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CITY OF LINO LAKES, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31,2015 As management of the City of Lino Lakes, Minnesota, we offer readers of the City of Lino Lakes' financial statements this narrative overview and analysis of the financial activities of the City of Lino Lakes for the fiscal year ended December 31, 2015. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages 3-7 of this report. FINANCIAL HIGHLIGHTS The assets of the City of Lino Lakes exceeded its liabilities at the close of the most recent fiscal year by $84,554,618 (net position). Of this amount $28,560,750 (unrestricted net position) may be used to meet the City's ongoing obligations to citizens and creditors in accordance with the City's fund designations and fiscal policies. The City's total net position decreased by $5,624,550 primarily due to annual depreciation of capital assets and the restatement of net position related to the adoption of the pension standards. As of the close of the current fiscal year, the City of Lino Lakes' governmental funds reported combined ending fund balance of $20,056,015, a decrease of $2,486,348 in comparison with the prior year primarily due to a decrease in the fund balance of Capital Projects, offset by an increase in the General Fund fund balance. Approximately 10% of this amount, or $1,910,432, is available for spending at the City's discretion (unassigned fund balance). At the end of the current fiscal year, unassigned fund balance for the general fund was $5,725,736, or 58% of total general fund expenditures and other financing uses. The City issued Equipment Certificates, EDA Lease Revenue Bonds to finance the construction of Fire House #2, and General Obligation Bonds to finance street reconstruction in the Shehahdoah Area, as well as, improvements to Birch Street and the related sanitary and water main improvements relative to the construction of the City's new fire hall. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis are intended to serve as an introduction to the City of Lino Lakes' basic financial statements. The City of Lino Lakes' basic financial statements comprise three components: 1. Government-wide financial statements 2. Fund financial statements 3. Notes to the financial statements This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements The government-wide financial statements are designed to provide readers with a broad overview of the City of Lino Lakes' finances, in a manner similar to private- sector business. The statement of net position presents information on all of the City of Lino Lakes' assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City of Lino Lakes is improving or deteriorating. The statement of activities presents information showing how the City's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused compensated absences and OPEB liabilities). CITY OF LINO LAKES, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2015 OVERVIEW OF THE FINANCIAL STATEMENTS !CONTINUED! Government-wide financial statements (Continued) Both of the government-wide financial statements distinguish functions of the City of Lino Lakes that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Lino Lakes include general government, public safety, public services, parks, recreation and forestry, conservation of natural resources and community development. The business-type activities of the City of Lino Lakes include a water utility and sewer utility. The government-wide financial statements can be found on pages 22-24 of this report. Fund financial statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Lino Lakes, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Lino Lakes can be divided into three categories: governmental funds, proprietary funds and fiduciary funds. Governmental funds -Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-tenn inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental functions and governmental activities. The City of Lino Lakes maintains forty-seven individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General fund, G.O. Improvement Bonds 2005A fund, Improvement Note 2009F fund, Area and Unit Charge fund, and 2015 Street Reconstruction fund all of which are considered to be major funds. Data from the other forty-two governmental funds are combined into a single, aggregate presentation. Individual fund data for each of these non major governmental funds is provided in the form of combining statements elsewhere in this report. The City of Lino Lakes adopts an annual appropriated budget for its general and program recreation special revenue funds. A budgetary comparison statement has been provided for these funds to demonstrate compliance with this budget. The basic governmental fund financial statements can be found on pages 25 through 30 of this report. Proprietary funds -The City of Lino Lakes maintains two proprietary type funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City of Lino Lakes uses enterprise funds to account for its sewer and water utilities. The proprietary fund statements provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the sewer fund and the water fund, which are considered to be major funds of the City of Lino Lakes. The basic proprietary fund financial statements can be found on pages 31 through 33 of this report. IV-3