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CITY OF HUGO, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS As management of the City of Hugo, Minnesota, we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City of Hugo for the fiscal year ended December 31, 2015. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found in pages i — iv of this report. New Accounting Pronouncements. The City implemented Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions, and the related GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date - an Amendment of GASB Statement No. 68, for the year ended December 31, 2015. These Statements established accounting and financial reporting standards for pensions. FINANCIAL HIGHLIGHTS • The assets of the City of Hugo exceeded its liabilities at the close of the most recent fiscal year by $74,609,968 (net position). Of this amount, $25,143,396 (unrestricted net position) may be used to meet the City's ongoing obligations to citizens and creditors in accordance with the City's fund designations and fiscal policies. • The City's total net position increased by $4,622,478, primarily due to charges for services and other income in the City's sewer and water fund in excess of operating expenses (including depreciation) as well as capital grants and contributions and increased property tax revenues received by governmental activities. • At the end of the current fiscal year, unassigned fund balance for the general fund was $2,422,714 or 57 percent of total general fund expenditures. Given the uncertainty of state funding, to plan for the future and to be prepared for any contingencies, the City believes this is an appropriate amount. • As of the close of the current fiscal year, the City of Hugo's governmental funds reported combined ending fund balances of $15,836,138. • The City of Hugo decreased general long-term debt obligations by $7,070,000 during the current fiscal year primarily as a result of the refunding of the 2004 and 2005 general obligation bonds. • The City was again recognized in 2015 by the Government Finance Officers Association of the United States and Canada (GFOA) for obtaining a Certificate of Achievement for Excellence in Financial Reporting. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City of Hugo's basic financial statements. The City of Hugo's basic financial statements are comprised of the following three components: El