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CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 2016 G. ACTUARIAL METHODS AND ASSUMPTIONS Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality and the health care cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions (ARC) of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to financial statements, presents multi-year trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effect of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the January 1, 2014 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions included a 1% investment rate of return (net of administrative expenses), which is a blended rate of the expected long-term investment returns on plan assets and on the employer's own investments calculated based on the funded level of the plan at the valuation date. The initial healthcare trend rate was 8%, decreasing to an ultimate rate of 3% after six years. These rates include a 3% inflation rate. The UAAL is being amortized as a level percentage of projected payrolls on an open basis. The remaining amortization period at December 31, 2016 was 30 years. Note 11 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. DEFECIT FUND BALANCES The City has deficit fund balances at December 31, 2016 as follows: Fund Balance Deficit Nonmajor Governmental Funds: G.O. Utility Revenue Bonds of 2016A ($450) G.O. Improvement Bonds of 2016B (450) G.O. Tax Abatement Bonds of 2016C (450) Tax Increment Financing 1-11 (774,983) 21st Ave Extension (119,634) Fire House #2 Construction (2,324) The City intends to fund these deficits through future tax levies, special assessment levies, tax increments, transfers from other funds, and various other sources. 77