Management Report and Recommendations 12/31/1995

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City of Lino Lakes, Minnesota — Management Report, Page 42 — The City of Lino Lakes had rights to receive payment of net income after the accumulated retained earnings deficit was eliminated. Prior to 1988, the City received no such distributions. — The Circle Pines gas utility has accumulated a positive retained earnings balance in excess of $1,000,000. At December 31, 1995 the Lino Lakes Franchise has a positive fund balance of $120,046. A schedule of the City of Lino Lakes fund balance for the past four years is as follows: limo Una Woo Imp Vow Increase Year Amount Amount Percent 1991 $30,073 $ - 1992 55,669 25,596 85.11% 1993 69,368 13,699 24.61% 1994 90,630 21,262 30.65% 1995 120,046 29,416 32.46% The current franchise agreement provides a revenue source to the City of Lino Lakes. Key features of the new agreement are as follows: 1. Term: January 1, 1987 through March 31, 2012. 2. Revenue to the City of Lino Lakes based on 7% of sales except for interruptible sales which are based on 3 %. 3. Cancelable by the City of Circle Pines commencing on January 1, 1992. The City of Lino Lakes has the right to cancel the franchise agreement through the purchase of this system beginning on January 1, 1992. 4. Right to inspect the financial/accounting records to verify revenue calculations. 5. Revenue began accruing on January 1, 1987. Revenue will be received four and one- half months after the year end (i.e., first receipt was in May, 1988). 6. The City has the right to purchase the system at stated terms beginning on January 1, 1992. We commend the City for the successful efforts to receive a supplemental financing source for the City. The City received $30,486 in 1996 which represents the 1995 share of earnings. Earnings from inception of the new agreement total $185,225. Financial uncertainties facing metropolitan cities require diversity of revenue sources to assure adequate funding of operations without severe property tax increases.