Management Report and Recommendations 12/31/1984

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City of Lino Lakes, Minnesota Management Report, Page 29 An alternative system would be to establish an (unfunded) Interim Construction Fund. All preliminary project costs could be tabulated (by project) in this fund. If the pro- ject is approved, past costs would be reclassified to a permanent (bonded) special assessment construction fund. If the project is cancelled, a transfer would be required from the General Fund (or another financing source). The use of an Interim Construction Fund would provide greater assurance that all preliminary costs were accurately tabu- lated. We recommend that the City consider the use of an Interim Construction Fund. Administrative Construction Charges The City incurs expenditures in the General Fund through use of administrative time and effort in the completion of construction projects. It is appropriate for the City to charge an interfund administrative fee for these services during the construction phase of the project. A common basis for the fee is a percent of the project or of the contract (either a flat percent or a sliding percent based on the size of the project). During 1984, the City established a policy regarding administrative charges (Resolution #84 -4). The policy includes a "step down" administrative charge based on the size of the project. We concur with this approach and, in our opinion, the percen- tages used are reasonable and comparable to those used by other suburban metropolitan cities. The policy (as approved) requires annual transfers of administrative charges from the special assessment debt service funds. We are unaware of statutory authority, however, which allows for expenditures from bonded debt funds (other than debt retire- ment payments). The special report issued by the Office of the State Auditor to the City of Lino Lakes dated February 16, 1982, did not directly address the topic of charging debt funds for administrative charges. That report dealt with the amount of such charges. We recommend that the City amend its administrative charges policy (Resolution 84 -4) to require the full administrative percentage to be charged to the construction account (during the construction phase).