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<br /> <br />Factors Affecting Financial Condition (Continued) <br />acres are available along the corridor with strong transportation, fiber and utility infrastructure to serve the <br />growing data and tech fields. <br /> <br />Citywide development activities continued to increase in 2019. Residential permit activity for new home <br />construction surpassed 100 for the fourth consecutive year. Overall construction activity exceeded $42 <br />million in new valuation. Commercial development included over 30,000 square feet of retail and service <br />uses. Industrial vacancy rates continue to decline as over 260,000 square feet of office/warehouse space <br />was occupied. This trend is expected to continue as national builder, Lennar Homes, continues construction <br />in Watermark. The City also approved a development plan for a 200-unit senior living community, which <br />is planned for construction in 2020. <br /> <br />Long-term financial planning. The City’s current five-year capital plan identifies street and utility <br />improvements totaling $49,335,065 over the five-year period. These improvements are anticipated to be <br />funded through a number of funding sources, including special assessments, municipal state aid road funds, <br />the area and unit trunk fund, the stormwater management fund, water and sewer operating funds, and <br />general fund tax levies. This plan is in the process of being revised to reflect the anticipated activity through <br />the year 2024. In addition, the city’s five-year financial plan includes funding projections for operations <br />and operating impacts for a five-year period. <br /> <br />Relevant Financial Policies <br /> <br />The City uses a variety of financial policies to guide its fiscal actions and ensure fiscal stability. <br /> <br />Fund balance policy. The City had adopted a Fund Balance policy which identified the required designated <br />amounts in the Fund Balance of the General Fund at fiscal year-end and directed the transfer of any excess <br />revenues to other funds for specific purposes, as identified annually. For the year ended December 31, 2011 <br />and subsequent years, the City amended its Fund Balance policy to conform to the requirements of GASB <br />54. The new policy targets the unassigned fund balance of the general fund in a range of 40% to 50% of <br />budgeted general fund expenditures and other financial uses. In addition, fund balances are classified in <br />compliance with GASB 54 according to the hierarchy of usable fund balance resources. The unassigned <br />general fund balance as of December 31, 2019 was $6,052,388 which is 52% of general fund final budgeted <br />expenditures and other financing uses for the year. <br /> <br />Cash management policies and practices. The City’s policy is to invest all available moneys at <br />competitive rates in accordance with Minnesota law. Investments are made by minimizing credit and market <br />risks while maintaining a competitive yield. Funds are invested in certificates of deposit, state and local <br />securities, and U.S. government agencies. Cash is pooled in one account to provide maximum return. The <br />City Council reviews the investment policy annually. <br /> <br />The City’s investment policy’s primary objective is safety of principal. Therefore, all deposits were either <br />insured by Federal depository insurance or were collateralized as required by State Statute. Due to the <br />weakened economy, a historically low interest rate environment has persisted over the last several years <br />and has had a dramatic impact on the city’s investment earnings. The average interest income yield on <br />investments for 2019 was 2.11%. Total investment income also includes positive or negative changes in <br />the fair value of investments. Changes in fair value of investments during the current year resulted in <br />unrealized gains of $640,783, or 1.43%, for a total investment yield of 3.54%. The changes in fair value <br />during the current year, however, do not necessarily represent trends that will continue; nor is it always <br />possible to realize such amounts, especially in the case of temporary changes in the fair value of investments <br />the City intends to hold to maturity. It is the City’s practice to purchase and hold investments to maturity <br />5