Management Report and Recommendations 12/31/1988

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City of Lino Lakes, Minnesota Management Report, Page 38 The City is in the process of establishing Tax Increment Financing District 1 -2. This district will qualify as a Economic Development TIF district pursuant to Minnesota Statutes 469.174, subdivision 12. Part of required annual financial disclosure with the State of Minnesota is to include in the annual financial report specific information regarding tax increment financing districts. Part of that required information is the original value of the district which is used to calculate the captured value as development is completed and property values increase. Part of the process is to certify the tax increment financing district with Anoka County to freeze the original value of the district. Audit inquiries with Anoka County indicate that the certification of the district with the County has not yet been completed. Delays in certifying the district may have adverse affects on subsequent captured valuation formulas (i.e., if the original value goes up for interim improvements, the original value of the district will be higher, and therefore, the captured value which generates tax increments will be lower). We recommend that the City review this situation and determine what additional procedures will be required to certify the district and that the City refrain from committing financial resources to district improvements until the original value of the district is properly certified. Construction Fund Accounting The City maintained twenty seven Capital Project Funds in 1988. Some of these funds do not require separate fund accounting and would be more efficiently combined with other projects which have a common funding source. A change in fund structure would be consistent with established (generally accepted) accounting principles as promulgated by the National Council on Governmental Accounting (NCGA) and as adopted by the Governmental Accounting Standards Board (GASB). An excerpt from NCGA Statement 1 on this matter is as follows: Govemmental units should establish and maintain those funds required by law and sound financial administration. Only the minimum number of funds consistent with legal and operating requirements should be established, however, since unnecessary funds result in inflexibility, undue complexity and inefficient financial administration. The City's accounting system was a manual system which was not conducive to departmental accounting practices required to maintain an Interim Construction Fund. The City had therefore reverted to the practice of establishing a separate fund for each construction project. The City acquired a new computer system in 1989. The system, however is not fully implemented. We recommend that the City use the new system to establish departmental accounting for interim construction projects and other commonly financed projects.