, allowable service, retirement, and volunteer
firefighter were revised for all applicable PERA plans.
Changes in eligibility, service pension levels, ancillary benefits, and service time
calculations were made to the PERA Statewide Volunteer Firefighter Plan, lump sum
retirement division. A change was also made to create a “monthly benefit retirement
division” within this plan to facilitate the transfer of individual volunteer firefighter
association monthly benefit plans to the statewide plan.
A number of administrative language changes were made to complete the merger of the
Minneapolis Employees Retirement Fund into the PERA General Plan, which was
effective January 1, 2015.
-23-
ACCOUNTING AND AUDITING UPDATES
GASBSN.72,
FVMA
AIRALUE EASURE AND PPLICATION
TATEMENT O
The primary objective of this statement is to address accounting and financial reporting issues related to
fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. This statement
provides guidance for determining a fair value measurement for financial reporting purposes. It also
provides guidance for applying fair value to certain investments and disclosures related to all fair value
measurements.
This statement generally requires investments to be measured at fair value. An investment is defined as a
security or other asset that (a) a government holds primarily for the purpose of income or profit and
(b) has a present service capacity based solely on its ability to generate cash or to be sold to generate cash.
This statement is effective for financial statements for fiscal years beginning after June 15, 2015. Earlier
application is encouraged.
GASBSN.73,
AFRPR
CCOUNTING AND INANCIAL EPORTING FOR ENSIONS AND ELATED
TATEMENT O
ATANSGASBS68,A
SSETS HAT REOT WITHIN THE COPE OF TATEMENT AND MENDMENTS TO
CPGASBS6768
ERTAINROVISIONS OF TATEMENTS AND
The objective of this statement is to improve the usefulness of information about pensions included in
financial statements of state and local governments for making decisions and assessing accountability.
This statement also clarifies the application of certain provisions of GASB Statement Nos. 67 and 68
regarding 10-year schedules of required supplementary information (RSI) and other recognition issues
pertaining to employers and nonemployer contributing entities. These changes will improve financial
reporting by establishing a single framework for the presentation of information about pensions,
enhancing comparability for similar information reported by employers and nonemployer contributing
entities.
The requirements of this statement that address accounting and financial reporting by employers and
governmental nonemployer contributing entities for pensions not within the scope of GASB Statement
No. 68 are effective for financial statements for fiscal years beginning after June 15, 2016, and the
requirements of this statement that address financial reporting for assets accumulated for purposes of
providing those pensions are effective for fiscal years beginning after June 15, 2015. The requirements of
this statement for pension plans that are within the scope of GASB Statement No. 67 or for pensions that
are within the scope of GASB Statement No. 68 are effective for fiscal years beginning after June 15,
2015. Earlier application is encouraged.
GASBSN.74,
FRPBPO
INANCIALEPORTING FOR OSTEMPLOYMENT ENEFITLANS THER
TATEMENT O
TPP
HANENSION LANS
The objective of this statement is to improve the usefulness of information about post-employment
benefits other than pensions (other post-employment benefits \[OPEB\]). This statement replaces GASB
Statement Nos. 43 and 57. It also includes requirements for defined contribution OPEB plans that replace
the requirements for those OPEB plans in GASB Statement Nos. 25, 43, and 50. GASB Statement No. 75,
Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, establishes new
accounting and financial reporting requirements for governments whose employees are provided with
OPEB, as well as for certain nonemployer governments that have a legal obligation to provide financial
support for OPEB provided to the employees of other entities.
-24-
This statement will improve financial reporting primarily through enhanced note disclosures and
schedules of RSI that will be presented by OPEB plans administered through trusts meeting the specified
criteria. The new information will enhance the decision-usefulness of the financial reports of those OPEB
plans, their value for assessing accountability, and their transparency by providing information about
measures of net OPEB liabilities and explanations of how and why those liabilities changed from
year-to-year. The net OPEB liability information, including ratios, will offer an up-to-date indication of
the extent to which the total OPEB liability is covered by the fiduciary net position of the OPEB plan.
The comparability of the reported information for similar types of OPEB plans will be improved by the
changes related to the attribution method used to determine the total OPEB liability. The contribution
schedule will provide measures to evaluate decisions related to the assessment of contribution rates in
comparison with actuarially determined rates, if such rates are determined. In addition, new information
about rates of return on OPEB plan investments will inform financial report users about the effects of
market conditions on the OPEB plan’s assets over time and provide information for users to assess the
relative success of the OPEB plan’s investment strategy and the relative contribution that investment
earnings provide to the OPEB plan’s ability to pay benefits to plan members when they come due.
This statement is effective for financial statements for fiscal years beginning after June 15, 2016. Earlier
application is encouraged.
GASBSN.75,
AFRP
CCOUNTING AND INANCIAL EPORTING FOR OSTEMPLOYMENT
TATEMENT O
BOTP
ENEFITSTHERHAN ENSIONS
The primary objective of this statement is to improve accounting and financial reporting by state and local
governments for post-employment benefits other than pensions (OPEB). It also improves information
provided by state and local governmental employers about financial support for OPEB that is provided by
other entities. This statement replaces the requirements of GASB Statement Nos. 45 and 57. GASB
Statement No. 74 establishes new accounting and financial reporting requirements for OPEB plans.
This statement establishes standards for recognizing and measuring liabilities, deferred outflows of
resources, deferred inflows of resources, and expense/expenditures. For defined benefit OPEB, this
statement identifies the methods and assumptions that are required to be used to project benefit payments,
discount projected benefit payments to their actuarial present value, and attribute that present value to
periods of employee service. Note disclosure and RSI requirements about defined benefit OPEB also are
addressed. This statement is effective for fiscal years beginning after June 15, 2017. Earlier application is
encouraged.
Similar to changes implemented for pensions, this statement requires the liability of employers and
nonemployer contributing entities to employees for defined benefit OPEB (net OPEB liability) to be
measured as the portion of the present value of projected benefit payments to be provided to current
active and inactive employees that is attributed to those employees’ past periods of service (total OPEB
liability), less the amount of the OPEB plan’s fiduciary net position.
GASBSN.77,
TAD
AXBATEMENTISCLOSURES
TATEMENT O
This statement requires disclosure of tax abatement information about (1) a reporting government’s own
tax abatement agreements, and (2) those that are entered into by other governments and that reduce the
reporting government’s tax revenues. Tax abatements are widely used by state and local governments,
particularly to encourage economic development. For financial reporting purposes, this statement defines
a tax abatement as resulting from an agreement between a government and an individual or entity in
which the government promises to forgo tax revenues and the individual or entity promises to
subsequently take a specific action that contributes to economic development or otherwise benefits the
government or its citizens.
-25-
The requirements of this statement improve financial reporting by giving users of financial statements
essential information that is not consistently or comprehensively reported to the public at present.
Disclosure of information about the nature and magnitude of tax abatements will make these transactions
more transparent to financial statement users. As a result, users will be better equipped to understand
(1) how tax abatements affect a government’s future ability to raise resources and meet its financial
obligations, and (2) the impact those abatements have on a government’s financial position and economic
condition. The requirements of this statement are effective for financial statements for periods beginning
after December 15, 2015. Earlier application is encouraged.
GASBSN.78,
PPCM-ED
ENSIONSROVIDED THROUGH ERTAINULTIPLEMPLOYEREFINED
TATEMENT O
BPP
ENEFITENSION LANS
The objective of this statement is to address a practice issue regarding the scope and applicability of
GASB Statement No. 68,Accounting and Financial Reporting for Pensions—an amendment of GASB
Statement No. 27. This issue is associated with pensions provided through certain multiple-employer
defined benefit pension plans and to state or local governmental employers whose employees are
provided with such pensions. Prior to the issuance of this statement, the requirements of GASB Statement
No. 68 applied to the financial statements of all state and local governmental employers whose employees
are provided with pensions through pension plans that are administered through trusts that meet the
criteria in paragraph 4 of GASB Statement No. 68.
This statement amends the scope and applicability of GASB Statement No. 68 to exclude pensions
provided to employees of state or local governmental employers through a cost-sharing,
multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan,
(2) is used to provide defined benefit pensions both to employees of state or local governmental
employers and to employees of employers that are not state or local governmental employers, and (3) has
no predominant state or local governmental employer (either individually or collectively with other state
or local governmental employers that provide pensions through the pension plan). This statement
establishes requirements for recognition and measurement of pension expense, expenditures, and
liabilities; note disclosures; and RSI for pensions that have the characteristics described above. The
requirements of this statement are effective for reporting periods beginning after December 15, 2015.
Early application is encouraged.
GASBSN.79,
CEIPPP
ERTAINXTERNALNVESTMENTOOLS AND OOL ARTICIPANTS
TATEMENT O
This statement establishes criteria for an external investment pool to qualify for making the election to
measure all of its investments at amortized cost for financial reporting purposes. An external investment
pool qualifies for that reporting if it meets all of the applicable criteria established in this statement. The
specific criteria address (1) how the external investment pool transacts with participants; (2) requirements
for portfolio maturity, quality, diversification, and liquidity; and (3) calculation and requirements of a
shadow price. Significant noncompliance prevents the external investment pool from measuring all of its
investments at amortized cost for financial reporting purposes. If an external investment pool meets the
criteria in this statement and measures all of its investments at amortized cost, the pool’s participants also
should measure their investments in that external investment pool at amortized cost for financial reporting
purposes. If an external investment pool does not meet the criteria in this statement, the pool’s
participants should measure their investments in that pool at fair value.
This statement establishes additional note disclosure requirements for qualifying external investment
pools that measure all of their investments at amortized cost for financial reporting purposes and for
governments that participate in those pools. Those disclosures for both the qualifying external investment
pools and their participants include information about any limitations or restrictions on participant
withdrawals. The requirements of this statement are effective for reporting periods beginning after
June 15, 2015, except for certain provisions on portfolio quality, custodial credit risk, and shadow pricing.
Those provisions are effective for reporting periods beginning after December 15, 2015. Earlier
application is encouraged.
-26-
GASBSN.80,
BRCCU—
LENDINGEQUIREMENTS FOR ERTAINOMPONENT NITSAN
TATEMENT O
GASBSN.14
AMENDMENT OF TATEMENTO
The objective of this statement is to clarify the financial statement presentation requirements for certain
component units. This statement amends the blending requirements for the financial statement
presentation of component units of all state and local governments. The additional criterion requires
blending of a component unit incorporated as a not-for-profit corporation in which the primary
government is the sole corporate member. The additional criterion does not apply to component units
included in the financial reporting entity pursuant to the provisions of GASB Statement No. 39,
Determining Whether Certain Organizations Are Component Units—an amendment of GASB Statement
No. 14. The requirements of this statement are effective for reporting periods beginning after June 15,
2016. Earlier application is encouraged.
CRFG
HANGES TO EQUIREMENTS FOR EDERALRANTS
In December 2013, the U.S. Office of Management and Budget (OMB) Circular released final guidance
on administrative requirements, cost principles, and audit requirements for federal awards. The final
guidance, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal
Awards (“Uniform Guidance”), supersedes and streamlines eight existing OMB Circulars into one
document that includes OMB Circulars A-21, A-87, A-89, A-102, A-110, A-122, A-133, and the
guidance in OMB Circular A-50 on Single Audit Act follow-up.
The Uniform Guidance, which is located in Title 2 of the Code of Federal Regulations (CFR),
consolidates previous guidance into a streamlined format that aims to improve both its clarity and
accessibility, lessen administrative burdens for federal award recipients, and reduce the risk of waste,
fraud, and abuse.
The Following is a Summary of Significant Changes for Grant Recipients:
Changes time and effort documentation requirements by providing possibilities for alternative
methods of accounting for salaries and wages based on achievement of performance outcomes.
Non-federal entities must have a financial management system that includes, but is not limited to:
a comparison of expenditures with budget amounts for each federal award, written procedures to
implement the requirements of cash management, and written procedures for determining the
allowability of costs in accordance with Subpart E – Cost Principles.
Governments must comply with the new general procurement standards which include, but are
not limited to: written standards covering conflicts of interest of employees engaged in the
selection, award, and administration of contracts and documented procurement procedures that
include an analysis of lease versus purchase alternatives when appropriate.
Governments will now be required to follow the five procurement methods which include, at
times, more restrictive compliance requirements than Minnesota Statutes. For example: small
purchases (over $3,000 prior to October 1, 2015 and over $3,500 after October 1, 2015) will
require quotes.
There are new requirements for governments with subrecipients (or those making subawards),
which include, but are not limited to: a required written risk assessment of each subrecipient,
which may require you to provide training and on-site reviews of their program operations.
For governments with subrecipients or those that operate as a fiscal host of a federal grant award
and thus provide subawards, payments must be made in advance to the subrecipients, unless
certain requirements are not met, then the reimbursement method can be used.
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Among Other Matters Specifically Applicable to Auditors, Changes to the Uniform Guidance Include:
Raising both the threshold that triggers a Single Audit and the threshold for Type A/B program
determination to $750,000.
Changing the high-risk program criteria for Type A programs.
Reducing the number of high-risk Type B programs that must be tested as major programs.
Revising the Type B small program floor.
Reducing the percentage of coverage requirement to 40 percent for normal auditees and
20 percent for low-risk auditees.
Revising the criteria for low-risk auditee status.
Increasing the threshold for reporting findings to $25,000 in questioned costs and requiring more
detailed information to be reported.
Effective Dates:
Year beginning January 1, 2015 –
All administrative requirements and cost principles will apply to new awards made after
December 26, 2014.
Governmental entities are required to comply with the Uniform Guidance once the new
regulations are in effect at the Federal government level (December 26, 2014).
Any funding drawdowns made after January 1, 2015 must comply with the Uniform Guidance.
Must document whether the entity is in compliance with the old or new procurement standards
listed in Subpart D, Sections 200.317–200.326. The federal government has provided a two-year
grace period for implementing the new procurement standards.
Year beginning January 1, 2016 –
All administrative requirements and cost principles will apply to new awards made after
December 26, 2014.
Subpart F – Audit Requirements are applicable.
Year beginning January 1, 2017 –
Must have implemented the new procurement standards of the Uniform Guidance, if the
government initially elected the two-year grace beginning January 1, 2015.
At this point, all of the new Uniform Guidance at Title 2 CFR 200 is applicable.
Recommended Action Items:
We recommend that award recipients familiarize themselves with the new requirements contained in the
Uniform Guidance and develop a plan to become compliant with the new regulations.
Consider the following –
Attend training on the new uniform administrative requirements.
Identify needed policy and procedure changes, especially in the areas of:
Financial management
o
Payment
o
Procurement
o
Compensation
o
Travel costs
o
Identify internal controls that might need to be established or modified.
Determine who within your organization is responsible for each action item.
Determine the timing of each action item.
Determine when you will implement the new procurement standards and document in writing.
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