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CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31,2015 Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES <CONTINUED! M. COMPENSATEDABSENCES It is the City's policy to permit employees to accumulate earned but wmsed vacation, PTO (Personal Time Oft), extended leave and sick pay benefits. All vacation pay and PTO and the portion of sick pay allowable as severance pay is accrued in the government-wide and proprietary fund financial statements. The current portion is calculated based on historical trends. N. LONG-TERM OBLIGATIONS In the entity-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities. Bond premiums and discounts are amortized over the life of the bonds using the straight-line method. Bond issuance costs are reported as an expense in the period they are incurred. In the governmental fund financial statements, bond premiums and discounts, as well as bond issue costs are recognized during the current period. The face amount of the debt issue is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts are reported as other financing uses. Issue costs are reported as debt service expenditures. 0. NET PENSION LIABILITY For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions to/deductions from PERA's fiduciary net position have been determined on the same basis as they are reported by PERA except that PERA's fiscal year end is June 30. For this purpose, plan contributions are recognized as of employer payroll paid dstes and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. P. DEFERRED OUTFLOWS AND INFLOWS OF RESOURCES In addition tu assets, the statement of net position reports a separate section for deferred outflows of resources. This separate section represents a consumption of net position that applies to a future period. The City will not recognize the related outflow until a future event occurs. More detailed information about pension related deferred outflows of resources can be found in Note 6 to the financial statements. The City's statement of net position, governmental fund, and proprietary fund financial statements report a separate section for deferred inflows of resources. This separate financial statement element reflects an increase in net position of fund balance that applies to a future period. The City will not recognize the related revenue until a future event occurs. The City has two types of items which occurs relating to revenue recognition: The first type of deferred inflow of resources occurs because governmental fund revenues are not recognized until available (collected not late than 60 days after the end of the City's year) under the modified accrual basis of accounting. The second type relates to pension liabilities as described in Note 6 to the financial statements. CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31,2015 Note 1 SUMMARY OF SIGNlFlCANT ACCOUNTING POLICIES <CONTINUED> Q. FUND EQIDTY In the fund financial statements, governmental funds report fund balances in classifications that disclose constraints for which amounts in those funds can be spent. These classifications are as follows: Nonspendable -portions of fund balance related to prepaids, inventories, long-term receivables, and corpus on any permanent fund. Restricted-funds are constrained by external parties (statute, grantors, bond agreements, etc.). Committed -funds are established and modified by a resolution approved by the City Council. Assigned -consists of internally imposed constraints. These constraints are established by the City Council and/or management. The City Council passed a resolution authorizing the Finance Director to assign fund balances and their intended uses. Unassigned -is the residual classification for the General Fund and also reflects negative residual amounts in other funds. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, it is the City's policy to use restricted first, then unrestricted fund balance. When an expenditure is incurred for purposes for which committed, assigned, and unassigned amounts are available, it is the City's policy to use committed first, then assigned, and finally unassigned amounts. The City formally adopted a fund balance policy for the General Fund. The policy establishes an unassigned fund balance range of 40% • 50% of General Fund operating expenditures. The fund equity balances in the proprietary funds have been classified into two broad categories: Net position -net investment in capital assets Unrestricted net position Net position represents the differences between assets and deferred outflows of resources and liabilities and deferred inflows of resources in the government-wide financial statements. Net position -net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the ouststanding balance of any long-term debt used to build or acquire capital assets. Net position is reported as restricted in government-wide financial statements when there are limitations on their use thorugh external restrictions imposed by creditors, grantors, or laws or regulations of other governments. R. INTERFUND TRANSACTIONS Interfund services provided and used are accounted fur as revenues, expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures or expenses in the fund that is reimbursed. All other interfund transactions are reported as transfers. All interfund transactions are eliminated except for activity between governmental activities and business- type activities for presentation in the entity-wide statements of net position and statements of activities. IV-22