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FACTORS AFFECTING FINANCIAL CONDITION • The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City of Falcon Heights operates. Local economy. The City of Falcon Heights is primarily a residential, inner-ring suburban communit3~ situated near the center of the Minneapolis and 5t. Paul metropolitan area. The economy of the City consists of retail, commerce, agricultural-related businesses, and institutional landowners, such as the University of Minnesota and the Minnesota State Fair. The City is at or near full development, with a 12.5% increase in the median taxable market value of property during 2003. Economic conditions have remained relatively stable with the University of Minnesota agricultural campus, Hermes Floral Company, Twin City Co-ops Federal Credit Union, and the Minnesota State Fairgrounds providing a diversified economic employment base. Long-term financial planning. The City of Falcon Heights is currently engaged in a major redevelopment project of the SE corner of the intersection of Snelling Avenue and Larpenteur Avenue. The existing, blighted, small shopping center is being redeveloped to include 56 senior apartments, 119 multi-family apartments, 14 town homes, and 12,000 square feet of retail space. This project has a projected completion date of 2005. This project is being developed by a private developer. Anew Tax Increment Financing District was established for this project. For the past 12 years, the City of Falcon Heights has been engaged in an aggressive plan of • reconstruction and improvement of its streets. Sheldon Avenue was upgraded during 2003 to replace curb and gutter. Ongoing maintenance activities will continue with yearly seal coating, curb/gutter repairs, and sidewalk replacement as needed throughout the City. MSA street funds will be utilized for all street maintenance activities. In addition, the water main on Folwell Avenue was replaced by the St. Paul Water Utility in cooperation with Falcon Heights during 2003. Cash management policies and practices. All temporary cash surpluses are pooled into an investment trust account. This pooled cash concept provides for investing greater amounts of money at favorable interest rates. The City's concept of a working fund for its cash permits some funds to be overdrawn and others to show cash balance when, in fact, the City has a positive cash balance. When funds are initially received, they are deposited into a money market checking account which represents operating cash. On a daily basis all funds are swept to an investment trust account; therefore, the City does not maintain a daily cash balance in depository accounts. Funds are invested in various money market instruments allowed by state statutes, such as U.S. Treasury bills and notes, general obligation municipals, certificates of deposit, repurchase agreements, federal agency notes, banker acceptances, and commercial paper. The maturities of the investments range from 1 day to 8 3/4 years, with an average maturity of 21 months. The average yield on all investments for 2003 was 2.51%. Investment earnings include appreciation on the fair value of investments. Increases in fair value during the current year, however, do not necessarily represent trends that will continue; nor is it always possible to realize such amounts, especially in the case of temporary changes in the fair value of investments that the government intends to hold to maturity. •