HomeMy WebLinkAboutManagement Report and Recommendations 12/31/1990CITY OF LINO LAKES, MINNESOTA
MANAGEMENT REPORT
AND RECOMMENDATIONS
DECEMBER 31, 1990
IMMO
CITY OF LINO LAKES, MINNESOTA
MANAGEMENT REPORT AND RECOMMENDATIONS
Table of Contents
Transmittal Page
Page
1
General and Special Revenue Funds - Summary data and analysis
of revenue and expenditures compared to prior periods 10
Account Balance Analysis - A look at changes in various accounts
such as cash, investments and receivables 14
Individual Fund/Fund Type Analysis - Review of significant changes in
fund balances and other matters 20
Internal Control Report
Recommendations Summary
State Legislative Actions
51
55
Appendix A
_ VOTO, TAUTGES, REDPATH & CO., LTD.
MEIER
CERTIFIED PUBLIC ACCOUNTANTS
VI:Kw
Birch Lake Professional Building • 1310 E. Hwy. 96 • White Bear Lake, MN 55110 • Fax (612) 426 -5004
• Phone (612) 426 -3263
To the Honorable Mayor and
Members of the City Council
City of Lino Lakes, Minnesota
ROBERT J. VOTO, CPA
ROBERT G. TAUTGES, CPA
JAMES 5. REDPATH, CPA
D. KENNETH GEORGE, CPA
DAVID J. MOL, CPA
Minnesota cities are facing a financial crisis which is unsurpassed in recent years. The legislative
climate indicates that the State's deficit management policies will have a severe ripple effect on local
government. The first part of this report analyzes the actual and proposed changes in funding for
cities. This information is presented to allow for an understanding of 1) aid cuts and shifts on a State-
wide basis and 2) aid cuts and shifts as they specifically affect the City of Lino Lakes. This report also
presents updated trend analysis to illustrate the impact of the changes on the overall funding of basic
governmental services of the City. We urge the City to increase efforts to communicate to legislators
the potentially devastating effects of continued restrictions in funding required levels of city services.
The balance of this report updates financial analysis of funds and account balances of the City.
Financial areas which may be of particular interest to the City are as follows:
Pee
1. The State continues to make significant changes to the property tax and
State aid funding systems. 2
2. The City's current special assessment collection rate was 69% in 1990. 17
3. General Fund Balance increased by $139,600 during 1990. 20
4. The Area and Connection Fund reflects fund balance improvement,
however, comparison to fmancing plan projections should continue to
be updated. 34
5. Water and sewer rates require annual review in light of a) increased
construction/bonding; and, b) escalating MWCC charges. The City
updated the 1988 utility rate study and increased rates effective July 1,
1991. 44
6. The City is considering the purchase of the Lino Lakes Gas Utility
from the City of Circle Pines.
46
The challenges facing local government in Minnesota continue to increase as financing becomes
less stable. We are available to discuss this report with the City upon request.
Respectfully submitted,
x.^4412-, 240-171
VOTO, TAUTGES, REDPATH & CO., LTD.
Certified Public Accountants
Junc 21, 1991
MEMBERS OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS • PRIVATE COMPANIES PRACTICE SECTION
MINNESOTA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
GOVERNMENT FINANCE OFFICERS ASSOCIATION • MINNESOTA ASSOCIATION OF SCHOOL BUSINESS OFFICIALS
City of Lino Lakes, Minnesota
Management Report, Page 2
—
RECENT LEGISLATIVE ACTIONS
—
The State legislature has made a progression of changes in funding cities. The most
significant changes started with the 1988 legislative session and continued through the 1991
—
session. Appendix A of this report presents a summary of this legislation and an estimate of the
initial year impact on 1) cities - Statewide; and 2) the City of Lino Lakes.
Cities must be concerned with at least three aspects of the changes which restructure funding
as follows:
• The impact of the changes to city funding statewide compared to your City. If your
City is less favorably impacted, the ability to maintain basic service and to retain a
competitive posture with surrounding communities may erode.
• Replacement funding is critical if State aids are severely reduced. Property tax limits
coupled with State aid cutbacks could be a financially devastating combination.
• Long -range planning cannot be effective if funding levels and sources are not
stabilized. The State has needed to revitalize its financial position periodically (the last
major crisis was in 1981). The method of achieving the desired result is to pass the
financial crisis to local units of government. It becomes difficult or impossible for
cities to commit to programs when threats of retroactive funding cuts loom.
City of Lino Lakes, Minnesota
Management Report, Page 3
The estimated effects of the 1988 through 1991 legislative changes in Statewide city funding is
as follows:
1988
1989
1990
1991
Local
Government
Aid
$297,037,000
376,376,000
317,343,000
* 299,000,000
State Totals for Cities
Homestead and Tax Base
Agricultural Equalization
Credit Aid Aid
$111,873,000
106308,000
143,523,000 $19,513,000
156,550,000 19,476,000
Disparity
Reduction
Aid
$20,853,000
14,201,000
14,500,000
* Preliminary estimates from the Department of Revenue
Total
$408,910,000
503,537,000
494,580,000
489,526,000
A chart of the above major funding categories to cities is as follows:
Increase
(use)
$94,627,000
(8,957,000)
(5,054,000)
$500,000
$400,000
$300,000
$200,000
$100,000
$0
1988 1989 1990 1991
State Funding
to Cities
0 Equalization
❑ Disparity
® HACA
LGA
City of Lino Lakes, Minnesota
Management Report, Page 4
The 1986 through 1991 legislative changes have impacted the funding of the City of Lino
Lakes as follows:
City of Lino Lakes
Local Homestead and Tax Base
Govemment Agricultural Equalization Increase
Aid Credit Aid Aid Total (Decrease)
1986 $219,728 $249,813 $469,541
1987 232,159 277,294 509,453 $39,912
1988 232,157 300,698 532,855 23,402
1989 330,823 284,060 614,883 82,028
1990 163,165 362,289 $49,684 575,138 (39,745)
1991 * 94,735 290,400 49,701 434,836 (140,302)
* LGA presented after effect of 1991 legislative cut of $68,690
The 1989 increase in Local Government Aid (LGA) resulted from a formula change in
distributing the aid. A key variable in calculating LGA is the "revenue base ". The revenue base is
- a concept which has been used to calculate funding of cities for a number of years. The revenue
base consists of a city's property tax levy plus LGA. The revenue base for the City of Lino Lakes
has been as follows:
OMNI
Property
Tax LGA Total
1988 $1,146,850 $232,157 $1,379,007
1989 1,146,850 330,823 1,477,673
1990 1,529,821 163,165 1,692,986
1991 (est.) 1,717,473 94,735 1,812,208
The aid amount established by the 1990 LGA formula is now the base LGA from which the
1991 and 1992 cuts has been subtracted. There cuts are calculated as follows:
July December
1991 1991 1992*
Payable 1991 total levy $1,717,473 $1,717,473 $1,717,473
Initial 1991 LGA 163 425 163 425 163,425
1991 revenue base 1,880,898 1,880,898 1,880,898
Reduction percentage 2.052% 1.600% 3.900%
Estimated 1991 LGA cuts $38,596 $30,094 $73,355
* estimated using 1991 tax levy and LGA
City of Lino Lakes, Minnesota
Management Report, Page 5
The City of Lino Lakes has had greater State cuts than the Statewide cuts to cities as follows:
City of Lino Lakes
5700,000 —
$600,000 —
5500,000 —
5400,000
5300,000
5200,000
$100,000
$0
State (in $1,000)
•`.....T. — $500,000
1986 1987 1988 1989 1990 1991
— $400,000
— $300,000
— $200,000
— $100,000
$0
IS Equali72tion Aid
® HACA
O Local Government Aid
' Statewide Aid (in 1,000)
The decrease in State aids will continue to impact the funding of basic governmental services.
The following section of this report illustrates the funding of basic services over the past several
years.
WNW
City of Lino Lakes, Minnesota
Management Report, Page 6
The 1990 and 1991 State Aid cuts have been calculated on a percent of revenue base.
Additionally, the revenue base was the first factor in the realigned LGA formula as follows:
I. Formula aid increase:
Prior year City revenue base:
Property tax levy
Local government aid
subtotal
Expenditure /unlimited aid ratio applicable percentage
Total
II. City initial aid increase:
City revenue guarantee:
1989 - (households x per household guarantee x 1.08)
1990 - (households x per household guarantee x 1.04)
Less prior year tax capacity
Total (cannot be less than zero)
III. Statutory tax base increase:
Prior year property tax levy
Less prior year fiscal disparities distribution levy
subtotal
Statutory percent
Total
IV. Maximum Aid Increase:
15% of prior year local govemment aid
V . Minimum Aid Increase:
Minimum 2% increase prior to aid transfer
VI. Alternate Formula Additional Aid Increase:
50% of lesser of City revenue guarantee or revenue base
Reduction ratio:1 -(tax capacity per household/435)
subtotal
Less aid increase before alternate formula
Less disparity reduction aid
Additional aid increase
1990
$1,146,874
331225
1,478,099
x 2.00%
$29,562
$1,216,659
(1,305,168)
$0
$1,146,874
(250,613)
896,261
x 20.00%
$179,252
$49,684
$6,625
1989
$1,146,879
232,472
1,379,351
x 6.00%
$82,761
$1,263,453
(835,103)
$428,350
$1,146,879
(208,528)
938,351
x 20.00%
$187,670
N/A
$4,649
$631,727
x 0.156322
98,753
(82,761)
0
$15,992
City of Lino Lakes, Minnesota
Management Report, Page 7
The "City Initial aid increase" (Option II) is the lowest of the four optional calculations. This
would have resulted in no increase, however, the minimum aid increase is 2% of prior year LGA.
Using the table above, LGA for The City of Lino Lakes for 1990 and 1989 is determined as
follows:
1990 1989
Initial aid increase $6,625 $82,761
Additional aid increase 15,992
Prior year aid 331,225 232,472
Reduction for State demographer costs (268) (13)
Initial aid 337,582 331,212
Less subsequent legislative adjustments:
Aid transfer to schools (3.4% of net tax capacity) (148,175)
1990 legislative session retroactive aid cut (26,304)
Final Aid $163103 $331,212
The State has calculated a 56% increase in City tax capacity (from $835,103 to $1,305,168) for
the City of Lino Lakes. This type of increase prevents many cities from comparing favorably with
the household guarantee amount. The 56% tax capacity increase does not indicate that property
values increased by 56% in Lino Lakes. The 1988 statutes included a provision to effectively
increase tax capacities through use of an equalized sales ratio as calculated by the Department of
Revenue as follows:
273.198 (e) "Equalized market values" are market values that have been equalized by dividing
the assessor's estimated market value for the second year prior to that in which the aid is
payable by the assessment sales ratios determined by class in the assessment sales ratio study
conducted by the Department of Revenue pursuant to section 124.2131 in the second year prior
to that in which the aid is payable. For computation of aids payable in 1989 only, if the
aggregate assessment sales ratio is less than or equal to 92 percent, the assessment sales ratios
by class shall be adjusted proportionally so that the aggregate ratio of the unequalized market
values to the equalized market values equals 92 percent; otherwise the equalized market values
shall equal the unequalized market values divided by the assessment sales ratio.
City of Lino Lakes, Minnesota
Management Report, Page 8
—
— The above Statute allowed for one year (1989 revenue year) in which the equalized market
values were adjusted by no greater than a 92% sales ratio.
MEM
The 1990 aid calculations reflect the full sales ratio adjustment. For the City of Lino Lakes this
resulted in the 56% adjustment in tax capacity values as reflected above. Cities with high sales
-" ratio percentages were not as severely affected by this legislation. High population areas with
strong markets for property sales had the greatest potential for adjustment. This statutory
— provision reduced the aid to the City of Lino Lakes by over $23,000. Additionally, this is an LGA
base adjustment that will likely impact future years' aid as well.
City of Lino Lakes, Minnesota
Management Report, Page 9
As previously discussed, LGA was reduced, aids to school districts were increased and
property tax burdens were shifted between taxing jurisdictions as follows:
State Funding Shift
Between School Districts & Cities
State
Funding of
School Districts
i
$74.4 Million of
State funding
shifted from
Cities to School
Districts
Increased State aid
reduced gross
property tax levies
of School Districts
State
Funding
of Cities
0
Decreased State aid
increases property tax
levies of Cities
Property Tax
Funding of
School Districts
Property owners
pay less tax to
School Districts
and more tax to
Cities
1
Property Tax
Funding
of Cities
City of Lino Lakes, Minnesota
Management Report, Page 10
-
GENERAL AND SPECIAL REVENUE FUNDS
The General and Special Revenue Funds of the City are maintained to account for the current
operating and capital outlay expenditures common to all cities. These basic services include (but
-
are not limited to) public safety, public works, public welfare and general government.
.- Since 1979, State aids and local property taxes used to finance the General and Special
Revenue Funds of the City of Lino Lakes were as follows:
-- State Aids
Year Amount Percent
1979 $184,184 35%
1980 239,622 40%
1981 300,971 42%
1982 283,089 37%
1983 349,076 38%
1984 403,127 35%
1985 455,059 33%
1986 491,041 35%
- 1987 545,674 34%
1988 549,567 30%
1989 682,407 33%
1990 600,419 28%
1991 * 475,932 22%
IMION
IIIEW
Immf
tom
Property Taxes
Amount Percent
$166,149 32%
171,440 28%
212,914 30%
305,804 40%
355,684 38%
510,245 44%
550,302 40%
585,137 42%
714,892 44%
769,915 43%
848,472 41%
994,399 46%
1,145,520 53%
* 1991 based on City budget and State estimates.
A graph of the above primary funding sources is as follows:
Total
Amount
$350,333
411,062
513,885
588,893
704,760
913,372
1,005,361
1,076,178
1,260,566
1,319,482
1,530,879
1,594,818
1,621,452
Percent
67%
68%
72%
77%
76%
79%
73%
77%
78%
73%
74%
74%
75%
$1,200,000
51,100,000
$1,000,000
5900,000
$800,000
5700,000
5600,000
5500,000
$400,000
5300,000
5200,000
$100,000
$o
General & Special Revenue Funds
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991
Budgeted
1 State Aids
0 Property Taxes
City of Lino Lakes, Minnesota
Management Report, Page 11
State aids for the General Fund have consisted of the following amounts from 1985 through 1990
actual and 1991 budgeted:
1991
State Aids 1985 1986 1987 1988 1989 1990 Budgeted
Local Government Aid $196,177 $219,728 $232,159 $232,157 $330,823 $163,165 $94,735
Homestead Credit 227,711 238,336 265,530 259,384 270,645 324,828 251,197
Equalization aid 0 0 0 0 0 44,547 49,701
Police Aid 13,509 18,722 26,828 33,298 32,739 35,662 36,000
MSA - Streets 13,935 13,935 13,935 13,935 13,935 13,935 13,900
Other Aids 3,727 320 7,222 10,793 34,265 18,282 0
Totals $455,059 $491,041 $545,674 $549,567 $682,407 $600,419 $445,533
Percent change 12.88% 7.91% 11.13% 0.71% 24.17% (12.01)% (25.80)%
A graph of the above State aids (with a comparison to property tax amounts) is as follows:
General & Spacial Revenue Funds
so
1982 1983 1984 1985 1986 1987 1988 1989 1990
® Other Aids
Ci Equalization Aid 0 HACA
'qq s0
B Reled
• Local Government Aid Property Taxes
City of Lino Lakes, Minnesota
— Management Report, Page 12
••• Revenue of the General and Special Revenue Funds for the past three years has been as
follows:
Property taxes
Licenses and permits
Intergovernmental revenue:
State
County
"— Charges for services
Fines and forfeits
Interest on investments
Other
Totals
1990
Amount Percent
$994,399 43.32%
254,620 11.10%
600,419
29,500
208,981
83,618
63,052
60,060
26.17%
1.29%
9.11%
3.64%
2.75%
2.62%
$2,294,649 100.00%
1989
Amount Percent
$848,472 40.76%
256,987 12.34%
682,407
16,151
96,680
73,614
54,930
52,554
1988
Amount Percent
$769,915 42.94%
229,511 12.80%
32.78% 549,567 30.65%
0.78% 0.00%
4.64% 86,067 4.80%
3.54% 70,142 3.91%
2.64% 25,014 1.40%
2.52% 62,756 3.50%
$2,081,795 100.00% $1,792,972 100.00%
Detail of the above revenue is presented in Statements 7 and 9 of the 1990 Annual Financial
—
Report.
$1,000,000
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
Property Taxes State Aids
Licenses & Charges for
Permits Services
• 1988 0 1989 in 1990
Fines and Interest & All
forfeits Other
City of Lino Lakes, Minnesota
Management Report, Page 13
Expenditures of the General and Special Revenue Funds for the past three years are as follows:
Current
General government
Public safety
Highways and streets
Parks
Other
Capital outlay
Totals
1990
Amount Percent
1989 1988
Amount
Percent Amount Percent
$679,174 31.09% $591,023 31.17% $588,946 37.02%
804,363 37.16% 716,449 37.78% 582,818 36.63%
432,813 20.00% 357,938 18.88% 263,129 16.54%
185,780 8.58% 134,653 7.10% 91,051 5.72%
31,941 1.48% 17,638 0.93%
30,316 1.40% 78,503 4.14% 64,958 4.09%
$2.164,387
99.71% $1,896,204 100.00% $1,590,902 100.00%
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
General & Special Revenue Funds
General
Govemment
Public Safety
Highways &
Streets
Parks
1988 El 1989 El 1990
Capital Outlay &
Other
Details of the above 1990 and 1989 expenditures are presented in Statements 7 and 9 of the
1990 Annual Financial Report.
City of Lino Lakes, Minnesota
,_ Management Report, Page 14
ACCOUNT BALANCE ANALYSIS OF THE
'- COMBINED FINANCIAL .. STATEMENTS
The combined financial statements of the City of Lino Lakes are presented in Statements 1
— through 5 of the 1990 Annual Financial Report. The following comments relate to the Combined
Balance Sheet - All Funds (Statement 1).
VoNIII
am
Imo
Cash and Investments
Cash and investments were as follows at December 31, 1990 and 1989:
Description
Treasurer's balance - checking
Petty cash
Investments:
Certificates of deposit
Commercial paper
4M money market fund
FNMA pool
NOW account
Shearson money market
Totals
December 31,
1990 1989
$77,666 ($69,847)
150 150
5,324,222
1,251,759
29,085
201,830
318,165
4
3,295,495
2,230,875
26,900
231,348
494,035
Increase
(use)
$147,513
0
2,028,727
(979,116)
2,185
(29,518)
(175,870)
4
$7,202,881 $6,208,956 $993,925
The City occasionally maintains a negative balance in the City's checking account. These
negative balances are "book" balances only. These balances indicate that the City is depositing
—
cash which is not needed for current expenses into interest bearing accounts. We concur with the
City's practice of maintaining minimal balances in the City's checking account to increase interest
earnings.
Interest on investments totaled $531,817 in 1990 and $369,971 in 1989. The ability of a city
to generate investment earnings is an indication of sound fiscal management. Interest earnings are
required for the City to meet bonded debt payments in those funds which have received assessment
-- prepayments. Assessment prepayments reduce future interest generated from the assessment rolls
and therefore must be replaced through investment earnings. Capital project monies are restricted
WIN through bond resolution and/or City Council policy. Interest earned in these funds increases the
restricted assets which is intended to be expended at a future date. The interest earnings of the
General and Special Revenue Type Funds indicate that the City is maintaining operating reserves in
these funds. Operating reserves are mandatory to compensate for cash flow timing differences in
the receipt of major revenue sources and for various other purposes as discussed later in this report
— (see "General Fund ").
Iwo
City of Lino Lakes, Minnesota
Management Report, Page 15
Due from Other Governmental Units
Included in due from other governmental units are various Federal and State grants receivable
that the City has earned as of December 31, 1990. The following schedule details these amounts.
December 31,
Description 1990 1989
State:
MSA $33,422 $8,150
Federal:
Community Development Block Grant 3,280 19,437
Local:
Anoka County 23,803 19,955
MWCC - Maintenance Agreement 7,233 10,656
Final cost allocation 3,577 1,567
Circle Pines 57 1,118
Lexington 1071
Total $72,443 $60,883
Excluded from the above schedule is the gas franchise tax receivable which represents the
City's share in the 1990 profits of the gas franchise operated by Circle Pines within the City of
Lino Lakes. The amount is due each May following the year in which the amount is earned. As
such, the payment is measurable but not available and therefore is recognized in the year received
(see later comments).
The receivable from the MWCC for maintenance was submitted for reimbursement subsequent
to year end. The City may request this reimbursement earlier (in six month intervals) to accelerate
the reimbursement process and improve the cash flow of the City.
The City currently receives approximately $14,000 annually in MSA maintenance monies. The
City also has available approximately $278,000 annually in MSA construction allotments. These
construction allotments ordinarily can be used to finance construction costs relating to MSA
designated streets. Unused construction allotments total approximately $613,900 at December 31,
1990. The City may be able to justify and request up to 25% of such annual total allotments for
maintenance purposes (i.e., 25% of $278,000 or $69,500 per year). This could increase the total
MSA receipts of the City during periods in which the City does not have qualifying MSA
construction projects. Additionally, this option normally accelerates the receipt of MSA allotments.
Once received, the City retains the option of internally allocating the receipts to construction funds
as needed. We recommend that the City consider this option.
City of Lino Lakes, Minnesota
Management Report, Page 16
Taxes Receivable
Delinquent taxes receivable were as follows for the past several years:
1990 1989 1988 1987 1986
Delinquent balance - January 1 $46,393 $41,388 $27,995 $99,694 $100,004
Current Levy 1,529,821 1,146,850 1,146,850 990,000 835,500
... Total receivable 1,576,214 1,188,238 1,174,845 1,089,694 935,504
Receipts:
County:
Current 1,082,674 836,569 827,494 694,652 557,533
Delinquent 21,620 16,811 8,961 35,455 28,464
State 411,973 283,691 293,757 277,295 249,813
Total receipts 1,516,267 1,137,071 1,130,212 1,007,402 835,810
Unadjusted balance
Adjust to County
Delinquent balance
Total collections as a percent
of current levy
59,947 51,167 44,633 82,292 99,694
(8,984) (4,774) (3,245) (54,297)
$50,963 846,393 $41,388 $27,995 $99,694
99% 99% 99% 102%
100%
The City has experienced a solid tax collection rate over the past five years. The adjustments
represent amounts provided by Anoka County for abatements and other adjustments to the
delinquent balances.
State legislation requires local government aid cuts. Certain cities do not have adequate LGA to
allow for the statutory aid cuts. The State then reduces HACA which is a component of property
tax collections. This will reduce the property tax levy collection rate for such cities. This is a very
... poor bond rating indicator which has the potential to adversely impact all Minnesota cities.
The City also had delinquent tax increments in the amount of $61,240 at December 31, 1990.
City of Lino Lakes, Minnesota
Management Report, Page 17
Special Assessments Receivable
Special assessments receivable consisted of the following amounts at December 31, 1990 and
1989:
December 31, Increase
1990 1989 (Decrease)
Delinquent $132,985 $161,751 ($28,766)
Deferred 1,889,989 1,116,136 773,853
City property 142,553 142,553 0
Tax forfeit 121,425 121,425 0
Due from County 19,792 40,236 (20,444)
Special deferred 885,152 65,392 819,760
Totals $3,191,896 $1,647,493 $1,544,403
Delinquent assessments receivable consist of amounts collectible in 1990 and prior years which
the City has not yet received. Special deferred assessments consist of residents who have not yet
hooked up to the water and sewer system and will be assessed at the time of hook up. A summary
of assessment collections for the past four years is as follows:
Delinquent balance - January 1
1990 1989 1988 1987
$161,751 $123,153 $189,606 $290,525
Add
Current installment 245,618 326,516 312,610 388,798
Amount collectible 407,369 449,669 502,216 679,323
Less:
Current collections 168,442 223,757 204,150 194,196
Delinquent collections 107,879 64,161 163,841 190,508
Total collections 276,321 287,918 367,991 384,704
Adjustments 1,937 0 (11,072) (105,013)
Delinquent balance - December 31 $132,985 $161,751 $123,153 $189,606
Current collection rate 69% 69% 65% 50%
Total collections as a percent
of current levy 113% 88% 118% 99%
City of Lino Lakes, Minnesota
Management Report, Page 18
As the above schedule shows, special assessment collection rates have fluctuated substantially
over the past several years. The ability of the City to collect special assessments is vital to the
financing of the Special Assessment Debt Service Funds of the City. The primary funding of debt
payments is special assessments. Timely collection of special assessments are required to assure
timely availability of cash to meet the scheduled debt payments. If the City continues to experience
lam
high delinquency rates, the funds which rely on assessments will be unable to meet scheduled
bond maturities on a timely basis. We recommend that the City monitor the collection rate and
provide supplemental financing if assessment collections are not adequate to meet bonded debt
payments.
The amount listed as "City property" totaled $142,553 at December 31, 1990 and 1989. The
City acquired these properties in order to recover the assessments levied against some of these
properties. The City has received clearance to permit development of these lots from various
authorities (Army Corps of Engineers and State DNR). The City intends to sell the properties and
recover a portion of the related assessments. The City had determined that the amounts will not be
fully recoverable. The City has received bids on the property and is currently litigating a
settlement.
In addition to the above parcels which are subject to sale, the City had additional City lots (City
Hall) which were assessed in 1988. An alternative procedure to assessing City property is to adopt
a property tax levy or other City funding source to pay for the cost of assessments which benefit
either City property directly or the City of Lino Lakes' overall system. Examples of such
assessments are laterals for City Hall property, park property or general benefit improvements such
as lift stations and water storage facilities. The City generally would not "pay itself" for
assessments on property that it owns. These amounts are commonly included in the financing
arrangements as a property tax or other City Council designated element of the bond issue. We
recommend that the City consider alternate procedures relative to assessments which benefit City
_. property or which improve the City's overall core water and sewer distribution systems.
The City collects special assessments through Anoka County. This agency arrangement has
advantages to the City primarily in saving administrative time and effort required to bill and collect
special assessments. A certain level of control, however, is lost through the agency arrangement
insofar as accounting records are located and maintained at both the County and the City.
Correlation of these records is required to assure accurate tabulation of receivables and amounts
-- received. In order to assure that the City's best interests are guarded, the City should improve
City of Lino Lakes, Minnesota
Management Report, Page 19
internal records with regard to special assessments and compare such records periodically to
County records. Additionally, Anoka County is not providing detail of penalty and interest on
delinquent collections. In light of the magnitude of past delinquencies, this allocation should be
provided. We recommend that the City request improved data from the County.
During the year end closing process audit procedures disclosed that the County had deleted
from the County records several parcels for collection in 1991 for new assessment rolls which
were adopted in 1990. This error resulted in $6,936.41 of assessments for the Sunrise Meadows
Project and $400,416.34 for the West Central Trunk Project which would not have been collected
over the 15 year life of the assessment if left undetected. The County has been informed of the
error and will be correcting their records. We recommend that the City establish procedures to
proof County assessment reports on a timely basis to detect any future errors.
The above procedures will allow the City greater assurance that all of its special assessments
are properly spread for collection. Additionally, the City will have the ability to generate year end
balances for annual financial reporting with greater ease and accuracy. The increased level of
control required is partially a function of increased assessment activity. Special assessments
receivable (City -wide) were less than $100,000 in 1979. Assessments receivable were nearly $3.2
million at December 31, 1990 and are projected to increase substantially over the periods if
anticipated development occurs.
Fixed Assets
As discussed in prior management reports, the City does not maintain complete fixed asset
accounting records. Advantages of maintaining such a system include the following:
• Availability of insurable value amounts.
• Increased safeguarding of movable assets.
• Availability of database to determine capital equipment replacement needs.
• Improved financial reporting.
Our firm now offers the service of establishing complete fixed asset systems for cities. We are
prepared to:
1) Plan the implementation.
2) Assist in taking physical inventories.
3) Assist in defining historical or estimated historical cost.
4) Enter all such assembled data into a specialized fixed asset system for governments.
5) Generate complete fixed asset reports as of the completion date of the engagement.
City of Lino Lakes, Minnesota
Management Report, Page 20
Maintenance of the system for purchases, sales, disposals and transfers may be maintained on
our system or the City may require in -house systems for periodic updates. The project will require
City staff time to assist in assembling physical inventories and to edit reports. Upon request, we
will prepare an engagement letter which will include timing and estimated costs.
lam
VIEW
Ilimmir
GENERAL FUND
The financial statements of the General Fund are presented in Statements 6 and 7 of the Annual
Financial Report. The fund balance of the General Fund increased by $139,600 in 1990 as
follows:
Budgeted increase (decrease) in fund balance $5,900
Actual revenues over (under) budgeted revenues:
Property taxes ($4,900)
Licenses and permits 100
Intergovernmental revenue 34,200
Charges for services 50,600
Fines and forfeits 3,600
Interest on investment 36,800
Miscellaneous 29,500
Net revenue over budget
Actual expenditures under (over)
budgeted expenditures:
General govemment (42,400)
Public safety 100
Highways and streets 28,400
Parks 9,600
Other (18,000)
Capital outlay 6,100
Net expenditures over budget
149,900
(16,200)
Total improvement $139,600
Detail of the preceding budget variances are presented in Statement 7 of the 1990 Annual
Financial Report.
City of Lino Lakes, Minnesota
Management Report, Page 21
The City's December 31, 1990 fund balance totaled $1,169,624. The City's General Fund
balance has been as follows for the past ten years:
Year Ended Reserved/
December 31, Designated Undesignated Total
1981 $19,876 $30,109 $49,985
1982 46,466 13,355 59,821
1983 51,084 80,032 131,116
1984 116,770 126,153 242,923
1985 77,624 350,675 428,299
1986 83,714 455,666 539,380
1987 52,593 589,799 642,392
1988 96,626 747,836 844,462
1989 53,290 976,763 1,030,053
1990 1,169,624 0 1,169,624
The increase in designated fund balance reflects the City's adoption of a reserve policy
pursuant to resolution 91 -3. We concur with the City efforts to define needed levels of reserve
balances.
City of Lino Lakes, Minnesota
Management Report, Page 22
—
UMW
WWI
Immo
Immo
—
expenditures is not readily quantifiable. Rather, the level of this requirement must be established
by the City based on the history of the City and the philosophy of "adequate" reserve coverage.
* Cash flow timing differences.
Expenditures are incurred somewhat
evenly throughout the year. Property
taxes & State aids are not received
until the second half of the year. A
reserve of one -half of such revenues
is therefore recommended.
* Capital outlay replacement.
Internal escrow for purchases which
may exceed amounts available in
any single budget cycle. This may
also be accomplished through transfers
to dedicated replacement funds.
* Emergency or unanticipated
expenditures. Examples include natural
disasters, law suits, comparable worth
implementation and premature breakdown
of vital equipment.
* Special City Council Projects.
Preliminary studies, interfund loans
and minor improvement projects are
examples of reserve uses.
* Intergovernmental revenue cutbacks,
The City is vulnerable to legislative actions at
both the Federal & State level. Federal funding
to local government has been substantially
curtailed in recent years. Annual adjustment of
Local Government Aid & Homestead Credit
formulas is a constant threat.
The amount of General Fund reserve required to meet emergency and/or unanticipated
The reserve requirement to deal with unforeseen intergovernmental revenue reductions is also
—. difficult to quantify. State and Federal legislation dealing with shared aids is somewhat
unpredictable. The City must strive to remain current on the effects of changing legislation and
... budget such aids accordingly. A reserve balance in the City's General Fund will mitigate the
adverse effects of aid reductions which are received after expenditure budget commitments are
made.
City of Lino Lakes, Minnesota
Management Report, Page 23
Favorable bond rating indicator.
* Avoids temporary overdrafts
prior to major receipts.
City may study effects of
revenue cuts before gradual
program reductions.
Benefits of
Reserves
Provides resources
or minor projects or
easibility reports.
Provides the City
greater options to deal
with unexpected events.
The City of Lino Lakes maintains reserve balances in other funds of the City for portions of the
above reserve components.
City of Lino Lakes, Minnesota
Management Report, Page 24
The State continues to discuss potential targeting of aid reductions to cities based on "excess"
General Fund reserves.
We recommend that the City strongly oppose this method of targeting aid reductions to cities
for the following reasons:
1. The proposed targeting would penalize those cities which do practice sound fiscal
management.
2. The proposed targeting would encourage less responsible fiscal management. This would
result in financial crisis for individual cities and ultimately affect the bond ratings of all
Minnesota cities including the City of Lino Lakes.
3. The targeting program would be virtually impossible to administer on a fair and equitable
basis because financial management practices and fund structures are not consistent or
easily comparable among cities. What may appear to be a low reserve balance of a city's
General Fund may be an adequate reserve balance for such city.
4. Many cities have established reserve policies and made significant fiscal management
decisions based on the established/targeted reserve policy. The effectiveness of such
planning and fiscal management would be severely hampered (if not destroyed) by reserve
balance "raiding" by the State.
5. The State is possibly seeking to pass its financial crisis on to local government. This
would be a temporary solution to apparently poor fiscal management at the State level.
6. The potentially lost reserve balance could diminish the city's bond rating and potentially
deplete a city's reserve balance pledged to secure debt service requirements.
We recommend that the City monitor the progress of the potential State actions and take
defensive measures to protect the City from further financial crisis including the following:
• Communicate to legislators the potentially devastating financial results of depleting City
reserve balances.
• Review formal reserve policies and modify levels of reported reserves if deemed
appropriate.
• Consider funding (through transfer) target functions in separate funds to further emphasize
the intended use of General Fund reserves.
City of Lino Lakes, Minnesota
Management Report, Page 25
The City's minimum cash flow reserve requirement is measurable. For the City of Lino Lakes,
the minimum required surplus is $824,523 computed as follows:
1991 Budgeted Levy (Includes Homestead Credit) $1,485,621
1991 Anticipated Local Government Aid 163,425
Total $1,649,046
Minimum Required Cash -Flow Reserve $824,523
The City had $1,169,624 of fund balance at December 31, 1990. This represents 142% of the
above targeted cash flow required reserve. There is, therefore, approximately $345,000 available
for other reserve requirements of the City.
Without adequate General Fund reserve, the independence and autonomy of the City may be
impaired. The City of Lino Lakes has taken actions over the past several years to improve the
financial position of its General Fund. We commend the City for these actions and encourage the
City to continue to monitor this reserve balance. An adequate reserve structure will enable the City
to retain its financial independence and integrity during adverse economic conditions.
Aerial Map Charges
The City's General Fund incurred over $20,000 of costs for aerial maps in 1987. The maps
are required for water management purposes and to assist in development. On January 28, 1988,
the City established a system to recover the costs of the maps. The City will charge as follows:
• Sale of Maps: 1st one -half sheet = $50.00
• Sale of Maps: Additional one -half sheet = $5.00
• Per Acre Plat Charge: $10.00
• Construction Funds: 1% of construction costs
Appendix A of the City's Public Improvement Financing Policy requires the City Engineer
after a project is 85% to 100% completed to prepare a project cost summary. The project cost
summary includes aerial photo cost recovery charges. During 1990 the City charged the following
projects aerial map charges, D. Erickson 2nd Phase 1, D. Erickson Phase 2, Reshanau Phase 2A,
Reshanau Phase 2B, Sunrise Meadows, and Woodridge Estates in accordance with the City's
Public Improvement Financing Policy. We recommend that the City Accountant continue to charge
the Construction Funds for the aerial charge directly and transfer the aerial charge when the
administrative charge transfer is made. During 1990, the City collected $2,700 for the sale of
Aerial Maps.
City of Lino Lakes, Minnesota
Management Report, Page 26
—
—
account for the proceeds of specific revenue sources (other than expendable trusts or for major
capital projects) that are legally restricted to expenditure for specified purposes.
SPECIAL REVENUE FUND
The financial statements for the City's Special Revenue Fund are presented in Statements 8 and
9 of the 1990 Annual Financial Report. Special Revenue Funds are a type of governmental fund to
During 1990, the City adopted Resolution 33 -90 which authorized the City to establish an
—
Economic Development Authority (EDA) pursuant to Minnesota Statutes sections 469.00 through
469.108. The EDA was established with specific powers and obligations to promote and to
provide incentives for economic development within the City of Lino Lakes. The financial activity
of the EDA has been reported in the City's Annual Financial Report in accordance with the
National Council on Governmental Accounting Statement No. 3, Defining the Governmental
Reporting Entity. Statement No. 3 requires inclusion of the EDA due to the City Council having
oversight responsibility of the EDA's activities.
As of December 31, 1990, the EDA had a deficit fund balance of $9,336. We recommend that
the City determine a financing source for this deficit and transfer the required funds in 1991.
DEBT SERVICE FUNDS
The combining financial statements for the Debt Service Funds are presented in Statements 10
and 11 of the 1990 Annual Financial Report. Debt Service Funds are a type of governmental fund
to account for the accumulation of resources for the payment of interest and principal on debt (other
than Enterprise Fund debt).
Debt Service Funds may have one or a combination of the following revenue sources pledged
to retire debt as follows:
• Property Taxes. Primarily for general City benefit projects such as parks and
municipal buildings. Property taxes may also be used to fund special assessment
bonds which are not fully assessed.
• Tax Increments. Pledged exclusively for tax increment/economic development
districts.
• Capitalized Interest Portion of Bond Proceeds. After the sale of bonds, the project
may not produce revenue (tax increments or special assessments) for a period of one to
two years. Bonds are issued with this timing difference considered in the form of
capitalized interest.
City of Lino Lakes, Minnesota
Management Report, Page 27
• Special Assessments. Charges to benefited properties for various improvements.
In addition to the preceding pledged assets, other funding sources may be received by Debt
Service Funds as follows:
• Residual Project Proceeds from the Capital Project Fund
• Investment Earnings
• State or Federal Grants
• Transfers from Other Funds
Pledged assets may be divided into three categories: 1) Recorded as fund assets with the
revenue deferred until collected (levied assessments and levied taxes); 2) Actually received by the
fund and included in fund balances (collected assessments, interest, bond proceeds, etc.); and, 3)
Future pledged assets not recorded as assets but intended to be collected at a future date (scheduled
property taxes and estimated tax increment collections).
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 several sections of the Annual Financial Report to assist in this analysis.
December 31, 1990 Scheduled Final
Fund Defected Outstanding Property Maturity
Fund Description Balance Revenue Total Debt Taxes Date
General Debt
1989A Certificates of Indebtedness ($7,085) $1,937 (85,148) $240,000 $300,195 11 /1/88
1989B Certificates of Indebtedness 60,764 1,600 62,364 275,000 276,172 2 /1/95
Public Project Revenue Bonds of 1990A 5,006 0 5,006 1,115,000 2,238,899 2/1/10
Total general debt 58,685 3.537 62,222 1.630,000 2,815,266
Special Assessmau Debt
Improvement Bonds of 1981 23,891 4,905 28,796 5,000 12/1/91
Improvement Bonds of 1983 14,416 40,473 54,889 30,000 10/1/93
Improvement Bonds of 1984 9,021 5,720 14,741 14,000 11/1/94
Improvement Bonds of 1986 247,333 358,104 605,437 215,000 2,528 2/1/97
Improvement Bonds of 1988 649,900 582,315 1,232,215 1,065,000 2/1/97
Temporary Improvement Bonds of 1988 430,945 131,110 562,055 610,000 10/1/91
Temporary improvement Bonds of 1989 1,171,093 1,201,078 2,372,171 4,660,000 7/1/92
Temporary Improvement Bonds of 1990B 172,376 109,928 282,304 1,015,000 8/1/93
Total special assessment debt 2 2,433,633 5,152,608 7,614,000 2,528
Total - All Debt Service Funds 82,777,660 $2,437,170 $5,214,830 $9,244,000 $2,817,794
Deferred revenue of the preceding schedule primarily consists of uncollected special
assessments. The preceding schedule compares outstanding debt with: 1) fund balance; and, 2)
deferred revenue.
IMMO
City of Lino Lakes, Minnesota
Management Report, Page 28
Debt Service Funds should be evaluated at least annually. The following chart summarizes
steps to consider.
Condition A
Fund balance plus
deferred revenue
meets or exceeds
bonds payable.
Cautions
.,. /1. Is the City experiencing favorable
collection rates for special assess-
ments?
2. Are anticipated investment interest
rates earned on prepayments ade-
quate to replace assessment interest?
3. Is the timing of receipts sufficient to
meet bonded debt payments as
they become due?
4. Are significant portions of assess-
ments not scheduled for collection
(green acres, tax forfeit,etc.)?
5. Is arbitrage or negative arbitrage
an issue?
Ism
Condition B
Fund balance plus
deferred revenue
is less than
bonds payable.
Questions
1. Are sufficient future assets
scheduled (such as property taxes)
to meet bonded debt payments?
2. Are cash assets sufficient to
generate investment earnings?
3. Are transfers or other funding
sources available?
4. Are there future assets to pledge
such as assessments, MSA allot-
ments, etc.?
Conclusion 1
The debt service fund
is clearly nQ L adequately
funded. Plan for altern-
ative funding (taxes,
transfers, other sources).
Conclusion 2
Variables and possible
outcomes are too diverse.
Prepare projections to
analyze possible
scenarios and options.
Conclusion 3
City of Lino Lakes, Minnesota
Management Report, Page 29
Improvement Bonds of 1986
The Improvement Bonds of 1986 were issued to refinance the Improvement Bonds of 1982
and to finance the Sunset Road Improvements. Final maturity of these bonds is scheduled for
February 1, 1997.
Temporary Improvement Bonds of 1987
The City issued bonds to finance the following projects in 1987:
Bond Construction
Proceeds Costs
North Road $9,473 $8,527
Deer Pass Trail 11,108 13,024
Comprehensive Water Trunk 664,671 541,446
Reshanau Lakes South 481,833 431,210
Erickson's 381,422 358,252
4th Avenue 84,942 719,869
$1,633,449 $2,072,328
North Road, Deer Pass Trail and 4th Avenue were assessed in 1987. Erickson's and
Reshanau Lakes South were assessed in 1988. The Comprehensive Water Trunk project will be
financed by area and connection charges. The 4th Avenue Project received additional funding from
the State of Minnesota, Anoka County and the Rice Creek Watershed District.
The Temporary Improvement Bonds of 1987 matured during 1990. Bond proceeds in the
amount of $809,138 from the Temporary Improvement Bonds of 1990B were used to retire the
1987 Bonds. The remaining assets of the Temporary Improvement Bonds of 1987 were
transferred to the Temporary Improvement Bonds of 1990B Debt Service Fund and are pledged for
the retirement of the 1990B debt.
Improvement Bonds of 1988
The Improvement Bonds of 1988 were issued to provide permanent financing for the
Temporary Improvement Bonds of 1985 and to finance Ash Street and Main Street improvements.
The remaining assets in the Temporary Improvement Bonds of 1985 were transferred into the 1988
Improvement Bonds Debt Service Fund in 1988. Final maturity of these bonds is scheduled for
February 1, 1997.
City of Lino Lakes, Minnesota
Management Report, Page 30
1988 Temporary Improvement Bonds
The City issued these bonds to finance Erickson's 2nd Addition, Phase 2 and South Reshanau
Phase 2 Improvements. These bonds will mature on October 1, 1991. Bond proceeds from the
City's 1991 bond issue will be required to retire these bonds. Both projects have been addressed
as of December 31, 1990. We recommend that the City transfer the remaining assets of this fund
into the 1991 Debt Service Fund after the bonds have been retired on October 1.
1989 Temporary Improvement Bonds
The City issued these bonds to finance Reshanau Phase 2B and 3A, West Central Sewer and
— Water Trunk, Sunrise Meadows, and Woodridge Estates Improvements. During 1990 West
Central Sewer and Water Trunks, Sunrise Meadows and Woodridge Estates were assessed.
Reshanau 2B will be assessed in 1991.
1990B Temporary Improvement Bonds
The City issued these bonds to finance the 2nd Avenue Project and to retire the 1987
Temporary Improvement Bonds. The remaining assets of the 1987 Temporary Improvement Debt
Service Fund have been pledged for the retirement of the 1990B issue.
1990A Public Project Revenue Bonds
These bonds were issued by the City's Economic Development Authority for the construction
of a fire station and the purchase of related equipment. These bonds are obligations of the EDA
and will be payable solely from revenues received from the City pursuant to an Installment
Purchase Contract. The City will levy taxes for payment of the installment contract.
Arbitrage Regulations
Federal law prohibits excess earnings on bond proceeds maintained in construction or debt
service funds. The regulations are complex and for "large issuers" (over $5 million of bonds
issued in one year) there are rebate requirements. If the City of Lino lakes issues over $5 million
of bonds in one year, they will be required to comply with arbitrage regulations.
• Measuring investment interest earned on tax exempt bond proceeds.
• Determining the yield of such investment earnings.
• Comparing the yield earned with the yield of the tax exempt bonds.
• Calculating the amount (if any) of excess earnings.
• Reporting the excess earnings to the Internal Revenue Service annually.
• Rebating such excess earnings at least every five years.
City of Lino Lakes, Minnesota
Management Report, Page 31
Our firm has assisted another Minnesota city in seeking a ruling request from the Internal
Revenue Service which will reduce the administrative complexities of complying with the arbitrage
regulations. We recommend that the City continue efforts to monitor arbitrage compliance.
CAPITAL PROJECT FUNDS
The financial statements for the Capital Project Funds are presented in Statements 12 and 13 of
the 1990 Annual Financial Report.
The fund balances (deficits) of the Capital Project Funds at December 31, 1990 and 1989 are as
follows.
Fund Balance (Deficit)
December 31, Increase
Fund 1990 1989 (Decrease)
Parks and playgrounds $188,932 $201,209 ($12,277)
Capital Improvement Projects 164,343 158,663 5,680
Community Development Block Grant (8,512) (2,863) (5,649)
Area Connection Charge 1,434,396 215,374 1,219,022
Tax Increment #1 -1 289,919 145,808 144,111
Tax Increment #1-2 (2,408) (7,536) 5,128
SAC Revolving 389,904 0 389,904
MSA Construction 15,140 0 15,140
Centennial Fire Station 907,503 0 907,503
1983 Construction 25,157 21,607 3,550
1987 Construction 0 135,944 (135,944)
1988A Construction 131,839 164,461 (32,622)
1988B Construction 84,658 241,299 (156,641)
1989 Construction 540,864 1,517,794 (976,930)
1990 Construction 233,234 0 233,234
Tax Increment #1 -3 (14,397) (10,772) (3,625)
Tax Increment #1-4 (22,262) (3,279) (18,983)
Interim Construction (164,931) (116,795) (48,136)
Surface Water Management (92,031) (26,828) (65,203)
Totals
$4,101,348 $2,634,086 $1,467,262
City of Lino Lakes, Minnesota
Management Report, Page 32
Parks and Playground
This fund was established to account for dedicated park fees. The City uses the Parks and
Playground Fund to collect ordinance restricted fees and donations from various groups. This
fund collected $32,547 of park dedication fees in 1990. The fund balance of $188,932 at
December 31, 1990 is available for expenditures by the City to fund capital outlay and maintenance
of dedicated park lands.
The City normally collects park dedication fees upon subdivision. The City has made
exceptions for the Lino Air Park and Rice Lake Addition developments to allow for payment upon
— development (as opposed to subdivision). The amount of these park dedication fees receivable
was $5,060 for the past six years. We recommend that the City determine the collectability of
these park dedication fees receivable.
town
lomv
Capital Improvement Projects Fund
The 1989B Certificates were issued to finance the acquisition of equipment for various
departments of the City. The following schedule reflects the budget and actual expenditures for
these certificates.
Description
Administration
Government Buildings
Fire
Police
Civil Defense
Public Works
Parks
Cable TV
Budget
$11,000
24,821
92,000
29,100
15,000
65,200
31,300
4,000
$272,421
1989B Certificates
1990
Actual
$13,082
11,821
90,450
62,227
13,489
98,439
2,294
$291,802
Variance
($2,082)
13,000
1,550
(33,127)
1,511
(33,239)
29,006
4,000
($19,381)
City of Lino Lakes, Minnesota
Management Report, Page 33
The following schedule summarizes the activity of this fund through December 31, 1990:
Proceeds from issuance of 1981 Certificates $111,400
Proceeds from issuance of 1985 Certificates 107,500
Proceeds from issuance of 1987 Certificates 78,260
Proceeds from issuance of 1989 Certificates 300,566
Proceeds from issuance of 1989B Certificates 275,000
Interest eamings 50,206
Property taxes 14,532
State - MSA, Computer purchase 4,944
Transfer from Debt Service Fund 2,390
Total revenue and other sources
Expenditures:
1981 - 1989
1990
Total expenditures
488,652
291,803
$944,798
780,455
Fund Balance - December 31, 1990 $164,343
After the scheduled purchases of equipment are made in 1991, the remaining fund balance
should be closed to the related Certificates of Indebtedness Debt Service Fund (or be expended on
qualifying equipment purchases).
City of Lino Lakes, Minnesota
— Management Report, Page 34
— Community Development Block Grant
The Community Development Block Grant (CDBG) Fund was established in 1982 to account
for the financial activity related to the projects to be funded by the CDBG program. The City
entered into an agreement with Anoka County to receive CDBG funds. The County of Anoka,
along with other governmental units, were awarded the grant. The City of Lino Lakes is
considered to be a sub - grantee and must comply with the provisions of the grant agreement. The
City has determined the compliance procedures that are required to be documented in City records.
Proper documentation with the grant agreement has aided the City in receiving the monies applied
for in reimbursement of City expenditures.
The CDBG allotments for 1982 to 1985 were appropriated for the Alexander House and the
Senior Citizen Facility. Anoka County allocated additional CDBG amounts for the City in 1987 to
—
subsidize sewer improvements of low cost housing. The terms of the allotment are such that the
City has paid CDBG proceeds to Debt Service Funds of the City to retire outstanding assessments.
IIIMMI
MIMI
The City has designated its allotment for the funding year 1990/1991 as follows:
Surface Water Management $ 15,298
Senior Center Coordinator 5,000
Rise Inc. 1,000
Community Action 3,200
Connection and Area Charge Fund
On January 11, 1988 the City Council approved Resolution 1 -88 which established the
Connection and Area Charge Fund for the City. The purpose of this fund is to collect various
connection and area charges to be used to meet debt payments. Before October 1 of each year, the
City will estimate the required transfer needed to meet debt payments for the subsequent year. In
December, these estimated amounts shall be transferred to the various debt funds. The City has
estimated scheduled connection and area assessments needed to meet debt requirements. We
—
recommend that the City monitor actual versus projected connection charge and area assessment
collections to assure that debt payment requirements will be met.
This fund will eventually account for connection charges and area assessments for funding of
various debt issues. The City has amended collection procedures.
City of Lino Lakes, Minnesota
Management Report, Page 35
The City intends to retire debt from the various connection and area charges. Cardui
monitoring of anticipated collections compared to actual is required to assure timely availability of
monies to retire debt. Balances available after debt commitments are met can then be used for non-
assessable system improvements.
A schedule of transactions of this fund from inception is as follows:
Balance 1990 Balance
January 1, Current and December 31,
1990 Prepayments Delinquent Interest 1990
Revenue and other sources:
Area and connection charges:
Temporary Bonds of 1987 * $42,466 $11,711 $1,577 $344 $56,098
Temporary Bonds of 1988 142,930 75,814 5,930 1,229 225,903
Temporary Bonds of 1989 36,772 1,049,791 23,701 1,110,264
Total revenue and other sources 222,168 1,137,316 7,507 25,274 1,392,265
Expenditures and other uses:
Professional services
Transfer from Water and Sewer
Net increase in fund balance
6,794 31,440 0 0 38,234
80,365 80,365
$215,374 $1,186,241 $7,507 $25,274 $1,434,396
* Pledged to the 1990B Temporary Improvement Bonds
Designations of balances by bond issue and connection/area charge type are required to monitor
financing plan performance and to define discretionary construction balances available to the City.
The accounting system and other such systems have been modified to achieve this result.
The assessment portion which relates directly to current construction costs (lateral assessment
charges) is pledged directly to the related debt service fund to retire outstanding bonds. The area
and connection charge portion of the assessment roll, however, is governed by the City's policy
which was established by Resolution #1 -88. Such connection and area charges are contingently
pledged to the related debt service fund in accordance with this policy. These amounts are to be
segregated to the Connection and Area Charge Fund and such amounts are transferred on an as
needed basis to the related debt service fund. Any surplus accruing above the amount required to
retire bonds will be available for expansion of the core water and sewer systems of the City.
City of Lino Lakes, Minnesota
Management Report, Page 36
During 1989 the City amended its procedure relative to adoption of assessment rolls. The
amended procedure requires that the City split assessment rolls between the Area and Connection
_ Fund and the related Debt Service Fund. Budgeted vs. actual water and sewer utility connections
for the period january 1, 1989 through March 31, 1991 are as follows:
JIMO
MINN
NNW
MEW
Water Connections
1987 1988 1989 1990
Temporary Temporary Temporary Temporary Total All
Bonds Bonds Bonds Bonds Bonds
Total Number Lots/Units 206 76 819 16 1,117
Total Budgeted Connections 206 76 624 16 922
Budgeted 1989 166 47 0 0 213
Actual 1989 62 44 104 0 210
1989 Variance (104) (3) 104 0 (3)
Budgeted 1990 40 29 169 0 238
Actual1990 7 15 418 0 440
1990 Variance (33) (14) 249 0 202
1990 Cumulative
Variance Year-end (137) (17) 353 0 199
Budgeted 1991 0 0 285 10 295
Actual to Date 1991 1 3 14 3 21
1991 Variance 1 3 (271) (7) (274)
1991 Cumulative
Variance Year-end (136) (14) 82 (7) (75)
Budgeted 1992 0 0 170 6 176
Actual to Date 1992 0 0 0 0 0
1992 Variance 0 0 (170) (6) (176)
Balance Required Over/(Under) (136) (14) (88) (13) (251)
City of Lino Lakes, Minnesota
Management Report, Page 37
Total Number Lots/Units
Total Budgeted Connections
Sewer Connections
1987 1988 1989 1990
Temporary Temporary Temporary Temporary Total All
Bonds Bonds Bonds Bonds Bonds
206 76 748 16 1,046
206 76 568 16 866
Budgeted 1989 166 47 0 0 213
Actual 1989 62 44 103 0 209
1989 Variance (104) (3) 103 0 (4)
Budgeted 1990 40 29 169 0 238
Actual 1990 7 15 354 0 376
1990 Variance (33) (14) 185 0 138
1990 Cumulative
Variance Year -end (137) (17) 288 0 134
Budgeted 1991 0 0 229 10 239
Actual to Date 1991 1 3 14 3 21
1991 Variance 1 3 (215) (7) (218)
1991 Cumulative
Variance Year -end (136) (14) 73 (7) (84)
Budgeted 1992 0 0 170 6 176
Actual to Date 1992 0 0 0 0 0
1992 Variance 0 0 (170) (6) (176)
Balance Required Over /(Under) (136) (14) (97) (13) (260)
In October of 1991 the City will have to obtain permanent financing for the Temporary
Improvement Bonds of 1988. Collection of actual area and connection charges should be
compared to the above scheduled collections to assure that projections are being met prior to
obtaining permanent financing. Our office is available to assist city staff in obtaining this
information.
Centennial Fire Station
This fund was established by the City's EDA in 1990 to account for construction costs of the
City's new Fire Station. The bond proceeds for this project are being held at First Trust and the
City must submit qualifying expenditures to First Trust for reimbursement. The $74,968 cash
overdraft in this fund represents expenditures incurred by the City and not submitted to First Trust
for reimbursement. We recommend that the City request reimbursements from First Trust in a
timely manner, which in time, will increase the City's cash flow and interest earnings.
MENNE
oiew
lane
City of Lino Lakes, Minnesota
Management Report, Page 38
Surface Water Management Fund
This fund was established in 1989 to account for the financing of surface water management
planning and storm sewer trunk lines. During 1990, the City levied its first assessments for
surface water management charges. We recommend that the City monitor the deficit fund balance
and consider alternative financing if future surface water management charges are not sufficient to
eliminate the deficit.
Economic Development District #1
On January 26, 1987 the City established the Economic Development District #1. Within the
District, the City established Housing District #1 -1. The housing plan calls for adequate numbers
of low to moderate housing units pursuant to MS 273.73 subd. 11.
The Housing District Financing Plan indicates that the original tax capacity value of the District
is $116,869. The values within the District are estimated to be $1,270,000 after completion of the
project. This would result in a captured tax capacity value of $1,153,131. The plan, however,
refers to a captured value estimated at $141,131. This inconsistency within the official plan should
be corrected. (The $141,131 appears to be the anticipated tax increment taxes receivable from the
captured value annually.)
Financial activity of this fund from inception is as follows:
Prior
Years 1990 Total
Revenue and other sources:
Tax increments $132,606 $130,069 $262,675
HACA 8,683 8,683
Interest on investments 5,459 14,042 19,501
Total revenue and other sources 146,748 144,111 290,859
Expenditures and other uses:
Professional services 940 940
Net increase in fund balance $145,808 $144,111 289,919
Fund balance - January 1, 1989 0
Fund balance - December 31, 1990 $289,919
City of Lino Lakes, Minnesota
Management Report, Page 39
The tax increment plan also includes an annual administrative fee. Minnesota Statutes 469.176
Subd. 3 reads as follows:
Limitation on administrative expenses. (a) For districts for which certification
was requested before August 1, 1979, or after June 30, 1982, no tax increment shall be
used to pay any administrative expenses for a project which exceed ten percent of the total
tax increment expenditures authorized by the tax increment financing plan or the total tax
increment expenditures for the project, whichever is less.
We recommend that the City determine if this fee will be received as an interfund charge of the
General Fund or if applicable expenses will be allocated to the appropriate Capital Project Fund.
Tax increment districts often generate surplus amounts over the anticipated receipts. The 1988
legislative session reduced the probability of such excesses by required excess amounts caused by
tax rate increases to be spread to all taxing authorities. Excess amounts may still be generated from
captured values in excess of anticipated values. As such, we recommend that if tax increment
bonds are sold that the City:
1. Include a bond provision which allows tax increment collections to be receipted to the
Economic Development #1 Capital Project Fund.
2. Approve and transfer as needed to the Debt Service Fund.
The above procedures will provide the City greater options if surpluses develop. Such
surpluses may then be allocated to the other improvements within the District as allowed by the
(amended) plan.
The City received initial tax increments of $49,808 in 1988. In 1989 and 1990 the City had tax
increment collections of $82,798 and $130,069. Additionally, this fund had as of December 31,
1990, $60,787 of delinquent tax increments.
Imme
MINI
NW
City of Lino Lakes, Minnesota
Management Report, Page 40
The City established Tax Increment Financing District #1 -2. This district qualifies as a
Economic Development T1F district pursuant to Minnesota Statutes 469.174, subdivision 12.
District #1 -2 has anticipated projects/bonding requirements as follows:
Estimated Actual
Land acquisition:
Ross site $65,000
Luther's Marine 250,000
VFW 200,000
Demolition and site preparation:
Ross site 10,000
Luther's Marine 9,000
VFW 4,500
Sewer and water extension for Sunrise Meadows 170,000
Relocation costs 15,000
Administrative expenses 31,500 $7,536
Capitalized interest and bond discount 220,000
Total $975,000 _ $7,536
The Ross Site was decertified from TIF District #1 -2 and placed in TIF District #1 -3. Luther's
Marine and the VFW sites were eliminated from the District prior to certification.
The City established Tax Increment District #1 -3 during 1989 by resolution 68 -89. District #1-
3 qualifies as a redevelopment district pursuant to Minnesota Statutes 469.174 Subd. 10(a)(2).
District #1 -3 has anticipated project requirements as follows:
Land acquisition
Administrative expenses
Total
Estimated Actual
$200,000
22,000 $14,397
$222,000 $14,397
The City will not issue bonds for this project. The City will enter into an agreement with the
developer to reimburse the developer for the costs of the land as increments are available.
City of Lino Lakes, Minnesota
Management Report, Page 41
The City established Tax Increment District #1 -4 during 1990 by resolution 10-90.
District #1-4 has anticipated project requirements as follows:
Land acquisition
Public Improvements
Administrative
Bond Discount Total
Capitalized Interest
Total
$400,000
1,050,000
100,000
40,000
360,000
$1,950,000
District #1 -4 is an Economic Development District. The duration of the district is eight years
from the date of the receipt of the first increment or ten years from the date of approval of the 1'IF
plan.
The City estimates that it will sell bonds in an amount not to exceed $1,950,000 to finance the
public costs associated with District #1-4. At December 31, 1990 this fund had a deficit balance of
$22,262. The City has developer escrow deposits which will eliminate the deficit in 1991.
Tax increment proceeds are based on the increased captured valuation of property within the
District. Forecasted values are based on estimates of future increases and other factors including
the effects of State legislation on the property tax system. The 1990 Legislature reduced the tax
capacity rates on commercial property as follows:
1990 1991 1992 1993
Rate Rate Rate Rate
First $100,000 of market value 3.30% 3.20% 3.10% 3.00%
Market value over $100,000 5.26% 4.90% Targeted to eventually be 4%
This decrease in rates may adversely affect future tax increment collections.
We recommend, therefore, that the City monitor actual revenue flows compared to projected
revenues to assure timely availability of cash to meet budgeted expenditures.
City of Lino Lakes, Minnesota
Management Report, Page 42
Interim Construction
The Interim Construction Fund was established in 1985 to account for the preliminary
construction costs prior to permanent bonding or other financing determination. The various
projects accounted for in this fund are detailed in exhibit 4 of the 1990 Annual Financial Report.
The fund balance of this fund was a deficit of $164,931 at December 31, 1990. We recommend
the City review the status of the various projects in this fund and determine financing sources to
eliminate the deficit of this fund.
MSA Construction
The MSA Construction Fund was established in 1990 to account for the collection of
assessments on MSA projects in accordance with the City's Public Improvement Financing Policy.
SAC Revolving
The SAC Revolving Fund was established in 1990 to account for a refund from the MWCC of
past SAC charges which were paid by residents that had not hooked up to the sewer system.
1983 Construction
The project consisted of installations of sewer service lines to the Baldwin Lake mobile home
court. This project was financed by the $100,000 Improvement Bonds of 1983. The project was
completed and assessed in 1983. The fund is carrying a liability to MWCC for sewer availability
charges of $24,404. We recommend that the City remit this money to MWCC in 1991.
Maw
This project was complete at December 31, 1986. We recommend that this fund be closed in
— 1991 to the Improvement Bonds of 1983 debt service fund. Council authorization is required to
effect this closing.
1987 Construction
Final bituminous paving was completed during 1990 for the 1987 projects. This fund was
closed into the 1990 B Temporary Improvement Debt Service Fund.
1988A Construction
This fund accounts for the various projects financed by the Permanent Improvement Bonds of
1988. Final bituminous wearing surfaces have been completed for all 1988 A projects. We
recommend that the City close this fund in 1991 into the Improvement Bonds of 1988 Debt Service
Fund.
City of Lino Lakes, Minnesota
Management Report, Page 43
1988B Construction
This fund accounts for the various projects financed by the Temporary Improvement Bonds of
1988. The fund balance of this fund was $84,658 at December 31, 1990 of which a portion is
designated for the final bituminous wearing surface. We recommend the City obtain estimated
amounts for final paving and transfer the remaining balance to the Temporary Improvement Bonds
of 1988 Debt Service Fund.
1989 Construction
This fund accounts for the various projects financed by the Temporary Improvement Bonds of
1989. The fund balance of this fund was $540,864 at December 31, 1990. Reshanau 4th
Addition has incurred only minor costs as of December 31, 1990. The City should review the
status of this project in 1991. The remaining projects are scheduled for completion in 1991.
1990 Construction
This fund accounts for the Second Avenue construction project which is financed by the
Temporary Improvement Bonds of 1990B. This project is scheduled for completion in 1991. The
fund balance of this fund was $233,234 at December 31, 1990. We recommend that upon
completion of the Second Avenue project, the City transfer the remaining balance to the Temporary
Improvement Bonds of 1990B.
NIMMI
City of Lino Lakes, Minnesota
Management Report, Page 44
ENTERPRISE (UTILITY FUND'
The financial statements for the Enterprise Funds are presented in Statements 14 through 16 of
the 1990 Annual Financial Report. Condensed comparative statements of income and expense for
the years 1990 and 1989 (excluding depreciation on contributed assets) for the water and sewer
utility fund are shown in the following schedule.
For The Year Ended December 31,
1990 1989
— Amount Percent Amount Percent
Operating Income:
Water billings $99,894 40.43% $72,238 39.78%
Sewer billings 119,112 48.20% 82,408 45.38%
Other 28,100 11.37% 26,942 14.84%
Total operating income 247,106 100.00% 181,588 100.00%
'" Operating Expenses:
Personal services 61,965 25.08% 35,549 19.58%
MWCC 63,655 25.76% 50,531 27.83%
Repairs and maintenance 38,845 15.72% 35,798 19.71%
Depreciation 820 0.33% 769 0.42%
Other 43,340 17.54% 29,671 16.34%
Total operating expenses 208,625 84.43% 152,318 83.88%
Income from operations 38,481 15.57% 29,270 16.12%
Other income:
Interest on investments 256 0
MWCC maintenance agreement 7,233 10,656
Net income $45,970 $39,926
The City reviewed water and sewer rates and increased rates effective July 1, 1988 and January
1, 1989. The City engineer has updated the City's 1988 Utility Rate Study, and has issued his
report dated May 20, 1991. The City Engineer has recommended that the City increase rates by
5% effective July 1, 1991 and 5% on January 1 of each following year. Also recommended is that
commercial/industrial users including the Lino Lakes correctional facility pay a quarterly water user
fee based upon a residential equivalent unit basis.
Currently the City purchases water from the City of Circle Pines. The City of Circle Pines will
discontinue the sale of water to Lino Lakes in 1992. The City is currently studying the
construction of a water tower. We recommend that the City charge water rates at a level which will
cover the cost of retiring debt which will be issued to construct the water tower.
City of Lino Lakes, Minnesota
Management Report, Page 45
The MWCC bills the City annually on an estimated basis. These billings are adjusted at a later
date and the City is billed the additional amount or given a refund. The MWCC billings for
calendar years 1979 through 1991 have been as follows:
Year
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
Billings
Estimated
Percent
Change
65.60%
36.51%
22.72%
37.21%
15.10%
10.76%
13.71%
9.26%
25.99%
29.05%
16.09%
Amount
$11,357
15,504
19,027
26,107
30,050
33,283
37,845
41,351
52,098
67,232
78,048
from MWCC
Amount
$10,213
14,592
23,866
22,011
25,039
29,147
32,519
40,197
48,521
N/A
N/A
Final
Percent
Change
43.38%
42.88%
63.56%
(7.77)%
13.76%
16.41 %
11.57%
23.61%
20.71 %
N/A
N/A
$80,000
$75,000
870,000
$65,000
860,000
$55,000
$50,000
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
80
MWCC Billings
s:
x:M
" I I I I I Vic; • I '.., I i
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991
Estimated Billings 0 Actual Billings
The above schedule indicates that MWCC billing increases have been substantial over the past
several years.
NNW
w
City of Lino Lakes, Minnesota
Management Report, Page 46
There are two basic factors which contribute to increased billings from the MWCC:
1. Changes in use of the system. The MWCC has increased the 1991 estimated flow for
the City of Lino Lakes by 11 %.
2. Increased cost to process sewage. The MWCC's cost to process (per million gallons)
increased to an estimated $1,084 in 1991 from an estimated $1,034 in 1990. This
represents an increase of 4.8 %.
The combination of the above factors has increased the City's estimated cost in 1991 by 16 %.
The MWCC has approved a change in the district structure and will be converting rates and other
operating procedures over the next several years. We recommend that the City monitor the effects
—. of these changes and consider such changes on the City's sewer rates.
"' During 1988, the City adjusted sewer and water rates. The change became effective on July 1,
1988. Part of the adjustment was to include a charge for core system improvements. The add on
charge was to be calculated based on a fixed amount per quarter. This charge is collected as
revenue of the Enterprise Fund along with normal user charges. Such amounts should then be
transferred to area connection charge fund which financed (or will finance) such improvement. No
such transfer was made in 1988 or 1989. During 1990 the City transferred $80,365 to the area
connection charge fund for 1988 - 1990. We recommend that the City transfer such revenues on a
quarterly basis.
GAS UTILITY FUND
_ Portions of the City of Lino Lakes have gas service through a franchise agreement between the
City of Circle Pines and the City of Lino Lakes. The City of Circle Pines operates the gas utility.
MININII
We have reviewed the initial distribution of gas franchise profits received by the City of Lino
Lakes under the terms of the franchise agreement. The revenue was calculated on the following
basis:
City of Lino Lakes, Minnesota
Management Report, Page 47
1990 1989
Residential and Commercial Revenue $166,471 @ 7% = $11,653 $141,363 @ 7% = $9,895
Interruptible Service 108,699 @ 3% = 3,261 111,977 @ 3% = 3359
Total $275,170 14,914 $253,340 13,254
Remitted by Circle Pines 14,910 13,052
Difference $4 $202
The above differences relate to bad debts within the City of Lino Lakes. The franchise
agreement allows for adjustment from gross revenue of net bad debts. The City of Lino Lakes had
bad debts of approximately $53 in 1990, $3,400 in 1989 and $2,700 in 1988. The City of Circle
Pines reports such bad debts on a combined expense line "administrative - other ". We recommend
the following:
1. Request that Circle Pines provide their calculation of franchise fee remittances including
bad debt adjustments.
2. Review with Circle Pines their methods of enforcing collection and consider adopting
such procedures within the City such as including significant outstanding delinquent
billings on assessment search records.
3. Annually update the following schedule to analyze fluctuation in revenue data.
Residential
Increase /(Decrease)
Commercial Total
Increase/ (Decrease) Increase / (Decrease)
Yea Amount Amount Percent Amount Amount Percent Amount Amount Percent
1981 $67,387 $16,526 $83,913
1982 88,195 S20,808 30.88% 18,781 $2,255 13.65% 106,976 $23,063 27.48%
1983 96,272 8,077 9.16% 22,478 3,697 19.68% 118,750 11,774 11.01%
1984 97,007 735 0.76% 23,829 1,351 6.01% 120,836 2,086 1.76%
1985 102,156 5,149 531% 29,356 5,527 23.19% 131,512 10,676 8.84%
1986 90,407 (11,749) (1150)% 24,764 (4 ,592) (15.64)% 115,171 (16,341) (12.43)%
1987 82,787 (7,620) (8.43)% 19,866 (4,898) (19.78)% 102,653 (12,518) (10.87)%
1988 114,883 32,096 38.77% 21,845 1,979 9.96% 136,728 34,075 33.19%
1989 120,060 5,177 4.51% 21,303 (542) (2.48)% 141,363 4,635 3.39%
1990 148,802 28,742 23.94% 17,669 (3,634) (17.06)% 166,471 25,108 17.76%
City of Lino Lakes, Minnesota
Management Report, Page 48
Bad Debts Intenvptible Sales
Increase / (Decrease) Increase / (Decrease)
Year Amount Amount Percent Amount Amount Percent
1981 $105,143
1982 118,734 $13,591 12.93%
1983 146,092 27,358 23.04%
1984 155,626 9,534 6.53%
1985 149,590 (6,036) (3.88)%
1986 92,822 (56,768) (37.95)%
1987 $3,334 $3,334 3.25% 88,509 (4,313) (4.65)%
1988 2,757 (577) (17.31)% 83,363 (5,146) (5.81)%
1989 3,394 637 23.10% 111,977 28,614 34.32%
1990 53 (3,341) (98.44)% 108,699 (3,278) (2.93)%
Prior to 1987, bad debts were netted with sales.
The City of Lino Lakes had rights to receive payment of net income after the accumulated
retained earnings deficit is eliminated. Prior to 1988, the City received no such distributions. The
Circle Pines gas utility has accumulated a positive retained earnings balance in excess of $800,000
and for the first time at December 31, 1990 the Lino Lakes Franchise has a positive fund balance of
$19,000.
The City has taken the following actions regarding the gas utility operations:
—
• Successfully worked to gain special State legislation to allow a greater number of
members on the Joint Gas Utility Commission.
• Reviewed optional criteria for representation on the Commission to allow for a fair and
equitable method of appointing members from each City.
• Analyzed accounting methods of allocating expenses between each City's gas operation.
• Negotiated a new franchise agreement.
• Considered exercising the City's option to purchase the gas utility.
City of Lino Lakes, Minnesota
Management Report, Page 49
The new franchise agreement provides a revenue source to the City of Lino Lakes. Key
features of the new agreement are as follows:
1. Term: January 1, 1987 through March 31, 2012.
2. Revenue to the City of Lino Lakes based on 7% of sales except for interruptible sales
which is based on 3 %.
3. Cancellable by the City of Circle Pines commencing on January 1, 1992. The City of
Lino Lakes has the right to cancel the franchise agreement through the purchase of this
system beginning on January 1, 1992.
4. Right to inspect the financial/accounting records to verify revenue calculations.
5. Revenue began accruing on January 1, 1987. Revenue will be received four and one -
half months after the year end (i.e., first receipt was in May, 1988).
6. The City has the right to purchase the system at stated terms beginning on January 1,
1992.
We commend the City for the successful efforts to receive a supplemental financing source for
the City. The City received $14,910 in March, 1991 which represents the 1990 share of earnings.
Earnings from inception of the new agreement total $49,452. Financial uncertainties facing
metropolitan cities require diversity of revenue sources to assure adequate funding of operations
without severe property tax increases.
In November, 1990, at the request of the City, our office prepared a discussion draft of issues
related to the possible purchase of the Lino Lakes Gas Franchise, A summary of considerations is
as follows:
• The City must pay 125% of cost (less depreciation) for assets placed in service after July 1,
1986.
• The tasks associated with administering the system may require added or re- assigned
personnel.
• The City's current Public Works Director has gas utility operation experience. If the City
should lose this position, a replacement would be required at a possibly higher or lower
cost.
• The cost of application to the FERC was estimated in 1986 at $12,200. The cost of the
delivery (border) facility was estimated at $50,000. These amounts may be significantly
different than estimated.
• Minnesota statutes 216B.46 and 412.321 subd.2 require an election for the acquisition of a
gas utility operation.
City of Lino Lakes, Minnesota
Management Report, Page 50
• A more favorable revenue bond rate is probably available if the issue is "general
obligation ". The City's charter may require a vote to pledge property taxes to the purchase
of the system.
• Dealings with the City of Circle Pines has the potential to be less than harmonious. Legal
and accounting fees may, therefore, fluctuate significantly.
• The City's accounting and billing computer system must be re- evaluated to determine if gas
utility billings will be facilitated with the current system.
-- • The City must determine the cost of additional equipment that must be purchased in
addition to the Circle Pines system.
• Evaluation of the adequacy of existing City staff to absorb all or a portion of the task
awl
associated with the gas utility.
• The likelihood of voters to approve the acquisition.
Vow
• Gas purchase price and contract demand negotiations.
• Probability of growth of the system.
AGENCY FUNDS
At December 31, 1990, the City had three Agency Funds as follows:
• Contractor's Deposits
• Investment Fund
• Deferred Compensation
An Agency Fund is designed to account for transactions for other individuals, private
organizations and/or other funds.
The Contractor's Deposits Fund is used to account for "pass through" types of expenditures
relating to prospective developers. The City pays certain legal, engineering and planning amounts
to assure compliance with various City ordinances relating to pertinent applications. The City
receives deposits and/or bills the various developers for costs incurred. We recommend that the
City continue to maintain detailed records of amounts due from developers and assure that adequate
deposits are received prior to incurring expenses on a developer's behalf (see later comments).
City of Lino Lakes, Minnesota
Management Report, Page 51
The Investment Fund is designed to pool all available cash balances of the City to maximize the
investment efficiency of the City. Interest is allocated to funds annually based on the average cash
balance of the participating funds.
The Deferred Compensation Fund was established in 1987 in response to the issuance of the
Governmental Accounting Standards Board (GASB) Statement No. 2. GASB Statement No. 2
requires deferred compensation plans adopted under the provisions of Internal Revenue Code
Section 457 to be included in the City's annual financial report.
INTERNAL ACCOUNTING CONTROLS
Current auditing standards require an auditor to communicate any material weaknesses in
internal accounting controls directly to City Council and/or City Administrators. Our examination
for 1989 disclosed no material deficiencies in the City's system of internal controls not identified in
this report or past reports to the City Council.
We have audited the financial statements of the City of Lino Lakes, Minnesota
as of and for the year ended December 31, 1990, and have issued our report
thereon dated May 28, 1991.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards issued by the Comptroller General
of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.
In planning and performing our audit of the financial statements of the City of
Lino Lakes, Minnesota, for the year ended December 31, 1990, we considered its
internal control structure in order to determine our auditing procedures for the
purpose of expressing our opinion on the financial statements and not to provide
assurance on the internal control structure.
The management of the City of Lino Lakes, Minnesota is responsible for
establishing and maintaining an internal control structure. In fulfilling this
responsibility, estimates and judgements by management are required to assess the
expected benefits and related costs of internal control structure policies and
procedures. The objectives of an internal control structure are to provide
management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition and that transactions
are executed in accordance with management's authorization and recorded properly
to permit the preparation of financial statements in accordance with generally
accepted accounting principles. Because of inherent limitations in any internal
control structure, errors or irregularities may nevertheless occur and not be
detected. Also, projection of any evaluation of the structure to future periods is
subject to the risk that procedures may become inadequate because of changes in
City of Lino Lakes, Minnesota
Management Report, Page 52
conditions or that the effectiveness of the design and operation of policies and
procedures may deteriorate.
For the purpose of this report, we have classified the significant internal control
structure policies and procedures in the following categories.
• control environment
• accounting system
• control procedures
For all of the internal control structure categories listed above, we obtained an
understanding of the design of relevant policies and procedures and whether they
have been placed in operation, and we assessed control risk.
We noted certain matters involving the internal control structure and its
operation that we consider to be reportable conditions under standards established
by the American Institute of Certified Public Accountants. Reportable conditions
involve matters coming to our attention relating to significant deficiencies in the
design or operation of the internal control structure that, in our judgement, could
adversely affect the City's ability to record, process, summarize, and report
financial data consistent with the assertions of management in the general purpose
financial statements.
A substantial portion of certain accounting processes are performed by a single
employee. Ideal conditions call for segregation of duties to establish a system of
internal testing of procedures performed. Additionally, our audit disclosed that the
City does not maintain a system of control over General Fixed Assets. These
conditions are common to cities of this size. Any modification of internal control
structure in this area, however, must be viewed from a cost/benefit perspective.
A material weakness is a reportable condition in which the design or operation
of the specific internal control structure elements does not reduce to a relatively low
level the risk that errors or irregularities in amounts that would be material in
relation to the general purpose financial statements being audited may occur and not
be detected within a timely period by employees in the normal course of performing
their assigned functions.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be reportable
conditions and, accordingly, would not necessarily disclose all reportable
conditions that are also considered to be material weaknesses as defined above.
However, we believe none of the reportable conditions described above is a
material weakness.
This report is intended for the information of management and others within the
City of Lino Lakes, Minnesota. This restriction is not intended to limit the
distribution of this report, which is a matter of public record.
City of Lino Lakes, Minnesota
Management Report, Page 53
Forfeiture of Property - Public Safety
The 1988 legislature passed laws which allow local police departments to seize property which
is used during a crime associated with controlled substances. There is a variety of rules and
regulations included in Minnesota Statutes Section 609.53 related to circumstances under which
property may be forfeited and procedures regarding disposition of forfeited property. There are
several areas which may impact the financial accounting records of the City, as follows:
1. Certain property may be retained by the law enforcement agency for official use by
the agency or prosecuting agency. Under certain circumstances, the City may be
required to add these assets to any fixed assets records which the City retains
including insurance of such property.
2. 70% of the money or proceeds from the sale of the forfeited property may be retained
by the City for use in its operating fund or similar fund for use in law enforcement.
Certain other amounts must be forwarded to the County Attorney or other prosecuting
agency and 10% must be forwarded to the State Treasury for crime victim and
witness account.
We recommend that the City's Finance Department coordinate with the Police Department to
determine procedures to properly account for any property forfeited pursuant to the preceding
statute. And any other such monies which might be donated to the City's Police Department.
Utility Billing System
During 1989 and 1990 the City did not reconcile utility payments from the utility system to the
general ledger. During our examination of the utility billing system, it was discovered there is no
documentation of billing adjustments. We recommend that the City establish written procedures
regarding adjustments.
Developer Deposits
The City collects deposits from developers for costs which the City incurs during the permit
process. Remaining amounts are returned to the developer. The City has not been consistent in
coding costs against the developers deposit versus the construction funds once a project has been
started. We recommend the City develop procedures to establish at what point costs should be
charged to the construction fund rather than the developers deposit. The City's system of
calculating amounts to be returned to developers does not always produce adequate verifiable
documentation. The City has made improvements in the above areas during 1990 and we
recommend that the City continue to review the system and improve reconciliation procedures.
Iwo
•
City of Lino Lakes, Minnesota
Management Report, Page 54
FINANCIAL ACCOUNTING SYSTEM
During 1988, the City purchased an in -house computer system. This system is intended to
provide the City with the following:
• Payroll System
• Utility Billing System
• General Ledger Accounting
• Word Processing
• Spreadsheet Analysis
The general ledger, utility billing system, payroll and word processing have been implemented.
We recommend the City examine the benefits of integrating the utility billing system into the
lnow general ledger accounting system. By integrating these other systems into the general ledger
system, the City's general ledger system will automatically be updated. This will improve the
accuracy of the financial records along with increasing the efficiency of the City's processing
abilities.
law
The City may require some additional training from the vendor to accomplish the integration of
these systems. Our office is available to assist the City with the integration process with
reconciling integrated information and with developing system controls to ensure the integrity of
the data.
City of Lino Lakes, Minnesota
Management Report, Page 55
SUMMARY
During 1991, we recommend that the City:
• Consider requesting MSA receipts during periods in which the City does not have
qualifying MSA construction projects. (Page 15)
• Monitor the collection rate and provide supplemental financing if assessment collections
are not adequate to meet bonded debt payments. (Page 18)
• Consider alternate procedures relative to assessing City property. (Page 18)
• Request improved data from the County in regards to assessment collections. (Page 19)
• Establish procedures to proof County assessment reports on a timely basis to detect
errors. (Page 19)
• Oppose the State's proposed method of targeting aid reductions to cities. (Page 24)
• Monitor the progress of the potential State actions. (Page 24)
• Continue to charge the Construction Funds for the aerial charge directly and transfer the
aerial charge when the administrative charge transfer is made. (Page 25)
• Determine a financing source for the Special Revenue Fund deficit and transfer the
required funds in 1991. (Page 26)
• Transfer the remaining assets in the 1988 Temporary Improvement Bonds Fund into the
1991 Debt Service Fund after the bonds have been retired. (Page 30)
• Continue efforts to monitor arbitrage compliance. (Page 31)
• Determine the collectability of the park dedication fees receivable. (Page 32)
• Monitor actual versus projected connection charges and area assessment collections to
assure debt payment requirements will be met. (Page 34)
• Request reimbursements from First Trust, for the Centennial Fire Station, in a timely
manner. (Page 37)
• Monitor the deficit fund balance in the Surface Water Management Fund and consider
alternative financing if charges are not sufficient. (Page 38)
• Determine the City's position with regard to the Tax Increment Plan annual
administrative fee. (Page 39)
• Include a bond provision which allows tax increment collections to be receipted directly
to the Economic Development District #1 Capital Project Fund. (Page 39)
• Review procedures to assure timely certification of tax increment districts in accordance
with financial projections. (Page 41)
City of Lino Lakes, Minnesota
Management Report, Page 56
• Review the status of the various projects in the Interim Construction Fund and determine
financing sources to eliminate the fund deficit. (Page 42)
• Remit to MWCC sewer availability charges for the Baldwin Lake Mobile Home Court in
1991. (Page 42)
• Close the 1983 Construction Fund into the 1991 Improvement Bonds of 1983 Debt
Service Fund. (Page 42)
• Close the 1988A Construction Fund into the Improvement Bonds of 1988 Debt Service
Fund. (Page 42)
• Obtain estimated amounts for final paving and transfer the remaining balance of the
1988B Construction Fund to the Temporary Improvement Bonds of 1988 Debt Service
Fund. (Page 43)
• Upon completion of the Second Avenue project in the 1990 Construction Fund, transfer
the remaining balance to the Temporary Improvement Bonds of 1990B. (Page 43)
• Charge water rates at a level which will cover the cost of retiring debt which will be
issued to construct the water tower. (Page 44)
• Monitor structure changes and increased billings from the MWCC. (Page 46)
• Transfers from the Enterprise Fund to the Area Connection Charge Fund should be done
on a quarterly basis. (Page 46)
• Continue to monitor the City of Circle Pines' gas utility operation. (Page 47)
• Continue to review and improve reconciliation procedures for developer deposits. (Page
50)
• Coordinate the City's finance department with the police department to determine
procedures to properly account for any property forfeited pursuant to Minnesota State
Statutes 609.53. (Page 53)
• Establish written procedures regarding utility billing adjustments. (Page 53)
• Develop procedures to establish at what point costs should be charged to the
Construction Fund rather than the Developer's Deposit Fund. (Page 53)
• Examine the benefits of integrating the utility billing system and the payroll system into
the general ledger accounting system. (Page 54)
YEAR &
. STATUTE
REFERENCE
MOW
CITY OF LINO LAKES. MINNESOTA
STATE LEGISLATIVE ACTION
Appendix A
Page 1 of 11
INITIAL YEAR
ESTIMATED
IMPACT
1991 MS 275.51 #30 Authorized contingent addition to the levy limit by the If local sales and use
Subd. 7 amount of lost aid of local governments located in a County tax is adopted, there
where the local sales and use tax was not enacted. will be no impact.
1991 MS #29 Further reductions in local government aid for aids
477A.0132 payable in 1992. Estimated reduction percent is 3.9% of
Subd 1 and 2 1992 revenue base.
Revenue replaced by property tax levy authority.
Statewide decrease in
1992 LGA of $35
million. City of Lino
Lakes decrease
$73,000. (Replaced
by levy authority)
1991 #28 Approved LGA cut for December, 1991 aid payment. Statewide reduction
MS 477A.0132 Cut is estimated to be 1.6% of 1992 revenue base. Aid cut of $14.3 million.
Subd. 1 and 2 not replaced with levy authority. City of Lino Lakes
reduction $30,000.
MS 273.1398 #27 Adjusted the HACA base as the 1991 certified HACA Statewide estimate
not yet calculated.
City of Lino Lakes -
no impact.
less any 1991 permanent HACA reductions.
Prepared by Voto, Tautges, Redpath & Co., Ltd. June 20, 1991
YEAR &
STATUTE
REFERENCE
CITY OF LINO LAKES. MINNESOTA
STATE LEGISLATIVE ACTION
Appendix A
Page 2 of 11
INITIAL YEAR
ESTIMATED
IMPACT
1991 HF 1698 #26 Authorized the establishment of a local option sales tax
Art. 2 Section 6 of 1i2% on all retail sales in the County. If the County does
not authorize the additional 1/2% sales tax, Cities and Towns
within the County which have a majority of the population
may override the County action by sending copies of
-- approving resolutions to the County Auditor by August 1,
1991.
Because it is likely
that most Counties
will approve the local
option sales tax,
there will likely not
be a competitive
disadvantage within
the State of
Minnesota. The
increase of 112% in
sales tax however,
provides a possibly
greater competitive
edge for surrounding
States.
1991 HF 1698
Section 5
#25 If any County does not approve the local option sales
tax of 1/2% there would be no payments made to the local
government trust fund to the County or to City, Town or
Special Taxing Jurisdictions located in the County. (See #30
for increased levy authority)
If the local option
sales tax is not
passed, the City of
Lino Lakes would
lose $350,000 of
State Aid beginning
in 1992.
Prepared by Voto, Tautges, Redpath & Co., Ltd. June 20, 1991
YEAR &
STATUTE
REFERENCE
CITY OF LINO LAKES. MINNESOTA
STATE LEGISLATIVE ACTION
Appendix A
Page 3 of 11
INITIAL YEAR
ESTIMATED
IMPACT
1991 HF 1698 #24 The local government trust fund is authorized to make
Art. 2 Section 3 the following payments to Counties, Cities, Towns and
special taxing districts:
1) HACA
2) Disparity Reduction Aid
3) Local Government Aid and Equalization Aid
4) Increased HACA Guarantees
5) Supplimental Homestead Property Tax Relief
6) Disparity Reduction Credit
7) 25% of the State Aid for County Human Services
8) Attach Machinery Aid, a fee for the Commissioner of
Revenue to administer the local option tax ($852,000
for 1992 and $660,000 for fiscal year 1993).
9) Other fees to the Commissioner of Finance and to the
Advisory Commission on inter - governmental
relations.
If revenue is insufficient to pay each of the above amounts,
the Commissioner of Revenue is authorized to reduce the
payments of the first four items (HACA and LGA).
There should be no
impact on the City of
Lino Lakes or other
governmental
jurisdictions if
revenues reach
forecasted levels. If
however, revenue is
less than anticipated,
there likely will be
reductions in HACA
and local government
aid. The HACA
reductions, if made
during the year, will
cause property tax
collection rates to be
reduced. This is an
extremely
unfavorable bond
indicator which is
already impacting
Minnesota Local
Governments based
on 1991 reductions
in HACA.
Prepared by Voto, Tautges, Redpath & Co., Ltd.
June 20, 1991
YEAR &
STATUTE
REFERENCE
CITY OF LINO LAKES. MINNESOTA
STATE LEGISLATIVE ACTION
Appendix A
Page 4 of 11
INITIAL YEAR
ESTIMATED
IMPACT
1991 HF 1698 #23 Created the local government trust fund to be used
Art. 2 Section 2 exclusively to pay local governments for inter - governmental
aid and to repay advances made by the State's general fund
as may have been required to make all required payments as
provided by law. If revenues of the trust fund are
insufficient to pay commitments, all commitments to local
governments will be proportionately reduced unless other
provisions have been made. If the estimated receipts of the
•. trust fund exceed estimated payments by $1 million or more
the appropriation from the trust fund to each inter-
governmental aid program would be increased
proportionately unless there are specific provisions which
prohibit such increase.
The creation of the
local government
trust fund will impact
the City of Lino
Lakes only if the
estimated revenues of
the fund fluctuate
significantly from
estimates. Revenue
shortfalls should be
budgeted to anticipate
cuts late in the
operating year.
Budget practices
should therefore be
amended to consider
a factor for a possible
reduction based on
suppressed economic
conditions in any
given year.
1991 HF 1698
Art. 2 Section 1
#22 Establish the advisory commission on inter-
governmental relations with an initial membership of twenty
through July 1, 1992. After July 1, 1992 the commission is
reduced to fourteen members. The commissioners are to be
representative of the various geographic and governmental
jurisdictions of the State.
The commission is in
a "advisory" position
to the legislature. As
such the commission
has little or no power
and therefore cannot
directly impact the
State or the City of
Lino Lakes.
Prepared by Voto, Tautges, Redpath & Co., Ltd.
June 20, 1991
YEAR &
STATUTE
REFERENCE
CITY OF LINO LAKES. MINNESOTA
STATE LEGISLATIVE ACTION
Appendix A
Page 5 of 11
INITIAL YEAR
ESTIMATED
IMPACT
1991 MS 273.13 #21 Approve further adjustments to the commercial
Subd. 32 industrial tax rate for valuations in excess of $100,000.
Adjusted rates effective through 1994 as follows:
1990 1991 1992 1993 1994 1995
Rate Rate Rate Rate Rate Rate
First S100,000 of
market value 330% 3.20% 3.10% 3.00% 3.00% 3.00%
Market value over Tagged to
S100,000 5.06% 4.95% 4.75% 4.70% 4.60% eventually be
4%
Tax burden shifts
from commercial
industrial property.
Tax increment
districts may reflect
lower than
anticipated revenue
flows.
1991 MS
Section 473F.02
Subd. 8
#20 Prohibits municipalities from conscientiously excluding
most commercial - industrial development within their
community for reasons other than preserving agricultural use
through restrictive comprehensive zoning and planning
policies.
For those
communities deemed
to violate this statute,
they may be excluded
from the fiscal
disparities pool
within the seven
county metropolitan
area. The impact for
such excluded
communities would
likely be a significant
increase in their local
tax rates.
1991 MS 273.13 #19 Adjusted the first layer of market value for residential
Subd. 22 property from $68,000 to $72,000 and the second layer from
$110,000 to $115,000. Also adjusted the rate charged on
the market value in excess of $115,000 from 3% to 2.5% for
taxes payable in 1992 and from 2.5% to 2% for all
valuations in excess of $72,000 for taxes payable in 1993
and thereafter.
The change in class
rates applied to
residential property
will not impact the
total revenue raised
by the City but rather
will shift the tax
burden between
property classes.
Prepared by Voto, Tautges, Redpath & Co., Ltd.
June 20, 1991
limma
MIMIP
YEAR &
STATUTE
REFERENCE
CITY OF LINO LAKES. MINNESOTA
STATE LEGISLATIVE ACTION
Appendix A
Page 6 of 11
INITIAL YEAR
ESTIMATED
IMPACT
1991 MS270.12 #18 Establish methodology used in preparing assessments
Subd. 2 /sales ratio studies requiring them to be consistent with the
most recent Standard on Assessment /Sales Ratio Studies
published by the Assessment Standards Committee of the
International Association of Assessment Officers.
The assessment/sales
ratio factor of the
local government aid
formula affected a
variety of Cities in
1990. This current
change in
methodology should
be reviewed and
challenged by Cities
if they believe the
methodology results
in a higher
adjustment to market
values within the
City which directly
impacts tax capacity.
Recent state
legislative actions
have targeted aid
reductions to Cities
with high tax
capacity.
1991
MS477A.0132
Subd. 1 and 2
#17 1991 LGA initially frozen at 1990 levels, then in
subsequent actions, aid was cut. The 1991 reduction equals
2.052% of the City's Revenue Base. This aid cut will first
reduce LGA. If the City's LGA is insufficient, then the cut
will affect Equalization Aid, HACA and Disparity Reduction
Aid, in that order. Aid cut not replaced by levy authority.
Statewide reduction
in funding to cities
$20.5 million. City
of Lino Lakes
reduction $39,000.
1991 HF 47 #16 State Aid road allotments were reduced to Cities.
Statewide reduction
$3.8 million. City of
Lino Lakes reduction
$15,100.
Prepared by Voto, Tautges, Redpath & Co., Ltd.
June 20, 1991
YEAR &
STATUTE
REFERENCE
CITY OF LINO LAKES. MINNESOTA
STATE LEGISLATIVE ACTION
Appendix A
Page 7 of 11
INITIAL YEAR
ESTIMATED
IMPACT
1990 Ch. 604 #15 Levy limits for Cities repealed starting with
—
Art. 3 Section 47 collectible 1993 levy.
Anticipated extension
and delay of start
likely to result in no
impact.
1990 #14 Approved potential LGA and HACA cuts related to
.. MS 273.1399 tax increment districts formed after April 30, 1990.
Subd. 5
limoo
lama
Estimated reduction
in aids not calculated.
Legislation designed
to discourage new
tax increment
districts.
1990
MS 477A.013
Subd. 7
#13 Further reductions in LGA to cities. The Legislature
reduced LGA by 1.53% of the revenue base. This
permanent cut occurred after City budgets were adopted and
the operating year was one third elapsed. The Legislation
did not provide a replacement revenue source.
Statewide decrease
in 1990 LGA
$14.4 million, City
of Lino Lakes
decrease $26,300.
1990
MS 273.1398
—
Subd. 2
#12 The prior year (1990) HACA cut related to LGA is
extended to also reduce 1991 HACA. HACA base
established at 1991 levels. Subsequent increases based on
growth (household) and a suppressed cost of living percent.
Reduction equal or
greater than 1990
HACA cut.
1990 #11 Commercial property tax rates lowered. (See #21)
MS 273.13
Subd. 24 & 32
First $100,000 of
market value
Market value over
$100,000
1990 1991
Rate Rate
3.30% 3.20%
5.06% 4.95%
1992 1993
Rate Rate
3.10% 3.00%
Targeted to
eventually be 4%
Tax burden shifted to
residential and other
property classes.
Existing commercial
based tax increment
districts to produce
lower revenue
stream to cities.
Prepared by Voto, Tautges, Redpath & Co., Ltd.
June 20, 1991
.r
WEINIII
YEAR &
STATUTE
REFERENCE
CITY OF LINO LAKES. MINNESOTA
STATE LEGISLATIVE ACTION
Appendix A
Page 8 of 11
INITIAL YEAR
ESTIMATED
IMPACT
1990
MS 477A.013
Subd. 5,6,7
#10 Equalization Aid limited to 12% increase over 1990
Equalization Aid. Also Equalization Aid subject to reduction
if LGA is not sufficient to absorb cuts based on revenue
base. Equalization Aid capped Statewide at $19,485,684.
Maximum
equalization aid
established to limit
future increases.
City of Lino Lakes
increase $5,962.
1989
MS 477A.013
Subd. 5
#9 Tax Base Equalization Aid, is a program that
targets aid to low tax base cities starting in 1990. Tax Base
Equalization Aid to be administered similar to HACA
whereby the county auditor to deduct the aid from the
amount of taxes certified by the city. Payments of Tax Base
Equalization Aid to be made on July 20 and December 15,
1990 from the Department of Revenue.
Statewide initial year
increase in aid
$19.5 million. City
of Lino Lakes
increase $49,684.
1989 SP1 Ch 1, #8 1989 levy limits for Cities repealed starting with
Art. 5 Section 51 collectible 1992 levy. In 1990 the effective date was
extended to collectible 1993 levies. (See #15)
Anticipated extension
and delay of start
likely to result in no
impact.
Prepared by Voto, Tautges, Redpath & Co., Ltd.
June 20, 1991
YEAR &
- STATUTE
REFERENCE
CITY OF LINO LAKES. MINNESOTA
STATE LEGISLATIVE ACTION
Appendix A
Page 9 of 11
INITIAL YEAR
ESTIMATED
IMPACT
1989
MS 273.1398
—
s
Subd. 2
#7 Transition Aid re- termed to Homestead and
Agricultural Credit Aid (HACA). The formula for
distribution was modified from the 1988 Transition Aid
formula for Unique Taxing Jurisdictions (UTJ) as follows:
Payable 1989 gross taxes of UTJ less [Payable 1989 local
tax rate X payable 1990 net tax capacity X .9767)
As with the original Transition Aid the above HACA to be
distributed to local governments based on the percent of local
government levy to total UTJ levies. HACA was subject to
additional reductions if the level of local government aid was
insufficient to absorb the education aid shift and other cuts.
The education shift and the subsequent cuts were first taken
from LGA, then from Equalization Aid, then from HACA
and finally from Disparity Reduction Aid.
Statewide HACA
reductions totalled
$1.9 million . City
of Lino Lakes - no
HACA cut because
LGA was sufficient
to absorb entire cut.
— 1989
MS 273.1398
Subd. 2
#6 LGA initially increased for 1990 by approximately $30
million from the 1989 level. Funding transfer to school
districts subsequently approved. The aid transfer to school
districts is a method of increasing the State financial support
for education while decreasing financial support for cities.
The aid transfer for a city is an amount equal to 3.4% of its
adjusted net tax capacity. Cities received increased property
tax levy authority to replace the aid transfer.
Statewide 1990
decrease in LGA
$44.6 million. City
of Lino Lakes
decrease related to
the transfer to
schools of $148,175.
See #13 for
additional LGA
reduction.
1989 #5 LGA formula revised to reduce household guarantee
MS 477A.013 factor from 1.08 in 1989 to 1.04 in 1990 to reduce the
Subd. 3 expenditure/unlimited ratio factor by 50 %. A 15% ceiling
increase over prior year LGA factor was also added.
Aid increases were
subsequently entirely
wiped out by shift
to school districts.
Initial aid increase
for 1990 was $30
million Statewide.
City of Lino Lakes
increase of $6,625.
— Prepared by Voto, Tautges, Redpath & Co., Ltd.
June 20, 1991
M.
MEW
M.
YEAR &
STATUTE
REFERENCE
CITY OF LINO LAKES. MINNESOTA
STATE LEGISLATIVE ACTION
Appendix A
Page 10 of 11
INITIAL YEAR
ESTIMATED
IMPACT
1988
MS 273.13
#4 Taxes spread to property owners based on tax
capacity valuations. Taxes levied divided by tax capacity
valuations equal tax capacity rates. This is a change from the
prior system in which taxes were spread to property owners
based on assessed valuations. Taxes levied divided by
assessed valuations equalled mill rates.
Re- measurement of
valuations were
designed to have no
impact on aids or
relative valuations.
1988
MS 273.1398
Subd. 2
#3 Cities to receive Transition Aid in lieu of homestead
credits. Transaction aid to be calculated on each unique
taxing jurisdiction (UTJ) and then allocated to the local units
of government within the UTJ based on the proportion of
local governments gross tax levy to total taxes within the
UTJ as follows for 1990:
Gross taxes of UTJ less [46% X 2.17% X 1989 tax capacity
rate X 1988 aggregate assessment sales ratio] X UTJ net tax
capacity X 103
The above UTJ amount to be allocated to local governments
based on percent of local governments levy to total UTJ
levies. Transition Aid to be frozen at 1990 levels.
Considering growth and inflation, this freeze is a reduction
of State funding. Transition Aid was the replacement of the
Homestead Credit Program. This Transition Aid was
subsequently re- termed as Homestead Credit and
Agricultural Aid (HACA) - see #7.
The freeze nature of
the legislation will
result in gradual
decrease of HACA
in 1991 and future
years. Actual
comparisons not
available because
Homestead Credit no
longer calculated on
the prior method.
1988
MS 273.1398
— Subd. 3
#2 Targeted Cities (primarily non -metro cities) to receive
disparity reduction aid. The 1989 disparity reduction
aid to be based on 1988 gross taxes and gross tax capacity
rates. Disparity reduction aid will be frozen at 1989 levels.
Metropolitan suburban cities to receive one -half of one
percent of this aid ($300,000 of $54.3 million).
1989 increase in
Aids to Cities State-
wide $54.3 million,
City of Lino Lakes
no increase in aids.
Prepared by Voto, Tautges, Redpath & Co., Ltd.
June 20, 1991
NEM
NNW
YEAR &
STATUTE
REFERENCE
CITY OF LINO LAKES. MINNESOTA
STATE LEGISLATIVE ACTION
Appendix A
Page 11 of 11
INITIAL YEAR
ESTIMATED
IMPACT
1988
MS 477A.013
Subd. 3
#1 Local government aid (LGA) formula modified to
reflect a per household aid factor compared to prior year tax
capacity and tax base increase. Expenditure/unlimited ratio
factor established as component of LGA formula. Lower of
three -part formula to calculate initial LGA increase.
Statewide 1989 aid
increased $79.3
million, Lino Lakes
increase of
$98,666.
Prepared by Voto, Tautges, Redpath & Co., Ltd.
June 20, 1991