HomeMy WebLinkAboutManagement Report and Recommendations 12/31/1988CITY OF LINO LAKES, MINNESOTA
MANAGEMENT REPORT
AND RECOMMENDATIONS
DECEMBER 31, 1988
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 5
Account Balance Analysis - A look at changes in various accounts
such as cash, investments and receivables 9
Individual Fund/Fund Type Analysis - Review of significant changes in
fund balances and other matters
Internal Control Report
Recommendations Summary
15
44
48
VOTO, TAUTGES, REDPATH & CO., LTD.
CERTIFIED PUBLIC ACCOUNTANTS
Birch Lake Professional Building • 1310 E. Hwy. 96 • White Bear Lake, MN 55110 • Phone 426 -3263
ROBERT J. VOTO, CPA
ROBERT G. TAUTGES, CPA
JAMES S. REDPATH, CPA
D. KENNETH GEORGE, CPA
DAVID J. MOL, CPA
To the Honorable Mayor and
Members of the City Council
City of Lino Lakes, Minnesota
The Annual Financial Report of the City is complete and has been transmitted to the
City Council. In conjunction with our examination of the fmancial statements, we have
prepared this report to assist the City in the analysis of the 1988 financial statements.
Financial areas which may be of particular interest to the City are as follows:
Page No.
1. The State has made significant changes to the property tax
system and State aid funding systems. 2
2. The City's General Fund increased by $202,000 in 1988. 15
3. The City received initial tax increment receipts in 1988. 36
4. The City established the Connection and Area Charge
Fund in 1988. 33
5. MWCC billings to the City are projected to increase by
26% in 1989. 40
In addition to the above areas, financial trend analysis has been updated throughout the
report.
The funding of operations of the City continue to be vulnerable to legislative actions of
the State. Our firm is committed to analyzing the effects of State actions on City financing.
We will continue to measure the impact on the financial outlook for the City of Lino Lakes.
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
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City of Lino Lakes, Minnesota
Management Report, Page 2
1988 LEGISLATIVE ACTIONS
The 1988 legislature approved sweeping changes in the property tax system and State aid
distribution structure. The changes intensify competition between local governments for State
funding. The new legislation effects the distribution of State aids to Minnesota cities. The cities
with strong tax base valuations will receive less State funding. This generally has the greatest
adverse effect on metropolitan suburban cities. As in past years, the distribution of State funding
of cities creates a rivalry between three factions: 1) Minneapolis/St. Paul; 2) non -metro cities; and,
3) metropolitan suburban cities.
The tables and graphs which are presented in the following section of this report reflect a multi-
year history of property tax versus State aid funding of the governmental operating funds of the
City. In the short term, a number of suburban metropolitan cities will receive increased State
funding of operations. As the long -term effects of the 1988 legislative actions unfold, however,
the property tax funding of operations is anticipated to increase for suburban metropolitan cities. If
the projected decreases in State funding of operations occur And if property levy limitations
continue to be restrictive, certain suburban metropolitan cities may face a budgeting dilemma.
Several new terms and concepts which are a result of the 1988 legislative session are
summarized as follows:
Prior system
Taxes spread to property owners
based on assessed valuations.
Taxes levied divided by assessed
valuations equalled mill rates.
1
Revised system
Taxes spread to property owners
based on tax capacity valuations.
Taxes levied divided by tax capacity
valuations equal tax capacity rates.
City of Lino Lakes, Minnesota
Management Report, Page 3
Prior system
Homesteaded property owners
see homestead credit as a reduction
of taxes due on property tax statements
and such amounts were distributed to
taxing jurisdictions in which the
homestead credit reductions occurred.
Revised system
ti
Revised system (after 1989)
Revised system (after 1989)
Homesteaded property owners will
continue to see a "homestead credit"
on property tax statements, however, these
amounts will not correlate to amounts paid
by the State to local taxing jurisdictions.
Cities will receive transition aid in lieu of
homestead credits. The 1990 transition
aid will be based on 1989 property taxes
and net tax capacity rates. Transition aid will
be frozen at 1990 levels. Considering
growth and inflation, this freeze will, in fact
be a reduction of State funding.
Targeted Cities (primarily non -metro cities)
will receive disparity reduction aid.
The 1989 disparity reduction aid will be based
on 1988 gross taxes and gross tax capacity rates.
Disparity reduction aid will be frozen at 1989 levels.
Metropolitan suburban cities receive one -half of
one percent of this aid ($300,000 of $54.3 million)
In addition to the above changes, the local government aid formula (LGA) has been revised by
1988 legislative actions. The 1989 increases in LGA vary dramatically between cities. The City of
Lino Lakes is scheduled to receive a 42% increase in 1989 LGA. A key aspect of the revised
formula is the number of households as follows:
1988 households
2,276
Base revenue guarantee factors per household:
Initial factor $160
$150 times base 10 logorithm of households
(the greater the number of households,
the greater aid per household) 354
Total per household guarantee $514
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City of Lino Lakes, Minnesota
Management Report, Page 4
The above per household guarantee results in a "revenue guarantee ". This revenue guarantee is
compared to the City's 1987 tax capacity to compute an "initial aid" as follows:
City revenue guarantee (households times
the per household guarantee plus 8%) $1,263,453
Less 1987 City tax capacity (835,103)
Initial aid $428,350
The initial aid may increase if the 1988 City revenue (as increased for the applicable statutory
percent) exceeds the initially calculated amount of aid. The City of Lino Lakes' 1989 LGA does
not exceed the "initial aid" as calculated above. The City of Lino Lakes benefits from a 6%
increase factor used in the following schedule to determine the "formula aid increase" as follows:
1988 City revenue:
Property tax levy $1,146,879
Local government aid 232,472
Total 1988 City revenue 1,379,351
1989 City revenue guarantee + 1,263,453
Statutory ratio (1988 City revenue
divided by 1989 City revenue guarantee) = 1.09
The preceding statutory ratio of 1.09 results in a 6% percent increase according to Minnesota
Statutes 477A.013. This 6% increase compares to a maximum available formula aid increase of
9 %. This percent increase, as applied to the 1988 City revenue, results in less of an increase than
initially calculated above. The final actual increase is as follows:
Total 1988 City revenue $1,379,351
Expenditure/unlimited aid ratio
applicable percentage (formula aid increase) x 6.0%
1989 aid increase = 82,761
1989 additional aid increase for low
per household tax capacity 15,992
1988 aid 232,472
Reduction for State demographer costs (13)
1989 local government aid $331,212
1989 LGA percent increase 42.47%
City of Lino Lakes, Minnesota
Management Report, Page 5
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 Fund of the City of
Lino Lakes were as follows:
State Aids
Year Amount Percent
1979 $184,184 35.05%
1980 239,622 39.57%
1981 300,971 41.92%
1982 283,089 36.63%
1983 349,076 37.50%
1984 403,127 34.80%
1985 455,059 32.96%
1986 491,041 35.06%
1987 545,674 33.74%
1988 549,567 30.43%
Property Taxes
Amount Percent
$166,149 31.62%
171,440 28.32%
212,914
305,804
355,684
510,245
550,302
585,137
714,892
769,915
29.78%
39.57%
38.21%
44.04%
39.86%
41.77%
44.20%
42.94%
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
Percent
66.67%
67.89%
71.70%
76.20%
75.71%
78.84%
72.82%
76.83%
77.94%
73.37%
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
1981 1982 1983 1984 1985 1986 1987 1988
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City of Lino Lakes, Minnesota
Management Report, Page 6
State aids for the General Fund have consisted of the following amounts from 1981 through
1988:
State Aids 1981 1982 1983 1984 1985 1986 1987 1988
LocalGovenunentAid 3157,862 $148,794 3171,011 3185,196 $196,177 $219,728 3232,159 $232,157
Homestead Credits 112,911 111,829 139,767 188, 906 227,711 238,336 265,530 259,384
Police Aid 12,188 14,326 14,245 13,970 13,509 18,722 26,828 33,298
MSA - Streets 8,080 13,110 13,935 13,935 13,935 13,935 13,935
Other Aids 9.930 8.140 10.943 1.120 3.727 320 7.222 10.793
Totals 3300,971 3283,089 3349,076 3403,127 3455,059 $491,041 $545,674 $549,567
Percent
25.60% (5.94)% 23.31% 15.48% 12.88% 7.91% 11.13% 0.71%
A graph of the above State aids (with a comparison to property tax amounts) is as follows:
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
1981
1982
1983
1984
1985
1986
1987
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
1988
® Other Aids ® Homestead Credits IN Local Government - Property Taxes
Aid
City of Lino Lakes, Minnesota
Management Report, Page 7
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
Federal
Charges for services
Fines and forfeits
Interest on investments
Other
Totals
1988
Amount
$769,915
229,511
549,567
1987
Amount Percent
$714,892 44.20%
164,115 10.15%
1986
Amount
$585,137
137,879
Percent Percent
42.94% 41.77%
12.80% 9.84%
30.65% 545,674 33.74% 491,185 35.07%
28,358 2.02%
86,067 4.80% 59,069 3.65% 59,249 4.23%
70,142 3.91% 68,448 4.23% 65,369 4.67%
25,014 1.40% 16,756 1.04% 17,371 1.24%
62,756 3.50% 48,332 2.99% 16,204 1.16%
$1,792,972 100.00% $1,617,286 100.00% $1,400,752 100.00%
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
Property State Aids
Taxes
Licenses & Charges for
Permits Services
Federal
revenue
■ 1986 D 1987 in 1988
1111.1: mrli•
Fines and Interest & All
forfeits Other
Detail of the above revenue is presented in Statement 7 of the 1988 Annual Financial Report.
City of Lino Lakes, Minnesota
Management Report, Page 8
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
1988
Amount Percent
$588,946 37.02%
582818 36.63%
263,129 16.54%
91,051 5.72%
64,958 4.09%
1987
Amount Percent
$409,645
530,785
383,271
82117
14,783
98.588
$1,590,902 100.00% $1,519,189
26.96%
34.94%
25.23%
5.41%
0.97%
6.49%
1986
Amount Percent
$363,256 26.38%
464,499 33.73%
344,767 25.03%
74,144 5.38%
10,149 0.74%
120.448 8.74%
100.00% $1,377,263 100.00%
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
General
Government
Public Safety Highways & Streets
Parks
• 1986 1987 • 1988
Capital Outlay &
Other
Details of the above 1988 and 1987 expenditures are presented in Statement 7 of the 1988
Annual Financial Report.
City of Lino Lakes, Minnesota
Management Report, Page 9
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 1988 Annual Financial Report. The following comments relate to the Combined
Balance Sheet - All Funds (Statement 1).
Cash and Investments
Cash and investments were as follows at December 31, 1988 and 1987:
December 31, Increase
Description 1988 1987 (Decrease)
Treasurer's balance - checking ($17,198) $13,452 ($30,650)
Petty cash 150 150 0
Investments:
Certificate of deposits 2,193,904 1,752,331 441,573
Small Business Administration
(SBA) 0 67,970 (67,970)
4M money market fund 24,651 0 24,651
FNMA Pool 264,505 304,722 (40,217)
NOW account 359,043 157,465 201.578
Totals $2,825,055 $2,296,090 $528,965
The City maintains an average 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 recommend that the City
continue this practice of minimal balances in the City's checking account to increase interest
earnings.
Interest on investments totaled $147,742 in 1988 and $108,098 in 1987. 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
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 ").
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City of Lino Lakes, Minnesota
Management Report, Page 10
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, 1988. The following schedule details these amounts.
December 31,
Description 1988 1987
State:
Fines and forfeits $4,203 $5,536
MSA 127,613
Federal:
Community Development Block Grant 11,612 5,846
Local:
Anoka County 182
MWCC - Maintenance Agreement 7,319 10,071
Final cost allocation 5,326 4,136
Police contract 12,695
Ditch payments:
Anoka County 13,116
Rice Creek Watershed 9,600
Circle Pines - salt 1,150
Centerville - salt 232
White Bear Township 2,735
Total $29,792 $191,580
Excluded from the above schedule is the gas franchise tax receivable which represents the
City's share in the 1988 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 in June,
1989. 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 $263,000 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 $673,000 at December 31,
1988. The City may be able to justify and request up to 25% of such annual total allotments for
maintenance purposes (i.e., 25% of $277,000 or $69,000 per year). This could increase the total
City of Lino Lakes, Minnesota
Management Report, Page 11
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.
Taxes Receivable
Delinquent taxes receivable were as follows for the past several years:
1988 1987 1986 1985 1984
Delinquent balance - January 1 $27,995 $99,694 $100,004 $86,141 $84,603
Current Levy 1.146.850 990.000 835.500 775.000 690.000
Total receivable 1,174,845 1,089,694 935,504 861,141 774,603
Receipts:
County:
Current 827,494 694,652 557,533 514,978 467,696
Delinquent 8,961 35,455 28,464 19,630 33,045
State 293,757 277,295 249,813 226,529 187,721
Total receipts 1,130,212 1,007,402 835,810 761,137 688,462
Unadjusted balance 44,633 82,292 99,694 100,004 86,141
Adjust to County (3,245) (54,297)
Delinquent balance
Total collections as a percent
of current levy
$41,388 $27,995 $99,694 $100,004
99% 102% 100% 98%
$86,141
100%
The City has experienced a solid tax collection rate over the past four years. The "adjustments"
represent amounts provided by Anoka County for abatements and other adjustments to the
delinquent balances.
City of Lino Lakes, Minnesota
Management Report, Page 12
Special Assessments Receivable
Special assessments receivable consisted of the following amounts at December 31, 1988 and
1987:
December 31, Increase
1988 1987 (Decrease)
Delinquent $123,153 $195,457 ($72,304)
Deferred 1,636,158 1,646,410 ($10,252)
City property 142,553 148,096 ($5,543)
Tax forfeit 121,424 102,572 $18,852
Due from County 49,649 $49,649
Totals $2,072,937 $2,092,535 ($19,598)
Delinquent assessments receivable consist of amounts collectible in 1988 and prior years which
the City has not yet received. A summary of assessment collections for the past six years is as
follows:
1988 1987 1986 1985 1984 1983
Delinquent balance - January 1 $189,606 $290,525 $271,588 $182,722 $123,970 $31,780
Add
Current installment 312,610 388,798 162,553 183,830 201,280 227,230
Delinquent - previously not
spread for collection 8,446
Amount collectible 502,216 679,323 434,141 366,552 333,696 259,010
Less:
Current collections 204,150 194,196 78,980 63,292 124,395 123,535
Delinquent collections 163,841 190,508 63,103 31,672 25,945 6,578
Total collections 367,991 384,704 142,083 94,964 150,340 130,113
Adjustments (11.072) (105.013) (1.533) (634) (4.927)
Delinquent balance - December 31 $123,153 $189,606 $290,525 $271,588 $182,722 $123,970
Total collections as a percent
of cu rent levy 136% 99% 87% 52% 75% 57%
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
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.
City of Lino Lakes, Minnesota
Management Report, Page 13
The amount listed as "City property" totaled $142,553 at December 31, 1988. 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 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 fmancing
arrangements as a property tax 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
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.
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 over $2
City of Lino Lakes, Minnesota
Management Report, Page 14
million at December 31, 1988 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.
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.
City of Lino Lakes, Minnesota
Management Report, Page 15
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 $202,000 in 1988 as
follows:
Budgeted increase (decrease) in fund balance $36,967
Actual revenues over (under) budgeted revenues:
Property taxes ($39,551)
Licenses and permits 57,496
Intergovernmental revenue 11,340
Charges for services 1,114
Fines and forfeits 6,142
Interest on investment 25,014
Miscellaneous 40,050
Net revenue over budget
Actual expenditures under (over)
budgeted expenditures:
General government (57,945)
Public safety 13,083
Highways and streets 133,206
Parks 18,203
Other (36,911)
Capital outlay (6,138)
Net expenditures under budget
101,605
63.498
Total improvement $202,070
Detail of the preceding budget variances are presented in Statement 7 of the 1988 Annual
Financial Report.
A portion of the under budget for Highways and Streets relates to $40,000 of sealcoating
which was not completed in 1988. The City intends to complete this work in 1989.
City of Lino Lakes, Minnesota
Management Report, Page 16
The City's December 31, 1988 fund balance totaled $844,462.
balance has been as follows for the past ten years:
The City's General Fund
Fund Balance (Deficit)
Year Ended
December 31, Designated
1979 $14,655
1980 18,766
1981 19,876
1982 46,466
1983 51,084
1984 116,770
1985 77,624
1986 83,714
1987 52,593
1988 96,626
or 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
Or Capital outlay replacement.
Internal escrow for purchases which
may exceed amounts available in
any single budget cycle. This may
also be accomplished through tran-
sfers to dedicated replacement funds.
Undesignated
$50,652
(19,730)
30,109
13,355
80,032
126,153
350,675
455,666
589,799
747,836
Increase
(Decrease) in
Undesignated
($597)
(70,382)
49,839
(16,754)
66,677
46,121
224,522
104,991
134,133
158,037
.r Emergency or un. tticipated
expenditures. Examples include natural
disasters, law suits, comparable worth
implementation and premature breakdown
of vital equipment.
Reasons for
Reserves
or 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. The recent
elimination of Revenue Sharing is one example.
Annual analysis of Local Government Aid &
Homestead Credit formulas is a constant threat.
City of Lino Lakes, Minnesota
Management Report, Page 17
The amount of General Fund reserve required to meet emergency and/or unanticipated
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.
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.
or Favorable bond rating indicator.
or City may study effects of
revenue cuts before gradual
program reductions.
Benefits of
Reserves
Avoids overburdening
of annual budgets for
certain capital outlay.
or 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.
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City of Lino Lakes, Minnesota
Management Report, Page 18
The City's minimum cash flow reserve requirement is measurable. For the City of Lino Lakes,
the minimum required surplus is $739,000 computed as follows:
1989 Budgeted Levy (Includes Homestead Credit) $1,147,000
1989 Anticipated Local Government Aid 331,000
Total $1,478,000
Minimum Required Cash -Flow Reserve $739,000
The City had $844,462 of fund balance at December 31, 1988. This represents 114% of the
above targeted cash flow required reserve. There is, therefore, approximately $105,000 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 Man Charges
The City's General Fund incurred over $20,000 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
During 1988, the City did not charge the various construction funds in accordance with the
established policy. We recommend that the City calculate the appropriate charge for 1988 and
transfer such amounts in 1989. Additionally, we recommend that the City establish a system
whereby as the City's consulting engineer calculates assessment rolls, the City charges the
appropriate construction fund in accordance with the policy. Our office is available to assist the
City in establishing such procedures.
City of Lino Lakes, Minnesota
Management Report, Page 19
DEBT SERVICE FUNDS
The combining financial statements for the Debt Service Funds are presented in Statements 8
and 9 of the 1988 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.
• 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.
City of Lino Lakes, Minnesota
Management Report, Page 20
December 31, 1988 Scheduled Final
Fund Defeaod Outstanding Property Maturity
Fund Description Balance Revenue Total Debt Taxes Date
Genial Debt
1985 Certificates of Indebtedness $5,274 $1,399 $6,673 $0 $0 12/1/88
1987 Certificates of Indebtedness 625) 1,777 (4,748) 0 0 11/1/88
Total general debt (1Ja1) T 1,925 0 0
Special Assessment Debt
Improvements Bonds of 1981 21,645 14,190 35,835 15,000 12/1/91
Improvements Bonds of 1982* 283,934 307,308 591,242 0 2/1/81
Improvements Bonds of 1983 8,376 61,693 70,069 50,000 10/1/93
Improvements Bonds of 1984 11,012 10,540 21,552 21,000 11/1/94
Improvements Bonds of 1986 73,838 132,268 206,106 465,000 40,675 2/1/97
Temporary Improvement Bonds of 1987 521,070 360,007 881,077 1,650,000 9/1/90
Temporary Improvement Bonds of 1988 53,061 53,061 610,000 10/1/91
Improvements Bonds of 1988 (209.227) 1.035.324 826.097 1.160.000 2/1/97
Total special assessment debt 763.709 1.921.330 2.685.039 3.971.000 40.675
Total - All Debt Service Funds $762,458 $1,924,506 $2,686,964 $3,971,000 $40,675
Assets pledged to pay debt of Improvement Bonds of 1986.
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.
Debt service funds should be evaluated at least annually. The following chart summarizes
steps to consider.
City of Lino Lakes, Minnesota
Management Report, Page 21
Condition A
Condition B
e1. 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?
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 fundmg
sources available?
4. Are there future assets to pledge
such as assessments, MSA allot-
ments, etc
Conclusion 1
The debt service fund
is clearly jai 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
Improvement Bonds of 1980
The 1980 Special Assessment Bonds fully matured in 1986. The remaining balance was
transferred to the Closed Bond Fund.
Improvement Bonds of 1982
The Improvement Bonds of 1982 were refmanced by the Improvement Bonds of 1986. Bonds
maturing in the years 1989 through 1991 representing $375,000, were called on February 1, 1987.
City of Lino Lakes, Minnesota
Management Report, Page 22
The remaining assets of this fund should be transferred to the Improvement Bonds of 1986 in
1989.
Temporary Improvement Bonds of 1985
The Temporary Improvement Bonds of 1985 were issued to finance Weber's Addition
(Tomahawk Trail) and the Rice Lake Estates Addition. These bonds matured in 1988. The
remaining balance was transferred to the 1988 Improvement Bonds during 1988.
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. Upon final maturity of the 1982 Improvement
Bonds, the remaining assets should be transferred to this fund.
Temporary Improvement Bonds of 1987
The City issued bonds to finance the following projects in 1987:
North Road $9,473
Deer Pass Trail 11,108
Comprehensive Water 664,671
Reshanau Lakes South 481,833
Erickson's 381,422
4th Avenue 84.942
$1,633,449
North Road, Deer Pass Trail and 4th Avenue were assessed in 1987. Erickson's and
Reshanau Lakes South were assessed in 1988. The remaining projects are scheduled for
assessment in 1989
Improvement Bonds of 1988
The Improvement Bonds of 1988 were issued to provide permanent financing for the
Temporary Improvement Bonds of 1985 and to fmance Ash Street and Main Street improvements.
The remaining assets in the Temporary Improvement Bonds of 1985 should be transferred into the
1988 Improvement Bonds Debt Service Fund in 1989.
City of Lino Lakes, Minnesota
Management Report, Page 23
1988 Temporary Improvement Bonds
The City issued these bonds to finance Erickson's 2nd Addition, Phase 2 and South Reshanau
Phase 2 Improvements.
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. The City of Lino Lakes issued greater than $5
million of bonds in 1987 and 1988 and therefore is required to meet restrictive regulations which
require:
• 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.
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.
The City has not received the ruling and the IRS is not willing to issue such a ruling until
regulations are issued. The IRS has, however, indicated that the preamble to the regulations
indicates that pooled investment procedures will be acceptable. 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 10 and 11 of
the 1988 Annual Financial Report. Pursuant to changes in reporting standards, the Capital Project
Fund type now includes special assessment projects.
The fund balances (deficits) of the Capital Project Funds at December 31, 1988 and 1987 are
presented on the following page.
City of Lino Lakes, Minnesota
Management Report, Page 24
Fund
Parks and playgrounds
Capital Improvement Projects
Community Development Block Grant
Lakes Addition #7
Main Street
West Shadow Lake Drive
80th Street
Ash Street East Extension
Otter Bay
West Central Sewer & Water Trunk
74th Street
1160 Main
2nd Avenue
Lakes Addition #9
Carlson
Pine Oaks Revision
Sunrise Meadows
Paul Montain
Reshanau 3rd
Area Connection Charge
Tax Increment #1
Tax Increment #2
Ash Street Sewer
Financed by the Improvement Bonds
of 1983:
Baldwin Lake Mobile Home Court
Financed by the Improvements Bonds
of 1984:
Reiling Road
Financed by the Temporary Improvement
Bonds of 1985:
Rice Lake Estates
Financed by the Improvements Bonds
of 1986:
Sunset Road
Financed by the Temporary Improvement
Bonds of 1987:
4th Avenue
North Road
Deer Pass Trail
Comprehensive Area Wide Water
Reshanau Lake Estates South
Erickson's
Financed by the Temporary Improvement
Bonds of 1988:
Erickson's 2nd
Reshanau 2nd
Totals
Fund Balance (Deficit)
December 31,
1988
$151,454
60,059
(2,241)
0
4,776
(10,819)
(18,563)
(7,512)
(1,856)
(49,961)
0
(11,324)
(46,170)
(763)
(10,580)
(4,856)
(19,438)
701
(3,310)
24,747
50,096
(6,313)
73,455
1987
$116,870
98,018
117
(17,288)
(59,689)
(10,819)
(17,972)
(3,289)
(1,808)
(5,500)
(803)
(11,300)
(55)
0
0
0
0
0
0
0
0
0
(49,887)
Increase
(Decrease)
$34,584
(37,959)
(2,358)
17,288
64,465
0
(591)
(4,223)
(48)
(44,461)
803
(24)
(46,115)
(763)
(10,580)
(4,856)
(19,438)
701
(3,310)
24,747
50,096
(6,313)
123,342
18,028 15,466 2,562
(2,834) (2,834) 0
369,827 379,051 (9,224)
162,748 153,060 9,688
5,431 5,589 (158)
0 1,442 (1,442)
0 (997) 997
151,170 242,024 (90,854)
75,787 88,367 (12,580)
49,214 50,825 (1,611)
60,079 0 60,079
47,125 0 47,125
$1,108,157 $968,588 $139,569
City of Lino Lakes, Minnesota
Management Report, Page 25
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. The fund
balance of $151,454 at December 31, 1988 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 several developers to allow for payment upon development (as opposed to
subdivision). The amount of these park dedication fees receivable was $5,060 for the past four
years.
Capital Improvements Fund
The 1985 and 1987 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
Police Cars
Dump Truck with Plow
Mini Dump Truck with Plow
Equipment Trailer
Street Sweeper
Crack Filling Machine
Public Works Vehicle
Additions to Equipment
Description
Turf Mower /Snow Broom
Two Squad Cars
Two Radar Units
Front End Loader
Civil Defense Siren
1985 Certificates
1985 -1988
Budget Actual Variance
$25,000 $24,844 $156
60,000 49,713 10,287
17,000 17,516 (516)
3,000 959 2,041
3,000 3,000 0
6,000 3,650 2,350
4,725 4,725 0
0 15,504 (15,504) ,
$118,725 $119,911 ($1,186)
Budget
$15,000
23,000
2,500
20,000
13,000
$73,500
1987 Certificates
1988
Actual
$7,967
26,452
0
0
8,580
$42,999
Variance
$7,033
(3,452)
2,500
20,000
4,420
$30,501
The following schedule summarizes the activity of this fund through December 31, 1988.
City of Lino Lakes, Minnesota
Management Report, Page 26
Proceeds from issuance of 1981 Certificates $111,400
Proceeds from issuance of 1985 Certificates 107,500
Proceeds from issuance of 1987 Certificates 78,260
Interest Earnings:
1981 1,288
1982 9,901
1983 1,758
1984 1,300
1985 1,192
1986 5,218
1987 2,459
1988 4,816
Property taxes 14,382
Transfer from Debt Service Fund 2,390
Total revenue and other sources
Expenditures:
1981 2,707
1982 55,136
1983 50,506
1984 1,546
1985 7,725
1986 82,315
1987 29,871
1988 42,999
Total expenditures
$341,864
272.805
Fund Balance - December 31, 1988 $69,059
After the scheduled purchases of equipment are made in 1988, the remaining fund balance
should be closed to the 1987 Certificates of Indebtedness Debt Service Fund (or be expended on
qualifying equipment purchases).
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 received 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.
City of Lino Lakes, Minnesota
Management Report, Page 27
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.
The City has designated its allotment for the funding year 1988/1989 as follows:
Alexander House $ 2,500
Senior Center Coordinator 5,150
Anoka County CDBG Fund Reserve 1,977
Economic Development 16,848
Lakes Addition #7
This fund was closed into the Closed Bond Fund during 1988.
Baldwin Lake Mobile Home Court
This project was financed by the $100,000 Improvement Bonds of 1983. The project
consisted of installations of sewer service lines to the mobile home court. The project was
completed and assessed in 1983. The fund is carrying a liability to MWCC for sewer availability
charges of $24,403. We recommend that the City remit this money to MWCC in 1989.
This project was complete at December 31, 1986. We recommend that this fund be closed in
1989 to the Improvement Bonds of 1983 Debt Service Fund. Council authorization is required to
effect this closing.
Reiling Road
This project was financed by the Improvement Bonds of 1984. This project was substantially
complete in 1985. Final payment to the contractor has been withheld pending settlement of a
dispute with adjacent property owners. The fund deficit at December 31, 1988 was $2,834. We
recommend that the City eliminate this deficit in 1989 through a City Council designated transfer.
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.
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City of Lino Lakes, Minnesota
Management Report, Page 28
4th Avenue
The 4th Avenue Project was funded primarily from MSA allotments. A portion of the project
was assessed in 1987. This project was bonded in 1987. We recommend that the City transfer the
remaining balance of $5,431 to the related Debt Service Fund in 1989.
80th Street
The 80th Street Fund was established in 1987 and will be financed by the State for the
construction of the bridge and Anoka County for construction of the road. The City will pay for
engineering and other minor costs. The deficit of $18,563 at December 31, 1988 and future
expenditures require a City funding source. The primary funding source for the City will be a
reimbursement agreement with the State Department of Transportation. The City is scheduled to be
reimbursed based on the following schedule:
City share $7,644
State share 74,517
Total $82,161
The City has already incurred $18,500 in preliminary costs. We recommend that the City
1) project City costs including the amount to be paid to Anoka County pursuant to the joint powers
agreement, 2) determine potential additional liability if cost overruns are incurred and 3) require
favorable cash flow terms relative to receipts from the State and payments to Anoka County.
Rice Lakes Estates Addition
The City began this project in 1985. The project was funded by the Temporary Improvement
bonds of 1985 which were subsequently permanently financed by the 1988 Improvement Bonds.
The project was scheduled for completion in 1987. The City has retained this fund because final
street overlays were not complete at December 31, 1988 (see later comments) . We recommend
that this fund be closed to the 1988 Improvement Bonds Fund after final completion of
construction.
North Road
This fund was established in 1986 to account for North Road Improvements. This project was
financed by the Temporary Improvement Bonds of 1985 which were subsequently permanently
City of Lino Lakes, Minnesota 1
Management Report, Page 29
financed by the 1988 Improvement Bonds. The project was completed and assessed during 1987.
This fund was closed into the Temporary Bonds of 1987 Debt Service Fund during 1988.
Main Street
This fund was established in 1986 to account for Main Street Improvements. This project was
financed by the Improvement Bonds of 1988. The project was completed and assessed in 1988.
We recommend that this fund be closed in 1989 to the Improvement Bonds of 1988 Debt Service
Fund.
West Shadow Lake Drive
This fund was established in 1986 to account for the West Shadow Lake Drive. This project
may not be constructed. The City should determine if existing costs will be included in future
construction. If prior costs will not be included in future construction, we recommend that the City
designate a financial source and eliminate this fund in 1989.
Sunset Road
This fund was established in 1986 to account for the Sunset Road Improvements. This project
was financed by the Improvement Bonds of 1986. This project was assessed in 1986. The City is
waiting for the completion of a joint powers agreement with the City of Blaine. After completion
of the agreement, the City will be billed for its portion of the project. We recommend that this fund
be closed to the related Debt Service Fund in 1989.
Deer Pass Trail
This fund was established in 1986 to account for the Deer Pass Trail Improvements. This
project was financed by the Temporary Improvement bonds of 1985 which were subsequently
permanently financed by the 1988 Improvement Bonds. The project was completed and assessed
during 1987. This fund had accumulated a deficit of $1,872. The City funded this deficit in 1988
through a residual equity transfer from the Closed Bond Fund.
Comprehensive Area Wide Water
This fund was established in 1987 to account for the trunk water main installation for the
southwest water district. This project was financed by the Temporary Improvement bonds of 1985
which were subsequently permanently financed by the 1988 Improvement Bonds. This project
was completed in 1988. We recommend that this fund be closed in 1989 to the 1988 Improvement
Bonds.
City of Lino Lakes, Minnesota
Management Report, Page 30
Reshanau Lake Estates South
This fund was established in 1987 to account for installation of water, sewer, storm sewer and
streets in the South Reshanau Lakes Estates subdivision. This project was financed by the
Temporary Improvement bonds of 1985 which were subsequently permanently fmanced by the
1988 Improvement Bonds. This project was assessed in 1988. There are additional costs that will
be incurred for the final wearing surface on the road. We recommend that this fund be closed to
the Temporary Improvement Bonds of 1987 when paving is complete.
Erickson's
This fund was established in 1987 to account for installation of water, sewer, storm sewer and
streets in D. Erickson's Second Addition. This project was financed by the Temporary
Improvement bonds of 1985 which were subsequently permanently financed by the 1988
Improvement Bonds. This project was assessed in 1988. There are additional costs that will be
incurred for the final wearing surface on the road. We recommend that this fund be closed to the
1988 Improvement Bonds when paving is complete.
Ash Street East Extension
This fund was established in 1987 to account for road construction into Otter Bay subdivision.
Plans and specs have been ordered. A financing source for this project has not been determined.
Otter Bay
This fund was established in 1987 to account for City costs associated with the installation of
streets and storm sewer in the Otter Bay Development. The City has a developer agreement and
has received a contractor's deposit for this project. As of December 31, 1988, the amount of the
contractor's deposit was not sufficient to cover City incurred costs. The City does, however, have
a letter of credit for $35,000. We recommend the City monitor the expiration date of the letter of
credit. We recommend the City monitor this situation to assure reimbursement from the developer
and that all deposits held in the Contractor's Deposits Agency Fund be reclassified to the
appropriate construction fund as costs are incurred.
West Central Sewer and Water Trunk
This fund was established in 1987 to account for installation of a sewer and water trunk main
on Second Avenue. The project is scheduled for completion in 1989. This project will be funded
by the Temporary Improvement Bonds of 1989.
City of Lino Lakes, Minnesota
Management Report, Page 31
74th Street
This fund was established in 1987 to account for improvements on 74th Street. This project
had not been approved and will not be constructed. This fund had an accumulated deficit of $925.
The City funded this deficit and effectively closed the fund through a transfer from the Closed
Bond Fund in 1988.
1160 Main Street
This fund was established in 1987 to account for costs associated with the repairs of a failed
septic system. This project was assessed in 1988. This fund has a deficit of $11,324 at December
31, 1988. This deficit will be eliminated through special assessment collections.
2nd Avenue
This fund was established in 1987 to account for costs associated with the installation of storm
sewers and road construction on 2nd Avenue. A portion of the costs for this project will be funded
by MSA allotments in addition to special assessments and tax increment collections.
Ash Street Sewer
The City established this fund in 1987. Funding was provided by the 1988 Improvement
Bonds. We recommend that this fund be closed into the 1988 Improvement Bond Debt Service
Fund in 1989. Council authorization is required to effect this closing.
Projects Financed by the Temporary Bonds of 1988
Fund Balance
December 31, 1988
D. Erickson's 2nd Phase $60,079
Reshanau 2nd Phase 47,125
$107,204
The above projects are in various stages of completion at December 31, 1988. D. Erickson's
2nd Phase was assessed in 1989. Reshanau 2nd Phase will be completed and assessed in 1989.
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City of Lino Lakes, Minnesota
Management Report, Page 32
Other Projects
Lakes #9
Carlson (Woodridge Estates)
Pine Oaks Revision
Sunrise Meadows
Paul Montain
Reshanau 3rd Addition
Fund Balance
December 31 1988
($763)
(10,580) *
(4,856)
(19,438) *
701
(3,310) *
($38,246)
* These projects are anticipated to be financed by 1989 bonding. The remaining projects are in
preliminary phases.
Project Financing Practices
The City has established the practice of excluding final overlay paving from the original
bonding for improvement projects. The City does include the gravel base and bituminous base in
the initial phase and such amounts are included in the original contracts and in the financing
(bonding) plan. The final wearing surface, however, is not constructed until 80% of the homes
have been completed. The final paving, therefore, may occur one to two years after the original
project is complete. This practice extends the project period from approximately 12 months to
possibly in excess of 36 months. Additionally, the final overlays are not financed. These amounts
are intended to be paid from the original project.
The improvement process and accounting and financial reporting procedures related thereto
may be streamlined if the entire construction project is completed within a 12 to 18 month period.
Additionally, project financial administration will be improved if the entire project is financed with
the original bond issue. The delay for the final overlay creates requirements to split assessment roll
receipts from those which were for the original project (already constructed) and those for a
supplemental project to occur 12 to 18 months in the future (final overlays). The Rice Lake Estates
construction project was substantially complete at December 31, 1987. Final paving was not
however completed as of December 31, 1988. The City has therefore elected to retain the
construction fund to account for future construction projects. The construction fund however, has
over $370,000 in cash which is committed to the Permanent Improvement Bonds of 1988 which
were used to refinance the Temporary Improvement Bonds of 1985. The affect of this situation is
to cause a temporary cash overdraft in the Improvement Bonds of 1988 Debt Service Fund.
City of Lino Lakes, Minnesota
Management Report, Page 33
We recommend that the City take the following actions:
1. Approve a transfer from the Rice Lake Estates Construction Fund of all amounts which
are not anticipated to be required for the final paving overlays.
2. Revise policy and practices to include all anticipated project costs including final
overlays in original bond issues. All assessment prepayments may then be allocated to
the appropriate debt service fund and construction surpluses which are not needed for
the final overlays may be transferred on a more timely basis to the appropriate debt
service fund.
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.
The City intends to retire debt from the various connection and area charges. Careful
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.
The Temporary Improvement Bonds of 1987 is the first issue to rely on connection charges
pursuant to the new connection and area charge policy. A summary of anticipated connections is
as follows:
City of Lino Lakes, Minnesota
Management Report, Page 34
Year of
Collection
Connection Charges Area Charges
Water @ Sewer @ Water @ Sewer @
Source $1,050 $650 $800 $750 Total
1989 Erickson & Uhde 70 70 70 70
Replat 6 6 6
Other 20 20
Total 96 96 76 70
Assessment
1990 Erickson & Uhde
Replat
Other
Total
Assessment
1991 Erickson & Uhde
Other
Total
Assessment
$100,800 $62,400 $60,800 $52,500 $276,500
Connection Charges
Water @ Sewer @
$1,103 $683
55 55
42 42
26 26
123 123
$135,608 $83,948
Connection Charges
Water @ Sewer @
$1,158 $717
55 55
40 40
95 95
$109,974 $68,079
Area Charges
Water @ Sewer @
$840 $788
55 55
42 42
6
103 97
$86,520 $76,388 $382,463
Area Charges
Water @ Sewer @
$882 $827
55 55
40 40
95 95
$83,790 $78,553 $340,397
Connection and area charges are expected to increase by the national ENR index. The above
schedule was prepared based on projected 5% increases in such charges.
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 must be modified to achieve this result. Our
preliminary review of current procedures indicate that further modifications are required as follows:
• Establish several revenue accounts to segregate connection/area charges by debt service
commitment.
• Maintain a subsidiary record of collections by debt issue and adjust annually for
transfers to arrive at remaining designated balance.
• Allocate interest within the fund by designated balance.
City of Lino Lakes, Minnesota
Management Report, Page 35
The above modifications require a successful implementation of the City's general ledger
computer system (see later comments).
The City may receive connection charges on a cash basis (prepayment) as individual residences
or businesses connect to the system. Alternatively, and more commonly, the City adds connection
charges to assessment rolls. An assessment roll, therefore, consists of the lateral assessment
charge for water, sewer, streets, etc. which directly correlates to construction costs incurred plus
an amount in accordance with City policy for water connection, water area, sewer connection and
sewer area. 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 charges 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.
The current practice of adopting one assessment roll for lateral charges and area and connection
charges diminishes the ability of the City to segregate the different revenue types to the appropriate
fund types. We recommend that the City adopt an alternate procedure whereby the lateral
assessments are included on one assessment roll and area and connection charges are included on
another assessment roll. For 1988, the combined assessment rolls were recorded as revenue and
deferred revenue of the related debt service fund. When the City amends its procedure relative to
adoption of assessment rolls on a split basis, such assessment rolls may be allocated to the
appropriate fund in accordance the connection and area charge policy.
Administrative Construction Charges/Public Improvement Policy
The City incurs expenditures in the General Fund through use of administrative time and effort
in the completion of construction projects. It is appropriate for the City to charge an interfund
administrative fee for these services during the construction phase of the project. A common basis
for the fee is a percent of the project or of the contract (either a flat percent or a sliding percent
based on the size of the project).
City of Lino Lakes, Minnesota
Management Report, Page 36
During 1984, the City established a policy regarding administrative charges (Resolution #84-
4). The policy includes a "step down" administrative charge based on the size of the project. We
concur with this approach and, in our opinion, the percentages used are reasonable and comparable
to those used by other suburban metropolitan cities.
The policy (as implemented) requires one time transfers of administrative charges from the
special assessment construction funds. However, the policy was unclear as to when the transfer
for administrative charges should be made. The Public Improvement Policy now clarifies this
issue. The City engineer is to calculate the charge when the project is 85% - 100% complete. We
recommend that the City record the charge when received from the City engineer.
On January 11, 1988 the Lino Lakes City Council approved Resolution #2 -88 adopting the
Lino Lakes Public Improvement Policy. The policy covers the following areas:
• Financing of public improvements for existing developed areas pursuant to Minnesota
Statutes Chapter 429.
• Financing of public improvements in undeveloped areas.
• City financed improvements - new subdivisions.
• Developer- financed improvements.
• Required public improvements.
• Trunk sewer area and connection charges.
• Trunk water main area and connection charges.
• Special assessment procedures.
We commend the City for the adoption of this policy and recommend the monitoring of
procedures to assure that the policy is adhered to.
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 #1 -1 has
anticipated projects/bonding requirements as follows:
Planning and Improvements $974,094
Legal, Planning, Fiscal and Contingency 25,000
Capitalized Interest and Bond Discount 216,404
Estimated Bond Issue $1,215,498
City of Lino Lakes, Minnesota
Management Report, Page 37
The above bonding was estimated for the Rice Lake Estates special assessment project. That
project is now complete. The tax increments generated from the Housing District will be available
to subsidize debt service (if required) or will be available for future extensions of the overall
construction within the District.
The Housing District Financing Plan indicates that the original assessed 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 assessed value of $1,250,920. 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.)
The tax increment plan also includes an annual administrative fee. 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
mill 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 has incurred preliminary expenditures (legal, administrative, etc.) to establish the
District. These expenditures had been paid from the City's General Fund. The City established an
Economic Development District #1 Capital Project Fund in 1988 and now codes all such
expenditures in this Fund. Tax increments collected will be the source of financing for such
expenditures. The City received initial tax increments of $49,808 in 1988.
City of Lino Lakes, Minnesota
Management Report, Page 38
The City is in the process of establishing Tax Increment Financing District 1 -2. This district
will qualify as a Economic Development TIF district pursuant to Minnesota Statutes 469.174,
subdivision 12. Part of required annual financial disclosure with the State of Minnesota is to
include in the annual financial report specific information regarding tax increment financing
districts. Part of that required information is the original value of the district which is used to
calculate the captured value as development is completed and property values increase. Part of the
process is to certify the tax increment financing district with Anoka County to freeze the original
value of the district. Audit inquiries with Anoka County indicate that the certification of the district
with the County has not yet been completed. Delays in certifying the district may have adverse
affects on subsequent captured valuation formulas (i.e., if the original value goes up for interim
improvements, the original value of the district will be higher, and therefore, the captured value
which generates tax increments will be lower). We recommend that the City review this situation
and determine what additional procedures will be required to certify the district and that the City
refrain from committing financial resources to district improvements until the original value of the
district is properly certified.
Construction Fund Accounting
The City maintained twenty seven Capital Project Funds in 1988. Some of these funds do not
require separate fund accounting and would be more efficiently combined with other projects
which have a common funding source. A change in fund structure would be consistent with
established (generally accepted) accounting principles as promulgated by the National Council on
Governmental Accounting (NCGA) and as adopted by the Governmental Accounting Standards
Board (GASB). An excerpt from NCGA Statement 1 on this matter is as follows:
Govemmental units should establish and maintain those funds required by
law and sound financial administration. Only the minimum number of
funds consistent with legal and operating requirements should be
established, however, since unnecessary funds result in inflexibility, undue
complexity and inefficient financial administration.
The City's accounting system was a manual system which was not conducive to departmental
accounting practices required to maintain an Interim Construction Fund. The City had therefore
reverted to the practice of establishing a separate fund for each construction project. The City
acquired a new computer system in 1989. The system, however is not fully implemented. We
recommend that the City use the new system to establish departmental accounting for interim
construction projects and other commonly financed projects.
City of Lino Lakes, Minnesota
Management Report, Page 39
ENTERPRISE (UTILITY FUND)
The fmancial statements for the Enterprise Fund are presented in Statements 12 through 14 of
the 1988 Annual Financial Report. Condensed comparative statements of income and expense for
the years 1988 and 1987 for each of the combined funds are shown in the following schedules.
For The Year Ended December 31,
1988 1987
Amount Percent Amount Percent
Operating Income:
Water billings $43,708 34.13% $21,492 27.43%
Sewer billings 69,873 54.55% 49,942 63.74%
Other 14,498 11.32% 6,916 8.83%
Total operating income 128,079 100.00% 78,350 100.00%
Operating Expenses:
Personal services 34,966 27.30% 29,577
MWCC 36,025 28.13% 33,709
Repairs and maintenance 17,135 13.38% 7,237
Depreciation 813 0.63% 1,082
Other 13,063 10.20% 23,233
Total Operating expenses 102,002 79.64% 94,838
Income (loss) From Operations 26,077 20.36% (16,488)
Other Income /(Expenses):
MWCC maintenance agreement 7,319 10,072
Net Income/(loss) $33,396 ($6,416)
37.75%
43.02%
9.24%
1.38%
29.65%
121.04%
(21.04)%
The operating results of the Water and Sewer Utility Fund increased by approximately $40,000
from 1987. The City reviewed water and sewer rates and increased rates effective July 1, 1988
and January 1, 1989.
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 1989 have been as follows:
City of Lino Lakes, Minnesota
Management Report, Page 40
$55,000
$50,000
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
Billings from MWCC
Estimated Final
Percent Percent
Year Amount Change Amount Change
1979 $8,312 133.50% $6,171 68.50%
1980 6,858 (17.49)% 7,123 15.43%
1981 11,357 65.60% 10,213 43.38%
1982 15,504 36.51% 14,592 42.88%
1983 19,027 22.72% 23,866 63.56%
1984 26,107 37.21% 22,011 (7.77)%
1985 30,050 15.10% 25,039 13.76%
1986 33,283 10.76% 29,147 16.41%
1987 37,845 13.71% 32,519 11.57%
1988 41,351 9.26% N/A N/A
1989 52,098 25.99% N/A N/A
MWCC Billings
1 1 I 1 �« I ,. I .:... 1
1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
II Estimated Billings in Actual Billings
The above schedule indicates that MWCC billing increases have been substantial over the past
several years.
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 1989 estimated flow for
the City of Lino Lakes by 22 %.
City of Lino Lakes, Minnesota
Management Report, Page 41
2. Increased cost to process sewage. The MWCC's cost to process (per million gallons)
increased to an estimated $947 in 1989 from an estimated $918 in 1988. This
represents an increase of 3.2 %.
The combination of the above factors has decreased the City's estimated cost in 1989 by nearly
25 %. 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 an appropriate fund which fmanced (or will finance) such improvement.
Resolution #31 -88 approved the above increase in sewer and water rates. The resolution states
effective rates as of July 1, 1988 and then a subsequent adjustment as of January 1, 1989. The
resolution has a flat fixed rate for sewer and both a variable and a fixed user fee for water. The
resolution does not however specify the amount which represents the charge related to core system
improvements. We recommend that the City adopt a subsequent clarifying resolution which
specifies the amount of Enterprise Fund revenue which is to be collected for core system
improvements and specify the timing of the transfer of such revenues to the appropriate fund which
financed such improvements.
AGENCY FUNDS
At December 31, 1988, 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
City of Lino Lakes, Minnesota
Management Report, Page 42
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 detail 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).
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 monthly 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.
FRANCHISE AGREEMENT - GAS UTILITY
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.
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:
1987 1988
Residential and Commercial Revenue $102,653 @ 7% = $7,186 $136,728 @ 7% = $9,571
Interruptible Service 88,509 @ 3% = 2,655 83,363 @ 3% = 2,501
Total $191,162 9,841 $220,091 12,072
Remitted by Circle Pines 9,615 11,875
Difference $226 $197
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 $3,300 in 1987 and $2,700 in 1988. The City of Circle Pines reports
City of Lino Lakes, Minnesota
Management Report, Page 43
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
Commercial Taal
Increase /(Decrease Increase /(D tease Increase / (D maase
Yew Amount Amount Percent Amount Percent Amount Amount Percent
°TB= 567,387 516,526 583,913
1982 88,195 520,808 30.88% 18,781 52,255 13.65% 106,976 523,063 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 5.31% 29,356 5,527 23.19% 131,512 10,676 8.84%
1986 90,407 (11,749) (11.50)% 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%
Bad Debts Interruptible 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)%
Prior to 1987, bad debts were netted with sales.
The City of Lino Lakes has 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 $500,000
while the Lino Lakes retained earnings is in a deficit position.
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.
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City of Lino Lakes, Minnesota
Management Report, Page 44
• Analyzed accounting methods of allocating expenses between each City's gas operation.
• Negotiated a new franchise agreement.
The new franchise agreement will provide 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 $11,875 in May, 1989 which represents the 1988 share of earnings.
Earnings from inception of the new agreement total $21,490. Financial uncertainties facing
metropolitan cities require diversity of revenue sources to assure adequate funding of operations
without severe property tax increases.
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 1988 disclosed no material deficiencies in the City's system of internal controls not identified in
this report or past reports to the City Council.
As part of our examination, we made a study and evaluation of the system of
internal accounting control of the City of Lino Lakes to the extent we considered
necessary to evaluate the system as required by generally accepted auditing
standards. The purpose of our study and evaluation was to determine the nature,
timing and extent of the auditing procedures necessary for the expression of an
opinion on the City's financial statements. Our study was more limited than would
City of Lino Lakes, Minnesota
Management Report, Page 45
be necessary to express an opinion on the system of internal accounting control
taken as a whole or on any of the categories of controls identified.
The City of Lino Lakes is responsible for establishing and maintaining a system
of internal accounting control. The objective of internal accounting control is to
provide reasonable, but not absolute, assurance as to the safeguarding of assets
against loss from unauthorized use or disposition, and the reliability of financial
records for preparing financial statements and maintaining accountability for assets.
The concept of reasonable assurance recognizes that the cost of a system of internal
accounting control should not exceed the benefits derived and also recognizes that
the valuation of these factors necessarily requires estimates and judgments by
management.
There are inherent limitations that should be recognized in considering the
potential effectiveness of any system of internal accounting control. In the
performance of most control procedures, errors can result from misunderstanding
of instructions, mistakes of judgment, carelessness, or other personal factors.
Control procedures whose effectiveness depends upon segregation of duties can be
circumvented by collusion. Similarly, control procedures can be circumvented
intentionally by management either with respect to the execution and recording of
transactions or with respect to the estimates and judgments required in the
preparation of financial statements.
Also, projection for any evaluation of the system to future periods is subject to
the risk that the procedures may become inadequate because of changes in
conditions and that the degree of compliance with the procedures may deteriorate.
Our study and evaluation made for the limited purpose described in the first
paragraph would not necessarily disclose all material weaknesses in the system.
Accordingly, we do not express an opinion on the system of internal accounting
control of the City of Lino Lakes taken as a whole. However, our study and
evaluation disclosed that 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
evaluation disclosed that the City does not maintain a system of control over fixed
assets. These conditions are common to cities of this size. Any modification of
internal controls in this area, however, must be viewed from a cost/benefit
perspective.
These conditions were considered in determining the nature, timing, and extent
of the audit tests to be applied in our examination of the December 31, 1988
financial statements and this report does not affect our report on the financial
statements dated June 9, 1989.
This report is intended solely for the use of the City of Lino Lakes and should
not be used for any other purpose.
City of Lino Lakes, Minnesota
Management Report, Page 46
Section 89
The Tax Reform Act of 1986 created qualifications and discrimination provisions for employee
benefit plans under Section 89. The legislation requires: 1) employee notification of essential
features of plans; 2) a "written plan" for which a definition has not yet been provided; and, 3)
testing for discrimination between "highly compensated" employees and other employees.
Regulations have been delayed and there is widespread dissatisfaction with the complexity of
the law. Amendments to the law may be forthcoming. We recommend that the City monitor
compliance with Section 89 provisions.
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 are 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.
Budgeting
The City currently budgets certain revenues on a combined basis. Also, the City may be
budgeting in the General Fund certain capital outlay which is scheduled to be funded by equipment
certificates (i.e., Capital Project Fund). We recommend that in conjunction with the computer
acquisition that budgeting practices be reviewed and automated on the new system.
City of Lino Lakes, Minnesota
Management Report, Page 47
Utility Billing System
During 1988 the City did not reconcile utility payments from the utility system to the general
ledger. This was due primarily to a turnover in the utility clerk position. 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. We recommend that the City continue to review the system and improve
reconciliation procedures.
FINANCIAL ACCOUNTING SYSTEM
During 1989, 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
The utility billing system, payroll and word processing have been implemented.
The payroll and general ledger accounting systems are not functional. The City is reviewing
the general ledger package and had projected an implementation date in 1989.
The City is in great need of a computerized general ledger accounting system. The current
manual system does not produce timely or adequately summarized interim financial reports to
manage the City. Additionally, year -end efforts to produce financial statements are over
burdensome. Implementation and training provided by the vendor of the hardware and software
was not adequate to assist the City in initiating general ledger accounting. We recommend that the
City establish a phase -in period for implementation of the system. This process should be a
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City of Lino Lakes, Minnesota
Management Report, Page 48
priority for the City in 1989. We recommend that the City acquire additional training from the
vendor. Additionally, our office is available to assist the City during the implementation phase.
Implementation of an in -house accounting system requires a review of internal accounting
controls and security over the computer system.
SUMMARY
During 1989, we recommend that the City:
• Continue the practice of minimal cash balances in the City's checking account. (Page 9)
• Consider requesting MSA receipts during periods in which the City does not have
qualifying MSA construction projects. (Page 11)
• Monitor the collection rate and provide supplemental financing if assessment collections
are not adequate to meet bonded debt payments. (Page 12)
• Consider alternate procedures relative to assessing City property. (Page 13)
• Request improved data from the County in regards to assessment collections. (Page 13)
• Continue to monitor the reserve balance of the General Fund. (Page 18)
• Calculate the appropriate charge for the 1988 Aerial Maps and transfer such amounts in
1989. (Page 18)
• Continue efforts to monitor arbitrage compliance. (Page 23)
• Remit to MWCC sewer availability charges for the Baldwin Lake Mobile Home Court in
1989. (Page 27)
• Eliminate the fund deficit in the Reiling Road Capital Project Fund in 1989. (Page 27)
• Transfer the the remaining balance in the 4th Avenue Capital Project Fund in 1989 to the
related debt service fund. (Page 28)
• Close the Rice Lake Estates Addition Capital Project Fund to the 1988 Improvement
Bond Fund after final completion. (Page 28)
• Monitor the 80th Street Project. (Page 29)
• Close the Main Street Capital Project Fund into the Improvement Bonds of 1988 Debt
Service Fund. (Page 29)
• Determine a funding source for the West Shadow Lake Drive Capital Project Fund and
eliminate this fund in 1989. (Page 29)
City of Lino Lakes, Minnesota
Management Report, Page 49
• Close the Sunset Road Capital Project Fund into the related debt service fund in 1989.
(Page 29)
• Close the Comprehensive Area Wide Water Capital Project Fund into the 1988
Improvement Bonds. (Page 29)
• Close the Reshanau Lake Estates South Capital Project Fund into the Temporary
Improvement Bonds of 1987 Debt Service Fund. (Page 30)
• Close Erickson's Capital Project Fund to the 1988 Improvement Bond Debt Service
Fund when paving is complete. (Page 30)
• Monitor the expiration date of the letter of credit for Otter Bay Capital Project Fund.
(Page 30)
• Close the Ash Street Sewer Capital Project Fund into the 1988 Improvement Bond Debt
Service Fund. (Page 31)
• Approve a transfer from the Rice Lake Estates Construction Fund to the Improvement
Bonds of 1988 Debt Service Fund. (Page 33)
• Revise policies and practices to include all anticipated project costs including final
overlays and original bond issues. (Page 33)
• Monitor actual versus projected connection charges and area assessment collections to
assure that debt payment requirements will be met. (Page 33)
• Adopt an alternate procedure whereby lateral assessments are included on one
assessment roll and area and connection charges are included on another assessment roll.
(Page 35)
• Charge Special Assessment Construction Funds administrative charges when received
from the engineer. (Page 36)
• Monitor the Lino Lakes Public Improvement Policy to assure procedures are adhered to.
(Page 36)
• Determine the City's position with regard to the Tax Increment Plan annual
administrative fee. (Page 37)
• Include a bond provision which allows tax increment collections to be receipted directly
to the Economic Development District #1 Capital Project Fund. (Page 37)
• Determine additional procedures which will be required to certify District 1 -2 to Anoka
County. (Page 38)
• Establish departmental accounting for interim construction projects. (Page 38)
• Monitor increased billings from the MWCC. (Page 41)
• Continue to maintain detail records of amounts due from developers and assure adequate
deposits are received prior to incurring expenses on a developer's behalf. (Page 42)
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City of Lino Lakes, Minnesota
Management Report, Page 50
• Continue to monitor the City of Circle Pines' gas utility operation. (Page 42)
• Monitor compliance with Section 89 provisions. (Page 46)
• Establish where the City's finance department coordinates with the police department to
determine procedures to properly account for any property forfeited pursuant to
Minnesota State Statutes 609.53. (Page 46)
• Review and automate budget practices in conjunction with the computer acquisition.
(Page 46)
• Establish written procedures regarding utility billing adjustments. (Page 47)
• Continue to review and improve reconciliation procedures for developer deposits. (Page
47)
• Establish a phase -in period for implementation of the City's computer system. (Page
47)
• Acquire additional training from the computer vendor. (Page 48)
Respectfully submitted,
/004, 7-/&t/ sioot4 /4, i*ie
VOTO, TAUTGES, REDPATH & CO., LTD.
Certified Public Accountants
June 20, 1989