Comprehensive Annual Financial Report 12/31/2011

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CITY OF LINO LAKES, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2011 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES • The unemployment rate for the City of Lino Lakes at year -end is 5.9 %, which is a significant decrease from a rate of 7.1% a year ago. This is slightly higher than the state's average unemployment rate of 5.8% and significantly lower than the national average of 8.3% at the end of 2011. • Residential growth in the City has slowed significantly over the last several years due to the general residential real estate market downturn and current economic recession, with about one -third the number of new home permits issued in 2011 as in 2007, and less than 83% of new home permits issued in 2005. This is expected to level off in 2012, with hopes of the beginning of a recovery of the housing market in 2013. This, as well as falling property values of the existing tax base, will have a significant impact on the City's tax base for 2012 and beyond. • Energy costs, while relatively stable in recent months, are expected to continue to increase over the coming months. This will have an impact on the City's budget for the coming year and thereafter. • Property tax reforms and State budget deficits have significantly impacted state aid payments the City of Lino Lakes receives. Local government aid and market value homestead credit was reduced to zero for 2003 and 2004 -2011. The City is exempted from local government aid and the state legislature has discontinued the market value homestead credit in favor of a new market value exclusion, which excludes a portion of residential homestead property value from property taxes. • The Federal Reserve Board has continued the federal funds rates at historical lows, currently to between 0.00% — 0.25 %, which is expected to result in sizable decreases in the City's investment earnings. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City of Lino Lakes' finances for all of those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Director of Finance, City of Lino Lakes, 600 Town Center Parkway, Lino Lakes, Minnesota, 55014. 20