Comprehensive Annual Financial Report 12/31/2006

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City of Lino Lakes, Minnesota Management's Discussion and Analysis December 31, 2006 Both of the government -wide financial statements distinguish functions of the City of Lino Lakes that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business -type activities). The governmental activities of the City of Lino Lakes include general government, public safety, public services, parks, recreation and forestry, conservation of natural resources and community development. The business -type activities of the City of Lino Lakes include a water utility and sewer utility. The government -wide financial statements can be found on pages 21 -23 of this report. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Lino Lakes, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance - related legal requirements. All of the funds of the City of Lino Lakes can be divided into two categories: governmental funds and proprietary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements. However, unlike the government -wide financial statements, governmental fund financial statements focus on near -term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near -term financing requirements. Because the focus of governmental funds is narrower than that of the government -wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government -wide financial statements. By doing so, readers may better understand the long -term impact of the government's near -term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental functions and governmental activities. The City of Lino Lakes maintains forty -three individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General fund, G.O. Improvement Bonds 2005A fund, Area and Units Charge fund, Legacy Woods Edge Improvement fund and Chain of Lakes YMCA fund, all of which are considered to be major funds. Data from the other thirty -eight governmental funds are combined into a single, aggregate presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City of Lino Lakes adopts an annual appropriated budget for its general and program recreation special revenue funds. A budgetary comparison statement has been provided for these funds to demonstrate compliance with this budget. The basic governmental fund financial statements can be found on pages 24 through 29 of this report. Proprietary funds. The City of Lino Lakes maintains two proprietary type funds. Enterprise funds are used to report the same functions presented as business -type activities in the government -wide financial statements. The City of Lino Lakes uses enterprise funds to account for its sewer and water utilities. The proprietary fund statements provide the same type of information as the government -wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the sewer fund and the water fund, which are considered to be major funds of the City of Lino Lakes. The basic proprietary fund financial statements can be found on pages 30 through 32 of this report. 12