HomeMy WebLinkAboutManagement Report and Recommendations 12/31/1998is LARSON
BIM ALLEN
' IMVEISHAIR
I 67. CO.,LLP
CERTIFIED PUBLIC ACCOUNTANTS
To the Honorable Mayor and
Members of the City Council
City of Lino Lakes, Minnesota
We have audited the general purpose financial statements of the City of Lino Lakes, Minnesota
as of and for the year ended December 31, 1998 and have issued our report thereon. Our
Independent Auditors Report is included in the City's Comprehensive Audit Report. As
required by Government Auditing Standards we have issued reports on compliance and
internal controls over financial reporting. We have also issued a report on state legal
compliance. In addition, our audit was a single audit requiring a schedule of expenditures of
federal awards and reports on compliance with the requirements applicable to major federal
programs and internal controls over compliance. All of these reports are included in a separate
document titled "Single Audit of Federal Assistance."
The Management Report is prepared to summarize:
Comments obtained in completing our audit
Selected financial statement analysis
Recent legislation related to city finance
This report is intended to assist you in understanding the City's financial position. We have
already discussed much of the information included in this report with management of the City
and would be pleased to discuss this information in further detail at your convenience. We wish
to thank you for the opportunity to serve the City.
, 41;<00.4, 4--:, LP
LARSON, ALLEN, WEISHAIR & CO., LLP
Austin, Minnesota
June 23, 1999
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 2
Auditor Comments
Town Center Construction Fund
Over the past three years the City has purchased two different parcels in the "Village Area" of Lino
Lakes for the purpose of reselling for development and a third that was traded for the land the Civic
Complex is located on. Future land sales are intended to cover the purchase of these three parcels. In
addition, the proceeds from the sale of the former police station land will also go toward covering these
costs.
The total amount of the costs incurred on the acquisition of these parcels and the costs associated with
them through the end of 1998 is $2,061,483. Two of these parcels were financed with contracts for
deed; as of 12/31/98, the remaining principal balance of the two contracts is approximately $946,020.
Summary of Activity
Description of Expenditure
1996
Capital Outlay (inc.Iand) $
Interest expense
Engineering
Professional services
— Legal
Other
Revenues
net land sale proceeds
36,535
1997 1998 Total
$ 1,437,382 $ 296,178 $ 1,733,560
30,128 30,128
4,053 27,905 31,958
70,644 68,294 175,473
4,623 9,189 13,812
308 40 348
$ 36,535 $ 1,517,010 $ 431,734 $ 1,985,279
58,788 99,469 158,257
Remaining deficit $ (36,535) $ (1,458,222) $ (332,265) $ (1,827,022)
Note: the expenditures above do not include any interest that has accrued on the
Rehbien contract. The interest (and principal portion) will be paid as land is sold.
Through the end of 1998 this amount would represents approximatley $78,000. When
the next payment is made, it will be applied first to interest that has accrued in 1998 and
— for 1999, with the remainder being applied to the principal balance.
There are approximately 11.5 developable acres that remain for sale, including the 4 acres from the
former police station land. The above deficit of $1,903,226 (in addition to any other costs that are
charged to this project in 1999 and future years) will need to be funded from either land sales or other
—
revenue sources. (if the revenues generated from the land sales are not sufficient to cover the deficit).
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 3
Town Center Construction Fund (Continued)
The following table calculates what the price on the remaining "Rehbein and Funkhouser" parcels will
need to be just to cover the costs incurred through the end of 1998. In addition to these costs, the sale
—
prices will need to be sufficient to cover any additional costs that will be incurred in future years,
including interest that will be paid in 1999 as the land is sold. Assuming that the former police station
land is sold for $50,000 for one acre and the remaining three acres are sold for the appraised value of
$82,500 per acre, the remaining parcels will need to be sold for an average of $4.68 per square foot, or
approximately $204,000 per acre in order to cover costs incurred through the end of 1998.
'- Calculation of Sales Price Needed
(to cover costs through 12/31/98) -
Current deficit to cover
-- Less:
"Former Police Station
IWO
$ 1,827,022
3.0 acres at $82,500 / acre $ 247,500
1.0 acre at $50,000 $ 50,000
Equals Cost to be recovered in Town Center Project $ 1,529,522
"hotel site"
"retail strip on north end
of rehbien parcel"
Remaining Acres to sell
4.5 acres
3.0 acres
7.5 =___ »>
Approximate price per acre needed (through 1998)
Approximate price per foot needed (through 1998)
7.5
$ 203,936
$ 4.68
We recommend that the City continue to closely monitor the status of the Town Center Fund and
identify other revenue sources if and when they are needed.
— Tax Abatements Used as an Economic Development Tool
During the course of the audit, it was noted that the EDA and Council have given consideration to using
tax abatements incentives as a method to attract economic development. We recommend that the City
remember to keep any abatement amount in mind when the property tax levy is set for the following
year. The following year's general levy will need to be increased to include such abated amounts (if
any) and that the general levy will again be subject to levy limits in pay 2000.
—
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 4
Tax Increment Financing (TIF) District Administration Charges—
As part of the audit we also noted that an administrative charge was charged against the TIF districts.
With the recent law changes that clarified the definition of administrative charges, among other items,
any administrative charges to a TIF district must be for documented expenses incurred in the
management of the district. We recommend that as administrative charges (as well as any interfund
transaction) are charged against the district, the City carefully document and retain the documentation
for the charges. We also recommend that the City work closely with your TIF advisors, Ehlers and
Associates, in determining whether any charges are eligible administrative charges and that they have
been provided for in the TIF plan.
Developer Escrow Accounts
The City maintains a Trust and Agency Fund to account for the activity related to developer escrows. It
is our understanding that developers deposit an escrow prior to a project beginning and that certain
costs may be applied against this escrow. We noted that there are a few escrow accounts that carry a
"negative" balance, which represents an additional receivable balance from the developer. We
recommend that the City monitor these escrow balances and if they go negative that the developer be
contacted so that an additional deposit can be made. In 1998, these "negative" balances totaled
approximately $115,000, which is up approximately $30,000 from the 1997 balance of $85,000.
Budgeting for Multi-Year Projects
Currently the City adopts a budget for the operating funds of the City, including the general fund,
program recreation, capital equipment and the utility funds. Current practice for project budgeting is to
adopt a project budget as part of the Capital Improvements Program and the related bond issue. This
budget is not entered into the finance system, however by entering these budgets into the finance,
system budgetary controls can easily be added to the project expenditures.
The current chart of accounts in use includes an account segment that is used for the project (each
project is given a unique number) which accumulates the costs for each individual project. At the end
of a project staff goes back over the expenditures to determine if there were costs charged to the
project which should have gone against another project. By adding the budgets into the system at the
beginning of the project it would assist in monitoring the expenditures on an ongoing basis and help to
identify the revenue sources for the project.
For multi year projects, the total budget would be entered in the first year. In the second year, the
budgeted amounts would be reduced for the amounts recorded in the first year. The benefits to be
derived include that all revenue sources are identified up front and that staff members from differing
departments will work together to identify the expected project costs. This will help to reduce coding
errors in processing payments.
IIMIN
IMor
WRIO
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 5
Budgeting for Multi -Year Projects (Continued)
One example could be:
Received/ Remaining
Original Expended budget for
Budget in 1998 future vear(s)
Revenues
Bond Issue $ 1,000 $ 1,000 $
Transfer from fund 25 25
1,025 1,000 25
Expenditures
Construction 900 750 150
Engineering 80 50 30
Prof services, legal 25 15 10
'- Bond issue costs 20 20 -
AMP
1.025 835 190
Year 2000 Issues
With the year 2000 rapidly approaching, many computer systems, as well as a number of other
systems, may be impacted by the change to the year 2000. The issue is based on the ability of your
current systems to read a two -digit year (00) as the year 2000 as opposed to 1900. Computer
programmers have historically used only two digits to designate the year within computer software. A
number of systems will, therefore, read 00 as 1900. If this occurs, corrupt data may be generated
inside your computer software as well as other systems (fax machines, VCRs, clocks, air conditioning
units, switchboards, alarm systems, information backup systems, and e-mail just to name a few).
We understand that the City has spent considerable time in evaluating its systems and has replaced its
finance software and fileserver, in addition to building a new building that hopefully will include
compliant systems. We recommend that the city continue its efforts to identify other systems that may
be impacted.
— Reporting Model
The Governmental Accounting Standards Board (GASB) has issued an "exposure draft" document on
— issues related to the Govemmental Financial Reporting Model and recently released implementation
dates based on the size of govemmental entities. The tentative implementation date for an
organization the size of the City is the year 2003. This new reporting model significantly changes
govemmental accounting which will impact the intemal financial accounting and external financial
—
reporting of the City. As a result, it will involve a significant commitment of time by the finance
department staff. A summary of the key provisions of the exposure draft document is presented below:
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 6
Reporting Model (Continued)
• Fund Perspective Financial Statements - These financial statements will be similar to current
— financial statements with modified accrual basis of accounting for governmental funds, accrual
basis of accounting for business type activities (formerly enterprise and intemal service funds).
However, the GASB has proposed a new definition for fiduciary funds and the elimination of the
account groups.
• Entity -wide Perspective Financial Statements - These financial statements will include full accrual
accounting for all activities. A statement of activities using the net program cost format will replace
the income statement. Additionally, capital use charges (depreciation) on general fixed assets and
infrastructure assets will be required to be reported in the financial statements.
• Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) -
The MD&A letter will be similar to (although will not replace) the current letter of transmittal.
Currently, Securities and Exchange Commission (SEC) regulations require private sector
registrants to provide a MD&A letter discussing financial conditions, results of operations, etc.
—
MIN
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 7
COMBINED FINANCIAL STATEMENT ANALYSIS
The combined financial statements of the City of Lino Lakes are presented in Statements 1 through 5 of
the 1998 Annual Financial Report. The following comments relate to the Combined Balance Sheet - All
Funds (Statement 1).
Cash and Investments
Cash and investments were as follows at December 31, 1998 and 1997:
Description:
Checking Balance
Petty Cash
Investments:
Certificates of Deposit
Commercial Paper
Mutual Funds & Investment Pools
U.S. Government Investments
Municipal Bonds
Certificates of Indebtedness
Total
December 31,
1997 1998
$ 93,344 $ 140,306
760 760
940,515
2,925,926
1,358,928
9,688,224
300,000
375,000
$ 15,682,697
937,393
400,000
3,134,711
14,632,870
327,900
512,734
$ 20,086,674
Increase
(Decrease)
$ 46,962
(3,122)
(2,525,926)
1,775,783
4,944,646
27,900
137,734
$ 4,403,977
Investment earnings totaled $1,155,931 in 1998 and $766,675 in 1997. The increase was due primarily
to increased average cash and investment balances and the implementation of GASB 31.
During 1998, the City implemented GASB 31, which requires that investments be valued at their fair
value. Fair value is the amount that the city would receive if they chose to sell the investment as of the
end of the year. This valuation at fair value may cause significant variances in investment earnings
from year to year as market conditions change. The investment eamings for 1998 included an
adjustment to fair value of approximately $202,000 related to implementing GASB 31. The
implementation of GASB 31 also required adjusting the beginning fund balances down by
approximately $88,800 for the adjustment of the fair value of investments at December 31, 1997.
A schedule of cash and investment balances by fund type, including Investments Held in Escrow (as
adjusted for interfund payables /receivables) is as follows:
Fund Type
General
Special Revenue
Debt Service
Captial Project
Enterprise
Agency
Total
December 31,
1997
$ 3,045,734
32,712
1,007,370
10,415,147
900,497
281,237
$ 15,682,697
1998
$ 3,309,600
41,124
1,938,690
13,789,874
708,666
298,720
$ 20,086,674
Increase
(Decrease)
$ 263,866
8,412
931,320
3,374,727
(191,831)
17,483
$ 4,403,977
— Honorable Mayor and Members of the City Council
City of Link Lakes
Page 8
COMBINED FINANCIAL STATEMENT ANALYSIS (Continued)
Cash balances of Minnesota cities are commonly restricted by statutory requirements and Tong -range
financial planning objectives. For the City of Lino Lakes the following illustrates such cash
restrictions/designations:
General Fund. The General Fund is supported significantly by property taxes and State revenues. The
— City receives these amounts primarily in June and December. Working capital designations are needed
to provide adequate cash flow throughout the first six months of the ensuing year. The City has
established this designation (see later discussion- General Fund).
Special Revenue Funds. The City maintains several Special Revenue Funds, which match specific
purpose revenues with associated expenditures.
Debt Service Funds. Minnesota statutes restrict the use of Debt Service Funds for payment of principal
and interest on debt. These balances are restricted until full payment of the outstanding debt is made.
INEwr
'— Capital Proiect Funds. The primary funding sources for these funds are bond proceeds, tax increment
revenue, State aids, grants and other revenues dedicated to construction and acquisition of major
capital facilities.
Enterprise Funds. Cash balances of the Enterprise Funds are partially restricted for bond covenants to
assure adequate cash flow to retire revenue bonds. Enterprise Funds also have cash requirements for
— working capital purposes, such as sufficient cash for operations prior to collection of accounts
receivable. Enterprise Funds also tend to require cash reserves for unexpected major repairs vital to
system operations, as well as planned system expansion and repairs.
Agency Funds. Cash balances of the Agency Funds consist primarily of deposits due to contractors
and related to pending assessments. The City's pooled investments are also accounted for in an
Agency Fund.
Maw
NNW
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 9
GENERAL FUND
The general fund of the City is maintained to account for the current operating and capital outlay
expenditures common to all cities. These basic services include general government, public safety,
public works and parks, recreation and forestry and one new area for 1998, the conservation and
natural resources.
State aids (including local govemment aid, HACA, and other state aids) and local property taxes
represent 74.9% of revenue sources of the general fund for 1998 which is nearly identical to the 74.6%
for 1997.
A schedule of these revenue sources of the general fund is below:
General Fund Revenue
The following chart shows the City's General Fund sources of revenue for the year ended December
31, 1998
General Fund Revenue By Source
Charges for
Services
6.1%
Intergovernmental
24.1%
Licenses &
Permits
12.7%
Fines
1.8%
Other
4.6%
Taxes
50.8%
The total General Fund Revenue for 1998 was $5,722,363, an increase of $972,389 or 20.5%, over last
year. The increase in total revenue can be attributed to the increases related to the storm cleanup,
intergovernmental aid and increased building permit activity. Intergovernmental revenues increased
$498,604 and licenses and permits increased $160,038 over the previous year. The remainder of the
increase can be attributed to an increase in property tax revenues
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 10
GENERAL FUND (Continued)
The following table presents the General Fund revenue sources over the last ten years. The chart
reflects an increased reliance on property taxes over the years, rising from 40% of the total revenue in
1989 to over 50% of the total revenues coming from property taxes in 1998.
Total
Taxes Licenses & Permits Intergovernmental All Other
Year Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
_ 1989 2,081,795
1990 2,294,649
1991 2,421,534
1992 2,705,794
1993 3,177,662
1994 3,295,398
1995 3,772,335
1996 4,627,532
1997 4,749,974
1998 5,722,363
Imam
IMO
famw
Imam
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
848,472
994,399
1,179,087
1,206,998
1,420,369
1,597,542
1,941,415
2,327,048
2,658,485
2,904,888
40.8%
43.3%
48.7%
44.6%
44.7%
48.5%
51.5%
50.3%
56.0%
50.8%
256,987
254,620
332,392
493,977
565,684
383,388
544,267
788,480
566,561
726,599
12.3%
11.1%
13.7%
18.3%
17.8%
11.6%
14.4%
17.0%
11.9%
12.7%
698,558
629,919
483,015
607,831
673,944
677,337
738,652
816,794
881,459
1,380,063
33.6%
27.5%
19.9%
22.5%
21.2%
20.6%
19.6%
17.7%
18.6%
24.1%
277,778
415,711
427,040
396,988
517,665
637,131
548,001
695,210
643,469
710,813
13.3%
18.1%
17.6%
14.7%
16.3%
19.3%
14.5%
15.0%
13.5%
12.4%
The following chart demonstrates the trend in the Intergovernmental Revenues, Licenses and Permits
and Other Charges for Service over the past ten years. Intergovernmental Revenues have been
increasing modestly in recent years, with the exception of 1998, which included additional storm clean-
up aid. Licenses and Permits and Other Charges for Services have a general upward trend, but these
areas have not kept up with the pace of the total increases in General Fund Revenue.
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
Trend of Specific
General Fund Revenue Sources
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- xi' Licenses & Permits
•Charges for Services
-Jo- Intergovernmental
Additional details of each of the General Fund Revenue sources can be found in Statement 7 of the
1998 Annual Financial Report.
•
i
X
•
X'
•
X
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- xi' Licenses & Permits
•Charges for Services
-Jo- Intergovernmental
Additional details of each of the General Fund Revenue sources can be found in Statement 7 of the
1998 Annual Financial Report.
OEM
laws
SEEM
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 11
General Fund Expenditures
The following chart demonstrates the breakdown of the General Fund Expenditures by program area.
General Fund Expenditures by Area
1998
Parks &
Recreation
13.6%
Public Works
12.6%
Other
11.1%
Public Safety
33.4%
General
Govemment
29.3%
General Fund expenditures increased $928,709, or 21% over the previous year. This increase is
largely attributed to the additional costs incurred for storm dean up, which is included in the "other
functions" category in the table below. The next largest increase is due to the costs incurred in the
Parks and Recreation area for additional positions that were added. In the General Govemment area,
increases were attributed to increased costs associated with the computer system upgrades,
replacement of the City Administrator position, and position additions in the Planning area.
General Fund Expenditures by Area
Fiscal Total General Public Public Parks and Other
Year Expenditures Government Safety Works Recreation Functions
1989 1,896,204 624,499 750,629 377,087 142,472 1,517
1990 2,155,051 682,575 804,363 468,340 191,654 8,119
1991 2, 268, 639 667,448 845,420 499,737 256,034
1992 2,552,835 807,564 910,147 505,096 330,028
1993 2,829,202 911,230 1,025,157 565,019 327,796
1994 3,169,862 1,082,796 1,127,883 554,533 404,650
1995 3,557,038 1,173,047 1,265,064 700,873 418,054
1996 3,966,738 1,289,751 1,446,985 694,455 536,547
1997 4,400,087 1,366,602 1,751,226 697,934 439,263 145,062
1998 5,328,796 1,560,268 1,778,898 673,156 722,728 593,746
Now
Insm
-
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 12
General Fund Expenditures (Continued)
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
General Fund Expenditures by Program Area as
Percent of Total Expenditures
III r ■■ ■■ ■ ■■
• 7 • ■ • • • •
■ ■ ■Iu MIN _
II 1 1 1 1 1 1 1
1 1 1 1 1 1 1
1989 1990 1991 1992 1993
1994 1995 1996 1997 1998
• General Govemment
O Public Works
• Public Safety
• Parks & Recreation
The above graph demonstrates the portion of the General Fund Budget that is expended in the four
main operating department areas above. For the purposes of this graph, the "other column" above is
excluded from the total because those expenditures include the storm cleanup amounts. This graph
— shows the trends in how the City is allocating its resources over time. Note that even if a program
area's percentage of the total is declining, it may not mean that fewer dollars are being spent in that
area, only that the percent of the total is declining.
Vmmir
Additional details of General Fund Expenditures can be found in Statement 7 and Table 1 in the 1998
Annual Financial report.
INIMM
lomm
Now
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 13
General Fund — Fund Balance
The City's December 31, 1998 fund balance totaled $3,411,332. Fund balances of the General Fund
have kept pace with the expenditures in the General Fund as they have increased in each of the past
ten years. The percent of expenditures in fund balance shows the relationship of fund balance to the
total expenditures in the General Fund. The reason for the drop in the 1998 percentage is the total
general fund expenditures increased because of the storm clean up. This is a very positive financial
position for the City
$ of Fund Balance & Expenditure
Fund Balance and Expenditures vs
Percentage of Expenditures in Fund Balance
6,000,000
5,000,000 —
4,000,000 — �--1
3,000,000 —
2,000,000 —
1,000,000
I 1 1
Total Fund Balance as of December 31,
•Annual Expenditures
—4—% of Expenditures in Fund Balance
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 14
General Fund — Fund Balance (Continued)
The fund balance of the generat fund increased by $ 36G.888in1B9Basfollows:
Budgeted increase in fund balance $ 92,622
Actual revenues over (under) budgeted revenues:
Property taxes (9,742)
Licenses and permits 42,779
Intergovernmental revenue 36.612
Charges for services (23.165)
Fines and forfeits 2,489
Investment earnings 72.410
Refunds and reimbursements (25)
Miscellaneous (42,932)
Net revenue over budget
Actual expenditures under (over) budgeted expenditures:
General government 78,799
Publuic safety 40.931
Public works 36.824
Parbs, recreation and forestry 14.462
Conservation of natural resources 25.034
Net expenditures under budget
-
78,426
195,850
Total ncrease in fund balance $366.898
Additional detail of the preceding budget variances is presented in Statement 7 of the 1998 Annual
Financial Report.
The breakdown of the December 31, 1998 fund balance is as follows:
Reserved for prepaid items 98.453
Designated for:
Cash flow reserve 1.896.600
Compensated absences 214,857
General contingency 761.335
Finarice Computer equipment 29.858
Parks playground equipment 25,824
Road reconstruction 33.730
LGA/HACA funding losses 250.000
Civic center construction 100.000
Civic center custodian & equipment 30.000
New technology 51.000
Voting machines 24.000
Bleacher replacement 25.000
Mallard Lane 28.000
Wenzel Farm trail clearing 5.000
Improvements to "old City Hall" 10'430
Park & trail improvements 27,445
3,411,332
MOM
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 15
General Fund — Fund Balance (Continued)
The City of Lino Lakes has improved the financial position of its General Fund over the past several
years. We commend the City for these actions and encourage the City to continue to monitor its
reserve balances. An adequate reserve structure will enable the City to retain its financial
independence and integrity during adverse economic conditions.
Even though the Fund Balance has been designated for the above items the budget for the following
year will need to be amended to provide for the additional expenditures. Also, the City Charter could
pose an obstacle in the event the City ever needed to access these reserves. Charter sections 7.07
and 7.08 prevent making expenditures in excess of appropriations and also prevents amendments,
which increase appropriations unless revenues are also increased. Therefore, even though reserves
are established, the Charter's budget restrictions could possibly prevent the City from expending such
reserves if the needed expenditures were unbudgeted.
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 16
DEBT SERVICE FUNDS
The combining financial statements for the debt service funds are presented in Statements 11 and 12
of the 1998 Annual Financial Report. Debt service funds are a type of govemmental fund to account for
the accumulation of resources for the payment of principal and interest on general obligation debt
(other than enterprise fund debt). Debt service funds may have one or a combination of revenue
sources pledged to retire debt including property taxes, tax increments, special assessments and area
and unit charges.
The diverse nature of the type of debt included in the same fund type requires careful analysis to
determine the adequacy of the fund balance and projected fund balance. The following schedule
extracts information from Exhibits 1, 2 and 3 of the 1998 Annual Financial Report to assist in this
analysis. The following schedule compares outstanding debt with assets pledged for debt retirement.
This comparison provides a means to judge (at least on a preliminary basis) the financial position of
each debt service fund.
— December 31, 1998 Remaining Scheduled Final
Fund Deferred Debt Service Property Maturity
Fund Description Balance Revenue Total Scheduled Taxes Date
- General Debt:
1996 Equipment Certificates $ 7,452 $ 745 $ 8,197 $ 79,500 $ 83,475 12/31/99
1997 Equipment Certificates 6,731 831 7,562 163,500 171,675 12/31/00
1998 Equipment Certificates - - - 338,066 344,505 12/31/01
90A Public Project Revenue Bonds 226,304 1,084 227,388 1,473,670 1,458,165 2/1/10
Lease Revenue Bonds of 1998 486,758 - 486,758 8,971,541 8,146,086 2/1/19
727 245 2 660 729,905_ 11,026,277 10,203,906
s
Special Assessment Debt:
Improvement Bonds of 1992A 23,217 54,977 78,194 3,220,798 2,153,602 2/1/06
Improvement Bonds of 1996A 975,151 1,282,012 2,257,163 5,247,730 - 2/1/07
Improvement Bonds of 1998A 262,956 8,427 271,383 6,208,925 - 2/1/15
Improvement Bonds of 1998B 649 - 649 2,947,572 2,459,223 2/1/15
1 261 973 1 345 416 2,607,389 _ 17,625 025 4,612,825
Note: deferred revenue in the above table does not include the future scheduled "interest portion" of the
adopted assessment rolls. The 1992A and 1996A Improvement Bonds also include a pledge from the
Area and Unit Fund that has not been included above.
The above table provides a means for the monitoring the status of the debt service funds. For the
— General Debt funded solely by property taxes it appears that there are adequate planned levies to retire
the debt when the future lease revenues received from the school district are included.
�- For the Special Assessment Debt it is apparent that the planned special assessment rolls for the 1998
series bonds have not yet been adopted. This is frequently the case where assessment rolls are
adopted at the completion of the project. This could lead to a two to four year timing difference from the
issuance to the first collection of special assessments. We recommend that staff monitor the projects
funded with the 1998 series bonds to make certain that all assessment rolls are adopted timely and as
planned
IMMO
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 17
DEBT SERVICE FUNDS (Continued)
Schedule of Special Assessment Debt:
Special Assessment Debt:
Total resources $2,607,389
Scheduled property tax levies 4,612,825
7,220,214
- Debt Service 17,625,025
Deficit in scheduled funding (at 12/31/98) $ (10,404,811)
This deficit will need to funded by future adopted assessment rolls, special assessment levies,
investment earnings, transfers from other funds, property taxes or other means.
Factors to consider when analyzing debt service funds:
• Are all the anticipated assessment rolls being adopted as soon as appropriate?
• Have all the planned financing sources been identified, such as pledged amounts from the area and
unit fund or future MSA funds?
• Are there significant "prepayments" received from property owners? In the current investment
environment, will the earnings the City will receive on these prepayments be lower than the interest
rate that was being charged on the adopted assessment roll?
• Have the scheduled debt service payments been scheduled around the anticipated assessment
rolls in addition to any anticipated prepayments to avoid accumulating excess balances and
generating excess earnings that potentially could be subject to arbitrage?
We recommend that all Debt Service Funds of the City be reviewed at least annually by applying the
above criteria
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 18
Iliiwr
CAPITAL PROJECT FUNDS
The financial statements for the capital project funds are presented in Statements 13 and 14 of the
1998 Annual Financial Report. The fund balances (deficits) of the Capital Project Funds at
December 31, 1997 and 1998 are as follows.
Fund
INIM
Capital Improvement Projects
Closed Bond Fund
- Dedicated Parks
Area and Unit Charge
MSA Construction
- Street Reconstruction
Sealcoating
Surface Water Management
- SAC Revolving
Interim Construction
1994 Construction
- 1995 Construction
1996 Construction
1997 Construction
1998 Construction
Apollo Business Park
Apollo Drive Construction
Town Center Project
-
Civic Center Project
Town Center Infrastructure
Tax Increment # 1 -4
Tax Increment # 1 -5
Tax Increment # 1 -6
Tax Increment # 1 -7
Tax Increment # 1 -8
Tax Increment # 1 -9
Tax Increment # 3 -1
Nome
Fund Balance (Deficit)
December 31,
1997 1998
$ (22,358)
1,098,099
309,982
6,515,713
(24,618)
68,643
277,203
1,076,237
551,956
17,370
* (66,298)
8,738
638,519
* (321,817)
(103,010)
480,258
337,336
394,793
(143,878)
630,330
40,992
850
(34,203)
(436,760)
(3,799)
(357,006)
$ 61,528
458,947
293,383
6,923,446
(326,767)
125,710
130,247
1,087,025
347,400
18,350
(134,959)
8,930
654,362
(388,427)
1,205,542
27,159
2,975,730
393,580
93,397
8,825
(34,053)
(470,592)
(4,951)
(6,630)
(357,679)
$ 10,933,272 $ 13,089,503
Increase
(Decrease)
$ 83,886
(639,152)
(16,599)
407,733
(302,149)
57,067
(146,956)
10,788
(204,556)
980
(68,661)
192
15,843
(66,610)
1,308,552
(480,258)
(337,336)
(367,634)
3,119,608
(236,750)
52,405
7,975
150
(33,832)
(1,152)
(6,630)
(673)
$ 2,156,231
- * The funds noted with deficit fund balances will require future funding sources to be identified and
transferred into these funds.
- We recommend that the City close funds once the projects are complete.
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 19
Analysis of Certain Capital Project Funds
1997 Construction Fund
This fund is being used to account for the Otter Lake Road Realignment and Otter Lake Service Road
projects. Here is a summary of the expenditures through 1998.
Otter Lake Road Realingment
Otter Lake Service Road
Investment Earnings
Financing
Source
98A Bonds
Bond
Proceeds
$ 1,300,085
Investment
Earnings
$
8,051
$ 1,300,085 8,051
Expenditures
to date
$ 1,572,813
123,750
1,696,563
Remaining
to Spend
(overspent)
$ (272,728)
(123,750)
8,051
(388,427)
The 1998 A G.O. Improvement bonds provided $1,300,085 toward financing the "realignment" project
and $1,563,605 has been spent through 1998 on this project. The "service road" project has not had a
financing source transferred into this fund as of the end of 1998. In this fund the city will need to
identify an additional $379,219 of sources to close out this fund. We realize that there are usually other
financing sources for a project other than bond proceeds and often these transfers are made after the
project is complete. As was noted in the "Debt Service Funds" section of this report it is evident that not
alt the anticipated special assessment rolls for these projects have been adopted. We recommend that
staff investigate the disposition of all anticipated special assessment rolls.
We also recommend that the city adopt a strategy for budgeting "multi-year" projects which will serve to
identify the funding sources for each of the projects and to provide for the ongoing monitoring of project
balances from month to month by entering these budgets into the finance system. See our additional
discussion in the "auditor comments" section located earlier in this report. Once the projects have been
completed, the financing sources identified and transfers made into this fund, the fund should be
closed.
1998 Construction Fund
This fund is being used to account for the Lakes Drive Utility, Lakes Addition, 21st Ave Street & Utilities
and the Apollo Drive Phase III projects. Here is a summary of the expenditures through 1998.
21st Ave Street & Utilities
Apollo Drive Phase III
Lake Drive Utility
Lakes Addition
Investment Earnings
Financing Bond
Source Proceeds
98A Bonds
98B Bonds
2,400,565
1,980,000
Investment
Earnings
76,742
$ 4,380,565 76,742
Expenditures
to date
$ 73,358
41,617
1,126,892
2,009,898
3,251,765
Remaining
to Spend
(overspent)
$ (73,358)
(41,617)
1,273,673
(29,898)
76,742
$ 1,205,542
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 20
1998 Construction Fund (Continued)
The 1998A G.O. Improvement bonds provided $2,400,565 toward financing the Lake Drive Utility
project and the 1998B Improvement bonds provided $1,980,000 for the Lakes Addition project. Two
other projects are also being accounted for here, the 21' Ave Street and Utilities and the Apollo Drive
Phase III projects. These two projects were not included as part of either of the bond issues and a final
financing source will need to eventually be determined. The 21st Ave Street and Utilities and the Apollo
Drive Phase III projects have expenditures of $73,358 and $41,617, respectively. We reemphasize that
there are usually other financing sources to a project other than bond proceeds and often these
transfers are made after the project is complete. As was mentioned earlier it is evident that not all the
anticipated special assessment rolls for these projects have been adopted.
SAC Revolving
The SAC Revolving Fund was established in 1990 to account for a refund from the MCES (formerly
MWCC) of past SAC charges which were paid by residents that had not hooked up to the sewer
system.
A summary of financial activity of this fund is as follows:
Revenue
Sac refund
Investment earnings
Total revenue
Prior
Years 1998 Total
$ 365,175 $ - $ 365,175
183,448 25,149 208,597
548,623 25,149 573,772
Expenditures:
Refunds 226,372 226,372
Fund balance - December 31, 1998 347,400
The City is allowing the current homeowners to request a refund with 4% interest. If refunds and claims
are not submitted, the City will pay the full SAC charge from this fund at the time of hook-up. This policy
will likely require a supplemental future revenue source if future MCES SAC charges exceed available
balances and any investment earnings.
There are approximately 477 potential connections and/or refunds remaining that could be made in the
future. At the 1998 connection rate of $1050 per connection, there is potentially a liability of $500,850
if everyone were to connect in 1999. If the MCES SAC fees continue to increase at a rate that is faster
than the investment eamings rate, other revenue sources will be needed in the future.
We understand that staff is in the process of identifying lots that are unlikely to be connected in the
future.
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 21
Area and Unit Charge Fund
On January 11, 1988 the City Council approved Resolution 1 -88 which established the Area and Unit
Charge Fund for the City. The purpose of this fund is to collect various area and unit charges to be
used to meet debt payments. Before October 1 of each year, the City estimates the required transfer
needed to meet debt payments for the subsequent year. In December, these estimated amounts are
transferred to the various debt funds. We recommend that the City continue to closely monitor actual
versus projected area and unit assessment collections to assure that debt payment requirements will
be met.
Designations of balances required for debt service is necessary to define discretionary construction
balances available to the City. The financing plan for the following bond issues have pledged area and
unit charges for the repayment of debt service:
• Improvement Refunding Bonds of 1992A
• Improvement Refunding Bonds of 1996A
• Water Revenue Bonds of 1992B
• Water Revenue Bonds of 1996B
_ The Improvement Bonds of 1992A have future scheduled property tax levies totaling $2,153,602.
However, the City charter prohibits the City from making a levy on this bond issue. The City has used
area and unit charges in lieu of tax levies to repay these bonds.
The Water Revenue Bonds of 1992B have future debt service requirements totaling $1,265,741
(principal and interest). The City annually transfers amounts from the Area and Unit Charge Fund to the
Water Fund sufficient to cover the debt services of the 1992B Bonds. During 1998 revenues were
sufficient in the Water Fund to cover the debt service requirements and a transfer was not required.
It is the City's intention to repay the Water Revenue Bonds of 1992B and 1996B with revenues of the
Water Fund. If revenues are not sufficient to meet the debt requirements funds will be transferred from
the Area and Unit Charge Fund.
IMIIIN
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 22
ENTERPRISE FUNDS
The City currently maintains two enterprise Operating Funds, the Water and Sewer Funds. The
combining financial statements are presented in statements 15 through 17 of the 1998 Annual Financial
Report.
During 1998, the City closed its Gas Utility fund when it's plans for operating a gas utility were
— abandoned.
The tables on the following pages present comparable data for the Water and Sewer Fund.
IMMO
r
Maw
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 23
Table of Water Fund Revenues and Expenses:
Operating revenue:
Charges for services
Other revenue
Total operating revenue
1998 % of Sales 1997 % of Sales
$ 519,505
66,801
586,306
88.6% $ 430,938
11.4% 55,449
100.0% 486,387
Operating expenses:
Personal services 87,736 15.0% 75,257
Materials and supplies 73,301 12.5% 90,795
Contractual services 17,289 2.9% 28,423
Repair and maintenance 4,979 0.8% 24,813
Depreciation on purchased assets 43,443 7.4% 26,527
Utilities 52,578 9.0% 50,364
Other 1,983 0.3% 1,923
Total operating expenses 281,309 48.0% 298,102
Net income (loss) from operations
304,997 52.0%
88.6%
11.4%
100.0%
15.5%
18.7%
5.8%
5.1%
- 5.5%
10.4%
0.4%
61.3%
188,285 38.7%
Other income (expense):
Investment earnings 11,416 1.9% 35,387 7.3%
Special assessments 283 0.0% 329,399 67.7%
_
Bond interest & paying agent fees (225,182) -38.4% (229,900) - 47.3%
Total other income (expense) (213,483) -36.4% 134,886 27.7%
Net income (loss) before operating transfers 91,514 15.6% 323,171 66.4%
Operating transfer to Capital Projects Fund (90,000) -15.4% 0.0%
Net income (loss) 1,514 0.3% 323,171 66.4%
Retained earnings (deficit)
Beginning balance, as previously stated
Prior period adjustment
Beginning balance, as restated
837,555
(3,544)
834,011
Residual equity transfer to Sewer Fund (655,283)
Retained earnings - December 31
Depreciation on contributed assets
excluded above
514,384
514,384
$ 180,242 $ 837,555
126,168 137,569
• Operating Revenue increased significantly because of the combination of additional users and a
rate increase in 1998.
• Income from Operations increased because expenses were held constant while the revenue
increased.
• Other Income was down significantly because 1997 included revenues on the adoption of an
assessment roll for water improvements.
• An Operating Transfer was made from the Water Fund to the Civic Complex Construction Fund to
fund a portion of the construction costs.
• The operating expenses as presented exclude the effects of the depreciation on contributed assets.
These assets represent assets that were constructed using proceeds of special assessment bonds.
While these assets are not included as a charge against the current operations these assets will
need to be replaced at some point in the future when their useful life has expired.
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 24
Table of Sewer Fund Revenues and Expenses (Continued):
Operating revenue:
Charges for services
Other revenue
Total operating revenue
1998 % of Sales 1997 % of Sales
$ 668,779
50,612
719,391
93.0% $ 585,149
7.0% 43,387
100.0% 628,536
93.1%
6.9%
100.0%
Operating expenses:
Personal services 88,419 12.3% 79,130 12.6%
Materials and supplies 4,844 0.7% 7,626 1.2%
Contractual services 28,981 4.0% 45,621 7.3%
Repair and maintenance 175,033 24.3% 17,918 2.9%
MCES sewer charges 326,619 45.4% 297,202 47.3%
Depreciation on Purchased assets 8,618 1.2% 5,241 0.8%
Utilities 24,750 3.4% 45,468 7.2%
Other 3,369 0.5% 1,254 0.2%
Total operating expenses 660,633 91.8% 499,460 79.5%
Net income from operations 58,758
8.2% 129,076 20.5%
Other income:
Investment eamings 24,894 3.5% 18,437 2.9%
Special assessments 283 0.0% 6 0.0%
Total other income 25,177 3.5% 18,443 2.9%
Net income (loss) before operating transfers 83,935 11.7% 147,519 23.5%
Operating transfer to Capital Projects Fund (90,000) -12.5% 0.0%
Net income (loss) (6,065) -0.8% 147,519 23,5%
Retained earnings (deficit)
Beginning balance, as previously stated 669,899 522,380
Prior period adjustment (2,331) -
Beginning balance, as restated 667,568 522,380
Retained earnings - December 31 $ 661,503 $ 669,899
Depreciation on Contributed assets
excluded above
196,639 196,639
• Operating Revenue increased significantly because of the combination of additional users and a
rate increase in 1998.
• Operating expenses increased substantially in 1998. This is due in part to repairs done on the
Lakes Addition Sewer Lines and increases the amounts paid to the MCES for the treatment of
sewage flows.
• An Operating Transfer was made from the Sewer Fund to the Civic Complex Construction Fund to
fund a portion of the construction costs.
• The operating expenses as presented exclude the effects of the depreciation on contributed assets.
These assets represent assets that were constructed using proceeds of special assessment bonds.
While these assets are not included as a charge against the current operations, these assets will
need to be replaced at some point in the future when their useful life has expired.
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 25
Recent Legislation Related to City Finance
HACA, LGA, and Local Performance Aid
The Legislature made the following changes to state aid programs affecting cities:
• Provided additional state Homestead and Agricultural Credit Aid (HACA) to compensate local
governments for the class rate reductions to agricultural homestead property and noncommercial
seasonal recreational property.
• Increased the local government aid of three specific cities in 2000 and subsequent years. These
increases will be paid out of scheduled LGA appropriation increases.
• Repealed local performance aid in 2000 and ads an amount equal to each city's 1999 LPA
payment to the local government aid paid in 2000. The LPA is permanently added to the LGA
base. In addition, the inflation adjustment in current law will provide an estimated 2.5 percent
increase in aids paid in 2000.
Property Tax Provisions
A number of changes to property tax classifications for taxes payable in 2000 were once again adopted
as part of the continuing property tax reform efforts. Some of the provisions impacting cities include the
following:
• Eliminates the provision limiting the reduced first-tier class rate to one property per owner per
county in the case of public utility property. This provision was provided to commercial and
industrial property in the 1997 omnibus tax bill.
• Includes all public utility personal property in the definition of class 3a property. No class rate
changes result from moving the property from class 5 to class 3a. All personal property remains
classified at the class rate for the higher tier.
• Provides that non-commercial seasonal recreational property (cabins) are subject to the same
class rates as class 4b single-unit residential non-homestead property.
• Eliminates the special class rate that applies to certain warehouse property converted to
apartments, due to the fact that the regular apartment rate is now almost identical to the special
rate.
• Provides that manufactured home park land is subject to the same class rates as class 4b
residential non-homestead property which is the classification for duplexes, triplexes, and
undeveloped land zoned residential.
• Increases the education homestead credit from 66.2 percent in payable 1999 to 83 percent for
payable 2000 and increases the maximum credit from $320 in payable 1999 to $390 for payable
2000.
• Creates a new education agricultural credit equal to 54 percent of the general education tax, in the
case of agricultural homestead property, or 50 percent of the general education tax, in the case of
agricultural non-homestead property. The credit does not apply to the house, garage, and one
acre of agricultural homestead property that is covered by education homestead credit.
Limited Market Value
The Legislature made some modest changes to the limited market value statutes. Under the new law,
valuations for agricultural homestead and non-homestead property, residential homestead and non-
homestead property, and seasonal recreational residential property (cabins) generally cannot increase
by more than 8.5 percent of the preceding year's assessment. The law includes a catch-up provision to
prevent the limited value from falling too far behind the assessor's estimate. If the assessor's valuation
exceeds the previous value by more than approximately 57 percent, the value increase is limited to 15
percent of the difference between the current year assessment and the new assessment.
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 26
Local Govemment Fees
During the course of the session, several bills were introduced that challenged the fees set by local
units of govemment for activities ranging from amusement machine licensing to land use and building
fees. These bills would have generally required local units of govemment to justify fees though a
detailed cost analysis estimating the annual expense in providing the service, including detailed
estimates of the number of employee hours necessary to perform the service.
Although the bill that would have required justification of land use and building fees was tabled in the
Senate Local Government Committee, this growing attention to the reasonableness of fees charged by
local units will likely continue into the future.
Social / Recreational Purposes Prohibited
-
Spending tax increments to construct or renovate facilities used for social, recreational, or conference
facilities, or a public park used as a commons area, is prohibited. This prohibition will apply to facilities
typically financed with TIF in the past, such as ice rinks and community centers. Additionally, the use of
tax increments outside of a TIF district for improvements, equipment, or other uses is prohibited if the
primary purpose is decorative or aesthetic, or if the materials or design cost double that which is more
commonly used. Rehabilitation of historic structures or structures within a historic district listed on the
national register is still permitted. Effective for expenditures made or binding contracts entered into
after January 1, 2000.
TIF Pooling Authority
Municipalities with TIF district deficits caused by the 1997 and 1998 reductions in property tax class
rates are authorized to transfer available increments from other districts in order to address the deficits.
In order to utilize this authority, the district's request for certification must have been made prior to the
first set of class rate reductions, which occurred with the enactment of the 1997 tax bill. A qualifying
deficit equals the lesser of (1) the increments from the district plus any available increments from other
districts permitted by existing pooling, minus the district's obligations to pay pre-June 2, 1997, bonds (or
bonds issued to refund contracts entered into prior to that date); or (2) the reduction in the district's
increments resulting from the 1997 through 1999 class rate changes. Transfers of increment are
authorized among districts created by different types of development authorities (for example, an
economic development authority and a port authority) as long as the development authorities are under
the control of the municipality. Transferred increments will be deducted before the percentage pooling
limits for post-1990 districts are calculated, which means that increments available for spending inside
and outside the district will be reduced proportionately.
Abatement Authority
Abatements are authorized to be used to defer payment of property taxes, without interest or penalties,
and requires establishing a repayment schedule and levying the deferred taxes as with a regular
abatement. Political subdivisions may now also abate fiscal disparities tax in an amount equal to the
local tax rate multiplied by the tax capacity of the parcel, which essentially includes the tax equal to the
fiscal disparity tax on a commercial or industrial parcel. The approving local unit of govemment would
fully fund the abatement so that there is no impact on the fiscal disparities pool. Finally, abatement of
interest and penalties on property taxes is authorized.
Language was added to the existing law to clarify that abatements may be used to pay for public
infrastructure (improvements are not required to be located on the parcel whose taxes are abated),
abatements may be retained to reimburse political subdivisions for infrastructure costs for which bonds
are not issued, and property owners need not consent to an abatement.
Maw
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 27
Corporate Subsidies
New regulations on business subsidies awarded by state and local units of govemment are established.
A new definition of "business subsidies" is created and several exemptions are granted, including the
following:
• Business subsidies under $25,000;
• Assistance generally available to all businesses;
• Public improvements to buildings or lands owned by the state or local govemment that serve a
public purpose and do not principally benefit a business;
• Assistance for cleaning up polluted land;
• Assistance to businesses providing job readiness and training;
• Assistance for housing, pollution control, and energy conservation; _
• Assistance provided to renovate old or decaying building stock, if the assistance does not exceed
50 percent of the total cost;
• Industrial revenue bonds; and,
• Assistance relating to redevelopment where the recipient's investment in the purchase of the site
and site preparation is 70 percent or more.
Business subsidies may not be granted until after the grantor has adopted a policy that includes criteria
for awarding business subsidies at a public hearing. The policy must include the wages to be paid for
— jobs created. Business subsidy recipients will be required to enter into an agreement, signed by both
the grantor and grantee(s), which includes a number of specific requirements such as the amount and
type of the subsidy; the public purpose (other than increasing the tax base), the subsidy's goal, etc.
- There are also specific reporting requirements that must be followed.
MOW
Authorization Required for Tax Rate Increases
Authorization required for tax rate increases Chapter 243 (as amended by Chapter 249) includes a
requirement that all cities over 500 population and all counties must pass a resolution indicating if the
levy for the subsequent year will result in a tax rate increase. The provision is based on a Missouri law,
and was suggested after concems were raised in the House tax committee that cities and counties
were claiming they were freezing the tax rate when, in fact, the levy was increasing but being offset by
tax base growth.
Under the law, the county auditor is required to provide information to affected cities and the county
board that will allow the local govemment to calculate what its tax rate would be in the coming year if
the levy was held constant. Essentially, a baseline tax rate is computed based on the prior year's levy
and the current year tax base. The county auditor is required to provide this information by October 1
of each year.
The city council or county board must hold a public hearing and adopt a resolution if its levy will result in
an increase in the tax rate over the baseline tax rate. The resolution must be filed with the county
- auditor by October 20 of each year. If a city or county fails to file this resolution by October 20, the
county auditor may not spread a levy that would result in a higher tax rate unless the increased rate is
due to either a change in the general obligation debt levy, or a reduction in tax capacity due to a
classification change, property exemption, court judgment, or county error. The levy and tax rate are
adjusted to exclude levy for general obligation bonds and fiscal disparities.
MOM
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 28
Levy Limits
Although the original House bill would have extended levy limits for two years and would have
implemented a reverse referendum procedure for certain levy increases, Chapter 243 only includes an
extension of levy limits for one additional year. The levy limit calculation for taxes payable in 2000 will
begin with the levy limitation for 1999, not the actual 1999 property tax levy. In other words, if a city did
not levy to the levy limit maximum for taxes payable in 1999, the city will retain this unused levy
authority. For taxes payable in 2000, levy limitation includes adjustments for: 1) inflation (currently
estimated to be approximately 1.39 percent), 2) for the city's growth in households, and 3) the city's
growth in new construction of commercial and industrial property.
The general levy limit law continues to include a provision that allows a city to exceed the limitation.
However, to exceed the state - imposed levy limits, a city is required to place the issue on the ballot in a
special election.
Distribution of Interest on Property Tax Delinquencies
Chapter 243 modifies the distribution of interest on property tax delinquencies. The law change was
spurred by a property tax delinquency case in Hill City (Aitkin County) where a major property owner
had not paid property taxes. Under current law, 50 percent of all penalties and interest collected on
real and personal property taxes are distributed to the county in which the property is located, and the
other 50 percent are distributed to all school districts within the county.
- Under the new law, if the taxes have been delinquent for more than one year, the 50 percent non -
school share of interest from tax delinquencies will be shared between the city (or township) and county
that levied the taxes on the property. The interest will be shared between the city and the county in
- proportion to the levy for taxes payable in the year the interest was collected.
Differential Taxation
Chapter 243 generally allows a local govemment cooperation and combination plan to be structured to
phase -in a higher tax rate for the local govemment unit that had a lower tax rate before combination.
The law provides that the higher tax rate is phased -in in equal proportions over a period of up to six
years. The law also provides the tax rate phase -in is to be " based on the time it takes to provide equal
municipal services to the residents of the area with the lower tax rate. This provision is substantially the
same as current law provision for annexation under MN Stat. § 414.035. Effective beginning for taxes
levied in 1999, payable in 2000.
Bleacher Safety
The legislature established safety requirements that apply to all bleachers over 30 inches above grade
or the floor below. The open spaces between footboards, seats, and guardrails must not exceed four
- inches, unless improved safety nets are installed, and vertical perimeter guardrails with no more than
four -inch rail spacing between vertical rails or other approved guardrails that address climbability (as
determined by the state building official) and are designed to prevent accidents must be provided.
Cities that have not adopted the state building code are responsible for enforcement of the code's
bleacher safety requirements for all bleachers within the city, but may enter into joint powers
agreements with other municipalities for this purpose.
Honorable Mayor and Members of the City Council
City of Link Lakes
Page 29
Bleacher Safety (Continued)
By January 2001 ,municipalities will be required to provide the commissioner of administration with a
signed certification of compliance prepared by a qualified and certified building official or state licensed
design professional that certifies the bleachers have been inspected, are in compliance with the safety
requirements, and are structurally sound. Bleachers must be re-inspected at least every five years and
a structural inspection is required every 10 years. The commissioner of administration is required to
forbid the use of bleachers that do not meet the safety requirements.
We welcome the opportunity to discuss the points mentioned in this letter or any other accounting and
procedural issues in order to coordinate our efforts with you, the mutual objectives being the
development of more effective accounting procedures for the City. We understand that some of the
aforementioned points are in the process of implementation or may already have been implemented;
however, these points are noted so that effective follow-up can be accomplished.
We sincerely appreciate all the courtesies and cooperation extended to us by you and the staff of the
City, and thank you for the opportunity to be of service to you. We look forward to working with you in
the future.
This report is intended solely for the information and use of the City, its management, the City Council
and others within the administration.
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LARSON, ALLEN, WEISHAIR & CO., LLP
Austin, Minnesota
June 23, 1999