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CITY OF LINO LAKES, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2013 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. GASB Statement 54, divides fund balances into five categories: nonspendable, restricted, committed, assigned and unassigned. Definitions of these categories can be found in Note 1.0 in the Notes to the Financial Statements. In particular, unassigned fund balance may serve as a useful measure of a government's net resources available for unrestricted spending at the end of the fiscal year. Approximately 8% of the total fund balance amount, or $1,815,739, constitutes unassigned fund balance, which is available for spending at the government's discretion. The remainder of fund balance is not available for new spending because it is restricted or has already been committed or assigned for other purposes. As of the end of the current fiscal year, the City of Lino Lakes' governmental funds reported combined ending fund balances of $21,577,573, an increase of $53,472, or 0.2%, from the previous year. This increase is primarily due to the receipt of special assessment prepayments for the Improvement Note 2009F fund. The general fund is the primary operating fund of the City of Lino Lakes. At the end of the current fiscal year, unassigned fund balance of the general fund stood at $5,209,286, while the total fund balance was $5,386,083. As a measure of the general fund's liquidity, it may be useful to compare unassigned fund balance and total fund balance to total fund expenditures and financing uses. Unassigned fund balance represents 61% of total general fund expenditures and financing uses, while total fund balance represents 63% of that same amount. The fund balance of the City of Lino Lakes' general fund increased by $152,266 during the current fiscal year, while the city budget anticipated the use of up to $129,947 of the general fund balance. Overall, the continued soft real estate market again resulted in reduced building activities this year which decreased permit revenue. Even as signs of economic recovery were being seen, the remaining effects of the recession also had an impact on property tax delinquencies. In addition, reduced expenditures, primarily for personal services through vacant positions, and contractual services helped to offset the reduced revenues. Overall, the general fund's revenues were within approximately 2% of the amended budget, while expenditures and transfers were 4% below budgeted levels. The G.O. improvement bonds 2005A fund has a total fund deficit of ($2,101,738). This fund is related to the bonds issued for the Legacy Woods Edge improvement project. The payment of debt service and delinquency in the collection of special assessments dedicated to this issue caused a significant decrease in this fund. An interfund loan from the Capital Improvements fund has aided in the payment of debt service for this issue. The Improvement Note 2009F fund, to service the debt issued to Anoka County as the City's financial commitment for the I -35E interchange project, ended the year with a fund balance of $996,291, an increase of $995,800. The increase was directly due to the prepayment of a special assessment in 2013 for this project. This note, which was originally in the amount of $4,260,000, was reduced in 2011 to the current amount of $3,695,000 to reflect cost savings during the contruction of this project. The Municipal State Aid fund, a capital projects fund used to finance reconstruction of state aid eligible streets, ended the year with a fund balance of $4,595,797. This fund received a large advance from the Minnesota Municipal State Aid in 2012 equal to the next five annual construction installments. These funds will be used over the next several years to pay debt service on the Tax Increment Bonds 2007A and the Improvement Notes 2009F, and for future MSA projects. The area and unit charge fund has a total fund balance of $4,170,051, all of which is assigned for financing capital improvements. The fund balance during the current year increased by $197,335, due in large part to the partial repayment of an interfund loan from the Dedicated Parks fund. CITY OF LINO LAKES, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2013 FINANCIAL ANALYSIS OF THE GOVERNMENT'S FUNDS (CONTINUEDI Proprietary funds - The City of Lino Lakes' proprietary funds provide the same type of information found in the govemment-wide financial statements, but in more detail. The water fund has total net position at year-end of $18,833,063, of which $4,972,620 is unrestricted. The increase in net position of $519,918 was primarily due to operating income and capital contributions from governmental activities. Total net position in the sewer fund at the end of 2013 was $22,589,403, of which $8,026,562 was unrestricted. The increase in net position of $2,440 was primarily due to capital contributions from govemmental activities. The water rates, which reflect water conservation efforts through a tiered rate structure, and sewer rates were unchanged in 2013. A review of utility rates was completed in 2013. A 2% adjustment of water rates and 4% adjustment of sewer rates will go into effect in January, 2014. GENERAL FUND BUDGETARY HIGHLIGHTS The original budget was amended several times during the year reflecting increases licences and permits, public safety charges for services, MSA maintenance aid and police aid; reductions in property tax revenue, fines revenue, interest earnings and other miscellaneous revenues; and reallocating resources within the original budget. The final amended budget is $36,000 less than the original adopted budget. Revenues were $64,908 under budget for the year. This is due primarily due to change in market value of investments which is not budgeted for and accounted for $50,343 of this variance, tax collections also came in under budget by 588,321. These two larger variances were offset by greater than anticipating planning and engineering fees and licenses due to increased construction activity and greater than anticipated public safety charges for services due to higher than anticipated traffic control contracts. Expenditures came in under budget by $337,910 due mainly to lower than expected personal services costs from vacant positions and unspent contingency budgets. Energy costs for fuels and electricity were higher than budgeted amounts, and supplies costs were generally lower than anticipated. Spending on contractual services was lower overall from budgeted levels. The contingency budget of $147,975 was unspent for the year, contributing 44% of the expenditure variance. There were also net transfers from the general fund of $565,789. This resulted in a net fund balance increase of $152,266 for the fiscal year, compared to the planned reduction of $129,947.