Comprehensive Annual Financial Report 12/31/2006

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City of Lino Lakes, Minnesota Management's Discussion and Analysis December 31, 2006 FINANCIAL ANALYSIS OF THE GOVERNMENT'S FUNDS: As noted earlier, the City of Lino Lakes uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. Governmental Funds. The focus of the City of Lino Lakes' governmental funds is to provide information on near -term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Lino Lakes' financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City of Lino Lakes' governmental funds reported combined ending fund balances of $16,155,382, a decrease of $5,147,604, or 24% lower than the previous year. Approximately 68% of this total amount, or $10,950,496, constitutes unreserved fund balance, which is available for spending at the government's discretion. The remainder of fund balance is reserved to indicate that it is not available for new spending because it has already been committed 1) to liquidate contracts and purchase orders of the prior period ($154,822), 2) to pay debt service ($3,992,952), 3) to fund interfund advances ($957,112), or 4) to fund environmental improvements ($100,000). The general fund is the primary operating fund of the City of Lino Lakes. At the end of the current fiscal year, unreserved fund balance of the general fund was $5,337,225, while the total fund balance was $5,490,234. As a measure of the general fund's liquidity, it may be useful to compare unreserved fund balance and total fund balance to total fund expenditures. Unreserved fund balance represents 68 percent of total general fund expenditures, while total fund balance represents 70 percent of that same amount. The fund balance of the City of Lino Lakes' general fund increased by $41,426 during the current fiscal year. A soft real estate market reduced building activities which significantly decreased permit revenue; however, higher investment earnings were realized due to a rising rate environment. Reduced expenditures, primarily for personal services, offset the reduced revenues, thereby contributing toward the �- increase in fund balance. Overall, the general fund's revenues were slightly below the amended budget, while expenditures were 3% below budgeted levels. The G.O. improvement bonds 2005A fund has a total fund balance of $585,551, all of which is reserved for the retirement of related debt. This is related to the bonds issued for the Legacy Woods Edge improvement project. The area and unit charge fund has a total fund balance of $2,599,590, of which $957,112 is reserved for advances to other funds, and $1,642,478 is unreserved and available for financing capital improvements. The fund balance during the current year increased by was $20,692. The Legacy Woods Edge improvement fund balance decreased by $2,080,970, to $265,927 as the improvements were made within this development throughout 2006. The Chain of Lakes YMCA fund was created to track the city's contribution toward the construction of the Chain of Lakes YMCA. G.O. Tax Abatement bonds were issued and the contribution was made to the YMCA project during the year, effectively bringing the fund balance in this fund to zero at year end. Proprietary funds. The City of Lino Lakes' proprietary funds provide the same type of information found in the government -wide financial statements, but in more detail. The water fund has total net assets of $15,232,576, of which $2,544,523 are unrestricted. The increase in net assets of $1,232,148 was primarily due to contributions from private sources, an operating transfer from a capital projects fund and operating income.