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CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 2010 Note 9 CONTINGENCIES Tax Increment Districts — The City's tax increment districts are subject to review by the State of Minnesota Office of the State Auditor (OSA). Any disallowed claims or misuse of tax increments could become a liability of the applicable fund. Management has indicated that they are not aware of any instances of noncompliance which could have a material effect on the financial statements. Litigation — The City attorney has indicated that existing and pending lawsuits, claims and other actions in which the City is a defendant are either covered by insurance; of an immaterial amount; or, in the judgment of the City attorney, remotely recoverable by plaintiffs. Federal and State Funds — The City receives financial assistance from federal and state governmental agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with the terms and conditions specified in the grant agreements and is subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the applicable fund. However, in the opinion of management, any such disallowed claims will not have a material effect on any of the financial statements of the individual fund types included herein or on the overall financial position of the City at December 31, 2010. Note 10 DEFERRED AD VALOREM TAX LEVIES - BONDED DEBT General Obligation bond issues sold by the City are financed by ad valorem tax levies and special assessment bond issues sold by the City are partially financed by ad valorem tax levies in addition to special assessments levied against the benefiting properties. When a bond issue to be financed partially or completely by ad valorem tax levies is sold, specific annual amounts of such tax levies are stated in the bond resolution and the County Auditor is notified and instructed to levy these taxes over the appropriate years. The future tax levies are subject to cancellation when and if the City has provided alternative sources of financing. The City Council is required to levy any additional taxes found necessary for full payment of principal and interest. These future scheduled tax levies are not shown as assets in the accompanying financial statements at December 31, 2010. Future scheduled tax levies for all bonds outstanding at December 31, 2010 totaled $21,386,182. Note 11 DESIGNATIONS AND RESERVATIONS OF FUND EQUITY At December 31, 2010, the City had designated and reserved portions of its various fund equities through legal restriction and City Council authorization. Major fund equity appropriations at December 31, 2010 are shown on the various balance sheets as segregations of the fund equity. A summary of such designations and reservations at December 31, 2010 is as follows: Governmental Activity: General Fund: Reserved for Prepaid Items $ 181,471 Designated for Cash Flow Reserve 5,445,334 I35E Interchange : Designated for Capital Improvements 4,194,759 Area and Unit Charge: Reserved for Advance to Other Funds 658,875 Designated for Capital Improvements 2,920,035 Other Nonmajor Governmental Funds: Reserved for Prepaid Items 2,342 Reserved for Debt Retirement 2,986,102 Reserved for Environmental Improvements 100,000 Reserved for Long -Term Notes Receivable 225,000 Designated for Recreation Purposes 110,471 Designated for Capital Improvements 5,651,180 51