Management Report and Recommendations 12/31/1991

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City of Lino Lakes, Minnesota Management Report, Page 40 The following schedule illustrates the effects of working capital needs and net fixed assets on retained earnings. 1990 1991 Working capital needs $78,450 $81,432 Net fixed assets - purchased 7,345 154,489 Total _ $85,795 $235,921 Retained earnings $53,385 $44,658 As shown above, retained earnings balance is not adequate to finance working capital needs and purchased assets. The Utility Fund had a cash overdraft of $191,263 at December 31, 1991. The cash overdraft is the result of 1) construction costs related to the water tower incurred prior to bonding, and 2) insufficient retained earnings. The City reviewed water and sewer rates and increased rates effective July 1, 1988 and January 1, 1989. The City increased rate by 5% effective July 1, 1991 and 5% on January 1, 1992 and January 1, 1993. We recommend the City charge water rates at a level which will cover the cost of retiring debt issued to construct the water tower and maintain adequate levels of retained earnings. Currently the City purchases water from the City of Circle Pines. The City of Circle Pines will discontinue the sale of water to Lino Lakes in 1992. The City is currently constructing a water tower. As of December 31, 1991 the City has incurred $148,336 of construction costs related to the water tower. These costs will be bonded for 1992.