Comprehensive Annual Financial Report 12/31/2005

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City of Lino Lakes, Minnesota Management's Discussion and Analysis December 31, 2005 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 $21,302,986, an increase of $5,825,395, or 38% over the previous year. Approximately 75% of this total amount, or $12,724,100, 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 ($150,415), 2) to pay debt service ($7,371,359), 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 $5,300,156, while the total fund balance was $5,448,808. 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 72 percent of total general fund expenditures, while total fund balance represents 74 percent of that same amount. The fund balance of the City of Lino Lakes' general fund increased by $238,343 during the current fiscal year. Reasons for this increase include increased building activities which increased permit revenue, increased federal and state aid for police operations, a higher investment earnings due to a rising rate environment, and increased gas franchise taxes due to rising energy costs. In addition. reduced expenditures, primarily for personal services, contributed toward the increase in fund balance. Overall, the general fund's revenues were slightly below the amended budget, while expenditures were 4% below budgeted levels. The G.O. taxable improvement bonds 2002B fund has a total fund balance of $513,443, all of which is reserved for the retirement of related debt. The net increase of $9,815 in fund balance is the result of the closure of the related capital projects fund to the related debt service fund. The G.O. improvement bonds 2005A fund has a total fund balance of $37,712, 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 $2,578,898, of which $957,112 is reserved for advances to other funds, and $1,621,786 is unreserved and available for financing capital improvements. The decrease in fund balance during the current year was $1,627,697 and was the result of funding infrastructure projects within the city and transfers for capital projects and for debt service payments. 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 $14,000,428, of which $1,918,665 are unrestricted. The increase in net assets of $1,279,482 was primarily due to contributions from private sources and an operating transfer from a capital projects fund and net income. 16