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CITY OF LAKE ELMO, MINNESOTA MANAGEMENT’S DISCUSSION AND ANALYSIS DECEMBER 31, 2024 16 USING THIS ANNUAL REPORT (Continued) Reporting the City as a Whole Our analysis of the City as a whole begins on page 17. One of the most important questions asked about the City’s finances is, “Is the City as a whole better off or worse off as a result of the year’s activities?” The Statement of Net Position and the Statement of Activities report information about the Cit y as a whole and about its activities in a way that helps answer this question. These statements include all assets, deferred outflows/inflows of resources, and liabilities using the accrual bas is of accounting, which is similar to the accounting used by large private-sector companies. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the City’s net position and changes in net position. You can think of the City’s net position (assets plus deferred outflows, less liabilities plus deferred inflows) as one way to measure the City’s financial health, or financi al position. Over time, increases or decreases in the City’s net position are one indicator of whether its financial health is improving or deteriorating. You will need to consider other nonfinancial factors, however, such as changes in the City’s property tax base, costs associated with current and future construction projects, and the condition of the City’s roads, to assess the overall health of the City. In the Statement of Net Position and the Statement of Activities, we divide the City into two kinds of activities: • Governmental Activities - Most of the City’s basic services are reported here, including the fire, public works, parks, and planning and zoning departments, along with general administration. Property taxes, special assessments, licenses, permits and fees, and State aids finance most of these activities. • Business-type Activities - The City charges a fee to customers to help it cover all or most of the cost of certain services it provides. The City’s water, sewer, and storm sewer systems are reported here. Reporting the City’s Most Significant Funds Our analysis of the City’s funds begins on page 20. The fund financial statements begin on page 28 and provide detailed information about the most significant funds - not the City as a whole. Some funds are required to be established by State law and by bond covenants. However, the City Council may establish other funds to help it control and manage money for particula r purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money. The City’s t wo kinds of funds (governmental and proprietary) use different accounting approaches. • Governmental Funds - Most of the City’s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual ac counting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City’s general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. We describe the relationship (or differences) between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds in reconciliations following the governmental fund financial statements. • Proprietary Funds - When the City charges customers for the services it provides, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Activities. In fact, the City’s proprietary funds are the same as the business-type activities we report in the government-wide statements but provide more detail and additional information, such as cash flows, for proprietary funds.