HomeMy WebLinkAboutManagement Report and Recommendations 12/31/1999CITY OF LINO LAKES, MINNESOTA
REPORT TO MANAGEMENT
DECEMBER 31, 1999
LarsonAllen-
W e i s h a i r & Co., L L P
ACHIEVE FHE DESIRED EFFECT
Business Consultants • 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, 1999 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.
The Management Report is prepared to summarize:
• Comments obtained in completing our audit
• Selected financial statement analysis
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.
Xat-d.s.h, 421644 Yiz.didta4.)ore
LARSON, ALLEN, WEISHAIR & CO., LLP
St. Paul, Minnesota
June 14, 2000
Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 2
Auditor Comments
Use of repurchase agreements and financial statement disclosure under GASB 3
For its main depository account, the city uses overnight repurchase agreements that have one -day
maturities. The use of "overnight" repurchase agreements can be an efficient and effective way to
increase the yield on cash balances. Repurchase agreements are similar to collateralized deposits,
they both involve giving cash to another party who promises to return the cash plus interest and
pledges securities as collateral for the promise.
Govemment entities may enter into repurchase agreements with banks. Banks are subject to the
regulatory oversight of several government agencies but are not subject to the Federal Bankruptcy
Code. This means that in the event of a bankruptcy filing by the bank the repurchase agreement may
not be protected and such assets could be used to satisfy creditors.
In addition, repurchase agreements are not covered by insurance. Repurchase agreements are not
_ covered by FDIC insurance because they are not considered deposits. Similarly, SIPC insurance does
not extend to repurchase agreements. Because the repurchase agreements are not insured, nor are
they investments held by the city, such investments are considered a category 3 custodial risk
investment under Government Accounting Standards Board Statement No. 3.
When entering into repurchase agreements it is important to know the company in which the
repurchase agreement is invested and to become satisfied with the dealer's creditworthiness.
Computerization of special assessment records.
During the course of the audit a significant amount of time was required to be spent (by staff and
auditors) updating the City's special assessment records.
There are many items that must be tracked throughout the special assessment process; the adopted
assessment roll, the annual special assessment levy (principal and interest), property owner
prepayments and remaining deferred balances. The current method of tracking this process is
predominately done manually and requires manual tracking and verifying of assessments.
Because of the importance and dollar amount of the special assessments, the number of parcels to be
accounted for and number of separate assessment rolls for each parcel, we recommend that the city
investigate computerizing the special assessment records. This will not only assist in maintaining the
deferred receivable balances and the certification of the annual spread levy but it will also prove
valuable in the certification of payoff balances for individual property owners.
Centralization of Bid Records
Minnesota Statutes require that specific bidding procedures be followed for contracts entered into by
the City meeting certain dollar value criteria. One of the requirements is that documentation of the
bidding process be retained. During the course of the audit, it was noted that certain supporting
documentation for the contracts selected for testing was unavailable. We suggest the bidding process
be centralized and appropriate procedures be implemented or reviewed to ensure compliance with
Statutes and that proper documentation is retained.
City of Lino Lakes, Minnesota
Page 3
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 the property for development. A third parcel 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 and adjacent Tots will
also go toward covering these costs after repaying an interfund loan made by the Water and Sewer
Fund in 1998.
The total amount of the costs incurred on the acquisition of these parcels and the costs associated with
them through the end of 1999 is $2,182,352. Two of these parcels were financed with contracts for
deed; as of 12/31/99, the remaining principal balance of the two contracts is approximately $859,352.
Summary of Activity
Description of Expenditure
1996 81997 1998 1999 Total
Capital Outlay (inc.land) $ 1,437,382 $ 296,178 $ 163,962 $ 1,897,522
Interest expense 30,128 - 30,128
Engineering 4,053 27,905 18,051 50,009
Professional services 107,179 68,294 14,674 190,147
Legal 4,623 9,189 360 14,172
Other 308 40 26 374
$ 1,553,545 $ 431,734 $ 197,073 $ 2,182,352
Revenues
net land sale proceeds 58,788
99,469 - 158,257
Remaining deficit $ (1,494,757) $ (332,265) $ (197,073) $ (2,024,095)
Note: the expenditures above do not include any accrued interest on the Rehbien contract.
The interest (and principal portion) will be paid as land is sold. At the end of 1999, the accrued
interest is approximately $83,575. When future payments are made the payments will be applied
first to accrued interest and the remainder then applied to the principal balance.
There are approximately 11.5 developable acres that remain for sale, including the 3 acres from the
former police station land. The above deficit of $2,024,095 (in addition to any other costs that are
charged to this project in 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.
Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 4
Town Center Construction Fund (Continued)
The following table calculates what the "breakeven" price on the remaining "Rehbein" and "Funkhouser"
parcels will need to be to cover the costs incurred through the end of 1999. 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 as the land is sold. Assuming that the land remaining near the
former police station land is sold for the appraised value of $82,500 per acre, the remaining parcels will
need to be sold for an average of $6.09 per square foot, or approximately $265,000 per acre in order to
cover costs incurred through the end of 1999.
Calculation of Sales Price Needed
(to cover costs through 12/31/99)
Current deficit to cover
Plus: Accrued interest through 12/31/99 /
Repayment ofAinterfund loan 77 wf Iew S - r JJ C 2 If 0 J
Less: ���k
Proceeds from sale of "Former Police Station Site" (3 acres @ $82,500 /acre) (247,500)
$ 2,024,095
83,575
130,634
Equals Cost to be recovered in Town Center Project
"hotel site"
"retail strip on north end
of rehbien parcel"
Remaining Acres to sell
4.5 acres
3.0 acres
Approximate price per acre needed (through 1999)
Approximate price per foot needed (through 1999)
7.5 =___ »>
$ 1,990,804
7.5
$ 265,441
$ 6.09
We recommend that the City continue to closely- Thonitor the status of the Town Center Fund and
identify other revenue sources if and when Us determined they are needed.
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- Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 5
Tax Increment Financing (TIF) District Administration Charges—
As part of the audit we 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 that
substantiates the charges. We also recommend that the City work closely with its TIF advisors, Ehlers
and Associates, in determining whether any charges are eligible administrative charges as defined by
statute and that they have been provided for in the TIF plan.
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 currently entered into the finance system, however by entering these budgets into the
finance system, budgetary controls could 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 that 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 can work together to identify the expected project costs. This should help to reduce coding
errors in the processing of payments.
An example of this methodology follows:
Received/ Remaining
Original Expended budget for
Budget in 1999 future year(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
1,025 835 190
- City of Lino Lakes, Minnesota
Page 6
Reporting Model
The Governmental Accounting Standards Board (GASB) has issued Statement No.34 on issues related
to the Governmental Financial Reporting Model. The implementation date for an organization the size
of the City is the year 2003. This new reporting model significantly changes governmental accounting,
which will impact the internal 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 statement is presented below:
Key features of the new model. Even though the new governmental financial reporting model has deep
roots in traditional public sector accounting and financial reporting, it offers many new features. The
most important of these new features are:
• Govemment -wide financial reporting. For the first time, users of state and local government financial
reports have access to government -wide financial statements that provide a clear picture of the
government as a single, unified entity. These new government -wide financial statements
complement rather than replace traditional fund -based financial statements.
• Additional long -term focus for govemmental activities. Traditional reporting for tax - supported
(govemmental) activities has focused on near -term inflows, outflows, and balances of spendable
financial resources. The new financial reporting model retains this short-term focus in the
_ governmental fund financial statements while providing a long -term perspective on these same
activities in the government -wide financial statements.
• Narrative overview and analysis. The new governmental financial reporting model provides financial
report users with a simple narrative introduction, overview, and analysis of the basic financial
statements in the form of managements discussion and analysis (MD&A).
_ • Information on major funds. It is widely agreed that fund information is most useful when presented
for individual funds rather than for aggregations of funds (e.g., all special revenue funds).
Accordingly, the new governmental financial reporting model presents individual fund data for each
of a govemment's major funds.
• Expanded budgetary reporting. In the past, budgetary comparisons were based solely on the final
amended budget. Under the new governmental financial reporting model, information on the original
budget is also presented. In addition, the new model eliminates aggregated budget presentations
(e.g., totals for all budgeted special revenue funds) in favor of comparisons for the general fund and
each individual major fund.
Infrastructure reporting. As with any major change, adoption of a new governmental financial reporting
model sparked some controversy. Specifically, many preparers of state and local government financial
statements generally supported the new model but were not persuaded that the proposed benefits of
capitalizing and depreciating a government's general infrastructure assets (e.g., roads, bridges, dams)
outweigh the related costs.
Accordingly, the Government Finance Officers Association (GFOA) has formally taken the position that
each government must make its own decision on whether to comply with the infrastructure reporting
provisions of GASB Statement No. 34 based on its own evaluation of the relative costs and benefits of
infrastructure reporting. For governments that elect to implement the infrastructure reporting provisions
of GASB Statement No. 34, GFOA recommends adopting a least -cost implementation strategy
consistent with the provisions of that statement. The practical application of such a strategy would
reflect the following recommendations:
- City of Lino Lakes, Minnesota
Page 7
Reporting Model (continued)
• Limit the retroactive reporting requirements for infrastructure to major classes of infrastructure
assets.
• Define major classes of infrastructure as narrowly as possible.
• Limit infrastructure reporting to assets acquired during fiscal years ended after June 30, 1980.
• Use estimates whenever possible.
• Use composite approaches to calculate depreciation expense.
Levy Limits Expire
The levy limits currently in effect for pay 2000 were allowed to sunset beginning with taxes payable in
2001. While the levy limits have expired for 2001, many people in the industry believe that some form of
levy limits will be re- instituted in the near future. We recommend that the City carefully evaluate the
need to increase the levy.
Increases Required to Fund the PERA Coordinated Fund
- The Public Employees Retirement Association coordinated plan has reported that a significant, long-
term funding deficiency that will require as much as 30 percent increases in local government employer
and employee contributions. The Legislature plans to study the issue for action in the 2001 legislative
- session. The solution to the funding problem may include increases in the employer and employee
contribution rates in addition to changes in the membership eligibility threshold of PERA as well as
potentially increases in state. We recommend that the staff and Council monitor the progress of this
funding because of the potential budget impacts.
Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 8
COMBINED FINANCIAL STATEMENT ANALYSIS
The combined financial statements of the City of Lino Lakes are presented in Statements 14 through 17
of the 1999 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, 1999 and 1998:
Description:
Checking Balance
Repurchase Agreements
Subtotal
Petty Cash
Investments:
Certificates of Deposit
Commercial Paper
Mutual Funds & Investment Pools
U.S. Government Investments
Municipal Bonds
Certificates of Indebtedness
December 31,
1999
$ (93,113)
300,179
207,066
772
1998
$ (594,694)
735,000
140,306
760
937,393
400,000
3,134,711
14,632,870
327,900
512,734
756,000
2,894,660
9,852,899
574,570
Increase
(Decrease)
$ 501,581
(434,821)
66,760
12
(181,393)
(400,000)
(240, 051)
(4,779,971)
(327,900)
61,836
(5,800,707)
Total $ 20,086,674 $ 14,285,967 $
Investment earnings totaled $245,589 in 1999 and $1,155,931 in 1998. The decrease was due primarily
to a decrease in average cash and investment balance in addition to a large market value decline in
securities held at year -end.
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 1999 included a negative
adjustment to fair value of approximately $589,000 related to the application of GASB 31.
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
December 31,
1998
$ 3,309,600
41,124
1,938,690
13,789,874
708,666
298,720
Total $ 20,086,674
1999
$ 3,150,236
41,031
3,800,518
5,370,637
1,456,981
466,564
$ 14,285,967
Increase
(Decrease)
$ (159,364)
(93)
1,861,828
(8,419,237)
748,315
167,844
$ (5,800,707)
- Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 9
COMBINED FINANCIAL STATEMENT ANALYSIS (Continued)
Cash balances of Minnesota cities are commonly restricted by statutory requirements and long -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.
Capital Project 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.
Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 10
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 conservation and natural resources.
State aids (including local government aid, HACA, and other state aids) and local property taxes
represent 73.0% of revenue sources of the general fund for 1999 which is comparable to the 74.9% for
1998.
General Fund Revenue
The following chart shows the City's General Fund sources of revenue for the year ended
December 31, 1999
General Fund Revenue By Source
Intergovernmental
17.6 %
Licenses & Permits
154%
Charges for
Services
5.2%
Fines
1 6%
Other
4 7%
Taxes
55 4%
The total General Fund Revenue for 1999 was $5,343,453. This represents a decrease of $378,910 or
6.6% from 1998. The decrease in total revenue can be attributed to a decrease in intergovernmental
revenue. The 1998 balance in intergovernmental revenue was larger mainly as a result of storm
cleanup aid received.
- Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 11
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 43% of the total revenue in
- 1990 to over 55% of the total revenues coming from property taxes in 1999.
Total
Taxes Licenses & Permits Intergovernmental All Other
Year Amount Percent Amount Percent Amount Percent Amount Percent Amount Percen
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2,294,649
2,421 ,534
2,705,794
3,177,662
3,295,398
3,772,335
4,627,532
4,749,974
5,722,363
5,343,453
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
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
2,962,664
43.3%
48.7%
44.6%
44.7%
48.5%
51.5%
50.3%
56.0%
50.8%
55.4%
254,620
332,392
493,977
565,684
383,388
544,267
788,480
566,561
726,599
823,719
11.1%
13.7%
18.3%
17.8%
11.6%
14.4%
17.0%
11.9%
12.7%
15.4%
629,919
483,015
607,831
673,944
677,337
738,652
816,794
881,459
1,380,063
940,053
27.5%
19.9%
22.5%
21.2%
20.6%
19.6%
17.7%
18.6%
24.1%
17.6%
415,711
427,040
396,988
517,665
637,131
548,001
695,210
643,469
710,813
617,017
The following chart demonstrates the trend in the Intergovernmental Revenues, Licenses and Permits
and Other Charges for Service over the past ten years. 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
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
) Licenses & Permits
'Char es for Services
mM Intergovernmental
Additional details of each of the General Fund Revenue sources can be found in Statement 7 of the
1999 Annual Financial Report.
18.1°
17.6°
14.7°
16.3°
19.3°
14.5°
15.0°
13.5°
12.4°
11.5°
•
X
•
X
�X
/ X
X
I
I
1
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
) Licenses & Permits
'Char es for Services
mM Intergovernmental
Additional details of each of the General Fund Revenue sources can be found in Statement 7 of the
1999 Annual Financial Report.
18.1°
17.6°
14.7°
16.3°
19.3°
14.5°
15.0°
13.5°
12.4°
11.5°
Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 12
General Fund Expenditures
The following chart demonstrates the breakdown of the General Fund Expenditures by program area.
General Fund Expenditures by Area 1999
Parks &
Recreation
12.4%
Public Works
12.0%
Other
4.5%
Public Safety
37.4%
General
- Government
33.8%
General Fund expenditures decreased $91,242, or 1.7% from 1998. The decrease is largely attributed
to a decrease in the "other functions" category as shown in the table below. The City incurred
significant storm cleanup costs during 1998.
General Fund Expenditures by Area
Fiscal Total General Public Public Parks and Other
Year Expenditures Government Safety Works Recreation Functions
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 1,446,985 694,455 535,547 -
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
1999 5,237,554 1,771,069 1,958,169 628,070 647,163 233,083
Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 13
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
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
■ Gere,dGove,n4Brt ® t t4 z'Scety
❑
RANIOW ori, • Raiff Er 11 ec!ee t vv
The above graph demonstrates the portion of the General Fund Budget that is expended in the four
main operating department areas. For the purposes of this graph, the "other column" is excluded from
the total because those expenditures include the storm cleanup amounts. This graph shows the trends
of 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.
_ Additional details of General Fund Expenditures can be found in Statement 7 and Table 1 in the 1999
Annual Financial report.
Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 14
General Fund — Fund Balance
The City's December 31, 1999 fund balance totaled $3,434,474. 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 that total
general fund expenditures increased because of the storm clean up. This is a very positive financial
position for the City.
$ of Fund Balance &
Expenditures
Fund Balance and Expenditures vs
Percentage of Expenditures in Fund Balance
6,000,000
5,000,000
4,000,000
3,000, 000
2,000,000
1,000,000
r
1
- 80.0%
c
- 70.0% LL
t- 60.0% c
- 50.0% a) v
c c
40.0%
30.0% a) C13
a
20.0% w
10.0% o
` 0.0%
MITotal Fund Balance as of December 31,
®Annual Expenditures
—0"% of Expenditures in Fund Balance
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.
- Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 15
DEBT SERVICE FUNDS
The combining financial statements for the debt service funds are presented in Statements 11 and 12
of the 1999 Annual Financial Report. Debt service funds are a type of governmental fund used 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 1999 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 individual debt service fund.
_ December31, 1999 Remaining Scheduled Final
Fund Deferred Debt Service Property Maturity
Fund Description Balance Revenue Total Scheduled Taxes Date
General Debt:
— Certificates of Indebtedness $ 34,293 $ 1,596 $ 35,889 $ 650,170 $ 672,214 12/31/01
Lease Revenue Bonds of 1998 630,293 1,089 631,382 8,704,423 7,865,410 02/01/10
99C Public Project Revenue Bonds (6,234) - (6,234) 1,256,397 2,179,292 02/01/10
658,352 2,685 661,037 10,610,990 10,716,916
Special Assessment Debt:
Improvement Bonds of 1992A 56,864 44,749 101,613 2,451,748 2,153,602 02/01/06
— Improvement Bonds of 1996A 956,768 707,158 1,663,926 4,428,180 - 02/01/07
Improvement Bonds of 1998A 80,251 107,978 188,229 6,010,700 02/01/15
Improvement Bonds of 1998B 119,488 491,539 611,027 2,854,869 2,313,216 02/01/15
Refunding Imp. Bonds of 1999A 1,711,397 - 1,711,397 2,075,513 902,160 02/01/06
2,924,768 1,351,424 4,276,192 17,821,010 5,368,978
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 scheduled to be received from the school district are
included.
Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 16
DEBT SERVICE FUNDS (Continued)
Schedule of Special Assessment Debt:
Special Assessment Debt: (at 12/31/99)
Total resources available
+ Scheduled property tax levies
$4,276,192
5,368,978
9,645,170
- Debt Service 17,821,010
Deficit in scheduled funding (at 12/31/99) $(8,175,840)
This deficit will need to funded by future adopted assessment rolls, special assessment levies,
- investment earnings, transfers from other funds, property taxes or other available 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 eamings 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.
The Area & Unit Fund is committed to the debt service of some special assessment bonds as well as
toward the water revenue bonds. We recommend that the City determine the full commitment of the
Area and Unit Fund whenever this fund is used to pledge toward future bond issues and construction
projects. The most beneficial time to do this calculation is during the Utility Rate Study and the Capital
Improvements Program.
- Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 17
CAPITAL PROJECT FUNDS
The financial statements for the capital project funds are presented in Statements 13 and 14 of the
1999 Annual Financial Report. The fund balances (deficits) of the Capital Project Funds at
- December 31, 1999 and 1998 are as follows.
Fund
Fund Balance (Deficit)
December 31, Increase
1998 1999 (Decrease)
Capital Improvement Projects $ 61,528 $ 98,423 $ 36,895
Closed Bond Fund 458,947 628,739 169,792
- Dedicated Parks 293,383 (40,342) (333,725)
Area and Unit Charge 6,923,446 7,204,559 281,113
MSA Construction (326,767) (424,881) (98,114)
Street Reconstruction 125,710 246,664 120,954
Sealcoating 130,247 56,594 (73,653)
Surface Water Management 1,087,025 1,328,701 241,676
SAC Revolving 347,400 347,194 (206)
Interim Construction 18,350 204,020 185,670
1994 Construction (134,959) (436,219) (301,260)
_ 1995 Construction 8,930 9,024 94
1996 Construction 654,362 659,796 5,434
1997 Construction (388,427) (1,205,499) (817,072)
1998 Construction * 1,205,542 (2,579,952) (3,785,494)
Town Center Project * 103,363 (93,710) (197,073)
Civic Center Project 2,975,730 49,223 (2,926,507)
_ Town Center Infrastructure 317,376 37,862 (279,514)
Tax Increment Administrative - (7,184) (7,184)
Tax Increment # 1-4 93,397 42,388 (51,009)
_ Tax Increment# 1 -5 8,825 11,121 2,296
Tax Increment # 1 -6 * (34,053) (40,536) (6,483)
Tax Increment # 1 -7 (470,592) (458,497) 12,095
Tax Increment # 1 -8 (4,951) 21,084 26,035
Tax Increment # 1 -9 (6,630) (11,896) (5,266)
Tax Increment # 3 -1 (357,679) (316,270) 41,409
$ 13,089,503 $ 5,330,406 $ (7,759,097)
* 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 related projects are complete.
- Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 18
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 1999.
Financing Bond
Source Proceeds
Otter Lake Road Realingment 98A Bonds $ 1,300,085 $
Otter Lake Service Road
Investment Earnings
Investment
Earnings
Expenditures
to date
- $ 2,389,885
123,750
8,051
$ 1,300,085 $ 8,051
$ 2,513,635
Remaining
to Spend
(overspent)
$ (1,089,800)
(123,750)
8,051
$ (1,205,499)
- The 1998 A G.O. Improvement bonds provided $1,300,085 toward financing the "realignment" project
and $2,389,885 have been spent through 1999 on this project. The "service road" project has not had
a financing source transferred into this fund as of the end of 1999. The city will need to identify an
additional $1,205,499 of resources 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. It is possible that not all the anticipated special assessment rolls for these projects
have been adopted. We recommend that staff investigate the disposition of all anticipated special
assessment rolls related to these projects.
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 have been 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 1999.
Financing Bond
Source Proceeds
21st Ave Street & Utilities $
Apollo Drive Phase III
Lake Drive Utility 98A Bonds
Lakes Addition 98B Bonds
Investment Earnings
2,400, 565
1,980,000
Investment
Earnings
77,771
$ 4,380,565 $ 77,771
Expenditures
to date
$ 618,047
491,586
3,784,899
2,143,756
$ 7,038,288
Remaining
to Spend
(overspent)
$ (618,047)
(491,586)
(1,384,334)
(163,756)
77,771
$ (2,579,952)
- Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 19
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 21st 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 $618,047 and $491,586, 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 possible 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:
Prior
Years 1999 Total
Revenue
SAC refund $ 365,175 $ 3,641 $ 368,816
Investment earnings 208,597 - 208,597
Total revenue 573,772 3,641 577,413
Expenditures:
Refunds 226,372 3,847 230,219
Fund balance - December 31, 1999 347,194
The City is allowing 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 472 potential connections and /or refunds remaining that could be made in the
future. At the 1999 connection rate of $1,100 per connection, there is potentially a liability of $519,200
_ if everyone were to connect in 2000. If the MCES SAC fees continue to increase at a rate that is faster
than the investment earnings rate, other revenue sources will be needed in the future to fund the actual
connections when they occur.
- 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 Lino Lakes
Page 20
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 $858,564 (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 1999, 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.
Honorable Mayor and Members of the City Council
City of Lino Lakes, Minnesota
Page 21
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.
The tables on the following pages present comparable data for the Water and Sewer Fund.
- Honorable Mayor and Members of the City Council
City of Lino Lakes
Page 22
Table of Water Fund Revenues and Expenses:
Operating revenue:
Charges for services
Other revenue
Total operating revenue
Operating expenses:
Personal services
Materials and supplies
Contractual services
Repair and maintenance
Depreciation on purchased assets
Utilities
Other
Total operating expenses
Net income (loss) from operations
Other income (expense):
Investment earnings
Special assessments
Bond interest & paying agent fees
Total other income (expense)
Net income (loss) before operating transfers
Operating transfer from General Fund
Operating transfer to Capital Projects Fund
Total Operating Transfers
Net income (loss)
Retained earnings (deficit)
Beginning balance, as previously stated
Prior period adjustment
Beginning balance, as restated
Residual equity transfer to Sewer Fund
Retained earnings - December 31
Depreciation on contributed assets
excluded above
1999 % of Sales 1998 % of Sales
$ 453,092 81.6% $ 519,505 88.6%
102,276 18.4% 66,801 11.4%
555,368 100.0% 586,306 100.0%
118,413 21.3% 87,736 15.0%
132,316 23.8% 73,301 12.5%
69,228 12.5% 17,289 2.9%
0.0% 4,979 0.8%
91,399 16.5% 43,443 7.4%
51,315 9.2% 52,578 9.0%
9,656 1.7% 1,983 0.3%
472,327 85.0% 281,309 48.0%
83,041 15.0% 304,997 52.0%
8,873 1.6% 11,416 1.9%
41,877 7.5% 283 0.0%
(230,800) -41.6% (225,182) -38.4%
(180,050) -32.4% (213,483) -36.4%
(97,009) -17.5% 91,514 15.6%
49,366
0.0% (90,000) -15.4%
49,366 8.9% (90,000) -15.4%
(47,643) -8.6% 1,514 0.3%
180,242 837,555
(3,544)
180,242 834,011
(655,283)
$ 132,599 $ 180,242
165,445 126,168
• Operating Revenue decreased slightly because of the reduced consumption in 1999.
• Income from Operations decreased because of additional personnel and costs associated with the
meter change out program.
• 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 Lino Lakes
Page 23
Table of Sewer Fund Revenues and Expenses (Continued):
Operating revenue:
Charges for services
Other revenue
Total operating revenue
1999 % of Sales 1998 % of Sales
$ 679,020
34,503
713,523
95.2% $ 668,779
4.8% 50,612
100.0% 719,391
93.0%
7.0%
100.0%
Operating expenses:
Personal services 120,254 16.9% 88,419 12.3%
Materials and supplies 5,536 0.8% 4,844 0.7%
Contractual services 29,329 4.1% 28,981 4.0%
Repair and maintenance 1,568 0.2% 175,033 24.3%
MCES sewer charges 368,937 51.7% 326,619 45.4%
Depreciation on Purchased assets 11,378 1.6% 8,618 1.2%
Utilities 20,052 2.8% 24,750 3.4%
Other 3,486 0.5% 3,369 0.5%
Total operating expenses 560,540 78.6% 660,633 91.8%
Net income from operations 152,983
21.4% 58,758
8.2%
Other income:
Investment eamings 5,795 0.8% 24,894 3.5%
Special assessments 133 0.0% 283 0.0%
Total other income 5,928 0.8% 25,177 3.5%
Net income (loss) before operating transfers 158,911 22.3% 83,935 11.7%
Operating transfer to Capital Projects Fund 0.0% (90,000) - 12.5%
Net income (loss) 158,911 22.3% (6,065) -0.8%
Retained earnings (deficit)
Beginning balance, as previously stated 661,503 669,899
Prior period adjustment - (2,331)
Beginning balance, as restated 661,503 667,568
Retained earnings - December 31 $ 820,414 $ 661,503
Depreciation on Contributed assets
excluded above
247,128 196,639
• Operating Revenue increased slightly because of additional users.
• Operating expenses decreased substantially in 1999. This is due in part to repairs done on the
Lakes Addition Sewer Lines in 1998.
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 Lino Lakes, Minnesota
Page 24
Conclusion
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 objective 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.
O�ttoo'ny Yez4,4,44,4Co.,
LARSON, ALLEN, WEISHAIR & CO., LLP
St. Paul, Minnesota
June 14, 2000